An analyst says the specialised accommodation operator&rsquo s strong rental reversions could be a catalyst for a re-rating of the counter

 

MAINBOARD-LISTED Centurion Corporation : OU8 0% expects the demand for purpose-built student accommodation (PBSA) to outstrip supply in several markets, supporting the group&rsquo s push into the area.

 

The group noted that the segment had &ldquo supportive fundamentals&rdquo across all major ideal education destinations, including the US, the UK, Australia and Hong Kong. It has 15 assets in operation in Australia, the UK and US currently.

 

These markets face an inadequate supply of beds. In Australia, for example, the lack of student accommodation has led to international students competing with locals for housing. Centurion&rsquo s management cited a report by Australia&rsquo s Institute of Public Affairs, which projected that more than half of Australia&rsquo s net new housing supply will be absorbed by international students.

 

David Phey, Centurion&rsquo s head of corporate communications, said at a briefing on Wednesday (Aug 14): &ldquo This reflects a stronger need for a larger supply of PBSAs, and universities and private operators like ourselves need to work together to be able to address the shortage.&rdquo

 

His comments follow Centurion&rsquo s announcement of a 209 per cent jump in earnings to S$118.2 million, from S$38.3 million in the year-ago period. Net profit was boosted by fair-value gains of S$61.6 million in the half-year period.

 

Revenue for H1 rose 27 per cent to S$124.4 million, from S$97.9 million the year before. This came from strong financial occupancies in its purpose-built workers&rsquo accommodation (PBWA) and PBSA portfolios, and positive rental rate reversions across all operating markets.

 

UK portfolio

The PBSA segment makes up around 24 per cent of Centurion&rsquo s top line, and 7 per cent of its beds.

 

Most of the PBSA beds and revenue come from the UK. The average financial occupancy of its UK assets rose 9 percentage points to 99 per cent. Revenue for the segment climbed 26 per cent to S$20.8 million.

 

Average financial occupancy refers to the percentage of gross leasable area for which a tenant is obliged to pay rent under the agreement, regardless of the actual use or occupation of the area&rsquo s tenant.

 

Centurion said the UK remains a popular destination for students seeking higher education, and although the UK has tightened its immigration laws to address student visa abuse, the universities there have committed to growing their international student numbers.

 

While Centurion is exploring options to enhance its UK portfolio, it does not yet have concrete plans for expanding its foothold in the country. Chief executive Kong Chee Min noted that the capitalisation rate for student accommodation, unlike commercial properties, is still compressed.

 

Elaborating, he said the process and cost of converting commercial properties into student accommodation was challenging: &ldquo Two years ago, we explored (such) developments&hellip but when we looked at it financially, it was not that attractive.&rdquo

 

Strengthening the pipeline

The group&rsquo s current PBSA pipeline is thus focused on Australia and Hong Kong. The group is awaiting official approval to redevelop the existing carpark of dwell Village Melbourne City (a student housing centre in north Melbourne) into a new PBSA block housing 600 beds.

 

It is also looking to seek planning approval for a land site near RMIT University in Melbourne, which would yield around 575 beds.

 

Over in Hong Kong, the company clinched two master leases for properties in Kowloon in the second quarter of this year the properties, expected to be operational from September, will yield 66 and 89 beds.

 

With Hong Kong looking to become an international post-secondary education hub, and given its underserved demand for student accommodation, rental yields in the city could go up, said the company&rsquo s management.

 

Asked whether Centurion would consider entering Asian markets such as South Korea and Japan as well, Kong demurred, saying that the company would need to be able to scale its operations in those markets. It used to have an asset in Seoul, which was disposed for 21.3 billion won (S$21.5 million) in April 2023.

 

&ldquo By scaling, I&rsquo m referring to the asset-light strategy, and in Hong Kong, we do see that there are opportunities,&rdquo he said. &ldquo We believe that this model works in Hong Kong&hellip so we want to go (there) in a bigger manner.&rdquo

 

Meanwhile, in the PBWA segment, the group is conducting asset enhancements in Malaysia, and redeveloping its properties in Singapore. Westlite Ubi, a new dormitory, is expected to be completed in December.

