Pursuitofgroundbreaking

growth

2002 Annual ReportProfile

Sumitomo Realty & Development Co., Ltd., a core member of the Sumitomo
Group, is one of Japan’s premier real estate companies. The Company is wellestablished as a comprehensive developer and supplier of high-quality officebuildings and condominiums in urban areas.
The Company is also engaged in a broad array of businesses, including realestate brokerage, housing construction, home remodeling and building
management services. While continuing to create comfortable working andliving environments that contribute to a higher quality of life, the Company ispoised to begin a new phase of growth in the 21st century.

Contents
Five-Year Financial Highlights ..................................................... 1
To Our Shareholders .................................................................. 2
Our History ............................................................................... 4
Sumitomo Realty & Development Group ........................................ 4
Outline of Operations ................................................................ 5
Financial Section ..................................................................... 13
Board of Directors and Auditors ................................................. 34
Corporate Data........................................................................ 34
Share Price and Trading Volume on Tokyo Stock Exchange ........... 35

Cautionary Statements with Respect to Forward-Looking Statements
Statements made in this annual report with respect to plans, targets and future performance thatare not historical fact are forward-looking statements. These statements are based on
management’s assumptions and beliefs in light of the information currently available to it.
Sumitomo Realty & Development Co., Ltd. cautions that a number of factors 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 the real estatemarket and interest rate trends.

Five-Year Financial Highlights
Sumitomo Realty & Development Co., Ltd.

Thousands of
U.S. dollars

Millions of yen
2002

2001

2000

1999

1998

2002

¥ 497,877¥ 459,245¥ 421,587¥ 389,136¥ 364,858$ 3,736,413

Revenue from leasing business

176,244

163,047

151,268

150,976

143,676

1,322,657

Revenue from sales business

170,428

149,196

150,483

137,735

125,327

1,279,009

Revenue from construction business

108,336

104,549

80,064

61,191

56,339813,028

Revenue from brokerage business

35,966

34,702

31,63327,82927,421

269,914

Consolidated:
Revenue from operations

6,903

7,751

8,139

11,405

12,09551,805

Operating profit

Revenue from other business

80,37075,21870,54856,51645,412603,152

Ordinary profit

47,14238,50927,06921,688

4,985

353,786

Net income (loss)

22,996(18,008)

14,737

10,983(66,048)

172,578

1,972,735

1,903,529

1,916,343

1,827,146

1,849,953

14,804,765

213,767

193,442

211,140

198,498

174,528

1,604,255

Total assets
Total shareholders’ equity

Yen

U.S. dollars

Per share:
Net income (loss)¥

Shareholders’ equity
Dividend

56.50¥(44.27)

¥

36.23

¥

27.00

¥

(162.36)$0.42

525.17475.51519.01487.94429.02

3.94

6.00

6.00

6.00

6.00

6.00

0.05

Note: The 2002 yen amounts have been translated into U.S. dollars, for convenience only, at the rate of ¥133.25 = U.S.$1, the approximate exchange rate on March 31, 2002.

Revenue from Operations (Billions of yen)

Operating Profit (Billions of yen)

Ordinary Profit (Billions of yen)

498

47
80
75

459

39

71
57

422

27

45
22

389
365

5
1998

1999

2000

2001

2002

Net Income (Loss) (Billions of yen)

1998

1999

2000

2001

Total Assets (Billions of yen)

1998

1999

2000

2001

2002

Total Shareholder’s Equity (Billions of yen)

23
11

2002

1,973

214

211

15
199

193
1,916
1,904

175

(18)
1,850
1,827
(66)
1998

1999

2000

2001

2002

1998

1999

2000

2001

2002

1998

1999

2000

2001

2002

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

1

To Our Shareholders

This Company’s Business (Primary business)

Leasing: Commercial Buildings development and leasing.
Sales: Condominium development and sales to the homeowner.
Construction : Custom Home contracted and built for homeowners.
Brokerage: Brokerage of new and existing residential homes, and of someincome producing commercial properties.
Junji Takashima, President

Sumitomo Realty achieved the goals of its Five-Year Business
Reconstruction Plan in the March 31, 2001 fiscal year, a year aheadof schedule. The achievement of the objectives of this plan, which
was intented to counter the business difficulties encountered by theCompany as a result of the collapse of the bubble economy, opened
the door to the pursuit of groundbreaking growth in revenues andprofits outlined in our New Three-Year Plan, launched in the March
31, 2002 fiscal year.

Performance
In the fiscal year under review, the first year of our New Three-Year
Plan, all four of our core businesses (leasing, sales, construction, andbrokerage services) achieved growth in revenues. As a result,consolidated revenue from operations was ¥498 billion, operating
profit was ¥80 billion, ordinary profit was ¥47 billion, and net income
was ¥23 billion. All these figures set new records, and fulfilled ourplan for the year, although some businesses were better than others.

Under the Five-Year Business Reconstruction Plan, the threemainstay businesses of leasing, sales, and brokerage services drove
performance improvements. Under the New Three-Year Plan,
however, construction (of housing) has been developed into amainstay business, a fourth pillar supporting the expansion of theCompany’s operations. As a result of the balanced strengthening ofthese four mainstay businesses, with their differing revenue structuresand characters of business risk, the Company will continue the efforts
to maintain growth in revenue as well as operating and ordinary profit,
as it has done in each of the five fiscal years beginning with the March
31, 1998 term.
Operating revenue goals for each segment are as follows:
The leasing business will complete and open 18 new office buildings,
increasing leased floor space by approximately 30%, which is forecast
to increase revenue from operations to ¥210 billion in the March 31,
2004 fiscal year (an increase of 28% over the March 31, 2001 fiscal
year).
The goal of our sales business is to sell more than 4,000
condominiums per year, thereby keeping the position of being in thelist of the top five firms in terms of market share. This will enable thesales business to increase revenue from operations to over ¥200
billion in the March 31, 2004 fiscal year (an increase of 34% over the
March 31, 2001 term).

The Performance Goals of the New Three-Year Plan
Goals for performance in the final year of the New Three-Year Plan,
the March 31, 2004 term, are as follows:
Consolidated revenues from operations: ¥600 billion(a 30% increase over the March 31, 2001 fiscal year)

Consolidated operating profit: ¥105 billion(a 40% increase over the March 31, 2001 fiscal year)

Consolidated ordinary profit: ¥70 billion(an 82% increase over the March 31, 2001 fiscal year)

2 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

By the March 31, 2004 fiscal year, the construction business intends
to increase revenue from operations to ¥140 billion (23% higher thanin the March 31, 2001 fiscal year) on projects involving 8,000 homesfrom three sources: custom-built, two-by-four homes throughSumitomo Fudosan Home Co., Ltd.; standardized homes marketed
under the “Sereies of World Home Designs” brand name; andforecasts of ¥170 billion in ordinary profit during the New Three-Year
Plan, we believe that we have enough room to absorb the impairment
in full.
As soon as method of impairment accounting and asset valuation
standards are finalized, Sumitomo Realty will, as always, take positive
steps to implement them.
remodeling projects using a new system called Shinchiku Sokkurisan(“As Good as New”).
In the brokerage business, the performance of Sumitomo Real
Estate Sales Co., Ltd. has proved its position as the leader of its
industry. By steadily increasing its market share, this business isworking toward a goal of over ¥40 billion in revenue from operationsin the March 31, 2004 fiscal year (an increase of 15% over the
March 31, 2001 fiscal year).

Progress in Resolving Asset Quality Issues
Under the Five-Year Business Reconstruction Plan, the Company
reduced real estate properties held for resale, wrote off the bad loansof our finance subsidiary, and disposed of the unrealized capital losses
of our subleasing operations and overseas operations. This resulted ina total extraordinary loss of ¥209 billion, which virtually completed thedisposal of these liabilities. At the same time, Sumitomo Realty moved
aggressively in response to renewed accounting standards, theCompany adopted new accounting standard on consolidated financial
statements, new accounting standards for financial instruments andactuarial methods of measuring projected benefit obligations. The lastof these issues to be considered is the impairment of long-lived
assets. This will become compulsory in the March 31, 2006 fiscal
year, but when early application of this accounting method becomesallowed in the March 2004 fiscal year, which in our final year of the
New Three-Year Plan.
As for fixed assets in the leasing segment, the yield on total
leasing assets * has improved by approximately two percentage points
over the last seven years, rising to 4.5% at the end of the fiscal year
under review. Yield on total leasing assets is forecast to go up toalmost 6% by the end of the March 31, 2004 fiscal year. Average
yield on assets in operation exceeds 6%, and is expected to rise to
7%. Because the details of the impairment accounting method are
not clear, we cannot at this point in time precisely calculate themonetary effect its implementation will have. However, considering
this rapid improvement in the yield on leasing assets together with

*Yield on total leasing assets =(operating profit from leasing operations + depreciation expenses)÷
(total assets in the leasing segment, net of security deposit received).

Strengthening our Financial Structure
In the interest of building a stable financial base, which is identified in
the New Three-Year Plan as an important issue for the Company, we
are working to reduce total interest-bearing liabilities of the Sumitomo
Realty Group (the total of bank loans, bonds, commercial paper, andliabilities on guarantees, and conditional guarantees) to ten times
operating profit by the March 31, 2004 fiscal year.
With the accomplishment of this goal, the company will be able tosustain future increases in interest rates and to establish a strong
profit structure.
The disposition of latent losses conducted during the execution of
our Five-Year Business Reconstruction Plan caused the contraction ofshareholders’ equity. The Company is striving to strengthenshareholders’ equity in response to this, as well as to raise thecompany’s credit rating by improving its debt-equity ratio.
Fixed-rate liabilities already account for 70% of the Company’s
interest-bearing liabilities, and we intend to maintain this throughout
the New Three-Year Plan.
Sumitomo Realty requests the continued understanding andsupport of its shareholders, as the Company bends its utmost efforts
to the attainment of the goals of its management plan.

Junji Takashima, President
July 2002

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

3

Our History
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

Mergered the holding company of the former Sumitomo zaibatsu during its liquidation.

1964

Entered the condominium sales business with the Hama-Ashiya Mansion, located in Kobe, Hyogo Prefecture.

1970

Listed stocks on the Tokyo and Osaka stock exchanges market.

1973

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

1974

Completed construction of the 52-story Shinjuku Sumitomo Building in Shinjuku, Tokyo, and company headquarters moved there from the Tokyo
Sumitomo Building in Marunouchi,Tokyo.

1975

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

1982

Established Sumitomo Fudosan Home Co., Ltd., a consolidated subsidiary. Completed construction of the 30-story Shinjuku NS Building in Shinjuku,
Tokyo; company headquarters moved there from Shinjuku Sumitomo Building.

1995

Commenced “American Comfort” standardized housing construction business.

1996

Commenced “Shinchiku Sokkurisan” remodeling business.

1998

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

1999

Universal Home Inc., a consolidated subsidiary listed on JASDAQ (over the counter with the Japan Securities Dealers Association.)

2002

The Izumi Garden City (Roppongi 1-Chome Redevelopment project) scheduled for completion.

Sumitomo Realty & Development GroupLEASINGCONSTRUCTIONSALESBROKERAGE

BUSINESS
Building Development Division
Building Management Division
Shintoshin Real Estate Co., Ltd.
Sumitomo Fudosan Tatemono Service Co., Ltd.
Shinjuku Sumitomo Building
Management Co., Ltd.

BUSINESS
Condominium Development Division

OTHER

BUSINESS
Housing Business Division Number I
Housing Business Division Number II
Sumitomo Fudosan Home Co., Ltd.
Sumitomo Fudosan Syscon Co., Ltd.
Universal Home Inc.

BUSINESS
Sumitomo Real Estate Sales Co., Ltd.

BUSINESS
Sumitomo Fudosan Fitness Co., Ltd.
Izumi Restaurant Co., Ltd.
Sumitomo Fudosan Finance Co., Ltd.
KS Techno Co., Ltd.

4 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

LEASING

Outline of Operations
OutlineThe Strengths of the Company’s Leasing Operations
The Company entered the field of office building leasing in thesecond half of the 1970s, much later than its competitors. For thatreason, Sumitomo Realty’s leasing operations have the characteristics
shown below.

Because investments have been primarily directed at
central Tokyo, the Company has an outstanding real-estate
portfolio.
Central 3 Wards
Central 7 Wards

46%

Central 5 Wards

77%

Central 14 Wards

66%
89%

Central 3 Wards: Chiyoda, Minato, and Chuo
Central 5 Wards: Central 3 wards plus Shinjuku and Shibuya
Central 7 Wards: Central 5 wards plus Shinagawa and Bunkyo
Central 14 Wards: Central 7 wards plus Taito, Koto, Toshima, Sumida,
Meguro, Ota, and Nakano

The NS Building [Completed Sep. 1982]

construction will offer quake-absorbent structures and separate climate
control systems for each suite, as well as reinforced floors for heavyloads, high-capacity electricity systems, high ceilings, and many otherfeatures to satisfy tenants.
In addition, as our buildings are newer we need to make few investments
in refurbishment. Therefore, more funds can be allotted to investment in

In Japan, the tendency toward concentration of commercial activity

new construction.

to central Tokyo is growing, particularly in the service sector.
Sumitomo Realty’s office building portfolio, heavily weighted as it isin central Tokyo, therefore offers both stable revenues and potential
for future growth.

