M I T S U B I S H I E S T A T E C O . , LT D .

A N N U A L
R E P O R T
2006OUR MISSION
We contribute to society through urban development.
By building attractive, environmentally sound communities where people can live,
work and relax with contentment, we contribute to creating a truly meaningful society.

CONTENTS
2.

To Our Shareholders

6.

Special Feature

13. Business Information
25. Financial Review
29. Financial Statements
51. Mitsubishi Estate Corporate Data
54. Corporate Social Responsibility Initiatives

Caution regarding forward-looking statements
Statements made in this annual report with respect to the Mitsubishi Estate Group’s current plans,estimates and strategies are forward-looking statements about the future performance of the
Mitsubishi Estate Group. These statements are based on management’s assumptions, which arefounded on currently available information and therefore should not be unduly relied upon. The
Mitsubishi Estate Group cautions that a number of significant factors could cause future results todiffer from forecasts in the forward-looking statements.

TO OUR SHAREHOLDERSAs the general economy continues on arecovery path, the real estate market is
experiencing steady growth. Having posted
record results in the fiscal year under review,
the Mitsubishi Estate Group has madean excellent start under its
new Medium-Term Management Plan,
Foundation for the Future (FF) 2007.
Going forward, the Mitsubishi Estate Groupwill endeavor to contribute to the creation of atruly meaningful society through urban
development based on close communication
with all stakeholders.

2FINANCIAL RESULTS
A Year of Record Results — An Excellent Start
under the New Medium-Term Management Plan

During the fiscal year ended March 31, 2006,
Mitsubishi Estate Co., Ltd. (“Mitsubishi Estate” or
the “Company”) and its consolidated subsidiaries(collectively, the “Mitsubishi Estate Group” or the“Group”) recorded revenue from operations of¥844,217 million, an increase of 8.9% from theprevious fiscal year. Operating income also climbed
16.4% year on year to ¥137,614 million. In
Building Business operations, results were supported
by a full period’s contribution from new buildings.
Condominium sales were strong in Residential
Business operations, while the sale of development
properties fueled Urban Development & Investment
Management operations. Collectively, these factors
were the principal cause for the increase in revenues
and earnings. In the fiscal year under review, the Group
recorded a gain on sales of fixed assets, which exceeded
impairment loss and loss on valuation of inventories. As
a result, net income for the period under review surged
54.0% to ¥55,825 million.
OPERATING ENVIRONMENT
Continued Recovery in the General Economy — An
Overall Firm Real Estate Market

In the office building market, conditions continued to
improve from the second half of the previous fiscal
year, bolstered by strong demand particularly forYears ended March 31

2001

2002

2003

large-scale, high-specification buildings located inprime locations. This was attributed to the recovery
in the overall economy and strong corporate
earnings. In the Tokyo Metropolitan area, occupancy
rates continued to improve. This in turn contributed
to an upswing in the rates offered to tenants.
Despite concerns surrounding falsified structural
calculation statements relating to earthquake
resistance and the potential for an increase in interest
rates, demand in the residential market remained
firm, buoyed by improvements in employment
conditions and the resultant boost in disposable
incomes. Competition remains keen in certain areas
as consumers become increasingly selective.
Nevertheless, signs continue to emerge of an upswing
in sales prices for properties that offer excellent
location and product planning.
In the real estate investment market, conditions
continued to be bolstered by an easing of quantitative
monetary government policy and the subsequent
inflow of investment funds. With continuous strong
demand for property acquisition from domestic andoverseas private funds and real estate investment
trusts (REITs) along with a surge in the volume oftransactions, property prices in Japan’s three major
metropolitan areas rose for the first time in 15 years.
Accordingly, prices for prime properties are forecast
to improve over the foreseeable future, despite
concerns of increasing interest rates.
Under these circumstances, the Mitsubishi

2004

2005

Millions of yen

Thousands of
U.S. dollars

2006

2006

Revenue from operations¥ 630,990 ¥ 631,564 ¥ 681,726 ¥ 679,918 ¥ 775,381 ¥ 844,217 $ 7,186,660
Net income (loss)
19,832(71,058)
36,03934,98936,24555,825475,227
As a percentage of revenue
from operations
3.1%(11.3)%
5.3%
5.1%
4.7%
6.6%
—
As a percentage ofshareholders’ equity
4.1%(10.5)%
4.3%
4.0%
4.0%
5.4%
—
Total assets
2,535,263 3,035,795 3,007,927 3,068,842 3,124,514 3,280,209 27,923,801
Total shareholders’ equity
518,766
832,497
839,953
897,499
920,930 1,133,623
9,650,319
Common stock
86,53486,53486,53486,53486,534
129,736
1,104,418

Per share amounts:
Net income (loss)
Cash dividends applicableto the year

Yen

U.S. dollars¥15.26¥(54.70)¥27.61¥26.96¥27.93¥42.60

$0.36

8.00

8.00

8.00

8.00

8.00

10.00

0.08

Revenue by Segment(Percentage Share)
Real Estate Services
3.5%
Hotels
3.7%
Custom-Built
Housing
4.8%
Architectural
Design &Engineering
2.0%

Other
0.5%
Buildings
35.9%International
Business
22.2%
Urban
Development &Investment
Management
3.9%

Residential Development
23.5%

Note: Yen amounts shown are translated into U.S. dollars, solely for convenience, at the prevailing exchange rate on March 31, 2006,of ¥117.47 to US$1.00.

3

Estate Group will endeavor to foresee changes in its
business environment, while enhancing management
efficiency and earnings power.

BUSINESS STRATEGIESMaintaining Balance between Businesses that
Effectively Utilize Asset Holdings such as the
Marunouchi Redevelopment Project with Asset

MEDIUM-TERM MANAGEMENT PLAN “FF 2007”

Development Businesses that Incorporate Exit

Steady Progress — EBITDA Target of ¥200.0

Strategies

Billion Achieved in the First Year of the Plan

In Building Business operations, Mitsubishi Estate
will forge ahead with its Marunouchi Redevelopment
Project in an effort to energize the key Marunouchi
area and further distinguish it from all other areas.
At the same time, we will attract high-quality tenants
by strengthening the leasing function, raise the levelof property management to improve the profitabilityof property holdings and enhance asset portfolio
quality. Going forward, we will also reinforce
shopping center business functions as a growth fieldof the future and expand our business platform inareas outside Marunouchi.
In Residential Business operations, Mitsubishi
Estate will continue its focus on the Tokyo
Metropolitan area and supply an estimated 3,500
condominiums each year. Guided by this area-based
strategy and an emphasis on product planning, we
will leverage our competitive advantage through theongoing supply of high-quality and reliable properties. In connection with our equity participation in
TOWA REAL ESTATE DEVELOPMENT CO.,LTD., concluded in March 2005, we integrated a
housing management subsidiary in April 2006 andintend to pursue joint businesses that optimize thestrengths of both companies.
In Urban Development & Investment
Management operations, we will continue to expand
development of income-generating real estate projects beyond exit strategies and actively promote feebased asset management and other businesses. In
addition, Mitsubishi Estate is committed to diversifying its investment area, property types andinvestment methods to ensure an agile and flexible
approach to shifts in market trends.
By providing a significant risk hedge andworking to build a global real estate service network,
Mitsubishi Estate continues to develop International
Business operations as a strategic activity based on
considerations of risks and return.
Furthermore, in the development of each of theaforementioned operations, we will boost collaboration

In July 2005, the Mitsubishi Estate Groupannounced its new three-year Medium-Term
Management Plan, Foundation for the Future (FF)2007, commencing April 1, 2005 through March 31,
2008. As a real estate company for the new era with“development function” at the heart of its operations, Mitsubishi Estate is leveraging its value creation
capabilities to achieve a leading position in theindustry. As a part of the Plan, we identified an
EBITDA target of ¥200.0 billion for the fiscal year
ending March 31, 2008, and established strategies forinfrastructure, management and core growth policies.
Basic Objective
Foundation for the Future 2007
To cultivate capabilities for real estate value creation with“development” at the heart of business operations, and secure a leading
position in the industry as a real estate company for the new era

Strategic Policies• Infrastructure Strategy
Rebuild a dynamic and flexible management platform and system• Management Strategy
Optimize business portfolio and improve asset portfolio• Core Growth Strategy
Strategically reinforce capabilities for development-based
real estate solutions(Development, real estate services, and Group-wide proposal-oriented
marketing capabilities)

In the fiscal year ended March 31, 2006,
Mitsubishi Estate took significant strides in implementing its strategies. EBITDA for the fiscal year
under review totaled ¥200.9 billion, surpassing theestablished target two years in advance. We also
made substantial progress in reorganizing assets,
which contributed to enhancing our business portfolio. Looking ahead, Mitsubishi Estate will continue
to implement its strategies and work toward further
increasing EBITDA.

4

among business operations and Group companies inan effort to maximize our collective strengths.
Leveraging the accumulated know-how of the
Marunouchi Redevelopment Project, we will expand
into other areas and business domains. Conversely,
we will utilize the experience and expertise gained
outside Marunouchi to further enhance the quality of
the Marunouchi Redevelopment Project.
Working to expand proposal-oriented marketing
opportunities, Mitsubishi Estate will reinforce its
Real Estate Consulting & Solution Department, astrategic marketing structure within the Group.
While delivering high-quality proposals to the widest
possible audience, Mitsubishi Estate will strive toensure best-fit solutions that accurately match customer needs with the Company’s business operations
and endeavor to enhance its corporate brokerage andadvisory services functions.
CORPORATE GOVERNANCE
Three New External Directors Appointed —Pursuing Corporate Governance with a Focus on
Shareholder Value

With a focus on shareholder value, the Mitsubishi
Estate Group strives to rebuild a dynamic andflexible management system with the aim of displaying increasingly efficient and sound management
throughout the Group. To this end, we position
corporate governance as a top priority and areworking tirelessly to establish an optimal Group
governance structure.
In April 2003, Mitsubishi Estate introduced an
executive officer system. The objectives of this system
are to reinforce the management, oversight andexecutive functions, to increase management efficiency and to accelerate the decision-making process.
At the same time, we established the Strategic
Planning Committee to encourage Group-wide
discussion of management strategies, and the
Executive Committee, at which important decisions
are made concerning the executive function. Serving
as a support organization for the Group’s Executive
Committee, the Strategic Investment Committee wasestablished to assess and consider major investment
proposals. Furthermore, with the aim of further
enhancing the corporate governance function, weestablished the CSR Committee to deliberate on

relevant CSR matters and created the Advisory
Board comprised of externally appointed leading
professionals. Working to enhance transparency andbolster the management oversight function,
Mitsubishi Estate appointed three external directors
to its Board in June 2006. Going forward, we willplace increased emphasis on shareholder value as wework diligently to realize an optimal corporate
governance structure.
COMPLIANCE
Further Strengthening the Compliance Structure

In July 2005, Mitsubishi Estate established theCompliance Committee, comprised of leading
external professionals, as an advisory board
reporting directly to the president. On the advice of
this Committee, we completed a review of certain
sections of our Group Code of Conduct in January
2006, and are currently implementing reforms
consistent with recommendations outlined in theCommittee’s report. As corporate social responsibility continues to attract increasing interest, theMitsubishi Estate Group is committed to proactively
fulfilling its responsibilities and to restoring credibility within the market.
IN SUMMARY
Our Fundamental Mission — Contributing toSociety through Urban Development

The Mitsubishi Estate Group has positioned“Integrity,” “Open Communication” and“Teamwork” at the heart of its business activities.
In close communication with all stakeholders andwith a sense of honesty, humility and magnanimity,
we will endeavor to address the needs of customers
through mutual collaboration as we meet thedemands of each era.
July 2006

Keiji Kimura
President

5

SPECIAL FEATUREMARUNOUCHI
The Mitsubishi Estate Group is undertaking the Marunouchi Redevelopment Project with the theme of“Creating an attractive and vibrant city center, recognized worldwide as the leading hub of dynamic
interaction.” The Project is transforming Marunouchi, a district that has established its global presence overthe past century, from a dedicated business district into an open, energetic area with diversified potential.

A view of the Marunouchi district in 1993

6

In 1890, Mitsubishi Company received a request from the Meiji
Government to purchase the Marunouchi site, which had been used
exclusively as a residential area for feudal lords during the Edo Period.
At the time of the purchase, the site was actually an overgrown field
called Mitsubishi-ga-hara, literally meaning “the Mitsubishi flatland.”It was in 1894 when the Mitsubishi No. 1 Building was completed as
Japan’s first modern office building. Mitsubishi Estate has sinceengaged in leading-edge urban development over the past century as aforerunner in the industry. The transformation of the Marunouchi
district into one of the world’s leading business centers coincided withJapan’s economic growth and culmination as an economic powerhouse.
The Marunouchi district’s evolution can be seen as a continuing series ofredevelopment projects, from remodeling plans implemented on the backof high economic growth during the Showa Period to the current
Marunouchi Redevelopment Project. Forever on the move, Marunouchi
will always maintain its dynamic and energetic presence, reflecting ourchanging times.

Mitsubishi-ga-hara around 1899, as
painted by Fukuhide Gunji

Babasaki Dori and the area known as“Little London” circa 1907

A 1927 view of Tokyo Station and
immediate surroundings

Marunouchi’s Naka Dori after completion of
remodeling in 1967

7

INTERACTION

8The Marunouchi Redevelopment Project embraces the theme of“Creating an attractive and vibrant city center, recognizedworldwide as the leading hub of dynamic interaction.” The
Project aims for the enhancement of the area’s status as apremier business center through office building specification
renewals and infrastructure upgrades, while reinforcing servicesof the Group’s intangible operations that entice commercial andretail stores and promote cooperation among businesses andacademic institutions. In order to achieve the ultimate goal of
cultivating the Marunouchi district into one complete
community, the Mitsubishi Estate Group is committed to raising
its area management capability into a class of its own.

9

1

2 The Industry Club of Japanand Mitsubishi UFJ Trust andBanking Building
Completed in February 2003

3 Marunouchi OAZO
Opened in September 2004

4 Tokyo Building
Completed in October 2005

5 Shin-Marunouchi
Building
Scheduled for completionin April 2007

Harum
i Dori

1 Marunouchi Building
Opened in September 2002ark
Imperial Palacene

Hibiya Dori
Gyok

10
6

2

Tokyo Station, JR Keiyoy Line

on

5

2

13

Forum

ati

1

1

9
7

St

2

12

6
4

3

20

11

8

Yurakucho Station, Yurakucho Line

Ginza Station, Maru
M uunouchi
uchi Line
Linn

14

5

Tokyo Station, Marunouchi Line

JR Yokosuka Line

JR Sobu Line
4

3

Tokyo Station

To the north and south of the area that connects Tokyo Station and the Imperial Palace lie the Otemachi,
Marunouchi, and Yurakucho districts. Representing Japan’s principal business district, these districts collectively
offer unparalleled access and transportation infrastructure. The area is serviced by eight rail and seven subway lines,
and each office building is within a three to five minute walking distance from rail transport. Boasting more than
4,000 offices employing over 200,000 workers, commuter traffic is estimated to be more than 900,000 daily. Of
approximately 100 office buildings in the area, Mitsubishi Estate owns and manages 31 buildings.

