Latest / The SME Stream / How $1b Metlifecare has expanded in secret [VIDEO]

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How $1b Metlifecare has expanded in secret [VIDEO] · The SME Stream

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Speaker 1: The information provided in this program is of a general
0:02
Speaker 1: nature and is not intended to be personalized financial advice.
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Speaker 1: We encourage you to seek appropriate advice from a qualified
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Speaker 1: professional to suit your individual circumstances. The markets forced in
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Speaker 1: many retirement village companies to pull back on once bullish
0:15
Speaker 1: growth plans, but Midlife Care has been secretly expanding. The
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Speaker 1: company went private in a one billion dollar deal in
0:23
Speaker 1: twenty twenty. Now it's letting us back in.
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Speaker 2: Yeah, it's been a tremendous opportunity to take a company
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Speaker 2: that's a household Game in New Zealand, is one of
0:30
Speaker 2: the pioneers in the industry and give it a significant transformation.
0:34
Speaker 2: And we really have gone through the boldest sort of
0:37
Speaker 2: changes that you'd expect a company of our scale.
0:58
Speaker 1: Investors of discountant retirement village companies in this economic cycle,
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Speaker 1: some of the stocks are now trading below their net
1:06
Speaker 1: asset value.
1:07
Speaker 3: It's due to.
1:08
Speaker 1: Dampened property valuations and increased interest costs making the sector's
1:13
Speaker 1: debt more expensive, and the inflated cost of building new
1:17
Speaker 1: villagers catching some of them out. Riemann Oceania and Arvida
1:22
Speaker 1: have all suspended dividends, while Ryman is selling sites and
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Speaker 1: Oceania is selling older villagers. Avida's boarder is now recommending
1:31
Speaker 1: shareholders accept a takeover offer, a deal worth two billion dollars.
1:36
Speaker 1: About a quarter of all operators in the industry have
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Speaker 1: scaled back their development plans according to anz's Retirement Villager's survey,
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Speaker 1: with about ten percent cutting back their capital expenditure two
1:49
Speaker 1: but more than half of all operators are still bullish,
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Speaker 1: saying they plan to increase their build programs from here.
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Speaker 1: Somerset is among them, boasting the biggest land bank of all.
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Speaker 1: MetLife Care is also in the growth camp, but its
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Speaker 1: plans have been kept quiet over the past few years
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Speaker 1: while it's been in private equity hands. MetLife left the
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Speaker 1: New Zealand Stock Exchange in twenty twenty and a one
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Speaker 1: point three billion dollar takeover deal backed by the Swedish
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Speaker 1: private equity firm EQT. Now the CEO, El Gasparich is
2:23
Speaker 1: sharing how the company has increased value behind closed doors.
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Speaker 1: MetLife now has thirty six villages compared to twenty five
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Speaker 1: at the time it went private, and has expanded into
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Speaker 1: the South Island. This could all paint a positive story
2:38
Speaker 1: for private equity because it shows how much MetLife has
2:41
Speaker 1: improved under its care, but it also means retail investors
2:46
Speaker 1: have missed out on all of those gains. Earl previously
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Speaker 1: led listed retirement operator Oceania. He says this kind of
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Speaker 1: transformation at MetLife wouldn't have been possible in the public spotlight.
3:03
Speaker 1: Oh nice to me you, thanks Aunt for having us
3:04
Speaker 1: so really appreciate it.
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Speaker 3: Thank you.
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Speaker 1: You're a private operator now you don't actually have to
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Speaker 1: talk to me, but here you are, so thank you.
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Speaker 1: But why why are you letting us in and sharing
3:12
Speaker 1: your story.
3:14
Speaker 3: Out of invitation? I guess so. Look, it's been a
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Speaker 3: great journey in me Life Care.
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Speaker 2: It's a household name, it's been around for forty years,
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Speaker 2: one of the pioneers in the retirement village industry, and
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Speaker 2: I had some rocky times in the past and was
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Speaker 2: acquired by a large Swedish fund manager EQT in twenty twenty,
3:32
Speaker 2: taken off the New Zealand Exchange. And it's been a
3:35
Speaker 2: sort of quiet period of rapid transformation over those last
3:38
Speaker 2: sort of four years since that time. So you know,
3:41
Speaker 2: it's good to share what's been going on.
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Speaker 1: We are definitely going to talk about what you've been
3:44
Speaker 1: doing behind closed doors. Very keen to go into that.
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Speaker 1: But if you look at the industry, including the big
3:49
Speaker 1: listed operators, what they've been up to and how they've
3:51
Speaker 1: been struggling with this economic environment has been public How
3:55
Speaker 1: if you can sum it up for me, how has
3:57
Speaker 1: this economic environment higher interest rates now, slower growth in
4:01
Speaker 1: house prices, How does that impact this type of business?
