ARV - Arvida Retirement Villages

[Snow Leopard]

First skim of the accounts says that this is a reasonable result under the circumstances.

Not going to rush out and buy any more.
But then again neither I am going to sell any.

[Greekwatchdog]

For those who are interested, For Bars update.

OUTPERFORM
Arvida (ARV) reported a solid FY21 result with annuity EBITDA of NZ$48.3m, in-line with our estimates and up +5% on
FY20 despite c. 2 months of lockdowns. The recently (FY20) acquired Sanderson villages were a major contributing factor
to the strong result. Going forward, we expect the maturing of the six major villages acquired since listing to be a key driver
behind our strong annuity EBITDA and organic growth forecasts. ARV is now valued on the lowest underlying earnings and
annuity EBITDA multiple in the sector and we continue to see it as an attractive risk reward proposition.
What's changed?
Pivoting towards greenfield development; scrutiny of cash generation will increase
ARV made its intentions to pivot towards greenfield development, away from brownfield and bolt on acquisitions, clear. In order to
fund this increased focus on greenfield ARV has reduced its dividend pay-out ratio to 40–60% of underlying earnings and will
introduce a dividend reinvestment plan (DRP). If successful a focus on greenfield is likely to be rewarded by the market in the form of
higher multiples, in-line with its larger peers Summerset (SUM) and Ryman (RYM). However, we believe scrutiny of cash generation
and recovery of capex will increase. Management commentary suggests it is likely that ARV will announce one or two land
acquisitions in the near future. We expect ARV to target broad acre sites, more akin to the SUM model than to RYM's model, reducing
the time to recycle cash. However, FY22 and FY23 are likely to see increased spend on capex as ARV is building out its landbank,
resulting in increased net debt.
Maturing acquired villages underpinning our view of accelerating organic growth
In our report "Ageing Well; Upgrade to OUTPERFORM", published 14 April 2021, we laid out our expectations that the maturing of
ARV's six large villages acquired since listing should drive organic growth from mid single digits up towards +15%, in-line with larger
peers SUM and RYM. ARV's FY21 result indicates that this is well underway, with the Sanderson villages alone contributing an
additional NZ$6.2m to underlying earnings despite only having four additional months of contribution.
Operating expenses vs care funding; both likely to grow meaningfully in FY22
The cost squeeze within care is intensifying. ARV commented that additional holidays, sick leave and hourly rates were all going to
contribute to meaningful wage cost inflation in FY22. However, management is confident that this will be largely offset by "non
negotiable" funding increases. The outcome of negotiations with District Health Boards (DHBs) will be crucial to help preserve care
profitability in both the near and medium term

[trader_jackson]

It seems despite ARV having the best result in FY21, it is (once again) the cheapest listed retirement stock (so Forsyth reckon)... no wonder their target price is a decent chunk above the current share price ($2.20)

Code / Share price / FY22E / FY23E
ARV / $1.83 / 14.8x / 12.1x
RYM / $13.15 / 22.6x / 21.2x
SUM / $12.55 / 19.7x / 17.0x
OCA / $1.33 / 15.2x / 12.6x

[justakiwi]

Thinking outside the square. This is a great initiative. Makes good business sense too, as many of the clients they service in the community will no doubt choose to stick with Arvida if they require residential care down the track.

https://i.stuff.co.nz/business/12546...y+18+June+2021

[mike2020]

That's a smart move. A lot of people have to be dragged kicking and screaming into villages or care but welcome support in their own home. I would.

[BlackPeter]

Thinking outside the square. This is a great initiative. Makes good business sense too, as many of the clients they service in the community will no doubt choose to stick with Arvida if they require residential care down the track.

https://i.stuff.co.nz/business/12546...y+18+June+2021

There is certainly demand, but hard to make money with that given huge demands on nursing time in community care, additional (normally unpaid) travel time for the nurses and little payment for services through the government.

Took GXH a long time to get their community care at least cash flow positive, and in part they did this by simply stopping to bid for unprofitable contracts.

Maybe that's the contracts Arvida is now taking over?

[mike2020]

That is not exactly positive thinking BP. Maybe they have seen opportunity to utilize existing assets and really, you don't have to be a nurse to provide assistance in the home.

[flyinglizard]

https://www.goodfriends.co.nz/plans

Great move! Get more present value cash flow before business model changes. Brand improvement.

The plans show they can help with light garden, house cleaning and social activities.

They are using their own facilities, such as Gym and Pool, company cars and etc. I assume that they are using the majority of existing administration team.

[percy]

Interesting.
Yet there are a good number of free services available.

[BlackPeter]

That is not exactly positive thinking BP. Maybe they have seen opportunity to utilize existing assets and really, you don't have to be a nurse to provide assistance in the home.

My apologies, I didn't realize that this is a "positive thinking" thread. Personally I prefer to diversify my investments as well as my thoughts ... and think as appropriate :

Just tried to point out that not every business extension must be good ... and yes, community care is tough - all over the world, well - at least if you need to make money with it.

Don't forget either that basically all retirement villages so far lose money with care - or if they are really lucky they break even. The money is in the deferred management fee.

Community care does come with higher costs than residential care as well as with lower payments and no deferred management fee at all. Well, not yet, but maybe they can develop a creative plan around the payment of a deferred management (or service) fee from the home of the cared for person? Maybe Heartland would be happy to help, who knows? Now - this would be creative thinking!