Infratil and the New Zealand Superannuation Fund will buy Australia’s fourth-biggest retirement village operator RetireAustralia for $A640.2 million ($NZ670.65m) to tap into the ageing demographic and under-utilised sector across the Tasman.
The Wellington-based infrastructure investor and government pension fund will spend $A429.5m in cash with the balance funded through existing bank debt on RetireAustralia’s balance sheet, they said in a joint statement on Monday.
The Australian retirement village operator reported underlying earnings before interest and tax of A$34.3m in the year ended June 30, and is forecast to report underlying Ebit of A$35m to $40m in 2015, giving the deal an earnings multiple of 18.6 times. The transaction is expected to settle on December 31.
RetireAustralia offers very attractive long-term growth prospects, Infratil chief executive Marko Bogoievski says.
Infratil and the Super Fund bought the downstream assets of Shell New Zealand, rebranding the petrol station chain into Z Energy and later listed the company on the stock market, and more recently took separate cornerstone stakes in local retirement village operator and developer Metlifecare.
Mr Bogoievski said Infratil was broadening its investment portfolio but hadn’t changed its investment model, which typically focuses on the growth-end of essential services, and saw greater scope in the retirement village sector.
“I would expect retirement living could grow out into quite a significant part of our business,” he said. “We can expect a greater proportion of that over-65, over-85 market thinking about going into retirement living, independent living units.”
Mr Bogoievski said he didn’t anticipate RetireAustralia would become the biggest retirement village operator in Australia, rather it might offer new types of units in dense urban environments which would appeal to different socio-economic groups, and re-thinking finance models for residents.
NZ Super Fund chief investment officer Matt Whineray says the sector has two tailwinds with low penetration rates and an ageing population.
“You’ve got both an increase in the number of old people, as well as an increase in the number of old people who want to live in these types of arrangements,” Mr Whineray said. “We think both of these themes have legs as return drivers and good long-term growth.”
The pension fund hasn’t been able to get much exposure to Australia’s retirement living sector in the past, with most operators owned by large property companies that developed sites.
Infratil affirmed its guidance for March 2015 earnings before interest, tax, depreciation, amortisation and fair value adjustments at between $475m and $500m, with the transaction increasing forecast net interest to a range of $170m and $180m from $165m to $175m.
The sale price includes estimated transaction costs of $A23.5m.
RetireAustralia is currently owned by Morgan Stanley Real Estate Investment and the JP Morgan Global Special Opportunities Group.