ARV - Arvida Retirement Villages

[ValueNZ]

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.

Frankly NTA doesn't matter one bit anyway. But it seems like it would be in the villages best interest to reduce their property valuations if it creates a tax deductible expense for them.

[Maverick]

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.

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.

[bull....]

Frankly NTA doesn't matter one bit anyway. But it seems like it would be in the villages best interest to reduce their property valuations if it creates a tax deductible expense for them.

yep nta means garbage on these companies. cashflows is the main metric you should value them on.

[trader_jackson]

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!

[bottomfeeder]

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.

[Maverick]

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!

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.

[SailorRob]

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.

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.

[SailorRob]

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.

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.

[troyvdh]

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.

[trader_jackson]

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.

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.