Beyond Expectations Annual Report 2016

Transcription

1 Beyond Expectations Annual Report 216

2 The Basics to Succeed Two Core Pillars: the Real Estate Business and the Hotel Business Core indicators Ordinary income 7,341 millions of yen (Year ended March 215) Number of buildings owned 9 (as of March 31, 211) Number of hotels 8 (as of March 31, 211) * Including hotels planned or under development as of July 31, 216 8,5 (Year ended March 31, 216) +15.8% 8 (as of April 3, 216) 23* (by March 31, 219) Nearly 9 times Nearly 3 times

3 The Strength to Exceed Plan to achieve all profit targets for the Second Medium-Term Management Plan one year ahead of schedule For an overview and report on progress for the Second Medium-Term Management Plan, please refer to pages Progress made against targets Operating income, Ordinary income, and Net income (millions of yen) Operating income Ordinary income Net income Plan to achieve one year ahead of schedule 13, Targets for final fiscal year of Second Medium-Term Management Plan 12,7 1,65 1,3 1,1 8,5 6,593 6,7 6, forecast* 18.3 (final fiscal year) targets * Announced on April 28, 216 Contents 2 Our Key Strengths 4 Financial Summary 6 President s Message 1 Second Medium-Term Management Plan 12 Review of Operations 12 Real Estate Business 14 Hotel Business 16 Corporate Governance 18 CSR Activities 19 Directors, Audit & Supervisory Board Members and Executive Officers 2 Financial Section 2 Management s Discussion and Analysis 24 Consolidated Balance Sheet 26 Consolidated Statement of Income and Consolidated Statement of Comprehensive Income 27 Consolidated Statement of Changes in Net Assets 29 Consolidated Statement of Cash Flows 3 Notes to Consolidated Financial Statements 47 Independent Auditor s Report 48 Corporate Information 49 Investor Information Cautionary Statement regarding Forward- Looking Statements This annual report contains certain forwardlooking statements with respect to UNIZO Holdings Company, Limited s financial position, results of operations and business. Such statements are based on analyses and determinations regarding information available to management at the time this report was prepared and involve risks and uncertainties that may cause actual results to differ materially from forecasts. These risks and uncertainties include, but are not limited to, changes in operating conditions. Information regarding companies and entities other than the Company and the Group is drawn from publicly available data. Accordingly, the Company does not guarantee the accuracy of this information. 1

4 Our Key Strengths Strengths of the UNIZO Group The UNIZO Group has two strengths: growth potential and a highly stable and profitable business structure. Growth Potential The UNIZO Group s first strength is its growth potential. In the fiscal year ended March 31, 216, net income increased 56.4% year on year, and it is expected to continue to rise year on year in the fiscal year ending March 31, 217. After achieving the targets of the First Medium-Term Management Plan ahead of schedule, our Group has been engaged in the Second Medium-Term Management Plan (fiscal year ) NEW DIMENSION 217, and revenue from operations, operating income, ordinary income, and net income all exceeded the targets of this plan s first fiscal year, achieving record highs. Thus, we have achieved steady profit growth, which is expected to continue in the future. In its business expansion, the UNIZO Group has also shown steady growth. In the real estate business, we proactively invested in prime income-generating properties both in Japan and overseas while carefully discerning profitability and risk. As a result, the number of properties we owned as of April 3, 216 was 74 in Japan and 6 overseas, making a total of 8 and a net increase of 12 properties from 68 properties as of March 31, 215. In the hotel business, we aim to accelerate our nationwide expansion. To this end, we have created a two-brand structure, HOTEL UNIZO and UNIZO INN, so that we can serve wider customer needs. As of July 31, 216, we owned and operated 14 hotels, and we plan to expand our network to 23 hotels when hotels that are planned or under development are included. By expanding the scale of both businesses, we expected further growth. In the second year of our Second Medium-Term Management Plan, the fiscal year ending March 31, 217, we are on track to achieve all the numerical targets of profit levels we set for the final year of the plan one year ahead of schedule. In specific terms, we plan to achieve consolidated revenue from operations of 38.9 billion, operating income of 13. billion, ordinary income of 1.3 billion, and net income of 6.7 billion. Revenue from operations, Operating income, Ordinary income, Net income millions of yen 45, Targets for the final fiscal year of the Second Medium- Term Management Plan* 2 38,9 39,8 millions of yen 15, Targets for the final fiscal year of the Second Medium- Term Management Plan* 2 13, 12,7 3, 1, 1,3 1,1 6,7 6,2 15, 5, 213/3 214/3 215/3 216/3 217/3 forecast* 1 218/3 target 213/3 214/3 215/3 216/3 217/3 forecast* 1 218/3 target Revenue from operations Operating income Ordinary income Net income * 1 Announced on April 28, 216 * 2 Announced on March 13, 215 2

