Metro Holdings is evaluating investment opportunities to deploy cash after it was urged last week by an activist hedge fund to use excess reserves to boost dividend.
The retailer and real estate developer said its current net cash position is a recent occurrence, due to the recent divestment of properties over the last one to two financial years, according to a statement yesterday in response to an open letter from activist hedge fund Quarz Capital Management.
There are opportunities to reinvest capital and Metro continues to carefully evaluate a pipeline of projects, taking into consideration property cycles across different geographies, it said.
Metro expects its net cash levels to decline as it capitalizes on property development and investment opportunities when they materialise.
Insufficient cash for potential deployment would affect its ability to build future income streams through recycling the cash.
Metro's net cash position has risen to $479 million at the end of June, attributable to the inflow of proceeds from projects such as EC Mall in Beijing, which it sold after attaining full occupancy and stable rental income, it said.
Quarz said in its letter to the management and board last week that Metro's net cash holdings are high compared with other companies listed on the Singapore stock exchange, and that they account for more than half its market capitalization.
Metro shares closed slightly higher yesterday at $1.010 from the previous close of $1.
Quarz had estimated that the company's shares trade about 40 per cent below book value, and asked Metro to pay a 21 cents-a-share one-off dividend to return cash to investors.
It had also asked the company to provide a clearer strategy for its real estate division, as well as to strengthen investor relations and align management pay more with the firm's long-term profitability and share price.
A one-time, 21-cent dividend would translate into Metro deploying $174.5 million of its cash, based on the current number of shares outstanding, according to Bloomberg data.