3D Investment Partners Issues Open Letter and Presentation Materials to Sapporo Shareholders and Presents Its Proposed Structure for Maximizing Corporate Value Through a Tax-Qualified Spin-Off of a Real Estate Holding Company and Complete Sales of…
3D Notes that the Real Estate Divestiture Structure Currently Being Evaluated by Sapporo Is Critically Important to Maximizing Corporate Value
3D Invites Shareholders to Support Sapporo’s Review Process by Reviewing Our Materials and Sharing Their Candid Feedback with 3DTOKYO–(BUSINESS WIRE)–
3D Investment Partners Issues Open Letter and Presentation Materials to Sapporo Shareholders and Presents Its Proposed Structure for Maximizing Corporate Value Through a Tax-Qualified Spin-Off of a Real Estate Holding Company and Complete Sales of Individual Properties
3D Investment Partners Pte. Ltd. (“we” or “3D”), provides investment discretionary management services for 3D OPPORTUNITY MASTER FUND, one of the large shareholders of Sapporo Holdings Limited (“Sapporo” or the “Company”) (2501.T). Today, we have released an open letter (“Open Letter”) and presentation materials (“Presentation Materials”) to shareholders of Sapporo regarding our real estate value maximization structure.
Please refer to the following link or the latter part of this press release to view the Open Letter:
https://www.3dipartners.com/engagement/letter-to-sapporo-shareholders-en-202407.pdf
Please refer to the following link to view the Presentation Materials:
https://www.3dipartners.com/engagement/sapporo-presentation-en-202407.pdf
Sapporo is a leading Japanese company with outstanding global brands in its alcoholic beverages business. We welcome the management’s decision to make a significant shift in its business strategy by effectively divesting its real estate assets, as outlined in the “Notice of Medium and Long Term Management Policies for Increasing Group-wide Corporate Value” released in February 2024 regarding its real estate business, an extremely important element of Sapporo’s corporate value. We understand that Sapporo is currently considering specific methods for this divestiture, and we are eager to support this review process.
From the perspective of maximizing corporate value, the structure Sapporo chooses for the divestiture of its real estate is critically important. The primary structures Sapporo should consider are: (1) a tax-qualified spin-off of a real estate holding company, (2) complete sales of individual properties, and (3) partial sales or capital increases of real estate holding companies. We believe that as shown in the Open Letter, a combination of a tax-qualified spin-off of a real estate holding company and complete sales of individual properties will maximize corporate value. Therefore, we believe that these structures should be included as candidates in Sapporo’s review process for its real estate divestiture.
In the Presentation Materials, we have outlined a real estate divestiture structure designed to maximize corporate value. This structure consists of three elements:
1. Classify the real estate owned by Sapporo into two groups: properties with significant potential for value appreciation and properties with limited potential for value appreciation.
2. For properties with significant potential for value appreciation, immediately execute a tax-qualified spin-off that allows for divestiture without incurring taxation of the profits and achieves a high valuation because of the portfolio’s growth potential.
3. For properties with limited potential for value appreciation, completely sell the individual properties to real estate investors who favor cash flow stability over growth potential.
We believe that this structure could increase Sapporo’s stock market capitalization by approximately 280 billion yen, an increase of +64% from its current level.
We encourage shareholders to review the Open Letter and the Presentation Materials. We welcome your candid feedback and ask you to join us in supporting Sapporo’s management in its proactive efforts.
July 9, 2024
3D Investment Partners Pte.
250 North Bridge Road
#13-01 Raffles City Tower, Singapore
Dear Fellow Sapporo Shareholders,
3D Investment Partners Pte. Ltd. (“we” or “3D”), is an independent asset management company specializing in value investing in Japan, with an investment philosophy focused on creating medium- to long-term value through compound capital growth. Funds that 3D manages are the largest shareholder of Sapporo Holdings Limited (“Sapporo” or the “Company”).
Sapporo is a leading Japanese company with outstanding global brands in the alcoholic beverages business. However, primarily due to its real estate business, which has consistently generated returns below its cost of capital, Sapporo has not been able to fully realize its intrinsic value. To address this fundamental issue, Sapporo’s management established the Group Strategy Review Committee in September 2023 to analyze ways to maximize shareholder value, including by divesting the Company’s real estate assets. In February 2024, Sapporo issued the “Notice of Medium and Long Term Management Policies for Increasing Group-wide Corporate Value” outlining the intention of the Company to effectively divest the real estate business through the introduction of external capital. We express our respect for Sapporo’s management and welcome their review of Sapporo’s business configuration.
