A N N U A L

R E V I E W

2 0 1 2

Fiscal Year Ended December 31, 2012

Tokyo Tatemono Co., Ltd.

MANAGEMENT REVIEW

Operating Environment
In the fiscal 2012, the Japanese economy showed some signs of a turnaround, primarily attributable to increased public spending associated with demand for post-quake reconstruction, which came into full swing. In the second half of the fiscal year, however, the economy stalled, mainly because of falling exports caused, among other things, by the persistent European sovereign debt problem and the slowing of the Chinese economy, as well as dampened consumer spending in the absence of certain policy effects. In the real estate industry, there were signs of a recovery in the rental office market, reflecting an improving vacancy rate, offsetting the final stage of large new supply in the Tokyo metropolitan area and persistent weakness in rent levels. The residential housing market remained generally firm with the high contract rate continuing, backed mainly by low interest rates. In the real estate investment market, there were moves towards a full-fledged recovery, such as increases in the number of new listings and capital increase through a public offering by J-REITs, as well as a rise in momentum toward the acquisition of properties.

reflecting losses from sales of portfolio assets and impairment losses. As a result, net income for the fiscal year totaled 10,243 million (US$118,667 thousand) (compared to a net loss of 71,774 million for the previous fiscal year).

Outlook
The Japanese economy is expected to start to recover in the future, thanks to economic policies put in place following the change of government. Nonetheless, the outlook is unpredictable, with the slowdown of overseas economies, including economic developments in China and the re-ignition of the European sovereign debt crisis, threatening to put downward pressure on the Japanese economy. In the real estate industry, the rental office market will see continued improvement of the vacancy rate in the Tokyo metropolitan area, and rent levels are expected to bottom out and experience an upswing. In the residential housing market, demand is expected to remain firm as interest rates remain low, but the impact of the consumption tax increase on the housing market needs to be monitored. In the real estate investment market, while a full-fledged recovery is expected, the impact of negative developments such as the slowdown of overseas economies gives cause for concern.

Results
In this business environment, the Group took steps to improve its earnings strength and financial position, after it posted significant losses and was forced to cancel dividend payments in the previous fiscal year. These steps included securing profits available for dividend and reducing interestbearing debt by downsizing total assets. As a result, total revenue from operations for the fiscal year rose from 166,943 million for the previous fiscal year, to 194,161 million (US$2,249,322 thousand), up 16.3%. This rise was attributable primarily to the posting of dividend income in Commercial Properties business associated with the sale of the site (limited proprietary right of land) for Otemachi 1-6 Project (tentative name) by an SPC in which the Company has a capital stake. Operating income increased from an operating loss of 678 million to 30,892 million (US$357,882 thousand). Recurring income climbed from a recurring loss of 10,875 million to 21,741 million (US$251,867 thousand). However, the Group recorded an extraordinary loss of 3,932 million, mainly

Foundations
In this business environment, under the new Group medium-term business plan called Restart-Challenging Innovation- for fiscal 2012 to fiscal 2014, the Group will strive to improve its business foundations to achieve further growth in the future by bolstering its earnings capabilities and financial strength, recording steady income, establishing an earnings foundation, and achieving sound financial conditions. The Group will also seek to enhance its corporate value by contributing to the development of a sustainable society through environmentally considerate business activities in compliance with the Groups environmental policies, and by enhancing the Groups management structure through the pursuit of optimal corporate governance.

FINANCIAL REVIEW

Revenue and Income Commercial properties business

In the commercial properties business, the Company focused on tenant services, with the aim of providing a safe and comfortable space in offices, and sought to improve occupancy rates at large scale properties, thereby strengthening its earnings sources. In the fiscal year under review, the construction of Otemachi Financial City North Tower (Chiyoda Ward, Tokyo) and Nihonbashi TI Building (Chuo Ward, Tokyo) was completed, and Tokyo Tatemono Yaesu Building (Chuo Ward, Tokyo) was in operation for the full year. During the fiscal year, the company sold Tokyo Tatemono Nagoya Building. It also sold other properties, including the site (limited proprietary right of land) for Otemachi 1-6 Project (tentative name) (Chiyoda Ward, Tokyo) held by an SPC in which the Company has a capital stake and Yakuin Business Garden (Chuo Ward, Fukuoka City), and posted dividend income associated with these sales. In addition, the Company posted compensation for development services, etc. with the completion of the construction of Nakano Central Park (Nakano Ward, Tokyo). As a result, revenue from operations was 67,499 million (US$781,970 thousand) (up 54.9% from 43,570 million for the preceding fiscal year); and operating income was 33,164 million (US$384,198 thousand) (up 354.1% from 7,303 million).

Brillia Takatsuki Central Place (Takatsuki City, Osaka), etc. Sales of real estate for development of 10,862 million were included in housing sales. A loss on revaluation of inventories and a loss on revaluation of SPCs of 4,760 million (US$55,150 thousand) (compared to a loss of 6,857 million in the previous fiscal year) were posted in cost of revenue. As a result, revenue from operations was 86,612 million (US$1,003,393 thousand) (up 3.2% from 83,904 million for the preceding fiscal year); and the operating income was 983 million (US$11,397 thousand) (compared with operating loss of 1,317 million for the preceding fiscal year).

Brokerage business
In brokerage services for corporate customers, the Company strengthened proposal sales (CRE sales) for the effective use of real estate owned and operated by companies, among others. In brokerage services for individual customers, the Company launched the Authorization System of Used House Brillia, which provides certain guarantees for part of the condominiums sold by the Company based on building inspections, thereby endeavouring to expand the Companys share in the brokerage area. For the fiscal year under review, real estate sales fell, although brokerage fees increased in brokerage, appraisal, and consulting services. As a result, revenue from operations was 8,354 million (US$96,781 thousand) (down 19.2% from 10,336 million for the preceding fiscal year); and operating income was 115 million (US$1,335 thousand) (from operating loss of 1,538 million for the previous fiscal year).

Residence business
In the residence business, to embody the concepts represented by the slogans refined housing and comfortable and peaceful housing after residence, which express the brand identity for Brillia condominiums, the Company started a product development project for working women called Bloomoi and an around-the-clock service called Brillia Daily Life Hotline to respond to issues in the condominium rooms. During the fiscal year under review, the Company recorded sales from condominiums including Brillia Oimachi La Vie En Tower (Shinagawa Ward, Tokyo), The Tower Residence Otsuka (Toshima Ward, Tokyo), Brillia Laketown Parkside (Koshigaya City, Saitama Prefecture),

Other businesses
For the fiscal year ended December 31, 2012, NIHON PARKING CORPORATION, which became a consolidated subsidiary in the previous fiscal year, contributed to the performance of the metered parking lot business. In the Leisure business, a warm bath facility called Ofuro-no-Osama Oimachi was in operation for the full year, and the capacity utilization of other facilities operated by the Company recovered from the decline in the aftermath of the

earthquake, contributing to the improved results of this business segment. In the Asset Management business, Tokyo Tatemono Investment Advisors Co., Ltd. originated private placement funds for overseas pension funds in efforts to increase assets under management. As a result, revenue from operations was 31,694 million (US$367,176 thousand) (up 8.8% from 29,132 million for the preceding fiscal year); and operating income was 2,751 million (US$31,874 thousand) (up 103.9% from 1,349 million for the preceding fiscal year).

Analysis of Profitability
Revenue from operations rose 27,217 million from the previous fiscal year, to 194,161 million (US$2,249,322 thousand). This rise was attributable primarily to the posting of dividend income associated with the sale of the site (limited proprietary right of land) for Otemachi 1-6 Project (tentative name) by an SPC in which the Company has a capital stake, and to the full-year contribution to earnings of NIHON PARKING CORPORATION, which became a consolidated subsidiary in the previous fiscal year. Operating income increased from an operating loss of 678 million to 30,892 million (US$357,882 thousand). Recurring income climbed from a recurring loss of 10,875 million to 21,741 million (US$251,867 thousand). However, the Group recorded losses from sales of 25 condominiums for rent, etc. and impairment losses in an extraordinary loss. As a result, net income for the year totalled 10,243 million (US$118,667 thousand) (compared to a net loss of 71,774 million for the previous fiscal year).

million from the end of the preceding year. This was mainly the result of a decrease in interest-bearing debt through the reduction of total assets and a decrease in investments received for real estate-specific joint enterprises. The balance of interest-bearing debt (excluding lease obligations) was 479,746 million (US$5,557,767 thousand) (a decrease of 33,869 million from the end of the fiscal 2011). Net assets at the end of the fiscal year were 212,491 million (US$2,461,671 thousand), an increase of 20,390 million from the end of the preceding fiscal year. This was primarily attributable to an increase associated with net income and a rise in the valuation difference on availablefor-sale securities. The Company compensated for a capital loss by transferring capital surplus of 27,178 million to retained earnings.

Financial Position
Total assets at the end of the fiscal year were 895,296 million (US$10,371,830 thousand), a decrease of 2,721 million from the end of the preceding year. The major factors were an increase in investment securities associated with investments in SPCs and the fair market valuation of listed stocks, and a decrease in property and equipment due to a decrease in real estate for sale and sales of condominiums for rent. Total liabilities at the end of the fiscal year were 682,804 million (US$7,910,159 thousand), down 23,111

Cash Flow
Consolidated cash and cash equivalents (hereinafter cash) at the end of the fiscal year increased 6,577 million from the end of the preceding fiscal year, to 39,466 million. Cash provided by operating activities was 57,332 million, cash used in investing activities was 15,385 million, and cash used in financing activities was 35,855 million.

Cash flow from operating activities

Cash provided by operating activities was 57,332 million (US$664,188 thousand) (a rise of 49,279 million in cash from the previous fiscal year). This mainly reflected net income before income taxes and minority interests of 17,808 million and an increase in cash due to a decrease in inventories of 18,074 million.

Cash flow from investing activities

Cash used in investing activities was 15,385 million (US$178,243 thousand) (an increase of 21,779 million in cash from the previous fiscal year). This was primarily attributable to decrease in cash due mainly to expenditure of 23,026 million for purchases of investment securities, 20,648 million for purchase of fixed assets, and a 10,921 million yen decrease in investments received for real estate specific joint enterprises, although there was an increase in cash attributable to income of 31,062 million from the sale of fixed assets.

Cash flow from financing activities

Cash used in financing activities was 35,855 million (US$415,383 thousand) (a decrease of 76,972 million in cash from the previous fiscal year). This was mainly the result of financing through hybrid finance and a decrease in interest-bearing debt through the reduction of total assets.

