SGX Market Dialogues

Author: SGX   |   Latest post: Wed, 25 May 2022, 3:20 PM


10 in 10 With LHN Limited - Next-gen Space Optimisation

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10 Questions for LHN Limited Company Overview Headquartered in Singapore, LHN Limited is a real estate management group and logistics service provider with strong presence across Asia. The Group has a distinguishing ability to generate value for its landlords and tenants through its expertise in space optimisation. The Group also provides complete facilities management and logistics services, which serve to complement its space optimisation business.

1. Could You Elaborate on LHN’s Business Segments?

  • The Group currently has three main business segments which are fully integrated and complementary to one another.
  • Space Optimisation Business - We primarily secure master leases of unused, old and under-utilised commercial, industrial and residential properties. Through proper planning and re-designing, we transform these properties into more efficient and usable spaces, which are then leased out to our tenants. Space optimisation efforts allow us to enhance the value of properties by increasing their net lettable area as well as potential rental yield per square feet. Besides managing properties, we develop space concepts that suit the evolving requirements of the modern-day space users. Amongst them are our Work+Store self-storage and Coliwoo co-living space concepts.
  • Facilities Management Business – We offer (i) cleaning and related services (pest control, repair and general maintenance); (ii) car park management services to the properties the Group leases and manages, as well as to external parties; (iii) energy managementservices and; (iv) worker’s dormitory managementservices.
  • Logistics Services Business - We provide (i) transportation services; and (ii) container depot management services. We transport mainly International Organisation for Standardisation (ISO) tanks, containers, base oil and bitumen. The Group also provides container depot management services which include container surveying, cleaning, on-site repair and storage of empty general purpose and refrigerated containers(reefer).
  • In November 2021, we announced exploring the possibility to spin-off our Logistics Services Business via a proposed listing on SGX Catalist.

2. What Were Some of the Drivers for LHN’s 17% Growth in Profit After Tax (PAT) in FY2021?

  • The growth can mainly be attributed to an improvement in the profitability of all three business segments along with lower cost of sales and operating expenses.
  • The growth in profit of our Space Optimisation Business was due to the increase in demand for Industrial and Residential spaces, especially storage solution and co-living spaces. Our Space Optimisation Business enjoyed high occupancy rate for its key property portfolios - Work+Store self-storage properties at 98.9% (excluding joint venture properties) and Coliwoo co-living properties at 99.5% as of 30 Sep 2021. In FY2021, our Space Optimisation Business renewed a total of seven master leases and commenced operations at our mixed-use development at 1557 Keppel Road and our joint venture (JV) properties at 5 Toa Payoh and 202 Kallang Bahru.
  • Our Facilities Management Business continued to deliver higher revenue at S$55.4 million in FY2021, driven by the expansion of the carpark business arising from the joint venture acquisition of Bukit Timah Shopping Centre carpark which was completed in December 2020. The commencement of operations of 33 new carparks in January 2021 awarded by JTC Corporation further contributed to our increased profits. We also saw a sharp increase in demand for facilities managementservices amid the COVID-19 pandemic.
  • The Logistics Services Business continued to grow in FY2021, mainly due to increase in transportation services provided from our trucking business in Singapore and Malaysia.

3. How Is the Group’s Revenue Split Across the Various Geographies & Business Segments?

  • Our Facilities Management Business brought in 46% of our FY2021 revenue, while our Space Optimisation and Logistics Services Businesses brought in 32% and 22% respectively.

4. The Group proposed a spin-off and listing of LHN Logistics on SGX Catalist recently. Why did the Group consider this strategy and how would this impact the Group?

  • Our Logistics Services Business has constantly achieved good and steady strong financial performance, and over the years, successfully expanded its operation overseas. Given that the logistics unit is not closely related to our core real estate management business, the Group decided on a proposed spin-off which could enhance the visibility of the logistics business and improve its access to capital, allowing the business to tap on new opportunitiesin line with its expansion plans.
  • We envisage LHN Limited to hold majority shareholding in LHN Logistics, and LHN Logistics (together with its subsidiaries after completion of the reorganisation) will continue to be consolidated with the Group.

▪ The Spin-off Will Benefit Both Existing and New Investors Due to the Following Reasons:

  • As an independent entity, LHN Logistics can better focus on its product and services, attract better talent, improve capital allocation, and drive a cohesive strategy. Hence, a spin-off will derive more value for its shareholders and allow our investors to diversify their investment.
  • LHN Logistics has potential for continued growth and making the leap, which may elevate the value of the company’sshares in the long run.
  • The spin-off will create a more reflective and accurate valuation of both the remaining businesses in the Group and LHN Logistics.

5. How Does the Group Plan to Sustain the Profit Growth for Next Year?

  • Despite robust recovery, the Group anticipates certain headwinds including global supply chain disruptions which led to higher construction cost and delays. We also anticipate higher electricity and operating costs in addition to rising interest rate risk. Given the uncertain economic conditions, we will exercise caution in implementing our growth strategy.
  • To sustain the profit growth for next year, the Group plans to be more prudent and selective in our target investments, design new real estate space solutions and provide a wider scope of facilities management services to better serve the emerging needs of our customers in the post-COVID world, adopt more technology to enhance productivity and efficiency in resource management and upgrade our existing facilities and offer more value-added services to enhance rental yield.

