EUREKA'S WAR CHEST UNLOCKS PROFIT RICHES
Written on the 19 February 2016 by Jenna Rathbone
EUREKA Group Holdings' (ASX:EGH) aggressive acquisition strategy is paying off with the Gold Coast-based company growing net profit for the December half-year by 404 per cent to $3.65 million.
The retirement living company invested more than $26 million in the six months ending December 31, acquiring eight new villages comprising 428 units and rooms.
The acquisitions include Wynnum Village in Brisbane, Mt Gambier Lambert Village in South Australia, two additional villages in Rockhampton and an acquisition in Salisbury, which Eureka contracted to purchase in December 2015 and is expected to settle this month.
This followed support from institutional investors, who bought into a $10 million share issue in October 2015. The share offer, which was pitched at 54c a share, closed oversubscribed and gave Eureka Group the scope to expand its portfolio.
The expansion in the first six months of FY16 resulted in earnings before interest, tax, depreciation and amortisation (EBITDA) for the half year jumping 268 per cent to $4.48 million.
In a statement to the ASX, Eureka says the positive results reflect both effective management processes and efficiencies now in place and the company's successful focus on acquiring 'asset backed income generating assets'.
"Eureka's successful business model is now generating sustainable earning growth for shareholders while concurrently delivering discernible social equity benefits to the rapidly growing number of Australians who can no longer afford to buy freehold accommodation during their retirements years," says Eureka Group chairman Robin Levison (pictured) in the notes accompanying the result.
In December 2015, Eureka also acquired Terranora seniors' rental village in Tweed Heads for $7 million delivering what the company calls a 'game changing' opportunity.
The Eureka board has prioritised a major redevelopment of the site, which contains six hectares of vacant land and extensive views of the hinterland.
It is expected that Eureka will sell 3.5 hectares of the vacant land acquired as house and land packages, generating an estimated $4 million in net cash, while selling the 80 rental units delivering an additional $14 million.
Eureka plans to retain management rights for the 80 units to be sold, adding an expected $250,000 annually to group EBITDA.
The company then plans to reinvest $10 million from excess cash generated from the land and existing unit sales to build a 'next generation' Eureka village comprising 125 rental units.
"Given the uncertainty and volatility which currently continues to pervade world stock markets, Eureka made substantial progress in the first six months of FY16 to further bolster its balance sheet and to build a war chest to sustain the company's accelerated buy and build growth strategy," says Levison.
As a result of the group's accelerated acquisition of freehold income earning bricks and mortar assets, total assets at the end of December last year were up 65 per cent to $85.61 million.
Eureka currently owns 1056 units comprising 18 villages, while managing a total of 1827 units.
The company says it has an immediate pipeline of nine more villages either under due diligence or in clear line of site for acquisition in 2016.
Eureka's shares surged as much as 13 per cent on the news, climbing to a high of 59.5c.
Author: Jenna Rathbone
About: Jenna Rathbone is a Queensland-based journalist who writes on a range of issues including business and property affairs and social issues.Connect via: Twitter