Ryman signals big rise in cost of moving into its retirement villages

Monday, 2 September 2024

Retirement village living is becoming a more expensive option as inflation and construction costs continue to pose challenges for village operators.

Retirement village operator Ryman is lifting the deferred management fee retirees must pay as it tries to turn around its financial performance.

Currently, people moving into its villages pay to secure an Occupation Rights Agreement (ORA) to live in one of its units.

But they must also pay a fixed weekly fee, and when they leave a deferred management fee (DMF) of 20% of the price they paid to move into the unit, getting back 80% of the money they paid for their ORAs.

But from October, people buying ORAs will have the choice of either agreeing to a DMF of 30%, or a lower DMF of 25%, if they opt to pay a higher price for their ORA.

New residents will face a second choice from October between agreeing to pay higher fixed weekly fees, which remain unchanged over the time they stay in the village, or weekly fees which start lower but rise each year based on rises in NZ Super payments.

The hike in the costs to live in a Ryman village will not affect current residents or people who have already signed contracts to move into one of Ryman’s villages.

Nigel Matthews, chief executive of the Retirement Village Residents Association of New Zealand, tells MPs on the Social Services and Community select committee what's wrong with the current retirement villages industry.

Ryman executive chairperson Dean Hamilton said the moves were part of Ryman’s “Fit for the Future” programme to improve the company’s performance, which has dragged on its share price.

Ryman’s share price started trading on Monday at $4.85, down from $9 two years ago.

The company was also in negotiations with its lenders to renegotiate covenants on its loans, a move it said was “a prudent step”.

Hamilton, who is standing in as executive chair until a replacement for former chief executive Richard Umbers is found to run the business, blamed increased costs, and residents living longer for the moves.

“The general population is living longer, our residents are staying longer and costs have increased across the board,” he said.

Ryman Healthcare acting executive chair Dean Hamilton.

“As a result, we are increasing our DMF and weekly fees for new residents to ensure we can sustainably provide the facilities and services that underpin the great experience that our residents enjoy today.”

Ryman was also restructuring its business, with several senior executives leaving.

It was also putting new developments on pause until 2026 at the earliest.

“We are focused on completing the 10 villages under active construction, all of which have already welcomed new residents,” Hamilton said.

“In the current financial year, we have opened three of the four new main buildings at these villages planned for the period (at Miriam Corban, James Wattie and Keith Park).

“We have also opened our ninth village in Victoria with Sir Hubert Opperman in Mulgrave welcoming its first residents in recent weeks. Our priority is to progressively finish these 10 villages over the next four to five years on time and to the forecast cost projections we shared at our full year results.”

“Outside of these 10 inflight projects, we do not intend to commence a new development before March 2026,” he said.

Aged care is inadequately funded by the taxpayer, Ryman says.

“We believe it makes sense to pause and wait for construction costs and interest rates to weaken from recent high levels, while releasing capital from current in-flight developments as these are completed and sold down,” he said.

But he also referenced a political question that continues to be asked in the two markets in which Ryman operates.

That was how the New Zealand and Australian governments decide to fund aged care, which Hamilton said was inadequate.

“We have been clear with both governments that we need to see change if they want us to build more beds and we believe there are solutions,” Hamilton said.

Larger retirement villages typically not only provide retirement units for people to live in while still relatively able-bodied, but also provide rest home care as well for their residents to use should they need them at the end of their lives.

While falling interest rates and an eventual improvement in employment markets should support a stronger property market, Hamilton did not expect to see an improved trading environment for the next six months.

The weaker property market was dragging on sales, Hamilton said.

“Sales conditions remain challenging at this point of the economic cycle, with residential property market volumes subdued, making it harder for potential residents to sell their family homes and move into our villages,” he said.