ARV - Arvida Retirement Villages

[jimdog31]

The numbers look good but I want to put some pessimism on this:
- The villages are old. They need significant capex to remain competitive. Asbestos and weather-tightness issues. costed MET more than they thought. Debt will increase. Probably why 88% NTA was agreed. Open-ended remedial works and extra debt means more risk.
- North Shore is probably the most saturated RV catchment in NZ. Competition exists. 23% of the North Shore listings on trademe are Arena villages - this is above their market share.
- No/little continuum of care. Arena's villages do not have it. ARV could benefit from having these fill up their own care facilities. But still a con. I still dont fully understand what residents want in a village but i thought continuum of care was one of the top things.
- P/E sweated these assets hard and anecdotally reamed outgoing residents (not the DMF part). Obviously exercise extra caution whenever picking up a P/E asset.
- They note brownfield development around the edges but this seems marginal. You always throw this in to sweeten the investment thesis.
But lets be honest, the industry continues to be in growth - there are too many boomers willing to sell their mansions so they can enter a village. The product is generally great. Its hard to go wrong. Tide will only come out if house prices have a sustained fall or significant overbuilding.

I too wondered around the discount to NTA. The other thing to consider here is the sell side, and their motivation. Why are they exiting the market in such a big way? Threat of more regulation? COVID jitters? or something else?

[Out to lunch]

I too wondered around the discount to NTA. The other thing to consider here is the sell side, and their motivation. Why are they exiting the market in such a big way? Threat of more regulation? COVID jitters? or something else?

Its Private Equity, their investment horizon is like four years, I am surprised they held it on for nearly six! My numbers might be wrong but Blackstone bought it for c$100m and selling it for c$200m after debt repayment.

[Gerald]

The numbers look good but I want to put some pessimism on this:
- The villages are old. They need significant capex to remain competitive. Asbestos and weather-tightness issues. costed MET more than they thought. Debt will increase. Probably why 88% NTA was agreed. Open-ended remedial works and extra debt means more risk.
- North Shore is probably the most saturated RV catchment in NZ. Competition exists. 23% of the North Shore listings on trademe are Arena villages - this is above their market share.
- No/little continuum of care. Arena's villages do not have it. ARV could benefit from having these fill up their own care facilities. But still a con. I still dont fully understand what residents want in a village but i thought continuum of care was one of the top things.
- P/E sweated these assets hard and anecdotally reamed outgoing residents (not the DMF part). Obviously exercise extra caution whenever picking up a P/E asset.
- They note brownfield development around the edges but this seems marginal. You always throw this in to sweeten the investment thesis.
But lets be honest, the industry continues to be in growth - there are too many boomers willing to sell their mansions so they can enter a village. The product is generally great. Its hard to go wrong. Tide will only come out if house prices have a sustained fall or significant overbuilding.

Good post. Another thing to consider is that this was forsure offered to all the other major players and probably a few others, and this is the best offer they got which says something.

How come Arvida doesn't have to instantly recognise an impairment? The carrying value of the asset is clearly more then the recoverable amount as evidenced by the discounted sale.

All this can lead to is a bloated NTA and maybe the ability to take on a tad more debt without looking over-levered.

[winner69]

Butted into a conversation a couple of guys at the cafe we’re having this morning.

Their view basically went along the lines of buying a lot of dodgy leaking buildings that nobody else really wanted (that’s why they are cheap) not the best thing ,,,,once leaky always leaky until they get knocked down.

But the thing that struck me was one thought it was just a big ego trip for the head honchos …..getting big enough to be 25th in the NZX50 give them a high.

They not going to give them any more cash …..and one said might sell out if the share price spikes in next month or so.

[Rawz]

No worries’ Winner seems a bit worried

[percy]

Butted into a conversation a couple of guys at the cafe we’re having this morning.

Their view basically went along the lines of buying a lot of dodgy leaking buildings that nobody else really wanted (that’s why they are cheap) not the best thing ,,,,once leaky always leaky until they get knocked down.

But the thing that struck me was one thought it was just a big ego trip for the head honchos …..getting big enough to be 25th in the NZX50 give them a high.

They not going to give them any more cash …..and one said might sell out if the share price spikes in next month or so.

I note you have moved from the bowling club crowd to the cafe crowd.
Do these people have a better investment record than the bowlers.?

[ScrappyO]

My Mum is in Knightsbridge Mairangi Bay. No leaky problems there and the village has just had an upgrade.
Cant please everyone.

[winner69]

I note you have moved from the bowling club crowd to the cafe crowd.
Do these people have a better investment record than the bowlers.?

Ha ha ….don’t really know about the cafe guys …in Bloomfield lingo just casual contacts …but they were chatting about FPH

Bowling crowd got excited about PAZ though …once they worked out how to buy them they were in boots and all.

[percy]

Ha ha ….don’t really know about the cafe guys …in Bloomfield lingo just casual contacts …but they were chatting about FPH

Bowling crowd got excited about PAZ though …once they worked out how to buy them they were in boots and all.

Not sure if that is a positive or not.?...lol.
Possibly an update out shortly.

[winner69]

Nice having a Rights Issue for once .....but if you don't get any extra shares in Placement and do take up your rights you'll still end up owning 13% less of the company than you have now ...dilution eh

No worries though as it will fade into a distant memory when the share price hits 3 bucks