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Speaker 3: Look at it.
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Speaker 2: Really, it only impacts our incoming residents' ability to sell
4:09
Speaker 2: their houses to come into our villages. So throughout this cycle,
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Speaker 2: and it's been the same through the listed operators as well.
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Speaker 2: Demand for retirement village of living is unaffected. So we
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Speaker 2: are dealing with over seventy year olds. It's our minimum
4:23
Speaker 2: age of entry, as are the other operators, and there's
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Speaker 2: no lack of demand for moving into villages. Where the
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Speaker 2: challenge comes in an economic cycle that we've been that
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Speaker 2: we've faced, is that those residents when they come and
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Speaker 2: look at a village and they love the idea and
4:38
Speaker 2: they've gone through the process of why they would want
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Speaker 2: to move in, they then have to go and sell
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Speaker 2: their residential their own residential property, and sometimes the value
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Speaker 2: of that a couple of years ago may have been
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Speaker 2: higher than what it is now, so you know that
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Speaker 2: they're presented with the less affordability, but most of the
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Speaker 2: time it's just the length of time it takes to sell.
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Speaker 2: So over the last three years, our our application rate,
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Speaker 2: the demand for our villages has increased. Yere on here
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Speaker 2: we were over target in the last twelve months. Our
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Speaker 2: price has increased through that time, and it just demonstrates
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Speaker 2: the resilience of this industry to economic cycles. The challenge comes,
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Speaker 2: as I say, is in how long it takes for
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Speaker 2: a resident to then sell their property. And one thing
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Speaker 2: I've learned about elderly people over the last sort of
5:22
Speaker 2: twenty years in this industry is that they don't like uncertainty.
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Speaker 3: And so as soon as they think.
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Speaker 2: That, you know, there's going to be I'm going to
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Speaker 2: move into this village and we're going to sell our
5:32
Speaker 2: house for whatever, and therefore I put an application on
5:35
Speaker 2: this unit and that doesn't happen, then they tend to
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Speaker 2: sort of get concerned maybe it's not the right time
5:41
Speaker 2: to move in those sort of things. So one of
5:43
Speaker 2: the things we've been fortunate about at MetLife Care is
5:45
Speaker 2: that we've had the ability to be quite innovative in
5:49
Speaker 2: that transaction. So we've allowed residents to extend contracts, we've
5:53
Speaker 2: offered them sort of incentives to move in, we've deferred
5:57
Speaker 2: some payments, those sort of things, and those sort of
5:59
Speaker 2: things are hard to do when you're in the public profile.
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Speaker 2: You know, our owner, out Board, have been comfortable with
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Speaker 2: us using those.
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Speaker 3: Sort of instruments.
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Speaker 1: Investors also very much do not like uncertainty, Earl. And
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Speaker 1: if you look at the public listed retirement village sector,
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Speaker 1: they've been repriced pretty heavily. It's interesting the difference in
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Speaker 1: the variance in how some of those companies are going because,
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Speaker 1: as you mentioned, you all really in this industry have
6:22
Speaker 1: the same business model. You build developments, you get debt
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Speaker 1: to do it, then you sell the right to occupy,
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Speaker 1: then you resell those when the occupier moves on, you
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Speaker 1: then recycle that capital that you earn from the capital
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Speaker 1: gain to put into more villages. So why do you
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Speaker 1: think there's such a variance in the way that some
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Speaker 1: of these operators are going well for its start?
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Speaker 2: I mean, the sector itself has been oversold because of
6:44
Speaker 2: the perception from a lot of investors is that it
6:47
Speaker 2: is directly correlated to the residential property market, which is
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Speaker 2: I've just said is not correct. You know, the business
6:52
Speaker 2: has considerable resilience against economic cycles. We're dealing with a
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Speaker 2: cohort of our population that have an enjoyed significant capital
7:01
Speaker 2: growth over the last decade, right, so they've bought properties
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Speaker 2: that have double tripled in value over that time. They
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Speaker 2: get to a stage in life and they're looking for
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Speaker 2: either a lifestyle option or they're looking to take uncertainty
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Speaker 2: out of their future. You know, they go out and
7:17
Speaker 2: they look at retirement village environments, they see the benefits
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Speaker 2: of it, they want to move in. It's the ability
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Speaker 2: of a company then to what i'd call take the
7:28
Speaker 2: friction out of that transaction. So how do you when
7:31
Speaker 2: you've got a reason? I mean, it's just like you
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Speaker 2: mentioned having a shop and selling a product and people
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Speaker 2: are queuing of the door to come in, and they
7:36
Speaker 2: really want to buy the product, and they've got the
7:40
Speaker 2: money to do it, they just can't go and access
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Speaker 2: that money, so to speak.
