住友不動産AR01-表紙 01.9.27 10:38 AM ページ 2 (2,1)

REACHINGFOR

NEW

HEIGHTS
Annual Report 2001

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ProfileSumitomo Realty & Development Co., Ltd., a core member of theSumitomo Group, is one of Japan’s premier real estate companies.
The Company is well established as a comprehensive developer andsupplier of high-quality office buildings and condominiums inurban areas.
The Company is also engaged in a broad array of businesses,
including real estate brokerage, housing construction, home
remodeling and building management services. While continuing tocreate comfortable working and living environments that contribute to a higher quality of life, the Company is poised to begin a
new phase of growth in the 21st century.

Contents

Five-Year Financial Highlights .................................................... 1
To Our Shareholders .................................................................. 2
Our History & Business Expansion .............................................. 4
Review of Operations ................................................................ 6
Financial Section .................................................................... 13
Board of Directors and Auditors ................................................ 34
Corporate Data ........................................................................ 34
Sumitomo Realty & Development Group ...................................... 35

Cautionary Statements with Respect to Forward-Looking Statements

Statements made in this annual report with respect to plans, targets and future
performance that are not historical fact are forward-looking statements. Thesestatements are based on management’s assumptions and beliefs in light of theinformation currently available to it. Sumitomo Realty & Development Co.,
Ltd. cautions that a number of factors could cause actual results to differ
materially from those discussed in the forward-looking statements. Suchfactors include but are not limited to macroeconomic conditions, supply anddemand in the real estate market and interest rate trends.

Su住友不動産AR01-本文 01.9.27 10:34 AM ページ 1

Five-Year Financial Highlights
Sumitomo Realty & Development Co., Ltd.

Thousands of
U.S. dollars

Millions of yen
2001

Consolidated:
Revenue from operations¥ 459,245
Revenue from leasing business
163,047
Revenue from sales business
149,196
Revenue from construction business
104,549
Revenue from brokerage business
34,702
Revenue from other business
7,751
Operating profit
75,218
Ordinary profit
38,509Net income (loss)(18,008)
Total assets
1,903,529
Total shareholders’ equity
193,442

2000

1999

1998

1997

2001

¥ 421,587
151,268
150,483
80,064
31,6338,139
70,54827,06914,737
1,916,343
211,140¥ 389,136
150,976
137,735
61,191
27,82911,40556,516
21,688
10,983
1,827,146
198,498¥ 364,858
143,676
125,327
56,33927,421
12,09545,412
4,985(66,048)
1,849,953
174,528¥ 338,980
135,814102,128
55,104
31,741
14,19344,143
3,582(1,745)
1,845,848
241,982$ 3,706,578
1,315,956
1,204,164
843,818
280,081
62,559607,086
310,807(145,343)
15,363,430
1,561,275

Yen

Per share:
Net income (loss)
Shareholders’ equity
Dividend¥(44.27)475.51
6.00

¥

36.23
519.01
6.00¥

U.S. dollars

27.00
487.94
6.00¥(162.36)429.02
6.00¥(4.29)
594.836.00$(0.36)
3.84
0.05

Note: The 2001 yen amounts have been translated into U.S. dollars, for convenience only, at the rate of ¥123.90 = U.S.$1, the approximate exchange rate on March
31, 2001.

Revenue from Operations (Billions of yen)

Operating Profit (Billions of yen)

Ordinary Profit (Billions of yen)
75

459

39

71

422
389
339

365

57
44

1997

1998

1999

2000

2001

Net Income (Loss) (Billions of yen)
11

1997

27

45

1998

22

1999

2000

2001

Interest-Bearing Debt (Billions of yen)

4

5

1997

1998

1,686

1,618

(2)

2000

5.9

7.2

(0.7)
1,382

1,286
(8.9)

(18)

(31.7)

(66)
1997

1998

2001

Return on Equity (%)

15
1,633

1999

1999

2000

2001

1997

1998

1999

2000

2001

1997

1998

1999

2000

2001

Note: Including guarantee

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 1

住友不動産AR01-本文 01.9.27 10:34 AM ページ 2

To Our Shareholders

Successful Completion of Our Five-Year Business
Reconstruction Plan One Year Ahead of Schedule
he Five-Year Business Reconstruction Plan
was launched in the fiscal year ended March
31, 1998, to achieve record-breaking performance and reconstruct the balance sheet.
After four years, we have achieved our objectives and therefore ended the plan one year ahead ofschedule.
Sumitomo Realty achieved consolidated operating
revenue from operations of ¥459.2 billion and ordinary
profit of ¥38.5 billion, both of which are all-time highs
for the Company. We were able to defeat worsening
business conditions following the collapse of the bubble
economy, achieving a rebound in performance amid prolonged asset deflation.
Furthermore, we have remarkably improved our asset
portfolio.
When performance was at its lowest in the fiscal year
ended March 31, 1995, the book value of undeveloped
land for leasing totaled approximately ¥500 billion as
considerable time is necessary to assemble a single property large enough for development in Tokyo where ownership is highly fragmented. In addition, the Company was
engaged in numerous development activities to improve
performance. To overcome the excessive amount of
upfront investment in undeveloped land, we restarted
office construction on a series of projects in 1995, the year
when a recovery in the leasing market began to appear,
and we continued our concentration of limited capital in
office development investment. As a result, the book valueof unused land decreased to approximately ¥124 billion in
the fiscal year under review, of which only approximately¥30 billion in inventories of unfinished development plans
was included.
We have almost completed our withdrawal fromoverseas operations and the real estate mortgage financing
business. Both of these businesses generated sizable revenues during the bubble economy, and the Company had
invested capital of approximately ¥500 billion by thefiscal year ended March 31, 1991. However, these operations recorded substantial restructuring losses over several
years despite efforts to sell property to recover the capitalT

2 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

investment. Capital invested in these operations has been
reduced to roughly ¥30 billion in the fiscal year underreview.
In addition, the Company recorded extraordinary
losses through the write-down of assets in real estate forsale and retirement benefit liabilities, completing thedisposal of losses including those other than for property
and equipment assets for leasing.
In addition to the recovery in performance andimprovement in our asset portfolio, our efforts to reduce
debt also showed substantial results.
In overcoming the aftereffects of the collapse of the
bubble economy in Japan, we prioritized the improvementof performance over the reduction of debt as a top management issue. As a result, total interest-bearing debt for
the Group (bank loans, debentures, commercial papers,
pledges and guaranteed debt) amounted to almost ¥1,700
billion, or roughly 37 times operating profit, in the fiscal
year ended March 31, 1998.
Seeing a recovery in performance, we began full-scale
efforts in the fiscal year ended March 31, 1999, to reduce
interest-bearing debt by selling overseas assets and trading
receivables, and securitizing domestic income-producing
properties. As a result, we reduced total interest-bearing
debt for the Group by approximately ¥400 billion during
the past three years to ¥1,286 billion as of March 31,
2001, or about 17 times operating profit.
New Three-Year Plan
ith record-breaking growth in performance and the successful handling ofmanagement issues detailed in the FiveYear Plan, we have nearly overcome thenegative impact of the collapse of the
bubble economy. Sumitomo Realty is entering a new stageof growth with the recognition that it is no longer operating under “post-war conditions.” Thus, we have begun
the New Three-Year Plan in the fiscal year ending March
31, 2002.

W

Performance Objectives

The new management plan’s performance objectives for
March 31, 2004, are as follows.

住友不動産AR01-本文 01.9.27 10:34 AM ページ 3

Junji Takashima, President

1. Increase consolidated revenue from operations to ¥600
billion (approximately 30% increase compared withthe fiscal year under review)
2. Increase consolidated operating profit to ¥105 billion(approximately 40% increase compared with the fiscal
year under review)
3. Increase consolidated ordinary profit to ¥70 billion(approximately 80% increase compared with the fiscal
year under review)
During the Five-Year Plan, three main forces were behind
the recovery in performance: our leasing business focusedin Tokyo’s central business districts (CBDs), our sales
business with a focus on condominiums and our brokerage business that focused on brokerage of homes for sale.
In our New Three-Year Plan, we will not only further
enhance these three mainstay operations, but also foster
the construction business into our fourth mainstay operation.
In the leasing business, we aim to complete 18 officebuildings (720,000 m2, including subleases) and raise sales
to more than ¥200 billion by the fiscal year ending March
31, 2004. This will firmly establish Sumitomo Realty as
one of the top three companies in leasing revenues inJapan.
In the sales business, we are creating a system able toconsistently supply over 4,000 condominium units per
year as we aim to increase our industry share to the top
five.
Our fourth mainstay business, the construction business, provides two-by-four custom homes throughSumitomo Fudosan Home Co., Ltd., standardized houses
through our American Comfort brand, and a new full
remodeling package called Shinchiku Sokkurisan (“AsGood as New”). The Company aims to expand the total
number of units constructed along these three lines to
10,000 units annually.
Sumitomo Real Estate Sales Co., Ltd., the top performer in the industry, manages Sumitomo Realty’s brokerage business, and is working to expand its marketingbase and steadily increase market share.
By strengthening our four mainstay businesses of leasing, sales, construction and brokerage services, we wereable to work free of a deflationary economic cycle andachieve four consecutive years of growth in revenues andprofits since the fiscal year ended March 31, 1998, and willcontinue our efforts to post record revenues and profits.
Performance Targets by Business (Yen in billions)Years ended March 31

Leasing
Sales
Construction
Brokerage

Results for 2001

Targets for 2004

¥163.0
149.2
104.5
34.7

¥200.0
160.0
170.0
40.0

% Change+22.7%+7.2%+62.7%+15.3%

Financial Objectives

A major issue facing the Company is the construction of astable financial base. Under the New Three-Year Plan, we
aim to create a solid financial structure able to remain
profitable should interest rates temporarily rise, at theworst to 10%, by curbing total interest-bearing debt for
the Group to 10 times operating profit by the fiscal year
ending March 31, 2004.
We have prepared a system by which the developmentof new buildings does not increase interest-bearing debt,
as we are able to cover land acquisition and construction
funds for projects underway with cash flows in each fiscal
year. In the future, we will make efforts to further reduce
interest-bearing debt by obtaining new land for development through schemes to conserve capital, such as utilizing special purpose companies (SPCs) to acquire land, andby timing the sales of our existing buildings replaced by
new development projects to upgrade our real estate
portfolio.
The percentage of interest-bearing debt with fixedinterest rates exceeds 70%, and we will maintain thispercentage during the planning period.
We are in position to make concerted efforts toachieve the objectives of the New Three-Year Plan. I
would like to thank our shareholders for their continued
support.

Junji Takashima, President
August 2001
SUMITOMO REALTY & DEVELOPMENT CO., LTD. 3

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Our History & Business Expansion

1949

We were established following the breakup of theold Sumitomo zaibatsu conglomerate, as the successor to the holding company.

1964

The Company started the condominium businesswith Hama-Ashiya Mansion (Kobe, Hyogo Prefecture), and established a position as “Condominium
Pioneer.”1970

Shares of Sumitomo Realty were listed on the Tokyo
Stock Exchange.

