So far in the Aveo retirement village scandal story, attention has focused on the company, and its major shareholder – Mulpha Australia – which is not only a big Malaysian group but is a large property developer in Australia with developments Sanctuary Cove, the Norwest Business Park Sydney, housing developments nearby at Bella Vista and Mulgoa in western Sydney; as well as the ultra-luxury private Hayman Island on the Great Barrier Reef. Mulpha holds a strategic 22% stake in the Aveo Group. It is about to rise.
But there are a couple of other companies that we should be focusing on – the company’s two biggest Australian shareholders who have remained silent through the development of this scandal. According to Aveo’s 2016 annual report (Page 100 (https://www.aveo.com.au/wp-content/uploads/2013/10/Aveo-Group-2016-Annual-Report-web.pdf), two other substantial investors were listed as Perpetual with 59.752 million shares or 11% and Sydney financial manager, Vinva Investment Management with 29.385 million shares, or 5.06%.
Or rather the duo were the two major Australian shareholders – but both have now sold enough shares that their holdings have fallen below the 5% disclosure level – and for one of them, Perpetual, it was a massive selling campaign that saw more than 41 million shares sold in less than three months – all without explanation.
Take Vinva Investment management – it disappeared on February 21 with a notice that revealed it has bought, sold and transferred sufficient number of shares that reduced its stake to less than 5%, or just over 28 million shares.
Perpetual though had bought enough shares to lift its stake to 12.10% on March 20 or 70.338 million shares – a big jump of more than 10.5 million shares in around six months. That was a bullish move. Its previous stake was 11%
But less than a month later, Perpetual revealed that it had changed its view on Aveo and dumped more than 6.83 million Aveo shares and cut its stake to 10.92%. On May 17, a month later, Perpetual revealed another swag of sales as its stake fell to 8.5%.
Then on June 5, it revealed its stake had fallen to 6.85% with the sale of 11 million shares (and taking the total to more than 41.5 million shares), and its shareholding to 5.13%. And on June 13, Perpetual said it was no longer a substantial shareholder.
Both have escaped criticism for their supporting roles in Aveo as substantial shareholders for all we know they may still be shareholders, sitting just under the 5% disclosure level.
And why did they sell? Well, a feeling that Aveo’s performance was going to worsen, perhaps a sniff of a rising level complaints abut the company and the way it was handling customers and perhaps even a hint of the looming media interest.
Perhaps it was Aveo’s first half financial performance that worried both investment managers. On February 15, the company reported an underlying net profit after tax in of $53.9 million for the six months to December, an increase of 18% on the first half of 2015-16.
"This performance was driven by a lift in earnings across all retirement business segments. In particular, the strong performance of the core Aveo retirement business was enhanced by additional earnings contributions from the recently acquired Freedom Aged Care and Retirement Villages Group (RVG) portfolios,” Aveo said in a media statement.
But there was one or two niggles in the result. The first was funds from operations (FFO), perhaps the key measure for property trusts and investors (Aveo is a retirement business built around a property trust) – it fell to $82.9 million from $89.5 million in the first half of 2015-16. Investors like to see FFO rising, not contracting.
Another concern would have been the 76% jump in unit sales in the half year to 621 units. “Development sales increased as a proportion of total sales, in line with increased delivery volumes,” Aveo said in the release.
That would be a warning signal to big investors worried about property prices, bank mortgage ending and a company becoming over dependant on property sales to drive earnings – what would happen if the rate of sales slows or turns negative.
Vinva’s sell down came less than a week after that report, but Perpetual bought more shares after the results were released, and its sales didn’t start until two months after Aveo’s profit was announced. Perhaps both were a response to the results, but Perpetual’s selling was certainly a big change in sentiment from March to April.
After Monday’s 11% slide in the share price Aveo resorted to the now usual corporate trick of announcing a buyback to steady the share price when the shares are under pressure (ie selling) and support them in the market.
(A host of companies have buybacks in the name of capital management for shareholders. For example, Kerry Stokes frequently uses a buyback to support Seven West Media and at times Seven Group holdings shares.
(Stokes also uses it to increase his shareholding in both companies in what is called a creeping takeover. News Corp has a continuing buyback, but rarely buys back shares, CSL is another that seems to have an ongoing buyback not so much to just support the shares, but allow them to quit the stock and reinvest is they want).
Aveo’s buyback for a maximum of 9% of the issued shares (or 54.332 million shares) will see the company spending just under $150 million of shareholders funds (the reality is that the money is borrowed because the interest on the loan is tax deductible).
The shares fell more than 5% at the opening because investors had not noticed the buyback (announced at 9.32am). When they did, the shares bounced and ended Tuesday at $2.73, up 0.7%. On Wednesday the shares jumped 4,4% to $2.85. Helping was the share buyback and the weak response from the Federal Government.
The buyback has the potential to increase the shareholding of Aveo’s biggest investor, Malaysian property company Mulpha, which owns a 22.6% of Aveo. It will not sell into the buyback and if the full 9% is bought back, the issued capital shrinks by that amount and Aveo’s stake rises to more than 24%.
Mulpha in turn is controlled by the Lee family and Seng Huang Lee, the youngest son of Lee Ming Tee (nickname in Australia and Asia, ‘Gleaming Teeth’), who was jailed in 2004 for a year in Hong Kong for corporate fraud after being found guilty of inflating the profits of a listed company he chaired in the early 1990s.
