Consolidated Financial StatementsofMitsubishi Estate Co., Ltd. andConsolidated Subsidiaries
Year ended March 31, 2023

Independent Auditor’s Report

The Board of Directors
Mitsubishi Estate Co., Ltd.

OpinionWe have audited the accompanying consolidated financial statements of Mitsubishi Estate Co.,
Ltd. (the Company) and its consolidated subsidiaries (the Group), which comprise theconsolidated balance sheet as at March 31, 2023, and the consolidated statements of income,comprehensive income, changes in net assets, and cash flows for the year then ended, and notes
to the consolidated financial statements.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at March 31, 2023, and its
consolidated financial performance and its consolidated cash flows for the year then ended inaccordance with accounting principles generally accepted in Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for
the Audit of the Consolidated Financial Statements section of our report. We are independent of
the Group in accordance with the ethical requirements that are relevant to our audit of theconsolidated financial statements in Japan, and we have fulfilled our other ethicalresponsibilities in accordance with these requirements. We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significancein our audit of the consolidated financial statements of the current period. These matters wereaddressed in the context of the audit of the consolidated financial statements as a whole, and informing the auditor’s opinion thereon, and we do not provide a separate opinion on thesematters.
Revenue recognition for sales of real estate properties to real estate funds
Description of Key Audit Matter

Auditor’s Response

The Group has recorded Revenue fromoperations of JPY 1,377,827 million in theConsolidated Statement of Income for theyear ended March 31, 2023, which includes
revenue from sales of real estate properties in
Commercial Property Business of JPY

We performed the following procedures toassess the determination of whether
substantially all of the risks and rewards of thereal estate property have been transferred toreal estate funds in all the sales transactions

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105,228 million as descried in the Note 22“Revenue recognition”.

exceeding the testing threshold we had
established based on our risk assessment:

Management recognizes revenue from salesof real estate properties when substantially allof the risks and rewards of the real estate
property have been transferred.

・ We inspected the management approval
documents to understand the scheme oftransaction and assess whether there had
been any continuing involvement in theproperty sold.

Generally, sales transactions of real estate
property have unique terms and conditions
and involve relatively large transaction
prices. Especially when the sales are made toreal estate funds, in order to take into
consideration individual needs of the parties
involved, transaction schemes for sales of thereal estate property may be more complex or
there may be continuing involvement such as
undertaking a property management role after
transfer, having a repurchase option orretaining some equity interest in the propertysold.
By granting individual terms to the purchaseand sales agreement or adjusting the relevantterms and conditions if there is a continuous
involvement in the sold property, the risk of
the real estate property such as reduction in
the land value and others remains with theseller, the Group. Therefore, thedetermination of whether substantially all of
the risks and rewards of the real estate
property have been transferred may involve
complexity.

・ We inspected the purchase and sales
agreement to understand the transaction
terms and conditions and evaluate thebusiness rationale.
・ We compared the transaction amount withmarket data of the relevant area andbusiness plan prepared by the Company to
examine the rationality of the transaction
amount.
・ We inspected the cash receipt evidence
and certified copy of a registry to assess
the fact of delivery.

If misjudged, a large amount of revenue
would be recognized for the sales transactions
where substantially all of the risks andrewards of the real estate property have notbeen transferred.
Accordingly, we identified the determination
about transfer of the risks and rewards arisingout of sales of properties to real estate funds
as a key audit matter.

Valuation of redevelopment-related property and equipment
Description of Key Audit Matter
The Group has recorded Property and
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Auditor’s Response
We performed the following procedures toequipment of JPY 4,416,214 million in theConsolidated Balance Sheet as of March 31,
2023, which includes Land and Constructionin progress held for redevelopment projects
aimed at making effective use of areas suchas urban development that contributes tointernational competitiveness and thestrengthening of disaster prevention in
response to the deregulation of the national
and local governments.
The Group is carrying out multiple
redevelopment projects in major business
districts in Japan, mainly in the Marunouchi
area. As described at o. “Significant
accounting estimates”, 1 “Valuation ofproperty and equipment” in the Note 1“Significant accounting Policies”,
management identified the assets or asset
groups with any indication of impairment andassessed whether the sum of the undiscounted
future cash flows attributable to themexceeded their carrying amounts.
(1) Indication of impairment
Unlike simple reconstruction, redevelopment
projects require the coordination of interests
with neighboring landowners, the permission
to ease regulations, and the creation ofbusiness plans based on long-term forecastsof demand. Therefore, many redevelopment
projects take a long time from planning tocompletion.

