A new report by investment firm Forsyth Barr has found that the heavy debt burden of the retirement village sector is holding back its financial performance.
Three of the sector’s larger firms listed on the stock exchange, Ryman Healthcare, Arvida and Oceania Healthcare, have tripled the amount of debt they carry over the past five years, more than any other sector.
The report states that this growth in debt has generated growth in units, net asset values, and underlying earnings for the sector. However, it is now estimated that debt servicing will consume approximately 20% of the companies’ underlying profits, while capitalised interest will consume around 10% of new sales cashflow.
The report suggests that operators should focus on reducing their debt levels by scaling back on development to improve the equity value over the next three to four years.
