daikyo incorporated report 2015 integrated reports · this report includes projections and...

DAIKYO INCORPORATED REPORT 2015

Integrated ReportsFor the year ended March 31, 2015

Corporate Vision

Collective Strengths of the Group

With each of the companies in the Daikyo Group delivering

high-quality services to match their respective roles, the

Daikyo Group has established a customer support system

utilizing the strong network of the Group as a whole.

Such strong ties within the Group enable a full range of

services tailored to the age bracket and lifestyles of cus-

tomers. This allows the Group to assist in protecting the

value of its customers’ real estate over the long term in

addition to sharing information and know-how.

Cautionary Statement with Respect to Forward-Looking StatementsThis report includes projections and forward-looking statements with respect to the Company’s plans, strategies, and performance. These statements are based not on past facts but on management’s assumptions

and beliefs in light of information currently available. These statements involve risks and uncertainties relating to such factors as economic trends, intensifying competition in the real estate sector, legislation, the tax

system, and institutions. Accordingly, actual results may differ materially from those in the Company’s forward-looking statements.

Contents

Corporate Vision

Daikyo: A Quick Read

Group Vision

To Our Shareholders

Market Environment

01

02

10

12

18

Segment Information

Daikyo Group’s Brands

Corporate Value Foundation

CSR/Corporate Governance

Directors and Executive Offi cers

20

30

32

42

Financial Section

Stock Information

Corporate Profi le

44

80

81

From individualsEach person will faithfully heed customer feedback and have the foresight to pursue work in which he or she can deliver unique added value and help enhance enterprise value.

Leveraging the collective strengths of the Group, Daikyo strives to create a

“harmonious living environment” through housing products and services

that satisfy the needs of all age groups and lifestyles.

From teamsAll teams will aspire to personal growth while collaborating in open communica-tion beyond divisional or Group company boundaries and to do their very best.

From good senseWe will always keep the environment in mind as we uphold laws and regula-tions and realize sustainable regional development and harmonious living environments, thereby fulfi lling our social responsibilities as a corporate citizen.

Toward customersWe take customer feedback seriously and endeavor to meet potential needs.

We seek to increase customer satisfaction by delivering optimal homes and services that offer real comfort.

Toward societyWe safeguard the environment while revitalizing communities.

We will help create a harmonious society by contributing to sustainable urban development through home construction.

Toward business partnersWe will share objectives and collaborate as a business partner.

We aim to offer optimal solutions to customers and deepen trust with business partners as we progress together.

Toward shareholdersWe will boost enterprise value by sustainably increasing profi tability and growth.

We will respond to change by continuing with management efforts to disclose the right information and bolster enterprise value.

Toward employeesWe will create workplaces of which employees and their families can be proud.

We will ensure that all Group employees share the joys of working together and respecting each other by creating workplaces that foster personal growth and satisfaction.

Management Philosophy of the Daikyo Group

Management approach

Code of conduct

Corporate Vision

Raison d’etre

In this report, millions are rounded up to the nearest whole number while units of hundreds of millions are rounded down.

Real estate development Real estate sales Urban development

Condominium management Resident services Janitorial servicervices

Repair and maintenance work Contract constructitionRemodeling Design alterations

Real estate brokerageR Leasing management

roperty managementProper Construction management Building utility

RenovationReSeismic diagnosis Strengthening work

Real Estate Develpment and Sales

Building ManagementCondominium Management

Real Estate BrokerageConstruction

ANABUKI CONSTRUCTION INC.TAIWAN DAIKYO INCORPOTATEDTA ED

ANABUKI COMMUNITY INC.

DAIKYO ANABUKI REAL ESTATE INCORPORATED

ORIX FACILITIES CORPORATIONRyukyu Facilities Corporation

APEX WAKO (THAILAND) CO., LTD.APEX WA

DAIKYO AUSTRALIA PTY LTDDA TD

DAIKYO REFORM・DESIGN INCORPORATED

DAIKYO INCORPORATED

DAIKYO ASTAGE INCORPORATED

DAIKYO ANABUKI CONSTRUCTION INCORPORATEDED

IKYO HONGKONG LIMITDAIK ITED

g the quality of architectural valueEnhancing

Building the future through prosperity

Offering a comfortable living g space

Creating new townscapes

Improving living through design

SHUKEN INCORPORATED

01DAIKYO INCORPORATED REPORT 2015

Products Services

New business creation

Businesses generated from

existing infrastructure

CapitalFinancial capital

Manufacturing capital

Human capital

Intellectual capital

Social and relationship

capital

Input

Daikyo Group’s business domain

Output

Corporate Vision

Corporate Governance

New value creation

Helping to create a more comfortable and sustainable society

Input

Output

Customer

Daikyo: A Quick Read Daikyo Group’s Value Creation Cycle

The Daikyo Group has accommodated changes in lifestyle trends and in the population structure, as well as environmental

issues and other wider changes, allocating its resources to create unique value and a more comfortable and sustainable

society.

• Condominium management support

• Resident services

• Building and facility management

• Real estate brokerage and sales

• Energy conservation consulting

• Condominium leasing and lease management

• Real estate investment

• Renovated condominium sales

• Remodeling

• Facility construction and demolition

• Condominium repairs

• Seismic reinforcement

• New condominium sales

• Detached house sales

• Other condominium construction contracting

• Providing serviced housing for the elderly

• Real estate agency

02 DAIKYO INCORPORATED REPORT 2015

Creating value

Allocating capital

Net sales

Number of qualifi cations held by employees

Cash fl ows from operating activities

Number of employees

Number of condominiums under management

Number of Kurashi Square members

Selling, general and administrative expenses

Operating income

Intangible fi xed assets

Net income ROE

(Billions of yen)

(Types)

(Billions of yen) (Yen)

(Billions of yen) (Billions of yen)

(Billions of yen)

(%)

96.7

131.3

144.9156.4

117.6

2015201420122011 2013

30.3

48.748.2

40.5

47.7

295.3 302.6

333.8317.1

298.6

2015201420122011 2013

24

591 610 609

502

2015201420122011 2013

25.8 26.5

32.430.0

24.6

2015201420122011 2013

13.5

22.1

16.918.1

22.0

2015201420122011 2013

48.4 46.5

20.2 20.0

56.6

2015201420122011 2013

13.214.9

23.621.8

12.5

2015201420122011 2013

7,226

3,940

5,088 5,196

3,712

2015201420122011 2013

Dividends per share

2015201420122011 2013

0

3.0 3.0 3.0

2.5

9.7

15.5

20.7

12.1

21.7

2015201420122011 2013

10.6

12.5 15.3

8.0

20.3

400,845443,471

516,658 526,131

408,184

2015201420122011 2013

59,744

82,444

97,438

2015201420122011 2013

6,408

Daikyo: A

Quick R

ead

Daikyo G

roup’s Value Creation C

ycle

Notes: 1. For the years ended March 31, 2011–2015

2. Fiscal 2011 and fi scal 2013 fi gures are presented retroactively.

The method for calculating employee numbers changed from fi scal 2011. Contract and temporary employees are excluded from the number

of employees.

3. Shareholders’ equity ratio = (Net assets – Share subscription rights – Minority interests) / Total assets

Net assets(Billions of yen)

(Billions of yen)

Shareholders’ equity ratio(%)


1960l Established Daikyo Shoji Incorporated

1964l Established Daikyo Kanko Incorporated

(now DAIKYO INCORPORATED)

l Launched condominium sales Launched fi rst Lions Mansion

1969l Established Daikyo Kanri Incorporated (now

DAIKYO ASTAGE INCORPORATED) as a company specializing in condominium management

1975l Introduced auto-lock main entrance and

brick-tile exterior

1978l Achieved top position as industry leader in

condominium units supplied (4,289 units), remaining No. 1 for 29 consecutive years

1979l Established Jutaku Ryutsu Center to launch real

estate distribution and brokerage operations

1982l Listed on Second Section of the Tokyo

Stock Exchange (moved to First Section in 1984)

1984l Developed and deployed LIONS-

ONLINE-GUARD (L.O.G System), the industry’s fi rst centralized condominium management system

l Engineering department set up at Daikyo Kanri Incorporated (now DAIKYO ASTAGE INCORPORATED). Comprehensive large-scale condominium repairs and maintenance started

1987l Daikyo Kanko Incorporated renamed

DAIKYO INCORPORATED

1988l Established Daikyo Jutaku Ryutsu

Incorporated (now DAIKYO ANABUKI REAL ESTATE INCORPORATED)

l Completed 1,000th building in Lions Mansion series

l Set up condominium management industry’s fi rst training center

1998l Completed construction of

Elsa Tower 55, a 55-fl oor condominium skyscraper, the nation’s tallest such structure at the time

l Became biggest condominium management company for fi rst time (with 231,286 units under management)

1999l Completed 5,000th building in

Lions Mansion series LIONS Villaggio 5000 launched

1990 19951985198019761960

Early days Growth and expansion period

In 2014, the Daikyo Group celebrated its 50th anniversary, having grown along with Japanese society as the nation’s leading

supplier of condominiums starting with the Lions Mansion brand. It was a year in which the cumulative number of condo-

minium units supplied exceeded 450,000 and the number of condominiums under management exceeded 520,000. We will

continue to innovate in all areas of the real estate business.

Daikyo: A Quick Read Daikyo Group Timeline

Number of condominiums supplied

Cumulative number of condominiums supplied

Advertisement at time of listing

Public announcement on

change of company name


2014201020052000

Period of reform

2000l Following the introduction

of the Housing Performance Labeling System, became the fi rst in the industry to receive the Ministry of Land, Infrastructure and Transport’s house design performance evaluation

2003l Launched Forest Lake

Hibarigaoka, the fi rst private sector-built condominium complex in Japan to receive offi cial approval as an environment-friendly housing project

2004l Became fi rst in the industry

to manage more than 300,000 condominiums

2005l Formed capital alliance with

ORIX Corporation (ORIX)

2006l Established DAIKYO L.DESIGN

INCORPORATED (now DAIKYO REFORM.DESIGN INCORPORATED to sell interior decor and remodeling services

2007l Completed 6,000th

condominium building in Lions Mansion series

l Established TAIWAN DAIKYO INCORPORATED

2008l J.COMS (later merged

with DAIKYO ASTAGE INCORPORATED), a condominium management fi rm, joined the Group

l Real estate brokerage and consulting fi rm Asset Wave Incorporated (now DAIKYO ANABUKI REAL ESTATE INCORPORATED) joined the Group

2009l Building and condominium

management fi rm ORIX Facilities Corporation joined the Group

2011l Inaugurated ALION TERRACE

NISHIARAI brand of detached houses

l Became fi rst in the industry to manage more than 400,000 condominiums

2012l Started selling Renoα-brand

of renovated condominiums

2013l Condominium construction

and comprehensive real estate services company Daikyo Anabuki Construction Inc. joined the Group

l Completed 8,000th condominium building

2014l Condominium renovation

specialist DAIKYO CONSTRUCTION INCORPORATED started comprehensive and large-scale repairs and maintenance (merged with and absorbed Anabuki Construction Inc. and established a construction fi rm, DAIKYO ANABUKI CONSTRUCTION INCORPORATED in 2015)

l Became fi rst in Japan to manage more than 500,000 condominiums

l Established Daikyo Australia Pty Ltd

l Established Daikyo Hongkong Limited

l Celebrated Daikyo Group’s 50th anniversary in December

Daikyo: A

Quick R

ead

Daikyo G

roup Timeline300,000

2003 350,0002008

450,0002014


Condominium associations

Condominiums managed Facilities managed

9,500 520,000 5,900+

households

Ⅱ Extensive customer base

Network of major cities nationwide

The Daikyo Group’s collective strengths are its solid performance in meeting all of its customers’ needs and a nationwide,

diverse customer base. A robust fi nancial position underpins this solidity.

Daikyo: A Quick Read Our Strengths

Ⅰ

Business expansion Population of target cities Business locations Overseas expansion

47 300,000 240 3prefectures

Approx. Approx.

+ countries

Strength

Strength


Shareholders’ equity ratio Debt to equity ratio

48.2 0.37% times

Construction capabilities tailored to customer needs

Ⅳ

Ⅲ

Ample funds on the basis of stable cash fl ows

Daikyo: A

Quick R

ead

Our S

trengths

Engineers Construction and contracting results

Bond ratings

New condominiums

Rating and Investment Information, Inc. (R&I)

Large repair and maintenance work

Japan Credit Rating Agency Ltd. (JCR)

2,000

BBB+ A–(Stable) (Stable)

5,000 units1,400 unitsApprox.Approx.cumulative total cumulative total

Strength

Strength


The Daikyo Group strives to create a “harmonious living environment” for customers at all life stages by taking into

account society, the environment, employees and all other stakeholders.

Number of condominiums under management

(at the end of March 2015)

In addition to the management of

Lions Mansion, which has made us an

industry leader in terms of the cumu-

lative number of new condominium

buildings supplied, we became the

fi rst in the industry to have more than

500,000 condominiums under man-

agement, owing partly to increases

through mergers and acquisitions.

Number of units managed under lease


The Group manages rental properties

around Japan, and is proud of its high

occupancy rates.

Number of products developed based on customer needs


In the Daikyo Group, the Lions Living

Labo project undertakes surveys and

round-table discussions to translate

customer needs into products.

Cumulative number of new condominium units supplied

(at the end of March 2015) The Daikyo Group has supplied a total

of 373,268 units in 6,899 condomin-

ium buildings since beginning such

sales in 1968. With the consolidation of

Anabuki Construction Inc. in April 2013,

the total number supplied exceeded

450,000 units in 8,200 condominium

buildings.

526,131 37,214

53Ranked 1st (452,660)

Snapshot

Daikyo: A Quick Read Snapshot


Power generated at head offi ce(in fi scal 2014)

As part of efforts to conserve energy,

the Daikyo Group had solar panels

installed on part of the roof at head

offi ce and lithium-ion storage batter-

ies, which ensure power supply for

several days in case of disaster or a

power outage.

Electricity consumption(compared with fi scal 2012 at head offi ce)

In 2013, we upgraded facilities at

head offi ce, as part of which we

installed LED lighting, switched

from water-cooled to air-cooled air-

conditioning systems, and installed

thermal barrier fi lms. We thereby

cut electricity consumption by 27%

compared with pre-upgrade levels.

The Daikyo Group endeavors to provide

work conditions that are conducive to

female employment. One in four female

employees at Daikyo is a working

mother with children younger than 18.

The Daikyo Group has a corporate

university, the Daikyo Nexus Academy,

with executives as instructors who cul-

tivate young and mid-level employees

for future leadership positions. Since its

creation in 2010, the college has taught

a total of 96 employees (including

20 women).

watts11,971

Down 27%28 %

96

2015

Percentage of working mothers (nonconsolidated basis)

Cumulative number of employees taking corporate university courses

Daikyo: A

Quick R

eadS

napshot


Overseas

Urban development

Hospital and nursing facility management

Lifestyle consulting

Community creation

Resident services

Rebuilding

Reselling and reuse

Condominiums with care facilities

Renovations

Eco condominiums

Detached housing

Solar power generation

Building management

Condominium management

Brokerage/Leasing

Remodeling

Development

Realization of real estate services

business

Customer-oriented

management

Stock and fl ow double-pillar style of management

Emphasis on living environments

Viewpoint of customers

and business partners

One-stop provision of

Daikyo Group services

Distinctive approach

Although previously the business slowdown appeared to be spreading worldwide against the backdrop of the European debt crisis, it would now

seem that global economies are poised for a steady and gradual recovery with apparent underlying strengths evidenced in part by the upswing in

the U.S. economy since the current year kicked off. Meanwhile, in Japan’s economy, although corporate earnings are beginning to improve as the

strong yen corrects and share prices climb, partially due to monetary easing measures, it still may be some time before this spurs housing spending.

Also, going forward, we envisage a trend of increasingly diverse customer needs as Japan’s social structure shifts and lifestyles change to

accommodate the nation’s low birthrate and growing elderly population combined with an increase in single-occupant households.

In such a business environment, the Daikyo Group continues to pursue innovation in existing ventures while also taking on challenges in new

areas of business both in Japan and abroad, and furthermore, aims to capitalize on Groupwide opportunities in newly emerging real estate services

that are built around residential lifestyles specifi cally matched to customer preferences.

Daikyo: Group Vision

Flow business

Initiatives in each segment as part of efforts to grow our real estate services business

In the real estate development and sales segment, we face severe

competition with respect to procurement of land for new condo-

miniums, largely due to an emerging scenario of conspicuous land

price increases above offi cial price levels and a decrease in deals

involving sales of land for use by companies, against a backdrop of

favorable corporate business performance.

Moreover, costs of labor and materials for new condominium

construction are poised to remain at relatively high levels over the

medium to long term.

Within this environment, the Daikyo Group aims to clearly establish

the new condominium sales business, which will act as the starting

point of Daikyo Group’s revenue streams, and function as a source

of consistent earnings.

With respect to business volume, we will take steps to secure and

maintain a certain scale of business, taking an agile approach in

developing our operations, with a focus on locations that hold promise

of favorable supply and demand fundamentals while taking the

business environment and other such factors into consideration.

Meanwhile, from the perspective of securing a constant volume

of business, we will target acquisitions that enable us to temporarily

hold and manage prime locations with promise of consistent profi t-

ability, combined with initiatives geared toward taking on prime land

for new condominiums.

In addition, in order to respond to the values and needs of

customers as they become more diverse and sophisticated, we will

take steps to develop and strengthen businesses secondary to new

condominiums, such as our detached housing business and serviced

housing for senior citizens business, as we take on challenges to

develop new opportunities geared toward diversifying our revenue

sources.

Demographic change, ecology, globalization

Real estate development and sales


In the real estate brokerage segment, we anticipate increasing vitality

in the market for previously owned residences fueled by support

from government policies geared toward expanding the secondary

market for such housing. In the lease management business, on the

other hand, we anticipate an increasingly severe investment environ-

ment for real-estate owners amid a shift toward more of a renter’s

market as vacancies rise.

Within this environment, we integrated two Daikyo Group real

estate brokerage fi rms in April 2015, with the aim of developing a

comprehensive real estate brokerage business on a nationwide scale

involving a full range of real estate sales, purchase and leasing

services in the market for previously owned residences. On the road

ahead, we will redouble our efforts in implementing a fi nely tuned

approach tailored to geographic regions with the aim of progressively

building a framework that enables us to provide timely and precise

solutions designed to address customer needs.

In the area of real estate brokerage and existing real estate sales,

we aim to increase numbers of brokerage transactions handled and

units sold under our proprietary renovated condominium brands

such as Renoα (Reno alpha), by upgrading and expanding the offi ce

network, heightening brand recognition in areas where offi ces have

been opened, and increasing our market share.

To ensure that the lease management business functions as a

core part of our operations, we will use mergers as an opportunity

to unify and strengthen our services, while building positive relations

that will carry over well into the future.

With respect to developing overseas investor inbound business,

we will work to increase numbers of brokerage transactions centered

on overseas subsidiaries in Taiwan and Hong Kong, by leveraging

the Daikyo Group’s total support capabilities. In addition, with respect

to business involving second homes and condominiums in resort

communities, the Daikyo Group will diversify its range of services by

developing new opportunities, such as services involving hotel-type

rental and sublease of second homes and condominiums to third

parties during periods of availability.

In the condominium management business, customer needs are

becoming increasingly more diverse and sophisticated, with trends

that include growing cost awareness among customers given the

higher consumption tax rate and an aging condominium resident

demographic, along with shifting preferences away from simple price

sensitivity toward more of a focus on added value.

Within this environment, we aim to reaffi rm the Daikyo Group’s

position as the industry’s leading enterprise based on the number

of condominium units managed. To that end, whenever coming into

contact with customers, we will make a point of listening to their

feedback, even more than before, as we work to improve and

develop our existing services tailored to common areas of buildings,

while upgrading and expanding our resident-oriented services

tailored to privately owned sections of condominiums. In addition,

with the aim of increasing the number of condominium units under

our management, we will keep working toward heightening our

presence in the condominium management market involving units

beyond those of the Daikyo Group.

With respect to the management of buildings and other facilities,

we expect competition to become increasingly intense as we go

head to head with competitors in offering lower prices geared toward

encouraging customer switch-overs from other management

companies involving existing properties, as we face a situation

lacking in prospects for adding to our stock of buildings. To achieve

further growth, we must continually work to heighten our technology

and improve quality, while building unmatched levels of expertise

and originality and expanding in terms of business fi elds and

locations.

Within this environment, the Daikyo Group aims to increase orders

received in specialist fi elds such as those involving management of

medical and welfare-related facilities, and hotels and other lodgings,

along with operations and maintenance work involving solar power

generation equipment. In addition, we will also work to expand our

share of the Okinawan market, centered on the Ryukyu Facilities

Corporation established in January 2015.

In the area of contract work, while diffi culties remain with respect

to securing engineers and skilled labor due to decreasing numbers

of workers and an aging population, we nevertheless expect to see

growing demand as the overall age of buildings increases.

Under these conditions, the Daikyo Group merged two group

companies that handle construction-related work in March 2015,

premised on the aim of combining their technological capabilities

and condominium renovation know-how. Going forward, we will

take on work primarily involving repairs and renovations of common

areas in condominiums, providing ever greater levels of quality and

customer satisfaction, while increasing the number of orders received

for work from markets outside the Daikyo Group, through efforts to

reinforce systems of sales and construction management. In the

area of work involving buildings and other facilities, we will press

ahead with gaining more contracts for business by proposing solu-

tions designed to meet needs in areas that promise growth going

forward, such as dealing with aging equipment installed in older

buildings and other structures and improving energy effi ciency, as

well as handling customer services entailing energy-related manage-

ment and maintenance.

