Banks sorted for a few more years
Interesting debt increased by $130m to $775m over last six months …no worries
http://nzx-prod-s7fsd7f98s.s3-websit...740/406096.pdf
Printable View
Banks sorted for a few more years
Interesting debt increased by $130m to $775m over last six months …no worries
http://nzx-prod-s7fsd7f98s.s3-websit...740/406096.pdf
For Bar out this morning. Make your own mind up
NEUTRAL
Arvida Group (ARV) provided an update on drawn debt, implying meaningfully higher debt versus our and Visible Alpha consensus forecasts. The higher than expected debt is likely predominantly driven by higher development capex, but also worse than expected cash collection from new sales and resales. ARV also announced it has restructured its debt facilities: now split between NZ$450m of development facilities, excluded from Interest Coverage Ratio (ICR) covenants, and core facilities. This greatly improves ARV's ICR coverage. We view the aged care sector as attractive in the context of NZ equities. For a significant re-rating to take place we believe the operators need to demonstrate an ability to limit the increase in net debt and, eventually, to demonstrate an ability to generate positive free cash flow and deliver a decline in net debt. With this update we no longer believe that FY24 will see a slowdown in the build up of net debt for ARV and downgrade it to NEUTRAL with a decreased target price of NZ$1.30 (from NZ$1.55). We continue to view ARV as well positioned for long-term growth and consider the valuation highly undemanding.
What's changed?
Earnings: FY24/FY25/FY26 underlying earnings decreased -3%/-4%/-4% on higher interest, annuity EBITDA broadly unchanged.
Target price: Down to NZ$1.30 (from NZ$1.55) on higher net debt and decreased dividend forecasts.
Rating: Downgraded to NEUTRAL (from OUTPERFORM).
Higher than expected debt likely driven by a continued increase in capex
We increase our net debt estimate by ~+NZ$80m for 1H24 (similar increase for FY24), driven by (1) higher development capex spend. We had previously assumed a decrease in year-on-year development capex for ARV in 1H24, and we now expect it up ~+NZ$25m from 1H23 to ~NZ$130m, the highest half on record for the company; (2) worse than expected cash collection from sales. In ARV's 2Q24 update it had flagged 'extended settlement timeframes are still a factor'. We decreased our cash collections in our previous publication but decrease them further in this update. We also cut our dividend forecasts given a likely increased focus on cash.
RYM and OCA our preferred sector picks — a combination of attractive valuation and falling capex
Our two preferred aged care names are OUTPERFORM rated Oceania Healthcare (OCA) and Ryman Healthcare (RYM). We expect both to see a more modest increase in net debt in FY24, with OCA largely flat and RYM up single digits; while for ARV and Summerset (SUM) we now forecast debt up >+25%. RYM is valued at a substantial discount relative to SUM and OCA, in-line with ARV after historically trading at a premium on our preferred metric of EV/annuity EBITDA. ARV is on a substantial discount to book value but we expect faster growth with OCA (it has a large discount to book value). While RYM, OCA and ARV all remain below book value, any re-rate back to book will require evidence of improving free cash flow which we see more likely with RYM and OCA.
25c TP downgrade by Forbar.
That is a big decrease.
Some big volume going through today
ACC Topping up...
For this disclosure,—
(a) Total number held in class: 45,079,435
(b) Total in class: 727,975,669
(c) Total percentage held in class: 6.192%
For last disclosure,—
(a) Total number held in class: 36,340,817
(b) Total in class: 723,577,532
(c) Total percentage held in class: 5.022%
ACC not buying today …share price down
Not a real surprise ARV share price down to $1.06
Half Year Result
• Reported (IFRS) profit after tax of $90.0m, up 1% on 1H23
• Underlying profit[1] for 1H24 of $33.6m, down 14% on 1H23
• Total assets of $4.0 billion, up 10% on 1H23
• NTA $2.00, up 4% on 1H23
• Gearing ratio of 33.6%
• 285 sales of occupation rights for the half, up 6% on 1H23
• 94 new retirement units delivered
• Interim dividend of 1.20 cents per share, DRP at 2% discount
28 November 2023 – Arvida Group Limited (Arvida) today announced net profit after tax of $90.0 million and underlying profit of $33.6 million for the six months ended 30 September 2023.
Commenting on the first half result Arvida Chief Executive Jeremy Nicoll said the business had continued to perform well in tough operating conditions and a slow housing market.
“As the past few years have demonstrated, the need to remain responsive to market conditions is essential for continued business performance. Our ability to adapt as circumstances have required has enabled the business to grow while we have focused on restoring profitability.”
Operations
Arvida reported revenue of $122.1 million up 12% on higher care and village revenues.
Higher costs across the business, commissioning of new care centres, and investment in people and technology teams and systems had contributed to operating costs increasing 14% to $117.9 million.
CEO Jeremy Nicoll said good progress was being made to mature the business in areas identified as strategically important. A commitment made to enhancing our employee value proposition had already seen tangible benefits in higher engagement across teams, increased staff retention and lower turnover.
“Investing in our culture is important to providing person-centred care and market leading quality of service to our residents. Our team’s delivery of a quality resident experience was again confirmed in the latest annual community surveys with excellent net promoter scores recorded.”
Sales momentum
In the six months to 30 September 2023, Arvida recorded 285 sales comprising 102 new sales and 183 resales. Compared to the prior corresponding six month period, the gross value of sales was up 2% to $171.4 million.
