Metro pivots to property as retail takes a hit
The retail arm of homegrown Metro Holdings was once better known for its chain of department stores and at its peak in the early 2000s, the company boasted 11 department stores across the island. But today, the mainboard-listed company only has two Metro department stores in Singapore after it closed its Metro Centrepoint store when the lease expired in October 2019. This was “part of the group’s long-term strategy of rationalising its retail business”, the company said during its FY2020 results briefing.
On the other hand though, the company is diversifying its business into property investment and property development over the past few years. Today, Metro has a real estate presence in five countries around the world, namely Singapore, China, Indonesia, the United Kingdom, and Australia.
“The company will be 63 years’ old this year,” says Yip Hoong Mun, group CEO of Metro. “We have grown from a small Singapore company that started out as a department store operator in 1957 and we have come a long way and transformed into a property investment and development company in the international arena.”
Three new investments in FY2020
Corporation. The fund then entered into a 50:50 JV with ARA Asset Management to acquire The Atrium Mall in May 2019.
“The property is well-located in the heart of Chengdu’s central business district. We entered the sale with two other partners, and we were able to acquire this asset at a very good price,” says Yip. ARA will be the asset manager of the shopping mall, which is currently undergoing asset enhancement works that will be completed by the end of September this year.
Metro also expanded its investment presence into Australia for the first time by partnering Sim Lian Group to acquire a 20% stake in a portfolio of 14 freehold assets, comprising four office buildings and 10 retail centres. The properties are located across the states of New South Wales, Victoria, Queensland and Western Australia. Metro’s proportion of the total purchase consideration amounted to A$95.8 million ($91.86 million). “This investment is in line with the group’s strategy to drive the diversification of its investment portfolio across the region and generate a stable and recurring income stream,” the company says. we will continue to look out for more development opportunities together with established and reputable local partners.”
Elsewhere, Metro says it has fully sold a 284-unit residential development in Shanghai, called Shanghai Shama Century Park, as well as 144 apartments at its residential project The Hat Box in Manchester in the UK. Yip says, “We intend to get the planning approval to develop an adjacent plot of land (beside Hat Box), which we will develop into a new apartment development housing about 60 units.” The company has also completed and handed over 571 units at its Middlewood Locks development in Manchester, and is planning to launch the next sales phase soon.
Back home in Singapore, Metro has retained its 40% stake in the condominium The Crest along Prince Charles Crescent. The 469-unit development was jointly developed with two other Singapore-listed property companies — Wing Tai Holdings and UE E&C. The 99-year leasehold development was first launched for sale in 2014, and was completed in 2017. Metro says that only 20 units remain unsold.
But the company is unlikely to return to the local residential market any time soon. “Residential development in Singapore is quite tough at the moment, and the supply of upcoming projects is quite high as well with about 40 projects expected to launch this year. While we will always be on the lookout for opportunities, I think it is a little tough to embark on a residential development (in Singapore now),” says Yip.
Retail operations falter amid pandemic and closures
In FY2020, the ongoing Covid-19 pandemic took a big bite out of the company’s finances, with the group announcing retail revenue decreased to $108.9 million, down from $130.6 million in FY2019. The company says this was due to the closure of Metro Centrepoint in last October, as well as lower sales from its remaining department stores in Singapore due to shorter operating hours in February and March.
Metro only operates two retail outlets in Singapore: its flagship location in Paragon and its Woodlands department store in Causeway Point shopping mall.
According to a Metro spokesman, “Singapore’s retail sector is expected to remain highly competitive over the next five years, with rising operating costs and margin pressures, exacerbated by Covid-19 challenges. This has fundamentally shifted the retail landscape. Going forward, the group will continue to leverage on its online platforms to capture opportunities in the growing e-commerce market.”
The group will focus on a “multimedia strategy to capture the growing e-commerce market” and is banking on its online platform, Metro Online, to complement and co-exist with its stores, the spokesman adds.
The company’s relatively poorer retail revenue were partially offset by a divestment gain of $10.6 million from the sale of the group’s 50% stake in its Indonesian associate company, PT MRM, which operated 11 Metro stores in Jakarta, Bandung, Surabaya, Makassar, Solo, and Manado. The divestment was completed in December 2019. As a result, the retail segment posted a segment profit of $10.4 million in FY2020.
Metro says it remains committed to its retail business even as it broadens its real estate investment, and the company says its overall business will remain “backed by established retail operations”.
“Over the years, our revenue was mostly contributed by (retail revenue) from our stores. But last year, half of our revenue of about $210 million came from our retail operations while the other half come from sales of our residential developments in Bekasi and Bintaro,” says Yip.