Ryman Healthcare has been in the news recently, raising $1bn of new equity – it’s second raise in two years. Pre-Covid, the company was a top performing stock, so what went wrong, and what’s ahead? Milford Portfolio Manager Sam Trethewey talks to Ryan Bridge about Ryman’s turnaround.

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Bridge talks Business: 1 April 2025
Episode Transcript

Ryan Bridge:
Kia ora and welcome to Bridge talks Business with Milford Episode 27. This week, what went wrong with Ryman, the retirement business that pushed the boundaries and then fell from grace on the stock market? With assets of $10 billion but a market cap of just $3 billion, we’ll analyse their plan to turn the company’s fortunes around and I’ll ask where to from here for the share price? First, here’s your top 5 business bits from the past week.

1. Markets are bracing for Trump’s reciprocal tariffs. There was a little sell-off at the end of last week. Hopes that the tariffs were just a negotiating tactic from Trump are fading fast.
2. Meanwhile the US Fed’s hands are tied. The latest inflation number at 2.8% year over year, is still way too high to allow the Fed to cut rates.
3. Consumers also expect higher inflation. This is according to the latest US consumer surveys. These surveys are typically poor predictors of outcomes, but they do illustrate how Trump’s tariffs are being interpreted by the consumers in the US.
4. Back home shares bucked the trend here last week, up 1.4%. They were helped by defensive names like Contact Energy and strong results from GenTrack Limited.
5. This week we look for signs of improvement in the ANZ Business Survey here in New Zealand, as well as the health of the US labour market. They’ve got payroll data out Friday. And of course, we await Trump’s tariff announcement. We’ll get that Thursday, our time.
Ryman, you’ve probably heard the name. You’ve probably seen the retirement villages dotted across the country, a big Kiwi business. It was very highly valued on the stock exchange – back in the 2010 to 2020 period, this was pre-Covid – and then things started to unravel as the housing market did too. We’ll talk about that in just a minute and explain what went wrong with Ryman and what its future might look like, what potential there is for investors going forward. I’m joined today by Sam Trethewey. He’s a Portfolio Manager at Milford. Just a reminder that this segment is informational only and should not be considered financial advice. Sam’s with me now. Sam, welcome to the podcast.

Sam Trethewey:
Thanks, Ryan.

Ryan Bridge:
Good to have you here. So, let’s talk about Ryman. It was an absolute stunner on the stock market. It was amongst the top performers for a decade. Just give us a sense of how big and important Ryman was.

Sam Trethewey:
Ryman was one of the stocks on the NZX in that sort of decade pre-Covid. It was well held by retail investors, mum and dad investors, well held by institutions, and it made people a lot of money during that period. So broadly the share price went from $2 up to $15 just at the height of its peak in 2021. So very, very strong performer. It had a magnificent business model. I think that was the envy of a lot of other management teams and companies. So, highly leveraged to the housing market and essentially collecting the capital gains as residents came through its villages during that period. So, the perfect business model and a very strong performer.

Ryan Bridge:
It was like ka-ching, ka-ching, ka-ching both for the business and for shareholders. So very successful. What went wrong? It was the fact that it was so closely tied to the housing market, right?

Sam Trethewey:
It had huge leverage to the housing market and, just to set it up, the business had a target as it got bigger to grow earnings at 15%, or grow profits at 15%, per annum. As it got bigger and bigger, it got more and more ambitious. And to put it bluntly, I think they got over their skis and they got too gung-ho for their own good. And they got so used to winning and doing well that there wasn’t much risk management or controls put in place. So, Ryman back in its early days, it would go out and buy a big piece of land on the outskirts of a city and build individual units or villas on that piece of land. And then as it got bigger and tried to maintain that 15% target, it was forced into buying pieces of land in tighter, more urbanised areas, and building up instead of out. So, building apartments that were five, six, seven storeys, some of them. And the thing about those apartments, Ryan, is once you start building them, you can’t stop. So, they were essentially putting down $50 to $100 million on these pieces of land and then spending that, if not more, on building the village around it. And they wouldn’t see a dollar out of these villages for five, six, seven years after that, when they’ve actually started to sell them down once they were built. So very, very long bets. And when the housing market turned, a lot of debt to fund them, you had a very nasty situation for the company.

Ryan Bridge:
The tide went out and Ryman rescored with his pants down.

Sam Trethewey:
Literally.

Ryan Bridge:
So, this is not necessarily a problem about retirement villages or the industry. It was more about the model that they were using, the ambitions that they had, and the fact that they weren’t paying attention to what was going on around them?

Sam Trethewey:
I think it exposed that there was very little risk management or control going on within that business, and that the management team was just purely focused on growth and believed, after a decade of success, that they could do whatever they wanted. People would come and move into the villages and it would be no problem. But when interest rates went up and the housing market slowed down, their cash stopped. They’d been using a lot of debt to fund it all. The end result was pretty nasty.

Ryan Bridge:
Bit of a train wreck. So, how did investors react to that? You said a lot of people got quite wealthy off the back of the rise. How did they react when this happened?

Sam Trethewey:
Clearly, it was something we’d been quite concerned about. And I think you see the share price performance has come back a long, long way now from that $15 to trade just in the high twos again today. So, basically round trips. All that gain over the past decade pre-Covid has come back off the share price. There had been huge concerns around the debt levels within Ryman and they’ve had to do some pretty preventive action with equity raisings to address that.

