Japanese property group Tokyo Datemono targeted by British activist fund

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A UK-based activist fund is taking a stake in one of Japan's biggest real estate groups, calling for a sale and strategic overhaul as foreign investors continue to put pressure on the country's board.

Palliser Capital is positioning itself to become one of the top 15 shareholders in Tokyo Datemono, according to people familiar with the fund.

The real estate company, which was founded in 1896 and owns some of the country's most famous buildings, including the Otemachi Tower in the capital's business district, is the latest in a long line of real estate groups targeted by activists. Japanese companies are under increasing pressure to improve their market value, raise corporate governance standards and increase their return on equity.

People familiar with Palliser's thinking said the fund saw a huge discount between Tokyo Tatemonos' intrinsic value, which Palliser had put at $6.4 billion, and its market capitalization of $3.3 billion. We acknowledge some attempts by property groups to address this discount, but aim to drive acceleration.

Palliser says it wants a clear roadmap to identify non-core assets, divest unnecessary holdings and liquidate its equity portfolio in other listed companies. The largest of the cross-shareholdings is a roughly 5.3% stake in Hulic, a Japanese real estate group with close ties to Tokyo Datemono.

Palliser is scheduled to reveal the investment Tuesday at the 13D Monitor annual activist investor gathering in New York. The same people said the fund compared Tokyo Tatemonos' position with that of Mitsui Fudosan, Japan's largest real estate group, which is being targeted by US activist Elliott. Management this year.

Palliser believes the two companies share similarities in terms of asset mix, low asset turnover and potentially unrealized profits, but Mitsuis' valuation follows Elliott's campaign and the company's decision to launch a new strategic plan and shareholder capital return program. has increased.

Despite mounting public pressure, contacts between Palliser's top executives and Tokyo Tatemono have been constructive, people familiar with the activist investor said.

This is the second largest investment in Japan in the past 12 months after it was targeted at Keisei Electric Railway, which operates trains in Tokyo, including one of its main routes from Narita Airport to the city center.

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In a recent report on the continued rise of investor activism in Japan, CLSA Japanese equity strategist Nicholas Smith pointed out that the number of activist events in the first three months of 2024 was up 156% compared to the same period a year ago. Crucially, he said, there has been a qualitative change in activism.

Activism is now about breaking up large, directionless companies and agitating for mergers in mature sectors with dispersed market shares, Smith said. Both are important issues in Japan's turnaround story. Prominent activists showed that they were leaving the company in a better state than when they started, and they also received support from the government.

Palliser declined to comment on the stake building. Tokyo Datemono did not immediately respond to a request for comment.

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