Z F s fi Y AR2000** 00.9.13 2:03 PM y [ W *2

N E W

S T A G E

O F

G R O W T H

Annual Report 2 0 0 0

S U M I T O M O R E A LT Y & D E V E L O P M E N T C O . , LT D .

002 00.9.13 5:27 PM y [ W *3

PROFILE

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

CONTENTS

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

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

Z F s fi Y AR2000** 00.9.13 2:03 PM y [ W 1

FIVE-YEARFINANCIALHIGHLIGHTS

Sumitomo Realty & Development Co., Ltd.

Thousands of
U.S. dollars

Millions of yen

Consolidated:
Revenue from operations
Revenue from leasing business
Revenue from sales business
Revenue from construction business
Revenue from brokerage business
Revenue from other business
Operating profit
Ordinary profit
Net income (loss)
Total assets
Total shareholders’ equity

2000

1999

1998

1997

1996

2000

¥ 421,587
151,268
150,483
80,064
31,6338,139
70,54827,06914,7371,920,737
215,534¥ 389,136
150,976
137,735
61,191
27,82911,40556,516
21,688
10,983
1,835,825
207,177¥ 364,858
143,676
125,327
56,33927,421
12,09545,412
4,484(66,048)
1,854,800
179,375¥ 338,980
135,814102,128
55,104
31,741
14,19344,143
2,755(1,745)
1,853,657
249,791¥ 344,404
129,839
130,80940,517
26,701
16,53851,322
14,4891,707
1,869,165
252,954$ 3,971,616
1,425,040
1,417,645
754,254
298,003
76,674
664,607
255,008
138,832
18,094,555
2,030,466

Yen

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

36.23
529.82
6.00

¥

27.00
509.286.00¥(162.36)440.93
6.00

U.S. dollars¥(4.29)
614.03
6.00

¥

4.20
621.81
6.00

$

0.34
4.99
0.06

Note: The 2000 yen amounts have been translated into U.S. dollars, for convenience only, at the rate of ¥106.15 = U.S.$1, the approximate exchange rate on March
31, 2000.

R E V E N U E F R O M O P E R A T I O N S (Billions of yen)
0

100

200

300

400

O P E R A T I N G P R O F I T (Billions of yen)
500

0

1996

1996

1997

1997

1998

1998

1999

1999

2000

2000

O R D I N A R Y P R O F I T (Billions of yen)
0

10

20

40

60

80

N E T I N C O M E ( L O S S ) (Billions of yen)
20

30

-80

1996

1996

1997

1997

1998

1998

1999

1999

2000

2000

-60

-40

-20

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

0

PAGE 120

Z F s fi Y AR2000** 00.9.13 2:03 PM y [ W 2OURHISTORYAND

BUSINESSEXPANSION

Leasing Business

1949

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

1964

The Company started thecondominium business with HamaAshiya Mansion (Kobe, Hyogo
Prefecture), and established a position
as “Condominium Pioneer.”

1970

Shares of Sumitomo Realty were listedon the Tokyo Stock Exchange.

1974

The Company completed constructionof its first skyscraper building, theShinjuku Sumitomo Building(Shinjuku, Tokyo).
FIRST MANAGEMENT CRISIS

1975
1978

1990

The Company posted net losses forfour straight fiscal years during thelarge-scale recession that followed theoil shock.
The majority of the Company’s
office building portfolio was sold,including the Marunouchi Head
Office Building.
The Company withdrew from theresidential land development businessbecause of its lower financial
efficiency and began to achieve highgrowth by concentrating management
resources on the development andleasing of office buildings in central
Tokyo and development of urban
condominium projects.
The Company posted record-highbusiness performance.
SECOND MANAGEMENT CRISIS

1992
1995

The real estate market entered aserious recession following thecollapse of the bubble economy inJapan; The Company’s operation waspractically unprofitable for four
consecutive years, once excluding the
profit from asset sales.
American Comfort was launched.

1996

1997
2001

PAGE 2

he Company entered the leasing business after its firstmanagement crisis in the late 1970s, following other companies in the industry. Late entry, however, has provided
Sumitomo Realty’s leasing business with the following threestrengths:

T(1) To make more efficient investments, we concentrated ourinvestments within central Tokyo. As a result, we have adominant portfolio of favorably located office buildings.
CentralThree Wards

46%
Inner 3 City Wards:
Chiyoda,Minato and Chuo

CentralFive Wards

CentralSeven Wards

CentralThirteen Wards

62%

72%

88%

Inner 5 City Wards:
Inner 7 City Wards:
Inner 13 City Wards:
The central three wards, The central five wards, The central seven wards,
as well as Shinjuku
as well as Bunkyo
as well as Taito,
and Shibuya
and Shinagawa
Koto, Toshima,
Nakano, Meguro and Ota

A considerable amount of Japan’s economic activity is concentrated in Tokyo. As our portfolio is heavily weighted in central Tokyo, we hold a superior position in both stability ofrevenues and possibilities for future growth.
(2) The majority of our buildings are high-grade,
comparatively new structures.
Buildings less than 10 years old ………59%
Buildings less than 20 years old ………87%
We are seeing an ever-advancing tenants’ requisite level for thefunction of office building facilities due to the spread of the IT
revolution. Buildings that cannot provide adequate function
for IT or ensure adequate safety during earthquakes are quickly losing their competitive position. Because they were constructed recently, Sumitomo Realty’s high-grade office buildings satisfy requisite levels of these kinds of tenants, whichmakes them extremely competitive and dominant in attracting
and retaining tenants. In addition, investments in renewals areminimal, which means more funds can be allocated toward
investments in new building construction.

Shinchiku Sokkurisan(“As Good as New”) new full
remodeling package for detachedhouses was launched.

(3) We utilize our in-house source for key business operations.

The Five-Year Business
Reconstruction Plan began.
The Company aims to repeat
record-high business performance of
1990, stressing the four objectives of(1) promoting tochi-less business(business without land investment),(2) converting idle real estate
inventories into working assets,(3) writing off non-performing loans and(4) reducing interest-bearing debt.

We strategically utilize our in-house source for three key areasof operation.
The first is when we carry out redevelopment plans foroffice building construction. Usually, office building development companies buy land only after assemblage or coordination of landowners in redevelopment plans are completed by athird party. However, Sumitomo Realty carries out this complex and detailed land assemblage and redevelopment coordination on its own. This method has resulted in substantial
reductions in the cost of obtaining new land for office buildings.

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

Z F s fi Y AR2000** 00.9.13 2:03 PM y [ W 3

The second is when we attract corporate tenants.
Usually, leasing companies will search for tenants through a
brokerage company. However, Sumitomo Realty has a strong
internal marketing force and negotiates the lease contracts
directly with the tenant. This system has allowed us to gather
information on tenants’ plans for relocation, their needs for
expanded office space and their economic environment in general. This enables us to be the price leader and to secure highleasing fees, and lets us consistently design office buildings withspecifications that match the latest in tenant requirements.
The third is in office building maintenance. Sumitomo
Realty office buildings are all managed and maintained directly
by employees of the Sumitomo Realty Group. As a result, weare able to quickly and accurately grasp customer needs for
new offices or larger office space and to provide detailed services to our tenants. Each of our in-house staff are trained as
professionals in all three areas, so we can shift our force tomeet the company’s and the fickle market’s demand from time
to time in the most efficient way.

approximately 30%. We sell American Comfort at 28 marketing bases located nationwide (as of fiscal year-end).
(2) Shinchiku Sokkurisan, new full remodeling package fordetached houses
We began selling Shinchiku Sokkurisan (“As Good as New”)
new full remodeling package for detached houses in 1996. The
innovative strength of this product is its ability to raise older
homes to a level of quality equal to new houses—but for half
the price and time it takes to reconstruct a new house. In
addition, we employ total cost control to ensure that ourcustomers get a fixed price per floor area, which includes a
standard specification in the package to reinforce basic performance of the house, such as earthquake resistance as well as
termite and humidity control. And, because the remodeling canproceed while the customer lives in the house, there is no needto move or relocate temporarily. The Company sells this product at 22 marketing bases nationwide (as of fiscal year-end)
and has achieved annualized growth rates of more than 100%.

Sales Businesshe core of the sales business is condominium operations.
Sumitomo Realty entered the condominium business at an
earlier stage than most of its competitors and established aposition as the “Condominium Pioneer.” Since then, we haveworked to provide customers nationwide with high-quality
living spaces. The Company’s condominium operation now
covers each of the major urban areas of Japan (the Tokyo
metropolitan area, Osaka/Kobe, Sapporo, Sendai, Nagoya andFukuoka) and ranked seventh in number of units provided incalendar 1999.
We manage market risk through stable supply and pursue a brand strategy through careful and consistent merchandizing of high-quality housing with the primary goal ofincreasing investment turnover and raising the operating profit
margin.
Posting of losses from mark-to-market devaluation of inventories was completed in the fiscal year ended March 31, 2000.

T

Construction Businesshe Company’s tochi-less business (business without land
investment) is currently the focus of attention at
Sumitomo Realty. Products are divided into four categories
and organized as follows:(3) Sumitomo Fudosan Home medium- to high-end two-byfour custom houses
Sumitomo Fudosan Home Co., Ltd. began operations as amaker of medium- to high-end two-by-four custom houses in
1982, when it was spun off from the Housing Division of
Sumitomo Realty. This company provides houses under a freedesign plan that allows them to follow increasingly diverse
customer requirements and taste. Operations are carried out
at 11 marketing bases nationwide (as of fiscal year-end).
(4) Universal Home standardized houses via conventional
post and beam construction method
Established in 1995, Universal Home Inc. makes standardized
houses through the conventional post and beam construction
method and carries out business through a nationwide network of franchised operators. This company entered theSumitomo Realty Group in 1996 and listed its shares on theover-the-counter market in 1999. Universal Home’s franchisemembers are total 228 (as of fiscal year-end).

T(1) American Comfort, the two-by-four standardized
housesWe began marketing the American Comfort line, which introduced a high-quality, low-cost two-by-four construction
method in 1995. From its earliest stages of marketing,
Sumitomo Realty has expanded this business nationwide andin only five years has succeeded in surpassing the 1,000completions mark with an average annualized growth rate ofBrokerage Businessumitomo Real Estate Sales Co., Ltd. was established in1975 to handle the marketing of Sumitomo Realty’s housing development business, and entered the real estate brokerage business in 1979. The company now carries out operations through directly managed brokerage offices known with
its captioned store signs “STEP.” As of March 31, 2000,
Sumitomo Real Estate Sales’ nationwide network included
185 brokerage offices. On a nonconsolidated basis, the company now enjoys the position in the real estate industry as themost profitable company.

