Aveo's retirement division delivered $28.5m of earnings for the half, with a target of between $75.5 to $82.0m for FY-16. Meeting this target will require a step up in development earnings in H2 - Aveo has indicated that $90m of projects are to be delivered in the current six month period, underwriting this step up.
Aveo is continuing its exit from non-retirement property development. The division delivered $37.1m of earnings for the half year. Land estate sales were strong and The Milton completed in Nov-15, has only 15 units left to sell. Once sold, Aveo will have completed its exit from the residential apartment market. Into H2, Aveo has 611 land sale contracts on hand.
Overall, Aveo delivered an 89% increase in profit and net tangible assets per security increased to $2.98 (up 4.6% from A$2.85 at Jun-15). Annual distributions will be paid until FY-18. It was advised that they are on track to pay an 8 cent distribution for FY-16.
Aveo maintained its FY-16 forecast of $80m profit. With the acquisition of Freedom (see Company News, below), 6% underlying EPS growth is being targeted for FY-17 and FY-18.
Like Challenger, Aveo provides exposure to favourable demographics - in this case playing through to a need for retirement accommodation. Management has almost successfully completed the transition to a pure retirement operator, which has seen the valuation re-rate (but with some more still to go).