Delivering a Better Future
for the Next Generation
Leveraging Our Strong Presence Under
Our Medium-Term Management Plan

Annual Report 2018

Contents
1

To Our Shareholders

2

Our Mission

3

Our Position Today

4

Our Track Record

6

At a Glance

8

Our Strengths

12 Office Building Development Projects
14 President Interview
18 Review of Operations
18

LEASING

20

SALES

22

CONSTRUCTION

24

BROKERAGE

25 Corporate Governance
25

Board of Directors and Statutory Auditors

26

Corporate Governance Initiatives

28 CSR
30 Financial Section
30

Eleven-year Financial Summary

32

Management’s Discussion and Analysis

34

Consolidated Balance Sheets

36

Consolidated Statements of Income andConsolidated Statements of Comprehensive Income

37

Consolidated Statements of Changes in Net Assets

38

Consolidated Statements of Cash Flows

39

Notes to Consolidated Financial Statements

59

Independent Auditor’s Report

60 Corporate Data/Investor Information
61 History

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

To Our Shareholders

We would first like to take this opportunity to express our gratitude on behalf of the Sumitomo Realty &Development Group for your ongoing support. Sumitomo Realty’s business has expanded in scope andcontinued to grow since our establishment in 1949. We are currently a core company of the Sumitomo Groupand a leading comprehensive developer within the Japanese real estate industry, with operations in a wide
range of areas including office building leasing, condominium sales, custom homes and remodeling(Shinchiku Sokkurisan) and real estate brokerage.
We have formulated medium-term management plans every three years since 1997, and have achieved
sustained growth through the achievement of these plans. The Seventh Management Plan commenced in
April 2017, and the final year covered by the plan is the March 2019 fiscal year. Under this plan, we will firmly
maintain our “revenue and profit growth trajectory” to surpass the record results achieved under the Sixth
Management Plan.
During the March 2018 fiscal year—the second year of the Seventh Management Plan—earnings werestrong, as we marked our fifth consecutive year of record revenue from operations, operating income, ordinary
profit and profit attributable to owners of parent. As a result, we have steadily moved forward with ourSeventh Management Plan and have already made roughly 70% progress toward the aggregate three-yearsales and profit targets in the plan.
While the operating environment has recently been favorable, the outlook in Japan and overseas remains
unclear. We will redouble efforts to reach the targets set out in the Seventh Management Plan and continue
moving forward to achieve sustainable growth. We would like to express our sincerest gratitude to ourshareholders and ask for their continuous, long-term support.

Junji Takashima

Kojun Nishima

Chairman of the Board

President

Sumitomo Realty & Development Co., Ltd.

1

Our Mission

Creating Even
Better Social
Assets for the
Next Generation

2

Annual Report 2018

Our Position Today

Office Building
Owner with MoreThan 220 Buildingsin Tokyo1

 upply of new condominiums
S
in both the Tokyo metropolitan
area and Japan
Sales of condominium
remodeling in Japan

No.

Going forward, we will continue to earnestly
pursue our mission as we aim to realize
sustainable growth

Sumitomo Realty & Development Co., Ltd.

3

Our Track Record
Sumitomo Realty Constantly Pursues Challenges
to Ensure Continuous Growth
Since its establishment in 1949, Sumitomo Realty has continued to expand the scope of its operations to become one ofJapan’s leading comprehensive real estate companies and a core company of the Sumitomo Group, which has a history
going back 400 years. Our operations are expanding beyond our core business of office building leasing to a range ofareas including condominium sales, custom homes and remodeling (Shinchiku Sokkurisan), and real estate brokerage.
The First Medium-Term Management Plan was launched in the March 1998 fiscal year, and we began operating under
the Seventh Management Plan from the March 2017 fiscal year. By placing top priority on the achievement of these plans,
Sumitomo Realty has been able to grow to where we are today.
Going forward, we will continue to expand existing businesses while pursuing the challenges of new businessdevelopment, to ensure even higher, continuous growth.
Progress under Medium-term Management Plans
Billions of yen
1,000

750

500

250

0

1997

(Years ended/ending March 31)

Three-year Cumulative totals

1998

1999

2000

1st Plan*

2002

2003

2002–2004

Revenue from operations

1,270

1,606

Operating income (right)

202

265

Ordinary profit (right)

87

Corporate History• Shinjuku Sumitomo Building (1974)• Shinjuku NS Building (1983)• Established Sumitomo Real Estate Sales Co., Ltd., a consolidated
subsidiary. (1975)• Commenced Shinchiku Sokkurisan remodeling business. (1997)170• Sumitomo Fudosan Iidabashi
First Building• Izumi Garden Tower• Sumitomo Fudosan Shibakoen
First Building• Chiyoda First Building West

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

• Entered high-quality business hotel market. Opened Villa Fontaine
Nihombashi and hotels at two other locations. (1998)
Note: Figures represent cumulative totals for the period covered by each plan.
* The 1st Plan began in the March 1998 fiscal year and spanned four years. Figures shown represent cumulative totals for the final three years of the plan.

Annual Report 20182004

2nd Plan

1998–2001

Major Office
Projects Completed

4

2001

• Shinjuku Oak City

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

ROE
(%)

5.7
1999

11.3

Ordinary Profit

Cash Flows from Leasing Business(Billions of yen)(Billions of yen)

21.7
1999

2018

186.9

178.3

53.4
1999

2018

2018

Record results over
five consecutive years
Billions of yen
240

Lehman Crisis

The Great East Japan
Earthquake

180

120

60

2005

2006

2007

3rd Plan

2008

2009

2010

4th Plan

2011

2012

2013

5th Plan

2014

2015

2016

6th Plan

2017

2018

2019

(Forecast)

7th Plan

2005–2007

2008–20102011–20132014–20162017–2019 (Forecast)

1,939

2,107

2,170

2,442

2,700

350

435

437

501

550

274

339

329

418

• Shiodome Sumitomo
Building• Sumitomo Fudosan
Aobadai Tower•S umitomo Fudosan
Iidabashi First Tower• Tokyo Shiodome
Building• Shinjuku Central Park City•S
 umitomo Fudosan
Shinjuku Grand Tower• Sumitomo Fudosan
Mita Twin Building• Tokyo Nihombashi Tower• Sumitomo Fudosan
Shinjuku Garden Tower

0480• Sumitomo Fudosan
Roppongi Grand Tower• Sumitomo Fudosan
Osaki Garden Tower•S umitomo Fudosan
Shibuya Garden Tower
Established Sumitomo
Fudosan Bellesalle Co., Ltd.,a consolidated subsidiary.

Opened Grand Mansion
Gallery.

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

Number of condominium
units brought to market overthe full year was the highest
in Japan for the fourthconsecutive year.

Sumitomo Realty & Development Co., Ltd.

5

At a Glance
Sumitomo Realty has set forth its fundamental mission as “to create even better social assets for the next generation.” The Company
works to achieve this mission through its business, which comprises four operational fields: Sales, Construction, Brokerage andthe core business of Leasing—the driver of the Company.
The Company’s steady growth to date is the result of its complementary businesses with different individual characteristics
that have different risk profiles and capital requirements. The Company will work to achieve sustainable growth going forward
by strengthening these complementary businesses.
Business Portfolio
CapitalLEASING
High level of capital,
low level ofhuman capital

SALES
Relatively high level ofcapital, relatively highlevel of human capital

CONSTRUCTION
Relatively low level ofcapital, relatively highlevel of human capital

BROKERAGE
Low level of capital,
high level ofhuman capital

Human Capital

LEASINGCONSTRUCTION

Office building, condominium and other property leasing andmanagement and related activities

Custom home construction and remodeling andrelated activities

Unique Features and Competitive Advantages

Unique Features and Competitive Advantages‌Thefact that we primarily engage in all aspects ourselves, fromland purchases and tenant acquisition to property management,
means that we can quickly address tenant needs in our developments.
‌We have an extensive track record in redevelopment.
Refer to pages 7-9.
‌
Our“central, new and large” leasing portfolio gives us strong
market competitiveness.
Refer to page 10.

Major Consolidated Subsidiaries· Sumitomo Fudosan Tatemono Service Co., Ltd.
· ‌Sumitomo Fudosan Villa Fontaine Co., Ltd.
· ‌Sumitomo Fudosan Bellesalle Co., Ltd.

Major Consolidated Subsidiary· Sumitomo Fudosan Syscon Co., Ltd.

SALESBROKERAGE

Mid- and high-rise condominium, detached house and housing
lot development and sales and related activities

Brokerage and sales on consignment of real estate and related
activities by Sumitomo Real Estate Sales Co., Ltd.

Unique Features and Competitive Advantages

Unique Features and Competitive Advantages‌We
have businesses in cities across Japan, and 80% of our portfolio
is in the Tokyo metropolitan area.
‌In order to maintain asset value for the future, we are bolstering
distinct characteristics such as modern appliances and stylishdesigns, including landmark exteriors, a rich array of common
facilities and elegant entrances.
‌We are employing a unique sales strategy in order for customers
to understand the value of our condominiums.
Refer to page 20.

6 lease refer to page 23 for details on Shinchiku Sokkurisan andP
Custom Homes.
Remodeling—Shinchiku Sokkurisan‌We can remodel a home in half the time and at 50% to 70% of thecost of rebuilding.
‌With a fixed price per unit of floor area, customers do not need toworry about additional construction charges.
Custom Homes‌We use our expertise in condominium development to offer
homes with both functionality and an attractive design.
‌We develop original earthquake-resistant technologies andcontinue to enhance our technical capabilities.

Annual Report 2018

‌Our
network of brokerage offices has close ties to local
communities.
‌The network has steadily expanded to 266 offices nationwide asof the end of March 2018.
As all brokerage offices are directly operated, the network boasts­efficient operations and the industry’s high profit margins.

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

Significantly Driving Growth with the Leasing Business
LEASINGOTHERS

1.4%

0.8%

37.0%

BROKERAGELEASINGOTHERS

61.8%

BROKERAGE

7.2%

9.5%
CONSTRUCTION

7.1%

CONSTRUCTION

21.9%

Revenue fromOperations

Operating
Income

SALES

20.8%

SALES

32.5%

No. 1 Owner of Office Buildings in Tokyo
We made our full-scale entry into the leasing business in the second half of the 1970s, later than other major domestic realestate companies. However, as a result of our steady pace of office building development since then, we currently manage
more than 220 office buildings, making us the No. 1 developer in Tokyo. With our lineup of various types of buildings, mostly
in the Tokyo CBD*, we are able to meet diverse tenant needs.
Please refer to page 10 for more details on our portfolio.
* Tokyo CBD (Central Business District): 7 wards, comprising Chiyoda, Minato, Chuo, Shinjuku, Shibuya, Shinagawa and Bunkyo

178.3

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

180

150

120

90

60

53.4

30

0

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Sumitomo Realty & Development Co., Ltd.

7

Our Strengths
Our Ability to Create Valuable Properties
Whether it is negotiating land purchases or forming associations to plan new projects, the honest efforts madeby our employees have allowed us to accumulate a great deal of know-how on developing land. By purchasingplots of land one by one and putting together several parcels to redevelop the land on a larger scale, we willcontinue forward with initiatives to enhance asset value primarily in the Tokyo metropolitan area.

Acquisition of Land for Redevelopment (Assembling Land)
Is Our Building Development “DNA”
BeforeBuildings

E
B

D

C

B

C

D

A

Land

Before redevelopment

ABCD: Rights holders

After
Equal value exchange

Purchases of individual rights

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

(Amalgamation of rights)

Building

Building

A
E

D

B

C
A B C D X

Land

After redevelopment

X: Developer*

X

X

X

Land

After redevelopment

X: Developer** ‌A‌cquirer of property other than that received by rights holders in equal value exchange (developer)

Sumitomo Fudosan Shinjuku Grand Tower

Characteristics of Redevelopment Projects under Urban Renewal Act

8

MeritsDemerits

Substantial benefits in terms of investment return and profitability‌In comparison with methods where the land is first purchased,such as competitive tenders, projects are completed with small
initial investments.
‌Developing blocks of land enhances the convenience of the area,and makes it possible to receive government subsidies and approvals
for higher utilization (ratio of total floor space to land area).

Enormous behind-the-scenes work is required‌It is necessary to form a consensus among multiple property
rights holders, and there are also consultations with administrative
bodies, resulting in longer development times.
(The government is currently promoting shorter development
periods through simplified approval procedures and other measures.)

Annual Report 2018

60% of the Office Buildings Are Redevelopment Projects
Approximately 60% of the office buildings we develop are redevelopment projects. We have the highest levelof track record in “redevelopment” among developers. Using the expertise we have cultivated to date, we willcontinue to grow by building a pipeline focused on redevelopment projects.

Sumitomo Fudosan Roppongi Grand Tower & Izumi Garden Tower

Shinjuku Central Park City

Chiyoda First Building West

Major Flagship Buildings
Name

Location (Tokyo CBD)

No. of floors(above ground/
below ground)

Completion

Gross floorarea (m2)

1. Izumi Garden Tower

Minato Ward

43/4

Oct 2002

204,444

2. Sumitomo Fudosan Roppongi Grand Tower

Minato Ward43/2

Oct 2016

202,525

3. Sumitomo Fudosan Osaki Garden Tower

Shinagawa Ward

24/2

Jan 2018

177,822

4. Shinjuku Sumitomo Building

Shinjuku Ward

52/4

Mar 1974

177,467

5. Sumitomo Fudosan Shinjuku Grand Tower

Shinjuku Ward

40/3

Dec 2011

168,329

6. Sumitomo Fudosan Shinjuku Garden Tower

Shinjuku Ward

37/2

Mar 2016

143,372

7. Shinjuku Central Park City

Shinjuku Ward44/2

Feb 2010

130,519

8. Shinjuku Oak City

Shinjuku Ward

38/2

Jan 2003

117,606

9. Tokyo Nihombashi Tower

Chuo Ward

35/4

Apr 2015

105,837

10. Shiodome Sumitomo Building

Minato Ward

25/3

Jul 2004

99,913

11. Sumitomo Fudosan Mita Twin Building West

Minato Ward

43/2

Sep 2006

98,338

12. Tokyo Shiodome Building

Minato Ward

37/4

Jan 2005

95,128

13. Shinjuku NS Building

Shinjuku Ward

30/3

Sep 1982

75,046

14. Sumitomo Fudosan Shibakoen First Building

Minato Ward

35/2

Jun 2000

70,381

15. Sumitomo Fudosan Iidabashi First Tower

Bunkyo Ward

34/3

Apr 2010

68,514

16. Chiyoda First Building West

Chiyoda Ward

32/2

Jan 2004

61,20917. Sumitomo Fudosan Shibuya Garden Tower

Shibuya Ward

24/3

Jun 2012

59,417

18. Sumitomo Fudosan Aobadai Tower

Meguro Ward

33/3

Aug 2009

55,77319. Sumitomo Fudosan Iidabashi First Building

Bunkyo Ward

14/2

Mar 2000

53,322

20. Sumitomo Fudosan Iidabashi Building No. 3

Shinjuku Ward24/2

Oct 2002

53,047: Redevelopment projects
Note: Figures for gross floor area indicate the area managed by Sumitomo Realty.

Sumitomo Realty & Development Co., Ltd.

9

Our Strengths

Leasing Portfolio that Meets Diverse Needs
Tokyo’s No. 1 office building owner, managing

Gross Floor Area

220 buildings in central Tokyo’s major office districts 4.84 million mmore than

2

TOKYO CBD*
BunkyoShinjuku
ChiyodaShibuyaChuo
MinatoShinagawaMinato30%

Shinjuku

21%

Chiyoda

11%

Chuo

9%

Shibuya7%

Shinagawa

7%

Bunkyo4%

 ther wards
Oin Tokyo
6%
Others10

5%Annual Report 2018

Major flagship buildings

Percentage
of Buildings

Tokyo CBD89%

Large-scale buildings

Other buildings* ‌Only buildings ownedby the Company are shownon this map.

Our Portfolio’s Strengths (As of March 31, 2018)
Sumitomo Realty’s leasing portfolio is highly competitive in terms of the three distinct features of being“central, new and large.” Going forward, we will endeavor to maintain and enhance our competitive
strengths by focusing on providing high-quality office buildings with these qualities.

CentralTokyo CBD*89%

23 Wards

95%

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

New

New
Quake-resistant*1
Structure

99%

Seismic Isolation
and/or Damping
System Construction

80%

*2

Emergency
Power
Generators

70%

*2

* 1 New standards
that took effectin 1981*2 Approx.

Buildings with Excellent BCP Compliance
The average age of the buildings in our portfolio is 16 years, the lowest figure among major Japanese real estatecompanies, and 65% of them have been completed since 2000. New buildings are capable of generating strong
demand by meeting tenants’ needs for facilities and design to name a few, making the relative age of the buildings
in a portfolio a key factor affecting the leasing business.
As shown in the table below, our buildings are equipped with the latest facilities and features, and are
popular among tenants for their functionality, comfort and safety in the event of a major disaster. 99% of ourportfolio meets or exceeds earthquake-resistance standards that took effect in 1981, which are a key yardstickfor earthquake safety. Further, approximately 80% of the buildings we own are structured with a seismic isolation
system and/or a damping system. In recent years, emergency generators that provide electricity in the eventof a power outage have also become a feature sought by tenants as a part of their business continuity planning (BCP). Thus, emergency
generators are installed in about 70% of the buildings we own, which includes all newly completed buildings after 2001.

