Sumitomo Realty & Development Co., Ltd.

Shinjuku NS Building, 4-1, Nishi-Shinjuku 2-chome
Shinjuku-ku, Tokyo 163-0820, Japan
Phone: +81-3-3346-2342 Facsimile: +81-3-3346-1652

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

Annual Report 2008

Printed in Japan

Achieving Steady, Sustained Progress
ANNUAL REPORT 2008

About the Company

Investor Information(As of March 31, 2008)

Sumitomo Realty & Development Co., Ltd., a core member of the Sumitomo Group,
is one of Japan’s leading real estate companies. The Company is well established
as a comprehensive developer and supplier of high-quality office buildings andcondominiums in urban areas.
With operations centered on four areas—leasing, sales, construction andbrokerage—the Company has achieved a combination of growth potential andbalanced operations that will drive its success in the challenging markets of the
21st century. Sumitomo Realty remains committed to the creation of comfortable
work and living environments that contribute to a higher quality of life.

Paid-in Capital¥122,805 million

1

Consolidated
	Financial Highlights

2

	A Message From
the Management

Special Feature

12	

Review OF
Operations

12
16
20
22

Leasing
Sales
Construction
Brokerage

10

At a Glance

Japan Trustee Services Bank, Ltd.
(Trust account)
The Master Trust Bank of Japan, Ltd.
(Trust account)
Japan Trustee Services Bank, Ltd.
(Trust account 4)
Sumitomo Mitsui Banking Corporation
State Street Bank andTrust Company 505103
The Sumitomo Trust & Banking Co., Ltd.
Kajima Corporation
BNP Paribas Securities (Japan) Ltd.
Shimizu Corporation
State Street Bank and Trust Company

Number of Shareholders
18,374
Stock Exchange Listings
Tokyo Stock Exchange
Osaka Securities Exchange
Breakdown of Shareholders

Number ofshares held(Thousands)

Percentageof shares held

18,968

3.98%

15,935

3.35%

12,627
11,990

2.65%
2.52%

9,033
8,136
7,912
7,650
7,500
7,472

1.90%
1.71%
1.66%
1.61%
1.58%
1.57%

18.11%
10.37%
27.30%
38.35%
5.87%

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

2,400

	Initiatives in Redevelopment,a Key Source of Future Growth

		
		
		

Number of Common Stock
Authorized: 1,900,000,000 shares
Issued: 476,085,978 shares

Trust Accounts
Financial Institutions
Other Companies
Foreign Companies
Individuals and Others

CONTENTS

6

Major Shareholders

Stock Price (right scale)
TOPIX Average (left scale)

6,000

1,800

4,500

1,200

3,000

600

1,500

0

0

23	Our History
24 Corporate Governance
25 Financial Section
50 Senior Management
50 Corporate Data
51	Investor Information(Millions of shares)

250

Trading Volume

200
150

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

100
50
0

7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6
2003
2004
2005
2006
2007
2008

51

Consolidated Financial Highlights
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
Years ended March 31
Thousands of
U.S. dollars1

Millions of yen
2008

2007

2006

2008

Revenue from operations..............................................................

¥691,928¥676,834¥646,525$6,906,158

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

154,608

137,176

112,023

1,543,148

Ordinary profit*.................................................................................

125,176

112,406

87,0381,249,386

Net income..........................................................................................

63,13350,30032,506630,133

Total assets..........................................................................................

¥2,894,004¥2,747,900¥2,460,080$28,885,158

Shareholders’ equity ......................................................................

427,423

409,197375,656

4,266,124Interest-bearing debt......................................................................

1,665,042

1,473,644

1,267,032

16,618,844

Net income..........................................................................................

¥133.00¥105.92¥ 68.33$1.33

Shareholders’ equity........................................................................

900.57861.93790.74

8.99

Cash dividend applicable to the year........................................

18.00

14.00

10.00

0.18

For the YearAt Year-End
2

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

Notes: 1. U.S. dollar amounts in this report are translated, for convenience only, at the rate of ¥100.19=U.S. $1, the prevailing exchange rate at March 31, 2008.
2. Shareholders’ equity = Net assets – Minority interests

REVENUE FROMOPERATIONSOPERATING INCOME

+

+

2.2%

12.7%

(Billions of yen)
750

616.1

646.5

ORDINARY PROFIT*

676.8 691.9

720.0

573.9

NET INCOME

11.4%

25.5%

+

+

(Billions of yen)(Billions of yen)(Billions of yen)

200

150

75

154.6

150
137.2

500

112.4
100

50.3

50
87.0

112.0
100

63.1 65.0

125.2 127.0

162.0

100.3

74.4

96.0

66.0

32.5

50

250

25

50

15.5
6.3

0

’04 ’05 ’06’07 ’08 ’09(Forecast)

0’04 ’05 ’06’07 ’08 ’09(Forecast)

0’04 ’05 ’06’07 ’08 ’09(Forecast)

0’04 ’05 ’06’07 ’08 ’09(Forecast)* Ordinary profit, which equals operating income after adjustment for non-operating gains/losses, is a management index that is widely used in Japan. Due to differences in accounting standards, ordinary profit is not broken out in the Company’s English-language financial statements, but it is included here because it plays animportant role in the calculation of incentive payments for directors.

1

A Message from the Management

The Company is targeting the achievement of the Third Growth Plan and subsequent
sustained growth, and we will redouble our efforts to achieve those goals.

Junji Takashima

Kenichi Onodera

ChairmanPresident

Sustained growth based on our medium-termfull-year contributions of buildings opened in the previous fiscal

management plan, which is our top priority

year. The sales segment recorded substantial gains in profit mar-

Our top priority goal is to achieve the objectives in our current

gins on condominiums, and in the housing construction segment,

medium-term management plan. We have implemented andoperating income surpassed ¥10.0 billion for the first time. As asuccessfully completed three plans since 1997. We believe that

result, we recorded a 2.2% increase in revenue from operations, toour ability to achieve consistent growth is attributable to our pol-¥691.9 billion, a 12.7% gain in operating income, to ¥154.6 billion,

icy of giving the highest priority to meeting our plan’s objectives.

and an 11.4% rise in ordinary profit*, to ¥125.2 billion. Net income

In April 2007, we started the Third Growth Plan. The basic objec-

was up 25.5%, to ¥63.1 billion. We achieved the eleventh consec-

tives of this plan are to extend the record of growth in revenue

utive year of higher revenue from operations, operating income

and profit and to maintain the pace of growth achieved underand ordinary profit, the eighth consecutive year of a new record

previous plans. The plan’s numerical targets include a higher rate

high in ordinary profit and the third consecutive year of a newof growth in ordinary profit than the growth that was achieved

record high in net income. We exceeded the targets announced

under the previous plan and an increase in operating income

at the beginning of the year, and got off to an excellent start inthat is 50% higher than the increase that was achieved under thethe first year of our new medium-term management plan.

previous plan. In this way, we have set aggressive targets.

In consideration of our successfully surpassing planned levels
for ordinary profit, dividends for the year under review were in-Results in the March 2008 fiscal year

creased ¥4 per share, to ¥18 per share. Furthermore, we plan to

In the March 2008 fiscal year, the first year of the plan, we re-increase dividends by ¥2 per share, to ¥20 per share, for thecorded substantial gains in revenue and profit in the leasing

March 2009 fiscal year.

segment due to higher rents on existing buildings and to the* Please refer to the note on page 1.

Medium-Term Management Plan

Sustainable Growth in Revenue and Profit
To build on the successful completion of its previous management plans, Sumitomo Realty has formulated
a new medium-term management plan that covers the three-year period ending March 2010.

Third Three-Year Growth Plan (April 2007 to March 2010)
Basic objectives• Continue to record growth in revenue and profit (achieved 11th consecutive year of higher revenue and profit in
the March 2008 fiscal year)• Maintain the pace of growthTarget cumulative results over the three years covered by the new plan
• Revenue from operations¥2.4 trillion• Operating income¥470 billion• Ordinary profit¥380 billion
growth under medium-term management plans (Billions of yen)
(Years ended March 31)

Reconstruction Plan
1999–2001

1st Growth Plan
2002–2004

2nd Growth Plan
2005–2007

3rd Growth Plan
2008–2010

1,270
202
87

1,606
265
170

1,939
350
274

2,400
470
380

Revenue from operations
Operating income
Ordinary profit

Notes: 1. Cumulative total for the period covered by each plan.
2. The figures shown for the Reconstruction Plan are the cumulative totals for the final three years of the plan.

Favorable results, steady progress with medium-profit of ¥127.0 billion, which is one-half of the necessary target

term Management planfor the next two years under the plan. We will continue toIn the first year of the current plan, we achieved 29% of the plan’sstrengthen our sales system and will do our utmost to achievetarget for revenue from operations and 33% of the targets forthe plan’s objectives.

operating income and ordinary profit.

Looking at the market environment by segment, in leasing we

As shown in the table below, over the next two years, if we

do not expect any breakdown of overall demand–supply condi-

maintain the level of performance that we recorded in the year

tions. Over the next few years, new supply should be low,

under review, we expect to achieve our targets for operating

and there is little chance of a substantial decline in demand.

income and ordinary profit.

Moreover, demand from tenants seeking to move to newer

In consideration of external factors with a high degree ofbuildings remains strong. Therefore, the demand–supply

uncertainty, such as trends in resource prices and the financialbalance should remain strong. Due to the uncertainty aboutsituation, our forecast for the March 2009 fiscal year is ordinary

business conditions, the rate of growth in market rents has

Medium-Term Management Plan Progress (Billions of yen)
(Years ended March 31)

Revenue from operations
Operating income
Ordinary profit

Numerical targets
2008–2010*

Results
2008

Achievement ratio

Remaining balance
2009–2010

Forecast
2009

2,400
470
380

692
155
125

29%
33%
33%

1,708
315
255

720
162
127

* Cumulative three-year targets

reached a lull. However, there is still a gap between current rents

Also, in housing construction, construction might be weakand new contract rents, and existing tenants are accepting

due to a decline in first-time buyers accompanying the boom inhigher rents when they extend their leases.

condominium sales. On the other hand, our Shinchiku Sokkurisan

On the other hand, due to worsening consumer sentiment,

remodeling business is expected to continue to benefit fromcondominium purchase motivation remains weak. It is saidfavorable demand stemming from the aging of a large number ofthat the cause of the worsening of market conditions is thathouses that were built in the 1970s, a period of active housing

consumers have not accepted condominium prices, whichconstruction.

have risen for several years, and a recovery will require prices to

In the future, we will steadily implement a strategy that incor-

decline to the level that was experienced before the price gains.

porates consideration for this environment, and will strive to

However, looking at condominium prices in 1994, when theachieve the objectives of our medium-term management plan.

condominium boom began, and in 2007, the average price persquare meter has declined about 10%, from ¥682 thousand to

Redevelopment operations centered on future¥614 thousand, even though the average price of a condo-

growthminium in the Tokyo metropolitan area has increased about 5%,

In addition to initiatives targeting the achievement of thefrom ¥44 million to ¥46 million. And looking at housing loans,medium-term management plan’s objectives, another importantthey are inexpensive now compared with 1994. That is to say, itmanagement issue is the preparation needed to ensure thatis not more difficult to purchase now than it was in 1994; thethe next plan is also a “growth plan.” The environment for

major problem now is the worsening of consumer sentiment.

de­velopment site acquisition is expected to remain difficult.

On the other hand, the influx of population into urban centers

Accordingly, in the future we will emphasize the advancement

continues, and there is steady demand for condominiums inof redevelopment operations in urban areas, and add devel-

convenient locations. Accordingly, we believe that if consumer

opment sites with growth potential.

sentiment recovers, market conditions will improve. We areThis is because large building sites are all put up for bid, andacquiring carefully selected sites, working to create better

they can only be successfully acquired at high prices. Accordingly,

products, and selling competitive condominiums. We willto ensure returns, we need to work from the stage of assembling

continue to bolster our sales capabilities and work to achieve

sites using redevelopment methods. Despite the fact that weour objectives.

entered the leasing business later than our major competitors,
we are one of the few companies that expects to achieve

STEADY GROWTH IN REVENUE AND PROFIT (Billions of yen)
Revenue from Operations

Operating Income (right scale)

Ordinary Profit (right scale)

800

200
692 155 125 720 162 127

600

150

400

100

200

50

0

0
1998

1999

2000

Business Reconstruction Plan



2001

2002

2003

1st Growth Plan

2004

2005

2006

2nd Growth Plan

2007

2008

2009

(Forecast)

3rd Growth PlanFinancial condition (Billions of yen, Times)(Years ended March 31)

1997

Reconstruction
Plan
2001

1st  
Growth Plan
2004

2nd
Growth Plan
2007

2008

2008 (effective)

Net interest-bearing debt (ND)

1,592

1,184

916

1,344

1,549

1,459

3rd Growth Plan

Shareholders’ equity (E)

250

193

304

409

427

517

Operating income (OP)

46

76

97

139

158

158

ND/E ratio

6.3

6.1

3.0

3.2

3.6

2.8

ND/OP ratio

34.7

15.4

9.4

9.6

9.7

9.2

*1. Effective figures for March 2008 are calculated based on the inclusion in equity of 75%, or ¥90.0 billion, of the perpetual subordinated loan.
*2. Operating income includes interest received and dividends.
*3. March 1997 net interest-bearing debt includes guarantees and commitments to provide guarantees.

­operating income of more than ¥100.0 billion in leasing in theredevelopment operations are slated for the Koraku 2-Chomenear future. This is the result of our following the path of usingWest District and the Nishi-Shinjuku 8-Chome District. In

redevelopment methods and assembling sites. Following theaddition, there are many major redevelopment projects underway

bursting of Japan’s economic bubble, it was possible to acquirein the Tokyo central business district (CBD), and we plan toland inexpensively. However, in consideration of the current

announce them gradually. In regard to redevelopment projects,

conditions, we have decided to return to the fundamentals—

please see page 6.

using redevelopment methods and assembling sites.

In these ways, the Company is targeting the achievement of

A certain level of funds is required to advance redevelopment

the Third Growth Plan and subsequent sustained growth, andoperations, so in February 2008 we raised ¥120.0 billion throughwe will redouble our efforts to achieve those goals. We woulda perpetual subordinated loan. This subordinated loan received

like to ask our shareholders and investors for your continued

a high level of equity credit—75%—from a ratings agency. The

support in the years ahead.

purpose of the loan was to increase effective shareholders’ equity

June 2008and bolster against future financial risk, such as those stemmingfrom the sub-prime loan problem and rising resourse prices
while avoiding equity dilution. As a result, our ND/E ratio, whichwas 3.6 times at the end of the year under review, is essentially
2.8 times. (see note 1 above.) For the Company, which is striving

Junji Takashima, Chairman

for further growth and continues to undertake development
investment, this subordinated loan generated funds that will
be important in further increasing our financial stability.
Under our current medium-term management plan, redevelopment will be conducted in the Nishi-Shinjuku 6-chome

Kenichi Onodera, President

district, while under the next medium-term management plan,Special Feature —Initiatives in Redevelopment, a Key Source of Future GrowthWith the prices of large building sites increasing, Sumitomo Realty has shifted to a policy centered on redevelopment for future site acquisition in order to secure sound returns. In this section, we will outline ourredevelopment activities, which will become a key source of growth for the Company in the years ahead.
Proceeding with site acquisition throughhave been aggressively participating in legal redevelopment projects.

legal redevelopment

Legal redevelopment projects generate higher value added thanWith the prices of large building sites increasing, the Company haspurchase and rebuild projects.

shifted to a policy centered on redevelopment for future site acquisition

The Company has implemented many legal redevelopment projects,

in order to secure sound returns. This is because large building sites arewhich have been one of the factors contributing to the expansion of

all put up for bid, and they can only be successfully acquired at highour leasing operations. In the future, we will use the experience that we

prices. Accordingly, to ensure returns, we need to work from the stage

have acquired while we steadily move forward with legal redevel-of assembling sites using redevelopment methods. In particular, we

opment projects, which enable us to provide even greater value added.

Legal Redevelopment: Framework and Features

economic revival, and accordingly the economic plans of Japan’s

City redevelopment projects entail the integrated, comprehensive coordi-

government have included measures to promote redevelopment

nation of buildings, commercial facilities and other city facilities together

projects. In 2001, following the collapse of Japan’s economic bubble,

with roads and open spaces. These projects have a range of objectives,

the government established the Urban Renaissance Headquarters, ledsuch as improving city disaster prevention, renewing city functions,by the Prime Minister, in order to increase the international competi-

promoting advanced land usage and activating local economies.

tiveness of the nation’s urban areas and to restore economic vitality.

In Japan, legal redevelopment projects are a specific type of city

Through this organization, the national government encourages local

redevelopment project that is implemented in accordance with the City

government bodies to take steps to speed up the redevelopment

Redevelopment Law. Because they are implemented under the force ofprocess, such as reducing the time needed for developers to acquirelaw, there are very strict conditions for the designation of a legal rede-permissions. As a result, the progress of many projects that had previ-velopment district. For example, there is a requirement that the percentage

ously been stalled has been accelerated and the time required toof old wooden buildings with low fire-resistance exceeds a certain level.

complete the projects has been reduced.

Moreover, these projects entail a range of procedures in accordance withthe law, such as procedures for the formation of a redevelopment associ-Characteristics of Legal Redevelopment Projects

ation, determination of city planning, and conversion of rights.

Merits: Substantial benefits in terms of investment return andprofitabilityn In comparison with methods where the land is first purchased,such as competitive bidding, projects are completed with small
initial investmentsn Substantial increase in floor-area ration Subsidies are available

However, legal redevelopment projects also have special merits fordevelopers. Because these projects have a high degree of publicbenefits, developers are allowed to substantially increase the floor-arearatio. Furthermore, in comparison with competitive bidding and discretionary contracts, in legal redevelopment projects, building expenses
are paid upon completion, so developers can significantly reduce upfront costs. These projects also include preferential treatment under the
tax system and assistance schemes.
Also, city redevelopment projects make substantial contributions toDemerits: Substantial behind-the-scenes work is requiredn It is necessary to form a consensus among multiple property rights
holders and there are also consultations with administrative bodies,
resulting in longer development times.

