OCA - Oceania Healthcare

[Basil]

Newer posters would do well to go back right to the start of this thread and the thread on the other channel, (I used to post as Beagle on the other channel) and glean as much info as they can and see who has been right over time.  I have made a huge effort, (nobody has tried harder) over recent years to warn about the weaknesses of their business model.  Now we have two leading analysts bold enough to call OCA out I am happy to leave them to do the work, and certainly won't report what I've already shared before but I will share a couple of big picture insights I have with you newer posters.

Right back at the IPO when private equity were running the business they had a very, very tight focus on costs, (what you would expect from a private equity owner).  Their EBITDA margin on care was 19% and care has always been a huge part of their business and always will be.  At the IPO we were promised a 6 year transformation process whereby older basic care facilities would be disestablished and these fancy new care suites, (which was an unproven concept at the time and I maintain is still that way) would be built and this was to transform returns on care.  It would take a few years but Earl Gasparich, the CEO at the time assured us the "inflection point" was only a few years away and we would start to see improving returns thereafter.

Time and time again thereafter we have been assured returns will be improved from care and even as recent as the FY23 annual meeting call senior management said returns from care have bottomed and will improve now but their EBITDA margin on care went down to less than 10% in the current half, in fact just on half the return on care when this floated nearly 7 years ago!  So much for their much-hyped transformation program!

So why has this care suite concept failed and why are there hundreds of unsold care suites, more than 4 years sales worth at their most recent result?  (Think about how ridiculous) it is if a car yard had 4 years worth of stock!  How is it that SUM can sell down a village in 6 months or ARV within a year but OCA take several years?

I maintain the care suite concept is broken and doesn't work other than for a very small percentage of the population.  An anecdotal story might help you understand why.  First up the DMF fees are extremely expensive.  My Mum was diagnosed with a terminal condition a few years ago and told she had about 6 months to live.  I wanted the best for her and was keen to see her in a care suite in the Sands with a sea view but the cost would be circa $75,000 ($500,000 x 15% and you pay the 15% whether its 1 day or 364 days).

We found her very good care in a almost brand new local facility, (so her friends could easily come and see her) that her doctor recommended for $45 a day for a premium room with a nice sea view.  It cost us a tiny fraction of the $75,000, less than $10K from memory and was better for my Mum as her old friends who lived locally could see her regularly.  If you know you have a terminal condition, why would you choose a care suite?  The answer is most who care about what their kids and don't want to waste money and put their kids through, potentially years of anguish waiting for the care suite to eventually resell) wouldn't.

This is why OCA have hundreds of unsold care suites and that part of their business model is broken.
RYM have a fully refundable care suite package where the money is fully refunded within 30 days on a resident passing so why would you choose an OCA care suite where you lose 15% per annum?

Yes they are at their limit of borrowing capacity.  Yes the operational losses at a village level are confronting and a major weakness in their business model. Just keep building more villages that lose money, what could possibly go wrong lol

As an asset play, not that I think NTA is especially relevant, its earnings that really matter, I note ARV trade at less than half NTA and have a much lower exposure to loss making care.

Be careful who you follow on the other channel.  A lot of people have followed another poster on there for years and where's that got them?  Right down the toilet is where.  He foretells untold riches ahead.  I have been warning for years about the major weaknesses in OCA's business model ever since it was $1.40. 
I don't like OCA even at the current price.  Because they have cried "wolf" so many times before on future growth I will only believe it when I see it.  8 cents underlying earnings is about all they have ever delivered despite all the huge volumes of talk about transformation over the years 

I think the culture of OCA is very wrong.  All their focus is on ESG and patient care regardless of cost.  Shareholders are treated with scant regard and I think there is very poor cost control within the business. I'm calling out the CFO as very weak and ineffective in that regard.

More recently, I think its a major fresh concern that despite no explicit Covid costs in the latest half year result, the EBITDA margin on care plunged badly to an all-time low, despite the company claiming earlier in the year it would recover.  It shows the company has very few, if any effective cost control disciplines and no forward insight into profit.  they never mention underlying eps in their presentations and over the years have had a culture of concealment of the level of unsold stock.

