TMI Associates, TIS, and Sumitomo Mitsui Trust Research Institute Conduct Joint Research on Security Tokens for Public Facilities and Infrastructure

TMI Associates (TMI), TIS Inc. (TIS), and Sumitomo Mitsui Trust Research Institute (SMTRI) have conducted joint research on Security Tokens (ST) in public facilities and infrastructure and are now announcing their initial validation results.

Leveraging their respective expertise, the three companies established the "Joint Research Group on the Tokenization of Public Facilities and Infrastructure" to organize challenges and clarify issues for social implementation from legal, economic, and technical perspectives. In this release, they share their initial findings and plan to proceed with specific pilot projects and deeper thematic exploration with private operators and local stakeholders.

Background and Circumstances
In recent years, the effective use of government-owned real estate such as closed schools and donated properties, as well as the development of stadiums and arenas as drivers of regional economies, have progressed nationwide. However, soaring construction costs and the financing of aging infrastructure maintenance remain significant challenges. Amid the exploration of diverse public-private partnership (PPP) schemes such as PFI and small concessions, expectations for digital asset utilization, particularly citizen-participatory finance through ST issuance, have been rising. Against this backdrop, the research group was established to contribute to the social implementation of a new capital circulation model and the sustainable growth of regional economies.

Main Research Points
1. Transferability of Asset Ownership and Rights
Identifying which assets or rights in public facilities can be subject to ST, and organizing the legal feasibility and constraints for transferring rights underlying ST.
2. Economic and Cash Flow Characteristics
Analyzing cash flow characteristics, scale, and marketability by business sector, and evaluating investment appeal (e.g., returns, empathy for projects).
3. Suitability for ST and Product Design
Organizing asset classes and schemes for ST conversion, and considering risk characteristics and target investors for each asset.

Summary of Findings
The research team analyzed the feasibility of transferring ownership and rights for facilities such as arenas, closed schools, traditional houses, roads, water/sewerage systems, and solar power plants. While facility ownership cannot generally be transferred to third parties if owned by the public sector, financial receivables like service fees or power sales revenues can be transferred or assigned, subject to contractual consent. Operation rights can be transferred with permission from the facility manager (public entity), though this requires discussion depending on the nature of the project. Where rights tied directly to the asset are transferable, they can serve as underlying assets for ST.

Regarding economic characteristics, arena and solar power projects are seen as areas where both profitability and social value can be balanced, given their scale and predictable cash flows. Closed school reuse projects have limited profitability but hold appeal for investors prioritizing regional contribution and social significance.