10

6 The Peninsula Tokyo(tentative name)Planned for completion in thefiscal year ending March 31, 200821

oda Line

Mitsubishi Estate identified the 10-year period beginning in 1998 as thefirst stage of the Marunouchi Redevelopment Project, and has since continued efforts to create a new cityscape primarily in the areas in front ofTokyo Station. Investment for reconstruction of six major buildings alongwith the renovation of other existing buildings during this 10-year period
will total ¥500 billion. Among the six major buildings, the Marunouchi
Building, the Industry Club of Japan and Mitsubishi UFJ Trust andBanking Building, Marunouchi OAZO and the Tokyo Building were completed in 2002, 2003, 2004 and 2005, respectively. The first stage of the
Project will come to a close with the completion of the Shin-Marunouchi
Building and the Peninsula Tokyo (tentative name), both of which areplanned for completion in the fiscal year ending March 31, 2008.
As the first stage of the Project nears a successful close, positive
signs are being seen throughout the Marunouchi area, with the facilitation of more lively exchanges of information and growing numbers ofpeople visiting for after-hour and weekend activities. In addition, over thecourse of the Project’s advancement, the Mitsubishi Estate Group hasbrought to fruition material results from its environmental activities,
satisfying concerns such as energy and resource conservation and calls
for a green environment. New Marunouchi, primarily serving as apremier business center, is being transformed into an attractive andvibrant space—both day and night throughout the year.
LEASING BUILDINGS

15

Station,Otemachi hi
i LineMarunouch

16

17

18

19

1. Hibiya Kokusai Building
2. Yurakucho Denki Building
3. Yurakucho Building
4. Shin-Yurakucho Building
5. Kokusai Building
6. Shin-Kokusai Building
7. Shin-Nisseki Building
8. Fuji Building
9. Shin-Tokyo Building
10. Kishimoto Building
11. Marunouchi Naka Dori Building

12. Ministry of Education, Culture, Sports,
Science and Technology Building
13. Mitsubishi Building
14. Tokyo Ginko Kyokai Building
15. Otemachi Building
16. Shin-Otemachi Building
17. Nippon Building
18. Nippon Steel Building
19. JFE Shoji Building
20. Mizuho Corporate Bank Ltd.
Head Office Building
21. The Bank of Tokyo-Mitsubishi UFJ
Otemachi Building

RECONSTRUCTION PROJECTSCOMPLETIONFirst Stage (1998–2007)
1. Marunouchi Building
2. The Industry Club of Japan and
Mitsubishi UFJ Trust and Banking Building
3. Marunouchi OAZO
4. Tokyo Building
5. Shin-Marunouchi Building
6. The Peninsula Tokyo (tentative name)February 2003
September 2004
October 2005
April 2007 (Planned)
2008*

Second Stage (2008–2017)
1. Furukawa Building/
Mitsubishi Shoji Building/Marunouchi Yaesu Building
2. Togin Building

2010*
2011*

August 2002

*Years indicate fiscal years ending March 31.

11I N N O VAT I O N
An image of the Marunouchi Building and the Shin-Marunouchi Building after
completion of the Marunouchi Redevelopment Project’s first stage.

The second stage of the Marunouchi Redevelopment Projectwill begin in 2008. The basic theme of the second stage is toaccelerate the broadening and deepening of the Marunouchi
Redevelopment Project. During the 10-year period of thesecond stage, Mitsubishi Estate plans to invest an additional¥450 billion to rebuild seven or eight buildings and step up
improvements to downtown facilities by remodeling existingbuildings. Moving from the development focus in the first stageof heightening the vitality of areas around Tokyo Station to the
Otemachi, Marunouchi and Yurakucho districts, Mitsubishi
Estate plans to comprehensively redevelop the entire area inthe second stage, thereby enhancing the business environment.
Furthermore, Mitsubishi Estate aims to enrich the versatility of
the area, focusing on the improvement of the cultural andresidential environment.
The first phase of the second stage entails rebuilding andconstruction work on the site where the Mitsubishi Shoji
Building, the Furukawa Building and the Marunouchi Yaesu
Building are currently located (scheduled for completion in latespring 2009), which includes rebuilding the historical
Mitsubishi No. 1 Building on its original 1894 site. After
reconstruction, the new Mitsubishi No. 1 Building will be used
as a museum. Along with these redevelopment projects,
12

Mitsubishi Estate announced in April 2006 a plan to redevelop
the Togin Building, aiming for completion in the fiscal year
ending March 31, 2011. The Mitsubishi Estate Group will
undertake the improvement of the Marunouchi district’s urban
functions as a global business center and promote harmony
between urban development and the environment, bolstering
the district’s welcoming atmosphere. These efforts will lead tothe creation of new attractions based on the area’s history,arts and other cultural assets. Leveraging each one of thesequalities, the Group aims to create value that is only available
in Marunouchi, by providing a rich and fulfilling urban lifestylethrough the establishment of an area management structureand network that integrates public and private services.

An open courtyard (left) and exterior view (right) following reconstruction of
the Mitsubishi Shoji Building, the Furukawa Building and the Marunouchi
Yaesu BuildingBUSINESS INFORMATIONREAL ESTATE CONSULTING& SOLUTION DEPARTMENT
Strengthening Proposal-Based Marketing andCultivating New Business Opportunities for the
Entire Mitsubishi Estate Group

Standing at the heart of Mitsubishi Estate’s strategic
marketing structure, the Real Estate Consulting &Solution Department works to foster deeper ties withcorporate clients through proposal-based marketing,which is conducted across the Group as a whole. Making
full use of its accumulated real estate development,planning and management know-how, the Real EstateConsulting & Solution Department is active in efforts torealize maximum value for its corporate clients.

The Mitsubishi Estate Group’s Marketing Structure
The Mitsubishi Estate Group is engaged in comprehensive realestate development activities across eight business operations
comprising Building Business, Residential Business, Urban
Development & Investment Management, International Business,
Architectural Design & Engineering, Custom-Built Housing, HotelBusiness, and Real Estate Service operations. Independent ofthese business units, the Real Estate Consulting & Solution
Department promotes proposal-based marketing on across-sectional basis across the entire Group. Leveraging thecollective strengths of the Group, through close collaboration that
extends across all operations, the Department provides a full rangeof best-fit, customer-oriented consulting services and solutions
including effective real estate acquisition and usage. As well as
servicing existing customers, the Department is active incultivating new business opportunities.
Large-Scale Development and Private Finance Initiative
Businesses
The Real Estate Consulting & Solution Department is pursuing
initiatives in response to large-scale complex developments and theincrease in recent years of public-sector real estate needs as ameans to create new business opportunities. Against thisbackground, and supported by its know-how and expertise
accumulated over many years, the Department actively pursues the
securitization of real estate in the development phase and othernew business methods.

Maximize asset efficiency Risk management Funds procurement Real estate investment

C O N S U LT I N G
CUSTOMERS

Determinecurrent
statusConduct
researchandanalysisREAL
ESTATE-RELATEDPLANNING,PROPOSALS,AND SERVICES

Considerinitiatives
andproposals

Proposal determination
Real estatedevelopment business● Development method proposals●Financing plan support● Project management● Effective application andcollaboration business(Equivalent exchange,
commission business, termleasehold interest method)● Provisional use● Reconstruction

Real estate investmentrelated business● Real estate investment strategy
formulation support● Market research and analysis● Due diligence● Acquisition support● Property management● Asset management

Comprehensive
building analysis

Real estate liquidity●Real estate-backed financing
support● Securitization● Specified real estate joint
business● Sales and leaseback● Real estate brokerage business

Building operational
management● Operational management plan
analysis and proposals● Long-term maintenance plan
consulting● Building, retail facility, and hotel
operational management
consignment● Sub-leasing● Tenant marketing

Implementation

Analysis and review

SOLUTION● Earthquake resistance analysis● Facility management● Energy conservation and
IT-oriented construction
and facilities● Interior and exterior renovation● Barrier-free facility construction● Aging-prevention construction
and facilities● Conversion

Construction

Design and supervision● Environmental assessment
and research● Urban development
planning-related, PFI consulting● Environmental and civilengineering-related consulting,design and supervision● Construction management● Various construction building
design and supervision● Interior, exterior, and otherdesign and supervision

Lifestyle services● Office building and retail● Complex housing, company
facility construction
dormitory and housing operation● Detached-housing, leased
and management
residence, company dormitory● Community residence operationand housing construction
for the elderly● Temple, hospital, and otherspecialized building construction ● Complex housing and other
Internet connection services● Residence and office building
renovation

13

BUILDING BUSINESSOPERATIONS
Enhancing Urban Functions from the Perspectiveof Area Management

Building Business operations primarily undertake thedevelopment, leasing and property management of officebuildings in Japan’s major cities while also handlingmanagement of large-scale shopping centers, operation of
parking lots and district operation of heating and cooling
services throughout Japan, enhancing urban functions fromthe perspective of area management.

The Tokyo Building

The Tokyo Building opened in November
2005. Taking advantage of new deregulations, floor space was increased bytransferring air rights from the Tokyo
Station building.

14

Promoting Increased Interaction in the Marunouchi District
The Marunouchi district is the home base in Japan for many of theworld’s leading companies. With its overwhelming infrastructure
and corporate scale the district offers a variety of business
opportunities. Aiming to transform Marunouchi into a world-classcenter of dynamic interaction, Mitsubishi Estate promotes the
upspring of various exchanges through supporting venturebusinesses and concentrating academic centers in the district,thereby expanding the circles of diverse exchanges that extend
beyond the business world.
The Second Stage of the Marunouchi Redevelopment
In an effort to raise awareness of Tokyo as an international center
among business people all over the world, to maximize its fullpotential, and to deliver new functions that meet today’s andtomorrow’s business needs, Mitsubishi Estate is acting beyond therole of developer to that of a producer. In 1998, we commenced
the first stage of the Marunouchi Redevelopment, a 10-year
program encompassing the upgrade, reconstruction and renovationof much of the Marunouchi district. Beginning with the
Marunouchi Building, Mitsubishi Estate has made steady progressin the ensuing period. In February 2003, the Industry Club ofJapan and Mitsubishi UFJ Trust and Banking Building wascompleted, followed in September 2004 by Marunouchi OAZO,

which faces Tokyo Station on the former site of Japan National
Railways Headquarters. Completed as planned in October 2005,
the Tokyo Building is the first development in Japan to takeadvantage of deregulations that allow for the transfer of unused
air rights to increase floor space, in this case from the Tokyo
Station building to other areas throughout Marunouchi andcertain adjoining locations. The Shin-Marunouchi Building and thePeninsula Tokyo (tentative name) are scheduled for completion by
the fiscal year ending March 31, 2008, which will conclude thefirst stage of the Marunouchi Redevelopment.
Over the next 10 years, we will push ahead with the second
stage of the Redevelopment. As the first project of the second
stage, we will simultaneously redevelop the Mitsubishi Shoji
Building, the Furukawa Building and the Marunouchi Yaesu
Building in order to reorganize the area as one comprehensive city
block. The area will function as the hub adjoining the Marunouchi
and Yurakucho districts. Adding to the aforementioned initiatives,
Mitsubishi Estate announced in April 2006 a plan to redevelop the
Togin Building as the second project of the second stage.
Based on the achievements of the Marunouchi Redevelopment
Project to date, the second stage will encompass broader and morecomprehensive plans to rejuvenate the Otemachi, Marunouchi and
Yurakucho districts, an area of approximately 111 hectares.

Expanding the Shopping Center Business Throughout Japan
Building Business operations include shopping centers in Tokyo (inOdaiba), Yokohama, Hakata and other locations, and work is also
proceeding to ensure a greater retail presence on Marunouchi
Naka Dori, as part of its redevelopment. In addition, Mitsubishi
Estate engages in outlet mall operations through Chelsea Japan
Co., Ltd., a partnership vehicle capitalized by Mitsubishi Estate,
U.S.-based Chelsea Property Group, Inc. and Sojitz Corporation.
Chelsea Japan operates outlet malls in Gotemba (Shizuoka
Prefecture), Izumisano (Osaka Prefecture), Sano (Tochigi
Prefecture), Tosu (Saga Prefecture) and Toki (Gifu Prefecture).
Chelsea Japan also plans to open Kobe-Sanda Premium Outlets(tentative name) in Kobe (Hyogo Prefecture).

Marunouchi OAZOThe Peninsula Tokyo (tentative name) (above)

The Shin-Marunouchi Building

A multi-function development comprising officebuildings, retail facilities and a hotel,
Marunouchi OAZO opened in September 2004.

Constructed by Mitsubishi Estate, the PeninsulaTokyo will be leased and operated by The
Hongkong and Shanghai Hotels, Limited. Scheduled to open in the fiscal year ending March 31,
2008, this world-class luxury hotel is attracting
considerable expectation and interest.

Rebuilding plans are proceeding on schedule forthe completion of the Shin-Marunouchi Building
by the fiscal year ending March 31, 2008.
Completion of construction will coincide withthe close of the first stage of the Marunouchi
Redevelopment.

Sano Premium Outlet (below)

Modeled on an image of city life on the east coastof the United States, the Sano Premium Outlet
boasts approximately 150 of the world’s leading
brand stores. Opened in March 2003, the outlet
underwent a third-stage expansion in March 2006.

15

RESIDENTIAL BUSINESSOPERATIONSWith Highly Competitive Product Planning for
Properties in Popular Urban Areas that Offer Superior
and Convenient Location, Sales of Condominiums
Continue on the Path of Steady Growth

Residential Business operations aim to provide ideal living
environments in concert with a healthy and fulfilling
lifestyle, by developing and marketing condominiums, singleunit homes and residential land, as well as engaging inbusinesses such as condominium management and consulting
services for the optimal use of real estate. At the same time,
Mitsubishi Estate manages fitness clubs.

Condominium Sales
3,451
2,870
2,437

2,299

2,096

2002/3

2003/3

2004/3

2005/3

2006/3

PARK HOUSE SANBANCHO

Park House Sanbancho is a 67-condominium joint
development project between Mitsubishi Estate
and NTT Urban Development Co. Located in the
Bancho area of Chiyoda Ward, which is known for
its scarcity of residential properties, this complex
is the first among the PARK HOUSE series in the
Bancho area to have adopted seismic isolation.

16

Growth in the Condominium Business Spurred byMarket-Oriented Products and Services
Sales of condominiums particularly in the Tokyo Metropolitan
area continued to increase. This growth is attributable to
Mitsubishi Estate’s ability to supply market-oriented properties
that fulfill the diverse needs of customers. Boasting excellent
product planning capabilities, Mitsubishi Estate strives forcompetitive advantage by focusing on properties in popular urban
areas that offer superior and convenient location, large-scale
properties with comprehensive communal facilities built with theenvironment in mind, high-rise condominiums that provide
spectacular views, and collaboration with leading designers andfirms from a variety of industries.
To better address the growing variety in customer demand, wedeveloped and are marketing full order-made condominiums under
the STYLE HOUSE brand. In addition, Mitsubishi Estate isreinforcing its focus on quality assurance. Utilizing its proprietary
disclosure system, we provide an easy-to-understand written recordof property features, facilities and quality, at each stage of design,
construction and completion. This information is supplemented bya maintenance report after individual property owners takeoccupation.

In the single-unit home business, Mitsubishi Estate has createda new brand called “dreams design,” with an underlying theme of“living spaces that reflect individuality and offer daily comfort.”
Through the provision of detached houses under this brand,
Mitsubishi Estate is promoting residential developments based ona more distinctive customer-oriented concept.
Merger of Condominium Management Group Subsidiaries
As of April 1, 2006, the Group’s condominium management
subsidiaries, Mitsubishi Jisho Community Service Co., Ltd. and
Towa Community Service Co., Ltd., merged to form Mitsubishi
Jisho Towa Community Co., Ltd. Boasting a business scale ofapproximately 140,000 condominiums under its management,
Mitsubishi Jisho Towa Community is advancing the streamlining
and rationalization of its operations while endeavoring to integrate
and enhance the comprehensive know-how nurtured over the years
by both former companies in the fields of condominium
management and maintenance. Through these efforts and byproviding management services that guarantee customer
satisfaction, Mitsubishi Jisho Towa Community aims to further
bolster its market competitiveness.

Contributing to a Healthy Lifestyle through the
Fitness Business
Mitsubishi Estate is also engaged in a number of leisure services
such as the management of golf courses, sporting facilities andbusinesses associated with increased leisure time and thepromotion of good health. Against the background of a rapidly
aging society, Liv Sports Co., Ltd. in particular is actively
expanding activities in the fitness business. With the opening ofFitness Club Liv Kitatoda in July 2006, Liv Sports has expanded
its network to include 10 branches of its fitness clubs. In addition,
Liv Sports operates futsal clubs and massage facilities, as well asother fitness clubs in the Tokyo Metropolitan area. Looking
toward the future, Liv Sports will actively pursue expansion withfamily-oriented branches in suburban areas around Tokyo.

M.M. TOWERS FORESIS“dreams design” OYUMINO-MINAMI SINGLE-UNIT HOMES

In collaboration with leading companies including Tokyu Corporation,
Mitsubishi Estate is currently constructing this twin-tower, 1,206condominium complex located in the Yokohama Minato Mirai district.
Taking into consideration its location, the environment, safety and comfort,
this development offers expansive green space, energy-conservation facilities,
seismic isolation and the latest in security facilities.

As the first project under its new detached housing brand “dreams
design,” which was created with a more distinct customer-oriented
concept in mind, Mitsubishi Estate developed Oyumino-minami with theaim of offering “living spaces that reflect individuality and offer daily
comfort.” Each detached house has a site area of over 200m2. Throughthe provision of plans including a distinctive outer appearance design,
open interior space realized by open-air design and a patio that harmonizes with the living room, Oyumino-minami offers new lifestyles.