I can't see anything to like about their business model or the way the business is being managed.  Sure, it would be remiss if I didn't acknowledge they are trying to reduce their exposure to care and have made some progress in the current half, but I think the best analogy to use is to think about a big ship with small rudders.  It takes a very long time to change direction.  Many, many years.  It's been nearly 7 years now so maybe reflect on what little progress have been made this far.  There's a lot better places to invest your capital.    If you must invest in the retirement sector, pick the dog with the least fleas I reckon.  That's SUM in my opinion.

[winner (n)]

Jeez ...care ebitda halved margin since listing .......and that's even with the huge success of the much touted premiumisation strategy.

[Dolcile]

Very helpful thanks Basil, confirms what I was thinking too. 

In terms of Summerset, what stands out to you as the reason they are the pick of the RV bunch?   P.s. I'm not looking to buy any RV stocks. 

If you must invest in the retirement sector, pick the dog with the least fleas I reckon.  That's SUM in my opinion.

[Hectorplains]

"I can't say enough about the fact that earnings are the key to success in investing in stocks. No matter what happens to the market, the earnings will determine the results." Peter Lynch.

SUMS ability to grow underlying earnings is better than the other 3 NZX RV stocks

[Untamed]

Sometimes you really disappoint me Basil. You don't need to agree with Mav, but you also don't need to disrespect him.

Be careful who you follow on the other channel.  A lot of people have followed another poster on there for years and where's that got them?  Right down the toilet is where.  He foretells untold riches ahead.   

[Basil]

That sums (pun intended) it up nicely Hectorplains.

What concerns me about the sector a fair bit going forward is that most of the gains in the sector have been built upon growth in the value of housing in real terms but what if it's very different going forward and is it likely to be?

Let me unpack that a bit. This whole sector started with Ryman listing in 1999 and frankly, with first mover advantage they enjoyed an absolute bonanza until more competition started coming to the market when SUM listed in 2011.  SUM have well and truly spanked RYM's performance since they listed.

Lets have a look at how house prices have grown since RYM listed to illustrate my point.  Using the Reserve bank inflation calculator $100,000 in 1999 is now worth $184,986 using general CPI as the measurement yardstick but the housing index also on that website shows that $100,000 has grown to $477,064 by Q3 2023 so housing has outstripped general inflation by a factor of nearly 2.6 times.

Where's that got us ?  Some of the most expensive real estate in the world on a per capita basis...from memory Auckland is the 3rd or was it fourth? most expensive city in the world relative to average income.

What if over the next 20 years we get a reversion to norm and house prices increase at a much lower rate than inflation, like what's happened since the market peak a few years ago?  Well, all sorts of weaknesses in the business model of these companies will come to light that were otherwise camouflaged by the excess capital gains these companies used to make.  You're seeing this now with huge operational losses at OCA becoming really concerning and RYM getting hit hard as well, also ARV.

RYM's model was predicated upon being the best in the sector and charging like a wounded bull for their units but using the lowest of sector DMF as the sweetener, a kind of sweet and sour strategy if you like with the sauce, they used being very low weekly fees fixed for life.  Selling a premium product at a premium price with low weekly fees if you signed up off the plans was a very effective marketing strategy used at various Bowling club village launches all around the country in booming times with real estate, much less so now that real estate is flat and people can't get what they really want of their houses.

