OCA - Oceania Healthcare

[winner (n)]

REINZ report HPI down 1.4% in July from June - last 3 months down 4.9% and an an annual basis now negative at 2.9%

At this rate some banks saying 20% decline in property prices is on track

This ialk of Oceania having a 'buffer' against falling property prices is a load of the proverbial - but believe it if it makes you more relaxed

https://www.reinz.co.nz/Media/Default/Monthly%20Press%20Release%20Assets/Residential/07%20-%20July/REINZ%20Monthly%20HPI%20Report%20-%20July%202022.pdf

[Minimoke]

REINZ report HPI down 1.4% in July from June - last 3 months down 4.9% and an an annual basis now negative at 2.9%

At this rate some banks saying 20% decline in property prices is on track

This ialk of Oceania having a 'buffer' against falling property prices is a load of the proverbial - but believe it if it makes you more relaxed

https://www.reinz.co.nz/Media/Default/Monthly%20Press%20Release%20Assets/Residential/07%20-%20July/REINZ%20Monthly%20HPI%20Report%20-%20July%202022.pdf

OCA up 3% today so far to $1.02

[Ferg]

Winner - is this the post to which you refer when you talk about the buffer being nonsense?  A quick search of the word "buffer" in this thread turned up this post in particular.

the way analysts talk the gap (say your 41% mentioned above) provides a buffer when house prices fall so investors should not be too worried about a property down turn. Even Oceania management talk about this buffer

Seems the logic is that they can use this buffer to increase their prices

So if property prices decline by say 10% but Oceania put their prices up say 5% then the discount becomes 31% (not the 41%)

Overall impact is that Oceania will get 16% more for the sales than if they had followed the market down ....


.....this buffer is a cool thing, or don't I just get it

[winner (n)]

Yep Basil that's a comment I made about this buffer

I still think it's too good to be true

Cant see Oceania selling units at 70% of prevailing house prices as per my example

Probably I just don't get it .... Lack of understanding and all that. Never mind

[Ferg]

It's all good.  I was searching for who was talking about buffers and decided to "poke the borax" so to speak.

If Management have not actually said "buffer", then it is likely implied.  I think we should ignore the care suite comparison to local housing - that is nonsensical.  As for the ILUs and apartments, I interpreted it as did Basil - the comparatives put up by OCA show average unit price relative to the average price for properties in the surrounding area.  Plus I'm guessing it is likely weighted by region using some metric like population or ILU capacity etc.  I'm not sure of the level of filtering used to come with up the local average, or if it is a genuinely raw number.  Whacc might know.

In any case it is pretty blunt instrument, rather than an instrument of any great precision given the number of potential variables involved.

This says to me RV's are cheaper than the surrounding suburbs and they likely use that as a marketing tactic.  Others, including Management & analysts, go one step further claiming it offers a buffer or cushion against weaker local prices - with the unstated assumption that any such HPI weakness is short term in nature.  To claim it offers a buffer in the event of a long term correction would be delusional given RVs are essentially a property play.

If the "buffer" is indeed a "cushion" AND local property prices continue to fall AND RVs do not reduce their prices accordingly, then we would expect to see the comparative graphs increase.  Then the discounts relative to local areas would reduce per Basil's explanation of how the graphs work given affordability and discounts sum to 100%.  RVs with a larger pre-existing discount relative to their competitors may have some sort of pricing and margin advantage, assuming there are no other factors in play.

Interesting stuff either way.

[Basil]

To your last point Ferg its possibly worth noting that the average price of an ILU in RYM's Auckland villages is $1.4m and the average price of an Auckland house is hundreds of thousands south of there.
They are quick to point out that based on relative pricing of the respective suburbs their villages are in, their units are still at a discount but I think they are sailing very close to the wind and I couldn't help noticing a recent press article I probably linked earlier saying $2m house sales had stalled in Devonport and on the other hand they are wanting $1.9m for a south facing 2 bedroom unit in their new Devonport village.
Hmmm, not much buffer there after paying real estate agents commission and lawyers fees.
I can't help wondering with that village where their north facing units with better sea views are priced ?

I think OCA are probably better positioned than RYM in terms of the buffer thing but on the other hand I believe the full feature "land based cruise ship experience" villages that RYM, SUM and ARV provide are fundamentally more attractive from a lifestyle perspective to incoming residents than the "boutique" lower facility level villages OCA provides.

[winner (n)]

It's said that Oceania unit price growth not keeping up with overall property prices is a 'strategic' move by them

When you consider the large number of unsold units (a years worth?) I think 'strategic' is code for something is wrong and our units aren't selling that well so we better discount them

[Basil]

Interesting that in a recent presentation by ARV, they price their Auckland care suites at only 15% of the average Auckland house price.  They seem to be selling theirs at that level ~ $150K.

