Activists eye Corporate Japan’s $77 billion property gains as potential target

Japanese companies outside the real estate sector are facing increasing pressure from investors as they generated over $77 billion in paper profits last year from their non-core property portfolios. Analysts at Goldman Sachs calculated these gains for 2023, revealing the extent of unrealized property gains across more than 250 companies in various industries.

The upcoming June annual meeting season is expected to be contentious, with shareholders demanding asset sales to unlock value. The Tokyo Stock Exchange’s focus on capital efficiency and valuations has added to the pressure on companies to justify their non-core businesses.

While actual real estate companies like Mitsubishi Estate and Tokyo Tatemono have seen strong performance, companies with non-core real estate assets are under scrutiny. The existence of vast property portfolios has made them vulnerable to shareholder campaigns, with activists targeting companies with undervalued non-core property assets.

Goldman’s report highlighted about 250 companies in the Topix index that operate real estate assets as part of their business segments. The difference between the book value and market value of these properties resulted in $77 billion of paper gains in 2023, comparable to the gains declared by the Japanese real estate industry itself.

With corporate governance momentum favoring investors, there is likely to be increased scrutiny during this year’s AGM season. The debate around core versus non-core assets and the reasons behind extensive real estate portfolios held by non-real estate companies are expected to be key points of discussion. Stay informed with the latest updates on this developing story.