“In a challenging housing market both the volume and value of our sales exceeded the same period last year,” said Mr Nicoll. “The second quarter though to September was our best ever with a solid upswing in resales activity.”
Unit pricing continued to increase with resale prices up 4% on 2023 valuations. Resale and development margins of 28% and 18% respectively were recorded.
Mr Nicoll noted that the level of retirement units under application was 24% ahead of the same time last year and at record levels. High turn outs were also being experienced at recent open days as Arvida’s brand and marketing campaigns successfully delivered strong lead generation.
Development activity
Development milestones in the period included Cambridge’s premier care suite centre opening at Lauriston Park in June, Aria Bay apartments completing mid-September, and the first villa stages at Whai Mauri Ora in Te Awamutu successfully launching mid-November.
94 new units were delivered in the half with an average price of $900,000 for apartments and $970,000 for villas. A further 106 new units are planned for delivery in the second half of the financial year.
A total of $138.3 million was spent on development in the first six months as investment continued.
Arvida said villa stages were currently under construction at seven of its retirement communities. In addition, construction of a new care centre and apartment building at the premium Queenstown Country Club was progressing well to a targeted completion date in the next financial year. Good progress was also being made at Bethlehem Shores with the podium slab having recently being poured.
Balance sheet
Total assets increased $0.3 billion to $4.0 billion over the six months, comprising $3.7 billion of investment property. The increase reflected land and development activity and an increase in the fair value of Arvida’s 36 retirement communities.
Independent valuation firms CBRE and Jones Lang LaSalle expressed confidence in an improved outlook for the housing market, reverting their near-term house price growth assumptions to be more in line with historical growth assumptions when assessing the value of investment property.
Net tangible asset value per share increased to $2.00 per share.
Arvida independent chair Anthony Beverley said that the Board and executive team had placed considerable focus on ensuring the company applied a robust framework to, and management of, capital capacity and commitments.
“Subsequent to balance date, we were pleased to announce the refinancing and restructure of our banking facilities into a revolving core and development facility. This included adjustment to the interest cover covenant ratio.”
“In combination, the restructured facilities provide us with additional flexibility in the current interest rate and economic environment, and are better aligned to our medium-term growth strategy,” said Mr Beverley.
With the refinancing, Arvida had over $125 million of headroom in bank facilities. Gearing at 33.6% continued to be within the Board’s target range of 25%-35%.
Dividend
Mr Beverley announced the Board had declared a dividend of 1.20 cents per share (cps) to be paid on 21 December 2023.
Shareholders can further support growth by participating in Arvida’s Dividend Reinvestment Plan. Shares will be offered at a discount of 2.0% to the market price, calculated in accordance with the Dividend Reinvestment Plan Offer.
Outlook
Early signs of an improving operating environment are emerging, with leading indicators pointing to the beginnings of a recovery in the housing market, less uncertainty present in the economic outlook and clearer government policy for the aged care sector and business generally. The demand for quality retirement living options and aged care remain compelling.
Jeez Underlying Profit down 14% to 33.6m is worse than what I thought
Numbers don’t seem to reconcile with the bullish commentary around sales etc …must have lost heaps on day to day operations
Not a good result at all
Hi. My latest column on Just the Business is about retirement villages. It isn't about Arvida directly but does mention it.
You can read it here: https://justthebusinessjennyruth.sub...view-continues
I actually thought the result was incredibly robust - ARV is trading at a near 50% discount to its NTA (surely property prices can't fall 50% from where they are currently..?) while having close to double the operating profits of OCA (yet not double the marketcap)... when considering the tough environment of the past year - high inflation and disruption (ie cost pressures) combined with a massive fall in property prices (ie revenue pressures), today's result shows that ARV has navigated this fairly well and at $1.06 is incredible value and that the panic fall from the $1.20's really isn't justified given inflation is now coming down and property prices are now flat or increasing. Oh, and they even paid a dividend.
Do the RV companies operate in a different universe from the other property related companies?
They are still posting huge increases in property valuations when the likes of KPG actually accept market realities and reduce their property valuations!
No wonder the RVs' NTAs have little credibility with the market.
I would have thought commercial property is very, very different to residential property, particularly in near term outlooks
Over the coming year residential property prices are likely to be flat or some even say going up as much as 8% but I imagine commercial properties will continue to slide, with liquidity also deteriorating for commercial properties while improving for residential properties.
Sorry Trader but ARV just aren't in a great spot for the foreseeable future as far as growth goes. Don’t write me off as being an OCA zealot trying to disparage all the others. I’m just passing on my learnings about the industry which 100% apply here.
The problem ARV has is the phase of its building cycle right now. They are throttling deliveries back to 200 p/a and they are going to be villas for the next few years. With that amount of delivery at their usual 15% margins it's not going to generate much free cash to offset either their current debt or cash flow. To put some context here ARV is a $4,ooo,ooo,ooo company.
Another problem is the cost of that debt, that will hopefully abate if interest rates fall but that's surely a wee way off. They aren't in a cash position to meaningfully pay it down. So that cost has shot up and will stay at these levels for some time.
Great they are shaving off bits of surplus greenfield but that's not enough to free up meaningful cash.
The last and biggest problem they have right now is their apartments. Aria is in a great suburb but average location. The photo of it in the presentation is taken from a horrible closed down liquor site car park and to the left is a bowling green. That's the view for residence. Loads of traffic too. It's also pretty empty so it has no vibe at the moment. It will be a slow sell. It will fill over the next 2 years but wont command the price that towers need to yield good margins.
