Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.03C h a i r m a n ’s

8/ 30/ 2021

C o l u m n

Upward Trend in Sales and Leaseback Transactions in Real Estate
Recently it was reported that sales and leaseback transactions (herein after referred to as S&L transactions) in real estate in FY
2020 reached 200 billion yen, up 2.7 times from the previous year (Urban Research Institute Corporation). An S&L transaction inreal estate is a transaction in which one party sells an asset held for its own use and leases it back.
In the second half of the 1990’s, when Aoyama Sogo Accounting Firm was founded, the same type of transaction was madeagainst the backdrop of financial restructuring and management characterized by streamlining (slim down the balance sheet andraise ROA) following the collapse of the bubble economy.
The uptrend in 2020 was caused by moves such as securing cash reserves and the reconsideration of workplace space due toCOVID-19. Both of these are the same S&L transactions, but their intent seems to be quite different.
However, the prices of office buildings themselves have been transitioning withoutdeterioration even in the current circumstances, which makes me feel that each fund istaking a wait-and-see approach.
Given that COVID-19 cases are not declining with the progress of vaccination, what will
happen in the future? What do you think?
（Kazuhiro Matsuzawa, Representative Director and Chairman)

Renewable Energy Information
Survey on the Supply and Demand of Wood for Wood
Biomass Power Generation
On July 30, the Ministry of Internal Affairs and Communications (MIC)
released a report on the results of the "Fact-finding Survey on the Supplyand Demand of Wood for Wood Biomass Power Generation." The MIC
said that the survey had been carried out for the purpose of grasping theactual impact of the expansion of power generation using biomass on thereginal supply and demand of wood, and of contributing to theconsideration of systems and policies, etc., for the use of wood biomass,
which helps the development of the forestry industry and therevitalization of regional economies.
The following three points are clearly stated as the results of the survey:

I. Operational status of facilities for wood biomass power generation andthe effects after the start of facility operation
The "number of facility operating days", "total volume of power
generated” and "volume of wood used" of the majority of the power
generators surveyed increased by more than initially planned, and theaverage volume of wood production and sales at the forestry cooperatives
under the survey almost doubled in the last eight years. On the other
hand, some other sectors suffered from insufficient procurement of wood,some biomass power generation facilities had to cease operation due topoor timber procurement, and some wood users faced longer
procurement distances.
II. Response to sustainable wood biomass power
generation
Given that wood is distributed over a wide area,
it is difficult for prefectures and those who wish
to enter this sector to judge how the existing useof wood and the stable procurement of wood in
the future will be affected.

In addition, there is concern that the extension of the area of woodprocurement due to tight supply and demand will lead to an increasein greenhouse gas emissions caused by the transportation of wood.
III. Toward the independence of wood biomass power generation
Taking into account the results of the survey, MIC cited that it isnecessary for the government to take the following initiatives.
①To assess, from a wide-area perspective, the impact of biomass
power generation on the existing supply and demand of wood andthe possibility of the stable procurement of wood, and to specify theroles required of each prefecture [(Ministry of Agriculture, Forestry
and Fisheries (MAFF), Ministry of Economy, Trade and Industry(METI)]②To provide sufficient information reflecting the actual situation ofwood procurement to those who wish to enter the sector (MAFF andMETI)③To consider the volume of greenhouse gases expected to begenerated (METI)④To consider the provision of timely guidance and supervision, etc.,with an eye on the trends in the local wood supply and demand after
biomass power plants commence operation. (MAFF and METI)
Confirming the facts through reports on each power generator, we
feel that the number of completed biomass power generation
facilities was on the rise for the last few months. In addition, the sizeof the power plants seems to be changing—previously smaller power
plants prevailed, but now more larger plants are under operation.
We, Aoyama Sogo Accounting Firm, provide consultation services forbiomass power generation projects and expect the number ofinquiries to increase in the future.
I think that we should watch the fuel shortage from the viewpoint of
the stable provision of dividends since the contents of the survey will
inevitably affect the volume of power generated.
(Hirokazu Ando, Executive Manager )Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed Quality

