Consolidated Financial Results for the Year Ended November 30, 2012 <under Japanese GAAP>

Transcription

1 Please note that this document is a translation of the official announcement in Japanese 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 for complete and accurate information. Consolidated Financial Results for the Year Ended November 30, 2012 <under Japanese GAAP> January 10, 2013 Company name: Tosei Corporation Stock listing: Tokyo Stock Exchange, First Section Securities code number: 8923 URL: Representative: Seiichiro Yamaguchi, President and CEO Contact: Noboru Hirano, Director and CFO Phone: Ordinary general shareholders meeting: February 26, 2013 (scheduled) Commencement of dividend payments: February 27, 2013 (scheduled) Submission of Securities Report (Yuka Shoken Hokokusho): February 28, 2013 (scheduled) Preparation of supplementary materials for financial results: Yes Holding of financial results meeting: Yes (for institutional investors and analysts) Note: All amounts are rounded down to the nearest million yen. 1. Consolidated Financial Results for the Year Ended November 30, 2012 (December 1, 2011 November 30, 2012) (1) Consolidated Operating Results (Percentages indicate year-on-year changes.) Net sales Operating income Ordinary income Net income ( million) (%) ( million) (%) ( million) (%) ( million) (%) Year ended Nov. 30, ,539 (0.9) 3, , , Year ended Nov. 30, ,759 (6.4) 2, , (Note) Comprehensive income: Year ended November 30, 2012: 1,404 million (87.6%) Year ended November 30, 2011: 748 million (77.1%) Net income Net income per Ordinary income Operating income Return on equity per share share (diluted) /Total assets /Net sales ( ) ( ) (%) (%) (%) Year ended Nov. 30, , Year ended Nov. 30, , (Reference) Equity in earnings of affiliates: Year ended November 30, 2012: million Year ended November 30, 2011: million (2) Consolidated Financial Position Total assets Net assets Equity ratio Net assets per share ( million) ( million) (%) ( ) As of Nov. 30, ,732 26, , As of Nov. 30, ,967 24, , (Reference) Equity: As of November 30, 2012: 26,152 million As of November 30, 2011: 24,976 million (3) Consolidated Cash Flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents at end of period ( million) ( million) ( million) ( million) Year ended Nov. 30, 2012 (1,005) 17 2,090 9,410 Year ended Nov. 30, ,017 (116) (4,416) 8,306

2 2. Dividends Annual dividends per share 1Q-end 2Q-end 3Q-end Year-end Total Total dividends per share (Total) Payout ratio (Consolidated) Dividends on equity ratio (Consolidated) ( ) ( ) ( ) ( ) ( ) ( million) (%) (%) Year ended Nov. 30, Year ended Nov. 30, Year ending Nov. 30, 2013 (Projected) Projected Consolidated Results for the Year Ending November 30, 2013 (December 1, 2012 November 30, 2013) (Percentages indicate year-on-year changes.) Net income Net sales Operating income Ordinary income Net income per share ( million) (%) ( million) (%) ( million) (%) ( million) (%) ( ) Six months ending May 24, , , , , , 2013 Year ending Nov. 30, 37, , , , , * Notes (1) Changes in significant subsidiaries during the period (changes in specified subsidiaries resulting in changes in the scope of consolidation): No Newly added: Excluded: (2) Changes in accounting policies, changes in accounting estimates, and restatement of prior period financial statements after error corrections (a) Changes in accounting policies due to revisions to accounting standards and other regulations: Yes (b) Changes in accounting policies due to other reasons: No (c) Changes in accounting estimates: Yes (d) Restatement of prior period financial statements after error corrections: No (Note) These items fall in those set forth in Article 14-7 of the Ordinance on Terminology, Forms, and Preparation Methods of Consolidated Financial Statements (cases in which changes in accounting policies are difficult to distinguish from changes in accounting estimates). For details, please see (7) Change in Accounting Policy in 4. Consolidated Financial Statements on page 21 of the attached materials. (3) Number of issued shares (common stock) (a) Number of issued shares at the end of the period (including treasury stock) As of Nov. 30, ,840 shares As of Nov. 30, ,840 shares (b) Number of shares of treasury stock at the end of the period As of Nov. 30, 2012 As of Nov. 30, 2011 (c) Average number of outstanding shares during the period: Year ended Nov. 30, ,840 shares Year ended Nov. 30, ,840 shares (Reference) Summary of Non-consolidated Results 1. Non-consolidated Financial Results for the Year Ended November 30, 2012 (December 1, 2011 November 30, 2012) (1) Non-consolidated Operating Results (Percentages indicate year-on-year changes.) Net sales Operating income Ordinary income Net income ( million) (%) ( million) (%) ( million) (%) ( million) (%) Year ended Nov. 30, ,423 (6.3) 2, , , Year ended Nov. 30, ,719 (10.8) 2, , Net income per share Net income per share (diluted) ( ) ( ) Year ended Nov. 30, , Year ended Nov. 30, ,174.76

