SUMITOMO REALTY & DEVELOPMENT CO., LTD.
ANNUAL REPORT 2011

Shinjuku NS Building, 4-1, Nishi-Shinjuku 2-chome
Shinjuku-ku, Tokyo 163-0820, Japan
Phone: +81-3-3346-2342 Facsimile: +81-3-3346-1652
http://www.sumitomo-rd.co.jp/english/

Printed in Japan

Prime Properties,
Sustained Growth
Annual Report 2011

Contents
1

Consolidated Financial Highlights

2 A Message from the Management
4 At a Glance
6 Review of Operations
6

Leasing

12

Sales

14

Construction

16

Brokerage

1 7 Our History
1 8 Corporate Governance
1 9 Financial Section
50 Senior Management
50 Corporate Data

About the Company

5 1 Investor Information

Sumitomo Realty & Development Co., Ltd., a core member of
the Sumitomo Group, is one of Japan’s leading real estate companies.
The Company is well established as a comprehensive developer andsupplier of high-quality office buildings and condominiums in urban areas.
With operations centered on four areas—leasing, sales, construction
and brokerage—the Company has achieved a combination of growthpotential and balanced operations that will drive its success in thechallenging markets of the 21st century. Sumitomo Realty remains
committed to the creation of comfortable work and living environmentsthat contribute to a higher quality of life.

Cautionary Statement with Respect to
Forward-looking Statements
Statements made in this annual report with respect toplans, targets and future performance that are not historicalfact are forward-looking statements. These statements are
based on management’s assumptions and beliefs in lightof the information currently available. 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 estate market and interest
rate trends.

Consolidated Financial Highlights
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
Years ended March 31

Millions of yen

Thousands of U.S. dollars*1

2011

2010

2009

2011

¥

¥

719,636¥ 695,240$ 8,956,777

For the Year
Revenue from operations

744,756

Operating income

138,463

133,979

146,366

1,665,220

Ordinary profit*

106,296

100,464

113,582

1,278,364

Net income

50,90852,662

46,205612,243

2

At Year-end
Total assets¥ 3,234,203¥ 3,168,098¥3,006,412$38,896,007

Shareholders’ equity*3

526,227

488,896436,667

6,328,647

Interest-bearing debt

2,021,599

1,935,166

1,847,627

24,312,675¥$

Per Share Data (Yen and U.S. dollars)
Net income¥

Shareholders’ equity

107.35¥111.04

97.39

1.29

1,109.78

1,030.93

920.74

13.35

20.00

20.00

20.00

0.24

Cash dividend applicable to the year

*1 U.S. dollar amounts in this report are translated, for convenience only, at the rate of ¥83.15=U.S. $1, the prevailing exchange rate at March 31, 2011.
*2 Ordinary profit, which equals operating income after adjustment for non-operating gains / losses, is a management index that is widely used in Japan.
Due to differences in accounting standards, ordinary profit is not broken out in the Company’s English-language financial statements, but it is included here because
it plays an important role in the calculation of incentive payments for directors.
*3 Shareholders’ equity = Net assets – Minority interests

Revenue from Operations

Operating Income

Ordinary Profit*2

Net Income¥744.8 billion¥138.5 billion¥106.3 billion¥50.9 billion

in the March 2011 fiscal year

(Billions of Yen)
800

676.8 691.9 695.2

in the March 2011 fiscal year

(Billions of Yen)

719.6

744.8

710.0

600

154.6

160

137.2

146.4
134.0

138.5 140.0

120

in the March 2011 fiscal year

in the March 2011 fiscal year

(Billions of Yen)

(Billions of Yen)

140

75

125.2
112.4

105

63.1

113.6
100.5

106.3

100.0
50

400

80

70

200

40

35

50.3

46.2

52.7 50.9 52.025

0‘07 ‘08 ‘09 ‘10 ‘11 ‘12

FORECAST

0‘07 ‘08 ‘09 ‘10 ‘11 ‘12

FORECAST

0‘07 ‘08 ‘09 ‘10 ‘11 ‘12

FORECAST

0‘07 ‘08 ‘09 ‘10 ‘11 ‘12

FORECAST

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

1

A Message from the Management

We will focus our comprehensive
strengths to overcome thisdifficult situation and will stepup our efforts to achieve
the Fifth Management Plan.
Junji Takashima

Kenichi Onodera

ChairmanPresident

Progress under the Fifth Management Plan andprofits for the first time in three years. On the other hand, due primarily

Results in the Year under Review

to the influence of the Great East Japan Earthquake, net income

First, we would like to express our deepest condolences to those who

declined 3.3%, to ¥50.9 billion. In line with our emphasis on the continued

suffered from the Great East Japan Earthquake and our prayers for thepayment of stable dividends, we maintained annual dividends at ¥20

earliest possible recovery for the disaster-stricken regions.

per share, including an interim dividend of ¥10 per share. Further, in the

In the year under review, we got off to a strong start in the first year of
the Fifth Management Plan, which is our highest priority. We achieved

March 2012 fiscal year we intend to maintain annual dividends of ¥20
per share, including an interim dividend of ¥10 per share.

about one-third of our three-year objectives for revenue from operations,operating income and ordinary profit. Lower revenue and profit were

Outlook for the Next Fiscal Yearrecorded in the leasing segment, which was the most heavily affected

Due to the Great East Japan Earthquake, the future course of economic

by the slumping office building market. However, the sales segment

conditions remains difficult to forecast. The supply chain, which wasrecorded favorable results, offsetting the weak performance in leasing

severely damaged, is now making steady progress toward building aand supporting the Company’s results. Consequently, in the Marchfoundation for recovery. However, there are still concerns about the crisis

2011 fiscal year, consolidated revenue from operations increased 3.5%

at the nuclear power plant in Fukushima Prefecture and electricity shortage

year on year, to ¥744.8 billion, for the 14th consecutive year of higher

issues, and those concerns are having a major affect on consumer

revenue. Operating income was up 3.3%, to ¥138.5 billion, and ordinary

sentiment. In this setting, we will respond flexibly to changes in the

profit rose 5.8%, to ¥106.3 billion. After two years, the slump that followed

operating environment while simultaneously doing our utmost to achieve

the Lehman Shock was finally shaken off, and we achieved higher

the objectives of the Fifth Management Plan. In the March 2012 fiscal year,

Medium-term Management Plan Progress (Billions of yen)
Numerical targets
2011–2013*

Results
2011

Achievement
ratio

Remaining balance
2012–2013

Forecast
2012

Revenue from operations

2,300

745

32%

1,555

710

Operating income

430

138

32%

292

140

Ordinary profit

320

106

33%

214

100

(Years ended March 31)* The figures represent cumulative three-year targets.

2

ANNUAL REPORT 201 1

FIFTH MANAGEMENT PLAN (APRIL 2010 TO MARCH 2013)• Getting back on track toward increased revenue and profit• Targeting record-setting business results in the March 2013 fiscal year

Growth under Medium-term Management Plans(Billions of Yen)

435

3,000

350
2,000

1,606

1,270 202
1,000

1,939

265

274

2,107

430
339

2,300

450

320
300

170
150

87

0
(Years ended March 31)

Revenue from operations

1st Plan*
1999–2001

2nd Plan
2002–2004

3rd Plan
2005–2007

4th Plan
2008–2010

5th Plan
2011–2013
FORECAST

1,270

1,606

1,939

2,107

2,300

Operating income (right scale)

202

265

350

435

430

Ordinary profit (right scale)

87

170

274

339

320

0

Note: The figures represent cumulative total for the period covered by each plan.
* The figures shown for the 1st Plan are the cumulative total for the final three years of the plan.

the second year of the plan, the influence of the earthquake on business

reductions to promote the acquisition of housing will support these

conditions is difficult to predict at this point. For revenue and profit, ouroperations. We expect consumer demand for buildings that are resistantprovisional forecasts for all segments call for the same levels as in the year

to earthquakes and related damage to steadily increase in the years

under review. Overall, we are forecasting revenue from operations of ¥710.0

ahead. To meet this new demand, we will continue working to provide

billion and operating income of ¥140.0 billion. Moreover, we are forecastingproducts and services with rigorous safety and continuity-related

ordinary profit exceeding ¥100.0 billion for the sixth consecutive year.

specifications, including not only earthquake resistance but also otherareas, such as the use of emergency power generators.

Initiatives Targeting Growth

In this way, we will focus our comprehensive strengths to overcome

In our mainstay office building leasing operations, after the earthquake

this difficult situation and will step up our efforts to achieve the Fifth

we have seen a rapid rise in demand for buildings that are not only

Management Plan and subsequently record sustained growth. We ask

earthquake resistant but also resistant to disaster-related damage,for the continued support of our shareholders in the years ahead.

such as power outages. In this environment, the Company will leverage
one of its key strengths—a portfolio with a large number of buildings

June 2011that are superior in terms of location, scale and facilities. In this way,
we will strive to steadily meet these client needs and achieve higher
operating income in leasing operations for the first time in three years.
In addition, in sales and construction operations, we expect market
conditions to show steady recovery. As before the earthquake, low

Junji Takashima

Kenichi Onodera

mortgage interest rates and government measures, such as tax

ChairmanPresident

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

3

At a Glance

Balanced Portfolio
Our achievement of sustained growth has been the result of our well-balanced operations.
We have a balanced portfolio in four operational fields—leasing, sales, construction andbrokerage—that have different risk profiles and capital requirements.

Characteristics of Our Four Operational Fields

requirements. These operations have been developed more recently.

Leasing and sales are our traditional main fields of business. These are

In housing construction, the operational cycle is short, about six months

capital-intensive fields; returns and risk are both high and substantial

to a year, but product development capabilities are very important.

upfront investment is required, but the level of human resources is

Brokerage operations have the shortest operational cycle of our fields

relatively low. In leasing, the period from the initial investment to theof business but require strong, highly competitive service networks.

generation of revenue—the operational cycle—is long, but once abuilding is opened for occupancy it provides a stable, sustained source

Taking Steps to Maintain Well-balanced Operationsof revenue. The sales business, however, is characterized by a shorter

Sumitomo Realty’s four operational fields have complementary

operational cycle with volatile market conditions. Nonetheless, revenue

operational cycles and market characteristics, and in the past theand profit are both relatively high. Our housing construction operations

adverse effects of changing market conditions on a particular field

and brokerage operations are order-based businesses with low capital

have generally been offset by favorable performances in others. As arequirements and no sales risk but substantial human resources

result, the Company has been able to continue to record increases in

LEASING

SALES
Office building, condominium

Mid- and high-rise condominium,

and other property leasing anddetached house and housing

management and related activities

lot development and sales andrelated activities

Revenue from Operations

Revenue from Operations(Billions of Yen)

(Billions of Yen)
300

262.6

279.6

298.4 293.5 292.9

300

275.0

211.0

38.8%

200

31.8%

100

0

‘07

‘08

‘09

‘10

‘11

0

‘12
FORECAST‘07(Billions of Yen)
120

105.3
83.5

93.4

220.0

‘08

‘09

‘10

‘11

‘12
FORECAST

33.4

33.0

88.2

36.5

89.0

30.7

‘11

‘12
FORECAST

30

22.1%

40

0

42.7

45

97.6

80

ANNUAL REPORT 201 1

239.7

Operating Income(Billions of Yen)

4

219.7

100

Operating Income

58.4%

200

193.6 191.2

‘07

‘08

‘09

‘10

‘11

‘12
FORECAST

19.6
15

0

‘07

‘08

‘09

‘10

revenue and profit over the medium to long term. In the future, ourbasic strategy will entail taking steps to maintain well-balanced growth

Sumitomo Realty’s Balanced Portfolio
Capitalin our operational portfolio. Moreover, to further reinforce our growthprospects, we will endeavor to develop a strong market presence in

LEASING

High level of capital,
low level of human resources

a fifth core field of operations, and are currently searching for the field
SALES

that would best complement our existing operations.

Relatively high level of capital,
relatively low level of human resources

Relatively low level of capital,
relatively high level of human resources

CONSTRUCTION

Low level of capital,
high level of human resources

BROKERAGE

Human Resources

CONSTRUCTIONBROKERAGE

Custom home construction andBrokerage and sales on consignment

remodeling and related activities

of real estate and related activities by
Sumitomo Real Estate Sales Co., Ltd.

Revenue from Operations

Revenue from Operations(Billions of Yen)

(Billions of Yen)
180

142.6

21.6%

60

165.0
156.6 160.1 158.2 162.9

120

6.2%

58.5
43.1

44.6

46.4

48.0

‘09

‘10

‘11

‘12
FORECAST

12.2

13.0

‘11

‘12
FORECAST

40

20

60

0

56.5

‘07

‘08

‘09

‘10

‘11

0

‘12
FORECAST

Operating Income

‘07

‘08

Operating Income(Billions of Yen)

17.1

18

(Billions of Yen)

16.7

17.0

24

20.9

20.0

13.0
12

8.8

11.1%

16

10.2

8.1%

6

0

‘07

‘08

‘09

‘10

‘11

‘12
FORECAST

8.8

10.8

8

0

‘07

‘08

‘09

‘10

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

5

Review of Operations

LEASINGIn leasing operations, Sumitomo Realty has worked to create new opportunities by implementing
innovative initiatives. In this way, the Company has established a position of leadership in the leasing
industry. Our leasing business is characterized by an outstanding portfolio that includes many
upscale buildings in central Tokyo and by a direct involvement in operations.

Sumitomo Fudosan Shibuya First Tower

Sumitomo Fudosan Iidabashi First Tower

Sumitomo Fudosan Hanzomon Ekimae Building

Principal Office Buildings Opened in the March 201 1 Fiscal Year
Name

Location (Tokyo CBD)

Completion

Gross floor area (m2)

Sumitomo Fudosan Iidabashi First Tower

Bunkyo Ward

Apr. 10

68,382

Sumitomo Fudosan Shibuya First Tower

Shibuya Ward

Aug. 1052,942

La Tour Daikanyama (Residence)

Shibuya Ward

Sep. 1049,954

Sumitomo Fudosan Hanzomon Ekimae Building

Chiyoda Ward

Mar. 11

Total
Note: Figures for gross floor area indicate the area managed by Sumitomo Realty.

6

ANNUAL REPORT 201 1

17,220188,498

Sumitomo Realty’s Strengths

favorable progress in attracting tenants to new buildings, and buildings

The Company made its full-scale entry into the leasing business inthat opened during the year under review, such as the Sumitomo

the latter half of the 1970s. In 1995, following the collapse of Japan’s

Fudosan Iidabashi First Tower and the Sumitomo Fudosan Shibuya

economic bubble, we were the first company in the industry to restartFirst Tower, became fully occupied. In addition, buildings that opened

construction work on office buildings. We paid particular attention

for occupancy during the previous year, such as the Sumitomo Fudosan

to large-scale projects in Tokyo CBD (Central Business District),

Shiodome Hamarikyu Building, made a full-year contribution to ourespecially those areas legally designated for redevelopment.

results. However, due to a year-on-year increase in the vacancy rate for

We currently operate about 200 buildings for lease. The advanced

existing buildings and an increase in rent reductions when leases wereinterior features of our buildings are complemented with distinctive

renewed, revenue from operations decreased 0.2%, to ¥292.9 billion,

exterior designs, including hotel-like entranceways and all-glassand operating income was down 9.6%, to ¥88.2 billion.

exteriors. Sumitomo Realty creates innovative buildings with strong
market presences.

OutlookIn the March 2012 fiscal year, special purpose entities (SPEs) will be

Overview of the Fiscal Yearbrought within the scope of consolidation. As a result, dividend income

In the Tokyo office building market, which accounts for more thanfrom SPEs will be eliminated, and revenue will decline year on year.

90% of our portfolio, there was a growing sense that the market had hit

However, contributions to our performance will be made by the full-year

bottom in the fiscal year under review. From the beginning of the year,

results of properties that were completed in the year under review, suchthere was a trend toward transactions undertaken to increase efficiency,

as the Sumitomo Fudosan Iidabashi First Tower and the Sumitomo

such as the consolidation of multiple offices into a single location.

Fudosan Shibuya First Tower. Moreover, contributions will be made by

Tenant demand generally recovered, centered on large buildings,

new buildings scheduled to be opened during the year, such as theand there was a decline in cancellations that stemmed from business

Iidabashi Fujimi Project and the Nishi Shinjuku 8-Chome Project.

withdrawals and other restructuring initiatives.

Accordingly, we expect revenue from operations to decline 6.1%, toIn this environment, the vacancy rate for existing buildings peaked¥275.0 billion, and operating income to increase for the first time inin the second quarter, and at the end of March, the vacancy rate wasthree years, rising 0.9%, to ¥89.0 billion.

down by a small margin, the first decline in three years. We madeRevenue from Operations

Operating Income andOperating Margin(Billions of Yen)

(Billions of Yen)(%)

(1,000m2 )

120

60

4,000

298.4

300

262.6

279.6

293.5

292.9

275.0

Gross Floor Area

105.3
97.6

93.4

88.2

83.5

3,403

3,461

‘07

‘08

‘09

3,000
40

31.8

33.4

35.3

33.3

30.1

32.4

40

100

3,360

3,977

89.0

80

200

3,825

2,000

20

1,000

0

‘07

‘08

‘09

‘10

‘11

‘12

FORECAST

0

‘07

‘08

‘09

‘10

‘11

‘12

FORECAST

0

0

‘10

‘11

Operating Income
Operating Margin (right scale)

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

7

Review of Operations

LEASING : SUMITOMO REALTY’S PORTFOLIOTokyo CBD (Central Business District):
7 wards, comprising Chiyoda, Minato, Chuo,
Shinjuku, Shibuya, Shinagawa and Bunkyo

BunkyoShinjuku
BunkyoChiyodaShinjuku

Chuo

ChiyodaShibuyaChuo
MinatoShibuya

ShinagawaMinatoMajor flagship buildings(See the table below)
Buildings scheduled for completion during
the Fifth Management Plan (2011–2013)
Other buildings

Shinagawa

Major Flagship Buildings
Name

No. of floors(above ground /below ground)(scheduled)(Tokyo CBD)

Location

Gross floorarea (m2)Oct. 02

Minato Ward

205,574

Izumi Garden Tower

43 / 4

Shinjuku Sumitomo Building

52 / 4Mar. 74

Shinjuku Ward

177,467

Shinjuku Central Park City

44 / 2Feb. 10

Shinjuku Ward

130,226

Shinjuku Oak City

38 / 2

Jan. 03

Shinjuku Ward

117,446

Shiodome Sumitomo Building

25 / 3

Jul. 04

Minato Ward

99,913

Sumitomo Fudosan Mita Twin Building West43 / 2

Sep. 06

Minato Ward

98,338

Tokyo Shiodome Building

37 / 4Jan. 05

Minato Ward

95,128

Shinjuku NS Building

30 / 3

Sep. 82

Shinjuku Ward

75,046

Sumitomo Fudosan Iidabashi First Tower

34 / 3Apr. 10

Bunkyo Ward

68,382

Shibakoen First Building

35 / 2

Jun. 00

Minato Ward

63,822

Chiyoda First Building West32 / 2

Jan. 04

Chiyoda Ward

61,245

Sumitomo Fudosan Aobadai Tower

33 / 3

Aug. 09

Meguro Ward

55,773

Sumitomo Fudosan Iidabashi Building No. 3

24 / 2

Oct. 02

Shinjuku Ward

53,047

Sumitomo Fudosan Shibuya First Tower

25 / 3

Aug. 10

Shibuya Ward

52,942

Sumitomo Fudosan Iidabashi First Building

14 / 2Mar. 00

Bunkyo Ward

52,747

Sumitomo Fudosan Shiodome Hamarikyu Building

21 / 2

Aug. 09

Chuo Ward

47,951

Chiyoda First Building East

17 / 2

Oct. 98

Chiyoda Ward

37,473

Sumitomo Fudosan Nishi Shinjuku Building

33 / 2

Apr. 09

Shinjuku Ward

37,317

Sumitomo Fudosan Shibakoen Tower

30 / 2

Oct. 01

Minato Ward

35,549Sumitomo Fudosan Mita Twin Building East

17 / 1

Aug. 06

Minato Ward

35,047

Shibuya Infoss Tower

21/ 4

Mar. 98

Shibuya Ward

34,460Sumitomo Fudosan Akihabara Building

19 / 3

Jun. 09

Chiyoda Ward

31,991

Roppongi First Building

20 / 4Oct. 93

Minato Ward

31,516

Note: Figures for gross floor area indicate the area managed by Sumitomo Realty.

