Profile

Mitsubishi Estate Group is a comprehensive real estate developer whose
consolidated businesses include building leasing, residential development and sales,
and architecture, as well as real estate brokerage and hotels. Operations are carriedout in Japan as well as in major cities of the United States and the United Kingdom.
Mitsubishi Estate’s redevelopment of the Marunouchi district, Japan’s premierbusiness center, is a major project that will set the standard for urban design in the
21st century and embody the Company’s philosophy refined over the past 100
years of developing multifaceted communities.
Contents

Financial Highlights (Consolidated)

1

To Our Shareholders

2

Business Information

6

Promotion of Environmental Affairs and Corporate Philanthropy

19

Review of Operations

20

Financial Review

22

Financial Statements

24

Mitsubishi Estate Corporate Data

44

Mitsubishi Estate Group46

Financial Highlights (Consolidated)

Financial Highlights (Consolidated)

Years ended March 31

Revenue from operations
Net income
As a percentage of revenue from operations
As a percentage of shareholders’ equity
Total assets
Total shareholders’ equity
Common stock

Millions of yen

Thousands of U.S. dollars

1999

2000

2000

¥ 565,259
22,327¥574,396
18,421$ 5,411,173
173,537

3.9%
4.9%

3.2%
4.1%

2,275,902
451,7032,285,771
440,731

21,533,405
4,151,964

86,53486,534815,205

Yen

U.S. dollars¥17.19¥14.18

$0.13

8.00

8.00

0.08

Per share amounts:
Net income
Cash dividends applicable to the year

Note: Yen amounts shown are translated into U.S. dollars, solely for convenience, at the prevailing exchange rate on March 31, 2000, of ¥106.15 to US$1.00.

Other•9.3%

Revenue by Segment (Percentage Share)

Construction•9.1%
Architectural•2.7%
Brokerage•13.1%

Leasing and Management•50.1%

Sales•15.7%

Financial Highlights (Consolidated)1

To Our Shareholders

To Our Shareholders

During the fiscal year ended March 31, 2000, Mitsubishi Estate

growth amid decreased residential taxes and low interest rates,

Co., Ltd. and its consolidated subsidiaries recorded revenue frombut future trends are unpredictable due to uncertainties concern-

operations of ¥574,396 million (US$5,411.2 million), up 1.6%

ing the tax system and interest rates.

from the previous fiscal year. However, operating income declined
0.9%, or ¥627 million (US$5.9 million), to ¥68,201 million

Creating a Competitive Corporate GroupThrough Structural Reform(US$642.5 million). Net income fell 17.5%, or ¥3,906 million

Amid a challenging operating environment in the real estate in-(US$36.8 million), to ¥18,421 million (US$173.5 million) owing

dustry and the advance of globalization, Mitsubishi Estate isto the adoption of tax-effect accounting.

implementing structural reform to prepare for further expansion

In mid 1999, the Japanese economy emerged from a prolonged

in the 21st century. In April 2000, we converted all Group opera-

recession, supported by government economic stimulus measures

tions to a divisional structure. Accordingly, the Group will beand efforts made in the corporate sector. Although indications of aseparated along strategic lines, with a clear system for delegating

self-sustained recovery appeared at the beginning of 2000, a full-authority and responsibility. We expect the new structure to sup-scale recovery is expected to be slow in coming.

port improved asset efficiency in each division.

Conditions are gradually improving in the office building mar-Business areas comprise the three major divisions of Building

ket following the upturn in economic conditions. Vacancy rates

Business, Residential Development and Architectural Design &improved, with nearly full occupancy for newly constructed build-Engineering, plus the five divisions of Urban Development andings in central Tokyo. However, competition among properties as

Investment Management, International Business, Custom-Built

well as among districts has intensified, and the trend toward a

Housing, Hotel Business and Recreational Facility. Strategic de-

two-tiered market is expected to continue in the future.

velopment, including development of affiliated companies, will be

In the residential market, condominium sales are recording solid2

accelerated by transferring authority to head officers at each divi-Through the integrated efforts of Group companies,
we aim to be a competitive corporate Group thatmaximizes corporate value by
fulfilling our mission of creating value
for society as a comprehensive developer.

sion, and by defining the responsibilities within each business field.
Further, we are concentrating resources into core business fields

operations of the Architectural Design & Engineering Division
to a subsidiary in April 2001.

through critical reassessment of unprofitable businesses. In De-

While reviewing our business areas, we are enhancing man-cember 1999, these steps led to the liquidation of the Groupagement effectiveness. In April 2000, our previous executive

company, Onikobe Kogen Kaihatsu, which managed a ski resortboard was replaced by an executive committee to establish

in Miyagi Prefecture.

Groupwide management goals and plans, as well as acceler-

To further extend the divisional structure, we will transfer

ate decision making. We are also expanding outsourcing of

the Hotel Business Division operations to a subsidiary to beservice jobs in the administrative division, and reducing ex-established in the current fiscal year. We aim to also transfer

penses through increased efficiency.

To Our Shareholders

3

To Our Shareholders

The mission of the Mitsubishi Estate Group is to “Create a Truly

increase in the central Tokyo area, Marunouchi is well positioned

Meaningful Society through Urban Development.” We aim to be awith a superb corporate infrastructure and unparalleled advan-

competitive Group that maximizes corporate value. In the current

tages of having over 4,100 companies concentrated in the area.

fiscal year, the Mitsubishi Estate Group announced its mid-term

In the increasingly crucial area of IT, the Marunouchi district isGroup management plan. By March 31, 2003, we aim to achieve

served by the communications networks of a variety of carriers,

an ROA of 3.9% and an interest coverage ratio (ICR) of 2.5 times.

making it the area with the most established information infra-

Marunouchi Redevelopment forInter-District Competition

structure in Japan. From the spring of 2001, the Mitsubishi Estate

The key to improving profitability of our mainstay business of of-ing the superiority of the Marunouchi information infrastructure.

fice building leasing lies in the redevelopment of the Marunouchi

By utilizing these advantages, we intend to redevelop the district

district, which is the base of operations for the Mitsubishi Estate

into Japan’s premier commercial district.

Group. Currently, we are redeveloping Marunouchi into a highly
profitable business district. Our strategy for redeveloping the dis-

Full-Scale Introduction of
J-REIT Businesstrict into a competitive commercial area that can prevail over

In Japan, high growth is expected for markets that link real es-

inter-district competition is founded on the following four strate-tate with financial markets. The Mitsubishi Estate Group is pursuinggies: 1) accelerate redevelopment; 2) upgrade building functions

the potential of various fee-based businesses. Accordingly,

through renovation; 3) strengthen the infrastructure to take ad-

Mitsubishi Estate established the Urban Development and Invest-

vantage of the integration of our buildings; and 4) implement anment Management Division as one of the strategic divisions within

integrated marketing program.

the structural reform of April 2000, and we will make a full-scale

Although the supply of large-scale office buildings will begin to4

Group will install its own extensive fiber-optic network, further rais-

entry into the Real Estate Investment Trust (REIT) business. As theNakadori Avenue, Marunouchi business district in Tokyo

first stage, Mitsubishi Estate will partner with other companies toof knowledge in building management and our business develop-

establish a REIT. Through Groupwide efforts, we aim to develop

ment capabilities, which are in high demand today, we plan tothis fund into Japan’s representative REIT, and to stay one stepbuild businesses to become a Company that produces added value

ahead of current trends and seize critical business opportunities.

in the new century. We look forward to the support and cooperation of our shareholders.

As a comprehensive developer, the Mitsubishi Estate Group iscommitted to promoting consolidated management, increasing
Group profitability and contributing to the creation of a truly meaningful society. Making use of the expertise we have accumulated

Takeshi Fukuzawa
President

thus far in the urban development business, our vast storehouse

July 2000

To Our Shareholders

5Business Information

Business Information

Building Business Division

Concentrating Our Vast Expertise,from Development toOperation and Management,

Shigeru Takagi
Head Officer of the Division
Executive Vice President

in the Development of Marunouchi

The Building Business Division is engaged in the leasing and sub-Through Group companies, Mitsubishi Estate is aggressively

leasing of the Group’s office buildings, as well as property

involved in fee-based businesses, such as the operation and man-

management, parking lot operations and district heating and cool-

agement of leased buildings. In addition, we are developing urban

ing. Beginning with Marunouchi, Japan’s premier business center,functions through integrated Group business in parking lot opera-

we are expanding our building leasing business in key metropoli-tions and district heating and cooling in the Marunouchi district

tan areas in Japan that include the Tokyo metropolitan area,

and Aoyama in Tokyo, Osaka Amenity Park (OAP) and Yokohama

Sapporo, Sendai, Nagoya, Osaka and Hiroshima. At fiscal year-“Minato Mirai 21.”end, floor space of leased buildings totaled 4,050,000 square
meters. We are also developing shopping centers in various areas

Integrated Business from
Development to Managementof Japan such as The Landmark Plaza in Yokohama, the IMS in

The Building Business Division is reforming its organization to build

Fukuoka and Aqua City Odaiba in Minato-ku, Tokyo.

an integrated business model, from development to operation and6Aqua City Odaiba opened in April 2000.

management, and promote the redevelopment of the Marunouchi

amenities. We are implementing the following four strategies to

district. We are also improving the functions and efficiency of prop-

contribute to the effective redevelopment of Marunouchi: 1) ac-

erty management, and improving customer satisfaction bycelerate redevelopment; 2) upgrade building functions throughconverting to a marketing structure that more accurately reflects

renovation; 3) strengthen the infrastructure to take advantage oftenant needs, while enhancing profitability by strengthening mar-the integration of our buildings; and 4) implement an integrated

keting capabilities and promoting new lease contracts.

marketing program.

Redevelopment of Marunouchi
as a Key Strategic Measure

Accelerating Redevelopment
Reconstruction of the Marunouchi Building has proceeded smoothly,

We plan to invest ¥500 billion to redevelop the Marunouchi dis-and joint reconstruction of the Eiraku Building and the adjacent hall

trict, the Group’s core business project spanning 10 years from

owned by the Japan Industrial Club was initiated in February 2000.

1998 to 2008, and develop spaces that merge business with

Plans call for reconstruction of the headquarters of the former Japan

Business Information

7

Business Information

nies and financial institutions using enhanced electric supply capacity and advanced environmental control systems.
Reinforcing Infrastructure to Take Advantage of Integration
An increasing number of telecommunications carriers have built
communications infrastructures in the Marunouchi district. To makeit easier for our tenants to receive comprehensive services frommany carriers in the future, the Mitsubishi Estate Group is providing a comprehensive fiber-optic network and working to enable24-hour, international information services.
The Group made full use of the advantages provided by the
integration of its buildings in the Marunouchi district by receiving
Marunouchi Café adds a new dimension to Marunouchi.

low-cost electric power from new providers in response to market
liberalization.

National Railways to begin in 2001, and we aim to announce newreconstruction plans for the project within the year. We will also accel-

Implementing Strategic Marketing Measures
In addition to attracting companies that will be the backbone oferate the redevelopment of the Marunouchi district by fully utilizing a

the 21st century economy, such as IT-related companies and fi-

variety of methods such as joint ventures and securitization, repre-

nancial institutions, the Mitsubishi Estate Group aims to improvesented by joint development of the former Japan National Railways

the amenities of the area and create an attractive, multifaceted

headquarters site with Nippon Life Insurance Company, as well as theenvironment. By attracting brand-name stores, cafes and restau-sale of the Chiyoda Building to The Meiji Mutual Life Insurance Com-rants to Nakadori Avenue, the main street running through thepany in April 1999.

district, we intend to add an element of fashion and entertainment

Renovation for Improved Functionality
For existing buildings not under reconstruction, we will increase

to the business-oriented Marunouchi district.

competitiveness by adapting to the needs of IT-related compa-

steadily carrying out the four strategies outlined above.

