Is it the end of the golden weather for retirement villages?

Wednesday, 26 March 2025

Listed retirement companies have been a golden goose for investors for many years, but times have changed, and their future is now riding on a housing market recovery.

It’s been a tough few years for the retirement village sector. Challenging economic conditions, rising costs, labour shortages and the downturn in the housing market have hit village operators hard.

Some operators have fared better than others, but fortunes have been mixed, and the sector’s current difficulties are reflected in the financial results of the large-scale, NZX-listed operators.

Ryman Healthcare, Summerset, Oceania Healthcare, Arvida, Metlifecare and Bupa are New Zealand’s biggest operators, and together they own about 48% of the country’s villages and about 65% of its units.

Of the six, Ryman, Summerset, and Oceania are listed, while Arvida and Metlifecare are in the hands of private equity, and Bupa is a privately owned company.

Ryman recently shocked the markets when it announced a $1 billion capital raise to reduce its $2.6b debt to a more “prudent” level.

It was the company’s second substantial capital raise in two years, and followed a November announcement that its after tax profit for the first half of the 2025 year was down 50% on the same period the year before.

Revenue was up, but cash flow was down, and the company would not be starting any new retirement village developments before 2026, it said.

Shortly after Ryman’s raise, Summerset reported its financial results for the 2024 year and they showed that while the company saw a record year of sales, it too had a steep (20.1%) fall in after-tax profit.

The decline was largely due to the fair value movement of its investment properties over the year, and the company’s revenue and cash flow were up, it said.

Like Ryman, Oceania released its half year 2025 results late last year, and it reported a post-tax loss of $17.1m, down from a $35.2m profit over the same period last year.

Classification of positive value movements as equity rather than income, and an impairment due to the closure of buildings in one of its villages were factors, but the company said its focus would now be on improving sales.

It’s a change of pace for a sector in which the listed companies generated substantial returns for years, and has left investors wondering what’s going on and what it means.

Ryman Healthcare chief executive Naomi James says sales of retirement village units have been challenging, with sales in the December quarter down on previous years.

“This has been driven by challenges in the property market in the regions where our villages are located, elevated industry stock levels driving heightened competitive activity, and reduced sales momentum.”

It has left Ryman focused on driving efficiency across the developments it has underway, rather than starting new ones, and “actively reviewing” its landbank for “opportunities to deliver better value for shareholders” by selling, she says.

“Conditions remain challenging, which was a key consideration in raising equity when we did. It allows us to make our business resilient to current market conditions and gives us a clear runway to deliver on our operational transformation and return to disciplined growth.

“We have strong operating leverage to deliver cash returns when these conditions improve.”

James says aged care capacity is not matching the forecast growth in demand driven by the ageing population, but Ryman is uniquely positioned to accommodate the growing demand for care.

“We see opportunity to leverage the Ryman ‘continuum of care’ model, in particular in Australia where the funding model reform means that the sector provides a more sustainable investment opportunity.”

For Summerset chief executive Scott Scoullar, the last 12 months have been one of the worst economic periods he’s been through in his career.

But he is “pretty happy” with the way the company he leads has performed, with sales in the 2024 year up about 5% on the previous year.

Summerset’s uncontracted stock is currently up about 25% on last year, but that was driven by the release of 200 units in the company’s big new St Johns village in Auckland, he says.

“Anytime you have a big investment like St Johns, you need to acknowledge that you will carry that extra stock for a bit.”

Potential residents have been gun-shy about buying units over the last year because they are uncertain they can sell their house to fund the purchase, he says.

“But there’s been a significant improvement over the last six weeks. There is a lot more strength in people’s confidence around selling their home.”

Summerset is continuing to develop new homes, with 700 built across New Zealand and Australia last year, and similar numbers planned for this year.

The development plans were made a few months ago, before the company started to see some improvements in the market, Scoullar says.

“We entered into this year cautiously, but we’re quite optimistic at the moment. There is a pretty good outlook for us.

“Retirement villages are very attractive to people, and demand is increasing with the ageing population - and as perceptions of villages change.”

Summerset has landbank capacity for another 7000 homes, so it has the capacity to double its size as a business over the next 10 years, he adds.

There may be some green shoots appearing in the economy, but for operators much is riding on an improvement in the housing market, according to Harbour Asset Management's Shane Solly.

He says the economic impacts of Covid along with the housing market downturn has tested some of the models in the sector, and that can be seen in the financial results - and Ryman’s capital raise.

“For a sustained period of time it has been easy to sell a house in about 40 to 50 days, and then buy a unit in a village, but that’s changed, and for various reasons it now takes longer to sell.

“That slower sales process stretched the balance sheet of the operators with big development programmes, although the different models employed by operators impact on their results too.”

Summerset’s model is based around staggered, smaller broad acre development across a number of villages for example, whereas Ryman favours multi-level blocks which take longer to sell down as a large amount of units are all released on to the same market at once.

But the current conditions mean it is tougher to get cash flow, and so the sector is reducing development to get cash flow back into their businesses, Solly says.

“Rymans’ capital raise left them in a good position to weather the environment if things don’t get better in a hurry.

“They are working to boost cashflow, and they are stepping back from development, and likely to change the mix of what they build in future.”

Oceania is also tapering off its build programme, and changing to more broad acre style development, while Summerset’s debt levels are up as it - unusually - finished three big blocks last year, but cashflow will start to come in from them soon, he says.

“Tough decisions have been made, with the big villages now reset for a slower period of transactions, and there are good tail winds for the sector.

“Operators just have to convert that ‘silver tsunami’ from the ageing population. It’s there, and it’s coming, once the housing market improves further, but how do they turn it into cashflow?”

Nikko Asset Management investment analyst Tim O’Loan agrees the challenging sales environment and economic conditions have impacted on operators in different ways.

Summerset and Oceania are tracking quite well in sales and operating metrics given the environment, he says.

“And Summerset, which is not constricting in terms of growth, is especially well placed to perform strongly when the housing market picks up again.

“Ryman’s situation is a bit different. They have not seen the sales cadence they were expecting, and they missed the mark to the point they had to go and get money [through the capital raise] to rebalance.”

But the company has now had a full cleanout of the executive and the board, plus they are going through a cost out programme, he says.

“It does make for uncertainty for investors, but they are working through the issues, and are well-capitalised now. They have the right people in place, and are taking the time to refresh.”

O’Loan says it is important to acknowledge that it is a tough economic background, but these companies are largely still generating pretty good results.

The sector is not placed badly going forward, especially with lower, more stable interest rates now at play, and the housing market expected to improve, he says.

“There is an element of just waiting to see what the housing market does, and when it picks up. It now looks like it might be later this year and into 2026 that we will see a true recovery.

“But demand for retirement villages is high, and it’s only going to grow, and that’s why the sector remains promising for investors.”