So all that a very long way round to coming around to answering your question of why I think SUM is the dog with the least flea's.
More succinctly answering your question in my view
1. There is very little - no money in care, never has been and never will be, it's such a people intensive business so the less care in the business model the better, SUM is best positioned here.
2. Fixed weekly fees for life has really come back to haunt companies in this sector with inflation where it is now.  Those who signed up years ago with some of RYM's $99 weekly fees covering a huge number of things fixed for life are frankly laughing all the way to the bank every week.  SUM is the only board in this sector that had the courage to stay firm in their belief, (despite strong encouragement from this old dog to fall into line with the sector) that weekly fees being adjusted for the rate of National Superannuation increase each year is perfectly reasonable.  From a village operational point of view they have conferred upon themselves a massive advantage going forward in that they have a chance of villages breaking even at an operational level whereas the others are seriously disadvantaged.
3. SUM have always tried to consistently build "full feature" villages...the true land based cruise ship experience at a reasonably mid price point with mid price point weekly fees.  This is what the market really wants which is why they sell down their villages very quickly.
4. Over the years we have seen average ILU prices move closer and closer to the national average real estate price with little margin left in some center's.  SUM's mid price point is therefore a more marketable commodity than RYM's and in some cases ARV's more expansive units.
5. SUM and RYM have a competitive advantage in that Melbourn's average unit pricing is a lot lower percentage of prevailing real estate prices, about 60% from memory which is about what it was historically when this concept originally came about but in N.Z is now often in the 85-90% region.
6. Scott Scoullar, current CEO was understudy and CFO to the company whilst Julian Cook was CEO, (Julian came from an investment banking background and had a really sharp commercial edge to him that I really liked and frankly I miss catching up with him at annual meetings) and is vastly experienced in running the company and was making great pricing decisions on units and operational matters years before Julian Cook retired.

Just rounding this off, and to Hectorplains point, there is little difference between the forward PE's of the sector now basxed on forecast underlying earnings, you could almost throw a blanket over them and call them almost the same.  So which horse are you going to back ?  The one that's consistently given the best underlying earnings growth over the years or one that never delivered any.

Allow me this latitude.  If you went to see a horse race and there were 4 participants and the TAB had them all at $4 to win, (yes I know this isn't possible and the TAB take a huge margin but please indulge me), who would you bet on.  The horse with form that just keeps on winning race after race after race (SUM), a horse that has never won and delivered real results (OCA) or one of the other two with chequered results in recent races (ARV and RYM), the latter with a jockey with questionable skills?

What if it was the Grand National hurdles event and the track was extremely muddy and the fences really high and all might get tripped up or fall at one of the hurdles and there's no refunds on bets?  Would you bother placing a bet at all ?  That's why I don't have any exposure to this sector at this point.  Gains have all been predicated upon massive expansion in the cost of housing in real terms and it's so unaffordable now its highly likely that even the best horses progress will be slow.  They yield either nothing or nearly nothing so what's the point if you think housing will increase at below the inflation rate for quite some time ?

[Basil]

Jeez ...care ebitda halved margin since listing .......and that's even with the huge success of the much touted premiumisation strategy.

But it's all okay because the CFO is really kicking goals with her laser focus on all thing ESG and the environment and all that carbon saved is sure to generate untold riches for shareholders in the near future ...just, please don't ask me how 

[BlackPeter]

That sums (pun intended) it up nicely Hectorplains.

What concerns me about the sector a fair bit going forward is that most of the gains in the sector have been built upon growth in the value of housing in real terms but what if it's very different going forward and is it likely to be?

Let me unpack that a bit. This whole sector started with Ryman listing in 1999 and frankly, with first mover advantage they enjoyed an absolute bonanza until more competition started coming to the market when SUM listed in 2011.  SUM have well and truly spanked RYM's performance since they listed.

Lets have a look at how house prices have grown since RYM listed to illustrate my point.  Using the Reserve bank inflation calculator $100,000 in 1999 is now worth $184,986 using general CPI as the measurement yardstick but the housing index also on that website shows that $100,000 has grown to $477,064 by Q3 2023 so housing has outstripped general inflation by a factor of nearly 2.6 times.

Where's that got us ?  Some of the most expensive real estate in the world on a per capita basis...from memory Auckland is the 3rd or was it fourth? most expensive city in the world relative to average income.

What if over the next 20 years we get a reversion to norm and house prices increase at a much lower rate than inflation, like what's happened since the market peak a few years ago?  Well, all sorts of weaknesses in the business model of these companies will come to light that were otherwise camouflaged by the excess capital gains these companies used to make.  You're seeing this now with huge operational losses at OCA becoming really concerning and RYM getting hit hard as well, also ARV.