Sapporo’s management is currently considering specific structures for the divestiture of its real estate assets, and we understand that Sapporo plans to announce a detailed structure within this fiscal year. The structure chosen for the real estate divestiture is critically important as it will significantly impact corporate value. Therefore, with input from several real estate experts, we have reviewed potential structures and developed a divestiture structure to maximize corporate value. We are pleased to share our analysis with our fellow shareholders. We kindly ask you to review the presentation materials (“Presentation Materials”).
Presentation Materials: https://www.3dipartners.com/engagement/sapporo-presentation-en-202407.pdf
The Importance of Choosing an Appropriate Real Estate Divestiture Structure
We believe that there are three primary structures for Sapporo to consider with respect to its real estate divestiture: (1) a tax-qualified spin-off of a real estate holding company, (2) complete sales of individual properties, and (3) partial sales or capital increases of real estate holding companies.
When comparing the advantages and disadvantages of these structures, as shown in the comparison table at the end of this document, the method (3) – partial sales or capital increases of real estate holding company – has significant drawbacks:
this structure does not achieve complete divestiture of the real estate, therefore Sapporo’s corporate value will continue to be impaired as it continues to hold properties with an ROIC below the Company’s cost of capital;
the pool of real estate investors willing to purchase partial interests is limited, so the investments are more likely to be made at a discounted valuation.
Therefore, we believe that (1) – a tax-qualified spin-off of a real estate holding company and (2) complete sales of individual properties, both of which have no such drawbacks, are more likely to maximize Sapporo’s corporate value.
In summary, we believe it is extremely important that the methods Sapporo considers for its real estate divestiture structure include (1) a tax-qualified spin-off of a real estate holding company and (2) complete sales of individual properties, as candidates. Simply put, these are the most likely structures to maximize corporate value for Sapporo.
3D’s Real Estate Divestiture Structure to Maximize Corporate Value
Considering the advantages and disadvantages of each structure, we propose a real estate divestiture structure that consists of the following three elements to maximize Sapporo’s corporate value:
Classify the real estate owned by Sapporo into two groups: properties with significant potential for value appreciation and properties with limited potential for value appreciation.
For properties with significant potential for value appreciation, immediately execute a tax-qualified spin-off that allows for divestiture without incurring taxation of the profits and achieves a high valuation because of the portfolio’s growth potential.
For properties with limited potential for value appreciation, completely sell the individual properties to real estate investors who favor cash flow stability over growth potential.
More specifically, properties such as Ebisu Garden Place, Lion Ginza 7-chome, and Shinjuku Lion, due to their good locations, should be classified under the group of properties with growth and value enhancement potential. These should be divested immediately through a tax-qualified spin-off to maximize the valuation of their growth and value enhancement potential. Other properties should be classified under the group without growth and value enhancement potential. These properties should be sold individually through an approach that maximizes the sale price (private sales, competitive bidding, etc.).
Potential for Corporate Value Enhancement through the Selection of an Appropriate Real Estate Divestiture Structure
We believe that the real estate divestiture structure we propose has the potential to increase Sapporo’s stock market capitalization by approximately 280 billion yen, or about +64%. Please see the attachment 1: Illustrative Value Creation Opportunity at Sapporo.
In Conclusion
We welcome Sapporo management’s decision to effectively divest the real estate business. However, as mentioned above, the choice of the real estate divestiture structure is critically important as it will significantly impact Sapporo’s corporate value. We believe that a structure combining a tax-qualified spin-off of a real estate holding company and the complete sales of other individual properties is the most rational from the perspective of maximizing corporate value.
We encourage shareholders to support Sapporo management’s decision and review this open letter and the Presentation Materials. We kindly ask you to share your candid opinions with Sapporo and us.
Thank you for your attention and support.
Please see the attachment 2: Real Estate Divestiture Scheme Comparison Chart.
Best Regards.
About 3D Investment Partners Pte.