3 (2) Non-consolidated Financial Position Total assets Net assets Equity ratio Net assets per share ( million) ( million) (%) ( ) As of Nov. 30, ,016 25, , As of Nov. 30, ,313 24, , (Reference) Equity: As of November 30, 2012: 25,296 million As of November 30, 2011: 24,382 million 2. Projected Non-consolidated Results for the Year Ending November 30, 2013 (December 1, 2012 November 30, 2013) (Percentages indicate year-on-year changes.) Net sales Ordinary income Net income Net income per share ( million) (%) ( million) (%) ( million) (%) ( ) Six months ending May 31, , , , , Year ending Nov. 30, , , , , * Information regarding execution of audit procedures This financial results report is exempt from the audit procedures pursuant to the Financial Instruments and Exchange Act. At the time of disclosure of this financial results report, the audit procedures for the consolidated financial statements pursuant to the Financial Instruments and Exchange Act have not been completed. * Proper use of earnings forecasts and other notes (Caution regarding forward-looking statements and others) The forward-looking statements, including earnings forecasts, contained in these materials are based on information currently available to the Company and on certain assumptions deemed to be reasonable. Consequently, any statements herein do not constitute assurances regarding actual results by the Company. Actual business and other results may differ substantially due to various factors. For the suppositions that form the assumptions for earnings forecasts and cautions concerning the use thereof, please see 2) Outlook for the Year Ending November 30, 2013 in 1. Results, (1) Analysis of Results on page 2. (How to access supplementary materials for financial results and the details of the financial results meeting) A financial results meeting will be held on January 10, 2013 for institutional investors and analysts. The presentation materials distributed at the meeting will be available on our website immediately after the disclosure of account settlement.

4 Contents of attached materials 1. Results... 2 (1) Analysis of Results... 2 (2) Analysis of Financial Position... 4 (3) Fundamental Earnings Distribution Policy and Dividends for Fiscal 2012 and Fiscal Conditions of Corporate Group Management Policies... 9 (1) Fundamental Management Policy... 9 (2) Performance Targets, Medium- to Long-term Management Strategies and Tasks to Be Addressed... 9 (3) Other Important Management Matters Consolidated Financial Statements (1) Consolidated Balance Sheets (2) Consolidated Statements of Operations Consolidated Statements of Comprehensive Income (3) Consolidated Statements of Changes in Net Assets (4) Consolidated Statements of Cash Flows (5) Note on Going Concern Assumption (6) Significant Matters Forming the Basis of Preparing Consolidated Financial Statements (7) Change in Accounting Policy (8) Change in Presentation (9) Additional Information (10) Notes to Consolidated Financial Statements (Segment Information) (Per Share Information) (Significant Subsequent Events)

5 1. Results (1) Analysis of Results 1) Consolidated Results for the Year Ended November 30, 2012 During the year ended November 30, 2012 (December 1, 2011 to November 30, 2012), the Japanese economy began to recover, supported by factors such as government policies and earthquake rebuilding demand. Recently, however, the economy has shown signs of weakness due to a slowdown in overseas economies such as Europe and China. The economic outlook is likely to remain uncertain against a continued backdrop of instability in financial markets and deflationary risk in Japan. In the real estate sector, where the Tosei Group operates, the total value of property acquisitions by J-REITs and other real estate funds reached roughly 750 billion between January and the end of October 2012, the highest level for four years. This reflected active buying driven by overseas fund flows into the domestic real estate market on expectations that real estate prices have bottomed. As a result, in the first half of fiscal 2012, the number of real estate transactions rebounded to 329 and real estate transaction value recovered to billion, returning to the level seen in the first half of fiscal 2010 before the Great East Japan Earthquake (market research company data). In addition, from January 2010 to October 2012, the closing rate for condominium sales contracts in the greater Tokyo area essentially remained above the 70% level, which is viewed as a key indicator of favorable conditions in the condominium market. From January 2012 to October 2012, the number of condominium units supplied in the greater Tokyo area totaled 33,763 units, an increase of 2,074 units compared with the previous year (market research company data). In the market for leased office buildings in Tokyo s five business wards, the average vacancy rate increased at a modest pace in fiscal 2012, peaking at 9.43% at the end of June (up 0.62 percentage points year on year). The rate then saw a sustained improvement in the four months from July, falling back to 8.74% at the end of October due to progress with contract closings for new and existing buildings. The average asking rent for the same five wards continued to decline slowly, falling to 16,628/tsubo (1 tsubo=3.3m 2 ) as of the end of October 2012, a decline of 383 year on year (market research company data). In the market for securitized real estate, the balance of assets under management by real estate funds as of the end of June 2012 totaled 27.0 trillion, an increase of 0.9 trillion from the end of December This included an increase of 0.4 trillion to 8.7 trillion for J-REITs and a rise of 0.5 trillion to 18.3 trillion for private placement funds due to an upturn in activity in the real estate investment market and improving conditions for fund procurement (market research company data). In this operating environment, the Tosei Group faced delays in selling some of the Restyling properties in the Revitalization business, but the Group sold five buildings it had refurbished. The development business handed over two condominiums and registered strong sales contracts for detached houses. In purchasing, the Group continued to focus on acquiring residential properties and land for residential properties, demand for which has become stronger, and it also resumed full-scale investment in office buildings and other properties for the Revitalization business. We also set up our first overseas base with the establishment of a local subsidiary in Singapore, and concluded a membership contract with NAI Global, a network of global commercial real estate brokers as well. The Group plans to reinforce its relationships with overseas investors going forward. As a result, for the year under review, net sales totaled 24,539 million (a decrease of 0.9% compared with the previous year), operating income was 3,030 million (an increase of 26.9%), ordinary income was 2,274 million (an increase of 44.5%), and net income was 1,405 million (an increase of 86.9%). Segment results were as follows: Revitalization During the year under review, the Company sold a total of 106 units in the Restyling properties. The properties sold included Hilltop Yokohama Negishi (Yokohama City, Kanagawa Prefecture), Hilltop Yokohama Higashi Terao (Yokohama City, Kanagawa Prefecture), Estage Kaminoge (Setagaya Ward, Tokyo), and Glenpark Ikedayama (Shinagawa Ward, Tokyo). In addition, the Company sold five properties it had refurbished, including Uchikanda Kitahara Building (Chiyoda Ward, Tokyo) and Belmidor Ebisu (Shibuya Ward, Tokyo). As a result, net sales in this segment totaled 5,980 million, a decline of 50.3% compared with the previous year. Also, due to the adoption of the Accounting Standard for Measurement of Inventories (the LCM method), the Company reduced the book value of two office buildings after lowering its projection for rental income for the vacant portion of the buildings. Book value for the two buildings was reduced by 265 million and charged to cost of sales. As a result, segment profit was 390 million, a decrease of 79.3% compared with the previous year. 2