State-of-the-art Facilities
Earthquake protection
Ceiling height*
Floor load
Air-conditioning
Power capacity

Before 1981

1982–1996

1997 and after

Previous quake-resistant structure
2.5 m
300 kg/m2
Central air-conditioning system
45 VA/m2

New quake-resistant structure
2.7 m
300–500 kg/m2
Climate control zones
60–70 VA/m2

Anti-sway structure
2.9–3.3 m
500–1,000 kg/m2
Separate climate control systems
85 VA/m2 and over

* Includes raised floors

LargeOver 10,000 m2 (gross floor area)

87%

Large-scale Buildings
Large-scale buildings with gross floor area of at least 10,000 square meters make up 87% of our portfolio.
Consolidating multiple offices of a business on one floor helps to facilitate internal communication and reduce
space redundancies, making operations more efficient. These types of needs are behind the increased demandin recent years for large-scale buildings with large amounts of floor space per floor. Being able to offer such
spaces is definitely one of our strengths.

Sumitomo Realty & Development Co., Ltd.

11

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

Pace of Gross Floor Area Development

1.33 million tsubo

1st Plan
Mar 2001

2nd Plan
Mar 2004

3rd Plan
Mar 2007

4th Plan
Mar 2010

5th Plan
Mar 2013

6th Plan
Mar 2016*1 tsubo = 3.3 m2

Izumi Garden Tower

Shiodome Sumitomo Building

Completion Oct 2002

Completion July 2004

Sumitomo Fudosan
Iidabashi First Tower
Completion Apr 201012

Annual Report 2018

Tokyo Nihombashi Tower
Completion Apr 2015

re
Mo

tha

ill

eM

n
nO

o

sub

t
ion

Major New Building Development Projects
Location(Tokyo CBD)

Gross floor area(tsubo)Expected
completion

Sumitomo Fudosan Kojimachi
First Building

Chiyoda Ward

4,000

Apr 2018

Sumitomo Fudosan
Onarimon Tower

Minato Ward

9,900

May 2018

Sumitomo Fudosan Fukuoka
Hanzomon Building

Chiyoda Ward3,500

Oct 2018

Sumitomo Fudosan
Akihabara Kita Building

Taito Ward

3,500

Nov 2018

11,500Feb 2019

ProjectA

B Sumitomo Fudosan Shibuya Tower Shibuya Ward
Akihabara Ekimae Project(Kanda Neribeicho)

Chiyoda Ward

9,300

Jun 2019

D Nishi Shinjuku 6-chome Project

Shinjuku Ward

18,500Jun 2019

Higashi Ikebukuro Project

Toshima Ward

4,900

Jul 2019

Akihabara Manseibashi Project(Sotokanda 1-chome)

Chiyoda Ward

8,200

Aug 2019

Sumitomo Fudosan Kojimachi
Garden Tower

Chiyoda Ward

14,500

Apr 2020

C

7th Plan
Mar 2019

8th Plan

9th Plan –New Building Development Projects
Sumitomo Fudosan

A Onarimon Tower

B

Sumitomo Fudosan Shibuya Tower

Akihabara Ekimae ProjectC (Kanda Neribeicho)

D

Nishi Shinjuku 6-chome Project

Sumitomo Realty & Development Co., Ltd.

13

President Interview

We continue to pursue sustainable
progress through redevelopmentin central Tokyo and growthin the leasing business.

Kojun Nishima
President

14

Annual Report 2018Please recap
Sumitomo Realty’s results
for the March 2018 fiscal year.

 lease tell us about progressP
toward the targets in theSeventh Management Plan,
and the Company’s forecast
for the March 2019 fiscal year.

 hat are the investment planWand business policy for the
Leasing segment, which is
set to drive growth?

For the March 2018 fiscal year, we recorded ¥948.4 billion in revenue
from operations, with operating income of ¥205.6 billion, ordinary
profit of ¥186.9 billion and profit attributable to owners of parentof ¥119.7 billion. This marked our sixth consecutive year of revenue
growth, our eighth consecutive year of increases in operating income
and ordinary profit, and our fifth consecutive year of record revenue
from operations, operating income, ordinary profit and profit
attributable to owners of parent.
All four of our mainstay business segments achieved growth inoperating income. The Leasing segment, which is focused on officebuildings in central Tokyo, achieved record profit for a third consecutive year and continued to drive the Company’s earnings growth.
We also saw strong performance from the Sales segment, where
the number of condominium units delivered increased, especiallyfor large-scale properties, in addition to the Construction andBrokerage segments.

Since April 2016, we have been working toward the targets in our
Seventh Management Plan (please see page 17 for details). In thespace of two years, including our business performance for the March2018 fiscal year, we have realized steady progress toward the goals
in our Seventh Management Plan, making roughly 70% progress
toward our aggregate three-year targets for revenue from operations,operating income and ordinary profit.
In the March 2019 fiscal year—the final year of the SeventhManagement Plan—we expect the Leasing segment to continue
to drive the Company’s earnings growth, with all four mainstay
business segments achieving growth in operating income, resulting
in the sixth consecutive year of record-high earnings.

Our investment strategy is to carefully select high-quality development
sites and actively seek to acquire them. Not only have we been
relying on making successful tender offers, which can become
relatively expensive due to competition, we are also emphasizing
the practice of aggregating small parcels of land for possible larger
redevelopment projects, as we believe this multiplies the value of those
properties. We view these practices as the source of our competitive
advantages in the leasing business. (Please refer to pages 8–9 forfurther information regarding our redevelopment projects.)
We will continue to focus on the Tokyo office building market,
which is one of the largest office building markets in the world, as
we steadily make progress on redevelopment projects in central
Tokyo, including those in National Strategic Special Zones such as
Yaesu, Roppongi and Mita. To further establish our strong positionas Tokyo’s No. 1 office building owner, operating more than 220 officebuildings, we will work to accelerate the pace of development fromthe previous average annual pace of 50,000 tsubo of gross floorarea to 100,000 tsubo during and after the Seventh Management
Plan. In this way, we will achieve continuous growth in the leasing
business by providing a new total gross floor area of more than
one million tsubo in the period covered by the Seventh, Eighth andNinth Management Plan. As far as such investment costs are concerned, we expect them to be within the scope of operating cash

Sumitomo Realty & Development Co., Ltd.

15

President Interview

flows. In addition to the above projects, we will make sure to pursue
as many entirely new development projects as possible when suchopportunities arise. We will also expand into new business fields
with an eye to the future, including large-scale development projects
that are currently in progress in Ariake and Haneda, which are focusedon commercial facilities and hotels.

Please tell us about
the Company’s
financial strategy.

What is your basic policy
regarding returns toshareholders?

16

Annual Report 2018

During the March 2018 fiscal year, our interest-bearing debt grewby ¥103.0 billion, as we had many excellent investment opportunities,
including the acquisition of office building sites. In line with thisfavorable financial environment, long-term interest rates remain low
for now and interest costs declined by ¥1.2 billion from the previous
year, with the rate applied to our long-term financing of, for instance,
10-year tenors being less than 1%. We will continue to secure long-term
and fixed-rate funding in order to maintain a robust financial position.
In the March 2018 fiscal year, we recorded profit attributable toowners of parent of ¥119.7 billion, which is a 16% increase from theprevious year and the second consecutive year that our bottom
line has topped ¥100 billion. We were therefore able to increase
shareholders’ equity, resulting in our net debt-equity (ND/E) ratio
improving to 2.9 times. We will continue to make active investmentswith the aim of accumulating profits in order to increase shareholders’equity and to further improve our financial balance.

Our first priority is to maintain a steady dividend payout to ourshareholders. At the same time, we endeavor to set aside a sufficientamount of retained earnings to ensure stable, long-term growthof our business.
In the March 2018 fiscal year, we had planned to increase annual
per-share dividends by ¥2 compared with the previous fiscal year.
However, in light of our business results for the year, we increased thisby an additional ¥1 per share, resulting in a year-on-year increaseof ¥3, bringing annual dividend distributions to ¥27 per share(including an interim dividend of ¥13 per share). For the March 2019fiscal year, we intend to again increase the dividend by ¥2 per shareand pay a full-year dividend of ¥29 per share (including an interim
dividend of ¥14 per share).
At the same time, we cannot consider our equity ratio to be
sufficient relative to other companies in our industry, and there arestill investments to be made in development projects to fuel future
growth. Accordingly, we intend to focus on maintaining a stabledividend payout while keeping a sufficient amount of retained
earnings to strengthen our financial standing. Our aim is to meetthe expectations of shareholders by undertaking investments toincrease earnings and thereby continuously increasing profit per
share and dividend distributions. For these reasons, we currently
have no plans to repurchase the Company’s shares.

Seventh Management Plan

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

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

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

Three-year cumulative earnings targets¥2,700 billion

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

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

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

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

5th Plan
2011–2013

6th Plan
2014–2016

7th Plan
2017–2019 (Forecast)

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

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

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

Management Plan

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

2

Continue to invest for growth in leased buildings, further accelerate the paceof development from the previous 50,000 tsubo of gross floor area annually

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

4th Plan

5th Plan

6th Plan

7th Plan

Gross floor area (tsubo)

160,000

150,000

110,000

220,000

3

Promote growth of peripheral businesses to develop fifth pillar of operations

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

4th Plan

5th Plan

6th Plan

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

11%

11%

14%

16%

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

Sumitomo Realty & Development Co., Ltd.

17

Review of Operations

LEASING

1

No.

Sumitomo Fudosan
Osaki Garden Tower
Location

Shinagawa Ward
Gross floor area

53,791 tsubo*Completion

Jan 2018

No. of floors

24 above ground2 below groundin Tokyo

Office Building Owner with More Than 220 Buildings
History
Sumitomo Realty made its full-scale entry into the leasing
business in the latter half of the 1970s. We demonstrated
our strong business development capabilities by being thefirst company in the industry to restart construction work
on office buildings following the collapse of Japan’s economic bubble in the 1990s. Our competitive strengths andfocus on large-scale redevelopment projects have enabled
us to build our current leading position in the domestic realestate industry.

37.0%

61.8%

18

Annual Report 2018

Revenue from Operations¥ 353.9 billion
Operating Income¥ 139.4 billion

Basic Growth Strategy
Continuing new investment to build a platform for growth, byfurther increasing the portfolio’s portion of prime properties
that are “central, new and large”
Overview of the Fiscal Year
The Tokyo office building market, where more than 90% of ourleasing portfolio is concentrated, experienced continued strong
new demand from relocations and floor space expansions whilevacancy rates remained low and rents for renewed leases
continued on an upward trend.
Reflecting such an environment, the segment recorded
revenue and profit growth for the March 2018 fiscal year basedon higher rents from existing buildings and full-year contribution
from new buildings completed during the previous fiscal year,
including Sumitomo Fudosan Roppongi Grand Tower andSumitomo Fudosan Azabujuban Building. The segment’s revenue
from operations and operating income both reached record-highlevels for the third consecutive year.
The vacancy rate for existing buildings remained low at
4.9% (4.5% at the end of the previous fiscal year), and tenantacquisition for new buildings is on a good track, including
Sumitomo Fudosan Osaki Garden Tower, which was completed during the fiscal year under review.

Entrance Hall of Sumitomo Fudosan Osaki Garden Tower

Outlook
We are aiming for record-high revenue from operations andoperating income in the March 2019 fiscal year, based on improved
earnings from existing buildings and full-year contribution fromthe buildings completed during the fiscal year under review,
such as Sumitomo Fudosan Osaki Garden Tower.
As a result, we are projecting a 3.1% increase in revenue
from operations, to ¥365.0 billion, with a 4.0% rise in operating
income, to ¥145.0 billion.

Sumitomo Fudosan Roppongi Grand Tower
Location

Completion

Gross floor area

No. of floors

Minato WardOct 2016

61,264 tsubo*

Billions of yen

400%

Thousands of m2

150

90

5,000

100

60

0

15

16

17

18

145.0

14

19

0

4,026

19

(Forecast)

139.4

18

126.2

17

111.3

353.9

16

104.4

337.5

15

1,000

3,790

30

3,493

39.7

914

39.4

3,189

37.4

98.0

313.3

14

365.0

289.1

0

35.5

50
283.7

100

36.1

923

34.5

200

3,171

4,000

300

817

Billions of yenGross Floor Area

820

Operating Income andOperating Margin* 1 tsubo = 3.3 m2

902

Revenue from Operations

43 above ground2 below ground

0

14

15

16

17

18

3,000
2,000

(Forecast)

Operating Income

Outright Ownership

Operating Margin (right)

Sub-lease

Sumitomo Realty & Development Co., Ltd.

19

Review of Operations

City Tower Meguro

SALES

1

No.

Location

Shinagawa Ward, Tokyo
No. of units for sale244

No. of floors

25 above ground
1 below ground
Scheduled delivery

2018

in the Tokyo Metropolitan Area
in JapanSupply of New Condominiums
History

Having entered the condominium sales business in thefirst half of the 1960s, Sumitomo Realty is a pioneer inthe domestic market for condominium development andsales. We have become a leading company for condominium sales in Japan by staying ahead of our competitors,
strategically focusing on city centers and proactively
developing large, high-rise properties.

32.5%

20.8%

20

Annual Report 2018

Revenue from Operations¥ 311.2 billion
Operating Income¥ 46.8 billion

Basic Growth Strategy
Enhancing our brand strength by providing high-quality properties via a unique sales strategy, to build a strong position thatis less susceptible to changes in market conditions
Overview of the Fiscal YearThe condominium market, which represents more than 90%of the segment’s portfolio, saw continued firm demand fromconsumers looking to purchase condominiums owing to lowinterest rates as prices remained high, especially in central Tokyo.
In such an environment, we delivered a total of 5,881 condominium units, detached houses and land lots during the March2018 fiscal year, an increase of 165 units from the previous fiscal
year, owing to the start of delivering units in projects such as
City Tower Meguro, Garden Hills Yotsuya and City Terrace
Koganei Kouen. As a result, despite a decline in revenue fromland lots & others, revenue from condominiums & detachedhouses rose for the sixth consecutive year, due to an increasein the number of units delivered, and segment operating
income reached a record high for the fourth consecutive year.
The number of condominium units sold increased by 888
units from the previous fiscal year, to 7,355 units, surpassing
the 7,000 mark for the first time and reaching a new historicalhigh for the second consecutive year. Also, the number of condominium units brought to market over the full year was thehighest in both the Tokyo metropolitan area and Japan for the
fourth consecutive year.

City Towers Tokyo Bay
Location

Koto Ward, Tokyo
No. of units for sale

1,539

No. of floorsWest: 32 above ground
1 below groundCentral : 33 above groundEast: 33 above ground

Scheduled delivery

2020

City Terrace
Suginami-Honancho
Location

Principal Condominium Development Projects (2019–2020)

Suginami Ward, Tokyo
No. of units for sale

Name

298

No. of floors

North : 6 above ground
South : 11 above ground
1 below ground
Scheduled delivery

2018

Outlook
We are projecting stable year-on-year deliveries of a total of 5,800
condominium units, detached houses and land lots, and are aiming for a fifth consecutive year of record-high operating income.
As a result, we are forecasting a 0.4% decrease in revenue
from operations, to ¥310.0 billion, with a 0.3% rise in operating
income, to ¥47.0 billion.

No. of units Scheduled
for saledelivery*

LocationGrand Hills Motoazabu

Minato Ward, Tokyo

30

2019

City House Nakameguro
Station Court

Meguro Ward, Tokyo

126

2019

City House Meguro the Grand

Meguro Ward, Tokyo

78

2019

City Tower Kokubunji the Twin

Kokubunji, Tokyo

554

2019

City Terrace
Yokohama-Nakamachidai

Yokohama

405

2019

City Terrace Yokohama Nagatsuta

Yokohama

362

2019

Osaka

490

2019

Chuo Ward, Tokyo

483

2020

Shinagawa Ward, Tokyo

363

2020

Shibuya Ward, Tokyo

307

2020

Koto Ward, Tokyo

1,539

2020

City Tower Higashi Umeda
Park Front
City Tower Ginza East
Shinagawa East City Tower
City Tower Ebisu
City Towers Tokyo Bay* Fiscal year ending March 31%

Units

48

45

6,000

220

32

30

4,000

15

2,000

0

0

15.2

19

(Forecast)

0

14

15

16

17

18

Operating Income
Operating Margin (right)

47.0

46.8

18

46.2

17

44.2

311.2

16

43.8

314.3

15

19

(Forecast)

14

15

16

17

18

5,800

15.1

39.2

274.8

14

310.0

264.2

0

16.1 14.7

16
234.1

110

16.6

5,881

16.7

5,716

Billions of yen

330

4,996

Billions of yen

Units Delivered*

5,351

Operating Income andOperating Margin

4,958

Revenue from Operations

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

Sumitomo Realty & Development Co., Ltd.

21

Review of Operations

CONSTRUCTION

1

No.

in TokyoSales of Condominium Remodeling
History‌Remodeling—Shinchiku Sokkurisan
Sumitomo Realty launched the Shinchiku Sokkurisan full
remodeling package in 1996. It has become the top brandin the market with a cumulative total of more than 120,000
units contracted.
‌Custom Homes
We launched the American Comfort line in 1995. To keep
up with the needs of the times, we followed this with the
J∙URBAN line in 2003 and J∙RESIDENCE in 2012. We arealso enhancing our marketing strength with a nationwide
network of over 110 model house units.

