JAPAN Trends and Developments Contributed by: Hiroshi Niinomi, Koki Hara, Naoto Yamamoto and Mitsuhiko Murata, Nishimura & Asahi (Gaikokuho Kyodo Jigyo)
Current restructuring In the wake of the COVID-19 pandemic’s impact on the investment landscape, REIT mergers have been carried out in 2023. These mergers are driven by a desire for sustained growth and enhanced market presence, etc. These mergers have been conducted among those who would like to shift from sector-specific REITs to diversi - fied REITs, which makes it easier to replace or rebalance asset portfolios and to increase AUM to grow faster. Enlargement of market capitalisa - tion by a merger also serves as a useful way of reducing the likelihood of hostile REIT M&A pro - posals. The decrease of sector-specific REITs, however, may have less appeal in the eyes of investors if they are looking for unique speciali - sation. In addition to REIT mergers, the delisting of an infrastructure REIT (a REIT focused on invest - ments in solar power facilities) initiated by its sponsor has been conducted in recent years. Legal concerns exist regarding the squeeze- out of REIT minority shareholders, but several transactions demonstrate the legality of delisting a REIT by consolidating shares until the shares held by minority shareholders are less than one share. This trend suggests potential for future REIT market restructuring, including M&A and delistings. Security Token Offerings A Security Token Offering (STO) is an attempt to issue a security that is managed and transferred using distributed ledger technology (ie, block - chain). STOs are expected to reduce manage - ment costs for real estate funds and provide investors (including individual investors) in new small-lot real estate investments with middle- risk middle returns in Japan. Amendments to the FIEA and the Payment Service Act on 1 May 2020 established regulations for STOs. Following
this, several real estate funds successfully raised funds through STOs. There have been large-size STO transactions where security tokens of more than JPY10 billion were issued. One of the leading methods for structuring STOs backed by real estate is to use a Trust with Cer - tificates of Beneficial Interest. Unlike other types of equity instruments (eg, equity investments via TK interests), which generally require written documents with a certified date in order to be transferred and perfected, a beneficial interest in the trust can be transferred and perfected by agreement between the parties without a docu - ment with a certified date. This is because the transfer of a beneficial interest of the trust can be perfected by an entry or record in the beneficial interest register if the trust deed indicates that no beneficiary certificate is issued. Therefore, this beneficial interest registry may be directly linked with a blockchain and nothing other than the registration would be required to complete a transfer (including perfection). Furthermore, under the Industrial Competitive - ness Enhancement Act (which was amended on 16 June 2021), a transfer of TK interests may be perfected against the debtor and third parties if a notice or consent to the transfer has been conducted through a certified business opera - tor that uses information systems with certain features. One of the upcoming issues for STOs is the development of secondary markets. Under the current FIEA, providing an online platform to trade securities is regulated as a Proprietary Trading System (PTS) and requires the Prime Minister’s authorisation. Given the current situ - ation, in which there is no PTS operator dealing tokenised securities, there are discussions and
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