Strategies for Stable and Strong Growth

Annual Review 2007
For the year ended November 30, 2007

Profile
The Tosei Group’s mission is to create new value and inspiration in all aspects of realestate as a global-minded group of seasoned professionals.
Under the banners of “finance and real estate” and “quality construction,” the Tosei
Group works to contribute to society and increase its corporate value by restoring thevalue of real estate and other assets with a view 10 to 20 years in the future.

Contents
Financial Highlights ........................................................

1

Corporate Social Responsibility (CSR)............................ 15

To Our Stakeholders.......................................................

2

Enhancing Corporate Governance ................................ 16

Strategies for Stable and Strong Growth....

6Management’s Discussion and Analysis ofOperations and Finances ............................................ 18

Stable Growth .......................................................... 6
Strong Growth .......................................................... 8
Review of Operations..................................................... 10
Revitalization Business................................................ 11
Development Business ................................................ 12
Rental Business............................................................ 13
Fund Business .............................................................. 13
Property Management Business................................. 14
Alternative Investment Business ................................ 14

Consolidated Balance Sheets ......................................... 22
Consolidated Statements of Operations ....................... 24
Consolidated Statement of Changes in Net Assets ...... 25
Consolidated Statements of Cash Flow......................... 26
Notes to Consolidated Financial Statements ................ 27
Corporate Data ............................................................... 32
Investor Information ...................................................... 33

Forward-looking Statements
This annual report contains forward-looking statements regarding the Company’s plans, outlook, strategies and results for the future. All forward-looking statements are basedon judgments derived from the information available to the Company at the time of publication. Certain risks and uncertainties could cause the Company’s actual results to differ
materially from any projections presented in this report. These risks and uncertainties include, but are not limited to, the economic circumstances surrounding the Company’sbusinesses; competitive pressures; related laws and regulations; product development programs; and changes in exchange rates.

Financial Highlights
Tosei Corporation and its Consolidated Subsidiaries
Years ended November 30

Change (%)

Thousands of
U.S. dollars (Note)2007/2006

2007

24,741
5,901
2,737

62.0%
52.6
66.5

$361,070
81,13041,056¥12,095.04
2,200.00
51,089.15¥ 7,412.80
1,400.00
40,414.50

63.2%
57.1
26.4

$ 108.94
19.82
460.18

¥

¥

44.5%
26.4

$782,940
173,410

Millions of yen

2007
Operating Results (For the year):
Revenues ............................................................
Operating income ...............................................
Net income .........................................................

¥Per Share Data (In yen and U.S. dollars):
Net income per share ...........................................
Cash dividends ....................................................
Book value per share ...........................................
Financial Position (At year-end):
Total assets .........................................................
Net assets ...........................................................
Number of employees ..........................................

2006

40,086
9,007
4,558

¥

86,922
19,252
194

Financial Indicators:
Operating income ratio (%) ..................................
Return on total assets (ROA) (%) ...........................
Return on equity (ROE) (%) ..................................

60,136
15,230
134

22.5%
6.2%
26.4%

23.9%
5.4%
23.3%

Note: U.S. dollar amounts have been translated from yen, solely for the convenience of the reader, at the rate prevailing on November 30,
2007 of ¥111.02 to US$1.

Revenues/Operating Income Ratio

Operating Income/Net Income

Total Assets/Net Assets

5 consecutive years of growth in revenues
and income, 62.0 percent year-on-yearincrease in revenues in 2007

52.6 percent increase in operating income,66.5 percent increase in net income

44.5 percent increase in total assets,
26.4 percent increase in net assets(Millions of yen/%)(Millions of yen)

50,00023.9
20.0

40,08640,00030,000

22.5

14.4

25

(Millions of yen)

10,000

20

8,000

15

6,000

10

4,000

75,00024,741

4,558

17,64410,000

0

2003

2004

Non-consolidated■ Revitalization Business■ Development Business■ Rental Business■ Fund Business

2005

2006

2007

2,000

0

0

Consolidated■ Property Management Business■ Alternative Investment Business● Operating Income Ratio

40,407

2,093
1,206
442

2003

29,43930,0002,737
545,0003,536

14,514
9,456

60,13660,000

5,901

12.8
20,00086,92290,000

9,007

19,143
1,593

793

2,046

2004

Non-consolidated

2005

15,23015,0002006

2007

Consolidated■ Operating Income■ Net Income

0

2003

6,659

8,294

2004

2005

Non-consolidated

2006

19,252

2007

Consolidated■ Total Assets■ Net Assets(Right scale)Note: The Tosei Group began consolidated financial reporting in the fiscal year ended November 30, 2005.

ANNUAL REVIEW 2007

1

To Our Stakeholders

President and CEO

Seiichiro Yamaguchi

We aim to create new value and inspiration by maintaining our firm foundation as awinning company and achieving further growth.

Overview of Results for the Fiscal Year Ended November 30, 2007
Profits grew substantially, as our performance exceeded projections.
In the real estate industry, publicly disclosed land prices as of August 2007 showed that the nationwide averageassessed value of land in Japan increased for the second consecutive year. Land prices in Tokyo, in particular,
maintained strong upward momentum, rising an average of 17.1 percent year on year according to a National Tax
Agency report. In the market for leased office space in Tokyo’s 23 wards, both the vacancy rate and rents werefavorable. The average vacancy rate as of November 2007 was 1.8 percent, a 0.8 percentage point decline from
December 2006, while the average new tenant lease rate rose 6.0 percent over the same period. On the other hand,in the market for leased residential space in the greater Tokyo area, when indexed to September 2005 levels, rents
increased only 0.2 percent year on year compared with a substantial 11.5 percent rise in office rents.
In this environment, the Tosei Group expanded its business activities by making maximum use of the strengths it
has built up over many years: quality construction, real estate revitalization and asset management know-how insmall to medium-sized properties in Tokyo’s 23 wards. Performance exceeded original projections, with our core
revitalization and development businesses driving earnings, steady growth of the balance of assets undermanagement in the fund business and solid earnings in the rental and property management businesses. As a result,for the year ended November 30, 2007, the Group achieved substantial increases in revenues and profit.
Consolidated revenues were ¥40,086 million, an increase of 62.0 percent year on year, operating income was¥9,007 million, an increase of 52.6 percent, and net income was ¥4,558 million, an increase of 66.5 percent.

2

Progress of the Medium-term Management Plan GROWING UP 2008
We exceeded our targets for the year by a wide margin, achieving the final-year profit
targets of the medium-term management plan a year in advance. As a result, we havemade further upward revisions to targets for the final year ending November 2008.
The Tosei Group is working diligently to meet the targets of its medium-term management plan GROWING UP
2008, which covers the three years to November 2008. Based on the principle that enhancing corporate value
requires both earnings growth and improvements in management quality, the plan is designed to strengthen theGroup’s business base and build a foundation for further growth on the basis of two cornerstones: doubling thescale of business and building the corporate brand.
As a result of the faster pace of our business activities and a strong market, we are well ahead of the originalplan in terms of doubling the scale of our business. We achieved our original profit targets for the final year of theplan (the year ending November 2008) one year ahead of schedule, and have revised those targets upward. Taking
into account factors such as the current inventory balance, our source of growth, we are now aiming to achieve
revenues of ¥56,872 million (a 41.9 percent increase year on year and 140 percent of the original target) andordinary income of ¥12,090 million (a 52.1 percent increase year on year and 202 percent of the original target).

Initiatives to Build the Corporate Brand
As part of our effort to deepen our relationships of trust with stakeholders, we willbuild a brand that combines innovation and challenge with security and reliability.
One of the pillars of the medium-term management plan is building the corporate brand. By building a brandthat combines innovation and challenge with security and reliability, we will deepen the relationship of trust with
our stakeholders, which is a vital condition for continuous growth. Therefore, we rigorously implemented in-houseresearch and training to instill the philosophical framework for the Group that we adopted in October 2006, andworked to enhance corporate governance by focusing on raising awareness of compliance, strengthening risk
management and practicing timely disclosure. To secure and train personnel, we increased new hiring and initiatedTargets of the Medium-term Management Plan GROWING UP 2008 (December 2005 - November 2008)
FY ended Nov. 2005 FY ended Nov. 2006 FY ended Nov. 2007
(Actual)(Actual)(Actual)FY ending Nov. 2008
(Targets)

Revenues¥17.6 billion¥28.4 billion—¥40.5 billion➜¥24.7 billion➜¥40.0 billion➜¥56.9 billion

Ordinary income¥2.9 billion¥4.0 billion—¥6.0 billion➜¥5.3 billion➜¥7.9 billion➜¥12.1 billion

Net worth ratio

20.5%

—

—

30.0%

➜25.3%➜22.1%➜ 25.2%Return on equity
(ROE)

19.2%

—

—

18.3%

➜23.3%➜26.4%➜ 30.4%Return on total assets
(ROA)

3.9%

—

—

5.5%

➜5.4%

➜6.2%

➜ 7.2%

Fund asset balance¥20.2 billion¥41.3 billion¥85.0 billion¥130.0 billion➜¥41.2 billion➜¥93.6 billion➜¥166.1 billion

Number of employees

107

139

157

170

➜134

➜194

➜250

Notes: 1. Upper figure: original target; lower figure: actual/new target
2. The targets of GROWING UP 2008 were set on the basis of information gathering and analysis believed to be proper when
the plan was established. However, the Group may not be able to gather all necessary information, or may be unable toreach the targets due to changes in the business or various other factors.
ANNUAL REVIEW 2007

3

programs aimed at raising the level of job satisfaction and employee skills. Further, we promoted rooftop greening
to address environmental concerns. Besides mitigating the urban heat island effect, rooftop greening is known tohave various benefits such as reducing CO2 levels, increasing building durability and providing a relaxing
environment for tenants. This is one way in which the Tosei Group is contributing to society directly through its
business. We have steadily carried out rooftop greening since June 2006, when we announced our policy to do sofor all of the properties we own. As of November 30, 2007, we added rooftop greenery to a total of 35 properties.

Initiatives for Further Growth
To ensure further growth in the next fiscal year and beyond, we will continue
reinforcing our business base as a winning company.
In addition to achieving our profit targets for the year ending November 2008, maintaining steady growth overthe medium to long term is imperative. However, the Group’s operating environment is undergoing a major wave ofchange, and we cannot be complacent.
Until now, the real estate market has expanded and prices have risen across the board, but such uniform growthcannot be expected in the future. While the market should continue expanding with the increasing securitization ofreal estate, disparities are emerging among properties based on location and use. This trend is likely to become evenmore pronounced. The real estate industry, which has enjoyed booming conditions overall from the growth of themarket itself, is also expected to undergo drastic changes. With the tightening of laws such as the Financial
Instruments and Exchange Law and more stringent screening of borrowers of real estate loans, we will likely see ashakeout of industry players according to their corporate governance, investment acumen, development capabilities,
technology, marketing power, ability to procure capital, and other factors.
The Tosei Group views the predicted polarization of the market landscape as a business opportunity, because
competition will decrease and possibilities for expanding market share will increase. In order to capture thesegrowth opportunities and achieve further growth as a winning company, we will need to take full advantage of thelocational superiority of the 23 wards of Tokyo, the Tosei Group’s primary market, and our core competence ofknow-how in small to medium-sized properties. In addition, we will need to reinforce our business base.

Reinforcing the Business Base
Real Estate Market Trends:
Disparities among Properties Have Emerged

Real Estate Industry Trends:
The Shakeout of Industry Players Will Continue• Current inventory balance will provide sufficient earnings in the year ending November 2008.
• Create a stable earnings base and aim for further growth as a winning company.
Promote Development of the Business Base
① Expand earnings by supplementing stable small③ Secure stable earnings by increasing fee income

to medium-sized properties with purchases ofhighly profitable large-scale properties.

in the fund, rental and property managementbusinesses.

② Manage a portfolio built from a diverse

development menu.

4④ Develop internal frameworks to enhance

corporate governance as a superior company.

To Our Stakeholders

Under these conditions, given that our current inventory balance will allow us to generate sufficient earnings in
the year ending November 2008, we will focus on building the cornerstones of growth for the next fiscal year andbeyond by implementing the following four measures to reinforce our business base.

1. Expand Earnings by Focusing on Purchases of Large-Scale Properties
In addition to steadily increasing profits from small to medium-sized properties that provide stable earnings, wewill aim for higher earnings by expanding business in highly profitable medium to large-scale properties of¥2 billion or more.