The Company’s portfolio includes many comparatively new,upscale buildings.
Buildings less than 10 years old
Buildings less than 20 years old

Concentrationin Tokyo CBD (%)

Because the Company’s employees are directly involved ineach stage of its development operations, Sumitomo Realty is
amassing a wealth of knowledge in the construction andmanagement of large buildings.
Sumitomo Realty has adopted the method of being directly involved
in sorting out complex tangles of land ownership and rights, and48%

assembling lands for the construction of office buildings. This has

92%

has fostered for the Company a wealth of in-house expertise in land

Young Portfolio (%)

The Company’s highly capable corps of sales personnel maintains

significantly reduced the cost of acquiring land for development, andacquisition and development.

contact with potential corporate clients, quickly identifies needs forrelocation or additional floor space, and negotiates leasearrangements directly with the tenants. As a result, the value of
office space can be decided without interference from third-party

89

92

real estate agents, and it becomes possible for us to develop officebuildings that not only incorporate the very newest specifications,but also reflect the direction of trends in tenant requirements.

As the IT revolution continues, the level of support facilities demanded

The Company’s office buildings are managed by Sumitomo Groupby office building tenants grows higher every day, and buildings that do

personnel, which also allows the precise and prompt identification of

not provide IT support or earthquake protection are quickly growing

tenant needs for relocation or a larger space, which allows us toless desirable. As many of Sumitomo Realty’s buildings are of recent

offer precise and detailed service to each tenant.

construction, they retain their competitive edge. Buildings now under

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 5

LEASING

Performance
The market for office space in Tokyo in the
March 31, 2001 fiscal year saw flourishing
expansion demand from information andcommunications firms and foreign firms, but
new construction was limited. This caused a
rapid decline in the vacancy rate, which
produced a supply-and-demand crunch andcaused rents to rise throughout central
Tokyo.
However situation has changed for thisfiscal year. The worldwide slump in IT-relatedindustries caused corporate performance toshow a downward adjustment and brought
wide-scale restructuring. The terrorist attacks
on September 11 and the subsequent U.S.led military operations caused confidence inthe business community to weaken further,and tenant relocation and expansion of space
temporarily declined. Demand, therefore,remained latent. Developers in Tokyo
commenced full-scale pre-leasing activities
for buildings to be completed during calenderyear, 2003 , in the teeth of fierce
competition for major tenants, which caused

The Sumitomo Fudosan Shibakoen Tower [Completed Jul. 2001]

The Sumitomo Fudosan Iidabashi Building Number3[Completed Mar. 2002]

a reversal of the rapid increases in market
rents for new buildings, seen a year earlier.
Even though the vacancy rate in our existingbuildings had risen to 4% at the end of the
fiscal year, market vacancy kept the 3%
level. This produced a tight supply anddemand situation, which made it possible tomaintain the level of market rates.
Benefiting from the steady decline in thevacancy rate and the increase in rental
income, Sumitomo Realty’s leasing businessachieved a counterturn growth in revenues
from existing buildings. The Iidabashi First
Building, the Shiba Koen First Building, andother buildings completed during theprevious term, contributed a full year rental
income during the fiscal year under review.
These factors, together with revenue fromthe recently opened Sumitomo Realty Shiba
Koen Tower, helped revenue from realestate leasing to rise by ¥13,458 million, to¥178,034 million. Operating profit in thisbusiness increased by ¥2,787 million to¥49,225 million.
6 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

LEASING

Outlook
The future of the economy remains opaque,preventing meaningful forecasts. At the endof 2001, though, we saw signs of a recovery
in tenant relocation needs and space
expansion. As our buildings underconstruction near completion, we are seeing
strong interest from potential tenants. As
activities of advance leasing of large buildingsin the Tokyo market scheduled for opening inyear 2003 , comes to an end after the
successful lease-up that is forcasted takes
place, we might start to see renewed balancein the supply and demand for newer,
competitive buildings from as early as thethird quarter of this next fiscal year.
The shift of office demand from theprovinces to Tokyo and an increase in percapita floor-space requirements justify aprediction that demand for office space inTokyo will continue to grow in the medium tolong term. Since, the concentration ofdemand for office buildings with facilities thatmeet the requirements of the IT revolution
will lead to further remodeling or scrap-andbuild replacement of less competitive officebuildings, this increase in supply seems tocause little chance that the supply anddemand imbalance will persist over the longterm.
Sumitomo Realty’s buildings are relatively
new, and therefore highly competitive. Newly
opened buildings and buildings opening in theterm to come are forecast to bring increases
in revenues and profits. However, securing
tenants in preparation for the completion oflarge scale projects such as the Roppongi 1Chome Redevelopment Project, the NishiShinjuku 6-Chome Redevelopment Project inthe term to come is the biggest issue bearing
on meeting the goals of the New Three-Year
Plan. To accomplish this challenge, theCompany will be intensifying its alreadyvigorous marketing activities.

LEASING BUSINESSRevenue & Operating Profit (Billions of yen)
145
37

152
44

1998

1999

Revenue

153
46

165
46

178
49

193
56

210
66

2000

2001

2002

2003F

2004F

Operating Profit

Total of Gross Floor Areas for Leasing(Thousands of m2)

2,745
2,027

2,083

2,051

1998

1999

2000

Other

Tokyo 23 Wards

2,232

2001

2,852

2,360

2002

2003F

2004F

New Operation

The Roppongi 1-Chome Redevelopment Project( The Izumi Garden City building complex)
Information and communications firms and foreign corporations are concentrated in Roppongi
district, and the area has become a prominent commercial center in Tokyo. In October 2002, theIzumi Garden City will open in Roppongi to serve this business community.
Roppongi 1-chome has been a high-status area since the days of the Shoguns, and is near to
the famous Hotel Okura and the U.S. Embassy. In this highly regarded area, Sumitomo Realty isconstructing the landmark super high-rise Izumi Garden Tower office building complex on a
23,869m2 site. It will be accompanied by the Izumi Garden Residence luxury condominiums, a hotel,
a fitness club, restaurants, and other facilities.
Greenery from the Edo-era estate of the Sumitomo clan will be used to landscape a publicgarden crossed by footpaths, and Sumitomo clan artifacts and heirlooms will be on display in an art
museum. This facility represents the fusion of Japanese history, culture, and tradition with a highly
functional urban environment.
The Izumi Garden Tower itself boasts state-of-the-art earthquake resistant design, individuallycontrolled air conditioning and heating systems for each suite, and all-glass walls that offer
spectacular views. With a ceiling height of 3.0 meters and 0.3 meters of under-floor cable space,and a backup power system, this building will offer the most advanced office infrastructure in Japanthat is capable of accommodating the most advanced IT functionality. This is a city unto itself,reflecting Sumitomo Realty’s accumulated development expertise in residential, commercial, andrecreational facilities.

Outline of the “Izumi Garden Tower”
Total floor space: 157,365m2
Standard Floor Area: 2,737m2
Floors: 45 floors, 2 basements
Height: 201 meters
Structure: Steel encased in Reinforced Concrete(SRC) + CFT columns

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

7

SALES

The Park Square Yokohama [Completed Sep. 2001]

Performance
Repeating a trend observed in the previous
fiscal year, overall favorable conditions
prevailed thanks to a supportive environmentthat included a tax-reducing housing loan tax
credit program which was enacted at the endof 1998 and continued low housing loaninterest rates. In the Tokyo metropolitan area
there was considerable consumer interest in
high-rise tower condominium and large
condominium projects situated near stations,which mirrored a conspicuous rise in the
popularity of condominiums in central Tokyo.
In addition, demand segments expanded due
to improved locations and product planning,which led to vigorous purchases ofcondominiums by consumers in upper age
groups as well as by single persons. As aresult, condominiums that we supplied inTokyo successfully attracted numerous
customers, and there were even instances ofsales prices rising. Conversely, sales prices

8 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

for the average condominiums in suburban
areas in general, continued to decline. The
trends that prevailed in Tokyo were observedin other cities as well.
Amid this environment, the sales
business recorded total sales ofcondominiums, detached houses andresidential land of 4,146 units, up 520 units
from the previous fiscal year, thanks largely
to land acquisition strategies that emphasizedlarge-sized condominiums and locations incentral urban areas. The sales businessachieved sharp growth in both revenue andprofit, with revenue rising ¥21,232 million to¥170,428 million, and operating income
increasing ¥4,694 million to ¥24,388 million.
Condominium sales contracts totaled 4,358
units, an increase of 143 units over theprevious year, and represented a new all-time
high.

OutlookIn the fiscal year ending March 31, 2003,
Sumitomo Realty expects a temporary
worsening of profitability due to a rise inconstruction costs. The Company plans tocompensate for this with an increase in sales
volume and intends to keep the level ofoperating income as in the fiscal year underreview. Condominium sales contracts are
expected to be brisk in the coming fiscal
year. Of the 4,400 units that Sumitomo
Realty plans to sell in the fiscal year ending
March 31, 2003, which would represent a
10.0% increase from the previous fiscal year,
the Company already had concluded
contracts for 52% of these at the beginningof the fiscal year (up 4 percentage points
from the previous fiscal year).
Over the medium term, despite suchfundamental problems as a persistent senseof uncertainty about the economy, there isExterior and interior of The Central Residence Shinjuku City Tower[Completed Dec. 2001]

SALESSALES BUSINESSRevenue & Operating Profit (Billions of yen)
126
7

138
7

1998

1999

Revenue

151
19

149
20

170
24

189
24

200
25

2000

2001

2002

2003F

2004F

Operating Profit

Ranking of Condominium Suppliers
3,885

4,278

4,335

6th

3rd

2000

2001

7th
2,585
2,272

10th

1997

9th

1998

1999

Number of Units Supplied

The Osaka City Tower [Scheduled for completion in Dec. 2003]

likely to be a continuation of macroeconomic
factors supporting the sales of condominiums
for sometime, such as tax reductions, lower
interest rates, and stable prices. However,there are concerns of a rise in land prices
due to the slowing pace of land being
released for sale in the market by corporate
sources. There is a possibility this could leadto a decline in the supply of condominiums
and a rise in prices of condominiums. Whenconsidering that stable prices forcondominiums is a vital element of favorable
market conditions, the previously mentioned
rise in prices is a risk factor that could
adversely affect future market conditions.
As a result of the advance procurementof lands for large-scale condominiums, as ofthe end of the fiscal year under review we
had secured lands for development planed tobe completed for the fiscal year ending
March 31, 2004. For the following two
years, we have already completed over 50%
of our planned land purchases.

OutlineComprising the core of Sumitomo Realty’s sales
business, development and sales ofproviders.
As with its leasing business, Sumitomocondominiums account for 95% of total sales inRealty and the entire Sumitomo Realty Group

this segment. Sumitomo Realty commenced its

engage directly in purchasing land for

condominium sales business earlier than almost

development, planning products, selling

all its competitors, enabling the Company tocondominium units, and managing properties

earn the distinction of being Japan’safter condominium sales. This approach

Condominium Pioneer.

enables the Company to provide high-quality

The Company’s condominium operations
are focused mainly on Japan’s six largest
urban areas: the Tokyo metropolitan area,

products and well-focused service withfeedback of customer needs.
Our investment turnover ratio and high

Osaka/Kobe, Sapporo, Sendai, Nagoya, andoperating margin are at the top of the

Fukuoka. In 2001, Sumitomo Realty

industry. Since market fluctuation risk is asignificantly increased its market share,given in this condominium business, it is our

jumping from the sixth position to the No. 3

policy to level this market risk by offeringranking for all of Japan in terms of number ofstable supplies and pursuing brand-units provided during the year. Looking

enhancement strategies through the continued

ahead, the Company will carry out its

sale of high-quality units and products.

operations with the aim of firmly maintaining
its ranking within the top five condominium

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

9

CONSTRUCTION

Performance
Business conditions deteriorated throughout
Japan in the fiscal year ended March 31,
2002 owing to a rise in the unemployment
rate and widening perceptions of a recession
as well as a shift in demand away fromdetached houses toward condominiums.
Sumitomo Realty was not immune to thesetrends, and the Company’s orders for new
detached houses unavoidably declined. We
compensated for this decline with anincrease in orders for Shinchiku Sokkurisan,a new system for replacing houses, thatbrought total new orders to ¥112,172

million, up ¥2,467 million from the previous
fiscal year.
Business results for the year under review were as follows.
(units)

Shinchiku Sokkurisan
American Comfort
Sumitomo Fudosan Home

Number of Orders
Received

Year-on-Year
Increase

Number of Units
CompletedYear-on-Year
Increase

3,770
1,254
1,108

+819
-244
-195

3,547
1,358
1,189

+833
+54
-110

In addition, revenue from the construction
business, which includes general
refurbishments and interior and exterior work,
amounted to ¥115,329 million, an increaseof ¥1,780 million from the previous fiscal
year. Operating profit totaled ¥4,772 million,up ¥755 million from the previous fiscal year.