Tower blocks only really work if you can build in super locations and are capital intensive. Plus they take 5 years from breaking dirt to fully selling.
Bethlehem apartments will generate moderate margins but they are many years away from being finished and fully sold down.
Queenstown will be great, really great, that's where an apartment block will work superbly. Sadly for investors that's 5 years away too and they only have about 30 apartments. Not enough to really help.
No wonder just about all the analysts' questions today were about capital management. ARV are a really good company and does great work but their delving into apartments is going to hold back profits for many years at this stage of their construction cycle. And again, building 200 villas p/a isn't enough to fill in enough profit growth during this time.
If you like apartments then OCA are coming out of this same tunnel of pain and if villas are your thing then SUM have this perfected.
No disrespect to ARV , they'll be fine in the end but why go through all those years and years and years of waiting when we can learn from others about the capital and patience required to make apartments work.
Jeremy mentioned things coming right when the property market does. This is definitely going to help substantially . It is probably the only thing that can improve things at this stage of building but for me that makes ARV more speculative on NZ housing than solid investing.
What you're essentially saying is ARV are in a phase of growth and this growth will pay off in time - a classic case of short term pain for long term gain, except the pains they're experience right now aren't actually that bad (there's not huge backlogs of stock to sell through like SUM had at one point) - and within a few years (I don't think it will be as long as 5) the current investments they're making will be pumping - for 72% of Aria bay is actually be sold or under contract is pretty good in my view given it only opened a month or something ago - I imagine the vibe will be there fairly quickly with a bowling club just across the road with relatively good access (not only to the bowling club) but to the Sunday market, shops and even the beach within reach - Aria Bay has gone from strength to strength since ARV acquired it in 2015 or so - literally transformed it from a few houses around the place to a fully functioning fully catering village (coverage for all types of care) - I believe Aria Bay will be far better than you're giving it credit for (and I actually think it was good news the liquor site to have closed down!)
Clearly the market thinks things are all downhill from here - ARV have proven the market wrong before (a number of times), lets see if they can do it again!
I would rather have shares in a company with double the NTA value, than hold cash. The amount of money being thrown away around the world particularly in Europe and the middle east must be super inflationery. The Ukranian conflict is going through so much money for munitions, and the arms exchanged for currencey are just reforming into a part of the earth. The US is funding palestinians lives. They dont work, this money is like monopoly money. The net effect is monstrous inflation. It will take the next year to flow through. Similarly the value of NTA will reach a point soon where earnings will become appropriate to the value of assets. It just takes a little time. I would be getting out of cash real quick.
Have you actually visited Aria, Trader?
Count the verandah furniture , go to The Sands around the corner, buy a coffee within , count their balcony stuff (purely as a reference point) and tell me ARV really have sold 72%…I see 3 so far…seriously , tell me what you are observing.
Apartments just don’t sell that fast , that’s history where ever you get your data from.
Anyway Aria is just part of the ARV fabric so let’s not cause too much of a side show on that one delivery.
I’ve offered my hard gained knowledge on 5 yrs of learning in this industry. Take from my offering to you as you wish.
Some very good points here, that said double the NTA value is meaningless and saying something will reach the point where it will become more appropriate to value the assets off earnings... when the hell did we ever not value an asset based on earnings or future earnings????
That is the ONLY way to EVER value an asset.
NTA of Apple is 50 god damned times less than the market cap. Let me put it another way, the market price of Apple is 50 times its tangible assets. Is this wrong? Even if you think Apple is dramatically overvalued it's still worth orders of magnitude more than tangible assets.
So now we all agree on that.... Could it be feasible that another company is worth a tiny fraction of its tangible assets????
Of course it is.
The level and depth of your knowledge of this industry and these companies is stunning.
Really, anyone investing anything that is meaningful to them into any of these companies should be at a similar level as you, but nobody is. Great you have a handle on the competition and rest of the industry too.
Bum boy analysts simply don't have the time to do this type of work in amongst their other corporate nonsense tasks.
MMM interesting abuse.
However where do folk think ARV will be in say 5 years..its previous high I believe was 2 dollars...Id be happy with 20 percent pa...Bye all means carry on the abuse.
Yes I have visited Aria, and The Sands multiple times - touring multiple rooms and facilities at both villages, including visiting The Sands shortly after it opened, and driving past it many, many times since then - I can tell you there was no 'vibe' in the early days then either and they took years to sell all of them despite the amazingly good location, vibe and balcony counting aside, the fact is The Sands is not a fully integrated village - eg no dementia care so if your loved one gets this, you'll have to move down the road to the likes of Aria Bay. Additionally, I have lived around that area for several years and thus have seen both of these villages in their prior states and now their fully developed states. Lastly, I had a love one at Aria Bay and he had nothing but positive things to say about them as did the wider family, he passed away earlier this year. So, yes, I would say I know these 2 villages particularly well.
