SMALL DEAL MAKES WAY FOR BIG RETURNS AT EUREKA
Written on the 16 April 2015 by Nick Nichols
EUREKA Group Holdings is taking a steady path to growth, announcing a $910,000 management rights sale in Brisbane this week.
While the deal is relative minnow in the scheme of things, it builds on a string of deals over the past 15 months that have made the Gold Coast company a significant player in the accommodation market for the aged.
Eureka this week says it has written a profit on the Slacks Creek property deal which was struck above book value, but that the sale proceeds will not be needed to settle a Lismore acquisition announced at the end of March.
The Lismore deal builds on Eureka's growth strategy which has been reflected in the company's share price. Eureka's shares hit a high of 49c this past week, or almost five times the price at which they were trading just 12 months ago.
The Eureka Cascade Gardens Lismore, which has about 80 permanent tenants and capacity for short-term accommodation, is the seventh freehold village acquired by Eureka in the past 15 months.
The $4 million deal will add $1.2 million in revenue and more than $600,000 in EBITDA a year to Eureka's accounts.
The latest acquisition, along with the six others and two new management rights deals completed in the past year, will lift Eureka's EBITDA by as much as $5 million, annualised on a 12-month forward basis.
This compares with EBITDA of just $1.5 million recorded in FY14, which was up 74.8 per cent from a year earlier.
Chairman Robin Levison (pictured), who has been driving the company's growth since his appointment to the role in December 2013, says the latest management rights sale at Slacks Creek is significant for the company because of the opportunities it affords.
"The freeing up of $910,000 is reasonably material for us as it gives us the cash component to buy a whole new retirement living village," Levison tells Gold Coast Business News.
He says the management rights portfolio is constantly under review since the company moved to increase its focus on higher yielding owner-operator model, adding that another management rights sale may be on the cards.
Eureka Group's growth has been driven by a focus on what it sees as an underserviced niche in the market - affordable retirement living for residents accessing rental assistance from the government. Its growth has elevated it among the key players in the market.
The sector is growing at the rate of 15,000 retirement places a year, and Levison says development is not keeping pace with demand.
The Australian Bureau of Statistics reports that more than two million Australians are receiving a government pension or allowance and that the number of Australians aged over 75 years will double in the next two decades. Levison many of these older Australians will still be renting.
"The space we're in resonates with people," says Levison of the growth of the company over the past year. "They get there's a looming issue for people going into retirement. The bottom of the triangle is the high growth area and they have no choice but to rent."
Eureka Group Holdings' market value has risen from about $3 million prior to Levison being appointed chairman to more than $70 million today.
Levison credits the company's growth to a "very clearly outlined strategy that we have executed on".
"There is tremendous interest in the healthcare and aged-care market, driven by the realisation that the population is getting older," he says.
Author: Nick Nichols