Sumitomo Realty & Development Co., Ltd.

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

Annual Report 2010

Printed in Japan

Continuing
Quality Growth
A NNUA L REP OR T 2 010

About the Company

Investor Information
As of March 31, 2010

Paid-in Capital

Major Shareholders¥122,805 million

Name

Number ofshares held(Thousands)

Percentage ofshares held

Number of Common StockJapan Trustee Services Bank, Ltd. (Trust account)

26,2905.52%

Authorized: 1,900,000,000 shares

The Master Trust Bank of Japan, Ltd. (Trust account)

21,826

4.58%

Sumitomo Mitsui Banking Corporation

11,9902.52%

Japan Trustee Services Bank, Ltd. (Trust account 4)

9,704

2.04%

The Sumitomo Trust & Banking Co., Ltd.

8,136

1.71%

Kajima Corporation

7,912

1.66%

Shimizu Corporation

7,500

1.58%

Mitsui Sumitomo Insurance Co, Ltd.

6,740

1.42%

Obayashi Corporation

6,527

1.37%

Mellon Bank, N.A. as Agent for its Client
Mellon Omnibus US Pension

6,224

1.31%

Issued: 476,085,978 shares
Number of Shareholders
16,568Stock Exchange Listings
Tokyo Stock Exchange
Osaka Securities Exchange
Breakdown of Shareholders
Sumitomo Realty & Development Co., Ltd., a core member of the Sumitomo Group, is one of Japan’s
leading real estate companies. The Company is well established as a comprehensive developerand supplier of high-quality office buildings and condominiums in urban areas.

Trust Accounts

24.21%

Financial Institutions

10.10%

Other Companies

25.30%

Foreign Companies

34.68%

Individuals and Others

5.71%

With operations centered on four areas—leasing, sales, construction and brokerage—theCompany has achieved a combination of growth potential and balanced operations that will drive
its success in the challenging markets of the 21st century. Sumitomo Realty remains committed tothe creation of comfortable work and living environments that contribute to a higher quality of life.

Stock Price and Trading Volume on Tokyo Stock Exchange
(Yen)

(Yen)

2,400

6,000
Stock Price (right scale)Contents

TOPIX Average (left scale)

1,800

4,500

1,200

3,000

600

1,500

0

0

1	Consolidated Financial Highlights
2 A Message From the Management
4 At a Glance
6 Review of Operations
		

6 Leasing		 12 Sales
		 14 Construction
		 16 Brokerage
17 Our History
18 Corporate Governance
19 Financial Section
48 Senior Management
48 Corporate Data
49 Investor Information(Millions of shares)
250
200

Trading Volume150

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 forwardlooking 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 materiallyfrom those discussed in the forward-looking statements. Such factors include but are not limited to macroeconomic conditions,
supply and demand in the real estate market and interest rate trends.

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

2005

2006

2007

2008

2009

2010

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

49

Consolidated Financial Highlights
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
Years ended March 31
Thousands of U.S. Dollars1

Millions of Yen

2010

2009

2008

2010

For the Year
Revenue from operations¥719,636¥695,240¥691,928$7,733,864

Operating income

133,979

146,366

154,608

1,439,860

Ordinary profit*

100,464

113,582

125,176

1,079,678

Net income

52,662

46,205

63,133565,954¥3,168,098¥3,006,412¥2,894,004$34,047,265

Shareholders’ equity 2

488,896436,667

427,423

5,254,121Interest-bearing debt

1,935,166

1,847,627

1,665,042

20,797,055

Net income¥ 111.04¥ 97.39¥133.00$ 1.19

Shareholders’ equity

1,030.93

920.74900.57

11.08

20.00

20.00

18.00

0.21

At Year-End
Total assets

Per Share Data (Yen and U.S. Dollars)

Cash dividend applicable to the year

Notes: 1. U.S. dollar amounts in this report are translated, for convenience only, at the rate of ¥93.05=U.S. $1, the prevailing exchange rate at March 31, 2010.
2. Shareholders’ equity = Net assets – Minority interests

Revenue from Operations

Operating Income

Ordinary Proﬁt*

Net Income¥719.6 billion¥134.0 billion¥100.5 billion¥52.7 billion(Billions of Yen)

(Billions of Yen)

(Billions of Yen)

(Billions of Yen)

800

160

140

in the March 2010 ﬁscal year

646.5

676.8

in the March 2010 ﬁscal year

154.6

730.0
691.9 695.2 719.6

600

137.2
120

146.4

in the March 2010 ﬁscal year

75

125.2

134.0 135.0

112.4
105

112.0

in the March 2010 ﬁscal year

63.1

113.6
100.5 101.0

400

80

70

200

40

35

50.3

50

87.0

52.7 53.0
46.2

32.5
25

0

0

‘06 ‘07 ‘08 ‘09 ‘10 ‘11

FORECAST

0‘06 ‘07 ‘08 ‘09 ‘10 ‘11

FORECAST

0‘06 ‘07 ‘08 ‘09 ‘10 ‘11

FORECAST‘06 ‘07 ‘08 ‘09 ‘10 ‘11

FORECAST* Ordinary profit, which equals operating income after adjustment for non-operating gains/losses, is a management index that is widely used in Japan. Due to differences in accounting standards, ordinary
profit is not broken out in the Company’s English-language financial statements, but it is included here because it plays an important role in the calculation of incentive payments for directors.

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

A Message from the Management

Under the new plan, we are aiming to return to acourse of increases in revenue and profit and to achieve
record-setting results in three years. Subsequently, we
will achieve sustainable growth in the years ahead.
Report on the Progress of the Fourth Plan (from April 2007 to March 2010)

Junji Takashima
Chairman

We succeeded in achieving higher revenue and profit over the period covered by the Fourth Plan.
Our mainstay businesses—leasing and sales—generate approximately 80% of our operating income.
In these businesses, we pursue the most effective use of land in order to maximize the value andthe revenue of the properties, and many times this process requires a minimum of two to three
years from the time we acquire land—the “raw material”—until we finish the product. In manyhighly profitable large-scale developments, this process requires five years or more. Considering
our standard development time frame, laying out a single-year management plan may not be ourbest choice as an all-round real estate development company with expertise in redevelopment andurban planning.
The Fourth Plan was concluded in March 2010. Unfortunately, we were unable to meet the targets
that were set in 2006 due to the substantial deterioration in the economic environment, which
exceeded our expectations. However, as we did under previous plans, under the Fourth Plan we
succeeded in achieving increased revenue and profit over the three-year period covered by the plan.

Kenichi Onodera
President

Results in the March 2010 Fiscal Year
We achieved the 13th consecutive year of higher revenue, and ordinary profit was more than ¥100.0
billion for the fourth consecutive year.
In the March 2010 fiscal year, the final year of the Fourth Plan, consolidated revenue from operations increased 3.5% year on year, to ¥719.6 billion; operating income decreased 8.5%, to ¥134.0
billion; and ordinary profit declined 11.5%, to ¥100.5 billion. Nonetheless, due to a substantial
improvement in extraordinary loss, net income rose 14.0%, to ¥52.7 billion. In the fiscal year underreview, both operating income and ordinary profit decreased. However, we did succeed in maintaining ordinary profit above ¥100.0 billion for the fourth consecutive year. Accordingly, in line with ouremphasis on the continued payment of stable dividends, we maintained annual dividends at ¥20 per
share, the same as in the previous fiscal year. Further, in the March 2011 fiscal year, we intend tomaintain annual dividends of ¥20 per share.
Start of the New Management Plan (from April 2010 to March 2013)
We intend to get back on track toward increased revenue and profit and to achieve further growth.
The new medium-term management plan, the Fifth Management Plan, started in April 2010. The
future course of economic conditions remains unclear. Consequently, the performance targets inthis plan are relatively conservative. Under all of the four previous plans, we achieved increased
revenue and profit over the three-year periods covered by the plans. For the Fifth Management Plan,
we have taken a conservative approach to the uncertain economic environment, and we are targeting increased revenue but declines in operating income and ordinary profit.
Nonetheless, we are aiming to return to a course of increases in revenue and profit from the firstyear of the plan, and for the March 2013 fiscal year, the final year of the plan, we are aiming to

ANNUAL REPORT 2010

Fifth Management Plan (April 2010 to March 2013)
Getting back on track toward increased revenue and proﬁt(Achieving higher revenue and proﬁt each year after March 2010 ﬁscal year)
Targeting record-setting business results in March 2013 ﬁscal year
Growth Under Medium-Term Management Plans(Billions of Yen)
3,000

435
350

2,000
1,606
1,270 202

1,939

265

2,107

450

430
339

2,300

320

274

170

1,000

300

150

87
0

0

1st Plan*2(Years ended March 31)

2nd Plan

3rd Plan

4th Plan

5th Plan

1999–2001

2002–2004

2005–2007

2008–20102011–2013
FORECAST

Revenue from operations

1,270

1,606

1,939

2,107

2,300

Operating income

202

265

350

435

430

Ordinary profit

87

170

274

339

320

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

achieve record-setting results for the first time since the March 2008 fiscal year. Subsequently, inthe period covered by the up-coming Sixth Management Plan, we will strive to achieve rapid growth.
Outlook for the Next Fiscal Year
Working to achieve growth in operating income and ordinary profit for the first time in three years.
Our forecasts for the March 2011 fiscal year, the first year of the Fifth Management Plan, call for the
14th consecutive year of higher revenue and increases in operating income and ordinary profit for
the first time in three years. We are planning revenue from operations of ¥730.0 billion, operating
income of ¥135.0 billion, and ordinary profit of ¥101.0 billion. The Company’s operating environmentis showing signs of recovery, such as the strong sales seen in condominium operations. Given suchfactors as the public finance problems in Europe, we cannot yet be optimistic about economic
conditions, but we will continue to enhance our sales and marketing systems to achieve our goals.
In these ways, Sumitomo Realty will work to meet the targets in its medium-term management
plan and to achieve sustainable growth in the years ahead. We ask for the continued support of ourshareholders as we strive to achieve these goals.
June 2010

Junji Takashima
Chairman

Kenichi Onodera
President

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

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

Characteristics of Our Four Operational Fields

resources requirements. These operations have been developed

Leasing and sales are our traditional main fields of business.

more recently. In housing construction, the operational cycle is

These are capital-intensive fields; returns and risk are both highshort, about six months to a year, but product development

and substantial upfront investment is required, but the level ofcapabilities are very important. Brokerage operations have thehuman resources is relatively low. In leasing, the period from theshortest operational cycle of our fields of business but require

initial investment to the generation of revenue—the operational

strong, highly competitive service networks.

cycle—is long, but once a building is opened for occupancy it
provides a stable, sustained source of revenue. The sales busi-

Taking Steps to Maintain Well-balanced Operations

ness, however, is characterized by a shorter operational cycle

Sumitomo Realty’s four operational fields have complementarywith volatile market conditions. Nonetheless, revenue and profit

operational cycles and market characteristics, and in the past

are both relatively high. Our housing construction operations andthe adverse effects of changing market conditions on a particular

brokerage operations are order-based businesses with low

field have generally been offset by favorable performances incapital requirements and no sales risk but substantial humanothers. As a result, the Company has been able to continue toLeasing

Sales

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

Mid- and high-rise condominium, detached house andhousing lot development andsales and related activities

Revenue from Operations

Revenue from Operations(Billions of Yen)

(Billions of Yen)

300

262.6

279.6

298.4 293.5 290.0

300

234.3
200

40.3%

30.1%

100

‘07

‘08

‘09

‘10

‘11
FORECAST

Operating Income

‘07

‘08

‘09

‘10

‘11
FORECAST

Operating Income(Billions of Yen)

(Billions of Yen)

120

45

105.3
83.5

80

93.4

97.6

63.3

36.5
30.7

30

13.4%

40

42.7
33.1

85.0

0

30.0
19.6

15

0
‘06

ANNUAL REPORT 2010

‘06

0
‘06



219.7 225.0
211.0 193.6
191.2

100

0

66.9%

224.7
200

‘07

‘08

‘09

‘10

‘11
FORECAST

‘06

‘07

‘08

‘09

‘10

‘11
FORECAST

Sumitomo Realty’s Balanced Portfolio
Capitalrecord increases in revenue and profit over the medium to longterm. In the future, our basic strategy will entail taking steps to

LEASING

High level of capital,
low level of human resources

maintain well-balanced growth in our operational portfolio.
Moreover, to further reinforce our growth prospects, we will
endeavor to develop a strong market presence in a fifth core field

Relatively high level of capital,

SALES

relatively low level of human resourcesof operations, and are currently searching for the field that would
best complement our existing operations.

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

CONSTRUCTION

Low level of capital,
high level of human resources

BROKERAGE

Human Resources

Construction

Brokerage

Custom home construction
and remodeling and related
activities

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

Revenue from Operations

Revenue from Operations(Billions of Yen)

(Billions of Yen)

180

135.2 142.6

60

165.0
156.6 160.1 158.2

40

6.1%

60

0

43.1

44.6

‘09

‘10

47.0

20

0
‘06

‘07

‘08

‘09

‘10

‘11
FORECAST

Operating Income

‘06

‘07

‘08

20.9

20.0

‘11
FORECAST

Operating Income(Billions of Yen)

(Billions of Yen)

18

17.1

18.0

24

13.0

12

11.7%

58.5

49.2

120

21.7%

56.5

8.7

8.8

16

10.2

7.4%

6

0

17.0

8.8

8

10.8

13.0

0
‘06

‘07

‘08

‘09

‘10

‘11
FORECAST

‘06

‘07

‘08

‘09

‘10

‘11
FORECAST

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.



Review of Operations

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

Sumitomo Fudosan
Shiodome Hamarikyu Building(Completed August 2009)
Shinjuku Central Park City
(Completed February 2010)

Sumitomo Fudosan
Aobadai Tower(Completed August 2009)

Principal Office Buildings Opened in the March 2010 Fiscal Year
Name

Location (Tokyo CBD)

Completion

Gross floor area (m2)

Sumitomo Fudosan Nishi Shinjuku Building

Shinjuku Ward

Apr. 0937,317

Sumitomo Fudosan Kanda Building No.2

Chiyoda Ward

June 09

20,667

Sumitomo Fudosan Akihabara Building

Chiyoda Ward

June 09

31,991

Sumitomo Fudosan Shiodome Hamarikyu Building

Chuo Ward

Aug. 0947,951

Sumitomo Fudosan Aobadai Tower

Meguro Ward

Aug. 09

55,773Ebisu SS Building

Shibuya Ward

Sep. 09

9,079

Sumitomo Fudosan Shinagawa Sea-side Building

Shinagawa Ward

Nov. 09

21,771

Shinjuku Central Park City

Shinjuku Ward

Feb. 10Total
Note: Figures for gross floor area indicate the area managed by Sumitomo Realty.



ANNUAL REPORT 2010

127,645
352,194

Sumitomo Realty’s Strengths

our results. Furthermore, buildings that opened during the year,

The Company made its full-scale entry into the leasing businesssuch as the Sumitomo Fudosan Shiodome Hamarikyu Buildingin the latter half of the 1970s. In 1995, following the collapse

and the Sumitomo Fudosan Aobadai Tower, were able to attractof Japan’s economic bubble, we were the first company in the

more tenants than was initially forecast, which also contributed

industry to restart construction work on office buildings. We

to our results. However, the vacancy rate for existing buildings

paid particular attention to large-scale projects in urban areas,

worsened from 5.1% at the end of the previous fiscal year, toespecially those areas legally designated for redevelopment.

8.4% at the end of the year under review.

We currently operate about 200 buildings for lease. The ad-Consequently, revenue from operations decreased 1.6%, tovanced interior features of our buildings are complemented with

¥293.5 billion, and operating income was down 7.3%, to ¥97.6

distinctive exterior designs, including hotel-like entranceways

billion.

and all-glass exteriors. Sumitomo Realty creates innovativebuildings with strong market presences.

OutlookIn the March 2011 fiscal year, contributions to our performance

Overview of the Fiscal Yearwill be made by the full-year results of such properties as the

The ongoing global economic slump resulted in cautious behav-

Sumitomo Fudosan Shiodome Hamarikyu Building and theior among corporations, and demand for office buildings was

Sumitomo Fudosan Aobadai Tower, as well as by new buildings

generally sluggish in the Tokyo office building market, whichscheduled to be opened during the year, such as the Sumitomoaccounts for more than 90% of our portfolio. As a result, theFudosan Iidabashi First Tower and the Sumitomo Fudosan

vacancy rate for existing buildings was high, and there was

Shibuya First Tower. However, we anticipate that these positive

an increase in rent reductions when leases were renewed.

factors will be offset by the loss of revenues from existing build-

New contract rents also declined year on year. However, someings due to the worsening of market conditions, and accordingly

companies saw these conditions as an opportunity, and there

we expect revenue from operations to decline 1.2% year on year,

were trends toward businesses moving to buildings with betterto ¥290.0 billion, and operating income to decrease 12.9%, tolocations or facilities, as well as efforts to increase efficiency by¥85.0 billion.

consolidating multiple offices into a single location. Consequently,
there was an increase in new large-scale contracts, particularly
for new buildings.
In this environment, buildings that opened for occupancy
during the previous year, such as the Sumitomo Fudosan
Iidabashi Ekimae Building, made a full-year contribution to

Revenue from Operations

Operating Income andOperating Margin(Billions of Yen)

(Billions of Yen)(%)

(1,000m 2)

120

60

4,000

300

262.6

279.6

298.4

293.5

290.0

105.3

234.3
200

83.5

80

93.4

63.3
100

40

27.0

31.8

33.4

Gross Floor Area

97.6
85.0

35.3

33.3

3,000

3,825
3,112

3,360

3,403

3,461

‘07

‘08

‘09

40
2,000

29.3

20
1,000

0

0

‘06

‘07

‘08

‘09

‘10

‘11

FORECAST

0

‘06

‘07

‘08

‘09

‘10

‘11

FORECAST

0

‘06

‘10

Operating Income
Operating Margin (right scale)

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.