Tokyo Tatemono Co., Ltd. and Consolidated Subsidiaries Consolidated Balance Sheets
December 31, 2012 2011 2012 (Millions of yen) (Thousands of U.S. dollars) (Note 1) 39,468 10,202 5 6,875 89,174 2,348 14,942 (571) 162,445 32,925 6,603 97 5,339 103,582 3,520 16,318 (582) 167,804 $ 457,230 118,189 58 79,647 1,033,069 27,211 173,104 (6,617) 1,881,893

Assets Current assets: Cash and deposits (Notes 14 and 17) Accounts receivable, trade Marketable securities (Notes 17 and 18) Investments in silent partnerships (Notes 17 and 18) Inventories (Notes 3 and 6) Deferred income taxes (Note 21) Other current assets Allowance for doubtful accounts Total current assets Property and equipment, at cost: Land (Notes 6, 7 and 11) Buildings (Notes 6, 7 and 11) Construction in progress Other property and equipment (Note 11) Total property and equipment Less accumulated depreciation Net property and equipment Intangible and other assets (Notes 4 and 7) Investments: Investment securities (Notes 8, 17 and 18) Investments in unconsolidated subsidiaries and affiliates (Notes 8 and 17) Investments in silent partnerships (Notes 8, 17 and 18) Long-term loans Deferred income taxes (Note 21) Guarantee deposits paid (Note 7) Other investments (Notes 7 and 18) Allowance for doubtful accounts Allowance for losses on investments Total investments

302,123 212,446 4,266 20,541 539,378 (102,351) 437,027 28,389

310,712 224,175 3,441 20,469 558,799 (100,088) 458,710 28,218

3,500,046 2,461,147 49,429 237,969 6,248,592 (1,185,720) 5,062,872 328,886

180,660 36,410 50,843 89 1,778 10,943 6,648 (264) (19,673) 267,434

153,556 34,415 52,128 185 6,218 10,873 5,968 (390) (19,673) 243,283

2,092,911 421,810 589,008 1,032 20,600 126,776 77,016 (3,069) (227,910) 3,098,177

Total assets

895,296

898,017

$ 10,371,830

Liabilities and net assets Current liabilities: Short-term borrowings (Notes 5, 6 and 17) Current portion of bonds payable (Notes 5 and 17) Accounts payable, trade (Note 6) Accrued income taxes Provision for warranties for completed construction Provision for bonuses Provision for directors bonuses Deposits received under Real Estate Specified Joint Enterprise Law (Note 7) Other current liabilities (Note 6) Total current liabilities Long-term liabilities: Bonds payable (Notes 5 and 17) Long-term debt (Notes 5, 6 and 17) Deferred income taxes (Note 21) Deferred income taxes on land revaluation Accrued severance indemnities (Note 20) Provision for directors retirement benefits Provision for environmental measures Guarantee deposits received (Notes 6 and 17) Deposits received under Real Estate Specified Joint Enterprise Law (Note 7) Other long-term liabilities (Note 6) Total long-term liabilities Total liabilities Commitments and contingent liabilities (Note 9) Net assets: Shareholders equity (Note 13): Common stock, without par value: Authorized: 800,000,000 shares Issued: 433,059,168 shares in 2012 and 2011 Additional paid-in capital Retained earnings Less: Treasury stock, at cost Total shareholders equity Accumulated other comprehensive income: Net unrealized gains or losses on available-for-sale securities Deferred gains or losses on hedges Revaluation reserve for land Foreign currency translation adjustments Total accumulated other comprehensive income Minority interests Total net assets Total liabilities and net assets

December 31, 2012 2011 2012 (Millions of yen) (Thousands of U.S. dollars) (Note 1) 106,778 22,200 9,307 1,708 4 293 71 24,770 35,559 200,693 99,950 245,625 12,276 26,169 7,676 1,138 279 43,696 32,907 12,390 482,111 682,804 118,038 10,000 6,460 461 5 273 71 30,090 31,994 197,395 109,750 269,752 7,496 20,911 7,079 1,113 285 40,493 38,508 13,130 508,521 705,916 $ 1,237,011 257,182 107,822 19,797 56 3,396 824 286,955 411,945 2,324,993 1,157,900 2,845,527 142,223 303,173 88,933 13,185 3,241 506,214 381,222 143,542 5,585,165 7,910,159

92,451 63,518 11,164 (549) 166,584 23,960 (368) 15,672 (774) 38,489 7,417 212,491 895,296

92,451 90,696 (22,812) (546) 159,788 11,153 16,446 (2,450) 25,149 7,163 192,101 898,017

1,071,031 735,843 129,339 (6,369) 1,929,845 277,576 (4,274) 181,566 (8,974) 445,894 85,931 2,461,671 $10,371,830

See accompanying notes to the consolidated financial statements.

Tokyo Tatemono Co., Ltd. and Consolidated Subsidiaries Consolidated Statements of Income
Year ended December 31, 2011 2012 2012 (Millions of yen) (Thousands of U.S. dollars) (Note 1) Revenue from operations Cost of revenue from operations Gross profit Selling, general and administrative expenses (Note 10) Operating income (loss) Other income (expenses): Interest income Dividends income Interest expenses Gain on sales of noncurrent assets Loss on sales of noncurrent assets Loss on retirement of noncurrent assets Loss on building reconstruction Stock issuance cost Bond issuance cost Gain on sales of investment securities Dividends paid on Real Estate Specified Joint Enterprise Law Write-downs of investment securities Loss on adjustment for changes of accounting standard for asset retirement obligations Equity in earnings of affiliated companies Impairment loss (Note 11) Provision for environmental measures Loss on disaster Compensation income Loss on reversal of foreign currency translation adjustments Provision of allowance for losses on investments Other, net Income (loss) before income taxes and minority interests Income taxes (Note 21): Current Deferred Income (loss) before minority interests Minority interests Net income (loss) 194,161 140,385 53,775 22,883 30,892 41 707 (8,472) 3,286 (1,109) (118) (4) (71) 38 (1,202) (1,859) 577 (3,992) 493 (671) (727) (13,084) 17,808 2,020 5,234 7,255 10,553 309 10,243 166,943 145,237 21,706 22,384 (678) 37 781 (8,403) 795 (14) (123) (215) (4) (123) 978 (1,668) (43,302) (69) 198 (3,374) (6) (607) (19,075) (1,012) (75,210) (75,889) 867 (5,382) (4,514) (71,374) 399 (71,774) $2,249,322 1,626,339 622,982 265,099 357,882 484 8,192 (98,153) 38,074 (12,857) (1,377) (48) (822) 445 (13,929) (21,536) 6,689 (46,250) 5,713 (7,774) (8,428) (151,577) 206,304 23,409 60,638 84,048 122,256 3,588 $ 118,667

See accompanying notes to the consolidated financial statements. 4

Tokyo Tatemono Co., Ltd. and Consolidated Subsidiaries Consolidated Statements of Comprehensive Income
Year ended December 31, 2011 2012 2012 (Millions of yen) (Thousands of U.S. dollars) (Note 1) Income (loss) before minority interests Other comprehensive income (Note 12): Net unrealized gains or losses on available-for-sale securities Deferred gains or losses on hedges Revaluation reserve for land Foreign currency translation adjustments Share of other comprehensive income of associates accounted for using the equity method Total other comprehensive income Comprehensive income Comprehensive income attributable to: Comprehensive income attributable to owners of the parent Comprehensive income attributable to minority interests 10,553 12,190 (368) (4,201) 1,235 1,081 9,936 20,489 20,156 333 (71,374) (283) 2,809 (75) (136) 2,312 (69,061) (69,448) 387 $122,256 141,225 (4,274) (48,672) 14,309 12,524 115,113 $237,370 $233,504 3,866

See accompanying notes to the consolidated financial statements.

Tokyo Tatemono Co., Ltd. and Consolidated Subsidiaries Consolidated Statements of Changes in Net Assets
Year ended December 31, 2012 2011 2012 (Millions of yen) (Thousands of U.S. dollars) (Note 1) 92,451 92,451 90,696 (27,178) (0) 0 63,518 (22,812) 27,178 10,243 (3,427) (16) (0) 11,164 (546) (3) 0 (549) 92,451 92,451 90,696 (0) 90,696 50,692 (71,774) (1,730) (22,812) (543) (5) 1 (546) $1,071,031 $1,071,031 $1,050,695 (314,852) (3) 3 $ 735,843 $ (264,274) 314,852 118,667 (39,708) (193) (3) $ 129,339 $ $ (6,333) (40) 5 (6,369)

Common stock Balance at beginning of the year Balance at end of the year Additional paid-in capital Balance at beginning of the year Deficit disposition Sales of treasury stock Transfer to additional paid-in capital from retained earnings Balance at end of the year Retained earnings Balance at beginning of the year Deficit disposition Net income (loss) Cash dividends paid Transfer to revaluation reserve for land Change of scope of consolidation Transfer to additional paid-in capital from retained earnings Balance at end of the year Treasury stock, at cost Balance at beginning of the year Purchases of treasury stock Sales of treasury stock Balance at end of the year Net unrealized gains or losses on available-for-sale securities Balance at beginning of the year Net change in unrealized gains or losses on available-for-sale securities, net of deferred income taxes Balance at end of the year Deferred gains or losses on hedges Balance at beginning of the year Net change in deferred gains or losses on hedges Balance at end of the year Revaluation reserve for land Balance at beginning of the year Transfer to revaluation reserve for land Balance at end of the year Foreign currency translation adjustments Balance at beginning of the year Net change in foreign currency translation adjustments Balance at end of the year Minority interests Total net assets

11,153 12,807 23,960 (368) (368)

11,323 (170) 11,153

$ 129,209 148,366 $ 277,576 $ $ (4,274) (4,274)

16,446 (773) 15,672 (2,450) 1,676 (774) 7,417 212,491

13,637 2,809 16,446 (2,136) (313) (2,450) 7,163 192,101

$ 190,530 (8,963) $ 181,566 $ (28,391) 19,416 $ (8,974) $ 85,931 $2,461,671

See accompanying notes to the consolidated financial statements.

Tokyo Tatemono Co., Ltd. and Consolidated Subsidiaries Consolidated Statements of Cash Flows
Year ended December 31, 2012 2011 2012 (Millions of yen) (Thousands of U.S. dollars) (Note 1) 17,808 8,790 3,992 252 (577) (136) 19 597 (749) 8,472 1,859 (38) 671 (2,057) (3,595) 338 18,074 3,071 (309) (71) 1,878 7,610 65,900 880 (8,349) (1,098) 57,332 9,235 (23,026) (3,068) 1,571 31,062 (20,648) (13) 406 (10,921) 17 (15,385) (404) 95,300 (130,281) (883) 15,000 (12,600) 0 (3) (2) (80) (1,900) (35,855) 495 6,586 32,889 (9) 39,466 (75,889) 9,023 3,374 245 (198) 330 19,075 (10) 688 (818) 8,403 43,302 (978) 215 (657) (500) 7,117 (702) (178) 82 (1,149) 9,116 19,891 926 (8,394) (4,369) 8,053 9,320 (21,837) (1,605) (130) 1,573 7,639 (21,113) (79) 183 (3,398) (7,718) (37,164) (800) 148,072 (127,512) (931) 25,000 0 (5) (200) (1,730) (120) 414 (1,069) 41,116 (22) 11,982 20,906 32,889 $ $ 206,304 101,838 46,250 2,925 (6,689) (1,583) 224 6,916 (8,677) 98,153 21,536 (445) 7,774 (23,839) (41,656) 3,918 209,388 35,579 (3,585) (826) 21,766 88,168 763,441 10,204 (96,728) (12,729) 664,188 106,990 (266,760) (35,553) 18,210 359,853 (239,209) (160) 4,705 (126,522) 202 (178,243) (4,691) 1,104,031 (1,509,282) (10,235) 173,772 (145,968) 1 (40) (24) (928) (22,017) (415,383) 5,744 76,305 381,016 (108) 457,213

