Eureka’s Rapid Expansion Raises Questions on Market Risks and Execution
Eureka Group Holdings reports a transformative year marked by a 29% increase in rental units, a landmark acquisition in Perth, and a strong development pipeline, setting the stage for significant earnings growth in FY26.
- 29% growth in rental units to over 3,500
- Largest acquisition, Hillside Gardens community in Perth
- Development pipeline expanded to 700+ new rental units
- Strong occupancy near 98% with targeted 5-7% rent growth
- FY26 guidance, 20-25% EBITDA growth and 7.5-10% EPS growth
A Year of Transformation
In just over a year since the current CEO joined Eureka Group Holdings, the company has undergone a remarkable transformation. With a strategic focus on affordable rental accommodation, Eureka has expanded its portfolio significantly, now owning and managing 59 communities across Australia. This includes 51 seniors’ rental communities and eight all-age communities, reflecting a deliberate shift to broaden its market reach.
The company’s rental units have surged by 29% to more than 3,500, fueled by eight acquisitions in the past year and a robust development pipeline that has grown over 225% to exceed 700 new rental units. This growth is underpinned by a $70 million equity raise and a strengthened debt facility, including a $200 million acquisition accordion facility, enabling Eureka to pursue aggressive expansion.
Strategic Acquisitions and Development
Eureka’s largest acquisition to date, the Hillside Gardens community in Perth, exemplifies its growth strategy. Comprising 200 sites with a mix of land-lease and caravan homes, the acquisition was secured at an 8.4% yield with a targeted five-year return exceeding 15%. This deal highlights Eureka’s ability to identify and invest in high-quality communities with significant expansion potential.
Development is a core pillar of Eureka’s future growth. The company is leveraging prefabricated offsite construction to accelerate delivery and lease-up cycles, reducing build times from the traditional 12 months to just 3-4 months. Projects like Kin Kora in Gladstone and Brassall in Ipswich illustrate this approach, with new one- and two-bedroom rental homes being added to existing communities to maximize land use and generate attractive long-term rental income.
Operational Excellence and Market Position
Occupancy rates remain near record highs at 98%, supported by strong demand particularly in Queensland, where Eureka’s portfolio is heavily concentrated. The company is focused on maintaining affordability for residents amidst rising costs, balancing rent growth targets of 5-7% with sensitivity to cost-of-living pressures.
Operationally, Eureka has decentralized decision-making, empowering regional managers to enhance community appeal and resident engagement. This local focus is complemented by a disciplined portfolio rationalization strategy, divesting non-core and low-profitability assets to reinvest capital into higher-return opportunities.
Looking Ahead – FY26 Priorities and Guidance
Looking forward, Eureka has set clear priorities for FY26, including driving occupancy gains in lower-performing villages, executing further acquisitions valued at $100 million under assessment, and ramping up development activities. The company also plans to strengthen its balance sheet through divestments and new capital partnerships.
Guidance for FY26 is optimistic, with underlying EBITDA expected to grow by 20-25% and EPS by 7.5-10%, contingent on acquisition timing and market conditions. While some regional softness in Victoria and New South Wales is noted, the overall market remains tight, with national vacancy rates at a low 1.2%.
Eureka’s differentiated strategy, focusing on repurposing existing built form to deliver affordable rental accommodation, positions it uniquely in a market where institutional capital is largely absent. This first-mover advantage could unlock significant value as housing affordability challenges persist across Australia.
Bottom Line?
Eureka’s aggressive expansion and development strategy positions it well to capitalize on Australia’s growing affordable rental housing demand, but execution risks and regional market variations warrant close investor attention.
Questions in the middle?
- How will Eureka manage potential risks from regional softness in Victoria and NSW?
- What is the timeline and capital requirement for scaling up the 700+ unit development pipeline?
- How will the company balance rent growth with affordability pressures on residents?