Endeavor
for Persistent
GrowthLeveraging Our Strong Presence
Under Our Medium-Term
Management Plan

Annual Report 2017

Ceaseless Efforts for
SeventhManagement Plan
—Office Building Development Projects
To make our core business of office building development and leasing in Tokyo even stronger
and solidify our position as the No. 1 owner of office buildings in Tokyo, Sumitomo Realty is
striving to expand its business foundation by giving the highest priority to investment for redevelopment in central Tokyo.
Specifically, we will work to accelerate the pace of office building development during andafter the Seventh Management Plan. We are moving forward with development projects thattarget total gross floor area of more than one million tsubo. This target includes the gross floorarea of 220,000 tsubo to be brought to market under the Seventh Management Plan.

Sumitomo Fudosan
Grand Tower

New Building Development Projects in the 7th Management Plan
Project

Location

Location (Tokyo CBD)

Gross floor area (tsubo*²)

Expected completion

Sumitomo Fudosan Shimbashi Building

Minato Ward

2,500

Jul 2016

Sumitomo Fudosan Roppongi Grand Tower

Minato Ward

61,100

Oct 2016

Sumitomo Fudosan Azabujuban Building

Minato Ward

14,000Jan 2017

Total: 2017*¹
Shibaura 3-chome Project
Osaki Project
Kojimachi 4-chome Project

Minato Ward

3,700

Aug 2017

Shinagawa Ward

54,400Jan 2018

Chiyoda Ward

4,000

Mar 2018

9,900

May 2018

Taito Ward3,500

Oct 2018

Kojimachi 1-chome Project

Chiyoda Ward

3,600

Nov 2018

Shibuya Udagawacho Project

Shibuya Ward

11,500Feb 2019

Nishi Shinjuku 6-chome Project

Shinjuku Ward

16,700Mar 2019

Kanda Neribeicho Project

Chiyoda Ward

9,300

Mar 2019

Total: 2019*¹

54,500

Others27,800Total: 7th Management Plan
* 1. Fiscal year ending March 31*2. 1 tsubo = 3.3 m2

61,100 tsubo

62,100
Minato Ward

Ueno 5-chome Project

Gross floor area

77,600Total: 2018*¹
Sumitomo Fudosan Onarimon Tower

Minato Ward

222,000

Kojimachi 4-chome
Location

Chiyoda Ward
Gross floor area

4,000 tsubo

Further Growth
Osaki Project
Location

Shinagawa Ward
Gross floor area

54,400 tsubo
Expected completion

Jan 2018
No. of floors

24 above ground2 below groundRoppongi
CompletionOct 2016
No. of floors

43 above ground2 below ground

Project

Sumitomo Fudosan Onarimon Tower

Shibuya Udagawacho Project

Kanda Neribeicho Project

Expected completion

Location

Expected completion

Location

Expected completion

Location

Expected completion

Mar 2018

Minato Ward

May 2018

Shibuya WardFeb 2019

Chiyoda Ward

Mar 2019

No. of floors

Gross floor area

No. of floors

Gross floor area

No. of floors

Gross floor area

No. of floors

10 above ground
1 below ground

9,900 tsubo

22 above ground2 below ground

11,500 tsubo

21 above ground2 below ground

9,300 tsubo

21 above ground2 below groundPursuing Ambitious
Growth Targets

Supply of new condominiums
in both the Tokyo metropolitan
area and Japan

Sales of condominium
remodeling in Japan

No.1

Number of real estate brokeragetransactions and directly operated
brokerage offices in Japan

Number of event venue facilities
operated in Japan

OVER 210TOKYO’S OFFICE BUILDING OWNER

No.1

No. 1 Owner of Office Buildings in Tokyo
We made our full-scale entry into the leasing business in the second half of the 1970s, later than other major domestic
real estate companies. However, as a result of our steady pace of office building development since then, we currently
manage more than 210 office buildings, making us the No. 1 developer in Tokyo. With our lineup of various types ofbuildings, mostly in the Tokyo CBD*, we are able to meet diverse tenant needs.
Please refer to page 16 for more details on our portfolio.
* Tokyo CBD (Central Business District): 7 wards, comprising Chiyoda, Minato, Chuo, Shinjuku, Shibuya, Shinagawa and Bunkyo

Cash Flows from Leasing Business (Years ended March 31)
Billions of yen

163.2

180

150

120

90

60

53.4

30

0

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Sumitomo Realty & Development Co., Ltd.

1

Our Fundamental Strength
Our Redevelopment Projects in Central Tokyo
Approximately 60% of the office buildings we develop are redevelopment projects. We have the No. 1*
track record in “redevelopment” among developers. Using the expertise we have cultivated to date,
we will continue to grow by building a pipeline focused on redevelopment projects.
* In terms of number of buildings (Sumitomo Realty data)

Acquisition of Land for Redevelopment Is Our
Building Development “DNA”
The acquisition of land for “redevelopment” has been the driving force behind our
successful office building development.
The Company places priority on redevelopment, rather than simply rebuilding.
We focus in particular on putting together several parcels by reaching agreementswith multiple landowners to redevelop the land on a larger scale.

Buildings

E
B

D

C

B

C

D

A

Land

Before redevelopment

ABCD: Rights holders

Equal value exchange

Purchases of individual rights

Through the conversion of the rights of rights holders,sites can be acquired with equal value exchanges.

(amalgamation of rights)

Building

Building

A
E

D

B

C

X

X

A B C D X

Land

After redevelopment

X: Developer*

X

Land

* A‌
‌ cquirer of property otherthan that received by rights
holders in equal value
exchange (developer)

After redevelopment

X: Developer*

Characteristics of Legal Redevelopment Projects

MeritsDemerits

Substantial benefits in terms of investment
return and profitability

Enormous behind-the-scenes work is requiredIn comparison with methods where the land is first purchased,rights holders, and there are also consultations with administrative

such as competitive tenders, projects are completed with small

bodies, resulting in longer development times.

initial investments.

(The government is currently promoting shorter development periods

Developing blocks of land enhances the convenience of the area,

through simplified approval procedures and other measures.)and makes it possible to receive government subsidies and approvals
for higher utilization (ratio of total floor space to land area).

2

It is necessary to form a consensus among multiple property

Annual Report 2017

A

B

Shinjuku Central Park CityC

Sumitomo Fudosan
Shinjuku Grand Tower

D

Sumitomo Fudosan
Iidabashi First Tower

Chiyoda First Building WestC
Ueno Station

B

D

A
Iidabashi
StationShinjuku Station

Tokyo Station

F

E

G

H
ShibuyaStationRoppongi
StationHamamatsucho
StationTamachi Station

Shinagawa
StationTokyo CBD(Central Business District):
7 wards, comprising Chiyoda,
Minato, Chuo, Shinjuku, Shibuya,
Shinagawa and Bunkyo

E

Izumi Garden Tower

F

Sumitomo Fudosan RoppongiGrand Tower

G

Shiodome Sumitomo Building

H

Sumitomo Fudosan
Shibakoen First BuildingOur Track Record
Sumitomo Realty Constantly Pursues Challenges to Ensure Continuous Growth
Since its establishment in 1949, Sumitomo Realty has continued to expand the scope of its operations to become one of Japan’s
leading comprehensive real estate companies and a core company of the Sumitomo Group, which has a history going back400 years. Our operations are expanding beyond our core business of office building leasing to a range of areas including
condominium sales, custom homes and remodeling, and real estate brokerage.
The First Medium-Term Management Plan was launched in the March 1998 fiscal year, and we began operating under theSeventh Management Plan from the March 2017 fiscal year. By placing top priority on the achievement of these plans,
Sumitomo Realty has been able to grow to where we are today.
Going forward, we will continue to expand existing businesses while pursuing the challenges of new business development,
to ensure even higher, continuous growth.

1949

1957

1996

2002

2003

2004

Izumi Real EstateCo., Ltd. established as
the successor to theholding company of theSumitomo zaibatsu
following the breakupof the conglomerate.

Izumi Real Estate Co.,
Ltd. changed its nameto Sumitomo Realty &Development Co., Ltd.

‌Commenced Shinchiku
Sokkurisan remodelingbusiness.

Completed
construction of
Izumi Garden Tower(Minato Ward, Tokyo).

‌Commenced sales of
J·URBAN fixed-priceurban-style housing
series.

 ommenced sales ofC
World City Towers(Minato Ward, Tokyo).

Progress under Medium-term Management Plans
Billions of yen
1,000

750

500

250

0 (Years ended/ending March 31)

1997

1998

1999

2000

2002

2003

2004

2005

2006

2007

2008

2009

1st Plan*

2nd Plan

3rd Plan

4th Plan

Revenue from operations

1,270

1,606

1,939

2,107

Operating income (right)

202

265

350

435

Ordinary profit (right)

87

170

274

339

1998–2001

4

2001

Annual Report 2017

2002–2004

2005–2007

2008–20102010

Shinchiku Sokkurisan

J-RESIDENCE

Deux Tours Canal & Spa

Izumi Garden Tower

2008

2011

2012

2014

2015

2016

Established Sumitomo
Fudosan Bellesalle Co.,
Ltd., a consolidated
subsidiary.

Opened Grand
Mansion Gallery.

Commenced sales of
J·RESIDENCE.

Number of condominium
units brought to market
over the full year was
the highest in Japan for
the first time.‌

Completed constructionof Tokyo Nihombashi
Tower (Chuo Ward, Tokyo).

Completed constructionof Deux Tours Canal &Spa (Chuo Ward, Tokyo).

Cumulative units contracted topped 100,000
in Shinchiku Sokkurisan
remodeling operations.

Completed constructionof Sumitomo Fudosan
Roppongi Grand Tower(Minato Ward, Tokyo).

Commenced sales ofCity Towers Toyosu(Koto Ward, Tokyo).

‌ ompleted construction
Cof Sumitomo Fudosan
Shinjuku Grand Tower(Shinjuku Ward, Tokyo).

Record results over four
consecutive years

Billions of yen
200

200

ROE
(%)

5.7

2017

1999
150

10.9

150

Ordinary Profit(Billions of yen)

100

100

21.7

167.7
2017

1999

Cash Flows from Leasing Business(Billions of yen)
50

50

53.4
1999

20112011 20122012 20132013 20142014 20152015 20162016 20172017 20182018(Forecast)

5th Plan

6th Plan

2014–20162017–2019 (Forecast)

2,170

2,442

2,700

437

501

550

329

418

480

2011–2013

7th Plan

0

163.2
2017

0

Note: ‌The figures represent cumulative totals for the period covered by each plan.
* ‌The 1st Plan began in the March 1998 fiscal year and spanned four years. Figures
shown represent cumulative totals for the final three years of the plan.

Sumitomo Realty & Development Co., Ltd.

5

Contents
7

To Our Shareholders

8

President Interview

12 At a Glance
14 Review of Operations
14

LEASING

18

SALES

20

CONSTRUCTION

22

BROKERAGE

23 Corporate Governance
23

Board of Directors and Statutory Auditors

24

Corporate Governance Initiatives

26 CSR
28 Financial Section
28

Eleven-year Financial Summary

30

Management’s Discussion and Analysis

32

Consolidated Balance Sheets

34

Consolidated Statements of Income andConsolidated Statements of Comprehensive Income

35

Consolidated Statements of Changes in Net Assets

36

Consolidated Statements of Cash Flows37

Notes to Consolidated Financial Statements

57

Independent Auditor’s Report

58 Corporate Data / Investor Information
59 History

Cautionary Statement with Respect to Forward-looking Statements
Statements made in this annual report with respect to plans, targets
and future performance that are not historical fact are forward-looking
statements. These statements are based on management’s assumptions and beliefs in light of the information currently available.
Sumitomo Realty & Development Co., Ltd. cautions that a number offactors could cause actual results to differ materially from those discussed in the forward-looking statements. Such factors include but are
not limited to macroeconomic conditions, supply and demand in thereal estate market and interest rate trends.

6

Annual Report 2017

To Our Shareholders

We would first like to take this opportunity to express our gratitude on behalf of the Sumitomo Realty &Development Group for your ongoing support. Sumitomo Realty’s business has expanded in scope andcontinued to grow since our establishment in 1949. We are currently a core company of the Sumitomo
Group and a leading comprehensive developer within the Japanese real estate industry, with operations
in a wide range of areas including office building leasing, condominium sales, custom homes and remodeling (Shinchiku Sokkurisan), and real estate brokerage.
We have formulated medium-term management plans every three years since 1997, and have achieved
sustained growth through the achievement of these plans. The Seventh Management Plan commenced
in April 2017. Under this plan, we will firmly maintain our “revenue and profit growth trajectory” to surpassthe record results achieved under the Sixth Management Plan.
During the March 2017 fiscal year, the first year of the Seventh Management Plan, we marked our fourthconsecutive year of record revenue from operations, operating income, ordinary profit and profit attributable to owners of parent, thereby getting off to a strong start on our Seventh Management Plan.
While the operating environment has recently been favorable, the outlook remains unclear and conditionsin Japan and overseas bear close monitoring. We will redouble our efforts to reach the targets set out in
the Seventh Management Plan and continue moving forward to achieve sustainable growth. We would liketo express our gratitude to our shareholders and ask for their continuous, long-term support.

Junji Takashima

Kojun Nishima

Chairman of the Board

President

Sumitomo Realty & Development Co., Ltd.

7

President Interview

To further establish ourstrong position as Tokyo’s
No. 1 office building owner,
we will continue to focus on
redevelopment projects incentral Tokyo, and aim forsustainable growth.

Kojun Nishima
PresidentQ lease recap Sumitomo Realty’s results for the March 2017 fiscal year,
P
progress toward the targets in the Seventh Management Plan, andthe Company’s forecast for the March 2018 fiscal year.

For the March 2017 fiscal year, we recorded ¥925.2 billion in revenue from operations, with operating
income of ¥188.2 billion, ordinary profit of ¥167.7 billion and profit attributable to owners of parentof ¥103.5 billion. This marked our fifth consecutive year of revenue growth, our seventh consecutive
year of increases in operating income and ordinary profit, and our fourth consecutive year of record
revenue from operations, operating income, ordinary profit and profit attributable to owners ofparent. By business segment, the Leasing segment achieved record profit for a second consecutive year and the Sales and Brokerage segments also achieved growth in income and profit.
As a result of the above, during the March 2017 fiscal year—the first year of the SeventhManagement Plan (please see page 11 for details)—the figures for revenue from operations, operating
income and ordinary profit all correspond to roughly one-third of the plan’s cumulative targets and theCompany got off to a smooth start in terms of progress toward its goal of reaching record-high resultsin three consecutive years for the second consecutive three-year period.
In the March 2018 fiscal year, we forecast growth in revenue and profit in all four main segmentswith the Leasing segment remaining an engine of growth as we strive to achieve record earnings forthe fifth consecutive year.

8

Annual Report 2017

Q

What is your basic policy regarding returns to shareholders?

Our first priority is to maintain a steady dividend payout to our shareholders. At the same time, we
endeavor to set aside a sufficient amount of retained earnings to ensure stable, long-term growthof our business.
In light of our business results for the March 2017 fiscal year, we paid a full-year dividend of¥24.00 per share (including an interim dividend of ¥11.00 per share), which represented a ¥2.0
increase from the previous year. For the March 2018 fiscal year, we intend to again increase the­dividend by ¥2.0 per share and pay a full-year dividend of ¥26.00 per share (including an interim
dividend of ¥13.00 per share).
At the same time, we cannot consider our equity ratio to be sufficient relative to other companies in our industry, and there are still investments to be made in development projects to fuelfuture growth. Accordingly, we intend to focus on maintaining a stable dividend payout while
keeping a sufficient amount of retained earnings to strengthen our financial standing. Our aim is
to meet the expectations of shareholders by undertaking investments to increase earnings andthereby continuously increasing profit per share and dividend distributions.

Q hat is the medium-term business policy for the Leasing segment,Wwhich is set to drive growth?

We will continue to make progress on planned redevelopment projects in central Tokyo, including
those in National Strategic Special Zones such as Yaesu, Roppongi and Mita. To further establish
our strong position as Tokyo’s No. 1 office building owner, operating more than 210 office buildings,
we will work to accelerate the pace of development from the previous average annual pace of
50,000 tsubo of gross floor area during and after the Seventh Management Plan, thereby providing a new total gross floor area of more than one million tsubo in order to achieve continuous
growth in the leasing business. As far as such investment costs are concerned, we expect them to
be within the scope of operating cash flows. In addition to the above projects, we will make sure
to pursue as many entirely new development projects as possible when such opportunities arise.
As well, we will expand into new business fields with an eye to the future, including large-scale
development projects that are currently in progress in Ariake and Haneda, which are focused oncommercial facilities and hotels.

Sumitomo Realty & Development Co., Ltd.

9Q

 hat is your policy going forward in terms of investment strategy
Wand financial strategy?

Our investment strategy is to carefully select high-quality development sites and actively seek toacquire them. Not only have we been relying on making successful tender offers, which can become
relatively expensive due to competition, we are also emphasizing the practice of aggregating small
parcels of land for possible larger redevelopment projects, as we believe this multiplies the value of
those properties. We view these practices as the source of our competitive advantages in the leasing
business. (Please refer to pages 2–3 for further information regarding our redevelopment projects.)
During the March 2017 fiscal year, our interest-bearing debt grew by ¥211.6 billion, as we hadmany excellent investment opportunities, including the acquisition of office building sites. In linewith this favorable financial environment, long-term interest rates remain low for now and interest
costs declined by ¥2.9 billion from the previous year, with the rate applied to our long-term financingof, for instance, 10-year tenors being less than 1%. We will continue to secure long-term and fixed-rate
funding in order to maintain a robust financial position.
In the March 2017 fiscal year, we recorded profit attributable to owners of parent of ¥103.5 billion,
which is an 18% increase from the previous year and the first time our bottom line has topped ¥100
billion. We were therefore able to increase shareholders’ equity to over ¥1 trillion, resulting in our net
debt-equity (ND/E) ratio improving to 3.1 times. We will continue to make active investments withthe aim of accumulating profits in order to increase shareholders’ equity and to further improve
our financial balance.

Q hy did you convert Sumitomo Real Estate Sales Co., Ltd. into aWwholly owned subsidiary?

We expect market growth and fiercer competition in housing-related recurring revenue businesses
such as the real estate brokerage and remodeling businesses. In this environment, we believe theconcentration of the Group’s management resources and centralized management of information
are essential to the further growth of the Group. In addition, amid increased focus around theworld on issues related to corporate governance and rising criticism of the practice of the listingof subsidiaries, we are concerned that, over the medium to long term, conflicts of interest could
emerge between the minority shareholders of Sumitomo Real Estate Sales and the investment andbusiness strategies of the Group as a whole. It was determined that the best way to resolve such
issues would be to convert Sumitomo Real Estate Sales into a wholly owned subsidiary. We will
endeavor to continue to respond quickly and appropriately to changes in the market and maximize the corporate value of the Group.

10

Annual Report 2017

Seventh Management Plan

(Issued on May 12, 2016)(April 2016 to March 2019)1

Achieve consecutive record results for the three-year period covered,with cumulative ordinary profit of ¥480 billion

Although we do not expect the favorable conditions
that were present during the previous three years tocontinue during the period covered by the SeventhManagement Plan, we will firmly maintain our “revenue
and profit growth trajectory” to surpass the record
results achieved under the Sixth Management Plan.

Three-year cumulative earnings targets¥2,700 billion

Revenue from operations(+¥258.0 billion, +11%)*¥550 billion

Operating income(+¥49.4 billion, +10%)*¥480 billion

Ordinary profit(+¥62.0 billion, +15%)** Compared with Sixth Management Plan

Comparison of results for each medium-term management plan (Years ended/ending March 31)
4th Plan
2008–2010

5th Plan
2011–2013

6th Plan
2014–2016

7th Plan
2017–2019 (Forecast)

Revenue from operations¥2,107 billion¥2,170 billion¥2,442 billion¥2,700 billion

Operating income¥435 billion¥437 billion¥501 billion¥550 billion

Ordinary profit¥339 billion¥329 billion¥418 billion¥480 billion

Management Plan

Note: All figures are cumulative totals within the period of the plan.

2 ontinue to invest for growth in leased buildings, further accelerate the paceCof development from the previous 50,000 tsubo of gross floor area annually

Our basic policy of further strengthening our mainstay leasing business with a primary focus on redevelopment in central Tokyo is unchanged. We will work to secure properties equivalent to more than one million
tsubo of gross floor area to be brought to market during and after the Seventh Management Plan.
Pace of development
Management Plan

4th Plan

5th Plan

6th Plan

7th Plan

Gross floor area (tsubo)

160,000

150,000

110,000

220,0003Promote growth of peripheral businesses to develop fifth pillar of operations

We will stimulate and encourage further growth in operations of custom homes, rental condominiums,
hotels and multipurpose halls, and work to develop these businesses to a level that will rival our fourbusiness pillars*.
Revenue from operations and portion of total revenue from operations for custom homes,
rental condominiums, hotels and multipurpose halls
Management Plan
Revenue from operations
Percent of total

4th Plan

5th Plan

6th Plan

7th Plan¥222.0 billion(+¥24.0 billion)¥249.0 billion(+¥27.0 billion)¥336.0 billion(+¥86.0 billion)¥430.0 billion(+¥94.0 billion)

11%

11%

14%

16%

* The current four business pillars are office building leasing, condominium sales, brokerage and Shinchiku Sokkurisan remodeling.

