Year 2018 AGM's Q&A
Q : Can you explain more about the Centurion US Student Housing Fund, and moving forward, what sort of value can we expect from the fund?
A : Centurion has been growing its workers and student accommodation businesses over the past few years. Like any other companies, Centurion has finite capital resources and there are only so many assets we can acquire based on our balance sheet. In line with our strategy to build our Westlite and Dwell brand, we are moving into the fund management business and co-investing with like-minded investors, which will allow Centurion to sustainably grow its portfolio. The Centurion US Student Housing Fund is the first fund management portfolio we have built in the US, at a total purchase consideration of USD206 million. Centurion own approximately 28.74% of the fund. Additionally, we also receive property management fees as another source of revenue.
Q : Do you see potential in any other countries apart from the US?
A : Our student accommodation business started in Australia. Later, we acquired our student accommodation assets in the UK before expanding to the US. Our business strategy for the student accommodation business has ensured that we now have a presence in the world’s top 3 education markets. We will continue to study various geographies such as Europe and will explore markets selectively when the opportunity arises, as part of the company’s strategy to grow the business and attain further diversification of its earning base.
Q : What about emerging economies?
A : When it comes to emerging economies, we need to prioritise our capital resources and invest them in markets that can help us achieve stable and sustainable growth. Most of our student accommodation assets are located near tier 1 and 2 universities, and the consistently strong demand by international students to study at these institutions will allow our assets to achieve stable long-term revenue and rental growth.
Q : What about workers accommodation in emerging economies?
A : Centurion has 14 purpose-built workers accommodation assets in Singapore and Malaysia. We are always interested in expanding into other countries. When we evaluate prospective opportunities, it is important to look at the regulatory framework on labour in each country. For example, if a market lacks legislation that requires workers to live in PBWA, workers will be free to choose where they want to live and it reduces our ability to compete in the PBWA market. We are starting to see the Malaysia government introduce policies incrementally to improve the housing standards of foreign workers in the country. Centurion will be able to leverage on our track record and holistic management capabilities to meet the demands for purpose-built workers accommodation in existing and new markets.
Q : Are you satisfied with the performance of the dual-listing in Hong Kong?
A : Centurion dual primary listed on SEHK in December 2017, and we feel that it is too early to assess the performance of the listing. A key consideration in our decision to list on SEHK was the fact that we could tap into a wider pool of investors. Hong Kong investors are also savvier when it comes to the real estate business, so the listing also creates opportunities for us to collaborate with like-minded partners in Hong Kong and China. These are some of the more intangible benefits that are often not reflected in the share price and volume in Hong Kong. At the same time, we are also stepping up on our engagement with the media, analysts and investors in Hong Kong to create more interest in the company. At a glance, it is often quite hard to discern the positive benefits of share prices and volume, but we believe that our long-term strategy will put us in good standing for the future.
Q : How many % of shareholders are from Hong Kong?
A : Approximately 18% of our share capital is in Hong Kong.
Q : What factors do Centurion consider when charting its growth?
A : Centurion will review and assess political, macro and micro economic risks and factors when charting its growth strategy. Among the myriad of factors, we consider resource constraints to be a particularly challenging issue. An asset light strategy is important for the company’s expansion plans as it allows us to leverage on investors’ funds to grow and move into the management business.
Q : I noticed that for all dorms and student accommodation, the gross yield is 13.1% and rental yield 8.4%. Does the company have any thoughts on listing as a REIT or selling the assets off and running it as an operator? Would this count as part of your asset light strategy?
A : We are consistently reviewing corporate capital market strategies, and this is one of the possibilities we will explore.
Q : Could you tell me more about how the Centurion US Student Fund operates and contributes back to the company?
A : In terms of the Fund’s contribution, there are two elements. First, as the sponsor of the Fund, we have a 28.7% stake and this provides us with dividend income. Second, as this is an investment fund, we can also receive investment and property management income as well.
Q : I understand that the company is expanding rapidly. However, the cash and debt level is concerning, and with interest rates rising, how do you intend to manage that?
A : Operating student and workers accommodation and owning the real estate is capital intensive, so it is important that our levels of funding are at a healthy level. Our loan to asset ratios currently stands at 51%, a reduction compared to 55% as at 31 December 2016. Our net gearing ratio or net debt over equity ratio level is at 1.2x, which is well below the level of 1.5x, a figure common to most real estate companies. Our healthy operating margins and rental growth will allow us to cushion the impact of increasing interest rates.
With regards to refinancing risk, we have a long debt maturity profile of 10 years, so this will mitigate any concerns over increasing interest rates.
Q : How do you manage the CD production business? Has it been sold off?
A : For the last 7 years, we have been divesting and selling off our assets in the CD production business. We now only have 1 small optical disc factory in Singapore to cater to the local demand, as well as exporting overseas. The demand for optical discs has been declining steadily over the years. To remain profitable, we manage operating costs closely and scale the capacity to match the demand. As long as the production facility remain profitable or generate positive cashflow, we are happy to leave it as it is.
Q : Why is there an increase in director fees?
A : The addition of a new independent director, Mr Owi, has resulted in an increase in director fees.
Q : Do you do a benchmark of director fees to other companies with similar turnover?
A : Yes, once every 2 years, we get a consultant to ensure that the directors’ fees remain in line with the market.
Q : Do you follow a scale for the board’s fees?
A : Yes, we follow the consultant’s guidelines when it comes to determining the board’s fees. We believe the directors’ fees are in line with the industry benchmark.
Year 2017 EGM's Q&A
Q : What is the rationale behind the Hong Kong listing?
A : Centurion has become more international and global, with businesses in Singapore, Malaysia, Australia, the UK, and most recently, we announced plans for expansion into the US. Hong Kong Exchange, being the 3rd largest stock exchange in Asia, has deeper investor base, higher trading liquidity and the presence of more international fund managers and institutional investors. The listing on The Hong Kong Stock Exchange Limited (“SEHK”) would also facilitate investment by investors based in Hong Kong and the People’s Republic of China (“PRC”).
Q :Are you expecting higher valuation in Hong Kong?
A : We hope so, given its deeper investor base and greater interest among investors in Hong Kong.
Q : Have you studied your shareholder base to see if a majority or substantial number of your shareholders are from Hong Kong?
A : Currently, most of our investors are Singapore-based or Singaporeans. The dual primary listing in Hong Kong will allow us to reach out to fund managers, institutions and retail investors in Hong Kong. Existing shareholders will also be permitted to transfer their shares listed on the Singapore Exchange Securities Trading Limited (“SGX-ST”) to the SEHK for trading in Hong Kong as well. With the dual primary listing in Hong Kong, we hope to target the international investors, especially those who recognise that Centurion is now a global player.
Q : Do you have any dormitories or properties in Hong Kong?
A : No, we have no assets in Hong Kong at this point in time.
Q : We have seen some successful case studies where companies listed in Singapore have a dual listing in Hong Kong and attain higher valuations. The similarity among most of these companies is that they had prior operations and a consumer base in China or Hong Kong, whereas Centurion does not.
While I concur with the management in getting a deeper valuation and investor base, how are you intending to engage the retail and institutional investors in Hong Kong and China, in terms of supporting your listing there?
A : While we do not have assets in China and Hong Kong, many of the international students who stay in our student accommodation assets are from China. We do have an office in China, where we work with local consultants to provide service and help the PRC students who are planning to further their studies overseas.
There also remains a possibility in the future that we may have a student accommodation asset in China for students that study in universities in China or a workers accommodation to serve the Chinese manufacturing hubs.
Q : Given that the proposed placement is quite small, how will Centurion benefit, in terms of liquidity, from this Hong Kong listing?
A : The size of the proposed share placement is small so as to avoid unnecessary dilution to existing shareholders given the current share price. The small placement is to create initial liquidity in SEHK upon listing.
In addition, our existing shareholders are able to transfer their shares from the SGX-ST to the SEHK, which will help to increase market liquidity in SEHK.
Q : It is stated that the share price will not be more than 20% discount, but what is the share price going to be?
A : The share price is subject to market conditions, and it is not something that we can control. We will have to discuss with our underwriters and placement managers, and are unable to provide a number at the moment.
Q : What is your plan post-listing?
A : We will continue to grow, as we have recently announced our plans to expand into the US, with the proposed acquisitions of six student accommodation assets. We will also continue to actively grow our accommodation business, by looking for more accommodation assets.
Besides asset acquisition, we have also announced our plan to partner with other investors, and take more of a management role in managing third-party accommodation assets. As with our planned US acquisitions, we plan to only take up to 30% stake.
We will leverage on our expertise in accommodation management to grow our management services offering.
Q : What is the revenue expansion that you are looking at in the next three to five years?
A : We will not be able to comment on or provide any such projections. We are continuously looking at opportunities and ways to optimise our capital and continue our expansion plans through an asset-light approach, such as through joint ventures and managing other investors’ money and assets.
Q : If you keep on expanding, how are you going to fund it?
A : There are various ways we are looking to expand, and we have announced some of them. In the case of the proposed US acquisitions, we will partner with third party investors and take a smaller stake of between 20% to 30% of the asset. The dual primary listing in Hong Kong will also allow us to gain access to capital market with a deeper investor base, to raise capital to fund our expansion where necessary. The capital market as well as the debt market are options available to us to raise additional funds, if required.
Q : What can shareholders expect in dividends in the next three to five years?
