Ryman Healthcare Limited (OTCPK:RYHTY) Q4 2024 Results Conference Call May 26, 2024 6:00 PM ET
Company Participants
Dean Hamilton – Executive Chairman
Conference Call Participants
Bianca Fledderus – UBS
Arie Dekker – Jarden
Aaron Ibbotson – Forsyth Barr
Stephen Ridgewell – Craigs IP
Operator
Thank you for standing by, and welcome to the Ryman Healthcare Full Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Dean Hamilton, Executive Chairman. Please go ahead.
Dean Hamilton
Kia ora. Welcome to the Ryman full year results presentation. My name is Dean Hamilton. I’m the Executive Chair. With me today was supposed to be Rob Woodgate, our CFO, but unfortunately, he tested positive for COVID yesterday, and so is an apology for today.
We’ve got quite a bit to get through today. We’ve got an hour. The intention is I’ll speak for around 40 minutes and then open for Q&A. If we don’t get through all the questions, I invite you to follow up through Hayden, and we’ll do the best we can to answer those over the course of the day.
Before we get into the numbers, I wanted to provide some context on change. Having joined the Board a year ago becoming Chair 2 months later, the Board and management have been working hard to oversee significant change at Ryman. Shortly after I joined, I met with a number of you. There was a strong message of wanting to see change. Hopefully, we can show that we’ve listened, and we are well down that path.
Just walking through the key areas of change. We’ve had the Board refresh. We’ve had 3 members retiring in the last 12 months, and we have 4 new board members now in their seat. We have 2 further retirements in calendar ’24. There is a new Chair of the Board, and there are new Chairs of all board subcommittees.
In terms of management refresh, we have the Group CEO resignation on the 22nd of April, and I am stepping into the Executive Chair role, while Group CEO search is underway. We’ve had a number of new executive appointments. We have a new Group CFO. We have a new Head of Corporate Finance and Treasury, and we have a new Chief Transformation and Strategy Officer, having combined 2 previous roles.
We’ve linked into resetting our remuneration. We have a new minimum share purchase plan for directors and the majority of the SET are on a reset remuneration structure, as of the start of this new financial year. I’ll touch on both of those later.
In terms of performance measures, we really are going to focus today on what we believe are the future key performance metrics of the organization. We’re going to transition our build rate discussion from near complete to completed and able to be occupied. We’re going to be moving towards a focus on settlement of sales with an accounting recognition policy also under review there. And we’ve really linked in to improving our financial disclosures, which we’ll touch on over the course of the day.
We’ve linked into our balance sheet assessment. We believe we’ve taken a much more conservative approach. As we transition that, this has led to a number of non-cash items running through the P&L and balance sheet, which is made for obviously a messy result to read through, as we transition. Strategic urgency, the Fit for the Future program has commenced, we’re underway. We’ve got a real focus on improving our new developments, driving up the profitability and efficiency of our existing villages over time, resetting our revenue models and really considering what scale of service and support sits outside our villages.
On assurance, we issued our first external auditor independent policy earlier this year. We currently have underway an RFP for a new auditor for 2025. We expect to complete that process and have that announced at the Annual Shareholder Meeting. And obviously, during the year, we suspended our dividend. So a lot of change happening in the organization.
Just to get everyone centered on the non-financials at Ryman, we have 48 open villages. 9 of those still have construction going on. We have 10 greenfield sites, 5 in New Zealand, 5 in Australia, excluding the 3 sites now held for sale, have over 9,180 retirement village units over 4,300 care beds across both countries and a land bank of some 5,370 units and beds. Also announcing today, pleased to have won for the 10th time the Reader’s Digest Most Trusted Brand in New Zealand for aged care and retirement villages category.
In terms of the financials, by way of introduction, we met our earnings guidance, reporting $270 million of underlying profit in line with the guidance of $265 million to $285 million that we released in February. We will be focusing on our new financial metrics, which is cash flow from existing operations, cash flow from development activity, and the IFRS profit before tax and fair value movements.
There have been a number of changes in our accounting estimates, which have impacted the result, and we’ll go through those in the subsequent pages. We’ve purposefully increased our disclosures today, breaking down our operating expenses, gross and net as capitalized showing that by Village and non-village. We’ve moved our disclosure on resales cash flows to include unit refurbishment and direct selling costs, so we can see a net cash flow. We’ve broken down our receivables and there’s a clear reconciliation between the managers net interest and carrying value of our investment property.
Further changes are under consideration. As mentioned earlier, accounting recognition potentially moving to settlements rather than sales and breaking down our village P&L between care and retirement living. We’re making good progress on that, and I’m optimistic we’ll be reporting on that later in this financial year.
The financial metrics, we’ve highlighted the 3 that we’re focused on. Cash flow from operations was $43 million, which was up $52 million on the prior year. Cash flow from developments was a negative $230 million, albeit a $150 million improvement on the prior year. Net debt of $2.51 billion, which was in line with 30 September, as we had guided. IFRS net profit before tax and fair value, a significant loss of $324.5 million for the year after $284 million of one-off costs, which we will detail subsequently. Obviously, a disappointing outcome, as we reset the balance sheet carrying values to what we believe are more conservative levels.
On the statutory P&L, you’ll have the full annual accounts with you, I’m sure. These and the associated notes will hopefully provide additional information. At a high level, it was pleasing that our revenue was up 18% to $690 million. We’ll break that down on the next page. Total expenses up 25%, but excluding one-offs of $40 million was up 16%. We’ve taken impairments of $243 million, which we’ll detail later.
We had a lower fair value movement of only $180 million positive, as we moved to an independent valuation of our investment property rather than a director’s valuation. This has seen the removal of a 30% DMF market participant adjustment, which was previously adopted by directors in assessing the revenues from future residents.