Stock business

Group Vision

Real estate management Real estate brokerage


To Our Shareholders

Akira Yamaguchi

President and Representative Director


To Our S

hareholders

Fiscal 2014 Business Environment

First of all, I would like to discuss the market environment for the condominium business, which is the core of the

Real Estate Development and Sales business. Despite the negative impact of the hike in the consumption tax rate,

sales in the condominium market were generally fi rm. This refl ected steady demand owing to low mortgage interest

rates, the government’s stimulus policy for home buyers, and other factors.

It was against this backdrop that the Company monitored market trends as it focused on sales initiatives to drive

profi tability. While the numbers for condominium contracts and sales were both down from a year earlier, the gross

profi t margin on condominium sales advanced 3.4 percentage points year on year. As a result, while net sales were

down for the Real Estate Development and Sales segment, operating income rose signifi cantly.

In the Real Estate Management segment, the number of condominium units managed and management contracts

for buildings and other facilities both increased, leading to a rise in management income. At the same time, contract

work income declined because of lower orders in some areas owing to the impact of the consumption tax rate hike.

While segment net sales were basically unchanged from the previous year, operating income decreased, partly

because of spending on efforts to reinforce the personnel structure to improve service quality.

In the Real Estate Brokerage segment, while sales contracts for existing condominiums in metropolitan Tokyo were

down around 10% from a year earlier, the Group was able to limit the reduction in the number of properties brokered.

We also sold 200 more renovated condominiums during the year under review, thereby increasing segment revenues

and earnings.

As a result of these factors, the Company generated consolidated net sales of ¥317.1 billion, operating income of

¥18.1 billion, and ordinary income of ¥16.7 billion. Net income was ¥12.1 billion, one factor being the absence of the

previous term’s gain on negative goodwill associated with the consolidation of Anabuki Construction Inc.

Fiscal 2013 Actual Fiscal 2014 Actual Difference

Net sales 333.8 317.1 (16.6)

Operating income 16.9 18.1 +1.2

Ordinary income 15.6 16.7 +1.0

Net income 20.7 12.1 (8.6)

(Billions of yen)

Overview of Fiscal 2014 Results

Dividend Policy

We adhere to a basic policy of returning profi ts to shareholders by sustainably improving corporate and shareholder

value. Accordingly, we will continue to pay stable dividends while investing in growth and maintaining a sound

fi nancial position.

In light of performance and other factors in the period under review, we decided to pay a year-end dividend of ¥3

per share.

We plan to pay a year-end dividend of ¥3 per share for the fi scal year ending March 31, 2016, as part of our

commitment to pay stable and sustainable dividends.

Fiscal 2013 fi gures are presented retroactively in accordance with the change in accounting policy.


Rebuilding a stable earnings foundation

4:6 6:4

P a s t

Centered on real estate

development and sales

Double-pillar stock and flow

business style of management

Concurrent growth of

stock and flow businessesStock business-based model

F u t u r eP r e s e n t

Real Estate

Development

and Sales

Real Estate

Brokerage

Real Estate

Management

Stock BusinessStock

Business

Stock Business Flow Business

Flow Business

Flow Business

Real Estate

Development

and Sales

Real Estate

Development

and Sales

Real Estate

Development

and Sales

Real Estate

Management

Real Estate

Management

Real Estate

Management

Real Estate

Brokerage

Real Estate

Brokerage

Real Estate

Brokerage

Strategies implemented during this period

Daikyo Group’s business structure reorganization

Strategies implemented

Expansion of the stock business

Stock business net sales (Note 1)

Ratio of stock to flow

Gross profi t margin on condominiums in real estate development and sales (fl ow operations) business (Note 2)

1.

Moved from prioritizing volume toward focusing on profitability of each project.

2.

Stable cash flows

Strengthened the financial base

March 31, 2010

10.1%

Fiscal 2009

¥126.0 billionFiscal 2014

Approx. ¥200.0 billion

March 31, 2015

24.7%

Fiscal 2009

Fiscal 2014

Stock

39%

Stock

62%Flow

61%

Flow

38%

Notes: 1. Calculation based on simple sum of segment revenues. 2. In line with a change in accounting policy, profi t margins on condominiums in the year under review excluded the impact of indirect costs.

In the flow business, promoted business ventures that conserve funds and enable high turnover, with emphasis on profitability

Concentrated business resources on the 3 major metropolitan areas

Average operating income

over the last 3 years of

¥19.0 billion

48.2%

(fi scal 2014)

Shareholders’ equity ratio of

26.4%

(fi scal 2009)

Challenges

To date, the Group has endeavored to rebuild its stable earnings foundation and generate consistent growth over the

medium and long term in stock operations from real estate management and brokerage businesses, and fl ow

businesses, which encompass real estate development and sales. By deploying such a balanced approach, or

double-pillar style of management, we have been able to expand stock operations’ earnings and boost the profi tability

of fl ow operations while constructing a robust fi nancial position.


Most recent M&As

Most recent key reorganization initiatives

Anabuki

Community Inc.

ORIX Facilities

Corporation

Daikyo Construction

Incorporated

DAIKYO REALDO

INCORPORATEDGrand amenity, Ltd. APEX WAKO* Anabuki Construction

Anabuki Real Estate

Center Inc.ASSET WAVE

Anabuki Community Inc.


ORIX Facilities Corporation

Building management/Construction

Daikyo Anabuki Corporation

Construction


Brokerage business

Before

After

To Our S

hareholders(*when acquired)

*Named ORIX Engineering Corporation before the merger

Acquisition year Business Company

2009 Building management ORIX Facilities


2009 Condominium management J・COMS*

Building management

2012 Condominium management Grand amenity, Ltd.*

2013 Electrical equipment and APEX WAKO*

instrumentation work

2013 Developer

Anabuki Construction Inc. Condominium management Construction work Real estate brokerage & leasing

2015 Repair work Shuken

While we have engaged extensively in mergers and acquisitions in recent years, mainly to reinforce our stock

businesses, we reorganized operations in fi scal 2013 and 2014 to optimize acquired operating resources and prepare

to embark on a new growth stage.

Our prime challenge is to boost revenue growth. We must pave a clear path toward that goal for our shareholders

and other stakeholders. We must therefore invest more effi ciently and effectively while optimally harnessing the

Group’s strengths and pursuing concurrent growth of the stock and fl ow businesses.

There are three ways of attaining such growth. The fi rst is to diversify investments by leveraging real estate informa-

tion. The second is to secure earnings opportunities by bolstering contact with customers. The third is to draw on

our architectural and construction capabilities to penetrate external markets.

We aim to become the real estate services group of choice by providing residential lifestyles that match customer

preferences. We will continue to innovate in our existing businesses and invest more effi ciently and effectively in

Japan. At the same time, we will draw on the Group’s strengths to cultivate new domestic and overseas business

domains and provide products and services that customers fi nd valuable.

We look forward to the ongoing support and encouragement of our stakeholders in our endeavors.


Expanding and diversifying investments while broadening business domains and earnings

Leveraging Group strengths to enter a new growth stage

Examples of leveraging information (Japan)

Diversify investments by leveraging accumulated real estate information

Secure earnings opportunities by bolstering contact with customers (points of contact)

• We use only a little of the information that we accumulate nationwide per year on 50,000 properties.

• Information on new condominiums and other properties that we cannot use effectively to broaden the scope of investments, we should be able to use in

deploying new businesses.

• Combine our expertise in the real estate brokerage business with the regional network of Anabuki Construction, which became part of the Group in April

2013, to increase the number of properties brokered.

• A lot of the supply is of the Lions and Surpass brands, and in setting up new branches in areas where we have had no operations we aim to increase

contact with customers and increase the number of properties brokered.

• In recent years, there has been a growing need for partial management of self-administered condominium buildings through highly specialized manage-

ment fi rms that can handle burdensome accounting operations and assess planning and repair work.

• The self-administered condominium market currently comprises around 380,000 units. We will therefore proactively market partial management support

services to administrative associations to expand the number of units that we help oversee.

Shared residence

Entrance Kitchen Conceptual image of exterior

Multiple-dwelling urban housing

Faubourg Square

Social Residence Kichijoji

Information on approximately 50,000 properties Results

Effective use of information on land and buildings

Real estate

information gathered

from around the

nationUsed

Untapped

Expand business domains

and earnings

Land for condominiums

Approx. 1,000

Acquisitions for renovation and sales

Approx. 1,200

Acquisitions for real estate brokerage

Approx. 10,000

• Serviced housing for senior citizens

• Rental condominiums and apartments

• Shared residences

• Income properties, etc.

Approx. 38,000

Approx.12,000

Daikyo Group’s strengths based on double-pillar stock and fl ow management Fully harnessing unique strengths to enter a new stage of growth

Network of major cities nationwide

Extensive customer base

Construction capabilities tailored to

customer needs

Business expansion

47 prefectures

Condominium associations

Approx. 9,500

Population of target cities

300,000

Condominiums managed520,000+

Business locations

240+

Facilities managed

Approx. 5,900

EngineersApprox. 2,000

Large-scale repair and maintenance

work5,000 units

New condominiumsApprox. 1,400

units

Our Strengths Fundamental strategy going forward

Concurrent growth of stock and flow businesses

Diversify investment targets by

drawing on real estate information

Tap revenue opportunities by

expanding customer points of contact

Leverage construction capabilities and

enter external markets

1

2

3

1

2


To Our S

hareholders

Optimally employ business model that integrates construction and sales

Construction business moving toward external markets

Real Estate Management Expand number of condominiums under management at self-administered buildings through partial management proposals

Draw on our architectural and construction capabilities to penetrate external markets

• Although the pace of increases in construction materials costs has recently abated, the shortage of construction labor will likely surge, with labor costs

putting even more pressure on earnings.

• Our development business leverages the integration capabilities of Anabuki Construction and the construction capabilities of our robust contractor network,

enabling us to ensure construction as planned and stable supply. An integrated construction and sales business model is a major Group strength, and by

optimally employing it we will further differentiate ourselves from the competition.

• We will focus on repairs of common areas in condominium buildings and construction to boost value, providing high-quality work that increases customer

satisfaction leading to more orders in existing markets.

• We expect the market for repairs and renovations to increase as buildings age, and will exploit opportunities such as contract work on public facilities.

Be able to deliver construction of condominium buildings on schedule even amid labor shortages and increasing materials costs

Real Estate Brokerage Further expand real estate brokerage network to accelerate business growth

Harness Japan’s top regional network Continue opening new branches to expand performance

Unable to accommodate needs because

of a limited branch network

Areas in which there is a large supply of Lions Mansion condominiums (including Shikoku,

Hokushinetsu, and Sanin)

As of March 31, 2015 For the year ending March 31, 2020

Employ Anabuki Construction’s

extensive regional network

Leverage strengths to increase the number of properties brokered Increase strengths to further expand brokerage network

To date

Henceforth

70

branches

100

branches

Issues and needs with self-administered properties

Issues

Needs

Supply partial management operations

Cumulative total of condominiums

supplied in Japan:

6 million units

Burden on caretakers/owners in areas requiring advanced expertise

Outsource partial management to management companies

Proposals matching

needs

○

○

○

Example: management services

Combined strengths of Daikyo and Anabuki Construction

Brand

Purchasing clout

Construction capabilities

Sales capabilities

Cost competitiveness

Existing market

Repair work on condominiums and other work to raise value

Fully enter external markets, including construction contracts

for public facilities

Construction market expansion

Apply exiting strengths and expertiseReinforce and use

resources effectively

Strengthen orders

Condominiums Buildings other than condominiums

Higher demand related to aging of buildings

Anabuki ConstructionDaikyo

Management company market penetrationApprox. 5.62 million units (93.7% of total)

Self-administered condominium building marketApprox. 380,000 units (6.3% of total)

Accounting

Implementation/coordination of maintenance & repair

Support for governing bodies & general meetings

Managerial staff operations

Cleaning

Facility inspection

Remote management services

3


Overview of trends in the condominium and building markets in which the Daikyo Group operates and its market

position.

Cumulative number of

condominiums supplied

in Japan

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0

(Units) (Million Units)

1980 1990 2000 2010

Sales contracts

for existing

condominiums in

metropolitan Tokyo

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

02005/3

(Units) (Years)

2010/3 2015/3

20

19

18

17

16

15

14

13

12

Sales for major real

estate brokerages

(fi scal 2014)

Ranking in terms of

cumulative number of

condominiums supplied

since establishment

Total amount

of transactions Number of brokerage Commissions Number of brokerage

Company (Millions of yen) transactions (Millions of yen) offi ce branches at year-end

1 MITSUI FUDOSAN REALTY CO., LTD. 70,750 37,156 1,273,153 275

2 SUMITOMO REAL ESTATE SALES CO., LTD. 54,311 33,968 1,065,681 255

3 TOKYU LIVABLE INC. 41,546 19,568 1,010,828 150

4 NOMURA REAL ESTATE GROUP 25,833 7,174 710,980 66

5 SUMITOMO MITSUI TRUST REALTY CO., LTD. 15,538 6,803 406,291 74

6 MITSUBISHI UFJ REAL ESTATE SERVICES CO., LTD. 14,170 5,718 386,937 43 7 MIZUHO TRUST REALTY COMPANY LTD. 11,037 3,872 282,120 45

8 MITSUBISHI REAL ESTATE SERVICES. CO., LTD. 9,996 2,661 675,788 25

9 FUKUYA-K CORPORATION 8,186 9,416 174,172 94

10 DAIKYO GROUP 7,453 6,693 171,189 70

Company Number of units supplied

1 Daikyo 341,001

2 Company A 163,741

3 Company B 127,858

4 Company C 111,473

5 Company D 111,283 2.8

資料：㈱不動産経済研究所The Daikyo Group has supplied a total of

approx. 450,000 units.

Market Environment

After condominiums swiftly

became common in the 1970s, the

annual number supplied exceeded

100,000 units in the 1990s.

However, funding to an overheated

real estate sector was suppressed

following the fi nancial crisis of

2008, with the shortfall causing

construction starts to plunge and

the supply to drop below the 2007

peak of 227,000 units. Housing

demand steadied thereafter, with

supply recovering somewhat

despite the impact of the Great

East Japan Earthquake of 2011.

Source: Ministry of Land,

Infrastructure, Transport

and Tourism

Left axis: Number of new condominiumsRight axis: Cumulative number of condominiums

Demand for existing condomini-

ums has expanded owing to

increases in condominiums in

stock and a lower supply of new

ones. The number of sales con-

tracts in metropolitan Tokyo has

risen in recent years. The number

of sales contracts is climbing in

line with increases in the quality

of condominiums in stock.

Source: Daikyo, based on data from

the Real Estate Economic

Institute Co., Ltd.

Source: Real Estate Information

Network for East Japan

Source: Shukan Jutaku Shimbun

The cumulative number of units that each

company has supplied since establishment

through 2014 were numbers through 2002 for

each company excerpted from the Real Estate

Economic Institute’s Three Decades of the

Japanese Condominium Market, adding the

company’s announcements of annual sales

by enterprise since 2003.

Left axis: Number of sales contracts Right axis: Age of structures


Daikyo Group’s

sales from building

management

Condominium

management company

ranking based on

number of condominium

units under management

(as of March 31, 2015)

Condominium units Company name under management

1 DAIKYO GROUP 526,131

2 TOKYU COMMUNITY GROUP 494,020

3 NIHON HOUSING CO., LTD. 411,795

4 DAIWA HOUSE GROUP 320,489

5 MITSUBISHI ESTATE GROUP 310,309

6 HASEKO COMMUNITY GROUP 309,302

7 MITSUI FUDOSAN RESIDENTIAL SERVICE GROUP 244,494

8 GOJINSHA KEIKAKU KENNKYUJYO GROUP 202,587

9 SUMITOMO FUDOSAN TATEMONO SERVICE CO., LTD. 173,396

10 NIHON SOGO JYUSEIKATSU KABUSHIKIGAISYA 155,721

Condominium units Company name under management

DAIKYO ASTAGE INC. 424,717

ANABUKI COMMUNITY INC. 101,414

Number of condominium

units under management

49.3

3.0 2.05.0

8.0

8.3

82.013.7

19.5

9.2More than 100,000 units

More than 50,000 units



Less than 10,000 units

Inner circle: Breakdown by scale of

top 505 condominium

management companies

Outer circle: Market share by company

scale

(%)

Scale of building

management market

4,200

4,000

3,800

3,600

3,400

3,200

3,000

2002/3 2005/3 2008/3 2011/3 2017/32015/3

(Billions of yen) (%)

106

103

100

97

94

91

88

2012/3 2014/3 2015/32013/3

30

28

26

24

22

(Billions of yen)

Market Environm

ent

(Forecast)

The building management market

encompasses the three key

aspects of cleaning, facility admin-

istration, and security services,

as well as repairs, upgrades,

remodeling, and other peripheral

operations. Since the Great

East Japan Earthquake, related

construction has underpinned the

market scale through increased

demand related to recovery,

energy conservation, and power

savings. The overall market has

exceeded ¥3 trillion in recent

years despite few prospects for

signifi cant growth following a peak

in new construction demand.

Condominiums in stock totaled

6,132 million units at the end

of 2014 (source: Ministry of

Land, Infrastructure, Transport

and Tourism). The management

of new condominiums by devel-

opers has become common.

Companies managing more than

100,000 units dominate the mar-

ket, with a combined share of

around 49%.

Left axis: Market scale Right axis: Year on year

Source: Daikyo, based on data from

Mansion Kanri Shimbun

Source: Mansion Kanri Shimbun

Source: “Building Management

Market Survey Results

2014” by Yano Research

Institute Ltd.


Share of sales of stock and fl ow businesses

Consolidated

Daikyo Group

Real Estate Management

Real Estate Brokerage

Real Estate Development

and Sales

Net sales ¥120.7 billion

Operating income ¥10.1 billion







Fiscal 2014 Fiscal 2014

Fiscal 2014

Fiscal 2014

The Group positions its three reporting segments under either of two operational pillars. One pillar comprises fl ow businesses, encompassing

Real Estate Development and Sales, which center on the construction and sales of new condominiums. The other pillar comprises stock

businesses, one of which is the Real Estate Management segment, which encompasses administration of condominiums, buildings and other

facilities, as well as contract work derived from these operations. The other is the Real Estate Brokerage segment, focusing on property

brokerage, condominium sales, and lease management.

The Daikyo Group maintains stock and flow businesses.

Flow Business

Stock Business

Real Estate Development and Sales

Real Estate Management .


82% 61%78% 57%78% 55%76% 52% 42% 38%

18%

39%

22%

43%

22%

45%

24%

48%58% 62%

2006/3 2010/32007/3 2011/32008/3 2012/32009/3

~2009/3 2010/3~

2013/3 2014/3 2015/3

Stock Business

Segment Information

Flow Business


Spotlighting new condominiums as but one example of

the Group’s contribution to comfortable living


Flow businesses

Real Estate Management Real Estate Brokerage

Stock businesses

Our stock and flow businesses address the diverse needs of customers.

Timeline

¥¥

Customer

Handling such tasks as administrative support, building and facilities management, and

building attendant services

Undertaking renovations

Support for lease management

Brokerage

Undertaking remodeling

Periodic inspections and after-sales services

Establishing management associations by all owners

Introducing a new condominium

Support for reconstruction

Providing services for residents

Segm

ent Information

Management associations

Real estate investment

Condominium leasing and lease management

Renovatedcondominium sales

Remodeling

Resident servicesDetached house sales

Real estate brokerage and salesCondominium repairsCondominium management

supportNew condominium sales

Energy conservation consultingOther condominium construction contracting

Facility construction and demolition

Building and facility management

Real estate agency

Bu

sin

ess

to

Bu

sin

ess

Bu

sin

ess

to

Co

nsu

mer

Considering a condominium purchase Contract

Remodeling

Selling

Leasing

Operations through condominium management associations

Life in a condominiumMoving in

ReconstructionRenovation


Condominium sales (billions of yen)

and gross profi t margin (%)

2015/32014/3

152.7

106.6

132.1

2013/3

18.818.821.321.3 24.724.7

Operating income (billions of yen)

2015/32014/3

14.9

10.1

7.8

2013/3 *

Net sales (billions of yen) Percentage of consolidated net sales (fi scal 2014)

2015/32014/3

158.8

120.7

142.7

2013/3 *

Real Estate Development

and Sales

38%

Net sales


This business integrates everything from land acquisition to

planning, sales, and after-sales services. We have recently

expanded beyond condominiums to handle detached houses.

Major companies

DAIKYO INCORPORATED

ANABUKI CONSTRUCTION INC.

Flow Business

*Fiscal 2013 fi gures are presented retroactively in accordance with the change in accounting policy.


LIONS TACHIKAWA GRANDFORT

(Completed in March 2014)

THE LIONS ICHIJO TOWER GIFU

(Completed in September 2012)

Sainokuni Green Plan Award

Certifi ed by Japan Business Initiative for Biodiversity

LIONS MISATOCHUO

(Completed in February 2013)

LIONS KOHOKU NEW TOWN LAUREL COURT

(Completed in August 2015)

Earned the Good Design Award 2014 (in the housing and living space category)

Real Estate Sales Process

In building new homes, our planning and proposals encompass creating

high-quality living spaces and comfortable residential environments. We have

thus earned a solid reputation from various institutions for many of our properties.