8Completion

ANNUAL REPORT 201 1

Izumi Garden Tower

Shiodome Sumitomo BuildingIn the Tokyo CBD (Central Business District), where buildings that meet the three conditions for prime properties—close,
new and large—are in strong demand, our competitive portfolio will provide a strong foundation for us to utilize ourstrengths—development of high-value-added office buildings, tenant leasing and property management. We will utilize thatfoundation to maximize the earnings potential of our office building operations and build a strong base for the achievementof sustainable growth in the years ahead.

Leasing Portfolio | Total Gross Floor Area: 3.98 million m2 (as of March 31, 2011)
Locations in the Central Business District

1. CLOSE
Tokyo CBD*1

To be a prime property, a building must be in the central business district and near a major station. In the

23 Wards

86

Tokyo central business district, where many of Japan’s leading companies have their offices, this is an94%even more important factor. Large, recently constructed buildings in good locations are in short supply,%

which has been a key element in our land acquisition efforts.

Brand-new and Recently Constructed Buildings

2. NEW
Less than
10 years old

47

%

New
quake-resistance*2

The strong demand for recently constructed buildings is a result of tenant needs for the following features:99

2. Uninterruptible power supplies to support business continuity

1. Advanced earthquake countermeasures, such as vibration damping and earthquake-resistant construction
3. Reinforced floors, high-capacity electrical systems to accommodate large computer servers%

4. Separate climate control systems for each suite and high ceilings
5. Advanced security systems

Large-scale Buildings

3. LARGEOver 10,000m

Buildings that can accommodate multiple units on a single floor enable tenant companies to increase the2efficiency of their operations, and in recent years there has been a trend for companies to consolidate their82

offices. As a result, demand for large-scale buildings continues to increase.

%*1 Tokyo CBD (Central Business District): 7 wards, comprising Chiyoda, Minato, Chuo, Shinjuku, Shibuya, Shinagawa and Bunkyo*2 New standards that took effect in 1981

State-of-the-art Facilities
Earthquake protection

Before 1981

1982–1996

1997 and after

Previous quake-resistant structure

New quake-resistant structure

Anti-sway structure

Ceiling height*

2.5m

2.7m

2.9–3.3m

300 kg/m2

300–500 kg/m2

500–1,000 kg/m2

Air conditioning

Central air conditioning system

Climate control zones

Separate climate control systems

Power capacity

45 VA/m2

60–70 VA/m2

85 VA/m2 and overFloor load

* Includes raised floors

Strengths of Sumitomo Realty’s Portfolio

uninterruptible power sources, separate climate control systems for

Our portfolio includes many competitive prime properties located ineach suite, reinforced floors for heavy loads, high-capacity electricalcentral Tokyo. As of the end of March 2011, our leasing portfolio hadsystems, high ceilings and other attractive features, and after the Greata gross floor area of 3.98 million square meters and an average age

East Japan Earthquake they have been the focus of strong demandof 14 years, the lowest among Japan’s major real estate companies.

from many tenants.

About 47% of the buildings in our portfolio were completed in the past
10 years. Also, 94% of the buildings in our portfolio were located in theCompetitive Growth Foundation

23 wards of Tokyo, with 86% in Tokyo CBD. Furthermore, 82% of the

Including the buildings that we expect to open during the Fifth Manage-

portfolio was made up of large-scale buildings with more than 10,000

ment Plan (2011–2013)*, prime properties will account for an evensquare meters of gross floor area, and about 99% of the buildings meethigher percentage of our portfolio. To respond to the change in market

or exceed earthquake-resistance standards that took effect in 1981 anddemand toward prime properties and away from less-attractive buildings,

are a key yardstick for earthquake safety. Moreover, nearly half of oursuch as those with low earthquake resistance, we have been investingbuildings have been completed since 1997, when we took the lead inaggressively in new building construction, thereby further increasing

the application of new building design concepts. These high-quality

the concentration of prime properties in our portfolio.

buildings offer leading-edge earthquake-resistant structures,* Fiscal year ending March 31
SUMITOMO REALTY & DEVELOPMENT CO., LTD.

9

Review of Operations

LEASING : FUTURE DEVELOPMENT PROJECTS
We commenced the Fifth Management Plan in April 2010. To achieve the plan’s objectives—getting back on track toward
increased revenue and profit and targeting record-setting business results in the March 2013 fiscal year—we plan to increase
total floor space by about 150,000 tsubo. In this way, we will take steps to further expand our earnings foundation and strive
to achieve sustained growth in the years ahead.

Iidabashi Fujimi Project

Gross floor area

6,700 tsubo*

Floors14 above ground
1 below ground

Expected Completion

April 2011

Sumitomo Fudosan Shibuya Garden Tower

Gross floor area

18,000 tsubo*

Floors24 above ground3 below ground

Iidabashi Fujimi Project

Expected Completion

Sumitomo Fudosan Shibuya Garden Tower

April 2012

Principal Projects from the 5th Management Plan (from 201 1)
Name

Location (Tokyo CBD)

Expected completion

Gross floor area (Tsubo*)

Projects in the 5th Management Plan (from 2011 to 2013)
Total Gross Floor Area of Projects Completed in the March 2011 Fiscal Year

60,000Sumitomo Fudosan Shibuya Infoss Annex

Shibuya Ward

Apr. 11

Iidabashi Fujimi Project

Chiyoda Ward

Apr. 116,700

Nishi Shinjuku 8-Chome Project

Shinjuku Ward

Dec. 1154,500Sumitomo Fudosan Tamachi First Building

Minato Ward

Jan. 126,700

Sumitomo Fudosan Shibuya Garden Tower

Shibuya Ward

Apr. 1218,000

Apr. 10–Mar. 13

147,700

Total

1,800

Projects After the 6th Management Plan (from 2014)
Nihonbashi 2-Chome Project

Chuo Ward

40,000

Roppongi 3-Chome Project

Minato Ward

60,000* 1 tsubo=3.3m2

Total Gross Floor Area for Leasing (Years ended March 31)(Thousand tsubo)

6th Plan

1,500

1,000

1st Plan680

2nd Plan870

3rd Plan
1,020

5th Plan
1,310

4th Plan
1,160
New Operation+150 thousand tsubo
+13%

500

0

10

‘01

ANNUAL REPORT 201 1

‘04

‘07

‘10

‘13

FORECAST‘16

NISHI SHINJUKU 8-CHOME PROJECTIn 201 1, we will complete the Nishi Shinjuku 8-Chome Project,which is a large-scale, multipurpose project in Shinjuku, an international
business center. Following the Great East Japan Earthquake, there isa growing focus on earthquake and blackout resistance in the officebuilding market. Accordingly, this project, which incorporates the mostadvanced building functions in Japan, as outlined below, has beenhighly evaluated by companies.

Key Features
1

Vibration-controlling Structure

An active mass damper has been installed on the rooftop deck to reduce swaying of thebuilding caused by strong winds and earthquakes. In addition, there are anti-sway steel
sheet walls on floors 1 to 21 and anti-earthquake steel sheet walls on floors 22 to 33. This
combination of two types of steel sheet walls achieves superior earthquake resistance.

2

Uninterruptible Power Sources

Even if transmission along the main cables is interrupted, power can still be received fromthe spare cables. Also, in the event that a transformer substation accident or other problem
halts transmission on both the main cables and the spare cables, the emergency generators
installed in the building can supply leased rooms with enough power to continue operations
for several days.
Site area

5,940 tsubo*

Gross floor area

54,500 tsubo*

Floors

CASE

1

2

In the case of an accident
at a substation, etc.

Accident

40 above ground
Accident

3 below ground
Expected completion
Use

CASE

In the case of system accident
or a circuit accident

December 2011

Main power source

Four-building project consisting of office,event hall, residence and commercial buildings

Spare power source

Emergency
power
generator* 1 tsubo=3.3m2

3Environmental Friendliness and Public Features

Plants have been added to the rooftops of the event hall

Growing demandfor prime properties
After the Great East Japan Earthquake,there is increasing demand for these types ofprime properties, which have leading-edge
facilities, a location close to central areas
and large floor areas. The Company will makethe most of its strong portfolio, which has
a large number of properties that have advanced

building and the residence building. The heat island effectis lessened through the transpiration effect of the plants,
thereby reducing the burden placed on the environmentby heating and air conditioning equipment. In addition,
the project has a high degree of public features. For example,
in emergencies the event hall, which is equipped with lifeline facilities, can be used asa temporary evacuation site.

4

Wide-open Astylar Rooms with Extensive Floor Space

functions and are highly convenient, andEach office floor has 800 tsubo of floor space and a ceiling height of 3.0 meters. In addition,

will approach the current environment aseach floor offers astylar space that was achieved by putting the window pillars on the outside.

a growth opportunity.

As a result, the space can be used freely and efficiently by tenant companies and theleasable area on each floor has been increased by about 21 square meters.

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

11

Review of Operations

SALES
Sumitomo Realty is a pioneer in the Japanese market in condominium development for sales.
The Company established its condominium sales business earlier than almost all of its competitors.
The Company is building attractive condominiums in good locations and working to raise its brand value.

City Terrace Narimasu

City House Tsukishima-ekimae Baybreeze Court / Capital Court

City Tower Ariake

City Towers Toyosu The Symbol

Principal Condominium Development Projects (2012–2013)
No. of units for sale

Scheduled delivery*1

City Terrace Narimasu

Name

Itabashi Ward, Tokyo

243

2012

City House Tsukishima-ekimae Baybreeze Court / Capital Court

Chuo Ward, Tokyo

133

2012

City House Tokyo Morishita

Koto Ward, Tokyo

116

2012

City Terrace Yokohama Tsuzuki no Oka

Yokohama shi, Kanagawa

190

2012

City House Tamagawa Terrace

Kawasaki shi, Kanagawa

115*2

2012

City House Fuchu Keyaki-dori

Fuchu shi, Tokyo

140

2012

City Terrace Otakanomori Station-Court

Nagareyama shi, Chiba

328

2012

City Terrace Itabashi Hasune

Itabashi Ward, Tokyo

350

2013

THE ITABASHI Terrace

Itabashi Ward, Tokyo

193

2013

City Tower Ueno-Ikenohata

Taito Ward, Tokyo

135

2013

City Terrace Oi Sendaizaka Hill Top Garden

Shinagawa Ward, Tokyo

130

2013

City Tower Saitama Shintoshin

Saitama shi, Saitama

405

2013

City Tower Tennoji Sanadayama

Osaka shi, Osaka

216

2013

City Tower Nagoya Hisaya-odori koen

Nagoya shi, Aichi

225

2013

City Tower Kobe Sannomiya

Kobe shi, Hyogo

594

2013

Takadanobaba Project

Shinjuku Ward, Tokyo

359

2013

*1 Fiscal year ending March 31*2 Number of units includes the units of business partners.

12

ANNUAL REPORT 201 1

Location

Sumitomo Realty’s Strengths

area, the number of new condominium units supplied increased for the

Sumitomo Realty’s condominium operations are centered on the Tokyo

first time in six years, and the number of units sold was firm. Sales prices

Metropolitan area, which accounts for 70% of our units, and are conductedalso increased, centered on condominiums in favorable locations.

in other large urban areas such as Osaka / Kobe, Sapporo, Sendai, Nagoya,In this environment, the number of condominium units sold was 4,741,

and Fukuoka. The Company develops and sells about 5,000 units a year.

a small decline from the previous year, despite the fact that we curtailed

Over the past decade, we have been one of the leading suppliers of

our sales activities following the Great East Japan Earthquake, which

condominium units nationwide. This strong position is the result of our

occurred in March. In addition, the number of condominium units unsold

central urban strategy, which we implemented ahead of competitors,

at the end of the fiscal year was 878, a decline of 320 from a year earlier.

and our aggressive approach to large-scale and high-rise condominiums.

The number of condominium units, detached houses and land lots

Our landmark exterior designs, the rich array of common facilities thatdelivered—such as those at City Towers Toyosu and Southern Sky

is made possible by the scale of the buildings and elegant entrances

Tower Residence—increased by 619 from the previous year, to 4,841.

make our condominiums sought after by a wide range of consumers

Profitability improved due to a decline in loss on devaluation. As a result,with diverse lifestyles. As a result, our high operating margin is at the

we recorded substantial gains in revenue from operations and operating

top of the industry.

income. Revenue from operations was up 9.1%, to a new record high of

The risk of market fluctuations is a critical factor in the condominium¥239.7 billion, and operating income rose 70.6%, to ¥33.4 billion.

business.
Consequently, the Company’s policy is to offer a stable supply of

Outlook

condominiums and to enhance the Sumitomo Realty brand through the

In the March 2012 fiscal year, we plan to deliver a total of 4,600

ongoing sale of high-quality units. In the years ahead, the Company willcondominium units, detached houses and land lots, a decrease ofcontinue striving to maintain its strong position.

241 year on year, and we will strive to maintain operating income atabout the same level as in the March 2011 fiscal year. Of the 4,500

Overview of the Fiscal Yearcondominium units and detached houses that we expect to deliver inIn the condominium market, which accounts for more than 90% of our

the March 2012 fiscal year, approximately 30% had already been soldsales in this segment, the sales environment remained favorable in theat the end of March 2011, the same as in the previous year. As a result,year under review, with support from low mortgage interest rates and

we are forecasting revenue from operations of ¥220.0 billion, down

government measures, such as tax reductions. In the Tokyo Metropolitan

8.2%, and operating income of ¥33.0 billion, down 1.3%.

Revenue from Operations

Operating Income andOperating Margin(Billions of Yen)

(Billions of Yen)

300

45

211.0
193.6

200

42.7

(%)

(Units)

30

5,000

4,841
4,527

36.5

239.7
219.7

Units Delivered

220.0

191.2

33.4

30.7
22.1

30

4,000

33.0

4,008

20

3,000

17.3
16.1

19.6

15.0
13.9

15

100

3,743

4,600

4,222

2,000
10

8.9

1,000

0

‘07

‘08

‘09

‘10

‘11

‘12

FORECAST

0

‘07

‘08

‘09

‘10

Operating Income
Operating Margin (right scale)

‘11

‘12

FORECAST

0

0 ‘07

‘08

‘09

‘10

‘11

‘12

FORECAST

Note: Number of units includes condominium units,
detached houses and land lots.

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

13

Review of Operations

CONSTRUCTION
In the construction business, Sumitomo Realty’s business consists of the construction of custom
homes and house remodeling. Our construction operations are order based and do not require
substantial amounts of capital.

J • URBAN COURT

After Remodeling

REMODELING (Shinchiku Sokkurisan)J • SKY

CUSTOM HOMES

Sumitomo Realty’s Strengths

Shinchiku Sokkurisan

REMODELINGIn 1996, Sumitomo Realty launched the Shinchiku Sokkurisan Full
Remodeling Package. This product addresses the concern that
remodeling can sometimes be more expensive than rebuilding in Japandue to the risk of cost overruns. With Shinchiku Sokkurisan, a house canbe fully remodeled at 50% to 70% of the cost and in half the time required
to rebuild it. And because Shinchiku Sokkurisan uses less materials,
it is also environmentally friendly. We were the first major real estatecompany to offer this type of product, and Shinchiku Sokkurisan has been
well received in the marketplace. Cumulative sales have surpassed
60,000 units, and we anticipate continued growth in Shinchiku
Sokkurisan sales in the years ahead.

14

ANNUAL REPORT 201 1• Sales engineer system: Most of our sales personnel haveengineering qualifications.
• Carpenters: We use carpenters who work exclusively for
Sumitomo Realty.
• Fixed price: We provide the customer with a fixed price perunit of floor area, so there are no concerns about additional
construction charges.
• No need for temporary moves: We remodel homes while thecustomers continue to live in them, which is a major advantage.
• Earthquake resistance: We incorporate earthquake-resistancestrengthening measures based on a computerized analysis of the home
as well as measures to prevent damage from termites and moisture.

CUSTOM HOMES

Overview of the Fiscal Year

In 1995, Sumitomo Realty launched the American Comfort line of high-In the March 2011 fiscal year, following the Great East Japan Earthquake

quality, low-cost Western-style homes in Japan using the know-how

we curtailed our sales activities for Shinchiku Sokkurisan remodelingthat the Company acquired in building and selling homes constructed

operations, and orders declined slightly year on year. However, wewith the two-by-four method in California.

achieved record-high results in both units delivered and revenue fromIn April 2003, we launched the J·URBAN home design, which combines

operations. In custom home operations, the business environment was

the excellent security features of condominiums with the superior

challenging, with owner-occupied housing starts remaining at a low

ventilation and lighting of detached houses. J·URBAN has been highly

level. Nonetheless, we recorded solid results, with year-on-year gains

evaluated in the marketplace and has received a Good Design Awardin both orders and units delivered.

from the Japan Industrial Design Promotion Organization.

However, the results of this segment in the fiscal year under review
including those of Sumitomo Fudosan Reform Co., Ltd., were affected

Custom Homes

by the fact that the delivery of certain units was delayed until the March• Advanced performance: Our original Power Column Method

2012 fiscal year on account of the Great East Japan Earthquake.

makes these homes 1.3 times more earthquake resistant thanDue to these factors, revenue from operations rose 3.0%, to ¥162.9

conventional two-by-four homes.

billion, but we did not meet our target for operating income, which was• Fixed price: We have an easily understood pricing system, and thedown 2.2%, to ¥16.7 billion, as we were unable to absorb the marketinguse of original materials and large-volume procurement enables us

costs spent to strengthen operations.

to achieve price reductions.
• Complete after-sales support: Our homes are backed by a 30-year

Outlookguarantee and our specialists conduct periodic inspections.

In both Shinchiku Sokkurisan remodeling operations and custom home
operations, we will work to enhance our product lineup by developing
new products, and will continue to strengthen our sales and marketingsystems. We are targeting gains in both revenue and profit, withrevenue from operations of ¥165.0 billion, up 1.3%, and operating
income of ¥17.0 billion, up 1.8%.

Revenue from Operations

Operating Income andOperating Margin(Billions of Yen)

(Billions of Yen)

180

156.6

160.1

158.2

162.9 165.0

17.1

18

Shinchiku Sokkurisan andCustom Home Units Contracted

16.7

17.0

(%)

(Units)

15

9,000

142.6

6,892

13.0
120

12

8.8
6.2

0

10.2

10.3

‘07

‘08

‘09

‘10

‘11

‘12

FORECAST

0

‘07

7,051

1,687

1,680

7,700
7,463
1,840 1,800
1,779

7,521

10

6,000

1,600

5

3,000

800

0

0

8.1
6.5

6

60

7,324

1,672
10.8

10.2

2,400

‘08

‘09

‘10

‘11

‘12

FORECAST

‘07

‘08

‘09

Operating Income

Shinchiku Sokkurisan

Operating Margin (right scale)

Custom Homes (right scale)

‘10

‘11

‘12

FORECAST

0SUMITOMO REALTY & DEVELOPMENT CO., LTD.