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Speaker 3: So it's that sort of thing. So we've been able
7:46
Speaker 3: to be innovative in terms of how we've done that.
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Speaker 3: But you know, I can tell you we obviously look.
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Speaker 2: At all the results of the listed operators and you
7:54
Speaker 2: know that they're almost a copy book about how we've
7:56
Speaker 2: tracked over this time as well. You know, it has
7:58
Speaker 2: been a challenging time for thatngthening out those sentiment time frames, which.
8:03
Speaker 3: Impacts cash flow.
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Speaker 2: But as I say, in terms of demand, in terms
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Speaker 2: of absolute sales, look, the difference with met at the
8:10
Speaker 2: moment is that we've got a great owner. We've got
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Speaker 2: a fantastic, very robust balance sheet. You know, we've got
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Speaker 2: the ability ability to expand and grow. You know that
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Speaker 2: perhaps the company didn't have before.
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Speaker 1: Tell me about your expansion. Just how much have you
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Speaker 1: increased revenue and profitability and private hands and how have
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Speaker 1: you done it?
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Speaker 2: Well? Our net tangible assets is one of our key
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Speaker 2: you sort of measures, has increased by nine percent CAGO
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Speaker 2: over the last sort of four years, which compares to
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Speaker 2: a negative one before.
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Speaker 3: Then, as I say, we've had we've.
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Speaker 2: Got an owner that that is reinvesting every dollar of
8:39
Speaker 2: return back into the portfolio. So yeah, it's been a
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Speaker 2: tremendous opportunity to take a company that's a that's a
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Speaker 2: healthshold name in New Zealand, one of the pioneers in
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Speaker 2: the industry, and give it a significant transformation and we
8:51
Speaker 2: really have gone through the boldest sort of changes that
8:54
Speaker 2: you'd expected for a company of our scale in New
8:56
Speaker 2: Zealand probably over the last few years, and it's been
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Speaker 2: executed at considerable pace. It's taken a lot of resource,
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Speaker 2: it's taken a heck of a lot of capital. But
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Speaker 2: you know, our village is and obviously we're sitting in
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Speaker 2: a brand new one now and that's part of a
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Speaker 2: normal growth cycle that any retirement village operator would have
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Speaker 2: to buy land, build village, sell it down, et cetera,
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Speaker 2: open new villages. But we've reinvested in our existing portfolio
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Speaker 2: as well. So you know, one of the points you
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Speaker 2: made before around one of the benefits MetLife Care has
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Speaker 2: and that cycle of build village, sell it down. There's
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Speaker 2: a long period of time where you're operating a village
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Speaker 2: before a resale opportunity comes up. And obviously, in this industry,
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Speaker 2: the capital growth, the realization of your deferred management fee,
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Speaker 2: only comes with a resale, so you can return your
9:45
Speaker 2: capital through a development process. You can operate your village
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Speaker 2: and you can recover your cost of operating, but you're
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Speaker 2: only really making your returns when you resell.
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Speaker 3: So it's a long game.
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Speaker 2: If you're a mature portfolio MetLife care and you've got
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Speaker 2: villages that afford year forty years old, those gains come
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Speaker 2: regularly because individual units come up for resale regularly through
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Speaker 2: the year. If you're a new operator or a smaller operator,
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Speaker 2: you're far more exposed to quite lumpy sort of cash flows, right,
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Speaker 2: You're far more exposed to different time frames of when
10:19
Speaker 2: those resales are going to come up. And that's when
10:20
Speaker 2: a lot of you know, even developers that have got
10:23
Speaker 2: into retirement villages and it looks great.
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Speaker 3: Doesn't it.
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Speaker 2: You know, you build, you build what looks like a
10:28
Speaker 2: residential property development, you sell it down and gosh, you
10:30
Speaker 2: get a chance to resell it again. But you've got
10:33
Speaker 2: to operate it in the meantime, and you've got to
10:35
Speaker 2: incur you know, the challenges of operating a village until
10:39
Speaker 2: that resale time comes out. And you know what if
10:41
Speaker 2: you're a tempted to reselve for your initial sales to
10:45
Speaker 2: be you know, to get the sales away to sort
10:48
Speaker 2: of lengthen your population base and maybe drop it down
10:50
Speaker 2: to fifty five, which is what happened in historically in
10:52
Speaker 2: retirement villages, and it did happen with some of the
10:54
Speaker 2: assets that MetLife Care acquired in the past.
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Speaker 3: You know, those resales don't come for twenty thirty years.
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Speaker 3: It's a long time between cash flows.