2. Manage a Portfolio Built from a Diverse Development Menu
We will aim to maximize property values and increase earnings by flexibly managing the Group’s portfolio, which
consists of diverse properties including office buildings, income-producing condominiums, condominiums for saleto individual end-users and commercial facilities, according to factors such as real estate market and area trends.

3. Secure Stable Earnings by Increasing Fee Income
In addition to steadily securing fee income in the rental and property management businesses, we will
strategically expand funds by speeding up asset growth in the fund business through cooperation with major
enterprises such as Mitsubishi Corporation and the Development Bank of Japan, as well as foreign investors. In
this way, we will ensure a stable stream of income.

4. Develop Internal Frameworks to Enhance Corporate Governance as a Superior Company
We will strengthen our internal infrastructure for a high-level response to the Financial Instruments andExchange Law, the revised Building Standard Law and other laws. Initiatives will include reinforcing our risk
management structure, upgrading structures and systems that instill awareness of compliance, enhancing ourframework for timely disclosure and checking capabilities, and conforming to the Financial Instruments andExchange Law, or J-SOX.

A Group of Seasoned Professionals
We will create new value and inspiration to realize continuous growth.
The Tosei Group will remain committed to implementing its philosophy, “To create new value and inspiration in
all aspects of real estate as a global-minded group of seasoned professionals.” At the same time, we will work toachieve continuous growth by further expanding the scale of our business and building the corporate brand.
It is Tosei’s policy to continuously provide stable dividends while setting the amount at a level that takes into
account operating results, the future operating environment, progress of the business plan, and balancing dividends
with the need for internal capital resources to generate long-term growth in corporate value by taking advantage ofhighly profitable opportunities. Given the progress of Group operations, we have set the target payout ratio for theyear ending November 2008 at 20 percent of consolidated net income, compared with 20 percent of nonconsolidated net income in the past fiscal year.
We appreciate your steady support.
February 2008

Seiichiro Yamaguchi
President and CEO

ANNUAL REVIEW 20075

Strategies for Stable and Strong Growth

Stable Growthfrom Small to Medium-sized Properties

The Tosei Group intends to expand business operations using its know-how accumulated in
the 23 wards of Tokyo to achieve stable growth in the medium to long term.

Revitalization and Development
Business Revenues by Area
(%)
100

80

With over 10 years of experience centered on small
to medium-sized properties in the 23 wards of Tokyo,

0.7

2.2

including investment acumen, development and techno-

27.1

logical capabilities, and selling power. As a company
with “value-up” capabilities, Tosei considers this market

60
99.3
40

100

97.8

72.9

to be capable of stable growth irrespective of economic
conditions because it offers superior locations and has

20huge potential.

0

Year ended
Nov. 2004

6

the Tosei Group has accumulated diverse know-how

Year ended
Nov. 2005

Year ended
Nov. 2006

23 wards of Tokyo

Other areas

Year ended
Nov. 2007➤ The 23 Wards of Tokyo - An Appealing Market with
Growth Potential
The 23 wards of Tokyo have always been a comparatively high-growth

Vacancy Rate by City
(%)
10.0

market due to the high concentration of both companies and dwellings. The

8.0

vacancy rate for office buildings within the 23 wards of Tokyo continues to

6.0

23 Wards of Tokyo

NagoyaFukuoka

SendaiOsaka

decline. As of September 2007, it was 1.7 percent1, (a year-on-year decrease of
1.1 percentage points). Moreover, it is much lower than Osaka City’s vacancy

4.0

rate of 5.7 percent (down 0.9 points) and Nagoya City’s 6.6 percent (up 0.1

2.0

points). Rents have maintained a strong upward trend, with an average new

0.0

tenant lease rate of ¥13,370 per tsubo2 as of September 2007, up 5.4 percent

September
December
March
June
2006
2006
2007
2007
Source: K.K. Ikoma Data Service System, Office Market Report

year on year. The strength of this upward trend is evident when compared with

September
2007

Osaka City’s average new tenant lease rate of ¥8,820 per tsubo (a 0.1 percent
decrease) and Nagoya City’s ¥9,600 per tsubo (a 0.7 percent increase). With thegradual expansion of Japan’s economy, rents are expected to continue rising

Average New Tenant Lease Rateand with them the locational superiority of the 23 wards of Tokyo.

(¥/tsubo)
14,00023 Wards of Tokyo

NagoyaFukuoka

SendaiOsaka

13,000➤ The Small to Medium-Sized Property Market Is Largely
Untapped and Extremely Stable
The small to medium-sized property market in the 23 wards of Tokyo is aconsiderable business opportunity for the Tosei Group. The large demand is

12,00011,00010,0009,000

unparalleled, with small to medium-sized offices employing fewer than 30
workers constituting 93.7 percent3 of all offices in the 23 wards of Tokyo, and

8,000
September
2006

53.3 percent4 of all households living in non-wood construction rental housing

December
2006

March
2007

June
2007

September
2007

Source: K.K. Ikoma Data Service System, Office Market Reportearning a mid-range annual income from ¥3 million to ¥10 million. In contrast
to large-scale properties, many small to medium-sized buildings do not comply
with laws such as the Building Standards Law. For a company with “value-up”
capabilities such as Tosei, this represents a huge untapped market of properties
that need to be made legally conforming.
Although the market is huge, competition does not readily escalate. Supply
is limited because the number of small to medium-sized building construction

Five Inner-city Wards of Tokyo:
Average New Tenant Lease Rate Index
December 2001=100
Large-scale buildings
110

Medium-sized buildings

Small buildings

105

starts within the 23 wards of Tokyo has not increased significantly since 1994,
due in part to the difficulty for large real estate companies to participate.
Compared with the large-scale property market where rents rise and fall sharply
in response to changing economic conditions, the small to medium-sized

100
95
90

property market is stable because rents do not fluctuate greatly.

Tokyo to achieve stable growth in the medium to long term.

emb
e
Mar r
ch
Sep June
tem
ber
Dec
emb
e
Mar r
ch
Sep June
tem
ber
Dec
emb
e
Mar r
ch
Sep June
tem
ber
Dec
emb
e
Mar r
ch
Sep June
tem
ber
Dec
emb
e
Mar r
ch
Sep June
tem
ber
Dec
emb
e
Mar r
ch
Sep Junetem
beraccumulated know-how in small to medium-sized properties in the 23 wards of

85

Dec

In such market conditions, The Tosei Group will fully use its many years of

2002
2003
2004
2005
2006
2007
Source: Prepared by Tosei based on materials from Miki Shoji Co., Ltd.

1. Source: K.K. Ikoma Data Service System, Office Market Report
2. See note 1 above.
3. Source: Ministry of Internal Affairs and Communications,
Statistics Bureau, Establishment and Enterprise Census 2004
4. Source: Ministry of Internal Affairs and Communications, Statistics Bureau,
Housing and Land Survey 2003

ANNUAL REVIEW 20077

Strong Growthfrom Large-Scale Properties

The Tosei Group will achieve further growth by steadily increasing profits from medium tolarge-scale properties, which provide stable earnings.

Revitalization and Development
Business Revenues by Property Scale

As disparities emerge based on individual property
characteristics such as location and use, it is important to(Millions of yen)
35,000earmark properties with potential, develop them to

30,000maximize their competitive edge and then sell them. In
15,98825,0002
properties

20,0002,202
15,00010,000

1 property

4,791

0

7,495

2 properties

4 properties

8,427
23
properties

17
properties

Year ended
Nov. 2004

Year ended
Nov. 2005

Under ¥1 billion

8

6,280

20.7
properties

Year ended
Nov. 2006¥1–2 billion

achieved rapid growth in revenues by securing steadyearnings from small to medium-sized properties while

1 property

6.6
1.4 properties properties

2,308
5,000

8,864

3,694

3,096

the year ended November 30, 2007, the Tosei Group

10,852
7.3
properties

expanding business in competitive large-scale properties
that are highly liquid and profitable.

6,251
16
properties

Year ended
Nov. 2007
Over ¥2 billion

Note: To simplify counting of properties in these materials, condominium
complexes and single family dwelling subdivisions for individual
end-users are treated as single properties. For sales that extend over
two accounting periods, the number of properties is divided
between the two periods.

Strategies for Stable and Strong Growth➤ The High Profitability of Medium toLarge-Scale Properties
The market for small to medium-sized properties is expected to remainfirm. Meanwhile, in the market for medium to large-scale properties, which
are easily influenced by economic conditions, earning power and liquidity willremain high primarily because of strong performance of large corporations.
However, with the emergence of disparities based on individual property
characteristics such as location and use, the competitive edge of superior
housing stock has risen progressively.
Responding to these conditions, the Tosei Group will achieve highprofitability by steadily increasing profits from small to medium-sizedproperties, which provide stable earnings, while stepping up initiatives inhighly competitive and profitable large-scale properties in both thedevelopment and the revitalization businesses.

➤ Medium to Large-Scale Property Initiatives
The Tosei Group currently achieves high profitability by applying its
strengths to sell competitive properties.
One example is the Ueno Tosei Building. The Group provided construction

Ueno Tosei Building (Taito Ward)
Floor space: 7,170m2
Construction: Steel frame, 10 floors above ground
Details:
Ascot INC. hired Tosei as an advisor for
developing an office building in Tokyo,
including business scheme formulation,
basic architectural planning, acquisitionof adjacent land, management of designand construction companies, and lease
up of the completed building. Construction
was completed in May 2007. Tosei
acquired the property in June bypurchasing the trust beneficiary rights.
(Included in a fund managed by Tosei)

management and advisory services under contract and acquired the property
on completion of construction. By deploying its development and leasingknow-how, the Group secured high rents. The scarcity of high-spec buildingsin the area resulted in strong demand for this highly functional building with
550m2 (166.4 tsubo) per floor. Contracts were concluded at rents of ¥21,00026,000 per tsubo, or about 30 percent higher than the initial estimate of¥17,000 per tsubo. Main tenants are homebuilders and IT companies and theoccupancy rate is 100 percent.
The Group also applied its discerning eye and technological capabilities
developed over many years to renew and lease up the Ginza Wall Building, alarge building complex located in Ginza 6-chome acquired as part of corporate
turnaround assistance. These initiatives raised the average rent for the highly
profitable retail floor 80 percent from initial ¥25,000 per tsubo at the time ofacquisition to ¥45,000 per tsubo. The occupancy rate of the building was over
90 percent as of April 2007.
The Group is aiming for strong growth by expanding business in superior

Ginza Wall Building (Chuo Ward)
Floor space: 16,949m2
Construction: 12 floors above ground, 3 floors below
Details:
Large-scale renewal including changes tothe retail shop section, approach andinstallation of a new interior stairway,
as well as “value-up” activities to makethe building legally conforming.

medium to large-scale properties such as the Ueno Tosei Building and the
Ginza Wall Building.

ANNUAL REVIEW 2007

9

Review of Operations
Business Segment

Percentage of Revenues

Revitalization Business

60.7%

Development Business

21.9%

Rental Business

8.4%

Fund Business

2.8%

Property Management Business

5.6%

Alternative Investment Business

0.6%

Note: Excludes intersegment revenues.

10

Description of Activities
The development business acquires office buildings, commercial
facilities, rental condominiums and other properties whose asset
value has declined, increases their value through “value-up plans”
that best match local characteristics and user needs, and resells
them as revitalized real estate to investors, real-estate funds andindividual end-users.

The development business studies factors relating to properties
it purchases including local area and site characteristics, use,demand, rent levels and selling prices to maximize their value
through development and new construction before selling them assingle properties or subdividing them for individual sales to endusers. The segment handles a lineup of projects including officebuildings, commercial and mixed-use facilities, condominiums (THE
Palms Series) and detached housing (THE Premium Court Series).
The Tosei Group owns office buildings, condominium complexes
and other properties primarily in the 23 wards of Tokyo, which it
rents to end-users. As a landlord, the Tosei Group can quickly
gather accurate information on tenant needs, which contributes tofurther enhancing “value-up plans” to reflect those needs.

For real estate funds structured with investor participation, theTosei Group locates, surveys and provides other services forproperties that match investor needs. It also provides funds withadvice on the purchase, ownership and disposal of properties.
Acquisition fees and asset management fees are the main
sources of revenues for this segment.

The property management business conducts comprehensive
property management to meet a variety of real estate needs,
including administration, facility management, cleaning and security
for condominium complexes and office buildings and facilities,
specialized building and utilities repair work for units incondominium complexes and office buildings, and office interiorrenovation contracting.

