Elliott’s demand for capital efficiency, and the shareholder-return answer (2024)

Latent assets and capital efficiency — whose real-estate company is it?

The heart of this decision lies in an activist shareholder pressing a property company — one whose share price sat below the value of the latent assets it carried — to correct its capital efficiency. Mitsui Fudosan held dormant assets in the unrealized gains on its rental buildings and its stake in Oriental Land, yet its ROE stayed around 7%. It did not simply comply with Elliott’s demand for a $6.6B (¥1tn) buyback and a sale of the OLC shares. It raised its ROE target, set a total payout ratio of 50% and announced a halving of cross-shareholdings — tracing the direction of the demand while redrawing its level and sequence by its own judgment. Neither rejection nor wholesale acceptance, but a partial acceptance that reorganised the capital policy.

The other thing that remains is that the pressure to realise the value of latent assets spread beyond the property sector. The OLC shares drew the market’s eye as the same kind of cheaply sleeping asset not only at Mitsui Fudosan but at Keisei Electric Railway, its largest shareholder, which Palliser pressed to sell. Holding developed property for the long term and accumulating unrealized gains, versus the demand for capital efficiency that says sell the asset and return capital to shareholders — which should come first is still unsettled. For whom does a property company with latent assets hold them? Mitsui Fudosan’s change of capital policy leaves that question open for Japanese companies today.