Hawaii firm jeopardizes Japan fund’s tax breaks
TOKYO » Honolulu-based Prospect Asset Management Inc. has again increased its holdings in Japan's FC Residential Investment Co., this time crossing a key threshold that jeopardizes the Tokyo-based real estate investment trust's eligibility for tax breaks.
Prospect raised its stake in FC Residential Investment to 35.93 percent from 34.73 percent, according to a filing yesterday with Japan's Ministry of Finance. It was its second share purchase in the fund this month.
Prospect, which runs its own Japanese REIT, also increased its stake in Japan Single-Residence to 20.02 percent from 17.31 percent.
FC Residential's three biggest owners now have 50.45 percent of the REIT, which is more than a 50 percent limit for Japanese REITs to claim tax breaks. Single-Residence's top three shareholders own a total of 32.88 percent.
Japanese REITs are exempted from corporate tax provided they distribute more than 90 percent of profit to shareholders, have 75 percent of all their assets in real estate and as long as their three biggest shareholders own no more than 50 percent of the trusts shares. FC Residential could lose its tax breaks unless the three largest shareholders reduce their combined stakes to less than 50 percent by October.
Officials with Prospect could not be reached for comment yesterday.
But in February, Curtis Freeze, founder and chairman of Prospect, said that "Smaller REITs don't have the ability to compete," and added, "Sometimes mergers and acquisitions are needed."
FC Residential's shares have risen 11 percent in the past six months, while Japan Single-Residence's stock has gained 7.5 percent. The advances trailed the 13 percent gain for the Topix REIT index in the same period.