5 Highly Stable and Profitable Business Structure The UNIZO Group s second strength is a highly stable and profitable business structure. In the real estate business, we have invested in domestic and overseas prime incomegenerating properties based on strict criteria, and have built a high-quality asset portfolio mainly focused on office building leasing. Our highly stable and profitable business structure is supported by our superior-quality portfolio. In Japan, our portfolio is mainly in the metropolitan area centered on Tokyo s three central wards* while overseas the portfolio holds excellent locations in Manhattan in New York City and in Washington D.C. Furthermore, in the hotel business, our business model is characterized by a national network of outstanding locations in the central areas of major cities as well as regional hub cities and lodging-focused hotels that are strongly resilient to economic fluctuations. This business model enables us to achieve high occupancy rates. Expanding our superior asset portfolio has led to a steady increase in the UNIZO Group s unrealized gains. These appraisal gains on the business-use real estate of the Group, which was based on totalling Group-managed hotels and real estate for lease such as office buildings, amounted to billion by March 31, 216. This superior asset portfolio forms a solid operating foundation for the UNIZO Group. In both businesses, the UNIZO Group will further maintain and enhance its stability and profitability through constant efforts going forward to sustain high levels of occupancy, pursue maximizing profits by leveraging economies of scale and accumulated know-how obtained through steady increase in the number of its property holdings, and continuously minimize expenses based on a thorough analysis of costs. Unrealized gains on business-use real estate millions of yen 14, 12, 136,119 48,719 1, 82,628 8, 16,995 6, 4, 2, 31,62 27,367 3,695 25,333 21,67 27,311 3,5 3,662 4,14 5,765 23,297 24,735 45,975 37,995 7,98 65,633 87,4 21/3 211/3 212/3 213/3 214/3 215/3 216/3 Unrealized gains on leased office buildings * Tokyo s three central wards: Chuo, Chiyoda, and Minato wards Unrealized gains on hotels and others (including a golf course) 3

6 Financial Summary and its consolidated subsidiaries Fiscal years ended March 31 For the fiscal year ended March 31, Millions of yen * Revenue from operations 13,67 13,44 12,966 14,876 21,93 27,668 32,385 $ 287,49 Operating income 4,916 4,195 4,42 4,955 6,95 8,813 1,65 94,121 Ordinary income 3,214 2,536 2,871 3,567 5,727 7,341 8,5 75,437 Net income attributable to owners of the parent 1,314 2,74 1,545 2,98 3,78 4,214 6,593 58,515 Increase in property and equipment and intangible non-current assets 8,432 12,68 23,649 61,846 63, ,34 82, ,97 Depreciation and amortization 1,736 1,735 1,724 2,189 3,674 4,915 6,865 6,93 EBITDA* 2 6,653 5,931 6,126 7,145 1,579 13,728 17, ,51 Cash flows from operating activities 2,718 4,55 4,775 4,622 14,124 11,175 15, ,546 Cash flows from investing activities (3,483) (4,677) (25,725) (61,72) (6,985) (113,399) (73,72) (654,244) Cash flows from financing activities 8,125 (5,16) 18,38 57,247 46,948 13,216 73, ,89 At fiscal year-end Total assets 138, ,38 157, , , , ,62 4,141,113 Total net assets 15,51 17,632 19,144 31,115 33,374 52,7 54, ,75 Interest-bearing debt 11,539 16,22 125,33 174, , , ,238 $3,427,747 Amounts per share (yen, ) Net income $ 2.95 Net assets 1, , , , , , , Dividends $.62 Key indicators Operating margin (%) Return on assets (ROA)* 3 (%) Return on equity (ROE)* 4 (%) Equity ratio* 5 (%) Net D/E ratio* 6 (times) Payout ratio (%) Number of employees * 1 U.S. dollar amounts are translated at the rate of =U.S.$1., the exchange rate prevailing on March 31, 216. * 2 EBITDA = Operating income + Depreciation and amortization * 3 ROA = (Operating income + Interest and dividend income + Gain on investments in partnerships Interest expenses) Average total assets between beginning and end of the period * 4 ROE = Net income Average total net assets between beginning and end of the period * 5 Equity ratio = Total net assets Total assets * 6 Net D/E ratio = (Interest-bearing debt Cash and deposits) Total net assets 4

7 Revenue from operations / Operating income / Ordinary income Net income attributable to owners of the parent company / ROE millions of yen 4, millions of yen 8, % 2 32,385 6,593 3, 6, , 4, 1 1, 1,65 8,5 2, Revenue from operations Operating income Ordinary income Net income attributable to owners of the parent company ROE (right scale) Total assets Total net assets / Equity ratio millions of yen 6, millions of yen 6, 54,432 % 2 466,62 45, 45, , 3, 1 15, 15, Total net assets Equity ratio (right scale) Net income per share Dividends per share / Payout ratio yen yen 8 7 % Cash dividends per share Payout ratio (right scale) 5

8 President s Message Tetsuji Kosaki President & CEO Beyond Expectations The UNIZO Group is making every effort to exceed the expectations of its stakeholders, leveraging its two core pillars: the real estate business and the hotel business. Executive Summary The UNIZO Group has resolutely implemented basic policies in each business with an eye on achieving the initial fiscal year targets of its Second Medium-Term Management Plan NEW DIMENSION 217 (Fiscal year )*. As a result, both profits and earnings grew substantially in the fiscal year ended March 31, 216. On a consolidated basis, UNIZO posted all-time highs in revenue from operations, operating income, ordinary income and net income, exceeding all of its targets for the first fiscal year of its Second Medium-Term Management Plan. In the fiscal year ending March 31, 217, the second year of the Second Medium-Term Management Plan, UNIZO plans to achieve the numerical targets for all levels of profit for the plan s third year one year ahead of schedule. In order to reliably achieve this plan, UNIZO will continue to manage operations by faithfully adhering to the basic policies while seeking to grasp opportunities swiftly. * Fiscal years ending March

