Ryman bemused by 'property cycle' speculation

Friday 10th August 2001

By Chris Hutching

Tall poppy Ryman Healthcare says its business activities are clearly differentiated from companies that may be classed as property developers.

Joint managing director John Ryder is a little bemused at some recent media coverage which suggested senior executives were overly confident because the company would eventually be affected by property cycle downturns.

And at the annual meeting last week Mr Ryder revealed that Ryman's strategic direction includes would see it expand in Australia.

This tweaked the antennae of some analysts in view of the bad experiences that many Kiwi companies encounter when they set up business in the "Lucky Country".

Mr Ryder said he was well aware of the experience of New Zealand companies in Australia and the same was true of relocations in this direction - witness Coles Myers failure to establish in this country for example. Michael Hill was an example of where that company's first initiatives into Australia proved a "learning experiences" until the formula was customised to suit conditions.

Ryman was undertaking initial reconnaissance trips to explore the business territory and would be taking things very cautiously.

"We'd buy a small facility and run it for a couple of years first and learn from any mistakes," Mr Ryder said.

"We wouldn't go rushing in. Australia is still behind New Zealand in its regulation."

Most of their aged care facilities are stand alone facilities, either resthome or hospitals but not grouped together in villages like we do."

In the meantime, Auckland still offers rich pickings for Ryman, according to Mr Ryder.

The immediate focus for the company over the next few weeks is the opening of its latest development in Hamilton and early next year the construction of a retirement village in St Heliers, which would provide funding to develop the next site in Remuera a year or so later, subject to obtaining resource consents.

Mr Ryder rejects the description of Ryman as a property developer per se. While acknowledging the significance of cash flow from initial sales and the less profitable subsequent on-sales of occupation rights, he says the cash flow from hospital care facilities also provides an important source of earnings.

Margins from initial sales are significantly higher than subsequent on-sales of occupation rights. For example an apartment costing $130,000 might be sold for around $200,000. But the price needs to be pitched accurately because subsequent profit from re-sales relies on capital gain.

To this extent Ryman may be affected by property market cycles but Mr Ryder said it's difficult to compare the company's mixed residential-
healthcare village product with any other on the market.

Also, the catchments where Ryman is targeting contain high-income households

Because Ryman owns its own construction company it is therefore not committed to third party contracts if the market turns down and can take measures to slow down or speed up new development, according to Mr Ryder.

Ryman has enjoyed two years of bullish results and whether earnings will tail off in the longer term depends on the extent of market saturation.

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