FKP/Aveo shaping up to deliver the retirement sector dream – the big end of town has jumped back into the village sector and Aveo after five years negative sentiment – its share price up 56% in 30 days

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FKP CEO Geoff Grady has delivered the bacon. In the 100 days since he was elevated to CEO of FKP Group (parent of Aveo, owner/manager of 76 villages comprising 10,633 ILUs and serviced apartments), he has radically re-engineered the business. Now he and his long suffering shareholders are reaping the reward. And so is the retirement village sector.
FKP and especially Aveo has been ‘stuck’ since the GFC (now five years ago), with many observers privately stating it was beyond help given its debt, ageing stock and complex cross ownerships.
But in the past 100 days Grady (and Aveo Exec. GM Operations, Alison Quinn) has revitalised its operational managers in most states, doubled its retirement sales rates over 2012 and now, most importantly, gone a long way to solving its funding challenges.
Along the way FKP has announced it will change its name to Aveo Group (to be approved at their Friday’s AGM), sell off all non retirement assets and concentrate on the ageing market, offering retirement villages backed up by care.
Grady states he wants Aveo to be the largest pure play retirement operator so investors can understand its offering and future potential.
He has been bashing the drum that the real worth of its ASX listed securities is about $2.74 but they were trading as low as a $1.00 in June; today they are $2.03. In fact they were $1.30 just 30 days ago, which translates into a jump of 56% this month alone.
So what has happened?
First up, Grady cleared the decks of suspect non retirement valuations, announcing a $181M write down – which created a one off statutory loss of $157m for the year to June 2013.
Second, he has been pulling in cash to retire debt – which was at $972M just 12 months ago and 39% gearing. $767M in non retirement property is for sale.
Third, over the past seven days, he commissioned Goldman Sachs to sell 79M shares in the NZ village operator Metlifecare for NZ$280M owned by Retirement Villages New Zealand Ltd – which FKP owns 23%. (The shares were quickly snapped up by NZ Super and the NZ utilities company Intrafil at an 8% premium).
Fourth, this week he again commissioned Goldman Sachs to raise $232M additional capital by issuing 179M new stapled securities – something you can only do if you have confidence, even at what now looks like a great price – $1.30 each. The stated objective is pay down to a gearing below 20%.
This last move required existing investors to show a vote of confidence – especially the institutions like super funds etc who had to stump up $177M. The offer opened on Monday – and was 99% filled yesterday – Tuesday. The biggest shareholder with 26% of FKP, Malaysia’s Mulpha, committed to take up its full entitlement worth $61M plus another $20m worth if required.
Then last night, the cherry on the cake, Stockland sold its remaining 11.6% of FKP stock for $107M to additional institutional investors. So in total the big end of town stumped up $284M in two days.
(Stockland reportedly sold at $1.78 per security).
Mind you, it’s a great deal. For every nine securities they own they can buy an additional five at $1.30. Last night they were trading at $2.03 – so they potentially will make a 56% paper profit overnight.
Grady is understandably pleased. He points out that FKP asset sales are ahead of schedule with good prices being achieved, plus they have sold a good portion of its $90M new village stock – cash in the bank . Potentially Aveo will end up with not only no debt but excess cash to support its village development pipeline.
He also points to what has happened to Metlifecare in NZ. When RVNZ announced it would sell its 79M shares 12 days ago (the 18th) they were valued at $3.34. Now sold, the confidence of the big super funds buying in has rallied faith in Metlifecare and their shares are now trading at $4.08. He believes the same will occur here.
With all this achieved in 100 days, what can Grady achieve in the next 50 days to Christmas?

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