Ryman's Weary Dunlop village in Melbource. Photo / supplied
Ryman's Weary Dunlop village in Melbource. Photo / supplied
The giant of New Zealand’s listed retirement village companies reports on Friday amidst the housing market downturn yet continuing strong demand.
But falling house values were less a focus of one piece of investment analysis on Ryman Healthcare than the prospect of the company keeping up to 30 per centof buyer’s money, instead of its attractively low 20 per cent currently.
Ryman bucks the sector trend with its 20 per cent deferred management fee.
Jarden analysts Arie Dekker, Andrew Steele and Vishal Bhula cited what they called the “more muted” housing market in examining company performance and financial outlook.
“We expect favourable demand dynamics to show through but expect cost pressures and challenges in care in particular to dampen the result,” they wrote in an outlook issued last week.
The analysts didn’t go into any further detail about the housing market, although yesterday the Real Estate Institute said October’s national house sales volume was 34.7 per cent down on last year from 7486 to 4892 and prices are continuing to fall. The national median price fell 7.5 per cent annually from $892,000 to $825,000 and Auckland’s is down 13 per cent from $1,249,000 to $1,090,000.
Declining property values and lower sales volumes can make it harder for people to sell their places and buy into villages. That can mean declining company sales, as well as lower prices.
Ryman group chief executive Richard Umbers. Photo / supplied
Ryman’s first half result for the six months from April 1 to September 30, 2022 is due out around 8.30 am this Friday.
Investors will get presentations from chairman Greg Campbell, group chief executive Richard Umbers and group chief financial officer David Bennett. The briefing will be live-streamed and archived shortly afterwards if anyone wants to watch it then.
The analysts noted how Ryman only keeps 20 per cent of residents’ money if they leave or die, whereas other companies keep 25 to 30 per cent. Ryman’s lower 20 per cent deferred management fee (the term of keeping that money) gave it a competitive advantage that should be helpful for the company in selling higher-density urban developments.
But there’s a flip side too. The analysts indicated that they see Ryman’s 20 per cent as too cheap and said the company stands to make more money if it pushed up the DMF to more of a market standard level. Could that be 25 per cent or 30 per cent, like the amounts rivals Summerset, Oceania, Metlifecare and others charge?
“The long-term consequences of deferred management fees that are too low are seen in the cash profitability of the business and we think it is a matter of time before it will be addressed. Given the time it would take to flow through in cash flows, we think Ryman should move sooner rather than later,” they said.
Given Ryman’s higher intensity development and need to sell larger amounts of units more quickly to recycle capital, one option could be to retain 20 per cent for the first sale of a brand new apartment or villa or care suite and apply 25 per cent, or even better 30 per cent on turnovers - subsequent sales to other buyers after each one leaves or dies.
“This is preferable, in our view,” the analysts said.
In May, full-year profit shot up 64 per cent after big revaluation gains and the business announced $205m plans for Rolleston and a new $350m Melbourne village. The company made $692.9m audited reported net profit after tax in the full year to March 31, 2022, up on last year’s $423.1m.
But the bottom line figure included unrealised investment property revaluations which more than doubled from $201.2m last year to $467.1m in the latest year. Underlying profit rose 13.6 per cent from $224.4m to $255m. Shareholders got a final dividend of 13.6 cents per share, taking the total dividend for the year to 22.4cps which is 43.9 per cent of underlying profit. The dividend was paid on June 17.
The company owns and operates 45 villages which house 13,200 people. It employs just over 6700 staff. Ryman is planning a further 29 new villages for 9000 people here and in Australia. Work is not started on every site but is underway on 16 new villages which are being built in both countries at the moment.
Here, Ryman is building at Takapuna on the ex-fire station lakefront site, Lynfield (Murray Halberg), Devonport (William Sanders), Hamilton (Linda Jones), Auckland’s Lincoln Rd (Miriam Corban), Havelock North, Hawke’s Bay (James Wattie), Hobsonville (Keith Park), Riccarton Park, Christchurch (Kevin Hickman) and Northwood in Christchurch.
In Australia, it is building at Brandon Park, Melbourne (Nellie Melba), Burwood East, Melbourne (John Flynn), Highton, Victoria (Charles Brownlow), Ocean Grove, Victoria (Deborah Cheetham), Aberfeldie, Melbourne (Raelene Boyle), Highett, Melbourne and Ringwood East, Melbourne.
Development sites are in Kohimarama, Park Terrace in Christchurch, Wellington’s Karori and Newtown, Auckland’s Karaka, Cambridge in the Waikato and Rolleston.
In Australia, Ryman plans to build in Victoria’s Mt Eliza and Mt Martha and Melbourne’s Essendon, Coburg North, Kealba, and Mulgrave.
Ryman has been trading around $8.05, down 42 per cent annually. It has a market capitalisation of $4b.
