2018 Third Quarter and Nine Months Financial Statement Announcement
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Profit & Loss
N/M : Not meaningful
Statement of Comprehensive Income
N/M : Not meaningful
Group Performance Review
(a)(i) Third quarter review – 3Q 2018 vs 3Q 2017
The Group’s revenue in the quarter ended 30 September 2018 ("3Q 2018') was lower year-on-year by 12%, or S$4.0 million, to S$28.3 million from S$32.3 million in the quarter ended 30 September 2017 ("3Q 2017").
The lower revenue was mainly attributable to the expiry of the lease on Westlite Tuas in Singapore which ceased operations in December 2017. However, if Westlite Tuas’ revenue was not factored into 3Q 2017’s revenue, then the revenue would have increased by S$1.0 million or 4%.
Nonetheless, the reduced revenue due to Westlite Tuas was partially offset by additional revenue from the Group’s recent acquisition of dwell Princess Street in Manchester, as well as a strong showing from our workers accommodation in Malaysia with a high occupancy rate of 95%, and improved performance in the Group’s UK student accommodation portfolio.
The Group’s gross profit reduced by 9%, from S$21.8 million to S$19.8 million year-on-year, in view of the lower revenue as explained above. Nevertheless, the gross profit margin has improved to 70% as compared to 67% in the corresponding quarter.
Administrative expenses were lower by S$1.0 million, which was mainly due to the absence of the one-off professional fees of S$1.1 million incurred during 3Q 2017 in preparation for the dual primary listing on SEHK which took place in 4Q 2017. No such cost was incurred in 3Q 2018.
Finance expenses increased by S$0.4 million, largely due to a higher interest rate environment on our borrowings as compared to the corresponding period last year, as well as the new borrowings to fund the group’s acquisitions.
Share of profit of associated companies increased S$0.4 million largely due to the share of the profits from the Centurion US Student Housing Fund (“the US Fund”) launched in November 2017 and the improved performance of Westlite Mandai.
A fair valuation exercise was conducted by independent valuers on the Group’s investment properties as at 30 September 2017 comprising workers and student accommodation assets for the purpose of the dual listing on the SEHK, and a net fair valuation loss of S$1.5 million was recognised. No fair valuation exercise was conducted in 3Q 2018.
The income tax expense reduced by S$0.7 million mainly due to the lower taxable profits largely due to the cessation of Westlite Tuas’ operations.
The net profit after tax derived from the Group’s operations for 3Q 2018 was S$8.6 million, or an increase of S$1.2 million.
Excluding one-off items in the form of dual listing expense, fair value losses and provision of deferred tax arising from fair value gains, the Group’s profit from core business operations reduced S$1.6 million from S$10.2 million in 3Q 2017 to S$8.6 million in 3Q 2018 mainly due to the absence of Westlite Tuas’ contribution. The Group’s profit from core business would have increased by S$0.6 million if the effects from Westlite Tuas’ lease expiry were not taken into consideration.
(a)(ii) Nine months 2018 review - 9M FY2018 vs 9M FY2017
The Group registered a reduction of 14% in revenue or S$14.8 million, from S$103.5 million in the nine months ended 30 September 2017 ("9M 2017") to S$88.7 million in the nine months ended 30 September 2018 ("9M 2018").
The lower revenue was mainly attributable to the expiry of the lease on Westlite Tuas which ceased operations in December 2017. The reduction was partially offset by the improved performance of the Group’s workers accommodation in Malaysia, ASPRI-Westlite Papan as well as student accommodation assets in the UK. The revenue would have increased by S$2.3 million if Westlite Tuas’ revenue was excluded from 9M 2017’s revenue.
Gross profit for the Group in 9M 2018 reduced by S$8.0 million on the back of the lower revenue but the gross profit margin has improved from 69% to 71% mainly due to the improved occupancy rates and beds rents in ASPRI- Westlite Papan and the Group’s workers dormitories in Malaysia. Additionally, the improvement was also attributed to the Group’s UK student accommodation portfolio rental rate reversions.
Administrative costs reduced by S$2.7 million, largely due to the absence of the dual listing expenses of S$4.2 million incurred in 9M 2017. Excluding this non-recurring cost, administrative expenses would have increased S$1.5 million, in line with the Group’s expanding business operations.
Finance expenses increased by S$1.6 million, largely due to the issuance of the Multicurrency Medium Term Notes ("MTN") Series 3 of S$85.0 million in April 2017 and a higher interest rate environment on our borrowings as compared to the corresponding period last year.