 

Kong said that not all rents have been reflected in the books, as more leases are likely to be renewed in the second half of the year.

 

In an analyst note after the briefing, CGS International analysts Ong Khang Chuen and William Tng flagged the continued strong rental reversions as a re-rating catalyst for Centurion&rsquo s stock.

 

They reiterated their &ldquo add&rdquo call on the counter and raised its target price to S$0.78 from S$0.65.

Revenue for the period is up 27% at S$124.4 million

 

CENTURION Corporation : OU8 +0.79% posted a 209 per cent rise in net profit to S$118.2 million for its first half ended Jun 30, from S$38.3 million in the previous corresponding period.

 

Net profit was boosted by fair-value gains of S$61.6 million in the half-year period, the dormitory operator said in a regulatory filing on Monday (Aug 12).

 

Earnings per share stood at 14.06 Singapore cents for the period, up from 4.56 cents the previous year.

 

Revenue for H1 rose 27 per cent to S$124.4 million, from S$97.9 million a year earlier. This was due to strong financial occupancies from its purpose-built workers accommodation and purpose-built student accommodation portfolio &ndash especially across Singapore, the UK and Australia &ndash as well as positive rental rate reversions across all operating markets.

 

An interim dividend of 1.5 Singapore cents per share was declared for the half year, up from one cent per share the year before. The dividend will be paid out on Sep 30, after books closure on Sep 10.

 

The company said it has continued to strategically review and rationalise its assets, assessing opportunities for capital recycling and portfolio expansion.

 

In Singapore, it is developing a new purpose-built workers accommodation with around 1,650 beds, to be completed by December 2024.

 

It has planned asset enhancement initiatives in Malaysia, while it is also aiming to redevelop some assets and expand its portfolio in Australia.

 

The company also entered China&rsquo s purpose-built student accommodation portfolio in H1, with two assets in Hong Kong expected to be operational in September.

 

Kong Chee Min, chief executive of Centurion, said: &ldquo We will continue to make concerted efforts to enhance our portfolio, expanding our revenue streams to deliver sustained strong performance.&rdquo

 

On Jul 4, Centurion Corp : OU8 +0.84% CEO Kong Chee Min acquired 115,000 shares, at an average price of S$0.59 cents per share. This increased his direct interest in the global provider of specialised accommodation from 0.04 per cent to 0.06 per cent. His preceding acquisitions were on May 10, with 75,000 shares acquired at an average price of S$0.498 per share, and Mar 1 with 72,000 shares acquired at an average price of S$0.425 per share. The rally in the share price has seen the price-to-book ratio of the stock increase from 0.4 times at the end of 2023 to 0.6 times the previous week. The stock maintains a return-on-equity ratio of 20 per cent with its Q1FY24 (ended Mar 31) at S$41.6 million, compared to S$30.5 million in Q1FY23, as tenancies renewed at prevailing higher rental rates in Q4FY23 began to accrete higher revenue. Prior to Q1FY24, Centurion had a 26 per cent compound annual growth rate in its accommodation revenue from its FY11 to FY23.

 

From a geographical perspective, Singapore contributes around two-thirds of the group&rsquo s revenue. From a business segment perspective, roughly 75 per cent of its revenue comes from Purpose Built Workers Accommodation (PBWA), while the remaining 25 per cent is attributed to Purpose Built Student Accommodation (PBSA). The group expects the current growth drivers of the PBWA sector to include positive regulatory factors and a demand-supply dynamic characterised by a high global demand for migrant workers, an increasing recognition of the need for better welfare for migrant workers, and a market that is undersupplied with purpose-built, professionally managed dormitory beds.

 

While the Centurion&rsquo s share price has gained 46 per cent in the 2024 year to Jul 11, the average daily turnover of the stock is up 140 per cent from 2023 levels. In 2023, Centurion completed its voluntary withdrawal of its dual listing on the main board of The Stock Exchange of Hong Kong. It announced on Jul 3 that its indirect 60 per cent-owned subsidiary, Centurion-Lionrock (HK), through Centurion Overseas Investments, signed a master lease with Abercorn Investments to lease 50 residential flats in Hong Kong, with plans to convert them into worker accommodation for 550 beds. The joint venture company is also partly owned (40 per cent) by LionRock Property, an independent third party and joint venture partner.

