Chairman's Message

Chairman's Message (Chinese)

Dear Shareholders,

On behalf of the Board of Metro Holdings Limited (“Metro” or the “Group”), it is my pleasure to present our Annual Report for the financial year ended 31 March 2023 (“FY2023”).

During the year, Metro continues to position our real estate portfolio in resilient sectors, both in our key countries and together with our strategic partners. The proposed ordinary final dividend of 2.0 Singapore cents per share and special dividend of 0.25 Singapore cent per share, representing a payout ratio of 74.1%, demonstrates our continual appreciation to our loyal shareholders for the support through the years.

The challenges brought about by geopolitical tensions, changing macro-economic fundamentals and an inflationary environment continue to affect Metro’s operations. During the year under review, Metro continued to diversify for resilience across our key markets and sectors, including defensive retail centres in Australia, Purpose-Built Student Accommodations (“PBSA”) in the United Kingdom (“UK”), as well as industrial properties and digital healthtech in Singapore. For FY2023, I am pleased to report that our strategy of positioning for resilience has allowed us to deepen our presence in key markets so as to drive sustainable growth for the shareholders.

Metro recorded a net profit after tax of S$25.3 million for FY2023, an increase of 7.2% from S$23.7 million a year ago (“FY2022”). In FY2023, there was a higher contribution by S$11.7 million from the investment properties of associates and joint ventures in China with lower rental rebates and waivers granted to tenants arising from China’s COVID-19 lockdowns and an absence of a one-off impairment loss of S$36.3 million on the amounts due from associates. However, the Group’s FY2023 results were affected by a share of associate and joint venture’s fair value loss of S$9.7 million on investment properties in China and Australia in FY2023, as compared to a share of fair value gain of S$4.4 million in FY2022, a higher net fair value loss on long and short term investments and lower dividend income from long term investments. In addition, higher finance costs were incurred due to increased borrowings and rising interest rates, which was partially mitigated by higher interest income.

The Group posted a 16.7% increase in revenue to S$117.2 million in FY2023, as compared to S$100.5 million in FY2022, underpinned by higher contribution from the retail division driven by higher sales from Metro Paragon and Metro Causeway Point, the two department stores in Singapore. This was partially offset by lower revenue from the property division due to lower sale of property rights of the residential development properties in Bekasi and Bintaro, Jakarta. Metro’s balance sheet remained strong with net assets of S$1.5 billion and total assets of S$2.3 billion as of 31 March 2023, amidst the increasingly challenging business environment.

Positioned For Resilience – Key Investments and Strategic Moves in FY2023
For the year under review, Metro continued to diversify for resilience across its key markets of the UK, Australia and Singapore. In May 2022, Metro, together with its major Joint Venture partners, Lee Kim Tah Holdings Limited and Woh Hup Holdings Pte Ltd grew its PBSA fund, Paideia Capital UK Trust in the UK with four acquisitions in Durham, Exeter, Glasgow and Kingston for a total purchase consideration of approximately £74.4 million (approximately S$119.0 million). Metro also invested S$6.0 million for a 10% stake in DocMed Technology Pte. Ltd. (“DocMed”) in its Series A fund raising in Singapore. In September 2022, Metro, together with its Joint Venture partner, the Sim Lian Group of Companies (“Sim Lian”) acquired freehold neighbourhood retail centre Shepparton Marketplace in Victoria for a purchase consideration of approximately A$92.0 million (approximately S$85.7 million). In January 2023, Metro, together with its Joint Venture partners, announced the acquisition of J’Forte Building, an eight-storey high-spec industrial property at 26 Tai Seng Street, Singapore 534057, via the Boustead Industrial Fund (“BIF”) at a purchase consideration of S$98.8 million. This is the first acquisition in the open market by BIF.

The average occupancy of the Group’s five investment properties in Guangzhou, Shanghai, London and Singapore stood at 89.8%1 (93.9%2).

According to Jones Lang LaSalle, demand for logistics/ warehouse space stayed healthy in 1Q2023, with end users and third-party logistics players (“3PLs”) continuing to seek expansion spaces. This included unfulfilled demand from earlier quarters. Firm demand alongside the foreseen tight supply of quality logistics/warehouse space should support rent growth in 20233. With the J’Forte Building acquisition, the BIF portfolio now holds 16 quality properties valued at S$747.9 million with a high committed occupancy of 98.4% and a weighted average lease expiry (“WALE”) of approximately 5.9 years. The continued demand for decentralised office space in Singapore benefits Asia Green, our two blocks of premium Grade-A office towers at the Tampines Regional Centre, and the property enjoys a high occupancy of 94.0%1 (92.2%2).

