Writing down SPC investments in one go — a ¥71.7bn net loss, and a two-track model of redevelopment and disposals (2011)

What it means to take it all at once — and the limit of that

The site in front of Nakano station, acquired for $1.8B (¥144bn), had only 30% of its tenants committed as it approached opening. This loss was the clean-up after a purchase that misread the market, not an aggressive move management chose for itself. Even so, taking the unrealised losses on three projects all at once, rather than carrying them into later years, can be seen as closing off the route of leaving losses inside SPCs, where they are hard to see from outside. That the share price kept rising from the day after the revision was announced was the flip side of a market that had already priced in the delay.

Calling it a bold stroke needs a reservation, though. That Nakano and Kyobashi were bad assets was the settled market view, and the write-down was received as a matter of timing. Ordinary profit did not return to its pre-loss level until the year ended December 2017, and those six years were spent waiting for redevelopments to complete. When President Nomura Hitoshi says that market conditions will turn at some point, and calls running developments in parallel across several districts and uses a form of risk diversification, the words appear to come from the experience of losing $877.4M (¥70bn) out beyond the balance sheet.