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Speaker 1: What is your dam just quickly, that's quite hot.
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Speaker 2: There are others at thirty percent, and you know, I
11:10
Speaker 2: mean obviously a lot of singles in the market at
11:11
Speaker 2: the moment that others will be moving towards that level.
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Speaker 3: Look in my experience, and I've been in the sector for.
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Speaker 2: Twenty years, it's funny, I sort of I don't feel
11:21
Speaker 2: that old, but people have said I'm the longest serving
11:25
Speaker 2: CEO in the sector, which feels a bit now just
11:27
Speaker 2: in the sector, not in the sector, not in New Zealand,
11:29
Speaker 2: than goodness now. But you know, and what I would
11:34
Speaker 2: call the old days twenty years ago, you would as
11:37
Speaker 2: you said, you'd buy it, you build a village, sell
11:40
Speaker 2: it down, recover your costs entirely.
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Speaker 3: You'd operate.
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Speaker 2: You charge of residence their weekly fee to recover the
11:45
Speaker 2: cost of operating the village. We'd literally have agms where
11:48
Speaker 2: we'd give a budget for next year which would include
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Speaker 2: all of the costs of operating, all of our rates, insurance,
11:53
Speaker 2: et cetera. And then we would basically divide that by
11:56
Speaker 2: the number of units and say here's the amount of
11:58
Speaker 2: weekly fee. Sometimes that was unpopular because it might have
12:01
Speaker 2: gone up a little bit, and then you know, you
12:05
Speaker 2: would therefore be able to operate your village on a
12:07
Speaker 2: full recovery basis. And then as I say that, resale
12:10
Speaker 2: would come up. Times have changed and we introduced the
12:15
Speaker 2: thing ten years ago called a fixed weekly fee, as
12:17
Speaker 2: did other operators. It's great for marketing. It gives residence
12:20
Speaker 2: a gain a lot of certainty about what the future.
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Speaker 1: Will bring, and it's fixed for their entire It's fixed for.
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Speaker 2: The entire time of their tenure in the village. The
12:28
Speaker 2: problem with it, and what operators have now discovered, is
12:31
Speaker 2: that when you go through a very high inflationary period
12:34
Speaker 2: and you know, we might say CPI is running at
12:36
Speaker 2: whatever percent over the last few years, we all know
12:40
Speaker 2: things like rates non tradeable inflation is going far higher
12:43
Speaker 2: than that insurance costs, so the ability to recover the
12:46
Speaker 2: cost of.
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Speaker 3: Your village has become almost impossible.
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Speaker 1: This is what I wanted to ask you about specifically
12:51
Speaker 1: when it comes to care you have what across your
12:53
Speaker 1: portfolio now seventeen percent care. You've been building more care
12:56
Speaker 1: amenities in some villages, which is interesting because others have
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Speaker 1: absolutely pulled back on care purely because the profitability of care,
13:03
Speaker 1: because of the high operating expenses, wages and all of
13:07
Speaker 1: that have increased so markedly. How are you handling the
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Speaker 1: profitability challenges in care? And given that's a challenge, why
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Speaker 1: are you still bothering with care?
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Speaker 3: So there's a lot in that.
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Speaker 2: So for a start, I would say the lack of
13:17
Speaker 2: care that MetLife Care had in twenty twenty was a
13:21
Speaker 2: strategic challenge for the business. Having age residential care on
13:25
Speaker 2: a retirement village site is part of the fabric of
13:29
Speaker 2: New Zealand's retirement village industry. The concept of a continuum
13:32
Speaker 2: of care has been well established for for almost twenty years,
13:36
Speaker 2: and every retirement village operator now will have plans to
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Speaker 2: build an age care home. It's a very very important
13:45
Speaker 2: value proposition for incoming residents. Residents want to know what
13:48
Speaker 2: happens if I need living assistance in the future. They
13:52
Speaker 2: don't really think about it when they're young and active
13:54
Speaker 2: and maybe just over seventy, but they certainly that they
13:57
Speaker 2: certainly want to know what are the options for me
14:01
Speaker 2: if there are a couple, what happens if one of
14:03
Speaker 2: us needs it, for example. So the lack of care
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Speaker 2: that MetLife Care have had was a real strategic handbrake
14:09
Speaker 2: pre equt's ownership. So that was certainly part of our
14:12
Speaker 2: full potential plan was to introduce significant more care.
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Speaker 1: Mescindad you of the portfolio was care when EQT it
14:19
Speaker 1: was less than ten percent. She've almost doubled it.
