Special Feature Opportunities & Actions

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1 Special Feature Opportunities & Actions The theme of ORIX s annual report this year Opportunities & Actions describes the proactive approach of each ORIX Group business unit toward making the most of emerging opportunities as a means of realizing additional business growth. This section of the report features interviews with top executives and management in three key fields real estate-related operations, investment banking-related operations, and creating high-quality workplaces who explain ORIX s current strengths and growth strategies. Developing Real Estate-Related Operations Amid the major trend of increase in the securitization of real estate assets, the contributions to consolidated performance of ORIX s Real Estate-Related Finance segment and Real Estate segment have greatly increased in recent years. We asked the principal ORIX executives responsible for these operations Kazuo Kojima of the Real Estate Finance Headquarters, and Tetsuo Matsumoto of ORIX Real Estate Corporation, and the International Real Estate Business Headquarters as of June 22, 2007 to comment on ORIX s strengths in this field and the outlook for operations in this field. Making the Most of a Seamless Array of Services and Advanced Risk Assessment Systems Kazuo Kojima, Corporate Senior Vice President, Real Estate Finance Headquarters Q: Could you describe the special characteristics and strengths of ORIX s real estate finance operations? A: One of ORIX s strengths in the real estate finance field is that we can provide a seamless array of services ranging from loans, securitization, and loan servicing. In addition, because the ORIX Group has a nationwide sales and marketing network throughout Japan as well as a real estate company, it is in a better position than other financial institutions to gather various kinds of real estate-related information, including real estate industry information as well as fresh information from industry outsiders. Our ability to gather and appropriately analyze this information is a major strength that greatly facilitates our efforts to develop our real estate-related operations. Regarding development-related projects, for example, when we are considering the execution of a non-recourse loan, we have the strength of being able to autonomously make decisions based on our information and know-how regarding diverse development risks. As for loan servicing operations, we have received high servicer ratings in three categories master, primary, and special for our CMBS operations. We have the experience as one of the top loan servicers in Japan with respect to non-performing loan recovery and other services. Q: Do you agree with those who are saying that the market environment is overheated? A: Overseas investors are bullish on the Japanese real estate market. They have a strong desire to invest, and they have a high level of needs for our services. ORIX expects conditions in the real estate market to remain firm but, as market conditions are constantly changing, we are moving ahead with measures to increase the sophistication of our risk management while vigilantly keeping an eye out for changes in financial markets. Q: Please tell us about ORIX s strategies for the real estate-related finance operations going forward. A: There are still many sectors of the real estate finance market that we have not yet entered, and the market is expected to continue growing. We are planning to move forward with measures to upgrade our loan securitization capabilities, diversify our profit sources, strengthen our monitoring systems, and thereby augment our profitability and increase the sophistication of our risk management. Regarding the loan securitization capabilities, we are working to further expand our securitization business, with an eye to the potential for also meeting overseas investors needs. With respect to profit source diversification, we hope to leverage our accumulated know-how as we increase our operations involving fund arrangement, re-securitization products, and the equity capital markets. As for the strengthening of our monitoring systems, we are bolstering our middle-office staff and undertaking thorough risk assessment processes at the time of loan issuance, including the careful examination of structural, land, and environmental engineering reports. After loan issuance, we are managing receipt-expense accounts for individual real estate properties, revising our assumed disposal prices, and taking additional steps to promote the geographic and usage-type diversification of our entire portfolio as well as further increasing the precision of our schedule monitoring and management systems. By further increasing our specialized skills for various processes, including risk management, we intend to position ourselves to address good risks even more proactively than before. 12

