ARV - Arvida Group

Started by Plata, Jul 19, 2022, 12:22 PM

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Basil

#15
Hard to believe it was all the way back in 2014 when ARV listed.  Suppose its easy to overlook when the share price has been so lackluster.  Listing at 95 cents in late 2014 and seven and a half years later its only $1.43 (up 53%) and the vast majority of that time the real estate market has been booming.
Pretty lackluster stuff...suppose a lot of that based on decision making by the CFO.
Better than OCA though only up 17% in over 5 years in a booming market, oh my goodness !

SUM were ~ $2.75 when ARV listed in late 2014 and now $10.15...not quite four times your money but pretty close. 
I guess some on here are naïve enough to think this sort of outperformance happens by accident.

Like I said earlier today, some people are proven performers and others...   Each to their own.

kasper

#16
My point is who cares?  ILUs are hardly a wonder product compared to care as I outlined previously.
They're in essence just a straight bet on the residential housing market.
If ILUs are such a fail-safe strategy then why was MET such an abject failure with 95%+ ILUs?

I'd prefer to watch the the next 6 months play out before making bold statements and aspersions on any given strategy.
I'm still a big fan having a mix of product and the full continuum of care model.



Whacc, interesting you should mention MET because they are actually in the process of increasing their care footprint so looks like they agree with your sentiment.

Arbroath

Easy to pick time frames to suit performance but obviously SUM has been a strong performer the last few years.

Both Ryman and Arvida have been hurt by prospects of poor care returns dragging on them but at $9 and $1.40 that is a good opportunity to me looking forward.

Basil

#18
The way I see it is the level of care represents the extent of handbrake being on in a car.  The returns simply are not there in care other than in a way that creates a marketing platform for selling ILU's as a continuum of care.

High care, = high handbrake effect and little progress. (OCA)
Medium care = medium handbrake effect and medium progress (RYM ARV)
Modest care rate = modest handbrake effect and good progress  (SUM)

I did really well out of MET x 2 but acknowledge the market perceived their almost complete lack of care as being unattractive.

SUM have the business model that shows enough care to provide a sufficiently marketable proposition that they do have the full continuum of care covered without having so much care that its ruins their bottom line.  That's how I see it. Once we eventually start coming out the other side of this housing correction I reckon they will really shine.    Too early to be backing the truck up yet but I've put it in for a service and new COF so its ready to go when the time is right :)

Whacc

#19
Quote from: Basil on Jul 24, 2022, 10:19 PMThe way I see it is the level of care represents the extent of handbrake being on in a car. 

The value of care in a portfolio will only become truly evident when the bow-wave of the boomer demographic hits that acuity level.

How do you think things will play out when the wealthiest generation in history will be scraping with each other over not-nearly-enough beds like a giant high stakes game of musical chairs?

Whacc

#20
Quote from: Basil on Jul 25, 2022, 10:03 AMWow, that's quite a statement.

Do you disagree with it?

All that money being spent on European holidays right now will be redirected into care in 5-10 years time.
That's not something they will have discretion over, it's something they will have no choice over - and they all will want the best.

Basil

The only thing worthy of further discussion from your post is when the baby boomer population might really start to have a dramatic effect on care, i.e. when the concept of care suites might really take off, (assuming and I don't think for one minute that's a safe assumption, that refundable deposit schemes like RYM's and simple daily rate charges for premium rooms are not significantly more attractive than care suites).

I can't speak for ARV's thinking but I know from a presentation Earl Gasparich gave to the Auckland branch of the NZSA that they are targeting the 85+ age group.  Its widely recognized that the boomer generation really started with the post world war 2 baby boom in the middle of last century, more here https://en.wikipedia.org/wiki/Mid-20th_century_baby_boom but well worth noting for investors that the first of those baby boomers born in about 1946 won't be 85 years old until 2031.

My expectation is that if there is a scramble for care services that otherwise are not available from one of the other providers on more fair and reasonable terms such that people won't have any option but to buy care suites under the DMF model, the demand curve won't start to really accelerate until the 2030's, 8 years away.  On the other hand the demand curve for independent living units targeting people 70+ is really starting to kick into gear now (1946 + 70 = 2016).  Evidence from all the providers shows most people don't move into retirement villages until their late 70's so in terms of peak inflows to ILU units we're looking at between now and about 2044.

Whacc

#22
Quote from: Basil on Jul 25, 2022, 10:52 AMThe only thing worthy of further discussion from your post is when the baby boomer population might really start to have a dramatic effect on care, i.e. when the concept of care suites might really take off, (assuming and I don't think for one minute that's a safe assumption, that refundable deposit schemes like RYM's and simple daily rate charges for premium rooms are not significantly more attractive than care suites).

I can't speak for ARV's thinking but I know from a presentation Earl Gasparich gave to the Auckland branch of the NZSA that they are targeting the 85+ age group.  Its widely recognized that the boomer generation really started with the post world war 2 baby boom in the middle of last century, more here https://en.wikipedia.org/wiki/Mid-20th_century_baby_boom but well worth noting for investors that the first of those baby boomers born in about 1946 won't be 85 years old until 2031.

My expectation is that if there is a scramble for care services that otherwise are not available from one of the other providers on more fair and reasonable terms such that people won't have any option but to buy care suites under the DMF model, the demand curve won't start to really accelerate until the 2030's, 8 years away.  On the other hand the demand curve for independent living units targeting people 70+ is really starting to kick into gear now (1946 + 70 = 2016).  Evidence from all the providers shows most people don't move into retirement villages until their late 70's so in terms of peak inflows to ILU units we're looking at between now and about 2044.