A : We do not have a fixed dividend policy. We would like to maintain some flexibility to balance between dividend payout and the growth of the company.
With that in mind, we will do our best to have a consistent dividend payout based on what we have been paying historically.
Q : In terms of the Hong Kong Stock Exchange, who are your biggest competitors?
A : We do not have a direct competitor listed on Hong Kong Exchange. While there are some listed companies that have invested in student accommodation, none of those listed in Hong Kong, or even Singapore, owns, operates and manages student and workers accommodation in the scale and way we have.
Q : After raising new capital in Hong Kong, is there a particular debt-to-equity ratio that Centurion is hoping to maintain? The current debt structure is rather spread out over the next five years.
A : Under our medium term note programme, we have financial indebtedness, debt covenants and debt ratio that we have to adhere to. Our Independent Directors and Audit Committee are also mindful of the risks involved and review risks like debt and currency exposure every quarter.
Q : Three years ago till now, Centurion has since grown from strength to strength, is there a particular role model that Centurion is following?
A : We have no particular role model to follow. In terms of competitors, we have no exact or similar companies to compare with. We do learn from companies in the similar industry as well as hotel operators, service apartment operators, as well as best practices in the market on what we can offer. We also study REITs and other real estate players.
Q : You recently raised some bonds in Singapore, are you going to do the same thing in Hong Kong? And how does one subscribe to such bonds?
A : At the moment, we do not have any plans to issue any bonds in Hong Kong. Our current SGD bonds are more for issuance in Singapore, where we get DBS or any other banks to issue and distribute our bonds, using their established distribution channels to their targeted customer base. It is not a public offer, thus it will not be available for subscription by the public.
Q : How will future AGMs be conducted? Will it be held in Singapore or Hong Kong, with videoconference?
A : We are still exploring this and will discuss with the professionals in due course. At the moment, we still plan to hold our AGM in Singapore as we are largely Singapore-based. One of the key factors we will need to look at in the future is where the majority of our shareholder base is going to be. If there is a major shift, we will definitely explore videoconferencing, and similar ways of engaging shareholders.
Q : Will the listing be in Hong Kong dollar?
A : It will be in Hong Kong dollar. But in Singapore, it will remain in Singapore dollar.
Q : If we want to transfer our shares from Singapore to Hong Kong, how would we go about doing so?
A : There is a process where the shares need to be withdrawn from the Central Depository (CDP) and transfered to Hong Kong. To do so, you could contact your broker and they will manage and transfer the shares over for you. We will send out letters to our shareholders to explain the process in due course.
Q : Briefly, what are the key changes to the Constitution?
A : The existing Constitution makes references only to the CDP, as that is the depository to trade shares in Singapore. With our plans to list in Hong Kong, we have to amend such specifics to allow trading and reference to the Stock Exchange of Hong Kong and its Listing Rules. For example, under the Hong Kong Listing Rules, it does not allow for treasury shares, hence the Constitution has to address that.
Q : How about Singapore legislation?
A : The proposed New Constitution have also incorporated amendments to bring the Company’s Constitution up-to-date, in line with Singapore legislation and the SGX-ST listing rules.
Year 2017 AGM's Q&A
Q : The Annual Report stated that the Ministry of National Development (“MND”) is granting a nine-month extension of the lease at Westlite Tuas, which is expiring on 29 April 2017. MND had also stated that the Group will have to work with the Building and Construction Authority to extend the lease, which was originally for nine years.
According to the Annual Report, Westlite Tuas is currently at full occupancy. Are we assured there we will be a renewal of the lease? If the lease is renewed, will it cost the Group a lot of money? What happens if it is not renewed?
A : If there is no renewal, the workers will have to be shifted out of the accommodation. There will be available space in the market to absorb the workers.
At the moment, we can only be certain of the nine months renewal, which is the only extension given to us at this point. We cannot tell if it will be renewed again at the end of the nine months and we will have to revisit the process and discuss with the authorities again when the time comes.
We will work with the relevant authorities on the current renewal, and it will not cost a significant amount of money for the extension.
Q :What is the book value of Westlite Tuas at the moment?
A : It’s near to zero. We were basically amortising the cost till 30 April this year. Given that we have written down the asset all the way to zero upon its expiry, there is no further cost.
Q : If we are unable to renew the lease in nine months’ time, at nearly full capacity, and cannot relocate residents to our other assets, given that the other assets are operating at full, or close to full, occupancy, are we going to lose a lot of revenue?
A : Yes, without the extension, Westlite Tuas will not be able to contribute to the Group’s earnings. However, we have considered this when we acquired it. We knew that it was on a short-term lease that would expire in nine years. Hence, we have amortised our costs over the nine years. The positive way we look at it is that any extension we get from the expiry of the original lease will be a bonus.
Q : May I ask what is the approximate revenue contribution from this accommodation for FY2016?
A : It is about S$24 million. We want to assure shareholders that where the Group concerned, this has been planned for since its acquisition. We have also explained at previous AGMs that this was on short-term lease, and there was no certainty of renewal. We view any renewal as a bonus, but we are also aware that without further renewals, the revenue and profitability would decline.
Keeping this in mind, we have incorporated some organic growth along the way. Since then, we have opened two more new dormitories, Westlite Woodlands and ASPRI-Westlite Papan, both with healthy occupancy rates. Given the performance of both assets, they actually offset against the potential loss of revenue, should Westlite Tuas not be renewed further.
Q : Regarding Westlite Toh Guan, it had reported a bed capacity of 8,600 beds in FY2015. In an announcement that was released by Centurion on 4 November 2016, it refers to another announcement on 15 August 2016, stating that the Company intends to appeal against the rejection by the URA of its earlier appeal to maintain that level of beds.
The announcements suggest that you have to reduce its bed capacity by about 10%. Can I ask what has happened and how it would be possible that if you got the approval for 7,800 beds, 8,600 beds were built instead?
A : The issue that arose was not from the overbuilding of the accommodation, but discrepancies in the basis of computation of living space per worker. To provide some context, the Singapore Government, in the last few years, has been trying to improve the welfare of foreign workers in Singapore. As such, they have periodically updated the living space per worker in workers accommodation.
During the Foreign Employee Dormitories Act (“FEDA”) licensing application process for Westlite Toh Guan, it was brought to the Group’s attention that there was a difference in the basis of computation between the actual bed capacity of 8,628 and the bed capacity of 7,820 documented in the architect’s plans, which were attached to the Written Permission (“WP”) granted by the Urban Redevelopment Authority (“URA”) back in 2011 when the Group had undertaken an asset enhancement initiative (“AEI”).
Following a few rounds of appeal to regularise the bed capacity in Westlite Toh Guan, the authorities stated that they could not adjust the matter retrospectively and had to adhere to the current allowed living space per worker guidelines. Therefore, we had to reduce the bed capacity of Westlite Toh Guan to approximately 7,800 beds.
Q : Does that mean we have to build physical barriers to block off the beds that are not allowed?
A : Not at all, the whole building is fine. The only change was to spread out the workers to the approved living space per worker.
Q : There was a fair value loss of S$32 million in your workers accommodation business, how much was due to the write down of Westlite Toh Guan?
A : The write down of the valuation of Westlite Toh Guan is approximately S$30 million. We have stated in our Annual Report that the fair valuation loss has been written down and reflected in the 2016 financial numbers.
We want to assure you that despite the fair valuation losses, and taking into account the write down, our net asset value per share is still at 53 cents, which is about the same number as FY2015.
Q : But is that not because you had gains from your student accommodation business?
A : Yes, but with the offset, we would like to assure our shareholders that our balance sheet is still very sound.
Q : I have concerns regarding the optical disc business, your residual business as a result of the reverse takeover. It is still mentioned in the report, what do we have left in Singapore?
A : We have closed our facilities in Australia and Indonesia. In Singapore, we still have a manufacturing facility for the optical disc business. It is very small, but the business is still cash flow positive. While we are taking steps to wind down the business, as we have done in Australia and Indonesia, as long as it remains cash flow positive, we are in no hurry to wind it down.
Q : Looking at the trend of sale, it was S$7 million in 2014, S$5 million in 2015, and S$2 million in 2016. You say it’s cash flow positive, but looking at the segment results, it shows a loss of S$164,000, where Net Profit After Tax is negative S$134,000, and it has segment assets of S$7.8 million, and net assets of S$6.4 million. Wouldn’t it be better to get rid of it, and try to realise some value from the assets, as they are generating a loss in the Group’s consolidated account?
A : While Net Profit After Tax is at a loss, after adding back depreciation, it is a cash flow positive business. The S$6.4 million of net assets comes from real estate associated with our Optical Disc Business in Indonesia and China, which we are trying to sell at an appropriate time, and not from the specialised equipment required in optical disc manufacturing. The only operational part of the optical disc business is a small facility in Singapore, which remains cash flow positive and we will wind down in time, but not immediately as it is not beneficial to the shareholders.
In our efforts to realise value, we have tried to divest it as well, but as the industry is on the downward trend, the value of disposing it is not financially attractive. The reason to continue the business is not a sentimental one. We do agree that this business should be closed, and we are doing it in phases. The businesses in Australia, China and Indonesia have been shut, the Singapore operations have slowed down, and the properties associated with the manufacturing of the optical disc have been put up for sale.
Q : Given that the business is so small, what’s the timeline for getting rid of the optical disc business?