Shinchiku Sokkurisan

Product Lineup
1. New Detached House Construction
The Company has in the past contracted forthe construction of detached houses withpurchasers of residential lots which thecompany has developed and subdivided. But
in 1982, the company established Sumitomo
Fudosan Home and to take on and develop
this business. In the early years of thisbusiness Sumitomo Fudosan Home adopted
designs and construction methods in andaround Los Angeles, introduced by its sistercompany in California, Sumitomo Realty &Development, CA Inc. (then La Solana
Corporation), and engaged primarily in theconstruction of custom-designed, midrange
and upscale wood-frame houses. However,since competition from large builders of
midrange and upscale homes was intense,
this company went through a long-term
struggle, just keeping the 1,000 units per
year supply, without a chance to expand its
business.
Sumitomo Realty’s Housing Business
Division Number 1, which handles theconstruction of standardized houses, took ahint from the construction of emergency
housing for victims of the Hanshin-Awaji
10 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

BeforeAfter

2. The Shinchiku Sokkurisan Full
Earthquake, and in 1995 developed its lineof high-quality, low-cost, Western-style“American Comfort” homes. This businesshas attracted a good deal of attention in theindustry by achieving an annual growth rateof over 30%. However, the number ofcompeting products in this price range has
increased, and growth has sagged over the
past two years. In response, the Company
expanded its design portfolio to cover ninestyles of seven countries, with the addition ofa new Mediterranean style product line in
2002. All with the same unit price, thesehomes are marketed under the “Series ofWorld Home Designs” line.

Remodeling Package
In the renovation market in Japan, customers
often carry the risk of cost overruns, and it issaid that the high cost of renovation
sometimes does not make it less expensive
to rebuilt. This is due to an outdated industry
standard in construction management .
In 1996, Sumitomo Realty overturned thisprevalent assumption with its Shinchiku
Sokkurisan business model. Providing thecustomer with a transparent fixed price per
floor area menu, the customer can expect tofully remodel his/her house with half the costand half the construction period of that ofrebuilding.

CONSTRUCTION

Outlook
There are no particular signs of an
improvement in market conditions in the
coming fiscal year and the difficult
environment for orders for detached houses
is expected to persist. In the fiscal year
ended March 31, 2002, the Company
implemented cost-reduction measures, which
included closing model homes unable tosatisfactorily attract customers, consolidating
its marketing bases, and reducing business
expenses. These measures enabled theCompany to lower its breakeven point. On
the other hand, to enhance the appeal of its
products with the aim of securing an increasein new orders, Sumitomo Realty added a new
Mediterranean style home to its American
Comfort Series, while reevaluating its existing
lineup of homes and launching its “Series ofWorld Home Designs”. In October 2002, thebusiness of Sumitomo Realty Homes will betransferred to and mergered by Sumitomo
Realty’s Housing Business Division Number
1. As a result, we will have integrated ourcustom-built home business with the “Seriesof World Home Designs” standardized homes
business. We are working to reduce costs byraising the efficiency of our administrative
divisions and after-service divisions and bystrengthening materials procurement
functions. We are also striving to expand ourbusiness by fortifying our ProductDevelopment Division and by expanding andupgrading our network of sales offices.
Our Shinchiku Sokkurisan system boasts
revolutionary new product features that
include enabling a 50% reduction in costs
and construction periods compared withrebuilding houses and our business model
have succeeded in earning strong consumer
support. The Shinchiku Sokkurisan system
debuted five years ago and is expected toachieve annual growth of 20% or higher inthe years ahead. Accordingly, we plan tocontinue to vigorously expand and upgrade
our network of sales offices and add newstaff.
In this manner, by formulating strategies
that enable an immediate response to thebusiness environment, we will step up ourefforts to establish this business as the fourthpillar of our operations.

HOUSING BUSINESSRevenue & Operating Profit (Billions of yen)
62
(0.1)

67
2.4

1998

1999

Revenue

87
4.8

114
4.0

115
4.8

130
6.0

140
7.0

2000

2001

2002

2003F

2004F

Operating Profit

Housing Units Sold By Key Commodities (Units)
5,400
4,800
2,951

3,770

1,569
695

191

462

1,967

1,627 1,835

1997

1998

2,405

1999

New Detached House

2000

2,801

2,362 2,450 2,600

2001

2002 2003F 2004F

Shinchiku Sokkurisan

Series of World Home Designs

Power Column 30
Sumitomo Realty has developed the Power Column 30 (patent pending) design method, which
increases earthquake resistance by 30% conpared to its existing product by reinforcing the fourA

30%

improvement in earthquake resistance over
2×4 method of construction.

corners of the 2×4 wood frame houses. Power Column 30 is a new concept that increases
earthquake resistance by designing the product with focus attention on the twisting mechanism bywhich an earthquake destroys a building. Houses incorporating the new design method will be able
to withstand even an earthquake 1.4 times more severe than the 1995 Hanshin-Awaji Earthquake,a size that the possible “Tokai earth quake” to come may reach.

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

11

B R O K E R AG E

Past and Present

Performance

Sumitomo Real Estate Sales Co., Ltd., which
carries out the Company’s real estate
brokerage business, was established in 1975
to handle the sale of condominiums
developed by Sumitomo Realty. In 1979,
Sumitomo Real Estate Sales entered the realestate brokerage sector, where it has
achieved significant success, andsubsequently listed its shares on the Tokyo
Stock Exchange in 1998.
Sumitomo Real Estate Sales operates a
network of branch offices under the
Sumitomo Real Estate Sales STEP brand
name, and these offices maintain close ties
with the local communities they serve. This
company has steadily increased its businessby expanding and upgrading its network of
brokerage offices. Sumitomo Real Estate
Sales recorded a noteworthy milestone in
December 2001 when it opened its 200th
brokerage office. All brokerage offices are
directly managed and boast high profit
margins, and Sumitomo Real Estate Sales
holds the No. 1 position in the industry interms of brokerage revenues on a nonconsolidated basis. We plan to further
expand our marketing base and steadily
increase our market share.

Before the fiscal year under review, a senseof price affordability along with tax reductions
on home purchases and low interest rates
supported a continued favorable environment
in the market for existing housing. However,in the fiscal year ended March 31, 2002, in
addition to a continued downtrend intransaction prices, transactions in the overallmarket declined because of worsening
economic sentiment resulting from suchfactors as a rising unemployment rate.
Amid this environment, the brokeragebusiness opened eight new directly managed
brokerage offices in the fiscal year underreview (achieving its target of establishing anationwide network of 200 brokerage
offices) and also worked to expand its
revenues. Although we achieved growth in
the number of transactions and expanded ourmarket share, revenues from fees pertransaction shrank because of declining sales
prices. These factors held revenue from thebrokerage business to ¥36,184 million, an
increase of ¥1,302 million. Operating income
declined ¥767 million to ¥7,953 million,
marking the first decrease in operating profit
in five years.

BROKERAGE BUSINESSRevenue & Operating Profit (Billions of yen)
28
4.7

28
5.3

1998

1999

Revenue

32
7.2

35
8.7

36
8

38
8.5

40
9

2000

2001

2002

2003F

2004F

Operating Profit

Chart of Brokerage Business
25,59523,051

23,96821,431
18,6501997

17,063 17,734

1998

1999

2000

2001

2002

2003F

Number of brokerage transactions

OutlookThe Headoffice of Sumitomo Real Estate Sales Co.,Ltd.

Prospects are dim in the fiscal year ending
March 31, 2003 for a revival of the market
for existing housing as well as for a halt in
the decline in sales prices.
We will continue to open new brokerage
offices and upgrade the marketing force andraise the productivity of our existingbrokerage offices by sharing information on
houses through the full-fledged start up of a
Customer Relationship Management system.
At the same time, we will diversify ourbusiness into areas such as commercial
brokerage in response to the needs of our
growing number of corporate customers, andinto brokerage of residential leases. By
covering all of these challenges we will makeefforts to expand our business as we
respond to a harsh environment.
12 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

Financial Section
Financial Review .............................................................................. 14
Consolidated Balance Sheets............................................................ 16
Consolidated Statements of Operations ............................................ 18
Consolidated Statements of Shareholders’ Equity ............................... 19
Consolidated Statements of Cash Flows ............................................ 20
Notes to Consolidated Financial Statements ...................................... 21
Report of Independent Public Accountants ......................................... 33

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

13

Financial Review

1. Earnings Structure

Revenue from Operations By Segment(Billions of yen)

144
125
62
27

151
138
67
28

153
151
87
32

165
149
114
35

1998

1999

2000

2001

178
170
115
36

193
189
130
38

210
200
140
40

2002

2003F

2004F

Sales Business Revenue
Brokerage Business Revenue

Leasing Business Revenue
Housing Business Revenue

Revenue & Operation Profit From Operations(Billions of yen)

339
43

365
45

389
57

422
71

459
75

498
80

1997

1998

1999

2000

2001

2002 2003F 2004F

Revenue

550
90

600
105

Operating Profit

Interest-Bearing Debt / Operating Profit Ratio(Times)

35

34

26

19
16

1997

1998

1999

2000

2001

15

10

2002 2003F 2004F

ROE (%)
11.3
5.7

7.0

(0.7)

(8.8)
(30.8)

1997

1998

1999

2000

2001

2002

14 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

The Company’s four principal businesses are leasing, sales, construction, and brokerage services. In
comparison with the March 31, 1995 fiscal year, which was the previous low point in performance,
operating profit in the leasing business is up by 45%, in the sales business by 85%, in theconstruction business by 171%, and in the brokerage business by 42%.
The leasing and sales businesses require large amounts of operating capital but only small labor
forces, and their acquisitions of land for development of office buildings and condominiums precedeleasing and sales activity. In these sectors, production are in progress based on market projections.
In the construction and brokerage businesses, little capital is needed, but labor requirements areheavy. In these sectors, production follows order of clients required. Therefore, the cost structuresof the various businesses vary, as do their requirements for resources and their characters ofbusiness risks. The achievement of a balanced allocation of management resources among thesefour business areas will allow Sumitomo Realty to grow, while at the same time allow the company
to responding to changes in the management environment and manage business risks.
In the March 31, 2002 fiscal year, the leasing business accounted for 61% of operating profit, thesales business for 30%, the construction business for 6%, and the brokerage business for 10%,
while other businesses and overhead costs accounted for -7%.
The leasing and Sales businesses which make a large contribution to earnings require a large
volume of capital resourses. Thus, almost all of the cost of funds that were posted under otherexpenses were attributable to these businesses. In contrast, since the construction and brokeragebusinesses require no infusion of funds, their operating profit can be nearly equal to their current
profit. These two businesses accounted for 27% of ordinary profit much higher than 16% of
operating profit.

2. Growth Forecasts
The New Three-Year Plan, commenced in the fiscal year ended March 31, 2001 and running until
March 31, 2004, sets a high goal of almost doubling current profit.
During the period of this plan, several large office buildings representing substantial investments
in land will complete, after a long time of land assemblage and this is forecast to bring a 30%
increase in the Company’s total floor space for leasing. As a result, the leasing business is expected
to show 27% growth in operating revenues, to ¥45 billion, and 42% growth in operating profit, to¥20 billion. Because the average age of the Company’s buildings is low, little investment in repairs
or maintenance is needed, and cash flows from periodic income can be applied to investments innew buildings. In addition, since the Company constructs buildings on already acquired and holding
lands, a maximum return on additional investments can be reached from up to 10% to 20%.
Although there is a degree of rental market risk we are in a stage of reaping the fruits of past
investment in office development. This is why the leasing business is expected to be the primary
driver of growth during the New Three-Year Plan.
We are also achieving substantial success in our other three primary businesses. Tax cuts, lowinterest rates, and an abundant supply of land have stabilized costs in the condominium development
field, which is the nucleus of our sales business. Supported by this macro-environment, favorable
market conditions continue. Maximizing the benefits of this tailwind, Sumitomo Realty continues toexpand revenues and profits. Although orders for new detached houses remain weak, ourconstruction business is seeing high growth in its Shinchiku Sokkurisan operations. Our brokerage
service business is commanding a higher market share, and is growing steadily.
It is axiomatic that our operations always go with various business risks and market risks, but webelieve that a balanced portfolio will allow us to achieve our management goals.

3. Assets

ROA (%)

4.2

4.0

3.9
3.2
2.6
2.5

1997

1998

1999

2000

2001

2002

Yield On Leasing Assets (%)
6.1
2.7

5.9
2.8

6.5
3.4

6.5
3.4

6.2
3.7

6.5
3.8

6.2
4.1

6.3
4.4

6.7
5.0

7.0
5.6

The collapse of the bubble economy and subsequent asset deflation have dealt the Company’s
assets a severe blow. However, during the course of the Five-Year Business Reconstruction Plan,
which was terminated a year early as goals were met during the March 31, 2001 fiscal year, an
extraordinary loss of ¥209 billion was posted. This significantly improved the condition of our assets.
We have also complied with new accounting standards and dealt with the effects.
We dealt with the March 2000 fiscal year loss on revaluation of real estate for sale and work inprogress investory.
In the March 1998 and 2001 fiscal years, Sumitomo Fudosan Finance wrote down a total of¥130 billion in bad loans, reducing them from a peak of ¥333 billion to ¥16 billion .
In the March 2000 fiscal year, most overseas assets were liquidated and capital recovered inconnection with a loss posted on business reorganization, and total investments were cut from ahigh point of ¥176 billion to ¥14 billion.
Standards for actual authority within the scope of consolidation were promulgated in the March
2000 fiscal year, in advance of the deadline.
The Company switched to current value accounting for financial products in the March 2001
fiscal year, in advance of the deadline.