S

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

PAGE 3

Z F s fi Y AR2000** 00.9.13 2:03 PM y [ W 4

TO

OUR

SHAREHOLDERS

Progress in Addressing Key Management Issues

fiscal year, with total floor space of more than 85 thousandsquare meters. With real estate for development nearing the

he fiscal year ended March 31, 2000,

Tcommercialization stage, we can now count on additional

marked the midway point in our Five-Year

contributions to future earnings.

are the raw material of our development business, into

profits improved sharply for the second consecutive period.

working assets; (3) writing off non-performing loans held byRevenue from operations increased 8.3% to ¥421,587

Sumitomo Fudosan Finance Co., Ltd.; and (4) reducing

million, with operating profit up 24.8% to ¥70,548 million.

interest-bearing debt. We focused our business plans on the

Net income climbed 34.2% to ¥14,737 million. By the fiscal

first three objectives to reshape operations without increasing

year ending March 31, 2002, our Five-Year Plan targets

further debt, while interest rates were at a historically low

revenue from operations of ¥500,000 million, operatinglevel.

profit of ¥80,000 million and ordinary profit of ¥40,000

Business Reconstruction Plan to overcome

With regard to non-performing loans, after posting a

the deterioration in operating conditions

substantial bad debt allowance at Sumitomo Fudosan Financefollowing the collapse of Japan’s bubbleCo., Ltd. in the fiscal year ended March 31, 1998, we haveeconomy. Started on April 1, 1997, the plan

been making large-scale progress in restructuring our loan

was built on the following four objectives: (1) restoring
profitability; (2) converting idle real estate inventories, which

portfolio.
During the fiscal year under review, both sales andAs a result of these efforts, consolidated ordinary profit

million, all of which exceed historical highs. Results for theexceeded ¥20 billion for the first time in the past nine periods

fiscal year in review represent 84%, 88% and 68% of thewith an increase of 25% from the previous term, as the

final five-year targets, respectively.

Company achieved its targets for restoring profitability fasterthan projected by the Five-Year Plan.

The Final Stage of Rebuilding

Since we decided to resume construction of officebuildings in 1996, eight buildings have been completed with a
combined gross floor area exceeding 221 thousand square
meters, all of which were fully occupied upon completion.
There are currently six buildings under construction, totalingnearly 525 thousand square meters, including such large-scale
projects as the Redevelopment of Roppongi 1-chome andNishi-Shinjuku 6-chome. Further, we expect to start
construction of another four buildings during the current

PAGE 4

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

he fiscal year under review represented aT

key turning point in the recovery in thestrength of our business operations. Withsignificant progress toward reaching
objectives (1) through (3) of the
management plan discussed above, webegan to make serious efforts toward objective (4), reducing
interest-bearing debt. We sold shares of our limited

Z F s fi Y AR2000** 00.9.13 2:04 PM y [ W 5

Junji Takashima, President

partnership, named Sumitomo Realty & Development Fund

Raising Our Sights(SURF), as a general partner operating and managing theCompany’s office buildings, and sold interests of such officeor the fiscal year ended March 31, 2001,

for rising interest rates in the future, management alsoF

increased the proportion of long-term debt from 58% to 74%

ratio of working assets, improving the turnover of land for

and fixed-rate debt from 59% to 75% by issuing ¥130.0

sale and reinforcing our marketing base for tochi-lessbillion of straight bonds and obtaining more than ¥145.3

businesses (business without land investment), areas that havebillion of long-term loans.

been growing rapidly in recent terms. By pursuing further

buildings as the Shinjuku Sumitomo Building throughsecuritization. We also sold the 666 Fifth Avenue Building in
New York. As a result, Group-wide interest-bearing debt,
including loan guarantees, declined ¥235.7 billion from¥1.618 trillion at the end of the previous fiscal year to ¥1.382
trillion as of March 31, 2000. At the same time, to prepare

management is targeting revenue fromoperations of ¥450,000 million, operating
profit of ¥71,000 million, and ordinary
profit of ¥32,000 million for continued sales
and earnings growth. To achieve thesetargets, we are strengthening continuing efforts aimed atcompleting office building developments and increasing our

We also took several steps to strengthen our financial

asset financing methods, we will also continue to reduce

constitution. In addition to recording more than ¥62.8 billion

interest-bearing debt, improve asset efficiency and reinforce

in extraordinary profits, including ¥62.4 billion in gains on

our financial position.

sale of fixed assets resulting from securitization activities, weWith the pace of sales and earnings growth exceeding

recorded extraordinary losses totaling ¥67.7 billion. These

our plans and our debt reduction program firmly in place, we

losses included a loss on devaluation of land for sale, a loss on

are on course for realizing the challenging objectives

restructuring overseas operations, which reflects a significant

established by our Five-Year Plan. We have substantiallydownsizing of our international business, and a loss on theovercome the negative effects of the bubble economy and werevaluation of our sublease operations based on a court

intend to begin a New Three-Year Plan starting on April 1,

judgement regarding our masterleases with property owners.

2002, targeting further growth and profitability. I would like

Through these steps, we have almost completely

to thank our shareholders for their continued support.

accomplished our financial restructuring of real estate forsale, overseas operations and sublease operations.
Junji Takashima, President
August 2000

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

PAGE 5

Z F s fi Y AR2000** 00.9.13 2:04 PM y [ W 6

REVIEWOF

OPERATIONSLEASING BUSINESS

ore than 90% of
the Company’s
assets for leasing
are concentrated
in the Tokyo
office building
market, where conditions have beenlackluster since the financial instability
and economic downturn that began in
1997. Vacancy rates rose in the previous
fiscal year as tenants cancelled portionsof their leases in an attempt to reduce
office lease expenses. However, thistrend began to level off in the fiscal year
under review, and the same tenants
started to expand space again amid
signs of a gradual recovery in theeconomy. These factors strengthened
our belief that the market as a whole
has started to rebound.
With public perception
increasingly attuned to the importanceof the IT revolution, and aggressive IT
investment in the corporate sector, we
saw especially robust demand fromtenants for offices in high-quality KinShin-Dai properties. Centrally located(Kin), ultramodern (Shin) and largescale (Dai), these buildings are ideal
environments for supporting IT
investment. We also saw rent increases
in comparatively new office buildingzones south and west of central Tokyo,
particularly in the area around Shibuya(a shopping and business hub), which is
being called “Bit Valley” due to its

M

PAGE 6The Sumitomo Nakano-Sakaue Building (completed April 1999)

popularity as an office location among
Tokyo’s nascent venture start-ups.
Amid this operating environment,
the leasing business was able to offset
poor market conditions and declining
revenue from existing buildings with afull year of revenues from the Chiyoda
First Building and three other buildings
completed in the previous year, and alsowith revenue from completion of the
new Sumitomo Nakano-Sakaue

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

Building in the fiscal year under review.
As a result, consolidated revenue fromthe leasing business rose ¥914 million to¥152,803 million, and operating profit
increased ¥2,041 million to ¥45,753
million.

Z F s fi Y AR2000** 00.9.13 2:04 PM y [ W 7

REVIEW OF OPERATIONS > LEASING BUSINESSL E A S I N G B U S I N E S S R E V E N U E (Billions of yen)
0

40

80

120

O P E R A T I N G P R O F I T (Billions of yen)
0

160

1996

1996

1997

1997

1998

1998

1999

1999

2000

2000

10

20

30

40

50

Note: Including inter-segment sales

Roppongi 1-Chome Redevelopment
Project: Supporting Next-Generation
Urban Development Complexes
umitomo Realty began
construction of aredevelopment project in
the central Tokyo sectionof Roppongi 1-chome(Minato Ward, Tokyo),an area that includes the U.S. embassy,
Hotel Okura and other well-known city
landmarks. The complex will cover
24,000 square meters of land and willfeature an office building,S

condominiums and a museum
displaying art and artifacts from theSumitomo family collection. A new
subway station, Roppongi 1-Chome
Station on the Tokyo metropolitan
subway’s Namboku Line, is scheduled
to open beneath the office building infall 2000, which will give this large-scalecomplex direct transportation accessupon completion.
The office building at the core ofthis project will be the tallest in Tokyo’s
Minato Ward, rising 43 stories above
ground and 4 floors below. Featuring
157,000 square meters of total floor

space, a generous 26,000 square metersof rental space on each story andcutting-edge IT compatible capabilities,
the new building is expected to be
extremely competitive in attracting
tenants.
The Roppongi 1-Chome
Redevelopment Project is widely known
as one of Sumitomo Realty’s nextgeneration urban development projects
and as a way of creating new urban
centers where people from every age
group can work, live and relax.

Above: Artist’s conception of the Roppongi 1-Chome Redevelopment
Project, which is attracting attention as a major nextgeneration urban redevelopment project
Left:

The Iidabashi First Building (completed March 2000)

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

PAGE 7

Z F s fi Y AR2000** 00.9.13 2:04 PM y [ W 8

SALES BUSINESSPark Square Musashino (completed March 2000)

n the real estate salesIbusiness, sales recovered
rapidly in late 1998, thanks
to such demand-boosting
policies by the Japanese
government as an enhanced

housing loan tax credit program,mortgage rate cuts by the Government
Housing Loan Corporation, andconsumers’ fear of a coming interest
rate increase. As a result, market
conditions remained extremely vigorousin the fiscal year under review.
Amid this environment, the sales
business achieved record high sales, as
the number of condominium units soldPark Square Kichijoji Honcho (completed March 2000)

increased by 577 to 3,730. The gross

PAGE 8SUMITOMO REALTY & DEVELOPMENT CO., LTD.

Z F s fi Y AR2000** 00.9.13 2:04 PM y [ W 9

REVIEW OF OPERATIONS > SALES BUSINESSS A L E S B U S I N E S S R E V E N U E (Billions of yen)
0

40

80

O P E R A T I N G P R O F I T (Billions of yen)

120

160

0

1996

1996

1997

1997

1998

1998

1999

1999

2000

2000

10

20

30

Note: Including inter-segment sales

profit margin improved substantiallyreflecting this robust sales activity andreduced advertising expenses. On a nonconsolidated basis, we delivered 3,610
units, which represents an increase of
250 units from the previous fiscal year.
As a result, we achieved remarkable
growth in sales and earnings, asconsolidated revenue from the sales
business rose ¥12,741 million to¥150,486 million, and operating profit
increased ¥12,030 million to ¥18,574
million.
The Company carried out a strict
write-down of land and housing for
sale, targeting assets with estimatedmarket value less than 50% of bookvalue, regardless of the possibility of aInterior view of Central Residence Shinjuku City Tower. This is a fresh concept for high-rise condominiums,
featuring panoramic views of Tokyo combined with working, living and entertainment functions.

future recovery in price. As a result, theCompany recorded an extraordinary
loss of ¥24,864 million fromdevaluation of inventories. In addition,assets included in inventories, yetcurrently leased to a third party andheld for the purpose of leasing, wererestated as property and equipment(with book value of approximately¥59,600 million) to more properlyreflect their actual state. Through theseactions, we have completed therevaluation of our inventories to betterreflect our asset status.