assess the determination of whether
impairment indicators were present and thedetermination of whether the Group was
required to recognize an impairment loss on
the redevelopment-related property andequipment for the project which met certain
criteria we had established based on our risk
assessment:(1) Indication of impairment
・ In order to assess whether there havebeen any material changes in theredevelopment projects that would
significantly lower the recoverable
amount, we inspected documents
including the board of directors meeting
minutes and the management approval
documents, and inquired with divisions
in-charge to update our understanding of
the status of redevelopment projects
including the status of negotiation withlandlords in areas planned forredevelopment, the status of obtaining
necessary governmental permission for
redevelopment, changes in market
conditions for construction costs, theprogress of the construction and theprogress of finding tenants. We also
performed a physical observation ofcertain project sites when we determined
necessary.
(2) Recognition of impairment losses

In such a long-term project, there is a
・ In order to evaluate the effectiveness ofpotential risk of having lower profitability
management’s estimation process ofthan originally expected as a result of delay infuture cash flows, we compared theestimated development costs with theredevelopment or subsequent modification of
investment budget.
a redevelopment plan. Specifically, there arerisks such as having disagreeing landlords in ・ For the redevelopment-related property
areas planned for redevelopment, failure toand equipment where impairment
obtain a necessary governmental permission
indicators existed, we obtained thefor redevelopment, an increase inestimated undiscounted future cash flows
construction costs due to the rise of material
and evaluated the underlying significant
cost, delay in construction due to discovery ofassumptions such as expected future rent
underground objects, natural disaster andto be earned after completion ofdifficulty of material procurement, and aredevelopment, construction costs,
slower progress of finding tenants. Therefore,
capital expenditures necessary to
management is required to evaluate those
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various risks and make complex judgementon whether there are indications of
impairment.
(2) Recognition of impairment losses
The future cash flows attributable to theredevelopment projects with an indication of
impairment are estimated based on thebusiness plan approved by the management
or the executive committee. The significant
assumptions in an estimate include theexpected future rent to be earned after
completion of a redevelopment, the capital
expenditures reasonably expected to maintainthe investment value and the recoverable
amount at the end of estimation period of
future cash flows. The information to support
the assessment of recoverability of the entire
redevelopment costs for each project involves
uncertainty due to long-term future
projections. In addition, changes in thebusiness environment have been explicitly
observed, as evidenced by rising construction
costs.

maintain the existing service potential
and discount rates used for computing therecoverable amounts at a future point bycomparing with published relevant
indicators and market reports obtained
from external sources.

Accordingly, valuation of redevelopment
project-related property and equipment
requires a judgement that takes into accountpotential risks, including complexity indetermining whether any indication of
impairment is identified, and also involves ahigh degree of uncertainty in determining
whether impairment losses should berecognized. Therefore, we identified
valuation of redevelopment-related property
and equipment as a key audit matter.
・
Valuation of land held for future development of residential condominiums
Description of Key Audit Matter

Auditor’s Response

The Group has recorded the Land andhousing projects in progress of JPY 420,956
million which is included in Inventory on theConsolidated Balance Sheet as of March 31,
2023. It mainly includes a real estate underWe performed the following procedures toassess the determination of whether theGroup was required to record valuation losseson the land held for future development ofresidential condominiums for the project

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development acquired by Mitsubishi Estate
Residence Co., Ltd., the Company’s
consolidated subsidiary, for the development
and sale of residential property as
condominiums.
As described at o. “Significant accounting
estimates”, 2 “Valuation of inventories” in
the Note 1 “Significant Accounting Policies”,
management valued the Land and housing
projects in progress at net realizable value
when it was lower than cost due to decline inprofitability as well as other types ofinventories.
The Land and housing projects in progress
can be divided into phases before and after
construction begins. Various negotiations andcoordination, such as obtaining necessary
governmental permission, concluding
construction contracts with the constructor,
and negotiations with existing residents inneighboring areas, before construction
begins.
As a result, the land held for development
before construction starts may have apotential risk of having lower profitability
than originally expected in the event of delay
in project or subsequent modification of theplan, due to the long development period
until delivery.

which met certain criteria we had establishedbased on our risk assessment:
・ In order to assess whether there had been
any material changes in the land held fordevelopment that would reduce its future
profitability, we inspected documents
including the management approval
documents and the executive committee
meeting minutes, and inquired withdivisions in-charge to update ourunderstanding of the market conditions
for residential condominiums,
development projects in neighboringareas, the status of obtaining necessary
governmental permission fordevelopment, the status of negotiation
with existing residents in neighboringareas and change in market conditions forconstruction costs. We also performed aphysical observation of certain projectsites when we determined necessary.
In addition, we determined whether there
were any projects with delayedcommencement date of construction, and we
performed following procedures for certain
projects.
・ We performed a physical observation ofcertain project site to understand thesurrounding business environment andthe situation of delay.

