daito_Ar04

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1 Annual Report 2005 Year ended March 31, 2005 TRUST CONSTRUCTION SYSTEM Maximizing investment returns while providing security for landowners

2 Profile Daito Trust Construction Co., Ltd., was established in 1974 and has since adhered to its management philosophy of "contributing to society by ensuring the most efficient use of limited land and resources." The Company has expanded its business on the strength of its unique "Trust Construction System," which encompasses the planning, proposal, design, and construction of lease buildings, as well as tenant recruiting, building management, and a rent guarantee system. In the field of residential leasing, its core business, the Company commands the No. 1 position in terms of units under management and is striving to build a strong position in terms of supply as well. By expanding our business into various peripheral sectors, we are striving to increase the profitability of the entire Group and maximize corporate value. CONTENTS Consolidated Financial Highlights 1 Message from the President 2 Interview with Daito President Asada 4 Corporate Social Responsibility Initiatives 10 Business Background 12 Daito Close-up 13 Topics 19 Consolidated Financial Section 21 Financial Summaries of Subsidiaries 41 New Products 43 Chronology 44 Organization 46 Board of Directors, Corporate Auditors, and Executive Officers 47 Investor Information and Corporate Data 48 Note Regarding Forward-Looking Statements This Annual Report contains information about forwardlooking statements related to such matters as the Company's plans, strategies, and business results. These forward-looking statements represent judgments made by the Company based on information available at the time and are inherently subject to a variety of risks and uncertainties. The Company's actual activities and business results could differ from these forecasts. The reproduction or reprinting of this Annual Report, in part or in whole, is strictly forbidden without the expressed consent of Daito Trust Construction Co., Ltd. Copyright Daito Trust Construction Co., Ltd. 51

3 Daito Trust Construction Co., Ltd. and Consolidated Subsidiaries Consolidated Financial Highlights OPERATING RESULTS For the years ended March 31 Millions of yen Thousands of U.S. dollars Net sales Operating income Recurring income Net income Depreciation and amortization Capital expenditures 491,761 55,715 56,672 31,505 3,374 3, ,627 49,077 50,348 27,976 3,356 3,381 $4,595, , , ,439 31,533 35,065 FINANCIAL POSITION As of March 31 Total assets 409, ,754 $3,825,009 Interest-bearing debt Shareholders equity 229, ,458 2,141,018 PER COMMON SHARE Yen U.S. dollars Net income $ 2.34 Shareholders equity 1, , Cash dividends applicable to the year RATIOS ROE (%) Equity ratio (%) Note: U.S. dollar amounts are translated from yen at the rate of 107=U.S. $1, the approximate exchange rate at March 31, Operating Income & Operating Income Margin Operating Income Operating Income Margin ( billions) Net Income & Net Income per Share Net Income Net Income per Share ( billions) (Yen)

4 Message from the President Since our establishment, we have spearheaded business activities based on our unique Trust Construction System, which effectively matches the needs of landowners with the requirements of tenants. The Trust Construction System is a complete package of detailed services, from planning and proposal to architectural design, construction, tenant recruiting, and all building management services. This highly regarded system has made Daito the top firm in its industry, with 394,000 units under management as of March 31, Even since our inception, we have continued to develop and refine the Trust Construction System as a framework that supports efficient utilization of customers' land. We have also built a strong financial structure by pursuing debt-free operations, so that landowners can entrust their important assets to us over long periods of time. Sixth Consecutive Year of Increased Revenue and Earnings Fiscal 2004, ended March 31, 2005, saw various signs of economic recovery accompanying a turnaround in corporate performances. However, the business climate remained severe due to soaring raw materials prices and other factors. Housing starts in fiscal 2004 rose 1.7% from the previous fiscal year, and lease housing starts increased 1.9%, to 467,000 units. Consolidated net sales climbed 12.1%, to billion, while operating income increased 13.5%, to 55.7 billion, and recurring income rose 12.6%, to 56.7 billion. Net income grew 12.6%, to 31.6 billion. These results represent gains in revenue and earnings for the sixth consecutive year. 2 Daito Trust Construction Co., Ltd.