17

URBAN DEVELOPMENT &INVESTMENT MANAGEMENTOPERATIONS
Prioritizing Development and Managementin Business Opportunity Expansion

In the real estate investment market, demand is increasing
for income-generating real estate. Taking this into
consideration, Urban Development & Investment
Management operations have positioned the development
and management of quality real estate at the heart ofbusiness activities. Going forward, we are pursuing a
two-tiered business model, promoting development functions
in concert with management functions.

AKIHABARA NO. 8 AREA REDEVELOPMENT
PROJECT (tentative name)

The service commencement of the Tsukuba Express
train has vitalized the Akihabara district. Aiming toredevelop the prime location of the area surrounding
Akihabara Station, this project uses developmentbased securitization methods to procure development funds through non-recourse loans and equity
financing from Mitsubishi Estate. The plan includes
the construction of a complex of offices and retailfacilities.

18

Actively Promoting the Development Business by Strengthening
Asset Solutions Capabilities
In the context of the development function, we are fostering thedevelopment business of income-generating real estate by
optimizing the timing of sales of prime investment products soonafter construction completion and the commencement ofoperations.
At the end of January 2006, construction of Kitanomaru
Square in Kudan-Kita, Chiyoda Ward was completed, followed in
April by the Nagoya Nishiki Front Tower in Naka Ward, Nagoya.
Mitsubishi Estate is also active in a number of development
projects including the Shiodome Stage I-2 Area Project (tentativename), which forms part of the large-scale Shiodome Shiosite
redevelopment project, and the Akihabara No. 8 Area
Redevelopment Project (tentative name) currently proceeding in
the area around Akihabara Station, globally known as“Electric Town,” which has been designated as a redevelopment
district.
Mitsubishi Estate does not limit its activities solely to officebuildings; it also engages in the development of a broad range ofreal estate, including retail facilities, residential properties andserviced apartments, in an effort to address the diverse needs ofthe investment market.

Especially in residential property development, Mitsubishi
Estate is pushing forward with the development of the PARKHABIO brand of condominium complexes for leasing purposes byleveraging its performance and know-how accumulated in thedevelopment of the Park House brand condominiums for sale.
After construction completion of PARK HABIO KYOBASHI in
September 2004, the first building of the series, Mitsubishi
Estate has already supplied five PARK HABIO buildings
including PARK HABIO AKASAKA-HIKAWACHO, completed in
March 2006, and construction of three other buildings is also
underway primarily in Minato Ward. Mitsubishi Estate plans tocontinue supplying high-quality condominiums in central city
locations that meet various needs.
In its development projects, Mitsubishi Estate is utilizing
special-purpose companies and other vehicles to limit business
investment risk, although direct investment may be utilized
depending on the scale of development. Through a thoroughdecision-making process, Mitsubishi Estate endeavors to choose an
optimal investment method for each development project.
Looking forward, Mitsubishi Estate is making every effort tosecure more business opportunities by strengthening asset
solutions capabilities to maximize asset value for real estatecustomers.

NAGOYA NISHIKI FRONT TOWER

Completed in April 2006, the Nagoya
Nishiki Front Tower is located in a prime
area fronting Sakura Dori, the city’s
main thoroughfare. Approximately
one-minute walk to Marunouchi Subway
Station, the property also offers
convenient access. This office building
boasts a cutting-edge design and utilizes
a glass curtain wall on its north side.

Providing a Broad Range of Specialized Services forReal Estate Investment
Mitsubishi Estate is developing a fee-based business throughMitsubishi Jisho Investment Advisors, Inc., which provides
comprehensive services related to real estate investment, andJapan Real Estate Asset Management Co., Ltd., which engages in
asset management for Japan Real Estate Investment Corporation,a real estate investment trust in Japan (J-REIT).
Earnings from fund management activities are steadily
growing at Mitsubishi Jisho Investment Advisors, which is building
a real estate private equity fund comprising commercial facilities,
and also a rental-housing fund. Continuing to secure management
opportunities, Mitsubishi Jisho Investment Advisors aims toacquire new projects, increase the number of funds it manages andexpand the balance of assets under management.
Focusing on both development and management, Mitsubishi
Estate strives to expand business opportunities through growth in
the real estate investment market and by responding tosocioeconomic needs for urban redevelopment.

Shiodome Stage I-2 Area Project(tentative name)

This project uses development-based
securitization methods to procure
development funds through non-recourse
loans and equity financing from jointventure partners. This development willbe the last large-scale project within the
31-hectare mixed commercial zone of the
Shiodome Shiosite.

PARK HABIO AKASAKA-HIKAWACHO

Completed in March 2006 and located in
Akasaka in the central part of Tokyo, thisleasing condominium offers a superiorview of the city.

19

INTERNATIONAL BUSINESSOPERATIONS
Comprehensive, Worldwide Real Estate Services

In International Business operations, Mitsubishi Estate
operates mainly through Rockefeller Group, Inc. (RGI),
which owns, leases and manages office buildings in suchlocations as New York (the Time-Life and McGraw-Hillbuildings) and London (Paternoster Square), and is active inreal estate development across the United States and in
London and Shanghai. In addition, Cushman & Wakefield,
Inc., an RGI subsidiary, offers global comprehensive realestate services, centered mainly on real estate brokerage.

20

Advancing the Real Estate Development Business across theUnited States, London and Shanghai
Operating throughout the United States in areas such as New
Jersey, RGI is active in the real estate development businessacross the United States. In 2005, RGI commenced thedevelopment of a complex that primarily houses condominiums
and retail facilities in the Flushing area of Queens Borough in New
York City.
Following in the footsteps of the Paternoster Square
Redevelopment Project, completed in 2003, Mitsubishi Estate has
initiated the Bow Bells House Redevelopment Project jointly with
Mitsubishi Corporation as its second redevelopment project in thecity of London. Located in an area conducive to office and retailuse, and adjacent to the historic St. Mary-Le-Bow Church, theproject is drawing significant attention. With the demolition of an
existing building at the site already completed, the plan calls forconstruction to commence in the summer of 2006 and completionin 2007.
On the China front, Mitsubishi Estate has commenced adevelopment project in the Waitanyuan area of Shanghai incooperation with the Shanghai New Huangpu Group and Sinolink
International Trading Co., Ltd. This project is scheduled forcompletion in 2009.

The McGraw-Hill Building

Bow Bells House Redevelopment ProjectWith 51 floors above ground and five floors
below ground, the McGraw-Hill Building
boasts total floor space of 237,000m2.
Located in Manhattan, New York, thisoffice building was completed in March
1972. Mitsubishi Estate acquired aninterest in the building in April 1990.

Located in the heart of London’s financial
district, the Bow Bells House Redevelopment Project calls for the construction of
an office building with a total 20,000m2 in
office space. The project is scheduled forcompletion in 2007.

Paternoster Square Redevelopment Project (above)

The Paternoster Square Redevelopment Project in the center ofLondon’s financial district was completed in May 2003, with aground-floor area of approximately 15,000m2 and total floor
space of approximately 88,000m2 across four complexes.
Shanghai Bund de Rockefeller Project (below)

A large-scale development located in the Waitanyuan area of
Shanghai, China. This project is a mixed-use development of
94,000m2 comprising residential housing, retail shops, a boutique
hotel and other facilities. Completion is scheduled for 2009.

ARCHITECTURAL DESIGN &ENGINEERING OPERATIONSBusiness Expansion in Growth Fields Including China

At the core of Mitsubishi Estate’s Architectural Design &Engineering operations is Mitsubishi Jisho Sekkei Inc., abusiness engaged in the design and administration of
construction and civil engineering projects, building
renovation work, projects related to urban and regional
development, as well as comprehensive consulting.

Robust Architectural Design & Engineering as well as
Peripheral Business Operations Coupled with Business
Expansion in China
Major projects completed during the fiscal year ended March 31,
2006 included the Tokyo Building, the new Mitsubishi Shoji
Building, Kitanomaru Square and TAKANAWA The RESIDENCE
condominium complex. The Yomiuri Hokkaido Building, theSeikei University Information Library and the Park House theGarden are planned for completion in the fiscal year ending March
31, 2007. Looking toward the future, Mitsubishi Estate willcontinue efforts to secure orders in architectural design andengineering while actively sharpening its competitive edge in thebusiness domains of structural reinforcement and refurbishment,
construction management, private financing initiative (PFI)
projects and district heating and cooling services, all of which areprimed for market expansion.
In November 2005, Mitsubishi Estate succeeded in winningthe bid for the master plan concerning the development of the new
Pudong district in Shanghai. As part of the development of a newurban center in this rapidly growing metropolis, the plan calls formassive landscape design and the construction of a political andcultural center in an area bordering a cosmopolitan residential
district and centered between central Shanghai and the Shanghai
Pudong International Airport. Leveraging the momentum of thisdevelopment, Mitsubishi Estate will maintain efforts to expand its
business operations in the ever-growing market of China.
Continuous Customer Satisfaction Improvement and Innovation
in Operational Processes
Mitsubishi Jisho Sekkei is continuously working to improve customer
satisfaction and bring innovation to its operational processes in orderto swiftly and accurately address the diversified and increasingly
sophisticated needs of its clients. As part of these endeavors,
Mitsubishi Jisho Sekkei conducts periodic customer satisfaction
surveys, using the results in-house while promoting businessinformation sharing through its intra-company database system. The
cost breakdown of projects and operating efficiency of buildings froman architectural design and engineering perspective are also analyzed
and reflected in employee performance evaluations.
Mitsubishi Jisho Sekkei, together with MEC Design
International Corporation, a company that provides interior design
services, fully utilize the technological strengths that support theentire Mitsubishi Estate Group to raise the quality and value of
products and services.

Mitsubishi Shoji Building

The Development Plan for the New Pudong District, Shanghai

Located in the Marunouchi district of Chiyoda Ward, Tokyo, theMitsubishi Shoji Building was completed in March 2006. Threefloors are below ground and 21 floors above ground.

Mitsubishi Jisho Sekkei was successful in its bid for the masterplan for the new Pudong district in Shanghai. This plan involves
the development of an 18.17km2 area.

21

CUSTOM-BUILT HOUSINGOPERATIONSInnovative Housing Proposals Built on New Ideas

Custom-Built Housing operations seek to supply the kind of
quality housing that is the foundation of a rewarding life.
Through Mitsubishi Estate Home Co., Ltd., our principal
vehicle in these activities, Mitsubishi Estate undertakes
construction contracts for custom-built housing forindividuals as well as housing development companies.

Ecofeel Me, developed through the fusion of Aerotech and all-electric home.

22“Aerotech,” an Innovative Open-Design Housing Concept
Focusing on the two-by-four construction method, the principal
method for single-unit custom-built housing, Mitsubishi Estate
Home strives to deliver living safety and comfort. Leveraging its
accumulated technical know-how and expertise, the company
boasts stringent quality standards, offering maximum protection
from earthquakes, durability and energy efficiency. The company
is also renowned for its “Aerotech” mainstay brand. As well as
providing a 24-hour central heating, cooling and ventilation
system, Aerotech offers functionality that realizes comfortableliving and creates an open and spacious feeling, reflecting flexible
design planning that fully satisfies the diverse needs in family lives.
Respecting each customer’s lifestyle, desires and preferences fortheir daily lives, and taking advantage of its technological prowess
and added value, Mitsubishi Estate Home closely collaborates withcustomers to contribute to realizing their dreams.
In April 2006, Mitsubishi Estate Home commenced the sale ofEcofeel Me, a new line of single-unit custom-built housing
products that have been developed through the fusion of Aerotech
and all-electric home. Through the provision of Ecofeel Me, thecompany proposes more secure, comfortable and environmentallyfriendly lifestyles complete with reduced utility costs.
Mitsubishi Estate Home is also active in fostering business
opportunities with companies engaged in built-for-sale housing andhouse renovations. Based on its residential design know-how
accumulated over a number of years, the company endeavors tocreate comfortable living environments on an individual andneighborhood-wide basis.

Housing products that fuse Aerotech with all-electric features include IH cooking
heaters and EcoCute, a hot water supply system that uses a CO2 refrigerant heatpump to effectively incorporate heat from the air and use it as energy to heatwater. These features deliver elegant, reliable and comfortable lifestyle alternatives
that are kind to the environment and reduce utility costs.

HOTEL BUSINESSOPERATIONS
Enhancing Brand Power and Management Efficiency

In Hotel Business operations, Royal Park Hotels and Resorts
Co., Ltd. integrates the administration and management ofeach hotel to ensure consistency throughout the hotel chain,
to enhance management efficiency and to improve the levelof management. With hotels in Tokyo, Yokohama, Sendai
and other locations, the Royal Park hotel chain comprises a
network of seven hotels offering 2,212 guestrooms.

A New Style of Hotel that Supports Business
Opened in July 2003 in Shiodome, Tokyo, the Royal Park
Shiodome Tower offers a new paradigm in hotel services,
including Japan’s first Mandara Spa for relaxation, and the useof a timesharing service where members are able to use
guestrooms on an hourly basis. These unique services havesustained a high rate of occupancy. Mitsubishi Estate plans to
use the development and management know-how gained fromthe Royal Park Shiodome Tower to create new business
opportunities.
Increasing the Brand Value of Royal Park Hotels throughManagement Focused on Customer Delight
Based on the “Best for the Guest” philosophy of the Royal Park
Hotels, we take one step beyond customer satisfaction by aiming
to delight our guests.
As part of an initiative to enhance the hotel chain, in July
2004 we launched a central reservation office, a first for a locallyowned hotel chain in Japan. Using this system, it is possible todirectly make reservations on a Web site for rooms at hotels inJapan and around the world.
Furthermore, in April 2006, Royal Park Hotels and Resortscommenced business collaboration with THE OKAMI, anorganization of 25 Japanese-style ryokan hotels that are membersof various hotel associations covering the Izu area. Through thiscollaboration, Royal Park Hotels and Resorts provides reservation
correspondence services via the Internet, thereby bolstering its
customer-oriented business base.

Sendai Royal Park Hotel (above)

Royal Park Shiodome Tower

Located in Shiodome Media City,
Tokyo, this new style of hotel was
created around the concepts ofstylish space, a convenientenvironment and flexible service.

The Sendai Royal Park Hotel is located in the outer suburbs of Sendai
City and is distinguished by its elegant external façade. Boasting
expansive grounds that accentuate the beauty of each season, the hotelalso offers garden wedding facilities as well as extensive services
including an esthetic salon operated directly by the hotel.
Yokohama Royal Park Hotel (below)

At the Yokohama Royal Park Hotel, refurbishment of all guestroomscommenced from the fiscal year ending March 31, 2007. The photo is of
a superior twin room located on the Urban Spa floor (67th floor).

23

REAL ESTATE SERVICEOPERATIONS
Placing Further Strategic Focus on Real
Estate Brokerage Operations

Real Estate Service operations, which provide real estate
brokerage, condominium sales agency, and office andresidential property leasing services are primarily handledby Mitsubishi Real Estate Services Co., Ltd. Real Estate
Service operations is committed to delivering
customer-oriented services that meet every conceivablerequirement and need.
Real Estate Brokerage Transactions

2,077
1,787

2002/3

1,808

2003/3

1,835

2004/3

1,901

2005/3

2006/3

Real Estate Brokerage Services
Mitsubishi Real Estate Services engages in a wide variety of realestate brokerage businesses, ranging from the purchase, sale andleasing of commercial properties such as buildings and factory
sites, and individual properties such as condominiums, single unit
homes and residential land, to consulting services that facilitate
the optimal application of customers’ real estate. Mitsubishi Real
Estate Services also boasts a nationwide network of branches andsales offices that are connected online. Through these means,
Mitsubishi Real Estate Services is consistently able to provide themost up-to-date real estate information.
Sales Agency Services for Properties such as Condominiums
Qualified staff, who are well versed in the unique features andcharacteristics of individual properties, as well as real estate
finance, law, taxation and related matters, are on hand to assist
customers in the sale of properties such as condominiums.
Mitsubishi Real Estate Services also offers specialist staff to assist
customers in peripheral procedures such as property registrationand other administrative matters, as well as condominium buyers
in application procedures for mortgage loans. Through acomprehensive range of services, Mitsubishi Real Estate Services
provides reliable support to customers in their selling activities. In
the area of residential development and sales, the company is on
hand to provide total support to developers. We offer a full rangeof services including site information for potential condominium
development, inspections and appraisal, market research, productplanning, and advertising and promotional planning.
Office and Residential Leasing Services
Mitsubishi Real Estate Services is engaged in a full range of office
and residential property leasing services. Mitsubishi Real Estate
Services offers a sublease system, under which it leases an entire
property from the owner and sublets to tenants under a masterlease agreement. It also provides a property management systemthat includes a comprehensive range of leasing services.

