This article is from the Australian Property Journal archive
AFTER significantly transforming the company, Canadian giant Brookfield has engaged advisors to sell Aveo, hoping to book almost a $2 billion gain, which is more than what it paid for the weakened retirement living business less than five years ago.
Brookfield revealed its intentions to move on from the business last month.
Yesterday the Canadian group appointed Morgan Stanley and Sydney’s hottest on the scene “it” investment bank Barrenjoey as advisors for the sale.
Brookfield acquired Aveo for $1.27 billion in December 2019 after a lengthy takeover bid, taking the company private.
The acquisition has proven to be opportunistic and paid off for Brookfield as Aveo was struggling, and its profit suffered as underlying earnings weakened.
It came after an ABC Four Corners and Fairfax investigation in June 2017 into the company, alleging price gouging residents fees, sparking reactions from the Australian Competition and Consumer Commission and the New South Wales Government.
But the negative report in June 2017 had not impacted Aveo by the time it unveiled its full year in August 2017, doubling its profits from the previous year.
But it experienced the full fall-out when it reported a full year loss of $213 million after sales across retirement villages fell as prospective customers took their business elsewhere.
Aveo engaged Merrill Lynch to undertake a strategic review.
Brookfield saw an opportunity and launched a $1.27 billion takeover bid which was unanimously accepted by the Aveo board.
Since acquiring the business, Brookfield has invested significantly to turn the business around and restore its reputation.
In November last year Brookfield secured a $1.45 billion funding facility to replace the $1.3 billion existing debt facility.
Aveo now operates 87 retirement villages across Australia, including 28 in Queensland; 17 in New South Wales; 26 in Victoria; 14 in South Australia and two in Tasmania.
Brookfield is hoping to capitalise on the increased demand for seniors living assets.
Industry sources told Australian Property Journal that there will be many suitors for the Aveo group.
“Acquiring Aveo would immediately add scale to any of the existing operators. Stockland and Mirvac come to mind.
“But equally, for a new entrant such as an offshore institution looking to enter the market, this acquisition will provide them with an established operational business,”
“But given we are talking about $3 billion, Aveo will likely attract a joint venture. Today’s higher cost of debt means a transaction of this size will take time to execute, and it will put pressure on the gearing levels for a single buyer who doesn’t want to be saddled with debt at the moment.
“I believe an offshore and local JV will likely emerge. The local partner will have the management expertise,” sources told Australian Property Journal.
As the office sector continues to languish due to uncertainty, capital is chasing seniors living, according to Nuveen’s Global Investment Committee outlook.
The aged care sector is estimated to be valued at $40 billion with freehold yields at 6.00%-7.50% and going concern yields at 13.00% to 15.00%, which is higher than the core office and industrial markets.
The sector is experiencing heightened activity with cashed up Gaw Capital Partners and GreenFort Capital forming a joint venture to develop $800 million in land lease community (LLC) assets.
In May US giant Invesco teamed up with Stockland in a $1.1 billion deal to expand in QLD and NSW. Meanwhile Avid Property Group announced its expansion into the sector with a $1.1 billion new business, Vantage.
It comes after Mirvac teamed up with Pacific Equity Partners in a billion-dollar deal.
Last month Macquarie Group raised $2.85 billion from global investors to target LLC sector in Australia.