1995 1996 1997 1998 1999 2000 2001 2002 2003F 2004F
Yield On Properties In Operation
Yield On Total Leasing Assets

Interest-Bearing Debt (Billions of yen)
1,686

1,618
1,382
1,286

1,193

In the fiscal year ended March 31, 2001, the Company switched to current value accounting for
retirement benefit obligations, and wrote off the entire transition cost.
As a result, the only issue remaining with respect to assets is the conversion to impairment
accounting for fixed assets. As soon as concrete standards for asset accounting and valuation are
fixed, the Company intends to, as always, implement them in advance.
In the fiscal year under review, total assets grew by ¥69 billion to ¥1,972 billion. This wasprimarily the result of investments in leasing properties, which caused tangible fixed assets toincrease by ¥53 billion.
To create an opportunity for real-estate development operations without burdening the balance
sheets, the Company established special purpose vehicles (SPV) for equity investment. These SPVs
took out non-recourse loans to finance the acquisition of lands for development. To clarify theamount of the Company’s investment in these SPVs we added a new “equity in real estate for sale”
balance sheet line item under current assets.

4. Liabilities and Shareholders’ Equity
1998

1999

2000

2001

2002

Capital Composition (Billions of yen)
1,686
218
175

1,618
238
198

1,382
334
211

1,286
434
193

1,193
573
214

1998

1999

2000

2001

2002

Interest-Bearing Debt+Guarantee
Other Debt
Shareholder’s Equity

The Company’s shareholders’ equity ratio is a low 10.8%, and its debt-equity ratio of 5.55 times isquite high. We therefore regard improving the financial structure as an important management issue.
We have already taken steps to recoup a portion of our investments, selling overseas assets andsecuritizing domestic assets to reduce interest-bearing liabilities, which was one issue dealt with in
the Five-Year Business Reconstruction Plan. The effect of these measures was a 29%, ¥493 billion
reduction in the Group’s total interest-bearing liabilities (the total of borrowed money, bonds,
commercial paper, guarantees, and conditional guarantees) at March 31, 2002, from the peak of¥1,686 billion. From the previous to this fiscal year under review, this represents a contraction of
7%, or ¥93 billion, to ¥1,193 billion.
The Sumitomo Fudosan Fund, a real estate investment fund specializing in lease properties, soldshares worth ¥31 billion during the period of this report, and an investment fund specializing incondominium construction sold ¥61 billion in shares. These two funds are operated through a“tokumei-kumiai” partnership in which Sumitomo Realty is managing the capital of the investors.
Japanese accounting standards require that all assets and liabilities of this tokumei-kumiai
partnership to be reported on Sumitomo Realty’s balance sheets. To keep this separate from
Sumitomo Realty’s shareholders’ equity, these are posted under long-term deposits. For the fiscal
year under review, the total for the leasing fund and the condominium construction fund is ¥166
billion.
SUMITOMO REALTY & DEVELOPMENT CO., LTD.

15

Consolidated Balance Sheets
March 31, 2002 and 2001
Thousands of
U.S. dollars (Note 1)

Millions of yen

AssetsCurrent assets:Cash, time and notice deposits (Note 4)
Marketable securities (Note 8)
Securitized properties for sale (Note 8)
Notes and accounts receivable-trade
Trading loans receivable
Allowance for doubtful accounts (Note 3)Inventories (Note 5)
Deferred income taxes (Note 11)
Other current assets
Total current assets
Investments and advances:
Investments in and advances to unconsolidated
subsidiaries and affiliated companies (Note 6)
Investments in securities and other (Note 8)
Allowance for doubtful accounts (Note 3)
Total investments and advances
Property and equipment (Notes 7 and 9):Land
Buildings and structures
Machinery and equipment
Construction in progress
Accumulated depreciation
Net property and equipment
Other assets:
Guarantee and lease deposits paid to lessors
Leasehold rights and other intangible assets
Deferred income taxes (Note 11)
Miscellaneous
Total other assets
See accompanying notes.

16 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

2002

2001

87,472 ¥129
21,915
20,347
106,696(37,738)
156,535
20,61929,024404,999

91,986401—
19,436
107,394(37,067)
149,215
16,36926,594374,328

9,874
71,937(26,154)
55,657

7,712
85,183(38,116)
54,77974,101
539,865(196,277)
417,689925,283
334,601
16,63647,371
1,323,891(123,839)
1,200,052

916,447
306,671
15,14324,274
1,262,535(115,534)
1,147,001

6,943,962
2,511,077
124,848355,505
9,935,392(929,373)
9,006,019

187,653
68,986
5,187
50,201
312,027¥ 1,972,735

196,242
72,534
20,15338,492
327,421¥ 1,903,529

1,408,278
517,719
38,927376,742
2,341,666$ 14,804,765

¥

2002

$

656,450968
164,465
152,698
800,720(283,212)
1,174,747
154,739
217,816
3,039,391

Thousands of
U.S. dollars (Note 1)

Millions of yen

Liabilities and Shareholders’ Equity
Current liabilities:
Short-term bank loans (Note 9)Long-term debt due within one year (Note 9)
Notes and accounts payable-trade
Accrued income taxes (Note 11)
Accrued bonuses
Deferred income taxes (Note 11)
Other current liabilities
Total current liabilities

2002

¥

311,457
272,599
37,823
2,453
2,408
19
138,647
765,406

2001¥

317,745
243,800
30,207
2,827
2,487
31
112,363
709,460

2002$

2,337,388
2,045,771
283,850
18,40918,071143
1,040,503
5,744,135

Long-term debt due after one year (Note 9)
Guarantee and deposits received (Note 12)
Deferred income taxes (Note 11)
Allowance for employees’ severance and retirement benefits (Notes 3 and 10)
Directors’ and corporate auditors’ retirement benefits
Other long-term liabilities

603,804
372,251
47
3,743
282
1,045

716,141
268,841
82
3,387
256
860

4,531,362
2,793,629
353
28,0902,116
7,842

Minority interests

12,39011,06092,98386,787
86,77396,822
96,822
32,165
11,673
215,774
195,268(2,159)1,016
182(2,840)(30)(2)
213,767
193,442¥ 1,972,735 ¥ 1,903,529

651,310726,619
241,388
1,619,317(16,203)
1,366
(225)
1,604,255$ 14,804,765

Contingent liabilities (Note 16)
Shareholders’ equity (Note 13):
Common stock
Authorized — 780,000 thousand shares
Issued— 407,086 thousand shares (406,810 thousand shares in 2001)
Additional paid-in capital
Retained earnings
Net unrealized holding gains (losses) on securities
Foreign currency translation adjustments
Treasury stock
Total shareholders’ equity

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

17

Consolidated Statements of Operations
Years ended March 31, 2002, 2001 and 2000
Thousands of
U.S. dollars (Note 1)

Millions of yen
2002

Revenue from operations (Note 3)
Costs and expenses:
Cost of revenue from operations (Note 3)
Selling, general and administrative expenses (Note 3)¥

Operating income
Other income (expenses):
Interest expense—net
Dividend income
Gain (Loss) on sale of property and equipment
Gain (Loss) on sale of marketable securities
Gain on sale of investments in subsidiary
Loss on devaluation of investments in securities
Write-off of bad debt
Loss on devaluation of marketable securities
Provision for allowance for doubtful accounts
Foreign exchange gains (losses)
Loss from write-down of property and equipment
Loss from devaluation of inventories
Loss from restructuring of overseas business
Loss on adjustment of prior year’s rent
Loss from sale and write-off of loans receivable
Net transition obligation
Other—net (Note 3)
Income (Loss) before income taxes and minority interest (Note 3):
Income taxes (Note 11):
Current
Deferred
Total
Minority interest
Net income (loss)¥

497,877

2001¥

459,245

2000¥

421,587

See accompanying notes.

18 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

¥3,736,413

377,199
40,308417,507
80,370349,597
34,430384,027
75,218319,997
31,042351,039
70,5482,830,762
302,499
3,133,261
603,152(28,200)
526
(202)
—
—
(3,750)
—
—
—
375
(478)
—
—
—
—
—
(6,307)(38,036)
42,334(34,491)
283
(375)
—
—
—
—
—
(14,828)
14
(501)
—
—
—
(50,111)(1,681)(2,613)(104,303)(29,085)(39,547)
241
62,477130419—(4,272)(2,897)
—
(17)
(486)
(24,864)(22,641)(14,168)——(2,740)(48,365)
22,183(211,632)
3,947(1,516)——(28,143)
—
—
—
2,814
(3,587)—————(47,331)(285,448)
317,704

4,608
13,10917,717

5,097(18,221)(13,124)

4,740
1,091
5,831

34,582
98,379132,961

1,621

2,047

1,615

12,16522,996¥(18,008)¥

14,737

Yen

Amounts per share of common stock:
Net income (loss)
Cash dividend applicable to the year

2002

$

56.50
6.00

¥

(44.27)
6.00$

172,578

U.S. dollars (Note 1)

¥

36.23
6.00

$

0.42
0.05

Consolidated Statements of Shareholders’ Equity
Years ended March 31, 2002, 2001 and 2000
Thousands

Millions of yen
Net unrealized
holding gains
Retained(losses) on
earnings
securities

Foreigncurrencytranslation
adjustments

Number ofshares ofcommon stock

Commonstock

Additional
paid-in
capitalBalance at March 31, 1999
Decrease due to change in consolidated
subsidiaries
Net income
Adjustments from translation of foreign
currency (Note 2)
Treasury stock
Cash dividends paid(¥6 per share)
Bonus to directors

406,810¥86,773¥96,822¥ 23,584¥—¥ (8,679)

¥(2)

—

—

—

(3,925)
14,737

—

—

—

—
—

—
—

—
—

—
—

—
—

4,284
—

—
0

—
—

—
—

—
—

(2,440)
(14)

—
—

—
—

—
—

Balance at March 31, 2000
Increase due to change in consolidated
subsidiaries
Net loss
Adjustments from translation of foreign
currency (Note 2)
Adoption of new accounting standard
for financial instruments
Treasury stock
Cash dividends paid(¥6 per share)
Bonus to directors

406,810

86,77396,822

31,942—(4,395)(2)

Treasurystock

195(18,008)
—

—

—

—

—

1,555

—

—
—

—
—

—
—

—
—

1,016
—

—
—

—
0

—
—

—
—

—
—

(2,441)
(15)

—
—

—
—

—
—

Balance at March 31, 2001
Decrease due to change in consolidated
subsidiaries
Net income
Foreign currency translation adjustments
Net unrealized holding losses on securities
Stock issued under exchange offerings (Note 13)
Treasury stock
Cash dividends paid(¥6 per share)
Bonus to directors

406,810

86,77396,822

11,673

1,016(2,840)

(2)

—
—
—
—
276
—

—
—
—
—
14
—

—
—
—
—
—
—

(45)
22,996
—
—
—
—

—
—
—
(3,175)
—
—

—
—
3,022
—
—
—

—
—
—
—
—
(28)

—
—

—
—

—
—

(2,441)
(18)

—
—

—
—

—
—

Balance at March 31, 2002

407,086¥86,787¥96,822¥32,165¥(2,159)

¥182

¥(30)

Thousands of U.S. dollars (Note 1)
Net unrealized
holding gains
Retained(losses) on
earnings
securities

Foreigncurrencytranslation
adjustments

Commonstock

Additional
paid-in
capitalBalance at March 31, 2001
Decrease due to change in consolidated subsidiaries
Net income
Foreign currency translation adjustments
Net unrealized holding losses on securities
Stock issued under exchange offerings (Note 13)
Treasury stock
Cash dividends paid($0.05 per share)
Bonus to directors$651,205
—
—
—
—
105
—

$726,619
—
—
—
—
—
—

$87,602(338)
172,578————$ 7,625———(23,828)——$(21,313)——
22,679
—
—
—

$(15)
—
—
—
—
—
(210)

—
—

—
—

(18,319)
(135)

—
—

—
—

—
—

Balance at March 31, 2002

$651,310$726,619$241,388$(16,203)$1,366$(225)

Treasurystock

See accompanying notes.