The alternative investment business invests in non-performing
loans (NPLs) collateralized by real estate, recovers loans or acquires
mortgaged properties through like-kind exchanges by negotiatingwith the owners or debtors. It also uses mergers, acquisitions andother means to acquire properties of companies including thosewith real estate holdings or associated with real estate.

Revitalization Business
Securing steady earnings from small to medium-sized properties while accelerating growth throughhighly profitable medium to large-scale properties.

Revenues/
Operating Income(Millions of yen)

24,31025,00020,000

7,286

10,0008,000

15,65015,0006,000
10,40010,000

4,040

4,000

2,222
5,000

0

2,000

2005

2006

2007

0

■ Revenues ■ Operating Income (Right scale)

Ueno Tosei Building (Taito Ward)

Results for the Fiscal Year Ended November 30, 2007

Current Initiatives

The development business temporarily acquires real estate

Tosei will continue to secure steady earnings from small towhose asset value has declined, increases its value through “value-

medium-sized properties while accelerating growth through highly

up plans” that best match local characteristics and user needs, andprofitable medium to large-scale properties. In addition to selling theresells those properties to investors, real-estate funds and individual

large-scale Ginza Wall Building, acquired as part of corporate

end-users. It is the Tosei Group’s core business, accounting for more

turnaround assistance and included in a fund it manages, the Tosei

than 60 percent of revenues. The Group’s “value-up plans” do not

Group will pursue acquisition of commercial buildings near train

end with renewal. Tosei works to comprehensively restore property

stations in the 23 wards of Tokyo. The revitalization business willvalue by focusing on providing property owners with satisfaction

continue working to increase the value of real estate from the pointand end-users with pride in addition to improving convenience andof view of the end-user by creating unique, distinctive restored

functionality.

properties with even higher quality.

In the year ending November 2007, the real estate trading
market remained brisk due to rising land prices and solid corporate
performance. While the number of transactions announced by listed
enterprises decreased due to such factors as intensifying
competition in real estate acquisition and lower yields resulting fromhigher real estate prices, the total value of sales increased year on
year due to a large number of high-value property purchases inmajor city centers for redevelopment and office building
reconstruction (source: private-sector survey).
In this environment, the Tosei Group increased revenues andoperating income by selling highly profitable medium to large-scale
properties while securing steady earnings for small to medium-sizedproperties. Among the 22 properties sold, office buildings andvacant buildings yielded particularly high margins, partly as a resultof demand for head office locations and other owner uses amidtight supply.

Left:

Nihonbashihamacho Ichida Building(Chuo Ward)
Right: Naruse MS Center Building(Machida City)ANNUAL REVIEW 200711

Development Business
Pursuing further growth by developing medium to large-scale properties, income-producing
condominiums and condominiums for individual sale to end-users, followed by commercial andmixed-use facility projects near train stations.
Revenues/
Operating Income(Millions of yen)

10,000

2,000

8,782
8,000

1,600

6,000

1,200
4,467
3,843

4,000
548

824

2,000

0

800

514
400

2005

2006

2007

0

■ Revenues ■ Operating Income (Right scale)Heiwajima 4-chome Office Building
Project (Ota Ward)

Results for the Fiscal Year Ended November 30, 2007
This business develops “THE Palms Series” condominiums, “Palms

Building projects. The Heiwajima 4-chome Office Building Project,generated by synergy between the development and fund businesses,

Court Series” single-family dwellings, rental condominium complexes,

is also moving ahead. This project comprises a recently built, highly

office buildings and commercial facilities with the aim of maximizing

profitable office building that Tosei is preparing for purchase as an

the value of properties primarily in the 23 wards of Tokyo, where

income producing property by a fund it manages, and a run-down

solid growth is expected. In addition to having a first-class architect’s

warehouse the Company will purchase and develop directly.

office in house, Tosei Corporation provides customers with maximum

Collaboration between Tosei’s development and fund businesses

value and inspiration by enforcing a commitment to quality

enabled a purchase on better terms than other companies canconstruction with the Palms Quality Check (PQC) System, theachieve. Properties scheduled for sale to individual end-users include

Company’s own original quality standard.

THE Palms Ota Chuo and THE Palms Takenotsuka. Those slated for

In the year ended November 2007, the supply of condominium

sale to investors include THE Palms Gakugeidaigaku and THE Palms

units for sale in the greater Tokyo area was approximately 60,000

Shinkoiwa. Like the revitalization business, the development business

units, the lowest in 14 years (source: private-sector survey). This was

will also expand business in commercial facilities by developing

likely because consumers held back due to the increase in sellingcommercial and mixed-use facilities near train stations. Construction

prices caused by increases in land and construction costs. Althoughof the Kichijoji Commercial Building, which features four floors above

land prices and office rents rose, Tosei expects the office building

ground and one below, was completed in February and a tenantdevelopment market to remain firm due to strong demand.

contract was concluded with major apparel maker Eddie Bauer. Other

Because of favorable market conditions, the Company

development projects in progress include the Kokuritsufukugo

concentrated on lease-up activities and made plans to sell newly

Building Project, the Daizawa 5-chome Commercial Building Project

constructed office buildings in the year ended November 2007 or

and the Tokiwadai Commercial Building Project.

later. As a result, all revenues were from residential development.
Sales to end-users included all 108 units of newly listed THE Palms
Setagaya Sakura as well as THE Palms Honkomagome and THE Palms
Yoga. Sales to investors included the sale of 30 units at THE Palms
Denenchofu.

Current Initiatives
Main projects for the year ending November 2008 include theKanda Tosei Building, which was completed in May 2007, and theKanda Okawamachi Building II and the Higashi-ikebukuro 5-chome

Left:

THE Palms Setagaya Sakura(Setagaya Ward)
Right: Kichijoji Commercial Building(Mitaka City)
Note: Project names are subject to change upon completion.

12

Rental Business

Fund Business

Aiming to proactively expand stable earnings
sources while giving due consideration to thebalance of fixed and current assets.

Increasing the balance of fund assets undermanagement by increasing individual fund asset
balances and structuring new funds.

Revenues/
Operating Income

Revenues/
Operating Income(Millions of yen)

(Millions of yen)

3,415

3,500

2,800

2,500

1,500

2,000

1,200

1,500

900

1,000

600

500

300

0

0

1,419
1,117 1,147

1,630
2,100

1,839
1,645

1,400

929

985

700

0

2005

2006

2007

■ Revenues ■ Operating Income (Right scale)

Toranomon Tosei Building,(Minato Ward)

Note: Revenues for the fiscal years ended
November 30, 2007 and 2006 include ¥40
million and ¥3 million, respectively, fromintersegment transactions.

Results for the Fiscal Year Ended November 30, 2007
This business rents its office buildings, condominiums and other

587
349
295

2005

2006

2007

■ Revenues ■ Operating Income

Fujimi East-West (Chiyoda Ward)

Note: Revenues for the fiscal year ended
November 30, 2007 and 2006 include¥28 million and ¥14 million, respectively,from intersegment transactions.

Results for the Fiscal Year Ended November 30, 2007
The fund business structures real estate funds with investor capital

holdings to end-users. It purchases highly profitable properties with aand locates and surveys properties that match investor needs. It also

discerning eye and uses its half-century of experience to maintainprovides funds with advice on the purchase, ownership and disposal ofhigher occupancy rates than neighboring properties and provide aproperties. Tosei restores the physical and intangible value of properties

stable stream of earnings from rental revenues.

purchased by funds and receives acquisition, asset management,

The average vacancy rate continued to drop in the market forleased office space in the 23 wards of Tokyo. As of November 2007 it

disposition and incentive fee revenues for managing their assets.
The balance of assets under management grew substantially due towas 1.8 percent, a 0.8 percentage point decline from December

steady purchases of properties by funds for which Tosei provides asset

2006. The average new tenant lease rate also continues to rise.

management services. As of November 30, 2007, the asset balance

In this environment, the Tosei Group increased its rental property
holdings to 67 (10 more than in the previous fiscal year) and achieved

totaled ¥93,691 million, an increase of 127.1 percent, or ¥52,440
million, from the end of the previous fiscal year.

stable rental earnings from revenues due to high occupancy rates.
Current asset properties increased by 8 to 44 from the previous fiscal

Current Initiatives

year due to steady purchases of properties for sale. Fixed asset

The fund business is aiming to increase the balance of fund assets

properties increased by 2 to 23 because two properties were

under management to ¥166,151 million for the year ending November

reclassified from current assets to2008 by increasing individual fund balances and expanding initiatives withstabilize operations.

major enterprises. Efforts will include expanding a fund that specializes incentrally located income-producing properties by collaborating withCurrent Initiatives

Mitsubishi Corporation and the Development Bank of Japan in addition to

Tosei is aiming to proactively

overseas investment banks already involved. This fund had an asset

expand its base of stable earningsbalance of approximately ¥21.0 billion as of December 31, 2007.

sources by steadily increasing its
property holdings while giving■ Upward Revision of Targeted Balance of Fund Assets under Management
FY ended
Nov. 30, 2006
(Actual)FY ended
Nov. 30, 2007
(Actual)FY endingNov. 30, 2008
(Target)Initial plan

41,30085,000130,000

Actual results/
Revised plan

41,251

93,691

166,151due consideration to the balanceof fixed and current assets.

Takaido Tosei Studio(Suginami Ward)(Non-consolidated, Millions of yen)

ANNUAL REVIEW 200713

Property Management Business

Alternative Investment Business

Strengthening the service provision framework
and product quality to establish a stableearnings base.

Aiming to accelerate business growth bycommercializing existing projects and acquiring
new ones.

Revenues/
Operating Income

Revenues/
Operating Income(Millions of yen)

(Millions of yen)

3,000

2,755

2,500
2,000

1,904

1,500

122

130

250

350

200

280

150

210

100

140

50

70

0

0

336
278

260

220
197

132

1,000
500
0

658
40

2005

2006

2007

■ Revenues ■ Operating Income (Right scale)

2005

2006

2007

■ Revenues ■ Operating Income

Notes: Revenues for the fiscal years ended
November 30, 2007 and 2006 include¥517 million and ¥233 million, respectively,from intersegment transactions.

Results for the Fiscal Year Ended November 30, 2007
Wholly owned subsidiary Tosei Community Co., Ltd. provides

Results for the Fiscal Year Ended November 30, 2007
Handled by wholly owned subsidiary Tosei Revival Investment Co., Ltd.,

comprehensive property management services, including security andthe alternative investment business invests in NPLs collateralized by realcontracting for renovation and repair and tenant leasing, forestate and recovers loans or acquires mortgaged properties through like-

condominiums, office buildings and other properties.

kind exchanges by negotiating with the property owners or debtors. It also

In the property management market, office building management

acquires properties of companies including those with real estate holdings

grew 4.6 percent year-on-year to ¥3.9 trillion as of March 2007 (source:or associated with real estate through mergers, acquisitions (M&A) andprivate-sector survey) due to an increase in construction demand centeredother means.

on redevelopment projects in the 23 wards of Tokyo driven by theCompetition has intensified for profitable high-value-added products

domestic economic recovery. Amid intensifying competition, however,

due to solid progress in the disposal of NPLs, with major financial

differentiation is progressing through corporate efforts in areas such as

institutions having largely disposed of theirs. In addition, the market isproviding efficient operations and services, developing technicalexpanding due to an increase in large-scale transactions caused by active

capabilities, diversifying into related areas and strengthening property

industry reorganization.

management capabilities.
In this environment, the Tosei Group worked to improve management

In this environment, the alternative
investment business focused on proactively

quality and establish a strict internal control framework while increasing

commercializing existing projects andthe number of properties managed and acquiring large-scale properties.

acquiring new ones. Through M&As, theThese efforts increased the number of properties managed by 19 frombusiness acquired two companies for their

the previous fiscal year to 438. This includes 300 office buildings and 138

real estate, three loans, and two properties

residential properties, increases of nine and 10, respectively.

through like-kind exchanges for debt theBalance of NPLs Acquiredand Balance of Real
Estate Holdings(Millions of yen)

4,000

3,530
3,000

2,000

Company had already acquired.

Current Initiatives
Reforms to establish a new

1,985

2,497

1,722

1,000

Current Initiatives

1,033

management system, as per the

The Tosei Group will fully leverage its

medium-term management plan,

capacity to restore real estate value in order towill include creating a framework

diversify its alternative investment initiatives.

for handling a large supply volume

Measures to accelerate business growth will include broadening the range ofand improving the quality of

M&A projects considered to include new fields of business such as regional

services to increase customer

projects, turnarounds and unlisted companies, while focusing on real estatesatisfaction.

companies. In acquiring NPLs collateralized by real estate, the Group is0■ NPLs

2005

2006

2007

■ Real Estate Holdings

considering expanding the lineup of property types to include properties

14

such as hotels and warehouses.

