RYM-Ryman

[Basil]

Two brokers' projections.
Forbar 2028 ....PE 70.7      No divie.
Craigs 2028.....PE 29.8......1.96 cps divie. Yield 0.7%

I made good coin back in the day but I called it a SELL in 2014 at $8.50 on a PE of 36 and have never reinvested back into it since  11 years and two $1 billion capital raises later and its still lost two thirds of its value, (three quarters of its value in real inflation adjusted terms).  You can't eat NTA and if they can't make decent coin and positive cashflow from their assets, (while building enough to replace the ones they're selling) then I would argue the discount to theoretical NTA is completely irrelevant, just as it is for OCA and was for ARV and MET.

[ValueNZ]

You can't eat NTA and if they can't make decent coin and positive cashflow from their assets, (while building enough to replace the ones they're selling) then I would argue the discount to theoretical NTA is completely irrelevant, just as it is for OCA and was for ARV and MET.

Can't eat NTA except for the fact you can.

But the OCA board rubbished that idea.

The future discounted cash generated by those assets will be well more than enough to justify the current market price, buyback or not.

And if all you care about is FCF yield then at no point in history was Berkshire a good investment decision.

[Shareguy]

Looks like it might hit $3 shortly. Looking forward to the 1H result. Wont be good but i'm picking that forward guidance will be better than expected.

Not good as expected and it was and we did briefly see a $3.  Great buying at $2.05 in June. I think there is a lot more to go from here so have no plan to sell. I expect we might even see a $4 next year.

[Basil]

The Gold Rush is Over
Ryman listed in June 1999 and for more than a decade enjoyed unprecedented demand as the leading listed company in its field.  Not only did it enjoy first mover listed advantage there was virtually no competition from unlisted players and we were enjoying an unprecedented sustained period of house price inflation.

Between mid 1999 and the peak of the housing market in late 2021 housing went up 456% whereas general inflation went up only 65% (source RBNZ inflation calculator and their real estate index calculator) so for more than 20 years housing inflation outstripped general inflation by more than seven to one !  Putting some numbers on this, a mid priced house worth $200K in mid 1999 went up to $1,112K whereas if it has just matched inflation it would be worth $330K.  This enabled RYM an opportunity to resell  licenses to occupy units for two to three times the original development cost and then do it again 10 years thereafter.  The sector looked to be invincible and indeed RYM took on market darling status.

Housing became so unaffordable over that timeframe we've seen a sustained drop of 16% since then, despite inflation of 17.5% so housing is less outrageously overpriced in real inflation adjusted terms by a factor of one third than it was at the peak, but still vastly more expensive in real terms that when RYM listed.  This sustained correction may have more road to travel due to a much lower pattern of immigration, lack of affordability and sustained efforts by central government to free up more land resources for development.

RYM's model was built upon selling mainly first class units at high prices and charging fixed fees for life and then reselling those licenses to occupy about ten years later for several times the original price.  This was always where the real gold was made and is analogous to walking around and picking up huge nuggets of gold just lying on the ground.

It was so lucrative that just like any other gold rush there were soon other players itching to get into the action.  Summerset listed in November 2011 at $1.40 and has carved out a niche in the middle segment of the market and done extremely well.  In fact it's listing can be traced to when RYM's golden period of first mover advantage ended.   

These days there are so many companies trying to extract an advantage from this sector its easy to make the case the market is vastly over supplied and only the very best operator SUM can make any money along with those supplying the picks and shovels to this sector.

My contention is quite simple.  In most investors lifetimes, its exceptionally unlikely you'll ever see another sustained period of 20 years where housing outperforms the rate of inflation by 7:1 or even anything remotely similar but that is exactly the sort of sustained extreme bullish real estate environment that's needed for retirement companies to make serious coin again.  Its simply not going to happen as housing even after the recent correction is still at unaffordable level's.