8

The Group will redevelop the Marunouchi district by rapidly and▲Highlights
Marunouchi Building (Tentative Name)
Reconstruction of the Marunouchi Building began in April 1999 as
the first step in redeveloping the district. The new building will havefour levels underground, 37 floors aboveground and a height of 180
meters. While partially preserving the traditional design of the original
Marunouchi Building, the new structure will be equipped withintelligent building functions supported by the latest technology. The
reconstruction of the Marunouchi Building is a rebirth for the district
as well as a step toward a new era for the Mitsubishi Estate Group.
Completion is scheduled for August 2002.
▲▲

Joint Reconstruction of Japan Industrial Club Hall and Eiraku Building
In February 2000, we initiated reconstruction of the adjacent hall ownedby the Japan Industrial Club and the Eiraku Building. Upon completion,
the new building will have four levels underground, 30 floors
aboveground and a height of 143 meters. We aim to create acomfortable, highly functional office space while protecting the historicallook of the hall, including preservation of the beautiful south face.
Construction is scheduled for completion in 2004.

Sanno Park Tower
In January 2000, construction of the 194-meter, 44-floor
Sanno Park Tower was completed. The Mitsubishi EstateGroup used its comprehensive strengths to makeadvances in fee-based businesses in various stages ofthe process from design and supervision to subleasing
and building management.

▲

Kakyoin SquareConstruction of the high-rise office building Kakyoin
Square was completed in Sendai in October 1999.
Mitsubishi Estate is involved as a landowner, and madeuse of its expertise in urban redevelopment to complete
the construction. At 106 meters with 23 floors, thisintelligent building is a new commercial base with officespace that is both refreshing and enjoyable.

Business Information

9

Business Information

Residential Development Division

Providing High-Quality
Residential Environments that

Hiroshi Baba
Head Officer of the Division
Senior Managing Director

Address Diverse Customer Needs

To provide high-quality residential environments that address di-Strong Group performance was supported by the sweeping

verse customer needs, the Residential Development Division

views and superior facilities provided by our high-rise, large-scale

develops and markets condominiums, single-unit homes and resi-

condominiums, and by convenient urban locations with pleasantdential land from the customer’s perspective. We also provide

surroundings. With rising consumer interest in quality, durable

consulting services for the effective use of real estate, manage-

housing, our well-planned real estate products have remained

ment of condominiums and real estate brokerage services. In thehighly competitive.

condominium business, we are providing high-quality housing
throughout Japan that utilizes the unique features of each site. In

Providing Attractive Condominiums
Through Superior Technological and Planning Capabilities

large-scale developments such as the Izumi Park Town project in

To address the needs of increasingly demanding consumers, theSendai we create entire communities by providing residents withGroup plans to concentrate efforts on developing projects in at-

a convenient, comfortable lifestyle in harmony with nature.

tractive surroundings and on high-rise condominiums.

10crease the competitiveness of our properties. In March 1999, weestablished a tie-up with the popular merchandise brand “Afternoon Tea,” and are currently developing highly popular
condominium complexes such as Gardencesia in Machida, Tokyoand Park House Higashiyama in Hiroshima.

Expanding into New Fields in Line with
Increased Housing Stock and Growth in the IT Industry
We established the Customer Service Office within Mitsubishi
Estate in April 2000, and will work to develop the new business inorder to enhance our daily post-sales service capabilities, target
new business opportunities such as renovation contracts, andimprove customer satisfaction in conjunction with the Daiya ComConstruction was completed in February 2000 for Park House Nishi-Azabu in Minato-ku, Tokyo.

munity Co., Ltd., a condominium management subsidiary.

Developments of between 30 and 100 units represent efficient

The Mitsubishi Estate Group is also fostering fee-based busi-

investments with rapid capital turnover. Furthermore, larger high-nesses. In addition to our Partner Program, which helps landowners

rise condominiums provide a substantial return per project. We

make effective use of real estate, we are working to expand or-

aim to provide approximately 2,600 units focusing on these twoders for due diligence services at the subsidiary Mitsubishi Realtypes of developments in the fiscal year 2001.

Estate Services Co., Ltd.

Based on this strategy, the condominium business is organized

Advancements in IT are having a profound influence on theby type, such as short-term and long-term businesses, to form areal estate industry. In April 2000, we launched the condominium

structure that enables more efficient pursuit of profit. While

information web site, “Major 7,” in collaboration with other lead-strengthening local information-gathering capabilities and mar-ing companies in the condominium industry, and plan to makeketing activities via a thorough area-based system, we will

Groupwide efforts to advance Internet strategies centered on

concentrate on new product planning and development and in-

Mitsubishi Estate.

Business Information

11

Business Information

Highlights

Gardencesia
Gardencesia, in the Tokyo suburb of Machida City, is a large-scale condominium
development comprising 686 units. This property consists of condominiums tailored to
the lifestyle needs of customers, adopting the lifestyle-centered approach developed by
the popular general merchandise brand “Afternoon Tea,” and is highly regarded for its
The Yokohama Towers
common-use facilities and distinctive interior and exterior designs. Construction is
The Yokohama Towers, a high-rise condominium development with 852 condominiums,
scheduled for completion in June 2001.
are the tallest towers in Yokohama at 140 meters high. In the center of the Yokohama
portside area, currently undergoing a dramatic renovation, the towers are conveniently
located 11 minutes from Yokohama station and have the unique advantage of being locatedon the waterfront in Yokohama. We aim for The Yokohama Towers to be the “tallest” andthe “best” condominium towers available in Yokohama. The first phase of construction isscheduled for completion in November 2001.

Izumi Park Town
The Izumi Park Town project has been under development since 1972 in Sendai, Miyagi
Prefecture. The area measures 1,070 hectares and is the largest private multifunctional
development in Japan, with a population of approximately 50,000 residents. In addition
to single-unit homes and condominiums, office buildings, sports facilities, hotels andshopping centers, a variety of public buildings such as libraries contribute to the perfectbalance among “living, working, resting, learning, gathering and enjoying.”

12

KY Building (consigned development)
Mitsubishi Estate’s Partner Program responds
to the needs of landowners for project planning,building design and management, construction,
operation and tenant leasing, as well as
effective land utilization. In the KY Building
project, we have made optimal use of the site
next to the JR Otsuka Station in Tokyo andprepared an operational framework for multiple
facilities, such as hotels and restaurants thatreinvigorate the area and use land in a manner
satisfactory to landowners. Construction wascompleted in September 1999.

Architectural Design & Engineering Division

Our Preeminent Architectural
Offices Support Comprehensive
Real Estate Development

Katsuhisa Shimada
Head Officer of the Division
Senior Managing Director

The Architectural Design & Engineering Division uses its techno-

frastructure, civil engineering and harbor facilities; conducts fea-

logical capabilities to support the Mitsubishi Estate Group’s

sibility studies and studies for project approval; and provides designbusiness as a comprehensive real estate developer. Its activities

and supervision services. Other activities include support for therange from the design of buildings and civil engineering struc-

Residential Development Division in civil engineering and con-tures to building renovation, urban planning and a variety ofstruction projects, and interior construction for tenants.

consulting services.

Mitsubishi Estates’ Architectural Design & Engineering Division em-

A team of specialists is established for each building category,ploys over 500 architects and design specialists, forming one of the

including office buildings, residential units and hotels, as well as

preeminent architectural offices in Japan. With the inclusion of MEC

commercial, cultural, medical and manufacturing facilities, form-

Design International Corporation, whose mainstay business is interior

ing a design group capable of responding to the most demanding

design, the Division forms an important pillar within the Mitsubishi

requirements. The Division also prepares proposals for urban in-

Estate Group and represents a source of competitive strength.

Business Information

13

Business Information

Architectural Design & Engineering Division toForm an Independent Unit in April 2001

agement. The Architectural Design & Engineering Division handled

The fiscal year under review marked the completion of the Sannointerior construction for a large number of tenants.

the design and supervision of the overall building as well as thePark Tower, a large-scale building in which the Mitsubishi Estate

The Division also recorded steady progress in the design andGroup has participated from the planning stage to building man-supervision of large-scale redevelopment projects, including the
Nippon Television Network Corporation’s new head office in
Shiodome and Mitsubishi Corp.’s new head office in Shinagawa.
In addition, we continued to win orders through highly competitive proposals, including the government contract for
construction of the new campus of Kyushu University.
Through a reorganization in April 2000, we established three
specialized offices—Urban Development and Management Office, Architectural Energy Consulting Office and Construction
Management Office—to address the diverse needs of customers
and expand business opportunities.
Plans call for the Architectural Design & Engineering Division
to be converted to a subsidiary in April 2001. We intend to use
this as an opportunity to further raise our strengths as we develop a managerial and organizational structure suitable for an
independent architectural design office, and increase management efficiency. To achieve this aim, we will make efficient useof human resources, enhance our marketing capabilities, advance thorough cost management, expand our customer base

Yokohama Landmark Tower represents the architectural expertiseof the Mitsubishi Estate Group.

14

and raise competitiveness.

Highlights
Nagoya Plant of Kirin Brewery
The Nagoya Plant of Kirin Brewery Co., LTD.,
which was renovated in 1997 under thesupervision of Mitsubishi Estate, won the
Building and Equipment Life Cycle Association(BELCA) Award in the category of Best
Reformation Building in 1999. This award
recognizes those who develop superiorbuildings through proper maintenance andbuilding repair. In the reconstruction of the
Nagoya Plant, originally constructed in 1962,
the Architectural Design & Engineering Divisionbroke with the traditional approach ofrenovating to a more flexible approach of
retrofitting, and was evaluated not only for theextension of the building’s useful life, but also
for accentuating the unique features of thebuilding and creating new value.

Nippon Television Network Corporation’s New Head
Office in Shiodome
In January 2000 a groundbreaking ceremony washeld for the construction of Nippon Television
Network Corporation’s new head office in Shiodome.
Richard Rogers, who has been involved in the basicplanning stage, helped achieve an expressive
design that reflects the role of a television station
as an information exchange base. The wholebuilding is covered in transparent glass to convey
the image of an open broadcasting station, and has
a simple layout that features studios on the lower
levels and offices on the upper floors. Completionis scheduled for April 2003.

©Kyushu University

Acceptance of Proposal for the New Kyushu
University Campus
In November 1999 the proposal from a design
joint venture formed by Mitsubishi Estate andtwo other companies was selected as thewinning design for the new campus of Kyushu
University. The design was highly regarded for
its reliability and practicality, as well as for
accurately reflecting the general planning
criteria set forth for the relocation of Kyushu
University. We aim to initiate construction in
the fiscal year 2002 upon concluding a formal
contract, and are making progress on designs
for the site, including plans for land utilization,
traffic and landscaping, as we design themaster plan.

Business Information

15

Business Information

Urban Development
and Investment
Management DivisionInternational
Business Division

Developing Real Estate Funds
that Attract Investors

Strong Earnings Growthon the Back of Booming
U.S. Economy

Terutake Miyamoto

Takayuki Hara

Head Officer of the Division
Managing Director

Head Officer of the Division
Senior Managing Director

To respond to the ongoing integration of financial and real estate

The International Business Division manages office buildings inmarkets, the Urban Development and Investment Management

the United States and the United Kingdom through the Rockefeller

Division handles such fee-based businesses as real estate devel-Group, Inc., headquartered in New York. The Division also partici-

opment for real estate investment trusts and other securitization

pates in the real estate brokerage business through a global

schemes, asset management for established real estate funds,

network organized by real estate services provider Cushman &consulting and real estate appraisal.

Wakefield Inc. The economic boom in the United States has sup-We will cooperate with other companies to establish a real es-

ported their considerable achievements.

tate investment trust fund company based on a new law allowing

In New York, construction work for Rockefeller Plaza West (745real estate funds. Real estate fund management is scheduled toSeventh Avenue), which began in 1999, is progressing smoothly

begin in spring 2001.

and is scheduled to be completed in 2002. On a 17,000-square-

We aim to list the new company’s shares on the Tokyo Stockmeter site next to St. Paul’s Cathedral in the City of London, theExchange in the near future and contribute to the development ofPaternoster Square Redevelopment Project has been started. Thea real estate investment market that meets the needs of institu-

construction of six complexes comprising offices and shopping

tional and individual investors.

malls will be implemented.

