REAL estate management services provider LHN expects a higher net profit before tax of " no less than approximately S$17 million" for H1 2021, an estimated 4.5 times increase from the year-ago period, the company said on Tuesday in a preliminary update on the group' s unaudited financial results.

 

The growth comes on the back of gains from subleases, lower fair-value loss on investment properties, short-term contracts for the management of dormitories expected to end in the second half of the financial year, as well as a reduction in rental costs due to rental rebates received for the carpark division.

 

LHN Limited on Monday signed binding sale-and-purchase agreements to acquire eight flats in Beach Road for a total of S$16.8 million.

 

Half the units have an area of 128 square metres (sq m)   the other four are slightly smaller, at 125 sq m. All of the units are located at 75 Beach Road.

 

The purchases were made through LHN' s indirect wholly-owned subsidiaries HQ and Coliwoo. They each paid a S$420,000 deposit for their respective S$8.4 million purchases. The remaining amounts will be paid by the group' s internal funds and bank borrowings.

 

HQ acquired two units on each of the third and fourth storeys of the building, which the group intends to convert into its new headquarters. If the purchase is successful, LHN will move its headquarters from its current location at 10 Raeburn Park, which will be leased out, said the real estate group.

 

Coliwoo' s fifth and sixth-floor units are intended for commercial use. In an announcement on Tuesday, the group said that it hopes to expand its portfolio of properties under the co-working and co-living business in Singapore, as well as diversify its revenue stream.

 

According to the board, the acquisitions and their planned functions are " fair and reasonable" .

 

The units were used as homes by their previous owners with a tenure of 999 years less 10 days commencing from Jan 25, 1827.

 

As at Tuesday, HQ and Coliwoo had paid a total of S$2,792,748 in development charge to the Urban Redevelopment Authority and obtained the grant of written permission to change the flats' use from residential to office.

LHN has, through its joint venture company (JVC), accepted the option under the option to purchase for the acquisition of the Amber property at the purchase price of $27 million.

 

The option to purchase has become the binding sale and purchase agreement (SPA) for the Amber property.

 

As at March 24, the JVC has paid $1.35 million or 5% of the purchase price. The balance of $25.65 million will be paid upon the completion of the acquisition.

 

The acquisition is expected to be completed by June 8.

 

The consideration will be paid through bank borrowings and the JVC&rsquo s internal resources.

 

On March 15, LHN executive director and group deputy managing director Jess Lim Bee Choo acquired 4 million shares of the company through the Hong Kong listing for a consideration of HK$4,001,700 (approximately S$700,000).

 

This took the total interest of Ms Lim, and her brother Kelvin Lim Lung Tieng who is group executive chairman and group managing director in the company from 54.91 per cent to 55.90 per cent.

 

Ms Lim is responsible for corporate development as well as overall administration and oversees the group' s finance, human resource, information systems and contracts administration functions.

 

Back on Nov 27, 2020, the Catalist-listed stock reported FY20 (ended Sept 30) revenue of S$134.2 million, an increase of 20.8 per cent compared to FY19, achieving a record net profit after tax of S$24.7 million in FY20 compared to S$8.7 million in FY2019.

 

More recently, on Feb 23, the group provided further details of the acquisition of right-of-use assets for the operation and management of 33 JTC carparks in Singapore.

Its strategy of revamping unused, under-utilised spaces to suit emerging industry trends has proven valuable during the pandemic.

 

LHN Group' s strategy of revamping unused and under-utilised spaces to suit emerging industry trends has proven valuable, after the pandemic triggered a rush towards e-commerce and bumped up demand for its co-living spaces.

 

Five years ago, the company did a strategic review of its business and began shifting away from traditional self-storage - typically catering to those storing personal items - to target merchants operating online instead. It came as Singapore' s government was increasingly pushing for e-commerce to take off.

 

Today, the group operates nine properties in Singapore under its Work+Store brand. They house storage units as small as 50 square feet (sq ft), with flexible workspaces for business owners.

 

As Covid-19 pushed consumers to shop more online, the average occupancy rate rose from 84.1 per cent as at Dec 30, 2019, to 91.6 per cent as at Sept 30, 2020.

 

" During the circuit breaker last year, we realised that the whole of Singapore was quiet. But our customers who are e-businesses were busy fulfilling their orders for last-mile delivery," said Kelvin Lim, chairman and managing director of LHN.

 

The pandemic also aided its co-living segment, which is profitable.

 

LHN' s largest co-living property at 31 Boon Lay Drive had healthy demand from non-construction foreign workers who had to move out of dormitories due to the high number of Covid-19 cases. Occupancy across the 437 units rose from 91 per cent as at Dec 31, 2019 to 95.6 per cent as at Sept 30, 2020.

 

Mr Lim said other co-living properties at the fringes of the Central Business District attracted interest from white-collar workers and expatriates who wanted to downsize from their studio apartments in the city.

 

LHN' s 150-unit property on 150 Cantonment Road is managed by startup Hmlet, while its 62-unit co-living premises at 10 Raeburn Park is managed by International Service Apartments.

 

A 117-unit co-living property at Lutheran Road is managed directly by the group, and caters primarily to students.

 

LHN' s bottom line has improved in recent years. Over the last four years, its net profit has increased by a compounded annual rate of 80.1 per cent to S$24.2 million in FY2020 ended September.

 

The group has three main business arms: the core business of leasing out industrial, residential and commercial properties (which LHN describes as space optimisation) facilities management and logistics services.

 

Height of the outbreak

 

Revenue from the facilities management business almost doubled to S$39.6 million in FY20, thanks to a S$22.8 million increase in management services provided for workers' dormitories.

