[Villages Kahuna]

I’ve thought about why this latest generation of the Morses has purposely and callously begin to change the character The Villages, and the relationship with residents it has taken decades to develop. The construction of densely-sited apartments at Brownwood were first. Then the destruction of Hacienda Hills CC and announcement of another large high-rise building, and recently plans to build apartments in the recently-closed resident’s club, Katie Belles. I believe this is just the beginning. I think I know why.

These actions are what is necessary if the Morse family has plans to sell their ownership interests in The Villages or take the business public. The Villages is profitable, no doubt. But it doesn’t have enough consistent, repeatable earnings to maximize it’s value in such a sale. Repeatable less risky earning flows are what financial buyers and the capital markets use to value businesses.

Businesses are valued as a multiple of earnings, whether sold to a single financial buyer, sale to a public company, or as an IPO on the stock market. Yes, The Villages has some repeatable, consistent and growing sources of earnings—rent from all the shopping centers and the town squares retail, the bank, the championship golf clubs. But just not enough repeatable income to optimize it’s value, which is how the capital markets will value The Villages.

Without a stronger source of repeatable, growing income The Villages as a business will be valued as just another home builder. Profits are great so long as the owners keep buying land, building houses, and selling them to new residents. But if they ever stop that cycle, earnings drop dramatically. The capital markets are forward-looking and will ascribe a much lower multiple to the home-building part of the business than to the parts that will be ongoing if the three Morse siblings who currently own The Villages leave or retire. To increase the value of the Morse ownership more retail, apartments, or somehow monetizing their ownership of everything in The Villages not owned by residents will be necessary.

The three Morse siblings are each billionaires individually, according to Forbes magazine. But it’s all “paper wealth”. If they sold their ownership of The Villages, it would be worth nowhere near that amount. They’ve reached an age when they are almost certainly considering retirement. And among the dozens of Morse-Schwartz grandchildren and great grandchildren, there are only a few as talented as the siblings who want to work as hard as they did, or work for The Villages at all.

Selling the business is the only way the siblings can monetize their long, successful careers and retire. And to increase it’s value the business needs more repeatable, less risky sources of earnings. Unfortunately, achieving those objectives will probably require a change in the relationship and trust that tens of thousands of people who have “bought the dream” have placed in them.

I don’t have any inside information, but I did retire after a long career as an investment banker. I don’t want to be a Debby Downer, but what I see are owners that are preparing to “cash out”. It won’t happen overnight, it might take a few years, but don’t think we’ve seen the end of efforts to monetize their ownership by the Morse siblings. There will certainly be more apartments, such as in the new “non-resident” section adjacent to the new school complex and who knows what in the recently-announced 400 acre medical business section in the southern part of The Villages. I think that some of the amenities that have been free until now, will carry a cost in the future.

If you see something differently, post your feelings here. All I’m saying is that we should all remain aware of what’s happening that might change “Florida’s Friendliest Hometown”.

[Topspinmo]

IMO when they sold to districts that should of sealed residential building. IMO the problem is the commercial properties are for most part setting empty. Now what left? turn property into multilevel apartments where it’s more profitable to build up than out and more stable income.

IMO Bottom line It won’t become house resale problem for 10 years out when apartments flood the market. I agree majority that will be moving into apartments probably will use few outside apartment area amenities due to fact they are one step from assisted living or nursing home. IMO as long as there balance in just enough apartments not flood of them and of course age restrictions strictly enforced.

[Stu from NYC]

Very interesting

[Ladygolfer93]

Originally Posted by Villages Kahuna

I’ve thought about why this latest generation of the Morses has purposely and callously begin to change the character The Villages, and the relationship with residents it has taken decades to develop. The construction of densely-sited apartments at Brownwood were first. Then the destruction of Hacienda Hills CC and announcement of another large high-rise building, and recently plans to build apartments in the recently-closed resident’s club, Katie Belles. I believe this is just the beginning. I think I know why.

These actions are what is necessary if the Morse family has plans to sell their ownership interests in The Villages or take the business public. The Villages is profitable, no doubt. But it doesn’t have enough consistent, repeatable earnings to maximize it’s value in such a sale. Repeatable less risky earning flows are what financial buyers and the capital markets use to value businesses.

Businesses are valued as a multiple of earnings, whether sold to a single financial buyer, sale to a public company, or as an IPO on the stock market. Yes, The Villages has some repeatable, consistent and growing sources of earnings—rent from all the shopping centers and the town squares retail, the bank, the championship golf clubs. But just not enough repeatable income to optimize it’s value, which is how the capital markets will value The Villages.

Without a stronger source of repeatable, growing income The Villages as a business will be valued as just another home builder. Profits are great so long as the owners keep buying land, building houses, and selling them to new residents. But if they ever stop that cycle, earnings drop dramatically. The capital markets are forward-looking and will ascribe a much lower multiple to the home-building part of the business than to the parts that will be ongoing if the three Morse siblings who currently own The Villages leave or retire. To increase the value of the Morse ownership more retail, apartments, or somehow monetizing their ownership of everything in The Villages not owned by residents will be necessary.

The three Morse siblings are each billionaires individually, according to Forbes magazine. But it’s all “paper wealth”. If they sold their ownership of The Villages, it would be worth nowhere near that amount. They’ve reached an age when they are almost certainly considering retirement. And among the dozens of Morse-Schwartz grandchildren and great grandchildren, there are only a few as talented as the siblings who want to work as hard as they did, or work for The Villages at all.

