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."
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.