Although I was a shareholder in ARV, I couldn't partake in the July 2015 cap raise to buy Aria's villages, but back then Aria Bay only had a total of 90 beds and ORA's (57 rest home beds, 24 serviced apartments and 9 very recently completed apartments). Today, Aria Bay has no rest home beds, but 59 care suits (catering to rest home, hospital and dementia), 17 serviced apartments and 91 apartments). Back then, Aria Bay was valued at $21.8m today (just 8 and a bit years later) its worth more than 4x that
As for where the numbers are coming from, they're certainly not coming from balcony counting, they're coming from today's slides - Please see slide 13 where it clearly mentions of the 57 delivered apartments 29 have been settled already + 12 contracted (=72% sold) - although most of the settled were Mayfair relocations, even when stripping these out, far more than 3 have been sold. You'll also see on this slide that they've made some pretty good progress with their other 1H24 deliveries.
ARV have never been about villas, cool locations or apartments - they've been about fully integrated villages in ideal and strategic locations (some of which are very nice yes) with great care throughout (hence ARV has some of the highest care bed occupancy rates - I think they've always had the highest for a listed company)
I may not be the biggest hotshot expert out there, nor the first one to claim seniority, but I have been in Arvida since day 1 (in 3 weeks time that'll mark 9 years) and have been following the industry to a varying degree ever since.
For Bars take on result
NEUTRAL
Arvida Group (ARV) reported a weak and somewhat messy 1H24 result, but with sprinkles of hope for the future mixed in. Excluding an insurance accrual and development gains from non-cash transfers of residents treated as sales, we estimate underlying earnings were down ~-45% versus 1H23. A poor start to ARV's first period for some time, without any prior period acquired growth. That said, the results did have some positives. ARV's care revenues grew strongly, up +15% per bed as both occupancy and government funding improved meaningfully — a welcome change from recent history. ARV also disclosed a good start to 2H24. We estimate ~25 new sales in October versus the run-rate of ~13 per month in the 1H24, excluding non-cash transfer sales. We retain NEUTRAL with a reduced target price of NZ$1.18.
What's changed?
Earnings: Annuity EBITDA down -11%/-13%/-9% with higher care fees offset by higher costs and lower resale gains.
Target price: Reduced to NZ$1.18 from NZ$1.30 on reduced dividends, increased net debt, and lowered annuity EBITDA.
Net debt likely to continue up for the foreseeable future — but leverage should stabilise
In-line with its pre-announcement, ARV reported net debt up ~+NZ$200m (+37%) YoY, with gearing +600bps to 34%, near the upper end of its 25% to 35% target range. On our forecasts ARV is likely to remain at or slightly above the upper end of its target range. We were encouraged by ARV's clear message that future development would be path dependent. The level of future developments will be dependent on demand and ARV guided to lower deliveries in FY25. We see a tougher path for ARV to meaningfully reduce debt versus Oceania Healthcare (OCA). ARV has ~NZ$100m of available unsold new stock, ~13% of its debt, compared to ~60% for OCA.
Care revenues and profitability are recovering
On a positive note, care revenues grew ~+20% driven by a combination of: (1) improved occupancy rate, (2) three months of increased funding, and (3) better staff availability. We estimate that care EBITDA margins for ARV will improve by ~+800bps in FY24 versus FY23, taking it to near breakeven. This is a sharp reversal of the dramatic deterioration in profitability over the last three years.
Transfer sales and insurance recoveries, but what is underlying earnings?
ARV included NZ$8.4m of insurance recoveries and, we estimate, ~NZ$4.5m of development gains from the non-cash sale of 21 apartments at Aria Bay to residents transferring there (from an apartment block that is being de-commissioned). We have some sympathy for the inclusion of insurance recoveries as they relate to estimated lost earnings, but to date only a small portion has been settled for cash. We have also left our estimate of non-cash transfer development gains in underlying earnings to make our estimates comparable to that of consensus and company communication.
Forecast changes
We downgrade our underlying earnings and annuity EBITDA estimates over the forecast horizon due to: (1) lower resale gains driven by lower number of resales, (2) higher total costs, led by increased employee and property expenses given the growth seen in 1H24 and indication by management these levels are likely to be the new base, (3) higher interest costs. Offsetting these are increased care fees, given the higher care fees earned per bed, on sustained elevated care occupancy on 1H24. We decrease our dividend forecasts to assume a pay out at the bottom end of its 30% to 50% range over our forecast horizon. Our net debt estimates increase on higher capex and lower ongoing operations cash flow.
Thanks gwd
Love how they summarise, esp the sprinkles of hope bit — Arvida Group (ARV) reported a weak and somewhat messy 1H24 result, but with sprinkles of hope for the future mixed in.
I do apologize Trader if I've come across haughty to you, that was never my intention. You clearly know Aria well .
I am also sorry for your loss earlier this year and am starting to understand your connection with ARV.
The Forbar report above (cheers GWD) now explains why the puzzling discrepancy of sales. I see virtually nil occupancy while ARV claims 28.
BTW, balcony furniture is a very accurate , non intrusive measure when there is no existing relationship with staff. Plus , some days I’m just to chicken to go in.
Turns out 21 of these sales are non cash transfers. While classified as sold , it would seem moving day from Mayfair hasn't happened yet. Of the remaining 7 real sales ,I expect half of them are still in the process of moving.
The good thing about relocating residents is the village vibe occurs faster.
The problem with relocating residents is that it isn't profitable and those units still can’t be properly sold when there will be a waiting list form in 2 years time.
The purpose of my posts Trader is not to disparage the ARV. They do things well, I fully agree with you.
You are also right also that Sands started with no vibe and was slow….we agree there too. That is actually the main point of yesterday's posts.
Just how bloody slow and capital intensive building apartments is. Plus , even then , they only make good coin in spanky areas.