RIGHTS CONVERSION
Through the conversion of the rights of rights holders,sites can be acquired with equal value exchanges.
Buildings

E

A
E

D

B

C

X

Buildings

Equal value exchange
B

C

B
Land

C
A
Before redevelopment

ABCD: Rights holders
DD

Equal value exchange
A

B

C

D

X
Land

After redevelopment

X: Developer** Acquirer of property other than that received by rights
holders in equal value exchange (Developer)Examples of Successful Legal Redevelopment Projects

Iidabashi First Building
Koraku 2-Chome East District, Tokyo, Bunkyo Ward, Completion: March 2000
Koraku included older areas, and land use had not progressed to a high level. The ground was very weak, and there was a concentration of old wooden buildings,
so substantial damage was anticipated in the event of an earthquake or fire, and redevelopment was needed to protect against disaster damage. Against thisbackground, the project began in 1978, and in 2000 the Koraku 2-Chome East District made a fresh start as the Sumitomo Fudosan Iidabashi First Building.
After

BEFORE

Ground area. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2,700 tsubo*
Gross floor area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19,000 tsubo*
Principal uses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Offices, residences (76 units), stores
Floors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 above ground, 2 below groundNumber of property rights holders
before conversion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  93* 1 tsubo = 3.3m2

Izumi Garden Tower
Roppongi 1-Chome West District, Tokyo, Minato Ward, Completion: October 2002
Roppongi 1-Chome is the site of many embassies and has long maintained its ranking as prime real estate. It was composed of quiet streets, but thestreets were small and at steep angles, and the district included many aged wooden buildings. There were problems from the perspective of disasterprevention and the living environment. Against this background, the project was started in 1988 with the objective of creating a town with convenienceand liveliness while drawing on the special characteristics of the region. In 2002, it was reopened as the Izumi Garden Tower.
BEFORE

After

Ground area. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  7,300 tsubo*
Gross floor area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  63,000 tsubo*
Principal uses . . . . . . . . . . . . . . . . Offices, residences (260 units), stores, hotel, museum
Floors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 above ground, 4 below groundNumber of property rights holders
before conversion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  98* 1 tsubo = 3.3m2

Special Feature—Initiatives in Redevelopment, a Key Source of Future Growth

Large Redevelopment Projects Currently Under way

advancing redevelopment projects in Central Tokyo. In addition,

Targeting the achievement of the medium-term management

we have 16 major urban redevelopment projects under way.

plan and subsequent sustained growth, the Company is currently

These projects will be introduced in stages.

Large Redevelopment projects under way

1 tsubo = 3.3m2

Completion*1

Gross floor area (Tsubo)

Total investment amount(Billions of yen)

Shibuya2010

17,30032

Nishi-Shinjuku 6-Chome West Project*

Nishi-Shinjuku

2010

46,30050

Shibuya Uguisudani Project (Residential)

Shibuya2011

15,00043

Koraku 2-Chome West Project*

Iidabashi

2011

23,50025

Shibuya Higashi 1-Chome Project

Shibuya2011

16,00045

Shibuya Nanpeidai Project

Shibuya2011

18,00065

Nishi-Shinjuku 8-Chome Project*

Nishi-Shinjuku

2012

54,000120

Roppongi 3-Chome Project

Roppongi

46,000150

Nihonbashi 2-Chome Project

Nihonbashi

28,000130

264,100

660

Projects

Area

Aobadai 3-Chome Project
2

2

2

Total
Third Growth Plan
Fourth Growth Plan
*1. Fiscal year ending March 31*2. Legal redevelopment project

Fifth Growth Plan

Positioning of redevelopment projects (Tokyo Central Business District)BunkyoKoraku 2-Chome West

Nishi-Shinjuku 8-Chome

Iidabashi area

Nishi-Shinjuku area
Shinjuku
ChiyodaNihonbashi area

Nishi-Shinjuku 6-Chome West
Nihonbashi 2-Chome project

ShibuyaShibuya Higashi 1-Chome project

Roppongi area

Roppongi 3-Chome project
Chuo

Shibuya Nanpeidai project
MinatoShibuya area
Aobadai 3-Chome project

ShinagawaKoraku 2-Chome West Project

Aobadai 3-Chome Project

Gross floor area . . . . 23,500 tsubo*

Gross floor area . . . . 17,300 tsubo*

Floors. . . . . . . . . .  34 above ground,
3 below ground

Floors. . . . . . . . . .  33 above ground,��������������������������������� 3 below ground

Completion. . . . . . June 2010 (plan)

Completion. . . August 2009 (plan)

Nishi-Shinjuku 6-Chome West Project

Shibuya Nanpeidai Project

Gross floor area . . . . 46,300 tsubo*

Gross floor area . . . . 18,000 tsubo*

Floors. . . Residences: 44 above ground,2 below ground

Floors. . . . . . . . . .  20 above ground,��������������������������������� 2 below ground���������������� Offices: 17 above ground,2 below ground

Completion. . . . March 2011 (plan)

Completion. . .  January 2010 (plan)

Nishi-Shinjuku 8-Chome Project

Shibuya Higashi 1-Chome Project

Gross floor area . . . . 54,000 tsubo*

Gross floor area . . . . 16,000 tsubo*

Floors. .  Towers: 42 above ground,
4 below ground

Floors. . . . . . . . . .  27 above ground,��������������������������������� 2 below ground�������������� Mid-rise: 11 above ground,
1 below ground

Completion. . . August 2010 (plan)

Completion. . . . . .  July 2011 (plan)* 1 tsubo = 3.3m2

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

conditions. Nonetheless, revenue and profit are both relatively high.

Leasing and sales are our traditional main fields of business. These

Our housing construction operations and brokerage operations areare capital-intensive fields; returns and risk are both high and sub-order-based businesses with low capital requirements and no sales

stantial upfront investment is required, but the level of humanrisk but substantial human resources requirements. These opera-

resources is relatively low. In leasing, the period from the initial in-tions have been developed more recently. In housing construction,

vestment to the generation of revenue—the operational cycle—isthe operational cycle is short, about six months to a year, but prod-

long, but once a building is opened for occupancy it provides a sta-

uct development capabilities are very important. Brokerage opera-

ble, sustained source of revenue. The sales business, however, istions have the shortest operational cycle of our fields of businesscharacterized by a shorter operational cycle with volatile market

but require strong, highly competitve service networks.

Leasing

Sales

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

Mid- and high-rise condominium, detached houseand housing lot development and sales and related
activities

REVENUE FROM OPERATIONS(Billions of yen)

REVENUE FROM OPERATIONS(Billions of yen)
300

400

250
300

39.9%

200

262.6
202.8

221.2

279.6 290.0

234.3

213.3

27.6%

100

0

224.2 224.7

200

211.0

’04

’05

’06

’07

’08

150
100

0

’09
(Forecast)(Billions of yen)

’04

’05

’06

OPERATING INCOME

’07

42.7

93.4

90

40

83.5

52.7 55.9

63.3

25.5%

30

10

’09
(Forecast)(Billions of yen)

103.0

0

’08

50

120

55.9%

205.0

50

OPERATING INCOME

60

193.6

32.3

32.4 33.1

’04

’05

38.0

36.5

30
20
10

’04

’05

’06

’07

’08

’09
(Forecast)

0

’06

’07

’08

’09
(Forecast)TAKING STEPS TO MAINTAIN WELL-BALANCED OPERATIONS
Sumitomo Realty’s four operational fields have complementary

SUMITOMO REALTY’S BALANCED PORTFOLIO
Capitaloperational cycles and market characteristics, and in the past theadverse effects of changing market conditions on a particular field

LeasingHigh level of capital,
low level of human resources

have generally been offset by favorable performances in others. As
a result, the Company has been able to continue to record increas-

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

es in revenue and profit. In the future, our basic strategy will entail
taking steps to maintain well-balanced growth in our operational
portfolio. Moreover, to further reinforce our growth prospects, we

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

will endeavor to develop a strong market presence in a fifth core

Construction

Low level of capital,
high level of human resources

field of operations, and are currently searching for the field thatwould best complement our existing operations.

Human Resources

Construction

Brokerage

Custom home construction
and remodeling andrelated activities

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

REVENUE FROM OPERATIONS(Billions of yen)

REVENUE FROM OPERATIONS

200

125.1 127.4

135.2

142.6

156.6 160.0

60

8.4%

50

’04

’05

’06

’07

’08

(Billions of yen)

10.2

10

39.8

’07

’08

43.4

8.2

8.4

8.7

’04

’05

’06

OPERATING INCOME’09(Forecast)(Billions of yen)
25

11.0

20.9

20

8.8

20.0

21.0

17.0

12.0%

6
4

15
10

13.5
8.5

5

2
0

40

0

’09
(Forecast)

12

6.1%

58.5 60.0

20

OPERATING INCOME

8

56.5
49.2

100

0

(Billions of yen)
80

150

22.4%

Brokerage

’04

’05

’06

’07

’08

’09
(Forecast)

0

’04

’05

’06

’07

’08

’09
(Forecast)11

Review of Operations

Leasing

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

12

Sumitomo Fudosan Harajuku Building

Sumitomo Fudosan Mita Twin Building West

Sumitomo Realty’s Strengths
The Company made its full-scale entry
into the leasing business in the latter halfof the 1970s. In 1995, following the collapse of Japan’s economic bubble, wewere the first company in the industry torestart construction work on office buildings. We paid particular attention tolarge-scale projects in urban areas, especially those areas legally designated forredevelopment.
We currently have about 200 buildings
for lease. The advanced interior featuresof our buildings are complemented with
distinctive exterior designs, including
hotel-like entranceways and all-glass exteriors. Sumitomo Realty creates innovativebuildings with strong market presences.

Overview of the Fiscal YearIn the Tokyo office building market,
which accounts for more than 90% of ourportfolio, there was strong relocation
demand in the year under review ascompanies sought increased floor space
to accommodate larger workforces andto enhance operational efficiency. The
demand–supply balance remained tight,
and market conditions were favorable.
Vacancy rates were low, and new contract rents rose at a moderate pace. The
trend toward higher rents for existing
tenants when leases are renewed spreadthrough the market, and the size of therent increases expanded.
In this environment, the Company’s vacancy rate for existing buildings improved
from 4.8% at the end of the previous fiscal
year to 3.8% at the end of the year under

Sumitomo Fudosan Roppongi-dori Building

review, and favorable progress was madein raising rents for existing tenants whenleases are renewed. Buildings opened for
occupancy during the year, such as theSumitomo Fudosan Harajuku Building
and the Sumitomo Fudosan Yotsuya
Building, were fully occupied, and properties such as the Sumitomo Fudosan Mita
Twin Building (East and West), which wereopen for the full year, contributed toperformance.
As a result, we were able to offset a
reduction in dividends from a limited
partnership (“Tokumei Kumiai”) that was
liquidated at the end of the previous fiscal year and to record substantial gains
in revenue and profit. Revenue from operations increased 6.5%, to ¥279.6 billion,
and operating income was up 11.9%, to¥93.4 billion.

REVENUE FROM OPERATIONSOPERATING INCOME
AND OPERATING MARGIN
Operating Income
Operating Margin (right scale)(Billions of yen)(Billions of yen)

300

120

279.6

290.0

(%)
40

262.6
221.2
200

31.8

234.3

90

202.8

26.0 25.3
55.9

60

27.0

33.4

35.5
103.0

93.4

30

83.5

63.3

20

52.7
100
30

0

0

’04 ’05 ’06 ’07 ’08 ’09(Forecast)10’04 ’05 ’06 ’07 ’08 ’09

0(Forecast)

PRINCIPAL BUILDINGS
Name

Sumitomo Fudosan Iidabashi Ekimae Building

OutlookIn the March 2009 fiscal year, we expect
higher rents on existing buildings and thefull-year contribution of such properties
as the Sumitomo Fudosan Harajuku
Building to drive continued performance
growth. We also plan to open new buildings, such as the Sumitomo Fudosan Iidabashi Ekimae Building and theSumitomo Fudosan Roppongi-dori
Building.
As a result, we expect another year of
higher revenue and profit, with revenue
from operations increasing 3.7%, to¥290.0 billion, and operating income surpassing ¥100.0 billion for the first time,rising 10.3%, to ¥103.0 billion.

No. of floors(aboveground /underground)

Completion

Location (Tokyo CBD)

Gross floor  area (m2)

Izumi Garden Tower

43 / 4Oct. 02 Minato Ward

205,503

Shinjuku Sumitomo Building

52 / 4Mar. 74 Shinjuku Ward

177,467

Shinjuku Oak City

38 / 2

Jan. 03 Shinjuku Ward

117,446

Shiodome Sumitomo Building

25 / 3

July 04 Minato Ward

99,913

Sumitomo Fudosan Mita Twin
Building West43 / 2

Sept. 06 Minato Ward

98,338

Tokyo Shiodome Building

37 / 4Jan. 05 Minato Ward

95,128

Shinjuku NS Building

30 / 3

Sept. 82 Shinjuku Ward

75,046

Shibakoen First Building

35 / 2June 00 Minato Ward

63,822

Chiyoda First Building West32 / 2June 04 Chiyoda Ward

61,50124 / 2

Oct. 02 Shinjuku Ward

53,04714 / 2Mar. 00 Bunkyo Ward

52,74717 / 2

Oct. 98 Chiyoda Ward

37,47330 / 2

Oct. 01 Minato Ward

35,54917 / 1

Aug. 06 Minato Ward

35,047

Shibuya Infoss Tower

21 / 4Mar. 98 Shibuya Ward

34,460

Roppongi First Building

20 / 4Oct. 93 Minato Ward

31,51620 / 2

Aug. 98 Bunkyo Ward

28,63314 / 2

Sept. 02 Shinagawa Ward

28,15220 / 2

Jan. 95 Shinagawa Ward

23,961

Sumitomo Fudosan Iidabashi
Building No. 3
Sumitomo Fudosan Iidabashi
First Building
Chiyoda First Building East
Sumitomo Fudosan Shibakoen
Tower
Sumitomo Fudosan Mita Twin
Building East

Sumitomo Fudosan Korakuen
Building
Sumitomo Fudosan Oimachiekimae Building
Sumitomo Fudosan Takanawa
Park Tower
Sumitomo Fudosan Shiba Building

15 / 2

May 90 Minato Ward

23,764

Nihonbashi Hakozaki Building

17 / 2Mar. 96 Chuo Ward

23,486

Hanzomon First Building

15 / 2

Jan. 04 Chiyoda Ward

23,138

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

13

Review of Operations—LEASING
LOCATION OF PRIME PROPERTIES­—Portfolio Centered on Central Tokyo

BunkyoShinjuku
ChiyodaChuo

ShibuyaTokyo CBD (Central Business District):
7 wards, comprising Chiyoda, Minato, Chuo,
Shinjuku, Shibuya, Shinagawa and Bunkyo
BunkyoMinatoShinjuku
ChiyodaShibuyaChuo
MinatoShinagawaTokyo’s 23 wards
Shinagawa

Major flagship buildings
Buildings scheduled for completion during theThird Growth Plan (2008–2010)
Other buildings

OFFICE BUILDING FEATURES
Earthquake protection
Ceiling height*
Floor load
Air conditioning
Power capacity* Includes raised floors

14

Shibakoen First Building

Before 1981
Previous quake-resistant structure
2.5 m
300 kg/m2
Central air conditioning system
45 VA/m2

Tokyo Shiodome Building

1982–1996
New quake-resistant structure
2.7 m
300–500 kg/m2
Climate control zones
60–70 VA/m2

1997 and afterAnti-sway structure
2.9–3.3 m
500–1,000 kg/m2
Separate climate control systems
85 VA/m2 and overIzumi Garden Tower

GROSS FLOOR AREA
(Thousand m2)
4,000

3,000

2,876

3,082

3,112

3,403

3,360

2,000

1,000

0

’04

’05

’06

’07

’08

LEASING PORTFOLIO
3.40 million m2
Close

New

Large

Tokyo CBD* 85%
23 wards 93%
Less than 10 years old 44%
Less than 20 years old** 85%

Over 10,000 m2 80%* Tokyo CBD (Central Business District): 7 wards, comprising Chiyoda, Minato,Chuo, Shinjuku, Shibuya, Shinagawa and Bunkyo** Two of the Company’s major properties, the Shinjuku Sumitomo Building
and the Shinjuku NS Building, are included in these categories because, although they are more than 20 years old, they are super high-rise buildings
with high-performance facilities and offer earthquake resistance in excessof the standards of newer buildings.

SUMITOMO REALTY’S PORTFOLIO
Our portfolio includes many competitive prime properties locatedin central Tokyo. As of the end of March 2008, our portfolio of officebuildings had a gross floor area of 3.4 million square meters and an
average age of 14 years, the lowest among Japan’s major real estatecompanies. About 44% of the buildings in our portfolio werecompleted in the past 10 years. Also, 93% of the buildings in our
portfolio were located in the 23 wards of Tokyo, with 85% in Tokyo’scentral business district. Furthermore, 80% of the portfolio wasmade up of large-scale buildings of more than 10,000 square metersof gross floor area. More than 90% of the buildings meet or exceed
earthquake-resistance standards that took effect in 1981 and are a
key yardstick for earthquake safety. Moreover, more than 46% of
our buildings have been completed since 1997, when we took thelead in the application of new building design concepts. These

high-quality buildings offer leading-edge earthquake-resistant
structures, separate climate control systems for each suite, reinforced floors for heavy loads, high-capacity electrical systems, highceilings and other attractive features, and they are the focus ofstrong demand from many tenants.
COMPETITIVE GROWTH FOUNDATION
Including the buildings that we expect to open during the Third
Three-Year Growth Plan, prime properties will account for an evenhigher percentage of our portfolio. To respond to the change inmarket demand toward prime properties and away from buildingsthat are older, smaller or in less attractive locations, we have been
investing aggressively in new building construction, thereby further
increasing the concentration of prime properties in our portfolio.
Growing Demand for Prime Properties
In the central Tokyo office building market, there is strong demandfor buildings that meet the criteria for prime properties; they areclose to stations and business areas, are new and feature modern
amenities and offer large areas on each floor. These prime properties
generate high levels of revenues, while it remains difficult to findtenants for buildings that are far from stations, old or small.
CLOSE—LOCATIONS IN THE CENTRAL BUSINESS DISTRICTTo be a prime property, a building must be in the central business
district and near a major station. In the Tokyo central business
district, where many of Japan’s leading companies have theiroffices, this is an even more important factor. Large, recently
constructed buildings in good locations are in short supply,
which has been a key element in our land acquisition efforts.
 EW—BRAND-NEW AND RECENTLY CONSTRUCTED BUILDINGSN
The strong demand for recently constructed buildings is a resultof tenant needs for the following features:
1. Reinforced floors, high-capacity electrical systems and uninterruptible power supplies to accommodate large computer servers
2. Separate climate control systems for each suite and high ceilings
3. Advanced earthquake countermeasures, such as vibration
damping and earthquake-resistant construction
4. Advanced security systems
LARGE—LARGE-SCALE BUILDINGS
Buildings that can accommodate multiple units on a single floor
enable tenant companies to increase the efficiency of theiroperations, and in recent years there has been a trend for companies to consolidate their offices. As a result, demand for largescale buildings continues to increase.
In the Tokyo central business district, where buildings that meet
the three conditions for prime properties—close, new and large—
are in strong demand, our competitive portfolio will provide astrong foundation for us to utilize our strengths—development ofhigh-value-added office buildings, tenant leasing and property
management. We will utilize that foundation to maximize the earnings potential of our office building operations and build a strong
base for the achievement of sustainable growth in the years ahead.

