3 stocks to benefit from the continued strong demand in student housing

BY JAMES YEO, SMALLCAPASIA

According to a Savills report, global investment into student housing totalled US$17.1 billion in 2018, more than double of around US$8 billion just 5 years ago in 2013.

Today, the Purpose Built Student Accommodation (“PBSA”) sector still presents one of the most attractive new market opportunities for investment due to 2 main reasons:

Demand/Supply Imbalance

Supply of student housing remains low in mature markets such as Australia, UK and US. The number of PBSA beds measured against total full time higher education students in each country amounts to 11% in Australia, 24% in the UK, 12% in US.

Stable, Income-generating Asset Class

Amid all the worries about Brexit and US-China tensions, PBSA remains as a resilient and cash-yielding asset class for institutional investors.

With that in mind, we dive into 3 local stocks which are riding on the strong demand in the student housing space.

1) Centurion Corporate Limited (SGX: OU8)

First up on the list, we have Centurion Corporation Limited or “Centurion Corp” in short. The company successfully expanded into the student accommodation business in 2014 and has grown the number of PBSA beds from 2,362 in Dec 2014 to a total capacity of 6,256 beds as at Jun 2019.

Today, the Group owns 20 operating assets managed under the “dwell” brand in major global education hubs such as Singapore, Australia, South Korea, UK and US. One remarkable initiative by Centurion was to set up 2 funds to grow its portfolio and its fee-based property management services:

Establishment of Centurion US Student Housing Fund in Nov 2017 (US$89.5 million)

First closing of Centurion Student Accommodation Fund in Nov 2018 (S$70 million in committed capital)

Moving forward, Centurion Corp is embarking on Asset Enhancement Programmes (AEPs) for 1 Australian asset in Melbourne which will add an additional 160 beds and also ramp up occupancy progressively for its newly acquired South Korea’s student accommodation – dwell Dongdaemun and newly developed dwell East End Adelaide. Lastly, the company will also bank on scalable growth through joint ventures and asset light strategies, including the establishing of private investment funds.

2) Wee Hur Holdings Limited (SGX: E3B)

Coming in close is Wee Hur, a property group with core businesses in construction, property development, and dormitory operations. The company recently ventured into the ‘Student Accommodation’ segment through its construction of their lst PBSA in Brisbane, Unilodge Park Central.

Wee Hur is commencing operations of its 2nd PBSA in July 2019 and will likely increase their portfolio’s operational beds to 2,350 by second quarter of 2019. It has another 3 PBSA in the pipeline under construction and operations are not going to commence until year 2021.

Currently, the student accommodation segment does not constitute to a material portion of its profits as the first batch of students has started flowing in during July 2018. Looking ahead, Wee Hur has set a target of 5,000 PBSA beds in the next few years and is in the final stage of securing the final land parcel of the portfolio.

3) Singapore Press Holdings Limited (SGX: T39)

The digital shift towards media consumption has disrupted SPH’s core publishing business and led to a multi-year decline in the segment’s profits. In a bid to revive the fortunes of the company, SPH invested in the student housing sector on September 2018 by purchasing a portfolio of PBSA assets in the U.K. for around £180.5 million (S$321 million).

According to SPH’s media release, the portfolio comprises 14 buildings (10 freehold assets and 4 leasehold assets) in the UK with a total capacity of 3,436 beds for student accommodation.

Since then, SPH has completed a string of acquisitions in the UK, adding 1,507 beds compared to the previous year. This scales the company’s PBSA portfolio to an Assets Under Management (AUM) of around S$600 million and a total capacity of 5,059 beds.

In its latest 3Q FY19 results, SPH has refinanced a 4 year loan of £205 million to deploy for more opportunities in the UK and beyond. It is ramping up its marketing capability with centralised marketing and sales office in China too.

Quick Comparison

In the table below, we do a quick comparison of how the companies are faring as a whole.

In comparison, Centurion has the highest number of beds for the student housing sector (which translates to higher rental revenue). In addition, it scores the highest across various metrics like Return on Assets (ROA), Net Profit Margin and Dividend Yield.

On the other hand, its Debt-to-Assets is the highest among the 3 companies. That said, it sports a comfortable 4.6x interest cover where its operating profits can readily cover for the interest payments.

To end off, the student accommodation sector has become a limelight among other asset classes, underpinned by strong demand and steady yields. However, investors should still be mindful of the risks involved. eg Possible changes to government regulations and policies in education and immigration.

 

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