ARV - Arvida Retirement Villages

[Greekwatchdog]

Yes Gwd it seems a really strong 4th quarter sales wise

And this is great news ….”Into the new financial year there is good momentum with almost 40% of resales /inventory at March end sold”

That’s pretty good going eh

Sure s W69. Onwards and Upwards thou little steps at a time.

[Greekwatchdog]

For Bars Review.
Arvida Group's (ARV) semi-annual investor update was on the whole, positive. It delivered: (1) strong resale gains, driven by both solid unit sales and margins, and (2) illustrated net debt was tracking better than our expectations. We were also encouraged by the reduced FY25 build guidance, suggesting a focus on reducing debt and realising the potential of its Arena acquisition. A sensible prioritisation given how the stock is currently valued. On the negative side was slightly weak new unit sales. But alongside this ARV provided some positive outlook comments that it has ‘started to see an up tick in settlement activity’ and applications are up >+20% year-on-year. We increase our target price to NZ$1.30, NEUTRAL.
link

NZX Code	ARV
Share price	NZ$1.18
Target price	NZ$1.30 (from 1.21)
Risk rating	Medium
C&ESG rating	B
Market cap	NZ$854m
Avg daily turnover	431.2k (NZ$481k)

link

Financials: Mar/	23A	24E	25E	26E
Rev (NZ$m)	318.9	352.5	355.4	381.9
NPAT* (NZ$m)	88.0	88.0	71.1	77.0
EPS* (NZc)	12.2	12.2	9.8	10.6
DPS (NZc)	4.9	3.0	3.1	3.3
Imputation (%)	0	0	0	0

*Based on normalised profits

link

Valuation (x)	23A	24E	25E	26E
PE	9.7	9.7	12.0	11.1
EV/EBIT	13.9	14.4	16.9	15.4
EV/EBITDA	12.8	13.3	15.3	14.0
Price / NTA	0.6	0.6	0.6	0.5
Cash div yld (%)	4.1	2.5	2.6	2.8
Gross div yld (%)	4.1	2.5	2.6	2.8

What's changed?

• Earnings: Annuity EBITDA increased +18%/+4%/+1% over FY24/FY25/FY26 given higher resale gains while underlying earnings are +21%/-6%/-2% over the same forecast horizon given lower new sale units in FY25/FY26, in-line with the lower build rate
• Target price: Increased to NZ$1.30 (from NZ$1.21) given increased Annuity EBITDA and lowered net debt.

Strong resales a positive sign


The key positive from ARV's update was the strength of its resale gains achieved. Both (1) strong unit sales, up +12% year-on-year for 2H24, and (2) improved resale margins, 31.5% in 2H24 versus 27.1% in 1H24, drove the result. The strength in margins comes despite our MI index suggesting aged care operators have held unit prices broadly flat for the last 18 months. We believe this suggests ARV has sold units with longer occupant times over 2H24, similar to Summerset's recent result. With some of these sales likely from its acquired Arena villages, we view this as a positive that its sizeable embedded value in its portfolio is starting to translate to cash gains.

Net debt controlled well


ARV's indication that drawn debt increased +NZ$27m over 2H24 was ~NZ$30m better than we expected and marks an impressive turn around from 1H24. It appears this result was driven by improved cash collection of sales and the higher resale gains, with deliveries in-line with expectations. We reduce our estimate of net debt growth over the medium term due to its lowered build rate and also aided by the NZ$30m sale of its Timaru village.

Build rate tempered — living within its means, a sensible choice


ARV has indicated a lowered build rate target for FY25. At ~150 units it is comfortably below our prior estimate and the ~200 delivered in FY24, but we believe this a logical move for ARV and illustrates its more conservative approach to capital management rather than a considerable drop in expected demand for its product. Of this 150 units for FY25, ~60% will likely come from its Queenstown Country Club development (care suites and apartments) with the remainder villas.