15

Review of Operations

BROKERAGEThe Company’s real estate brokerage business is handled by Sumitomo Real Estate Sales Co., Ltd.,
which was established in 1975 to conduct sales of condominiums developed by Sumitomo Realty.
After entering the real estate brokerage sector in 1979, Sumitomo Real Estate Sales achieved
significant success in that field, and it was listed on the Tokyo Stock Exchange in 1998.

a number of cases in which deliveries were delayed until April.

Sumitomo Realty’s Strengths
Under the STEP brand name, Sumitomo Real Estate Sales operates

In this setting, despite sluggish transactions in March, transactions in

a network of brokerage offices with close ties to local communities.

our mainstay brokerage operations increased 4.4%, to 31,293, setting

The network has been steadily expanded and upgraded, anda new record-high. Additionally, the average transaction price increased,

the number of offices reached 243 by the end of March 2011. Because

and transaction value rose 8.4%, to ¥834.6 billion. As a result, we

all of the brokerage offices are directly operated, the network boasts

recorded another year of higher revenue and income, with revenue

high profit margins. Sumitomo Real Estate Sales holds the number one

from operations rising 4.1% year on year, to ¥46.4 billion, and operating

position in the industry in terms of brokerage revenue from direct

income up 13.5%, to ¥12.2 billion.

operations and in terms of profitability.
In the future, the company will continue working to expand its

Outlookmarketing base and increase its market share.

In brokerage operations, we will continue to upgrade existing offices while
striving to improve sales efficiency. Through these efforts, we will aim to

Overview of the Fiscal Year

increase the number of brokerage transactions to a record-high level

In the existing home market, the environment remained favorable inand achieve our third consecutive year of increased revenue and income.

the year under review, and the number of contracts increased. However,Accordingly, for the March 2012 fiscal year we forecast revenue fromin March, when the Great East Japan Earthquake occurred, the number

operations of ¥48.0 billion, up 3.4%, and operating income of ¥13.0

of contracts in the Tokyo Metropolitan area declined, and there werebillion, up 6.5%.

Revenue from Operations

Operating Income andOperating Margin(Billions of Yen)

(Billions of Yen)(%)

( Billions of Yen)

24

60

1,200

60

56.5

58.5

20.9
43.1

44.6

46.4

48.0

Number of Transactions andTransaction Value

1,052.0

20.0

821.2

40

16

40

37.0
34.2

20

0

16

8

‘07

‘08

ANNUAL REPORT 201 1‘09

48,0001,107.9

‘10

‘11

‘12

FORECAST

0

10.8
8.8
20.3

‘07

‘08

‘09

24.1

‘10

12.2
26.3

13.0

29,199 29,753

27,822

29,974

834.6

866.5
32,00031,293 31,921

27.1
20

‘11

800

769.9

‘12

FORECAST

0

400

0 ‘07

16,000

‘08

‘09

‘10

Operating Income

Transaction Value

Operating Margin (right scale)

Number of Transactions (right scale)

‘11

‘12

FORECAST

0Our History
Date

Topics

1949

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

1957

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

1963

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

1964

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

1970

Listed on the Tokyo and Osaka stock exchanges.

1973

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

1974

Completed construction of 52-story Shinjuku Sumitomo Building in Shinjuku, Tokyo;
moved Company headquarters there from Tokyo Sumitomo Building in Marunouchi, Tokyo.

1975

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

1980

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

1982

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

1995

Commenced American Comfort custom home construction business.

1996

Commenced Shinchiku Sokkurisan remodeling business.

1997

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

1998

1999

Shinjuku NS Building

Izumi Garden Tower

Sumitomo Real Estate Sales Co., Ltd., a consolidated subsidiary, listed on theTokyo Stock Exchange.
Commenced real estate joint investment trust fund. Launched sales of Sumitomo
Realty & Development Fund (SURF) series.
Implemented the Sumquest bond issue, which was the first public issue of real estate
securities in Japan.

2000

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

2001

The number of managed STEP brokerage offices exceeded 200.

2002

Completed construction of Izumi Garden Tower (Roppongi 1-Chome Redevelopment Project).

2003

Commenced sales of J·URBAN fixed-price urban-style housing series.

2004

Commenced sales of World City Towers in Minato Ward, Tokyo.

2006

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

World City Towers

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

2008

Commenced sales at City Towers Toyosu (Koto Ward, Tokyo).
Commenced redevelopment work in the Nishi Shinjuku 8-Chome District(Shinjuku Ward, Tokyo).

Commenced sales of J·SKY, the sixth product in the J·URBAN series.

2010

Completed construction of Shinjuku Central Park City (Shinjuku Ward, Tokyo)
Completed construction of Sumitomo Fudosan Iidabashi First Tower.
Cumulative total number of orders for Shinchiku Sokkurisan remodeling business surpassed 60,000.

Shinjuku Central Park City

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

17

Corporate GovernanceFundamental Approach to Corporate GovernanceTo further enhance our compliance with laws and regulations andTo achieve sound management, Sumitomo Realty believes that it isto ensure ethical business practices, we established the Complianceimportant to share information on a Companywide basis, ensure that

Promotion Committee. In addition, through the Compliance Department,

everyone is aware of problems, enhance internal management supervi-

we have established internal auditing and internal reporting systems.

sion and achieve highly transparent management through appropriate

In these ways, we are working to prevent inappropriate and illegal actions.

information disclosure. We have implemented a number of corporate

In regard to information management, to ensure proper storage andgovernance initiatives to realize these practices efficiently.

control of documents, we have established internal standards for
document control. Furthermore, in terms of risk management systems,

Corporate Governance Bodies

each department tracks and manages the risks associated with its

In addition to the Board of Directors, the Company has establishedoperations on a daily basis, while important issues are discussed andthe Executive Officers Committee, which is led by the Chairman of thedecided upon by the Board of Directors and the Executive Officers

Board. These corporate governance bodies discuss important issues

Committee. In the future, we will consider further enhancement ofand make decisions rapidly and appropriately. The Board of Directors,

regulations and systems as needed.

the Executive Officers Committee and other committees use a variety
of means to ensure that information is shared throughout the Company

Compensation of Directors and Statutory Auditors

and that everyone is aware of problems.

At the ordinary general meeting of shareholders held in June 2004,

In April 2004, we instituted an executive officer system with the

we introduced a new performance-based compensation system forobjectives of selecting capable young employees and substantiallydirectors. Under this system, the annual compensation for directors isbolstering our administrative systems.

based on the Company’s performance. The new system combines

The Board of Statutory Auditors has five members, including threeoutside statutory auditors. To strengthen management oversight, we
continue working to enhance outside auditing. The statutory auditors
attend meetings of the Board of Directors and the Executive Officers

the three elements that made up the previous system—monthly
compensation, annual bonuses and retirement allowances.
Under the new system, total annual (July to June) compensation for
directors is set at 1% of consolidated ordinary profit.

Committee, track internal issues that are important for robust auditing andIn the year under review, compensation for directors was ¥1,037

provide opinions as needed. Each of the three outside statutory auditors

million, compensation for statutory auditors (excluding outside statutory

has abundant management experience at other companies, and they

auditors) was ¥30 million and compensation for outside statutory

were nominated because their character and knowledge were consideredauditors was ¥39 million.

to be appropriate for the Company’s statutory auditors. There are no
conflicts of interest between Sumitomo Realty and these statutory auditors.
The Internal Audit Division, which has ten staff members, monitors

Takeover Defense Measures
The Company introduced a policy for responding to large-scale

the operational execution of divisions throughout the Group and thepurchases of its shares, and at the ordinary general meeting of share-

operation of internal control systems. The division also works to prevent

holders held on June 28, 2007 the policy was approved by more than

misconduct and mistakes. Moreover, the division reports the results of

70% of shareholders, which is the level of support required for theits audits to the statutory auditors and the independent auditors andapproval of special resolutions. At the 77th general meeting of share-exchanges opinions with the statutory auditors in an appropriate manner.

holders held on June 29, 2010, with the approval of the shareholders,

The Internal Audit Division, the statutory auditors and the independent

the policy was extended to the conclusion of the 80th general meeting

auditors provide timely advice and guidance to internal departments thatof shareholders in June 2013.

are associated with internal control. Moreover, from the viewpoint oftimely disclosure, we provide important information through our website

Overview of Takeover Defense Measuresand other means on a timely basis, and have increased management

The large-scale purchase rules stipulate that the large-scale purchasetransparency for shareholders, other investors and suppliers.

shall begin after necessary and sufficient information is provided to theBoard of Directors by the large-scale purchaser and a certain period forIndependent Auditors
In accordance with the Corporate Law and the Financial Instruments

evaluation by the Board of Directors has elapsed.
To ensure the objectivity, fairness and rationality of decisions of theand Exchange Law, the Company has concluded an auditing contract

Board of Directors, a special committee will be established that con-with KPMG AZSA & Co. for the auditing of the Company’s accounts.

sists of members selected from among external academic experts,

There are no conflicts of interest between Sumitomo Realty and thelawyers, certified public accountants, etc.

independent auditing company or its employees.

If the large-scale purchase will significantly damage the corporate
value and common interests of shareholders, after considering the18

Internal Control and Risk Management Systems

opinions of external experts, including lawyers and financial advisors,

To efficiently institute sound management practices, the Company has

and taking into the fullest account the recommendations of the special

established a range of internal control systems and is working tocommittee, the Board of Directors may take countermeasures to deter

enhance those systems.

the purchase, such as the issuance of stock options.

ANNUAL REPORT 201 1

Six-year Financial Summary
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
Years ended March 31

Millions of yen

2011

2010

2009

2008

2007

2006

¥ 744,756¥ 719,636¥ 695,240¥ 691,928¥ 676,834¥ 646,525

Leasing292,875

293,533

298,359

279,568

262,620234,280

Sales

239,709219,662

191,224

193,575

211,035

224,735

Construction

162,924

158,214160,134

156,606

142,564

135,158

Brokerage

46,43044,621

43,10558,54256,532

49,217

Cost of revenue from operations

551,364

534,270

496,547

488,202490,491

487,805

SG&A expenses

54,92951,38752,327

49,11849,167

46,697

7.4%

7.1%

7.5%

7.1%

7.3%

7.2%

138,463

133,979

146,366

154,608

137,176

112,023% of revenue from operations

18.6%

18.6%

21.1%

22.3%

20.3%

17.3%

Depreciation and amortization

23,70518,065

17,886

17,15015,677

16,330¥ 805,958¥ 802,693¥ 759,816¥ 784,195¥ 756,488¥ 619,219

627,941

584,756

568,970

550,863531,377

388,627

For the Year
Revenue from operations% of revenue from operations
Operating income

At Year-end
Current assets
Sales inventory*1
Total assets

3,234,203

3,168,098

3,006,412

2,894,004

2,747,900

2,460,080

Shareholders’ equity*2

526,227

488,896436,667

427,423

409,197375,656

Net interest-bearing debt

1,901,850

1,785,854

1,722,733

1,548,509

1,343,824

1,150,880¥¥¥

Per Share Amounts (Yen)
Net income
Shareholders’ equity

107.35111.0497.39¥

133.00¥105.92¥68.33

1,109.78

1,030.93

920.74900.57861.93790.74

20.00

20.00

20.00

18.00

14.00

10.00

Equity ratio (%)

16.3

15.4

14.5

14.8

14.9

15.3

ND/E ratio* (Times)

3.6

3.7

3.9

3.6

3.3

3.1

Cash dividend applicable to the year
Key Ratios
3*1 Sales inventory = Inventories + Investments in SPEs holding properties for sale
*2 Shareholders’ equity = Net assets – Minority interests*3 ND/E ratio = Net interest-bearing debt (Interest-bearing debt – Cash, time and notice deposits) / Shareholders’ equity

Contents
20 Management’s Discussion and Analysis
24 Consolidated Balance Sheets
26 Consolidated Statements of Income and Consolidated Statements of Comprehensive Income
27 Consolidated Statements of Changes in Net Assets
28 Consolidated Statements of Cash Flows
29 Notes to Consolidated Financial Statements
49 Independent Auditors’ Report

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

19

Management’s Discussion and Analysis

Overview and the Fifth Management Plan

Other Income and Expenses

In the March 2011 fiscal year, the first year of the Fifth Management Plan,

Net other expenses worsened by ¥7.9 billion, to ¥50.7 billion. Major factors

we exceeded our initial forecasts for revenue from operations, operating

included provision for allowance for loss on disaster of ¥1.9 billion associatedincome, and ordinary profit. We achieved our 14th consecutive year of gains

with measures to deal with the Great East Japan Earthquake and an increase

in revenue from operations, and operating income and ordinary profit

in loss on devaluation of investments in securities, to ¥6.7 billion, stemmingincreased for the first time in three years. Other expenses increased due tofrom the fall in stock prices following the earthquake. Interest expense, net,

the influence of the Great East Japan Earthquake, and consequently net

rose 0.7%, to ¥29.8 billion.

income declined. However, net income was more than ¥50.0 billion forthe second year in a row.

Net Income

Income before income taxes and minority interests declined 3.8%, to ¥87.8

In the year under review, we got off to a strong start in the first year of
the Fifth Management Plan, which is our highest priority. We achieved aboutbillion. Income taxes were down 5.2%, to ¥35.0 billion. Consequently,

one-third of our three-year objectives for revenue from operations, operating

net income declined 3.3%, to ¥50.9 billion, and the net margin decreased

income, and ordinary profit. However, following the Great East Japan Earth-from 7.3% to 6.8%.

quake, the management environment changed completely, and it has become
difficult to forecast the future course of business conditions. The Company

Cash Flows

will respond flexibly to this situation and will strive to achieve the objectives in

Cash and cash equivalents at end of year totaled ¥119.7 billion, a decrease of

the Fifth Plan. For further information about the Fifth Plan, please see¥29.6 billion from the end of the previous year. Cash flows were as follows.

“A Message from the Management” on pages 2 to 3.
Cash Flows from Operating Activities

Results of Operations

Net cash provided by operating activities was ¥14.4 billion. Income before

Revenue from Operations and Operating Income

income taxes and minority interests was ¥87.8 billion. Major reasons

In the fiscal year under review, we recorded lower revenue and profit inincluded an increase in investments in condominium development for saleleasing operations. However, strong sales of condominiums were registeredand a decrease in notes and accounts payable–trade.

in sales operations, which recorded substantial gains in revenue and profit
and led the Company’s results.

Cash Flows from Investing Activities

Net cash used in investing activities was ¥75.5 billion. Payments forConsequently, in the fiscal year under review revenue from operations
was up 3.5%, to ¥744.8 billion, and operating income rose 3.3%, to ¥138.5

purchases of property and equipment, principally for measures to strengthen

billion. For further information about each segment, please see the Review

leasing operations, were ¥98.1 billion. On the other hand, net proceeds fromof Operations section on pages 6 to 16.

guarantee and lease deposits paid to lessors were ¥19.4 billion.

Ordinary Profit * andNet Income

Revenue from Operations

Operating Income andOperating Margin(Billions of Yen)

(Billions of Yen)(%)

(Billions of Yen)

200

40

150

800

676.8

691.9

695.2

719.6

744.8

710.0

125.2
154.6

113.6

112.4

146.4

150 137.2

600

134.0

138.5 140.0

30

100.5

106.3

100.0

100

100 20.3

400

22.3

19.7
21.1

18.6

20

18.6

63.1
50.3

50

200

0

‘07

‘08

‘09

‘10

‘11

‘12

FORECAST

0

52.7

46.2

50

‘07

‘08

‘09

‘10

Operating Margin (right scale)

‘11

‘12

FORECAST

0

0

‘07

‘08

‘09

‘10

Ordinary Profit
Net Income* Please see the note on page 1.

ANNUAL REPORT 201 1

52.0

10

Operating Income

20

50.9

‘11

‘12

FORECAST

Cash Flows from Financing Activities

Millions of yen

Net cash provided by financing activities was ¥31.8 billion. For long-term
fund raising stability, redemption of bonds and repayment of long-termloans payable totaled ¥274.4 billion, while proceeds from issuance of bonds

Short-term debt:

and from long-term loans payable totaled ¥473.3 billion. Net decrease

Principally from banks

in short-term debt, including commercial paper, was ¥112.5 billion.

Commercial paper

Consequently, interest-bearing debt increased by ¥86.4 billion.

Subtotal

2011

2010

Amountchange%change¥ 185,750¥ 230,250¥ –44,500–19.3%

29,98997,975–67,986–69.4%

215,739

328,225–112,486

Long-term debt:

Capital Resources and Liquidity
Assets

Bonds

400,000

420,000–20,000–4.8%

At the end of the year under review, total assets were ¥3,234.2 billion,

Loans principally frombanks

1,285,860

1,066,941

218,919

20.5%

Perpetual subordinatedloan

120,000

120,000——

an increase of 2.1%. This gain was principally due to an increase in property
and equipment stemming from investment in leasing facilities. Total current
assets increased 0.4%, to ¥806.0 billion. Net property and equipment
increased 4.3%, to ¥1,978.7 billion.

Subtotal

1,805,860

1,606,941

198,919

12.4%

Long-term debt due
within one year

374,792

273,621

101,17137.0%

the previous fiscal year-end, to ¥2,688.9 billion. Total current liabilities

Long-term debt due
after one year

1,431,068

1,333,320

97,7487.3%

decreased 5.8%, to ¥890.3 billion. This was primarily attributable toInterest-bearing debt

2,021,599

1,935,166

86,433

4.5%

Liabilities

Total liabilities at the end of the year under review were up 1.1% froma decline of ¥112.5 billion in short-term debt and a decline of ¥178.2 billion
in deposits received. Total long-term liabilities were up 4.8%, to ¥1,798.5

Shareholders’ Equity*

billion, due to an increase in long-term debt due after one year.

Shareholders’ equity was up 7.6% year on year, to ¥526.2 billion. Net

As a result, at the end of the fiscal year, interest-bearing debt was up

income was ¥50.9 billion, and retained earnings increased ¥41.4 billion year

¥86.4 billion, to ¥2,021.6 billion.

on year. Consequently, the equity ratio was 16.3%, compared to 15.4%

Interest-bearing debt includes a perpetual subordinated loan of ¥120.0
billion that the Company took out on February 22, 2008. This subordinateda year earlier. Allowing for the capital nature of the perpetual subordinatedloan, which received a high level of equity credit—75%—from the Japan Credit

loan, the effective equity ratio was 19.1%.
ROE was 10.0%, compared with 11.4% in the previous fiscal year, while

Rating Agency, was intended to increase effective shareholders’ equity while

ROA was unchanged at 4.4%.

avoiding equity dilution, as a provision for future financial risk. For the Com-

* Shareholders’ equity = Net assets – Minority interestspany, which will continue to implement development investment for further
growth, we believe that this method of raising funds is effective in increasing
our financial stability. For further information, please see “Overview of Perpetual Subordinated Loan and New Stock Subscription Rights” on page 23.