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Speaker 2: Really, yeah, we have doubled it, and more significantly, we've
14:25
Speaker 2: increased the amount of the number of sites that have
14:28
Speaker 2: age care on them, and that's really what's important. So
14:31
Speaker 2: it's a percentage is one thing, but to say we
14:34
Speaker 2: had eleven age care homes and now we've got twenty
14:36
Speaker 2: five as a far more meaningful statistic. And we've taken
14:40
Speaker 2: villages like the Point an Aukland s Tacopina, where that's
14:44
Speaker 2: been open for ten twelve years. Residents at that village
14:48
Speaker 2: when they needed care, they would have to go outside
14:50
Speaker 2: of the village to get that. If they were a couple,
14:53
Speaker 2: one of them would have to move out while the
14:55
Speaker 2: other one lived in the unit. And we took the
14:57
Speaker 2: opportunity to convert a area that had a number of
15:01
Speaker 2: service departments in it to fully certified age residential care.
15:05
Speaker 2: And so now that village has care on site, and
15:07
Speaker 2: we've done that in other villages around the country as well,
15:10
Speaker 2: so we have significant thing spad effect. I think that's
15:13
Speaker 2: been one of the standout successes of our transformation journey
15:16
Speaker 2: over the last four years is to.
15:18
Speaker 3: Be able to do that.
15:19
Speaker 2: And it's not easy, you know, to turn an area
15:21
Speaker 2: of a building which has been built for residential purposes
15:24
Speaker 2: into an operational care home has a number of implications
15:27
Speaker 2: for fire regulations and things like that.
15:28
Speaker 3: So we've spent a lot of money doing it.
15:30
Speaker 2: But as I say that, the value in that to
15:33
Speaker 2: that village and the residence in that village is extraordinary in.
15:36
Speaker 3: Terms of profitability of care.
15:39
Speaker 2: As I say, I think the point is that retirement
15:42
Speaker 2: village operators need care, whether it's profitable or not.
15:44
Speaker 3: They need it.
15:46
Speaker 1: So but you're not making a loss on it, aren't you.
15:48
Speaker 3: We're not making a loss.
15:49
Speaker 2: And the reason why we're not making loss is that
15:52
Speaker 2: we offer premium care. So we effectively take the care
15:56
Speaker 2: room itself and we sell an occupation right for that room,
16:01
Speaker 2: and the same way that we would sell and occupature
16:03
Speaker 2: over an independent living in it. It's effectively a capital
16:06
Speaker 2: sum deposit. The alternative would be a daily accommodation payment
16:11
Speaker 2: that operators charged, So some other operators will charge a
16:15
Speaker 2: daily room premium and it's for the accommodation component, just
16:19
Speaker 2: the accommodation component. You're absolutely right that we charge the
16:22
Speaker 2: same fee that any other agecre operator can around the
16:26
Speaker 2: country for the service component of age care, so service
16:30
Speaker 2: all the daily living costs that a resident may have
16:32
Speaker 2: in care. But here is obviously a very different business model.
16:36
Speaker 2: It's a very different operating concept to a retirement village.
16:40
Speaker 2: But as I say, it's a very necessary part. And
16:43
Speaker 2: retirement villages are the only developers of care homes in
16:46
Speaker 2: New Zealand at the moment, and that's because of what
16:49
Speaker 2: is wrong.
16:50
Speaker 3: With the age care funding model in New Zealand.
16:52
Speaker 1: Are you comfortable with that max now seventeen percent of
16:54
Speaker 1: care across your portfolio.
16:56
Speaker 2: We've had the benefit of being a slow starter, to
16:58
Speaker 2: be honest, so we have what i'd call it rights
17:00
Speaker 2: sized care offering and we've been able to build new care.
17:03
Speaker 2: We've been able to convert, as I say, areas of
17:04
Speaker 2: our existing villages into care, but we've had the benefit
17:07
Speaker 2: of knowing what was the appropriate scale of that as
17:10
Speaker 2: opposed to you, right, other operators that were building very
17:14
Speaker 2: large care homes.
17:15
Speaker 3: And the larger the care home, the more efficient it is.
17:17
Speaker 2: Undoubtedly, you know, one manager, one chief, one administrator, so
17:22
Speaker 2: it makes sense to build bigger care. But you know,
17:26
Speaker 2: when the care funding is not adequate to keep up
17:28
Speaker 2: with the operating costs of care, that puts you in
17:31
Speaker 2: an unfortunate situation where you end up being underwater, as
17:34
Speaker 2: I say, from our model where premium we use that
17:38
Speaker 2: or a model over care that enables us to extract
17:41
Speaker 2: far greater returns per bad than a standard care offering.
17:45
Speaker 1: So i've MetLife is positioning itself as a premium operator.