16

Custom-Built
Housing Division

Royal Park Hotel in Hakozaki, Tokyo. In recent years, the hotel busi-

From Construction of Custom-Built
Housing to Condominium Renovation

Mitsubishi Estate aims to enhance efficiency through standardization

Taketo Yamazaki

agement expertise and improving operations. Plans call for integrated

Head Officer of the Division
Director
President of Mitsubishi Estate Home Co., Ltd.

management, including affiliated companies that manage each GroupThe Custom-Built Housing Division constructs and markets

subsidiary to be established at the end of the current fiscal year.

custom-built housing. Our mainstay product is two-by-four single-

Recreational
Facility Division

unit houses. In October 1999, we launched a new product, ASSETJX ANY, and have been selling Eco-Feel brand environmentallyoriented homes since April 2000. The Division established a section
for the renovation business in April 1999 and is expanding operations in renovation of single-unit houses and condominiums.

Hotel Business Divisionness has experienced a severe operating environment resulting from
intensified competition. By developing a network of Group hotels,of management, operations and services, while accumulating man-hotel, through the transfer of operations to a new hotel management

Serving the Public Throughthe Operation of Sports Club

Kaoru Kohno
Head Officer of the Division
Managing Director

Operations in the Recreational Facility Division comprise the fitStrengthening Group Capabilities for
Integrated Management

ness clubs of Liv Sports Co., Ltd., as well as golf clubs and otherleisure businesses. The Division addresses the issues of increased

Yutaka Nakamura
Head Officer of the Division
Managing Director

leisure time and the aging of the population. While developing theurban functions of Liv Sports fitness clubs, we are also involved in
new club openings for the growing market in large-scale subur-

In the Hotel Business Division, the Mitsubishi Estate Group operates

ban fitness clubs, initiating construction of two new clubs in

the Royal Park Hotels in seven major cities in Japan, including thesuburban Tokyo in April and July 2000.

Business Information

17

Business Information

Highlights

In the fiscal year ended March,
the Japanese economy continued in recession, characterized
by instability in the financial
Paternoster Square Redevelopment Project
Five-Year Anniversary of Sendai Royal Park Hotel Opening
systemIn May1999, we started the Paternoster Square Redevelopment Project in the City of Sendai Royal Park Hotel of the Royal Park Hotels chain has entered its fifth year ofLondon.
The master
plan,investment.
designed by the U.K. architect Sir William Whitfield, blends with operations. To celebrate, we held a charity event with the entire hotel opened to charitablein private
capitalthe beauty of the adjoining St. Paul’s Cathedral. Creating a lively atmosphere, six buildings donors.
will be located around the central open space. Based on the concept of the master plan,
we have designated different architects for each building to create a distinguished square.

ASSET JX ANY
Mitsubishi Estate Home launched a newmodel in October 1999 called ASSET JX
ANY. The house has advanced thermal
efficiency features that meet nextgeneration energ y conservation
standards, and employs a barrier-freedesign that enables easy modificationof the basic plan in accordance withowner needs. The product is gaining afavorable response from first-timebuyers owing to its low price.

18

Promotion of Environmental Affairs and Corporate Philanthropy

Promotion of Environmental Affairs and Corporate Philanthropy

Upholding Our Responsibility as a Corporate Citizen
The Mitsubishi Estate Group is conducting activities in line withgalleries that exhibit sculptures. In addition, we are a co-sponsor

management values that are founded on a commitment to envi-of the NHK Symphony Orchestra and operate cultural facilities inronmental stewardship and corporate citizenship.

major cities in Japan, in such areas as Fukuoka and Yokohama.

In June 1999, Mitsubishi Estate acquired ISO 14001 certifica-

As a corporate citizen, the Mitsubishi Estate Group performs

tion for environmental management for its 36 office buildings.

important roles in a wide range of areas that include academic

ISO 14001 certification was also obtained in October 1999 for all

research, education, international exchange and cooperation, so-

operations of Mitsubishi Estate Home. By engaging in environ-cial welfare and urban natural disaster planning. We will continue

mental preservation measures to promote energy conservation,

to carry out philanthropy and cultural promotion to nurture good-

reduce waste and promote recycling, we aim to obtain certifica-

will and deepen relationships with local communities.

tion for all Divisions of Mitubishi Estate in the near future. In May
1999 Yokohama Landmark Tower was awarded the first “The Excellent Building Mark of Environment and Energy,” and the
Marunouchi Building, currently under reconstruction, received thesame mark in July of the same year.
To promote philanthropic activities, we are concentrating efforts on community exchange, environmental preservation andfostering the arts and culture in areas where we conduct busi-

A street gallery on Nakadori Avenue in Marunouchi

ness. Group employees act as community volunteers to support
annual chamber music performances for the elderly and the physically handicapped and environmental study sessions for families.
In cooperation with the Japan Audubon Society, we establishedthe mostly volunteer-run Marunouchi Bird Song Plaza in October1999 as a base for environmental preservation activities in the
Marunouchi district. In Tokyo and Hiroshima, we are providing street

NHK Symphony Orchestra, co-sponsored by Mitsubishi Estate

Promotion of Environmental Affairs and Corporate Philanthropy

19

Review of Operations

Review of Operations

Leasing and Management

Marunouchi district

This segment comprises domestic building leasing and manLeasing and Management Segment Revenue
agement, parking lot operations, district heating and cooling(Billions of yen)
2000
287.5
operations and the building leasing and management businessof the overseas consolidated subsidiary RGI. During the fiscal
1999
296.4
year under review, major buildings completed and placed in
1998
279.1
operation included Sanno Park Tower in Tokyo. However, a pro1997
274.4
longed downturn in the rental market and the sale of the Chiyoda
1996
288.0
Building resulted in reduced sales. An appreciation of the yen
resulted in lower sales in yen terms. As a result, revenue in thesegment declined 3.0% to ¥287,520 million (US$2,708.6 million).

Sales
This segment derives revenue from the sale and management ofcondominiums and single-unit houses; the development of lots
for residential and commercial use; and large-scale development.
In the fiscal year under review, sales of condominiums were favorable as a result of government policies such as the reductionof residential taxes. With the absence of the sale of large-scalecommercial property recorded in the previous fiscal year, revenue
for this segment was ¥90,314 million (US$850.8 million).

Sales Segment Revenue(Billions of yen)
2000

90.3

*

1999

155.4

1998

151.2

1997
1996

166.5
136.1

Model unit in OAP Residence Tower

Brokerage
Revenue in this segment is provided by the consigned sales
and brokerage services of Mitsubishi Real Estate Services Co.,
Ltd. and the overseas real estate brokerage business of RGI’s
consolidated subsidiary Cushman & Wakefield. For the fiscal
year under review, higher revenue at Cushman & Wakefield on
the back of the booming U.S. economy and strong domestic
performance at Mitsubishi Real Estate Services resulted in revenue of ¥75,067 million (US$707.2 million).

Brokerage Segment Revenue(Billions of yen)
2000

75.0

*

1999
1998
1997
1996

Note: :*Brokerage revenue had been reported in the Sales segment in prior periods, but is presented as a separate segment in the current fiscal year reflecting theincreased importance of the business.

20

Architectural
Revenue from the architectural segment derives from the design and project supervision of building and civil engineering
construction, and interior work by the consolidated subsidiary
MEC Design International Corporation. For the fiscal year underreview, revenue rose 32.2% to ¥15,632 million (US$147.3 million), reflecting the large scale of architectural design work forsuch construction projects as Sanno Park Tower.

Architectural Segment Revenue(Billions of yen)
2000

15.6

1999

11.8

1998

11.5

1997

18.3

1996

17.2

Sanno Park Tower

Construction
The construction segment revenue consists of interior building
construction, contracted business as Partner Program and contracted construction for custom-built housing through theconsolidated subsidiary Mitsubishi Estate Home. For the fiscal
year under review, revenue increased 10.6% to ¥52,498 million (US$494.6 million) on the back of increased orders forcustom-built housing at Mitsubishi Estate Home.

Construction Segment Revenue(Billions of yen)
2000

52.4

1999

47.4

1998

66.4

1997

50.2

1996

63.4

Asset Home series “Eco-feel”

Other
The other segment consists of hotel operations, recreational
facilities and real estate appraisal businesses, as well as thetelecommunications business at the overseas consolidated subsidiary RGI. For the fiscal year under review, revenue declined
1.3% to ¥53,364 million (US$502.7 million), and the Mitsubishi
Estate Group phased out its ski resort business with the liquidation of the Group company Onikobe Kogen Kaihatsu.
Royal Park Hotel in Tokyo

Other Segment Revenue(Billions of yen)
2000

53.3

1999
1998

54.0
40.3

1997
1996

49.5
46.2

Review of Operations

21

Financial Review

Financial Review
Analysis of Revenue
For the fiscal year under review, revenue from operations increased 1.6% to ¥574,396 million (US$5,411.2 million).
Results and conditions by segment are discussed below.
Leasing and management comprises 50.1% of revenues. Revenue from this segment declined 3.0% to ¥287,520 million(US$2,708.6 million) as a result of a sluggish rental market.
The Sales segment comprises 15.7% of revenues. Despite
favorable sales of condominiums, this segment recorded revenue of ¥90,314 million (US$850.8 million) due to the absenceof large-scale commercial-property sales recorded in the previous fiscal year.
Brokerage comprises 13.1% of revenues. Revenue fromthis segment was ¥75,067 million (US$707.2 million) owing
to higher revenue at Cushman & Wakefield and strong domestic performance at Mitsubishi Real Estate Services.
Architectural comprises 2.7% of revenues. For this segment, revenue rose 32.2% to ¥15,632 million (US$147.3
million), resulting from the large scale of architectural design
work for such construction projects as Sanno Park Tower.
Construction comprises 9.1% of revenues. Revenue in thissegment rose 10.6% to ¥52,498 million (US$494.6 million)on the back of increased orders for custom-built housing at
Mitsubishi Estate Home.
The Other segment comprises 9.3% of revenues. This segment recorded a 1.3% decline in revenue to ¥53,364 million(US$502.7 million).
Analysis of Income
For the fiscal year under review, cost of revenue from operations rose 5.8% to ¥463,708 million (US$4,368.4 million),whereas selling, general and administrative (SG&A) expenses
Revenue form Operations

Operating Income(Billions of yen)(Billions of yen)22

declined 27.1% to ¥42,487 million (US$400.3 million). The main
reason for the decline of SG&A expenses was the reclassification of direct costs of hotel management companies—including
personnel, outsourcing, water, heat and electricity expenses—
from SG&A to cost of revenue from operations.
Operating income edged down 0.9% to ¥68,201 million(US$642.5 million), as lower operating income at the parent
company due to weak performance in the leasing and management segment was offset by continued favorable growth
at RGI in the United States and improved performance of
Mitsubishi Real Estate Services and Mitsubishi Estate Home.
Other Income and Expenses
Interest and dividend income decreased 8.6% to ¥4,310 million (US$40.6 million), and interest expense declined 9.0% to¥40,318 million (US$379.8 million), reflecting unprecedented
low interest rates and lower levels of interest-bearing debt.
In other expenses, the Company recorded a valuation loss
on inventories of ¥32,614 million (US$307.2 million), a loss
on investment in affiliates of ¥7,015 million (US$66.0 million)
and an amortization of prior service cost of pension plan of¥8,664 million (US$81.6 million). Other income included a
net realized gain on sales of property and equipment of¥37,407 million (US$352.4 million) and net realized gain on
sales of marketable securities of ¥18,012 million (US$169.7
million).
Net Income
In the fiscal year under review, the Company adopted taxeffect accounting and recorded deferred income taxes of¥7,531 million (US$70.9 million). Net income was ¥18,421
million (US$173.5 million), down 17.5% from the previous
fiscal year, and net income per share was ¥14.18 (US$0.13).
Net Income(Billions of yen)

2000

574.3

2000

68.2

2000

1999

565.2

1999

68.8

1999

1998

548.7

1998

1997

559.1

1997

1996

551.2

1996

58.2

1998

62.3

1997
81.6

1996 (98.9)