6 Development During the year under review, the Company focused on selling newly built condominiums and detached houses, demand for which is strong. The Company sold a total of 154 newly built condominium units in properties such as THE Palms Tsukishima Luna Garden (Chuo Ward, Tokyo) and THE Palms Takadanobaba (Shinjuku Ward, Tokyo). The Company also sold 24 detached houses at Palms Court Setagaya Okamoto (Setagaya Ward, Tokyo), Palms Court Hatsudai (Shibuya Ward, Tokyo), and Palms Court Koishikawa (Bunkyo Ward, Tokyo). As for office buildings, the Company sold Nihonbashi Hongokucho Tosei Building (Chuo Ward, Tokyo). As a result, net sales in this segment came to 10,985 million, an increase of 109.0% compared with the previous year, and segment profit came to 2,318 million (segment loss in the previous year was 22 million). Rental During the year under review, the Company focused on leasing activities for its noncurrent assets and inventories and worked to maintain occupancy rates. As a result, segment revenues were essentially steady compared with the previous year. As a result, net sales in this segment were 2,446 million, a decrease of 0.5% compared with the previous year, and segment profit was 1,192 million, an increase of 0.8%. Fund During the year under review, the balance of assets under management grew steadily, but total asset management fees declined due to a drop in the level of fees charged. As a result, net sales in this segment were 776 million, a decrease of 44.4% compared with the previous year while segment profit was 184 million, a decrease of 71.8%. The main reason for the sharp decline in segment income year on year was the absence of brokerage fees and other income related to large-scale transactions that were booked in the previous year. As of November 30, 2012, the balance of assets under management* totaled 311,335 million. *Note: The balance of assets under management includes a part of the balance of assets that were subject to consulting contracts, etc. based on the Company s internal rules. Property Management During the year under review, the number of office buildings, parking lots and schools under management declined by two properties year on year to 306, while the number of condominiums and rental apartments increased by 13 properties to 216. As a result, the total number of properties under management increased by 11 year on year to 522. As a result, although net sales in this segment rose year on year, increasing by 2.5% to 3,512 million, segment profit was down 34.7% to 68 million, as allowance for doubtful accounts regarding certain transactions were recorded in general and administrative expenses. Alternative Investment During the year under review, the Company focused on the sale of properties acquired through M&A and the leasing of properties that the Company acquired through the collection and payment in kind of claims. As a result, net sales in this segment came to 838 million, an increase of 363.7% compared with the previous year, and segment profit was 59 million (segment loss in the previous year was 190 million). 2) Outlook for the Year Ending November 30, 2013 In the Tosei Group s operating environment, the economy overall has entered a recovery phase, supported by earthquake rebuilding demand and government policies. However, the outlook remains uncertain due to a slowdown in overseas economies, such as the financial crisis in Europe and the sluggish Chinese economy. In the real estate sector, the market in the greater Tokyo area has largely recovered from the downturn caused by the Great East Japan Earthquake, and overseas funds are flowing into the real estate market on expectations that prices have bottomed. Against this backdrop, J-REITs and other players are becoming increasingly active in the market and the recovery in real estate prices is gaining momentum. In this environment, in the Revitalization business, the Company will continue to work to sell existing condominium units for appropriate prices in the Restyling, which will enter its fourth year of operations in the year ending November 30, In income-generating real estate for investors, which is becoming an increasingly active field, the Company will step up property purchases and revitalize and sell properties rapidly. In the Development business, the Company will focus on selling new condominiums and detached houses scheduled for completion during the next year, as well as step up operations at its new Kichijoji Center and Ikebukuro Center, opened in the year under review. It will also actively purchase prime land. 3