 

Kong joined the group in March 1996 and was appointed to the board in March 2000. He served as a board member until May 2015. In August 2011, he became the CEO, taking charge of the group&rsquo s operations, business strategies, and long-term growth. Before his CEO role, he was the regional CEO and finance director, assisting the former group CEO in strategic development and growth of the optical disc business. In January 2022, Kong was appointed a member of the executive committee.

Acquisition increases his direct interest in the global provider of specialised accommodation from 0.04 per cent to 0.06 per cent

 

INSTITUTIONS were net buyers of Singapore stocks over the five trading sessions to Jul 11, with S$192 million of net institutional inflow, following the similar pace of S$188 million of net inflow for the preceding five sessions to Jul 4. In the first nine sessions of July, institutions reversed just over one-third of the net outflows booked in the first half of 2024.

 

The five sessions till Jul 11 also had 15 primary-listed companies conduct buybacks with a total consideration of S$28.3 million.

 

CapitaLand Investment : 9CI +4.85% led the buyback consideration tally, acquiring 8,312,600 shares at an average price of S$2.64 per share. This brings the percentage of shares acquired on the current mandate to 1.64 per cent of the issued shares (excluding treasury shares) as of the date of the share buyback resolution.

 

For the contingent of non-STI primary-listed companies that conducted buybacks over the five sessions, The Hour Glass : AGS +0.62% led the consideration tally with 489,000 shares acquired at an average price of S$1.57 per share.

 

Leading the net institutional inflow were DBS : D05 -1.17%, UOB : U11 +0.27%, ARA US Hospitality Trust : XZL +1.72%, Singtel, : Z74 +1.03% Sats : S58 +5.45%, ST Engineering : S63 -0.68%, OCBC : O39 +0.53%, Singapore Exchange : S68 +1.14%, Great Eastern Holdings : G07 +0.66% and Venture Corp : V03 +0.2%.

 

During the week, Acrophyte completed the acquisition of a 19 per cent stapled security interest in ARA US Hospitality Trust, increasing the stapled security holdings owned by the Tang Group in ARA US Hospitality Trust to 28.3 per cent. Acrophyte is a multinational conglomerate with expertise spanning the entire real estate spectrum and the hospitality sector. The company operates and invests in hospitality assets in various locations, boasting a proven track record in both operations and investments.

 

Meanwhile, Singapore Airlines : C6L -0.28%, Jardine Cycle & Carriage : C07 -0.19%, Wilmar International : F34 +2.26%, Seatrium : 5E2 +4.23%, Mapletree Industrial Trust : ME8U +3.69%, Sembcorp Industries : U96 +0.63%, CapitaLand Ascendas Reit : A17U +3.42%, Mapletree Logistics Trust : M44U +3.03%, Genting Singapore : G13 +1.75%, and CapitaLand Ascott Trust : HMN +0.56% led the net institutional outflow.

 

In the five trading sessions, 70 director interests and substantial shareholdings filed for more than 30 primary-listed stocks. Directors or CEOs filed 14 acquisitions, and no disposals, while substantial shareholders filed eight acquisitions and three disposals.

The accommodation is expected to be operational in October 2024

 

A JOINT venture of dormitory operator Centurion Corporation has leased 50 residential flats in a property in Hong Kong from Abercorn Investments, and plans to renovate these units into accommodation for workers.

 

The flats, to offer a total of 550 beds, are expected to be ready for occupation in October.

 

The property is in the centre of Sheung Shui, a mature neighbourhood, and within walking distance of the Sheung Shui MTR (Mass Transit Railway) station, said Centurion in a bourse filing on Thursday (Jul 4).

 

Centurion owns 60 per cent of the joint venture through Centurion Overseas Investments the remaining 40 per cent is owned by its joint-venture partner, LionRock Property.

 

The property will be operated under Centurion&rsquo s Westlite workers&rsquo accommodation brand and management platform.

 

The master lease commenced on Jul 3 and expires on May 31, 2030. There is an option to renew it for another five years upon the expiration of the initial term.

