Centurion remains optimistic on higher rental reversions, tight supply conditions

MAINBOARD-LISTED dormitory operator Centurion Corporation has benefited from tight supply conditions, amid a shortage of worker accommodation in Singapore.

Still, it intends to bid competitively to continue to grow its portfolio, said the group’s chief executive Kong Chee Min at a briefing on Friday (Aug 11), a day after the company announced its results for the first half ended June.

Centurion’s net profit grew 16 per cent year-on-year (y-o-y) to S$38.3 million in H1, while revenue rose 8 per cent to S$97.9 million.

Gross profit margin climbed five percentage points to 72 per cent, and net profit margin rose one percentage point to 37 per cent.

While he declined to give specific rental figures, Kong noted that the company’s rents were broadly tracking figures observed by the Ministry of Manpower.

In a parliamentary reply in July, Manpower Minister Tan See Leng said the ministry had observed a 50 per cent increase in rental rates from pre-pandemic rates in the first quarter of this year to about S$420 per worker per month.

Furthermore, Kong said, the current set of financial results are still “far from” reflecting the full potential increase in rental rates, as the company started raising rates only in October, when rates were not as high.

However, Kong said, the company continues to strike a balance between shareholder returns and doing business on a longer-term basis. He added that Centurion does not set rents at the market rate for its existing clients.

“Of course we can ask for S$500, and they have no choice but to pay, as some other operators (have done). But we don’t do that,” he said.

At the same time, he believes that clients are reasonable and will accept increases as market rates have risen.

Centurion is also optimistic that the leases on its current quick build dormitories (QBDs) will be extended as supply remains tight.

QBDs are temporary structures built during the pandemic to create additional bed space for migrant workers.

Kong said that if the government does not need to repurpose the land that the QBDs are built on, he expects that their leases to continue to be extended. The company’s QBDs are located in Kranji, Jurong and Tuas.

The company currently operates four QBDs with a total of 7,256 beds. Their leases expire between 2024 and 2025.

These dormitories account for 20.9 per cent of the total bed capacity that the company has in Singapore.

Despite the tight supply situation now, Kong said that the post-pandemic influx of foreign workers into Singapore may not be sustainable.

As at May 2023, the Manpower Ministry said that there were 434,000 foreign work permit holders in the construction, marine and process (CMP) sectors.

He also noted that the government is pushing for contractors to open Construction Temporary Quarters (CTQs), which are on-site temporary dormitories where workers can stay.

“This (foreign worker) population that they are bringing in is actually a post-pandemic syndrome because of a lot of projects are lagging,” he said.

Kong added that as the government releases more bed capacity for tender, the company will not compromise profits, even as it seeks to bid competitively for these projects.

“We are more focused on whether we are able to profit from it, rather than tender for the sake of tendering, and the risk associated (with) particularly those shorter-term leases,” he said.

Aside from new project tenders in the CMP sectors, Centurion is also looking to diversify its clientele even further.

For instance, it is in the process of understanding the specifications for the new hostel-like accommodations that the Ministry of Health and MOH Holdings announced on Monday.

The accommodations are meant to house foreign healthcare workers, and are expected to house a total of 1,800 workers.

Work on the facilities is expected to start at the end of this year, and be progressively ready from the second quarter of 2024.

Chief operating officer Kelvin Teo said: “It is a very different set of (specifications) – between workers and student co-living – so it’s a good (project) that we want to add on to our portfolio.”

Shares of Centurion closed down 2.2 per cent, or S$0.01, to S$0.44 on Friday.