18.4
22.3
31.8
38.3

Analysis of Financial Position
Net cash provided by operating activities was ¥72,401 million (US$682.1 million). Net cash used in investing activities
totaled ¥11,611 million (US$109.4 million), as the sale of the
Chiyoda Building partly offset capital investment for the continued redevelopment of the Marunouchi district and renovationof existing buildings. Net cash used in financing activities was¥57,331 million (US$540.1 million). Including the effect of
exchange rate changes on cash and cash equivalents of¥3,744 million (US$35.3 million), there was a net decrease in
cash and cash equivalents of ¥285 million (US$2.7 million).
With the addition of increase in cash and cash equivalents
due to merger and acquisition of ¥47 million (US$0.4 million),cash and cash equivalents at end of year were ¥86,457 million (US$814.5 million), a decline of ¥238 million comparedwith cash and cash equivalents at beginning of year of ¥86,695
million (US$816.7 million).
Consolidated interest-bearing debt at fiscal year-end decreased
4.3% to ¥1,219,823 million (US$11,491.5 million), as management used cash flows from operating activities at Mitsubishi Estate,proceeds from the sale of the Chiyoda Building and sale of securities to reduce debt. Reduction of interest-bearing debt at theconsolidated subsidiary RGI also contributed to the decline.
Total assets at year-end increased ¥9,869 million to¥2,285,771 million (US$21,533.4 million). Total shareholders’ equity fell 2.4%, or ¥10,972 million, to ¥440,731 million(US$4,152.0 million). The major factor for this decrease was
the transfer of translation adjustments from assets to shareholders’ equity.
Accordingly, the shareholders’ equity ratio edged down 0.5
percentage point to 19.3%.
Net Income per Share

Shareholders’ Equity(yen)(Billions of yen)
14.18

2000

17.19

1999
1998

1996

29.53
(76.18)Interest-Bearing Debt
(Billions of yen)

2000

440.7

2000

1999

451.7

1999

453.6

1998

1,164.9

1997

1,124.5

1998

24.51

1997

Management Initiatives
The Mitsubishi Estate Group announced its medium-term management plan on June 6, 2000. The Group’s core business ofreal estate leasing requires substantial capital investment over along period of time. Owing to the need to continuously evaluate
and improve asset efficiency, we have adopted return on assets(ROA) and interest coverage ratio (ICR) as management indicators to improve asset efficiency and evaluate risk management.
Compared with ROA of 3.2% and ICR of 1.8 times during the
fiscal year under review, the plan targets ROA of 3.9% and an
ICR of 2.5 times by the fiscal year ending March 31, 2003.
To achieve this objective, Mitsubishi Estate will accelerate
the redevelopment of the Marunouchi district to contribute tofuture revenue and operating income for the Leasing andManagement segment, while marketing both highly profitablecondominiums with rapid turnover and high-rise condominium
developments in the Sales segment.
Mitsubishi Estate is committed to increasing fee-based businesses, including asset management for real estate investment
trusts and orders for property management services.
Furthermore, to raise ROA through higher asset efficiency, weare shifting some assets off the balance sheet through such measures as securitization and sale to real estate investment trusts,
while acquiring new assets for the redevelopment of the
Marunouchi district. Through this policy, management aims to
improve its operating ratios and financial position.
While using cash flows from sales of assets and higher
profitability on operations to reduce interest-bearing debt,
Mitsubishi Estate aims to improve its financial structure andraise its ICR by reducing interest rates from a medium-term
perspective through flexible financing activities.

1997
1996

427.1
403.5

1996

1,219.8
1,275.7

1,209.7

Financial Review

23

Financial Statements

Financial Statements
Consolidated Balance Sheets
Mitsubishi Estate Co., Ltd. and Consolidated Subsidiaries
March 31, 2000 and 1999

Assets2000

Thousands ofMillions of yen U.S. dollars (Note 3)
1999
2000

Current assets:
Cash (Notes 7 and 13)
Marketable securities (Notes 5 and 14)¥00,074,582
87,585¥0,070,525
97,235$00,702,609
825,106

Notes and accounts receivable – trade
Allowance for doubtful receivables
Inventories (Note 4)

49,274(4,744)
235,297

44,317(7,604)
259,738

464,192(44,691)
2,216,646

Deferred income taxes (Note 8)
Other current assets

35,29925,142—
29,562

332,539
236,854

Total current assets

502,435

493,7734,733,255

Investments:
Investments in and advances to unconsolidated subsidiaries and affiliates

24,24824,562

228,4319,615
125,320

10,463
127,507

90,5791,180,593

159,183

162,532

1,499,603

Land
Buildings and structures
Machinery and equipment

693,207
1,368,962
82,979691,573
1,324,436
83,3156,530,447
12,896,486
781,715

Construction in progress

31,46032,472

296,373

Total property and equipment
Less accumulated depreciation

2,176,608(607,305)

2,131,796(568,118)

20,505,021(5,721,196)

Net property and equipment

1,569,303

1,563,678

14,783,825

54,85055,919516,722¥02,285,771¥2,275,902$21,533,405

Investments in other securities (Notes 5 and 14)
Other investments (Notes 6 and 7)
Total investments
Property and equipment (Note 7):

Intangible and other assets (Notes 7 and 8)
Total assets
See accompanying notes to consolidated financial statements.

24Consolidated Balance Sheets
Mitsubishi Estate Co., Ltd. and Consolidated Subsidiaries
March 31, 2000 and 1999

Liabilities, minority interests and shareholders’ equity

Current liabilities:
Short-term borrowings and current portion of long-term debt (Note 7)
Notes and accounts payable – trade

2000

Thousands ofMillions of yen U.S. dollars (Note 3)
1999
2000

¥0,183,626
57,286¥0,218,386
52,712$01,729,873
539,670

3,172
51,79649,537

3,231
48,71640,09329,882487,951466,670

Total current liabilities

345,417363,138

3,254,046

Long-term debt (Note 7)
Lease deposits

1,036,197
296,934

1,057,410
297,808

9,761,630
2,797,306

29,356
61,69945,59830,047
8,238
38,220276,552
581,244429,561

Total liabilities

1,815,201

1,794,861

17,100,339

Minority interests

29,83929,338281,102

Authorized – 1,980,000,000 shares;
Issued and outstanding –1,299,185,054 shares
Capital surplus

86,534
115,195

86,534
115,195

815,205
1,085,210

Retained earnings
Foreign currency translation adjustments

254,871(15,860)

257,854(7,871)2,401,045(149,411)

440,740

451,7124,152,049

(9)

(9)

(85)

440,731451,7034,151,964¥2,285,771¥2,275,902$21,533,405

Accrued income taxes (Note 8)
Advance and deposits
Accrued expenses and other current liabilities (Note 8)

Employees’ retirement allowances
Deferred income taxes (Note 8)
Other noncurrent liabilities

Shareholders’ equity (Note 9):
Common stock, par value ¥50:

Less treasury stock – 9,395 shares in 2000; 7,231 shares in 1999
Total shareholders’ equity
Contingent liabilities (Note 11)
Total liabilities, minority interests and shareholders’ equity

Financial Statements

25

Financial Statements

Consolidated Statements of Income
Mitsubishi Estate Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2000, 1999 and 1998

Millions of yen

Thousands of
U.S. dollars (Note 3)

2000

1999

1998

2000

¥574,396
463,708
42,487¥565,259
438,171
58,260¥548,731
444,359
47,441$5,411,173
4,368,422
400,255

68,201

68,82856,931

642,496

4,310(40,318)

4,713(44,349)

6,255(45,179)

40,603(379,821)

4,355

2,624

23,53841,027(31,653)(37,012)(15,386)(298,191)

Income before income taxes and minority interests

36,54831,816

41,545344,305

Income taxes (Notes 1 and 8):
Current
Deferred

8,887
7,531

7,944
—

8,264
—

83,721
70,947

16,418

7,944

8,264

154,668

1,709

1,545

1,433

16,100¥018,421¥022,327¥031,848$0,173,537

Yen

U.S. dollars(Note 3)

Revenue from operations
Cost of revenue from operations
Selling, general and administrative expenses
Operating income
Other income (expenses):
Interest and dividend income
Interest expense
Other, net (Note 12)
Total

Minority interests
Net income

Amounts per common share:
Net income
Cash dividends
Interest coverage ratio*¥14.188.00
1.80

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

26¥17.198.00
1.66¥24.51
8.00
1.43

$0.13
0.08

Consolidated Statements of Changes in Shareholders’ Equity
Mitsubishi Estate Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2000, 1999 and 1998

Millions of yen
CommonStockCapitalSurplusRetained
Earnings

Foreign
Currency
Translation
Adjustments

Balance at March 31, 1997
Net income
Cash dividends paid
Directors’ and statutory auditors’ bonuses
Net change in foreign currencytranslation adjustments
Decrease in treasury stock¥86,534———¥115,195———¥231,069
31,848(10,393)(187)¥ (5,660)
—
—
—

¥(12)
—
—
—

¥427,126
31,848(10,393)
(187)

—
—

—
—

—
—

5,298
—

—
3

5,298
3

Balance at March 31, 1998
Net income
Change in consolidated subsidiaries
and companies accounted forby the equity method (Note 1)
Cash dividends paid
Directors’ and statutory auditors’ bonuses
Net change in foreign currency translation
adjustments

86,534—

115,195—

252,337
22,327

(362)
—

(9)
—

453,695
22,327

—
—
—

—
—
—

(6,236)(10,393)
(181)

—
—
—

—
—
—

(6,236)(10,393)
(181)

—

—

—

(7,509)—(7,509)Balance at March 31, 1999
Net income
Cash dividends paid
Directors’ and statutory auditors’ bonuses
Cumulative effect of adopting
tax-effect accounting (Note 1)
Net change in foreign currency translation
adjustments
Other

86,534———

115,195———

257,854
18,421(10,393)(183)(7,871)
—
—
—

(9)
—
—
—

451,703
18,421(10,393)
(183)

—

—

(10,830)——(10,830)

—
—

—
—

—
2

(7,989)———(7,989)2

Balance at March 31, 2000

¥86,534¥115,195¥254,871¥(15,860)¥ (9)¥440,731

Treasury
Stock

Total
Shareholders’EquityThousands of U.S. dollars (Note 3)

Balance at March 31, 1999
Net income
Cash dividends paid
Directors’ and statutory auditors’ bonuses
Cumulative effect of adopting
tax-effect accounting (Note 1)
Net change in foreign currency translation
adjustments
Other$815,205———$1,085,210———$2,429,147
173,537(97,909)(1,724)$ (74,150)
—
—
—

$(85)
—
—
—

$4,255,327
173,537(97,909)(1,724)——(102,025)——(102,025)

—
—

—
—

—
19

(75,261)———(75,261)19

Balance at March 31, 2000

$815,205$1,085,210$2,401,045$(149,411)$(85)$4,151,964

See accompanying notes to consolidated financial statements.

Financial Statements

27

Financial Statements

Consolidated Statements of Cash Flows
Mitsubishi Estate Co., Ltd. and Consolidated Subsidiaries
Year ended March 31, 2000

Millions of yen

Thousand of
U.S. dollars (Note 3)

2000

2000

Operating activities
Income before income taxes and minority interests
Depreciation and amortization
Net gain on sales of property and equipment
Net gain on sales of marketable securities
Unrealized loss on marketable securities
Valuation loss on inventories
Equity in net income of affiliates
Net change in allowancesInterest and dividend income
Interest expense
Increase in notes and accounts receivable
Decrease in inventories
Increase in notes and accounts payable
Other
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities¥36,548
64,167(37,407)(18,012)2,166
32,614(1,689)(2,431)(4,310)40,318(8,267)399
12,0001,792
117,888
3,948(40,706)(8,729)72,401$344,305
604,494(352,398)(169,684)
20,405
307,244(15,911)(22,902)(40,603)379,821(77,880)
3,759
113,048
16,881
1,110,579
37,193(383,476)(82,233)
682,063

Investing activities
Proceeds from sale 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
Purchases of land use rights
Other
Net cash used in investing activities

24,183(2,938)68,866(102,160)
1,950(1,529)(2,581)
2,598(11,611)

227,820(27,678)
648,762(962,412)
18,371(14,405)(24,315)
24,475(109,382)

Financing activities
Increase in short-term borrowings
Repayment of short-term borrowings
Net decrease in commercial paper
Increase in long-term borrowings
Repayment of long-term borrowings
Proceeds from issuance of corporate bonds
Repayment of corporate bonds
Cash dividends paid
Other
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash and cash equivalents due to merger and acquisition
Cash and cash equivalents at end of year (Note 13)

136,572(131,282)(17,000)
77,508(120,770)
62,929(55,619)(10,393)724(57,331)(3,744)(285)
86,695
47¥86,457

1,286,595(1,236,760)(160,151)
730,175(1,137,730)
592,831(523,967)(97,909)
6,821(540,095)(35,271)(2,685)
816,722443$814,480

See accompanying notes to consolidated financial statements.