Above: The Formal Garden of the Central Residence
Shinjuku City Tower offers a panoramic viewof an attractive water terrace.
Right: Exterior view of Central Residence Shinjuku
City Tower. Ranking in height with theskyscrapers of adjacent Nishi-Shinjuku, the Tower
is a premier high-rise condominium in the area.

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

PAGE 9

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 10

REVIEW OF OPERATIONS > CONSTRUCTION BUSINESSCONSTRUCTION BUSINESSC O N S T R U C T I O N B U S I N E S S R E V E N U E (Billions of yen)
0

20

40

60

80

O P E R A T I N G P R O F I T (Billions of yen)

100

-2

1996

1996

1997

1997

1998

1998

1999

1999

2000

2000

0

2

4

6

Note: Including inter-segment sales

he construction businesshandles mainly detachedhousing construction
and home remodelingservices, and is being
positioned as anespecially strategic area for the Group.
Unlike the market for condominiums,
the overall home building market did
not show improvement, and generalconditions remained sluggish in thefiscal year in review. However, ourconstruction business set another record
for growth in sales and earnings.
By product area, Sumitomo
Fudosan Home Co., Ltd., the maker of
medium- to high-end two-by-four
custom houses, completed constructionof 1,016 units, an increase of 204 units.
This result represents a reversal from adowntrend that hit bottom in theprevious fiscal year, as the company
established profitable fundamentals
after several years of downsizing.
The Company also completed

T

American Comfort (Global Comfort) two-by-four standardized houses form the core of Sumitomo Realty’s
Housing Business Division.

construction of 1,167 units of American
Comfort, the two-by-four standardized
houses that form the core of Sumitomo
Realty’s Housing Business Division.
This represents an increase of 337 units
from the previous term and the firsttime in its five-year history that thisproduct has crossed the
Our Shinchiku Sokkurisan (“As Good as New”) is a new full remodeling
one-thousand-unit mark.
package.
Universal HomeInc.
franchises
local
BEFORE
AFTER
home builders withstandardized houses via
the conventional post
and beam construction
method. Housing starts
by its branches totaled
3,449 units, an increase
BEFOREAFTER
of 443 units from theprevious fiscal year.
In additional
activity, the Company’s
Shinchiku Sokkurisan(“As Good as New”)

PAGE 10SUMITOMO REALTY & DEVELOPMENT CO., LTD.

new full remodeling package expanded
its marketing base beyond the Tokyo
metropolitan area and, for the first timein its four years of operations, began
full-scale nationwide business activities.
Full remodeling package continued toachieve strong growth in completions,which expanded 443 units to 1,020
units. We posted especially strong
results in new orders, which surged
125%, or an increase of 874 units, to
1,569 units, as our products continued
to gain strong acceptance fromconsumers nationwide.
Including general remodelingservices and construction of interior
remodelings, consolidated revenue fromthe construction business increased¥20,542 million to ¥87,166 million, andoperating profit expanded ¥2,371
million to ¥4,754 million. The operating
profit margin exceeded 5%.

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 11

REVIEW OF OPERATIONS > BROKERAGE & OTHER BUSINESSESBROKERAGE BUSINESSB R O K E R A G E B U S I N E S S R E V E N U E (Billions of yen)
0

10

20

30

O P E R A T I N G P R O F I T (Billions of yen)
40

0

1996

1996

1997

1997

1998

1998

1999

1999

2000

2

4

6

8

2000
Note: Including inter-segment sales

eflecting similar
conditions in the market
for condominium sales
business, the real estate
brokerage market
experienced an increasein trading of existing condominiums
and housing units, as consumers reacted
favorably to reasonable prices. Tradingof land showed strong growth
especially.
Sumitomo Real Estate Sales Co.,
Ltd., the main business unit of thebrokerage business, worked to increase
its share of the brokerage market by
opening 8 new brokerage offices. By
aggressively expanding its offices, thecompany continued to bolster its

R

network of directly managed offices andraise productivity. As a result, its
network of directly managed offices
stood at 185 as of fiscal year-end,
including 100 in the Tokyo
metropolitan area, 59 in Kansai and 26
in other areas of Japan. In addition, tocomplement its traditional brokerage
office strategy, the real estate brokeragearm made efforts to cultivate newcustomers through establishment of theInformation Technology Department,
which will start marketing activity overthe Internet. The Corporate Brokerage
Division, established in February 1999,
went into full-scale operations and has
already contributed to revenues.
As a result of these efforts, thebrokerage business recorded revenues of¥31,923 million, or an increase of¥3,956 million, and operating profit of¥7,225 million, or an increase of ¥1,939
million.

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

OTHER BUSINESS
ther business includes
mainly restaurant andfitness clubmanagement operations
that support theCompany’s amenities

O

business.
Restaurant management
operations are carried out by Izumi
Restaurant Co., Ltd., which operates
more than 20 restaurants and grocery
shops in central Tokyo. Izumi
Restaurant provides a variety of dining
styles, including Japanese food (Donto),
general restaurants (Le Parc), shabushabu and sukiyaki specialty eateries(Shabu-sen), and authentic French
cuisine (La Fountaine). Izumi Restaurant
also operates an event coordination andcatering business to support receptions
and special events. This business hasreceived excellent reviews for its total
service capabilities, which range fromevent planning to party promotion.
Izumi Restaurant is working toward
creating a new culinary culture for the
21st century.
Management of fitness clubs ishandled by Sumitomo Fudosan Fitness
Co., Ltd., which operates 7 fitness clubs
in central Tokyo under the nameNautilus Club. The company has worked
to create a new style of club, transcending
the boundaries of traditional fitness clubs,
and has met the increasingly diverse needsof its members through a variety ofactivities. These include hosting a numberof events to promote exchange among
members, establishing the Bel Espritforum for beauty care seminars andexpanding its facilities through a series ofnationwide tie-ups.
In addition, the other businesssegment includes a computer graphics
business and outsourcing services of staff
and operations. The Company is also

involved in resort hotel management, aspart of its aim for comprehensive
business development.

La Fountaine is an authentic French restaurant in theTokyo Sumitomo Twin Building.

Nautilus Club fitness club in Shibuya Infoss Tower

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

PAGE 11

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 12

REVIEW OF OPERATIONS > TOPICS

TOPIC

TOPIC

1

2

LUXURY LEASING CONDOMINIUM COMPLEXLA TOUR SHIBAKOEN

NEW HOME SECURITY SYSTEMThe Company’s new La Tour Shibakoen condominium
opened in June 2000. Located in central Tokyo’s Minato
Ward and two minutes on foot from Shiba Park, this luxury
condominium is convenient for business, rich in greenery andboasts spectacular views from as high as 100 meters off theground. La Tour Shibakoen occupies floors 23 to 35 in the
newly built Shibakoen First Building and features 130 units
with floor space ranging from 63–168 square meters. With
Sumitomo Realty’s proprietary advanced security system, La
Tour Shibakoen also provides residents with safety andreassurance and furnishes them with a comfortable, elegant
living space.

The Company began marketing a new home security system
in April 2000 developed by affiliate KS Techno Co., Ltd. The
new system uses this company’s proprietary high-sensitivity
sensors that are installed on fences, hedges and other exteriorfeatures, and buried around the property, to sense intruders
and their movements before they enter the house, andeffectively eliminate danger.
Sensing intruders before they enter the house is part of
the new system’s primary emphasis on protecting the lives ofthe occupants. When unauthorized entry is attempted, thesystem automatically triggers an alarm, produces a strong
beam of light, and lets the occupant check the action on aninternal monitor.
Complete safety is the most important requirement for asecurity system in today’s world of increasing violent crime.
Sumitomo Realty has created a new home security systemthat repels intruders before they reach the house in ways
impossible through existing systems.

The 100-meter high La Tour Shibakoen condominium offering
secure and luxurious residences.

PAGE 12SUMITOMO REALTY & DEVELOPMENT CO., LTD.

This advanced security system enables homeowners to track thelocation of trespassers on the zone display of the control unit’s LCD
on a real-time basis, or switch to an exterior video image.

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 13

FINANCIALSECTION

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

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

PAGE 13

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 14

FINANCIALREVIEWR E V E N U E F R O M O P E R A T I O N S B Y S E G M E N T (Billions of yen)
0

100

200

300

400

500

1996
1997
1998
1999
2000
Leasing business
Brokerage business

Sales business
Other

Construction businessO P E R A T I N G P R O F I T (Billions of yen)
0

20

40

60

80

1996
1997
1998
1999
2000

C A P I T A L C O M P O S I T I O N (Billions of yen)
0

500

1,000

1,500

2,000

2,500

1996
1997
1998
1999
2000
Shareholders’ equity
Other debt
Interest-bearing debt (Including guarantee)

Analysis of Operating Revenue
The Company recorded revenue increases in each of its fourmain businesses in the fiscal year ended March 31, 2000,
which represented the midway point of its Five-Year Business
Reconstruction Plan. Consolidated revenue from operations
achieved another year of substantial growth, rising ¥32.5
billion, or 8.3%, to ¥421.6 billion.
Revenue from the leasing business edged up ¥900
million, or 0.6%, to ¥152.8 billion, owing to increasing
revenue from the operation of new buildings, which offset a
decline in revenues from existing buildings. Revenue from thesales business experienced substantial growth, increasing¥12.7 billion, or 9.2%, to ¥150.5 billion. This growth was theresult of especially robust conditions in the residential market
throughout the fiscal year, as the Company established a newrecord for sales of condominiums. Revenue from theconstruction business increased ¥20.5 billion, or 30.8%, to¥87.2 billion. This exceptional result was primarily due tofavorable growth in each of our tochi-less businesses, such as
operations of Sumitomo Fudosan Home Co., Ltd., whichmakes medium- to high-end two-by-four custom houses;
American Comfort two-by-four standardized houses thatform the core of Sumitomo Realty’s Housing Business
Division; Universal Home Inc., which makes standardized
houses through the conventional post and beam construction
method and carries out business nationwide through a
network of franchised operators; and Shinchiku Sokkurisan(“As Good as New”) new full remodeling package fordetached houses. The brokerage business showed strong
growth in revenue, which rose ¥4.0 billion, or 14.1%, to¥31.9 billion, as we continued with efforts to raise
productivity and bolster our direct marketing network
through store expansion. Revenue in other business increased¥1.8 billion, or 16%, to ¥13.2 billion.

