( million) Change (%)

Transcription

1 Please note that this document is a translation of the official announcement that was released on January 10, The translation is prepared and provided for the purpose of the readers convenience only. All readers are strongly recommended to refer to the original Japanese version of the news release for complete and accurate information. Summary of Consolidated Financial Statements for the Year Ended November 30, 2011 January 10, 2012 Tosei Corporation Stock exchange listings: Tokyo, First Section Code number: 8923 URL: Representative: Seiichiro Yamaguchi, President and CEO Contact: Noboru Hirano, Director and CFO Phone: Ordinary general shareholders meeting: February 24, 2012 (scheduled) Start of distribution of dividends: February 27, 2012 (scheduled) Submission of Securities Report (Yuka Shoken Hokokusho): February 28, 2012 (scheduled) Preparation of supplementary materials for quarterly financial results: Yes Holding of quarterly financial results meeting: Yes (for institutional investors and analysts) 1. Consolidated Operating Results for the Year Ended November 30, 2011 (December 1, November 30, 2011) (1) Revenues and Income Note: All amounts are rounded down to the nearest million yen. (Percentages represent change compared with the previous fiscal year.) Revenues Operating income Ordinary income Net income ( million) Change (%) ( million) Change (%) ( million) Change (%) ( million) Change (%) Year ended Nov. 30, ,759 (6.4) 2, , Year ended Nov. 30, ,449 (21.4) 1, (Note) Comprehensive income: Year ended November 30, 2011: 748 million (77.1%) Year ended November 30, 2010: 422 million (-%) Earnings Earnings per Ordinary income Operating income Return on equity per share share (diluted) /Total assets /Revenues ( ) ( ) (%) (%) (%) Year ended Nov. 30, , Year ended Nov. 30, (Reference) Equity in earnings of affiliates: Year ended November 30, 2011: - million Year ended November 30, 2010: - million (2) Financial Position Total assets ( million) Net assets ( million) Equity ratio (%) Book value per share ( ) As of Nov. 30, ,967 24, , As of Nov. 30, ,682 24, , (Reference) Equity: As of November 30, 2011: 24,976 million As of November 30, 2010: 24,455 million (3) Cash Flows Cash flows from operating activities ( million) Cash flows from investing activities ( million) Cash flows from financing activities ( million) Cash and cash equivalents at end of period ( million) Year ended Nov. 30, ,017 (116) (4,416) 8,306 Year ended Nov. 30, 2010 (1,625) (178) 735 6, Dividends Dividends per share ( ) 1Q-end 2Q-end 3Q-end Year-end Total Total dividends ( million) Payout ratio (%) Dividend on equity ratio (%) Year ended Nov. 30, Year ended Nov. 30, Year ended Nov. 30, 2012 (Projected) Projected Results for the Year Ending November 30, 2012 (December 1, 2011 November 30, 2012) Six months ending May 31, 2012 Year ending November 30, 2012 (Percentages represent change compared with the same period of the previous fiscal year.) Earnings Revenues Operating income Ordinary income Net income per share ( million) (%) ( million) (%) ( million) (%) ( million) (%) ( ) 9,719 (9.2) 759 (31.6) 311 (52.1) 116 (69.5) , , , , ,

2 4. Other (1) Changes in major subsidiaries during the period: No Newly added: - Excluded: - (2) Changes in accounting rules, procedures, presentation methods, etc. (a) Changes in consolidated accounting methods: Yes (b) Changes other than (a) above No (3) Number of shares issued and outstanding (common stock) (a) Number of shares issued and outstanding at end of period (including treasury stock) As of Nov. 30, ,840 shares As of Nov. 30, ,840 shares (b) Treasury stock at end of period As of Nov. 30, As of Nov. 30, (c) Average number of issued shares during As of Nov. 30, ,840 As of Nov. 30, ,579 the period: shares shares (Reference) Summary of Nonconsolidated Results 1. Nonconsolidated Results for the Year Ended November 30, 2011 (December 1, November 30, 2011) (1) Revenues and Income (Percentages represent change compared with the previous fiscal year.) Revenues Operating income Ordinary income Net income ( million) Change (%) ( million) Change (%) ( million) Change (%) ( million) Change (%) Year ended Nov. 30, ,719 (10.8) 2, , Year ended Nov. 30, ,230 (23.9) 1, Earnings per share Earnings per share (diluted) ( ) ( ) Year ended Nov. 30, , Year ended Nov. 30, , (2) Financial Position Total assets Net assets Equity ratio Book value per share ( million) ( million) (%) ( ) As of Nov. 30, ,313 24, , As of Nov. 30, ,871 23, , (Reference) Equity: As of November 30, 2011: 24,382 million As of November 30, 2010: 23,620 million 2. Projected Nonconsolidated Results for the Fiscal Year Ending November 30, 2012 (December 1, 2011 November 30, 2012) (Percentages represent change compared with the same period of the previous fiscal year) Earnings Revenues Ordinary income Net income per share Six months ending May 31, 2012 ( million) (%) ( million) (%) ( million) (%) ( ) 7,567 (14.0) 286 (48.4) 104 (65.9) Year ending 23, , , , November 30, 2012 * Information regarding implementation of auditing procedures The current consolidated financial statements are exempted from auditing procedures based on the Financial Instruments and Exchange Act. At the time of disclosure, we have not completed the auditing process for these consolidated statements. * Proper use of the earnings forecasts and other notes (Cautionary Remark Regarding Forward-Looking Statements) The projections are forward-looking statements based on currently available information, and therefore contain elements of uncertainty. Actual performance may differ from projections due to changes in operating conditions. See 2) Outlook for the Year Ending November 30, 2012 in 1. Results, (1) Analysis of Results on page 5 for matters concerning the above projections. 2