Quote from: Basil on Jul 25, 2022, 10:52 AMThe only thing worthy of further discussion from your post is when the baby boomer population might really start to have a dramatic effect on care

That was the main point of my post, so happy to make that the only thing.

Agreed, ILUs are benefiting from that demographic tail-wind right now, but it still remains that the decision to purchase an ORA over an ILU is a discretionary decision - you can defer it until you're happy with whatever your thoughts are on timing for maximising value etc.
Care is not, if you need it then you need to go in there and then.

~85 is the average ingoing age for care, sure, but the distribution really kicks up after age 80 - given the size of the boomer demographic the need for beds will still be far greater than historically required from ~4 years from now.
It's not like a switch flicks at 85 years old.

Question is, do you want to write-off care as a strategy (which you seem to) ahead of this value realisation?  It's not like stock prices are going to magically come to this realisation 4-8-whatever years from now, it will get priced in ahead of time when people click that this is will happen.


It's all very well to judge management teams and the validity of their strategy on sales that are happening today, but those sale and the type of product being delivered to market are based on strategic decisions that were set in motion 4-5 years ago.

If you're an operator that wants to participate in the care wave then you need to at least have the land in your pipeline now earmarked for care because the runway to develop and open a greenfield site is at least 4-5 years - so when we're assessing the value of listed players it is very much a discussion that needs to happen now. 

Tilting away from care now might make sense on what you're seeing right now in terms of an underfunded sector.
But the more that underfunding situation continues, and the more the sector tilts away from care now, then the greater the opportunity is for those who retain care to profit in future from this known & certain demographic wave.

So it's a case of how far beyond your nose are you willing to look.

Basil

Its clear I don't think care suites are an attractive option and I believe they will remain unattractive until such time as there is no other realistic option for those looking for premium care.
The extraordinary pressure the care sector is under in terms of underfunding is something I think that continues for the foreseeable future.

ARV's recent village acquisitions moves its business model (72% ILU v 28% care) a lot closer to SUM's in terms of the ratio of care to ILU's and they also have a lot more facilities with the 4 year Gold standard MOH audit cycle than OCA.

Based on a share price in the very low $1.40's ARV would be my clear favorite in this sector of the companies trading at a discount to NTA.  That said I prefer SUM with its long proven history of much stronger underlying eps growth, vast landbank, low gearing, proven high margin development model and huge potential growth in Australia.  Its worth a modest premium to NTA in my view based on 33% CAGR in underlying earnings over the last decade, a growth rate over that time period that to the best on my knowledge is unmatched by any other listed company.

Watching for a change of tide and then backing the truck up on SUM.  In my view their business model is most fit for purpose in terms of delivering outperformance in this sector for the foreseeable future. 

 

Shareguy

#24
Good update today. Sales going well......BUT

Paying out a greater percentage of earnings to maintain dividend at comparable level.  Costs are eating into profits.

Interesting to include broker target prices. If they are so cheap where is the insider buying.



Basil

#25
Interesting the way they called out the intense underfunded cost pressures in care and how they continue to reduce the care side of their operation and also that care suites provide an "acceptable" return.  Hardly a ringing endorsement for care suites is it !
ARV have 28% of their business model in care and are clearly aiming to reduce this further.
Its crystal clear the care side of their operation is really dragging down the whole business.
The implications for another company in this sector which has nearly 70% of their units as care should be clear to all and not require any further barking from this Beagle.  http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ARV/399910/380409.pdf

winner (n)

Quote from: Shareguy on Oct 04, 2022, 11:51 AMGood update today. Sales going well......BUT

Paying out a greater percentage of earnings to maintain dividend at comparable level.  Costs are eating into profits.

Interesting to include broker target prices. If they are so cheap where is the insider buying.




Seems they going to get $15m more realised gains then last year but 'hinting' divie same and that's a greater %age of profit

Sort of says most the $15m gone into the increased costs

Whacc

Quote from: Basil on Oct 04, 2022, 12:02 PM... and also that care suites provide an "acceptable" return.  Hardly a ringing endorsement for care suites is it !
ARV have 28% of their business model in care and are clearly aiming to reduce this further.


Basil, genuine question, have you ever knocked up a simple cash flow model comparing a care suite to an ILU?

Basil

Quote from: winner (n) on Oct 04, 2022, 12:16 PMSeems they going to get $15m more realised gains then last year but 'hinting' divie same and that's a greater %age of profit

Sort of says most the $15m gone into the increased costs

That's a LOT when only 28% of your business model in total is in care.  Care suites provide an acceptable return and we're selling down non care suite care....clearly because that gives them a completely unacceptable return.

Basil

#29
Quote from: Whacc on Oct 04, 2022, 01:15 PMBasil, genuine question, have you ever knocked up a simple cash flow model comparing a care suite to an ILU?
Models are only as good as the assumptions behind them and therein lies the problem with people following one who spends endless amounts of time on his.  Its plain for all to see that the returns on care are very poor and only "barely acceptable"  Its clear ARV think care is a HUGE problem from comments today.

While OCA's real underlying profit has declined 17% since they listed SUM's underlying profit has increased 140%.  That's comparing the most care intense business model with the least intense care model.
That's the real world....others build theoretical models to get whatever answers they're looking for maybe because they have most of their eggs in the one basket.