SINGAPORE (Apr 9): The rising Covid-19 cases in Singapore is doing damage to the local dormitory sector. Westlite Toh Guan, a workers’ dormitory operated by Centurion Corp, was one of the two dormitories identified as a new cluster, with 34 cases as of April 7. As a result, its 6,800 residents — together with 13,000 from S11 Dormitory @ Punggol — will be quarantined for 14 days.
“We recognise this is a fast-moving situation requiring rapid response, and we have progressively tightened precautionary measures over the past few months,” Centurion’s CEO Kong Chee Min tells The Edge Singapore. These measures include investing in more manpower and resources such as security systems and thermal scanners as well as increasing cleaning and hygiene management.
Westlite Toh Guan is one of the five workers’ dormitories under Centurion’s portfolio in Singapore, which has a total of 28,000 beds. In addition, Centurion runs another seven such facilities in Malaysia, with a total of 30,700 beds. When an eighth dormitory is completed in FY2021, another 9,800 beds will be added. Collectively, Centurion’s workers’ dormitory segment raked $86 million, or 85% of the group’s total revenue for FY2019 ended Dec 31.
For now, Singapore’s month-long ‘circuit-breaker’ measures starting April 7, as well as the on going Movement Control Order (MCO) in Malaysia have upended life through the standing down in the operations of non-essential services.
Kong is confident that the occupancy levels of the dormitories will remain stable in the near term with government support. “The guarantees provided around workers’ salaries, lodging and food during the isolation, circuit-breaker [and MCO], give us a degree of certainty. We also welcome the cushioning effect of the government’s wider support for both employers and foreign workers,” he says.
These include a waiver of foreign worker levy for April and $750 rebate for levies of work permit and S pass holders in Singapore. Meanwhile, Malaysia is giving a 25% discount on foreign worker levies due from May to December under its Prihatin Plus stimulus package.
On Feb 14 — just prior to the worsening of the outbreak — Centurion said it had won regulatory approval to redevelop the Westlite Toh Guan facility. Its lease was also given a 25-year extension from the initial September 2032 to November 2057. As a result, Knight Frank’s appraised value of this property, as at Dec 31 2019, was $284 million, an increase of $70 million. But with the outbreak, the redevelopment plans have been put on hold. Even so, the company is “cautiously selective” in considering other similar asset enhancement plans, adds Kong.
Empty student dorms
In a one-two punch, the Covid-19 has also sent jitters up student accommodation market across the world. Some 100,000 mainland Chinese students are major occupants of such facilities across Australia, the US and UK but could not return there in January after the year-end break. Many of these dormitories have since been emptied after the other international students were told to go home.
Centurion has a significant exposure to the students’ accommodation market too. It owns a portfolio of some 6,400 beds mainly in the UK, US, but also Australia, Singapore and South Korea. This segment generated $46 million, or 35% of Centurion’s revenue in FY2019.
Kong notes that there have been no reported Covid-19 cases in any of his student accommodation facilities. Occupancy has remained strong in the UK and US as students typically commit for an entire academic year – which in this instance happened prior to the imposition of the government’s measures. There were some cancellations at its Australian properties, but Kong notes a good number of students have chosen to stay put. He is looking forward to “pent-up demand” once the Covid-19 pandemic abates and students return to school.
The students’ accommodation market is a fast-growing one. Global investment in this sector more than doubled y-o-y to US$7.6 billion ($10.8billion) in 4QFY2019, according to Knight Frank. Up till the outbreak, the pace of investments did not let up. As at March 2020, the sector had already seen some US$7.8 billion in investments. This segment is slated to withstand this crisis and continue growing, says Rohit Hemnani, JLL’s chief operating officer and head of alternatives capital markets in the Asia-Pacific. “International students are attracted to mature markets such as Australia, the US and Britain for the reputable educational institutions and employment opportunities after graduation,” he says.
Mixed views
Just over a month ago, the company reported positive FY2019 numbers. Helped by the revaluation gain of Westlite Toh Guan, the company reported earnings of $103.8 million, up 23%. Earnings from core operations, attributable to Centurion’s equity holders, was $38.2 million, up 12% in the same period. Revenue, meanwhile, increased by 11% y-o-y to $133.4 million, as the company expanded capacity. As at Dec 31, Centurion’s net asset value was 70.43 cents, up from 60.34 cents as at Dec 31 2018. A final dividend of one cent per share was declared, bringing full year total to two cents — same as FY2018.
Given the developments since then, analysts are restrained in their views on this stock. “Even though Centurion is a defensive play and its recurring income provides a buffer from any earnings downside, we are uncertain of the impact of Covid-19 on the group,” RHB analyst Lee Cai Ling tells The Edge Singapore on April 7.
RHB on March 2 raised the target price on this stock from 47 cents to 49 cents, along with an 8 – 9% increase in earnings forecast. This price target remains, she says.
DBS analyst Ling Lee Keng sees pressure on both workers and students’ accommodation with the outbreak. “Wide ranging restrictions such as shutdowns and closure of borders have been implemented in the UK and Australia. While occupancies for the current semester have been locked in, we see challenges for students’ accommodation occupancies in the upcoming semester, given the sizable international population,” notes Ling.
And for the workers’ accommodations, she expects a soft domestic construction sector, coupled with the turmoil in the oil and gas sector, to chip away the segment’s resilience. Ling also expects earnings to dip 16% in FY20 and 9% in FY21. She has downgraded her previous ‘buy’ call to ‘neutral’ at a target price of 41 cents.