A : We agree that it is a small segment in our business, but getting rid of a business takes time and we have to be strategic about it. For example, if you want to sell a specialised machine, you will take a big hit as it is still capable of still producing value and there is also no buyer in the market at the moment. As long as the machine is still cashflow positive and generating money for us, we will just let it run till it hits zero and shut the business then.
Q : How many employees are still employed in this business?
A : Including the factory workers, there are about 30 employees.
Q : Morning everyone, my focus is more on strategy, in the sense of what the Group planning to do. I want to first compliment you because overall it was a good performance. I liked the presentation of net profit and EBITDA without the one-offs. Often, one-offs cloud the picture of how the Group actually is performing at its core business. The write down of Westlite Toh Guan is unfortunate, but at the core business, the Group is doing well.
Referring to the revenue presented in the 2017 Annual Report under segment information (pg 147), I would like to provide some quick analysis. Comparing workers accommodation to student accommodation businesses, on which is more lucrative and gives better returns, my own analysis is that the workers accommodation business has smaller margins at S$48 million against S$85 million segment sales, whereas the student accommodation business, out of S$32 million in segment sales, the returns were about S$12 million. It seems like the student accommodation gives you a higher margin. Is this correct?
On purchasing, the student accommodation assets seem to cost you more (given the number of assets), with investments in these assets at S$300 million, whereas workers are at S$670 million. Is it correct that the margins for students are better on the revenue side, but the capital investments is higher?
A : The margins for the workers accommodations are higher. As for asset value, it is not possible to do an overall comparison at the moment as ASPRI-Westlite Papan only achieved TOP last May, and hence is operating at a slight loss in its initial setup phase. On a more positive note, ASPRI-Westlite Papan has reached 75% occupancy as at year end 2016, and it is still growing. We are quite sure that it will perform very well for the rest of next year.
Q : Going forward, we see more players entering into the student accommodation business, and some, such as Temasek, with big acquisitions. Centurion is a relatively small company so what is the Group’s strategy going forward, which markets are you looking to expand into? How much can your balance sheet take, and are you confident of holding your own against big players coming into student and workers accommodation sectors?
A : We are aware of the new entrants into the student accommodation sector, and their size relative to us as a company. There are things we are doing to try overcome this.
We agree that we are very small compared to the likes of GIC and Mapletree. However, we can play to our strengths as a smaller company. For instance, such players look to build a huge portfolio, which are things we cannot afford, but we are smaller and more nimble. We see opportunities in the market, some things that these big players may not want to look at.
Another advantage we have to differentiate from these bigger players is that they are financial investors, and are more focused on the yield of assets. For us, it is slightly different, leveraging on our real estate and developer background, we enter an asset with the focus and know-how required to redevelop and enhance it, which may not the main plan of many big players or financial investors.
They also rely on third-party management, whereas we have moved on to managing on our own assets. This way, we save on management fees, and it allows for our returns to be even better. These are just some things we are doing to differentiate from the bigger players.
On the point of our balance sheet, we announced in February 2017 that we launched our new brand – dwell Student Living. With this, we want to show that we are not just another student hostel, we want to be a chain, a recognised brand name, as well as a management company. Perhaps we will not be able to constantly acquire new assets, but we will be able to manage existing ones, at a fee.
Q : Does this mean you are in the business of third-party management of other people’s assets, using your brand? Is this the plan to go asset light?
A : An asset light strategy is one that we are looking to explore with dwell. For instance, we can find other industry players with assets and manage it for them. This would see us working with the bigger players through managing their assets, as we put together a sizable war chest, allowing us to buy a small stake, but manage the entire portfolio.
Q : Another concern is of your residents not behaving in an appropriate manner and attracting bad publicity? In the case of both workers and students, where you take in large numbers, they may be exposed in the media for wrong doing in the accommodation. This could damage your brand, or cause the authorities to think twice about the licensing. While such issues have not come up, do you pre-empt these things with rules and regulations, or carry out policing measures to avoid potential issues?
A : We have a dedicated team who are doing their job very well. The potential for issues to arise is something we have always been concerned about because we house thousands of workers in any of our accommodation, and anything small could trigger into something significant. There may be racial or religious issues that crop up.
There are various things we do to prepare ourselves and guard against such threats. For example, we carry out desktop and actual exercises among our management team, so that if something happens, we are aware of our roles and what actions to take. There is a constant inculcation of processes.
We have also taken on a full-time director of security. He thinks through potential crises and issues, looking inwardly and outwardly.
Within the accommodation, we also promote community life among the residents. Our view is that if you can live together, and do things together, then when certain things happen within, your tendency to act adversely will be lower due to the familiar bonds you have built.
We also carry out alcohol checks, and residents are not allowed to consume alcohol within the accommodation grounds. If they want to drink alcohol, they have to do so outside the accommodation or at the food court.
On security matters, there are various things we do to a larger extent for our worker residents than our student residents, given that students tend to be younger and are more well-travelled or international in their outlook. However, what they do inside their rooms, such as watching less-than-desirable materials, that is something out of our control.
Q : Have you ever had cases of fires or security threats or other incidents that have drawn negative publicity?
A : No. From time to time, there are misunderstandings and tussles that may occur, but they do not escalate or get out of hand.
Q : Morning Mr Chairman, I would like to congratulate you on a job well-done last year. Looking at the Annual Report, I would like to say that you have the foresight, especially in establishing your presence in Penang. This reinforces my belief that Penang is an up-and-coming market, are there plans for further expansion in Penang?
A : Our expansion to Penang was derived from the confidence we had from starting in Johor. Currently based on Centurion’s estimates, Penang has roughly about 200,000 workers in the manufacturing sector, so if the planning of our second plot of land is approved, we would have a total bed capacity of approximately 12,000 beds in the state. There will still be capacity for us to grow the business.
Q : In my opinion, I have more confidence in having the business in Penang than in Johor. Moving on, you have a very strong presence in the United Kingdom (“UK”), I concerned with the current political situation. Can you enlighten us on what can we expect from the political turmoil in the country and any problems you think we will encounter going forward?
A : Our business in the UK is our purpose-built student accommodation (“PBSA”) business. In my view, the UK will remain a key education centre for a very long time come. As it stands, many key universities are there, and so far the unhappiness among countries falls on trade and immigration. We do not see education being affected in any significant way. Most of the students in our accommodations are, either intra-UK or international students, who hail from Singapore, Malaysia, China, amongst others. The total intake of students from the other parts of Europe into UK universities, is actually very small, only at about 6% of the total student population.
Even so, given the strategic location of our assets, we have been operating at close to 100% and there are queues for our accommodation. Hence, in the near- to medium-term, we do not foresee any negative impact in terms for demand for the student accommodation sector.
Our main concern in this segment is the Sterling pound, which impacts us in earnings when converted back to the Singapore dollar. We have taken steps to manage this, as we are naturally hedged to a large extent. When we buy assets in the UK, we will borrow as much as we can in Sterling pound.
Q : You are also present in Australia, which is also a “sweet spot.” Have you ever considered of going to Perth as well, instead of just Melbourne? I believe Melbourne is quite saturated already.
A : We’ve been in Melbourne since 2014 with our first asset. We wanted to expand in Australia for a while, but there were limited opportunities, in terms of available existing assets for sale. We have just announced a second asset in Adelaide for a 280-bed, new-build student accommodation, 200 metres from the University of Adelaide and the University of South Australia, which have a population of about 60,000 students between the two of them.
We have actually been studying Perth quite a bit, between the University of Western Australia, Curtin University and Murdoch University. The city also has a big student population, and Singaporeans are more familiar as many send their children there and have a close association. The challenge that we face in Perth is the lack of available sites, and those that are, are mainly in the city centre. From our research, we are quite conscious about the workability of the city centre student accommodation. This is because our most important criteria in selecting the site is the proximity to the University and the city centre is at least 15-20 minutes from the universities, even the closest, University of Western Australia, by train or car, is about 10 minutes.
As we continue on the lookout for opportunities, we will remain selective in our investments in Australia. For Melbourne, while the city’s PBSA is getting slightly more saturated, our location continues to do very well. Sydney is one place we would like to go to, but nothing is up for sale, and when there are options, the price is usually very expensive. Adelaide is a good start for us, it’s an up and coming city in terms of student accommodation. Brisbane, frankly, is oversaturated, we have studied it extensively, and chose to stay away.
Q : My last question is regarding the assets in Johor. I am not too optimistic about the prospects in Johor. Does the Group have the first-mover advantage in Johor?
A : Yes, we have the first-mover advantage in Johor. At the moment, we have about six assets in Johor comprising about 23,700 beds, and our current strategy in Johor is to provide for employees of multinational corporations.
In Johor, we are the only ones who provide a complete solution to our clients in housing workers. Other than providing them with accommodation, we help manage their workers after working hours, we take care of their discipline and behaviour and have staff on-the-ground to make decisions to send residents to a nearby clinic/hospital for further medical consultation when they are not feeling well.
Currently, there are a small handful of companies who do similar things as us, where in total, they have only about 3,000 beds. Given our advantage in Johor’s workers accommodation, we will be able to replicate it as an advantage in Penang, as many of the clients from Johor have businesses that require workers accommodations in Penang as well. This will help us in filling up the beds when we go to Penang, or if we decide to expand further in the future, into states like KL, Shah Alam, etc
Q : In Malaysia, there are reports of ports being built in Malacca and Kuantan. Are there plans to build any assets catering to those working at the ports?