2 Wielding Sophisticated Specialist Capabilities to Develop Diversified Operations Tetsuo Matsumoto, Group Senior Vice President, Executive Officer, ORIX Real Estate Corporation, Corporate Senior Vice President, International Real Estate Business Headquarters as of June 22, 2007 Q: Please explain ORIX s efforts to develop its real estate operations and describe the special characteristics of those operations. A: After starting out with a corporate dormitory business, we moved ahead to condominium development operations using former dormitory sites. Subsequently, we continued gradually pushing the boundaries of our real estate operations outward by moving into such fields as hotel operations and office building development and leasing. From the latter half of the 1990s, we anticipated the creation of REITs, CMBS, and other components of real estate securitization markets and began taking measures to participate in that market. As the securitization business was being pioneered in the United States, ORIX quickly absorbed the related business models and began using them to undertake real estate transactions in Japan. At the very beginning, ORIX did not necessarily have the most advanced specialist capabilities related to real estate business. Building on our solid base of financial business skills, however, we expanded the scope of our real estate operations by leveraging the dynamism of our corporate culture, which promotes the seeking out of challenging new business opportunities and the use of teamwork to realize the potential of those opportunities. While expanding our real estate operations, we have progressively accumulated a considerable amount of know-how and experience, and the level of our specialist capabilities for real estate has already reached a very high level. Q: What are the strengths of ORIX s real estate operations? A: Responding to changes in the markets, ORIX has not restricted itself to business involving condominiums and office buildings but has diversified its operations, which now encompass hotels, golf courses, training facilities, and numerous other real estate sectors. By making good use of its financial business skills, the ORIX Group has been able to undertake businesses funded with debt, equity, and combinations of the two. Within Japan, we have another important strength in the form of our nationwide domestic sales and marketing network, which gathers a diverse range of information. Q: What do you think about the real estate market environment? A: I believe that Japan s real estate market bottomed out about two years ago. Regarding the assets procured during several years up to that time, we have been in a supportive environment for earning profits comparable to other players in the market. With the inflow of funds from around the world, however, companies in the industry have generally become eager to procure additional properties; so, the success of investments made amid current conditions requires such skills as those for carefully selecting projects and efficiently managing assets. Q: Could you tell us about your plans for proceeding with the development of your real estate operations going forward? A: To respond to market changes, we believe it is important to increase the diversity of our portfolio and consciously strive to On June 22, 2007, ORIX created the International Real Estate Business Headquarters. The new headquarters has brought together staff with considerable accumulated expertise and know-how that will enable the reduce risks through such measures as those to handle both the dynamic development of real estate-related operations overseas. rental and sale of condominiums. To maintain sustained growth amid a changing operating environment, we must constantly create new businesses. In response to the globalization of the real estate investment field, we intend to proactively address opportunities to make new investment and development projects in such promising growth markets as those of Asian countries. As we watch each country s business systems, infrastructure development condition, money flows, and increasingly global product distribution, we are hoping (Newly Established) to be able to achieve some non-incremental business development H rs He ters leaps into promising new fields quite different from the Asia, Oceania and Europe Segment domestic markets we have been focusing on for so many years. 13

3 Expanding Investment Banking-Related Operations Both in Japan and overseas, ORIX is undertaking the full-scale development of such investment banking-related operations as those involving principal investments and M&A advisory. In this article, we will ask the principal ORIX executives responsible for these operations Masayuki Okamoto of the Investment Banking Headquarters; Makoto Inoue of the Alternative Investment & Development Headquarters; and James H. Zukin, Chairman of Asia at Houlihan Lokey Howard & Zukin, Inc. (Houlihan Lokey) about ORIX s current investment bankingrelated strengths and plans for additionally developing investment banking-related operations. Building Relationships with SMEs and Expansion of Investment Banking-Related Operations in Japan Q: Could you give us a brief overview of the Investment Banking Headquarters? A: In 1999, ORIX established the headquarters to consolidate the investment banking-related operations it was already engaged in at that time. ORIX has built strong relationships with small and medium-sized enterprise (SME) customers for over the past 43 years of operations centered primarily on debt financing. On