Corporate Social Responsibility (CSR)

The Tosei Group’s mission is to create new value and inspiration in all aspects of real estate as a
global-minded group of seasoned professionals. Based on this, it actively works to fulfill its
corporate social responsibilities with a fundamental awareness that the most important duty is tocontribute to society directly through the operations of each Group company.
Rooftop Greening Initiative
The Tosei Group is fundamentally aware that its most important

are newly constructed or existing.
Aside from rooftop greening, the Company has implemented

duty is to contribute to society directly through the operations ofeach Group company. Accordingly, it intends to implement practicalplans including aerial gardens and sky gardens for new

measures for each project and property as part of its CSR efforts.

condominium and other developments. At THE Palms Setagaya

As a first step, in June 2006 the Group announced its policy to

Sakura, an environment-conscious condominium complex

conduct rooftop greening as a general rule for all properties itcompleted in February 2007, Tosei proactively planted foliage

constructs, revitalizes or holds. Rooftop greening helps lessen thethroughout the site and along roadways to maintain the ecosystem

heat island effect, reduce CO2 and improve building durability.

and reduce energy loss. The property is also equipped with

Furthermore, its significant psychological benefits for occupants

emergency toilets and a storeroom containing an electricalinclude improved scenery and a relaxing effect. Actual data fromgenerator, food and drinking water as response measures in thetemperature sensors installed on the Takanawa Tosei Building,event of natural disasters. In addition, the Company’s construction

where rooftop greening has been completed, confirmed that it wasplans for a large-scale office building development in Heiwajima,

effective in lessening the rise in building

Ota Ward are devoted to being kind totemperature. The Company’s rooftop

people and nature, including extending

greening initiatives and thisfoliage to the adjacent Heiwanomori

accompanying experimental data have

Park, a double roof that will reduce roof

received attention, with coverage byheat load, and rooftop greening.
Under its slogan of “Putting Heartover ten media organizations, including
television. The number of Tosei

into the City,” the Tosei Group will

properties with rooftop greening was 35

work to evoke the appeal of urban

as of November 30, 2007. Tosei’scenters with the aim of building new

general policy is to continue rooftop

ones that respect the human spirit andthe environment.

greening in the future for all theproperties it handles, whether buildings

Takanawa Tosei Building, Minato WardIntellectual Property Strategy➤ The Palms Quality Check (PQC) System
To ensure uncompromising quality control and provide customers with peace of mind,
Tosei established the PQC System, an original quality standard based on the ISO quality
manual. From design to construction, properties developed by the Company undergo strict
checks by the supervisor and construction foreman based on PQC standard specifications.
For example, in the construction phase Tosei implements a double-check system consistingof step-by-step inspections by supervisors using a 14-point checklist followed byconfirmation of their reports by the Company. The PQC System is ISO9001-certified andundergoes semi-annual checks by the Japan Quality Assurance Organization.

ANNUAL REVIEW 200715

Enhancing Corporate Governance(As of November 30, 2007)

Fundamental Position on Corporate Governancenecessary, advice is also sought from outside professionals such as
lawyers and certified public accountants.
As subsidiary organizations of the Corporate Governance Meeting,Tosei has established a Compliance Committee, which is focused on
fostering Group awareness of compliance, and a Risk Management
Committee, which studies countermeasures for risks throughout theGroup. Each committee discusses and considers how to resolve mattersof concern reported by its members, not only in terms of legal
compliance, but from the perspective of corporate ethics and social
contribution as well.

The Tosei Group considers it an important management issue toearn the trust of its shareholders, investors, employees, customers,
business partners and all other stakeholders by responding promptly
and accurately to changes in the operating environment andmaintaining sound business activities that achieve growth. Accordingly,
its fundamental position on corporate governance is to enhanceawareness of corporate governance, focus quickly on identifying andformulating preventative measures for a variety of operating risks,proactively and appropriately disclose information beyond legal
requirements, promote enhancement of internal oversight and highly
transparent management, and build and operate the necessaryorganizational framework and associated systems to facilitate these
activities.

➤ Internal Audits
The Internal Audit Department, under the direct supervision of the
President, conducts Group-wide audits based on fiscal year plans, andmakes recommendations for improvement to divisions where
inadequacies have been found. It implements highly effective audits byenhancing follow-up, such as discussing matters requiring corrections
with concerned divisions and giving specific guidance.

Corporate Governance Measures➤ Board of Directors➤ Information Disclosure

Consisting of five directors, including one outside director, theBoard of Directors of Tosei is the topmost management decision-making
body. In accordance with Board of Directors regulations, it convenes
once a month and on an as-needed basis to decide management
policies and other important matters, and supervises the execution of
directors’ duties. One outside director was appointed at the 57th
General Shareholders’ Meeting on February 27, 2007.

In addition to preparing documents required pursuant to theCompany Law, the Financial Instruments and Exchange Law and otherlaws and releasing information pursuant to stock exchange regulations,
Tosei Corporation discloses corporate information to shareholders,investors and other stakeholders in a timely and appropriate manner
through IR activities, its website and other media.

➤ Accounting Audits➤ Corporate Auditors

Pursuant to the Company Law and the Financial Instruments andExchange Law, the independent auditing firm Ernst & Young ShinNihon
conducts audits of Tosei’s accounts under contract in accordance withan annual audit plan. In addition to audits at the end of the fiscal year
and the interim period, Ernst & Young ShinNihon performs reviews at
the end of the first and third quarters.

Tosei has adopted a corporate auditor system. The Board ofAuditors, consisting of two full-time and two part-time corporate
auditors, meets once a month, as a general rule. All corporate
auditors are from outside the Company to ensure highly objective
and effective auditing.

➤ Executive Officer System

16

Shareholders’ Meeting
Appoint/Dismiss

Appoint/Dismiss

Appoint/Dismiss
ReportBoard of Auditors
Audit/Report

Board of Directors

4 corporate auditors(all from outside
the Company)

Audit

5 directors(1 from outside
the Company)
DirectOutsideprofessionals➤ Corporate Governance Meeting

AdviseThe Corporate Governance Meeting
convenes twice a month, as a general rule, toensure ongoing enhancement of corporate
governance. Attended by the full-time directors
and full-time corporate auditors, it serves as avenue for identifying and discussing importantmatters related to governance and internal
control that affect corporate value. When

Corporate Governance Meeting

Consult

4 full-time directors
2 full-time corporate auditors
DirectReportRisk
Management
Committee
DirectReportDirectReportCompliance
Committee
DirectInformation
Disclosure
Committee

Report

Audit

ReportDirectPresident

Visiting audit (full-time auditors)

Independent
auditorElect/Dismiss officers of Group companies

Tosei has introduced an executive officer
system under which seven executive officers
appointed by the Board of Directors executeand oversee business tasks in accordance with
Board decisions and internal regulations. The
President convenes a Management Meeting
twice a month, as a general rule, to obtainadvice in advance of making important
decisions.

and CEO
ReportAudit/Report
Consult with
7 executive officers President(execution ofManagementbusiness tasks)
Meeting

7 executive officers(attended bycorporate auditors)
Direct/
Order

Report/Discuss

Internal Audit
Department
Audit

ReportAll divisions and Group companies

Management Team
President and CEO

Seiichiro Yamaguchi
Director and COO
Executive Officer of Asset Solution Department 1,
Asset Solution Department 2 and Asset Solution
Department 4

Katsuhito Kosuge
Director and CFO

Noboru Hirano
Director and Deputy CFO
Executive Officer of Corporate Planning Department;
Executive Officer and Manager of General
Administration Department

Syunichiro Naito
Independent Director

Goro Kamino
Corporate Auditors

Yasuhiro Honda (full-time)
Kimio Harada (full-time)
Shigeru Yamagishi (part-time)
Eiji Sakamoto (part-time)
Deputy COO
Executive Officer of Asset Solution Department 3 andArchitect Planning Department

Minoru Inazuka
Deputy COO
Executive Officer and Manager of Asset Solution
Promotion Department

Ryohei Yasuda
Deputy COO
Executive Officer and Manager of Finance andAccounting Department

Ichiro Kawabata(As of December 1, 2007)

Seated from left: Noboru Hirano, Seiichiro Yamaguchi, Katsuhito Kosuge
Standing from left: Goro Kamino, Ryohei Yasuda, Syunichiro Naito, Minoru Inazuka, Ichiro Kawabata

Risk Management
The Risk Management Committee was set up as a subsidiaryorganization of the Corporate Governance Meeting to oversee risk
management in the Tosei Group. The Risk Management Committee
specifies departments responsible for each risk category, manages risks
for the entire Group exhaustively and comprehensively, and has enacted
Risk Management Standards that clarify the risk management structure.
The Risk Management Committee also oversees the status of
implementation of risk management measures, and reports the results
regularly to the Corporate Governance Meeting. In addition, the Internal
Audit Department audits the risk management status of each
responsible department, and reports the audit results to the President
and the Board of Auditors.
In the event that a risk materializes, a crisis management
headquarters will be quickly set up to limit the extent of damage byconducting timely and accurate information gathering and prompt
disclosure. The crisis management headquarters also consults withcorporate lawyers and other outside advisors in order to quickly
implement appropriate responses.
The Tosei Group plans to compile practical manuals and othermaterials in each department responsible for managing risks that arise in
the course of business. In the event that individual response measures
are considered for risks affecting the entire Tosei Group, a crossdivisional committee will be set up and committee members selected toconsider the measures. This committee has already studied andcompiled a manual for measures to prevent personal information leaks.

Compliance
The Tosei Group understands that enhancing compliance is a toppriority essential for the Group’s sustained growth and has therefore

established the Compliance Committee as a subsidiary organization of
the Corporate Governance Meeting to fulfill this task. The Compliance
Committee sets Group Compliance Rules, and works to keep all
directors and employees informed of them. In addition, this committee
distributes the Compliance Guidebook, which provides concrete
guidelines for individual conduct, and holds training and information
meetings for all employees. In addition, the committee studies measures
for raising compliance awareness and conducts compliance training on
an ongoing basis.
Under the internal reporting system, internal and external hotlines
are set up to enable officers and employees of the Group to quickly
report any suspected violations of laws or regulations that they discover.
The Tosei Group is working to keep all employees informed about the
key points of the system to ensure the prompt discovery and resolutionof problems.

Anti-Takeover Measures
The Tosei Group, with the approval of the 58th General
Shareholders’ Meeting on February 26, 2008, has adopted defensive
measures against takeovers. These measures provide mechanisms fordeterring attempts to purchase large amounts of Tosei’s stock thatwould be harmful to the Company’s corporate value and thus contrary
to the collective interests of shareholders. The measures will deter suchtakeover attempts through means such as ensuring that shareholders
have sufficient information and time necessary to make a proper
judgment, and affording the opportunity to negotiate with thepurchaser. In this way, the anti-takeover measures are intended tosecure and improve the Company’s corporate value and collective
shareholder interests.

ANNUAL REVIEW 200717

Management’s Discussion and Analysis of Operations and Finances

Income and Expenses➤ Revenues
As the year ended November 30, 2007 began, the Japanese
economy was projected to expand gradually, supported by continued
growth in capital spending backed by solid corporate earnings.
However, the effects of the U.S. subprime crisis, high raw materials
prices and regulatory tightening warranted caution. In the real estateindustry, where the Tosei Group operates, economic expansion caused
the nationwide average assessed land value to increase for the second
consecutive year, according to publicly disclosed land prices as ofAugust 2007. In particular, residential, commercial and industrial land
prices in Tokyo rose an average of 17.1 percent year on year (source:
National Tax Agency report).
Given this environment, during the year ended November 30, 2007,
the Tosei Group focused its collective efforts on steadily implementing
the medium-term management plan GROWING UP 2008 (covering thethree years ending November 2008). The objectives of this plan are toincrease corporate value by doubling the scale of business and building
the corporate brand. As a result of these efforts, revenues increased
62.0 percent compared with the previous fiscal year to ¥40,086 million.

➤ Cost of Revenues, Selling, General and Administrative(SG&A) Expenses and Operating Income
As a result of the increase in revenues, cost of revenues increased
68.6 percent compared with the previous fiscal year to ¥27,968 million.
Gross profit rose 48.5 percent to ¥12,118 million, due in part to higher
selling prices in a strong overall real estate market and the Group’semphasis on improving profit margins. However, selling, general andadministrative (SG&A) expenses increased 37.9 percent to ¥3,111
million. Factors included aggressive expansion of the workforce that
increased personnel expenses ¥499 million, as well as advertising in
newspapers, magazines and elsewhere to build the corporate brandthat increased advertising expenses ¥97 million.
As a result, operating income increased 52.6 percent to ¥9,007
million, and the operating income ratio decreased 1.4 percentage points
to 22.5 percent.

