When most Singaporean investors think about real estate, they think of Real Estate Investment Trusts (REITs). However, there are other real estate-related companies available on the SGX as well. One of them is LHN Limited (SGX: 41O).
LHN Limited is a real estate management services group that provides integrated real estate management services across Asia. Their space optimisation business takes old, unused and under-utilised industrial, commercial and residential properties and enhance and transform them into thoughtfully designed and highly usable space. Some notable space optimisation projects they have undertaken include Greenhub suited offices, Work+Store self-storage and Coliwoo co-living spaces. This is complemented by their expertise in facilities management which forms 46% of their FY2021 revenue.
In November 2021, LHN Limited proposed a spin-off and listing of their logistic services business (LHN Logistics) on the SGX Catalist. This would allow LHN logistics to better focus on its business, improve access to capital and allow the business to tap on new opportunities for expansion. The proposed spin-off is currently pending approvals and if successful, LHN Limited will hold major shareholding in LHN Logistics and the new company (and any of its future subsidiaries) will continue to be consolidated with the group.
Despite the pandemic (or perhaps due to it), LHN Limited achieved a 17% growth in Profit After Tax (PAT) in FY2021. If you are interested to find out more about LHN Limited or real estate management, here are 5 things to know about their business.
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#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 management services and; (iv) worker’s dormitory management services.
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 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’s shares 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
#3 Going digital/technological innovation is seen as a requirement to remain a viable business. What are some ways the Group is “disrupting” itself?
We firmly believe in a more productive and efficient workforce. As such, the use of digitalised and automated solutions is key in cutting down manual hours while retaining work quality.
This can be evidently seen through our ICFM business. Through the implementation of integrated cleaning solutions, we have drastically cut down time taken by our cleaning services to finish a task by almost half – allowing our cleaning staff to focus their attention on other parts of our buildings with higher touch points. This ensures that our buildings’ cleanliness and hygiene levels maintain their tip-top condition, not just for our staff but also for our tenants. We look forward to continuing integrating more of such technologies within our business in support of Singapore’s push towards a smarter workforce.
We have also introduced several digital initiatives across our business units. Our space optimisation business is a good example of such. Our team is now able to manage enquiries fully online and provide comprehensive 3D virtual tours of our spaces to enhance engagement with potential customers. We also set up video calls with them for a more personal touch and further interaction. This allows us to still meet our potential customers’ preference of getting an in-person viewing of the premise without having them be physically present – a convenient and safe workaround amid social distancing measures.
Our long-term plan includes the adoption of artificial intelligence, mixed reality and metaverse in our offerings to create unique experiences for our space users.
Users of our storage spaces will also be able to arrange for value-added pick-up services of their items for storage, billing, and booking of common onsite facilities all through our Work+Store app, a cutting-edge mobile application to be launched in the next few months. It combines the technology of smart building functions, value-added support services, and payment gateways all through a single digital platform – another key digitalisation function as we cope with the new normal.
#4 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.
#5 Understanding your customers is one of the best ways to retain and build business. What are some things LHN has learned about its customers changing needs in a post-pandemic world?
The pandemic has reshaped the whole real estate industry. The development of the pandemic situation will drive the evolvement of the industry as such:
Residential
For residential spaces, the manpower crunch in the construction industry has led to delays in delivering completed BTO flats, which increases the demand in rental housing market for locals. This could also lead to the further rise in the demand for more flexible living arrangements, such as co-living. Furthermore, as the gap between housing prices and earnings growth of young professionals widens, this could potentially lead to a shift in mindsets from owning to leasing properties.
We also foresee the demand for mixed-use developments growing in 2022, as buyers are more receptive to the ‘live-work-play’ concept. People are found to be happier living in a neighbourhood that provides for most of their needs, and enjoy the ease of living near their workplaces, amenities and recreational spots.
As mentioned, with more expats now returning to Singapore as borders reopening, we aim to also provide even more flexible and affordable accommodation offerings, to combat the continued increase in rental rates in Singapore, especially for that of condos, with prices hitting a 6-year high.
Industrial
On industrial spaces, consumers are now more inclined to shop online due to the pandemic and may permanently adjust their buying habits for certain categories toward e-commerce, and as such further boosting the already-high demand for industrial spaces. That is why we have seen a shift from a majority of trading business tenants to e-commerce sector tenants, along with the strong demand for space to perform live streaming for e-commerce sales.
With the storage industry growing alongside the e-commerce market share, the need for a physical space for storage, alongside a full suite of value-added services, will become the norm. Moving ahead, storage spaces must continue pivoting and adapting its services to meet such demands, as we eventually see storage spaces evolve into dispatch centres.
The implementation of work-from-home and distant learning measures require people to make space for workstation and study room at home, which results in raising the demand for self-storage space to keep underused household items and old furniture. Individuals affected by job loss or reductions in income turn to setting up their own home-based businesses as means to generate income. This trend leads to the increase in demand for affordable self-storage space to store equipment and inventories.
The uncertain economic conditions and rising costs in the years to come will urge businesses to look for comprehensive space concepts that could help them save cost and optimise operation.
Commercial
Businesses are choosing to reduce their office spaces due to the downsizing of business, prolonged work-from-home practice, and travel restrictions. This trend reflects clearly in the movement of our tenants from traditional space and GreenHub Suited Offices concepts to smaller, more flexible, and more affordable space concept like Work+Store. There is a rising interest in the flexible office component over fixed long-term lease models because of the uncertainty of the economic situation and the prolonged working from home practice.
Directly impacted by the work-from-home practice and social distancing measures, commercial building owners need solutions to convert and expand the scope of use of commercial properties to increase their rental yield.
The customer lies at the core of everything the Group does and the impact on different business communities. Being on the constant lookout for emerging market trends, we always seek to address the changing needs of our customers across the different business units. Moving ahead, we will continue to offer them the opportunity to achieve maximised efficiency and productivity with our innovative spaces and by constantly enhancing our technological and automation capabilities.
Editor’s Note: Some answers for this article were extracted from the SGX 10 in 10 series published on 18 January 2022 and have been republished with permission. You can read more on the SGX website.
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