Review of Operations

LEASING  Sumitomo Realty’s Portfolio

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

Shinjuku

ChiyodaBunkyoChuo

Shinjuku
ChiyodaShibuyaShibuyaChuo
MinatoMinatoShinagawa

Major ﬂagship buildings(Please see the table on the right)
Buildings scheduled for completion during theFifth Management Plan (2011–2013)

Shinagawa

Other buildings

State-of-the-Art Facilities
Before 1981

1982–1996

1997 and after

Earthquake protection

Previous quake-resistant structure

New quake-resistant structure

Anti-sway structure

Ceiling height

2.5m

2.7m

2.9–3.3m

Floor load

300 kg/m2

300–500 kg/m2

500–1,000 kg/m2

Air conditioning

Central air conditioning system

Climate control zones

Separate climate control systems

Power capacity

45 VA/m2

60–70 VA/m2

85 VA/m2 and over*

*Includes raised floors

Sumitomo Realty’s Portfolio

Competitive Growth Foundation

Our portfolio includes many competitive prime properties locatedIncluding the buildings that we expect to open during the Fifth

in central Tokyo. As of the end of March 2010, our leasing portfo-

Management Plan (2011–2013)*, prime properties will accountlio had a gross floor area of 3.8 million square meters and an

for an even higher percentage of our portfolio. To respond to theaverage age of 14 years, the lowest among Japan’s major realchange in market demand toward prime properties and away

estate companies. About 46% of the buildings in our portfolio

from buildings that are older, smaller, or in less attractive loca-

were completed in the past 10 years. Also, 94% of the buildings intions, we have been investing aggressively in new building con-

our portfolio were located in the 23 wards of Tokyo, with 85% in

struction, thereby further increasing the concentration of prime

Tokyo’s central business district. Furthermore, 82% of the portfo-

properties in our portfolio.

lio was made up of large-scale buildings with more than 10,000
square meters of gross floor area, and about 99% of the buildings

Growing Demand for Prime Properties

meet or exceed earthquake-resistance standards that took effect

In the central Tokyo office building market, there is strong

in 1981 and are a key yardstick for earthquake safety. Moreover,demand for buildings that meet the criteria for prime proper-

nearly half of our buildings have been completed since 1997,

ties—they are close to stations and business areas, are new andwhen we took the lead in the application of new building design

feature modern amenities, and offer large areas on each floor.

concepts. These high-quality buildings offer leading-edge

These prime properties generate high levels of revenues, whileearthquake-resistant structures, separate climate control systems

it remains difficult to find tenants for buildings that are far fromfor each suite, reinforced floors for heavy loads, high-capacity

stations, old or small.

electrical systems, high ceilings, and other attractive features,*Fiscal year ending March 31

and they are the focus of strong demand from many tenants.


ANNUAL REPORT 2010

Major Flagship Buildings
Name

No. of floors
Completion(above ground / below ground) (scheduled)

Location(Tokyo CBD)

Gross floorarea (m2)

Izumi Garden Tower

43/4

Oct. 02

Minato Ward

205,574

Shinjuku Sumitomo Building

52/4

Mar. 74

Shinjuku Ward

177,467

Shinjuku Central Park City

44/2

Feb. 10

Shinjuku Ward

127,645

Shinjuku Oak City

38/2

Jan. 03

Shinjuku Ward

117,446

Shiodome Sumitomo Building

25/3

July 04

Minato Ward

99,913

Sumitomo Fudosan Mita Twin Building West

43/2

Sept. 06

Minato Ward

98,338

Tokyo Shiodome Building

37/4

Jan. 05

Minato Ward

95,128

Shinjuku NS Building

30/3

Sept. 82

Shinjuku Ward

75,046

Shibakoen First Building

35/2

June 00

Minato Ward

63,822

Chiyoda First Building West

32/2

Jan. 04

Chiyoda Ward

61,501

Sumitomo Fudosan Aobadai Tower

33/3

Aug. 09

Meguro Ward

55,773

Sumitomo Fudosan Iidabashi Building No. 3

24/2

Oct. 02

Shinjuku Ward

53,047

Sumitomo Fudosan Iidabashi First Building

14/2

Mar. 00

Bunkyo Ward

52,747

Sumitomo Fudosan Shiodome Hamarikyu Building

21/2

Aug. 09

Chuo Ward

47,951

Chiyoda First Building East

17/2

Oct. 98

Chiyoda Ward

37,473

Sumitomo Fudosan Nishi Shinjuku Building

33/2

Apr. 09

Shinjuku Ward

37,317

Sumitomo Fudosan Shibakoen Tower

30/2

Oct. 01

Minato Ward

35,549Sumitomo Fudosan Mita Twin Building East

17/1

Aug. 06

Minato Ward

35,047

Shibuya Infoss Tower

21/4

Mar. 98

Shibuya Ward

34,460Sumitomo Fudosan Akihabara Building

19/3

June 09

Chiyoda Ward

31,991

Roppongi First Building

20/4

Oct. 93

Minato Ward

31,516

Izumi Garden Tower

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

Leasing Portfolio
Total Gross Floor Area as of March 31, 2010: 3.83 million m2

CLOSE
46% Less than 10 years old
NEW
LARGE
Close

85% Tokyo CBD*1
94% 23 Wards
99% New quake-resistance*2
82% Over 10,000m2

Locations in the Central Business District*1. Tokyo CBD (Central BusinessDistrict): 7 wards, comprising
Chiyoda, Minato, Chuo, Shinjuku,
Shibuya, Shinagawa and Bunkyo*2. New standards that took effectin 1981.

LARGE

Shiodome Sumitomo Building

Large-scale Buildings

To be a prime property, a building must be in the central business

Buildings that can accommodate multiple units on a single

district and near a major station. In the Tokyo central businessfloor enable tenant companies to increase the efficiency of

district, where many of Japan’s leading companies have their

their operations, and in recent years there has been a trend for

offices, this is an even more important factor. Large, recently

companies to consolidate their offices. As a result, demand forconstructed buildings in good locations are in short supply, whichlarge-scale buildings continues to increase. In the Tokyo central

has been a key element in our land acquisition efforts.

business district, where buildings that meet the three conditions
for prime properties—close, new and large—are in strong

Brand-new and Recently Constructed Buildings

demand, our competitive portfolio will provide a strong founda-

The strong demand for recently constructed buildings is a resultNewtion for us to utilize our strengths—development of high-value-of tenant needs for the following features:

added office buildings, tenant leasing and property management.

1. Reinforced floors, high-capacity electrical systems anduninterruptible power supplies to accommodate large
computer servers

We will utilize that foundation to maximize the earnings potentialof our office building operations and build a strong base for theachievement of sustainable growth in the years ahead.

2. Separate climate control systems for each suite andhigh ceilings
3. Advanced earthquake countermeasures, such as vibration
damping and earthquake-resistant construction
4. Advanced security systems
SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.



Review of Operations

LEASING  Future Development Projects

We commenced the Fifth Management Plan in
April 2010. To achieve the plan’s objectives—threeconsecutive years of higher revenue and profit
and record-setting business results in the plan’s
final year, we plan to open 11 buildings with total
floor space of about 150,000 tsubo. In this way, we
will take steps to further expand our earnings
foundation and strive to achieve sustained growth
Sumitomo Fudosan
Shibuya First Tower

in the years ahead.

Gross floor area
Floors

16,000 tsubo*
25 above ground3 below ground

Completion

August 2010

Principal Projects from the 5th Management Plan (from 2011)
Name

Location (Tokyo CBD)

Area

Expected completion Gross floor area (Tsubo*1)

Projects in the 5th Management Plan (from 2011 to 2013)
Sumitomo Fudosan Iidabashi First Tower

Bunkyo Ward

Iidabashi

Apr. 10

23,700La Tour Daikanyama (Residence)

Shibuya Ward

ShibuyaAug. 10

15,100Sumitomo Fudosan Shibuya First Tower

Shibuya Ward

ShibuyaAug. 10

16,000Sumitomo Fudosan Hanzomon Ekimae Building

Chiyoda Ward

Kojimachi

Jan. 11

5,100

Shibuya Sakuragaoka Project

Shibuya Ward

ShibuyaJan. 11

1,800

Iidabashi Fujimi Project

Chiyoda Ward

Iidabashi

Apr. 116,700

Nishi Shinjuku 8-Chome Project

Shinjuku Ward

Nishi Shinjuku

Aug. 1154,500

Shibaura 4-Chome Project

Minato Ward

Shibaura

Nov. 11

6,700

Shibuya Nanpeidai Project

Shibuya Ward

ShibuyaApr. 1218,000

Apr. 10–Mar. 13

147,600

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

Chuo Ward

Nihonbashi

30,000

Roppongi 3-Chome Project

Minato Ward

Roppongi

50,000*1 tsubo = 3.3m

2

Total Gross Floor Area for Leasing (Years ended March 31)(Thousand tsubo)
1,500

1,000

1st Plan680

2nd Plan870

3rd Plan
1,020

4th Plan
1,160

New Operation

New Operation+140 thousand tsubo(23 buildings)
+14%

500

5th Plan
1,310+150 thousand tsubo(11 buildings)
+13%

0

‘01

10

ANNUAL REPORT 2010

‘04

‘07

‘10

‘13

FORECAST

Positioning of Future Development Projects (Tokyo Central Business District)BunkyoIidabashi area

Shinjuku
Nishi Shinjuku area

ChiyodaChuo

Kojimachi area
Nihonbashi area

ShibuyaRoppongi area
Shibuya area
MinatoShibaura area

Shinagawa

Sumitomo Fudosan
Iidabashi First Tower
Gross floor area
Floors23,700 tsubo*
34 above ground3 below ground

Completion

Iidabashi Fujimi Project
Gross floor area
Floors6,700 tsubo*
14 above groundNishi Shinjuku 8-Chome Project

Shibaura 4-Chome Project

Shibuya Nanpeidai Project

Gross floor area

Gross floor area

Gross floor area

Floors54,500 tsubo*
40 above ground

1 below ground
Expected completion

April 2011

April 2010

Expected completion

Floors6,700 tsubo*
11 above ground3 below ground

1 below ground

August 2011

Expected completion November 2011

Floors

18,000 tsubo*
21 above ground2 below ground

Expected completion

April 2012

*1 tsubo = 3.3m2

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

11

Review of Operations

Sales

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

City Tower
Azabu Juban

Southern Sky Tower Residence

Mega City Towers

Principal Condominium Development Projects (2011–2013)
Name

No. of units for sales

Scheduled delivery*1

City Towers Toyosu The Symbol

Koto Ward, Tokyo

850

2011

City Tower Ariake

Koto Ward, Tokyo

458*2

2011

City Tower Warabi

Warabi shi, Saitama

268

2011

Southern Sky Tower Residence

Hachioji shi, Tokyo

371

2011

City Tower Osaka Temma-The River&Parks

Osaka shi, Osaka

650

2011

Mega City Towers

Yao shi, Osaka

705*2

2011

City House Fuchu Keyaki-dori

Fuchu shi, Tokyo

140

2012

City Terrace Nagareyama Station-Court

Nagareyama shi, Chiba

328

2012

Yono Project

Saitama shi, Saitama

405

2013

Tamatsukuri Project

Osaka shi, Osaka

207

2013

Sannomiya Project

Kobe shi, Hyogo

594

2013

Takadanobaba Project

Shinjuku Ward, Tokyo

359

2013

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

12

Location

ANNUAL REPORT 2010

Sumitomo Realty’s Strengths

In this environment, the number of condominium units sold

Sumitomo Realty’s condominium operations are centered in

was up by 50.4%, to a total of 4,918, which marks our recovery

Japan’s six largest urban areas―Tokyo, Osaka/Kobe, Sapporo,to the level seen four years ago in the March 2006 fiscal year,

Sendai, Nagoya and Fukuoka, with the Tokyo Metropolitan area

and condominium units unsold decreased by 351, to 1,198. The

accounting for 70% of our units. The Company develops and sells

number of condominium units, detached houses and land lots

about 5,000 units a year.

delivered—such as those at City Tower Azabu Juban and Osaki

Over the past decade, we have been one of the leading suppli-

West City Towers—increased by 214 from the previous year, toers of condominium units nationwide. This strong position is4,222. As a result, revenue from operations was up 14.9%, tothe result of our central urban strategy, which we implemented¥219.7 billion. However, we recorded loss on devaluation, whichahead of competitors, and our aggressive approach to large-

resulted in a decline in the operating margin. Consequently,

scale and high-rise condominiums. Our landmark exterior

operating income fell 36.3%, to ¥19.6 billion.

designs, the rich array of common facilities that is made possibleby the scale of the buildings and elegant entrances make our

Outlook

condominiums sought after by a wide range of consumers withIn the March 2011 fiscal year, we plan to deliver a total of 4,600

diverse lifestyles. As a result, our high operating margin is atcondominium units, detached houses and land lots, an increase

the top of the industry.

of 378 year on year. The increase in units delivered and improved

The risk of market fluctuations is a critical factor in the condo-

profitability will result in substantial increases in revenue fromminium business.

operations and operating income. Also, of the 4,500 condominium

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

units and detached houses that we expect to deliver in the Marchof condominiums and to enhance the Sumitomo Realty brand2011 fiscal year, approximately 30% had already been sold at thethrough the ongoing sale of high-quality units. In the years ahead,end of March 2010 (15% in the previous fiscal year). Accordingly,

the Company will continue striving to maintain its strong position.

we plan to continue working to bolster our sales system and topromote sales. As a result, in the March 2011 fiscal year we are

Overview of the Fiscal Year

forecasting revenue from operations of ¥225.0 billion, up 2.4%,

In the condominium market, which accounts for more than 90%

and operating income of ¥30.0 billion, up 53.1%.

of our sales in this segment, there was a clear trend toward
recovery in market conditions. Low mortgage interest rates,
coupled with the effects of tax reductions, improved consumerpurchasing motivation. Consequently, the number of units soldbegan to increase, principally properties in favorable locations.

Revenue from Operations

Operating Income andOperating Margin(Billions of Yen)

(Billions of Yen)

240

224.7

211.0

219.7
193.6

225.0

45

191.2

42.7
33.1

160

Units Delivered(%)(Units)

30

6,000

4,992

36.5
30.7

30

30.0

20

4,000

13.3

10

2,000

0

0

4,527
3,743

22.1
80

15

14.7

4,008

4,222

4,600

19.6

17.3

16.1
8.9

0

0

‘06

‘07

‘08

‘09

‘10

‘11

FORECAST

‘06

‘07

‘08

‘09

Operating Income
Operating Margin (right scale)

‘10

‘11

FORECAST

‘06

‘07

‘08

‘09

‘10

‘11

FORECAST

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

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

13

Review of Operations

Construction

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

Remodeling (Shinchiku Sokkurisan)

Custom Homes

Sumitomo Realty’s Strengths
Remodeling

Custom homes

In 1996, Sumitomo Realty launched the Shinchiku Sokkurisan

In 1995, Sumitomo Realty launched the American Comfort line

Full Remodeling Package. This product addresses the concernof high-quality, low-cost Western-style homes in Japan usingthat remodeling can sometimes be more expensive than rebuild-the know-how that the Company acquired in building and sellinging in Japan due to the risk of cost overruns. With Shinchiku

homes constructed with the two-by-four method in California.

Sokkurisan, a house can be fully remodeled at half the cost andIn April 2003, we launched the J∙URBAN home design, which

in half the time required to rebuild it. And because Shinchiku

combines the excellent security features of condominiums with

Sokkurisan uses less materials, it is also environmentallythe superior ventilation and lighting of detached houses. J∙URBAN

friendly. We were the first major real estate company to offer

has been highly evaluated in the marketplace and has received athis type of product, and Shinchiku Sokkurisan has been well

Good Design Award from the Japan Industrial Design Promotion

received in the marketplace. Cumulative sales have surpassed

Organization. In January 2010, we commenced sales of J∙Sky,

50,000 units, and we anticipate continued growth in Shinchiku

which is the latest product in the J∙URBAN series.

Sokkurisan sales in the years ahead.
Shinchiku Sokkurisan
Sales engineer system: Most of our sales personnel have

Advanced performance: Our original Power Column

engineering qualifications.

Method makes these homes 1.3 times more earthquake

Carpenters: We use carpenters who work exclusively forresistant than conventional two-by-four homes.

Sumitomo Realty.

Fixed price: We have an easily understood pricing system,

Fixed price: We provide the customer with a fixed price per

and the use of original materials and large-volume

unit of floor area, so there are no concerns about additional

procurement enables us to achieve price reductions.

construction charges.