There’s been a substantial income tax credit, the net impact of further tax losses this year, as we get to deduct interest capitalized to new developments. We have reduced further taxes in future years given the removal of the 30% DMF from future cash flows down to 20%. And both of those tax credits have been offset in part by the law change in New Zealand, which is seeing the loss of tax depreciation on commercial buildings.
Revenue, we provided a breakdown of revenue across care, service departments and independent retirement units we’ve shown the drivers between volume and price. You see in the table there, we had total care revenue increase of 20%. In there, we’ve got imputed income of RADs, which is a new accounting policy for Ryman. Given the scale of that balance in our Australian business, we ourselves and our auditors look to the accounting policy and treatment of those in the Australian market. And the majority of the larger players now treat those as leases under IFRS 16, and the requirement is to infer the income — interest income on those RADs into revenue and equally take the same number out of expenses such that our net profit before tax is unchanged from this accounting treatment. So if we include the notional imputed income on RADs it was up 20%, excluding it, it was up 18%.
We’ve had a 6% increase in occupied bed days, which is pleasing as we’re filling up our new villages, and our total revenue per occupied bed day was up 14%, which is a combination of 2 things. We’re filling beds in Australia, which have a higher daily rate; and secondly, there was a 9% increase in New Zealand funding from July 23.
On the service side, revenue was up 15%, 6% on volume, 9% on revenue per occupied day, again, a combination of filling up our SAs and increased revenue per unit. On the independent RVs, a combination of village fees and deferred management fees allocated there is up 13%, 6% growth in occupied unit days through our new village developments and a 7% increase in revenue per occupied day.
On the expenses, we’ve shown our gross expenses and split this between capitalized and the P&L and village and non-village. We’ve got $30 million of one-offs running through our gross and our P&L, $27 million through the employee line and $3 million through the admin line. More on that in the next page.
Our building and grounds costs are up $11 million or 17%. Our insurance and rates are all up significantly. And I think that’s obviously not just common to Ryman, those costs are up across the board for most organizations, if not every organization in Australasia.
Our direct selling costs are shown here. These are our sales staff plus our new resident incentives. Growth in this line has been through the incentive line, not our direct selling staff costs.
We’ve got some noise running through the capitalized versus non-capitalized approach. Our villages in ’23 had $16 million of capitalized costs. This was largely new village of marketing and losses on new village openings that were capitalized. That was down to $8 million in FY ’24. Going forward, that will be nil.
The impairments and one-offs, obviously, significant non-cash in payments and one-offs through the P&L. The bottom part of the table shows our impairments of $244 million. We’ve taken a hard look at our land bank and at our paused sites.
Now land bank, we’ve taken 2 more sites to held for sale, that being Kohimarama, and Karori, and we’ve written those down to independently assessed market valuation. We no longer believe those 2 sites can justify the further incremental investment required to complete them. And we believe that we are better off selling those. Our Mt Martha site settled during the year, and our Newtown site is currently under unconditional sale, hopefully settlement later this year.
In terms of our land bank sites, we’ve looked, obviously, at all of our sites, in particular, 3, we felt uncomfortable with the carrying value for Takapuna and Ringwood were started, but we’ve taken those back to the land bank and Mount Eliza. We’ve also refocused on all 3 are challenged on the current design and the current market in terms of build costs, the cost of debt and the known returns on care. We’ve written all 3 down to independent market valuation. We like all those 3 sites. We may well develop on these, but all 3 need a redesign from what was originally intended.
Lastly, in the impairments, we have the care center impairment of $23 million. There’s a much larger care center impairment, which we’ll touch on shortly. This is the piece that runs through the P&L essentially, where there aren’t sufficient reserves to take this back through the balance of the care center impairment under accounting rules runs through reserves.
If we move up to the one-off costs, we have costs relating to swap amendments of $10 million. That dates back to November 22, gross $14 million, offset by a $4 million gain. That will be the last that we see of that other than a $4 million gain — the $4 million gain stays through to 2028, the original date of the swaps.
The close of our employee share schemes, we had a myriad of employment and leadership share schemes that are well underwater given what’s happened to our share price. We’ve had to work our way through those. We believe that will be sufficient to wrap up those schemes.
The Holidays Act accrual, another $18 million on top of the $6 million is obviously disappointing. We’re not alone on this in New Zealand. This has been a common issue for New Zealand companies through the interpretation of the Holidays Act in New Zealand, as to how we accrue for leave, payments when people go on leave. For us, this affects some 20,000 staff back to 2010. The advice during the year we received was new advice that we don’t believe we can offset over payments with underpayments. This has required an additional accrual. We now sit at close to $25 million of accrual. We will start to pay this in cash over the next 2 years.
Yes. Focus on cash flow from existing operations, this is how we think about our open villages. 3 pieces within here. Firstly, if you look at the table on the right, our village operations. We lost $12 million in cash, which is a $40 million reduction on the prior year. The DMF was up, which is as we’d expect, but our cash expenses were $50 million above our care and village fees. We’re not alone in this.
The weekly fee shortfall is impacting all retirement village operators in New Zealand, and our weekly fees are not keeping up with our rising costs. This has been exacerbated by our fixed fees for life. It has not worked well in the really high inflation environment that we’ve had in the last 3 years. By example, we have some 2,500 residents in our New Zealand villages paying less than $120 a week. If that was marked to our today’s rates, that would add an additional $10 million to our P&L. There has also been a movement in net working capital between the 2 years, which has exacerbated that change.
