Sumitomo Realty & Development : English Integrated Report 2022 ( 9MB )

Integrated Report

2022

Integrity and Innovation

Monjuin Shiigaki (Founder's Precepts) owned by

Sumitomo Historical Archives

The Sumitomo Realty Group is a comprehensive real estate enterprise of the Sumitomo Group with a history of over 430 years. Inheriting Sumitomo's business philosophy, with its origins in the Monjuin Shiigaki (Founder's Precepts), a document written by the founder of the House of Sumitomo, Masatomo (Monjuin), and given to its family members to offer guidance on how a merchant should conduct business, we have developed our business by placing top priority on integrity and pursuing creation of new value with innovative and challenging spirit.

Reflecting this business philosophy, we have set forth our fundamental mission as to "Create even better social assets for the next generation" with our corporate slogan, "Integrity and Innovation."

Business

Philosophy

Inheriting Sumitomo's Business Philosophy with a history of 430 years

• Under no circumstances, shall it pursue easy gains or act imprudently
• Placing prime importance on integrity and sound management in the conduct of its business
• Benefit self and benefit others, private and public interests are one and the same

The business philosophy inherited by the Sumitomo Group strongly demands that we, as people, act in good faith toward all things, not chase easy gains, refine our humanity and develop a well-rounded character, and seek "harmony with the common good" that generates not only our own benefits but also those for society in an integrated manner.

SloganFundamental Mission

Integrity and Innovation	Create even better social assets
for the next generation

Pick Up

A Message from the P.05

Management

Corporate Philosophy

Our new growth strategies

The Ninth Medium-	P.09
term Management Plan

Overview of new Medium-term Management Plan from fiscal 2022

The Sumitomo Realty	P.15
Group's Value Creation

The sources and processes of value creation to enable the Company's sustainable growth

Contents

03 Business Structure

05 A Message from the Management

09 Overview of the Ninth Management Plan (From Fiscal 2022 to Fiscal 2024)15 The Sumitomo Realty Group's Value Creation

	About The Sumitomo Realty Group's Value Creation	15
	History of Value Creation and Our Strengths	17
	Solving Social Issues through Redevelopment	19
	Enhancement of Corporate Value through Four Mainstay	23
	Businesses
	Example: Shinchiku Sokkurisan Remodeling	25
	Value Creation Process	27
29 Business Review
	Financial Results for Fiscal 2021 and Progress of the		Overview of Consolidated Results,
	29	Outlook for Next Fiscal Year and
	Eighth Management Plan		Progress of the Eighth
			Management Plan
	Overview of Each Segment	30
		33	Leasing
		39	Sales
	Business Segments	41	Construction
		45	Brokerage
		46	Group Companies
47 ESG Management
	Promotion of ESG and Contributions to SDGs	47
	Environment	49
	Society	53
	Governance	57
67	Consolidated Financial and Non-financial Data /
Company Information
	Key Non-financial Data	67
	Eleven-year Financial Summary	69
	Management's Discussion and Analysis	71
	Corporate Data / Investor Information	73
	History	74

Placing top priority on "integrity," we go beyond simple	Through our businesses closely associated with people's
development with innovative and challenging spirit,	daily lives, such as office building leasing, condominium
relentlessly pursuing value creation without pursuing easy	sales, custom home construction and remodeling, it is our
gains. This corporate stance as a developer is expressed in	mission to create assets that live on to the next generation
our slogan, "Integrity and Innovation."	and we strive for sustainable urban development that is
	"Disaster Resistant," "Environmentally Friendly,"
	"Together with the Community" and "People Friendly."