17:48
Speaker 1: Before you would take it over, you were considered the
17:50
Speaker 1: third largest retirement village operator. Where are you in that
17:53
Speaker 1: positioning now? And how do you expect that to change
17:55
Speaker 1: given that you can afford to expand in private hands
17:58
Speaker 1: while others are pulling back and selling site.
18:01
Speaker 2: We're still we're still third, so other operators in the sector.
18:05
Speaker 2: We've grown as well, but it's fair to say we've
18:09
Speaker 2: grown significantly over the last over the last four years,
18:12
Speaker 2: so you know, and the key pillars that have been
18:15
Speaker 2: again part of our full potential plan and things that
18:17
Speaker 2: the company perhaps struggled with in the past being in
18:19
Speaker 2: the public spotlight. So we've used our balance sheet to
18:22
Speaker 2: acquire a significant land bank. We've got over twenty five
18:25
Speaker 2: hundred beds and units in our land bank, so that
18:27
Speaker 2: represents a very tangible pathway for future growth.
18:30
Speaker 1: When do you expect all of those to come online?
18:32
Speaker 2: That we're building it three to four hundred units a
18:34
Speaker 2: year at the moment, so you can work out the maths.
18:36
Speaker 2: You know, we've got about five to seven years ahead
18:38
Speaker 2: of us, and we're constantly looking at you barcels of
18:40
Speaker 2: land around the country and we will continue.
18:42
Speaker 3: To do so.
18:42
Speaker 2: The other key component of that is is the ability
18:46
Speaker 2: to manage the build program, so identify not only identifying
18:50
Speaker 2: the land and securing it, but also having the capability
18:53
Speaker 2: internally to oversee the best design and the best construction
18:59
Speaker 2: and having internal development function that is capable of delivering
19:03
Speaker 2: that amount of units and now gain that is something
19:05
Speaker 2: that the company was challenged with historically. So we've done
19:07
Speaker 2: a lot of work standing up an internal development function
19:10
Speaker 2: and we've delivered two years consistently of around three hundred units,
19:13
Speaker 2: and we're well untracked delivering another three hundred over the
19:16
Speaker 2: next sort of five to ten years. That will build
19:18
Speaker 2: towards four hundred beds and units. And you know that's
19:21
Speaker 2: a key lever in the business in terms of whether
19:22
Speaker 2: we speed it up, slow.
19:23
Speaker 3: It down, go high, etc.
19:25
Speaker 2: But you're right, we've had the balance sheet, we've had
19:28
Speaker 2: the benefit of having a great owner that's enabled us
19:30
Speaker 2: to do that.
19:31
Speaker 1: How are you going to pay for the remaining year
19:33
Speaker 1: and a half on the full potential plane? It was
19:35
Speaker 1: a five year plan. You're three and a half years
19:37
Speaker 1: into it. You have one point foury seven billion dollars
19:40
Speaker 1: worth of debt. Not enormously high compared to some others.
19:43
Speaker 1: That puts your net gearing it just shy of forty
19:45
Speaker 1: percent and sounds extraordinary high, but for this business it's
19:49
Speaker 1: surprisingly not. Your interest costs have gone from twenty million
19:52
Speaker 1: up to thirty six million in the past year. How
19:55
Speaker 1: from a balance sheet perspective, are you going to handle
19:57
Speaker 1: fulfilling the rest of the expansion plans and building up
20:00
Speaker 1: to four hundred units a year from here?
20:01
Speaker 2: To your point, the development function is a is a
20:04
Speaker 2: recycling of capital and that gain that's a very historical
20:06
Speaker 2: feature of the retirement checktor. So we are seeking to
20:09
Speaker 2: recycle the capital that we invest in in our developments, so,
20:13
Speaker 2: you know, and in the sector the benefit of of
20:17
Speaker 2: you know that the way that our balance sheep works,
20:19
Speaker 2: of course, is that you can rely on debt to
20:21
Speaker 2: do so. So we have a very supportive banking syndicate
20:24
Speaker 2: that enables us to establish a development facility. And yes,
20:27
Speaker 2: we have some core debt and that's really funded a
20:29
Speaker 2: lot of the development of our age care homes we've built.
20:34
Speaker 2: You know, we've had eight h care homes under construction
20:36
Speaker 2: over recent years, so and that's been that's taken a
20:40
Speaker 2: lot of capital and we have used our balance sheet
20:42
Speaker 2: for that. But you know, the short answer is that
20:44
Speaker 2: we've got a sufficient debt facility, a development debt facility
20:48
Speaker 2: in place to be able to recycle you know that
20:51
Speaker 2: that that capital and continue to build you know, the
20:55
Speaker 2: three to four hundred units a year, and the balance
20:58
Speaker 2: of our full potential plan is now largely in place,
21:00
Speaker 2: to be honest with you, where we're coming up four
21:02
Speaker 2: years out of the five and we've knocked off most
21:06
Speaker 2: of the pillars of that.