In terms of further down the cash flow statement, we have our resales. Net $149 million, up a pleasing $47 million. We had a good year on cash settlements. Our units were up 13%. Our prices were up 6%. We now show the refurbs and sales costs to get to net. The sales costs are up for the resales line. And as discussed earlier, that increase of $9 million is primarily increased resident incentives in what’s a tighter market.
You’ll see below the non-village cash flow of $75 million, some $8 million ahead of last year and lower net interest with a lower average net debt in FY ’24 post the rights issue, more than offsetting the higher interest rate environment.
Moving to cash flow from development activity. $150 million improvement to a negative $230 million. New receipts were down slightly to $509 million. Our volume of new sales settlements was down 17%. Our average price was up 11%. A combination of fewer openings, particularly in Australia and a slight build in new stock, some 60 units more uncontracted new units at 31 March this year then prevailed last year.
Our capital spend overall was $181 million lower than last year. We had $57 million on final payments on previous land acquisitions. We spent $502 million on direct construction. And we capitalized $108 million of interest based on the roughly $1.5 billion of land and WIP that we’re carrying in our balance sheet.
Free cash flow on the next slide is the combination of the previous 2 slides, existing operations and development, a combined negative free cash flow for the year of $187 million, a pleasing $203 million improvement on the year before. We continue to target a positive number for free cash flow in FY ’25.
Underlying profit, we’re aware the business has historically reported against underlying profit, and we guided to it given the outlook provided in the cap raise in the full year last year. While we like it less than cash and IFRS P&L, the margins are on sales, not settlements. It includes an assessment of near complete sales, and the development margin is only on the independent units. It doesn’t capture the cost of the balance of the site such as amenities or care. For these reasons, we believe cash flow from operations separately reviewed to cash flow under development is a much more informative way of assessing the performance of the business. We’ll touch on those margins later on when we talk about our settlements.
In terms of our balance sheet, a number of changes to the balance sheet. It’s a number that are simply moving between the categories, as we go across between aged care and investment property. Others are write-down and lastly, the impact of a change estimate of market participant on the investment property as discussed.
We’ve broken it down on the right-hand side, but in property, plant and equipment, assets held for sale and investment property. The property, plant and equipment has our land bank in it, has the care assets in it and has WIP on care assets. Assets held for sale are the 3 sites that we’ve spoken about, which we are carrying at $75 million. And the investment property, you’ll notice the significant number there of $399 million.
Directors are required under accounting rules to provide a market participant test when assessing for fair value. Directors had previously used 30% as a DMF on future residents as potentially what a new participant would do. But we have reassessed this. It’s now a tougher economic environment, and some of our bespoke pricing has demonstrated that there is price sensitivity to a 30% DMF. We believe it’s appropriate to take a much more conservative approach to valuation, and we’ve assumed a 20% DMF for future residents.
In terms of capital management, our total equity stood at $4.4 billion, down $246 million year-on-year. This is a combination of a $4.5 million profit being more than offset by the balance of the care asset write-down taken through reserves, as required under accounting rules.
The NTA now stands at $6.1, excluding tangibles and deferred tax assets per share. Our gearing is up slightly to 36% given reduction in equity. We were in full compliance with all bank covenants at 31 March 2024.
In terms of funding, our weighted average tenure of our debt at 31 March was 3.1 years. This has improved slightly post balance date, as we refinanced the $136 million out into FY ’26 as highlighted. We have no drawn debt during the next 12 months. We have 63% of our funding is at fixed interest rates. Our weighted cost of debt is up 110 basis points to 6.5% year-on-year.
Moving forward to settlements of ORAs. These next 2 slides are on a cash basis. So these are settled ORAs, which is what we’re focusing on internally. The units were down 70% as discussed. Fewer new unit deliveries in Australia. And as we show later in the stock slide carrying 60 more unsold units in March 23. We had good 11% price growth year-on-year, albeit that can be influenced by location. As you can see, we’re averaging over $1 million now for independent units.
On the resale side, we had 13% growth in volume to 1,060 units, which is pleasing. A unit price growth of 6% on average in what we believe is a flat or declining house market, again, also pleasing. We’re starting to see growth in volume in Australia, as our villages mature. And I’ll call out that 500 serviced units were resold and settled shows continued demand for that product in our mature villages.
Linking back to underlying profit, we show the booked sales of ORAs and the gross margins on this page, so this is not on settlement. This is on booking the sale. Gross development margin on new sales was 23% in the old language, down from 29%. Combination of construction cost inflation and delays, increasing our cost to build; and secondly, a mix impact, as we work through the higher-margin villages, which are now rolling off. Again, the booked resales of ORAs time back to the underlying profit, similar trajectory to settlements, gross margin at 28%, down from 31%.
In terms of our stock, we have 400 — at balance date, we had 436 units that were completed available for sale, but not contracted. This represented 4.8% of our 9,187 units at 31 March. This is a slight improvement on the 450 uncontracted completed units at September.
On the top chart, new units are up on March 23, dominated by independent apartments, Murray Halberg, Miriam Corban, Keith Park, Deborah Cheetham. Our serviced apartments are down to 43 unsold. On the bottom chart, our resale units at 198 are down on September and are similar to last March.
In terms of development, it’s been a busy year. 2 villages are completed, William Sanders and John Flynn. 3 have opened, Northwood, Patrick Hogan and Bert Newton, where construction is continuing. We have teen active sites, and we’re working our way through these. We’ve had a strong focus on our land bank putting Ringwood and Takapuna back into it and deciding that Kohi and Karori no longer work for us and are holding them for sale.
We’re certainly adopting a very disciplined approach to new capital allocation. We’re raising the hurdle on new developments and there’s no doubt in a 6% to 7% interest rate environment and construction inflation, where it is and a softer sales environment, we need to be very disciplined about allocating new capital.