 

At the height of the Covid-19 outbreak among migrant workers last year, LHN secured contracts to convert spaces into workers' dormitories and to manage them. This also generated S$16.1 million in revenue from residential properties under the space optimisation arm.

 

These contracts, however, last only between six and 12 months. Income from managing dormitories is already beginning to taper off, said Mr Lim.

 

LHN will now focus on revamping spaces to cater to e-commerce, co-living and flexible workspaces.

 

Up to 70 per cent of the space in LHN' s Work+Store facilities is taken up by e-commerce retailers, most with a turnover of below S$1 million.

 

A typical lease lasts six to 12 months, and the average renewal rate is 80 per cent. LHN is looking for tenants with longer lease terms.

 

" Our unit sizes are suitable for startups and when our customers expand their business, we are also able to offer them a bigger unit under our traditional leasing space," said Mr Lim.

 

It certainly helps that LHN is clued into the latest e-commerce trends. Its largest Work+Store facility, located in Ang Mo Kio, has photography studios, a live-streaming area, meeting rooms and a customer lounge.

 

In February 2020, the group acquired the former Hyflux Building at Kallang Bahru through a joint venture with Oxley' s deputy chief executive Eric Low. When the new facility commences operations in April, it will be supported by an automated retrieval system and a dedicated last-mile logistics team supplied by LHN.

 

New ventures

 

Though the group has expanded into new territory in recent years, Mr Lim said the bulk of its revenue in the industrial segment still comes from traditional leasing.

 

LHN was originally in the sawmill and timber trading business. In 1991, when production declined, then-chairman Lim Hean Nerng - Mr Lim' s father - began leasing out excess warehouse space in the family-owned factory to tenants in the wood-working business. This was later expanded to include other tenants.

 

In the last five years, the group has shifted away from tenants in labour-intensive trades towards companies in trading and services.

 

" As you know, the government is trying to cut down reliance on foreign labour. So we skewed ourselves away from those tenants with a heavy reliance on that," Mr Lim said.

 

LHN boasts an asset-light model: About 80 per cent of its properties by area is master leased, and about 20 per cent is owned. This, the company said, gives it flexibility to exit projects that are a drag on the business.

 

Last year, for instance, it decided not to renew a large lease area in Tuas (10 to 40 Tuas South Street 1) that catered mainly to engineering and construction tenants.

 

Instead, the group will double down on new areas of growth. Last November, it established a joint venture with Mr Low' s sister to acquire Amber Hotel property in Katong.

 

The intention is to fit the property out as a co-living cum hotel space, with personal rooms, communal spaces and amenities. It will be open for stays as short as one day, unlike co-living serviced apartments which have a minimum occupancy period of seven days.

 

Clear market need

 

In February, LHN will commence operations at a mixed-use development at 1557 Keppel Road. The three blocks spanning 96,299 sq ft will be used as offices and co-living units.

 

There is a clear market need for integrating co-working with co-living, Mr Lim said, and the group intends to develop more spaces to fit.

 

LHN had a gearing ratio of 21.6 per cent as at end-September. Though the group needs to lever up as it expands, Mr Lim said it will take a very cautious approach based on its cashflow position.

 

" (As a rule of thumb), for leasehold properties, non-gearing yield should be at least 12 per cent. And for freehold properties, at least 6-8 per cent," he said.

 

" The pandemic has brought about changes in the way we live, so we are watching very closely for what is going to blow up in the market. And when we see opportunity, we will be the first runner to create new concepts to suit businesses and individuals."

LHN says the commercial-residential space is a nod to changing market demand for co-living and working space

 

REAL estate management services group LHN plans to launch a mixed-use development at 1557 Keppel Road by mid-February 2021.

 

The integrated space, located on the fringe of the central business district (CBD), will be used for commercial and residential purposes.

 

It consists of three blocks spanning 96,299.05 square feet (sq ft), Catalist-listed LHN said in a bourse filing on Monday.

 

Block C, the property' s main block dedicated to office spaces, is three storeys high.

 

Each level has about 24,000 sq ft of space, and the units have a ceiling height of 5.5 metres to 6.5 metres.

 

The block also comes with in-house dining options and a gym for tenants and workers.

 

It is expected to attract commercial tenants, such as clinics, shipping companies, insurance, back-end banking, information technology and e-commerce providers, LHN said.

 

Blocks A and B will house 47 serviced apartment units under the group' s Coliwoo brand.

 

Each co-living unit comes with kitchenettes, smart TVs, microwave ovens, fridges and washer-cum-dryers.

 

A garden area which doubles as a communal space is also available for residents to use.

 

The development is near the Outram Park and Tanjong Pagar Mass Rapid Transit (MRT) stations.

 

It is also near the upcoming Cantonment station, which is set for completion by 2025.

 

Kelvin Lim, LHN Group' s executive chairman, executive director and group managing director, said of the development: " Recognising the changing market demands for co-living and working spaces, we have created our second integrated development with modern working professionals and their lifestyles in mind."

 

1557 Keppel Road is LHN Group' s second mixed-use development.

 

Its first, 10 Raeburn Park, also functions as the group' s headquarters.

LHN Limited has obtained written approval from its controlling shareholder for its acquisition of a property in Balestier, it said in a filing to the Singapore Exchange on Tuesday.

 

As a result, it will not hold an extraordinary general meeting to seek shareholder approval for the transaction.

 

Fragrance Ltd, which represents 54.91 per cent of LHN' s share capital, has approved the Balestier acquisition and transactions contemplated under the option to purchase. The circular setting out further details will be despatched to shareholders on Wednesday.

 

LHN will be purchasing a four-storey corner building at 320 Balestier Road for S$18.1 million through its indirect wholly-owned subsidiary Coliwoo Balestier, and intends to operate it as a co-living space.