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 3D
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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
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or to correct any inaccuracies in the information contained in this
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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
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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.
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