Australia's Next Capital sells Infinite Care to Moelis

Moelis will take a 70% interest in Infinite Care for A$45.4 million ($36.3 million) and hold it in the newly created Moelis Australia Aged Care Fund with Infinite Care's founding management team retaining the balance, according to a filing. A dedicated real estate investment trust (REIT) will acquire properties that are part of the transaction for A$44.5 million and invest in two new facilities.

Next established Infinite Care in partnership with the management team. They had seed assets comprising facilities in South Australia with 380 beds and licenses for a further 250 beds in southeast Queensland. They planned to establish regional clusters of aged care centers.

During the holding period, Infinite Care's five existing facilities have been refurbished and the company has a development pipeline of approximately 1,500 bed licenses across a further 13 planned facilities. Moelis claims that the pipeline, once fully developed, should be worth more than A$450 million.

Moelis will open the aged care fund to third-party investors, although it will retain at least 10% of the asset. It is targeting a total return of more than 20% per annum over four years. The REIT is forecast to deliver a return of 10% per year, including a 7% distribution yield.

"We are excited by the opportunity to invest in the Australian aged care sector and offer our investors exposure to an industry which we believe has very favorable fundamentals, driven by Australia's rapidly ageing population and looming undersupply of aged care facilities," said Andrew Pridham, CEO of Moelis Australia.

The Department of Treasury projects the share of Australians aged 65 and older will reach 23% by 2055, with the population over 85 expected to double to 5% from 2% in 2014. A 2015 report by the Aged Care Financing Authority (ACFA) estimated that the country needed to add another 82,000 residential aged care places by 2025, along with replacing nearly 50,000 existing places out of around 200,000 available as of the previous year.

With for-profit players becoming more prominent, PE investors have followed. Deals include Archer Capital's purchase of Lend Lease's aged care unit in 2013, Quadrant Private Equity's acquisition of Estia Health (it listed the business in 2014), and New Zealand Superannuation Fund buying RetireAustralia. More recently, Advent Partners and Bain Capital Credit picked up W&L Holdings and Craigcare, respectively.

Consolidation represents a major opportunity in such a fragmented market, but challenges remain in the form of uncertainty over regulation and government subsidies.

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• Topics
• Australasia
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• Trade sale
• Australia
• Next Capital