Sumitomo Realty & Development Co., Ltd.

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

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

TargetingOngoing Growth

Annual Report 2007

Printed in Japan
Printed on recycled paper

ANNUAL REPORT 2007

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

CONTENTSCONSOLIDATED FINANCIAL HIGHLIGHTS.......................................

1

A MESSAGE FROM THE MANAGEMENT.............................................

2

BUSINESS STRATEGIESNew Medium-Term Management Plan.......................................
Balanced Portfolio.....................................................................................

4
5

AT A GLANCE ....................................................................................................

6

REVIEW OF OPERATIONS
Leasing............................................................................................................. 8
Sales................................................................................................................... 12
Construction................................................................................................. 14
Brokerage....................................................................................................... 16
OUR HISTORY..................................................................................................... 17
CORPORATE GOVERNANCE...................................................................... 18
FINANCIAL SECTION...................................................................................... 19
Senior Management................................................................................ 44
CORPORATE DATA ........................................................................................ 44
INVESTOR INFORMATION........................................................................... 45

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

Consolidated Financial Highlights
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
Years ended March 31
		Millions of yen

Thousands of
U.S. dollars1

2007

2006

2005

2007

Revenue from Operations............................................................................

¥676,834¥646,525¥616,115$5,731,510

Operating Income............................................................................................

137,176

112,023

100,291

1,161,622

Ordinary Profit*...................................................................................................

112,406

87,03874,393

951,867

Net Income............................................................................................................

50,30032,506

15,548425,946

Total Assets............................................................................................................

¥2,747,900¥2,460,080¥2,136,329$23,269,540

Shareholders’ Equity ......................................................................................

409,197375,656

320,098

3,465,128

Interest-Bearing Debt.....................................................................................

1,473,644

1,267,032

1,038,389

12,478,991

Net Income............................................................................................................

¥105.92¥ 68.33¥ 32.64$0.90

Shareholders’ Equity........................................................................................

861.93790.74673.407.30

Cash Dividend Applicable to the Year.................................................

14.00

10.00

9.00

0.12

For the YearAt Year-End
2

Per Share Data (Yen and Dollars)

Notes: 1. U.S. dollar amounts in this report are translated, for convenience only, at the rate of ¥118.09=US$1, the approximate exchange rate as of March 31, 2007.
2. Shareholders’ Equity = Net assets – Minority interests

REVENUE FROMOPERATIONSOPERATING INCOME(Billions of yen)(Billions of yen)

750

150

616.1

646.5

676.8

NET INCOME(Billions of yen)
150.0

700.0

(Billions of yen)
120.0

120

60.0

60

112.4

137.2

50.3

573.9
500

ORDINARY PROFIT*

112.0

533.9

100
88.5

96.0

90

40

74.4
66.0
60

250

87.0

100.3

32.5

56.8

50

20
15.5

30

5.0
0

’03 ’04 ’05’06 ’07 ’08(Forecast)

0’03 ’04 ’05’06 ’07 ’08(Forecast)

0’03 ’04 ’05’06 ’07 ’08(Forecast)0

6.3’03 ’04 ’05’06 ’07 ’08(Forecast)* Ordinary profit, which equals operating income after adjustment for non-operating gains/losses, is a management index that is widely used in Japan. Due todifferences in accounting standards, ordinary profit is not broken out in the Company’s English-language financial statements, but it is included here because
it plays an important role in the calculation of incentive payments for directors.

A Message from the Management

Junji Takashima

Kenichi Onodera

ChairmanPresident

Toward a New Stage of Growthover the three years covered by the new plan are revenue fromAt the meeting of the board of directors following the 74th

operations of ¥2.4 trillion, operating income of ¥470 billion, andordinary general meeting of shareholders on June 28, 2007,

ordinary profit*2 of ¥380 billion. This represents an increase in

President & Representative Director Junji Takashima assumed the

profit that exceeds the increases under the previous two manage-

office of Chairman & Representative Director and Director & Senior

ment plans.

Managing Executive Officer Kenichi Onodera assumed the officeof President & Representative Director.

*1 For further information about the Third Three-Year Growth Plan,please see page 4.

Under the Four-Year Business Reconstruction Plan (April 1997
to March 2001), Sumitomo Realty successfully dealt with theeffects of the bursting of Japan’s economic bubble. Subsequently,

Results in Fiscal 2007

we implemented two full-scale growth plans. Under the New

In fiscal 2007, Sumitomo Realty registered substantial gains inThree-Year Growth Plan (April 2001 to March 2004), we maderevenue and profit in the leasing segment and double-digit

steady progress, and under the Top Gear Growth Three-Year Plan

growth in operating income in the sales and brokerage segments.

(April 2004 to March 2007), which was concluded in the year

As a result, we recorded a 4.7% increase in revenue from opera-

under review, we exceeded the plan’s original targets for operat-

tions, to ¥676.8 billion; a 22.5% gain in operating income, toing income and ordinary profit, which were announced in Novem-¥137.2 billion; and a 29.1% rise in ordinary profit*2, to ¥112.4

ber 2003. To extend this success, in April 2007 we took the firstbillion. We achieved our 10th consecutive year of higher revenue

step toward a new stage of growth with the launch of a newfrom operations, operating income, and ordinary profit and our

medium-term management plan, the Third Three-Year Growth

7th consecutive year of a new record high in ordinary profit. Net

Plan (April 2007 to March 2010)*1.

income rose 54.7%, to ¥50.3 billion, the second record-setting

Under the new plan, the basic objectives are to extend theperformance in a row.

record of 10 consecutive years of growth in revenue and profit

In consideration of this performance, we raised the annual per-and to maintain the pace of growth achieved under the previous

share cash dividends for fiscal 2007 to ¥14.00, an increase of ¥4.00

three management plans. The Third Three-Year Growth Plan sets

per share and a record high for the Company.

out aggressive growth targets. The targets for cumulative results(Millions of yen)
Fiscal Year

2005
(Actual)2006(Actual)2007(Actual)2008(Forecast)

Revenue from operations
Operating income
Ordinary profit*2

616,115
100,291
74,393646,525
112,023
87,038676,834
137,176
112,406

700,000
150,000
120,000

Striving to Achieve the Objectives of

expect to achieve our 11th consecutive year of higher reve­nue,

the New Medium-Term Management Plan

operating income, and ordinary profit. The growth in profit, at

During the course of the new medium-term management plan,

32%, is about one-third of the rate of profit growth called for in

we expect the demand-supply balance in the office building

our three-year cumulative objectives. This is an indication of ourmarket to remain favorable. Replacement demand should in-confidence that the plan will get off to an exceptionally smoothcrease as older buildings lose competitiveness and companies

start.

seek larger offices. In the condominium market, the broad-based

Although we have already acquired all of the sites that will be

demand for first-time purchases will remain strong, centered onneeded to achieve the objectives of our new management plan,

the children of baby boomers, but the effect of higher prices

one of our top priorities will be acquiring the sites that will bestemming from rising land prices and construction costs will needneeded for subsequent ongoing growth. In the midst of intensi-

to be watched carefully. In the detached housing market, ourfied competition in site acquisition stemming from improved

original Shinchiku Sokkurisan remodeling business is expected tobusiness conditions and rising land prices, we will work to ensure

continue to benefit from replacement demand stemming fromcontinued growth after the conclusion of the new plan by acquir-

the aging of large numbers of houses that were built in the 1970s

ing additional sites.

during a period of active detached house construction. In broker-

Furthermore, we have taken steps to ensure fresh approaches

age, the rise in prices of new condominiums has led to an increase

and innovative thinking among our executive officers. Of 33

in the number of transactions in existing units, and we expect

executive officers, including the president, who is 60 years old,prices to continue to increase.

24 executive officers, or more than 70%, are in their 40s. With thisBased on this outlook, our performance forecasts for the fiscal

new, active execution system in place, all directors and employees

year ending March 2008, the first year of the new medium-term

will work together and redouble their efforts to achieve themanagement plan, are shown in the accompanying table. We

objectives of the new medium-term management plan andsubsequent ongoing growth.
We would like to ask for your continued support in the years ahead.

Steady Growth in Revenue and Profit (Billions of yen)
800

REVENUE

June 2007

Revenue from Operations

677

700

2007

2008

574

600
459
400

200

0

Junji Takashima, Chairman
1998

1999

2000

2001

Four-Year Business
Reconstruction Plan

160

2002

2003

2004

New Three-Year
Growth Plan

2005

2006

Top Gear GrowthThree-Year Plan

(Forecast)Third
Three-Year
Growth Plan

PROFIT
Operating Income

137

Ordinary Profit*2

120

112

150

Kenichi Onodera, President

120

96

75

80

39

40

0

66

*2 Please refer to the note on page 1.
1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

(Forecast)Business Strategies

New Medium-Term Management Plan

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

Third Three-Year Growth Plan (April 2007 to March 2010)
Basic objectives• Extend the record of 10 consecutive years of growth in revenue and profit• Maintain the pace of growthTarget cumulative results over the three years covered by the new plan
• Revenue from operations¥2.4 trillion• Operating income¥470 billion• Ordinary profit¥380 billion
Sumitomo Realty Targets Sustainable Growth

Growth under Medium-Term Management Plans (Billions of yen)
500
400

+121

Ordinary Profit (left scale)Operating Income (left scale)
Revenue from Operations (right scale)

+334

2,000

+106

1,500

+104

+63

200

+83

100
0
Revenue fromOperations
Operating
IncomeOrdinary
Profit

2,500

+85

+336

300

+461

with a New Management Plan
Under the Reconstruction Plan (April 1997 to March 2001),
Sumitomo Realty achieved a new record high level of profit,
exceeding the previous record that was set during Japan’s

1,000

economic bubble. The Company subsequently implemented

500

two full-scale growth plans. As a result, the new plan is the0Company’s third growth plan. The basic objectives of the new

Reconstruction Plan
’99 – ’01

1st Growth Plan
’02 – ’04

2nd Growth Plan
’05 – ’07

3rd Growth Plan
’08 – ’10

1,270

1,606

1,939

2,400

growth in revenue and profit and to maintain the pace of

202

265

350

470

growth.

87

170

274

380

plan are to extend the record of 10 consecutive years of

Succeeding in the real estate business, especially in officebuilding and condominium development, requires a medium

Revenue from Operations by Segment (Billions of yen)

to long term perspective in the evaluation of both plans and

1,000

results. Accordingly, in the new medium-term management

Leasing

Sales

Construction

800

Brokerage

+220
+122

plan, our objectives are calculated on the basis of three-year

+144
+93
+104 +130600

Office Building Development by Plan

+65

400
200
0

+40

+98

+46

+36

+19

Reconstruction Plan
’99 – ’01

1st Growth Plan
’02 – ’04

2nd Growth Plan
’05 – ’07

3rd Growth Plan
’08 – ’10

Leasing

469

574

718

840

Sales

437

567

660

880

Construction

267

365

405

470

Brokerage

95

114

149

195

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



Reconstruction 1st Growth Plan
Plan ’99 – ’01’02 – ’04

2nd GrowthPlan ’05 – ’07

3rd Growth Plan
’08 – ’10

Gross Floor Area
(Thousand m2)

310

860

430

745

Number of Buildings

14

30

14

27

2nd GrowthPlan ’05 – ’07

3rd Growth Plan
’08 – ’10

Condominium Development by Plan
Reconstruction 1st Growth Plan
Plan ’99 – ’01’02 – ’04
Number of Condominiums (Thousand units)

11

13

15

19

Total Sales Price(Billions of yen)

437

567

660

880

cumulative totals. That perspective is necessary because the

In recent years, as well as reinforcing our revenue base, wemost important factor in operational growth is the acquisition

have taken aggressive steps to respond to changes in account-of sites under favorable terms. Also, the supply of prime sites,

ing standards and to reduce unrealized losses. As a result, we

which are the raw materials for our products, is not always

have already dealt appropriately with impairment losses andstable. Consequently, to protect against a shortage of prime

unrealized losses.

sites on the market and price increases, Sumitomo Realty has
already acquired all of the sites that will be needed to achieve
the goals of its new management plan. The graphs on theprevious page compare the levels of growth that we haveachieved under our various management plans.
Stronger Financial Position through Increased
Retained Earnings

ND/E Ratio and Shareholders’ Equity by Plan (Times)
8800

ND/E Ratio (left scale)
Shareholders’ Equity (Billions of yen, right scale)

6

600

4

400

2

200

Under the new plan, in addition to maintaining its course of
growth, Sumitomo Realty will continue working to strengthen
its financial position. Accordingly, we will strive to build retained earnings and achieve a ratio of net interest-bearing
debt to shareholders’ equity of about 2 times.

0
ND/E Ratio

March 2001

March 2004

March 2007

6.1

3.0

3.2

March 20100

2.0

(Forecast)

ND/E Ratio = Net interest-bearing debt (interest-bearing debt – cash, time and notice deposits) /Shareholders’ equity

Balanced Portfolio
Our achievement of sustained growth has been the result of our well-balanced operations. We have a balanced
portfolio in four operational fields—leasing, sales, construction, and brokerage—that have different risk profiles
and capital requirements.
Taking Steps to Maintain Well-Balanced Operations
Sumitomo Realty’s four operational fields have complementary

Sumitomo Realty’s Balanced Portfolio
Capitaloperational cycles and market characteristics, and in the past
the adverse effects of changing market conditions on a par-LeasingHigh level of capital, lowlevel of human resources

ticular field have generally been offset by favorable performances in others. As a result, the Company has been able tocontinue to record increases in revenue and profit. In theSales

future, our basic strategy will entail taking steps to maintain

Relatively high level ofcapital, relatively low levelof human resources

well-balanced growth in our operational portfolio. Moreover,to further reinforce our growth prospects, we will endeavor todevelop a strong market presence in a fifth core field of opera-

Relatively low level ofcapital, relatively high levelof human resources

Construction

tions, and we are currently searching for the field that would
best complement our existing operations.
* For further information about the Company’s balanced portfolio, pleasesee page 7 of Annual Report 2006, which is available on our website at
http://www.sumitomo-rd.co.jp/ir/zaimu_annual.html.

Low level of capital, highlevel of human resources

Brokerage

Human ResourcesAt a Glance

Leasing

Sales

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

Mid- and high-rise condominium, detached house, andhousing lot development and sales and related activities

Revenue from Operations

Revenue from Operations(Billions of yen)
300
262.6

250
200

38.4%

193.0

202.8

221.2

300

272.0

250

234.3

213.3
200

30.9%

150
100

’03

’04

’05

Operating Income

’06

’07

’04

’05

Operating Income

’06

’07

’08

(Forecast)(Billions of yen)

89.0
40
32.3 32.4 33.1

63.3
53.3 52.7 55.9

24.8%

40

30

36.5

39.0

25.8

20
10

20

’03

’04

’05

’06

’07

’08

(Forecast)Within the leasing business, the Urban Property Management
Division is responsible for the leasing of office buildings andluxury condominiums. The Urban Property Development
Division handles the acquisition and development of land forthe leasing business. In addition, Sumitomo Realty masterleases
almost all of the property holdings owned by SPCs and otherGroup companies and operates a sublease business. Sumitomo
Fudosan Tatemono Service Co., Ltd., manages the office buildings and luxury condominiums leased by Sumitomo Realty.