Selling the business is the only way the siblings can monetize their long, successful careers and retire. And to increase it’s value the business needs more repeatable, less risky sources of earnings. Unfortunately, achieving those objectives will probably require a change in the relationship and trust that tens of thousands of people who have “bought the dream” have placed in them.

I don’t have any inside information, but I did retire after a long career as an investment banker. I don’t want to be a Debby Downer, but what I see are owners that are preparing to “cash out”. It won’t happen overnight, it might take a few years, but don’t think we’ve seen the end of efforts to monetize their ownership by the Morse siblings. There will certainly be more apartments, such as in the new “non-resident” section adjacent to the new school complex and who knows what in the recently-announced 400 acre medical business section in the southern part of The Villages. I think that some of the amenities that have been free until now, will carry a cost in the future.

If you see something differently, post your feelings here. All I’m saying is that we should all remain aware of what’s happening that might change “Florida’s Friendliest Hometown”.

There is nothing left to say but the old saying, you hit the nail RIGHT ON THE HEAD ! The valuation of publicly traded shares, how those stats are determined, etc. etc. Many have wondered for 15, even 20 years when that would happen, you could "see" it coming, though it has a huge downside, the residents "could" gain the same rights as other citizens in "normal" communities, but it would also mean those elements that, as you so clearly explained, create the kinds of income streams stock holders expect. Koo Doo's for "seeing" what the constant stream of "unusual" events, not in the interest of making live more comfortable for the retiree residents, or a better quality community, only a continued march toward those elements many came to escape.

Considering the developers past behavior I don’t think I ever trusted them. Good, affordable houses yes. Ethics no. Zoning will constrain how many apartments can be built in an already densely built community. And I believe the new commissioners in Sumter will act on behalf of the residents. Part of the vacancy issue is the outrageous rents the developer charges along with sticking his nose into merchants financial statements.
But I think the commercial manager says they have a 90 percent occupancy rate anyway. You are correct that if they want to cash out the business value with be the present value of the business cash flow. With interest rates so low it makes the present value larger so maybe that is why the rush to dump low yielding assets. On the other hand with all the land in Southern Oaks they could make money from just home building to live a comfortable retirement for many years.

[Jim 9922]

You provide a good hypothesis as to the "why" behind the several significant different development trends appearing in the last couple of years. As noted, the developer family has strengthened its future repeating income streams.
I personally would be saddened if the developer leaves us to be saddled with a public corporation which in turn is saddled with significant leveraged debt and only interested in maximizing future short-term cash flows and quick payback to shareowners. Not only that, but a lot of the rights governing our community which we have trusted to the developer would be transferred to the succeeding corporation.

[TNGary]

Kahuna,
Very insightful perspective. A bit fuzzy to me at first, but after reading your comments it all appears very logical. A true game changer for TV. We have a lot of talented and well versed folks on this site. To support Kahuna's position, many individual owned entities once run by the Initial owner, next are run by the family, then do go public and are run by accounts to maximize short term gains. I hope your wrong Kahuna but I am afraid you nailed it. Wow

[tophcfa]

Kahuna,

You are indeed very forward thinking and I agree that you are on to something. There is no way the developers (or should I say their consultants/advisors) would have changed the families business model so abruptly without a valid reason. Why worry about pi$$ing off lots of existing homeowners, who bought into the dream, when their new vision is setting up an exit strategy. I have been racking my brain trying to think of why such an about face on a successful business model would take place in such a short time period. I think I am getting old, have been retired too long, and am loosing my edge, I should have come to the same conclusion as you. As a fellow retired investment banker, thanks for your intuitive perspective (and as an investment banker, I am sure you know what the CFA in tophcfa stands for). Here is hoping that whatever happens, the new business model does not trash what we bought into during the remaining active years of our lifetime. Stay tuned!

[jamorela]

Your perspective makes sense to me.

[GOLFER54]

What you concluded makes absolute sense to me. As a resident here for over 15 years, the changes I saw were usually a benefit for those living here. However in the last couple of years, it seems greed is their number one priority and those folks that have purchased their homes by these on going Constructions of apartments are no doubt upset, as they are losing the value of their investments and privacy.

[Annie66]

I just hope your musing does not give the developer a thought they didn't have before your post.

[Bob in Fishers]

As long as we live in a free enterprise system property owners can buy sell develop as they see fit

[FromNY]

Thank you, very insightful.
The possibility also is that those who will in the future retire to TV are a completely different demographic group. Less Veterans, less traditional family units.Even less incomes. Look around Florida. There are communities with apartments and or condos in the middle of town squares. Places like Clermont, Melbourne Beach. Naples. Maybe the developers have more insight then we think. Actually would welcome Condos or Townhouses no yard work. Change happens and we can work to be part of it. Heck in 17 years all of a sudden every street corner has an Assisted living , memory care, nursing facility. Now that is preparing for all of us getting very needy. Sure the singal family home will always be the dream,will the economy support that? My opinion is to stay educated to the changes. Find what works for you. Or start the process of where do I want to age out?

[Stu from NYC]

Originally Posted by Annie66

I just hope your musing does not give the developer a thought they didn't have before your post.

The developer seems to be several steps ahead of us all the time.

If this is their direction it has been planned for some time. They must be shaking their head about the Sumter commission election and how it affects their plans.

[UseYourBrain]

He commercial properties are empty because they charge too much rent. Just lower the rents and have them filled out and they would be making more money through volume