In terms of capital recycling, our inability to recycle development capital over the last 5 years has been a major source of pain. As shown in the table of the current 10 projects in flight, we expect they will fall $500 million short of recycling after their first sell-down. Not on this page are the 6 recently completed villages, they will also fall short by a collective $280 million. In short, we’ve overbuilt and not been able to recover it in price.
A combination of factors, we had too much on our plate. At our peak, we have 14 open sites. The physical scale of our amenities and care were too large. Construction inflation has been significant through COVID. And added to this, the 400 basis point increase in interest rates that occurred largely after the commencement of these large builds has made a significant difference.
The capital intensity of what we were building exacerbated all of these factors. We had to pause and slow given our capital envelope and that just compounded cost interest and allocations. I think the team has now got their hands firmly around the 10 in-flight projects, and we are confident of delivering these on time to cost, assuming no further deterioration in the environment. The good news out of all of this, if there is, we are delivering high-quality product that will grow in value over time through high occupancy and DMF growth.
The remaining capital recycling is estimated at a positive $800 million. So this is on a to-go basis. $600 million on these 10 sites and a further $200 million on the remaining sell-down of the prior 6 recently completed villages, so some $800 million positive recycling still to come.
In New Zealand, we have 6 villages underway. We will finish Miriam Corban shortly, our care center opened in early May and is starting to fill. We have 5 in the land bank and 3 not here that are for sale, Newtown, Kohimarama and Karori.
In Australia, we have 4 underway. We’ll finish Bert Newton this year, 5 in the land bank.
Our build rate, we’ve shown the 736 build rate for FY ’24 under our previous methodology. Going forward, we’ll report against completed and able to occupy units. It’s much simpler, it’s more objective and it ties more closely to settlements and cash, which is our ongoing focus.
Build rate on our new methodology, going forward, we intend to guide to a 3-year completion estimate. With the first year with some specificity, the next year is 2 to 3, we will combine given the fact that things can slide across balance dates. For FY ’25, we expect to complete 850 to 950 units, 650 of these are in the main buildings at our 4 sites looking to complete. For FY ’26 and FY ’27 combined, we expect to complete 1,000 to 1,200 units. So looking over the next 3 years, we expect to complete 1,850 to 2,150 units or on average 600 to 700 over that period. Our land bank of 5,371 units, some 3,100 in New Zealand and some 2,200 in Australia. Approximately half of the bank is at sites currently under construction.
We bought a new site at Deborah Cheetham on the back there, as you can see in the picture. This will be a great incremental NPV to this successful site.
A quick run-through of the development portfolio. The Williams Sanders on the top left is complete. Murray Halberg, on the top right is completed for now. We’re not going to start the last 116 units. We will reassess this later after we’ve sell-down the current stock.
Miriam Corban, I was there a couple of weeks ago. The main building looks great. It’s open and is starting to fill. We’ll be off this site in a couple of months’ time. Keith Park, good progress. Main building to open later this year. Patrick Hogan, a more traditional townhouse-style development. We are working our way through those townhouse releases. James Wattie getting near the end of James Wattie. Key milestone is a main building to open in the next couple of months and progressively filling that.
Kevin Hickman, I was there the other week, a lot of construction going on here. Good progress on the main building that you’ll see in the center of the site. Northwood, we’re working our way through this recently opened Christchurch Village.
Nellie Melba, you’ll see in the photo, the final Stage 4 is underway. It’s now out of the ground. We have a small block of land to sell in the foreground. This has been a highly successful development for Ryman. We’ve recycled our capital, and we’re currently running at full occupancy. Bert Newton, we expect to complete this financial year and be offsite.
Mulgrave, I was there a couple of weeks ago. It’s going to be a great site. Our early releases have all sold out. Deborah Cheetham, likewise, I was there. We’re making good progress on the new townhouses, as you can see, working from left to right in that picture. The main building opened a year ago, and it’s filling up. It is however fair to say it’s a competitive market down on the Peninsula for care.
Strategy, as discussed at the start, I think we’re making good progress on the hygiene factors, whether that’s our disclosures, our accounting estimates, our key metrics, our Board and management refresh, our remuneration, obviously, the key question is where to from here. As a Board, we are seeing it increasingly clearly. We have a well-respected brand and care and retirement living. We are in an industry that we know will have increasing demand for a long period of time. But what we need to do is urgently rebuild our balance between great care and great financial performance.
In doing that, the resident has to be at the center of everything we do. We create value at our villages. Everything else we do need to be in support of that. We need to create a culture of performance that coexists with our core care DNA. We’ve got $13 billion of assets that we need to drive improved performance on.
We have 5 key focus areas to drive our business improvement, one is the performance of our 48 villages. How efficient are we at these villages. We believe there’s opportunity in labor and in procurement. In terms of revenue, as a generalization, I believe we are under rewarded for our great product and services. On care, the government funding models just aren’t working. Governments need to lean in and more on that shortly.
In retirement, the sector is suffering from weekly fee shortfalls given the sharp rises in rates, electricity, insurance and labor. We are no different. We need to look into what is the optimal revenue mix of weekly fee, DMF or a step-through from independent to serviced. At 20% in fixed fees for life, I believe we’re underpricing our great product.
For new developments, we need to reset what we build next. We have to recycle capital and get positive NPV on every project. We need to determine how much care and where. If the Australian government are first to fix their model, which it looks like they’re about to be, then we would definitely build differently there. And lastly, what scale of amenity do we provide.
In services and support, what do we do outside of our villages. Our overhead has grown faster than resident numbers over the last 5 years. We need to get fitter in this area. Underpinning all of this, we need to drive a performance culture that balances great care and great financial performance. I believe there’s plenty of opportunity for our improvement.
