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Gunning for growth
SINCE successfully diversifying into the accommodation business in 2011, Centurion Corporation has expanded aggressively beyond Singapore's borders and is gunning for further growth in new markets.
The company (formerly Singapore-Exchange-listed SM Summit Holdings) started out as a manufacturer of data storage products such as optical disks. However, as the physical media business grew challenging, it became clear to the company that it would not be a sustainable one.
Following a reverse takeover by Centurion Properties, the renamed entity entered the worker accommodation segment in 2011 with the injection of a 5,300-bed facility in Toh Guan East. Eventually, Singapore's limited size had it looking for other opportunities for growth.
"We evaluated Malaysia to be a good place as well," says Centurion chief executive officer Kong Chee Min, 53. Mr Kong has been with the group since 1996 and was appointed CEO in August 2011. Like Singapore, Malaysia was a market that relied on foreign workers too, he points out.
Having made its foray into Malaysia in 2012, it found itself facing a less-regulated market where purpose-built worker accommodation was not a familiar concept. "We need to create a niche in terms of attracting employers to put their workers in our accommodation," he says.
Centurion differentiated itself by providing value-add services, such as transportation between the dormitory and work site as well as activities for the workers outside of working hours. "Since then, we have been growing quite rapidly in Malaysia. Now, we have over 30,000 beds in Malaysia," Mr Kong adds.
But Centurion wasn't done yet. In 2013, it began mulling over entering the student accommodation sector, which it believed would deliver synergies with its worker accommodation business.
Thus, it acquired the RMIT Village in Melbourne, Australia in 2014 and that same year, scooped up some 2,000 beds in Manchester and Liverpool in the United Kingdom.
"We identified reputable educational hubs. . .where we could expand further. Purpose-built student accommodation is growing in popularity among students," Mr Kong emphasises. "Since then, we have been expanding a fair bit."
Having an office in the UK also enables its people to scour for off-market deals. Aside from Singapore, Australia and the UK, it has also expanded its student accommodation business to the United States and South Korea.
Fast forward to today, and the group has a portfolio of 31 operational assets totalling nearly 62,500 beds under brands such as Westlite and dwell. Its worker accommodation business in Singapore and Malaysia has a capacity of 26,100 and 30,300 beds respectively. The remaining 6,096 beds come from its student accommodation business in Singapore, Australia, the UK, the US and South Korea. In FY18, its overall average occupancy worked out to 95.3 per cent.
For its efforts, Centurion - which is also listed in Hong Kong - won The Enterprise Award 2018 at the Singapore Business Awards for successfully diversifying into the workers and student accommodation business to become one of Singapore's largest owner-managers. It receives about 30 per cent of its revenue from the student accommodation side and 70 per cent from worker accommodation, but sees room to grow those figures to an even 50:50 split. In particular, it is eyeing markets in Europe, such as Ireland and Germany.
In Singapore, while the government has been tightening foreign worker quotas in past years - most recently, during the Budget, the government announced that it will reduce the dependency ratio ceiling (DRC) and S Pass sub-DRC starting next year - Mr Kong remains confident that occupancy levels will hold steady, thanks to its diverse portfolio.
In Singapore and Malaysia alone, the group has over 890 customers for workers' accommodation, of which just under 5 per cent are from the services sector. About 44 per cent are from the construction industry, some 28 per cent are from the oil & gas industry and around 12 per cent are from the manufacturing industry.
The remaining clients are from industries such as engineering and marine. While oil prices have been depressed in recent years, Centurion has worked together with the Association of Process Industry and plant owners to keep its occupancy high, Mr Kong explains.
Going forward, it sees its main driver for growth to be the Centurion Student Accommodation Fund, which in December announced a first closing with total committed capital of S$70 million; Centurion is eventually aiming for a total fund size of S$100 million.
The fund aims to generate stable and recurring income to deliver a total return by investing in purpose-built student accommodation assets globally. As such, it is part of Centurion's strategy to grow in an asset-light way.
"These assets are very capital intensive. . .but we do see opportunities in the places where we are present, so we hope to take advantage of those opportunities," Mr Kong points out.
The fund will also enable Centurion to enhance returns for its investors, since it derives asset management and property management fees from the fund. This is its second fund after its inaugural private fund - the Centurion US Student Housing Fund - which closed with US$89.5 million raised, allowing it to acquire properties in the US.
With an eye on growth, Centurion is also turning to asset enhancement programmes (AEPs). For instance, it is adding 160 new beds to RMIT Village in Melbourne, with the majority of these beds completed in January this year, while the remaining beds will be completed in the second quarter of this year.
It has completed AEPs at four assets - including three others in Adelaide, South Korea and Malaysia - and will add 7,248 beds in 2019 from these.
Aside from AEPs, it is leveraging technology to provide a better experience to its end users and boost productivity. For instance, it has rolled out a mobile app for its student accommodation - which, for instance, allows the operator to update students on parcel deliveries or helps the students to flag maintenance issues - and is currently testing out an app for its worker accommodation business.
And in February, it announced a 20-year solar power purchase agreement with Sunseap Group for its joint venture dormitory at Jalan Papan.
Under the agreement, Sunseap will install a solar photovoltaic system by end June this year to help the dormitory reduce its carbon footprint by a third. Over the next two decades, this will help trim the dormitory's cost of operations by about S$200,000.
However, even as it sharpens its focus on its two accommodation businesses, it hasn't ruled out further diversification and is actively considering other businesses, such as senior living. "We have to be very forward in terms of how we look at things. The world is changing very fast," Mr Kong says.
For the fourth quarter ended Dec 31, 2018, Centurion's net profit rose to S$53.1 million from S$5.9 million a year ago, lifted by net fair valuation gains.
Revenue for the quarter under review declined 6.7 per cent to S$31.3 million on the back of the lease expiry of Westlite Tuas, which ceased operations in December 2017.
For the full fiscal year, the group saw net profit rise to S$79.3 million, up from S$31.72 million previously.