Operating activities Income (loss) before income taxes and minority interests Adjustments to reconcile income before income taxes and minority interests to net cash provided by (used in) operating activities: Depreciation and amortization Impairment loss Amortization of goodwill Equity in earnings of affiliated companies Increase (decrease) in allowance for doubtful accounts Increase (decrease) in allowance for losses on investments Increase (decrease) in provision for bonuses Provision for accrued severance indemnities, less payments Interest and dividend income Interest expense Loss on valuation of investment securities Gain on sales of investment securities Loss on building reconstruction Loss on disposition of foreign currency translation adjustments Gain on sales and retirement of noncurrent assets Decrease (increase) in accounts receivable, trade Decrease (increase) in investments in silent partnerships Decrease (increase) in inventories (Note 14) Increase (decrease) in lease and guarantee deposits received Increase (decrease) in accounts payable, trade Decrease (increase) in lease and guarantee deposits Increase in deposits received Other Subtotal Interest and dividends income received Interest expense paid Income taxes paid Net cash provided by operating activities Investing activities Proceeds from sales and redemption of investment securities Purchases of investment securities Purchase of investments in subsidiaries resulting in change in scope of consolidation (Note 14) Payments for investments in silent partnerships Proceeds from withdrawal of investments in silent partnerships Proceeds from sales of noncurrent assets Purchases of noncurrent assets Payments of loans receivable Collection of loans receivable Increase (decrease) in deposits received under Real Estate Specified Joint Enterprise Law Other Net cash used in investing activities Financing activities Increase (decrease) in short-term borrowings Proceeds from long-term loans payable Repayment of long-term loans payable Payments for long-term accounts payable Proceeds from issuance of bonds payable Redemption of bonds payable Proceeds from sales of treasury stock Purchase of treasury stock Purchase of treasury stock of subsidiaries in consolidation Cash dividends paid Cash dividends paid to minority shareholders Proceeds from stock issuance to minority shareholders Other Net cash (used in) provided by financing activities Effect of exchange rate change on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Decrease in cash and cash equivalents resulting from exclusion of subsidiaries from consolidation Cash and cash equivalents at end of period (Note 14)

See accompanying notes to the consolidated financial statements.

Tokyo Tatemono Co., Ltd. and Consolidated Subsidiaries Notes to the Consolidated Financial Statements
1. Basis of Preparation of Financial Statements

The accompanying consolidated financial statements of Tokyo Tatemono Co., Ltd. (the Company) and consolidated subsidiaries (collectively the Group) are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards, and are compiled from the consolidated financial statements prepared by the Company as required by the Financial Instruments and Exchange Law of Japan. In addition, the notes to the accompanying consolidated financial statements include financial information which is not required under accounting principles generally accepted in Japan but is presented herein as additional information. Certain reclassifications have been made to present the accompanying consolidated financial statements in a format which is familiar to readers outside Japan. As permitted by the Financial Instruments and Exchange Law, amounts of less than one million yen have been omitted. As a result, the totals in yen in the accompanying consolidated financial statements do not necessarily agree with the sums of the individual amounts. The U.S. dollar amounts presented in the accompanying consolidated financial statements are included solely for the convenience of readers outside Japan. The exchange rate of 86.32 to U.S.$1.00 prevailing on December 31, 2012 has been used in the translation of yen amounts into U.S. dollar amounts in the accompanying consolidated financial statements. It should not be construed that yen amounts have been or could in the future be converted into U.S. dollar amounts at the above or any other rate. 2. Significant Accounting Policies

(a) Basis of consolidation The accompanying consolidated financial statements include the accounts of the Company and any significant companies which it controls directly or indirectly, as well as the accounts of companies over which the Company exercises significant influence in terms of their operating and financial policies. Numbers of companies included in the scope of consolidation at December 31, 2012 and 2011 were as follows: 2012 Consolidated subsidiaries 34 2011 37

2.

Significant Accounting Policies (continued)

(a) Basis of consolidation (continued) The difference between the cost of an acquisition and the fair value of the net assets of an acquired subsidiary/affiliated company at the date of acquisition is reported in the consolidated balance sheets under other assets or other liabilities and is amortized by the straight-line method over a period of 5 to 20 years. The equity basis of accounting has been applied to 9 and 9 affiliated companies in consideration of their material impact on the accompanying consolidated financial statements for the years ended December 31, 2012 and 2011, respectively. Investments in certain unconsolidated subsidiaries (owned more than 50%) and affiliates (owned 20% to 50%) are carried at cost rather than being accounted for by the equity method because their aggregate net income and retained earnings were not material to the accompanying consolidated financial statements. (b) Cash and cash equivalents The Company and its consolidated subsidiaries substantially consider all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Reconciliations between cash reflected in the accompanying consolidated balance sheets and cash and cash equivalents reflected in the accompanying consolidated statements of cash flows at December 31, 2012 and 2011 are presented in Note 14. (c) Allowance for doubtful accounts The allowance for doubtful accounts, including a specific allowance, is provided at the amount considered sufficient to cover possible losses on collection. Long-term loans at December 31, 2012 and 2011 were offset against doubtful debts of 2,698 million ($31,260 thousand) and 2,698 million, respectively. These debts consisted of certain loans and the related interest. (d) Allowance for losses on investments The allowance for losses on investments is provided at the amount considered sufficient to cover possible losses on investments in affiliates and others based on their respective financial condition. (e) Marketable and investment securities Securities are classified and accounted for, depending on managements intentions, as follows: i) held-to-maturity debt securities, which are expected to be held to maturity, are reported at amortized cost, and ii) available-for-sale securities, for which market quotations are determinable, are reported at their respective fair value with unrealized gain or loss, net of the applicable taxes, reported as a separate component of net assets. Unrealized gain is not available for distribution in the form of cash dividends. 9

2. (f)

Significant Accounting Policies (continued) Inventories Inventories are mainly stated at cost, determined by the identified cost method. Net book value of inventories in the consolidated balance sheet is written down when their net realizable values decline.

(g) Property and equipment, and depreciation Property and equipment are carried at cost, less accumulated depreciation. Depreciation of property and equipment is calculated by the straight-line method, except in the case of furniture and fixtures on which the declining-balance method at rates determined based on the estimated useful lives of the respective assets is applied. However, depreciation of property and equipment held by the overseas consolidated subsidiaries is determined by the straight-line method over the estimated useful lives of the respective assets. Under the Land Revaluation Law promulgated and revised on March 31, 1998 and 1999, respectively, the Company elected for a one-time revaluation of land held for its own use to a value based on real estate appraisals at December 31, 2000. The resulting revaluation reserve for land represents an unrealized appreciation in the value of this land and is stated, net of income taxes, as a separate component of net assets. Revaluation reserve for land is not available for distribution in the form of dividends. There was no related effect on the accompanying consolidated statements of income. (h) Intangible assets Intangible assets are amortized by the straight-line method over their respective estimated useful lives. Expenditure relating to computer software developed for internal use is charged to income as incurred, except in cases where it contributes to the generation of income or future cost savings. In these cases, it is capitalized and amortized using the straight-line method over its estimated useful life, which is no longer than 5 years. (i) Leases Leased property is depreciated over the lease term by the straight-line method with no residual value. In addition, those finance lease transactions that do not transfer ownership and commenced on or before December 31, 2008, are accounted for based on standards for ordinary rental transactions. (j) Share and bond issuance costs Costs relating to the issuance of shares and bonds are charged to income when incurred.

10

2.

Significant Accounting Policies (continued)

(k) Derivatives and hedging activities The Company defers unrealized gains or losses resulting from changes in fair value of derivative financial instruments until the related losses or gains on the hedged items are recognized, if derivative financial instruments meet certain criteria for hedges. Interest-rate swaps which meet specific matching criteria and qualify for hedge accounting treatment are not remeasured at market value; however, the differentials paid or received under the respective swap agreements are recognized and included as interest expense or income. The Company enters into interest-rate swap contracts to manage its exposure to interest-rate fluctuation with respect to certain of its liabilities. It is the Companys policy to utilize derivatives only for the purpose of reducing market risk. (l) Accrued severance indemnities Accrued severance indemnities are stated at the amount required to cover the liability as of the balance sheet date and is based on the Companys estimates of its liability for retirement benefits and its pension fund assets as of the balance sheet date. The retirement benefit obligation is attributed to each period by the straight-line method over the estimated average remaining years of service of the eligible employees. Actuarial gain or loss is amortized, commencing the year following the year in which the gain or loss is recognized, by the straight-line method over a period of 10 years which is shorter than the estimated average remaining years of service of the eligible employees. (m) Net income per share Computations of basic net income per share are based on the weighted-average number of shares of common stock outstanding during each year. Diluted net income per share is computed based on the weighted-average number of shares of common stock outstanding during each year after giving effect to the dilutive potential of shares to be issued. (n) Income taxes Deferred income taxes are determined based on the differences between the amounts determined for financial reporting purposes and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws which will be in effect when the differences are expected to reverse. (o) Reclassifications Certain reclassifications of the consolidated financial statements for the year ended December 31, 2011 have been made to conform with the presentation for the year ended December 31, 2012. 11

2.

Significant Accounting Policies (continued)

(p) Accounting changes (Accounting Standard for Accounting Changes and Error Corrections) Effective January 1, 2012, the Company has adopted the Accounting Standard for Accounting Changes and Error Corrections (Statement No. 24 issued by the Accounting Board of Japan (ASBJ) on December 4, 2009) and the Guidance on Accounting Standard for Accounting Changes and Error Corrections (Guidance No. 24 issued by ASBJ on December 4, 2009). (q) Accounting Standard Issued But Not Yet Adopted (Accounting Standard for Consolidated Financial Statements) Revised Accounting Standard for Consolidated Financial Statements (Statement No. 22 issued by ASBJ on March 25, 2011) Revised Guidance on Disclosures about Certain Special Purpose Entities (Guidance No. 15 issued by ASBJ on March 25, 2011) Revised Guidance on Determining a Subsidiary and an Affiliate (Guidance No. 22 issued by ASBJ on March 25, 2011) Revised Practical Solution on Application of the Control Criteria and Influence Criteria to Investment Associations (PITF No. 20 issued by ASBJ on March 25, 2011) (1) Summary Prior to the revision, special purpose entities that met specific criteria were presumed to be excluded from both subsidiaries of investors and companies transferring assets to the relevant special purpose entities. After the revision of accounting standards, special purpose entities are only excluded from companies transferring assets to special purpose entities. (2) Planned date of adoption The Company will adopt the revised accounting standards from the beginning of the fiscal year ended December 31, 2014. (3) Effect of adoption of the accounting standard The impact of the adoption of this accounting standard is currently under assessment. (Accounting Standard for Retirement Benefits) Accounting Standard for Retirement Benefits (Statement No. 26 issued by ASBJ on May 17, 2012) Guidance on Accounting Standard for Retirement Benefits (Guidance No. 25 issued by ASBJ on May 17, 2012) (1) Summary The accounting standard was amended from the viewpoint of improvements to financial reporting and international convergence, mainly focusing on how actuarial gains and losses and past service costs should be accounted for, how retirement benefit obligations and current service costs should be determined, and enhancement of disclosures. 12

2.