28

Consolidated Statements of Cash Flows
Mitsubishi Estate Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 1999 and 1998

Millions of yen
1999

1998

¥22,327¥31,848———
63,050(627)
8,364(49,159)(7,715)33,78953,932646(4,783)(11,505)
4,163
(233)
5,509
(2,683)2,881(181)
91,065(1,392)
33,462
(198)
3,423
3,391
(18,476)(187)
78,581

Investing activities
Purchases of property and equipment
Proceeds from sales of property and equipment
Proceeds from sales of affiliated companies’ stock
Decrease (increase) in marketable securities
Increase (decrease) in lease deposits
Decrease in loans to unconsolidated subsidiaries and affiliates
Other
Net cash used in investing activities(148,324)
629
—
4,642
4,811
1,448
1,346
(135,448)(148,023)
51,3608,477(1,253)(7,209)10,851(3,261)(89,058)

Financing activities
Increase in bonds and notes
Increase (decrease) in long-term borrowings
Decrease in commercial paper(Decrease) increase in short-term borrowings
Cash dividends paid
Net cash provided by financing activities
Net (decrease) increase in cash
Increase in cash due to change in scope of consolidation
Cash at beginning of year
Cash at end of year

41,66919,153(15,701)(3,539)(10,393)
31,189(13,194)
6,422
77,297¥70,525

75,072(34,549)(21,360)
21,174(10,393)
29,944
19,467—
57,830¥77,297

Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sales of property and equipment
Gain on sales of affiliated companies’ stock
Loss on write-downs of property and equipment
Depreciation and amortization
Provision for reserve for retirement benefits
Other
Changes in assets and liabilities:
Increase in notes and accounts receivable
Decrease in inventories
Increase in other current assets
Increase in notes and accounts payable(Decrease) increase in accrued income taxes
Other
Payment of directors’ bonuses
Net cash provided by operating activities

Financial Statements

29

Financial Statements

Notes to Consolidated Financial Statements
Mitsubishi Estate Co., Ltd. and Consolidated Subsidiaries
March 31, 2000

1. Significant Accounting Policies
Basis of preparation of financial statements
Mitsubishi Estate Co., Ltd. (“ the Company”) and its domestic subsidiaries maintain their accounting records and prepare their financial statements in accordancewith accounting principles and practices generally accepted and applied in Japan, while its foreign subsidiaries do so in accordance with those of the countriesof their domicile. The accompanying consolidated financial statements havebeen compiled from the consolidated financial statements filed with the Ministerof Finance as required by the Securities and Exchange Law of Japan and havebeen prepared in accordance with accounting principles and practices generally
accepted in Japan, which may differ in some material respects from accounting
principles and practices generally accepted in countries and jurisdictions otherthan Japan. For the purpose of this document, certain reclassifications havebeen made to present the accompanying consolidated financial statements in aformat which is familiar to readers outside Japan.
In addition, the notes to the consolidated financial statements include information which might not be required under accounting principles generally
accepted in Japan but is presented herein as additional information.
Principles of consolidation
Until the year ended March 31, 1998, the consolidated financial statements
included the accounts of the Company and its significant subsidiaries (owned
more than 50%), and investments in certain unconsolidated subsidiaries andsignificant affiliates (owned 20% to 50%) were accounted for by the equity
method. All significant intercompany balances and transactions have been eliminated in consolidation.
Effective April 1, 1998, the Company has initially adopted the new accounting
standards for consolidation in Japan, under which consolidated financial statements include the accounts of the Company and its significant companies
controlled directly or indirectly by the Company, and companies over which theCompany exercises significant influence in terms of their operating and financial
policies have been included in the consolidated financial statements on an equity basis. As a result, retained earnings as of April 1, 1998, decreased by¥6,236 million. The prior years’ financial statements have not been restated.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and assumptions which affect the amounts reported in the financial statements andaccompanying notes. The actual results could differ from those estimates.
Foreign currency translation
The balance sheet accounts of the foreign consolidated subsidiaries andaffiliates are translated into yen at the rates of exchange in effect at thebalance sheet date, except for the components of shareholders’ equity which30

are translated at their historical exchange rates. Revenue and expense accounts are translated at the average rate of exchange in effect during theyear. The resulting foreign currency translation adjustments are accumulated. These were formerly presented separately in the consolidated balance
sheets as a component of assets or liabilities. As a result of a recent change
in the regulations governing the presentation of translation adjustments, theCompany has initially presented foreign currency translation adjustments as
a component of shareholder’s equity as of March 31, 2000, in the accompanying consolidated financial statements, and has restated the previously
reported 1999 and 1998, consolidated financial statements to conform themto the current year’s presentation.
Foreign currency liabilities hedged by currency swap contracts are stated at
the swapped amounts. Other assets and liabilities denominated in foreign currencies are translated at the exchange rate in effect at the respective balance
sheet dates, and the resulting transaction gains or losses are included in determining net income.
Cash flow statements and cash equivalents
In March 1998, the Business Accounting Deliberation Council of Japan issued a
new accounting standard for statements of cash flows, which became effective
the year ended March 31, 2000. Prior to the issuance of this standard, there
existed no accounting standard for the preparation of statements of cash flows
in Japan and, accordingly, the Company had prepared its statements of cash
flows in a format similar to that required under accounting standards generally
accepted in the United States.
The Company adopted the new accounting standard effective the year ended
March 31, 2000, and the accompanying consolidated statement of cash flows
for the year ended March 31, 2000, has been prepared in accordance with thisstandard. However, the consolidated statements of cash flows for the years
ended March 31, 1999 and 1998, have not been restated.
As a result of the adoption of this new accounting standard, the Company
changed its definition of cash equivalents and now considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. Thus, time deposits with a maturity of more than three months
have been excluded and marketable securities with a maturity of three months
or less have been included in cash and cash equivalents. A reconciliation between cash in the balance sheet and cash equivalents at April 1, 1999, andMarch 31, 2000, is presented in Note 13.
Marketable securities and investments in other securities
Marketable securities in current and noncurrent portfolios are valued principallyat the lower of cost or market, cost being determined by the moving averagemethod, and other securities are stated at cost determined by the moving average method.

Inventories
Inventories are mainly stated at cost, determined by the identified cost method,
however, when the fair value is substantially less than cost and the decline in fairvalue is considered to be permanent, inventories are revalued at fair value.

In addition, directors and statutory auditors are customarily entitled to lumpsum payments under the Company’s internal regulations. Accrued severance
benefits for these officers of the Company have been provided at estimatedamounts and included in other noncurrent liabilities.

Property and equipment and depreciation
Domestic property and equipment is stated at cost, less accumulated depreciation. Foreign subsidiaries primarily in the United States have adopted Financial
Accounting Standards Board Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,” which
requires impaired losses to be recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets’ carrying
amount.
Depreciation of property and equipment is calculated principally by the
declining-balance method, except for buildings acquired in Japan subsequent
to March 31, 1998, and property and equipment of foreign subsidiaries on which
depreciation is calculated by the straight-line method, at rates determined basedon 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 repair are charged to income.

Income taxes
In accordance with a new accounting standard for income taxes adopted on
April 1, 1999, deferred tax assets and liabilities have been initially recognized in
the consolidated financial statements for the year ended March 31, 2000, withrespect to the differences between financial reporting and the tax bases of theassets and liabilities, and have been measured using the enacted tax rates andlaws which will be in effect when the differences are expected to reverse.
The effect of this change in method of accounting was to increase total assets by ¥35,625 million ($335,610 thousand), total liabilities by ¥61,743 million($581,658 thousand), and to decrease retained earnings by ¥18,361 million($172,972 thousand) at March 31, 2000, and to decrease net income by ¥7,531
million ($70,947 thousand) for the year ended March 31, 2000. The cumulative
effect of this change as of April 1, 1999, amounted to ¥10,830 million ($102,025
thousand) and has been presented as a reduction of retained earnings at the
beginning of the year.

Leases
Noncancelable leases are primarily accounted for as operating leases (whether
such leases are classified as operating or finance leases) except that lease agreements which stipulate the transfer of ownership of the leased assets to thelessee are accounted for as finance leases.
Intangible and other assets
Intangible and other assets primarily consists of goodwill and land use rights.
Goodwill is stated on the basis of cost and is being amortized over periods ranging from 5 to 25 years on a straight-line basis. Land use rights are stated on thebasis of cost.
Retirement benefits
The Company and most consolidated subsidiaries have noncontributory funded andunfunded defined benefit plans covering most of their employees. Employees of theCompany and its consolidated subsidiaries are entitled under most employment termination circumstances to annuity payments or lump-sum payments, the amountsof which are determined principally by reference to their basic rates of pay, length ofservice, and the conditions under which the termination occurs.
Employees’ retirement allowances are stated at the amount which would be required to be paid if all eligible employees covered by the unfunded benefit plan
voluntarily terminated their employment as of the balance sheet date.
Costs with respect to the funded pension plans are determined actuarially andcharged to income when paid.

Revenue recognition
The statements of income reflect revenue from operations in the following manner:(a) Revenue from the leasing of office space is recognized as rent accrued in theleasing period.
(b) Revenue from sales of condominiums, residential houses and land is recognized when the units are delivered and accepted by the customers.
(c) Revenue from real estate brokerage is recognized when an underlying leaseagreement is in force or the underlying units are delivered.
(d) Revenue from architectural design and supervision is recognized at the dateof completion of each relevant project.
(e) Revenue from construction contracts is recognized at the date of completionof each contract.
(f) Other operating revenue is recognized on an accrual basis.
Net income per share
In computing net income per share assuming no dilution, the average number ofshares outstanding during each year, adjusted to give retroactive effect to thefree distribution of shares, has been used. Net income per share assuming full
dilution has been computed on the assumption that all convertible bonds wereconverted into common stock at the beginning of the year, or at the time of issue
in the case of newly issued bonds, with appropriate adjustments of the related
interest expense, net of taxes, for such convertible bonds. Diluted net income
per share for the years ended March 31, 2000, 1999 and 1998, has not beenpresented since conversion of the outstanding convertible bonds would have
had no dilutive effect.

Financial Statements

31

Financial Statements

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 resolution of the shareholders
at a general meeting held subsequent to the close of such financial year. The
accounts for that year do not, therefore, reflect such appropriations.

Reclassifications
Certain reclassifications have been made to the 1999 and 1998 financial statements in order to conform them to the 2000 presentation.

2. Accounting Changes(1) Effective April 1, 1999, the Company changed its method of accounting for priorservice cost regarding its funded pension plans from expensing these upon payment, to recognizing such costs as expense when actuarially determined. Thischange was made in order to establish a solid financial position for the Company,
considering the amount of the unfunded prior service cost of the pension plan.
The cumulative effect of this change in method of accounting amounted to ¥8,664
million ($81,620 thousand) at April 1, 1999, and was charged to income for theyear ended March 31, 2000, resulting in an increase in operating income of¥1,765 million ($16,627 thousand) and a decrease in income before income
taxes of ¥6,899 million ($64,993 thousand).
(2) Effective April 1, 1999, the Company changed its classification of certain

expenses related to its hotel business in the statement of income and began
including these expenses in cost of revenue from operations instead of in
selling, general and administrative expenses. This change was made toachieve a more accurate presentation of the operating results of the Company and its consolidated subsidiaries as these expenses are directly related
to the revenue from the hotel business operations. The effect of this change
was to increase cost of revenue from operations and to decrease selling,
general and administrative expenses by ¥13,503 million ($127,207 thousand). This change, however, had no effect on income before income taxes
for the year ended March 31, 2000. The prior years’ statements of income
have not been restated.