Valuation of the land held for development ismade based on a business plan, however, the ・ We compared the sales price with market
business itself involves various risks
report obtained from external sources
including a decline in sales price in the future,including sales transaction data inexcessive supply due to increasing supply byneighboring areas.
competitors than initially planned in
・ We compared the construction costs usedneighboring areas, failure to obtain necessary
in the calculation with the publishedgovernmental permission, delay inrelevant indicators.
construction due to continuing negotiation
・ We also performed the sensitivity
with existing residents in neighboring areas
analysis using the sales unit price andor discovery of underground objects andconstruction cost as significant
increases in construction costs due to the riseassumptions to understand the impact onof material cost.
the valuation of land held for
In order to determine whether a valuation loss
development of residential
should be recognized on the land held for
condominiums.
development of residential condominiums, it
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is necessary to evaluate those risks anddetermine whether the development projects
are expected to be ultimately completed asoriginally planned. However, the nature andreliability of the information available tosupport the determination varies widely.
In addition, changes in the businessenvironment have been explicitly observed,
as evidenced by rising construction costs.
Accordingly, given a high degree of
uncertainty involved with such determination,
we identified the determination of whether avaluation loss should be recognized on theland held for development as a key audit
matter.
Other Information
Other information comprises the information included in disclosure documents that contains
audited consolidated financial statements but does not include the consolidated financial
statements and our auditor’s report thereon.
We have concluded that other information does not exist. Accordingly, we have not performed
any work related to other information.
Responsibilities of Management, the Audit Committee for the Consolidated Financial
Statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with accounting principles generally accepted in Japan, andfor such internal control as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the consolidated financial statements, management is responsible for assessing theGroup’s ability to continue as a going concern and disclosing, as required by accounting
principles generally accepted in Japan, matters related to going concern.
The Audit Committee is responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and toissue an auditor’s report that includes our opinion. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these consolidated
financial statements.

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As part of an audit in accordance with auditing standards generally accepted in Japan, we
exercise professional judgment and maintain professional skepticism throughout the audit. We
also:
・ Identify and assess the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error, design and perform audit procedures responsive tothose risks, and obtain audit evidence that is sufficient and appropriate to provide a basis forour opinion.
・ Consider internal control relevant to the audit in order to design audit procedures that areappropriate in the circumstances for our risk assessments, while the purpose of the audit of
the consolidated financial statements is not expressing an opinion on the effectiveness of theGroup’s internal control.
・ Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.
・ Conclude on the appropriateness of management’s use of the going concern basis ofaccounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group’s ability tocontinue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor’s report. However, future events or conditions may cause the Group to cease tocontinue as a going concern.
・ Evaluate the overall presentation, structure and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair presentationin accordance with accounting principles generally accepted in Japan.
・ Obtain sufficient appropriate audit evidence regarding the financial information of theentities or business activities within the Group to express an opinion on the consolidated
financial statements. We are responsible for the direction, supervision and performance ofthe group audit. We remain solely responsible for our audit opinion.
We communicate with the Audit Committee regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies ininternal control that we identify during our audit.
We also provide the Audit Committee with a statement that we have complied with the ethicalrequirements regarding independence that are relevant to our audit of the consolidated financial
statements in Japan, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Audit Committee, we determine those matters thatwere of most significance in the audit of the consolidated financial statements of the current
period and are therefore the key audit matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because theadverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
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Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan
Our firm and its designated engagement partners do not have any interest in the Group which is
required to be disclosed pursuant to the provisions of the Certified Public Accountants Act ofJapan.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect tothe year ended March 31, 2023 are presented solely for convenience. Our audit also included thetranslation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, suchtranslation has been made on the basis described in Note 2 to the consolidated financial
statements.
Ernst & Young ShinNihon LLC
Tokyo, Japan
July 10, 2023

/s/ Tatsuya Chiba
Tatsuya Chiba
Designated Engagement Partner
Certified Public Accountant/s/ Chihiro Yasunaga
Chihiro Yasunaga
Designated Engagement Partner
Certified Public Accountant/s/ Teruyo Okubo
Teruyo Okubo
Designated Engagement Partner
Certified Public Accountant

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