15

Review of Operations

Sales

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

Grand Hills Sangenjaya

Sumitomo Realty’s Strengths
Sumitomo Realty’s condominium operations are centered in Japan’s six largest
urban areas—the Tokyo metropolitanarea, Osaka/Kobe, Sapporo, Sendai, Nagoya and Fukuoka. Moreover, in recent
years we have enhanced our presencein other major cities, such as Niigata andHiroshima. The Company develops andsells about 5,000 units a year.
Over the past decade, we have been
one of the leading suppliers of condominium units nationwide. This strong
position is the result of our central urban
strategy, which we implemented aheadof competitors, and our aggressive approach to large-scale and high-rise condominiums. Our landmark exterior
designs, the rich array of common facilities that is made possible by the scale ofthe buildings and elegant entrances
make our condominiums sought after by
16

City Terrace Mejiro

a wide range of consumers with diverse
lifestyles. As a result, our high operating
margin is at the top of the industry.
The risk of market fluctuations is a critical factor in the condominium business.
Consequently, the Company’s policy is
to offer a stable supply of condominiums
and to enhance the Sumitomo Realty
brand through the ongoing sale of highquality units. In the years ahead, theCompany will continue striving to maintain its strong position and further expand its business.
Overview of the Fiscal YearIn the condominium market, which accounts for more than 90% of our sales inthis segment, selling prices in the Tokyo
metropolitan area increased. However,the second half of the year saw concern
about overseas financial market problems
and fears of a slowdown in the domestic

economy, and consumer purchasing motivation declined rapidly. The percentage
of units sold declined, and sales conditions were sluggish.
In this environment, the number ofcondominium units, detached houses andland lots delivered declined by 784 fromthe previous year, to 3,743. As a result,revenue from operations was down 8.3%,
to ¥193.6 billion, due to the decline in thenumber of units delivered. Nonetheless,because we delivered a large number ofhighly profitable condominiums, our operating margin improved substantially,­rising 4.8 percentage points, to 22.1%,
and operating income was up 16.9%, to¥42.7 billion.
Because we had sold sufficient units forthe fiscal year, we limited the number of
new units supplied to 3,187 units. As a result,the number of condominium units delivered declined by 1,323 units, to 2,631 units.

REVENUE FROM OPERATIONSOPERATING INCOME
AND OPERATING MARGIN
Operating Income
Operating Margin (right scale)

Revenue from Operations
Units Delivered (right scale)(Billions of yen)

(Units)

300

6,000

(Billions of yen)

4,994 4,992

5,000
4,527

4,473

3,743

200

25
32.3

213.3 224.2 224.7 211.0 193.6 205.0
250

(%)

50
32.4

33.1 36.5 42.7 38.0
22.1

40

20

4,200
4,000

18.5

17.3
30

150

3,000

100

2,000

50

1,000

0

’04 ’05 ’06 ’07 ’08 ’09

15
15.1

14.4

14.7

20

10

10

5

0

0

(Forecast)’04 ’05 ’06 ’07 ’08 ’09

0(Forecast)

Principal CONDOMINIUM DEVELOPMENT PROJECTS (2008–2010)
Name

Location

Setagaya Ward,Tokyo
Saitama City,
Park Square Saitama-Shintoshin
SaitamaGrand Hills Sangenjaya

Park Square Sagamiono

OutlookIn the March 2009 fiscal year, conditionsin the condominium sales market will remain uncertain. Our conservative forecast
is for delivery of a total of 4,200 condominium units, detached houses, and landlots, an increase of 457 year on year. Of
the number of condominiums and detached houses that we expect to deliverin the March 2009 fiscal year, about 30%
had already been sold as of the end of
March 2008 (48% in the previous year).
Accordingly, we plan to continue working
to bolster our sales system and to promote sales.
As a result, in the March 2009 fiscal
year, we are forecasting revenue fromoperations of ¥205.0 billion, up 5.9%, andoperating income of ¥38.0 billion, a decline of 11.1%.

No. of units

No. offloorsScheduleddelivery*1

311

12

2008/
2009

498

15

2009

City Tower Shinagawa

Minato Ward, Tokyo

828*2

43

2009

City Terrace Mejiro

Toshima Ward,
Tokyo

293

18

2009

Tokiwadai Garden Society

Itabashi Ward, Tokyo

419

18

2009

253

9

2009

462

16

2009

188

22

2009

718

32

2009

City Terrace Tachikawa
Park Square Shonan-Chigasaki
City House Musashikosugi
Park Square Sagamiono

Tachikawa City,
Tokyo
Chigasaki City,
Kanagawa
Kawasaki City,
Kanagawa
Sagamihara City,
Kanagawa

Park Square Kobe-Oishi

Kobe City, Hyogo

235

14

2009

Times Peace Square

Osaka City, Osaka

633*

19

2009

City Towers Toyosu The Twin

Koto Ward, Tokyo

1,063

48

2009/
2010

Osaki West City Towers

Shinagawa Ward,Tokyo

1,084*

39

2010

City Tower Azabujuban

Minato Ward, Tokyo

500*

38

2010

City Tower Osaka-Fukushima

Osaka City, Osaka

349

37

2010

Toyosu Project II

Koto Ward, Tokyo

850

—

2010

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

17

Review of Operations—SALES

Focusing on Urban Tower Condominiums in Central Tokyo
We are moving forward with

Ueno

Central Tokyo

large-scale condominium projects
that will contribute to both our

Shinjuku

current and next medium-termTokyomanagement plans. Each of these
tower condominiums is situated

Roppongi

City Towers Toyosu The Twin

Minatoin central Tokyo and offers a richliving environment.

City Tower Azabu-Juban

ShinagawaWorld City Towers
ShinagawaOsaki West City Towers

Properties to be completed in the March 2009 fiscal year
In the heart of Tokyo, we will sell City Tower Azabu Juban in Minato Ward and Osaki West City Towers in Shinagawa Ward.
Both properties were developed as tower condominium buildings utilizing legal redevelopment methods (see page 6) and offer
sweeping views of the city thorough Direct Sky View floor-to-ceiling windows, a distinctive feature of our tower condominiums. Thesebuildings showcase the Company’s product planning capabilities.

18

Osaki West City Towers

City Tower Azabu Juban

Floors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 above ground, 2 below ground

Floors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 above ground, 2 below groundNumber of units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,084 units

Number of units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  500 units

Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 2009 (plan)

Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May 2009 (plan)

Properties to be completed in the March 2010 fiscal year
Sumitomo Realty has distinctive strengths in making the most ofdevelopment areas by creating tower condominiums with morethan 1,000 units.
For example, the Company used its accumulated know-how in
the field of tower condominium development to successfullycomplete World City Towers in March 2007. This tower condominium, which is located in Minato Ward, has 2,090 units.
We are on course toward similar success in the Toyosu area. In
accordance with original “town building” guidelines, we areworking through a private-sector/government alliance todevelop a town that offers the opportunity to experience a warm,
calm environment that is characterized by the development ofmany new residential and commercial facilities.
To that end, we are currently moving forward with City Towers
Toyosu The Twin, which offers 1,063 units. With 48 floors above
ground, it is the tallest twin tower condominium in the area. With thespecial features shown below, this condominium offers residents anentirely new living environment that is comfortable and warm.
We are also making progress with our second condomium inthis area—Toyosu Project II. When this project is completed, we
will have developed tower condominiums with nearly 2,000 units
in the Toyosu area. These condominiums will contribute to our
results during the current medium-term management plan andthe next medium-term management plan.

City Towers Toyosu The Twin

Floors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 above ground, 1 below groundNumber of units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,063 units
Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March 2009 (plan)

Featuresn Site: Excellent traffic access, five minutes to Ginza and nine minutes

to Tokyo Stationn Exterior: A glass curtain wall has been used on the exterior.
n View: Direct Sky View specifications enable the enjoyment of theurban viewn Surroundings: Located near major convenient lifestyle facilities,

such as commercial facilities, medical institutions, and educationaland research institutions.

World City Towers

World City Towers, whichhas 2,090 condominium
units in Tokyo’s Minato
Ward, was completed in
March 2007.

19

Review of Operations

Construction

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

REMODELING (Shinchiku Sokkurisan)

CUSTOM HOMESAFTERREMODELINGJ-LADY

Sumitomo Realty’s Strengths
Remodeling
In 1996, Sumitomo Realty launched theShinchiku Sokkurisan Full Remodeling
Package. This product addresses the concern that remodeling can sometimes bemore expensive than rebuilding in Japandue to the risk of cost overruns. With
Shinchiku Sokkurisan, a house can be fully
remodeled at half the cost and in half thetime required to rebuild it. And because
Shinchiku Sokkurisan
Sales engineer system: Most of oursales personnel have engineering
qualifications.
n Carpenters: We use carpenters who
work exclusively for Sumitomo Realty.
n Fixed price: We provide the customer
with a fixed price per unit of floor area,
so there are no concerns about additional construction charges.
n20

Shinchiku Sokkurisan uses less materials,
it is also environmentally friendly. We were
the first major real estate company to offer
this type of product, and Shinchiku Sokkurisan has been well received in themarketplace. Cumulative sales have surpassed 40,000 units, and Shinchiku Sokkurisan continues to record solid growth.

 o need for temporary moves: We reNmodel homes while the customers
continue to live in them, which is amajor advantage.
n Earthquake resistance: We incorporate
earthquake-resistance strengthening
measures based on a computerized
analysis of the home as well as measures to prevent damage from termites and moisture.
n

Custom homes
In 1995, Sumitomo Realty launched theAmerican Comfort line of high-quality,
low-cost Western-style homes in Japan
using the know-how that the Company
acquired in building and selling homes
constructed with the two-by-four method in California.
In April 2003, we launched the J-Urban
home design, which combines the excellent
Custom HomesnAdvanced performance: Our original
Power Column Method makes thesehomes 1.3 times more earthquake resistant than conventional two-by-four
homes.

Living room

security features of condominiums with thesuperior ventilation and lighting of detachedhouses. J-Urban has been highly evaluatedin the marketplace and has received a Good
Design Award from the Japan Industrial
Design Promotion Organization. In September 2007, we commenced sales of J-Lady
which is the latest product in the J-Urban
series and offers expanded storage andhousekeeping space.
Fixed price: We have an easily understood pricing system, and the use oforiginal materials and large-volume
procurement enables us to achieve
price reductions.
n Complete after-sales support: Our
homes are backed by a 20-year guarantee and our specialists conductperiodic inspections.
nOverview of the Fiscal YearIn custom home operations, the number ofowner-occupied housing starts declined,
and market conditions remained challenging. In this setting, we maintained our operations at about the same level as in theprevious year.
On the other hand, we continued working to aggressively expand our Shinchiku
Sokkurisan remodeling operations by continuing to bolster our sales system throughthe expansion of our base network. As aresult, Shinchiku Sokkurisan continued torecord favorable growth.
For both custom homes and Shinchiku
Sokkurisan, unit prices increased. Shinchiku Sokkurisan contributed ¥83.8 billion
to revenue from operations and custom
homes contributed ¥45.6 billion. Total sales
in these two businesses rose 9.7%, to¥129.4 billion.
On a consolidated basis, including theresults of such companies as Sumitomo
Fudosan Syscon Co., Ltd., Sumitomo Fudosan Reform Co., Ltd. and Universal
Home Inc., revenue from operations rose
9.8%, to ¥156.6 billion, and operating income was up 15.3%, to ¥10.2 billion. We
recorded higher revenue and profit forthe seventh consecutive year, and operating income surpassed ¥10.0 billion for the
first time.
OutlookIn the March 2009 fiscal year, in construction operations, we are targeting 9,500
orders, 7,800 for Shinchiku Sokkurisan remodeling and 1,700 for custom homes,
and 9,150 deliveries, 7,500 for Shinchiku
Sokkurisan and 1,650 for custom homes.
We will continue working to achieve aggressive expansion, centered on Shinchiku Sokkurisan operations.
Consequently, we are targeting revenue from operations of ¥160.0 billion, up
2.2%, and operating income of ¥11.0 billion, up 8.3%.

REVENUE FROM OPERATIONS(Billions of yen)200

156.6 160.0

150
125.1 127.4

135.2

142.6

100

50

0

’04 ’05 ’06 ’07 ’08 ’09(Forecast)

OPERATING INCOME
AND OPERATING MARGIN
Operating Income
Operating Margin (right scale)(Billions of yen)

(%)

12

8
11.0
6.6

9
8.2

6.6
8.4

6.5
8.7

10.2
6.2

6.9

6.5

6

8.8

6

4

3

2

0

0

’04 ’05 ’06 ’07 ’08 ’09(Forecast)

SHINCHIKU SOKKURISAN AND
CUSTOM HOME UNITS CONTRACTED
Shinchiku Sokkurisan
Custom Homes (right scale)(Units)(Units)

8,000

7,800

4,000

7,324
6,892
6,116

6,000
4,843
4,000

3,000

5,550

2,083

2,271

2,122

2,000
1,672 1,680 1,700

2,000

1,000

0

0

’04 ’05 ’06 ’07 ’08 ’09(Forecast)21

Review of Operations

Brokerage

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

REVENUE FROM OPERATIONS(Billions of yen)
58.5 60.0

60
56.5
49.2
43.4
39.8

40

20

0

’04 ’05 ’06 ’07 ’08 ’09(Forecast)

OPERATING INCOME
AND OPERATING MARGIN
Sumitomo Realty’s Strengths
Under the STEP brand name, Sumitomo
Real Estate Sales operates a network of
brokerage offices with close ties to local
communities. The network has beensteadily expanded and upgraded, andthe number of offices reached 238 by theend of March 2008. Because all of thebrokerage offices are directly operated,
the network boasts high profit margins.
Sumitomo Real Estate Sales holds thenumber one position in the industry interms of brokerage revenue from direct
operations and in terms of profitability.
In the future, the company will continue
working to expand its marketing baseand increase its market share.
Overview of the Fiscal Year
Rising land prices in the three major urban areas of Tokyo, Osaka and Nagoya
were reflected in continued increases inaverage selling prices for existing homes.
In the second half of the fiscal year, however, the number of transactions declined as uncertainty about the future
course of business conditions increased.
In this market environment, in our
mainstay brokerage operations, transaction prices continued to increase, and total transaction value rose 5.3%, to ¥1,107.9
billion. On the other hand, the number of22

brokerage transactions was sluggish in
the second half of the year, and ended
the year up 1.9%, at 29,753 units.
Consequently, revenue from operations was up 3.6%, to ¥58.5 billion, andoperating income declined 4.5%, to¥20.0 billion. This marked the first decline
in five years.
We opened six new directly managed
brokerage offices in the Tokyo metropolitan area, in such locations as Hiroo andYukigaya Otsuka, and one office in another area, for a total of seven offices
opened during the year. At the end of
the year under review, the nationwide
total was 238 offices.
OutlookIn the March 2009 fiscal year, we will strive
to further increase our share by opening
new offices, bolstering existing offices
and increasing sales efficiency through areinforced IT strategy. Moreover, we will
aim for an increase in the number of brokerage transactions and a return to
growth in profits.
As a result, in the March 2009 fiscal
year, we are forecasting revenue fromoperations of ¥60.0 billion, up 2.5%, andoperating income of ¥21.0 billion, an increase of 5.0%.

Operating Income
Operating Margin (right scale)(Billions of yen)

(%)

24

60
20.9

21.0

20.0

17.0

16

40

37.0
13.5
31.0

35.0

34.5

34.2

8.5
8

20
21.4

0

’04 ’05 ’06 ’07 ’08 ’09

0(Forecast)

NUMBER OF TRANSACTIONS AND
TRANSACTION VALUE
Transaction Value
Number of Transactions (right scale)(Billions of yen)
1,200

60,0001,052.0899.7

900

1,107.9928.8

45,000791.5

600

29,19927,236
26,95327,94330,00029,753300

015,000

’04

’05

’06

’07

’08

0

OUR HISTORY

Date

Topics1949• Izumi Real Estate Co., Ltd. established as the successor to the holding company of the Sumitomo zaibatsu
following the breakup of the conglomerate.

1957• Izumi Real Estate Co., Ltd. changed its name to Sumitomo Realty & Development Co., Ltd.

1963

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

1964• Entered condominium sales business with Hama-Ashiya Mansion in Kobe, Hyogo Prefecture.

1970• Listed on the Tokyo and Osaka stock exchanges.

1973• Established Sumitomo Fudosan Tatemono Service Co., Ltd., a consolidated subsidiary.

1974• Completed construction of 52-story Shinjuku Sumitomo Building in Shinjuku, Tokyo; moved Company

1975• Established Sumitomo Real Estate Sales Co., Ltd., a consolidated subsidiary.

1980• Established Sumitomo Fudosan Syscon Co., Ltd., a consolidated subsidiary.

1982• Completed construction of 30-story Shinjuku NS Building in Shinjuku, Tokyo; moved Company headquar-

Shinjuku Sumitomo Building

headquarters there from Tokyo Sumitomo Building in Marunouchi, Tokyo.

ters there from Shinjuku Sumitomo Building.
1995• Commenced American Comfort custom home construction business.

1996• Commenced Shinchiku Sokkurisan remodeling business.

1997• Entered high-quality business hotel market. Opened Villa Fontaine Nihonbashi and hotels at two

1998• Sumitomo Real Estate Sales Co., Ltd., a consolidated subsidiary, listed on the Tokyo Stock Exchange.

1999• Universal Home Inc., a consolidated subsidiary, listed on JASDAQ (over the counter with the Japan

Shinjuku NS Building

other locations.

Securities Dealers Association).
• Commenced real estate joint investment trust fund. Launched sales of Sumitomo Realty & Development
Fund (SURF) series.
• Implemented the Sumquest bond issue, which was the first public issue of real estate securities in Japan.
2000• Commenced luxury condominium leasing business. Completed construction of La Tour Shibakoen.

2001• The number of managed STEP brokerage offices exceeded 200.

2002

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

2003• Completed construction of Shinjuku Oak City (Nishi-Shinjuku 6-Chome Redevelopment Project).

2004• Commenced sales of World City Towers in Minato Ward, Tokyo.

2005• Commenced sales of J-Urban III three-story, urban-style houses and J-Urban Court suburban-style houses.

2006• Established Sumitomo Fudosan Reform Co., Ltd., a consolidated subsidiary.

2007• Commenced Nishi-Shinjuku 6-Chome West No. 6 District redevelopment construction

Izumi Garden Tower• Commenced sales of City Tower series, five high-rise condominiums in Tokyo and Osaka.