Aged care, this has been an area of significant deterioration in performance in the sector and at Ryman over the last 5 years. Government funding has simply not kept up with the rising cost of providing that care. That said, Ryman has kept building care, presumably thinking it would get fixed. However, to date, it has not.
I walked through our facilities and our wonderful staff of providing outstanding care to runnable older people. Quite simply, this has to be paid for. I do think we’re finally seeing a likelihood of change by governments in New Zealand and Australia, as they see a breaking aged care industry with closing beds and not enough new builds that will shortly become a health care industry problem in our public hospitals in New Zealand and Australia.
In Australia, we’ve been working closely with the government and the aged care task force, which reported recommendations to the Australian government in March 24, including support for a co-contribution model. We believe this review is a positive sign and await to see the final proposed legislation.
In New Zealand, Stage 1 of a review by Te Whatu Ora, which was commenced under the previous government and the Sapere Report, which is well worth a read outlines failings of the current model. Stage 2 of this review was underway with recommendations on potential future funding expected to be provided back to Te Whatu Ora in June, July this year.
You all have seen on Friday, a further review announced in New Zealand with the Select Committee inquiry into aged care under the new government will commence in July, also looking at potential options for future improved funding.
The model needs urgent change to ensure bed numbers are not only retained, but there are incentives for significant new builds to be built. With over 4,000 care beds across New Zealand and Australia, we are intently interested and being part of the solution, and we see a light at the end of the tunnel.
On sustainability, we’ve made good progress across our sustainability goals this year. We’ve released today on our website our 2024 Sustainability Report. In our annual report due out next month, we will include our first climate-related disclosures. At Ryman, we remain committed to decarbonizing our operations.
In terms of governance and remuneration, the top 4 pictures on the Board of Directors are all new in the last 12 months. Both Geoff and Claire will be retiring this calendar year. Geoff at the upcoming ASM. Claire at the end of the year. Importantly, we have 4 new chairs of all of our standing committees. We’ve stood up an interim committee to oversee the Executive Chair with Paula, James and Anthony. Paul will chair that committee and become the lead independent director, whilst I’m temporarily in an executive role.
The executive team, we are underway with an executive search for a new Group CEO. We’ve got a relatively new executive team, all of whom I’m pleased to say are committed to driving improved performance.
On remuneration, we want to provide transparency. On Richard’s departure, we made a final payment of $1.5 million under the terms of his contract. That included $225,000 of risk entitlement that he had relating to the FY ’24 year. This represented 12% of the total available at-risk remuneration of some $1.84 million. Richard forfeited his FY ’24 LSS compensation and any future LTI is a non-compete for 6 months.
Whilst I am temporarily the Executive Chair, my Chair fee will be suspended. I will be paid $100,000 per month and have committed to reinvest 1/3 of this into Ryman shares. There are no additional incentives.
We’ve made significant progress on executive remuneration. We wanted to simplify it to move to more market normal structure. We wanted the at-risk components to be more closely aligned with shareholder outcomes.
In terms of the Board, we’ve also adopted a new minimum share plan with the requirement for each director to purchase shares equivalent to their base fee over 5 years. We believe we’re making significant progress on remuneration alignment.
In terms of looking forward, in general, the economic environment remains challenging. Higher for longer interest rates are having an impact on housing values and liquidity in the market. We’re still seeing inflation in our cost, insurance rates, electricity, nurses, caregivers, as well the whole industry. Key for us in FY ’25 will be our ability to maintain our current high occupancy rates and sell and settle new units and beds, as they come on stream through the new main buildings.
We’ve provided 3 outlook statements, as we get our turnaround underway. We continue to forecast positive free cash flow for FY ’25. We expect to spend $700 million to $820 million of CapEx across new and existing operations. We expect to complete 850 to 950 new beds and units.
In summary, we’ve listened, and we are making changes. We know we need to improve financial performance, particularly in a challenging macro environment. We believe we’ve got a clear line of sight to making those improvements over the next 2 years to 3 years. We do need to keep the resident at the center, and we need to balance care and great financial performance. We will continue to take a very disciplined approach to capital allocation. Thank you. And I’ll now open it up for questions, firstly by phone and then by web.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from Bianca Fledderus from UBS.
Bianca Fledderus
Good morning, Dean. First of all, thanks for the increased disclosure. That’s appreciated. So first question for me is, you are stepping in as Executive Chairman, of course. You are also on a few other boards. So given you have these other directorships, and you don’t live in Christchurch, could you just talk us through how you manage your time, I guess, and how much time on average you’re spending on Ryman?
Dean Hamilton
Sure. Sure. No, that’s a good question, Bianca. You all have seen that I have gone to what we call light duties at Auckland Airport, which is essentially whilst I’ve retained my directorship. I’m not participating in that board, or any subcommittees of the board, so effectively reduced that load by one.
In terms of time spent at Ryman, it’d be fair to say that has been 3 to 5 days a week or arguably 7 last week. But yes, the spending time. I’m doing that visibly. So I’m at least 3 days in either the Christchurch office or the Melbourne office. And so, I expect to operate at that level. So at least 3 days visibly and obviously available for the rest of the week remotely and by VC.
Bianca Fledderus
Okay. Great. That’s very helpful. Then moving on to your developments. So with the new methodology, the FY ’25 step-up is 200 to 300 units and beds compared to FY ’24. That seems like a decent step up. So a big part, as you say, is driven by the opening of the 4 main buildings. But besides those completion, how realistic is that number?
Dean Hamilton
Yes. So I think we need to be careful of looking backwards, as in terms of the old methodology versus the new methodology. And at some stage, we have to transition to a new methodology. And I think Bianca, that’s obviously — that transition will create some noise, but we need to move from sales to settlements. We need to move from kind of near complete to complete. So we’re very intent on that chain.
