Financial Information

Financial Review (Consolidated)

During the fiscal year ended March 31, 1998, Mitsubishi Estate recorded revenue from operations of ¥548,731 million (US$4,153.9
million), a decrease of 1.9%. Revenue in the Building Leasing Division edged up 1.7% to ¥279,161 million (US$2,113.3 million),
supported by contributions from new office buildings in Japan, strong results overseas and growth in revenue from district heating
and cooling operations. In the Development and Sales Division, revenue fell 9.2% to ¥151,255 million (US$1,145.0 million), as
weak demand for domestic properties offset favorable results overseas. Architectural Division revenue fell 36.7% to ¥11,593 million(US$87.8 million), as performance was negatively affected by adverse conditions in Japan’s real estate industry. In the Construction
Division, revenue rebounded from a decrease in the previous term, surging 32.1% to ¥66,404 million (US$502.7 million) on theback of completion of the Sendai Shirayuri Gakuen Project during the term. Other Business revenue declined 18.7% to ¥40,318
million (US$305.2 million).

O P E R AT I N G I N C O M E
Lower revenue and worsened profitability led to a 6.6% decline in operating income to ¥58,252 million (US$441.0 million). The
operating income margin was 10.6%, or 0.6 percentage point below the previous term. These results reflect operating losses in theDevelopment and Sales Division, resulting from the aggressive disposal of non-performing assets, and in Other Business, owing toadverse operating conditions during the term. Management largely completed the disposal of non-performing assets during the term.

OTHER INCOMEAND

EXPENSESInterest expenses decreased 12.9% to ¥45,179 million (US$342.0 million), reflecting historically low interest rates in Japan. Consequently, other expenses, net of other income, declined ¥3,519 million to ¥38,472 million (US$291.2 million).

Revenue from Operations

Operating Income(Millions of yen)
0
00

,

0
60

558,869 563,429 551,256 559,119 548,731

10

0

00

0,

50

0

50.9%

0,

00

40

00

2.1%
12.1%
7.3%

20

20

,0

0

94

95

96

97

■ Building Leasing Division■ Development and Sales Division■ Architectual Division■ Construction Division■ Other Division

98

58,252

00

,0

27.6%

0
10

62,394
0

00

0
0,

00

,0

0

94

95

38,362

0
00

,

40

81,626

0

,
60

0
00

30

(Millions of yen)

00

,
80

00

0,

40

Net Income(Millions of yen)
97,24000091,536
0,

96

97

98

00
,0
35
0
0
,0
30
0
0
,0
25
00
,0 0
2
00
,0
15
00
,0
10
0
00
5,
0

31,84822,581
15,058(98,970)

94

95

96

97

98

SPECIAL PROFITSANDLOSSES

The Company recorded a net special profit of ¥23,086 million (US$174.8 million). A gain from the sale of the Mitsubishi Shoji
Building Annex to Mitsubishi Corporation amounted to ¥49,159 million (US$372.1 million), and a gain from sale of stock in Radio
City Productions Inc., an affiliated company, came to ¥7,715 million (US$58.4 million). These gains were partially offset by a lossof ¥33,789 million (US$255.8 million) from the write-down of overseas fixed assets.

NET INCOME
As a result of the above factors, net income amounted to ¥31,848 million (US$241.1 million), a 17% decrease from the previous
term. Net income per share was ¥24.51 (US$0.186), and management maintained cash dividends per share at ¥8.00 (US$0.061).

FINANCIAL POSITION
The Company is committed to reducing interest-bearing debt to strengthen its financial position and to prepare for strategic
investments in the future. During the fiscal year under review, however, consolidated interest-bearing debt increased 3.6% to¥1,164,932 million (US$8,818.6 million) as a result of funding requirements to purchase the former JNR headquarters site, a key
property in the Company’s plan to redevelop the Marunouchi district. However, management intends to resume debt-reduction
measures during the current fiscal year, and expects to reduce non-consolidated interest-bearing debt to below the ¥1.0 trillion levelby fiscal year-end. Consolidated cash rose 33.7% to ¥77,297 million (US$585.1 million). Total assets increased 1.8% to ¥2,103,258
million (US$15,921.7 million), reflecting the purchase of the former JNR headquarters site. The shareholders’ equity ratio increased
0.7 percentage point to 21.6%.

Net Income per Share

Shareholders’ Equity(Yen)(Millions of yen)
29.53

30

0,

24.51

25
20

0
00

60

00

513,144504,264

0
0,

50

17.38

15

0

00

0,

40
30

10

454,057
432,786
403,583

0

00

94

95

96

0

00

0,

40

0
0,

10

(76.18)

0

0

00

0,

80

00

5

0,

20

1,

0

0,

20

(Millions of yen)
1,519,391
1,477,749
0,0
6
1,
1,202,230
1,164,932
0
1,124,595
00
0
00

00

0,

11.59

Interest-Bearing Debt

0

97

98

0

94

95

96

97

98

94

95

96

97

98

Consolidated Balance Sheets
MITSUBISHI ESTATE CO., LTD. AND CONSOLIDATED SUBSIDIARIESMarch 31, 1997 and 1998

Thousands of
U.S. dollars

Millions of yen

ASSETS
Current assets:
Cash......................................................................................................
Marketable securities (Notes 2 (D) and 8) .............................................
Accountsreceivable—trade ...................................................................
Inventories (Notes 2 (C) and 7) ............................................................
Advances on purchases ..........................................................................
Other current assets ..............................................................................
Less allowance for doubtful accounts (Note 6) ......................................

