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Affordable housing operator Eureka Group Holdings (ASX: EGH) is raising $70.4 million, initially to fund the acquisition of seven new residential villages, in a major step-change that the company says will boost its scale as Australia’s largest owner, operator and developer of seniors’ rental communities.
Eureka Group, which earlier this year foiled a $166 million takeover bid from Aspen Group (ASX: APZ), has entered a heads-of-agreement to buy the seven seniors’ villages, comprising 441 units, and is in advanced discussions to acquire another 38 single units across four managed villages with these transactions expected to cost a total of $49.9 million.
The Gold Coast-based company says it has identified further expansion opportunities totalling $7.5 million.
The latest acquisitions will lift the number of units in the Eureka Group portfolio by almost 17 per cent to more than 3,300 across 63 villages either owned or managed.
The seven new villages under offer are mostly in Queensland, where the company says demand is particularly strong with only one vacancy forecast by the end of this month across over 1,400 units Eureka manages in the state. Eureka notes that occupancy across its national portfolio is sitting at close to a record high of 98 per cent.
“These strategically compelling acquisitions accelerate our growth strategy and provide Eureka with a stronger growth trajectory,” says newly appointed CEO Simon Owen.
“They also build on our track record of deal origination capability and access to deal flow, both on and off market.”
Owen says the $70.4 million capital raising will provide Eureka with the firepower to “execute on these acquisition opportunities and rapidly increase scale as a leading provider of seniors’ rental accommodation in Australia”.
The fully underwritten equity raising comprises a $55.4 million one-for-3.4 accelerated non-renounceable pro-rata entitlement offer and a $15 million institutional placement.
The equity raising is priced at 61c per share, which is a 9.6 per cent discount to yesterday’s closing price for Eureka Group of 68c per share. The shares are currently in a trading halt.
Eureka Group’s expansion aims to capitalise on strong demand for affordable rental accommodation among seniors which the company says has been driven by an ageing population, high levels of immigration and limited supply which have added to affordability issues.
Eureka Group has forecast underlying EBITDA growth of at least 16 per cent in FY25 compared to the previous year, accompanied by underlying growth of earnings per share of at least 8 per cent.
The company posted a 20 per cent increase in underlying EBITDA to $15.2 million in FY24, in line with its guidance, as revenue grew 13 per cent to $41.1 million driven by solid demand for rental accommodation among its demographic, as well as rental increases and acquisitions.
However, net profit after tax of $13.2 million was down from $19.2 million the previous year due to reduced levels of property revaluations, as well as higher finance costs and the cost of defending Aspen Group’s failed takeover bid.
Eureka Group today also announced that chairman Murray Boyte will retire from the board after seven years in the role. He will be replaced by non-executive director Russell Banham, who has paid tribute to Boyte's long tenure at Eureka Group.
"Murray guided the board and management team through an important transformational period for the company and significantly contributed to Eureka’s growth and development," says Banham.
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