Total Assets

Shareholders’ Equity andEquity Ratio(Billions of Yen)

(Billions of Yen)

4,000

600

ROE and ROA
(%)

(%)

30

16

526.2

3,000 2,747.9

2,894.0

3,006.4

3,168.1

12.8

488.9

3,234.2
409.2

427.4

436.7

12

400

20

10.7

11.4
10.0

8

2,000

200

14.9

14.8

14.5

15.4

16.3

10

5.4

5.6

5.1

4

1,000

0 ‘07

15.1

‘08

‘09

‘10

‘11

0

‘07

‘08

‘09

‘10

‘11

Shareholders’ Equity (Net Assets – Minority Interests)
Equity Ratio (right scale)

0

0

‘07

‘08

‘09

4.4

4.4

‘10

‘11

ROE (Net Income / Shareholders’ Equity)
ROA (Operating Income + Interest and Dividend Income/ Total Assets)
SUMITOMO REALTY & DEVELOPMENT CO., LTD.

21

Financial Strategy

Investing in Line with Changes in the Market Environment andCharacteristics of Operations and Diversification of Fund-raising

Strengthening Financial Position

In leasing and sales, which are our mainstay business segments,

Since the second half of the 2000s, it has become increasingly difficult toseveral years are required from the acquisition of a site to the completion of

acquire large prime sites that meet our investment criteria. In this setting,a building and the generation of revenue. In addition, significant advance

Sumitomo Realty has implemented a policy centered on urban redevelop-

investment is required. In consideration of these factors, under the threement for future site acquisition. Consequently, we have already acquired

mid-term management plans from April 1997 to March 2007, to reinforce

the land needed for the fifth and sixth plans. Due to the need to coordinate

our financial position and achieve operational growth, we worked to diversify

rights among landowners, redevelopment requires time and effort, but on

our fund-raising methods so as to control interest-bearing debt while making

the other hand comparatively high levels of profit can be expected.
In addition to moving ahead with these types of investments, we areinvestments needed for growth.

steadily strengthening our financial position. For site acquisition, SPEs thatSpecifically, we have aggressively introduced development securitization
methods using SPEs. With SPEs where off-balance-sheet funds are raised

utilize non-recourse methods are not suitable for raising funds for redevelop-

through non-recourse loans, we have worked to conduct development on

ment projects and we needed to use on-balance-sheet fund-raising methods.

a large-scale with a small amount of equity money without placing a burden

Accordingly, to maintain a stable financial position even in a worsening financial

on our balance sheet. At the end of March 2011, the balance of the Company’senvironment, we raised ¥120.0 billion in February 2008 through a perpetual

equity investments in SPEs was ¥137 billion, and the balance of the non-subordinated loan. This subordinated loan, which received a high level ofrecourse loan and other off-balance-sheet debt was approximately ¥548

equity credit—75%—from a rating agency, was intended to increase effective

billion, for a total of approximately ¥686 billion. In addition, to diversify ourshareholders’ equity while avoiding equity dilution. Aiming for further growth,fund-raising methods in order to control interest-bearing debt, we have

the Company will continue to invest in development, as this is a usefulformed SURF (Sumitomo Realty & Development Fund) investment partner-

method of fund-raising from the viewpoint of increasing financial stability.

ships backed by leased buildings, making effective use of our assets in ourIn the March 2013 fiscal year, the final year of the Fifth Plan, throughfund-raising activities. At the end of March 2011, the balance of investment

the generation of profit we expect to improve the ND/E ratio, including

received in SURF investment partnerships was ¥137 billion, which was

the debt of SPEs, to about 4 times from 4.8 times as of March 31, 2010.
In addition, the cash flow generated by our core leasing business is more thanrecorded on the balance sheet as deposits received. For further information¥100.0 billion, reaching ¥110.3 billion in the year under review. This represents

regarding SPEs, please see Note 25 on pages 47 to 48.

increased operational stability. Accordingly, while net interest-bearing debt (ND)

By actively utilizing these types of fund-raising methods that do not rely
on interest-bearing debt, in the first half of the 2000s, we raised large

has increased over the past five years, the ND/Leasing Cash Flows Ratio has

amounts of funds without having to sell assets at low prices, and haveremained stable. Also, properties for leasing, including SPEs, have about

aggressively acquired sites when site acquisition costs are low and there are¥1 trillion in unrealized gains (the difference between the carrying amount andinvestment opportunities. Consequently, our site acquisition has proceeded

the fair value). Ratings agencies have evaluated these two strengths highly,according to plan, and we were able to achieve substantial growth in revenue

and we have maintained our ratings even in difficult financial environments,

and profit over a decade.

such as after the Lehman Shock. Due to the early adoption of new accounting
standards, SPEs will be included within the scope of consolidation from the
March 2012 fiscal year. However, there will no change in evaluations from ratings
agencies and financial institutions, and there will be no effect on fund-raising.
We are also working to raise funds at fixed, long-term rates as a

Net Interest-bearing Debt (ND)
and ND/E Ratio(Billions of Yen)

(Times)2,000

1,722.7

1,785.9

1,901.9

8

Long-term Debt Ratio and
Fixed-interest Rate Debt Ratio

Interest Coverage Ratio(%)(Billions of Yen)

100

1,500 1,343.8

6

80

81

77
79

83

158.1

76

79
83

139.5

120

3.3

3.6

3.9

3.7

136.5

6.8

142.0

8

6.2

4

3.6

150.1

89

60
1,000

12

180

85

83

1,548.5(Times)

4.9

4.6

40

4.7

60
500

20

0 ‘07

22

4

2

‘08

‘09

‘10

‘11

0

0

20.6

‘07

‘08

‘09

‘10

‘11

0

‘07

25.6

‘08

29.8

30.4

‘09

‘10

30.0

‘11

Net Interest-bearing Debt (ND)

Short-term Loans and Commercial Paper

ND/E Ratio (right scale)Long-term Loans and Bonds

Operating Income + Interest and Dividend Income
Interest Expense

Fixed-interest Rate Debt Ratio

Interest Coverage Ratio (right scale)

ANNUAL REPORT 201 10*1 However, voluntary repayment is possible in the event that five years have passed from thedate of the loan (i.e., February 22, 2013 and thereafter), and certain other conditions are met.
*2 As of the effective date of the perpetual subordinated loan.
*3 Prior to February 22, 2014, the rights cannot be exercised unless perpetual subordinatedloan interest payments have been stopped. Voluntary repayment is possible on or after
February 22, 2013. In the event of repayment, the new stock subscription rights will become
unexercisable, and the Company will acquire the new stock subscription rights at no cost.

precaution against future increases in interest rates. As a result, at the end of
the year under review, long-term debt accounted for 89% of interest-bearing
debt, and fixed-interest rate debt accounted for 79% of interest-bearing debt.
Site acquisition is essential to the achievement of ongoing growth. Moving forward, we will continue to strengthen our financial position and work toachieve increased fund-raising stability as we continue to invest in growth,
centered on the core leasing business.

Dividend Policy
Our fundamental policy for the distribution of profit is to maintain a stable

Overview of Perpetual Subordinated Loan andbase level of dividends and, while retaining a sufficient level of earnings for

New Stock Subscription Rights

stable, long-term operational growth, to increase dividends in line with

The perpetual subordinated loan entails the allotment of new stock subscrip-

growth in profit.

tion rights with the objective of the creditor to secure a method of recovering

We have implemented four plans since April 1997. We steadily strengthened

its investment. In regard to the new stock subscription rights, consideration

our profit foundation under two management plans—the First Plan and thehas been given to limiting the possibility of dilution upon execution.

Second Plan. In addition, we worked to respond to various changes inaccounting standards and to reduce unrealized losses. Over this period, due

Overview of Perpetual Subordinated Loan

to comparatively large special losses, net income fluctuated, but we main-Amount:¥120.0 billion

Borrower:

Sumitomo Realty & Development Co., Ltd.
Sumitomo Mitsui Banking Corporation(Trust Account)
February 22, 2008

Lender:Effective date:
Maturity date:tained annual dividends at ¥6.00 per share. At the conclusion of the Second
Plan, we raised dividends to the bubble-period level: ¥9.00 per share.
Under the Third Plan, which began in April 2004, we completed theimplementation of measures to deal with unrealized losses, and were able
to lay the foundation for full-scale growth in EPS. Due to the success of

No fixed date*1(1) From February 22, 2008 to February 21, 2013:
3 Month Yen TIBOR + 1.10%(2) From February 22, 2013:
3 Month Yen TIBOR + 2.10%

Applicable interest
rate*2:the Third Plan, for the March 2007 fiscal year, the final year of the Third Plan,
dividends were raised to ¥14.00 per share.
Under the Fourth Plan, profit rose, and as a result we increased dividends
over the three years to ¥20.00.

Overview of New Stock Subscription Rights

In the year under review, the first year of the Fifth Plan, operating income

Sumitomo Mitsui Banking Corporation(Trust Account)

Allotted to:and ordinary profit increased, but net income declined. With a focus on
the continuation of stable dividends, per-share dividends remained the same,

Number of shares from49,180,327 shares
subscription rights*2:
New share subscription
February 22, 2008, to February 22, 2058*3
right exercise period:
95% of market price (average of the closing price
Exercise price:over the previous 20 business days), minimum
exercise price: ¥1,087

Leasing Cash Flows(Times)
30

150

109.3

15.6

(Billions of Yen)

3,000

12

150

6.3

10

‘07

‘08

‘09

‘10

2,000 1,787.4

17.2

50

0

Cash Dividends Per Share, Ordinary
Profit and Income Before Income Taxes
(%)

110.3
20

14.2

implementing dividend increases in accordance with growth in profit.

(Yen)
45

125.2
114.3

100

14.2

that we need to further bolster equity, we will continue to follow a policy of(Billions of Yen)

98.1

13.7

the March 2012 fiscal year. Moving forward, in accordance with our judgment

Leasing Assets andReturn on Leasing Assets(Billions of Yen)

121.5

at ¥20.00. In addition, we also plan per-share cash dividends of ¥20.00 for‘11

01,949.8

6.4

1,993.6

6.8

2,088.0

6.1

2,170.9

‘08

‘09

‘10

8

100

4

50

0

0

114.0 113.6

106.3
100.5
100.0
91.2
90.0 30
87.8
79.3

92.1

5.6

1,000

0 ‘07

112.4

‘11

20.0

20.0

20.0

20.0

18.0

15

14.0

‘07

‘08

‘09

‘10

Leasing Cash Flows

Leasing Assets

Ordinary Profit

ND/Leasing Cash Flows Ratio (right scale)

Return on Leasing Assets (right scale)

Income before Income Taxes

‘11

‘12

FORECAST

0

Cash Dividends per Share (right scale)
SUMITOMO REALTY & DEVELOPMENT CO., LTD.

23

Consolidated Balance Sheets
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
As of March 31, 2011 and 2010

Thousands of U.S. dollars(Note 1)Millions of yen

Assets

2011

2010

2011

Current assets:Cash, time and notice deposits (Notes 3 and 7)¥ 119,749¥ 149,313$ 1,440,156

—

2,705

—

Investments in SPEs holding properties for sale (Notes 7 and 8)

69,85062,885840,048

Notes and accounts receivable–trade (Note 7)

14,284

17,232

171,786

(947)

(681)

(11,389)

Inventories (Note 4)

558,091

521,8716,711,858

Deferred income taxes (Note 18)

12,823

13,743

154,215

Marketable securities (Notes 7 and 8)

Allowance for doubtful accounts (Note 7)

Other current assets

32,10835,625386,146

Total current assets

805,958

802,693

9,692,820

5,699

5,779

68,539239,666

244,760

2,882,333

Investments and loans:
Investments in and loans to unconsolidated subsidiaries and affiliates(Notes 5 and 7)
Investments in securities and other (Notes 7 and 8)
Allowance for doubtful accounts(15,471)(14,960)(186,061)

Total investments and loans

229,894

235,579

2,764,811

1,523,347

1,490,605

18,320,469

Buildings and structures (Notes 4, 6 and 24)

587,659

523,544

7,067,456

Machinery and equipment (Notes 4, 6 and 24)

19,052

17,741

229,128

Leased assets

1,804

1,222

21,696

Property and equipment:
Land (Notes 4, 6 and 24)

Construction in progress (Notes 4 and 24)

64,25260,051

772,724

2,196,114

2,093,163

26,411,473(217,451)(196,752)(2,615,165)

1,978,663

1,896,411

23,796,308

Guarantee and lease deposits paid to lessors (Note 7)

145,707

166,571

1,752,339

Leasehold rights and other intangible assets

51,81551,363

623,151

Deferred income taxes (Note 18)

11,6058,802

139,567

Other

10,561

6,679

127,011

Accumulated depreciation
Net property and equipment

Other assets:

Total other assets
Total assets
See accompanying notes.

24

ANNUAL REPORT 201 1

219,688

233,415

2,642,068¥3,234,203¥3,168,098$38,896,007

Thousands of U.S. dollars(Note 1)Millions of yen

Liabilities and Net Assets

2011

2010

2011

Current liabilities:
Short-term debt (Notes 7 and 9)¥ 215,739¥ 328,225$ 2,594,576

Long-term debt due within one year (Notes 6, 7 and 9)374,792

273,6214,507,420

Notes and accounts payable–trade (Note 7)

31,75654,171

381,912

Accrued income taxes (Note 18)

17,10920,902

205,761

Accrued bonuses

3,184

2,760

38,292

Allowance for loss on disaster (Note 12)
Deposits received (Notes 7 and 19)

1,930

—

23,211

169,719

187,537

2,041,118

Other current liabilities

76,11278,009915,359

Total current liabilities

890,341945,225

10,707,649

Long-term debt due after one year (Notes 6 ,7 and 9)

1,431,068

1,333,320

17,210,679

Guarantee and deposits received (Notes 7 and 19)

Long-term liabilities:
332,304

370,326

3,996,440

Allowance for employees’ severance and retirement benefits (Note 10)

4,882

4,970

58,713

Other long-term liabilities

30,2796,857

364,150

Total long-term liabilities

1,798,533

1,715,473

21,629,982

122,805

122,805

1,476,909

Capital surplus

132,748

132,748

1,596,488

Retained earnings

290,260

248,8363,490,800

Contingent liabilities (Note 26)

Net assets (Note 20):
Shareholders’ equity
Common stock:
Authorized – 1,900,000 thousand shares
Issued– 476,086 thousand shares

Treasury stock(3,645)(3,543)(43,836)

542,168

500,846

6,520,361

Net unrealized holding losses on securities(6,701)(3,393)(80,589)

Net deferred losses on hedges(1,925)(2,591)(23,151)

Foreign currency translation adjustments(7,315)(5,966)(87,974)(15,941)(11,950)(191,714)

19,102

18,504

229,729

Total shareholders’ equity
Accumulated other comprehensive loss

Total accumulated other comprehensive loss
Minority interests
Total net assets
Total liabilities and net assets

545,329

507,400

6,558,376¥3,234,203¥3,168,098$38,896,007

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

25

Consolidated Statements of Income
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2011, 2010 and 2009

Thousands of U.S. dollars(Note 1)Millions of yen

2011

2010

2009

2011

Revenue from operations
Costs and expenses:
Cost of revenue from operations
Selling, general and administrative expenses¥744,756¥719,636¥695,240$8,956,777

551,364
54,929606,293534,270
51,387585,657

496,547
52,327548,874

6,630,956
660,601
7,291,557

Operating income
Other income (expenses):
Interest expense, net
Dividend income
Gain on sale of property and equipment
Loss on sale of property and equipment
Loss on impairment of fixed assets (Note 11)
Loss on disposal of property and equipment
Gain on sale of investments in securities
Loss on sale of investments in securities
Loss on devaluation of investments in securities
Dividend to partnership investors
Gain on prior periods adjustment (Note 14)
Gain on adjustment of accrued rent payable (Note 13)
Compensation income
Loss on devaluation of inventories (Note 15)
Loss on devaluation of common stocks of affiliates
Provision for allowance for loss on disaster
Repair expenses for prior periods construction (Note 16)
Other, net

138,463

133,979

146,366

1,665,220(29,789)
3,344
120
(19)
(7,602)(2,188)4(33)(6,710)(3,043)
413
—
78
—
—
(1,930)—(3,350)(50,705)(29,591)
2,339
53—(7,826)(93)
1(56)(1,837)(2,944)
—
645
147
—
(10)
—
—
(3,599)(42,771)(29,718)
3,053
10
(657)
(165)
(1,035)28(235)(14,188)(3,135)
1,023——(13,770)(3,545)—(1,641)(3,137)(67,112)(358,256)
40,216
1,443(229)(91,425)(26,314)48(397)(80,698)(36,597)
4,967
—
938
—
—
(23,211)—(40,287)(609,802)

Income before income taxes and minority interests
Income taxes (Note 18):
Current
DeferredTotal

87,75891,20879,254

1,055,418

35,138(128)35,01035,137
1,805
36,94229,362
2,686
32,048422,586(1,540)421,046

Income before minority interests

52,74854,26647,206634,372

Minority interests

1,840

1,604

1,001

22,129¥ 50,908¥ 52,662¥ 46,205$ 612,243

Net income

Yen

2011
Amounts per share of common stock:
Net income:- Basic- Diluted
Cash dividend applicable to the year

¥107.35
94.73
20.00

U.S. dollars (Note 1)

2010

2009

¥111.04
92.11
20.00

2011

¥97.39
86.30
20.00

$1.29
1.14
0.24

Consolidated Statements of Comprehensive Income
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2011 and 2010

Thousands of U.S. dollars(Note 1)Millions of yen

2011
Income before minority interests
Other comprehensive income (loss)
Net unrealized holding gains (losses) on securities
Net deferred gains (losses) on hedges
Foreign currency translation adjustments
Total other comprehensive income (loss)
Comprehensive income
Comprehensive income attributable to:
Owners of the parent
Minority interests
See accompanying notes.