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

19

Consolidated Statements of Cash Flows
Years ended March 31, 2002, 2001 and 2000
Thousands of
U.S. dollars (Note 1)

Millions of yen
2002

Cash flows from operating activities:
Income (Loss) before income tax and minority interest
Depreciation and amortization
Provision for allowance for doubtful accounts—net
Loss on devaluation of marketable securities
Loss on devaluation of investments in securities
Gain on sale of investments in subsidiaries
Increase in employees' severance and retirement benefits
Interest and dividend income
Interest expense
Gain on sale of marketable securities
Loss (Gain) on sale of property and equipment
Loss from reduction of overseas business
Increase in securitized properties for sale
Decrease (Increase) in notes and accounts receivable-trade
Decrease in trade loans receivable
Decrease (Increase) in inventories
Increase in advances received
Increase (Decrease) in notes and accounts payable-trade
Other—net
Total

¥

2001

2000

42,334 ¥
10,731(11,292)
—
3,750
—
355
(1,026)28,701—
202—(9,112)(859)
12,565(7,363)
2,823
7,588(1,260)78,137(29,085)
10,377(36,259)
—
—
—
1,818
(1,187)35,395
—
375
—
—
272
96,302(21,195)
7,384(12,340)(7,041)44,816858(29,894)(4,974)
44,127

1,328(37,202)(5,686)
3,256

1,942
(39,963)(2,867)38,4396,439(224,345)(37,328)
331,159

Cash flows from investing activities:
Proceeds from sale of property and equipment
Payments for purchases of property and equipment
Increase in marketable securities
Proceeds from sale of securities
Payments for purchases investments in securities
Proceeds from sale of investments in securities
Increase in short-term loans
Decrease in guarantee and lease deposits paid to lessors
Increase (Decrease) in guarantee and lease deposits received
Capital expenditure
Receipts of deposits to partnerships
Restitution of deposits to partnerships
Other—net
Net cash provided by investing activities

4,264(56,241)——(22,134)——
8,508(1,792)(12,346)
97,392(5,245)(198)
12,20879,582(55,015)——(18,429)
2,659
178
50,897
8,392(12,271)
55,397—
201
111,591

167,238(97,965)(7,063)
8,719
—
—
1,886
44,582
2,187(7,198)29,768—(9,709)132,445

32,000(422,071)——(166,109)——
63,850(13,448)(92,653)
730,897(39,362)(1,487)
91,617

Cash flows from financing activities:
Decrease in short-term bank loans
Proceeds from issuance of bonds and notes
Repayments of bonds and notes
Increase in long-term debt
Proceeds from issuance of common stock to minority shareholders
Proceeds from assignment of advances received
Other—net
Cash dividends paid
Net cash used in financing activities(6,288)61,258(145,684)
853—
15,93814,059(2,678)(62,542)(33,096)
70,000(133,690)
4,877—
29,1492,550(2,643)(62,853)(349,006)
130,000(90,000)
102,788987—(2,246)(2,569)(210,046)(47,189)459,722(1,093,313)
6,402—
119,610
105,508(20,098)(469,358)

Effect of exchange rate changes on cash and cash equivalents

1,395

151

(261)

10,469Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase (Decrease) in cash and cash equivalents resulting fromchanges in the number of consolidated of subsidiaries
Cash and cash equivalents at end of year (Note 4)(4,812)
92,37952,14540,236(39,423)
79,614(36,113)693,276(0)87,567 ¥(2)
92,379Proceeds from interest and dividend income
Payments for interest
Payments for income tax and other taxes
Net cash provided by operating activities

See accompanying notes.

20 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

¥

¥

2002

¥

22,183
11,269(9,306)
2,897
—
(419)
994
(1,784)41,090(130)(62,477)
22,641—
8,476
15,740
9,899
3,861
7,251
7,142
79,32745
40,236$

317,704
80,533(84,743)
28,143—
2,664(7,700)215,392—
1,516—(68,383)(6,447)
94,296(55,257)
21,18656,946(9,457)586,393$(0)657,163

Notes to Consolidated Financial Statements
Years ended March 31, 2002, 2001 and 2000

1. Basis of financial statements
Sumitomo Realty & Development Co., Ltd. (the “Company”), and its
consolidated domestic subsidiaries maintain their official accounting
records in Japanese yen and in accordance with the provisions set forth in
the Japanese Commercial Code and accounting principles and practices
generally accepted in Japan (“Japanese GAAP”). The accounts ofoverseas subsidiaries are based on their accounting records maintained inconformity with generally accepted accounting principles and practices
prevailing in the respective countries of domicile. Certain accounting
principles and practices generally accepted in Japan are different fromInternational Accounting Standards and standards in other countries incertain respects as to application and disclosure requirements.
Accordingly, the accompanying financial statements are intended for use
by those who are informed about Japanese accounting principles andpractices.
The accompanying financial statements have been restructured andtranslated into English (with some expanded descriptions and the inclusionof statements of shareholders’ equity) from the consolidated financial
statements of the Company prepared in accordance with Japanese GAAP
and filed with the appropriate Local Finance Bureau of the Ministry of
Finance as required by the Securities and Exchange Law. Some
supplementary information included in the statutory Japanese language
consolidated financial statements, but not required for fair presentation, is
not presented in the accompanying financial statements.
The translation of the Japanese yen amounts into U.S. dollars areincluded solely for the convenience of readers, using the prevailingexchange rate at March 31, 2002, which was ¥133.25 to U.S. $1. The
convenience translations should not be construed as representations that
the Japanese yen amounts have been, could have been, or could in the
future be, converted into U.S. dollars at this or any other rate of exchange.

2. Accounting policies(1) Principles of consolidation
Effective from the year ended March 31, 2000, companies are required toconsolidate all significant investees which are controlled through substantial
ownership of majority voting rights or existence of certain conditions. As aresult , three additional subsidiaries have been included in the
consolidation. However, the effect of the change is immaterial.
The accompanying consolidated financial statements include theaccounts of the Company and significant companies over which theCompany has power of control through majority voting right or existence of
certain conditions evidencing control by the Company.
In the elimination of investments in subsidiaries, the assets andliabilities of the subsidiaries, including the portion attributable to minority
shareholders, are recorded based on the fair value at the time theCompany acquired control of the respective subsidiaries.
All significant intercompany balances, transactions and profits havebeen eliminated in consolidation.
(2) Foreign currency translation
Receivables and payables denominated in foreign currencies are translated
into Japanese yen at the year-end rates. Prior to April 1, 2000, long-term
receivables and payable denominated in foreign currencies were translated
at historical rates.
Effective April 1, 2000, the Company and its consolidated subsidiaries
adopted the revised accounting standard for foreign currency translation,“Opinion Concerning Revision of Accounting Standard for Foreign
Currency Translation”, issued by the Business Accounting Deliberation
Council on October 22, 1999 (the “Revised Accounting Standard”). Under
the Revised Accounting Standard, long-term receivables and payables
denominated in foreign currencies are also translated into Japanese yen at
the year-end rate.
The effect on the consolidated statement of operations of adopting the
Revised Accounting Standard was immaterial.
Financial statements of consolidated overseas subsidiaries aretranslated into Japanese yen at the year-end rate, except thatshareholders’ equity accounts are translated at historical rates and income
statement items resulting from transactions with the Company at the rates
used by the Company.
Due to the adoption of the Revised Accounting Standard, theCompany and its domestic subsidiaries report foreign currency translation
adjustments in the shareholders’ equity. The prior years’ amounts, whichwere included in assets, have been reclassified to conform to the 2001
presentation.

(3) Cash and cash equivalents
In preparing the consolidated statements of cash flows, cash on hand,readily-available deposits and short-term highly liquid investments withmaturity of not exceeding three months at the time of purchase areconsidered to be cash and cash equivalents.
(4) Recognition of revenue
Revenues from sales of land and residential houses are recognized whenunits are delivered and accepted by customers. Revenues from leasing of
office space, shops and apartments are recognized as rent accrues overthe life of the lease.
Effective April 1, 2001, as explained in Note 3, the Company changed
the method of recognition of revenue and expense from the real estatebusiness which used Special Purpose Companies (“ SPC ”) to record inrevenue from operations.
(5) Inventories
Inventories are stated at cost which is determined by the specificidentification cost method.
In the prior years, the costs of consignment sales were recognized as
expense in the period they were incurred. In the year ended March 31,
2001, the Company introduced cost accounting system with the intent tobetter manage consignment sales activities, by matching revenue fromsales of consigned properties and costs associated to such properties, thisresulted in recording the costs of non-delivered estate amounting to ¥966
million as inventories at that date.
Consequently this change resulted an increase of ¥966 million in
operating income and net loss before income taxes compared with what
would have been reported under the prior method.
The effect on segment information is explained in Note 18.
(6) Securities
Prior to April 1, 2000, securities quoted on stock exchanges are primarily
stated at the lower of market or cost, determined by the moving-averagemethod. Other securities were stated at cost, determined by the movingaverage method.
Effective April 1, 2000, the Company and its consolidated subsidiaries
adopted new Japanese accounting standard for financial instruments(“Opinion Concerning Establishment of Accounting Standard for Financial
Instruments” issued by the Business Accounting Deliberation Council on
January 22, 1999).
Upon applying the new accounting standard, all companies are
required to examine the intent of holding each security and classify those
SUMITOMO REALTY & DEVELOPMENT CO., LTD.

21

securities as (a) securities held for trading purposes (hereafter, “trading
securities”), (b) debt securities intended to be held to maturity (hereafter,“held-to-maturity debt securities”), (c) equity securities issued bysubsidiaries and affiliated companies, and (d) for all other securities thatare not classified in any of the above categories (hereafter, “available-forsale securities”)
Held-to-maturity debt securities are stated at amortized cost. Equity
security issued by affiliated company which is not consolidated or
accounted for using the equity method is stated at moving-average cost.
Available-for-sale securities with available fair market values are stated atfair market value. Unrealized gains and unrealized losses on thesesecurities are reported, net of applicable income taxes, as a separate
component of shareholders’ equity. Realized gains and losses on sale ofsuch securities are computed using moving-average cost.
Securitized properties for sale is stated at cost which is determined by
the specific identification cost method and securities with no available fairmarket value are stated at moving-average cost.
If the market value of held-to-maturity debt securities, equity securities
issued by affiliated company, and available-for-sale securities, declines
significantly, such securities are stated at fair market value and thedifference between fair market value and the carrying amount isrecognized as loss in the period of the decline. If the fair market value ofequity securities issued by unconsolidated subsidiaries and affiliatedcompanies not on the equity method is not readily available, such securities
should be written down to net asset value with a corresponding charge in
the income statement in the event net asset value declines significantly. In
these cases, such fair market value or the net asset value will be thecarrying amount of the securities at the beginning of the next year.
As a result of adopting the new accounting standard for financial
instruments, loss before income taxes decreased by ¥1,548 million. Also,
based on the examination of the intent of holding each security upon
application of the new accounting standard on April 1, 2000, held-tomaturity debt securities and available-for-sale securities maturing within
one year from the balance sheet date are included in current assets, andother securities are included in investments and other assets. As a result,at April 1, 2000, securities in current assets decreased by ¥9,156 million,
securities loaned in current assets decreased by ¥15,727 million andinvestment securities increased by ¥24,883 million compared with what
would have been reported under the previous accounting policy.
(7) Property and equipment
The Company and domestic consolidated subsidiaries depreciate property
and equipment using the declining-balance method at rates determinedbased on the useful lives prescribed in the Japanese tax regulations exceptthat the Company and two domestic subsidiaries depreciate buildings using
the straight-line method and certain other domestic subsidiaries depreciatebuildings, excluding building fixtures, acquired after March 31, 1998 using
the straight-line method. Overseas consolidated subsidiaries depreciateproperty and equipment using primarily the straight-line method in
accordance with the accounting principles in the respective countries.
Estimated useful lives used in the computation of depreciation are
generally as follows:
Buildings and structures ..................6 to 60 years
Machinery and equipment................2 to 20 years(8) Software Cost
Software costs are amortized using the straight-line method over theestimated useful lives (five years).
In accordance with the provisional rule of the JICPA’s Accounting
Committee Report No.12 “Practical Guidance for Accounting for Researchand Development Costs, etc.”(the “Report”), the Company accounts forsoftware which was included in Leasehold rights and other intangible
assets in the same manner in 2000. Pursuant to the Report, however, the22 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