Significant Accounting Policies (continued)

(q) Accounting Standard Issued But Not Yet Adopted (continued) (2) Planned date of adoption The Company will adopt this accounting standard from the end of the fiscal year ending December 31, 2014. However, the Company will adopt amendments relating to determination of retirement benefit obligation and current service costs from the beginning of the fiscal year ending December 31, 2015. (3) Effect of adoption of the accounting standard The impact of the adoption of this accounting standard is currently under assessment. 3. Inventories

Inventories as of December 31, 2012 and 2011 consisted of the following: December 31, 2011 2012 2012 (Millions of yen) (Thousands of U.S. dollars) Real estate for sale Real estate for sale in progress Real estate for development 40,756 37,618 10,799 89,174 51,478 35,277 16,826 103,582 $ 472,155 435,803 125,110 $1,033,069

4.

Intangible and Other Assets

Intangible and other assets as of December 31, 2012 and 2011 consisted of the following: December 31, 2011 2012 2012 (Millions of yen) (Thousands of U.S. dollars) Leasehold right Goodwill Other 24,704 3,094 590 28,389 24,424 3,325 468 28,218 $286,201 35,847 6,838 $328,886

13

5.

Short-term Borrowings and Long-term Debt

Short-term borrowings as of December 31, 2012 and 2011 consisted of the following: December 31, 2011 2012 (Millions of Average (Millions of Average yen) interest yen) interest rate (%) rate (%) 1,402 22,200 105,376 128,978 0.95 1.94 1.50 1,807 10,000 116,230 128,038 0.94 1.60 1.64 2012 (Thousands of U.S. dollars) $ 16,247 257,182 1,220,764 $1,494,194

Loans, principally from banks Current portion of bonds payable Current portion of long-term debt Total

Long-term debt as of December 31, 2012 and 2011 consisted of the following: December 31, 2012 2011 2012 (Millions of yen) (Thousands of U.S. dollars) 1.60% unsecured straight bonds, due 2012 1.76% unsecured straight bonds, due 2013 1.89% unsecured straight bonds, due 2014 1.92% unsecured straight bonds, due 2015 2.12% unsecured straight bonds, due 2013 1.58% unsecured straight bonds, due 2015 1.80% unsecured straight bonds, due 2016 1.73% unsecured straight bonds, due 2018 1.44% unsecured straight bonds, due 2017 0.81% unsecured straight bonds, due 2016 4.57% unsecured deferrable interest subordinated callable bonds, due 2072 0.60% unsecured straight bonds, due 2017 3.65% specific bonds, due 2013 1.23% unsecured straight bonds, due 2014 Loans, principally from banks and insurance companies Less: Current portion of long-term debt 10,000 20,000 20,000 12,000 10,000 10,000 10,000 15,000 10,000 4,000 900 250 351,002 473,152 (127,576) 345,575

10,000 10,000 20,000 20,000 12,000 10,000 10,000 10,000 15,000

115,848 231,696 231,696 139,017 115,848 115,848 115,848 173,772 115,848 46,339 10,426

2,500 250 385,983 505,733 (126,230) 379,502

2,896 4,066,291 5,481,375 (1,477,946) $ 4,003,428

14

5.

Short-term Borrowings and Long-term Debt (continued)

The aggregate annual maturities of long-term debt subsequent to December 31, 2012 are summarized as follows: Year ending December 31, 2014 2015 2016 2017 2018 and thereafter Total 6. Pledged Assets (Millions of yen) 110,614 90,232 66,331 26,157 52,239 345,575 (Thousands of U.S. dollars) $1,281,445 1,045,319 768,440 303,032 605,188 $4,003,428

Assets pledged as collateral at December 31, 2012 and 2011 consisted of the following: December 31, 2012 2011 2012 (Millions of yen) (Thousands of U.S. dollars) Inventories Buildings Land Total 6,976 9,081 16,364 32,423 7,041 10,466 35,149 52,658 $ 80,826 105,209 189,577 $375,614

Secured debt as of December 31, 2012 and 2011 consisted of the following: December 31, 2012 2011 2012 (Millions of yen) (Thousands of U.S. dollars) Short-term borrowings Accounts payable, trade Other current liabilities Long-term debt Guarantee deposits received Other long-term liabilities 3,120 700 16 5,556 291 4,200 13,885 1,346 700 16 21,177 307 4,900 28,448 $ 36,155 8,109 191 64,375 3,374 48,656 $160,862

In addition to the above, cash and deposits (time deposits) of 1 million ($17 thousand) and 1 million, marketable securities of 5 million ($58 thousand) and 58 million, and investment securities of 778 million ($9,018 thousand) and 641 million were pledged as collateral to protect employee deposits as assets in and for security deposits from operation under the Building Lots and Buildings Transaction Business Act and other laws as of December 31, 2012 and 2011, respectively. Of the assets above, Nihonbashi 1-Chome Development Special Purpose Corporation provided its buildings of 883 million and land of 18,785 million as collateral for interest rate swaps and provided its assets of 2,500 million as a general lien for bonds payable (specific bonds) as of December 31, 2011 under the provisions of Article 128 of the Act on Securitization of Assets (Act No. 105 of 1998). 15

7.

Real Estate Held for Specific Partnership Project (under a Silent Partnership Agreement)

Real estate held for a specific partnership project (under a silent partnership agreement) as of December 31, 2012 and 2011 consisted of the following: December 31, 2011 2012 2012 (Millions of yen) (Thousands of U.S. dollars) Buildings Land Leasehold right Other intangible assets Guarantee deposits paid Other investments 28,442 29,676 4,395 0 756 271 63,542 33,086 32,260 4,439 0 774 248 70,809 $329,498 343,792 50,916 5 8,768 3,149 $736,130

At December 31, 2012, the portion of current liabilities and long-term liabilities corresponding to the above project were recorded as Deposits received under Real Estate Specified Joint Enterprise Law. 8. Investments in Unconsolidated Subsidiaries and Affiliates

Investments in unconsolidated subsidiaries and affiliates as of December 31, 2012 and 2011 consisted of the following: December 31, 2011 2012 2012 (Millions of yen) (Thousands of U.S. dollars) Investment securities (Stock) Investment securities (Preferred securities) Investments in unconsolidated subsidiaries and affiliates Investments in silent partnerships 9. Commitments and Contingent Liabilities 5,757 6,410 24,243

4,778 5,711 23,925 400

$ 66,696 74,258 280,855

At December 31, 2012, the Company was contingently liable for guarantees on loans to its customers and employees which amounted to approximately 6,359 million ($73,672 thousand). The Company has rights to various types of collateral offered as security against the above guarantees these loans.

16

10.

Selling, General and Administrative Expenses

Major components of selling, general and administrative expenses for the years ended December 31, 2012 and 2011 are summarized as follows: Year ended December 31, 2011 2012 2012 (Millions of yen) (Thousands of U.S. dollars) Advertisement expenses Salaries Provision of allowance for doubtful accounts Provision for accrued bonuses Provision for accrued bonuses for directors Retirement benefit expenses Provision for accrued directors retirement benefits 11. Impairment Loss 3,248 5,622 120 71 734 156

2,753 5,875 336 98 71 667 152

$37,634 65,140 1,397 822 8,513 1,817

The Company and certain of its consolidated subsidiaries have recognized impairment losses for the following groups of assets for the year ended December 31, 2012:
Company Tokyo Tatemono Co., Ltd., Others Major use Rental condominiums, others Asset category Land, leasehold right, buildings and others Location Shibuya-ku, Tokyo, others (Millions of yen) (Thousands of U.S. dollars)

3,992 3,992

$46,250 $46,250

The aggregate impairment loss of 3,992 million ($46,250 thousand) consisted of 2,391 million ($27,710 thousand) on land and 1,356 million ($15,712 thousand) on buildings and other assets and 244 million ($2,826 thousand) on leasehold right. The recoverable amounts of the asset groups were measured at the net selling value. The net selling value is mainly measured based on the evaluation by real estate appraisers. Part of the above assets were sold after recognition of the impairment loss. The Company and certain of its consolidated subsidiaries have recognized impairment losses for the following groups of assets for the year ended December 31, 2011:
Company Tojo Golf Club, Inc., Others Tokyo Tatemono Co., Ltd., Others Major use Golf courses, others Rental condominiums, others Asset category Land, buildings and others Land, buildings and others Location Kato, Hyogo Prefecture, others Minato-ku, Tokyo, others (Millions of yen) 1,652

1,721 3,374

The aggregate impairment loss of 3,374 million consisted of 1,422 million on land and 1,952 million on buildings and other assets. The recoverable amounts of the asset groups were measured at the net selling value. The net selling value is mainly measured based on the evaluation by real estate appraisers. 17

12.

Other Comprehensive Income

Reclassification adjustments and tax effects allocated to each component of other comprehensive income for the year ended December 31, 2012 are summarized as follows: Year ended December 31, 2012 (Millions of (Thousands of yen) U.S. dollars) 18,858 (40) 18,818 (6,628) 12,190 (572) (572) 203 (368) (4,201) 611 671 1,282 (46) 1,235 1,444 (5) 1,438 (357) 1,081 9,936 $218,476 (465) 218,010 (76,785) 141,225 (6,637) (6,637) 2,362 (4,274) (48,672) 7,079 7,774 14,853 (543) 14,309 16,730 (69) 16,661 (4,136) 12,524 $115,113

Net unrealized gains or losses on available-for-sale securities: Amount arising during the year Reclassification adjustments for gains and losses included in net income Amount before tax effects Tax effects Net unrealized gains or losses on available-for-sale securities Deferred gains or losses on hedges: Amount arising during the year Reclassification adjustments for gains and losses included in net income Amount before tax effects Tax effects Deferred gains or losses on hedges Revaluation reserve for land: Tax effects Foreign currency translation adjustments: Amount arising during the year Reclassification adjustments for gains and losses included in net income Amount before tax effects Foreign currency translation adjustments Share of other comprehensive income of companies accounted for by the equity method: Amount arising during the year Reclassification adjustments for gains and losses included in net income Amount before tax effects Tax effects Reclassification adjustments for gains and losses included in net income Total other comprehensive income 13. Shareholders Equity

The Corporation Law of Japan (the Law) provides that an amount equal to 10% of the amount to be disbursed as distributions of capital surplus (other than the capital reserve) and retained earnings (other than the legal reserve) be transferred to the capital reserve and the legal reserve, respectively, until the sum of the capital reserve and the legal reserve equals 25% of the capital stock account. Such distributions can be made at any time by resolution of the shareholders, or by the Board of Directors if certain conditions are met.