7 The Company will also work to steadily expand its fee business, which generates stable income without relying on asset growth. In the Fund business, the Company will continue to capture more business for managing fund assets, an area it has been developing since the financial crisis, as investment funds switch to contractors to manage their assets. Tosei will also aim to establish new funds, with a particular focus on stepping up activities at its subsidiary in Singapore. In addition, the Company will more actively promote its consulting business (CRE operations), which helps to improve the profitability of real estate owned by other companies. In the Property Management business, the Company will work to boost the level of stable fee income by increasing the number of properties under management, leveraging the expertise it has built up through its wholly owned subsidiary Tosei Community Co., Ltd. As a result of the above, in the year ending November 30, 2013, the Tosei Group projects that net sales will be 37,121 million (an increase of 51.3% compared with the previous year), operating income will be 3,387 million (an increase of 11.8%), ordinary income will be 2,606 million (an increase of 14.6%), and net income will be 1,580 million (an increase of 12.5%). (2) Analysis of Financial Position 1) Assets, Liabilities and Net Assets as of November 30, 2012 Total assets increased by 4,765 million to 64,732 million compared with the previous year. Primary factors included an increase in cash and deposits which totaled 1,104 million and an increase in real estate for sale totaling 4,141 million. Total liabilities increased by 3,589 million to 38,580 million compared with the previous year. Primary factors included an increase in notes and accounts payable-trade totaling 864 million and an increase in longterm and short-term loans payable totaling 2,319 million. Net assets increased by 1,176 million to 26,152 million compared with the previous year. Primary factors included an increase in retained earnings. 2) Cash Flows for the Year ended November 30, 2012 Cash and cash equivalents (hereinafter cash ) as of November 30, 2012 totaled 9,410 million, an increase of 1,104 million from the end of the previous year, as a result of 2,172 million in income before income taxes and minority interests and 15,777 million in proceeds from long-term loans payable despite a decrease of 4,129 million due to an increase in inventories and 13,841 in repayment of long-term loans payable. The respective cash flow positions and the factors thereof for the year under review are as follows. Cash Flows from Operating Activities Net cash used in operating activities totaled 1,005 million (net cash provided by operating activities totaled 6,017 million in the previous year). This is a result of an increase due to the recording of 2,172 million in income before income taxes and minority interests and a decrease of 4,129 million due to an increase in inventories. Cash Flows from Investing Activities Net cash provided by investing activities totaled 17 million (net cash used in investing activities totaled 116 million in the previous year). This is primarily due to proceeds from sales of property, plant and equipment totaling 216 million and purchase of property, plant and equipment totaling 140 million. Cash Flows from Financing Activities Net cash provided by financing activities totaled 2,090 million (net cash used in financing activities in the previous year was 4,416 million). This mainly reflected 15,777 million in proceeds from long-term loans payable related to the purchase of new properties, and 13,841 million in repayment of long-term loans payable related to the sale of properties. 4

8 (Reference) Trends in cash flow indicators for the Tosei Group are as follows. Year ended Year ended Nov. 30, 2009 Nov. 30, 2010 Year ended Nov. 30, 2011 Year ended Nov. 30, 2012 Equity ratio (%) Market value equity ratio (%) Interest-bearing debt to cash flows ratio (years) Interest coverage ratio (times) Equity ratio: Equity/Total assets Market value equity ratio: Market capitalization/total assets Interest-bearing debt to cash flows ratio: Interest-bearing debt/cash flows Interest coverage ratio: Cash flows/interest expenses Notes: (1) All indicators are calculated using consolidated financial figures. (2) Market capitalization is calculated based on the number of issued shares, excluding treasury stock. (3) The figure for cash flows employs cash flows from operating activities. (4) Interest-bearing debt includes all liabilities recorded on the consolidated balance sheets on which interest is paid. (5) Interest-bearing debt to cash flows ratio and interest coverage ratio are not presented for the year ended November 30, 2010 and the year ended November 30, 2012 because cash flows from operating activities on the consolidated statements of cash flows were negative. (3) Fundamental Earnings Distribution Policy and Dividends for Fiscal 2012 and Fiscal 2013 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, 2012 and the year ending November 30, 2013, Tosei plans to pay cash dividends per share of 600 and 700 respectively. 5

9 2. Conditions of Corporate Group The Tosei Group is composed of Tosei Corporation ( Tosei or the Company ) and 7 subsidiaries (including 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 subsidiaries and/or affiliates conducting those operations are as follows. Main Segment Operations Companies Revitalization Development Rental Fund The Tosei Group acquires office buildings, commercial facilities, rental condominiums and other properties whose asset value has declined, boosts their value though value-up plans (*) judged to best match the characteristics of the properties areas and tenant requirements, and sells them as revitalized real estate to buyers including investors, real estate funds and individual end users. In the Restyling, the Group acquires income-producing condominium complexes and sells units in them to end users after boosting the value of common and private areas (the Group continues to hold and manage occupied units as rental properties). The Tosei Group s value-up activities go beyond just renewing properties and involve realizing comprehensive regenerations of their values. This entails not only improving the convenience and functionality of properties but also focusing on providing satisfaction to owners and giving end users a sense of pride. (*) Plans primarily look 10 or 20 years ahead and consist of improved designs to refurbish internal and external elements that have deteriorated or become obsolete, functional improvement of facilities including refurbishment, adding new functions to premises and equipment and conversions, and boosting lease income by such means as renting out vacant space, collecting overdue rent and raising rent. In the main districts of Tokyo, which form the Tosei Group s core operating area, there is a mixture of needs for office, commercial and residential space and other uses, and these different uses create significant differences between land values. Tosei verifies the characteristics of land it acquires including area, shape, intended purpose, relevant needs, rent, and selling price. Based on this, Tosei carries out development and new construction to maximize the value of the land, and then sells whole complexes or individual units. The Group is able to respond to diverse needs by developing office buildings, commercial buildings (T s BRIGHTIA series) and mixed-use buildings, residential condominiums (the Palms series), as well as detached housing (Palms Court series). Once development is complete or tenants have been found, the properties are sold to buyers including investors, real estate funds and end users. The Tosei Group has expanded the scope of its business primarily in the main districts of Tokyo by acquiring office buildings, apartment buildings, stores and parking lots, and renting them out to end users and others. As a landlord, the Tosei Group is capable of swiftly gathering accurate information on tenant needs to further enhance value-up plans by reflecting these needs. The Tosei Group conducts business as a type II financial instruments business as well as an investment advisory and agency business and an investment management business as provided for in the Financial Instruments and Exchange Act. Specifically, in addition to such work as purchasing, selling and brokering trust beneficiary rights in accordance with a wide variety of investor needs, the Group provides advice regarding the acquisition, holding and disposition of properties, and asset management services for real estate funds that carry out discretionary investment. The Tosei Group s management approach is to provide high distributions to investors by taking full advantage of its value-up, leasing and maintenance capabilities with the aim of maximizing rental income and reducing its own rent costs. Revenues are primarily derived from acquisition fees upon the purchase of properties and asset management fees for properties held. Tosei Corporation Tosei Corporation Tosei Corporation Tosei Corporation Tosei Asset Advisors, Inc 6