3 (Access to the financial statements and supplementary materials) Presentation Meeting on the Financial Results for the year ended November 30, 2011 will be held on January 10, 2012 for institutional investors and analysts. The presentation materials will be available on our homepage immediately after the disclosure. 3

4 Contents of attached documents 1. Results (1) Analysis of Results... 5 (2) Analysis of Financial Position (3) Fundamental Earnings and Distribution Policy (4) and Other Risks Conditions of Corporate Group Management Policies (1) Fundamental Management Policy (2) Tasks to Be Addressed (3) Other Important Management Matters Consolidated Financial Statements (1) Consolidated Balance Sheets (2) Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income (3) Consolidated Statements of Changes in Net Assets (4) Consolidated Statements of Cash Flows (Segment Information) (Real Estate-related, Including Rental )

5 1. Results (1) Analysis of Results 1) Consolidated Results for the Year Ended November 30, 2011 During the year ended November 30, 2011 (December 1, 2010 to November 30, 2011), the Japanese economy showed some signs of recovery from the severe situations caused by the Great East Japan Earthquake on March 11, 2011 as a result of recovery of supply chain and the effect of political measures. However, it still remains uncertain due to the European sovereign debt crisis and further appreciation of the yen. In the real estate industry where Tosei Group operates, the number of condo offering in the greater Tokyo area continues to be low since April 2011 affected by the earthquake, but the closing rate during the months from January 2010 to October 2011 has been above 70%, which is considered favorable. In the market for leased office building in the five business wards of Tokyo, the average asking rent subsequently remains at low levels. The vacancy rate shows a downward trend after April 2011, yet it is still at high level. In the market for securitized real estate as of the end of June 2011, the balance of assets for private placement funds under management increased by 0.2 trillion from the end of December 2010 to 15.9 trillion. In this operating environment, Tosei Group continued to promote purchase and sale of residential properties that are in good demand, as well as small and medium sized office buildings that are highly liquid. The Group concentrated on the sale of entire buildings in stock such as new condominiums, office buildings, and refurbished properties in the Restyling business. With a focus on lands for condominium and detached house development, it also concentrated on purchasing a wide range of properties such as assets for the Restyling business and office buildings. Furthermore, our consistent initiatives to strengthen the relationship with overseas investors allowed us to achieve origination of Restyling fund. Consequently, the Group expanded the balance of assets under management. As a result, for the year ended November 30, 2011, consolidated revenue totaled 24,759 million (a decrease of 6.4% from the previous fiscal year), operating income was 2,389 million (an increase of 38.4%), ordinary income was 1,574 million (an increase of 96.0%), and net income was 751 million (an increase of 78.4%). Segment results were as follows: Revitalization During the year ended November 30, 2011, the Company sold a total of 204 units through the Restyling business. The properties sold include Hilltop Yokohama Negishi (Yokohama City, Kanagawa Prefecture), Clover Roppongi (Minato Ward, Tokyo), Renai Higashi Terao (Yokohama City, Kanagawa Prefecture), Estage Kaminoge (Setagaya Ward, Tokyo). In addition, the Company sold 11 buildings it had revitalized including Meguro Tosei Building (Shinagawa Ward, Tokyo), Ueno Park Building, (Taito Ward, Tokyo), and Sea Place Shin-Yokohama (Yokohama City, Kanagawa Prefecture). As a result, segment revenues totaled 12,040 million, an increase of 47.8% compared with the same period last year. Meanwhile, due to the declines in office building rent caused by economic stagnation, the Company adopted the Accounting Standard for Measurement of Inventories (the LCM method) for some properties and lowered their book values by 43 million, charged to the cost of revenues. As a result, the segment operating income was 1,891 million an increase of 363.5% compared with the same period last year. Development During the year ended November 30, 2011, the Company concentrated on the sale of new condominiums and detached houses that are in firm demand as well as office buildings. The development business sold a total of 65 newly-built condominiums including THE Palms Mitaka Vivace and THE Palms Mitaka Leggero (Mitaka City, Tokyo), 12 detached houses in Palms Court Mitaka Adagio (Mitaka City, Tokyo). As for office buildings, the Company sold Shinjuku Tosei Building (Shinjuku Ward, Tokyo). As a result, segment revenues came to 5,256 million, a decrease of 55.0% compared with the same period last year. Meanwhile, for the same reasons that applied to the revitalization business, the development business recognized a 600 million valuation loss, charged to the cost of revenues, due to the adoption of the LCM method. Consequently, segment operating loss came to 22 million. (The segment operating income of the same period last year was 599 million.) Rental 5

