OCA - Oceania Healthcare

[Buzz]

This announcement scored 11 out of 10 on buzzword scorer

But at least Brent is excited

Officer, Brent Pattison, said that "Tracey is a proven leader, builds great teams, implements successful change in large complex business environments and champions a winning culture. We are thrilled to welcome Tracey to the Oceania family and look forward to her contribution as we grow, nurture, and develop our people capability."

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/OCA/423035/409019.pdf

"implements successful change in large complex business environments" - corporate speak code for reorganisation cost out coming

[Basil]

I guess that's the thing with investments. You have to put money in (investing), wait some time, and - if you made the right choice than the money starts flowing. While you pay for your investments, your cash flow will be negative. Not rocket science.

At this stage most of the retirement villages are putting lots of money into new developments, meaning that's where the cash goes, not (yet) back to the investors.

If OCA would stop building any new villages now, they would be cash positive as soon as they wrapped up the reminder of the existing activities. If they continue to build, it will take longer, but they will get a larger cash flow afterwards, its that easy.

I understand though that patience (to wait) is neither a particular strength of traders nor of beagles so - maybe retirement villages might not be everybodys best investment proposition. Each to their own.

Not sure if you were an investor in the IPO but we were promised a 6 year business transformation program and that there would be a point of inflection well before that when earnings grew. From vague memory it was at the 3 or 4 year mark where shareholders were supposed to start seeing the benefits of their transformation program.     Look mate, it's just one story after another, after another from OCA management about how the future is so much brighter but for more than 6 years now they have delivered no growth in eps which is why the market is so disappointed with them and the share price is under the IPO price. 

[winner (n)]

I hear they about to pivot ...untold riches ahead

[BlackPeter]

Not sure if you were an investor in the IPO but we were promised a 6 year business transformation program and that there would be a point of inflection well before that when earnings grew. From vague memory it was at the 3 or 4 year mark where shareholders were supposed to start seeing the benefits of their transformation program.     Look mate, it's just one story after another, after another from OCA management about how the future is so much brighter but for more than 6 years now they have delivered no growth in eps which is why the market is so disappointed with them and the share price is under the IPO price. 

Fair enough - and no, I bought in later.

Having said that - I can't really remember a lot of large projects which took less than at least twice the originally planned time and cost. Do you? And it is often not even ineptness or bad faith of whoever is managing these projects, its just - humans tend to be optimistic and make assumptions (you can't plan without them), but none of them is able to predict the future. Bad combination. And then - sh*t (e.g. like pendemics, increased inflation, building booms and busts, governments inflating salaries and restricting the acess to critical overseas workers) happens.

If mankind would call all projects coming in above the original budget and timeframe a loss, than there wouldn't be a lot of successful projects around.

While I agree that inflection point seems to be a bit tardy to arrive (though maybe we should have checked the definition of inflection point earlier instead of just assuming it means an inflection in earnings) - I do see a lot of good quality retirement and care units in the bank with an overall not too bad occupation rate of above 90%. I do see as well a grey tsunami building up to increase demand.

What we need to see is whether their supply matches demand - I guess if you are doing new things (like trying to satisfy the super luxury market) there is always a risk of a mismatch.

So far I am not too worried. What annoys me more with this company is the way they communicate and ignore valid shareholder questions and concerns. But, if we both think ways back into our past - I remember we've been in a similar situation with SUM and its then CEO (Norah Barlow) playing games. Maybe time we both need to combine again at some stage our energies to sort out the board and its policies. What about that?

[Basil]

That was fun eh.  Beagle in maximum attack mode.  Must admit, really ripping into the OCA board at the next annual meeting has a LOT of appeal.  Not sure it would do much good though....water off ducks back and all that.

It's really good to see some analysts, (Arie Dekker of Jarden's and Stephen Ridgewell of Craigs) calling out companies in this sector. https://justthebusinessjennyruth.substack.com/p/directors-shouldnt-allow-bankers.  and https://justthebusinessjennyruth.substack.com/p/expect-quite-awful-retirement-stock
Jarden's were extremely critical of OCA's result.  Not sure I have a link for that.

Maybe there's no need for an old semi-retired dog to start barking when there's two younger ones doing the work now...
Have you ever seen two young Huntaway dogs round up a big flock of sheep ?  I used to work on my uncle's southland sheep farm when I was a teenager. It's a joy to watch.  Gosh they are so fast...faster, louder and more effective than an old beagle that's for sure lol.