3D Investment Partners Pte. Ltd. is an independent Singapore-based Japan focused value investing fund manager founded in 2015. 3D Investment Partners Pte. Ltd. focuses on partnering with managements who share its investment philosophy of medium- to long-term value creation through compound capital growth and a common objective of achieving long-term returns.
Disclaimer
This press release is provided for informational purposes only and does not constitute an offer to purchase or sell any security or investment product, nor does it constitute professional or investment advice. This press release should not be relied on by any person for any purpose and is not, and should not be construed as investment, financial, legal, tax or other advice.
3D Investment Partners Pte. Ltd. and its affiliates and their related persons (“3DIP”) believe that the current market price of Sapporo does not reflect its intrinsic value. 3DIP acquired beneficial and/or economic interests based on its own idea that Sapporo securities have been undervalued and provides an attractive investment opportunity and may in the future beneficially own and/or have an economic interest in, Sapporo securities. 3DIP intends to review its investments in Sapporo on a continuing basis and, depending upon various factors including, without limitation, Sapporo’s financial position and strategic direction, the outcome of any discussions with Sapporo, overall market conditions, other investment opportunities available to 3DIP, and the availability of Sapporo securities at prices that would make the purchase or sale of Sapporo securities desirable, 3DIP may, from time to time (in the open market or in private transactions), buy, sell, cover, hedge, or otherwise change the form or substance of any of its investments (including the investment in Sapporo securities) to any degree in any manner permitted by any applicable law, and expressly disclaims any obligation to notify others of any such changes.
3DIP provides no representation or warranty, either expressed or implied, in relation to the accuracy, completeness, or reliability of the information contained and/or referred to herein, nor is it intended to be a complete statement or summary of the securities, markets, or developments referred to herein. 3DIP expressly disclaims any responsibility or liability for any loss howsoever arising from any use of, or reliance on, this press release or its contents as a whole or in part by any person, or otherwise howsoever arising in connection with this press release. 3DIP hereby expressly disclaims any obligation to update or provide additional information regarding the contents of this press release or to correct any inaccuracies in the information contained in this press release.
3DIP disclaims any intention or agreement to be treated as a joint holder (kyodo hoyu sha) under the Financial Instruments and Exchange Act of Japan, a closely related party (missetsu kankei sha) under the Foreign Exchange and Foreign Trade Act with other shareholders, or receiving any power or permission to represent other shareholders in relation to the exercise of their voting rights, and has no intention to solicit, encourage, induce or require any person to cause other shareholders to represent such voting rights.
3DIP does not have the intention to make a proposal, directly or through other shareholders of Sapporo, to transfer or abolish the business or assets of Sapporo and/or Sapporo group companies at the general shareholders meeting of Sapporo. 3DIP does not have the intention or purpose to engage in any conduct which constricts the continuing and stable implementation of business of Sapporo and/or Sapporo Holdings group companies.
This press release may include content or quotes from news coverage or other third-party public sources (“Third-Party Materials”). Permission to quote from Third-Party Materials in this press release may neither have been sought nor obtained. The content of the Third-Party Materials has not been independently verified by 3DIP and does not necessarily represent the views of 3DIP. The authors and/or publishers of the Third-Party Materials are independent of, and may have different views to 3DIP. The quoting of Third-Party Materials in this press release does not imply that 3DIP endorses or concurs with any part of the content of the Third-Party Materials or that any of the authors or publishers of the Third-Party Materials endorses or concurs with any views which have been expressed by 3DIP on the relevant subject matter. The Third-Party Materials may not be representative of all relevant news coverage or views expressed by other third parties on the stated issues.
This press release has been prepared based on constructive discussions with Sapporo and publicly available information (which have not been independently verified by 3DIP) and does not purport to be complete, timely or comprehensive. 3DIP has not received any inside information as defined in the Financial Instruments and Exchange Act of Japan (“Inside Information”) and/or material information under the Fair Disclosure Rules (“Material Information”) and has not included any Inside Information and/or Material Information in this press release.
In respect of information that has been prepared by 3DIP (and not otherwise attributed to any other party) and which appear in the English language version of this press release, in the event of any inconsistency between the English language version and the Japanese language version of this press release, the meaning of the Japanese language version shall prevail unless otherwise expressly indicated. Contacts
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