I followed Centurion many years ago when it was just a worker dormitory player in the market. In recent years, the company has also ventured into the student accommodation business which looks like a lucrative place to be in.
To be honest, I’ve not
been tracking Centurion for some time, but I received several enquiries by
readers about the company. Hence, I decided to update myself on their latest developments
and attended their annual general meeting to find out more.
Here are five things I
learned from the 2019 Centurion Corporation AGM:
1. Centurion’s business model is to be a property investor, developer, and operator all at the same time. When the company invests in a property, they evaluate how they can enhance the property and increase the potential value of the site. For instance, in 2017, Centurion invested A$30 million to build a new wing at RMIT Village, a student accommodation located in central Melbourne, and increase the number of beds by 160. This potential was identified when Centurion first purchased the property back in 2013. In this case, Centurion is different from property players like SPH which typically look at investments from a cash flow point of view. Besides RMIT Village, Centurion has also invested significant sums to build dwell East End Adelaide (S$48.7 million), a student accommodation; and Westlite Bukit Minyak (S$23.9 million), a worker dormitory in Penang.
2. A shareholder wanted to know if Centurion had any competitive advantages. The management said that they focus only on two asset classes: worker dormitories and student accommodation. The barrier to entry for worker dormitories is higher as it requires a certain level of management know-how to operate the dormitory and manage the foreigner workers. The management added that the student accommodation market is very big one around the world and doesn’t view SPH as a direct competitor despite the company’s continued investment in student hostels in the UK. This is because SPH focuses on ready-built assets which are already operational. Being a bigger company, SPH also looks for at larger properties which may not suit Centurion’s portfolio.
3. Centurion’s student accommodation properties in the UK increased in value when property prices in general have been falling there due to the threat of Brexit. The management views that student accommodation is a unique asset class as the UK remains a popular education hub and continues to attract international students from around the world. Moreover, if the sterling pound depreciates further due to Brexit, more international students may choose to study in the UK as student fees become more affordable. In fact, Centurion saw an increase in UK student accommodation numbers in 2018.
4. Centurion has been using debt to acquire properties. Its net gearing is at 53% (as at 31 December 2018) and the management has a policy of not exceeding the 60% mark. Therefore, the company has limited debt headroom to acquire assets in the near future. The management assured that they are consciously managing the debt level and will explore ways to recycle capital. From my interactions with the management, it seems as if they don’t have any plans to reduce the debt at this moment. Most of Centurion’s loans are on floating interest rates and their average cost of debt is about 3.5%.
5. Due to its limited debt headroom, Centurion is looking to grow its business using the fund management model. Centurion’s current funds have assets under management of around S$270 million. I asked the management about their fee structure, but they were reluctant to provide the details and only mentioned that it is the same as the market rate.
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