Sumitomo Realty & Development Co., Ltd.

11

At a Glance

LEASING

SALES

Office building, condominium and other property

Mid- and high-rise condominium, detached house andleasing and management and related activities

housing lot development and sales and related activities

Revenue fromOperations

Operating
IncomeMajor Consolidated
Subsidiaries

Revenue fromOperations

Operating
Income

33.6%

22.3%

· ‌Sumitomo Fudosan
Tatemono Service Co., Ltd.

36.1%

61.0%

· ‌Sumitomo Fudosan
Villa Fontaine Co., Ltd.
· ‌Sumitomo Fudosan
Bellesalle Co., Ltd.

History

History

Sumitomo Realty made its full-scale entry into the leasing business

Having entered the condominium sales business in the first half of thein the latter half of the 1970s. We demonstrated our strong business

1960s, Sumitomo Realty is a pioneer in the domestic market for condo-

development capabilities by being the first company in the industry to

minium development and sales. We have become a leading company

restart construction work on office buildings following the collapse offor condominium sales in Japan by staying ahead of our competitors,

Japan’s economic bubble in the 1990s. Our competitive strengths andstrategically focusing on city centers and proactively developing large,

focus on large-scale redevelopment projects have enabled us to build

high-rise properties.

our current leading position in the domestic real estate industry.

Unique Features and Competitive Advantages

Unique Features and Competitive Advantages‌The fact that we primarily engage in all aspects ourselves, from land

‌We have businesses in cities across Japan, and 80% of our portfolio

purchases and tenant acquisition to property management, means

is in the Tokyo metropolitan area.

that we can quickly address tenant needs in our developments.

‌In order to maintain asset value for the future, we are bolstering‌We have an extensive track record in redevelopment.

distinct characteristics such as modern appliances and stylish designs,
including landmark exteriors, a rich array of common facilities andPlease refer to page 1.

elegant entrances.

‌Our “central, new and large” leasing portfolio gives us strong market
competitiveness.

‌We are employing a unique sales strategy in order for customers tounderstand the value of our condominiums.
Please refer to page 18.

Please refer to page 16.

Balanced Portfolio
CapitalLEASING
High level of capital,
low level of human resources

SALES
Relatively high level of capital,
relatively high level ofhuman resources

CONSTRUCTION
Relatively low level of capital,
relatively high level ofhuman resources

BROKERAGE
Low level of capital,
high level of human resources

Human Resources

12

Annual Report 2017

CONSTRUCTIONBROKERAGE

Custom home construction and remodeling andBrokerage and sales on consignment of real estate andrelated activities

related activities by Sumitomo Real Estate Sales Co., Ltd.

Revenue fromOperations

Operating
IncomeMajor Consolidated
Subsidiary

Revenue fromOperations

Operating
Income· Sumitomo Fudosan Syscon Co., Ltd.

21.8%

6.7%

Major Consolidated
Subsidiary· ‌Sumitomo Real Estate Sales Co., Ltd.

7.1%

9.3%

History

History

Remodeling—Shinchiku Sokkurisan

Sumitomo Real Estate Sales Co., Ltd. was established in 1975 to conduct

Sumitomo Realty launched the Shinchiku Sokkurisan full remodelingsales of condominiums developed by Sumitomo Realty. After entering

package in 1996. It has become the top brand in the market with athe real estate brokerage sector in 1979, Sumitomo Real Estate Sales

cumulative total of more than 110,000 units contracted.

achieved significant success. We are strengthening our sales network

Custom Homes

to further increase our market share.

We launched the American Comfort line in 1995. To keep up with theneeds of the times, we followed this with the J∙URBAN line in 2003 andJ∙RESIDENCE in 2012. We are also enhancing our marketing strengthwith a nationwide network of over 110 model house units.

Unique Features and Competitive Advantages

Unique Features and Competitive Advantages

Please refer to page 21 for details on Shinchiku Sokkurisan and‌Our network of brokerage offices has close ties to local communities.

Custom Homes.

‌The network has steadily expanded to 260 offices nationwide as ofRemodeling—Shinchiku Sokkurisan‌We can remodel a home in half the time and at 50% to 70% of thecost of rebuilding.

the end of March 2017.
As all brokerage offices are directly operated, the network boasts­efficient operations and the industry’s high profit margins.

‌With a fixed price per unit of floor area, customers do not need toworry about additional construction charges.
Custom Homes‌We use our expertise in condominium development to offer homes
with both functionality and an attractive design.
‌We develop original earthquake-resistant technologies, and continue
to enhance our technical capabilities.

Our achievement of sustained growth has been the result of ourorder-based businesses that do not require upfront investment

well-balanced operations. We have a balanced portfolio in fourand have a short operational cycle of less than one year, but

operational fields—leasing, sales, construction and brokerage­—require substantial human resources.

that have different risk profiles and capital requirements.

Our steady growth to date is the result of complementary

The leasing and sales businesses involve projection-

core businesses with different individual characteristics, whichbased production that requires large upfront investment for

has led to balanced growth. We will work to achieve sustained

land. Risk and returns are high, and the operational cycle is

growth going forward by strengthening our existing businesses

long at roughly 3 to 10 years, but human resource levels areand by also establishing new core businesses.

relatively low. The construction and brokerage businesses are

Sumitomo Realty & Development Co., Ltd.

13

Review of Operations

LEASING
Sumitomo Fudosan
Roppongi Grand
Tower
Location

Minato Ward
Gross floor area

61,129 tsubo*CompletionOct 2016
No. of floors

43 above ground2 below ground

Overview of the Fiscal Year
Basic Growth Strategy

The Tokyo office building market, where more than 90% ofContinuing new investment to build aour leasing portfolio is concentrated, experienced continued

platform for growth, by further increasing theportfolio’s portion of prime properties thatare “central, new and large”

strong new demand from relocations and floor space expansions while vacancy rates remained low and rents for renewedleases continued on an upward trend.
Reflecting such an environment, the segment recorded
revenue and profit growth for the March 2017 fiscal year
based on improved vacancy rates and higher rents as well as
full-year contribution from new buildings completed during
the previous fiscal year, including Tokyo Nihombashi Tower,

36.1%

Revenue from Operations¥ 337.5 billion

Sumitomo Fudosan Mita Building and Sumitomo Fudosan
Shinjuku Garden Tower. The segment’s revenue from operations and operating income both reached record-high levels
for the second consecutive year.
The vacancy rate for existing buildings improved slightly
from 4.7% to 4.5% during the fiscal year, and tenant acquisition
for new buildings is on a good track, including Sumitomo

61.0%

14

Annual Report 2017

Operating Income¥ 126.2 billion

Fudosan Roppongi Grand Tower and Sumitomo Fudosan
Azabujuban Building.

Interior of Sumitomo Fudosan Roppongi Grand Tower

Outlook
We are aiming for record-high revenue from operations andoperating income in the March 2018 fiscal year, based on an
improved earnings structure from existing buildings andfull-year contributions from the buildings completed during
the year under review, such as Sumitomo Fudosan RoppongiGrand Tower, Sumitomo Fudosan Azabujuban Building andSumitomo Fudosan
Azabujuban
Building

Sumitomo Fudosan Shimbashi Building.
As a result, we are projecting a 3.7% increase in revenue
from operations, to ¥350.0 billion, with a 9.3% rise in operating

Locationincome, to ¥138.0 billion.

Minato Ward
Gross floor area

13,961 tsubo*Completion

Jan 2017
No. of floors

10 above ground* 1 tsubo = 3.3 m2

Billions of yenBillions of yen

3,493

3,790

200

33.8

34.5

36.1

35.5

37.4

39.4
30

18

(Forecast)

0

13

14

15

16

17

Operating Income
Operating Margin (right)

138.0

126.2

17

111.3

16

104.4

337.5

15

98.0

313.3

14

94.2

289.1

13

350.0

283.7

50
278.3

0

1,000
0

13

14

15

16

17

4,000

300

100

914

60

3,189

100

923

5,000

3,171

Thousands of m2

90

1,010

%

150

3,135

400

Gross Floor Area

18

(Forecast)

0820

Operating Income andOperating Margin902

Revenue from Operations

3,000
2,000

Outright Ownership
Sub-lease

Sumitomo Realty & Development Co., Ltd.

15

Review of Operations

Our Leasing Portfolio(As of March 31, 2017)

In the Tokyo CBD (Central Business District)*,
where buildings that meet the three
conditions for prime properties—central,
new and large—are in strong demand, ourcompetitive portfolio will provide a strong
foundation for us to utilize our strengths—
development of high-value-added officebuildings, tenant leasing and property

TOKYO CBD*

management. We will utilize thatfoundation to maximize the earnings
potential of our office building

BunkyoShinjuku
ChiyodaShibuyaoperations and build a strong base

Major flagship buildings(see the table below)

Chuo
MinatoOther buildings

for the achievement of sustainable* ‌Only buildings ownedby the Company areshown on this map.

Shinagawagrowth in the years ahead.
* Tokyo CBD (Central Business District): 7 wards,
comprising Chiyoda, Minato, Chuo, Shinjuku,
Shibuya, Shinagawa and Bunkyo

TOKYO’S NO. 1 OFFICE BUILDING OWNER, MANAGINGGROSS FLOOR AREA

MORE THAN

4.61 MILLION M

210 BUILDINGS

2

IN CENTRAL TOKYO’S MAJOR OFFICE DISTRICTS
Major Flagship Buildings
Name

1. Izumi Garden Tower
2. Sumitomo Fudosan Roppongi Grand Tower
3. Shinjuku Sumitomo Building
4. Sumitomo Fudosan Shinjuku Grand Tower
5. Sumitomo Fudosan Shinjuku Garden Tower
6. Shinjuku Central Park City
7. Shinjuku Oak City
8. Tokyo Nihombashi Tower
9. Shiodome Sumitomo Building
10. Sumitomo Fudosan Mita Twin Building West
11. Tokyo Shiodome Building
12. Shinjuku NS Building
13. Sumitomo Fudosan Shibakoen First Building
14. Sumitomo Fudosan Iidabashi First Tower
15. Chiyoda First Building West
16. Sumitomo Fudosan Shibuya Garden Tower
17. Sumitomo Fudosan Aobadai Tower
18. Sumitomo Fudosan Iidabashi First Building
19. Sumitomo Fudosan Iidabashi Building No.3
20. Sumitomo Fudosan Shibuya First Tower
Note: Figures for gross floor area indicate the area managed by Sumitomo Realty.

16

Annual Report 2017

No. of floors

Location (Tokyo CBD)

(above ground/
below ground)

Completion

Gross floorarea (m2)Minato Ward
Minato Ward
Shinjuku Ward
Shinjuku Ward
Shinjuku Ward
Shinjuku Ward
Shinjuku Ward
Chuo Ward
Minato Ward
Minato Ward
Minato Ward
Shinjuku Ward
Minato Ward
Bunkyo Ward
Chiyoda Ward
Shibuya Ward
Meguro Ward
Bunkyo Ward
Shinjuku Ward
Shibuya Ward

43/4
43/2
52/4
40/3
37/2
44/2
38/2
35/4
25/3
43/2
37/4
30/3
35/2
34/3
32/2
24/3
33/3
14/2
24/2
25/3

Oct 2002
Oct 2016
Mar 1974
Dec 2011
Mar 2016
Feb 2010
Jan 2003
Apr 2015
Jul 2004
Sep 2006
Jan 2005
Sep 1982
Jun 2000
Apr 2010
Jan 2004
Jun 2012
Aug 2009
Mar 2000
Oct 2002
Aug 2010

204,383
202,078
177,467
168,329
143,372
130,362
117,575
105,837
99,91398,33895,12875,04670,381
68,454
61,20959,41755,77353,32253,047
52,942Our Portfolio’s Strengths(As of March 31, 2017)

Sumitomo Realty’s leasing portfolio is highly competitive in terms of the three distinct features of being“central, new and large.” Going forward, we will endeavor to maintain and enhance our competitive
strengths by focusing on providing high-quality office buildings with these qualities.

CentralTokyo CBD*89%

23 Wards

95%

New
Completedsince 2000

63%

New quakeresistant structure*99%* ‌New standards that tookeffect in 1981

Locations in the Tokyo CBD
Our leasing portfolio emphasizes on locations in central Tokyo; 95% of our portfolio is in Tokyo’s
23 wards, and 89% is in the Tokyo CBD (Central Business District)*. Proximity to other office buildings
and major train and subway stations is a key condition for a prime property, and having been
located in such areas is one of our portfolio’s competitive strengths. In particular, the Tokyo CBD is
designed as a district with a high concentration of office buildings, and strong and stable demandis expected in this district going forward. Therefore, we will work to enhance our competitive
strengths by continuing to acquire development sites in this district.
* Tokyo‌
CBD (Central Business District): 7 wards, comprising Chiyoda, Minato, Chuo, Shinjuku, Shibuya, Shinagawa and Bunkyo

Brand-new and Recently Constructed Buildings
The average age of the buildings in our portfolio is 16 years, the lowest figure among major Japanesereal estate companies, and 63% of them have been completed since 2000. New buildings are capableof generating strong demand by meeting tenants’ needs for facilities and design to name a few,
making the relative age of the buildings in a portfolio a key factor affecting the leasing business.
As shown in the table below, our buildings are equipped with the latest facilities and features, andare popular among tenants for their functionality, comfort and safety in the event of a major disaster.
99% of our portfolio meets or exceeds earthquake-resistance standards that took effect in 1981, which
are a key yardstick for earthquake safety. Further, approximately 80% of the buildings we own are
structured with a seismic isolation system and/or a damping system. In recent years, emergency generators that provide electricity in the event of a power outage have also become a feature sought bytenants as a part of their business continuity planning. Thus, emergency generators are installed inabout 70% of the buildings we own, which includes all newly completed buildings after 2001.
State-of-the-art Facilities
Earthquake protection
Ceiling height*
Floor load
Air-conditioning
Power capacity

Before 1981

1982–1996

1997 and after

Previous quake-resistant structure

New quake-resistant structure

Anti-sway structure

2.5 m

2.7 m

2.9–3.3 m

300 kg/m2

300–500 kg/m2

500–1,000 kg/m2

Central air-conditioning system

Climate control zones

Separate climate control systems

45 VA/m2

60–70 VA/m2

85 VA/m2 and over

* Includes raised floors

LargeOver 10,000 m2(gross floor area)

86%

Large-scale Buildings
Large-scale buildings with gross floor area of at least 10,000 square meters make up 86% of ourportfolio. Consolidating multiple offices of a business on one floor helps to facilitate internal communication and reduce space redundancies, making operations more efficient. These types ofneeds are behind the increased demand in recent years for large-scale buildings with large amountsof floor space per floor. Being able to offer such spaces is definitely one of our strengths.

Sumitomo Realty & Development Co., Ltd.

17

Review of Operations

SALES
City Tower Umeda
Higashi
Location

Osaka
No. of units for sale501
No. of floors

44 above ground
1 below ground
Scheduled delivery

2017

Overview of the Fiscal Year
Basic Growth Strategy

The condominium market, which represents more than 90%

Enhancing our brand strength by providingof the segment’s portfolio, saw supply in the Tokyo metro-high-quality properties via a unique sales
strategy, to build a strong position that is lesssusceptible to changes in market conditions

politan area decline to mid-30,000s in terms of number ofunits, yet demand remained firm as interest rates stayed low
and customer traffic at model homes remained high.
In such an environment, we delivered a total of 5,716
condominium units, detached houses and land lots during the
March 2017 fiscal year, an increase of 720 units from the previous
year due to steady delivery of units in projects completed lastyear, including Deux Tours Canal & Spa (Harumi), City Tower

33.6%

Revenue from Operations¥ 314.3 billion

Kanamachi and City Tower Musashi Kosugi, as well as thestart of delivering units in projects such as City Terrace Hirai,
City Tower Hiroshima and City Tower Umeda Higashi. As
a result of a sizable increase in sales volume, revenue andincome grew for the fifth consecutive year, with both revenue
from operations and operating income reaching record highs
for the third consecutive year.

22.3%

Operating Income¥ 46.2 billion

The number of condominium units sold increased by 943
units from the previous year, to 6,467 units, surpassing the6,000 mark for the first time. Also, the number of condominium
units brought to market over the full year was the highest
in both the Tokyo metropolitan area and Japan for the third
consecutive year.

18

Annual Report 2017

Garden Hills Yotsuya
Location

No. of floors

Shinjuku Ward,Tokyo

7 above ground,2 below groundNo. of units for sale

Scheduled delivery

139

2018

City Terrace Omori Nishi
Location

No. of floors

Ota Ward, Tokyo

11 above groundNo. of units for sale

Scheduled delivery

279

2017

Principal Condominium Development Projects (2017–2018)
Name

City Terrace Toyocho

No. of units Scheduled
for saledelivery*

Location

City Terrace Toyocho

Location

No. of floors

Koto Ward, Tokyo

15 above groundNo. of units for sale

Scheduled delivery

City Terrace Omori Nishi

522

2017

City House Nakameguro Residence

City Terrace Hirai

Koto Ward, Tokyo

522

2017

Edogawa Ward, Tokyo

357

2017

Ota Ward, Tokyo

279

2017

Meguro Ward, Tokyo

115

2017

Yokohama

243

2017
2017

City Terrace Yokohama
Tsunashima Gardens
City Tower Umeda Higashi

Osaka

501

OutlookCity Tower Nagamachi Shintoshin

Sendai414

2017

We are projecting an 84-unit increase, to 5,800, in the number

City Tower Hiroshima

Hiroshima

471

2017

of condominium units, detached houses and land lots delivered,

City Terrace Suginami-Honancho

Suginami Ward, Tokyo

298

2018

and are aiming for a fourth consecutive year of record-high

City Tower Meguro

Meguro Ward, Tokyo

244

2018

revenue from operations and operating income and a second

City Terrace Ogikubo

Suginami Ward, Tokyo

225

2018

consecutive year of record-high units delivered.

Garden Hills Yotsuya

Shinjuku Ward, Tokyo

139

2018

City House Higashiazabu

Minato Ward, Tokyo

122

2018

Kodaira, Tokyo

922

2018

from operations, to ¥315.0 billion, with a 1.8% rise in operating

City Terrace Koganei Kouen

income, to ¥47.0 billion.

* Fiscal year ended/ending March 31%

Units

48

45

6,000

220

32

30

4,000

15

2,000

0

0

16.1 14.7

18(Forecast)

0

14.9

13

14

15

16

17

Operating Income
Operating Margin (right)

47.0

46.2

17

44.2

16

43.8

314.3

15

39.2

274.8

14

38.9

264.2

13

315.0

234.1

0

16.6

16
232.1

110

16.7

18

(Forecast)

13

14

15

16

17

5,800

16.8

5,716

Billions of yen

330

4,996

Billions of yen

Units Delivered*

5,351

Operating Income andOperating Margin

4,958

Revenue from Operations

4,688

As a result, we are forecasting a 0.2% increase in revenue

18(Forecast)* ‌Number of units includes condominium units, detachedhouses and land lots.

Sumitomo Realty & Development Co., Ltd.

19

Review of Operations

CONSTRUCTION

Overview of the Fiscal Year
Basic Growth Strategy

Both the Shinchiku Sokkurisan remodeling business andFurther raising our competitiveness by refining

custom homes operations posted high order levels. Shinchiku

our planning, technical and sales capabilities
without being bound by conventional thinking

Sokkurisan showed a 3.7% increase, to 8,770 units, hitting arecord high for the second consecutive year. Although custom
homes orders fell short of last year’s mark, declining by 4.2%,
to 2,761 units, fourth quarter (January–March) orders of 841
units reached a record high.
Although revenue from operations increased because ahigher number of units were delivered than last year, operating

21.8%

Revenue from Operations¥ 203.6 billion

income declined year on year. This was due to the fact thatthe revenue increase was outweighed by a decline in averageorder value in the Shinchiku Sokkurisan remodeling businessand rising costs related to expansion of operations including
the condominium remodeling business. In order to return to
growth in both revenue and income, we are responding to customers’ needs by continuing with efforts to expand our product6.7%

Operating Income¥ 13.9 billion

lineup and strengthen our sales and management systems.
Outlook

We are aiming for a return to a solid trajectory of revenue andprofit growth from the March 2018 fiscal year by continuing withefforts to enhance the appeal of our products and strengthen
our sales and management systems in the Shinchiku Sokkurisan
remodeling business and the custom homes business.
Our March 2018 fiscal year projections are for a 3.1%
increase in revenue from operations, to ¥210.0 billion, with20

Annual Report 2017

a 7.7% rise in operating income, to ¥15.0 billion.

