Cautious optimism from Westlite dorm owner Centurion after record H1 2024 earnings

SINGAPORE – While accommodation provider Centurion Corp is celebrating a robust set of first-half numbers, the firm has acknowledged that challenges lie ahead.

These largely revolve around high interest rates, which could curb the firm’s ambitions to expand its footprint, especially in student accommodation.

It will also pursue further growth through acquisitions as well as step up efforts to offer its expertise to property owners and investors via property, investment and fund management services.

Chief executive Kong Chee Min also told a results briefing on Aug 14 that the firm plans to cautiously expand in an asset-light manner that avoids the need for equity financing.

Still, he was upbeat about opportunities in Hong Kong, as both a gateway to the wider Chinese market and strong upcoming demand, given the government’s push to turn the special administrative region into a hub for higher education.

The firm, which owns and operates the Westlite group of workers’ dormitories among other properties, enters the second half in a position of strength, after its robust performance in the first half that was powered by high occupancy levels and rental hikes.

Net profit for the six months to June 30 came in at a record $118 million, up 209 per cent on the same period a year earlier, while revenue hit $124.4 million, 27 per cent higher than the $97.9 million recorded a year earlier.

An interim dividend of 1.5 cents per ordinary share was declared, up from one cent in the previous year.

Centurion’s performance was buoyed by strong occupancy, especially in student accommodation in Australia and Britain and in workers’ accommodation in Singapore, it noted in the results on Aug 12.

Purpose-built student accommodation made an outsized contribution to revenue, accounting for 24 per cent of group turnover, while comprising 7 per cent of its operational beds.

Purpose-built workers’ accommodation made up 93 per cent of total beds but accounted for 76 per cent of revenue.

The Singapore market made up 90 per cent of worker accommodation revenue and 70 per cent of revenue overall.

The Straits Times asked at the briefing whether the outsized revenue contribution of student accommodation would spur Centurion to shift its growth strategy to focus more on the segment.

Mr Kong noted that margins were better for workers’ accommodation, but tend to have shorter tenures, adding: “(For) student accommodation, the tenures are longer. However, the margins are lower, so we hope to have a good balance of these two.”

He also noted that there were more compelling opportunities in workers’ accommodation than for student accommodation in Singapore, its home base, and this added to the split in contribution.

Strong rental gains also boosted net fair value gains across all markets, which were up $61.6 million, markedly up on the $5.4 million gain in the first half of 2023.

The firm has since entered the Chinese market via master leases for one property for workers and two for students. These begin operations in the latter half of 2024.

Excluding these fair value adjustments, net profit after tax derived from core business operations increased by almost 50 per cent, from $36 million in the first half of 2023 to $53.4 million.

Mr Kong also said that the impact of rent increases that took effect from the start of 2024 will continue into the second half of the year, as renewals are still ongoing each month.

When asked about the prospects of expanding its fund management business, chief investment officer Ho Lip Chin noted that it was always the firm’s aspiration to enter the fund management business.

Centurion entered the US market through the Centurion US Student Housing Fund, which it manages and owns 28.7 per cent of.

Launched in 2017, the fund is coming to term in November 2024, and the six student housing properties that comprise it are being disposed of, with three already sold.

Mr Ho said the fund came about because the firm was presented with an opportunity to enter the US market, but the cost proved prohibitive to bear alone, at over US$200 million (S$263 million).

“This is something we know we will continue to explore, but... it’s actually not easy to raise money from investors out there, and it gets a lot more challenging nowadays because of the high interest rate environment.”

He added: “It’s not easy, but we will persevere and, as and when the right opportunities come, especially if it’s a bigger portfolio where you need to raise money from a bigger pool, I think that will give us the opportunity to, maybe, open another fund.”

Gross profit margins rose from 71.7 per cent for the first half of 2023 to 75.7 per cent for the same period in 2024.

Earnings per share gained 47 per cent year on year to 5.77 cents.

Net asset value per share was recorded at $1.12 for the first half of 2024, with Mr Kong noting Centurion continues to trade at a discount.

Centurion shares closed down half a cent at 66 cents on Aug 14.