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¥106.15 = U.S.$1.00, the approximate rate of exchange prevailing on March

31, 2000. The inclusion of such amounts is not intended to imply that yen
amounts have been or could be readily converted, realized or settled in U.S.
dollars at the above or any other rate.

4. Inventories
Inventories at March 31, 2000 and 1999, are summarized as follows:
Millions of yen

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

32

Thousands of
U.S. dollars

2000

1999

2000

¥152,741
38,274
31,63812,644¥235,297¥170,452
40,82135,21913,246¥259,738$1,438,917
360,565
298,050
119,114$2,216,646

5. Marketable Securities and Investments in Other Securities
Marketable securities and investments in other securities at March 31, 2000 and 1999, consisted of the following:

Marketable securities:
Listed equity securities
Public bonds, corporate debentures and other
Total
Investment in other securities:
Unlisted equity securities
Public bonds, corporate debentures and other
Total

Millions of yen

Thousands of
U.S. dollars

2000

1999

2000

¥69,694
17,891¥87,585¥73,201
24,034¥97,235$656,561
168,545$825,106¥ 9,444171¥ 9,615¥10,351
112¥10,463$ 88,968
1,611$ 90,579

Millions of yen

Thousands of
U.S. dollars

6. Other Investments
Other investments at March 31, 2000 and 1999, were as follows:

Lease deposits
Long-term prepaid expenses and other
Total

2000

1999

2000

¥ 75,382
49,938¥125,320¥ 76,341
51,166¥127,507$ 710,146
470,447$1,180,593

Millions of yen

Thousands of
U.S. dollars

7. Short-Term Borrowings and Long-Term Debt
At March 31, 2000 and 1999, short-term borrowings and current portion of long-term debt consisted of the following:

Loans, principally from banks
Commercial paper
Current portion of long-term debt
Total

2000

1999

2000

¥ 68,151
1,536
113,939¥183,626¥ 73,621
18,736
126,029¥218,386$ 642,026
14,4701,073,377$1,729,873

The annual interest rates applicable to short-term borrowings outstanding at March 31, 2000 and 1999, ranged principally from 0.382% to 6.675% and from
0.444% to 6.340%, respectively.

33

Financial Statements

At March 31, 2000 and 1999, long-term debt consisted of the following:
Millions of yen

1.5% convertible bonds due 2003
5.6% mortgage bonds due 1999
4.9% mortgage bonds due 2000
5.6% mortgage bonds due 2004
5.275% mortgage bonds due 2005
4.8% mortgage bonds due 2005
3.95% unsecured bonds due 1999
6% unsecured bonds due 1999
0.85% unsecured bonds due 1999
0.84% unsecured bonds due 1999
0.8% unsecured bonds due 1999
1.2% unsecured bonds due 2000
3.85% unsecured bonds due 2000
1.1% unsecured bonds due 2001
8.625% unsecured bonds due 2001
4.4% unsecured bonds due 2001
2.7% unsecured bonds due 2001
2.125% unsecured bonds due 2002
1.5% unsecured bonds due 2002
2.95% unsecured bonds due 2002
4% unsecured bonds due 2002
1.675% unsecured bonds due 2002
2.55% unsecured bonds due 2003
2.35% unsecured bonds due 2003
2.05% unsecured bonds due 2003
1.775% unsecured bonds due 2003
1.7% unsecured bonds due 2003
3.1% unsecured bonds due 2003
3.05% unsecured bonds due 2003
2.55% unsecured bonds due 2004
1.7% unsecured bonds due 2004
0.9% unsecured bonds due 2004
2.125% unsecured bonds due 2005
3.4% unsecured bonds due 2006
3% unsecured bonds due 2006
2.21% unsecured bonds due 2006
1.325% unsecured bonds due 2006

34

Thousands of
U.S. dollars

2000

1999

2000

¥92,682—
35,00050,00050,00050,000——————35,000—28,00010,0005,000
10,00010,00010,00020,00010,00010,00020,00020,00010,00010,00010,00015,00010,00010,00010,00010,00010,00010,00010,00010,000¥92,682
3,000
35,00050,00050,00050,00010,00030,000
1,897
4,316
897
3,006
35,0002,694
28,00010,0005,000
10,00010,00010,00020,00010,00010,00020,00020,00010,00010,00010,00015,00010,00010,000—10,00010,00010,00010,000—$873,123—
329,722471,032
471,032
471,032——————
329,722—
263,778
94,206
47,104
94,206
94,206
94,206
188,414
94,206
94,206
188,414
188,414
94,206
94,206
94,206
141,307
94,206
94,206
94,206
94,206
94,206
94,206
94,206
94,206

Millions of yen
2000

2.975% unsecured bonds due 2007
3.1% unsecured bonds due 2008
2.575% unsecured bonds due 2008
2.525% unsecured bonds due 2008
3.075% unsecured bonds due 2009
1.82% unsecured bonds due 2009
2% unsecured bonds due 2009
1.985% unsecured bonds due 2009
3.275% unsecured bonds due 2012
3.125% unsecured bonds due 20173% unsecured bonds due 2018
7.37% unsecured bonds due 2008 (payable in U.S. dollars)
6.2% unsecured bonds due 2001 (payable in U.S. dollars)
6.95% unsecured bonds due 2003 (payable in U.S. dollars)
0.86% unsecured bonds due 2000 (payable in U.S. dollars)
0.4% unsecured bonds due 2000 (payable in U.S. dollars)
0.3% unsecured bonds due 2000 (payable in U.S. dollars)
0.2% unsecured bonds due 2000 (payable in U.S. dollars)
0.2% unsecured bonds due 2001 (payable in U.S. dollars)
Floating rate bonds due 2001 (payable in U.S. dollars)
Floating rate bonds due 2009 (payable in U.S. dollars)
Loans from banks and insurance companies:
SecuredUnsecured
Loans from tenants
Total
Less current portion
Total long-term debt¥

30,00010,00010,00010,00010,00010,00010,00010,00010,00010,00010,000
4,970
6,660
1,024
882
2,590
1,718
1,751
3,922
2,232
970

98,504
304,16467
1,150,136(113,939)¥1,036,197

The agreement under which the 1.5% convertible bonds due 2003 were issued
provides for conversion into shares of common stock at the current conversion priceper share of ¥2,600 ($24.49) subject to adjustments for certain events including free
distributions of shares and stock dividends declared as a result of stock splits.
The aggregate annual maturities of long-term debt subsequent to March 31,
2000, are summarized as follows:Year ending March 31:

Millions of yen

Thousands of
U.S. dollars

2001
2002
2003
2004
2005 and thereafter
Total¥ 113,939
154,242
201,733
145,394534,828¥1,150,136$ 1,073,377
1,453,057
1,900,452
1,369,703
5,038,418$10,835,007

Thousands of
U.S. dollars

1999

2000

30,00010,00010,00010,00010,000———10,00010,00010,000
—
7,525
1,157
—
—
—
—
—
2,522
—

$ 282,619
94,206
94,206
94,206
94,206
94,206
94,206
94,206
94,206
94,206
94,20646,82162,742
9,647
8,309
24,40016,185
16,49636,94821,027
9,138

112,728
332,91699
1,183,439(126,029)¥1,057,410

927,970
2,865,417
632
10,835,007(1,073,377)$9,761,630¥

The assets pledged as collateral for short-term borrowings of ¥10,570 million ($99,576 thousand), long-term debt of ¥98,504 million ($927,970 thousand)and other noncurrent liabilities of ¥6,000 million ($56,524 thousand) at March
31, 2000, were as follows:

Millions of yen

Cash and cash equivalents
Other investments
Land
Buildings
Machinery and equipment
Other assets
Total

¥

20
378
22,110145,898
6,755
11¥175,172

Thousands of
U.S. dollars

$

189
3,561
208,290
1,374,451
63,636104$1,650,231

Financial Statements

35

Financial Statements

Additionally, all assets of the Company are subject to the terms of an enterprise mortgage for mortgage bonds which amounted to ¥185 billion ($1,743
million) at March 31, 2000.
As is customary in Japan, collateral must be given if requested by lending
institutions under certain circumstances, and banks, in general, have the right tooffset cash deposited with them against any debt or obligations payable to thebank which become due in 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. 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 in statutory rates of approximately 42% for2000, 48% for 1999 and 51% for 1998. Income taxes of the foreign consolidated subsidiaries are based generally on the tax rates applicable in their countries
of incorporation. The effective tax rates reflected in the accompanying consolidated statements of income for the years ended March 31, 1999 and 1998,
differ from the statutory rates primarily because of the effect of timing differences in the recognition of certain income and expenses for tax and financial
reporting purposes and the effects of permanently nondeductible expenses.

The effective tax rate reflected in the consolidated statement of income forthe year ended March 31, 2000, differs from the statutory tax rate for the following reasons:
2000

Statutory tax rate
Increase (decrease) in income taxes resulting from:
Recognition of valuation allowance
Higher tax rates applied to foreign subsidiaries
Other
Effective tax rate

42.05%
1.32
1.78(0.23)
44.92%The significant components of deferred tax assets and liabilities as of March 31, 2000, were as follows:
Millions of yen

Thousands of
U.S. dollars

Valuation allowance
Total deferred tax assets¥ 50,975
11,605
13,714
9,823
8,213
94,330(28,293)
66,037$ 480,217
109,326
129,194
92,53977,372888,648(266,538)
622,110Deferred tax liabilities:
Reserves under Special Taxation Measures Law
Unrealized gain on properties and equipment
Other
Total deferred tax liabilities
Net deferred tax liabilities(51,419)(35,249)(5,487)(92,155)¥(26,118)(484,399)(332,068)(51,691)(868,158)$(246,048)

Deferred tax assets:
Net operating loss carryforwards
Accrued retirement allowances and pension costs
Valuation loss on inventories
Unrealized loss on properties and equipment
Other

9. Legal Reserve and Capital Surplus
In accordance with the Commercial Code of Japan, the Company has provided a legal reserve as an appropriation of retained earnings. The Codeprovides that neither capital surplus nor the legal reserve is available fordividends, but both may be used to reduce or eliminate a deficit by resolu-

36tion of the shareholders or may be transferred to common stock by resolution of the Board of Directors. Retained earnings in the accompanying financial
statements include the legal reserve of ¥21,633 million ($203,797 thousand) as of both March 31, 2000 and 1999.

