In leasing operations, Sumitomo Realty has worked to create new opportunities by implementing innovative initiatives. In this way, the Company has established a position of leadership in the leasing industry. Our leasing business is characterized by an outstanding portfolio that includes many new, upscale buildings in central Tokyo and by a direct involvement in operations.

The Company made its full-scale entry into the leasing business in the latter half of the 1970s. In 1995, following the collapse of Japan's economic bubble, we were the first company in the industry to restart construction work on office buildings. We paid particular attention to large-scale projects in urban areas, especially those areas legally designated for redevelopment.

We currently operate about 200 buildings for lease. The advanced interior features of our buildings are complemented with distinctive exterior designs, including hotel-like entranceways and all-glass exteriors. Sumitomo Realty creates innovative buildings with strong market presences.

In the Tokyo office building market, which accounts for more than 90% of our portfolio, the favorable market conditions continued in the first half of the year and vacancy rates and new contract rents were relatively stable. However, demand slumped from the second half of the year and vacancy rates increased. The main factors were that the deteriorating business sentiment and corporate performance within Japan caused tenant companies to become increasingly aware of the need to cut costs and cautious about increasing floor space, and that certain companies even began withdrawing from businesses.

In this environment, the Company’s vacancy rate for existing buildings worsened from 3.8% at the end of the previous fiscal year, to 5.1% at the end of the year under review. However, through the first half of the fiscal year, we were able to raise rents for existing tenants when leases were renewed. In addition, buildings opened for occupancy during the previous year were open for the full year in the fiscal year under review, such as the Sumitomo Fudosan Harajuku Building and Sumitomo Fudosan Yotsuya Building. These two factors contributed to our performance. Further, the Sumitomo Fudosan Iidabashi Ekimae Building and the Sumitomo Fudosan Nishi Shinjuku Building No.5 that opened during the year, were able to attract more tenants than was initially forecast and achieved almost full occupancy.

As a result, we were able to record substantial increases in both revenue and profit. Revenue from operations increased 6.7%, to ¥298.4 billion, and operating income was up 12.8%, to ¥105.3 billion.

In the March 2010 fiscal year, we expect earnings from existing buildings to decrease due to the effects of the economic recession. However, we forecast that the full-year results of such properties as the Sumitomo Fudosan Iidabashi Ekimae Building and the Sumitomo Fudosan Nishi Shinjuku Building No. 5, and the new buildings scheduled to be opened during the year, such as the Sumitomo Fudosan Akihabara Building and the Sumitomo Fudosan Shiodome Hamarikyu Building will contribute to performance.

As a result, we expect to not only secure another year of increased revenues, but for revenue from operations to reach ¥300.0 billion for the first time, an increase of 0.6% year on year. However, we forecast operating income to decrease 3.2%, to ¥102.0 billion.

We plan to complete eight buildings with total floor space of 115,300 tsubo in the March 2010 fiscal year.

Our portfolio includes many competitive prime properties located in central Tokyo. As of the end of March 2009, our leasing portfolio had a gross floor area of 3.5 million square meters and an average age of 14 years, the lowest among Japan's major real estate companies. About 43% of the buildings in our portfolio were completed in the past 10 years. Also, 94% of the buildings in our portfolio were located in the 23 wards of Tokyo, with 86% in Tokyo's central business district. Furthermore, 81% of the portfolio was made up of large-scale buildings of more than 10,000 square meters of gross floor area. More than 98% of the buildings meet or exceed earthquake-resistance standards that took effect in 1981 and are a key yardstick for earthquake safety. Moreover, nearly half of our buildings have been completed since 1997, when we took the lead in the application of new building design concepts. These high-quality buildings offer leading-edge earthquake-resistant structures, separate climate control systems for each suite, reinforced floors for heavy loads, high-capacity electrical systems, high ceilings and other attractive features, and they are the focus of strong demand from many tenants.

Including the buildings that we expect to open during the Fourth Plan (the Third Growth Plan), prime properties will account for an even higher percentage of our portfolio. To respond to the change in market demand toward prime properties and away from buildings that are older, smaller or in less attractive locations, we have been investing aggressively in new building construction, thereby further increasing the concentration of prime properties in our portfolio.

In the central Tokyo office building market, there is strong demand for buildings that meet the criteria for prime properties; they are close to stations and business areas, are new and feature modern amenities and offer large areas on each floor. These prime properties generate high levels of revenues, while it remains difficult to find tenants for buildings that are far from stations, old or small.

CLOSE—LOCATIONS IN THE CENTRAL BUSINESS DISTRICT

To be a prime property, a building must be in the central business district and near a major station. In the Tokyo central business district, where many of Japan's leading companies have their offices, this is an even more important factor. Large, recently constructed buildings in good locations are in short supply, which has been a key element in our land acquisition efforts.

NEW—BRAND-NEW AND RECENTLY CONSTRUCTED BUILDINGS

The strong demand for recently constructed buildings is a result of tenant needs for the following features:

1. Reinforced floors, high-capacity electrical systems and uninterruptible power supplies to accommodate large computer servers
2. Separate climate control systems for each suite and high ceilings
3. Advanced earthquake countermeasures, such as vibration damping and earthquake-resistant construction
4. Advanced security systems

LARGE—LARGE-SCALE BUILDINGS

Buildings that can accommodate multiple units on a single floor enable tenant companies to increase the efficiency of their operations, and in recent years there has been a trend for companies to consolidate their offices. As a result, demand for large-scale buildings continues to increase.

In the Tokyo central business district, where buildings that meet the three conditions for prime properties—close, new and large—are in strong demand, our competitive portfolio will provide a strong foundation for us to utilize our strengths—development of high-value-added office buildings, tenant leasing and property management. We will utilize that foundation to maximize the earnings potential of our office building operations and build a strong base for the achievement of sustainable growth in the years ahead.