I enjoyed reading your well written, insightful writeup on Asagami, especially because I began my career (now retired) as a warehouse and land holdings analyst in Japan. It's seems so obscure today. Your reasoning is solid, but in my experience, most of the Japanese market does not care about land in general most of the time, and industrial land in particular. In the 1980s Japan experienced a liquidity boom when they lowered interest rates and created an easy money situation. This caused investors to look at the many companies which had bought land 100 or more years ago and re-evaluate them. The stock prices of stock exchange listed companies including but not limited to warehouses, movie theatres, real estate firms, and railroads, went through the roof. Investors at that time also analyzed the large stock portfolios of listed companies, most of which were carried at book value. Although Japan has easy money now, this has not been happening and I feel that without some kind of catalyst, it may be a long wait for these deeply discounted latent assets to be realized.
Thanks for the comment! I agree with your thinking that local investors simply don't care, which is why I always view undervalued land on my Japanese stocks as a "bonus" or "someday" story. These names are super cheap as is.
The only obvious catalyst right now is TSE reforms, which has listed companies rethinking being listed to begin with. I'm not foolish enough to think we will ever get close to fair value on names like this, but I'd be happy with a reasonable return!
thanks for sharing! from your X bio I presume you're based in Turkey? Would you be interested in wiritng about Turkish small caps that're highly illiquid as well. English-speaking Fintwit has extensive knowledge on Pabrai's RYGYO and CCOLA, but there are really interesting holdcos and REITS with hidden tangible assets, which would incidentally come more prominent now that these companies are the brink of inflation accounting.
The Turkish ADRs are not very interesting, but there are plenty of neat names on the local market, which are unfortunately inaccessible for most Westerners. The only Turkish ADR that's liquid that I like is Koc Holdings. I own several Turkish names in my local brokerage there, but it's a small part of my portfolio. I'd cover the names more if they were more accessible to Westerners, but they aren't. You pretty much need a local brokerage.
I spend a few months a year in Istanbul, but also time in USA and Canada!
For those curious about potential rents, https://www.takase.co.jp/atc this property, ~5,600 sqm of land on this property is rented annually by that company for ¥1B. While not a perfect comp, it gives an idea what the Asagami and other nearby properties could rent for.
Hi there, thank you very much for this great analysis. I am wondering if you could provide me with further detail on this comment: "I tend to ignore the value of land as its difficult to monetize" - what makes Japanese land hard to monetise?
I meant it as difficult to pressure the company to monetize it. The company if it wanted to could easily sell the real estate assets, but as an outside shareholder it's hard to get companies to sell assets and buy back stock. Things are changing though and companies are being pushed to be more conscious of their cost of capital and stock prices!
Cool, thank you. Yeah, the changes being implemented by the TSE certainly appear to be gaining traction. Albeit still amusing how few mid/small caps are even meeting the basic english TD requirement. Quick follow up - do you have any small/mid examples where the property assets have been disposed of to support the ROE/BV thresholds?
Several mids have announced massive buybacks. Logistics company I tweeted about (and have a position in) announced a 20% buyback and said they are aiming to achieve P/B over 1 in ir materials.
Thank you for the writeup. Can you just check your logic on a per sqm? You derived the value at 1.9 million Yen, what would be like $12,600 per square meter. Don't you think this is high, especially for a warehouse?
Math is pretty straight forward. The price was per sqm for the land, not the gross leasible area. Seems expensive to me, but the comparable is the asset owned by the publicly traded REIT which did an appraisal.
Appraisal value of MT Ariake Center Building I&II = ¥15.8B JPY. Land 8,307 sqm. The appraised value is for both the land and property, but its been 10 years since they bought this, so the building is likely depreciated and most of the value is in the land (similar to Asagami's mark, where it shows land value is 7.9B JPY and building value is under ¥1B.
If the comparable property is worth ¥15.8B JPY as their appraisal suggests, Asagami's properties in the area combined (which are almost 2x the size), are likely worth ~¥29.5 billion.
I want to emphasize I'm not an expert on real estate in Japan by any stretch, but Logistics assets located in essential locations like these could definitely fetch those prices. Logistics properties in California near warehouse hubs sell for $150-$300 per sq ft (based on building size, not land). The assets highlighed in the article are nearly 90K sqm in leasable space, or 965,113 sqft.
I’m in a few Japanese names and although I agree with you point about a handful of them being cheap i have difficulty pairing that up with companies that are going public for <1x book.
I haven't looked at many IPOs in Japan. The only newish IPO I was interested in was Cover Corp which is a growth name. CEL Corp, which I own, IPO'd at below book as well but has been a stellar performer.
We're already seeing some impact from the TSE pushes, namely buybacks from names that historically never did buybacks before. Many companies are also at least talking about shareholder returns/methods to mitigate p/b discounts. Time will tell if these prove effective or not though. Even without massive success on that front, most of the dirt cheap JP names will muddle through.