(Shinjuku Ward, Tokyo).
• Cumulative total number of orders for Shinchiku Sokkurisan remodeling business surpassed 40,000.
• Commenced Koraku 2-Chome West District redevelopment construction (Bunkyo Ward, Tokyo).
World City Towers

23

CORPORATE GOVERNANCE

Fundamental Approach to Corporate GovernanceTo achieve sound management, Sumitomo Realty believes that it isimportant to share information on a Companywide basis, ensure thateveryone is aware of problems, enhance internal management supervision and achieve highly transparent management through appropriate information disclosure. We have implemented a number ofcorporate governance initiatives to realize these practices efficiently.
Corporate Governance Bodies
In addition to the Board of Directors, the Company has establishedthe Executive Officers Committee, which is led by the Chairman of
the Board. These corporate governance bodies discuss important issues and make decisions rapidly and appropriately. The Board of
Directors, the Executive Officers Committee and other committees
use a variety of means to ensure that information is shared throughout the Company and that everyone is aware of problems.
In April 2004, we instituted an executive officer system withthe objectives of selecting capable young employees and substantially bolstering our administrative systems.
The Board of Statutory Auditors has five members, including threeoutside statutory auditors. To strengthen management oversight, we
continue working to enhance outside auditing. The statutory auditors
attend meetings of the Board of Directors and the Executive Officers
Committee, track internal issues that are important for robust auditing and provide opinions as needed.
The Compliance Department, which has three staff members,monitors the operational execution of divisions throughout theGroup and the operation of internal control systems. The department
also works to prevent misconduct and mistakes. Moreover, the department reports the results of its audits to the statutory auditors andexchanges opinions with the statutory auditors in an appropriatemanner. In these ways, we are working to strengthen and increase
the efficiency of both the Board of Statutory Auditors and the Compliance Department. Moreover, from the viewpoint of timely disclosure, we provide important information through our website andother means on a timely basis, and have increased managementtransparency for shareholders, other investors and suppliers.
Independent Auditors
In accordance with the Corporate Law and the Financial Instruments
and Exchange Law, the Company has concluded an auditing contract
with KPMG AZSA & Co. for the auditing of the Company’s accounts.
There are no conflicts of interest between Sumitomo Realty and the
independent auditing company or its employees.
Internal Control and Risk Management Systems
To efficiently institute sound management practices, the Company
has established a range of internal control systems and is working toenhance those systems.
To further enhance our compliance with laws and regulations andto ensure ethical business practices, we established the Compliance
Promotion Committee. In addition, through the Compliance Department, we have established internal auditing and internal reporting
systems. In these ways, we are working to prevent inappropriate and24

illegal actions. In regard to information management, to ensure proper storage and control of documents, we have established internal
standards for document control. Furthermore, in terms of risk management systems, each department tracks and manages the risks associated with its operations on a daily basis, while important issues
are discussed and decided upon by the Board of Directors and the
Executive Officers Committee. In the future, we will consider further
enhancement of regulations and systems as needed.
Compensation of Directors and Statutory Auditors
At the ordinary general meeting of shareholders held in June 2004,
we introduced a new performance-based compensation system fordirectors. Under this system, the annual compensation for directors isbased on the Company’s performance. The new system combines
the three elements that made up the previous system—monthly
compensation, annual bonuses and retirement allowances.
Under the new system, total annual (July to June) compensation
for directors is set at 1% of consolidated ordinary profit.
In the year under review, compensation for directors was ¥1,011
million and compensation for statutory auditors was ¥63 million.
Introduction of Takeover Defense Measures
The Company introduced a policy for responding to large-scale purchases of its shares, and at the ordinary general meeting of shareholders held on June 28, 2007, the policy was approved by morethan 70% of shareholders, which is the level of support required forthe approval of special resolutions.

Overview of Takeover Defense Measures
Large-scale purchases that are subject to the policy are those purchases of shares of the Company where a specific shareholder groupintends to hold a ratio of voting rights of 20% or more or where a
specific shareholder group will, as a result, hold a ratio of voting
rights of 20% or more.
The large-scale purchase rules stipulate that the large-scale purchase shall begin after necessary and sufficient information is provided to the Board of Directors by the large-scale purchaser and acertain period for evaluation by the Board of Directors has elapsed.
To ensure the objectivity, fairness and rationality of decisions of theBoard of Directors, a special committee will be established that consists of members selected from among external academic experts,
lawyers, certified public accountants, etc.
If the large-scale purchase will significantly damage the corporate
value and common interests of shareholders, after considering theopinions of external experts, including lawyers and financial advisors,
and taking into the fullest account the recommendations of the special committee, the Board of Directors may take countermeasures todeter the purchase, such as the issuance of stock options.
The effective period of the takeover defense policy is matched withthe period of the Third Three-Year Growth Plan, which was commenced in April 2007. The effective period will expire at the close of
the 77th ordinary general meeting of shareholders held by the endof June 2010.

Financial Section

Six-Year Financial Summary
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
Years ended March 31
Millions of yen
2008

2007

2006

2005

2004

2003

For the Year
Revenue from operations............................
Leasing................................................................
Sales.......................................................................
Construction....................................................
Brokerage...........................................................

¥691,928
279,568
193,575
156,606
58,542¥676,834
262,620
211,035
142,564
56,532¥646,525
234,280
224,735
135,158
49,217¥616,115
221,234
224,191
127,388
43,445¥573,862
202,776
213,303
125,086
39,809¥533,915
192,979
183,745
124,464
37,577

Cost of revenue from operations............

488,202490,491

487,805

470,636

435,078

403,777

SG&A expenses...................................................
% of revenue from operations..............

49,118
7.1%

49,167
7.3%

46,6977.2%

45,1887.3%

42,807
7.5%

41,626
7.8%

Operating income.............................................
% of revenue from operations..............

154,608
22.3%

137,176
20.3%

112,02317.3%

100,291
16.3%

95,97716.7%

88,512
16.6%

Depreciation and amortization................

17,15015,677

16,33014,01912,211

11,973

At Year-End
Current assets......................................................
Sales inventory1..................................................
Total assets............................................................
Shareholders’ equity2......................................
Net interest-bearing debt............................

¥ 784,195
550,8632,894,004
427,423
1,548,509¥ 756,488
531,377
2,747,900
409,197
1,343,824¥ 619,219
388,6272,460,080
375,656
1,150,880¥ 481,341
260,6132,136,329
320,098
935,155¥ 503,911
234,019
2,090,970
303,875
916,156¥ 423,446
189,136
2,015,667
211,821
1,036,419

Per Share Amounts (Yen)
Net income............................................................
Shareholders’ equity........................................
Cash dividend applicable to the year.........

¥133.00
900.5718.00¥105.92
861.9314.00¥ 68.33
790.7410.00¥ 32.64673.409.00¥ 15.34
639.01
9.00¥ 12.22520.84
6.00

Key Ratios
Equity ratio (%)....................................................
ND/E ratio3 (Times)............................................

14.8
3.6

14.9
3.2

15.3
3.1

15.0
2.9

14.5
3.0

10.5
4.9

Notes: 1. Sales inventory = Inventories + Investments in SPCs holding properties for sale
2. Shareholders’ equity = Net assets – Minority interests
3. ND/E ratio = Net interest-bearing debt (Interest-bearing debt – Cash, time and notice deposits) / Shareholders’ equity

Contents

26
30
32
33
34
35
49

Management’s Discussion and Analysis
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Net Assets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors’ Report25

Management’s Discussion and Analysis

Overview

Other Income and Expenses

In the March 2008 fiscal year, the first year of the Third Three-Year
Growth Plan, we achieved our eleventh consecutive year of gains inrevenue, operating income and ordinary profit. Moreover, weachieved record highs for the eighth consecutive year in ordinary
profit and for the third consecutive year in net income.
In April 2007, we launched the Third Three-Year Growth Plan. The
basic objectives of the plan are to maintain the pace of growthachieved under the previous three plans. The forecast for cumulative
results over the three years covered by the new plan are revenue fromoperations of ¥2.4 trillion, operating income of ¥470 billion andordinary profit of ¥380 billion. In the plan’s first year we recorded
strong results that exceeded our initial targets. We achieved about
one-third of the three-year cumulative objectives for both operating
income and ordinary profit, and are confident about our chances ofmeeting the plan’s objectives.

Net other expenses improved to ¥40.6 billion, from ¥45.1 billion in
the previous fiscal year. In the previous year, we recorded a gain on
liquidation of limited partnership, which we did not record in the year
under review. However, in the previous year, to improve investment
efficiency on buildings for lease, we recorded a loss on devaluation ofproperty and equipment, which we did not record in the year underreview. On the other hand, due to an increase in interest-bearing
debt, interest expense, net, increased ¥4.6 billion. In addition, loss ondevaluation of investments in securities was ¥5.1 billion.

RESULTS OF OPERATIONSCASH FLOWS

Revenue from Operations and Operating Income

Cash and cash equivalents at end of year totaled ¥116.5 billion, adecrease of ¥13.3 billion from the end of the previous year. Cash flows
were as follows.

In the March 2008 fiscal year, we recorded substantial gains in­revenue and profit in the leasing segment due to higher rents on
existing buildings and to the full-year contributions of buildings
opened in the previous fiscal year. Moreover, we achieved doubledigit growth in operating income in the sales segment and operating
income surpassed ¥10.0 billion for the first time in the construction
segment. As a result, revenue from operations was up 2.2%, to ¥691.9
billion, and operating income rose 12.7%, to ¥154.6 billion.
For more information about each segment, please see the
Review of Operations section on page 12.

Net Income
Income before income taxes and minority interests totaled ¥114.0
billion, up 23.7% from a year earlier. Income taxes were up 23.6%, to¥47.6 billion. Net income rose 25.5%, to ¥63.1 billion, and the net
margin increased to 9.1%, from 7.4% in the previous year.

Cash Flows from Operating Activities
Net cash used in operating activities was ¥19.4 billion, due principallyto accumulation of properties for sale. In comparison with theprevious year, income before income taxes and minority interests
increased and increase in investment in properties for sale (condominiums) declined. As a result, cash flow improved ¥29.4 billion.

Cash Flows from Investing Activities
Net cash used in investing activities was ¥138.8 billion. As new
development investment in the leasing segment, we made paymentsfor purchases of property and equipment amounting to ¥144.0 billion.
We also recorded an increase in lease deposits and recovered leasedeposits paid to lessors.

REVENUE FROM OPERATIONSOPERATING INCOME AND
OPERATING MARGIN

ORDINARY PROFIT AND
NET INCOME

Operating Income
Operating Margin (right scale)(Billions of yen)

(%)

200

800

600

Ordinary Profit(Billions of yen)

573.9

616.1

646.5

676.8 691.9

22.3

720.0

20.3
150

16.7

16.3

96.0

100.3

17.3

154.6

22.5

24

162.0
18

137.2

150

12
60

0

0

0

’04

26

6

50

200

’05

’06

’07

’08

’09

(Forecast)

’04

’05

’06

125.2 127.0

120

112.4
87.0

90

112.0
100

400

Net Income(Billions of yen)

’07

’08

’09

(Forecast)

74.4

66.0

63.1

32.5

30

0

65.0

50.3

6.3

’04

15.5

’05

’06

’07

’08

’09

(Forecast)Cash Flows from Financing Activities

As a result, at the end of the fiscal year, interest-bearing debt was
up 13.0%, to ¥1,665.0 billion, an increase of ¥191.4 billion. Interestbearing debt includes a perpetual subordinated loan of ¥120.0 billion
that the Company took out on February 22, 2008. (For further information, please see pages 28 to 29.)

Net cash provided by financing activities was ¥144.7 billion. For
accumulation of properties for sale and investment in leasing facilities, increase in long-term debt and issuance of bonds and notes
totaled ¥369.0 billion, exceeding redemption of bonds and notes
and repayment of long-term debt, which totaled ¥155.8 billion.

		Millions of yen
				
		
2008
2007

Capital Resources and Liquidity

Amountchange%changeAt the end of the year under review, total assets were ¥2,894.0 billion,
an increase of 5.3% from the previous fiscal year-end. This was due
primarily to an increase in property and equipment stemming fromthe investment in leasing facilities. Total current assets rose 3.7%, to¥784.2 billion, due primarily to a 4.7% increase in inventories, whichreached ¥511.9 billion. This increase was due to the delivery of certain
properties being rescheduled for the next fiscal year. Net property
and equipment rose 11.6%, to ¥1,622.8 billion. This increase wasprincipally attributable to an increase in fixed assets stemming fromnew investment related to site acquisition.

Short-term debt:
Principally from banks.................... ¥195,670
Commercial paper............................
88,500Subtotal.............................................
284,170
Long-term debt:
Bonds and notes................................
385,000
Loans principally from banks.....
875,872
Perpetual subordinated loan.....
120,000
Subtotal............................................. 1,380,872
Long-term debt due within
one year................................................
114,990
Long-term debt due after
one year................................................ 1,265,882
Interest-bearing debt...................... 1,665,042

Liabilities

Shareholders’ Equity

Total liabilities were up 5.4% from the previous fiscal year-end, to¥2,446.7 billion. Total current liabilities declined 10.9%, to ¥775.7 billion.
Long-term debt due within one year decreased 26.8%, to ¥115.0 billion,
and commercial paper declined 18.1%, to ¥88.5 billion. Bonds scheduled for redemption within one year declined 77.5%, to ¥15.0 billion.
Moreover, total long-term liabilities were up 15.2%, to ¥1,670.9 billion.
This increase was principally attributable to an increase of 29.8% inbonds, to ¥370.0 billion, and an increase of 23.5% in loans principallyfrom banks, to ¥895.9 billion.

Shareholders’ equity was up 4.5% from the end of the previous fiscal
year, to ¥427.4 billion. This was due primarily to higher retained
earnings stemming from the substantial increase in net income. As aresult, the equity ratio was 14.8%, compared with 14.9% a year earlier.
ROE rose to 15.1%, from 12.8% a year earlier, and ROA was 5.6%,
compared with 5.4% a year earlier.

AssetsTOTAL ASSETSSHAREHOLDERS’ EQUITY AND
EQUITY RATIO

2,747.9

2,894.0

2,460.1
2,000

(%)

500

25
409.2

400

300

303.9
14.5

20

320.1
14.9

14.8

’06

’07

’08

0

1,010,630
1,473,644

255,252
191,398

16

12.8
12

9.3
8

5

’04

’05

25.3%
13.0%

15.1

10

100

’05

–42,054 –26.8%

15

15.3

15.0

200

’04

157,044

9.5%
7.3%
—
18.3%

(%)

1,000

0

33,43359,765120,000
213,198

427.4

375.7

2,091.0 2,136.3

351,567
816,107—
1,167,674

ROE
ROA(Billions of yen)

3,000

¥ –2,300 –1.2%–19,500 –18.1%–21,800 –7.1%

ROE AND ROA

Shareholders’ Equity
Equity Ratio (right scale)(Billions of yen)

¥197,970
108,000
305,970

’06

’07

’08

0

4

4.7

5.0

5.0

5.4

5.6

’07

’08

4.8
2.5

0

’04

’05

’06

27

FINANCIAL STRATEGY

focus several years into the future and focus on responding flexibly tochanges in the operating environment and being more aggressive insite acquisition. As a result, we have already acquired all of the sites thatwill be needed to achieve the goals of the current plan and have madesteady progress in the acquisition of sites needed for the next plan.

Characteristics of Operations and Diversification of Fund-Raising
In leasing and sales, which are our mainstay business segments,
several years are required from the acquisition of a site to the completion of a building and the generation of revenues. In addition, significant advance investment is required. In consideration of these factors,
under the previous mid-term management plans, to reinforce ourfinancial position and achieve operational growth, we worked todiversify our fund-raising methods so as to control interest-bearing
debt while making investments needed for growth.
Specifically, we have aggressively introduced development
securitization methods using SPCs. In addition, we have formed SURF
(Sumitomo Realty & Development Fund) investment partnerships
backed by leased buildings, making effective use of our assets in ourfund-raising activities.
Using SPCs where off-balance-sheet funds are raised throughnon-recourse loans, we worked to conduct development on a largescale with a small amount of money without placing a burden on ourbalance sheet. SPCs include those with properties that are in development and those with properties for leasing that are in operation. The
former are recorded in the current assets section of the balance sheet
as investments in SPCs holding properties for sale, while the latter arerecorded in the investments and advances section of the balance
sheet as investments in securities and other. At the end of March 31,
2008, these balances were ¥39.0 billion and ¥69.8 billion, and thebalance of the non-recourse loan and other off-balance-sheet debt
was approximately ¥630 billion.
The balance of investment received in SURF investment partnerships was ¥139.1 billion.
By actively utilizing these types of fund-raising methods that do
not rely on interest-bearing debt, we have raised large amounts offunds without having to sell assets at low prices, and we have aggressively acquired sites.

Investment in Line with Changes in the Market Environment
Acquiring the sites that will be needed for subsequent, ongoinggrowth is still one of the Company’s top priorities. In the current
environment, it is not easy to acquire large, prime sites. Accordingly,
for the past few years Sumitomo Realty has implemented a policy
centered on redevelopment for future site acquisition. In these cases,
it is difficult to raise funds through SPCs that utilize non-recourse
methods, which means that we need to use on-balance-sheet fundraising methods. In the year under review, with ongoing financial
unease stemming from the sub-prime loan problem, to maintain astable financial position, we raised ¥120.0 billion through a perpetual
subordinated loan. This subordinated loan, which received a highlevel of equity credit—75%—from a rating agency, was intended toincrease effective shareholders’ equity while avoiding equity dilution.
Aiming for further growth, the Company will continue to invest in
development. For the Company, this is a useful method of fundraising from the viewpoint of increasing financial stability.

Bolstering Our Financial Position
In addition, we are also working to raise funds at fixed, long-term
rates as a precaution against future increases in interest rates. At theend of March 2008, long-term debt accounted for 83% of interestbearing debt, compared with 79% a year earlier, and fixed-interest
rate debt accounted for 85% of interest-bearing debt, up from 83% at
the end of the previous fiscal year.
On the other hand, by the end of the previous plan we hadcompleted the implementation of measures to deal with unrealized
losses, and higher profits have been generating growth in equityfrom the current plan. We expect to steadily improve our financial
position. Consequently, we will continue working to secure primesites while making investments in line with growth in equity.

Aggressive Site Acquisition
Under the previous plan, competition in site acquisition was expected
to intensify, due to higher land prices. We decided that we should

NET INTEREST-BEARING DEBT AND
ND/E RATIO

Short-Term Loans and Commercial Paper
Long-Term Loans and Bonds
Fixed-Interest Rate Debt Ratio

Net Interest-Bearing Debt
ND/E Ratio (right scale)(Billions of yen)(Times)

1,600

1,548.5

8

1,343.81,200

61,150.9
916.2

3.2

3.1

2.9

3.6

400

0

28

’05

Operating Income + Interest and Dividend Income
Interest Expense
Interest Coverage Ratio (right scale)(%)(Billions of yen)

80

’06

’07

’08

82

87

80

83

77

83

85

79

83

139.5
120

80

12

158.1

9

114.0
101.7

97.0

6.5

6.8

80
40

0

(Times)

160

100

4

2

’04

INTEREST COVERAGE RATIO

60

935.2

800
3.0

LONG-TERM DEBT RATIO ANDFIXED-INTEREST RATE DEBT RATIO

6.2

6

5.2
40

20

4.1
23.5

0

’04

’05

’06

’07

’08

0

’04

3
19.6

’05

17.6

’06

20.6

’07

25.6

’08

0

In the past few years, multiple rating agencies have increased
the ratings on our bonds, and the terms under which we can borrow
long-term funds or issue bonds are steadily improving. We will strive
to establish a financial position that will enable us to raise funds on
more attractive terms in the years ahead.

*2. As of the effective date of the perpetual subordinated loan
*3. P
 rior to February 22, 2014, the rights cannot be exercised unless perpetual
subordinated loan interest payments have been stopped. Voluntary
repayment is possible on or after February 22, 2013. In the event of
repayment, the new stock subscription rights will become unexerciseable,
and the Company will acquire the new stock subscription rights at no cost.