Analysis of Operating Profit

I N T E R E S T- B E A R I N G D E B T (Billions of yen)
0

500

1,000

1,500

2,000

1996
1997
1998
1999
2000
Note: Including guarantee

PAGE 14

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

Operating profit in the leasing business rose ¥2.0 billion, or
4.7%, to ¥45.8 billion, as a decline in revenue from existingbuildings was offset by the start of operations at new buildings,
and revenue from newly consolidated subsidiaries. Operating
profit in the sales business climbed substantially, increasing¥12.0 billion, or 183.8%, to ¥18.6 billion. This growth was
the result of substantially improved operating profit margins
reflecting robust sales activities and a reduction in advertisingexpenses. The construction business recorded a ¥2.4 billion, or
99.5%, increase in operating profit to ¥4.8 billion, in line withfavorable growth in each of its operations. Operating profit inZ F s fi Y AR2000** 00.9.13 2:05 PM y [ W 15

the brokerage business also experienced substantial growth,rising ¥1.9 billion, or 36.7%, to ¥7.2 billion.

Statements of Assets, Liabilities and Shareholders’ Equity
Total assets as of March 31, 2000, were ¥1,920.7 billion, oran increase of ¥84.9 billion from March 31, 1999. Total
current assets decreased ¥330.6 billion to ¥370.1 billion.
Major factors behind this decrease include the elimination of
trade loans receivable made to newly consolidated subsidiaries
and the transfer of a portion of inventories previously statedas land and homes for sale but actually were leased tocustomers. To reflect their actual state, these assets wererestated as property and equipment.
Net property and equipment increased ¥406.5 billion to¥1,150.2 billion. The main factor in this increase was the
addition of ¥354.0 billion from newly consolidated
subsidiaries.
Total liabilities rose ¥74.5 billion to ¥1,696.0 billion.
Total shareholders’ equity increased ¥8.4 billion to ¥215.5
billion.

was the first example of securitization of common ownershipbuilding in Japan and resulted in an epoch-making financial
product for Japan.
Sumitomo Realty is the second-largest shareholder in thetrust with approximately 29% ownership. In anticipation offurther deregulation, an increase in market liquidity and otherupgrades to the market infrastructure, the Company has
structured this trust and securitization so that its trust interest
can be put into investment vehicles, such as conduit
corporations or investment trusts, in which its shares can belisted as marketable securities, and which are on schedule forderegulation.
Although an ultra high-rise office tower with exceptional
resistance to damage from earthquakes, the Shinjuku
Sumitomo Building is the third-oldest building in the
Company’s lineup of office buildings. We are currently
building a new large-scale office building as part of aredevelopment project in Nishi-Shinjuku 6-chome. We believe
our activities with these buildings represent a trading of old
for new assets.

Analysis of Cash Flows
Reduction of Interest-Bearing Debt
During the fiscal year under review, which marked the
midpoint of its Five-Year Business Reconstruction Plan, theCompany made full-scale efforts to reduce interest-bearing
debt as part of the plan’s fourth objective. Through these
efforts, total interest-bearing debt, including loan guarantees
decreased ¥235.7 billion from last fiscal year. The main
sources of funds for retiring this debt included ¥29.7 billion
from sales of shares of a limited partnership named Sumitomo
Realty & Development Fund (SURF), ¥107.5 billion from thesecuritization of real estate assets, mainly nine office buildings
in Japan, and ¥56.5 billion from sales of three office buildingsin the United States. The Company plans to continue
strengthening its financial base by liquidating assets andreducing interest-bearing debt.
securitization of the shinjuku sumitomo building

As part of its efforts to reduce interest-bearing debt, theCompany sold its stake (60% ownership) in the Shinjuku
Sumitomo Building (Shinjuku Ward, Tokyo) through an issueof trust beneficiary interests. Approximately 71% interests ofthis trust was sold to a Japanese special-purpose company(SPC) named PrimeQuest Co., Ltd. for a total of
approximately ¥72.5 billion, which made PrimeQuest Co.,
Ltd. the trust’s majority shareholder. Bonds issued (private) bythat company obtained credit ratings from Moody’s InvestorsService and Japan Credit Rating Agency, Ltd. This transaction

Net cash flow provided by operating activities in the fiscal
year under review totaled ¥38.4 billion, and net cash provided
by investing activities came to ¥132.4 billion. This gave theCompany a total of ¥170.9 billion in free cash flow. Mostly toretire debt, net cash used in financing activities totaled ¥210.0
billion. As a result, cash at end of the year decreased ¥39.4
billion from the previous fiscal year-end.
The main source of cash from investing activities was¥167.2 billion in proceeds from sale of property andequipment. This amount included ¥107.5 billion fromsecuritization of the Shinjuku Sumitomo Building and eight
other office buildings in Japan, and ¥56.5 billion from the saleof the 666 Fifth Avenue Building in New York and two otheroffice buildings in the United States. In addition, ¥29.8 billion
was provided by sales of shares of a limited partnershipnamed Sumitomo Realty & Development Fund (SURF),
which included the Kudanshita Building and ten other officebuildings. These sources of cash greatly offset cash used inpurchases of property and equipment.
Although we recorded negative cash flow, interestbearing debt (including borrowings, bonds, commercial paper
and loan guarantees) was reduced ¥235.7 billion from
¥1,618.0 billion at previous fiscal year-end, to ¥1,382.3
billion as of March 31, 2000. To prepare for rising interest
rates in the future, management also increased the proportionof long-term debt from 58% to 74% and fixed-rate debt from
59% to 75% by issuing ¥130.0 billion of straight bonds andgetting more than ¥145.3 billion of long-term loans.
SUMITOMO REALTY & DEVELOPMENT CO., LTD.

PAGE 15

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 16

Consolidated Balance Sheets
March 31, 2000 and 1999
Thousands of
U.S. dollars (Note 1)

Millions of yen

AssetsCurrent assets:Cash, mainly time and notice deposits (Note 4)
Marketable securities (Note 8)
Notes and accounts receivable—trade
Trade loans receivable
Allowance for doubtful accounts
Inventories (Note 5)
Deferred income taxes (Note 10)
Securities loaned (Note 8)
Other current assets
Total current assets
Investments and advances:
Investments in and advances to unconsolidated
subsidiaries and affiliated companies (Note 6)
Investments in securities and other
Allowance for doubtful accounts
Total investments and advances
Property and equipment (Notes 7 and 9):Land
Buildings and structures
Machinery and equipment
Construction in progress
Accumulated depreciation
Net property and equipment
Other assets:
Guarantee and lease deposits paid to lessors
Leasehold rights and other intangible assets
Deferred income taxes (Note 10)
Miscellaneous
Foreign statements translation adjustments
Total other assets
See accompanying notes.

PAGE 16

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

2000

¥

1999

39,728 ¥ 79,428
9,668
9,426
16,03323,296
157,354363,933(33,586)(43,253)
128,310
206,714
14,184
5,406
15,727
19,674
22,66036,069370,078
700,693

2000$

374,263
91,079151,041
1,482,374(316,401)
1,208,761
133,622
148,158
213,4713,486,368

7,591
111,017(78,514)40,094

13,184
108,787(79,503)42,46871,512
1,045,850(739,651)
377,711

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

512,418
313,598
14,99933,173874,188(130,461)
743,727

8,441,460
2,994,310
153,764
376,995
11,966,529(1,130,504)
10,836,025

214,394
123,128
4,954
13,4504,395
360,321¥1,920,737

243,763
77,583
15,374
3,538
8,679
348,937¥1,835,825

2,019,727
1,159,943
46,670126,70741,404
3,394,451$18,094,555

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 17

Thousands of
U.S. dollars (Note 1)

Millions of yen

Liabilities and Shareholders’ Equity
Current liabilities:
Short-term bank loans (Note 9)Long-term debt due within one year (Note 9)
Notes and accounts payable—trade
Accrued income taxes (Note 10)
Accrued bonuses
Deferred income taxes (Note 10)
Other current liabilities
Total current liabilities
Long-term debt due after one year (Note 9)
Guarantee and lease deposits received (Note 11)
Deferred income taxes (Note 10)
Employees’ retirement benefits
Directors’ and statutory auditors’ retirement benefits
Other long-term liabilities

Minority interests

2000

1999

2000

¥ 354,267
253,084
42,539
3,418
2,218
214
77,187
732,927¥ 582,349
118,498
33,940
1,554
2,169
617
63,256802,383$ 3,337,419
2,384,211
400,744
32,20020,8952,016
727,150
6,904,635

765,716
194,803
—
1,568
243
701

692,028
126,170
53
575
199
0

7,213,528
1,835,167—
14,772
2,289
6,604

9,245

7,240

87,094

86,77396,822
31,942
215,537(3)
215,534¥1,920,737

86,77396,822
23,584
207,179(2)
207,177¥1,835,825

817,456
912,124
300,9142,030,494(28)
2,030,466$18,094,555

Contingent liabilities (Note 14)

Shareholder’s equity (Note 12):
Common stock, par value ¥50 per share
Authorized — 780,000 thousand shares
Issued— 406,810 thousand shares
Additional paid-in capital
Retained earnings (deficit)
Treasury stock, at cost
Total shareholders’ equity

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

PAGE 17

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 18

Consolidated Statements of Operations
Years ended March 31, 2000, 1999 and 1998
Thousands of
U.S. dollars (Note 1)

Millions of yen

Revenue from operations
Costs and expenses:
Cost of revenue from operations
Selling, general and administrative expenses (Note 3)
Operating profit
Other income (expenses):
Interest expense—net (Note 4)
Dividend income
Gain on sale of property and equipment
Gain (Loss) on sale of marketable securities
Gain on sale of investments in subsidiary
Loss on sale of investments in securities
Write offs of bad debt
Loss on devaluation of marketable securities
Provision for allowance for doubtful accounts ofa consolidated subsidiary
Foreign exchange gains (losses)
Loss from write-down of property and equipment
Loss from devaluation of inventories
Loss from restructuring of overseas business
Loss on adjustment of prior year’s rent
Other—net
Income (Loss) before income taxes andminority interest (Note 3)
Income taxes (Note 10):
Current
Deferred
Total
Minority interest
Net income (loss)

2000

1999

1998

2000

¥421,587¥389,136¥364,858$3,971,616

319,997
31,042351,039
70,548303,256
29,364
332,620
56,516289,330
30,116
319,446
45,412

3,014,574
292,435
3,307,009
664,607(39,547)
241
62,477130419—(4,272)(2,897)(34,948)
374
270
(774)
2,563
(3,358)(53)(1,262)(34,240)
815
—
—
—
—
(4,987)(6,740)(372,558)
2,270
588,573
1,225
3,947
—
(40,245)(27,292)

—
(17)
(486)
(24,864)(22,641)(14,168)(2,740)(48,365)

—
256
—
—
—
—
(758)
(37,690)(62,499)
126
—
—
—
—
(908)
(108,433)—(160)(4,578)(234,235)(213,293)(133,471)(25,812)(455,629)

22,183

18,826(63,021)208,978

4,740
1,091
5,831
1,615
¥ 14,737

2,738
3,800
6,538
1,305
¥ 10,983

3,355
(706)
2,649
378
¥ (66,048)

44,654
10,27854,932
15,214$ 138,832

Yen

Amounts per share of common stock:
Net income (loss)
Cash dividend applicable to the year
See accompanying notes.