Flow B

usinessR

eal Estate Developm

ent and Sales

The fi rst stage of the new condominium business is to secure land for construction, with construction starting after receiving construction approval. Condominium sales generally begin once

construction has started.

From when sales start through to the signing of contracts, units are recorded as the balance of contracted units, and then posted to sales once delivery to purchasers has been completed.

Completion of construction

Construction approved

Land acquisition

販売（供給）

Sale (supply)After-sales services

Construction start

Sales agreement

Delivery

Contract

Sales

Planned construction

site



The Real Estate Management business primarily engages in

condominium management and support for management

associations, management of building and facility maintenance,

and contract work that includes renovating structures and

remodeling residences.

Major companies



Backlog of orders for contract work (billions of yen)



2015/32014/3

122.6

158.2 158.0

2013/3 *

2015/32014/3

8.3

9.7

8.3

2013/3 * 2015/32014/3

15.7

31.4

23.6

2013/3


49%

Net sales

Stock Business

ORIX FACILITIES CORPORATION

DAIKYO ANABUKI CONSTRUCTIONINCORPORATED



Condominium management and contract work

■ Condominium management

Condominium management contractA management association comprising all condominium unit owners commissions a management company to manage the condominium building which then receives management, maintenance and other fees in return for its services. The main tasks include clerical work, such as recording expenses and receipts for administrative expenses and the maintenance reserve collected for the running of the management association, overseeing maintenance which includes daily cleaning, and the mainte-nance of structures and facilities. Such support services help to enhance security, safety and comfort for residents.

Janitor Training Center

In 1988, we established the con-

dominium industry’s fi rst training

center for janitors. The center

offers specialized training in

high-quality services.

We have deployed female customer service

liaisons at branches around the nation to

utilize their skills in listening attentively and

attending to the needs of elderly people and

housewives who spend long periods of the day

at home. These representatives focus on this

demographic as part of a structure designed to

enhance customer satisfaction and generate new

business opportunities.

• Accounting• Support for governing bodies &

general meetings• Implementation/coordination of

maintenance & repair• Facility inspection• Remote management

services

Contract workAs condominiums age, they require repairs and planned renovations to maintain and improve the performance of structures and facilities. A management company handles construction scheduling and consulting and oversees the work, receiving construction fees from the maintenance reserve that a management association sets aside.

Condominium

management

contract

Contract work

Management company

Support for planned renovations

Management association Unit owners

Comprising all

condominium unit

ownersSupport for management associations, building and facility management, personnel management, and security services

Administrative expenses

Maintenance reserve

Management commission expenses (from administrative expenses)

Construction charges (from maintenance reserve)

Stock B

usinessR

eal Estate Managem

ent

We have appointed female customer service liaisons to specialize in resolving housing-related concerns.

Proposing solutions

Customer

service liaisonsCustomers

Daily concerns

• Managerial staff operations• Cleaning

Condominium advisors are local employees who negotiate and communicate with

the management associations of condominium owners. These advisors collabo-

rate with condominium janitors in deepening ties with customers and engaging in

consulting to assist them and resolve their issues.

Condominium advisors

Condominium supporter (janitor)

Comprehensive management services


Planned renovations and their purpose

■ Contract work

Planned renovations and maintenance and enhancement of the performance of structures and facilities

Initial performance

Functionality

Degradation

Repairs

Repairs

Refurbishments

Refurbishments

Large-scale repairs and maintenance work (fi rst)

after around 12 years

Large-scale repairs and maintenance work (second)

after around 24 years

1

2

3

4

5

■ Large-scale repair and maintenance (Buildings)

Condominiums fast became popular in the 1970s. The current stock exceeds 6 million units nationwide, with the need for renovations increasing as time passes.

By integrating the construction entities within the Group, we have shared expertise and reinforced purchasing capabilities so we can provide higher-quality

services.

Major renovation project

2015/32014/3

383

454

394

2013/3

Structures degrade over time.

A management company undertakes planned renovations by providing support when a management association formulates upkeep plans covering around 30 years.

Planned repairs and maintenance at appropriate times according to the degradation of structures and facilities can restore performance to not far below the levels of new buildings.

Around 12 to 15 years after construction, large-scale repairs and maintenance work are undertaken to coat walls, waterproof roofs, and coat metalwork.

At these stages, Group management companies formulate proposals to not only functionally restore condominium buildings but also refi t them with the latest facilities and make the

buildings barrier-free for greater enhancement of their performance.

In planned renovations, stages 1 through 5 are thereafter repeated.

1

32

4

5


Stock B

usinessR

eal Estate Managem

ent

Overview of building and facility management and building construction

Owners

Building maintenance

Construction management

Property management

Construction contracting

Building maintenance Construction managementProperty management Construction contracting

Planned construction sites

Building and facility management examples

University Hospital, Kyoto Prefectural University of MedicineFacility management

Sunny Solar Fukushima Central Power Plant

Operations and maintenance work

Building and facility management company Building

Services provided

While inspecting building facilities and monitoring their operations, we preserve the assets of building owners through three key services to ensure that areas are comfortable for users.

1 The fi rst is to lower running costs and maintain facilities so they can be used for a long time.

2 The second is to optimize cleaning to upkeep and enhance aesthetics and keep surroundings sanitary.

3 The third is to ensure safety through security and disaster prevention monitoring. These services lead to comfortable living for residents.

This service offers the comprehensive management of owners’ facilities. We coordinate everything from securing tenants for leasing to management and building maintenance and helping retain the aesthetics of facilities. We report on management issues and make proposals for resolving them.

We propose plans and designs that refl ect owners’ intentions and needs, maintaining quality from the order stage through to construction management and construction site safety.

We provide comprehensive support for planning, design, construction, repairs and renovations for building, electrical, and facility work, providing services that add value to structures and facilities.

Tenants

Tenants

Tenants

TenantsConstruction contract

Commission agreement

Cleaning, inspecting facilities, providing security, and handling emergencies, and other.

Planning and designing, ordering, construction supervision, and safety management

Construction, electrical, facilities, installation of meters and safety devices, and other work

Monthly report

Soliciting and managing tenants, clerical work, and managing payments

Management by sector

We will draw on the Group’s experience and advanced building and facility management know-how in such areas as medical and welfare facilities, hotels, and public offi ces to reinforce orders. In addition to building and facility management, we engage in businesses in the environment and energy-related sectors. In the solar power generation-related business, we are expanding operations and maintenance orders that encompass installing and managing solar facilities.

As of March 31, 2015

Commercial & Entertainment Facilities

34%

Office Buildings

23%

Medical & Healthcare Facilities

16%

Accommodation Facilities

10%

Others

Schools/Academic Facilities

5%

Residences

4%

*As well as offering owners building maintenance services and construction contracting,

we sometimes also maintain service agreements with tenants.

Administrative

tasks on behalf

of new owners



In the Real Estate Brokerage segment, we broker condominiums,

remodel residences, and buy, renovate and resell condominiums.

We also provide lease management support for property owners.

Major companies


DAIKYO REFORM . DESIGN INCORPORATED

Total amount of brokerage transactions (billions of yen) and number of transactions

2015/32014/3

187.6171.1

163.9

2013/3

5,4995,499

6,8406,8406,6936,693


2015/32014/3

1.2

2.3

2.8

2013/3 *


2015/32014/3

23.1

36.6

41.8

2013/3 *

Real Estate

Brokerage

13%

Net sales

Stock Business



Facility warrantee/24/7 emergency service

After consulting with the seller, we evaluate the property by checking the location and other information, and conclude a brokerage contract with the seller.

We then begin advertising and showing the property to interested parties.

Once a buyer is decided on, we help conclude a contract between the seller and the buyer and receive a brokerage commission.

A real estate company of the Daikyo Group buys the property* after consultation with the seller.

After renovating the property, the real estate company of the Daikyo Group sells the property and receives payment from the buyer.

*Properties that the Daikyo Group buys must satisfy certain conditions.

1

2

3

4

Daikyo property brandRenoα

Seller

Buyer Buyer

1

2

3

4

Through this service, the company eliminates the burden

on sellers and buyers if problems arise after existing

condominium contracts are concluded and properties

are handed over. We offer a 24/7 emergency service to

respond to problems that buyers encounter in everyday life

in the fi rst year after handover.

Stock B

usinessR

eal Estate Brokerage

General fl ow of brokerage and real estate sales in the Real Estate Brokerage segment

Normally the seller’s

responsibility

Normally the buyer’s

responsibility

DAIKYO ANABUKI REAL ESTATE guarantees repair costs

DAIKYO ANABUKI REAL ESTATE guarantees repair costs

Repair costs guaranteed one year after handover to buyer

24/7 emergency service*

After handover

*Only the 24/7 emergency service is available also for detached houses

Problem occurs

Seven days after handover from seller

One year after handover to buyer

Introductions and other support

Sales contract

Sales consultations

Renovating and selling property

Brokerage commissions

Sales contract

Receiving sales proceeds as seller

Brokerage contract

Seller’s property

Real estate company

Sales contract

Brokerage

Real estate sales

Problem occurs


http://lions-mansion.jp/

Daikyo’s Lions Mansion brand of new condominiums refers to the lion’s strong instinct for family and refl ects our desire to create residences that nurture family ties in stately surround-ings. We built our fi rst Lions Mansion condominium in 1968, and have supplied more than 6,000 residential buildings under that brand since then.

The Surpass brand of new condominiums is built by Anabuki Construction, which completed its fi rst condominium residence in 1978. The company has since built close to 1,300 buildings, mainly in suburban areas. Anabuki Construction created a busi-ness model that integrates construction and sales, handling everything from land acquisition, planning, design, and construction, to sales, management, and after-sales services.

Lions Mansion

Surpass

http://lions-mansion.jp/sumai/special/house/

http://www.384.co.jp/384home/

A brand of detached houses that Daikyo and Anabuki Construction inaugurated in 2011 as the fruit of their expertise and solid track record in condominium development. This brand aims to offer ideal living environments.

Alion TerraceSurpass Home

(Surpass Town)

http://www.384.co.jp/

Daikyo Group’s Brands


http://www.daikyo-anabuki.co.jp/renoalpha/

This is a brand of renovated condominiums from DAIKYO ANABUKI REAL ESTATE, which inspects and repairs utilities before renovating living quarters and provides guarantees for existing and new utilities after residents move in.

Brand Inform

ation

Kurashi Square

We launched this condominium information site in August 2011 to inform residents about events in their buildings, post maintenance work details, notify of regularly scheduled inspections, manage records, and sell housing-related goods.

https://www.kurashi-s.jp/

http://www.daikyo-astage.co.jp/plusidea/

Plusidea, combining plus and idea, is the brand name for repair and renovation services based on the concept of providing better ideas for living. The repairs extend beyond maintaining quality to include proposing and undertaking work to create more comfortable living environments based on the combined input of management associations, residents, property management and construction fi rms.Plusidea

http://kukan.l-reform.jp/

This DAIKYO REFORM・DESIGN brand offers remodeling plans to optimize usage of space.

Kukan Sozo

Reform

http://l-reform.jp/pickup/lrior/

This is DAIKYO REFORM・DESIGN’s brand of tastefully designed, highly functional fi xtures. Offerings include kitchen lines and cupboards, and bathroom vanities.

LRIOR

Renoα


Corporate social responsibility is about going beyond the pursuit of profi ts to assume responsibility for the social impact of

corporate activities and make decisions that accommodate all stakeholders, including consumers, investors, and society

at large.

We drew on our Group management philosophy that encompasses our raison d’être, management approach, and

code of conduct in drafting our corporate governance structure. By fulfi lling our corporate social responsibilities

in terms of social and economic value, we are moving forward with CSR activities while endeavoring to enhance

corporate value.

Group

management

philosophy

Economic value (contributing to the company’s own earnings)

Social value

(contributing to society)

The social responsibilities that

companies must minimally fulfill

Activities as corporate citizen

Page 35

Page 36

Page 33

(compliance, risk management

and legal compliance)

Employee participation

Corporate governance

Daikyo Group’s solutions to social

issues

Developing and using human resources

Corporate Value Foundation CSR/Corporate Governance

The social

responsibilities that

companies must

minimally fulfill

1

2

3

4

Raison d’etre

Management approach

Code of conduct


CS

R/C

orporate Governance

Revitalizing and enhancing property value

Self-contained communities, co-existence, and matching of

products/services/people

Driving sustainability

Social Issues Solutions marketed by the Daikyo Group

Growing number of aging condominiums

• Increasing vacancy rates

• Changing preferences, away from the dated and

rundown

(Floor plan changes)

Changing lifestyles and living environment

preferences

• Growing number of elderly residents

• From family to single-resident living

(Growing number of single-occupant households)

Environmental issues

• Energy problems

• Disasters

Examples of Daikyo Group’s initiatives

• Vacation rentals

• Renovations

• Serviced housing for senior citizens

• Redevelopment

• Community

• Passive design

• Disaster prevention

• Green energy

The stock of condominiums in Japan

exceeds six million units, and it has

become important to enhance the

quality of aging properties. Daikyo

responded to this situation by launch-

ing the Renoα brand of renovated

condominiums to fully enter the resi-

dential revitalization business. We

renovated more than 1,000 units in

fi scal 2014.

Renovations (revitalizing residences)

Daikyo started its original vacation rental business in Okinawa in

January 2015 to contribute to more effective use of properties

by reducing the number of condominium vacancies, under our

concept of “the light always shines from the windows.” Also, by

2020 we plan to have 300 units occupied during periods when

second-house owners are not using them.

We look to ultimately expand these operations beyond

Okinawa.

More than 40 years have passed since Daikyo began condominium development. We believe

that we ought to propose ways whereby the growing number of aging residents can live

comfortably in their later years. In 2014, we accordingly began providing serviced housing for

the elderly. We plan to operate about 60 such buildings over the next 10 years.

Vacation rentals (ensuring effective use of vacant properties)

Serviced housing for senior citizens

Daikyo Group’s solutions to social issues

KAGAYAKI NO TOKI Nakano Minamidai in the Nakano

district of Tokyo, our fi rst serviced condominiums for

the elderly

Number of renovated

condominium units sold

2015/32014/3

595

827

1,056

2013/3

1


The Daikyo Group has leveraged its more than 40 years of experience as a provider of hous-ing to undertake Groupwide efforts to provide restoration support following a major disaster. We engage in various initiatives to help ensure resident safety, distributing disaster manuals to management associations and conducting disaster drills.

Building disaster prevention awareness

In keeping with its aim of creating environment-friendly housing, Daikyo employs construction techniques that adopt solar, wind, and other energy sources to make interiors more comfortable. We started fully employing this approach from 2009, deploying energy-saving facilities to reduce sum-mer electricity charges for air- conditioning by 30% and lowering indoor temperatures an average of 4.9°C during July.

Planning and deploying architectural designs that incorporate green energy

Developing and using human resources

Disaster preparedness manuals for

management associations

Special hooks installed on the top of a balcony for

growing a green wall

Seminars on condominium management and disaster preparedness

at each site

A burglar-proof ventilating private entrance to each unit

The Daikyo Group conducts events to reinforce connections between residents and also takes part in community events.

Community

We have a strong track record in regional redevelopment initiatives around Japan, and believe these to be important for the revitalization of regions beyond the nation’s three largest cities.

Redevelopment

Number of participants in

childcare-leave community

20152014

25

2931

2013

Daikyo has obtained Kurumin Mark Certifi cation from the Ministry of Health, Labour and Welfare of Japan in recognition of outstand-ing efforts based on the Act on the Advancement of Measures to Support Raising the Next-Generation of Children.

Kurumin Mark Certifi cation

As part of efforts to create a working climate that makes it easy for child-care leave takers to return to work, in 2010 the Daikyo Group inaugurated the information sharing luncheon club for employees taking such leave and all those who have returned to work and are balancing childcare and professional commitments. We enable working mothers to engage in work that draws on the unique perspective they bring to their work and support them in balancing their personal and professional commit-ments to continue having an active role in the job. The number of such employees was 14 in the initial year, rising to 31 in 2015.

Information-sharing luncheon club for childcare-leave community

Lions Ichijo Tower Gifu,

a redeveloped property near a train station

2

88 (including 4 males)

Number of employees taking childcare leave

(As of the year ended March 31, 2015)


The Daikyo Group’s top manage-ment team passes on knowledge and engages in dialogue to con-vey management perspectives, swiftly cultivating young and mid-level employees who will eventually oversee the Group.

We hold open-house days for employees’ children during their summer holidays to help them better understand their parents’ work and begin thinking about their own future careers.

Corporate university

Offi ce open-house for employees’ kids

Since 2008, we have regularly held in-house sales of cookies, pound cakes, and other baked goods made by intellectually challenged people. Proceeds support the activities of Palette, a nonprofi t organization that runs the Okashiya Palette workshop.

Selling baked goods in-house

We gather PET bottle caps in-house which the Cap-no-Chokinbako Promotion Network then put toward raising money for vaccines for children in developing countries. We also collect used postage stamps for the Japanese Organization for International Cooperation in Family Planning, which safeguards the lives of women worldwide during pregnancy and childbirth.

Supporting efforts to protect women and children

Seasoned front-line professionals lecture on various subjects in these classes. We hold these classes periodically as tools to cultivate a cor-porate culture of continuous learning, self-actualization and interaction to enhance job satisfaction.

The Group fosters students’ interest in and awareness of its products and services exposing them to potential future occupations.

Open courses through the Learning Cafe

Hosting student visits

Activities as corporate citizen

CS

R/C

orporate Governance

3


(1) Corporate Governance Structure

Board of Directors

Daikyo’s Board of Directors, which is composed of seven

directors (three of whom were appointed from outside the

Group) as of June 23, 2015, makes decisions on important

management issues and oversees the activities of its

executive offi cers. The Board of Directors met on seven

occasions during the fi scal period under review. The director

attendance rate at these meetings was 98%.

Nominating Committee

The Nominating Committee, which is composed of fi ve

directors (including three appointed from outside the Group) as

of June 23, 2015, has the authority to decide on nominations

for director at the Ordinary General Meeting of Shareholders

and the right to deliberate the selection of important

executives, such as executive offi cers and the representative

executive offi cer. The Nominating Committee met on four

occasions during the fi scal period under review. The director

attendance rate at these meetings was 95.2%.

Audit Committee

As of June 23, 2015, the Audit Committee is composed of

three outside directors who evaluate the activities of executive

offi cers and the Company’s internal control systems. This

evaluation is based on reports of the business and affairs of

the Company presented by the representative executive

offi cer, results of internal audits and reports relating to overall

internal control presented by the executive offi cer in charge

of the Group Audit Department, and accounting audit reports

presented by the independent accounting auditor. The Audit

Committee maintains a structure of cooperation that enables

it to direct audits and investigations as required. The Audit

Committee met on fi ve occasions during the fi scal period

under review. The director attendance rate at these meetings

was 100%.

Compensation Committee

The Compensation Committee, which is composed of fi ve

directors (including three appointed from outside the Group)

as of June 23, 2015, has rights to set policy with regard to

director and executive remuneration and to determine the

In an effort to further strengthen its corporate governance

system, the Daikyo Group shifted to a “Company with

Committees” system in June 2005 (currently, Company with

Nominating Committee), after approval was received at the

Ordinary General Meeting of Shareholders held that same

month. Under this system, supervisory functions are

separated from executive functions in order to reinforce the

system of checks and balances and to accelerate the

decision-making process. In addition, Daikyo established a

compliance framework to improve risk management. In this

manner, Daikyo continuously endeavors to optimize

corporate governance in its efforts to further improve

soundness, transparency and effi ciency in corporate

management.

Corporate Governance4

1. Corporate Structure and Internal Control System

individual remuneration of each director and executive offi cer.

The Compensation Committee met on four occasions during

the fi scal period under review. The director attendance rate

at these meetings was 95.2%.

Group Management Meetings

Matters of importance to the running of the Group’s business

affairs are systematically deliberated and decided upon at

Group Management Meetings attended by executive and

other offi cers and held in principle once a month.

In addition, Business Division Meetings attended by

executive and other offi cers are held in principle once a week

to deliberate and determine important proposals relating to

the Group’s condominium development and sales business.

A review of risk management system responses related to

business and administration is carried out at the Group

Management Meeting and the Business Review Meeting,

where the status of each risk is analyzed and a complete

picture of the current risk management status is formed.

(2) Compliance System

Daikyo has established the Group Compliance Consultation

System and other structures and developed a framework,

namely the Compliance Help Desk for investigating,

responding to, and correcting violations of laws, internal

regulations, and social norms. In addition, Daikyo has

established the Group Legal and Compliance Department,

an organization responsible for compliance promotion that is

working to establish and maintain a compliance framework.

(3) Risk Management System

Daikyo evaluates and manages risks across a variety of

categories, including real estate market risks, business risks

and disaster risks. The Group Legal and Compliance

Department, which coordinates risk management methods

based on monitoring activities, as well as feedback and

reports from each department, regularly reports on informa-

tion necessary to risk management to the representative

executive offi cer as well as to the Audit Committee, with

proposals to improve the Group’s risk management system.