18

13. Shareholders Equity (continued) The following distribution of retained earnings applicable to the year ended December 31, 2012 was duly approved at the annual general meeting of the shareholders held on March 28, 2013: (Millions of yen) Cash dividends of 5 ($0.057) per share 14. Supplemental Cash Flow Information 1. The following table represents reconciliations of cash and deposits reflected in the accompanying consolidated balance sheets and cash and cash equivalents reflected in the accompanying consolidated statements of cash flows at December 31, 2012 and 2011: December 31, 2011 2012 2012 (Millions of yen) (Thousands of U.S. dollars) Cash and deposits Time deposits with a maturity of more than three months Cash and cash equivalents 2. 3. 39,468 (1) 39,466 32,925 (36) 32,889 $457,230 (17) $457,213 2,163 (Thousands of U.S. dollars) $25,063

The decrease (increase) in inventories includes increases and decreases in accounts payable, trade and advances pertaining to inventories. Major components of assets and liabilities of NIHON PARKING CORPORATION and two other companies at the time of consolidation, and relationship between the acquisition value of the shares and the purchase of investments in subsidiaries resulting in a change in scope of consolidation as of December 31, 2011 are as follows: (Millions of yen) Current assets Noncurrent assets Goodwill Current liabilities Long-term liabilities Minority interests Acquisition cost of investments in subsidiaries Purchase in the previous fiscal year Cash and cash equivalents of consolidated subsidiaries Payment for funding loan on the premise of acquiring shares in consolidated subsidiaries Purchase of investments in subsidiaries resulting in change in scope of consolidation 2,478 11,080 337 (4,691) (6,079) (189) 2,936 (5) (1,546) 1,385 220 1,605 19

15.

Business Transactions with Special Purpose Entities

The Company and a consolidated subsidiary, Tokyo Tatemono Real Estate Sales Co., Ltd., invest in special purpose entities (SPEs) to diversify their sources of funding and calculate their profit and loss from individual SPEs more precisely. This note is applicable to 30 and 34 SPEs, in which the Company and Tokyo Tatemono Real Estate Sales Co., Ltd., respectively, own interests of 40% or more. The SPEs utilized consist mainly of tokurei-yugenkaisha, or limited liability companies, and tokutei-mokuteki-kaisha (TMKs), or specific purpose companies, under the Law on Securitization of Assets. In addition to investments by the Company, Tokyo Tatemono Real Estate Sales Co., Ltd. and its associates, SPEs are funded by borrowings from financial institutions, such as non-recourse loans and asset-backed securities for TMKs. The Company and Tokyo Tatemono Real Estate Sales Co., Ltd. plan to collect an appropriate amount for their investments at the exit of the above projects. The Companys and Tokyo Tatemono Real Estate Sales Co., Ltd.s risk exposure is limited to the amount of equity investments in properties for sale. The Company had no investments with voting rights in these SPEs and neither any director nor any employees of the Company were dispatched to them. The following table summarizes transactions with the SPEs for the year ended December 31, 2012: Year ended December 31, 2012 (Millions of yen) Revenue and cost Revenue from operations (*2) Cost of revenue from operations (*3) Revenue from operations (*4) Revenue from operations (*5) Year ended December 31, 2012 (Thousands of U.S. dollars) Revenue and cost Revenue from operations (*2) Cost of revenue from operations (*3) Revenue from operations (*4) Revenue from operations (*5) $207,952 14,026 35,111 16,388 17,950 1,210 3,030 1,414

Balance Investments (*1) Management Brokerage 161,732

Balance Investments (*1) Management Brokerage (*1) $1,873,637

Consists of 112,702 million ($1,305,639 thousand) of investment securities, 6,875 million ($79,647 thousand) of investments in silent partnerships (current assets), and 42,154 million ($488,350 thousand) of investments in silent partnerships (noncurrent assets), which include investments in silent partnerships and preferred securities issued by TMKs. Consists of dividends on the investments earned by the Company and Tokyo Tatemono Real Estate Sales Co., Ltd., and comprises 17,935 million ($207,780 thousand) for the commercial properties segment and 14 million ($171 thousand) for the brokerage business segment. 20

(*2)

15. (*3)

Business Transactions with Special Purpose Entities (continued) Consists of costs and losses incurred by the Company in connection with the investments, and comprises 1,036 million ($12,004 thousand) for the commercial properties segment and 174 million ($2,022 thousand) for the brokerage business segment. Consists of asset management fees earned by the Company and Tokyo Tatemono Real Estate Sales Co., Ltd. and comprises 2,296 million ($26,606 thousand) for the commercial properties segment, 112 million ($1,300 thousand) for the residential business segment, 11 million ($136 thousand) for the brokerage business segment and 610 million ($7,067 thousand) for the other segment. Consists of brokerage commissions and agency fees earned by the Company and Tokyo Tatemono Real Estate Sales Co., Ltd. and included in the commercial properties segment. Other than the above, 659 million ($7,644 thousand) and 1,859 million ($21,536 thousand) in valuation losses (including the provision of allowance for investment loss) were recorded in cost of revenue from operations and other expenses respectively, since the fair value of investments, etc. of the Company declined significantly.

(*4)

(*5)

(*6)

Combined assets, liabilities and net assets of the SPEs based on the most recent year end date of each SPE are summarized as follows: December 31, 2012 (Millions of yen) 728,774 56,824 785,599

Assets Real estate property Other Total

Liabilities and net assets 514,625 272,132 (1,159) 785,599

Borrowings (*7) Capital (*8) Other Total

Assets Real estate property Other Total (*7) (*8)

December 31, 2012 (Thousands of U.S. dollars) Liabilities and net assets $8,442,709 658,302 $9,101,011 Borrowings (*7) Capital (*8) Other Total $5,961,838 3,152,605 (13,433) $9,101,011

Consists of non-recourse loans and asset-backed securities for TMKs. Consists of capital deposits in silent partnerships and preferred securities issued by TMKs.

21

15.

Business Transactions with Special Purpose Entities (continued)

The following table summarizes transactions with the SPEs for the year ended December 31, 2011: Year ended December 31, 2011 (Millions of yen) Revenue and cost Revenue from operations (*2) Cost of revenue from operations (*3) Revenue from operations (*4) Revenue from operations (*5) 1,866 724 1,398 36

Balance Investments (*1) Management Brokerage (*1) 152,287

Consists of 39 million of marketable securities, 104,373 million of investment securities, 5,000 million of investments in silent partnerships (current assets), and 42,875 million of investments in silent partnerships (noncurrent assets), which include investments in silent partnerships and preferred securities issued by TMKs. Consists of dividends on the investments earned by the Company and Tokyo Tatemono Real Estate Sales Co., Ltd., and comprises 1,628 million for the commercial properties segment, 233 million for the residential business segment and 4 million for the brokerage business segment. Consists of costs and losses incurred by the Company in connection with the investments, and included in the commercial properties segment. Consists of asset management fees earned by the Company and Tokyo Tatemono Real Estate Sales Co., Ltd. and comprises 832 million for the commercial properties segment, 115 million for the residential business segment, 22 million for the brokerage business segment and 426 million for the other segment. Consists of brokerage commissions and agency fees earned by the Company and Tokyo Tatemono Real Estate Sales Co., Ltd. and comprises 35 million for the commercial properties segment and 1 million for the other segment. Other than the above, 6,143 million and 45,040 million in valuation losses (including the provision of allowance for investment loss) were recorded in cost of revenue from operations and other expenses respectively, since the fair value of investments, etc. of the Company declined significantly.

(*2)

(*3) (*4)

(*5)

(*6)

Combined assets, liabilities and net assets of the SPEs based on the most recent year end date of each SPE are summarized as follows: December 31, 2011 (Millions of yen) 708,149 48,762 756,912

Assets Real estate property Other Total (*7) (*8)

Liabilities and net assets 513,011 252,865 (8,965) 756,912

Borrowings (*7) Capital (*8) Other Total

Consists of non-recourse loans and asset-backed securities for TMKs. Consists of capital deposits in silent partnerships and preferred securities issued by TMKs. 22

16. Lease Transactions (1) Finance leases (Lessee) The following pro forma amounts represent the acquisition costs, accumulated amortization/depreciation and net book value of the leased property as of December 31, 2011, which would have been reflected in the accompanying consolidated balance sheets if the finance leases currently accounted for as operating leases had been capitalized: Acquisition costs: Vehicles Furniture and equipment Intangible assets (software) Accumulated amortization/depreciation: Vehicles Furniture and equipment Intangible assets (software) Accumulated impairment loss Furniture and equipment Net book value: Vehicles Furniture and equipment Intangible assets (software) Future minimum lease payments: Within one year Over one year (Millions of yen) 25 866 177 1,069 22 338 136 497 417

2 110 41 154 153 102 256

Amortization/depreciation was calculated by the straight-line method over the respective lease periods assuming a nil residual value. Information on finance leases as of December 31, 2012 has been omitted because of the lack of materiality. (Millions of yen) Balance in impairment loss account on leased assets Lease payments (assumed amortization/depreciation) Reversal of impairment loss account on leased assets Impairment loss on leased assets 102 210 60 2

Information on finance leases as of December 31, 2012 has been omitted because of the lack of materiality.

23

16. Lease Transactions (continued) (2) Operating leases (Lessee) December 31, 2011 2012 2012 (Millions of yen) (Thousands of U.S. dollars) Future minimum lease payments: Within one year Over one year 5,467 82,323 87,791 4,977 86,042 91,020 $ 63,336 953,704 $1,017,041

Operating leases (Lessor) December 31, 2011 2012 2012 (Millions of yen) (Thousands of U.S. dollars) Future minimum lease payments: Within one year Over one year 4,465 17,824 22,290 4,369 14,518 18,887 $ 51,735 206,497 $258,232

17. Financial Instruments Financial Instruments at December 31, 2012 are summarized as follows: Overview (1) Policy for financial instruments The Company and its consolidated subsidiaries have the policy to limit fund management to short-term deposits and raises funds mainly through loans from banks and the issuance of corporate bonds. Derivative instruments are used to mitigate risks referred to below, and the Company and its consolidated subsidiaries do not enter into derivative transactions for speculation. (2) Types of financial instruments and related risk Primary marketable securities and investment securities are preferred capital contribution certificates of special purpose companies under the Asset Liquidation Act and shares in companies with which the Group has business relationships. The Group is exposed to credit risks of issuers, interest rate risks, and market price fluctuation risks. Investments in silent partnership are investments in special purpose companies and are exposed to the credit risks of issuers and interest rate risks. 24

17. Financial Instruments (continued) Overview (continued) Short-term borrowings are mainly used for funding working capital. Long-term debt and bonds payable are mainly used for capital expenditures. Debts with floating interest rates are subject to interest-rate risk, however, the Company and its consolidated subsidiaries utilize derivatives (interest rate swaps) as hedging instruments for some long-term debt with floating interest rates to fix the cash flows of interest payments. (3) Risk management for financial instruments (a) Monitoring of credit risk (the risk that customers or counterparties may default) Each operating department monitors the status of major counterparties and manages the due dates and balances of receivables. The Group seeks to identify, at an early stage, any collectability issues due to the worsening financial conditions of counterparties to mitigate credit risk. (b) Monitoring of market risks (the risks arising from fluctuations in foreign exchange rates, interest rates and others) To minimize the risks arising from fluctuations in interest rates on loans payable, the Group uses interest rate swaps. In relation to marketable securities and investment securities, the Group regularly monitors the fair values and financial situation of the issuers (counterparties). The Group reviews the status of its holdings of financial instruments considering market trends and relationships with counterparties. (c) Monitoring of liquidity risk (the risk that the Group may not be able to meet its obligations on scheduled due dates) Based on the report from each division, the Group prepares and updates its cash flow plans on a timely basis to manage liquidity risk. (4) Supplementary explanation of the estimated fair value of financial instruments The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market price available, fair value is reasonably estimated. Since various assumptions and factors are used in estimating the fair value, different assumptions and factors could result in different fair value.