RYM's model was predicated upon being the best in the sector and charging like a wounded bull for their units but using the lowest of sector DMF as the sweetener, a kind of sweet and sour strategy if you like with the sauce, they used being very low weekly fees fixed for life.  Selling a premium product at a premium price with low weekly fees if you signed up off the plans was a very effective marketing strategy used at various Bowling club village launches all around the country in booming times with real estate, much less so now that real estate is flat and people can't get what they really want of their houses.

So all that a very long way round to coming around to answering your question of why I think SUM is the dog with the least flea's.
More succinctly answering your question in my view
1. There is very little - no money in care, never has been and never will be, it's such a people intensive business so the less care in the business model the better, SUM is best positioned here.
2. Fixed weekly fees for life has really come back to haunt companies in this sector with inflation where it is now.  Those who signed up years ago with some of RYM's $99 weekly fees covering a huge number of things fixed for life are frankly laughing all the way to the bank every week.  SUM is the only board in this sector that had the courage to stay firm in their belief, (despite strong encouragement from this old dog to fall into line with the sector) that weekly fees being adjusted for the rate of National Superannuation increase each year is perfectly reasonable.  From a village operational point of view they have conferred upon themselves a massive advantage going forward in that they have a chance of villages breaking even at an operational level whereas the others are seriously disadvantaged.
3. SUM have always tried to consistently build "full feature" villages...the true land based cruise ship experience at a reasonably mid price point with mid price point weekly fees.  This is what the market really wants which is why they sell down their villages very quickly.
4. Over the years we have seen average ILU prices move closer and closer to the national average real estate price with little margin left in some center's.  SUM's mid price point is therefore a more marketable commodity than RYM's and in some cases ARV's more expansive units.
5. SUM and RYM have a competitive advantage in that Melbourn's average unit pricing is a lot lower percentage of prevailing real estate prices, about 60% from memory which is about what it was historically when this concept originally came about but in N.Z is now often in the 85-90% region.
6. Scott Scoullar, current CEO was understudy and CFO to the company whilst Julian Cook was CEO, (Julian came from an investment banking background and had a really sharp commercial edge to him that I really liked and frankly I miss catching up with him at annual meetings) and is vastly experienced in running the company and was making great pricing decisions on units and operational matters years before Julian Cook retired.

Just rounding this off, and to Hectorplains point, there is little difference between the forward PE's of the sector now basxed on forecast underlying earnings, you could almost throw a blanket over them and call them almost the same.  So which horse are you going to back ?  The one that's consistently given the best underlying earnings growth over the years or one that never delivered any.

Allow me this latitude.  If you went to see a horse race and there were 4 participants and the TAB had them all at $4 to win, (yes I know this isn't possible and the TAB take a huge margin but please indulge me), who would you bet on.  The horse with form that just keeps on winning race after race after race (SUM), a horse that has never won and delivered real results (OCA) or one of the other two with chequered results in recent races (ARV and RYM), the latter with a jockey with questionable skills?

What if it was the Grand National hurdles event and the track was extremely muddy and the fences really high and all might get tripped up or fall at one of the hurdles and there's no refunds on bets?  Would you bother placing a bet at all ?  That's why I don't have any exposure to this sector at this point.  Gains have all been predicated upon massive expansion in the cost of housing in real terms and it's so unaffordable now its highly likely that even the best horses progress will be slow.  They yield either nothing or nearly nothing so what's the point if you think housing will increase at below the inflation rate for quite some time ?

Sigh ... it appears you spend currently a lot of bandwidth on trashing and bashing OCA. Hard to believe that this "flea-ridden" dog managed to do since inception better (dividend plus SP) than the once gold standard Ryman ... and similar like Arvida.

Sure - SUM has currently its time in the sunshine (well, all is relative in the RV industry) ... but lets face it, none of us can predict how long this mood holds (it was not always that way, remember?) , and currently it is clearly priced for perfection ; Not necessarily a good time to buy in.

But back to your post and OCA. You make it sound OCA is losing money by the millions by the day. Could you just remind us about these huge operational losses you are talking about? In my books they had since 2014 only 2 years with a (smal) loss ... and overall an average EPS of 8 cents. Not too bad for a 74 cents share, isn't it?