26

ANNUAL REPORT 201 1

2010

2011

¥52,748¥54,266$634,372(3,308)534(1,610)(4,384)¥48,364

12,380(167)(319)
11,894¥66,160(39,784)
6,422(19,362)(52,724)$581,648¥46,917
1,447¥64,565
1,595$564,246
17,402

Consolidated Statements of Changes in Net Assets
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2011, 2010 and 2009

Thousands

Millions of yen
Shareholders’ equity

Number ofshares ofcommonstock

Balance at March 31, 2008
476,086
Net income—
Foreign currency translation—
adjustments
Net unrealized holding losses on—
securities
Acquisition of treasury stock—
Disposal of treasury stock—
Change of scope of consolidation—
Cash dividends paid:
Final for prior year—(¥10 per share)
Interim for current year—(¥10 per share)
Minority interests—
Net deferred losses on hedges—
Balance at March 31, 2009
476,086
Net income—
Foreign currency translation—
adjustments
Net unrealized holding gains on—
securities
Acquisition of treasury stock—
Disposal of treasury stock—
Change of scope of consolidation—
Cash dividends paid:
Final for prior year—(¥10 per share)
Interim for current year—(¥10 per share)
Minority interests—
Net deferred losses on hedges—
Balance at March 31, 2010
476,086
Net income—
Foreign currency translation—
adjustments
Net unrealized holding losses on—
securities
Acquisition of treasury stock—
Cash dividends paid:
Final for prior year—(¥10 per share)
Interim for current year—(¥10 per share)
Minority interests—
Net deferred gains on hedges—
Balance at March 31, 2011
476,086

Accumulated other comprehensive loss

Treasury
stock

Total
shareholders’equityNet unrealized Net deferredholding gains
gains(losses) on(losses) on
securities
hedges

Total
Foreignaccumulated
currency
othertranslation comprehensive
adjustments income (loss)

Minority
interests

Total
net assets¥ 2,870—¥(2,252)—¥(2,241)—¥(1,623)—¥19,912—¥447,335
46,205

Commonstock

CapitalsurplusRetainedearnings¥122,805—¥132,759—¥176,229
46,205

—

—

—

—

—

—

—

(3,521)(3,521)—(3,521)

—
—
—
—

—
—
(9)
—

—
—
—
(4,487)

—
(842)
96
—

—
(842)
87
(4,487)(18,643)
—
—
—

—
—
—
—

—
—
—
—

(18,643)
—
—
—

—
—
—
—

(18,643)(842)
87(4,487)——(4,746)—(4,746)

—

—

—

—

—

(4,746)———
122,805————
132,750—(4,743)——
208,458
52,662———(3,493)—(4,743)——
460,520
52,662———(15,773)
—

—
—
(66)
(2,318)————(5,762)———(66)(23,853)——(2,154)—17,758—(4,743)(2,154)(66)
454,425
52,662

—

—

—

—

—

—

—

(204)

(204)

—

(204)

—
—
—
—

—
—
(2)
—

—
—
—
(2,799)

—
(55)
5
—

—
(55)
3
(2,799)12,380
—
—
—

—
—
—
—

—
—
—
—

12,380
—
—
—

—
—
—
—

12,380(55)
3(2,799)——(4,743)—(4,743)

—

—

—

—

—

(4,743)———
122,805————
132,748—(4,742)——
248,836
50,908———(3,543)—(4,742)——500,846
50,908———(3,393)
—

—
—
(273)
(2,591)————(5,966)
—

—
—
(273)
(11,950)——
746—
18,504—(4,742)
746(273)
507,400
50,908

—

—

—

—

—

—

—

(1,349)(1,349)—(1,349)

—
—

—
—

—
—

—
(102)

—
(102)

(3,308)
—

—
—

—
—

(3,308)———(3,308)
(102)

—

—

(4,742)—(4,742)

—

—

—

—

—

(4,742)———¥122,805———¥132,748(4,742)——¥290,260

—
—
—
—
—
666
¥(7,315) ¥(15,941)—
598—¥19,102(4,742)598
666¥545,329¥(2,747) ¥429,046—
46,205—(4,742)————¥(3,645) ¥542,168

—
—
—
—
—
666
¥ (6,701) ¥(1,925)

Thousands of U.S. dollars (Note 1)
Shareholders’ equity

Total
shareholders’equityNet unrealized Net deferredholding
gains
losses on(losses) on
securities
hedges$1,476,909 $1,596,488 $2,992,615 $(42,609) $6,023,403——
612,243—612,243$(40,805) $(31,161)——

Commonstock

Balance at March 31, 2010
Net income
Foreign currency translation
adjustments
Net unrealized holding losses on
securities
Acquisition of treasury stock
Cash dividends paid:
Final for prior year($0.12 per share)
Interim for current year($0.12 per share)
Minority interests
Net deferred gains on hedges
Balance at March 31, 2011

Accumulated other comprehensive loss

CapitalsurplusRetainedearnings

Treasury
stock

Total
Foreignaccumulated
currency
othertranslation comprehensive
adjustments income (loss)

Minority
interests

Total
net assets$(71,750) $(143,716) $222,538 $6,102,225———
612,243

—

—

—

—

—

—

—

(16,224)(16,224)—(16,224)

—
—

—
—

—
—

—
(1,227)—(1,227)(39,784)
—

—
—

—
—

(39,784)———(39,784)(1,227)——(57,029)—(57,029)

—

—

—

—

—

(57,029)——(57,029)—(57,029)
—
—
—
—
—
—
—
—
—
—
$1,476,909 $1,596,488 $3,490,800 $(43,836) $6,520,361

—
—
—
—
—
(57,029)
—
—
—
—
7,191
7,191
—
8,010
—
8,010
—
8,010
$(80,589) $(23,151) $(87,974) $(191,714) $229,729 $6,558,376

See accompanying notes.
SUMITOMO REALTY & DEVELOPMENT CO., LTD.

27

Consolidated Statements of Cash Flows
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2011, 2010 and 2009

Thousands of U.S. dollars(Note 1)Millions of yen

201 1
Cash flows from operating activities:
Income before income taxes and minority interests
Depreciation and amortization
Loss on impairment of fixed assets (Note 11)
Provision for allowance for loss on disaster
Provision for (Reversal of) allowance for doubtful accounts
Increase (Decrease) in allowance for employees’ severance andretirement benefits
Loss on devaluation of inventories (Note 15)
Loss (Gain) on sale of property and equipment, net
Loss on disposal of property and equipment
Loss on sale of investments in securities, net
Loss on devaluation of investments in securities
Loss on devaluation of common stocks of affiliates
Interest and dividend income
Interest expense
Increase in investments in SPEs holding properties for sale
Decrease (Increase) in notes and accounts receivable–trade
Increase in inventories
Decrease (Increase) in loans receivable
Increase (Decrease) in notes and accounts payable–trade
Increase (Decrease) in advances received
Other, net
Total

2009

2011

¥ 87,758
23,705
7,602
1,930
776

¥ 91,208
18,065
7,826—
325¥ 79,254
17,886165—(1,086)$ 1,055,418
285,087
91,42523,211
9,333

(87)
—
(101)
2,188
29
6,710
—
(3,525)29,969(6,965)
2,935(30,830)528(22,407)(2,936)(17,457)
79,822

(17)
—
(53)
93
55
1,837
10
(2,560)29,812(12,800)(5,671)(5,190)604
14,478
10,876
7,543
156,441342
13,770
647
1,035
207
14,1883,545(3,735)30,400(11,090)2,519(106,778)(3,108)612(2,510)(25,450)
10,813(1,046)—(1,215)26,314349
80,698—(42,393)
360,421(83,764)
35,298(370,776)
6,350(269,477)(35,310)(209,947)
959,976

3,525(30,261)(38,644)
14,442

2,560(29,142)(36,057)
93,802

3,735(30,638)(36,583)(52,673)

42,393(363,933)(464,750)
173,686

Cash flows from investing activities:
Payments for purchases of property and equipment
Proceeds from sale of property and equipment
Payments for purchases of investments in securities
Proceeds from sale of investments in securities
Payments for guarantee and lease deposits paid to lessors
Proceeds from guarantee and lease deposits paid to lessors
Payments for guarantee and lease deposits received
Proceeds from guarantee and lease deposits received
Receipts of deposits from partnership investors
Restitution of deposits from partnership investors
Other, net
Net cash used in investing activities(98,059)
1,040(7,301)
7,074(2,241)
21,642(26,385)
20,15688,996(78,133)(2,301)(75,512)(114,060)
54(15,243)
2,713(1,445)
4,125(23,319)
15,38230,907(65,487)(1,220)(167,593)(84,620)
20,245(16,586)
17,657(3,231)
12,709(15,060)
22,21247,455(112,336)
1,408(110,147)(1,179,302)
12,508(87,805)
85,075(26,951)
260,277(317,318)
242,405
1,070,307(939,663)(27,674)(908,141)

Cash flows from financing activities:
Increase (Decrease) in short-term debt, net
Proceeds from issuance of bonds
Redemption of bonds
Proceeds from long-term loans payable
Repayment of long-term loans payable
Increase (Decrease) in assignment of receivables
Increase in treasury stocks, net
Cash dividends paid
Other, net
Net cash provided by financing activities(112,486)
60,000(80,000)
413,300(194,381)(20,090)(102)(10,334)(24,072)
31,835(117,645)
90,000(40,000)
279,000(123,816)
6,711
(52)
(10,334)
14,57398,437

161,650—(15,000)
135,700(99,756)
1,138
(756)
(10,508)964
173,432(1,352,808)
721,587(962,117)
4,970,535(2,337,715)(241,612)(1,227)(124,281)(289,500)
382,862

(331)

(230)

(1,150)(3,981)

Net increase (decrease) in cash and cash equivalents(29,566)

24,4169,462(355,574)

Cash and cash equivalents at beginning of year
Increase in cash and cash equivalents of newly consolidated
subsidiaries
Decrease in cash and cash equivalents resulting from exclusionof subsidiaries from consolidation
Cash and cash equivalents at end of year (Note 3)

149,315

124,897

116,536

1,795,730

—

2

479

—

—
¥ 119,749—¥ 149,315(1,580)¥ 124,897—$ 1,440,156

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

Effect of exchange rate changes on cash and cash equivalents

See accompanying notes.

28

2010

ANNUAL REPORT 201 1

Notes to Consolidated Financial Statements
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
As of and for the years ended March 31, 2011, 2010 and 2009

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

The accompanying consolidated financial statements of Sumitomo

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

land lots are recognized when units are delivered and accepted by customers.

subsidiaries have been prepared in accordance with the provisions set forth

Revenues from leasing operations of buildings, apartments and otherin the Financial Instruments and Exchange Law and its related accounting

properties are recognized as rent accrues over the lease term.

regulations, and in conformity with accounting principles generally acceptedin Japan (“Japanese GAAP”), which are different in certain respects as to(5) Inventories

application and disclosure requirements from International Financial

Effective from the year ended March 31, 2009, the Company and its

Reporting Standards.

consolidated subsidiaries adopted the new accounting standard, “Account-

The accounts of the Company’s overseas subsidiaries are based on

ing Standard for Measurement of Inventories” (Statement No.9 issued bytheir accounting records maintained in conformity with generally accepted

the Accounting Standards Board of Japan on July 5, 2006), and changed

accounting principles prevailing in the respective countries of domicile.

the measurement standard for inventories. The new measurement standard

The accompanying consolidated financial statements have been restructured

writes down the book value due to a decline in profitability of real property.

and translated into English (with certain expanded disclosure) from the

As a result of adopting the new accounting standard and recognizing

consolidated financial statements of the Company prepared in accordance

loss on devaluation of real property, operating income decreased by ¥1,777

with Japanese GAAP and filed with the appropriate Local Finance Bureau of

million and income before income taxes and minority interests decreased

the Ministry of Finance as required by the Financial Instruments andby ¥15,547 million for the year ended March 31, 2009, compared to what

Exchange Law. Certain supplementary information included in the statutory

would have been reported under the previous accounting standard.

Japanese-language consolidated financial statements, but not required
for fair presentation, is not presented in the accompanying consolidated(6) Securities

financial statements.

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

The translation of the Japanese yen amounts into U.S. dollars is included

subsidiaries and affiliates that are not consolidated or accounted for using

solely for the convenience of readers outside Japan, using the prevailingthe equity method are stated at moving-average cost. Available-for-saleexchange rate at March 31, 2011, which was ¥83.15 to U.S. $1. The translation

securities with available fair market values are stated at fair market value.

should not be construed as representations that the Japanese yen amounts

Unrealized gains and losses on these securities are reported, net of applicablehave been, could have been or could in the future be converted into U.S.

income taxes, as a separate component of net assets. Realized gains anddollars at this or any other rate of exchange.

losses on the sale of such securities are computed using moving-average cost.

2. Accounting policies

stated at cost determined by the specific identification method and securities(1) Significant Accounting Policy

with no available fair market value are stated at moving-average cost.

Investments in SPEs holding properties for sale and senior securities are

The accompanying consolidated financial statements include the accounts

Investments in silent partnerships, which are regarded as securitiesof the Company and significant companies over which the Company has

under the Financial Instruments and Exchange Law, are accounted for in

power of control through majority voting rights or existence of certain

a manner similar to the equity method based on recent financial statements.

conditions evidencing control by the Company.

If the market value of held-to-maturity securities, investments in subsidiaries

In the elimination of investments in subsidiaries, the assets and liabilities

and affiliates, available-for-sale securities and investments in SPEs holdingof the subsidiaries, including the portion attributable to minority shareholders,properties for sale declines significantly, such securities are stated at fairare recorded based on the fair value at the time the Company acquired

market value and the difference between fair market value and the carrying

control of the respective subsidiaries.

amount is recognized as a loss in the period of the decline. If the fair market

All significant intercompany balances, transactions and profits have been
eliminated in consolidation.

value of investments in unconsolidated subsidiaries and affiliated companies
not accounted for using the equity method is not readily available, such securities should be written down to net asset value with a corresponding charge(2) Foreign Currency Translationin the income statement in the event net asset value declines significantly. In

Receivables and payables denominated in foreign currencies are translated

these cases, such fair market value or the net asset value will be the carrying

into Japanese yen at the year-end rates.

amount of the securities at the beginning of the next year.

Financial statements of consolidated overseas subsidiaries are translated
into Japanese yen at the year-end rate, except for shareholders’ equity(7) Property and Equipment

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

The Company and its consolidated domestic subsidiaries depreciate

items resulting from the transactions with the Company, which are translatedbuildings using the straight-line method, and other property and equipment

at the rates used by the Company.

using the declining-balance method over their estimated useful lives.

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

The consolidated overseas subsidiaries depreciate property and equipmentusing primarily the straight-line method in accordance with the accounting
principles in the respective countries.

(3) Cash and Cash Equivalents

Leased assets related to finance lease transactions without title transfer

In preparing the consolidated statements of cash flows, cash on hand,are depreciated using the straight-line method over the lease periods as

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

their useful lives with no residual value.

maturities not exceeding three months at the time of purchase are considered
to be cash and cash equivalents.

Estimated useful lives used in the computation of depreciation are
generally as follows:
SUMITOMO REALTY & DEVELOPMENT CO., LTD.

29

Buildings and structures

6 to 60 years

Effective from the year ended March 31, 2010, the Company and its

Machinery and equipment

2 to 20 years

consolidated subsidiaries adopted “Partial Amendments to Accounting

Leased assets

Lease periods

Standard for Retirement Benefits (Part 3)” (Statement No.19 issued by
the Accounting Standards Board of Japan on July 31, 2008).

(8) Software Costs

Software costs are amortized using the straight-line method over theThis accounting change has no impact on operating income and income
before income taxes and minority interests.

estimated useful lives (five years).
(13) Comprehensive Income(9) Allowance for Doubtful Accounts

Effective from the year ended March 31, 2011, the Company and its

The Company and its consolidated subsidiaries provide for doubtful

consolidated subsidiaries adopted the new accounting standard, “Accounting

accounts at an estimated uncollectable amount based on the evaluation ofStandard for Presentation of Comprehensive Income” (Statement No. 25

certain identified doubtful and bankrupt receivables plus an amount calcu-

issued by the Accounting Standards Board of Japan on June 30, 2010).

lated using the percentage of actual collection losses in certain reference

The amounts of “Accumulated other comprehensive loss” and “Total

periods with respect to remaining receivables.

accumulated other comprehensive loss” for the prior year represent theamounts of “Valuation and transaction adjustments” and “Total valuation(10) Lease Transactions

and transaction adjustments,” respectively.

Effective from the year ended March 31, 2009, the Company and its
consolidated subsidiaries adopted the new accounting standard, “Accounting(14) Asset Retirement Obligations

Standard for Lease Transactions” (Statement No.13 originally issued on

Effective from the year ended March 31, 2011, the Company and its

June 17, 1993, and revised on March 30, 2007 by Accounting Standards

consolidated subsidiaries adopted the new accounting standard, “Accounting

Board of Japan), and “Guidance on Accounting Standard for Lease Trans-

Standard for Asset Retirement Obligations” (Statement No.18 issued by theactions” (Guidance No.16 originally issued on January 18, 1994, and revised

Accounting Standards Board of Japan on March 31, 2008), and “Guidanceon March 30, 2007 by Accounting Standards Board of Japan). Accordingly,

on Accounting Standard for Asset Retirement Obligations” (Guidance No.21

with regard to finance lease transactions without title transfer, we changed

issued by the Accounting Standards Board of Japan on March 31, 2008).

the accounting method in the same manner as operating leases into that assales transaction, and posted them as leased assets.

This accounting change has an immaterial impact on operating income
and income before income taxes and minority interests.

Leased assets related to finance lease transactions without title transfer
are depreciated using a straight-line method over the lease periods as their(15) Construction Contracts

useful lives with no residual value.

The Company previously applied the completed-contract method for

The Company continues to use the previous accounting procedures that
conform to methods related to normal lease transactions with respect torecognizing revenues and costs of construction contracts.
Effective from the year ended March 31, 2010, the Company and its

finance lease transactions without title transfer with a lease transaction startconsolidated subsidiaries adopted the new accounting standard, “Accounting

date prior to the initial year of application of the new accounting standard.

Standard for Construction Contracts” (Statement No.15 issued by the

The impact of this accounting change is immaterial on assets and none

Accounting Standards Board of Japan on December 27, 2007), and “Guidanceon profits and losses. In addition, this accounting change has no impact on

on Accounting Standard for Construction Contracts” (Guidance No.18 issued

segment information.

by the Accounting Standards Board of Japan on December 27, 2007).

(11) Income Taxes

ended March 31, 2010 and their percentage of completion by the end of the

Income taxes are provided for on the basis of income for financial statementfiscal year under review that can be reliably estimated are accounted for bypurposes. The tax effects of temporary differences between the carrying

the percentage-of-completion method (the degree of completion of eachamounts of assets and liabilities for financial statements and income tax

construction project is estimated using the cost-comparison method), while

purposes are recognized as deferred income taxes.

other construction is accounted for by the completed-contract method.

Accordingly, the construction projects that were commenced in the year

This accounting change has no impact on revenue from operations, operating(12) Employees’ Severance and Retirement Benefits

income and income before income taxes and minority interests because

The Company and certain of its consolidated subsidiaries provide two

there were no construction projects to which the percentage-of-completion

types of post-employment benefit plans, lump-sum payment plans andmethod was applied in the year ended March 31, 2010.

qualified retirement pension plans, under which all eligible employees areentitled to benefits based on their current rate of pay, length of service and(16) Financial Instruments

the conditions under which termination occurs.

Effective from the year ended March 31, 2010, the Company and its

The liabilities and expenses for severance and retirement benefits areStandard for Financial Instruments” (Statement No.10 issued by theassumptions.

Accounting Standards Board of Japan on March 10, 2008), and “Guidance

The Company and certain of its consolidated subsidiaries provided an allow-

on Disclosures about Fair Value of Financial Instruments” (Guidance No. 19

ance for employees’ severance and retirement benefits at March 31, 2011, 2010

issued by the Accounting Standards Board of Japan on March 10, 2008).

and 2009 based on the estimated projected benefit obligation at those dates.
Actuarial gains and losses are recognized in expenses in the succeeding
period.
30

consolidated subsidiaries adopted the new accounting standard, “Accounting

determined based on the amounts actuarially calculated using certain

ANNUAL REPORT 201 1

This accounting change has an immaterial impact on net assets and has
no impact on operating income and income before income taxes andminority interests.

(17) Derivative Transactions and Hedge Accounting

certain hedging criteria (regarding interest rate swap contracts), the net

The Company and its consolidated subsidiaries state derivative financial

amount to be paid or received under the interest rate swap contracts is

instruments at fair value and recognize changes in the fair value as gains oradded to or deducted from the interest on the assets or liabilities relative

losses unless derivative financial instruments are used for hedging purposes

to which the swap contract was executed as a hedge.

and qualify for hedge accounting.
If derivative financial instruments are used as hedges and meet certain(18) Investment and Rental Properties

hedging criteria, the Company and its consolidated subsidiaries defer

Effective from the year ended March 31, 2010, the Company and its

recognition of gains or losses resulting from changes in fair value of deriva-

consolidated subsidiaries adopted the new accounting standard, “Accounting

tive financial instruments until the related losses or gains on the hedgedStandard for Disclosures about Fair Value of Investment and Rental Property”

items are recognized.

