Japanese stocks' incredible hidden real estate assets
TOPIX companies own ~$600bn of investment properties, on the books at only $320bn. And this is only part of the story.
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A Nikkei article a while back highlighted some of the incredible hidden value present in Japan.
Companies included in the TOPIX index hold nearly $600 billion of investment properties at fair market value, that are carried on the books at around $320 billion due to historical cost accounting.
When you hear that ~35% of the 2,000 companies in the TOPIX trade below book value, you need to also remember that the value of those book assets is heavily understated!
Another almost 2,000 listed companies are NOT included in the TOPIX, but many of these, in our experience, have also accumulated large unrealised gains on their property portfolios.
Further, something the Nikkei’s article did not address is that the “fair market value” is often itself understated, not accounting for the specific circumstances of individual assets.
Additionally, it does not take into account assets classed as “operating”, but which can often be discerned from a company’s “Major Facilities” disclosure in its Securities Report. Property such as a headquarters building, distribution & logistics facilities, and sometimes even factories sitting on land zoned for residential development.
With a little digging, we can ascribe a value to these assets.
In the latter case, consider the example of one of our target companies, which owns land in Tokyo that houses an under-utilised factory. The book value of this land is only ~$4m as it was acquired so long ago. Our investigations revealed that the land is zoned for residential development, and at prevailing price/sqm values in that area, would be worth more like $35m to a developer. This is extremely interesting, as the company’s entire market capitalisation was only around $70m at the time, and it also has cash and securities amounting to ~$60m, as well as other valuable real estate, including its HQ, worth another ~$70m.
In an even more extreme example, most of us have seen Hino Motors trucks driving around on Australian streets. Hino is a Toyota-affiliate, and like the rest of the group, in line with the corporate governance reform, has increased its focus on capital efficiency. In September 2023, Hino sold an unused parcel of land for ~$500m that was carried on its books at only $1m!
Real estate was also a key source of value in the Fuji Soft deal, whereby activist 3D Investment Partners ultimately exited to KKR following a bidding war between KKR and Bain Capital, and in the case of Sapporo Holdings (now Sapporo Breweries).
Sapporo is especially interesting as, in the 2010s, the company specifically chose to reclassify its investment properties to operating assets, and thus no longer has to disclose “Fair Market Value”. In that case, the activist involved published a presentation citing a valuation it obtained of Sapporo’s assets that pointed to a ~$6bn price tag, when as recently as 2020, Sapporo’s market enterprise value was as little as $3.6bn. The brewery and brands, you got for free.
Sapporo has since agreed to sell its real estate division to KKR and PAG for A$4.3bn.
Investors who previously mostly ignored real estate values, as they believed they would never see that value realised, are increasingly waking up to the fact that activists are scouring the market for these opportunities. But, with almost 4,000 companies, many with assets deeply hidden, this opportunity can persist for some time.
Investors with whom this opportunity resonates, may benefit from a conversation with Senjin Capital.
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Jamie is the founder & CIO of Senjin Capital, Australia's only fund manager focused on using shareholder activism to unlock the deep value in Japanese publicly-listed small cap companies.
Prior to founding Senjin in 2024, Jamie spent 13 years with Kerr Neilson's Platinum Asset Management, where he became a senior portfolio manager, managing ~$1bn across a global equities and a Japan equities fund, and leading the global consumer and Japan research teams.
Jamie is well into his second decade of investing in Japan, and his history with the country goes back to his high school days. He is still in regular contact with the family who hosted him on his high school exchange.
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Jamie is the founder & CIO of Senjin Capital, Australia's only fund manager focused on using shareholder activism to unlock the deep value in Japanese publicly-listed small cap companies. Prior to founding Senjin in 2024, Jamie spent 13 years...
Expertise
Jamie is the founder & CIO of Senjin Capital, Australia's only fund manager focused on using shareholder activism to unlock the deep value in Japanese publicly-listed small cap companies. Prior to founding Senjin in 2024, Jamie spent 13 years...
Expertise
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