9 Business Environment and Performance During the fiscal year ended March 31, 216, the Japanese economy continued to recover gradually while there were effects of a deceleration in overseas economies. However, looking at economic trends since the beginning of the fiscal year ending March 31, 217, many risks are still present, including growing unease about the direction of the Chinese economy, the pace at which interest rates are raised in the U.S., the effects of Japan s negative interest rate, and the effects of the British vote to leave the European Union. In lights of such risks, changes in the business environment continue to warrant close attention. Results for the Fiscal Year Ended March 31, 216 The UNIZO Group has resolutely implemented basic policies in each business with an eye on achieving the initial fiscal year targets of its Second Medium-Term Management Plan NEW DIMENSION 217 (fiscal year ). As a result, we achieved substantial year-on-year increase in revenue and income. Consolidated revenue from operations for the fiscal year ended March 31, 216 increased 17.% year on year, and operating income grew 2.3%, ordinary income rose 15.8%, and net income increased 56.4%, all reaching record highs. We exceeded all the initial fiscal year targets of our Second Medium-Term Management Plan for revenue from operations, operating income, ordinary income and net income. Progress of the Second Medium-Term Management Plan Overview of the Second Medium-Term Management Plan UNIZO formulated and launched its Second Medium-Term Management Plan, NEW DIMENSION 217, after achieving the targets of the First Medium-Term Management Plan one year ahead of schedule, in order to aim for further growth from the fiscal year ended March 31, 216. Under the Second Medium-Term Management Plan, UNIZO aims to achieve net assets of at least 5 billion and ordinary income of 1 billion or more in the fiscal year ending March 31, 218, centered on the two core pillars of the real estate business and the hotel business. UNIZO s basic policies by business are as follows. In the real estate business, our goal is to proactively invest in prime income-generating properties, with the aim of owning 1 buildings. In the hotel business, in order to move up and become a mid-sized hotel chain, we aim to own and manage 2 hotels with 4, rooms on an operating basis, or 3 hotels with 6, rooms if hotels in the planning and development stage are included. 7

10 Progress in the Real Estate Business Based on these basic policies, in the real estate business in the fiscal year ended March 31, 216, we continued to proactively acquire new properties both inside and outside Japan to expand our asset portfolio. As of April 3, 216, the Company owned 74 properties in Japan and 6 properties overseas, making a total of 8 properties. UNIZO aims to further expand its portfolio of assets in Japan and overseas and maximize profits. Progress in the Hotel Business In the hotel business, UNIZO plans to become a mid-sized hotel chain by expanding to 2 hotels with 4, rooms in operation, or 3 hotels with 6, rooms if hotels in the planning and development stage are included, and we have made steady progress toward these objectives. We opened UNIZO INN Sapporo in January 216, HOTEL UNIZO Ginza-nanachome in June, and UNIZO INN Hatchobori in July, bringing total ownership to 14 hotels with 3,35 rooms as of July 31, 216. UNIZO plans to open seven more hotels by the end of March 218, the end of the period of the Second Medium-Term Management Plan. We expect to achieve a total of 21 hotels in operation with 4,546 available rooms by the end of March 218, meeting our target of the Second Medium-Term Management Plan. By the end of March 219, we plan to add 2 more hotels, expanding our network to 23 hotels with 4,915 rooms. We also aim to achieve our Second Medium-Term Management Plan target of 3 hotels and 6, rooms including those under planning and development one year ahead of schedule. Capital Procurement Public Equity Offering In July 216, UNIZO raised total capital of about 13.9 billion through a public equity offering. This was done in order to continue steadily adding prime income-generating properties to the asset portfolio, reinforce our earnings base, and sustainably raise corporate value and shareholder value. Issuance of Corporate Bonds In the interest of diversifying our means of capital procurement, UNIZO issued Series One Unsecured Corporate Bonds (with a maturity of five years) in November 215, followed by Series Two (with a maturity of five years) and Series Three (with a maturity of seven years) in May

11 Shareholder Returns We aim to enhance corporate and shareholder value while staying focused on changes in the business climate, earnings performance, and financial conditions with a view to bolstering business development and our operating foundation. Our basic policy on shareholders returns is to consistently provide stable dividends, while balancing this with robust shareholders equity. We believe this balance is the maximization of returns to our shareholders. Based on this policy, and on our projected future business development, cash dividends for the fiscal year ended March 31, 216 were 7 per share, including an interim dividend of 35 per share, constituting a 5 increase year on year. Furthermore, in the fiscal year ending March 31, 217, we are planning to pay an interim dividend and a fiscal year-end dividend of 35 per share each, bringing total dividends to 7 per share. Outlook for the Fiscal Year Ending March 31, 217 For the second year of the Second Medium-Term Management Plan, the fiscal year ending March 31, 217, we forecast consolidated revenue from operations of 38.9 billion, operating income of 13. billion, ordinary income of 1.3 billion and net income of 6.7 billion, thereby providing continued growth in both revenue and profits. All of these targets are higher than the record-setting performance we set in the fiscal year ended March 31, 216. The fiscal year ending March 31, 217 is the second year of the Second Medium-Term Management Plan that we unveiled in March 215. At our current pace, we are on track to achieve all the profit targets we set for the third year of the plan one year ahead of schedule. To ensure that we achieve this target, we are striving to manage operations by faithfully adhering to the basic policies while seeking to grasp opportunities swiftly in our endeavors to further enhance corporate value and shareholder value. We will continue to work together as a Group to achieve results that exceed all our shareholders expectations. I respectfully request your continued support and understanding. September 216 9

12 Second Medium-Term Management Plan NEW DIMENSION 217 Second Medium-Term Management Plan (Fiscal year ) Targets and Vision of NEW DIMENSION 217 Setting Our Sights on an Entirely New Dimension Two Core Pillars: the Real Estate Business and the Hotel Business Own 1 buildings 2 hotels in operation or 3 hotels including those in the planning and development stage Build over 5 Billion in Assets and Exceed 1 Billion in Ordinary Income Numerical Targets Second Medium-Term Management Plan Numerical Targets* 1 March 216 Targets March 217 Targets March 218 Targets (Billions of yen) Revenue from operations Operating income Ordinary income Net income Progress of Plan March 216 March 217 Results* 2 Forecasts* 2 (Billions of yen) Revenue from operations Operating income Ordinary income Net income * 1 Announced on March 13, 215 * 2 Announced on April 28, 216 Plan to achieve targets for the final fiscal year of the Second Medium-Term Management Plan for operating income, ordinary income, and net income all levels of profit one year ahead of schedule. 1

