Once a household name in Singapore, Metro Holdings M01 was known for its chain of department stores. At its peak in the early 2000s, Metro had 11 stores across the island. While its competitor Robinsons shuttered its doors in January 2021 after being in the market for over 160 years, Metro has proven more resilient, maintaining two stores in Paragon at Orchard Road and Causeway Point in Woodlands.
In its May 26 briefing for its latest FY2023 ended March results, CEO Yip Hoong Mun explains that the retail landscape will remain challenging, especially under prevailing inflationary pressures. Hence, it will focus on maintaining its two current outlets while expanding its property investment and development segment; more specifically, Yip says that the company intends to grow its purpose-built student accommodation (PBSA) portfolio in the UK and its industrial and logistics properties in Singapore.
“In the middle of last year, despite difficulties in travelling, we have identified PBSA as a resilient asset class because people will still need to study during good times or bad times. And perhaps during the bad times, they will study more,” says Yip, adding that all of the company’s PBSA properties are located near universities.
The company has noted that occupancy with all types of student accommodation suffered during the pandemic but this has recovered as students return to university campuses in greater numbers after the crisis and with the resumption of a more normal pattern of enrolment.
Diversifying its property portfolio
In the past year, Metro has invested in four PBSA properties, bringing its total number of PBSA properties in its portfolio to six or 902 beds.
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Investment in the six freehold PBSA properties are made through a fund, Paideia Capital UK Trust. Paideia Capital UK Trust is 30% owned by Sun Capital Assets, a wholly-owned subsidiary of Metro. The remaining 70% of the trust is held by Lee Kim Tah Holdings, Aurum Investments (Private) and a third party. Aurum is a direct wholly-owned subsidiary of Woh Hup Holdings. The PBSA portfolio is valued at GBP135.5 million ($222.8 million), with an occupancy of 83.7% as end of March.
Yip is upbeat about this segment as he sees a net property income (NPI) yield of about 5% from the PBSA segment and intends to grow it should the opportunity arise. However, he is wary of acquiring such properties because of high interest costs.
Meanwhile, Yip sees industrial and logistics assets as “the most preferred investment asset class in the world”. Metro has exposure in this segment in Singapore via an industrial fund by Boustead Singapore F9D called the Boustead Industrial Fund (BIF). The portfolio has a valuation of about $747.9 million, of which Metro owns 26%. It boasts a committed average occupancy of 98.4% and a long weighted average lease expiry (WALE) of approximately 5.9 years.
The BIF has a diversified portfolio of 16 properties across Singapore, comprising one business park, six high-spec industrial assets, six industrial properties and three logistics properties. The latest property acquired by BIF in January was the high-spec industrial property J’Forte Building at Tai Seng.
Regarding the outlook of the logistics sector, Metro says that the prime logistics properties and conventional warehouses outperformed in 1Q2023, with rents rising by 7.5% and 3.1%, respectively, q-o-q, driven by sustained demand from third-party logistics (3PL) players amid tight supply.
The company has also mentioned that China, one of its key markets, is seeing a recovery. However, Yip admits there are still several uncertainties in that market.
Yip expects current difficulties in the office leasing market, particularly in Shanghai, to affect the occupancy of the company’s China investment properties. Metro’s associate, Top Spring International Holdings’ co-investments with BentallGreenOak (BGO) and its other China investment properties continue to be subjected to increasing market headwinds in China and Hong Kong. Thus, Metro is taking a cautious stance and has no intentions to expand its presence there in the near term.
At present, the company’s business plan is to “diversify for resilience”. Metro chairman Winston Choo says: “Amidst macro uncertainties, we must maintain a diversified quality portfolio in resilient sectors and markets where we have strong familiarity and network with experienced and reputable partners. With a 66-year track record, Metro continues to position ourselves for resilience.”
The strategy seems to have worked. In FY2023, earnings increased by 6.1% y-o-y to $25.2 million while revenue gained 16.7% y-o-y to $117.2 million a year ago. On a 2HFY2023 basis, earnings were up by 54.0% y-o-y to $8.3 million, and revenue was 6.1% higher at $63.4 million.
The higher earnings were primarily due to higher contributions from the company’s property investment segment. However, revenue growth rose 20.1% y-o-y to $104.0 million in FY2023 and 10.5% y-o-y to $56.7 million in 2HFY2023.
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Property investments still the profit generator
While the revenue growth was mainly due to the retail segment, comprising just the two Metro departmental stores, CFO Eve Chan says this does not mean that the retail segment is the main revenue driver for the company. Instead, as most of Metro’s property investments were made through joint ventures, the profits are booked under the share of results from joint ventures. Looking at the company’s profit net of taxation, the property segment contributed $19.4 million while the retail segment contributed just $5.9 million, bringing the total profit net of taxation to $25.3 million. This means the property segment contributed 76.7% to the total net profit of taxation.
In the past 12 months, shares in Metro have declined by 20.8% to trade at 61 cents on May 31, slightly coming off its 52-week low of 60 cents. This gives the stock a market capitalisation of $507.4 million and a P/E ratio of 22.7x.
The company has declared dividends for the final year period. Choo says: “Metro will continue to position our quality real estate portfolio in resilient sectors, both in our key countries and with our strategic partners. The proposed ordinary final dividend of 2.0 cents per share and a special dividend of 0.25 cents per share, representing a payout ratio of 74.1%, demonstrate our appreciation to our loyal shareholders for their support.”