the other hand, we have also been making use of the M&A know-how accumulated in the course of strategic investment operations to effectively respond to current trends in corporate rehabilitation, thereby expanding our investment business since The Investment Banking Headquarters is developing its business in such fields as principal investments, M&A advisory services, and financial advisory services, including those related to product development. Masayuki Okamoto, Executive Officer, Investment Banking Headquarters Q: Please describe ORIX s investment banking-related strengths and investment style. A: Our core strengths are our extensive nationwide sales and marketing network and our independence as a company when undertaking investment banking. Many of the companies we invested in the year under review were previously ORIX customers for finance-related services, and we have maintained close relationships with them. Because of these relationships, we are in a good position to gain a good understanding of investees operations, arrange mutual synergies, and make explanations to investees employees. In these ways, I believe we can be more proactive than investment funds or foreign-based investment banks. On the other hand, we make investment decisions only after meticulously executing due diligence processes, and we are invariably hands-on investors who work together with investee companies to increase their corporate value. Q: What are your investment goals? A: While our investment period and investment return targets vary depending on the characteristics of individual investment targets, we are basically aiming to make investments for periods of three to five years and generating an internal rate of return of 20% or higher. Q: Could you explain the personnel structure of the Investment Banking Headquarters? A: The headquarters has a diverse staff, including people who previously worked in marketing units and financial institutions and those who have previously worked as CPAs, lawyers, and business consultants. These employees mutually share their varied expertise, aiming to realize knowledge sharing that helps lead us to our next project. Q: What is the direction of ORIX s investment banking-related operations going forward? A: M&A has finally become recognized as a potential part of each Japanese company s business strategy, and ORIX s business opportunities are also being increased by globalization, industrial restructuring, corporate successions, and other factors. Amid this changing environment, in addition to ORIX s network, we can make good use of ORIX s independent company position to obtain a great deal of information from such sources as banks, securities companies, and foreign-based investment banks. In an expanding market, we plan to effectively leverage ORIX s special capabilities and unique positioning to act as an advisor for all kinds of companies from large companies to SMEs as we prudently but proactively expand our operations. 14

4 Leveraging a Network Covering 21 Countries in Asia, Oceania, and Europe Together with Exclusive Know-How Makoto Inoue, Corporate Senior Vice President, Alternative Investment & Development Headquarters Q: What kind of a unit is the Alternative Investment & Development Headquarters? A: The headquarters encompasses four groups the Ship & Marine Projects Group, Aircraft Group, Corporate Finance Group, and Business Development Group. The Ship & Marine Projects Group handles business ranging from ship financing to ship investments and operation, and it has recently expanded into such fields as fee business related to new ship orders. The Aircraft Group employs its aircraft investment and airframe management know-how to engage in advisory business aimed at bringing prospective aircraft lessees together with investors as well as such fee business as that involving administration of fund deposits and withdrawals. The Corporate Finance Group is engaged in cross-border debt finance, but currently it is shifting to principal investments in overseas companies aiming to make IPOs. The recently established Business Development Group is seeking to invest in overseas transportation infrastructure projects and real estate-related projects. Q: Could tell us about your strategy for expanding operations in Asia and present some specific investment examples? A: Investors are facing intense competition as they seek promising opportunities in Asia. With our bases in Singapore, Hong Kong, and Tokyo as well as our network of business partners created in the course of our operations in leasing and other fields, we are well positioned to gather timely information throughout Asia, expeditiously make investment decisions, and thereby strive to avoid competition and attain high profit levels. Representative projects include our 2002 investment in Korea Life Insurance Co., Ltd., designed to facilitate the rehabilitation of that company and the Business Development Group s recently initiated real estate development projects in Vietnam. Q: How do you plan to expand your principal investment operations? A: Our fundamental approach in principal investment business is to act as investment consortium organizer and principal investor to put ourselves in a position to