5 Medium- and Long-Term Management Strategies Daito is concentrating on expanding its share of the lease housing market, its core business. We have set a medium- and long-term management goal of acquiring a 15% market share by the year ending March 31, At the end of the period under review, Daito's market share was 9.6%, up 1.0 percentage point from a year earlier. To meet our 15% market share target, we will continue refining the Trust Construction System. By making full use of the superior advantages of this system while developing new products that appeal to tenants, our goal is to become the "company of choice" among both landowners and tenants. Increasing Share Value Daito's policy is to buy back and retire treasury stock on a continuing basis, subject to certain conditions. These include posting non-consolidated annual net income of at least 10.0 billion, and not requiring large amounts of capital for other purposes. Furthermore, the maximum value of newly acquired stock is set at 50% of non-consolidated net income. At the 30th Annual Ordinary Meeting of Shareholders, acquisition of up to 3,410,000 shares, with a maximum value of 13.3 billion, was approved for fiscal During the year we purchased 3,173,600 shares, valued at 13,299 million, which were retired by March 31, Looking ahead, our goal is to attain a dividend payout ratio of 30% and acquire treasury stock on a continuing basis, thereby returning profits to shareholders and maximizing share value. Lease Housing Construction Starts Lease Housing Starts (Thousands of units) Lease housing starts Daito's share Daito s share Acquire a 15% market share by March 31, 2014! Daito s share (%) July 2005 Moritaka Asada President '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '14 (Ministry of Land, Infrastructure and Transport: Statistics on Housing Starts) 3

6 Interview with Daito President Asada Q What are the secrets to the Company's continuing success? I believe that the key to our success lies in our Trust Construction System, which supports the efficient utilization of land. Under normal arrangements, a landowner asks a real estate or construction company to construct a building, and their association ends upon the completion of construction. Daito's system, however, offers a complete package of services, encompassing proposals for the optimal use of land, the construction of architecturally designed buildings, tenant recruitment, and building management services all of which provide landowners with a stable source of income. This comprehensive commitment, covering all aspects, has earned strong support from landowners, and I personally believe that this has been a major factor boosting our orders and sales. I also believe that the Daito Kyosaikai system of guaranteeing lease fees when a tenant leaves midway through the contract period is a huge strength that is unparalleled in other companies involved in the same business. 4 Daito Trust Construction Co., Ltd.

7 Fig. 1 Orders Received (Non-consolidated) ( billions) Second half (full-year figures) First half Q What is the recent situation with respect to orders? In the period under review, total orders maintained steady growth, rising 12.3% over the previous year, to billion on a non-consolidated basis. This was considerably higher than our initial forecast, made in March 2004, of a 9.1% rise, to billion (see Fig. 1). The primary factor in this increase is the high praise received for the integrated system adopted by our lease housing business. This system covers tenant recruitment, building management, and insurance after completion of construction. We will continue to grow orders by strengthening our sales system through our network of sales centers, which provide customized proposals directly to prospective customers. 0 '01 '02 '03 '04 '05 '06 (est.) Q What is your forecast for orders in the current fiscal year? For the fiscal year ending March 2006, we forecast an 8.2% increase in orders received, to billion. We will attain this goal by boosting our sales capabilities and enhancing proposals in order to tap into the latent land utilization needs of customers. In specific terms, we will continue to increase the number of sales personnel and channel resources into staff training, while enhancing our technical capabilities and supplying products tailored to the market characteristics of each area. 5