13 Basic Policy Real Estate Business Promote investment in highly profitable properties and aim to increase the number of properties owned to 1 Plan to invest 15. billion in prime income-generating properties in Japan and overseas over the plan s three years Progress in the Fiscal Year Ended March 31, 216 The number of properties owned by the Group reached 8 as of April 3, 216 Initiatives in the Fiscal Year Ending March 31, 217 Aim to achieve ownership of 1 properties one year ahead of schedule Basic Policy Hotel Business Move up and become a mid-sized hotel chain 2 owned and managed hotels with 4, rooms (on an operating basis) 3 hotels with 6, rooms (including those in the planning and development stage) Plan to invest 3. billion in prime hotel properties over the plan s three years Progress in the Fiscal Year Ended March 31, 216 The operating base target of 21 hotels with a total of 4,546 rooms planned to be opened by March 31, 218 is within reach Initiatives in the Fiscal Year Ending March 31, 217 Aim to achieve the target of 3 hotels with 6, rooms including those in the planning and development stage one year ahead of schedule 11

14 Review of Operations Real Estate Business The real estate business is our first pillar accounting for 75.6% and 8.% of the Group s total revenue from operations and operating income, respectively. In the real estate business, the Group primarily engages in the ownership and leasing of office buildings situated in Japan in the Tokyo metropolitan area, mainly in the three central Tokyo wards, as well as overseas in outstanding locations in Manhattan in New York City and in Washington D.C. in the U.S. This superior asset portfolio underpins and sustains our long-term and stable earnings capacity. Moreover, in the real estate business, we promote investment in domestic and overseas prime income-generating properties based on strict investment criteria. Revenue from operations 75.6% Overview of Market Conditions In the office building market of Japan, the overall supply-demand balance is improving as vacancy rates in Tokyo s five central wards* were near 4%. Also, there is a clear upward trend in rents in some areas, including central Tokyo. In the office building market in the United States, the overall supplydemand balance continues to be favorable with vacancy rates in New York City trending downward slightly while rents keep recovering. Overview of the Fiscal Year Ended March 31, 216 Revenue from operations was 24,589 million, an increase of 12.3% from 21,888 million in the previous fiscal year, and operating income was 8,64 million, an increase of 12.2% from 7,699 million. This was the result of intensive efforts to keep current tenants, attract new ones, and increase rents in existing properties as well as contribution of newly acquired domestic and overseas properties to revenue. Strategies and Outlook for the Fiscal Year Ending March 31, 217 As of April 3, 216, the Group owned 74 properties in Japan and 6 properties overseas, making a total of 8 properties. Since 211, the UNIZO Group has been proactively acquiring new properties: in Japan in outstanding locations in the Tokyo metropolitan area, mainly in the three central Tokyo wards, and overseas in outstanding locations in Manhattan in New York City and in Washington D.C. in the U.S. As of April 3, 216, the Group owned 74 properties in Japan and 6 properties overseas, making a total of 8 properties. We aim to achieve the target of the Second Medium- Term Management Plan of owning 1 properties one year ahead of schedule. Looking ahead, we will continue to proactively expand our real estate portfolio. Revenue from operations Operating income millions of yen 25, 24,589 millions of yen 1, 8,64 2, 8, 15, 6, 1, 4, 5, 2, * Tokyo s five central wards: Chuo, Chiyoda, Minato, Shinjuku, and Shibuya wards 12

15 The number of properties owned by UNIZO and total rentable area* 1 Number m ,625 5, 8 34,929 4, 6 242,86 3, 4 162, , 2 81, , , Number of properties owned (left scale) * 1 Buildings owned by the UNIZO Group Rentable area (right scale) Properties acquired in FY216 (215/4 216/3) and April 216 Name* 2 Location Rentable area (m 2 ) Completed Name* 2 Location Rentable area (m 2 ) Completed UNIZO Higashinihonbashi Building Chuo Ward, Tokyo 2,631 Apr Clover Nishi-Shinjuku Shibuya Ward, Tokyo 883 Nov. 27 Fujiwa Nihonbashi Horidome Building Chuo Ward, Tokyo 1,676 Feb SEED 141 Shibuya Ward, Tokyo 1,14 Nov SCI Nihonbashi Building Chuo Ward, Tokyo 4,115 Jul Hatagaya First Building Shibuya Ward, Tokyo 1,892 Jun Leaf Square Suidobashi Building Chiyoda Ward, Tokyo 1,916 Aug Leaf Square Hongo Building Bunkyo Ward, Tokyo 4,467 Dec Kanda 374 Chiyoda Ward, Tokyo 2,162 Feb Lexington Avenue Manhattan, New York 29, AUSPICE Uchikanda Chiyoda Ward, Tokyo 1,237 Feb Connecticut Avenue Washington D.C., U.S. 17, Yanase Shibuya Building Shibuya Ward, Tokyo 4,194 Oct * 2 Name of property as of the end of April 216 Average vacancy rate of all UNIZO properties % Property acquired in August 216 (Washington D.C., U.S.) 13