10. Leases
The following pro forma amounts represent the acquisition costs, accumulated
depreciation and net book value of the leased assets as of March 31, 2000 and
1999, 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 operating leases:

Millions of yen

Thousands of U.S. dollars

Acquisition
costs

Accumulated
depreciation

Net bookvalue

Acquisition
costs

Accumulated
depreciation

Net book
value

March 31, 2000
Buildings and structures
Machinery and equipment
Total¥1,3607,504¥8,864¥ 887
4,211¥5,098¥ 473
3,293¥3,766$12,81270,692$83,504$ 8,356
39,670$48,026$ 4,456
31,022$35,478

March 31, 1999
Buildings and structures
Machinery and equipment
Total¥ 1,345
8,895¥10,240

¥ 824
5,414
¥6,238¥ 521
3,481¥4,002$12,671
83,796$96,467$ 7,763
51,003$58,766$ 4,908
32,793$37,701

Lease payments relating to finance leases accounted for as operating leases
in the accompanying consolidated financial statements amounted to ¥1,750
million ($16,486 thousand), ¥1,786 million and ¥1,687 million for the years
ended March 31, 2000, 1999 and 1998, respectively. If finance lease accounting had been adopted, depreciation of the leased assets over the respective
lease terms would have amounted to ¥1,750 million ($16,486 thousand), ¥1,786

million and ¥1,687 million for the years ended March 31, 2000, 1999 and 1998,
respectively.
Future minimum lease payments subsequent to March 31, 2000, on noncancelable operating leases and finance leases accounted for as operating leases
are summarized as follows:

Millions of yen

Year ending March 31:
2001
2002 and thereafter
Total

The Company and its consolidated subsidiaries lease office buildings andcommercial properties and earn lease income. Future minimum lease income
subsequent to March 31, 2000, for noncancelable operating leases are summarized as follows:

Thousands of U.S. dollars

FinanceleasesOperatingleasesFinanceleasesOperatingleases¥1,6172,149¥3,766¥ 2,314
15,703¥18,017$15,233
20,245$35,478$ 21,800
147,932$169,732

Year ending March 31:
2001
2002 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars¥ 21,450
261,769¥283,219$ 202,073
2,466,029$2,668,102

Financial Statements

37

Financial Statements

11. Contingent Liabilities
At March 31, 2000, the Company and its consolidated subsidiaries had thefollowing contingent liabilities:

Millions of yen

Guarantees of affiliates’ loans
from banks
Guarantees of employees’ housing
loans from banks and others
Other
Total

In addition to the above, at March 31, 2000, the Company was committed toprovide guarantees of the following bonds which were transferred to banks under debt assumption agreements:

Thousands of
U.S. dollars¥ 480$ 4,522

1,702
944¥3,126

16,034
8,893$29,449

Millions of yen

Thousands of
U.S. dollars

Date of agreement¥30,000$282,619

Sept. 20, 1994

50,000471,032

Feb. 28, 1997

20,000188,413

Feb. 28, 1997

7.05% unsecured
bonds due 2001
6.0% unsecured
bonds due 2002
6.0% unsecured
bonds due 2001

12. Other Income (Expenses)
The components of “Other, net” in “Other income (expenses)” for each of the three years in the period ended March 31, 2000, were as follows:
Millions of yen

Equity in net income of unconsolidated subsidiaries and affiliates
Net realized gain on sales of property and equipment
Valuation loss on inventories
Valuation loss on property and equipment
Net realized gain on sales of marketable securities
Unrealized loss on marketable securities
Loss on investment in affiliates
Amortization of prior service cost of pension plan
Other
Total

2000

1999

¥ 1,689
37,407(32,614)—18,012(2,166)(7,015)(8,664)(2,294)¥ 4,355

¥ 512
—
—
—
2,870
—
—
—
(758)
¥2,624

Thousands of
U.S. dollars

1998

2000

—
49,159—(33,789)
14,664———(6,496)¥ 23,538$ 15,911
352,398(307,244)—
169,684(20,405)(66,085)(81,620)(21,612)$ 41,027

Millions of yen

Thousands of
U.S. dollars

March 31, 2000

April 1,1999

March 31, 2000

¥74,582(887)
12,762¥86,457¥70,525(1,711)
17,881¥86,695$702,609(8,356)120,227$814,480¥

13. Supplemental Cash Flow Information
The following table represents a reconciliation of cash and cash equivalents as of April 1, 1999, and March 31, 2000:

Cash
Time deposits with a maturity of more than three months
Marketable securities with a maturity of three months or less
Cash and cash equivalents3814. Fair Value of Marketable Securities
The carrying amount and related fair value of current and noncurrent marketable securities at March 31, 2000, were as follows:
Millions of yen

Current:
Equity securities
Bonds
Noncurrent:
Bonds
Total

Thousands of U.S. dollars

Carrying
amountEstimated
fair value

Net unrealized
gain

Carrying
amountEstimated
fair value

Net unrealized
gain¥69,694
3,200
72,894¥255,277
3,293
258,570¥185,582
93
185,675$656,561
30,146
686,707$2,404,870
31,022
2,435,892$1,748,300
876$1,749,176

67¥72,96170¥258,640

3¥185,678

632$687,339

660$2,436,552

28$1,749,204

15. Derivative Transactions
The Company utilizes derivative financial instruments for the purpose of hedging
its exposure to adverse fluctuations in foreign currency exchange rates and interest rates, but does not enter into such transactions for speculation or trading
purposes.
The Company is exposed to credit loss in the event of nonperformance by thecounterparties to the derivative financial instruments, but any such loss would
not be material because the Company enters into transactions only with finan-cial institutions with high credit ratings. The notional amounts of the derivative
financial instruments do not necessarily represent the amounts exchanged by
the parties and, therefore, are not a direct measure of the Company’s risk exposure in connection with derivative financial instruments.
Summarized below are the notional amounts and the estimated fair value ofthe interest-related derivative transactions outstanding at March 31, 2000:

Millions of yen

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

Notional
amount¥11,101
11,0245,000¥27,125

Thousands of U.S. dollars

Fair value

Unrealizedgain(loss)

Notional
amountFair value

Unrealizedgain(loss)

¥ 73
(41)
(31)
¥ 1

¥ 73
(41)
(31)
¥ 1

$104,579
103,853
47,103$255,535

$ 688
(386)
(292)
$ 10

$ 688
(386)
(292)
$ 10

16. Segment Information
Business segment
The Company and its consolidated subsidiaries are primarily engaged in the realestate business mainly in Japan and the United States in six segments: (1) leasing
and management of office buildings and commercial properties; (2) sales ofcondominiums, residential houses and land; (3) real estate brokerage; (4) architectural design and supervision; (5) construction; and (6) other business.

Financial Statements

39

Financial Statements

The business segment information of the Company and its consolidated subsidiaries for the years ended March 31, 2000 and 1999, is summarized as follows:
Millions of yen
2000
Eliminations
or corporate Consolidated

Leasing andmanagement

Sales

Brokerage

Architectural

Construction

Revenue and operating income
Revenue from:
External customers
Intersegment or transfers
Total revenue
Operating expense
Operating income (loss)¥ 287,520
6,391
293,911211,183¥ 82,728¥ 90,314
412
90,72692,397¥ (1,671)¥75,067
2,891
77,95872,838¥ 5,120¥15,632
2,048
17,680
16,245¥ 1,435¥52,498
3,353
55,85154,280¥ 1,571¥ 53,364 ¥ 574,396
4,212
19,30757,576
593,703
59,890506,834¥ (2,314) ¥ 86,869¥

Total assets, depreciation,and capital expenditures
AssetsDepreciation
Capital expenditures¥1,689,439
56,661
105,316¥239,333
305
518¥58,074
1,123
2,250

¥12,1376
80¥26,317126
244¥103,532
4,057
1,957

¥156,936
423
1,044

Other

Total

¥2,128,834
62,279110,368— ¥ 574,396(19,307)—(19,307)574,396(640)
506,195¥ (18,667) ¥ 68,201¥2,285,771
62,703
111,412

Thousands of U.S. dollars
2000
Eliminations
or corporate Consolidated

Leasing andmanagement

Sales

Brokerage

Architectural

Construction

Revenue and operating income
Revenue from:
External customers
Intersegment or transfers
Total revenue
Operating expense
Operating income (loss)$ 2,708,620
60,2072,768,827
1,989,477$ 779,350$ 850,814
3,881
854,695
870,437$ (15,742)$707,179
27,235
734,414686,180$ 48,234$147,263
19,294
166,557
153,039$ 13,518$494,564
31,588526,152
511,352$ 14,800$502,723 $ 5,411,173 $— $5,411,173
39,670181,884(181,884)—
542,3935,593,057(181,884) 5,411,173
564,182
4,774,696(6,029) 4,768,677$ (21,799) $ 818,361 $ (175,855) $ 642,496

Total assets, depreciation,and capital expenditures
AssetsDepreciation
Capital expenditures$15,915,582
533,782
992,143$2,254,668
2,873
4,880

$547,094
10,57921,196$114,338
57
754$247,923
1,187
2,299

$975,337 $20,054,960
38,220586,707
18,436
1,039,736

40

Other

Total

$1,478,436 $21,533,405
3,985
590,702
9,835 1,049,571

Millions of yen

Revenue and operating income
Revenue from:
External customers
Intersegment or transfers
Total revenue
Operating expense
Operating income (loss)
Total assets, depreciation, andcapital expenditures
AssetsDepreciation
Capital expenditures

1999
Eliminations
or corporate Consolidated

Leasing andmanagement

Sales

Architectural

Construction¥ 296,480
6,594
303,074
215,233¥ 87,841¥155,408
590
155,998
151,532¥ 4,466¥11,822629
12,451
12,055¥ 396¥ 47,467
1,213
48,68049,338¥ (658)¥54,082 ¥ 565,259
3,043
12,06957,125577,328
61,921490,081¥ (4,796) ¥ 87,247¥¥1,662,684
52,447145,115¥309,239
1,447
3,220

¥13,035
6
10¥20,943
328
131¥91,491
3,745
1,363

¥ 178,510420
484

Geographical segments
The Company and its consolidated subsidiaries operate primarily in Japan, theUnited States and certain other areas. The geographical segment information of

Other

Total

¥2,097,392
57,976
149,842— ¥ 565,259(12,069)—(12,069)
565,259
6,350
496,431¥ (18,419) ¥ 68,828¥2,275,902
58,397150,326

the Company and its consolidated subsidiaries for the years ended March 31,
2000 and 1999, is summarized as follows:
Millions of yen
2000
Eliminations
or corporate

Japan

United States

Other

Total

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

Consolidated¥ 466,192
961
467,153
395,023¥ 72,130¥ 92,889260
93,14979,846¥ 13,303¥15,314210
15,524
14,225¥ 1,299¥ 574,396
1,430
575,826
489,093¥ 86,733¥—(1,430)(1,430)17,102¥ (18,532)¥ 574,396—
574,396506,195¥ 68,201

Total assets¥1,870,283¥218,721¥17,957¥2,106,962¥178,808¥2,285,771

Thousands of U.S. dollars
2000
Eliminations
or corporate

Consolidated

Japan

United States

Other

Total

Revenue and operating income
Revenue from:
External customers
Intersegment or transfers
Total revenue
Operating expenses
Operating income$ 4,391,823
9,053
4,400,876
3,721,366$ 679,510$ 875,073
2,449
875,522752,200$ 125,322$144,268
1,978
146,246
134,009$ 12,237$ 5,411,173
13,471
5,424,644
4,607,564$ 817,080$—(13,471)(13,471)
161,113$ (174,584)$ 5,411,173—
5,411,173
4,768,677$ 642,496

Total assets$17,619,246$2,060,490$169,166$19,848,912$1,684,484$21,533,405

Financial Statements

41

Financial Statements

Millions of yen
1999
Eliminations
or corporate

Japan

United States

Other

Total

Revenue and operating income
Revenue from:
External customers
Intersegment or transfers
Total revenue
Operating expenses
Operating income¥ 463,207
21
463,228
391,400¥ 71,828¥ 96,639
242
96,881
82,704¥ 14,177¥ 5,411
22
5,433
5,441
¥
(8)

¥ 565,259
284
565,543
479,546¥ 85,997

¥

—
(284)
(284)
16,885¥ (17,169)¥ 565,259—
565,259
496,431¥ 68,828

Total assets¥1,838,826¥223,955¥18,124¥2,080,906¥194,996¥2,275,902

Notes to segment information:(1) Business segments are divided into business categories by the same criteria
applied for internal control purposes. In 2000, the Company divided thesegment of “Sales” into two separate segments, “Sales” and “Brokerage,”principally in order to reflect the expansion of the “Brokerage” business.
(2) As discussed in Note 2, effective April 1, 1999, the Company changed its
method of accounting for prior service cost under its pension plan. The
effect of this change in method of accounting was to increase “Eliminations
or corporate” and decrease operating income by ¥1,764 million ($16,618
thousand) for the year ended March 31, 2000.
(3) Unallocatable operating expenses included under “Eliminations or corporate”
for the years ended March 31, 2000 and 1999, amounted to ¥18,025 million ($169,807 thousand) and ¥18,666 million, respectively, and consistedof operating expenses incurred in the Administration Department of the Company. Corporate assets included under “Eliminations or corporate” for theyears ended March 31, 2000 and 1999, amounted to ¥193,692 million($1,824,701 thousand) and ¥202,915 million, respectively, and consisted
principally of cash, marketable securities, investments in other securities
and deferred income taxes of the Company.
(4) As discussed in Note 1, the Company adopted tax-effect accounting for the
first time for the year ended March 31, 2000. The effect of this adoption was
to increase total assets by ¥464 million ($4,371 thousand) under “Leasing
and management,” by ¥24 million ($226 thousand) under “Sales,” by ¥157
million ($1,479 thousand) under “Architectural,” by ¥158 million ($1,488
thousand) under “Other,” and by ¥34,820 million ($328,026 thousand) under “Eliminations or corporate” for the business segment information. For
the geographical segment information, the effect of this adoption was toincrease total assets by ¥805 million ($7,584 thousand) under “Japan” andby ¥34,820 million ($328,026 thousand) under “Elimination or corporate.”

