EUREKA SEALS ITS POSITION AMONG BIG PLAYERS

Written on the 17 February 2015 by Nick Nichols

EUREKA SEALS ITS POSITION AMONG BIG PLAYERS

BUILDING on a turnaround strategy implemented at the end of 2013, Eureka Group Holdings (ASX: EGH) has struck its second major deal of 2015 after securing the management rights to a retirement village at Rockhampton.

The Varsity lakes-based Eureka, which is emerging as a significant player in the burgeoning seniors living sector, has been awarded management rights to the 52-unit Village Life Rockhampton 2.

This comes on the heels of a deal signed last month to acquire the 57-unit Myall Retirement Village at Whyalla for $3.25 million.

Between them, the two deals will boost Eureka's annual revenue by about $1.3 million, or 12 per cent of FY14 revenue, as the company makes good on the turnaround plan implemented by Robin Levison (pictured) after he was appointed chairman in December 2013.

Eureka already manages the adjacent Village Life Rockhampton 1 and Levison says the new management agreement will offer the company immediate synergy benefits.

"It creates a second 'super village' of 104 units which brings associated economises of scales from a management procurement perspective which is ideal, due to the 10-year tenure of the management rights contract," Levison says.

Last month, Eureka announced plans to grow its property ownership portfolio, but Levison says management rights will continue to be considered if they can add value for shareholders.

"The primary focus is to move to own everything we manage," he says.

"We think the new strategy is working and investors are really warming to the owner-operator model. We think in the long term it's going to be beneficial to our shareholders."

Levison, the man who built up and sold mining equipment manufacturer Industrea to GE for $700 million in 2012, already has overseen a significant rise in shareholder value at Eureka.

The company has a market capitalisation of about $51 million, up from about $10 million when he was appointed, and is now ranked among the top three listed companies in its sector by the ASX. In July 2013, Eureka shares were trading as low as 3c but have recently traded as high as 35c.

Levison, who was a shareholder of the company prior to his appointment as chairman, says Eureka has attracted strong support from institutional investors who are showing interest in the wider sectors of health, aged care and retirement

"We've made some great progress and, as a result, we've been rewarded by some very strong institutional investors coming on the share register.

"We think we can build a portfolio of high quality villages. We are only in the rental markets as we believe that is the growth area of retirement living."

Eureka has seen improved occupancy rates in its seniors villages over the past year, rising from the mid-80 per cent to 90 per cent. Myall Retirement Village in South Australia has occupancy of about 95 per cent.

Once approved by shareholders next month, the Myall acquisition will lift the number of centres owned by Eureka to six with 26 under management. Levison says that ratio will change over time as the company skews its focus towards greater ownership of seniors' villages.

"A lot more revenue comes from an owned unit and it also makes our balance sheet look better," he says. "By virtue of the fact that we own five villages, we have more halved our interest rate and that drops straight to the bottom line."

Eureka is expected to release its interim profit result next week. Shareholders at last year's annual meeting were told that net profit for the first four months of FY15 were ahead of the full six months results recorded to the end of December 2013.

 


Author: Nick Nichols

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