Vol.03

8/ 30/ 2021

R e a l E s t a t e M a r k e t
I n f o r m a t i o n

REIT TOB
Regarding the TOB for Invesco REIT, which has been attracting a lot of attention, it was reported that the "hostile TOB" by Starwood Capital
had failed while the "defensive TOB" by Invesco itself had been successfully completed. What will happen in the future to the REIT forcibly
delisted as a result of the TOB? Will Invesco continue to hold the REIT? Or will it exit?
If the investment corporation continues to hold the REIT, corporate tax will be imposed since conduit requirements as a REIT are not fulfilled.
Accordingly, when considering an economic rational, proceeding to exist is probably reasonable. If it exits, what method will be taken?
The first possibility is an exit in the capital market. However, given what happened from the start to the end of this TOB, relisting as a REIT or
private placement maybe difficult depending on conditions for solicitation. Although the possibility of a merger with another REIT cannot be
ruled out, if it happens, asst management fees will not be received any more.
The second possibility is an exit by selling property. However, if the property is simply sold to external investors, funds invested may not be
sufficiently recovered and furthermore no asset management fee is expected.
Personally, I get the feeling that the most thinkable scenario is that Invesco will sell the property to some
private placement funds operated by itself. If Invesco takes such property through the existing private
funds, it will be able to enjoy more freedom in pursuing its management strategies such as changes inbook value and property replacements, and even be able to wait for the improvement of the market
while receiving asset management fees. Re-exit as a REIT would also be possible in the future.
Anyway, since this is the first case, I would like to keep an eye on what will happen from now on.
（ Shigeru Hirai, Client Relations Group)

Tax-related Topicfor This Month

Global Real Estate News

Measures To Save Corporate Tax

Emerging like a Ghost

Key measures to save corporate tax include (1) purchasing investment products
to legally record losses, (2) transferring income to lower tax rate countries, and(3) restructuring an organization to take advantage of tax losses to be incurred,etc. However, it is necessary to takes several things into consideration before
implementing any of these measures.

Restaurant operators have been one of the hardest hit sectors of theeconomy amidst the pandemic. Combined with government
restrictions and changing consumer behavior, food services arechanging their formula to survive.
“Ghost kitchens” or barebones kitchen-only spaces are emerging
where vacant lots were once occupied by retailers. With build-out
costs being low ($60K upfront for each kitchen according to SBEGroup, U.S. lifestyle hospitality operator) compared to traditional
restaurants, many newcomers and established operators alike areturning to this new business model.
C3, a leading U.S. ghost kitchen operator, part of SBE Group has 250
ghost kitchens as of February 2021, with plans to open 1,000 more by
the end of this year. Investors include Brookfield Asset Managementand Simon Property Group, owners of large shopping malls andmixed use properties. Their biggest project to date will be New York
City’s Manhattan West (mixed used property) which will include C3’s
famous brands, Umami Burger and Krispy Rice.
Another player in the U.S. ghost kitchen market includes
Cloudkitchens, started by a former Uber executive. Their holding
company, City Storage Systems have begun acquiring vacant or
distressed strip malls and warehouses to be converted and leased as
ghost kitchens. They have received $400 million funding by Public
Investment Fund, the Saudi sovereign wealth fund, also known as aninvestor in Softbank Vision Fund.
While traditional restaurants willcontinue to have its appeal, the market
for food delivery seems to have justgotten started.
（ Yuichi Totani, Client Relations Group)C3 brand, Umami Burger (Photo: official website)

A typical example of (1)) is investment in an anonymous association which
engages in aircraft leasing business. With this method, losses attributed todepreciation and interest payment in the earlier stages of investment can berecognized to reduce taxable income. However, this method has disadvantages
such as taxation being simply deferred and the cash remaining tied up until
exiting the investment.
(2) is a scheme in which profits generated from transactions between relatedparties are transferred to subsidiaries located in lower tax rate countries, so thatthe tax cost of the entire group is possibly reduced. However, without taking
into consideration transfer pricing taxation, Controlling Foreign Tax (CFC) rules
countering tax havens, etc., a huge amount of additional tax could be imposed.
(3) is a method in which, through mergers, etc., tax losses and assets with latent
losses of the merged company are transferred to the surviving company.
However, considering the existence of regulations to restrict tax avoidance,
careful consideration is necessary to implement this method.
Furthermore, even if the legal requirements are formally satisfied, transactions
without economic rationale or actions without any other purpose than tax
avoidance could be problematic when tax investigation is performed.
When implementing any scheme that delivers a
relatively large amount of tax-savings, it isdesirable, even from the preparatory stage, todo it while incorporating the opinion of tax
experts, in the expectation of receiving a tax
investigation in the future.
(Ikuo Tamagawa, Tax Consulting Group)

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.