The sporadic COVID-19 related lockdowns that started in March 2022 affected Metro’s properties as activities were muted. The lockdown eased in December 2022 with the full opening of China’s borders in March 2023. Current difficulties in the office leasing market, particularly in Shanghai, will affect occupancy of our China investment properties. Metro City and Metro Tower in Shanghai, and GIE Tower in Guangzhou reported an average occupancy of 85.0%1 (92.4%2). The Atrium Mall in Chengdu, and Shanghai Plaza in Shanghai achieved occupancy of 90.6%1 (86.9%2) and 97.9%1 (91.1%2) respectively. Our three office buildings in Bay Valley are 65.7%1 (69.0%2) occupied. Our China investments continue to be subject to increasing market headwinds in China. In 2023, Metro marks a significant milestone, where together with our partner, the Shanghai Xujiahui Centre (Group) Co., Ltd., we will celebrate the 25th anniversary of Metro City, Shanghai.

In Jakarta, Indonesia, construction of our two residential projects Trans Park Juanda, Bekasi and Trans Park Bintaro are progressing. All five 32-storey residential towers at Bekasi and both residential towers at Bintaro have topped off and units are being handed over to purchasers progressively. Sales for both projects are underway at our sales galleries/marketing suites, as well as online, but face potential headwinds from the challenging business environment brought about by rising interest rates, increased unemployment and reduced growth.

United Kingdom
In Manchester, Phase 1 and Phase 2 of our Middlewood Locks development project have been fully sold and handed over. Phase 3 has commenced construction with completion expected in late 2024. Marketing efforts continue via marketing suite and online channels. The entire mixed-use development will eventually provide 2,215 new homes and 900,000 sqft of commercial space, including offices, hotel, shops and restaurants.

Paideia Capital UK Trust established by Metro together with its major joint venture partners, Lee Kim Tah Holdings Limited and Woh Hup Holdings Pte Ltd holds a portfolio of six PBSAs valued at £135.5 million (approximately S$222.8 million) and achieved a committed occupancy of 83.7% as at 31 March 2023. In London, our 50%-owned office property at 5 Chancery Lane will carry out the planned asset enhancement works upon lease expiry in May 2023, together with our joint venture partner Lee Kim Tah Holdings Limited, and refurbishment works is expected to be completed by end 2025.

The Australian portfolio, of which Metro owns 30%, holds a total of 17 quality freehold properties comprising 4 office buildings and 13 retail centres across 4 key states, namely New South Wales, Victoria, Queensland and Western Australia, with a total appraised value of approximately A$1.2 billion (approximately S$1.1 billion) and has a high occupancy of 96.5%1 (95.5%2) and a WALE of approximately 5.7 years by income1 (6.4 years2).

Metro’s retail revenue increased to S$104.0 million in FY2023 from S$86.6 million in FY2022 mainly due to higher sales from Metro Paragon and Metro Causeway Point, the two department stores in Singapore. Segment results, excluding finance costs, reported a profit of S$8.8 million in FY2023 as compared to S$4.2 million in FY2022, in line with higher retail revenue and higher gross profit margin due to better merchandising mix and tighter discount given to customers as well as cost rationalising measures such as better inventory management.

Post pandemic, the world is facing many challenges characterised by geopolitical tensions, changing macro-economic fundamentals and an inflationary environment. On the geopolitical front, challenges include the Russia-Ukraine war and United States of America (“U.S.”)-China tensions, the erosion of multilateral trading systems, including disputes, imposition of tariffs and sanctions and other potential flashpoints. Macroeconomic challenges include uncoordinated global monetary and fiscal policies, high levels and rising government debt, banking turmoil, rapid technological changes and political changes (elections). Finally, an inflationary environment with rising interest rates to curb inflation may dampen investment appetite and increase operating/energy/food costs with generally weakened fundamentals across major economies. The International Monetary Fund (“IMF”) projects global growth will bottom out at 2.8% in 2023 before rising modestly to 3.0% in 2024. Global inflation will decrease, although more slowly than anticipated, from 8.7% in 2022 to 7.0% in 2023 and 4.9% in 20244. The Group, operating in five countries mainly Singapore, China, Indonesia, the UK and Australia, is subject to the heightened volatile economies and their underlying currencies movement against the Singapore dollar.