10 Segment Property Management Alternative Investment Operations This business carries out comprehensive property management that meets a wide variety of real estate needs including administration, facility management, cleaning and security for condominium complexes, office buildings and facilities, building and equipment repair work in the private portions of condominium complexes and office interior renovation contracting. In the management of condominium complexes, this business makes full use of the knowhow it has accumulated over a number of years to provide consulting and advice to condominium unit owners and condominium management associations, and provides total support to associations from their launch to helping them operate smoothly once they are started up. With respect to managing office buildings, in order to streamline the operations of building owners, the business provides meticulous management services including building maintenance and the management of equipment, water supply and drainage, sanitation and cleaning. The business also maintains the asset values of buildings by implementing precise maintenance plans regarding the age-related deterioration of buildings. This business invests in real estate collateralized loans and acquires collateral through collecting receivables and accepting substitute performances by negotiating with mortgaged property owners/debtors, and acquires businesses including companies with real estate holdings and real estate business operators. The business also utilizes the knowhow of the Tosei Group to boost the value of the real estate it acquires before selling it. Main Companies Tosei Community Co., Ltd. Tosei Revival Investment Co., Ltd. 7

11 A schematic diagram of the businesses of the Tosei Group is shown below. End users Land Buildings Beneficiary rights to trusts Purchase Bidding Tosei Corporation Revitalization Development Rental Value-up Revitalized real estate Developed real estate Sale Rental Investors REITs Funds Fund Investment advisor and agency Type II financial instruments business * Wholly owned subsidiary Real estate funds Investment Dividends Investors Tosei Asset Advisors, Inc.. Fund Investment management business Investment advisor and agency Type II financial instruments business * Wholly owned subsidiary Property management Tosei Community Co., Ltd. Property Management Property management Building maintenance Managed properties Management Funds Building owners Tenants Real estate collateralized loans Companies with real estate holdings Purchase M&A * Wholly owned subsidiary Tosei Revivial Investment Co., Ltd. Alternative Investment Value-up Research title Revitalize Real estate collateralized loans Real estate acquired by accepting substitute performances Collection Sale Debtors Investors Stock of companies with real estate holdings Property sale End users 8

12 3. Management Policies (1) Fundamental Management Policy The Tosei Group s mission is to create new value and inspiration in all aspects of real estate as a group of global-minded and experienced professionals. With constant commitment to quality construction, the Group is striving to integrate real estate and finance in its six business segments: Revitalization, Development, Rental, Funds, Property Management and Alternative Investment. The Group is also aiming to contribute to society and increase its corporate value by restoring the value of real estate based on a timeframe of 10 to 20 years. (2) Performance Targets, Medium- to Long-term Management Strategies and Tasks to Be Addressed In the real estate sector, where the Tosei Group operates, the real estate trading market is showing signs of further recovery. The market in the greater Tokyo area has largely recovered from the stagnation triggered by the Great East Japan Earthquake and overseas funds are flowing into the real estate market on expectations that prices have bottomed. In this operating environment, the Tosei Group has developed and started implementing Next Stage 2014, its current three-year medium-term management plan. The year ended November 30, 2012 was the plan s first year. Under this management plan, the Group aims to become a world-class real estate firm by setting three key policies: expand and grow the existing six business segments, move into overseas markets, and reform the management infrastructure. In order to expand and grow the existing six business segments, the Group will carefully monitor the constantly changing trends in the real estate market and continuously respond to customer needs. To achieve this, the Group will reinforce the revitalization and Development businesses further, with a particular focus on expanding business with end users and investors. In the Fund business, the Group will aim to benefit from an upturn in the investment market by increasing the balance of assets under management and expanding fee income. In particular, it will seek to capture opportunities of the establishment of new funds. As part of moves into overseas markets, the Group will work to reinforce relationships with global investors in the Fund business and other segments. In January 2012, the Group established Tosei Singapore Pte. Ltd. as a local subsidiary. The following November, it concluded a membership contract with NAI Global, a network of global commercial real estate brokers. Membership of this network will give the Tosei Group opportunities to diversify its real estate portfolio. We plan to step up efforts to generate earnings from these initiatives. In order to reform the management infrastructure, the Group aims to build an organization and infrastructure that supports the development of human resources and the implementation of strategy, maintain a sound financial structure, and establish an organization capable of meeting the challenges of globalization and a disclosure system. While tackling these areas under its three key policies, the Group will also continue to place emphasis on compliance, risk management, and timely and appropriate disclosure in order to create a world-class management structure by stepping up efforts to enhance group-wide corporate governance. (3) Other Important Management Matters None 9