16 Hotel Business The hotel business is our second pillar accounting for 24.4% and 2.% of the Group s total revenue from operations and operating income, respectively. As of the end of July 216, the Group owned and operated a total of 14 hotels. The Group s hotels are situated in outstanding locations in central area of major cities as well as regional hub cities. From Sapporo in the north to Fukuoka in the south, we have steadily spread nationwide. Our hotels are lodgingfocused, and feature restaurants, cafes and other commercial tenants as an additional source of rental income. On this basis, the Group has built business model that is resilient to fluctuations in business conditions, with high occupancy rate and earnings at our hotels. Revenue from operations 24.4% Overview of Market Conditions In the hotel sector, occupancy rates remain at a high level and revenue per room continues to improve, amid a significant increase in visitors from abroad. Overview of the Fiscal Year Ended March 31, 216 Revenue from operations was 7,954 million, up 33.8% from 5,946 million in the previous fiscal year. Operating income was 2,159 million, an increase of 71.6% from 1,258 million. This was the result of higher occupancy rates and revenue per room at existing hotels compared to that in the previous fiscal year and due to contributions from newly opened hotels. Strategies and Outlook for the Fiscal Year Ending March 31, 217 Steadily increase the number of hotels and accelerate nationwide expansion In the hotel business, the Group has set up a twobrand structure comprising the HOTEL UNIZO brand of high-grade lodging-focused hotels offering a high level of comfort as well as convenience and functionality, and the UNIZO INN brand of standard lodging-focused hotels offering both comfort and excellent value to prices. We opened HOTEL UNIZO Ginza-nanachome in June 216 and UNIZO INN Hatchobori in July, bringing total ownership to 14 hotels with 3,35 rooms as of July 31, 216. UNIZO plans to open seven more hotels by the end of March 218, which is the last year of the period of the Second Medium-Term Management Plan. We expect to achieve our operating base target of the Second Medium-Term Managements Plan with a total of 21 hotels with 4,546 rooms planned to be opened by the end of March 218. Furthermore, by the end of March 219, we plan to add 2 more hotels, expanding our network to 23 hotels with 4,915 rooms. We also aim to achieve our Second Medium- Term Management Plan target of 3 hotels with 6, rooms on a planning and development basis one year ahead of schedule. Revenue from operations millions of yen Operating income millions of yen 1, 8, 6, 4, 2, 7,954 2,5 2,159 2, 1,5 1,

17 UNIZO Group s Hotel Concept HOTEL UNIZO Lodging-focused high-grade hotels that offer not only convenience and functionality but also a high level of comfort UNIZO INN Lodging-focused standard hotels that offer both comfort and excellent value to prices List of hotels owned (as of July 31, 216) Name Location Opened No. of rooms 1 HOTEL UNIZO Ginza-itchome Chuo Ward, Tokyo Jan HOTEL UNIZO Ginza-nanachome Chuo Ward, Tokyo Jun HOTEL UNIZO Shimbashi Minato Ward, Tokyo Oct (Rebuilt Dec. 21) HOTEL UNIZO Shibuya Shibuya Ward, Tokyo May HOTEL UNIZO Kyoto Shijo Karasuma Shimogyo Ward, Kyoto Oct HOTEL UNIZO Osaka Yodoyabashi Chuo Ward, Osaka Apr HOTEL UNIZO Fukuoka Tenjin Chuo Ward, Fukuoka Oct UNIZO INN Sapporo Chuo Ward, Sapporo Jan UNIZO INN Sendai Aoba Ward, Sendai Dec UNIZO INN Asakusa Taito Ward, Tokyo Jul UNIZO INN Hatchobori Chuo Ward, Tokyo Jul Renamed July UNIZO INN Nagoya Sakae Naka Ward, Nagoya May UNIZO INN Nagoya Sakaehigashi Naka Ward, Nagoya Feb UNIZO INN Hiroshima Naka Ward, Hiroshima Sep UNIZO INN Kyoto Kawaramachi Shijo Nakagyo Ward, Kyoto Summer 217 (Planned)* 16 UNIZO INN Kandaeki-West Chiyoda Ward, Tokyo Summer 217 (Planned)* 17 UNIZO INN Kanazawa (provisional name) 18 UNIZO INN Kobe Sannomiya (provisional name) 19 HOTEL UNIZO Osaka Shinsaibashi (provisional name) 2 UNIZO INN Shin-Osaka (provisional name) 21 HOTEL UNIZO Osaka Umeda (provisional name) 22 HOTEL UNIZO Fukuoka Hakataekimae (provisional name) 23 HOTEL UNIZO Yokohamaeki-West Exit (provisional name) Oyamacho, Kanazawa Autumn 217 (Planned)* Chuo Ward, Kobe Autumn 217 (Planned)* Chuo Ward, Osaka Winter (Planned)* Yodogawa Ward, Osaka Winter (Planned)* Kita Ward, Osaka Spring 218 (Planned)* Hakata Ward, Fukuoka Winter (Planned)* Nishi Ward, Yokohama Winter (Planned)* 242 (Planned)* 219 (Planned)* 22 (Planned)* 199 (Planned)* 186 (Planned)* 225 (Planned)* 22 (Planned)* 213 (Planned)* 156 (Planned)* Planned hotels * Plan at present, subject to change Nationwide expansion, in outstanding locations in the central area of major cities as well as regional hub cities (as of July 31, 216) Numbers of hotels owned and rooms (as of July 31, 216) number of hotels ,663 3, ,544 1,938 2,439 1, number of rooms 4,546 4,915 5, , 3, 2, 1, Number of hotels owned (left scale) Number of rooms (right scale) (Plan) (Plan) Ishikawa Kanazawa (Autumn 217) Kyoto Kyoto Shijo Karasuma Kyoto Kawaramachi Shijo (Summer 217) Hyogo Kobe Sannomiya (Autumn 217) Hiroshima Hiroshima Fukuoka Fukuoka Tenjin Fukuoka Hakataekimae (Winter ) Hokkaido Sapporo Tokyo Miyagi Ginza-itchome Sendai Ginza-nanachome Shimbashi Shibuya Asakusa Hatchobori Kandaeki-West Kanagawa (Summer 217) Yokohamaeki-West Exit (Winter ) Aichi Nagoya Sakae Nagoya Sakaehigashi Osaka Osaka Yodoyabashi Osaka Shinsaibashi (Winter ) Osaka Umeda (Spring 218) Shin-Osaka (Winter ) * Periods inside of brackets ( ) are the scheduled period of opening. Names for some hotels scheduled to be opened next fiscal year onward are provisional names. 15