6 During the year ended November 30, 2011, a challenging situation continued due to office downsizing and relocations prompted by the prolonged recession. Also in our revitalization business and the development business, the decrease in rental income resulting from inventory sale exceeded the increase in rental income resulting from newly acquired inventory. As a result, segment revenues were 2,459 million, a decrease of 4.9% compared with the same period last year and operating income was 1,182 million, a decrease of 8.7%. Fund During the year ended November 30, 2011, due to customers replacing their asset management companies with Tosei, and origination of new Restyling fund, the balance of assets under management showed an overall increase. As a result, the Company earned asset management fees steadily as well as brokerage fees related to large-sized funds. Consequently, segment revenues were 1,396 million, an increase of 24.2% compared with the same period last year while operating income was 652 million, an increase of 30.6%. As of Nov. 30, 2011, the balance of assets under management* totaled 285,904 million. *Note: The balance of assets under management includes the balance of assets which were subject to consulting contracts and etc. Property Management During the year ended November 30, 2011, regarding the sector for office buildings, parking lots and schools, the number of properties the Company managed decreased by 4 to 308 properties as of Oct. 31, 2011, while the number of condominiums and rental apartments, increased by 4 to 203 properties. Due to an increase in operating cost, the segment revenues were 3,425 million, an increase of 25.2 % compared with the same period last year and segment operating income was down 13.1% to 104 million. Alternative Investment During the year ended November 30, 2011, this segment focused on the collection of debt and the leasing of properties which the Company acquired through like-kind exchanges. As a result, the segment earned interest income and revenues from the sale of receivables, as well as rental income from real estate acquired through like-kind exchangs. Consequently, segment revenues came to 180 million, an increase of 6.1% compared with the same period last year. Also, the segment recognized a 250 million valuation loss, charged to cost of revenues, following the adoption of the LCM method to reflect the revision of land unit prices. As a result, the segment operating loss was 190 million, an increase of 233.4% compared with the same period last year. 2) Outlook for the Year Ending November 30, 2012 In the business environment where Tosei Group operates, there are signs of a gradual recovery from the severe situations caused by the Great East Japan Earthquake on March 11, 2011, yet it still remains uncertain due to the European sovereign debt crisis and further appreciation of the yen. The real estate trading market experienced a sharp downturn, because the number of transaction decreased in the immediate aftermath of the earthquake. However, there has been a sign of recovery, reflecting the Bank of Japan s decision of raising the ceiling of J-REIT purchases. In this environment, Tosei will work to enhance its competitiveness in the sales of office and condominium buildings in the revitalization business by improving earning capacity of the properties through renovations and leasing efforts to attract potential investors. As for the residential properties in firm demand, the Company will focus on the purchase and sale of the properties for the Restyling business in which it purchases occupied rental condominiums and sells units on an individual basis after renovaing the entire building including its common areas. In the development business, the Company will accelerate the purchase of optimum lands for residential property development, centering on condominiums and detached houses, along with the development and the sale of high value properties which will meet end-users needs. The Company will especially work to expand its product line and operating area where it develops detached houses, in an effort to satisfy various needs of customers. Tosei s properties are diversified in their use and size, and therefore have a broad customer base. Having seen the sluggish demand for office buildings after the financial crisis, the Company will concentrate on purchase, development, and sale of residential properties for end-users in which it has a full range of pruducts such as newly-built condominiums and exisiting 6