1974

The Company completed construction of its firstskyscraper building, the Shinjuku Sumitomo Building (Shinjuku, Tokyo).
First Management Crisis

1975
1978

1990

The Company posted net losses for four straight fiscal years during the large-scale recession that followed the oil shock.
The majority of the Company’s office building
portfolio was sold, including the Marunouchi Head
Office Building.
The Company withdrew from the residential landdevelopment business because of its lower financial
efficiency and began to achieve high growth by concentrating management resources on the development and leasing of office buildings in central Tokyoand development of urban condominium projects.
The Company posted record-high business performance during the bubble economy.
Second Management Crisis

1992
1995

1997
2000

2001
2003

The real estate market entered a serious recession
following the collapse of the bubble economy in Japan; the Company’s operation was practically unprofitable for four consecutive years, once excluding
the profit from asset sales.
Management Objectives for the Five-Year Business
Reconstruction Plan:(1) Exceed record-high performance of 1990
(2) Eliminate excessive upfront investment by
converting undeveloped land into working assets(3) Withdraw from commercial mortgage loanbusiness and overseas operations, and dispose of
non-performing assets(4) Reduce interest-bearing debt
We succeeded in accomplishing all management
objectives one year ahead of schedule.
Management Objectives for the New Three-Year Plan:(1) Continue to increase revenues and double profits(2) Improve financial structure by reducing interestbearing debt and restoring shareholder’s equity(3) Make new investments to achieve sustainablegrowth4 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

Leasing Business
The Company entered the leasing business after its first management crisis in the late 1970s, far behind other companies
in the industry. Late entry, however, has provided Sumitomo
Realty’s leasing business with the following three strengths:(1) To make our investments more efficient, we concentrated
within central Tokyo. As a result, we have a dominant
portfolio of favorably located office buildings.
Central 3 Wards

Central 5 Wards

46%

65%

in Inner 3 City Wards: in Inner 5 City Wards:
Chiyoda, Minato and
The central threeChuowards, as well as
Shinjuku and Shibuya

Central 7 Wards

Central 14 Wards

76%

89%

in Inner 7 City Wards:
in Inner 14 City
The central five wards, Wards: The central
as well as Shinagawa seven wards, as well as
and Bunkyo
Taito, Koto, Toshima,
Sumida, Meguro, Ota
and Nakano

A considerable amount of Japan’s economic activity is concentrated in Tokyo. As our portfolio is heavily weighted incentral Tokyo, we hold a superior position in both stability ofrevenues and possibilities for future growth.
(2) The majority of our buildings are high-grade,
comparatively new structures.
Buildings less than 10 years old

51%

Buildings less than 20 years old

84%

Tenants are demanding ever-increasing standards for officebuilding facilities due to the spread of the IT revolution.
Buildings that cannot adequately provide IT capabilities or
ensure earthquake resistance are quickly losing their competitive position. Because they were constructed recently,
Sumitomo Realty’s high-grade office buildings satisfy tenantneeds, which make them extremely competitive and dominant
in attracting and retaining tenants. In addition, investments
for renovation are minimal, which means more funds can beallocated toward investments in new building construction.
(3) We utilize in-house accumulated expertise for key
operations.
In our leasing business, we derive the following three significant benefits from strengthening direct management.
The first aforementioned benefit occurs when land is
obtained for office building construction plans. In general,
office building development companies buy land after issues

住友不動産AR01-本文 01.9.27 10:34 AM ページ 5of land rights are settled through a third party. However,
Sumitomo Realty carries out this complex and detailed landacquisition and redevelopment process on its own. Thismethod has resulted in substantial reductions in the cost ofobtaining new land for office buildings.
The second benefit is derived from the way we attract
corporate tenants. Usually, leasing companies will search fortenants through a brokerage company. However, Sumitomo
Realty has a strong internal marketing force, which has
frequent contact with corporations and negotiates lease
contracts directly with the tenants. This system has allowed
us to gather information on companies’ needs for relocationand expanded office space, and grasp an understanding of
their operating environment in general. This enables us toconsistently design office buildings with specifications thatmeet cutting-edge tenant requirements.
The third benefit is in office building maintenance.
Sumitomo Realty’s office buildings are all managed andmaintained directly by employees of the Sumitomo Realty
Group. As a result, we are able to quickly and accurately
grasp customer needs for new offices or larger office space
and any other detailed services our tenants feel necessary.

This segment comprises the following mainstay products:(1) Sumitomo Fudosan Home Co., Ltd.: Medium- to high-end
two-by-four custom houses(2) American Comfort: Two-by-four standardized houses(3) Shinchiku Sokkurisan: New full remodeling package forhouses(4) Universal Home Inc.: Standardized conventional post andbeam construction houses
In 1982, we began custom-built housing operations withthe establishment of Sumitomo Fudosan Home. Making fulluse of our accumulated expertise, we have developed suchproducts as American Comfort, which was launched in 1995,
and Shinchiku Sokkurisan, which began operations in 1996.
Universal Home is the only Group company expanding its
operations through a network of franchised operators. This
company entered the Sumitomo Realty Group in 1996 andlisted its shares on the over-the-counter (OTC) market in
1999.
While continuing growth in our three established mainstay
businesses of leasing, sales and brokerage, we are making
every effort to foster the construction business into a fourth
mainstay operation of the Group.

Sales Business
Brokerage Business
As the core of Sumitomo Realty’s sales business, development
and sale of condominiums accounts for 92% of total sales inthe segment. Sumitomo Realty entered the condominium
business at an earlier stage than most of its competitors andestablished a position as the “Condominium Pioneer.”
The Company’s condominium operations now cover eachof the major urban areas of Japan (the Tokyo metropolitanarea, Osaka/Kobe, Sapporo, Sendai, Nagoya and Fukuoka)
and ranked sixth in number of units provided in calendar
2000. As with the leasing business, the Company and theGroup as a whole engage directly in the purchase of land fordevelopment, product planning, customer sales and after-sales
management. Thus, we are able to provide high-quality
products that anticipate customer needs with detailed aftersales property maintenance.
Our investment turnover and high operating profit margin
rank at the top of the industry due to our policies of managing market risk through stable supply and pursuing brandelevating strategies through careful and consistentmerchandizing of high-quality housing.
Construction Business
Unlike our leasing and sales businesses, which require upfront
investment, our construction business produces only uponreceiving orders. We have been focusing on the construction
business as a new strategic area for rebuilding the Group.

Sumitomo Real Estate Sales Co., Ltd., which was establishedin 1975 to handle the sale of condominiums developed by
Sumitomo Realty, is responsible for the Company’s real estate
brokerage services. This company entered the real estate
brokerage business in 1979, and with great success in thisbusiness listed its shares on the Tokyo Stock Exchange in
1998.
Sumitomo Real Estate Sales has been increasing its number of offices to build closer ties with local communities
under the trusted STEP brand. As of March 31, 2001,
Sumitomo Real Estate Sales’ nationwide network included
193 brokerage offices. Accordingly, the company is steadily
improving its performance every year.
With a high profit margin owing to the direct management of all brokerage offices, Sumitomo Real Estate Sales is
the most profitable in the industry. We aim to further increase
our market share by reinforcing our marketing base.
Other BusinessIn addition to our four mainstay operations, the Company
also engages in businesses in such areas as finance, fitness
centers, restaurants, hotel management and temporary
staffing.

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 5

住友不動産AR01-本文 01.9.27 10:34 AM ページ 6

Review of Operations

Leasing
Business

Results of 2001
oughly 90% of theCompany’s assets for leasing are concentrated in
the Tokyo office building
market. With strong demand from IT-related and foreignowned companies, business was robustwith approximately 4,700,000 m2 ofoffice space absorption in Tokyo,
which is comparable to the peakwithin this 10-year period. Available
office space remained at low levels
from the previous year and demand
outpaced supply, resulting in a quick
fall in vacancy rates and a clear upward trend in rental rates. Signs ofrecovery that began in the Shinjuku
and Shibuya areas of Tokyo can now
be seen throughout the city’s CBDs.

R

Revenue from Operations (Billions of yen)
163
136

144

151

151

1999

2000

2001

46

46

2000

2001

The Shibakoen First Building (Completed July 2000)
1997

1998

Operating Profit (Billions of yen)
44
37
33

1997

1998

1999

6 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

Although future prospects are uncertain as the economy has weakened
since the end of the fiscal year, thecurrent conditions of demand outpacing supply for office space are expected
to continue.
In the leasing business, theIidabashi First Building and the
Shibakoen First Building began operations upon completion in the previous
fiscal year and in the fiscal year underreview, respectively. Combined with afall in vacancy rates of existing officebuildings, these factors compensatedfor a decrease in revenue and profits
from debt-cutting measures
implemented in the previous fiscal
year, such as the sale of the Tischman
Building in the United States and the
securitization of nine leased officebuildings, including the Shinjuku
Sumitomo Building. As a result, revenue from the leasing business rose
¥11.8 billion to ¥163 billion, and operating profit increased ¥0.7 billion to¥46.4 billion.

住友不動産AR01-本文 01.9.27 10:34 AM ページ 7

Total of Gross Floor Area for Leasing(Thousands of m 2)
2,961

while IT equipped offices in Tokyo are
significantly strong.
With the supply of new large-scale
office buildings expected to peak in
2003, companies that are now forced
to scatter their office space due totight market conditions will have achance to concentrate operations in acentral location. As new office buildings absorb this demand, the commercial viability of old buildings unable towithstand earthquakes and adapt to
new IT standards will rapidly decline.
In anticipation of these market
conditions, Sumitomo Realty is continuing to concentrate investment in
the Tokyo market to provide officebuildings with the most advanced facilities. In addition to six office buildings scheduled for completion in thefiscal year ending March 31, 2002,
including the Sumitomo Fudosan
Shibakoen Tower, we have begun construction of the Roppongi 1-Chome
Redevelopment Project and theMarket Outlook and Strategies
ven stronger demand is
expected for office buildings in Tokyo, especiallythose with advanced IT
capabilities, due to the
movement of the headquarters ofmany companies from regional urban
areas to Tokyo, and a trend toward
concentrating management and staff
resources there as well. This trend ismaking it difficult for regional urban
office markets to escape recession,

2,232

2,027

2,083

2,051

1998

1999

2000

Tokyo’s CBDs

Other

2001

2004F

New operation

Nishi-Shinjuku 6-Chome Redevelopment Project, both of which represent
the next generation in office building
standards with cutting-edge IT facilities, making them extremely competitive in attracting tenants. By the fiscal
year ending March 31, 2004, we aim
to have a total of 18 new office buildings with 720,000 m2 of floor space inoperation. From operation of these 18
new buildings, we expect an average
return of over 7% with revenue fromrent of approximately ¥45 billion andnet cash flow of roughly ¥27 billion.

E

The Sumitomo Fudosan Shibakoen Tower

The Roppongi 1-Chome Redevelopment Project

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 7

住友不動産AR01-本文 01.9.27 10:34 AM ページ 8

Review of Operations

Sales
Business

Results of 2001
espite the continued large
supply of condominiums
for sale from the previous
fiscal year, the market for
condominium sales, themainstay of the sales business, wasbrisk in the fiscal year under review
due to an extension on the housing
loan tax credit program until
December 2003 and continued low
housing loan interest rates. To
increase asset efficiency, many companies sold company housing, factories,
idle land and other large properties.
As a result, developers were able tosupply large-scale well-amenitizedcondominium projects in such favorable locations as central Tokyo withgreater flexibility in pricing, which attracted not only first-time buyers but

D

Revenue from Operations (Billions of yen)
150

149

138

Exterior view of the Central Residence Bancho City Tower

125
102

1997

1998

1999

2000

2001

Operating Profit (Billions of yen)
19

20

9

1997

7

7

1998

1999

2000

2001

8 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

Exterior and interior view of the Park Square Neos Yokohama
also such new sources of demand assenior citizens living in suburban detached homes and residents of company
housing.
The sales business recorded sales ofcondominiums, detached homes andresidential land for a total of 3,626
units, down 18 units year-on-year, inthe fiscal year under review. Althoughrevenue in the sales business slipped¥1.3 billion to ¥149.2 billion, we
achieved record-high performance, exceeding even the landmark increases in
profit in the previous fiscal year, with
operating profit rising ¥1.1 billion to¥19.7 billion. In addition, condominium
sales contracts totaled 4,215 units, up
419 units from the previous fiscal
year, resulting in the third consecutive
year of record-breaking growth.

住友不動産AR01-本文 01.9.27 10:35 AM ページ 9

Ranking of Condominium Suppliers
4,600
4,278
3,885

Exterior view of the Park Square Yokohama

2,585
2,272

10th

1997

7th

W

The Industry’s First Totally
Customizable Condominiums
umitomo Realty has succeeded
in developing the industry’s
first totally customizable condominiums, giving the buyer
total freedom in designing
the layout. The buyer can even decide
the placement of the kitchen,bathroom and restroom, now. In addition, the buyer has the option to upgrade home appliances and interior
furnishings. We are steadily introducing this new system in our small andmedium-size upscale properties, starting with the Jingumae City Tower located at Jingumae 2-Chome, Shibuya,and the Mejiro Otomeyama City
Tower located at Shimo-Ochiai 4Chome, Shinjuku.

consumer sentiment. On the other
hand, we are concerned that supply
could decrease following a rise in land
prices from a slower pace of corporate
land sales and predictions that
construction expenses will increase.
Sumitomo Realty’s basic policy is
to pursue high performance in theasset turnover ratio and operating
profit margins by leveling market fluctuation risk through stable supply and

5th

2000

2001F

9th

1998

1999

Number of units supplied

Market Outlook and Strategies
e believe that such
macroeconomic
issues as the tax system, interest rates,and price stability
support current robust demand. As
significant changes to these factors areunlikely, we expect favorable conditions to continue despite fluctuationsin the short term due to unstable

6thYears ended December 31

by further enhancing brand image
through the sale of high-quality housing. The Company aims to provide
more than 4,000 units yearly and become one of the top five condominium
suppliers. To achieve these objectives,
the Company is already securing sizeable properties for highly popularlarge-scale condominiums.
Due to the length of time requiredfor development, these properties entail an increase in inventories andlower asset turnover ratio. To manage
these issues, we will increase financial
efficiency through off-balance asset
financing utilizing SPCs.

S

Exterior view of the Jingumae City Tower

We are also making quantum leaps
in improving the durability of ourbuildings by using advanced structuraldesign, cutting-edge technology andconcrete made to last 100 years. We

aim to provide “universal condominiums for the new century”—homes attuned to the lifestyle of families andintended to be passed down to the
grandchildren of the original owner.