18 Corporate Governance Basic Stance UNIZO Group is committed to establishing and developing a corporate governance structure and system that garners the trust of society. Every effort is channeled toward improving the soundness, transparency, and efficiency of management to secure the confidence of all stakeholders and to enhance corporate value on a sustainable basis. Basic Policy 1. Respect the rights of shareholders and secure equality for all shareholders. 2. Work in appropriate cooperation with stakeholders, including shareholders, in consideration of their gain. 3. Secure transparency by the appropriate disclosure of company information. 4. Properly execute the roles and responsibilities of the Board of Directors and the Audit & Supervisory Board. 5. Maintain a constructive dialogue with shareholders. Overview of Corporate Governance Structure and System The Group has adopted the corporate auditor system, and has appointed two outside directors (independent directors) and three outside Audit & Supervisory Board members (two of which are independent members) with a high level of independence. Through mutual collaboration among the Audit & Supervisory Board, the Business Audit Department, and the accounting auditor, every effort is being made to establish a framework that is capable of reinforcing the efficacy of the supervisory function over management. Board of Directors The Board of Directors comprises 2 members. Of this total, two members are outside directors. In principle, the Board of Directors meets once a month. Guided by its governing rules and regulations, the Board of Directors serves as the decision-making body for important matters relating to the execution of the Group s business activities and supervises the status of business execution by directors. Audit & Supervisory Board and Board Members The Audit & Supervisory Board comprises four members, three of whom are outside auditors. Guided by its governing rules and regulations, the Audit & Supervisory Board, in principle, meets once a month. As part of their mainstay activities, Board members attend meetings of the Board of Directors and put forward their opinions, exchange opinions with the President and Director, monitor the business execution process, peruse important documents, including internal memos and requests for approval, conduct site visits of subsidiary companies, supervise the independence of the accounting auditor, and audit important materials, including financial reports, business reports, and records of key transactions. Shareholders Meeting Appoint Appoint Appoint UNIZO Holdings Company, Limited Board of Directors The Board of Directors comprises 2 members. Of this total, two members are outside directors. Audit Audit & Supervisory Board The Audit & Supervisory Board comprises four members. Of this total, three members are outside auditors. Accounting audit Collaborate Accounting Auditor (Auditing firm) Supervise Collaborate Collaborate President and Director Direction Auditing report Business Audit Department (Department in charge of internal audit) Consult Advise Legal Advisor Executive Officers Executive officers are charged with executing business. Management Committee Prior deliberation Report after the fact Varied consultation Management guidance Supervision Group Subsidiaries Divisions and Departments Internal audit Internal audit 16

19 Furthermore, the Board members constantly exchange opinions with the Business Audit Department and the accounting auditor, and maintain close mutual coordination with them including receiving regular audit reports from them. Executive Officers The Group has adopted an executive officer system. As part of efforts to further strengthen its governance structure and system, the Group has taken steps to clearly separate the management decision-making and supervisory functions from the execution of business activities while at the same time clarifying the authority and responsibilities of executive officers. Executive officers are charged with executing business in their respective areas in accordance with the policies and other stipulations determined by the Board of Directors. Management Committee The Management Committee has been established as a consultative entity to support the President. The Management Committee is made up of the President and executive officers. In principle, the Committee meets once a week to deliberate on important matters relating to the execution of business activities. Reports on operations and other matters of importance are also presented during committee meetings. Internal Auditing Department The Group has put in place internal audit operating guidelines and established the Business Audit Department as an entity in charge of internal audits. Within this framework, the Business Audit Department conducts internal audits of the Company and the Group as a whole. The Business Audit Department undertakes internal audits in accordance with business audit plans formulated for each consolidated accounting period. In addition to directly reporting the results of each internal audit to the President, the Department reports to the Audit & Supervisory Board and each audited department through business audit reports. In the event that a business audit report identifies the need for improvement measures to be taken, the President issues the necessary instructions to the related audited department in order to further upgrade and enhance the internal control system. Moreover, the Business Audit Department maintains close coordination with the Audit & Supervisory Board and the accounting auditor by constantly exchanging information with them in order to conduct efficient audits. Accounting Auditor The Group executes an audit agreement with Ernst & Young ShinNihon LLC with respect to its accounting audit. In accordance with each annual audit schedule, Ernst & Young ShinNihon LLC conducts accounting audits of the Company and its consolidated subsidiaries pursuant to the provisions stipulated under Japan s Companies Act and Financial Instruments and Exchange Act. Compliance Structure and System The Group recognizes the critical importance of engaging in business activities that exhibit the highest corporate ethics while adhering strictly to all statutory and regulatory requirements. With this in mind, the Group works diligently to bolster its compliance system. As a part of these endeavors, the Group established the UNIZO Group Individual Code of Conduct to ensure that directors, officers, and employees observe all statutory and regulatory requirements as well as social norms. Furthermore, the Group has put in place a set of compliance guidelines as well as related rules and regulations in order to establish a framework that is capable of securing compliance. In addition, an executive officer has been appointed to assume overall responsibility for ensuring compliance with the aim of further enhancing the efficacy of the Group s compliance initiatives. At the same time, the Compliance Department has been established as a specialized department. Complementing this endeavor, the Business Audit Department, which serves as the Group s internal audit department, conducts audits on the status of compliance. Through these and other measures, every effort is made to ensure thorough compliance. Risk Management Structure and System The Group has put in place and operates a set of internal rules and regulations in order to address a wide variety of business risks. For example, the Group has set its personal information protection policy and formulated a set of personal information protection rules and regulations to address the requirements of Japan s Personal Information Protection Law. As a part of efforts to further bolster its business risk management structure and system, the Group has also put in place self-assessment operating guidelines as well as rules and regulations governing the handling of accidents and claims, the preparation of external documents, and the operation and management of computer systems. In this manner, the Group is taking every step to put in place and fortify a risk management structure and system. 17