25

17. Financial Instruments (continued) Estimated Fair Value of Financial Instruments The carrying value of financial instruments in the consolidated balance sheet, their fair value, and the differences between them as of December 31, 2012 are as follows. (Financial instruments whose fair value is extremely difficult to estimate are not included; please see Note 2 below.) Carrying value Assets (1) Cash and deposits (2) Marketable securities and investment securities Other securities Total assets Liabilities (1) Short-term borrowings (2) Long-term debt (including due within one year) (3) Bonds payable (including due within one year) Total liabilities Derivatives (*) 39,468 52,724 92,193 1,402 351,002 122,150 474,554 (572) Estimated fair value Difference (Millions of yen) 39,468 52,724 92,193 1,402 351,778 124,439 477,620 (572) 776 2,289 3,065

(*) The value of assets and liabilities arising from derivative transactions is shown at net value, and with the amount in parenthesis representing net liability position. Carrying Estimated value fair value Difference (Thousands of U.S. dollars) $ 457,230 610,807 1,068,038 16,247 4,066,291 1,415,083 5,497,622 (6,637) $ 457,230 610,807 1,068,038 16,247 4,075,283 1,441,608 5,533,139 (6,637) $ 8,991 26,524 35,516

Assets (1) Cash and deposits (2) Marketable securities and investment securities Other securities Total assets Liabilities (1) Short-term borrowings (2) Long-term debt (including due within one year) (3) Bonds payable (including due within one year) Total liabilities Derivatives (*)

(*) The value of assets and liabilities arising from derivative transactions is shown at net value, and with the amount in parenthesis representing net liability position.

26

17. Financial Instruments (continued) Estimated Fair Value of Financial Instruments (continued) Notes: 1. Methods to determine the estimated fair value of financial instruments and other matters related to securities and derivative transactions Assets Cash and deposits Since these items are settled in a short period of time, their carrying value approximates fair value. Marketable securities and investment securities The fair value of stocks is based on quoted market prices. The fair value of debt securities is mainly based on prices provided by the financial institutions making markets in these securities. Liabilities Short-term borrowings Since these items are settled in a short period of time, their carrying value approximates fair value. Long-term debt (including due within one year) Since variable interest rates of certain long-term debt are determined based on current interest rates in a short period of time, their carrying value approximates fair value. The fair value of long-term debt with fixed interest rates is based on the present value of the total of principal and interest discounted by the interest rate to be applied if similar new debt were entered into. Bonds payable (including due within one year) The fair value of bonds payable is based on the quoted market price. Derivatives The fair value of derivatives is based on prices provided by the financial institution. The estimated fair value of interest rate swap contracts is included in the estimated fair value of long-term debt since amounts in such derivative contracts accounted for short-cut method are handled together with long-term debt as hedged items.

27

17. Financial Instruments (continued) Estimated Fair Value of Financial Instruments (continued) 2. Financial instruments for which it is extremely difficult to determine the fair value (Millions of yen) (1) (2) (3) (4) Unlisted stocks (*1) Preferred securities (*1) Investments in silent partnerships (*2) Guarantee deposits received (*3) 9,350 130,757 57,718 43,696 (Thousands of U.S. dollars) $ 108,323 1,514,793 668,655 506,214

(*1) These items are not included in Assets (2) Marketable securities and investment securities since their market price is unavailable and the assessment of their fair value is deemed extremely difficult. (*2) The fair value of investments in silent partnerships is not disclosed since their market price is unavailable and the assessment of their fair value is deemed extremely difficult. (*3) Since market price for lease and guarantee deposit payables is unavailable and calculation of the actual period of duration from lease initiation to termination is difficult, it is extremely difficult to estimate fair value reasonably and therefore the fair value of lease and guarantee deposit payables is not disclosed. 3. Redemption schedule for receivables and marketable securities with maturities at December 31, 2012
Due in one year or less Cash and deposits Marketable securities and investment securities Held-to-maturity securities Corporate bonds Other securities with maturities Government bonds Total 38,969 Due after Due after one year five years through through five years ten years (Millions of yen) Due after ten years

5 38,974 Due in one year or less

10 10 20

Due after Due after one year five years Due after through through five years ten years ten years (Thousands of U.S. dollars) $ $ $

Cash and deposits Marketable securities and investment securities Held-to-maturity securities Corporate bonds Other securities with maturities Government bonds Total

$451,449

57 $451,507

115 115 $231

28

17. Financial Instruments (continued) 4. The redemption schedule for bonds and long-term debt at December 31, 2012
Due in one year or less Bonds payable Long-term debt Total 22,200 105,376 127,576 Due after one year through two years 20,450 90,164 110,614 Due after one year through two years $ 236,909 1,044,536 $1,281,445 Due after Due after two years three years through through three years four years (Millions of yen) 30,200 60,032 90,232 20,200 46,131 66,331 Due after four years through five years 15,100 11,057 26,157 Due after four years through five years $174,930 128,102 $303,032

Due after five years 14,000 38,239 52,239

Due in one year or less Bonds payable Long-term debt Total $ 257,182 1,220,764 $1,477,946

Due after Due after two years three years through through three years four years (Thousands of U.S. dollars) $ 349,860 695,458 $1,045,319 $234,012 534,428 $768,440

Due after five years $162,187 443,001 $605,188

Financial Instruments at December 31, 2011 are summarized as follows: Estimated Fair Value of Financial Instruments The carrying value of financial instruments in the consolidated balance sheet, their fair value, and the differences between them as of December 31, 2011 are as follows. (Financial instruments whose fair value is extremely difficult to estimate are not included; please see Note 2 below.) Carrying value Assets (1) Cash and deposits (2) Marketable securities and investment securities Other securities Total assets Liabilities (1) Short-term borrowings (2) Long-term debt (including due within one year) (3) Bonds payable Total liabilities Derivatives 32,925 33,712 66,637 1,807 385,983 119,750 507,541 Estimated Difference fair value (Millions of yen) 32,925 33,712 66,637 1,807 389,798 121,722 513,328 3,815 1,972 5,787

29

17. Financial Instruments (continued) Estimated Fair Value of Financial Instruments (continued) Notes: 1. Methods to determine the estimated fair value of financial instruments and other matters related to securities and derivative transactions Assets Cash and deposits Since these items are settled in a short period of time, their carrying value approximates fair value. Marketable securities and investment securities The fair value of stocks is based on quoted market prices. The fair value of debt securities is mainly based on prices provided by the financial institutions making markets in these securities. Liabilities Short-term borrowings Since these items are settled in a short period of time, their carrying value approximates fair value. Long-term debt (including due within one year) Since variable interest rates of certain long-term debt are determined based on current interest rates in a short period of time, their carrying value approximates fair value. The fair value of long-term debt with fixed interest rates is based on the present value of the total of principal and interest discounted by the interest rate to be applied if similar new debt were entered into. Bonds payable The fair value of bonds payable is based on the quoted market price. Derivatives The estimated fair value of interest rate swap contracts is included in the estimated fair value of long-term debt since amounts in such derivative contracts accounted for short-cut method are handled together with long-term debt as hedged items.

30

17. Financial Instruments (continued) Estimated Fair Value of Financial Instruments (continued) 2. Financial instruments for which it is extremely difficult to determine the fair value (Millions of yen) (1) (2) (3) (4) Unlisted stocks (*1) Preferred securities (*1) Investments in silent partnerships (*2) Guarantee deposits received (*3) 8,772 121,658 57,468 40,493

(*1) These items are not included in Assets (2) Marketable securities and investment securities since their market price is unavailable and the assessment of their fair value is deemed extremely difficult. (*2) The fair value of investments in silent partnerships is not disclosed since their market price is unavailable and the assessment of their fair value is deemed extremely difficult. (*3) Since market price for lease and guarantee deposit payables is unavailable and calculation of the actual period of duration from lease initiation to termination is difficult, it is extremely difficult to estimate fair value reasonably and therefore the fair value of lease and guarantee deposit payables is not disclosed. 3. Redemption schedule for receivables and marketable securities with maturities at December 31, 2011
Due in one year or less Cash and deposits Marketable securities and investment securities Held-to-maturity securities Corporate bonds Other securities with maturities Government bonds Total 32,557 Due after Due after one year five years through through five years ten years (Millions of yen) Due after ten years

20 58 32,635

15 15

4.

The redemption schedule for bonds and long-term debt at December 31, 2011
Due in one year or less Bonds payable Long-term debt Total 10,000 116,230 126,230 Due after one year through two years 24,500 107,415 131,915 Due after Due after two years three years through through three years four years (Millions of yen) 20,250 76,042 96,292 30,000 46,263 76,263 Due after four years through five years 10,000 31,616 41,616

Due after five years 25,000 8,415 33,415

31

18. Marketable Securities and Investment Securities Information regarding marketable securities classified as other securities as of December 31, 2012 and 2011 is summarized as follows: (1) Marketable other securities
December 31, 2012 Carrying Acquisition Unrealized Carrying Acquisition Unrealized cost gain (loss) value cost gain (loss) value (Millions of yen) (Thousands of U.S. dollars)

Securities whose carrying value exceeds their acquisition cost: Stock Government bonds Other Securities whose carrying value does not exceed their acquisition cost: Stock Total

42,172 15 8,237 50,425

8,023 14 6,659 14,698

34,148 0 1,578 35,727

$488,562 174 95,430 584,166

$ 92,954 172 77,147 170,275

$395,607 1 18,283 413,891

2,299 2,299 52,724

2,753 2,753 17,452

(454) (454) 35,272

26,640 26,640 $610,807

31,903 31,903 $202,178

(5,262) (5,262) $408,629

Securities whose carrying value exceeds their acquisition cost: Stock Government bonds Securities whose carrying value does not exceed their acquisition cost: Stock Other Total

December 31, 2011 Carrying Acquisition Unrealized cost gain (loss) value (Millions of yen)

23,365 73 23,438

5,045 72 5,118

18,319 0 18,320

4,474 5,798 10,273 33,712

5,725 6,411 12,136 17,254

(1,250) (612) (1,863) 16,457

The Company and certain of its subsidiaries recognized the impairment losses on other securities amounting to 209 million for the year ended December 31, 2011 and on unlisted stocks amounting to 4,694 million ($54,384 thousand) and 50,662 million for the years ended December 31, 2012 and 2011, respectively.