7 condominiums for both sale and for lease, as well as detached houses. Tosei will also continue to focus on its fee business, which generates stable income without relying on our asset growth. In the fund business, where the shakeout in the market is likely to become more apparent because of the credit crunch, the Company considers this an opportunity for operators offering high quality services to achieve further expansion, and will focus on acquiring the custody business for fund assets under management. It will also promote its consulting business that helps to improve the profitability of real estate owned by business corporations. In addition, it will deepen ties with overseas investors primarily in Asia, in a bid to seek an influx of capital into properties in Japan, and work to increase the balance of fund assets under management. In the property management business, the Company will increase stable fee income by increasing the number of properties under management, based on the trust it has developed through its wholly owned subsidiary Tosei Community Co., Ltd. As a result of the above, in the year ending November 30, 2012, the Tosei Group projects that consolidated revenues will be 29,063 million, a year-on-year increase of 17.4%, operating income will be 3,079 million, an increase of 28.9%, ordinary income will be 2,226 million, an increase of 41.4%, and net income will be 1,278 million, an increase of 70.1%. (2) Analysis of Financial Position 1) Assets, Liabilities and Net Assets as of November 30, 2011 Total assets decreased by 2,715 million to 59,967 million compared with the previous year. Primary factors included an increase in cash and deposits which totaled 1,198 million and a decrease in real estate for sale in progress totaling 3,905 million. Total liabilities decreased by 3,235 million to 34,991 compared with the previous year. Primary factors included a decrease in debt due to progress in property sales. Net assets increased by 520 million to 24,976 million compared with the previous year. Primary factors included increases in retained earnings. 2) Cash Flow for the Year ended November 30, 2011 Cash and cash equivalents as of November 30, 2011 comprised of 1,537 million in income before income taxes in addition to progress in the sales and purchase of properties in the revitalization and development businesses, resulting in a total of 8,306 million, showing a increase of 1,485 million compared with the end of the previous fiscal year. Cash Flows from Operating Activities Net cash provided in operating activities totaled 6,017 million. This total is comprised of 1,537 million in income before income taxes and a 3,305 million decrease in inventories as the sales of properties in the revitalization and development businesses progressed and the sales amount exceeded that of purchase. (Net cash used by operating activities totaled 1,625 million in the same period of the previous fiscal year). Cash Flows from Investing Activities Net cash used in investing activities totaled 116 million, primarily due to an increase in investment in securities totaling 353 million and a decrease in time deposits totaling 286 million. (Net cash used in investing activities decreased by 35.0% from the same period of the previous fiscal year.) Cash Flows from Financing Activities Net cash used by financing activities totaled 4,416 million, mainly because the amount of debt payment exceeded the income generated from borrowing as a result of smooth progress of property sale in the revitalization and the development business. (Net cash provided in financing activities in the same period of the previous fiscal year was 735 million) 7

8 (Reference) Trends in cash flow indicators for the Tosei Group are as follows. Year ended Nov. 30, 2008 Year ended Nov. 30, 2009 Year ended Nov. 30, 2010 Year ended Nov. 30, 2011 Equity ratio (%) Equity ratio on a market value basis (%) Redemption period (years) Interest coverage ratio (times) Equity ratio: Equity ratio on market value basis: Debt repayment term: Interest coverage ratio: Net assets/total assets Market capitalization/total assets Interest-bearing debt/cash flows Cash flows /Interest expenses Notes: (1) All indicators are calculated using consolidated financial figures. (2) Market capitalization is calculated based on the number of shares issued and outstanding, excluding treasury stock. (3) The debt redemption period employs cash flows from operating activities. (4) Interest-bearing debt includes all debt listed in the consolidated balance sheets on which interest is paid. (5) Debt redemption period and interest coverage ratio are not presented for the fiscal year ended November 30, 2010 because cash flows from operating activities were negative. (3) Fundamental Earnings Distribution Policy Tosei s fundamental earnings distribution policy is to strive to continuously provide stable dividends while comprehensively considering operating results, the future operating environment and progress in its business plan to balance dividends with the need for internal capital resources to generate long-term growth in corporate value by taking advantage of highly profitable business opportunities. For the year ended November 30, 2011 (the 62nd period), Tosei plans to pay cash dividends per share of 500. For the year ending November 30, 2012 (the 63rd period), Tosei plans to pay cash dividends per share of 500. (4) and Other Risks Risks that have the potential to affect the performance, stock price and financial position of the Tosei Group include, but are not limited to, the issues discussed below. Forward-looking statements represent Tosei Group judgments as of November 30, The Tosei Group maintains a policy of recognizing the potential for risks to occur and working to preclude them or manage them if they arise. 1. Environment 1) Revitalization and Development (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 several months to two years until they sell the properties after increasing their value or developing 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 and financial position. (ii) Changes in Results due to Timing of Property Transfer These two businesses book property sales amounts as revenues, and therefore the amount per transaction is large. In addition, because the two 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. In particular, the presence or absence of transfers of large-scale properties in the fourth quarter could cause a considerable change in revenues and income. 8