21.9%

7.1%
22

Annual Report 2018

Revenue from Operations¥ 209.4 billion
Operating Income¥ 16.1 billion

Basic Growth Strategy
Further raising our competitiveness by refining our planning,technical and sales capabilities without being bound by
conventional thinking
Overview of the Fiscal Year
During the March 2018 fiscal year, both the Shinchiku Sokkurisan
remodeling business and custom homes operations showedstrong performance, posting record high units contracted, units
delivered and revenue from operations. As a result, segment
revenue and profit rose on growth in units delivered andimproved profit margins.
In the Shinchiku Sokkurisan remodeling business, orders
for both detached houses and condominiums increased, contributing to earnings growth. In the custom homes business,housing and facility equipment with stylish exterior designs
and specifications befitting high-end condominiums continued
to be well-received.
OutlookIn order to achieve continued growth in both revenue and profit,
we are responding to customers’ needs by continuing withefforts to expand our product lineup and strengthen our sales
and management systems in both the Shinchiku Sokkurisan
remodeling business and the custom homes business.
Our March 2019 fiscal year projections are for a 5.1% increase
in revenue from operations, to ¥220.0 billion, with an 11.7% risein operating income, to ¥18.0 billion.

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

After

Before‌
Fixedprice: We provide the customer with a fixedprice per unit of floor area, so there are no concerns
about additional construction charges.
‌ need for temporary moves: We remodel homes
No
while customers continue to live in their homes,
which is a major advantage.

Cost Comparison‌
Earthquake
resistance: We incorporate earthquakeresistance strengthening measures based on acomputerized analysis of the homes as well as measures to prevent damage from termites and moisture.

Rebuilding

100%

Shinchiku
Sokkurisan

50~70%
0%

50%

100%

Custom Homes
Key Features‌
Advancedperformance: We have developed proprietary earthquake-resistant technologies, namely the
New Power Column, New Power Cube and Super
Power Wall construction methods, and are actively
incorporating these technologies in all our products.
‌Top-classequipment and specifications: Leveraging
our strengths in the form of our track record in thecondominium business and economies of scale as acomprehensive developer, we employ high-grade condominium interior materials as a standard specification.
‌Thoroughafter-sales support: Our homes are backed
by a 30-year guarantee, and we have a dedicatedcustomer service line.

14

9.3
6.9

120

8.2

19

(Forecast)

0

7,500

3,000

5,000

2,000

2,500

1,000

10

14

15

16

17

18

18.0

16.1

18

13.9

17

15.3

209.4

16

13.0

203.6

15

4,000

5
18.7

199.1

14

220.0

189.0

0

6.8

7.7

7
201.2

60

7.7

UnitsUnits

10,00019(Forecast)

0

0

14

15

16

17

18

Operating Income

Shinchiku Sokkurisan

Operating Margin (right)

Custom Homes (right)

10,000
3,200

180

%

15

9,350
2,990

21

8,770
2,761

Billions of yen

240

8,454
2,882

Billions of yen

Shinchiku Sokkurisan andCustom Home Units Contracted

7,310
2,455

Operating Income andOperating Margin

7,623
2,430

Revenue from Operations

19

0(Forecast)

Sumitomo Realty & Development Co., Ltd.

23

Review of Operations

BROKERAGE
Basic Growth Strategy
Strengthening our business platform by further expanding our
network and pursuing closer ties between existing offices andtheir local communities

History
Sumitomo Real Estate Sales Co., Ltd. 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.
We are strengthening our sales network to further increase
our market share.

Overview of the Fiscal YearThe number of sales contracts concluded in the Tokyo metropolitan area in the existing home market remained steady andaverage contract prices continued to rise.
In this environment, the segment recorded a 2.6% increasein the number of transactions, to 37,058 units, led by existinghome sale transactions, reaching a record high for the third
consecutive year. In addition, rising transaction values, especiallyin central Tokyo, contributed to segment earnings growth as
the total transaction value rose to ¥1,257.5 billion, topping ¥1
trillion for a fourth consecutive year and reaching a new high.
As a result, the segment maintained revenue growth fora ninth consecutive year and profit growth for a third consecutive
year, bringing about record-high revenue from operations andoperating income.
With the addition of six directly operated offices during
the fiscal year, the network had a total of 266 offices nationwide
as of March 31, 2018.

Revenue from Operations

7.2%¥ 69.2 billion
Operating Income

9.5%¥ 21.5 billion

OutlookIn the March 2019 fiscal year, our brokerage operations willcontinue to open new offices and upgrade existing offices,while at the same time striving to raise marketing efficiency,with the aim of achieving a record-high number of brokeragetransactions and growth in revenue and profit.
As a result, we are forecasting a 1.2% increase in revenue
from operations, to ¥70.0 billion, with a 2.5% rise in operating
income, to ¥22.0 billion, for the March 2019 fiscal year.

Operating Income andOperating Margin

Billions of yenBillions of yen

Number of Transactions andTransaction Value

24

75

%

Billions of yen

60

1,500

Transactions

24

Annual Report 201818

19

(Forecast)00

32,00016,0001,257.517500
1,193.0

16

20

37,50036,10833,9681,065.7

15

1,000

22.0

14

40

1,065.7

0

31.4

987.8

19

(Forecast)

31.0

21.5

18

28.7

19.1

17

28.8

17.7

16

28.1

16.5

15

31.4

18.0

14

70.0

69.2

0

66.7

8
61.5

25
58.5

16

57.2

50

48,00037,05835,98735,455

14

15

16

17

18

Operating Income

Transaction Value

Operating Margin (right)

Number of Transactions (right)

1,270.0

Revenue from Operations

19(Forecast)0Corporate Governance

Board of Directors and Statutory Auditors(As of June 28, 2018)

Chairman of the Board

Deputy Chairman of the Board

President

Deputy President

Deputy President

Junji Takashima*

Kenichi Onodera

Kojun Nishima*

Nobuaki Takemura*

Masato Kobayashi*

Director

Director

Director

Director

Director

Hiroshi Kato

Hisatoshi Katayama

Yoshiyuki Odai

Koji Ito

Toshikazu Tanaka* Executive Managing Director

Outside Director

Statutory Auditors(Date of birth: March 31, 1937)
April 1960

Joined Sumitomo Chemical Co., Ltd.

June 2000 President, Sumitomo Chemical Co., Ltd.
April 2009	Chairman, Sumitomo Chemical Co., Ltd.
May

2010	Chairman, KEIDANREN(Japan Business Federation)

June 2014	Honorary Chairman, KEIDANREN (present)Counselor, Sumitomo Chemical Co., Ltd.
(present)

Hiromasa Yonekura

Yozo Izuhara*
Takaaki Ono*
Tadashi Kitamura
Yoshifumi Nakamura* Outside Statutory Auditor

June 2015	Outside Director, Sumitomo Realty &Development Co., Ltd. (present)* Owing to the sudden death of an outside director in May 2018, the Board of Directors currently includes
only one outside director. As the process of identifying a nominee for this position will take some time,a successor will be selected at the ordinary General Meeting of Shareholders to be held in June 2019,at which time the number of outside directors will return to two.

Sumitomo Realty & Development Co., Ltd.

25

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

Board of Statutory Auditors
Board of Directors
Independent Auditors

President

Executive Officers Committee
Internal Audit Division

Departments, Divisions, etc.

Corporate Governance Bodies
The Board of Directors consists of 11 directors, including one outside
director. The Board makes decisions on important Company mattersand oversees the directors’ execution of duties. Furthermore, internal
information, awareness of issues and other matters are shared throughthe Board of Directors, internal meetings and other forums, promoting
quick and rational decision-making.
The Board of Statutory Auditors has four members, including
two outside statutory auditors. To strengthen management oversight, we continue working to enhance outside auditing. The statutory
auditors attend meetings of the Board of Directors and otherimportant meetings and track internal issues that are important
for robust auditing.
One outside director was elected at the ordinary General
Meeting of Shareholders held in June 2015. This director possesses
a wealth of management experience and was nominated as a director
in light of his appropriate personal character, knowledge and judgment. The Company has appointed outside directors to further
enhance management efficiency and strengthen the corporate
governance structure by contributing points of view that are notbound by preconceived ideas of the real estate industry and advice
from a global perspective. The professional history of the outside
director is on page 25.
Both of the outside statutory auditors has abundant management
experience at other companies, and they were nominated because
their character and knowledge were considered to be appropriate
for the Company’s statutory auditors. The outside statutory auditors
fulfill their roles by expressing objective opinions on governancefrom an independent standpoint from the Company without being
influenced by executives responsible for operational execution.
They also work together to improve auditing by, for example,

26

Annual Report 2018exchanging opinions as needed with other statutory auditors,
the Internal Audit Division and the independent auditors. At thesame time, they provide timely advice and guidance to internal
departments associated with internal control.
Sumitomo Realty does not have standards or a policy regarding
independence from the Company for selecting outside directors
and outside statutory auditors. However, the Company does referto the Tokyo Stock Exchange’s evaluation standards regarding theindependence of directors and corporate auditors when appointing
such individuals.
The Internal Audit Division, which has seven staff members,monitors the operational execution of divisions throughout the Groupand the operation of internal control systems. The division also works
to prevent misconduct and mistakes, and proposes operational
improvements. Moreover, the division reports the results of its audits
to the statutory auditors and the independent auditors and exchanges
opinions with them in an appropriate manner. These activities help
to improve the quality and efficiency of the audit work of the Internal
Audit Division, the statutory auditors and the independent auditors.
At the same time, the Internal Audit Division, the statutory auditors
and the independent auditors provide timely advice and guidance
to internal departments that are associated with internal control.

​Independent Auditors
In accordance with the Japanese Corporate Law and the Financial
Instruments and Exchange Act, the Company has concluded an
auditing contract with KPMG AZSA LLC for the auditing of theCompany’s accounts.
There are no conflicts of interest between Sumitomo Realty
and the independent auditing company or its employees.

Reason for Adopting the Current Structure
In addition to directors who are well-acquainted with the Company’sbusiness, we established a structure in June 2015 for appointing
two outside directors for further enhancement of management
efficiency and strengthening of the corporate governance structure.
To strengthen the management oversight system, we have also
adopted a structure for the Board of Statutory Auditors that
includes two outside statutory auditors, and we therefore believethat sufficient corporate governance functions are in place.
Owing to the sudden death of an outside director in May 2018,
the Board of Directors currently includes only one outside director.
As the process of identifying a nominee for this position will takesome time, a successor will be selected at the ordinary General
Meeting of Shareholders to be held in June 2019, at which time
the number of outside directors will return to two.

Internal Control and Risk Management Systems
To efficiently institute sound management practices, the Company
has established a range of internal control systems and is working
to enhance those systems.
To further enhance our compliance with laws and regulations
and to ensure ethical business practices, we established the Risk
Management Committee. In addition, the Company’s Internal Audit
Department shall conduct internal audits of the Company and its
subsidiaries. Also, we have established multiple internal reporting
systems both inside and outside the Company. In these ways, we
are working to prevent inappropriate and illegal actions.

Compensation of Directors and Statutory Auditors
At the ordinary General Meeting of Shareholders held in June 2004,
we introduced a new performance-based compensation system fordirectors. Under this system, the annual compensation for directors
is based on the Company’s performance. The new system combines
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. In the year
under review, compensation for directors (excluding outside directors)
was ¥1,525 million, compensation for statutory auditors (excluding
outside statutory auditors) was ¥30 million and compensation foroutside directors and outside statutory auditors was ¥129 million.

Takeover Defense Measures
The Group endeavors to increase corporate value through integrated
Group management. This entails striving for well-balanced growth
whereby mainstay businesses of a different nature—leasing, sales,
construction and brokerage—complement each other.
Of our business segments, the real property leasing businessand the real property sales business are “development businesses
based on market anticipation” requiring anticipatory investments.
In other words, we need to acquire land and construct a building
within a planned period before we are allowed to record revenue.
The Company’s main business is to always make appropriate anticipatory investments for the future. The characteristic of the twobusinesses mentioned above is that investments lead to revenues
and enhancement of our corporate value after an interval.
However, considering the existence of a large number of market
participants who are capable of making huge investments, we are
cautious about the risk of abnormal investment activity in the stockof the Company amid an enormous variety of decisions and speculations. Hence, as a company aiming to improve shareholder value
steadily over the medium and long term, we have determined thatit promotes the common interests of shareholders to take certain
measures to avoid disturbance by abnormal speculations to ourbusiness approach, which has brought significant achievements.
The Company therefore introduced a policy for responding tolarge-scale purchases of its shares, and at the ordinary General
Meeting of Shareholders held on June 28, 2007 the policy wasapproved by more than 70% of shareholders, which is the level of
support required for the approval of special resolutions. With theapproval of shareholders at the 77th General Meeting of Shareholders
held in 2010, at the 80th General Meeting of Shareholders held in2013 and at the 83rd General Meeting of Shareholders held in 2016
(with shareholders approving its continuation or renewal), the policy
has been extended to the conclusion of the 86th General Meetingof Shareholders, scheduled to be held in 2019.

Overview of Takeover Defense Measures andBoard of Directors’ Judgment
The Company believes that if a large-scale purchase of the Company’s
shares is initiated, the shareholders, in principle, should decide toaccept or reject the large-scale purchase. To enable the shareholders
to correctly understand the large-scale purchase’s effect on thecorporate value and the common interests of shareholders, it isinevitable that both the party making the large-scale purchase andthe Board of Directors of the Company provide to the shareholders
necessary and sufficient information, opinions, alternative proposals,etc., and that the shareholders are given sufficient time to consider
the provided information, opinions, alternative proposals, etc.
The large-scale purchase rules stipulate that the large-scalepurchase shall begin after necessary and sufficient information isprovided to the Board of Directors by the large-scale purchaser anda certain period for evaluation by the Board of Directors has elapsed.
To ensure the objectivity, fairness and rationality of decisionsof the Board of Directors, a special committee will be establishedthat consists of members selected from among external academic
experts, lawyers, certified public accountants, etc.
If the large-scale purchase will significantly damage the corporate
value and common interests of shareholders, after considering theopinions of external experts, including lawyers and financial advisors,
and taking into the fullest account the recommendations of thespecial committee, the Board of Directors may take countermeasures
to deter the purchase, such as the issuance of stock options.
Based on the above basic concept, we set out rules on largescale purchases and request the large-scale purchaser to comply
with the large-scale purchase rules. The Board of Directors shalltake certain measures if the large-scale purchaser does not comply
with the large-scale purchase rules. The Board shall also take measuresin the event it is clear that the large-scale purchase will cause
unrecoverable damage to the Company even though the largescale purchaser complies with the large-scale purchase rules.
These measures will be taken for the purpose of contributing to
the Company’s corporate value and the common interests of its
shareholders and not for the purpose of maintaining the status of
the Company's officers.

Sumitomo Realty & Development Co., Ltd.

27

CSR

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

The Sumitomo Realty Group’s Fundamental Mission
Guided by the Sumitomo Group’s business philosophy, we have set forth our fundamental
mission as “to create even better social assets for the next generation” through our business.
Based on this fundamental stance, we engage in business with the aim of creating cities andurban spaces that are resilient to disasters and friendly to people and the environment.

Create even better social assets
for the next generation

DISASTER RESISTANTPEOPLE FRIENDLY

ENVIRONMENT FRIENDLY

Protecting Office Workers andBusinesses

Enhancing Regional Convenience andPromoting Barrier-free Access

Improving the Environmental
Performance of Buildings

Sumitomo Realty’s latest office buildings actively
employ earthquake-resistant features to protect
office workers. Furthermore, we install emergency generators in buildings to supply power
for a certain period of time during a blackout,
enabling tenants to continue operations.

Our redevelopment business creates peoplefriendly cities. A case in point is Sumitomo
Fudosan Roppongi Grand Tower, where anunderground walkway is being built so thatpedestrians of all abilities can move moreeasily from city areas to train stations.

Contributing to Regional
Disaster Prevention

AEDs

We make efforts to preserve and utilize theexisting trees and plants of the lands in ourdevelopment projects. We also improvebuildings’ thermal insulation and landscapesby planting trees on sites and creating green
rooftops and green public arenas. Our development projects are always concerned with theglobal environment and ecology.

Sumitomo Realty has contributed to regional
development through various redevelopment
projects in cities. By redeveloping areas with
densely packed wooden houses, we re-create
cities so they are more resistant to disasters.
The open spaces, a feature of our redevelopment projects, also serve as places for temporary
refuge in times of disaster.

28

Annual Report 2018

In order to be better preparedfor medical emergencies, atoffice buildings, hotels andother key facilities that we
operate and manage, wehave installed automatedexternal defibrillators (AEDs).
Moreover, all personnel
undertake first-aid training.

Promoting Energy Conservation
Our latest office buildings feature decentralized
HVAC (heating, ventilation and air-conditioning)systems with independent air-conditioning
units so that they can be turned on and off toadjust temperature in each zone. The systems
significantly enhance tenant convenience andcontribute to energy
conservation. We also
save energy used inlighting systems with
the installation ofhighly energy-efficient
HF-type fluorescentlights and LED
light bulbs.

CSR through Business
LEASING

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

Large, Multipurpose Development Amid
Lush Greenery
Approximately 66% of thesite, or 1.5 hectares, is open
space with lots of greenery.
In addition to reducing theenvironmental burden andimproving the heat island
phenomenon, we havecreated a “lawn plaza” and“shade grove” where people can relax. Roughly 40% of theentire land site is planted with greenery.

People-friendly Network of PleasantPedestrian Routes
Many pedestrians coming from Takadanobaba Station passthrough the area around Shinjuku Garden, and we havesought to improve the geographical feature that had beenbroken up by retaining walls. We have removed the retaining
walls in order to level out the differences of approximately
four meters in elevation within the site and created barrierfree pathways to offer a space that can be used comfortably
by all pedestrians, including both young children andelderly people.

