LHN: Unlocking the value of more assets could potentially result in additional special dividends for LHN.

The company has a proven track record of acquiring underutilized or undervalued properties and enhancing their value through asset enhancement initiatives, subsequently selling them at a premium.

Notable FY23 divestments include the acquisition of Coliwoo Hotel Amber for S$27m in Mar 21 and its disposal for S$47m in Nov 22, an investment of S$40,000 in GetGo Technologies divested for S$7.9m, and the sale of its 84.05% controlling interest in LHN Logistics for S$31.9m.

In the near term, LHN may realize further gains from the potential strata unit sale of the food processing industrial building at 55 Tuas South in FY25, with the expected Temporary Occupation Permit dated 31 Aug 24. However, no special dividend has been factored into our financial estimates at this time.

Additionally, LHN’s space optimization business boasts a robust project pipeline, with plans for expansion into Indonesia. Coliwoo intends to grow its footprint, with 2024 openings scheduled at 48 & 50 Arab Street and 288 River Valley. These properties are expected to contribute around 26 and 39 keys and commence operations in 2HFY24 and 4QFY24 respectively.

Furthermore, LHN’s tender application for the GSM building, approved on 9 Feb 24, is estimated to add another 187 keys to its portfolio in FY25.

LHN has successfully achieved its target of adding at least 800 rooms in FY23 and aims to maintain this goal for FY24. Moreover, the company plans to rebrand 85 SOHO, its overseas counterpart in Cambodia and China, to Coliwoo and expand the brand into Jakarta, Indonesia. Given Jakarta’s high cost of living and lack of affordable housing options, LHN sees significant growth potential in the world’s fourth-most populated country.

Furthermore, LHN has demonstrated a strong operating cash flow, which has grown five-fold in the past five years, from around S$10m in FY18 to around S$54m in FY23. We anticipate that LHN’s ongoing expansion in the co-living and industrial segments will continue to drive growth in operating cash flow and core earnings.