Overview of Perpetual Subordinated Loan and
New Stock Subscription Rights

DIVIDEND POLICY

The perpetual subordinated loan entails the allotment of new stock
subscription rights with the objective of the creditor to secure amethod of recovering its investment. In regard to the new stock
subscription rights, consideration has been given to limiting thepossibility of dilution upon execution.
Overview of Perpetual Subordinated Loan
Amount:Borrower:¥120.0 bilion
Sumitomo Realty & Development Co., Ltd.
Sumitomo Mitsui Banking Corporation(Trust Account)
February 22, 2008
No fixed date (*1)

Lendor:Effective date:
Maturity date:(1) F rom February 22, 2008 to February 21, 2013:
3 Month Yen TIBOR + 1.10%(2) F rom February 22, 2013:
3 Month Yen TIBOR + 2.10%

Applicable interest rate (*2):

Overview of New Stock Subscription Rights
Allotted to:

Sumitomo Mitsui Banking Corporation(Trust Account)

Number of shares fromsubscription rights(*2):

49,180,327 shares

New share subscription
right exercise period:

February 22, 2008, to February 22, 2058 (*3)

Exercise price:

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

Our fundamental policy for the distribution of profit is to maintain astable base level of dividends and, while retaining a sufficient level of
earnings for stable, long-term operational growth, to increase dividends in line with growth in profit. We steadily strengthened our profit
foundation under two management plans—the Four-Year Business
Reconstruction Plan, which dealt with the effects of the collapse ofJapan’s bubble economy, and the 1st Growth Plan. In addition, we
worked to respond to various changes in accounting standards and to
reduce unrealized losses. Over this period, due to comparatively large
special losses, net income fluctuated, but we maintained annual
dividends at ¥6.00 per share. At the conclusion of the 1st Growth Plan,
we raised dividends to the bubble-period level: ¥9.00 per share. Underthe 2nd Growth Plan, which began in April 2004, we completed theimplementation of measures to deal with unrealized losses, and wewere able to lay the foundation for full-scale growth in EPS. However,
we still need to increase our equity further, and for the time being ourpolicy is to pay dividends in line with growth in ordinary profit. For the
March 2007 fiscal year, the final year of the 2nd Growth Plan, dividends
were raised to ¥14.00 per share.
In the year under review, we exceeded the ordinary profit objective set out in the plan, and we increased annual per-share cash
dividends by ¥18.00, including the ¥8.00 interim dividend, representing an increase of ¥4.00 per share from the previous fiscal year.
For the March 2009 fiscal year, we plan to increase dividends by¥2.00 per share, to ¥20.00 for the year.

*1. H owever, voluntary repayment is possible in the event that five years havepassed from the date of the loan (i.e., February 22, 2013 and thereafter), andcertain other conditions are met.

CASH DIVIDENDS PER SHARE,
ORDINARY PROFIT AND
INCOME BEFORE INCOME TAXESNUMBER OF EMPLOYEESIN MAJOR SEGMENTS

Cash Dividends per Share (right scale)
Ordinary Profit

Income before Income Taxes(Billions of yen)

25

120

112.4
87.0

90

61.5

74.4

66.0

Sales

6,348

6,621

Construction

Leasing Assets
Return on Leasing Assets (right scale)

(Yen)

150

60

Leasing
Brokerage

LEASING ASSETS AND RETURN ON
LEASING ASSETS

125.2 127.0
117.0 20
114.0
20.0
92.1
18.0
15

(Billions of yen)
8,000

6,926

7,601

7,967

1,600

6,000

9.0

10

1,538.5

1,620.0

8
6.3

6.4
6

5.5
800

4.7

5.0

4

10.0

30.7

30

1,481.8

1,200

10
9.0

1,949.8
1,787.4

4,000

14.0

(%)

2,000

5

2,000
400

2

15.6
0

0

’04

’05

’06

’07

’08

’09

(Forecast)

0

’04

’05

’06

’07

’08

0

’04

’05

’06

’07

’08

0

29

Consolidated Balance Sheets
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
As of March 31, 2008 and 2007
				
Millions of yen

Assets2008
Current assets:Cash, time and notice deposits (Note 3).............................................................................................................. ¥ 116,533
Marketable securities (Note 7)....................................................................................................................................
3
Investments in SPCs holding properties for sale (Note 7).........................................................................
38,995
Notes and accounts receivable–trade...................................................................................................................
14,308Loans receivable..................................................................................................................................................................
43,018
Allowance for doubtful accounts.............................................................................................................................
(425)
Inventories (Note 4)...........................................................................................................................................................
511,868
Deferred income taxes (Note 16)..............................................................................................................................
12,394
Other current assets..........................................................................................................................................................
47,501
			 Total current assets.....................................................................................................................................................
784,195

2007

2008

¥ 129,820
1,203
42,284
21,642
46,842(24,911)
489,093
17,92932,586756,488$ 1,163,120
30
389,211
142,809429,364(4,242)
5,108,973
123,705
474,1097,827,079

Investments and advances:
Investments in and advances to unconsolidated
	  subsidiaries and affiliates (Note 5).........................................................................................................................
Investments in securities and other (Note 7)....................................................................................................
Allowance for doubtful accounts.............................................................................................................................
			 Total investments and advances.......................................................................................................................

5,854
255,403(16,428)
244,8296,125
309,573(27,827)
287,871

58,4292,549,186(163,968)
2,443,647

Property and equipment (Notes 4 and 6):
Land............................................................................................................................................................................................
Buildings and structures.................................................................................................................................................
Machinery and equipment...........................................................................................................................................
Construction in progress................................................................................................................................................
				Accumulated depreciation...........................................................................................................................................
			 Net property and equipment..............................................................................................................................

1,261,992
460,983
18,90453,665
1,795,544(172,706)
1,622,838

1,128,752
447,950
18,827
15,784
1,611,313(157,765)
1,453,548

12,595,987
4,601,088
188,682535,632
17,921,389(1,723,785)
16,197,604

Other assets:
Guarantee and lease deposits paid to lessors..................................................................................................
180,031
Leasehold rights and other intangible assets...................................................................................................
51,625
Deferred income taxes (Note 16)..............................................................................................................................
6,113
Other...........................................................................................................................................................................................
4,373
			 Total other assets.........................................................................................................................................................
242,142			  Total assets		 ¥2,894,004

193,049
49,905
3,828
3,211
249,993¥2,747,900

1,796,896
515,271
61,014
43,6472,416,828$28,885,158

See accompanying notes.

30

Thousands of
U.S. dollars(Note 1)				Millions of yen

Thousands of
U.S. dollars(Note 1)

Liabilities and Net Assets
2008
Current liabilities:
Short-term debt (Notes 6 and 8)............................................................................................................................... ¥ 284,170
Long-term debt due within one year (Notes 6 and 8)................................................................................
114,990
Notes and accounts payable–trade........................................................................................................................
39,304
Accrued income taxes (Note 16)...............................................................................................................................
24,358
Accrued bonuses................................................................................................................................................................
3,335
Deposits received (Note 17).........................................................................................................................................
241,659
Other current liabilities....................................................................................................................................................
67,933
			 Total current liabilities..............................................................................................................................................
775,749

2007

2008

¥ 305,970
157,044
57,39922,953
3,337
247,494
76,619870,816$ 2,836,311
1,147,719
392,295
243,118
33,2872,412,007
678,042
7,742,779

Long-term liabilities:
Long-term debt due after one year (Notes 6 and 8)....................................................................................
Guarantee and deposits received (Note 17)......................................................................................................
Deferred income taxes (Note 16)..............................................................................................................................
Allowance for employees’ severance and retirement benefits (Note 9)..........................................
Other long-term liabilities.............................................................................................................................................
			 Total long-term liabilities........................................................................................................................................

1,265,882
394,512
—
4,639
5,887
1,670,920

1,010,630
406,133
23,9504,761
4,563
1,450,037

12,634,814
3,937,638—
46,30258,758
16,677,512

Net assets (Notes 2 (2) and 18):
Common stock:
			 Authorized – 1,900,000 thousand shares
			 Issued     – 476,086 thousand shares .......................................................................................................
Capital surplus......................................................................................................................................................................
Retained earnings...............................................................................................................................................................
Treasury stock........................................................................................................................................................................
					

122,805
132,759
176,229(2,747)429,046

122,805
132,754
120,691(2,254)373,996

1,225,721
1,325,072
1,758,949(27,418)
4,282,324

Net unrealized holding gains on securities........................................................................................................
Net deferred losses on hedges..................................................................................................................................
Foreign currency translation adjustments..........................................................................................................
					

2,870
(2,252)(2,241)(1,623)36,792(73)(1,518)35,201

28,646(22,477)(22,368)(16,199)

Minority interests................................................................................................................................................................
19,912
			 Total net assets..............................................................................................................................................................
447,335			  Total liabilities and net assets		 ¥2,894,004

17,850427,047¥2,747,900

198,7424,464,867$28,885,158

Contingent liabilities (Note 23)31Consolidated Statements of Income
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2008, 2007 and 2006
				
Millions of yen

Thousands of
U.S. dollars(Note 1)

2008

2007

2006

2008

Revenue from operations........................................................................................................................
Costs and expenses:
Cost of revenue from operations.........................................................................................................
Selling, general and administrative expenses..............................................................................
				
Operating income.........................................................................................................................................
Other income (expenses):
Interest expense, net...................................................................................................................................
Dividend income...........................................................................................................................................
Gain on sale of property and equipment (Note 12).................................................................
Loss on sale of property and equipment........................................................................................
Loss on impairment of fixed assets (Note 10)..............................................................................
Loss on devaluation of property and equipment (Note 11)...............................................
Loss on disposal of property and equipment..............................................................................
Gain on sale of investments in securities........................................................................................
Loss on devaluation of investments in securities......................................................................
Dividend to partnership investors.......................................................................................................
Gain on settlement of sub-lease lawsuits.......................................................................................
Gain on adjustment of accrued rent payable (Note 15)........................................................
Gain on adjustment of sub-lease rent paid (Note 14)............................................................
Gain on liquidation of limited partnership (Note 13)..............................................................
Loss on liquidation of limited partnership (Note 12)..............................................................
Loss on cancellation of interest rate swap agreement..........................................................
Loss on devaluation of inventories.....................................................................................................
Provision for allowance for doubtful accounts...........................................................................
Other, net............................................................................................................................................................
				
Income before income taxes and minority interests.........................................................
Income taxes (Note 16):
Current..................................................................................................................................................................
Deferred...............................................................................................................................................................
		 Total....................................................................................................................................................................

¥691,928¥676,834¥646,525$6,906,158

488,20249,118537,320
154,608

490,491
49,167
539,658
137,176

487,805
46,697534,502
112,023

4,872,761
490,249
5,363,010
1,543,148(24,619)
2,494
174
(61)
(4,292)—(482)
3(5,111)(3,487)
—
2,385
—
—
—
—
(2,098)—(5,544)(40,638)
113,970(20,049)
1,800
65
(13)
(793)
(62,644)(215)
227(1,548)(3,916)——
1,440
46,192———(2,828)(2,787)(45,069)
92,107(17,085)
1,420
15,238(25)(25,244)(17,185)
(217)
1,446
(68)
(4,702)
1,700———(1,303)(2,508)——(1,948)(50,481)
61,542(245,723)
24,893
1,737(609)(42,839)—(4,811)30(51,013)(34,804)—
23,805————(20,940)—(55,335)(405,609)
1,137,539

43,521
4,094
47,61539,591(1,055)38,536

34,115(7,785)26,330434,385
40,862475,247

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

3,222

3,271

2,706

32,159Net income..........................................................................................................................................................

¥ 63,133¥ 50,300¥ 32,506$ 630,133

		YenAmounts per share of common stock:
Net income:– Basic...................................................................................................................................................................
– Diluted..............................................................................................................................................................
Cash dividend applicable to the year...............................................................................................
See accompanying notes.

32

U.S. dollars(Note 1)

2008

2007

2006

¥133.00
131.8618.00¥105.92—
14.00¥68.33
—
10.00

2008

$1.33
1.32
0.18

Consolidated Statements of Changes in Net Assets
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2008, 2007 and 2006
Thousands

Millions of yen
Shareholders’ equity							NetNumber of					
unrealized
shares of 					TotalholdingcommonCommonCapitalRetained
Treasuryshareholders’ gains (losses)
stock
stock
surplusearnings
stock
equityon securities

Balance at March 31, 2005
476,086
Net income—
Foreign currency
	  translation adjustments—
Net unrealized holding	  gains on securities—
Acquisition of treasury stock—
Cash dividends paid:	  Final for prior year (¥9 per share)—	  Interim for current year		  (¥5 per share)—
Bonuses to directors—
Minority interests—
Balance at March 31, 2006
476,086
Net income—
Foreign currency
	  translation adjustments—
Net unrealized holding	  losses on securities—
Acquisition of treasury stock—
Gains on sale
	  of treasury stock—
Cash dividends paid:		  Final for prior year (¥5 per share)—	  Interim for current year		  (¥6 per share)—
Bonuses to directors—
Minority interests—
Net deferred losses on hedges—
Balance at March 31, 2007
476,086
Net income—
Foreign currency
	  translation adjustments—
Net unrealized holding	  losses on securities—
Acquisition of treasury stock—
Gains on sale
	  of treasury stock—
Cash dividends paid:	  Final for prior year (¥8 per share)—		  Interim for current year	  	  (¥8 per share)—
Minority interests—
Net deferred losses on hedges—
Balance at March 31, 2008
476,086

Valuation and transaction adjustments
Netdeferred
losses onhedgesForeigncurrencytranslation
adjustments

Totalvaluation and		translation
Minority
adjustmentsinterests

Total
net
assets¥ 122,805—¥ 132,748—¥ 49,829
32,506¥   (665)—¥ 304,717
32,506¥ 18,964—¥    ——¥ (3,583)—¥ 15,381—¥ 12,465—¥ 332,563
32,506

—

—

—

—

—

—

—

2,369

2,369

—

2,369

—
—

—
—

—
—

—
(570)

—
(570)

27,936—————27,936———27,936(570)——(4,278)—(4,278)

—

—

—

—

—

(4,278)———122,805————
132,748—(2,376)(29)—
75,65250,300———(1,235)—(2,376)(29)—
329,970
50,300———46,900
—

—
—
—
—
—

—
—
—
(1,214)————45,686———
2,768
15,233—(2,376)(29)
2,768
390,889
50,300

—

—

—

—

—

—

—

(304)

(304)

—

(304)

—
—

—
—

—
—

—
(1,022)—(1,022)(10,108)
—

—
—

—
—

(10,108)———(10,108)(1,022)

—

6

—

3

9

—

—

—

—

—

9

—

—

(2,375)—(2,375)

—

—

—

—

—

(2,375)————
122,805—————
132,754—(2,849)(37)——
120,691
63,133————(2,254)—(2,849)(37)——373,996
63,133————36,792
—

—
—
—
(73)
(73)
—

—
—
—
—
(1,518)
—

—
—
—
(73)
35,201
—

—
—
2,617
—
17,850—(2,849)
(37)
2,617
(73)
427,047
63,133

—

—

—

—

—

—

—

(723)

(723)

—

(723)

—
—

—
—

—
—

—
(502)

—
(502)

(33,922)
—

—
—

—
—

(33,922)———(33,922)
(502)

—

5

—

9

14

—

—

—

—

—

14

—

—

(3,798)—(3,798)

—

—

—

—

—

(3,798)———¥122,805———¥132,759(3,797)——¥176,229———¥(2,747)(3,797)——¥429,046———¥ 2,870——(2,179)¥(2,252)———¥(2,241)——(2,179)¥ (1,623)

—
2,062
—
¥19,912(3,797)
2,062(2,179)¥447,335		Thousands of U.S. dollars (Note 1)
Shareholders’ equity
Valuation and transaction adjustments							
Net
		
					
unrealizedNet
Foreign
Total
					
Total
holdingdeferredcurrency
valuation and				CommonCapitalRetained
Treasuryshareholders’ gains (losses)
losses ontranslationtranslation
Minority		
stock
surplusearnings
stock
equityon securities
hedgesadjustments
adjustmentsinterests

Balance at March 31, 2007		
Net income		
Foreign currency
	  translation adjustments		
Net unrealized holding	  losses on securities		
Acquisition of treasury stock		
Gains on sale of treasury stock		Cash dividends paid:	  Final for prior year ($0.08 per share)		
		  Interim for current year	  	  ($0.08 per share)		
Minority interests		
Net deferred losses on hedges		Balance at March 31, 2008		

Total
net
assets$ 1,225,721—$1,325,022—$1,204,621
630,133$(22,497)—$3,732,867
630,133$ 367,222—$   (729)—$(15,151)—$ 351,342—$178,161—$4,262,370
630,133

—

—

—

—

—

—

—

(7,217)(7,217)—(7,217)

—
—
—

—
—
50

—
—
—

—
(5,011)90—(5,011)
140(338,576)
—
—

—
—
—

—
—
—

(338,576)
—
—

—
—
—

(338,576)(5,011)140——(37,907)—(37,907)

—

—

—

—

—

(37,907)———$1,225,721———$1,325,072(37,898)——$1,758,949———$(27,418)(37,898)——$4,282,324———$ 28,646——(21,748)$(22,477)———$(22,368)——(21,748)$ (16,199)—
20,581—$198,742(37,898)
20,581(21,748)$4,464,867

See accompanying notes.

33

Consolidated Statements of Cash Flows
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2008, 2007 and 2006
				
Millions of yen
2008

2007

2006

2008

Cash flows from operating activities:
		 Income before income taxes and minority interests........................................................... ¥ 113,970
		 Depreciation and amortization.........................................................................................................
17,150		 Loss on impairment of fixed assets (Note 10)..........................................................................
4,292
		 Provision for (Reversal of) allowance for doubtful accounts...........................................
(35,886)
		 Decrease in employees’ severance and retirement benefits ........................................
(122)
		 Loss on devaluation of inventories.........................................................................................................
2,098
		 Gain on sale of property and equipment (Note 12).............................................................
(174)
		 Loss on sale of property and equipment....................................................................................
61
		 Loss on devaluation of property and equipment (Note 11)...........................................
—
		 Loss on disposal of property and equipment..........................................................................
482
		 Gain on sale of investments in securities....................................................................................
(3)
		 Loss on devaluation of investments in securities..................................................................
5,111
		 Interest and dividend income............................................................................................................
(3,484)
		 Interest expense..........................................................................................................................................
25,609
		 Increase in investments in SPCs holding properties for sale..........................................
(1,644)
		 Decrease in notes and accounts receivable–trade...............................................................
7,325
		 Increase in inventories............................................................................................................................
(71,116)
		 Decrease (Increase) in loans receivable.......................................................................................
16,564
		 Increase (Decrease) in notes and accounts payable–trade.............................................
(18,087)
		 Increase (Decrease) in advances received..................................................................................
(7,250)		 Other, net........................................................................................................................................................
(10,731)
			 Total.................................................................................................................................................................
44,165¥ 92,107
15,677
793
6,265
(173)
—
(65)
13
62,644
215
(227)
1,548
(2,307)
20,556(137)
4,600(190,790)
2,298
2,094
1,383
1,868
18,362¥ 61,542
16,33025,244
1,663(68)—(15,238)
25
17,185217(1,446)68(1,977)
17,642(8,493)
5,238(108,022)(4,854)
10,281
12,0339,223
36,593$ 1,137,539
171,175
42,839(358,179)(1,218)20,940(1,737)
609
—
4,811
(30)
51,013(34,774)
255,604(16,409)
73,111(709,811)
165,326(180,527)(72,363)(107,107)
440,812

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

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

2,305(20,364)(49,184)(48,881)

1,974(17,545)(9,665)
11,35734,784(251,332)(418,375)(194,111)

Cash flows from investing activities:
		 Payments for purchases of property and equipment.........................................................
		 Proceeds from sale of property and equipment....................................................................
		 Payments for purchases of investments in securities.........................................................
		 Proceeds from sale of investments in securities.....................................................................
		 Payments for guarantee and lease deposits paid to lessors...........................................
		 Proceeds from guarantee and lease deposits paid to lessors........................................
		 Payments for guarantee and lease deposits received........................................................
		 Proceeds from guarantee and lease deposits received.....................................................
		 Receipts of deposits from partnership investors....................................................................
		 Restitution of deposits from partnership investors..............................................................
		 Other, net........................................................................................................................................................
Net cash used in investing activities..................................................................................................

