ARV - Arvida Retirement Villages

[Greekwatchdog]

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.

[winner69]

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.

[Maverick]

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.

[Balance]

A rather damning report from ARV’s house/corporate broker Forbar.

Then, there’s tomorrow when ARV is taken out of MSCI index.

[Bjauck]

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)

[trader_jackson]

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

[bottomfeeder]

A bit cheeky of the Directors to not put this offer to shareholders. Id be real happy with $1.70

[Balance]

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)

Get the sp up and sell into it?

One too many highly conditional unsolicited offers these days at prices way above market.

Something smells.

[X-men]

Bloody out of jail card there!!!

[bull....]

lol looks like they released the news to save the stock price going new lows