Share of the profit of associated companies increased by S$2.3 million in 9M 2018, mainly due to the absence of fair value loss on investment property of Westlite Mandai recorded in 9M 2017 as well as an additional share of the profits from the US Fund launched in late 2017, along with higher occupancy rates recorded for Westlite Mandai.
For the purpose of the dual listing exercise, valuation of the properties performed by the valuer that resulted in a fair valuation gain of S$0.3 million was recorded in 9M 2017. No fair valuation was conducted on the Group’s properties in 9M 2018.
Income tax expenses reduced by S$4.7 million mainly due to the provision for a deferred tax of S$2.8 million recorded in 9M 2017, which arose from the cumulative fair valuation gains recognised for the Group’s investment properties in Australia, China and Malaysia, as well as the lower taxable profits recorded in 9M 2018, largely due to the cessation of Westlite Tuas’ operations.
Excluding one-off items in the form of fair value losses on investment properties, deferred tax arising from the fair value gains and dual listing expenses, the profit derived from the Group’s core business operations was S$30.1 million in 9M 2018, a year-on-year reduction of S$8.6 million. If Westlite Tuas’ performance was to be excluded from 9M 2017 results, the profit from core business operations would be an increase of about S$0.2 million.
The Group’s net profit from core business operations attributable to equity holders of the Company was S$26.2 million, after accounting for the non-controlling interest proportion of the results of ASPRI-Westlite Papan in which the Group has a 51% interest.
(b)(i) Review of Group Balance Sheet
Cash and bank balances reduced by S$3.7 million to S$72.1 million was mainly due to investing activities which is in line with the Group’s expansion. Please refer to (d) review of the Group’s cash flow statements.
Trade and other receivables decreased S$4.0 million mainly due to collections in 9M 2018.
With the new IFRS 9, the Group has classified assets under “available for sale financial assets” to “financial assets, at fair value through other comprehensive income”. There was a reduction of S$2.4 million largely due to the redemption of certain fixed income investments upon maturity.
Investment properties increased S$57.0 million, largely due to the acquisition of dwell Princess Street in the UK, construction of Bukit Minyak in Malaysia as well as asset enhancement works that are currently being carried out for the Group’s student accommodation assets in Australia and the UK.
Borrowings & Gearing
As at 30 September 2018, the Group had net current liabilities of S$1.1 million. The Group currently has sufficient cash resources and banking facilities (both in aggregate of approximately S$188.5 million) available to meet the financing needs of the current liabilities.
As at 30 September 2018, the Group’s net gearing ratio was at 53%.
The Group generated an operating cash flow of S$50.5 million in 9M 2018. Interest cover remained adequate and within the Group’s threshold at 3.2 times (or 4.7 times interest cover, excluding interest from the MTN). Developmental and acquired operating assets are primarily funded through long term bank debt. The existing borrowings have a balance loan maturity profile averaging 9 years.
The Group’s balance sheet remained healthy with S$72.1 million cash and bank balances
(b)(ii) Review of Company Balance Sheet
Cash and bank balances increased by S$1.5 million largely due to the reduction of receivables which are mainly settlements from subsidiaries of the Group.
(b)(iii) Review of Cash Flow Statement
In 9M 2018, the Group generated a positive cash flow of S$50.5 million from operating activities.
During 9M 2018, cash of S$58.1 million in investing activities was mainly used for the acquisition of dwell Princess Street in the UK, development of the Group’s accommodation assets, in particular for Westlite Bukit Minyak, Malaysia, RMIT Village, Australia and dwell Cathedral, UK.
Net cash of S$5.7 million was provided by financing activities mainly due to financing obtained for investments offset by the repayment of borrowings and interest paid during the period as well as the payment of dividends to equity holders.
As a result of the above activities, the Group recorded a decrease in cash and cash equivalents of S$2.0 million in 9M 2018.
Commentary On Current Year Prospects
As at 30 September 2018, the Group operated a diversified portfolio of 27 purpose-built workers and student accommodation assets comprising c.55,273 beds across five countries.
(a) Workers Accommodation
Singapore’s purpose-built workers accommodation (“PBWA”) sector is expected to remain resilient in view of the demand for high quality workers accommodation. As at 30 September 2018, the Group had a total of c.26,100 beds across four operating workers accommodation assets in Singapore with a high and stable average occupancy rate of c.96.5% for 9M 2018. Despite the ongoing macroeconomic uncertainties, the Singapore economic outlook is anticipated to be on course for steady expansion. Given the stable customer base and strategic locations of Centurion’s four workers accommodation assets in Singapore, the Group remains confident that its occupancy rates will remain stable.