Regional Disaster-response BaseIn the event of an earthquake or other disaster,
many commuters in the areaaround Shinjuku Garden are
expected to have difficulty
returning home*, and it is
crucial for buildings in sucha location to have a large
multipurpose hall that could be opened as a place for thesepeople to stay. This hall is equipped with telecommunications
equipment (rechargers, Wi-Fi, etc.) so that people can notify
their families or companies that they are safe, and information
regarding the status of public transportation, conditions inother areas and other disaster-related information can bedisplayed on large screens. In addition to the open spaceon the site where people can stay, the functionality as anevacuation center has been further enhanced with a warehouse for disaster-response equipment (approximately 50
square meters), 10 emergency toilets that can be installed
directly to manholes and well water for cleaning the toilets.
* Approximately 350,000 people, the fourth highest number in Tokyo, according to
a 2004 report by the Shinjuku City government

CONSTRUCTION

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

Earthquake Reinforcement, Extended Life andEnergy Conservation for Housing
Shinchiku Sokkurisan is contributing to efforts to promoteearthquake-proofing of existing homes through low-cost
remodeling. It also extends the life of existing housing
through earthquake-reinforcement work requiring nodismantlement, while leaving the main structural elements
intact. The process also does not waste resources andgenerates little industrial waste; for instance, old tatami
mats are reused as material for cement.

Harmony with Building’s History
Shinchiku Sokkurisan can also
breathe new life into old houses.
We add value suited to modern living,while taking care to preserve thehistory and character of a housethat may have been home to many
generations of a family. Sumitomo
Realty is striving to reinvigorate oldhouses more than 100 years old,
helping to ensure that tradition
stays alive.

Sumitomo Realty & Development Co., Ltd.

29

Financial Section

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

2018

2017

2016

2015

2014

¥  948,402
353,881311,193
209,356
69,169¥   925,151
337,466
314,299
203,623
66,714¥  854,964
313,340
274,761
199,115
61,496¥  806,835
289,117264,207
188,995
58,486¥  780,273
283,730
234,093
201,190
57,211

Cost of revenue from operations

664,015664,184

614,191

579,964

558,987

SG&A expenses

78,7508.3%

72,796
7.9%

66,532
7.8%

60,976
7.6%

60,815
7.8%

205,63721.7%

188,17120.3%

174,241
20.4%

165,895
20.6%

160,471
20.6%% of revenue from operations

186,87119.7%

167,69718.1%

148,42417.4%

139,055
17.2%

130,537
16.7%

Profit attributable to owners of parent

119,731

103,489

87,79880,567

69,697

Depreciation and amortization

41,62839,446

34,57433,51935,311¥1,147,911
783,308
5,186,902
1,114,975
3,210,302¥1,197,508
845,2144,980,040
1,007,347
3,101,162¥1,122,189
855,816
4,675,915
888,100
2,971,667¥1,025,703
801,950
4,523,804
832,462
2,875,660¥  924,452
715,779
4,220,429
707,948
2,652,929¥   252.62
2,352.53
27.00¥   218.34
2,125.36
24.00¥   185.23
1,873.71
22.00¥   169.97
1,756.25
21.00¥   147.02
1,493.48
20.00

21.5
2.9
11.3
4.2
98
94
10.5

20.2
3.1
10.9
4.0
98
95
9.0

19.0
3.3
10.2
3.9
98
94
7.3

18.4
3.5
10.5
3.9
97
87
6.5

16.8
3.7
10.4
4.0
95
82
6.1

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

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

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

Key Ratios
Equity ratio (%)
ND/E ratio*4 (Times)
ROE (%)ROA (%)
Long-term debt ratio (%)
Fixed-interest rate debt ratio (%)
Interest coverage ratio*5 (Times)* 1 . U.S. dollar amounts in this report are translated, for convenience only, at the rate of ¥106.25 = U.S.$1, the prevailing exchange rate at March 31, 2018.
*2.	Ordinary profit, which equals operating income after adjustment for non-operating gains/losses, is a management index that is widely used in Japan.
Due to differences in accounting standards, ordinary profit is not referred to in the Company’s English-language financial statements
but is included here because it plays an important role in the calculation of incentive payments for directors.
*3. Shareholders’ equity = Net assets – Profit attributable to non-controlling interests*4. ND/E ratio = Net interest-bearing debt (Interest-bearing debt – Cash, time and notice deposits) / Shareholders’ equity*5. Interest coverage ratio = (Operating income + Interest and dividend income) / Interest expense

30

Annual Report 2018 ｜ Financial Section

Thousands of U.S. dollars*1

2013

2012

2011

2010

2009

2008

2018

¥  736,652
278,317232,149
171,082
50,957¥  688,662
271,812
198,154
165,995
49,397¥  744,756
292,875
239,709
162,924
46,430¥  719,636
293,533
219,662
158,21444,621¥  695,240
298,359
191,224
160,134
43,105¥  691,928
279,568
193,575
156,606
58,542$ 8,926,136
3,330,645
2,928,875
1,970,409
651,002529,913490,437

551,364

534,270

496,547

488,2026,249,553

55,394
7.5%

50,760
7.4%

54,9297.4%

51,3877.1%

52,327
7.5%

49,1187.1%

741,176

151,345
20.5%

147,465
21.4%

138,46318.6%

133,979
18.6%

146,366
21.1%

154,608
22.3%

1,935,407

114,916
15.6%

107,91215.7%

106,29614.3%

100,464
14.0%

113,582
16.3%

125,17618.1%

1,758,786

59,82553,23650,90852,662

46,205

63,133

1,126,880

37,761

36,04923,70518,065

17,886

17,150391,793¥  965,786
679,496
4,105,500
627,0122,424,932¥  801,142
586,1703,859,698
553,8442,407,639¥  805,958
558,091
3,234,203
526,227
1,901,850¥  802,693
521,871
3,168,098
488,896
1,785,854¥  759,816
518,885
3,006,412
436,667
1,722,733¥  784,195
511,868
2,894,004
427,423
1,548,509$10,803,869
7,372,311
48,817,901
10,493,882
30,214,607¥   126.18
1,322.52
20.00¥   112.28
1,168.11
20.00¥   107.35
1,109.78
20.00¥   111.04
1,030.93
20.00¥    97.39
920.7420.00¥   133.00
900.5718.00$      2.38
22.14
0.25

15.3
3.9
10.1
3.9
93
80
4.9

14.3
4.3
9.9
4.3
93
80
4.2

16.3
3.6
10.0
4.4
89
79
4.7

15.4
3.7
11.4
4.4
83
81
4.6

14.5
3.9
10.7
5.1
76
77
4.9

14.8
3.6
15.1
5.6
83
85
6.2

Sumitomo Realty & Development Co., Ltd.

31

Management’s Discussion and Analysis

Review of the March 2018 Fiscal Year andProgress under the Seventh Management Plan

Financial Strategy

In leasing and sales, which are our mainstay business segments, ittakes years from the day of site acquisition to the completion of thebuilding and to the day it starts generating revenue. Significant advanceinvestment is also required. In consideration of these factors, we worked
to diversify our fund-raising methods to control interest-bearing debt
while making investments necessary for growth so as to reinforce ourfinancial position and achieve operational growth under the three
medium-term management plans starting from April 1997.
Specifically, we have aggressively introduced development
securitization methods using SPEs (SPEs have been included in thescope of consolidation since the March 2012 fiscal year). In addition,
we have formed Sumitomo Realty & Development Fund (SURF)
investment partnerships backed by leased buildings, making effective
use of our assets in our fund-raising activities.
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 wereable to raise large amounts of funds without having to sell assets at low
prices and aggressively acquire sites at low costs quickly responding
to each investment opportunity. Consequently, our site acquisition
strategy has proceeded according to the plan, and we were able toachieve substantial growth in revenue and profits as well as improve
our financial structure over a decade.
Since the second half of the 2000s, it has become increasingly
difficult to acquire large prime sites that meet our investment criteria,
in part because of intensified competition. Given this situation, Sumitomo
Realty has implemented a policy centered on urban redevelopment for
future site acquisition. As a result, we have been making steady progresswith the preparations for future pipeline redevelopment projects.
We plan to bring gross floor area of approximately 220,000
tsubo for leasing to market, mainly at large-scale redevelopment
projects in Roppongi and Osaki, during the Seventh Management
Plan. We are aiming to further accelerate the pace of developmentfrom the previous 50,000 tsubo of gross floor area annually and toachieve in excess of 1,000,000 tsubo of gross floor area during andafter the Seventh Management Plan. We intend to invest for thesefuture development projects generally with operating cash flows.
Further, we will consider bond issues or other debt financing if

Sumitomo Realty began operating under the Seventh Management
Plan from April 2016. Our goals are to remain on our “revenue andprofit growth trajectory” and once again post record-high earnings
for the three-year period covered by the plan. (For more details
regarding the Seventh Management Plan, please see page 17.)
During the March 2018 fiscal year, the second year of theSeventh Management Plan, revenue from operations was ¥948.4
billion, operating income totaled ¥205.6 billion, ordinary profit
amounted to ¥186.9 billion, and profit attributable to owners of parent
was ¥119.7 billion. We therefore marked the sixth consecutive year ofrevenue growth, the eighth consecutive year of increases in operating
income and ordinary profit, and the fifth consecutive year of record
revenue from operations, operating income, ordinary profit, and profit
attributable to owners of parent.
These results correspond to roughly 70% of the cumulative
targets for revenue and profit for the three-year period covered by
the plan, making for smooth progress toward the goals in theSeventh Management Plan.
Although the outlook in Japan and overseas remains unclear,
the operating environment has recently been favorable amid continued
gradual economic expansion and we expect the Leasing segment tocontinue to drive earnings growth. We will stay focused and aim fora sixth consecutive year of record earnings in the March 2019 fiscal year.
We will therefore strive to reach the goals in the Seventh Management
Plan and work toward achieving continuous growth thereafter.

Revenue from Operations

Operating Income andOperating Margin

Billions of yen

Billions of yen

1,000

240

750

180

%

30

20.6
500

120

250

60

Ordinary Profit * and Profit
Attributable to Owners of Parent

20.6

20.4

20.3

21.7

22.0

Billions of yen

200

150
20
100

Operating Income

19(Forecast)

Operating Margin (right)

0

0

14

15

16

17

18

Ordinary Profit

Annual Report 2018 ｜ Financial Section

19(Forecast)Profit Attributable to Owners of Parent* Please see note *2 on page 30.

32

195.0
130.0

18

186.9
119.7

17

167.7
103.5

16

148.4
87.8

15

213.0

14

139.1
80.6

0

130.5
69.7

19

(Forecast)

205.6

18

188.2

17

174.2

948.4

16

165.9

925.2

15

50
160.5

855.0

14

970.0

806.8

0

780.3

10

Dividend Policy

additional investment opportunities arise, given that current low
interest rates present a favorable environment for financing.
Sumitomo Realty’s financial position has continued to improve.
In the five-year period since the beginning of the period covered by
the Sixth Management Plan in April 2013, interest-bearing debt has
increased by ¥822.8 billion, but owing to retained earnings, shareholders’ equity has increased by ¥488.0 billion, topping ¥1 trillion.
As a result, the equity ratio stood at 21.5% as of March 31, 2018,
compared with 15.3% at the beginning of the period covered by the
Sixth Management Plan, and the ND/E ratio improved to 2.9 times
from 3.9 times. In addition, the fair value of investment and rental
properties stood at ¥5.7 trillion as of March 31, 2018. This included
unrealized gains of ¥2.3 trillion, which we recognize as a useful buffer
against financial risks. Factoring in these unrealized gains, the equity
ratio as of March 31, 2018, would be 36.5% and the ND/E ratio would
be 1.2 times (for more information, please refer to page 57, Note 20“Investment and rental properties”). Ratings agencies have evaluated
our results highly, and we have maintained our ratings even in difficult
financial environments, such as after the Lehman crisis. As of June
2018, JCR and R&I issued ratings of A+ and A, respectively.
In terms of ROE, we remain at the top level of our industry withan average level of 10.6% over the past five years (please refer topage 30 “Eleven-year financial summary”).
In addition, we are enhancing the stability of our debt portfolio
by procuring funds for longer tenors and at fixed rates to hedge
against the risk of higher interest rates going forward. During the year
under review, we issued ¥30.0 billion of 10-year corporate bonds withan interest rate of less than 1%. We will continue to closely observe
market conditions and extend the tenor of our debt portfolio. As of
March 31, 2018, long-term debt accounted for 98% of consolidated
interest-bearing debt, and fixed-rate debt for 94%.
Site acquisition is essential to the achievement of sustained
growth. We will continue to strengthen our financial position throughthe generation of profit and work to achieve increased fund-raisingstability as we continue to invest in growing businesses, centered on
the core leasing business.

Our fundamental policy for the distribution of profit is to maintain astable base level of dividends and, while retaining a sufficient level of
earnings for steady, long-term operational growth, to increase dividends
in line with growth in profit.
We have implemented six plans since April 1997. We worked torespond to various changes in accounting standards and to reduce
unrealized losses under the First Management Plan and the Second
Management Plan. Under the Third Management Plan, which began
in April 2004, we completed the implementation of measures to deal
with unrealized losses, and laid the foundation for full-scale growthin EPS. Thereafter, we continued to increase the dividend in line withprofit growth to the extent where we raised the dividend for the
March 2009 fiscal year, the year after we posted record-high profit,to ¥20.00 per share.
However, profit subsequently declined due to the Lehman crisis.
Nevertheless, we focused on the continuation of stable dividends
and maintained the dividend per share at ¥20.00. We were back on
track for a dividend increase after the March 2014 fiscal year, which
was the first year of the Sixth Management Plan, when we achieved
record earnings. We increased the full-year dividend by ¥1.0 for two
years in a row, in the March 2015 fiscal year and the March 2016 fiscal
year, to ¥21.00 per share and ¥22.00 per share, respectively.
For the March 2017 fiscal year, we increased the full-year dividendby ¥2.0, to ¥24.00 per share. In the March 2018 fiscal year, we had
intended to again increase the full-year dividend by ¥2.0, to ¥26.00
per share, but reflecting the fact that this was our fifth consecutive yearof record earnings, we increased the full-year dividend by ¥3.0, to¥27.00 per share. In the March 2019 fiscal year, we intend to increase
the full-year dividend by ¥2.0, to ¥29.00 per share (including aninterim dividend of ¥14.00 per share). Moving forward, we will makeefforts to continue profit growth and bolster equity, while further
enhancing shareholder returns.

%

900
4,000
600

16.8

18.4

19.0

20.2

21.5

18

0

1,115.017

1,007.3

5,186.9

16888.1

4,980.0

15

832.5

4,675.9

14

300
707.9

4,523.804,220.4

2,000

14

15

16

17

18

Billions of yen

Times

30

3,600

12

20

2,400

8

10

1,200

0

0

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

3.7

3.5

3.3

3.1

2.9
3,210.3

1,200

3,101.2

Billions of yen

6,000

2,971.7

Billions of yen

Net Interest-bearing Debt and
ND/E Ratio

2,875.7

Shareholders’ Equity and 
Equity Ratio

2,652.9

Total Assets

14

15

16

17

18

Net Interest-bearing Debt

40

ND/E Ratio (right)

Equity Ratio (right)

Sumitomo Realty & Development Co., Ltd.

33

Consolidated Balance Sheets
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
As of March 31, 2018 and 2017

Millions of yen

AssetsCurrent assets:

Thousands of U.S. dollars (Note 1)

2018

2017

2018

¥   263,210
23,773(66)
783,308
21,79355,893
1,147,911¥  269,312
18,475(55)
845,214
18,53946,023
1,197,508$ 2,477,271
223,746(621)
7,372,311
205,111526,051
10,803,869

68,083435,615(9,469)494,229

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

640,7814,099,906(89,120)
4,651,567

2,464,161
1,287,335
33,576
1,778
94,3973,881,247

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

23,192,104
12,116,094
316,009
16,734
888,442
36,529,383

		 Net property and equipment(510,894)
3,370,353(471,474)
3,162,476(4,808,414)
31,720,969

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

71,06454,753
12,20536,387
174,409¥5,186,902

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

668,838
515,322
114,871
342,465
1,641,496$48,817,901

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

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

Property and equipment:
Land (Notes 4, 5 and 20)
Buildings and structures (Notes 4, 5 and 20)
Machinery and equipment (Notes 4, 5 and 20)
Leased assets
Construction in progress (Notes 4, 5 and 20)

Accumulated depreciation and accumulated impairment losses

See accompanying notes.

34

Annual Report 2018 ｜ Financial Section

Millions of yen

Thousands of U.S. dollars (Note 1)

Liabilities and Net Assets
Current liabilities:
Short-term debt (Notes 6 and 8)
Long-term debt due within one year (Notes 6 and 8)
Long-term non-recourse debt due within one year (Notes 5, 6 and 8)
Notes and accounts payable—trade (Note 6)
Accrued income taxes
Accrued bonuses
Deposits received (Note 14)
Other current liabilities (Notes 12 and 14)
		 Total current liabilities

2018

2017

2018

¥   61,416
275,752
49,41028,751
34,1985,283
60,382
153,447
668,639¥   66,108
289,622
22,95841,37429,3305,049
68,861
134,745
658,047$   578,033
2,595,313
465,035
270,598
321,864
49,722
568,301
1,444,207
6,293,073

Long-term liabilities:
Long-term debt due after one year (Notes 6 and 8)
Long-term non-recourse debt due after one year (Notes 5, 6 and 8)
Guarantee and deposits received (Notes 6 and 14)
Net defined benefit liability (Note 9)
Other long-term liabilities (Notes 12 and 14)
		 Total long-term liabilities

2,725,646
361,289
267,215
5,965
43,173
3,403,288

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

25,653,139
3,400,367
2,514,965
56,141
406,334
32,030,946

122,805
104,154765,326(4,443)
987,842

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

1,155,812
980,273
7,203,068(41,817)
9,297,336

131,115(2,049)(2,093)
160
127,133—
1,114,975¥5,186,902

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

1,234,024(19,285)(19,699)
1,506
1,196,546—
10,493,882$48,817,901

Contingent liabilities (Note 21)
Net assets (Note 15):
Shareholders’ equity
		Common stock:			Authorized —1,900,000 thousand shares
			Issued—476,086 thousand shares
		Capital surplus
		Retained earnings
		Treasury stock			Total shareholders’ equity
Accumulated other comprehensive income (loss)
		 Net unrealized holding gains on securities
		 Net deferred losses on hedges
		 Foreign currency translation adjustments
		 Remeasurements of defined benefit plans
			 Total accumulated other comprehensive income
Non-controlling interests
		 Total net assets
			 Total liabilities and net assets

Sumitomo Realty & Development Co., Ltd.