Code of Conduct

1.	Open Culture	Opportunity	6.	Trust with our stakeholders
2.	Higher Goals	Innovation	7.	Environmental Protection
3.	New Approaches	Pioneering		Protecting the global environment through efforts such as resource saving,
4.	Compliance			energy saving, resource recycling, and CO2 reduction
5.	Rejection of antisocial forces

Editorial Policy

This report was compiled based on the disclosure framework of the International Integrated Reporting Council (IIRC). This report has been compiled to deepen the understanding among our stakeholders on the ESG management of the Sumitomo Realty Group, which has developed its business inheriting the Sumitomo's business philosophy with a history of 430 years. For details of the initiatives for ESG and the SDGs, please refer to the Sustainability/ESG page on the Company website.

https://www.sumitomo-rd.co.jp/english/sustainability/

Caution Concerning Forward-looking Statements

Forward-looking statements including business forecasts contained in this integrated report represent management's assumptions and beliefs based on the information currently available to the Company and contain risks and uncertainties. Furthermore, they do not represent the Company's guarantee of future performance. Therefore, stakeholders are warned not to solely rely on these statements in making investment decisions. Actual results may differ from these business forecasts due to a variety of important factors.

Important factors that could affect actual results include, but are not limited to, the environment surrounding the Group's business areas, such as macroeconomic conditions, the real estate market, and interest rate trends.

Period Covered: April 1, 2021 to March 31, 2022 (Some descriptions on activities and outlook in this report refer to those prior to or after this period.)

Definition of Term: "FY2021," "FY '21," "fiscal 2021" or "fiscal year under review" refer to the fiscal year ended March 31, 2022, and other fiscal years are referred to in a corresponding manner unless otherwise indicated.

Scope of Report: Sumitomo Realty & Development Co., Ltd. and its Group companies

Published: November 2022 (Japanese edition)

Cover Photo: Shinjuku Sumitomo Building (Completion in March 1974, renovations completed in June 2020)

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Sumitomo Realty & Development Co., Ltd.

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Business Structure

Four Mainstay Businesses Centered on Office Building Leasing

Sumitomo Realty Group

Property Condominium

management management

Sumitomo Fudosan

Tatemono Service Co., Ltd.

Four Highly-profitable Mainstay Segments

The Sumitomo Realty Group comprises the four mainstay segments: Leasing, the core earnings driver that generates nearly 70% of

the operating income overall, owning more than 230 office buildings in central Tokyo; Sales, generating stable profits every year as one of the industry's top suppliers of condominium units; Construction, providing Shinchiku Sokkurisan, the industry's No. 1 full-remodeling business, and custom home construction; and Brokerage, having one of the highest number of transactions in the industry, primarily for existing homes.

Each business has been steadily increasing their performance with a high level of profitability, and contributing to improving the corporate value of the Group.

A Message from the Management

Results for the fiscal 2021

Breakdown of revenue from operations Breakdown of operating income

Overview

Sales

• Condominium Sales

																										(Billion yen)
Revenue from	939.4
operations
Operating income	233.8
Ordinary profit	225.1
Profit	150.4

	1%
	8%
21%	939.4	45%
	Billion yen
	25%

	0%
	7%
	8%
20%	233.8		Leasing
	Sales
	Billion yen	65%
		Construction
			Brokerage
			Others

Management	of the
Plan	Ninth
Value Creation	The Sumitomo Realty

Note: Percentage is calculated from figures before elimination and/or corporate for the fiscal year ended March 31, 2022.

Sumitomo Realty & Development Co., Ltd.

Revenue from operations		(Billion yen)
FY2021	YoY	FY2022 (F) YoY

Leasing	425.0	+ 26.8	430.0	+ 4.9
Sales	233.7	(29.6)	220.0	(13.7)
Construction	204.3	+ 15.6	220.0	+15.6

Operating income

Leasing

Sales

Construction

FY2021 YoY

162.6 + 7.4

50.4 (3.4)

18.5 + 2.9

	(Billion yen)
FY2022 (F)	YoY
165.0	+ 2.3

50.0 (0.4)

21.0 + 2.4

Group's

Business Review

Brokerage

73.4

+ 7.6

78.0

+4.5

Brokerage

18.0

+ 6.5

20.0

+ 1.9

		Construction
		• Shinchiku Sokkurisan Remodeling
		• Custom Homes
Leasing		Sumitomo Fudosan Syscon Co., Ltd.
	Brokerage
• Office Buildings • Rental Apartments • Hotels
• Multipurpose Halls • Retail Facilities
Sumitomo Fudosan Villa Fontaine Co., Ltd.	• Real Estate Brokerage
Sumitomo Fudosan Bellesalle Co., Ltd.	Sumitomo Real Estate
Sumitomo Fudosan Retail Management Co., Ltd.	Sales Co., Ltd.
Others	• FitnessSumitomo Fudosan Esforta Co., Ltd.
	• General Insurance and Life Insurance AgencyIzumi Insurance Service Co., Ltd.
	• Restaurant / CateringIzumi Restaurant Co., Ltd.	etc.

