Metro’s property bet

By Amy Tan

/ EdgeProp Singapore |

June 7, 2019 10:23 AM SGT

Famous for its department stores, Metro Holdings is reinventing itself as a property investment and development company

Metro has been a recognisable brand among three generations of Singaporeans since the group’s founder, Ong Tjoe Kim, opened the flagship Metro store at 72 High Street in 1957.

At its peak in the early 2000s, the retail brand had 11 department stores in Singapore. With e-commerce reshaping the retail industry in recent years, the group has introduced its own online-to-offline user experience with an online store.

The company has also scaled back its physical presence. Today it has only three department stores in Singapore, located in The Centrepoint and Paragon shopping malls along Orchard Road, as well as in Causeway Point, one of the largest suburban malls located in Woodlands.

Metro at The Centrepoint (Pictures: Samuel Isaac Chua/EdgeProp Singapore)

However, the listed company, Metro Holdings, has been quietly transforming itself into a property investment and development player since 2012.

As part of this strategy, Yip Hoong Mun, a former senior executive with one of Singapore’s biggest listed property groups, CapitaLand, was appointed Metro’s group CEO and executive director with effect from June 1.

Yip succeeds the incumbent Lawrence Chiang, who assumed the role of CEO in 2016, following the death of Jopie Ong, 75, the founder’s son, in February that year.

None of Ong’s four children was keen to take over the business as they have established their own careers outside the company, according to Chiang. As such, the listed company began a search process with management consulting firm Korn Ferry and headhunted Yip.

New leadership to drive strategy

Prior to joining Metro, Yip had spent more than 20 years within CapitaLand, where he was managing director of the group’s hospitality business, Ascott China, in 2003. He was later appointed Ascott Ltd’s CEO for Asia Pacific and the Gulf Region in 2006. During his tenure at CapitaLand, he was also involved in property development in the Gulf Region, Indonesia and Vietnam.

Yip joined Metro as group COO and CEO of Metro China in January 2017. In May last year, he assumed the role of deputy group CEO.

Yip Hoong Mun was appointed Metro's group CEO and executive director with effect from June 1

As Metro’s group CEO now, Yip will oversee and drive the group’s property developments and investments in four key markets: China, Indonesia, Singapore and the UK.

However, Yip points out that he has no intention of turning Metro into a property company like CapitaLand. “We can never be a CapitaLand because our DNA is different,” he says. “Even though we are a listed company, Metro was started by a family. The culture is very different. You cannot apply the same model from CapitaLand here.”

Yip succeeds the incumbent Lawrence Chiang (pictured)

Despite his background in hospitality at CapitaLand, Yip has also added that it won’t be a sector that he will be focusing on at Metro. It is a sector that is “quite tough to generate money”, he concedes. “Ascott can do it because it has the scale and it can release the property into a Reit.”

Operating a hospitality business is cost-intensive, adds Yip. The returns are not generated from the hotel or serviced apartment operations, but are based on returns on investment on the assets, he notes. Metro does not have a Reit vehicle, and there are no plans to launch a Reit in the near future.

Metro will also undertake property developments or investments only in joint ventures with partners. However, the partners must have “a value system that aligns with ours”, says Yip.

Deterred by Singapore’s land cost

In April, Metro entered into a 50:50 joint venture with privately-held property developer and investor, Evia Real Estate, to acquire two adjoining eight-storey, Grade-A office buildings at 7 and 9 Tampines Grande for $395 million.

7 and 9 Tampines Grande has achieved 91% occupancy (Picture Credit: Metro Holdings)

Situated in Tampines Regional Centre, the 99-year leasehold property has a total net lettable area of approximately 288,000 sq ft and has achieved approximately 91% of committed occupancy. Key tenants include Hitachi Asia, AIA Singapore and Sysmex Asia Pacific.

Metro’s next acquisition or investment opportunity in Singapore will also depend on whether the group can find the right joint-venture partner to co-invest with. “So far, our focus has been outside Singapore,” says Yip.

One of the group’s first forays into property development was in 2012, when it acquired a government land sale (GLS) site on Prince Charles Crescent jointly with two other Singapore-listed property companies, namely Wing Tai Holdings and UE E&C Ltd. Metro has a 40% stake in the joint venture. “Due to high land prices in Singapore, it is difficult for us to put in a tender if we don’t partner with someone,” says Yip.

Today, the property development at Prince Charles Crescent is known as The Crest. It was designed by renowned Japanese architect Toyo Ito. Completed in 2017, the 469-unit, 99-year leasehold condo is more than 85% sold to date. When the project was first launched in 2014, the average price of units sold was $1,802 psf, based on caveats lodged. This year to date, the average price of units sold is $1,979 psf.

The Crest, a residential development in Singapore, was designed by renowned Japanese architect Toyo Ito

To fund its overseas property investment plans, Metro established a $1 billion multicurrency debt issuance programme through the issue of notes and perpetual securities. As at the end of FY2019 ended March, Metro is net cash-positive. “Typically, any property company with a net gearing of 30-40% is considered healthy and we are nowhere near that right now since we are still in a net cash position,” Yip highlights.

China strategy

In China, Metro has been on the lookout for commercial assets where it can add value through asset enhancement or retrofitting works, thereby enjoying an upside in capital values. Its property investments in China today are in the first-tier cities of Guangzhou and Shanghai, and it is looking for opportunities in Beijing.

