ARV - Arvida Group

[winner (n)]

BP ...how does this replacement cost affect the share price / valuation?

Is it just that if somebody wanted a lot of retirement villages instead of building from scratch they'd just buy an outfit like Arvida ...and maybe pay a premium for them ....which underpins ARV guess at NTA .....which makes ARV cheap as today
Replacement cost seems to be a bit of a buzz word these days

[Mos]

Replacement cost being the cost position of new industry capacity is very relevant if demand is growing.

[lorraina]

A friend bought a unit at a retirement village about 7 years ago for $600,000.
She would like to move to an apartment at the same village.
Apartment cost is about $850,000 to $900,000.
The village would pay out for her unit $600,000 less 30% say $420,000.
So would cost her between $430,000and $480,000 to change.[She can not afford that].
Sold the village cost of old unit is now $420,000.Spend $30,000 to $40,000.Cost is now $480,000.Sale price $1mil means the village pockets $520,000..Remember they have already pocketed a development margin when they first sold the unit to my friend.

Interesting is that her old unit will sell for over $1mil.

So it would appear to me replacement value/cost would be far in excess than NTA.

[Mos]

Good example of the value creation power of the model if done well. However NTA is based on current valuation not historical cost.

[lorraina]

Therefore current NTA is meaningful.
And would follow the village does not need to build any more units to be very profitable.
If fact I think they stopped building a few years ago.

[Mos]

Hi Lorraina,

Another thought on your post. My relative is in a Ryman village and I thought for a transfer at Ryman you would only pay the difference between the $600,000 and the $850,000 to $900,000 in your example (so additional payment of $250,000 to $300,000). They also don't double dip on DMF as far as I understand it so the total DMF across both units would be 30% (or 20% in Ryman's case) of the higher value unit. I could be wrong on this but that was the impression I got from their documents. This may vary I guess at another RV operator.

[Mos]

Therefore current NTA is meaningful.
And would follow the village does not need to build any more units to be very profitable.
If fact I think they stopped building a few years ago.

Agree current NTA is meaningful given it reflects current valuation of assets less debt. So I think buying Arvida shares at less than half of NTA offers reasonable prospects of good returns with limited downside. 

[Mos]

Expanding on potential returns from Arvida. I see the DMF and other fees as almost covering the cost of running the village, care and head office. Based on this thinking, actual value creation comes from two value drivers. Firstly, growth in the value of assets per share less cost of debt per share. Secondly new sales margin per share.

On the first value creation driver, Arvida have $5.48 of tangible assets per share. If they can generate an average long term increase in value of these property dominant assets of 3% per annum, that equates to 16.44 cents per share. Arvida have debt of $1.03 per share, lets say the cost of debt is 6%, then 6.18 cents needs to be deducted from 16.44 cents resulting in value creation of 10.26 cents per share which is an 11.2% return on the current share price of $0.92.   

On the second value creation driver, last financial year Arvida achieved new sales margin of $27.8 m which equates to 3.8 cents per share (based on shares currently on issue - I know they would have had a few less shares last year but I am too lazy to adjust for this). 3.8 cents is a 4.2% return on the current share price of $0.92.

Adding these two sources of value creation together generates an estimated forward looking long run annual return of 15.4% based on the current share price. I would then deduct 1 to 2% from this to allow for a small operating loss, assuming that the operational costs (of running the villages, care and head office) are a little higher than DMF and other fees. This would bring the return down to 13.4% to 14.4% based on the assumptions outlined.

I am not saying this will be the return as the long run 3% annual increase in the value of assets per share is an assumption, albeit one I am pretty comfortable with personally, recognising there will be plenty of volatility along the way.

It is worth noting that if the share price was $2.00 per the NTA the estimated return from these two value drivers would be the same in terms of cents per share but equate to only 5.1% + 1.9% = 7.0%. This would come down to 5.0% to 6.0% assuming the negative returns from operations mentioned above.

I welcome any thoughts on this and appreciate that others may have a more negative view on long term real estate appreciation, which as we know, is the main driver of whether it is possible to generate economic returns from the RV model using a lot of zero cost debt via the ORA's along with equity and some interest bearing debt to fund new developments.

[Poet]

Halted

[Greekwatchdog]

Halted

Without an announcement? Am I missing something? Nope don't see anything.

CR or Takeover..

[Poet]

Without an announcement? Am I missing something? Nope don't see anything.

CR or Takeover..

Capital raise would be bizarre after reassuring on balance sheet stability just three weeks ago and declaring a dividend.
Leaves takeover a possibility I guess
Nothing on nzx website

[winner (n)]

Halted

Share price been pretty weak this week

[winner (n)]

Rumours about a transaction eh ...... opportunistic offer no doubt on way .....market mood might accept $1.30

[Poet]

Rumours about a transaction eh ...... opportunistic offer no doubt on way .....market mood might accept $1.30

I wouldn't think $1.30 would do it, but if that offer does come, even if unsuccessful it should light a fire under the listed RVs.

[winner (n)]

So there ..offer made a few months

$1.70 and to bugger off

At least Board thinks ARV worth over 2 bucks

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/ARV/423543/409608.pdf