Transcription
[CC may contain inaccuracies] What is this valuation gap in real estate in Japan and how did it even get there in the first place? Yes, good morning. I hope it's not too early to talk accounting, but this valuation gap in Japanese real estate essentially comes from the difference in book value and market value of properties held by Japanese companies, essentially in unrealized gains.
Now, this gap has been around for a while, but is now being highlighted and kind of in the spotlight more because of these campaigns by activist hedge funds at several Japanese companies that own real estate on their balance sheet. Now, where Japanese companies own real estate on their balance sheet, they're valued at book value, which is essentially just the cost of acquiring or developing the property, plus depreciation of a fixed asset.
Now, what's what's quite unique in Japan is that many Japanese corporations have held onto their properties for decades. Thus, their value on the books is very low because of depreciation. In the meantime, property prices in Japan, especially Tokyo, have jumped in that same time period. Thus, if the companies were to sell these properties, they could realize billions in gains and by some estimates in aggregate, like the 143 billion figure you mentioned earlier.
Lisa, how widespread is this real estate valuation gap for Japanese companies? Many Japanese companies hold real estate on their books, and by one analyst estimate, there are 700 listed companies in Japan that have real estate. And so it's very, very widespread. Additionally, to give you an idea of kind of the scope of the gap, some of you're looking at some very prime Tokyo skyscrapers, what their value for on the books of the owner is, is probably five times less than what it could fetch if it were sold on the market.
So we know there's been a bit of pressure from from activist investors, But but how are they going about that? Yeah. So like I said earlier, the the property values and that kind of the unrealized gains of the value of the real estate can really only be seen if the owners sell off the property. So several of these activist campaigns at the companies are actually basically asking them, pressuring them to sell off the buildings, to use the income and the capital from the sale to invest in kind of more value generating business lines or in more core businesses.
Several kind of notable recent examples are Elliott, which has a big stake in Mitsui for Sun, and they're arguing for some of the to afford to be able to sell off some of its buildings and maybe reinvest that into kind of developing new properties. Another well noted case is Singapore's three D investment partners, which has stakes in beer maker Sapporo and software maker Fuji Soft. In both those cases, asking them to sell off a ton of real estate they hold and reinvest that into their core business.