In mid-May, it added a property in Chengdu to its investment portfolio, namely a 25% stake in The Mall, a prime commercial mall that is part of a landmark mixed-use development, The Atrium. Located in the heart of Chengdu’s CBD and the Dacisi business corridor, the mall is well-connected by two train stations. The mall is expected to undergo asset enhancement and tenant mix restructuring.

In mid-May, Metro took a 25% stake in The Mall, a commercial mall in Chengdu, China (Picture Credit: Metro Holdings)

“Chengdu is one of the fastest growing cities in the western part of China and our investment is more of an opportunity than something we were looking at,” says Yip. “We found that the property is undervalued and there’s a lot of potential so we teamed up with CICC [China International Capital Corporation].” The property acquisition was made via a subscription for 50% of the issued capital in a fund set up by Hong Kong-listed CICC for RMB200 million ($39.8 million).

Opportunities in the UK

The escalating trade war between the US and China as well as the ongoing Brexit issue have not deterred Metro from its search for more yield-accretive investment opportunities in the UK.

“Challenges will always be there,” says Yip. “But challenges present certain opportunities, and the ability to identify these opportunities and to act on them is important.”

In January last year, Metro formed a 50:50 joint venture with Singapore-based, family-owned Lee Kim Tah Group, to acquire a freehold office building at 5 Chancery Lane in London for a total of £80.8 million. The price included stamp duty, fees and expenses, and was estimated at £4.75 million.

5 Chancery Lane in London has 84,836 sq ft of office space and ancillary facilities (Picture Credit: Metro Holdings)

The building is located in Midtown Central London and has 84,836 sq ft of office space and ancillary facilities spanning eight floors. It is currently fully leased till 2023. After the lease expires, Metro will carry out an asset enhancement initiative.

“With [Brexit], we are more cautious. But we are keeping an open mind to look at this area and see if there are opportunities during this difficult time,” he notes. “Different countries will go through different policies and cycles.”

Over in Manchester, the second largest city in the UK, Metro entered into a joint venture with the Scarborough Group in July 2014 to acquire a 25% stake in mixed-use development, Middlewood Locks, and a residential development, Milliners Wharf The Hat Box.

Middlewood Locks comprises 2,215 residential units and commercial space with a total gross floor area of 2.4 million sq ft. The first phase of 571 units was completed last year and the units handed over to the buyers. Of these, 277 units were sold to Get Living, a rental management company. Meanwhile, all 546 units in the second phase were sold to Get Living.

Middlewood Locks in London comprises 2,215 residential space and commercial space (Picture Credit: Metro Holdings)

At Milliners Wharf The Hat Box, the 144 residential units in the first phase have been sold and handed over to buyers by April 2016, with the second phase of around 60 units in the planning stage.

Demand for residential units in Manchester is underpinned by the growing number of businesses setting up offices there, says Yip. Giant tech companies like Google, Amazon and Microsoft have all established offices there.

Mid-tier residential strategy in Indonesia

Over in Indonesia, Metro is targeting the mid-tier residential segment to tap the growing affluent middle-class in the country. To this end, it is collaborating with Trans Corp, the media, lifestyle, retail and entertainment arm of Indonesian conglomerate CT Corp, as well as Lee Kim Tah.

The trio are developing two residential projects in Jakarta – Trans Park Juanda, Bekasi and Trans Park Bintaro. Trans Park Juanda, Bekasi has 5,622 units spread over five 32-storey residential towers with a total gross floor area (GFA)of 1.75 million sq ft. Sales of the units are underway and construction is expected to be completed in 2020. Meanwhile, Trans Park Bintaro has two residential towers with 1,400 apartments and 170 SoHo units with a total GFA of 240,639 sq ft. Apartment sales are ongoing with expected completion in mid-2021.

Metro holds a 90% stake in both residential developments. “This gives us around 7,000 units for the Indonesian market,” says Yip. “It is the largest investment from a Singapore developer into residential [in Indonesia].”

Trans Park Juanda, Bekasi in Jakarta has 5,622 units spread over five 32-storey residential towers (Picture Credit: Metro Holdings)

Apart from residential, Metro has a retail presence in Indonesia with 11 Metro-branded department stores spread across Jakarta, Bandung, Surabaya, Solo, Makassar and Manado. The stores have been opened in collaboration with Trans Corp.

No expansion plans in retail

Yip says that there are currently no plans to expand Metro’s retail segment. For FY2019 ended March, the company’s retail revenue inched up to $130.6 million from $129.7 million in FY2018. This is due to higher sales from Singapore from increased sales promotions.

However, the Singapore division reported that its operating loss widened to $7.1 million in FY2019 from $3.9 million in FY2018, mainly due to impairment of fixed assets and provision for stock obsolescence.

On the other hand, contribution from the group’s property segment is growing. For FY2019, revenue from Metro’s property division increased to $41.4 million, up from $6.6 million in FY2018. This is due to revenue recognition of $34.5 million from the sale of property rights of the residential units in the development in Bekasi, Indonesia.

While there are no plans to ramp up its retail capabilities, Yip’s predecessor Chiang recounts that it is Metro’s retail brand that has offered the group its break into property development and investment. “Retail gave us the pedigree,” he says. “Metro [department stores] do not cost us much to continue running, but the intrinsic value cannot be calculated in dollar value. There’s a bit of legacy and history.”

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