Japanese Brewer Sapporo Takes Bids for Properties as Singapore’s 3D Adds Pressure

Sapporo Holdings is exploring the sale of its real estate portfolio, including its flagship mixed-use complex in Tokyo’s Shibuya ward, as the Japanese beer maker looks to raise cash to turn around its struggling drinks business.

The brewer with roots on the island of Hokkaido has commenced a process to solicit and evaluate proposals from a wide range of potential strategic partners regarding the introduction of external capital to the real estate business, it said in a Thursday stock filing.

“The company is continuing to consider ways to utilise real estate that will contribute to enhancing the group’s future value, as well as the fundamental transformation of the business portfolio,” Sapporo said.

The announcement follows a multi-year pressure campaign by Sapporo’s largest shareholder, 3D Investment Partners. The Singapore-based fund manager cites what it terms poor management, weak competitiveness and unrealised value in the brewer’s properties, especially the landmark Yebisu Garden Place complex in Shibuya’s Ebisu district, where Sapporo has its head office.

Portfolio Appraised at $4.4B

3D contends that Sapporo Holdings has grown too dependent on property leasing income, to the detriment of the core beer business — so much so that some employees have taken to calling the company “Sapporo Buildings”, according to a 3D pitch book.

The Singaporean firm recently commissioned a third-party appraisal of Sapporo’s real estate portfolio that revealed a market value of JPY 636 billion ($4.4 billion), far surpassing the JPY 383 billion figure disclosed by the brewer.

The fund manager has pressed Sapporo to list its real estate business in a tax-qualified spin-off, which allows for divestiture without incurring taxation of the profits. 3D recommends spinning off properties with high growth in net asset value and selling those with low NAV growth rates in order to maximise corporate value.

“If Sapporo divests its real estate using this strategy, we believe its market capitalisation will increase from the current JPY 440.1 billion to JPY 722.0 billion, an upside of approximately 65 percent,” 3D said.

Central to the proposal is Yebisu Garden Place, a 1994 redevelopment of a former brewery that today comprises office and residential towers, retail spaces and the Westin Tokyo Hotel.

Sapporo sold the 438-room Westin to Morgan Stanley in 2004 for $435 million, according to market sources who spoke to Mingtiandi. The US investment bank bought a 15 percent stake in Yebisu Garden Place as a whole in 2007 for $437 million and offloaded the Westin to Singapore sovereign fund GIC in 2008 for a reported $720 million.

Sapporo previously fought off an attempt by US fund manager Steel Partners to acquire a one-third interest in the business and remove board members. The Manhattan-based firm ultimately sold its entire stake in the brewer in 2010.

Sapporo said in the stock filing that it would consider various options for its real estate arm, including the introduction of external capital, asset sales and tax-qualified spin-offs.

Buyout Blitz

Led by former Broad Peak partner Kanya Hasegawa, 3D is an activist investor and the largest shareholder in Fuji Soft, the Japanese systems developer currently subject to a takeover battle between US private equity giants KKR and Bain Capital.

In July, 3D offered to take private Japanese film company Tohokushinsha in a deal valuing the target at as much as $575 million, with the Singaporean firm saying it could best improve corporate value as a majority shareholder working alongside management.

Japan is an emerging arena for corporate buyouts, including in the real estate industry. Logistics operator Trancom this week announced plans to go private in a management-led buyout after endorsing a tender offer from Bain valuing the company at JPY 95.8 million ($670 million).

Last week, Japanese real estate giant Hulic launched a takeover bid for Raysum, a Tokyo-listed builder controlled by Hong Kong fund manager Oasis Management, at a total acquisition cost of JPY 173.5 billion ($1.2 billion).