A : We always keep on the lookout for new opportunities. In Malaysia, the segment that we have chose to target are the foreign workers from the manufacturing industry. As for Malacca, we will wait and see how that develops, such as the building of roads and the like, housing requirements for non-manufacturing workers are also slightly different. That may not be where we want to go. However, should the ports draw in more oil and gas, or shipyard workers, where the employers are prepared to pay more for rental, then it will be something that we are willing to explore.
Q : Morning to the chairman and CEO. I have one question, regarding the REIT listing that you mentioned a few years ago, what is that status on that? Are you still going to look at this as an option to unlock the value of the properties? What is the minimum requirement set by the local authorities to go for the REIT listing?
A : While we did try to go for a REIT listing for our workers accommodation assets in Singapore, the Singapore Stock Exchange stated that it would amount to a chain listing in Singapore, and hence did not allow it.
The authorities felt that the assets comprised a very large part of the listed company and thus effectively, investors would appear to be trading in a similar business or entity. We have thus put that project on hold, and are looking to different ways in enhancing shareholder value. The REIT process is something that we can only revisit at later stage, after further discussion with the stock exchange, and after the size of our relative businesses change.
The issue is not with a minimum value, as we meet all requirements to list our properties in the SGX as a REIT. The issue is that Centurion Corporation is already listed, and the SGX viewed that trying to list another company under Centurion Corporation, with both deriving significantly from a similar business or income, was deemed as a chain listing.
Q : In terms of asset enhancement initiatives, despite RMIT Village being situated on a relatively small plot of land, you have managed to carry out an enhancement, but what about your other assets with on larger plots of land? Are you allowed to enhance the other plots of land? E.g. dwell Cathedral Campus has 16,000 sqm with only 384 beds
A : Let me assure you that for every asset that we buy, we assess it critically on possible developments, rather than just on the asset at that point in time. RMIT Village comprises not just the student accommodation block, but also a block that has a café on one side, and an approximately 2,000 sqm carpark on the other. The guidelines in Melbourne have changed and the city is moving outwards from the central towards the North side. Hence, we spoke with the local authorities and, through a long process, we received approval to develop a new wing on the land where the existing café is located. As next steps, we are planning to develop the carpark.
As for dwell Cathedral Campus at Liverpool, it is part of a church, which is a historical building, and there are certain guidelines (heritage considerations, conservational efforts, height) that currently limit our ability to redevelop or add on significantly more. In such instances where we cannot add beds to the existing land, we look within the available capacity to evaluate how we can best maximise the value of each bed.
Year 2016 AGM's Q&A
Q : The vision of the company is to be one of Asia's leading providers of quality accommodation, but it seems your business has grown beyond Asia to the UK and Australia. It is necessary to change your vision. In addition, being "one of Asia's leading providers" is not clear enough, will this be amended?
My second question is, what is the company's planning process prior to investments in student accommodation in Singapore and overseas?
A : Your comment on our vision is correct. We currently believe that our student accommodation business in the UK and Australia is still relatively small, but our ambitions are big. We will amend our vision when appropriate.
In relation to your second question, in terms of strategic planning, we have identified student accommodation as a future growth area. The planning process includes internal assessment of our capabilities and strengths and carrying out studies on the new business and markets that offer growth potential. To identify targets and opportunities, we have a business development team on the ground to analyze data on specific markets, evaluate the potential targets, and compare them with other opportunities available in the market. We have also set certain investment guidelines and criteria to evaluate the opportunities. This includes reviewing investment yields and returns, before proposing to the Board for approval.
Q : As a follow-up question, are the studies carried out in-house or do you engage professionals to assist you? If the studies are done in-house, which directors have the necessary background or qualifications to carry out the studies? Workers accommodation is currently your core business, and you are highly geared and are investing very heavily in this business – the company has to consider very seriously where you put the money.
A : We engage third party professionals to assist us as and when required. The current management team also has the required knowledge in carrying out investment studies and making recommendations. For example, Kelvin Teo has about 30 years of extensive industry knowledge, know-how and expertise in the workers accommodation industry.
As we grew, we explored opportunities to introduce an additional asset class – student accommodation – which is complementary to our existing workers accommodation business. We also have other experienced senior management, who have real estate experience and have since equipped themselves with the requisite knowledge on the student accommodation business, after having researched and operated the business over the last few years.
We were also careful in the earlier stages of our entry into the student accommodation business. In markets where we were making our first acquisition, we retained or employed external managers where possible so that we could learn from them.
Q : Which directors have the necessary background in the student accommodation business? Should we engage one with the necessary background to help the company?
A : First, let me assure you that the process of evaluating each potential acquisition is a rigorous one. When we first started our student accommodation business, we moved slowly as we were still learning more about the industry. Over the years, the directors have gained a lot of knowledge and experience in this space. We also have a team of staff and managers based in both the UK and Australia who are familiar with the local business landscape.
As directors, we consider investments from different perspectives. For example, Mr Gn Hiang Meng has extensive experience in investment banking and looks at investments from an investment banking standpoint. Mr Chandra Mohan is a lawyer by training and provides viewpoints from a legal perspective. Our controlling shareholders, Mr Han Seng Juan and Mr David Loh, bring with them strong business acumen gathered from their years of experience in various types of businesses.
Our investment evaluation is a comprehensive process, and a number of factors are considered before we make the final investment decisions. A proposal is submitted to the Board after a very rigorous study by the management and the teams on the ground. The Board looks at each proposal and, very often, requests for further studies to be carried out, when necessary.
Q : I congratulate the company on its performance last year. Could we have better dividends if the company does better next year? With regards to your Singapore dormitories, there is a concern you are expanding too fast in light of the current economic situation. Do you have a contingency plan in the event the government restricts the hiring of more foreign workers? What will you do with the empty dorms?
A :Thank you for your comments and compliments. We do not have a fixed dividend policy as we believe the company is still young and growing, hence, we want some flexibility to manage the company's cash and growth needs. We remain mindful of shareholders' needs.
We agree that the local economy is challenging. We see headwinds with the policy direction of our government to reduce the number of foreign workers, and the falling oil price which has affected the marine and oil and gas industries.
However, looking at the current foreign worker accommodation landscape, there is still a gap between purpose-built dormitories (PBDs) beds and the foreign workers population in Singapore. PBDs are built with the intention to properly house the workers and we believe a sizable number of foreign workers currently residing in factory-converted dormitories (FCDs) will move to PBDs. FCDs were created 15 years ago to manage the shortage of PBDs when the government decided to house all blue collar workers in approved dormitories. FCDs are a temporary measure and their licenses are renewed either on a yearly or on a maximum 3-year basis.
The government's preference is to house foreign workers properly and FCDs usually lack many amenities that are found in PBDs. Singapore will have a total of about 260,000 PBD beds by the end of this year. Out of this number, about 50-60% of them belong to the Building and Construction Authority (BCA) and are on a short term lease of between six and nine years. A number of these short-term PBDs have leases that are due to expire in 2016 and 2017, and we believe some leases may not be renewed based on the locations of these PBDs.
This supply gap of PBDs helps to balance out the government's efforts to reduce the number of foreign workers.
Q : The company is expanding aggressively in Johor. My concern is over-expansion, especially given the depreciation of the Ringgit against the Singapore dollar. Can you comment on your Johor projects? Do you conduct any hedging?
A : When we entered the workers accommodation business in Johor, we targeted the manufacturing workers, and we found in our study that there were over 400,000 workers in the manufacturing industry alone. Presently, our total number of beds in Johor, including the latest asset completed in Senai, is under 30,000 which is less than 10% of the manufacturing workers in Johor.
We have a natural currency hedge where we borrow in the local currency for the local investments. Hence, we have not been significantly impacted by the depreciation of the Malaysian Ringgit.
Q : Centurion is not the only dormitory player in the market, so how confident are you to absorb the surplus of dormitory beds in the market? Can you also comment on Westlite Woodlands' efforts in ramping up its occupancy?
A : Westlite Woodlands is currently operating at above 70% occupancy rate. We had originally looked at a six-month ramping up period but now it will take slightly longer due to the market conditions. However, we are confident that we can achieve our 80-90% target occupancy rate by the end of this year.
We constantly look at ways to stay competitive. We are exploring to provide upstream and downstream services for up to 8,000 to 9,000 workers. This ranges from workers data management to providing transport services for workers to their work sites. We are constantly exploring new things to ensure we differentiate ourselves from our competitors.
Q : Could you please share how long we need to wait to see results?
A : As mentioned at last year's AGM, we expected a supply of 100,000 new beds entering the market and in fact a number of new PBD beds have come into the market in 2015. Despite the increase in new PBDs, there was minimal negative impact on our business.
We are unable to comment on the occupancy rates of these new dormitories that have come into the market, our customer retention rates have remained high despite our rental rates being higher than the market average and our dormitories continue to operate at occupancy rates of over 90%, if not 100%. The results show that Westlite is doing something that is right and different from its competitors.
Additionally, there is a push from the government to move the workers housed in FCDs or "illegal" accommodations into PBDs. Given that land is scarce, we believe the Singapore government will not just release land and leave PBDs vacant. There are still many projects which require foreign workers, especially in the construction sector where there are several infrastructure projects. The latest statistics published by the Ministry of Manpower show that the foreign worker population has not dipped.