13 4. Consolidated Financial Statements (1) Consolidated Balance Sheets (Thousands of yen, rounded down to the nearest thousand) As of November 30, 2011 As of November 30, 2012 Assets Current assets Cash and deposits 8,326,305 9,430,622 Notes and accounts receivable-trade 399, ,348 Short-term investment securities 10,000 10,000 Real estate for sale 27,360,973 31,502,387 Real estate for sale in process 6,374,335 5,675,757 Purchased receivables 81,361 2,951 Supplies 3,254 2,426 Deferred tax assets 966, ,487 Other 391,300 1,211,089 Allowance for doubtful accounts (5,697) (6,109) Total current assets 43,908,234 49,133,960 Noncurrent assets Property, plant and equipment Buildings and structures 5,337,567 5,579,356 Accumulated depreciation (947,482) (1,106,822) Buildings and structures, net 4,390,084 4,472,533 Tools, furniture and fixtures 120, ,220 Accumulated depreciation (88,678) (90,878) Tools, furniture and fixtures, net 32,301 31,342 Land 10,175,285 10,031,990 Other 6,777 21,629 Accumulated depreciation (4,895) (5,187) Other, net 1,882 16,441 Total property, plant and equipment 14,599,553 14,552,308 Intangible assets Software 65,816 41,202 Leasehold right - 346,164 Telephone subscription right 1,889 1,889 Total intangible assets 67, ,256 Investments and other assets Investment securities 380, ,001 Long-term loans receivable 10,325 3,355 Deferred tax assets 870,404 83,194 Other 145, ,175 Allowance for doubtful accounts (14,332) (86,286) Total investments and other assets 1,392, ,440 Total noncurrent assets 16,059,369 15,599,004 Total assets 59,967,603 64,732,965 10

14 (Thousands of yen, rounded down to the nearest thousand) As of November 30, 2011 As of November 30, 2012 Liabilities Current liabilities Notes and accounts payable-trade 806,396 1,670,415 Short-term loans payable - 384,400 Current portion of long-term loans payable 6,170,937 7,356,272 Income taxes payable 79,271 72,921 Advances received 545, ,100 Provision for bonuses 150, ,659 Other 1,038, ,780 Total current liabilities 8,791,215 11,284,548 Noncurrent liabilities Long-term loans payable 23,904,245 24,654,459 Deferred tax liabilities 15,200 - Provision for retirement benefits 133, ,211 Provision for directors retirement benefits 312, ,667 Guarantee deposits 1,810,439 2,130,063 Asset retirement obligations 24,710 24,842 Other - 11,071 Total noncurrent liabilities 26,200,336 27,296,315 Total liabilities 34,991,552 38,580,864 Net assets Shareholders equity Capital stock 5,454,673 5,454,673 Capital surplus 5,538,149 5,538,149 Retained earnings 13,985,597 15,162,573 Total shareholders equity 24,978,420 26,155,396 Accumulated other comprehensive income Valuation difference on available-for-sale securities (2,369) (926) Deferred gains or losses on hedges - (3,751) Foreign currency translation adjustment - 1,382 Total accumulated other comprehensive income (2,369) (3,295) Total net assets 24,976,051 26,152,100 Total liabilities and net assets 59,967,603 64,732,965 11

15 (2) Consolidated Statements of Operations (Thousands of yen, rounded down to the nearest thousand) Year ended November 30, 2011 (Dec. 1, Nov. 30, 2011) Year ended November 30, 2012 (Dec. 1, Nov. 30, 2012) Net sales 24,759,291 24,539,823 Cost of sales 19,290,132 18,291,818 Gross profit 5,469,158 6,248,005 Selling, general and administrative expenses 3,080,121 3,217,373 Operating income 2,389,037 3,030,631 Non-operating income Interest income 2,797 1,679 Dividends income 2,861 2,861 Amortization of negative goodwill 1,490 - Penalty income 34,035 - Miscellaneous income 30,724 18,209 Total non-operating income 71,908 22,750 Non-operating expenses Interest expenses 885, ,254 Foreign exchange losses - 1,448 Miscellaneous loss 799 2,310 Total non-operating expenses 886, ,013 Ordinary income 1,574,500 2,274,369 Extraordinary loss Loss on sales of noncurrent assets - 18,874 Loss on retirement of noncurrent assets - 2,377 Loss on valuation of membership 16,976 4,366 Loss on adjustment for changes of accounting standard for asset retirement obligations Special contribution at the time of withdrawal from employee pension funds 19, ,442 Total extraordinary losses 36, ,061 Income before income taxes and minority interests 1,537,591 2,172,307 Income taxes-current 65, ,535 Income taxes-deferred 719, ,376 Total income taxes 785, ,911 Income before minority interests 751,982 1,405,395 Net income 751,982 1,405,395 12

