Sapporo might get half-drunk on efficiency

Sapporo Breweries

18/07/2024 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Anshuman Daga
       SINGAPORE, July 18 (Reuters Breakingviews) - It's not
quite time to say cheers. After beer maker Sapporo  2501.T 
pledged in February to review how it holds its real estate
assets, activist 3D Investment published a 38-page presentation
this month detailing exactly how the $3 billion company can go
about it. Japan Inc is warming up to the idea of realising gains
in their property holdings but there is still room for missteps,
even in a seller's market.
    The Singapore-based fund founded by Kanya Hasegawa has
amassed a 16% stake in Sapporo. It says the company should spin
off some of its real estate assets and sell other bits. 3D
values the property holdings at $4 billion, two-thirds higher
than the company's disclosed assessment, and reckons a
well-executed rejig could lift the beer maker's market value by
at least 64%.
    Shedding real estate is an obvious way for Sapporo to boost
its lousy 5% return on equity. Japanese property companies
generated a sub-8% return in the year to March, per LSEG data.
This compares roughly with over 9% for MSCI Japan and 18% for
MSCI USA. The tussle spotlights a deeper issue too.
    Japanese companies generally hold property at book values,
which are far lower than the market values they are required to
disclose. According to Goldman Sachs, more than 250 listed firms
had non-core real estate-related operating segments. It reckons
that cohort had unrealised property gains of 12 trillion yen,
about $76 billion, in 2023. 
    3D's firm nudge of its target is understandable; Japanese
companies are reluctant to change but large global funds remain
keen buyers of commercial property in the country even as the
market has cooled elsewhere. Blackstone  BX.N  and PAG are
snapping up buildings. KKR  KKR.N  teamed up with a private
equity firm to buy Hyatt Regency Tokyo in 2023 from a railway
operator.
    If companies like Sapporo make smart disposals and re-invest
the proceeds into higher returning businesses, it would fulfil
the government's desire to see an uptick in shareholder value.
Japan's Topix  .TOPX  benchmark stock index has risen 20% this
year but improvements in efficiency are lagging. A boost here
would be worth drinking too.
    Follow @anshumandaga on X
         
    CONTEXT NEWS 
    Japan-focused 3D Investment Partners on July 9 detailed
various methods beer maker Sapporo could use to divest its real
estate assets to boost its market value by at least 64%.
    The company should consider a tax-free spin-off of a real
estate holding company as well as complete sales of individual
properties, 3D said in a 38-page presentation.
    The activist fund, which has urged the company to improve
growth at its alcohol beverages business, became Sapporo's
biggest shareholder in January with a 16% stake. 3D has been an
investor since at least 2022.
    Sapporo said in February 2024 that it would diversify "its
way of holding real estate" including introduce capital from
external strategic partners. 3D said it understands Sapporo
plans to outline a new structure for its real estate assets
within this fiscal year.

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Graphic: Japan scores low on return on equity    https://reut.rs/3Lq0Bs4
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 (Editing by Una Galani and Aditya Srivastav)
 ((For previous columns by the author, Reuters customers can
click on  DAGA/ 
anshuman.daga@thomsonreuters.com))