35

Consolidated Statements of Income
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2018, 2017 and 2016

Millions of yen

Thousands of U.S. dollars (Note 1)

2018¥948,402

2017¥925,151

2016¥854,964

2018$8,926,136

664,01578,750742,765

664,184
72,796736,980

614,191
66,532680,723

6,249,553
741,176
6,990,729

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

205,637

188,171

174,241

1,935,407(20,096)
8,229
38
(217)
(10,635)
(601)
1,010
(47)
—
(795)
(6,079)(29,193)(21,469)
6,588
15
(3)
(15,538)(1,522)43——(1,143)(4,519)(37,548)(24,398)
5,483
115
—
(10,806)(1,146)
428
(76)
(466)
(1,387)(6,434)(38,687)(189,140)
77,449358(2,042)(100,094)(5,656)
9,506
(442)
—
(7,482)(57,215)(274,758)

Income before income taxes
Income taxes (Note 12):Current
Deferred		Total176,444

150,623

135,554

1,660,649

62,098(6,180)55,91853,161(9,533)
43,62849,989(5,259)44,730584,452(58,165)
526,287

Profit120,526

106,995

90,824

1,134,362

795

3,506

3,026

7,482

¥119,731¥103,489¥ 87,798$1,126,880

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

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

Yen

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

U.S. dollars (Note 1)

2018

2017

2016

2018

¥252.62—27.00¥218.34—24.00¥185.23
—
22.00

$2.38
—
0.25

See accompanying notes.

Consolidated Statements of Comprehensive Income
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2018, 2017 and 2016
Millions of yen

ProfitOther comprehensive income (loss) (Note 19)
Net unrealized holding gains (losses) on securities
Net deferred gains (losses) on hedges
Foreign currency translation adjustments
Remeasurements of defined benefit plans
		 Total other comprehensive income (loss)
Comprehensive income
Comprehensive income attributable to:
Owners of the parent
Non-controlling interests
See accompanying notes.

36

Annual Report 2018 ｜ Financial Section

Thousands of U.S. dollars (Note 1)

2018¥120,526

2017¥106,995

2016¥ 90,8242018$1,134,362

33,935538(1,098)
188
33,563¥154,089

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

319,388
5,064(10,334)
1,769
315,887$1,450,249¥153,493
596¥129,719
3,426¥ 68,061
2,949$1,444,640
5,609

Consolidated Statements of Changes in Net Assets
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2018, 2017 and 2016

Thousands
Shareholders’ equity

Balance at April 1, 2015
Profit attributable to owners of parent
Foreign currency translation adjustments
Net unrealized holding losses on securities
Acquisition of treasury stock
Disposal of treasury stock
Change in scope of consolidation
Cash dividends paid:
		 Final for prior year (¥11 per share)
		 Interim for current year (¥11 per share)Change in treasury shares of parent arisingfrom transactions with non-controllingshareholders
Profit attributable to non-controlling interests
Net deferred losses on hedges
Remeasurements of defined benefit plans
Balance at April 1, 2016
Profit attributable to owners of parent
Foreign currency translation adjustments
Net unrealized holding gains on securities
Acquisition of treasury stock
Disposal of treasury stock
Cash dividends paid:
		 Final for prior year (¥11 per share)
		 Interim for current year (¥11 per share)Change in treasury shares of parent arisingfrom transactions with non-controllingshareholders
Profit attributable to non-controlling interests
Net deferred gains on hedges
Remeasurements of defined benefit plans
Balance at April 1, 2017
Profit attributable to owners of parent
Foreign currency translation adjustments
Net unrealized holding gains on securities
Acquisition of treasury stock
Disposal of treasury stock
Change in scope of consolidation
Cash dividends paid:
		 Final for prior year (¥13 per share)
		 Interim for current year (¥13 per share)Change in treasury shares of parent arisingfrom transactions with non-controllingshareholders
Profit attributable to non-controlling interests
Net deferred gains on hedges
Remeasurements of defined benefit plans
Balance at March 31, 2018

Number ofshares ofcommonstock

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

476,086
—
—
—
—
—
—

¥122,805
—
—
—
—
—
—

¥132,750
—
—
—
—
0
—

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

¥745,584
87,798——(89)
1(1,906)¥ 88,799——(16,537)———¥(1,615)
—
—
—
—
—
—

¥  (550)
—
40
—
—
—
—

¥ 244
—
—
—
—
—
—

¥ 86,878—40(16,537)———¥ 27,077
—
—
—
—
—
—

¥  859,539
87,79840(16,537)(89)
1(1,906)

—
—

—
—

—
—

(5,214)(5,214)——(5,214)(5,214)

—
—

—
—

—
—

—
—

—
—

—
—

(5,214)(5,214)————
476,086
—
—
—
—
—

—
—
—
—
¥122,805
—
—
—
—
—

(2)
—
—
—
¥132,748
—
—
—
—
2

—
—
—
—
¥569,740
103,489
—
—
—
—

—
—
—
—
¥(4,335)
—
—
—
(47)
3

(2)
—
—
—
¥820,958
103,489
—
—
(47)
5

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

—
—
—
—
¥  (510)
—
(755)
—
—
—

—
—
—
(608)
¥(364)
—
—
—
—
—

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

—
2,101
—
—
¥ 29,178
—
—
—
—
—

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

—
—

—
—

—
—

(5,214)(5,213)——(5,214)(5,213)

—
—

—
—

—
—

—
—

—
—

—
—

(5,214)(5,213)————476,086
—
—
—
—
—
—

—
—
—
—
¥122,805
—
—
—
—
—
—

(2)
—
—
—
¥132,748
—
—
—
—
—
—

—
—
—
—
¥662,802
119,731————(4,885)————¥(4,379)
—
—
—
(64)
—
—

(2)
—
—
—
¥913,976
119,731——(64)—(4,885)————¥ 97,192——
33,923
—
—
—

—
—
1,718
—
¥(2,529)
—
—
—
—
—
—

—
—
—
—
¥(1,265)
—
(828)
—
—
—
—

—
—
—
337
¥ (27)
—
—
—
—
—
—

—
—
1,718
337
¥ 93,371—(828)
33,923
—
—
—

—
2,578
—
—
¥ 31,756
—
—
—
—
—
—

(2)
2,578
1,718
337
¥1,039,103
119,731(828)
33,923(64)—(4,885)

—
—

—
—

—
—

(6,161)(6,161)——(6,161)(6,161)

—
—

—
—

—
—

—
—

—
—

—
—

(6,161)(6,161)————
476,086————¥122,805(28,594)———¥104,154————¥765,326————¥(4,443)(28,594)———¥987,842————¥131,115——480—¥(2,049)————¥(2,093)

—
—
—
187
¥ 160

—
—
480
187
¥127,133

Shareholders’ equity

Balance at April 1, 2017
Profit attributable to owners of parent
Foreign currency translation adjustments
Net unrealized holding gains on securities
Acquisition of treasury stock
Disposal of treasury stock
Change in scope of consolidation
Cash dividends paid:
		 Final for prior year ($0.12 per share)
		 Interim for current year ($0.12 per share)Change in treasury shares of parent arisingfrom transactions with non-controllingshareholders
Profit attributable to non-controlling interests
Net deferred gains on hedges
Remeasurements of defined benefit plans
Balance at March 31, 2018

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

Commonstock

Capitalsurplus$1,155,812
—
—
—
—
—
—

$1,249,393
—
—
—
—
—
—

—
—

—
—

—
—
—
—
$1,155,812

Retainedearnings

Treasurystock$6,238,136 $(41,214)
1,126,880
—
—
—
—
—
—
(603)
—
—
(45,976)—(57,986)(57,986)(269,120)
—
—
—
—
—
—
—
$   980,273 $7,203,068$(23,802)
—
—
—
—
—
—

$(11,906)—(7,793)————$ (254)
—
—
—
—
—
—

—
—

—
—

—
—

—
—

—
(269,120)
—
—
—
—
—
—
—
—
—
—
$(41,817) $9,297,336 $1,234,024

—
—
4,517
—
$(19,285)————$(19,699)

—
—
—
1,760
$1,506———(28,594)(31,756)(31,756)
—
480
—
187
¥    — ¥1,114,975

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income (loss)
RemeasureTotal
Net
Foreignments of accumulated
Total
unrealized Net deferred currency
definedotherNonshareholders’ holding gains gains (losses) translation
benefit comprehensive controlling
equityon securities on hedges
adjustments
plansincome (loss) interests$8,602,127 $  914,748
1,126,880————
319,276(603)———(45,976)—(57,986)(57,986)

Total net
assetsTotal net
assets$  878,786 $ 298,880 $ 9,779,793——
1,126,880(7,793)—(7,793)319,276—
319,276
—
—
(603)
—
—
—
—
—
(45,976)————(57,986)(57,986)——(269,120)— (298,880)(298,880)
4,517
—
4,517
1,760
—
1,760
$1,196,546 $     — $10,493,882

See accompanying notes.

Sumitomo Realty & Development Co., Ltd.

37

Consolidated Statements of Cash Flows
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2018, 2017 and 2016

Millions of yen

Thousands of U.S. dollars (Note 1)

2018

2017

2016

2018

¥ 176,444
41,628
10,635
(525)
91
179
601
(963)
—
(8,484)
20,352(5,669)25,915(12,536)
17,076(6,648)258,096¥ 150,623
39,446
15,538
411
702
(12)
1,522
(43)
—
(6,707)
21,588
1,090
5,574(12,936)
7,816
5,029
229,641¥ 135,554
34,574
10,806(2,095)
(388)
(115)
1,146
(352)
466
(5,574)24,4897,442(51,302)(12,363)
10,981
9,119
162,388$ 1,660,649
391,793
100,094(4,941)
856
1,685
5,656
(9,064)—(79,849)
191,548(53,355)
243,906(117,986)
160,715(62,568)
2,429,139

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

8,484(20,395)(56,252)
189,933

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

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

79,849(191,953)(529,430)
1,787,605

Cash flows from investing activities:
Payments for purchases of property and equipment
Proceeds from sale of property and equipment
Payments for purchases of investments in securities
Proceeds from sale and redemption of investments in securities
Payments for guarantee and lease deposits paid to lessors
Proceeds from guarantee and lease deposits paid to lessors
Payments for guarantee and lease deposits received
Proceeds from guarantee and lease deposits received
Receipts of deposits from partnership investors
Restitution of deposits from partnership investors
Other, net
Net cash used in investing activities(220,017)
357(28,835)
2,197(1,317)28,462(11,276)
25,271
2,420(11,544)(6,252)(220,534)(254,931)
125(21,249)
1,858(1,720)8,361(11,260)
22,974
2,757(13,626)(7,451)(274,162)(91,297)404(18,118)
1,838(1,373)
4,658(12,400)
26,047721(24,835)
8,971(105,384)(2,070,749)
3,360(271,388)
20,678(12,395)
267,878(106,127)
237,845
22,776(108,649)(58,843)(2,075,614)(2,892)30,000(80,000)
1,700(1,700)376,000(209,622)
12,610(21,258)(3,000)(64)(12,337)(12,610)
20,000(20,000)
14,500(16,460)
520,200(296,737)
109,500(106,820)
(300)
(43)
(11,276)(8,282)40,000(60,000)
5,000(8,264)566,200(380,863)
39,600(61,518)(1,700)(88)(11,277)(27,219)282,353(752,941)
16,000(16,000)
3,538,824(1,972,913)
118,682(200,075)(28,235)(602)(116,113)(60,910)(2,066)
26,461—(1,957)
197,997—(73,827)
44,981(573,271)(19,445)
249,045

(124)

(388)

126

(1,168)Net increase (decrease) in cash and cash equivalents(4,264)

81,95535,830(40,132)

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

267,944

185,989

150,265

2,521,826(1,634)¥ 262,046—¥ 267,944(106)¥ 185,989(15,379)$ 2,466,315

Cash flows from operating activities:
Income before income taxes
Depreciation and amortization
Loss on impairment of fixed assets (Note 10)
Provision for (Reversal of ) allowance for doubtful accounts
Increase (Decrease) in net defined benefit liability
Loss (Gain) on sale of property and equipment, net
Loss on disposal of property and equipment
Loss (Gain) on sale of investments in securities, net
Loss (Gain) on devaluation of investments in securities
Interest and dividend income
Interest expense
Decrease (Increase) in notes and accounts receivable—trade
Decrease (Increase) in inventories
Increase (Decrease) in notes and accounts payable—trade
Increase (Decrease) in advances received
Other, net
		TotalCash flows from financing activities:
Increase (Decrease) in short-term debt, net
Proceeds from issuance of bonds
Redemption of bonds
Proceeds from non-recourse bonds
Redemption of non-recourse bonds
Proceeds from long-term loans payable
Repayment of long-term loans payable
Proceeds from long-term non-recourse loans
Repayment of long-term non-recourse loans
Increase (Decrease) in assignment of receivables
Decrease (Increase) in treasury stocks, net
Cash dividends paidPayments for purchases of investments in subsidiaries not resulting
in change in scope of consolidation
Other, net
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents

See accompanying notes.

38

Annual Report 2018 ｜ Financial Section

Notes to Consolidated Financial Statements
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
As of and for the years ended March 31, 2018, 2017 and 20161 B
 asis of presenting consolidated
financial statements
The accompanying consolidated financial statements of Sumitomo
Realty & Development Co., Ltd. (“the Company”) and its consolidated
subsidiaries have been prepared in accordance with the provisions set
forth in the Financial Instruments and Exchange Act and its related
accounting regulations, and in conformity with accounting principles
generally accepted in Japan (“Japanese GAAP”), which are different
in certain respects as to application and disclosure requirements fromInternational Financial Reporting Standards (“IFRS”).
The accounts of the Company’s overseas subsidiaries are basedon their accounting records maintained in conformity with generally
accepted accounting principles prevailing in the respective countriesof domicile. The accompanying consolidated financial statements havebeen restructured and translated into English (with certain expandeddisclosure) from the consolidated financial statements of the Company
prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by
the Financial Instruments and Exchange Act. Certain supplementary
information included in the statutory Japanese-language consolidated
financial statements, but not required for fair presentation, is notpresented in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars is
included solely for the convenience of readers outside Japan, using theprevailing exchange rate at March 31, 2018, which was ¥106.25 to
U.S. $1. The translation should not be construed as representations that
the Japanese yen amounts have been, could have been or could in the
future be converted into U.S. dollars at this or any other rate of exchange.

2 Accounting policies(1) Consolidation
The accompanying consolidated financial statements include theaccounts of the Company and significant companies over which theCompany has power of control through majority voting rights or existenceof certain conditions evidencing control by the Company.
In the elimination of investments in subsidiaries, the assets andliabilities of the subsidiaries, including the portion attributable to minority
shareholders, are recorded based on the fair value at the time theCompany acquired control of the respective subsidiaries.
All significant intercompany balances, transactions and profits havebeen eliminated in consolidation.

(2) Foreign currency translation
Receivables and payables denominated in foreign currencies are translated
into Japanese yen at the year-end rate.
Financial statements of consolidated overseas subsidiaries aretranslated into Japanese yen at the year-end rate, except for shareholders’equity accounts, which are translated at historical rates, and income
statement items resulting from transactions with the Company, which
are translated at the rates used by the Company.
Differences arising from translation are presented as “Foreign
currency translation adjustments” in net assets.

(3) Cash and cash equivalents
In preparing the consolidated statements of cash flows, cash on hand,readily available deposits and short-term, highly liquid investmentswith maturities not exceeding three months at the time of purchaseare considered to be cash and cash equivalents.

(4) Recognition of revenue
Revenues from sales operations of condominiums, detached houses andland lots are recognized when the units are delivered and customers
accepted the delivery. Revenues from leasing operations of officebuildings, residences and other properties are recognized as rent
accrues over the lease term.

(5) Inventories
Inventories are stated at cost, determined by the specific identification
method principally. The carrying amount of inventories is written downwhen the profitability declines.

(6) Securities
Held-to-maturity securities are stated at amortized cost. Investments
in subsidiaries and affiliates that are not consolidated or accounted forusing the equity method are stated at moving-average cost. Availablefor-sale securities with available fair values are stated at fair value.
Unrealized gains and losses on these securities are reported, net of
applicable income taxes, as a separate component of net assets. Realized
gains and losses on the sale of such securities are computed using
moving-average cost.
Preferred equity securities are stated at cost determined by the
specific identification method, and securities with no available fair value
are stated at moving-average cost.
Investments in limited partnerships, which are regarded as securities
under the Financial Instruments and Exchange Act, are accounted
for in a manner similar to the equity method based on the recent
financial statements.
If the market value of held-to-maturity securities, investments
in subsidiaries and affiliates and available-for-sale securities declines
significantly, such securities are stated at fair value and the difference
between fair value and the carrying amount is recognized as a loss
in the period of the decline. If the fair 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 the net asset value with a corresponding charge in theincome statement in the event net asset value declines significantly. In
these cases, such fair value or the net asset value will be the carrying
amount of the securities at the beginning of the next fiscal year.