Q : The land tenure of CSL Selegie is so short, which means renovation costs should be quite a lot and you have to keep renewing the lease. Why did you take up an asset with such a short tenure?
A : Our student accommodation asset in Singapore is very small and the investment is not significant. It has a short-term lease of 3+3+2, or 8 years. Every month, we pay Singapore Land Authority (SLA) rent. Prior to this, our first foray into the student accommodation was RMIT in Australia and then the UK. We felt that this was an opportunity for us to be present in the student accommodation space in Singapore, which is our home ground. CSL Selegie will also act as a showcase of our bigger student accommodation business.
Q : Is the optical media business still ongoing? Given the change in the nature of the company's business, and the small optical media business, is there a real reason in maintaining it?
A : The optical disc business is a business that the company had engaged in before we entered the accommodation business via a reverse takeover. Since then, we have shut down the Australia and Indonesia part of the optical disc business, leaving only the business in Singapore.
We have a local management team to keep the optical disc business running and this business generates a positive cash flow for the Group. By continuing operations, it allows us to recoup sunk cost, such as capex on machinery. Hence, it remains in our shareholders' benefit to continue to run the optical disc business and wind it down naturally when the time comes.
Q : What is the Net Asset Value (NAV) of all the student and workers accommodation properties held by the company?
A : The Group's total investment properties stood at about $900 million to $1 billion, which are fair valued as of 31 December 2015. Approximately 30% of the value comes from student accommodation and the remaining 70% from workers accommodation. Therefore, given broadly that our property fair value was about $900 million to $1 billion, against a borrowing of $600 million, our NAV was around $402 million as at 31 December 2015.
Q : Was the $300 million medium-term notes (MTN) issued in Singapore or Kuala Lumpur? Was it fully drawn down?
A : The MTN facility was issued in Singapore and has not been fully drawn down. We have issued two tranches so far; the first was $100 million, and the second was $65 million, totalling $165 million.
Q : Is Centurion still considering a REIT listing?
A : Last year, we planned a REIT for our workers accommodation assets. Unfortunately, SGX stated that it would amount to a chain listing and did not permit us to do the REIT for the accommodation assets in Singapore. Therefore, the plan for REIT is off the table for the time being, but it is on our mind and we will revisit it at an opportune time in the future.
Q : ASPRI-Westlite Papan is only 51% owned. Who are the other shareholders, and what is your reason for only owning 51% of that operation?
A : Our other partner is Lian Beng Group, another listed company in Singapore. Our strategy for now has been to own and operate dormitories, and provide dormitory management services. Having a business partner allows us to grow our portfolio much faster. With Lian Beng Group, we entered into a management agreement where the dormitory is managed by us and we charge a management fee to the dormitory.
Q : For the piece of land in Bekasi in Indonesia, which you stated is being evaluated for the development for accommodation for workers and middle management, has there been any progress on that? Is this the company's first project in Indonesia?
A : The company purchased the land because we saw the potential in the industrial site. A workers' dormitory will address the poor transportation infrastructure which makes it difficult for workers to commute to and from a nearby industrial park. However, it will take a while to work with the relevant planning authorities. As this is a small investment, after prioritising our existing and potential projects, we have put it on hold for now. While this would be our first accommodation asset in Indonesia, we had a presence in the country because of our optical disc business and have gained an understanding of the business environment.
Q : In 2015, three Board members stepped down from executive Board positions but remained in key management positions. The new Board now comprises three non-executive directors who appear to be linked to Centurion Global, and Mr Loh and Mr Han are related, apart from being part of the controlling shareholders. Given the close relationship between Mr Wong, Mr Loh and Mr Han, and as representatives of the controlling shareholders, would it not be better to have at least three independent directors?
A : Yes, we agree. We are, in fact, interviewing someone. By the end of this year, we expect another independent director to join the Board. On behalf of the independent directors, I would like to confirm that at no point in time have our decisions been influenced by the controlling shareholders.
Q : Based on my calculation, the company's total administration and finance expenses rose by about 50% from 2014 to 2015. Why did administrative and finance costs increase so much in 2015 over 2014?
A : Administrative expenses increased due to the inclusion of the write-down of investment in an associated company, Lian Beng-Centurion Mandai of $4.8 million, as well as the Group's expansion into the UK student accommodation business. Finance costs increased due to additional interest cost incurred for financing the expanded businesses and the $65 million, raised under the MTN programme in mid-2015.
Q : Why was the investment in an associated company written down by $4.8 million? And which associate was considered in that write down?
A : The associate refers to the Lian Beng-Centurion Mandai joint venture. The write-down arose due to goodwill recognition in 2011, when we acquired the joint venture. The purchase consideration for the joint venture was satisfied by an issue of new shares at 10 cents per share. However, in accounting, the share price, which had risen beyond 10 cents on completion of the acquisition, was used to record as the purchase consideration. As a result of the difference between the share price and issue price of 10 cents, a goodwill of $4.8 million was recorded. Every year, we do an assessment for impairment. In our evaluation last year, we felt the goodwill has now been subsumed in the fair value of the Mandai property and therefore we made this one-off write down.
Q : You have lots of dealings with Lian Beng. Is Lian Beng related to our controlling shareholders in any way?
A : No, they are not. Lian Beng is our business partner and holds some of our MTN. They also hold some shares in Centurion but they are not related in any way to our controlling shareholders.
Q : It seems like the Company is making big investments without very significant operating cashflow, so the only way to finance investments is to borrow. In fact, borrowings have jumped year-on-year and the gearing ratio increased to 50% of total assets. Net borrowing is now much higher than equity, which means the bank is financing the group more than the shareholders. Do you think it would be good to let go some of these businesses which you have invested heavily in the last two to three years?
A : Thank you for your comments. We are mindful of our gearing. Firstly, we are essentially a property-based company so every time we acquire real estate assets, we obtain 65% to 75% financing from the banks at the project level, which is equivalent to a debt to equity ratio of 1.8 to 3 times. This will invariably increase our Group's gearing ratio. While our gearing is high, we have $138 million cash, which should give you some comfort. Last year, we also generated positive cash flows from operations of $60.1 million. We are closely monitoring the interest cover ratios, and we are fairly comfortable with it. Our assets are mostly with long term lease or are freehold assets and matched, in terms of financing, with long term loans. Our average bank loan maturity profile is 12 to 13 years. Nonetheless, we have taken note of your comments.
Q : There is a difference in the return of net assets in student accommodation and workers accommodation. Would you like to comment on this difference?
A : Workers accommodation is our primary business. Even though the workers accommodation business is stable, the performance can be affected by economic cycles and government policies. The student accommodation business, while it offers a lower return, has proven to be more resilient, giving us a comfortable, stable recurring income over a long term.
Q : The share price in the last year has dropped by over 35%, and in two years it has dropped by 50%. The shareholder value has deteriorated quite significantly. Can you share with us what do you think has been contributing to this effect and what the company can do to prevent such things from happening?
A : Unfortunately, the stock market is something we cannot control. We can only deliver results for the shareholders, and based on that, we believe that we have delivered a very good set of results. How the market wants to value us is strictly dependent on the market. Keeping this in mind, we actively engage the markets, talking to investors, brokers and analysts every quarter. We hope to educate them, and address their concerns regarding our business operations.
At the Board level, together with the management, we try to create value and to ensure that growth is sustained.
Q : In the coming short to medium term, will there be a necessity to raise additional funds to finance the current business?
A : In the short term, we do not see the need to raise equity monies.
Q : The current ratio is below one, but I think the market expects a ratio of two or more. Most analysts would see this as a potential red flag. I believe this is one of the contributing factors on the share price performance. What assurance can we get from the Board and the management team that the company will continue to perform better?
A : Our current ratio takes into account our $100 million MTN due within the next 12 months which has been re-classified as a short term liability. The MTN redemption or shortfall can be easily covered by our cash and available bank facilities. We intend to do a refinancing on the MTN as it is quite common for a number of companies. If you take a look at a number of other listed companies which have MTN maturing within that year, they will likely be in a similar situation.
Q : Based on my calculations, your current yield for student accommodation business is about 8%. Are there plans to increase the yield? For example, manage it yourselves, establish a brand, maximising yields on all these student accommodation assets.
A : Yes, we are constantly looking for ways to improve our assets and services to enhance the yield.
Having gained the knowledge, in terms of the management of the assets, our intent is to, where possible, manage our own assets. For the UK assets, we initially had an external manager but we felt that we could do a better job, hence we took over the management of the assets.
Q : I am sure you all will try your best to improve the top line. Is the Group looking to manage cost as you expand? How much more cost reduction or cost management can you do to manage a larger volume of beds?
A : Our current emphasis is not on controlling or reducing cost. As we are in an expansion phase, we are focused more on building up our management team, expertise and improve our command and control over the new business and the new markets we are in. We hired quite a number of staff at headquarters level as well as employees in the UK to improve the management and functional expertise. Until we have built up the base, you will not see a reduction in costs.
Q : I am referring to the reduction of operating costs. Are you referring to one-off costs for acquisition?
A : It is not a one-off cost. In every expansion, for example in the UK, we need to deploy managers and regional managers, who have to travel over there. We also set up a control headquarters over in the UK as well. So these are recurring operating costs, not one-off.
