Ryman develops and operates retirement villages. It currently has 21 villages around the country and 3,700 residents. Its villages are somewhat unique in that they offer an integrated service, from independent apartments through to serviced units, resthome and hospital beds, allowing the company to cater for the changing needs of occupants as they age.
While aged care is Rymans core business, it also has a property angle. It develops two new villages a year on average and has a land-bank of 3 to 4 years up its sleeve. The aged care operations generate care and management fees that represent 35% of Rymans total revenue.
The sale of new units accounts for 27% of revenues and the resale of units 38% of revenue.The market certainly perceives Rymans fortunes to be closely linked to the housing market. During the global financial crisis, when there were serious concerns about the housing sector, the Ryman share price fell 57%, far more than the NZX50, which declined 42% over the same period.
Ryman ultimately proved the market wrong. Not only did it maintain profitability over 2008 and 2009, but it was one of the very few companies that delivered earnings growth during the financial crisis. Earnings rose 24% in 2008 and 6% in 2009.
One issue that perhaps mitigates Rymans exposure to the changes in house prices is that people moving into a Ryman village tend to do so because they need to. This needs based service puts a layer of defensiveness around the price Ryman receives for its units.
Ryman has one of the most highly-regarded management teams on the NZX. The business model has been highly tuned. The company has astutely positioned villages for price advantage and growth, and has used its capital efficiently by recycling cash flows into ongoing development.
The performance of Rymans share price has been driven by its profit and dividend growth. Earnings per share have grown by 18%pa since 2001 and dividends by 22%pa. Ryman has been an exceptional dividend growth stock. An investor who purchased shares in the Initial Public Offering in 1999 has seen their dividend yield rise from 4.4% in 1999 to 19.6% today.
Along with dividends, shareholders have watched the market capitalisation of their company increase from $135 million in June 1999 to $1.05 billion today, making Ryman the 8th largest company on NZX. The most impressive aspect of this growth is that it has been achieved without the company raising any additional equity. There are 500 million shares on issue exactly the same number (adjusted for the 5:1 split in 2007) as there were in 1999.
Despite such a strong track record, the company appears to still have plenty of future growth potential. Care fees should continue to rise as the number of residents increase, and the company can be expected will continue to recycle its strong cash flows, which were $114 million in 2009, into its ongoing property development.
This quality, however, doesnt come cheaply. At $2.10, Ryman shares are trading on a price earnings ratio of 18 times which is a 25 percent premium to the market average ratio of 14.5x. Potential buyers of Ryman shares might be hoping the market gets worried about house prices again.