05/06/2007 - 22:00

Private equity deals into aged-care

05/06/2007 - 22:00

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The founder of Western Australia’s largest privately owned retirement village and aged-care business believes further consolidation is likely as big players seek to maximise profits and smaller players look to exit the sector.

Private equity deals into aged-care

The founder of Western Australia’s largest privately owned retirement village and aged-care business believes further consolidation is likely as big players seek to maximise profits and smaller players look to exit the sector.

St Ives founder, Russell Halpern, said he was not surprised by the recent sales activity in WA, which was capped-off last month when retirement village developer Primelife and banking giant Babcock & Brown bought the Fini Villages portfolio for $180 million.

“Consolidation is an inevitable part of any business,” Mr Halpern told WA Business News.

“There are a lot of individual operators wanting to get out of this industry. Private equity has already built up big books in residential care and I expect more consolidation in that market in particular.”

Recent major acquisitions in the retirement living sector have included Malaysian-based private equity fund Navis securing a 40 per cent stake in the National Lifestyle Villages portfolio for $40 million in May, and ING Real Estate paying $47 million for the Settlers Lifestyle Villages portfolio in April. 

In February, Australian Retirement Communities sold its 17-village portfolio to Stockland in a $330 million deal.

Mr Halpern said there was minimal risk in investing in retirement living sector given the long-term returns.

“People sometimes forget this is a business about people. The only risk with these organisations coming in is the risks to the residents,” he said.

“But I think there is recognition amongst the Babcock & Browns of this world that the broader aged-care industry would benefit considerably less from consolidation, than from diversification.”

Mr Halpern established St Ives in 1982 and has built a portfolio of more than 1,350 retirement accommodation units and residential care facilities worth more than $350 million.

Its latest venture is a 95-bed aged care facility at Vasse Newtown, featuring 40 high-care places and a rehabilitation unit next to the proposed 75-bed Busselton Hospital.

Mr Halpern said although opportunities to buy land for new villages were rare, the decentralisation of retirement villages was set to continue and he predicted substantial growth in residential services.

One retirement-living operator trying to stay ahead of the game is the not-for-profit Swancare Group, formerly Swan Cottage Homes, which owns a 14-hectare park in Bentley comprising 510 villas.

Besides embarking on a $70 million expansion of its main park, the group has entered into a joint venture with South West retirement village operator Cape Care to develop a large facility in Dunsborough Lakes next to the golf course.

Construction is expected to start in mid 2008 on 150 independent living homes and apartments, a 60-bed residential care facility and community centre.

Swancare acting CEO Graham Francis said some villages were susceptible to being bought out and many big players could afford to help out in that regard.

“The whole retirement village operation is based around the spread of overheads and improving economies of scale. The challenge has always been keeping competitive,” he said.

“Swancare has developed a model called ‘ageing in place’, where a retiree can come in and be quite active at 55, but as they age and become more dependent the accommodation can adapt. Essentially, they’re ageing through the system.”

Mr Halpern said the industry was slowly developing more sophisticated products and services on a broader scale and predicted financial services would play a big part in service provision in the years to come.

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