Look, it is fair enough if you keep barking again and again about your quite one-sided view of the world. Actually, it does help everybody to take as well your perspective into account and integrate that into the bigger picture. All things have pros and cons, and depending on your latest views you have an outstanding ability to either just deliver picture of a stocks pros or just deliver a view of a stocks cons.

However - trashing other posters and analysts just because they look from a different angle at the stock you just happen to either hate or love is not really on, particularly if these posters post not even in this forum but somewhere else. If you don't like what they say, than - why don't you tell them so and give them a chance to respond?

Funny as well, that I remember a poster beagle who barked over months (probably years) in a forum far far away how clever Ryman was to offer fixed weekly fees for life and bashing SUM for not doing the same thing. And now I read that this (fixing the weekly fees for life) is one of the big mistake some of the RV's made. Interesting, what difference a handful of years can make, isn't it?

Maybe it is even an indicator for a really good and long term successful RV if they are bashed by beagle? Who knows ... time will tell.

[Basil]

I was just giving an overview of the sector as I see it BP mainly for the benefit of a couple of new forum members.
Over the years I've heard quite a few people opine that Jarden have the best analysts.  If that's so and I wouldn't argue against that proposition, now that Arie Decker who is head of research there is taking Oceania to task for their weaknesses and so is Craigs analyst, I don't need to ensure someone is trying to provide a contrary view to the endless positive fervor on the other channel.

8 cents earnings in 2023 is not the same as 8 cents in 2017, inflation has undermined more than 20% of their earnings in real terms, something nobody talks about.  I think what's ground my gears with this one over the years is all the promises of growth and nothing has ever eventuated.  The other pet dislike is concealment and how they have deliberately obfuscated their financials over the years and never mention underlying eps unless they're handing around the begging bowl in which case more promises (subsequently broken), are made about how this acquisition is going to be eps accretive.

8 cps with no earnings growth with a risk free rate of 5% is worth a 7.5 multiple to me.  Each to their own.  Good luck with it and I hope for investoirs sake one day in the not to distant future you do start to see earnings growth.

[Greekwatchdog]

Basil, I remember when you trashed Julian and SUM for building too many and not selling enough so you sold. Share Price was around $7.30 give or take a percent or 3. Look what happened after you sold. SUM becomes gold standard.

OCA was always a slow burner, you said so yourself many times on ST. In fact I recall you defending OCA on many occasions to many Posters on ST.

Maybe you need to go find that bone and chew it down and let things be on OCA. You get wrong as well, you don't walk on water.

[Fiordland Moose]

Sometimes you really disappoint me Basil. You don't need to agree with Mav, but you also don't need to disrespect him.

Be careful who you follow on the other channel.  A lot of people have followed another poster on there for years and where's that got them?  Rig

Something blaringly obvious about throwing stones and glass houses comes to mind.

While I don't have much interest in OCA Mav is a bloody good guy and takes a lot of time to share his work and analysis, and stays above the fray and doesn't sink into the slum when attacked. He's a genuine sort and I can't recall anyone ever doubting his integrity - or questioned his motivations - when posting, even when he's been excited or on the optimistic side (a trait not reflected in all). Discussion forums are a richer place with his contribution, not only in the analytical way in which he goes about it (whether you agree with it or not), but in the style and gentlemanly he approaches things.

[Basil]

Basil, I remember when you trashed Julian and SUM for building too many and not selling enough so you sold. Share Price was around $7.30 give or take a percent or 3. Look what happened after you sold. SUM becomes gold standard.

OCA was always a slow burner, you said so yourself many times on ST. In fact I recall you defending OCA on many occasions to many Posters on ST.

Maybe you need to go find that bone and chew it down and let things be on OCA. You get wrong as well, you don't walk on water.

I think you are grossly exaggerating the concerns I held on SUM quite considerably.  Nevertheless, you are right to some extent that I did sell down, but at an average price of $9 several years ago, prior to Covid on concerns regarding capital value losses over Covid and given its poor yield and lack of share price growth since then it's not a decision I regret.

