Infratil and NZ Super Fund enter retirement market across Tasman as dollar surges.
The extraordinary strength of the New Zealand dollar against the aussie wasn't the main reason why Infratil and the New Zealand Superannuation Fund decided to buy RetireAustralia, but it helped.
Infratil's manager, Morrison and Co, had been looking at the Australian retirement sector for the past five years and more intensively in the past 18 months, said Infratil chief executive Marko Bogoievski.
"Australia is a more fragmented market with almost identical demographics to New Zealand's," he said.
"Whether you look at the 65-plus or 85-plus, that demographic is growing at four or five times the rate of general population growth."
The total consideration was $670 million (A$640.2 million). Infratil and New Zealand Super provided A$429.5 million and the balance has been funded by existing back debt on RetireAustralia's balance sheet.
Just as Infratil and New Zealand Super signed off on the deal, the kiwi dollar was surging higher against a faltering Australian dollar. Over the weekend, the kiwi reached A95.72c, its highest point since December 2005, raising the possibility that it could soon reach parity.
"We take those sorts of [currency] things into account and right now looks like a pretty good time to make an acquisition in the Australian market," Bogoievski told NZME.
RetireAustralia - which was jointly owned by private equity firms Morgan Stanley Real Estate Investing and the J.P Morgan Global Special Opportunities Group - was looking at in initial public offer when Infratil and NZ Super approached them directly.
Bogoievski said penetration in the retirement village market in Australia and New Zealand is low by Western standards and Infratil and NZ Super were no strangers to the scene, with each having separate individual stakes in NZX-listed Metlifecare.
NZ Super, the fund set up during Michael Cullen's tenure as Finance Minister, is designed to part-fund future state pension requirements. By statute, the fund cannot own any more than 50 per cent of an asset.
Bogoievski said Infratil, which has invested with NZ Super in Z Energy, was a well-suited investment partner. "They need an investor with a similar view, so Infratil is pretty much made for measure in that respect."
Shane Solly, portfolio manager and research analyst at Harbour Asset Management, said Infratil and NZ Super were well-versed in the dynamics of the retirement village sector. "It appears to be a well-considered investment," Solly said. "They are canny investors and the currency, at the margin, will be beneficial."
RetireAustralia's underlying earnings before interest and tax are A$34.3 million in the year ended June 30, and the company is forecast to report underlying ebit of between A$35 million and A$40 million in 2015.
NZ Super chief investment officer Matt Whineray said low penetration rates and an ageing population would drive RetireAustralia's future growth.
"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," Whineray said.
"We think both of these themes have legs as return drivers and good long-term growth."
Additional reporting BusinessDesk