21:08
Speaker 1: That begs the question then that your private equity owner
21:11
Speaker 1: may be looking to sell. I know you can't talk
21:13
Speaker 1: about that, but it's known the private equity is here
21:15
Speaker 1: for a good time, a profitable time, not a long time.
21:18
Speaker 1: The concern when MetLife was taken, either from some quarters
21:21
Speaker 1: not from all shareholders, was that the value that was
21:24
Speaker 1: going to be created in this business would happen behind
21:26
Speaker 1: closed doors, outside of the reach of the public market
21:29
Speaker 1: and retail investors. It's clearly happened. How do you feel
21:33
Speaker 1: about that? And would you like to see this business
21:35
Speaker 1: back in the public market so you could be a
21:37
Speaker 1: public listency.
21:38
Speaker 3: Again, We've been a public company for a reason.
21:41
Speaker 2: The look, you know, I worked with someone historically who
21:45
Speaker 2: had involved in a MetLife care and he said that
21:48
Speaker 2: MetLife Care's issues are best out with out of the
21:50
Speaker 2: public spotlight.
21:51
Speaker 3: And I think that's really played out. You know, the.
21:55
Speaker 2: Company had a as I say, strategic issues that were
21:58
Speaker 2: born from, you know, trying to trying to deliver results
22:04
Speaker 2: and deliver value in very short cycles. You know, six
22:07
Speaker 2: months between results is a very short cycle to get
22:10
Speaker 2: anything done, and you know, when you've got to reinvest
22:13
Speaker 2: so much in the portfolio. I mean it was and
22:15
Speaker 2: it's still as we operate one of the oldest retirement
22:17
Speaker 2: villages in New Zealand, and we're going through through a
22:21
Speaker 2: significant regeneration program in that side of the moment, rebuilding
22:25
Speaker 2: community centers, adding more units, adding age care to it.
22:29
Speaker 2: You know. So that's the benefit of being out of
22:30
Speaker 2: the public spotlight. You would not have been able to
22:32
Speaker 2: justify that level of reinvestment while investors are looking for
22:36
Speaker 2: a return, looking for a dividend, et cetera. So we've
22:38
Speaker 2: had to go through what I'd call a lot of surgery,
22:41
Speaker 2: a lot of transformation to take what is a great business,
22:46
Speaker 2: as I say, a fantastic household name, strong brand, very
22:51
Speaker 2: reliable sort of residence satisfaction levels, trusted trusted provider and
22:56
Speaker 2: actually give it the face you know that the transformation
22:58
Speaker 2: that it's needed. So you know that the we've we've
23:04
Speaker 2: been able to do that things like I mean, even
23:05
Speaker 2: in the past, you know, there was there was a
23:08
Speaker 2: question mark about where the titanness that met life care.
23:11
Speaker 3: So you know, we we tackled that front on.
23:13
Speaker 2: We went in our second year, we undertook a significant
23:16
Speaker 2: building condition review across all of the existing buildings.
23:19
Speaker 1: What did you find.
23:20
Speaker 2: There were a couple of buildings that needed reclouding, and
23:24
Speaker 2: that they're they're sort of well known across the you know,
23:26
Speaker 2: across the portfolio, where we went through a very detailed
23:32
Speaker 2: design program as to how we're going to do that,
23:35
Speaker 2: what it would cost. We had it all costed out,
23:38
Speaker 2: confirmed by a QS, and that's now baked into our
23:41
Speaker 2: net tangibles. So the value of the cost of that
23:44
Speaker 2: is effectively a discount off our value right now. So
23:46
Speaker 2: as we as we unwind that program and we undertake
23:49
Speaker 2: that program of work, that discount, you know, we'll come
23:52
Speaker 2: off and we'll we'll add value. But the gain that
23:54
Speaker 2: was something that was just one of what I call
23:56
Speaker 2: the overhangs when it was on the market, and you know,
23:59
Speaker 2: again you know a Venice environment where it was every
24:02
Speaker 2: six months you're sitting in front of investors and they're saying,
24:05
Speaker 2: why are you spending so much money on the site,
24:07
Speaker 2: and it's like, it's for longer term strategic value. And unfortunately,
24:11
Speaker 2: when you've got you know, those short term windows, you're
24:14
Speaker 2: very much driven by shorter term returns.
24:16
Speaker 3: You know, what can I add year on year? What
24:18
Speaker 3: can I add every six.
24:19
Speaker 2: Months as opposed to what strategic it needs to take
24:22
Speaker 2: place in this company to position it for long term growth.