Could be a good strategic move for OCA to halve their care suite prices. No point trying to sell them for $350K, the market has spoken and said thanks, but no thanks.  Better selling them @ 50% off than keeping hundreds of units sitting their vacant and unsold.

I think all they are "delivering" this half is another 114 care suites to add to their huge stockpile of unsold units, more than a year's worth. Shame there's no ILU's "delivered" this half.  (Almost universally acknowledged as being the type of unit where the real money is made).

I can't imagine how some people come to the conclusion we are going to see real growth this half when care costs keep skyrocketing, the Govt is even more egregiously underfunding care than ever before and the only "fresh" product they are bringing to the market is more care suites.

Another commentator on another site that a lot seem to follow openly admits he doesn't have a great handle on the other companies in this sector but puts all his eggs in this underperforming basket.  Go figure... 

[Ferg]

We have been over this before.  A unit or suite counts as "unsold" until it has it first ORA agreement.  A number of patients were transferred out of facilities being demolished into care suites, like a free upgrade.  OCA continues to earn care revenues from these patients but the suite counts as "unsold" despite being occupied.  So to call them a "stockpile of unsold units" is misleading.  Plus you know it is a needs based service, it's not something you can sell to just anybody.

In addition, Awatere in Hamilton was delivered very late FY22 which added to the unsold stocks; we will see the financial effect of sales starting this half year.  You know stocks go up and down depending on when they are delivered relative to balance date.  To expect all new ILUs in Awatere to sell in the final 1-2 weeks of the fiscal year is unrealistic - unless you have some advice for the Board and Management in that regard?  I know I don't....!

Whilst you mentioned the 113 suites being delivered in H1 for Lady Allum, you overlooked the 79 units at St Heliers being delivered this year, 46 units for Bellevue and it appears you have already forgotten about the 58 apartments acquired in Remuera post balance date and the 75 units at Bream Bay (and for the sake of completeness an additional 18 suites in Motueka).

We have gone over care profitability a number of times.  It is acknowledged there is under-funding but OCA continues to be profitable in this area if you look at the full picture with development margins for suites correctly classified under care rather than village.  I get that original shareholders are miffed they were sold a pup on the profitability of care, but others are looking past that at the future profitability of the group.

[Ferg]

By the way winner, I found this on page 17 of the last OCA presentation:

"Average sales prices for Oceania units and care suites are significantly below the median houses in their respective surrounding catchments - this provides some buffer from a cooling housing market".

So no need to talk of implied or otherwise, that is OCA's own words. At ~59% for villas and apartments, that looks to be a decent "cushion" if prices are forecast to fall 20%.

[winner (n)]

By the way winner, I found this on page 17 of the last OCA presentation:

"Average sales prices for Oceania units and care suites are significantly below the median houses in their respective surrounding catchments - this provides some buffer from a cooling housing market".

So no need to talk of implied or otherwise, that is OCA's own words. At ~59% for villas and apartments, that looks to be a decent "cushion" if prices are forecast to fall 20%.

......assuming that they don't follow the market down as they have done before in a low growth HPI environment ...... if they did that the buffer would still be about 59%

Will be interesting to see what happens over next few years or so

[Basil]

A unit or suite counts as "unsold" until it has it first ORA agreement.  A number of patients were transferred out of facilities being demolished into care suites, like a free upgrade.  OCA continues to earn care revenues from these patients but the suite counts as "unsold" despite being occupied.  So to call them a "stockpile of unsold units" is misleading. 

Not misleading at all.  You imply this isn't a problem with the clear implication that units unsold are occupied in another way so this is not a material issue.  The reality is the numbers are very stark.  From the last call there were only ~ 80 care suites of the unsold ~ 450 units that were temporarily occupied under a premium accommodation charge.  That leaves a "substantial stockpile", yes I stand by that term, of ~ 370 units unsold and vacant.  Add another 114, (I am going off memory here you may be right with your 113), to that being "delivered" this half.  This huge stockpile of unsold units have not had price increases for years despite a roaring bull market in housing.  Hmmm...I find that really interesting when all the other companies have been raising prices over the years.
I guess some companies don't have pricing power.

[kasper]

Hmm seems like Basil hates OCA as much as Beagle, no surprises there. PS-That story you jumped on the other day from the Herald is not the full story of that situation, no surprises there either.

[Basil]

Beagle got to 12 and died.  Really sad but before he went to the big dog kennel in the sky he imparted all his 40 years of investment knowledge into his son Basil so lucky Basil has a huge head start

No room for emotion with investing Couta1.  I let the numbers do the talking and try and pick which is likely to outperform and which is likely to underperform.
Beagle taught me that.  😜

[BlackPeter]

Sorry to hear about beagle ... my condolences.

... and you are saying, it is already 12 years that Roger disappeared?

This is a pity, he was a good guy !

Time flies when you are having fun!