(Statement No.20 issued by the Accounting Standards Board of Japan on

However, in cases where foreign exchange forward contracts are used

November 28, 2008), and “Guidance on Accounting Standard for Disclosures

as hedges and meet certain hedging criteria (regarding foreign exchange

about Fair Value of Investment and Rental Property” (Guidance No.23 issued

contracts), the foreign exchange forward contracts and hedged items areby the Accounting Standards Board of Japan on November 28, 2008).

accounted for in the following manner:
1. If a foreign exchange forward contract is executed to hedge an existing
foreign currency receivable or payable,(a) the difference, if any, between the Japanese yen amount of the(19) Amounts Per Share of Common Stock

The computation of net income per share is based on the weighted-average
number of shares of common stock outstanding during each year.

hedged foreign currency receivable or payable translated using the

Diluted net income per share is computed based on the amount of net

spot rate at the inception date of the contract and the book value ofincome available to the shareholders and the weighted-average number ofthe receivable or payable is recognized in the income statement in theshares of common stock outstanding during each year after giving effect toperiod which includes the inception date; andthe dilutive potential of shares of common stock to be issued upon the(b) the discount or premium on the contract (that is, the difference between

exercise of stock options.

the Japanese yen amount of the contract translated using the contracted
forward rate and that translated using the spot rate at the inception dateCash dividends per share represent actual amounts applicable to therespective year.

of the contract) is recognized over the term of the contract.
2. If a foreign exchange forward contract is executed to hedge a future(20) Reclassifications and Restatementtransaction denominated in a foreign currency, the future transaction

Certain prior year amounts have been reclassified to conform to the 2011

will be recorded using the contracted forward rate, and no gains orpresentation.

losses on the foreign exchange forward contract are recognized.
Also, if interest rate swap contracts are used as a hedge and meet

These reclassifications had no impact on previously reported results ofoperations or retained earnings.

3. Cash and cash equivalents
Cash and cash equivalents at March 31, 2011 and 2010 consisted of the following:
Millions of yen

Cash, time and notice deposits
Marketable securities
Cash and cash equivalents

2011¥119,749—¥119,749

Thousands of U.S. dollars

2010¥149,313
2¥149,3152011$1,440,156—$1,440,156

4. Inventories
Inventories at March 31, 2011 and 2010 are as follows:
Millions of yen

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

2011
¥206,339
345,165
5,570
1,017¥558,091

Thousands of U.S. dollars

2010¥240,517
276,416
3,673
1,265¥521,8712011$2,481,527
4,151,112
66,987
12,232$6,711,858

The Company transferred amounts between inventories and property and equipment. Such transfers at March 31, 2011 and 2010 are as follows:
Millions of yen

2011
Inventories:
Transfer to property and equipment
Transferred from property and equipment
Net increase (decrease)¥—12,961¥12,961

Thousands of U.S. dollars

2010¥(5,717)
3,647¥(2,070)2011$—
155,875$155,875

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

31

5. Investments in and loans to unconsolidated subsidiaries and affiliates
Investments in and loans to unconsolidated subsidiaries and affiliates at March 31, 2011 and 2010 consisted of the following:
Millions of yen

2011

Thousands of U.S. dollars

2010

2011

Investments in¥2,849¥2,874Loans to

2,850

2,905

$34,264
34,275Total¥5,699¥5,779$68,539

6. Pledged assets
Assets pledged as collateral at March 31, 2011 and 2010 are as follows:
Millions of yen

2011

Thousands of U.S. dollars

2010

2011

Buildings and structures¥12,238¥13,114$147,180

Land

27,727

27,727

333,458

Other

88

111

1,058

Total

¥40,053¥40,952$481,696

Secured liabilities at March 31, 2011 and 2010 are as follows:
Millions of yen

2011Long-term debt due within one year

¥ 1,750

Long-term debt due after one year
Total

Thousands of U.S. dollars

2010

2011

¥ 1,750$ 21,047

20,50022,250246,542¥22,250¥24,000$267,589

7. Financial instruments
1. Policy for Financial Instruments

performance using the funds lent to those borrowers even after

The Company and its consolidated subsidiaries (“the Group”) have the policy

accommodation.

to limit its fund management to short-term deposits with funds through loans
from banks and the issuance of corporate bonds and commercial paper.
The Group utilizes derivative financial instruments only for the purpose ofInterest rate swap contracts are used to hedge risks arising from fluctua-

hedging the foreign exchange risk associated with foreign currency denomi-

tions in interest rates on certain loans, corporate bonds, commercial paper

nated transactions or hedging the interest rate risk associated with theand deposits.

Companies’ loans payable, and does not utilize derivative financial instru-

In regard to derivative transactions, the Group utilizes interest rate swaps

ments for any speculative purposes.

for bank loans and deposits, and utilizes foreign exchange forward con-

2. Details of Financial Instrument, Risks, and Policies andtracts and cross currency swap contracts for foreign currency denominated

Systems of Risk Managementtransactions. Interest rate swap contracts are exposed to the risks of interest

Operating receivables such as notes and accounts receivable–trade arerate changes, and foreign exchange forward contracts and cross currency

exposed to customers’ credit risk, but this risk is generally avoided throughswap contracts are exposed to the risks of foreign exchange rate changes.

the receipt of deposits.

The derivative financial instruments are executed with creditworthy financial

Securities are business-related equities and are exposed to market priceinstitutions, and the Group’s management believes there is insignificant risk

fluctuation risk. The Group regularly checks the market value of the securi-of default by counterparties. Derivative transactions are executed by theties and the financial condition of the issuers, and continuously reviews

Group’s Finance Department in accordance with the decisions of a commit-

whether it keeps to hold securities with consideration for its relationships

tee whose chairman is the director of the Finance Department. The Financewith the issuers.

Department prepares reports on derivative transactions that are provided toInvestments in SPEs holding properties for sale are preferred equity

the director of the Finance Department periodically.

investments to Special Purpose Entities based on the Act on Securitization

3. Supplemental Information on Fair Values of Financial Instrumentsof Assets. These investments are exposed to the issuer’s credit risk, and as

The fair values of financial instruments are based on their market prices, anda result the Group continually checks the financial condition of the issuer.

if the market price is not available, other rational valuation techniques are

Guarantee and lease deposits are mostly deposits related to leasingused instead. The rational valuation techniques incorporate variable factors,

properties, and are exposed to the counterparty credit risk.

32

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

and as a result the values may change due to using different assumptions.

In addition, the Group accommodates counterparties with loans and

The amounts of derivative transactions shown in Note 22 “Derivative

consequently is exposed to the borrowers’ credit risk. However, the Grouptransactions,” are not representing the market risks related to derivative

constantly checks the financial condition of principal borrowers and theirtransactions.

ANNUAL REPORT 201 1

The carrying amounts of financial instruments on the consolidated balance sheets, their fair values and the differences between them as of March 31,
2011 and 2010 are as follows. (Financial instruments whose fair value is extremely difficult to estimate are not included; please see (Note 2).)
For 2011
Millions of yen

Assets:(1) Cash, time and notice deposits(2) Notes and accounts receivable–trade
Allowance for doubtful accounts*1
Balance(3) Investments in securities
Available-for-sale securities(4) Long-term loans*2(5) Guarantee and lease deposits
Held-to-maturity securities
Available-for-sale securities
Total assets
Liabilities:(1) Notes and accounts payable–trade(2) Short-term debt
(3) Long-term debt (including due within one year)(4) Deposits received*3
Total liabilities
Derivative transactions*4 :Non-hedge accounting
Hedge accounting
Total derivative transactions

Carrying amount

Fair value¥ 119,749¥ 119,749

Thousands of U.S. dollars
Difference¥—

Carrying amount

Fair value$ 1,440,156$ 1,440,156

14,284

Difference$—

171,786(119)(1,431)

14,165

14,165—

170,355

170,355

123,854
3,493

123,854—

1,489,525

1,489,525

—

3,588

95

42,00843,151

1,143

1,270

1,281

11

15,274

15,406

132

510

510

—

6,133

6,133

¥ 263,041¥ 263,147¥

106$ 3,163,451$ 3,164,726

$

¥

¥

¥

—

$

$

$

31,75631,756

381,912

381,912

—

—
1,275
—

215,739

215,739—2,594,576

2,594,576—

1,805,860

1,822,223

16,363

21,718, 099

21,914,888

196,789

67,50067,500—811,787

811,787—¥2,120,855¥2,137,218¥16,363$ 25,506,374$25,703,163$196,789

¥

¥

¥

$

$

$

—
(3,309)¥(3,309)——(3,309)¥(3,309)—¥——(39,796)$(39,796)—(39,796)$(39,796)

—
—

$

—

For 2010
Millions of yen

Assets:(1) Cash, time and notice deposits(2) Notes and accounts receivable–trade
Allowance for doubtful accounts*1
Balance(3) Securities
Available-for-sale securities(4) Long-term loans*2(5) Guarantee and lease deposits
Held-to-maturity securities
Total assets
Liabilities:(1) Notes and accounts payable–trade(2) Short-term debt
(3) Long-term debt (including due within one year)(4) Deposits received*3(5) Long-term deposits received*3
Total liabilities
Derivative transactions*4 :Non-hedge accounting
Hedge accounting
Total derivative transactions

Carrying amount

Fair value

Difference¥ 149,313¥ 149,313¥—

17,232(104)
17,12817,128—

134,570

134,570

—

3,445

3,551

106

1,264

1,279

¥ 305,720¥ 305,841

¥

121

¥

¥

¥

—

54,171

54,171

15

328,225

328,225—

1,606,941

1,625,017

18,07619,00019,000—66,00066,000—¥2,074,337¥2,092,413¥18,076¥¥¥—(4,278)¥(4,278)—(4,278)¥(4,278)——¥—*1 The carrying amount of notes and accounts receivable–trade is stated at net of allowance for doubtful accounts.
*2 Certain loans due within one year are included.
*3 The amounts only included in financial liabilities are disclosed.
*4 Derivative transactions are stated at net of assets and liabilities. Figures in parentheses indicate net liabilities.

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

33

(Note 1) The calculation methods of fair value for financial instruments.

For notes and securities classified by purpose of holding, please see
Note 8 “Securities.”

Assets:(1) Cash, time and notice deposits
The fair value of cash, time and notice deposits approximates their carrying

Liabilities:

amounts because of their short-term maturities.

(1) Note and accounts payable–trade and (2) Short-term debt

(2) Notes and accounts receivable–trade

The fair value of these items approximates their carrying amounts because

The fair value of notes and accounts receivable–trade approximates theirof their short-term maturities.

carrying amounts unless the credit standing of debtors has changed signifi-(3) Long-term debt (including due within one year)

cantly since the loan origination.

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

The allowance for doubtful receivables is estimated based on expected

because the market interest rate is reflected in such notes within a short

recoverable amounts, considering the possibility of individual collections.

time period and because the credit standing of the Company is the same

Therefore the fair value of doubtful receivables approximates the carrying

after borrowing. The fixed-coupon debt is calculated by discounting

amount deducted by the estimated allowance for doubtful accounts on

the combined total of principal and interest at an interest rate assumed forthe consolidated balance sheets as of the end of the fiscal year.

similar new borrowings.

(3) Investments in securities (Securities)

The specific matching criteria of interest rate swaps are applicable to

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

some long-term debts with floating interest rates (please see Note 22

For floating rate notes, the carrying amount is presented as the fair value, as“Derivative transactions”). The fair value of these items is calculated by dis-the fair value approximates the carrying amount because the market interest

counting the combined total of interest and principal, with which the interest

rate is reflected in such notes within a short time period. The fair value of therate swap has been accounted for, at an interest rate rationally estimated for

fixed-coupon debt is determined based on the present value discounted

similar borrowings.

at the interest rate which reflects the period remaining to maturity andthe credit risk.

The fair value of corporate bonds issued by the Company (included in (3)Long-term debt (including due within one year)) is based on the market price.

For notes on securities classified by purpose of holding, please see Note 8(4) Deposits received and (5) Long-term deposits received“Securities.”

The fair value of these items approximates their carrying amounts because(4) Long-term loans

the market interest rate is reflected in deposits with floating interest rates

The fair value of long-term loans is calculated by discounting the combined

within a short time period and the credit standing of the Company is thetotal of principal and interest by an assumed interest rate for similar new loans.

same after borrowing.

(5) Guarantee and lease deposits
The fair value of guarantee and lease deposits are based on the value

Derivative Transactions:offered by correspondent financial institutions.

Please see Note 22 “Derivative transactions.”(Note 2) Financial instruments whose fair value is extremely difficult to estimate
Carrying amountMillions of yen

Investments in subsidiaries and affiliates*

1

Thousands of U.S. dollars

2011

2010

2011

¥

¥

$

2,849

2,874

34,264

Unlisted equity securities*1

18,953

15,985

227,937

Senior securities, etc.*1

33,81333,824

406,651

Investments in silent partnerships, etc.*1

38,261

38,117460,144

Investments in SPEs holding properties for sale*2

69,85062,885840,048

Guarantee and lease deposits(excluding held-to-maturity securities and available-for-sale securities)*3

143,927

165,307

1,730,932

Guarantee and deposits received*4

164,318

171,308

1,976,164*1 These items are not included in “Assets (3) Investments in securities (Securities)” since their market price is unavailable and the assessment of their fair value is deemed extremely difficult.
*2 The fair value of investments in SPEs holding properties for sale are not disclosed since their market price is unavailable and the assessment of their fair value is deemed extremely difficult.
*3 Guarantee and lease deposits (excluding held-to-maturity securities and available-for-sale securities) are not included in “Assets (5) Guarantee and lease deposits” because the assessmentof their fair value is deemed extremely difficult and their remaining terms cannot be determined.
*4 The fair value of guarantee and deposits received are not disclosed because the assessment of their fair value is deemed extremely difficult and their remaining terms cannot be determined.

34

ANNUAL REPORT 201 1

(Note 3) Redemption schedule of pecuniary claims and held-to-maturity securities
For 2011
Millions of yen

Cash, time and notice deposits

1 year or less

1 to 5 years

5 to 10 years¥119,749¥¥

Notes and accounts receivable–trade—13,612

Over 10 years

—

¥—

672

—

—

Investments in securities
Available-for-sale securities with maturities (Corporate bonds)

—

1,100

700

—

55

3,438

—

—

Held-to-maturity securities (National government bonds)

10

1,280

—

—

Available-for-sale securities with maturities (National government bonds)

—

—

503

—

¥133,426¥6,490¥1,203¥—Long-term loans
Guarantee and lease deposits

Total
For 2010

Millions of yen
1 year or lessCash, time and notice deposits

1 to 5 years

5 to 10 years¥¥¥149,313

Over 10 years

—

¥—

945

—

—

2,700

400

1,400

—

55

3,390

—

—

195

1,095

—

—

¥168,550¥5,830¥1,400¥—Notes and accounts receivable–trade—16,287

Securities
Available-for-sale securities with maturities (Corporate bonds)
Long-term loans
Guarantee and lease deposits
Held-to-maturity securities (National government bonds)
Total
For 2011
Thousands of U.S. dollars
1 year or lessCash, time and notice deposits

1 to 5 years$1,440,156

Notes and accounts receivable–trade$

5 to 10 years—$

Over 10 years—$—

163,704

8,082

—

—

Investments in securities
Available-for-sale securities with maturities (Corporate bonds)—

13,229

8,419

—

661

41,347——

Held-to-maturity securities (National government bonds)

121

15,394——

Available-for-sale securities with maturities (National government bonds)

—

—

6,049

—

$1,604,642$78,052$14,468$—

Long-term loans
Guarantee and lease deposits

Total(Note 4) Repayment schedule of corporate bonds, long-term debt and other interest-bearing debt
For 2011
Millions of yen
2012

2013

2014

¥

—

¥

2016

—

¥

2017 and thereafter

Short-term debt

¥215,739¥

Long-term debt(including due within one year)

374,792

306,223

277,692

264,548

352,439

Deposits received

67,500

—

—

—

—

—

¥658,031¥306,223¥277,692¥264,548¥352,439¥230,166

Total

—

2015

—

¥

—

230,166

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

35

For 2010
Millions of yen
2011

2012

2013

—

¥

—

¥

2016 and thereafter¥Long-term debt(including due within one year)

273,621373,072304,503

213,432

226,308

216,005

Deposits received

19,000

—

—

—

—

—

—

66,000————¥620,846¥439,072¥304,503¥213,432¥226,308¥216,005

Total

¥

2015

¥328,225

Long-term deposits received

—

2014

Short-term debt

—

¥

—

For 2011
Thousands of U.S. dollars
2012

2013

2014

$

—

$

—

$

2017 and thereafter$2,594,576

Long-term debt(including due within one year)

4,507,420

3,682,778

3,339,651

3,181,575

4,238,593

811,787

—

—

—

—

—

$7,913,783$3,682,778$3,339,651$3,181,575$4,238,593$2,768,082

Total

—

2016

Short-term debt

Deposits received

$

2015

—

$

—
2,768,082

8. Securities
For 2011

A. The following tables summarize the acquisition costs, book values and fair market values of securities with available fair market values as of March 31, 2011:(a) Held-to-maturity securities:
Millions of yen
Book value

Fair market value¥1,078¥1,089Thousands of U.S. dollars
DifferenceBook value

Fair market value

Difference¥11$12,965$13,097$132

Securities whose fair market value
exceeds book value:
National and local government bonds, etc.
Securities whose fair market value does
not exceed book value:
192

192

—

2,309

2,309

—

¥1,270¥1,281¥11$15,274$15,406$132

Book value

Acquisition cost

DifferenceBook value

Acquisition cost

Difference

Equity securities¥ 49,095¥ 31,559¥ 17,536$ 590,439$ 379,543$ 210,896

Debt securities*1

1,539

1,508

31

18,50918,136373

Subtotal

50,63433,067

17,567

608,948397,679

211,269

Equity securities

71,33999,958(28,619)

857,956

1,202,141(344,185)

Debt securities*2

92

95

(3)

1,106

1,142

(36)

2,299

2,483

(184)

27,64929,862(2,213)National and local government bonds, etc.
Total(b) Available-for-sale securities:

Millions of yen

Thousands of U.S. dollars

Securities whose book value exceeds
acquisition cost:

Securities whose book value does notexceed acquisition cost:

OthersSubtotal
Total

73,730102,536(28,806)

886,7111,233,145(346,434)¥124,364¥135,603¥(11,239)$1,495,659$1,630,824$(135,165)*1 ¥418 million ($5,027 thousand) of debt securities in securities whose book value exceeds acquisition cost is included in “Guarantee and lease deposits” on the consolidated balance sheets.
*2 Debt securities of ¥92 million ($1,106 thousand) in securities whose book value does not exceed acquisition cost is included in “Guarantee and lease deposits” on the consolidated balance sheets.
(Note) The Company recognized ¥6,710 million ($80,698 thousand) of impairment loss on investments in securities (¥5,422 million ($65,207 thousand) on equity securities in available-for-salesecurities).

36

ANNUAL REPORT 201 1

B. Total sales of available-for-sale securities sold in the year ended March

As of March 31, 2011, investments in SPEs holding properties for sale31, 2011 amounted to ¥285 million ($3,428 thousand), and the related

mainly consisted of preferred subscription certificates issued by SPEs.

gains and losses amounted to ¥4 million ($48 thousand) and ¥33 million

D. The Company lent the equity securities temporarily to a financial institution under a securities lending agreement. Lent securities, included in($397 thousand), respectively.
C. Investments in SPEs holding properties for sale are equity investments inSpecial Purpose Entities (SPEs) which own and develop real estate. The

investments in securities and other, were ¥81,281 million ($977,523 thousand) as of March 31, 2011.