Sure, like almost everyone I believed the very charming and affable Earl Gasparich and their business transformational story for about the first 4 years of OCA's existence and yes, I (previously for some time) thought there was a very good long term investment case.  When the promised point of inflection passed without delivering results I started to question why and sold most of my holding at nearly double the current prevailing price and gave up on the rest at just over $1 at the 5 year mark of OCA's existence in early 2022.

I'm happy to let things be, I've done more than anyone could ever reasonably expect to warn about the weaknesses in their business case and was sounding the alarm a long time before Arie Decker of Jarden's and Stephen Ridgewell of Carigs did, although arguably his quip of an "Ocean of unsold stock" I admit does sum the situation up extremely well.  I also called RYM a sell in 2014 at $8.50, 9 years ago, go back and have a look in the other place in early 2014, so I've made some very brave (against the prevailing group think), calls over the years but you are right that I don't walk on water, nobody does.  All you can do is call it as you see it at the time but I can tell you I am very happy indeed with my track record in this sector.

To my call earlier today that the fabulous gains in the past that RYM and SUM have made have been all built on a radical expansion in the real cost of housing in the last 24 years, and its highly likely that can't continue, I foresee the real risk that this sector as a whole could badly underperform the market for the foreseeable future, perhaps the next decade.

Its pretty sad and sobering stuff that now the real estate market has cooled a little, neither RYM or OCA can afford to pay even a small crumb in the way of a dividend to investors, ARV's divvy has been halved and who knows with SUM will do but they might follow ARV's lead next February when they report although I suspect if anyone can hold their dividend, its them, but the yield does not appeal.  I think the industry as a whole faces very challenging times ahead and is probably very heavily over supplied with stock.  Best not to forget there's the Govt review of the sector still in play too.

I think Mav's a good guy to, but the fact is, he's been very wrong on OCA. so far.   
Anyway....I'm more than happy to let the analysts Ridgewell and Dekker take it from here and do the good job they are well paid for.  There's no reward for me in following OCA any more.  All today's posts were intended to do was give an overview of how I see the sector...really just a waste of my time.  Lesson learned.

[Dolcile]

For what it's worth, I've appreciated the insights you've given! Thanks

[Dolcile]

I've been reading the Sharetrader thread on OCA, but I'm not able to register an account on that site to contribute to the discussion. So I thought I'd  post some thoughts here and to see if someone can help me understand why some forum users have a positive view on OCA or the RV sector as a whole.  I'm genuinely interested in having a conversation about this to understand what I might be missing.

To start with, it seems to me that the general gist of the optimism is (1) if OCA were to stop developing there would be a wall of cash / returns coming; and (2) there is huge value to the so called "float".

I'm going to try and test this with a 1 property example...

1) Rest home developer constructs one unit at a cost $500k, funded either by equity or debt or a mix of both

Dr Development Asset / Investment property $500k
Cr Cash (funded by Equity or debt)  $500k
[Negative cash outflow $500k]

2) Sale of first occupancy right agreement for $600k

Dr Cash $600k
Cr Resident loan liability $600k

[The sale generates a "realised development gain" of $100k which doesn't appear in the IFRS PnL but is included in the underlying earnings. Net cash position $100k]

3) Year 1-7 (average occupancy period), the DMF accrues to the operator

Dr DMF receivable $180k
Cr DMF Revenue $180k

[No cash change.]

4) Resale of ORA to 2nd resident for $690k (based on 2% annual inflation)

Dr Cash $690k
Cr Resident loan liability $690k

[Generates a "realised resale gain of" of $90k which again doesn't feature in the IFRS PnL. Going forward, this could be a gain or loss depending on the market but in theory should just track inflation - which I view as neutral from an investing point of view].

5) repay 1st residents estate and realise the DMF receivable

Dr Resident liability loan $600k
Cr DMF receivable $180k
Cr Cash $420k
[Net cash inflow of $180k, representing the realisation of the DMF]

Summary of the financial result

Cash $370k (-$500k development +$600k 1st ORA sale +$690k 2nd ORA sale -$420k repay 1st ORA)

Made up of:

Realised DMF $180k
Realised development margin $100k
Realised resale margin $90k
Total $370k

Under the assumption they stop developing and the resale margin is just inflation, then the real profit is $180k, representing the DMF over a 7 year period. This is equivalent to rental/lease income that is received up front and equates to 6% per annum gross yield on the initial $500k.