Complete after-sales support: Our homes are backed

No need for temporary moves: We remodel homes while

by a 20-year guarantee and our specialists conduct

the customers continue to live in them, which is a major

periodic inspections.

advantage.
	Earthquake resistance: We incorporate earthquake­resistance strengthening measures based on a computerized analysis of the home as well as measures to prevent
damage from termites and moisture.
14

Custom Homes

ANNUAL REPORT 2010

J∙SKY interior

J∙SKY exterior

Overview of the Fiscal Yearother businesses. Our profit margin increased, however, due inIn the second half of the previous fiscal year, orders in Shinchiku

part to measures to reduce expenses, and operating income rose

Sokkurisan remodeling operations declined due to weak market

significantly, rising 31.7%, to ¥17.1 billion. Looking at the compo-

conditions. However, conditions gradually began to improve in thesition of revenue, Shinchiku Sokkurisan contributed ¥87.5 billion,

March 2010 fiscal year, and Shinchiku Sokkurisan orders rosecustom homes ¥50.5 billion, and other businesses ¥20.3 billion.

by 470, to 7,521, surpassing the record high of 7,324 set in the
March 2008 fiscal year, and deliveries increased by 64, to 7,154.

OutlookIn custom home operations, in a continued challenging oper-

In both Shinchiku Sokkurisan remodeling operations and custom

ating environment, orders increased by 92 year on year, to 1,779

home operations, we will work to enhance our product lineup

units, while deliveries decreased by 14, to 1,733 units.

by developing new products and will continue to strengthen our

In construction operations revenue from operations decreased

sales systems. Through these efforts, we will strive to increase

1.2%, to ¥158.2 billion, primarily as a result of the sale in theorders, and we are targeting revenue from operations of ¥165.0

previous year of Universal Home, Inc., which was included inbillion, up 4.3%, and operating income of ¥18.0 billion, up 5.4%.

Revenue from Operations

Operating Income andOperating Margin(Billions of Yen)

(Billions of Yen)

180

135.2

142.6

156.6

160.1

158.2

165.0

120

18

17.1

6

8.8

10.2

6.5

6.2

6.5

‘06

‘07

‘08

10.8

10.9

‘07

‘08

‘09

‘10

‘11

FORECAST

15

9,000

(Units)

‘09

7,324

‘10

10

6,000

7,051

7,521

7,700

3,600

2,400

2,122
1,680

1,672

8.1

0

‘06

(Units)

6,116

13.0
8.7

0

18.0

(%)

6,892
12

60

Shinchiku Sokkurisan andCustom Home Units Contracted‘11

FORECAST

5

3,000

0

0

1,687

1,779

1,800
1,200

0

‘06

‘07

‘08

Operating Income

Shinchiku Sokkurisan

Operating Margin (right scale)

Custom Homes (right scale)

‘09

‘10

‘11

FORECAST

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

15

Review of Operations

Brokerage

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

Sumitomo Realty’s Strengths

rates. On the other hand, transaction value decreased 6.3%,

Under the STEP brand name, Sumitomo Real Estate Sales

to ¥769.9 billion, due to stagnant wholesale operations.

operates a network of brokerage offices with close ties to local

As a result, revenue from operations rose 3.5% year on year,

communities. The network has been steadily expanded andto ¥44.6 billion. Due in part to the reduction of expenditures,

upgraded, and the number of offices reached 243 by the end ofoperating income recorded a substantial gain, rising 22.9%,

March 2010. Because all of the brokerage offices are directlyto ¥10.8 billion.

operated, the network boasts high profit margins. Sumitomo
Real Estate Sales holds the number one position in the industry

Outlookin terms of brokerage revenue from direct operations and in

In brokerage operations, we will continue to upgrade existingterms of profitability.

offices while striving to improve sales efficiency. Through theseIn the future, the company will continue working to expand its

efforts, we will aim to increase the number of brokerage trans-

marketing base and increase its market share.

actions, and achieve our second consecutive year of increased
revenue and income.

Overview of the Fiscal Year

Accordingly, for the March 2011 fiscal year we forecast revenue

In the existing home market, the number of contracts recorded afrom operations of ¥47.0 billion, up 5.3%, and operating income

notable increase, and the environment for existing home trans-of ¥13.0 billion, up 20.9%.

actions began to recover. Conversely, corporate transactions
remained sluggish, especially wholesale operations.
In this environment, transactions in our mainstay brokerage
operations increased 7.7% year on year, to 29,974, setting a newrecord-high. Additionally, we saw improvements in commission

Revenue from Operations

Operating Income andOperating Margin(Billions of Yen)

(Billions of Yen)(%)

(Billions of Yen)

24

100

1,200

60

56.5

58.5

49.2
43.1

40

44.6

47.0

20.9
18

Number of Transactions
and Transaction Value

1,052.0

20.0

13.0
10.8
37.0

‘07

ANNUAL REPORT 2010

‘08

‘09

‘10

‘11

FORECAST‘07‘08

36,00027,94329,199 29,753 27,822 29,974 30,715
18,000

‘06

‘07

25

24.1

0

‘06

847.6

27.7

0

‘06

16

400

34.2
20.3

0

769.9

50

8.8

20

34.5

821.2

800

12

6

928.8

75

17.0

54,0001,107.9

‘09

‘10

‘11

FORECAST

0

0

‘08

‘09

Operating Income

Transaction Value

Operating Margin (right scale)

Number of Transactions (right scale)

‘10

‘11

FORECAST

Our History
Date

Topics

1949

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

1957

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

1963

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

1964

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

1970

Listed on the Tokyo and Osaka stock exchanges.

1973

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

1974

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

1975

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

1980

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

1982

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

1995

Commenced American Comfort custom home construction business.

1996

Commenced Shinchiku Sokkurisan remodeling business.

1997

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

1998

Sumitomo Real Estate Sales Co., Ltd., a consolidated subsidiary, listed on theTokyo Stock Exchange.

1999

Commenced real estate joint investment trust fund. Launched sales of Sumitomo
Realty & Development Fund (SURF) series.

Shinjuku NS Building

Implemented the Sumquest bond issue, which was the first public issue of real estate
securities in Japan.

2000

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

2001

The number of managed STEP brokerage offices exceeded 200.

2002

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

2003

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

2004

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

2006

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

2007

Commenced Koraku 2-Chome West District redevelopment construction (Bunkyo Ward, Tokyo).
Established Sumitomo Fudosan Bellesalle Co., Ltd., a consolidated subsidiary.

2008

Shinjuku Sumitomo Building

Izumi Garden Tower

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

2009

2010

Cumulative total number of orders for Shinchiku Sokkurisan remodeling businesssurpassed 50,000.
Commenced sales of J∙SKY, the sixth product in the J∙URBAN series.
Completed construction of Shinjuku Central Park City (Shinjuku Ward, Tokyo)

World City Towers
SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

17

Corporate GovernanceFundamental Approach to Corporate Governanceestablished a range of internal control systems and is working to

To achieve sound management, Sumitomo Realty believes that it isenhance those systems.

important to share information on a Companywide basis, ensure that

To further enhance our compliance with laws and regulations and to

everyone is aware of problems, enhance internal management supervi-

ensure ethical business practices, we established the Compliancesion and achieve highly transparent management through appropriate

Promotion Committee. In addition, through the Compliance Department,

information disclosure. We have implemented a number of corporate

we have established internal auditing and internal reporting systems. In

governance initiatives to realize these practices efficiently.

these ways, we are working to prevent inappropriate and illegal actions.
In regard to information management, to ensure proper storage andCorporate Governance Bodies

control of documents, we have established internal standards for docu-

In addition to the Board of Directors, the Company has established thement control. Furthermore, in terms of risk management systems, each

Executive Officers Committee, which is led by the Chairman of the Board.

department tracks and manages the risks associated with its operations

These corporate governance bodies discuss important issues and makeon a daily basis, while important issues are discussed and decided upon

decisions rapidly and appropriately. The Board of Directors, the Executiveby the Board of Directors and the Executive Officers Committee. In the

Officers Committee and other committees use a variety of means tofuture, we will consider further enhancement of regulations and systems

ensure that information is shared throughout the Company and thatas needed.

everyone is aware of problems.
In April 2004, we instituted an executive officer system with the objec-

Compensation of Directors and Statutory Auditors

tives of selecting capable young employees and substantially bolstering

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

our administrative systems.

introduced a new performance-based compensation system for direc-

The Board of Statutory Auditors has five members, including three

tors. Under this system, the annual compensation for directors is basedoutside statutory auditors. To strengthen management oversight, weon the Company’s performance. The new system combines the threecontinue working to enhance outside auditing. The statutory auditors

elements that made up the previous system—monthly compensation,

attend meetings of the Board of Directors and the Executive Officers

annual bonuses and retirement allowances.

Committee, track internal issues that are important for robust auditing
and provide opinions as needed. Each of the three outside statutory
auditors has abundant management experience at other companies,

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 was ¥1,164 million,

and they were nominated because their character and knowledge werecompensation for statutory auditors (excluding outside statutory audi-

considered to be appropriate for the Company’s statutory auditors.

tors) was ¥30 million, and compensation for outside statutory auditors

There are no conflicts of interest between Sumitomo Realty and thesewas ¥39 million.

statutory auditors.
The Compliance Department, which has six staff members, monitors

Takeover Defense Measures

the operational execution of divisions throughout the Group and the

The Company introduced a policy for responding to large-scale

operation of internal control systems. The department also works topurchases of its shares, and at the ordinary general meeting of share-

prevent misconduct and mistakes. Moreover, the department reports

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

the results of its audits to the statutory auditors and the independent

70% of shareholders, which is the level of support required for theauditors and exchanges opinions with the statutory auditors in an

approval of special resolutions. At the 77th general meeting of share-appropriate manner.

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

The Compliance Department, the statutory auditors and thethe policy was extended to the conclusion of the 80th general meeting

independent auditors provide timely advice and guidance to internalof shareholders in June 2013.

departments that are associated with internal control. Moreover, from

Overview of Takeover Defense Measuresthe viewpoint of timely disclosure, we provide important information

The large-scale purchase rules stipulate that the large-scale purchasethrough our website and other means on a timely basis, and haveshall begin after necessary and sufficient information is provided to theincreased management transparency for shareholders, other investors

Board of Directors by the large-scale purchaser and a certain period forand suppliers.

evaluation by the Board of Directors has elapsed.

Independent Auditors

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

In accordance with the Corporate Law and the Financial Instruments andof members selected from among external academic experts, lawyers,

Exchange Law, the Company has concluded an auditing contract withcertified public accountants, etc.

To ensure the objectivity, fairness and rationality of decisions of the

KPMG AZSA & Co. for the auditing of the Company’s accounts. There are

If the large-scale purchase will significantly damage the corporate

no conflicts of interest between Sumitomo Realty and the independent

value and common interests of shareholders, after considering theauditing company or its employees.

opinions of external experts, including lawyers and financial advisors,
and taking into the fullest account the recommendations of the special

18

Internal Control and Risk Management Systems

committee, the Board of Directors may take countermeasures to deterTo efficiently institute sound management practices, the Company has

the purchase, such as the issuance of stock options.

ANNUAL REPORT 2010

Financial Section
Six-Year Financial Summary
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
Years ended March 31
Millions of Yen

2010

2009

2008

2007

2006

2005

For the Year
Revenue from operations¥719,636¥695,240¥691,928¥676,834¥646,525¥616,115

Leasing

293,533

298,359

279,568

262,620234,280

221,234

Sales

219,662

191,224

193,575

211,035

224,735

224,191

Construction

158,214160,134

156,606

142,564

135,158

127,388

Brokerage

44,621

43,10558,54256,532

49,21743,445

Cost of revenue from operations

534,270

496,547

488,202490,491

487,805

470,636

SG&A expenses

51,38752,327

49,11849,167

46,69745,188

7.1%

7.5%

7.1%

7.3%

7.2%

7.3%

133,979

146,366

154,608

137,176

112,023

100,291

18.6%

21.1%

22.3%

20.3%

17.3%

16.3%

18,065

17,886

17,15015,677

16,33014,019Current assets¥  802,693¥  759,816¥  784,195¥  756,488¥  619,219¥  481,341

Sales inventory*1

584,756

568,970

550,863531,377

388,627

260,6133,168,098

3,006,412

2,894,004

2,747,900

2,460,080

2,136,329

488,896436,667

427,423

409,197375,656

320,098

1,785,854

1,722,733

1,548,509

1,343,824

1,150,880

935,155

Net income¥   111.04¥ 97.39¥133.00¥105.92¥ 68.33¥ 32.64

Shareholders’ equity

1,030.93

920.74900.57861.93790.74673.40

20.00

20.00

18.00

14.00

10.00

9.00

Equity ratio (%)

15.4

14.5

14.8

14.9

15.3

15.0

ND/E ratio (Times)

3.7

3.9

3.6

3.3

3.1

2.9

% of revenue from operations
Operating income% of revenue from operations
Depreciation and amortization
At Year-End

Total assets
Shareholders’ equity*2
Net interest-bearing debt
Per Share Amounts (Yen)

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

Contents

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

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

19

Management’s Discussion and Analysis
Overview and the Fifth Management Plan

Other Income and Expenses

In the March 2010 fiscal year, the final year of the Fourth Management

Net other expenses improved to ¥42.8 billion, from ¥67.1 billion in thePlan, we achieved our 13th consecutive year of gains in revenue fromprevious fiscal year. Major items included a substantial decline in loss on

operations, which surpassed ¥700.0 billion for the first time.

devaluation of investments in securities, which was down ¥12.4 billion,

Although operating income and ordinary profit both declined for theand loss on devaluation of inventories, which was ¥13.8 billion in the pre-second year in a row, ordinary profit exceeded ¥100.0 billion for the fourth

vious fiscal year but was not recorded in the year under review. Interest

consecutive year.

expense, net, edged down 0.4%, to ¥29.6 billion.

In the year under review, we completed the Fourth Plan, which commenced in April 2007. Due to the substantial deterioration in economic

Net Income

conditions, which exceeded expectations, we were unable to extend ourIncome before income taxes and minority interests totaled ¥91.2 billion,

record of 11 consecutive years of higher profit. However, as with previous

an increase of 15.1%. Income taxes increased 15.3%, to ¥36.9 billion.

plans, we succeeded in achieving higher revenue and profit over the

As a result, net income rose 14.0%, to ¥52.7 billion, and the net margin

three-year period covered by the plan.

improved to 7.3%, from 6.6% in the previous fiscal year.

Under the Fifth Plan, which was commenced in April 2010, we anticipate year-on-year gains in revenue and profit from the first year of the

CASH FLOWS

plan. We will strive to return to a course of growth in revenue and profit

Cash and cash equivalents at end of year totaled ¥149.3 billion, an

and to achieve record high results in the final year of the plan, ending

increase of ¥24.4 billion from the end of the previous year. Cash flows

March 2013. For further information, please see Message from thewere as follows.

Management on pages 2 to 3.
Cash Flows from Operating Activities
Results of Operations

Net cash provided by operating activities was ¥93.8 billion. In comparison

Revenue from Operations and Operating Income

with the previous year, income before income taxes and minority interests

We recorded lower revenue and profit in leasing operations due to higher

increased. In addition, sales of condominiums in inventory were favor-

vacancy rates in existing buildings. Despite the difficult environment, weable, generating cash flows. Consequently, cash flows from operatingwere able to maintain results at a stable level, due to our quality leasing

activities increased ¥146.5 billion.

portfolio and additions of new buildings. In sales operations, the numberof condominium units sold increased by 50% year on year, but the profit

Cash Flows from Investing Activities

margin declined, and consequently we recorded higher revenue but lower

Net cash used in investing activities was ¥167.6 billion. As new develop-

profit. In construction operations and brokerage operations, we regis-

ment investment in the leasing segment, we made payments for pur-tered gains in profit, due primarily to cost reductions.

chases of property and equipment amounting to ¥114.1 billion. We also

As a result, in the fiscal year under review revenue from operations wasrecorded a refund of about ¥34.6 billion in deposits from partnershipup 3.5%, to ¥719.6 billion, but operating income fell 8.5%, to ¥134.0 bil-investors.

lion. For further information about each segment, please see the Review
of Operations section on pages 6 to 16.

Cash Flows from Financing Activities
Net cash provided by financing activities was ¥98.4 billion. For investment

Revenue from Operations

Operating Income andOperating Margin(Billions of Yen)

(Billions of Yen)

800

600

646.5

676.8

691.9

695.2

719.6

730.0

160

137.2
120

400

154.6

22.3

20.3

‘08

‘09

‘10

‘11

FORECAST

150

112.4

18.5

18.6

0

‘07

‘08

‘09

Operating Income
Operating Margin (right scale)

‘10

‘11

FORECAST

113.6

87.0
50.3

50
10

‘06

125.2

20

21.1

0

‘07

40

100

40

‘06

(Billions of Yen)

30

17.3

0

(%)

135.0

134.0

112.0

80

200

146.4

Ordinary Proﬁt* andNet Income

63.1
46.2

32.5

100.5

52.7

ANNUAL REPORT 2010

53.0

0

‘06

‘07

‘08

‘09

‘10

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

20

101.0

‘11

FORECAST

in leasing facilities and long-term fund raising stability, increase inMillions of Yen

long-term debt was ¥155.2 billion. In addition, issuance of bonds andnotes was ¥90.0 billion. On the other hand, decrease in short-term

2010

2009

Amountchange%change¥ 230,250¥ 270,970¥ −40,720−15.0%

97,975

174,900−76,925−44.0%

328,225445,870−117,645−26.4%

420,000

370,000

50,00013.5%

1,066,941

911,757

155,184

17.0%

Short-term debt:

debt was ¥117.6 billion. Consequently, interest-bearing debt reached

Principally from banks¥1,935.2 billion.