32

18. Marketable Securities and Investment Securities (continued) (2) Sales of securities classified as other securities and the related aggregate gains and losses for the years ended December 31, 2012 and 2011 are summarized as follows: December 31, 2011 2012 2012 (Millions of yen) (Thousands of U.S. dollars) Sales proceeds Aggregate gains Aggregate loss 179 54 1 1,104 978 $2,073 634 16

(3) Investments in special purpose companies (SPCs) as of December 31, 2012 and 2011 are summarized as follows: December 31, 2011 2012 2012 (Millions of yen) (Thousands of U.S. dollars) Marketable securities Investments in silent partnerships (included in current assets) Subtotal Investment securities Investments in silent partnerships (included in investments) Other investments Subtotal Total 6,875 6,875 130,757 50,843 0 181,600 188,475 39 5,339 5,378 121,619 52,128 230 173,977 179,356 $ 79,647 79,647 1,514,793 589,007 2 2,103,803 $2,183,450

33

19. Derivatives and Hedging Activities Hedge accounting was applied to all derivative transactions as of December 31, 2012. The summary of these transactions is as follows: Interest-related transactions
Class of transactions Interest rate swap contracts accounted for by the short-cut method pay/fixed and receive/floating Interest rate swap contracts Pay/fixed and receive/floating Total Class of transactions Interest rate swap contracts accounted for by the short-cut method pay/fixed and receive/floating Interest rate swap contracts Pay/fixed and receive/floating Total Hedged items Debt and bonds payable Debt and bonds payable Notional amount 145,678 Due after one year (Millions of yen) 103,719 Fair value (*1)

36,000 181,678

36,000 139,719

(*2) (572) (572)

Hedged items Debt and bonds payable Debt and bonds payable

Notional Due after Fair amount one year value (Thousands of U.S. dollars) $1,687,659 $1,201,571 (*1)

417,052 $2,104,712

417,052 $1,618,623

(*2) (6,637) $(6,637)

(*1) The estimated fair value of interest rate swap contracts is included in the estimated fair value of the debt and bonds payable since amounts of such derivative contracts accounted for by the short-cut method are handled together with debt and bonds payable as hedged items. (*2) The fair value of derivatives is based on prices provided by the financial institution. Hedge accounting was applied to all derivative transactions as of December 31, 2011. The summary of these transactions is as follows: Interest-related transactions
Class of transactions Interest rate swap contracts accounted for by the short-cut method pay/fixed and receive/floating Hedged items Debt and bonds payable Notional amount 153,414 Due after one year (Millions of yen) 109,678 Fair value (*)

(*)

The estimated fair value of interest rate swap contracts is included in the estimated fair value of the debt and bonds payable since amounts of such derivative contracts accounted for by the short-cut method are handled together with debt and bonds payable as hedged items. 34

20.

Accrued Severance Indemnities

Employees whose services with the Company are terminated are, under most circumstances, entitled to lump-sum severance payments determined by reference to their basic rate of pay, length of service at that time and the conditions under which termination occurs. The minimum payment is an amount based on voluntary retirement. Accrued severance indemnities, net periodic pension cost and assumptions used in such calculations as of and for the years ended December 31, 2012 and 2011 are summarized as follows: December 31, 2011 2012 2012 (Millions of yen) (Thousands of U.S. dollars) Accrued severance indemnities: Projected benefit obligation Fair value of plan assets Unrecognized prior service cost Unrecognized actuarial gain Accrued severance indemnities (15,332) 6,174 (9,158) (69) 1,551 (7,676) (14,189) 5,152 (9,037) (76) 2,034 (7,079) $(177,624) 71,525 (106,099) (803) 17,970 $ (88,933)

Year ended December 31, 2011 2012 2012 (Millions of yen) (Thousands of U.S. dollars) Net periodic pension cost: Service cost Interest cost Expected return on plan assets Amortization of prior service cost Recognized actuarial loss Net periodic pension cost Assumptions: Discount rate Anticipated rate of return on plan assets Amortization period of unrecognized prior service cost Amortization period of actuarial gain or loss 850 276 (77) (7) 362 1,405 1.5% 1.5% 10 years 10 years 839 263 (81) (7) 325 1,338 1.5~2.0% 1.5% 10 years 10 years $ 9,857 3,201 (895) (84) 4,204 $16,282

35

21.

Income Taxes

Income taxes in Japan applicable to the Company and its domestic consolidated subsidiaries consist of corporation tax, inhabitants taxes and enterprise tax, which, in the aggregate, resulted in a statutory tax rate of approximately 40.7% for the years ended December 31, 2012 and 2011. Income taxes of the overseas consolidated subsidiaries are based generally on the tax rates applicable in their respective countries of incorporation. Due to the recording of a loss before income taxes and minority interests, a reconciliation of the differences between the statutory tax rate and the effective tax rate for the year ended December 31, 2011 has been omitted. Reconciliation of the difference between the statutory tax rate and the effective tax rate for the year ended December 31, 2012 is not disclosed because the difference was less than 5% of the statutory tax rate. The significant components of deferred tax assets and liabilities as of December 31, 2012 and 2011 are as follows: December 31, 2011 2012 2012 (Millions of yen) (Thousands of U.S. dollars) 19,158 11,581 6,098 7,003 871 2,774 1,379 2,078 386 3,735 55,068 (40,783) 14,285 18,057 11,278 10,848 7,003 2,873 2,606 1,455 992 394 3,550 59,060 (40,927) 18,132 $ 221,952 134,172 70,645 81,135 10,100 32,146 15,976 24,078 4,472 43,276 637,957 (472,464) 165,493

Deferred tax assets: Write-downs of investment securities Loss on impairment of noncurrent assets Net operating loss carry forwards Allowance for losses on investments Unrealized dividends on investments in silent partnerships Accrued severance indemnities in excess of tax-deductible portion Write-downs of stocks of subsidiaries and affiliated companies Loss on appraisal of real estate held for sale Loss on appraisal of noncurrent assets Other Gross deferred tax assets Valuation allowance Total deferred tax assets Deferred tax liabilities: Reversal of deferred tax liabilities based on revaluation of assets of subsidiaries Net unrealized gains or losses on available-for-sale securities Reversal of reserve for deferred capital gain on land Gain on change in interest in a consolidated subsidiary Other Total deferred tax liabilities Net deferred tax assets

(6,207) (12,446) (2,740) (762) (278) (22,435) (8,149)

(6,269) (5,818) (2,740) (762) (300) (15,890) 2,242

(71,912) (144,191) (31,742) (8,835) (3,223) (259,905) $ (94,411) 36

21.

Income Taxes (continued)

Following the promulgation on December 2, 2011 of the Act for Partial Revision of the Income Tax Act etc. for the Purpose of Creating Taxation System Responding to Changes in Economic and Social Structures (Act No. 114 of 2011) and the Act on Special Measures for Securing Financial Resources Necessary to Implement Measures for Reconstruction Following the Great East Japan Earthquake (Act No. 117 of 2011), Japanese corporation tax rates will be reduced and a special reconstruction corporation tax, a surtax for reconstruction funding after the Great East Japan Earthquake, will be imposed for the fiscal years beginning on or after April 1, 2012. The effect of this change was to decrease deferred tax liabilities by 1,157 million, increase investment securities by 40 million, increase net unrealized gains or losses on available-for-sale securities by 872 million, decrease deferred income taxes by 325 million, increase revaluation reserve for land by 3,363 million and decrease deferred tax liability on land revaluation by 3,363 million in the accompanying consolidated financial statements as of and for the year ended December 31, 2011. 22. Investment and Rental Properties

The Company and some of its subsidiaries own office buildings for lease, apartment houses for lease, commercial facilities for lease and other properties in Tokyo and other areas. Some office buildings for lease are regarded as real estate including space used as rental properties since they are used by the Company and some of its consolidated subsidiaries. The carrying values of these properties in the consolidated balance sheet, their changes during the year ended December 31, 2012 and their fair value at December 31, 2012 are as follows:
Carrying value December 31, 2011 Fair value December 31, December 31, 2012 2012 Changes (Millions of yen)

Rental properties Real estate including space used as rental properties

344,499 107,095
December 31, 2011

(19,348) (1,140)
Carrying value Changes

325,151 105,955

356,019 123,844

(Thousands of U.S. dollars) $(224,145) (13,217) $3,766,814 1,227,467

Fair Value December 31, December 31, 2012 2012

Rental properties Real estate including space used as rental properties

$3,990,960 1,240,685

$4,124,417 1,434,713

37

22.

Investment and Rental Properties (continued)

Notes: * The carrying values in the consolidated balance sheet are the amounts determined by deducting accumulated depreciation from the acquisition costs. * The major increase in the carrying value is due to the acquisition of real estate amounting to 19,804 million ($229,425 thousand). The major decrease in the carrying value is due to depreciation amounting to 7,408 million ($85,828 thousand) and impairment loss amounting to 3,790 million ($43,913 thousand) and the sales of real estate amounting to 28,873 million ($334,488 thousand). * The fair value is appraised principally by real estate appraisers, and the fair value of other is estimated in accordance with appraisal standards for valuing real estate. The income or loss from rental properties and real estate including space used as rental properties for the year ended December 31, 2012 are as follows:
Rental income December 31, 2012 Rental income, net Rental cost

(Millions of yen)

Other, net

Rental properties Real estate including space used as rental properties

37,453 5,738 Rental income

26,912 4,045

10,541 1,692

(1,694) (7)

(Thousands of U.S. dollars) $311,775 46,871 $122,118 19,609

December 31, 2012 Rental income, net Rental cost

Other, net

Rental properties Real estate including space used as rental properties Notes:

$433,894 66,480

$(19,627) (88)

* Rental income excludes the one from real estate including space used as rental properties that was used by the Company and some of its consolidated subsidiaries for providing leasing services and operations management. * Gain on sales of noncurrent assets and impairment loss is a major component of Other, net for rental properties. Loss on retirement of noncurrent assets is a major component of Other, net for real estate including space used as rental properties.

38

22.

Investment and Rental Properties (continued)

The carrying values of these properties in the consolidated balance sheet, their changes during the year ended December 31, 2011 and their fair value at December 31, 2011 are as follows:
Carrying value December 31, 2010 Changes Fair value December 31, December 31, 2011 2011

(Millions of yen)

Rental properties Real estate including space used as rental properties Notes:

330,316 107,628

14,183 (532)

344,499 107,095

371,225 136,925

* The carrying values in the consolidated balance sheet are the amounts determined by deducting accumulated depreciation from the acquisition costs. * The major increase in the carrying value is due to the acquisition of real estate amounting to 19,869 million and the acquisition of real estate due to the increase of subsidiaries amounting to 9,805 million. The major decrease in the carrying value is due to depreciation amounting to 7,554 million and the sales of real estate amounting to 6,616 million. * The fair value is appraised principally by real estate appraisers, and the fair value of other is estimated in accordance with appraisal standards for valuing real estate. The income or loss from rental properties and real estate including space used as rental properties for the year ended December 31, 2011 are as follows:
Rental income December 31, 2011 Rental income, net Rental cost

(Millions of yen)

Other, net

Rental properties Real estate including space used as rental properties Notes:

35,537 5,906

25,302 4,346

10,235 1,560

(1,284) (229)

* Rental income excludes the one from real estate including space used as rental properties that was used by the Company and some of its consolidated subsidiaries for providing leasing services and operations management. * Impairment loss is a major component of Other, net for rental properties. Loss on building reconstruction is a major component of Other, net for real estate including space used as rental properties.