8 Q What is your strategy with respect to your sales force? To reinforce our sales system, we are continuing to expand our sales force. In the period under review, we added 315 new salespeople, bringing the total to 2,392. We plan to make an additional increase of 138 in fiscal 2005, for a total of 2,530 salespeople (see Fig. 2). Fig. 2 Number of Salespeople; Average Contract Value (non-consolidated) Number of salespeople at term-end / Orders received by each salespeople ( millions X 1/100) 2,500 2,000 1,500 1, ,680 1, ,489 1, ,761 1, ,077 1,643 1, , Average contract value ( millions) 2, , Number of sales people Average contract value Orders received by each salespeople Fig. 3 Diversifying Fund-Raising Channels (%) Fund-raising by financial institution (construction start basis) Q 0 60 '01 '02 '03 '04 '05 '06 (est.) What is the fund-raising situation for landowners, which is key to the steady flow of orders? In recent years, the channels used by landowners to raise funds have diversified considerably. In addition to the conventional method borrowing from regional banks, agricultural cooperatives, and housing loan corporations more and more owners are adopting other vehicles, such as nonrecourse loans provided by Lehman Brothers. The term under review saw the launch of even more diverse methods of fund procurement. These include limited-liability "apartment loans" offered by the UFJ Trust Bank, and a new loan program offered by Mitsubishi Trust and Banking. We believe that these new loan schemes have emerged due to the solid reputation of our Trust Construction System as a method that generates steady income (see Fig. 3) '00 '01 '02 '03 '04 '05 Regional Banks Housing Loan Corporations Lehman Brothers City Banks Shinkin Banks Agricultural Cooperatives 6 Daito Trust Construction Co., Ltd.

9 Q How is the tenant recruitment business proceeding? We work hard to maintain a high occupancy rate in order to achieve steady growth in construction orders for leased buildings. In the period under review, we upgraded our online service, "e-heya Net," to boost its appeal to prospective tenants. We also launched a new television commercial to raise the Company's profile as a tenant recruiting agency. Consequently, we recruited a total of 121,273 new tenants, up 14.6% from the previous fiscal year, enabling us to maintain a leading share of the market (see Fig. 4). At fiscal yearend, we had more than 390,000 units under management, more than any other in the industry. Q What measures will the Company take to strengthen its tenant recruitment activities? We are channeling resources into a range of activities aimed at recruiting tenants. These include raising our profile, as I have just mentioned, through our "e-heya Net" service, strengthening our ties with real estate agencies, and providing a range of services that incorporate the needs of tenants. Through these initiatives, we are forecasting a 12% increase in new tenants for the current fiscal year, to 136,000 (see Fig. 4). Fig. 4 Tenants Recruited and Number of Salespeople Number of tenants recruited Number of salespeople Tenants 150,000 Salespeople 1, , , , , , ,834 73, , '01 '02 '03 '04 '05 '06 (est.) 7

10 Q What is the occupancy rate for properties administered by Daito Kyosaikai? Let me first explain how the system works. Daito Kyosaikai's role is to guarantee lease fees following a tenant's departure midway through a contract period. Property owners pay a membership fee of 4% of the rent for residential properties and 6% for commercial properties. It guarantees payment of 90% of the rent fee for units that fall vacant. The occupancy rate has remained high over the past several years, at over 96% (see Fig. 5). The rate for commercial properties is slightly lower than for residential properties, but has consistently remained above 95%. A high occupancy rate translates into stable earnings for Daito Kyosaikai. It has an extremely sound financial position, with total assets of 8.3 billion, cash and deposits of 7.9 billion, and a shareholders' equity ratio of 80.9% (see Fig. 6). Fig. 5 Daito Kyosaikai: Occupancy Rates (%) 100 Occupancy rate (residential property) Occupancy rate (commercial property) Fig. 6 Daito Kyosaikai: Earnings and Financial Position Net sales Recurring income Net sales ( billions) Recurring income 14.6 ( billions) '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 ' Kyosaikai occupancy rates (%) 00/3 00/9 01/3 01/9 02/3 02/9 03/3 03/9 04/3 04/9 05/3 06/3 (est.) 1.0 Residential property (%) (est.) Commercial property (%) (est.) '03 '04 '05 Financial position Billions of yen '03 '04 '05 Total assets Cash and deposits Shareholders equity Shareholders equity ratio Daito Trust Construction Co., Ltd.

