We have been a long-term shareholder in a large Japanese real estate owner and developer, which owns a concentration of office buildings in central Tokyo. The company has excellent quality real estate assets, but its share price has persistently traded well below the value of its underlying asset portfolio.
Over several years, we have engaged directly with company management and persistently revisited the issue of improving the company’s governance from a traditional Japanese Board staffed by a supermajority of insiders, to a more shareholder friendly approach to governance. Discussions have focused on board structure and independence, management compensation, shareholder return policies and takeover defense measures (poison pill). Progress has been slow, but incrementally positive, with the company receptive to engagement. By 2018, the company had adopted a three-committee board structure (Audit, Compensation and Nominating), with all committees chaired by an independent board member, which is more in line with best practice.
However, takeover defense and shareholder return policies had not been addressed, despite the shares maintaining their significantly discounted valuation. We continued to engage and stress the importance of a comprehensive shareholder return policy that can allow flexibility to take advantage of discounted valuation to buy back shares in the market and create value for shareholders. In 2019, after further dialogue, the company eliminated its poison pill and adopted a share repurchase program.