Chairman's Message
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 2024 (“FY2024”).
Throughout the year, Metro has diligently continued to strengthen our resilience while navigating a challenging environment in the key markets we operate in. We are pleased to propose an ordinary final dividend of 2.0 Singapore cents per share, representing a payout ratio of 113.8%. This demonstrates our enduring gratitude to our loyal shareholders for your unwavering support over the years.
Despite challenges from geopolitical tensions, shifting macroeconomic dynamics, and an inflationary landscape, Metro has exhibited resilience through a strategically diversified portfolio across asset classes and geographical regions. This approach has enabled us to weather the storms of a volatile environment and economic uncertainties.
With the acquisition of VisionCrest Commercial with our partners in FY2024, we have strengthened our presence in our home market of Singapore, while leveraging our diverse portfolio to foster sustainable growth for our shareholders. Our balance sheet remains healthy, with net assets of S$1.5 billion and total assets of S$2.3 billion as of the end of FY2024. Metro remains unwavering in its commitment to delivering value, even in the face of adversity.
FINANCIAL REVIEW
Metro’s net profit after tax for FY2024 was S$14.6 million,
marking a 42.3% decrease from S$25.3 million in FY2023.
This decline was primarily due to the high-interest rate
environment and increased net fair value losses from the
revaluation of investment properties, combined with
reduced operating profits. Contributing factors included
higher losses from our associate Top Spring International
Holdings Limited (“Top Spring”) and lower profits from
the Group’s properties in China, both impacted by China’s
prolonged property market downturn and weakened
business and consumer sentiments. However, our losses
were partially offset by the recognition of negative
goodwill amounting to S$60.3 million, arising from the
excess fair value over purchase consideration following
the Group’s strategic acquisition of an additional 6%
stake in Top Spring.
In FY2024, the Group’s revenue declined to S$115.9 million from S$117.2 million in FY2023, primarily due to reduced sales of property rights for residential developments in Bekasi and Bintaro, Jakarta. This decrease was partially mitigated by higher sales in the retail division from our two department stores in Singapore, Metro Paragon and Metro Causeway Point.
PROPERTY INVESTMENT AND DEVELOPMENT
Navigating Challenges, Strengthening
Resilience
For FY2024, Metro continued to grow our presence
in our home market, Singapore. In November 2023,
Metro, through Vision One Enterprise Limited, our
40.9%-owned joint-venture company set up with an
aff iliate of TE Capital Partners Pte. Ltd. (“TECP”),
announced the acquisition of VisionCrest Commercial,
an 11-storey freehold Grade-A office building situated
in the prime Orchard Road area. For an investment sum
of up to S$40 million, Metro now owns an effective 20%
stake in the property, with the remaining 29.9% owned by
an affiliate of TECP and 50.1% owned by an independent
third party. The LEED Gold®-certified property comprises
148,854 sq ft of net lettable area, with 89.5% occupancy and
a weighted average lease expiry (“WALE”) of 2.2 years as
at 31 March 2024. The building will be undergoing some
refurbishment work for its office lobby and be equipped
with new features to improve its energy efficiency so as
to better serve its tenants.
We also increased our equity stake in Top Spring, from approximately 14.9% ownership interest to approximately 20.5% in January 2024. Top Spring is a real estate property developer in China specialising in the development and operation of urban mixed-use communities and the development and sale of residential properties in China. The company is listed on The Stock Exchange of Hong Kong Limited.
Singapore
The flight to quality trend persisted in Singapore’s office
market in 1Q2024, with premium buildings maintaining
or even increasing rents1, exemplified by our Grade-A
off ice towers in Tampines, Asia Green, achieving a
99.7%2 occupancy rate as at 31 March 2024 compared
to 94.0% as at 31 March 2023. Additionally, our recent
acquisition of a 20% stake in VisionCrest Commercial
enhances our presence in Singapore’s prime Orchard
Road area.
In the industrial and logistics market, Singapore’s prime logistics rents have risen due to persistent tight supply and resilient demand from third-party logistics players. The business park and high-tech markets continue to see a flight to quality, with an uptick in leasing activities projected in 2024, in line with an improving manufacturing economy3. Metro is strategically positioned with a 26% stake in the Boustead Industrial Fund (“BIF”), owning 15 high-quality properties in Singapore across industrial, business park, high-spec industrial, and logistics sectors. These assets had a high committed occupancy of 92.8%4 and a long WALE by income of approximately 5.1 years4. As at 31 March 2024, the total asset value of BIF’s portfolio stood at S$754.6 million.
China
China’s property sector continues to weigh heavily on
the economy, dampening business and consumer
confidence, investment initiatives, and hiring strategies.
Weak business and consumer sentiments, as well as the
downturn in the property market, have impacted leasing
demand for the Group’s China investment properties.