(144,016)
926(40,449)
7,336(4,298)
16,615(21,260)
30,840110,874(95,902)559(138,775)(152,601)529(27,457)
25,538(19,168)
5,111(16,283)
31,092
79,520(94,517)(19,652)(187,888)(237,024)
91,055(75,303)36,546(24,588)
10,065(37,572)
28,99065,508(75,559)
8,223(209,659)(1,437,429)
9,242(403,723)
73,221(42,898)
165,835(212,197)
307,815
1,106,637(957,201)5,580(1,385,118)

Cash flows from financing activities:
		 Increase (Decrease) in short-term debt........................................................................................
		 Proceeds from issuance of bonds and notes...........................................................................
		 Redemption of bonds and notes.....................................................................................................
		 Increase in long-term debt..................................................................................................................
		 Increase (Decrease) in assignment of receivables.................................................................
		 Cash dividends paid.................................................................................................................................
		 Other, net........................................................................................................................................................
Net cash provided by financing activities......................................................................................

(21,800)
100,000(66,567)
179,765(34,715)(8,466)(3,487)
144,730

56,700100,000(80,874)
130,786
32,073(5,882)
17,250250,053

76,02590,000(92,667)
155,285(40,310)(7,159)28,125
209,299(217,587)
998,104(664,408)
1,794,241(346,492)(84,499)(34,804)
1,444,555

Effect of exchange rate changes on cash and cash equivalents.....................................

206

383

1,922

2,056

(13,287)
Net increase (decrease) in cash and cash equivalents.....................................................
Cash and cash equivalents at beginning of year..................................................................
129,823
Cash and cash equivalents at end of year (Note 3).............................................................. ¥ 116,536

13,667116,156¥129,823

12,919103,237¥116,156(132,618)
1,295,768$ 1,163,150

See accompanying notes.

34

Thousands of
U.S. dollars(Note 1)

Notes to Consolidated Financial Statements
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
As of and for the years ended March 31, 2008, 2007 and 2006

1. Basis of Presenting Consolidated financial statements
The accompanying consolidated financial statements of Sumitomo
Realty & Development Co., Ltd. (“the Company”) and its consolidated
subsidiaries have been prepared in accordance with the provisions
set forth in the Financial Instruments and Exchange Law and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are
different in certain respects as to application and disclosure requirements from International Financial Reporting Standards.
The accounts of the Company’s overseas subsidiaries are basedon their accounting records maintained in conformity with generally
accepted accounting principles prevailing in the respective countriesof domicile. The accompanying consolidated financial statements
have been restructured and translated into English (with certain
expanded disclosure) from the consolidated financial statements of

the Company prepared in accordance with Japanese GAAP and filedwith the appropriate Local Finance Bureau of the Ministry of Financeas required by the Financial Instruments and Exchange Law. Certain
supplementary information included in the statutory Japaneselanguage consolidated financial statements, but not required for fairpresentation, is not presented in the accompanying consolidated
financial statements.
The translation of the Japanese yen amounts into U.S. dollars is
included solely for the convenience of readers outside Japan, using
the prevailing exchange rate at March 31, 2008, which was ¥100.19 to
U.S.$1. The convenience translation should not be construed as representation that the Japanese yen amounts have been, could have beenor could in the future be converted into U.S. dollars at this or any otherrate of exchange.

2. Accounting policies(1) Principles of consolidation
The accompanying consolidated financial statements include theaccounts of the Company and significant companies over which theCompany has power of control through majority voting rights or existence 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
have been eliminated in consolidation.
Effective from the year ended March 31, 2008, the Company andits consolidated subsidiaries adopted the new accounting standard,“Implementation Guidance on Disclosures about Certain Special
Purpose Entities” (Accounting Standards Board of Japan GuidanceNo. 15, issued on March 29, 2007).
In accordance with the new accounting standard, the Company
has provided an overview of Special Purpose Entities (“SPEs”) funded
by investments from the Company, including Special Purpose Companies(“SPCs”), Tokutei Mokuteki Kaisha (“TMKs”) and limited partnerships(“Tokumei Kumiai”). The Company has also provided an overview ofSPEs’ transactions and amount of transactions, etc., with SPEs in Note
22 (Relationships with special purpose entities subject to disclosure).
(2) Accounting Standard for Presentation of Net Assets in
the Balance Sheet
Effective from the year ended March 31, 2007, the Company and its
consolidated subsidiaries adopted the new accounting standard,“Accounting Standard for Presentation of Net Assets in the Balance
Sheet” (Statement No. 5 issued by the Accounting Standards Board ofJapan on December 9, 2005), and “Implementation Guidance for the
Accounting Standard for Presentation of Net Assets in the Balance
Sheet” (the Financial Accounting Standard Implementation Guidance
No. 8 issued by the Accounting Standards Board of Japan on
December 9, 2005), (collectively, “the New Accounting Standards”).
The consolidated balance sheets as of March 31, 2008 and 2007
prepared in accordance with the New Accounting Standards com­prises three sections, which are the assets, liabilities and net assets
sections.
(3) Accounting Standard for Statement of Changes in Net Assets
Effective from the year ended March 31, 2007, the Company and its
consolidated subsidiaries adopted the new accounting standard,“Accounting Standard for Statement of Changes in Net Assets”(Statement No. 6 issued by the Accounting Standards Board of Japanon December 27, 2005), and “Implementation Guidance for the
Accounting Standard for Statement of Changes in Net Assets” (theFinancial Accounting Standard Implementation Guidance No. 9 issued
by the Accounting Standards Board of Japan on December 27, 2005),(collectively, “the Additional New Accounting Standards”).
Accordingly, the Company prepared the consolidated statementsof changes in net assets for the years ended March 31, 2008 and 2007
in accordance with the Additional New Accounting Standards. Also,
the Company voluntarily prepared the consolidated statement ofchanges in net assets for 2006 in accordance with the Additional New
Accounting Standards. Previously, consolidated statements of shareholders’ equity were prepared for the purpose of inclusion in the consolidated financial statements although such statements were notrequired under Japanese GAAP.
(4) Foreign currency translation
Receivables and payables denominated in foreign currencies aretranslated into Japanese yen at the year-end rates.
Financial statements of consolidated overseas subsidiaries aretranslated into Japanese yen at the year-end rate, except that shareholders’ equity accounts are translated at historical rates and income
statement items resulting from transactions with the Company at therates used by the Company.
Differences arising from translation are presented as “Foreign currency translation adjustments” in net assets.
(5) Cash and cash equivalents
In preparing the consolidated statements of cash flows, cash on hand,readily-available deposits and short-term, highly liquid investmentswith maturities not exceeding three months at the time of purchaseare considered to be cash and cash equivalents.
(6) 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 lease term.
(7) Inventories
Inventories are stated at cost which is determined by the specificidentification cost method.
35

With respect to the cost of consignment sales activities, theCompany uses a cost accounting approach for matching revenue fromsales of consigned properties and costs associated to such properties.
(8) Securities
Held-to-maturity securities are stated at amortized cost. Investments
in subsidiaries and affiliates that are not consolidated or accounted forusing the equity method are stated at moving-average cost. Availablefor-sale securities with available fair market values are stated at fairmarket value. Unrealized gains and losses on these securities arereported, net of applicable income taxes, as a separate componentof net assets. Realized gains and losses on the sale of such securities
are computed using moving-average cost.
Investments in SPCs holding properties for sale and senior securities are stated at cost determined by the specific identification method and securities with no available fair market value are stated atmoving-average cost.
Investments in partnerships similar to investment limited partnerships, which are regarded as securities under the Financial Instruments
and Exchange Law, are accounted for in a manner similar to the equity method based on recent financial statements.
If the market value of held-to-maturity securities, investments in
subsidiaries and affiliates, available-for-sale securities and investments
in SPCs holding properties for sale declines significantly, such securities
are stated at fair market value and the difference between fair market
value and the carrying amount is recognized as a loss in the period of
the decline. If the fair market value of investments in unconsolidated
subsidiaries and affiliated companies not accounted for using the equity
method is not readily available, such securities should be written down
to net asset value with a corresponding charge in the income statement in the event net asset value declines significantly. In these cases,
such fair market value or the net asset value will be the carrying
amount of the securities at the beginning of the next year.
(9) Property and equipment
The Company and consolidated domestic subsidiaries depreciatebuildings using the straight-line method, and other property andequipment using the declining-balance method over their estimateduseful lives. Consolidated overseas 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
From the current period, the Company has changed the depreciation method of property and equipment due to the revision of
Corporate Tax Law. Residual value is no longer used for the property
and equipment acquired on or after April 1, 2007. Instead, the wholeacquisition cost of such property and equipment will be depreciatedat the end of the useful life with 1 yen remaining as a reminder. Thisaccounting change had no material impact on the consolidated statements of income or segment information.
As for the property and equipment acquired before April 1, 2007,
their residual values are depreciated over five years using the straightline method after the year in which the depreciable limit is reached.
This accounting change had no material impact on the consolidated­statements of income or segment information.

36(10) Impairment of fixed assets
Effective on April 1, 2005, the Company and its consolidated domestic
subsidiaries applied “Accounting Standard for Impairment of Fixed

Assets” (“Opinion Concerning Establishment of Accounting Standard
for Impairment of Fixed Assets,” issued by the Business Accounting
Deliberation Council on August 9, 2002) and “Guidelines on
Implementation of Accounting Standard for Impairment of Fixed
Assets” (Guidelines on Implementation of Business AccountingStandard No. 6 issued by the Accounting Standards Board of Japanon October 31, 2003). As a result of adopting the new accounting
standards for impairment of fixed assets, income before income taxes
and minority interests for the year ended March 31, 2006 decreasedby ¥25,244 million.
Accumulated impairment losses are recognized as direct writedowns of the related fixed assets.
(11) Software costs
Software costs are amortized using the straight-line method over theestimated useful lives (five years).
(12) Allowance for doubtful accounts
The Company provides for doubtful accounts at an estimated uncollectable amount based on the evaluation of certain identified doubtful and bankrupt receivables plus an amount calculated using thepercentage of actual collection losses in certain reference periods
with respect to remaining receivables.
(13) 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.
(14) Income taxes
Income taxes are provided for on the basis of income for financial
statement purposes. The tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial statements
and income tax purposes are recognized as deferred income taxes.
(15) Employees’ severance and retirement benefits
The Company and certain of its consolidated subsidiaries provide two
types of post-employment benefit plans, lump-sum payment plans
and approved retirement pension plans, under which all eligible
employees are entitled to benefits based on their current rate of pay,
length of service and the conditions under which termination occurs.
The liabilities and expenses for severance and retirement benefits
are determined based on the amounts actuarially calculated using
certain assumptions.
The Company and certain of its consolidated subsidiaries provided
an allowance for employees’ severance and retirement benefits at
March 31, 2008, 2007 and 2006 based on the estimated projected
benefit obligation at those dates.
Actuarial gains and losses are recognized in expenses in the succeeding period.
(16) Derivative transactions and hedge accounting
The Company and its consolidated subsidiaries state derivative financial instruments at fair value and recognize changes in the fair value
as gains or losses unless derivative financial instruments are used forhedging purposes and qualify for hedge accounting.
If derivative financial instruments are used as hedges and meetcertain hedging criteria, the Company and its consolidated subsidiaries
defer recognition of gains or losses resulting from changes in fairvalue of derivative financial instruments until the related losses orgains on the hedged items are recognized.
However, in cases where forward foreign exchange contracts areused as hedges and meet certain hedging criteria (regarding foreignexchange contracts), the forward foreign exchange contracts andhedged items are accounted for in the following manner:
1. If a forward foreign exchange contract is executed to hedge anexisting foreign currency receivable or payable,(a) the difference, if any, between the Japanese yen amount of thehedged foreign currency receivable or payable translated using
the spot rate at the inception date of the contract and the bookvalue of the receivable or payable is recognized in the income
statement in the period which includes the inception date; and(b) t he discount or premium on the contract (that is, the difference
between the Japanese yen amount of the contract translatedusing the contracted forward rate and that translated using the
spot rate at the inception date of the contract) is recognizedover the term of the contract.
2. If a forward foreign exchange contract is executed to hedge afuture transaction denominated in a foreign currency, the futuretransaction will be recorded using the contracted forward rate,
and no gains or losses on the forward foreign exchange contract
are recognized.
Also, if interest rate swap contracts are used as a hedge and meetcertain hedging criteria (regarding interest rate swap contracts), thenet amount to be paid or received under the interest rate swap contracts is added to or deducted from the interest on the assets or liabilities relative to which the swap contract was executed as a hedge.
(17) Amounts per share of common stock
The computation of net income per share is based on the weightedaverage number of shares of common stock outstanding during
each year.
Diluted net income per share is computed based on the amountof net income available to the shareholders and the weighted-average
number of shares of common stock outstanding during each year
after giving effect to the dilutive potential of shares of common stock
to be issued upon the exercise of stock options.
Cash dividends per share represent actual amounts applicable to
the respective year.
(18) Reclassifications and restatement
Certain prior year amounts have been reclassified to conform to the2008 presentation.
These reclassifications had no impact on previously reported
results of operations or retained earnings.

3. Cash and cash equivalents
Cash and cash equivalents at March 31, 2008 and 2007 consisted of the following:		Millions of yen
2008
2007

Cash, time and notice deposits........................................................................................................................................................................
Marketable securities..............................................................................................................................................................................................
Cash and cash equivalents ................................................................................................................................................................................

¥116,533
3¥116,536¥129,820
3¥129,823

Thousands of
U.S. dollars
2008$1,163,12030$1,163,150

4. Inventories
Inventories at March 31, 2008 and 2007 were as follows:		Millions of yen
2008
2007

Land and buildings for sale.................................................................................................................................................................................
Land and building projects in progress......................................................................................................................................................
Land held for development................................................................................................................................................................................
Other.................................................................................................................................................................................................................................
Total.............................................................................................................................................................................................................................

¥149,745
303,481
51,5097,133¥511,868¥173,101
227,902
78,9939,097¥489,093

Thousands of
U.S. dollars
2008$1,494,610
3,029,055
514,113
71,195$5,108,973

The Company transferred amounts between inventories and property and equipment. Such transfers at March 31, 2008 and 2007 were as follows:		Millions of yen
2008
2007

Thousands of
U.S. dollars
2008

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

$(551,762)
163,390$(388,372)¥(55,281)
16,370¥(38,911)¥(33,005)
422¥(32,583)

5. Investments in and advances to unconsolidated subsidiaries and affiliates
Investments in and advances to unconsolidated subsidiaries and affiliates at March 31, 2008 and 2007 consisted of the following:		Millions of yen
2008
2007

Investments in common stock, at cost............................................................................................................................................................
Advances............................................................................................................................................................................................................................
Total.................................................................................................................................................................................................................................

¥5,853
1¥5,854¥6,08540¥6,125

Thousands of
U.S. dollars
2008$58,41910$58,42937

6. Pledged assets
Assets pledged as collateral at March 31, 2008 and 2007 were as follows:		Millions of yen
2008
2007

Thousands of
U.S. dollars
2008

Buildings and structures........................................................................................................................................................................................... ¥14,839
Land....................................................................................................................................................................................................................................... 27,727
Other.....................................................................................................................................................................................................................................
180
Total................................................................................................................................................................................................................................. ¥42,746$148,109276,7441,796$426,649¥15,575
27,727
227¥43,529

Secured liabilities at March 31, 2008 and 2007 were as follows:		Millions of yen
2008
2007

Thousands of
U.S. dollars
2008

Short-term debt............................................................................................................................................................................................................. ¥ 1,750
Long-term debt.............................................................................................................................................................................................................. 31,500
Total................................................................................................................................................................................................................................. ¥33,250$ 17,467
314,402$331,869¥ 1,750
33,250¥35,000

7. Securities
For 2008
A. The following tables summarize the acquisition costs, book values and fair market values of securities with available fair market values as ofMarch 31, 2008:(a) Held-to-maturity securities:
		Book value

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

(b) Available-for-sale securities:

Securities whose book value exceeds acquisition cost:
Equity securities............................................................................................................
Others..................................................................................................................................
Subtotal..............................................................................................................................
Securities whose book value does not exceed acquisition cost:
Equity securities............................................................................................................
Others..................................................................................................................................
Subtotal..............................................................................................................................
Total............................................................................................................................................

Millions of yen
Thousands of U.S. dollars
Fair market			
Fair market
value
DifferenceBook value
value
Difference¥   785¥ 789¥4$ 7,835$ 7,875$ 40

459¥1,244458¥1,247

(1)
¥3

4,581
$12,416

4,571$12,446(10)$ 30

Millions of yen
Acquisition			
cost
Book value
Difference

Thousands of U.S. dollars
Acquisition		
costBook value
Difference¥ 50,076
607
50,683¥ 74,428
610
75,038¥ 24,352
3
24,355$ 499,810
6,059
505,869$ 742,869 $ 243,059
6,088
29
748,957
243,088

90,260862
91,122¥141,805

70,751
797
71,548¥146,586(19,509)(65)(19,574)¥ 4,781

900,8888,604
909,492$1,415,361

706,168 (194,720)
7,955
(649)
714,123 (195,369)$1,463,080 $ 47,719

B. T he following table summarizes the book values of securities with no available fair market values as of March 31, 2008:
Available-for-sale securities:
		Millions of yen

Unlisted equity securities..........................................................................................................................................................................................................
Senior securities..............................................................................................................................................................................................................................
Investment in partnerships similar to investment limited partnerships......................................................................................................
Total.........................................................................................................................................................................................................................................................

Book value
Thousands of
U.S. dollars

¥

5,904
85,561
28,823¥120,288$

58,928853,988
287,683$1,200,599

Senior securities included investments in SPCs holding properties for sale amounting to ¥38,795 million ($387,214 thousand).
C. Available-for-sale securities with maturities and held-to-maturity securities at March 31, 2008 mature as follows:
1 year or less

Bonds..........................................................................................................................................................................................
Other...........................................................................................................................................................................................
Total..............................................................................................................................................................................................
38

¥307
—
¥307

Millions of yen
1 to 5 years
5 to 10 years

¥937
—
¥937

¥—
—
¥—

Over 10 years

¥—
—
¥—

1 year or less

Bonds..........................................................................................................................................................................................
Other...........................................................................................................................................................................................
Total..............................................................................................................................................................................................

D. T otal sales of available-for-sale securities sold in the year ended
March 31, 2008 amounted to ¥6 million ($60 thousand) and therelated gains and losses amounted to ¥3 million ($30 thousand)and ¥1 million ($10 thousand), respectively.
E. Investments in SPCs holding properties for sale are equity investments such as preferred subscription certificates and limited partnerships (“Tokumei Kumiai”) investments in SPCs and Tokumei
Kumiai which own and develop real estate. The Company or its­subsidiaries will sell real estate in SPCs and Tokumei Kumiai after
the completion of construction. Tokumei Kumiai are a vehicle forinvestment allowed under the Japanese Corporate Law.