16 Consolidated Statements of Comprehensive Income (Thousands of yen, rounded down to the nearest thousand) Year ended November 30, 2011 (Dec. 1, Nov. 30, 2011) Year ended November 30, 2012 (Dec. 1, Nov. 30, 2012) Income before minority interests 751,982 1,405,395 Other comprehensive income Valuation difference on available-for-sale securities (3,143) 1,442 Deferred gains or losses on hedges - (3,751) Foreign currency translation adjustment - 1,382 Total other comprehensive income (3,143) (926) Comprehensive income 748,839 1,404,469 Comprehensive income attributable to Comprehensive income attributable to owners of the parent 748,839 1,404,469 13

17 (3) Consolidated Statements of Changes in Net Assets (Thousands of yen, rounded down to the nearest thousand) Year ended November 30, 2011 (Dec. 1, Nov. 30, 2011) Year ended November 30, 2012 (Dec. 1, Nov. 30, 2012) Shareholders equity Capital stock Balance at the beginning of current period 5,454,673 5,454,673 Balance at the end of current period 5,454,673 5,454,673 Capital surplus Balance at the beginning of current period 5,538,149 5,538,149 Balance at the end of current period 5,538,149 5,538,149 Retained earnings Balance at the beginning of current period 13,462,034 13,985,597 Changes of items during the period Dividends from surplus (228,420) (228,420) Net income 751,982 1,405,395 Total changes of items during the period 523,562 1,176,975 Balance at the end of current period 13,985,597 15,162,573 Total shareholders equity Balance at the beginning of current period 24,454,857 24,978,420 Changes of items during the period Dividends from surplus (228,420) (228,420) Net income 751,982 1,405,395 Total changes of items during the period 523,562 1,176,975 Balance at the end of current period 24,978,420 26,155,396 Accumulated other comprehensive income Valuation difference on available-for-sale securities Balance at the beginning of current period 774 (2,369) Changes of items during the period Net changes of items other than shareholders equity (3,143) 1,442 Total changes of items during the period (3,143) 1,442 Balance at the end of current period (2,369) (926) Deferred gains or losses on hedges Balance at the beginning of current period - - Changes of items during the period Net changes of items other than shareholders equity - (3,751) Total changes of items during the period - (3,751) Balance at the end of current period - (3,751) Foreign currency translation adjustment Balance at the beginning of current period - - Changes of items during the period Net changes of items other than shareholders equity - 1,382 Total changes of items during the period - 1,382 Balance at the end of current period - 1,382 Total accumulated other comprehensive income Balance at the beginning of current period 774 (2,369) Changes of items during the period Net changes of items other than shareholders equity (3,143) (926) Total changes of items during the period (3,143) (926) Balance at the end of current period (2,369) (3,295) 14

18 (Thousands of yen, rounded down to the nearest thousand) Year ended November 30, 2011 (Dec. 1, Nov. 30, 2011) Year ended November 30, 2012 (Dec. 1, Nov. 30, 2012) Total net assets Balance at the beginning of current period 24,455,632 24,976,051 Changes of items during the period Dividends from surplus (228,420) (228,420) Net income 751,982 1,405,395 Net changes of items other than shareholders equity (3,143) (926) Total changes of items during the period 520,419 1,176,049 Balance at the end of current period 24,976,051 26,152,100 15

19 (4) Consolidated Statements of Cash Flows (Thousands of yen, rounded down to the nearest thousand) Net cash provided by (used in) operating activities Year ended November 30, 2011 (Dec. 1, Nov. 30, 2011) Year ended November 30, 2012 (Dec. 1, Nov. 30, 2012) Income before income taxes and minority interests 1,537,591 2,172,307 Depreciation and amortization 336, ,464 Amortization of negative goodwill (1,490) - Increase (decrease) in provision 17,654 77,642 Interest and dividends income (5,658) (4,540) Interest expenses paid on loans and bonds 885, ,254 Loss on retirement of property, plant and equipment - 2,377 Loss (gain) on sales of property, plant and equipment - 18,874 Loss on adjustment for changes of accounting standard for asset retirement obligations 19,932 - Loss on valuation of membership 16,976 4,366 Decrease (increase) in notes and accounts receivabletrade 64,280 11,241 Decrease(increase) in purchased receivables 5,106 78,409 Decrease (increase) in inventories 3,305,302 (4,129,276) Decrease (increase) in advance payments (220,082) 147,853 Increase (decrease) in notes and accounts payable-trade 438, ,185 Increase (decrease) in advances received 260, ,132 Increase (decrease) in guarantee deposits received (76,084) 319,624 Decrease (increase) in other current assets 67,194 (964,675) Other, net 265,944 (254,899) Subtotal 6,917,407 (108,659) Interest and dividends income received 4,923 4,530 Interest expenses paid (881,503) (778,399) Income taxes paid (23,098) (122,725) Net cash provided by (used in) operating activities 6,017,729 (1,005,254) Net cash provided by (used in) investing activities Net decrease (increase) in time deposits 286,136 - Purchase of property, plant and equipment (61,532) (140,303) Proceeds from sales of property, plant and equipment - 216,965 Purchase of intangible assets (36,717) (4,560) Purchase of investment securities (353,350) (22,000) Proceeds from sales of investment securities 0 - Collection of investment securities 15, Decrease (increase) in deposits and guarantee money (17,740) (38,927) Collection of loans receivable 51,705 7,466 Other, net - (1,490) Net cash provided by (used in) investing activities (116,149) 17,300 16

