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PaperclipPerfector  6mo ago (text post)   27717 thread views

Culture War Roundup for the week of May 13, 2024

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That said, selling corporate owned real-estate is a good thing for most businesses. There’s a reason why almost no major corporations other than super rich tech companies in the suburbs own their own corporate headquarters; when you own your premises, you’re a real estate company in addition to doing whatever else you do. Conglomerates are almost always undervalued by markets, it makes more sense for most companies to sign long leases, to focus on their core business as a pure play, and to leave real estate to asset managers and real estate developers who are valued on that basis and have expertise in that market.

Would I be correct in saying that’s mostly just the west? My impression is that in Japan at least, and maybe other Asian countries too, vertical integration is much higher. I would be surprised if Toyota/Panasonic/Yamato etc. don’t own their own land. Certainly they used to: during the bubble Sony’s real estate holding were worth more than the rest of the company put together.

I would be surprised if Toyota/Panasonic/Yamato etc. don’t own their own land.

Toyota's most recent annual SEC filing indicates that it owns land worth 1.4 billion dollars, or 1.9 percent of its assets. "Of Toyota's principal facilities and organizations, all are owned by Toyota Motor Corporation or its subsidiaries. However, small portions, all under approximately 20 percent, of some facilities are on leased premises."

In comparison, GM owns land worth 1.3 billion dollars, or 0.47 percent of its assets. It has "rent expense under operating leases" of 350 million dollars per year, or 0.20 percent of its revenue.

Slight nitpick. But using listed real estate value on SEC findings will not be accurate. Those will be at historical costs not current market value and is depreciated. It’s a lot like prop 13 in California. If Toyota bought the land the factory sits on in the 1970’s then the land will be listed at 1970 prices.

It’s also obvious in this discussion that companies that need physical footprints will have exposure to real estate. There are many different flavors of corporate leases but many of them are functionally no different than owning real estate. A 300 year lease with pass thru of maintenance, property taxes, etc is in terms of economics no different than owning the property with a mortgage.

Leases have a mathematical property that is a lot like delta in options. Options are not the same as owning equity but delta is a measure of the options price movement to the underlying equity. Similar shorter term leases have little exposure to the underlying real estate while longer term leases can be indistinguishable from owning real estate. Most of these leaseback deals are long term and would essentially have a lot of delta.

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