I enjoyed reading your well written, insightful writeup on Asagami, especially because I began my career (now retired) as a warehouse and land holdings analyst in Japan. It's seems so obscure today. Your reasoning is solid, but in my experience, most of the Japanese market does not care about land in general most of the time, and industrial land in particular. In the 1980s Japan experienced a liquidity boom when they lowered interest rates and created an easy money situation. This caused investors to look at the many companies which had bought land 100 or more years ago and re-evaluate them. The stock prices of stock exchange listed companies including but not limited to warehouses, movie theatres, real estate firms, and railroads, went through the roof. Investors at that time also analyzed the large stock portfolios of listed companies, most of which were carried at book value. Although Japan has easy money now, this has not been happening and I feel that without some kind of catalyst, it may be a long wait for these deeply discounted latent assets to be realized.
Thanks for the comment! I agree with your thinking that local investors simply don't care, which is why I always view undervalued land on my Japanese stocks as a "bonus" or "someday" story. These names are super cheap as is.
The only obvious catalyst right now is TSE reforms, which has listed companies rethinking being listed to begin with. I'm not foolish enough to think we will ever get close to fair value on names like this, but I'd be happy with a reasonable return!
thanks for sharing! from your X bio I presume you're based in Turkey? Would you be interested in wiritng about Turkish small caps that're highly illiquid as well. English-speaking Fintwit has extensive knowledge on Pabrai's RYGYO and CCOLA, but there are really interesting holdcos and REITS with hidden tangible assets, which would incidentally come more prominent now that these companies are the brink of inflation accounting.
The Turkish ADRs are not very interesting, but there are plenty of neat names on the local market, which are unfortunately inaccessible for most Westerners. The only Turkish ADR that's liquid that I like is Koc Holdings. I own several Turkish names in my local brokerage there, but it's a small part of my portfolio. I'd cover the names more if they were more accessible to Westerners, but they aren't. You pretty much need a local brokerage.
I spend a few months a year in Istanbul, but also time in USA and Canada!
For those curious about potential rents, https://www.takase.co.jp/atc this property, ~5,600 sqm of land on this property is rented annually by that company for ¥1B. While not a perfect comp, it gives an idea what the Asagami and other nearby properties could rent for.
Source: Annual report Takase
Hi there, thank you very much for this great analysis. I am wondering if you could provide me with further detail on this comment: "I tend to ignore the value of land as its difficult to monetize" - what makes Japanese land hard to monetise?
I meant it as difficult to pressure the company to monetize it. The company if it wanted to could easily sell the real estate assets, but as an outside shareholder it's hard to get companies to sell assets and buy back stock. Things are changing though and companies are being pushed to be more conscious of their cost of capital and stock prices!
Cool, thank you. Yeah, the changes being implemented by the TSE certainly appear to be gaining traction. Albeit still amusing how few mid/small caps are even meeting the basic english TD requirement. Quick follow up - do you have any small/mid examples where the property assets have been disposed of to support the ROE/BV thresholds?
Several mids have announced massive buybacks. Logistics company I tweeted about (and have a position in) announced a 20% buyback and said they are aiming to achieve P/B over 1 in ir materials.
https://x.com/altaycapital/status/1745674356255342675?s=46
Thank you for the writeup. Can you just check your logic on a per sqm? You derived the value at 1.9 million Yen, what would be like $12,600 per square meter. Don't you think this is high, especially for a warehouse?
Math is pretty straight forward. The price was per sqm for the land, not the gross leasible area. Seems expensive to me, but the comparable is the asset owned by the publicly traded REIT which did an appraisal.
Appraisal value of MT Ariake Center Building I&II = ¥15.8B JPY. Land 8,307 sqm. The appraised value is for both the land and property, but its been 10 years since they bought this, so the building is likely depreciated and most of the value is in the land (similar to Asagami's mark, where it shows land value is 7.9B JPY and building value is under ¥1B.
If the comparable property is worth ¥15.8B JPY as their appraisal suggests, Asagami's properties in the area combined (which are almost 2x the size), are likely worth ~¥29.5 billion.
I want to emphasize I'm not an expert on real estate in Japan by any stretch, but Logistics assets located in essential locations like these could definitely fetch those prices. Logistics properties in California near warehouse hubs sell for $150-$300 per sq ft (based on building size, not land). The assets highlighed in the article are nearly 90K sqm in leasable space, or 965,113 sqft.
I'm not a RE expert either, but these numbers remind me of the 90's Japanese RE bubble.
I’m in a few Japanese names and although I agree with you point about a handful of them being cheap i have difficulty pairing that up with companies that are going public for <1x book.
I haven't looked at many IPOs in Japan. The only newish IPO I was interested in was Cover Corp which is a growth name. CEL Corp, which I own, IPO'd at below book as well but has been a stellar performer.
We're already seeing some impact from the TSE pushes, namely buybacks from names that historically never did buybacks before. Many companies are also at least talking about shareholder returns/methods to mitigate p/b discounts. Time will tell if these prove effective or not though. Even without massive success on that front, most of the dirt cheap JP names will muddle through.