11 Q Could you tell us about your performance forecasts for the current fiscal year? Buoyed by steady orders and high occupancy rates, we anticipate growth of around 10% for both revenue and earnings. On a consolidated basis, we project a 9.3% increase in net sales, to billion; a 8.9% increase in operating income, to 60.7 billion; a 8.2% gain in recurring income, to 61.3 billion; and an 11.1% increase in net income, to 35.0 billion. These figures will represent the seventh consecutive year of gains in sales and profits (see Fig. 7). Fig. 7 Forecasts for Fiscal 2005 (Consolidated) Net Sales Operating Income ( billions) (+9.3%) ( billions) (+8.9%) '02 '03 '04 '05 '06 (est.) 0 '02 '03 '04 '05 '06 (est.) Recurring Income Net Income ( billions) (+8.2%) ( billions) (+11.1%) '02 '03 '04 '05 '06 (est.) 0 '02 '03 '04 '05 '06 (est.) 9

12 Corporate Social Responsibility Initiatives In all of its business activities, Daito adheres to its management philosophy of "contributing to society by ensuring the most efficient use of limited land and resources." We are committed not only to supplying good-quality leased housing, but also to fulfilling our responsibility as a corporate citizen. As a member of society, we pursue all business activities with the goal of working together with all constituents to achieve continued growth and development. In order to meet the expectations of shareholders, customers, employees, and all other stakeholders, the Company has established various internal frameworks. These are designed to strengthen corporate governance, promote compliance awareness, rigorously protect personal information, spearhead CSR initiatives, and effectively utilize human resources. Strengthening Corporate Governance Daito's corporate governance policy focuses on maximizing corporate value and enhancing management efficiency and transparency for all stakeholders. To this end, we have adopted an executive officer system, and have accelerated the management decision-making process by reducing the number of directors. We have also adopted a corporate auditor system consisting of four external auditors, one of whom is a full-time auditor who attends and monitors Board of Directors' meetings. Daito regards the disclosure of information as one of its most important corporate responsibilities. In order to ensure management transparency and objectivity, we are pursuing timely disclosure in a number of ways. These include news releases; seminars for explaining our financial performance; data on quarterly, interim, and annual accounts; and posting information on the IR section of our website. 10 Daito Trust Construction Co., Ltd.

13 Compliance In April 2002, Daito set up a Compliance and Audit Committee, which reports directly to the president. Together with the Internal Audit Office, which monitors standards and compliance inside the Company, the Committee is engaged in risk management pertaining to legal aspects of management activities. The Committee has also established the Daito Trust Code of Behavior for all Group employees, and undertakes measures aimed at the thorough implementation of the code. Protection of Personal Information, CSR Activities, and Development of Personnel In April 2004, Daito established a Personal Information Protection Committee in readiness for Japan's new Personal Information Protection Law, which came into effect on April 1, The Committee undertakes a range of measures aimed at increasing awareness among all Company employees about the importance of protecting information. These include formulating a privacy policy, protecting and handling personal information, establishing and implementing internal standards for managing confidential corporate information, and upgrading companywide education systems. Daito has also established a Customer Needs Office at its head office for responding to customer enquiries. We believe that the opinions and requests of customers, business partners, investors, and all other stakeholders are an important resource for improving risk management and our products and services. The Company has introduced various measures to maximize the various talents and capabilities of its employees and create a motivating work environment. These include implementation of a self-reporting system, as well as a system that restricts the locations where an employee is required to work. 11