Ryan Bridge:
Yeah, let’s talk about the equity raise because there’s been two now, right? We’ve had the most recent one, but there was a debt raise back in 2023, which was to address some of that debt level, right? So, why do they need two?

Sam Trethewey:
So, the first one was basically forced on them by the banks, particularly some US lenders who had some nasty terms, you’d call them, around their debt. And it was just getting too high relative to the cash flow to be happy for those US investors, that they forced Ryman – essentially – to come to the market and say, hey, we need $900 million to repay our debt. The business after that was still very constrained. It couldn’t basically go out and develop a new village during that period, and was forced to being run for cash. So just pay down more and more debt rather than grow like it did in the old days. During that period, you’ve seen a full management change essentially, and also the full board change on the back of some of these issues that they’ve had. And to put in a new management that was much more, I guess, conservative and realistic about what could be done from here. And the second raise, I think, reflects that, hey, the new management, the new CEO Naomi James, who is pretty well known to NZ shareholders and NZ investors through retirement channel infrastructure, going, well, actually, we’ve still got a lot of debt. If the cycle does turn down, that could again cause issues for us. But on top of that, we can’t actually move or do anything other than pay down this debt. So, the billion dollars that they raised about a month ago was essentially to give them a bit more flexibility around that and a knowledge that the business model needs to have far less debt than what it used to.

Ryan Bridge:
Right. So, they actually need cash to grow again?

Sam Trethewey:
They do. Correct. So, to move at all, to be able to develop anything going forward, they need more money.

Ryan Bridge:
So, other villages like Summerset for example, what’s their model? How is that different? I mean, how are they fairing?

Sam Trethewey:
So, Summerset and the other competitors, the listed competitors to Ryman had been conducting some of these big apartments that are being built just like they were, but not nearly to the same scale that Ryman had been. So, Summerset and others had much more of the broad acre or the large plots of land within their development portfolio. Some of them did have a lot of debt as well. But that flexibility that they had around being able to stop building a single house, or slow down that broad acre development, is much more of a flexible model compared to the large apartment blocks that Ryman was taking. So, I think they did learn a few lessons and hopefully the management of Summerset have been watching what Ryman has been doing and learned from it. But they weren’t immune to it, just not nearly as exposed as compared to what Ryman was.

Ryan Bridge:
It’s funny because you think about in business, you assume that it’s good to have really ambitious people in positions with really big, lofty goals that would try and make a lot of money. But in this case, it seems like it was almost their Achilles heel.

Sam Trethewey:
It was, I think. But the caveat to that or the risk around that, was that there was no risk management put in place. So the CFO, the board wasn’t keeping the CEO of Ryman at the time in check, in terms of rolling out and chasing that growth for growth’s sake. So, debt wasn’t a concern. They didn’t manage any of their interest rate exposure. So, you know, like a typical New Zealander taking out a mortgage, terming it out over a number of years, there was very little terming of their debt. So, when interest rates did rise, the cost of funding, it all went up. So, yeah, those sort of dynamics were at play.

Ryan Bridge:
It doesn’t sound like a great recipe, does it? And I guess in hindsight, it’s easy to see that. What about going forward now? You talked about the share price. It started to come back a little bit in the last couple of weeks. There’s been a wee bump for it. They’ve got the turnaround in place. They’ve had a couple of capital raises now. How long does a turnaround take? And what does that look like?

Sam Trethewey:
The business is still very leveraged to the housing market. I think they’re still in a position where they do need to manage cash a wee bit, and repay some more of that debt, despite what they have done. But realistically, in two to three years’ time, the business could be back into that growth mode, provided that the housing market does behave itself. OK, so I mean return to sort of modest increases year on year. The business model is still clearly very exposed to what happens to the housing market. So, if we do have a good year, then that time to recovery, that turnaround mode that they are in now, could be pulled forward a bit. Likewise, if we do have a subdued market, then that pushes out even more. So, it is that cash flow, transacting village units and getting people moving in and out of these villages, that will drive the performance of Ryman and their ability to return to some form of growth.

Ryan Bridge:
Yeah. Is it possible that their price is undervalued at the moment? I mean, you mentioned – what was the assets, $10 billion?

Sam Trethewey:
$10 billion of assets.

Ryan Bridge:
And market cap is?

Sam Trethewey:
Three, roughly. Just under. I mean, surely they should be able to earn more than what they are at the moment on those $10 billion of assets and generate some higher level of profitability. It has been through a difficult period. There have been some big headwinds around that. But that’s the challenge for the new management team is to get in there and sort it out. And we’ll look and hope that they can do so, Ryan.

Ryan Bridge:
Sounds like you’ll be looking closely, Sam – appreciate your time.

Sam Trethewey:
Thank you.

Ryan Bridge:
That was Sam Trethewey. He’s a Milford Portfolio Manager talking about the rise and fall of Ryman here in New Zealand. Now, next week, we will look forward to an episode where hopefully Trump’s tariffs aren’t as bad as we thought they might be. We’ll have all the details on that then. Look forward to talking to you. Don’t forget, you can like, follow and subscribe the podcast. Share it with your friends and family wherever you subscribe. See you next week.

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