SUM have some really significant competitive advantages over RYM now which include:-
They still have a fully integrated internal development model with huge economies of scale.
They are still building new units at scale ~ 700 per annum, (the only one doing so of the listed players as others desperately try and repair stretched balance sheets and rectify slow moving stock issues) which confers huge market share gains to SUM in future years and better economies of scale with their head office costs.
SUM are not saddled with legions of residents stuck on ultra low fixed fees for life that's literally draining the lifeblood out of business operations at a village level. i.e. people still paying for example $99 per week fixed fees for life at RYM's villages are literally laughing all the way to the bank as its probably costing RYM near twice that now to service their needs.  This will cause a huge drain on cash flow that will only gradually abate over the next decade or so.

There is only one company on the NZX in this sector worth investing in in my opinion.  Only one that has come through the baptism of fire this sector has experienced with their reputation intact.   Even SUM will only perform in a mediocre way in a new environment of heightened competition, losses in care and where all you are likely to ever make on a unit is in the initial development margin, (often sunk back into the village with common area facilities) and then the ongoing DMF going forward.

RYM performed well when it had all the sector tailwinds behind it, enjoyed first mover advantage and enjoyed the legendary services of the CEO Simon Challis.  None of these factors apply any more.  Worse, management that have followed on from Simon have all been underwhelming to say the very least.

There's vast amounts of listed and unlisted competition now for RYM and all now seem to be struggling to eek out even a very modest return on assets, a situation I expect will continue indefinitely.  RYM have done themselves no favors with the myriad of accounting standard changes and highly questionable and quite frankly misleading original accounting practices.  Two 1 billion dollar capital raises has avoided the ship sinking but I see systemic weaknesses now in their business model and while the good ship Titanic is now very unlikely to sink, it lacks some of the key drivers it once had and the analogy I see is it will limp along with bent propellors at a very mediocre cruising speed.

My 2 cents worth.  Others will see it differently and think this sector will return to its glory days at some stage soon.  Good luck with that.

Average of 4 professional analysts sees this getting to $3.20 one year hence and its rated an average hold. 

Assets that cannot grow in real inflation adjusted terms and cannot give you a half decent dividend yield, investing money there is a dead end in my book. If all you can ever make with villages is the DMF maybe that's an acronym for Dead Money Forever in this sector ?

[winner (n)]

Great post Basil

I think you've summed up the current situation in the sector well

[winner (n)]

Half year report says they made 538 resales but bought back 619 ORAs ...81 units added to stock pile of unsold stock

I think this is indicative of their overall performance

[Shareguy]

The Gold Rush is Over
Ryman listed in June 1999 and for more than a decade enjoyed unprecedented demand as the leading listed company in its field.  Not only did it enjoy first mover listed advantage there was virtually no competition from unlisted players and we were enjoying an unprecedented sustained period of house price inflation.

Between mid 1999 and the peak of the housing market in late 2021 housing went up 456% whereas general inflation went up only 65% (source RBNZ inflation calculator and their real estate index calculator) so for more than 20 years housing inflation outstripped general inflation by more than seven to one !  Putting some numbers on this, a mid priced house worth $200K in mid 1999 went up to $1,112K whereas if it has just matched inflation it would be worth $330K.  This enabled RYM an opportunity to resell  licenses to occupy units for two to three times the original development cost and then do it again 10 years thereafter.  The sector looked to be invincible and indeed RYM took on market darling status.

Housing became so unaffordable over that timeframe we've seen a sustained drop of 16% since then, despite inflation of 17.5% so housing is less outrageously overpriced in real inflation adjusted terms by a factor of one third than it was at the peak, but still vastly more expensive in real terms that when RYM listed.  This sustained correction may have more road to travel due to a much lower pattern of immigration, lack of affordability and sustained efforts by central government to free up more land resources for development.