Garden Arena Shinyurigaoka

Mitsubishi Estate, Mitsui Fudosan Co., Ltd., Odakyu Real Estate Co., Ltd.
and Odakyu Electric Railway Co., Ltd. are jointly constructing the Garden
Arena Shinyurigaoka, a large-scale 697-condominium complex located in
the newly developed urban area of Shinyuriyamate. Mitsubishi Real Estate
Services Co., Ltd. has been appointed to handle condominium sales.

24

FINANCIAL REVIEWBUILDINGS SEGMENT
Buildings segment revenues are derived
mainly from building development and leasingin Japan. This segment is also engaged inbuilding management, parking facilities,
district heating and cooling, and otheroperations

Revenue from operations

Operating income(Millions of yen)
312,099

2006/389,492286,959

2005/383,785RESIDENTIAL DEVELOPMENT SEGMENT
Residential Development segment revenues arederived from the construction and sale ofcondominiums, single-unit homes, and residential, commercial and other lots. This segment
is also engaged in the management of condominiums and homes, and related activities.

Revenue from operations
2006/3
2005/3Operating income(Millions of yen)
204,213

17,736200,465
13,248URBAN DEVELOPMENT & INVESTMENT MANAGEMENT SEGMENT
Urban Development & Investment Management segment revenues are derived from thedevelopment of income-generating real estatefor investment purposes, asset management,
and related activities.

Revenue from operations

Operating income(Millions of yen)
34,274

2006/3

14,1698,609

2005/3

3,946

INTERNATIONAL BUSINESS SEGMENT
International Business segment revenues arederived from the development and leasing ofbuildings conducted through U.S.-based
Rockefeller Group, Inc. The segment is also
engaged in real estate brokerage and related
activities.

Revenue from operations

Operating income(Millions of yen)
193,223

2006/323,199183,185

2005/3

26,445

ARCHITECTURAL DESIGN & ENGINEERING SEGMENT
Architectural Design & Engineering segment
revenues are derived from the design andproject supervision of construction and civilengineering projects and related activities
mainly through Mitsubishi Jisho Sekkei Inc.

Revenue from operations

17,103

2006/3
2005/3Operating income (loss) (Millions of yen)

227
18,859(364)

CUSTOM-BUILT HOUSING SEGMENT
Custom-Built Housing segment revenues arederived from contract construction of custombuilt housing and related activities throughMitsubishi Estate Home Co., Ltd.

Revenue from operations
2006/3
2005/3Operating loss

(Millions of yen)
41,477(404)
37,456(1,470)

HOTELS SEGMENT
Revenue from operations

Hotels segment revenues are derived from theoperation of Royal Park Hotels.
2006/3
2005/3Operating income(Millions of yen)
32,3991,247
32,111
912

REAL ESTATE SERVICES SEGMENT
Real Estate Services segment revenues arederived from real estate brokerage and related
services through Mitsubishi Real Estate
Services Co., Ltd.

Revenue from operations(Millions of yen)
30,775

2006/3
2005/3Operating income

7,753
23,895
3,728

OTHER SEGMENT
Revenue from operations

Other segment revenues are derived from related
operations other than the aforementioned.
2006/3
2005/3Operating income(Millions of yen)
4,717

747
5,627
1,250

25

Revenue from Operations(Billions of yen)
844.2

775.4
681.7

679.9

631.6

2002/3 2003/3 2004/3 2005/3 2006/3

Operating Income(Billions of yen)

SUMMARY
In the fiscal year ended March 31, 2006, Mitsubishi Estate reported historic highs ineach of its major revenue and earnings categories. Revenue from operations increased
8.9% compared with the previous fiscal year. On the earnings front, operating income
climbed 16.4%, while net income surged 54.0% year on year.
In the Buildings segment, strong results were fueled by contributions for the full
fiscal year mainly from new buildings in connection with the Marunouchi Redevelopment
Project. Conditions were also positive in the Residential Development segment, which
benefited from an improvement in condominium gross profit margins and the inclusionof Towa Community Service Co., Ltd. in the Company’s scope of consolidation, and in
the Urban Development & Investment Management segment, which benefited from gains
on sales of development properties. Buoyed by positive results, revenue from operations
increased for the second year in succession. Operating income climbed for the fourthconsecutive year, while net income rose for the second year in a row.

137.6
118.2
96.0

103.7

76.9

2002/3 2003/3 2004/3 2005/3 2006/3

Net Income (Loss)(Billions of yen)
55.8

36.0

35.0

36.2

(71.1)

2002/3 2003/3 2004/3 2005/3 2006/3

Net Income (Loss) Per Share (Basic)

(Yen)
42.60

27.61

26.96

27.93

(54.70)2002/3 2003/3 2004/3 2005/3 2006/3

26

ANALYSIS OF REVENUE
Revenue from operations for the fiscal year ended March 31, 2006 was ¥844,217
million, an increase of ¥68,836 million, or 8.9%, compared with the previous fiscal
year. Details of results and operating conditions for each business segment are provided
as follows.
In the Buildings segment, despite the impact of a decline in revenue from theclosure of existing buildings for reconstruction as part of the Marunouchi Redevelopment
Project, results benefited from a drop in vacancy rates and contributions for the full
fiscal year from the Marunouchi Kitaguchi Building, which forms a part of Marunouchi
OAZO and was completed in September 2004, and the Bank of Tokyo-Mitsubishi UFJ
Otemachi Building, which was acquired through a special-purpose company in March
2005. As a result, revenue from segment operations increased ¥25,139 million, or8.8%, to ¥312,099 million.
On a year-on-year basis, the number of condominiums sold in the Residential
Development segment declined by 581 to 2,870. Revenue from segment operations,however, edged up ¥3,747 million, or 1.9%, to ¥204,213 million, due to the inclusionof Towa Community Service Co., Ltd. in the Company’s scope of consolidation as a
subsidiary company in March 2005, following Mitsubishi Estate’s equity participation in
TOWA REAL ESTATE DEVELOPMENT CO., LTD.
Results in the Urban Development & Investment Management segment wereparticularly strong. During the fiscal year under review, Mitsubishi Estate sold Nibancho
Garden, a building completed in April 2004, to an investor. Construction of the OSAKIFRONT TOWER was completed in June 2005, with construction revenues recorded
accordingly. As a result, revenue from operations jumped substantially, rising ¥25,665
million, or 298.1%, to ¥34,274 million.
Focusing mainly on the robust real estate markets in Europe and the United States,
revenue from Mitsubishi Estate’s International Business segment rose ¥10,038 million,
or 5.5%, to ¥193,223 million. This was primarily attributed to the increase in realestate brokerage fees at Cushman & Wakefield, Inc., and fee income growth at realestate investment advisory company CommonWealth Partners, LLC.
In the Architectural Design & Engineering segment, the increase in the number ofcompleted projects was more than offset by the contraction in project scale. As a result,revenue from operations declined ¥1,756 million, or 9.3%, to ¥17,103 million.
Despite a year-on-year drop in the number of orders reflecting the rationalizationof sales offices, revenue from operations in the Custom-Built Housing segment increased¥4,020 million, or 10.7%, to ¥41,477 million, buoyed by efforts to promote productdifferentiation through enhanced features such as Aerotech, a 24-hour central heating,cooling and ventilation system.

In the Hotels segment, accommodation results were strong across the board. The
segment received robust contributions from the Royal Park Inn Nagoya, reflecting
significant demand during the 2005 World Exposition held in Aichi, and the Royal Park
Shiodome Tower, which is in its third year of operation. Accounting for these factors,
revenue from operations edged up ¥288 million, or 0.9%, to ¥32,399 million.
Conditions surrounding the Real Estate Services segment were bullish, driven byvigorous demand from domestic and overseas funds as well as real estate investment
trusts. In addition to an upswing in real estate brokerage fees, sales agency revenue andearnings grew significantly due to the increase in properties sold and changes toaccounting policies. As a result, revenue from operations rose ¥6,880 million, or 28.8%,
to ¥30,775 million.
Revenue from the Other segment declined ¥909 million, or 16.2%, to ¥4,717
million.

Total Assets
3,035.8

3,007.9(Billions of yen)
3,068.8

NET INCOME
Compared with the previous fiscal term, income before income taxes and minority
interests increased ¥31,979 million, or 42.1%, to ¥107,913 million. Net income in thefiscal year under review rose ¥19,579 million, or 54.0%, to ¥55,825 million, and net
income per share was ¥42.60.
ANALYSIS OF FINANCIAL POSITION(1) Consolidated Cash Flows
On a consolidated basis, cash and cash equivalents (hereafter “cash”) at the end of the
fiscal year under review rose ¥69,766 million to ¥167,090 million. The main sources ofcash were income before income taxes and minority interests, depreciation andamortization, proceeds from sales of property and equipment, proceeds from issuance ofcorporate bonds and increase in long-term borrowings. The main uses of cash werepurchases of property and equipment, repayment of corporate bonds and repayment oflong-term borrowings.

(Billions of yen)
1,133.6

832.5

840.0

897.5

920.9

2002/3 2003/3 2004/3 2005/3 2006/3

Interest-Bearing Debt
1,260.2

OTHER INCOME (EXPENSES)In the fiscal year under review, other income (expenses) amounted to net other expensesof ¥29,701 million, an improvement of ¥12,599 million compared to the previous fiscal
year. This was mainly due to increases in interest and dividend income as well as equity
in earnings of unconsolidated subsidiaries and affiliates. Other, net expenses slightly
declined by ¥1,743 million to ¥19,169 million.
Mitsubishi Estate recorded a gain on sales of fixed assets totaling ¥57,823 million. Thiswas more than offset by impairment loss of ¥35,321 million, loss on valuation of inventories
totaling ¥27,639 million, loss on soil solution related countermeasures of ¥4,859 million andloss on sales of beneficial interest in trust of fixed assets of ¥3,327 million.

3,280.2

2002/3 2003/3 2004/3 2005/3 2006/3

Shareholders’ Equity

ANALYSIS OF INCOME
Compared with the previous fiscal year, operating income increased ¥19,380 million, or
16.4%, to ¥137,614 million.
Operating income in the Buildings segment climbed 6.8% due to a drop in vacancy
rates and the full fiscal year contributions from buildings completed during the fiscal
year ended March 31, 2005. In addition, operating income in the Residential
Development segment surged 33.9%, resulting from the improvement in gross profit
margins, and jumped 259.1% in the Urban Development & Investment Management
segment, owing to the sale of development properties. On a year-on-year basis, operating
income in the International Business segment fell 12.3%, reflecting the absence of gains
on sales of buildings reported in the previous fiscal year. Operating income in each of theArchitectural Design & Engineering, Custom-Built Housing, Hotels and Real Estate
Services segments also improved.

3,124.5

1,227.5

1,211.9(Billions of yen)
1,198.4
1,007.7

2002/3 2003/3 2004/3 2005/3 2006/3

EBITDA(Billions of yen)
200.9

146.4

157.6

167.4

178.4

2002/3 2003/3 2004/3 2005/3 2006/3

27

ROA

(%)
4.6

4.0
3.6
3.3

Cash Flows from Operating Activities
Net cash provided by operating activities was ¥169,744 million, up ¥80,844 million
compared with the previous fiscal year. In the period under review, income before
income taxes and minority interests of ¥107,913 million and non-cash items such as
depreciation and amortization of ¥53,655 million were recorded. In addition, Mitsubishi
Estate reported increases in inventories and notes and accounts payable and a decreasein notes and accounts receivable.

2.9

2002/3 2003/3 2004/3 2005/3 2006/3

ROE

(%)
5.4
4.3

4.0

4.0

(10.5)

2002/3 2003/3 2004/3 2005/3 2006/3

Interest Coverage Ratio(Times)
7.4

4.7
3.9
3.4
2.5

2002/3 2003/3 2004/3 2005/3 2006/3

28

Cash Flows from Investing Activities
In the fiscal year under review, net cash provided by investing activities was ¥29,883
million, a turnaround of ¥122,292 million. This is mainly attributed to proceeds fromsales of property and equipment.
Cash Flows from Financing Activities
Net cash used in financing activities totaled ¥132,463 million, an increase of ¥98,978
million. While Mitsubishi Estate received cash from the increase in long-term borrowings
and the issuance of corporate bonds, this was more than offset by outflows attributed to
the repayment of both long-term borrowings and corporate bonds.
(2) Consolidated Balance Sheets
Compared with the previous fiscal year-end, total assets increased ¥155,695 million to¥3,280,209 million as a result of the operating, investing and financing activities
previously mentioned.
Total liabilities, when compared with the previous fiscal year-end, declined¥54,412 million to ¥2,113,868 million. Minority interests decreased ¥2,585 million to¥32,717 million. Total shareholders’ equity increased ¥212,693 million to ¥1,133,623
million, mainly attributable to increases in the land revaluation reserve and unrealized
holding gain on securities.
Management Initiatives and Financial Strategies
In its new three-year Medium-Term Management Plan (April 1, 2005 through March 31,2008), the Company set a goal for earnings before interest, taxes, depreciation andamortization (EBITDA) of ¥200 billion, to be achieved by the final fiscal year of the Plan,
the fiscal year ending March 31, 2008. Against this target, EBITDA for the fiscal year
under review was ¥200.9 billion. Accordingly, Mitsubishi Estate achieved its goal two
years in advance. Looking to the future, Mitsubishi Estate will continue to position
EBITDA as a core component of its management policies. To this end, the Company has
formulated the fundamental strategies of rebuilding a dynamic and flexible management
structure, securing an optimal business portfolio, improving its asset portfolio, andstrengthening its development-based real estate solutions capabilities.
Recognizing the long-term nature of cash flows in its mainstay Building Business
operations, Mitsubishi Estate has adopted a financial strategy based on stable interest
rate long-term funds procurement. At the present time, Mitsubishi Estate is taking
advantage of favorably low interest rates through the issue of long-term corporate bonds
with maturity dates of more than 10 years. Under its Medium-Term Management Plan,
Mitsubishi Estate has identified the goal to maintain the net balance of interest-bearing
debt as of March 31, 2008 to within five times of EBITDA. As a result of the repaymentof liabilities and the conversion of convertible bonds to common stock, the balance ofinterest-bearing debt as of March 31, 2006 stood at ¥1,007.7 billion. Deducting cash on
hand and marketable securities, the net balance of interest-bearing debt as of the fiscal
year-end was ¥840.6 billion, clearing the aforementioned target ratio to EBITDA.

FINANCIAL STATEMENTSCONSOLIDATED STATEMENTS OF INCOME
Mitsubishi Estate Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2006 and 2005

Revenue from operations (Note 2)
Cost of revenue from operations
Selling, general and administrative expenses
Operating income
Other income (expenses):
Interest and dividend income
Interest expenses
Equity in earnings of unconsolidated subsidiaries and affiliates
Other, net (Note 14)
Income before income taxes and minority interests
Income taxes (Notes 1 and 9):
Current
Deferred
Minority interests
Net income

Millions of Yen

Thousands of
U.S. Dollars(Note 3)

2006

2005

2006

¥ 844,217(650,389)(56,213)
137,614¥ 775,381
606,957
50,190118,233$ 7,186,660(5,536,639)(478,530)
1,171,482

2,788(19,876)
6,556(19,169)(29,701)
107,913

2,046(26,102)
2,670(20,912)(42,300)
75,93323,733(169,200)
55,809(163,182)(252,839)
918,643(28,509)(17,217)(45,726)(6,360)¥ 55,825

11,525
20,95632,482
7,205¥ 36,245(242,691)(146,565)(389,256)(54,141)$ 475,227

See accompanying notes to consolidated financial statements.