Q : Is the Board looking at renewing the lease for Westlite Tuas? If it does not get renewed, what will happen to the residents?
A : The status of Westlite Tuas' renewal depends on the authorities. Judging by the remote location of the asset, away from housing estates, it is an ideal location for a foreign worker dormitory. In the event the lease expires and is not renewed, we will try to move the workers to our other dormitories.
Q : The gearing ratio is high because you are on the acquisition mode, but at the same time you are conducting share buybacks. These two actions are contradictory. Can you explain?
A : Yes, there is a need for balance. In both actions, we have different purposes. We are geared to grow the business and for the share buyback, it is more to signify the confidence of the management to shareholders and the market. The number of shares we bought back last year was very small compared to the issued share capital of the company.
Year 2015 AGM's Q&A
Q : You have a number of ongoing projects. Will you need to raise more capital (debt or equity) to fund these projects?
A : Given our strong and stable operating cashflow and long debt maturity profile, we do not foresee the need to raise capital for capital expenditure in the near future. There is still adequate debt headroom for further growth and expansion, and we have the option of raising capital through equity, if needed, but we will not exercise this option unnecessarily.
Q : Are you comfortable with your current gearing ratio?
A : Our five times interest cover continues to be adequate and is within the Group's interest cover threshold. Given our strong and stable positive cashflow, we are comfortable with our current gearing ratio.
Q : What is your view on the valuation of your properties? Do you consider the valuations conservative or aggressive?
A : The valuations are done by professional valuation companies. These valuations are mark-to-market and a reflection of the current market value.
Q : What was the reason for taking on such a huge debt?
A :The increase in borrowings were for the acquisition of the student accommodation assets in Australia and the UK. We also need to bear in mind that for real estate, taking on loans for the purpose of acquisitions and development is not uncommon.
Q : How long will it take for you to recoup these investments?
A : We are unable to disclose the exact timeframe for our payback but the yields of these investments are decent. If you look at our student accommodation, the three Manchester assets are freehold properties, while the Liverpool asset is a long leasehold property with over 240 years remaining.
Q : Do you have fixed interest rates for your borrowings? What is the interest rate? Do you repay capital or just the interest?
A : The interest rate for our S$100 million issued under our Medium Term Notes (MTN) programme is fixed at 5.25%. The rest of our debt has floating interest rates. We are constantly reviewing our debt, and are exploring and weighing the option of fixing the rates for a proportion of our debt, at the appropriate time. We generally repay capital as well as interest.
Q : What is your projected growth rate for the next couple of years?
A : We currently have about 40,000 beds in operation, and are targeting to have approximately 74,000 beds in operation by 2017. This year, two of our assets will obtain their TOP, which will increase the number of beds in our portfolio by around 9,000.
Q : Housing market rental rates are dropping. How will this affect your business?
A : We operate in a different market which caters specifically to work permit holders who do not have the option of staying in private residential estates. Hence, the rental rates of private housing has no direct impact on our business.
Q : What are the top 3 risks that the company faces?
A : The first would be operational risk. This has to do with the management of the foreign workers who live in our dormitories. We need to have a good management team to ensure that our residents, who come from different countries and cultures, are happy and well taken care of. We also face capital management and currency fluctuations risks. That said, we have active debt and capital management and currency policies in place.
Q : What happened to your REIT plans? What was the SGX ruling that blocked the REIT?
A : We were originally exploring a REIT but the plans have been put on hold because SGX ruled that the proposed listing of the REIT would be considered a chain listing. Chain listing is when the assets and operations of the listing applicant are considered to be substantially the same as those of the existing issuer. Hence, we decided to defer and reconsider the proposed REIT transaction to a later stage.
Q : Is there a risk of new competitors coming into the industry and taking market share away from you?
A : Clients who are looking to house their foreign workers always look at a company's track record, and assess their ability to manage and keep the thousands of foreign workers with different backgrounds and cultures happy.
Although we are not the biggest dormitory operator in Singapore, we are one of the top five players. Compared to our peers, we are more diversified. We are also currently the only listed company in Singapore focused purely on workers and students accommodation business.
Q : Are you able to control the pricing of beds at your dormitories or are the rates determined by the market?
A : We adjust our bed rates according to market conditions.
Q : With the large number of beds coming into the Singapore market, how will this affect your business?
A : We don't foresee the 100,000 or so beds that are coming on stream to have a huge impact on our business. This is because part of the new beds will replace a proportion of the existing temporary purposed built dormitory beds that are about to expire between 2015 to 2017. With the government's long term intention of housing majority of the foreign workers in proper accommodation, there is a strong demand for purpose built workers accommodation.
Q : Is there more room for growth in the workers accommodation space?
A : We believe that there is still room for growth in Singapore, which is why we have invested and are developing a workers dormitory in Jalan Papan. In Malaysia, we are the largest and only player in the purpose built workers accommodation space so we believe that there is room for organic growth there as well.
Q : What are the occupancy rates for your accommodation assets in each country?
A : The occupancy rate for our Singapore and Malaysia workers accommodation assets, on a blended basis, is above 90%. For our student accommodation assets in Australia and the UK, we are operating at close to 100% occupancy rate.
Q : What is your relationship with Lian Beng?
A : We have an amicable working relationship with Lian Beng. Our first partnership with Lian Beng was for the development of Westlite Mandai. Given our good relationship, we have invited Lian Beng to join us as an equity partner in our Westlite Papan project.
Q : What is the plan for your optical disc business?
A : The optical disc business is still generating cash flows and made a small profit last year. As it is in a sunset industry, we are scaling down operations and will cease operations when it is no longer cash-flow accretive.
Q : What is your dividend policy?
A : We do not have a fixed dividend policy. As the company is still in a growth stage, we wish to retain the flexibility in reserving cash and capital for growth when necessary. Nonetheless, we have been rewarding shareholders with dividends every year since 2012.
Q : Why are you seeking approval for a share issue mandate? Share placements can dilute our shareholdings.
A : We are seeking a share issue mandate for one year, to give the management flexibility to exercise this mandate when necessary. Given the nature of the business, we have to be opportunistic and react fast when the right investment opportunity comes along. We are mindful of not diluting shareholders unnecessarily. At the moment, there are no plans to exercise this mandate.
Year 2014 EGM's Q&A
Q : Why is the operator of the UK student accommodation assets selling?
A : The vendor in this transaction, is a local developer that wanted to maintain their focus in property development, their main business. As such, the seller is divesting some of their investment properties.
These assets present a good opportunity for us to enter the UK market with a portfolio of assets comprising 1,906 beds.
Q : Was this a competitive bid and was Centurion the highest bidder for the UK student accommodation assets?
A : Yes, this was a competitive bidding process. However, we were not the highest bidder.
We won because we provided more assurance to the seller in demonstrating certainty of funding as well as the ability to complete the transaction within a time frame that was acceptable to them.
Q : Do these asset have room for further enhancement opportunities?
A : We believe that there are room for some enhancement initiatives. However, it will not be as much as compared to RMIT Village as there is limited vacant land on the properties.
Q : What is the market in Manchester like currently? Is the Manchester area in its cyclical peak at the moment?
A :The property market is stable. It is unlike London, which appears to be toppish at the moment.
The properties we're acquiring are student accommodation assets, which provide some cashflow and income stream certainty.
Q : How are you planning to finance the acquisitions?
A : We secure project financing via bank debt for the acquisitions.
We believe this is a suitable financing option because the assets are already operational and expected to be cashflow positive immediately.
Q : Based on the recent share price movements, the market seems to be pricing in the possibility of equity financing. Is this on the cards?
A : We believe the recent moderation in share price is linked to weakness in the wider market.
There is also some uncertainty over the supply-demand situation in Singapore's workers' accommodation space.
Q : Do you have people on the ground in the countries where your assets are to ensure success?
A : In the UK, we have sent our own staff over to conduct due diligence as well as to set things on the right course.
However, there is room for us to improve our local knowledge. The appointment of a local managing agent, which is necessary for operations, will be one way for us to expedite our learning process. It will benefit us to leverage the expertise of these operators.
All things considered, we are always consciously making conservative choices in the management of the UK portfolio.
As for other new jurisdictions, we do not have concrete plans to enter yet. When we do, we will take the same steps to ensure that the proper expertise and due consideration is applied.
Q : Are there any plans to eventually adopt a more asset-light strategy, either through securitisation of your assets or expanding the business through asset management contracts?
A : We are looking into the possibility of managing assets actively, and have started to look at the feasibility of various potential projects.
As for the securitisation of assets, we are exploring various scenarios and opportunities to tap the capital markets. That said, securitisation has long-lasting implications for the business, our various stakeholders and shareholders, so we want to be very careful and take the calculated steps in weighing this option.
Q : Do you think the acquisitions were made in the right place? Did you pay a fair price for the assets?
A : Taking into account the location of the properties, the proximity to schools, capacity and yield, yes we do. Furthermore, we need to bear in mind that assets of such scale and quality are a rare find.
We also considered many other opportunities in the UK, as well as across the rest of the world, and believe that this is one of the better deals.
Q : What is the estimated revenue from these 4 assets?
A : We are not able to provide guidance that are forward-looking in nature.
Q : What is the average cost of debt? Are your costs of funds low enough to make the acquisition accretive?
A : The average cost of debt is approximately 3% at the moment.
As mentioned previously, the assets, which are already tenanted and operational, are expected to be cashflow positive immediately.