(4) Internal Audit System

The Group Audit Department, which comprises eighteen

members as of April 1, 2015, is responsible for internal

audits.

The department puts business audit plans into effect and

reports on the results of the audits to the Audit Committee.

In addition, the Audit Committee maintains a framework of

cooperation that enables it to direct the Audit Committee

Secretariat or the Group Audit Department to conduct

audits, investigations and other activities, as necessary. As

well as giving suggestions and guidance on areas of

improvement to departments undergoing audits, the Audit

Committee works to improve the effectiveness of internal

controls.

(5) Systems to Ensure the Proper Operation of the Company and its Subsidiaries

We have instituted administrative rules for Group companies,

requiring them to seek prior approval for important

management matters.

We constantly monitor for confl icts of interest or unusual

transactions between the parent and subsidiaries, with

executive offi ces reporting as needed to the Audit Committee.

The Group Audit Department internally audits or advises

Group companies, presenting its results of audits and other

activities to the Audit Committee while endeavoring to

increase the effectiveness of internal controls by pointing out

areas requiring improvement by providing instruction to

audited business units.

The Legal and Compliance Department oversees risk

management for the Group while obtaining reports from

Group companies on adverse incidents and providing

instructions as needed.

CS

R/C

orporate Governance

Table 1. Relationships with the Company

Selection criteria regarding relationship with the Company.

is used if the individual in question is applicable to each item, current or recent, while is used if he/she was applicable in the past.

is used if a relative of the individual in question is applicable to each item, current or recent, while

is used if he/she was applicable in the past.1 Type of relationship with the Company:

a. Person executing business of the listed company or its subsidiary

b. Person executing business or non-executive director of the parent of the listed company

c. Person executing business of a fellow subsidiary of the listed company

d. Person/entity dealing with the listed company as its major business partner or the person executing its business

e. Major business partner of the listed company or the person executing its business

f. Consultant, accounting expert or legal expert gaining signifi cant amount of money or properties from the listed company, apart from

offi cer remuneration

g. Major shareholder of the listed company (if such shareholder is a corporation, the person executing its business)

h. Person executing business (himself or herself only) of a business partner of the listed company (applicable to none of d, e or f above)

i. Person executing business (himself or herself only) of another company holding cross-directorships/cross-auditorships with the listed

company

j. Person executing business (himself or herself only) of an entity to which the listed company provides donations

k. Others

Relationships with the Company1

Name Type a b c d e f g h i j k

Toru Hambayashi Coming from another company

Tetsuo Matsumoto Coming from another company ○ ○Tomoharu Washio Professor

(6) Accounting Audit

In accordance with the Japanese Corporate Law and

Financial Instruments and Exchange Law, Daikyo has

concluded an auditing contract with KPMG AZSA LLC (a

member fi rm of the KPMG network) for the auditing of the

Company’s accounts. In addition to regular audits, Daikyo

strives to hold proper discussions, ensure confi rmation with

KPMG AZSA and to perform fair accounting procedures with

regard to accounting issues. There are no confl icts of interest

between Daikyo and the independent auditing company or

its employees engaged in the audits of the Company’s

accounts.

Name of the Certifi ed Public Accountants (CPAs) engaged in the

audits of fi nancial statements for the fi scal year under review

Designated and Engagement Partners:

Yukio Kumaki, Takaki Okano

Composition of the team of assistants to the audit of the fi nancial

statements for the fi scal year under review

CPAs: 13; others: 30

(7) Relationships Between Outside Directors and the Company (Tables 1, 2)

Outside Directors: 3


(8) Resolution Required for Election of Directors

Daikyo’s Articles of Incorporation stipulate that resolutions

for the election of Directors shall be adopted by a majority

vote of the shareholders present who hold one-third or more

of the total of the voting rights of shareholders entitled to

exercise voting rights.

The Articles of Incorporation stipulate that cumulative

voting shall not be used for resolutions concerning the

election of Directors.

(9) Decision-Making Body for Dividend Payments

To enable Daikyo to make fl exible dividend payments, and as

stipulated under Daikyo’s Articles of Incorporation, the

Company may—unless otherwise provided for by laws and

regulations—make decisions concerning dividend payments

and any other matters set forth in Article 459, Paragraph 1,

of the Japanese Corporate Law by Board of Directors’

resolution and not by resolutions made at shareholders’

meetings.

Table 2. Relationships with the Company

Name

Affi liation committee

Independent director

Supplemental explanations for applicable items

Reasons for selection as independent director if applicable



Audit Committee

Toru Hambayashi ○ ○ ○ ○

The Tokyo Stock Exchange was notifi ed of Mr. Hambayashi’s independent director status, as stipulated by the Securities Listing Regulations, since he meets the Company’s independence criteria and is not at risk of creating confl icts of interest with general shareholders.

Major Concurrent Posts: outside director of Unitika Ltd., outside director of FAST RETAILING CO., LTD., and outside director of Maeda Corporation.

Mr. Hambayashi was long a representative director at Nichimen Corporation and Sojitz Corporation. He has extensive international expertise, and still serves as a Senior Economic Consultant on the People’s Republic of China. We appointed Mr. Hambayashi as an indepen-dent director to leverage his international experience in monitoring the Company’s management during globalization. We also seek his opinion and advice on ways to expand the Daikyo Group and improve shareholder value.

Tetsuo Matsumoto ○ ○ ○

Major Concurrent Posts: corporate senior vice president of ORIX Corporation, and president of ORIX Real Estate Corporation (parent of the Company)

Mr. Matsumoto has long served in the real estate business of ORIX Corporation (the Company’s parent company) and ORIX Real Estate Corporation (a subsidiary of the Company’s parent company). Based on his expertise in the integration of real estate and fi nance businesses, we selected Mr. Matsumoto to advise on ways for the Daikyo Group to grow and improve shareholder value and leverage his insights in the management of the Company.

Tomoharu Washio ○ ○ ○ ○

The Tokyo Stock Exchange was notifi ed of Mr. Washio’s independent director status, as stipulated by the Securities Listing Regulations, since he meets the Company’s independence criteria and is not at risk of creating confl icts of interest with general shareholders.

Major Concurrent Posts: professor at the School of International Studies, Kwansei Gakuin University, councilor at the Japan External Trade Organization (JETRO), and councilor at the Institute for International Policy Studies (IIPS)

Mr. Washio has an extensive international background, having worked for JETRO for many years and being posted abroad for a long time. The Company appointed Mr. Washio as an independent director to draw on his interna-tional expertise in overseeing and advising on the Group’s global business development.

(10) Requirements for Extraordinary Resolutions at General Shareholders’ Meetings and Class Shareholders’ Meetings

As stipulated under the Articles of Incorporation, matters

which shall be passed by an extraordinary resolution at

General Shareholders’ Meetings, as provided for under

Article 309, Paragraph 2, of the Japanese Corporate Law,

and at Class Shareholders’ Meetings, as provided for under

Article 324, Paragraph 2, may be approved by two-thirds

or more of the voting rights of the shareholders in

attendance at the meetings, at which shareholders having

one-third or more of the total of the voting rights of all

shareholders entitled to exercise their voting rights must be

in attendance. This serves to ensure the smooth running of

these meetings by alleviating the need for a quorum to be

present for an extraordinary resolution to be taken.

(11) Number of Directors

The Company’s Articles of Incorporation stipulate that the

number of Directors of the Company shall be three or more.

(12) Director and Executive Exemptions from Liability

To enable Directors and executive offi cers to demonstrate

that they are suffi ciently fulfi lling their duties in the roles

expected of them and as stipulated under Daikyo’s Articles


of Incorporation, the Company may, in accordance with

Article 426, Paragraph 1, of the Japanese Corporate Law

and by resolution of the Board of Directors, exempt Directors

(including former directors) and executive offi cers (including

former executive offi cers) from liability set forth in Article 423,

Paragraph 1, of the law to the extent permitted in accordance

with laws and regulations.

(13) Shares with Restricted Voting Rights

To inhibit the dilutive effect of increasing common stock as

much as possible, while at the same time strengthening its

capital base, the Company issued Class 1 preferred stock,

which differs from common stock in that it possesses no

voting rights. Restrictions on the execution of voting rights in

classifi ed stock are defi ned in Article 108, Paragraph 1, 3, of

Japanese Corporate Law.

However, the shareholder of Class 1 preferred stock

(“Preferred Shareholder”) may exercise voting rights at a

General Meeting of Shareholders where no reported item or

proposal with regard to Preferred Shareholder receiving

year-end preferred dividends is submitted, or from the time

when this meeting of shareholders is concluded after a

proposal concerning Preferred Shareholder receiving

preferred dividends was dismissed, until a Board of Directors’

meeting or General Meeting of Shareholders resolves that

Preferred Shareholder shall receive year-end preferred

dividends.

CS

R/C

orporate Governance

Condominium Development and Sales Div.

Corporate Governance Structure

SUPERVISORY FUNCTION EXECUTIVE FUNCTION

President and Representative Executive Officer

Executive Officers

Group Management Meeting

Board of Directors

Audit Committee

(Evaluates activities of Executive Officers)


(Nominates Directors)


(Determines compensation for Directors)

Ordinary General Meeting of Shareholders

Group Audit Department

Group Legal and Compliance Dept.

Group General Affairs & Personnel Dept.

Group Accounting Dept.

Business Division Meeting

Business checks-and-balances system

Independent Auditor

Business support

Business promotion

Group subsidiaries Group Compliance Consultation System

Reporting occurrences of risk Reporting

Monitoring

Selection / dismissal of Directors

Selection / dismissal

of Executive Officers

Oversight reportingSelection / dismissal of

committee members

Reporting

Collective

efforts

Collective

efforts

Accounting

audit report

Audit Committee Secretariat

(14) Other Special Circumstances which May Signifi cantly Affect the Company’s Corporate Governance

To inhibit the dilutive effect of increasing common stock as

much as possible, while at the same time strengthening its

capital base, the Company issued Class 1 preferred stock,

which differs from common stock in that it possesses no

voting rights. Restrictions on the execution of voting rights in

classifi ed stock are defi ned in Article 108, Paragraph 1, 3, of

Japanese Corporate Law.

However, the shareholder of Class 1 preferred stock

(“Preferred Shareholder”) may exercise voting rights at a

General Meeting of Shareholders where no reported item or

proposal with regard to Preferred Shareholder receiving

year-end preferred dividends is submitted, or from the time

when this meeting of shareholders is concluded after a

proposal concerning Preferred Shareholder receiving

preferred dividends was dismissed, until a Board of Directors’

meeting or General Meeting of Shareholders resolves that

Preferred Shareholder shall receive year-end preferred

dividends.

Between the Daikyo Group and the ORIX Group, there are

sales transactions that include joint businesses relating to

condominium and commission sales. In terms of personal

relationships, one Daikyo Group director was concurrently a

director of the ORIX Group, while three directors (one at the

Company and two at the Company’s subsidiaries) were from

ORIX Group. At the same time, the Company operates

independently to maximize corporate value. As personal

relationships with ORIX Corporation are not so close as to

infl uence the Company’s management decisions, the

Company deems that it maintains a certain degree of

independence.


(1) Policy Concerning the Determination of Offi cers’ Compensation

(2) Compensation Paid to Directors and Executive Offi cers in the Fiscal Year Under Review

Notes: 1. Compensation for the fi ve executive offi cers concurrently serving as Directors is segmented and stated in compensation for Directors (Internal) and executive offi cers, respectively. The number of executive offi cers concurrently serving as directors is stated as both Directors (Internal) and executive offi cers.

2. The point-based compensation in the above share price-related compensation in the fi scal year under review is the difference between the amount calculated by multiplying the points held by incumbent directors at the end of the fi scal year under review by the average closing price of Daikyo’s common stock on the Tokyo Stock Exchange during the fi rst 30 trading days starting from the 45th trading day preceding the last day of the fi scal year under review and the amount calculated in the same way on the last day of the previous fi scal year. Share price-related compensation for directors retiring during the year under review, is the difference between the amount calculated by multiplying the similarly calculated amount at the end of the previous fi scal year by the average closing price of Daikyo’s common stock on the Tokyo Stock Exchange during the fi rst 30 trading days starting from the 45th trading day preceding the retirement date.

3. In addition to the above, as fi nal payment for retirement benefi ts, one outside director retiring in the fi scal year under review received ¥1 million, while one executive offi cer retiring in the previous fi scal year received ¥9 million.

4. The above amounts do not include salaries for employees who are also executive offi cers.

2. Total Amount of Compensation for Directors and Executive Offi cers

(3) The Total Value of Compensation of Each Offi cer of the Company

Not stated because there are no personnel with a total compensation of ¥100 million or more.

Classifi cationNumber of persons

Fixed compensation(Millions of yen)

Performance-base compensation(Millions of yen)

Share price-related compensation(Millions of yen)

Total amount(Millions of yen)

Directors (Internal) 6 9 2 (1) 11

Directors (Outside) 5 16 3 (1) 18

Executive Offi cers 12 182 57 27 268

Total 23 209 64 24 297

1. Compensation System

In order to achieve mid- to long-term increases in share-

holder value, emphasis is placed not only on current

performance, but also on mid- to long-term results when

determining compensation for Directors and executive offi -

cers of the Company, and it is believed to effectively function

as an incentive. In deciding the amount of compensation,

the Company considers the balance with the employee

wage levels and executive compensation levels at other

companies and sets compensation at an appropriate level in

accordance with the roles and responsibilities that directors

should fulfi ll to realize the vision to which the Group aspires.

2. Structure of Compensation

Compensation comprises three parts: fi xed compensation,

performance-based compensation and share price-related

compensation. Performance-based compensation is deter-

mined and paid according to the performance of the

Company and consolidated subsidiaries. Share price-related

compensation consists of compensation paid in cash or

shares of stock at the time of retirement in an amount calcu-

lated by multiplying the total of a certain number of points

granted to directors each year by the share price.


(2) Other Important Details Concerning Compensation

There are no notable matters.

There are no notable matters.

No particular policy for the determination of compensation

for the Company’s Certifi ed Public Accountants and assis-

tants has been specifi ed, rather it is determined by consid-

ering the number of days reasonably deemed to be required,

based on the scale of the Company’s business.

Adoption of takeover defense measures None

CS

R/C

orporate Governance

3. Types of Shares Held

4. Total Amount of Compensation for Auditors

5. Details of Non-Audit Operations of the Company of Certifi ed Public Accountants

6. Policy on the Determination of Auditors’ Compensation

7. Other

(1) Investment Shares Held Not Solely for the Purpose of Investment

There are no applicable shares.

(3) Investment Shares Held Solely for the Purpose of Investment

For the year ended March 31, 2014 (Millions of yen)


Total reported on non-consolidated balance sheets


Total dividends received

Total gain or loss on sales

Total amount of valuation gain or loss


Impairment accounting

Unlisted shares 109 109 1 — — —

Shares other than unlisted shares 969 1,123 14 — 621 —



Classifi cationCompensation for

audit certification servicesCompensation for

other servicesCompensation for

audit certifi cation servicesCompensation for

other services

Daikyo (non-consolidated) 115 — 163 —

Consolidated subsidiaries 70 1 72 —

Total 186 1 235 —

(2) Type of Holding, Issuer, Number, Amount on Non-Consolidated Balance Sheet, and Purpose of Investment Shares Held for Purposes Other than Pure Investment

There are no applicable shares.

(1) Compensation Paid to Auditors in the Fiscal Year Under Review

Note: Compensation for audit certifi cation services for the fi scal year ended March 31, 2015, includes compensation for services requested

from the independent auditor of the parent company.


Directors

Katsutoshi Kadowaki*

Yasuhiko Kumojima* Kazuhiko Kaise

Akira Yamaguchi*April 1977 Joined Orient Leasing Co., Ltd.

(now ORIX Corporation)September 2012 Corporate Executive Vice PresidentJune 2013 Director and Corporate Executive Vice PresidentJune 2014 Director, Chairman and Representative Executive

Offi cer of DAIKYO INCORPORATED (current)June 2014 Member of Nominating and Compensation

committee (current)

April 1989 Joined ORIX CorporationJanuary 2014 Deputy Head of Accounting Headquarters and

General Manager of Accounting DepartmentJune 2014 Director, Corporate Executive Vice President (current)June 2014 Executive Offi cer responsible for Group headquarter

functions (current)

April 1981 Joined DAIKYO INCORPORATEDApril 2005 Senior Managing Executive Offi cerJune 2007 Director, Corporate Executive Vice PresidentJune 2010 Representative Director and Vice President of

DAIKYO ASTAGE INCORPORATEDJanuary 2012 Representative Director and President of DAIKYO

REALDO INCORPORATED (now DAIKYO ANABUKI REAL ESTATE INCORPORATED)

June 2013 Director of DAIKYO INCORPORATED (current)

April 1979 Joined DAIKYO INCORPORATEDJuly 1998 Chief General Manager of North Kanto BranchJune 1999 DirectorApril 2005 Director and Managing Executive Offi cerJune 2005 Director, Corporate Senior Vice PresidentJune 2007 Director, Corporate Executive Vice PresidentOctober 2008 Representative Director and President of FUSO

LEXEL INCORPORATEDJune 2010 Director, President and Representative Executive

Offi cer of DAIKYO INCORPORATED (current)June 2010 Member of Nominating and Compensation

committees (current)June 2014 Representative Director and President of DAIKYO

ASTAGE INCORPORATED (current)

Directors and Executive Offi cers


*Indicates directors concurrently serving as executive offi cers.

Note: Toru Hambayashi, Tetsuo Matsumoto and Tomoharu Washio are outside directors pursuant to Japanese Corporate Law.

Tomoharu Washio

Toru Hambayashi Tetsuo Matsumoto

April 1970 Joined Japan External Trade Association (now Japan External Trade Organization)

April 1996 Member of Japan of Working Group on Trade and Investment for ASEAN Economic Minister. Minister of International Trade and Industry of Japan Meeting

January 2002 Representative of JETRO CHICAGO, Japan External Trade Organization

April 2005 General Manager of Overseas Investigation Department

October 2008 Sperial advisorOctober 2008 General Manager of International Affairs Dept.,

The Japan Economic FoundationApril 2010 Professor at School of International Studies, Kwansei

Gakuin UniversityJune 2015 Director of DAIKYO INCORPORATED (current)June 2015 Member of Nominating, Audit and Compensation

committees (current)

April 1959 Joined Japan Cotton Trading Co., Ltd. (predecessor of Nichimen Corporation)

April 1989 DirectorOctober 2000 Representative Director and PresidentApril 2003 Chairman and co-CEO of Nissho Iwai-Nichimen

Holdings Corporation (now Sojitz Corporation)June 2004 Outside Corporate Auditor of Unitika Ltd. (current)November 2005 Outside Director of FAST RETAILING CO., LTD.

(current)June 2007 Outside Director of MAEDA CORPORATION (current)June 2011 Director of DAIKYO INCORPORATED (current)June 2011 Member of Nominating, Audit and Compensation

committees (current)

April 1974 Joined Orient Leasing Co., Ltd. (now ORIX Corporation)

April 2001 Deputy President of Orix Real Estate Kabushiki Kaisha (now ORIX)

June 2007 Managing Director of ORIX CorporationJune 2012 Vice ChairmanJune 2014 Director of DAIKYO INCORPORATED (current)June 2014 Member of Nominating, Audit and Compensation

committees (current)January 2015 Vice Chairman of ORIX Real Estate CorporationMarch 2015 President of ORIX Real Estate Corporation (current)March 2015 Corporate Senior Vice President, ORIX Corporation

(current)

Directors and Executive O

ffi cers

(As of July 1, 2015)

Chairman and Representative

Executive Offi cer Katsutoshi Kadowaki*

President and Representative

Executive Director Akira Yamaguchi*

Corporate Executive

Vice President Eiji Ochiai

Corporate Executive

Vice President Yasuhiko Kumojima*

Executive Offi cer Kunihiko Numanyu

Executive Offi cer Konosuke Miyakawa

Executive Offi cer Katsumi Kubota

Executive Offi cer Yukihito Seri

Executive Offi cer Yoshihisa Fujihira

Executive Offi cer Masaki Ushizawa

Executive Offi cers



Financial Section

Management’s Discussion & Analysis

10-Year Financial Summary

Consolidated Balance Sheets

Consolidated Statements of Income

and Comprehensive Income

Consolidated Statements of Changes

in Net Assets

Consolidated Statements of Cash Flows

Notes to Consolidated Financial

Statements

Independent Auditors’ Report

45

50

52

54

55

57

58

78


OVERVIEWDuring the fi scal year ended March 31, 2015, the Japanese

economy held steady overall, generally maintaining course

on a path of gradual recovery. This was largely attributable

to a marked trend of improvement over the latter half of the

fi scal year with respect to corporate revenues and exports,

despite a slowdown in the fi rst half due to such factors as a

dip in personal spending resulting from the consumption tax

rate hike, amid a scenario of yen depreciation coupled with

a recovering upward trend in stock prices driven largely by

the government’s economic stimulus measures and additional

monetary easing by the Bank of Japan.

The condominium market generally remained fi rm, with

support provided by steady demand against a backdrop

of factors such as low mortgage interest rates and the

government’s stimulus policy for homebuyers, despite signs

of cautious sentiment associated with the consumption tax

rate hike.

In the real estate management market, there was a visible

trend toward upgrades and expansion of services beyond

those involving conventional condominium and building

management, amid growing customer needs associated with

heightening cost consciousness and increasingly diverse

lifestyles.

