To Our Stakeholders

Framework of the Current Medium-Term Management Plan Positioning the four fiscal years from fiscal 2016 as a period ofdeveloping foundations for medium-to-long-term growth, thecurrent medium-term management plan calls on the Group to(1) enhance value of the Umeda area and other line-side areas,and (2) develop new markets for medium-to-long-term growth.
Moreover, as we pursue these business strategies we aim tocapture burgeoning demand from non-Japanese tourists.
Further, we will allocate funds in a balanced manner to realise
returns to shareholders and continuous strengthening of ourfinancial standing. At the same time, we will prepare for thefuture by investing in major development projects and developing new markets. The Group will also steadily invest in themaintenance and renewal of existing infrastructure.

Businessstrategies

Businessstrategy

1Many of the projects that the Group tackles take a longtime to bear fruit. As a result, periods arise when we do not
anticipate near-term earnings growth. Over the mediumto-long term, however, I am confident that our projects willproduce benefits steadily.
For overviews of specific projects and their progress, please
see the special feature and the “Core Businesses: Overview andOutlook” section of this report. At this point, I would like toexplain the thinking behind the two business strategies mentioned above.

Implementing two business strategies with a view to medium-to-long-term growth
Enhance value of the Umeda area
and other line-side areas

Businessstrategy

2Create line-side areas people want to live in long termor visit frequentlyDevelop
line-side areas

Enhancingline-side area value

Develop additional
value inline-side areas

Develop new markets formedium-to-long-term growth
Expand businesses in Tokyo metropolitan areaand begin developing new businesses overseasTokyo
metropolitan area

Overseas

Combine business

Capture burgeoning demand from non-Japanese tourists

strategies 1 and 2

Offset Japan’s sluggish consumer market and step up efforts to capture rapidly growing demand
from visitors to Japan

Financialstrategy

Allocate funds in a balanced manner on forward-looking investment, continuous strengtheningof financial standing, and returns to shareholders

Forward-looking investmentGive priority in fund allocation,
mainly focus on initiatives reflecting
business strategies 1 and 2Continuous strengtheningof financial standing
Mitigate risk of future interest rate rises
and secure funding capacity
over the medium-to-long term

Approx.

65

Approx.

%Business strategy 135%Business strategy 2

Investment for growth

Returns to shareholders
Endeavour to increase them while
maintaining balance with investment
and strengthening of financial standing

Approx.

130¥billionTo Our Stakeholders

Business strategy 1

Enhance value of the Umeda area and other line-side areas

It is essential to continue investment aimed at bolstering theurban functions of the Umeda area, which is synonymous withthe Kansai area and the Group’s most important base. The Umeda
area is known for having Japan’s highest concentration of commercial facilities. This strong focus on the Umeda area is theresult of continuous development aimed at increasing the area’sappeal spanning several eras. Just as these past development
efforts have created today’s prosperity, we will take far-sighted
measures to evolve and create new value in the Umeda area
going forward. For example, we will develop multipurpose buildings with leading-edge disaster prevention capabilities and environmental performance. And, we will foster the entrepreneursthat may become the future tenants of such buildings.
Similarly, line-side areas other than the Umeda area need toevolve. However, I believe that, as well as the development ofsuch infrastructure as railways and properties for lease, we needto create shared value in line-side areas with local communities.
Although the population of the Group’s line-side areas is rising,Japan’s demographics mean that the time will come when it
begins declining. Given this outlook, we believe contributing toBusiness strategy 2

the quality of residents’ lives is key because this will ensure
people continue to choose our line-side areas as the places
they want to live in, remain in long term, or keep visiting. Basedon this belief, we are creating value through the provision of
new services in five areas: fostering of the next generation;
health and seniors; community and culture; development ofsafe, secure towns; and industry creation.

A conceptual illustration of the Umeda 1-1 Projectupon completion

Develop new markets for medium-to-long-term growth

Expanding businesses in the Tokyo metropolitan area anddeveloping businesses overseas will allow the Group to capitalise on its accumulated expertise in new markets.
As one of Asia’s most famous cities, Tokyo is an appealing
market that is likely to maintain its importance in and links with
the international economy even in an era of population decline.
In preparation for the Tokyo 2020 Olympic and Paralympic
Games, real estate development is moving up a gear in thecentre of Tokyo. Against this backdrop, the Group is stepping up
business development in the city. As well as steadily increasing
the development and sale of condominiums, we plan to open ahotel mainly comprising guest rooms for overnight stays, REMM
Roppongi, in March 2017. Other initiatives in Tokyo include
our participation with business partners in a redevelopment
project for the area in front of JR Yotsuya Station. In the above
projects, we will take advantage of expertise garnered in thedevelopment of the Umeda area and other line-side areas.
Further, we aim to use the projects as bridgeheads for expanding businesses in the Tokyo metropolitan area.

Overseas, in April 2016 we opened a logistics centre inIndonesia, which has begun handling such products as automotive components, medical equipment, and electronic components. In addition, plans call for the completion of a large
logistics centre in Singapore in spring 2017. The International
Transportation and the Real Estate businesses are working
together closely to advance these projects and realise synergies within the Group.

A conceptual illustration of the Singapore logistics centre
upon completionTo Our Stakeholders

Management Indicators through to Fiscal 2019 The management indicators that we are targeting and ourapproach to them are shown in the table below. In light of current business results, we have revised numerical targets forprofitability and capital efficiency. Regarding profitability benchmarks, we have upwardly revised numerical targets for operating
income and net income attributable to owners of the parent
during the medium-term management plan by ¥10 billion eachversus the numerical targets initially announced in fiscal
2016. Also, the likelihood of reaching benchmarks for capitalefficiency (ROE) and financial soundness (interest-bearing debt)
has been increasing steadily.
Further, we will maintain financial soundness over the
medium-to-long term by keeping the interest-bearing debt/
EBITDA ratio between 5 and 6 times and the D/E ratio around
1 time. In tandem with this policy, we want to allocate surplus
funds to investment in growth and enhancement of returns
to shareholders.

Numerical
targets

Profitability

Keep operating income at ¥90 billion leveland keep net income at ¥50 billion level(Each up ¥10 billion versus previous target)

While focusing efforts on developing foundations for medium-to-long-term
growth, we will maintain a certain level of operating income. Further, given that therisk of incurring significant extraordinary losses has lessened, we expect stable net
income attributable to owners of the parent.

Capitalefficiency

Realise ROE of at least 6%

Through stable net income attributable to owners of the parent and the acquisition of treasury stock, we aim to realise ROE of at least 6% on a consistent basis.

Financialsoundness

Reduce interest-bearing debt toless than ¥900 billion by the end of fiscal 2019We will continue steadily strengthening our financial standing to mitigate the riskof interest rate rises and ensure our ability to secure surplus funds over the
medium-to-long term.

Financial soundness targeted overmedium-to-long term

Keep interest-bearing debt/EBITDA ratio between 5 and 6 times and D/E ratio around 1 time