Commercial paper
Subtotal

Capital Resources and Liquidity
AssetsLong-term debt:

At the end of the year under review, total assets were ¥3,168.1 billion, an

Bonds and notes

increase of 5.4%. This gain was principally due to an increase in property

Loans principally from banks

and equipment stemming from investment in leasing facilities. Total cur-

Perpetual subordinated loan

rent assets increased 5.6%, to ¥802.7 billion. Net property and equipment

120,000

120,000——

1,606,941

1,401,757

205,184

14.6%

273,621

160,410113,21170.6%

one year

1,333,320

1,241,347

91,973

7.4%

Interest-bearing debt

1,935,166

1,847,627

87,539

4.7%

Subtotalincreased 5.3%, to ¥1,896.4 billion.

Long-term debt due within
one year

Liabilities

Long-term debt due after

Total liabilities at the end of the year under review were up 4.3% fromthe previous fiscal year-end, to ¥2,660.7 billion. Total current liabilities
increased 5.1%, to ¥945.2 billion. This was primarily attributable to anincrease of 70.6%, to ¥273.6 billion, in long-term debt due within one
year. Total long-term liabilities were up 3.8%, to ¥1,715.5 billion, mainly

Shareholders’ Equity

due to an increase of 7.4% in long-term debt due after one year, toShareholders’ equity was up 12.0% year on year, to ¥488.9 billion. Net¥1,333.3 billion.

income was ¥52.7 billion, and retained earnings increased ¥40.4 billion

As a result, at the end of the fiscal year, interest-bearing debt wasyear on year. In addition, net unrealized holding losses on securities

up ¥87.5 billion, to ¥1,935.2 billion. Interest-bearing debt includes a

decreased by ¥12.4 billion. Consequently, the equity ratio was 15.4%,

perpetual subordinated loan of ¥120.0 billion that the Company took out

compared to 14.5% a year earlier. Allowing for the capital nature of the

on February 22, 2008. Based on the uncertain economic conditions inperpetual subordinated loan, the effective equity ratio was 18.3%.

recent years, this subordinated loan, which received a high level of equity

ROE rose to 11.4%, from 10.7% a year earlier, while ROA was 4.4%,

credit—75%—from the Japan Credit Rating Agency, was intended to in-compared to 5.1% the previous year.

crease effective shareholders’ equity as a provision for future financial
risk while avoiding equity dilution. For the Company, which willcontinue to implement development investment for further growth,
we believe that this method of raising funds is effective in increasing
our financial stability.
For further information, please see “Overview of Perpetual Subordinated Loan and New Stock Subscription Rights” on page 23.

Total Assets

Shareholders’ Equity andEquity Ratio(Billions of Yen)

(Billions of Yen)

(%)

(%)

4,000

600

30

16

3,000

2,460.1

2,747.9

2,894.0

3,006.4

3,168.1
400

375.7

488.9

436.7

427.4

409.2

ROE and ROA

15.3

200

14.9

9.3

10.7

8

15.4

14.5

14.8

12.8

12
20

2,000

15.1

10

1,000

5.0

5.4

5.6

5.1

4.4

‘06

‘07

‘08

‘09

‘10

4

0

0

‘06

‘07

‘08

‘09

‘10

0

‘06

‘07

‘08

‘09

‘10

11.4

0

Shareholders’ Equity

ROE (Net Income / Shareholders’ Equity)

Equity Ratio (right scale)

ROA (Operating Income + Interest and Dividend Income /Total Assets)
SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

21

FINANCIAL STRATEGY

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

Strengthening Financial Position

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

Recently, it has become increasingly difficult to acquire large prime sites.

years are required from the acquisition of a site to the completion of aIn this setting, Sumitomo Realty has implemented a policy centered onbuilding and the generation of revenue. In addition, significant advanceurban redevelopment for future site acquisition. Consequently, we haveinvestment is required. In consideration of these factors, under the threealready acquired the land needed for the fifth and sixth plans. Due to the

mid-term management plans from April 1997, to reinforce our financial

need to coordinate rights among landowners, redevelopment requires

position and achieve operational growth, we worked to diversify our fund-time and effort, but on the other hand comparatively high levels of profit

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

can be expected.

investments needed for growth.

In addition to moving ahead with these types of investments, we are

Specifically, we have aggressively introduced development securitiza-

steadily strengthening our financial position. For site acquisition, in rede-tion methods using SPCs. With SPCs where off-balance-sheet funds arevelopment projects it is difficult to raise funds through SPCs that utilize

raised through non-recourse loans, we have worked to conduct develop-

non-recourse methods, which means that we need to use on-balance-

ment on a large-scale with a small amount of equity money without

sheet fund-raising methods. Accordingly, to maintain a stable financial

placing a burden on our balance sheet. At the end of March 2010, theposition even in a worsening financial environment, we raised ¥120.0

balance of the Company’s equity investments in SPCs was ¥137 billion,

billion in February 2008 through a perpetual subordinated loan. Thisand the balance of the non-recourse loan and other off-balance-sheet

subordinated loan, which received a high level of equity credit—75%—

debt was approximately ¥573 billion, for a total of approximately ¥710

from a rating agency, was intended to increase effective shareholders’billion. In addition, to diversify our fund-raising methods in order to con-equity while avoiding equity dilution. Aiming for further growth, the Com-trol interest-bearing debt, we have formed SURF (Sumitomo Realty &pany will continue to invest in development, as this is a useful method of

Development Fund) investment partnerships backed by leased buildings,

fund-raising from the viewpoint of increasing financial stability.

making effective use of our assets in our fund-raising activities. At the

We are bolstering equity through the generation of profit. In the Marchend of March 2010, the balance of investment received in SURF invest-

2013 fiscal year, the final year of the Fifth Plan, which began in April

ment partnerships was ¥133 billion which was recorded on the balance

2010, we expect to improve the ND/E ratio, including the debt of SPCs, tosheet as deposits received. For further information regarding SPCs,

about 4 times from 4.8 times in the year under review.

please see Note 23 on pages 45 to 46.

In addition, the cash flow generated by our core leasing business is

By actively utilizing these types of fund-raising methods that do not

more than ¥100.0 billion, reaching ¥114.3 billion in the year under review,

rely on interest-bearing debt, we have raised large amounts of funds

1.7 times the level of five years ago. This represents increased operational

without having to sell assets at low prices, and have aggressively ac-

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

quired sites when site acquisition costs are low and there are investment

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

opportunities. Consequently, our site acquisition has proceeded accord-

stable. Ratings agencies have evaluated this stability highly, and we haveing to plan, and we were able to achieve substantial growth in revenue

maintained our ratings even in a difficult financial environment. For more

and profit over decade.

details, please see the Leasing Cash Flows graph on the next page.
We are also working to raise funds at fixed, long-term rates as aprecaution against future increases in interest rates. As a result, at theend of the year under review, long-term debt accounted for 83% ofLong-Term Debt Ratio and
Fixed-Interest Rate Debt Ratio

Interest Coverage Ratio(Times)(%)(Billions of Yen)

8

100

180

Net Interest-Bearing Debt (ND)
and ND/E Ratio(Billions of Yen)
2,000

1,548.5

1,500

1,150.9

1,722.7

1,785.9
6

1,343.8

60

83

77

80

80

79

85
83

76

83

500

3.6

3.3

3.1

3.7

3.9

120

2

6.8

0

‘06

22

‘07

‘08

‘09

‘10

6.2

4.9

60

20

20.6

17.6
0

0

136.5
8

114.0
6.5

40

150.1

139.5

4

1,000

12

158.1

81

77

(Times)

30.4

25.6

4.6
29.8

0

‘06

‘07

‘08

‘09

‘10

0

‘06

‘07

‘08

‘09

‘10

Net Interest-Bearing Debt (ND)

Short-Term Loans and Commercial Paper

Operating Income + Interest and Dividend Income

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

Interest Expense

Fixed-Interest Rate Debt Ratio

Interest Coverage Ratio (right scale)

ANNUAL REPORT 20104

interest-bearing debt, and fixed-interest rate debt accounted for 81%

DIVIDEND POLICY

of interest-bearing debt.

Our fundamental policy for the distribution of profit is to maintain aSite acquisition is essential to the achievement of ongoing growth.

stable base level of dividends and, while retaining a sufficient level ofMoving forward, we will continue to strengthen our financial position andearnings for stable, long-term operational growth, to increase dividends

work to achieve increased fund-raising stability as we continue to invest

in line with growth in profit.

in growth, centered on the core leasing business.

We have implemented four plans since April 1997. We steadilystrengthened our profit foundation under two management plans—the

Overview of Perpetual Subordinated Loan andFirst Plan and the Second Plan. In addition, we worked to respond to

New Stock Subscription Rights

various changes in accounting standards and to reduce unrealized

The perpetual subordinated loan entails the allotment of new stock

losses. Over this period, due to comparatively large special losses, net

subscription rights with the objective of the creditor to secure a method

income fluctuated, but we maintained annual dividends at ¥6.00 perof recovering its investment. In regard to the new stock subscription

share. At the conclusion of the Second Plan, we raised dividends to therights, consideration has been given to limiting the possibility of dilution

bubble-period level: ¥9.00 per share.

upon execution.

Under the Third Plan, which began in April 2004, we completed theimplementation of measures to deal with unrealized losses, and were

Overview of Perpetual Subordinated Loan

able to lay the foundation for full-scale growth in EPS. Due to the suc-Amount:¥120.0 billion

cess of the Third Plan, for the March 2007 fiscal year, the final year of the

Borrower:

Sumitomo Realty & Development Co., Ltd.

Third Plan, dividends were raised to ¥14.00 per share.

Lender:Sumitomo Mitsui Banking Corporation(Trust Account)

Effective date:February 22, 2008

Maturity date:No fixed date*1

Applicable interest rate*2:(1) From February 22, 2008 to February 21, 2013:
3 Month Yen TIBOR + 1.10%(2) F rom February 22, 2013:
3 Month Yen TIBOR + 2.10%

Under the Fourth Plan, profit rose, and as a result we increased
dividends over the three years to ¥20.00. In the year under review,the final year of the Fourth Plan, operating income and ordinary profit
declined, but ordinary profit remained above ¥100.0 billion for the fourthconsecutive year. With a focus on the continuation of stable dividends
in consideration of profit level, per-share dividends remained the same,at ¥20.00. In addition, we also plan per-share cash dividends of ¥20.00
for the March 2011 fiscal year. Moving forward, in accordance with our

Overview of New Stock Subscription Rights
Sumitomo Mitsui Banking Corporation(Trust Account)

Allotted to:
Number of shares fromsubscription rights*2:
New share subscription
right exercise period:

judgment that we need to further bolster equity, we will continue tofollow a policy of implementing dividend increases in accordance with

49,180,327 shares

growth in profit.

February 22, 2008, to February 22, 2058*

3

95% of market price (average of the closing
price over the previous 20 business days),minimum exercise price: ¥1,087

Exercise price:*1 H
 owever, voluntary repayment is possible in the event that five years have passed from the dateof the loan (i.e., February 22, 2013 and thereafter), and certain other conditions are met.
*2 As of the effective date of the perpetual subordinated loan.
*3 P rior to February 22, 2014, the rights cannot be exercised unless perpetual subordinated loaninterest payments have been stopped. Voluntary repayment is possible on or after February 22,
2013. In the event of repayment, the new stock subscription rights will become unexercisable,
and the Company will acquire the new stock subscription rights at no cost.

Leasing Cash Flows

Leasing Assets andReturn on Leasing Assets(Billions of Yen)

(Times)

150

30

98.1

100

121.5

109.3

(Billions of Yen)(%)

(Billions of Yen)

3,000

12

150

114.3
20

78.5

2,000

1,620.0

15.6
14.7

50

14.2

13.7

Cash Dividends Per Share, Ordinary Proﬁt
and Income Before Income Taxes

14.2

10

1,787.4

1,993.6

45

8

100

0

‘06

‘07

‘08

‘09

‘10

50

0

‘06

‘07

‘08

‘09

‘10

14.0

100.5

79.3

61.5
4

0

114.0 113.6

92.1

87.0

10.0
0

125.2

112.4

6.1

6.8

6.4

6.3

5.5

1,000

1,949.8

2,088.0

(Yen)

18.0

91.2

101.0

91.0

20.0

20.0

20.0

‘09

‘10

‘11

0

30

15

0

‘06

‘07

‘08

Leasing Cash Flows

Leasing Assets

Ordinary Proﬁt

ND/Leasing Cash Flows Ratio (right scale)

Return on Leasing Assets (right scale)

Income before Income Taxes

FORECAST

Cash Dividends per Share (right scale)
SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

23

Consolidated Balance Sheets
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
As of March 31, 2010 and 2009
Thousands of U.S. Dollars(Note 1)Millions of Yen

Assets

2010

2009

2010

¥ 149,313¥ 124,894$ 1,604,653

Marketable securities (Notes 7 and 8)

2,705

3

29,070Investments in SPCs holding properties for sale (Notes 7 and 8)

62,88550,085675,819

Notes and accounts receivable–trade (Note 7)

17,232

11,559185,192

Loans receivable (Note 7)

15,195

21,188163,299

(681)

(734)

(7,319)Current assets:Cash, time and notice deposits (Notes 3 and 7)

Allowance for doubtful accounts (Note 7)
Inventories (Note 4)

521,871

518,885

5,608,501

Deferred income taxes (Note 16)

13,743

10,569147,695

Other current assets

20,43023,367

219,560

		 Total current assets

802,693759,816

8,626,470

5,779

5,845

62,106

Investments in securities and other (Notes 7 and 8)

244,760

211,052

2,630,414

Allowance for doubtful accounts(14,960)(14,583)(160,774)

		 Total investments and advances

235,579

202,314

2,531,746

Investments and advances:Investments in and advances to unconsolidated subsidiaries and affiliates(Notes 5 and 7)

Property and equipment:
1,490,605

1,438,071

16,019,398

Buildings and structures (Notes 4, 6 and 22)

523,544464,6935,626,480

Machinery and equipment (Notes 4, 6 and 22)

17,741

15,844

190,661

Leased assets

1,222

869

13,133

Land (Notes 4, 6 and 22)

Construction in progress (Notes 4 and 22)

60,051

61,824645,363

2,093,163

1,981,301

22,495,035

Accumulated depreciation(196,752)(179,893)(2,114,476)

		 Net property and equipment

1,896,411

1,801,408

20,380,559

Guarantee and lease deposits paid to lessors (Note 7)

166,571

170,090

1,790,124

Leasehold rights and other intangible assets

51,363

51,664551,994

Deferred income taxes (Note 16)

8,802

17,857

94,594

Other assets:

Other
		 Total other assets
			 Total assets
See accompanying notes.

24

ANNUAL REPORT 2010

6,679

3,263

71,778233,415

242,874

2,508,490¥3,168,098¥3,006,412$34,047,265

Thousands of U.S. Dollars(Note 1)Millions of Yen

Liabilities and Net Assets

2010

2009

2010

Current liabilities:¥  328,225¥ 445,870$ 3,527,405

Long-term debt due within one year (Notes 6, 7 and 9)273,621

160,4102,940,580

Notes and accounts payable–trade (Note 7)

54,171

39,691

582,171

Accrued income taxes (Note 16)

20,902

17,317

224,632

Accrued bonuses

2,760

2,790

29,661

Deposits received (Notes 7 and 17)

187,537

173,179

2,015,443

Other current liabilities

78,00959,946

838,357

		 Total current liabilities

945,225

899,203

10,158,249

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

1,333,320

1,241,347

14,329,070

Guarantee and deposits received (Notes 7 and 17)

370,326

400,480

3,979,861

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

4,970

4,987

53,412Other long-term liabilities

6,857

5,970

73,691

1,715,473

1,652,784

18,436,034

Short-term debt (Notes 7 and 9)

Long-term liabilities:

		 Total long-term liabilities

Contingent liabilities (Note 24)

Net assets (Note 18):
Common stock:		 Authorized – 1,900,000 thousand shares
122,805

122,805

1,319,774

Capital surplus

132,748

132,750

1,426,631

Retained earnings

248,836

208,458

2,674,218(3,543)(3,493)(38,076)

500,846

460,520

5,382,547

Net unrealized holding losses on securities(3,393)(15,773)(36,464)

Net deferred losses on hedges(2,591)(2,318)(27,845)

Foreign currency translation adjustments(5,966)(5,762)(64,117)(11,950)(23,853)(128,426)

		 Issued     – 476,086 thousand shares

Treasury stock

Minority interests

18,50417,758

198,861		 Total net assets

507,400

454,425

5,452,982¥3,168,098¥3,006,412$34,047,265

			 Total liabilities and net assets

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

25

Consolidated Statements of Income
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2010, 2009 and 2008
Thousands of U.S. Dollars(Note 1)Millions of Yen

2010

2009

2008

2010

¥719,636¥695,240¥691,928$7,733,864

Cost of revenue from operations

534,270

496,547

488,2025,741,752

Selling, general and administrative expenses

51,38752,327

49,118552,252

585,657

548,874

537,320

6,294,004

133,979

146,366

154,608

1,439,860(29,591)(29,718)(24,619)(318,012)

2,339

3,053

2,494

25,137

53

10

174

570

Revenue from operations
Costs and expenses:

Operating income
Other income (expenses):
Interest expense, net
Dividend income
Gain on sale of property and equipment

—

(657)

(61)

—

Loss on impairment of fixed assets (Note 11)

Loss on sale of property and equipment(7,826)(165)(4,292)(84,105)

Loss on disposal of property and equipment

(999)

(93)

(1,035)(482)

Gain on sale of investments in securities

1

28

3

11

Loss on sale of investments in securities

(56)

(235)

(1)

(602)

Loss on devaluation of investments in securities(1,837)(14,188)(5,111)(19,742)Dividend to partnership investors(31,639)(2,944)(3,135)(3,487)

Gain on prior periods adjustment (Note 13)

—

1,023

—

—

Gain on adjustment of accrued rent payable (Note 12)

645

—

2,385

6,932

Compensation income

147

—

—

1,580

Loss on devaluation of inventories (Note 14)—(13,770)——

Loss on devaluation of real estate for sale——

(2,098)—Loss on devaluation of common stocks of affiliates(10)(3,545)—(107)

Repair expenses for prior periods construction (Note 15)—(1,641)——(3,599)(3,137)(5,543)(38,680)(42,771)(67,112)(40,638)(459,656)

91,20879,254113,970

980,204

Current

35,13729,362

43,521

377,614

Deferred

1,805

2,686

4,094

19,398

		 Total

36,942

32,04847,615397,012

Minority interests

1,604

1,001

3,222

17,238¥ 52,662¥ 46,205¥ 63,133$ 565,954

2010

2009

2008

2010

¥111.04¥97.39¥133.00$1.19– Diluted

92.11

86.30

131.86

0.99

Cash dividend applicable to the year

20.00

20.00

18.00

0.21

Other, net
Income before income taxes and minority interests
Income taxes (Note 16):

Net income

Yen

U.S. Dollars (Note 1)

Amounts per share of common stock:
Net income:– Basic

See accompanying notes.