➤ Segment Information
Revitalization Business
During the fiscal year, the revitalization business sold a total of 22
properties, including the Ueno Tosei Building, the Sendagaya Building
and the Tonegi Building. As a result, segment revenues increased 55.3
percent compared with the previous fiscal year to ¥24,310 million, andsegment operating income increased 80.3 percent to ¥7,286 million.

Development Business
The development business sold a total of 151 condominium units at
THE Palms Setagaya Sakura, THE Palms Honkomagome, THE Palms
Yoga and THE Palms Denenchofu. As a result, segment revenues
increased 128.5 percent compared with the previous fiscal year to¥8,782 million, and segment operating income increased 60.3 percent
to ¥824 million.

Rental Business
Rental business revenues increased 85.7 percent compared with theprevious fiscal year to ¥3,415 million, and segment operating income
increased 65.5 percent to ¥1,630 million due to an increase in rental
revenues resulting from steady purchases of real estate for sale andcontinuing high occupancy rates at rental properties Tosei holds in its
portfolio.

Fund Business
Segment revenues decreased 19.2 percent compared with theprevious fiscal year to ¥1,147 million, and operating income decreased
47.4 percent to ¥587 million. The balance of assets under management
as of November 30, 2007 increased to ¥93,691 million from ¥41,251
million a year earlier due to steady purchases of properties by funds forwhich Tosei provides asset management services. However, revenues
and income decreased because of such factors as the absence of the
non-recurring brokerage fees recorded in the previous fiscal year. Assetmanagement fees increased as a result of growth in assets undermanagement.

Segment Revenues and Operating Income(Millions of yen)

2007

2006

Revenues

Operating Income

Revenues

Operating Income

Revitalization Business

24,3107,286

15,6504,040

Development Business

8,782

824

3,843

514

Rental Business

3,415

1,630

1,839

985

Fund Business

1,147

587

1,419

1,117

Property Management Business

2,755

130

1,904

122

Alternative Investment Business

260

132

336

278

Eliminations or Corporate(583)(1,582)(250)(1,155)40,086

9,007

24,741

5,901

Total

Note: Figures for segment revenues include intersegment transactions and total allocated operating expenses have not been deducted from operating income figures.

18

Property Management Business
Segment revenues increased 44.7 percent compared with theprevious fiscal year to ¥2,755 million, segment operating income
increased 6.6 percent to ¥130 million and the number of managed
properties increased by 19 to 438. In the office building managementbusiness, while changes in building ownership resulted in contract
cancellations, efforts to conclude new contracts increased the numberof properties under management by 9 to 300, including office buildings
and parking lots. In the condominium management business, thenumber of managed properties increased by 10 to 138, including acomplex that another company built for resale to end-users and newcontracts to manage rental condominiums.

Alternative Investment Business
The Tosei Group operated aggressively in this business. It acquired
projects that maximized its capacity to restore the value of real estate,
and recovered loans. Proactive initiatives in the real estate M&A market
included the acquisition of two companies holding real estate but
lacking successors. The Group also generated revenues by recoveringloans and interest through corporate turnaround assistance. However,segment revenues decreased 22.6 percent compared with the previous
fiscal year to ¥260 million, and segment operating income decreased
52.5 percent to ¥132 million.

management plan, which concludes with the year ending November
30, 2008, is 20 percent of non-consolidated net income. Accordingly,
cash dividends per share for the fiscal year ended November 30, 2007
totaled ¥2,200, up from ¥1,400 per share for the previous fiscal year.
For the year ending November 30, 2008 and beyond, Tosei has
decided to set a target consolidated payout ratio of 20 percent inconsideration of the Group’s progress and projects cash dividends per
share of ¥3,500 for the year ending November 30, 2008.

Liquidity and Financial Position
The Tosei Group aims to secure sufficient capital for its businessactivities, maintain liquidity and achieve a sound financial position. In
particular, the Group must use interest-bearing debt aggressively but
stably because the revitalization, development and alternative
investment businesses require large amounts of capital for real estate,loans collateralized by real estate and other purchases. Moreover, theGroup works to meet its capital requirements through means including
increasing the proportion of fixed-rate debt and loan commitment
agreements.

➤ Cash Flow
Cash Flow Summary➤ Other Income (Expenses) and Income Before
Income Taxes
Other expenses, net totaled ¥1,046 million, the major component of
which was interest expense totaling ¥1,100 million. Other income
included interest and dividend income totaling ¥15 million and a ¥14
million refund of consumption tax.
As a result of the above, plus factors including a gain on sale ofinvestments in securities of ¥11 million, income before income taxes
increased 50.3 percent compared with the previous fiscal year to ¥7,961
million. The ratio of income before income taxes to revenues was 19.9
percent. Income before income taxes per employee was ¥41 million asof November 30, 2007.

➤ Net Income
As a result of the above, net income for the year ended November
30, 2007 increased 66.5 percent compared with the previous fiscal yearto ¥4,558 million. Net income per share was ¥12,095.04, comparedwith ¥7,412.80 for the previous fiscal year.

Shareholder Returns Policy
Stable dividends are a key management priority for Tosei
Corporation. The Company’s fundamental policy is to comprehensively
consider operating results, the future operating environment andprogress in its business plan in balancing distributions of earnings andthe need for internal capital resources to generate long-term growth incorporate value by taking advantage of highly profitable business
opportunities. The target payout ratio for the medium-term(Millions of yen)
Fiscal Year ended
November 30, 2007

Fiscal Year ended
November 30, 2006

Cash flow fromoperating activities(19,543)(10,857)

Cash flow frominvesting activities(2,066)

472

Cash flow fromfinancing activities

20,312

14,339Net (decrease) increase in
cash and cash equivalents(1,297)

3,954

Cash Flow from Operating Activities
Net cash used in operating activities was ¥19,543 million, comparedwith ¥10,857 million in the previous fiscal year. While income before
income taxes totaled ¥7,961 million, increase in inventories from theacquisition of new properties by the revitalization and development
businesses used cash totaling ¥26,759 million.

Cash Flow from Investing Activities
Net cash used in investing activities was ¥2,066 million. In theprevious fiscal year, investing activities provided net cash of ¥472
million. Primary factors included a ¥1,001 million increase in guarantee
deposits in the revitalization business and the acquisition of equity in a
newly consolidated subsidiary in the alternative investment business.
Tosei did not generate free cash flow during the year ended November
30, 2007 and funded operating and investing requirements largely
through external borrowing.

ANNUAL REVIEW 200719

Cash Flow from Financing Activities
Net cash provided by financing activities was ¥20,312 million,
compared with ¥14,339 million in the previous fiscal year, primarily
because of a net increase in borrowings to fund purchases in therevitalization and development businesses. Repayments of long-term
debt used cash totaling ¥26,927 million, while proceeds from long-term
debt totaled ¥45,121 million.
As a result of the above, cash and cash equivalents as of November
30, 2007 were ¥5,182 million, a net decrease of ¥1,303 million fromthe beginning of the fiscal year.

➤ Financial Position
AssetsTotal assets as of November 30, 2007 increased 44.5 percent from ayear earlier to ¥86,922 million, and return on average total assets (ROA)
increased 0.8 percentage points to 6.2 percent.
Current assets increased 39.4 percent compared with the end of theprevious fiscal year to ¥71,631 million. The principal component of
current assets was ¥62,905 million in inventories, an increase of 57.1
percent, with ¥35,831 million in real estate for sale, an increase of 72.4
percent, and ¥27,074 million in real estate for sale in progress, anincrease of 40.5 percent.
The total of property and equipment and investments and otherassets increased 74.7 percent from the end of the previous fiscal year to¥15,291 million, due to a change in business policy resulting in the
addition of the Toranomon Tosei Building and the Takaido Tosei Studio,
previously classified as real estate for sale. Buildings and structures
therefore increased 89.2 percent to ¥4,028 million.

Liabilities
Current liabilities totaled ¥50,621 million, an increase of 171.7
percent compared with the end of the previous fiscal year. Factors
included an increase of 223.2 percent in long-term debt due within one
year to ¥41,937 million, and an increase of 298.5 percent in short-termborrowings to ¥3,626 million.
Total long-term liabilities decreased 35.1 percent to ¥17,049 million,
due to a 43.2 percent decrease in long-term debt to ¥13,830 million.
Total interest-bearing debt increased 54.9 percent to ¥59,691
million.

Net Assets
Total net assets as of November 30, 2007 increased 26.4 percent
compared with a year earlier to ¥19,252 million, mainly because of a¥4,031 million increase in retained earnings due to favorable results forthe year.
The net worth ratio was 22.1 percent, a decrease of 3.2 percentage
points from the end of the previous fiscal year, and return on equity(ROE) was 26.4 percent, an increase of 3.1 percentage points.

20

Risk Information (As of January 11, 2008)
Risks that have the potential to affect the performance, stock priceand financial position of the Tosei Group include, but are not limited to,the issues discussed below. For further details, please refer to theSummary of Consolidated Financial Statements for the Fiscal Year Ended
November 30, 2007.

1. Business Environment(a) Revitalization Business and Development Business(i) Effects of Real Estate Market Conditions
The Tosei Group’s core revitalization and development businesses
purchase properties on their own account, and typically take six months
to two years until they sell the properties after increasing their value ordeveloping them. During that time, changes in the general economy,such as trends in land prices, interest rates and fiscal policy, may occur,
and any resulting deterioration of conditions in the real estate market
could have an impact on the Tosei Group’s operating results andfinancial position.
(ii) Changes in Business Results due to Timing of Property Transfer
These two businesses book property sales amounts as revenues, andtherefore the amount per transaction is large. In addition, because thetwo businesses book revenues upon transfer of the property, any delay
in transferring the property could affect the Tosei Group’s operating
results and financial position.
(iii) Construction Delays and Increased Construction Costs due to
Natural Disasters, Etc.
The Tosei Group makes efforts to draw up a rational yearly budget
using the buildup method based on concrete purchasing and sales
plans. However, construction delays and the accompanying increase inconstruction/renovation costs due to natural disasters or other
unforeseen events have the potential to affect the Tosei Group’s
operating results and financial position.
(b) Rental BusinessIn the rental business, a source of stable revenue for the Tosei
Group, changes in general economic conditions, interest rates, theemergence of competing properties, or other events resulting in declines
in rental fees or large amounts of vacancies have the potential to affect
the Tosei Group’s operating results and financial position.
(c) Fund Business(i) Management Performance of Funds
Even though real estate funds are strictly investment products
predicated on the responsibility of investors, and Tosei makes nowarranty and accepts no liability regarding performance, in the eventthat rental conditions or other aspects of the real estate properties do
not achieve the performance that investors expect, Tosei’s reputation as
an asset management company may decline, which could have an
impact on the Tosei Group’s operating results and financial position.

Management’s Discussion and Analysis of Operations and Finances(ii) Changes in Investor Trends due to Fiscal Policy, Etc.
Real estate funds are one means of investment, and the Tosei
Group’s operating results and financial position could be affected if
investors withdraw from or refrain from investing in real estate funds
due to changes in fiscal policies or the global economy.
(d) Property Management Business(i) Decline of Management Commission Costs
Currently, management commission costs for condominiums andoffice buildings are continuing their downward trend due to increasing
competition with other companies and cost-reduction pressure from
customers. The Tosei Group is making efforts to raise efficiency and cut
costs, but further reductions in unit prices or a surge in contract
cancellations have the potential to affect the Tosei Group’s operating
results and financial position.
(ii) Workplace Accidents, Etc.
The Tosei Group has obtained ISO 9001 certification for its businessexecution and provision of services. Although the Group is striving toenhance its business quality and services, unavoidable accidents, defects
in construction or facilities, problems with services, or other incidents ofa scale that could impact society have the potential to affect the Tosei
Group’s operating results and financial position.
(e) Alternative Investment Business
The Tosei Group’s operating results and financial position may beaffected if the Group is unable to acquire loans collateralized by realestate in a shrinking market for non-performing loans, execute mergers
with or acquisitions companies that own real estate, or recover existing
investments in loans or corporate equity.

