A busy day yesterday for retirement village operator Aveo Group, with the group warning underlying profits will fall to $50 million cutting its annual distribution to unitholders in half and revealing that it has received a possible takeover offer from an unnamed party, believed to be Canadian investor, Brookfield, or US group, Blackstone.
That $50 million estimate is substantially less than the $127 million underlying result reported for 2017-18.
Aveo shares rose in early trade on news it has received the confidential and non-binding bid for a whole of the company before losing ground to end the day down 5.3% at $1.97.
“During May and June 2019, Aveo has been actively engaged with a preferred party .. with a view to entering into definitive agreements leading to a scheme of arrangement, to give effect to the indicative proposal.” chief executive Geoff Grady said.
Aveo would not discuss details of the bidder or bidders, but analysts suggested global Canadian private equity firm Brookfield and US giant Blackstone may be among potential suitors in the mix.
If the sale process is not completed by July 22, it will be discontinued, Aveo said.
Just what the earnings downgrade does to the enthusiasm among its bidders is yet to be revealed, but it can’t have been good and no doubt the bidder or bidders will demand a period of due diligence to work out just what financial state Aveo is in.
The company, which is also an aged care provider, has been buffeted by fears about the Royal Commission into ageing and by falling house prices which are affecting its own portfolio and the homes of its prospective customers.
Earlier this year it warned settlements were taking longer as new residents were experiencing increased difficulty in selling their homes, creating the knock-on effect of delaying decisions to buy homes in Aveo’s villages.
Aveo’s lower full-year estimate of $50 million saw it slash its estimated annual distribution for the current financial year to 4.5 cents or half what it was last financial year.
Any deal to purchase the company will likely hinge on Malaysian investor Mulpha which owns 24.4 percent of the company.
“There is no certainty that the indicative proposal will result in an acceptable offer for Aveo security holders or that a transaction will be implemented,” the company said.
Aveo is Australia’s largest ASX-listed pure-play retirement village operator and has more than 13,000 residents in about 90 villages across the country. It competes with property groups such as Stockland and Lendlease which have retail, housing, and development interests as well as retirement villages.
