Retirement village operator Ryman Healthcare [RYM] is asking shareholders for $902 million as it looks to repay debts raised on the United States Private Placement market (USPP).
Ryman shares went into a trading halt on Wednesday as the company, which has been expanding fast into Victoria, Australia, announced what it described as a "reset" of its capital structure. It has decided it will pay no further dividends to shareholders for the 2023 financial year, but currently intends to resume dividends in 2024.
After transaction costs, the net proceeds from the capital raising are estimated to be $872 million - and these will all be used to extinguish the USPP debt. Ryman's forecasting that after this its net debt will be $2.25 billion, down from $3 billion.
The share offer is fully underwritten by Macquarie Securities (NZ) Limited and UBS New Zealand Limited.
The trading halt announcement to NZX said Ryman's shares and listed bonds would remain in halt until the earlier of:
• An announcement by the issuer stating the outcome of the institutional shortfall bookbuild; or
• Market open on the NZX on Monday, February 20, 2023.
The company's chief executive Richard Umbers said Ryman's significant recent investment in its portfolio underpins the potential for future growth "but has resulted in higher debt than we are comfortable with in current market conditions".
"The steps announced today will mean we are well capitalised as we seek to meet increased demand for the Ryman way of life, while also increasing cash flow generation and shareholder returns."
About 180 million new shares are to be issued at $5 each, which compares with a closing price on the NZ on Tuesday of $6.40. According to NZX figures, Ryman shares have dropped about 30% in value in the past 12 months.
Since the start of the 2018 financial year, Ryman says it has invested over $3.9 billion in its portfolio, delivering more than 2,699 independent living units and 1,018 new care beds for residents. During this period Ryman also invested in new sites for its landbank, which provides a platform for growth. Ryman currently has 15 villages under construction and 6,710 units in its current land bank.
"This period of accelerated investment, where investing cash flows exceeded operating cash flows, has resulted in elevated levels of debt. Resetting the capital structure with new equity through this offer will allow Ryman to pay down debt by fully repaying Ryman’s USPP notes and reduce pro-forma gearing from 45.3% to 33.9%."
The presentation Ryman released through the NZX on Wednesday said in response to "rapid changes in interest rates", Ryman had negotiated amendments to borrowing covenants up to and including September 2025 "to ensure continued covenant compliance".
Ryman had also slowed and/or paused construction at six existing sites and revised its development pipeline towards lower density developments, "reflecting prudent management decisions made in response to elevated debt levels and changing market conditions including rising interest rates, the outlook for residential house prices, elevated construction costs and supply chain constraints".
The company is expecting to report an "underlying profit" for the year to the end of March 2023 of approximately $280 million – $290 million.
It says following completion of the share offer, "Ryman intends to re-commence construction of certain projects on a staggered basis and the delivery of its re-prioritised pipeline".
Ryman’s re-prioritised development pipeline is to deliver approximately 1,000 new retirement village units and care beds in the 2023 financial year, 750-800 new retirement village units and care beds in 2024, and 850-900 new retirement village units and care beds in 2025 "to reflect prudent management in changing market conditions".
Beyond 2025 and subject to market conditions at the time, Ryman intends to return the build rate to its "original growth profile", targeting delivering approximately 1,300 units and beds in the 2027 financial year and 10% annual growth thereafter.
"Future developments are expected to be more weighted toward retirement village units in order to right-size Ryman’s care offering and maximise returns. As such, Ryman expects to develop 40-80 care beds per village (at its new developments) and materially reduce the ratio of care beds to retirement village units across its portfolio."
16 Comments
Ryman constantly crowed about how it's never had to do a capital raising since it's listing in 1999. They can strike that from their investor presentations now. Still, near enough a billion dollars is pretty big punt that their strategy of using leverage to their advantage isn't going to work into the near future.
the period of "accelerated investment" in Ryman’s portfolio, where investing cash flows exceeded operating cash flows, "has resulted in elevated levels of debt".
So they leveraged up big. I remember their increased value a few years ago was approx 90% based on the increasing value of their assets.
Like many other large companies, it's going to turn out management over-leveraged during a period of ultra-low interest rates, and their cashflow [which may well be diminishing if people are not able to get in via conditional sale of home] isn't enough to support that debt at real interest rates.
Raising near a billion dollars to increase existing stock by approx. 20% just doesn't stack up. And then they're promising 10% returns p.a....
It made sense to borrow with very low interest rates and now raise cash when the rates are much higher. I think it will be very well supported by SH and will see a rise in the share price over the next 18 months. The fact is that it is a growth industry and they have an excellent reputation and good land banks in both Australia and NZ.
Time will tell, but if it is fully subscribe,
it will be a good omen for the future.
Boomers and their children (potential inheritors) will look at the value proposition of retirement villages in the current environment and say no. Selling the family home in a falling market to move into a village where the financials are stacked in favor of the village owner does not make sense. As long as your health allows. Stay in your own home as long as possible. Even if you need to pay for help with cleaning and property upkeep it is better in the long run.
Nope. I know plenty who are happy to move into a retirement village. These all claim to understand the cost structures v other alternatives, yet have still chosen Ryman and others. But there are also plenty who don't want a bar of them. I understand there are a few villages with waiting lists.
If Ryman is repaying this loan early and under a penalty for early repayment, then it is under pressure from someone else to do this. Why otherwise do so. Presumably that pressure is coming from its other creditors, ie the banks.
Does anyone have any information on this question?
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.