26

ANNUAL REPORT 2010

Consolidated Statements of Changes in Net Assets
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2010, 2009 and 2008
Thousands

Millions of Yen
Shareholders’ equity

Balance at March 31, 2007
Net income
Foreign currency
	  translation adjustments
Net unrealized holding	  losses on securities
Acquisition of treasury stock
Gains on sale of treasury stock
Cash dividends paid:
		 Final for prior year (¥8 per share)
		 Interim for current year		  (¥8 per share)
Minority interests
Net deferred losses on hedges
Balance at March 31, 2008
Net income
Foreign currency
	  translation adjustments
Net unrealized holding	  losses on securities
Acquisition of treasury stockGains (losses) on sale of treasury
stock
Change of scope of consolidation
Cash dividends paid:
		 Final for prior year (¥10 per share)
		 Interim for current year		  (¥10 per share)
Minority interests
Net deferred losses on hedges
Balance at March 31, 2009
Net income
Foreign currency
	  translation adjustments
Net unrealized holding	  gains on securities
Acquisition of treasury stockGains (losses) on sale of treasury
stock
Change of scope of consolidation
Cash dividends paid:
		 Final for prior year (¥10 per share)
		 Interim for current year		  (¥10 per share)
Minority interests
Net deferred losses on hedges
Balance at March 31, 2010

Valuation and translation adjustments

Number ofshares ofcommonstock

Commonstock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’equityNet
unrealized
holding
gains (losses)
on securities

476,086—¥122,805—¥132,754—¥120,691
63,133¥(2,254)—¥373,996
63,133¥36,792—¥    (73)—¥(1,518)—¥  35,201—¥17,850—¥427,047
63,133

—

—

—

—

—

—

—

—

(723)

(723)

—

(723)

—
—
—

—
—
—

—
—
5

—
—
—

—
(502)
9

—
(502)
14

(33,922)
—
—

—
—
—

—
—
—

(33,922)
—
—

—
—
—

(33,922)
(502)
14

—

—

—

(3,798)—(3,798)

—

—

—

—

—

(3,798)———476,086————
122,805————
132,759—(3,797)——
176,229
46,205———(2,747)—(3,797)——429,046
46,205

—
—
—
2,870
—

—
—
(2,179)(2,252)————(2,241)———(2,179)(1,623)
—

—
2,062
—
19,912—(3,797)
2,062(2,179)447,335
46,205

—

—

—

—

—

—

—

—

(3,521)(3,521)—(3,521)

—
—

—
—

—
—

—
—

—
(842)

—
(842)

(18,643)
—

—
—

—
—

(18,643)———(18,643)
(842)

—
—

—
—

(9)
—

—
(4,487)96—

87(4,487)

—
—

—
—

—
—

—
—

—
—

87
(4,487)———(4,746)—(4,746)

—

—

—

—

—

(4,746)———
476,086————
122,805————
132,750—(4,743)——
208,458
52,662———(3,493)—(4,743)——
460,520
52,662———(15,773)
—

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

—

—

—

—

—

—

—

—

(204)

(204)

—

(204)

—
—

—
—

—
—

—
—

—
(55)

—
(55)

12,380—————12,380———12,380
(55)

—
—

—
—

(2)
—

—
(2,799)5—

3(2,799)

—
—

—
—

—
—

—
—

—
—

3
(2,799)———(4,743)—(4,743)

—

—

—

—

—

(4,743)———476,086———¥122,805———¥132,748(4,742)——¥248,836———¥(3,543)(4,742)——¥500,846———¥(3,393)——(273)¥(2,591)———¥(5,966)——(273)¥(11,950)—
746—¥18,504(4,742)746(273)¥507,400Net
deferred
losses onhedgesForeigncurrencytranslation
adjustments

Totalvaluation andtranslation
adjustments

Minority
interests

Total
net
assetsThousands of U.S. Dollars (Note 1)
Shareholders’ equity

Commonstock

Balance at March 31, 2009
Net income
Foreign currency
	  translation adjustments
Net unrealized holding	  gains on securities
Acquisition of treasury stockGains (losses) on sale of treasury
stock
Change of scope of consolidation
Cash dividends paid:
		 Final for prior year ($0.11 per share)
		 Interim for current year		  ($0.11 per share)
Minority interests
Net deferred losses on hedges
Balance at March 31, 2010
See accompanying notes.

CapitalsurplusRetainedearnings$1,319,774 $1,426,652 $2,240,280——
565,954

Valuation and translation adjustments
Net
unrealized
holding
losses on
securities

Treasury
stock

Total
shareholders’equityNetdeferred
losses onhedgesForeigncurrencytranslation
adjustments

Totalvaluation andtranslation
adjustments

Minority
interests

Total
net
assets$(37,539)—$4,949,167 $ (169,511) $(24,911)
565,954——$(61,924)—$(256,346)—$190,844—$4,883,665
565,954

—

—

—

—

—

—

—

(2,193)(2,193)—(2,193)

—
—

—
—

—
—

—
(591)

—
(591)

133,047
—

—
—

—
—

133,047———

133,047
(591)

—
—

(21)
—

—
(30,081)54—

33(30,081)

—
—

—
—

—
—

—
—

—
—

33
(30,081)——(50,973)—(50,973)

—

—

—

—

—

(50,973)——(50,962)—(50,962)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,934)$1,319,774 $1,426,631 $2,674,218 $(38,076) $5,382,547 $ (36,464) $(27,845)———(50,962)
—
—
8,017
8,017
—
(2,934)—(2,934)$(64,117) $(128,426) $198,861 $5,452,982
SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

27

Consolidated Statements of Cash Flows
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2010, 2009 and 2008
Thousands of U.S.
Dollars (Note 1)

Millions of Yen

2010

2009

2008

2010

¥ 91,208
18,065
7,826
325
(17)
—
—
(53)
93
55
1,837
10
(2,560)29,812(12,800)(5,671)(5,190)604
14,478
10,876
7,543
156,441¥ 79,254
17,886165(1,086)342
13,770
—
647
1,035
207
14,1883,545(3,735)30,400(11,090)2,519(106,778)(3,108)612(2,510)(25,450)
10,813¥113,970
17,1504,292(35,886)
(122)
—
2,098
(114)
482
(3)
5,111
—
(3,484)25,609(1,644)
7,325(71,116)
16,564(18,087)(7,250)(10,730)
44,165$ 980,204
194,143
84,105
3,493
(183)
—
—
(570)
999
591
19,742
107(27,512)
320,387(137,560)(60,946)(55,776)
6,491
155,594
116,883
81,065
1,681,257

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

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

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

3,485(25,181)(41,917)(19,448)

27,512(313,186)(387,501)
1,008,082

Cash flows from investing activities:
Payments for purchases of property and equipment
Proceeds from sale of property and equipment
Payments for purchases of investments in securities
Proceeds from sale of investments in securities
Payments for guarantee and lease deposits paid to lessors
Proceeds from guarantee and lease deposits paid to lessors
Payments for guarantee and lease deposits received
Proceeds from guarantee and lease deposits received
Receipts of deposits from partnership investors
Restitution of deposits from partnership investors
Other, net
Net cash used in investing activities(114,060)
54(15,243)
2,713(1,445)
4,125(23,319)
15,38230,907(65,487)(1,220)(167,593)(84,620)
20,245(16,586)
17,657(3,231)
12,709(15,060)
22,21247,455(112,336)
1,408(110,147)(144,016)
926(40,449)
7,336(4,298)
16,615(21,260)
30,840110,874(95,902)559(138,775)(1,225,793)
580(163,815)
29,156(15,529)
44,331(250,607)
165,309332,155(703,783)(13,111)(1,801,107)

Cash flows from financing activities:
Increase (Decrease) in short-term debt
Proceeds from issuance of bonds and notes
Redemption of bonds and notes
Increase in long-term debt
Increase (Decrease) in assignment of receivables
Net increase in treasury stocks
Cash dividends paid
Other, net
Net cash provided by financing activities(117,645)
90,000(40,000)
155,184
6,711(52)(10,334)
14,57398,437

161,650—(15,000)
35,944
1,138(756)(10,508)964
173,432(21,800)
100,000(66,567)
179,765(34,715)(488)(8,466)(2,999)144,730(1,264,320)
967,222(429,876)
1,667,749
72,123(559)(111,059)
156,614
1,057,894(230)(1,150)206(2,472)

24,416
124,897
2

9,462
116,536479(13,287)
129,823—

262,397
1,342,257
21—¥149,315(1,580)¥124,897—¥116,536—$1,604,675

Cash flows from operating activities:
Income before income taxes and minority interests
Depreciation and amortization
Loss on impairment of fixed assets (Note 11)
Provision for (Reversal of) allowance for doubtful accounts
Increase (Decrease) in employees’ severance and retirement benefits
Loss on devaluation of inventories (Note 14)
Loss on devaluation of real estate for sale
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 on devaluation of investments in securities
Loss on devaluation of common stocks of affiliates
Interest and dividend income
Interest expense
Increase in investments in SPCs holding properties for sale
Decrease (Increase) in notes and accounts receivable–trade
Increase in inventories
Decrease (Increase) in loans receivable
Increase (Decrease) in notes and accounts payable–trade
Increase (Decrease) in advances received
Other, net
		 Total

Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash and cash equivalents of newly consolidated subsidiaries
Decrease in cash and cash equivalents resulting from exclusion ofsubsidiaries from consolidation
Cash and cash equivalents at end of year (Note 3)
See accompanying notes.

28

ANNUAL REPORT 2010

Notes to Consolidated Financial Statements
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
As of and for the years ended March 31, 2010, 2009 and 2008

1. Basis 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 Law 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 from International Financial Reporting Standards.
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 countries of
domicile. The accompanying consolidated financial statements have been
restructured and translated into English (with certain expanded disclosure) 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 Law. Certain supplementary
information included in the statutory Japanese-language consolidated
financial statements, but not required for fair presentation, is not presented 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, 2010, which was ¥93.05 to U.S. $1.
The translation should not be construed as representations that theJapanese 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) Significant accounting policy
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.
Effective from the year ended March 31, 2008, the Company and its
consolidated subsidiaries adopted the new accounting standard, “Implementation Guidance on Disclosures about Certain Special Purpose
Entities” (Accounting Standards Board of Japan Guidance No. 15, issued
on March 29, 2007).
In accordance with the new accounting standard, the Company has
provided an overview of Special Purpose Entities (SPEs) funded byinvestments from the Company, including Special Purpose Companies(SPCs), Tokutei Mokuteki Kaisha (TMKs) and limited partnerships (“Tokumei Kumiai”). The Company has also provided an overview of SPEs’
transactions, such as the amount of transactions, with SPEs in Note 23(Relationships with special purpose entities subject to disclosure).
(2) Foreign currency translation
Receivables and payables denominated in foreign currencies are translated into Japanese yen at the year-end rates.
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 the 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 investments withmaturities not exceeding three months at the time of purchase areconsidered to be cash and cash equivalents.
(4) Recognition of revenue
Revenues from sales of land and residential houses are recognized whenunits are delivered and accepted by customers. Revenues from leasing of
office space, shops and apartments are recognized as rent accrues overthe lease term.
(5) Inventories
Effective from the year ended March 31, 2009, the Company and its consolidated subsidiaries adopted the new accounting standard, “AccountingStandard for Measurement of Inventories” (Statement No.9 issued by the
Accounting Standards Board of Japan on July 5, 2006) and changed themeasurement standard for inventories. The new measurement standard
writes down the book value due to a decline in profitability of real property.
As a result of adopting the new accounting standard and recognizing
loss on devaluation of real property, operating income decreased by¥1,777 million, and income before income taxes and minority interests
decreased by ¥15,547 million for the year ended March 31, 2009, compared to what would have been reported under the previous accounting
standard.
(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 market values are stated at fairmarket value. Unrealized gains and losses on these securities arereported, net of applicable income taxes, as a separate component of net
assets. Realized gains and losses on the sale of such securities arecomputed using moving-average cost.
Investments in SPCs holding properties for sale and senior securities
are stated at cost determined by the specific identification method andsecurities with no available fair market value are stated at movingaverage cost.
Investments in silent partnerships, which are regarded as securities
under the Financial Instruments and Exchange Law, are accounted for in amanner similar to the equity method based on recent financial statements.
If the market value of held-to-maturity securities, investments in
subsidiaries and affiliates, available-for-sale securities and investments
in SPCs holding properties for sale declines significantly, such securities
are stated at fair market value and the difference between fair market
value and the carrying amount is recognized as a loss in the period of thedecline. If the fair market value of investments in unconsolidated subsidiaries and affiliated companies not accounted for using the equity
method is not readily available, such securities should be written down to
net asset value with a corresponding charge in the income statement in
the event net asset value declines significantly. In these cases, such fairmarket value or the net asset value will be the carrying amount of the
securities at the beginning of the next year.
SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

29

(7) Property and equipment
The Company and consolidated domestic subsidiaries depreciate buildings using the straight-line method, and other property and equipmentusing the declining-balance method over their estimated useful lives.
The consolidated overseas subsidiaries depreciate property and equipment using primarily the straight-line method in accordance with theaccounting principles in the respective countries.
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
In the year ended March 31, 2008, the Company changed the depreciation method of property and equipment due to the revision of Corporate Tax Law. Residual value is no longer used for the property andequipment acquired on or after April 1, 2007. Instead, the whole acquisition cost of such property and equipment will be depreciated at the endof the useful life with 1 yen remaining as a remainder. This accountingchange had no material impact on the consolidated statements ofincome or segment information.
As for the property and equipment acquired before April 1, 2007, theirresidual values are depreciated over five years using the straight-line
method after the year in which the depreciable limit is reached.
(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
Effective from the year ended March 31, 2009, the Company and its
consolidated subsidiaries adopted the new accounting standard, “Accounting Standard for Lease Transactions” (Statement No. 13 originallyissued on June 17, 1993, and revised on March 30, 2007 by AccountingStandards Board of Japan) and “Implementation Guidance on AccountingStandard for Lease Transactions” (The Financial Accounting Standard
Implementation Guidance No. 16 originally issued on January 18, 1994,
and revised on March 30, 2007 by Accounting Standards Board of Japan).
Accordingly, with regard to finance lease transactions without title transfer, we changed the accounting method in the same manner as operatingleases into that as sales transaction, and posted them as leased assets.
Leased assets related to finance lease transactions without title
transfer are depreciated using a straight-line method over the lease
periods as their useful lives with no residual value.
The Company continues to use the previous accounting proceduresthat conform to methods related to normal lease transactions withrespect to finance lease transactions without title transfer with a leasetransaction start date prior to the initial year of application of the new
accounting standard.
30