Property investment and development
The sporadic COVID-19 related lockdowns in Shanghai, Guangzhou and Chengdu during 2022 have affected Metro’s properties in these cities. With the relaxation of its stringent zero-COVID-19 policy since December 20225 and the opening of China’s borders in March 20236, China’s economy grew 3.0% in 2022, and is forecasted to grow 5.2% in 2023 and 4.5% in 20247. Our investments continue to be subject to increasing headwinds in China.

Singapore’s Gross Domestic Product (“GDP”) grew by 3.6% in 2022, less than the 8.9% growth registered in 2021. For 2023, the Ministry of Trade and Industry maintained the GDP growth forecast at “0.5%-2.5%”, with growth likely to come in at around the mid-point of the range8. Notwithstanding recent turmoil in the global banking sector, demand from finance and professional services, a key driver of office demand, is still expected to grow, amidst China’s re-opening and continued setting up of regional headquarters in Singapore9 and will continue to benefit our premium Grade-A office towers at the Tampines Regional Centre. In the Singapore logistics sector, prime logistics properties and conventional warehouses outperformed in 1Q2023, with rents rising by 7.5% and 3.1% respectively QoQ, driven by sustained demand from third-party logistics (“3PL”) players amidst very tight supply10. Metro is well-positioned given our investment in 26% of both the Units and 7.0 per cent notes due 2031 in BIF in December 2020.

According to the IMF, Indonesia recorded annual GDP growth of 5.3% in 2022, and is forecasted to grow by 5.0% in 2023 and 5.1% in 2024, based on maintaining a neutral fiscal stance, accompanied by moderate tax policy and administration reforms, some expenditure realisation, and a gradual increase in capital spending over the medium term11. Currently, some significant industry players, namely developers, have expressed a prudent outlook by providing guidance for flat-to-slight sales growth targets. The prudent stance is indicative of the potential headwinds that lie ahead, as the apartment market prepares to withstand the impact of rising interest rates. Additionally, the market is expected to feel the impact of the February 2024 presidential election. Historically, developers have slowed the pace of new launches ahead of elections, in anticipation of decreased demand for property purchases12 and this would affect our residential projects in Bekasi and Bintaro, Jakarta.

UK GDP grew 4.0% in 2022 and is forecast to shrink 0.3% in 2023 and grow 1.0% in 202413. On 11 May 2023, the Bank of England raised interest rates to 4.5% from 4.25% and Governor Andrew Bailey said the British central bank would “stay the course” as it seeks to curb the highest inflation of any major economy14. Amidst these headwinds, PBSAs in the UK registered record-high £6.2 billion investment volumes in 202215. In Manchester, Jones Lang LaSalle forecasts that Manchester home prices will grow by 16.4% from 2022 to 2026, the fastest growth registered among all the major UK cities16. This is expected to benefit Metro’s residential development at Middlewood Locks. As for Central London office, leasing activity slowed down for the second consecutive quarter in 4Q2022 as the challenging economic conditions impact office business sentiment. Quarterly take up for office spaces reached just over 2.1 million sqft, which is 20% below the previous quarter and half a million sqft below the ten-year average of 2.6 million sqft17.

On 6 June 2023, the Reserve Bank of Australia (“RBA”) decided to increase the cash rate target by 0.25% to 4.10%. Inflation in Australia has passed its peak, but at 7% it is still too high and it will be some time yet before it is back in the target range. This further increase in interest rates is to provide greater confidence that inflation will return to target within a reasonable timeframe18. The rising interest rates have increased property operating costs as well as the cap rate, leading to a general decrease in most of the property valuations. Australia registered GDP growth of 3.7% in 2022 and the IMF outlook for economic growth in Australia is for growth of 1.6% in 2023 and 1.7% in 202419.

According to the Ministry of Trade and Industry, Singapore retail trade sector grew by 8.4% YoY in 2022, a decrease from the 12.0% growth in 202120. Overall Singapore total retail sales dropped by 8.2% MoM in January 2023, as consumer spending slows post-holiday season and the “front-loading” of purchases due to GST hike eases. Essential trades such as supermarkets and food & beverage services would see firmer sales performance given the muted economic climate and potential cost-of-living impact. While China’s reopening could offer a boost to retail sales through the influx of Chinese tourists, this may be more apparent in 2Q2023 onwards when more international flights resume21. This will continue to weigh on our two department stores at Paragon and Causeway Point, and online. The Group’s retail business continues to be impacted by the higher inflation-driven costs in raw material, labour and energy amidst a highly competitive trading environment.

In Conclusion
We continue to expand our geographical footprint over the years in Singapore, China, Indonesia, the UK, and Australia through strategic partnerships.

