Real Estate Development

Market Conditions

The domestic real estate business environment deteriorated rapidly as the credit crunch caused by the global financial crisis from the second half of 2008 spread to the Japanese economy. The national average appraised values of residential and commercial land, which had risen for two consecutive years, decreased in January 2009.

In the condominium market, demand for new units was restrained further by an increase in selling prices mainly reflecting the rise in construction costs caused by inflated material prices. Consequently, there was a substantial decline in the number of units supplied for sale, indicating that the condominium market had entered an adjustment phase.

In the office leasing market, a growing number of tenants have consolidated, concentrated or reduced their office space, which has caused an increase in vacancy rates in areas such as the five central wards of Tokyo. As average asking rents have begun to drop, signs of market deterioration have become apparent.

Performance*

During the fiscal year ended March 31, 2009, contract awards in the real estate development business on a non-consolidated basis increased 24.5 percent to ¥82.0 billion. However, primarily reflecting the decline in large-scale sales, revenues decreased 43.9 percent to ¥75.4 billion while gross profit fell 15.1 percent to ¥16.1 billion.

Despite the decline in revenues and gross profit, the earnings achieved were above the targets set at the beginning of the fiscal year, mainly due to the sale of SUNAMO, one of the largest shopping centers in Tokyo, steady sales of units at Kaga Residence (a condominium in Tokyo), and stable results of rental properties.

In a business environment where the medium-term outlook was unclear, we tightened our risk management. For example, we limited the location of new development projects to outstanding districts in metropolitan areas. For ongoing projects, given the soft real estate market, we moved forward the projects while comprehensively assessing the business viability at each phase of development.

* Results include the results for architectural design and others in the Other business segment.

Strategies and Initiatives

Against the background of the economic downturn and uncertainty regarding future trends, we are focusing on moving forward steadily with projects in planning and development stages, while aiming to form an asset portfolio that serves as a sustainable source of revenues in the future. In addition, we will enhance the value of our development properties by integrating our advanced structural, environmental and other technologies and by planning products carefully designed with customer needs in mind. In condominium projects for sale, we will formulate precise sales strategies to meet market conditions based on an accurate grasp of market trends with the aim of generating steady sales. In rental office building projects, we will work to raise asset value by improving occupancy rates and further enhancing property management and operation efficiency.

In creating new development business, we will maintain our prudent approach by identifying risks to develop appropriate controls. In addition, as a general contractor-developer, we intend to expand the scope of our business opportunities from multiple perspectives. For example, by deploying our planning and proposal capabilities and expertise in planning businesses and acquiring development authorization, we aim to increase new opportunities in the fee developer business while supporting our construction teams in winning construction contracts.