ANNUAL REPORT 2010

The impact of this accounting change is immaterial on assets andnone on profits and losses. In addition, this accounting change has no
impact on segment information.
(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 andincome tax purposes are recognized as deferred income taxes.
(12) Employees’ severance and retirement benefits
The Company and certain of its consolidated subsidiaries provide two
types of post-employment benefit plans, lump-sum payment plans andqualified retirement pension plans, under which all eligible employees
are entitled to benefits based on their current rate of pay, length ofservice and the conditions under which termination occurs.
The liabilities and expenses for severance and retirement benefits are
determined based on the amounts actuarially calculated using certain
assumptions.
The Company and certain of its consolidated subsidiaries provided anallowance for employees’ severance and retirement benefits at March 31,
2010, 2009 and 2008 based on the estimated projected benefit obligation
at those dates.
Actuarial gains and losses are recognized in expenses in the succeeding period.
Effective from the year ended March 31, 2010, the Company and its
consolidated subsidiaries adopted “Partial Amendments to AccountingStandard for Retirement Benefits (Part 3)” (Statement No.19 issued by
the Accounting Standards Board of Japan on July 31, 2008).
This accounting change has no impact on operating income and income
before income taxes and minority interests.
(13) Construction contracts
The Company previously applied the completed-contract method forrecognizing revenues and costs of construction contracts.
Effective from the year ended March 31, 2010, the Company and its
consolidated subsidiaries adopted the new accounting standard, “Accounting Standard for Construction Contracts” (Statement No.15 issued
by the Accounting Standards Board of Japan on December 27, 2007) and“Implementation Guidance on Accounting Standard for Construction
Contracts” (Guidance No.18 issued by the Accounting Standards Board ofJapan on December 27, 2007).
Accordingly, the construction projects that were commenced in thefiscal year ended March 31, 2010 and their percentage of completion by
the end of the fiscal year under review can be reliably estimated areaccounted for by the percentage-of-completion method (the degree ofcompletion of each construction project is estimated using the costcomparison method), while other construction is accounted for by thecompleted-contract method.
This accounting change has no impact on revenue from operations,operating income and income before income taxes and minority interests
because there were no construction projects to which the percentage-ofcompletion method was applied in the fiscal year ended March 31, 2010.
(14) Financial instruments
Effective from the year ended March 31, 2010, the Company and its
consolidated subsidiaries adopted the new accounting standard, “Accounting Standard for Financial Instruments” (Statement No.10 issued
by the Accounting Standards Board of Japan on March 10, 2008) and“Implementation Guidance on Disclosures about Fair Value of Financial
Instruments” (Guidance No. 19 issued by the Accounting Standards
Board of Japan on March 10, 2008).
This accounting change has an immaterial impact on net assets andhas no impact on operating income, ordinary profit and income before
income taxes and minority interests.
(15) 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 derivative financial instruments until the related losses or gains on thehedged items are recognized.
However, in cases where forward foreign exchange contracts are usedas hedges and meet certain hedging criteria (regarding foreign exchange
contracts), the forward foreign exchange contracts and hedged items areaccounted for in the following manner:
1. If a forward foreign exchange contract is executed to hedge anexisting foreign currency receivable or payable,(a) the difference, if any, between the Japanese yen amount of thehedged foreign currency receivable or payable translated using the
spot rate at the inception date of the contract and the book value ofthe receivable or payable is recognized in the income statement in
the period which includes the inception date; and(b) the discount or premium on the contract (that is, the difference
between the Japanese yen amount of the contract translated using
the contracted forward rate and that translated using the spot rate
at the inception date of the contract) is recognized over the term of
the contract.
2. If a forward foreign exchange contract is executed to hedge a futuretransaction denominated in a foreign currency, the future transaction

will be recorded using the contracted forward rate, and no gains orlosses on the forward foreign exchange contract are recognized.
Also, if interest rate swap contracts are used as 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 isadded to or deducted from the interest on the assets or liabilities relative
to which the swap contract was executed as a hedge.
(16) Investment and rental properties
Effective from the year ended March 31, 2010, the Company and its
consolidated subsidiaries adopted the new accounting standard, “Accounting Standard for Disclosures about Fair Value of Investment andRental Property” (Statement No.20 issued by the Accounting Standards
Board of Japan on November 28, 2008) and “Guidance on AccountingStandard for Disclosures about Fair Value of Investment and Rental
Property” (Guidance No.23 issued by the Accounting Standards Board ofJapan on November 28, 2008).
(17) Amounts per share of common stock
The computation of net income per share is based on the weightedaverage number of shares of common stock outstanding during
each year.
Diluted net income per share is computed based on the amount of net
income available to the shareholders and the weighted-average numberof shares of common stock outstanding during each year after giving
effect to the dilutive potential of shares of common stock to be issued
upon the exercise of stock options.
Cash dividends per share represent actual amounts applicable to therespective year.
(18) Reclassifications and restatement
Certain prior year amounts have been reclassified to conform to the 2010
presentation.
These reclassifications had no impact on previously reported results ofoperations or retained earnings.

3. Cash and cash equivalents
Cash and cash equivalents at March 31, 2010 and 2009 consisted of the following:
Millions of Yen

2010
Cash, time and notice deposits

2010¥149,313¥124,894

2

3

22¥149,315¥124,897$1,604,675

Marketable securities
Cash and cash equivalents

Thousands of U.S. Dollars

2009$1,604,653

4. Inventories
Inventories at March 31, 2010 and 2009 were as follows:
Millions of Yen

Thousands of U.S. Dollars

2010

2009

2010

Real estate for sale¥240,517¥262,872$2,584,815

Real estate for sale in process

276,416

249,663

2,970,618

Costs on uncompleted construction contracts

3,673

4,555

39,473

Other

1,265

1,795

13,595¥521,871¥518,885$5,608,501

Total

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

31

The Company transferred amounts between inventories and property and equipment. Such transfers at March 31, 2010 and 2009 were as follows:
Millions of Yen

Thousands of U.S. Dollars

2010

2009

2010

¥(5,717)¥(127,426)$(61,440)

Inventories:
Transfer to property and equipment
Transferred from property and equipment
		 Net decrease

3,647

27,32939,194¥(2,070)¥(100,097)$(22,246)

5. Investments in and advances to unconsolidated subsidiaries and affiliates
Investments in and advances to unconsolidated subsidiaries and affiliates at March 31, 2010 and 2009 consisted of the following:
Millions of Yen

Investments in subsidiaries and affiliates

Thousands of U.S. Dollars

2010

2009

2010

¥2,874¥2,885$30,886

Advances

2,905

2,960

31,220Total¥5,779¥5,845$62,106

6. Pledged assets
Assets pledged as collateral at March 31, 2010 and 2009 were as follows:
Millions of Yen

Thousands of U.S. Dollars

2010

2009

2010

Buildings and structures¥13,114¥14,096$140,935

Land

27,727

27,727

297,980

Other

111

140

1,192

¥40,952¥41,963$440,107

Total
Secured liabilities at March 31, 2010 and 2009 were as follows:

Millions of Yen

Long-term debt due within one year
Long-term debt due after one year
Total
7. Financial instruments
1. Policy for financial instruments
The Company and its consolidated subsidiaries (“the Group”) have the policy
to limit its fund management to short-term deposits with funds through loans
from banks and the issuance of corporate bonds and commercial paper.
The Group utilizes derivative financial instruments only for the purposeof hedging the foreign exchange risk associated with foreign currency
denominated transactions or hedging the interest rate risk associatedwith the Companies’ loans payable, and does not utilize derivative
financial instruments for any speculative purposes.
2. D etails of financial instrument, risks, and policies and systems ofrisk management
Operating receivables such as notes and accounts receivable are exposed
to customers’ credit risk, but this risk is generally avoided through thereceipt of deposits.
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 the issuers, and the Group
continuously reviews whether it keeps to hold securities with consideration for its relationships with the issuers.
Investments in SPCs holding properties for sale are preferred equity
investments to Special Purpose Companies based on the Act on Securitization of Assets. These investments are exposed to the issuer’s credit risk,
32

ANNUAL REPORT 2010

Thousands of U.S. Dollars

2010

2009

2010

¥ 1,750¥31,500$ 18,807

22,250—239,119¥24,000¥31,500$257,926

and so the Group continually checks the financial condition of the issuer.
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 andconsequently is exposed to the borrowers’ credit risk, but the Group constantly checks the financial condition of principal borrowers and their performance using the funds lent to those borrowers even after accommodation.
The majority of due dates of operating debt, such as notes and accounts payable, are within one year.
Interest rate swap contracts are used to hedge risks arising fromfluctuations in interest rates on certain loans, corporate bonds, commercial paper and deposits.
In regard to derivative transactions, the Group utilizes interest rate
swaps for bank loans, bonds and deposits, and the Group utilizes foreignexchange forward contracts and cross currency swap contracts forforeign 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 therisks of foreign exchange rate changes. The derivative financial instruments are executed with creditworthy financial institutions, and theGroup’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 to using
different assumptions.
The amounts of derivative transactions shown in Note 20 (Derivative
Transactions), are not representing the market risks related to derivativetransactions.

The carrying amount of financial instruments in the consolidated balance sheet, their fair value, and the differences between them as of March 31,
2010 are as follows. (Financial instruments whose fair value is extremely difficult to estimate are not included; please see (Note 2))
Millions of Yen

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

Carrying amount

Fair value

Difference¥   149,313
17,232(104)
17,128¥   149,313¥    —

17,128—

134,570
3,445

134,570
3,551

—
106

1,264
¥  305,720

1,279¥  305,841

15¥   121¥   54,171
328,225
1,606,941
19,00066,000¥2,074,337¥   54,171
328,225
1,625,017
19,00066,000¥2,092,413¥     ——
18,076——¥18,076¥       —(4,278)¥    (4,278)¥       —(4,278)¥    (4,278)¥    ——¥    —

Thousands of U.S. Dollars
Carrying amount

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

Fair value$ 1,604,653 $ 1,604,653
185,192(1,119)184,073
184,073
1,446,212
37,024

Difference$      ——

1,446,212
38,163—
1,139

13,584
13,745$ 3,285,546 $ 3,286,846

161$   1,300$   582,171 $   582,171
3,527,405
3,527,405
17,269,650
17,463,911
204,191
204,191
709,297709,297$22,292,714 $22,486,975$      —
—194,261——$194,261$        — $        —(45,975)(45,975)$    (45,975) $    (45,975)$      ——
$      —

*1 The carrying amount of notes and accounts receivable are stated at net of allowance for doubtful accounts.
*2 Certain loans due within one year are included.
*3 The amounts only included in financial liabilities are disclosed.
*4 Derivative transactions are stated at net of assets and liabilities. The figures in parentheses indicate net liabilities.
SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

33

(Note 1) The calculation methods of fair value for financial instruments,
including securities and derivative transactions:
Assets:(1) Cash, time and notice deposits
The fair value of cash, time and notice deposits approximates theircarrying amount because of their short-term maturities.
(2) Notes and accounts receivable
The fair value of notes and accounts receivable approximates theircarrying amount unless the credit standing of debtors has changed
significantly since the loan origination.
The allowance for doubtful receivables is estimated based on expected
recoverable amounts, considering the possibility of individual collections.
Therefore the fair value of doubtful receivables approximates the carrying
amounts deducted by the estimated allowance for doubtful accounts inthe balance sheet as of the end of the fiscal year.
(3) 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 fairvalue, as the fair value approximates the carrying amount because themarket interest rate is reflected in such notes within a short time period.
The fair value of the fixed-coupon debt is determined based on thepresent value discounted at the interest rate which reflects the period
remaining to maturity and the credit risk.
For notes on securities by category, based on the purpose of holding
the securities, please see Note 8 (Securities).
(4) Long-term loans
The fair value of long-term loans is calculated by discounting the combined total of principal and interest by an assumed interest rate forsimilar new loans.
(5) Guarantee and lease deposits

The fair value of guarantee and lease deposits are based on the value
offered by correspondent financial institutions.
For notes and securities by category based on the purpose of holding
the securities, please see Note 8 (Securities).
Liabilities:(1) Note and accounts payable-trade and (2) Short-term debt
The fair value of these items approximates their carrying amount becauseof 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 a shorttime period and because the credit standing of the Company is the sameafter borrowing. The fixed-coupon debt is calculated by discounting the
combined total of principal and interest at an interest rate assumed forsimilar new borrowings.
The specific matching criteria of interest rate swaps are applicable tosome long-term debts with floating interest rates (please see Note 20(Derivative Transactions)). The fair value of these items is calculated bydiscounting the combined total of interest and principal, with which theinterest rate swap has been accounted for, at an interest rate rationallyestimated for similar borrowings.
The fair value of corporate bonds issued by the Company (included in(3) Long-term loans) is based on the market price.
(4) Deposits received and (5) Long-term deposits received
The fair value of these items approximates their carrying amount because the market interest rate is reflected in deposits with floatinginterest rates within a short time period and the credit standing of theCompany is the same after borrowing.
Derivative Transactions:
Please see Note 20 (Derivative Transactions).

(Note 2) Financial Instruments whose fair value is extremely difficult to estimate:
Carrying amount

Investments in subsidiaries and affiliates*1
Unlisted equity securities*1
Senior securities*1
Investments in silent partnerships*1
Investments in SPCs holding properties for sale*2
Guarantee and lease deposits (excluding held-to-maturity securities)*3
Guarantee and deposits received*4

Millions of Yen

Thousands of U.S. Dollars

2010¥   2,874
15,98533,824
38,11762,885
165,307
171,3082010$   30,886
171,789363,503409,640
675,819
1,776,539
1,841,032*1 These items are not included in “Assets (3) Securities” since their market price is unavailable and the assessment of their fair value is deemed extremely difficult.
*2 The fair value of investments in SPCs holding properties for sale are not disclosed since their market price is unavailable and the assessment of their fair value is deemed extremely difficult.
*3 Guarantee and lease deposits (excluding held-to-maturity securities) are not included in “Assets (5) Guarantee and lease deposits” because the assessment of their fair value is deemed extremely
difficult and the remaining terms of these securities cannot be determined.
*4 The fair value of guarantee and deposits received are not disclosed because the assessment of their fair value is deemed extremely difficult and the remaining terms of these securities cannot be determined.

(Note 3) Redemption schedule of pecuniary claims and held-to-maturity securities:
Millions of Yen

Cash, time and notice deposits
Notes and accounts receivable-trade
Securities
Held-to-maturity securities (Corporate bonds)
Long-term loans
Guarantee and lease deposits
Held-to-maturity securities (National government bonds)
Total
34

ANNUAL REPORT 2010

1 year or less

1 to 5 years

5 to 10 years

Over 10 years¥149,313
16,287

¥   —
945

¥   —
—

¥—
—

2,700
55

400
3,390

1,400
—

—
—

195
¥168,550

1,095¥5,830—¥1,400—¥—Thousands of U.S. Dollars

Cash, time and notice deposits
Notes and accounts receivable-trade
Securities
Held-to-maturity securities (Corporate bonds)
Long-term loans
Guarantee and lease deposits
Held-to-maturity securities (National government bonds)
Total

1 year or less

1 to 5 years

5 to 10 years

Over 10 years$1,604,653
175,035$    —
10,157$    ——$——

29,017591

4,298
36,433

15,046
—

—
—

2,096
$1,811,392

11,768$62,656—$15,046—$—(Note 4) Repayment schedule of corporate bonds, long-term debt, and other interest-bearing debt:
Millions of Yen
2011

2012

2013

2014

2015

2016 and thereafter

Short-term debt

¥328,225¥     —

¥     —

¥     —

¥      —

¥     —

Long-term debt(including due within one year)
Deposits received
Long-term deposits received
Total

273,621
19,000—¥620,846

373,072—
66,000¥439,072

304,503——¥304,503

213,432——¥213,432

226,308——¥226,308

216,005——¥216,005

2011

2012

2013

2014

2015

2016 and thereafter

Short-term debt

$3,527,405$       —

$       —

$       —

$       —

$       —Long-term debt(including due within one year)
Deposits received
Long-term deposits received
Total

2,940,580
204,191—$6,672,176

4,009,371—
709,297$4,718,668

3,272,466——$3,272,466

2,293,735——$2,293,735

2,432,112——$2,432,112

2,321,386——$2,321,386

Thousands of U.S. Dollars

8. Securities
For 2010
A. T
 he following tables summarize the acquisition costs, book values and fair market values of securities with available fair market values as ofMarch 31, 2010:(a) Held-to-maturity securities:
Millions of Yen

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

Thousands of U.S. Dollars

Book value

Fair market value

DifferenceBook value

Fair market value

Difference¥1,249¥1,264¥15$13,423$13,584$161

15¥1,26415¥1,279—¥15

161$13,584

161$13,745—$161

Book value

Acquisition cost

DifferenceBook value

Acquisition cost

Difference¥ 62,491
3,344
65,835¥ 42,831
3,327
46,158¥19,660
17
19,677$  671,585
35,938707,523$ 460,301
35,755496,056$ 211,284
183
211,467

65,986
2,749
68,735¥134,570

91,251
2,889
94,140¥140,298(25,265)(140)(25,405)¥ (5,728)

709,146
29,543738,689$1,446,212

980,666
31,0481,011,714$1,507,770(271,520)(1,505)(273,025)$   (61,558)(b) Available-for-sale securities:
Millions of Yen

Securities whose book value exceeds acquisition cost:
Equity securities
OthersSubtotal
Securities whose book value does not exceed acquisition cost:
Equity securities
OthersSubtotal
Total

Thousands of U.S. Dollars

B. Total sales of available-for-sale securities sold in the year ended March 31, 2010 amounted to ¥53 million ($570 thousand) and the related gains andlosses amounted to ¥1 million ($11 thousand) and ¥56 million ($602 thousand), respectively.

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

35

C. Investments in SPCs holding properties for sale are equity investments such as preferred subscription certificates and limited partnership (“Tokumei Kumiai”) investments in Special Purpose Companies(SPCs) and Tokumei Kumiai which own and develop real estate. The
Company or its ­subsidiaries will sell real estate in SPCs and Tokumei
Kumiai after the completion of construction. Tokumei Kumiai are avehicle for investment allowed under the Japanese Commercial Law.

 As of March 31, 2010, investments in SPCs holding properties forsale consisted of preferred subscription certificates issued by SPCs.
D. The Company lent the equity securities temporarily to a financial
institute under a securities lending agreement. Lent securities,
included in investments in securities and other, were ¥109,271 million($1,174,326 thousand) as of March 31, 2010.