9 (iii) Construction Delays and Increased Construction Costs due to Natural Disasters, Etc. 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 in construction/renovation costs due to natural disasters or other unforeseen events have the potential to affect the Tosei Group s operating results and financial position. (iv) Application of Accounting Standard for Measurement of Inventories The Company adopted Accounting Standard for Measurement of Inventories (ASBJ Statement No.9, July 5, 2006) for inventories held for sale. As a result, inventories held at year-end are written down if fair value (net realizable value) is lower than acquisition cost, and the loss on the write-down of the difference is then charged as the cost of revenues. In the future, the Company will lower the book values of inventories if fair value (net realizable value) is lower than acquisition cost due to deterioration in financial or real estate market conditions or other cause, and the resulting loss could have an impact on the Tosei Group s operating results and financial position. 2) Rental In the rental business, a source of stable revenue for the Tosei Group, changes in general economic conditions or interest rates, the emergence of competing properties, or the occurrence of declines in rental fees or large numbers of vacancies due to natural disasters or other events have the potential to affect the Tosei Group s operating results and financial position. 3) Fund (i) Management Performance of Funds The fund business, which plays a significant role in the growth and positioning of the Tosei Group, earns fees in compensation for asset management including locating real estate properties that match the needs of investors, raising their value, conducting lease-up activities and then selling them. Therefore, asset management advisory and other capabilities play a role in the performance of the real estate funds, and the Tosei Group has accumulated expertise in both real estate and finance. 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 in the event that rental conditions or other aspects of the real estate properties which Tosei provides discretionary investment, management and advises on do not achieve the performance expected by investors. (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, or if funds can no longer continue due to funding problems. (iii) Compensation in Connection with Non-recourse Loans A special purpose company operated by a real estate fund that is managed by the Tosei Group may borrow funds via a non-recourse loan (debt can only be collected from income and sale proceeds of underlying real estate collateral. Also known as a limited recourse loan) when acquiring real estate. In this case, the Tosei Group, in its capacity as asset manager, may be held liable to compensate for damages, etc. incurred by the lender on the grounds of fraud or unlawful acts, environmental pollution or other incident resulting from willful intent or gross negligence by interested parties on the borrower side such as the borrower or the asset manager, in connection with the non-recourse loan. This liability is generally no guarantee of performance of the loan obligation but if such damage did occur as a result of gross negligence on the part of the Tosei Group, the Company or the Tosei Group may assume liability for compensation. 4) Property Management (i) Decline of Management Commission Costs Currently, management commission costs for condominiums and office buildings are continuing their downward trend 9

10 due to increasing competition with other companies and cost-reduction pressure from customers. The Tosei Group is making efforts to raise efficiency and cut management contracting costs, but further reductions in management commission costs 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 business execution and provision of services. Although the Group is striving to enhance its business quality and services, unpredictable workplace accidents, defects in construction or facilities, problems with services, or other incidents of a scale that could impact society have the potential to affect the Tosei Group s operating results and financial position. 5) Alternative Investment The alternative investment business, primarily purchases real estate collateralized loans and invests in M&As of real estate-owning companies. However, the inability to acquire real estate-collateralized loans in a shrinking market for nonperforming loans, the failure of M&As of real estate-owning companies to take place, or the inability to recover capital invested in acquired loans or companies as planned have the potential to affect the operating results and financial position of the Tosei Group 2. Reliance on Interest-Bearing Debt and Interest Rates The Tosei Group procures debt financing, primarily from financial institutions, on a project-by-project basis, 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 certain level. Increases in interest rates typically increase fund procurement costs, and therefore have the potential to affect the Tosei Group s operating results and financial position. In addition, lump-sum repayments due to conflicts with financial covenants on partial loans, delays of project sales, and lower-than-expected sales revenues also have the potential to affect the operating results and financial position of the Tosei Group. In procuring funds, the Tosei Group negotiates with multiple financial institutions to obtain the best financing terms. 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 the operating results and financial position of the Tosei Group. <Balance of Interest-Bearing Debt> Year ended Year ended Year ended Year ended Year ended Nov. 30, 2007 Nov. 30, 2008 Nov. 30, 2009 Nov. 30, 2010 Nov. 30, 2011 Balance of Interest-Bearing Debt ( million) 59,690 47,631 35,296 34,264 30,075 Total Assets ( million) 86,922 78,309 62,235 62,682 59,967 LTV (%) Areas 1) Competitive Conditions The Tosei Group s primary market is the 23 wards of Tokyo, and the Group purchases and sells primarily small and medium-sized properties. The Group has flexibly mobilized the information and know-how of its six businesses to conduct synergistic business operations. However, declines in selling prices of properties due to price competition caused by the recent decline in real estate transactions and deterioration of foreign investment have the potential to affect the operating results and financial position of the Group. 2) Occurrence of Disasters The occurrence of a natural disaster such as a major earthquake in Tokyo, which is believed likely to happen in the future, destructive storm or flood, or a human disaster such as war, terrorism or fire, could cause substantial losses in the value of the real estate the Group invests in, manages, develops and controls, and therefore has the potential to affect the Tosei 10