Operating income by segment

■ Leasing ■ Sales ■ Construction ■ Brokerage

180
160
140
120
100
80
60
40
20
0	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023
(Years ended/ending March 31)																					(Forecast)

ESG Management
financial Data /	Consolidated
Company Information	Financial and Non-

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A Message from the Management

Striving for "Sustainable Growth and Development" Together with the City

Creating New Value That

Will Be Needed for

Future Generations

Kojun Nishima

President

	Management philosophy that inherits "Sumitomo's Business
	Philosophy" with a history of 430 years
Corporate	The Company is a comprehensive real estate enterprise of the Sumitomo Group, which succeeded the Sumitomo
Philosophy	Honsha Ltd. and inherits "Sumitomo's Business Philosophy" which has a history of 430 years. The Sumitomo Group
▶ P.01
is one of the longest-lasting corporate groups in the world, and its business philosophy - "Placing prime importance
	on integrity," "Under no circumstances, shall it pursue easy gains," "Benefit self and benefit others, private and
	public interests are one and the same," etc. - has been handed down as a guiding principle throughout its history.
	In light of the wisdom of its predecessors, the Sumitomo Realty Group has developed its business based on a
	philosophy of placing top priority on integrity, not pursuing easy gains, and creating not only economic value through
	the pursuit of self-interest, but also lasting social value that will be needed for future generations.
	Our corporate slogan "Integrity and Innovation" expresses such corporate stance. With this corporate slogan, we
	have set our code of conduct to create new values by placing top priority on relationships of trust with stakeholders,
	always setting higher goals, and pioneering with new approaches. Under this slogan, we have set forth our
	fundamental mission as to "Create even better social assets for the next generation," and our basic management
	policy aims to address various social issues including environmental ones through each business while maximizing
	corporate value.
	The real estate business has great social significance with a mission of enriching people's daily lives by forming
	bases where people work, live and interact, as well as providing related services. As such, we have identified "Disaster
	Resistant," "Environmentally Friendly," "Together with the Community" and "People Friendly" as our four material
	issues and have been practicing "Sustainability Management" offering sustainable social assets for future
	generations.

• Our Material Issues (Materiality)

	Disaster
Disaster Resistant	prevention	People Friendly
Environment	Even better	People
social assets
Environmentally						Together with
Friendly						the Community

Community

Creating new value and achieving sustainable growth together with the city

We have established a sustainable and stable earnings base by steadily developing the real estate leasing business primarily involving office buildings in central Tokyo. We have developed numerous office buildings through redevelopment under the Urban Renewal Act, etc. over roughly half a century since the early 1970s. By keeping the ownership of these buildings, rather than selling them off, we have accumulated stable revenues. With gross floor area of over 1.7 million tsubo (one tsubo is roughly 3.3m2) as of March 31, 2022, the leasing business has been a solid business platform that accounts for approximately 70% of our overall operating income of over ¥200 billion.

In order to secure a stable supply of land in central Tokyo, where large parcels of land are rare, we, as a "Land Maker," have been engaged in urban development including redevelopment together with numerous landowners.

Through our redevelopment business to date, in addition to creating an earnings base, we have contributed to solving various issues of the community. By redeveloping the remaining densely built-up areas with low-rise wooden houses in various areas of central Tokyo, which pose high disaster risks, we have realized effective use of land, improvement of disaster preparedness and revitalization of the community. By upgrading urban function through redevelopment, the Company contributes to enhancing the value of not only the redevelopment area but also international metropolis Tokyo overall.