Sumitomo Realty & Development Co., Ltd.

39

Notes to Consolidated Financial Statements(7) Property and equipment(13) Construction contracts

The Company and its consolidated domestic subsidiaries depreciatebuildings using the straight-line method, and other property and equipment (excluding facilities attached to buildings and structures acquiredon or after April 1, 2016) using the declining-balance method over theirestimated useful lives. The consolidated overseas subsidiaries depreciateproperty and equipment using primarily the straight-line method in
accordance with the accounting principles in the respective countries.
In addition, the Company and its consolidated domestic subsidiaries depreciate facilities attached to buildings and structures acquiredon or after April 1, 2016 using the straight-line method.
Leased assets related to finance lease transactions without title
transfer are depreciated using the straight-line method over the lease
periods as their useful lives with no residual value.
Estimated useful lives used in the computation of depreciation
are generally as follows:
Buildings and structures……………… 6 to 60 years
Machinery and equipment…………… 2 to 20 years
Leased assets…………………………………… Lease periods

The construction projects for which the outcome of the portion
completed by the end of the fiscal year under review can be reliably
estimated are accounted for by the percentage-of-completion method(the degree of completion of each construction project is estimatedusing the cost-comparison method), while other construction projects
are accounted for by the completed-contract method.

(8) Software costs
Software costs are amortized using the straight-line method over theestimated useful lives (five years).

(9) Allowance for doubtful accounts
The Company and its consolidated subsidiaries provide for doubtful
accounts at an estimated uncollectable amount based on the evaluationof certain identified doubtful and bankrupt receivables plus an amountcalculated using the percentage of actual collection losses in certain
reference periods with respect to remaining receivables.

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

(11) Income taxes
Income taxes are provided for on the basis of income for financial
statement purposes. The tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial statements
and income tax purposes are recognized as deferred income taxes.

(12) Employees’ severance and retirement benefits
The Company and its certain consolidated subsidiaries provide two
types of post-employment benefit plans, lump-sum payment plansand defined benefit corporate pension plans, under which all eligible
employees are entitled to benefits based on their current rate of pay,
length of service and the conditions under which termination occurs.
For the calculation of retirement benefit obligations, the estimatedamount of retirement benefits is allocated to the respective fiscal years
by the straight-line method.
Some of the Company’s consolidated subsidiaries calculate net
defined benefit liability and retirement benefit expenses by using
a simplified method in which retirement benefit obligations are equal
to the amount that would be paid if all employees resigned voluntarily
at the end of the fiscal year.
Prior service costs are recognized as expenses in the period inwhich they are incurred, and actuarial gains and losses are recognized
as expenses in the following period.

40

Annual Report 2018 ｜ Financial Section(14) Derivative transactions and hedge accounting
The Company and its consolidated subsidiaries state derivative financial
instruments at fair value and recognize changes in the fair value as gains
or losses unless derivative financial instruments are used for hedging
purposes and qualify for hedge accounting.
If derivative financial instruments are used as hedges and meetcertain hedging criteria, the Company and its consolidated subsidiaries
defer recognition of gains or losses resulting from changes in fair valueof the derivative financial instruments until the related gains or losseson the hedged items are recognized.
However, in cases where foreign exchange forward contracts areused as hedges and meet certain hedging criteria (regarding foreignexchange contracts), the foreign exchange forward contracts andhedged items are 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 thehedged foreign currency receivable or payable translated using
the spot rate at the inception date of the contract and the carrying
amount of the receivable or payable is recognized in the income
statement in the period which includes the inception date; and(b) t he discount or premium on the contract (that is, the difference
between the Japanese yen amount of the contract translatedusing the contracted forward rate and that translated using the
spot rate at the inception date of the contract) is recognizedover the term of the contract.
2. If a foreign exchange forward contract is executed to hedge a futuretransaction denominated in a foreign currency, the future transaction
will be recorded using the contracted forward rate, and no gains orlosses on the foreign exchange forward contract are recognized.
  	 Also, if interest rate swap contracts are used as a hedge and meetcertain hedging criteria (regarding interest rate swap contracts), the net
amount to be paid or received under the interest rate swap contracts
is added to or deducted from the interest on the assets or liabilities
relative to which the swap contract was executed as a hedge.

(15) Amounts per share of common stock
The computation of earnings per share is based on the weighted-average
number of shares of common stock outstanding during each year.
Diluted earnings per share is computed based on the amount of
profit attributable to owners of parent on common stock and theweighted-average number of shares of common stock outstanding
during each year after giving effect to the dilutive potential of shares ofcommon stock to be issued upon the exercise of stock options.
Diluted earnings per share is not presented as there are no potential shares.
Cash dividends per share represent actual amounts applicable to
the respective year.

Notes to Consolidated Financial Statements(16) New accounting pronouncements (Accounting standards
and guidance issued but not yet effective)“Implementation Guidance on Tax Effect Accounting” (ASBJ Guidance
No. 28, February 16, 2018)“Implementation Guidance on Recoverability of Deferred Tax Assets”(ASBJ Guidance No. 26 (revised in 2018), February 16, 2018)(1) Overview
The guidance was revised in regard to the treatments for taxable
temporary differences for investments in subsidiaries within the context
of non-consolidated financial statements, and to clarify the treatments
in determining recoverability of deferred tax assets in a company
which was categorized as ‘Type 1’ according to the guidance.
(2) Effective date
Effective from the beginning of the fiscal year ending March 31, 2019(3) Effects of the application of the standards
The Company and its consolidated domestic subsidiaries are
currently in the process of determining the effects of these newstandards on the consolidated financial statements.

“Accounting Standard for Revenue Recognition” (ASBJ Statement
No. 29, March 30, 2018)“Implementation Guidance on Accounting Standard for Revenue
Recognition” (ASBJ Guidance No. 30, March 30, 2018)(1) Overview
The standard and guidance provide comprehensive principles forrevenue recognition. Under the standard and guidance, revenue isrecognized by applying the following 5 steps:
Step 1: Identify contract(s) with customers
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligationin the contract
Step 5: Recognize revenue when (or as) the entity satisfies a
performance obligation(2) Effective date
Effective from the beginning of the fiscal year ending March 31, 2022(3) Effects of the application of the standards
The Company and its consolidated domestic subsidiaries are
currently in the process of determining the effects of these newstandards on the consolidated financial statements.

3 Cash and cash equivalents
Cash and cash equivalents at March 31, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

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

2018

2017

2018

¥263,210(1,164)¥262,046¥269,312(1,368)¥267,944$2,477,271(10,956)$2,466,315

4 Inventories
Inventories at March 31, 2018 and 2017 are as follows:

Thousands of
U.S. dollars

Millions of yen

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

2018

2017

2018

¥380,736
395,730
5,015
1,827¥783,308¥345,185
492,340
6,023
1,666¥845,214$3,583,398
3,724,518
47,20017,195$7,372,311

The Company transferred amounts between inventories and property and equipment. Such transfers at March 31, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

Inventories:
Transferred to property and equipment
Transferred to other assets
Transferred from property and equipment
Net decrease

2018

2017

2018

¥(38,047)—
2,490¥(35,557)¥(5,140)(88)
603¥(4,625)$(358,089)—
23,435$(334,654)

Sumitomo Realty & Development Co., Ltd.

41

Notes to Consolidated Financial Statements

5 Pledged assets
Assets pledged as collateral at March 31, 2018 and 2017 are as follows:

Thousands of
U.S. dollars

Millions of yen

Cash, time and notice deposits
Buildings and structures
Land
Construction in progress
Machinery and equipment
Total

2018

2017

2018

¥  2,081
108,319
393,31699
268¥504,083¥  2,081
110,668
393,31674
285¥506,424$   19,586
1,019,473
3,701,798
932
2,522$4,744,311

Secured liabilities at March 31, 2018 and 2017 are as follows:

Thousands of
U.S. dollars

Millions of yen

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

2018

2017

2018

¥ 49,410
361,289¥410,699¥ 22,958
396,389¥419,347$  465,035
3,400,367$3,865,402

Specified assets for non-recourse debts at March 31, 2018 and 2017 are as follows:

Thousands of
U.S. dollars

Millions of yen

Cash, time and notice deposits
Buildings and structures
Land
Construction in progress
Machinery and equipment
Total

2018

2017

2018

¥ 10,652
108,319
393,31699
268¥512,654¥  9,542
110,668
393,31674
285¥513,885$  100,254
1,019,473
3,701,798
932
2,522$4,824,979(Note) “Specified assets for non-recourse debts” includes a portion of the amount of “Assets pledged as collateral” for the years ended March 31, 2018 and 2017.

6 Financial instruments
1. Policy for financial instruments
The Company and its consolidated subsidiaries (“the Group”) have thepolicy to limit its fund management to short-term deposits with funds
through loans from banks and the issuance of corporate bonds andcommercial paper.
The Group utilizes derivative financial instruments only for the
purpose of hedging the foreign exchange risk associated with foreign
currency-denominated transactions or hedging the interest rate risk
associated with the Group’s loans payable, and does not utilize derivative
financial instruments for any speculative purposes.

2. Details of financial instruments, risks, and policies andsystems of risk management
Operating receivables such as notes and accounts receivable—tradeare exposed to customers’ credit risk, but this risk is generally avoided
through the receipt of deposits.
Investments in securities are business-related equities and are
exposed to market price fluctuation risk. The Group regularly checks
the market value of the securities and the financial condition of theissuers, and continuously reviews whether it continues to hold securities
with consideration for its relationships with the issuers.
Guarantee and lease deposits are mostly deposits related to leasing
properties, and are exposed to the counterparty credit risk.
In addition, the Group accommodates counterparties with loans
and consequently is exposed to the borrowers’ credit risk. However,the Group constantly checks the financial condition of principal
borrowers and their performance using the funds lent to thoseborrowers even after accommodation.
The majority of due dates of operating debt, such as notes andaccounts payable, are within one year.
Interest rate swap contracts are used to hedge risks arising fromfluctuations in interest rates on certain loans, and corporate bonds.

42

Annual Report 2018 ｜ Financial Section

In regard to derivative transactions, the Group utilizes interest
rate swaps for bank loans and deposits, and utilizes foreign exchange
forward contracts and cross currency swap contracts for foreign
currency-denominated transactions. Interest rate swap contracts are
exposed to the risks of interest rate changes, and foreign exchange
forward contracts and cross currency swap contracts are exposed to
the risks of foreign exchange rate changes. The derivative financial
instruments are executed with creditworthy financial institutions, and
the Group’s management believes there is insignificant risk of default
by counterparties. Derivative transactions are executed by the Group’s
Finance Department in accordance with the decisions of a committee
whose chairman is the director of the Finance Department. The Finance
Department prepares reports on derivative transactions that are provided
to the director of the Finance Department periodically.

3. Supplemental information on fair values of financial
instruments
The fair values of financial instruments are based on their market
prices, and if the market price is not available, other rational valuation
techniques are used instead. The rational valuation techniques incorporate variable factors, and as a result the values may change due tousing different assumptions.
The amounts of derivative transactions shown in Note 17 “Derivative transactions” are not representing the market risks related toderivative transactions.
The carrying amounts of financial instruments on the consolidatedbalance sheets, their fair values and the differences between themas of March 31, 2018 and 2017 are as follows. (Financial instruments
whose fair value is extremely difficult to estimate are not included;
please see (Note 2).)

Notes to Consolidated Financial Statements

For 2018
Assets:(1) Cash, time and notice deposits(2) Notes and accounts receivable—trade(3) Investments in securities
Available-for-sale securities(4) Guarantee and lease deposits
Held-to-maturity securities
Available-for-sale securities
Total assets
Liabilities:(1) Notes and accounts payable—trade(2) Short-term debt
(3) Long-term debt (including due within one year)(4) Long-term non-recourse debt (including due within one year)
Total liabilities
Derivative transactions*:
Hedge accounting
Total derivative transactions

Millions of yen

Carrying amount

Fair value¥  263,210
23,773¥  263,210
23,773417,841

Thousands of U.S. dollars

Difference

Carrying amount

Fair value¥    ——$ 2,477,271
223,746$ 2,477,271
223,746$     ——

417,841—

3,932,621

3,932,621

—

789
1,180
¥  706,793

791
1,180
¥  706,795

2—¥     2

7,426
11,106$ 6,652,170

7,445
11,106$ 6,652,18919—$     19¥   28,751
61,4163,001,398
410,699¥3,502,264¥   28,751
61,416
3,032,800
415,716¥3,538,683¥    ——
31,402
5,017¥36,419$   270,598
578,033
28,248,452
3,865,402$32,962,485$   270,598
578,033
28,544,000
3,912,621$33,305,252$     ——
295,548
47,219$342,767¥       (2,983)¥       (2,983)¥       (2,983)¥       (2,983)¥    —¥    —$      (28,075)$      (28,075)$      (28,075)$      (28,075)$     —
$     —For 2017

Millions of yen

Carrying amount

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

Difference

Fair value

Difference¥  269,312
18,475¥  269,312
18,475¥    ——

344,577

344,577

—

1,313
1,193
¥  634,870

1,319
1,193
¥  634,876

6—¥     6¥   41,374
66,1082,885,019
419,347¥3,411,848¥   41,374
66,1082,911,058
424,954¥3,443,494¥    ——
26,0395,607¥31,646¥      (3,702)¥      (3,702)¥      (3,702)¥      (3,702)¥    —¥    —* Derivative transactions are stated at net of assets and liabilities. Figures in parentheses indicate net liabilities.

Sumitomo Realty & Development Co., Ltd.

43

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

Assets:(1) Cash, time and notice deposits
The fair value of cash, time and notice deposits approximates theircarrying amounts because of their short-term maturities.
(2) Notes and accounts receivable—trade
The fair value of notes and accounts receivable—trade approximates
their carrying amounts unless the credit standing of debtors haschanged significantly since the loan origination.
The allowance for doubtful receivables is estimated based on
expected recoverable amounts, considering the possibility of individualcollections. Therefore the fair value of doubtful receivables approximates the carrying amount deducted by the estimated allowance for
doubtful accounts on the consolidated balance sheets as of the end of
the fiscal year.
(3) Investments in securities
The fair value of listed shares is based on the exchange prices at market.
For floating rate notes, the carrying amount is presented as the fair value,as the fair value approximates the carrying amount because the market
interest rate is reflected in such notes within a short time period. The fairvalue of the fixed-coupon debt is determined based on the present value
discounted at the interest rate which reflects the period remaining tomaturity and the credit risk.
For notes on securities classified by purpose of holding, please
see Note 7 “Securities.”(4) Guarantee and lease deposits
The fair value of guarantee and lease deposits are based on the value
offered by correspondent financial institutions.
For notes on securities classified by purpose of holding, please
see Note 7 “Securities.”

Liabilities:(1) Notes and accounts payable—trade and (2) Short-term debt
The fair value of these items approximates their carrying amounts
because of their short-term maturities.
(3) Long-term debt (including due within one year)
For floating rate notes, the carrying amount is used as the fair value
because the market interest rate is reflected in such notes within ashort time period and because the credit standing of the Company
is the same after borrowing. The fixed-coupon debt is calculated bydiscounting the combined total of principal and interest at an interest
rate assumed for similar new borrowings.
The specific matching criteria of interest rate swaps and crosscurrency interest rate swaps are applicable to some long-term debts
with floating interest rates (please see Note 17 “Derivative transactions”).
The fair value of these items is calculated by discounting the combined
total of interest and principal, with which the interest rate swap andcross currency interest rate swap have been accounted for, at an interest
rate rationally estimated for similar borrowings.
The fair value of corporate bonds issued by the Company(included in (3) Long-term debt (including due within one year)) isbased on the market price.
(4) Long-term non-recourse debt (including due within one year)
For floating rate notes, the carrying amount is used as the fair value
because the market interest rate is reflected in such notes within ashort time period and the value of its non-exempt properties has notbeen changed.
The fixed-coupon debt is calculated by discounting the combined
total of principal and interest at an interest rate assumed for similar
new borrowings or bonds.
The specific matching criteria of interest rate swaps are applicable
to some long-term non-recourse debts with floating interest rates(please see Note 17 “Derivative transactions”). The fair value of these
items is calculated by discounting the combined total of interest andprincipal, with which the interest rate swap has been accounted for, at
an interest rate rationally estimated for similar borrowings or bonds.

Derivative transactions:
Please see Note 17 “Derivative transactions.”(Note 2) Financial instruments whose fair value is extremely difficult to estimate

Carrying amountThousands of
U.S. dollars

Millions of yen

Investments in subsidiaries and affiliates*1
Unlisted equity securities*1
Preferred equity securities, etc.*1
Investments in limited partnerships, etc.*1
Guarantee and lease deposits (excluding held-to-maturity securities and available-for-sale securities)*2
Guarantee and deposits received*3

2018

2017

2018

¥ 42,745
1,297
25,338352
69,095
207,824¥ 42,734
1,402
21,638852
94,819193,111$  402,306
12,207
238,475
3,313
650,306
1,955,991* 1 . The fair value of these items are not disclosed since their market price is unavailable and the assessment of their fair value is deemed extremely difficult.
*2.	Guarantee and lease deposits (excluding held-to-maturity securities and available-for-sale securities) are not included in “Assets (4) Guarantee and lease deposits”
because their remaining terms cannot be determined and the assessment of their fair value is deemed extremely difficult.
*3.	The fair value of guarantee and deposits received (mainly consisting of lease deposits) are not disclosed because their remaining terms cannot be determined and theassessment of their fair value is deemed extremely difficult.