So in terms of the units that we expect to complete this year, we’re highly confident of those numbers. Yes, a lot of those buildings are near — that’s auditor’s not going to use the word near complete. But they — we’ve got a clear line of sight in particular to those main buildings that all 4 will be completed and opened this year. So we’ve got a high degree of confidence in the FY ’25 completion number, Bianca.
Bianca Fledderus
Okay. And then after that, FY ’26 and ’27, so that’s, of course, a bit lower, so 500 to 600 units in beds a year. Could you just talk about your strategy after that? So I guess, your longer-term build rates? And also given you’re moving more to broad acre, how much lands you have to buy in the near term, I guess, to sort of deliver on that?
Dean Hamilton
Sure. Yes. I think the average of those subsequent 2 years is 600 million — 500 million to 600 million, I suppose, on that, 2 years and then 600 million to 700 million over the 3 years. Yes. Look, we’re happy with that outlook. I think beyond that, we will need — we have started in the next year or so, some of the 10 sites that are in the land bank.
We’ve got some broad acre sites, principally in New Zealand at Rolleston, at Taupo and at Karaka, I would anticipate getting at least one of those underway in the next 12 months to 24 months. And in Australia, it’s going to be large around resetting these what were substantial builds and redesigning those to reduce our peak capital spend at Mt Eliza and at Ringwood. So I’m confident that we’ve got reasonable sight within our land bank.
We continue to look at land. But I also think part of the future for Ryman will be, particularly in a higher interest rate environment is what is the right size of land bank. Ultimately, you’re trying to shorten the kind of cash-to-cash cycle of these things. And at 2% interest rates, you saw the whole industry have a bit of a land grab to large land banks. I expect you’ll see that reduce over time. And with a higher degree of conviction on what you’ve got and the confidence of getting those through to cash in a reasonable cycle, you’ll see the write-downs we’re doing now are on bits of land we have had since 2016, 2017, 2018. If you’re holding those for 7 years or 8 years, the buildup in cost and your balance sheet makes it quite prohibitive.
Bianca Fledderus
Again, and last question for me. So your ICR does look quite tight, and it will, of course, lift again to 2x mid-next year and then 2.25x after that. Are you still comfortable with the current level? Or are you talking to banks about it at all? Or can you just comment on that thing?
Dean Hamilton
No, that’s fine. No, we’re comfortable. The step up to 2x is not until September ’25. And in that period, we obviously would have dropped off the weaker second half that we’ve just gone through in FY ’24. So that will help us. That was quite a weak period. I think our first half, second half underlying numbers were very similar, which is unusual for us, so that will be good to cycle off that. So no, at the moment, we’re comfortable with our liquidity. We’re comfortable with our covenants. And yes, no, we have — no discussions with our lenders.
Operator
Your next question comes from Arie Dekker from Jarden.
Arie Dekker
Thanks for the thorough presentation. First question, I guess, you’ve been clear that some of the settings on the RV side are low, so the weekly fees, arguably, the DMF as well at 20%, but you’ve also made comments, obviously, about being realistic about the current macro environment. Can you just sort of talk to when we might get sort of visibility on when you’d look to sort of improve, I guess, the fee settings on what is a market-leading RV proposition?
Dean Hamilton
Yes. No, good question. And obviously, the weekly fee portfolio is such a blended rate. We have — obviously, we’ll review that quarterly, but there’s been some periods in the past in late ’17’s and ’18’s, where they weren’t reviewed for a period. So people that have been there for a while, as I said, some 2,500 are now paying 110 new — in our current settings, they are at least double that number. So we’ll obviously, as we mature through those people that will help our P&L.
But even today’s numbers, I don’t think are the right numbers. And so, I think over the next 6 months, Arie, we will need to lean into those things. I think we do have a great product. You just walk around it, the scale of amenity, the access to the continuum of care and the quality of what we build, I think, at 20% of fixed fees for life is the wrong setting. So I think we’ll be leaning into that before the end of the calendar year.
Arie Dekker
Great. So you doesn’t rely on a new CEO coming in place and the move also, which seems very sensible to remove that 30% assumption in the valuation around market DMF shouldn’t be read as a signal that you were tied to the 20%?
Dean Hamilton
No, that’s right, Arie. Yes. No, we’re certainly not waiting for the new CEO. I think the Board and this management team are very clear on what needs to be done. So we’ll be making those changes, I suspect, ahead of a new CEO being in the seat.
Arie Dekker
You’ve given some positive comments there around your comfort in the covenants, so that’s good. I mean, core debt is obviously sitting — I mean, there’s different ways of sort of looking at it, but it sort of sitting at a reasonably high level. Should we sort of take the comments elsewhere in the presentation around your objective to bring debt down over time, as you focus on value as being kind of the approach to the core debt, where you’ll look to deal with that over time through cash profitability, potentially the capital management settings in terms of dividend and just balancing the amount of development you’ve got underway with the debt balances. Is that how we should sort of think about it?
Dean Hamilton
Yes. That’s exactly how you should think about it. Yes. I think that debt, you can calculate that in various ways. You can look at our P&L interest or you could work it backwards from the 2.5, take off the cash recycling, take off the unsold stock, take over our land bank, either way, you’re probably going to get a number slightly above $1 billion. And so that’s a number we believe we need to pay down, and we’ll pay that down through those settings.
Being cash flow positive for one Arie, will be critical, and we’re keen to work down that core debt number over time. And I think you will be conservative about our review of our dividend policy in a couple of years’ time. FY ’26, like we promised any look at that will need to be cash-based. So yes, we can see a line of sight to gradually paying down that core debt, and it will all be about improved performance and recycling our capital on our new debt, so that we’re not bringing over more core debt when these new developments don’t recycle.
