Sapporo, the iconic beer maker, is under scrutiny after it announced a review of its real estate assets back in February. This month, activist investor 3D Investment fired off a presentation outlining a detailed plan for the $3 billion company. Japan Inc. might be warming to the idea of cashing in on their property holdings, but the path is fraught with potential pitfalls, even in a market favoring sellers. The Singapore-based fund, which is holding a 16% stake in Sapporo, is urging the company to spin off some of its real estate assets and sell off others. They peg the property holdings’ value at $4 billion, a substantial two-thirds above Sapporo’s own assessment, and argue that a savvy reconfiguration could boost the beer maker’s market value by at least 64%.
Dumping real estate assets is a no-brainer for Sapporo to hike its dismal 5% return on equity. Japanese property companies managed to eke out a subpar return of just under 8% in the year leading up to March, according to LSEG data. This pales in comparison to the 9% average for MSCI Japan and a hefty 18% for MSCI USA. This skirmish brings to light a broader issue. Japanese firms often hold property at book values, which are significantly lower than the market values they’re required to disclose.
3D’s pressure on Sapporo is understandable; Japanese companies are notoriously change-averse, but large global funds continue to avidly purchase commercial property in Japan, even as other markets cool off.
If Sapporo and its peers can manage intelligent disposals and reinvest the proceeds into higher-return ventures, they’d be hitting the government’s target of increasing shareholder value. For now, Sapporo’s real estate strategy could be a pivotal test case. Should they get it right, they stand to set a precedent for other Japanese companies, proving that savvy asset management can indeed lead to substantial gains. However, missteps could be costly and further cement the reluctance of Japanese firms to embark on similar initiatives.
In the meantime, Sapporo shareholders and market watchers will be keeping a close eye on how this brewing real estate drama unfolds. Will Sapporo manage to balance the demands of 3D Investment and the broader market dynamics, or will this attempt at boosting market value fizzle out? Only time will tell, but one thing’s for sure – it’s going to be an interesting show.
(Source: Reuters | LSEG)