Remodeling—Shinchiku Sokkurisan
Key Features‌Sales
engineering system: Most of our sales personnel
have engineering qualifications.
‌
Carpenters:
We employ carpenters who work exclusively
for Sumitomo Realty.

After

Before‌
Fixedprice: We provide the customer with a fixedprice per unit of floor area, so there are no concerns
about additional construction charges.
‌ need for temporary moves: We remodel homes
No
while customers continue to live in their homes, which
is a major advantage.
‌
Earthquake
resistance: We incorporate earthquakeresistance strengthening measures based on acomputerized analysis of the homes as well as measures
to prevent damage from termites and moisture.

Cost Comparison
Rebuilding

100%

Shinchiku
Sokkurisan

50~70%

0%

50%

100%

Custom Homes
Key Features‌
Advancedperformance: We have developed proprietary
earthquake-resistant technologies, namely the New
Power Column, New Power Cube and Super Power Wallconstruction methods, and are actively incorporatingthese technologies in all our products.
‌Top-class equipment and specifications: Leveraging ourstrengths in the form of our track record in the condominium business and economies of scale as a comprehensive
developer, we employ high-grade condominium interiormaterials as a standard specification.
‌Thoroughafter-sales support: Our homes are backed by
a 30-year guarantee, and we have a dedicated customer
service line.

14

6.9

7.7

6.8

18

(Forecast)

0

7.1

13

14

15

16

17

Operating Income
Operating Margin (right)

9,000

3,000

10

6,000

2,000

5

3,000

1,000

0

0

15.0

13.9

17

15.3

16

13.0

203.6

15

18.7

199.1

14

15.8

189.0

13

210.0

201.2

0

9.3

7
171.1

70

9.2

UnitsUnits

18(Forecast)

13

14

15

16

17

9,000
2,800

140

%

15

8,770
2,761

21

8,454
2,882

Billions of yen

210

7,310
2,455

Billions of yen

Shinchiku Sokkurisan andCustom Home Units Contracted

7,623
2,430

Operating Income andOperating Margin

7,651
2,389

Revenue from Operations

18

0(Forecast)

Shinchiku Sokkurisan
Custom Homes (right)

Sumitomo Realty & Development Co., Ltd.

21

Review of Operations

BROKERAGE
Overview of the Fiscal Year
Basic Growth Strategy

The number of sales contracts concluded in the Tokyo

Strengthening our business platform bymetropolitan area in the existing home market reached arecord high and average contract prices continued to rise.

further expanding our network and pursuing

Given this environment, the segment, organized bycloser ties between existing offices and their

Sumitomo Real Estate Sales Co., Ltd., recorded a 0.3%

local communities

increase, to 36,108 units, in the number of transactions, led
by existing-home sale transactions, reaching a record highfor the second consecutive year. In addition, rising transaction
values, especially in city centers, contributed to segment
earnings growth as the total transaction value rose to ¥1,193.0
billion, topping ¥1 trillion for a third consecutive year andRevenue from Operations

7.1%

reaching a new high.

¥ 66.7 billion

As a result, the segment maintained revenue growth foran eighth consecutive year, resulting in the second consecutive
year of revenue growth and record-high operating income.
With the addition of four directly operated offices during
the year, the network had a total of 260 offices nationwide
as of March 31, 2017.

Operating Income

9.3%¥ 19.1 billion

Outlook
Our brokerage operations will continue to open new offices
and upgrade existing offices, while at the same time striving
to raise marketing efficiency, with the aim of achieving arecord-high number of brokerage transactions and growth
in revenue and profit.
As a result, we are forecasting a 4.9% increase in revenue
from operations, to ¥70.0 billion, with a 4.5% rise in operating
income, to ¥20.0 billion, for the March 2018 fiscal year.

Operating Income andOperating Margin

Billions of yenBillions of yen

Number of Transactions andTransaction Value
%

60

21

75

Billions of yenTransactions

1,500
35,987 36,108

35,45517

Operating Income
Operating Margin (right)

22

Annual Report 201718

(Forecast)00

16,0001,193.0

16500

48,00032,0001,065.7

15

20

33,96833,1801,065.7

14

1,000

20.0

13

40

987.8

0

28.6

858.9

18

(Forecast)

28.7

19.1

17

28.8

17.7

16

28.1

16.5

15

31.4

18.0

14

28.4

14.5

13

70.0

66.7

0

61.5

7
58.5

25
57.2

14

51.0

50

37,913

13

14

15

16

17

Transaction Value
Number of Transactions (right)

1,252.1

Revenue from Operations

18(Forecast)0Corporate Governance

Board of Directors and Statutory Auditors(As of June 29, 2017)

Outside Directors

Chairman of the Board

Deputy Chairman of the Board

Junji Takashima*

Kenichi Onodera
Hiromasa Yonekura

President

Deputy President

Kojun Nishima*

Nobuaki Takemura*(Date of birth: March 31, 1937)
April 1960
Joined Sumitomo Chemical Co., Ltd.
June 2000 President, Sumitomo Chemical Co., Ltd.
April 2009	Chairman, Sumitomo Chemical Co., Ltd.
May 2010	Chairman, KEIDANREN (Japan Business Federation)
June 2014	Honorary Chairman, KEIDANREN (present)Counselor, Sumitomo Chemical Co., Ltd. (present)
June 2015	Outside Director, Sumitomo Realty & Development Co., Ltd.
(present)

Shoichi Abbe
Deputy President

Director

Masato Kobayashi*

Hiroshi Kato

Director

Director

Masumi Aoki

Yoshiyuki Odai

(Date of birth: September 20, 1940)
April 1963	Joined The Sumitomo Warehouse Co., Ltd.
June 1994	Director, The Sumitomo Warehouse Co., Ltd.
June 1997	Executive Managing Director – Managing Director,
The Sumitomo Warehouse Co., Ltd.
June 2000	Executive Managing Director – President,
The Sumitomo Warehouse Co., Ltd.
June 2010	President – Executive Officer, The Sumitomo Warehouse Co., Ltd.
June 2013	Statutory Auditor, Sumitomo Realty & Development Co., Ltd.
June 2015	Executive Managing Director – Chairman of the Board,
The Sumitomo Warehouse Co., Ltd. (present)
June 2015	Outside Director, Sumitomo Realty & Development Co., Ltd.
(present)(Note)	Mr. Yonekura and Mr. Abbe both meet the requirements for independent directors stipulated by the Tokyo Stock Exchange, and the Company has notified
the Tokyo Stock Exchange that both individuals are designated as independent directors.
	 Mr. Yonekura is a member of the special committee established in accordance with the Company’s takeover defense measures.

Statutory Auditors
Director

Director

Koji Ito

Toshikazu Tanaka

Yozo Izuhara*
Takaaki Ono*
Tadashi Kitamura* Executive Managing Director

Yoshifumi Nakamura* Outside Statutory Auditor

Sumitomo Realty & Development Co., Ltd.

23

Corporate GovernanceCorporate Governance Initiatives
Fundamental Approach to Corporate GovernanceTo achieve sound management, Sumitomo Realty believes that it is important to share information on a Companywide basis,
ensure that everyone is aware of problems, enhance internal management supervision and achieve highly transparent management through appropriate information disclosure. We have implemented a number of corporate governance initiatives torealize these practices efficiently.

Corporate Governance Bodies

time, they provide timely advice and guidance to internal departments

The Board of Directors consists of 12 directors, including two outside

associated with internal control.

directors. The Board makes decisions on important Company matters

Sumitomo Realty does not have standards or a policy regarding

and oversees the directors’ execution of duties. Furthermore, internal

independence from the Company for selecting outside directors andinformation, awareness of issues and other matters are shared throughoutside statutory auditors. However, the Company does refer to thethe Board of Directors, internal meetings and other forums, promoting

Tokyo Stock Exchange’s evaluation standards regarding the inde-quick and rational decision-making.

pendence of directors and corporate auditors when appointing such

The Board of Statutory Auditors has four members, including two

individuals.

outside statutory auditors. To strengthen management oversight, we

The Internal Audit Division, which has nine staff members, moni-continue working to enhance outside auditing. The statutory auditors

tors the operational execution of divisions throughout the Group andattend meetings of the Board of Directors and other important meet-the operation of internal control systems. The division also works toings and track internal issues that are important for robust auditing.

prevent misconduct and mistakes, and proposes operational improve-

Two outside directors were elected at the ordinary Generalments. Moreover, the division reports the results of its audits to the

Meeting of Shareholders held in June 2015. Both of these directors

statutory auditors and the independent auditors and exchanges

possess a wealth of management experience and were nominated as

opinions with them in an appropriate manner. These activities help todirectors in light of their appropriate personal character, knowledge andimprove the quality and efficiency of the audit work of the Internal

judgment. The Company has appointed outside directors to further

Audit Division, the statutory auditors and the independent auditors.

enhance management efficiency and strengthen the corporate gov-

At the same time, the Internal Audit Division, the statutory auditors

ernance structure by contributing points of view that are not boundand the independent auditors provide timely advice and guidance toby preconceived ideas of the real estate industry and advice from ainternal departments that are associated with internal control.

global perspective. The professional histories of the two outside​Independent Auditors

directors are on page 23.
Both of the outside statutory auditors has abundant manage-

In accordance with the Japanese Corporate Law and the Financial

ment experience at other companies, and they were nominatedInstruments and Exchange Act, the Company has concluded an

because their character and knowledge were considered to beauditing contract with KPMG AZSA LLC for the auditing of theappropriate for the Company’s statutory auditors. The outside statutory

Company’s accounts.

auditors fulfill their roles by expressing objective opinions on governance from an independent standpoint from the Company without

There are no conflicts of interest between Sumitomo Realty andthe independent auditing company or its employees.

being influenced by executives responsible for operational execution.
They also work together to improve auditing by, for example,

Reason for Adopting the Current Structure

exchanging opinions as needed with other statutory auditors, theIn addition to directors who are well-acquainted with the Company’s

Internal Audit Division and the independent auditors. At the samebusiness, two outside directors have been appointed from June 2015

Corporate Governance Structure
General Meeting of Shareholders

Board of Directors

President

Board of Statutory Auditors
Independent Auditors
Executive Officers Committee
Internal Audit Division

Departments, Divisions, etc.

24

Annual Report 2017for further enhancement of management efficiency and strengthening

over the medium and long term, we have determined that it promotesof the corporate governance structure. To strengthen the manage-

the common interests of shareholders to take certain measures toment oversight system, we have also adopted a structure for the

avoid disturbance by abnormal speculations to our business approach,

Board of Statutory Auditors that includes two outside statutory

which has brought significant achievements. The Company therefore

auditors, and we therefore believe that sufficient corporate gover-introduced a policy for responding to large-scale purchases of its shares,

nance functions are in place.

and at the ordinary General Meeting of Shareholders held on June 28,
2007 the policy was approved by more than 70% of shareholders, which

Internal Control and Risk Management Systems

is the level of support required for the approval of special resolutions.

To efficiently institute sound management practices, the Company

With the approval of shareholders at the 77th General Meeting of

has established a range of internal control systems and is working toShareholders held in 2010, at the 80th General Meeting of Shareholders

enhance those systems.

held in 2013 and at the 83rd General Meeting of Shareholders held

To further enhance our compliance with laws and regulationsin 2016 (with shareholders approving its continuation or renewal),and to ensure ethical business practices, we established the Risk

the policy has been extended to the conclusion of the 86th General

Management Committee. In addition, through the Compliance

Meeting of Shareholders, scheduled to be held in 2019.

Department, we have established internal auditing and internalreporting systems. In these ways, we are working to prevent
inappropriate and illegal actions.

Overview of Takeover Defense Measures and Board of
Directors’ Judgment
The Company believes that if a large-scale purchase of the Company’s

Compensation of Directors and Statutory Auditors

shares is initiated, the shareholders, in principle, should decide to

At the ordinary General Meeting of Shareholders held in June 2004,

accept or reject the large-scale purchase. To enable the shareholders

we introduced a new performance-based compensation system forto correctly understand the large-scale purchase’s effect on the

directors. Under this system, the annual compensation for directors

corporate value and the common interests of shareholders, it isis based on the Company’s performance. The new system combines

inevitable that both the party making the large-scale purchase andthe three elements that made up the previous system—monthly

the Board of Directors of the Company provide to the shareholders

compensation, annual bonuses and retirement allowances.

necessary and sufficient information, opinions, alternative proposals,

Under the new system, total annual (July to June) compensation
for directors is set at 1% of consolidated ordinary profit. In the year
under review, compensation for directors (excluding outside directors)

etc., and that the shareholders are given sufficient time to consider
the provided information, opinions, alternative proposals, etc.
The large-scale purchase rules stipulate that the large-scale

was ¥1,358 million, compensation for statutory auditors (excluding out-

purchase shall begin after necessary and sufficient information isside statutory auditors) was ¥30 million and compensation for outside

provided to the Board of Directors by the large-scale purchaser anddirectors and outside statutory auditors was ¥129 million.

a certain period for evaluation by the Board of Directors has elapsed.

Takeover Defense Measures

the Board of Directors, a special committee will be established that

The Group endeavors to increase corporate value through integrated

consists of members selected from among external academic

Group management. This entails striving for well-balanced growthexperts, lawyers, certified public accountants, etc.

To ensure the objectivity, fairness and rationality of decisions of

whereby mainstay businesses of a different nature—leasing, sales,
construction and brokerage—complement each other.
Of our business segments, the real property leasing business

If the large-scale purchase will significantly damage the corporate
value and common interests of shareholders, after considering theopinions of external experts, including lawyers and financial advisors,

and the real property sales business are “development businesses

and taking into the fullest account the recommendations of the special

based on market anticipation” requiring anticipatory investments. In

committee, the Board of Directors may take countermeasures to deter

other words, we need to acquire land and construct a building within

the purchase, such as the issuance of stock options.

a planned period before we are allowed to record revenue. The

Based on the above basic concept, we set out rules on large-scaleCompany’s main business is to always make appropriate anticipatory

purchases and request the large-scale purchaser to comply with theinvestments for the future. The characteristic of the two businesses

large-scale purchase rules. The Board of Directors shall take certain

mentioned above is that investments lead to revenues and enhance-measures if the large-scale purchaser does not comply with the large-

ment of our corporate value after an interval.

scale purchase rules. The Board shall also take measures in the event it

However, considering the existence of a large number of market

is clear that the large-scale purchase will cause unrecoverable damage

participants who are capable of making huge investments, we areto the Company even though the large-scale purchaser complies withcautious about the risk of abnormal investment activity in the stock of

the large-scale purchase rules, or in the event the large-scale purchase

the Company amid an enormous variety of decisions and speculations.

significantly damages the corporate value and common interests ofHence, as a company aiming to improve shareholder value steadilyshareholders.

Sumitomo Realty & Development Co., Ltd.

25

CSR

Basic Approach to CSR
The Sumitomo Group’s Business Philosophy
The Sumitomo Group’s business philosophy is encapsulated by the following precepts­—“Integrity and sound management areof prime importance in the conduct of its business” and “Under no circumstances, shall it pursue easy gains or act imprudently.”
These have been inherited as teachings since the time of the Sumitomo Group’s founder. They are still regarded as thetouchstone for the Sumitomo Realty Group’s business activities.

The Sumitomo Realty Group’s Fundamental Mission
Guided by the Sumitomo Group’s business philosophy, we haveset forth our fundamental mission as “to create even bettersocial assets for the next generation” through our business.
Based on this fundamental stance, we engage in business withthe aim of creating cities and urban spaces that are resilient toProtecting Office Workers andBusinesses

disasters and friendly to people and the environment.

employ earthquake-resistant features to protect

Sumitomo Realty’s latest office buildings actively
office workers. Furthermore, we install emergency
generators in buildings to supply power for acertain period of time during a blackout, enabling
tenants to continue operations.

Enhancing Regional Convenience andPromoting Barrier-free AccessOur redevelopment business creates peoplefriendly cities. A case in point is Sumitomo Fudosan
Roppongi Grand Tower, where an underground

Contributing to Regional Disaster
Prevention

DISASTERRESISTANT

Sumitomo Realty has contributed to regional development through various redevelopment projects incities. By redeveloping areas with densely packed
wooden houses, we re-create cities so they are

walkway is being built so that pedestrians of all

more resistant to disasters. The open spaces,abilities can move more easily from city areas toa feature of our redevelopment projects, also serve

train stations.

as places for temporary refuge in times of disaster.

AEDs
In order to be better prepared for
medical emergencies, at office buildings, hotels and other key facilities
that we operate and manage, wehave installed automated external
defibrillators (AEDs). Moreover,all personnel undertake

Create even bettersocial assets
for the next

first-aid training.

generation
PEOPLEENVIRONMENTFRIENDLYFRIENDLY

Improving the Environmental
Performance of Buildings

Promoting Energy Conservation

We make efforts to preserve and utilize the existing(heating, ventilation and air-conditioning) systems

trees and plants of the lands in our developmentwith independent air-conditioning units so that they

projects. We also improve buildings’ thermal insula-can be turned on and off to adjust temperature intion and landscapes by planting trees on sites andeach zone. The systems significantly enhance tenantcreating green rooftops and green public arenas.

convenience and contribute to energy conservation.

Our development projects are always concerned

We also save energy used in lighting systems with thewith the global environment and ecology.

installation of highly energy-efficient HF-type

Our latest office buildings feature decentralized HVAC

fluorescent lights and LED light bulbs.

26

Annual Report 2017

CSR through BusinessShinjuku Garden—Close to work, surrounded by greenery and with superiordisaster preparedness that provides peace of mind
Completed in March 2016, Shinjuku Garden is a large-scale, multipurpose development on 2.4 hectares of land in a convenienturban location. The property was developed to blend in with its surroundings and was built as a location for safety and peaceof mind even in the event of a disaster, with open public spaces and roads so that it can function as a community disaster
response center.

Large, Multipurpose Development
Amid Lush Greenery

Regional Disaster-response Base

Approximately 66% of the site,other disaster, many commuters

or 1.5 hectares, is open spacein the area around Shinjukuwith lots of greenery. In addition

Garden are expected to haveto reducing the environmental

difficulty returning home*, andburden and improving the heat

it is crucial for buildings in suchisland phenomenon, we havea location to have a large multi-

created a “lawn plaza” and “shade grove” where people

purpose hall that could be opened as a place for these people

can relax. Roughly 40% of the entire land site is planted

to stay. This hall is equipped with telecommunications equip-

with greenery.

ment (rechargers, Wi-Fi, etc.) so that people can notify their

In the event of an earthquake orfamilies or companies that they are safe, and information

People-friendly Network of PleasantPedestrian Routes

regarding the status of public transportation, conditions in

Many pedestrians coming from Takadanobaba Station passdisplayed on large screens. In addition to the open space on thethrough the area around Shinjuku Garden, and we have soughtsite where people can stay, the functionality as an evacuation

to improve the geographical feature that had been broken up

center has been further enhanced with a warehouse forby retaining walls. We have removed the retaining walls in orderdisaster-response equipment (approximately 50 square

to level out the differences of approximately four meters inmeters), 10 emergency toilets that can be installed directly

elevation within the site and created barrier-free pathways to

to manholes and well water for cleaning the toilets.

offer a space that can be used comfortably by all pedestrians,
including both young children and elderly people.

other areas and other disaster-related information can be* Approximately 350,000 people, the fourth highest number in Tokyo, according to
a 2004 report by the Shinjuku City government.

Shinchiku Sokkurisan Remodeling Operations
Our Shinchiku Sokkurisan remodeling operations facilitate remodeling of existing buildings. We reduce remodeling costs,
improve earthquake resistance and make other improvements in response to customer demand.

Earthquake Reinforcement, Extended Life andEnergy Conservation for Housing

Harmony with Building’s History

Shinchiku Sokkurisan is contributing to efforts to promote

new life into old houses. We add valueearthquake-proofing of existing homes through low-costsuited to modern living, while taking careremodeling. It also extends the life of existing housing

to preserve the history and character ofthrough earthquake-reinforcement work requiring noa house that may have been home todismantlement, while leaving the main structural elements

many generations of a family. Sumitomo

intact. The process also does not waste resources and gener-

Realty is striving to reinvigorate oldates little industrial waste; for instance, old tatami mats arehouses more than 100 years old, helping

reused as material for cement.

to ensure that tradition stays alive.

Shinchiku Sokkurisan can also breathe

Sumitomo Realty & Development Co., Ltd.

