1. Centurion Corporation is in the business of accommodation assets. Describe the group’s portfolio mix.

Centurion owns, develops and manages specialised accommodation assets globally. These include purpose-built workers accommodation assets (PBWA) under the Westlite brand, and purpose-built student accommodation assets (PBSA) under the dwell brand. As at Dec 31, 2019, the group owns and manages a portfolio of 33 accommodation assets totalling 65,133 beds.

As at 1HFY2020 ended June, workers accommodation accounts for 90% of total bed count while student accommodations accounts for the remaining 10%. We have a total of 12 workers accommodation assets and 21 student accommodation assets.

2. What are some notable developments and key focus areas for Centurion Corp in the near future?

Some of our notable developments in 2019 were:

• Operations began for 280-bed dwell in East End Adelaide (Australia) in February 2019. • Completion of 6,600-bed Westlite Bukit Minyak in Penang, Malaysia in 1Q2019. • Commencement of a 10+5 year lease for Westlite Juniper in Singapore starting in September 2019, adding about 1,900 beds. • Acquisition of 177-bed dwell Archer House in the UK in December 2019, our 11th PBSA asset in the UK and the 21st asset in our PBSA portfolio.

Due to the Covid-19 pandemic, we have deferred all non-essential developments, including the redevelopment of an existing block at Westlite Toh Guan. For the rest of this year and possibly the next, we will focus on strengthening operating capabilities and take steps to control costs and conserve cash resources.

3. What has the group’s revenue and profitability mix been over the past few years?

Centurion entered the workers accommodation business in 2011 and the student accommodation business in 2014. Before 2011, the business had been in the manufacturing of optical disks. Given our transformation into a specialised accommodation player, our optical disk business contribution to revenue and profit remains low.

4. How has Covid-19 affected your operating conditions? What measures have you put in place to mitigate the impact?

In order to better manage our business and keep our staff and residents safe during the pandemic, we have implemented various precautions at the Westlite dormitories, including the following:

• Operations: Limited cross-deployment of frontline security staff between dormitories; deployed intelligent cameras at sites to reduce manpower needs and enhance security coverage. • Safe distancing measures: Restricted social gatherings and inter-mixing of residents from different blocks and levels; closed all communal facilities and recreational areas to reduce social mingling. • Cleaning & disinfecting: Distributed thermometers, sanitisers and masks to residents; increased frequency and intensity of cleaning regime of common areas and high-touch points. • Safe Management for resuming work: Designated multiple pickup points and drop-off areas, in and out of dormitory; workers to sanitise their hands and shoes via auto-sensing sprays and disinfectant mat when leaving and returning to dormitory; implemented QR code process for workers released to work (pick up, drop off, report sick).

5. How is the group managing the higher operating costs and debt delinquencies generated by Covid-19? What measures is it adopting to manage cash flow and debt obligations?

Some $1.3 million additional operating expenses were incurred in 2Q2020 in the Singapore PBWA due to manpower costs and costs relating to Covid-19 precautionary measures.

The impact from Covid-19 was cushioned by $1.6 million from various government support schemes in various jurisdictions and $1.5 million reduction in finance expanded due to reduced interest rates against 2Q2019.

To better manage our cash flow, there was no interim dividend declared for 1HFY2020. As at June 30, the group’s interest coverage of 3.4 times is well within our threshold. Furthermore, Centurion has total cash and unutilised committed credit facilities of $167.2 million, providing sufficient liquidity to meet debt obligations when due.

6. Despite the headwinds from Covid-19, what are the opportunities for Centurion during this period?

As a result of Covid-19, the Singapore government announced plans to develop 60,000 worker accommodation beds in the short-term and 100,000 beds in the medium- to long-term. With our strong track record and proven capabilities of our Westlite management platform, we see opportunities to participate in these projects.

In June, Centurion secured a management service contract from JTC Corporation to manage about 4,200 beds across three sites in Singapore for a period of six months, with the option by JTC to extend for another six months. These beds are expected to be operational during the course of 3Q2020.

On Sept 1, we were awarded a tender from JTC to lease and manage four new Quick Build Dormitories (QBDs) totalling close to 6,400 beds for a lease term of three years, with the option of extension for an additional year. This expands the group’s Singapore PBWA portfolio capacity by 22.9%, from 28,000 beds to 34,400 beds (excluding the 4,200 beds contract with JTC, which are on a management service contract for a term of six+six months only).

7. Online learning may gain traction in the post-pandemic education landscape. How do you think this will affect global demand for the PBSA sector and how would you mitigate this impact?

We have observed universities switching to online teaching either partially or fully in order to continue with lessons in the midst of Covid-19. However, we believe that universities will resume physical classes once they are able to, as physical interactions are important parts of the college experience.

8. In the post-pandemic landscape, what regulatory changes are you anticipating for PBWA assets in Singapore and Malaysia?

In Singapore, the government is reviewing regulatory specifications for purpose-built dormitories. New specifications are being piloted in new temporary dormitories under development (including QBDs), and may be introduced to existing dormitories over time. However, the extent of impending changes and impact are not clearly defined as yet. Given our proven track record, we believe that we are well-positioned to participate in opportunities arising from upcoming changes.

In Malaysia, the government has published rules for minimum worker housing standards that employers must follow from Sept 1, the failure of which will result in fines. This legislation bodes well for PBWA operators like Westlite, with solutions which meet new requirements.

9. In your opinion, what are the factors that are critical for Centurion to navigate the pandemic?

• Experienced track record of management to identify and act swiftly to capitalise on growing business trends. • We halted non-essential development plans and took on measures to conserve cash. Besides tapping on government relief packages, management has approached our bankers early and have been well supported for moratoria on principal repayments and additional working capital facilities. • Strong and close communication with stakeholders. Through our dormitory operator Westlite, we have also been updating our public stakeholders, including client-employers, dormitory residents and media with the operational situation in our dormitories and measures we have taken in line with government advisory.

10. What is Centurion’s value proposition to its shareholders and potential investors?

We believe our group has performed reasonably well as compared to many sectors amid Covid-19. As at 1HFY2020, the NAV per share was 70.7 cents, whereas our share price was 36 cents as at June 30.

We are of the view that the current price to NAV ratio offers potential investors an opportunity to gain exposure in a company that manages quality and specialised accommodation assets in multiple geographies.

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Emelia Tan is a research analyst with the Singapore Exchange

Centurion Corp knocked down but not out by Covid-19 pandemic

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