Arie Dekker
A small acquisition of adjacent land that you called out, there’s a couple more sites, reasonably sizable ones for divestment, do you think that the next land acquisitions will be sort of around, I guess, recycling some of those divested sites into land acquisitions. Just can you talk briefly about your approach and where you’re at on willingness to purchase land at the moment?
Dean Hamilton
Yes. No, we’ll definitely look at land, Arie. I think we also will probably going forward run a tighter land bank. I think when you’ve — as I said, I think the whole industry ran towards a bit of a land grab. People were being rewarded for having big land banks and the cost to carry at 2% was very little and you had inflation in your land. So I think that was fine for people.
But I think when you look now, they are expensive assets to carry. I think people will need to be more disciplined in terms of the scale of what they carry versus what they can eat through at the other end, particularly in a potentially softer market for the next 12 months. So yes, we’re happy with our current land bank. We can see our way through the next 3 years, 4 years. So we’re not panicked to buy new land. But yes, we will look to new land. And I think in part, it will be influenced by where we get more confidence on the care settings. Does Australia move more quickly to — put more profitability back into care that would justify our continuum of care model. If they don’t, do we look at land banks near our existing facilities and use the care as a satellite. So we just build retirement and fill up the beds at nearby integrated facilities. So we’ll look at that.
And in New Zealand, if the government doesn’t move on improving the profitability of care that would justify new investments here, we will really tail down the scale of care that we do and really reorientate that solely towards Ryman residents rather than the current model, which allows to settle or to put people into our beds. So yes, I think we’ll take a considered approach to land. We will recycle if we get the opportunity. But I think going forward, you won’t see — and I can only speak for ourselves, as big a land bank as maybe what you saw in a 2% interest rate environment.
Arie Dekker
Great. And then last question for me. And I think that the time you’re putting into the role is pretty clear in the presentation today and the turnaround. So that’s great. Maybe in the matures, but can you just confirm if you’re able whether you will be in the process for…
Dean Hamilton
Yes. No, I won’t. No, obviously, I won’t be. We’ve – I’m keen to get back into the Chair role. And hopefully, we can find somebody to take the business for the next 5 years to 7 years, which we’re optimistic we can do. So no, I’ve not – purposely not put my hat in the ring.
Operator
Your next question comes from Aaron Ibbotson from Forsyth Barr.
Aaron Ibbotson
Hi, there. And many thanks for some excellent disclosure and what seems to be a pretty sizable reset of how you report and think about the business. I just got a couple of small questions. So first of all, I’m just keen to know if you have a view of capital allocation in New Zealand relative to Australia, is that something you have given any thought? You’ve got a background in both countries as well. So with your initial impression of the business, do you think a pivot in either direction is worthwhile? Or do you think the current settings are roughly right?
Dean Hamilton
Yes. Good question, Aaron. Look, I’m comfortable we’ve got a 50-50 land bank, 5 in each place. I think over the foreseeable future, we won’t see a massive pivot from one to other, particularly as our broad acre land bank primarily sits here in New Zealand. I think in large part, it’s going to be impacted by the care settings of each government. I think of this series of reviews by the government fails to create a material change, and the Australian one does, the legislation follows the recommendations of that task force, I think we’ll probably be more purposeful in our investment in Australia.
But I’m optimistic both governments will get to the same logical conclusion that the wave of aged people coming into both countries, they want to keep out of their hospitals. And the evidence shows that when they go through their — an aged care facility such as ours, when they do finally present in hospital, they’re actually presenting in better shape. So the overall cost of the health care system is much reduced. So I’m optimistic we won’t have our hand forced to go one country or each other. But if we do, I think in all likely we’ll probably increase our bias towards Australia. But at the moment, we’re seeing opportunities in both countries.
Aaron Ibbotson
That makes sense. Secondly, and I guess, it’s a bit of a detailed one, but just so I don’t end up double counting in my model, and it might be somewhere in the disclosures. But the 736 units you reported delivered on sort of old methodology for this year, how many would you have reported on this new methodology? Just so I assume a few of those 736 are showing up in the FY ’25 actual delivered.
Dean Hamilton
Yes. I’ll get you to follow-up with Hayden after. This is kind of a little detailed spreadsheet that we’ve got here, Aaron, as we move from the near complete sale, obviously would — there was an element of double counting last year’s near complete, as we fall into this year’s completion rate. So at some stage, we need to go cold turkey over.
I think on the new methodology, the FY ’20 build rate would have been around 637 units. I’m just looking on Page 32 of the presentation. But if you want to get into detail on that, Aaron, just get in touch with Hayden because there is obviously that element of — they sit in both numbers in terms of the old methodology to the new. But I’m very keen that the organization moves to completions, this whole near complete thing, the amount of time and energy that goes around visiting these villages, figuring out whether it’s half complete or not is a waste of energy. We need to focus on getting things done and turning it to cash.
Aaron Ibbotson
Sounds very good. My final question, and apologies to get back to your debt covenants, but all of your 3 main peers, smaller peers here in New Zealand have shifted to a combination of sort of development facilities, which sits outside of these ICR covenants. And I appreciate your reiteration that you’re not — that you’re comfortable with your covenants, but have you given any thoughts to maybe moving some of your non-core debt into a development facility just to make the rest of us stress slightly less about it?
Dean Hamilton
Yes. We’ve thought about that. I think first up, we certainly don’t need more debt. So I think $2.5 billion is enough debt for the organization. So doing that kind of splitting between the 2 to try and find more debt is not the answer. I think the key would be whether you thought that reduced the covenant measurements on one part versus the other. And ultimately, those pieces are not non-recourse is my understanding.