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 9

住友不動産AR01-本文 01.9.27 10:35 AM ページ 10

Review of Operations

Construction
Business

Results of 2001
umitomo Realty has positioned the construction business as a new strategic area
and is rapidly expanding its
operational scale every year.
In the fiscal year under review,
major housing manufacturers’ orders
fell throughout the industry on theback of a shift in demand toward
condominiums. Despite the unfavorable operating environment,

S(Units)

Shinchiku Sokkurisan (“As Good asNew”) operations made significant
gains in addition to brisk performancein other new housing operations. A
breakdown of orders and units completed is shown below.
As a result, revenue for theconstruction business increased ¥24.5
billion to ¥104.5 billion. Although thisis the first year revenues exceeded¥100 billion, operating profit fell ¥0.7
billion to ¥4.0 billion due to a

Number ofOrders Received

Year-on-Year
Increase

Number ofUnits CompletedYear-on-Year
Increase

1,303
1,498
2,951

155
241
1,382

1,299
1,304
2,664

283
137
1,644

Sumitomo Fudosan Home
American Comfort
Shinchiku Sokkurisan

American Comfort Series, Dream Comfort

Revenue from Operations (Billions of yen)
105

80

55

56

1997

1998

61

1999

2000

2001

Operating Profit (Billions of yen)
4.8

20
4.0

2.4

(0.7)

(0.1)

1997

1998

1999

2000

2001

10 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

substantial increase in sales staff necessary to support high levels of growthin the future, and a drop in the grossprofit margin for new detached housing construction owing to fierce competition for orders.

Sumitomo Fudosan Home Co., Ltd.
Medium- to High-End Two-by-Four
Custom Houses
umitomo Fudosan Homewas established in a spin-offof the Housing Division of
Sumitomo Realty in 1982.
The company markets twoby-four medium- to high-end custom
housing that incorporates designs andbuilding methods used in Los Angeles
suburbs by Sumitomo Realty &Development, CA Inc., which was
known as La Solana Corporation at
the time. We aim to secure stableprofit by emphasizing cost reduction
as large growth is difficult in thismarket due to severe competition
among major housing manufacturers.

S住友不動産AR01-本文 01.9.27 10:35 AM ページ 11

Housing Units Sold by Key Commodities(Units)
10,000

6,600
5,752
3,974

Shinchiku Sokkurisan New Full
Remodeling Packagen the home renovation market in
Japan, rebuilding a home wasoften said to be cheaper than remodeling owing to high costs
and the risk of running overbudget due to remodeling industy’s
conventional system. In 1996, theCompany launched Shinchiku
Sokkurisan, a construction system thatupended conventional thinking by remodeling homes for a fixed price to astate as good as new for half the cost
and time it takes to reconstruct a newhouse. With the phrase “Rethink before rebuilding” becoming increasingly
common, Shinchiku Sokkurisan has
gained popularity as an alternative torebuilding. With Shinchiku Sokkurisan’s
track record of persistent rapid growthI
The American Comfort Series, Two-byFour Imported Standardized Housing
fter the Kobe Earthquake,demand for emergency
low-priced housing
increased, and in response,
we launched American
Comfort in 1995. This breakthroughconcept in supplying high-quality affordable Western-style housing—for
which the Company won an award forsuperior products and services fromthe Nihon Keizai Shimbun in 1996—
has continued an average increase insales of 20% annually. As productcompetition in this price range is intensifying, we are preparing various
measures to maintain growth. We aim
to increase sales by 60% in the next
three years.

A

2,158

2,089

1997

1998

1999

ShinchikuSokkurisan

2000

AmericanComfort

2001

2002F

2004F

Sumitomo
Fudosan Homeof 100% year-on-year, we aim to double the size of this business in three
years.

Management Objectives
he New Three-Year Plan
aims to foster theconstruction business as afourth mainstay businessalongside the leasing, sales
and brokerage businesses. Throughaggressive hiring, we aim to create asystem able to handle a total of
10,000 orders per year for Sumitomo
Fudosan Home, American Comfort
and Shinchiku Sokkurisan.

T

BeforeBefore

2,530

After

Our Shinchiku
Sokkurisan (“AsGood As New”) is a
new full remodelingpackage.

After

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 11

住友不動産AR01-本文 01.9.27 10:35 AM ページ 12

Review of Operations

Brokerage
Business

Results of 2001
mid increased buying
power among young
people due to declines inexisting housing prices,tax reductions and low
interest rates, the real estate brokerage
market has shown considerable
growth in numbers of transactions.
Sumitomo Real Estate Sales Co.,
Ltd., which is listed on the First
Section of the Tokyo Stock Exchange,is responsible for the Company’s brokerage business with 193 directly
managed brokerage offices as of fiscal
year-end. The company has performed
well under its management policies,
which emphasize increasing the number of transactions through the opening of new brokerage offices (eight in
the fiscal year under review) and theenhancement of its Internet brokerageA

services with the launch of MAMBO(business model patent pending), a service offering direct negotiation withreal estate agents for the purchase ofproperty via the Internet. The increasein the number of transactions
absorbed a decrease in average transaction fees, resulting in operating revenue increasing ¥3.0 billion to ¥34.7
billion and operating profit rising ¥1.5
billion to ¥8.7 billion, marking thethird consecutive year of growth inrevenue and profits since theconsumption tax hike in the fiscal year
ended March 31, 1998, after which
demand dropped sharply.

Market Outlook and Strategies
hile expanding our
network of directly managed brokerage offices
yearly, we are
improving the time it takes to match
buyers and sellers with the introductionof an in-house information sharing system. In addition, we are focusing efforts
in such new growth areas as Internet
brokerage services, corporate brokerage
services for commercial real estate andconsulting services for asset securitization.
We will pursue steady growththrough the expansion of market shareand strengthen our position as the industry’s top brokerage firm.

W

Revenue from Operations (Billions of yen)
35
32

32
27

The directly-managed brokerage office of Sumitomo Real Estate Sales Co., Ltd.

28

Real Estate
Investment
Trust
Operations

1997

1998

1999

2000

2001

Operating Profit (Billions of yen)
8.7
7.4

7.2

5.3
4.7

1997

1998

1999

2000

2001

12 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

T

he Japanese real estate
investment trust (J-REIT)
market is about to openwith the long-awaited listing of J-REITs on theTokyo Stock Exchange. Although companies are preparing real estate portfolios for listing on the J-REIT market,
good revenue-generating properties
seem to be difficult to find.
On entering the J-REIT market, theCompany will use properties it developed as core assets. We believe thatdeveloping our leasing assets for thefund is a faster and more efficient
way to expand J-REIT funds than waiting for opportunities to buy existing
revenue-generating properties of quality.
Using this strategy, we will be able toreap development profits by selling
newly completed office buildings on
the J-REIT market, or sell our existing
leased buildings in turn and improve
investment efficiency by aggressively
replacing our lease portfolio components. The J-REIT market will provide
us with another alternative in our strategy to enforce our competence in thedevelopment business.

住友不動産AR01-本文 01.9.27 10:55 AM ページ 13

Financial Section

Financial Review ..................................................................................................... 14
Consolidated Balance Sheets .................................................................................... 16
Consolidated Statements of Operations ..................................................................... 18
Consolidated Statements of Shareholders’ Equity ........................................................ 19
Consolidated Statements of Cash Flows...................................................................... 20
Notes to Consolidated Financial Statements .............................................................. 22
Report of Independent Public Accountants.................................................................. 33

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 13

住友不動産AR01-本文 01.9.27 10:35 AM ページ 14

Financial Review

Summary
Revenue from Operations by Segment(Billions of yen)

459
365

389

422

339

1997

1998

1999

2000

2001

Other Business
Brokerage Business
Construction Business
Sales BusinessLeasing Business

Operating Profit (Billions of yen)
75
71
57
44

45

1997

1998

1999

2000

2001

Ordinary Profit (Billions of yen)
39

27
22

4

5

1997

1998

1999

2000

2001

14 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

S

umitomo Realty achieved record-breaking consolidated revenue fromoperations of ¥459.2 billion for the fiscal year ended March 31, 2001,
the fourth consecutive year of revenue growth. Our four mainstay businesses of leasing, sales, construction and brokerage achieved remarkable growth, and total revenue increased at an annual average rate of
8% under the Five-Year Business Reconstruction Plan, which was completed infour years.
Operating profit totaled ¥75.2 billion, marking the fourth consecutive year of
profit growth and an increase of ¥31.1 billion from the fiscal year ended March
31, 1997, an average increase of 15% per year. During this period, the Company
sold overseas leasing assets and securitized domestic leasing assets to reduce interest-bearing debt, recovering a total of approximately ¥250 billion in capitalover these four years. Although the sale and securitization of these assets resulted
in a roughly ¥7 billion decrease in operating profit, the Company as a whole
recorded substantial operating profit growth—a remarkable accomplishment.
We recorded an all-time high ordinary profit of ¥38.5 billion, an increase of¥35.8 billion compared with the fiscal year ended March 31, 1997. In the previous fiscal year, we adopted the principle of actual control in determining thescope of consolidation, increasing the number of consolidated subsidiaries, including Shintoshin Real Estate Co., Ltd., which resulted in a ¥5 billion increasein net interest expenses. However, this was offset by reductions in interest-bearing
debt and a decrease of loss on devaluation of marketable securities helped us further. In addition, Shintoshin Real Estate is steadily implementing the developmentof its commercial land holdings and plans to become profitable by the fiscal year
ending March 31, 2002.
Although we showed remarkable improvement in our earnings power, the fiscal year under review ended in a net loss. The Company recorded an extraordinary loss of approximately ¥65 billion for the write-off of bad debt of Sumitomo
Fudosan Finance Co., Ltd. and posted an extraordinary loss of ¥1.7 billion for
the “net transition obligation” for retirement benefits.

Analysis of Assets
he bad debt of Sumitomo Fudosan Finance was the primary reason for
the net loss in the term under review, and has weighed heavily on performance with a total of approximately ¥200 billion in extraordinary
losses since the fiscal year ended March 31, 1994. Net bad debt (baddebt less approximately ¥73 billion in allowance for doubtful accounts)
was reduced to nearly ¥18 million, relieving management of this pressing issue.
In real estate for sale, the Company posted a one-time charge of approximately¥25 billion for devaluation losses in the fiscal year ended March 31, 2000, andproperties under market value were almost entirely written down.
In previous years, Sumitomo Realty used the lower-of-cost or market method
for listed securities. Due to changes in accounting standards for financial instruments in the fiscal year under review, the Company transferred all long-held listed
marketable securities to investment securities at fair market value in the balance
sheets, and after-tax net unrealized gains were reflected in shareholders’ equity.
The Company states all buildings and property used for leasing as property
and equipment at cost. The average yield of existing leased properties (approximately ¥860 billion) is 6.2%, and we expect an average yield of more than 7%
for office buildings currently under construction (approximately ¥180 billion)
when they become operational. Comparing commercial real estate transactions,Tokyo CBD Class-A office buildings, which make up most of the Company’sT住友不動産AR01-本文 01.9.27 10:35 AM ページ 15

Return on Assets (%)

3.8

4.0

3.2
2.6

2.5

1997

1998

1999

2000

2001

Note: Return on assets=(operating income+interest
income+dividend income)/average assets

Total Interest-Bearing Debt for the Group(Billions of yen)
1,633

1,686

1,618
1,382

1997

1998

1999

2000

1,286

2001

Note: Including guarantee

Capital Composition (Billions of yen)
2,082

2,079

2,054

1997

1998

1999

1,927

1,913

2000

2001

Interest-bearing debt and guarantee
Other debt
Shareholders’ equity

commercial portfolio, are sold at a high 4% to low 5% yield. Consequently, it isour view that the Company’s commercial portfolio, in total, easily exceeds market value.
Of approximately ¥136 billion in commercial land that has been left undeveloped, including roughly ¥12 billion newly acquired in the fiscal year under review, approximately ¥106 billion comprises projects with construction plans inprogress. The remaining ¥30 billion is awaiting further planning.
We continue to sell overseas assets, with only approximately ¥13 billion invested in five properties, including the Park Hyatt Los Angeles at Century City in
California, remaining.

Liabilities and Shareholders’ Equity
nterest-bearing debt (the total of bank loans, debentures and commercial
papers outstanding) of ¥1,275.7 billion was recorded at fiscal year-end, adecrease of ¥95.4 billion from a year earlier. This marks the first time in
10 years that interest-bearing debt has fallen below ¥1,300 billion, representing a ¥400 billion reduction in total interest-bearing debt for theGroup since it peaked in the fiscal year ended March 31, 1998 (in the calculationof total interest-bearing debt for the Group, we included liabilities on guarantee
to prevent the impact of newly consolidated subsidiaries under the new accounting standards). We are rapidly advancing improvement in the financial structure.
However, the debt to equity ratio was still as high as 6.6 times as the net
worth ratio decreased to 10.2% due to the net loss recorded. As stated before,
with completion of the Five-Year Business Reconstruction Plan one year aheadof schedule and the substantial disposal of extraordinary losses, the Company
aims to further reduce interest-bearing debt and recover shareholders’ equity
through yearly profits.
Under the New Three-Year Plan, which will be completed in the fiscal year
ending March 31, 2004, we are targeting the reduction of interest-bearing debt
to approximately 10 times operating profit. Assuming an operating profit targetof ¥105 billion, it is necessary to reduce interest-bearing debt by approximately¥200 billion during the next three years. The Company will generate sufficientannual operating cash flow to cover additional investment in commercial development currently underway and reduce interest-bearing debt by improving capital efficiency and selling assets.