[Waltzing]

"I hear they about to pivot ...untold riches ahead"

? ... 

pass the ... https://www.youtube.com/watch?v=YppmWzDXMZs

[winner (n)]

Liz buys some more ........another vote of confidence in the future

Maybe she asked herself 'what the heck do I do with this lot of Director's fees'

[Dolcile]

I have been having a look at OCA and in particular the reconciliation of underlying NPAT.  What struck me that most of the underlying NPAT is made up of either realised resale gains or development margin. 

If i strip those out - am I right that OCA is struggling to make a profit on existing operation?

Be nice, this is my first forum post 

[winner (n)]

I have been having a look at OCA and in particular the reconciliation of underlying NPAT.  What struck me that most of the underlying NPAT is made up of either realised resale gains or development margin. 

If i strip those out - am I right that OCA is struggling to make a profit on existing operation?

Be nice, this is my first forum post 

Welcome

You're onto it Dolcile

Look at Cash Flow Statement in same light

That's today but I'm told that it's all about the property and annuity earnings that matter and that will result in untold riches coming their way

[Cookie]

I struggle to understand it as well.

One thing that baffles me is that employee cost has gone up considerably over the years.
As of right now OCA has 3000 staff for 4000 residents. Isn't that a high labour cost for each resident.
Regarding the ORA/deferred management fee, am I right in saying they retain between 20 to 30% of the original value paid by the residents. Sure it is interest free but ultimately the balance needs to be paid back.

I looked at Ryman back in the early days, from what I can gather the operation was cashflow neutral. dividend was essentially paid out from the deferred management fees and parts of the property value revision. Is it coincidence interest bearing loan balances have gone up?. Now the operation is cashflow negative even taking into account the deferred management fees. So it's coming out of the property value revision(if they lucky and haven't ceased divie payments). I do admit I may need to step back and acknowledge it was a time of declining rates and alot of companies (not just RV operators) focused on growth at the expense of margin. I am starting to see a reverse of this across different industries now.


TBH I try to avoid spending too much looking at it. I consider the return on study, otherwise I am more likely to be susceptible to commitment bias. If anyone can shed some light on the increase in employee cost and even point out the flaws in my comments. That would be great.

[Untamed]

3000 staff for 4000 residents will include all categories of staff. RN's, caregivers, kitchen staff, laundry and housekeeping staff, administration, management, financial/legal, grounds/gardens, marketing/sales, and whatever other staff there will be across all their villages. There may be opportunities to reduce back office numbers, but zero option to reduce "on the floor" staffing numbers.

From a care perspective, hospital level care has a requirement for 24/7 RN cover - standard care does not, but I would be surprised if RYM doesn't provide that as standard anyway. Caregivers will make up a large chunk of overall staffing figures, for very obvious reasons. Standard level care, hospital level care, and dementia level care, are all labour intensive areas, and there is no way round that. Not if you aim to be an ethical and responsible employer.

If anyone is interested you can go to the NZNO (Nurses Organisation) website and search for any collective contract for these providers. From those contracts, you can see pay and allowance rates for nurses, caregivers, diversional therapists/activities staff, housekeeping and kitchen staff. Keep in mind that the contracts listed there currently will be last years contracts, so there may be changes pending for this bargaining round. It is actually quite interesting to compare some of these contracts between providers - as they are not all exactly the same.

A lot will depend on whether this new government has the balls to step up and address the situation, especially the residential care funding subsidy. While a minority of residents will be eligible for this subsidy, it still makes a significant difference to care related income.

I struggle to understand it as well.

One thing that baffles me is that employee cost has gone up considerably over the years.
As of right now OCA has 3000 staff for 4000 residents. Isn't that a high labour cost for each resident.
Regarding the ORA/deferred management fee, am I right in saying they retain between 20 to 30% of the original value paid by the residents. Sure it is interest free but ultimately the balance needs to be paid back.

I looked at Ryman back in the early days, from what I can gather the operation was cashflow neutral. dividend was essentially paid out from the deferred management fees and parts of the property value revision. Is it coincidence interest bearing loan balances have gone up?. Now the operation is cashflow negative even taking into account the deferred management fees. So it's coming out of the property value revision(if they lucky and haven't ceased divie payments). I do admit I may need to step back and acknowledge it was a time of declining rates and alot of companies (not just RV operators) focused on growth at the expense of margin. I am starting to see a reverse of this across different industries now.


TBH I try to avoid spending too much looking at it. I consider the return on study, otherwise I am more likely to be susceptible to commitment bias. If anyone can shed some light on the increase in employee cost and even point out the flaws in my comments. That would be great.

