Plans for a Ryman Healthcare estate at Mount Eliza, Victoria. Photo / Ryman Healthcare
Plans for a Ryman Healthcare estate at Mount Eliza, Victoria. Photo / Ryman Healthcare
The country’s largest retirement village operator is asking shareholders to stump up $902 million to help repay the company’s uncomfortable level of debt, and will not pay a full year dividend.
Ryman Healthcare announced a 1 for 2.81 entitlement offer to the New Zealand Stock Exchange on Wednesday morning, inviting eligible shareholders in New Zealand and Australia to subscribe for new shares at a 22 per cent discount of $5 a share.
Shareholders could choose to take up the offer in part, full, or not at all. If they did not participate, shareholders’ existing holdings in Ryman would reduce.
“Our significant recent investment in our portfolio underpins our potential for future growth but has resulted in higher debt than we are comfortable with in current market conditions,” Ryman chief executive Richard Umbers said in the announcement.
“The steps announced today will mean we are well capitalised as we seek to meet increased demand for the Ryman way of life, while also increasing cash flow generation and shareholder returns.”
The company’s board decided to suspend a full year dividend payment for the current financial year, with expectations to recommence dividends in the 2024 financial year.
It had also renegotiated debt covenants with its bankers in response to rising interest rates, out to September 2025.
Ryman had $3 billion worth of debt on its books currently.
One of Ryman Healthcare's retirement villages under construction in Hobsonville.
Photo / Supplied
Interim chairwoman Claire Higgins announced other changes to improve Ryman’s cash flow, including slowing or pausing the development of six villages and shifting its focus to building lower density, townhouse-style villages.
“Future developments will be more weighted toward independent living units, enabling us to retain our focus on providing a continuum of care for our residents, while right-sizing Ryman’s care offering.” Higgins said.
Ryman’s pipeline was set to deliver 1000 new retirement village units and care beds this financial year. That would reduce to a maximum 800 new units and beds the following year, before ramping up to about 900 in the 2025 financial year.
Since the 2018 financial year, Ryman had invested $3.9 billion in its property portfolio.
Ryman owns and operates 45 retirement villages in New Zealand and Australia, and currently has 15 villages under construction, six of which were now paused or slowed, and 6,710 units in its current land bank.
Forsyth Barr senior equity analyst Aaron Ibbotson said the capital raise “made sense” alongside the slowdown in village developments.
“[Ryman’s] reducing build rates quite dramatically for next year at least. That’s going to preserve a lot of cash.”
He said the offer was the amount needed to repay its US Private Placement (USPP), and the $134m of costs associated with the repayment.
“I think it’s quite straightforward to assume they were potentially on track to reach some of or one of their covenants with the USPP holders and they’re notoriously difficult to negotiate with.
“That’s probably why they went ahead and opted for this early repayment through a capital increase.”
Analysts including Ibbotson had recently raised major concerns over Ryman’s debt levels, as it came under pressure from falling property values and higher interest costs.
“That situation has deteriorated quite quickly for Ryman in particular,” he said.
Ryman directors agreed to participate in the raise, with Geoffrey Cumming personally committed to subscribing to $25m worth of new shares, and interests associated with co-founder Kevin Hickman committed to purchasing $2m.
The offer opened to institutional investors on Wednesday and would open to retail investors on Tuesday February 21, closing on March 6.
A bookbuild would take place if there were un-exercised options.
When completed, it would reduce Ryman’s gearing ratio from 45 per cent to around 34 per cent.