14 Business Background Bridging these needs of landowners and tenants is the job of Daito Trust Construction. Needs of landowners Needs of tenants Daito Trust Customers Reasons for Land Utilization Other 3.1% Need to rebuild 3.9% Additional income 11.7% Effective land utilization 11.0% Absence of successor to take over farm 10.0% Inheritance tax saving 43.3% Source of funds for tax payments 14.6% Taxation strategy 2.5% Results of customer survey conducted in March 2004 Needs of Landowners Effective Land Utilization Numerous Japanese landowners, many of whom are farmers, have experienced difficult times in recent years. Property taxes and inheritance taxes are a particularly heavy burden for those owning land on the outskirts of metropolitan areas. They also face such problems as worsening profitability if they continue with farming, and difficulties in raising successors due to the ageing of society. The development and operation of leased housing on such properties is attracting attention as a way of coping with these changes. Needs of Tenants Quality Rental Housing Economic recession and deflation in Japan have prompted more and more people to select rental accommodation with comfortable living environments, rather than being burdened by huge housing loans. With the increasing number of single families and the trend toward late marriages, the number of households is expected to continue increasing until Against this background, society is placing higher demands on goodquality rental housing. We at Daito provide comprehensive support for rental housing projects in our role as specialists in the needs of landowners. Forecast Changes in Number of Families Families (Millions) '00 '05 '10 '15 '20 '25 Source: Families projection as of October 2003 by National Institute of Population and Social Security Research. 12 Daito Trust Construction Co., Ltd.

15 DAITO Close-up Trust Construction System fully supports the lease business Daito has established a strong and unique business model covering everything from consulting sales, design, and construction through to tenant recruiting, property management, and rent guarantees Consulting Sales Design & Construction Tenant Recruiting Property Management Rent Guarantee Landowners who want to protect their valuable assets through the effective utilization of land have special needs. Occupants and tenants seeking comfortable living environments or new business bases also have special needs. Daito Trust Construction bridges these two needs by helping ensure effective utilization of limited land. We created our Trust Construction System on the basis of this fundamental philosophy, earning considerable support from people all over the country. The system is a complete package that maximizes and stabilizes investment returns to landowners with lease building projects. 13

16 DAITO Close-up 1 Consulting Sales Daito Trust Major Competitors Planning and proposals based on direct sales approaches are an effective means of developing potential customers. Direct Sales Local Real Estate Agencies Repeat Orders (35-45%) Banks Landowners Agricultural Cooperative Associations We give owners "peace of mind." Trends in Repeat Orders Repeating amount ( billions) Repeating amount Repeat ratio Repeat ratio (%) Direct sales Daito employs more than 2,300 salespeople, who take the initiative to approach landowners directly. Landowners, most of whom are farmers, have a number of options with regard to utilizing their land to reduce inheritance taxes. Only a few, however, actively research such options by visiting financial institutions or other organizations. Therefore, Daito's method of visiting farmers directly has a higher success rate than conventional sales activities involving personal introductions. Consequently, between 70-80% of our orders received are derived from this direct approach. Planning and proposals by specialist staff Specialist knowledge on construction, laws and regulations, taxes, and a broad range of other topics is necessary when it comes to land utilization. As a means of acquiring this kind of specialist knowledge, Daito has established an internal qualification, called Trust Construction Specialist, and also encourages staff to obtain the Certified Financial Planner qualification offered by the Japan Association for Financial Planning. These professionals in land utilization devise and propose plans tailored to the needs of each and every customer. High repeat-order ratio Every year, about 40% of the orders received by Daito are repeat orders. This is attributable to the solid reputation of the Trust Construction System, which provides integrated support for lease building construction projects Abundant choice of finance plans Daito offers an abundant choice of finance plans, ranging from its proprietary cooperative housing loans to professional advice related to the procurement of funds from public financial organizations and private financial organizations, favorable finance plans, and easy repayment plans. 0 0 '01 '02 '03 '04 '05 Repeat ratio = Repeat orders from our customers / Overall orders received 14 Daito Trust Construction Co., Ltd.