42

Consolidated

Overseas revenue
The following table represents overseas revenue earned by the Company’s consolidated subsidiaries in foreign countries during the years ended March 31,
2000 and 1999.
Millions of yen

Overseas revenue
Overseas revenue
Consolidated revenue% of consolidated revenue

United States

Other areas¥98,963¥15,343

17.2%

2.7%

2000
Total

¥114,306¥574,396
19.9%

Thousands of U.S. dollars

Overseas revenue
Overseas revenue
Consolidated revenue% of consolidated revenue$932,294
17.2%$144,541$1,076,835$5,411,173
2.7%
19.9%
Millions of yen

Overseas revenue
Overseas revenue
Consolidated revenue% of consolidated revenue

United States

Other areas¥96,178¥5,860

17.0%

1.1%

1999
Total

¥102,038¥565,259
18.1%

17. Subsequent Events
The Company issued a ¥10,000 million ($94.2 million) 2.5% unsecured corporatebond which is due in 2020 and a ¥10,000 million ($94.2 million) 1.9% unsecured
corporate bond which is due in 2010 on May 15, 2000, and June 14, 2000, respectively. The Company intends to use the proceeds from the issuance of these corporate
bonds for repayment of borrowings and the redemption of other corporate bonds,
which fall due in the year ending March 31, 2001.

Report of Independent Public Accountantson the Consolidated Financial Statements

To The Board of Directors and Shareholders of
Mitsubishi Estate Co., Ltd.

We have audited the consolidated balance sheets of Mitsubishi Estate Co., Ltd. and consolidated subsidiaries as of March 31, 2000 and 1999, andthe related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2000,
all expressed in yen. Our audits were made in accordance with auditing standards, procedures and practices generally accepted and applied inJapan and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in thecircumstances.
In our opinion, the accompanying consolidated financial statements, expressed in yen, present fairly the consolidated financial position of Mitsubishi
Estate Co., Ltd. and consolidated subsidiaries at March 31, 2000 and 1999, and the consolidated results of their operations and their cash flows foreach of the three years in the period ended March 31, 2000, in conformity with accounting principles and practices generally accepted in Japanconsistently applied during the period except for the changes, with which we concur, in the method of accounting for prior service cost of the pension
plan and in the classification of certain expenses related to the hotel business in the statement of income as described in Note 2 to the consolidated
financial statements, and in the grouping of business segments separately presenting brokerage segment from sales segment as described in Notes
to segment information in Note 16 to the consolidated financial statements.
As described in Note 1 to the consolidated financial statements, Mitsubishi Estate Co., Ltd. adopted new accounting standards for tax-effectaccounting in the preparation of its consolidated financial statements for the year ended March 31, 2000.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2000, are presented solely
for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been madeon the basis described in Note 3 to the consolidated financial statements.

Century Ota Showa & Co.
Tokyo, Japan
June 29, 2000
See Note 1 to the consolidated financial statements which explains the basis of preparation of the consolidated financial statements of Mitsubishi
Estate Co., Ltd. and consolidated subsidiaries under Japanese accounting principles and practices.

Financial Statements

43

Mitsubishi Estate Corporate Data

Mitsubishi Estate Corporate Data
Directors and Statutory Auditors Corporate Information
President
Takeshi Fukuzawa*
Executive Vice President
Shigeru Takagi*
Senior Managing Directors
Hiroshi Baba*
Hirofumi Okuizumi*
Katsuhisa Shimada*
Takayuki Hara*

Eiji Tan*
Shigeo Shimizu*Managing Directors
Kaoru Kohno
Atsushi Morimoto

Yutaka Nakamura
Mikio Aoki
Terutake Miyamoto
Directors
Satoru Kishi
Tadataka Uchida

Taketo Yamazaki
Masahiro Yamanaka
Kenji Ohnishi
Iwao Makino
Toshiaki Hara
Satoshi Oyama
Kazuo Odagawa
Yasuto Suzuki
Hajime Ito
Hiroharu Koinuma
Hirotaka Kanki
Keiji Kimura
Statutory Auditors
Yasuo Satake
Yasuhiko Watanabe
Terumichi Tsuchida
Hiroshi Hayashi*Representative Director(as of June 29, 2000)

Head Office:Tokyo Building, 7-3, Marunouchi 2-chome, Chiyoda-ku,
Tokyo 100-8330, Japan
Telex: MECDIA J22174
Internet Home Page: http://www.mec.co.jp
Phone: (03) 3287-5100
Date of Establishment:
May 7, 1937
Paid-in Capital:¥86,534 million
Number of Shares of Common Stock Issued:
1,299,185,054 shares
Number of Shareholders:
99,879 (excluding shareholders with less than 1,000 shares)
Major Shareholders:
The Bank of Tokyo-Mitsubishi, Limited
The Meiji Mutual Life Insurance Company
Taisei Corporation
The Mitsubishi Trust and Banking Corporation
The Tokio Marine and Fire Insurance Co., Ltd.
The Mitsubishi Trust and Banking Corporation (Trust Account)
The Sumitomo Trust & Banking Co., Ltd. (Trust Account)
Shimizu Corporation
Obayashi Corporation
Takenaka Corporation
Major Consolidated Subsidiaries:
Mitsubishi Real Estate Services Co., Ltd.
Mitsubishi Estate Home Co., Ltd.
Yokohama Royal Park Hotel Co., Ltd.
Aqua City Co., Ltd.
Marunouchi Heat Supply Co., Ltd.
Yokohama Sky Building Co., Ltd.
Royal Park Hotel Co., Ltd.
Rockefeller Group, Inc.
Stock Exchange Listings:
Tokyo Stock Exchange and other major Japanese stock exchanges
Transfer Agent and Registrar:
The Mitsubishi Trust and Banking Corporation
11-1, Nagatacho 2-chome, Chiyoda-ku, Tokyo 100-8212, Japan
Auditor:Century Ota Showa & Co.
(as of March 31, 2000)

44% of total
4.76
4.50
3.72
3.44
3.29
2.52
2.43
2.39
2.31
2.17

Organization•Building Business Division•Meeting of Shareholders•Board of Directors•Chairman of the Board•Residential Development Division•President•Executive Committee•Architectural Design& Engineering Division•Board of Statutory Auditors•Statutory Auditor•Office of Statutory Auditors•Urban Development& Investment Management Division•International Business Division•Hotel Business Division•Recreational Facility Division•Corporate Planning Division•Corporate Administration Division(as of April 1, 2000)•Building Business Promotion Department•Regional Business Planning & Promotion Office•Building Management Department•Marunouchi Area Building Management Office I•Marunouchi Area Building Management Office II•Marunouchi Area Building Management Office III•Yurakucho Area Building Management Office I•Yurakucho Area Building Management Office II•Otemachi Area Building Management Office I•Otemachi Area Building Management Office II•Aoyama Area Building Management Office•Metropolitan Area Building Management Office•Building Leasing Department•Shopping Center Business Department•Marunouchi Development Promotion Department•City Planning Project Office•Affiliated Companies•Residential Development Promotion Department•Condominium Development Department•Master-Planned Development Department•PARTNER System Department•Residential Planning & Marketing Department•Affiliated Companies•Architectural Design & Engineering Promotion Department•Architectural Technology Promotion Department•Architectural Design Department I•Architectural Design Department II•Architectural Design Department III•Residential Architectural Design & Engineering Department•Structural Engineering Department•Environmental, Mechanical & Electrical Engineering Department•Construction Administration Department•Architectural Renewal Design & Engineering Department•Civil Engineering & Landscape Design Department•Marunouchi Design Department•Affiliated Companies•Urban Development & Investment Management Department•Appraisal Service Office•International Business Department•Affiliated Companies•Hotel Business Department•Affiliated Companies•Recreational Facility Office•Affiliated Companies•Affiliated Companies•Corporate Planning Department•Affiliated Companies Business Planning Department•Personnel Planning Department•Finance & Accounting Department•Corporate Communications Department•Corporate Philanthropy & Environment Affairs Promotion Office•Affiliated Companies•General Affairs Department•Purchasing Management Office•Corporate Ethics Office•Sapporo Branch•Tohoku Branch•Yokohama Branch•Nagoya Branch•Osaka Branch•Chugoku Branch•Kyushu Branch•Customer Service Office•Chiba Liaison Office•Urban Development
Management Office•Architectural Energy
Consulting Office•Construction
Management Office•Secretary Office

Mitsubishi Estate Corporate Data

45

Mitsubishi Estate Group

Mitsubishi Estate Group

Building Business
Building Leasing Business

Building Management Business

Parking Business

Ryowa Fudosan Co., Ltd.
Aqua City Co., Ltd.
Hokuriku Estate Co., Ltd.
Yokohama Sky Building Co., Ltd.
Tokyo Kotsu Kaikan Co., Ltd.
IMS Co., Ltd.
Keiyo Tochi Kaihatsu Co., Ltd.
Tokyo Ryutsu Center Inc.
Sunshine City Corporation(4 other companies)

Mitsubishi Estate Building
Management Yokohama Co., Ltd.
Ryoei Building Management Co., Ltd.
MEC Building Management Co., Ltd.
Marunouchi Tatemono Kanri Co., Ltd.
Chiyoda Tatemono Kanri Co., Ltd.
Hokuryo City Service Co., Ltd.
Hibiya City Co., Ltd.
Yuden Building Kanri Co., Ltd.
O.A.P. Management Co., Ltd.
(5 other companies)

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

Marunouchi Heat Supply Co., Ltd.
O.A.P. D.H.C. Supply Co., Ltd.
Minato Mirai 21 D.H.C Co., Ltd.
Ikebukuro D.H.C. Co., Ltd.
(1 other company)

Recreational Facility

Architectural Design & Engineering

Higashinihon Kaihatsu Co., Ltd.
MEC Urban Resort Tohoku Co., Ltd.
Fuji International Speedway Co., Ltd.
Liv Sports Co., Ltd.
(6 other companies)

MEC Design International Corporation(1 other company)

Custom-Built Housing
Mitsubishi Estate Home Co., Ltd.
Mitsubishi Estate Housing
Component Co., Ltd.

District Heating
and Cooling Business

Mitsubishi EstateCo., Ltd.

International Business
Rockefeller Group, Inc. (RGI)( 151 other companies
13 other companies)

Hotel Business
OthersRyoei Kanko Development Co., Ltd.
Tohoku Royal Park Hotel Co., Ltd.
Yokohama Royal Park Hotel Co., Ltd.
Meiryo Dai-ichi Kaihatsu Co., Ltd.
Royal Park Hotel Co., Ltd.
Okayama International Hotel Co., Ltd.
(1 other company)

MEC Finance Co., Ltd.
MEC Information Development Co., Ltd.
Ryomei Royal Life Co., Ltd.
(7 other companies)

Residential Development
Izumi Park Town Service Co., Ltd.
Daiya Community Co., Ltd.

Mitsubishi Real Estate Services Co., Ltd.
Ryoei Life Service Co., Ltd.

Otaru Toshi Kaihatsu Kosha Co., Ltd.
(2 other companies)

Consolidated Subsidiaries
Equity-method Affiliates

46

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