27

Financial Section
Eleven-year Financial Summary
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
As of and for the years ended March 31
Millions of yen

2017

2016

2015

2014

2013

¥   925,151
337,466
314,299
203,623
66,714¥  854,964
313,340
274,761
199,115
61,496¥  806,835
289,117264,207
188,995
58,486¥  780,273
283,730
234,093
201,190
57,211¥  736,652
278,317232,149
171,082
50,957

Cost of revenue from operations

664,184

614,191

579,964

558,987

529,913

SG&A expenses

72,796
7.9%

66,532
7.8%

60,976
7.6%

60,815
7.8%

55,394
7.5%

188,17120.3%

174,241
20.4%

165,895
20.6%

160,471
20.6%

151,345
20.5%% of revenue from operations

167,69718.1%

148,42417.4%

139,055
17.2%

130,537
16.7%

114,916
15.6%

Profit attributable to owners of parent

103,489

87,79880,567

69,697

59,825

Depreciation and amortization

39,446

34,57433,51935,311

37,761¥1,197,508
845,2144,980,040
1,007,347
3,101,162¥1,122,189
855,816
4,675,915
888,100
2,971,667¥1,025,703
801,950
4,523,804
832,462
2,875,660¥  924,452
715,779
4,220,429
707,948
2,652,929¥  965,786
679,496
4,105,500
627,0122,424,932¥   218.34
2,125.36
24.00¥   185.23
1,873.71
22.00¥   169.97
1,756.25
21.00¥   147.02
1,493.48
20.00¥   126.18
1,322.52
20.00

20.2
3.1
10.9
4.0
98
95
9.0

19.0
3.3
10.2
3.9
98
94
7.3

18.4
3.5
10.5
3.9
97
87
6.5

16.8
3.7
10.4
4.0
95
82
6.1

15.3
3.9
10.1
3.9
93
80
4.9

For the Year
Revenue from operations
Leasing
Sales
Construction
Brokerage% of revenue from operations
Operating income% of revenue from operations
Ordinary profit*2

At Year-end
Current assets
Inventories
Total assets
Shareholders’ equity*3
Net interest-bearing debt

Per Share Amounts (Yen)Profit attributable to owners of parent
Shareholders’ equity
Cash dividend applicable to the year

Key Ratios
Equity ratio (%)
ND/E ratio*4 (Times)
ROE (%)ROA (%)
Long-term debt ratio (%)
Fixed-interest rate debt ratio (%)
Interest coverage ratio*5 (Times)*1. U.S. dollar amounts in this report are translated, for convenience only, at the rate of ¥112.19 = U.S.$1, the prevailing exchange rate at March 31, 2017.
*2.	Ordinary profit, which equals operating income after adjustment for non-operating gains/losses, is a management index that is widely used in Japan.
	Due to differences in accounting standards, ordinary profit is not referred to in the Company’s English-language financial statements
but is included here because it plays an important role in the calculation of incentive payments for directors.
*3. Shareholders’ equity = Net assets – Profit attributable to non-controlling interests*4.ND/E ratio = Net interest-bearing debt (Interest-bearing debt – Cash, time and notice deposits) / Shareholders’ equity*5. Interest coverage ratio = (Operating income + Interest and dividend income) / Interest expense

28

Annual Report 2017 ｜ Financial Section

Thousands of U.S. dollars*1

2012

2011

2010

2009

2008

2007

2017

¥  688,662
271,812
198,154
165,995
49,397¥  744,756
292,875
239,709
162,924
46,430¥  719,636
293,533
219,662
158,21444,621¥  695,240
298,359
191,224
160,134
43,105¥  691,928
279,568
193,575
156,606
58,542¥  676,834
262,620
211,035
142,564
56,532$ 8,246,288
3,007,976
2,801,489
1,814,984
594,652

490,437

551,364

534,270

496,547

488,202490,4915,920,171

50,760
7.4%

54,9297.4%

51,3877.1%

52,327
7.5%

49,118
7.1%

49,1677.3%

648,864

147,465
21.4%

138,46318.6%

133,979
18.6%

146,366
21.1%

154,608
22.3%

137,176
20.3%

1,677,253

107,91215.7%

106,29614.3%

100,464
14.0%

113,582
16.3%

125,17618.1%

112,406
16.6%

1,494,759

53,23650,90852,662

46,205

63,13350,300922,444

36,04923,70518,065

17,886

17,15015,677

351,600¥  801,142
586,1703,859,698
553,8442,407,639¥  805,958
558,091
3,234,203
526,227
1,901,850¥  802,693
521,871
3,168,098
488,896
1,785,854¥  759,816
518,885
3,006,412
436,667
1,722,733¥  784,195
511,868
2,894,004
427,423
1,548,509¥  756,488
489,093
2,747,900
409,197
1,343,824$10,673,929
7,533,773
44,389,340
8,978,938
27,642,054¥   112.28
1,168.11
20.00¥   107.35
1,109.78
20.00¥   111.04
1,030.93
20.00¥    97.39
920.7420.00¥   133.00
900.5718.00¥   105.92
861.9314.00$      1.95
18.94
0.21

14.3
4.3
9.9
4.3
93
80
4.2

16.3
3.6
10.0
4.4
89
79
4.7

15.4
3.7
11.4
4.4
83
81
4.6

14.5
3.9
10.7
5.1
76
77
4.9

14.8
3.6
15.1
5.6
83
85
6.2

14.9
3.3
12.8
5.4
79
83
6.8

Sumitomo Realty & Development Co., Ltd.

29

Management’s Discussion and Analysis

Review of the March 2017 Fiscal Year and Progressunder the Seventh Management Plan

tization methods using SPEs (SPEs have been included in the scope of

Sumitomo Realty began operating under the Seventh Management

consolidation since the March 2012 fiscal year). In addition, we havePlan from April 2016. Our goals are to remain on our “revenue andformed Sumitomo Realty & Development Fund (SURF) investment

profit growth trajectory” and once again post record-high earnings forpartnerships backed by leased buildings, making effective use of our

the three-year period covered by the plan. (For more details regarding

assets in our fund-raising activities.

Specifically, we have aggressively introduced development securi-

By actively utilizing these types of fund-raising methods that do

the Seventh Management Plan, please see page 11.)
During the March 2017 fiscal year, the first year of the Seventh

not rely on interest-bearing debt in the first half of the 2000s, we wereManagement Plan, revenue from operations was ¥925.2 billion, operat-

able to raise large amounts of funds without having to sell assets at low

ing income totaled ¥188.2 billion, ordinary profit amounted to ¥167.7

prices and aggressively acquire sites at low costs quickly responding tobillion, and profit attributable to owners of parent was ¥103.5 billion.

each investment opportunity. Consequently, our site acquisition strat-

We therefore marked the fifth consecutive year of revenue growth, theegy has proceeded according to the plan, and we were able to achieve

seventh consecutive year of increases in operating income and ordinary

substantial growth in revenue and profits as well as improve our finan-

profit, and the fourth consecutive year of record revenue from opera-

cial structure over a decade.
Since the second half of the 2000s, it has become increasingly

tions, operating income, ordinary profit, and profit attributable todifficult to acquire large prime sites that meet our investment criteria,

owners of parent.

in part because of intensified competition. Given this situation, Sumitomo

These results correspond to roughly one-third of the cumulative
targets for revenue and profit for the three-year period covered by the

Realty has implemented a policy centered on urban redevelopment forplan, making for a smooth start for the Seventh Management Plan.

future site acquisition. As a result, we have been making steady progress with the preparations for future pipeline redevelopment projects.

Although conditions in Japan and overseas bear close monitoring

We plan to bring gross floor area of approximately 220,000 tsubo

and the outlook remains unclear, the operating environment has
recently been favorable and we expect the Leasing segment tofor leasing to market, mainly at large-scale redevelopment projects

continue to drive earnings growth. We will stay focused and aim for ain Roppongi and Osaki, during the Seventh Management Plan (please

fifth consecutive year of record earnings in the March 2018 fiscal year.

refer to page 11 for more information regarding specific projects in the

We will also strive to reach the goals in the Seventh Management Plan

Seventh Management Plan). We are aiming to further accelerate theand work toward achieving continuous growth thereafter.

pace of development from the previous 50,000 tsubo of gross floor area
annually and to achieve in excess of 1,000,000 tsubo of gross floor area

Financial Strategy

during and after the Seventh Management Plan. We intend to invest for

In leasing and sales, which are our mainstay business segments, it takesthese future development projects generally with operating cash flows.

years from the day of site acquisition to the completion of the building

Further, we will consider bond issues or other debt financing if additional

and to the day it starts generating revenue. Significant advance invest-

investment opportunities arise, given that current low interest rates

ment is also required. In consideration of these factors, we worked topresent a favorable environment for financing.
Sumitomo Realty’s financial position has continued to improve.

diversify our fund-raising methods to control interest-bearing debt while
making investments necessary for growth so as to reinforce our financial

Since the beginning of the period covered by the Sixth Management

position and achieve operational growth under the three medium-term

Plan in April 2013, interest-bearing debt has increased by ¥719.8 billion,

management plans starting from April 1997.

but owing to retained earnings, shareholders’ equity has increased by

17

18(Forecast)

0

188.2

16

20.3

174.2

15

20.4

165.9

14

20.6

160.5

13

950.0

925.2

0

855.0

50
806.8

250
780.3

100

736.7

500

20.6

151.3

20.5

13

14

15

16

17

Operating Income

21.1

180

20

120

10

60

18

(Forecast)00Operating Margin (right)

13

14

15

16

17

Ordinary Profit

Annual Report 2017 ｜ Financial Section

18(Forecast)Profit Attributable to Owners of Parent* Please see note *2 on page 28.

30

180.0
115.0

150

Billions of yen

167.7
103.5

750

%

30

200.0

200

148.4
87.8

Billions of yen

1,000

139.1
80.6

Billions of yen

Ordinary Profit * and Profit
Attributable to Owners of Parent

130.5
69.7

Operating Income andOperating Margin

114.9
59.8

Revenue from Operations

¥380.3 billion, topping ¥1 trillion for the first time. As a result, the equity

We have implemented six plans since April 1997. We worked toratio stood at 20.2% as of March 31, 2017, compared with 15.3% at the

respond to various changes in accounting standards and to reduce

beginning of the period covered by the Sixth Management Plan, andunrealized losses under the First Management Plan and the Second

the ND/E ratio improved to 3.1 times from 3.9 times. In addition, the fairManagement Plan. Under the Third Management Plan, which began

value of investment and rental properties stood at ¥5.1 trillion as ofin April 2004, we completed the implementation of measures to deal

March 31, 2017. This included unrealized gains of ¥2.0 trillion, which wewith unrealized losses, and laid the foundation for full-scale growthrecognize as a useful buffer against financial risks. Factoring in thesein EPS. Thereafter, we continued to increase the dividend in line withunrealized gains, the equity ratio as of March 31, 2017, would be 34.5%

profit growth to the extent where we raised the dividend for the Marchand the ND/E ratio would be 1.3 times (for more information, please refer2009 fiscal year, the year after we posted record-high profit, to ¥20.00

to page 55, Note 19 “Investment and rental properties”). Ratings agencies

per share.

have evaluated our results highly, and we have maintained our rating

However, profit subsequently declined due to the Lehman crisis.

even in difficult financial environments, such as after the Lehman crisis.

Nevertheless, we focused on the continuation of stable dividends andAs of June 2017, JCR and R&I issued ratings of A+ and A-, respectively.

maintained the dividend per share at ¥20.00. We were back on track

In terms of ROE, we remain at the top level of our industry with anfor dividend increase after March 2014 fiscal year, which was the first

average level of 10.4% over the past five years (please refer to page 28,

year of the Sixth Management Plan, when we achieved record earnings.

“Eleven-year financial summary”).

We increased the full year dividend by ¥1.0, in two years in a row in

In addition, we are enhancing the stability of our debt portfolio by

March 2015 fiscal year and March 2016 fiscal year, to ¥21.00 per shareprocuring funds for longer tenors and at fixed rates to hedge againstand ¥22.00 per share respectively. Reflecting the fact that the March

the risk of higher interest rates going forward. During the year under2017 fiscal year was our fourth consecutive year of record earnings, we

review, we issued ¥20.0 billion of 10-year corporate bonds with an interest

increased the full-year dividend by ¥2.0, to ¥24.00 per share (including

rate of less than 1%. We will continue to closely observe market condi-

an interim dividend of ¥11.00 per share). In the March 2018 fiscal year,

tions and extend the tenor of our debt portfolio. As of March 31, 2017,

we intend to again increase the full-year dividend by ¥2.0, to ¥26.00

long-term debt accounted for 98% of consolidated interest-bearing debt,

per share (including an interim dividend of ¥13.00 per share). Moving

and fixed-rate debt for 95%.

forward, we will make efforts to continue profit growth and bolster

Site acquisition is essential to the achievement of sustained growth.

equity, while further enhancing shareholder returns.

We will continue to strengthen our financial position through the generation of profit and work to achieve increased fund-raising stability as we
continue to invest in growing businesses, centered on the core leasing
business.

Dividend Policy
Our fundamental policy for the distribution of profit is to maintain astable base level of dividends and, while retaining a sufficient level of
earnings for steady, long-term operational growth, to increase dividends
in line with growth in profit.

Total Assets

Shareholders’ Equity and 
Equity Ratio

Billions of yen

Billions of yen

6,000

1,200

Net Interest-bearing Debt and
ND/E Ratio
%

30

900

12

18.4

20.2

8

20
1,600
3.7

3.5

3.3

3.1

2,652.9

2,875.7

2,971.7

3,101.2

3.9
2,424.9

15.3

16.8

19.0

2,000

13

14

15

16

17

17

0

1007.3

16

888.1

4,980.0

15

832.5

4,675.914707.9

4,523.8

13

300
627.0

4,220.4

10
4,105.5

0

Times

3,200

2,400

4,000
600

Billions of yen

13

14

15

16

17

800

0

S hareholders’ Equity(Net Assets – Profit Attributable to Non-controlling Interests)

0

Net Interest-bearing Debt

40

ND/E Ratio (right)

Equity Ratio (right)

Sumitomo Realty & Development Co., Ltd.

31

Consolidated Balance Sheets
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
As of March 31, 2017 and 2016

Millions of yen

AssetsCurrent assets:

2017

Thousands of U.S. dollars (Note 1)

2016

2017

¥   269,312
18,475(55)
845,214
18,53946,023
1,197,508¥‌   187,234
19,665(48)
855,816
13,63845,884
1,122,189$ 2,400,499
164,676(490)
7,533,773
165,246
410,225
10,673,929

64,372
368,445(10,193)422,624

57,401
321,296(9,801)
368,896573,777
3,284,116(90,855)
3,767,038

2,390,151
1,176,049
31,0972,167
34,486
3,633,950

2,317,729
1,039,019
28,851
3,040
36,4483,425,087

21,304,492
10,482,654
277,182
19,315
307,390
32,391,033

		 Net property and equipment(471,474)
3,162,476(436,504)
2,988,583(4,202,460)
28,188,573

Other assets:
Guarantee and lease deposits paid to lessors (Note 6)
Leasehold rights and other intangible assets (Note 4)
Deferred income taxes (Note 12)
Other
		 Total other assets
			Total assets

97,32453,802
12,02434,282
197,432¥4,980,040

103,981
51,718
12,684
27,864
196,247¥4,675,915

867,493
479,561
107,175
305,571
1,759,800$44,389,340

Cash, time and notice deposits (Notes 3, 5 and 6)
Notes and accounts receivable—trade (Note 6)
Allowance for doubtful accounts
Inventories (Note 4)
Deferred income taxes (Note 12)
Other current assets
		 Total current assets

Investments:
Investments in unconsolidated subsidiaries and affiliates (Note 6)
Investments in securities and other (Notes 6 and 7)
Allowance for doubtful accounts
		Total investments

Property and equipment:
Land (Notes 4, 5 and 19)
Buildings and structures (Notes 4, 5 and 19)
Machinery and equipment (Notes 5 and 19)
Leased assets
Construction in progress (Notes 4, 5 and 19)

Accumulated depreciation

See accompanying notes.

32

Annual Report 2017 ｜ Financial Section

Millions of yen

Thousands of U.S. dollars (Note 1)

Liabilities and Net Assets
Current liabilities:
Short-term debt (Notes 6 and 8)
Long-term debt due within one year (Notes 6 and 8)
Long-term non-recourse debt due within one year (Notes 5, 6 and 8)
Notes and accounts payable—trade (Note 6)
Accrued income taxes
Accrued bonuses
Deposits received (Notes 13)
Other current liabilities (Notes 12 and 13)
		 Total current liabilities¥   66,108
289,622
22,95841,37429,3305,049
68,861
134,745
658,047¥   78,718
316,737
121,964
54,31630,046
4,216
71,619154,799
832,415$   589,250
2,581,532
204,635
368,785
261,432
45,004
613,789
1,201,043
5,865,470

Long-term liabilities:
Long-term debt due after one year (Notes 6 and 8)
Long-term non-recourse debt due after one year (Notes 5, 6 and 8)
Guarantee and deposits received (Notes 6 and 13)
Net defined benefit liability (Note 9)
Other long-term liabilities (Notes 12 and 13)
		 Total long-term liabilities

2,595,397
396,389
250,103
6,144
34,857
3,282,890

2,344,819
296,663
249,800
6,081
28,8602,926,223

23,133,942
3,533,194
2,229,281
54,764
310,696
29,261,877

122,805
132,748
662,802(4,379)913,976

122,805
132,748569,740(4,335)820,958

1,094,616
1,183,243
5,907,853(39,032)
8,146,680

97,192(2,529)(1,265)(27)
93,371
31,756
1,039,103¥4,980,040

72,262(4,247)(510)(364)
67,141
29,178917,277¥4,675,915

866,316(22,542)(11,276)(241)
832,257
283,056
9,261,993$44,389,340

2017

2016

2017

Contingent liabilities (Note 20)
Net assets (Note 14):
Shareholders’ equity
		Common stock:			Authorized —1,900,000 thousand shares
			Issued—476,086 thousand shares
		Capital surplus
		Retained earnings
		Treasury stock			Total shareholders’ equity
Accumulated other comprehensive income (loss)
		 Net unrealized holding gains on securities
		 Net deferred losses on hedges
		 Foreign currency translation adjustments
		 Remeasurements of defined benefit plans
			 Total accumulated other comprehensive income
Non-controlling interests
		 Total net assets
			 Total liabilities and net assets

Sumitomo Realty & Development Co., Ltd.

33

Consolidated Statements of Income
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2017, 2016 and 2015

Millions of yen

Thousands of U.S. dollars (Note 1)

2017¥925,151

2016¥854,9642015¥806,835

2017$8,246,288

664,184
72,796736,980

614,191
66,532680,723

579,964
60,976
640,940

5,920,171
648,864
6,569,035

Operating income
Other income (expenses):
Interest expense, net
Dividend income
Gain on sale of property and equipment
Loss on sale of property and equipment
Loss on impairment of fixed assets (Note 10)
Loss on disposal of property and equipment
Gain on sale of investments in securities
Loss on sale of investments in securities
Loss on devaluation of investments in securities
Dividend to partnership investors
Other, net

188,171

174,241

165,895

1,677,253(21,469)
6,588
15
(3)
(15,538)(1,522)43——(1,143)(4,519)(37,548)(24,398)
5,483
115
—
(10,806)(1,146)
428
(76)
(466)
(1,387)(6,434)(38,687)(26,049)
5,063
4
(3)
(3,811)(3,105)——(30)(1,776)(5,521)(35,228)(191,363)
58,722134(27)(138,497)(13,566)383——(10,188)(40,280)(334,682)

Income before income taxes
Income taxes (Note 12):Current
Deferred		Total150,623

135,554

130,667

1,342,571

53,161(9,533)
43,62849,989(5,259)44,73044,7852,661
47,446473,848(84,972)
388,876

Profit106,995

90,824

83,221

953,695

3,506

3,026

2,654

31,251¥103,489¥ 87,798¥ 80,567$  922,444

Revenue from operations
Costs and expenses:
Cost of revenue from operations
Selling, general and administrative expenses

Profit attributable to non-controlling interests
Profit attributable to owners of parent

Yen

2017
Amounts per share of common stock:
Profit attributable to owners of parent:
		—Basic
		—Diluted
Cash dividend applicable to the year

¥218.34—
24.00

U.S. dollars (Note 1)

2016¥185.23
—
22.00

2015

¥169.97
—
21.00

2017

$1.95
—
0.21

See accompanying notes.

Consolidated Statements of Comprehensive Income
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2017, 2016 and 2015
Millions of yen

ProfitOther comprehensive income (loss) (Note 18)
Net unrealized holding gains (losses) on securities
Net deferred gains (losses) on hedges
Foreign currency translation adjustments
Remeasurements of defined benefit plans
		 Total other comprehensive income (loss)
Comprehensive income
Comprehensive income attributable to:
Owners of the parent
Non-controlling interests
See accompanying notes.

