Brookfield sells Aveo for $3.85bn to Scape and Korea’s NPS

Aveo’s Rochedale Gardens. Picture: John Fotiadis

Brookfield’s sale of its Aveo retirement living business for a bullish $3.85bn was a win that the private equity firm needed.

It’s at a time that its name remains tarnished with lenders in the Australian market and its investors over the collapse of its private hospital operator Healthscope this year.

It will now hope that it achieves a strong result from the divestment of its private funding business La Trobe Financial, with the sale process set to kick off next month through Morgan Stanley and UBS, with hopes of achieving a price over $3bn.

To give Brookfield credit, those who know the Aveo business well say the private equity firm has taken it a long way since it bought the business, previously known as FKP Property Group, in 2019 when listed on the public market for $1.3bn or $2bn including debt.

Aveo previously had loans worth about $1.6bn, but experts agree it’s achieved a large sale price.

Under the leadership of Tony Randello since 2020, Aveo has simplified the business, transitioning its residents to more profitable contracts.

A raft of different contracts for different residents created additional back office costs.

Now, Aveo residents can choose from a rental model, an opportunity to pay more up front in exchange for receiving the same amount when they leave their property and then the typical deferred management fee, where a resident pays an amount up front and receives less back when they leave.

All residents receive all of the capital gain on their properties.

The $3.85bn paid for the business by Scape and Korean fund NPS was higher than expected, and now rivals will likely move to sell in an effort to try to capitalise on the result.

Already in the process of being sold is rival Keyton, which was previously owned entirely by Lendlease.

Now Lendlease is selling its remaining 25 per cent interest and other owners such as APG or Aware Super may divest their stakes.

Synergies would exist in taking the simplified operating model for Aveo and applying it to Keyton, and DataRoom understand that Scape has been among the groups prepared to line up to take a look at the business.

Also likely to place its business back on the block will be infrastructure investor Infratil, which has signalled its eagerness to achieve about $1bn in proceeds from asset sales by next year.

Infratil owns half of RetireAustralia and had the business up for sale in the last couple of years with a $1bn-plus asking price.

Yet the question is whether other groups are prepared to pay up like Scape, with sources suggesting that underbidders to Aveo, including Charter Hall and GIC, may have bid substantially lower prices - more like $2bn to $3.1bn.

Part of the attraction is that groups such as pension funds are looking for exposure to any upside from the country’s housing shortage leading to a heated housing market.

The build-to-rent sector is yet to be highly profitable, while the land lease market is competitive, which leaves retirement.

DataRoom revealed a year ago that the buyout fund was placing the business up for sale and later flagged that Morgan Stanley and Barrenjoey had won the role to offload the company.

Working for the buyers are Deutsche Bank and Macquarie Capital.

This column reported on Monday that a deal to sell to the buyers was imminent.

Established in 1970, Aveo operates 67 retirement facilities along the eastern seaboard with more than 10,000 units.

It has a 4 per cent market share ahead of Keyton and Bolton Clarke.

Mulpha International retains a 15 per cent stake after Brookfield’s purchase.

Scape is the biggest purpose-built student accommodation owner and operator in Australia operating across Sydney, Melbourne, Brisbane and Adelaide.

The entity that will own Aveo will be known as the The Living Company, which will also manage all of Scape’s student accommodation, build-to-rent investments and retirement living operations.

The New York-based Brookfield Asset Management has more than $US1 trillion of assets under management.

The deal comes after Stockland in 2022 offloaded its retirement living business for about $1bn to private equity firm EQT, which fended off competition from other buyout funds including Blackstone and Kohlberg Kravis Roberts.

It occurs just days before land lease retirement living operator GemLife, which predominantly operates in Queensland, launches its $750m initial public offering to list as a $1.6bn business.