17 DAITO Close-up 2 Design & Construction Demonstrating its unique strengths, from design to construction systems, enables Daito to deliver high quality and low costs. Daito Trust Reduction in materials costs due to bulk purchasing Order placed directly with construction company Major competitors Order Order Subcontractor Materials developed and produced at their own factories (Development expenses, capital investment, risk burden) Order placed via subcontractor Order Construction company Construction company Mobile computing system terminal Targeting the No. 1 industry position with a wide range of products and excellent sales capabilities Daito has a broad range of service offerings. These include four different building structures and 40 products tailored to various regional characteristics and the lifestyles of occupants. All of our offerings from low-rise wooden and steel-frame apartments to reinforced concrete (RC) medium-rise condominiums and steel frame and reinforced concrete (SRC) high-rise condominiums feature the latest design technologies and remain highly popular. Unique system offers shorter delivery time, high quality, and cost reductions Unlike most house construction companies, Daito does not own factories for prefabricating houses. Therefore, we require low levels of capital investment and are better equipped to fix costs and control our risk burden. We mainly contract our business associates to provide precut materials, and we have supplies delivered to construction sites, taking advantage of merits of scale. Because we do not use subcontractors, we are able to eliminate intermediate expenses, reduce costs, and shorten delivery times. Mobile computing system Construction sites are linked to our headquarters by a large-scale computing system. The ability to easily obtain information required for quality assurance and construction management, as well as to monitor the progress of construction projects through real-time imaging, provide an effective method of construction management. Meeting strict external and internal quality standards In addition to inspections by local authorities when a construction project has been completed, Daito's various sales, tenant brokerage, design, construction, and other relevant departments conduct their own checks. If a fault is found, it is promptly corrected. This is incorporated into a Construction Report, which is given to the owner at the time of property handover. In these ways, we strive to maximize transparency. 15

18 3 Tenant Recruiting We have achieved a consistently high occupancy rate, through strong tenant recruiting. Daito Trust (802 specialized staff) 5% 50% Housecom (Subsidiary) 45% Local Real Estate Agency Network Tenants Major Housing Manufacturers Management Subsidiaries Local Real Estate Agencies DAITO Close-up Local Home Builders Strong tenant recruiting system We at Daito believe that strong tenant recruiting capabilities are indispensable for maintaining a high occupancy rate when proposing a lease housing project. The Company has approximately 800 staff specializing in tenant recruitment. And because they are independent, acting as brokers for only properties constructed by Daito, they have well-honed tenant recruiting skills. About 45% of tenants are recruited by Daito Trust Construction, while the remainder are recruited by subsidiary Housecom and an affiliated network of around 30,000 real estate companies. Wide range of tenant recruitment techniques Daito provides powerful support for its tenant recruitment activities by employing various types of media. These include on-line service, e-heya Net, as well as the publication of a property listings magazine called Ju-SEE and other effective means, such as newspapers, magazines, and circulars. Rigorous rent assessment Rent is determined by a variety of factors, including the surrounding environment, local rental market, property upgrades, and supply and demand. Daito has its own market survey staff who collect highly accurate information from brokers and anecdotal evidence, as well as from data on its own tenanted properties and other properties available to the public. The resulting database is highly useful in segmenting our products by region and setting rent levels. 16 Daito Trust Construction Co., Ltd.