[winner69]

Thanks GWD

There profit forecast F24 lower than my $91m ..interesting

[trader_jackson]

Hey tj …….everybody saying Heartland could go to $1

We could have a bet who’ll get there first Arvida or Heartland

Or being optimistic have a go who’ll get back to $1.50 first

Strange world eh even thinking such stuff

Well ARV's bounced in the 90's before (in the past few months) but HGH sub $1 today is the lowest its been since the darkest days of April 2020... ARV down 5% in the past year while HGH is down 35% - ARV in a bit of a grey area perhaps, but the days are pretty dark for HGH currently given cap raise was done at $1.00 just a few weeks ago... strange world indeed

Disclosure: sold out of ARV this year at $1.20

[winner69]

Well ARV's bounced in the 90's before (in the past few months) but HGH sub $1 today is the lowest its been since the darkest days of April 2020... ARV down 5% in the past year while HGH is down 35% - ARV in a bit of a grey area perhaps, but the days are pretty dark for HGH currently given cap raise was done at $1.00 just a few weeks ago... strange world indeed

Disclosure: sold out of ARV this year at $1.20

Good to hear from you tj.

Yes strange world indeed …how ARV and HGH share prices have performed last year or so is a bit spooky. I don’t think neither of us would have believed 99 cents today

I don’t think HGH is going to recover quickly …going to be dark times for shareholders for a while …maybe both will be sub $1 this time next year …or ARV might get a new life.

[Jenny Ruth]

Hi all. My latest column published on my Substack, Just the Business, previews what the listed retirement village operators will tell us when they report their annual results on Friday this week and Tuesday and Wednesday next week.
The headline is: Can the listed retirement village operators dispel some murk?
And you can find it here:
https://substack.com/@justthebusinessjennyruth

[Wai Wai]

And will they (Arvida) tell us why they hid the $1.70 bid from us?

[Greekwatchdog]

Full Year out.

• IFRS net profit after tax of $139m, up 69%
• Underlying profit[1] of $85 million, down 3%
• Gross value sales of $427 million, up 13%
• 201 new units delivered, including 144 villas
• Total assets of $4.2 billion, up 12%
• Gearing at 33.9%
• NTA at $2.05 per share


Retirement village operator Arvida Group Limited today announced a full year net profit after tax (IFRS) of $139 million and underlying profit for the year ending 31 March 2024 of $85 million. Results include the impact of record unrealised movements in the fair value of investment property.


Operating Performance
Commenting on the performance Arvida CEO Jeremy Nicoll said it was encouraging to see our business performance in the later part of the financial year starting to recover following a period of challenging property and macroeconomic conditions. High inflation, high interest rates and a slow residential property market had impacted cash flow generation from operations.


Good progress with revenue uplift and cost out strategies had been made during the year to improve cash flow and profit performance.


Mr Nicoll said, “We are making a concerted effort to reduce our operating costs, with firm internal targets. Operating efficiency initiatives identified an initial $10 million of annualised cost out benefits to be delivered in the coming financial year.”


“An equal effort has been placed on increasing our revenue sources from other than the sale of retirement village units. This resulted in improved revenues from a review of weekly fees, service packages and premium care charges.”


Mr Nicoll noted there was more work to be completed in this area with a plan to introduce an annual uplift mechanism for weekly fees for new residents this year. A number of initiatives are in progress that will simplify and deliver improved operational performance.


A recovery in care occupancy to 94% helped restore contributions from care operations. Arvida has been underway for a number of years with a strategy to build care capacity under the care suite model, with government funding of the aged-care sector remaining challenging. Arvida supports the government’s commitment to the future of aged care, with the recently announced select committee inquiry into the provision of aged care services and Health NZ’s current review of funding and service models.


Strategic initiatives to mature critical operational areas of the business progressed over the year. Implementation of the 3-year people strategy is lifting the culture and capability of Arvida’s team. It is pleasing to note that mid way through the programme the improvements are evident in increased team engagement, lower turnover rates, and greater retention of our experienced people.


“We have also once again delivered excellent results in our resident satisfaction surveys reinforcing that our value proposition remains strong for existing and incoming residents.”


“Notwithstanding the soft residential house market, we delivered a record sales performance reporting a 13% lift in the gross value of sales to $427 million, and a 11% increase in the number of units settled. We continue to experience record levels of applications,” Mr Nicoll said.


Unit prices on settled resales over the year were on average 4.7% higher than last year’s independent valuations. The capture and creation of embedded value is a key indicator of expected future cash flows. Over the year the embedded value increased to $1.3 billion, up 11%.