RYM's model was built upon selling mainly first class units at high prices and charging fixed fees for life and then reselling those licenses to occupy about ten years later for several times the original price.  This was always where the real gold was made and is analogous to walking around and picking up huge nuggets of gold just lying on the ground.

It was so lucrative that just like any other gold rush there were soon other players itching to get into the action.  Summerset listed in November 2011 at $1.40 and has carved out a niche in the middle segment of the market and done extremely well.  In fact it's listing can be traced to when RYM's golden period of first mover advantage ended. 

These days there are so many companies trying to extract an advantage from this sector its easy to make the case the market is vastly over supplied and only the very best operator SUM can make any money along with those supplying the picks and shovels to this sector.

My contention is quite simple.  In most investors lifetimes, its exceptionally unlikely you'll ever see another sustained period of 20 years where housing outperforms the rate of inflation by 7:1 or even anything remotely similar but that is exactly the sort of sustained extreme bullish real estate environment that's needed for retirement companies to make serious coin again.  Its simply not going to happen as housing even after the recent correction is still at unaffordable level's.

SUM have some really significant competitive advantages over RYM now which include:-
They still have a fully integrated internal development model with huge economies of scale.
They are still building new units at scale ~ 700 per annum, (the only one doing so of the listed players as others desperately try and repair stretched balance sheets and rectify slow moving stock issues) which confers huge market share gains to SUM in future years and better economies of scale with their head office costs.
SUM are not saddled with legions of residents stuck on ultra low fixed fees for life that's literally draining the lifeblood out of business operations at a village level. i.e. people still paying for example $99 per week fixed fees for life at RYM's villages are literally laughing all the way to the bank as its probably costing RYM near twice that now to service their needs.  This will cause a huge drain on cash flow that will only gradually abate over the next decade or so.

There is only one company on the NZX in this sector worth investing in in my opinion.  Only one that has come through the baptism of fire this sector has experienced with their reputation intact.  Even SUM will only perform in a mediocre way in a new environment of heightened competition, losses in care and where all you are likely to ever make on a unit is in the initial development margin, (often sunk back into the village with common area facilities) and then the ongoing DMF going forward.

RYM performed well when it had all the sector tailwinds behind it, enjoyed first mover advantage and enjoyed the legendary services of the CEO Simon Challis.  None of these factors apply any more.  Worse, management that have followed on from Simon have all been underwhelming to say the very least.

There's vast amounts of listed and unlisted competition now for RYM and all now seem to be struggling to eek out even a very modest return on assets, a situation I expect will continue indefinitely.  RYM have done themselves no favors with the myriad of accounting standard changes and highly questionable and quite frankly misleading original accounting practices.  Two 1 billion dollar capital raises has avoided the ship sinking but I see systemic weaknesses now in their business model and while the good ship Titanic is now very unlikely to sink, it lacks some of the key drivers it once had and the analogy I see is it will limp along with bent propellors at a very mediocre cruising speed.

My 2 cents worth.  Others will see it differently and think this sector will return to its glory days at some stage soon.  Good luck with that.

Average of 4 professional analysts sees this getting to $3.20 one year hence and its rated an average hold. 

Assets that cannot grow in real inflation adjusted terms and cannot give you a half decent dividend yield, investing money there is a dead end in my book. If all you can ever make with villages is the DMF maybe that's an acronym for Dead Money Forever in this sector ?

Great post Basil, I agree with your points. However I am confident that Ryman will continue its upward climb. The investor day will be a key catalyst. The resumption of dividends I think will be much sooner than consensus as will the speed of the turn around.

With an improving property market Ryman stands out as a perfect M&A target says Craig's.

Craigs say that both ARV and MET were acquired by private equity for 0.83 x NTA. Currently at 0.72

I'm picking that this time next year Ryman shareholders will have a bit more to cheer about.

[Basil]

Good luck with it Shareguy. I find it extraordinary that after raising $2 billion dollars they're still losing money and with no credible internal development team left and making losses on assets, I can't think why anyone would want to take them over. I guess there's a very slim chance but many OCA shareholders have been waiting for their get out of jail free card for many years.