34

Annual Report 2017 ｜ Financial Section

Thousands of U.S. dollars (Note 1)

2017¥106,995

2016¥ 90,824

2015¥ 83,2212017$   953,695

24,930
1,705
(927)
442
26,150¥133,145(16,514)(2,649)59(710)(19,814)¥ 71,010

51,057
10
3,498
65
54,630¥137,851

222,212
15,197(8,263)
3,940
233,086$1,186,781¥129,719
3,426¥ 68,061
2,949¥134,511
3,340$1,156,244
30,537

Consolidated Statements of Changes in Net Assets
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2017, 2016 and 2015

Thousands
Shareholders’ equity

Balance at April 1, 2014
	Cumulative effects of changes inaccounting policies
Restated balance
Profit attributable to owners of parent
Foreign currency translation adjustments
Net unrealized holding gains on securities
Acquisition of treasury stock
Cash dividends paid:
		 Final for prior year (¥10 per share)
		 Interim for current year (¥10 per share)
Profit attributable to non-controlling interests
Net deferred gains on hedges
Remeasurements of defined benefit plans
Balance at April 1, 2015
Profit attributable to owners of parent
Foreign currency translation adjustments
Net unrealized holding losses on securities
Acquisition of treasury stock
Disposal of treasury stock
Change in scope of consolidation
Cash dividends paid:
		 Final for prior year (¥11 per share)
		 Interim for current year (¥11 per share)	Change in treasury shares of parent
arising from transactions with
non-controlling shareholders
Profit attributable to non-controlling interests
Net deferred losses on hedges
Remeasurements of defined benefit plans
Balance at April 1, 2016
Profit attributable to owners of parent
Foreign currency translation adjustments
Net unrealized holding gains on securities
Acquisition of treasury stock
Disposal of treasury stock
Cash dividends paid:
		 Final for prior year (¥11 per share)
		 Interim for current year (¥11 per share)	Change in treasury shares of parent
arising from transactions with
non-controlling shareholders
Profit attributable to non-controlling interests
Net deferred gains on hedges
Remeasurements of defined benefit plans
Balance at March 31, 2017

Number ofshares ofcommonstock

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

476,086¥122,805¥132,750¥423,600¥(4,141)¥675,014¥37,763¥(1,641)¥(3,362)¥ 174¥32,934¥24,584¥  732,532—
476,086—————
122,805—————
132,750
—
—
—
—

(410)
423,190
80,567————(4,141)
—
—
—
(106)

(410)
674,604
80,567——(106)—
37,763——51,036——(1,641)—————(3,362)
—
2,812
—
—

—
174
—
—
—
—

—
32,934—
2,812
51,036——
24,584
—
—
—
—

(410)
732,12280,567
2,812
51,036
(106)

—
—
—
—
—
476,086
—
—
—
—
—
—

—
—
—
—
—
¥122,805
—
—
—
—
—
—

—
—
—
—
—
¥132,750
—
—
—
—
0
—

(4,741)(4,740)———¥494,276
87,798————(1,906)—————¥(4,247)
—
—
—
(89)
1
—

(4,741)(4,740)———¥745,584
87,798——(89)
1(1,906)—————¥88,799——(16,537)
—
—
—

—
—
—
26
—
¥(1,615)
—
—
—
—
—
—

—
—
—
—
—
¥   (550)
—
40
—
—
—
—

—
—
—
—
70
¥ 244
—
—
—
—
—
—

—
—
—
26
70
¥86,878—40(16,537)
—
—
—

—
—
2,493
—
—
¥27,077
—
—
—
—
—
—

(4,741)(4,740)2,493
2670¥   859,539
87,79840(16,537)(89)
1(1,906)

—
—

—
—

—
—

(5,214)(5,214)——(5,214)(5,214)

—
—

—
—

—
—

—
—

—
—

—
—

(5,214)(5,214)————
476,086
—
—
—
—
—

—
—
—
—
¥122,805
—
—
—
—
—

(2)
—
—
—
¥132,748
—
—
—
—
2

—
—
—
—
¥569,740
103,489
—
—
—
—

—
—
—
—
¥(4,335)
—
—
—
(47)
3

(2)
—
—
—
¥820,958
103,489
—
—
(47)
5

—
—
—
—
¥72,262——
24,930————(2,632)—¥(4,247)
—
—
—
—
—

—
—
—
—
¥   (510)
—
(755)
—
—
—

—
—
—
(608)
¥(364)
—
—
—
—
—

—
—
(2,632)(608)¥67,141—(755)
24,930
—
—

—
2,101
—
—
¥29,178
—
—
—
—
—

(2)
2,101
(2,632)(608)¥   917,277
103,489(755)
24,930
(47)
5

—
—

—
—

—
—

(5,214)(5,213)——(5,214)(5,213)

—
—

—
—

—
—

—
—

—
—

—
—

(5,214)(5,213)————476,086————¥122,805(2)———¥132,748————¥662,802————¥(4,379)(2)———¥913,976————¥97,192

—
—
1,718
—
¥(2,529)————¥(1,265)———337¥ (27)

—
—
1,718
337
¥93,371

—
2,578
—
—
¥31,756

(2)
2,578
1,718
337
¥1,039,103

Total net
assetsCommonstock

CapitalsurplusRetainedearnings

Treasurystock

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income (loss)
RemeasureTotal
Net
Foreignments of accumulated
Total
unrealized Net deferred currency
definedotherNonshareholders’ holding gains gains (losses) translation
benefit comprehensive controlling
equityon securities on hedges
adjustments
plansincome (loss) interests$1,094,616
—
—
—
—
—

$1,183,243
—
—
—
—
18

$5,078,349
922,444————$(38,640)
—
—
—
(419)
27

$7,317,568
922,444
—
—
(419)
45

$644,104——
222,212——$(37,855)
—
—
—
—
—

$ (4,546)—(6,730)———$(3,244)
—
—
—
—
—

—
—

—
—

(46,475)(46,465)——(46,475)(46,465)

—
—

—
—

—
—

—
—

—
—

—
—

(46,475)(46,465)

—
(18)
—
—
—
—
—
—
$(39,032) $8,146,680————$866,316——
15,313—$(22,542)

—
—
—
—
—
—
—
3,003
$(11,276) $   (241)——15,313
3,003$832,257—
22,979——$283,056(18)
22,97915,313
3,003$9,261,993

Shareholders’ equity

Balance at April 1, 2016
Profit attributable to owners of parent
Foreign currency translation adjustments
Net unrealized holding gains on securities
Acquisition of treasury stock
Disposal of treasury stock
Cash dividends paid:
		 Final for prior year ($0.10 per share)
		 Interim for current year ($0.10 per share)	Change in treasury shares of parent
arising from transactions with
non-controlling shareholders
Profit attributable to non-controlling interests
Net deferred gains on hedges
Remeasurements of defined benefit plans
Balance at March 31, 2017

Millions of yen
Accumulated other comprehensive income (loss)
Net
RemeasureTotal
unrealized
Foreignments of accumulated
Total
holding gains Net deferred currency
definedotherNonshareholders’ (losses) on gains (losses) translation
benefit comprehensive controlling
equitysecurities
on hedges adjustments
plansincome (loss) interests————$1,094,616

(18)
—
—
—
—
—
—
—
$1,183,243 $5,907,853$598,459 $260,077——(6,730)—222,212—————

Total net
assets$8,176,104
922,444(6,730)222,212(419)
45

See accompanying notes.

Sumitomo Realty & Development Co., Ltd.

35

Consolidated Statements of Cash Flows
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2017, 2016 and 2015

Millions of yen

2017
Cash flows from operating activities:
Income before income taxes
Depreciation and amortization
Loss on impairment of fixed assets (Note 10)
Provision for (Reversal of ) allowance for doubtful accounts
Increase (Decrease) in net defined benefit liability
Gain on sale of property and equipment, net
Loss on disposal of property and equipment
Gain on sale of investments in securities, net
Loss on devaluation of investments in securities
Interest and dividend income
Interest expense
Increase (Decrease) in notes and accounts receivable—trade
Increase (Decrease) in inventories
Increase (Decrease) in notes and accounts payable—trade
Increase (Decrease) in advances received
Other, net
		Total2016

Thousands of U.S. dollars (Note 1)

2015

2017

¥ 150,623
39,446
15,538
411
702
(12)
1,522
(43)
—
(6,707)
21,588
1,090
5,574(12,936)
7,816
5,029
229,641¥ 135,554
34,574
10,806(2,095)
(388)
(115)
1,146
(352)
466
(5,574)24,4897,442(51,302)(12,363)
10,981
9,119
162,388¥ 130,667
33,519
3,811
(583)
(212)
(1)
3,105
—
30
(5,261)
26,247(8,741)(88,915)
21,446(3,507)(7,725)
103,880$ 1,342,571
351,600
138,497
3,663
6,257
(107)
13,566(383)—(59,783)
192,424
9,716
49,684(115,304)
69,66844,8252,046,894

Proceeds from interest and dividend income
Payments for interest
Payments for income tax and other taxes
Net cash provided by operating activities

6,707(22,295)(55,545)
158,508

5,574(24,870)(46,985)
96,107

5,261(26,747)(47,327)
35,06759,783(198,725)(495,098)
1,412,854

Cash flows from investing activities:
Payments for purchases of property and equipment
Proceeds from sale of property and equipment
Payments for purchases of investments in securities
Proceeds from sale and redemption of investments in securities
Payments for guarantee and lease deposits paid to lessors
Proceeds from guarantee and lease deposits paid to lessors
Payments for guarantee and lease deposits received
Proceeds from guarantee and lease deposits received
Receipts of deposits from partnership investors
Restitution of deposits from partnership investors
Other, net
Net cash used in investing activities(254,931)
125(21,249)
1,858(1,720)8,361(11,260)
22,974
2,757(13,626)(7,451)(274,162)(91,297)404(18,118)
1,838(1,373)
4,658(12,400)
26,047721(24,835)
8,971(105,384)(149,517)
141(22,335)
14,324(1,088)
5,691(11,635)
18,415
1,994(74,876)(2,032)(220,918)(2,272,315)
1,114(189,402)
16,561(15,331)
74,525(100,365)
204,778
24,574(121,455)(66,414)(2,443,730)

Cash flows from financing activities:
Decrease in short-term debt, net
Proceeds from issuance of bonds
Redemption of bonds
Proceeds from non-recourse bonds
Redemption of non-recourse bonds
Proceeds from long-term loans payable
Repayment of long-term loans payable
Proceeds from long-term non-recourse loans
Repayment of long-term non-recourse loans
Decrease in assignment of receivables
Increase in treasury stocks, net
Cash dividends paid
Other, net
Net cash provided by financing activities(12,610)
20,000(20,000)
14,500(16,460)
520,200(296,737)
109,500(106,820)
(300)
(43)
(11,276)(1,957)
197,997(8,282)40,000(60,000)
5,000(8,264)566,200(380,863)
39,600(61,518)(1,700)(88)(11,277)(73,827)
44,981(57,900)
110,000(80,000)
3,000(8,348)505,800(200,085)
23,800(69,440)(2,777)(106)(10,323)(25,806)
187,815(112,399)
178,269(178,269)
129,245(146,715)
4,636,777(2,644,951)
976,023(952,135)(2,674)(383)(100,508)(17,444)
1,764,836

(388)

126

2,078

(3,458)Net increase in cash and cash equivalents

81,95535,8304,042

730,502

Cash and cash equivalents at beginning of yearDecrease in cash and cash equivalents resulting fromexclusion of subsidiaries from consolidation
Cash and cash equivalents at end of year (Note 3)

185,989

150,265

146,223

1,657,804—¥ 267,944(106)¥ 185,989—¥ 150,265—$ 2,388,306

Effect of exchange rate changes on cash and cash equivalents

See accompanying notes.

36

Annual Report 2017 ｜ Financial Section

Notes to Consolidated Financial Statements
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
As of and for the years ended March 31, 2017, 2016 and 2015

1. Basis of presenting consolidated financial statements(4) Recognition of revenue

The accompanying consolidated financial statements of Sumitomo

Revenues from sales operations of condominiums, detached houses andRealty & Development Co., Ltd. (“the Company”) and its consolidated

land lots are recognized when the units are delivered and customers acceptedsubsidiaries have been prepared in accordance with the provisions set

the delivery. Revenues from leasing operations of office buildings, residences

forth in the Financial Instruments and Exchange Act and its related

and other properties are recognized as rent accrues over the lease term.

accounting regulations, and in conformity with accounting principles
generally accepted in Japan (“Japanese GAAP”), which are different in(5) Inventories

certain respects as to application and disclosure requirements fromInventories are stated at cost, determined by the specific identification

International Financial Reporting Standards (“IFRS”).

method principally. The carrying amount of inventories is written down

The accounts of the Company’s overseas subsidiaries are based on
their accounting records maintained in conformity with generally accepted

when the profitability declines.

accounting principles prevailing in the respective countries of domicile.

(6) Securities

The accompanying consolidated financial statements have been restruc-

Held-to-maturity securities are stated at amortized cost. Investments

tured and translated into English (with certain expanded disclosure)in subsidiaries and affiliates that are not consolidated or accounted forfrom the consolidated financial statements of the Company preparedusing the equity method are stated at moving-average cost. Available-in accordance with Japanese GAAP and filed with the appropriate Local

for-sale securities with available fair values are stated at fair value.

Finance Bureau of the Ministry of Finance as required by the Financial

Unrealized gains and losses on these securities are reported, net of

Instruments and Exchange Act. Certain supplementary information included

applicable income taxes, as a separate component of net assets. Realized

in the statutory Japanese-language consolidated financial statements,

gains and losses on the sale of such securities are computed using

but not required for fair presentation, is not presented in the accompa-

moving-average cost.

nying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars is
included solely for the convenience of readers outside Japan, using theprevailing exchange rate at March 31, 2017, which was ¥112.19 to U.S. $1.

Preferred equity securities are stated at cost determined by the
specific identification method, and securities with no available fair value
are stated at moving-average cost.
Investments in limited partnerships, which are regarded as securi-

The translation should not be construed as representations that theties under the Financial Instruments and Exchange Act, are accounted

Japanese yen amounts have been, could have been or could in the future

for in a manner similar to the equity method based on the recent finan-

be converted into U.S. dollars at this or any other rate of exchange.

cial statements.

2. Accounting policies

in subsidiaries and affiliates and available-for-sale securities declines(1) Consolidation

between fair value and the carrying amount is recognized as a loss

The accompanying consolidated financial statements include thein the period of the decline. If the fair value of investments in unconsolidated

accounts of the Company and significant companies over which thesubsidiaries and affiliated companies not accounted for using the equity

Company has power of control through majority voting rights or existence

method is not readily available, such securities should be written downof certain conditions evidencing control by the Company.

to the net asset value with a corresponding charge in the income state-

If the market value of held-to-maturity securities, investments
significantly, such securities are stated at fair value and the difference

In the elimination of investments in subsidiaries, the assets andment in the event net asset value declines significantly. In these cases,

liabilities of the subsidiaries, including the portion attributable to minority

such fair value or the net asset value will be the carrying amount of theshareholders, are recorded based on the fair value at the time thesecurities at the beginning of the next fiscal year.

Company acquired control of the respective subsidiaries.
All significant intercompany balances, transactions and profits
have been eliminated in consolidation.

(7) Property and equipment
The Company and its consolidated domestic subsidiaries depreciatebuildings using the straight-line method, and other property and equip-(2) Foreign currency translation

ment (excluding facilities attached to buildings and structures acquired

Receivables and payables denominated in foreign currencies are translatedon or after April 1, 2016) using the declining-balance method over theirinto Japanese yen at the year-end rate.

estimated useful lives. The consolidated overseas subsidiaries depreci-

Financial statements of consolidated overseas subsidiaries are

ate property and equipment using primarily the straight-line method intranslated into Japanese yen at the year-end rate, except for shareholders’accordance with the accounting principles in the respective countries.

equity accounts, which are translated at historical rates, and income

In addition, the Company and its consolidated domestic subsidiar-statement items resulting from transactions with the Company, which

ies depreciate facilities attached to buildings and structures acquired

are translated at the rates used by the Company.

on or after April 1, 2016 using the straight-line method.

Differences arising from translation are presented as “Foreign currencytranslation adjustments” in net assets.

Leased assets related to finance lease transactions without title
transfer are depreciated using the straight-line method over the lease
periods as their useful lives with no residual value.

(3) Cash and cash equivalents
In preparing the consolidated statements of cash flows, cash on hand,

Estimated useful lives used in the computation of depreciation are
generally as follows:

readily available deposits and short-term, highly liquid investments with

Buildings and structures……………… 6 to 60 years

maturities not exceeding three months at the time of purchase are

Machinery and equipment…………… 2 to 20 years

considered to be cash and cash equivalents.

Leased assets…………………………………… Lease periods

Sumitomo Realty & Development Co., Ltd.

37

Notes to Consolidated Financial Statements(8) Software costs

As a result, net defined benefit liability increased by ¥637 million

Software costs are amortized using the straight-line method over theand retained earnings decreased by ¥410 million as of April 1, 2014. In

estimated useful lives (five years).

addition, operating income and income before income taxes and minority(9) Allowance for doubtful accounts
The Company and its consolidated subsidiaries provide for doubtfulinterests on the consolidated statement of income for the year ended
March 31, 2015 each decreased by ¥11 million.

accounts at an estimated uncollectable amount based on the evaluation(13) Construction contractsof certain identified doubtful and bankrupt receivables plus an amountThe construction projects for which the outcome of the portion completed

calculated using the percentage of actual collection losses in certainby the end of the fiscal year under review can be reliably estimated arereference periods with respect to remaining receivables.

accounted for by the percentage-of-completion method (the degree of(10) Lease transactions
Leased assets related to finance lease transactions without title transfer
are depreciated using the straight-line method over the lease periods
as their useful lives with no residual value.

(11) Income taxes

completion of each construction project is estimated using the costcomparison method), while other construction projects are accounted
for by the completed-contract method.

(14) Derivative transactions and hedge accounting
The Company and its consolidated subsidiaries state derivative financial
instruments at fair value and recognize changes in the fair value as gains

Income taxes are provided for on the basis of income for financial

or losses unless derivative financial instruments are used for hedging

statement purposes. The tax effects of temporary differences between

purposes and qualify for hedge accounting.

the carrying amounts of assets and liabilities for financial statements

If derivative financial instruments are used as hedges and meetand income tax purposes are recognized as deferred income taxes.

certain hedging criteria, the Company and its consolidated subsidiaries(12) Employees’ severance and retirement benefits
The Company and its certain consolidated subsidiaries provide twodefer recognition of gains or losses resulting from changes in fair valueof the derivative financial instruments until the related gains or losseson the hedged items are recognized.

types of post-employment benefit plans, lump-sum payment plans andHowever, in cases where foreign exchange forward contracts aredefined benefit corporate pension plans, under which all eligible employ-used as hedges and meet certain hedging criteria (regarding foreign

ees are entitled to benefits based on their current rate of pay, length of

exchange contracts), the foreign exchange forward contracts and hedged

service and the conditions under which termination occurs.

items are accounted for in the following manner:

For the calculation of retirement benefit obligations, the estimated

1. If a foreign exchange forward contract is executed to hedge an existing

amount of retirement benefits is allocated to the respective fiscal years

foreign currency receivable or payable,by the straight-line method.

(a) t he difference, if any, between the Japanese yen amount of theSome of the Company’s consolidated subsidiaries calculate net

hedged foreign currency receivable or payable translated using

defined benefit liability and retirement benefit expenses by using a

the spot rate at the inception date of the contract and the carrying

simplified method in which retirement benefit obligations are equal toamount of the receivable or payable is recognized in the income

the amount that would be paid if all employees resigned voluntarily atthe end of the fiscal year.

statement in the period which includes the inception date; and(b) t he discount or premium on the contract (that is, the difference

Prior service costs are recognized as expenses in the period in

between the Japanese yen amount of the contract translated

which they are incurred, and actuarial gains and losses are recognizedusing the contracted forward rate and that translated using theas expenses in the following period.

spot rate at the inception date of the contract) is recognized overEffective from the year ended March 31, 2015, the Company and its
consolidated subsidiaries (“the Group”) adopted the main clause of Article

the term of the contract.
2. If a foreign exchange forward contract is executed to hedge a future

35 of the “Accounting Standard for Retirement Benefits” (ASBJ State-transaction denominated in a foreign currency, the future transaction

ment No. 26, May 17, 2012) and the main clause of Article 67 of thewill be recorded using the contracted forward rate, and no gains or“Guidance on Accounting Standard for Retirement Benefits” (ASBJ

losses on the foreign exchange forward contract are recognized.

Guidance No. 25, March 26, 2015). Accordingly, the Group reviewed theAlso, if interest rate swap contracts are used as a hedge and meetcalculation methods of retirement benefit obligations and service costs,

certain hedging criteria (regarding interest rate swap contracts), theand revised the method of determining the discount rate from thenet amount to be paid or received under the interest rate swap contracts

method using the discount rate based on approximate number of theis added to or deducted from the interest on the assets or liabilities

average remaining service years of employees to the method using therelative to which the swap contract was executed as a hedge.

single weighted-average discount rate reflecting the estimated period
and amount of benefit payment.
In accordance with the transitional treatment set forth in Article 37of the Accounting Standard for Retirement Benefits, the effect of thechanges in the calculation methods of retirement benefit obligations(15) Amounts per share of common stock
The computation of earnings per share is based on the weighted-average
number of shares of common stock outstanding during each year.
Diluted earnings per share is computed based on the amount ofand service costs is recognized as an adjustment to retained earnings

profit attributable to owners of parent on common stock and theat the beginning of the year ended March 31, 2015.

weighted-average number of shares of common stock outstanding

38

Annual Report 2017 ｜ Financial Section

Notes to Consolidated Financial Statements

during each year after giving effect to the dilutive potential of shares of2017. The Company and its domestic subsidiaries changed the methodcommon stock to be issued upon the exercise of stock options.

to calculate depreciation costs from the declining-balance method to

Diluted earnings per share is not presented as there are no potential
shares.
Cash dividends per share represent actual amounts applicable to
the respective year.