24:26
Speaker 2: So look, in short, you know, I think all of
24:29
Speaker 2: this transformation needed to take place outside of the public spotlight.
24:34
Speaker 1: Was that more of a rather than a problem with
24:37
Speaker 1: public markets? Was that more of a problem of Metlife's
24:40
Speaker 1: mindset internally? It was focused on different things.
24:44
Speaker 2: Okay, it's I don't think it did anything significantly wrong previously,
24:49
Speaker 2: but the public market is unforgiving when it comes to
24:52
Speaker 2: year on year returns. So if you've got an asset
24:55
Speaker 2: that at for whatever reason, it's found itself with it
24:58
Speaker 2: reason me significant strategic issue. Not a lot of land,
25:01
Speaker 2: an inconsistent build rate, very centric around the sort of
25:05
Speaker 2: golden triangle Auckland, Tartonga, Hamilton, no small amount of age care,
25:11
Speaker 2: perceived to be very underweight and care compared to the
25:14
Speaker 2: other listed operators. And you know, I would be in
25:18
Speaker 2: investor presentations in my previous role, and you know the
25:20
Speaker 2: investors will be saying, you know, why do you think
25:22
Speaker 2: Met Life Care has such a low care you know,
25:25
Speaker 2: and I don't know obviously, and this overhang of assets
25:29
Speaker 2: that had we the titus issues, so you know, the
25:32
Speaker 2: full potential plan in this opportunity to transform this business
25:36
Speaker 2: has basically you know, been created by coming out of
25:41
Speaker 2: that spotlight, having an owner that's that's seen long term
25:44
Speaker 2: growth as the key driver.
25:47
Speaker 3: And we've addressed all those issues.
25:49
Speaker 2: As I say, we've got a lambat, we've got a
25:50
Speaker 2: consistent build rate, we've got significantly more care, we've addressed
25:54
Speaker 2: with the Titan's issues. We've now got a nationwide footprint.
25:57
Speaker 2: You know, we've got three sites in the South Island
25:59
Speaker 2: with a field and wanted to to come. So, you know,
26:02
Speaker 2: it just has been a real repositioning and it's been
26:05
Speaker 2: an exhilarating journey. Now I've only been there three years,
26:08
Speaker 2: you know, EQTA coming up for four years ownership, but
26:10
Speaker 2: it's been the most phenomenal journey. And you know, we're
26:13
Speaker 2: a great team that we've been able to build and
26:16
Speaker 2: I've never felt more empowered as a CEO to do
26:18
Speaker 2: my job, you know, and to execute on the strategy.
26:21
Speaker 1: And please the honor. You use the term repositioning and empowered.
26:25
Speaker 1: But if you could sum up how MetLife looks and
26:29
Speaker 1: its position now versus when it went private way back
26:32
Speaker 1: in twenty twenty, what's the difference.
26:35
Speaker 2: I think we're far more resilient, far more diversified, and
26:39
Speaker 2: a far higher growth engine than what we've been in
26:42
Speaker 2: the past. So we know with the land that we
26:45
Speaker 2: have in place, with the build rate that we have,
26:47
Speaker 2: with the villages that are coming on stream, you know
26:50
Speaker 2: that we know what our future growth is going to
26:52
Speaker 2: look like.
26:52
Speaker 3: We know where it's going.
26:53
Speaker 2: To come from, you know, and we've got a plan
26:55
Speaker 2: now for another five years. So that that was challenging
26:59
Speaker 2: in the past when you've got a whole lot of overhang,
27:02
Speaker 2: you know, from other issues that are in the business.
27:04
Speaker 1: So are we going to see you back and there's
27:07
Speaker 1: public spotlight.
27:08
Speaker 2: That's not my call, but you know, look, I mean
27:11
Speaker 2: it's interesting what's been happening in the market recently. Obviously
27:13
Speaker 2: there's been a movement and there will be one of
27:15
Speaker 2: the operators we'll come off off the board again soon.
27:20
Speaker 2: But you know, look, I think even that transaction shows
27:24
Speaker 2: that there's real interest in New Zealand. There's a there's
27:27
Speaker 2: a confidence of the New Zealand economy, the New Land government,
27:31
Speaker 2: there's confidence in the regatory regime and this industry in particular,
27:35
Speaker 2: So you know, it's a real tick for for investors
27:39
Speaker 2: in the retirement sector. And you know it's it's a
27:43
Speaker 2: place where international investment can come to too, So who knows.
27:47
Speaker 1: I'm just saying, if we lost one, it would be
27:48
Speaker 1: nice to gain one. Thank you so much for your time.
27:51
Speaker 3: So nice to see you from medicine.
27:53
Speaker 1: Thank you