’03

50
83.5

80

0

100

0

’08

100

56.7%

211.0 212.0

150(Forecast)(Billions of yen)60

224.2 224.7

183.7

50

50
0

(Billions of yen)

0

’03

’04

’05

’06

’07

’08

(Forecast)

The Urban Property Development Division is responsible for thedevelopment and sale of condominiums, office buildings for
sale, detached houses, and housing lots and related activities.
It is also engaged in sales activities with Sumitomo Real Estate
Sales Co., Ltd., while the management of condominiums after
completion is the responsibility of the Urban Property Development Division of Sumitomo Realty and Sumitomo Fudosan
Tatemono Service Co., Ltd.

Construction

Brokerage

Detached house construction and remodeling andrelated activities

Brokerage and sales on consignment of real estate andrelated activities

Revenue from Operations

Revenue from Operations(Billions of yen)
200

80

150
124.5 125.1 127.4

20.9%

135.2

142.6

152.0

60

8.3%

50

’03

’04

’05

’06

’07

8.2

8.4

8.7

8.8

0

’08

37.6 39.8

43.4

’03

’04

’05

Operating Income

’06

’07

(Billions of yen)

25

7.0

20.9

20

14.2%

4
2

’08

(Forecast)

30

9.5

6

0

40

(Forecast)(Billions of yen)
10

6.0%

62.0

20

Operating Income

8

56.5
49.2

100

0

(Billions of yen)

17.0

15
10

23.0

13.5
7.8

8.5

’03

’04

5
’03

’04

’05

’06

’07

’08

(Forecast)

Sumitomo Realty’s Housing Business Division works on the
Company’s full remodeling package Shinchiku Sokkurisan andthe construction of new detached houses using two-by-fourconstruction methods. Sumitomo Fudosan Syscon Co., Ltd.,and Sumitomo Fudosan Reform Co., Ltd., are engaged in houserenovations. Sumitomo Fudosan Tatemono Service Co., Ltd., isin charge of condominium refurbishment. Universal Home Inc.
is a franchiser specializing in standardized houses using conventional construction methods.

0

’05

’06

’07

’08

(Forecast)

Sumitomo Real Estate Sales Co., Ltd., serves as an intermediaryin the purchase and sale of real estate and is engaged in newly
built residential property sales agency services.

Review of Operations

Leasing

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

Sumitomo Fudosan Mita Twin Building West

Sumitomo Fudosan Mita
Twin Building West

Sumitomo Realty’s Strengths
The Company made its full-scale entry into the leasing businessin the latter half of the 1970s. In 1995, following the collapse ofJapan’s bubble economy, we were the first company in theindustry to restart construction work on office buildings. We
paid particular attention to large-scale projects in urban areas,
especially those areas legally designated for redevelopment.
We currently have about 200 buildings for lease. The advanced
interior features of our buildings are complemented with distinctive exterior designs, including hotel-like entranceways and allglass exteriors. Sumitomo Realty creates innovative buildings withstrong market presences.

to higher new contract rents and to increased rents for existing
tenants when leases are renewed. Moreover, the Sumitomo
Fudosan Shin-Akasaka Building was open for the entire year, andseven new buildings were opened for occupancy during the year,
including the Sumitomo Fudosan Kanda Building, Sumitomo
Fudosan Mita Twin Building East, and Sumitomo Fudosan Mita
Twin Building West. We recorded substantial gains in revenue andprofit, with revenue from operations up 12.1%, to ¥262.6 billion,
and operating income up 31.9%, to ¥83.5 billion.

Overview of the Fiscal YearIn the Tokyo office building market, which accounts for more than
90% of our portfolio, the supply of new buildings is declining,
while there is strong relocation demand as companies seek
increased floor space to accommodate larger workforces as wellas enhanced operational efficiency and improved work environments. As a result, the demand-supply balance remains tight.
Vacancy rates are exceptionally low, and new contract rents are
increasing. The trend toward higher rents for existing tenants
when leases are renewed is spreading through the market.
In this environment, the leasing business recorded higher
revenue due to improvement in the vacancy rate for existingbuildings, which declined from 5.7% at the end of the previous
fiscal year to 4.8% at the end of the year under review, as well asSumitomo Fudosan Mita
Twin Building East

OutlookIn the fiscal year ending March 2008, we expect the demandsupply balance for office buildings to remain favorable.
The reduction in dividends from a silent partnership (“Tokumei
Kumiai”) that was liquidated at the end of the previous fiscal year
will have an adverse influence on profit. Nonetheless, we areforecasting increased revenue and profit due to higher rents forexisting buildings and to full-year contributions from such buildings as the Sumitomo Fudosan Mita Twin Building East and theSumitomo Fudosan Mita Twin Building West. Also, we plan toopen new buildings for occupancy, such as the Sumitomo Fudosan Harajuku Building and the Sumitomo Fudosan Yotsuya
Building.
As a result, in the fiscal year ending March 2008, we anticipate
revenue from operations of ¥272.0 billion, an increase of 3.6%,
and operating income of ¥89.0 billion, a gain of 6.6%.

Sumitomo Fudosan Kanda
Building

Sumitomo Fudosan Kudan
Building

Shibakoen First Building

Izumi Garden Tower

PRINCIPAL BUILDINGSREVENUE FROM OPERATIONSName(Billions of yen)300

No. of Floors(aboveground /underground)

Completion

Location (Tokyo CBD)

Gross Floor
Area (m2)

Izumi Garden Tower

43 / 4Oct. 02 Minato Ward

205,503

Shinjuku Sumitomo Building

52 / 4Mar. 74 Shinjuku Ward

177,467

Shinjuku Oak City

38 / 2

Jan. 03 Shinjuku Ward

117,446

120

Shiodome Sumitomo Building

25 / 3

July 04 Minato Ward

99,91360

Sumitomo Fudosan Mita Twin
Building West43 / 2

Sept. 06 Minato Ward

98,338

Tokyo Shiodome Building

37 / 4Jan. 05 Minato Ward

95,128

Shinjuku NS Building

30 / 3

Sept. 82 Shinjuku Ward

75,046

Shibakoen First Building

35 / 2June 00 Minato Ward

63,822

Chiyoda First Building West32 / 2June 04 Chiyoda Ward

61,50124 / 2

Oct. 02 Shinjuku Ward

53,04714 / 2Mar. 00 Bunkyo Ward

52,74717 / 2

Oct. 98 Chiyoda Ward

37,47330 / 2

Oct. 01 Minato Ward

36,60517 / 1

Aug. 06 Minato Ward

35,047

Shibuya Infoss Tower

21 / 4Mar. 98 Shibuya Ward

34,460

Roppongi First Building

20 / 4Oct. 93 Minato Ward

31,51620 / 2

Aug. 98 Bunkyo Ward

28,63314 / 2

Sept. 02 Shinagawa Ward

28,15220 / 2

Jan. 95 Shinagawa Ward

23,961

Sumitomo Fudosan Shiba Building

15 / 2

May 90 Minato Ward

23,764

Nihonbashi Hakozaki Building

17 / 2Mar. 96 Chuo Ward

23,486

Hanzomon First Building

15 / 2

Jan. 04 Chiyoda Ward

23,138

240
180

0

193.0

’03

221.2

202.8

’04

’05

234.3

’06

272.0

262.6

’07

’08

(Forecast)

OPERATING INCOME
AND OPERATING MARGIN(Billions of yen)

(%)

100

50
83.5

80
60
40

53.3

55.9

52.7

27.6

26.0

25.3

63.3
31.8

89.0
40
32.7

27.0

30
20

20

10

0

0

’03

’04

Operating Income

’05

’06

’07

’08

(Forecast)
Operating Margin (right scale)

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

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

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

Leasing

LOCATION OF PRIME PROPERTIES

BunkyoJapan
Shinjuku
Chuo

ChiyodaShibuyaTokyo CBD (Central Business District):
7 wards, comprising Chiyoda, Minato, Chuo,
Shinjuku, Shibuya, Shinagawa, and Bunkyo
BunkyoMinatoShinjuku
ChiyodaShibuyaChuo
MinatoShinagawaTokyo’s 23 wards
Major flagship buildings
Buildings scheduled for completion during thetwo-year period ending March 2008
Other buildings

Shinagawa

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

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

GROSS FLOOR AREA

LEASING PORTFOLIO(Thousand m2)

3.36 million m2

4,000
3,000

2,752

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

2,876

3,082

3,112

3,360

2,000

Close

New

Tokyo CBD* 84%
23 wards 93%
Less than 10 years old 44%
Less than 20 years old** 88%

1,000

Large
0

10

’03

’04

’05

’06

’07

Over 10,000 m2 80%

1997 and afterAnti-sway structure
2.9–3.3 m
500–1,000 kg/m2
Separate climate control systems
85 VA/m2 and over* Tokyo CBD (Central Business District): 7 wards,
comprising Chiyoda, Minato, Chuo, Shinjuku,
Shibuya, Shinagawa, and Bunkyo** Two of the Company’s major properties,
the Shinjuku Sumitomo Building and the
Shinjuku NS Building, are included in thesecategories because, although they are morethan 20 years old, they are super high-risebuildings with high-performance facilities
and offer earthquake resistance in excessof the standards of newer buildings.

Growing Demand for Prime Properties
In the central Tokyo office building market, there is strong demand for buildings that meet the criteria for prime properties;
they are close to stations and business areas, are new and feature
modern amenities, and offer large areas on each floor. These
prime properties generate high levels of revenues, while it remains difficult to find tenants for buildings that are far fromstations, old, or small.

Sumitomo Fudosan
Harajuku Building

Chiyoda First Building SouthSUMITOMO REALTY’S PORTFOLIO
Our portfolio includes many competitive prime properties locatedin urban areas. As of the end of March 2007, our portfolio of officebuildings had a gross floor area of 3.4 million square meters andan average age of 13 years, the lowest among Japan’s major realestate companies. About 44% of the buildings in our portfolio
were completed in the past 10 years. Also, 93% of the buildings in
our portfolio were located in the 23 wards of Tokyo, with 84% inTokyo’s central business district. Furthermore, 80% of the portfolio
was made up of large-scale buildings of more than 10,000 square
meters of gross floor area. More than 90% of the buildings meetor exceed earthquake-resistance standards that took effect in1981 and are a key yardstick for earthquake safety. Moreover,more than 45% of our buildings have been completed since 1997,
when we took the lead in the application of new building designconcepts. These high-quality buildings offer leading-edge earthquake-resistant structures, separate climate control systems foreach suite, reinforced floors for heavy loads, high-capacity electrical systems, high ceilings, and other attractive features, and they
are the focus of strong demand from many tenants.
COMPETITIVE GROWTH FOUNDATION
Including the buildings that we expect to open during the Third
Three-Year Growth Plan, prime properties will account for an evenhigher percentage of our portfolio. To respond to the change inmarket demand toward prime properties and away from buildings that are older, smaller, or in less attractive locations, we havebeen investing aggressively in new building construction, thereby
further increasing the concentration of prime properties in our
portfolio.

 LOSE—LOCATIONS NEAR THE CENTRAL BUSINESS DISTRICTC
To be a prime property, a building must be in the central business
district and near a major station. In the Tokyo central business
district, where many of Japan’s leading companies have theiroffices, this is an even more important factor. Large, recently
constructed buildings in good locations are in short supply, which
has been a key element in our land acquisition efforts.
 EW—BRAND-NEW AND RECENTLY CONSTRUCTED BUILDINGSN
The strong demand for recently constructed buildings is a resultof tenant needs for the following features:
1. Reinforced floors, high-capacity electrical systems, and uninterruptible power supplies to accommodate large computer
servers
2. Separate climate control systems for each suite and high ceilings
3. Advanced earthquake countermeasures, such as vibration
damping and earthquake-resistant construction
4. Advanced security systems
LARGE—LARGE-SCALE BUILDINGS
Buildings that can accommodate multiple units on a single floor
enable tenant companies to increase the efficiency of theiroperations, and in recent years there has been a trend for com­panies to consolidate their offices. As a result, demand for largescale buildings continues to increase.
In the Tokyo central business district, where buildings thatmeet the three conditions for prime properties—close, new,and large—are in strong demand, our competitive portfolio
will provide a strong foundation for us to utilize our strengths—
development of high-value-added office buildings, tenant leasing,and property management. We will utilize that foundation to
maximize the earnings potential of our office building operations
and build a strong base for the achievement of sustainablegrowth in the years ahead.

11

SalesSumitomo Realty is a pioneer in the Japanese market in condominium development for sales. The Company establishedits condominium sales business earlier than almost all of its competitors. Today, the development and sale of condominiums is the core of the Company’s sales business and accounts for more than 95% of sales in this segment.

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

World City Towers

Sumitomo Realty’s Strengths
Sumitomo Realty’s condominium operations are centered inJapan’s six largest urban areas—the Tokyo metropolitan area,
Osaka/Kobe, Sapporo, Sendai, Nagoya, and Fukuoka. Moreover, in
recent years we have enhanced our presence in other major cities,
such as Niigata and Hiroshima. The Company develops and sells
about 5,000 units a year.
Over the past decade, we have been one of the leading suppliers of condominium units nationwide. This strong position is theresult of our central urban strategy, which we implemented aheadof competitors, and our aggressive approach to large-scale andhigh-rise condominiums. Our landmark exterior designs, the richarray of common facilities that is made possible by the scale of thebuildings, and the elegant entrances make our condominiums
sought after by a wide range of consumers with diverse lifestyles.
As a result, our high operating margin is at the top of the industry.
The risk of market fluctuations is a critical factor in the condominium business. Consequently, the Company’s policy is to offera stable supply of condominiums and to enhance the Sumitomo
Realty brand through the ongoing sale of high-quality units. In theyears ahead, the Company will continue striving to maintain its
strong position and further expand its business.

as middle-aged customers and single buyers. Moreover, theselling prices of superior properties in popular locations, such as
central Tokyo, recorded notable gains.
In this environment, a portion of deliveries in our sales businesswere delayed to the fiscal year ending March 2008. As a result, thenumber of condominium units, detached houses, and land lots
delivered in the year under review declined by 465 from theprevious year, to 4,527.
Revenue from operations decreased 6.1%, to ¥211.0 billion.
However, operating income rose 10.3%, to ¥36.5 billion, and theoperating margin increased 2.6 percentage points, to 17.3%.
Because we gave higher priority to sales of condominium units
unsold, the number of condominiums supplied declined by 959
units, to 3,548 units. The number of condominium units sold was
down by 906, to 3,954 units.

Overview of the Fiscal YearIn the condominium market, sales of new units were delayed in
the year under review in anticipation of rising sales prices. In theTokyo metropolitan area, the number of units supplied decreased
12%, declining below 80,000 for the first time in eight years.
Nonetheless, the sales environment remained favorable overall,with support from a broad base of customer groups, including
first-time buyers, principally the children of baby boomers, as well
12City Tower Nishi-Umeda

OutlookIn the fiscal year ending March 2008, there is some uncertainty
about the extent to which consumers will accept higher selling
prices resulting from increased land prices. Nonetheless, we
expect demand to be firm and conditions in the condominium
market to be generally favorable.
We are forecasting the sale of a total of 4,500 condominium
units, detached houses, and land lots, about the same as in theprevious year. Of the 4,400 condominium units and detachedhouses that we anticipate delivering in the year ending March
2008, contracts had already been signed for 48% at the beginningof the fiscal year, compared with a contracted rate of 47% at the
beginning of the previous fiscal year.
We are forecasting revenue from operations of ¥212.0 billion,
an increase of 0.5%, and operating income of ¥39.0 billion, up 6.7%.