44

Annual Report 2018 ｜ Financial Section

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

For 2018

Millions of yen

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

1 year or less

1 to 5 years

5 to 10 years

Over 10 years¥263,210
23,773

¥   —
—

¥ —
—

¥—
—

328
—
¥287,311

462
842¥1,304

—
298
¥298

—
—
¥—

1 year or less

1 to 5 years

5 to 10 years

Over 10 years¥269,312
18,475

¥   —
—

¥ —
—

¥—
—

525
—
¥288,312

790
731¥1,521

—
409
¥409

—
—
¥—

1 year or less

1 to 5 years

5 to 10 years

Over 10 years$2,477,271$    —$   —$—

223,746

—

—

—

3,087
—

4,348
7,925

—
2,805

—
—

$2,704,104$12,273$2,805$—

For 2017
Millions of yen

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

For 2018
Thousands of U.S. dollars

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

For 2018

Millions of yen
Year ending March 31

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

2019

2020

2021

2022

2023

2024 and thereafter¥ 61,416
275,752
49,410¥386,578¥     —
169,619
101,514¥271,133¥     —
131,281
69,129¥200,410¥     —
221,256
14,160¥235,416¥     —
237,196
2,716¥239,912¥     —
1,966,294
173,770¥2,140,064

2018

2019

2020

2021

2022

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

2019

2020

2021

2022

2023

2024 and thereafter$  578,033
2,595,313
465,035$3,638,381$      —1,596,414
955,426$2,551,840$      —1,235,586
650,626$1,886,212$      —2,082,409
133,271$2,215,680$      —2,232,433
25,562$2,257,995$       —18,506,297
1,635,482$20,141,779

For 2017
Millions of yen
Year ending March 31

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

For 2018
Thousands of U.S. dollars
Year ending March 31

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

Sumitomo Realty & Development Co., Ltd.

45

Notes to Consolidated Financial Statements

7 Securities
For 2018
A. The following tables summarize the acquisition costs, carrying amounts and fair values of securities with available fair values as of March 31, 2018:(a) Held-to-maturity securities:
Millions of yen

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

Fair value

Difference

Carrying amount

Fair value

Difference

¥789

¥791

¥2

$7,426$7,445

$19

—
¥789

—
¥791

—
¥2

—
$7,426—$7,445—$19

Carrying amount

Acquisition cost

Difference

Carrying amount

Acquisition cost

Difference¥394,231
1,180—
395,411¥202,083
1,140—
203,223¥192,14840—
192,188$3,710,409
11,106—
3,721,515$1,901,958
10,729—1,912,687$1,808,451
377—
1,808,828

23,281—
329
23,610¥419,021

26,368—329
26,697¥229,920(3,087)——(3,087)¥189,101

219,115—
3,097
222,212$3,943,727

248,169—3,097
251,266$2,163,953(29,054)——(29,054)$1,779,774(b) Available-for-sale securities:

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

Thousands of U.S. dollars

Carrying amountMillions of yen

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

B. Total sales of available-for-sale securities sold in the year ended March 31, 2018 amounted to ¥1,663 million ($15,652 thousand) and the related
gains and losses amounted to ¥1,010 million ($9,506 thousand) and ¥47 million ($442 thousand), respectively.

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

Carrying amount

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

Difference¥1,313¥1,319¥6—¥1,313—¥1,319—¥6

Carrying amount

Acquisition cost

¥302,228
1,193—
303,421¥156,391
1,140—
157,531¥145,83753—
145,890

41,986—363
42,349¥345,770

47,682—373
48,055¥205,586(5,696)—(10)(5,706)¥140,184(b) Available-for-sale securities:

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

Fair value

Millions of yen

Difference*D ebt securities in securities whose carrying amount exceeds acquisition cost are included in “Guarantee and lease deposits paid to lessors” on the consolidated balance sheets.

B. Total sales of available-for-sale securities sold in the year ended March 31, 2017 amounted to ¥590 million and the related gains amounted to¥43 million.

46

Annual Report 2018 ｜ Financial Section

Notes to Consolidated Financial Statements

8 Short-term debt and long-term debt
Short-term debt at March 31, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Loans, principally from banks
Commercial paper
Total

2018

Average interest
rate (%)

2017

Average interest
rate (%)

2018¥61,416—¥61,4160.25—¥66,108—¥66,108

0.26—$578,033—$578,033

The interest rates represent weighted-average rates in effect at March 31, 2018 and 2017, regardless of borrowing currencies, though the rangeof the interest rate varies by borrowing currency.
Long-term debt at March 31, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2.50% domestic straight bonds, due 2019
0.75% domestic straight bonds, due 20170.55% domestic straight bonds, due 2017
0.50% domestic straight bonds, due 2017
0.50% domestic straight bonds, due 2017
0.486% domestic straight bonds, due 20170.444% domestic straight bonds, due 2017
0.388% domestic straight bonds, due 2018
0.329% domestic straight bonds, due 2018
0.563% domestic straight bonds, due 2020
0.877% domestic straight bonds, due 2020
0.462% domestic straight bonds, due 2018
1.098% domestic straight bonds, due 2023
0.426% domestic straight bonds, due 2018
0.355% domestic straight bonds, due 2018
0.950% domestic straight bonds, due 2023
0.344% domestic straight bonds, due 2018
0.968% domestic straight bonds, due 2023
0.987% domestic straight bonds, due 2024
0.914% domestic straight bonds, due 2024
0.904% domestic straight bonds, due 2024
0.884% domestic straight bonds, due 2024
0.836% domestic straight bonds, due 2024
0.809% domestic straight bonds, due 2024
0.429% domestic straight bonds, due 2021
0.392% domestic straight bonds, due 2022
0.670% domestic straight bonds, due 2025
0.826% domestic straight bonds, due 2025
0.992% domestic straight bonds, due 2025
0.400% domestic straight bonds, due 2026
0.230% domestic straight bonds, due 2026
0.400% domestic straight bonds, due 2027
Loans, principally from banks and insurance companies, with interest at weighted-average rates of 0.32%
in 2018 and 2017, respectively:
SecuredUnsecured
Subtotal
Amount due within one year
Total

2018

2017

2018

¥   10,000
—
—
—
—
—
—
—

¥   10,000
10,00010,00010,00010,00010,00010,00020,000$    94,118
—
—
—
—
—
—
—

10,00010,00020,00010,00010,00020,00010,00010,00010,00010,00020,00020,00020,00020,00020,00020,00010,00010,00010,00020,00020,00010,00010,00030,00010,00010,00020,00010,00010,00020,00010,00010,00010,00010,00020,00020,00020,00020,00020,00020,00010,00010,00010,00020,00020,00010,00010,000—94,118
94,118188,235
94,118
94,118188,235
94,118
94,118
94,118
94,118188,235
188,235
188,235
188,235
188,235
188,235
94,118
94,118
94,118188,235
188,235
94,118
94,118282,353—
2,631,398
3,001,398(275,752)¥2,725,646—
2,465,019
2,885,019(289,622)¥2,595,397—
24,766,097
28,248,452(2,595,313)$25,653,139

Sumitomo Realty & Development Co., Ltd.

47

Notes to Consolidated Financial Statements

Non-recourse debt at March 31, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Non-recourse bonds, with interest at weighted-average rates of 0.11% in 2018 and 0.13% in 2017:
Due within one year
Due after one year
Subtotal
Non-recourse loans, with interest at weighted-average rates of 0.15% in 2018 and 0.18% in 2017:
Due within one year
Due after one year
Subtotal
Total
SecuredUnsecured
Total

2018

2017

2018

¥  4,900
34,20039,100¥  1,700
37,40039,100$   46,118
321,882
368,000

44,510327,089
371,599
410,699

21,258358,989
380,247
419,347

418,918
3,078,484
3,497,402
3,865,402

410,699—¥410,699

419,347—¥419,347

3,865,402—$3,865,402

The aggregate annual maturities of long-term debt at March 31, 2018 are as follows:Year ending March 31

Millions of yen

2019
2020
2021
2022
2023
2024 and thereafter
Total¥  275,752
169,619
131,281
221,256
237,196
1,966,294¥3,001,398

Thousands of
U.S. dollars$ 2,595,313
1,596,414
1,235,586
2,082,409
2,232,433
18,506,297$28,248,452

The aggregate annual maturities of non-recourse debt at March 31, 2018 are as follows:Year ending March 31

Millions of yen

Thousands of
U.S. dollars

2019
2020
2021
2022
2023
2024 and thereafter
Total¥ 49,410
101,514
69,12914,1602,716
173,770¥410,699$  465,035
955,426
650,626
133,271
25,562
1,635,482$3,865,402

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

48

Annual Report 2018 ｜ Financial Section

Notes to Consolidated Financial Statements

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

For 2018 and 2017
1. Defined benefit plan
(1) Adjustment table of retirement benefit obligations between the beginning and the end of the fiscal year

Thousands of
U.S. dollars

Millions of yen

Retirement benefit obligations at beginning of year
Service costs
Interest costs
Actuarial differences
Retirement benefits paid
Retirement benefit obligations at end of year

2018

2017

2018

¥11,316
717
47
(53)
(412)
¥11,615¥10,851
709
45
157
(446)
¥11,316$106,504
6,748
442
(499)
(3,878)$109,317(2) Adjustment table of plan assets between the beginning and the end of the fiscal year

Thousands of
U.S. dollars

Millions of yen

Plan assets at beginning of year
Expected return on plan assets
Actuarial differences
Employer contributions
Retirement benefits paid
Plan assets at end of year

2018

2017

2018

¥5,172
103
176
398
(199)
¥5,650¥4,770
95
116
406
(215)
¥5,172$48,678
969
1,656
3,746
(1,873)$53,176(3) Adjustment table of retirement benefit obligations and plan assets at the end of the fiscal year and net defined benefit liability on the consolidated balance sheets
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Obligations under retirement benefit plans (unfunded)
Net amount of liabilities on the consolidated balance sheets¥ 6,241(5,650)
591
5,374
5,965

¥ 6,184(5,172)
1,012
5,132
6,144

$ 58,738(53,176)
5,562
50,57956,141

Net defined benefit liability
Net amount of liabilities on the consolidated balance sheets

5,965¥ 5,965

6,144¥ 6,144

56,141$ 56,141

Obligations under retirement benefit plans (funded)
Fair value of plan assets(4) Components of retirement benefit expenses

Thousands of
U.S. dollars

Millions of yen

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

2018

2017

2018

¥ 717
47
(103)
41
¥ 702

¥  70945(95)
681¥1,340$6,748
442
(969)
386
$6,607(5) Remeasurements of defined benefit plans (before deducting tax effect)

Thousands of
U.S. dollars

Millions of yen

Actuarial differences
Total

2018

2017

2018

¥(270)¥(270)¥(640)¥(640)$(2,541)$(2,541)

Sumitomo Realty & Development Co., Ltd.

49

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

Thousands of
U.S. dollars

Millions of yen

Unrecognized actuarial differences
Total

2018

2017

2018

¥(229)¥(229)¥41¥41$(2,155)$(2,155)(7) Major breakdown of plan assets

Debt securities
Equity securities
General life insurance accounts
Other
Total

2018

2017

26.8%
34.4
37.7
1.1
100.0%

25.3%
34.2
39.0
1.5
100.0%

2018

2017

0.4%
2.0

0.4%
2.0

(8) Actuarial assumptions

Discount rate
Rate of expected return on plan assets

2. Defined contribution plan
The required contribution amount for a defined contribution plan that one of the Company’s consolidated subsidiaries adopted is ¥380 million($3,576 thousand) and ¥368 million for the years ended March 31, 2018 and 2017, respectively.

10 Loss on impairment of fixed assets
The Company and its consolidated domestic subsidiaries recognized impairment losses on the following assets for the years ended March 31, 2018,2017 and 2016, respectively.

For 2018
Use

Location

Number of properties

Asset leased to others

Tokyo

1

Use

Location

Number of properties

Land for development

Tokyo, etc.

For 2017

5

For 2016
Use

Location

Land for development

Tokyo, etc.

The Company and its consolidated domestic subsidiaries recognized losses on the impairment of certain properties, which are generally
assessed individually for impairment. The Company’s houses aretreated as common assets.
The carrying value of the asset has been reduced to its recoverable
amount by ¥10,635 million ($100,094 thousand) since the total amountof its future cash flow is estimated to be less than the carrying value
for the year ended March 31, 2018. The recoverable amount is calculatedby discounting the future cash flow at 4.0%.
The carrying values of the land holdings summarized above havebeen reduced to their recoverable amounts by ¥15,538 million and

50

Annual Report 2018 ｜ Financial Section

Number of properties

8¥10,806 million as a result of mainly the determination of reviewing theirbusiness plans for the years ended March 31, 2017 and 2016, respectively.
These write-downs were recognized as impairment losses inother expenses.
The recoverable amounts of these assets for the years ended
March 31, 2017 and 2016 were determined as the net disposal value.
The net disposal value for land for leased buildings and land for development are based on the amount equivalent to the publicly notified
land price.

Notes to Consolidated Financial Statements

11 Asset retirement obligations
Even though removing asbestos is required for some buildings theCompany and its consolidated subsidiaries (“the Group”) operate at
the time of demolishing, it is difficult to estimate the fair value of obligations associated with such assets reasonably since the timing and/or method of settlement for the retirement obligations are not clear
enough. Therefore, for the years ended March 31, 2018 and 2017,asset retirement obligations related to such a case are not recorded(except for the asset retirement obligations recorded on the financial
statements).

In addition, under the partial lease contracts, the Group has obligations for restoring office spaces when they move out. For the asset
retirement obligations associated with such a case, the duration of useof the assets is not clear enough and these assets do not have any
relocation plans. Therefore, the Group is unable to estimate the asset
retirement obligations since it is difficult to estimate the timing of
fulfillment of the obligations. Consequently, for the years ended March
31, 2018 and 2017, asset retirement obligations related to such a caseare not recorded (except for the asset retirement obligations recordedon the financial statements).

12 Income taxes
The normal effective statutory income tax rate in Japan arising out of the aggregation of corporate, enterprise and inhabitants’ taxes was approximately 30.86% for the years ended March 31, 2018 and 2017, and 33.06% for the year ended March 31, 2016.
Details of deferred tax assets and liabilities at March 31, 2018 and 2017 are as follows:

Thousands of
U.S. dollars

Millions of yen

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

2018

2017

2018

¥ 17,146
10,885
7,977
3,521
2,165
1,939
1,873
1,739
1,413
951
943
844

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

$ 161,374
102,447
75,07833,13920,376
18,24917,62816,367
13,299
8,951
8,875
7,944

12,85164,247(6,824)¥ 57,423

9,820
55,861(4,379)¥ 51,482

120,951604,678(64,226)$ 540,452¥(57,916)(3,731)(738)¥(62,385)¥ (4,962)¥(42,931)(3,731)(636)¥(47,298)¥  4,184$(545,092)(35,115)(6,946)$(587,153)$ (46,701)

Sumitomo Realty & Development Co., Ltd.

51

Notes to Consolidated Financial Statements

The difference between the statutory tax rate and the effective tax rate for the years ended March 31, 2018 and 2016 was insignificant andnot presented.
The difference between the statutory tax rate and the effective tax rate for the year ended March 31, 2017 is as follows:2017
Statutory tax rate
Adjustment:
Tax credit
Dividends and other income not taxable permanently
Elimination of dividend income
Inhabitant tax on per capita basis
Other
Effective tax rate

30.86%(1.89)(0.70)
0.41
0.21
0.07
28.96%

13 Business Combination(Transactions conducted by commonly controlled entities)
1. Overview of business combination(1) Name and business of the Target Company
Name: Sumitomo Real Estate Sales Co., Ltd.
Business: Brokerage, Consignment sales, Property leasing, Sales, Others(2) Date of business combination
Date of acquisition through the Tender Offer: May 11, 2017 (Deemed acquisition date: June 30, 2017)
Date of acquisition through the Demand for Sale of Shares: June 7, 2017 (Deemed acquisition date: June 30, 2017)(3) Legal form of business combination
Acquisition of shares with cash as consideration(4) Name of the Target Company after the combination
No change(5) C hange in ownership ratio of shares
Number of voting rights represented by shares held by the Company before business combination
70.38%
Number of voting rights represented by shares held by the Company after the Tender Offer
97.24%
Number of voting rights represented by shares held by the Company after the Demand for Sale of Shares
100.00%(6) Other matters concerning business combination
The Company acquired the shares to strengthen the Group’s management foundations.
2. Overview of accounting treatments
The transaction is treated as a common control transaction pursuant to the Accounting Standard for Business Combinations (ASBJ Statement No. 21, September 13, 2013), as well as the Guidance on Accounting Standard for Business Combinations and Accounting Standard forBusiness Divestitures (ASBJ Guidance No. 10, September 13, 2013).
3. Acquisition cost and consideration paid (including both of the Tender Offer and the Demand for Sale of Shares)
Consideration paid for acquisition
Cash¥60,910 million ($573,271 thousand)Acquisition cost		
¥60,910 million ($573,271 thousand)
4. Information relating to changes in shares arising from transactions with non-controlling shareholders(1) Main cause of changes in capital surplus
Additional acquisition of shares in the subsidiary(2) Decrease in capital surplus arising from transactions with non-controlling shareholders¥28,594 million ($269,120 thousand)52

Annual Report 2018 ｜ Financial Section

Notes to Consolidated Financial Statements

14 Deposits received and accounts payable with interest rate
Guarantee and deposits received at March 31, 2018 and 2017 are as follows:

Thousands of
U.S. dollars

Millions of yen

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

2018

Average interest
rate (%)

2017

Average interest
rate (%)

2018¥ 60,382—
60,382—¥ 68,861—
68,861—$  568,301—
568,301

207,824—
59,391—
267,215

193,111——56,992—
250,103———¥318,964¥327,597

Thousands of
U.S. dollars

Millions of yen

Due within one year
Due after one year
Total

2018
¥1,543—¥1,5430.98—

558,974—
2,514,965$3,083,266

Accounts payable with interest rate at March 31, 2018 and 2017 are as follows:
Average interest
rate (%)

1,955,991—

2017

Average interest
rate (%)

2018¥1,544
1,543¥3,0870.98
0.98$14,522—$14,522(Note) Accounts payable due within one year are included in “Other current liabilities” and accounts payable due after one year are included in “Other long-term liabilities” on
the consolidated balance sheets.