Company or its subsidiaries plan to sell real estate in SPEs after the completion of construction.
For 2010

A. The following tables summarize the acquisition costs, book values and fair market values of securities with available fair market values as of March 31, 2010:(a) Held-to-maturity securities:
Millions of yen
Book value

Fair market value

Difference

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

¥1,249¥1,264¥15

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

15

15

—

¥1,264¥1,279¥15(b) Available-for-sale securities:
Millions of yen
Book value

Acquisition cost

Difference

Securities whose book value exceeds acquisition cost:
Equity securities¥ 62,491¥ 42,831¥ 19,660

Others

3,344

3,327

17

Subtotal

65,835

46,15819,677

Equity securities

65,986

91,251(25,265)

Others

2,749

2,889

(140)

Subtotal

68,735

94,140(25,405)¥134,570¥140,298¥ (5,728)

Securities whose book value does not exceed acquisition cost:

Total(Note) The Company recognized ¥1,837 million of impairment loss on investments in securities (¥1,837 million on equity securities in available-for-sale securities).

As of March 31, 2010, investments in SPEs holding properties for sale

B. Total sales of available-for-sale securities sold in the year ended March
31, 2010 amounted to ¥53 million, and the related gains and losses

consisted of preferred subscription certificates issued by SPEs.
D. The Company lent the equity securities temporarily to a financial institu-

amounted to ¥1 million and ¥56 million, respectively.
C. Investments in SPEs holding properties for sale are equity investments intion under a securities lending agreement. Lent securities, included

Special Purpose Entities (SPEs) which own and develop real estate. The

in investments in securities and other, were ¥109,271 million as ofCompany or its subsidiaries plan to sell real estate in SPEs after the com-

March 31, 2010.

pletion of construction.

9. Short-term debt and long-term debt
Short-term debt at March 31, 2011 and 2010 consisted of the following :Millions of yen

2011
Loans, principally from banks
Commercial paper
Total

Average interest rate (%)¥185,750

0.72

29,9890.18¥215,739

Thousands of U.S. dollars

2010

Average interest rate (%)¥230,250

0.88

97,9750.22¥328,2252011$2,233,915
360,661$2,594,576

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

37

The interest rates represent weighted-average rates in effect at March 31, 2011 and 2010, regardless of borrowing currencies, though the range of theinterest rate varies by borrowing currency.
Long-term debt at March 31, 2011 and 2010 consisted of the following:
Millions of yen

2011
1.52% domestic straight bonds, due 2010¥

Thousands of U.S. dollars

2010
—

¥

2011

20,000

$—1.29% domestic straight bonds, due 2012

20,00020,000240,529

1.28% domestic straight bonds, due 2012

30,00030,000360,793

0.75% domestic straight bonds, due 2010—

30,000—1.18% domestic straight bonds, due 2010—

30,000

—1.85% domestic straight bonds, due 2011

20,00020,000240,529

1.86% domestic straight bonds, due 2011

20,00020,000240,529

1.84% domestic straight bonds, due 2011

20,00020,000240,529

1.87% domestic straight bonds, due 2012

20,00020,000240,529

1.58% domestic straight bonds, due 2011

10,00010,000120,265

1.89% domestic straight bonds, due 2013

10,00010,000120,265

1.70% domestic straight bonds, due 2013

20,00020,000240,529

1.80% domestic straight bonds, due 2012

20,00020,000240,529

1.76% domestic straight bonds, due 2012

20,00020,000240,529

1.68% domestic straight bonds, due 2013

20,00020,000240,529

1.63% domestic straight bonds, due 2013

20,00020,000240,529

2.50% domestic straight bonds, due 201910,00010,000120,265

1.81% domestic straight bonds, due 2014

20,00020,000240,529

1.87% domestic straight bonds, due 2014

10,00010,000120,265

1.48% domestic straight bonds, due 2014

10,00010,000120,265

1.28% domestic straight bonds, due 2015

10,00010,000120,265

1.17% domestic straight bonds, due 2015

30,00030,000360,793

0.96% domestic straight bonds, due 2015

30,000—360,793

0.94% domestic straight bonds, due 2015

10,000—120,265

0.80% domestic straight bonds, due 2015

20,000—240,529

Loans, principally from banks and insurance companies, interest principally at
rates of 0.32% to 2.67% in 2011, and 0.62% to 2.66% in 2010:
Secured

22,25024,000267,589

1,383,610

1,162,941

16,639,928

Subtotal

1,805,860

1,606,941

21,718,099

Amount due within one year

(374,792)(273,621)(4,507,420)¥1,431,068¥1,333,320$17,210,679

Unsecured*

Total* Unsecured long-term debt as of March 31, 2011 and 2010 includes a perpetual subordinated loan of ¥120,000 million ($1,443,175 thousand) and ¥120,000 million, respectively.

The aggregate annual maturities of long-term debt at March 31, 2011 are as follows:Year ending March 31

Millions of yen

2012¥ 374,792$ 4,507,420

2013

306,223

3,682,778

2014

277,692

3,339,651

2015

264,548

3,181,575

2016

352,439

4,238,593

2017 and thereafter

230,166

2,768,082¥1,805,860$21,718,099

Total

Thousands of U.S. dollars

It is customary in Japan that 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 the case of default and certain other specified
events. The Company has never received such a request.
38

ANNUAL REPORT 201 1

10. Employees’ severance and retirement benefits
As explained in Note 2 (12), the liabilities and expenses for severance and retirement benefits are determined based on the amounts obtained by actuarial
calculations.
The allowance for severance and retirement benefits included in the liabilities section of the consolidated balance sheets as of March 31, 2011 and 2010
consisted of the following:
Millions of yen

2011

Thousands of U.S. dollars

2010

2011

Projected benefit obligation¥ 8,019¥ 7,664$ 96,440

Fair value of plan assets(2,909)(2,865)(34,985)

Unrecognized actuarial differences
Allowance for employees’ severance and retirement benefits

(228)

171

(2,742)¥ 4,882¥ 4,970$ 58,713

Included in the consolidated statements of income for the years ended March 31, 2011, 2010 and 2009 are severance and retirement benefit expenses
comprised of the following:
Millions of yen

2011
Service costs – benefits earned during the year
Interest cost on projected benefit obligation

Thousands of U.S. dollars

2010

2009

2011

¥ 514

¥ 517

¥ 537

$ 6,182

146

147

135

1,756

Expected return on plan assets

(57)

(51)

(57)

(686)

Amortization of actuarial differences

(163)

174

299

(1,960)

Other
Severance and retirement benefit expenses
Other of ¥309 million ($3,716 thousand) for the year ended March 31, 2011,

309

320

181

3,716

¥ 749

¥1,107¥1,095$ 9,008

years ended March 31, 2011, 2010 and 2009 used by the Company is 2.0%.

¥320 million for the year ended March 31, 2010 and ¥181 million for the year

The estimated amount of all retirement benefits to be paid at future retirement

ended March 31, 2009 is the amount paid for defined contribution plan that

dates is allocated equally to each service year using the estimated number

one of the Company’s consolidated subsidiaries adopted in September 2008.

of total service years. Actuarial gains and losses are recognized in expenses

The discount rate and the rate of expected return on plan assets for thein the succeeding period.

11. Loss on impairment of fixed assets
The Company and its consolidated domestic subsidiaries recognized impairment losses on the following assets for the years ended March 31, 2011, 2010
and 2009, respectively.
For 2011
Use

Location

Number of properties

Land for development

Katsushika-ku, Tokyo1

Ancillary facility

Minami-Uonuma-shi, Niigata

1

For 2010
Use

Land for development

Location

Number of properties

Taito-ku, Tokyo, etc.

7

Rights to use ancillary facilities

Minami-Uonuma-shi, Niigata

1

Idle asset

Fujisawa-shi, Kanagawa

1

Assets leased to others

Setagaya-ku, Tokyo, etc.

3

For 2009
Use

Location

Number of properties

Idle asset

Fujisawa-shi, Kanagawa

1

Land, buildings and structures for leased condominiums

Setagaya-ku, Tokyo, etc.

5

The Company and its consolidated domestic subsidiaries recognized losses on the impairment of certain properties, which are generally assessedindividually for impairment. The Company’s houses are treated as common assets.
As a result of transferring inventories from property and equipment, the carrying values of the land holdings summarized above have been reduced totheir recoverable amounts by ¥7,602 million ($91,425 thousand), ¥7,826 million and ¥165 million for the years ended March 31, 2011, 2010 and 2009,
respectively. These write-downs were recognized as impairment losses in other expenses.
Details of loss on impairment of fixed assets are as follows:
SUMITOMO REALTY & DEVELOPMENT CO., LTD.

39

Millions of yen

2011
Land

Thousands of U.S. dollars

2010

2009

2011

¥7,602¥7,304¥122$91,425

Intangible assets

—

489

—

—

Buildings, structures and others

—

33

43

—

¥7,602¥7,826¥165$91,425

Total

The recoverable values of these assets were determined as the net disposal value. The net disposal value for land for leased buildings and lands fordevelopment are based on the income approach, and that for the others is based mainly on the sales comparison approach.

12. Allowance for loss on disaster

16. Repair expenses for prior periods construction

Allowance for loss on disaster of ¥1,930 million ($23,211 thousand) for

Repair expenses for prior periods construction of ¥1,641 million for the year

the year ended March 31, 2011 is to prepare for expenditure to restore any

ended March 31, 2009 are incurred for custom homes which had been

fixed assets or inventories damaged by the Great East Japan Earthquake.

delivered in the past fiscal years.

13. Gain on adjustment of accrued rent payable

17. Asset retirement obligations

Gain on adjustment of accrued rent payable of ¥645 million for the year

Even though removing asbestos is required to some buildings the Company

ended March 31, 2010 is incurred for the holding property of a consolidated

and its consolidated subsidiaries (“the Group”) operate at the time ofsubsidiary in the United States because the subsidiary purchased thedemolishing, it is difficult to estimate the fair value of obligations associatedleased land from the lessor, and as a result, the subsidiary is no longer

with such assets reasonably since the timing and/or method of settlement

required to make rent payments.

for the retirement obligations are not clear enough. Therefore, for the year
ended March 31, 2011, asset retirement obligations related to such a case

14. Gain on prior periods adjustment

are not recorded (except for the asset retirement obligations recorded on

Gain on prior periods adjustment of ¥413 million ($4,967 thousand) for

the financial statements).

the year ended March 31, 2011 is due to the adjustment of useful life of

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

depreciable assets. Most of gain on prior periods adjustment of ¥1,023

for restoring office spaces when tenants move out. For the asset retirement

million for the year ended March 31, 2009 is the amount transferred fromobligations associated with such a case, the duration of use of the assets isthe expenses relating to fixed assets recorded in the previous fiscal year as

not clear enough and these assets do not have any relocation plans. There-a result of the investigation of tax authorities.

fore, the Group is unable to estimate the asset retirement obligations since
it is difficult to estimate the timing of fulfillment of the obligations. Consequently,

15. Loss on devaluation of inventories

for the year ended March 31, 2011, asset retirement obligations related to

The ending inventory at March 31, 2010 represents the amount after

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

recognition of decline in profitability, and the loss on devaluation of inventories

recorded on the financial statements).

of ¥13,145 million for the year ended March 31, 2010 is included in cost ofrevenue from operations. The loss on devaluation of inventories of ¥13,770

18. Income taxes

million for the year ended March 31, 2009 is recognized for a decline in

The normal effective statutory income tax rate in Japan arising out of

profitability of inventories at the beginning of the year ended March 31, 2009.

the aggregation of corporate, enterprise and inhabitant taxes was approximately 40.69% for the years ended March 31, 2011, 2010 and 2009.
The differences between the statutory tax rate and the Company’s
effective tax rate for the years ended March 31, 2011, 2010 and 2009 were
insignificant and not presented.

40

ANNUAL REPORT 201 1

Details of deferred tax assets and liabilities at March 31, 2011 and 2010 are as follows:
Millions of yen

2011

Thousands of U.S. dollars

2010

2011

Deferred tax assets:
Loss on impairment of fixed assets
Net unrealized holding losses on securities
Loss on devaluation of real estate for sale
Net operating loss carryforwards
Allowance for employees’ severance and retirement benefits
Accrued enterprise tax and business office tax
Accrued bonuses
Net deferred losses on hedges
Loss on devaluation of investments in securities
Unrealized intercompany profits
Other
Subtotal of deferred tax assets
Valuation allowance
Total deferred tax assets¥ 5,679
4,605
4,108
3,237
1,984
1,803
1,431
1,229
1,225
—
10,681
35,982(6,088)29,894¥ 5,685
2,425
4,404
4,632
2,019
1,958
1,239
1,899
—
1,305
9,658
35,224(7,583)27,641$ 68,298
55,382
49,40538,93023,86021,684
17,21014,781
14,732—
128,454432,736(73,217)359,519

Deferred tax liabilities:
Retained earnings appropriated for tax allowable reserves
Other
Total deferred tax liabilities
Net deferred tax assets(4,959)(507)(5,466)¥24,428(4,959)(137)(5,096)¥22,545(59,639)(6,098)(65,737)$293,782

19. Guarantee and deposits received
Guarantee and deposits received at March 31, 2011 and 2010 are as follows:
Millions of yen

2011
Short-term deposits and long-term
deposits due within one year:
Non-interest-bearing
Interest-bearing
Guarantee and lease deposits fromtenants:
Non-interest-bearing
Interest-bearing
Long-term deposits:
Non-interest-bearing
Interest-bearing

Total

Average interest rate (%)

Thousands of U.S. dollars

2010

Average interest rate (%)

2011¥102,219
67,500169,719—0.51¥168,537
19,000187,537—
0.63$1,229,331
811,787
2,041,118

164,318———

171,308———

1,976,164—

167,986—
332,304——

133,018
66,000370,326—0.60

2,020,276—
3,996,440¥502,023¥557,863$6,037,558

The aggregate annual maturities of deposits received at March 31, 2011 are as follows:Year ending March 31

2012
2013
2014
2015
2016
2017 and thereafter
Total

Millions of yen¥67,500—————¥67,500

Thousands of U.S. dollars$811,786—————$811,786

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

41

20. Net assets
Under the Japanese Corporate Law (“the Law”) and its regulations,

Under the Law, legal earnings reserve and additional paid-in capitalthe entire amount paid for new shares is required to be designated as

could be used to eliminate or reduce a deficit and capitalized by a resolutioncommon stock. However, a company may, by a resolution of the Board ofof the shareholders’ meeting.
Additional paid-in capital and legal earnings reserve may not be

Directors, designate an amount not exceeding one-half of the price of the
new shares as additional paid-in capital, which is included in capital surplus.

distributed as dividends. Under the Law, all additional paid-in capital andUnder the Law, in cases where a dividend distribution of surplus is made,all legal earnings reserve may be transferred to other capital surplus andthe smaller of an amount equal to 10% of the dividend or the excess, if any,retained earnings, respectively, which are potentially available for dividends.

of 25% of common stock over the total of additional paid-in capital and legal

The maximum amount that the Company can distribute as dividends isearnings reserve must be set aside as additional paid-in capital or legal

calculated based on the non-consolidated financial statements ofearnings reserve. Legal earnings reserve is included in retained earnings on

the Company in accordance with the Law and its regulations.

the accompanying consolidated balance sheets.
21. Information for certain lease transactions
Finance leases without title transfer to lessees are not capitalized and accounted for in the same manner as operating leases. Certain information for suchnon-capitalized finance leases is as follows.
As Lessee

A summary of the pro-forma amounts (inclusive of interest) of acquisition cost, accumulated depreciation and net book value at March 31, 2011, 2010 and2009 is as follows:
Millions of yen

2011

2010

Thousands of U.S. dollars

2009

2011

Acquisition cost:¥885¥ 4,502¥ 5,268

1,174

1,447

1,936

14,119

Accumulated depreciation(1,663)(4,811)(4,964)(20,000)

Net book value¥¥ 1,138¥ 2,240$ 4,762

Buildings and structures
Other

396

$ 10,643

Lease expenses under finance leases, inclusive of interest, for the years

Pro-forma depreciation equivalents of ¥714 million ($8,587 thousand),¥1,023 million and ¥1,250 million for the years ended March 31, 2011, 2010

ended March 31, 2011, 2010 and 2009 amounted to ¥714 million ($8,587

and 2009, respectively, were computed using the straight-line method overthousand), ¥1,023 million and ¥1,250 million respectively.

the lease terms assuming no residual value or residual indemnity.
Future lease payments and receipts under such finance leases and non-cancelable operating leases at March 31, 2011, 2010 and 2009 are as follows:
Millions of yen

2011

2010

Thousands of U.S. dollars

2009

2011

Finance leases
Future lease payments:
Due within one year¥

Due after one year
Total

¥

737

¥ 1,043

134

262

¥

401

1,197

$

396

¥ 1,138¥ 2,240

$

$

3,150
1,612
4,762

Operating leases
Future lease payments:
Due within one year

2,374

¥ 4,348¥ 6,245

13,87021,60914,360166,807¥ 16,244¥25,957¥20,605$ 195,358

Due within one year

¥ 48,884¥28,331¥$ 587,901

Due after one year

53,59729,941¥102,481¥58,272

Due after one year
Total

¥

28,551

Future lease receipts:

Total

42

ANNUAL REPORT 201 1

¥

43
124

644,582

167$1,232,483

22. Derivative transactions
Hedge accounting was applied for all derivative transactions for the years ended March 31, 2011 and 2010.
The summary of these transactions is as follows:
For 2011(1) Foreign currency related derivatives
Millions of yen
Hedging accounting

Hedging instruments

Hedged items

Contract amounts

Contract amounts due
after one year

Fair value

Foreign exchange forward contracts
Deferred hedge
accounting

Receipts in U.S. dollars / Payments in yen
Cross currency swap contracts

Foreign currency
denominated transactions

Receipts in U.S. dollars / Payments in yen
Total¥1,219¥—¥ (38)

8,310

—

(251)

¥9,529¥—¥(289)

Thousands of U.S. dollars
Hedging accounting

Hedging instruments

Hedged items

Contract amounts

Contract amounts due
after one year

Fair value

Foreign exchange forward contracts
Deferred hedge
accounting

Receipts in U.S. dollars / Payments in yen
Cross currency swap contracts

Foreign currency
denominated transactions

Receipts in U.S. dollars / Payments in yen
Total$ 14,660$—$ (457)

99,940—(3,019)$114,600$—$(3,476)(Note) Fair value is determined based on the quoted price obtained from relevant financial institutions.

(2) Interest related derivatives
Millions of yen
Hedging accounting

Hedging instruments

Deferred hedge
accounting

Interest rate swap contracts

Special hedge
accounting

Interest rate swap contracts

Fixed rate payments / Floating rate receipts
Fixed rate payments / Floating rate receipts

Hedged items

Bank loans and deposits
Bank loans

Contract amounts

Contract amounts due
after one year

¥245,000¥135,000¥(3,020)570,645

391,665–*

Fair value

Thousands of U.S. dollars
Hedging accounting

Hedging instruments

Deferred hedge
accounting

Interest rate swap contracts

Special hedge
accounting

Interest rate swap contracts

Fixed rate payments / Floating rate receipts
Fixed rate payments / Floating rate receipts

Hedged items

Bank loans and deposits
Bank loans

Contract amounts

Contract amounts due
after one year

$2,946,482$1,623,572$(36,320)

6,862,838

4,710,343–*

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

For 2010(1) Foreign currency related derivatives
Millions of yen
Hedging accounting

Hedging instruments

Hedged items

Contract amounts

Contract amounts due
after one year

Fair value

Foreign exchange forward contracts
Deferred hedge
accounting

Receipts in U.S. dollars / Payments in yen
Cross currency swap contracts

Foreign currency
denominated transactions

Receipts in U.S. dollars / Payments in yen
Total¥1,271

¥—

¥ 50

8,672

—

340

¥9,943¥—¥390(Note) Fair value is determined based on the quoted price obtained from relevant financial institutions.