In Malaysia, as at 30 September 2018, the Group operated c.23,700 beds across six workers accommodation assets with an average occupancy of c.93.8% for 9M 2018. The Malaysia Government has been drafting amendments to the Standard Minimum Housing and Amenities Act 446 (1990), which when implemented, will make it mandatory for employers across all sectors to provide better housing conditions for their foreign workers^1. Given the Group’s market leadership position in the quality workers accommodation sector and the undersupply of PBWA beds within Malaysia, this legislative change bodes well for the Group. In addition, Centurion’s existing portfolio assets in Malaysia are well-located in key manufacturing hubs and as such, the six PBWA assets are expected to benefit from improved demand for quality housing for workers in the Malaysia’s manufacturing sector.
Westlite Bukit Minyak, located in Penang, Malaysia, is on track for completion in 4Q 2018, and this will allow the Group to take advantage of the favourable regulatory development, driving further growth in the Group’s PBWA business in Malaysia.
(b) Student Accommodation
As at 30 September 2018, the Group had a portfolio of c.5,473 beds across 17 purpose-built assets in the United States (“US”), United Kingdom (“UK”), Australia, and Singapore, with a portfolio average occupancy rate of c.90.4% for 9M 2018.
The Group continues to see growth potential in the UK PBSA sector, where it recently announced the completion of acquisition of dwell Castle Gate Haus on 9 November 2018. The UK portfolio achieved a healthy average occupancy of c.92.1% for 9M 2018. The UK remains a key market for the Group with this latest acquisition located in Nottingham. According to Savills’ latest Student Housing Spotlight, Nottingham is now considered to be a ‘first-class’ location, given that the supply of PBSA in the last few years have not matched the growth in student demand^2. Centurion’s latest acquisition highlights the Group’s commitment to continue seeking opportunities in markets with strong demand fundamentals and proximity to popular universities.
Driven by the Group’s asset light strategy, the Group manages six PBSA assets in the US which is owned by a private real estate fund established and managed by the Group. The assets achieved an overall healthy average occupancy and the Group is confident that the demand for purpose-built quality student accommodation in the US will continue as the country remains as the first choice for many international students seeking a quality education.
In Australia, RMIT Village has achieved a stable overall average occupancy rate of c.85.3% for 9M 2018. The average occupancy rate of RMIT Village, excluding beds closed for the asset enhancement programme (AEP), was registered at c.98.0% during the period. The majority of the new c.160 beds under development for the RMIT Village AEP are expected to be completed in January 2019, in time for students to move in before the start of the new academic semester in February 2019, while the remaining beds for the AEP are expected to be completed in 2Q 2019. The development of the new 280-bed dwell East End Adelaide has been completed in October 2018 and students will be able to move in to the property in January 2019, before the start of the new academic semester in February 2019.
On 7 November 2018, the Group announced the completion of acquisition of Benikea Hotel KP in Seoul, South Korea, expanding its footprint into North Asia. Benikea Hotel KP will be refurbished into a 208-bed accommodation primarily targeting at students. It is strategically located in close proximity to multiple top Korean universities and the Group will be leveraging on Seoul’s status as one of Asia’s most highly rated student cities, having ranked consistently in the top 10 QS Best Student Cities^3 since 2015. South Korea saw record-high growth^4 in the number of international students in 2017.
In Singapore, dwell Selegie continues to achieve a healthy occupancy rate of c.95.3% for 9M 2018, as the asset’s prime location and accessibility to various education institutions in the vicinity continues to drive the high occupancy rates.
The outlook for the Group’s student accommodation assets remains positive, given the attractive locations of its PBSA assets which are situated close to major universities, or within university towns, and the general strong demand and undersupply of PBSA beds.
Moving forward, the Group will maintain its course on selectively exploring opportunities to grow its accommodation business through targeted expansion in existing and new markets, as well as to diversify into other specialised accommodation assets.
The Group is currently seeking investors to participate in the establishment of a new student accommodation private fund, as part of its asset light strategy to achieve sustainable growth.
1 Source: Human Resources Ministry aims to make housing for foreign workers a mandatory, New Straits Times
2 Source: Nottingham and Reading join ‘first-class’ student towns
3.Source: QS Best Student Cities Rankings 2015-2018
4.Source: The PIE news online and National Institute for International Education, South Korea