1997

1998

1998

¥0057,830
101,542
30,732
301,562
1,976
24,596(6,810)¥0,077,297
105,927
32,124
264,885
5,191
24,795(6,423)$00,585,140
801,870
243,179
2,005,185
39,296
187,699(48,622)

Total current assets ............................................................................

511,428

503,796

3,813,747

Investments:
Investments in unconsolidated subsidiaries
and affiliates (Note 2 (A)) ....................................................................
Investments in other securities (Notes 2 (D) and 8) ...............................
Other investments (Note 9) ..................................................................
Less allowance for doubtful accounts (Note 6) ......................................

28,35917,440140,457(102)

28,39917,478134,494(34)

214,981
132,309
1,018,122(257)

Totalinvestments ...............................................................................

186,154

180,337

1,365,155

Property and equipment at cost (Notes 2 (E) and 10):Land......................................................................................................
Buildings...............................................................................................
Machinery and equipment ....................................................................
Others...................................................................................................
Construction in progress .......................................................................

537,208
1,143,951
62,197
10,62532,927

601,483
1,190,080
65,214
13,04020,483

4,553,240
9,008,933
493,671
98,713155,057

Total property and equipment at cost ................................................

1,786,908

1,890,300

14,309,614

Less accumulated depreciation ............................................................

(454,624)(501,307)(3,794,905)

Net property and equipment at cost ..................................................

1,332,284

1,388,993

10,514,709

Other assets ............................................................................................
Translation adjustments ........................................................................

30,784
5,661

29,770362

225,360
2,740

Totalassets .........................................................................................

¥2,066,311¥2,103,258$15,921,711

See notes to consolidated financial statements.

Thousands of
U.S. dollars

Millions of yen

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities:
Short-term bank loans (Note 10) ..........................................................
Commercial paper .................................................................................
Current portion of long-term debt (Note 10) .......................................
Accountspayable—trade .......................................................................
Accrued expenses ..................................................................................
Accrued income taxes ...........................................................................
Advances and deposits ...........................................................................
Other current liabilities .........................................................................

1997

1998

1998

¥0,041,516
55,797150,828
43,332
19,177
2,277
68,154
24,812¥0,062,690
34,437
179,738
46,755
19,6195,668
48,658
13,949$00,474,565
260,689
1,360,621
353,936
148,516
42,907368,342
105,594

Total current liabilities .......................................................................

405,893

411,514

3,115,170

Long-term debt (Note 10) .....................................................................

876,454

888,067

6,722,687

Guarantee deposits and lease deposits (Note 11) ...............................

276,522

266,8132,019,780

Employees’ retirement allowances (Note 2 (G)) ..................................

29,62730,019227,245

Other long-term liabilities (Note 2 (G)) ..............................................

29,69935,272

267,010

Minority interests ..................................................................................

15,33017,516

132,597

Shareholders’ equity (Note 13):
Common stock, par value ¥50 per share
Authorized—1,980,000,000shares
Issued and outstanding—
1,299,185,054 shares in 1997 and 1998 .........................................
Capital surplus ......................................................................................
Legal reserve .........................................................................................
Retained earnings .................................................................................
Treasury stock .......................................................................................

86,534
115,195
21,634
209,435(12)

86,534
115,195
21,634
230,703(9)655,064
872,029
163,770
1,746,427(68)

Total shareholders’ equity ..................................................................

432,786

454,057

3,437,222¥2,066,311¥2,103,258$15,921,711

Contingent liabilities (Note 14)
Total liabilities and shareholders’ equity .............................................

Consolidated Statements of Income
MITSUBISHI ESTATE CO., LTD. AND CONSOLIDATED SUBSIDIARIES
Years Ended March 31, 1996, 1997 and 1998

Thousands of
U.S. dollars

Millions of yen

1996

1997

1998

1998

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

¥551,256
422,080
47,550¥559,119447,360
49,365¥548,731
444,359
46,120$4,153,906
3,363,808
349,129

Operating income ...............................................................

81,62662,39458,252440,969

Other income:Interest....................................................................................
Dividends................................................................................
Other ......................................................................................

4,933
3,246
14,9805,417
3,680
10,352

2,834
3,421
11,153

21,45325,89784,429Total....................................................................................

23,15919,44917,408

131,779

Other expenses:
Interest....................................................................................
Other ......................................................................................

60,14821,63651,893
9,547

45,17910,701

342,006
81,007

Total....................................................................................

81,78461,44055,880423,013

Income before taxes and special items .................................
Special profit (loss), net ..........................................................

23,001(102,645)

20,403
20,95019,78023,086

149,735
174,762

Net income (loss) before taxes and others ..........................

(79,644)

41,35342,866324,497

Income taxes (Notes 2 (F) and 12) ...........................................
Amortization of goodwill ......................................................
Minority interests ....................................................................