The three properties of Metro City and Metro Tower in
Shanghai, and GIE Tower in Guangzhou have an average
occupancy of 79.4%4 (85.0%5). The Atrium Mall in Chengdu
and Shanghai Plaza in Shanghai have achieved
occupancies of 91.2%4 (90.6%5) and 88.2%4 (97.9%5)
respectively. Leasing remains challenging for the three
office buildings in Bay Valley, with a 70.6%4 (65.7%5)
occupancy rate. Office leasing difficulties, especially in
Shanghai with rising vacancy rates from new supply6,
will impact our China investment properties. Persistent
market headwinds in China and Hong Kong will also
affect our associate, Top Spring, and co-investments with
BentallGreenOak and other China investments.
Indonesia
Progress continues in Jakarta, with all five 32-storey
residential towers in Bekasi and both Bintaro towers
topped off. Fully paid units are progressively being handed
over, while sales efforts are ongoing.
United Kingdom
In the UK, our jointly owned Paideia Capital UK Trust
owns a portfolio of six freehold purpose-built student
accommodation (“PBSA”) properties across Warwick,
Bristol, Durham, Exeter, Glasgow, and Kingston. The
portfolio is valued at £132.4 million with a high occupancy
rate of 95.2%4 (83.7%5). In Manchester, Phases 1 and 2
of the 2,215-unit Middlewood Locks development have
been fully sold and handed over. Phase 3 construction
began in 2Q2022 and is slated for completion in late
2024, with sales and marketing activities ongoing. In
London, our office property at 5 Chancery Lane saw its
tenant vacate upon lease expiry in May 2023 to allow
immediate asset enhancement work to commence.
Expected completion is by 1Q2026. In Sheffield, the
practical completion of Endeavour, a Grade-A office
building situated within the Sheffield Digital Campus,
occurred in June 2023. This building boasts Energy
Performance Certificate Label A (“EPC A”) and Building
Research Establishment Environmental Assessment
Methodology (“BREEAM”) Excellent ratings. It was
officially handed over to British Telecom in July 2023
to commence its 15-year lease.
Australia
In Australia, the Group’s joint venture with Sim Lian,
in which Metro holds a 30% stake, owns 17 premium
freehold properties, including 13 retail centres and
four office buildings across New South Wales, Victoria,
Queensland, and Western Australia. The portfolio’s
total appraised value stands at approximately A$1.2
billion (approximately S$1.0 billion). Notably, the
Australian portfolio maintains a high occupancy rate
of 94.1%4> (96.5%5) and a WALE of approximately 5.6
years4 by income (5.7 years5).
RETAIL
Metro’s retail revenue in FY2024 achieved an increase to
S$105.4 million, up from S$104.0 million in FY2023, largely
due to higher sales from our two Singapore department
stores, Metro Paragon and Metro Causeway Point. Despite
the revenue growth, the division’s gross profit fell to
S$7.5 million in FY2024 from S$13.7 million, leading to
a lower segment profit, excluding finance costs, of S$3.4
million, down from S$8.8 million for the corresponding
period last year. The drop in gross profit was mainly due
to lower gross margins and increased costs arising from
the highly competitive trading environment.
OUTLOOK
In the current geopolitical milieu, our real estate
endeavours navigate a landscape marked by heightened
tensions and intricate dynamics. Conflicts such as the
Russia-Ukraine war, now in its third year, and the ongoing
Israel-Hamas and Israel-Iran strife, alongside the escalating
tensions between the United States and China, cast ripples
across global markets, introducing layers of complexity
to our investment strategies.
Moreover, significant macroeconomic challenges loom large, including high government debt, the delayed impact of monetary tightening exposing vulnerabilities in banking and financial systems which could stress regional economies with external financing needs, and rapid technological advancements. An inflationary environment and rising interest rates further complicate matters, driving up operational costs and creating investment uncertainties. These factors collectively create an unpredictable economic landscape, requiring us to adopt a vigilant and adaptable approach to our business operations.
Against this backdrop, the International Monetary Fund (“IMF”) has projected modest global growth of 3.2% in 2024 and 2025, the same pace as in 20237.
In China, a key market for us, we face the dual challenge of slower growth in the property sector and declining consumer confidence, complicating our efforts to navigate the market’s intricate dynamics. China’s GDP growth in the first quarter of 2024 reached 5.3%, surpassing analysts’ forecasts of 4.6%8. While this higher-than-expected growth is promising, there are hints of underlying challenges. March 2024 indicators reveal persistent weaknesses in domestic demand, which could undermine sustained economic momentum. More recent data from April 2024 show a slowdown in both the manufacturing and services sectors9, signalling potential concerns for future growth.
The prolonged downturn in China’s property sector, now entering its third year, continues to exert a significant drag on the economy. This downturn has wide-reaching effects, impacting business and consumer confidence, investment levels, employment rates, and stock market performance. Our investments in China are increasingly challenged by these conditions.