29

CONSOLIDATED BALANCE SHEETS
Mitsubishi Estate Co., Ltd. and Consolidated Subsidiaries
March 31, 2006 and 2005

2006

Millions of Yen

Thousands of
U.S. Dollars(Note 3)

2005

2006

AssetsCurrent assets:
Cash (Note 15)
Notes and accounts receivable—tradeMarketable securities (Note 4)
Allowance for doubtful receivables
Inventories (Note 5)
Equity investments (Note 4)
Deferred income taxes (Note 9)
Other current assets
Total current assets

Investments:
Investments in and advances to unconsolidated subsidiaries and affiliates
Investment securities (Note 4)
Other investments (Notes 6 and 7)
Total investments

Property and equipment (Note 7):Land
Buildings and structures
Machinery and equipment and otherConstruction in progress
Less accumulated depreciation
Property and equipment, net

Intangible and other assets

Total assets
See accompanying notes to consolidated financial statements.

30¥ 139,605 ¥ 83,226 $ 1,188,431
63,76375,063542,80227,28912,547232,306(3,303)(3,127)(28,117)305,800
263,566
2,603,217
108,978
103,761
927,70938,78636,545
330,177
47,75834,006
406,554728,679
605,590
6,203,107

51,558311,519
132,584495,662

50,520176,068
128,641355,231438,9032,651,902
1,128,662
4,219,477

1,293,186
1,503,768
102,634
28,353
2,927,942

11,008,649
12,801,293
873,703
241,363(931,570)
1,996,372

1,365,534
1,509,040
94,36922,7782,991,723(890,762)
2,100,961

59,49562,731

506,469

24,925,019(7,930,280)
16,994,739¥ 3,280,209 ¥3,124,514 $ 27,923,801

2006

Millions of Yen

Thousands of
U.S. Dollars(Note 3)

2005

2006

Liabilities and shareholders’ equity

Current liabilities:
Short-term borrowings and current portion of long-term debt (Note 7)
Notes and accounts payable—trade
Accrued income taxes (Note 9)
Advances and deposits
Accrued expenses and other current liabilities (Note 9)
Total current liabilities
Long-term debt (Note 7)
Lease deposits received
Accrued employees’ retirement benefits (Note 8)
Deferred income taxes (Note 9)
Other non-current liabilities
Total liabilities
Minority interests
Shareholders’ equity (Note 10):
Common stock, without par value:
Authorized—1,980,000,000 shares;
Issued—1,371,189,197 shares in 2006 and1,299,185,054 shares in 2005
Capital surplus
Land revaluation reserve
Retained earnings
Unrealized holding gain on securities
Foreign currency translation adjustments
Less treasury stock, at cost;
1,801,675 shares in 2006 and 1,865,364 shares in 2005
Total shareholders’ equity¥ 166,746 ¥ 218,603 $ 1,419,477
85,502
82,192
727,862
20,889
7,291
177,824
95,82380,477815,723
76,70660,075652,983445,668
448,639
3,793,887
841,015304,189
11,787459,752
51,456
2,113,868

979,768
298,388
10,590388,516
42,3752,168,280

7,159,402
2,589,503
100,340
3,913,782
438,035
17,994,960

32,71735,303

278,513

129,736
158,421466,259
246,246
142,040(7,057)
1,135,647

86,534
115,236
424,785
243,577
68,865(16,268)
922,730

1,104,418
1,348,608
3,969,175
2,096,245
1,209,159(60,074)
9,667,549(2,024)
1,133,623(1,800)920,930(17,229)
9,650,319

Contingent liabilities (Note 13)
Total liabilities and shareholders’ equity¥ 3,280,209 ¥3,124,514 $ 27,923,801

31

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Mitsubishi Estate Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2006 and 2005

Millions of Yen

Balance at March 31, 2004

Net income
Foreign currency translation
adjustments
Net decrease in unrealized
gain on securities
Gain on sales of treasury stock
Land revaluation reserve (Note 1)
Changes in consolidated subsidiaries
and companies accounted forby the equity method
Cash dividends paid
Directors’ and statutory
auditors’ bonuses
Treasury stock
Balance at March 31, 2005

Net income
Foreign currency translation
adjustments
Net increase in unrealized
holding gain on securities
Gain on sales of treasury stock
Increase arising fromconversion of convertible bonds
Land revaluation reserve (Note 1)
Changes in consolidated subsidiaries
and companies accounted forby the equity method
Cash dividends paid
Directors’ and statutory
auditors’ bonuses
Treasury stock
Balance at March 31, 2006

Commonstock

CapitalsurplusLand
revaluation
reserve

Retainedearnings

Unrealized
gain onsecurities

Foreigncurrencytranslation
adjustments¥ 86,534—¥115,216—¥421,663—¥220,178
36,245¥ 70,296—¥(15,016)
—

—

—

—

—

—

(1,252)—(1,252)

—
—
—

—
20
—

—
—
3,121

—
—
(2,739)(1,430)
—
—

—
—
—

—
—
—

(1,430)
20
382

—
—

—
—

—
—

278
(10,381)

—
—

—
—

—
—

278
(10,381)——
86,534——
115,236——
424,785(5)—
243,577——
68,865——(16,268)—(427)(1,800)(5)(427)
920,930———

55,825———55,825

—

—

—

—

—

9,210

—

9,210

—
—

—
—

—
—

—
—

73,175—————73,175—

43,202—

43,202——
41,474—(41,474)

—
—

—
—

—
—

86,404
0

—
—

—
—

—
—

—
(11,676)

—

—
—

—
—

—
(11,676)——¥129,736—(17)¥158,421——¥466,259(5)—¥246,246——¥142,040——¥ (7,057)

Treasury
stock

Total
shareholders’equity¥(1,373) ¥ 897,499—
36,245

—
(5)
(223)
(240)
¥(2,024) ¥1,133,623

Thousands of U.S. Dollars (Note 3)

Balance at March 31, 2005

Net income
Foreign currency translation
adjustments
Net increase in unrealized
holding gain on securities
Gain on sales of treasury stock
Increase arising fromconversion of convertible bonds
Land revaluation reserve (Note 1)
Changes in consolidated subsidiaries
and companies accounted forby the equity method
Cash dividends paid
Directors’ and statutory
auditors’ bonuses
Treasury stock
Balance at March 31, 2006

$ 736,647 $ 980,982 $3,616,114 $2,073,525 $ 586,234 $(138,486) $(15,323) $7,839,703———

475,227———475,227

—

—

—

—

—

78,402—78,402

—
—

—
—

—
—

—
—

622,925
—

—
—

—
—

622,925—

367,770—

367,770——353,060—(353,060)

—
—

—
—

—
—

735,540
0

—
—

—
—

—
—

—
(99,395)

—

—
—

—
—

—
(99,395)

—
—
—
(42)
—
—
—
(42)
—
(144)
—
—
—
—
(1,898)(2,043)$1,104,418 $1,348,608 $3,969,175 $2,096,245 $1,209,159 $ (60,074) $ (17,229) $ 9,650,319

See accompanying notes to consolidated financial statements.

32

CONSOLIDATED STATEMENTS OF CASH FLOWS
Mitsubishi Estate Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2006 and 2005

Millions of Yen

Thousands of
U.S. Dollars(Note 3)

2005

2006

2006

Operating activities

Income before income taxes and minority interests
Depreciation and amortization(Gain) loss on sales or disposal of property and equipment
Loss on sales of beneficial interests in trust of property
and equipment
Gain on sales of securities
Valuation loss on securities
Valuation loss on inventories
Impairment loss
Equity in net income of affiliates
Increase in allowancesInterest and dividend income
Interest expense
Decrease (increase) in notes and accounts receivable
Decrease (increase) in inventories
Increase in equity investments
Increase in notes and accounts payable
Decrease in lease deposits received
Other
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities¥ 107,913
53,655(55,530)¥

75,93355,545
11,434$

918,643456,754(472,716)

3,327(1,031)
336
27,63935,321(6,556)624(2,788)19,87616,147(18,425)
(514)
1,104
5,800
11,860198,7635,396(19,293)(15,121)
169,744(0)(2,644)346
5,102—(2,670)958(2,047)
26,105(15,237)
17,005(70,960)
29,462(10,818)
4,603
122,1112,814(25,195)(10,830)
88,90028,322(8,776)2,860
235,285
300,681(55,809)
5,311(23,733)
169,200
137,456(156,848)(4,375)
9,398
49,374
100,961
1,692,032
45,935(164,237)(128,722)
1,444,998

2,029(3,898)113,006(60,491)
1,812(26,792)

2,025(1,899)7,304(79,793)
5,498(25,705)

17,272(33,182)
961,998(514,948)
15,425(228,075)

9,277(5,059)29,883

58
101(92,409)78,973(43,066)
254,3881,544(58,000)
52,347(68,305)
40,196(77,361)(4,939)(11,676)(6,269)(132,463)
2,602
69,766
97,324(1,487)58,000152,513(133,234)
51,489(146,618)—(10,381)(3,764)(33,485)(1,977)(38,971)
136,063

13,143(493,743)
445,620(581,467)
342,180(658,559)(42,044)(99,395)(53,366)(1,127,632)
22,150593,904
828,500

233
97,324—$ 1,422,405

Investing activities

Proceeds from sales of marketable securities
Purchases of marketable securities
Proceeds from sales of property and equipment
Purchases of property and equipment
Proceeds from sales of investment securities
Purchases of investment securities
Proceeds from sales of beneficial interests in trust of property
and equipment
Other
Net cash provided by (used in) investing activities
Financing activities

Net increase (decrease) in short-term borrowings
Net increase (decrease) in commercial paper
Increase in long-term borrowings
Repayment of long-term borrowings
Proceeds from issuance of corporate bonds
Repayment of corporate bonds
Payments of capital reduction to minority shareholders
Cash dividends paid to minority shareholders
Other
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash and cash equivalents arising from mergers
and acquisitions
Cash and cash equivalents at end of year (Note 15)—¥ 167,090¥

See accompanying notes to consolidated financial statements.

33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mitsubishi Estate Co., Ltd. and Consolidated Subsidiaries
March 31, 2006 and 2005

1. SIGNIFICANT ACCOUNTING POLICIESBASIS OF PREPARATION

The accompanying consolidated financial statements of Mitsubishi
Estate Co., Ltd. (the “Company”) and consolidated subsidiaries areprepared on the basis of accounting principles generally accepted inJapan, which are different in certain respects as to the applicationand disclosure requirements of International Financial ReportingStandards, and are compiled from the consolidated financial statements prepared by the Company as required by the Securities andExchange Law of Japan.
In addition, the notes to the consolidated financial statements
include information which may not be required under accounting
principles generally accepted in Japan but is presented herein as
additional information.
As permitted by the Securities and Exchange Law, amounts ofless than one million yen have been rounded off. As a result, thetotals shown in the accompanying consolidated financial statements(both in yen and U.S. dollars) do not necessarily agree with thesums of the individual amounts.
PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include theaccounts of the Company and the subsidiaries that it controls
directly or indirectly. Companies over which the Company exercises
significant influence in terms of their operating and financial
policies have been included in the consolidated financial statements
on an equity basis.
All significant intercompany balances and transactions have been
eliminated in consolidation.
USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to makecertain estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. The actual
results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION

Current and non-current monetary accounts denominated in foreign
currencies are translated into yen at the current rates.
The revenue and expense accounts of the foreign consolidated
subsidiaries are translated using the average rate during the year.
Except for shareholders’ equity, the balance sheet accounts are alsotranslated into yen at the rates of exchange in effect at the balance
sheet date. The components of shareholders’ equity are translated attheir historical exchange rates.

balance sheet and cash equivalents at March 31, 2006 and 2005 ispresented in Note 15.
MARKETABLE SECURITIES AND INVESTMENT SECURITIESSecurities other than those of subsidiaries and affiliates are classified into three categories: trading, held-to-maturity or othersecurities. Trading securities are carried at fair value and held-tomaturity securities are carried at amortized cost. Marketablesecurities classified as other securities are carried at fair value withany changes in unrealized holding gain or loss, net of the applicable
income taxes, included directly in shareholders( equity. Nonmarketable securities classified as other securities are carried atcost. Cost of securities sold is determined by the moving averagemethod.
INVENTORIESInventories are mainly stated at cost, determined by the identified
cost method; however, when the fair value is substantially less thancost and the decline in fair value is considered to be permanent,
inventories are revalued at fair value.
PROPERTY AND EQUIPMENT, DEPRECIATION AND
IMPAIRMENT

Property and equipment, except for land as discussed below, isstated at cost less accumulated depreciation. Depreciation is calculated principally by the declining-balance method, except forbuildings acquired in Japan subsequent to March 31, 1998 andproperty and equipment of foreign subsidiaries on which depreciation is calculated by the straight-line method at rates determinedbased on the estimated useful lives of the respective assets. The
Company has capitalized the costs incurred for significant renewals
and additions; however, costs for maintenance and repairs arecharged to income.
As of March 31, 2002, the Company revalued its land at fairvalue, pursuant to Article 2 of the “Enforcement Ordinance for the
Law Concerning Revaluation Reserve for Land” and its amendments (the “Law”). The related unrealized gain, net of applicable
income taxes, has been recorded as “Land revaluation reserve” inshareholders’ equity.
The Company reviews its property and equipment (includingland) for impairment whenever events or changes in its businesscircumstances indicate that the carrying amount of the assets may
not be fully recoverable. The Company performs cash flow analyses
to determine if an impairment exits. If impairment is determined toexist, any related loss on impairment is calculated based on the cash
flow analyses.

CASH EQUIVALENTS

The Company considers all highly liquid investments that are readily
convertible into cash and have an original maturity of three months
or less to be cash equivalents. Reconciliation between cash in the34

LEASES

Noncancelable leases are primarily accounted for as operatingleases (whether such leases are classified as operating or financeleases) except that leases that stipulate the transfer of ownership ofthe leased assets to the lessee are accounted for as finance leases.

to reduce deferred tax assets if it is more likely than not that thesome portion or all of the deferred tax assets will not be realized.

INTANGIBLE AND OTHER ASSETSDERIVATIVE FINANCIAL INSTRUMENTS

Intangible and other assets primarily consist of goodwill and land
use rights. Goodwill is stated on the basis of cost and is being
amortized over a period of 5 years or an estimated economical
period on a straight-line basis, except for any goodwill and any
indefinite lived intangible assets of subsidiaries in the United Statesacquired in a business combination completed after June 30, 2001,
which have not been amortized. A loss is recognized if the fair value
falls below the carrying amount. Land use rights are stated on a
cost basis.

The Company and certain of its consolidated subsidiaries utilize
derivative financial instruments for the purpose of hedging their
exposure to adverse fluctuations and changes in interest rates(interest rate swaps) and weather (weather derivatives), but do notenter into such transactions for speculative or trading purposes.
Derivative financial instruments are carried at fair value withany changes in unrealized gain or loss charged or credited to operations, except for those which meet the criteria for deferral hedge
accounting under which unrealized gain or loss is deferred as an
asset or liability.

RETIREMENT BENEFITSThe Company and most consolidated subsidiaries have noncontributory funded and unfunded defined benefit plans covering mostof their employees. Employees of the Company and its consolidated
subsidiaries are entitled under most employment termination
circumstances to annuity payments or lump-sum payments, theamounts of which are determined principally by reference to theirbasic rates of pay, length of service, and the conditions under which
the termination occurs.
Accrued employees’ retirement benefits are provided mainly at
an amount calculated based on the retirement benefit obligation andthe fair value of the pension plan assets as of the balance sheet date,as adjusted for unrecognized actuarial gain or loss and unrecognized prior service cost. The retirement benefit obligation is
attributed to each period by the straight-line method over theestimated years of service of the employees.
Actuarial gain and loss are amortized in the year following theyear in which the gain or loss is recognized by the straight-line
method over the period of the range from 5 years to 15 years which
are shorter than the average remaining years of service of theemployees.
Prior service cost is being amortized as incurred by the straightline method over the period of 6 years or 10 years which are shorter
than the average remaining years of service of the employees.
In addition, directors and statutory auditors are customarily
entitled to lump-sum payments under the Company’s internal
regulations. Accrued severance benefits for these officers of theCompany have been provided at estimated amounts and are included
in other non-current liabilities.
INCOME TAXES

Deferred tax assets and liabilities are determined based on thefinancial statements and the tax bases of assets and liabilities, using
the enacted tax rates in effect for the year in which the temporary
differences are expected to reverse. Deferred tax assets are also
recognized for the estimated future tax effects attributable tooperating loss carry forwards. Valuation allowances are established

REVENUE RECOGNITION

The consolidated statements of income reflect revenue fromoperations in the following manner:(a)Revenue from the leasing of office space is recognized as rent
accrued over the leasing period.
(b)Revenue from sales of condominiums, residential houses andland is recognized when the units are delivered and accepted by
the customers. Revenue from consignment commissions forresidential sales earned by the real estate service businesssegment is recognized at the time of contract conclusion forservices provided up to the conclusion and at the time ofownership transfer for services provided up to the transfer.
(c)Revenue from real estate brokerage is recognized when anunderlying lease agreement goes into force or the underlying
units are delivered.
(d)Revenue from architectural design and engineering business isrecognized at the date of completion of each relevant project,
except that certain long-term (over one year) projects over ¥500
million in total revenue are recognized by the percentage ofcompletion method.
(e)Revenue from construction contracts is recognized at the date ofcompletion of each relevant project, except that certain longterm (over one year) projects over ¥5,000 million in total
revenue are recognized by the percentage of completion method.
(f) Other operating revenue is recognized on an accrual basis.
APPROPRIATION OF RETAINED EARNINGS

Under the Commercial Code of Japan, the appropriation of retained
earnings with respect to a given financial year is made by resolutionof the shareholders at a general meeting held subsequent to theclose of such financial year. The accounts for that year do not,therefore, reflect such appropriations. See Note 10.
RECLASSIFICATIONS

Certain reclassifications have been made to the 2005 financial
statements in order to conform them to the 2006 presentation.