My posts yesterday are from an investor perspective only, that ARV will experience low growth for the next 3-4 years unless property goes gangbusters again. Their buildings will be marvelous , just like everyone else's but at this stage of the journey the debt, and high cost of, will remain and financial rewards are a long way off.
A rather damning report from ARV’s house/corporate broker Forbar.
Then, there’s tomorrow when ARV is taken out of MSCI index.
https://www.nzx.com/announcements/423543
It is incredible how directors decide on behalf of shareholders, who are kept in the dark, that an offer at price significantly higher than the prevailing share price is not worth pursuing. Since then the SP has dropped 25%. In the meantime this inside information has been leaking to some shareholders. Quite shameful.
(Repeated from the Oceania thread)
Always said it was worth well more than a buck but no I did not know about this - $1.70 is a massive premium, but really ARV in a takeover is worth more than a 15% discount to book value. No doubt about it at current levels ($1 ish) ARV is the best value listed retirement stock - and the guys trying to take it over certainly knew that
A bit cheeky of the Directors to not put this offer to shareholders. Id be real happy with $1.70
Bloody out of jail card there!!!
lol looks like they released the news to save the stock price going new lows
Yes, and the fizz has already left the bottle! Back under $1 - only consolation is the DRIP issue price has been fixed at $0.9277 and the share price had drifted below that earlier today.
But lots of bids for shares that are undervalued on the NZX are coming out of the woodwork lately!
What’s this fascination abt 1.70 figure both for ARV and RAK, yet both Boards chose keep quiet until needed to disclose to the market.
The Office Boy finally turfed out the rubbish & low & behold someone dug up something interesting ? ;)
A taste of $1.70 probably would have been welcomed by those who got to suck the Kumara on the CR a while back
closer to the 200 Peg :)
For once I agree with balance ..something smells...isnt the NTA 2 dollars.Im VERY familiar with this company.
inside trading
Fair call Baa.
For Bars take on it.
Arvida Group (ARV) turned down a highly conditional non-binding NZ$1.70 per share takeover bid from an offshore infrastructure fund in September. The bid represented a ~+36% premium to its September price of ~NZ$1.25 (~+89% premium to its last undisturbed price of NZ$0.90). ARV said it has no reason to believe anything further will proceed from this bid; there is a big step between a firm offer and a highly conditional unsolicited non-binding bid. Asset multiples across the sector, and for ARV specifically, remain compressed creating an attractive backdrop for takeovers. We note that since the offer ARV has reported a ~+NZ$130m increase in net debt over the last six months, ahead of expectations and a subdued 1H24 result. Apart from a deep discount to book value, ARV's high level of (admittedly long dated) embedded value may have attracted a patient buyer.
Why ARV?
We believe the infrastructure bidder could have been attracted to ARV's ~-20% discount to its potential long-term cash release from its currently built up embedded value and development work in progress. ARV is the only stock in the sector trading at a material discount on this measure. While the bid was at a ~+10% premium to this value, a patient investor could extract this cash while still being left with the underlying business. ARV is also trading at ~0.5x its book value, a sector and historic low.
Anyone got an idea who the offeror was. Looks like, from the exchange rate, it may have been the US. You would think they must already be on the share register, under the 5% threshhold. Unlikely that someone looking at that price would give up so easily. They must be waiting for the dust to settle, before the machinations start. I would say they will buy and sell to keep the price down until they are ready to take out a major player or two. Then whammy a hostile takeover. Sounds so simple to do.
The listed NTA in a lowish difficult market must mean a potentially much higher NTA when the Nats fix up our uncertain economy. Interesting times with ARV over the next 12 months.
Great analysis bottomfeeder
DRIP shares issued at $0.9277 on 21 December. ARV trading now at $1.07 on 28 December. Must be one of the best Reinvestment Plan allocations ever for holders in terms of % benefit over a one week period.
Share price was far far too low, now its just far too low - heading in the right direction at least - shouldn't take much to get it back into the $1.20's - afterall, the takeover offer was at $1.70 so even $1.20 is a steal, especially if they came back to the party and offered around the $1.50 mark
But being the NZ regulated Share market, they won’t tell retail shareholders about an offer until the gossip is near universal. If there is another offer, it will just be gossip among the high, mighty and insiders. When the offer comes in at $1.10 they will then perhaps disclose it more quickly to retail shareholders - perhaps.
If they do it properly, that's where the greatest short-term value can be derived. Moving from the multiples they pay for private co's to those derived for listed co's. Plus including the economies of scale that can be achieved from a consolidated operation has huge potential over a couple of years. It all comes down to faith..Can they deliver or not?
Since posting this less than 2 weeks ago the share price is up over 10% ($1.08 to $1.21).
SUM's fairly positive announcement today appears to have benefited the entire sector, but particularly ARV with its share price up 5% today.
It appears that last month (when ARV was around the $1 mark), ARV truly was the most undervalued retirement stock on the NZX as in the past month ARV is up 29% in just a month vs OCA at 7%RYM at 10% and SUM at 17% - all healthy gains, but not remotely close to ARV's.
With an NTA of around $2, one would think even at $1.21, ARV is still cheap.
I agree Trader. We are also up substantially from last years low of 0.90.
The board rejected a highly conditional bid of 1.70. This should have been a shareholder not a board decision.
