• We visited LHN’s recently launched 411 keys co-living property in Orchard. The new project will raise LHN co-living capacity by around 40%.
• Co-living is a product with a flexible lease to serve the medium-term residential lease market. It fits in between tenants requiring longer stays than a hotel and shorter than a rented apartment. It is more affordable than service apartments with an added community experience.
• No change to our FY23e forecast. Coliwoo is a major earnings driver for LHN in FY23e. Capacity over FY21-FY23e is expected to double to around 1,600 keys. The current pipeline is 2,500 keys. Coliwoo Orchard can generate more than S$15mn in revenue, doubling FY22 co-living revenue. We maintain a BUY with a lower TP of S$0.47. Core business valuations are pegged to 6.5x FY23e P/E, while the industry is trading at 13x. The stock is also trading at 38% discount to book value of S$0.455 with a dividend yield of around 6%.

Highlights

• Demand is healthy with a waiting list. Since launch, the take-up rate has been encouraging. The good location near Orchard MRT and access to shopping, entertainment and Mount Elizabeth hospital will cater to a wide mix of tenants. Rental per month is more than S$3,000. This is compared with surrounding area apartment rents of around S$5,000 per month with a 1-2 year commitment. Another advantage of co-living over rental apartments is the ability to occupy immediately with all available utilities including internet, etc.
• Riding on the strong rental market. Co-living will benefit from the buoyant rental market. The residential rental index is up 30% in 2022 and the re-opening of borders will further boost demand. The breakdown of tenants is around 70% foreigners, 20% locals and 10% students. LHN conducts direct marketing to corporates and nearby hospitals in addition to other marketing channels such as the internet, social media and property agents.
• Optimising space, sustainability driven and asset light. After taking over the previous Fraser Residence, LHN drew on its sustainability-driven method to optimise the rental space without having to demolish and reconstruct the building. From the previous building’s 72 units, 135 units with 411 keys product was created. LHN has built its chain of Coliwoo properties on a master lease basis.
• Multiple attractions. Every unit comes complete with an attached bathroom, queen bed, TV, washing machine, kitchenette and refrigerator. Housekeeping of the unit is done once a week. The average daily rate per night is $200 compared to nearby service apartments that are close to S$400.

• Other co-living operators in Singapore. The other co-living operator includes lyf (Ascott), YOLOLive, Hmlet, Login Apartment (Shanghai), COVE, CP Residences and Commontown (S Korea).

Maintain BUY with unchanged TP of S$0.47

We maintain a BUY with an unchanged TP of S$0.47. Valuations are attractive at 4x PE and a dividend yield of 6%. The two major earnings drivers will be the expansion of the Coliwoo footprint across Singapore and the completion of a new ISO depot by mid-2023.