35

2. ACCOUNTING CHANGE

The Company recognized revenue from consignment-in commissions
earned by the real estate services business segment when the ownership was transferred from the seller to the buyer. However,effective from the fiscal year ended March 31, 2006, the Company
changed this accounting method for revenue recognition to recognize commissions for services provided up to the conclusion ofcontracts when the contract is concluded and those for services
supplied after the contract conclusion and up to the transfer ofownership when the ownership is transferred.
This new revenue recognition method was adopted to present
profit and loss more properly by seeking more reasonable match of
expense and revenue in response to the business trend, given thatconsignment sales for long-term and large-sized projects have been
increasing.
As a result of this change, income before income taxes andminority interests increased by ¥1,521 million, compared with theamounts that would have been recorded under the previous
accounting method.

As the Accounting Standard for Impairment of Fixed Assets(“Opinion Concerning Establishment of the Accounting Standard
for Impairment of Fixed Assets” issued by the Business Accounting
Deliberation Council (BADC) on August 9, 2002) and the
Implementation Guidance for the Accounting Standard for
Impairment of Fixed Assets (“Financial Accounting Standards
Implementation Guidance No. 6” issued on October 31, 2003)
became applicable to consolidated financial documents relating to
the business years that would start on and after April 1, 2005, theCompany has applied the above Accounting Standard and
Implementation Guidance for the fiscal year ended March 31,
2006.
As a result, income before income taxes and minority interests
decreased by ¥35,321 million compared with the previous
accounting method.
The accumulated impairment loss is included in the accumulated
depreciation in accordance with the revised Consolidated Financial
Statements Regulations.

3. U.S. DOLLAR AMOUNTS

Translation of yen amounts into U.S. dollar amounts is included
solely for convenience, as a matter of arithmetic computation only,at the rate of ¥117.47 = U.S.$1.00, the approximate rate ofexchange prevailing on March 31, 2006. The inclusion of such36

amounts is not intended to imply that yen amounts have been or
could be readily converted, realized or settled in U.S. dollars at theabove or any other rate.

4. MARKETABLE SECURITIES AND INVESTMENT SECURITIESMarketable and investment securities classified as other securities at March 31, 2006 and 2005 are summarized as follows:
2006
Thousands of U.S. dollars

Millions of yen

Securities whose fair value exceeds their cost:
Equity securities
Other
Subtotal
Securities whose cost exceeds their fair value:
Equity securities
Corporate bonds
Total

Cost

Fair value

Unrealized
gain (loss)

Cost

Fair value

Unrealized
gain (loss)¥68,320
5,330
73,651¥302,986
10,364313,350¥234,665
5,033
239,699$581,595
45,373626,977$2,579,262
88,226
2,667,489$1,997,658
42,8442,040,512——¥73,651——¥313,350——¥239,699——$626,977——$2,667,489——$2,040,512
2005
Millions of yen

Securities whose fair value exceeds their cost:
Equity securities
Subtotal
Securities whose cost exceeds their fair value:
Equity securities
Corporate bonds
Subtotal
Total
Proceeds from sales of securities classified as other securities
totaled ¥166 million ($1,413 thousand) in 2006 and ¥3,752

Cost

Fair value

Unrealized
gain (loss)¥60,139
60,139¥176,341
176,341¥116,202
116,20266
108
175¥60,31449
108
157¥176,498

(17)
—
(17)
¥116,184

million in 2005. Gross realized gain was ¥160 million ($1,362
thousand) in 2006 and ¥2,644 million in 2005, respectively.

Marketable debt securities classified as held-to-maturity securities at March 31, 2006 and 2005 are summarized as follows:
2006
Thousands of U.S. dollars

Millions of yen

Debt securities whose fair value exceeds their cost:
Government bonds
Subtotal
Debt securities whose cost exceeds their fair value:
Government bonds
Corporate bonds
Other
Subtotal
Total

Amortized
cost

Fair value

¥

¥

94
94

143
1,999
1,899
4,041
¥4,136

Unrealized
gain (loss)

Amortized
cost

Fair value

$

95
95

¥ 0
0

$

800
800

140
1,999
1,896
4,036
¥4,131

(2)
(0)
(3)
(5)
¥(5)

1,217
17,017
16,16534,400$35,208

808
808

1,191
17,017
16,14034,357$35,166

Unrealized
gain (loss)

$

0
0

(17)
(0)
(25)
(42)
$(42)

37

2005
Millions of yen

Debt securities whose fair value exceeds their cost:
Government bonds
Subtotal
Debt securities whose cost exceeds their fair value:
Government bonds
Other
Subtotal
Total

Amortized
cost

Fair value

Unrealized
gain (loss)

¥ 197
197

¥ 199
199

¥1
1

9
1,899
1,909
¥2,106

9
1,898
1,908
¥2,107

(0)
(0)
(0)
¥0

Millions of yen

Marketable and investment securities recorded at cost at March 31, 2006 and 2005 are summarized as follows:

Other securities:
Nonmarketable equity securities(other than equity securities listed on the over-the-counter market)
Mutual funds
Commercial papers
MMF
Investments in silent partnerships
Other
Total

2006

2005

Thousands of
U.S. dollars
2006¥ 18,727
351
21,671
1,337
78,849468¥121,403¥ 18,948
343
10,181—
84,299—¥113,771$ 159,419
2,988
184,481
11,382
671,227
3,984$1,033,481

The redemption schedule for securities classified as other securities at March 31, 2006 is summarized as follows:
Millions of yen
Due within
one year or less

Bonds:
Government bonds
Corporate bonds
Other bonds
Total

¥

30
2,060
1,900
¥3,990

The Company recognized losses on other securities consideredother-than-temporary amounting to ¥336 million ($2,86038

Due after one year
through five years

Due after five
years or more

¥185
—
—
¥185

¥25
—
—
¥25

Thousands of U.S. dollars
Due within
one year or less$255
17,536
16,174$ 33,966

Due after one year
through five years

Due after five
years or more

$1,574——$1,574

$212
—
—
$212

thousand) and ¥346 million for the years ended March 31, 2006
and 2005, respectively.

5. INVENTORIESInventories at March 31, 2006 and 2005 are summarized as follows:
2006

2005

Thousands of
U.S. dollars
2006¥136,926
147,709
8,886
12,277¥305,800¥128,853
109,600
13,616
11,495¥263,566$1,165,625
1,257,418
75,644
104,511$2,603,217

Millions of yen

Millions of yen

Real estate for saleLand and housing projects in progress
Land held for development
Other
Total

6. OTHER INVESTMENTS

Other investments at March 31, 2006 and 2005 were as follows:

Lease deposits
Long-term prepaid expenses and other
Total

2006

2005

Thousands of
U.S. dollars
2006¥ 71,949
60,634¥132,584¥ 72,625
56,016¥128,641$ 612,488
516,165$1,128,662

7. SHORT-TERM BORROWINGS AND LONG-TERM DEBTAt March 31, 2006 and 2005, short-term borrowings and the current portion of long-term debt consisted of the following:
2006

2005

Thousands of
U.S. dollars
2006¥ 49,118—
117,627¥166,746¥ 45,971
58,000114,631¥218,603$ 418,132—
1,001,336$1,419,477

Millions of yen

Loans, principally from banks
Commercial paper
Current portion of long-term debt
Total
The weighted-average interest rates per annum on short-termborrowings outstanding at March 31, 2006 and 2005 were 0.72%

and 0.68%, respectively. Short-term borrowings are principally
unsecured.

39

At March 31, 2006 and 2005, long-term debt consisted of the following:Thousands of
U.S. Dollars
2006

Millions of Yen

Zero coupon convertible bonds due 2006
4.8% mortgage bonds due 2005
2.125% unsecured bonds due 2005
2.21% unsecured bonds due 2006
1.325% unsecured bonds due 2006
3.4% unsecured bonds due 2006
3% unsecured bonds due 2006
2.975% unsecured bonds due 2007
2.575% unsecured bonds due 2008
0.37% unsecured bonds due 2008
2.525% unsecured bonds due 2008
3.1% unsecured bonds due 2008
1.82% unsecured bonds due 2009
3.075% unsecured bonds due 2009
2% unsecured bonds due 2009
1.985% unsecured bonds due 2009
0.72% unsecured bonds due 2009
1.9% unsecured bonds due 2010
1.55% unsecured bonds due 2011
1.44% unsecured bonds due 2011
1.16% unsecured bonds due 2011
3.275% unsecured bonds due 2012
1.47% unsecured bonds due 2012
1.58% unsecured bonds due 2012
1.395% unsecured bonds due 2012
1.2% unsecured bonds due 2012
1% unsecured bonds due 2013
0.785% unsecured bonds due 2013
1.675% unsecured bonds due 2014
1.349% unsecured bonds due 2014
1.65% unsecured bonds due 2014
1.75% unsecured bonds due 2014
1.655% unsecured bonds due 2014
1.409% unsecured bonds due 2015
1.295% unsecured bounds due 2015
1.572% unsecured bounds due 2015
1.443% unsecured bounds due 20163.125% unsecured bonds due 20173% unsecured bonds due 2018
2.5% unsecured bonds due 2020
2.42% unsecured bonds due 2022
1.50% unsecured bonds due 2022
2.28% unsecured bonds due 2024
2.9% unsecured bonds due 2032
2.615% unsecured bonds due 2032
2.04% unsecured bonds due 2032
1.72% unsecured bonds due 2033
7.37% unsecured bonds due 2008 (payable in U.S. dollars)
Floating rate bonds due 2005 (payable in U.S. dollars)
Floating rate bonds due 2006 (payable in U.S. dollars)
Loans from banks and insurance companies:
SecuredUnsecuredLess current portion
Total

40

2006

2005

¥ 13,595———
10,00010,00010,00030,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,00020,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,00015,00010,00010,00010,00010,00010,00010,00010,00010,00020,00010,000
2,530
—
1,207

¥ 100,000
50,00010,00010,00010,00010,00010,00030,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,00020,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,000———10,00010,00010,00010,00010,00010,00010,00010,00020,00010,000
2,977
2,261
—

$

75,314
390,995
958,642(117,627)¥ 841,015

78,821
400,340
1,094,399(114,631)¥ 979,768

641,133
3,328,466
8,160,738(1,001,336)$ 7,159,402

115,731———
85,12885,12885,128255,384
85,12885,12885,12885,12885,12885,12885,12885,12885,12885,12885,12885,12885,12885,12885,128170,256
85,12885,12885,12885,12885,12885,12885,12885,12885,12885,12885,12885,128
127,692
85,12885,12885,12885,12885,12885,12885,12885,128170,256
85,12821,537—
10,274

Certain bonds have call options that may be exercised at therespective expiry dates.
The agreements under which the zero coupon convertible bonds
were issued provide for conversion of the bonds into shares ofcommon stock at the current conversion prices per share of ¥1,200($11) subject to adjustment in certain cases, for example, theCompany issues stock at a price which is lower than market value.

The aggregate annual maturities of long-term debt subsequent to March 31, 2006 are summarized as follows:
Millions of yen

Thousands of
U.S. dollars¥117,626
94,602
92,967
146,972
506,473¥958,642$1,001,327
805,329
791,4101,251,144
4,311,509$8,160,738

Year ending March 31,

2007
2008
2009
2010
2011 and thereafter
Total

The assets pledged as collateral for short-term borrowings of ¥5,167 million ($43,985 thousand) and long-term debt of ¥75,314 million($641,133 thousand) at March 31, 2006 were as follows:
Inventories
Land
Buildings and structures
Machinery and equipment
Investment securities
Other investments
Total
As is customary in Japan, collateral must be given if requested bylending institutions under certain circumstances, and banks, ingeneral, have the right to offset cash deposited with them against
any debt or obligations payable to a bank which become due inMillions of yen

Thousands of
U.S. dollars¥ 25,920
11,574
72,465
12,4200
1,064¥123,445$ 220,652
98,527
616,880
105,729
0
9,057$1,050,864

cases of default or certain other specified events. The Company has
never received any such requests nor does it expect that any such
requests will be made.

8. PENSION AND SEVERANCE PLANS

The following table sets forth the funded status of the plans, and the amounts recognized in the consolidated balance sheets at March 31,
2006 and 2005 for the Company’s and its consolidated subsidiaries’ defined benefit pension plans:
2006

2005

Thousands of
U.S. dollars
2006¥(84,455)
89,914
5,458
388(13,242)494(6,900)4,886¥(11,787)¥(80,222)
62,062(18,159)391
10,869922(5,976)
4,614¥(10,590)$ (718,949)
765,420
46,462
3,302(112,726)
4,205(58,738)
41,593$ (100,340)

Millions of yen

Retirement benefit obligation
Plan assets at fair value
Unfunded retirement benefit obligation
Unrecognized net benefit obligation at transition
Unrecognized actuarial loss
Unrecognized prior service cost
Net amounts recognized in the consolidated balance sheet
Prepaid pension expenses
Accrued employees’ retirement benefits

41

The components of expenses related to the pension and severance plans for the years ended March 31, 2006 and 2005 were as follows:

2006

2005

Thousands of
U.S. dollars
2006¥ 3,660
2,043(1,267)51
2,669¥ 7,158¥ 3,740
1,982(1,194)48
1,700¥ 6,277$ 31,156
17,391(10,785)434
22,720$ 60,934

Millions of yen

Service cost
Interest cost
Expected return on plan assets
Amortization of net retirement benefit obligation at transition
Other
Total

The assumptions used in accounting for the pension and severance plans for the years ended March 31, 2006 and 2005 were as follows:

Discount rate
Expected rate of return on plan assets

2006

2005

2.0 – 5.7%
1.0 – 7.5%

2.0 – 6.0%
1.0 – 7.5%

9. INCOME TAXES

Income taxes in Japan applicable to the Company and its domestic
consolidated subsidiaries consist of corporation tax, inhabitants’taxes and enterprise tax which, in the aggregate, resulted instatutory tax rates of 40.69% for the years ended March 31, 2006

and 2005. Income taxes of the foreign consolidated subsidiaries are
based generally on the tax rates applicable in their countries ofincorporation.

The effective tax rates reflected in the consolidated statements of income for the three years ended March 31, 2006 differ from thestatutory tax rate for the following reasons:Statutory tax rate
Increase (decrease) in income taxes resulting from:
Change in valuation allowance
Different tax rates applied
Revenues deductible for income tax purposes
Expenses not deductible for income tax purposes
Undistributed earnings of affiliates
Equity income
Other
Effective tax rates

42

2006

2005

40.69%

40.69%(0.19)
1.22(0.32)
0.34
5.15(2.22)(2.30)
42.37%(2.26)
1.88(0.26)
0.48
2.53—(0.27)
42.79%

The significant components of deferred tax assets and liabilities as of March 31, 2006 and 2005 were as follows:
Thousands of
U.S. dollars
2006

Millions of yen

Deferred tax assets:
Net operating loss carry forwards
Accrued retirement allowances and pension costs
Valuation loss on inventories
Unrealized loss on property and equipment
Land revaluation reserve
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Reserves under Special Taxation Measures Law
Land revaluation reserve
Unrealized gain on property and equipment
Unrealized gain on securities
Other
Total deferred tax liabilities
Net deferred tax liabilities

2006

2005

¥ 14,719
17,02932,61557,761
63,727
20,606
206,460(16,212)190,248¥ 22,362
14,81323,192
46,50598,555
17,419222,850(14,366)
208,483$(58,197)(383,346)(31,966)(97,533)(35,646)(606,689)¥(416,441)(63,127)(389,720)(33,062)(47,282)(24,498)(557,690)¥(349,207)(495,420)(3,263,352)(272,120)(830,280)(303,447)(5,164,629)$(3,545,083)

125,300
144,964
277,645
491,708
542,495
175,414
1,757,555(138,009)
1,619,545

10. SHAREHOLDERS’ EQUITY

In accordance with the Commercial Code of Japan (the “Code”),
the Company has provided a legal reserve, which was included inretained earnings. The Code provides that an amount equal to atleast 10% of the amount to be disbursed as distributions ofearnings be appropriated to the legal reserve until the total of suchreserve and the additional paid-in capital account equals 25% of
the common stock account. The legal reserve amounted to ¥21,663
million ($184,413 thousand) and ¥21,663 million as of March 31,
2006 and 2005, respectively.