Company depreciated it using the straight-line method over the estimateduseful lives (five years).
(9)Allowance for doubtful accountAllowance for doubtful accounts is provided in amounts sufficient to coverprobable losses on collection. It consists of the estimated amountconsidered to be uncollectible based on the evaluation of certain identified
trade notes, accounts and loans receivable, and an amount calculated byapplying the percentage of collection losses experienced in certain period
in the past to the remaining receivables in 2000, when the Company
changed the accounting policy as explained in Note 3.
(10) Finance Leases
Finance leases except those leases for which the ownership of the leased
assets is considered to be transferred to the lessee, are accounted for in
the same manner as operating leases.
(11) Income taxes
Income taxes are provided for on the basis of income for financial
statement purposes. The tax effect of temporary differences between the
carrying amounts of assets and liabilities for financial statements andincome tax purposes is recognized as deferred income taxes.
(12) Employees’ retirement benefits
The Company and some of its consolidated subsidiaries provide two typesof post-employment benefit plans, unfunded lump-sum payment plans andfunded non-contributory pension plans, under which all eligible employees
are entitled to benefits based on their current rate of pay, length of service,and the conditions under which the termination occurs.
Prior to April 1, 2000, consolidated subsidiaries accrued liabilities forlump-sum severance and retirement payments equal to 40% of theamount required had all eligible employees voluntarily terminated theiremployment at the balance sheet date, except that, at March 31, 2000,
one consolidated subsidiary provided liabilities for severance and retirement
benefits based on the Net-Present-Value method as discussed in Note 3.
The Company and its consolidated subsidiaries (“the Companies”)
recognized pension expense when, and to the extent, payments weremade to the pension plans.
Effective April 1, 2000, the Companies adopted the new accounting
standard (“Opinion on Setting Accounting Standard for Employees’
Severance and Pension Benefits”, issued by the Business Accounting
Deliberation council on June 16, 1998).
Under the new accounting standard, liabilities and expenses forseverance and retirement benefits are determined based on the amounts
actuarially calculated using certain assumptions.
The Companies provided allowance for employees’ severance andretirement benefits at March 31, 2002 and 2001 based on the estimatedamount of projected benefit obligation at those dates.
The excess of the projected benefit obligation over the total of the fairvalue of pension assets as of April 1, 2000 and the liabilities for severance
and retirement benefits recorded as of April 1, 2000 (the “net transition
obligation”) amounted to ¥1,681 million. All of this was recognized in
expenses in the year ended March 31, 2001. Actuarial gains and losses
are recognized in expenses in the succeeding period.
As a result of the adoption of the new accounting standard, in the year
ended March 31, 2001, severance and retirement benefit expenses
increased by ¥1,721 million, operating income decreased by ¥41 million
and loss before income taxes increased by ¥1,721 million compared withwhat would have been recorded under the previous accounting standard.
(13) Derivative transaction and hedge accounting
The new accounting standard for financial instruments, effective from theyear ended March 31, 2001, requires companies to state derivative

financial instruments at fair value and to recognize changes in the fair value
as gains or losses unless derivative financial instruments are used forhedging purposes.
If derivative financial instruments are used as hedges and meet certain
hedging criteria, the Company and its consolidated subsidiaries defer
recognition of gains or losses resulting from changes in fair value ofderivative financial instruments until the related losses or gains on thehedged items are recognized.
However, in cases where forward foreign exchange contracts are usedas hedges and meet certain hedging criteria, forward foreign exchange
contracts and hedged items are accounted for in the following manner:
1. If a forward foreign exchange contract is executed to hedge an existing
foreign currency receivable or payable,(a) the difference, if any, between the Japanese yen amount of thehedged foreign currency receivable or payable translated using the spot
rate at the inception date of the contract and the book value of thereceivable or payable is recognized in the income statement in the
period which includes the inception date, and(b) the discount or premium on the contract (that is, the difference
between the Japanese yen amount of the contract translated using thecontracted forward rate and that translated using the spot rate at the
inception date of the contract) is recognized over the term of thecontract

2. If a forward foreign exchange contract is executed to hedge a futuretransaction denominated in a foreign currency, the future transaction
will be recorded using the contracted forward rate, and no gains orlosses on the forward foreign exchange contract are recognized.
Also, if interest rate swap contracts are used as hedge and meet certain
hedging criteria, the net amount to be paid or received under the interest
rate swap contract is added to or deducted from the interest on the assets
or liabilities for which the swap contract was executed.
(14) Amounts per share of common stock
The computation of net income per share is based on the weightedaverage number of shares of common stock outstanding during each year.
Diluted net income per share is not presented, since the Company has
never issued any securities with dilutive effect.
Cash dividends per share represent actual amounts applicable to therespective year.
(15) Reclassifications
Certain prior years amounts have been reclassified to conform to the 2002
presentation. These changes had no impact on previously reported resultsof operations.

3. Changes in accounting policies(1) Effective April 1, 2001, the Company changed the method ofrecognition of revenue and expense from the real estate business
which used SPC. The old method recorded in either Other operating
income account or Other operating expense account. The new method
recorded in the Revenue from operations account.
The reason for the change is that the Company altered the
Articles of Incorporation at the general meeting of shareholders on
June 28, 2002. The Company has included investment, purchase,sales, brokerage and management of SPC related business and JREIT business as the Company’s core businesses. Therefore, theCompany has decided to incorporate revenues from the abovementioned new businesses in the Revenue from operations account.
The effect of the change increased the Revenue from operations
and Operating income by ¥3,426 million ($25,711 thousand) and to
decrease Other income by the same amount, therefore there was aneffect on net income.
The effect on segment information of these changes is explainedin Note 18.
(2) Allowance for doubtful accounts is provided in amounts sufficient tocover probable losses on collection. It consists of the estimatedamount considered to be uncollectible based on the evaluation ofcertain identified trade notes, accounts and loans receivables, and an

amount calculated by applying the percentage of collection losses
experienced in certain period in the past to the remaining receivables in
2002, 2001 and 2000. Prior to 2000, allowance for doubtful
accounts was provided at an estimated amount of probable bad debts
plus the maximum amount allowed under the Japanese tax regulations.
The effect of this change was to increase income before income
taxes for the year ended March 31, 2000 by ¥50 million comparedwith what would have been reported under the previous method.
The effect on segment information of these changes is explainedin Note 18.
(3) Effective April 1, 1999, one consolidated subsidiary changed its
method of accounting for employees’ retirement benefits. Previously
the subsidiary provided for such benefits at 40% of the amount which
would be required if all eligible employees had voluntarily retired or
terminated their employment at the balance sheet date. Effective fromthe year ended March 31, 2000, the subsidiary adopted the Net
Present Value method, under which amounts based on the present
value of estimated future payments of severance and retirement
benefits upon termination or retirement are used in the computation of
the liabilities and expenses for such benefits.
The effect on segment information of these changes is explainedin Note 18.

4. Cash and cash equivalents
Cash and cash equivalents at March 31,2002, 2001 and 2000 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Cash, time and notice deposits
Time deposits over three months
Marketable securities
Cash and cash equivalents

2002

2001

2000

¥87,472(9)
104¥87,567¥91,986(8)
401¥92,379¥39,728(3)
511¥40,236

2002$656,450(67)780$657,163

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

23

5. Inventories
Inventories at March 31, 2002 and 2001, were as follows:

Thousands of
U.S. dollars

Millions of yen

Land and houses for saleLand and houses projects in progress
Land held for development
Other
Total

2002

2001

2002

¥ 23,905
74,76053,121
4,749¥156,535¥ 20,593
61,211
61,701
5,710¥149,215$ 179,399
561,051
398,657
35,640$1,174,747

6. Investments in and advances to unconsolidated subsidiaries and affiliated companies
Investments in and advances to unconsolidated subsidiaries and affiliated companies at March 31, 2002 and 2001, consisted of the following:Thousands of
U.S. dollars

Millions of yen

Investments in common stock, at cost
Advances
Total

2002

2001

2002

¥5,806
4,068¥9,874¥5,800
1,912¥7,712$43,572
30,529$74,101

7. Properties in trust
The Company has properties which are the object of real estate trust contracts.
Such properties included in property and equipment in the consolidated balance sheets at March 31, 2002 and 2001, were as follows:
Thousands of
U.S. dollars

Millions of yen

Buildings and structures
Land
Machinery and equipment
Total

2002

2001

¥ 7,261
18,62897¥25,986¥ 7,606
18,628113¥26,347

2002$ 54,492
139,797
728$195,017

8. Securities
For 2002
A. The following tables summarize acquisition costs, book values and fair value of securities with available fair values as of March 31, 2002:(a) Held-to-maturity debt securities:
Millions of yen

Securities whose market fair value exceeds book value
National and local government bonds, etc.
Securities whose market fair value does not exceed book value
National and local government bonds, etc.
Total

Thousands of U.S. dollars

Book value

Fair value

DifferenceBook value

Fair value

Difference¥1,169¥1,188¥19$8,773$8,916$143

10¥1,17910¥1,198(0)¥1975$8,84875$8,991(0)$143(b) Available-for-sale securities:
Millions of yen

Securities whose book value exceeds acquisition cost
Equity securities
Others
Sub total
Securities whose book value does not exceed acquisition cost
Equity securities
Others
Sub total
Total

Thousands of U.S. dollars

Acquisition cost

Book value

Difference

Acquisition cost

Book value

Difference¥11,2871
11,288¥14,256
1
14,257¥2,96902,969¥84,7058
84,713¥106,9868
106,994¥22,281022,281

31,895
1,328
33,223¥44,51125,6591,247
26,906¥41,163(6,236)(81)(6,317)¥(3,348)239,362
9,966
249,328$334,041

192,5639,358
201,921$308,915(46,799)(608)(47,407)$(25,126)

Investments in securities were devaluated and the loss amounted to ¥3,724 million ($27,947 thousand), consisted of equity securities included Available-forsale securities amounted to ¥3,559 million ($26,709 thousand) and others amounted to ¥165 million ($1,238 thousand).

24 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

B. The following table summarizes book values of securities with no available fair values as of March 31, 2002:
Available-for-sale securities:
Book value

MMF
Non-listed equity securities
Senior securities
Total

Millions of yen

Thousands of
U.S. dollars

¥

$

104
968
23,033¥24,105780
7,265
172,856$180,901

Senior securities included securitized properties for sale amounted to ¥21,915 million ($164,465 thousand).
C. Available-for-sale securities with maturities and held-to-maturity debt securities are as follows:
1 year or less

Available-for-sale securities
Held-to-maturity debt securities:
National and local government bonds, etc.
Total

Over 10 year

¥203

¥ 976

¥600

¥—

—
¥203

737
¥1,713

—
¥600

—
¥—

Thousands of U.S. dollars
1 to 5 years
5 to 10 years

Over 10 year

1 year or less

Available-for- sale securities
Held-to-maturity debt securities:
National and local government bonds, etc.
Total

Millions of yen
1 to 5 years
5 to 10 years$1,524$7,325$4,503¥——$1,524

5,531$12,856—$4,503—¥—

D. Total sales of available-for-sale securities sold in the year ended March 31, 2002 amounted to ¥596 million ($4,473 thousand) and the related gains andlosses amounted to ¥241 million ($1,809 thousand) and ¥172 million ($1,291 thousand), respectively.
E. The account “Securitized properties for sale” means the Company sells underlying property assets through SPC. “Securitized asset” means Preferred
Subscription Certificates and Tokumei Kumiai Investments etc., which are issued by SPC.
In the year ended March 31, 2002, the Company transferred ¥12,803 million ($96,083 thousand) from Investment in securities account to securitizedproperties for sale account. The effect of the above-mentioned change is explained in Note 18.
“Tokumei Kumiai” can be used as a vehicle for investment allowed under the Japanese Commercial Code.
For 2001
A. The following tables summarize acquisition costs, book values and fair value of securities with available fair values as of March 31, 2001:(a) Held-to-maturity debt securities:
Millions of yen
Book value

Securities whose market fair value exceeds book value
National and local government bonds, etc.

¥1,232(b) Available-for-sale securities:
Securities whose book value exceeds acquisition cost
Equity securities
Securities whose book value does not exceed acquisition cost
Equity securities
Others
Sub total
Total

Fair value

Difference¥1,261¥29

Millions of yen
Acquisition cost

Book value

Difference¥11,310¥16,188¥4,878

14,6201,719
16,339¥27,649

12,035
1,314
13,349¥29,537(2,585)(405)(2,990)¥1,888

B. The following table summarizes book values of securities with no available fair values as of March 31, 2001:
Book value
Millions of yen

MMF
Non-listed equity securities
Senior securities
Total

¥

401
1,404
12,903¥14,708

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

25

C. Available-for-sale securities with maturities and held-to-maturity debt securities are as follows:
1 year or less

Available-for- sale securities
Held-to-maturity debt securities:
National and local government bonds, etc.
Total

Millions of yen
1 to 5 years
5 to 10 years

Over 10 year¥ —¥1,068

¥10

¥—

169
¥169

1,063
¥2,131

—
¥10

—
¥—

9. Short-term bank loans and long-term debt
Short-term bank loans are represented in notes maturing generally in three months. The annual interest rates on short-term bank loans outstanding at March
31, 2002 and 2001 were principally ranging from 0.25% to 1.88% and 0.25% to 6.00%, respectively.
Long-term debt at March 31, 2002 and 2001, consisted of the following:
Millions of yen
2002