So for example, if we’ve gone into – decided we’re going to do one of our developments at Keith Park, and we thought it was going to cost us $300 million and we set up a facility. We put $100 million of equity into it, and lo and behold, it cost $400 million. We’ll be reaching into our pocket to fund the extra $100 million. I’m sure, it won’t be from the bank. So I think we need to be kind of objective, as to what that’s actually doing having a dev co versus op co, I don’t think it kind of gets you out of overspends, whether it creates a different covenant structure, it’s well worth looking at
But I think we need to do that for the right reasons because as I say, we’re not looking for more debt and we are not looking to create non-recourse because in reality, it won’t be. If you’re halfway built in a Ryman village, you’re going to have to finish it like anyone with their brand on those things. So it will be around interest covenants and whether it’s leverage only versus an interest covenant we need to investigate further. But on our current covenants, we are comfortable, but we’ll continue to look at whether there is a better way to fund the 2 elements of the business, acknowledging that it won’t be non-recourse if you do put it into a dev co.
Operator
Your next question comes from Stephen Ridgewell from Craigs IP.
Stephen Ridgewell
Thanks for the presentation, guys. Just a couple of questions from me. Dean, you noted Ryman still interested in acquiring land, but will hold a lower land bank in the current higher interest rate environment. I think, the guidance for lower build rate over FY ’26-’27 does provide helpful clarity over the — that’s kind of near term to a degree. I just wonder if you could give indications for how the Board is thinking about perhaps build rate beyond that period of time, even approximately, is that sort of run rate over FY ’26-’27, a reasonable indication for Ryman’s development aspirations on beds, so a more slightly longer-term view than the guidance provided.
And then, I guess, fixed that you do acquire new land, one presumes that, that will be focused on broader acre sites, please?
Dean Hamilton
Yes. I think we’ve got more — like anything, Stephen, you’ve got more visibility, the closer it is to you, isn’t it? So I think we’ve been very much focused, as we think about our capital management around that 3-year perspective. So we’re confident that we’ve got good line of sight to that level of build. The year after that, you’re probably in the ground — to actually be a completion, you’re probably in the ground next year. And so, I think what will determine that will be our success in driving increased financial performance in the core business. Are we creating headroom for ourselves as we go. And are we completing these developments to time and to schedule in terms of what’s to go.
So are we releasing that $800 million that we think from today, we’ve got coming out of the recently completed and the completed. So I think that will impact our confidence. I can’t see us being less than that 600 to 700 on average over a 3-year period. I think whether we build confidence and financial capacity to be higher and get really confident that we can recycle, so therefore, not bring core debt back over to weigh on the existing operations will be important, I think.
But placing $30 million and $40 million land banks and it is not substantial. It’s what you then spend on top of those things to get consent, the accumulation of interest at 7% compounding per annum, you only get — quickly get to a book value that doesn’t support the large spends that are to come. So hopefully, that answers the question, Stephen. I think we’ve got reasonable visibility for 3 years. I don’t think it comes down from that level, but our performance will dictate confidence to go up and above that.
Stephen Ridgewell
Yes. That is helpful. Thanks, Dean. And then like you talked to quite a bit on the call, as to the need for government funding to increase for care, particularly in New Zealand. I mean, I guess, if you don’t get that, you’ve alluded to some strategies, you can employ. But to what extent do you see upside to private funding, I guess, especially given the New Zealand government’s fiscal position isn’t great. I mean, it seems like it’s going to be hard to get a lot more funding for a number of sectors, but how much upside do you see in terms of both beds and perhaps the potential to roll out the ORA model or the care suite model across the — both the existing and future developments.
Dean Hamilton
Yes. Good. I think that’s – if I could just break that down to 2 bits, I think, Stephen. In terms of the model that Australia is talking about, it’s a combination of some increase in government funding, but then opening it up for co-contribution particularly what in Australia they call the hotel type services, which is essentially food and those things. So they’re looking at a combination of the 2, not just fall – because like every government in the world, Victorian government has got no money. So they’re looking at co-contribution by people who can afford to do that. And I think that’s a positive over there.
And then in New Zealand, I think they will ultimately go to that model as well, increasing the minimum or the maximum annual contribution in New Zealand and also an increased contribution by the government. So again, I don’t think the whole weight of the solution will fall on the government. There is a large part of the population that can afford to and is not being required to pay over and above that level. So I think our existing 4,500 beds can benefit from that. And you put some maths across those beds and put that into per days and what a change in the per day rate will be, our operating leverage will be substantial on that.
In terms of the care suite piece, I think as we look forward, that will be part of the solution, but that’s quite hard to reconstruct backwards into our 4,000 beds, Stephen, at scale. We’re doing 10 here, 5 there, but on a 4,500 bed unit portfolio, I don’t think going backwards with our care suite product will be material for Ryman. But obviously, in new developments, I think we’ll look to a combination of suite and bed. So the key is, we would obviously take it completely outside of the private sector. But look, I’m optimistic the biggest gain for Ryman, and I think a fair reward for the $1 billion that we’ve got tied up in care will be a change to the settings for straight care payments for aged services.
Operator
Thank you. There are no further phone questions at this time. I’ll now hand back to Mr. Hamilton to address your webcast questions.
Dean Hamilton
Right. Are there any webcast questions?
Unidentified Company Representative
Well, there are no webcast questions.
Dean Hamilton
Okay. Well, thank you very much. I really appreciate the attendance today. As we said, the turnaround is underway. We’ve listened. We’re creating change. I’m personally optimistic that there is plenty of room for opportunity for improvement, and we appreciate your time, and we look forward to keeping you informed and no doubt speaking to a few of you over the next few days. Thanks very much again.
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