Singapore’s GDP expanded by 0.1% on a quarter-on-quarter seasonally-adjusted basis in 1Q2024, moderating from the 1.2% growth in the preceding quarter10. The Ministry of Trade and Industry (“MTI”) projects GDP growth of 1.0% to 3.0% for 2024, driven by improvements in manufacturing and trade, especially electronics10. While Singapore remains Metro’s primary market, we are cautious due to risks like prolonged high global interest rates, capital flow volatility, and geopolitical tensions11.
According to the MTI12, growth of Singapore’s retail trade sector slowed from 8.5% for 2022 to 1.3% for 2023, with a reversal from growth to contraction in 4Q 2023. Department stores saw nearly flat growth for 202313, a stark contrast to the 28.5% growth in the previous year14. Amidst inflationary pressures, the Mastercard Economics Institute (“MEI”) forecasts real consumer spending in Singapore to grow at a slower rate of 2.8% in 2024, down from 3.5% in 202315.
In 2023, Indonesia’s GDP grew by 5.05%, a slight decrease from the 5.3% growth in 2022, driven by export growth during the global commodity boom16. Bank Indonesia’s rate hikes, totalling 250 basis points between August 2022 and October 2023, have impacted our Indonesian projects.
The UK economy entered a shallow recession in late 2023, with GDP declining by 0.1% in the third quarter and 0.3% in the fourth quarter, marking its weakest performance since 2009, excluding the peak-pandemic year of 202017. At its meeting in May 2024, the Bank of England’s (“BOE”) Monetary Policy Committee (“MPC”) voted 7-2 to maintain rates at a 16-year high of 5.25%18. However, the central bank’s governor indicated that the BOE might need to cut rates more than the market anticipates, potentially beginning at the next scheduled MPC announcement18. Rising interest costs have increased property operating expenses and capitalisation rates, negatively affecting most property valuations. Despite these challenges, investment volumes in the UK PBSA sector surged to £430 million in 1Q2024, surpassing the £140 million recorded for the same period in 2023, marking a threefold increase19. In Manchester, home prices are projected to grow by 16.4% from 2022 to 202620.
On 19 March 2024, the Reserve Bank of Australia (“RBA”) held rates steady at a 12-year high of 4.35% for the third consecutive meeting, indicating a moderation in its tightening stance21. Since May 2022, the RBA has raised rates by 425 basis points, adversely affecting property operating costs, capitalisation rates, and particularly the valuations of office buildings. The IMF projects Australia’s GDP growth to slow from 2.1% in 2023 to 1.5% in 2024, with a rebound expected in 20257. Amid elevated economic uncertainties and a significant influx of new office supply22, leasing activities remain challenging.
In Conclusion
Our commitment to prudent financial management
remains unwavering. We will exercise caution and
prudence, while taking proactive measures to uphold
robust capital management discipline, including
preserving cash reserves, optimising cash flows, and
ensuring liquidity.
In terms of our asset management strategy, we continue to prioritise essential asset enhancements while deferring uncommitted capital expenditures. We are implementing cost-saving initiatives and hedging against underlying interest rate exposures wherever feasible. The Group remains committed to maintaining a strong liquidity position, comprising both cash reserves and banking facilities.
As we navigate these complex economic landscapes, our focus on maintaining a resilient and diversified portfolio ensures we are well positioned to respond to the challenges and opportunities that lie ahead. The Board and Management will continue to exercise careful oversight and strategic planning to safeguard and increase shareholder value and steer the Group towards sustainable growth.
In conclusion, we remain confident in our ability to navigate the evolving geopolitical and economic landscape, leveraging on our diversified portfolio, strategic investments, and prudent financial management.
PROPOSED DIVIDEND
To reward our loyal shareholders, the Board has
recommended a final dividend of 2.0 Singapore cents per
ordinary share. This translates to a payout ratio of 113.8%
of the Group’s net profit attributable to shareholders
for FY2024, underscoring our appreciation for the
unwavering support of our shareholders through the
years despite the challenging environment.
ACKNOWLEDGEMENTS
On behalf of the Board, I want to express gratitude to
Mr David Tang for his invaluable leadership as CEO of
our retail division for over 11 years; his contributions
have been invaluable. We wish him the very best as he
embarks on a new chapter.
A warm welcome is also extended to our new Board members, Mr Chan Boon Hui and Mr Christopher Tang. Their expertise and guidance will undoubtedly enhance our Board as we continue to prioritise resilience, innovation, and collaboration.
As my 17-year tenure as Chairman draws to a close, I wish to express my heartfelt gratitude to the members of Management for their invaluable support over the years. I am deeply thankful for the unwavering dedication of the Metro team, whose steadfast commitment has been pivotal in our accomplishments. Serving at the helm has been a privilege and an honour. I extend my sincere appreciation to my fellow Board members, shareholders, and stakeholders for their continuous support throughout this journey.
I wish everyone continued success in their endeavours.
Lt-Gen (Retd) Winston Choo
Chairman
28 June 2024