Metro’s retail and industrial diversification offsets headwinds in China
By Timothy Tay
/ EdgeProp Singapore |
Metro has benefitted from various strategic partnerships and collaborations with partners around the world, and this has helped diversify the group’s investment and income-producing portfolios. (Picture: Samuel Isaac Chua/The Edge Singapore)
SINGAPORE (EDGEPROP) - Metro Holdings’ diversification of its investment and income-generating property portfolio is paying off, amid a more volatile macro-economic environment. During the presentation of the company’s FY2022 performance on May 27, Metro’s group CEO, Yip Hoong Mun, said “the execution of Metro’s strategy in accretive acquisitions via collaborations with strategic partners” has produced encouraging growth for the company over the 2022 fiscal year, ended March 31, 2022.
This year, the company is celebrating its 65th anniversary amid its transformation from a retail chain into a property investment and development group.
Over the past year, Metro has deepened its exposure to malls and retail centres in Australia, as well as the industrial and logistics sector in Singapore. This has helped to offset headwinds in the China property market, where Metro holds several commercial and mixed-use properties.
Diversifying retail and industrial holdings
While Metro has largely retreated from the retail market in Singapore and reduced its direct control over retail operations in Indonesia, the company has strengthened its investment portfolio of retail assets in Australia.
In October 2021, the group, together with joint-venture partner Sim Lian Group, acquired Cherrybrook Village Shopping Centre in northwest Sydney, New South Wales, as part of an acquisition in Australia. The acquisition amounted to A$132.8 million ($133.9 million) in total.
With this, Metro and Sim Lian also jointly control 16 freehold commercial properties. The portfolio comprises four office properties — one each in New South Wales, Victoria, Queensland and Western Australia — as well as 12 retail centres across the country.
Metro's retail portfolio in Australia, including its latest Cherrybrook Village (pictured) acquisition, is primarily anchored by defensive non-discretionary retailers such as supermarkets. (Picture: Metro)
In total, Metro put in $68.5 million as a partner in the acquisition, which includes an additional 10% equity stake in associated entities that control the 16-property portfolio in Australia. This brings Metro’s share in the joint venture to 30%.
Close to 90% of the retail space within the portfolio is anchored by defensive non-discretionary retailers such as supermarkets that cater to daily necessities. The portfolio achieved a high committed average occupancy of 95.5% as of March 31.
Another significant investment made by Metro in FY2022 was the purchase of a high-specification industrial property at 351 Braddell Road in Singapore, through the Boustead Industrial Fund (BIF). The fund is a private business trust for the purposes of holding and managing Boustead’s industrial assets, as well as third-party assets acquired on the open market.
BIF announced that it would fund the acquisition through the issuance of units in BIF, and the issuance of 7% notes due 2031, and debts. In October 2021, Metro subscribed to 26% of the units and notes in BIF, for $17.58 million.
With the acquisition of 351 Braddell Road, BIF has a portfolio of 15 industrial and logistics properties in Singapore with an average committed occupancy rate of 98.1%, and a weighted average lease expiry of 6.2 years.
The acquisition of 351 Braddell Road through the Boustead Industrial Fund deepens Metro’s investments in the logistics market in Singapore. (Picture: Metro)
Beyond the local market, Metro is also growing its exposure to industrial properties in Japan. In November 2021, the group made a cornerstone investment of $41.3 million to acquire a 7.65% stake in Daiwa House Logistics Trust (DHLT) during its initial public offering on the Singapore Exchange. DHLT comprises an income-producing portfolio of 14 logistics and industrial properties in Japan worth JPY81,070 million ($900 million).
In January this year, Metro signed a memorandum of understanding with listed Japanese construction company Daiwa House Industry to pursue further investment collaborations. This will see both companies jointly invest in various asset classes, with an initial focus on logistic facilities, commercial assets, as well as residential developments in Japan, Singapore and the Asia Pacific region.
Headwinds in China and retail market
Metro’s overseas retail projects and select industrial properties in Singapore have helped to offset the headwinds the company faces in China — in the property market as well as a challenging retail environment where it has a retail presence.