I can see why SUM could be a target. Making real money on assets, underlying profit forecast of $1 a share this year, highly experienced board and management and highly skilled team running a fully integrated development model that's easily scaleable in Australia. Still at a discount to NTA too. Even at a 20% premium to NTA I reckon SUM a much better prospect for private equity because they make serious money and the business is easily scaleable

MCK much more likely to be taken over than OCA RYM or SUM in 2026 by a factor of many times in my opinion. I'm playing that possible takeover game.

[KW]

Half year report says they made 538 resales but bought back 619 ORAs ...81 units added to stock pile of unsold stock

I think this is indicative of their overall performance

This aligns with what my Dad at Summerset says - units are "sold" but still empty, waiting for the occupier to sell their home so they can settle and move in.  How many of these "sales" later fall through due to the purchaser not being able to sell their house, or not being able to sell their house at the price they need to buy the RV unit?  

[Left Field]

This aligns with what my Dad at Summerset says - units are "sold" but still empty, waiting for the occupier to sell their home so they can settle and move in.  How many of these "sales" later fall through due to the purchaser not being able to sell their house, or not being able to sell their house at the price they need to buy the RV unit? 

I presume if a unit is counted as 'sold' then a deposit has been paid?

(So the risk/cost of the 'sale' falling through is reduced/mitigated??)

[KW]

I presume if a unit is counted as 'sold' then a deposit has been paid?

(So the risk/cost of the 'sale' falling through is reduced/mitigated??)

The deposit is $3000 and is fully refundable. So no.  This is the risk when you have RV units priced higher than the average house price - most elderly living in old, unrenovated homes struggle to sell their house for more than what home buyers can buy a brand new home for.  Thats why they used to be priced at 70% of the average house price in the area, but now they are actually more expensive.  

[lorraina]

This aligns with what my Dad at Summerset says - units are "sold" but still empty, waiting for the occupier to sell their home so they can settle and move in.  How many of these "sales" later fall through due to the purchaser not being able to sell their house, or not being able to sell their house at the price they need to buy the RV unit? 

I thought your dad was at Ryman's Kevin Hickman Village.?

[Bev]

This may have already been mentioned.

I understand from their website that weekly fees are no longer fixed.
...........................................................................................

I was wrong.  New entrants actually have a choice of a fixed fee or one that is indexed.

[KW]

I thought your dad was at Ryman's Kevin Hickman Village.?

He originally wanted to go there, but I persuaded him to look at the others before committing, and in the end we all thought that Summerset Avonhead was the best pick.  He wouldnt have to put up with construction going on for years, and all the facilities were already built and operating.  Plus the villas are more private, and less crammed in.  

His original reason for wanting to go to Ryman was his friends had put a deposit on an apartment there, but they later decided to cancel and just buy a normal apartment (non RV) instead.  So it turned out for the best.

[Basil]

Plus the villas are more private, and less crammed in. 

I think that's been one of the key aspects of SUM success over the years.

RYM had a license to print money in their first 12 years with first mover advantage and they printed money so fast they almost ran out of paper lol but its really interesting to have a look at their performance since SUM listed in Nov 2011.

Over the last 14 years SUM has gone from $1.35 to $12.50, 9.25 times your money and paid a consistent modest dividend.
Over the same timeframe RYM has gone from $2.43 to $2.89, (should have gone to at least $3.39 just to match inflation with no return over those 14 years, source RBNZ inflation calculator), engaged in two value destructive capital raises especially the first billion dollar one in 2023 at $5 and failed to pay a dividend in recent years.   They have also disestablished their entire internal development model, radically dialed back their build rate and are now lead by an inexperienced board and new fairly inexperienced management team.

SUM have basically eaten RYM's breakfast, lunch and dinner ever since they listed.