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LONDON: A watchdog has put all stock exchange listed retirement village operators under close scrutiny as the business model comes under significant pressure.

The Shareholders Association is eyeing the retirement village sector after listed companies with billions of dollars of assets reported late last month.

Oliver Mander, association chief executive, said three issues were at the forefront.

These were debt management, government reforms and cash-flow management.

Ryman Healthcare’s decision to stop working at three sites and sell two others was an obvious move in a period of high interest rates, he said.

That was the result of increased focus on debt management.

“Debt is a critical factor for the sector,” Mander said.

The company last month reported net profit after tax fell 4 per cent from $193 million a year ago to $186.7m for the six months to September 30, 2023. It made $139m underlying profit, up slightly on the $138m it made at this time a year ago.

Mander wasn’t surprised about Ryman’s decision on five sites saying that was the right path for that company, ensuring they could get positive cash flow in the future.

Ultimately, the decision was about capital allocation so seemed reasonable, he said.

Richard Umbers, Ryman chief executive, last week said Ryman “paused” the development of a new village in Melbourne’s Ringwood East, expansion of Murray Halberg in Auckland’s Lynfield and development of a new lakeside village on the North Shore’s Takapuna.

The company will sell its Kohimarama site, abandoning a controversial $150m plan, widely opposed in the area when announced two years ago.

Wellington land in Newton was also for sale, Umbers said.

Mander said Ryman doing less high-rise construction was another move he understood. Developing vertical villages was not the most cash-flow-optimising way of getting money back into the business.

“You’re having to sell that development complete rather than sections of developments,” he said.

Mander said government retirement village reform “for the whole sector is something to be interested in”.

But he called for companies in the sector to have more transparency with cashflow reporting.

“That’s something we’re happy about although there’s some way to go.”

Radius Residential Care’s result last month showed it had pushed up revenue 21 per cent but rising costs reduced its bottom-line profit, making $84.4m total revenue in the six months to September 30, 2023, up on the previous half-year’s $69.8m.

Mander is due to meet Radius director Brien Cree later this week and said one of the issues was vendor financing.

“I’d planned to meet with Radius anyway. We’ve had a plan for the last couple of weeks. It’s good for me that the issue is highlighted. It’s something to raise and talk about. I’m sure it’s all fine. Brien Cree made the point it’s all been disclosed and transparent,” Mander said.

But it wasn’t a topic Mander said he’d picked up on before. However, he wouldn’t say if the NZSA was seeking a ‘please explain’ from Radius.

“I’m interested in other aspects of their financial issues, some vendor financing on previous property purchases, just understanding how that pans out,” Mander said.

“I’ve got no evidence to be concerned about anything. It’s a regular meeting which always helps us understand the company and what’s going on”.

Cree said Radius Care acquired several properties it previously leased, and ASB was unable to increase funding to acquire Matamata Country Lodge.

“We arranged funding with the vendor, which was subsequently reduced at rollover,” Cree said today.

“Radius Care was $1m short so I arranged that funding. The money was unsecured. Funding of that type attracts interest rates upwards of 22 per cent, so 18 per cent was reasonable given the unsecured nature of the loan,” he added.

“It has since been repaid in full. There are no issues, these matters are historical, and the items mentioned were all fully disclosed.”

On the wider listed retirement village sector, Mander said the whole business model in terms of the future was of interest.

Arvida Group last month declared rising assets totalling $4 billion and operating earnings up 15 per cent to $39m in its latest half-year.

The Auckland-headquartered business, headed by Jeremy Nicoll, pushed up asset value by 10 per cent, from $3.6b last year.

Announcing its result for the six months to September 30, 2023, Arvida said net profit after tax was up 1 per cent from $89.2m to $90m.

That rise was due to land and development activity and little change in valuations at the company’s 36 retirement villages.

Mander said that result was well-balanced between funds coming from care, development and resales.

“We’ve seen over the last couple of years care has dropped so more underlying profitability from occupancy and resales,” he said.