[Cookie]

3000 staff for 4000 residents will include all categories of staff. RN's, caregivers, kitchen staff, laundry and housekeeping staff, administration, management, financial/legal, grounds/gardens, marketing/sales, and whatever other staff there will be across all their villages. There may be opportunities to reduce back office numbers, but zero option to reduce "on the floor" staffing numbers.

From a care perspective, hospital level care has a requirement for 24/7 RN cover - standard care does not, but I would be surprised if RYM doesn't provide that as standard anyway. Caregivers will make up a large chunk of overall staffing figures, for very obvious reasons. Standard level care, hospital level care, and dementia level care, are all labour intensive areas, and there is no way round that. Not if you aim to be an ethical and responsible employer.

If anyone is interested you can go to the NZNO (Nurses Organisation) website and search for any collective contract for these providers. From those contracts, you can see pay and allowance rates for nurses, caregivers, diversional therapists/activities staff, housekeeping and kitchen staff. Keep in mind that the contracts listed there currently will be last years contracts, so there may be changes pending for this bargaining round. It is actually quite interesting to compare some of these contracts between providers - as they are not all exactly the same.

A lot will depend on whether this new government has the balls to step up and address the situation, especially the residential care funding subsidy. While a minority of residents will be eligible for this subsidy, it still makes a significant difference to care related income.

Thanks for the info Untamed. I assume that was the case as well. I thought about it afterwards and not to be misinterpreted. I am not saying the workers are undeserving of it, on the contrary I think there is a decent argument that they should be paid more for what they do. I looked at Arvida, Ryman and Oca- generally speaking and if I recall right the employee cost was around 50%+ of the care fees but that has increased to about 80%+. I agree there will be difference between the RV providers. But I am curious why there has been overall increase across RV providers.

On a different point.
I think it is generally agreed that most RV providers have decent NTA. I want to make a comparison with the landlord situation. Most landlords will own either one or two investment properties . Although some will have excellent equity (similar to NTA), most cannot afford to buy a further investment property. The main reason is they don't have the ability to borrow further even in light of their excellent equity position.

I think the same principle applies to RV providers. They have excellent NTA but I think alot of them are at the limit in terms of borrowing capacity i.e cashflow.

Not necessarily OCA, but I do wonder if increasing dividends were paid out by borrowing more against ever increasing NTA. Relatively speaking sooner or later an borrowing ceiling will be reached, quicker when the rates goes the opposite direct and start rising again. So I go back to my previous point that landlords have ceiling as to how many investment properties they can purchase. The principle is no different to RV providers.

Even if they took out the interest bearing debt. The cashflow is still negative. So back to my curiosity regarding the employee cost. Percentage wise, why has it jumped from 50% odd to 80%odd?

Edit: Bare in the mind the interest rate environment in the background. Gradually reducing interest rates over the last 10+ years meant all else being equal borrowing became easier over the period. We had a sugar hit over covid, but we are now facing on average higher rates. So developments they planned a few/couple years ago are not commercially feasible in the current environment.

[Dolcile]

As far as I can tell, OCA is no different to a negatively geared investment property. And i find it remarkable that they can't generate FCF from operations (excl. resale and development margin) when they receive the rent up front (dmf) and an interest free loan for the balance of the properties value. How can that be.   

[Cookie]

As far as I can tell, OCA is no different to a negatively geared investment property. And i find it remarkable that they can't generate FCF from operations (excl. resale and development margin) when they receive the rent up front (dmf) and an interest free loan for the balance of the properties value. How can that be.   
[/quote

True. At least the landlord soon be able to offset the full interest cost against the personal income.

It is a good question. I think a simplistic comparison would be that landlords will borrowing at a higher loan to value ratio i.e relative higher interest cost. However landlords don't need to fund the wage bill that is applicable with RVs(which is significant imo).

The expense ratio has changed over the years. My assumption(no proof), borrowing against the NTA help fund the dividends. Perhaps they were prioritising developments to increase the NTA. Things may have become unstuck due to the change in interest rate environment amongst other things.

They were definitely building units at rapid rate. Compound of 7.2% over the last 10 years. It also raises another question whether supply is ahead of demand.  The 75 to 84 age bracket will increase at a lower rate of 4% from 2018 to 2034.
https://www.retirementvillages.org.nz/Site/About_RVA/RVA_Annual_Report.aspx

[Dolcile]

Hi Cookie, IMO the low gearing (relative to a normal property investment) makes it even more concerning.  They can't seem to make money with a huge interest free loan and a modest LVR.   

I've tried to see the value in OCA that others do, but can't seem to do it. 

There was a poster on Sharetrader.co.nz that was suggesting in 8 years underlying earnings would be $71m.  I can't post there to question where that figure comes from.