I estimate the NTA could be 2.10-2.20 by year end. If replacement cost of land and buildings was used I see the NTA as well north of 3.00 by year end. Most economists are tipping interest rates to fall in 2024. Residential property prices are on the march again so RV clients will have more money to spend and will be selling properties more quickly.
I believe the mystery fund that bid 1.70 hasn't gone away and other players will also be circling. This reminds me of Metlife when it was selling for half of its NTA and I jumped in and doubled my money when the Swedish fund pounced. I also think other deeply discounted RVs like OCA will also be on the radar of the circling sharks.
I think the only spanner in lower interest rates happening soon is the conflicts in the middle east. Already we will be seeing inflationary effects of the Houthies debacle in the red sea. The extension of the conflict to Lebanon, Iran etc may mean more inflation for longer resulting in higher interest rates for longer, thus postponing the recovery of the likes of OCA, Arvida etc.
I believe there is some clever downward manipulation of the share price going on
Hey tj …….everybody saying Heartland could go to $1
We could have a bet who’ll get there first Arvida or Heartland
Or being optimistic have a go who’ll get back to $1.50 first
Strange world eh even thinking such stuff
8 March 2024 – Arvida Group Limited (NZX: ARV) has entered into a conditional agreement to sell itsStrathallan village located in Timaru for a sale price of $30.0m. The transaction is subject to customaryapprovals being obtained. Arvida anticipates completion of the transaction to occur at the end of April2024 or shortly thereafter.
The sale price represents a 3% discount to valuation.
Falls outside Year End. Be an interesting Full Year result, thou they do provide Update in April
Strathallan Village was acquired by Arvida only in 2017 in a $106m deal including Mary Doyle Lifecare in Havelock North and 50% of Village at the Park Lifecare in Wellington.
At that time Timaru media said it had 134 staff and comprised 51 villas, 46 apartments and 77 rest home,hospital wing and dementia beds. So a high needs based component. The hospital wing was constructed in 1999, and the remainder of the facility pre-dates that, possibly by quite a few years.
So we have an older facility with an intensive staffing requirement. Difficult in the circumstances to calculate whether the acquisition delivered any real profit over the timeframe involved. Certainly to recycle $30m at todays interest rates has value.
Looks like a bargain?
https://www.stuff.co.nz/business/350...+20+March+2024
3% discount on $30m is $900k, so with transaction costs ARV is probably taking a $1m hit to its operating surplus to make this divestment. Must have thought the opportunity to onsell to a highly regarded operator with the most incentive to purchase was compelling.
Obviously staff will simply transfer in their existing roles. If the figure I cited in #1666 above has continued the ratio to occupiers is high, because of the aged care beds.
On another note, could you possibly build 51 villas and 46 apartments together with all the other infrastructure that's on site for $30m today? Everything is out of whack currently.
"On another note, could you possibly build 51 villas and 46 apartments together with all the other infrastructure that's on site for $30m today? Everything is out of whack currently"
$309,278/apartment or villa excluding 77 rest home,hospital wing and dementia beds,I doubt it
And here it is. http://nzx-prod-s7fsd7f98s.s3-websit...131/416258.pdf
[QUOTE=Lego_Man;1047220]Good result but markets might focus on the paragraph re: no further engagement on takeover bid.
Let them. That stuff is irrelevant, I was looking for solid sales and a reduced spend and debt levels. Take over is for traders. The CEO and Board will have to face shareholders at Annual Meeting and give a please explain.
For what it’s worth my thoughts
ARV latest update reads well and it seems as if things are heading in right direction.
But they seem to gettin into the habit of selling heaps more (full year v pcp 21 more new sales / 33 more resales) but only making a little more
It seems the increase in resales generated about $5m more in way realised gains but 21 more new sales only generated about the same in realised gains as last year.
From what they've disclosed today my estimate for FY23 Underlying Profit is $91m .....last year was $88m .......not much if an increase is it .......and doesn't seem to reflect Jeremy's really enthusiastic rave.
Whatever it's better than going backwards and things will get much better from here.
Market will like what he said about cash flows.
Update not firing up the market is it …..so far
For Bars Review.
Arvida Group's (ARV) semi-annual investor update was on the whole, positive. It delivered: (1) strong resale gains, driven by both solid unit sales and margins, and (2) illustrated net debt was tracking better than our expectations. We were also encouraged by the reduced FY25 build guidance, suggesting a focus on reducing debt and realising the potential of its Arena acquisition. A sensible prioritisation given how the stock is currently valued. On the negative side was slightly weak new unit sales. But alongside this ARV provided some positive outlook comments that it has ‘started to see an up tick in settlement activity’ and applications are up >+20% year-on-year. We increase our target price to NZ$1.30, NEUTRAL.
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NZX Code ARV Share price NZ$1.18 Target price NZ$1.30 (from 1.21) Risk rating Medium C&ESG rating B Market cap NZ$854m Avg daily turnover 431.2k (NZ$481k)
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Financials: Mar/ 23A 24E 25E 26E Rev (NZ$m) 318.9 352.5 355.4 381.9 NPAT* (NZ$m) 88.0 88.0 71.1 77.0 EPS* (NZc) 12.2 12.2 9.8 10.6 DPS (NZc) 4.9 3.0 3.1 3.3 Imputation (%) 0 0 0 0
*Based on normalised profits
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Valuation (x) 23A 24E 25E 26E PE 9.7 9.7 12.0 11.1 EV/EBIT 13.9 14.4 16.9 15.4 EV/EBITDA 12.8 13.3 15.3 14.0 Price / NTA 0.6 0.6 0.6 0.5 Cash div yld (%) 4.1 2.5 2.6 2.8 Gross div yld (%) 4.1 2.5 2.6 2.8
What's changed?