REVENUE FROM OPERATIONS(Billions of yen)
250
213.3

200

224.2

224.7

’05

’06

212.0

211.0

183.7

150
100
50
0

’03

’04

’07

’08

(Forecast)

Grand Hills Sangenjaya

Principal CONDOMINIUM DEVELOPMENT PROJECTS (FY2008–FY2010)
Name

Grand Hills Sangenjaya
Park Square Minamishinagawa
City Tower Sapporo-Odori

Location

Setagaya Ward,Tokyo
Shinagawa Ward,Tokyo
SapporoNo. of Units

No. ofFloorsScheduled
Delivery311

12FY2008192

16

FY2008182

41

FY2008FY2008 /FY2009FY2008 /FY2009Park Square Saitama-Shintoshin Saitama

498

15

Times Peace Square

Osaka

633*

19

Konan 4-chome Project

Minato Ward, Tokyo

829*

43

FY2009City Terrace Mejiro

Toshima Ward,
Tokyo

293

18

FY2009City Terrace Saitama-Shintoshin

Saitama396

19

FY2009Park Square Shonan-Chigasaki

Chigasaki

462

16

FY2009Park Square Kobe-Oishi

Kobe

235

14

FY2009City Tower Sendai-Itsutsubashi

Sendai184

28

FY2009

Kyoto-Matsuiyamate Project

Kyoto

630*

15

FY2009 /FY2010Toyosu Project

Koto Ward, Tokyo

1,063

48

FY2010Park Square Sagamiono

Sagamihara

718

32

FY2010City Tower Osaka-Fukushima

Osaka

350

37

FY2010(Billions of yen)

(%)

40
32.3

30
25.8
20

14.0

33.1

32.4

15.1

36.5

39.0

20

18.4

17.3

15

14.7

14.4

10

10

5

0

’03

’04

Operating Income

’05

’06

’07

’08

0

(Forecast)
Operating Margin (right scale)

UNITS DELIVERED(Units)
5,000

4,994
4,499

4,473

’03

’04

4,992
4,527

4,000

Osaki Station Project

Shinagawa Ward,Tokyo

1,100*—FY2010Toyosu Project II

Koto Ward, Tokyo

850—

FY2010Mita-Koyamacho Project

Minato Ward, Tokyo

500*

—

FY2010* Number of units includes the units of business partners.

OPERATING INCOME
AND OPERATING MARGIN

3,000
2,000
1,000
0

’05

’06

’07

Note: Total of condominium units, detached houses, and land lots

13

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

With the use of craftsmen boastinghighly refined skills, our Shinchiku
Sokkurisan remodeling services
can even be used with traditional
Japanese houses that are morethan 100 years old.

AFTER
REMODELING

Sumitomo Realty’s Strengths
REMODELINGIn 1996, Sumitomo Realty launched the Shinchiku Sokkurisan Full
Remodeling Package. This product addresses the concern that
remodeling can sometimes be more expensive than rebuilding inJapan due to the risk of cost overruns. With Shinchiku Sokkurisan,a house can be fully remodeled at half the cost and in half thetime required to rebuild it. And because Shinchiku Sokkurisan uses
less materials, it is also environmentally friendly. We are the only
major real estate company offering this type of product, andShinchiku Sokkurisan has been well received in the marketplace.
Cumulative sales have surpassed 30,000 units, and Shinchiku
Sokkurisan continues to record solid growth.

Shinchiku Sokkurisan• S ales engineer system: Most of our sales personnel haveengineering qualifications.
• Carpenters: We use carpenters who work exclusively for
Sumitomo Realty.
• Fixed price: We provide the customer with a fixed price perunit of floor area, so there are no concerns about additional
construction charges.
• No need for temporary moves: We remodel homes while thecustomers continue to live in them, which is a major advantage.
• Earthquake resistance: We incorporate earthquake-resistancestrengthening measures based on a computerized analysis of
the home as well as measures to prevent damage fromtermites and moisture.
14

CUSTOM HOMES
In 1995, Sumitomo Realty launched the American Comfort lineof high-quality, low-cost Western-style homes in Japan using theknow-how that the Company acquired in building and selling
homes constructed with the two-by-four method in California.
Today, under the brand name Series of World Home Designs, wesell homes based on designs from countries around the world. In
April 2003, we launched the J-Urban home design, which combines the excellent security features of condominiums with thesuperior ventilation and lighting of detached houses. J-Urban has
been highly evaluated in the marketplace and has received aGood Design Award from the Japan Industrial Design Promotion
Organization.
Custom Homes•A dvanced performance: Our original Power Column Method
makes these homes 1.3 times more earthquake resistant thanconventional two-by-four homes.
• Fixed price: We have an easily understood pricing system,and the use of original materials and large-volume procurement enables us to achieve price reductions.
• Complete after-sales support: Our homes are backed by
a 20-year guarantee and our specialists conduct periodic
inspections.

REVENUE FROM OPERATIONS(Billions of yen)
200
150
124.5

125.1

127.4

135.2

’03

’04

’05

’06

152.0

142.6

100
50
0

’07

’08

(Forecast)

J-Urban III Ichikawa Model House (opened April 2006)

Overview of the Fiscal YearIn custom home operations, we gave priority to restructuring ouroperations to further improve quality and strengthen our inspection system, and we temporarily limited the acceptance of orders.
As a result, the number of orders and the number of completed
units both declined in the year under review.
On the other hand, in our Shinchiku Sokkurisan remodeling
operations, we continued to achieve favorable expansion, withboth orders and sales recording double-digit growth. The numberof orders increased 12.7%, to 6,892 units; the number of units
delivered was up 13.2%, to 6,508; and sales rose 19.1%.
As a result, in the construction segment, we recorded overall
year-on-year gains in orders, completed units, and sales. On a
consolidated basis, including the results of such companies as
Sumitomo Fudosan Syscon Co., Ltd., Sumitomo Fudosan ReformCo., Ltd., and Universal Home Inc., revenue from operations rose
5.5%, to ¥142.6 billion, and operating income increased 0.8%,
to ¥8.8 billion, for the sixth consecutive year of higher sales andprofit.
Shinchiku Sokkurisan contributed ¥75.2 billion to revenue fromoperations, custom homes ¥42.8 billion, and other business ¥24.6
billion.

OPERATING INCOME
AND OPERATING MARGIN(Billions of yen)

(%)

10
8.2

8

8.8

8.7

8.4

10

9.5

8

7.0

6
4

6.6

6.6

5.6

6.5

6

6.3

6.2

4

2

2

0

’03

’04

Operating Income

’05

’06

’07

0

’08

(Forecast)
Operating Margin (right scale)

SHINCHIKU SOKKURISAN AND
CUSTOM HOME UNITS CONTRACTED(Units)(Units)8,000

OutlookIn the fiscal year ending March 2008, in custom home operations,
we will work to reinforce our reorganization measures and to
bolster our sales system. In Shinchiku Sokkurisan operations, we willcontinue to strengthen our sales system by expanding our networkof operational bases and to aggressively expand our operations.
As a result, we are targeting revenue from operations of ¥152.0
billion, up 6.6%, and operating income of ¥9.5 billion, up 7.8%.

4,000
6,892

6,000
4,843
4,000

4,121

5,550

2,271

2,083

2,083

6,116

3,000
2,000

2,122
1,672

2,000
0

1,000

’03

’04

Shinchiku Sokkurisan

’05

’06

’07

0

Custom Homes (right scale)15

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

Sumitomo Realty’s Strengths
Under the STEP brand name, Sumitomo Real Estate Sales operates
a network of brokerage offices with close ties to local communities. The network has been steadily expanded and upgraded, andthe number of offices reached 231 by the end of March 2007.
Because all of the brokerage offices are directly operated, thenetwork boasts high profit margins. Sumitomo Real Estate Sales
holds the number one position in the industry in terms of brokerage revenue from direct operations and in terms of profitability.
In the future, the company will continue working to expand its
marketing base and increase its market share.
REVENUE FROM OPERATIONS
Overview of the Fiscal YearIn the market for existing homes, improved economic conditions
are supporting continued growth in the number of transactions.
At the same time, in the three major urban areas of Tokyo, Osaka,
and Nagoya, land prices are rising and the number of transactionsin investment properties is increasing. As a result, average trans­
action prices continue to move upward.
In this setting, we recorded a strong performance in our main­
stay brokerage operations, with the average transaction price rising
8.4% and the number of transactions increasing 4.5%, to 29,199,
a record high for the Company. Moreover, total transaction value
passed ¥1 trillion for the first time, reaching ¥1.1 trillion for theyear, an increase of 13.3%. As a result, we recorded major gains
in revenue and profit, with revenue from operations up 14.9%,
to ¥56.5 billion, and operating income up 23.4%, to ¥20.9 billion.
We opened five new directly managed brokerage offices in
the Tokyo metropolitan area, in such locations as Kojimachi and
Ginza, and two in other areas, for a total of seven offices opened
during the year. At the end of the year under review, the nationwide total was 231.
OutlookIn the fiscal year ending March 2008, we expect the market tocontinue to expand, with continued growth in the number oftransactions and transaction prices. We will continue to add new
offices and enhance existing offices and will bolster our IT strategy.
In this way, we will work to raise sales efficiency and boost ourmarket share. Meanwhile, in the wholesale brokerage business,where we focus on brokerage services for investment properties
and on office leasing activities, we will take steps to further increase our earnings by expanding our customer base to include
public institutions as well as real estate funds and companies.
We will strive to achieve revenue from operations of ¥62.0
billion, an increase of 9.7%, and operating income of ¥23.0 billion,
up 9.8%.
16(Billions of yen)
80
60
40

37.6

39.8

’03

’04

43.4

62.0

56.5

49.2

20
0

’05

’06

’07

’08

(Forecast)

OPERATING INCOME
AND OPERATING MARGIN(Billions of yen)

(%)

24

60

23.0
20.9
17.0

16
13.5
8

0

7.8

8.5
21.4
20.7

’03

’04

40

34.5

31.0

37.1

37.0

20

’05

’06

’07

0

’08

(Forecast)
Operating Margin (right scale)Operating Income

NUMBER OF TRANSACTIONSAND TRANSACTION VALUE(Billions of yen)
1,200

60,0001,052.0

900
600
300
0

791.5

899.7

928.8

45,000684.0
24,436’03

Transaction Value

30,00027,236

26,95327,94329,19915,000

’04

’05

’06

’07

Number of Transactions (right scale)0Our History

1949• Izumi Real Estate Co., Ltd., established as the successor to the holding company of theSumitomo zaibatsu following the breakup of the conglomerate.

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

1963

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

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

1970• L isted on the Tokyo and Osaka stock exchanges.

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

1974

•C
 ompleted construction of 52-story Shinjuku Sumitomo Building in Shinjuku, Tokyo; moved
Company headquarters there from Tokyo Sumitomo Building in Marunouchi, Tokyo.

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

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

1982

•C
 ompleted construction of 30-story Shinjuku NS Building in Shinjuku, Tokyo;
moved Company headquarters there from Shinjuku Sumitomo Building.

1995

•C
 ommenced American Comfort custom home construction business.

1996

•C
 ommenced Shinchiku Sokkurisan remodeling business.

1997• E ntered high-quality business hotel market. Opened Villa Fontaine Nihonbashi and hotels
at two other locations.

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

1999

Shinjuku Sumitomo Building

Shinjuku NS Building•U niversal Home Inc., a consolidated subsidiary, listed on JASDAQ (over the counter with
the Japan Securities Dealers Association).
•C ommenced real estate joint investment trust fund. Launched sales of Sumitomo Realty& Development Fund (SURF) Kudanshita.

2000

•C
 ommenced luxury condominium leasing business. Completed construction of
La Tour Shibakoen.

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

2002

•C
 ompleted construction of Izumi Garden Tower (Roppongi 1-chome Redevelopment
Project).
•C ommenced sales of City Tower series, five high-rise condominiums in Tokyo and Osaka.

2003
2004

•C
 ompleted construction of Shinjuku Oak City (Nishi-Shinjuku 6-chome Redevelopment
Project).

Izumi Garden Tower•C ommenced sales of World City Towers in Minato Ward, Tokyo.
•C ompleted construction of Shiodome Sumitomo Building in Minato Ward, Tokyo.
•C ompleted construction of Tokyo Shiodome Building in Minato Ward, Tokyo.

2005

2006

•C
 ommenced sales of J-Urban III three-story, urban-style houses and J-Urban Court
suburban-style houses.
•C umulative total number of orders for Shinchiku Sokkurisan remodeling businesssurpassed 30,000.
• E stablished Sumitomo Fudosan Reform Co., Ltd., a consolidated subsidiary.
•C ompleted Sumitomo Fudosan Mita Twin Building (East and West) in Minato Ward, Tokyo.
Sumitomo Fudosan
Mita Twin Building West

17

CORPORATE GOVERNANCE

Fundamental Approach to Corporate GovernanceTo achieve sound management, Sumitomo Realty believes that it
is important to share information on a Companywide basis, ensurethat everyone is aware of problems, enhance internal management supervision, and achieve highly transparent management
through appropriate information disclosure. We have implemented a number of corporate governance initiatives to realize thesepractices efficiently.

Corporate Governance Bodies
In addition to the board of directors, the Company has establishedthe Executive Officers Committee, which is led by the Chairman of
the Board. These corporate governance bodies discuss important
issues and make decisions rapidly and appropriately. The board of
directors, the Executive Officers Committee, and other committees use a variety of means to ensure that information is sharedthroughout the Company and that everyone is aware of problems.
In April 2004, we instituted an executive officer system withthe objectives of selecting capable young employees and substantially bolstering our administrative systems.
The board of statutory auditors has five members, including
three outside statutory auditors. To strengthen management
oversight, we continue working to enhance outside auditing.
The statutory auditors attend meetings of the board of directors
and the Executive Officers Committee, track internal issues thatare important for robust auditing, and provide opinions asneeded.
The Inspection Department, which has four staff members,monitors the operational execution of divisions throughout theGroup and the operation of internal control systems. The department also works to prevent misconduct and mistakes. Moreover,the department reports the results of its audits to the statutory
auditors and exchanges opinions with the statutory auditors in an
appropriate manner. In these ways, we are working to strengthen
and increase the efficiency of both the board of statutory auditors
and the Inspection Department. Moreover, from the viewpointof timely disclosure, we provide important information throughour website and other means on a timely basis, and we haveincreased management transparency for shareholders, otherinvestors, and suppliers.

18

Independent Auditors
In accordance with the Corporate Law and the Japanese Securities
and Exchange Law, the Company has concluded an auditing
contract with KPMG AZSA & Co. for the auditing of the Company’s
accounts. There are no conflicts of interest between Sumitomo
Realty and the independent auditing company or its employees.

Internal Control and Risk Management Systems
To efficiently institute sound management practices, the Company has established a range of internal control systems and is
working to enhance those systems.
To further enhance our compliance with laws and regulations
and to ensure ethical business practices, we established theCompliance Promotion Committee. In addition, through theInspection Department, we have established internal auditing
and internal reporting systems. In these ways, we are working toprevent inappropriate and illegal actions. In regard to information
management, to ensure proper storage and control of documents, we have established internal standards for document
control. Furthermore, in terms of risk management systems,
each department tracks and manages the risks associated with
its operations on a daily basis, while important issues are discussed and decided upon by the board of directors and the
Executive Officers Committee. In the future, we will consider
further enhancement of regulations and systems as needed.

Compensation of Directors and Statutory
Auditors
At the ordinary general meeting of shareholders held in June
2004, we introduced a new performance-based compensation
system for directors. Under this system, the annual compensation
for directors is based on the Company’s performance. The new
system combines the three elements that made up the previous
system—monthly compensation, annual bonuses, and retirement
allowances.
Under the new system, total annual (July to June) compensation for directors is set at 1% of consolidated ordinary profit.
In the year under review, compensation for directors was ¥838
million and compensation for statutory auditors was ¥60 million.