11 Group s results and financial position. 4. Legal Regulations 1) Legal Regulations In addition to the Company Law and regulations in the Financial Instruments and Exchange Law that apply to listed companies, the main legal regulations pertaining to the businesses of the Tosei Group are as follows. If these legal regulations are strengthened in the future, the cost of legal compliance measures could increase. Main Legal Regulations Real Estate Transaction Law National Land Use Plan Law City Planning Law Building Standards Law Construction Law Architect Law Housing Quality Assurance Law Financial Instruments and Exchange Law Financial Products Solicitation Law Real Estate Specific Joint Enterprise Law Trust Law Act on Investment Trust and Investment Corporations Act on Securitization of Assets Real Estate Investment Advisory Registration Rules Law for Execution of Warranty against Housing Defects Law for Prevention of Transfer of Proceeds from Crime Law Concerning Proper Condominium Management Law Concerning Assurance of Sanitary Environments in Buildings Security Service Law Fire Service Law Law Regarding the Rationalization of Energy Use Money Lending Act. 2) Licenses and Permits, Etc. The Tosei Group s businesses have obtained the following related permits in accordance with the laws listed above. As Tosei Group works to observe the current requirements imposed by administrative laws and local ordinances, there has not been any issue that could result in the revocation of licenses or permits. However, the business activities of the Group could profoundly be affected in the event that revocation of licenses or permits occurred due to virolation of law. Moreover, an adverse change in any of the above laws may lead to a negative impact on the operating results or financial position of the Group. Tosei Corporation Name of License or Permit Authority Content of License or Permit Expiration Real Estate License Governor of Tokyo Tokyo Governor s License (11) No March 23, 2012 Rescission, Cancellation or Other Reasons When the license has been obtained through wrongful means, or the provisions of causes for disqualification of officers, etc. become applicable, the license shall be rescinded. (Article 66 of the Building Lots and Buildings Transaction Act) 11

12 Real Estate Investment Advisory Registration Specified Construction License First Class Architect s Office License Real Estate Specific Joint Enterprise Permit Registered Financial Instrument (Type 2 Financial Instrument, Advisor and Agency) Minister of Land, Infrastructure, Transport and Tourism Governor of Tokyo Governor of Tokyo Governor of Tokyo Kanto Financial Bureau General February 28, 2016 Tokyo Governor s License (Special-19) No Tokyo Governor s Registration (No ) Tokyo Governor, No. 58 Kanto Financial Bureau Chief (Financial Instruments) No. 898 December 9, 2012 April 10, When the registration has been made through wrongful means, or the provisions of causes for disqualification of officers, etc. become applicable, the registration shall be rescinded. (Article 30 of the Rules on Registration of Real Estate Investment Advisory ) When a situation arises so that there is no fulltime officer or employee in the company who has experience of being engaged for five (5) years or more in specialized construction business, the permission shall be rescinded. (Article 29 of the Construction Act) When the registration has been made through wrongful means, or the provisions of causes for disqualification of the first-class registered architect, etc. become applicable, the registration shall be rescinded. (Article 26 of the Architect Act) When license of the building lots and buildings transaction business has been rescinded, or the provisions of causes for disqualification of officers, etc. become applicable, the authorization shall be rescinded. (Article 36 of the Real Estate Specified Joint Enterprise Act) When the registration has been made through wrongful means, or there is a risk of insolvency in the light of capital or operation or the status of property, the registration shall be rescinded. (Article 52 of the Financial Instruments and Exchange Act) Tosei Asset Advisors, Inc. Name of License or Permit Authority Content of License or Permit Expiration Real Estate License Registered Financial Instrument (Type 2 Financial Instrument, Investment Management) Registered Financial Instrument (Advisor and Agency) License for discretionary proxy in realty trading Governor of Tokyo Kanto Financial Bureau Minister of Land, Infrastructure, Transport and Tourism Tokyo Governor s License (2) No Kanto Financial Bureau Chief (Financial Instruments) No. 363 Minister of Land, Infrastructure, Transport and Tourism No. 52 April 7, Rescission, Cancellation or Other Reasons When the license has been obtained through wrongful means, or the provisions of causes for disqualification of officers, etc. become applicable, the license shall be rescinded. (Article 66 of the Building Lots and Buildings Transaction Act) When the registration has been made through wrongful means, or there is a risk of insolvency in the light of capital or operation or the status of property, the registration shall be rescinded. (Article 52 of the Financial Instruments and Exchange Act) When the authorization has been obtained through wrongful means, or damages have been caused to another party in the course of business, the authorization shall be rescinded. (Article 67-2 of the Building Lots and Buildings Transaction Act) 12

