New Zealand companies have a poor record in Australia but Ryman Healthcare is more likely to be successful because of its low risk approach.
Ryman recently announced the acquisition of a village site in Wheelers Hill, Melbourne. This will be the company’s first village in Australia after building 24 villages in New Zealand with a total of 3,085 units and 2,022 care beds. The average house price in Wheelers Hill is around A$700,000 making the area similar to Remuera, Auckland, where Ryman’s Edmund Hillary is located.
However the catchment area in Wheelers Hill is greater than for most of its New Zealand villages because of higher population density.
Ryman is expected to start construction of the Wheelers Hill project towards the end of the 2012 calendar year. Stage 1 will include approximately 150 units compared with 550 new units on this side of the Tasman each year. Thus the Melbourne project will represent around 20% of the company’s new units in year one and about 4% of Ryman’s total portfolio when completed.
Hence Ryman is taking a measured approach towards its Australian expansion.
There are a number of plus factors across the Tasman including a much higher population, superior unit prices and care beds are more lucrative in Australia than New Zealand.
In general New Zealand companies have not been successful in Australia. However Ryman is reducing its downside risk by taking a cautious approach and there will be great returns for investors in the long term if the company can replicate its New Zealand success in Australia.
Disclosure of interest: Milford is a shareholder of Ryman Healthcare through our Funds