Aveo Group (ASX: AOG) released its first half year results for FY19 to the market, posting a loss of $44.7 million, down from a $149.3 million profit in the prior period.
Even its underlying profit after tax, which excluded property revaluations, was only $12 million, down 67% from $36.3 million previously. Ouch.
Aveo Group is the owner, operator and manager of retirement communities across Australia.
Weak Property Market
Aveo said that while demand remained strong and written sales were up on the previous period, a challenging property market is putting pressure on converting their written contracts into sales.
Aveo CEO Geoff Grady said, “settlements are taking longer to occur as incoming residents are experiencing increased difficulty in selling their homes. This has led to a substantial increase in the number of our deposits on hand, from 89 at 30 June 2018 to 212 at 31 December 2018”.
The weak property market also led to the group’s revaluation of investment properties being revised down by $63.2 million, with this being partially offset by the profit on the sale of the Gasworks complex in QLD.
A Takeover?
Aveo also provided an update on its strategic review process it announced on 15 August 2018.
As the group considers offers from a potential buyer, it stated, “In late January 2019, a number of indicative non-binding bids were received from parties interested in a whole of company transaction”. Aveo said it will keep shareholders updated in line with continuous disclosure obligations.
Uncertainty Ahead
Aveo also announced a potential buyback in the second half of FY19 around May with potential free cash flow being used to buy back shares below their NTA. While that sounds promising, the Royal Commission into Aged Care Quality and Safety established 8 October 2018 looms as a potential industry game changer with an interim report due to be handed down on 31 October 2019.
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