Brookfield taps Barrenjoey, Morgan Stanley for Aveo sale

Aveo Springfield in Queensland.

It will be Aveo’s $3bn price tag and operating model that make the business more appealing to infrastructure buyers rather than those in the real estate space, according to industry experts.

Real estate groups are likely to be more partial to a retirement village operator like that backed by Lendlease and EQT’s business Levande, where it derives income through a rental model and was previously owned by Stockland.

Aveo has a deferred management fee model where the income is back ended, and infrastructure groups are more willing to underwrite the annuity of the cashflows over time.

Also, private equity groups can’t be excluded, but with the high price expectations, infrastructure buyers are seen as better positioned given their lower cost of capital.

It comes as DataRoom revealed online on Wednesday that global private equity firm Brookfield has hired investment banks Barrenjoey and Morgan Stanley to oversee the $3bn sale process of retirement village operator Aveo.

Barrenjoey, the investment bank overseen by ex UBS operatives Matthew Grounds and Guy Fowler, counts UK bank Barclays as a shareholder, and Barclays is understood to be a lender to Aveo.

Morgan Stanley includes former UBS real estate banker Tim Church as its co investment banking head for Australia.

The understanding is that the pitch by Barrenjoey was that the business would be positioned as a play for infrastructure investors, with stable east coast earnings akin to a bond.

DataRoom understands that investment banks were earlier invited to pitch for a role selling what is one of the country’s largest retirement operations.

Brookfield purchased the then listed Aveo in 2019 for $1.3bn or $2bn including debt in a sale at the time handled by Bank of America.

The price was a 28 per cent premium to the company’s undisturbed security price and came as its major Malaysian shareholder Mulpha opted to offload its interest.

Brookfield has been working to sell Aveo’s Tasmanian and Adelaide assets in a quest to position the business as an Eastern Seaboard index-linked bond, working with Moelis and Colliers International.

Aveo describes itself as Australia’s premier retirement living provider with 12,000 residents nationally and state-of-the-art facilities.

It also offers personal and flexible home care.

First established in 1970 and headquartered in Sydney, it has 86 retirement facilities across the eastern seaboard, including independent living units and serviced apartments.

Brookfield has invested in the business since its acquisition under its leadership of Aveo’s chief executive Tony Randello.

It has 4 per cent of the market share, ahead of Lendlease with 1.9 per cent and Bolton Clarke with 1 per cent, according to IBISWorld.

One buyer could be the private equity firms Kohlberg Kravis Roberts and Blackstone that were underbidders to Stockland’s retirement business sale.

Retirement village operators gain profits by charging one-off buy-in fees and deferred management fees or can have recurrent charges.

The fees can be closely tied to rental charges and property prices in the wider residential market to make retirement village living competitive compared with independent living with periodic care.

While residential property prices have risen, greater transparency over retirement village pricing structures has limited village operators’ ability to increase fees, says IBISWorld.