(16) Application of the Practical Solution on a Change inDepreciation Method due to Tax Reform 2016

the straight-line method for facilities attached to buildings and structuresacquired on or after April 1, 2016. The effects on the consolidated financial
statements are insignificant.

(17) Additional Information (Application of the Revised Implementation Guidance on Recoverability of Deferred Tax Assets)
Effective from the fiscal year ended March 31, 2017, the Company and its

Following the revision to the Corporation Tax Act, the Company and its

domestic subsidiaries adopted the “Revised Implementation Guidance

domestic subsidiaries adopted the “Practical Solution on a Change inon Recoverability of Deferred Tax Assets” (ASBJ Guidance No. 26, March

Depreciation Method due to Tax Reform 2016” (ASBJ Practical Issue Task

28, 2016).

Force (PITF) No.32, June 17, 2016) from the fiscal year ended March 31,

3. Cash and cash equivalents
Cash and cash equivalents at March 31, 2017 and 2016 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Cash, time and notice deposits
Time deposits
Cash and cash equivalents

2017

2016

2017

¥269,312(1,368)¥267,944¥187,234(1,245)¥185,989$2,400,499(12,193)$2,388,306

4. Inventories
Inventories at March 31, 2017 and 2016 are as follows:

Thousands of
U.S. dollars

Millions of yen

2017Real estate for sale
Real estate for sale in process
Costs on uncompleted construction contracts
Other
Total

¥345,185
492,340
6,023
1,666¥845,2142016¥311,306
535,399
7,277
1,834¥855,816

2017$3,076,789
4,388,448
53,686
14,850$7,533,773

The Company transferred amounts between inventories and property and equipment. Such transfers at March 31, 2017 and 2016 are as follows:
Thousands of
U.S. dollars

Millions of yen

2017
Inventories:
Transferred to property and equipment
Transfer to other assets
Transferred from property and equipment
Net increase (decrease)¥(5,140)(88)
603¥(4,625)

2016
¥   —
—
4,524
¥4,5242017$(45,815)
(784)
5,374
$(41,225)

Sumitomo Realty & Development Co., Ltd.

39

Notes to Consolidated Financial Statements

5. Pledged assets
Assets pledged as collateral at March 31, 2017 and 2016 are as follows:

Thousands of
U.S. dollars

Millions of yen

2017
Cash, time and notice deposits
Buildings and structures
Land
Construction in progress
Machinery and equipment
Total¥  2,081
110,668
393,31674
285¥506,4242016¥  2,081
114,451
390,48637
282¥507,3372017$   18,549
986,434
3,505,803
660
2,539$4,513,985

Secured liabilities at March 31, 2017 and 2016 are as follows:

Thousands of
U.S. dollars

Millions of yen

2017Long-term non-recourse debt due within one year
Long-term non-recourse debt due after one year
Total

¥ 22,958
396,389¥419,347

2016¥121,964
296,663¥418,6272017$   204,635
3,533,194$3,737,829

Specified assets for non-recourse debts at March 31, 2017 and 2016 are as follows:

Thousands of
U.S. dollars

Millions of yen

2017
Cash, time and notice deposits
Buildings and structures
Land
Construction in progress
Machinery and equipment
Total¥  9,542
110,668
393,31674
285¥513,8852016¥ 12,787
114,451
390,48637
282¥518,043

2017$   85,052
986,434
3,505,803
660
2,539$4,580,488(Note) “Specified assets for non-recourse debts” includes a portion of the amount of “Assets pledged as collateral” for the years ended March 31, 2017 and 2016.

6. Financial instruments

In addition, the Group accommodates counterparties with loans

1. Policy for financial instruments

and consequently is exposed to the borrowers’ credit risk. However, the

The Company and its consolidated subsidiaries (“the Group”) have theGroup constantly checks the financial condition of principal borrowers

policy to limit its fund management to short-term deposits with funds

and their performance using the funds lent to those borrowers eventhrough loans from banks and the issuance of corporate bonds andafter accommodation.

commercial paper.
The Group utilizes derivative financial instruments only for the

The majority of due dates of operating debt, such as notes andaccounts payable, are within one year.

purpose of hedging the foreign exchange risk associated with foreign

Interest rate swap contracts are used to hedge risks arising fromcurrency-denominated transactions or hedging the interest rate risk

fluctuations in interest rates on certain loans, corporate bonds, commercial

associated with the Group’s loans payable, and does not utilize deriva-

paper and deposits.

tive financial instruments for any speculative purposes.

2. Details of financial instruments, risks, and policies andsystems of risk management

In regard to derivative transactions, the Group utilizes interest rate
swaps for bank loans and deposits, and utilizes foreign exchange forward
contracts and cross currency swap contracts for foreign currencydenominated transactions. Interest rate swap contracts are exposed toOperating receivables such as notes and accounts receivable–trade are

the risks of interest rate changes, and foreign exchange forward contracts

exposed to customers’ credit risk, but this risk is generally avoided

and cross currency swap contracts are exposed to the risks of foreign

through the receipt of deposits.

exchange rate changes. The derivative financial instruments are executed

Investments in securities are business-related equities and arewith creditworthy financial institutions, and the Group’s management

exposed to market price fluctuation risk. The Group regularly checks

believes there is insignificant risk of default by counterparties. Derivative

the market value of the securities and the financial condition of thetransactions are executed by the Group’s Finance Department in accor-

issuers, and continuously reviews whether it continues to hold securities

dance with the decisions of a committee whose chairman is the director

with consideration for its relationships with the issuers.

of the Finance Department. The Finance Department prepares reports

Guarantee and lease deposits are mostly deposits related to leasing
properties, and are exposed to the counterparty credit risk.

40

Annual Report 2017 ｜ Financial Section

on derivative transactions that are provided to the director of the
Finance Department periodically.

Notes to Consolidated Financial Statements

3. Supplemental information on fair values of financial
instruments

balance sheets, their fair values and the differences between them as of

The fair values of financial instruments are based on their market prices,

March 31, 2017 and 2016 are as follows. (Financial instruments whose

and if the market price is not available, other rational valuation tech-fair value is extremely difficult to estimate are not included; please seeniques are used instead. The rational valuation techniques incorporate(Note 2).)The carrying amounts of financial instruments on the consolidated

variable factors, and as a result the values may change due to using
different assumptions.
The amounts of derivative transactions shown in Note 16 “Derivativetransactions” are not representing the market risks related to derivativetransactions.

For 2017
Assets:(1) Cash, time and notice deposits(2) Notes and accounts receivable—trade(3) Investments in securities
Available-for-sale securities(4) Guarantee and lease deposits
Held-to-maturity securities
Available-for-sale securities
Total assets
Liabilities:(1) Notes and accounts payable—trade(2) Short-term debt
(3) Long-term debt (including due within one year)(4) Long-term non-recourse debt (including due within one year)
Total liabilities
Derivative transactions*:
Hedge accounting
Total derivative transactions

Millions of yen

Thousands of U.S. dollars

Carrying amount

Fair value

Difference

Carrying amount

Fair value

Difference¥   269,312
18,475¥‌   269,312
18,475¥    ——$ 2,400,499
164,676$ 2,400,499
164,676$     ——

344,577

344,577—

3,071,370

3,071,370

—

1,313
1,193
¥   634,870

1,319
1,193
¥   634,876

6—¥     6

11,703
10,634$ 5,658,882

11,757
10,634$ 5,658,936

54—$     54¥   41,374
66,1082,885,019
419,347¥3,411,848¥   41,374
66,1082,911,058
424,954¥3,443,494¥    ——
26,0395,607¥31,646$   368,785
589,250
25,715,474
3,737,829$30,411,338$   368,785
589,250
25,947,571
3,787,807$30,693,413$     ——
232,097
49,978$282,075¥      (3,702)¥      (3,702)¥      (3,702)¥      (3,702)¥    —¥    —$   (32,998)$   (32,998)$   (32,998)$   (32,998)$     —
$     —For 2016
Assets:(1) Cash, time and notice deposits(2) Notes and accounts receivable—trade(3) Investments in securities
Available-for-sale securities(4) Guarantee and lease deposits
Held-to-maturity securities
Available-for-sale securities
Total assets
Liabilities:(1) Notes and accounts payable—trade(2) Short-term debt
(3) Long-term debt (including due within one year)(4) Long-term non-recourse debt (including due within one year)
Total liabilities
Derivative transactions *:Hedge accounting
Total derivative transactions

Millions of yen

Carrying amount

Fair value

Difference¥   187,234
19,665¥   187,234
19,665¥    ——

296,518

296,518

—

1,311
1,210
¥   505,938

1,322
1,210
¥   505,949

11—¥    11¥   54,316
78,7182,661,556
418,627¥3,213,217¥   54,316
78,7182,713,205
425,033¥3,271,272¥    ——
51,6496,406¥58,055¥     (6,161)¥     (6,161)¥     (6,161)¥     (6,161)¥    —¥    —* Derivative transactions are stated at net of assets and liabilities. Figures in parentheses indicate net liabilities.

Sumitomo Realty & Development Co., Ltd.

41

Notes to Consolidated Financial Statements(Note 1) The calculation methods of fair value for financial instruments

Liabilities:

Assets:(1) Notes and accounts payable–trade and (2) Short-term debt

(1) Cash, time and notice deposits

The fair value of these items approximates their carrying amounts

The fair value of cash, time and notice deposits approximates their carrying

because of their short-term maturities.

amounts because of their short-term maturities.

(3) Long-term debt (including due within one year)(2) Notes and accounts receivable–trade

For floating rate notes, the carrying amount is used as the fair value

The fair value of notes and accounts receivable–trade approximates their

because the market interest rate is reflected in such notes within acarrying amounts unless the credit standing of debtors has changed

short time period and because the credit standing of the Company issignificantly since the loan origination.

the same after borrowing. The fixed-coupon debt is calculated by

The allowance for doubtful receivables is estimated based on
expected recoverable amounts, considering the possibility of individual

discounting the combined total of principal and interest at an interest
rate assumed for similar new borrowings.
The specific matching criteria of interest rate swaps and crosscollections. Therefore the fair value of doubtful receivables approximatesthe carrying amount deducted by the estimated allowance for doubtful

currency interest rate swaps are applicable to some long-term debts

accounts on the consolidated balance sheets as of the end of the fiscal year.

with floating interest rates (please see Note 16 “Derivative transactions”).

(3) Investments in securities

The fair value of these items is calculated by discounting the combined

The fair value of listed shares is based on the exchange prices at market.

total of interest and principal, with which the interest rate swap and

For floating rate notes, the carrying amount is presented as the fair value,

cross currency interest rate swap have been accounted for, at an interestas the fair value approximates the carrying amount because the market

rate rationally estimated for similar borrowings.

interest rate is reflected in such notes within a short time period. The fair

The fair value of corporate bonds issued by the Company

value of the fixed-coupon debt is determined based on the present value(included in (3) Long-term debt (including due within one year)) is

discounted at the interest rate which reflects the period remaining tobased on the market price.

maturity and the credit risk.

(4) Long-term non-recourse debt (including due within one year)

For notes on securities classified by purpose of holding, please see

For floating rate notes, the carrying amount is used as the fair value

Note 7 “Securities.”

because the market interest rate is reflected in such notes within a(4) Guarantee and lease deposits

short time period and the value of its non-exempt properties has not

The fair value of guarantee and lease deposits are based on the value

been changed.
The fixed-coupon debt is calculated by discounting the combinedoffered by correspondent financial institutions.
For notes on securities classified by purpose of holding, please see
Note 7 “Securities.”

total of principal and interest at an interest rate assumed for similar new
borrowings or bonds.
The specific matching criteria of interest rate swaps are applicable
to some long-term non-recourse debts with floating interest rates(please see Note 16 “Derivative transactions”). The fair value of these
items is calculated by discounting the combined total of interest andprincipal, with which the interest rate swap has been accounted for, at
an interest rate rationally estimated for similar borrowings or bonds.

Derivative transactions:
Please see Note 16 “Derivative transactions.”(Note 2) Financial instruments whose fair value is extremely difficult to estimate

Carrying amountThousands of
U.S. dollars

Millions of yen

2017
Investments in subsidiaries and affiliates *1
Unlisted equity securities *1 *2
Preferred equity securities, etc. *1
Investments in limited partnerships, etc. *1
Guarantee and lease deposits (excluding held-to-maturity securities and available-for-sale securities) *3
Guarantee and deposits received *4¥ 42,734
1,402
21,638852
94,819193,1112016¥ 35,763
1,428
21,638352
101,460
181,4982017$   380,907
12,497
192,870
7,594
845,164
1,721,285* 1 . The fair value of these items are not disclosed since their market price is unavailable and the assessment of their fair value is deemed extremely difficult.
*2. The Company recognized ¥16 million of impairment loss on investments in securities for the year ended March 31, 2016.
*3.	Guarantee and lease deposits (excluding held-to-maturity securities and available-for-sale securities) are not included in “Assets (4) Guarantee and lease deposits”
because their remaining terms cannot be determined and the assessment of their fair value is deemed extremely difficult.
*4.	The fair value of guarantee and deposits received (mainly consisting of lease deposits) are not disclosed because their remaining terms cannot be determined and theassessment of their fair value is deemed extremely difficult.

42

Annual Report 2017 ｜ Financial Section

Notes to Consolidated Financial Statements(Note 3) Redemption schedule of pecuniary claims and securities with maturities

For 2017
Millions of yen

Cash, time and notice deposits
Notes and accounts receivable—trade
Guarantee and lease deposits:
Held-to-maturity securities (National government bonds)
Available-for-sale securities with maturities (National government bonds)
Total

1 year or less

1 to 5 years

5 to 10 years

Over 10 years¥269,312
18,475

¥   —
—

¥ —
—

¥—
—

525
—
¥288,312

790
731¥1,521

—
409
¥409

—
—
¥—

1 year or less

1 to 5 years

5 to 10 years

Over 10 years¥187,234
19,484

¥   —
181

¥ —
—

¥—
—

—
—
¥206,718

1,315
613¥2,109

—
526
¥526

—
—
¥—

1 year or less

1 to 5 years

5 to 10 years

Over 10 years$2,400,499$    —$        —

$—164,676

—

—

—

4,680
—

7,042
6,515

—
3,646

—
—

$2,569,855$13,557$3,646$—

For 2016
Millions of yen

Cash, time and notice deposits
Notes and accounts receivable—trade
Guarantee and lease deposits:
Held-to-maturity securities (National government bonds)
Available-for-sale securities with maturities (National government bonds)
Total

For 2017
Thousands of U.S. dollars

Cash, time and notice deposits
Notes and accounts receivable—trade
Guarantee and lease deposits:
Held-to-maturity securities (National government bonds)
Available-for-sale securities with maturities (National government bonds)
Total(Note 4) Repayment schedule of corporate bonds, long-term debt, long-term non-recourse debt and other interest-bearing debt

For 2017
Millions of yen
Year ending March 31

Short-term debt
Long-term debt (including due within one year)
Long-term non-recourse debt (including due within one year)
Total

2018

2019

2020

2021

2022

2023 and thereafter¥ 66,108289,622
22,958¥378,688¥     —
275,752
49,233¥324,985¥     —
169,619
101,278¥270,897¥     —
131,281
68,893¥200,174¥     —
221,256
13,924¥235,180¥      —1,797,489
163,061¥1,960,550

2017

2018

2019

2020

2021

2022 and thereafter¥ 78,718
316,737
121,964¥517,419¥      —289,622
20,734¥310,356¥     —
275,752
47,009¥322,761¥     —
169,619
99,054¥268,673¥     —
131,281
66,809¥198,090¥      —1,478,545
63,057¥1,541,602

2018

2019

2020

2021

2022

2023 and thereafter$   589,250
2,581,532
204,635$3,375,417$      —2,457,902
438,836$2,896,738$      —1,511,891
902,736$2,414,627$      —1,170,167
614,074$1,784,241$      —1,972,154
124,111$2,096,265$       —16,021,828
1,453,437$17,475,265

For 2016
Millions of yen
Year ending March 31

Short-term debt
Long-term debt (including due within one year)
Long-term non-recourse debt (including due within one year)
Total

For 2017
Thousands of U.S. dollars
Year ending March 31

Short-term debt
Long-term debt (including due within one year)
Long-term non-recourse debt (including due within one year)
Total

Sumitomo Realty & Development Co., Ltd.

43

Notes to Consolidated Financial Statements

7. Securities
For 2017
A. The following tables summarize the acquisition costs, carrying amounts and fair values of securities with available fair values as of March 31, 2017:(a) Held-to-maturity securities:

Securities whose fair value exceeds carrying amount:
National and local government bonds, etc.
Securities whose fair value does not exceed carrying amount:
National and local government bonds, etc.
Total

Millions of yen

Fair value

Difference

Carrying amount

Fair value

Difference¥1,313¥1,319¥6$11,703$11,757$54—¥1,313—¥1,319—¥6—$11,703—$11,757—$54

Carrying amount

Acquisition cost

Difference

Carrying amount

Acquisition cost

Difference¥302,228
1,193—
303,421¥156,391
1,140—
157,531¥145,83753—
145,890$2,693,894
10,634—
2,704,528$1,393,983
10,162—
1,404,145$1,299,911
472—
1,300,383

41,986—363
42,349¥345,770

47,682—373
48,055¥205,586(5,696)—(10)(5,706)¥140,184

374,240—
3,236
377,476$3,082,004

425,011—3,325
428,336$1,832,481(50,771)—(89)(50,860)$1,249,523(b) Available-for-sale securities:

Securities whose carrying amount exceeds acquisition cost:
Equity securities
Debt securities*
Other
Subtotal
Securities whose carrying amount does not exceed acquisition cost:
Equity securities
Debt securities
Other
Subtotal
Total

Thousands of U.S. dollars

Carrying amountMillions of yen

Thousands of U.S. dollars* Debt securities in securities whose carrying amount exceeds acquisition cost are included in “Guarantee and lease deposits paid to lessors” on the consolidated balance sheets.

B. T otal sales of available-for-sale securities sold in the year ended March 31, 2017 amounted to ¥590 million ($5,259 thousand) and the related gains
amounted to ¥43 million ($383 thousand).

For 2016
A. The following tables summarize the acquisition costs, carrying amounts and fair values of securities with available fair values as of March 31, 2016:(a) Held-to-maturity securities:

Millions of yen

Carrying amount

Securities whose fair value exceeds carrying amount:
National and local government bonds, etc.
Securities whose fair value does not exceed carrying amount:
National and local government bonds, etc.
Total

Difference¥1,311¥1,322¥11—¥1,311—¥1,322—¥11

Carrying amount

Acquisition cost

¥236,945
1,210
582
238,737¥122,206
1,140
502
123,848¥114,73970
80
114,889

58,373—618
58,991¥297,728

68,880—755
69,635¥193,483(10,507)—(137)(10,644)¥104,245(b) Available-for-sale securities:

Securities whose carrying amount exceeds acquisition cost:
Equity securities
Debt securities*
Other
Subtotal
Securities whose carrying amount does not exceed acquisition cost:
Equity securities
Debt securities
Other
Subtotal
Total

Fair value

Millions of yen

Difference* Debt securities in securities whose carrying amount exceeds acquisition cost are included in “Guarantee and lease deposits paid to lessors” on the consolidated balance sheets.
(Note) The Company recognized ¥466 million of impairment loss on investments in securities (¥449 million on equity securities in available-for-sale securities).

B. Total sales of available-for-sale securities sold in the year ended March 2016 amounted to ¥1,371 million and the related gains and losses amounted
to ¥428 million and ¥76 million, respectively.

