Hostile battle set to disrupt Japan’s property fund market

Japan’s $130bn real estate investment trust market is primed for potentially major disruption in the coming days as investors await a ruling on the sector’s first ever hostile merger attempt. Hostile moves have historically tended to fizzle in Japan, where instinctive distaste for the practice has given rise to government intervention or other blocking mechanisms. In the latest tussle, Sakura Sogo Reit, has warned that if successful, the actions of its rival, Star Asia Investment, would create a “dangerous precedent” and threaten both the value of their unit-holders’ investments and the stability of the entire J-Reit sector. The tussle exploits a “deemed approval” system where non-votes count as “yes” votes, which was introduced by the government to help J-Reit managements pass necessary resolutions at their AGMs despite the dependable apathy of their mostly elderly retail investors. Investors in the sector representing global, long-only real estate funds said that while lack of detail meant they were still unable to weigh the financial merits of a merger, Star Asia’s move deserved a cautious welcome: both as a test of the rules underpinning the sector and of the Japanese authorities’ taste for hostile actions in the era of governance reform.