 

Centurion said the entry into this master-lease agreement is in the ordinary course of business of its joint venture, which leases, refurbishes and manages housing assets in Hong Kong for students and workers.

 

It added that the agreement is consistent with the group&rsquo s strategy of growing its accommodation business globally, and by being asset-light.

 

In May, Centurion&rsquo s joint venture leased 15 floors of a building in Hong Kong from Golden Well Development it plans to use the space for student housing.

 

The latest transaction is not expected to have a material impact on the company&rsquo s consolidated net tangible assets or earnings per share for the financial year ending Dec 31.

Lim & Tan Securities analyst Chan En Jie has kept his &ldquo accumulate&rdquo call on Centurion Corporation OU8 1.75% with a higher target price of 66 cents from 62 cents previously.

 

In his report dated June 26, Chan notes that the company is &ldquo off to a good start&rdquo , referring to its business update for the 1QFY2024 ended March 31.

 

During the quarter, Centurion reported a 30% y-o-y increase in its group revenue of $61.1 million, outperforming the analyst&rsquo s estimates at 27.5% of his full-year forecasts.

 

The revenue increase was mainly attributed to the continued positive rental rate revisions and higher occupancies in Centurion&rsquo s purpose-built workers accommodation (PBWA) and purpose-built student accommodation (PBSA) global portfolios.

 

Other positives, in Chan&rsquo s view, include the &ldquo healthy pipeline&rdquo of 2,570 dormitory beds in Singapore and Malaysia this year.

 

The recent off-market purchase by David Loh, Centurion&rsquo s executive director and joint chairman, also seems to suggest &ldquo continued confidence&rdquo in the company&rsquo s prospects. Loh purchased a total of some 20 million shares at an average price of 54 cents apiece on June 11. Before that, Loh bought 215,400 shares from the market at 53 cents each on June 3.

 

See also: CDL remains Citi&rsquo s top developer pick as it sees land prices remaining soft despite supply reduction

 

Another positive is the demand for foreign workers, which should remain high over the short- to mid-term, notes Chan. This is as the Building and Construction Authority (BCA) increased its forecast for Singapore&rsquo s construction demand for 2024 to 2028.

 

In Chan&rsquo s view, Centurion&rsquo s valuations are &ldquo attractive&rdquo as it is trading at just 6.3 times its core Fy2024 P/E and 0.6 times P/B.

 

In addition to his higher target price, the analyst has increased his FY2024 and FY2025 earnings estimates by 7%.

On Jun 11, Centurion executive director and joint chairman David Loh acquired 20 million shares in a married deal at S$0.54 per share. This increased his direct stake from 5.49 per cent to 7.87 per cent.

 

His preceding acquisitions were between Jun 3 and 4, with 538,600 shares acquired at S$0.53 per share and on Feb 29, with 1.25 million shares acquired at S$0.425 per share. His total interest in the specialised accommodation developer and manager is now 58.53 per cent, with deemed interests mostly through his 50-per-cent shareholding interest in Centurion Global.

 

Loh is responsible for the formulation of corporate and business strategies, and leads the execution of strategic growth plans of the group. He has over 20 years of experience in the investment and brokerage industry. 

Between Jun 3 and 4, Centurion Corporation : OU8 0% executive director and joint chairman David Loh Kim Kang bought 538,600 shares at an average price of S$0.532 per share, which increased his direct stake from 5.43 to 5.49 per cent. His preceding acquisition was on Feb 29, when he bought 1.25 million shares at S$0.425 per share.

 

His total interest in the specialised accommodation developer and manager is now 56.15 per cent, with deemed interests mostly through his 50 per cent shareholding interest in Centurion Global.

 

Loh is responsible for the formulation of corporate and business strategies and leads the execution of strategic growth plans of the group. He has over 20 years of experience in the investment and brokerage industry.  

 

Centurion owns and manages a strong portfolio of 34 operational accommodation assets totalling about 67,347 beds as at Mar 31.

 

On May 9, it reported a 30 per cent increase in revenue for Q1 2024, reaching S$61.1 million, compared to S$47.1 million in Q1 2023. This growth was attributed to positive rental rate revisions and higher occupancy rates in its global purpose-built workers accommodation and purpose-built student accommodation portfolios. 