13,108
2,133
4,085

(490)
1,361
2,120

8,264
1,321
1,433

62,55910,00010,848Net income (loss) ....................................................................

¥ (98,970)¥038,362¥031,848$0(241,090

Yen

U.S. dollars

Net income (loss) and dividends per share (Note 2 (I)):
Net income (loss) per share .....................................................
Net income (loss) per share assuming full dilution ...................
Cash dividends per share applicable to the year .......................

¥(76.18)—
8.00¥29.53—8.00¥24.51—
8.00

Interest coverage ratio* ..........................................................

1.49

1.38

1.43

*Interest coverage ratio is calculated by dividing the sum of operating income, interest income and dividends by interest expense.
See notes to consolidated financial statements.

$0.186—0.061

Consolidated Statements of Shareholders’ Equity
MITSUBISHI ESTATE CO., LTD. AND CONSOLIDATED SUBSIDIARIES
Years Ended March 31, 1996, 1997 and 1998

Thousands of
U.S. dollars

Millions of yen

1996

1997

1998

1998

¥086,534¥086,534¥086,534$0,655,064

0
—
—

—
0
—

—
—
0

—
—
0

Balance at end of the period ...................................................

¥086,534¥086,534¥086,534$0,655,064

Capital surplus:
Balance at beginning of the period .........................................
Conversion of convertible bonds .............................................

¥115,195
0¥115,195
0¥115,1950$0,872,029
0Balance at end of the period ...................................................

¥115,195¥115,195¥115,195$0,872,029

Legal reserve:
Balance at beginning of the period .........................................
Transfer from unappropriated retained earnings ......................

¥020,576
1,058¥021,634—¥021,634—$0,163,770—

Balance at end of the period ...................................................

¥021,634¥021,634¥021,634$0,163,770

Retained earnings:
Balance at beginning of the period .........................................
Add—Net income ..................................................................
Add—Change of subsidiaries to be consolidated .....................
Deduct —Cash dividends........................................................
—Transfer to legal reserve ..........................................
—Directors’ and statutory auditors’ bonuses ...............

¥290,843(98,970)—(10,393)(1,058)(184)¥180,238
38,362
1,234(10,393)—(6)¥209,435
31,848—(10,393)—(187)$1,585,428
241,090—(78,675)—(1,416)

Balance at end of the period ...................................................

¥180,238¥209,435¥230,703$1,746,427

Common stock:
Balance at beginning of the period .........................................
Conversion of convertible bonds:
During fiscal 1996: 0 shares .................................................
During fiscal 1997: 0 shares .................................................
During fiscal 1998: 0 shares .................................................

See notes to consolidated financial statements.

Consolidated Statements of Cash Flows
MITSUBISHI ESTATE CO., LTD. AND CONSOLIDATED SUBSIDIARIES
Years Ended March 31, 1996, 1997 and 1998

Thousands of
U.S. dollars

Millions of yen

1996

1997

1998

1998

¥0(38,362¥(031,848$0,(241,090

—

—

—

—
(65,937)—
10,856
6,292
9,017
4,494

—
(49,159)(7,715)—33,789———(372,135)(58,403)—
255,784——

14,327
53,1173,150
430—
53,932646(4,783)—
408,267
4,890(36,207)

14,291
11,965
3,798(2,155)(8,172)3,055(6)¥(096,884(1,392)
33,462
(198)
3,423
3,391
(18,476)(187)¥(078,581(10,537)
253,308(1,499)25,912
25,670(139,864)(1,416)$(0,594,860¥0(53,648)———
45,970368¥0(78,569)
77,401(18,522)—
2,617(4,152)¥(148,023)
51,360—8,477(1,253)(7,209)$(1,120,537)
388,796—
64,171(9,485)(54,572)80(13,616)¥0(20,846)(711)(10,491)¥0(32,427)

10,851(3,261)¥0(89,058)

82,142(24,686)$0,(674,171)

Cash flows from operating activities:
Net income (loss) ....................................................................
¥0(98,970)
Adjustment to reconcile net income to net
cash provided by operating activities:
Loss relating to transfer of ownership forRockefeller Center............................................................
78,034
Loss relating to a write-down of theintangible asset (leasehold) .................................................
24,612Gain from sales of fixed asset ............................................................. —Gain from sales of affiliated companies’ stock .................................... —Loss from sales of fixed assets ...............................................
—
Loss from write-down on fixed asset ...................................
—
Loss related to the reconstruction of Marunouchi Building .
—Loss from provision for bad debt .........................................
—
Loss from prepayment of bonds under debt
assumptionagreements ......................................................
—
Depreciation and amortization ............................................
49,519Provision for reserve for retirement benefits ........................
950
Others .................................................................................
4,448
Changes in assets and liabilities:
Increase/decrease in accounts receivables.............................
(5,306)
Increase/decrease in inventories ..........................................
16,094
Increase/decrease in other current assets ..............................
(2,006)
Increase/decrease in accounts payable ..................................
11,399
Increase/decrease in accrued income taxes ..........................
9,007
Others .................................................................................
(6,151)
Payment of directors’ bonuses..................................................
(184)
Net cash provided by operating activities ........................
¥(081,446
Cash flows from investing activities:
Purchases of property and equipment ......................................
Proceeds from property and equipment ..................................
Aquisition of minority interest in consolidated subsidiaries .....
Proceeds from sales of affiliated companies’ stock ....................
Increase/decrease in marketable securities ...............................
Increase in guarantee deposits and lease deposits .....................
Increase/decrease in loans to unconsolidated
subsidiaries and affiliates ........................................................
Others.....................................................................................
Net cash used in investing activities .................................
Cash flows from financing activities:
Increase/decrease in bonds and notes ......................................
Loss from prepayment of bonds underdebt assumption agreements ..................................................
Increase/decrease in long-term borrowings .............................
Increase/decrease in commercial paper ....................................
Increase/decrease in short-term borrowings ............................
Cash dividends paid ................................................................
Net cash provided by (used in) financing activities ..........

