JAPAN Trends and Developments Contributed by: Hiroshi Niinomi, Koki Hara, Naoto Yamamoto and Atsuo Kyoto, Nishimura & Asahi (Gaikokuho Kyodo Jigyo)
mission. At the shareholder’s meeting, the exist - ing management agreement was terminated, a new officer nominated by the minor shareholder was selected and a management agreement with a new sponsor was executed. After the meeting, a merger was conducted with a REIT managed by the new sponsor. Another transaction without board consent was a bid to take over a listed office J-REIT’s shares, which resulted in the delisting of the REIT through a counter-bid and squeeze-out of minority shareholders by its sponsor. A REIT has relatively limited defensive measures against a hostile takeover bid compared with a company incorporated under the Companies Act. For example, “poison pills” and specially designed shares are not permitted under the Act on Invest - ment Trusts and Investment Corporations, which regulates REITs. The types of REIT M&A transactions are gener - ally as follows: • mergers between two REITs (via a consol - idation-type merger or an absorption-type merger); • the acquisition of J-REIT shares and the replacement of an asset management com - pany; and • the acquisition of all portfolio assets held by a REIT by the acquiring REIT. These types of transactions are subject to approval by the shareholders of the REIT to be acquired, so there are hurdles to implementing REIT M&A transactions without the target REIT’s co-operation. Even so, REIT asset management companies cannot overlook the possibility of these transactions, considering that a share - holder holding 3% or more of the issued shares for the preceding six-month period can request
that a shareholders’ meeting is held to approve these transactions. Given these circumstances, it is becoming more important for REIT asset management compa - nies to regularly provide sufficient reports to shareholders and ensure that they understand the advantages of having the companies man - aging REIT assets in addition to reports on their investment policies and investment records. Furthermore, under the Act on Investment Trusts and Investment Corporations, a J-REIT may provide that shareholders who do not attend a shareholders’ meeting or exercise their voting rights will be deemed to agree to the proposal(s) submitted at that meeting in its certificate of incorporation (this is known as “deemed votes in favour provision” ). Shareholders of J-REITs include many individual or corporate investors who are mainly focused on returns and are there - fore less concerned about attending sharehold - ers’ meetings or exercising their voting rights. Most J-REIT asset management companies therefore provide deemed votes in favour provi - sions in their REIT certificates of incorporation in order to constitute a quorum and pass the nec - essary resolutions at shareholders’ meetings. However, as a general rule, a deemed votes in favour provision can also apply to important proposals such as those for the replacement of management companies or the takeover, thereby making these transactions easier. In response, several REITs have amended their certificate of incorporation in such a way that deemed votes in favour provisions do not apply to certain important agenda items (such as dis - missal of officers, termination of a management agreement and dissolution).
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