Message from the Management

-- To all our shareholders and investors --

Takeo Higuchi Chairman and CEO Keiichi Yoshii President and COO

The Group's net sales and operating income both set new records for the fiscal year ended March 31, 2018 (the second year of our Fifth Medium-Term Management Plan)

Under the Group's three-year Fifth Medium-Term Management Plan (FY2016–2018), which started in April 2016, we are working to create an operational base that will realize four trillion yen in annual sales by meeting customer demand in the Japanese market and preparing the Group to face the environmental changes that await us in the future.

During the second year of this plan, fiscal 2017, the Group enjoyed an improved performance by its three principal growth drivers—Rental Housing; Commercial Facilities; and Logistics, Business and Corporate Facilities. Thanks to this, total net sales came to \3,795.9 billion and operating income to \347.1 billion, while net income attributable to owners of the parent amounted to \236.3 billion, all set new records. For operating income and net income, we achieved the goals outlined for the final year of the 5th Medium-Term Management Plan, which we revised in May 2017, in just the second year of the plan.

Numerical targets for the final year of the plan revised upward again as the Group eyes further growth

In the light of the Group's business performance for fiscal 2017, we have revised upward again our targets for fiscal 2018—the final year of the currently ongoing Fifth Medium-Term Management Plan—to net sales of \4 trillion, operating income of \354 billion, and net income of \237 billion.

In light of current progress, we increased the three-year investment plan based on our growth strategy from \900 billion to \1 trillion. We are planning on \720 billion in real estate development investments, a record for a Medium-Term Management Plan period. Cumulative results for the first two years of the plan is \501.3 billion (domestic: \416.8 billion; overseas: \84.4 billion), which is equivalent to approximately 71% of our original plans. We will continue to incorporate diverse business solutions as we actively invest in the domains of Logistics, Business and Corporate Facilities, Rental Housing, and Commercial Facilities, while also increasing investments overseas. In doing so, we will lay the groundwork for future sustainable growth.

We aim to continue expanding the scale of our core business operations by taking full advantage of domestic market demand, while investing actively in real estate development. At the same time, to lay down the foundations of future growth we will accelerate our overseas expansion, develop Plus 1 and Plus 2 businesses by using our client foundation among others, and work to foster future core businesses.

To solidify our management foundation, ensure our ability to support business expansion, and maintain financial stability, we will further promote workstyle reform to improve our labor environment, strengthen human resources development and our manufacturing foundation, and improve productivity and management efficiency.

Capital policy and stance on returning profits to shareholders

Turning to the Group's capital policy, we position return on equity (ROE) as one of our top-priority management indicators, and under the Fifth Medium-Term Management Plan we have set the ROE target level at 10 percent or higher. As the debt-equity (D/E) ratio is an important indicator of financial stability, we are targeting a ratio of approximately 0.5. By setting and reaching these two targets, we aim to strike a good balance between enhancing enterprise value and maintaining financial discipline, while striving to make investment decisions that are simultaneously positive and carefully considered.

With regard to the return of profits to shareholders, our fundamental policy is to conduct investment in areas essential to growth – including real estate development, overseas projects, M&As, research and development, and production capacity – thereby raising earnings per share (EPS), so as to enhance the Group's shareholder value. We have set the dividend payout ratio at 30 percent or higher, and aim to maintain a stable dividend while returning profit that is linked to business performance.

Regarding our shareholders’ special benefit program, we are presenting shareholders owning 100 shares or more with special tickets that enable them to make use of facilities operated by the Group. With effect from the fiscal 2017 business term, we will be expanding our program of profit returns to shareholders through various initiatives, such as offering a wider range of application for shareholders’ complimentary coupons.

Going forward, in line with the Corporate Governance Guidelines, we will continue working to achieve a sustainable improvement in enterprise value, as well as enhanced shareholder value.
We look forward to the continued support and encouragement of our shareholders, investors, and all other stakeholders.

Chairman and CEO Takeo Higuchi President and COO Keiichi Yoshii

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