The real estate brokerage market remained fi rm partially

thanks to demand from overseas investors and shifting

attitudes toward existing residences, despite relatively fewer

sales contracts in comparison with results achieved in last

year’s favorable market.

OPERATING RESULTSIn this business environment, the Daikyo Group pursued

effi ciency- oriented management of operations geared toward

improving profi tability, and also implemented organizational

restructuring with the aim of reinforcing its “stock” business.

Moreover, the Daikyo Group pursued innovation in its existing

businesses, such as by developing new business that involves

making use of periods when people’s vacation homes would

otherwise go unoccupied and establishing new operations in

Okinawa and overseas, while also taking on initiatives involving

new business ventures both within and outside Japan.

During the fi scal year under review, net sales decreased

¥16,659 million, or 5.0% year on year, to ¥317,154 million,

operating income increased ¥1,214 million, or 7.2%, to ¥18,124

million, and ordinary income increased ¥1,056 million, or 6.7%,

to ¥16,703 million. Meanwhile, net income decreased ¥8,635

million, or 41.5% year on year, to ¥12,154 million, due to factors

including the posting of a gain on negative goodwill in the

previous fi scal year.

Additionally, the Company has initiated changes to

accounting policies effective beginning with the fi scal

year under review. As such, those changes have been

retrospectively applied to fi gures in this report for the previous

fi scal year.

Management’s Discussion & Analysis

Managem

ent’s Discussion &

Analysis

RESULTS BY SEGMENTThe results are broken down by segment as follows. The amounts reported for each segment include inter-segment sales.

Performance by Segment Millions of yen

Category

Fiscal year ended March 31, 2014 Fiscal year ended March 31, 2015 Change

Net SalesOperating Income Net Sales

Operating Income Net Sales

Operating Income

Real Estate Development and Sales 142,765 7,863 120,712 10,121 (22,052) 2,258

Real Estate Management 158,257 9,724 158,070 8,331 (187) (1,392)

Real Estate Brokerage 36,632 2,388 41,862 2,840 5,229 452

Adjustments (Eliminations or Corporate Assets/Expenses) (3,841) (3,065) (3,490) (3,169) 350 (103)

Total 333,813 16,910 317,154 18,124 (16,659) 1,214

Fiscal 2013 fi gures are presented retroactively in accordance with the change in accounting policy.



In the real estate development and sales segment, net sales

were ¥120,712 million, a decrease of ¥22,052 million year on

year. The decline is attributable to 724 fewer units sold and a

corresponding ¥25,407 million drop in sales compared with

the previous fi scal year, for total condominium sales of 3,066

units amounting to ¥106,695 million. However, operating

income increased ¥2,258 million year on year to ¥10,121

million, largely due to a positive contribution to earnings from

Anabuki Construction Inc., which had been limited in the


The number and amount of contracted condominium sales

at the end of the fi scal year were 2,025 units and ¥76,098

million. These two fi gures marked decreases of 292 units

and ¥5,982 million compared with the end of the previous

fi scal year.

Major properties in terms of net sales (condominium

development and sales)

Osaka Hibikino Machi—The Sanctus Tower Osaka City, Osaka

The Seasons Gran Alt Koshigaya Laketown Koshigaya, Saitama

Lions Kitaurawa Station Residence Saitama City, Saitama

Lions Ibaraki New City A Block Ibaraki, Osaka

Surpass Fuzoku-chu Mae Miyazaki City, Miyazaki


In the real estate management segment, although

management income increased ¥1,529 million year on year

to ¥81,654 million, segment net sales decreased ¥187 million

to ¥158,070 million, largely due to a ¥1,762 million decrease

in contract work income to ¥66,209 million. Meanwhile,

operating income decreased ¥1,392 million year on year to

¥8,331 million, partially as a result of efforts geared toward

reinforcing the personnel structure to improve service quality.

At the end of the fi scal year, the number of condominium

units managed increased 9,473 units to 526,131 units and the

volume of contract work orders received was ¥31,478 million,

an increase of ¥7,812 million compared with the end of the



Despite a year-on-year decline in real estate brokerage income

of ¥533 million to ¥7,453 million, total net sales in the real

estate brokerage segment increased ¥5,229 million to ¥41,862

million, and operating income increased ¥452 million to ¥2,840

million, owing to a year-on-year increase in real estate sales of

¥5,663 million to ¥23,750 million.

FINANCIAL CONDITIONTOTAL ASSETS

Total assets as of March 31, 2015 were ¥324,610 million, up

¥26,797 million compared with the end of the previous fi scal

year. This resulted mainly from increases in securities and

inventories of ¥10,069 million and ¥12,256 million, respectively.

LIABILITIES

Total liabilities were ¥168,121 million, up ¥15,295 million

compared with the end of the previous fi scal year, largely

attributable to an increase of ¥21,834 million in deposits offset

by a decrease of ¥6,321 million in interest-bearing debt.

NET ASSETS

Net assets gained ¥11,501 million from the end of the previous

fi scal year to ¥156,488 million. This was attributable to an

increase of ¥10,220 million in retained earnings, which resulted

from net income for the fi scal year under review of ¥12,154

million, offset by a corresponding decrease of ¥2,604 million

due to payment of dividends from surplus. Furthermore, the

shareholders’ equity ratio was 48.2%, which is 0.5 percentage

point lower than the ratio at the end of the previous fi scal year,

and net assets per share amounted to ¥181.42, an increase

of ¥13.73.

Additionally, the Company has initiated changes to accounting

policies effective beginning with the fi scal year under review.

As such, those changes have been retrospectively applied to

fi gures in this report for the previous fi scal year.

CASH FLOWSAs of March 31, 2015, the Group had cash and cash equivalents

(hereinafter referred to as “cash”) of ¥96,526 million, up ¥112

million compared with the end of the previous fi scal year.

Net cash provided by operating activities during the fi scal

year ended March 31, 2015 was ¥20,079 million, compared

with ¥20,220 million provided in the previous fi scal year. This

refl ects such factors as an increase in funds from recording of

income before income taxes and minority interests of ¥16,619

million and a gain in deposits payable of ¥21,076 million,

against a decrease in funds as a result of a gain in inventories

of ¥12,404 million.

Net cash used in investing activities was ¥11,034 million,

compared with a ¥25,560 million decrease in the previous fi scal

year. This refl ects such factors as an increase in funds due to

proceeds from withdrawal of time deposits of ¥18,183 million,

against a decrease in funds due to payments for purchase

of marketable securities of ¥26,000 million and payments into

time deposits of ¥2,000 million.


Managem


Analysis

Net cash used in fi nancing activities was ¥8,994 million,

compared with a ¥14,069 million decrease in the previous

fi scal year. This refl ects such factors as a decrease in long-

term borrowings of ¥7,187 million and cash dividends paid of

¥2,600 million.

RISK FACTORSItems within this report that are not statements of historical

fact constitute forward-looking statements that are based on

management’s evaluation of circumstances as of the fi scal

year-end. Accordingly, statements may differ materially from

actual results due to changes in the economic environment

and operating conditions.

As of March 31, 2015, the Group has identifi ed certain

risks that it believes may materially impact its performance

and fi nancial position. In addition, readers are advised that

unforeseen risks that can signifi cantly affect the Group’s

performance and fi nancial position may arise in the future

due to changes in the economic environment and operating

conditions.

The Group is committed to identifying risks on an individual

basis and appropriately evaluating each one in an effort to

establish an optimal risk management system.

The major risks identifi ed as of March 31, 2015 are as follows.

REAL ESTATE MARKET RISK

The performance of condominium development and sales,

the mainstay activity of the Real estate development and

sales segment, may experience fl uctuations due to the

impact of market conditions. To be more specifi c, the Group

is particularly susceptible to movements in land prices and

construction costs, the supply of condominiums by and the

product prices of its competitors. In addition, a signifi cant drop

in housing demand could be caused in the case of an increase

in interest rates, an economic downturn, or deterioration in

corporate earnings, personal consumption or changes in real

estate-related taxes brought about by fl uctuating economic

conditions. As a result, a decline in the value of assets held

may affect the Group’s performance and fi nancial position.

Regarding real estate inventories held, in the event that

there is a major decrease in prices due to such factors as

a worsening of market conditions, losses may be incurred

accompanying the loss on devaluation of inventories held

by the Group. Consequently, the performance and fi nancial

position of the Group may be affected.

REAL ESTATE MANAGEMENT MARKET RISK

The Group’s real estate management segment’s performance

may be adversely affected if management fees decline owing

to reduced numbers of condominiums and buildings under

management as a result of intensifi ed competition.

OTHER MARKET RISKS (LIQUIDITY, INTEREST RATE, SHARE PRICE

AND CURRENCY EXCHANGE FLUCTUATIONS)

Funding to support the Real estate development and sales

segment is mainly procured from fi nancial institutions in the

form of debt. In the event that the Group’s credit capacity

decreases due to deteriorating performance, the procurement

of fi nancing becomes diffi cult due to a worsening fi nancial

situation or existing interest rates rise above expectations, the

Group’s performance may be affected.

As part of its operating and investment activities, the Group

maintains equity in publicly listed and private companies. In the

event of a signifi cant devaluation in the Group’s holdings due to

an across-the-board and substantial decline in share prices, the

Group’s performance may be affected.

In addition, the Group, which has overseas subsidiaries in

Taiwan, Hong Kong and Australia, may be adversely affected

by the appreciation in the value of the yen over Taiwan dollars,

Australian dollars and Hong Kong dollars due to currency

exchange rates.

CREDIT RISK

In the course of operations of Real estate development and

sales and Real estate management, the Group enters into

construction agreements with a number of construction

and contracting companies. In the event that a construction

company suffers a material loss or credibility, which contributes

to a delay in project completion, the Group’s performance may

be affected.


CONDOMINIUM DEVELOPMENT AND SALES RISKS

The Group is engaged in the evaluation and survey of

development sites, acquisition, condominium design,

construction and sales. As such, an individual development

project extends over a signifi cant period before income is

collected and secured.

Furthermore, the Group’s condominium development

and sales business is subject to a variety of public authority

approvals and procedures, including explanations of planned

developments to local and neighboring residents. Accordingly,

the Group is subject to a variety of business risks that could

adversely affect performance. These risks are outlined as

follows.

Opposition by Local and Neighboring Residents

In addition to acquiring all necessary approvals stipulated

under the Building Standards Act, the City Planning Act

and other related laws for each particular condominium

development, as well as adhering to local government

guidelines, the Group strives to obtain the opinions of

neighboring residents and the local community.

At the same time, the Group endeavors to ensure

harmony with the local environment and protect natural

surroundings. Notwithstanding the acquisition of

necessary approval, in the event the Group is forced to

delay the development process or amend its initial sales

plans due to opposition and negotiations with local and

neighboring residents, the Group’s performance may be

affected.

Site Risk, Soil Contamination

Prior to acquiring land for condominium development,

the Group makes every possible effort to ascertain the

presence of buried objects, soil pollution caused by

chemical substances that are not suitable for a living

environment. In addition, the Group imposes a liability

on the seller at the time of purchase and sale agreement

execution to cover soil contamination and damage in an

effort to minimize risk.

In the event, however, any ensuing damage materially

exceeds expectations or the seller is unable to meet the

amount of damages incurred, thereby resulting in changes

in original development plans, delay in completion or

increase in costs, the Group’s business performance may

be affected.

Incidence of Defects

With regard to condominium construction work, the

Group places orders with construction companies that

possess suffi cient technical expertise, based on its

own in-house standards, and has systems in place to

comply with mandatory building regulations, including

earthquake resistance. In addition to enforcing strict quality

management controls that meet proprietary quality and

design standards and those of technical reviews upon

each construction project, multiple checks are carried out

at each stage of design and construction.

In the event, however, an unforeseen circumstance

involving an incidence of a design or construction defect

arises, the Group could be held liable and incur repair work

and compensation costs. The terms and extent of any

such loss may affect Group performance.

OPERATIONAL RISK

The Group is aware that it faces a wide range of operational

risks in the performance of its business, such as improper

sales practices, employee fraud, administrative errors and

the occurrence of labor disputes. The Group endeavors to

control such operational risks and maintain a reasonable

level of management control. However, the Group’s business

performance may be affected should a decline in sales result

from the Group falling into disrepute or incurring payments

for damages stemming from a case involving any of the

abovementioned risks.

LEGAL RISK

Because the businesses conducted by the Group are subject

to real estate-related laws, the Group’s performance may be

affected by new obligations and higher expenses arising from

possible amendments made to real estate-related laws, such

as the Building Lots and Building Transaction Business Act,

the Building Standards Act, the City Planning Act, the Act on

Advancement of Proper Condominium Management and the

Construction Business Act, or if new real estate-related laws

are established.

PERSONAL INFORMATION RISK

The Group maintains a signifi cant volume of personal

information on parties such as real estate purchasers,

individuals contemplating the purchase of real estate and

compartmentalized owners in the real estate management

business. The Group maintains internal rules and systems to

handle personal information in accordance with the Personal

Information Protection Act. However, in the event of an

unforeseen circumstance whereby personal information is lost

or leaked, resulting in loss of credibility, a decline in sales or a

claim for damages, the Group’s performance may be affected.


Managem


Analysis

SYSTEM RISK

The Group implements measures including data backup to

ensure the safety and reliability of its computer systems. In

the event of unforeseen circumstances in which the Group’s

systems are suspended, resulting in damages that signifi cantly

impact the Group’s business process and activities,

performance may be affected.

DISASTER RISK

The Group’s performance may be affected by earthquakes

or other natural disasters, including wind and fl ood damage,

accidents, and fi res, or by terrorist attacks.

DEFERRED TAX ASSETS

The Group has accrued tax loss carryforwards, which are

recorded under deferred tax assets in the Group’s consolidated

fi nancial statements. Deferred tax assets are recorded

after consideration of the likelihood of realization, based on

forecasts of future taxable income. However, deferred tax

assets may have an impact on the Group’s net income for the

period in the event of an adjustment becoming necessary due

to subsequent business performance.

Once the tax loss carryforwards are fully used or have

expired within the allowable number of years under tax

regulations, the tax benefi t is regarded as having been lost,

and the Group will be required to pay corporation tax at the

standard rate, which will affect on Group’s net income and

cash fl ows.

GOODWILL

The Group accounts for goodwill occurring in conjunction

with business acquisitions. The Group believes that its future

earnings power, gained from results demonstrated in the

value of each business and the synergistic effects of business

integration, is appropriately refl ected in the goodwill recorded

in the balance sheet. However, if anticipated performance

does not occur due to such factors as changes in business

conditions and competition, impairment losses could be

incurred that may affect the Group’s performance.

PREFERRED STOCK

Class 1 preferred stock issued by the Company (referred to

as “preferred stock”) includes acquisition rights which provide

that a holder of preferred stock can request that the Company

acquires their preferred stock in exchange for common stock.

The period for requesting acquisition of such preferred stock

is 18 years from October 1, 2007. Should common stocks be

issued in accordance with a request for acquisition of preferred

stock, the number of common stocks will increase and

consequently the price of common stocks may be affected.

However, as of June 23, 2015 the Company has received no

requests for acquisition of any such preferred stock.

RELATIONSHIP WITH THE ORIX GROUP

On February 27, 2014, the Company became a consolidated

subsidiary of ORIX Corporation. The relationship between the

Group and ORIX Corporation and its subsidiaries and affi liates

(hereinafter referred to as “ORIX Group”) as of March 31, 2015,

is stated below.

Capital Relationship

ORIX Corporation holds 547,490 thousand of the

Company’s shares (537,490 thousand in common stock

and 10,000 thousand in preferred stock), accounting for

64.14% of the Company’s outstanding shares (62.97%

in common stock and 1.17% in preferred stock). ORIX

Corporation holds 64.3% of the voting rights attributable

to the Company’s shares (including 0.02% held indirectly),

and the Company is an affi liate of ORIX Corporation

pursuant to the equity method of accounting.

Personal Relationship

One of the Group’s offi cers also serves as an offi cer in

the ORIX Group, and three of the Group’s offi cers have

been seconded from the ORIX Group (one serves in the

Company and two in a subsidiary).

Business Relationship

In addition to joint projects and contract sales related to

condominium sales, the Group does business with the

ORIX Group that involves sales and other activities related

to building management and construction. The Group

evaluates each transaction in terms of its profi tability,

signifi cance, and transparency.

Although the Group operates independently, its

credibility and operations could be affected by changes in

the relationship with the ORIX Group.


295.3 302.6

333.8317.1

298.6

2015201420122011 2013

319.0

275.4297.8

324.6

290.2

2015201420122011 2013

13.5

22.1

16.918.1

22.0

2015201420122011 2013

140.3

69.1 63.657.3

91.0

2015201420122011 2013

9.7

15.5

20.7

12.1

21.7

2015201420122011 2013

96.7

131.3

144.9156.4

117.6

2015201420122011 2013

10-Year Financial SummaryDaikyo Incorporated and its consolidated subsidiariesFor the years ended March 31, 2006–2015

2006 2007 2008 2009

FOR THE YEAR:

Net sales ¥434,302 ¥376,666 ¥394,102 ¥351,623

Gross profi t (loss) 70,456 71,853 68,739 (6,612)

Operating income (loss) 30,237 34,994 31,117 (44,075)

Net income (loss) 31,899 24,683 16,255 (56,414)

AT YEAR-END:

Total assets ¥400,886 ¥429,362 ¥464,733 ¥367,521

Interest-bearing debt 164,128 188,503 228,648 182,449

Net assets 91,080 98,853 113,201 62,820

PER SHARE DATA (yen and U.S. dollars):

Net income (loss) ¥97.61 ¥ 74.33 ¥ 46.84 ¥(164.87)

Net assets 93.26 204.43 268.87 79.81

RATIOS:

ROE (%) 44.1 27.7 16.3 (64.4)

ROA (%) 7.3 8.4 7.0 (10.6)

Shareholders’ equity ratio (%) 22.7 20.3 24.2 17.1

Debt to equity ratio (times) 1.80 2.16 2.03 2.91

OTHER:

Number of employees 6,511 6,524 6,809 6,894

Notes: 1. All dollar fi gures herein refer to U.S. currency. Dollar amounts are translated from yen, for convenience only, at ¥120.17=US$1.00,

the approximate exchange rate prevailing on March 31, 2015.

2. Fiscal 2011 and fi scal 2013 fi gures are presented retroactively.

The method for calculating employee numbers changed from fi scal 2011. Contract and temporary employees are excluded from

the number of employees.

Shareholders’ equity ratio = (Net assets – Share subscription rights – Minority interests) / Total assets

Debt to equity ratio = Interest-bearing debt / (Net assets – Share subscription rights – Minority interests)

Net sales(Billions of yen)

Total assets(Billions of yen)

Net income(Billions of yen)

Net assets(Billions of yen)

Operating income(Billions of yen)

Interest-bearing debt(Billions of yen)


20.18

33.25

43.32

14.37

47.43

2015201420122011 2013

136.78

214.99

167.69181.42184.10

2015201420122011 2013

30.3

48.7 48.2

40.5

47.7

2015201420122011 2013

1.45

0.530.44

0.37

0.77

2015201420122011 2013

4.2

7.8

5.9 5.8

7.2

2015201420122011 2013

10.6

12.5

15.3

8.0

20.3

2015201420122011 2013

10

-Year Financial Sum

mary

Millions of yenThousands of

U.S. dollars (Note 1)

2010 2011 2012 2013 2014 2015 2015

¥318,356 ¥295,374 ¥298,696 ¥302,610 ¥333,813 ¥317,154 $2,639,214

36,527 39,415 46,711 48,635 49,388 48,209 401,176

9,098 13,597 22,069 22,102 16,910 18,124 150,827

6,307 9,752 21,787 15,535 20,790 12,154 101,142

¥330,456 ¥319,085 ¥290,261 ¥275,442 ¥297,812 ¥324,610 $2,701,258

160,760 140,304 91,032 69,164 63,646 57,324 477,030

87,367 96,723 117,629 131,314 144,986 156,488 1,302,226

¥ 16.52 ¥ 20.18 ¥ 47.43 ¥ 33.25 ¥ 43.32 ¥ 14.37 $0.12

116.67 136.78 184.10 214.99 167.69 181.42 1.51

8.4 10.6 20.3 12.5 15.3 8.0

2.6 4.2 7.2 7.8 5.9 5.8

26.4 30.3 40.5 47.7 48.7 48.2

1.84 1.45 0.77 0.53 0.44 0.37

7,257 7,226 3,712 3,940 5,088 5,196

3. Since fi scal 2006, the Company has calculated net assets by applying the Accounting Standard for Presentation of Net Assets in

the Balance Sheet (Accounting Standards Board of Japan Statement No. 5) and the Guidance on Accounting Standard for

Presentation of Net Assets in the Balance Sheet (ASBJ Guidance No. 8).