13 Tosei Community Co., Ltd. Name of License or Permit Authority Content of License or Permit Expiration Real Estate License General Construction Building License Specified Construction License First Class Architect s Office License Condominium Management Building Environmental Health Comprehensive Management Company Security Service License Governor of Tokyo Governor of Tokyo Governor of Tokyo Governor of Tokyo Minister of Land, Infrastructure, Transport and Tourism Governor of Tokyo Tokyo Public Safety Commissioner Tokyo Governor s License (3) No Tokyo Governor s License (General-19) No Tokyo Governor s License (Special-19) No Tokyo Governor s Registration (No ) Minister of Land, Infrastructure, Transport and Tourism (2) No Tokyo Governor s License (Comprehensive 19) No. 273 Security Service Law Authorization No September 28, 2016 March 10, 2013 March 10, 2013 January 15, 2014 May 21, 2012 October 3, 2013 October 4, 2016 Rescission, Cancellation or Other Reasons When the license has been obtained through wrongful means, or the provisions of causes for disqualification of officers, etc. become applicable, the license shall be rescinded. (Article 66 of the Building Lots and Buildings Transaction Act) When license of the building lots and buildings transaction business has been rescinded, or the provisions of causes for disqualification of officers, etc. become applicable, the authorization shall be rescinded. (Article 36 of the Real Estate Specified Joint Enterprise Act) When a situation arises so that there is no fulltime officer or employee in the company who has experience of being engaged for five (5) years or more in specialized construction business, the permission shall be rescinded. (Article 29 of the Construction Act) When the registration has been made through wrongful means, or the provisions of causes for disqualification of the first-class registered architect, etc. become applicable, the registration shall be rescinded. (Article 26 of the Architect Act) When the registration has been made through wrongful means, or the provisions of causes for disqualification of officers, etc. become applicable, the registration shall be rescinded. (Article 83 of the Act on Advancement of Proper Condominium Management) When the registration has been made through wrongful means, or the provisions of causes for disqualification of officers, etc. become applicable, the registration shall be rescinded. (Article 12-4 of the Act on Maintenance of Sanitation in Buildings) When the recognition has been obtained through wrongful means, or the provisions of causes for disqualification are applicable, the recognition shall be rescinded. (Article 8 of the Security Services Act) Tosei Revival Investment Co., Ltd. Name of License or Permit Authority Content of License or Permit Expiration Real Estate License Governor of Tokyo Tokyo Governor s License (1) No February 22, 2013 Rescission, Cancellation or Other Reasons When the license has been obtained through wrongful means, or the provisions of causes for disqualification of officers, etc. become applicable, the license shall be rescinded. (Article 66 of the Building Lots and Buildings Transaction Act) 13

14 Money Lending Registration Governor of Tokyo Tokyo Governor, (1), No March 16, 2013 When the registration has been made through wrongful means, or the provisions of causes for disqualification are applicable, the registration shall be rescinded. (Article of the Money Lending Act) 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 and selling assets, and therefore have the potential to affect the operating results and financial position of the Tosei Group. (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 the basis of the extent of Tosei s control over and influence on the investment 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 the operating results and financial position of the Tosei Group. 5. Defect Liability and After-Sale Service Under the Real Estate Transaction Law, real estate businesses assume liability for defects when they sell a property to parties other than real estate businesses, regardless of whether the property is new or second-hand. Under the Housing Quality Assurance Law, real estate businesses are obligated to provide a 10-year warranty on the main structural components of the building for new properties. In addition, the Tosei Group provides customers with an after-sale service warranty (valid for 1-10 years, depending on the item) according to the Group s After-Sale Service Standards. The Tosei Group conducts quality checks through its Architectural Design and Planning Department, and also works to mitigate business risks by taking measures such as requiring vendors and construction companies to provide an after-sale service warranty equivalent to that of the Tosei Group. However, if for some reason a defect arises in a property supplied by the Tosei Group, and the Group is unable to impose the defect liability on the vendor, or the vendor or contractor is incapable of fulfilling the warranty, the Tosei Group would incur additional expenses, which have the potential to affect the operating results and financial position of the Tosei Group. 6. Human Resources Because of the characteristics of the Tosei Group s businesses, people are an extremely important management resource, and further securing high-caliber personnel, educating them to master Tosei s unique competencies and developing management candidates are essential to accomplishing the medium-term management plan. The inability of the Tosei Group to secure or train the personnel that it requires, or the departure of management currently in office, has the potential to affect the operating results and financial position of the Tosei Group. 7. Personal Information Protection In its revitalization business, development business, rental business, fund business, property management business and alternative investment business, the Tosei Group holds the personal information of many customers, including persons involved in these businesses. The volume of personal information the Group holds is expected to increase along with future business expansion. In line with the Personal Information Protection Law, the Group has established regulations for managing information assets, trained its employees, strengthened its information management system and taken thorough measures to manage personal information. However, the release or leak of personal information or material corporate information held by the Tosei Group to outside parties due to unforeseen circumstances could cause a loss of trust in the Tosei Group, and thus have the potential to affect the Group s operating results and financial position. 14