Financial Section

Six-Year Financial Summary
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
Years ended March 31
Millions of yen
2007

2006

2005

2004

2003

2002

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

¥676,834
262,620
211,035
142,564
56,532¥646,525
234,280
224,735
135,158
49,217¥616,115
221,234
224,191
127,388
43,445¥573,862
202,776
213,303
125,086
39,809¥533,915
192,979
183,745
124,464
37,577¥497,877
178,034
170,428
115,329
36,184

Cost of Revenue from Operations..........

490,491

487,805

470,636

435,078

403,777

377,199

SG&A Expenses...................................................
% of Revenue from Operations............

49,167
7.3%

46,6977.2%

45,1887.3%

42,807
7.5%

41,6267.8%

40,308
8.1%

Operating Income.............................................
% of Revenue from Operations............

137,176
20.3%

112,02317.3%

100,291
16.3%

95,97716.7%

88,512
16.6%

80,370
16.1%

Depreciation and Amortization................

15,677

16,33014,01912,211

11,973

10,731At Year-End
Current Assets......................................................
Sales Inventory1..................................................
Total Assets............................................................
Shareholders’ Equity2......................................
Net Interest-Bearing Debt............................

¥ 756,488
531,377
2,747,900
409,197
1,343,824¥ 619,219
388,6272,460,080
375,656
1,150,880¥ 481,341
260,6132,136,329
320,098
935,155¥ 503,911
234,019
2,090,970
303,875
916,156¥ 423,446
189,136
2,015,667
211,821
1,036,419¥ 404,999
178,450
1,972,735
213,767
1,098,407

Per Share Amounts (Yen)Net Income............................................................
Shareholders’ Equity........................................
Cash Dividend Applicable to the Year....

¥105.92
861.9314.00¥ 68.33
790.7410.00¥ 32.64673.409.00¥ 15.34
639.01
9.00¥ 12.22520.84
6.00¥ 56.50525.17
6.00

Key Ratios
Equity Ratio (%)...................................................
ND/E Ratio3 (Times)..........................................

14.9
3.2

15.3
3.1

15.0
2.9

14.5
3.0

10.5
4.9

10.8
5.1

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

Contents

Management’s Discussion and Analysis

20

Consolidated Balance Sheets

24

Consolidated Statements of Income

26

Consolidated Statements of Changes in Net Assets

27

Consolidated Statements of Cash Flows28

Notes to Consolidated Financial Statements

29

Independent Auditors’ Report43

19

Management’s Discussion and Analysis

OVERVIEWOther Income and Expenses

In the fiscal year ended March 2007, the final year of the Top Gear
Growth Three-Year Plan, Sumitomo Realty recorded substantial gains
in revenue from operations and profit in the leasing segment anddouble-digit growth in operating income in the sales and brokeragesegments. As a result, we achieved our 10th consecutive year of gains
in revenue from operations and operating income. Moreover, weposted record-high ordinary profit and net income.
The Top Gear Growth Three-Year Plan, which we commenced in
April 2004, was successfully completed in the year under review. In
April 2007, we launched a new medium-term management plan, theThird Three-Year Growth Plan*1. Following the Four-Year Business
Reconstruction Plan, under which we shook off the effects of thecollapse of Japan’s bubble economy, and the two subsequent fullscale growth plans, the new plan is our third growth plan. The basic
objectives of the plan are to extend the record of 10 consecutive
years of growth in revenue and profit and to maintain the pace ofgrowth achieved under the previous three plans. The targets forcumulative results over the three years covered by the new plan are
revenue from operations of ¥2.4 trillion, operating income of ¥470
billion, and ordinary profit of ¥380 billion. These figures represent anincrease in profit that exceeds the increases under the previous two
management plans.

Net other expenses improved to ¥45.1 billion, from ¥50.5 billion in theprevious fiscal year. In the previous year, we recorded loss on cancellation of interest rate swap agreement of ¥2.5 billion, while in the year
under review we did not record that loss. Also, in the year under review,
we recorded gain on liquidation of silent partnership of ¥46.2 billion*2
and gain on adjustment of sub-lease rent paid of ¥1.4 billion. On theother hand, due to the increase in interest-bearing debt, interest
expense, net, increased ¥3.0 billion. In addition, loss on devaluationof property and equipment, which was intended to improve ourinvestment efficiency on buildings for lease, was ¥62.6 billion, andloss on devaluation of investments in securities was ¥1.5 billion.
*2 For further information, please see note 14 on page 37.

Net Income
Income before income taxes and minority interests totaled ¥92.1
billion, up 49.7% from a year earlier. Income taxes were up 46.4%, to¥38.5 billion. Net income rose 54.7%, to ¥50.3 billion, and the net
margin increased to 7.4%, from 5.0% in the previous year.

CASH FLOWSCash and cash equivalents at the end of the year totaled ¥129.8
billion, an increase of ¥13.7 billion from the end of the previous year.

*1 For further information about the Third Three-Year Growth Plan,

Cash Flows from Operating Activities

please see page 4.

Net cash used in operating activities was ¥48.9 billion, due principally
to increasing inventories. In comparison with the previous year,
increases were recorded in income before income taxes and minority
interests, investment in properties for sale (condominiums), andpayments for income taxes and other taxes, while increase in advances received was lower than in the previous year.

RESULTS OF OPERATIONSRevenue from Operations and Operating Income
In the fiscal year under review, revenue from operations rose 4.7%, to¥676.8 billion, and operating income was up 22.5%, to ¥137.2 billion.
This performance resulted from substantially higher revenue andprofit in the leasing segment and double-digit growth in operating
income in the sales and brokerage segments.
For more information about each segment, please see the
Review of Operations section on pages 8 to 16.

(Billions of yen)(Billions of yen)

800

150

600

533.9

573.9

616.1

646.5

120
90
60

200

20

’03

’04

’05

’06

’07

ORDINARY PROFIT AND NET INCOME’08(Forecast)

150.0

137.2

700.0

400

0

Net cash used in investing activities was ¥187.9 billion. As new devel­­
opment investment in the leasing segment, payments for purchasesof property and equipment amounted to ¥152.6 billion. We also

OPERATING INCOME AND
OPERATING MARGIN

REVENUE FROM OPERATIONS

676.8

Cash Flows from Investing Activities

88.5
16.6

16.7

100.3
16.3

(Billions of yen)

30

120

24

112.0
96.0

(%)

20.3

21.4

60

6

0

0

’03

’04

’05

87.0
56.8

66.0

74.4
50.3

12

30

Operating Income
Operating Margin (right scale)

90

18

17.3

’06

’07

’08

(Forecast)

60.0

32.5

30
0

120.0

112.4

6.3

5.0

’03

’04

Ordinary Profit
Net Income

15.5

’05

’06

’07

’08

(Forecast)recorded a refund of about ¥15.0 billion in deposits from partnershipinvestors, such as SURF investment partnerships, for leased buildings
managed by the Company.

Cash Flows from Financing Activities
Net cash provided by financing activities was ¥250.1 billion. Redemption of bonds and notes was ¥80.9 billion, and repayment of longterm debt was ¥130.2 billion. On the other hand, proceeds fromissuance of bonds and notes were ¥100.0 billion, and proceeds fromlong-term debt totaled ¥261.0 billion.

As a result, at the end of the fiscal year, interest-bearing debt was
up 16.3%, to ¥1,473.6 billion, an increase of ¥206.6 billion. In the midstof intensified competition in site acquisition stemming from improved business conditions and rising land prices, we undertook
aggressive advance investment in building sites, which are key
resources for the Company’s future growth, leading to the increase in
debt. In this way, we prepared for growth in profit over the medium
to long term.
		Millions of yen
				
		
2007
2006

Short-term debt:
Principally from banks................... ¥ 197,970
Commercial paper...........................
108,000
Subtotal.............................................
305,970
Long-term debt:
Bonds and notes................................
351,567
Loans principallyfrom banks.........................................
816,107
Subtotal............................................. 1,167,674
Long-term debt due within
one year................................................
157,044
Long-term debt due after
one year................................................ 1,010,630
Interest-bearing debt..................... 1,473,644

CAPITAL RESOURCES AND LIQUIDITY
AssetsAt the end of the year under review, total assets were ¥2,747.9 billion,
an increase of 11.7% from the previous fiscal year-end. The principal
reasons for this rise were increases in investment in properties for sale(condominiums) and in property and equipment due to investment
in leasing facilities. Total current assets rose 22.2%, to ¥756.5 billion,
due primarily to increases in cash, time and notice deposits andinventories. Inventories were up 47.9%, to ¥489.1 billion at the end of
the year under review. This increase was due to the delivery of certain
properties being rescheduled for the next fiscal year and to theaccumulation of sites for new buildings. Net property and equipment
rose 8.7%, to ¥1,453.5 billion.

Liabilities
Total liabilities were up 12.2% from the previous fiscal year-end, to¥2,320.9 billion. Current liabilities rose 4.6%, to ¥870.8 billion. Shortterm debt was up 22.7%, to ¥306.0 billion, primarily as a result of anincrease of 109.7% in commercial paper, which rose to ¥108.0 billion.
Long-term debt due within one year decreased 22.9%, to ¥157.0
billion. Moreover, long-term liabilities were up 17.2%, to ¥1,450.0
billion, principally due to an increase of 13.3% in bonds, to ¥285.0
billion, and a gain of 29.0% in long-term debt, to ¥725.6 billion.

TOTAL ASSETS(Billions of yen)

(%)

(%)

500

30

15

2,000

2,091.0400

2,136.3

200

1,000

100
0

’03

375.7
303.9

300

’04

’05

’06

’07

0

14.5

409.2

320.1
15.3

211.8

0.1
109.7
22.7

332,441

19,126

5.8

685,3211,017,762

130,786
149,91219.1
14.7

203,688–46,644–22.9

814,074
1,267,032

196,556
206,612

24.1
16.3

15.0

12.8

24
18

14.9

10.5

’03

¥    200
56,50056,700ROE AND ROA

3,000

2,015.7¥ 197,770
51,500249,270

Shareholders’ equity was up 8.9% from the end of the previous fiscal
year, to ¥409.2 billion, due primarily to higher retained earnings
stemming from the substantial increase in net income. The shareholders’ equity ratio was 14.9%, compared with 15.3% a year earlier.
ROE rose to 12.8%, from 9.3% a year earlier, and ROA was 5.4%,
compared with 5.0% a year earlier.

(Billions of yen)
2,747.9%changeShareholders’ Equity

SHAREHOLDERS’ EQUITYAND EQUITY RATIO

2,460.1

Amountchange

12

10
9.3
5

4.7

4.5

6

’04

Total Shareholders’ Equity
Equity Ratio (right scale)

’05

’06

’07

0

’03
ROE

5.4

5.0

5.0

’05

’06

2.5

2.3

0

4.8

’04

’07

ROA

21

FINANCIAL STRATEGY

to intensify, due to the recovery in business conditions and higher
land prices. We decided that we should focus several years into the
future and focus on responding flexibly to changes in the operating
environment and being more aggressive in site acquisition. As aresult, we have already acquired all of the sites that will be neededto achieve the goals of the Third Three-Year Growth Plan.

Characteristics of Operations and Diversification of Fund-Raising
In leasing and sales, which are our mainstay business segments,
several years are required from the acquisition of a site to the completion of a building and the generation of revenues. In addition, significant advance investment is required. In consideration of these factors,
under the two growth plans that followed the Four-Year Business
Reconstruction Plan, to reinforce our financial position and achieve
operational growth, we worked to diversify our fund-raising methods
so as to control interest-bearing debt while making investments
needed for growth.
Specifically, we have aggressively introduced development
securitization methods using SPCs. In addition, we have formed SURF
(Sumitomo Realty & Development Fund) investment partnerships
backed by leased buildings, making effective use of our assets in ourfund-raising activities.
Using SPCs where off-balance-sheet funds are raised throughnon-recourse loans, we worked to conduct development on a largescale with a small amount of money without placing a burden on ourbalance sheet. SPCs include those with properties that are in development and those with properties for leasing that are in operation. The
former are recorded in the current assets section of the balance sheet
as investments in SPCs holding properties for sale, while the latter arerecorded in the investments and advances section of the balance
sheet as investments in securities and other. At the end of March
2007, these balances were ¥42.3 billion and ¥59.9 billion.
The balance of investment received in SURF investment partnerships was ¥155.2 billion.
By actively utilizing these types of fund-raising methods that do
not rely on interest-bearing debt, we have raised large amounts offunds without having to sell assets at low prices, and we have aggressively acquired sites.

Investment in Line with Changes in the Market Environment
Acquiring the sites that will be needed for subsequent, ongoinggrowth is still one of the Company’s top priorities. Nonetheless,competition in site acquisition is intensifying further, and in thecurrent environment sites cannot be acquired easily. As a result, weneed to use other methods to acquire sites, such as redevelopment
and site consolidation. In these cases, it is difficult to raise funds
through SPCs that utilize non-recourse methods, which means that
we need to use on-balance-sheet fund-raising methods.
On the other hand, we have completed the implementationof measures to deal with unrealized losses, and higher profits are
generating growth in equity. As a result, in the fiscal year ending
March 2010, the final year of the Third Three-Year Growth Plan, we
expect to improve the ND/E ratio to about 2 times. Consequently, we
will continue working to secure prime sites while making investments
in line with growth in equity.

Bolstering Our Financial Position
At the same time, we are also working to raise funds at fixed, longterm rates as a precaution against future increases in interest rates. As
a result, at the end of the year under review, long-term debt accounted for 79% of interest-bearing debt, compared with 80% a year earlier,and fixed-interest rate debt accounted for 83% of interest-bearing
debt, up from 77% at the end of the previous fiscal year.
In the previous three years, multiple rating agencies increased theratings on our bonds, and the terms under which we can borrow
long-term funds or issue bonds are steadily improving. We will strive
to establish a financial position that will enable us to raise funds on
more attractive terms in the years ahead.

Aggressive Site Acquisition
Under the Top Gear Growth Three-Year Plan, which was concluded in
the year under review, competition in site acquisition was expected

LONG-TERM DEBT RATIO ANDFIXED-INTEREST RATE DEBT RATIONET INTEREST-BEARING DEBT
AND ND/E RATIO(Billions of yen)

INTEREST COVERAGE RATIO(Times)(%)(Billions of yen)

10

100

150

1,500

(Times)139.5

1,343.8
1,200
1,036.4900

81,150.9
916.2

935.2

75

82

78

87

83
77

100

6

89.5

101.7

97.0

3.0

300
0

4

4.9

’03

’04

Net Interest-Bearing Debt
ND/E Ratio (right scale)

22

2.9

’05

3.1

’06

3.2

’07

2
0

74

80

83

80

79

25
0

6.8

6.5

6

5.2

50
600

114.0

9

’03

’04

’05

’06

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

’07

50

0

3.4
26.0

’03

4.1
23.5

’04

3
19.6

’05

17.6

’06

20.6

’07

Operating Income + Interest and Dividend Income
Interest Expense
Interest Coverage Ratio (right scale)0

DIVIDEND POLICY

Introduction of Takeover Defense Measures

Our fundamental policy for the distribution of profit is to maintain astable base level of dividends and, while retaining a sufficient level of
earnings for stable, long-term operational growth, to increase dividends in line with growth in profit. We steadily strengthened our
profit foundation under two management plans—the Four-YearBusiness Reconstruction Plan, which dealt with the effects of thecollapse of Japan’s bubble economy, and the New Three-Year GrowthPlan. In addition, we worked to respond to various changes in account­ing standards and to reduce unrealized losses. Over this period, due
to comparatively large special losses, net income fluctuated, but wemaintained annual dividends at ¥6.00 per share. Under the Top Gear
Growth Three-Year Plan, which began in April 2004, we completed
the implementation of measures to deal with unrealized losses, andwe were able to lay the foundation for full-scale growth in EPS.
However, we still need to increase our equity further, and for thetime being our policy is to pay dividends in line with growth inordinary profit.
In the year under review, we exceeded the profit objective set
out the Top Gear Growth Three-Year Plan, and ordinary profit rose
29.1%. As a result, we raised annual per-share cash dividends to ¥14.00,
including the ¥6.00 interim dividend, representing an increase of¥4.00 per share from the previous fiscal year.
In the fiscal year ending March 2008, we are forecasting an increasein ordinary profit, and accordingly we plan to raise dividends by ¥2.00
per share, to ¥16.00 for the year.

