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  1. #9951
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    Quote Originally Posted by Ferg View Post
    Thanks Beagle.

    My interpretation: if you can find a new owner you get paid out straight away, otherwise you wait 6 months for payment if the unit remains unsold - is that correct?

    Cheers, Ferg
    We will pay you interest on your refund amount if your villa or apartment remains unsold after six months.

  2. #9952
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    Does that interest payment also include the refund of the principal? Or are they only paying the interest? The quote says interest on "refund amount".

    I couldn't find that clause here: https://www.oceaniahealthcare.co.nz/faq
    Last edited by Ferg; 14-09-2021 at 09:25 PM.

  3. #9953
    …just try’n to manage expectations… Maverick's Avatar
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    Quote Originally Posted by Ferg View Post

    To Beagle's point it is effectively an interest free loan but I am trying to look past the IFRS/accounting rules to get a better understanding of the the financial reality.

    Is the liability ever repaid when you view it from the angle of current and prospective rights holders? I can't find anything on the timing of payouts to former rights holders - but I was convinced I saw something previously that said payment was dependant on the incoming rights holder. If that is the case then IMO that is a major game changer, assuming there is no Government intervention.
    Ferg , good on you for digging deeper and causing some interesting conversation and thought.
    I can't see how capital changes that may be required between occupancies is anything to adjust for, for a long long time yet.

    -It is known waiting lists start forming on new villages/ cares suites within 2 years of operation so strong demand is proven.
    -Surely refurbishment delays on care suites is negligible (2.5 year turnover can't incur too much damage or fashion updating ). Apartments can't be too bad either with a turnover of 5.5 years.
    -the operators all seem to have no trouble selling and now even even pre-selling their ILUs or apartments which demonstrates their collective insight to correctly matching supply with anticipated demand.

    Im not seeing any reason to worry about changes in capital being tied up between occupancies any time soon.

    On the other point raised here the last few days , it's really pleasing to see the analysts well and truely on board with the model now. I suspect even a flat 1HY will not disappoint the analysts as they now, as we all, seem willing to look through the lockdown effects these days.
    Last edited by Maverick; 15-09-2021 at 07:02 AM.

  4. #9954
    ShareTrader Legend Beagle's Avatar
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    Quote Originally Posted by Ferg View Post
    Does that interest payment also include the refund of the principal? Or are they only paying the interest? The quote says interest on "refund amount".

    I couldn't find that clause here: https://www.oceaniahealthcare.co.nz/faq
    Good on you for stimulating discussion around this area as the capital efficient model that is the retirement village business model is one of the key drivers of profitability. As you've highlighted, effectively the company liability is repaid and funded by the incoming resident. On the odd occasion interest is paid on the refundable amount for a period of time but I would has at a guess it would be at a very low interest rate and in effect the company has what basically amounts to a non refundable interest free loan in perpetuity on most of its property, (apart from common area buildings and facilities), however the latter are funded through the 30% retention of the ORA.

    For those that don't know, this area of the tax law falls under the financial arrangements area of the income tax act. Residents loan the company money interest free in return for a license to occupy a unit until such time as they relinquish it.

    On the "can be" offered to a new incoming resident I alluded too yesterday, a unit is not always offered to a new incoming resident in its current form. Sometimes villages are remodeled, they get old and whole blocks of units where unit sizes were formerly quite large or small are remodeled and reconstructed into different configurations to suit the changing market demand and on the odd occasion villages are sold outright to another operator.

    A worked example is a good idea and I don't mind sharing seeing as I was closely involved in the selection process.
    My Mum had a lovely big unit at the Peninsula Club in Whangaparaoa. The Peninsula club was formerly a timeshare resort and had extensive recreational facilities and the units were quite large and had lovely sunrooms attached. Mum's unit was 111 sq meters and she really loved it there had a fabulous time and made many good friends.
    I guess the large north facing block that her unit was in was built in the 1970's, perhaps late 1960's, it had plaster over concrete construction. Some of the units had very minor moisture ingress issues. Now the block is circa 50 years old and the units are so large the owners Arena Group decided that they will redevelop the whole block.

    I understand that they are building considerably more smaller units in place and will probably make Mum's old unit into 2 new ones. They can't bowl that whole block until everyone moves out or are "encouraged" to move out into other facilities within the Arena group so they paid us out the net value of the unit $340,000 less 30% = $238,000 the other day after a 4 month agreed period (they stated the average resale timeframe for other units at the Peninsula club was 5 months) so I accepted 4 months at face value.

    They had to front up with this loan repayment to Mum's estate and it could be several years before they can get all other residents out of that block and resell twice as many units probably for about $700,000 each....and therein lies the real gold of the business model.

    Mum paid 340,000 11 years ago, we get $238,000 back and they will resell two units in the same amount of space for probably something like $1.4m after redevelopment and their gain will be tax free. Those numbers speak for themselves as to the attractiveness of the village business model.