I

Analysis of Cash Flowset cash provided by operating activities in the fiscal year under review totaled ¥3.3 billion, and net cash provided by investing activities amounted to ¥111.6 billion. After advancing the reduction ofinterest-bearing debt, net increase in cash and cash equivalents was¥52.1 billion.
Cash flows from operating activities declined mainly due to increases in inventories for sales, such as the acquisition of land for large-scale condominium
developments, and a decrease in accrued construction expenses. To compensate
for the reduction in cash flows from operating activities, we formed limited partnerships in condominium development projects and sold rights to receive
payments upon delivery under condominium sales contracts. These proceeds
were stated in cash flows from investing and financing activities, respectively.
Due to aggressive efforts in the securitization of leased office buildings andthe sales of claims for security deposits, net cash provided by investing activities
continued to exceed ¥100 billion.

N

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 15

住友不動産AR01-財務 01.9.27 10:38 AM ページ 16

Consolidated Balance Sheets
March 31, 2001 and 2000
Thousands of
U.S. dollars (Note 1)

Millions of yen

AssetsCurrent assets:Cash, mainly time and notice deposits (Note 5)
Marketable securities (Note 9)
Notes and accounts receivable—trade (Note 4)
Trade loans receivable
Allowance for doubtful accounts
Inventories (Note 6)
Deferred income taxes (Note 12)
Securities loaned
Other current assets
Total current assets

2001

¥

2000

91,986 ¥ 39,728
401
9,668
19,436
16,033
107,394
157,354(37,067)(33,586)
149,215
128,310
16,36914,184—
15,727
26,594
22,660374,328370,078

2001$

742,4213,236
156,868
866,780(299,169)
1,204,318
132,115—214,641
3,021,210

Investments and advances:

Investments in and advances to unconsolidated
subsidiaries and affiliated companies (Note 7)
Investments in securities and other (Note 9)
Allowance for doubtful accounts
Total investments and advances

7,712
85,183(38,116)
54,7797,591
111,017(78,514)40,09462,244
687,514(307,635)
442,123

916,447
298,381
14,36924,274
1,253,471(106,470)
1,147,001

896,061
317,846
16,32240,0181,270,247(120,003)
1,150,244

7,396,667
2,408,240
115,973
195,916
10,116,796(859,322)
9,257,474

196,242
72,534
20,15338,492
327,421¥1,903,529

214,394
123,128
4,954
13,451355,927¥1,916,343

1,583,874
585,424
162,655
310,670
2,642,623$15,363,430

Property and equipment (Notes 8 and 10):Land
Buildings and structures
Machinery and equipment
Construction in progress
Accumulated depreciation
Net property and equipment
Other assets:

Guarantee and lease deposits paid to lessors
Leasehold rights and other intangible assets
Deferred income taxes (Note 12)
Miscellaneous
Total other assets
See accompanying notes.

16 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

住友不動産AR01-財務 01.9.27 10:38 AM ページ 17

Thousands of
U.S. dollars (Note 1)

Millions of yen

Liabilities and Shareholders’ Equity
Current liabilities:

2001

2000

2001

¥ 317,745
243,800
30,207
2,827
2,487
31
112,363
709,460¥ 354,267
253,084
42,539
3,418
2,218
214
77,187
732,927$ 2,564,528
1,967,716
243,801
22,817
20,073250
906,884
5,726,069

Long-term debt due after one year (Note 10)
Guarantee and lease deposits received (Note 13)
Deferred income taxes (Note 12)
Allowance for employees’ severance and retirement benefits (Note 11)
Directors’ and corporate auditors’ retirement benefits
Other long-term liabilities

716,141
268,841
82
3,387
256
860

765,716
194,803
—
1,568
243
701

5,779,992
2,169,822
662
27,3362,066
6,942

Minority interests

11,0609,245

89,266

86,77396,822
11,673
195,268
1,016(2,840)(2)
193,442¥1,903,529

86,77396,822
31,942
215,537—(4,395)(2)
211,140¥1,916,343

700,347
781,453
94,213
1,576,013
8,200(22,922)(16)
1,561,275$15,363,430

Short-term bank loans (Note 10)Long-term debt due within one year (Note 10)
Notes and accounts payable—trade (Note 4)
Accrued income taxes (Note 12)
Accrued bonuses
Deferred income taxes (Note 12)
Other current liabilities
Total current liabilities

Contingent liabilities (Note 17)
Shareholders’ equity (Note 14):

Common stock, par value ¥50 per share
Authorized — 780,000 thousand shares
Issued— 406,810 thousand shares
Additional paid-in capital
Retained earnings
Net unrealized holding gains on securities
Foreign currency translation adjustments
Treasury stock
Total shareholders’ equity

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 17

住友不動産AR01-財務 01.9.27 10:38 AM ページ 18

Consolidated Statements of Operations
Years ended March 31, 2001, 2000 and 1999

Thousands of
U.S. dollars (Note 1)

Millions of yen
2001

2000

1999

2001

¥459,245¥421,587¥389,136$3,706,578

349,597
34,430384,027
75,218319,997
31,042351,039
70,548303,256
29,364
332,620
56,516

2,821,606
277,886
3,099,492
607,086(34,491)
283
(375)
—
—
—
—
—
(14,828)
14
(501)
—
—
—
(50,111)(1,681)(2,613)(104,303)(29,085)(39,547)
241
62,477130419—(4,272)(2,897)
—
(17)
(486)
(24,864)(22,641)(14,168)——(2,740)(48,365)
22,183(34,948)
374
270
(774)
2,563
(3,358)(53)(1,262)
—
256
—
—
—
—
—
—
(758)
(37,690)
18,826(278,378)
2,284(3,027)—————(119,677)
113(4,044)———(404,447)(13,567)(21,089)(841,832)(234,746)

Current
Deferred
Total

5,097
(18,221)(13,124)

4,740
1,091
5,831

2,738
3,800
6,538

41,138(147,062)(105,924)

Minority interest

2,047

1,615

1,305

16,521

Net income (loss)¥ (18,008)¥ 14,737¥ 10,983$ (145,343)

Revenue from operations
Costs and expenses:

Cost of revenue from operations
Selling, general and administrative expenses (Note 3)
Operating profit
Other income (expenses):

Interest expense—net (Note 5)
Dividend income
Gain (Loss) on sale of property and equipment
Gain (Loss) on sale of marketable securities
Gain on sale of investments in subsidiary
Loss on sale of investments in securities
Write-offs of bad debt
Loss on devaluation of marketable securities
Provision for allowance for doubtful accounts
Foreign exchange gains (losses)
Loss from write-down of property and equipment
Loss from devaluation of inventories
Loss from restructuring of overseas business
Loss on adjustment of prior year’s rent
Loss from sale and write-off of loans receivable
Net transition obligation
Other—net
Income (Loss) before income taxes and minority interest (Note 3):
Income taxes (Note 12):

Yen

U.S. dollars (Note 1)

Amounts per share of common stock:

Net income (loss)
Cash dividend applicable to the year
See accompanying notes.

18 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

¥ (44.27)
6.00

¥

36.23
6.00

¥

27.00
6.00

$

(0.36)
0.05

住友不動産AR01-財務 01.9.27 10:38 AM ページ 19

Consolidated Statements of Shareholders’ Equity
Years ended March 31, 2001, 2000 and 1999
Thousands

Balance at March 31, 1998

Cumulative effect of adopting deferredincome tax accounting
Decrease due to change in consolidated
subsidiaries
Net income
Adjustments from translation of foreign
currency financial statements
Treasury stock
Cash dividends paid(¥6 per share)
Bonus to directors
Balance at March 31, 1999

Decrease due to change in consolidated
subsidiaries
Net income
Adjustments from translation of foreign
currency financial statements
Treasury stock
Cash dividends paid(¥6 per share)
Bonus to directors
Balance at March 31, 2000

Increase due to change in consolidated
subsidiaries
Net loss
Adjustments from translation of foreign
currency financial statements
Adoption of new accounting standard
for financial instruments
Treasury stock
Cash dividends paid(¥6 per share)
Bonus to directors
Balance at March 31, 2001

Millions of yen

Number ofshares ofcommon stock

Commonstock

Additional
paid-in
capitalRetainedearnings

406,810¥86,773¥96,822¥(4,218)

—

—

—

—
—

—
—

—
—

Net unrealized
holding gains
on securities¥

Foreigncurrencytranslation
adjustments

Treasurystock—¥(4,847)¥(2)

19,299

—

—

—

—
—

(37)
10,983

—
—

—
—

—
—

—
—

—
—

—
—

—
—

(3,832)
—

—
0

—
—

—
—

—
—

(2,440)
(3)

—
—

—
—

—
—

406,810

86,77396,822

23,584—(8,679)

(2)

—
—

—
—

—
—

(3,925)
14,737

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
—

(4,284)
—

—
0

—
—

—
—

—
—

(2,440)
(14)

—
—

—
—

—
—

406,810

86,77396,822

31,942—(4,395)

(2)

—
—

—
—

—
—

195
(18,008)

—
—

—
—

—
—

—

—

—

—

—

1,555

—

—
—

—
—

—
—

—
—

1,016
—

—
—

—
0

—
—

—
—

—
—

(2,441)
(15)

—
—

—
—

—
—

406,810¥86,773¥96,822¥11,673¥1,016¥(2,840)¥(2)

Thousands of U.S. dollars (Note 1)

Commonstock

Balance at March 31, 2000

Increase due to change in consolidated
subsidiaries
Net income
Adjustments from translation of foreign
currency financial statements
Adoption of new accounting standard
for financial instruments
Treasury stock
Cash dividends paid($0.05 per share)
Bonus to directors
Balance at March 31, 2001

Additional
paid-in
capitalRetainedearnings$700,347 $781,453 $ 257,805

Net unrealized
holding gains
on securities$

Foreigncurrencytranslation
adjustments— $(35,472)

Treasury
stock

$(16)

—
—

—
—

1,573
(145,343)

—
—

—
—

—
—

—

—

—

—

12,550

—

—
—

—
—

—
—

8,200
—

—
—

—
0

—
—

—
—

(19,701)
(121)

—
—

—
—

—
—

$700,347 $781,453 $ 94,213$8,200$(22,922)$(16)

See accompanying notes.

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 19

住友不動産AR01-財務 01.9.27 10:38 AM ページ 20

Consolidated Statements of Cash Flows
Years ended March 31, 2001 and 2000

Thousands of
U.S. dollars (Note 1)

Millions of yen
2001

2000

2001

¥ (29,085)
10,367(36,259)——
1,818(1,187)35,395—375—
272
96,302(21,195)
7,384(12,340)(7,031)44,816¥ 22,183
11,249(9,306)
2,897
(419)
994
(1,784)41,090(130)(62,477)
22,641
8,476
15,740
9,899
3,861
7,251
7,162
79,327$ (234,746)
83,672(292,647)——
14,673(9,580)285,674
—
3,027
—
2,195
777,256(171,065)
59,596(99,596)(56,747)
361,7121,328(37,202)(5,686)
3,256

1,942
(39,963)(2,867)38,43910,718(300,258)(45,892)
26,28079,582(55,015)——(18,429)
2,659
178
50,897
8,392(12,271)
55,397
201
111,591

167,238(97,965)(7,063)
8,719
—
—
1,886
44,582
2,187(7,198)29,768(9,709)132,445642,308(444,027)——(148,741)
21,461
1,437
410,791
67,732(99,040)
447,111
1,622
900,654(33,096)
70,000(133,690)
4,877—
29,1492,550(2,643)(62,853)(349,006)
130,000(90,000)
102,788987—(2,246)(2,569)(210,046)(267,119)564,972(1,079,015)
39,362—
235,262
20,581(21,332)(507,289)

151

(261)

1,219

52,14540,236(39,423)
79,614

420,864
324,745(2)¥ 92,37945¥ 40,236

Cash flows from operating activities:

Income (Loss) before income tax and minority interest
Depreciation and amortization
Provision for allowance for doubtful accounts—net
Loss on devaluation of marketable securities
Gain on sale of investments in subsidiaries
Increase in employees’ severance and retirement benefits
Interest and dividend income
Interest expense
Gain on sale of marketable securities
Loss (Gain) on sale of property and equipment
Loss from reduction of overseas business
Decrease in notes and accounts receivable—trade
Decrease in trade loans receivable
Decrease (Increase) in inventories
Increase in advances received
Increase (Decrease) in notes and accounts payable—trade
Other—net
Total
Proceeds from interest and dividend income
Payments for interest
Payments for income tax and other taxes
Net cash provided by operating activities
Cash flows from investing activities:

Proceeds from sale of property and equipment
Payments for purchases of property and equipment
Increase in marketable securities
Proceeds from sale of securities
Increase in investments in securities
Proceeds from sale of investments in securities
Increase in short-term loans
Decrease in guarantee and lease deposits paid to lessors
Increase in guarantee and lease deposits received
Capital expenditure
Receipts of deposits to partnerships
Other—net
Net cash provided by investing activities
Cash flows from financing activities:

Decrease in short-term bank loans
Proceeds from issuance of bonds and notes
Repayments of bonds and notes
Increase in long-term debt
Proceeds from issuance of common stock to minority shareholders
Proceeds from assignment of advances received
Other—net
Cash dividends paid
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase (Decrease) in cash and cash equivalents resulting fromchanges in the number of consolidated of subsidiaries
Cash and cash equivalents at end of year (Note 5)
See accompanying notes.