20 Net cash provided by (used in) financing activities (Thousands of yen, rounded down to the nearest thousand) Year ended November 30, 2011 (Dec. 1, Nov. 30, 2011) Year ended November 30, 2012 (Dec. 1, Nov. 30, 2012) Net increase (decrease) in short-term loans payable - 384,400 Proceeds from long-term loans payable 11,474,100 15,777,100 Repayment of long-term loans payable (15,661,377) (13,841,551) Cash dividends paid (227,718) (227,857) Other, net (1,567) (1,219) Net cash provided by (used in) financing activities (4,416,563) 2,090,871 Effect of exchange rate change on cash and cash equivalents - 1,399 Net increase (decrease) in cash and cash equivalents 1,485,016 1,104,317 Cash and cash equivalents at beginning of period 6,821,288 8,306,305 Cash and cash equivalents at end of period 8,306,305 9,410,622 17

21 (5) Note on Going Concern Assumption None (6) Significant Matters Forming the Basis of Preparing Consolidated Financial Statements 1. Scope of consolidation (1) Number of consolidated subsidiaries: 6 Names of consolidated subsidiaries: Tosei Community Co., Ltd. Tosei Asset Advisors, Inc. Tosei Singapore Pte. Ltd. Tosei Revival Investment Co., Ltd. Hestia Capital Limited Company Green House Limited Company Of the above consolidated subsidiaries, Tosei Singapore Pte. Ltd. was included in the scope of consolidation since it was newly established during the year under review. Metis Capital Co., Ltd., which was a consolidated subsidiary of the Company until the previous year, was excluded from the scope of consolidation from the year under review, since it was merged into Tosei Revival Investment Co., Ltd. on May 31, (2) Name and others of unconsolidated subsidiary Sannomiya Real Estate Sales LLC (Reason for exclusion from scope of consolidation) The unconsolidated subsidiary is small, and total assets, net sales, net income or loss, retained earnings and others have no significant impact on the consolidated financial statements. 2. Fiscal year-end of consolidated subsidiaries All consolidated subsidiaries have the same fiscal year-end as the consolidated closing date. From the year under review, the closing date of Tosei Community Co., Ltd. was changed from October 31 to the consolidated closing date for the purpose of improvement of efficiency of management and business operation of the Group. Accordingly, the accounting period of the subsidiary was for 13 months, and the difference was adjusted through the consolidated statement of operations. 3. Accounting policies (1) Valuation standards and methods for significant assets 1) Securities Available-for-sale securities i. With market value Stated at fair value based on market value and others as of the consolidated closing date (unrealized gains and losses, net of applicable taxes, are reported in a separate component of net assets, and costs of securities sold are determined by the moving-average method). ii. Without market value Stated at cost determined by the moving-average method. 2) Inventories The cost method (the carrying amounts on the consolidated balance sheets are written down due to a decline in profitability) is used as the valuation standard. i. Real estate for sale and real estate for sale in process Specific identification method ii. Purchased receivables 18

22 Specific identification method iii. Supplies Last purchase price method (2) Depreciation of significant depreciable assets 1) Property, plant and equipment (excluding lease assets) Property, plant and equipment are depreciated by the declining-balance method. However, buildings acquired on or after April 1, 1998 (excluding facilities attached to buildings) are depreciated by the straight-line method. Useful lives are summarized as follows: Buildings 3 to 50 years Structures 10 to 30 years Machinery and equipment 8 years Tools, furniture and fixtures 3 to 20 years 2) Intangible assets (excluding lease assets) Intangible assets are amortized by the straight-line method. Internal use software is amortized over the estimated useful life (5 years). 3) Lease assets Lease assets are depreciated by the straight-line method over the lease term with no residual value. Finance leases that do not transfer ownership and commenced on or before March 31, 2008 are accounted for in a similar manner with ordinary rental transactions. (3) Significant allowances 1) Allowance for doubtful accounts To cover losses from bad debts, allowance for doubtful accounts is provided in the amount expected to be uncollectible based on historical experience of bad debt for general receivables and individual collectability for specific receivables such as doubtful receivables. 2) Provision for bonuses To cover bonus payments to employees, provision for bonuses is provided in the amount for the fiscal year based on the estimated amount of payment. 3) Provision for retirement benefits To cover retirement benefits to employees, the amount that would be required to pay if all eligible employees retired at the fiscal year-end is provided based on the estimated amount of retirement benefit obligations as of the fiscal year-end. 4) Provision for directors retirement benefits Provision for directors retirement benefits is provided in the amount required as of the fiscal yearend to cover retirement benefit payments to directors and corporate auditors according to the rule for retirement benefits to directors and corporate auditors. (4) Translation of significant assets and liabilities denominated in foreign currencies into Japanese currency Monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the spot exchange rate prevailing at the consolidated closing date, and differences arising from such translation are recognized in the consolidated statement of operations. Assets and liabilities of consolidated foreign subsidiaries are translated into Japanese yen at the spot exchange rate prevailing at the consolidated closing date, and revenues and expenses of consolidated foreign subsidiaries are translated into Japanese yen at the average exchange rate during the period. Differences arising from such translation are recorded in foreign currency translation adjustment in net assets. 19