ARV - Arvida Retirement Villages

[justakiwi]

I don't hold ARV, but they have paid dividends for at least the last five years. Unless you plan on selling, the current share price is not particularly relevant. Your investment has returned you dividend income, which has more than likely provided a better return than a bank deposit would have.

Your argument is only valid if you are a trader, rather than a long term investor, and in actual fact, probably not even then.

If u bought 8 years ago...u are not making any money...your money is depreciated....the share price same 8 years ago

[troyvdh]

justakiwi..Many thanks for that post.
Sadly I believe that the opinion that X-men is a perfect example of NZ Inc typical opinion of the share market.
Investment...to people like him....kinda requires immediate returns ....I could go on here.

[X-men]

Your initial investment needs to appreciate too plus a return...that u can call it an investment

[justakiwi]

Actually no it doesn’t. A standard bank account is an “investment.” You earn interest on your deposit, but that’s all. Your original deposit doesn’t grow/appreciate in value. It actually does the opposite. Investing in shares is a little different. Some companies are great for dividend income, but the share price doesn’t increase much over time. Other companies pay no dividends but the share price appreciates significantly. Some, do a bit of both.

Over the long term, most share prices will increase to some extent, but right now, global and domestic events/influences, are seriously effecting share prices. KFL, for example - I am well and truly in the “red” in terms of capital gain right now but the dividends I have been paid since I first bought in, plus the very lucrative historical warrants issues, make my overall, long term return very positive. You have to look at both capital and income return. Having said that, if you hold a company that pays no dividends, then yes, right now your initial investment may well have depreciated. But as I keep having to point out, unless you are buying penny stocks or spec stocks, it’s temporary.

I also look at it from the point of view that my investing has motivated me to save significantly more money than I would have, before I started investing. I’ve saved around $25000 in the last four years, on a low income. I would never have achieved that had I been saving in the bank - at deposit interest rates over that time, there was zero real motivation to save. Slightly more right now with better rates, but that won’t last forever.

I think you need to do some reading up on the overall subject and modify your beliefs, because they have the potential to influence your decision making - which could have a detrimental impact on your investments.

Your initial investment needs to appreciate too plus a return...that u can call it an investment

[Aaron]

Highlights the need for a decent dividend.

How will Arvida pay a dividend out of downward revaluations in property prices and a slower building program with reduced margins on new builds?

Looking at operating cashflow in the 2022 accounts they include the full sale proceeds of units as well as the full redemption so over a number of years the difference will be the management fee. I would have thought splitting the unit holders portion out and putting this through the financing portion of the cashflow statement would make more sense as during the years they are building and selling lots of units, operating cashflow gets overstated and if building slows down and in years more units are sold operating cashflow will be understated, although as I write this I realise they can hold onto the unit and pay nothing out, until another buyer is found.

Sorry these ideas only occur to me as I write them down and think a step further.

[Ferg]

Looking at operating cashflow in the 2022 accounts they include the full sale proceeds of units as well as the full redemption so over a number of years the difference will be the management fee. I would have thought splitting the unit holders portion out and putting this through the financing portion of the cashflow statement would make more sense as during the years they are building and selling lots of units, operating cashflow gets overstated and if building slows down and in years more units are sold operating cashflow will be understated.

An interesting thought about the cash flow treatment of the ORAs and I agree. IMO it should be split between operating and financing for the ORA payments made to outgoing residents. The financing part of the CF should be the initial ORA receipts less the gross ORA payments. The difference between gross and nett ORA payments (which is retained management fees and expense reimbursements) should go through the operating part of the cash flow given those funds are used to pay for operating expenses.

For example: incoming resident pays $1m. Previous resident paid $800k, but the RV keeps say $250k out of the $800k and repays $550k to the outgoing resident's estate.

Cashflow would show:

• operating cash flows: DMF received/realised +$250k
• financing cash flows: ORA receipts $+1m
• financing cash flows: ORA payments -$800k
• Nett cash flow = +$450k

As opposed to showing:

• ORA receipts +$1m
• ORA payments -$550k
• Nett cash flow +$450k

By providing greater transparency we can then see if dividends are being funded from realised or unrealised DMF and/or if they are being funded from operating cash flows or financing cash flows. Two very different things, although dividends funded from financing cashflows could be from the unrealised portions of DMF rather than loans. The unrealised DMF will eventually end up in the P&L of the RV, but jut not right now. We could probably back solve this for each RV.

But asking for more transparency might be asking too much of the industry.....

[Aaron]

Thanks for replying Ferg. No difference in cashflows overall admittedly.

My only thought was while they are building and selling new units Operating cashflow looks even better than your example as the units are brand new with no ORA to be refunded when the new unit is sold. The ORA receipts are showing as operating earnings whereas it is more in the nature of interest free finance.

I am sure the auditor would have noted this if they felt the accounts did not provide a "true & fair view". Thats what they get paid for.

Even in your example Operating Cashflow is higher but I suppose in your example the $200k capital gain in property value is a realised capital gain and therefore profit of the business, even if it is not taxable. So maybe that is the best way to present it. But with the cancellation or slowing down of building new units the operating cashflow is likely to take a big hit over the next few years unless we get a pivot on interest rates.

Using your example except incoming resident pays $1mill for a brand new unit;

Operating Cashflow = $1,000,000

Or

Using your example I think the mgmt fee works out at 31.25% (250/800)

Operating cashflow = $312,500
Financing cashflow = $687,500

$1mill operating cashflow or $312,500 it is all in the presentation.

I imagine if building stops and property prices fall the presentation could change in future years. Bring on the pivot.

[Ferg]

Hello Aaron

You raise some good points about new builds.

The trouble with splitting out the $1m receipt as you have is that the RV doesn't not know how long the client will be in residence. The deduction could be anything from 10% to 40% depending on length of tenure, and what has been put on account. Whereas with the outgoing resident, this figure is known given it is deducted from the payout.

[Aaron]

Thanks, I did not fully understand how the management fee is charged when posting.

Makes sense to up the fee if they reside longer. I was worrying that if a resident lived 20 years then a 30% fee in simple terms is only 1.5% per year. Not a good yield on a rental.

Better do some more study.

[BlackPeter]

Thanks, I did not fully understand how the management fee is charged when posting.

Makes sense to up the fee if they reside longer. I was worrying that if a resident lived 20 years then a 30% fee in simple terms is only 1.5% per year. Not a good yield on a rental.

Better do some more study.

Obviously - DMF is not the only fee they get, but you are right - if residents live above average age, they get a better deal. Life is not fair ;

On the other hand ... life insurance companies do live with this issue (the uncertainty about the duration of an individual life) quite well ... and the underlying maths and stats is well established.

I don't think we need to be worried about retirement villages loosing out this way ... unless all their clients find at the same time the holy grail of eternal life (or is it the philosophers stone?) ...