The Code provides that neither additional paid-in capital nor thelegal reserve is available for dividends, but both may be used toreduce or eliminate a deficit by resolution of the shareholders or
may be transferred to common stock by resolution of the Board of
Directors. The Code also provides that if the total amount of additional paid-in capital and the legal reserve exceeds 25% of theamount of common stock, the excess may be distributed to theshareholders either as a return of capital or as dividends subject tothe approval of the shareholders. The Company’s shares of common
stock have no par value in accordance with the Code.

11. AMOUNTS PER SHARE

Inventories at March 31, 2006 and 2005 are summarized as follows:
Yen
Year ended March 31,

Net income:
Basic
DilutedCash dividends applicable to the year

March 31,

Net assets

2006

2005

U.S. dollars
2006¥42.6040.42
10.00¥27.93
26.24
8.00

$0.36
0.34
0.08

Yen
2006

2005

U.S. dollars
2006¥827.79¥709.83$7.04

43

Basic net income per share was computed based on the net income
available for distribution to shareholders of common stock and theweighted average number of shares of common stock outstanding
during the year, and diluted net income per share was computed
based on the net income available for distribution to the shareholders and the weighted average number of 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 exerciseof warrants and stock subscription rights.
Amounts per share of net assets are computed based on net
assets available for distribution to the shareholders and the numberof shares of common stock outstanding at the year end.
Cash dividends per share represent the cash dividends proposedby the Board of Directors as applicable to the respective years
together with the interim cash dividends paid.

12. LEASESThe following pro forma amounts represent the acquisition costs,
accumulated depreciation and net book value of the leased assets asof March 31, 2006 and 2005, which would have been reflected in

the consolidated balance sheets if finance lease accounting had been
applied to the finance leases currently accounted for as operatingleases:2006
Thousands of U.S. dollars

Millions of yen

Buildings andstructures
Others
Total

Acquisition
cost

Accumulated
depreciation

Accumulated
impairment loss

Net bookvalue

Acquisition
cost

Accumulated
depreciation

Accumulated
impairment loss

Net book
value¥12,1028,580¥20,683¥2,811
4,661¥7,472

¥422
165
¥587

¥ 8,868
3,754¥12,623$103,022
73,039$176,070$23,929
39,678$63,607$3,592
1,404$4,997$ 75,491
31,957$107,457

2005
Millions of yen

Buildings andstructures
Others
Total

Acquisition
cost

Accumulated
depreciation

Accumulated
impairment loss

Net bookvalue¥ 7,881
8,746¥16,629¥1,646
4,378¥6,026———¥ 6,234
4,366¥10,602

Lease payments relating to finance leases accounted for as operating leases in the accompanying consolidated financial statements
amounted to ¥2,959 million ($25,189 thousand) and ¥2,683 million for the years ended March 31, 2006 and 2005, respectively.
Future minimum lease payments subsequent to March 31, 2006 on noncancelable operating leases and finance leases accounted for as
operating leases are summarized as follows:
Millions of yen

Thousands of U.S. dollars

FinanceleasesOperatingleasesFinanceleasesOperatingleases¥ 3,225
9,985¥13,210¥ 7,044
45,643¥ 52,687$ 27,453
85,000$112,454$ 59,964
388,550$448,514

Year ending March 31,

20072008 and thereafter

The Company and its consolidated subsidiaries lease office buildings and commercial properties and earn income on these leases. Future
minimum lease income subsequent to March 31, 2006 from noncancelable operating leases are summarized as follows:
Millions of yen

Thousands of U.S. dollars¥105,826
592,712¥698,539$ 900,876
5,045,645$5,946,531

Year ending March 31,

20072008 and thereafter
Total

44

13. CONTINGENT LIABILITIESAt March 31, 2006, the Company and its consolidated subsidiaries had the following contingent liabilities:

Guarantees of affiliates’ loans from banks
Guarantees of order made house purchasers’ loans from banks and others
Guarantees of employees’ housing loans from banks and others
Other
Total

Millions of yen

Thousands of
U.S. dollars

¥ 904
361
359
29
¥1,654$ 7,695
3,073
3,056
246
$14,080

14. OTHER INCOME (EXPENSES)The components of “Other, net” in “Other income (expenses)” for each of the years ended March 31, 2006 and 2005 were as follows:

2006

2005

Thousands of
U.S. dollars
2006¥ (5,054)
057,823———(27,639)—(35,321)(3,327)(4,859)(790)¥(19,169)¥ (6,733)(4,730)
1,196
2,644
—
—
(5,102)(6,390)———(1,799)¥(20,912)$ (43,023)
0492,236———(235,285)—(300,681)(28,322)(41,363)(6,725)$ (163,182)

Millions of yen

Loss on disposal of fixed assets
Loss on sales of fixed assets
Gain on sales of fixed assets
Gain on sales of investment securities
Loss on valuation of investment securities
Loss on cancellation of sublease contracts
Loss on valuation of inventories
Loss on disposal of resort and golf businesses
Impairment loss (*1)
Loss on sales of beneficial interest in trust of fixed assets
Loss on soil solution related countermeasures (*2)
Other, net(*1) Impairment loss
The Company recorded consolidated impairment losses for thefollowing asset groups for the year under review.
Major application

Category

Golf courses(total 3 groups)

Buildings, land,leasehold, etc.

Location

Sendai, Miyagi
Prefecture andother locations
HotelsBuildings, land, Sendai, Miyagi(total 2 groups)
structures, etc.
Prefecture andother locations
Leased assets, etc. Buildings, land, Hiroshima, Hiroshima(total 41 groups)
leasehold, etc.
Prefecture andother locations
Overseas businesses Intangible assets California, USA and(total 2 groups)
other locations
The asset grouping is made based on minimum unit thatgenerates cash flows, which is substantially independent fromcash flows of other assets or asset groups. Company houses are
deemed and categorized as shared assets.
As a result, for the year ended March 31, 2006, the bookvalue of a total of 48 asset groups above was reduced to therespective collectible amounts and the reductions wererecorded as an impairment loss (¥35,321 million), because
the market price fell considerably compared with the bookvalues due to the decline in land price, or profitability considerably decreased due to fallen rent levels or deteriorated
market conditions.
The breakdown of such impairment loss was ¥24,618
million in land and leasehold, ¥5,374 million in buildings andstructures and ¥5,329 million in other.
The collectible amounts of asset groups are measured with
net sale value or use value, and the net sale value is principally
expressed as an appraised value by a real estate appraiser.
Future cash flows discounted at a rate of 5% are used tocompute the use value.
As for the impairment loss on fixed assets in the overseas
business, the impairment loss is calculated in accordance withaccounting principle generally accepted in the United States.
(*2) Loss on soil solution related countermeasures
This loss represented the loss related to the contaminated soil
and groundwater of the OAP Residence Tower in Osaka.

45

15. SUPPLEMENTAL CASH FLOW INFORMATION

The following table represents a reconciliation of cash and cash equivalents as of March 31, 2006 and 2005:

2006

2005

Thousands of
U.S. dollars
2006¥139,605(815)
23,3005,000¥167,090¥83,226(1,375)
10,472
5,000¥97,324$1,188,431(6,937)
198,348
42,564$1,422,405

Millions of yen

CashTime deposits with maturities of more than three months
Marketable securities with maturities of three months or lessResell agreements with maturities of three months or less
Cash and cash equivalents

16. DERIVATIVESThe Company and certain of its consolidated subsidiaries utilize
derivative financial instruments for the purpose of hedging their
exposure to adverse fluctuations and changes in interest rates(interest rate swaps) and weather (weather derivatives), but do notenter into such transactions for speculative or trading purposes.
The Company is exposed to credit loss in the event of

nonperformance by the counterparties to the derivatives, but any
loss would not be material because the Company enters into suchtransactions only with financial institutions with high credit ratings.
The notional amounts of the derivatives do not necessarily represent
the amounts exchanged by the parties and, therefore, are not a
direct measure of the Company’s related risk exposure.

Summarized below are the notional amounts and the estimated fair value of the interest-related derivative positions outstanding at March
31, 2006 and 2005:
2006
Thousands of U.S. dollars

Millions of yen

Interest rate swaps:
Receive/floating and pay/fixed
Receive/fixed and pay/floating
Total

Notional
amountFair value

Unrealized
gain (loss)

Notional
amountFair value

Unrealized
gain (loss)

¥—
—
¥—

¥—
—
¥—

¥—
—
¥—

$—
—
$—

$—
—
$—

$—
—
$—

2005
Millions of yen

Interest rate swaps:
Receive/floating and pay/fixed
Receive/fixed and pay/floating
Total

Notional
amountFair value

Unrealized
gain (loss)¥ 5,000
5,000¥10,000

¥(49)
75
¥ 25

¥(49)
75
¥ 25

The notional amounts and estimated fair value of the derivatives to which hedge accounting has been applied have been excluded from thepresentation in the above table.

17. SEGMENT INFORMATIONBusiness segments

The Company and its consolidated subsidiaries are primarily engaged
in the real estate business. Effective the year ended March 31, 2006,
the Company reorganized its corporate structure and changed its
business segmentation from eight segments to newly establishednine segments in order to present and disclose the Group businesses
more appropriately. The business segments are newly reclassified in46

terms of the nature of each operation or service and consist of ninesegments: (1) buildings; (2) residential development; (3) urban
development & investment management; (4) international business;(5) architectural design & engineering; (6) custom-built housing;(7) hotels; (8) real estate services; and (9) other businesses.

The business segment information of the Company and its consolidated subsidiaries for the years ended March 31, 2006 and 2005 aresummarized as follows:
Millions of Yen
2006

Buildings

Urban
development
Residential & investment
development management

International
business

Architecturaldesign & Custom-built
engineering
housing

HotelsReal estateservices

Other

Total

Eliminations
or corporate

Consolidated

Revenue and operating income

Revenue from:
External customers
Intersegment or transfers
Total revenue
Operating expense
Operating income (loss)¥ 306,290
5,808
312,099
222,606¥ 89,492¥203,286 ¥ 34,252 ¥193,223 ¥10,488 ¥37,534 ¥32,143 ¥24,210 ¥ 2,787 ¥ 844,217 ¥— ¥ 844,217
927
21
—
6,614
3,942
256
6,564
1,930
26,065(26,065)—
204,213 34,274 193,223 17,103 41,477 32,399 30,775
4,717
870,283(26,065)
844,217
186,476 20,105 170,024 16,875 41,881 31,151 23,022
3,969
716,114(9,511)
706,603¥ 17,736 ¥ 14,169 ¥ 23,199 ¥ 227 ¥ (404) ¥ 1,247 ¥ 7,753 ¥ 747 ¥ 154,169 ¥ (16,554) ¥ 137,614¥1,987,595
41,766
4,048
43,432¥338,026 ¥103,796 ¥345,483 ¥18,732 ¥16,531 ¥30,986 ¥70,845 ¥37,555 ¥2,949,553 ¥330,656 ¥3,280,209
833
249
8,578
103
157
1,366
217
167
53,440214
53,65524,606
—
2,064
—
1,162
2,337
—
1,100
35,321—35,321
977 12,924
7,345
12
243
1,358
320
168
66,783(2,030)64,753

Total assets, depreciation,and capital expenditures

AssetsDepreciation
Impairment loss
Capital expenditures

Thousands of U.S. dollars
2006

Buildings

Urban
development
Residential & investment
development management

International
business

Architecturaldesign & Custom-built
engineering
housing

HotelsReal estateservices

Other

Total

Eliminations
or corporate

Consolidated

Revenue and operating income

Revenue from:
External customers$ 2,607,389 $1,730,535 $291,580 $1,644,871 $ 89,282 $319,519 $273,627 $206,095 $ 23,725 $ 7,186,660 $— $ 7,186,660
Intersegment or transfers
49,442
7,891
178—
56,303 33,557
2,179
55,87816,429221,886 (221,886)—
Total revenue
2,656,840 1,738,426 291,768 1,644,871 145,594 353,085 275,806 261,981
40,154
7,408,555 (221,886)
7,186,660
Operating expense
1,895,002 1,587,435 171,150 1,447,382 143,653 356,525 265,182 195,981
33,787
6,096,143(80,965)
6,015,178
Operating income (loss)$ 761,828 $ 150,983 $120,618 $ 197,488 $ 1,932 $ (3,439) $ 10,615 $ 65,999 $ 6,359 $ 1,312,411 $ (140,921) $ 1,171,482
Total assets, depreciation,and capital expenditures

AssetsDepreciation
Impairment loss
Capital expenditures$16,920,022 $2,877,551 $883,595 $2,941,031 $159,461 $140,725 $263,777 $603,090 $319,698 $25,108,989 $2,814,812 $27,923,801
355,546
7,091
2,119
73,022876
1,336
11,6281,847
1,421
454,924
1,821
456,754
34,459209,466—
17,570—9,891
19,894—
9,364
300,681—
300,681369,728
8,317 110,019
62,526102
2,068
11,5602,724
1,430
568,511(17,281)551,230

To conform to the segmentation used in the year ended March 31, 2006, the segment information for the year ended March 31, 2005 has
been restated in accordance with the new segments.
Millions of Yen

2005

Buildings

Urban
development
Residential & investment
development management

International
business

Architecturaldesign & Custom-built
engineering
housing

HotelsReal estateservices

Other

Total

Eliminations
or corporate

Consolidated

Revenue and operating income

Revenue from:
External customers¥ 281,454 ¥199,528 ¥ 8,501 ¥183,185 ¥12,435 ¥35,723 ¥31,974 ¥18,963 ¥ 3,614 ¥Intersegment or transfers
5,504
937
108
— 6,423
1,733
136 4,931 2,012
Total revenue
286,959 200,465 8,609 183,185 18,859 37,456 32,111 23,895 5,627
Operating expense
203,173 187,217 4,662 156,740 19,224 38,926 31,199 20,166 4,377
Operating income (loss)¥ 83,785 ¥ 13,248 ¥ 3,946 ¥ 26,445 ¥ (364) ¥(1,470) ¥ 912 ¥ 3,728 ¥ 1,250 ¥

775,381 ¥— ¥21,788 (21,788)
797,170 (21,788)
665,688(8,541)
131,481 ¥ (13,247) ¥775,381—775,381
657,147
118,233

Total assets, depreciation,and capital expenditures

AssetsDepreciation
Capital expenditures¥2,063,603 ¥365,607 ¥88,268 ¥302,049 ¥16,415 ¥14,812 ¥33,069 ¥83,690 ¥41,852 ¥3,009,370 ¥115,144 ¥3,124,514
43,702
997
539
7,793
113
161
1,312
157
264
55,042502
55,54567,398924 5,374
9,121
22
333
1,634
440
492
85,742(954)
84,78747

Geographical segments

The Company and its consolidated subsidiaries operate primarily in Japan, the United States and certain other areas. The geographicalsegment information of the Company and its consolidated subsidiaries for the years ended March 31, 2006 and 2005 is summarized asfollows:
2006
Millions of yen
Japan

United States

Other

Total

¥ 651,716
668
652,385
524,314¥ 128,071¥2,561,007¥144,434—
144,434
129,330¥ 15,103¥231,963¥ 48,066—
48,06640,141¥ 7,925¥113,291¥ 844,217
668
844,886
693,786¥ 151,100¥2,906,261

Eliminations
or corporate

Consolidated

Revenue and operating income

Revenue from:
External customers
Intersegment or transfers
Total revenue
Operating expenses
Operating income
Total assets