¥0(31,200)¥0(68,913)¥(075,072$(0,568,297—(42,453)(390)(37,214)(10,393)¥(121,650)(14,327)(40,331)
48,282(16,673)(10,393)¥(102,355)—(34,549)(21,360)
21,174(10,393)¥(029,944—(261,537)(161,696)
160,288(78,675)$(0,226,677

Changes in cash .......................................................................
Cash at beginning of the year ..................................................
Cash at end of the year ............................................................

¥0(61,050)
156,778¥(095,728¥0(37,898)
95,728¥0(57,830¥(019,467
57,830¥(077,297$(0,147,366
437,774$(0,585,140

See notes to consolidated financial statements.

Notes to Consolidated Financial Statements
MITSUBISHI ESTATE CO., LTD. AND CONSOLIDATED SUBSIDIARIES

1. Basis of Presentation of Financial Statements
The accompanying consolidated financial statements have been
prepared from books of account maintained by Mitsubishi Estate
Company, Limited (“the Company”) and its consolidated
subsidiaries in accordance with accounting principles generally

accepted in Japan. Solely for the convenience of readers outside
Japan, certain items presented in the original financial statements
have been reclassified in their presentation.

2. Summary of Signficant Accounting Policies(A) Consolidation
The consolidated financial statements include the accounts of
the Company and its significant subsidiaries (together, “theCompanies”).
There were 127 consolidated subsidiaries in fiscal 1997 and 128
consolidated subsidiaries in fiscal 1998. All significant intercompany
accounts and transactions have been eliminated.
Investments in non-consolidated subsidiaries and affiliates (20–
50% owned companies) are stated at cost. The ordinance of the
Ministry of Finance of Japan, which regulates consolidated financial
statements, requires companies to account for investments in nonconsolidated subsidiaries and affiliates by the equity method, butsuch investments are stated at cost as they are not significant in termsof net income. There were 48 such non-consolidated subsidiaries andaffiliates in fiscal 1997 and 49 in fiscal 1998.
(B) Basis of Revenue Recognition
The statements of income reflect revenue from operations in the following manner:— Revenue from leasing of office space is recognized as rents
accrued in the leasing period.
— Revenue from sales of condominiums, residential houses and land
is recognized when units are delivered and accepted by the customers.
— Revenue from design and supervision is recognized at the date ofcompletion of the relevant project.
— Other operating revenues are recognized on an accrual basis.
(C) Inventories
Inventories are mainly stated at cost, determined by the identified
cost method.
(D) Marketable Securities and Investments in Other
Securities
Securities quoted on stock exchanges are mainly stated at the lowerof cost or market, cost being determined by the moving averagemethod. Non-quoted securities are mainly stated at cost, also
determined by the moving average method.
(E) Property and Equipment
Domestic property and equipment are stated at cost. Fixed assets ofoverseas consolidated subsidiaries that have dropped substantially invalue and are considered to have no prospects for recovery are statedat market value.
For the Company and its domestic subsidiaries, depreciation ofproperty and equipment is mainly computed on the decliningbalance method, while overseas consolidated subsidiaries mainly use
the straight line method.
Repairs and maintenance which do not improve or extend the lifeof the respective assets are expensed currently.
(F) Income Taxes
Income taxes currently payable by the Companies are based on thedetermination of taxable income, which may be different from theincome shown in the financial statements. The differences arise fromtaking up certain items for taxation purposes in periods different
from those for financial statement purposes. In accordance withaccounting principles generally accepted in Japan, the Companies do
not reflect the tax effect resulting from temporary differences.
(G) Employees’ and Directors’ Retirement Allowances
The Companies have employee retirement plans, and an allowancebased on length of service and current basic salary is paid to
employees on retirement. The amounts paid in the case of voluntary
retirement will be less than the amounts paid in the case of
involuntary retirement. Japanese tax law permits the deduction of
only 40% of the estimated accrued liability for retirement allowances
on a voluntary retirement basis. However, the Companies mainly
provide for 100% of the liability. The Companies provide forretirement benefits for directors and statutory auditors based on the
Companies’ internal regulations reflecting their positions and lengthof service.
The directors’ retirement allowances are included in other longtermliabilities.
(H) Translation of Foreign Currency Accounts
The translation of foreign currency financial statements of overseas
consolidated subsidiaries into yen has been made for consolidation
purposes in accordance with the translation method prescribed in
the statement revised in May 1995 issued by the Business Accounting
Deliberation Council of Japan. Differences arising from translation
are presented as “Translation adjustments” in the accompanying
consolidatedfinancialstatements.