15 8. Other When purchasing a second-hand property, the Tosei Group surveys the building s structure, use of asbestos, soil pollution and other elements. However, business execution may be temporarily suspended or prolonged if, for example, a building s structural design data has not been saved, a building that contains asbestos is demolished, or the results of the soil pollution survey show that soil improvement is necessary. Such suspension of business has the potential to affect the operating results and financial position of the Tosei Group. 15

16 2. Conditions of Corporate Group The Tosei Group is composed of Tosei Corporation ( Tosei or the Company ) and 6 consolidated subsidiaries. Its main businesses are the revitalization business, the development business, the rental business, the fund business, the property management business, and the alternative investment business. The operations of each business segment and the main affiliates and other companies conducting those operations are as follows. Segment Operations Main Companies Revitalization Development Rental Fund Property Management Alternative Investment The Tosei Group 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 tenant needs, and resells them to investors, real estate funds, and individual end-users as revitalized real estate. As the Restyling, the Tosei Group acquires income-producing condo complexes and sells them as condominiums for sale to end-users after increasing the value of common and exclusive areas. (the Group continues to hold and manage pre-occupied units for rental properties) The Tosei Group s value-up activities do not end with renewal. Tosei works to comprehensively restore property value by focusing on providing property owners with satisfaction and end-users with pride in addition to improving convenience and functionality *Plans primarily look years into the future, and cover improved design through the renewal of deteriorated or obsolete interior fixtures; functional reform including building renovation, addition of functions and conversion; and lease up including leasing vacant space, collecting overdue rent and raising rent. In the 23 wards of Tokyo, the Tosei Group s primary operating area, needs for office, commercial and residential space and other uses are mixed, and how land is used can create significant differences in its value. In acquiring land, Tosei 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 as single properties or subdividing them for individual sales to end-users. Tosei responds to diverse needs by developing office buildings, mixed-use buildings that include commercial facilities (T S BRIGHTIA Series), residential condominiums (THE Palms Series), and detached housing (THE Palms Court Series), and sells them to investors, real estate funds, end-users and other customers when construction is complete or after tenants have been secured. The Tosei Group has expanded the scope of its business, It owns office buildings, condominiums and commercial properties, and parking lots primarily in the 23 wards of Tokyo, which it mainly rents to end-users. As a landlord, the Tosei Group can quickly gather accurate information on tenant needs, which contributes to further enhancing value-up plans to reflect those needs. The Tosei Group conducts business as a Type 2 financial instrument business operator, as well as an advisor and agency, as defined by the Financial Instruments and Exchange Law. Specific operations include buying, selling and brokering trust beneficiary rights that match diverse needs of investors and providing advice and services on acquisition, management and disposal of properties. The Group also provides asset management service which assumes discretionary investment management activity. To offer high dividends to investors, the Tosei Group manages funds by making full use of its value-up, leasing and maintenance capabilities to maximize rental income and cut costs. Core revenues include acquisition fees when new properties are purchased and asset management fees for properties held Tosei Community Co., Ltd. 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 in condominiums complexes and office buildings, and office interior renovation contracting. Based on many years of experience in managing condominiums, Tosei Community offers consulting and advice to holders of comparted-ownership and condominium associations, and provides total support from the startup to the smooth operation of condominium associations. Tosei Community maintains the asset value of aging office buildings with accurate maintenance plans offering meticulous services that rationalize building owner management, such as maintenance engineering and management of utilities, water supply and drainage sanitation and cleaning. Tosei Revival Investment Co., Ltd. invests in real estate-collateralized loans and collects debt or acquires mortgaged properties as payment in kind, by negotiating with mortgaged property owners/debtors. It also acquires properties through M&As of companies with real estate holdings and other companies associated with real estate and applies the Group s know-how to increase the value of acquired properties before selling them. Tosei Corporation Tosei Corporation Tosei Corporation Tosei Corporation Tosei Asset Advisors, Inc Tosei Community Co., Ltd. Tosei Revival Investment Co., Ltd. 16