PAGE 18

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

¥

36.23
6.00

¥

27.00
6.00

U.S. dollars (Note 1)¥ (162.36)
6.00

$

0.34
0.06

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 19

Consolidated Statements of Shareholders’ Equity
Years ended March 31, 2000, 1999 and 1998
Thousands of
U.S. dollars (Note 1)

Millions of yen
2000

1998

2000

¥86,773¥86,773¥86,773¥86,773$817,456$817,456¥96,822¥96,822¥96,822¥96,822¥96,822¥96,822$912,124$912,124¥23,584—(3,925)¥ (4,218)
19,299(37)¥66,198—(1,261)$222,176—(36,976)—
14,737(2,440)(14)¥31,942—
10,983(2,440)(3)¥23,584(664)(66,048)(2,440)(3)¥ (4,218)—
138,832(22,986)(132)$300,914

Common stock:
Balance at beginning of the year
Balance at end of year

¥86,773¥86,773

Additional paid-in capital:
Balance at beginning of the year
Balance at end of year
Retained earnings (Deficit):
Balance at beginning of the year
Cumulative effect of adopting deferred tax accounting
Decrease due to change in consolidated subsidiaries
Decrease due to application of SFAS
115 to the consolidated subsidiaries in the U.S.
Net income (loss)
Cash dividends paid
Bonuses to directors
Balance at end of the year

1999

Thousands
2000

Number of shares of common stock:
Balance at beginning of the year
Balance at end of the year

406,810
406,810

1999

406,810
406,810

1998

406,810
406,810

See accompanying notes.

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

PAGE 19

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 20

Consolidated Statements of Cash Flows
Year ended March 31, 2000

Millions of yen

Thousands of
U.S. dollars (Note 1)

2000

2000

¥ 22,183
11,249(9,306)
2,897
(419)
994
(1,784)41,090(130)(62,477)
22,641
8,476
15,740
9,899
3,861
7,251
7,162
79,327$ 208,978105,973(87,668)
27,291(3,947)
9,364(16,806)
387,094(1,225)(588,573)
213,292
79,849148,281
93,25536,37368,30967,471
747,310

1,942(39,963)(2,867)38,43918,295(376,476)(27,009)362,120

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

167,238(97,965)(7,063)
1,886
44,5828,719
2,187(7,198)29,768(9,709)132,445

1,575,488(922,892)(66,538)
17,767419,991
82,13820,603(67,810)
280,433(91,465)
1,247,715

Cash flows from financing activities:
Decrease in short-term bank loans
Proceeds from issuance of bonds and notes
Repayments of bonds and notes
Increase in long-term debt
Proceeds from issuance of common stock to minorities
Other—net
Cash dividends paid
Net cash used in financing activities(349,006)
130,000(90,000)
102,788987(2,246)(2,569)(210,046)(3,287,857)
1,224,682(847,857)
968,328
9,298(21,159)(24,201)(1,978,766)(261)(2,459)(39,423)
79,614(371,390)
750,01445¥ 40,236

424$ 379,048

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

Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash and cash equivalents resulting from changes in the number ofconsolidated subsidiaries
Cash and cash equivalents at end of year
See accompanying notes.

PAGE 20

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 21

Consolidated Statements of Cash Flows
Years ended March 31, 1999 and 1998

Millions of yen
1999

Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
Provision for allowance for doubtful accounts—net
Deferred income taxes
Gain on sale of property and equipment
Other
Changes in assets and liabilities:
Decrease (Increase) in notes and accounts receivable—trade
Decrease (Increase) in trade loans receivable
Decrease (Increase) in inventories
Decrease (Increase) in prepaid expenses and other current assets
Increase in notes and accounts payable—trade
Increase in accrued income taxes and other current liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from sale of property and equipment
Decrease in marketable securities
Decrease in investments and advances
Increase in guarantee and lease deposits paid to lessors
Decrease (Increase) in leasehold rights and other intangible assets
Other
Net cash used in investing activities
Cash flows from financing activities:
Increase (Decrease) in short-term bank loans
Proceeds from issuance of bonds and notes
Repayments of bonds and notes
Increase in long-term debt
Increase (Decrease) in guarantee and lease deposits received
Proceeds from issuance of common stock
Other
Cash dividends paid
Net cash provided by (used in) financing activities
Net increase in cash
Cash at beginning of the year
Cash at end of the year

1998

¥ 10,983¥ (66,408)

10,340
2,606
3,800
(270)
3,141

13,61566,995
(635)
—
2,459

(4,255)(11,737)
33,372
1,200
11,011441
60,632

2,408
42,046(24,759)(35,369)
3,477
4,179
8,368

(41,275)
25,4472,662
2,543(3,449)4,301(2,191)(11,962)(31,349)
122
11,407
2,578(13,160)(11,301)
7,497(34,206)(32,490)
33,700(120,000)
60,142(776)
3,933
14,546(2,440)(43,385)
5,285
74,143¥ 79,428

28,62496,000(110,000)
45,3361,035—
450(2,440)59,00533,16740,976¥ 74,143

See accompanying notes.

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

PAGE 21

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 22

Notes to Consolidated Financial Statements
Years ended March 31, 2000, 1999 and 1998

1. Basis of financial statements
The accompanying consolidated financial statements havebeen prepared in accordance with the provisions set forth in
the Japanese Commercial Code and the Securities andExchange Law, and in conformity with accounting principles
and practices generally accepted in Japan, which are different
from the accounting and disclosure requirements ofInternational Accounting Standards. The accounts of overseas
consolidated subsidiaries are based on their accounting
records maintained in conformity with generally accepted
accounting principles and practices prevailing in the respective
countries of domicile.
The accompanying consolidated financial statements are atranslation of the audited consolidated financial statements of
the Company which were prepared in accordance withaccounting principles and practices generally accepted in Japan.
The audited financial statements of the Company and its
consolidated subsidiaries were filed with the Minister of Finance(“MOF”) as required by the Securities and Exchange Law.
2. Accounting policies(1) Principles of consolidation
The Company prepared the consolidated financial statements
for the year ended March 31, 2000 in accordance with therevised Accounting Principles for Consolidated Financial
Statements (the “Revised Accounting Principles”) effectivefrom the year ended March 31, 2000.
The accompanying consolidated financial statements include
the accounts of the Company and significant companies overwhich the Company has power of control through majority
voting right or existence of certain conditions evidencing
control by the Company.
In the elimination of investments in subsidiaries, the assets
and liabilities of the subsidiaries, including the portion
attributable to minority shareholders, are recorded using thefair value at the time the Company acquired control of therespective subsidiaries.
All significant intercompany balances, transactions andprofits have been eliminated in consolidation.
The effect of applying the Revised Accounting Principles
was immaterial.
(2) Foreign currency translation
Foreign currency transactions:
Current assets and liabilities denominated in foreign currencies
are translated into Japanese yen at the exchange rate
prevailing at the balance sheet date (current rate) and noncurrent assets and liabilities denominated in foreign currencies
are translated at the historical exchange rates.
Resulting exchange gains or losses are included in net income.
Foreign currency liabilities hedged by forward exchange
contracts are translated at the contracted forward rates.

PAGE 22SUMITOMO REALTY & DEVELOPMENT CO., LTD.

In preparing the accompanying consolidated financial
statements, certain reclassifications have been made in the
consolidated financial statements issued domestically in orderto present them in a form which is more familiar to readers
outside Japan. The consolidated statements of cash flows for1999 and 1998 have been prepared, although such statements
were not customarily prepared in Japan and not required to be
filed with MOF prior to 2000.
The financial statements are stated in Japanese yen. The
translations of the Japanese yen amounts into U.S. dollars areincluded solely for the convenience of readers, using theprevailing exchange rate at March 31, 2000, which was¥106.15 to U.S.$1. The convenience translations should not
be construed as representations that the Japanese yen amounts
have been, could have been, or could in the future be,converted into U.S. dollars at this or any other rate ofexchange.

Foreign currency financial statements:
Foreign currency financial statements are translated at thecurrent rate, except for common stock, additional paid-in
capital and beginning retained earnings, which are translated
at the historical rates. Translation difference is reflected on thebalance sheet.
(3) Statement of cash flow
In preparing the consolidated statements of cash flows, cashon hand, readily-available deposits and short-term highly
liquid investments with maturity of not exceeding threemonths at the time of purchase are considered to be cash andcash equivalents.
The Company prepared the 2000 consolidated cash flow
statement as required by and in accordance with the“Standards for Preparation of Consolidated Cash Flow
Statements, etc.” effective from the year ended March 31,
2000. The 1999 and 1998 consolidated cash flows
statements, which were voluntarily prepared for the purposeof inclusion in the consolidated financial statements in a form
familiar to readers outside Japan, have not been restated.
Significant differences in the consolidated cash flow statementsfor 2000, 1999 and 1998 include the use of pretax income in2000 instead of net income in 1999 and 1998, additional
disclosure in cash flows from operating activities in 2000 ofinterest expense, income tax expense, interest and dividend
income, interest and dividend received.
(4) Recognition of revenue
Revenues from sales of land and residential houses are recognizedwhen units are delivered and accepted by the customers.
Revenues from leasing of office space, shops and apartments
are recognized as rent accrues over the life of the lease.

