Eureka Group Holdings (ASX:EGH) – the business of retirement villages

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Eureka Group Holdings Limited (ASX:EGH) CEO Cameron Taylor provides an overview of the company, discussing positioning in the industry, strategy, the new development in Brassall, Queensland, government assistance and growth opportunities.

Tim McGowen: We're talking with Eureka Group Holdings Limited (ASX:EGH) today. It's got a market cap of around $137m. The company is into the provision of accommodation and services to independent senior residents and specialised property management and care-taking services for seniors independent living communities. We have with us Cameron Taylor, who is the company CEO. Cameron, thanks for your time.

Cameron Taylor: Thanks, Tim. Thanks for having me.

Tim McGowen: Now, can you tell us about Eureka Group Holdings for those investors that don't know about the company?

Cameron Taylor: So, Eureka's a specialist rental retirement company. We've got 47 villages up and down the east coast of Australia. So, geographically, we go Cairns all the way down to Hobart. We specialise in the rental model, so it's quite a unique area that we're in.

Tim McGowen: And in terms of the industry, retirement village industry, can you give us some colour as to what's going on in the industry at present and where you're positioned?

Cameron Taylor: So, the uniqueness of us is that we are a rental retirement business. So, everybody knows about land lease, DMF, buy-in, buy out, things of that nature. The specialist area that we are in is best sort of compared to build-to-rent. So, what happens in our business is that we own the property or we might manage the property on behalf of other people. And then we have a unit and we rent the unit out to our residents. And it's just under a normal residential tenancy lease. So, when you would even go and you rent a home yourself, you'd just enter into a short-term or a long-term residential lease, and that's what we do. So, it's a very unique proposition, and in the current market, where there's a chronic housing shortage, and particularly for senior ladies, our business model just sits right into this supply-and-demand equation of a chronic shortage. And the other benefit of our rental model is that our residents actually are pension-based. So, from a revenue point of view, we've got a real security of revenue. And then, from a resident point of view, they know exactly what they're getting every two weeks and they know how much is going to go on to rent, and we've crafted this really nice rental retirement living model, which is similar to a build-to-rent.

Tim McGowen: There's consolidation going on in this industry. The strategy's been to acquire some villages, sell some villages and also build some villages. Is that the way the company's positioned?

Cameron Taylor: That's exactly right. So, the last couple of years, we've been just resetting our business model. We want to be a specialist in this area, so we're only going to be in the rental business. What we actually had as a business was a bit of a mixed bag initially. The previous management did a terrific job buying villages, but then they went and bought non-core villages. And what I mean by that is they'd be more like an apartment building, so they three storeys high, no village manager on site, no community facilities. That's not the business that we want to be in. That's just a private residential rental market. We want to be a village where we've got real harmonious sort of community atmosphere. We provide the meals for the residents, we've got community activities, we've got a village manager who's on site. So, what we're looking for from a resident-first philosophy, which we operate under, is that a resident knows exactly who their neighbours are, they're surrounded by like-minded people. They've got the security and safety of being in the village. They've got a village manager who's available for them. So, anything that we've sold has been that sort of apartment block, doesn't suit the model, and we're just focusing on the real sort of resident-first- based villages.

Tim McGowen: And you've got a new development in Brassall, Queensland. Can you tell us how that's progressing?

Cameron Taylor: Yeah, thank you. It's a great village. We bought it in July 2021. It was 50 homes. All the infrastructure was already in place, so brownfield development, and it was DA-approved for a further 51 units. All the infrastructure in terms of power, water, roads was already in place. And we're under construction for another 51 homes. Leasing inquiry is going really, really well, so stage one out of the 50 is already leased up, so about 12 units will be open in July. And weather permitting in Queensland, we'll hopefully have that completed by December, but that'll be a really nice product. The difference with that one, which is quite interesting for us, it's actually 80 square metre relocatable homes. So, we're attracting a couples market in that product, which is terrific for us.

Tim McGowen: And you touched on government assistance in terms of helping a resident fund their retirement living. Can you give us an explanation of how that works?

Cameron Taylor: Yeah. Look, the benefit of us from a business model point of view is 95 per cent of our residents actually live on the pension. So, they don't have access to a lot of savings. They most generally don't own their own home, so they've actually been in rental accommodation. They're looking for that affordability, so they're pension-based. And so we structure our rent to make sure that they can have a nice single-unit bedroom, three meals a day in the safety of a village. And they survive and live on the pension with money left over for medicine, car, treats, whatever they like. The advantage for them is that we pay all the rates and the water. We have got solar on to 15 of our villages. So, in most cases, residents pay a fraction of what they would normally do in electricity and, in some cases, they pay no electricity. They're mitigated from cost of increase in food, which in an high inflationary environment is quite a problem. So, we've created this really nice value proposition for our residents.

Tim McGowen: And, of course, the industry's got some strong tailwinds, aging population, cost-of-living pressures. What are the growth opportunities for Eureka moving forward?

Cameron Taylor: Look, like you said before, we've sold a number of units that didn't suit us. So, we are up to 2,700 units. We would have been over 3,000 units by now. So because we've got this supply equation of a chronic shortage of units and we've got an aging population, we've got a terrific age pension system, we see an amazing headwind for us. Like you said, we've got Brassall under construction. Last year, we added 22 units at our Wynnum property. We've made a number of acquisitions this year. Yeah, we see from our point of view, particularly through the regional towns that we operate, large regional towns, a terrific outlook for us. We've got terrific momentum. We just put out our half-one results just recently, which actually demonstrates in all metrics the improvements that we've made to the business, particularly in comp growth as well. But when you overlay the supply-and-demand equations and our unique business model, single-minded focus on rental retirement living, we're in a really nice position.

Tim McGowen: Cameron Tyler, thanks for your time.

Cameron Taylor: Thanks, Tim.

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