Centurion sees robust demand for worker dorms but warns rents not expected to keep rising

MAINBOARD-LISTED Centurion Corp will benefit from robust demand for worker beds, but its chief executive officer cautioned that rents “will not keep going up”.

Rental rates across the market have generally stabilised, but continue to increase with demand, CEO Kong Chee Min said in an earnings briefing on Thursday (Feb 29).

This increase is likely to be fed by the expected S$32 billion to S$38 billion in contracts to be awarded by the Building and Construction Authority from 2025 to 2028, as well as an increasing number of work permit holders in the construction, marine and process (CMP) sectors, Centurion noted. 

The briefing comes after the specialised accommodation assets operator on Wednesday posted a net profit of S$114.8 million for the six months ended Dec 31, 2023, a 198 per cent hike from S$38.5 million in the corresponding year-ago period.

The substantial increase in net profit can be attributed to a net fair-value gain on its investment properties of S$84.8 million in FY2023, up from S$19 million.

Excluding fair-value adjustments and one-off items, net profit from the group’s core business operations rose 21 per cent in FY2023 to S$69.2 million, from S$57.1 million a year ago.

Kong said the company’s rental rate reversions for purpose-built dormitories in Singapore on a whole-year basis was about 24 per cent, with higher growth in the second half of the year as leases expired.

The market range for rents is around S$450 to S$600, with Centurion “pretty much in the middle”, he said.

However, rates have generally moderated despite the demand for beds, the CEO noted.

The moderation of rates comes as the government has implemented more ways for employers in the CMP sectors – where most of Centurion’s worker dormitory business comes from – to house their workers, such as through temporary quarters in construction sites. 

That said, the company has a “good enough” pipeline of customers to ensure that if a client exits, there will be a replacement to take up the vacancy, said Kong.

Meanwhile, in line with the Ministry of Manpower’s (MOM) scheme to improve worker dormitories’ living conditions, dormitory operators will likely have to retrofit their existing offerings, which will result in fewer beds.

In Centurion’s case, the management previously guided for a 3 to 11 per cent decrease. In comparison, Kong believes the overall market will face a reduction of 15 per cent.

This lower decrease is due to some Centurion dormitories already meeting the requirements of MOM’s scheme, such as having en-suite toilets, noted Kong.

The company’s plan to redevelop some of its properties is in the works, with redevelopment at Westlite Toh Guan in progress and pending at Westlite Mandai.

Centurion is also working to rationalise its portfolio of assets under management, which currently stands at around S$2 billion – “still too small” a number, said Kong. 

“We know that size is important, so we wanted to grow the portfolio... this means (employing) an asset-light strategy,” he said.

One example of this is its sale and leaseback agreement with Kumpulan Wang Persaraan, Malaysia’s largest public-sector pension fund, for purpose-built worker accommodations Westlite Bukit Minyak and Westlite Tampoi in Malaysia.

After divesting the properties for RM227 million (S$65.2 million), it will lease back the properties from the fund for 15 years from completion of the sale.

In redeploying its capital towards its portfolio, the company therefore elected not to declare a special dividend, but instead increased its total dividend to S$0.025 per share, up from S$0.01 per share in FY2022, said Kong in response to queries about its dividend payout.

The company does not have a dividend policy, but he said that it is cognisant of the need to reward shareholders.

“If you look at our consistency in paying out dividends, the proportion in comparison with our cash flow has always been consistent, with the exception of Covid,” Kong said. 

Centurion’s shares ended Thursday down 3.4 per cent or S$0.015 at S$0.425.