- Earnings: Annuity EBITDA increased +18%/+4%/+1% over FY24/FY25/FY26 given higher resale gains while underlying earnings are +21%/-6%/-2% over the same forecast horizon given lower new sale units in FY25/FY26, in-line with the lower build rate
- Target price: Increased to NZ$1.30 (from NZ$1.21) given increased Annuity EBITDA and lowered net debt.
Strong resales a positive sign
The key positive from ARV's update was the strength of its resale gains achieved. Both (1) strong unit sales, up +12% year-on-year for 2H24, and (2) improved resale margins, 31.5% in 2H24 versus 27.1% in 1H24, drove the result. The strength in margins comes despite our MI index suggesting aged care operators have held unit prices broadly flat for the last 18 months. We believe this suggests ARV has sold units with longer occupant times over 2H24, similar to Summerset's recent result. With some of these sales likely from its acquired Arena villages, we view this as a positive that its sizeable embedded value in its portfolio is starting to translate to cash gains.
Net debt controlled well
ARV's indication that drawn debt increased +NZ$27m over 2H24 was ~NZ$30m better than we expected and marks an impressive turn around from 1H24. It appears this result was driven by improved cash collection of sales and the higher resale gains, with deliveries in-line with expectations. We reduce our estimate of net debt growth over the medium term due to its lowered build rate and also aided by the NZ$30m sale of its Timaru village.
Build rate tempered — living within its means, a sensible choice
ARV has indicated a lowered build rate target for FY25. At ~150 units it is comfortably below our prior estimate and the ~200 delivered in FY24, but we believe this a logical move for ARV and illustrates its more conservative approach to capital management rather than a considerable drop in expected demand for its product. Of this 150 units for FY25, ~60% will likely come from its Queenstown Country Club development (care suites and apartments) with the remainder villas.
Thanks GWD
There profit forecast F24 lower than my $91m ..interesting
Well ARV's bounced in the 90's before (in the past few months) but HGH sub $1 today is the lowest its been since the darkest days of April 2020... ARV down 5% in the past year while HGH is down 35% - ARV in a bit of a grey area perhaps, but the days are pretty dark for HGH currently given cap raise was done at $1.00 just a few weeks ago... strange world indeed
Disclosure: sold out of ARV this year at $1.20
Good to hear from you tj.
Yes strange world indeed …how ARV and HGH share prices have performed last year or so is a bit spooky. I don’t think neither of us would have believed 99 cents today
I don’t think HGH is going to recover quickly …going to be dark times for shareholders for a while …maybe both will be sub $1 this time next year …or ARV might get a new life.
Hi all. My latest column published on my Substack, Just the Business, previews what the listed retirement village operators will tell us when they report their annual results on Friday this week and Tuesday and Wednesday next week.
The headline is: Can the listed retirement village operators dispel some murk?
And you can find it here:
https://substack.com/@justthebusinessjennyruth
And will they (Arvida) tell us why they hid the $1.70 bid from us?
Full Year out.
• IFRS net profit after tax of $139m, up 69%
• Underlying profit[1] of $85 million, down 3%
• Gross value sales of $427 million, up 13%
• 201 new units delivered, including 144 villas
• Total assets of $4.2 billion, up 12%
• Gearing at 33.9%
• NTA at $2.05 per share
Retirement village operator Arvida Group Limited today announced a full year net profit after tax (IFRS) of $139 million and underlying profit for the year ending 31 March 2024 of $85 million. Results include the impact of record unrealised movements in the fair value of investment property.
Operating Performance
Commenting on the performance Arvida CEO Jeremy Nicoll said it was encouraging to see our business performance in the later part of the financial year starting to recover following a period of challenging property and macroeconomic conditions. High inflation, high interest rates and a slow residential property market had impacted cash flow generation from operations.
Good progress with revenue uplift and cost out strategies had been made during the year to improve cash flow and profit performance.
Mr Nicoll said, “We are making a concerted effort to reduce our operating costs, with firm internal targets. Operating efficiency initiatives identified an initial $10 million of annualised cost out benefits to be delivered in the coming financial year.”
“An equal effort has been placed on increasing our revenue sources from other than the sale of retirement village units. This resulted in improved revenues from a review of weekly fees, service packages and premium care charges.”
Mr Nicoll noted there was more work to be completed in this area with a plan to introduce an annual uplift mechanism for weekly fees for new residents this year. A number of initiatives are in progress that will simplify and deliver improved operational performance.
A recovery in care occupancy to 94% helped restore contributions from care operations. Arvida has been underway for a number of years with a strategy to build care capacity under the care suite model, with government funding of the aged-care sector remaining challenging. Arvida supports the government’s commitment to the future of aged care, with the recently announced select committee inquiry into the provision of aged care services and Health NZ’s current review of funding and service models.
Strategic initiatives to mature critical operational areas of the business progressed over the year. Implementation of the 3-year people strategy is lifting the culture and capability of Arvida’s team. It is pleasing to note that mid way through the programme the improvements are evident in increased team engagement, lower turnover rates, and greater retention of our experienced people.
“We have also once again delivered excellent results in our resident satisfaction surveys reinforcing that our value proposition remains strong for existing and incoming residents.”
