This article, written by Jennifer Tan (left, Director, Research & Products, Equities & Fixed Income, at the Singapore Exchange), originally was published on SGX My Gateway kopi-C. The article is republished here with permission.
For Kelvin Lim, Executive Chairman and Group Managing Director of property management services group LHN Ltd, less is usually more.
Lim's eye for design plays a key role in LHN's space optimisation business, where the Group secures master leases of old and underutilised properties, and through a process of innovation and planning, followed by renovation and refurbishment, transforms them into creative, usable space.
Unfazed by Slowdown
Named after Lim's 65-year-old father Lim Hean Nerng, LHN grew from its humble sawmilling roots into a property management services company with a market capitalisation of S$83 million.
Listed last April on Singapore Exchange's Catalist Board, LHN has averaged an annual revenue of S$86.5 million and net attributable profit of S$8.1 million between the financial years ended 30 September 2012 and 2015.
In the 2016 year-to-date, LHN's shares have generated a dividend-inclusive total return of 76.8%, outperforming the benchmark Straits Times Index's 6.4%.
The Group's diversified real estate portfolio comprises 36 commercial, industrial and residential properties in Singapore, two commercial sites in Indonesia and a residential project in Myanmar. These properties have a total net lettable area of more than 4.5 million square feet and an average occupancy rate of over 90%. It has more than 700 tenants and averages a tenancy renewal rate of 72%.
Meanwhile, Lim remains nonchalant about slower growth in the domestic economy.
"A slowdown actually offers more opportunities. In this business environment, leases are cheaper, landlords are less optimistic and easier to negotiate with," he said.
"There's also less competition in securing master leases, which don't come cheap. We have a longer time frame to assess the viability of the property and make a decision, whereas in the past, we had to give an almost instant expression of interest."
We try to strike a balance between occupancy and rental rates, but if we need to choose between the two, we would reduce rentals to reach our target occupancy rates.
And when it comes to securing tenants, pricing is paramount. "We're very sensitive to pricing," Lim said.
"We try to strike a balance between occupancy and rental rates, but if we need to choose between the two, we would reduce rentals to reach our target occupancy rates. In that sense, we may function differently from normal landlords who tend to prioritise rentals."
LHN is also able to tap a large pool of recurring customers from a swathe of industries. "Even in a down market, there will be sectors that are doing well, while other sectors suffer. Companies from both sides will need new space to expand or downsize," Lim said.
"As long as we have the scale, are able to provide flexibility for our clients' evolving needs and price our product correctly, we will ensure that existing customers stay with us and new customers seek us out."
|♦ Rejuvenate and Restore|
Another competitive strength is LHN's design skills. "Most of the buildings we take over are quite old, and our job is to rejuvenate these structures - restore their former charm and find modern uses that can be integrated into the project," Lim said.
"Otherwise, we end up with a refurbished property that doesn't blend in with the environment and cost overruns."
Looking ahead, LHN plans to expand its GreenHub brand in Indonesia and Myanmar with more locations, as well as its Work + Store self-storage solutions in Singapore.
Building New Partnerships
Recently, LHN acquired several properties through joint ventures. These include a 341,000 sq ft property at 38 Ang Mo Kio Industrial Park 2 and a S$26 million, 540-carpark lot property at Golden Mile Tower.
The Group has also entered into a sales and purchase agreement to acquire mattress manufacturer and wholesaler Four Star Industries Pte Ltd. The acquisition includes Four Star's six-storey, purpose-built flatted factory building, with 17 years left on its lease. This is expected to pave the way for LHN to employ its space optimisation expertise on the furniture business and property.
"We are constantly looking to add to our portfolio of properties, and seeking opportunities where we can apply our expertise to increase the usability and productivity of the site," Lim explained.
Going into joint ventures makes sense for us - they allow us to spread our risk, gain valuable partners to drive the business, and enable us to build in a management fee for such projects.
Giving old and tired structures a new lease of life requires a keen eye and sensitivity to one's surroundings, said Lim who derives new ideas and inspiration from his travels.
"My passion is exploring and observing various cultures and architectural styles in different countries," he added.
"From these trips, you can see how people occupy their space - whether it's commercial, residential or retail - and earn their livelihoods. This provides insight into the trends of different communities."
Apart from regional jaunts, Lim also enjoys greenery and walking. "I love being close to nature," he added.
Values that he places a premium on include focus, discipline, and organisation. He hopes to impart these attributes to his five children - four sons and a daughter aged three to 14.
"I try to teach the older ones to pay more attention to their surroundings, be flexible in their thinking, and systematic in the way they carry out their tasks," Lim said.
"These are important qualities, and can help them succeed in any and every aspect of their lives."
|Year ended 30 Sep (S$ '000)||FY2015||FY2014||FY2013||FY2012|
|Profit before Tax||4,268||14,004||6,899||9,293|
|Net attributable profit||4,223||12,756||8,238||7,094|
|Quarter ended 30 Jun
|Profit before Tax||2,374||1,201||97.7|
|Net attributable profit||1,865||649||187.4|
Source: Company data
LHN Ltd is a real estate management services group with the distinguishing ability to generate value for its landlords and tenants through its expertise in space optimisation. The Group currently has three main business segments: space optimisation, facilities management and logistics services. Under its space optimisation business, the Group secures master leases of unused, old and underutilised commercial, industrial and residential properties and through re-designing and planning, transforms them into more efficient usable spaces, which are then leased out by the Group to its tenants.
The Group's facilities management business offers security services, car park management services and property maintenance services such as cleaning, landscaping, pest control, repair and general maintenance principally to the properties it leases and manages, as well as to external parties.
Under its logistics services business, the Group provides transportation services and container depot management services. The Group transports mainly ISO tanks, containers, base oil and bitumen, and provides container depot management services which include container surveying, on-site repair and storage of empty general purpose and refrigerated containers (reefer). LHN operates mainly in Singapore, Indonesia, Thailand and Myanmar.
The company website is: www.lhngroup.com.sg.
Click here for the company's StockFacts page.
For third quarter ended 30 June 2016 financial results, click here.