Q : What markets have previously been approved?
A : We've gotten approval for Southeast Asia, Australia, EMEA (Saudi Arabia and Qatar), China, Taiwan previously.
Q : Even though you are seeking approval to expand into the Middle East, Europe, United States and Canada, which are the countries you are most likely to grow your presence?
A : The main overseas tertiary educational hubs in the world are located in the UK, Europe, the US and Australia. These are the places we are likely to concentrate on for our student accommodation business.
Similarly, the manufacturing centres of the world are likely to be the places we will look to for growing our workers' accommodation business. These include the Middle East and Southeast Asia.
Q : Will the long-term focus be on students' or workers' accommodation? Which segment offers better yield?
A : For absolute yield, the workers accommodation assets continue to give better yield even though competition in the space has stiffened. We have definitely seen yield compression over the years.
Student accommodation assets provide us with stronger, more stable, yield over the lives of the respective assets.
We are always looking out for good opportunities for both our workers' and students' accommodation business segments, and will continue to do so.
Year 2013 AGM's Q&A
Q : Competition in the space within which you operate is stiffening. How do you intend to stay ahead for your accommodation business?
A : Our key differentiation from competitors lies in our commitment to create community living with quality facilities and leisure amenities as well as recreational activities for the workers residing in our dormitories.
We believe our ability to grow the workers' accommodation business will depend on availability of land in Singapore as well as ventures outside of Singapore. So far, we have seen good response in Malaysia, where occupancy has reached 80%. Our growth plans in Malaysia include the addition of 10,000 beds to the existing 15,000 in our portfolio currently. In addition, our diversification into student accommodation will bring in new revenue streams for the Group.
Q : Do you intend to enter into ancillary services such as transportation of workers or worker procurement?
A : We are already involved in the transportation of workers in Malaysia and are evaluating the feasibility of providing other supplementary services for the workers' accommodation business in Singapore and Malaysia.
Q : Will you be raising new funds any time soon?
A : We raised S$100 million from our S$300m Multi-currency Medium Term Note Programme in 2013 to capitalise on good investment opportunities that may come up along the way. There is a further S$200m we would be able to tap from this program, should the need arise. Raising fresh funds from new equity shares is not in our plans at the moment. Having said that, we would not rule out such an exercise should appealing and suitably accretive opportunities come along.
Q : Are there any meaningful differences between yours and some of your competitors' new developments?
A : One example would be the land tenure. Westlite Woodlands comes with a land tenure of 30 years while Westlite Mandai is one of the rare workers' accommodation that sits on freehold land. Our land tenure is substantially longer than some of the other newer worker accommodation developments in the market currently (up to 9 years). Both types of projects are attractive in their own ways. The shorter-term projects pays a monthly land rent while the longer-term projects requires upfront payment for the land.
Q : Going forward, will the government prefer larger worker accommodation developments or decentralised accommodation projects such as on-site accommodation?
A : In our opinion, the trend should favour larger purpose-built worker accommodations that can house more amenities and facilities that address workers' off-duty needs and leisure/lifestyle requirements.
Q : What is the plan for the optical disc business?
A : The optical disc business is in a sunset industry, where demand has been falling. We are scaling down operations and will cease operations or divest of the business when it is no longer cash-flow accretive. There is no exact indication of when this will take place as it depends very much on the pace of business. That said, when it does happen, we will ensure that existing staff are taken care of by either redeploying staff or by negotiating for new owners to retain their employment.
Q : What is the current occupancy rate for your accommodation business?
A : As at 31 December 2013, it was approximately 100% for Singapore properties and 80% for Malaysia properties.
Q : How can management ensure sustainability of earnings if tenancy contracts are renewable annually?
A : Purpose-built worker accommodation is roughly three times undersupplied relative to demand. From our observation, most tenants have been renewing their contracts. In cases where they have not, we are able to secure new tenants.
Q : Wouldn't the move to reduce foreign workers in Singapore affect your business?
A : According to MOM statistics, there has been no noticeable or substantial reduction of the foreign worker population holding Work Permits. To our understanding, the group of foreign workers affected by the policy are Employment Pass holders, which holds no negative impact for us.
Q : How do your profit margins between Singapore and Malaysia differ?
A : They are comparable. Even though rentals are generally higher in Singapore than in Malaysia, we enjoy lower operating costs in Malaysia.
Q : What is your payback period or hurdle rate for developments?
A : Due to commercial sensitivities, we are unable to provide this data.
Q : Are you able to provide us with the geographical breakdown of the Dormitory business in your results, going forward?
A : We have provided geographical segments reporting as per the accounting standards. Due to commercial sensitivities, we are not able to provide further disclosures or breakdown.
Q : Are you able to share some trends in respect to rental reversions over the past few years?
A : Over the past 2 to 3 years, we have seen rentals increase by about 10% year-on-year annually.
Q : Are you intending to explore newer areas in Indonesia and new markets like China since there seems to be a burgeoning market for the industry you're in?
A : We are currently assessing new geographies for opportunities in various markets. Each market and industry will be evaluated against its returns, the market and country risks.
Q : With the influx of new smaller players in the market, are there any plans to embark on any M&A activities?
A : Although there is nothing in the horizon, it is an option we are happy to keep open and explore.
Q : Are there any plans to inject your properties into a REIT structure for asset recycling?
A : This is another option we are happy to keep open and explore, although there are no concrete plans at present.
Year 2012 EGM Q&A
Q : Why did the circular contain so many risk factors?
A : SGX regulations require us to fully list the risks involved in expanding our mandate, this is the similar to other circulars filed for other corporate actions or fund-raising activities such as initial public offering prospectuses. This ensures that the pros and cons are completely stated, allowing investors or shareholders to make a more informed choice. The Management has taken into consideration these factors and feels that it will be potentially beneficial for the Group.
Q : How does the company evaluate and negotiate the risks?
A : Like all businesses there are risks that we have to undertake in order to achieve growth for the future. However, before we carry out any significant expansion plans, we conduct due diligence and ensure that any projects are undertaken with due care and consideration.
Q : You are going into new markets, how do you mitigate foreign exchange risks?
A : We carry out currency hedging to manage currency risks. In cases where we have to make a significant investment overseas, we will finance the project through local loans if needed so that the risk will be much reduced. While there will be some exposure to such risks, it ultimately depends on how the country allows us to structure our capital.
Q : We hope that in going overseas, will the company consider the political environment before doing so?
A : This is not the first time the company is venturing overseas. The Company has subsidiaries in Australia, Indonesia and Malaysia and the board is satisfied with the risk management system that has been put in place. We do not wish to enter any markets that we have absolutely no knowledge of.
Q : How is your business doing in Singapore and Malaysia?
A : In Singapore, we own Westlite Dormitory, 45% of Lian Beng-Centurion (Mandai) which consists of a workers dormitory that will be operational at year end, and another dormitory at Tuas. Occupancy rates are high at the ready dormitories and cash flow is positive. Our Singapore portfolio would consist of about 20,000 beds at year end.
In Malaysia, we have taken over three workers dormitories which will yield about 10,000 beds once renovation and development works are fully completed. We are currently conducting due diligence on other dormitories which will potentially yield a further 20,000 plus beds after acquisition. This would bring the total number of beds in our Johor dormitories to about 30,000.
Combining the potential acquisitions and completed renovation and development works, our Singapore and Malaysia portfolio will yield about 50,000 beds.
Q : What are occupancy levels like in Singapore?
A : At Westlite Dormitory, we have close to 100% occupancy. Our dormitory at Tuas is operating at close to 90% occupancy since we took over in 1 March this year. We are still filling up the space there and expect occupancy rates to go above 90% in the next month or two. Our dormitory at Mandai will only begin operations at the end of the year and we are unable to predict occupancy rates. However, we are optimistic on achieving a good occupancy rate.
We are still filling up our one operational dormitory in Malaysia after acquiring it a few months ago.
Q : Are there plans to securitise your assets?
A : It is an option that we may consider in the future. However, there are no plans to do so at the moment.
Q : Is there a strategic tipping point in making the decision to securitise your assets?
A : We have not discussed on what the tipping point would be yet. There are numerous factors to consider when securitising assets. They include the nature of the property and their lease terms.
As mentioned, there are no plans to securitise our assets at the moment and we are focused on building our foundations. Our priority right now is to grow to be a leading player in this area.
Q : Where are you developing your student hostels?
A : We were previously approached by educational institutions to develop and manage hostels in Malaysia and China. However, there is nothing specific on the table even though we intend to explore the opportunities in this area.
Q : How long more will you take to acquire a student hostel?
A : It depends on our exploration and evaluation process. If the opportunities prove to be unfavourable after our due diligence process, we may not choose to act on them. Again, this is the reason why we have called for this EGM; to seek our shareholders' permission to go into this area of business.
Q : Are there any peers that you can benchmark yourself to in US or around the world?
A : There is currently no listed entity with an exact business model similar to ours around the world that we can benchmark ourselves against. The idea of worker dormitories is very much an Asian prevalence where migrant workers are housed en masse in industrial hubs of key growth regions. In Singapore, we are helped by a regulatory framework in place that requires employers to provide proper accommodation for their foreign workers. In Malaysia, the government is increasing aware of foreign workers' needs for proper accommodation. This is a new industry where there are growth opportunities present.