The company has several notable investment properties in Shanghai, Guangzhou and Chengdu. In Shanghai, the company owns a retail mall called Metro City, a mixed-use development called Shanghai Plaza, and two commercial developments called Metro Tower and Bay Valley. It also owns the GIE Tower commercial development in Guangzhou, and The Atrium mall retail development in Chengdu.
According to Metro, the continued Covid-related economic disruptions in China, including city-wide lockdowns, have had an impact on the performance of some of its properties there. For example, the company says revenue from GIE Tower decreased from $3.4 million in 2HFY2021 to $2.9 million in 2HFY2022. It attributes the decline mainly to “rental rebates extended to help tenants cushion the business impact arising from China’s Covid-19 lockdowns in March 2022”.
Separately, the group also made an impairment loss of $36.3 million on the amounts due from associates from co-investments with BentallGreenOak Real Estate Fund (BGO), due to the “ongoing China property sector headwinds”. This is a real estate investment fund in which Metro has a 4.9% stake.
According to CEO Yip, the relatively large impairment stems from the group’s more conservative approach as it considers the risks and headwinds evident in China’s property market, and the group’s exposure to real estate investments there.
“Many Chinese developers (in China) are in a highly geared position, and they are facing difficulties servicing their bonds. Our impairment provision basically refers to [our investment] in BGO,” he says.
Metro City Shanghai, a retail property that is 60% owned by Metro in China. The property had an occupancy rate of 88% as of MArch 31, 2022. (Picture: Metro)
Yip says that Metro is taking a more pragmatic view and making the provision on the impairment in the event the group is unable to collect its investment sum. “But we hope that when the [Chinese property] market becomes better, the developer will be in a better position. But at this moment, we have to be cautious and do the necessary impairment,” he says.
In Singapore, at its peak during the 1980s, Metro had five major department stores. But the group now has only two department stores left — Paragon shopping mall on Orchard Road, as well as Causeway Point shopping mall in Woodlands.
In the latest fiscal year, Metro saw its retail revenue increase to $86.6 million, up from $72.8 million in FY2021, as its department stores recover from pandemic-related closures in Singapore in 2020 during the country’s “circuit breaker”.
Metro says that its department store at Causeway Point has received stronger traffic and revenue compared to the Paragon outlet. It says that the Causeway Point store benefitted from the halt in cross-border travel between Singapore and Johor, Malaysia. However, the Paragon outlet suffered due to the decline in medical tourists who usually consult at the nearby private medical clinics around Orchard Road.
Yip says that the retail market in Singapore is facing “a lot of challenges, not only those related to the Covid-19 pandemic, but also a change in the habits of consumers [as they increasingly] migrate to online shopping”.
Looking ahead, he says that Metro will continue to focus on its retail operations through e-commerce platforms such as Metro Online, and its online stalls on LazMall and Shopee Mall. The group says that e-commerce is a critical part of its drive to improve its retail offerings to consumers.
Sale of Asia Green
Metro also has a 50% stake in Asia Green, a Grade-A commercial development in Tampines that was put up for sale for $470 million on May 20 this year. The remaining stake in the building is held by Evia Real Estate Management.
Metro says that if Asia Green (pictured) is successfully sold, it would be keen to invest with a partner in another Grade-A commercial property in Singapore. (Picture: JLL)
According to Yip, from an investment point of view, the group sees opportunities to tap into the demand for decentralised offices in Singapore as more companies explore satellite offices outside the central region.
“There is demand for decentralised offices, but there are not many high-quality commercial developments on the market. If we successfully divest Asia Green, we would be looking for good opportunities in Singapore for centralised and decentralised office or commercial properties,” he says.
However, Yip notes that the ticket size of such investments in Singapore renders them costly and the yield of these investment assets tends to be low at about 2%-3%. “But in the case of Asia Green, we saw an opportunity to enhance the building and improve the long-term yield. We are continuously looking for similar opportunities,” he says.
Check out the latest listings near Orchard Road, Causeway Point
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