Japan: Sapporo considering real estate sales to pour resources into beer making

Japanese brewer Sapporo Holdings will consider unloading some of its real estate holdings in central Tokyo as the company seeks to refocus the business on beer making, Nikkei Asia reported on February 14.

Sapporo runs three core segments overseeing alcoholic beverages, real estate, and food and soft drinks. But with the alcoholic beverages struggling with low profitability, the company is considering restructuring steps, including unloading real estate holdings and an infusion of outside capital into subsidiary Sapporo Real Estate.

Sapporo Real Estate owns commercial complexes and rental property in the upscale Ebisu and in Ginza in Tokyo, as well as in Sapporo.

Real estate that has no direct connections to the beer business, including the Yebisu Garden Place shopping complex, could be put on the chopping block.

Sapporo will work out specifics going forward, including the scope of the sales and possible timelines. Part of the money from the transactions will be used for acquisitions in the alcoholic beverages business as well as for paying down debt.

Heavy liabilities incurred by the real estate business have constrained Sapporo from investing sufficiently in the beer business.

The real estate business is one of Sapporo's main earnings drivers. The segment generated an estimated 5.2 billion yen ($34.4 million) in core operating profit last year, or a third of the 16.5 billion yen forecast consolidated black ink.

At the same time, Sapporo's mainstay beer segment has suffered from poor profitability. The average operating profit margin at the domestic alcoholic beverages business has hovered in the 3% range between 2018 and 2022. This is below the margins surpassing 10% at Japanese rivals Kirin Brewery and Asahi Breweries.

Sapporo's domestic share in beer products is in the teens, putting it perpetually in fourth place behind Kirin and Asahi, which both boast shares above 30%.

On top of this, Sapporo is struggling in the overseas market. Sapporo bought California-based Anchor Brewing in 2017, only to exit the operation last year due to depressed sales from the pandemic fallout.

The plan is to restructure its three-segment business structure into one focused on alcoholic beverages. The company plans to retain assets that are in synergy with alcoholic beverages while withdrawing from unprofitable areas.

Singapore-based hedge fund 3D Investment Partners has been lobbying Sapporo to revamp its business structure.

"The deep underperformance of Sapporo's alcoholic beverages business is masked to some degree by the company's real estate business," 3D Investment Partners said in a letter last March.

3D Investment Partners has also said that excess real estate assets have eroded capital efficiency. The investment firm is now Sapporo Holdings' largest shareholder with a 16.19% stake as of Dec. 25 last year.

In September, Sapporo Holdings established a group strategy review committee comprised of internal directors, including President Masaki Oga, and external consultants, to review its alcoholic beverages and real estate businesses.

E-malt.com, the global information source for the brewing and malting industry professionals. The bi-weekly E-malt.com Newsletters feature latest industry news, statistics in graphs and tables, world barley and malt prices, and other relevant information. Click here to get full access to E-malt.com. If you are a Castle Malting client, you can get free access to E-malt.com website and publications. Contact us for more information at marketing@castlemalting.com .