Update - Ryman Healthcare
After a comment by a reader, I realized that there was an important point that I missed in my previous article. Legally, Ryman only has to pay back the occupancy advance to a resident once the unit has been resold. Ryman has guarenteed that, after 6 months has gone by, they will pay interest to the former resident until the unit is actually resold. This means that I may have overstated the risk on existing retirement villages in my original article. Since its founding in the 1980’s, the longest period it took for a resident to get paid back was 6 months.
Effectively, Ryman absolutely has to repay the occupancy advance to residents eventually. The business model is unsustainable from a consumer perspective, as well as from a regulatory perspective, if the elderly population is not being repaid deposits that they deserve. There is a big difference though between effectively required and legally required in this case, and the reason is due to timing. From a liquidity standpoint, timing is everything. If Ryman goes through an incredibly difficult time, it has more wiggle room in terms of when it pays back former residents. This can help the company buy time, avoid bankruptcy, and push past a downturn in the industry. The former residents still must be paid though.
Ryman made it unscathed through the Financial Crisis of 2008 and through the pandemic of 2020, so this is a battle tested company and business model. There would have to be a much more difficult period within the industry to take Ryman down. With that being said, I do try to spend a lot of time imagining what could destroy a business before deciding to own it. In this case, my original article may have overstated the catastrophe risk related to Ryman’s occupancy advances a little bit.
The company still has $3 billion in debt. Personally, I’m not too worried about this figure currently. The company has hard assets and steady income from care fees to pay this down. The demand from residents is needs-based, and is not just discretionary spending for the customer. This is the type of company that can handle at least some amount of debt load.
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