Net income per share (Yen)

ROE(%)

Net assets per share (Yen)

ROA(%)

Shareholders’ equity ratio(%)

Debt to equity ratio(Times)




ASSETS 2014 2015 2015

CURRENT ASSETS:

Cash and deposits (Notes 6 and 17) ¥ 96,622 ¥ 96,540 $ 803,368

Notes and accounts receivable–trade (Note 6) 18,455 19,157 159,422

Allowance for doubtful accounts (Note 6) (24) (52) (440)

Marketable securities (Notes 6 and 8) 16,000 26,069 216,941

Inventories (Notes 5 and 10) 103,962 116,643 970,652

Advance payments 539 777 6,470

Deferred tax assets (Note 12) 5,707 3,824 31,826

Prepaid expenses and other current assets 5,492 12,358 102,845

Total current assets 246,755 275,319 2,291,086

PROPERTY AND EQUIPMENT:

Land (Note 10) 13,674 13,453 111,957

Buildings and structures 6,943 6,973 58,026

Furniture and other equipment 1,702 1,866 15,532

22,319 22,293 185,516

Accumulated depreciation (4,353) (4,466) (37,169)

Net property and equipment 17,966 17,826 148,347

INVESTMENTS AND OTHER ASSETS:

Investment securities (Notes 6 and 8) 1,352 1,496 12,450

Other investments 1,639 1,792 14,914

Allowance for doubtful accounts (Note 6) (264) (275) (2,294)

Net defi ned benefi t asset — 145 1,208

Deferred tax assets (Note 12) 930 644 5,365

Goodwill 12,463 11,422 95,049

Other assets (Note 10) 16,969 16,238 135,130

Total investments and other assets 33,091 31,463 261,825

Total assets ¥297,812 ¥324,610 $2,701,258

The accompanying notes are an integral part of these consolidated fi nancial statements.

Consolidated Balance SheetsAs of March 31, 2014 and 2015


Consolidated B

alance Sheets



LIABILITIES AND NET ASSETS 2014 2015 2015

CURRENT LIABILITIES:

Short-term borrowings (Notes 6 and 10) ¥ — ¥ 891 $ 7,414

Current portion of long-term debt (Notes 6 and 10) 20,193 26,546 220,908

Notes and accounts payable–trade (Note 6) 30,103 36,180 301,079

Advances received 11,656 11,377 94,676

Accrued expenses 5,203 4,873 40,555

Deposits received 10,426 32,260 268,456

Income taxes payable (Note 12) 5,219 1,305 10,862

Deffered tax liabilities (Note 12) 66 53 446

Other current liabilities 5,194 5,039 41,939

Total current liabilities 88,065 118,528 986,338

LONG-TERM LIABILITIES:

Long-term debt (Notes 6 and 10) 43,452 29,887 248,707

Deferred tax liabilities (Note 12) 2,661 2,422 20,155

Net defi ned benefi t liability (Note 11) 10,136 8,894 74,016

Other liabilities (Note 10) 8,511 8,389 69,813

Total long-term liabilities 64,761 49,593 412,693

Total liabilities 152,826 168,121 1,399,032

CONTINGENT LIABILITIES (Note 13)

NET ASSETS: (Note 14)

Shareholders’ equity:

Capital stock

Common stock

Authorized: 1,152,400,000 shares

at March 31, 2014 and 2015

Issued: 843,542,737 shares at March 31, 2014 and 2015

Preferred stock (Note 15)

Authorized: 10,000,000 shares at March 31, 2014 and 2015

Issued: 10,000,000 shares at March 31, 2014 and 2015 41,171 41,171 342,610

Capital surplus 38,098 38,098 317,035

Retained earnings 67,842 78,063 649,606

Treasury stock (1,326) (1,331) (11,079)

145,785 156,001 1,298,173

Accumulated other comprehensive income:

Net unrealized gains on other securities (Note 8) 332 478 3,978

Foreign currency translation adjustments 23 17 146

Remeasurements of defi ned benefi t plans (Note 11) (1,182) (8) (72)

(826) 487 4,053

Minority interests 27 — —

Total net assets 144,986 156,488 1,302,226

Total liabilities and net assets ¥297,812 ¥324,610 $2,701,258



Consolidated S

tatements of Incom

e and C

omprehensive Incom

e

CONSOLIDATED STATEMENTS OF INCOME



2014 2015 2015

NET SALES ¥333,813 ¥317,154 $2,639,214

COST OF SALES 284,424 268,945 2,238,038

Gross profi t 49,388 48,209 401,176

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 32,478 30,084 250,349

Operating income 16,910 18,124 150,827

OTHER INCOME (EXPENSES):

Interest and dividend income 118 91 757

Interest expense (912) (665) (5,534)

Payment of reconciliation (62) (310) (2,582)

Gain on negative goodwill 10,213 — —

Impairment loss on fi xed assets (229) (99) (824)

Gain on step acquisitions 1,204 — —

Reversal of provision incurred from business combination 268 64 540

Loss on revision of retirement benefi t plan (2,092) — —

Other, net (675) (586) (4,881)

Income before income taxes and minority interests 24,744 16,619 138,302

INCOME TAXES (Note 12):

Current 7,424 2,835 23,599

Deferred (3,473) 1,627 13,546

Income before minority interests 20,792 12,155 101,156

Minority interests in income 2 1 13

Net income ¥ 20,790 ¥ 12,154 $ 101,142

Yen U.S. dollars (Note 4)

PER SHARE:

Net income ¥43.32 ¥14.37 $0.12

Fully diluted net income 24.42 14.27 0.12

Cash dividends - common stock 3.00 3.00 0.02

Cash dividends - Preferred stock Class 1 8.44 8.28 0.07

Consolidated Statements of Income and Comprehensive IncomeFor the years ended March 31, 2014 and 2015

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



2014 2015 2015

Income before minority interests ¥20,792 ¥12,155 $101,156

Other comprehensive income:

Net unrealized gains on other securities 140 145 1,207

Foreign currency translation adjustment 68 (5) (45)

Remeasurements of defi ned benefi t plans — 1,174 9,770

Total other comprehensive income 208 1,313 10,932

Comprehensive income (Note 16) ¥21,001 ¥13,469 $112,089

Comprehensive income attributable to owners of the parent 20,998 13,468 112,075

Comprehensive income attributable to minority interests 2 1 13



Consolidated S

tatements of C

hanges in Net

Assets

Consolidated Statements of Changes in Net AssetsFor the years ended March 31, 2014 and 2015

Millions of yen

SHAREHOLDERS’ EQUITY

Capital Stock Capital SurplusRetained Earnings Treasury Stock

Total Shareholders’

Equity

Balance at April 1, 2013 ¥41,171 ¥38,098 ¥53,186 ¥(1,314) ¥131,142 Cumulative effects of changes in accounting policies

(3,967) (3,967)

Restated balance 41,171 38,098 49,218 (1,314) 127,174 Changes during the year: Cash dividends (2,165) (2,165) Net income 20,790 20,790 Acquisition of treasury stock (14) (14) Retirement of treasury stock (0) 1 1 Transfer from retained earnings to capital surplus 0 (0) — Other changes during the year, net

Total change during the year, net — — 18,624 (12) 18,611

Balance at April 1, 2014 ¥41,171 ¥38,098 ¥67,842 ¥(1,326) ¥145,785

Cumulative effects of changes in accounting policies 670 670 Restated balance 41,171 38,098 68,513 (1,326) 146,456 Changes during the year: Cash dividends (2,604) (2,604) Net income 12,154 12,154 Acquisition of treasury stock (4) (4) Retirement of treasury stock (0) 0 0 Transfer from retained earnings to capital surplus 0 (0) — Other changes during the year, net


Balance at March 31, 2015 ¥41,171 ¥38,098 ¥78,063 ¥(1,331) ¥156,001

Millions of yen

ACCUMULATED OTHER COMPREHENSIVE INCOME

MINORITY INTERESTS

TOTAL NET ASSETS

Net Unrealized Gains on Other

Securities

Foreign Currency

Translation Adjustments

Remeasure-ments of

Defi ned Benefi t Plans

Total Accu-mulated Other Comprehensive

Income

Balance at April 1, 2013 ¥192 ¥(44) ¥ — ¥ 147 ¥ 24 ¥131,314 Cumulative effects of changes in accounting policies

(0) (3,967)

Restated balance 192 (44) — 147 24 127,346 Changes during the year: Cash dividends (2,165) Net income 20,790 Acquisition of treasury stock (14) Retirement of treasury stock 1 Transfer from retained earnings to capital surplus

—

Other changes during the year, net 140 68 (1,182) (974) 2 (971)

Total change during the year, net 140 68 (1,182) (974) 2 17,639

Balance at April 1, 2014 ¥332 ¥23 ¥(1,182) ¥ (826) ¥ 27 ¥144,986

Cumulative effects of changes in accounting policies

670

Restated balance ¥332 ¥23 ¥(1,182) ¥ (826) ¥ 27 ¥145,657 Changes during the year: Cash dividends (2,604) Net income 12,154 Acquisition of treasury stock (4) Retirement of treasury stock 0 Transfer from retained earnings to capital surplus

—

Other changes during the year, net 145 (5) 1,174 1,313 (27) 1,286

Total change during the year, net 145 (5) 1,174 1,313 (27) 10,831

Balance at March 31, 2015 ¥478 ¥17 ¥ (8) ¥ 487 ¥ — ¥156,488


Consolidated Statements of Changes in Net Assets (continued)For the years ended March 31, 2014 and 2015

Thousands of U.S. dollars (Note 4)

SHAREHOLDERS’ EQUITY

Capital Stock Capital SurplusRetained Earnings Treasury Stock

Total Shareholders’

Equity

Balance at April 1, 2014 $342,610 $317,035 $564,557 $(11,042) $1,213,162


5,581 5,581

Restated balance 342,610 317,035 570,138 (11,042) 1,218,743 Changes during the year: Cash dividends (21,675) (21,675) Net income 101,142 101,142 Acquisition of treasury stock (38) (38) Retirement of treasury stock (0) 0 0 Transfer from retained earnings to capital surplus 0 (0) — Other changes during the year, net


Balance at March 31, 2015 $342,610 $317,035 $649,606 $(11,079) $1,298,173

Thousands of U.S. dollars (Note 4)

ACCUMULATED OTHER COMPREHENSIVE INCOME

MINORITY INTERESTS

TOTAL NET ASSETS

Net Unrealized Gains on Other

Securities

Foreign Currency

Translation Adjustments

Remeasure-ments of

Defi ned Benefi t Plans

Total Accu-mulated Other Comprehensive

Income

Balance at April 1, 2014 $2,770 $192 $(9,842) $(6,879) $ 230 $1,206,513


5,581

Restated balance 2,770 192 (9,842) (6,879) 230 1,212,094 Changes during the year: Cash dividends (21,675) Net income 101,142 Acquisition of treasury stock (38) Retirement of treasury stock 0 Transfer from retained earnings to capital surplus

—

Other changes during the year, net 1,207 (45) 9,770 10,932 (230) 10,702

Total change during the year, net 1,207 (45) 9,770 10,932 (230) 90,132

Balance at March 31, 2015 $3,978 $146 $ (72) $ 4,053 $ — $1,302,226

Consolidated S

tatements of C

hanges in Net

Assets




2014 2015 2015

CASH FLOWS FROM OPERATING ACTIVITIES:

Income before income taxes and minority interests ¥ 24,744 ¥ 16,619 $ 138,302

Adjustments for:

Depreciation and amortization 2,658 2,874 23,921

Impairment loss on fi xed assets 229 99 824

Changes in allowance for doubtful accounts (37) 38 324

Gain on negative goodwill (10,213) — —

Interest and dividend income (118) (91) (757)

Interest expense 912 665 5,534

Loss on sales and retirement of property and equipment 192 47 394

Gain on step acquisitions (1,204) — —

Loss on revision of retirement benefi t plan 2,092 — —

Changes in notes and accounts receivable-trade (4,251) (884) (7,364)

Changes in advances received (2,933) (278) (2,315)

Changes in real estate inventories and advance payments 21,300 (12,404) (103,227)

Changes in notes and accounts payable-trade (7,814) 6,118 50,911

Changes in deposits payable (3,293) 21,076 175,387

Other 2,324 (4,281) (35,629)

Sub-total 24,587 29,598 246,307

Interest and dividends received 106 80 673

Interest paid (927) (668) (5,564)

Income taxes paid (3,546) (8,931) (74,325)

Net cash provided by operating activities 20,220 20,079 167,091

CASH FLOWS FROM INVESTING ACTIVITIES:

Payments for purchase of property and equipment and intangible assets (2,095) (1,499) (12,478)

Proceeds from sales of property and equipment and intangible assets 60 170 1,422

Payments for purchase of marketable securities — (26,000) (216,360)

Proceeds from sales and redemptions of securities 100 — —

Payments for purchase of investment securities (17) (6) (55)

Proceeds from sales and redemptions of investment securities 34 — —

Payments for purchase of stocks of subsidiaries resulting in change in scope of consolidation

(8,251) — —

Proceeds from sales of stocks of a subsidiary resulting in change in scope of consolidation

— 200 1,668

Payments into time deposits (16,000) (2,000) (16,643)

Proceeds from withdrawal of time deposits 130 18,183 151,314

Other 479 (82) (688)

Net cash used in investing activities (25,560) (11,034) (91,820)

CASH FLOWS FROM FINANCING ACTIVITIES:

Changes in short-term borrowings (278) 891 7,414

Proceeds from long-term borrowings 25,000 20,954 174,369

Repayment of long-term borrowings (30,260) (28,141) (234,181)

Repayment of rehabilitation claims (6,312) (55) (460)

Cash dividends paid (2,157) (2,600) (21,639)

Other (61) (41) (347)

Net cash used in fi nancing activities (14,069) (8,994) (74,844)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 59 61 514

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ¥ (19,350) ¥ 112 $ 940

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 115,706 96,413 802,310

INCREASE IN CASH AND CASH EQUIVALENT FROM NEWLY CONSOLIDATED SUBSIDIARY 57 — —

CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 17) ¥ 96,413 ¥ 96,526 $ 803,250


Consolidated Statements of Cash FlowsFor the years ended March 31, 2014 and 2015

Consolidated S

tatements of C

ash Flows


Notes to Consolidated Financial StatementsDaikyo Incorporated and its consolidated subsidiariesFor the years ended March 31, 2014 and 2015

01 BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidated fi nancial statements of DAIKYO INCORPORATED (the “Company”) and its consolidated

subsidiaries (collectively, the “Group”) have been prepared in accordance with the provisions set forth in the Japanese Financial

Instruments and Exchange Act and its related accounting regulations, and in conformity with accounting principles generally

accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements from

International Financial Reporting Standards.

The accounting policies of the overseas subsidiaries are basically integrated with those of the Company unless they are

prepared differently in accordance with International Financial Reporting Standards or U.S. generally accepted accounting

principles, in which case a limited number of items have been adjusted to the Japanese GAAP. The accompanying consolidated

fi nancial statements have been restructured and translated into English (with certain expanded disclosures) from the consolidated

fi nancial statements of the Company prepared in accordance with Japanese GAAP and fi led with the appropriate Local Finance

Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Act. Certain supplementary information

included in the statutory Japanese language consolidated fi nancial statements, but not required for fair presentation, is not

presented in the accompanying consolidated fi nancial statements.

Certain prior year amounts in the consolidated fi nancial statements and notes thereto have been reclassifi ed to conform to the

current year presentation.

02 ACCOUNTING CHANGES

(1) RETIREMENTS BENEFITS

Effective from the year ended March 31, 2015, the Company has applied the “Accounting Standard for Retirement Benefi ts”

(Accounting Standards Board of Japan (ASBJ) Statement No. 26 issued May 17, 2012; hereinafter “Retirement Benefi ts

Accounting Standards”) and the “Guidance on Accounting Standard for Retirement Benefi ts” (ASBJ Guidance No. 25 issued

March 26, 2015; hereinafter “Guidance”), with respect to the provisions stipulated in the main clause of Article 35 of the Retirement

Benefi ts Accounting Standards and in the main clause of Article 67 of the Guidance. Accordingly, upon review of its methods

for calculating retirement benefi t obligations and service costs, the Company has changed its method of attributing expected

benefi ts to accounting periods, and now uses the benefi t formula basis rather than the straight line basis used previously. The

Company has also adopted a new method of determining the discount rate, and has accordingly changed to one involving the

use of a single weighted average discount rate refl ecting the estimated timing and amounts of benefi t payments, in place of its

previous method where the discount rate was determined based on a number of years approximate to the expected average

remaining service period of the Company’s employees.

In adopting accounting polices including those in the Retirement Benefi ts Accounting Standards, beginning of the current

fi scal year, the Company adjusts retained earnings by amounts derived by the change in the method used for calculating

retirement benefi t obligations and service costs in accordance with the transitional treatment set forth in Article 37 of the

Retirement Benefi ts Accounting Standards.

As a result, the net defi ned benefi t liability at the beginning of the current fi scal year decreased by ¥795 million ($6,618

thousand), and retained earnings increased by ¥670 million ($5,581 thousand).

Note that this change has not caused a material impact on operating income or income before income taxes and minority

interest for the current fi scal year.

(2) ACCOUNTING TREATMENT PERTAINING TO THE REAL ESTATE DEVELOPMENT AND SALES SEGMENT

(a) Previously, indirect costs, such as personnel expenses and other expenses pertaining mainly to land acquisition and

construction work in the real estate development and sales segment had been allocated to costs of respective properties

on the basis of proportions of direct costs, such as land acquisition expenses and construction expenses. As of the

current fi scal year, however, the Company has adopted a method whereby such indirect costs are accounted for as period

expenses.

This change was made upon review of our accounting methods, as we move to adopt a new property development

and sales system and a new accounting system in the current fi scal year, and given that declining purchasing volumes

in recent years have brought about a diminishing relationship with respect to matching expenses and revenues and

inadequate rationale for using conventional expense allocation methods. The change was also made to enhance the

fi nancial standing of the Company and to more accurately represent profi t and loss of respective fi scal periods.

At the same time, the Company has changed to a method of accounting for some indirect costs incurred in the real

estate management segment as period expenses, upon review of allocations of such indirect costs where there is a

diminishing relationship in matching expenses with revenues.


Notes to C

onsolidated Financial Statem

ents

(b) Previously, advertising expenses related to sales of condominiums and detached housing in the real estate development

and sales segment were accounted for by collectively charging such expenses to income when the Company began

handing over properties, in accordance with the principle of matching expenses to revenues. As of the current fi scal year,

however, the Company has adopted a method whereby such expenses are charged to income as they are incurred.

This change was made upon review of our accounting methods, as we move to adopt a new property development and

sales system and a new accounting system in the current fi scal year, and given a diminishing direct relationship between

advertising expenses and net sales due to a shift in recent years from the use primarily of leafl ets for advertising to use

of the Internet and multiple other formats, and also due to greater diversity in sales methods such as those where units

of a single property are sold over multiple phases. The change was also made to enhance the fi nancial standing of the

Company and to more accurately represent profi t and loss of respective fi scal periods.

(c) Previously, condominium sales showroom construction expenses and other such costs in the real estate development

and sales segment were accounted for as costs for properties and recognized when sales were recorded, in accordance

with the principle of matching expenses to revenues. As of the current fi scal year, however, the Company has adopted a

method whereby such expenses are charged to income as they are incurred.

This change was made upon review of our accounting methods, as we move to adopt a new property development

and sales system and a new accounting system in the current fi scal year, and given that the new method more accurately

refl ects the realities of our business by distinguishing between direct costs attributable to net sales and expenses related

to sales activities. The change was also made to enhance the fi nancial standing of the Company and to more accurately

represent profi t and loss of respective fi scal periods.

These changes in accounting policies have been retrospectively applied to the Company’s consolidated fi nancial statements

for the prior fi scal year.

As a result, the Company’s Inventories, as well as Prepaid expenses and other current assets presented in the Consolidated

Balance Sheets as of the end of the previous fi scal year decreased by ¥3,911 million and ¥2,826 million, respectively, and

deferred tax assets listed under current assets increased by ¥1,722 million, compared with the corresponding fi gures before the

retrospective application. The retrospective application also increased gross profi t by ¥783 million, and decreased operating

income and income before income taxes and minority interest each by ¥1,218 million, as presented in the Consolidated

Statements of Income for the the previous fi scal year.

Income before income taxes and minority interest and other cash fl ows from operating activities in the Consolidated Statements

of Cash Flows for the previous fi scal year decreased by ¥1,218 million and ¥527 million and Changes in real estate inventories

and advance payments increased by ¥1,746 million.

The retained earnings balance at the beginning of the previous fi scal year decreased by ¥3,967 million, refl ecting the

cumulative impact on net assets at the beginning of the previous fi scal year. The monetary effect of these changes resulting

from retrospective application of accounting policies has been presented in aggregate, and not attributed to specifi c changes in

accounting policies given complexities involved in doing so.

Also, net income per share for the prior fi scal year and fully diluted net income per share have been decreased by ¥2.18 and

¥1.22, respectively.

03 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1) CONSOLIDATION

The Company has 15 subsidiaries at March 31, 2015 (19 subsidiaries at March 31, 2014). The consolidated fi nancial statements

include the accounts of the Company and 13 signifi cant subsidiaries at March 31, 2015 (18 in 2014).

The major subsidiaries consolidated with the Company at the year ended March 31, 2015 are as follows:

Equity ownership percentage

DAIKYO ASTAGE INCORPORATED 100%

DAIKYO REALDO INCORPORATED 100

ORIX Facilities Corporation 100

Anabuki Construction Inc. 100

All signifi cant intercompany accounts and transactions have been eliminated in consolidation.