Our strength is the capability of "Land Innovation," or the capability of development, which we have cultivated over the years as one of Japan's leading comprehensive developers. By taking advantage of this strength, we will continue to promote sustainable urban development that generates both economic and social value, as well as to achieve sustainable growth and maximize corporate value.

Growth strategies with a view to a new stage

Steadily achieving objectives of the medium-term management plans and maintaining the revenue and profit growth trajectory

With top priority placed on achieving the objectives of the medium-term management plans we have formulated every three years, we have increased our corporate value as a result of having steadily implemented the plans. Over the past 25 years, we have executed eight management plans, and have achieved increases in ordinary profit in 22 fiscal years, excluding the three fiscal years under the global financial crisis and the COVID-19 pandemic.

In the first ten fiscal years (three medium-term management plan periods), we focused on restoring our asset base, which had been damaged by the bursting of Japan's bubble economy, and reducing interest-bearing debt. In the latter 15 fiscal years (five medium-term management plan periods), we doubled our leasing assets, strengthened management foundations by further solidifying the four segments of Leasing, Sales, Construction and Brokerage, as well as enhanced shareholders' equity, lifting the credit rating to the AA zone.

The Sumitomo

Realty Group's

Value Creation

• P.15

A Message from the Management
Management	Overview of the
Plan	Ninth
Value Creation	The Sumitomo Realty Group's

Business Review

ESG Management
financial Data /	Consolidated
Company Information	Financial and Non-

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A Message from the Management

Positioning of the Ninth Medium-term Management Plan

Over the next three medium-term management plan periods through fiscal 2030, the Company will maintain its policy to prioritize the allocation of funds to further investment to expand leasing assets and take steps for sustainable profit growth, while aiming for a resilient management foundation and sustainable growth, based on the high level of social contribution of the Company's businesses themselves, and increasing investment capability and the level of flexibility in capital strategy. At present, there are various issues in the management environment such as the COVID-19 pandemic, geopolitical risks, and instability in resource procurement, but as the Company expects to achieve ordinary profit of 300 billion yen for fiscal 2030, it positions the "Ninth Management Plan (fiscal year ending March 31, 2023 to the fiscal year ending March 31, 2025)" that started in April 2022 as the first step to achieving that target, and exert every effort to continue enhancing corporate value.

1st - 3rd Plan

4th - 8th Plan

9th - 11th Plan

('98 - '07)

('08 - '22)

('23 - '31)

●Restore asset base

●Double our leasing assets

* 1 tsubo≈3.3m2

(Billion yen)

(Thousand tsubo*)

damaged by the bursting of

●Strengthen the foundation of each segment

300

Ordinary Profit

3,000

Japan's bubble economy

●Enhance shareholders' equity; lifting the credit

¥300 billion

●Reduce interest-bearing

rating to the AA zone

250

debt

2,500

2002,000

Ordinary

150

profit

More than

1,500

+700

100

Gross floor

Thousand tsubo

1,000

area (Owned)

50

(right scale)

500

0

0

'97

'98

'99

'00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'15

'16

'17

'18

'19

'20

'21

'22

'23

'31

(Years ended/ending March 31)

(F)

(F)

"Ninth Management Plan" aiming to further strengthen foundations

Overview of

For the new medium-term management plan, the Company has set earnings targets of "consecutive record profit for

the Ninth

the period covered" and "achieve cumulative ordinary profit of 750 billion yen and profit of 500 billion yen over the

Management

three-year period," while maintaining the pace of growth attained through the Eighth Management Plan.

Plan

▶ P.09

We aim to achieve our goals by leveraging the "comprehensive strength" of the Group by maintaining a stable earnings

base in the office building leasing business in central Tokyo and in the condominium sales business, as well as by realizing

high growth in the housing business including the Shinchiku Sokkurisan remodeling, and the brokerage business.

In the office building leasing, although the COVID-19 pandemic has triggered diversified workstyles and the

widespread utilization of remote work, it also brought with a reevaluation of the importance of offices in central

Tokyo. From the Ninth Management Plan onward, we will continue to steadily promote the development plans of

new buildings in central Tokyo with a total gross floor area of more than 700 thousand tsubo, which is equivalent to

more than 40% of the total gross floor area of 1.7 million tsubo of all buildings we own for leasing as of March 31,

2022, and aim to further expand our earnings base by completing and bringing such buildings into operation.