2. Reliance on Interest-bearing Debt and Interest Rates
The Tosei Group procures debt financing, primarily from financial
institutions, to fund expenses associated with business activities
including acquisition of land and buildings and construction.
Consequently, the ratio of interest-bearing debt to total assets is
consistently at a set level. Increases in interest rates typically increase
fund procurement costs, and therefore have the potential to affect theTosei Group’s operating results and financial position.
In procuring funds, unexpected changes in the operating
environment and other factors that might impede access to funding
could delay projects or render them untenable, which could affect theoperating results and financial position of the Tosei Group. Moreover,delays in selling projects or lower-than-anticipated selling prices havethe potential to affect the Tosei Group’s cash flow.

3. Accounting Standards and Tax System(i) Changes in Accounting Standards and the Real Estate Tax System
Changes regarding accounting standards and the real estate tax
system could cause increases in the cost of holding, acquiring andselling assets, and therefore have the potential to affect the operating
results and financial position of the Tosei Group. In particular, as a resultof the “Application Guidelines for Fixed Asset Impairment Accounting,”announced by the Accounting Standards Board of Japan on October 31,

2003, asset impairment accounting is applied for fiscal years beginningon or after April 1, 2005. Consequently, there is a possibility that theTosei Group could incur asset impairment losses.
(ii) Scope of Consolidation of Real Estate Funds
Consolidation or non-consolidation of real estate funds in which
Tosei conducts asset management is determined individually on thebasis of the extent of Tosei’s control over and influence on theinvestment partnership. Changes in interpretation of consolidation that
affect accounting auditors’ opinions and cause a change in the scope of
consolidation of the Tosei Group have the potential to affect theoperating results and financial position of the Tosei Group.

4. Defect Liability and After-sale Service
The Tosei Group provides customers with an after-sale service
warranty (valid for 1-10 years, depending on the item) according to theGroup’s “After-Sale Service Standards.” However, if for some reason adefect arises in a property supplied by the Tosei Group, and the Groupis unable to impose the defect liability on the vendor, or the vendor orcontractor is incapable of fulfilling the warranty, the Tosei Group would
incur additional expenses, which have the potential to affect theoperating results and financial position of the Tosei Group.

5. Human Resources
The inability of the Tosei Group to secure or train the personnel thatit requires, or the departure of management currently in office, has thepotential to affect the operating results and financial position of theTosei Group.

6. Medium-term Management Plan
The medium-term management plan includes fixed numericaltargets, and the Group regularly checks progress while working to reachthese targets, which were set on the basis of information gathering andanalysis believed to be proper when the plan was established. However,the Group may not be able to gather all necessary information, or may
be unable to reach the targets due to changes in the businessenvironment or various other factors.

7. Revisions to the Building Standards Law
Under the Revised Building Standards Law, which came into effecton June 6, 2007, new buildings now require examinations by designatedinstitutions to confirm that they conform to specified structural
calculations. The longer period prior to the start of construction, theincrease in costs and other factors caused by these examinations could
affect the Group’s business results and financial position.

8. Other
When purchasing a pre-owned property, the Tosei Group surveys thebuilding’s structure, use of asbestos, soil pollution and other elements.
However, business execution may be temporarily suspended or prolonged
if buildings are demolished because their structural design data has notbeen saved or they contain asbestos, or due to soil improvement or othermeasures. Such suspension of business has the potential to affect theoperating results and financial position of the Tosei Group.

ANNUAL REVIEW 200721

Consolidated Balance Sheets
Tosei Corporation and Consolidated Subsidiaries
As of November 30, 2007 and 2006

Thousands of
U.S. dollars (Note 1)

Millions of yen

ASSETS

2007

2006

2007

Cash (Note 3).............................................................................................

¥ 5,182¥ 6,644$ 46,676

Notes and accounts receivable.................................................................

352

266

3,171

Current assets:

Marketable securities ...............................................................................

10

10

90

Real estate for sale (Notes 2(c), 3) ...........................................................

35,831

20,778322,744

Real estate for sale in progress (Notes 2(c), 3) ........................................

27,074

19,263

243,866

Purchased receivables (Note 3) ................................................................

1,033

1,985

9,304

Supplies .....................................................................................................

2

1

18

Deferred tax assets (Note 7).....................................................................

572

213

5,152

Other .........................................................................................................

1,582

2,236

14,250Less: allowance for doubtful accounts ....................................................

(7)

(12)

(63)

Total current assets ...............................................................................

71,631

51,384645,208

Property and equipment (Note 2(c)):
Buildings and structures (Note 3) ............................................................

4,028

2,129

36,282Tools and furniture...................................................................................

73

56

658

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

9,393

5,906

84,606

Other .........................................................................................................

6

—

54

Total property and equipment.............................................................

13,5008,091

121,600

Investments in securities...........................................................................

93

262

838

Loans receivable........................................................................................

2

3

18

Deferred tax assets (Note 7).....................................................................

273

82

2,459

Goodwill ....................................................................................................

67

—

603

Software ....................................................................................................

88

61

793

Telephone rights.......................................................................................

2

2

18

Other .........................................................................................................

1,266

251

11,403

Less: allowance for doubtful accounts ....................................................

(0)

(0)

(0)

Investments and other assets:

Total investments and other assets .....................................................

1,791

661

16,132

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

¥86,922¥60,136$782,940

The accompanying notes are an integral part of these statements.

22

Thousands of
U.S. dollars (Note 1)

Millions of yen

LIABILITIES AND NET ASSETS

2007

2006

2007

689

¥ 1,181

3,626

910

Current liabilities:
Notes and accounts payable ....................................................................
Short-term borrowings (Note 3) ..............................................................

¥

$

6,206
32,661

Bonds due within one year (Note 3) .......................................................

24

24

216

Long-term debt due within one year (Note 3) .......................................

41,937

12,975

377,743

Income taxes payable ...............................................................................

2,743

1,985

24,707

Advance received......................................................................................

113

625

1,018

Accrued bonuses to employees................................................................

52

10

468

Accrued bonuses to officers .....................................................................

—

20

—

Other .........................................................................................................

1,437

901

12,944

Total current liabilities .........................................................................

50,621

18,632455,963

Long-term liabilities:
Bonds (Note 3) ..........................................................................................

274

298

2,468

Long-term debt (Note 3) ..........................................................................

13,83024,340124,572

Deferred tax liabilities (Note 7) ...............................................................

23

23

207

Accrued severance costs ..........................................................................

42

35

378

Accrued retirement benefits to officers .................................................

221

191

1,991

Consolidation adjustment ........................................................................

—

4

—

Negative goodwill ....................................................................................

9

—

81

Other .........................................................................................................

2,650

1,384

23,870Total long-term liabilities .....................................................................

17,04926,275

153,567

Total liabilities .......................................................................................

67,67044,906

609,530

4,148

4,148

37,363

Additional paid-in capital ........................................................................

4,231

4,232

38,110Retained earnings.....................................................................................

10,872

6,841

97,928

Total shareholders’ equity ....................................................................

19,251

15,221

173,401

Net Assets:
Shareholders’ equity (Note 6):
Common stock:
Authorized: 1,500,000 shares
Issued:376,840 shares in 2007 and 376,838 shares in 2006..........

Valuation, foreign currency and other adjustments:
Unrealized gain on securities...................................................................

1

9

9

Total valuation, foreign currency and other adjustments..................

1

9

9

Total net assets ......................................................................................

19,252

15,230173,410

Total liabilities and net assets ..................................................................

¥86,922¥60,136$782,940

ANNUAL REVIEW 200723

Consolidated Statements of Operations
Tosei Corporation and Consolidated Subsidiaries
Years ended November 30, 2007 and 2006

Thousands of
U.S. dollars (Note 1)

Millions of yen

2007

2006

2007

¥40,086¥24,741$361,070

Cost of revenues...........................................................................................

27,968

16,584

251,918

Gross profit ............................................................................................

12,118

8,157

109,152

Revenues.......................................................................................................

Selling, general and administrative expenses ............................................

3,111

2,256

28,022

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

9,007

5,901

81,130

Other income (expenses):
Interest and dividend income .................................................................

15

1

135

Refund of earnest money at cancellation ...............................................

—

100

—

Gain on adjustment of debts ...................................................................

10

—

90

Refund of consumption tax .....................................................................

14

—

126

Interest expense .......................................................................................

(1,100)(595)(9,908)

Share transfer expense ............................................................................

(0)

(34)

(0)

Commissions paid .....................................................................................

—

(36)

—

Refund at contract cancellation...............................................................

5

—

45

Gain on sale of investment securities ......................................................

11

2

99

Loss on retirement of fixed assets ...........................................................

(2)

(25)

(18)

Loss on sale of equity investments ..........................................................

(4)

—

(36)

Other, net..................................................................................................

5

(17)

45

Income before income taxes ....................................................................

(1,046)(604)(9,422)

7,961

5,297

71,708

Income taxes (Note 7):
Current ......................................................................................................

3,947

2,657

35,552

Deferred ....................................................................................................

(544)

(97)

(4,900)

3,403

2,560

30,652

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

¥ 4,558¥ 2,737$ 41,056

Yen

U.S. dollars (Note 1)

Per share of common stock:
Net income: Basic ......................................................................................

¥12,095.04

Diluted ..................................................................................
Cash dividends applicable to the year.....................................................
The accompanying notes are an integral part of these statements.

24¥7,412.80$108.94

12,095.02

7,405.87

108.942,200.00

1,400.00

19.82

Consolidated Statements of Changes in Net Assets
Tosei Corporation and Consolidated Subsidiaries
Years ended November 30, 2007 and 2006

Millions of yen
Valuation, foreign currency andother adjustments

Shareholders’ equity

Balance at November 30, 2006 ............
Issuance of new shares......................
Dividends from retained earnings ...
Increase due to decrease inconsolidated subsidiaries...............
Net income ........................................
Change in items other than shareholders’equity during the year (net)...........
Balance at November 30, 2007 ............

Commonstock

Additional
paid-in
capital¥4,1480¥4,231
0¥4,148¥4,231Retainedearnings¥ 6,841

Total
shareholders’equity(528)¥15,221
0
(528)

0
4,558

0
4,558

¥10,872¥19,251

Total valuation,
Unrealized
foreign currency
gain onand othersecurities
adjustments¥9¥9Total net
assets¥15,230
0
(528)
0
4,558

(8)
¥1

(8)
¥1

(8)
¥19,252

Thousands of U.S. dollars (Note 1)
Valuation, foreign currency andother adjustments

Shareholders’ equity

Balance at November 30, 2006 ............
Issuance of new shares......................
Dividends from retained earnings ...
Increase due to decrease inconsolidated subsidiaries...............
Net income ........................................
Change in items other than shareholders’equity during the year (net)...........
Balance at November 30, 2007 ............

Commonstock

Additional
paid-in
capital$37,3630$38,1100$37,363$38,110Retainedearnings

Total
shareholders’equity$61,619$137,101
0(4,756)(4,756)

041,056

041,056$97,928$173,401

Total valuation,
Unrealized
foreign currency
gain onand othersecurities
adjustments

$ 81

$ 81

Total net
assets$137,182
0(4,756)
041,056

$

(72)
9

$

(72)
9

(72)
$173,410

Millions of yen
Valuation, foreign currency andother adjustments

Shareholders’ equity

Balance at November 30, 2005 ............
Issuance of new shares......................
Dividends from retained earnings ...
Bonuses to officers fromretained earnings...........................
Net income ........................................
Change in items other than shareholders’equity during the year (net)...........
Balance at November 30, 2006 ............

Commonstock

Additional
paid-in
capital¥1,9662,182¥2,0502,182¥4,148¥4,232Retainedearnings¥4,270Total
shareholders’equity(155)¥ 8,286
4,364
(155)

(11)
2,737

(11)
2,737

¥6,841¥15,221

Total valuation,
Unrealized
foreign currency
gain onand othersecurities
adjustments¥8¥8

Total net
assets¥ 8,294
4,364
(155)
(11)
2,737

1
¥9

1
¥9

1
¥15,230

ANNUAL REVIEW 200725

Consolidated Statements of Cash Flow
Tosei Corporation and Consolidated Subsidiaries
Years ended November 30, 2007 and 2006

Thousands of
U.S. dollars (Note 1)

Millions of yen

2007

2006

2007

Cash flow from operating activities:
Income before income taxes ...........................................................................
Depreciation.....................................................................................................
Amortization of consolidation adjustment....................................................
Amortization of goodwill................................................................................
Amortization of negative goodwill ................................................................
Increase in allowances .....................................................................................
Interest and dividend income .........................................................................
Interest expenses..............................................................................................
Tokumei Kumiai (private equity) investments ...............................................
Increase in notes and accounts receivable .....................................................
Decrease (increase) in purchased receivables.................................................
Increase in inventories .....................................................................................
Decrease (increase) in advance payment........................................................
(Decrease) increase in notes and accounts payable.......................................
Increase (decrease) in advance received.........................................................
Increase in deposits received...........................................................................
Other.................................................................................................................
Sub-total....................................................................................................
Receipts of interest and dividends..................................................................
Payments of interest .......................................................................................
Payments of income taxes ...............................................................................
Net cash used in operating activities..........................................................