The Company introduced a policy for responding to large-scalepurchases of its shares, and at the ordinary general meeting ofshareholders held on June 28, 2007, the policy was approved by morethan 70% of shareholders, which is the level of support required forthe approval of special resolutions.

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

Change in the Articles of Incorporation
In accordance with a resolution approved at the ordinary general
meeting of shareholders held on June 28, 2007, a change was madeto the Company’s articles of incorporation regarding the method ofacquiring treasury stock. As a result of this change, to diversify themeans of providing a return of profits to shareholders in the future,acquisitions of treasury stock can be made in accordance with aresolution of the board of directors.

CASH DIVIDENDS PER SHARE,
ORDINARY PROFIT, AND INCOME
BEFORE INCOME TAXESNUMBER OF EMPLOYEESIN MAJOR SEGMENTS(Billions of yen)

(Yen)

120

92.1

87.0
66.0

56.8

74.4

61.5

16.0

6.0

15

(Billions of yen)
8,000
6,000

5,815

6,348

6,621

6,926

7,601

4,000

5

2,000

0

0

800

9.0
30.7

2.0

’03

’04

’05

’06

Cash Dividends per Share (right scale)
Ordinary Profit
Income before Income Taxes’07

10
1,787.4
1,517.7

1,481.8

1,538.5

1,620.0’08(Forecast)

8
6.3

1,200
10

4.7

4.7

5.0

5.5

’03

Leasing

’04
Sales

’05
Construction

’06

’07

Brokerage

0

6
4

400

15.6
0

(%)

2,000
1,600

14.0

10.0
9.0

30

120.0
20
110.0

112.4

90
60

LEASING ASSETS AND RETURN
ON LEASING ASSETS

2

’03

’04

’05

’06

’07

0

Leasing Assets
Return on Leasing Assets (right scale)23

Consolidated Balance Sheets
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
As of March 31, 2007 and 2006
				
Millions of yen

Assets2007

Thousands of
U.S. dollars(Note 1)
2006

Current assets:Cash, time and notice deposits (Note 3)................................................................................................................ ¥ 129,820 ¥ 116,153
Marketable securities (Note 7)......................................................................................................................................
1,203
703
Investments in SPCs holding properties for sale (Note 7)...........................................................................
42,28457,927
Notes and accounts receivable–trade.....................................................................................................................
21,642
26,240Loans receivable....................................................................................................................................................................
46,842
61,994
Allowance for doubtful accounts...............................................................................................................................
(24,911)(25,064)
Inventories (Note 4).............................................................................................................................................................
489,093
330,700
Deferred income taxes (Note 17)................................................................................................................................
17,92918,380
Other current assets............................................................................................................................................................
32,58632,186
			 Total current assets.......................................................................................................................................................
756,488619,219$ 1,099,331
10,187358,066
183,267
396,664(210,949)
4,141,697
151,825
275,941
6,406,029

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

6,125
309,573(27,827)
287,871

6,110
272,005(21,409)
256,706

51,8672,621,500(235,642)
2,437,725

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

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

1,013,232
417,503
18,07630,642
1,479,453(142,761)
1,336,692

9,558,405
3,793,293
159,429
133,661
13,644,788(1,335,973)
12,308,815

Other assets:
Guarantee and lease deposits paid to lessors....................................................................................................
193,049
Leasehold rights and other intangible assets.....................................................................................................
49,905
Deferred income taxes (Note 17)................................................................................................................................
3,828
Other.............................................................................................................................................................................................
3,211
			 Total other assets...........................................................................................................................................................
249,993					 ¥2,747,900

192,008
49,7092,909
2,837
247,463¥2,460,080

1,634,762
422,601
32,41627,192
2,116,971$23,269,540

See accompanying notes.

24

2007

		
		
Millions of yen

Liabilities and Net Assets

2007

Thousands of
U.S. dollars(Note 1)
2006

2007

Current liabilities:
Short-term debt (Notes 6 and 8)................................................................................................................................. ¥ 305,970
Long-term debt due within one year (Notes 6 and 8)..................................................................................
157,044
Notes and accounts payable–trade..........................................................................................................................
57,399Accrued income taxes (Note 17).................................................................................................................................
22,953
Accrued bonuses..................................................................................................................................................................
3,337
Deposits received (Note 18)...........................................................................................................................................
247,494
Other current liabilities......................................................................................................................................................
76,619
			 Total current liabilities................................................................................................................................................
870,816¥ 249,270
203,688
55,30432,556
2,916
210,645
78,080832,459$ 2,590,990
1,329,867
486,061
194,369
28,2582,095,808
648,819
7,374,172

Long-term liabilities:
Long-term debt due after one year (Notes 6 and 8)......................................................................................
Guarantee and deposits received (Note 18)........................................................................................................
Deferred income taxes (Note 17)................................................................................................................................
Allowance for employees’ severance and retirement benefits (Note 9)............................................
Other long-term liabilities (Note 16).........................................................................................................................
			 Total long-term liabilities..........................................................................................................................................

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

814,074
382,51231,4194,934
3,793
1,236,732

8,558,134
3,439,182
202,81140,31738,64012,279,084

Net assets (Notes 2 (2) and 19):
Common stock:
			 Authorized – 1,900,000 thousand shares
			 Issued     – 476,086 thousand shares .........................................................................................................
Capital surplus........................................................................................................................................................................
Retained earnings.................................................................................................................................................................
Treasury stock..........................................................................................................................................................................
					

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

122,805
132,748
75,652(1,235)329,970

1,039,927
1,124,176
1,022,026(19,087)
3,167,042

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

36,792(73)(1,518)35,201

46,900—(1,214)45,686

311,559(618)(12,855)
298,086

Minority interests..................................................................................................................................................................
17,850			   Total net assets..........................................................................................................................................................
427,047					 ¥2,747,900

15,233
390,889¥2,460,080

151,156
3,616,284$23,269,540

Contingent liabilities (Note 23)25

Consolidated Statements of Income
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2007, 2006 and 2005
				Millions of yen
2007

2005

2007

¥616,115$5,731,510

470,636
45,188515,824
100,291

4,153,536
416,352
4,569,888
1,161,622(19,219)965—(8,726)—(11,886)(169,777)
15,243550(110)(6,715)(530,477)(15,672)
(711)
121
(715)
(4,667)—————(3,481)—(2,270)(3,339)(69,600)
30,691—(1,821)
1,922(13,109)(33,161)—
12,194391,159———(23,948)—(23,599)(381,649)
779,973

7,414
5,592
13,006335,261(8,933)326,328

2,706

2,137

27,699¥ 50,300 ¥ 32,506¥ 15,548$ 425,946

2006

Revenue from operations.............................................................................................................................. ¥676,834 ¥646,525
Costs and expenses:
Cost of revenue from operations...............................................................................................................
490,491 487,805
Selling, general and administrative expenses....................................................................................
49,167
46,697
				
539,658 534,502
Operating income...............................................................................................................................................
137,176 112,023
Other income (expenses):
Interest expense, net.........................................................................................................................................
(20,049) (17,085)
Dividend income.................................................................................................................................................
1,800
1,420
Gain on sale of property and equipment (Note 13).......................................................................
65
15,238Loss on sale of property and equipment..............................................................................................
(13)
(25)
Loss on impairment of fixed assets (Note 10)....................................................................................
(793) (25,244)
Loss on devaluation of property and equipment (Note 12).....................................................
(62,644) (17,185)
Loss on sale and devaluation of property
	  and equipment (Note 11)............................................................................................................................
——
Loss on disposal of property and equipment....................................................................................
(215)
(217)
Gain on sale of investments in securities..............................................................................................
227
1,446
Loss on devaluation of investments in securities............................................................................
(1,548)(68)
Dividend to partnership investors.............................................................................................................
(3,916)(4,702)Gain on settlement of sub-lease lawsuits.............................................................................................
—
1,700
Gain on adjustment of sub-lease rent paid (Note 15)..................................................................
1,440—
Gain on liquidation of silent partnership (Note 14)........................................................................
46,192—
Loss on liquidation of silent partnership (Note 13)........................................................................
—(1,303)
Loss on cancellation of interest rate swap agreement................................................................
—(2,508)Loss on sale of loans receivable..................................................................................................................
——
Provision for allowance for doubtful accounts.................................................................................
(2,828)—
Directors’ retirement benefits (Note 16)................................................................................................
——
Other, net..................................................................................................................................................................
(2,787)(1,948)				
(45,069) (50,481)
Income before income taxes and minority interests...............................................................
92,10761,542
Income taxes (Note 17):
Current........................................................................................................................................................................
39,591
34,115
Deferred.....................................................................................................................................................................
(1,055)(7,785)
		 Total..........................................................................................................................................................................
38,53626,330Minority interests.................................................................................................................................................
Net income................................................................................................................................................................

Thousands of
U.S. dollars(Note 1)

3,271

		
Yen

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

26

U.S. dollars(Note 1)

2007

2006

2005

2007

¥105.92—
14.00¥68.33—10.00¥32.64
32.64
9.00

$0.90
—
0.12

Consolidated Statements of Changes in net Assets
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2007, 2006 and 2005
Thousands

Millions of yen
Shareholders’ equity

Valuation and transaction adjustments							NetNumber of					
unrealized
shares of 					TotalholdingcommonCommonCapitalRetained
Treasuryshareholders’ gains (losses)
stock
stock
surplusearnings
stock
equityon securities

Balance at March 31, 2004 476,086
Net income—
Foreign currency
	  translation adjustments—
Net unrealized holding	  gains on securities—
Acquisition of treasury stock—
Gains on sale
	  of treasury stock—
Increase due to merger	  of consolidated subsidiaries —Cash dividends paid:
		 Final for prior year		  (¥9 per share)—
Bonuses to directors—
Minority interests—
Balance at March 31, 2005 476,086
Net income—
Foreign currency
	  translation adjustments—
Net unrealized holding	  gains on securities—
Acquisition of treasury stock—
Cash dividends paid:		
		 Final for prior year		  (¥9 per share)—
		 Interim for current year		  (¥5 per share)—
Bonuses to directors—
Minority interests—
Balance at March 31, 2006 476,086—
Net income
Foreign currency—
	  translation adjustments
Net unrealized holding—	  losses on securities
Acquisition of treasury stock—
Gains on sale—
	  of treasury stock
Cash dividends paid:		
		 Final for prior year—		  (¥5 per share)
		 Interim for current year—		  (¥6 per share)
Bonuses to directors—
Minority interests—
Net deferred losses—	  on hedges
Balance at March 31, 2007 476,086

Net
deferred
losses onhedgesForeigncurrencytranslation
adjustments

Total
net
assets¥122,805—¥132,744—¥ 38,572
15,548¥ (404)—¥ 293,717
15,548¥ 14,420—¥——¥(4,262)—¥10,158—¥11,910—¥ 315,785
15,548

—

—

—

—

—

—

—

679

679

—

679

—
—

—
—

—
—

—
(266)

—
(266)

4,544
—

—
—

—
—

4,544
—

—
—

4,544
(266)

—

4

—

5

9

—

—

—

—

—

9

—

—

13

—

13

—

—

—

—

—

13

—
—
—
122,805————
132,748—(4,280)(24)—
49,82932,506

—
—
—
(665)
—

(4,280)(24)—
304,71732,506———
18,964
—

—
—
—
—
—

—
—
—
(3,583)————
15,381———555
12,465—(4,280)(24)
555
332,563
32,506

—

—

—

—

—

—

—

2,369

2,369

—

2,369

—
—

—
—

—
—

—
(570)

—
(570)

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

—

—

—

—

—

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

—
—
—
—
—

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

—

—

—

—

—

—

—

(304)

(304)

—

(304)

—
—

—
—

—
—

—
(1,022)—(1,022)(10,108)
—

—
—

—
—

(10,108)———(10,108)(1,022)

—

6

—

3

9

—

—

—

—

—

9

—

—

(2,375)—(2,375)

—

—

—

—

—

(2,375)

—
—
—

—
—
—

(2,849)
(37)
—

—
—
—

(2,849)
(37)
—

—
—
—

—
—
—

—
—
—

—
—
—

—
—
2,617

(2,849)
(37)
2,617

—
¥122,805—¥132,754—¥120,691—¥(2,254)—¥373,996—¥36,792

(73)
¥(73)

—
¥(1,518)(73)¥35,201—¥17,850(73)¥427,047		

Thousands of U.S. dollars (Note 1)
Shareholders’ equity

Valuation and transaction adjustments							
		
					
					
Total
		
CommonCapitalRetained
Treasuryshareholders’		stocksurplusearnings
stock
equityNet
unrealized
holding
losses on
securitiesNet
deferred
losses onhedgesForeigncurrencytranslation
adjustments

Balance at March 31, 2006		
Net income		
Foreign currency
	  translation adjustments		
Net unrealized holding	  losses on securities		
Acquisition of treasury stock		
Gains on sale of treasury stock		Cash dividends paid:
		 Final for prior year		  ($0.04 per share)		
		 Interim for current year		  ($0.05 per share)		
Bonuses to directors		
Minority interests		
Net deferred losses on hedges		Balance at March 31, 2007		See accompanying notes.