20 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

$

(16)745,593

住友不動産AR01-財務 01.9.27 10:38 AM ページ 21

Consolidated Statement of Cash Flows
Year ended March 31, 1999

Millions of yen
1999

Cash flows from operating activities:

Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Provision for allowance for doubtful accounts—net
Deferred income taxes
Gain on sale of property and equipment
Other
Changes in assets and liabilities:
Increase in notes and accounts receivable—trade
Increase in trade loans receivable
Decrease in inventories
Decrease in prepaid expenses and other current assets
Increase in notes and accounts payable—trade
Increase in accrued income taxes and other current liabilities
Net cash provided by operating activities¥ 10,983
10,340
2,606
3,800
(270)
3,141
(4,255)(11,737)
33,372
1,200
11,011441
60,632

Cash flows from investing activities:

Purchases of property and equipment
Proceeds from sale of property and equipment
Decrease in marketable securities
Decrease in investments and advances
Increase in guarantee and lease deposits paid to lessors
Decrease in leasehold rights and other intangible assets
Other
Net cash used in investing activities(41,275)
25,4472,662
2,543(3,449)4,301(2,191)(11,962)

Cash flows from financing activities:

Decrease in short-term bank loans
Proceeds from issuance of bonds and notes
Repayments of bonds and notes
Increase in long-term debt
Decrease in guarantee and lease deposits received
Proceeds from issuance of common stock
Other
Cash dividends paid
Net cash used in financing activities
Net increase in cash
Cash at beginning of the year
Cash at end of the year

(32,490)
33,700(120,000)
60,142(776)
3,933
14,546(2,440)(43,385)
5,285
74,143¥ 79,428

See accompanying notes.

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 21

住友不動産AR01-財務 01.9.27 10:38 AM ページ 22

Notes to Consolidated Financial Statements
Years ended March 31, 2001, 2000 and 1999

1. Basis of financial statements
Sumitomo Realty & Development Co., Ltd. (the “Company”), andits consolidated domestic subsidiaries maintain their accounts andrecords in accordance with the provisions set forth in the JapaneseCommercial Code and the Securities and Exchange Law and in
conformity with accounting principles and practices generally
accepted in Japan (“Japanese GAAP”), which are different from theaccounting and disclosure requirements of International AccountingStandards. The accounts of overseas consolidated subsidiaries are
based on their accounting records maintained in conformity withgenerally accepted accounting principles and practices prevailing in
the respective country of domicile.
The accompanying consolidated financial statements are atranslation of the audited consolidated financial statements of theCompany which were prepared in accordance with Japanese GAAP
and were filed with the appropriate Local Finance Bureau of the
Ministry of Finance as required by the Securities and Exchange
Law.
2. Accounting policies(1) Principles of consolidation
Effective from the year ended March 31, 2000, all companies are
required to consolidate all significant investees which are controlled
through substantial ownership of majority voting rights or existenceof certain conditions. As a result, three additional subsidiaries havebeen included in the consolidation. However, the effect of thechange is immaterial and, accordingly, the prior year’s consolidated
financial statements have not been restated.
The accompanying consolidated financial statements include theaccounts of the Company and significant companies over which theCompany has power of control through majority voting right orexistence of certain conditions evidencing control by the Company.
In the elimination of investments in subsidiaries, the assets andliabilities of the subsidiaries, including the portion attributable tominority shareholders, are recorded based on the fair value at thetime the Company acquired control of the respective subsidiaries.
All significant intercompany balances, transactions and profits havebeen eliminated in consolidation.
(2) Foreign currency translation
Receivables and payables denominated in foreign currencies aretranslated into Japanese yen at the year-end rates. Prior to April 1,
2000, long-term receivables and payable denominated in foreign
currencies were translated at historical rates.
Effective April 1, 2000, the Company and its consolidated
subsidiaries adopted the revised accounting standard for foreign
currency translation, “Opinion Concerning Revision of AccountingStandard for Foreign Currency Translation,” issued by the BusinessAccounting Deliberation Council on October 22, 1999 (the“Revised Accounting Standard”). Under the Revised AccountingStandard, long-term receivables and payables denominated inforeign currencies are also translated into Japanese yen at the yearend rate.
The effect on the consolidated statement of operations ofadopting the Revised Accounting Standard was immaterial.
Financial statements of consolidated overseas subsidiaries aretranslated into Japanese yen at the year-end rate, except thatshareholders’ equity accounts are translated at historical rates andincome statement items resulting from transactions with theCompany at the rates used by the Company.
Due to the adoption of the Revised Accounting Standard, theCompany and its domestic subsidiaries report foreign currencytranslation adjustments in the shareholders’ equity. The prior years’
amounts, which were included in assets, have been reclassified toconform to the 2001 presentation.
22 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

In preparing the accompanying consolidated financial
statements, certain reclassifications have been made in the
consolidated financial statements issued domestically in order topresent them in a form which is more familiar to readers outside
Japan. The consolidated statements of cash flows for 1999 andshareholders’ equity for 2001, 2000 and 1999 have been prepared
for the purpose of inclusion in the accompanying consolidated
financial statements, although such statements were not required fordomestic purpose and were not filed with regulatory authorities.
The translations of the Japanese yen amounts into U.S. dollars
are included solely for the convenience of readers, using theprevailing exchange rate at March 31, 2001, which was ¥123.90 to
U.S.$1. The convenience translations should not be construed as
representations that the Japanese yen amounts have been, could
have been, or could in the future be, converted into U.S. dollars at
this or any other rate of exchange.

(3) Statement of cash flow
In preparing the consolidated statements of cash flows, cash on
hand, readily-available deposits and short-term highly liquid
investments with maturity of not exceeding three months at thetime of purchase are considered to be cash and cash equivalents.
The Company prepared the 2001 and 2000 consolidated cash
flow statement as required by and in accordance with the“Standards for Preparation of Consolidated Cash Flow Statements,etc.” effective from the year ended March 31, 2000. The 1999
consolidated cash flows statements, which were voluntarily
prepared for the purpose of inclusion in the consolidated financial
statements in a form familiar to readers outside Japan, have notbeen restated. Significant differences in the consolidated cash flow
statements for 2001 and 2000 and for 1999 include the use of
pretax income in 2001 and 2000 instead of net income in 1999,
additional disclosure in cash flows from operating activities in 2001
and 2000 of interest expense, income tax expense, interest anddividend income, interest paid, income taxes paid and interest anddividend received.
(4) Recognition of revenue
Revenues from sales of land and residential houses are recognizedwhen units are delivered and accepted by customers. Revenues fromleasing of office space, shops and apartments are recognized as rent
accrues over the life of the lease.
(5) Inventories
Inventories are stated at cost which is determined by the specificidentification cost method.
In the prior years, the costs of consignment sales wererecognized as expense in the period they were incurred. In the year
ended March 31, 2001, the Company introduced cost accounting
system with the intent to better manage consignment sales activities,
by matching revenue from sales of consigned properties and costs
associated to such properties, this resulted in recording the costs of
non-delivered estate amounting to ¥966 million ($7,797 thousand)as inventories at that date.
Consequently this change resulted an increase of ¥966 million($7,797 thousand) in operating profit and net loss before income
taxes compared with what would have been reported under theprior method.
The effect on segment information is explained in Note 19.
(6) Securities
Prior to April 1 2000, securities quoted on stock exchanges are

住友不動産AR01-財務 01.9.27 10:38 AM ページ 23

primarily stated at the lower of market or cost, determined by themoving-average method. Other securities were stated at cost,
determined by the moving-average method.
Effective April 1, 2000, the Company and its consolidated
subsidiaries adopted new Japanese accounting standard forfinancial instruments (“Opinion Concerning Establishment of
Accounting Standard for Financial Instruments” issued by theBusiness Accounting Deliberation Council on January 22, 1999).
Upon applying the new accounting standard, all companies are
required to examine the intent of holding each security and classify
those securities as (a) securities held for trading purposes (hereafter,“trading securities”), (b) debt securities intended to be held tomaturity (hereafter, “held-to-maturity debt securities”), (c) equity
securities issued by subsidiaries and affiliated companies, and (d) for
all other securities that are not classified in any of the above
categories (hereafter, “available-for-sale securities”)
Held-to-maturity debt securities are stated at amortized cost.
Equity security issued by affiliated company which is notconsolidated or accounted for using the equity method is stated atmoving-average cost. Available-for-sale securities with available
fair market values are stated at fair market value. Unrealized gains
and unrealized losses on these securities are reported, net of
applicable income taxes, as a separate component of shareholders’equity. Realized gains and losses on sale of such securities arecomputed using moving-average cost.
Securities with no available fair market value are stated atmoving-average cost.
If the market value of held-to-maturity debt securities, equity
securities issued by affiliated company, and available-for-salesecurities, declines significantly, such securities are stated at fairmarket value and the difference between fair market value and thecarrying amount is recognized as loss in the period of the decline. If
the fair market value of equity securities issued by unconsolidated
subsidiaries and affiliated companies not on the equity method is
not readily available, such securities should be written down to net
asset value with a corresponding charge in the income statement in
the event net asset value declines significantly. In these cases, suchfair market value or the net asset value will be the carrying amountof the securities at the beginning of the next year.
As a result of adopting the new accounting standard forfinancial instruments, loss before income taxes decreased by ¥1,548
million ($12,494 thousand). Also, based on the examination of theintent of holding each security upon application of the new
accounting standard on April 1, 2000, held-to-maturity debt
securities and available-for-sale securities maturing within one year
from the balance sheet date are included in current assets, and othersecurities are included in investments and other assets. As a result,at April 1, 2000, securities in current assets decreased by ¥9,156
million ($73,898 thousand), securities loaned in current assets
decreased by ¥15,727 million ($126,933 thousand) and investment
securities increased by ¥24,883 million ($200,831 thousand)compared with what would have been reported under the previous
accounting policy.
(7) Property and equipment
The Company and domestic consolidated subsidiaries depreciateproperty and equipment using the declining-balance method at rates
determined based on the useful lives prescribed in the Japanese tax
regulations except that the Company and two domestic subsidiaries
depreciate buildings using the straight-line method and certain otherdomestic subsidiaries depreciate buildings, excluding building
fixtures, acquired after March 31, 1998 using the straight-line
method. Overseas consolidated subsidiaries depreciate property
and equipment using primarily the straight-line method in
accordance with the accounting principles in the respective
countries.