¥ 7,961
445
—
4
(3)
76
(15)
1,100
(9)
(83)
881
(26,759)
1,213
(493)
(512)
1,248
(388)
(15,334)
39(1,052)(3,196)(19,543)¥ 5,297
207
(1)
—
—
71
(1)
595
(87)
(119)
(262)
(14,981)
(475)
810
241
217
(18)
(8,506)23(618)(1,756)(10,857)$ 71,708
4,008
—
36
(27)
685
(135)
9,908
(81)
(747)
7,936
(241,029)
10,926(4,440)(4,612)
11,241(3,495)(138,118)351(9,476)(28,788)(176,031)

Cash flow from investing activities:
Decrease (increase) in time deposits...............................................................
Purchases of property and equipment ...........................................................
Purchases of intangible assets.........................................................................
Investments in securities..................................................................................
Sales of investments in securities ....................................................................
Collection of investments in securities ...........................................................
Acquisition of equity in newly consolidated subsidiary ................................
Payment of loan receivables ...........................................................................
Purchases of investments.................................................................................
Increase in guarantee deposits .......................................................................
Other.................................................................................................................
Net cash provided by (used in) investing activities...................................

160
(149)
(40)
(51)
21
161
(500)
(650)
(1)
(1,001)(16)(2,066)

(19)
(90)
(39)
(6)
5
712
—
—
(5)
—
(86)
472

1,441
(1,342)
(360)
(459)
189
1,450
(4,504)(5,855)(9)(9,016)(144)(18,609)

Cash flow from financing activities:
Net increase in short-term borrowings...........................................................
Proceeds from long-term debt........................................................................
Repayments of long-term debt.......................................................................
Redemption of bonds ......................................................................................
Proceeds from new stock issue........................................................................
Cash dividends paid .........................................................................................
Net cash provided by financing activities ..................................................

2,667
45,121(26,927)
(24)
0
(525)
20,312(3,480)25,482(11,645)
(194)
4,330
(153)
14,33924,023
406,422(242,542)(216)
0(4,729)
182,958(1,297)
6,485

3,954
2,531

(11,683)
58,413(6)¥ 5,182—¥ 6,485(54)$ 46,676

Net (decrease) increase in cash and cash equivalents ..................................
Cash and cash equivalents at beginning of the year....................................
Decrease in cash and cash equivalents of subsidiaries removed
from consolidation.......................................................................................
Cash and cash equivalents at end of year .....................................................
The accompanying notes are an integral part of these statements.

26

Notes to Consolidated Financial Statements
Tosei Corporation and Consolidated Subsidiaries
Years ended November 30, 2007 and 2006

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements have been

consolidated financial statements issued domestically in order toprepared in accordance with the provisions set forth in thepresent them in a form which is more familiar to readers outside

Japanese Securities and Exchange Law and its related accounting

Japan.

regulations, and in conformity with accounting principles and

The consolidated financial statements are stated in Japanesepractices generally accepted in Japan, which are different inyen, the currency of the country in which Tosei Corporation (thecertain respects as to application and disclosure requirements of“Company”) is incorporated and operates. The translations ofInternational Accounting Standards. The consolidated financial

Japanese yen amounts into U.S. dollar amounts are included solely

statements are not intended to present the financial position,

for the convenience of readers outside Japan and have been maderesults of operations and cash flows in accordance withat the rate of ¥111.02 to $1, the approximate rate of exchange ataccounting principles and practices generally accepted in countries

November 30, 2007. Such translations should not be construed as

and jurisdictions other than Japan.

representations that the Japanese yen amounts could be

In preparing these consolidated financial statements, certain

converted into U.S. dollars at that or any other rate.

reclassifications and rearrangements have been made to the

2. Summary of Significant Accounting Policies
a. Consolidation

identification method.

The consolidated financial statements as of November 30, 2007
include the accounts of the Company and its 16 (13 in 2006)
significant subsidiaries (together, the “Companies”).

Supplies are stated at cost determined by the last purchasemethod.
Rental property owned as real estate for sale (buildings: ¥540

The Company has no unconsolidated subsidiaries and no

million (US$4,864 thousand); land: ¥1,103 million (US$9,935

affiliated companies in which investments are accounted for bythousand)) has been transferred to property and equipment, andthe equity method.

rental property owned as property and equipment (buildings:

All assets and liabilities of subsidiaries are marked to fair value¥128 million (US$1,153 thousand); land: ¥103 million (US$928

at the time of acquisition of control. Consolidation adjustment, athousand)) has been transferred to real estate for sale, due to adifference between investment and equity of subsidiary, ischange in the Company’s business policy.

amortized on a straight-line basis over 5 years.

d. Marketable and Investment Securities

b. Cash Equivalents

Available-for-sale securities with market quotations are reported

Cash equivalents are short-term investments that are readily

at fair value, with unrealized gains and losses, net of applicableconvertible into cash and that are exposed to insignificant risk oftaxes, reported in a separate component of net assets. Cost at thechanges in value. Cash and cash equivalents at the end of the year

time of sale is determined by the moving-average method.

in the consolidated statements of cash flows for the year ended
November 30, 2007 and 2006 are reconciled with cash in the
consolidated balance sheets as follows:
Millions of yen

2007

2006

Thousands of
U.S. dollars

2007

Cash...........................................

¥5,182¥6,644$46,676

Time deposits with maturities
of more than three months.....

—

(159)

—

Cash and cash equivalents .......

¥5,182¥6,485$46,676

Available-for-sale securities without market quotations arestated at cost determined by the moving-average method.
e. Property, Plant and Equipment
Property and equipment are stated at cost.
Depreciation of property and equipment of the Companies iscomputed by the declining-balance method at rates based on theestimated useful lives of the assets. However, buildings purchased on
or after April 1, 1998 are depreciated by the straight-line method.
f. Retirement Benefit Plans
The Companies have an unfunded retirement benefit plan forc. Inventories
Real estate for sale, real estate for sale in progress andpurchased receivables are stated at cost determined by the specificemployees. Accrued severance costs are stated at the amountwhich would be required if all employees voluntarily terminatedtheir employment at the balance sheet date.

ANNUAL REVIEW 200727

Accrued retirement benefits to officers (directors and corporate

j. Impairment of Property and Equipment

auditors) are stated at the amount which would be required if all

Effective from the fiscal year ended November 30, 2006, thedirectors and corporate auditors retired at the balance sheet date.

Company applies Accounting Standards for Impairment of Fixed
Assets. This change has no effect on the Company’s profit and loss.

g. Leases
All leases are accounted for as operating leases. Under Japanese
accounting standards for leases, finance leases that deem tok. Accounting Standards for Presentation of Net Assets on the
Balance Sheetstransfer ownership of the leased property to the lessee are to be

Effective from the fiscal year ended November 30, 2006, thecapitalized, while other finance leases are permitted to beCompany applies Accounting Standards for Presentation of Net

accounted for as operating lease transactions.

Assets on the Balance Sheet and Application Guidelines for
Accounting Standards for Presentation of Net Assets on theh. Income Taxes
The Companies apply an inter-period allocation of income taxes
based on the asset and liability method. Deferred income taxes
are recorded to reflect the impact of temporary differences
between assets and liabilities recognized for financial reporting
purposes and such amounts recognized for tax purposes.

Balance Sheet issued by the Accounting Standards Board of Japanon December 9, 2005.
Following the revision of the rules for consolidated financial
statements, the consolidated balance sheets of the Company forthe years ended November 30, 2006 and 2007 are prepared inaccordance with those revised rules.

i. Appropriations of Retained Earnings
Appropriations of retained earnings at each year end arereflected in the financial statements for the following year uponshareholders’ approval.

3. Short-term Borrowings and Long-term Debt
Short-term borrowings, amounting to ¥3,626 million (US$32,661
thousand) as of November 30, 2007, were loans from banks with

Bonds as of November 30, 2007 and 2006 consisted of thefollowing:

an average interest rate of 1.89% per year.
Thousands of
U.S. dollars

Millions of yen

IssuedDueInterest (%)

2007

2006

2007

Unsecured bonds

3/31/04

3/31/09

0.75

¥250

¥250

$2,252

Unsecured bonds

6/10/04

6/10/09

0.79

72

432

322

2,684

Less: current portion of bonds.......................................................................................

(24)

(24)

(216)

Total ................................................................................................................................

¥274

¥298

$2,468Annual maturities of bonds as of November 30, 2007 within
five years were as follows:

28

48
298

Long-term debt, amounting to ¥55,767 million (US$502,315
thousand) as of November 30, 2007, consisted of loans fromYears ending November 30

Millions of yen

Thousands of U.S. dollars

2008

¥ 24

$ 216

2009

274

2,468

2010

—

—

banks with an average interest rate of 2.09% per year. Annual
maturities of bonds as of November 30, 2007 (except for current
portion of ¥41,937 million (US$377,743 thousand)) within five
years were as follows:
Years ending November 30

Millions of yen

Thousands of U.S. dollars

2009¥6,871$61,890

2010

2,946

26,536

2011

596

5,368

2012

535

4,819

The book values of assets pledged as collateral for debt as ofNovember 30, 2007 and 2006 were as follows:
Millions of yen

Cash....................................
Real estate for sale............
Real estate for salein progress .....................
Purchased receivables .......
Other..................................
Buildings and structures ..
Land ..................................
Total ..................................

Debt related to the above pledged assets as of November 30,
2007 and 2006 was as follows:

Thousands of
U.S. dollars

2007

2006

2007

¥
—
33,741¥
20
18,946$—
303,918

24,438
591
—
3,840
9,151
¥71,761

16,575
1,985
900
1,902
5,265
¥45,593

220,123
5,323—
34,58882,427$646,379

Thousands of
U.S. dollars

Millions of yen

2007
Short-term borrowings .....
Long-term debt due
within one year .............
Long-term debt .................
Total ...................................

2006

2007

¥ 3,204¥910$ 28,860

41,937
13,830¥58,971

12,97524,340¥38,225

377,742
124,572$531,174

4. Contingent Liabilities
As of November 30, 2007 the Company was contingently liable

Corporation, amounting to ¥13 million (US$117 thousand).

for guarantees on six customers’ housing loans from Arca

5. Loan Commitment Agreements
The Company enters into loan commitment agreements withbanks to procure funds efficiently when purchasing properties.
The unexecuted balance of borrowings based on these
agreements as of November 30, 2007 was as follows:

Total loan commitments ....................
Less amount currently executed........
Unexecuted balance...........................

Millions of yen

Thousands of
U.S. dollars¥8,750—¥8,750$78,815—$78,815

6. Shareholders’ Equity
The Japanese Commercial Code (the “Code”) requires at leastcredited to additional paid-in capital.

50% of the issue price of new shares to be designated as stated

A stock option plan for directors and employees of thecapital as determined by resolution of the Board of Directors.

Company was resolved by the shareholders’ meeting held on April

Proceeds in excess of amounts designated as stated capital are25, 2003. Details of the stock options are as follows:

Type of share:
Number of shares:
Grant price:
Effective period:

Common stock
Equal to or less than 11,100 shares in total¥8,500 per share
June 1, 2005 to May 31, 2008

Two stock option plans, for (1) four directors of the Company,
72 employees of the Company and two directors of subsidiaries ofrespectively, were resolved by the shareholders’ meeting held on
February 27, 2007. Details of the stock options are as follows:

the Company and (2) nine employees of the Company,

Type of share:
Number of shares:
Grant price:
Effective period:

Stock Option Plan (1)Stock Option Plan (2)Common stock
Equal to or less than 3,690 shares in total¥164,685
March 1, 2008 to February 28, 2011

Common stock
Equal to or less than 460 shares in total¥143,564
May 1, 2008 to February 28, 2011

7. Income Taxes
The Companies are subject to Japanese national and local
income taxes which, in the aggregate, resulted in a normal

effective statutory tax rate of approximately 40.7% for theyears ended November 30, 2007 and 2006.
ANNUAL REVIEW 200729

Deferred taxes are represented in the consolidated balance

Major components of deferred tax assets as of November 30,
2007 and 2006 were as follows:

sheets as follows:
Thousands of
U.S. dollars

Millions of yen

Deferred tax assets (current):
Unpaid enterprise taxes.....
Excess depreciation ............
Unrealized gain on
like-kind exchange ...........
Other...................................
Valuation allowance ..........
Deferred tax assets(non-current):
Excess accrued
severance costs .................
Excess accrued retirement
benefits to officers ...........
Loss on impairment ofshares of subsidiaries .........
Loss carried forward of
consolidated subsidiaries ...
Other...................................
Valuation allowance ..........
Total deferred tax assets
Deferred tax liabilities(non-current):
Valuation difference on
assets and liabilities
of subsidiaries...................
Unrealized gain
on securities......................
Total deferred
tax liabilities ................
Net deferred tax assets .....