44

Annual Report 2017 ｜ Financial Section

Notes to Consolidated Financial Statements

8. Short-term debt and long-term debt
Short-term debt at March 31, 2017 and 2016 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017Loans, principally from banks
Commercial paper
Total¥66,108—¥66,108

Average interest
rate (%)

0.26
—

2016

Average interest
rate (%)¥78,718—¥78,718

0.32
—

2017
$589,250—$589,250

The interest rates represent weighted-average rates in effect at March 31, 2017 and 2016, regardless of borrowing currencies, though the rangeof the interest rate varies by borrowing currency.
Long-term debt at March 31, 2017 and 2016 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2.50% domestic straight bonds, due 2019
0.74% domestic straight bonds, due 2016
0.68% domestic straight bonds, due 2016
0.75% domestic straight bonds, due 20170.55% domestic straight bonds, due 2017
0.50% domestic straight bonds, due 2017
0.50% domestic straight bonds, due 2017
0.486% domestic straight bonds, due 20170.444% domestic straight bonds, due 2017
0.388% domestic straight bonds, due 2018
0.329% domestic straight bonds, due 2018
0.563% domestic straight bonds, due 2020
0.877% domestic straight bonds, due 2020
0.462% domestic straight bonds, due 2018
1.098% domestic straight bonds, due 2023
0.426% domestic straight bonds, due 2018
0.355% domestic straight bonds, due 2018
0.950% domestic straight bonds, due 2023
0.344% domestic straight bonds, due 2018
0.968% domestic straight bonds, due 2023
0.987% domestic straight bonds, due 2024
0.914% domestic straight bonds, due 2024
0.904% domestic straight bonds, due 2024
0.884% domestic straight bonds, due 2024
0.836% domestic straight bonds, due 2024
0.809% domestic straight bonds, due 2024
0.429% domestic straight bonds, due 2021
0.392% domestic straight bonds, due 2022
0.670% domestic straight bonds, due 2025
0.826% domestic straight bonds, due 2025
0.992% domestic straight bonds, due 2025
0.400% domestic straight bonds, due 2026
0.230% domestic straight bonds, due 2026
Loans, principally from banks and insurance companies, with interest at weighted-average rates of 0.32%
in 2017 and 0.34% in 2016:
SecuredUnsecured
Subtotal
Amount due within one year
Total

2017

2016

2017

¥   10,000——
10,00010,00010,00010,00010,000¥   10,000
10,00010,00010,00010,00010,00010,00010,000$    89,135——
89,135
89,135
89,135
89,135
89,135

10,00020,00010,00010,00020,00010,00010,00020,00010,00010,00010,00010,00020,00020,00020,00020,00020,00020,00010,00010,00010,00020,00020,00010,00010,00010,00020,00010,00010,00020,00010,00010,00020,00010,00010,00010,00010,00020,00020,00020,00020,00020,00020,00010,00010,00010,00020,00020,000——89,135
178,268
89,135
89,135
178,268
89,135
89,135
178,268
89,135
89,135
89,135
89,135
178,268
178,268
178,268
178,268
178,268
178,268
89,135
89,135
89,135
178,268
178,268
89,135
89,135—2,465,019
2,885,019(289,622)¥2,595,397—
2,241,556
2,661,556(316,737)¥2,344,819—
21,971,815
25,715,474(2,581,532)$23,133,942

Sumitomo Realty & Development Co., Ltd.

45

Notes to Consolidated Financial Statements

Non-recourse debt at March 31, 2017 and 2016 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017
Non-recourse bonds, with interest at weighted-average rates of 0.13% in 2017 and 0.60% in 2016:
Due within one year
Due after one year
Subtotal
Non-recourse loans, with interest at weighted-average rates of 0.18% in 2017 and 0.51% in 2016:
Due within one year
Due after one year
Subtotal
Total

2016

2017

¥  1,700
37,40039,100¥ 16,460
24,60041,060$   15,153
333,363348,516

21,258358,989
380,247¥419,347

105,504
272,063
377,567¥418,627

189,482
3,199,831
3,389,313$3,737,829¥419,347—¥419,347¥418,627—¥418,627$3,737,829—$3,737,829

Year ending March 31

Millions of yen

Thousands of
U.S. dollars

2018
2019
2020
2021
2022
2023 and thereafter
Total¥‌   289,622
275,752
169,619
131,281
221,256
1,797,489¥2,885,019$ 2,581,532
2,457,902
1,511,891
1,170,167
1,972,154
16,021,828$25,715,474

Year ending March 31

Millions of yen

Thousands of
U.S. dollars

2018
2019
2020
2021
2022
2023 and thereafter
Total¥ 22,958
49,233
101,278
68,893
13,924
163,061¥419,347$   204,635
438,836
902,736
614,074
124,111
1,453,437$3,737,829

SecuredUnsecuredTotal
The aggregate annual maturities of long-term debt at March 31, 2017 are as follows:

The aggregate annual maturities of non-recourse debt at March 31, 2017 are as follows:

It is customary in Japan that security must be given if requested by lending banks under certain circumstances, and generally banks have theright to offset cash deposited with them against any debt or obligations payable to the bank that becomes due in the case of default and certain
other specified events. The Company and its consolidated subsidiaries have never received such a request.

46

Annual Report 2017 ｜ Financial Section

Notes to Consolidated Financial Statements

9. Employees’ severance and retirement benefits
As explained in Note 2 (12), the liabilities and expenses for severance and retirement benefits are determined based on the amounts obtained byactuarial calculations except for the cases using the simplified method.

For 2017 and 2016
1. Defined benefit plan
(1) Adjustment table of retirement benefit obligations between the beginning and the end of the fiscal year

Thousands of
U.S. dollars

Millions of yen

2017
Retirement benefit obligations at beginning of year
Service costs
Interest costs
Actuarial differences
Retirement benefits paid
Decrease from the change in the scope of consolidation
Retirement benefit obligations at end of year

¥10,851
709
45
157
(446)
—
¥11,3162016¥10,094
635
88
452
(417)
(1)
¥10,851(2) Adjustment table of plan assets between the beginning and the end of the fiscal year

Thousands of
U.S. dollars

Millions of yen

2017
Plan assets at beginning of year
Expected return on plan assets
Actuarial differences
Employer contributions
Retirement benefits paid
Plan assets at end of year2016
¥4,660
93
(228)
402
(157)
¥4,770¥4,770
95
116
406
(215)
¥5,1722017$ 96,720
6,320
401
1,399
(3,975)—$100,865

2017$42,517
847
1,034
3,619
(1,916)$46,101(3) Adjustment table of retirement benefit obligations and plan assets at the end of the fiscal year and net defined benefit liability on the consolidated balance sheets

Thousands of
U.S. dollars

Millions of yen

2017
Obligations under retirement benefit plans (funded)
Fair value of plan assets

2016

2017

Obligations under retirement benefit plans (unfunded)
Net amount of liabilities on the consolidated balance sheets¥ 6,184(5,172)
1,012
5,132¥ 6,144¥ 5,930(4,770)1,160
4,921¥ 6,081$ 55,121(46,101)
9,020
45,744$ 54,764

Net defined benefit liability
Net amount of liabilities on the consolidated balance sheets¥ 6,144¥ 6,144¥ 6,081¥ 6,081$ 54,764$ 54,764(4) Components of retirement benefit expenses

Thousands of
U.S. dollars

Millions of yen

2017Service costs
Interest costs
Expected return on plan assets
Actuarial differences
Retirement benefit expenses

2016
¥ 635
88
(93)
(355)
¥ 275

¥   70945(95)
681¥1,340(5) Remeasurements of defined benefit plans (before deducting tax effect)

Thousands of
U.S. dollars

Millions of yen

2017
Actuarial differences
Total¥(640)¥(640)

2017$ 6,320
401
(847)
6,070
$11,9442016¥1,035¥1,0352017$(5,705)$(5,705)

Sumitomo Realty & Development Co., Ltd.

47

Notes to Consolidated Financial Statements(6) Components of remeasurements of defined benefit plans (before deducting tax effect)

Thousands of
U.S. dollars

Millions of yen

2017
Unrecognized actuarial differences
Total

¥41
¥41

2016
¥680
¥680

2017
$365
$365

(7) Major breakdown of plan assets

2017
Debt securities
Equity securities
General life insurance accounts
Other
Total

25.3%
34.2
39.0
1.5
100.0%

2016
22.4%
35.4
40.0
2.2
100.0%(8) Actuarial assumptions

2017
Discount rate
Rate of expected return on plan assets

0.4%
2.0

2016
0.4%
2.0

2. Defined contribution plan
The required contribution amount for a defined contribution plan that one of the Company’s consolidated subsidiaries adopted is ¥368 million($3,280 thousand) and ¥352 million for the years ended March 31, 2017 and 2016, respectively.

10. Loss on impairment of fixed assets
The Company and its consolidated domestic subsidiaries recognized impairment losses on the following assets for the years ended March 31, 2017,2016 and 2015, respectively.

For 2017
Use

Location

Land for development

Tokyo, etc.

Number of properties

5

For 2016
Use

Location

Land for development

Tokyo, etc.

Number of properties

8

For 2015
Use

Location

Number of properties

Land for development
Assets leased to others

IbarakiTokyo

1
1

The Company and its consolidated domestic subsidiaries recog-

thousand) and ¥10,806 million as a result of mainly the determination of

nized losses on the impairment of certain properties, which are generally

reviewing their business plans for the years ended March 31, 2017 andassessed individually for impairment. The Company’s houses are treated2016 respectively, and ¥3,811 million as a result of transferring fromas common assets.

property and equipment to inventories for the year ended March 31,

The carrying values of the land holdings summarized above havebeen reduced to their recoverable amounts by ¥15,538 million ($138,497

48

Annual Report 2017 ｜ Financial Section

2015. These write-downs were recognized as impairment losses inother expenses.

Notes to Consolidated Financial Statements

Details of loss on impairment of fixed assets are as follows:

Thousands of
U.S. dollars

Millions of yen

2017
Land

¥15,538

2016

2015

¥10,806¥3,811

2017$138,497

The recoverable amounts of these assets were determined as the net disposal value. The net disposal value for land for leased buildings andland for development are based on the amount equivalent to the publicly notified land price, and that for the others is based mainly on the sales
comparison approach.

11. Asset retirement obligations

In addition, under the partial lease contracts, the Group has obligations

Even though removing asbestos is required for some buildings thefor restoring office spaces when they move out. For the asset retirement

Company and its consolidated subsidiaries (“the Group”) operate at the

obligations associated with such a case, the duration of use of the assets

time of demolishing, it is difficult to estimate the fair value of obligations

is not clear enough and these assets do not have any relocation plans.

associated with such assets reasonably since the timing and/or method

Therefore, the Group is unable to estimate the asset retirement obligationsof settlement for the retirement obligations are not clear enough.

since it is difficult to estimate the timing of fulfillment of the obligations.

Therefore, for the years ended March 31, 2017 and 2016, asset retirement

Consequently, for the years ended March 31, 2017 and 2016, asset retire-

obligations related to such a case are not recorded (except for the asset

ment obligations related to such a case are not recorded (except for theretirement obligations recorded on the financial statements).

asset retirement obligations recorded on the financial statements).

12. Income taxes
The normal effective statutory income tax rate in Japan arising out of the aggregation of corporate, enterprise and inhabitants’ taxes was approximately 30.86% for the year ended March 31, 2017, 33.06% for the year ended March 31, 2016 and 35.64% for the year ended March 31, 2015.
Details of deferred tax assets and liabilities at March 31, 2017 and 2016 are as follows:

Thousands of
U.S. dollars

Millions of yen

2017
Deferred tax assets:
Loss on impairment of fixed assets
Loss on devaluation of real estate for sale
Depreciation and amortization of consolidated adjustment
Allowance for doubtful accounts
Net operating loss carryforwards
Net defined benefit liability
Accrued enterprise tax and business office tax
Accrued bonuses
Loss on devaluation of investments in SPEs’ holding properties for saleNet deferred losses on hedges
Elimination of unrealized profit
Loss on devaluation of investments in securities
Other
Subtotal of deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Net unrealized holding gains on securities
Retained earnings appropriated for tax allowable reserves
Other
Total deferred tax liabilities
Net deferred tax assets

2016

2017

¥ 13,890
8,788
8,668
2,905
2,033
1,889
1,774
1,715
1,413
1,140
982
844

¥   9,174
6,015
9,306
2,503
2,170
1,876
2,466
1,449
1,413
1,895
980
853

$ 123,808
78,331
77,26225,894
18,121
16,83815,812
15,287
12,595
10,161
8,753
7,523

9,820
55,861(4,379)¥ 51,482

6,846
46,946(4,049)¥ 42,897

87,529497,914(39,032)$ 458,882(42,931)(3,731)(636)(47,298)¥   4,184(31,925)(3,731)(626)(36,282)¥   6,615(382,663)(33,256)(5,669)(421,588)$   37,294

Sumitomo Realty & Development Co., Ltd.

49

Notes to Consolidated Financial Statements

The difference between the statutory tax rate and the effective tax rate for the year ended March 31, 2017 is as follows:2017
Statutory tax rate
Adjustment:
Tax credit
Dividends and other income not taxable permanently
Elimination of dividend income
Inhabitant tax on per capita basis
Other
Effective tax rate

30.86%(1.89)(0.70)
0.41
0.21
0.07
28.96%The difference between the statutory tax rate and the effective tax rate for the years ended March 31, 2016 and 2015 was insignificant andnot presented.

13. Deposits received and accounts payable with interest rate
Guarantee and deposits received at March 31, 2017 and 2016 are as follows:

Thousands of
U.S. dollars

Millions of yen

2017
Short-term deposits and long-term deposits due within one year:
Non-interest-bearing
Interest-bearing
Guarantee and lease deposits from tenants:
Non-interest-bearing
Interest-bearing
Long-term deposits:
Non-interest-bearing
Interest-bearing
Total

Average interest
rate (%)

2016

Average interest
rate (%)¥ 68,861—
68,861——¥ 71,619—
71,619——$   613,789—
613,789

193,111———

181,498———

1,721,285—

56,992—
250,103——

68,302—249,800——

507,996—2,229,281¥321,419¥318,964$2,843,070

Accounts payable with interest rate at March 31, 2017 and 2016 are as follows:

Thousands of
U.S. dollars

Millions of yen

2017
Due within one year
Due after one year
Total

2017

¥1,544
1,543¥3,087

Average interest
rate (%)

0.98
0.98

2016
¥1,544
3,087¥4,631

Average interest
rate (%)

0.98
0.98

2017
$13,762
13,754$27,516(Note) Accounts payable due within one year are included in “Other current liabilities” and accounts payable due after one year are included in “Other long-term liabilities” on
the consolidated balance sheets.

The aggregate annual maturities of accounts payable at March 31, 2017 are as follows:Year ending March 31

2018
2019
2020
2021
2022
2023 and thereafter
Total

50

Annual Report 2017 ｜ Financial Section

Millions of yen

Thousands of
U.S. dollars¥1,544
1,543
—
—
—
—
¥3,087$13,762
13,754————$27,516

Notes to Consolidated Financial Statements

14. Net assets

Under the Law, legal earnings reserve and additional paid-in capital

Under the Japanese Corporate Law (“the Law”) and its regulations, thecould be used to eliminate or reduce a deficit and capitalized by a reso-

entire amount paid for new shares is required to be designated as common

lution of the shareholders’ meeting.

stock. However, a company may, by a resolution of the Board of Directors,

Additional paid-in capital and legal earnings reserve may not bedesignate an amount not exceeding one-half of the price of the new

distributed as dividends. Under the Law, all additional paid-in capital andshares as additional paid-in capital, which is included in capital surplus.

all legal earnings reserve may be transferred to other capital surplus andUnder the Law, in cases where a dividend distribution of surplus isretained earnings, respectively, which are potentially available for dividends.

made, the smaller of an amount equal to 10% of the dividend or the excess,

The maximum amount that the Company can distribute as dividends

if any, of 25% of common stock over the total of additional paid-in capitalis calculated based on the non-consolidated financial statements of theand legal earnings reserve must be set aside as additional paid-in capitalCompany in accordance with the Law and its regulations.

or legal earnings reserve. Legal earnings reserve is included in retained
earnings on the accompanying consolidated balance sheets.

15. Information for certain lease transactions
Future lease payments and receipts under such non-cancelable operating leases at March 31, 2017, 2016 and 2015 are as follows:
Thousands of
U.S. dollars

Millions of yen

2017

2016

2015

2017

Operating leases:
Future lease payments:
		 Due within one year
		 Due after one year
Total¥  1,387
39,053¥ 40,440¥  1,116
16,962¥ 18,078¥    995
17,449¥ 18,444$   12,363
348,097$   360,460

Future lease receipts:
		 Due within one year
		 Due after one year
Total

¥ 86,294
138,086¥224,380¥ 73,456
111,546¥185,002¥ 58,934
90,226¥149,160$   769,177
1,230,823$2,000,000

Contract amounts

Contract amounts due
after one year

Fair value¥14,979¥—¥(166)

16. Derivative transactions
Hedge accounting was applied to all derivative transactions for the years ended March 31, 2017 and 2016.
The summary of these transactions is as follows:

For 2017(1) Foreign currency-related derivatives
Millions of yen

Hedging accounting

Types of derivative transactions

Hedged items

Deferred hedge
accounting

Foreign exchange forward contracts
Receipts in U.S. dollars / Payments in yen

Foreign currency-denominated transactions

Thousands of U.S. dollars

Hedging accounting

Types of derivative transactions

Hedged items

Deferred hedge
accounting

Foreign exchange forward contracts
Receipts in U.S. dollars / Payments in yen

Foreign currency-denominated transactions

Contract amounts

Contract amounts due
after one year

Fair value$133,515$—$(1,480)(Note) Fair value is determined based on the quoted price obtained from relevant financial institutions.

Sumitomo Realty & Development Co., Ltd.

51

Notes to Consolidated Financial Statements(2) Interest-related derivatives
Millions of yen

Hedging accounting

Types of derivative transactionsDeferred hedge
accounting

Interest rate swap contracts
Fixed rate payments / Floating rate receipts
Interest rate swap contracts
Fixed rate payments / Floating rate receipts
Interest rate swap contracts
Fixed rate payments / Floating rate receipts
Receipts in U.S. dollars / Payments in yen

Exceptional accounting
for interest rate swaps
Exceptional accounting
for interest rate andcurrency swaps

Hedged items

Bank loans
Bank loans and bonds

Contract amounts

Contract amounts due
after one year

Fair value¥   406,000¥   194,000¥(3,536)

1,563,185

1,515,827

—(*)

3,000

3,000

—(*)

Foreign currency-denominated loans

Thousands of U.S. dollars

Hedging accounting

Types of derivative transactionsDeferred hedge
accounting

Interest rate swap contracts
Fixed rate payments / Floating rate receipts
Interest rate swap contracts
Fixed rate payments / Floating rate receipts
Interest rate swap contracts
Fixed rate payments / Floating rate receipts
Receipts in U.S. dollars / Payments in yen

Exceptional accounting
for interest rate swaps
Exceptional accounting
for interest rate andcurrency swaps

Hedged items

Bank loans
Bank loans and bonds

Contract amounts

Contract amounts due
after one year

Fair value$ 3,618,861$ 1,729,209$(31,518)

13,933,372

13,511,249—(*)

26,74026,740—(*)

Foreign currency-denominated loans(Note) Fair value is determined based on the quoted price obtained from relevant financial institutions.
(*) Interest rate swap contracts and cross currency interest rate swap contracts which qualify for hedge accounting and meet specific matching criteria are not remeasured atmarket value, but the differential paid or received under the swap agreements is recognized and included in interest expenses or income of the long-term debt or the
long-term non-recourse debt as hedged items. Thus, the fair value of such interest rate swap contracts is included in the fair value of the long-term debt.

For 2016(1) Foreign currency-related derivatives
Millions of yen

Hedging accounting

Types of derivative transactions

Hedged items

Deferred hedge
accounting

Foreign exchange forward contracts
Receipts in U.S. dollars / Payments in yen

Foreign currency-denominated transactions

Contract amounts

Contract amounts due
after one year

Fair value¥15,249¥—¥(98)

Contract amounts

Contract amounts due
after one year

Fair value¥   616,000¥   406,000¥(6,063)

1,507,665

1,338,501

—(*)

4,000

3,000

—(*)

(Note) Fair value is determined based on the quoted price obtained from relevant financial institutions.

(2) Interest-related derivatives
Millions of yen

Hedging accounting

Types of derivative transactionsDeferred hedge
accounting

Interest rate swap contracts
Fixed rate payments / Floating rate receipts
Interest rate swap contracts
Fixed rate payments / Floating rate receipts
Interest rate swap contracts
Fixed rate payments / Floating rate receipts
Receipts in U.S. dollars / Payments in yen

Exceptional accounting
for interest rate swaps
Exceptional accounting
for interest rate andcurrency swaps

Hedged items

Bank loans
Bank loans and bonds
Foreign currency-denominated loans(Note) Fair value is determined based on the quoted price obtained from relevant financial institutions.
(*) Interest rate swap contracts and cross currency interest rate swap contracts which qualify for hedge accounting and meet specific matching criteria are not remeasured atmarket value, but the differential paid or received under the swap agreements is recognized and included in interest expenses or income of the long-term debt or the
long-term non-recourse debt as hedged items. Thus, the fair value of such interest rate swap contracts is included in the fair value of the long-term debt.