Under the fundamental mission to "Create even better social assets for the next generation," we have introduced

green financing and set CO2 emissions reduction targets by 2030 to strive to solve social issues while promoting our

business.

Although the future outlook remains uncertain, we will make further efforts to achieve the targets for the Ninth

Management Plan by utilizing the comprehensive strengths of the Group as a whole, aiming for sustainable growth

and enhancing corporate value thereafter.

Initiatives toward 2050 carbon neutrality

In terms of initiatives for decarbonization, which is a global social challenge, we have expressed our support for 2050 carbon neutrality, and established an interim target by fiscal 2030, a target to reduce CO2 emissions by 50% compared with fiscal 2014, immediately prior to the Paris Agreement. As a comprehensive developer that provides social infrastructure closely related to people's daily lives, in each of our mainstay businesses including office building leasing, condominium sales, remodeling, and custom home construction, we will promote the delivery of products and services appealing to consumers for the promotion of widespread energy saving and energy creation, and strive to achieve our CO2 emissions reduction targets while expanding our business. As concrete initiatives, we will actively promote initiatives to create benefits for all stakeholders; not only benefits for customers but also for business partners and suppliers, as well as solutions to issues faced by national and local governments.

Promotion of diversity as part of our human capital utilization

We have been actively promoting diversity since before, based on the recognition that the presence of diverse perspectives and values reflecting a variety of experiences, skills and attributes within the Company is an advantage that ensures the sustainable growth of the Company.

For more than 20 years, we have been actively hiring people with diverse career backgrounds as individuals who can be immediately effective in the Company. Today, mid-career hires with work experience at other companies account for 90% of our employees and are the source of the Company's growth.

In addition, we believe that equal opportunity is the most important factor in promoting employees to management positions, so we promote employees based solely on their enthusiasm, ability, and achievements, regardless of gender or whether they were hired as new graduates or as mid-career workers. As a result, today, mid- career hires account for more than 60% of managerial personnel, thus ensuring diversity at the management level. These initiatives have increased employee morale and led to developing human resource that can be the candidates responsible for sustainable growth.

Regarding the promotion of female participation and career advancement, we are working on their further improvement by setting and announcing numerical targets every five years for the ratio of female employees in sales and engineering positions that support our front line operations, to increase the number of female employees for future promotion. We will continue to promote diversity as one of our strengths by hiring and promoting a diverse workforce.

Sustainability management contributing to the SDGs

For many years, we have practiced Sustainability Management, inheriting "Sumitomo's business philosophy."

In our redevelopment business centered on office buildings and condominiums, which is our main development approach, we have promoted urban development that contributes to solving issues facing the community. For example, in areas with high disaster risks, such as an area where wooden houses are densely built up, we integrate those houses into a robust fire-resistant building to greatly improve local disaster preparedness. In addition, by promoting projects jointly with landowners, we create hubs for community building and revitalization. In the Shinchiku Sokkurisan remodeling business, we have greatly reduced the amount of waste generated and the use of new materials compared to rebuilding, and by adopting seismic reinforcement as a standard specification, we have actively worked to extend the useful lives of houses as well as promoted safe and secure housing since its launch in 1996.

Further, as mentioned above, we pursue initiatives for decarbonization with an interim target by fiscal 2030, established in May this year.

Under our fundamental mission to "Create even better social assets for the next generation," we will continue to address various social issues including environmental issues through our business activities, as well as contribute to the achievement of the Sustainable Development Goals (SDGs) of the United Nations.

Decarbonization Targets

• P.13

Promotion of Diversity for Active Participation of Diverse Personnel

• P.54

A Message from the Management
Management	Overview of the
Plan	Ninth
Value Creation	The Sumitomo Realty Group's

Business Review

ESG Management
financial Data /	Consolidated
Company Information	Financial and Non-

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