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 23(5) Inventories
Inventories are stated at cost which is determined by the
specific identification cost method.
Some consolidated subsidiaries maintain a policy of
capitalizing interest costs on certain types of development
projects in progress.
(6) Marketable securities and investments in securities
Securities quoted on stock exchanges are primarily stated at
the lower of cost or market, cost being determined by themoving-average method. Non-quoted securities, including
investments in unconsolidated subsidiaries and affiliatedcompanies, are stated at moving-average cost or less, reflecting
write-downs based on management’s opinion of significant
and not recoverable impairment of the underlying value.
Securities of certain consolidated subsidiaries are stated atcost, determined by the moving-average method.
Commencing with the year ended March 31, 1999, theCompany records recoveries of write-downs of securities inaccordance with a revision in the Japanese tax law. There wasno effect on net income resulting from adopting thisaccounting policy.
(7) Property and equipment
The Company and domestic consolidated subsidiaries
depreciate property and equipment using the declining-balancemethod at rates determined based on the useful lives
prescribed in the Japanese tax regulations except that theCompany and two domestic subsidiaries depreciate buildings
using the straight-line method in 1999 and 2000 and certain
other domestic subsidiaries depreciate buildings, excluding
building fixtures, acquired after March 31, 1998 using thestraight-line method in 1999 and 2000. Overseas
consolidated subsidiaries depreciate property and equipmentusing primarily the straight-line method in accordance withthe accounting principles in the respective countries.
Estimated useful lives used in the computation ofdepreciation are generally as follows:
Buildings and structures …………7 to 50 years
Machinery and equipment ………3 to 15 years(8) Software Cost
In accordance with the provisional rule of the JICPA’s
Accounting Committee Report No. 12 “Practical Guidance
for Accounting for Research and Development Costs, etc.”(the“Report”), the Company accounts for software which was
included in Leasehold rights and other intangible assets in thesame manner in 2000 as in 1999. Pursuant to the Report,
however, the Company included software in other assets in2000 and depreciated it using the straight-line method overthe estimated useful lives (five years).
(9) Allowance for doubtful accounts
Allowance for doubtful accounts is provided in amounts

sufficient to cover possible losses on collection. It consists ofthe estimated amount considered to be uncollectible based on
the evaluation of certain identified trade notes, accounts andloans receivables, and an amount calculated by applying thepercentage of collection losses experienced in certain period in
the past to the remaining receivables in 2000, when the
Company changed the accounting policy as explained in Note 3.
(10) Finance leases
Finance leases except those leases for which the ownership ofthe leased assets is considered to be transferred to the lessee,
are accounted for in the same manner as operating leases.
(11) Income taxes
The Company provided income taxes at the amounts
currently payable for the year ended March 31, 1998 anddeferred tax accounting was applied only to the income taxes
paid on inter-company profit eliminated on consolidation.
Effective April 1, 1998, the Company adopted the new
accounting standard, which recognizes tax effects of
temporary differences between the financial statement
carrying amounts and the tax basis of assets and liabilities.
Under the new accounting standard, the provision for income
taxes is computed based on the pretax income included in the
consolidated statement of income. The asset and liability
approach is used to recognize deferred tax assets and liabilities
for the expected future tax consequences of temporary
differences.
The amount of deferred income taxes attributable to the net
tax effects of the temporary differences at April 1, 1998 isreflected as an adjustment of ¥19,299 million to the retained
earnings brought forward from the previous year. Prior years’
financial statements have not been restated.
The effect for the year ended March 31, 1999 was toincrease net income by ¥4,607 million.
(12) Employees’ retirement benefits
Upon retirement or termination of employment for reasons
other than dismissal, for cause, employees of the Company
and its consolidated subsidiaries are entitled to lump-sum
payments based on their current rate of pay, length of service,and the conditions under which the termination occurs.
The Company has a noncontributory funded pension plan,
which provides for a lump-sum or ten-year period of pension
payments, at the election of the employee, to an employee,
who is at least 45 years old and has 20 years or more of
employment. Lump-sum payments are made to the other
employees. The provision is determined actuarially and fundedcurrently through an outside trustee. Prior service costs of theplan are being funded over a period of 15 years.
Annual contributions, which consist of normal costs andamortization of prior service costs, are charged to income
when paid.
Most of the Company’s domestic consolidated subsidiaries
have unfunded plans. Provisions are made in the

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

PAGE 23

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 24

accompanying consolidated financial statements forapproximately 40% of the estimated liability for theretirement benefits that would be required had all employees
voluntarily retired at the balance sheet date.
(13) Amounts per share of common stock
The computation of net income per share is based on theweighted average number of shares of common stock
outstanding during each year.

Company has never issued any securities with diluted effect,
such as bonds with warrants and convertible bonds.
Cash dividends per share represent actual amounts applicableto the respective year.
(14) Reclassifications
Certain prior year amounts have been reclassified to conform to
the 2000 presentation. These changes had no impact onpreviously reported results of operations or shareholders’ equity.

Diluted net income per share is not presented, since the3. Change in accounting policy(1) Effective April 1, 1998, the Company and two
consolidated subsidiaries changed the method of depreciatingbuildings from the declining-balance method to the straightline method to match revenue and the related expenses more
appropriately.
The effect of this change was to decrease depreciation
expense and to increase income before income taxes for theyear ended March 31, 1999 by ¥2,344 million compared withprevious method.
(2) Allowance for doubtful accounts is provided in amounts
sufficient to cover possible losses on collection. It consists ofthe estimated amount considered to be uncollectible based on
the evaluation of certain identified trade notes, accounts andloans receivables, and an amount calculated by applying thepercentage of collection losses experienced in certain period in
the past to the remaining receivables in 2000. Prior to 2000,
allowance for doubtful accounts was provided at an estimatedamount of probable bad debts plus the maximum amountallowed under the Japanese tax regulations.
The effect of this change was to increase income before
income taxes for the year ended March 31, 2000 by ¥50

million ($471 thousand) compared with the previous method.
The effect on segment information of these changes is
explained in Note 17.
(3) Effective April 1, 1999, one consolidated subsidiarychanged its method of accounting for employees’ retirement
benefits. Previously they provided for such benefits at 40% of
the amount which would be required if all eligible employees
voluntarily retired or terminated their employment at thebalance sheet date. Effective from the year ended March 31,
2000, the subsidiary adopted the Net-Present-Value method,which is based on estimated payments to employees when they
retire in the future.
The effect of this change was to increase income before
income taxes for the year ended March 31, 2000 by ¥925
million ($8,714 thousand) compared with the previous
method.
The effect on segment information of these changes is
explained in Note 17.

4. Cash and cash equivalents
Cash and cash equivalents at March 31, 2000 consisted of the following:

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

Millions of yen

Thousands of
U.S. dollars¥39,728(3)
511¥40,236$374,263(28)
4,813$379,048

5. Inventories
Inventories at March 31, 2000 and 1999, were as follows:
Thousands of
U.S. dollars

Millions of yen

Land and housing for saleLand and housing projects in progress
Land held for development
Other
Total
PAGE 24

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

2000

1999

2000

¥ 11,233
61,96449,5405,573¥128,310¥ 86,124
57,28361,0832,224¥206,714$ 105,822
583,740
466,698
52,501$1,208,761

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 25

The Company transfers inventories to property and equipment, and transfers property and equipment and other assets toinventories. Such transfer at March 31, 2000 is as follows:
Millions of yen

Thousands of
U.S. dollars

Inventories:
Transfer to property and equipment
Transferred from property and equipment
Transferred from other assets
Net decrease¥(62,146)
1,600
861(59,685)$(585,454)
15,0738,111
562,270

Property and equipment:
Transferred from inventories
Transfer to inventories
Net increase¥ 62,146(1,600)60,546$ 585,454(15,703)570,381

Other assets:
Transfer to inventories

¥

$

(861)

8,111

6. Investments in and advances to unconsolidated subsidiaries and affiliated companies
Investments in and advances to unconsolidated subsidiaries and affiliated companies at March 31, 2000 and 1999, consisted of thefollowing:Thousands of
U.S. dollars

Millions of yen

Investments in common stock, at cost
Advances
Total

2000

1999

2000

¥5,6791,912¥7,591¥11,572
1,612¥13,184$53,500
18,012$71,512

7. Trust assets
Trust assets which the Company owned as a result of asset securitization at March 31, 2000 are as follows:

Buildings and structures
Land
Machinery and equipment
Total

8. Market value information for securities of the Company
At March 31, 2000 and 1999, book value, market value andnet unrealized gain of marketable securities and investments insecurities were as follows:
Japanese accounting standards changed in 2000. Prior to
2000, the Company prepared only Parent Company’s market
value information of securities in accordance with prior

Current
Non-current
Total

Thousands of
U.S. dollars¥ 7,982
18,628
134¥26,744$ 75,195
175,488
1,262$251,945

Japanese accounting standards, and in 2000 the Company
prepared the Company’s market value information of
securities on a consolidated basis in accordance with new
accounting standards. Thus, the value in 1999 shown below isthat of parent company only, and the value in 2000 shown
below is that of consolidated companies.

Millions of yen
2000

Millions of yen

Thousands of U.S. dollars
1999

2000

Book
value

Marketvalue

Unrealized
gain

Book
value

Marketvalue

Unrealized
gain

Book
value

Marketvalue

Unrealized
gain¥23,095
1,145¥24,240¥30,027
1,189¥31,216¥6,932
44¥6,976¥22,460
1,889¥24,349¥24,598
39,969¥64,567¥ 2,138
38,080¥40,218$217,569
10,787$228,356$282,873
11,201$294,074$65,304414$65,718

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

PAGE 25

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 26

9. Short-term bank loans and long-term debt
Short-term bank loans are represented by notes maturing generally in three months. The annual interest rates on short-term bankloans outstanding at March 31, 2000 and 1999 were principally ranging from 0.60% to 7.60% and 0.69% to 7.31%,
respectively.
Long-term debt at March 31, 2000 and 1999, consisted of the following:Thousands of
U.S. dollars