2.9% Euroyen notes, due 2001
3.15% Euroyen notes, due 2002
3.0% Euroyen notes, due 2001
2.5% Euroyen notes, due 2001
2.1% Euroyen notes, due 2001
2.35% Euroyen notes, due 2002
2.65% Euroyen notes, due 2004
2.4% Euroyen notes, due 2003
2.575% Euroyen notes, due 2004
1.9% domestic straight bonds, due 2001
2.5% domestic straight bonds, due 2003
2.025% domestic straight bonds, due 2002
2.025% domestic straight bonds, due 2001
2.6% domestic straight bonds, due 2002
2.5% domestic straight bonds, due 2002
Floating rate Euruoyen notes, due 2002
2.6% Euroyen notes, due 2003
2.75% domestic straight bonds, due 2003
3.0% domestic straight bonds, due 2004
2.6% domestic straight bonds, due 2003
2.6% Euroyen notes, due 2001
3.1% Euroyen notes, due 2005
2.7% domestic straight bonds, due 2001
2.97% Euroyen notes, due 2002
3.0% domestic straight bonds, due 2003
3.0% domestic straight bonds, due 2003
2.35% domestic straight bonds, due 2002
2.65% domestic straight bonds, due 2003
2.95% domestic straight bonds, due 2004
2.35% domestic straight bonds, due 2003
2.45% domestic straight bonds, due 2004
2.45% domestic straight bonds, due 2004
2.62% domestic straight bonds, due 2005
2.3% domestic straight bonds, due 2004
2.85% domestic straight bonds, due 2006
Floating rate domestic straight bonds, due 2006
1.6% domestic straight bonds, due 2006
Floating rate domestic straight bonds, due 2006
Floating rate domestic straight bonds, due 2007
1.5% domestic straight bonds, due 2006
Floating rate domestic straight bonds, due 2006
Loans, principally from banks and insurance companies,
interest principally at rates of 0.82% to 4.66% in 2002,
and 0.80% to 4.58% in 2001:
SecuredUnsecured
Amount due within one year

26 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

¥

U.S. dollars
2001

2002

—
9,400
—
—
—
10,000
9,300
9,400
7,500
—
13,70019,000
—
—
—
1,000
1,000
5,200
3,900
8,700
—
700
—
—
10,00033,90230,0009,820
37,1009,510
20,0009,770
17,024
4,400
4,200
9,698
10,00010,00010,0007,360
10,000¥ 20,000
9,400
20,00019,8909,800
10,0009,800
10,0008,500
15,00017,60020,000
7,000
7,000
8,000
1,000
1,000
7,000
4,000
10,000
1,000
700
5,000
5,000
15,00035,00030,00010,00040,0009,710
20,00010,00019,910
4,700
5,000
—
—
—
—
—
—

$

—
70,544———75,047
69,79470,54456,285—
102,814
142,589
—
—
—
7,505
7,505
39,02429,26865,291—
5,253——
75,047
254,424
225,141
73,696
278,424
71,370150,094
73,321
127,760
33,02031,52072,78075,04775,04775,04755,23475,047

1,981
532,838
876,403(272,599)¥603,8042,024
531,907959,941(243,800)¥716,141

14,867
3,998,784
6,577,133(2,045,771)$4,531,362

The aggregate annual maturities of long-term debt at March 31, 2002, are as follows:Year ending March 31

Millions of yen

Thousands of
U.S. dollars

2003
2004
2005
2006
2007
2008 and thereafter¥272,599
203,212170,388
64,735
113,845
51,624$2,045,771
1,525,043
1,278,709
485,816854,372
387,422Net book value of property and equipment (mainly land and buildings) in the amount of ¥1,413 million ($10,604 thousand) was pledged as security for shortterm bank loans and long-term debt at March 31, 2002.
As is customary in Japan, security must be given if requested by lending banks under certain circumstances, and generally banks have the right to offset
cash deposited with them against any debt or obligations payable to the bank that becomes due in case default and certain other specified events. The
Company has never received such request.

10. Employees’ severance and retirement benefits
As explained in Note 2 (12), effective April 1, 2000, the Companies
adopted the new accounting standard for employees’ severance andretirement benefits, under which the liabilities and expenses for severance
and retirement benefits are determined based on the amounts obtained byactuarial calculations.
The liabilities for severance and retirement benefits included in theliability section of the consolidated balance sheets as of March 31, 2002
and 2001 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Projected benefit obligation
Unrecognized actuarial differences
Less fair value of pension assets
Liability for severance and retirement benefits

2002

2001

2002

¥6,276(431)(2,102)¥3,743¥5,624(145)(2,092)¥3,387$47,100(3,235)(15,775)$28,090

Included in the consolidated statements of operations for the years ended March 31, 2002 and 2001 are severance and retirement benefit expenses
comprised of the following:Thousands of
U.S. dollars

Millions of yen
2002

Service costs - benefits earned during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of actuarial differences
Amortization of net transition obligation
Severance and retirement benefit expenses
The discount rate and the rate of expected return on plan assets for years
ended March 31, 2002 and 2001 used by the Company are 2.5% and3%, respectively (the discount rates used by one consolidated subsidiary is
2.0% and 2.5%, respectively). The estimated amount of all retirement

¥444
154
(61)
145
—
¥682

2001

¥ 398
146
(56)
—
1,681
¥2,1692002$3,332
1,156
(458)
1,088
—
$5,118benefits to be paid at the future retirement date is allocated equally to eachservice year using the estimated number of total service years. Actuarial
gains and losses are recognized in income statement in the next year.

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

27

11. Income taxes
The normal effective statutory income tax rate in Japan arising out ofaggregation of corporate, enterprise and inhabitants taxes wasapproximately 42.05 % for the years ended March 31, 2002, 2001 and2000.

The difference between the statutory tax rate and the Company’s
effective tax rate for financial statement purposes for the years ended
March 31, 2002 and 2001 were not significant. Therefore the breakdownof the differences of such tax rates is not disclosed.

Details of deferred tax assets and liabilities at March 31, 2002 and 2001 are as follows:
Thousands of
U.S. dollars

Millions of yen
2002

2001

2002

Deferred tax assets:
Net operating loss carryforwards
Loss from devaluation of inventories
Unrealized inter-company profits
Net realized holding losses on securities
Other¥24,398
6,612
3,937
1,515
4,927

¥34,157
7,562
3,919
—
3,693

$183,099
49,621
29,546
11,37036,976

Total deferred tax assets
Valuation allowance

41,389(15,583)

49,331(11,372)

310,612(116,946)

Net deferred tax assets

25,80637,959193,666

Deferred tax liabilities:
Net unrealized holding gains on securities
Other

(47)
(19)

(793)
(757)

(353)
(143)

Total deferred tax liabilities(66)(1,550)(496)¥25,740¥36,409$193,170

Net deferred tax assets

12. Guarantee and deposits received
Guarantee and deposits received at March 31, 2002 and 2001, were summarized as follows:

Thousands of
U.S. dollars

Millions of yen

Guarantee and lease deposits from tenantsLong-term deposits

2002

2001

2002

¥185,678
186,573¥372,251¥187,464
81,377¥268,841$1,393,456
1,400,173$2,793,629

13. Shareholders’ equity
Under the Commercial Code of Japan (the “Code”), the entire amount of
the issue price of shares is required to be accounted for as capital,
although a company may, by resolution of its board of directors, accountfor an amount not exceeding one-half of the issue price of the new sharesas additional paid-in capital.
Effective October 1, 2001, the Code provides that an amount equal toat least 10% of cash dividends and other cash appropriations shall beappropriated and set aside as a legal reserve until the total amount of legal
reserve and additional paid-in capital equals 25% of common stock. The
legal reserve and additional paid-in capital may be used to eliminate or
reduce a deficit by resolution of the shareholders’ meeting or may becapitalized by resolution of the Board of Directors. On condition that the
total amount of legal reserve and additional paid-in capital remains being
equal to or exceeding 25% of common stock, they are available for
distribution by the resolution of shareholders’ meeting. Legal reserve is
included in retained earnings in the accompanying financial statements.
The maximum amount that the Company can distribute as dividends is
calculated based on the non-consolidated financial statements of theCompany in accordance with the Code.
In 2002, the Company made IZUMI KAIHATSU CO., LTD as thewholly owned subsidiary company through exchange offerings.

14. Information for certain lease transactions
Finance leases which do not transfer ownership to lessees are notcapitalized and accounted for in the same manner as operating leases.

28 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

Certain information for such non-capitalized finance leases was as follows.

As lessee
A summary of assumed amounts (inclusive of interest) of acquisition cost, accumulated depreciation and net book value at March 31, 2002 and 2001 wereas follows:
Thousands of
U.S. dollars

Millions of yen

Acqusition cost:
Buildings and structures
Other
Accumulated depreciation
Net book value

2002

2001

2002

¥9,8651,441(2,020)¥9,286¥3,377
1,065(1,460)¥2,982$74,034
10,814(15,159)$69,689

Depreciation equivalent of ¥1,012 million ($7,595 thousand) and ¥825 million for 2002 and 2001, repectively, are computed using the straight-line method
over the lease terms assuming no residual value or residual indemnity.
Lease expenses under finance leases, inclusive of interest, for the years ended March 31, 2002 and 2001, amounted to ¥1,012 million ($7,595
thousand) and ¥825 million, respectively.
Future lease payments and receipts under such finance leases and non-cancelable operating leases at March 31, 2002 and 2001, were as follows:
Thousands of
U.S. dollars

Millions of yen

Finance leases
Future lease payments:
Due within one year
Due after one year
Total
Future sub-lease payments:
Due within one year
Due after one year
Total
Future sub-lease receipts:
Due within one year
Due after one year
Total
Operating leases
Future lease payments:
Due within one year
Due after one year
Total
Future lease receipts:
Due within one year
Due after one year
Total

2002

2001

¥ 1,698
7,588¥ 9,286

¥

708
2,274
¥ 2,982$ 12,743
56,946$ 69,689

¥

¥

$

¥

12
8
20

$

¥

¥51
91
142

¥

¥
¥

7
1
8

49
42
91

2002

$

$

52
8
60

368
315
683

¥ 4,91054,964¥59,874¥ 4,901
59,821¥64,722$ 36,848
412,488$449,336

¥

¥

$

89
922
¥ 1,01197
1,020¥ 1,117

$

668
6,919
7,587

15. Derivative transactions
The Company and its subsidiaries utilize financial derivative transactions
only for the purpose of hedging the currency risk associated with foreign
currency denominated transactions or hedging the interest rate risk
associated with the Company’s loans payable.
Forward foreign currency and interest rate swap contracts are subject
to risks of foreign exchange rate changes and interest rate changes,
respectively. The derivative financial instruments are executed withcreditworthy financial institutions, and the Company’s management
believes there is little risk of default by counterparties.
The derivative transactions are executed by the Company’s Finance
Department in accordance with the decisions in the conference whose
chairman is the director of finance department. The Finance Department
prepares reports on derivative transactions and informs them to thedirector of finance department periodically.
The following summarizes hedging derivative financial instruments
used by the Companies and items hedged:
Hedging instruments:
Hedged items:
Foreign exchange contracts
Foreign currency monetary liabilities andforeign provisional transaction
Interest rate swap contracts
Bank loan, bonds and deposits
The Companies evaluate hedge effectiveness by comparing the cumulativechanges in cash flows from or the changes in fair value of hedged items
and the corresponding changes in the hedging derivative instruments.
Evaluating hedge effectiveness of interest rate swap at years ended
March 31, 2002 and 2001 is omitted as special hedge accounting has
SUMITOMO REALTY & DEVELOPMENT CO., LTD.

29

been applied to derivative transactions of interest rate swap contracts.
Also, evaluating hedge effectiveness of foreign exchange at years ended
March 31, 2002 and 2001 is omitted because significant terms ofhedging instruments and those of the items hedged are the same and therisk of changes in foreign exchange rates would be entirely eliminated.

The contract amounts and unrealized gain or loss of outstanding
derivative transactions at March 31, 2002 and 2001were not disclosed
because all derivative transactions were used as hedges and hedge
accounting was applied.

16. Contingent liabilities
At March 31, 2002, the Company and its consolidated subsidiaries were contingently liable as guarantors of borrowings by affiliates and others as follows:
Millions of yen

Affiliates
Other
Total

¥1,5805,386¥6,966

Thousands of
U.S. dollars$11,858
40,420$52,278

Also, at March 31, 2002, the Company and its consolidated subsidiaries had outstanding commitments to guarantee loans of certain affiliates and others.
Certain information them as follows:
Millions of yen

Affiliates
Other
Total
During the year ended March 31, 2002, a consolidated subsidiary of theCompany assigned its bank loan of ¥2,000 million ($15,009 thousand)and certain assets deemed to be sufficient for the repayment to a SPC.
Under an agreement among the Company, the bank and the SPC, the
SPC accepted the liability as a primary debtor, whereas the consolidated
subsidiary remains as a secondary debtor. In cases of the delay inpayment by the SPC as set forth in the agreement, the consolidated
subsidiary may be subject to certain recourse by the bank.
(Lawsuits)
The Company was a defendant in the following lawsuits, in which, basedon the Leased Land and House Lease Law, the Company claimed the
reduction of the rental payments.
Two lawsuits are pending in court.