20 CSR Activities UNIZO Group s Approach to CSR The UNIZO Group has made social and environmental contribution a core part of our corporate philosophy. We are promoting the following initiatives to achieve mutual harmony and prosperity with society and the environment. Contribute to local communities and Japanese society Provide high-quality, comfortable spaces Conduct business with consideration for the global environment Social Contributions The UNIZO Group operates real estate and hotel businesses. Through these two core businesses, the Group seeks to be the preferred choice of customers and to realize mutual harmony and prosperity with society, including with its customers. In this way, the Group aims to contribute to society as a good corporate citizen. The Group consistently views its business from the perspective of its customers, aiming to deliver superior quality. The Group is deepening its bonds of trust with society over the long term by providing high-quality, comfortable, and safe spaces and services in its office buildings and hotels. The Group believes that the contributions to local communities, such as promoting regional redevelopment in harmony with local communities and offering facilities and spaces for shelter during disasters, are an important part of CSR. Environmental Contributions The UNIZO Group actively promotes environmentally conscious business activities throughout its office building and hotel operations, including enhancing the energy efficiency of its facilities, reducing the generation of waste, and lowering CO2 emissions. Example of Initiative HOTEL UNIZO Shibuya The building has greenery on the rooftop, a patio, and open air spaces as part of the UNIZO Group s environmental contribution. Energy Efficiency: The Group strives to conserve electricity and water through the adoption of LED lighting, air-conditioning controls, a double-skin configuration that boasts high heat insulation, superior double-paned and low-e glass, waterproof asphalt with high heat insulation, and water-saving sanitary fixtures. Regarding energy-saving targets prompted by a shortfall in electric power supply followed by the nuclear power problem after the Great East Japan Earthquake, the Group was quick to use lighting reductions and adjust the temperature settings of its air conditioners as part of its proactive efforts to support energy efficiency. Waste Reduction: Some of the office buildings operated by the Group reduce and recycle waste, reusing it as fertilizer. CO2 Emissions Reduction: The Group strives to lower CO2 emissions by reducing electricity and water consumption and waste generation by installing rooftop green spaces as well as reusing rainwater in sprinkling systems. Human Resources Development To develop from the ground up the human resources who will become the future leaders of the Group 1 to 2 years from now, we recommenced the hiring of new graduates from the class of 212. As announced in the Group s Second Medium-Term Management Plan, the Group will continue to hire main careerpath employees in open career and construction career positions, hotel career-path employees in management and administrative positions, and employees in clerical and general positions. To develop suitable careers for new graduates on a main careerpath in open career positions, we rotate them through each business in their first two years in the Company to allow them to gain business experience at UNIZO Group work sites and at the head office. In addition, the Human Resources Department holds face-to-face meetings with each new graduate periodically to ascertain their achievements and aptitudes, and take their wishes into consideration in assigning them to appropriate jobs and positions. In addition, to help employees acquire needed qualifications and hone their skills, the Group supports their professional development by fully or partially funding correspondence education and outside training. Moreover, the Group established a training center in Tokyo in March 216 and another training center in Osaka in June 216. Both training centers will train the key frontline personnel needed for our plan for proactively opening new hotels. We also intend to use these centers to conduct various types of training of head office employees. Looking ahead, we will endeavor to make effective use of both centers in order to improve the skills and motivation of frontline hotel employees and head office employees, thereby fostering human resources that can provide high-quality services. 18

