Eureka targeted as property takeovers kick off

The listed residential property group is again the focus of a bid from rival Aspen that wants to create a $500m affordable housing colossus. 

Mergers and acquisitions have kicked off in the beaten down listed property sector, with Aspen making a bid for fellow affordable accommodation developer Eureka that would create a $500m company it says would help transform the industry.

The move highlights the potential of real estate investment trusts as takeover targets after the beating they have taken from higher bond rates, as investors still remain interested in residential stocks.

The play would boost growth options for a combined company and help form a low-cost accommodation group across housing, lifestyle and living park estates across Australia amid the housing crisis.

Aspen believes that a merger with Eureka would bring significant benefits to both sets of shareholders, and that the two groups have the potential to be worth more together than as stand-alone entities.

The Aspen Group has lodged a development application to create a new tourist/residential park at the former refugee detention centre site in Woodside. Picture: Supplied

Aspen already provides quality accommodation on budget terms for residential, lifestyle and park living. Eureka focuses on affordable rental accommodation for independent seniors and disability pensioners, which is part of Aspen’s target market, although there are differences between the companies.

The success of the takeover will partly hinge on the attitude of fund manager Cooper Investors, which has a 19 per cent stake in the target and about 10 per cent of Aspen.

Market players argued the bid was effectively a discount to the net tangible asset backing at the most recent valuations. But Aspen said the merged group would be larger and more diversified, improving economies of scale and reducing risk.

The company would have almost 8,000 dwellings and sites, including about 1,200 approved sites for future development.

The bid for the $135m Eureka is scrip-based, and Eureka shareholders would receive 0.26 shares in Aspen for each of their shares. The merged group would initially have book equity of about $500m, more than three times the current scale of Eureka, and would enlarge Aspen.

The bidder believes the larger merged group would be more relevant on the ASX, especially to institutions including index funds, potentially improving stock liquidity, stock price and cost of capital.

Aspen said its offer ratio had increased 15.6 per cent on the offer ratio of 0.225 Aspen securities per Eureka share proposed by it in an indicative offer to Eureka last March.

Aspen last year weighed selling its stake in Eureka after its earlier attempt to buy the business ended without success. Aspen then offered 0.225 securities per Eureka share, but withdrew its proposal because Eureka did not engage in any meaningful discussions.

Aspen has said that the relative trading prices of its own shares and of Eureka’s had been disturbed by the potential for a takeover offer since it took a 13.7 per cent stake in Eureka in December 2022 and the latest offer is a nil-premium merger.

Eureka has been expanding, and last month said its new property fund, Eureka Villages WA Fund, had bought six seniors’ rental villages located in WA.