Metro to press on with diversification strategy, cautiously optimistic on outlook

Singapore

MAINBOARD-LISTED Metro Holdings will continue to diversify its portfolio and grow its presence in different markets as the world gradually loosens restrictions and makes the transition to endemic living.

With the ongoing Russia-Ukraine conflict and the pandemic dragging on, 2022 is shaping up to be a volatile year. Still, Metro's group chief executive Yip Hoong Mun is cautiously optimistic that this year could be better than the last two years.

Yip said: "We are cautiously optimistic partly because many countries have started lifting their restrictions. We can see that some businesses are getting a little bit back to normal."

The homegrown retailer, which celebrated its 65th anniversary this year, started out with one textile store in High Street back in 1957 before growing into a well-known local department store chain. By the time it was listed on the Singapore bourse in 1973, Metro had a portfolio of three stores, before it went on to diversify into other areas such as property development.

While the group is still perhaps best remembered for its department stores, today it positions itself as a niche property investment and development company. Its property business dwarfs its retail segment, which comprises just 3 per cent of its total assets.

For the six months ended Sep 30, 2021, the group's property business (excluding associates and joint ventures) chalked up a profit of S$6.3 million, down from S$9.7 million a year ago due to lower gross profit contributions from the sale of property rights of residential development properties in Indonesia. Meanwhile, its retail segment reported a loss of S$0.7 million, versus a loss of S$0.8 million a year ago.

Over the years, it has expanded into China, Indonesia, the United Kingdom and Australia - often tieing up with joint venture parters. This is a strategy that has paid off during the pandemic when travel was restricted and it could rely on its overseas partners to keep those businesses running.

Still, even during the pandemic, Metro was able to enhance its presence in Singapore and Australia.

"When good times come, we should be able to leverage what we've done during last two years and expand further," he said, adding that Metro would like to grow its footprint in countries where it already has a presence.

Sector-wise, it has singled out industrial properties, student accommodation and neighbourhood malls as key areas of interest, and in recent years has been diversifying from commercial and residential properties. "We will see if there're opportunities for similar asset classes in other countries."

For one, it is open to making a foray into Japan, having inked a memorandum of understanding with Tokyo-listed Daiwa House Industry Co to invest in asset classes such as logistics, commercial and housing in the Asia-Pacific. At the same time, it is a cornerstone investor in Daiwa House Logistics Trust (DHLT).

Seizing opportunities

While pandemic-linked border closures meant it was difficult to travel abroad, it also made it hard for investors to come to Singapore, which created opportunities for Metro.

In December 2020, Metro acquired a 26 per cent stake in a portfolio of 14 industrial and logistics properties in Singapore for up to S$76.6 million, in a partnership with Boustead Projects. It went on to acquire another property at Braddell Road, also via Boustead.

Down Under, Metro acquired a stake in 4 office and 10 retail properties - perhaps fortuitously - in late 2019 in collaboration with Sim Lian Group. These retail centres have been fairly resilient during the pandemic and have delivered recurring income as the work-from-home trend encouraged spending in suburban malls.

Last year, it went on to acquire Cherrybrook Village Shopping Centre in New South Wales for nearly A$133 million (S$133.9 million) together with Sim Lian.

Metro has also established a £60 million (S$107.3 million) fund with Lee Kim Tah Holdings and Woh Hup Holdings to acquire purpose-built student accommodation (PBSA) assets in the UK. And in January last year, the fund acquired a student housing property in Bristol for over £30 million.

While bigger PBSA players such as Mapletree Investments and Singapore Press Holdings have been snapping up assets, Metro is adopting a different tack.

"We prefer to pick and choose, find the right asset and location. That's why our growth may not be as fast as them because we embark on a different strategy. We want to build up this asset class with good quality assets," he added.

In China, where Metro has been for decades, tighter financing conditions and the liquidity crisis engulfing developers such as Evergrande have resulted in a plunge in home sales. China is its biggest market in terms of asset value.

"For uncompleted (projects), (it will) affect us," Yip acknowledged. "But the good thing is we have a good balance of existing investments, which are already in operation." These early investments are also debt free, which will help to blunt the overall impact on its Chinese portfolio.

Once synonymous with retail, Metro has shuttered several departmental stores in Singapore along the way and currently maintains just two stores - at Paragon and suburban mall Causeway Point.

In 2019, it divested its 50 per cent stake in its Indonesian retail business, Metropolitan Retailmart, to its joint-venture partner, Trans Corpora, amid a challenging operating environment.

The retail industry in Singapore was already battling headwinds prior to the pandemic, which exacerbated the operating environment as the circuit breaker kept people at home and border closures kept tourists at bay. Household name Robinsons threw in the towel, while some other retail brands, such as Topshop, have also pulled the plug.

Add to the mix the growing popularity of e-commerce and rising costs for retailers, and one may wonder if the best days of department stores are well and truly behind them.

Digitalisation push

Yip said: "We're still managing retail as best we can. We continuously try to ... appeal to the younger generation more, while we leverage on e-commerce." For instance, it has tried using live streaming to sell its products to tech-savvy customers, and has rolled out promotions during shopping events such as Black Friday.

While easing safe distancing curbs means there is now more footfall at shopping malls and stores, retailers have to ensure that people keep coming back and patronise the brick-and-mortar store, he emphasised.

During the pandemic, Metro also accelerated its digitalisation push, first by collaborating with the likes of Lazada. Its own Metro e-commerce platform is a small percentage of its total takings but has been "doing pretty well", particularly during the circuit breaker, he said.

And while interest rates are heading north this year, following the first hike by the US Federal Reserve this month, Metro has always taken a "quite conservative" stance when it comes to borrowing.

So even as the rising interest rate environment will lift its operating costs, Metro may not feel the impact as heavily as some other firms, Yip reckons. "What that means is we have to work harder, to look at investments with higher returns."