6. Could You Elaborate on the Future Direction for the Group’s Business Segments?

  • In FY2021, we completed several property acquisitions and renewed seven master leases to further expand our offerings under the Space Optimisation Business. The Group expects a full year of revenue contribution from newly acquired industrial joint venture properties at 202 Kallang Bahru and 55 Tuas South Avenue 1.
  • We are also expanding our Coliwoo portfolio with the launch of six Coliwoo properties in 2022, which is expected to add 600+ rooms to its existing 800+ rooms. We aim to gradually expand our business network by adding to our portfolio 1,000 co-living units annually and 1,000 self-storage units biennially.
  • For the Facilities Management Business, we will continue to seek for external facilities management contracts covering estate and building management, repair, maintenance and cleaning, pest control and sanitisation & disinfection of buildings and offices. We also plan to build up our market share in our carpark management business by offering smart parking solutionsto optimise space utilisation.
  • For the Logistics Services Business, the Group will continue to seek opportunities to grow our transportation fleet, container depot network and expand logistics customer base in Singapore, Malaysia, and ASEAN region.

7. What Is the Group’s Growth Strategy for Residential Co-living Business Portfolio?

  • The pandemic has resulted in an uptake for co-living spaces from local working professionals, young millennials, Singaporean couples and foreign expats. Aside from launching the six Coliwoo properties in 2022, we are also introducing a new Coliwoo Hotel concept in Feb 2022, together with our JV partner, through the launch of our first Co-living Hotel property at 40 and 42 Amber Road. Our Co-living Hotel concept will differ from a typical hotel, focusing on creating a community living experience for short-term stays. We will also be subsequently rolling out 115 Geylang and 471 Balestier as part of our Coliwoo Hotel portfolio.
  • The Group expects this segment to grow with more expats returning to Singapore as borders reopen, along with our aim to provide flexible and affordable residential offerings, on the back of the continued increase in rental rates in Singapore.

8. What are some notable developments that shareholders can look out for or expect in the near to medium term?

  • We will install Photovoltaics (PV) solar panels and electric vehicle (EV) charging stations at more of our properties. In 2022, we plan to complete solar panel projects at four sites, namely (1) 31 Boon Lay Drive, (2) 320 Balestier Road, (3) 34 Boon Leat Terrace, and (4) 44 Kallang Place.
  • For Logistics Services, we will commence the construction of a new ISO tank depot at 7 Gul Avenue to offer bulk storage of dangerous goods, ISO Tanks and ISO Tanks washing and repair services. There is also the proposed spin-off and listing of LHN Logistics, which will seek to provide the Group with further opportunities to grow its expertise in the sector, and expand its business presence in Singapore

9. What Are Some Ways the Group Is Working Towards Supporting a Sustainable Economy?

  • To contribute to the Government’s Green Plan 2030, we reiterate our commitment to ensure a sustainable future through the reflection of our five key sustainable operational principles: (1) reducing carbon emissions; (2) protecting and conserving resources; (3) recycling; (4) choosing environmentally friendly materials and vendors; and (5) increasing green coverage.
  • Instead of demolishing old buildings to build new ones, we restore their original conditions and recycle them into useful modern space concepts. By doing so, we not only increase their rental yield, but also save resources and reduce our carbon footprint.
  • The Group is investing approximately S$1 million to install about 200 EV charging stations across its properties over the next three years. We are also exploring energy storage solutions to utilise untapped electricity generated by our solar panels to supply power to EV charging stations.
  • Solar panels have also been installed across some of our developments. We are looking to gradually cover most of our rooftop spaces with solar panels by rolling them out in at least three more sites each year.

10. What is LHN Group’s value proposition to its shareholders and potential investors? What do you think investors may have overlooked about it?

  • We position ourselves as a space optimisation company with the unique ability to provide innovative, affordable and yet quality living and working spaces for individuals, small and mid-size enterprises (SMEs) and start-ups. With our teams constantly on the ground, we are able to utilise our deep-rooted expertise to cater to the ever-changing needs of our clients. Our goal is to nurture these up-and-coming businesses, support their growth, and provide them with a holistic rental experience.
  • With an extensive range of spaces under its management, LHN aims to create a community for these SMEs and micro-SMEs in every stage of their business life cycle. Moving ahead, the Group will provide space users and businesses with more than just physical spaces, but a holistic network, creating new business opportunities and solutionsfor them within the Group’s client network.

10 in 10 – 10 Questions in 10 Minutes With SGX-listed Companies

Designed to be a short read, 10 in 10 provides insights into SGX-listed companies through a series of 10 Q&As with management. Through these Q&As, management will discuss current business objectives, key revenue drivers as well as the industry landscape. Expect to find wide-ranging topics that go beyond usual company financials.

This report contains factual commentary from the company’s management and is based on publicly announced information from the company.

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