$3,064—$3,064

Thousands of U.S. dollars
1 to 5 years
5 to 10 years$9,352—$9,352$——$—

Over 10 years

$—
—
$—

	  As of March 31, 2008, investments in SPCs holding properties forsale consisted of preferred subscription certificates issued by SPCs.
F. The Company lent the equity securities temporarily to a financial
institute under a securities lending agreement. Lent securities,
included in investments in securities and other, were ¥123,495 million ($1,232,608 thousand) as of March 31, 2008.
G. The Company transferred investments in SPCs holding properties
for sale amounting to ¥4,933 million ($49,236 thousand) to investments in securities and other in the year ended March 31,2008.

For 2007
A. T he following tables summarize the acquisition costs, book values and fair market values of securities with available fair market values as ofMarch 31, 2007:(a) Held-to-maturity securities:
Securities whose fair market value exceeds book value:
National and local government bonds.......................................................................................................................................
Securities whose fair market value does not exceed book value:
National and local government bonds.......................................................................................................................................
Total..........................................................................................................................................................................................................................

Book value

Millions of yen
Fair market value

Difference¥   43¥   43¥—

1,206¥1,2491,199¥1,242(7)¥ (7)Millions of yen
Book value

Difference¥ 94,973
450
95,423¥160,408
457
160,865¥65,435
7
65,442

15,927504
16,431¥111,854

12,556501
13,057¥173,922(3,371)(3)(3,374)¥62,068(b) Available-for-sale securities:
Acquisition cost

Securities whose book value exceeds acquisition cost:
Equity securities...................................................................................................................................................................................................
Others.........................................................................................................................................................................................................................
Subtotal.....................................................................................................................................................................................................................
Securities whose book value does not exceed acquisition cost:
Equity securities...................................................................................................................................................................................................
Others.........................................................................................................................................................................................................................
Subtotal.....................................................................................................................................................................................................................
Total...................................................................................................................................................................................................................................

B. The following table summarizes the book values of securities with no available fair market values as of March 31, 2007:
Available-for-sale securities:
Unlisted equity securities..........................................................................................................................................................................................................................................................
Senior securities..............................................................................................................................................................................................................................................................................
Investments in partnerships similar to investment limited partnerships....................................................................................................................................................
Total.........................................................................................................................................................................................................................................................................................................

Book value
Millions of yen¥   5,932
87,18625,235¥118,353

Senior securities included investments in SPCs holding properties for sale amounting to ¥42,284 million.
C. Available-for-sale securities with maturities and held-to-maturity securities at March 31, 2007 mature as follows:
1 year or less

Bonds.........................................................................................................................................................................................
Other..........................................................................................................................................................................................
Total.............................................................................................................................................................................................

D. T otal sales of available-for-sale securities sold in the year ended
March 31, 2007 amounted to ¥372 million and the related gains
amounted to ¥227 million.

¥539
—
¥539

Millions of yen
1 to 5 years
5 to 10 years

¥710
—
¥710

¥—
—
¥—

Over 10 years

¥—
—
¥—

E. Investments in SPCs holding properties for sale are equity investments such as preferred subscription certificates and limited­partnerships (“Tokumei Kumiai”) investments in SPCs and39

Tokumei Kumiai which own and develop real estate. The Company
or its subsidiaries will sell real estate in SPCs and Tokumei Kumiai
after the completion of construction. Tokumei Kumiai are a vehicle
for investment allowed under the Japanese Commercial Code.
   As of March 31, 2007, investments in SPCs holding properties forsale consisted of preferred subscription certificates issued by SPCs.

F. The Company lent the equity securities temporarily to a financial
institute under a securities lending agreement. Lent securities,
included in investments in securities and other, were ¥135,306 million as of March 31, 2007.
G. The Company transferred investments in SPCs holding properties
for sale amounting to ¥15,780 million to investments in securities
and other in the year ended March 31, 2007.

8. Short-term debt and long-term debt
Short-term debt at March 31, 2008 and 2007 consisted of the following:		Millions of yen
		
Average interest		
2008
rate (%)
2007

Loans, principally from banks.........................................................................
Commercial paper.................................................................................................
Total..........................................................................................................................

¥195,670
1.21
88,5000.81¥284,170		

Thousands of
U.S. dollars
Average interest
rate (%)¥197,970
1.00
108,000
0.65¥305,970		

2008$1,952,989
883,322$2,836,311

The interest rates represent weighted-average rates in effect at March 31, 2008 and 2007, regardless of borrowing currencies, though therange of the interest rate varies by borrowing currency.
Long-term debt at March 31, 2008 and 2007 consisted of the following:		Millions of yen
2008
2007

Floating rate domestic straight bonds, due 2007..................................................................................................................
2.0% domestic straight bonds, due 2007....................................................................................................................................
1.5% domestic straight bonds, due 2007....................................................................................................................................
1.5% domestic straight bonds, due 2007....................................................................................................................................
1.4% domestic straight bonds, due 2007....................................................................................................................................
1.4% domestic straight bonds, due 2007....................................................................................................................................
1.68% domestic straight bonds, due 2008.................................................................................................................................
1.92% domestic straight bonds, due 2008.................................................................................................................................
1.31% domestic straight bonds, due 2009.................................................................................................................................
1.52% domestic straight bonds, due 2010.................................................................................................................................
1.30% domestic straight bonds, due 2009.................................................................................................................................
1.29% domestic straight bonds, due 2012.................................................................................................................................
1.28% domestic straight bonds, due 2012.................................................................................................................................
0.75% domestic straight bonds, due 2010.................................................................................................................................
1.18% domestic straight bonds, due 2010.................................................................................................................................
1.85% domestic straight bonds, due 2011.................................................................................................................................
1.86% domestic straight bonds, due 2011.................................................................................................................................
1.84% domestic straight bonds, due 2011.................................................................................................................................
1.87% domestic straight bonds, due 2012.................................................................................................................................
1.58% domestic straight bonds, due 2011.................................................................................................................................
1.89% domestic straight bonds, due 2013.................................................................................................................................
1.70% domestic straight bonds, due 2013.................................................................................................................................
1.80% domestic straight bonds, due 2012.................................................................................................................................
1.76% domestic straight bonds, due 2012.................................................................................................................................
1.68% domestic straight bonds, due 2013.................................................................................................................................
1.63% domestic straight bonds, due 2013.................................................................................................................................
Loans, principally from banks and insurance companies,
interest principally at rates of 0.80% to 2.40% in 2008, and 0.74% to 2.99% in 2007:
Secured........................................................................................................................................................................................................
Unsecured*...............................................................................................................................................................................................
Subtotal............................................................................................................................................................................................................
Amount due within one year.............................................................................................................................................................
Total.....................................................................................................................................................................................................................

¥       —————
—10,0005,000
20,00020,00020,00020,00030,00030,00030,00020,00020,00020,00020,00010,00010,00020,00020,00020,00020,00020,000¥    7,510
9,057
10,00010,00020,00010,00010,0005,000
20,00020,00020,00020,00030,00030,00030,00020,00020,00020,00020,00010,00010,000—————$        —
—
—
—
—
—
99,81049,903
199,621
199,621
199,621
199,621299,431
299,431
299,431
199,621
199,621
199,621
199,62199,81099,810199,621
199,621
199,621
199,621
199,621

33,250962,622
1,380,872(114,990)¥1,265,882

35,000781,107
1,167,674(157,044)¥1,010,630

331,869
9,607,965
13,782,533(1,147,719)$12,634,814* Unsecured long-term debt as of March 31, 2008 includes a perpetual subordinated loan of ¥120,000 million ($1,197,724 thousand).

40

Thousands of
U.S. dollars
2008

The aggregate annual maturities of long-term debt at March 31, 2008 are as follows:		Year ending March 31
Millions of yen

Thousands of
U.S. dollars

2009.....................................................................................................................................................................................................................................................
2010.....................................................................................................................................................................................................................................................
2011.....................................................................................................................................................................................................................................................
2012.....................................................................................................................................................................................................................................................
2013.....................................................................................................................................................................................................................................................
2014 and thereafter...................................................................................................................................................................................................................
Total......................................................................................................................................................................................................................................................

$ 1,147,719
1,572,612
2,574,798
3,256,313
2,405,220
2,825,871$13,782,533

As is customary in Japan, security must be given if requested bylending banks under certain circumstances, and generally banks havethe right to offset cash deposited with them against any debt or¥ 114,990
157,560
257,969
326,250
240,979
283,124¥1,380,872

obligations payable to the bank that becomes due in the case ofdefault and certain other specified events. The Company has neverreceived such a request.

9. Employees’ severance and retirement benefits
As explained in Note 2 (15), the liabilities and expenses for severance
and retirement benefits are determined based on the amounts
obtained by actuarial calculations.

The allowance for severance and retirement benefits included in
the liabilities section of the consolidated balance sheets as of March
31, 2008 and 2007 consisted of the following:		Millions of yen
2008
2007

Projected benefit obligation..............................................................................................................................................................................
Fair value of plan assets.........................................................................................................................................................................................
Unrecognized actuarial differences...............................................................................................................................................................
Prepaid pension cost...............................................................................................................................................................................................
Allowance for severance and retirement benefits................................................................................................................................

¥ 7,894(2,956)(299)—¥ 4,639¥ 7,927(3,199)29
4¥ 4,761

Thousands of
U.S. dollars
2008$ 78,790(29,504)(2,984)—$ 46,302

Included in the consolidated statements of income for the years ended March 31, 2008 and 2007 are severance and retirement ­benefit
expenses comprised of the following:		Millions of yen
2008
2007

Service costs – benefits earned during the year....................................................................................................................................
Interest cost on projected benefit obligation.........................................................................................................................................
Expected return on plan assets........................................................................................................................................................................
Amortization of actuarial differences............................................................................................................................................................
Severance and retirement benefit expenses...........................................................................................................................................

The discount rate and the rate of expected return on plan assets
for the years ended March 31, 2008 and 2007 used by the Company is
2.0% (the discount rate used by one consolidated subsidiary is 1.5%).
The estimated amount of all retirement benefits to be paid at future

¥533
137
(62)
(29)
¥579

¥ 508
134
(58)
(224)
¥ 360

Thousands of
U.S. dollars
2008$5,320
1,367
(619)
(289)
$5,779retirement dates is allocated equally to each service year using theestimated number of total service years. Actuarial gains and losses arerecognized in the income statement in the next year.

10. Loss on impairment of fixed assets
The Company and its consolidated domestic subsidiaries recognizedimpairment losses on the following assets for the years ended March
31, 2008, 2007 and 2006, respectively.
			
Use
Location

For 2008
Land for leased buildings Taito-ku, Tokyo
Land, buildings and   structures for leased   condominiums
Minato-ku, Tokyo, etc.
			Use
Location

For 2007
Land for development

Yokohama-shi, Kanagawa

Number ofproperties

1
5
Number ofproperties			
Use
Location

For 2006
Land for leased buildings Chuo-ku, Tokyo, etc.
Leased landInba-gun, Chiba
	  Land for development
Izumisano-shi, Osaka, etc.
Idle assets
Susono-shi, Shizuoka, etc.

Number ofproperties

4
1
5
2

The Company and its consolidated domestic subsidiaries recognized losses on the impairment of certain properties, which are generally assessed individually for impairment. Company houses are treatedas common assets.

1
41

. As a result of declines in property values and flagging rental rates,
the carrying values of the land holdings summarized above have been
reduced by ¥4,292 million ($42,839 thousand), ¥793 million and¥25,244 million for the years ended March 31, 2008, 2007 and 2006,
respectively, to their recoverable amounts. These write-downs wererecognized as impairment losses in other expenses.

Details of loss on impairment of fixed assets were as follows:		Millions of yen
2008
2007

Land...................................................................................................................................................................................................
Buildings and structures, etc. . ..........................................................................................................................................
Total.............................................................................................................................................................................................

¥3,990302¥4,292

¥793
—
¥793

2006

Thousands of
U.S. dollars
2008¥25,244—¥25,244$39,825
3,014$42,839

The recoverable values of these assets were calculated using the net disposal value method. The net disposal value method for land forleased buildings is based on the capitalization value, and that for the others is based mainly on the assessment value for property tax purposes.

11. Loss on devaluation of property and equipment
The Company recognized loss on devaluation of property and equipment of ¥62,644 million and ¥17,185 million for the years ended March 31,
2007 and 2006, respectively. The property and equipment were sold to its consolidated subsidiaries, and such losses incurred in these transactions were not eliminated in consolidation but were recorded as loss on devaluation of property and equipment.
Details of property and equipment were as follows:		
Thousands ofLand, etc. ..........................................................................................................................................................................................
Buildings and structures, etc. . .............................................................................................................................................
Total................................................................................................................................................................................................

2008

Millions of yen
2007

2006

U.S. dollars
2008

¥—
—
¥—

¥62,644—¥62,644¥16,385800¥17,185$——$—

12. Gain on sale of property and equipment and loss on liquidation of Limited partnership
Gain on sale of property and equipment for the year ended March 31,
2006 is mainly from the sale of a 60% ownership as a beneficiary rightin the Shinjuku Sumitomo Building at June 30, 2005. Certain information as to the sale is as follows:(1) Property sold:Name of property: Shinjuku Sumitomo Building (60% ownership)
Sales price: ¥90,000 million
Cost of sales: ¥74,768 million(2) Purchaser:
Corporate name: Prime Quest Three Co., Ltd.
Address of head office: Chiyoda-ku, Tokyo, JapanThe limited partnership (“Tokumei Kumiai”) that had been involvedin the ownership of this property was liquidated as a result of thesale, and loss on liquidation of limited partnership of ¥1,303 million
was incurred.

13. Gain on liquidation of Limited partnership
Gain on liquidation of limited partnership for the year ended March
31, 2007 is from the sale of the ownership as a beneficiary right in
the Sumitomo Mitsui Banking Corporation Otemachi Headquarters
Building in December 2006 along with the liquidation of the limited
partnership (“Tokumei Kumiai”).

The Tokumei Kumiai that had been involved in the ownership of
this property was liquidated as a result of the sale, and gain on liqui­
dation of limited partnership of ¥46,192 million was incurred.

14. Gain on adjustment of sub-lease rent paid
Gain on adjustment of sub-lease rent paid of ¥1,440 million for theyear ended March 31, 2007 is from the reversal of the difference
between the Company’s accrued amount payable and the amountof payment as a result of the settlement of a lawsuit against the lessorof an office building that the Company is renting in a lump.

15. Gain on adjustment of accrued rent payable
Gain on adjustment of accrued rent payable of ¥2,385 million ($23,805
thousand) for the year ended March 31, 2008 is comprised of two­factors: (1) ¥397 million ($3,963 thousand) of gain on adjustment of
accrued rent payable of leased land for the holding property of a­consolidated subsidiary in the United States because the subsidiary
42

purchased the land from the lessor, and as a result, rent payment
became unnecessary for the subsidiary, and (2) ¥1,988 million ($19,842
thousand) of gain on adjustment of deducted contract rent for abuilding that the Company is renting due to agreement with the lessor.

16. Income taxes
The normal effective statutory income tax rate in Japan arising outof the aggregation of corporate, enterprise and inhabitant taxes wasapproximately 40.69% for the years ended March 31, 2008 and 2007
and 2006.
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, 2006.

The differences between the statutory tax rate and the Company’s
effective tax rate for the years ended March 31, 2008 and 2007 were
insignificant and are not presented.
2006

Statutory tax rate....................................................................................................
Valuation allowance for deferred tax assets.....................................
Per capita inhabitant taxes..........................................................................
Entertainment expenses and others not	  deductible for tax purposes.....................................................................
Other.........................................................................................................................
Effective tax rate......................................................................................................

40.69%
1.94
0.42(0.13)(0.14)
42.78%

Details of deferred tax assets and liabilities at March 31, 2008 and 2007 were as follows:		Millions of yen
2008
2007

Thousands of
U.S. dollars
2008

Deferred tax assets:
Net operating loss carryforwards..........................................................................................................................................................
Loss on impairment of fixed assets......................................................................................................................................................
Loss on devaluation of inventories......................................................................................................................................................
Accrued enterprise tax and business office tax............................................................................................................................
Allowance for employees’ severance and retirement benefits...........................................................................................
Net deferred losses on hedges...............................................................................................................................................................
Accrued bonuses.............................................................................................................................................................................................
Loss on devaluation of common stocks of subsidiaries and affiliates............................................................................
Unrealized intercompany profits .........................................................................................................................................................
Other.......................................................................................................................................................................................................................
Subtotal of deferred tax assets................................................................................................................................................................
Valuation allowance.......................................................................................................................................................................................
Total deferred tax assets..............................................................................................................................................................................

¥ 8,948
7,517
2,394
2,172
1,882
1,649
1,508
1,445
1,169
8,145
36,829(11,288)
25,541¥   7,610
9,759
1,585
3,041
1,933
327
1,512
1,792
1,465
8,625
37,649(9,687)
27,962$ 89,310
75,02723,895
21,67918,784
16,45915,051
14,423
11,66881,296
367,592(112,666)
254,926

Deferred tax liabilities:
Net unrealized holding gains on securities.....................................................................................................................................
Retained earnings appropriated for tax allowable reserves.................................................................................................
Net deferred gains on hedges................................................................................................................................................................
Total deferred tax liabilities........................................................................................................................................................................
Net deferred tax assets (liabilities).........................................................................................................................................................

(1,957)(4,959)(118)(7,034)¥ 18,507(25,196)(4,959)—(30,155)¥ (2,193)(19,533)(49,496)(1,178)(70,207)$ 184,719

17. Guarantee and other deposits received
Guarantee and other deposits received at March 31, 2008 and 2007 were as follows:		Millions of yen
		
Average interest 		2008
rate (%)
2007

Short-term deposits and long-term deposits
due within one year:
Non-interest-bearing...................................................................................
Interest-bearing...............................................................................................
		 ..............................................................................................................................
Guarantee and lease deposits from tenants:
Non-interest-bearing...................................................................................
Interest-bearing...............................................................................................
Long-term deposits:
Non-interest-bearing...................................................................................
Interest-bearing...............................................................................................
			
Total..............................................................................................................................

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

2008¥203,659—
38,0000.95
241,659		

¥206,494—
41,0000.89
247,494		

$2,032,728
379,279
2,412,007

172,077—

162,498———

1,717,507—

177,635—
66,0000.90
406,133		
¥653,627		

1,561,384
658,747
3,937,638$6,349,645——

156,435—
66,0001.08
394,512		
¥636,171

43

The aggregate annual maturities of interest-bearing guarantee and other deposits received at March 31, 2008 are as follows:		Year ending March 31
Millions of yen

Thousands of
U.S. dollars

2009....................................................................................................................................................................................................................................................
2010....................................................................................................................................................................................................................................................
2011....................................................................................................................................................................................................................................................
2012....................................................................................................................................................................................................................................................
2013....................................................................................................................................................................................................................................................
2014 and thereafter..................................................................................................................................................................................................................
Total..............................................................................................................................................................................................................................................

$379,279——
658,749——$1,038,028¥ 38,000——
66,000——¥104,000

18. Net Assets
The Japanese Corporate Law (“the Law”) became effective on May 1,
2006, replacing the Japanese Commercial Code (“the Code”). The Law
is generally applicable to events and transactions occurring after April
30, 2006 and for years ending after that date.
Under the Law and its regulations, the entire amount paid for new
shares is required to be designated as common stock. However, acompany may, by a resolution of the Board of Directors, designate
an amount not exceeding one-half of the price of the new shares asadditional paid-in capital, which is included in capital surplus.
Under the Law, in cases where a dividend distribution of surplus ismade, the smaller of an amount equal to 10% of the dividend or theexcess, if any, of 25% of common stock over the total of additional
paid-in capital and legal earnings reserve must be set aside as additional paid-in capital or legal earnings reserve. Legal earnings reserve
is included in retained earnings in the accompanying consolidatedbalance sheets.
Under the Code, companies were required to set aside an amountequal to at least 10% of the aggregate amount of cash dividends andother cash appropriations as legal earnings reserve until the total of
legal earnings reserve and additional paid-in capital equaled 25% ofcommon stock.