For 2009
A. T
 he following tables summarize the acquisition costs, book values and fair market values of securities with available fair market values as of March
31, 2009:(a) Held-to-maturity securities:
Millions of Yen
Book value

Fair market value

Difference¥  982¥  987¥5

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

301

301

—

¥1,283¥1,288¥5Book value

Acquisition cost

Difference¥  5,574(b) Available-for-sale securities:
Millions of Yen

Securities whose book value exceeds acquisition cost:
Equity securities¥ 19,597¥ 14,023

Others

114

113

1

Subtotal

19,711

14,1365,575

Equity securities

87,922

119,997(32,075)

Others

1,116

1,216

(100)

Securities whose book value does not exceed acquisition cost:

Subtotal
Total

89,038121,213(32,175)¥108,749¥135,349¥(26,600)

B. T
 he following table summarizes the book values of securities with no available fair market values as of March 31, 2009:
Available-for-sale securities:
Book value
Millions of Yen

Unlisted equity securities¥   6,061

Senior securities

87,391

Investments in silent partnerships

33,410Total¥126,862

Senior securities included investments in SPCs holding properties for sale amounting to ¥49,785 million.
C. Available-for-sale securities with maturities and held-to-maturity securities at March 31, 2009 mature as follows:
Millions of Yen

36

1 year or less

1 to 5 years

5 to 10 years

Over 10 years

Bonds

¥277

¥1,006

¥700

¥—

Other

—

—

—

—

Total

¥277

¥1,006¥700¥—

ANNUAL REPORT 2010

D. Total sales of available-for-sale securities sold in the year ended
March 31, 2009 amounted to ¥87 million and the related gains andlosses amounted to ¥28 million and ¥1 million, respectively.
E. Investments in SPCs holding properties for sale are equity investments
such as preferred subscription certificates and limited ­partnership(“Tokumei Kumiai”) investments in Special Purpose Companies (SPCs)
and Tokumei Kumiai which own and develop real estate. The Company
or its subsidiaries will sell real estate in SPCs and Tokumei Kumiai

after the completion of construction. Tokumei Kumiai are a vehicle forinvestment allowed under the Japanese Commercial Law.
   As of March 31, 2009, investments in SPCs holding properties forsale consisted of preferred subscription certificates issued by SPCs.
F. The Company lent the equity securities temporarily to a financial
institute under a securities lending agreement. Lent securities,
included in investments in securities and other, were ¥98,911 million
as of March 31, 2009.

9. Short-term debt and long-term debt
Short-term debt at March 31, 2010 and 2009 consisted of the following:
2010
Loans, principally from banks
Commercial paper
Total

Millions of Yen
Average interest
rate (%)¥230,250

0.88

97,9750.22¥328,225

Thousands of U.S. Dollars

2009

Average interest
rate (%)

2010¥270,970

1.15$2,474,476

174,900

1.95

1,052,929¥445,870$3,527,405

The interest rates represent weighted-average rates in effect at March 31, 2010 and 2009, regardless of borrowing currencies, though the range of theinterest rate varies by borrowing currency.
Long-term debt at March 31, 2010 and 2009 consisted of the following:
Millions of Yen

Thousands of U.S. Dollars

2010

2009

2010

1.31% domestic straight bonds, due 2009¥       —¥   20,000$        —1.52% domestic straight bonds, due 2010

20,00020,000214,938

1.30% domestic straight bonds, due 2009—

20,000

—1.29% domestic straight bonds, due 2012

20,00020,000214,938

1.28% domestic straight bonds, due 2012

30,00030,000322,408

0.75% domestic straight bonds, due 2010

30,00030,000322,408

1.18% domestic straight bonds, due 2010

30,00030,000322,408

1.85% domestic straight bonds, due 2011

20,00020,000214,938

1.86% domestic straight bonds, due 2011

20,00020,000214,938

1.84% domestic straight bonds, due 2011

20,00020,000214,938

1.87% domestic straight bonds, due 2012

20,00020,000214,938

1.58% domestic straight bonds, due 2011

10,00010,000107,469

1.89% domestic straight bonds, due 2013

10,00010,000107,469

1.70% domestic straight bonds, due 2013

20,00020,000214,938

1.80% domestic straight bonds, due 2012

20,00020,000214,938

1.76% domestic straight bonds, due 2012

20,00020,000214,938

1.68% domestic straight bonds, due 2013

20,00020,000214,938

1.63% domestic straight bonds, due 2013

20,00020,000214,938

2.50% domestic straight bonds, due 201910,000—107,469

1.81% domestic straight bonds, due 2014

20,000—214,938

1.87% domestic straight bonds, due 2014

10,000—107,469

1.48% domestic straight bonds, due 2014

10,000—107,469

1.28% domestic straight bonds, due 2015

10,000—107,469

1.17% domestic straight bonds, due 2015

30,000—322,408

Loans, principally from banks and insurance companies, interest principally at rates of
0.62% to 2.66% in 2010, and 0.69% to 2.66% in 2009:
SecuredUnsecured*
Subtotal
Amount due within one year
Total

24,00031,500257,926

1,162,941

1,000,257

12,498,022

1,606,941

1,401,757

17,269,650(273,621)(160,410)(2,940,580)¥1,333,320¥1,241,347$14,329,070*Unsecured long-term debt as of March 31, 2010 and 2009 includes a perpetual subordinated loan of ¥120,000 million ($1,289,629 thousand).

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

37

The aggregate annual maturities of long-term debt at March 31, 2010 are as follows:Year ending March 31

Millions of Yen

Thousands of U.S. Dollars

2011¥  273,621$ 2,940,580

2012

373,072

4,009,371

2013

304,5033,272,466

2014

213,432

2,293,735

2015

226,308

2,432,112

2016 and thereafter

216,005

2,321,386¥1,606,941$17,269,650

Total

It is customary in Japan that security must be given if requested by lending banks under certain circumstances, and generally banks have the right tooffset cash deposited with them against any debt or obligations payable to the bank that becomes due in the case of default and certain other specified
events. The Company has never received such a request.
10. Employees’ severance and retirement benefits
As explained in Note 2 (12), the liabilities and expenses for severance and retirement benefits are determined based on the amounts obtained by actuarial calculations.
The allowance for severance and retirement benefits included in the liabilities section of the consolidated balance sheets as of March 31, 2010 and2009 consisted of the following:
Millions of Yen

Thousands of U.S. Dollars

2010

2009

2010

Projected benefit obligation¥ 7,664¥ 7,724$ 82,364

Fair value of plan assets(2,865)(2,563)(30,790)

171

(174)

1,838

¥ 4,970¥ 4,987$ 53,412

Unrecognized actuarial differences
Allowance for employees’ severance and retirement benefits

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

Service costs – benefits earned during the year

2009

2010

¥  517¥   537$ 5,556

Interest cost on projected benefit obligation

147

135

1,580

Expected return on plan assets

(51)

(57)

(548)

Amortization of actuarial differences

174

299

1,870

Other

320

181

3,439

¥1,107¥1,095$11,897

Severance and retirement benefit expenses
Other of ¥320 million ($3,439 thousand) for the year ended March 31,
2010 and ¥181 million for the year ended March 31, 2009 is the amount
paid for defined contribution plan that one of the Company’s consolidated
subsidiaries adopted in September 2008.

38

Thousands of U.S. Dollars

2010

ANNUAL REPORT 2010

The discount rate and the rate of expected return on plan assets forthe years ended March 31, 2010 and 2009 used by the Company is 2.0%.
The estimated amount of all retirement benefits to be paid at future
retirement dates is allocated equally to each service year using theestimated number of total service years. Actuarial gains and losses arerecognized in the income statement in the next year.

11. Loss on impairment of fixed assets
The Company and its consolidated domestic subsidiaries recognized impairment losses on the following assets for the years ended March 31, 2010,2009 and 2008, respectively.
For 2010
Use

Location

Number of properties

Lands for development

Taito-ku, Tokyo, etc.

7

Right to use ancillary facilities

Minami-Uonuma-shi, Niigata

1

Idle asset

Fujisawa-shi, Kanagawa

1

Assets leased to others

Setagaya-ku, Tokyo, etc.

3

For 2009
Use

Location

Number of properties

Idle asset

Fujisawa-shi, Kanagawa

1

Land, buildings and structures for leased condominiums

Setagaya-ku, Tokyo, etc.

5

For 2008
Use

Location

Number of properties

Land for leased buildings

Taito-ku, Tokyo

1

Land, buildings and structures for leased condominiums

Minato-ku, Tokyo, etc.

5

The Company and its consolidated domestic subsidiaries recognized losses on the impairment of certain properties, which are generally assessedindividually for impairment. The Company’s houses are treated as common assets.
As a result of declines in property values and flagging rental rates, the carrying values of the land holdings summarized above have been reduced totheir recoverable amounts by ¥7,826 million ($84,105 thousand), ¥165 million and ¥4,292 million for the years ended March 31, 2010, 2009 and 2008,
respectively. These write-downs were recognized as impairment losses in other expenses.
Details of loss on impairment of fixed assets were as follows:
Millions of Yen

Land

Thousands of U.S. Dollars

2010

2009

2008

2010

¥7,304¥122¥3,990$78,495

Intangible assets

489

—

—

5,255

Buildings, structures and others

33

43

302

355

¥7,826¥165¥4,292$84,105

Total

The recoverable values of these assets were determined as the net disposal value. The net disposal value for land for leased buildings and lands fordevelopment are based on the income approach, and that for the others is based mainly on the sales comparison approach.
12. Gain on adjustment of accrued rent payable
Gain on adjustment of accrued rent payable of ¥645 million ($6,932
thousand) for the year ended March 31, 2010 is incurred for the holding
property of a consolidated subsidiary in the United States because thesubsidiary purchased the leased land from the lessor, and as a result, thesubsidiary is no longer required to make rent payments.
Gain on adjustment of accrued rent payable of ¥2,385 million for theyear ended March 31, 2008 is comprised of two ­factors: (1) ¥397 million ofgain on adjustment of accrued rent payable of leased land for the holding
property of a ­consolidated subsidiary in the United States because thesubsidiary purchased the land from the lessor, and as a result, rent
payment became unnecessary for the subsidiary, and (2) ¥1,988 million ofgain on adjustment of deducted contract rent for a building that theCompany is renting due to agreement with the lessor.
13. Gain on prior periods adjustment
Most of gain on prior periods adjustment of ¥1,023 million for the year
ended March 31, 2009 is the amount transferred from the expenses

relating to fixed assets recorded in the previous fiscal year as a result of
the investigation of tax authorities.
14. Loss on devaluation of inventories
The ending inventory at March 31, 2010 represents the amount after
recognition of decline in profitability, and the loss on devaluation of
inventories of ¥13,145 million ($141,268 thousand) for the year ended
March 31, 2010 is included in cost of revenue from operations. The loss
on devaluation of inventories of ¥13,770 million for the year ended March
31, 2009 is recognized for a decline in profitability of the beginninginventory of fiscal year 2009.
15. Repair expenses for prior periods construction
Repair expenses for prior periods construction of ¥1,641 million for theyear ended March 31, 2009 are incurred for custom homes which had
been delivered in the past fiscal years.

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

39

16. Income taxes
The normal effective statutory income tax rate in Japan arising out of theaggregation of corporate, enterprise and inhabitant taxes was approximately 40.69% for the years ended March 31, 2010, 2009 and 2008.

The differences between the statutory tax rate and the Company’s
effective tax rate for the years ended March 31, 2010, 2009 and 2008 were
insignificant and not presented.

Details of deferred tax assets and liabilities at March 31, 2010 and 2009 were as follows:
Millions of Yen

Thousands of U.S. Dollars

2010

2009

2010

Loss on impairment of fixed assets¥ 5,685¥ 5,486$ 61,096

Net operating loss carryforwards

4,632

6,106

49,780Loss on devaluation of real estate for sale

4,404

1,711

47,329Net unrealized holding losses on securities

2,425

10,90926,061

Allowance for employees’ severance and retirement benefits

2,019

2,021

21,698

Accrued enterprise tax and business office tax

1,958

1,593

21,042

Net deferred losses on hedges

1,899

1,595

20,408

Unrealized intercompany profits

1,305

1,347

14,025

Accrued bonuses

1,239

1,244

13,315

Other

9,658

10,981

103,795

Subtotal of deferred tax assets

35,22442,993

378,549

Valuation allowance(7,583)(8,951)(81,494)

Total deferred tax assets

27,641

34,042

297,055(4,959)(4,959)(53,294)(137)—(1,472)

—

(657)

—

(5,096)(5,616)(54,766)¥22,545¥28,426$242,289

Deferred tax assets:

Deferred tax liabilities:
Retained earnings appropriated for tax allowable reserves
Net deferred gains on hedges
Other
Total deferred tax liabilities
Net deferred tax assets
17. Guarantee and other deposits received
Guarantee and other deposits received at March 31, 2010 and 2009 were as follows:
2010

Millions of Yen
Average interest
rate (%)

Thousands of U.S. Dollars
Average interest
rate (%)

2009

2010

Short-term deposits and long-term deposits due
within one year:
Non-interest-bearing
Interest-bearing¥168,537—

19,0000.63

187,537¥154,179—

19,0000.78

173,179$1,811,252
204,191
2,015,443

Guarantee and lease deposits from tenants:
Non-interest-bearing
Interest-bearing

171,308—

179,228—

1,841,032

—

—

—

—

—
1,429,532

Long-term deposits:
Non-interest-bearing

133,018—

155,252—

Interest-bearing

66,0000.60

66,000

0.86

Total

40

ANNUAL REPORT 2010

709,297

370,326

400,480

3,979,861¥557,863¥573,659$5,995,304

The aggregate annual maturities of interest-bearing guarantee and other deposits received at March 31, 2010 are as follows:Year ending March 31

Millions of Yen

Thousands of U.S. Dollars

2011¥19,000$204,191

2012

66,000709,297

2013

—

—

2014

—

—

2015

—

—

2016 and thereafter——¥85,000$913,488

Total
18. Net Assets
Under the Japanese Corporate Law (“the Law”) and its regulations,the entire amount paid for new shares is required to be designated ascommon 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
new shares as additional paid-in capital, which is included in capitalsurplus.
Under the Law, in cases where a dividend distribution of surplus ismade, the smaller of an amount equal to 10% of the dividend or theexcess, 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 inretained earnings in the accompanying consolidated balance sheets.

Under the Law, legal earnings reserve and additional paid-in capital
could be used to eliminate or reduce a deficit and capitalized by a resolution 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 fordividends.
The maximum amount that the Company can distribute as dividends is
calculated based on the non-consolidated financial statements of theCompany in accordance with the Law and its regulations.

19. Information for certain lease transactions
Finance leases without title transfer to lessees are not capitalized and accounted for in the same manner as operating leases. Certain information forsuch non-capitalized finance leases is as follows.
As Lessee
A summary of the pro-forma amounts (inclusive of interest) of acquisition cost, accumulated depreciation and net book value at March 31, 2010 and2009 was as follows:
Millions of Yen

Thousands of U.S. Dollars

2010

2009

2010

Buildings and structures¥4,502¥5,268$48,383

Other

1,447

1,936

15,550

Accumulated depreciation(4,811)(4,964)(51,703)

Net book value¥1,138¥2,240$12,230

Acquisition cost:

Pro-forma depreciation equivalents of ¥1,023 million ($10,994 thousand) and ¥1,250 million for the years ended March 31, 2010 and 2009,
respectively, were computed using the straight-line method over thelease terms assuming no residual value or residual indemnity.

Lease expenses under finance leases, inclusive of interest, for theyears ended March 31, 2010 and 2009 amounted to ¥1,023 million($10,994 thousand) and ¥1,250 million, respectively.