If that was where it ended, I might be interested.  However, the $180k has to pay for shared assets (PPE), sales and marketing, other overheads and subsidise the care facilities. In my mind eroding the profit to almost nothing.   

This correlates very closely to the sectors reporting of underlying earnings – except the underlying earnings include Realised Development Margin and Realised Resale Gains.   If you remove these from the reported Underlying NPAT of SUM or OCA, you get close to breakeven. 

So in summary, I don't see how the RV is making money other than from Development and Property Price growth above inflation? And if that is true, then I don't see how OCA stopping development generates some wall of cash / profitability.
Secondly the question of float, where does it feature? The resident loan is simply used to fund either the initial development or payout the previous resident / realise the DMF or Resale gain. 

Please don't take this the wrong way – I'm curious to understand why our views differ and what I might be missing.

[Poet]

I've been reading the Sharetrader thread on OCA, but I'm not able to register an account on that site to contribute to the discussion. So I thought I'd  post some thoughts here and to see if someone can help me understand why some forum users have a positive view on OCA or the RV sector as a whole.  I'm genuinely interested in having a conversation about this to understand what I might be missing.

To start with, it seems to me that the general gist of the optimism is (1) if OCA were to stop developing there would be a wall of cash / returns coming; and (2) there is huge value to the so called "float".

I'm going to try and test this with a 1 property example...

1) Rest home developer constructs one unit at a cost $500k, funded either by equity or debt or a mix of both

Dr Development Asset / Investment property $500k
Cr Cash (funded by Equity or debt)  $500k
[Negative cash outflow $500k]

2) Sale of first occupancy right agreement for $600k

Dr Cash $600k
Cr Resident loan liability $600k

[The sale generates a "realised development gain" of $100k which doesn't appear in the IFRS PnL but is included in the underlying earnings. Net cash position $100k]

3) Year 1-7 (average occupancy period), the DMF accrues to the operator

Dr DMF receivable $180k
Cr DMF Revenue $180k

[No cash change.]

4) Resale of ORA to 2nd resident for $690k (based on 2% annual inflation)

Dr Cash $690k
Cr Resident loan liability $690k

[Generates a "realised resale gain of" of $90k which again doesn't feature in the IFRS PnL. Going forward, this could be a gain or loss depending on the market but in theory should just track inflation - which I view as neutral from an investing point of view].

5) repay 1st residents estate and realise the DMF receivable

Dr Resident liability loan $600k
Cr DMF receivable $180k
Cr Cash $420k
[Net cash inflow of $180k, representing the realisation of the DMF]

Summary of the financial result

Cash $370k (-$500k development +$600k 1st ORA sale +$690k 2nd ORA sale -$420k repay 1st ORA)

Made up of:

Realised DMF $180k
Realised development margin $100k
Realised resale margin $90k
Total $370k

Under the assumption they stop developing and the resale margin is just inflation, then the real profit is $180k, representing the DMF over a 7 year period. This is equivalent to rental/lease income that is received up front and equates to 6% per annum gross yield on the initial $500k.

If that was where it ended, I might be interested.  However, the $180k has to pay for shared assets (PPE), sales and marketing, other overheads and subsidise the care facilities. In my mind eroding the profit to almost nothing.   

This correlates very closely to the sectors reporting of underlying earnings – except the underlying earnings include Realised Development Margin and Realised Resale Gains.   If you remove these from the reported Underlying NPAT of SUM or OCA, you get close to breakeven. 

So in summary, I don't see how the RV is making money other than from Development and Property Price growth above inflation? And if that is true, then I don't see how OCA stopping development generates some wall of cash / profitability.
Secondly the question of float, where does it feature? The resident loan is simply used to fund either the initial development or payout the previous resident / realise the DMF or Resale gain. 

Please don't take this the wrong way – I'm curious to understand why our views differ and what I might be missing.

Just note that the initial investment of 500k is returned to the investor as soon as the first Ora settles. So the investment is 500k for one year, what then do you calculate roi to be?