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Shares of Arvida edge up 2 percent in debut on NZX

Shares of Arvida Group, the new retirement village operator, rose 2 percent on its NZX debut after its initial public offer raised $80 million in capital which will be used to reduce debt.

The stock first traded at 97 cents, before dropping back to its offer price of 95 cents, valuing the company at $215 million. The Christchurch-based company is integrating 17 retirement villages and aged care facilities. The IPO included a $5 million priority pool for existing residents, staff and investors to buy into the company. Existing shareholders hung onto about 63 percent of the business.

Arvida will use the funds to repay $70 million of debt, $4.35 million will be used to pay offer costs. After the IPO, Arvida expects to have debt of around $7.8 million and has a $40 million bank borrowing facility that would enable it to carry out planned brownfield developments and any new acquisitions. The brownfield developments in various stages of completion will see another 200 to 250 care beds and units or $9 million worth added to the portfolio by 2016.

Approximately 54 percent of Arvida's 1,800 residents are in aged care facilities with a further 25 percent in serviced apartments. The company says its higher proportion of care beds makes it a different investment offer from its already listed rivals, Summerset Group Holdings, Metlifecare and Ryman Healthcare, delivering a stronger cash flows and less volatility in earnings than the retirement village side provides. That will allow Arvida to pay out between 60 to 80 percent of underlying profit.

The financial information in the prospectus shows the company is forecast to make a loss of $1.4 million in the 2015 financial year on revenue of $59 million. When the costs of the offer and aggregating the rest home portfolio are excluded, the prospectus says underlying profit for the 2015 financial year would be $4 million, rising to $13.3 million in the 2016 financial year.

The underlying profit figures exclude unrealised gains from property revaluations. No synergy benefits of merging the group of rest homes have been factored into the forecasts as Wilson said these will be incremental.

Based on current earnings forecasts, Arvida intends paying a first dividend of about $2.3 million in late May 2015 for the first financial quarter ending March 31.