The Australian: Two new retirement village funds are raising money from institutional investors to circle up to $1 billion worth of properties for sale.
The Melbourne-based Australian Unity launched a fund -- the Australian Unity Retirement Property Fund -- last week, while the Sydney-based Aviiid Third-age Living Group aims to close a new fund, hopefully by Christmas. The unlisted funds are targeting property acquisitions as Stockland closes in further on its takeover target Aevum.
The Hong Kong-based real estate arm of US investment bank JPMorgan on Tuesday signed off on a $95 million deal to fund the joint venture between AMP and Gold Coast-based retirement company Meridien, as foreshadowed in The Australian last month.
AMP Capital Investor has now ended the joint venture with Meridien.
Derek McMillan, the head of Australian Unity Retirement Living, estimates that there are $1bn worth of villages on the market. "Of those, probably 30 to 40 per cent would fit our investment criteria," Mr McMillan said.
The trust would buy established villages, aged between five and 25 years. Australian Unity is raising $200m for its fund, which will have little debt.
Industry sources said assets owned by the now suspended listed Prime Retirement and Aged Care Trust and the unlisted Japara Retirement Living are for sale. They also said Retirement Village Group, a joint venture between Macquarie and the Queensland-based FKP, is selling some non-core assets.
Assets of the listed ING Real Estate Communities Living, which owns retirement villages in Australia and seniors housing in the US, could also be available for sale.
Mr McMillan believed it was a good time to be buying assets, given that the value of villages had fallen by 20-25 per cent from the peak, although others felt the asset values could fall by a further 40 per cent.
Scott Marinchek, managing director of Aviiid Third-age, which has its origin in David Mariner's Third Age Retirement Living, said the initial size of the fund would be $500m, including $220m in equity.
However, supported by institutional investors, the ultimate size of the fund could be in the range of $1.5bn-$2bn.
"We are looking at assets valued between $450m and $580m, and we are currently doing due diligence on about 60 per cent of these properties," Mr Marinchek said.
"We are confident that we will do the transactions, it is a question of timing."
Aviiid is believed to have looked at the Melbourne-based Japara Retirement Group, which owns six villages, but decided not to proceed. Japara's investment bank has placed a value of $400m on its villages.
It has also looked at the AMP Meridien, which owns 25 retirement villages in one of Australia's largest portfolios, understood to be worth $600m-$700m, and is evaluating the troubled Prime Retirement and Aged Care Property Trust.
That trust has been suspended from trading since August.
Prime Retirement, which owned assets valued at $1.2bn at December 31 last year, had not exercised an option to buy the management rights of 12 villages from Lend Lease.
Lend Lease manages the villages following its acquisition of the former Babcock & Brown Retirement Communities Trust in October 2008.
Prime Retirement had the option to buy the management rights for between $42.5m and $45m. Lend Lease confirmed that it could continue to manage the villages, while sources said that without the management rights, Prime would now be worth less.
While he was not prepared to discuss specific deals, Mr Marinchek said the key criteria for investments included the ability to generate cashflow distributions to investors.
It is believed Aviiid had worn down the patience of some vendors because it had not committed to a deal even though it had been looking at assets for a long time. But Mr Marinchek said the vendors' expectations were unrealistic.
Australian Unity is a developer of retirement villages and owns 15 on its balance sheet, valued at $150m, but they would not be transferred into the new trust.
"The feedback we are getting from investors is that they don't want us to transfer those assets into the fund.
"Some of them had a bad experience when assets were transferred from one manager to another," Mr McMillan said.
Australian Unity and Aviiid said institutional investors were attracted to the sector because of Australia's demographics.
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