“Notwithstanding the soft residential house market, we delivered a record sales performance reporting a 13% lift in the gross value of sales to $427 million, and a 11% increase in the number of units settled. We continue to experience record levels of applications,” Mr Nicoll said.
Unit prices on settled resales over the year were on average 4.7% higher than last year’s independent valuations. The capture and creation of embedded value is a key indicator of expected future cash flows. Over the year the embedded value increased to $1.3 billion, up 11%.
Capital Structure Preserved
The Board and management placed considerable focus on ensuring a robust framework continued to be applied to capital commitments and the preservation of headroom in Arvida’s capital structure.
Key priorities identified at the beginning of the year highlighted the critical importance of ensuring development commitments were managed to funding capacity limits and that cash returns from development activities were cash positive going forward.
The development programme was repositioned to reduce cash outflow, while also meeting a build target of delivering 201 new homes in the 2024 financial year. The majority of these deliveries were villas spread across six communities. A development milestone was reached with the completion of the final stage of 57 apartments and redevelopment of the Aria Bay site in Auckland.
In the year ahead, Arvida is targeting a build rate of 140-150 new homes, including the delivery of a new care suite and apartment building at the Queenstown Country Club community. The build rate has been reduced to balance the expected gross value from new sales against the costs incurred on construction.
“We are committed to building out our existing developments, where we continue to achieve development margins as new units are added. The immediate focus is on completing developments at our premium sites that have significant embedded value,” said Mr Nicoll.
The consented development pipeline grew over the year with the planned broad acre development at Lincoln achieving its resource consent through the Fast Track process. In total the future development pipeline comprises 1,877 units, with the majority from greenfield development activity.
Mr Nicoll said, "we continue to look for opportunities to expand our portfolio and grow our business.”
“A rigorous review of development return thresholds that are expected from any new greenfield project is applied. This means that we limit our development debt by ensuring the growth is fully funded by the recycling of capital from the sale of new units.”
Mr Nicoll said Arvida also implemented a dedicated development debt facility during the year to allow for growth to be debt funded within a framework while focusing on reducing core debt. To increase its capital structure headroom, core debt reduction initiatives totalling $200 million have been identified, in isolation. Initiatives include the sale of surplus development land from existing greenfield sites, reduction of stock held for sale, suspension of dividends and pursuing the insurance claim for losses sustained from the Auckland floods. Lower core debt will position Arvida to deliver a sustainable level of growth and dividends going forward.
Gearing at 34% remained within the Board’s target range and represented the lowest gearing of listed retirement sector peers. Total assets increased 12% from last year to $4.2 billion.
Settlement of the $30 million sale of Strathallan retirement village in Timaru occurred on 30 April 2024. The transaction was completed at a 1% discount to the 31 March 2024 valuation.
Value Recognition
The Board is underway with a programme to assess and execute a range of available options to accelerate the recognition of Arvida’s intrinsic value for shareholders.
“We are taking a balanced approach with a view to ensuring the interests of our shareholders, residents and team members are at the forefront,” said Arvida Chair, Anthony Beverley.
Arvida is well underway with an operating cost-out and revenue capture programme along with strategies to optimise the village portfolio, reduce core debt and balance development expenditure to generate cash returns.
With the assistance of advisors, Arvida is also considering a range of alternative options to accelerate value recognition that includes engaging with other market participants on various capital partnerships, restructuring options and strategic alternatives for the Company.
Mr Beverley, said “The programme is seeking to ensure Arvida is well positioned to maximise shareholder value on a standalone basis, as well as providing outstanding service to our many residents and keeping our team members fully engaged in delivering a quality retirement living experience.”
Arvida will keep shareholders and the broader market updated with progress on this important initiative, as and when appropriate.
While the valuation recognition programme is underway, the Board has paused the dividend policy, advising that no dividend has been declared for the second half of the 2024 financial year. While the dividend is suspended, the Board will consider a revised dividend policy, including alternative metrics for the determination of future dividends payouts.
Demand for retirement living remains strong supported by an ageing population tailwind. Arvida continues to be well positioned to benefit as market conditions improve providing outstanding resident experiences in retirement living and aged care.
wow even in the worst of times (aka now) Underlying profit is only down 3% - and almost 40% ahead of Oceania and a third of the famed Ryman
Lots of positive words there eh greekwatchdog but an average result at best …like selling heaps more and making about the same.
Wonder what “With the assistance of advisors, Arvida is also considering a range of alternative options to accelerate value recognition that includes engaging with other market participants on various capital partnerships, restructuring options and strategic alternatives for the Company” really means
Market consensus was for a final dividend of 2.1c to be paid. So market is going to be disappointed.
Given many shareholders were enticed into Arvida for its dividend income, the least the company should do is to highlight why dividends are being suspended/cancelled. And when they might be resumed.
Instead, there is only one mention of dividends and it's hidden in the maze of thousands of wordsin the main text of the announcement!
Commentary from interim results Nov 2023 :
"The Board has amended the dividend policy to a payout ratio of 30%-50% of underlying profit from 1 April 2023. Guidance is provided for FY24 dividend payments to be at the bottom end of the amended range.
Mr Beverley said this would ensure a better matching of stable free cash flows to distributions as the Company’s cash flow profile matures."
amazing arv must be cash strapped , wanting to sell up , rationalize , bring in partners :scared: cut div .................. conserving cash biggly :scared: merge :scared: