ARV - Arvida Group

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

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Whacc

Quote from: Basil on Oct 04, 2022, 01:27 PMModels are only as good as the assumptions behind them

I'll take that as a 'no' then.
Just a vibes operator.

I don't follow whoever you're talking about following.
It's not clear that ARV think care is a huge problem.
They explicitly stated that care suites yield an acceptable return.
Government funded care is a problem, yes.  Every operator is slowly decreasing their government funded care portfolios.


You can also put the most punitive assumptions you want into a model too.

Sure, ILU have gone well in recent years, due to HPI increases and a demographic bow-wave.

You seem certain that will continue.  Like a model, you're basing that on assumptions, the principal one seemingly that history just repeats?
You don't think that's a little... simplistic?

Ferg

#31
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?

An interesting question to which I suspect you already know the answer.  The capex cost and/or sale price for a suite would be half or less than an ILU.  Both are subject to 30% ORA, although a term under 3 years would not see the full 30% realised.  A care suite with a tenure of 2.5 years would have a management fee of 15% year 1 + 10% year 2 + half of 5% for year 3 = 27.5%.  Average tenure for an ILU is say 7.5 years.  It appears the management fees for a suite would recycle almost 3 times faster than an ILU.

Let's test that.

In 7.5 years an ILU at a sale price of say $500k would earn ($500k x 30% ORA=) $150k in Management Fees.  Average of $20k p.a.

In 7.5 years 2 x suites at a sale price of say $250k each would earn ($250k/suite x 2 suites x say 27.5%ORA x 3 rollovers =) $412k in Management Fees.  An average of $55k p.a.

So the management fees would be 55/20 = 2.75 times higher for the capital invested, assuming both had a similar development margin.

To put this into a cashflow would require assumptions around development margins.  To avoid that, I will work on sale prices instead.  The ILU returns 30% of the sale price over 7.5 years in cash.  Whereas two care suites with the same total cost as the ILU returns 82.5% of the sale price over the same time period.

Interesting indeed.


winner (n)

Seems the market has interpreted this extract as a veiled profit warning / maybe cut in dividend - after all it did start with that ominous phrase 'However, with headwinds ...'

However, with the headwinds encountered over the first half, in order to retain the full year dividend at a
comparable level to FY22, a payout ratio around the mid-point of the distribution band is forecast based on
the current trading conditions


A complicating factor for F23 is they gave a huge number of extra shares. Back of the envelope sums says a 5.5 cents dividend (same as last year assuming comparable means same) at 50% payout implies EPS 11.0 cents v last years 12 cents..... is about an increase in $ terms of 10% though

So EPS less then last year .... wasn't acquisition to be eps accretive?

Nice of them to give an update but being rather obtuse has created uncertainity. A pity really because ORA sales are going well .... but those costs must really be hurting

Hopefully they will be more specific (and upfront) when half year result is announced in November


winner (n)

Share price recovering after sinking into the 130's

What was the price of those cheap shares in the cap raise about a year ago?

Basil

#34
Whacc - "Just a vibes operator"  Nothing could be further from the truth....read some of Beagle's 20,000+ posts on the other site on this sector and its participants....  There's very little money in care, ARV have said as much today.  OCA's inflation adjusted underlying eps has fallen 17% since they listed 5 years ago.  That's all the evidence I need right there.  Read SUM's last half year report.  DYOR.

Ferg, all very well in theory.  Change your model to assume it takes on average 18 months to sell a care suite in the first instance, that they don't ever go up in line with inflation, that's there's a 18 month vacancy period between when it becomes vacant and resells again and servicing the resident needs in there costs the company $100 a week in underfunded Govt care, (all of these assumptions look reasonable to me) and then tell me they make more money than ILU's.
Even Maverick admits the real money is in ILU's.  Trouble is OCA are saddled with 69% of their units being in care.  The real problem for them by my estimate is they can only move the needle about 1% per annum and the extent of the growth in the seriousness of the underfunding of care is moving much faster than that.

At least ARV acknowledge there's a problem with returns on care and are looking to divest themselves of basic care facilities.  Good for them. 

Ferg

#35
Quote from: Basil on Oct 04, 2022, 05:00 PMFerg, all very well in theory.  Change your model to assume it takes on average 18 months to sell a care suite in the first instance...[snip]... that's there's a 12 month vacancy period between when it becomes vacant and resells again

So with 18 months to sell, occupation of 30 months and a resale vacancy of 12 months, that gives occupied 30 months of a total 60 months - i.e. a 50% occupancy.  Have you got a source for that?  Last time I checked the RV companies were 90%+ occupied.  Edit: I see you edited your post to have 18 months unoccupied post departure which puts occupancy at 45% (being 30 of 66 months) - where did that come from?  If Arvida are 45% occupied then that is a major issue.

While I am editing:
Quote from: Basil on Oct 04, 2022, 05:00 PMservicing the resident needs in there costs the company $100 a week in underfunded Govt care
Have you got a source or workings for this?

Basil

#36
450 units unsold as at balance date (OCA most recent analysts call, M admitted to me he didn't listen in)  Most were care suites, from memory about 380 of which about 80 were rented out temporarily under a PAC.  Analysts were shocked and asked for second confirmation of figures, I was shocked.  Amounts to a whole years worth of sales (of all unit types) carried as stock.  No other RV company is carrying anything like that in stock. 

Here's the extent of the problem.  Last year they sold 174 new care suites and there were 66 resales see annual report page 7 here http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/OCA/392386/370979.pdf
Resale stock will keep coming available, (for obvious reasons).  At current new care suites sales rates as at 31 March 2022 they had more than 2 years of stock.  They disguised part of this by renting some of them out as PAC rooms.  The problem isn't getting better anytime soon because they're supposed to have delivered another 113 care suites at Lady Allum last half.  Assuming new care suite run rate has continued as per last year the current problem in terms of unsold care suites is likely to be worse than as at balance date.

Why aren't they selling you might ask ?  Something I have answered already in dozens of posts so won;t repeat. Maybe there has been a transcript of the call published somewhere ?  If not you'll either have to take my word for it or give the CFO a call.

The back of the envelope model you drew up has more holes than a sieve, sorry, I have to call it how it is.
$100 per week is an estimate. Noone is making money on care.  OCA's increased DMF fees which have been growing nicely in recent years, my calculations are that 90%+ of all DMF growth is eaten up by rampant care cost inflation so I'm not making that estimate without any underlying knowledge. The company won't give you commercially sensitive data on that but have a look at what ARV had to say today.  Its clear their care is dragging the company down and returns on care suites is merely "acceptable"  The EBITDA margin on care has gone from 19% when OCA listed down to 12% despite the so called transformation of their business.  In other words, the business transformation to care suites hasn't worked because the rate of increase in the cost to provide care has outstripped the gains from the transformation process.  (Ever worsening underfunding of care).

To ARV's credit at least they recognize they have a problem with the returns on care, unlike OCA who appear committed to doing more of the same, which is likely to result in a very similar outcome to what they've achieved to date, (no growth, or bottom quartile growth in eps going forward).

The definition of insanity is to keep doing what you've always done and expect a better result going forward.  Known consented developments appear to move the needle by on average 1% per annum over the next 6 years.  By about 2028, (barring further primarily ILU village acquisitions) I estimate OCA will be about 63% care and 37% ILU.    That's still a VERY poor position to be in my opinion.
On the other hand ARV are already at least 72% invested in ILU and keen to increase that as quickly as possible by the looks of it.
They also sell at a hefty discount to NTA and would be my pick of the discounted RV companies if SUM were not such a juggernaut when it comes to growth.

Question 1 for you.  Can you name me any other company on the NZX with a CAGR of 31% over the last decade other than SUM ?
Question 2. Would you be surprised to learn you can invest in SUM on a forward PE of only 13 ?
Question 3. Given that why would you bother with a super high care model, OCA, that has proven to date it can't grow earnings but is trading on very similar metrics ?

Ferg

Quote from: Basil on Oct 04, 2022, 05:44 PMThe back of the envelope model you drew up has more holes than a sieve, sorry, I have to call it how it is.

Sorry to disappoint you but that was not a model by any definition.  It was a back of the fag packet estimate.  Your rebuttal was also full of holes.  I'm waiting for the sources for 45% occupancy and the losses of $100/week.  My "BOTFP" workings already had no inflation so maybe you didn't understand what I wrote.  Yes you correctly identified no vacancy between occupancies, but then you omitted to mention occupancies for ILUs.  If you want to construct a proper model then go for it but make sure you bring in all the variables and you treat them alternatives consistently.

Basil

#38
Results speak for themselves, no model is required and answers to above questions are self-evident.
SUM up ~ 780% since they listed less than 11 years ago, OCA up just 14% in ~ half that time.  I rest my case which business model works better for shareholders.

BlackPeter

Quote from: Basil on Oct 04, 2022, 07:00 PMResults speak for themselves, no model is required and answers to above questions are self-evident.
SUM up ~ 780% since they listed less than 11 years ago, OCA up just 14% in ~ half that time.  I rest my case which business model works better for shareholders.


Hmm - not very convincing - is it? Just check out slowly SUM's grew in the first half of their respective listing period (admittedly, more than 14% in total, but this was in the middle of a wild bull run). Some posters at that time worked as hard on down ramping SUM as you are now trying to down ramp OCA.

However - if we follow your argumentation, than the juicy time for OCA is now while SUM might well do a Ryman on its holders.


BlackPeter

#40
Quote from: Basil on Oct 04, 2022, 05:44 PM450 units unsold as at balance date (OCA most recent analysts call, M admitted to me he didn't listen in)  Most were care suites, from memory about 380 of which about 80 were rented out temporarily under a PAC.  Analysts were shocked and asked for second confirmation of figures, I was shocked.  Amounts to a whole years worth of sales (of all unit types) carried as stock.  No other RV company is carrying anything like that in stock. 

Here's the extent of the problem.  Last year they sold 174 new care suites and there were 66 resales see annual report page 7 here http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/OCA/392386/370979.pdf
Resale stock will keep coming available, (for obvious reasons).  At current new care suites sales rates as at 31 March 2022 they had more than 2 years of stock.  They disguised part of this by renting some of them out as PAC rooms.  The problem isn't getting better anytime soon because they're supposed to have delivered another 113 care suites at Lady Allum last half.  Assuming new care suite run rate has continued as per last year the current problem in terms of unsold care suites is likely to be worse than as at balance date.
grow earnings but is trading on very similar metrics ?

...


Not quite sure what your obsession with M and his attendance to this analyst call is all about. If you have a beef with him I propose you sort that out with him personally instead of consistently attacking him on a forum where he is not posting. Feels quite awkward. How do you feel about people telling questionable facts about you behind your back?

Apart from that - there are obviously other ways to get the facts but attending to a specific analyst call, however - the version you are telling re this call is not consistent with the version M told me. Given that I see him as quite careful related to facts would I trust his story, but maybe you just misunderstood him?

Some of your other OCA related claims (e.g. re vacancy rates) are so far out of this world that it is quite ridiculous. Just do some basic maths with their occupancy rates and you would not make such outrageous statements related to vacancy times. It just does not add up.

You don't seem to understand either, that the out renting of new units as PAC rooms is not a disguise of not selling them, but something they have to do when they knock down old buildings and building new units. Should they wait with the conversion until all old residents have died or should they alternatively just put these old residents on the street?

If they would do that we would hear your howling all across the globe.

I think it might be time for the beagle to let go and reconsider why he put his teeth into this particular leg in the first place ... while you did raise in the beginning (long time ago in the other forum) some valid concerns impacting all Retirement villages ... it feels like you are moving more and more to OCA specific alternative facts combined with a personal vendetta against a poster from a different forum.

Not a pleasure to read ... 

winner (n)

Quote from: BlackPeter on Oct 05, 2022, 11:16 AMHmm - not very convincing - is it? Just check out slowly SUM's grew in the first half of their respective listing period (admittedly, more than 14% in total, but this was in the middle of a wild bull run). Some posters at that time worked as hard on down ramping SUM as you are now trying to down ramp OCA.

However - if we follow your argumentation, than the juicy time for OCA is now while SUM might well do a Ryman on its holders.



Assumed you were referencing earnings - if not my apologies

If it was earnings not quite true

Chart is of each EPS indexed to time of listing

SUM might have been a 'beginner' growth wise lol but OCA has yet to cross the start line

You cannot view this attachment.

winner (n)

BP in case you were referring to shareprices here's how share prices have gone since listing

I'm getting worried about you as well - you seem to have become enamoured with this Oceania and maybe lost your normal objectivity about things. Not like you to so stringently defend your new love when its criticied

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Left Field

Whoa that's a telling EPS chart, thanks for posting Winner.
"The difficulty lies not in new ideas... but in escaping from old ideas." (J M Keynes.)

Basil

#44
Love your work Winner.  Picture says a 1000 words.

BP I couldn't disagree with your post above more.    I see no need to defend myself against such baseless allegations you've made.