Ryman Healthcare profit down, citing ‘negativity’ in property market

Rising expenses and less spectacular property revaluations hit profit from New Zealand’s biggest listed retirement village company, down 63 per cent annually, although underlying profit rose 18.4 per cent.

Ryman Healthcare made $275.8m for the full year to March 31, 2023, down on the previous $692.9m.

Revenue rose 12 per cent from $508.8m to $571m but operating expenses were also up from $466.2m to $533.3m, eating into the bottom-line figure.

Unrealised revaluations fell 84 per cent from $467.1m last year to $73.7m in the latest year.

Operating expenses rose 14.4 per cent reflecting new villages and one-off costs related to inventory and holiday pay provisions, the company said of that figure.

For the year ahead to March 31, 2024, the company has forecast underlying profit to be in the $310m-$330m range, in line with the statement provided at the time of its $902.4m equity raise in March.

Total assets of $12.51 billion are up 14.1 per cent annually.

Booked sales of occupation rights agreements held steady, “with growth in resales offsetting softer new sales. Total booked sales of occupation rights increased from $1.08b to $1.17b, driven by a 10.3 per cent uplift in average price per unit”.

Richard Umbers, group chief executive, told the Herald he had received no feedback on the company cutting annual shareholder dividends 67 per cent from last year’s 22.4cpu to 8.8cpu.

“That’s because we didn’t pay a second-half dividend,” he said of the drop.

Asked about Crown agencies probing the sector, Umbers said: “The Commerce Commission is not about a law change, it’s about our practices. The other investigation (Ministry of Housing and Urban Development) could ultimately lead to law changes.

“But we are a quality operator and I believe our model is fair to residents. We would engage to get a good outcome.”

Ryman group chief executive Richard Umbers. Photo / supplied

Neither Crown agency had been in touch directly but group chief financial officer David Bennett was on lobby group the Retirement Villages Association’s executive committee “so is therefore actively involved. We are taking a role in shaping the industry”, Umbers said.

Asked about the 67 per cent annual net after-tax profit drop, Umbers said: “We’ve had a strong result from margins and resales. There’s a lot of negativity in the property market and people are talking down our ability to get people in.”

But many people’s decisions to move into a village were based on need, not house prices, he stressed.

Margins on the resale of units in Ryman’s 45 villages here and in Australia were up in some geographic areas, up from more than 20 per cent to more than 30 per cent, particularly in Melbourne, Umbers said.

Ryman had re-sold 1059 units in the latest year, he said. The company provides accommodation for 13,925 residents, some of whom are couples.

“The resale trend is still continuing to see encouraging signs,” Umbers said.

In February, the Herald reported how Ryman surrendered to its $3b net debt position and asked shareholders to help repay almost one third of it. Capital raises at the scale of Ryman’s $902m offer are uncommon.

Last May, Ryman’s profit shot up 64 per cent after big revaluation gains and the business announced $205m plans for Rolleston and a new $350m Melbourne village.

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.

New Zealand operations made $589.6m of that net reported profit after tax and Australia $103.2m and one institutional investor said this morning the result was far stronger than the market had expected.

The sector is under pressure, with the Commerce Commission saying this month it started an investigation into the multibillion-dollar retirement village industry at the same time as a ministry has the sector under the spotlight for its practices.

The commission confirmed its involvement after long-standing complaints from the Retirement Village Residents Association, Consumer NZ and others.

And it’s not the only arm of the state with the sector in its sights.

Te Tūāpapa Kura Kāinga The Ministry of Housing and Urban Development also has an investigation under way after widespread calls for change from Consumer NZ, the Retirement Commissioner, the association and residents.

Brian Peat, Retirement Village Residents Association president, said this month: “We’re simply asking for fairness and consumer protection. We, along with Consumer NZ, believe some clauses are not fair - and will not stand up to scrutiny.”

Analysts are now looking at how more Government regulation could change the sector. Arrie Dekker, Jarden managing director and research head, put out a note this month, written in collaboration with colleague Vishal Bhula.

There was potential for changes from the reviews that could affect business models and require adjustments, they said.

Ryman Healthcare, Summerset, Oceania Healthcare and Arvida Group were listed as stocks in the sector.

The sector and its growth were a testament to the quality of service and experience provided to residents and indicative of a sector operating without systemic issues, they said.

On potential implications, compulsory buyback and capital gains sharing could be affected.

Buyback timeframes had been a systemic issue and changing this could “test” some smaller private operators, the note said.

Forcing owners to share capital gains with residents would be a big change.

Not doing this had been “a key source of cash flow for the sector over the late decade”, the note said. So owners might seek to be compensated for losing that with charging higher fees.

Overall, a legal review could spell big change.

“It would be remiss to ignore the potential for change out of these reviews, with the sector needing to take a balanced approach in its response,” the note warned.

Ryman has a market capitalisation of $3.8b.

Shares have been trading around $5.40 lately, down from $14.88 in September 2021.