¥—
10
¥10

Thousands of
U.S. dollars

$—
75
$75

A lawsuit was brought in the Tokyo District Court against the Company
in 1994 (Case A) and another one in 1995 (Case B), relating to claims torecover the difference between the rental payments based on the leaseagreements and the amounts the Company paid taking a position under
Leased Land and House Lease Law. While the District Court issued
judgements against the Company in August and October of 1998, theCompany appealed to the Tokyo Higher Court in September andNovember of 1998 as the Company believed that the judgements were
contradictory to the previous legal interpretations.
In case A, the Tokyo Higher Court issued judgement for the Company
in October of 1999. And the lessor appealed to the Supreme Court inNovember of 1999.
In case B, the Tokyo Higher Court issued judgement against theCompany in January of 2000 that, the Company believed, wascontradictory to the previous legal interpretations. So the Company
appealed to the Supreme Court in January of 2000.

17. Subsequent events
The Company issued 1.75 % ¥10,000 million ($75,047 million) domestic
straight bonds due 2005 on April 26, 2002, 1.85% ¥8,000 million($60,038 million) domestic straight bonds due 2006 on May 17, 2002,
1.85% ¥20,000 million ($150,094 million) domestic straight bonds due
2006 on May 20, 2002, and 2.00% ¥10,000 million ($75,047 million)

30 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

domestic straight bonds due 2007 on June 26, 2002.
On June 27, 2002, the shareholders of the Company approved
payments of a year-end cash dividend of ¥6 ($0.05) per share or a total¥2,442 million ($18,326 thousand) to shareholders of record at March 31,
2002.

18. Segment information
The Company and its consolidated subsidiaries mainly operate their business in five segments: leasing of buildings and shopping centers, etc.; sale ofdetached homes; construction of housing and buildings; brokerage business; and other business.
Information by industry segments for the years ended March 31, 2002, 2001 and 2000 is summarized as follows:
Millions of yen
Leasingbusiness

Salesbusiness

Construction
business

Brokeragebusiness

176,244
1,790
178,034
128,80949,225¥ 170,428—
170,428
146,040¥ 24,388¥ 108,336
6,993
115,329
110,557¥ 4,772¥ 35,966 ¥ 6,903
218
3,494
36,184
10,39728,231
10,384¥ 7,953 ¥13¥¥ 1,506,120
9,942
63,839¥ 193,37499
414¥ 20,299
176
211¥ 21,044 ¥ 110,412
212
71
274
71

¥ 1,851,249
10,50064,809¥ 121,486
231
654

¥

163,047
1,528
164,575
118,137
46,438¥ 149,196—
149,196
129,502¥ 19,694¥ 104,549
9,000
113,549
109,533¥ 4,016¥ 34,702 ¥ 7,751
179
6,461
34,881
14,212
26,1608,865¥ 8,721 ¥ 5,347

¥

¥

¥

¥ 1,415,770
9,707
45,721¥ 152,264
51
515¥ 25,266
187
334¥ 27,200 ¥ 115,332
178
85
732
125

¥ 1,735,832
10,20847,427

For 2000I Net sales
Customers
Intersegment
Total
Costs and expenses
Operating income

Leasingbusiness

Salesbusiness

Construction
business

BrokeragebusinessLoansbusiness¥ 151,268
1,535
152,803
107,050¥ 45,753¥ 150,483
3
150,486
131,912¥ 18,574¥ 80,064
7,102
87,16682,412¥ 4,754¥ 31,633 ¥
290
31,923
24,698¥ 7,225 ¥

2,192
4,089
6,281
4,069
2,212

II Identifiable assets
Depreciation expense
Capital expenditures¥1,492,129
10,649104,567¥ 128,572
28
464¥ 22,664
209
129¥ 21,124 ¥ 372,083
163
3
121
—

Year Ended March 31, 2002
I Net sales
Customers
Intersegment
Total
Costs and expenses
Operating income¥¥

II Identifiable assets
Depreciation expense
Capital expenditures
Year Ended March 31, 2001
I Net sales
Customers
Intersegment
Total
Costs and expenses
Operating income¥

II Identifiable assets
Depreciation expense
Capital expenditures

Other
business

Total¥

497,877
12,495510,372
424,02186,351

459,245
17,168476,413392,197
84,216

Elimination
and/or corporate

Consolidated¥— ¥(12,495)(12,495)(6,514)¥ (5,981) ¥497,877—
497,877
417,507
80,370¥ 1,972,735
10,731
65,463— ¥(17,168)(17,168)(8,170)¥ (8,998) ¥459,245—459,245
384,027
75,218¥ 167,697
169
454¥ 1,903,529
10,37747,881Elimination
and/or corporate

Consolidated

Millions of yen
Otherbusiness

Total¥ 5,947 ¥
965
6,912
6,382
¥ 530 ¥

421,587 ¥— ¥13,984(13,984)435,571(13,984)
356,523(5,484)79,048 ¥ (8,500) ¥421,587—
421,587
351,039
70,548¥ 7,835 ¥ 2,044,407 ¥ (128,064) ¥ 1,916,343
82
11,134135
11,26925
105,306
443
105,749

Thousands of U.S.dollars
Leasingbusiness

Salesbusiness

Construction
business

Brokeragebusiness

Otherbusiness

Total

Elimination
and/or corporate

For 2002
I Net sales
Customers
Intersegment
Total
Costs and expenses
Operating income$ 1,322,657
13,433
1,336,090
966,671$369,419$ 1,279,009
0
1,279,009
1,095,985$ 183,024$ 813,028
52,480865,508
829,696$ 35,812$ 269,914
1,636
271,550
211,865$ 59,685$ 51,805
26,22278,027
77,929$98$ 3,736,413
93,7713,830,184
3,182,146$ 648,038— $ 3,736,413(93,771)—(93,771)
3,736,413(48,885)
3,133,261$ (44,886) $603,152

II Identifiable assets
Depreciation expense
Capital expenditures$ 11,302,964
74,611
479,092$ 1,451,212
743
3,107

$ 152,338
1,321
1,584

$ 157,929
1,591
2,056

$ 828,607
533
533$ 13,893,050
78,799486,372$ 911,715
1,734
4,908

Consolidated$$ 14,804,765
80,533491,280

In the year ended March 31, 2002, the Company changed the method of recognition of revenue and expense from the real estate business which used SPC as statedin Note 3, “Changes in accounting policies”. Also, as described in Note 8, the Company transferred certain investment in securities to securitized properties for sale on
April 1, 2001.
SUMITOMO REALTY & DEVELOPMENT CO., LTD.

31

The effects of these changes on operating income and identifiable assets at and for the year ended March 31, 2002, were as follows:
Millions of yen
Operating income
Identifiable assets

Leasing business
Sales businessElimination and/or corporate¥3,426——In the year ended March 31, 2001, several changes were made affecting
segment disclosures as follows :A. From the year ended March 31, 2001, Loans business segment isincluded in Other business segment as the segment accounted forless than 10% of all segments in net sales, operating income andidentifiable assets.
Information on Loans business segment for the year ended March 31,
2001, is summarized as follows:
Millions of yen
Loansbusiness

I Net sales
Customers
Intersegment
Total
Costs and expenses
Operating income
II Identifiable assets
Depreciation expense
Capital expenditures¥1,784
5,009
6,793
1,750
¥5,043¥112,193
7
27

As described in Note 3 to the Consolidated Financial Statements, from theyear ended March 31, 2000, employees retirement benefits were provided
by the Net Present Value method, and allowance for doubtful accounts isprovided using the average percentage of write–off in the past.
The effects of the changes on operating income for the year ended
March 31, 2001, were as follows:¥44,221
22,102(66,323)

Thousands of U.S. dollars
Operating income
Identifiable assets$25,711——$331,865
165,869(497,734)

B. As described in Note 2(5) to the Consolidated Financial Statements,from the year ended March 31, 2001, one domestic consolidated
subsidiary introduced cost accounting system.
The effect of this adoption on operating income for the year ended
March 31, 2001, was as follows:
Millions of yen

Sales business
Brokerage business

¥624
341

C. As described in Note 2(12) to the Consolidated Financial Statements,from the year ended March 31, 2001, the Company and its
consolidated subsidiaries adopted the new accounting standard forseverance and retirement benefits.
The effect of this adoption on operating income for the year ended
March 31, 2001, was as follows:
Millions of yen

Leasing business
Construction business
Other businessElimination and/or corporate

¥(15)
(18)
(3)
3

D. As described in Notes 2(6) and 2(13) to the Consolidated Financial
Statements, from the year ended March 31, 2001, the Company andits consolidated subsidiaries adopted the new accounting standard forfinancial instruments.
The effect of these adoptions on operating income for the year ended
March 31, 2001, was as follows:
Millions of yen

Millions of yen

Sales business
Brokerage business
Loans businessElimination and/or corporate

32 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

¥ (7)
(64)
(1)
50

Leasing business¥4

Report of Independent Public Accountants

To the Shareholders and the Board of Directors of
Sumitomo Realty & Development Co., Ltd.:We have audited the accompanying consolidated balance sheets of Sumitomo Realty & Development Co., Ltd. (a Japanese corporation) andsubsidiaries as of March 31, 2002 and 2001, and the related consolidated statements of operations, shareholders’ equity and cash flows for eachof the three years in the period ended March 31, 2002, expressed in Japanese yen. Our audits were made in accordance with generally accepted
auditing standards in Japan and, accordingly, included such tests of the accounting records and such other auditing procedures as we considerednecessary in the circumstances.
In our opinion, the consolidated financial statements referred to above present fairly the consolidated financial position of Sumitomo Realty &Development Co., Ltd. and subsidiaries as of March 31, 2002 and 2001, and the consolidated results of their operations and their cash flows foreach of the three years in the period ended March 31, 2002 in conformity with accounting principles generally accepted in Japan ( Note 1) applied
on a consistent basis during the periods, except as noted in the following paragraph.
As explained in Note 2, Sumitomo Realty & Development Co., Ltd. and subsidiaries adopted, on a prospective basis in all cases, new Japanese
accounting standards for financial instruments, employees’ severance and retirement benefits and foreign currency translation effective April 1,
2000, and for consolidation and equity method accounting and research and development costs effective April 1, 1999. Also, as explained in Note3, Sumitomo Realty & Development Co., Ltd. and a domestic subsidiary changed the method of providing allowance for doubtful accounts,
employees’ retirement benefits, effective April 1, 1999 and Sumitomo Realty & Development Co., Ltd. changed the method of recognition ofrevenue and expense from the real estate business which used SPC, effective April 1, 2001, with which we concur.
Also, in our opinion, the U.S. dollar amounts in the accompanying consolidated financial statements have been translated from Japanese yen on thebasis set forth in Note 1.

Tokyo, Japan
June 27, 2002

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

33

Board of Directors and Auditors

Corporate Data

(As of June 28, 2002)(As of March 31, 2002)

Chairman of the Board
Shinichiro Takagi

Sumitomo Realty & Development Co., Ltd.

President
Junji Takashima
Director and Advisor
Taro Ando
Senior Managing Directors
Hirohisa Ichikawa
Yoichi Nakamura
Tetsuro Tsuruta
Hisao Matsui
Masayoshi Ohashi

Head Office
Shinjuku NS Building
4-1, Nishi-Shinjuku 2-chome
Shinjuku-ku, Tokyo 163-0820, Japan
Phone: 03-3346-2342
Facsimile: 03-3346-1652
http://www.sumitomo-rd.co.jp
Date of Establishment
December 1, 1949
Paid-in Capital¥86,787 million

Managing Directors
Mitsuru Mori
Sadao Ushimaru
Kazuo Masuoka
Kenichi Onodera

Common Stock Issued and Outstanding
407,085,978

Directors
Kenichiro Sugimoto
Akira Kanda
Haruo Fukumuro
Kenichi Kameyama
Yozo Akiyama
Shozo Suzuki
Yasushi Kinoshita
Satoru Miyashita
Tsutomu Oyama
Hiroyuki Asano
Yoshifumi Nakamura

Number of Employees
6,329

Statutory Auditors
Shinsaku Sanmoto
Ryoichi Nomura
Tadashi Kitamura
Kunio Kobayashi

34 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

Number of Shareholders
31,855Major Consolidated Subsidiaries
Sumitomo Real Estate Sales Co., Ltd.
Sumitomo Fudosan Home Co., Ltd.
Sumitomo Fudosan Syscon Co., Ltd.
Sumitomo Fudosan Tatemono Service Co., Ltd.
Sumitomo Fudosan Fitness Co., Ltd.
Izumi Restaurant Co., Ltd.
Sumitomo Fudosan Finance Co., Ltd.
Shintoshin Real Estate Co., Ltd.
Universal Home Inc.
Stock Exchange Listings
Tokyo and Osaka

Share Price and Trading Volume on Tokyo Stock Exchange(As of June 28, 2002)¥1,200¥1,800Share price (left scale)¥1,000¥1,600¥800¥1,400¥600¥1,200*TOPIX average (right scale)¥400¥1,000

¥200

¥800

¥0

¥600

140
120
100
80
60
40

Trading volume (million shares)
20
0

1997
* Simple average of monthly highs and lows.

1998

1999

2000

2001

2002

Shinjuku NS Building, 4-1, Nishi-Shinjuku 2-chome
Shinjuku-ku, Tokyo 163-0820, Japan
Phone: 03-3346-2342 Facsimile: 03-3346-1652
http://www.sumitomo-rd.co.jp

Printed in Japan