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

43

(2) Interest related derivatives
Millions of yen
Hedging accounting

Hedging instruments

Deferred hedge
accounting

Interest rate swap contracts

Special hedge
accounting

Interest rate swap contracts

Hedged items

Fixed rate payments / Floating rate receipts
Fixed rate payments / Floating rate receipts

Contract amounts

Contract amounts due
after one year

¥254,000¥245,000¥(4,668)

562,397437,745—*

Bank loans and deposits
Bank loans

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

23. Segment information
Effective from the year ended March 31, 2011, the Company and its con-

The Company and its consolidated subsidiaries mainly operate their business in five segments: (1) Leasing business consists of leasing of buildings,

solidated subsidiaries adopted the new accounting standard, “Accounting

apartments and other properties, and management of these properties; (2)Standard for Disclosures about Segments of an Enterprise and Related

Sales business consists of sale of condominiums, detached houses andInformation” (Statement No.17 issued by the Accounting Standards Board

land lots; (3) Construction business consists of construction of housing,of Japan on March 27, 2009), and “Guidance on Accounting Standard for

condominiums and buildings; (4) Brokerage business; and (5) Other busi-

Disclosures about Segments of an Enterprise and Related Information”

ness including fitness business, restaurant business and finance business.

(Guidance No.20 issued by the Accounting Standards Board of Japan on
March 21, 2008).

Information by business segment for the years ended March 31, 2011, 2010 and 2009 is summarized as follows:
Millions of yen
Reportable segments
Leasingbusiness

Salesbusiness

Construction
business

Brokeragebusiness

Otherbusiness¥ 290,536¥239,620¥160,771¥45,840¥ 7,989

For 2011

Total

Adjustments

Consolidated
financialstatements
amounts

Revenue from operations
Customers
Intersegment
Total¥ 744,756¥—¥ 744,756

2,339

89

2,153

590

4,857

10,028(10,028)—

292,875

239,709

162,924

46,43012,846754,784(10,028)

744,756

Segment profit¥

88,241¥ 33,418¥ 16,698¥12,203¥520¥ 151,080¥ (12,617)¥ 138,463

Segment assets¥2,170,939¥721,957¥ 13,626¥12,959¥41,859¥2,961,340¥272,863¥3,234,203

¥

¥

¥

¥

¥

¥

¥

¥

Other
Depreciation and amortization
Loss on impairment of fixed assets
Increase in property and equipment,
and intangible assets

44

ANNUAL REPORT 201 1

22,017

161

355

242

92

22,867838

23,705

—

7,602

—

—

—

7,602

—

7,602

121,507

148

215

203

66

122,139315

122,454Millions of yen
Leasingbusiness

For 2010

Sales
business

Construction
business

Brokeragebusiness

Otherbusiness

Elimination
and/or corporate

Total

Consolidated

I Revenue from operations and operating income:Revenue from operations
Customers¥ 291,420¥219,662¥156,231¥44,121¥ 8,202¥ 719,636

2,113

—

1,983

500

4,539

9,135

(9,135)—

293,533

219,662

158,21444,621

12,741

728,771(9,135)

719,636

Intersegment
Total
Costs and expenses
Operating income¥

195,915200,070

141,133

33,866

11,87997,618¥ 19,592¥ 17,081¥10,755

¥

862

¥

—

¥ 719,636

582,8632,794

585,657¥ 145,908¥ (11,929)¥ 133,979

II Identifiable assets, depreciation expenses, loss on impairment of fixed assets and capital expenditures:
Identifiable assets¥2,088,000¥712,844¥ 11,233¥13,738¥46,627¥2,872,442¥295,656¥3,168,098

Depreciation expenses

16,726

82

312

258

82

17,460605

18,065

Loss on impairment of fixed assets

5,912

1,865

49

—

—

7,826

—

7,826

105,995

13,039

216

83

142

119,475

498

119,973

Capital expenditures

Millions of yen
Leasingbusiness

For 2009

Sales
business

Construction
business

Brokeragebusiness

Otherbusiness

Elimination
and/or corporate

Total

Consolidated

I Revenue from operations and operating income:Revenue from operations
Customers
Intersegment
Total
Costs and expenses
Operating income¥ 296,299¥191,224¥156,954¥42,755¥ 8,008¥ 695,240

2,060

—

3,180

350

6,073

11,663¥(11,663)—¥ 695,240—

298,359

191,224

160,134

43,105

14,081

706,903(11,663)695,240

193,015

160,485

147,164

34,35512,801

547,820

1,054

548,874¥ 105,344¥ 30,739¥ 12,970¥ 8,750¥ 1,280¥ 159,083¥ (12,717)¥ 146,366

II Identifiable assets, depreciation expenses, loss on impairment of fixed assets and capital expenditures:
Identifiable assets
Depreciation expenses
Loss on impairment of fixed assets
Capital expenditures¥1,993,609¥686,090¥ 11,883¥14,675¥52,687¥2,758,944¥247,468¥3,006,412

16,180

540

302

279

107

17,408478

17,886

165

—

—

—

—

165

—

165

76,786

6,687

928

195

29

84,625

212

84,837

Thousands of U.S. dollars
Consolidated
financialstatements
amounts

Reportable segments
Leasingbusiness

Salesbusiness

Construction
business

Brokeragebusiness

Otherbusiness

Total$ 3,494,119$2,881,780$1,933,506$551,293$ 96,079$ 8,956,777

28,1301,070

25,893

7,095

58,413

120,601(120,601)

—

Total

3,522,249

2,882,850

1,959,399

558,388

154,492

9,077,378(120,601)

8,956,777

Segment profit$ 1,061,227$ 401,900$ 200,818$146,759$

6,253$ 1,816,957$ (151,737)$ 1,665,220

Segment assets$26,108,707$8,682,586$ 163,873$155,851$503,415$35,614,432$3,281,575$38,896,007

$

$

$

$

$

$

$

$

For 2011

Adjustments

Revenue from operations
Customers
Intersegment$—$ 8,956,777

Other
Depreciation and amortization
Loss on impairment of fixed assets
Increase in property and equipment,
and intangible assets

264,787

1,936

4,269

2,910

1,107

275,009

10,078285,087—

91,425———91,425—91,425

1,461,299

1,780

2,586

2,441

794

1,468,900

3,788

1,472,688

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

45

Distributions from SPEs and partnerships that operate real estate leasing

included in adjustments of segment assets, and the Company classified

business are included in revenue from operations of the “Leasing business.”

cash, time and notice deposits, investments in securities and assets ofthe general administrative division in the Company and certain of its consoli-Intercompany eliminations between the Company and its consolidated

dated subsidiaries to corporate assets for the year ended March 31, 2011.

subsidiaries and undistributed corporate expenses to each segment areincluded in adjustments of segment profit, and the Company classified

For the years ended March 31, 2010 and 2009, the Company classified

expenses of general administrative division in the Company and certain of

expenses and assets of the general administrative division in the Company

its consolidated subsidiaries to corporate expenses for the year ended

and certain of its consolidated subsidiaries to unallocatable operating

March 31, 2011.

expenses and corporate assets in the elimination and/or corporate.

Intercompany eliminations between the Company and its consolidated
subsidiaries and undistributed corporate assets to each segment are
24. Investment and rental properties
The Company and its certain of its consolidated subsidiaries own some rental properties such as office buildings and residences in Tokyo and other areas.
Certain domestic office buildings are not recognized as rental properties but as a portion used as investment and rental properties since the Company orcertain of its consolidated subsidiaries use some of the floor space of these properties.
The carrying amounts of these properties on the consolidated balance sheets, their changes during the current fiscal year and their fair values at March
31, 2011 and 2010 are as follows:
Millions of yen
Carrying amountFor 2011

Investment and rental properties
A portion used as investment and rental properties

As of March 31, 2010

Fair value

Changes

As of March 31, 2011

As of March 31, 2011

¥1,833,481¥69,814¥1,903,295¥2,426,030

65,066

4,002

69,06892,139Millions of yen
Carrying amountFor 2010

Investment and rental properties
A portion used as investment and rental properties

As of March 31, 2009

Fair value

Changes

As of March 31, 2010

As of March 31, 2010

¥1,738,117¥95,364¥1,833,481¥2,350,810

64,896170

65,066

107,311

Thousands of U.S. dollars
Carrying amountFor 2011

Investment and rental properties
A portion used as investment and rental properties

As of March 31, 2010

Fair value

Changes

As of March 31, 2011

As of March 31, 2011$22,050,283$839,615$22,889,898$29,176,548

782,502

48,141

830,643

1,108,106

Notes:* Carrying amounts on the consolidated balance sheets are the amounts determined by deducting accumulated depreciation from the acquisition costs.
* Fair values as of March 31, 2011 and 2010 are determined by the Company primarily based on their fair values according to the “Real Estate Appraisal Standards.”

Significant changes during the years ended March 31, 2011 and 2010 shown above are as follows:
Millions of yen

2011

Thousands of U.S. dollars

2010

2011

Increase:¥120,899¥115,585$1,453,987

Transferred from real estate for sale

—

5,717

—

New consolidation

—

2,345

—

—

$ (247,685)

Acquired real estate

Decrease:
Depreciation¥

Transferred to real estate for sale in process(12,961)—(155,875)

Loss on impairment of fixed assets(7,602)(7,267)(91,425)—(3,430)—Transferred to real estate for sale46

¥ (20,595)

ANNUAL REPORT 201 1

Income and expenses for investment and rental properties for the years ended March 31, 2011 and 2010 are as follows:
Millions of yen

For 2011

Investment and rental properties
A portion used as investment and rental properties

IncomeExpenses

Balance¥138,048¥77,600¥60,448

Other income (expenses)¥(9,294)

8,024

5,935

2,089

(17)

Millions of yen

For 2010

IncomeInvestment and rental properties

Expenses

Balance¥138,703¥69,741¥68,962

8,906

5,651

3,255

A portion used as investment and rental properties

Thousands of U.S. dollars

For 2011

Investment and rental properties
A portion used as investment and rental properties

IncomeExpenses

Balance

Other income (expenses)$1,660,229$933,254$726,975$(111,774)

96,50071,37725,123(204)

Notes:* As a portion used as investment and rental properties includes a portion used by the Company or certain of its consolidated subsidiaries for providing services as well as management andadministration, income for these are not recorded above. The expenses primarily consist of rent, depreciation, taxes and dues, and others.
* Other income (expenses) for investment and rental properties is mostly the loss on impairment of fi xed assets and for a portion used as investment and rental properties is mostly the loss on
disposal of property and equipment.

25. Relationships with Special Purpose Entities subject to disclosure(1) Overview of Special Purpose Entities (“SPEs”) subject to disclosure and overview of SPEs’ transactions

As part of the real estate operations, the Company invests in SPEs (princi-

as of March 31, 2011, the Company judged that there is no risk of future

pally Tokutei Mokuteki Kaisha (“TMKs”) under the Asset Securitization Law).

losses. Moreover, in the event that losses do arise in the future, the Compa-

The SPEs, which conduct real estate development and leasing projects, areny’s exposure will be limited to the amount of its investment.

funded by investments from the Company and by borrowings from financial

The Company does not have any investments with voting rights in any ofinstitutions (non-recourse loans and debentures). At the termination of these

the SPEs, and the Company has not dispatched any directors or employees

projects, the Company plans to appropriately recover its investments, andto any of the SPEs.

At March 31, 2011, the Company had outstanding investments in 25 SPEs. Their assets, liabilities and net assets (simple sum) at the most recent settlement date are shown below.
Millions of yen

Thousands of U.S. dollars

2011

2010

2011

¥658,967¥687,896$7,925,039

42,17944,185507,264¥701,146¥732,081$8,432,303

Borrowings*1¥542,371¥577,815$6,522,802

Preferred capital, etc.*2

112,208

112,027

1,349,465

Assets:Real property
Other
Total
Liabilities and net assets:

Other
Total

46,56742,239560,036¥701,146¥732,081$8,432,303*1 Includes specified debentures of TMKs invested by the Company.
*2 Consists of preferred capital in TMKs and equity in limited partnerships (“Tokumei Kumiai”) invested by the Company.

In regard to the balance at March 31, 2011 and 2010, see *3.

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

47

The carrying amounts of investment and rental properties held by SPEs on their balance sheets and their fair values at March 31, 2011 and 2010 are
as follows:
For 2011
Millions of yen
Carrying amount

Investment and rental properties held by SPEs

Thousands of U.S. dollars
Fair value¥658,967

Carrying amount¥1,114,133$7,925,039

Fair value$13,399,074

For 2010
Millions of yen
Carrying amount

Investment and rental properties held by SPEs

¥687,896

Fair value¥1,134,665(2) Transactions with the SPEs
Millions of yen

2011

Thousands of U.S. dollars

2010

2011

—

¥ 2,702$72,67972,153

Investments, etc.*3 :Investments:
Marketable securities
Investments in securities¥—
874,071

Investments in SPEs holding properties for sale

64,73562,585778,533

Total

137,414

137,440

1,652,604

26,677

16,664

320,830

35

63

421

44,396

41,226533,927

37

572

445

18,70024,484

224,895

Revenue from operations
Other income
Real estate leasing*4 :Cost of revenue from operations
Management services*5 :Revenue from operations
Real estate transactions*6 :Transaction payments*3 Includes investments in preferred stocks and specified debentures issued by TMKs and equity in Tokumei Kumiai invested by the Company. In addition, dividends on investments arerecorded as revenue from operations, and interest on specified debentures is recorded as other income.
*4 The Company leases real estate from SPEs.
*5 The Company provides management services to SPEs.
*6 The Company has purchased real property (land, buildings, etc.) from SPEs.

26. Contingent liabilities
At March 31, 2011, the Company and its consolidated subsidiaries were contingently liable as guarantors of borrowings by customers and others in an
amount aggregating to ¥118 million ($1,419 thousand).
At March 31, 2010, the Company and its consolidated subsidiaries were contingently liable as guarantors of borrowings by customers and others in an
amount aggregating to ¥72 million.
27. Subsequent events
On June 8, 2011, the Company issued ¥10,000 million ($120,265 thousand) in 0.74% unsecured bonds due 2016.
On June 29, 2011, the shareholders of the Company approved payments of a year-end cash dividend of ¥10 ($0.12) per share or a total of ¥4,742 million($57,029 thousand) to shareholders of record at March 31, 2011. Such appropriations are recognized in the period in which they are approved by theshareholders.

48

ANNUAL REPORT 201 1

Independent Auditors’ Report

To the Board of Directors of
Sumitomo Realty & Development Co., Ltd.:We have audited the accompanying consolidated balance sheets of Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries as ofMarch 31, 2011 and 2010, the related consolidated statements of income and comprehensive income for the years in the two-year period ended March 31,
2011, statement of income for the year ended March 31, 2009, and statements of changes in net assets and cash flows for each of the years in the three-year
period ended March 31, 2011, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management.
Our responsibility is to independently express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sumitomo Realty &Development Co., Ltd. and its consolidated subsidiaries as of March 31, 2011 and 2010, and the results of their operations and their cash flows for each of
the years in the three-year period ended March 31, 2011, in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to the following.
As discussed in Note 2(5) to the consolidated financial statements, effective from the year ended March 31, 2009, Sumitomo Realty & Development Co., Ltd.
and its consolidated subsidiaries adopted the new accounting standard for measurement of inventories.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2011 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis
described in Note 1 to the consolidated financial statements.

Tokyo, Japan
June 29, 2011

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

49

Senior Management
As of June 29, 2011

Board of Directors and Auditors

Executive Officers

Chairman of the Board

Senior Managing Executive Officers

Junji Takashima*

Takahiro Daisaka

President
Kenichi Onodera*
Directors
Nobuaki Takemura*
Kojun Nishima*
Masato Kobayashi*
Yoshinobu Sakamoto
Masayuki Iwamoto
Yoshiyuki Odai
Masayoshi Ohashi

Takashi Saito
Managing Executive Officers
Satoru Ozawa
Takao Shiojima
Masaki Ogawa
Isamu Jobo
Koji Ito
Toshikazu Tanaka
Tadaharu Izumisawa
Kazuo Yoda
Hiroyuki Hashizume

Statutory Auditors

Naoto Yamamoto

Naoto Enda

Akihiro Katsuki

Ryoichi Nomura

Katsunori Takahashi

Hiroshi Tomoyasu
Tadashi Kitamura
Yoshifumi Nakamura* Representative Director

Corporate Data
As of March 31, 2011

Head Office

Number of Employees

Shinjuku NS Building

9,733 (Consolidated)

4-1, Nishi-Shinjuku 2-chome
Shinjuku-ku, Tokyo 163-0820, Japan

Major Consolidated Subsidiaries

Phone: +81-3-3346-2342

Sumitomo Real Estate Sales Co., Ltd.

Facsimile: +81-3-3346-1652

Sumitomo Fudosan Tatemono Service Co., Ltd.
Sumitomo Fudosan Syscon Co., Ltd.

Corporate Website

Sumitomo Fudosan Reform Co., Ltd.

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

Sumitomo Fudosan Esforta Co., Ltd.
Sumitomo Fudosan Villa Fontaine Co., Ltd.

50

Date of Establishment

Sumitomo Fudosan Finance Co., Ltd.

December 1, 1949

Sumitomo Fudosan Bellesalle Co., Ltd.

ANNUAL REPORT 201 1

Investor Information
As of March 31, 2011

Paid-in Capital

Breakdown of Shareholders¥122,805 million
Trust Accounts

Number of Common Stock
Authorized: 1,900,000,000 shares
Issued: 476,085,978 shares

23.21%

Financial Institutions

10.15%

Other Companies

26.52%

Foreign Companies

34.77%

Individuals and Others

5.35%

Number of Shareholders
15,537

Major Shareholders
Number of shares held(Thousands)

Percentage ofshares held

Japan Trustee Services Bank, Ltd. (Trust account)

27,059

5.68%

The Master Trust Bank of Japan, Ltd. (Trust account)

19,756

4.15%

Sumitomo Mitsui Banking Corporation

11,9902.52%

Japan Trustee Services Bank, Ltd. (Trust account 4)

10,411

2.19%

Name

Stock Exchange Listings
Tokyo Stock Exchange
Osaka Securities Exchange

SSBT OD05 Omnibus Account – Treaty Clients

8,634

1.81%

The Sumitomo Trust & Banking Co., Ltd.

8,136

1.71%

Kajima Corporation

7,912

1.66%

Shimizu Corporation

7,500

1.58%

Mitsui Sumitomo Insurance Co., Ltd.

6,740

1.42%

Obayashi Corporation

6,527

1.37%

Stock Price and Trading Volume on Tokyo Stock Exchange
(Yen)
2,400

6,000
Stock Price (right scale)
TOPIX Average (left scale)

1,800

4,500

1,200

3,000

600

1,500

0

0

(Millions of Shares)
250

Trading Volume

200
150
100
50
0

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

2006

2007

2008

2009

2010

2011

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

51

SUMITOMO REALTY & DEVELOPMENT CO., LTD.
ANNUAL REPORT 2011

Shinjuku NS Building, 4-1, Nishi-Shinjuku 2-chome
Shinjuku-ku, Tokyo 163-0820, Japan
Phone: +81-3-3346-2342 Facsimile: +81-3-3346-1652
http://www.sumitomo-rd.co.jp/english/

Printed in Japan

Prime Properties,
Sustained Growth
Annual Report 2011