Estimated useful lives used in the computation of depreciation
are generally as follows:
Buildings and structures .......................6 to 60 years
Machinery and equipment ...................2 to 20 years(8) Software cost
Software costs are amortized using the straight-line method over theestimated useful lives (five years).
In accordance with the provisional rule of the JICPA’s
Accounting Committee Report No. 12 “Practical Guidance for
Accounting for Research and Development Costs, etc.” (the“Report”), the Company accounts for software which was includedin leasehold rights and other intangible assets in the same manner in2000 as in 1999. Pursuant to the Report, however, the Company
included software in other assets in 2000 and depreciated it using
the straight-line method over the estimated useful lives (five years).
(9)Allowance for doubtful accountAllowance for doubtful accounts is provided in amounts sufficient
to cover probable losses on collection. It consists of the estimatedamount considered to be uncollectible based on the evaluation ofcertain identified trade notes, accounts and loans receivable, and an
amount calculated by applying the percentage of collection losses
experienced in certain period in the past to the remaining
receivables in 2000, when the Company changed the accounting
policy as explained in Note 3.
(10) Finance leases
Finance leases except those leases for which the ownership of theleased assets is considered to be transferred to the lessee, areaccounted for in the same manner as operating leases.
(11) Income taxes
Effective April 1, 1998, the Company adopted the new accounting
standard, which recognizes tax effects of temporary differences
between the financial statement basis and the tax basis of assets andliabilities. Under the new accounting standard, the provision forincome taxes is computed based on the pretax income included in
the consolidated statement of income. The asset and liability
approach is used to recognize deferred tax assets and liabilities forthe expected future tax consequences of temporary differences.
The amount of deferred income taxes attributable to the net tax
effects of the temporary differences at April 1, 1998 is reflected as
an adjustment of ¥19,299 million to the retained earnings brought
forward from the previous year.
(12) Employees’ retirement benefits
The Company and some of its consolidated subsidiaries provide
two types of post-employment benefit plans, unfunded lump-sum
payment plans and funded non-contributory pension plans, underwhich all eligible employees are entitled to benefits based on theircurrent rate of pay, length of service, and the conditions underwhich the termination occurs.
Prior to April 1, 2000, consolidated subsidiaries accrued
liabilities for lump-sum severance and retirement payments equal to40% of the amount required had all eligible employees voluntarily
terminated their employment at the balance sheet date, except that,at March 31, 2000, one consolidated subsidiary provided liabilities
for severance and retirement benefits based on the Net-PresentValue method as discussed in Note 3. The Companies recognizedpension expense when, and to the extent, payments were made to
the pension plans.
Effective April 1, 2000, the Companies adopted the new
accounting standard (“Opinion on Setting Accounting Standard for
Employees’ Severance and Pension Benefits,” issued by the BusinessAccounting Deliberation council on June 16, 1998).

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 23

住友不動産AR01-財務 01.9.27 10:38 AM ページ 24

Under the new accounting standard, liabilities and expenses forseverance and retirement benefits are determined based on theamounts actuarially calculated using certain assumptions.
The Company and its consolidated subsidiaries provided
allowance for employees’ severance and retirement benefits at
March 31, 2001 based on the estimated amount of projected benefit
obligation at that date.
The excess of the projected benefit obligation over the total of
the fair value of pension assets as of April 1, 2000 and the liabilities
for severance and retirement benefits recorded as of April 1, 2000
(the “net transition obligation”) amounted to ¥1,681 million. All of
this was recognized in expenses in the year ended March 31, 2001.
Actuarial gains and losses are recognized in expenses in the
succeeding period.
As a result of the adoption of the New Accounting Standard, inthe year ended March 31, 2001, severance and retirement benefit
expenses increased by ¥1,721 million ($13,890 thousand),
operating income decreased by ¥41 million ($331 thousand) andloss before income taxes increased by ¥1,721 million ($13,890
thousand) compared with what would have been recorded under
the previous accounting standard.

If derivative financial instruments are used as hedges and meetcertain hedging criteria, the Company and its consolidated
subsidiaries (the “Companies”) defer recognition of gains or losses
resulting from changes in fair value of derivative financial
instruments until the related losses or gains on the hedged items arerecognized.
Also, if interest rate swap contracts are used as hedge and meetcertain hedging criteria, the net amount to be paid or received under
the interest rate swap contract is added to or deducted from theinterest on the assets or liabilities for which the swap contract was
executed.

(13) Derivative transaction and hedge accounting
The new accounting standard for financial instruments, effectivefrom the year ended March 31, 2001, requires companies to state
derivative financial instruments at fair value and to recognizechanges in the fair value as gains or losses unless derivative financial
instruments are used for hedging purposes.

(15) Reclassifications
Certain prior year amounts have been reclassified to conform to the2001 presentation. These changes had no impact on previously
reported results of operations.

(14) Amounts per share of common stock
The computation of net income per share is based on the weightedaverage number of shares of common stock outstanding during
each year.
Diluted net income per share is not presented, since theCompany has never issued any securities with dilutive effect, such as
bonds with warrants and convertible bonds.
Cash dividends per share represent actual amounts applicable to
the respective year.

3. Change in accounting policy(1) Effective April 1, 1998, the Company and two consolidated
subsidiaries changed the method of depreciating buildings from thedeclining-balance method to the straight-line method to match
revenue and the related expenses more appropriately.
The effect of this change was to decrease depreciation expense
and to increase income before income taxes for the year ended
March 31, 1999 by ¥2,344 million compared with previous method.
The effect on segment information of these changes is explainedin Note 19.
(2) Allowance for doubtful accounts is provided in amounts
sufficient to cover probable losses on collection. It consists of theestimated amount considered to be uncollectible based on theevaluation of certain identified trade notes, accounts and loans
receivables, and an amount calculated by applying the percentage ofcollection losses experienced in certain period in the past to theremaining receivables in 2001 and 2000. Prior to 2000, allowancefor doubtful accounts was provided at an estimated amount ofprobable bad debts plus the maximum amount allowed under the

4. Effect of bank holiday on March 31, 2001
As financial institutions in Japan were closed on March 31, 2001,¥129 million ($1,041 thousand) of notes receivable—trade and¥101 million ($815 thousand) of notes payable—trade maturing on

Japanese tax regulations.
The effect of this change was to increase income before income
taxes for the year ended March 31, 2000 by ¥50 million comparedwith what would have been reported under the previous method.
The effect on segment information of these changes is explainedin Note 19.
(3) Effective April 1, 1999, one consolidated subsidiary changed its
method of accounting for employees’ retirement benefits. Previously
the subsidiary provided for such benefits at 40% of the amountwhich would be required if all eligible employees had voluntarily
retired or terminated their employment at the balance sheet date.
Effective from the year ended March 31, 2000, the subsidiary
adopted the Net-Present-Value method, under which amounts
based on the present value of estimated payments of severance andretirement benefits upon termination or retirement are used in thecomputation of the liabilities and expenses for such benefits.
The effect on segment information of these changes is explainedin Note 19.

March 31, 2001 were settled on the following business day, April 2,
2001 and accounted for accordingly.

5. Cash and cash equivalents
Cash and cash equivalents at March 31, 2001 and 2000 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2001

Cash, mainly time and notice deposits
Time deposits over three months
Marketable securities
Cash and cash equivalents

24 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

¥91,986(8)
401¥92,379

2000¥39,728(3)
511¥40,236

2001$742,421(64)
3,236$745,593

住友不動産AR01-財務 01.9.27 10:38 AM ページ 25

6. Inventories
Inventories at March 31, 2001 and 2000, were as follows:

Thousands of
U.S. dollars

Millions of yen

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

2001

2000

2001

¥ 20,593
61,211
61,701
5,710¥149,215¥ 11,233
61,96449,5405,573¥128,310$ 166,207
494,035
497,990
46,086$1,204,318

The Company transfered certain inventories to property and equipment, and transfered certain property and equipment and other assets toinventories. Such transfers in the year ended at March 31, 2000 were as follows:
Millions of yen
2000

Inventories:
Transfer to property and equipment
Transfered from property and equipment
Transfered from other assets
Net decrease¥(62,146)
1,600
861(59,685)

Property and equipment:
Transfered from inventories
Transfer to inventories
Net increase¥ 62,146(1,600)60,546

Other assets:
Transfer to inventories

¥

(861)

There were no such transfers in the year ended March 31, 2001.

7. Investments in and advances to unconsolidated subsidiaries and affiliated companies
Investments in and advances to unconsolidated subsidiaries and affiliated companies at March 31, 2001 and 2000, consisted of the following:Thousands of
U.S. dollars

Millions of yen

Investments in common stock, at cost
Advances
Total

2001

2000

2001

¥5,800
1,912¥7,712¥5,6791,912¥7,591$46,812
15,432$62,244

8. Properties in trust
The Company has properties which are the object of real estate trust contract.
Such properties included in property and equipment in the consolidated balance sheets at March 31, 2001 and 2000 were as follows:
Thousands of
U.S. dollars

Millions of yen

Buildings and structures
Land
Machinery and equipment
Total

2001

2000

¥ 7,606
18,628113¥26,347¥ 7,982
18,628
134¥26,7442001$ 61,388
150,347912$212,647

9. Securities
A. The following tables summarize acquisition costs, book values and fair value of securities with available fair values as of March 31, 2001:(a) Held-to-maturity debt securities:
Securities with available fair values exceeding book values
Book value
Fair value
Difference

Millions of yen

Thousands of
U.S. dollars¥1,232
1,261¥ 29$ 9,943
10,177$ 234

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 25

住友不動産AR01-財務 01.9.27 10:38 AM ページ 26(b) Available-for-sale securities:
Securities with book values exceeding acquisition costs

Millions of yen

Type
Equity securities

Acquisition cost

Book value

Difference¥11,310¥16,188¥4,878Type
Equity securities

Acquisition cost

Book value

Difference$91,283$130,653$39,370

Thousands of U.S. dollars

Other securities

Millions of yen

Type
Equity securities
Others
Total

Acquisition cost

Book value

Difference¥14,620
1,719¥16,339¥12,035
1,314¥13,349¥(2,585)(405)¥(2,990)Type
Equity securities
Others
Total

Acquisition cost

Book value

Difference$117,998
13,874$131,872$97,135
10,605$107,740$(20,863)(3,269)$(24,132)

Thousands of U.S. dollars

B. The following tables summarize book values of securities with no available fair values as of March 31, 2001:(a) Available-for-sale securities:

Type
Money management funds
Non-listed equity securities
Senior securities
Total

Book value

Millions of yen

Thousands of
U.S. dollars

¥

$

401
1,404
12,903¥14,708

3,236
11,332
104,140$118,708(b) Subsidiaries and affiliated companies

Book value

Type
Subsidiaries
Affiliated companies
Total

Millions of yen

Thousands of
U.S. dollars¥1,107
4,692¥5,799$ 8,935
37,869$46,804

C. Available-for-sale securities with maturities and held-to-maturity debt securities are as follows:
Millions of yen

TypeAvailable-for-sale securities
Held-to-maturity debt securities:
Government bonds
Total

Within one year

Over one year but
within five years

Over five years but
within ten years

Over ten years

Total

¥ —

¥1,068¥10¥ —¥1,078

169
¥169

1,063
¥2,131

—
¥10

—
¥ —

1,232
¥2,310Thousands of U.S. dollars

Type
Available-for-sale securities
Held-to-maturity debt securities:
Government bonds
Total

Within one year$

Over one year but
within five years

Over five years but
within ten years

Over ten years

Total

—

$ 8,620$81$—$ 8,701

1,364$1,364

8,579$17,199

—
$81

—
$—

9,943
$18,644

At March 31, 2000, book value, market value and net unrealized gain of marketable securities and investments in securities was as follows:
Millions of yen
2000

Current
Non-current
TotalBook valueMarket value

Unrealized gain

¥23,095
1,145¥24,240¥30,027
1,189¥31,216¥6,932
44¥6,976

10. Short-term bank loans and long-term debt
Short-term bank loans are represented by notes maturing generally in three months. The annual interest rates on short-term bank loans
outstanding at March 31, 2001 and 2000 were principally ranging from 0.25% to 6.00% and 0.60% to 7.60%, respectively.
Long-term debt at March 31, 2001 and 2000, consisted of the following:
26 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

住友不動産AR01-財務 01.9.27 10:38 AM ページ 27

Thousands of
U.S. dollars

Millions of yen
2001

6.2% Euroyen notes, due 2000
4.8% Euroyen notes, due 2000
3.8% Euroyen notes, due 2000
3.0% Euroyen notes, due 2000
2.55% Euroyen notes, due 2000
2.9% Euroyen notes, due 2001
3.15% Euroyen notes, due 2002
2.95% Euroyen notes, due 2001
3.0% Euroyen notes, due 2001
2.5% Euroyen notes, due 2001
2.1% Euroyen notes, due 2001
2.35% Euroyen notes, due 2002
2.65% Euroyen notes, due 2004
2.4% Euroyen notes, due 2003
2.575% Euroyen notes, due 2004
1.9% domestic straight bonds, due 2001
2.5% domestic straight bonds, due 2003
2.025% domestic straight bonds, due 2002
2.025% domestic straight bonds, due 2001
2.5% domestic straight bonds, due 2001
2.6% domestic straight bonds, due 2002
2.5% domestic straight bonds, due 2002
Floating rate Euroyen notes, due 2002
2.6% Euroyen notes, due 2003
2.75% domestic straight bonds, due 2003
3.0% domestic straight bonds, due 2004
2.6% domestic straight bonds, due 2003
2.6% Euroyen notes, due 2001
3.1% Euroyen notes, due 2005
2.7% domestic straight bonds, due 2001
2.97% Euroyen notes, due 2002
3.0% domestic straight bonds, due 2003
3.0% domestic straight bonds, due 2003
2.35% domestic straight bonds, due 2002
2.65% domestic straight bonds, due 2003
2.95% domestic straight bonds, due 2004
2.35% domestic straight bonds, due 2003
2.45% domestic straight bonds, due 2004
2.45% domestic straight bonds, due 2004
2.62% domestic straight bonds, due 2005
2.3% domestic straight bonds, due 2004
2.85% domestic straight bonds, due 2006
Loans, principally from banks and insurance companies,
interest principally at rates of 0.80% to
4.58% in 2001, and 0.66% to 4.5% in 2000.
SecuredUnsecured