2007

2006

2007

¥ 194
154

¥133
49

$ 1,747
1,387

181
54
(11)
572

—
33
(2)
213

1,630
486
(99)
5,152

Thousands of
U.S. dollars

Millions of yen

2007

2006

2007

Current assets........................

¥572

¥213

$5,152

Non-current assets ................

273

82

2,459

Non-current liabilities...........

(23)

(23)

(207)

Total...................................

¥822

¥272

$7,404

Reconciliation between the normal effective statutory tax rate
for the years ended November 30, 2007 and 2006 and the actual
effective tax rate reflected in the accompanying consolidated

17

14

153

89

78

802

171

—

1,540

173
8
(184)
274
846

54
4
(62)
88
301

1,558
72
(1,657)
2,468
7,620

(23)

(23)

(207)

(1)

(6)

(9)

(24)
¥ 822

(29)
¥272

(216)
$ 7,404

statement of income was as follows:
2007

2006

Normal effective statutory tax rate ........

40.7%

40.7%

Expenses not deductible for income
tax purposes ..........................................

0.1

0.2

Tax on undistributed income ..................

3.0

6.4

Other - net................................................

(1.1)

1.0

Actual effective tax rate..........................

42.7%

48.3%

8. Segment Information
Information about industry segments of the Companies for the years ended November 30, 2007 and 2006 is as follows:
Millions of yen

2007

30

Revitalization Development
Business
Business

RentalBusiness

Fund
Business

Property
Management
Business

Alternative
Investment
Business

Total

Eliminations or
corporate
Consolidated

Sales and
operating income:Revenuefrom operations:
Outside customers
Intersegment
Total revenues
Operating expenses
Operating income¥24,310—24,31017,024¥ 7,286¥ 8,782
—
8,782
7,958
¥ 824

¥3,375
40
3,415
1,785
¥1,630¥1,119
28
1,147
560
¥ 587

¥2,238
517
2,755
2,625
¥ 130

¥ 260
—
260
129
¥ 132

¥40,086583
40,66930,081¥10,589

¥

—
(583)
(583)
998
¥(1,582)¥40,086—
40,086
31,079¥ 9,007

Assets, depreciationand capital
expenditures:
AssetsDepreciation
Capital expenditures¥41,753——¥20,276——¥14,435
395
96

¥ 476
4
8

¥ 749
—
20

¥3,914
7
1¥81,604405
125¥ 5,31940
25¥86,922445
151

Thousands of U.S. dollars

2007

Revitalization Development
Business
Business

RentalBusiness

Fund
Business

Property
Management
Business

Alternative
Investment
Business

Total

Eliminations or
corporate
Consolidated

Sales and
operating income:Revenuefrom operations:
Outside customers
Intersegment
Total revenues
Operating expenses
Operating income$218,970—
218,970
153,342$ 65,628$ 79,103—
79,103
71,681$ 7,422$30,400360
30,76016,078$14,682$10,079
252
10,331
5,044$ 5,287$20,158
4,657
24,81523,644$ 1,171$ 2,342
—
2,342
1,162
$ 1,189$361,070
5,251
366,321
270,951$ 95,379$—(5,251)(5,251)
8,989$(14,249)$361,070—
361,070279,940$ 81,130

Assets, depreciationand capital
expenditures:
AssetsDepreciation
Capital expenditures$376,085——$182,634——$130,022
3,558
865$ 4,288
36
72$ 6,746—180$35,25563
9$735,039
3,648
1,126

$47,910360
225$782,940
4,008
1,360

Millions of yen

2006

Revitalization Development
Business
Business

RentalBusiness

Fund
Business

Property
Management
Business

Alternative
Investment
Business

Total

Eliminations or
corporate
Consolidated

Sales and
operating income:Revenuefrom operations:
Outside customers
Intersegment
Total revenues
Operating expenses
Operating income¥15,650—
15,65011,610¥ 4,040¥ 3,843
—
3,843
3,329
¥ 514

¥1,836
3
1,839
854
¥ 985

¥1,405
14
1,419
302¥1,117¥1,671
233
1,904
1,782
¥ 122

¥ 336
—
336
58
¥ 278

¥24,741250
24,991
17,935¥ 7,056

¥

—
(250)
(250)
905
¥(1,155)¥24,741—
24,741
18,840¥ 5,901

Assets, depreciationand capital
expenditures:
AssetsDepreciation
Capital expenditures¥24,202——¥17,600——¥8,655
168
122

¥ 532
1
3

¥ 658
—
21

¥2,8390
3¥54,485169149¥ 5,651
39
18¥60,136207
167

9. Subsequent Event
Resolution of Shareholders’ Meeting
At the general shareholders’ meeting held on February 26, 2008, the Company’s shareholders approved the following appropriation ofretained earnings for the year ended November 30, 2007.

Year-end cash dividends, ¥2,200 ($19.82) per share ...........................................................................

Millions of yen

Thousands of
U.S. dollars¥829$7,467

ANNUAL REVIEW 200731

Corporate Data
(As of November 30, 2007)

Company namePresident and CEO
Date of establishment
Address

Tosei Corporation

History

Seiichiro Yamaguchi

1950 February

Established as Yukari Kogyo Co., Ltd.
(Head Office: Oita City, Oita Prefecture)

1952 April

Moved Head Office to Kameido, Koto Ward, Tokyo

1964 June

Capital
Employees¥4,148,020,000

Initiated real estate sales, brokerage, rental andproperty management businesses

1968 May

Moved Head Office to Soto-Kanda,
Chiyoda Ward, Tokyo

Fields of business

Revitalization; Development; Rental;
Property management; Funds;
Alternative investment

1969 July

Company name changed to Yukari Co., Ltd.

1983 MarchCompany name changed to Tosei Building Co., Ltd.

Licenses, permits andregistrations

Specified Construction Business License,
Real Estate Specific Joint Enterprise Permit,
Real Estate Business License, First-classArchitect's Office License, General Real
Estate Investment Advisory Business
Registration, Registered Type 2 Financial
Instrument Business (Investment Advisor forMarketable Securities, Seller of Beneficiary
Rights to Trusts)

1994 June

Seiichiro Yamaguchi appointed as President
and CEO

February 2, 1950
Toranomon Tosei Building,
4-2-3 Toranomon, Minato-ku, Tokyo
132 (Non-consolidated)
194 (Consolidated)

October

1995 September Kanda Awaji-cho Building Co., Ltd. established1996 March
December

Consolidated subsidiaries Tosei Community Co., Ltd.
Tosei Revival Investment Co., Ltd.
Tosei REIT Advisors, Inc.
Tosei Asset Management Corp.
(and 12 others)

Management Team (As of December 1, 2007)
President and CEO

Seiichiro Yamaguchi
Director and COO
Executive Officer of Asset Solution Department 1,
Asset Solution Department 2 and Asset Solution Department 4

Syunichiro Naito

1999 July

Initiated single-family dwelling home developmentwith Palms Court Series

2001 February

Initiated asset management business

March

Acquired and merged three companies throughleveraged buyouts

April

Acquired First-class Architect’s Office License(License No. Tokyo Governor’s Registration (46219))

November

Building Management Division spun off toTosei Community Co., Ltd.

DecemberFormed Securitization Division aiming to enter realestate securitization business2002 August

Independent Director

Goro Kamino

December

Corporate Auditors

Yasuhiro Honda (full-time)
Kimio Harada (full-time)
Shigeru Yamagishi (part-time)
Eiji Sakamoto (part-time)
Deputy COO
Executive Officer of Asset Solution Department 3 andArchitect Planning Department

2004 February
December

Structured first private real estate investment trust
fund, the Argo Fund, targeting rental condominiums(commencement of real estate securitization business)
Acquired and merged Kanda Awaji-cho Building
Co., Ltd.
Listed on the JSDA Over-the-Counter Trading
Securities Market
Listed on JASDAQ following closure of the JSDA
Over-the-Counter Trading Securities Market

2005 March

Established the subsidiary Tosei Revival Investment Co., Ltd.
to conduct corporate and business turnarounds

Minoru Inazuka

April

Made Tosei Community Co., Ltd. a consolidated subsidiary

Deputy COO
Executive Officer and Manager of Asset Solution Promotion Department

September Established the subsidiary Tosei REIT Advisors, Inc.

Ryohei Yasuda
Deputy COO
Executive Officer and Manager of Finance and Accounting Department

Ichiro Kawabata

32

Moved Head Office to Kanda, Awaji-cho,
Chiyoda Ward, Tokyo
Initiated construction contractor operations, including
repair and renovation, as part of the property
management business

Noboru Hirano
Director and Deputy CFO
Executive Officer of Corporate Planning Department;
Executive Officer and Manager of General Administration Department

Company name changed to Tosei Fudosan Co., Ltd.

1997 December

Katsuhito Kosuge
Director and CFO

Initiated residential condominium development(THE Palms Series)

2006 OctoberNovember
2007 OctoberCompany name changed to Tosei Corporation; moved
Head Office to Toranomon, Minato Ward, Tokyo
Listed on Second Section of Tokyo Stock Exchange
Established the subsidiary Tosei Asset Management
Corp.

Investor Information(As of November 30, 2007)

Authorized number of shares

1,500,000

Major Shareholders

Issued number of shares

376,840

Shareholders

Number of shareholders

Seiichiro Yamaguchi
Zeus Capital Limited
The Master Trust Bank of Japan, Ltd.
(Trust Account)
The Bank of New York,
Treaty JASDEC AccountMorgan Stanley and Company
International plc
Nomura Trust and Banking Co., Ltd.
(Trust Account)
BNP Paribas Securities Service
Luxembourg Jasdec Securities
Morgan Stanley and Company Inc.
Japan Trustee Service Bank, Ltd.
(Trust Account)
Bank of New York GCM Client
Accounts EISG

6,871

Shareholder composition
Other companies
17.05%

Foreign companies
13.49%

Individuals/Others
54.79%

Securities companies
0.72%

Financial institutions
13.95%

Ticker code8923

Stock listing

Tokyo Stock Exchange,
Second Section
JASDAQ Securities Exchange(Delisted in January 2008)

Closing of accounts

November

General shareholders’meeting

Every February

Number ofshares held

Shareholding
ratio (%)

138,855
60,000

36.84
15.92

30,923

8.20

8,916

2.36

8,212

2.17

5,657

1.50

5,100
4,974

1.35
1.31

4,845

1.28

4,593

1.21

Monthly Closing Price (Yen)
180,000
150,000
120,000
90,00060,00030,0000

04/ 05/
12 1

2

3

4

5

6

7

8

9

10 11 12 06/
1

2

3

4

5

6

7

8

9

10 11 12 07/
1

2

3

4

5

6

7

8

9

10 11

7

8

9

10 11 12 06/
1

2

3

4

5

6

7

8

9

10 11 12 07/
1

2

3

4

5

6

7

8

9

10 11

Monthly Trading Volume (Shares)
180,000
150,000
120,000
90,00060,00030,0000

04/ 05/
12 1

2

3

4

5

6

Note: Monthly trading volume for November 2006 is the total for both JASDAQ and the Tokyo Stock Exchange following listing on the Second Section of theTokyo Stock exchange on November 22, 2006.

ANNUAL REVIEW 200733

http://www.toseicorp.co.jp/english/

Toranomon Tosei Building, 4-2-3 Toranomon, Minato-ku, Tokyo
Inquiries: Corporate Planning Department Phone: (81) 3-3435-2864 Fax: (81) 3-3435-2866

Cert no. SA-COC-1210

Printed in Japan on FSC (Forest Stewardship Council)-certified paper using VOC (volatile organic compound)-free, soy-based vegetable ink and waterless printing.