Although it is a new industry, it does not mean that we are inexperienced in this field as members of our management team have been in the industry for many years.
Q : How many companies are there in the industry?
A : There are a few players in the market. The only listed entity that owns and operates dormitories is TTJ Holdings but not on a scale similar to ours. Other owners include funds which have bought stakes into dormitory assets and non independent dormitory owners who provides dormitory space for their own employees and also third parties.
Q : What is one key advantage is that it allows you to dominate this niche area and continue growing?
A : Our dominance in this niche area is not only about the financials. Defining points of our business not only include scale and reputation but quality as well. In terms of management, we have the expertise of Mr Tony Bin and Mr Kelvin Teo who have many years of experience in this field.
Our operational model is highly scalable and is applicable overseas as well as to the student accommodation business.
In terms of our Dormitory Business, we see ourselves to be in the hospitality trade where we constantly add value to the services we provide.
To differentiate ourselves from the others dormitory operators, we provide services and organise activities that cater to the well-being of our residents. For example at Westlite Dormitory we conducted social activities such as outings, health checks and road shows for our residents as well as organised screenings for cricket world cup matches during the season.
Q : Are the costs involved in your value-added activities factored into rental fees?
A : No. We have been absorbing these costs.
Q : What are your rental rates as compared to the industry?
A : It depends on the location and property type. In the case of Westlite Dormitory where residents enjoy en-suite bathroom and pantry facilities, the rates are higher. In the case of Tuas Dormitory, where these facilities are shared, rates are lower. However they are all reflective of market rates and range between S$230 to S$240 per worker, per month.
Q : What are some factors that will derail your growth plans?
A : One of the key factors is competition. As Singapore is heavily reliant on migrant labour and that the government requires them to be housed in proper accommodation there is still demand for spaces at our dormitories. However, in the Malaysian market, there is no regulation in where foreign workers should be housed. As such we might be affected by more competition in this area. Also, changes in business regulation may affect the way our business is being run there.
Q : Shouldn't management project the risks ahead in its planning?
A : We are going for growth and one way in which we mitigate our risks include diversification, which we hope to further achieve, moving forward. As will all businesses, there are risks. However, we are careful in our planning and constantly ensure that these risks are well calculated.
Q : Is there any intention to divest your Optical Disc Business since it is making money?
A : We have no intention to divest our Optical Business. It is a stable business that generates good cash flows and this helps augment our Dormitory Business.
Year 2012 AGM's Q&A
Q : What are your plans in Malaysia? Is there a difference between your Singapore and Malaysia businesses?
A : In Singapore, there are strict guidelines mandating where employers can house their foreign workers. However, in Malaysia the guidelines are not firm and workers are put up in various kinds of properties. However, there is now a persuasion in Johor for companies to house their foreign workers in proper, suitable places. We continue to engage with Johor officials and are looking to persuade employers to house their workers in purpose built workers accommodation.
Currently, there are numerous MNCs in Malaysia and they abide by a set of standards set in the EICC programme to ensure that companies take good care of their workers, among others. Our dormitories in Johor are EICC-compliant, which provide us with an advantage over others.
Q : What about the difference in numbers between Singapore and Malaysia?
A : As mentioned earlier, there are guidelines in Singapore mandating where employers can house their foreign workers. There are few players in this space hence, we see healthy demand for accommodation at our Singapore properties. However, in Malaysia the guidelines are not firm and the low barriers to entry mean that there are various types of properties, where workers are put up. Hence, the range of housing options pose some competition to our accommodation properties.
We will have to charge rates that are comparable to rates at other accommodation options in Johor. Rents hence go between RM80 to RM110 per bed per month. Our blended occupancy rates in Malaysia right now is 50%.
However, as we continue to engage employers and the many MNC's in the region as a preferred accommodation provider in compliance with EICC standards, we believe take up rates should increase.
Q : Tuas currently has 4.5 year of its lease left. What are you doing about it?
A : Our lease term with BCA for our Tuas property is 3+3+3 years. We are only currently halfway through the second three-year term of our lease. It is therefore too premature to begin discussions with BCA on further lease renewals. That said, when we made the acquisition last year, we did our calculations on the basis of the limited lease and we were satisfied on the results of this feasibility study.
Q : What are yields like for your Singapore workers accommodation assets? What are the rates like?
A : We must say that yields are getting tighter. However, current average yield for workers accommodation assets are better than industrial asset yields which amount to between 7% and 8%. We purchased our assets at different times and since we entered the market earlier, we enjoy slightly better yields.
In Singapore, rent rates range between S$260 and S$270 per bed per month for our Toh Guan and Tuas accommodation assets. For Mandai, we are currently charging introductory rates of between S$250 and S$260 as it is newly opened and we are looking to fill occupancy as quickly as possible.
Q : Five of your properties in Malaysia were purchased from the same two persons. Why is that so? Why were they acquired separately and not together for economies of scale?
A : When we signed the MOUs to acquire these assets, it involved a group of individuals and our previous Malaysian joint venture partner JYC-NCL. However, they have since pulled out of the joint venture as they have decided to focus on other priorities. Hence, in fully acquiring those assets, we had to acquire including their shares from these individuals.
The assets were not acquired together as each individual asset required different length of time for regulatory approvals and due diligence before we could purchase them.
Q : What are your plans to increase occupancy at your Malaysia assets?
A : We are actively marketing our accommodation assets and intend to work with the Iskandar authority in publicising our services. We will also offer management services as part of a multi-pronged approach where we work with companies to take care of their workers basic needs outside work hours
Q : What are you doing about your student accommodation business?
A : We continue to pursue opportunities in the market and will provide updates where there are further developments.
Q : What is your Malaysia breakeven occupancy rate? Who are your customers there?
A : The breakeven occupancy rate is about 60%. Our customers are multi-national companies as well as their subcontractors.
Q : Can you justify your directors' fee increase?
A : Firstly, our directors fee have been kept the same for many years. Secondly, after our reverse takeover, corporate activity picked up considerably, requiring more of our directors' attention and expertise.
The fee increase amount is comparable to the market rate. We derived this amount after studying the directors' fees for SGX-listed companies of similar market capitalisation and profit level and taking a median amount as reference.
The director fees increased in FY2011 but did not reflect the entire fee increment it was prorated. In FY2012, it reflects the new increased directors fees for the whole year.
Q : How long has Pricewaterhouse Coopers been your auditor?
A : They have been our auditors since IPO in 1995 and the partner-in-charge has been rotated, as per requirement. We have been pleased with their service rendered thus far.
Year 2011 AGM's Q&A
Q : For the joint venture with Lian Beng, what are your projected profits from the space?
A : We cannot share this information with you as it is price sensitive and it has not been publicly announced. However, we are optimistic about this joint venture and we believe that it is a good project.
Q : On your business plans, what impact will the increasing foreign worker levy have on your business in the next five years?
A : The demand for foreign workers accommodation is a derived demand given industries such as manufacturing and construction are heavily dependent on foreign labour. As Singapore continues to focus on these sectors, demand is likely to remain.
On the supply side, there are slightly less than 200,000 beds in purpose-built dormitories. There are approximately 400,000 work permit holders engaged in the construction, manufacturing, engineering industries amongst others. As a result, there is a supply-demand imbalance in workers accommodation and we expect it to remain over the medium term.
Q : Going forward, with funds made available, are you confident of becoming a market leader in the workers accommodation industry?
A : We believe we are one of the market leaders in Singapore currently. With several acquisitions announced over the last few months, we aim to become one of the leaders in the workers accommodation business in the region.
Q : Do you have any intentions to divest your accommodation assets into a REIT?
A : We see growth opportunities in the accommodation market in Singapore and the region and our current strategy is to focus on growing our business and portfolio. At the same time, we remain open to options and will evaluate opportunities with the best interests of the Group and our shareholders in mind.
Q : How was Centurion Corporation Limited formed?
A : The Group was founded in 1981 as SM Summit, an optical disc (CD / DVD) manufacturing company and was listed on the SGX since 1995. In 2011, it diversified into the workers accommodation business through the acquisitions of Centurion Dormitory (Westlite) Pte. Ltd. and a 45% stake in Lian Beng-Centurion (Mandai) Pte. Ltd. It was renamed Centurion Corporation Limited on 5 August 2011, upon successful completion of the acquisitions.
Q : When was Centurion Corporation Limited listed?
A : The Group was founded in 1981 as SM Summit and has been listed on the Singapore Exchange since 1995.
Q : What businesses are the Group involved in?
A : The Group is engaged in the development and management of Accommodation Assets ("Accommodation Business") and the manufacture and sale of optical disc storage media ("Optical Disc Business").
Q : How is Centurion Global Ltd related to Centurion Corporation Limited?
A : Centurion Global owns 100% of Centurion Properties Pte Ltd which in turn owns approximately 56.6% of Centurion Corporation Limited as at at 30 June 2016.
Q : I am a shareholder and wish to change my particulars, e.g. mailing address. Who should I contact?
A : Singapore's Central Depository (CDP) maintains the registrar of shareholders' information for all companies listed on the Singapore Exchange. Please contact the CDP directly for changes to your personal particulars:
The Central Depository (Pte) Limited
4 Shenton Way,
#02-01, SGX Centre 2,
Tel: (65) 6535 7511
Fax: (65) 6535 0775
Q : How can I obtain a copy of Centurion Corporation Limited's annual report?