¥

—
—
—
—
—
20,0009,400—
20,00019,8909,800
10,0009,800
10,0008,500
15,00017,60020,000
7,000
—
7,000
8,000
1,000
1,000
7,000
4,000
10,000
1,000
700
5,000
5,000
15,00035,00030,00010,00040,0009,710
20,00010,00019,9104,700
5,000

20,00020,00030,00030,00010,00020,00010,00010,00020,00020,00010,00010,00010,00010,00010,00015,00020,00020,000
7,000
7,000
7,000
8,000
1,000
1,000
7,000
5,000
10,000
1,000
700
5,000
5,000
15,00035,00030,00010,00040,000
—
—
—
—
—
—

2001

$

—
—
—
—
—
161,42175,868—161,421
160,533
79,09680,71079,09680,71068,604
121,065
142,050
161,42156,497—56,49764,5688,071
8,071
56,49732,28480,7108,071
5,650
40,35540,355
121,065
282,486
242,13180,710322,841
78,370161,42180,710160,694
37,93440,35576
529,024
1,018,800(253,084)¥ 765,716—
4,309,370
7,747,708(1,967,716)$ 5,779,992

Years ending March 31

Millions of yen

Thousands of
U.S. dollars

2002
2003
2004
2005
2006
2007 and thereafter¥243,800
260,778
199,225
171,944
52,551
31,643$1,967,716
2,104,746
1,607,950
1,387,764
424,140
255,392

Amount due within one year—
533,931959,941(243,800)¥ 716,141

2000¥

The aggregate annual maturities of long-term debt at March 31, 2001, are as follows:

The following assets were pledged as security for short-term bank loans and long-term debt at March 31, 2001:

Net book value of property and equipment (mainly land and buildings)

Millions of yen

Thousands of
U.S. dollars¥1,468$11,848

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 27

住友不動産AR01-財務 01.9.27 10:38 AM ページ 28

As is customary in Japan, security must be given if requested by lending banks under certain circumstances, and generally banks have the rightto offset cash deposited with them against any debt or obligations payable to the bank that becomes due in case of default and certain otherspecified events. The Company has never received any such request nor does it expect that any such request will be made.

11. Employees’ severance and retirement benefits
As explained in Note 2.(12), effective April 1, 2000, the Companies adopted the new accounting standard for employees’ severance andretirement benefits, under which the liabilities and expenses for severance and retirement benefits are determined based on the amounts
obtained by actuarial calculations.
The liabilities for severance and retirement benefits included in the liability section of the consolidated balance sheet as of March 31, 2001
consists of the following:Thousands ofProjected benefit obligation
Unrecognized actuarial differences
Less fair value of pension assets
Liability for severance and retirement benefits

Millions of yen

U.S. dollars¥5,624(145)(2,092)¥3,387$45,391(1,170)(16,885)$27,336

Included in the consolidated statement of income for the year ended March 31, 2001 are severance and retirement benefit expenses comprisedof the following:Thousands ofService costs—benefits earned during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of net transition obligation
Severance and retirement benefit expenses

Millions of yen

U.S. dollars

¥ 398
146
(56)
1,681
¥2,169$ 3,212
1,179(452)
13,567$17,506

The discount rate and the rate of expected return on plan assets used by the Company are 3% (the discount rate used by one consolidated
subsidiary is 2.5%). The estimated amount of all retirement benefits to be paid at the future retirement date is allocated equally to each service
year using the estimated number of total service years. Actuarial gains and losses are recognized in income statement in the succeeding year.

12. Income taxes
The Company is subject to a number of income taxes, which, in the aggregate, indicate a statutory rate in Japan of approximately 42.05% for
the years ended March 31, 2001 and 2000, and approximately 47.68% for the year ended March 31, 1999.
The following table summarizes the significant differences between the statutory tax rate and the Company’s effective tax rate for financial
statement purposes for the year ended March 31, 2000.
The information for 2001 is not disclosed as net loss was incurred in 2001.
2000

Statutory tax rate
Foreign subsidiaries’ temporary difference for which no tax effects were recognized
Permanently nondeductible expenses of foreign subsidiaries
Effect of operating loss carryforwards of subsidiaries
Per capita inhabitant tax
Other42.05%(26.74)
6.36
4.97
0.87
(1.22)

Effective tax rate

26.29%

Significant components of the Company’s deferred tax assets and liabilities as of March 31, 2001 and 2000 are as follows:
Thousands of
U.S. dollars

Millions of yen
2001

2000

2001

Deferred tax assets:
Net operating loss carryforwards
Loss from devaluation of inventories
Unrealized inter-company profits
Allowance for employees’ severance and retirement benefits
Other¥34,157
7,562
3,919
1,085
2,608

¥12,349
9,531
3,894
—
6,252

$275,682
61,033
31,631
8,757
21,049Total deferred tax assets
Valuation allowance

49,331(11,372)

32,026(10,864)

398,152(91,784)

Net deferred tax assets

37,95921,162306,368

(793)
—
(757)

—
(1,959)(279)(6,400)—(6,110)(1,550)(2,238)(12,510)¥36,409¥18,924$293,858

Deferred tax liabilities:
Net unrealized holding gains on securities
Deferred gain on sale of fixed assets
Other
Total deferred tax liabilities
Net deferred tax assets
28 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

住友不動産AR01-財務 01.9.27 10:38 AM ページ 29

13. Guarantee and lease deposits received
Guarantee and lease deposits received at March 31, 2001 and 2000, are summarized as follows:

Thousands of
U.S. dollars

Millions of yen

Guarantee and lease deposits from tenants
Lease deposits from others
Total

2001

2000

2001

¥187,464
81,377¥268,841¥163,412
31,391¥194,803$1,513,026
656,796$2,169,822

14. Shareholders’ equity
Under the Commercial Code of Japan (the “Code”), at least 50% of the issue price of new shares, with a minimum of the par value thereof, isrequired to be designated as stated capital. The portion which is to be designated as stated capital is determined by resolution of the Board of
Directors. Proceeds in excess of the amounts designated as stated capital are credited to additional paid-in capital.
Under the Code, certain amounts of retained earnings equal to at least 10% of cash dividends and bonuses to directors and corporate
auditors must be set aside as a legal reserve until the reserve equals to 25% of common stock. The reserve is not available for dividends but
may be used to reduce a deficit by resolution of the stockholders or may be capitalized by resolution of the Board of Directors. The legal
reserve is included in the retained earnings.
The maximum amount that the Company can distribute as dividends is calculated based on the unconsolidated financial statements of theCompany and in accordance with the Commercial Code of Japan.
15. Information for certain lease transactions
Finance leases which do not transfer ownership to lessees are not capitalized and accounted for in the same manner as operating leases. Certain
information for such non-capitalized finance leases is as follows:
As lessee
A summary of assumed amounts (inclusive of interest) of acquisition cost, accumulated depreciation and net book value at March 31, 2001
and 2000 is as follows:
Thousands ofMillions of yen

Acqusition cost:
Buildings and structures
Other
Accumulated depreciation
Net book value

U.S. dollars

2001

2000

2001

¥3,377
1,065(1,460)¥2,982¥1,4401,317(1,591)¥1,166$27,256
8,596(11,784)$24,068

As lessor
A summary of stated amounts of acquisition cost, accumulated depreciation and net book value at March 31, 2000 is as follows:
Millions of yen
2000

Acqusition cost:
Other
Accumulated depreciation
Net book value¥1,010(960)¥ 50

Lease expenses under finance leases, inclusive of interest, for the year ended March 31, 2001, amounted to ¥825 million ($6,659 thousand).
Future lease payments and receipts under such finance leases and non-cancelable operating leases at March 31, 2001, were as follows:
Thousands of
U.S. dollars

Millions of yen

Finance leases
Future lease payments:
Due within one year
Due after one year
Total
Future lease receipts:
Due within one year
Due after one year
Total
Future sub-lease payments:
Due within one year
Due after one year
Total
Future sub-lease receipts:
Due within one year
Due after one year
Total

2001

2000

2001

¥ 708
2,274
¥2,982¥ 522
644¥1,166$ 5,714
18,354$24,068

¥

¥

$

¥
¥

—
—
—

¥

12
8
20

¥

51
91
¥ 142

¥

¥
¥

78
—
78

$

20
20
40

$

51
136
¥ 187

$

¥

$

—
—
—
97
64
161

412
734
$ 1,146

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 29

住友不動産AR01-財務 01.9.27 10:38 AM ページ 30

Operating leases
Future lease payments:
Due within one year
Due after one year
Total
Future lease receipts:
Due within one year
Due after one year
Total

¥ 4,901
59,821¥64,722

¥

40
252
¥ 292

$ 39,556
482,817$522,373

¥

¥ 489
2,424
¥2,913$97
1,020¥ 1,117

$

783
8,232
9,015

16. Derivative transactions
The Company and its subsidiaries utilize financial derivative transactions only for the purpose of hedging the currency risk associated withforeign currency denominated transactions or hedging the interest rate risk associated with the Company’s loans payable.
Forward foreign currency and interest rate swap contracts are subject to risks of foreign exchange rate changes and interest rate changes,
respectively.
The derivative transactions are executed and managed by the Company’s Finance Department in accordance with the established policies.
The Finance Department prepares reports on derivative transactions and forwards them to the respective department concerned on a monthly
basis.
The following summarizes hedging derivative financial instruments used by the Companies and items hedged:
Hedging instruments:
Hedged items:
Foreign exchange contracts
Foreign provisional transaction
Interest rate swap contracts
Bank loan and bonds
Evaluating hedge effectiveness of year ended March 31, 2001 is omitted as hedge accounting has been applied to derivative transactions.
The contract amounts and unrealized gain or loss of outstanding derivative transactions at March 31, 2001 and 2000 were as follows:
Millions of yen
2000
Contract
amountEstimated
fair value

Forward exchange contracts:
To sell yen currencies
To buy yen currencies

¥

7,376
4,086

¥ 7,5034,194Interest rate swap agreements
Total

266,850¥278,312(2,482)¥ 9,215

The amounts for 2001 were not disclosed because all derivative transactions were used as hedges and hedge accounting was applied.

17. Contingent liabilities (Contingent liabilities for guarantee of loans)
At March 31, 2001 and 2000, the Company and its consolidated subsidiaries were contingently liable as guarantors of borrowings by affiliates
and others as follows:
Thousands of
U.S. dollars

Millions of yen

Affiliates
Others
Total

2001

2000

2001

¥2,6505,646¥8,296¥3,0194,948¥7,967$21,388
45,569$66,957

Also, at March 31, 2001, the Company and its consolidated subsidiaries had outstanding commitments to guarantee loans of certain affiliatedcompanies and unrelated companies. Certain information of them was as follows:
Thousands of
U.S. dollars

Millions of yen

Affiliates
Others
Total

2001

2000

2001

¥1,75030¥1,780¥2,316
1,021¥3,337$14,124242$14,366(Lawsuits)
The Company was a defendant in the following lawsuits, in which, based on the Leased Land and House Lease Law, the Company claimed the
reduction of the rental payments.
Two lawsuits are pending in court.
A lawsuit was brought in the Tokyo District Court against the Company in 1994 (Case A) and another one in 1995 (Case B), relating toclaims to recover the difference between the rental payments based on the lease agreements and the amounts the Company paid taking a
position under Leased Land and House Lease Law. While the District Court issued judgements against the Company in August and October of

30 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

住友不動産AR01-財務 01.9.27 10:38 AM ページ 31

1998, the Company appealed to the Tokyo Higher Court in September and November of 1998 as the Company believed that the judgements
were contradictory to the previous legal interpretations.
In Case A, the Tokyo Higher Court issued judgement for the Company in October of 1999. And the lessor appealed to the Supreme Court inNovember of 1999.
In Case B, the Tokyo Higher Court issued judgement against the Company in January of 2000 that, the Company believed, wascontradictory to the previous legal interpretations. So the Company appealed to the Supreme Court in January of 2000.

