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How You Can Benefit from Investing in This Recession-Proof Sector That Has Even GIC and Mapletree on Board

Earlier this year, Singapore’s sovereign wealth fund, GIC, formed a joint venture with the Canada Pension Plan Investment Board and The Scion Group to buy a student housing portfolio in the United States for around US$1.1 billion.

Mapletree, a non-listed real estate giant in Singapore, is also in the purpose-built student accommodation (PBSA) market. Under the Mapletree Global Student Accommodation Private Trust, Mapletree has 35 student accommodation assets located in 22 university cities across the United Kingdom and the United States.

Money is flowing into the PBSA market due to the higher returns of student accommodation assets compared to commercial spaces and residential housing. Student housing is also recession-proof, and with a supply-demand mismatch (more students than beds available), it is not surprising that many investors want a piece of the action.

In Singapore’s stock market, there are some companies that have a foot in the PBSA sector. Let’s look at three such companies.

Company #1 

Centurion Corp Ltd (SGX: OU8), which was listed in 1995, is one of Singapore’s largest owner-operators of workers accommodation assets in Singapore and Malaysia. It also owns and operates student accommodation assets in Singapore, Australia, the UK, and the US. The company’s student housing assets are managed under the dwell brand.

As of 30 June 2018, Centurion had a portfolio of 16 PBSA assets in the four countries with an average occupancy of around 92%.

On top of the accommodation business, the company also manufactures storage discs. In December 2017, Centurion completed a dual primary listing on the Hong Kong Stock Exchange’s main board with a stock code of 6090.

The following chart shows how Centurion’s accommodation business has grown over the past few years:

Source: Centurion investor presentation (2018 SGX-Credit Suisse Real Estate Corporate Day)

From 2011 to 2017, the revenue and net profit from Centurion’s accommodation business have both grown consistently , which is commendable.

At the end of Monday’s trading session, Centurion’s share price was S$0.44, which gave the company a price-to-earnings (PE) ratio of 12 and a dividend yield of 4.6%.

Company #2 

Many would not associate Singapore Press Holdings Limited (SGX: T39), or SPH in short, with the student accommodation market. But, the newspaper published has jumped on the PBSA bandwagon too.

Last month, SPH announced that it had completed the acquisition of a portfolio of PBSA assets in the UK from Unite Group PLC for around £180.5 million (S$321 million).

The portfolio comprises 14 buildings (10 freehold properties and four leasehold properties) across six towns and cities in the UK, such as London, Plymouth, and Sheffield. The buildings have a total capacity of 3,436 beds for students, and are in established university towns and cities with large full-time student populations.

Ng Yat Chung, the chief executive of SPH, shared the following comments in the company’s announcement of the deal:

“This cash-yielding acquisition will generate recurring cash flow, and is part of our ongoing strategy to diversify our business to new growth areas. It will boost our real estate asset management portfolio, establish us as an overseas owner of PBSA in the U.K, and allow us to pursue other growth opportunities in this sector.”

SPH’s share price ended Monday at S$2.86, giving the company a PE ratio of 12 and a dividend yield of 3.2%.

Company #3 

Wee Hur Holdings Ltd (SGX: E3B) has its core businesses in construction, property development, and dormitory operations. The company recently expanded into the PBSA market.

According to Wee Hur’s 2017 annual report, Wee Hur PBSA Master Trust started operations in 2017 with an aim to build a portfolio of 5,000 PBSA beds in Australia’s major cities. The total number of PBSA beds in the pipeline was around 3,250. As of March 2018, the total amount of committed funds was around 90% of the A$350 million target.

Wee Hur’s share price was at S$0.225 yesterday, which translates to a PE ratio of 7 and a dividend yield of 3.1%.

The Foolish takeaway

Investors interested in the PBSA sector can partake in its growth by investing in any of the three companies above. However, before you put your hard-earned money into any of the shares, you have to look at the stability of the company’s PBSA portfolio, the company’s ability to generate cash, and the debt level of the company, among other things. Only then can investors have a holistic picture of the company and make a well-informed decision.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.