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UPDATE: Infratil, NZ Super Fund buy RetireAustralia for A$640.2 mln

Infratil and the New Zealand Superannuation Fund will buy Australia's fourth-biggest retirement village operator RetireAustralia for A$640.2 million to tap into the ageing demographic and underutilised sector across the Tasman.

The Wellington-based infrastructure investor and government pension fund will spend A$429.5 million in cash with the balance funded through existing bank debt on RetireAustralia's balance sheet, they said in a joint statement.

The Australian retirement village operator reported underlying earnings before interest and tax of A$34.3 million in the year ended June 30, and is forecast to report underlying Ebit of A$35 million to $40 million in 2015, giving the deal an earnings multiple of 18.6 times. The transaction is expected to settle on Dec. 31.

"RetireAustralia provides a strong platform in an Australian sector that offers very attractive long-term growth prospects," Infratil chief executive Marko Bogoievski said. "We have spent a considerable amount of time evaluating the sector in Australia and identified RetireAustralia as a high quality access point given the profile of the assets and the capability of the management team."

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.

Bogoievski said Infratil is broadening the coverage of its investment portfolio, but hasn't changed its investment model, which typically focuses on the growth-end of essential services, and sees greater scope in the retirement village sector.

"I would expect retirement living could grow out into quite a significant part of our business," Bogoievski said. "We can expect a greater proportion of that over-65, over-85 market thinking about going into retirement living, independent living units."

Bogoievski said he doesn't anticipate RetireAustralia will become the biggest retirement village operator in Australia by units, rather he anticipates it will lead the market through the provision of services, such as improving the continuum of care for residents, offering new types of units in dense urban environments which would appeal to different socio-economic groups, and re-thinking finance models for residents.

"That's one thing we're definitely intending to bring to RetireAustralia over time," he said.

The RetireAustralia investment will be managed by Infratil's manager HRL Morrison & Co, which has held an investment mandate with the Super Fund since 2006.

NZ Super Fund chief investment officer Matt Whineray said the sector has two tailwinds with low penetration rates and an ageing population, both of which should drive 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."

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, rather than "pure play" companies such as New Zealand's Ryman Healthcare, Summerset Group and Metlifecare, Whineray said. .

Infratil affirmed its guidance for March 2015 earnings before interest, tax, depreciation, amortisation and fair value adjustments at between $475 million and $500 million, with the transaction increasing forecast net interest to a range of $170 million and $180 million from $165 million to $175 million.

Bogoievski said renewable energy projects are "still a big part of our thinking" and the firm is looking at a series of opportunities for next year.

"We're happy to get this deal done, but also happy with the prospects of our origination pipeline," he said.

The sale price includes estimated transaction costs of A$23.5 million. RetireAustraila is currently owned by Morgan Stanley Real Estate Investment and the JP Morgan Global Special Opportunities Group.

Shares of Infratil fell 1.2 percent to $2.995 and have climbed 42 percent this year, outpacing the 12 percent gain in the NZX All Index over the same period.