Millions of yen
2000

6.2% Euroyen notes, due 2000
6.15% Euroyen notes, due 1999
4.8% Euroyen notes, due 2000
3.9% Euroyen notes, due 2000
3.55% Euroyen notes, due 1999
3.8% Euroyen notes, due 2000
3.0% Euroyen notes, due 2000
2.6% Euroyen notes, due 1999
2.55% Euroyen notes, due 2000
2.9% Euroyen notes, due 2001
3.15% Euroyen notes, due 2002
2.95% Euroyen notes, due 2001
3.0% Euroyen notes, due 2001
2.5% Euroyen notes, due 2001
2.1% Euroyen notes, due 2001
2.35% Euroyen notes, due 2002
2.65% Euroyen notes, due 2004
2.4% Euroyen notes, due 2003
2.575% Euroyen notes, due 2004
1.9% domestic straight bonds, due 2001
2.5% domestic straight bonds, due 2003
2.025% domestic straight bonds, due 2002
2.025% domestic straight bonds, due 2001
2.5% domestic straight bonds, due 2001
2.6% domestic straight bonds, due 2002
2.5% domestic straight bonds, due 2002
Floating rate Euroyen notes, due 2002
2.6% Euroyen notes, due 2003
2.75% domestic straight bonds, due 2003
3.0% domestic straight bonds, due 2004
2.6% domestic straight bonds, due 2003
2.6% Euroyen notes, due 2001
3.1% Euroyen notes, due 2005
2.7% domestic straight bonds, due 2001
2.97% Euroyen notes, due 2002
2.35% domestic straight bonds, due 2002
3.0% domestic straight bonds, due 2003
3.0% domestic straight bonds, due 2003
2.65% domestic straight bonds, due 2003
2.95% domestic straight bonds, due 2004
Loans, principally from banks and insurancecompanies, interest principally at rates of 0.66% to4.50% in 2000, and 0.96% to 7.66% in 1999
SecuredUnsecured
Amount due within one year

PAGE 26

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

¥

1999

2000

20,000—20,000——30,00030,000—10,00020,00010,00010,00020,00020,00010,00010,00010,00010,00010,00015,00020,00020,000
7,000
7,000
7,000
8,000
1,000
1,000
7,000
5,000
10,000
1,000
700
5,000
5,000
30,00015,00035,00010,00040,000¥ 20,000
30,00020,00020,00030,00030,00030,00010,00010,00020,00010,00010,00020,00020,00010,00010,00010,00010,00010,00015,00020,00020,000
7,000
7,000
7,000
8,000
1,000
1,000
7,000
5,000
10,000
1,000
700
5,000
5,000
—
—
—
—
—

$

188,413—
188,413——282,619282,619—
94,206
188,413
94,206
94,206
188,413
188,413
94,206
94,206
94,206
94,206
94,206
141,309
188,413
188,41365,94465,94465,94475,3659,421
9,421
65,944
47,104
94,2069,421
6,594
47,104
47,104
282,619
141,309329,722
94,206
376,825

49,120479,980
1,018,800(253,084)¥ 765,716

2,286
358,540
810,526(118,498)¥ 692,028

462,741
4,521,715
9,597,739(2,384,211)$ 7,213,528

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 27

The aggregate annual maturity of long-term debt at March 31, 2000, are as follows:
Years ending March 31

Millions of yen

Thousands of
U.S. dollars

2001
2002
2003
2004
2005
2006 and thereafter¥253,084
244,086
229,036
173,027
101,855
17,712$2,384,211
2,299,444
2,157,664
1,630,024
959,538
166,858

The following assets were pledged as security for short-term bank loans and long-term debt at March 31, 2000.

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

As is customary in Japan, security must be given if requested
by lending banks under certain circumstances, and generallybanks have the right to offset cash deposited with themagainst any debt or obligations payable to the bank that
10. Income taxes
The Company is subject to a number of income taxes, which,in the aggregate, indicate a statutory rate in Japan ofapproximately 42.05% for the year ended March 31, 2000
and approximately 47.68% and 51% for the years ended
March 31, 1999 and 1998, respectively.
Statutory tax rate
Foreign subsidiaries’ temporary differences
for which no tax effects were recognized
Permanently nondeductible expenses of foreign subsidiaries
Effect of operating loss carryforwards of subsidiaries
Per capita inhabitant tax
Decrease in tax rate
Other
Effective tax rate

Millions of yen

Thousands of
U.S. dollars

¥82

$772

becomes due in case of default and certain other specified
events. The Company has never received any such request nor
does it expect that any such request will be made.

The following table summarizes the significant differences
between the statutory tax rate and the Company’s effective
tax rate for financial statement purposes for the year ended
March 31, 2000 and 1999:
2000

1999

42.05%

47.68%(26.74)
6.36
4.97
0.87
—
(1.22)
26.29%——(9.69)—(3.54)
0.28
34.73%SUMITOMO REALTY & DEVELOPMENT CO., LTD.

PAGE 27

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 28

Significant components of the Company’s deferred tax assets and liabilities as of March 31, 2000 and 1999 are as follows:
Thousands of
U.S. dollars

Millions of yen
2000

1999

2000

Deferred tax assets:
Net operating loss carryforwards
Excess loss from devaluation of inventories
Unrealized inter-company profits
Other¥12,349
9,531
3,894
6,252

¥27,038
—
3,914
7,587

$ 116,335
89,78836,68458,898

Total deferred tax assets
Valuation allowance

32,026(10,864)

38,539(15,800)

301,705(102,346)

Net deferred tax assets

21,162

22,739199,359

Deferred tax liabilities:
Deferred gain on sale of fixed assets
Other(1,959)(279)(1,959)(670)(18,455)(2,628)

Total deferred tax liabilities(2,238)(2,629)(21,083)¥18,924¥20,110$(178,276)

Net deferred tax assets

11. Guarantee and lease deposits received
Guarantee and lease deposits received at March 31, 2000 and 1999, were summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Guarantee and lease deposits from tenants
Lease deposits from others

2000

1999

2000

¥163,412
31,391¥194,803¥125,101
1,069¥126,170$1,539,444
295,723$1,835,167

12. Shareholders’ equity
In accordance with the new disclosure requirements effectivefrom the year ended March 31, 1999, legal reserve is included
in retained earnings for 1999 and 2000. Previously it waspresented as a separate component of the shareholders’ equity.
The accompanying consolidated financial statements for theyear ended March 31, 1998 have been reclassified to conformto the revised presentation.
The maximum amount that the Company can distribute as
dividends is calculated based on the unconsolidated financial
statements of the Company and in accordance with theCommercial Code of Japan.

13. Information for certain lease transactions
Finance leases which do not transfer ownership to lessees are
not capitalized and accounted for in the same manner as
operating leases. Certain information for such non-capitalized
finance leases was as follows:

As lessee
A summary of assumed amounts (inclusive of interest) of
acquisition cost, accumulated depreciation and net book value
at March 31, 2000 and 1999 were as follows:

PAGE 28

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 29

Thousands of
U.S. dollars

Millions of yen

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

2000

1999

2000

¥ 1,440
1,317(1,591)¥ 1,166¥ 1,320
1,139(1,409)¥ 1,050$ 13,565
12,407(14,988)$ 10,984

As lessor
A summary of stated amounts of acquisition cost, accumulated depreciation and net book value at March 31, 2000 and 1999 wereas follows:
Thousands of
U.S. dollars

Millions of yen

Acqusition cost:
Other
Accumulated depreciation
Net book value

2000

1999

2000

¥1,010(960)¥ 50¥1,010(960)¥ 50$ 9,515(9,044)$ 471

Lease expenses and lease incomes under finance leases, inclusive of interest, for the year ended March 31, 2000, amounted to¥606 million ($5,709 thousand) and ¥93 million ($876 thousand), respectively.
Future lease payments and receipts under such finance leases and non-cancelable operating leases at March 31, 2000 and 1999
were as follows:
Thousands of
U.S. dollars

Millions of yen
2000

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

1999

2000

¥ 522
644
¥1,166478
572¥ 1,050$ 4,917
6,067$10,984

¥

¥

94
78
172

$

$

¥

78
—
78

¥

¥

$

735
—
735

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

40
252
¥ 292

¥

30
319
349

377
2,374
$ 2,751

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

¥ 489
2,424
¥2,913¥ 6,401
50,112¥56,513$ 4,607
22,835$27,442

¥

20
20
40

¥

—
—
—

$

51
136
¥ 187

¥

—
—
—

$

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

¥

¥

¥

¥

¥

¥

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

$

188
188
376

480
1,282
$ 1,762
PAGE 29

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 30

14. Contingent liabilities(Contingent liabilities for guarantee of loans)
At March 31, 2000 and 1999, the Company and its consolidated subsidiaries were contingently liable as guarantors of borrowings
by affiliates and others as follows:
Thousands of
U.S. dollars

Millions of yen

Affiliates
Others
Total

2000

1999

2000

¥3,0194,948¥7,967¥3,355
5,235¥8,590$28,441
46,613$75,054

Also, at March 31, 2000 and 1999, the Company and its consolidated subsidiaries had outstanding commitments to guaranteeloans of certain affiliated companies and unrelated companies. Certain information of them was as follows:
Thousands of
U.S. dollars

Millions of yen

Affiliates
Others
Total(Lawsuits)
The Company was defendant in the following lawsuits, inwhich, based on the Leased Land and House Lease Law, theCompany claimed the reduction of the rental payments.
One lawsuit was brought to reconciliation by the advice of
the Tokyo District Court, and other two lawsuits are pendingin court.
In May 1993, a lawsuit was brought in the Tokyo District
Court against the Company by the lessor owning three officebuildings, and the Company and the lessor were reconciled by
the Tokyo District Court. The summary of the reconciliation
is as follows.
• The lessor canceled the agreement which had an automatic
rent-escalation clause.
• The lessor reduced prior rent by ¥5,001 million, and theCompany paid the difference, ¥7,168 million.
• Effective August of 1999, the lessor reduced the rent by¥1,544 million per annum (about 35% of the rent per
annum).
15. Fair values of derivative financial instruments
The Company and its consolidated subsidiaries enter into yen
currency forward exchange contracts and interest rate swap
agreements in order to manage exposures resulting fromfluctuations in foreign currency exchange rates and interest
rates.
The forward exchange contracts and currency swap
agreements are used to hedge the risk of changes in foreign
currency exchange rates associated with assets, liabilities andcommitments on future transactions denominated in foreign
currencies.
The interest rate swap agreements are used to hedge the riskof changes in interest rates associated with assets and
PAGE 30SUMITOMO REALTY & DEVELOPMENT CO., LTD.