Totalvaluation and		translation
Minority
adjustments interests

Total
valuation and		translation
Minority
adjustmentsinterests

Total
net
assets$1,039,927—$1,124,125—$ 640,631
425,946$(10,458)—$2,794,225
425,946$397,155—$ ——$(10,281)—$386,874—$128,995—$3,310,094
425,946

—

—

—

—

—

—

—

(2,574)(2,574)—(2,574)

—
—
—

—
—
51

—
—
—

—
(8,654)25—(8,654)
76(85,596)
—
—

—
—
—

—
—
—

(85,596)
—
—

—
—
—

(85,596)(8,654)76——(20,112)—(20,112)

—

—

—

—

—

(20,112)————$1,039,927————$1,124,176(24,126)(313)——$1,022,026————$(19,087)(24,126)(313)——$3,167,042————$311,559

—
—
—
(618)
$(618)————$(12,855)

—
—
—
(618)
$298,086——
22,161—$151,156(24,126)(313)
22,161(618)$3,616,284

27

Consolidated Statements of Cash Flows
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
For the years ended March 31, 2007, 2006 and 2005
				Millions of yen
2007

2005

2007

¥ 92,107 ¥ 61,542
15,677
16,330793
25,2446,265
1,663¥ 30,691
14,019—(17,321)$   779,973
132,755
6,715
53,053

(173)
(68)
—
—
(65) (15,238)
13
25
62,644
17,185
215
217
(227)
(1,446)1,548
68(2,307)(1,977)
20,556
17,642(137)(8,493)4,600
5,238(190,790) (108,022)
2,298(4,854)
2,094
10,281
1,383
12,033
1,868
9,223
18,362
36,593254
15,672—
8,726
11,886
711
(121)
715
(1,390)19,644(4,961)
4,787(20,004)
29,192(26,994)
6,688(4,563)
67,631(1,465)—(550)
110
530,477
1,821(1,922)
13,109(19,536)
174,071(1,160)38,953(1,615,632)
19,46017,732
11,711
15,817
155,492

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

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

1,974(17,545)(9,665)
11,357

1,489(19,870)(1,219)48,031

19,519(172,445)(416,496)(413,930)

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

(152,601) (237,024)
529
91,055(27,457) (75,303)
25,53836,546——(19,168) (24,588)
5,111
10,065(16,283) (37,572)
31,092
28,99079,52065,508(94,517) (75,559)(19,652)
8,223(187,888) (209,659)(106,784)
21,902(9,315)1,561(7)(5,341)
7,052(46,598)
34,761
111,474(67,590)(1,935)(60,820)(1,292,243)
4,480(232,509)
216,259—(162,317)
43,281(137,886)
263,291
673,385(800,381)(166,418)(1,591,058)

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

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

76,02590,000(92,667)
155,285(40,310)(7,159)28,125
209,299(32,178)
80,000(77,523)
19,461
15,219(4,581)(16,658)(16,260)

480,142846,812(684,851)
1,107,511
271,598(49,809)
146,075
2,117,478

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

383

1,922

(160)

3,243

Net increase (decrease) in cash and cash equivalents...........................................................
13,667
12,919Cash and cash equivalents at beginning of year........................................................................
116,156 103,237
Cash and cash equivalents of subsidiaries excluded——
from consolidation .........................................................................................................................................
Change in cash and cash equivalents due to merger——of consolidated subsidiaries....................................................................................................................
Cash and cash equivalents at end of year (Note 3).................................................................... ¥129,823 ¥116,156(29,209)
132,476

115,733
983,623(31)—

1¥103,237—$ 1,099,356

Cash flows from operating activities:
		 Income before income taxes and minority interests.................................................................
		 Depreciation and amortization...............................................................................................................
		 Loss on impairment of fixed assets (Note 10)................................................................................
		 Provision for (Reversal of) allowance for doubtful accounts.................................................
		 Increase (Decrease) in employees’ severance
		  and retirement benefits . .........................................................................................................................
		 Loss on sale and devaluation of property and equipment (Note 11).................................
		 Gain on sale of property and equipment (Note 13)...................................................................
		 Loss on sale of property and equipment..........................................................................................
		 Loss on devaluation of property and equipment (Note 12).................................................
		 Loss on disposal of property and equipment................................................................................
		 Gain on sale of investments in securities..........................................................................................
		 Loss on devaluation of investments in securities........................................................................
		 Interest and dividend income..................................................................................................................
		 Interest expense................................................................................................................................................
		 Increase in investments in SPCs holding properties for sale................................................
		 Decrease in notes and accounts receivable–trade.....................................................................
		 Increase in inventories..................................................................................................................................
		 Decrease (Increase) in loans receivable.............................................................................................
		 Increase (Decrease) in notes and accounts payable–trade...................................................
		 Increase in advances received.................................................................................................................
		 Other, net..............................................................................................................................................................
			 Total......................................................................................................................................................................

See accompanying notes.

28

Thousands of
U.S. dollars(Note 1)

2006

Notes to Consolidated Financial Statements
Sumitomo Realty & Development Co., Ltd. and its consolidated subsidiaries
As of and for the years ended March 31, 2007, 2006 and 2005

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

the Company prepared in accordance with Japanese GAAP and filedwith the appropriate Local Finance Bureau of the Ministry of Financeas required by the Securities and Exchange Law. Certain supplementary information included in the statutory Japanese language consolidated financial statements, but not required for fair presentation, is
not presented in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars is
included solely for the convenience of readers outside Japan, using
the prevailing exchange rate at March 31, 2007, which was ¥118.09 to
U.S.$1. The convenience translation should not be construed as representation that the Japanese yen amounts have been, could havebeen, or could in the future be, converted into U.S. dollars at this or
any other rate of exchange.

2. Accounting policies(1) Principles of consolidation
The accompanying consolidated financial statements include theaccounts of the Company and significant companies over which theCompany has power of control through majority voting rights or existence of certain conditions evidencing control by the Company.
In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the portion attributable to minority shareholders, are recorded based on the fair value at the time theCompany acquired control of the respective subsidiaries.
All significant intercompany balances, transactions and profits
have been eliminated in consolidation.
(2) Accounting Standard for Presentation of Net Assets
in the Balance Sheet
Effective from the year ended March 31, 2007, the Company and its
consolidated subsidiaries adopted the new accounting standard,“Accounting Standard for Presentation of Net Assets in the Balance
Sheet” (Statement No. 5 issued by the Accounting Standards Board ofJapan on December 9, 2005), and the implementation guidance forthe accounting standard for presentation of net assets in the balance
sheet (the Financial Accounting Standard Implementation Guidance
No. 8 issued by the Accounting Standards Board of Japan on
December 9, 2005), (collectively, “the New Accounting Standards”).
The consolidated balance sheet as of March 31, 2007 prepared inaccordance with the New Accounting Standards comprises three
sections, which are the assets, liabilities and net assets sections.
The consolidated balance sheet as of March 31, 2006 has been
restated to conform to the 2007 presentation.
The adoption of the New Accounting Standards had no impact on
the consolidated statements of income for the years ended March 31,
2007 and 2006. Also, if the New Accounting Standards had not been
adopted at March 31, 2007 and 2006, shareholders’ equity amounting
to ¥409,270 million ($3,465,746 thousand) and ¥375,656 million would
have been presented, respectively.

(3) Accounting Standard for Statement of Changes in Net Assets
Effective from the year ended March 31, 2007, the Company and its
consolidated subsidiaries adopted the new accounting standard,“Accounting Standard for Statement of Changes in Net Assets”(Statement No. 6 issued by the Accounting Standards Board of Japanon December 27, 2005), and the implementation guidance for theaccounting standard for statement of changes in net assets (theFinancial Accounting Standard Implementation Guidance No. 9 issued
by the Accounting Standards Board of Japan on December 27, 2005),(collectively, “the Additional New Accounting Standards”).
Accordingly, the Company prepared the statement of changes in
net assets for the year ended March 31, 2007 in accordance with theAdditional New Accounting Standards. Also, the Company voluntarily
prepared the consolidated statements of changes in net assets for2006 and 2005 in accordance with the Additional New AccountingStandards. Previously, consolidated statements of shareholders’ equity
were prepared for the purpose of inclusion in the consolidated financial statements although such statements were not required underJapanese GAAP.
(4) Foreign currency translation
Receivables and payables denominated in foreign currencies aretranslated into Japanese yen at the year-end rates.
Financial statements of consolidated overseas subsidiaries aretranslated into Japanese yen at the year-end rate, except that shareholders’ equity accounts are translated at historical rates and income
statement items resulting from transactions with the Company at therates used by the Company.
Differences arising from translation are presented as “Foreign currency translation adjustments” in net assets.
(5) Cash and cash equivalents
In preparing the consolidated statements of cash flows, cash on hand,readily-available deposits and short-term, highly liquid investmentswith maturities not exceeding three months at the time of purchaseare considered to be cash and cash equivalents.

29

(6) Recognition of revenue
Revenues from sales of land and residential houses are recognizedwhen units are delivered and accepted by customers. Revenues fromleasing of office space, shops and apartments are recognized as rent
accrues over the lease term.
(7) Inventories
Inventories are stated at cost which is determined by the specificidentification cost method.
With respect to the cost of consignment sales activities, theCompany uses a cost accounting approach for matching revenue fromsales of consigned properties and costs associated to such properties.
(8) Securities
Held-to-maturity securities are stated at amortized cost. Investments
in subsidiaries and affiliates that are not consolidated or accounted forusing the equity method are stated at moving-average cost. Availablefor-sale securities with available fair market values are stated at fairmarket value. Unrealized gains and unrealized losses on these securities are reported, net of applicable income taxes, as a separate component of net assets. Realized gains and losses on the sale of suchsecurities are computed using moving-average cost.
Investments in SPCs holding properties for sale and senior securities are stated at cost determined by the specific identification method and securities with no available fair market value are stated atmoving-average cost.
Investments in partnerships similar to investment limited partnerships, which are regarded as securities under the Securities andExchange Law, are accounted for in a manner similar to the equity
method based on recent financial statements.
If the market value of held-to-maturity securities, investments in
subsidiaries and affiliates, available-for-sale securities and investments
in SPCs holding properties for sale declines significantly, such securities
are stated at fair market value and the difference between fair market
value and the carrying amount is recognized as a loss in the period of
the decline. If the fair market value of investments in unconsolidated
subsidiaries and affiliated companies not accounted for using the equity method is not readily available, such securities should be written
down to net asset value with a corresponding charge in the income
statement in the event net asset value declines significantly. In thesecases, such fair market value or the net asset value will be the carrying
amount of the securities at the beginning of the next year.
(9) Property and equipment
The Company and consolidated domestic subsidiaries depreciatebuildings using the straight-line method, and other property andequipment using the declining-balance method over their estimateduseful lives. Consolidated overseas subsidiaries depreciate property
and equipment using primarily the straight-line method in accordance with the accounting principles in the respective countries.
Estimated useful lives used in the computation of depreciation are
generally as follows:
Buildings and structures.....................................................
6 to 60 years
Machinery and equipment .............................................
2 to 20 years

30(10) Impairment of fixed assets
Effective April 1, 2005, the Company and its consolidated domestic
subsidiaries applied “Accounting Standard for Impairment of Fixed
Assets” (“Opinion Concerning Establishment of Accounting Standard
for Impairment of Fixed Assets”, issued by the Business Accounting
Deliberation Council on August 9, 2002) and “Guidelines on
Implementation of Accounting Standard for Impairment of Fixed
Assets” (Guidelines on Implementation of Business AccountingStandard No. 6 issued by the Accounting Standards Board of Japan on
October 31, 2003). As a result of adopting the new accounting standards for impairment of fixed assets, income before income taxes andminority interests for the year ended March 31, 2006 decreased by¥25,244 million.
Accumulated impairment losses are recognized as direct writedowns of the related fixed assets.
(11) Software costs
Software costs are amortized using the straight-line method over theestimated useful lives (five years).
(12) Allowance for doubtful accounts
The Company provides for doubtful accounts at an estimated uncollectable amount based on the evaluation of certain identified doubtful and bankrupt receivables plus an amount calculated using thepercentage of actual collection losses in certain reference periods
with respect to remaining receivables.
(13) Finance leases
Finance leases, except those leases for which the ownership of theleased assets is considered to be transferred to the lessee, areaccounted for in the same manner as operating leases.
(14) Income taxes
Income taxes are provided for on the basis of income for financial
statement purposes. The tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial statements
and income tax purposes are recognized as deferred income taxes.
(15) Employees’ severance and retirement benefits
The Company and certain of its consolidated subsidiaries provide two
types of post-employment benefit plans, lump-sum payment plans
and approved retirement pension plans, under which all eligible
employees are entitled to benefits based on their current rate of pay,
length of service and the conditions under which termination occurs.
The liabilities and expenses for severance and retirement benefits
are determined based on the amounts actuarially calculated using
certain assumptions.
The Company and certain of its consolidated subsidiaries provided
an allowance for employees’ severance and retirement benefits at
March 31, 2007, 2006 and 2005 based on the estimated projected
benefit obligation at those dates.
Actuarial gains and losses are recognized in expenses in the succeeding period.

(16) Derivative transactions and hedge accounting
The Company and its consolidated subsidiaries state derivative financial instruments at fair value and recognize changes in the fair value
as gains or losses unless derivative financial instruments are used forhedging purposes and qualify for hedge accounting.
If derivative financial instruments are used as hedges and meetcertain hedging criteria, the Company and its consolidated subsidiaries defer recognition of gains or losses resulting from changes in fairvalue of derivative financial instruments until the related losses orgains on the hedged items are recognized.
However, in cases where forward foreign exchange contracts areused as hedges and meet certain hedging criteria (regarding foreignexchange contracts), the forward foreign exchange contracts andhedged items are accounted for in the following manner:
1. If a forward foreign exchange contract is executed to hedge anexisting foreign currency receivable or payable,(a) the difference, if any, between the Japanese yen amount of thehedged foreign currency receivable or payable translated using
the spot rate at the inception date of the contract and the bookvalue of the receivable or payable is recognized in the income
statement in the period which includes the inception date; and(b) the discount or premium on the contract (that is, the difference
between the Japanese yen amount of the contract translatedusing the contracted forward rate and that translated using the
spot rate at the inception date of the contract) is recognizedover the term of the contract.
2. If a forward foreign exchange contract is executed to hedge afuture transaction denominated in a foreign currency, the futuretransaction will be recorded using the contracted forward rate,
and no gains or losses on the forward foreign exchange contract
are recognized.
Also, if interest rate swap contracts are used as a hedge and meetcertain hedging criteria (regarding interest rate swap contracts), thenet amount to be paid or received under the interest rate swap contracts is added to or deducted from the interest on the assets or liabilities relative to which the swap contract was executed as a hedge.
(17) Amounts per share of common stock
The computation of net income per share is based on the weightedaverage number of shares of common stock outstanding during
each year.
Diluted net income per share is computed based on the amountof net income available to the shareholders and the weighted-average number of shares of common stock outstanding during each year
after giving effect to the dilutive potential of shares of common stock
to be issued upon the exercise of stock options.
Cash dividends per share represent actual amounts applicable to
the respective year.
(18) Reclassifications and restatement
Certain prior year amounts have been reclassified to conform to the2007 presentation.
These reclassifications had no impact on previously reported
results of operations or retained earnings.

3. Cash and cash equivalents
Cash and cash equivalents at March 31, 2007 and 2006 consisted of the following:		Millions of yen
2007
2006

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

¥129,820
3¥129,823¥116,153
3¥116,156

Thousands of
U.S. dollars
2007$1,099,331
25$1,099,356

4. Inventories
Inventories at March 31, 2007 and 2006 were as follows:		Millions of yen
2007
2006

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

¥173,101
227,902
78,9939,097¥489,093¥127,585
89,669107,614
5,832¥330,700

Thousands of
U.S. dollars
2007$1,465,840
1,929,901
668,92277,034$4,141,697

31

The Company transferred property and equipment to inventories. Such transfers at March 31, 2007 and 2006 were as follows:		Millions of yen
2007
2006

Thousands of
U.S. dollars
2007

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

$(279,490)
3,574$(275,916)¥(33,005)
422¥(32,583)¥   —15,594¥ 15,594

5. Investments in and advances to unconsolidated subsidiaries and affiliates
Investments in and advances to unconsolidated subsidiaries and affiliates at March 31, 2007 and 2006 consisted of the following:		Millions of yen
2007
2006

Thousands of
U.S. dollars
2007

Investments in common stock, at cost................................................................................................................................................................ ¥6,085
Advances................................................................................................................................................................................................................................
40		 ¥6,125$51,528339$51,867¥5,991
119¥6,1106. Pledged assets
Assets pledged as collateral at March 31, 2007 were as follows:		Millions of yen
2007

Thousands of
U.S. dollars
2007¥15,575
27,727
227¥43,529

Buildings and structures.........................................................................................................................................................................................................
Land.....................................................................................................................................................................................................................................................
Other...................................................................................................................................................................................................................................................
Total...............................................................................................................................................................................................................................................