(2) FINANCIAL INSTRUMENTS

(a) Securities

Held-to-maturity debt securities that the Company and its consolidated subsidiaries have and intend to hold until maturity

are stated at amortized cost. Investments in non-consolidated subsidiaries not accounted for under the equity method

are stated at cost using the moving-average method. Other securities with quoted market prices are stated at their

quoted market prices at the balance sheet date, and other securities with no quoted market prices available are stated

at cost using the moving-average method. Net unrealized gains or losses on other securities are reported as a separate

component of net assets, net of applicable income taxes.

In cases where the fair value of held-to-maturity debt securities or other securities has declined signifi cantly and such

impairment of the value is considered other than temporary, the difference between the carrying amount and its fair value

is recognized as an impairment loss, and is reported in the consolidated statement of income for the period.

Debt securities maturing within one year are presented as “current” and all the other securities are presented as “non-

current” on the consolidated balance sheet.

(b) Derivatives

The Company enters into interest rate swap only for hedging risks from fl uctuation in interest rates. The interest rate swap

meeting the requirement of exceptional treatment under Japanese GAAP is not measured at the fair value and differences

between payment amount and receipt amount are included in the interest expenses.

(3) INVENTORIES AND BASIS OF REVENUE RECOGNITION

Real estate for sale (i.e., real estate held for sale), real estate for sale in progress (i.e., real estate held for sale before completion),

and real estate for development projects (i.e., real estate from the time the Group acquires the legal title until the time the

construction approval is granted) are stated at cost, using the specifi c identifi cation method.

The write-down of inventories due to decreased profi tability is refl ected in the valuation of the respective asset components

and the accompanying loss is recognized as cost of sales, in principle. The Company and its consolidated subsidiaries recorded

a write-down on the value of inventory of ¥2,346 million and ¥272 million ($2,263 thousand) for the years ended March 31, 2014

and 2015, respectively.

Revenue from sales of condominiums and land is recognized when units are delivered and accepted by the customers.

Revenue from leasing of offi ce space and shops is recognized as rent accrued over the lease term.

Revenue and its related costs from construction work are recognized by the percentage-of-completion method, with the

exception of short-term contracts. If the outcome of the construction activity is not deemed certain during the course of such

activity, the completed contract method is applied.

(4) PROPERTY AND EQUIPMENT

Property and equipment, including signifi cant renewals and improvements, are carried at cost less accumulated depreciation.

Maintenance and repairs, including minor renewals and betterments, are charged to income as incurred. Depreciation is

computed on the declining-balance method for property and equipment except for buildings, which are computed mostly on the

straight-line method, based on the estimated useful lives of the assets.

Fixed assets are reviewed for impairment wherever events or changes in circumstances indicate that the carrying amount

of an asset may not be recoverable. If an asset is considered to be impaired, the impairment loss is recognized for the period.

When retired or disposed of, the difference between the net book value and sales proceeds is charged or credited to income.

Estimated useful lives for buildings and structures range from 3 to 60 years.

(5) GOODWILL

Goodwill is amortized using the straight-line method over periods of 5 to 20 years.

Negative goodwill resulted from business combinations made prior to April 1, 2010 is amortized using the straight-line method

for 20 years.

(6) ALLOWANCE FOR DOUBTFUL ACCOUNTS

A general allowance for doubtful accounts is provided at an amount calculated based on historical loss experience, while specifi c

allowances for doubtful accounts are provided for the estimated amounts considered to be uncollectible after reviewing and

assessing collectability of individual accounts.


Notes to C


ents

(7) RETIREMENT BENEFITS

The Company and its consolidated domestic subsidiaries have severance indemnity plans, non-contributory defi ned benefi t

funded pension plans and defi ned contribution pension plans, covering substantially all of their employees who meet eligibility

requirements under the retirement regulations. Under the plans, employees whose service with the Company is terminated

are, under most circumstances, entitled to lump-sum severance indemnities and/or pension annuity payments, determined by

reference to current basic rate of pay, length of service and conditions under which the termination occurs.

The Company and certain domestic subsidiaries also have contributory defi ned contribution pension plans, covering

substantially all of their employees. The pension benefi ts are determined based on years of service and the compensation

amount as stipulated in the regulations.

In determining retirement benefi t obligations, the benefi t formula basis is used as a method of attributing expected benefi t

to periods. Net defi ned benefi t liability is recognized based on the estimated present value of projected benefi t obligations in

excess of the fair value of the plan assets at the end of each fi scal year. Prior service costs are expensed as incurred. Transition

obligation is amortized under the straight-line method for 15 years. Net actuarial gains or losses are amortized under the straight-

line method over 5 to 10 years, based on the employees’ average remaining service period, commencing from the following fi scal

year after they arise.

Certain domestic subsidiaries apply simplifi ed method to calculate net defi ned benefi t liability and retirement benefi t costs for

corporate defi ned benefi t pension plans (CDBPs) and lump-sum payments plans.

(8) DIRECTORS’ RETIREMENT BENEFITS

Provision for the retirement benefi ts for directors is based on the estimated future payments to directors in accordance with the

Company’s internal rules and regulations. This provision is included in other liabilities.

(9) INCOME TAXES

Provision for income taxes is computed based on income before income taxes in the consolidated statements of income. The

asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of

temporary differences between the carrying amounts and tax basis of the assets and liabilities and the tax loss carryforwards.

The Company and its wholly-owned domestic subsidiaries have adopted the consolidated taxation system.

(10) LEASE CONTRACTS

(Lease assets related to fi nance leases that do not transfer ownership)

Depreciation of assets used under fi nance leases that do not transfer ownership is calculated based on the assumption that the

useful life equals to the lease term and the residual value equals to zero.

(11) STOCK OPTIONS

On June 28, 2005, the shareholders of the Company approved the issuance of stock options to the directors and certain

employees of the Company and its subsidiaries. The stock options are exercisable from June 29, 2007 to June 28, 2015. If all

stock options outstanding at March 31, 2015 had been exercised, 3,359,000 shares of common stock of the Company would

have been newly issued. The exercise price of the options was set at ¥387 ($3.22) at the date of grant.

(12) NET INCOME AND FULLY DILUTED NET INCOME PER SHARE

Net income per share is computed based on the weighted average number of shares of common stock issued and outstanding

during each fi scal period.

Diluted net income per share is computed based on the net income available for distribution to the shareholders and the

weighted average number of shares of common stock outstanding during the year after giving effect to the dilutive potential of

shares of common stock to be issued upon the exercise of preferred stock and stock subscription rights.


(13) NEW ACCOUNTING STANDARDS NOT YET ADOPTED

The new accounting standards and other pronouncements that have been issued which the Company and its subsidiaries have

not yet adopted as of March 31, 2015 are as follows.

(Accounting Standard for Business Combination and related Standards)

• Revised Accounting Standard for Business Combinations (Statement No. 21 issued by ASBJ on September 13, 2013)

• Revised Accounting Standard for Consolidated Financial Statements (Statement No. 22 issued by ASBJ on

September 13, 2013)

• Revised Accounting Standard for Business Divestitures (Statement No. 7 issued by ASBJ on September 13, 2013)

• Revised Accounting Standard for Earnings Per Share (Statement No. 2 issued by ASBJ on September 13, 2013)

• Revised Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures

(Guidance No. 10 issued by ASBJ on September 13, 2013)

• Revised Guidance on Accounting Standard for Earnings Per Share (Guidance No. 4 issued by ASBJ on September 13, 2013)

The Company and its consolidated domestic subsidiaries will adopt amendments from the beginning of the fi scal year ending

March 31, 2016. Provisional accounting treatments will be adopted to the business combination on/after April 1, 2015. The

impact of the adoption of these accounting standards is currently under assessment.

04 U.S. DOLLAR PRESENTATION

The translation of yen amounts into U.S. dollar amounts is included using the prevailing exchange rate at March 31, 2015, which

is ¥120.17 to U.S.$1.00. The inclusion of such U.S. dollar amounts in the accompanying consolidated fi nancial statements is

solely for the convenience of the reader and is not intended to imply that Japanese yen amounts have been or could be readily

converted, realized or settled into U.S. dollar at the prevailing or any other exchange rate.

05 INVENTORIES

Inventories at March 31, 2014 and 2015 consisted of:

Millions of yenThousands ofU.S. dollars

2014 2015 2015

Real estate for sale ¥ 15,018 ¥ 39,609 $329,610

Real estate for sale in progress 78,611 60,628 504,520

Real estate for development projects 7,790 13,440 111,846

Other 2,540 2,965 24,674

Total ¥103,962 ¥116,643 $970,652

06 FINANCIAL INSTRUMENTS

Information on fi nancial instruments for the years ended March 31, 2014 and 2015 is as follows:

(1) CONDITION OF FINANCIAL INSTRUMENTS

(a) Policies concerning fi nancial instruments

The Group procures funds required primarily for its condominium business through borrowings from fi nancial institutions

and the issuance of bonds. Temporary excess funds are managed using highly stable fi nancial instruments. The Group uses

derivative instruments in order to hedge against interest rate fl uctuations and does not enter into derivative transactions for

trading or speculative purposes, in accordance with its internal policy.

(b) Content and risk of fi nancial instruments, and risk management system

Notes and accounts receivable–trade are subject to the credit risk of customers. The Group is taking steps to mitigate such

risk by managing the payment deadlines and outstanding balance of each party, requesting periodic reports on delinquent

receivables, and quickly ascertaining conditions regarding collection.


Notes to C


ents

Marketable and investment securities are primarily bonds that the Group intends to hold until maturity and the shares of

companies with which the Group holds business relationships, and these are subject to the risk of fl uctuations in market

prices. With regard to such risk, their fair values and fi nancial conditions of the issuers are periodically monitored. The holding

of securities other than bonds held until maturity is continually reviewed.

Notes and accounts payable–trade are mostly due within one year.

Borrowings and bonds are primarily used for procuring funds for the condominium business. The Group uses derivative

instruments (interest rate swap transactions) for a certain portion of these liabilities as hedging instruments to mitigate interest

rate fl uctuation risks and to fi x its interest payments. With regard to the method of evaluation of hedge effectiveness, the Group

omitted the evaluation of the effectiveness as the requirements for special treatment of interest-rate swaps are satisfi ed.

Trade payables, borrowings and bonds are subject to liquidity risks, but the Group manages such risks by preparing cash

fl ow plans and revising them as appropriate.

With regard to derivative transactions, the Group deals exclusively with Japanese fi nancial institutions that have high

creditworthiness. The fi nance department handles derivative transactions based on the internal rules that stipulate policies

and the range of derivatives and the like. The balance of derivative transactions and the gains or losses from valuation are

reported to the director in charge of fi nance.

(c) Supplementary explanation concerning fi nancial instruments

The fair value of fi nancial instruments includes value based on market prices and also value calculated rationally when there

is no market price. As variable factors are incorporated into the calculation of such values, the values may change as a result

of the adoption of different assumptions and the like.

(2) FAIR VALUE OF FINANCIAL INSTRUMENTS

The consolidated balance sheet amount, fair value and difference as of March 31, 2014 and 2015 are shown below. However,

items for which it is extremely diffi cult to determine the fair value have not been included in the following table:

Millions of yen

For the year ended March 31, 2014Consolidated balance sheet

amount Fair value Difference

(1) Cash and deposits ¥ 96,622 ¥ 96,622 ¥ —

(2) Notes and accounts receivable–trade 18,455

Allowance for doubtful accounts* (5)

¥ 18,450 ¥ 18,450 ¥ —

(3) Marketable and investment securities

1) Held-to-maturity securities 16,073 16,074 1

2) Other securities 1,109 1,109 —

Total assets ¥132,255 ¥132,256 ¥1

(1) Notes and accounts payable–trade ¥ 30,103 ¥ 30,103 ¥ —

(2) Shot-term borrowings and

current portion of long-term borrowings 20,166 20,203 36

(3) Bonds due within one year — — —

(4) Deposits received 10,426 10,426 —

(5) Bonds 7,000 7,140 140

(6) Long-term borrowings 36,417 36,471 54

Total liabilities ¥104,113 ¥104,345 ¥231


Millions of yen



(1) Cash and deposits ¥ 96,540 ¥ 96,540 ¥ —



¥ 19,144 ¥ 19,144 ¥ —




Total assets ¥143,051 ¥143,051 ¥ 0

(1) Notes and accounts payable–trade ¥ 36,180 ¥ 36,180 ¥ —



(3) Bonds due within one year 5,000 5,025 25


(5) Bonds 2,000 2,066 66

(6) Long-term borrowings 27,870 28,119 249

Total liabilities ¥125,728 ¥126,071 ¥343

Thousands of U.S. dollars



(1) Cash and deposits $ 803,368 $ 803,368 $ —



$ 159,310 $ 159,310 $ —




Total assets $1,190,409 $1,190,411 $ 2

(1) Notes and accounts payable–trade $ 301,079 $ 301,079 $ —



(3) Bonds due within one year 41,607 41,815 208


(5) Bonds 16,643 17,192 549

(6) Long-term borrowings 231,921 233,996 2,075

Total liabilities $1,046,251 $1,049,110 $2,858

* The allowance for doubtful accounts related to notes and accounts receivable–trade has been deducted.


Notes to C


ents

(3) FINANCIAL INSTRUMENTS FOR WHICH IT IS EXTREMELY DIFFICULT TO DETERMINE THE FAIR VALUE

Book value


2014 2015 2015

Other securities

Unlisted stocks ¥169 ¥199 $1,660

Investments in silent partnership 0 — —

(4) REDEMPTION SCHEDULE OF PECUNIARY CLAIMS AND HELD-TO-MATURITY SECURITIES

Maturity value


2014 2015 2015

Cash and deposits

Within one year ¥ 96,622 ¥ 96,540 $ 803,368

Notes and accounts receivable–trade

Within one year 18,455 19,157 159,422

Marketable and investment securities

Held-to-maturity securities

(National government bonds and certifi cates of deposit)

Within one year 16,000 26,069 216,941

Over one year and within fi ve years 75 4 40

Total

Within one year ¥131,077 ¥141,768 $1,179,732

Over one year and within fi ve years 75 4 40

07 DERIVATIVES

No material derivative transaction to be disclosed for the year ended March 31, 2014.

Derivative transaction to which hedge accounting is applied for the year ended March 31, 2015 is as follows:

For the year ended March 31, 2015 Millions of yen

Method of hedge accounting Type of transaction Hedged item Contract amountContract amount due after one year Fair value

Exceptional treatment for interest rate swap

Interest rate swaps:fi xed rate payment, fl oating rate receipt

Long-term borrowings ¥3,000 ¥3,000 *

For the year ended March 31, 2015 Thousands of U.S. dollars

Method of hedge accounting Type of transaction Hedged item Contract amountContract amount due after one year Fair value

Exceptional treatment for interest rate swap

Interest rate swaps:fi xed rate payment, fl oating rate receipt

Long-term borrowings $24,964 $24,964 *

* Interest rate swap under exceptional treatment is accounted for together with long-term borrowings designated as the hedge item.

Therefore, their fair values are included in the fair value of the long-term borrowings.


08 SECURITIES

Information regarding the marketable and investment securities at March 31, 2014 and 2015 is summarized as follows:

(1) HELD-TO-MATURITY SECURITIES WITH MARKET VALUE


2014 2015 2015

Securities whose market value exceeds book value

Book value ¥ 73 ¥ 74 $ 621

Market value 74 74 624

Difference 1 0 2

Securities whose market value does not exceed book value

Book value 16,000 26,000 216,360

Market value 16,000 26,000 216,360

Difference — — —

Total

Book value ¥16,073 ¥26,074 $216,981

Market value 16,074 26,074 216,984

Difference 1 0 2

(2) OTHER SECURITIES WITH MARKET VALUE AVAILABLE


2014 2015 2015

Securities whose market value exceeds acquisition cost

Stocks

Acquisition cost ¥ 595 ¥ 606 $ 5,045

Market value 1,093 1,291 10,748

Difference 498 685 5,703

Securities whose market value does not exceed acquisition cost

Stocks

Acquisition cost 17 — —

Market value 15 — —

Difference (1) — —

Total

Acquisition cost ¥ 612 ¥ 606 $ 5,045

Market value 1,109 1,291 10,748

Difference 496 685 5,703

(3) OTHER SECURITIES SOLD DURING THE FISCAL YEARS ENDED MARCH 31, 2014 and 2015


2014 2015 2015

Amount sold ¥34 ¥— $—

Gain 4 — —


Notes to C


ents

(4) INVESTMENTS IN NON-CONSOLIDATED SUBSIDIARIES


2014 2015 2015

Investment securities ¥24 ¥54 $451

09 LEASE TRANSACTIONS

Lessee

The minimum future lease payments under non-cancelable operating leases at March 31, 2014 and 2015 are as follows:


2014 2015 2015

Within one year ¥ 958 ¥ 954 $ 7,940

Over one year 2,962 2,015 16,776

Total ¥3,920 ¥2,970 $24,716

Lessor

The minimum future lease income under non-cancelable operating leases at March 31, 2014 and 2015 are as follows:


2014 2015 2015

Within one year ¥ 531 ¥ 531 $ 4,423

Over one year 2,746 2,215 18,432

Total ¥3,278 ¥2,746 $22,855

10 SHORT-TERM DEBT AND LONG-TERM DEBT

Short-term debt and long-term debt at March 31, 2014 and 2015 consisted of the following:

Millions of yenThousands ofU.S. dollars Average

interest rate2014 2015 2015

Short-term debt

Short-term borrowings ¥ — ¥ 891 $ 7,414 0.70%

Current portion of long-term borrowings 20,166 21,526 179,129 1.02

Bonds due within one year — 5,000 41,607 1.21

Current portion of lease obligations 27 20 171 2.75

Long-term debt

Long-term borrowings 36,417 27,870 231,921 0.86

Bonds 7,000 2,000 16,643 1.79

Lease obligations 35 17 142 3.95

Total ¥63,646 ¥57,324 $477,030


Borrowings secured by collateral at March 31, 2014 and 2015 are as follows:


2014 2015 2015

Short-term borrowings ¥ 6,040 ¥ 7,398 $ 61,562

Long-term borrowings 14,173 3,410 28,376

Other (Long-term liabilities) 387 331 2,761

Total ¥20,600 ¥11,139 $92,700

Bonds at March 31, 2014 and 2015 consisted of the following:


2014 2015 2015

1.21% domestic straight bonds, due 2015 ¥5,000 ¥5,000 $41,607

1.79% domestic straight bonds, due 2017 2,000 2,000 16,643

Total ¥7,000 ¥7,000 $58,250

The aggregate annual maturities during the next fi ve years and thereafter of long-term borrowings including the current portion

outstanding at March 31, 2015 are as follows:

Year ending March 31 Millions of yenThousands ofU.S. dollars

2016 ¥22,417 $186,544

2017 14,010 116,584

2018 3,760 31,289

2019 1,100 9,153

2010 5,100 42,439

2021 and thereafter 3,900 32,454

Total ¥50,287 $418,465

Assets pledged as collateral for short-term borrowings and long-term borrowings with banks at March 31, 2014 and 2015 are

as follows:


2014 2015 2015

Real estate for sale in progress ¥23,933 ¥14,559 $121,157

Real estate for development projects — 388 3,236

Land 524 524 4,360

Other assets 1,643 1,643 13,678

Total ¥26,101 ¥17,116 $142,432


Notes to C


ents

11 EMPLOYEES’ RETIREMENT BENEFIT PLANS

The Company and its consolidated domestic subsidiaries have defi ned benefi t retirement plans that include corporate defi ned

benefi t pension plans (CDBPs) and lump-sum payment plans as well as defi ned contribution pension plans, among others.

Certain domestic subsidiaries apply the simplifi ed method to calculate net defi ned benefi t liability and retirement benefi t costs

for CDBPs and lump-sum payment plans.

(1) DEFINED BENEFIT PLANS

a) Movements in retirement benefi t obligations:


2014 2015 2015

Balance at beginning of year ¥11,386 ¥15,706 $130,706

Cumulative effects of changes in accounting policies — (795) (6,618)

Restated balance 11,386 14,911 124,087

Service cost 907 1,006 8,374

Interest cost 121 118 985

Actuarial loss 3 (23) (191)

Benefits paid (490) (622) (5,176)

Past service costs 2,141 — —

Other 1,635 83 690

Balance at end of year ¥15,706 ¥15,474 $128,770

b) Movements in plan assets:


2014 2015 2015

Balance at beginning of year ¥4,757 ¥5,570 $46,356

Expected return on plan assets 137 163 1,356

Actuarial gain 374 726 6,049

Contributions paid by the employer 476 477 3,970

Benefi ts paid (176) (212) (1,770)

Balance at end of year ¥5,570 ¥6,725 $55,962

c) Reconciliation from retirement benefi t obligations and plan assets to net defi ned benefi t liability and net defi ned benefi t asset:


2014 2015 2015

Funded retirement benefi t obligations ¥ 6,593 ¥ 6,652 $ 55,359

Plan assets (5,570) (6,725) (55,962)

1,022 (72) (603)

Unfunded retirement benefi t obligations 9,113 8,821 73,411

Total net defi ned benefi t liability at March 31, 2014 and 2015 10,136 8,749 72,808

Net defi ned benefi t liability 10,136 8,894 74,016

Net defi ned benefi t asset — (145) (1,208)

Total net defi ned benefi t liability at March 31, 2014 and 2015 10,136 8,749 72,808


d) Retirement benefi t costs:


2014 2015 2015

Service cost ¥ 907 ¥1,006 $ 8,374

Interest cost 121 118 985

Expected return on plan assets (137) (163) (1,356)

Net actuarial loss amortization 395 422 3,514

Past service costs amortization 2,108 — —

Other 108 108 904

Total retirement benefi t costs

for the years ended March 31, 2014 and 2015¥3,503 ¥1,492 $12,423

e) Remeasurements of defi ned benefi t plans:


2014 2015 2015

Actuarial gains and losses ¥— ¥1,172 $ 9,755

Transition obligations — 108 904

Total remeasurements of defi ned benefi t plans

at March 31, 2014 and 2015¥— ¥1,281 $10,660

f) Amount recognized in accumulated other comprehensive income:


2014 2015 2015

Actuarial gains and losses that are yet to be recognized ¥1,155 ¥(17) $(143)

Transition amounts that are yet to be recognized 108 — —

Total balance at March 31, 2014 and 2015 ¥1,263 ¥(17) $(143)

g) Plan assets:

2014 2015

Plan assets comprise:

Bonds 30% 34%

Equity securities 56 53

Cash and deposits 11 2

Insurance product — 8

Other 3 3

Total 100% 100%

h) Actuarial assumptions:

The principal actuarial assumptions at March 31, 2014 and 2015 are as follows:

2014 2015

Discount rate 0.7–1.5% 0.7–1.5%

Expected long-term rate of return on plan assets 3.0% 3.0%

(2) DEFINED CONTRIBUTION PENSION PLANS

The required contribution amount for the Company and its domestic subsidiaries for the year ended March 31, 2014 is ¥469

million, and the year ended March 31, 2015 is ¥485 million ($4,039 thousand).


