Originally Posted by
Snoopy
Debt to Equity Ratio = Debt / Equity
Gearing = Debt / (Debt+Equity)
So a debt equity ratio of 75% represents a gearing ratio of 3/ (3+4) = 43%
So a debt equity ratio of 50% represents a gearing ratio of 1/ (1+2) = 33%
So a debt equity ratio of 48% represents a gearing ratio of 48/ (48+100) = 32.4%%
So a debt equity ratio of 40% represents a gearing ratio of 40/ (40+100) = 28.6%
I guess 'quite a safe debt level' has a different meaning to different people. If you are a dividend hound and Ryman has just cancelled their second ever dividend in their long history (now twice in a row) you might conclude that the debt to equity ratio is far from safe, because your dividend income is gone. When will Cashflow turn positive? That is the key question. Negative cashflow means a precarious debt position could get worse. Keep going with negative cashflow and it will get worse!
I would not deny the demographic tailwinds the retirement sector has. But saying that 'NZ is short of retirement village facilities' and saying that 'the current listed Retirement Villages are the entities that will hold and manged these facilities into the indefinite future' are quite different things. It is entirely conceivable that a major retirement village operator in NZ files for bankruptcy. In such a situation the assets they have built up will remain, the people in those villages will remain, the wonderful careers who work in the village will remain and the whole shebang would be sold to a third party operator 'on the cheap'. But the original shareholders of the village that went into receivership? They would be left with nothing.
Perhaps a pertinent reminder that 'tailwinds' can still blow your investment ship onto the rocks?
SNOOPY