21 Directors, Audit & Supervisory Board Members and Executive Officers As of June 17, 216 Directors and Audit & Supervisory Board Members Chairman and Director Takao Suzuki President and Director Tetsuji Kosaki Senior Managing Director Masato Yamamoto Deputy President and Director (Representative Director) of UNIZO Real Estate Company, Limited Senior Managing Director Yoshinori Yukimoto Deputy President and Director (Representative Director) of UNIZO Hotel Company, Limited Senior Managing Director Yoshiaki Iseki Managing Director Hiroyasu Nakamura Managing Director Hitoshi Sato Managing Director Masafumi Shinagawa Executive Officers President Tetsuji Kosaki Chief Executive Officer Senior Managing Executive Officer Masato Yamamoto Financial Planning Division; Office Building Division; Business Development Division; Business Audit Department; Compliance Department Senior Managing Executive Officer Yoshinori Yukimoto Credit Risk Management Division; Hotel Division Senior Managing Executive Officer Yoshiaki Iseki Architecture and Construction Planning Division; General Manager of Architecture and Construction Planning Department Managing Executive Officer Hiroyasu Nakamura Executive Secretariat; Administration Department; Human Resources Department; Information System Department Managing Executive Officer Hitoshi Sato Facility Management Division; Financial Planning Division (deputy); Finance Division (deputy); Architecture and Construction Planning Division (deputy); General Manager of Facility Management Department Managing Executive Officer Masafumi Shinagawa Finance Division; General Manager of Finance Department Managing Executive Officer Hideaki Kobayashi International Division; Business Development Division (deputy); General Manager of International Department 2 Managing Director Hideaki Kobayashi Managing Director Hiroshi Takimoto Managing Director Hiroko Saito Director Hiroto Okubo Director Takeshi Imamichi Director Satoshi Komura Director Masahiko Nishi Director Takeshi Okabe Director Yoshio Yamada Director Masako Kawamura Managing Executive Officer Hiroshi Takimoto Business Development Division (deputy) Managing Executive Officer Hiroko Saito Corporate Planning Division; Public Relations Division Executive Officer Hiroto Okubo General Manager of Compliance Department Executive Officer Takeshi Imamichi Hotel Division (deputy); General Manager of Hotel Department 1 Executive Officer Satoshi Komura Office Building Division (deputy) Executive Officer Masahiko Nishi General Manager of Business Development Department Executive Officer Takeshi Okabe General Manager of Executive Secretariat Executive Officer Yoshio Yamada Financial Planning Division (deputy); Finance Division (deputy) Executive Officer Masako Kawamura Public Relations Division (deputy); Hotel Division (deputy); General Manager of Public Relations Department External Director Motoaki Kitayama* Attorney External Director Toshiro Yonemura* Outside Director, Seven & i Holdings Co., Ltd. Standing Audit & Supervisory Board Member Mitsugi Izumiyama Standing Audit & Supervisory Board Member Kaoru Inoue Audit & Supervisory Board Member Tetsuo Ito* Attorney Outside Corporate Auditor, Takasago Thermal Engineering Co., Ltd. Outside Corporate Auditor, ASAHI KASEI CORPORATION Audit & Supervisory Board Member Hiroshi Kato* Accountant Director, SUMIDA CORPORATION * Independent officer as stipulated by the Tokyo Stock Exchange Executive Officer Shigeo Yasuno General Manager of Human Resources Department Executive Officer Shigeru Sasaki Head of Accounting Unit; General Manager of International Accounting Department Executive Officer Michiaki Kono General Manager of International Department 1 Executive Officer Osamu Kiso General Manager of Administration Department and Information System Department Executive Officer Minoru Kawasaki General Manager of Research Department Executive Officer Masaaki Kimura Hotel Division (deputy) Executive Officer Takafumi Kayano General Manager of Investor Relations Department Executive Officer Kazuhiro Goto General Manager of Financial Planning Department 19

22 Financial Section Management s Discussion and Analysis Operating Results Business Environment During the fiscal year ended March 31, 216, the Japanese economy continued to recover gradually while there were effects of a deceleration in overseas economies. However, many risks are still present, including growing unease about the direction of the Chinese economy, the pace at which interest rates are raised in the U.S. following the end of the zero interest rate policy, the effects of Japan s negative interest rate, the steep drop in the crude oil price, a sudden increase in the value of the yen, the effects of lower stock prices, and the effects of the Kumamoto Earthquake. In light of such risks, changes in the business environment continue to warrant close attention. In the office building market of Japan, the overall supply-demand balance is improving with vacancy rates in Tokyo s five central wards decreasing from the lower-5% range to the lower-4% during the fiscal year under review. Also, there is a clear upward trend in rents in some areas, including central Tokyo. In the office building market of New York City, vacancy rates are trending downward gradually while rents keep recovering. In the hotel sector, occupancy rates remain at a high level and revenue per room continues to improve, due to a significant increase in visitors from abroad. Revenue from Operations and Operating Income In the fiscal year under review, revenue from operations totaled 32,385 million, a 17.% increase compared with the previous fiscal year. Operating income was 1,65 million, a year-on-year increase of 2.3%. These increases were mainly due to the result of intensive efforts in the Real Estate Business to keep current tenants, attract new ones and increase rents in existing properties, along with newly acquired domestic and overseas properties contributions to revenue, and also due to higher occupancy rates and revenue per room in the Hotel Business. Segment Information A breakdown of results by reporting segment for the fiscal years ended March 31, 215, and March 31, 216, is as follows: Millions of yen Increase (Decrease) Revenue from operations (%) Real Estate Business 24,589 21, Hotel Business 7,954 5, Subtotal 32,544 27,835 Adjustments (159) (167) Consolidated 32,385 27, Millions of yen Operating income Increase (Decrease) (%) Real Estate Business 8,64 7, Hotel Business 2,159 1, Subtotal 1,8 8,957 Adjustments (194) (144) Consolidated 1,65 8, Segment business performance is outlined below. [Real Estate Business] Revenue from operations was 24,589 million, an increase of 12.3% from 21,888 million in the previous fiscal year. Operating income was 8,64 million, an increase of 12.2% from 7,699 million. This was the result of intensive efforts to keep current tenants, attract new ones, and increase rents in existing properties, as well as newly acquired domestic and overseas properties contributions to revenue. Revenue from operations Operating income / Operating margin millions of yen millions of yen % millions of yen yen 4, 12,5 5 7,5 32,385 1,65 6, , 4 6, 4 3, ,5 3 4,5 3 2, 5, 2 3, 2 1, 2,5 1 Net income attributable to owners of the parent company/ Net income per share 1, Operating income Operating margin (right scale) Net income attributable to owners of the parent company Net income per share (right scale) 2