 

The group&rsquo s portfolio in Singapore saw an increase in financial occupancy from 98 per cent in Q1 2023, to 99 per cent in Q1 2024, indicating a strong and sustained demand.

 

This rise in occupancy, coupled with tenancies being renewed at higher rental rates in the last quarter of 2023, resulted in a significant increase in revenue from S$30.5 million in the first quarter of 2023 to S$41.6 million in the same period in 2024.

 

Malaysia saw an expansion in capacity and maintained strong occupancy, with 5 per cent growth in local currency revenue, which was reduced to a 2 per cent decline when reported in Singapore dollars.

 

The UK experienced robust growth in revenue, driven by a supply-demand imbalance in student accommodation and successful rental revisions. The financial occupancy rates for properties in Adelaide and Melbourne, Australia, saw a notable increase from 80 per cent in Q1 2023 to 90 per cent in Q1 2024.

 

On May 16, Centurion announced that Centurion-Lionrock (HK), a subsidiary of Centurion Overseas Investments, secured a lease for 15 floors in a Hong Kong building to create a student accommodation facility with 89 beds.

 

This project, near two universities, is a joint venture with LionRock Property owning 40 per cent. The facility is scheduled for operation in September 2024, under the &ldquo dwell&rdquo student accommodation brand.

On May 10, Centurion Corporation : OU8 0% CEO Kong Chee Min acquired 75,000 shares at an average price of S$0.498 per share.

 

This increased his direct interest from 0.03 per cent to 0.04 per cent.

 

His preceding acquisition was on Mar 1, with 72,000 shares bought at an average price of S$0.425 per share.

 

Centurion owns, develops, and manages quality, purpose-built workers&rsquo accommodation (PBWA) assets in Singapore and Malaysia, and student accommodation assets in Australia, the United Kingdom, and the United States.

 

Kong, who has led the company since August 2011, is responsible for the overall management of the group&rsquo s operations, implementation of business strategies and the long-term growth objectives approved by the board.

 

On May 9, Centurion released a Q1 FY24 (ended Mar 31) business update, reporting that group revenue increased 30 per cent to S$61.1 million, from S$47.1 million in Q1 FY23.

 

This was mainly driven by the continued positive rental rate revisions and increased occupancies in both PBWA and purpose-built student accommodation (PBSA) portfolio globally.

 

Kong noted that the group continues to see sustained demand and healthy rental revisions in its student and worker accommodation facilities across the markets where it operates.

 

He added that the group will continue to enhance its portfolio and explore opportunities for growth in existing and new markets.

 

In April 2024, the group announced that it had entered into a master-lease agreement, through a joint-venture company where Centurion holds 60 per cent, to lease a building in Hong Kong with the intent to refurbish it into a 66-bed student accommodation facility.

 

The works are expected to be done and the facility operational by September, staging the group&rsquo s entry into the Hong Kong/China PBSA market.

The agreement has a term of five years, with options to extend to a maximum of nine years

 

A JOINT venture of Centurion Corporation : OU8 -1.82% has leased 15 floors of a building in Hong Kong from Golden Well Development, with the intention of using the space for student accommodation, the dormitory operator said on Thursday (May 16).

 

The property is expected to be operational in September this year, with a total capacity of 89 beds to house students. It is located in Kowloon, Hong Kong, within walking distance of Hong Kong Polytechnic University and Hong Kong Metropolitan University, said Centurion in a bourse filing.

 

The master lease agreement commenced on Thursday for a term of five years, with an option to renew for one two-year term and, subject to further agreement, two one-year terms. This means the maximum length of the lease is nine years.

 

Centurion owns 60 per cent of the joint venture that signed the master lease agreement, while the remaining 40 per cent is owned by independent third party LionRock Property.

 

Centurion said the entry into the agreement is in consistent with the group&rsquo s strategy to grow its accommodation business globally, via asset-light means.

 

The deal is not expected to have any material impact on the company&rsquo s consolidated tangible assets or earnings per share for the financial year ending Dec 31, 2024.