Despite the operating challenges of geopolitical uncertainties, rising inflation, tightening monetary policies, and ongoing disruptions in a post-pandemic world, we continue to actively manage our investment portfolio across our key markets.

Metro continues to be financially disciplined, actively monitoring our cash management, leverage levels, debt maturities and funding sources, and proactively managing our existing investment portfolio, for optimal returns. In terms of asset management, we continue to prioritise critical asset enhancement, while deferring uncommitted capital expenditure and implementing cost savings, where possible.

Amidst macro uncertainties, it is imperative that we maintain a diversified quality portfolio in resilient sectors and in markets where we have strong familiarity and network, with experienced and reputable partners. Metro continues to position ourselves for resilience across our key markets and sectors in response to the increasing headwinds.

To reward loyal shareholders, the Board has recommended a final dividend of 2.0 Singapore cents and a special dividend of 0.25 Singapore cent, totalling 2.25 Singapore cents per ordinary share. This translates to a dividend yield of 3.7%22 and a payout ratio of 74.1% of the Group’s net profit attributable to shareholders for FY2023, demonstrating our appreciation to our loyal shareholders for the unwavering support through the years despite the challenging environment.

On behalf of the Board of Directors, I would like to express my heartfelt appreciation to all our loyal shareholders, staff, valued customers, business partners, associates and stakeholders for your continued support through the years.

Over the past year, we have taken significant steps to bolster the capabilities of our Board. I would like to take this opportunity to welcome Mr Soong Hee Sang, who joined us as Non-Executive and Independent Director in September 2022. Having held senior management positions in GIC and the CapitaLand Group, his experience will further strengthen the Board’s core competencies, particularly in the areas of real estate and investments. Mr Ong Sek Hian also joined our Board as Non-Executive and Non-Independent Director in November 2022. Mr Ong’s experience in venture capital and private equity will be invaluable to the Metro Group.

I would also like to express our appreciation to Mrs Fang Ai Lian, Metro’s Non-Executive and Independent Director, for her strong commitment and contribution to the Group over the past 15 years. Mrs Fang has played an integral role in chairing Metro’s Audit Committee, and in being an important member of the Nominating Committee. She will not go for re-election, and will step down as Board member after the Annual General Meeting in July 2023.

I would like to take this opportunity to extend my appreciation to my fellow Board members for their counsel and guidance provided to the Group amidst these volatile and challenging times.

With the strong foundation of diversification across countries, sectors and business partners, Metro is well-positioned for resilience, so as to drive long term sustainable growth for the shareholders.

Lt-Gen (Retd) Winston Choo

26 June 2023

1 As at 31 March 2023
2 As at 31 March 2022
3 JLL, Singapore Property Market Monitor, 22 May 2023
4 IMF, World Economic Outlook – A Rocky Recovery, 11 April 2023
5 CNBC, China Eases COVID Restrictions On Travel And Production, 7 December 2022
6 NBC News, China To Fully Reopen Borders To Foreigners, But Near-Term Hurdles Remain, 14 March 2023
7 IMF, World Economic Outlook – A Rocky Recovery, 11 April 2023
8 MTI Singapore, MTI Maintains 2023 GDP Growth Forecast at “0.5 to 2.5 Per Cent”, 25 May 2023
9 Cushman & Wakefield, Marketbeat Singapore Office Q1 2023, 11 April 2023
10 Cushman & Wakefield, Marketbeat Singapore Industrial Q1 2023, 11 April 2023
11 IMF, World Economic Outlook – A Rocky Recovery, 11 April 2023
12 Colliers, Colliers Quarterly Jakarta Apartment Report, 5 April 2023
13 IMF, World Economic Outlook – A Rocky Recovery, 11 April 2023
14 Reuters, Bank Of England Raises Rates And Bailey Promises To ‘Stay The Course’, 11 May 2023
15 Colliers, United Kingdom Property Snapshot, 23 April 2023
16 JLL, UK Residential Forecasts, 2 November 2021
17 JLL, Q4 2022 Central London Office Market Report, 19 January 2023
18 Reserve Bank of Australia, Statement By Philip Lowe, Governor: Monetary Policy Decision, 6 June 2023
19 IMF, World Economic Outlook – A Rocky Recovery, 11 April 2023
20 MTI Singapore, MTI Maintains 2023 GDP Growth Forecast at “0.5 to 2.5 Per Cent”, 13 February 2023
21 Cushman & Wakefield, Marketbeat Singapore, Retail Q1 2023, 11 April 2023
22 Share price of S$0.615 as at 31 March 2023