Elliott has built significant stake in Sumitomo Realty: sources
The activist investor has investments in Japan focusing on boosting returns through share buybacks, selling off older real estate holdings and unwinding equity stakes in other firms
ELLIOTT Investment Management has built a sizeable stake in Japanese real estate developer Sumitomo Realty & Development Co, said people familiar with the matter.
The activist investor has engaged with Tokyo-based Sumitomo Realty on measures to improve shareholder value, these sources said, asking not to be identified because the matter is private.
Elliott has a number of investments in Japan that have focused on boosting returns through share buybacks, selling off older real estate holdings and unwinding equity stakes in other companies. The size of Elliott’s stake in Sumitomo Realty is unknown, and it is unclear when the firm accumulated its stake.
A Sumitomo Realty representative confirmed that the company had met with Elliott to exchange views, and that Elliott has largely agreed with its management policies. Sumitomo Realty will continue to engage with Elliott, as it does with other long-term shareholders, the representative said. An Elliott representative declined to comment.
Shares of Sumitomo Realty rose as much as 16 per cent in Tokyo trading on Monday (Mar 24) – the most since August, after the Bloomberg report valuing the company at 2.9 trillion yen (S$25.8 billion). Other Japanese developers such as Mitsui Fudosan Co and Mitsubishi Estate Co also jumped.
Japan has become one of the biggest markets for activist investors, with the government and institutions such as the Tokyo Stock Exchange pushing companies to pay more attention to stock prices and shareholder returns. The country was the second-busiest market for activist investing last year, with about 150 campaigns – a near 50 per cent jump from 2023, Bloomberg reported.
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Elliott, founded by billionaire Paul Singer, has been one of the most prominent funds active in Japan, and previously targeted companies such as Mitsui Fudosan, Tokyo Gas Co, and Dai Nippon Printing Co. Sumitomo Realty is the third-largest real estate developer by market value in Japan.
For both Mitsui Fudosan and Tokyo Gas, one key part of Elliott’s campaign was for the companies to sell off older real estate assets to profit from gains on unrealised market value of the properties. Sumitomo Realty has a portfolio of over 200 office buildings in Tokyo, including several well-known ones in the Roppongi and Shinjuku central business districts; it is also a landlord of prominent luxury condos in the capital.
Soaring property prices
Unrealised real estate gains, which has become a popular theme for hedge funds to target, stem from an accounting quirk that kicks in when Japanese companies hold on to properties for long periods. The value of the real estate is accounted for at cost minus annual depreciation. But as Japan’s property prices have soared in recent years, especially in metropolitan areas, it has created an opportunity to record large profits from selling the properties at market value.
Sumitomo Realty is due to unveil a new mid-term business plan later this year and Elliott’s investment is likely tied to influencing what is announced in the plan, as it has done with Mitsui Fudosan and Tokyo Gas.
Sumitomo Realty has already taken steps to boost shareholder value. Last year, it announced a 35 billion yen share buyback, and said that it would accelerate the pace of its dividend increases.
The developer also has one of the highest levels of cross shareholdings among real estate developers – at over 595 billion yen. Among its top holdings as of March 2024 were Daikin Industries Ltd and Unicharm Corp, according to its annual report.
Elliott has also built a large stake in Japanese trading company Sumitomo Corp, Bloomberg reported last April. Although the company shares a name with Sumitomo Realty and has done business together, the two firms operate independently, despite both owning cross shareholdings in each other. BLOOMBERG
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