Global hedge funds, including Elliott Investment Management, and private equity firms are zeroing in on Japanese companies, aiming to unlock as much as JPY25tn ($165bn) in undervalued real estate assets, according to a report by Bloomberg.
The potential windfall has fuelled some of the most prominent activist campaigns and private equity deals in Japan this year, marking a shift in how investors perceive corporate Japan’s hidden value.
An accounting practice in Japan records real estate at its historical cost minus depreciation, leaving the true market value of these assets vastly understated on balance sheets. With property prices soaring in metropolitan areas, especially in Tokyo, the potential for unrealised gains has become too enticing for investors to ignore.
Elliott recently disclosed a 5.03% stake in Tokyo Gas, whose real estate holdings, including the iconic Shinjuku Park Tower, are valued on paper at JPY58.9bn. Elliott estimates the market value to exceed PY180bn – almost triple the book value and nearly as much as Tokyo Gas’s market capitalisation.
And the hedge fund is not alone with activist investors like Palliser Capital and Singapore-based 3D Investment Partners leading similar campaigns. This year, 3D pressured Fuji Soft to go private, triggering a bidding war between KKR and Bain Capital. The IT firm’s real estate, valued at JPY84.5bn on its books, could fetch JPY195bn if sold, according to 3D.
Brewer Sapporo Holdings has also attracted attention, with the company earning as much operating income in 2023 from its real estate as it did from selling beer. Meanwhile, Palliser has targeted Tokyo Tatemono, arguing the developer could be worth twice its market value if it streamlined its property holdings.
Even Japan’s train operators, such as Keisei Electric Railway, and Keikyu Corp, have seen activist interest due to their high-value properties near transit hubs.
Private equity firms are also increasingly entering the fray, with KKR, after acquiring Hitachi Transport System in 2023 for JPY670bn, selling warehouses for over JPY200bn. Bain Capital took a similar approach with Showa Aircraft Industry, offloading a golf course for an estimated JPY130bn after its acquisition.