$131,891
234,795
1,923$368,609

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

Thousands of
U.S. dollars
2007¥ 1,750
33,250¥35,000

Short-term debt...........................................................................................................................................................................................................................
Long-term debt............................................................................................................................................................................................................................
Total...............................................................................................................................................................................................................................................

$ 14,819
281,565$296,384

7. Securities
For 2007
A. The following tables summarize the acquisition costs, book values and fair market values of securities with available fair market values as ofMarch 31, 2007:(a) Held-to-maturity securities:
		Book value

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

32

¥

43

1,206
¥1,249Millions of yen
Thousands of U.S. dollars
Fair market			
Fair market
value
DifferenceBook value
value
Difference

¥

43

¥0

$

364

1,199
¥1,242(7)¥(7)

10,213$10,577

$

364

$ 0

10,153$10,517

(60)
$(60)

(b) Available-for-sale securities:
Millions of yen
Acquisition			
cost
Book value
Difference

Securities whose book value exceeds acquisition cost:
Equity securities................................................................................................................ ¥ 94,973
Others......................................................................................................................................
450
Subtotal..................................................................................................................................
95,423
Securities whose book value does not exceed acquisition cost:
Equity securities................................................................................................................
15,927
Others......................................................................................................................................
504
Subtotal..................................................................................................................................
16,431
Total................................................................................................................................................ ¥111,854

Thousands of U.S. dollars
Acquisition		
costBook value
Difference¥160,408
457
160,865¥65,435
7
65,442$804,243
3,810
808,053$1,358,354 $554,111
3,870
60
1,362,224
554,171

12,556501
13,057¥173,922(3,371)(3)(3,374)¥62,068

134,872
4,268
139,140$947,193

106,326(28,546)
4,242(26)
110,568(28,572)$1,472,792 $525,599

B. T he following table summarizes the book values of securities with no available fair market values as of March 31, 2007:
Available-for-sale securities:
		Millions of yen

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

Book value
Thousands of
U.S. dollars

¥

5,932
87,18625,235¥118,353$

50,233738,301
213,693$1,002,227

Senior securities included investments in SPCs holding properties for sale amounting to ¥42,284 million ($358,066 thousand).
C. Available-for-sale securities with maturities and held-to-maturity securities at March 31, 2007 mature as follows:
1 year or less

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

¥539
—
¥539

1 year or less

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

D. Total sales of available-for-sale securities sold in the year ended
March 31, 2007 amounted to ¥372 million ($3,150 thousand) andthe related gains amounted to ¥227 million ($1,922 thousand).
E. Investments in SPCs holding properties for sale are equity investments such as preferred subscription certificates and silent partnership (“Tokumei Kumiai”) investments in Special Purpose Companies(SPCs) and Tokumei Kumiai which own and develop real estate. The
Company or its subsidiaries will sell real estate in SPCs and Tokumei
Kumiai after the completion of construction. Tokumei Kumiai are avehicle for investment allowed under the Japanese Corporate Law.

$4,564—$4,564

Millions of yen
1 to 5 years
5 to 10 years

¥710
—
¥710

¥—
—
¥—

Thousands of U.S. dollars
1 to 5 years
5 to 10 years$6,012—$6,012$——$—

Over 10 years

¥—
—
¥—

Over 10 years

$—
—
$—

   As of March 31, 2007, investments in SPCs holding properties forsale consisted of preferred subscription certificates issued by SPCs.
F. The Company lent the equity securities temporarily to a financial
institute under a securities lending agreement. Lent securities,
included in investments in securities and other, were ¥135,306 million ($1,145,787 thousand) as of March 31, 2007.
G. The Company transferred investments in SPCs holding properties
for sale amounting to ¥15,780 million ($133,627 thousand) toinvestments in securities and other in the year ended March
31, 2007.

For 2006
A. The following tables summarize the acquisition costs, book values and fair market values of securities with available fair market values as ofMarch 31, 2006:(a) Held-to-maturity securities:

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

Book value

Millions of yen
Fair market value

Difference

¥   —

¥   —

¥—

1,206
¥1,206

1,190¥1,190

(16)
¥(16)

33

(b) Available-for-sale securities:
Millions of yen
Book value

Difference¥77,848
582
78,430¥156,937
608
157,545¥79,089
26
79,115

9,989
—
9,989
¥88,419

9,442
—
9,442
¥166,987

(547)
—
(547)
¥78,568

Acquisition cost

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

B. The following table summarizes the book values of securities with no available fair market values as of March 31, 2006:
Available-for-sale securities:
Book value
Millions of yen

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

¥   7,108
86,16542,072¥135,345

Senior securities included investments in SPCs holding properties for sale amounting to ¥57,927 million.
C. Available-for-sale securities with maturities and held-to-maturity securities at March 31, 2006 mature as follows:
1 year or less

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

D. Total sales of available-for-sale securities sold in the year ended
March 31, 2006 amounted to ¥8,380 million and the related gains
and losses amounted to ¥1,499 million and ¥12 million, respectively.
E. Investments in SPCs holding properties for sale are equity investments such as preferred subscription certificates and silent partnership (“Tokumei Kumiai”) investments in Special Purpose Companies(SPCs) and Tokumei Kumiai which own and develop real estate. The
Company or its subsidiaries will sell real estate in SPCs and Tokumei
Kumiai after the ­completion of construction. Tokumei Kumiai are a

Millions of yen
1 to 5 years
5 to 10 years

¥36
—
¥36

¥1,1714¥1,175¥——¥—

Over 10 years

¥—
—
¥—

vehicle for investment allowed under the Japanese Commercial
Code.
   As of March 31, 2006, investments in SPCs holding properties forsale consisted of preferred subscription certificates issued by SPCs.
F. The Company lent the equity securities temporarily to a financial
institute under a securities lending agreement. Lent securities,
included in investments in securities and other, were ¥124,824 million as of March 31, 2006.

8. Short-term debt and long-term debt
Short-term debt at March 31, 2007 and 2006 consisted of the following:		Millions of yen
		
Average interest		
2007
rate (%)
2006

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

34¥197,970
1.00
108,000
0.65¥305,970		

Thousands of
U.S. dollars
Average interest
rate (%)¥197,770
0.55
51,5000.26¥249,270 		

2007$1,676,433
914,557$2,590,990

The interest rates represent weighted average rates in effect at March 31, 2007 and 2006, regardless of borrowing currencies, though therange of the interest rate varies by borrowing currency.
Long-term debt at March 31, 2007 and 2006 consisted of the following:		Millions of yen
2007
2006

2.85% domestic straight bonds, due 2006.....................................................................................................................................
Floating rate domestic straight bonds, due 2006......................................................................................................................
1.6% domestic straight bonds, due 2006........................................................................................................................................
Floating rate domestic straight bonds, due 2006......................................................................................................................
Floating rate domestic straight bonds, due 2007......................................................................................................................
1.5% domestic straight bonds, due 2006........................................................................................................................................
Floating rate domestic straight bonds, due 2006......................................................................................................................
1.85% domestic straight bonds, due 2006.....................................................................................................................................
1.85% domestic straight bonds, due 2006.....................................................................................................................................
1.85% domestic straight bonds, due 2006.....................................................................................................................................
2.0% domestic straight bonds, due 2007........................................................................................................................................
1.5% domestic straight bonds, due 2007........................................................................................................................................
1.5% domestic straight bonds, due 2007........................................................................................................................................
1.39% domestic straight bonds, due 2006.....................................................................................................................................
1.4% domestic straight bonds, due 2007........................................................................................................................................
1.4% domestic straight bonds, due 2007........................................................................................................................................
1.68% domestic straight bonds, due 2008.....................................................................................................................................
1.49% domestic straight bonds, due 2006.....................................................................................................................................
1.92% domestic straight bonds, due 2008.....................................................................................................................................
1.31% domestic straight bonds, due 2009.....................................................................................................................................
1.52% domestic straight bonds, due 2010.....................................................................................................................................
1.30% domestic straight bonds, due 2009.....................................................................................................................................
1.29% domestic straight bonds, due 2012.....................................................................................................................................
1.28% domestic straight bonds, due 2012.....................................................................................................................................
0.75% domestic straight bonds, due 2010.....................................................................................................................................
1.18% domestic straight bonds, due 2010.....................................................................................................................................
1.85% domestic straight bonds, due 2011.....................................................................................................................................
1.86% domestic straight bonds, due 2011.....................................................................................................................................
1.84% domestic straight bonds, due 2011.....................................................................................................................................
1.87% domestic straight bonds, due 2012.....................................................................................................................................
1.58% domestic straight bonds, due 2011.....................................................................................................................................
1.89% domestic straight bonds, due 2013.....................................................................................................................................
Loans, principally from banks and insurance companies,
interest principally at rates of 0.74% to 2.99% in 2007, and 0.30% to 3.20% in 2006:
Unsecured......................................................................................................................................................................................................
Subtotal................................................................................................................................................................................................................
Amount due within one year.................................................................................................................................................................
Total.........................................................................................................................................................................................................................

¥

Thousands of
U.S. dollars
2007

  

—
—
—
—
7,510
—
—
—
—
—
9,057
10,00010,000—20,00010,00010,000—5,000
20,00020,00020,00020,00030,00030,00030,00020,00020,00020,00020,00010,00010,000¥   3,100
7,390
9,500
7,844
7,510
7,360
7,337
7,557
9,409
9,377
9,057
10,00010,0007,000
20,00010,00010,0005,000
5,000
20,00020,00020,00020,00030,00030,00030,000——————$     ————
63,597—————
76,697
84,681
84,681—
169,362
84,681
84,681—42,341
169,362
169,362
169,362
169,362
254,044
254,044
254,044
169,362
169,362
169,362
169,362
84,681
84,681

816,107
1,167,674(157,044)¥1,010,630

685,3211,017,762(203,688)¥ 814,074

6,910,890
9,888,001(1,329,867)$ 8,558,134

The aggregate annual maturities of long-term debt at March 31, 2007 are as follows:		Year ending March 31
Millions of yen

Thousands of
U.S. dollars

2008.....................................................................................................................................................................................................................................................
2009.....................................................................................................................................................................................................................................................
2010.....................................................................................................................................................................................................................................................
2011.....................................................................................................................................................................................................................................................
2012.....................................................................................................................................................................................................................................................
2013 and thereafter...................................................................................................................................................................................................................
Total......................................................................................................................................................................................................................................................

$1,329,867
967,449
1,158,574
2,091,413
2,664,967
1,675,731$9,888,001

As is customary in Japan, security must be given if requested bylending banks under certain circumstances, and generally banks havethe right to offset cash deposited with them against any debt or¥ 157,044
114,246
136,816
246,975
314,706
197,887¥1,167,674

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

35

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

The allowance for severance and retirement benefits included in
the liabilities section of the consolidated balance sheets as of March
31, 2007 and 2006 consisted of the following:		Millions of yen
2007
2006

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

¥ 7,927(3,199)29
4¥ 4,761¥ 7,684(2,978)224
4¥ 4,934

Thousands of
U.S. dollars
2007$ 67,127(27,090)
246
34$ 40,317

Included in the consolidated statements of income for the years ended March 31, 2007 and 2006 are severance and retirement ­benefit
expenses comprised of the following:		Millions of yen
2007
2006

Service costs – benefits earned during the year..................................................................................................................................................... ¥ 508
Interest cost on projected benefit obligation..........................................................................................................................................................
134
Expected return on plan assets.........................................................................................................................................................................................
(58)
Amortization of actuarial differences............................................................................................................................................................................. (224)
Severance and retirement benefit expenses............................................................................................................................................................ ¥ 360

The discount rates and the rates of expected return on plan assets
for the years ended March 31, 2007 and 2006 used by the Company
are 2.0%, respectively (the discount rate used by one consolidated
subsidiary is 1.5%). The estimated amount of all retirement benefits to

¥ 487
130
(49)
(105)
¥ 463

Thousands of
U.S. dollars
2007$ 4,302
1,135(491)(1,897)$ 3,049be paid at future retirement dates is allocated equally to each service
year using the estimated number of total service years. Actuarial gains
and losses are recognized in the income statement in the next year.

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

For 2007
Land for development

Number ofproperties

Yokohama-shi, Kanagawa

1

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

4
1
5
2

The Company and its consolidated domestic subsidiaries recognized losses on the impairment of certain properties, which are generally assessed individually for impairment. Company houses are treatedas common assets.
As a result of declines in property values and flagging rental rates,
the carrying values of the land holdings summarized above have been
reduced by ¥793 million ($6,715 thousand) and ¥25,244 million for theyears ended March 31, 2007 and 2006, respectively, to their recoverable amounts. These write-downs were recognized as impairment
losses in other expenses.

Details of loss on impairment of fixed assets were as follows:		Millions of yen
2007
2006

Land.......................................................................................................................................................................................................................................

¥793¥25,244

Thousands of
U.S. dollars
2007$6,715

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

3611. Loss on sale and devaluation of property and equipment
As explained in Note 2 (10), effective April 1, 2005, the Company and its
subsidiaries applied the new accounting standard for impairment of
fixed assets. In order to prepare for the application of the standard, theCompany and its subsidiaries sold and recognized losses on certain
fixed assets of ¥15,672 million for the year ended March 31, 2005. Someof the fixed assets were sold to the Company’s consolidated subsidiaries,and such losses incurred in these transactions were not eliminated inconsolidation but were recorded as net loss on devaluation of land or
buildings. Loss on sale and devaluation of property and equipment of¥15,672 million for the year ended March 31, 2005 consists of net loss
on sale of land of ¥11,400 million, loss on devaluation of land of ¥1,672
million and net loss on sale of buildings of ¥2,600 million.

12. Loss on devaluation of property and equipment
The Company recognized loss on devaluation of property and equipment of ¥62,644 million ($530,477 thousand), ¥17,185 million and ¥11,886
million for the years ended March 31, 2007, 2006 and 2005, respectively. The property and equipment were sold to its consolidated subsidiaries,and such losses incurred in these transactions were not eliminated in consolidation but were recorded as loss on devaluation of property andequipment.
Details of property and equipment were as follows:		
Thousands ofLand, etc. ..........................................................................................................................................................................................
Buildings and structures, etc. . .............................................................................................................................................

2007

Millions of yen
2006

2005

U.S. dollars
2007¥62,644—¥16,385
800¥11,886—$530,477—

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

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

Tokumei Kumiai that had been involved in the ownership of thisproperty was liquidated as a result of the sale, and gain on liquidationof silent partnership of ¥46,192 million ($391,159 thousand) was incurred.

15. Gain on adjustment of sub-lease rent paid
Gain on adjustment of sub-lease rent paid of ¥1,440 million ($12,194
thousand) for the year ended March 31, 2007 is from the reversal ofthe difference between the Company’s accrued amount payable andthe amount of payment as a result of the settlement of a lawsuit
against the lessor of an office building that the Company is renting
in a lump.

16. Directors’ retirement benefits
A performance-based executive remuneration policy was adopted bya resolution at the 71st shareholders’ meeting, and the Com­pany settled the retirement benefits owed directors under the prior arrangement for directors’ retirement benefits. The retirement benefits will be
paid when the directors retire as both ­director and executive officer.

The Company recognized ¥2,015 million in retirement obligations at
March 31, 2005 in other long-term liabilities, exclusive of the amountprovided for the directors who retired as at the 71st shareholders’meeting.

37

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

The following table summarizes the significant differences
between the statutory tax rate and the Company’s effective tax rate
for financial statement purposes for the year ended March 31, 2006.