The aggregate annual maturities of accounts payable at March 31, 2018 are as follows:Year ending March 31

2019
2020
2021
2022
2023
2024 and thereafter
Total

15 Net assets
Under the Japanese Corporate Law (“the Law”) and its regulations, theentire amount paid for new shares is required to be designated as common
stock. However, a company may, by a resolution of the Board of Directors,
designate an amount not exceeding one-half of the price of the newshares as additional paid-in capital, which is included in capital surplus.
Under the Law, in cases where a dividend distribution of surplus
is made, the smaller of an amount equal to 10% of the dividend or
the excess, if any, of 25% of common stock over the total of additional
paid-in capital and legal earnings reserve must be set aside as additional
paid-in capital or legal earnings reserve. Legal earnings reserve is included
in retained earnings on the accompanying consolidated balance sheets.

Millions of yen¥1,543—————¥1,543Thousands of
U.S. dollars$14,522—————$14,522

Under the Law, legal earnings reserve and additional paid-in capital
could be used to eliminate or reduce a deficit and capitalized by aresolution of the shareholders’ meeting.
Additional paid-in capital and legal earnings reserve may not be
distributed as dividends. Under the Law, all additional paid-in capital andall legal earnings reserve may be transferred to other capital surplus
and retained earnings, respectively, which are potentially available
for dividends.
The maximum amount that the Company can distribute as
dividends is calculated based on the non-consolidated financial statements of the Company in accordance with the Law and its regulations.

Sumitomo Realty & Development Co., Ltd.

53

Notes to Consolidated Financial Statements

16 Information for certain lease transactions
Future lease payments and receipts under such non-cancelable operating leases at March 31, 2018, 2017 and 2016 are as follows:
Thousands of
U.S. dollars

Millions of yen

2018

2017

2016

2018

Operating leases:
Future lease payments:
		 Due within one year
		 Due after one year
Total¥  1,401
38,241¥ 39,642¥  1,387
39,053¥ 40,440¥  1,116
16,962¥ 18,078$   13,186
359,915$  373,101

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

¥ 83,254
153,777¥237,031¥ 86,294
138,086¥224,380¥ 73,456
111,546¥185,002$  783,567
1,447,313$2,230,880

17 Derivative transactions
Hedge accounting was applied to all derivative transactions for the years ended March 31, 2018 and 2017.
The summary of these transactions is as follows:

For 2018(1) Foreign currency-related derivatives
Millions of yen

Hedging accounting

Types of derivative transactions

Hedged items

Deferred hedge
accounting

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

Foreign currency-denominated transactions

Contract amounts

Contract amounts due
after one year

Fair value¥15,105¥—¥133

Thousands of U.S. dollars

Hedging accounting

Types of derivative transactions

Hedged items

Deferred hedge
accounting

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

Foreign currency-denominated transactions

Contract amounts

Contract amounts due
after one year

Fair value$142,165$—$1,252Contract amounts

Contract amounts due
after one year

Fair value¥  243,800¥  233,800¥(3,116)

1,577,137

1,454,966

—(*)

3,000

—

—(*)

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

(2) Interest-related derivatives
Millions of yen

Hedging accounting

Types of derivative transactionsDeferred hedge
accounting

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

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

Hedged items

Bank loans
Bank loans and bonds
Foreign currency-denominated loans

Thousands of U.S. dollars

Hedging accounting

Types of derivative transactionsDeferred hedge
accounting

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

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

Hedged items

Bank loans
Bank loans and bonds

Contract amounts

Contract amounts due
after one year

Fair value$ 2,294,588$ 2,200,471$(29,327)

14,843,642

13,693,798—(*)

28,235——(*)

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

54

Annual Report 2018 ｜ Financial Section

Notes to Consolidated Financial Statements

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

Hedging accounting

Types of derivative transactions

Hedged items

Deferred hedge
accounting

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

Foreign currency-denominated transactions

Contract amounts

Contract amounts due
after one year

Fair value¥14,979¥—¥(166)

Contract amounts

Contract amounts due
after one year

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

1,563,185

1,515,827

—(*)

3,000

3,000

—(*)

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

(2) Interest-related derivatives
Millions of yen

Hedging accounting

Types of derivative transactionsDeferred hedge
accounting

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

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

Hedged items

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

18 Segment information
The Company and its consolidated subsidiaries mainly operate their business in five segments: (1) Leasing business consists of leasing of officebuildings, residences and other properties, and management of these properties; (2) Sales business consists of sale of condominiums, detachedhouses and land lots; (3) Construction business consists of construction of housing, condominiums and buildings; (4) Brokerage business; and (5)Other businesses including fitness business and restaurant business.
Information by business segment for the years ended March 31, 2018, 2017 and 2016 is summarized as follows:
Millions of yen

Reportable segments

For 2018
Revenue from operations:Customers
Intersegment
Total
Segment profit
Segment assets
Other:
Depreciation and amortization
Loss on impairment of fixed assets	Increase in property andequipment, and intangible assets

Leasingbusiness

Salesbusiness

Construction
business

Brokeragebusiness

Other businesses

Total

Adjustments

Consolidated financial
statements amounts¥  350,211
3,670
353,881¥  139,368¥3,565,088¥310,914
279
311,193¥ 46,839¥826,574¥206,839
2,517
209,356¥ 16,109¥ 27,946¥68,858311
69,169¥21,457¥12,200¥11,580
1,297
12,877¥ 1,628¥25,203¥  948,402
8,074
956,476¥  225,401¥4,457,011¥     —
(8,074)(8,074)¥    (19,764)¥729,891¥  948,402—
948,402¥  205,637¥5,186,902¥   38,981
10,635¥    174—¥  1,022—¥   471—¥   217—¥   40,865
10,635¥    763—¥   41,628
10,635

220,785

672

1,027

859

428

223,771

4,523

228,294

Millions of yen

Reportable segments

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

Leasingbusiness

Salesbusiness

Construction
business

Brokeragebusiness

Other businesses

Total

Adjustments

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

3,244

1,765

1,096

294

226,005811

226,816

Sumitomo Realty & Development Co., Ltd.

55

Notes to Consolidated Financial Statements

Millions of yen

Reportable segments

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

Leasingbusiness

Salesbusiness

Construction
business

Brokeragebusiness

Other businesses

Total

Adjustments

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

122,809

843

1,478

763

244

126,137305

126,442

Thousands of U.S. dollars

Reportable segments

For 2018
Revenue from operations:Customers
Intersegment
Total
Segment profit
Segment assets
Other:
Depreciation and amortization
Loss on impairment of fixed assets	Increase in property andequipment, and intangible assets

Leasingbusiness

Salesbusiness

Construction
business

Brokeragebusiness

Other businesses

Total

Adjustments

Consolidated financial
statements amounts$ 3,296,104
34,5413,330,645$ 1,311,699$33,553,769$2,926,249
2,626
2,928,875$  440,838$7,779,520$1,946,720
23,6891,970,409$  151,614$  263,021$648,075
2,927
651,002$201,948$114,824$108,988
12,208
121,196$ 15,322$237,205$ 8,926,136
75,991
9,002,127$ 2,121,421$41,948,339$      —
(75,991)(75,991)$ (186,014)$6,869,562$ 8,926,136—
8,926,136$ 1,935,407$48,817,901$   366,880
100,094$    1,638—$    9,619—$  4,433—$  2,042—$   384,612
100,094$    7,181—$   391,793
100,094

2,077,976

6,325

9,666

8,085

4,028

2,106,080

42,5692,148,649

Intercompany eliminations between the Company and its
consolidated subsidiaries and undistributed corporate expenses toeach segment are included in adjustments of segment profit, and theCompany classified expenses of the general administrative division in
the Company and its certain consolidated subsidiaries to corporate
expenses for the years ended March 31, 2018, 2017 and 2016.

56

Annual Report 2018 ｜ Financial Section

Intercompany eliminations between the Company and its
consolidated subsidiaries and undistributed corporate assets toeach segment are included in adjustments of segment assets, andthe Company classified cash, time and notice deposits, investments
in securities and assets of the general administrative division in the
Company and its certain consolidated subsidiaries to corporate assets
for the years ended March 31, 2018, 2017 and 2016.

Notes to Consolidated Financial Statements

19 Comprehensive income
Amounts reclassified to profit in the current period that were recognized in other comprehensive income in the current or previous periods and tax
effects for each component of other comprehensive income (loss) for the years ended March 31, 2018, 2017 and 2016 are as follows:
Thousands of
U.S. dollars

Millions of yen

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

2018

2017

2016

2018

¥ 50,290(1,373)
48,917(14,982)¥ 33,935¥ 36,067(128)
35,939(11,009)¥ 24,930¥(27,205)130(27,075)
10,561¥(16,514)$ 473,318(12,923)
460,395(141,007)$ 319,388¥      (453)
1,208
755
(217)
¥   538¥   482
1,978
2,460
(755)
¥  1,705¥ (5,098)
1,327(3,771)
1,122¥ (2,649)$      (4,264)
11,3707,106(2,042)$   5,064¥     (1,098)¥     (927)¥     59$     (10,334)¥   22941
270(82)¥   188¥ 33,563¥       (41)
681
640
(198)
¥   442¥ 26,150¥   (680)(355)(1,035)325¥   (710)¥(19,814)$   2,155
386
2,541
(772)
$   1,769$ 315,887

20 Investment and rental properties
The Company and its certain consolidated subsidiaries own some rental properties such as office buildings and residences in Tokyo and other areas.
Certain domestic office buildings are not recognized as rental properties but as a portion used as investment and rental properties since the Company
or its certain consolidated subsidiaries use some of the floor space of these properties.
The carrying amounts of these properties on the consolidated balance sheets, their changes during the fiscal year and their fair values at March
31, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

Investment and rental properties

A portion used as investment and rental properties

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

2018

2017

2018

¥3,001,274
207,051
3,208,325
5,316,335¥  143,906(1,956)
141,950
362,081¥2,696,196
305,078
3,001,274
4,800,727¥  277,776(133,870)
143,906
340,894$28,247,285
1,948,715
30,196,000
50,036,094$ 1,354,409(18,409)
1,336,000
3,407,821(Notes)* Carrying amounts on the consolidated balance sheets are the amounts determined by deducting accumulated depreciation and accumulated impairment losses from theacquisition costs.
* Fair values as of March 31, 2018 and 2017 are calculated by the Company primarily based on their fair values according to Real Estate Appraisal Standards.

Significant changes during the years ended March 31, 2018 and 2017 are as follows:

Thousands of
U.S. dollars

Millions of yen

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

2018

2017

2018

¥214,777
38,047¥218,918
5,228$2,021,431
358,089¥ (37,177)(2,490)(10,635)¥ (31,765)(600)(15,537)$ (349,901)(23,435)(100,094)

Sumitomo Realty & Development Co., Ltd.

57

Notes to Consolidated Financial Statements

Income and expenses for investment and rental properties for the years ended March 31, 2018 and 2017 are as follows:

Thousands of
U.S. dollars

Millions of yen

Investment and rental properties

A portion used as investment and rental properties

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

2018

2017

2018

¥236,446
121,736
114,710(10,938)¥ 21,475
11,9269,549(3)¥220,511
116,247
104,264(15,776)¥ 18,970
10,6558,315—$2,225,374
1,145,751
1,079,623(102,946)$  202,118
112,245
89,873(28)(Notes)* As a portion used as investment and rental properties includes a portion used by the Company or its certain consolidated subsidiaries for providing services as well as
management and administration, income for these are not recorded above. The expenses primarily consist of rent, depreciation, taxes and dues, and others.
* Other income (expenses) for investment and rental properties is mostly the loss on impairment of fixed assets, and Other income (expenses) for a portion used as investment
and rental properties is mostly the loss from prior period adjustment.

21 Contingent liabilities
The Company and its consolidated subsidiaries were contingently liable as guarantors of borrowings by customers and others in an amount aggregating to ¥6,298 million ($59,275 thousand) and ¥3,513 million at March 31, 2018 and 2017, respectively.

22 Subsequent events
On June 29, 2018, the shareholders of the Company approved payments of a year-end cash dividend of ¥14 ($0.13) per share or a total of ¥6,635
million ($62,447 thousand) to shareholders of record at March 31, 2018. Such appropriations are recognized in the period in which they are approvedby the shareholders.

58

Annual Report 2018 ｜ Financial Section

Independent Auditor’s Report

To the Board of Directors of Sumitomo Realty & Development Co., Ltd.:We have audited the accompanying consolidated financial statements of Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries, which
comprise the consolidated balance sheets as at March 31, 2018 and 2017, and the consolidated statements of income, statements of comprehensive income,statements of changes in net assets and statements of cash flows for each of the years in the three-year period ended March 31, 2018, and a summary of significant
accounting policies and other explanatory information.

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

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

OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Sumitomo Realty & Development Co., Ltd.
and its consolidated subsidiaries as at March 31, 2018 and 2017, and their financial performance and cash flows for each of the years in the three-year period
ended March 31, 2018, in accordance with accounting principles generally accepted in Japan.

Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2018 are presented solely for convenience.
Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1 tothe consolidated financial statements.

July 27, 2018
Tokyo, Japan

Sumitomo Realty & Development Co., Ltd.

59

Corporate Data / Investor Information (As of March 31, 2018)

Corporate Data

Investor Information

Head OfficePaid-in Capital

Shinjuku NS Building
4-1, Nishi-Shinjuku 2-chome,
Shinjuku-ku, Tokyo 163-0820, Japan¥122,805 million

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

Date of Establishment

Authorized: 1,900,000,000 shares
Issued: 476,085,978 shares

Number of Shareholders
10,579December 1, 1949

Stock Exchange Listing

Number of Employees

Tokyo Stock Exchange

12,934 (Consolidated)

Breakdown of
Shareholders

Number of Common Stock

Trust Accounts
Financial Institutions
Other Companies
Foreign Companies
Individuals and Others

27.66%
9.40%
30.87%
28.69%
3.38%

Major Shareholders

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

Name

Number of shares held(Thousands)

Percentage ofshares held

35,55926,731
11,99010,937
9,038
8,367
8,211
7,701
7,500
7,090

7.50%
5.64%
2.53%
2.31%
1.91%
1.77%
1.73%
1.62%
1.58%
1.50%

The Master Trust Bank of Japan, Ltd. (Trust account)
Japan Trustee Services Bank, Ltd. (Trust account)
Sumitomo Mitsui Banking Corporation
Japan Trustee Services Bank, Ltd. (Trust account 4)
Japan Trustee Services Bank, Ltd. (Trust account 5)
Daikin Industries, Ltd.
State Street Bank - West Client - Treaty 505234
State Street Bank-West Pension Fund Clients-Exempt 505233
Shimizu Corporation
Obayashi Corporation

Stock Price and Trading Volume on Tokyo Stock Exchange
Yen

Yen

Stock Price (right)

2,400

6,000

TOPIX (left)
2,000

5,000

1,600

4,000

1,200

3,000

800

2,000

400

1,000

0

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

2013

2014

2015

2016

2017

2018

Millions of shares
150

Trading Volume

100

50

0

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

2013

60

2014

Annual Report 2018 ｜ Financial Section

2015

2016

2017

2018

0

History
Global Events

–

1949
1980

1981

‌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 Stock Exchange and Osaka Securities Exchange.

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

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

1964‌Tokyo Olympic Games
1973‌First oil crisis
1978‌Second oil crisis

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

1980

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

1982

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

1995‌Commenced American Comfort custom home construction business.
‌Commenced Shinchiku Sokkurisan remodeling business.

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

1998

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

1999

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

2000

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

2001

The number of managed STEP brokerage offices exceeded 200.

2002

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

–
–

2018

1957

1996

2000

2001

1949

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

1985‌The Plaza Accord
1987‌Black Monday
1989‌Collapse of Berlin Wall‌Nikkei Stock Average
all-time high1999
‌Introduction of euro2001
‌September 11
terrorist attacks

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

2004

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

2008

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

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

2011

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

2012

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

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

2015‌China stock market
crash

2015

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

2016‌Brexit referendum

2016

‌
Completed
construction of Shinjuku Garden (Shinjuku Ward, Tokyo).
‌Completed construction of Sumitomo Fudosan Roppongi Grand Tower (Minato Ward, Tokyo).

2017

‌
Commenced
sales of City Towers Tokyo Bay (Koto Ward, Tokyo).
‌Number of condominium units brought to market over the full year was the highest in Japan for the fourthconsecutive year.

2018‌Completed construction of Sumitomo Fudosan Osaki Garden Tower (Shinagawa Ward, Tokyo).

Shinjuku NS Building(Head office)Shinjuku Sumitomo Building

World City Towers

2008‌Lehman crisis

City Towers Toyosu the Twin

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

Sumitomo Fudosan
Roppongi Grand Tower &Izumi Garden Tower

Sumitomo Realty & Development Co., Ltd.

61

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

Printed in Japan