(I) Net Income per Share
In computing net income per share assuming no dilution, the average
number of shares outstanding during each year, adjusted to give
retroactive effect to the free distribution of shares, has been used. Net
income per share assuming full dilution has been computed on theassumption that all convertible bonds were converted into common

stock at the beginning of the year or at the time of issue in the case of
newly issued bonds, with appropriate adjustments of the related
interest expense, net of taxes, for such convertible bonds. Net income
per share, assuming full dilution for the years ended March 31, 1996,
1997 and 1998, is not presented since the outstanding convertible
bonds had no dilutive effect.

3. Fiscal YearAs the fiscal year of Rockefeller Group, Inc., MEC USA, Inc. andtheir subsidiaries ends on December 31 each year, accounts for theyears ended at December 31, 1996 and 1997 were consolidated in

the Company’s consolidated financial statements for the years ended
March 31, 1997 and 1998, respectively.

4. Basis of Translating Financial Statements
Yen amounts shown in the financial statements are translated into
U.S. dollars, solely for convenience, at the prevailing exchange rate of¥132.10 to U.S.$1.00 on March 31, 1998. These translations should

not be construed as a representation that Japanese yen amounts havebeen, could have been, can be or could in the future be converted
into U.S. dollars at that rate.

5. Special Profits and Losses
The Companies recorded special profits and losses in fiscal 1997 and 1998 consisting of the following:
Years ended March 31, 1998

Millions of yen

Thousands of U.S. dollars

Gain from sales of fixed assets ..............................................................................................
Gain from sales of affiliated company’s stock .......................................................................
Loss from write-down on fixed assets ..................................................................................

¥(49,159
7,715(33,789)$(372,135
58,403(255,783)

Years ended March 31, 1997

Millions of yen

Thousands of U.S. dollars

Gain from sales of fixed assets ..............................................................................................
Loss from sales of fixed assets ...............................................................................................
Loss from write-down on fixed asset ...................................................................................
Loss related to the reconstruction of Marunouchi Building .................................................
Loss from provision for bad debt .........................................................................................
Loss from prepayment of bonds under debt assumption agreements ....................................

¥(65,937(10,856)(6,292)(9,017)(4,494)(14,327)$(499,145(82,180)(47,631)(68,259)(34,020)(108,456)

6. Allowance for Doubtful Accounts
The allowance for doubtful accounts is provided at the maximum
amount permitted by Japanese tax law plus the excess, if any, of an

estimated amount of probable bad debts above that maximum
amount.

7. Inventories
Inventories at March 31, 1997 and 1998 are summarized as follows:

Thousands of
U.S. dollars

Millions of yen

1997

1998

1998

Real estate for sale ...............................................................................................................
Land and housing projects in progress .................................................................................
Land held for development ..................................................................................................
Other ...................................................................................................................................

¥181,587
64,69237,865
17,418¥168,906
43,92936,20815,842$1,278,622
332,544274,095
119,924

Total ................................................................................................................................

¥301,562¥264,885$2,005,185

8. Marketable Securities and Investments in Other Securities
Marketable securities and investments in other securities at March 31, 1997 and 1998 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

1997

1998

1998

Marketablesecurities:
Listed equity securities .....................................................................................................
Public bonds and corporate debentures ...........................................................................

¥079,362
22,180¥074,360
31,567$562,907
238,963

Total ............................................................................................................................

¥101,542¥105,927$801,870

Investments in other securities:
Non-listed equity securities .............................................................................................
Public bonds, corporate debentures and other .................................................................

¥016,334
1,106¥045,310
567$342,998
4,292

Total ............................................................................................................................

¥017,440¥045,877$347,290

9. Other Investments
Other investments at March 31, 1997 and 1998 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

1997

1998

1998

Long-term loans to non-consolidated subsidiaries and affiliates ...........................................
Deposits and guarantee money paid .....................................................................................
Other ...................................................................................................................................

¥000,826
76,00163,630¥000,906
73,50160,087$0,006,858
556,404
454,860

Total ................................................................................................................................

¥140,457¥134,494$1,018,122

Short-term loans to non-consolidated subsidiaries and affiliates
are included in other current assets and amounted to ¥1,657 million($12.5 million) at March 31, 1997 and ¥1,915 million ($14.5 million)
at March 31, 1998.