Notes to C


ents

12 INCOME TAXES

The Company and its consolidated domestic subsidiaries are subject to corporate tax of 25.5% and 23.7%, Special

Reconstruction Corporation Tax of 2.55% (March 31, 2014), inhabitant tax of approximately 5%, and deductible enterprise tax

of approximately 8%, which in the aggregate resulted in a statutory income tax rate of approximately 38.0% and 35.6% for the

years ended March 31, 2014 and 2015, respectively.

Reconciliations between the statutory income tax rate and the income tax rate refl ected in the consolidated statements of

income are as follows:

2014 2015

Statutory tax rate 38.0% 35.6%

Reconciliation

Non-deductible expenses for tax purposes 0.9 1.5

Per capita inhabitant taxes 0.7 1.0

Amortization of goodwill 1.6 2.4

Gain on negative goodwill (15.7) —

Adjustment of deferred tax assets for enacted changes in tax laws and rates 1.9 3.8

Valuation allowance (11.6) (17.5)

Other 0.2 0.1

Effective income tax rate 16.0% 26.9%

Signifi cant components of deferred tax assets and liabilities at March 31, 2014 and 2015 are as follows:


2014 2015 2015

Deferred tax assets:

Impairment loss on fi xed assets ¥ 3,314 ¥ 2,958 $ 24,616

Provision for employee bonuses 1,164 800 6,661

Net defi ned benefi t liability 3,551 2,426 20,188

Loss carryforwards 17,848 13,717 114,152

Other 4,643 2,889 24,042

Gross deferred tax assets 30,522 22,791 189,661

Less: Valuation allowance (22,648) (17,329) (144,207)

Total deferred tax assets 7,874 5,462 45,453

Deferred tax liabilities:

Unrealized gains on other securities 162 208 1,732

Excess of fair value over the book value of assets and liabilities of a consolidated subsidiary at the acquisition date 3,406 2,847 23,696

Other 395 412 3,434

Gross deferred tax liabilities 3,964 3,468 28,862

Net deferred tax assets ¥ 3,910 ¥ 1,993 $ 16,590

The valuation allowance relates to temporary differences and operating loss carryforwards for tax purposes that are not

expected to be realized.

(Adjustment of deferred tax assets and liabilities for enacted changes in tax laws and rates)

The “Act on Partial Amendment to the Income Tax Act, etc.” (Act No. 9, 2015) and the “Act on Partial Amendment to the Local

Tax Act, etc.” (Act No. 2, 2015) were promulgated on March 31, 2015, and accordingly, the corporate tax rate and other rates

have been lowered from the fi scal year beginning on or after April 1, 2015.

Due to this change, the effective statutory tax rate used for the calculation of deferred tax assets and deferred tax liabilities has

been revised from the previous rate of 35.64%. The rate of 33.10% has been applied to the temporary differences expected to be

either deductible, taxable or expired in the fi scal year beginning on April 1, 2015, while the rate of 32.34% has been applied to the

temporary differences expected to be either deductible, taxable, or expired in or after the fi scal year beginning on April 1, 2016.


In addition, due to the revision of the carry-forward system of net operating losses, the amount of net operating losses that can

be deducted has been limited to the equivalent of 65% of taxable income before such deductions from the fi scal year beginning

on April 1, 2015 through the fi scal year beginning on April 1, 2016, while the amount of net operating losses that can be deducted

has been limited to the equivalent of 50% of taxable income before such deductions in or after the fi scal year beginning on

April 1, 2017.

Due to these changes, net deferred tax assets decreased by ¥606 million ($5,048 thousand), remeasurements of defi ned

benefi t plans decreased by ¥3 million ($25 thousand) and deferred income taxes increased by ¥624 million ($5,199 thousand),

net unrealized losses on other securities increased by ¥21 million ($176 thousand) during the fi scal year ended March 31, 2015.

13 CONTINGENT LIABILITIES

The Company and its consolidated subsidiaries are contingently liable for guarantees at March 31, 2014 and 2015 as follows:


2014 2015 2015

Guarantee to customers ¥34,101 ¥41,201 $342,857

14 NET ASSETS

Under Japanese laws and regulations, the entire amount paid for new shares is basically required to be designated as capital

stock. However, a company may, by resolution of the Board of Directors, designate an amount not exceeding one-half of the new

share’s price as additional paid-in capital, which is included in capital surplus.

Under the Japanese Corporate Law (the “Law”), in cases where a dividend distribution of surplus is made, the smaller of an

amount equal to 10% of the dividend or the excess, if any, of 25% of capital stock over the total of additional paid-in-capital and

legal earnings reserve must be set aside as additional paid-in-capital or legal earnings reserve. The legal earnings reserve is

included in retained earnings in the accompanying Consolidated Balance Sheets.

Under the Law, in the case of the Company, legal earnings reserve and additional paid-in capital could be used to eliminate or

reduce a defi cit by resolution of the Board of Directors.

Additional paid-in capital and legal earnings reserve may not be distributed as dividends. However, all additional paid-in capital

and legal earnings reserve may be transferred to other capital surplus and retained earnings, respectively, which are potentially

available for dividends.

The maximum amount that the Company can distribute as dividends is calculated based on the non-consolidated fi nancial

statements of the Company in accordance with Japanese laws and regulations.

15 PREFERRED STOCK

The Company issued the following preferred stock:

Number of shares outstanding(thousands)

Issuance 2014 2015

Class 1 September 2002 10,000 10,000

The preferred stock has a conversion feature to common stock at the holder’s option, which becomes effective after a certain

predetermined period (5 years) after issuance. The initial conversion price is determined as the average market price of the

Company’s common stock when the conversion feature becomes effective. The preferred stock is convertible to common stock

over 18 years, and conversion prices are reset annually if certain conditions are met. Preferred stock outstanding at the end of

the conversion period is mandatorily converted to common stock at a predetermined conversion rate.


Notes to C


ents

16 COMPREHENSIVE INCOME

Amounts reclassifi ed to net income in the current period that were recognized in other comprehensive income in the current or

previous periods and tax effects for each component of other comprehensive income are as follows:


2014 2015 2015

Net unrealized gains on other securities

Changes during the year ¥222 ¥ 190 $ 1,583

Reclassifi cation adjustments (4) — —

Sub-total, before tax 217 190 1,583

Tax or benefi t (77) (45) (376)

Sub-total, net of tax 140 145 1,207

Foreign currency translation adjustment

Changes during the year 68 (5) (45)

Remeasurements of defi ned benefi t plans

Changes during the year — 749 6,240

Reclassifi cation adjustments — 531 4,419

Sub-total, before tax — 1,281 10,660

Tax or benefi t — (106) (889)

Sub-total, net of tax — 1,174 9,770

Total other comprehensive income ¥208 ¥1,313 $10,932

17 CASH FLOW INFORMATION

(1) Cash and cash equivalents comprise cash on hand, bank deposits withdrawable on demand and highly liquid investments

with original maturities of three months or less and a low risk of fl uctuation in value.

(2) Cash and cash equivalents at March 31, 2014 and 2015 consisted of the following:


2014 2015 2015

Cash and deposits ¥ 96,622 ¥96,540 $803,368

Time deposits with maturities of more than 3 months (16,208) (14) (117)

Marketable securities with maturities of 3 months or less 16,000 — —

Cash and cash equivalents ¥ 96,413 ¥96,526 $803,250


(3) Assets and liabilities of the companies, which are additionally included into consolidation for the year ended March 31, 2014,

are as follows:

Anabuki Construction Inc. and its four subsidiariesMillions of yen

2014

Current assets ¥ 59,008

Other assets 13,534

Total assets ¥ 72,542

Current liabilities ¥(14,861)

Long-term liabilities (16,756)

Total liabilities ¥(31,617)

Gain on negative goodwill ¥(10,184)

Purchase price 30,739

Gain on step acquisitions (1,204)

Cash and cash equivalents (21,283)

Net: Payments for purchase of stocks of subsidiaries resulting in

change in scope of consolidation ¥ 8,251

(4) Assets and liabilities of the company, which are excluded from consolidation for the year ended March 31, 2015, are as follows:

Wako Accutech CO., Ltd.

Millions of yenThousands of U.S. dollars

2015 2015

Current assets ¥254 $2,121

Other assets 74 618

Total assets ¥329 $2,740

Current liabilities ¥ (63) $ (530)

Long-term liabilities (7) (59)

Total liabilities ¥ (70) $ (590)

Net unrealized losses on other securities ¥ (6) $ (54)

Loss on sales of shares (1) (14)

Sales price of shares ¥250 $2,080

Cash and cash equivalents (49) (412)

Net: Proceeds from sales of stocks of a subsidiary resulting in

change in scope of consolidation ¥200 $1,668

18 BUSINESS COMBINATION

Not applicable.


Notes to C


ents

19 SEGMENT INFORMATION

(General information about reportable segments)

The reportable segments of the Group represent its components whose operating results are regularly reviewed by the Board

of Directors in deciding how to allocate resources and assessing segment performance, utilizing separately available fi nancial

information.

The Group is composed of companies which operate business based on the nature of products and services. The Group

develops comprehensive strategies and performs business activities.

The Group’s segments have been aggregated based on the nature of products and services into three reportable segments:

“Real Estate Development and Sales,” “Real Estate Management,” and “Real Estate Brokerage.”

Descriptions of the reportable segments are as stated below.

Segment Main business

Real Estate Development and Sales Development and allotment sales of condominiums, etc.

Real Estate Management Management of condominiums and offi ce buildings, contracts for condominium repair

and maintenance work, etc.

Real Estate Brokerage Real estate brokerage, existing real estate sales, etc.

(Basis of measurement of reported segment profi t or loss, segment assets, segment liabilities and other material items)

The accounting policies of segments are almost the same as those described in Note 3 (“SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES”). The measure of segment profi t is operating income. Transactions and transfers between segments

are made at arm’s length prices.

(Changes in accounting treatment pertaining to the Real estate development and sales segment)

As noted in Note 02 (2) “ACCOUNTING TREATMENT PERTAINING TO THE REAL ESTATE DEVELOPMENT AND SALES

SEGMENT,” the Company has changed accounting treatment pertaining to the Real estate development and sales segment.

At the same time, the Company has changed to a method of accounting for some indirect costs incurred in the Real estate

management segment. These changes in accounting policies have been retrospectively applied to segment information for the

prior fi scal year.

As a result, segment profi t for the prior fi scal year in the Real estate development and sales segment decreased by ¥1,319

million and those in the Real estate management segment and eliminations or corporate expenses increased by ¥33 million and

¥67 million respectively. The retrospective application also decreased assets of the Real estate development and sales segment

and the Real estate management segment by ¥5,017 million and ¥31 million respectively and increased those of elimination or

corporate assets by ¥40 million.


(Information about reported segment profi t or loss, segment assets, segments liabilities and other material items)

Information as of and for the fi scal years ended March 31, 2014 and 2015 is as follows:

Millions of yen

For the year ended March 31, 2014

Real EstateDevelopment

and SalesReal Estate

ManagementReal EstateBrokerage

Eliminationsor Corporate

Assets/ExpensesConsolidated

Total

Net Sales

(1) Sales to outside customers ¥142,193 ¥155,597 ¥36,022 ¥ — ¥333,813

(2) Inter-segment sales/transfers 572 2,659 610 (3,841) —

Total net sales ¥142,765 ¥158,257 ¥36,632 ¥ (3,841) ¥333,813

Segment profi t ¥ 7,863 ¥ 9,724 ¥ 2,388 ¥ (3,065) ¥ 16,910

Assets ¥181,392 ¥ 70,636 ¥20,753 ¥25,030 ¥297,812

Depreciation 441 988 179 (14) 1,595

Amortization of goodwill 45 964 52 — 1,062

Interest expense 908 6 30 (32) 912

Total expenditures for additions to tangible fi xed assets and intangible fi xed assets 2,542 10,558 969 (47) 14,022

Millions of yen







Total

Net Sales

(1) Sales to outside customers ¥120,344 ¥155,583 ¥41,226 ¥ — ¥317,154

(2) Inter-segment sales/transfers 368 2,487 635 (3,490) —

Total net sales ¥120,712 ¥158,070 ¥41,862 ¥ (3,490) ¥317,154

Segment profi t ¥ 10,121 ¥ 8,331 ¥ 2,840 ¥ (3,169) ¥ 18,124

Assets ¥217,053 ¥ 64,784 ¥28,366 ¥14,405 ¥324,610

Depreciation 585 1,020 217 (12) 1,811

Amortization of goodwill 45 964 52 — 1,063

Interest expense 663 0 58 (57) 665

Total expenditures for additions to tangible fi xed assets and intangible fi xed assets 1,048 736 195 (3) 1,975


Notes to C


ents

Thousands of U.S. dollars







Total

Net Sales

(1) Sales to outside customers $1,001,450 $1,294,691 $343,072 $ — $2,639,214

(2) Inter-segment sales/transfers 3,067 20,696 5,286 (29,050) —

Total net sales $1,004,518 $1,315,387 $348,358 $ (29,050) $2,639,214

Segment profi t $ 84,228 $ 69,334 $ 23,637 $ (26,372) $ 150,827

Assets $1,806,220 $ 539,107 $236,056 $119,873 $2,701,258

Depreciation 4,871 8,493 1,812 (105) 15,072

Amortization of goodwill 382 8,025 440 — 8,848

Interest expense 5,524 6 484 (480) 5,534

Total expenditures for additions to tangible fi xed assets and intangible fi xed assets 8,724 6,124 1,624 (31) 16,442

20 RELATED PARTY INFORMATION

No material related party transaction to be disclosed for the year ended March 31, 2014.

A related party transaction for the year ended March 31, 2015 is as follows:

Type Sister companies

Name of the related party ORIX Real Estate Corporation

Address Minato-ku, Tokyo

Capital or investment ¥200 million ($1,664 thousand)

Type of business Real estate-related

Equity ownership percentage None

Relation Mutual directorships

Nature of transaction Contract sales related to condominium sales

Transaction amount —

Account Deposits received

Balance at year-end ¥9,954 million ($82,838 thousand)

21 SUBSEQUENT EVENTS

Not applicable.


Independent Auditors’ Report


Independent Auditors’ R

eport


Stock Inform

ation

Stock InformationAs of March 31, 2015

Common stock

843,542,737

Japanese financial institutions

6.2%

Japanese individuals and others

18.3%

Foreign institutions and individuals

7.0%

Japanese securities companies

2.8%

Other Japanese corporations

65.7%

Total Number of Shares Issued Number of Shareholders

Common stock 843,542,737 28,393

Preferred stock 10,000,000

Distribution of Shares by Type of Shareholder (Common stock)

Common stock

Name Number of shares (1,000 shares)

ORIX Corporation 537,490

Japan Trustee Services Bank, Ltd. (Trust Account) 7,697

Daikyo Group Employees Shareholding Association 6,073

The Master Trust Bank of Japan, Ltd. (Trust Account) 5,913

Aioi Nissay Dowa Insurance Co., Ltd. 5,573

Daikyo Business Partners Shareholding Association 4,845

JP Morgan Chase Bank 4,200

Mitsubishi UFJ Trust and Banking Corporation 3,599

Japan Trustee Services Bank, Ltd. (Trust Account 1) 3,558

BNP Paribas Securities (Japan) Limited 3,535

Preferred stock

Name Number of shares (1,000 shares)

ORIX Corporation 10,000

Class 1

Amount of issue ¥4.0 billion

Number of shares issued 10 million shares

Issued price ¥400

Shareholder ORIX Corporation

Preferred dividends

Cap price ¥40

Amount of preferred dividends

¥400 x (JY TIBOR + 1.75%)

Participating/cumulativeNon-participating/

non-cumulative

Right to receive residual assets upon liquidation

¥400

Voting rights No voting rights

Revival clauseWhen preferred dividends are

not possible

Stock splits,reverse stock splits

No stock splits, no reverse stock splits

Conversion at holder’s option

Initial conversion price ¥444.0

Revision of conversion price

Downward revision

At market price every year on Oct 1 from 2008 onwards

Adjustment of conversion price

Conversion price is adjusted in specifi c situations

Floor price ¥351.6

Conversion period 18 years from Oct 1, 2007

Conversion at company’s initiative

Maturity date of conversion at company’s initiative

Oct 1, 2025

Conversion priceAverage of closing prices for 30 consecutive trading days

Floor price ¥355.2

Ranking between each class

Pari passu

Overview of Preferred Stock As of March 31, 2015

Note: The Japanese Bankers Association publishes TIBOR (the

Tokyo interbank offered rate) as the Japanese yen reference

rate (for one year) as of April 1. With Class 1 preferred

shares, the Japanese yen TIBOR or equivalent percentage

is calculated to the fourth decimal and rounded down to the

third decimal. The 30 transaction day average for an acqui-

sition price is an average for the fi nal value for 30 trading

days commencing on the 45th trading day before the date

on which acquisition terms are fulfi lled.

Major Shareholders


Corporate Profi le

Corporate Profile

Corporate Profi le

Corporate name: DAIKYO INCORPORATED

Date established: December 11, 1964

Head offi ce: Sendagaya No. 21 Daikyo Building,

4-24-13, Sendagaya, Shibuya-ku,

Tokyo 151-8506, Japan

Capital stock: ¥41,171,538,600 (as of March 31, 2015)

Fiscal year-end: March 31

Number of consolidated subsidiaries:

13 (as of March 31, 2015)

Number of employees:

5,196 (as of March 31, 2015, on consolidated basis)

Major banks:

Bank of Tokyo-Mitsubishi UFJ, Ltd.

Sumitomo Mitsui Trust Bank, Limited

Mizuho Bank, Ltd.

Sumitomo Mitsui Banking Corporation

Norinchukin Bank

Major shareholder: ORIX Corporation

Major memberships:

The Real Estate Companies Association of Japan

Japan Business Federation

Real Estate Fair Trade Council

Major permits:

Building Lot and Building Transaction Business:

Minister of Land, Infrastructure and Transport (13) No. 792

Construction Business:

Minister of Land, Infrastructure and Transport Permit

(Toku 23) No. 4238

Real Estate Specifi ed Joint Enterprise:

Financial Services Agency Commissioner and Minister of Land,

Infrastructure and Transport No. 18

First-class architect’s offi ce/head offi ce:

Governor of Tokyo registration No. 18268

Stock exchange listing:

First Section, Tokyo Stock Exchange

Daikyo Group’s Main Companies

Real estate development, real estate sales,

and urban development

DAIKYO INCORPORATED

ANABUKI CONSTRUCTION INC.

TAIWAN DAIKYO INCORPORATED

Daikyo Australia Pty Ltd

DAIKYO HONGKONG LIMITED

Condominium management, resident services,

and janitorial services



DAIKYO INCORPORATED http://www.daikyo.co.jp/

Group Corporate Planning Department

Corporate Planning Offi ce

Investor Relations Section

Tel: +81-3-3475-3800 Fax:+81-3-3475-5365

[email protected]

Property management, construction management,

and building utilities

ORIX FACILITIES CORPORATION

RYUKYU FACILITIES CORPORATION

APEX WAKO (THAILAND) CO., LTD.

Condominium repair and maintenance, seismic diagnosis

and reinforcement work, and construction contracting

DAIKYO ANABUKI CONSTRUCTION INC.

SHUKEN INCORPORATED

Real estate brokerage and leasing management,

renovations, and interior remodeling


DAIKYO REFORM . DESIGN INCORPORATED

Group Overseas Business Department

Tel: +81-3-3475-3827 Fax:+81-3-5411-0105

[email protected]

For inquiries about this report, please contact us at the address above.

ht tp: //www.daikyo.co. jp /

DAIKYO INCORPORATED

Sendagaya No. 21 Daikyo Building, 4-24-13, Sendagaya, Shibuya-ku, Tokyo 151-8506, Japan

daikyo incorporated report 2015 integrated reports · this report includes projections and...

Documents