18. Subsequent events
The Company issued 1.3125% ¥10,000 million ($80,710 million) domestic straight bonds due 2006 on May 16, 2001, 1.60% ¥10,000
million ($80,710 million) domestic straight bonds due 2006 on June 20, 2001, 1.30% ¥10,000 million ($80,710 million) domestic straightbonds due 2006 on June 20, 2001, and 1.30% ¥10,000 million ($80,710 million) domestic straight bonds due 2007 on June 20, 2001.
19. Segment information
The Company and its consolidated subsidiaries mainly operate their business in six segments: leasing of buildings and shopping centers, etc.;
sale of detached homes; construction of housing and buildings; brokerage business; providing housing loans; and other business.
Information by industry segments for the years ended March 31, 2001, 2000 and 1999 is summarized as follows:
Millions of yen
Leasingbusiness

For 2001
I Net sales
Customers¥ 163,047
Intersegment
1,528
Total
164,575
Costs and expenses
118,137
Operating profit¥ 46,438
II Identifiable assets ¥1,396,537
Depreciation andamortization
9,707
Capital expenditures
45,721

Sales
business

Construction
business

Brokeragebusiness

Otherbusiness¥149,196
0
149,196
129,502¥ 19,694¥104,549
9,000
113,549
109,533¥ 4,016¥34,702179
34,881
26,160¥ 8,721¥¥171,497¥ 25,266¥27,200¥115,332 ¥1,735,832

51
515

187
334

178
732

Total

Elimination
and/or corporate

Consolidated

7,751 ¥ 459,245 ¥— ¥ 459,245
6,461
17,168(17,168)—
14,212476,413(17,168)
459,245
8,865
392,197(8,170)384,027¥ 5,347 ¥ 84,216 ¥ (8,998) ¥ 75,21885
125¥167,697¥1,903,529

169
454

10,37747,881

10,20847,427

Millions of yen
Leasingbusiness

For 2000I Net sales
Customers¥ 151,268
Intersegment
1,535
Total
152,803
Costs and expenses
107,050
Operating profit¥ 45,753
II Identifiable assets ¥1,492,129
Depreciation andamortization
10,649
Capital expenditures 104,567

Sales
business

Construction
business

BrokeragebusinessLoansbusiness

Otherbusiness¥150,483 ¥ 80,064
3
7,102
150,486
87,166
131,91282,412¥ 18,574 ¥ 4,754¥31,633290
31,923
24,698¥ 7,225

¥

2,192
4,089
6,281
4,069
2,212

¥

¥128,572 ¥ 22,664¥21,124¥372,083

163
121

3
—

28
464

209
129

¥

Total

Elimination
and/or corporate

Consolidated

¥

5,947
965
6,912
6,382
530

¥ 421,587 ¥— ¥ 421,587
13,984(13,984)—435,571(13,984)
421,587356,523(5,484)351,039¥ 79,048 ¥ (8,500) ¥ 70,548

¥

7,835

¥2,044,407 ¥(128,064) ¥1,916,343

82
25

11,134105,306135
443

11,269105,749

Elimination
and/or corporate

Consolidated

Millions of yen
Leasingbusiness

For 1999
I Net sales
Customers¥ 150,976
Intersegment
913
Total
151,889
Costs and expenses
108,177
Operating profit¥ 43,712
II Identifiable assets ¥1,066,259
Depreciation andamortization
9,702
Capital expenditures
30,905

Sales
business

Construction
business

BrokeragebusinessLoansbusiness

3,458
7
3,465
3,221
244

¥ 389,136 ¥
6,504
395,640
334,821¥ 60,819 ¥¥27,829138
27,967
22,681¥ 5,286¥¥219,772 ¥ 16,892¥22,967¥353,441¥ 24,787

150
48

4
3

132
58

22
30

201
436

¥

Total

¥137,735 ¥ 61,191
10
5,433
137,745
66,624
131,201
64,241¥ 6,544 ¥ 2,383

¥

7,947
3
7,950
5,300
2,650

Other
business¥— ¥ 389,136(6,504)—(6,504)
389,136(2,201)
332,620(4,303) ¥ 56,516¥1,704,118 ¥ 123,028
10,211
31,480129170¥1,827,146
10,34031,650SUMITOMO REALTY & DEVELOPMENT CO., LTD. 31

住友不動産AR01-財務 01.9.27 10:38 AM ページ 32

Thousands of U.S. dollars
Leasingbusiness

For 2001
I Net sales
Customers
Intersegment
Total
Costs and expenses
Operating profit
II Identifiable assets
Depreciation andamortization
Capital expenditures

Sales
business

Construction
business

II Identifiable assets
Depreciation andamortization
Capital expenditures$203,923 $219,532 $930,847 $14,009,944 $1,353,486 $15,363,430

412
4,157

Thousands of
U.S. dollars

LoansbusinessLoansbusiness

1,784
5,009
6,793
1,750
5,043

$ 14,399
40,42754,826
14,124$ 40,702¥112,193$905,513

7
27

56
218

As described in Notes 2(7) and 3(1) to the Consolidated Financial
Statements, effective April 1, 1998, depreciation of buildings,
excluding building fixtures, is provided using the straight-line
method, and the Company and its consolidated subsidiaries
shortened the estimated useful lives of buildings, excluding building
fixtures.
The effects of the changes on operating income, depreciation
expense and identifiable assets were as follows:
Increase (Decrease) (Millions of yen)

Leasing business
Sales business
Brokerage business

Consolidated$11,271,485 $1,384,157

Millions of yen¥

Elimination
and/or corporate

Total$843,818 $280,081 $ 62,559 $ 3,706,578 $— $ 3,706,578
72,6391,444
52,147
138,563(138,563)—
916,457 281,525
114,706
3,845,141(138,563) 3,706,578
884,044 211,138
71,5503,165,432(65,940) 3,099,492$ 32,413 $ 70,387 $ 43,156 $ 679,709 $ (72,623) $ 607,086

78,345369,015¥

Other
business$ 1,315,956 $1,204,164
12,3330
1,328,289 1,204,164
953,487 1,045,213$ 374,802 $ 158,951

From the year ended March 31, 2001, Loans business segment isincluded in Other business segment as the segment accounted forless than 10% of all segments in net sales, operating income andidentifiable assets in 2001.
Information for Loans business segment for the year ended
March 31, 2001 is summarized as follows:

For 2001
I Net sales
Customers
Intersegment
Total
Costs and expenses
Operating profit

Brokeragebusiness

Operating profit

Depreciation

Identifiable assets¥1,83013
5¥(1,830)(13)(5)¥1,83013
5

As described in Notes 2(12) and 3(3) to the Consolidated Financial
Statements, from last fiscal year, employees’ retirement benefits areprovided the Net-Present-Value method, and allowance for
doubtful accounts is provided using the average percentage of actual
bad debts in the past.

32 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

1,509
2,696

1,437
5,908

686
1,009

82,389382,785

1,364
3,664

83,753
386,449

The effects of the changes on operating income were as follows:
Millions of yen

Sales business
Brokerage business
Loans businessElimination and/or corporate

¥ (7)
(64)
(1)
50

As described in Note 2(5) to the Consolidated Financial Statements,from this fiscal year, one domestic consolidated subsidiary
introduced cost accounting system.
The effects of this adoption on operating income were as
follows:

Sales business
Brokerage businessMillions of yen

Thousands of
U.S. dollars

¥624
341

$5,0362,752

As described in Note 2(12) to the Consolidated Financial
Statements, from this fiscal year, the Company and its consolidated
subsidiaries adopted the new accounting standard for severance andretirement benefits.
The effects of this adoption on operating income were as
follows:

Leasing business
Construction business
Other businessElimination and/or corporate

Millions of yen

Thousands of
U.S. dollars

¥(15)
(18)
(3)
3

$(121)
(145)
(24)
24

As described in Notes 2(6) and 2(13) to the Consolidated Financial
Statements, from this fiscal year, the Company and its consolidated
subsidiaries adopted the new accounting standard for financial
instruments.
The effects of these adoptions on operating income were as
follows:
Millions of yen

Leasing business¥4

Thousands of
U.S. dollars$32

住友不動産AR01-財務 01.9.27 10:38 AM ページ 33

Report of Independent Public Accountants

To the Shareholders and the Board of Directors of
Sumitomo Realty & Development Co., Ltd.:We have audited the accompanying consolidated balance sheets of Sumitomo Realty & Development Co., Ltd. (a Japanese
corporation) and subsidiaries as of March 31, 2001 and 2000, and the related consolidated statements of operations, shareholders’equity and cash flows for each of the three years in the period ended March 31, 2001, expressed in Japanese yen.
Our audits were made in accordance with generally accepted auditing standards in Japan and, accordingly, included such tests of
the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the consolidated financial statements referred to above present fairly the consolidated financial position of
Sumitomo Realty & Development Co., Ltd. and subsidiaries as of March 31, 2001 and 2000, and the consolidated results of theiroperations and their cash flows for each of the three years in the period ended March 31, 2001 in conformity with accounting
principles generally accepted in Japan consistently applied during the periods, except as noted in the following paragraph.
As explained in Note 2, Sumitomo Realty & Development Co., Ltd. and subsidiaries adopted, on a prospective basis in all cases,
new Japanese accounting standards for financial instruments, employees’ severance and retirement benefits and foreign currencytranslation effective April 1, 2000, and for consolidation and equity method accounting and research and development costs
effective April 1, 1999. Also, as explained in Note 3, Sumitomo Realty & Development Co., Ltd. and domestic subsidiaries
changed the method of depreciation in 1999, and changed the method of providing allowance for doubtful accounts andemployees’ retirement benefits in 2000, with which we concur.
Also, in our opinion, the U.S. dollar amounts in the accompanying consolidated financial statements have been translated fromJapanese yen on the basis set forth in Note 1.

Tokyo, Japan
June 28, 2001

Statement on Accounting Principles and Auditing Standards
This statement is to remind users that accounting principles and auditing standards and their application in practice may vary
among nations and therefore could affect, possibly materially, the reported financial position and results of operations. The
accompanying financial statements are prepared based on accounting principles generally accepted in Japan, and the auditing
standards and their application in practice are those generally accepted in Japan. Accordingly, the accompanying financial
statements and the auditors’ report presented above are for users familiar with Japanese accounting principles, auditing standards
and their application in practice.

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 33

住友不動産AR01-財務 01.9.27 10:38 AM ページ 34

Board of Directors and Auditors

Corporate Data

(As of June 28, 2001)(As of March 31, 2001)

Chairman of the Board
Shinichiro Takagi

Sumitomo Realty & Development Co., Ltd.

President
Junji Takashima
Director and Advisor
Taro Ando
Senior Managing Directors
Hirohisa Ichikawa
Yoichi Nakamura
Tetsuro Tsuruta
Hisao Matsui
Masayoshi Ohashi

Head Office
Shinjuku NS Building
4-1, Nishi-Shinjuku 2-chome
Shinjuku-ku, Tokyo 163-0820, Japan
Phone: 03-3346-2342
Facsimile: 03-3346-1652
http://www.sumitomo-rd.com
Date of Establishment
December 1, 1949
Paid-in Capital¥86,773 million

Managing Directors
Mitsuru Mori
Sadao Ushimaru
Kazuo Masuoka
Kenichi Onodera

Common Stock Issued and Outstanding
406,810,631

Directors
Shigeto Iwai
Arata Miyazawa
Kenichiro Sugimoto
Akira Kanda
Haruo Fukumuro
Kenichi Kameyama
Yozo Akiyama
Shozo Suzuki
Yasushi Kinoshita
Satoru Miyashita
Tsutomu Oyama

Number of Employees
1,693

Statutory Auditors
Yoshihiro Tokushige
Hisayoshi Horikiri
Takato Aramaki
Akira Sato
Kunio Kobayashi

34 SUMITOMO REALTY & DEVELOPMENT CO., LTD.

Number of Shareholders
36,111

Major Consolidated Subsidiaries
Sumitomo Real Estate Sales Co., Ltd.
Sumitomo Fudosan Home Co., Ltd.
Sumitomo Fudosan Syscon Co., Ltd.
Sumitomo Fudosan Tatemono Service Co., Ltd.
Sumitomo Fudosan Fitness Co., Ltd.
Izumi Restaurant Co., Ltd.
Sumitomo Fudosan Finance Co., Ltd.
Shintoshin Real Estate Co., Ltd.
Universal Home Inc.
Stock Exchange Listings
Tokyo and Osaka

住友不動産AR01-表紙 01.9.27 10:38 AM ページ 1 (2,1)

Sumitomo Realty & Development GroupLEASING BUSINESS
Building Development Division
Building Management Division
Shintoshin Real Estate Co., Ltd.
Sumitomo Fudosan Tatemono Service
Co., Ltd.
Shinjuku Sumitomo Building
Management Co., Ltd.

OTHER BUSINESS
Sumitomo Fudosan Fitness Co., Ltd.
Izumi Restaurant Co., Ltd.
Sumitomo Fudosan Finance Co., Ltd.
KS Techno Co., Ltd.

Sumitomo Realty &Development Co., Ltd.

SALES BUSINESSBROKERAGE BUSINESS

Condominium Development Division

Sumitomo Real Estate Sales Co., Ltd.

CONSTRUCTION BUSINESS
Housing Business Division Number I
Housing Business Division Number II
Sumitomo Fudosan Home Co., Ltd.
Sumitomo Fudosan Syscon Co., Ltd.
Universal Home Inc.

Printed on recycled paper

SUMITOMO REALTY & DEVELOPMENT CO., LTD. 35