10. Bank Loans and Long-Term Debt
Short-term bank loans are mainly represented by overdrafts that will
generally mature in 12 months. The annual interest rates
applicable to the short-term loans outstanding at March 31, 1997 and1998 were 0.675%–5.9375% and 0.804%–6.94%, respectively.
Long-term debt at March 31, 1997 and 1998 was as follows:

Thousands of
U.S. dollars

Millions of yen

5.5% mortgage bonds due 1998 ...........................................................................................
5.1% mortgage bonds due 1998 ...........................................................................................
5.6% mortgage bonds due 1999 ...........................................................................................
4.9% mortgage bonds due 2000 ...........................................................................................
5.6% mortgage bonds due 2004 ...........................................................................................
5.275% mortgage bonds due 2005 .......................................................................................
4.8% mortgage bonds due 2005 ...........................................................................................
9-1/4% unsecured bonds due 1997 (payable in U.S. dollars) ................................................
10-1/4% unsecured bonds due 1997 (payable in ECU) .......................................................
4.45% unsecured bonds due 1997 ........................................................................................
3.43% unsecured bonds due 1997 ........................................................................................
6-1/5% unsecured bonds due 1997 (payable in U.S. dollars) ................................................
2.55% unsecured bonds due 1998 ........................................................................................
3.95% unsecured bonds due 1999 ........................................................................................
6% unsecured bonds due 1999 .............................................................................................
3.85% unsecured bonds due 2000 ........................................................................................
1.2% unsecured bonds due 2000 ..........................................................................................
2.7% unsecured bonds due 2001 ..........................................................................................
4.4% unsecured bonds due 2001 ..........................................................................................
8-5/8% unsecured bonds due 2001 (payable in U.S. dollars) ................................................
Floating rate unsecured bonds due 2001 ..............................................................................
2.95% unsecured bonds due 2002 ........................................................................................
4% unsecured bonds due 2002 .............................................................................................
2.125% unsecured bonds due 2002 ......................................................................................
1.675% unsecured bonds due 2002 ......................................................................................
3.1% unsecured bonds due 2003 ..........................................................................................
3.05% unsecured bonds due 2003 ........................................................................................
2.55% unsecured bonds due 2003 ........................................................................................
2.35% unsecured bonds due 2003 ........................................................................................
2.05% unsecured bonds due 2003 ........................................................................................
2.55% unsecured bonds due 2004 ........................................................................................
3.4% unsecured bonds due 2006 ..........................................................................................
3% unsecured bonds due 2006 .............................................................................................
3.1% unsecured bonds due 2008 ..........................................................................................
2.575% unsecured bonds due 2008 ......................................................................................
3.075% unsecured bonds due 2009 ......................................................................................
2.975% unsecured bonds due 2007 ......................................................................................
3.275% unsecured bonds due 2012 ......................................................................................
3.125% unsecured bonds due 2017 ......................................................................................
1.5% convertible bonds due 2003 ........................................................................................
Loans from banks and insurance companies:
Secured ............................................................................................................................
Unsecured .......................................................................................................................
Loans from tenants ..............................................................................................................
Total ................................................................................................................................
Less current portion ............................................................................................................
Total long-term debt .......................................................................................................

1997

1998

1998

¥0,010,200
40,0003,000
35,00050,00050,00050,00030,52810,000
4,943
4,447
3,251
10,00010,00030,00035,000—5,000
10,00028,000
7,551
10,00020,000——10,00015,00010,000———10,00010,00010,000—————99,035¥0,009,000
40,0003,000
35,00050,00050,00050,000——————10,00030,00035,0003,380
5,000
10,00028,0008,462
10,00020,00010,00010,00010,00015,00010,00020,00020,00010,00010,00010,00010,00010,00010,00030,00010,00010,00094,185$(0,068,130
302,801
22,710264,951
378,501
378,501
378,501——————75,700227,101
264,951
25,59037,85075,700211,961
64,05875,700151,400
75,70075,70075,700113,550
75,700151,400
151,400
75,70075,70075,70075,70075,70075,700227,10175,70075,700712,983

47,579358,633115
1,027,282(150,828)¥0,876,454

50,146
321,524108
1,067,805(179,738)¥0,888,067

379,606
2,433,944
818
8,083,308(1,360,621)$(6,722,687

The agreement under which the 1.5% convertible bonds were issued provides for the conversion thereof into shares of common stock at the current conversion
price per share of ¥2,600 ($19.68), subject to adjustments in certain events, including free distributions of shares and stock dividends by way of stock splits.

The current portion of long-term debt at March 31, 1998 was as follows:
Millions of yen

Thousands of
U.S. dollars

Mortgage bonds ...................................................................................................................
Long-term bank loans .........................................................................................................
Loans from others ................................................................................................................

¥049,000
130,730
8$0,370,931
989,629
61

Total ................................................................................................................................

¥179,738$1,360,621

Years Ending
March 31,

Millions of yen

Thousands of
U.S. dollars

1999 ....................................................................................................................................
2000 ....................................................................................................................................
2001 ....................................................................................................................................
2002 ....................................................................................................................................
2003 and thereafter ..............................................................................................................

¥0,179,738
119,082
95,88086,692586,413$1,360,621
901,453
725,814656,260
4,439,160

Total ................................................................................................................................

¥1,067,805$8,083,308

The aggregate annual maturities of long-term debt are as follows:

The following assets were pledged as collateral for long-term loans from banks at March 31, 1997 and 1998:
Thousands of
U.S. dollars

Millions of yen

1997

1998

1998

Land ....................................................................................................................................
Buildings and construction in progress ................................................................................
Marketablesecurities ...........................................................................................................

¥19,120
79,814617¥022,670
92,009525$171,613
696,510
3,974

Total ................................................................................................................................

