JAPAN Trends and Developments Contributed by: Hiroshi Niinomi, Koki Hara, Naoto Yamamoto and Atsuo Kyoto, Nishimura & Asahi (Gaikokuho Kyodo Jigyo)
Current restructuring There have recently been some REIT mergers, including where the merged REITs shifts from sector-specific REITs to diversified REITs, which makes it easier to replace or rebalance asset portfolios and to increase AUM to grow faster. 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. While there have been concerns around whether and how the squeeze-out of REIT minority share - holders was carried out, it has been recognised in several transactions that delisting a REIT is legally feasible by consolidating shares until minority shareholders hold less than one share. There may be further movements of restructur - ing (including M&A and delisting) in the REIT market. 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 Financial Instruments and Exchange Act (the “FIEA” ) and the Payment Service Act on 1 May 2020 established regula - tions 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 bil - lion have been issued. One of the leading methods for structuring real estate-backed STOs is to use a trust with cer - tificates of beneficial interest. Unlike other types
of equity instruments (eg, equity investments via anonymous partnerships ( tokumei kumiai or TK interests)), which generally require written docu - ments with a certified date in order to be trans - ferred and perfected, a beneficial interest in the trust can be transferred and perfected by agree - ment between the parties without a document with a certified date. This is because the transfer of a beneficial inter - est of the trust can be perfected by an entry or record in the beneficial interest register if the trust deed indicates that no beneficiary certifi - cate has been issued. This beneficial interest registry may therefore be directly linked with a blockchain and nothing other than the regis - tration will 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. There are discussions and legislative efforts to relax the regulation on proprietary trading system (PTS) operators dealing non-listed securities. In these circumstances, on 15 December 2023, Osaka Digital Exchange Co Ltd started trading on the PTS “START” as Japan’s first secondary mar - ket for security tokens. As of January 2025, six real estate-backed security tokens were already being traded.
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