52

Annual Report 2017 ｜ Financial Section

Notes to Consolidated Financial Statements

17. Segment information
The Company and its consolidated subsidiaries mainly operate their business in five segments: (1) Leasing business consists of leasing of officebuildings, residences and other properties, and management of these properties; (2) Sales business consists of sale of condominiums, detachedhouses and land lots; (3) Construction business consists of construction of housing, condominiums and buildings; (4) Brokerage business; and (5)Other businesses including fitness business and restaurant business.
Information by business segment for the years ended March 31, 2017, 2016 and 2015 is summarized as follows:
Millions of yen

Reportable segments

For 2017
Revenue from operations:Customers
Intersegment
Total
Segment profit
Segment assets
Other:
Depreciation and amortization
Loss on impairment of fixed assets	Increase in property andequipment, and intangible assets

Leasingbusiness

Salesbusiness

Construction
business

Brokeragebusiness

Other businesses

Total

Adjustments

Consolidated financial
statements amounts¥   333,605
3,861
337,466¥   126,214¥3,359,262¥313,992
307
314,299¥ 46,190¥890,869¥200,565
3,058
203,623¥ 13,933¥ 27,424¥65,616
1,098
66,714¥19,148¥18,506¥11,373843
12,216¥ 1,491¥17,271¥   925,151
9,167
934,318¥   206,976¥4,313,332¥     —
(9,167)(9,167)¥ (18,805)¥666,708¥   925,151—
925,151¥   188,171¥4,980,040¥   36,949
14,035¥    207
1,502¥    970—¥   516—¥   177—¥   38,819
15,537¥    6271¥   39,446
15,538219,606

3,244

1,765

1,096

294

226,005811

226,816

Millions of yen

Reportable segments

For 2016
Revenue from operations:Customers
Intersegment
Total
Segment profit
Segment assets
Other:
Depreciation and amortization
Loss on impairment of fixed assets	Increase in property andequipment, and intangible assets

Leasingbusiness

Salesbusiness

Construction
business

Brokeragebusiness

Other businesses

Total

Adjustments

Consolidated financial
statements amounts¥   309,847
3,493
313,340¥   111,327¥3,194,740¥274,515
246
274,761¥ 44,188¥888,578¥197,548
1,567
199,115¥ 15,300¥ 18,167¥60,555
941
61,496¥17,722¥19,135¥12,499997
13,496¥ 1,790¥17,783¥   854,964
7,244
862,208¥   190,327¥4,138,403¥     —
(7,244)(7,244)¥ (16,086)¥537,512¥   854,964—
854,964¥   174,241¥4,675,915¥   32,098
6,414¥    233
4,392¥  1,038—¥   365—¥   169—¥   33,903
10,806¥    671—¥   34,574
10,806

122,809

843

1,478

763

244

126,137305

126,442Millions of yen

Reportable segments

For 2015
Revenue from operations:Customers
Intersegment
Total
Segment profit
Segment assets
Other:
Depreciation and amortization
Loss on impairment of fixed assets	Increase in property andequipment, and intangible assets

Leasingbusiness

Salesbusiness

Construction
business

Brokeragebusiness

Other businesses

Total

Adjustments

Consolidated financial
statements amounts¥   285,942
3,175
289,117¥   104,442¥3,123,993¥263,963
244
264,207¥ 43,781¥844,623¥187,260
1,735
188,995¥ 12,963¥ 16,327¥57,724762
58,486¥16,462¥18,404¥11,9462,420
14,366¥ 1,882¥19,674¥   806,835
8,336
815,171¥   179,530¥4,023,021¥     —
(8,336)(8,336)¥ (13,635)¥500,783¥   806,835—
806,835¥   165,895¥4,523,804¥   31,047
1,188¥    184
2,623¥    958—¥   263—¥   149—¥   32,601
3,811¥    918—¥   33,519
3,811

140,475

3,924

1,572

640

1,781

148,392

4,632

153,024

Sumitomo Realty & Development Co., Ltd.

53

Notes to Consolidated Financial Statements

Thousands of U.S. dollars

Reportable segments
Leasingbusiness

Salesbusiness

Construction
business

Brokeragebusiness

Other businesses

Total

Adjustments

Consolidated financial
statements amounts$ 2,973,572
34,414
3,007,986$ 1,125,002$29,942,615$2,798,752
2,737
2,801,489$   411,712$7,940,717$1,787,726
27,2581,814,984$   124,191$   244,442$584,865
9,787
594,652$170,675$164,952$101,373
7,514
108,887$ 13,290$153,945$ 8,246,288
81,7108,327,998$ 1,844,870$38,446,671$       —(81,710)(81,710)$      (167,617)$5,942,669$ 8,246,288—
8,246,288$ 1,677,253$44,389,340$   329,343
125,100$    1,845
13,388$    8,646—$  4,599—$  1,578—$   346,011
138,488$    5,589
9$   351,600
138,497

1,957,447

28,915

15,732

9,769

2,621

2,014,484

7,229

2,021,713

For 2017
Revenue from operations:Customers
Intersegment
Total
Segment profit
Segment assets
Other:
Depreciation and amortization
Loss on impairment of fixed assets	Increase in property andequipment, and intangible assets

Intercompany eliminations between the Company and its consoli-Intercompany eliminations between the Company and its consolidated

dated subsidiaries and undistributed corporate expenses to each segment

subsidiaries and undistributed corporate assets to each segment areare included in adjustments of segment profit, and the Company classified

included in adjustments of segment assets, and the Company classified

expenses of the general administrative division in the Company and its

cash, time and notice deposits, investments in securities and assets ofcertain consolidated subsidiaries to corporate expenses for the years

the general administrative division in the Company and its certain

ended March 31, 2017, 2016 and 2015.

consolidated subsidiaries to corporate assets for the years ended
March 31, 2017, 2016 and 2015.

18. Comprehensive income
Amounts reclassified to profit in the current period that were recognized in other comprehensive income in the current or previous periods and tax
effects for each component of other comprehensive income (loss) for the years ended March 31, 2017, 2016 and 2015 are as follows:
Thousands of
U.S. dollars

Millions of yen

2017
Unrealized holding gains (losses) on securities:
Increase (Decrease) during the fiscal year
Reclassification adjustments
		 Amounts before tax effects
		Tax effects
Total
Deferred gains (losses) on hedges:
Increase (Decrease) during the fiscal year
Reclassification adjustments
		 Amounts before tax effects
		Tax effects
Total
Foreign currency translation adjustments:
Increase (Decrease) during the fiscal year
Remeasurements of defined benefit plans:
Increase (Decrease) during the fiscal year
Reclassification adjustments
		 Amounts before tax effects
		Tax effects
Total
Total other comprehensive income (loss)

54

Annual Report 2017 ｜ Financial Section

2016

2015

2017

¥ 36,067(128)
35,939(11,009)
24,930¥(27,205)130(27,075)
10,561(16,514)¥ 72,459
145
72,604(21,547)
51,057$321,481(1,141)
320,340(98,128)
222,212

482
1,978
2,460
(755)
1,705

(5,098)1,327(3,771)
1,122(2,649)

(693)
832
139
(129)
10

4,296
17,631
21,927(6,730)15,197

(927)

59

3,498

(8,263)

(41)
681
640
(198)
442
¥ 26,150

(680)
(355)
(1,035)325(710)¥(19,814)

355
(272)
83
(18)
65
¥ 54,630

(365)
6,070
5,705
(1,765)
3,940$233,086

Notes to Consolidated Financial Statements

19. Investment and rental properties
The Company and its certain consolidated subsidiaries own some rental properties such as office buildings and residences in Tokyo and other areas.
Certain domestic office buildings are not recognized as rental properties but as a portion used as investment and rental properties since the Company
or its certain consolidated subsidiaries use some of the floor space of these properties.
The carrying amounts of these properties on the consolidated balance sheets, their changes during the fiscal year and their fair values at March
31, 2017 and 2016 are as follows:

Thousands of
U.S. dollars

Millions of yen

Investment and rental properties

A portion used as investment and rental properties

Balance at beginning of fiscal year
Changes during the fiscal year
Balance at end of fiscal year
Fair value at end of fiscal year
Balance at beginning of fiscal year
Changes during the fiscal year
Balance at end of fiscal year
Fair value at end of fiscal year

2017

2016

2017

¥2,696,196
305,078
3,001,274
4,800,727¥   277,776(133,870)
143,906
340,894¥2,767,130(70,934)
2,696,196
4,147,483¥   147,140
130,636
277,776
524,052$24,032,409
2,719,298
26,751,707
42,791,042$ 2,475,943(1,193,244)
1,282,699
3,038,542(Notes)* Carrying amounts on the consolidated balance sheets are the amounts determined by deducting accumulated depreciation from the acquisition costs.
* Fair values as of March 31, 2017 and 2016 are calculated by the Company primarily based on their fair values according to Real Estate Appraisal Standards.

Significant changes during the years ended March 31, 2017 and 2016 are as follows:

Thousands of
U.S. dollars

Millions of yen

2017
Increase:
Acquired real estateTransferred from real estate for sale
Decrease:
Depreciation and amortization
Transferred to real estate for saleTransferred to real estate for sale in process
Loss on impairment of fixed assets

2016¥218,918
5,228¥122,220—$1,951,315
46,600¥    (31,765)—(600)(15,537)¥    (30,360)(4,425)—(9,275)$     (283,136)—(5,348)(138,488)

Income and expenses for investment and rental properties for the years ended March 31, 2017 and 2016 are as follows:

Thousands of
U.S. dollars

Millions of yen

Investment and rental properties

A portion used as investment and rental properties

IncomeExpenses
Balance
Other income (expenses)
IncomeExpenses
Balance
Other income (expenses)

2017

2017

2016

2017

¥220,511
116,247
104,264(15,776)¥ 18,970
10,6558,315—¥185,566
95,16490,402(10,117)¥ 30,892
17,454
13,438(12)$1,965,514
1,036,162
929,352(140,619)$   169,088
94,973
74,115—(Notes)* As a portion used as investment and rental properties includes a portion used by the Company or its certain consolidated subsidiaries for providing services as well as
management and administration, income for these are not recorded above. The expenses primarily consist of rent, depreciation, taxes and dues, and others.
* Other income (expenses) for investment and rental properties is mostly the loss on impairment of fixed assets, and Other income (expenses) for a portion used as investment and rental properties is mostly the loss from prior period adjustment.

Sumitomo Realty & Development Co., Ltd.

55

Notes to Consolidated Financial Statements

20. Contingent liabilities
The Company and its consolidated subsidiaries were contingently liable as guarantors of borrowings by customers and others in an amount aggregatingto ¥3,513 million ($31,313 thousand) and ¥3,849 million at March 31, 2017 and 2016, respectively.

21. Subsequent events(Transactions conducted by commonly controlled entities)(Acquisition of shares from non-controlling shareholders)
The Company resolved at its board of directors meeting held on March 17, 2017 to implement a tender offer (the “Tender Offer”) under the Financial
Instruments and Exchange Act as part of a transaction aimed at making Sumitomo Real Estate Sales Co., Ltd. (the “Target Company”) a whollyowned subsidiary of the Company by acquiring all of the Target Company’s common shares (the “Common Shares”)(excluding the Common Shares
held by the Company and treasury shares held by the Target Company). The Tender Offer was completed as of May 1, 2017.
After the settlement of the Tender Offer, the Company required all shareholders of the Target Company (excluding the Company and theTarget Company) to sell their Target Company’s shares to the Company (the “Demand for Sale of Shares”) pursuant to Article 179 Paragraph 1 of theCompanies Act and the Target Company became a wholly-owned subsidiary of the Company as of June 7, 2017.
1. Overview of business combination(1) Name and business of the Target Company
Name: Sumitomo Real Estate Sales Co., Ltd.
Business: Brokerage, Consignment sales, Property leasing, Sales, Others(2) Date of business combination
Date of acquisition through the Tender Offer: May 11, 2017 (Deemed acquisition date: June 30, 2017)
Date of acquisition through the Demand for Sale of Shares: June 7, 2017 (Deemed acquisition date: June 30, 2017)(3) Legal form of business combination
Acquisition of shares with cash as consideration(4) Name of the Target Company after the combination
No change(5) C hange in ownership ratio of shares
Number of voting rights represented by shares held by the Company before business combination

70.38%

Number of voting rights represented by shares held by the Company after the Tender Offer

97.24%

Number of voting rights represented by shares held by the Company after the Demand for Sale of Shares 100.00%
2. Acquisition cost and consideration paid (including both of the Tender Offer and the Demand for Sale of Shares)
Consideration paid for acquisition

Cash

Acquisition cost			¥60,947 million ($543,248 thousand)¥60,947 million ($543,248 thousand)3. Overview of accounting treatments
The transaction is treated as a common control transaction pursuant to the Accounting Standard for Business Combinations (ASBJ Statement
No.21, September 13, 2013), as well as the Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business
Divestitures (ASBJ Guidance No.10, September 13, 2013).

(Dividends)
On June 29, 2017, the shareholders of the Company approved payments of a year-end cash dividend of ¥13 ($0.12) per share or a total of ¥6,162
million ($54,925 thousand) to shareholders of record at March 31, 2017. Such appropriations are recognized in the period in which they are approvedby the shareholders.

56

Annual Report 2017 ｜ Financial Section

Independent Auditor’s Report

To the Board of Directors of Sumitomo Realty & Development Co., Ltd.:We have audited the accompanying consolidated financial statements of Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries, which
comprise the consolidated balance sheets as at March 31, 2017 and 2016, and the consolidated statements of income, statements of comprehensive income,statements of changes in net assets and statements of cash flows for each of the years in the three-year period ended March 31, 2017, and a summary of significant
accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally
accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements thatare free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing
standards generally accepted in Japan. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures
selected depend on our judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements
in order to design audit procedures that are appropriate in the circumstances, while the objective of the financial statement audit is not for the purpose of expressing
an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Sumitomo Realty & Development Co., Ltd.
and its consolidated subsidiaries as at March 31, 2017 and 2016, and their financial performance and cash flows for each of the years in the three-year period
ended March 31, 2017, in accordance with accounting principles generally accepted in Japan.

Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 21 to the consolidated financial statements, the Company implemented a tender offer (the “Tender
Offer” ) as part of a transaction aimed at making Sumitomo Real Estate Sales Co., Ltd. (the “Target Company”) a wholly-owned subsidiary of the Company byacquiring all of the Target Company’s common shares (the “Common Shares”). After the settlement of the Tender Offer, the Company required all shareholdersof the Target Company (excluding the Company and the Target Company) to sell their Target Company’s shares to the Company and the Target Company became
a wholly-owned subsidiary of the Company as of June 7, 2017.

Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2017 are presented solely for convenience.
Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1 tothe consolidated financial statements.

July 28, 2017
Tokyo, Japan

Sumitomo Realty & Development Co., Ltd.

57

Corporate Data / Investor Information (As of March 31, 2017)

Corporate Data

Investor Information

Head OfficePaid-in Capital

Shinjuku NS Building¥122,805 million

4-1, Nishi-Shinjuku 2-chome,

Breakdown of Shareholders

Shinjuku-ku, Tokyo 163-0820, Japan

Number of Common Stock

Corporate Website

Issued: 476,085,978 shares

http://www.sumitomo-rd.co.jp/english/

Date of Establishment

Authorized: 1,900,000,000 shares

Number of Shareholders
11,853

December 1, 1949

Trust Accounts

Stock Exchange Listing

Number of Employees

Tokyo Stock Exchange

12,574 (Consolidated)

26.48%

Financial Institutions

9.64%

Other Companies

29.53%

Foreign Companies

30.39%

Individuals and Others

3.96%

Major Shareholders

Major Consolidated Subsidiaries
Sumitomo Real Estate Sales Co., Ltd.
Sumitomo Fudosan Tatemono Service Co., Ltd.
Sumitomo Fudosan Syscon Co., Ltd.
Sumitomo Fudosan Villa Fontaine Co., Ltd.
Sumitomo Fudosan Bellesalle Co., Ltd.
Sumitomo Fudosan Esforta Co., Ltd.
Sumitomo Fudosan Finance Co., Ltd.

Name

Number of shares held(Thousands)

Percentage ofshares held

30,36025,31011,99010,882
8,690
7,527
7,500
7,449
7,273
6,740

6.38%
5.32%
2.52%
2.29%
1.83%
1.58%
1.58%
1.56%
1.53%
1.42%

The Master Trust Bank of Japan, Ltd. (Trust account)
Japan Trustee Services Bank, Ltd. (Trust account)
Sumitomo Mitsui Banking Corporation
Japan Trustee Services Bank, Ltd. (Trust account 4)
Japan Trustee Services Bank, Ltd. (Trust account 5)
Obayashi Corporation
Shimizu Corporation
State Street Bank-West Pension Fund Clients-Exempt 505233
The Bank of New York Mellon SA/NV10
Mitsui Sumitomo Insurance Co., Ltd.

Stock Price and Trading Volume on Tokyo Stock Exchange
Yen

Yen

Stock Price (right)

1,800

6,000

TOPIX (left)
1,500

5,000

1,200

4,000

900

3,000

600

2,000

300

1,000

0

7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6

2012

2013

2014

2015

2016

2017

Millions of shares
150

Trading Volume

100

50

0

7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6

2012

58

2013

Annual Report 2017 ｜ Financial Section

2014

2015

2016

2017

0

History
Global Events

–

1949
1980

–

1981
2000

–

2001
2017

1949

‌
Izumi
Real Estate Co., Ltd. established as the successor to the holding company of the Sumitomo zaibatsu
following the breakup of the conglomerate.

1957‌Izumi Real Estate Co., Ltd. changed its name to Sumitomo Realty & Development Co., Ltd.

1963

‌Merged with the holding company of the former Sumitomo zaibatsu during its liquidation.

1964‌Entered condominium sales business with Hama-Ashiya Mansion in Kobe, Hyogo Prefecture.

1964‌Tokyo Olympic Games1970‌Listed on the Tokyo Stock Exchange and Osaka Securities Exchange.

1973‌First oil crisis

1973‌Established Sumitomo Fudosan Tatemono Service Co., Ltd., a consolidated subsidiary.

1974 ompleted construction of 52-story Shinjuku Sumitomo Building in Shinjuku, Tokyo; moved Company headC
office there from Tokyo Sumitomo Building in Marunouchi, Tokyo.

1975‌Established Sumitomo Real Estate Sales Co., Ltd., a consolidated subsidiary.

1980

Established Sumitomo Fudosan Syscon Co., Ltd., a consolidated subsidiary.

1982

‌
Completed
construction of 30-story Shinjuku NS Building in Shinjuku, Tokyo; moved Company head office
there from Shinjuku Sumitomo Building.

1995‌Commenced American Comfort custom home construction business.

1985‌The Plaza Accord

1996‌Commenced Shinchiku Sokkurisan remodeling business.

1987‌Black Monday

1997‌Entered high-quality business hotel market. Opened Villa Fontaine Nihombashi and hotels at two other locations.

1998

Sumitomo Real Estate Sales Co., Ltd., a consolidated subsidiary, listed on the Tokyo Stock Exchange.

1999

‌
Commenced
real estate joint investment trust fund. Launched sales of Sumitomo Realty & Development Fund
(SURF) series.
Implemented the Sumquest bond issue, which was the first public issue of real estate securities in Japan.

2000

Commenced luxury condominium leasing business. Completed construction of La Tour Shibakoen.

2001

The number of managed STEP brokerage offices exceeded 200.

1978‌Second oil crisis

1989‌Collapse of Berlin Wall‌Nikkei Stock Average
all-time high1999
‌Introduction of euro2002

Completed construction of Izumi Garden Tower (Minato Ward, Tokyo).

2003‌Commenced sales of J∙URBAN fixed-price urban-style housing series.

2004

Commenced sales of World City Towers (Minato Ward, Tokyo).

2008

 stablished Sumitomo Fudosan Bellesalle Co., Ltd., a consolidated subsidiary.
E‌Commenced sales of City Towers Toyosu (Koto Ward, Tokyo).

2008‌Lehman crisis

2010‌Completed construction of Shinjuku Central Park City (Shinjuku Ward, Tokyo).

2011

‌
OpenedGrand Mansion Gallery.
‌Completed construction of Sumitomo Fudosan Shinjuku Grand Tower (Shinjuku Ward, Tokyo).

2012

‌
Launcheda Custom-order Condominium service.
‌Commenced sales of J∙RESIDENCE.

2011‌The Great East Japan
Earthquake‌European sovereign
debt crisis‌Record-high yen
against the U.S. dollar

2014‌Number of condominium units brought to market over the full year was the highest in Japan for the first time.

2015

‌
Completed
construction of Tokyo Nihombashi Tower (Chuo Ward, Tokyo).
‌Cumulative units contracted topped 100,000 in Shinchiku Sokkurisan remodeling operations.

2016

‌
Completed
construction of Deux Tours Canal & Spa (Chuo Ward, Tokyo).
‌Completed construction of Shinjuku Garden (Shinjuku Ward, Tokyo).
‌Completed construction of Sumitomo Fudosan Roppongi Grand Tower (Minato Ward, Tokyo).
‌Number of condominium units brought to market over the full year was the highest in Japan for the third­consecutive year.

Shinjuku NS Building(Head office)Shinjuku Sumitomo Building

World City Towers

2001‌September 11
terrorist attacks

City Towers Toyosu the Twin

2015
‌China stock market
crash
2016
‌Brexit referendum

Sumitomo Fudosan
Roppongi Grand Tower &Izumi Garden Tower

Sumitomo Realty & Development Co., Ltd.

59

Shinjuku NS Building, 4-1, Nishi-Shinjuku 2-chome,
Shinjuku-ku, Tokyo 163-0820, Japan
http://www.sumitomo-rd.co.jp/english/

Printed in Japan