¥99,551¥115,204$872,097

Additionally, all assets of the Company are subject to an enterprisemortgage for mortgage bonds which amounted to ¥243,000 million($1,839.5 million) at March 31, 1997 and ¥237,000 million($1,794.1 million) at March 31, 1998.
As is customary in Japan, collateral must be given if requested bylending institutions under certain circumstances, and generally banks

have the right to offset cash deposited with them against any debt or
obligations payable to the bank that become due in case of default
and certain other specified events. The Companies have neverreceived any such requests nor do they expect that any such requests
will be made.

11. Guarantee Deposits and Lease Deposits
The Companies made lease agreements for office space with tenants
under which the Companies receive from tenants non-interestbearing lease deposits or guarantee deposits.

Guarantee deposits and lease deposits at March 31, 1997 and 1998
were as follows:

Thousands of
U.S. dollars

Millions of yen

1997

1998

1998

Guarantee deposits and lease deposits from tenants ..............................................................
Guarantee deposits from others ...........................................................................................

¥266,495
10,027¥239,639
27,174$1,814,073
205,707

Total ................................................................................................................................

¥276,522¥266,813$2,019,780

12. Income Taxes
Income taxes applicable to the Companies comprise a corporation
tax, inhabitant taxes and an enterprise tax. In the statements ofincome, the enterprise tax of ¥464 million in 1997 and ¥406 million($3.1 million) in 1998 were included under “Selling, general andadministrative expenses.” The effective tax rates on the statements ofincome differ from the normal tax rates primarily because of theeffect of permanent non-deductible expenses and the lower tax rateapplied to the portion of income distributed as dividends.

13. Shareholders’ Equity(A) Common Stock and Capital Surplus
Under the Japanese Commercial Code, at least 50% of the issue priceof new shares, with a minimum of the par value thereof, is required
to be credited to the common stock account. The portion which is tobe credited to the common stock account is determined byresolution of the Board of Directors. Proceeds in excess of theamounts credited to common stock have been credited to the capitalsurplusaccount.
Japanese companies, upon approval by the Board of Directors, may
make a free distribution of shares by way of stock split toshareholders. The Japanese Commercial Code permits the Board of
Directors to distribute by way of stock split (1) an amount of capitalsurplus or legal reserve transferred to common stock and (2) the
portion of the issue price of new shares which is in excess of the parvalue of such new shares accounted for as common stock in the formof free shares to shareholders. Accordingly, when the Company
makes a free distribution of shares from common stock as in case (2)above, no accounting entry would be required.
(B) Legal Reserve
Under the Japanese Commercial Code, each domestic company isrequired to appropriate as legal reserve an amount equal to at least
10% of cash dividends and other payments made as disposition of
profit until the reserve equals 25% of common stock account. This
reserve is not available for dividends but may be used to reduce a
deficit by resolution of the shareholders or may be capitalized byresolution of the Board of Directors.

14. Contingent Liabilities
At March 31, 1997 and 1998, the Companies were contingently liable as guarantors of non-consolidated subsidiaries, affiliates and individual
customers as follows:
Thousands of
U.S. dollars

Millions of yen

1997

1998

1998

Subsidiaries and affiliates ......................................................................................................
Individual customers for housing loans ................................................................................
Other ...................................................................................................................................

¥3,615
1,185
349¥3,920730
0$29,674
5,526
0

Total ................................................................................................................................

¥5,149¥4,650$35,200

Additionally, at March 31, 1998, the Company was contingently
liable for the payment with respect to the following bonds whichwere transferred to banks under debt assumption agreements.

7.05% unsecured bonds due 2001 .................................................................................
5.9% unsecured bonds due 1999 ...................................................................................
6.0% unsecured bonds due 2001 ...................................................................................
6.0% unsecured bonds due 2002 ...................................................................................

Millions of yen

Thousands of U.S. dollars

Date of agreement¥30,000
50,00020,00050,000$227,111
378,501
151,400
378,501

Sept. 20, 1994
Mar. 22, 1996
Feb. 28, 1997
Feb. 28, 1997

15. Segment Information
The Company and its consolidated subsidiaries are engaged in five
major segments: (1) leasing and management of office buildings andcommercial properties; (2) sales of housing, land and office buildings;(3) architectural design and supervision; (4) construction; and (5)otherbusiness.

Information by industry segment for the years ended March 31,
1997 and 1998 is summarized as follows:(Millions of yen)
1998
Leasing

Sales

Revenue from operations
Outside customers ..........................................
Inter-segment .................................................

Architectural Construction

Other

Total

Elimination

Consolidated¥0,279,161
5,843¥151,255
12¥11,593 ¥66,404 ¥40,318 ¥0,548,731 ¥— ¥0,548,731
1,037
3,013
3,019
12,924 (12,924)—

Total ...................................................................

285,004

151,267

12,63069,41743,337

561,655

Costs and expenses .............................................

203,712

152,403

12,052

67,71048,251

Operating income ..............................................

81,292(1,136)

578

1,707

(4,914)

Assets ..................................................................

1,428,782

288,482

11,777

20,648Depreciation .......................................................

48,439

1,433

14

129

Capitalexpenditures ...........................................