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

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

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

Details of deferred tax assets and liabilities at March 31, 2007 and 2006 were as follows:		Millions of yen
2007
2006

Thousands of
U.S. dollars
2007

Deferred tax assets:
Loss on impairment of fixed assets......................................................................................................................................................
Net operating loss carryforwards..........................................................................................................................................................
Accrued enterprise tax and business office tax............................................................................................................................
Allowance for employees’ severance and retirement benefits...........................................................................................
Loss on devaluation of inventories......................................................................................................................................................
Unrealized inter-company profits .......................................................................................................................................................
Accrued bonuses.............................................................................................................................................................................................
Allowance for doubtful accounts..........................................................................................................................................................
Accrued directors’ retirement benefits...............................................................................................................................................
Other.......................................................................................................................................................................................................................
Subtotal of deferred tax assets................................................................................................................................................................
Valuation allowance.......................................................................................................................................................................................
Total deferred tax assets..............................................................................................................................................................................

¥ 9,759
7,610
3,041
1,933
1,585
1,465
1,512
1,127
785
8,832
37,649(9,687)
27,962¥ 10,273
7,724
2,891
1,996
1,627
1,480
1,319
1,050
785
7,481
36,626(9,727)
26,899$ 82,640
64,44225,752
16,36913,422
12,406
12,8049,544
6,647
74,790318,816(82,030)
236,786

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

(25,196)(4,959)(30,155)¥ (2,193)(32,070)(4,959)(37,029)¥(10,130)(213,363)(41,993)(255,356)$ (18,570)

18. Guarantee and other deposits received
Guarantee and other deposits received at March 31, 2007 and 2006 were as follows:		Millions of yen
		
Average interest 		2007
rate (%)
2006

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

38

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

2007¥206,494
41,000247,494—
0.89¥127,908
82,737
210,645—
0.34$1,748,615
347,1932,095,808

162,498———

151,691———

1,376,052—

177,635
66,000406,133¥653,627—0.90

224,8216,000
382,512¥593,157—
0.81

1,504,234
558,896
3,439,182$5,534,990

The aggregate annual maturities of interest-bearing guarantee and other deposits received at March 31, 2007 are as follows:		Year ending March 31
Millions of yen

2008....................................................................................................................................................................................................................................................
2009....................................................................................................................................................................................................................................................
2010....................................................................................................................................................................................................................................................
2011....................................................................................................................................................................................................................................................
2012....................................................................................................................................................................................................................................................
2013 and thereafter..................................................................................................................................................................................................................
		¥ 41,000———
66,000—¥107,000Thousands of
U.S. dollars$347,193———
558,896—$906,089

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

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

20. Information for certain lease transactions
Finance leases that do not transfer ownership to lessees are not capitalized and accounted for in the same manner as operating leases. Certain
information for such non-capitalized finance leases is as follows.
As Lessee
A summary of the pro-forma amounts (inclusive of interest) of acquisition cost, accumulated depreciation and net book value at March 31, 2007
and 2006 was as follows:		Millions of yen
2007
2006

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

Pro-forma depreciation equivalents of ¥1,483 million ($12,558
thousand) and ¥1,565 million for the years ended March 31, 2007 and2006, respectively, were computed using the straight-line method
over the lease terms assuming no residual value or residual indemnity.

¥ 5,202
1,167(3,268)¥ 3,101¥ 9,079
2,218(5,130)¥ 6,167

Thousands of
U.S. dollars
2007$ 44,051
9,883(27,674)$ 26,260

Lease expenses under finance leases, inclusive of interest, for theyears ended March 31, 2007 and 2006 amounted to ¥1,483 million($12,558 thousand) and ¥1,565 million, respectively.

39

Future lease payments and receipts under such finance leases and non-cancelable operating leases at March 31, 2007 and 2006 were as follows:		Millions of yen
2007
2006

Thousands of
U.S. dollars
2007

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

¥ 1,086
2,015¥ 3,101¥ 1,398
4,769¥ 6,167

9,196
17,064$ 26,260¥    2462¥    86¥    1540¥    55$

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

¥    2462¥    86¥    1540¥    55$

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

¥13,090
54,973¥68,063¥12,675
66,343¥79,018$110,848
465,517$576,365

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

¥    54213¥    267¥    235¥    28$    457
1,804$ 2,261

$

$

$

203
525
728
203
525
728

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

Hedged items:

Foreign exchange forward
Foreign currency monetarycontracts and cross currency 	  liabilities and foreignswap contracts	  transactions
Interest rate swap contracts

40

Bank loans, bonds and deposits

The Companies evaluate hedge effectiveness by comparing the
cumulative changes in cash flows from or the changes in fair value ofhedged items and the corresponding changes in the hedging derivative instruments.
The evaluation of hedge effectiveness of interest rate swap contracts for the years ended March 31, 2007 and 2006 was not required
as special hedge accounting has been applied to derivative transactions of interest rate swap contracts. Also, the evaluation of hedge
effectiveness of foreign exchange forward contracts for the years ended
March 31, 2007 and 2006 was not required because the significant
terms of the hedging instruments and those of the hedged items
were the same, and the risk of changes in foreign exchange rates was
effectively hedged.
The contract amounts and unrealized gains or losses of outstanding derivative transactions at March 31, 2007 and 2006 were not disclosed because all derivative transactions were used as hedges andhedge accounting was applied.

22. Segment information
The Company and its consolidated subsidiaries mainly operate their business in five segments: leasing of buildings, apartments, and other properties; sale of condominiums; construction of housing and buildings; brokerage business; and other business.
Information by industry segment for the years ended March 31, 2007, 2006 and 2005 is summarized as follows:
Millions of yen							Leasing
Sales
Construction Brokerage
Other		For 2007
businessbusinessbusinessbusinessbusiness
Total

Elimination
and/orcorporate

Consolidated

I Net sales and operating income:Net sales
		 Customers.........................................
		 Intersegment..................................
			 Total.................................................
Costs and expenses.........................
		 Operating income.......................
II Identifiable assets,
depreciation expense, loss on
impairment of fixed assets andcapital expenditures:
Identifiable assets..............................
Depreciation expense....................
Loss on impairment
	  of fixed assets....................................
Capital expenditures.......................

¥ 260,727
1,893
262,620
179,125¥ 83,495¥211,035—
211,035
174,499¥ 36,536¥141,244
1,320
142,564
133,748¥   8,816¥56,119413
56,53235,594¥20,938¥ 7,709
2,662
10,371
12,855¥ (2,484)¥ 676,834
6,288
683,122535,821¥ 147,301¥    —(6,288)(6,288)3,837¥ (10,125)¥ 676,834—
676,834
539,658¥ 137,176¥1,787,363
14,570¥554,520
103¥ 19,939
143¥17,825305¥47,39764¥2,427,044
15,185¥320,856
492¥2,747,900
15,677793
151,557

—
129

—
254

—
347

—
275

793
152,562—244

793
152,806

Elimination
and/orcorporate

Consolidated

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

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

¥ 232,248
2,032
234,280
170,980¥ 63,300¥224,735—
224,735
191,618¥ 33,117¥133,609
1,549
135,158
126,412¥   8,746¥48,939278
49,21732,249¥16,968¥ 6,994
3,157
10,151
9,668¥   483¥ 646,525
7,016
653,541
530,927¥ 122,614¥—(7,016)(7,016)3,575¥ (10,591)¥ 646,525—
646,525534,502¥ 112,023¥1,619,959
15,209¥415,441100¥ 19,617
127¥ 8,457309¥51,464
77¥2,114,939
15,822¥345,141508¥2,460,080
16,33024,335
237,078

888
2,529

21
300

—
317

—
30

25,244240,254—260

25,244
240,514

Millions of yen							Leasing
Sales
Construction Brokerage
Other		For 2005
businessbusinessbusinessbusinessbusiness
Total

Elimination
and/orcorporate

Consolidated

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

¥ 219,386
1,848
221,234
165,366¥   55,868¥224,191—
224,191
191,836¥ 32,355¥122,297
5,091
127,388
118,958¥   8,430¥42,953492
43,44529,956¥13,489¥ 7,288
4,296
11,584
10,141¥ 1,443¥ 616,115
11,727
627,842516,257¥ 111,585¥     —
(11,727)(11,727)(433)¥ (11,294)¥ 616,115—
616,115515,824¥ 100,291

II Identifiable assets,
depreciation expense andcapital expenditures:
Identifiable assets..............................
Depreciation expense . .................
Capital expenditures.......................

¥1,538,469
13,058111,577¥293,260
111
262¥ 17,755
120
296¥ 7,935275
329¥48,473
81
111¥1,905,892
13,645112,575¥230,437
374
898¥2,136,329
14,019113,473

II Identifiable assets,
depreciation expense, loss on
impairment of fixed assets andcapital expenditures:
Identifiable assets..............................
Depreciation expense....................
Loss on impairment
	  of fixed assets....................................
Capital expenditures.......................

41

Thousands of U.S. dollars							Leasing
Sales
Construction
Brokerage
Other		For 2007
businessbusinessbusinessbusinessbusiness
Total

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

$ 2,207,867
16,0302,223,897
1,516,852$   707,045

II Identifiable assets,
depreciation expense, loss on
impairment of fixed assets andcapital expenditures:
Identifiable assets.............................. $15,135,600
Depreciation expense....................
123,380
Loss on impairment
	  of fixed assets....................................
6,715
Capital expenditures.......................
1,283,402

Elimination
and/orcorporate

Consolidated$1,787,069—
1,787,069
1,477,678$ 309,391$1,196,071
11,1781,207,249
1,132,594$ 74,655$475,222
3,498
478,720
301,414$177,306$ 65,281 $ 5,731,510
22,54253,24887,8235,784,758
108,858
4,537,396$ (21,035) $ 1,247,362   — $ 5,731,510(53,248)—(53,248)
5,731,510
32,4924,569,888$ (85,740) $ 1,161,622$4,695,741
872$ 168,846
1,211$150,944
2,583$401,363
542$20,552,494
128,588$2,717,046
4,167$23,269,540
132,755

—
1,092

—
2,151

—
2,938

—
2,330

6,715
1,291,913

—
2,066

6,715
1,293,979

Distributions from SPCs and partnerships that operate real estateleasing business are included in net sales of the “Leasing business”.
The Company classified expenses and assets of the general administrative division in certain consolidated subsidiaries to unallocatable
operating expenses and corporate assets in the seg­ment information
for the years ended March 31, 2007, 2006 and 2005.

$

Under a new management policy, the Company compares thecontribution levels of the business operations between each segment
more promptly, clearly, and easily.

23. Contingent liabilities
At March 31, 2007, the Company and its consolidated subsidiaries were contingently liable as guarantors of borrowings by customers and others
in an amount aggregating to ¥392 million ($3,320 thousand).

24. Subsequent events
The Company issued ¥20,000 million ($169,362 thousand) in 1.70%
domestic straight bonds due 2013 on May 8, 2007.
The Company issued ¥20,000 million ($169,362 thousand) in 1.80%
domestic straight bonds due 2012 on June 27, 2007.

42

On June 28, 2007, the shareholders of the Company approved payments of a year-end cash dividend of ¥8 ($0.07) per share or a total of¥3,798 million ($32,162 thousand) to shareholders of record at March
31, 2007. Such appropriations are recognized in the period in which
they are approved by the shareholders.

Independent Auditors’ Report

To the Shareholders and Board of Directors of
Sumitomo Realty & Development Co., Ltd.:We have audited the accompanying consolidated balance sheets of Sumitomo Realty & Development Co., Ltd. and consolidated subsidiaries as of March 31, 2007 and 2006, and the related consolidated statements of income, changes in net assets andcash flows for each of the three years in the period ended March 31, 2007, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to independently express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Sumitomo Realty & Development Co., Ltd. and subsidiaries as of March 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2007, in conformity with accounting principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2007
are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our
opinion, such translation has been made on the basis described in Note 1 to the consolidated financial statements.

Tokyo, Japan
June 29, 200743

Senior Management(As of August 1, 2007)

BOARD OF DIRECTORS AND AUDITORS
Chairman of the Board
Junji Takashima*1

Executive Officers
President
Kenichi Onodera*2

Vice Chairman
Tetsuro Tsuruta

Senior Managing Executive Officers
Tsutomu Oyama*2
Yoshifumi Nakamura*2
Hiroyuki Asano*2
Yoshiteru Nishimoto*2
Takashi Saito*2
Kenichi Kameyama

President
Kenichi Onodera*1
Director & Advisor
Taro Ando
Directors
Tsutomu Oyama*1
Yoshifumi Nakamura*1
Hiroyuki Asano
Yoshiteru Nishimoto
Takashi Saito
Masayoshi Ohashi
Statutory Auditors
Shinsaku Sanmoto
Naoto EndaManaging Executive Officers
Masaki Ogawa
Takao Shiojima
Masayuki Takahashi
Nobuaki Takemura
Satoru Ozawa
Kojun Nishima
Masato Kobayashi
Toshikazu Tanaka
Yoshinobu Sakamoto
Yoshiya Unno
Isamu Jobo

Standing Statutory Auditors
Ryoichi Nomura
Tadashi Kitamura
Kunio Kobayashi

Corporate Data
(As of March 31, 2007)

Head Office
Shinjuku NS Building
4-1, Nishi-Shinjuku 2-chome
Shinjuku-ku, Tokyo 163-0820, Japan
Phone: +81-3-3346-2342
Facsimile: +81-3-3346-1652
Corporate Website
http://www.sumitomo-rd.co.jp/
Date of Establishment
December 1, 1949
44

Number of Employees
8,280 (Consolidated)
Major Consolidated Subsidiaries
Sumitomo Real Estate Sales Co., Ltd.
Sumitomo Fudosan Syscon Co., Ltd.
Sumitomo Fudosan Tatemono Service Co., Ltd.
Sumitomo Fudosan Esforta Co., Ltd.
Sumitomo Fudosan Finance Co., Ltd.
Universal Home Inc.
Sumitomo Fudosan Reform Co., Ltd.

Executive Officers
Koji Ito
Yoshiyuki Odai
Masumi Aoki
Hisatoshi Katayama
Kazuo Yoda
Fumiyoshi Endo
Yasuo Taku
Masayuki Iwamoto
Hiroshi Kato
Hiroyuki Hashizume
Naoki Ogawa
Tomohiro Kawamura
Shinichi Soejima
Makoto Nakano
Kenichi Kawai
Tomonaga Nagai*1 Representative Director*2 Serves as both a director and an executive officer

Investor Information(As of March 31, 2007)

Paid-in Capital¥122,805 million

Major Shareholders
		
		
		

Number of Common Stock
Authorized: 1,900,000,000 shares
Issued: 476,085,978 shares
Number of Shareholders
17,690Stock Exchange Listings
Tokyo Stock Exchange
Osaka Securities Exchange
Breakdown of Shareholders
Trust Accounts
Financial Institutions
Other Companies
Foreign Companies
Individuals and Others

19.94%
10.31%
24.41%
39.87%
5.47%

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

Number ofshares held(Thousands)

Percentageof shares held

21,867

4.59%

16,091

3.38

15,806
11,9903.32
2.52

11,251
8,136
8,043
7,912
6,740
6,500

2.36
1.71
1.69
1.66
1.42
1.37

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

2,400

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

6,000

1,800

4,500

1,200

3,000

600

1,500

0

0

(Millions of shares)

200

Trading Volume

150
100
50
0

7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6
2002
2003
2004
2005
2006
2007

45

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

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

Printed in Japan
Printed on recycled paper