39

23. Segment Information Business Segments 1. Overview of Reportable Segments The reportable segments of the Company are the constituent units for which separate financial information is available and for which the Board of Directors conducts regular reviews to determine the allocation of management resources and assess business performance. The Company conducts business activities by establishing divisions corresponding to their line of business at the head office with the divisions formulating comprehensive strategies for the businesses that they operate. Therefore, the Companys business segments are classified based on division and comprise four businesses, which include commercial properties, residential, brokerage, and other as the reportable segments. In the commercial properties business, the Company leases out and manages office buildings and commercial facilities. In the residential business, the Company sells condominiums and detached houses and leases out and manages condominiums. In the brokerage business, the Company sells and buys real estate and provides brokerage, real estate appraisal and consulting services. In other businesses, the Company operates the leisure business and the renovation business among others. 2. Calculation Methods for the Amounts of Revenue from Operations, Profit and Loss, Assets and Other Items by Reportable Segment The accounting methods for the reportable business segments are the same as those stated in the Significant Accounting Policies. Profits in the reportable segments are based on operating income. Intersegment revenue from operations or transfers is based on the current market value. 3. Information on Revenue from Operations, Profit and Loss, Assets, and Other Items by Reportable Segments
Commercial properties Revenue from operations: Customers Intersegment Subtotal Costs and operating expenses Operating income Assets Other items: Depreciation Impairment losses on fixed assets Investment in equity method affiliates Increase in property and equipment and intangible assets Amortization of goodwill Balance of goodwill Year ended December 31, 2012 Residential Brokerage Other (Millions of yen) 31,694 2,001 33,696 30,945 2,751 Total Adjustments Consolidated (Notes a and b) (3,039) (3,039) 194,161 194,161 163,269 30,892 895,296 8,790 3,992 29,997 20,542 252 3,094

67,499 475 67,974 34,810 33,164 526,685 4,664 703 4,881 17,417 30 488

86,612 374 86,986 86,003 983

8,354 188 8,542 8,427 115

194,161 3,039 197,200 160,186 37,014 808,069 8,687 3,870 29,997 20,469 252 3,094

3,082 (6,122) 87,227 103 122 73

141,785 1,889 3,023 569 250 (2) (4)

33,740 63 1,992 35 70

105,857 2,069 143 24,546 808 189 2,540

40

23. Segment Information (continued) Business Segments (continued)

Commercial properties Revenue from operations: Customers Intersegment Subtotal Costs and operating expenses Operating income Year ended December 31, 2012 Residential Brokerage Other Total (Thousands of U.S. dollars) $ 96,781 2,183 98,964 97,629 1,335 $ 367,176 23,190 390,366 358,492 31,874 $2,249,322 35,210 2,284,532 1,855,725 $ 428,806 $9,361,319 $ 100,637 44,836 347,515 237,134 2,925 35,847 Adjustments Consolidated (Notes a and b) $ (35,210) (35,210) 35,713 (70,924) $ 2,249,322 2,249,322 1,891,439 357,882

$ 781,970 5,503 787,473 403,275 $ 384,198

$1,003,393 4,333 1,007,726 996,329 11,397

Assets $6,101,551 Other items: Depreciation $ 54,031 Impairment losses on fixed assets 8,148 Investment in equity method affiliates 56,552 Increase in property and equipment and intangible assets 201,780 Amortization of goodwill 348 Balance of goodwill 5,653

$1,642,553 $ 21,890 35,030 6,597 2,901 (27) (57)

$390,871 $ 739 23,088 407 815

$1,226,343 $ 23,976 1,657 284,364 9,363 2,196 29,435

$1,010,510 $ 1,200 1,413 852

$10,371,830 $ 101,838 46,250 347,515 237,986 2,925 35,847

Commercial properties Revenue from operations: Customers Intersegment Subtotal Costs and operating expenses Operating income Assets Other items: Depreciation Impairment losses on fixed assets Investment in equity method affiliates Increase in property and equipment and intangible assets Amortization of goodwill Balance of goodwill

Year ended December 31, 2011 Residential Brokerage Other (Millions of yen) 29,132 1,843 30,975 29,626 1,349 Total Adjustments Consolidated (Notes a and b) (2,801) (2,801) 166,943 166,943 167,622 (678)

43,570 503 44,074 36,771 7,303

83,904 401 84,305 85,623 (1,317) 181,030 2,156 1,428 484 10,117 (2) (8)

10,336 52 10,388 11,927 (1,538) 33,751 53 1 1,296 35 105

166,943 2,801 169,745 163,948 5,796

3,673 (6,475) 65,240 94 94

511,963 4,509 132 3,999 8,069 30 518

106,030 2,181 1,812 23,986 1,511 182 2,710

832,777 8,901 3,374 28,470 20,995 245 3,325

898,017 8,995 3,374 28,470 21,089 245 3,325

Note a:

Adjustments to segment operating income of (6,122) million ($(70,924) thousand) and (6,475) million consists of 68 million ($796 thousand) and 295 million of inter-segment eliminations and (6,190) million ($(71,720) thousand) and (6,770) million of corporate expenses for the years ended December 31, 2012 and 2011, respectively, which mainly represent the Companys general and administrative expenses that are not allocable to any of the reportable segments. Adjustments to segment assets of 87,227 million ($1,010,510 thousand) and 65,240 million consists of (31,552) million ($(365,527) thousand) and (38,516) million of inter-segment eliminations, 118,779 million ($1,376,038 thousand) and 103,756 million of corporate assets for the years ended December 31, 2012 and 2011, respectively.

Note b:

41

24. Amounts Per Share December 31, 2012 2011 2012 (Yen) (U.S. dollars) 23.79 2012 As of Net assets 476.23 (166.67) $0.275

For the Years Ended Net income (loss) Basic Diluted

December 31, 2011 2012 (Yen) (U.S. dollars) 429.46 $5.517

Basic net income per share was computed based on the net income available for distribution to shareholders of common stock and the weighted average number of shares of common stock outstanding during the year. Diluted net income per share as of December 31, 2012 and 2011 are not presented as there are no dilutive potential shares. Net assets per share are computed based on the net assets excluding minority interests and the number of shares of common stock outstanding at the year end. The bases for calculation are as follows: 1. Basic net income (loss) per share December 31, 2012 2011 2012 (Millions of yen) (Thousands of U.S. dollars) 10,243 10,243 430,623 (71,774) (71,774) 430,634 $118,667 $118,667

For the Years Ended Net income (loss) Net income (loss) of common stock Weighted average number of shares of common stock (thousands) 2. Net assets per share

As of Total net assets Amount deducted from total net assets: Minority interests Net assets attributable to share of common stock The number of shares of common stock used for the calculation of net assets per share (thousands)

December 31, 2012 2011 2012 (Millions of yen) (Thousands of U.S. dollars) 212,491 7,417 7,417 205,073 430,618 192,101 7,163 7,163 184,937 430,629 42 $2,461,671 85,931 85,931 $2,375,739

25. Subsequent Events (Issuance of Straight Bonds) The Company decided to issue unsecured straight corporate bonds on March 8, 2013 based on the limits and outline of the issuance of the unsecured straight corporate bonds resolved at a meeting of the Board of Directors held on December 27, 2012. The bonds were issued on March 18, 2013. Details are as follows: 16th series of unsecured straight bonds 1. 2. 3. 4. 5. 6. Total issue amount: Issue price: Interest rate: Maturity date: Use of proceeds: 10,000 million ($115,848 thousand) 100 yen ($1.158) per face value of 100 yen ($1.158) 0.83% per annum March 16, 2018 (bullet maturity) To be appropriated to funds to redeem corporate bonds and repay borrowings

Payment date and issue date: March 18, 2013

17th series of unsecured straight bonds 1. 2. 3. 4. 5. 6. Total issue amount: Issue price: Interest rate: Maturity date: Use of proceeds: 15,000 million ($173,772 thousand) 100 yen ($1.158) per face value of 100 yen ($1.158) 1.30% per annum March 18, 2020 (bullet maturity) To be appropriated as funds to redeem corporate bonds and repay borrowings

Payment date and issue date: March 18, 2013

43

Tokyo Tatemono Co., Ltd.

REPORT OF INDEPENDENT AUDITORS

MANAGEMENT

Chairman & Directors Makoto Hatanaka Representative Director President & Chief Executive Officer Hajime Sakuma Representative Director Senior Executive Managing Officer Kazumasa Kato Director Senior Executive Managing Officer Hisao Shibayama

Director Executive Managing Officer Hitoshi Nomura Masami Kamo Director Managing Officer Shinji Yoshida Director Hirokazu Ishikawa *

Audit & Supervisory Board Member Junichiro Ookawa Mitsuyoshi Tohyama Tetsuya Kawagishi Tatsuo Ogoshi Managing Officer Yoshiki Yanai Ichiro Kouno Tsutomu Hanada Kengo Fukui Takashi Kikuchi Fumio Inada
(as at March 28, 2013)

* Outside Director

CORPORATE DATA

Tokyo Tatemono Co., Ltd. Date of Establishment October 1, 1896 Capital 92,451 million Number of Employees 442 Number of Shareholders 17,868 (as at December 31, 2012) Head Office 9-9, Yaesu 1-chome, Chuo-ku, Tokyo 103-8285 Japan Tel. +81-3-3274-0111 Fax. +81-3-3274-0256 Branches Kansai Branch 7-12, Kitahama 3-chome, Chuo-ku, Osaka-shi, Osaka 541-0041 Japan Tel. +81-6-6202-0111 Fax. +81-6-6202-0298 Sapporo Branch 2-6, Kitananajyonishi 1-chome, Kita-ku, Sapporo-shi, Hokkaido 060-0807 Japan Tel. +81-11-717-0111 Fax. +81-11-717-5330 Kyushu Branch 8-49, Tenjin 2-chome, Chuo-ku, Fukuoka-shi, Fukuoka 810-0001 Japan Tel. +81-92-761-0110 Fax. +81-92-736-6586 Nagoya Branch 20-8, Nishiki 2-chome, Naka-ku, Nagoya-shi, Aichi 460-0003 Japan Tel. +81-52-202-0301 Fax. +81-52-202-0302 Principal Subsidiaries Tokyo Tatemono Real Estate Sales Co., Ltd. 25-1, Nishishinjyuku 1-chome, Shinjyuku-ku, Tokyo 163-0647 Japan Tel. +81-3-3342-6277 Fax. +81-3-3349-0822 Tokyo Tatemono Techno-Build Co., Ltd. 1-3, Taihei 4-chome, Sumida-ku, Tokyo 130-0012 Japan Tel. +81-3-5608-7652 Fax. +81-3-5608-7534 Tokyo Tatemono Amenity Support Co., Ltd. 1-3, Taihei 4-chome, Sumida-ku, Tokyo 130-0012 Japan Tel. +81-3-3621-3232 Fax. +81-3-3621-7262 Tokyo Tatemono Resort Co., Ltd. 9-9, Yaesu 1-chome, Chuo-ku, Tokyo 103-8285 Japan Tel. +81-3-3274-0865 Fax. +81-3-3275-1440 Nihon Parking Corporation 10-5, Nibancho, Chiyoda-ku, Tokyo 102-0084 Japan Tel. +81-3-3222-0015 Fax. +81-3-3222-0029

http://www.tatemono.com

Printed in Japan