128,568

1,436

4

2,052

(12,924)548,731484,128

6,351

490,479

77,527(19,275)

58,252

69,7181,819,407

283,851

2,103,258

2,982

52,997935

53,932

1,125

133,185

5,933

139,118(Millions of yen)
1997
Leasing

Sales

Architectural Construction

Revenue from operations
Outside customers ..........................................
Inter-segment .................................................

Other

Total

Elimination

Consolidated¥0,274,480
8,388¥166,504—¥18,302 ¥50,254 ¥49,579
1,296
2,690
3,830

Total ...................................................................

282,868

166,504

19,59852,94453,409575,323(16,204)

559,119

Costs and expenses .............................................

204,235

162,090

17,96351,41957,317493,0243,701

496,725¥0,559,119 ¥— ¥0,559,119
16,204(16,204)—

Operating income ..............................................

78,633

4,414

1,635

1,525

(3,908)82,299(19,905)

62,394

Assets ..................................................................

1,373,255

311,935

13,18021,104

72,277

1,791,751

274,560

2,066,311

Depreciation .......................................................

47,707

934

14

72

3,529

52,256861

53,117

Capitalexpenditures ...........................................

48,851

1,676

7

2,499

1,155

54,1884,311

58,499(Thousands of U.S. dollars)
1998
Leasing

Sales

Architectural Construction

Other

Total

Elimination

Consolidated

Revenue from operations
Outside customers .......................................... $02,113,255 $1,145,004 $87,759 $502,680 $305,208 $04,153,906$— $04,153,906
Inter-segment..................................................
44,23291
7,850
22,80822,854
97,835 (97,835)—
Total ...................................................................

2,157,487 1,145,095

95,609525,488

328,0624,251,741(97,835) 4,153,906

Costs and expenses .............................................

1,542,105 1,153,695

91,234

512,566

365,2613,664,861

48,076

3,712,937

586,880 (145,911)

440,969

Operating income ..............................................
Assets..................................................................

(8,600)

4,375

12,922(37,199)

10,815,912 2,183,815

615,382

89,152

156,306

527,767 13,772,952 2,148,759 15,921,711

Depreciation .......................................................

366,684

10,848106977

22,573401,188

7,078

408,266

Capitalexpenditures ...........................................

973,263

10,87130

15,534

8,515

1,008,213

44,913

1,053,126

Total

Elimination(Thousands of U.S. dollars)
1997
Leasing

Revenue from operations
Outside customers ..........................................
Inter-segment .................................................

Sales

Architectural Construction

Other

Consolidated$02,077,820 $1,260,439 $138,547 $380,424 $375,314 $04,232,544 $— $04,232,544
63,497—
9,811
20,36328,993
122,664 (122,664)—

Total ...................................................................

2,141,317

1,260,439 148,358

400,787404,3074,355,208

Costs and expenses .............................................

1,546,063

1,227,025 135,981

389,243433,891

3,732,203(122,664) 4,232,544
28,0173,760,220

623,005(150,681)

472,324

Operating income ..............................................

595,254

33,414

12,377

11,544(29,584)

Assets..................................................................

10,395,572

2,361,355

99,773

159,758

547,138 13,563,596 2,078,425 15,642,021

Depreciation .......................................................

361,143

7,070

106

545

26,715395,579

6,518

402,097

Capitalexpenditures ...........................................

369,803

12,68753

18,917

8,744

410,204

32,635442,839

16. Subsequent Events
On April 28, 1998, the Company issued ¥10,000 million ($75.7
million) 1.775% unsecured bonds due 2003, ¥10,000 million ($75.7
million) 2.125% unsecured bonds due 2005 and ¥10,000 million($75.7 million) 2.525% unsecured bonds due 2008.

On June 26, 1998, the Company’s shareholders authorized
payment of a cash dividend to shareholders of record on March 31,
1998 of ¥4.00 ($0.03) per share, or a total of ¥5,197 million ($39.3
million).

Report of Independent Public Accountants
ON THE CONSOLIDATED FINANCIAL STATEMENTS

To the Board of Directors
Mitsubishi Estate Company, Limited
We have audited the accompanying consolidated balance sheets of Mitsubishi Estate Company, Limited and its consolidated subsidiaries
as of March 31, 1997 and 1998, and the related consolidated statements of income, shareholders’ equity and cash flows for each of thethree years in the period ended March 31, 1998, all expressed in Japanese yen.
Our audit was made in accordance with generally accepted auditing standards in Japan and all relevant auditing procedures as arenormally required were carried out.
Based on our audit, it is our opinion that the above-mentioned financial statements present fairly the financial position of Mitsubishi
Estate Company, Limited and its consolidated subsidiaries as of March 31, 1997 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended March 31, 1998, in conformity with generally accepted accounting principles
in Japan applied on a consistent basis.
The accompanying financial statements expressed in United States dollars have been translated into dollars solely for the convenienceof the reader. We have recomputed the translation and, in our opinion, the consolidated financial statements expressed in yen have beentranslated into dollars on the basis described in Note 4 of the Notes to Consolidated Financial Statements.
Tokyo, Japan
June 26, 1998

CENTURY AUDIT CORPORATION
Certified Public Accountants