Can Eureka Sustain Growth While Balancing Rent Pressures and Divestments?

Strong Financial Momentum

Eureka Group Holdings Limited (ASX, EGH) has delivered a compelling set of full-year results for FY25, underscoring its rapid scaling in the affordable rental communities sector. The company reported an 11% increase in revenue to $45.8 million, propelled by strong resident demand, rental growth, and the full-year impact of acquisitions and developments completed in the prior year.

Underlying EBITDA also rose by 11% to $16.9 million, reflecting an 8% like-for-like growth, while the statutory net profit after tax jumped 52% to $20.1 million, largely due to a significant $18.4 million uplift in property valuations. These figures highlight Eureka’s ability to not only grow its top line but also enhance profitability through operational efficiencies and portfolio appreciation.

Operational Highlights and Market Position

Occupancy rates improved to an impressive 98%, up from 97% six months earlier, demonstrating strong demand in the over-50s rental segment. Same unit rent growth of 5.7% was achieved despite the company’s cautious approach to rent increases amid cost-of-living pressures faced by residents. Eureka has balanced this sensitivity with the need to manage rising operational costs such as council rates, insurance, and utilities.

The company’s portfolio value increased by $18.4 million, supported by stable capitalisation rates and ongoing capital improvements. Net tangible assets per share rose 14% to 55.0 cents, reflecting the underlying strength of the business and its assets.

Strategic Growth and Future Outlook

Eureka’s growth strategy remains aggressive yet measured, with a pipeline of acquisition opportunities exceeding $100 million. The company is expanding beyond its core over-50s market into all-age affordable rental communities, recently acquiring four mixed-use rental sites and settling two additional acquisitions post-year-end in Queensland and New South Wales.

Management plans to divest $25-$30 million of non-core or isolated assets to streamline the portfolio and reinvest proceeds into higher-yielding acquisitions and developments. Notably, development plans include 230 new units at greenfield sites in Kingaroy and Gladstone, signaling continued expansion of the rental community footprint.

Looking ahead, Eureka targets underlying EPS growth of 7.5-10% and underlying EBITDA growth of 20-25% in FY26, anticipating that the full deployment of recent capital raises will accelerate earnings momentum.

Financial Position and Dividend

The company maintains a robust balance sheet with net debt of $54.5 million and a conservative gearing ratio of 18.5%, well below its target range of 30-40%. This financial strength supports ongoing acquisition and development activity while providing flexibility in capital management.

Reflecting confidence in its cash flow generation, Eureka declared a final unfranked dividend of 0.73 cents per share, a 4% increase over the prior year, with a dividend reinvestment plan available to shareholders.