¥

—
(668)
(668)
12,816¥ (13,485)¥373,947¥ 844,217—
844,217706,603¥ 137,614¥3,280,209

2006
Thousands of U.S. dollars
Japan

United States

Other

Total

$ 5,547,935
5,686
5,553,630
4,463,386$ 1,090,244$21,801,370$1,229,539—
1,229,539
1,100,961$ 128,568$1,974,657$409,176—
409,176
341,712$ 67,464$964,424$ 7,186,660
5,686
7,192,355
5,906,069$ 1,286,285$24,740,452

Eliminations
or corporate

Consolidated

Revenue and operating income

Revenue from:
External customers
Intersegment or transfers
Total revenue
Operating expenses
Operating income
Total assets$— $ 7,186,660(5,686)—(5,686)
7,186,660
109,100
6,015,178$ (114,795) $ 1,171,482$3,183,340 $27,923,801
2005
Millions of yen

Japan

United States

Other

Total

¥ 592,791
590
593,381
489,133¥ 104,247¥2,652,657¥148,420—
148,420
126,799¥ 21,621¥207,870¥34,169—
34,16929,453¥ 4,715¥93,811¥ 775,381
590
775,972
645,386¥ 130,585¥2,954,338

Eliminations
or corporate

Consolidated

Revenue and operating income

Revenue from:
External customers
Intersegment or transfers
Total revenue
Operating expenses
Operating income
Total assets48¥— ¥ 775,381
(590)
—
(590)
775,381
11,761
657,147¥ (12,351) ¥ 118,233¥170,175 ¥3,124,514

Unallocatable operating expenses

Unallocatable operating expenses included under “Eliminations or
corporate” for the years ended March 31, 2006 and 2005
amounted to ¥13,673 million ($116,395 thousand) and ¥12,778
million, respectively, and consisted of operating expenses incurredin the Administration Department of the Company. Corporate assets
included under “Eliminations or corporate” for the years ended
March 31, 2006 and 2005 amounted to ¥496,471 million($4,226,364 thousand) and ¥303,660 million, respectively, andconsisted principally of cash, marketable securities, investments inother securities, deferred tax assets and other assets allocated to the
Administration Department of the Company.
Overseas revenue

The following table represents overseas revenue earned by theCompany’s consolidated subsidiaries in foreign countries during
the years ended March 31, 2006 and 2005:
Millions of yen
2006
United States

Other areas

Total¥144,441¥48,109¥192,550
844,217

17.1%

5.7%

22.8%

Overseas revenue

Overseas revenue
Consolidated revenue% of overseas revenue toconsolidated revenue

Thousands of U.S. dollars
2006
United States

Other areas

Total$1,229,599$409,542$1,639,141$7,186,660

Overseas revenue

Overseas revenue
Consolidated revenue

Millions of yen

2005
United States

Other areas

Total

Overseas revenue¥148,428
Consolidated revenue% of overseas revenue toconsolidated revenue
19.1%¥34,170¥182,598
775,381

4.4%

23.5%

Overseas revenue

49

REPORT OF INDEPENDENT AUDITORS

50

MITSUBISHI ESTATE CORPORATE DATADIRECTORS ANDSTATUTORY AUDITORSEXECUTIVE OFFICERSCORPORATE INFORMATION

Chairman of the Board
Takeshi Fukuzawa

Chief Executive Officer
Keiji Kimura

Head Office:President &Representative Director
Keiji Kimura

Deputy President
Nobuyuki Iizuka

Representative Directors
Nobuyuki Iizuka
Satoshi Oyama
Toshio Nagashima
Hiroshi Danno
Director & Executive Counsel
Shigeru Takagi
Directors
Seiichiro Suzuki
Fumikatsu Tokiwa
Kazuya Okamoto
Shu Tomioka
Standing Statutory Auditors
Eiji Tan
Kunihiro Inoue
Statutory Auditors
Kenjiro Hata
Toyoshi Nakano

Executive Vice Presidents
Takayuki Hara
Terutake Miyamoto
Kazuo Odagawa
Hiroharu Koinuma
Satoshi Oyama
Toshio Nagashima
Hiroshi Danno
Senior Executive Officers
Takaya Endo
Seiichiro Suzuki
Mitsuo Iwai
Toyohisa Miyauchi
Masaaki Kono
Takao Yagihashi
Hiroyoshi Ito
Yutaka Yanagisawa
Yuzuru Shibagaki
Executive Officers
Toshihide Yoshimura
Kazuo Takahashi
Hiroshi Nakajima
Masao Ouchi
Hirotaka Sugiyama
Yasuo Fujiwara
Ichiro Watarai
Megumu Ono
Toshihiko Kazama
Yoshikazu Fukasawa(As of June 29, 2006)

Otemachi Building, 6-1, Otemachi 1-chome, Chiyoda-ku,
Tokyo 100-8133, JapanWeb site: http://www.mec.co.jp
Phone: (03) 3287-5100
Date of Establishment:

May 7, 1937
Paid-in Capital:¥129,736 million
Number of Shares of Common Stock Issued:

1,371,189,197 shares
Number of Shareholders:

78,169 (excluding shareholders with less than 1,000 shares)
Major Shareholders:% of total

The Master Trust Bank of Japan,
Ltd. (Trust Account)
State Street Bank and Trust Company
Meiji Yasuda Life Insurance Company
Japan Trustee Services Bank, Ltd. (Trust Account)
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Tokio Marine & Nichido Fire Insurance Co., Ltd.
State Street Bank and Trust Company 505103
Taisei Corporation
Takenaka Corporation
Asahi Glass Co., Ltd.

4.96
4.59
4.19
3.56
3.16
2.96
2.59
2.13
2.05
1.66

Major Consolidated Subsidiaries:

Mitsubishi Real Estate Services Co., Ltd.
Mitsubishi Estate Home Co., Ltd.
Mitsubishi Jisho Sekkei Inc.
Yokohama Royal Park Hotel Co., Ltd.
Mitsubishi Estate Building Management Co., Ltd.
Marunouchi Heat Supply Co., Ltd.
Yokohama Sky Building Co., Ltd.
Royal Park Hotel Co., Ltd.
Mitsubishi Jisho Towa Community Co., Ltd.
Rockefeller Group, Inc.
Stock Exchange Listings:

Tokyo Stock Exchange and other major Japanese stock
exchanges
Transfer Agent and Registrar:

Mitsubishi UFJ Trust and Banking Corporation
4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8212, Japan
Auditor:Ernst & Young ShinNihon(Data as of March 31, 2006, excluding Mitsubishi Jisho Towa Community Co., Ltd.,
which is current as of April 1, 2006)

51

ORGANIZATIONReal Estate Consulting &Solution Department

Commercial Real Estate Division
Meeting of Shareholders
Board of Directors
Chairman of the Board

President

Strategic Planning
Committee
CSR
Committee

Internal
Audit OfficeCompliance
Subcommittee
Environmental
Subcommittee

Residential Business Division

Strategic Investment
Committee

Board of Statutory Auditors
Statutory Auditor

Office of Statutory Auditors

Residential Development Promotion Department
Condominium Development Department
Master-Planned Development Department
Detached Housing Office
PARTNER System Department
Residential Planning & Marketing Department
Customer Service Office
Recreational Facility Office

Executive Committee

Advisory Board*

Business Planning Department
Group Companies Management OfficeLeasing Department
Agency Leasing Office
Relocation Management Office
Property Management Department
Building Management Advisory Office
Building Safety Management Office
Marunouchi-Otemachi Area Building Management Department
Yurakucho Area Building Management Department
Tokyo Metropolitan Area Building Management Department
Area Brand Management Department
Area Brand Promotion Office
Shopping Center Planning Department
Retail Leasing Department
Development Department
Area Planning OfficeUrban Development &Investment Management Division

Planning & Promotion Department
Development & Investment Department

International Business DivisionInternational Business Department
Corporate Planning Department
Personnel Planning Department
Finance & Accounting Department
Corporate Communications Department
Investor Relations Office
General Affairs Department
Secretary Office
Legal Office
CSR Department

Sapporo Branch
Tohoku Branch
Yokohama Branch
Nagoya Branch
Osaka Branch
Chugoku Branch
Kyushu Branch* Advisory body comprising external members who are influential professionals.
(As of April 1, 2006)

52

MITSUBISHI ESTATE GROUP

Building Business
Building Leasing Business
IMS Co., Ltd.
Yokohama Sky Building Co., Ltd.
Tokyo Kotsu Kaikan Co., Ltd.
Chelsea Japan Co., Ltd.

Marunouchi Direct Access Limited
Marunouchi Hotel Co., Ltd.

Building Management Business

Parking Business

Mitsubishi Estate Building
Management Co., Ltd.
MEC Building Facilities Co., Ltd.
Mitsubishi Jisho Property
Management Co., Ltd.
Hokuriku City Management Co., Ltd.
Hokuryo City Service Co., Ltd.
Hibiya City Co., Ltd.
MJ Building Service Co., Ltd.
Aqua City Co., Ltd.
Yuden Building Kanri Co., Ltd.
O.A.P. Management Co., Ltd.

Marunouchi Parking Co., Ltd.
Grand Parking Center Co., Ltd.
Hibiya City Parking Co., Ltd.
Tokyo Garage Co., Ltd.

District Heating
and Cooling Business
Marunouchi Heat Supply Co., Ltd.
O.A.P. D.H.C. Supply Co., Ltd.
Minato Mirai 21 D.H.C Co., Ltd.

International Business

Urban Development &Investment Management(

Mitsubishi Jisho Investment Advisors, Inc.
Ascott International Management Japan Co., Ltd.
Japan Real Estate Asset Management Co., Ltd.

Rockefeller Group, Inc. (RGI)
229 other companies
27 other companies)

Custom-Built Housing
Mitsubishi Estate Home Co., Ltd.
Mitsubishi Estate Housing
Components Co., Ltd.
Prime Truss Co., Ltd.

Architectural Design & Engineering
Mitsubishi Jisho Sekkei Inc.
MEC Design International Corporation

Mitsubishi EstateCo., Ltd.

Real Estate Services
Mitsubishi Real Estate Services Co., Ltd.

Hotel BusinessRoyal Park Hotels and Resorts Co., Ltd.
Ryoei Kanko Development Co., Ltd.
Royal Park Inn Nagoya Co., Ltd.
Tohoku Royal Park Hotel Co., Ltd.
Royal Park Shiodome Tower Co., Ltd.
Yokohama Royal Park Hotel Co., Ltd.
Royal Park Hotel Co., Ltd.

Others
Shiki Resorts Co., Ltd.
Shiki Club Links Co., Ltd.
MEC Information Development Co., Ltd.
MEC Human Resources, Inc.
Keiyo Tochi Kaihatsu Co., Ltd.
(4 other companies)

Residential Business
Real Estate Sales
TOWA REAL ESTATE DEVELOPMENT CO., LTD.

Residence Management BusinessIzumi Park Town Service Co., Ltd.
Mitsubishi Jisho Towa Community Co., Ltd.
MT Community Staff Co., Ltd.

Recreational Facility
Higashinihon Kaihatsu Co., Ltd.
MEC Urban Resort Tohoku Co., Ltd.
Liv Sports Co., Ltd.
Ryoei Life Service Co., Ltd.
Tsunagu Network Communications, Inc.
Consolidated Subsidiaries
Equity-Method Affiliates(As of April 1, 2006)

53

CORPORATE SOCIAL RESPONSIBILITY INITIATIVESIn the recent past, Corporate Social Responsibility (CSR)
has continued to attract increased interest in Japan. With thegrowing trend toward a global economy, companies haveredoubled efforts to review and upgrade existing internal
control systems, to incorporate international standards intheir CSR activities and to fulfill certain domestic accounting
disclosure requirements. Under these circumstances, theMitsubishi Estate Group has adopted as its fundamental mission
the goal to create a truly meaningful society through thedevelopment of an environmentally friendly and appealing urban
environment that fully satisfies the people who live, work andseek leisure there. As a good corporate citizen, we will continue
to foster the unwavering trust of society and to implement CSR
initiatives.

The Mission of the Mitsubishi
Estate GroupWe contribute to society through urban development
By building attractive, environmentally sound communities
where people can live, work and relax with contentment, we
contribute to creating a truly meaningful society.

The Mitsubishi Estate Group
Code of Conduct
In order to carry out the Group Mission,
we pledge to observe the following Code of Conduct:

1. We will act with integrity
We will base our conduct on laws and ethics, and always reflect withhumility upon our behavior, valuing our communication with society
and placing priority in our corporate activities on earning trust
through fairness and transparency.

2. We will strive to earn the trust of our clients
We will approach all objectives from our clients’ point of view,providing safe and reliable products and services, and makeinformation available as appropriate.

3. We will strive to create a vibrant workplace
While aiming at personal growth, we will respect the human rights andthe diversity of opinions of others, and increase our creativity andprofessionalism while displaying our collective strengths as a team.

54

COMPLIANCE MEASURESThe Mitsubishi Estate Group has formulated its Group Code of
Conduct, a set of guidelines common throughout the Group, as apart of its efforts to fulfill the Group’s CSR and to earn thetrust of a broad spectrum of stakeholders. At the same time,
Mitsubishi Estate endeavors to enhance its compliance systems
and structure to ensure strict adherence to legal requirements,
internal rules and generally accepted ethical corporate behavior.
SOCIAL CONTRIBUTIONS AND ENVIRONMENTALEFFORTS

Mitsubishi Estate established the Corporate Philanthropy &Environmental Affairs Promotion Department (the predecessor
to the current CSR Department) in 1994 and has continued toreinforce its in-house promotion systems and pursue educational
activities. Guided by its fundamental corporate mission,
Mitsubishi Estate continues to leverage the collective strengthsof the Group in an effort to realize a sustainable society.
As a good corporate citizen, Mitsubishi Estate strives tomaintain a harmonious relationship with local communities andundertakes a variety of social contribution activities.
The Nature Info Plaza is one example of our environmentallyconscious activities. Established in cooperation with the Wild
Bird Society of Japan, the Plaza represents an oasis in the heartof Tokyo’s commercial business district. Along with wild fowl,
the Plaza provides a place where workers and visitors canexperience the wonders of nature in a relaxed and comfortable
atmosphere. As a valuable education resource, the facility also
serves to increase environmental awareness within the generalcommunity.
In support of cultural activities and the arts, Mitsubishi
Estate is a co-sponsor of the NHK Symphony Orchestra, andalso supports street galleries that exhibit sculpture in locations

Otemachi Cafe (First floor, Otemachi Building) — A hub connecting people,
city life and the environment.

such as Marunouchi’s Naka Dori. In an effort to support theentire community, we produce a nature cassette tape for thevisually impaired and organize young musicians to visit andperform at schools for the handicapped located in central
Tokyo. Mitsubishi Estate is also proud to sponsor an art contest
for physically disabled children, publishing all exhibits on a Web
site. Furthermore, the Company’s employees participate in avariety of volunteer activities.
Based on the principle of its fundamental mission statement, theMitsubishi Estate Group formulated its basic environmental
protection policy and is active in efforts to reduce environmental
impact. Mitsubishi Estate was the first in its industry to begin
publishing an Environmental Report in 2000, which was
followed by the Company’s CSR Report from the fiscal year
ended March 31, 2005. We have also actively introduced
Environmental Management Systems (EMS) across the Group.
Of its various activities, Mitsubishi Estate’s Buildings Business
operations have the largest impact on the environment. Standingat the forefront of its industry, in 1999, the Building Business
Division was one of the first to acquire ISO 14001 certification.
In quick succession, Mitsubishi Estate has acquired accreditationin its Residential Business, Architectural Design & Engineering,
Custom-Built Housing and Hotel Business operations. While
having relatively little impact on the environment, Mitsubishi
Estate’s administrative offices have introduced EMS andcontinue to promote preservation activities. Mitsubishi Estate
recognizes environmental preservation measures to be a key CSR
issue and will continue efforts to enhance activities through theGroup’s urban redevelopment programs. The Group is committed
to further educating all employees on the importance ofenvironmental preservation and heightening awareness throughinformation disclosure.

The Nature Info Plaza (First floor, Shin-Yurakucho Building)55

Mitsubishi Estate Company, Limited
Otemachi Building, 6-1, Otemachi 1-chome, Chiyoda-ku,
Tokyo 100-8133, Japan
http://www.mec.co.jp

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