Capital Structure Preserved
The Board and management placed considerable focus on ensuring a robust framework continued to be applied to capital commitments and the preservation of headroom in Arvida’s capital structure.


Key priorities identified at the beginning of the year highlighted the critical importance of ensuring development commitments were managed to funding capacity limits and that cash returns from development activities were cash positive going forward.


The development programme was repositioned to reduce cash outflow, while also meeting a build target of delivering 201 new homes in the 2024 financial year. The majority of these deliveries were villas spread across six communities. A development milestone was reached with the completion of the final stage of 57 apartments and redevelopment of the Aria Bay site in Auckland.


In the year ahead, Arvida is targeting a build rate of 140-150 new homes, including the delivery of a new care suite and apartment building at the Queenstown Country Club community. The build rate has been reduced to balance the expected gross value from new sales against the costs incurred on construction.


“We are committed to building out our existing developments, where we continue to achieve development margins as new units are added. The immediate focus is on completing developments at our premium sites that have significant embedded value,” said Mr Nicoll.


The consented development pipeline grew over the year with the planned broad acre development at Lincoln achieving its resource consent through the Fast Track process. In total the future development pipeline comprises 1,877 units, with the majority from greenfield development activity.


Mr Nicoll said, "we continue to look for opportunities to expand our portfolio and grow our business.”


“A rigorous review of development return thresholds that are expected from any new greenfield project is applied. This means that we limit our development debt by ensuring the growth is fully funded by the recycling of capital from the sale of new units.”


Mr Nicoll said Arvida also implemented a dedicated development debt facility during the year to allow for growth to be debt funded within a framework while focusing on reducing core debt. To increase its capital structure headroom, core debt reduction initiatives totalling $200 million have been identified, in isolation. Initiatives include the sale of surplus development land from existing greenfield sites, reduction of stock held for sale, suspension of dividends and pursuing the insurance claim for losses sustained from the Auckland floods. Lower core debt will position Arvida to deliver a sustainable level of growth and dividends going forward.


Gearing at 34% remained within the Board’s target range and represented the lowest gearing of listed retirement sector peers. Total assets increased 12% from last year to $4.2 billion.


Settlement of the $30 million sale of Strathallan retirement village in Timaru occurred on 30 April 2024. The transaction was completed at a 1% discount to the 31 March 2024 valuation.


Value Recognition
The Board is underway with a programme to assess and execute a range of available options to accelerate the recognition of Arvida’s intrinsic value for shareholders.


“We are taking a balanced approach with a view to ensuring the interests of our shareholders, residents and team members are at the forefront,” said Arvida Chair, Anthony Beverley.


Arvida is well underway with an operating cost-out and revenue capture programme along with strategies to optimise the village portfolio, reduce core debt and balance development expenditure to generate cash returns.


With the assistance of advisors, Arvida is also considering a range of alternative options to accelerate value recognition that includes engaging with other market participants on various capital partnerships, restructuring options and strategic alternatives for the Company.


Mr Beverley, said “The programme is seeking to ensure Arvida is well positioned to maximise shareholder value on a standalone basis, as well as providing outstanding service to our many residents and keeping our team members fully engaged in delivering a quality retirement living experience.”


Arvida will keep shareholders and the broader market updated with progress on this important initiative, as and when appropriate.


While the valuation recognition programme is underway, the Board has paused the dividend policy, advising that no dividend has been declared for the second half of the 2024 financial year. While the dividend is suspended, the Board will consider a revised dividend policy, including alternative metrics for the determination of future dividends payouts.


Demand for retirement living remains strong supported by an ageing population tailwind. Arvida continues to be well positioned to benefit as market conditions improve providing outstanding resident experiences in retirement living and aged care.

[trader_jackson]

wow even in the worst of times (aka now) Underlying profit is only down 3% - and almost 40% ahead of Oceania and a third of the famed Ryman

[winner69]

Lots of positive words there eh greekwatchdog but an average result at best …like selling heaps more and making about the same.

Wonder what “With the assistance of advisors, Arvida is also considering a range of alternative options to accelerate value recognition that includes engaging with other market participants on various capital partnerships, restructuring options and strategic alternatives for the Company” really means