Soft housing market takes a bite out of Ryman Healthcare’s half year

Thursday, 28 November 2024

Ryman Healthcare’s after tax profit for the first half of the year dropped 50% on last year, and the company won’t be starting any new retirement village developments before 2026, it said this morning.

The country’s largest retirement village operator announced profit after tax of $94.4 million for the six months to September 30, down from $187.1m over the same period last year.

Cash flow from existing operations dropped $24.8m to -$7.8m, while cash flow from development activity improved by $132.6m to -$44.7 million.

But the company’s revenue grew 10% to $366.3m, due to increases in care and village fees following the opening of a village and three main buildings, and growth across its existing portfolio.

Total sales of occupancy rights agreements (ORA) for units in its villages increased by 5% on the same period last year.

Of the 827 ORA sales, there were 603 resales and 224 new sales, which represented a 9% increase and a 5% decrease respectively.

Ryman Healthcare executive chair Dean Hamilton said the company was pleased with the operating performance of its villages in the first half compared to the previous year.

Occupancy remained high at 96.4% in its mature villages, but there was a cost to opening three main buildings as care beds were filled and serviced apartments sold down, he said.

“Excluding one-offs, our non-village operating costs were relatively static year on year. However, with lower development activity, we are capitalising less of these costs, impacting reported earnings.”

It was the strongest six-month period for ORA sales in the last three financial years, and that showed demand for Ryman’s product remains strong, he said.

“While we maintained pricing in a challenging market, this has translated to a compression in resale margins per unit, which are dependent on unit price inflation.”

There had been solid growth in village cash flows, but it was offset by higher non-village and interest costs, both due to lower cost capitalisation, he said.

“A material improvement in cash flow from development activity was driven by steady cash inflows from resident funding and significant reductions in capex on direct construction spend and reduced investment in new land.”

But dividends for shareholders remain suspended, with the company planning to review the dividend policy in the 2026 financial year, and base its decision on cash flow.

Hamilton said the financial focus of the board was on strengthening cash flow outcomes and reducing our debt position over time.

Ryman achieved several development milestones in the first half, including the completion of the Miriam Corban village, the company reported.

It now has 49 operational villages, 40 in New Zealand and nine in Victoria in Australia, and nine sites, which were all open, under active construction.

Two more villages are due to be completed by the end of the financial year, and the company expected to deliver at the top end of its 850 to 950 build target for the year.

But Hamilton said it did not plan to start construction on a new development outside of the nine in flight before March 2026.

“This allows time for our overheads to reduce and for us to work through current stock on hand, while building the internal capability and external relationships to successfully transition to a developer rather than constructor model.”

Current economic conditions remained challenging in both New Zealand and Victoria, and that impacted on the outlook, he said.

“Residential housing volumes and pricing continue to be subdued, impacting the ability of prospective residents to settle on ORAs. We expect these conditions to continue through the second half.”

Previous cash flow guidance assumed higher settlements of new ORAs in the second half of the year, and that was now expected to be deferred to the 2026 year, he said.

“We are delivering our programme of main buildings, acknowledging that the capital release from these takes time.

“We have moderated the pace of development at some of our existing inflight projects, reflecting current stock levels and market conditions.”

But Hamilton said Ryman was well positioned to benefit when residential property markets recover.

He was confident the company had the foundation to deliver a stronger future and one that balances great care with great financial performance, he said.