Ryman Healthcare's AGM was held today. Photo / Bevan Conley
Shareholders in New Zealand’s largest listed retirement business heard how their company’s returns had been unsatisfactory lately but also how the business was working hard to recover people’s faith.
Claire Higgins, Ryman Healthcare interim chairperson, opened today’s AGM by saying shareholder returns were unsatisfactory. She cited the company’s target="_blank">$902m equity raise and suspension of dividends, saying this had affected shareholders.
She said whether shareholders get dividends in the 2024 year was being considered.
“The board and management team are working closely together to reposition the business for improved performance, both in the near and longer term. Importantly, we have continued to deliver great care to our residents and build trust in our brand. And we continue to be true to our purpose.
“Having said that, we recognise that our shareholder returns have been unsatisfactory. In addition, the equity raise earlier this year, and the suspension of dividends, were significant decisions that have impacted shareholders. We recognise this and are working hard to rebuild your faith,” she said.
Covid and its effects on costs, supply and labour constraints and particularly construction cost inflation, together with the effects of interest rate rises and a flat real estate market tested this resilience. Ultimately the best decision for the business was to raise equity in February of this year, she said.
Richard Umbers, group chief executive, said three areas being focussed on were lower-density townhouse-style developments, reducing the number of hospital beds in new developments and more premium care offerings.
“We are looking closely at how we measure our success. Underlying profit has been too prominent in driving some of our decisions,” Umbers said.
Chief financial officer David Bennett had been appointed chief strategy officer but remained CFO while a replacement was found. A new appointment will be announced on the CFO position soon, Umbers said.
Severe weather events, a sub-economic environment and the tail of Covid all impacted Ryman, Umbers said.
In 2023, the company had invested more than $1b in its portfolio and he forecast positive free cash flow by 2025.
He sounded more cautious than in previous years, saying the business would continue to evaluate all sites before construction started. The capital raise had enabled the repayment of debt and allowed the company to focus on its strategy, Umbers said.
Asked during question time about debt levels and cash flow, Higgins said developments took a long time to complete and the company had seen debt rising but not foreseen the impacts of Covid and its effects. Complexities of some sites meant costs to build were more than expected “so it was a fine balance between our promise to the residents and the cost we saw”. The company “would have gone harder” and halted some builds if it could have, she said. “We did see it but didn’t react as fast in hindsight as I wish we did.”
Asked about challenges the company faced, Higgins cited economic uncertainty and the possibility of further interest rate rises. The real estate industry remained uncertain, despite some signs of recovery in Victoria. Construction costs had started to “come off”, she said.
In response to a shareholder’s question, Higgins said the business was committed to improving its disclosure regime and “there were improvements to make”. A second shareholder asked why it had taken so long to resolve disclosure issues.
Higgins said she would finish as interim chair on Monday when Dean Hamilton would take over. He is the chairman of Fulton Hogan and is on Auckland International Airport and The Warehouse Group boards.
“It’s been a pretty busy year with the capital raise and we’re been talking about doing further work on disclosures. Rather than picking off one or two disclosure issues, we’ve been collecting disclosures people would like to see us do differently and we’re on a journey in that regard,” Higgins said.
Shareholders could have trust in the level of disclosure made, given that auditors signed off accounts.
On when the dividends would be reconsidered, Higgins said an update would come in November with the interim result.
Asked about the cost of construction, director Anthony Leighs said he didn’t have specific numbers to compare costs with state agency Kāinga Ora, but construction spending was controlled by good systems operated by the business.
On a question about rising interest rates, Umbers noted differences between here and Australia. A regional leadership structure adopted by Ryman split control “specifically to be able to respond to market conditions”.
Asked about more solar panels in villages, Umbers said many already used solar energy. A number of climate initiatives were planned “and we are very keen to progress in this direction”.
Asked why Ryman had not adequately prepared for the housing downturn, Higgins said the business had embarked on a big growth plan in Australia and Auckland but some sites were more complex than anticipated. “There was some tension around the balance sheet and we were working on plans with management or remediate that.” But Covid and construction costs and mortgage interest rate rises hit, “we didn’t get ahead of that as quickly as we hoped but on the go-forward, we’re adopting a far more conservative position to the balance sheet,” she said.
On a question about the US private placement debt, Higgins acknowledged that had been a very expensive move for the business. Circumstances “required us to unwind that debt”, she said. Decisions on debt were taken by the board, not a single person, she emphasised.
The latest annual report out last month said the business had 38 villages in New Zealand and seven in Australia.
It employs 7200 people, accommodates 13,900 residents, has 4456 care or hospital beds, 9142 retirement village units, 14 sites where building work is under construction and a further 11 sites Ryman can build on in the future from its land bank.
The company is shifting to lower-density development. That means more townhouse-style villages than higher rise, it said.
“Despite uncertainty in the wider residential property market, particularly in Auckland in the latter half of the year, we saw continued healthy demand for what we offer. Booked sales of occupation-right agreements were stable at 1519 sales in FY23, broadly in line with FY22,” Ryman’s annual report said.
By March this year, Ryman only had 2.1 per cent of total units available for re-sale.
“At year-end, there were 14 villages under construction, a reduction of two on the prior year. Progress has been made on a number of village main buildings that were delayed due to Covid-19. We invested $1.04 billion in portfolio development and finished the year with net operating cash flows of $650.8 million,” the company said.
A site in Taupō was added to the land bank but Ryman sold its Mt Martha site in Victoria with settlement due later in 2023. It is also selling a Newton site in Wellington.
“Significantly, we received planning approvals for four sites in FY23: Karori and Rolleston in New Zealand and Mulgrave and Mt Eliza in Victoria.”
On its 2024 financial year, the company said guidance remained in line with that given in its equity raise outlook statement.
Underlying profit for the 2024 year is expected to be in the range of $310m to $330m.
“Our portfolio is expected to grow by 750 to 800 retirement village units and aged-care beds, with a similar proportion of care beds to FY23. Net investing cash flows are estimated to be in the range of $800m to$1b,” the report said.
The board has determined that no final dividend would be paid in the 2023 financial year.
Resumption of dividends in FY24 will be considered depending on trading performance, cash flow and market conditions, Ryman’s annual report said.
Shares are trading on the NZX today at around $6.82, down 18 per cent annually, giving a market cap of $4.6b.
Anne Gibson has been the Herald’s property editor for 23 years, has won many awards, written books and covered property extensively here and overseas.
'Developers are a good target for a council under financial pressure.' - Steve Evans