Under the Code, legal earnings reserve and additional paid-in capital could be used to eliminate or reduce a deficit by a resolution of theshareholders’ meeting or could be capitalized by a resolution of theBoard of Directors. Under the Law, both of these appropriations generally require a resolution of the shareholders’ meeting.
Additional paid-in capital and legal earnings reserve may not be
distributed as dividends. Under the Code, however, on condition thatthe total amount of legal earnings reserve and additional paid-in capital remained equal to or exceeded 25% of common stock, they wereavailable for distribution by resolution of the shareholders’ meeting.
Under the Law, all additional paid-in capital and all legal earnings
reserve may be transferred to other capital surplus and retained earnings, respectively, which are potentially available for dividends.
The maximum amount that the Company can distribute as­dividends is calculated based on the non-consolidated financial­statements of the Company in accordance with the Law and its­regulations.

19. Information for certain lease transactions
Finance leases that 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 the pro-forma amounts (inclusive of interest) of acquisition cost, accumulated depreciation and net book value at March 31, 2008
and 2007 was as follows:		Millions of yen
2008
2007

Acquisition cost:
Buildings and structures..................................................................................................................................................................................
Other............................................................................................................................................................................................................................
Accumulated depreciation..................................................................................................................................................................................
Net book value............................................................................................................................................................................................................

Pro-forma depreciation equivalents of ¥1,226 million ($12,237
thousand) and ¥1,483 million for the years ended March 31, 2008 and2007, respectively, were computed using the straight-line method
over the lease terms assuming no residual value or residual indemnity.

44¥ 5,893
1,023(4,128)¥ 2,788¥ 5,202
1,167(3,268)¥ 3,101

Thousands of
U.S. dollars
2008$ 58,818
10,211(41,202)$ 27,827

Lease expenses under finance leases, inclusive of interest, for theyears ended March 31, 2008 and 2007 amounted to ¥1,226 million($12,237 thousand) and ¥1,483 million, respectively.

Future lease payments and receipts under such finance leases and non-cancelable operating leases at March 31, 2008 and 2007 were as follows:		Millions of yen
2008
2007

Thousands of
U.S. dollars
2008

Finance leases
Future lease payments:
		 Due within one year..............................................................................................................................................................................
		 Due after one year..................................................................................................................................................................................
			 Total............................................................................................................................................................................................................

¥ 1,107
1,681¥ 2,788¥ 1,086
2,015¥ 3,101$ 11,049
16,778$ 27,827

Future sub-lease payments:
		 Due within one year..............................................................................................................................................................................
		 Due after one year..................................................................................................................................................................................
			 Total............................................................................................................................................................................................................

¥     2857¥     85¥2462¥     86$     279
569$     848

Future sub-lease receipts:
		 Due within one year..............................................................................................................................................................................
		 Due after one year..................................................................................................................................................................................
			 Total............................................................................................................................................................................................................

¥     2857¥     85¥     2462¥     86$     279
569$     848

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

¥13,093
41,998¥55,091¥13,090
54,973¥68,063$130,682
419,183$549,865

Future lease receipts:
		 Due within one year..............................................................................................................................................................................
		 Due after one year..................................................................................................................................................................................
			 Total............................................................................................................................................................................................................

¥     54172¥   226¥     54213¥   267$     539
1,717$    2,256

20. Derivative transactions
The Company and its subsidiaries utilize derivative financial instruments only for the purpose of hedging the currency risk associatedwith foreign currency denominated transactions or hedging the interest rate risk associated with the Companies’ loans payable.
Foreign exchange forward contracts and cross currency swap contracts are subject to risks of foreign exchange rate changes. Interest
rate swap contracts are subject to risks of interest rate changes. The
derivative financial instruments are executed with creditworthy financial institutions, and the Company’s management believes there is little risk of default by counterparties.
The derivative transactions are executed by the Company’s
Finance Department in accordance with the decisions of a ­committee
whose chairman is the director of the Finance Department. The
Finance Department prepares reports on derivative transactions thatare provided to the director of the Finance Department periodically.
The following summarizes hedging derivative financial instruments used by the Companies and items hedged:

The Companies evaluate hedge effectiveness by comparing the
cumulative changes in cash flows from or the changes in fair value ofhedged items and the corresponding changes in the hedging derivative instruments.
The evaluation of hedge effectiveness of interest rate swap contracts for the years ended March 31, 2008 and 2007 was not required
as special hedge accounting has been applied to derivative transactions of interest rate swap contracts. Also, the evaluation of hedge
effectiveness of foreign exchange forward contracts for the years ended
March 31, 2008 and 2007 was not required because the significant
terms of the hedging instruments and those of the hedged items
were the same, and the risk of changes in foreign exchange rates
was effectively hedged.
The contract amounts and unrealized gains or losses of outstanding derivative transactions at March 31, 2008 and 2007 were not disclosed because all derivative transactions were used as hedges andhedge accounting was applied.

Hedging instruments:
Hedged items:
Foreign exchange forward
Foreign currency monetarycontracts and cross currency 	  liabilities and foreignswap contracts	  transactions
Interest rate swap contracts

Bank loans, bonds and deposits

45

21. Segment information
The Company and its consolidated subsidiaries mainly operate their business in five segments: leasing of buildings, apartments and other properties; sale of condominiums; construction of housing and buildings; brokerage business; and other business.
Information by industry segment for the years ended March 31, 2008, 2007 and 2006 is summarized as follows:

46

Millions of yen							Leasing
Sales
Construction Brokerage
Other		For 2008
businessbusinessbusinessbusinessbusiness
Total

Elimination
and/orcorporate

Consolidated

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

¥ 277,530
2,038
279,568
186,154¥    93,414¥193,575—
193,575
150,848¥ 42,727¥154,996
1,610
156,606
146,446¥ 10,160¥57,806
736
58,542
38,539¥20,003¥ 8,021
3,899
11,92010,991¥    929¥ 691,928
8,283
700,211532,978¥ 167,233¥      —
(8,283)(8,283)4,342¥ (12,625)¥ 691,928—
691,928
537,320¥ 154,608

II Identifiable assets, depreciation expense,
loss on impairment of fixed assets
and capital expenditures:
Identifiable assets..............................
¥1,949,817
Depreciation expense....................
15,861
Loss on impairment
	  of fixed assets....................................
4,292
Capital expenditures.......................
144,244¥568,668
110¥ 18,787
171¥14,944269¥50,81096¥2,603,026
16,507¥290,978643¥2,894,004
17,150

—
199

—
307

—
327

—
160

4,292
145,237

—
260

4,292
145,497

Millions of yen							Leasing
Sales
Construction Brokerage
Other		For 2007
businessbusinessbusinessbusinessbusiness
Total

Elimination
and/orcorporate

Consolidated

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

¥ 260,727
1,893
262,620
179,125¥   83,495¥211,035—
211,035
174,499¥ 36,536¥141,244
1,320
142,564
133,748¥   8,816¥56,119413
56,53235,594¥20,938¥ 7,709
2,662
10,371
12,855¥ (2,484)¥ 676,834
6,288
683,122535,821¥ 147,301¥     —
(6,288)(6,288)3,837¥ (10,125)¥ 676,834—
676,834
539,658¥ 137,176

II Identifiable assets, depreciation expense,
loss on impairment of fixed assets
and capital expenditures:
Identifiable assets..............................
¥1,787,363
Depreciation expense....................
14,570Loss on impairment
	  of fixed assets....................................
793
Capital expenditures.......................
151,557¥554,520
103¥ 19,939
143¥17,825305¥47,39764¥2,427,044
15,185¥320,856
492¥2,747,900
15,677

—
129

—
254

—
347

—
275

793
152,562—244

793
152,806

Millions of yen							Leasing
Sales
Construction Brokerage
Other		For 2006
businessbusinessbusinessbusinessbusiness
Total

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

Elimination
and/orcorporate

Consolidated¥ 232,248
2,032
234,280
170,980¥ 63,300¥224,735—
224,735
191,618¥ 33,117¥133,609
1,549
135,158
126,412¥   8,746¥48,939278
49,21732,249¥16,968¥ 6,994
3,157
10,151
9,668¥   483¥ 646,525
7,016
653,541
530,927¥ 122,614¥—(7,016)(7,016)3,575¥ (10,591)¥ 646,525—
646,525534,502¥ 112,023

II Identifiable assets, depreciation expense,
loss on impairment of fixed assets
and capital expenditures:
Identifiable assets..............................
¥1,619,960
Depreciation expense....................
15,209Loss on impairment
	  of fixed assets....................................
24,335
Capital expenditures.......................
237,078¥415,441100¥ 19,617
127¥ 8,457309¥51,464
77¥2,114,939
15,822¥345,141508¥2,460,080
16,330

888
2,529

21
300

—
317

—
30

25,244240,254—260

25,244
240,514

Thousands of U.S. dollars							Leasing
Sales
Construction
Brokerage
Other		For 2008
businessbusinessbusinessbusinessbusiness
Total

Elimination
and/orcorporate

Consolidated

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

$ 2,770,037
20,3412,790,378
1,858,010$   932,368$1,932,079—
1,932,079
1,505,619$ 426,460$1,547,021
16,0691,563,090
1,461,683$ 101,407$576,964
7,346
584,310384,659$199,651$ 80,057
38,917
118,974
109,701$   9,273$ 6,906,158
82,673
6,988,831
5,319,672$ 1,669,159$       — $ 6,906,158(82,673)—(82,673)
6,906,158
43,3385,363,010$ (126,011) $ 1,543,148

II Identifiable assets, depreciation expense,
loss on impairment of fixed assets
and capital expenditures:
Identifiable assets.............................. $19,461,194
Depreciation expense....................
158,309
Loss on impairment
	  of fixed assets....................................
42,839
Capital expenditures.......................
1,439,705$5,675,896
1,098$ 187,514
1,707$149,157
2,685$507,135
958$25,980,896
164,757$2,904,262
6,418$28,885,158
171,175

—
1,986

—
3,064

—
3,264

—
1,597

42,8391,449,616—
2,595

42,8391,452,211

Distributions from SPCs and partnerships that operate real estate leasing business are included in net sales of the “Leasing business.”
The Company classified expenses and assets of the general administrative division in certain consolidated subsidiaries to unallocatable operating expenses and corporate assets in the seg­ment information for the years ended March 31, 2008, 2007 and 2006.
Under a new management policy, the Company compares the contribution levels of the business operations between each segment more
promptly, clearly and easily.

47

22. Relationships with special purpose entities subject to disclosure(1) Overview of Special Purpose Entities (“SPEs”) subject todisclosure and overview of SPEs’ transactions
As part of its real estate operations, the Company invests in SPEs­(principally Tokutei Mokuteki Kaisha (“TMKs”) under the Asset
Securitization Law).
The SPEs, which conduct real estate development and leasing projects, are funded by investments from the Company and by borrowings
from financial institutions (non-recourse loans and debentures). At theconclusion of these projects, the Company plans to appropriately
recover its investments, and as of March 31, 2008 the Company judgedthat there is no risk of future losses. Moreover, in the event that losses
do arise in the future, the Company’s exposure will be limited to theamount of its investment.
The Company does not have any investments with voting rights inany of the SPEs, and the Company has not dispatched any directors or
employees to any of the SPEs.

At March 31, 2008, the Company had outstanding investments in 39 SPEs. The assets, liabilities, and net assets (simple sum) at the most recent
settlement date are shown below.
AssetsReal property
Other

Millions of yen

Thousands of
U.S. dollars¥728,366
42,991$7,269,847
429,095

Total¥771,357$7,698,942

Liabilities and net assets
Borrowings *1
Preferred capital, etc. *2
Other
Total

Millions of yen

Thousands of
U.S. dollars¥640,437
96,717
34,203¥771,357$6,392,225
965,336
341,381$7,698,942

Millions of yen

Thousands of
U.S. dollars¥11,761
177
34,476297—$117,387
1,767
344,106
2,964—*1 Includes specified debentures of TMKs invested by the Company.
*2 Consists of preferred capital in TMKs and equity in limited partnerships (“Tokumei Kumiai”), invested by the Company.

In regard to the balance at March 31, 2008, see *3.
(2) Transactions with the SPEs
For 2008
Amount of transactions
or year-end balance
Investments in securities, etc. *3

Millions of yen

Thousands of
U.S. dollars¥113,786$1,135,702——
65,653——655,285

Real estate leasing *6
Management services *7
Real estate transactions *8

Revenues and costs
Operating revenues *4
Non-operating revenues *5
Cost of operating revenues
Operating revenues—*3 The balance of investments in securities at March 31, 2008 consisted of ¥74,991 million ($748,488 thousand) of investment securities and ¥38,795 million ($387,214 thousand) of equity
investments in properties for sale, and includes investments in preferred stocks and specified debentures issued by TMKs and equity in Tokumei Kumiai, invested by the Company.
*4 Dividends on investments are recorded as operating revenues.
*5 Interest on specified debentures is recorded as non-operating revenues.
*6 The Company leases real estate from SPEs.
*7 The Company provides management services to SPEs.
*8 The Company has purchased real property (land, buildings, etc.) from SPEs.

23. Contingent liabilities
At March 31, 2008, the Company and its consolidated subsidiaries were contingently liable as guarantors of borrowings by customers and others
in an amount aggregating ¥263 million ($2,625 thousand).

24. Subsequent events
On June 27, 2008, the shareholders of the Company approved payments of a year-end cash dividend of ¥10 ($0.10) per share or a total of ¥4,746
million ($47,370 thousand) to shareholders of record at March 31, 2008. Such appropriations are recognized in the period in which they areapproved by the shareholders.

48

Independent Auditors’ Report

To the Shareholders and Board of Directors of
Sumitomo Realty & Development Co., Ltd.:We have audited the accompanying consolidated balance sheets of Sumitomo Realty & Development Co., Ltd. and consolidated subsidiaries as of March 31, 2008 and 2007, and the related consolidated statements of income, changes in net assets andcash flows for each of the three years in the period ended March 31, 2008, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to independently express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Sumitomo Realty & Development Co., Ltd. and subsidiaries as of March 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2008, in conformity with accounting principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2008
are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our
opinion, such translation has been made on the basis described in Note 1 to the consolidated financial statements.

Tokyo, Japan
June 27, 200849

Senior Management(As of June 27, 2008)

BOARD OF DIRECTORS AND AUDITORS
Chairman of the Board
Junji Takashima*
Vice Chairman
Tetsuro Tsuruta
President
Kenichi Onodera*
Directors
Tsutomu Oyama*
Yoshifumi Nakamura*
Hiroyuki Asano
Takashi Saito
Nobuaki Takemura
Masayoshi Ohashi

Executive Officers
Senior Managing Executive Officers
Kenichi Kameyama
Masaki Ogawa
Senior Managing Executive Officer (Engineer)
Takahiro Daisaka
Managing Executive Officers
Takao Shiojima
Masayuki Takahashi
Isamu Jobo
Yoshinobu Sakamoto
Satoru Ozawa
Toshikazu Tanaka
Masato Kobayashi
Kojun Nishima

Statutory Auditors
Shinsaku Sanmoto
Naoto Enda
Standing Statutory Auditors
Ryoichi Nomura
Tadashi Kitamura
Kunio Kobayashi* Representative Director

Corporate Data
(As of March 31, 2008)

Head Office
Shinjuku NS Building
4-1, Nishi-Shinjuku 2-chome
Shinjuku-ku, Tokyo 163-0820, Japan
Phone: +81-3-3346-2342
Facsimile: +81-3-3346-1652
Corporate Website
http://www.sumitomo-rd.co.jp/
Date of Establishment
December 1, 1949

50

Number of Employees
8,738 (Consolidated)
Major Consolidated Subsidiaries
Sumitomo Real Estate Sales Co., Ltd.
Sumitomo Fudosan Syscon Co., Ltd.
Sumitomo Fudosan Tatemono Service Co., Ltd.
Sumitomo Fudosan Esforta Co., Ltd.
Sumitomo Fudosan Finance Co., Ltd.
Universal Home Inc.
Sumitomo Fudosan Reform Co., Ltd.

About the Company

Investor Information(As of March 31, 2008)

Sumitomo Realty & Development Co., Ltd., a core member of the Sumitomo Group,
is one of Japan’s leading real estate companies. The Company is well established
as a comprehensive developer and supplier of high-quality office buildings andcondominiums in urban areas.
With operations centered on four areas—leasing, sales, construction andbrokerage—the Company has achieved a combination of growth potential andbalanced operations that will drive its success in the challenging markets of the
21st century. Sumitomo Realty remains committed to the creation of comfortable
work and living environments that contribute to a higher quality of life.

Paid-in Capital¥122,805 million

1

Consolidated
	Financial Highlights

2

	A Message From
the Management

Special Feature

12	

Review OF
Operations

12
16
20
22

Leasing
Sales
Construction
Brokerage

10

At a Glance

Japan Trustee Services Bank, Ltd.
(Trust account)
The Master Trust Bank of Japan, Ltd.
(Trust account)
Japan Trustee Services Bank, Ltd.
(Trust account 4)
Sumitomo Mitsui Banking Corporation
State Street Bank andTrust Company 505103
The Sumitomo Trust & Banking Co., Ltd.
Kajima Corporation
BNP Paribas Securities (Japan) Ltd.
Shimizu Corporation
State Street Bank and Trust Company

Number of Shareholders
18,374
Stock Exchange Listings
Tokyo Stock Exchange
Osaka Securities Exchange
Breakdown of Shareholders

Number ofshares held(Thousands)

Percentageof shares held

18,968

3.98%

15,935

3.35%

12,627
11,990

2.65%
2.52%

9,033
8,136
7,912
7,650
7,500
7,472

1.90%
1.71%
1.66%
1.61%
1.58%
1.57%

18.11%
10.37%
27.30%
38.35%
5.87%

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

2,400

	Initiatives in Redevelopment,a Key Source of Future Growth

		
		
		

Number of Common Stock
Authorized: 1,900,000,000 shares
Issued: 476,085,978 shares

Trust Accounts
Financial Institutions
Other Companies
Foreign Companies
Individuals and Others

CONTENTS

6

Major Shareholders

Stock Price (right scale)
TOPIX Average (left scale)

6,000

1,800

4,500

1,200

3,000

600

1,500

0

0

23	Our History
24 Corporate Governance
25 Financial Section
50 Senior Management
50 Corporate Data
51	Investor Information(Millions of shares)

250

Trading Volume

200
150

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

100
50
0

7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6
2003
2004
2005
2006
2007
2008

51

Sumitomo Realty & Development Co., Ltd.

Shinjuku NS Building, 4-1, Nishi-Shinjuku 2-chome
Shinjuku-ku, Tokyo 163-0820, Japan
Phone: +81-3-3346-2342 Facsimile: +81-3-3346-1652

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

Annual Report 2008

Printed in Japan

Achieving Steady, Sustained Progress
ANNUAL REPORT 2008