    Yes the liability must be recorded on the balance sheet to show a true and fair view and yes it ostensibly amounts to an interest free non repayable loan from various residents in perpetuity and yes that interest free loan gets bigger every time the unit resells and yes all gains are tax free to the retirement company. Can anyone see why I like the retirement village business model so much
    Last edited by Beagle; 15-09-2021 at 09:32 AM.
    Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
    Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine

  5. #9955
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    Quote Originally Posted by Maverick View Post
    Frankly I find it astonishing that you only have to pay a 13% premium on NTA (based on $1.36 NTA at todays closing price) to own a high class, fully managed spread of NZ property, with a growth strategy and pays a dividend.( with NZ least troublesome tenants) It makes personally owning a domestic rental house utter madness.
    It is an indictment on the financial ability's of average NZ`ders that would much prefer to own/ manage their own rental and all the associated costs and hassles while perceiving this sharemarket offering as "way too high risk."

    yet anyone who bought a rental with 33% down for $600k say four years ago has been able to realise capital gain on $600k worth of asset for an entry cost of $200k and likely weighted interest cost of 3-4%/annum on $400k over that period. Go with conservative 50% capital gain over that period, and they've made $300k profit on $200k down. That's pretty good returns for the risk class, and even four years ago people were saying property prices had peaked. Many owners of a second or third properties will have become asset-equity millionaires several times over during the last five yars.

    I can see why the average NZ-er might prefer a rental based on historic experience of New Zealanders. Then again, they could have just bought OCA at $0.60...

  6. #9956
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    Hard to get a mortgage from the bank to buy shares!

  7. #9957
    …just try’n to manage expectations… Maverick's Avatar
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    Quote Originally Posted by tommy_d View Post
    yet anyone who bought a rental with 33% down for $600k say four years ago has been able to realise capital gain on $600k worth of asset for an entry cost of $200k and likely weighted interest cost of 3-4%/annum on $400k over that period. Go with conservative 50% capital gain over that period, and they've made $300k profit on $200k down. That's pretty good returns for the risk class, and even four years ago people were saying property prices had peaked. Many owners of a second or third properties will have become asset-equity millionaires several times over during the last five yars.

    I can see why the average NZ-er might prefer a rental based on historic experience of New Zealanders. Then again, they could have just bought OCA at $0.60...
    I guess some pushback was inevitable by speaking against owning rental properties , fair enough. Apologies now that I'm about to go really off topic but at the end I do mention OCA twice.

    The handsome profit you describe above has 2 things going for it, the time period selected of the recent 4 years has been arguably the one of best times ever for substantial property gain and more importantly your example uses 200% leverage to maximize that high gain.

    The average kiwi refuses to leverage to buy shares. For those with capital already it can be easily done by mortgaging a home to get a good chunk and/or leveraging existing shares through ASB margin lending- but you wont get as nearly as much credit. All interest is tax deductible of course unlike rental houses now. I have and probably always will use the tool of debt to enhance returns on equities, it has been enormously successful especially in the early days when my own capital was in short supply. Mention to anyone that you borrowed to buy a boat, no problem...but borrowing to by an income generating NZX stock, incredible risk taking!
    (its true GreatestBen that banks wont lend you nearly as much for anything that isn't a house, but even that's got tougher now with a 40%LVR)

    Had you bought a well run property company on the NZX 4 years ago and leveraged it 200% I would be very surprised if it didn't give a substantially better return than the very profitable rental example above . (that is after basic maintenance , real estate sales commission, general ownership fees and oh yes....capital gains tax).

    I do accept that the enormous current of money that the general public commands , once all excited together about any asset in unison ( such as houses currently or even bitcoin )can produce some very good price rises for a finite period, even rocket lab doubled in a week based a bit of public euphoria -perhaps it really was based on everyone's knowledge of the space industry.

    Owning good dividend paying companies ( who`s primary purpose is to maximize profits) and then compounding the returns over years will always beat private property, provided if its leveraged to the same extent.

    OCA is an ideal company to invest in with this strategy that I've calculated should return 20% cagr , and with like for like leverage will beat privately held rentals hands down ( does anybody ever wonder why there no NZX listed domestic rental stocks?).

    I know you have plenty of OCA TommyD, well done , so you will have an open mind to weigh things up for yourself and I suspect think this way already. I am saying though that most NZs are falsely obsessed with rental property to the exclusion of much better forms of property ownership out there, OCA being the one that stands out the most to me for now.
    Last edited by Maverick; 15-09-2021 at 09:41 PM.

  8. #9958
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    Quote Originally Posted by thegreatestben View Post
    Hard to get a mortgage from the bank to buy shares!
    Almost impossible for some unless you have previous business with bank. I knew someone who had over $3 million in shares plus a freehold house. The bank would not let him borrow/mortgage his house worth $100,000. He wanted to buy shares during the first pandemic drop

  9. #9959
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    Quote Originally Posted by Ggcc View Post
    Almost impossible for some unless you have previous business with bank. I knew someone who had over $3 million in shares plus a freehold house. The bank would not let him borrow/mortgage his house worth $100,000. He wanted to buy shares during the first pandemic drop
    Most probably that he knew nothing about Margin Lending.

  10. #9960
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    Quote Originally Posted by RGR367 View Post
    Most probably that he knew nothing about Margin Lending.
    Nope he doesn’t. Maybe because he doesn’t use technology. I don’t know how he will survive in the coming years not owning a computer or cellphone, but hey has survived until now.

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