http://www.straitstimes.com/Money/St...ry_691756.html

Jul 18, 2011

From retail to property player

Retail made up just 6.5% of Metro's 2010 bottom line, property the rest

By Lee Su Shyan, Money Editor


Metro has four local stores and five in Indonesia and stakes in malls and buildings in China, including Metro City Shanghai (above) and a Tesco store inside Qinhuangdao's Lifespace mall. -- PHOTOS: ST FILE, METRO HOLDINGS, BLOOMBERG

MENTION Metro to most Singaporeans and they think department stores but the firm has pulled off a successful - and lucrative - transformation into a property player.

How lucrative can be seen in the pay packet of Mr Jopie Ong.

As Metro's group managing director, he took home between $8.75 million and $9 million for the year ended March 31. And that was not a one-off. For 2008, Mr Ong took home $9.1 million and a bumper $12.5 million in 2004.

But Metro is much more than a retail player these days. Last year, retail contributed only 6.5 per cent to the bottom line while property brought in the rest.

The firm has only four local Metro stores and five Metro stores in Indonesia. It also holds the franchise for Monsoon and Accessorize speciality shops in Singapore and Indonesia.

On the property front however, Metro has stakes in five malls and office buildings in China worth $600 million, totalling 254,000 sq m of space. It also has minority stakes in six Tesco malls in China, with over 200,000 sq m of space.

It was the profits from the sale of properties, rather than retail, that explain his hefty pay package. And of his near $9 million, only 12 per cent was salary; the rest was bonus.

Mr Ong said Metro still runs on traditional Chinese family business lines where 'bonuses are paid only when profits are made and money is received'.

The proceeds from selling Metro's stakes in four properties, two in China and two in Penang, were received only during the last financial year.

In comparison, his 2009 pay was only $2.9 million. Metro's pre-tax profit rose to $115 million but this was mostly due to unrealised revaluation gains on properties. These were unrealised profits and did not make it to Mr Ong's bonus.

So does he take a pay cut if the properties do not make money? 'We have never been in a forced sale position. If we do sell, it's because we have a good offer and the project is matured,' he replied.

Just as he is taking home a bumper bonus, Metro investors are also getting a one-for-five bonus issue and a five cent dividend payout which works out to a 44.6 per cent payout rate.

Metro's under-the-radar transformation into a property player has been almost two decades in the making.

Its first foray into China is also the jewel in its crown - Metro City Shanghai, in which it has a 60 per cent stake. The centre in Xujiahui has nine levels of retail space and is linked to an underground railway. Occupancy is close to 100 per cent.

The deal was secured in 1993 and was Mr Ong's bid at resurrecting plans to expand in China that had been put aside after the stock market crash in 1987.

'It was luck and fate,' Mr Ong said, about the Xujiahui area which was then undeveloped. He joked that he did not even get an official feasibility study but trusted his instincts.

He credits his ability to spot projects and his retail acumen to his mentor, an 80-year-old British architect he worked with in the 1970s, who taught him about designing stores and identifying projects.

Mr Ong learnt that good design is 'like blood flow in a building, how visitors are able to walk up and down floors'.

But Metro has had setbacks. When a similar prime site was up for grabs in Beijing in the mid-1990s, the project fell through after a partner reneged on the deal. 'It is important to find the right partner,' said Mr Ong.

Even though Metro is a relatively small kid on the block in China, its early mover advantage and retail and design background have given it an upper hand when seeking joint venture partners.

But securing partners is only part of the process. Mr Ong spends a lot of time in China giving 'face' to his business associates and he also ensures that he leaves something on the table for them. 'Don't squeeze people until the bone, there will be no blood left,' he advised.

While many investors in China prefer to work with non-Chinese or people from their own countries, Mr Ong relies on the Chinese as he says they work much harder than Singaporeans.

He recalled one expatriate he hired who was a dead loss: 'His salary ate up all my profit.

'We should groom the Chinese instead.'

While Metro has clearly set its sights on China, it is open to expanding in Singapore if anything interesting arises.

'China is a very big market for retail, but it is also crowded. You must have dominance, something like 400,000 sq ft, a super-duper big store. That is too expensive for us.'

That is why Metro has chosen the route of buying strategic stakes in properties or partnering with others.

At the end of the day, retail and property are interlinked for Mr Ong.

To enhance a customer's experience, 'you need to understand how the customer is feeling, how they live and this is how you design a property'.

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