2000

1999

2000

¥2,316
1,021¥3,337¥217,629
1,036¥218,665$21,819
9,618$31,437

A lawsuit was brought in the Tokyo District Court against
the Company in 1994 (Case A) and another one in 1995
(Case B), relating to the claims to recover the difference
between the rental payments based on the lease agreements
and the amounts the Company paid taking a position under
Leased Land and House Lease Law. While the District Court
issued judgements against the Company in August andOctober of 1998, the Company appealed to the Tokyo Higher
Court in September and November of 1998 as the Company
believed that the judgements were contradictory to theprevious legal interpretations.
In Case A, the Tokyo Higher Court issued judgement for
the Company in October of 1999. And the lessor appealed to
the Supreme Court in November of 1999.
In Case B, the Tokyo Higher Court issued judgement
against the Company in January of 2000 that, the Company
believed, was contradictory to the previous legal
interpretations. So the Company appealed to the Supreme
Court in January of 2000.

liabilities.
The counterparties of the derivative transactions are
creditworthy financial institutions, and the Company’s
management believes there is little default risk ofcounterparties.
The derivative transactions are executed by the Company’s
accounting department based on the decision of the meeting
chaired by the Company’s director responsible for the finance.
The Company’s off-balance-sheet forward exchange
contracts, and interest swap agreements at March 31, 2000
are as follows:Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 31

Millions of yen
Contract
amountThousands of U.S. dollars

Estimated
fair value

Contract
amountEstimated
fair value

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

¥

7,376
4,086

¥ 7,503
4,194$

69,48738,493$70,683
39,510Interest rate swap agreements
Total

266,850¥278,312(2,482)¥ 9,215

2,513,895$2,621,875(23,382)$86,811

16. Subsequent events
The Company issued the 2.35% ¥10,000 million ($94.2
million) domestic straight bonds due 2003 on April 28, 2000,
the 2.45% ¥20,000 million ($188.4 million) domestic straightbonds due 2004 on May 19, 2000, the 2.45% ¥10,000
million ($94.2 million) domestic straight bonds due 2004 on

May 19, 2000, the 2.62% ¥20,000 million ($188.4 million)
domestic straight bonds due 2005 on June 16, 2000, the 2.3%
¥5,000 million ($47.1 million) domestic straight bonds due
2004 on June 26, 2000, and the 2.85% ¥5,000 million ($47.1
million) domestic straight bonds due 2006 on June 26, 2000.

17. Segment information
The Company and its consolidated subsidiaries mainly operate
their business in six segments: leasing of buildings andshopping centers, etc.; sale of detached homes; construction of
housing and buildings; brokerage business; providing housing

loans; and other business.
Information by industry segments for the years ended
March 31, 2000, 1999 and 1998 is summarized as follows:
Millions of yen

Leasingbusiness

Salesbusiness

For 2000
Net sales
Customers¥ 151,268 ¥150,483
Intersegment
1,535
3
Total
152,803150,486
Costs and expenses
107,050
131,912
Operating profit¥ 45,753 ¥ 18,574
Identifiable assets ¥1,492,129 ¥128,572
Depreciation andamortization
10,64928
Capital expenditures
104,567
464

Construction
business

BrokeragebusinessLoansbusiness

Otherbusiness

Total

Elimination
and/or corporate

Consolidated¥80,064
7,102
87,16682,412¥ 4,754¥31,633 ¥290
31,923
24,698¥ 7,225 ¥

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

¥5,947
965
6,912
6,382
¥ 530

¥ 421,587 ¥— ¥ 421,587
13,984(13,984)—435,571(13,984)
421,587356,523(5,484)351,039¥ 79,048 ¥ (8,500) ¥ 70,548¥22,664¥21,124 ¥372,083¥7,835¥2,044,407 ¥(123,670) ¥1,920,737

209
129

163
121

Construction
business

Brokeragebusiness

3
—

82
25

11,134105,306135
443

11,269105,749

Elimination
and/or corporate

Consolidated

Millions of yen
Leasingbusiness

Salesbusiness

For 1999
Net sales
Customers¥ 150,976 ¥137,735
Intersegment
913
10
Total
151,889
137,745
Costs and expenses
108,177
131,201
Operating profit¥ 43,712 ¥ 6,544
Identifiable assets ¥1,066,259 ¥219,772
Depreciation andamortization
9,702
22
Capital expenditures
30,90530

Loansbusiness

Otherbusiness

Total¥61,191
5,433
66,62464,241¥ 2,383¥27,829 ¥138
27,967
22,681¥ 5,286 ¥7,947 ¥ 3,458
3
7
7,950
3,465
5,300
3,221
2,650 ¥ 244¥ 389,136
6,504
395,640
334,821¥ 60,819— ¥ 389,136(6,504)—(6,504)
389,136(2,201)
332,620¥ (4,303) ¥ 56,516¥16,892¥22,967 ¥353,441 ¥24,787¥1,704,118¥131,707¥1,835,825

10,211
31,480129
170

10,34031,650

201
436

150
48

4
3

132
58

¥

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

PAGE 31

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 32

Millions of yen
Leasingbusiness

Salesbusiness

For 1998
Net sales
Customers¥ 143,676 ¥125,327
Intersegment
1,025
281
Total
144,701
125,608
Costs and expenses
107,691
118,349
Operating profit¥ 37,010 ¥ 7,259
Identifiable assets¥1,064,475 ¥285,256
Depreciation andamortization
13,05842
Capital expenditures
52,495309

Construction
business

BrokeragebusinessLoansbusiness

Otherbusiness

Total

8,367
—
8,367
7,634
733

¥3,728
11
3,739
3,477
¥ 262

¥ 364,858
7,173
372,031
322,179¥ 49,852¥—(7,173)(7,173)(2,733)¥ (4,440)¥ 364,858—
364,858
319,446¥ 45,412¥26,998 ¥360,870¥5,631¥1,759,000¥95,800¥1,854,800

20
313,43654,227179
165

13,61554,392¥56,339 ¥27,421 ¥
5,780
76
62,11927,49762,19522,833¥(76) ¥ 4,664 ¥¥15,770
172
1,232

140
178

Construction
business

Brokeragebusiness

4
10

Elimination
and/or corporate

Consolidated

Thousands of U.S. dollars

For 2000
Net sales
Customers
Intersegment
Total
Costs and expenses
Operating profit

Leasingbusiness

SalesbusinessLoansbusiness

Otherbusiness

Elimination
and/or corporate

Total

Consolidated$ 1,425,040 $1,417,645
14,46128
1,439,501 1,417,673
1,008,479 1,242,694$ 431,022 $ 174,979$754,254
66,905821,159
776,373$ 44,786$298,003 $
2,732
300,735
232,671$ 68,064 $Identifiable assets$14,056,797 $1,211,229
Depreciation and100,320264
amortization
Capital expenditures
985,087
4,371$213,509$199,001 $3,505,757 $73,811 $19,259,604 $(1,165,049) $18,094,555

1,969
1,215

As described in Notes 2 (7) and 3 to the Consolidated
Financial Statements, effective April 1, 1998, depreciation ofbuildings, excluding building fixtures, is provided on thestraight-line method, and the Company and its consolidated

1,536
1,140

20,650 $56,024 $ 3,971,616 $— $ 3,971,616
38,521
9,091
131,738(131,738)—
59,171 65,115 4,103,354(131,738)
3,971,616
38,333 60,122 3,358,672(51,663)
3,307,009
20,838 $ 4,993 $ 744,682 $ (80,075) $ 664,607

28
—

772
236

104,889
992,049

1,272
4,173

106,161
996,222subsidiaries shortened the estimated useful lives of buildings,
excluding building fixtures.
The effects of the changes on operating income, depreciation
expense and identifiable assets were as follows:
Increase (Decrease) (Millions of yen)

Leasing business
Sales business
Brokerage businessAs described in Notes 2 (12) and 3 to the Consolidated
Financial Statements, from this fiscal year, employees’
retirement benefits are provided the Net-Present-Value
method, and allowance for doubtful accounts is provided by

Sales business
Brokerage business
Loans businessElimination and/or corporate

PAGE 32

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

Operating profit

Depreciation

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

the previous actual average percentage of bad debts.
The effects of the changes on operating profit were as
follows:

Millions of yen

Thousands of
U.S. dollars

¥ (7)
(64)
(1)
50

$ (66)
(603)
(9)
471

Z F s fi Y AR2000** 00.9.13 2:05 PM y [ W 33

Report of Independent Public Accountants

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

Tokyo, Japan
June 29, 2000

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

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

PAGE 33

Z F s fi Y AR2000** 00.9.13 2:06 PM y [ W 34

BOARD OF DIRECTORSAND AUDITORSCORPORATEDATA(As of March 31, 2000)(As of June 29, 2000)

CHAIRMAN OF THE BOARD
Shinichiro Takagi
PRESIDENT
Junji Takashima
DIRECTOR AND ADVISORTaro AndoSENIOR MANAGING DIRECTORS
Hirohisa Ichikawa
Yoichi Nakamura
Etsuzo Yurimoto
Tetsuro Tsuruta
MANAGING DIRECTORS
Hisao Matsui
Masayoshi Ohashi
Sadao Ushimaru
Mitsuru Mori
DIRECTORS
Shigeto Iwai
Arata Miyazawa
Kenichiro Sugimoto
Akira Kanda
Kazuo Masuoka
Kenichi Onodera
Haruo Fukumuro
Kenichi Kameyama
Yozo Akiyama
Shozo Suzuki
Yasushi Kinoshita
STATUTORY AUDITORS
Yoshihiro Tokushige
Hisayoshi Horikiri*
Takato Aramaki*
Akira Sato*
Kunio Kobayashi**Standing Statutory Auditors

PAGE 34

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

Sumitomo Realty & Development Co., Ltd.
HEAD OFFICE
Shinjuku NS Building
4-1, Nishi-Shinjuku 2-chome
Shinjuku-ku, Tokyo 163-0820, Japan
Phone: 03-3346-2342
Facsimile: 03-3346-1652
http://www.sumitomo-rd.com
DATE OF ESTABLISHMENT
December 1, 1949
PAID-IN CAPITAL¥86,773 million
COMMON STOCK ISSUED AND OUTSTANDING
406,810,631
NUMBER OF SHAREHOLDERS
51,004
NUMBER OF EMPLOYEES
1,367
MAJOR CONSOLIDATED SUBSIDIARIES
Sumitomo Real Estate Sales Co., Ltd.
Sumitomo Fudosan Home Co., Ltd.
Sumitomo Fudosan Syscon Co., Ltd.
Sumitomo Fudosan Tatemono Service Co., Ltd.
Sumitomo Fudosan Fitness Co., Ltd.
Izumi Restaurant Co., Ltd.
Sumitomo Fudosan Finance Co., Ltd.
Shintoshin Real Estate Co., Ltd.
Universal Home Inc.
STOCK EXCHANGE LISTINGSTokyo and Osaka

003 00.9.13 6:16 PM y [ W 35

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

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

Sumitomo Realty &Development Co., Ltd.

SALES BUSINESSBROKERAGE BUSINESS

Condominium Development Division

Sumitomo Real Estate Sales Co., Ltd.

CONSTRUCTION BUSINESS
Housing Business Division
American Comfort
Shinchiku Sokkurisan
Sumitomo Fudosan Home Co., Ltd.
Sumitomo Fudosan Syscon Co., Ltd.
Universal Home Inc.

Printed on recycled paper

SUMITOMO REALTY & DEVELOPMENT CO., LTD.

PAGE 35