Barry Jones of James Wattie reitrement village Havelock North competing in the Ryman olympics last year. [Source: NZ Herald]

The giant of New Zealand’s listed retirement village sector has reported a 31 per cent drop in interim net profit after tax to $194m, after lower revaluations.

Ryman Healthcare’s result for the six months to September 30, 2022 was below the $281m in the previous corresponding period. Property revaluations of $89.3m previously dropped to just $49.6m in the latest period.

Underlying profit rose from $95.9m to $138.8m.

Shareholders will get an interim dividend of 8.8 cents per share on December 16, unchanged from last year, representing 31.7 per cent of underlying profit.

Net assets were up 5.6 per cent to $3.63b and total assets rose 9.7 per cent to $12b. Total revenue was up 10.6 per cent to $274m but occupation of completed villages fell 3 per cent to 94 per cent of the portfolio.

Chief executive Richard Umbers said: “We are currently in a rapidly changing and uncertain macro-economic environment in both our markets and the board and management are mindful of the impact this is having on our business. We are therefore closely monitoring our cashflows and capital management.”

Work has started at Cambridge, Karaka and Rolleston here. In Australia, consent has been granted for a village at Mulgrave. Two new villages were completed in the latest half-year: Charles Brownlow and Raelene Boyle.

Aaron Ibbotson, Matt Montgomerie and Milan Law of Forsyth Barr released research this week saying Ryman would be the first aged care company to report this earnings season.

“We believe it to be an important indicator of the sector overall,” they said, noting a 43 per cent share price drop in the last year. Expectations among investors were therefore low.

This week, the Herald reported how Jarden analysts Arie Dekker, Andrew Steele and Vishal Bhula cited a “more muted” housing market in examining company performance and financial outlook.

“We expect favourable demand dynamics to show through but expect cost pressures and challenges in care in particular to dampen the result,” they wrote in an outlook issued last week.

The analysts noted how Ryman only keeps 20 per cent of residents’ money if they leave or die, whereas other companies keep 25 to 30 per cent. Ryman’s lower 20 per cent deferred management fee (the term of keeping that money) gave it a competitive advantage that should be helpful for the company in selling higher-density urban developments.

But there’s a flip side too. The analysts indicated that they see Ryman’s 20 per cent as too cheap and the company stands to make more money if it pushed up the DMF to more of a market standard level.

Could that be 25 per cent or 30 per cent, like the amounts rivals Summerset, Oceania, Metlifecare and others charge?

“The long-term consequences of deferred management fees that are too low are seen in the cash profitability of the business and we think it is a matter of time before it will be addressed. Given the time it would take to flow through in cash flows, we think Ryman should move sooner rather than later,” the analysts said.

Given Ryman’s higher intensity development and need to sell more units more quickly to recycle capital, one option could be to retain 20 per cent for the first sale of a brand new apartment or villa or care suite and apply 25 per cent, or even better 30 per cent on turnovers – subsequent sales to other buyers after each one leaves or dies.

“This is preferable, in our view,” the analysts said.

In May, full-year profit shot up 64 per cent after big revaluation gains and the business announced $205m plans for Rolleston and a new $350m Melbourne village. The company made $692.9m audited reported net profit after tax in the full year to March 31, 2022, up on last year’s $423.1m.

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.

Underlying profit rose 13.6 per cent from $224.4m to $255m. Shareholders got a final dividend of 13.6 cents per share, taking the total dividend for the year to 22.4cps which is 43.9 per cent of underlying profit. The dividend was paid on June 17.

Shares have been trading around $7.99 giving a market cap of $3.99b.