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

41

Future lease payments and receipts under such finance leases and non-cancelable operating leases at March 31, 2010 and 2009 were as follows:
Millions of Yen

Thousands of U.S. Dollars

2010

2009

2010

		 Due within one year¥   737¥ 1,043$ 7,920

		 Due after one year

401

1,197

4,310

¥ 1,138¥ 2,240$12,230

		 Due within one year

¥ 4,348¥ 6,245$ 46,728

		 Due after one year

21,60914,360232,230

			 Total¥25,957¥20,605$278,958

		 Due within one year

¥28,331¥    43$304,471

		 Due after one year

29,941

124

321,773

			 Total¥58,272¥   167$626,244

Finance leases
Future lease payments:

			 Total
Operating leases
Future lease payments:

Future lease receipts:

20. Derivative transactions
The hedge accounting was applied for all the derivative transactions for the year ended March 31, 2010.
The summary of these transactions is as follows:(1) Foreign currency related derivatives

Hedging accounting

Hedging instruments

Hedged items

Contract amounts

Millions of Yen
Contract amounts due
after one year

Foreign currency
denominated transactions¥1,271

¥—

¥ 50

8,672

—

340

¥9,943¥—¥390

Hedged items

Contract amounts

Thousands of U.S. Dollars
Contract amounts due
after one year

Fair value

Foreign currency
denominated transactions$ 13,659$—$  537

Fair value

Foreign exchange forward contracts
Deferred hedge
accounting

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

Total

Hedging accounting

Hedging instruments

Foreign exchange forward contracts
Deferred hedge
accounting

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

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

42

ANNUAL REPORT 2010

93,198—3,654$106,857$—$4,191

(2) Interest related derivatives

Hedging accounting

Deferred hedge
accounting
Special hedge
accounting

Hedging instruments

Hedging accounting

Deferred hedge
accounting
Special hedge
accounting

Hedged items

Interest rate swap contracts
Fixed rate payments / Floating rate receipts
Interest rate swap contracts
Fixed rate payments / Floating rate receipts

Hedging instruments

Bank loans, bonds anddeposits

Fair value¥254,000¥245,000¥(4,668)

562,397437,745-(*)

Contract amounts

Thousands of U.S. Dollars
Contract amounts due
after one year

Fair value$2,729,715$2,632,993$(50,166)

6,044,030

4,704,406-(*)

Bank loans and bonds

Hedged items

Interest rate swap contracts
Fixed rate payments / Floating rate receipts
Interest rate swap contracts
Fixed rate payments / Floating rate receipts

Contract amounts

Millions of Yen
Contract amounts due
after one year

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

21. Segment information
The Company and its consolidated subsidiaries mainly operate their business in five segments: leasing of buildings, apartments and other properties;
sale of condominiums; construction of housing and buildings; brokerage business; and other business.
Information by business segment for the years ended March 31, 2010, 2009 and 2008 is summarized as follows:
Millions of Yen

Total

Elimination
and/orcorporate

Consolidated¥ 8,202¥  719,636¥      —¥  719,636

4,539

9,135

(9,135)—44,621

12,741

728,771(9,135)

719,636

141,133

33,866

11,879582,8632,794

585,657¥ 17,081¥10,755¥   862¥  145,908¥ (11,929)¥  133,979

Leasingbusiness

Salesbusiness

Construction
business¥  291,420¥219,662¥156,231¥44,121

2,113

—

1,983

500

293,533

219,662

158,214

Costs and expenses

195,915200,070

		 Operating income¥   97,618¥ 19,592

For 2010

Brokeragebusiness

Otherbusiness

I Net sales and operating income:Net sales
		 Customers
		 Intersegment
			 Total

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

Depreciation expense

16,726

82

312

258

82

17,460605

18,065

Loss on impairment of fixed assets

5,912

1,865

49

—

—

7,826

—

7,826

105,995

13,039

216

83

142

119,475

498

119,973

Total

Elimination
and/orcorporate

Consolidated¥ 695,240

Capital expenditures

Millions of Yen

For 2009

Leasingbusiness

Salesbusiness

Construction
business

Brokeragebusiness

Otherbusiness¥ 296,299¥191,224¥156,954¥42,755¥ 8,008¥ 695,240¥      —

2,060

—

3,180

350

6,073

11,663(11,663)—

298,359

191,224

160,134

43,105

14,081

706,903(11,663)695,240I Net sales and operating income:Net sales
		 Customers
		 Intersegment
			 Total
Costs and expenses

193,015

160,485

147,164

34,35512,801

547,820

1,054

548,874

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

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

16,180

540

302

279

107

17,408478

17,886

165

—

—

—

—

165

—

165

76,786

6,687

928

195

29

84,625

212

84,837

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

43

Millions of Yen

For 2008

Leasingbusiness

Salesbusiness

Construction
business

Brokeragebusiness¥ 277,530¥193,575¥154,996¥57,806

2,038

—

1,610

736

279,568

193,575

156,606

58,542

Total

Elimination
and/orcorporate

Consolidated¥ 8,021¥ 691,928¥      —

¥ 691,928

3,899

8,283

(8,283)—

11,920700,211(8,283)691,928

Otherbusiness

I Net sales and operating income:Net sales
		 Customers
		 Intersegment
			 Total
Costs and expenses

186,154

150,848

146,446

38,53910,991

532,978

4,342

537,320

		 Operating income¥   93,414¥ 42,727¥ 10,160¥20,003¥   929¥ 167,233¥ (12,625)¥ 154,608

II Identifiable assets, depreciation expense, loss on impairment of fixed assets and capital expenditures:
Identifiable assets¥1,949,817¥568,668¥ 18,787¥14,944¥50,810¥2,603,026¥290,978¥2,894,004

Depreciation expense

15,861

110

171

269

96

16,507643

17,150Loss on impairment of fixed assets

4,292

—

—

—

—

4,292

—

4,292

144,244

199

307

327

160

145,237260

145,497

Elimination
and/orcorporate

Consolidated

Capital expenditures

Thousands of U.S. Dollars

For 2010

Leasingbusiness

Salesbusiness

Construction
business

Brokeragebusiness

Otherbusiness$ 3,131,865$2,360,688$1,679,001$474,164$ 88,146 $ 7,733,864

22,708—21,311

5,374

48,78098,173(98,173)—

3,154,573

2,360,688

1,700,312

479,538

136,926

7,832,037(98,173)7,733,864

6,263,977

30,027

6,294,004

Total

I Net sales and operating income:Net sales
		 Customers
		 Intersegment
			 Total
Costs and expenses

2,105,481

2,150,135

1,516,744

363,955

127,662

		 Operating income$ 1,049,092$  210,553$  183,568$115,583$   9,264 $ 1,568,060$       — $ 7,733,864$ (128,200) $ 1,439,860

II Identifiable assets, depreciation expense, loss on impairment of fixed assets and capital expenditures:
Identifiable assets$22,439,549$7,660,870$  120,720$147,641

Depreciation expense

179,753

881

3,353

2,773

881

187,641

6,502

Loss on impairment of fixed assets

63,536

20,043526——

84,105—

84,105

1,139,119

140,129

2,321

892

1,526

1,283,987

5,352

1,289,339

Capital expenditures$501,096 $30,869,876$3,177,389 $34,047,265
194,143

Distributions from SPCs and partnerships that operate real estate leasing business are included in net sales of the “Leasing business.”
The Company classified expenses and assets of the general administrative division in certain consolidated subsidiaries to unallocatable operating
expenses and corporate assets in the seg­ment information for the years ended March 31, 2010, 2009 and 2008.
Under a new management policy, the Company compares the contribution levels of the business operations between each segment more promptly,
clearly and efficiently.
22. 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 certain consolidated subsidiaries use some of the floor space of these properties.
The carrying amounts of these properties in the consolidated balance sheet, their changes during the current fiscal year and their fair value at March
31, 2010 are as follows:
Millions of Yen
Carrying amount

Investment and rental properties
A portion used as investment and rental properties

44

ANNUAL REPORT 2010

Fair value

As of March 31, 2009

Changes

As of March 31, 2010

As of March 31, 2010

¥1,738,117¥95,364¥1,833,481¥2,350,810

64,896170

65,066

107,311

Thousands of U.S. Dollars
Carrying amount

Investment and rental properties
A portion used as investment and rental properties

Fair value

As of March 31, 2009

Changes

As of March 31, 2010

As of March 31, 2010

$18,679,387$1,024,869$19,704,256$25,263,944

697,431

1,827

699,258

1,153,262

Notes:*The carrying amounts in the consolidated balance sheet are the amounts determined by deducting accumulated depreciation from the acquisition costs.
*The significant changes during the current fiscal year shown above are as follows:
Increase: Acquired real estate.................................. ¥115,585 million ($1,242,182 thousand)Transferred from real estate for sale....... ¥5,717 million ($61,440 thousand)
New consolidation..................................... ¥2,345 million ($25,202 thousand)Decrease: Transferred to real estate for sale........... ¥3,430 million ($36,862 thousand)Loss on impairment of fixed assets........ ¥7,267 million ($78,098 thousand)*Fair values as of March 31, 2010 are determined by the Company primarily based on their fair value according to the “Real Estate Appraisal Standards.”

The income and expenses for investment and rental properties for the year ended March 31, 2010 are as follows:
Millions of Yen

Investment and rental properties
A portion used as investment and rental properties

IncomeExpenses

Balance¥138,703¥69,741¥68,962

8,906

5,651

3,255

Thousands of U.S. Dollars

Investment and rental properties
A portion used as investment and rental properties

IncomeExpenses

Balance$1,490,629$749,501$741,128

95,71260,731

34,981

As a portion used as investment and rental properties includes a portion used by the Company or 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.
23. Relationships with special purpose entities subject to disclosure(1) O verview of special purpose entities (“SPEs”) subject totermination of these projects, the Company plans to appropriately
disclosure and overview of SPEs’ transactions
recover its investments, and as of March 31, 2010, the Company judged
As part of the real estate operations, the Company invests in SPEs
that there is no risk of future losses. Moreover, in the event that losses do­(principally Tokutei Mokuteki Kaisha (“TMKs”) under the Asset Securitizaarise in the future, the Company’s exposure will be limited to the amounttion Law).
of its investment.
The SPEs, which conduct real estate development and leasing projThe Company does not have any investments with voting rights in any
ects, are funded by investments from the Company and by borrowingsof the SPEs, and the Company has not dispatched any directors orfrom financial institutions (non-recourse loans and debentures). At theemployees to any of the SPEs.
At March 31, 2010, the Company had outstanding investments in 26 SPEs. Their assets, liabilities, and net assets (simple sum) at the most recent
settlement date are shown below.
Millions of Yen

Thousands of U.S. Dollars

2010

2009

2010

¥687,896¥691,467$7,392,757

44,185

116,445474,852¥732,081¥807,912$7,867,609

Borrowings*1¥577,815¥667,635$6,209,726

Preferred capital, etc.*2

112,027

101,137

1,203,944

Other

42,23939,140453,939¥732,081¥807,912$7,867,609

AssetsReal property
Other
Total
Liabilities and net assets

Total*1 Includes specified debentures of TMKs invested by the Company.
*2 Consists of preferred capital in TMKs and equity in limited partnerships (“Tokumei Kumiai”), invested by the Company.

In regard to the balance at March 31, 2010 and 2009, see *3.

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

45

Millions of Yen

Fair value of investment and rental properties held by SPEs

Thousands of U.S. Dollars

Carrying amount

Fair value

Carrying amount

Fair value¥687,896¥1,134,665$7,392,757$12,194,143(2) Transactions with the SPEs
Millions of Yen

Thousands of U.S. Dollars

2010

2009

2010

Investments, etc:

*3

Investments:
		 Securities¥   2,702¥      —

$    29,038

		 Investment securities

72,15369,442775,422

		 Equity investments in properties for sale

62,58549,785672,595

		 Total

137,440

119,227

1,477,055

16,664

14,458179,087

63

97

677

¥ 41,226¥ 37,048$  443,052¥    572¥    312$    6,147¥ 24,484¥ 47,995$  263,127

Operating revenues
Non-operating revenues
Real estate leasing:*4
Cost of operating revenues
Management services:*5
Operating revenues
Real estate transactions:*6
Transaction payments*3 It includes investments in preferred stocks and specified debentures issued by TMKs and equity in Tokumei Kumiai, invested by the Company. In addition, dividends on investments are recorded as
operating revenues, and interest on specified debentures is recorded as non-operating revenues.
*4 The Company leases real estate from SPEs.
*5 The Company provides management services to SPEs.
*6 The Company has purchased real property (land, buildings, etc.) from SPEs.

24. Contingent liabilities
At March 31, 2010, the Company and its consolidated subsidiaries were contingently liable as guarantors of borrowings by customers and others in an
amount aggregating to ¥72 million ($774 thousand).
At March 31, 2009, the Company and its consolidated subsidiaries were contingently liable as guarantors of borrowings by customers and others in an
amount aggregating to ¥60 million.
25. Subsequent events
On April 30, 2010, the Company issued ¥30,000 million ($322,407 thousand) in 0.96% unsecured bonds due 2015.
On June 29, 2010, the shareholders of the Company approved payments of a year-end cash dividend of ¥10 ($0.11) per share or a total of ¥4,742
million ($50,962 thousand) to shareholders of record at March 31, 2010. Such appropriations are recognized in the period in which they are approved by
the shareholders.

46

ANNUAL REPORT 2010

Independent Auditors’ Report

To the Board of Directors of
Sumitomo Realty & Development Co., Ltd.:We have audited the accompanying consolidated balance sheets of Sumitomo Realty & Development Co., Ltd. and consolidated subsidiaries as of March
31, 2010 and 2009, and the related consolidated statements of income, changes in net assets and cash flows for each of the three years in the period
ended March 31, 2010, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to independently express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sumitomo Realty& Development Co., Ltd. and subsidiaries as of March 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three
years in the period ended March 31, 2010, in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to the following.
As discussed in Note 2(5) to the consolidated financial statements, effective from the year ended March 31, 2009, Sumitomo Realty & Development Co.,
Ltd. and its consolidated subsidiaries adopted the new accounting standard for measurement of inventories.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2010 are presented solely forconvenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on thebasis described in Note 1 to the consolidated financial statements.

Tokyo, Japan
June 29, 20102010 KPMG AZSA & Co., an audit corporation incorporated under the Japanese Certified
Public Accountants Law and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

47

Senior Management
As of June 29, 2010

Board of Directors and Auditors

Executive Officers

Chairman of the Board

Senior Managing Executive Officers

Junji Takashima*

Takahiro Daisaka
Takao Shiojima

President

Takashi Saito

Kenichi Onodera*

Masayuki Takahashi
Masaki Ogawa

Vice Chairman

Isamu Jobo

Tetsuro Tsuruta

Yoshinobu Sakamoto
Koji Ito

Directors

Toshikazu Tanaka

Yoshifumi Nakamura*

Masayuki Iwamoto

Nobuaki Takemura*
Kojun Nishima*
Masato Kobayashi*
Satoru Ozawa
Masayoshi Ohashi
Statutory Auditors
Naoto Enda
Ryoichi Nomura
Tadashi Kitamura
Kunio Kobayashi
Hiroshi Tomoyasu* Representative Director

Corporate Data
As of March 31, 2010

Head Office

Number of Employees

Shinjuku NS Building

9,552 (Consolidated)

4-1, Nishi-Shinjuku 2-chome
Shinjuku-ku, Tokyo 163-0820, Japan

Major Consolidated Subsidiaries

Phone: +81-3-3346-2342

Sumitomo Real Estate Sales Co., Ltd.

Facsimile: +81-3-3346-1652

Sumitomo Fudosan Syscon Co., Ltd.
Sumitomo Fudosan Tatemono Service Co., Ltd.

Corporate Website

Sumitomo Fudosan Esforta Co., Ltd.

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

Sumitomo Fudosan Finance Co., Ltd.
Sumitomo Fudosan Reform Co., Ltd.

48

Date of Establishment

Sumitomo Fudosan Villa Fontaine Co., Ltd.

December 1, 1949

Sumitomo Fudosan Bellesalle Co., Ltd.

ANNUAL REPORT 2010

About the Company

Investor Information
As of March 31, 2010

Paid-in Capital

Major Shareholders¥122,805 million

Name

Number ofshares held(Thousands)

Percentage ofshares held

Number of Common StockJapan Trustee Services Bank, Ltd. (Trust account)

26,2905.52%

Authorized: 1,900,000,000 shares

The Master Trust Bank of Japan, Ltd. (Trust account)

21,826

4.58%

Sumitomo Mitsui Banking Corporation

11,9902.52%

Japan Trustee Services Bank, Ltd. (Trust account 4)

9,704

2.04%

The Sumitomo Trust & Banking Co., Ltd.

8,136

1.71%

Kajima Corporation

7,912

1.66%

Shimizu Corporation

7,500

1.58%

Mitsui Sumitomo Insurance Co, Ltd.

6,740

1.42%

Obayashi Corporation

6,527

1.37%

Mellon Bank, N.A. as Agent for its Client
Mellon Omnibus US Pension

6,224

1.31%

Issued: 476,085,978 shares
Number of Shareholders
16,568Stock Exchange Listings
Tokyo Stock Exchange
Osaka Securities Exchange
Breakdown of Shareholders
Sumitomo Realty & Development Co., Ltd., a core member of the Sumitomo Group, is one of Japan’s
leading real estate companies. The Company is well established as a comprehensive developerand supplier of high-quality office buildings and condominiums in urban areas.

Trust Accounts

24.21%

Financial Institutions

10.10%

Other Companies

25.30%

Foreign Companies

34.68%

Individuals and Others

5.71%

With operations centered on four areas—leasing, sales, construction and brokerage—theCompany has achieved a combination of growth potential and balanced operations that will drive
its success in the challenging markets of the 21st century. Sumitomo Realty remains committed tothe creation of comfortable work and living environments that contribute to a higher quality of life.

Stock Price and Trading Volume on Tokyo Stock Exchange
(Yen)

(Yen)

2,400

6,000
Stock Price (right scale)Contents

TOPIX Average (left scale)

1,800

4,500

1,200

3,000

600

1,500

0

0

1	Consolidated Financial Highlights
2 A Message From the Management
4 At a Glance
6 Review of Operations
		

6 Leasing		 12 Sales
		 14 Construction
		 16 Brokerage
17 Our History
18 Corporate Governance
19 Financial Section
48 Senior Management
48 Corporate Data
49 Investor Information(Millions of shares)
250
200

Trading Volume150

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 forwardlooking 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 materiallyfrom those discussed in the forward-looking statements. Such factors include but are not limited to macroeconomic conditions,
supply and demand in the real estate market and interest rate trends.

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

2005

2006

2007

2008

2009

2010

SUMITOMO RE ALT Y & DE VELOPMENT CO., LTD.

49

Sumitomo Realty & Development Co., Ltd.

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

Annual Report 2010

Printed in Japan

Continuing
Quality Growth
A NNUA L REP OR T 2 010