influence the management decisions of investment targets, then sell a portion of our stake to partners, with an eye to controlling the risk-return ratio. While we are focusing primarily on middle-range investments in the range of several hundred million U.S. dollars, our increasingly impressive record in this area is bringing us a growing number of offers of business collaboration. We are aiming to effectively wield flexible decision-making capabilities as well as outstanding investment analysis capabilities so that we can further expand our presence in Asian markets, which are expected to continue growing. Expansion into the Asian Region as Part of Global Strategy James H. Zukin Chaiman of Asia, Houlihan Lokey Howard & Zukin Q: Please explain Houlihan Lokey s expansion of Asian operations and plans for business development. A: The partnership with ORIX created the opportunity to implement a combined advising and investing strategy for the Houlihan Lokey expansion into Asia. We opened our Asian headquarters office in Hong Kong in June We believe the following will drive the growth of HL Asia: state-owned enterprise restructuring in China, requirement of our services due to new international accounting rules and international listings, booming cross-border middle-market M&A for Asia, key roles taken by companies in Asia in global industry consolidation, and dramatic growth in private equity in Asia. In Japan, we are introducing our financial advisory services and cross-border M&A in coordination with ORIX M&A Solutions Corporation. We will base these services on our successful models in Europe and the United States and will utilize advice and capital in an integrated plan that will leverage the powerful ORIX network in Asia. 15

5 Creating High-Quality Workplaces One of the concrete programs ORIX is implementing as a means of strengthening its overall capabilities is a program aimed at creating high-quality workplaces. We asked Yukiyo Saito of the Human Resources Group, to explain the goals of the creating highquality workplaces program as well as the Diversity Promotion Project launched in April Creating High-Quality Workplaces to Promote Greater Personnel Diversity Yukiyo Saito, Deputy General Manager of the Human Resources Group (In charge of diversity promotion) Q: What do you mean by creating high-quality workplaces, and how will creating such workplaces promote ORIX s growth? A: For a financial services company like ORIX, people are truly the most important management resource. Our future corporate growth will depend on contributions from many individual workers, and we believe that high-quality workplaces that emphasize the value of employees work are a crucial means of encouraging each employee to make the most of their potential abilities. We hire various people with differing capability levels, and we want each of them to believe they are happy to be working at ORIX. The Company has diverse workers, and we are intent on providing every one with a pleasant work environment that supports their efforts to improve and make the most effective use of their capabilities. This is a crucial basis for ORIX s dynamic growth. Q: You launched the Diversity Promotion Project in April Please tell us the specific goals of this project. A: We have launched a project aimed at creating flexibly responsive and innovative organizations that respond sensitively to changes resulting from evolving lifestyles, demographic graying, and other changes in ORIX s operating environment as well as changes in the structure of ORIX s operations. The project s first focus is the women who comprise approximately 40% of the workforce of principal ORIX Group companies in Japan. While women are already active in every area of the Group s operations, we want to help female employees continue working in ORIX over the long term by creating working environments that flexibly respond to women s needs with respect to such major life events as childbirth, child raising, and the job transfer of husbands to distant workplaces. We expect our initiatives to increase the share of women among ORIX s managers. While Japanese companies generally still have far to go in improving their treatment of female employees and creating pervasive corporate cultures that respect employee diversity, ORIX expects its initiatives in this respect will boost the coordination and productivity of all its employees. Q: What are the strengths of ORIX s human resource strategy? A: Our biggest strengths are flexibility and speed. We welcome all qualified employment candidates whether they be newly graduated from school, midway through their careers, advanced in age, non- Japanese, or women, for example. We periodically redesign our personnel systems to reduce emphasis on traditional methodologies and increase flexibility, and, once we determine new personnel policies, we implement them extremely quickly. Our current Diversity Promotion Project is also characterized by flexibility and speed to the greatest possible extent, we have sought to eliminate outmoded conventions and promote awareness reforms so that we can employ a more diverse group of people that will inject additional sparks of vitality into ORIX s venerable concept of dynamic team play. 16