19 DAITO Close-up 4 We are able to offer improved customer services by enhancing and strengthening our management capabilities. Property Management Daito Trust Rent Management Building Maintenance Contracting Rent Collection Periodical Inspection Repairment on-call Contract Management Contract Renewal Tenant services to furnish a comfortable living environment Number of Units under Daito s Management Number of properties (thousand units) Wide range of management and other services For owners who farm or engage in other jobs, the management of rental property is surprisingly troublesome. For a fee of 5% of basic rent, Daito manages properties for their owners. These tasks consist mainly of rent collection, periodic inspection of buildings and repairs, tenant contracts, and dealing with tenants. We also perform a wide range of tasks for tenants, such as cleaning of public spaces, a 24-hour service for dealing with water leaks and repairs, and offering consulting services for relocation and loss insurance. In these ways, we handle a variety of everyday problems that enable tenants to enjoy a comfortable living environment. For further convenience of tenants, we have joined with finance companies to produce the "Kentaku Card," which enables automatic debit of rent payments. We also offer the "Kentaku 2000 Card," which additionally provides vehicle breakdown services. Industry leader in leased units under management As of March 31, 2005, Daito had more than 390,000 units under management around the country, making it the largest leased property management company in Japan. Increasing the number of units managed is a key factor in securing stable revenues, and is also a major determinant of earnings from a long-term perspective '01 '02 '03 '04 '05 17

20 5 Rent Guarantee We are accumulating independent knowhow to ensure stable continuation of rent guarantees. Rent Guarantee System Unoccupied (90 days) Tenant recruitment period Completion of construction Initial occupancy Daito Trust provides rental guarantee from 91st day after completion of construction until tenant occupancy begins. Vacated mid-term DAITO Close-up Occupied Daito Kyosaikai provides guarantees when vacated mid-term Daito Kyosaikai collects membership fee upon initial occupancy Kyosaikai Guarantee System (100% owned subsidiary) Monthly membership fee Daito Trust Daito Kyosaikai Payment in case of vacancy Landowners / Kyosaikai Members: 41,700 *17 out of 20 directors are property owners and 3 are from Daito Trust Rent guarantee system addresses various risks Daito s rent guarantee system offers the following features: (1) If units are not occupied within three months of the completion of construction, Daito Trust Construction guarantees 90% of the rental fee. (2) For units that fall vacant midway through a contract period, Daito Kyosaikai provides 90% of the rental fee if the owner is a paid-up member of Kyosaikai. (3) When a tenant stops paying rent, the Company provides payment to the landlord for a maximum period of six months through an affiliated finance company. Daito Kyosaikai Daito Kyosaikai was established in 1980 with the aim of providing mutual assistance to property owners. It is wholly owned by Daito Trust Construction. The membership fee for property owners is 4% of the basic rent for residential properties and 6% for commercial properties. It guarantees payment of 90% of the rent fee for units that fall vacant. Because Daito Kyosaikai operates as a mutual society, it does not adopt a profit-making model, but determines membership fees and payment ratios in accordance with its revenue, and conducts its business based on sound principles. Strong tenant recruitment capabilities for maintaining high occupancy rates are crucial to Daito Kyosaikai's ability to generate stable revenues. New 30-year rent guarantee system aimed at long-term stability This system works as a building management contract between Daito and property owners. For an additional 1% of rental fees, owners are covered in the event of fluctuations in Daito Kyosaikai membership fees and payment ratios, and also for a decline in rent as a result of a downturn in the market. Under this system, members are guaranteed a fixed level of rent for a 30-year period. (Guaranteed amount is fixed for the first ten years, after which it is reviewed every two years.) 18 Daito Trust Construction Co., Ltd.

21 Top ics Continuous reinforcement of our construction and tenant recruitment businesses Restructuring aimed at stronger and more efficient construction sales activities Daito has restructured part of its sales organization to further reinforce its consulting and sales capabilities related to land utilization. We have created the new position of Sales Deputy Manager to handle training of sales employees, with one deputy manager appointed to each branch. We have consolidated the expertise of the Construction Sales Section by reducing the number of staff there from six to four. We also established a new sales division at our headquarters, mainly for promoting sales in the Tokyo area. The division is staffed by a team of construction sales employees, as is the case with our branches. "e-heya Net" launched as new brand for lease brokerage business In the year under review, we launched "e-heya Net" as the new brand for our lease brokerage business. To enhance public awareness of this brand, we incorporated the "e-heya Net" logo into the signs displayed at all of Daito's directly managed offices, and also revamped our television commercial. The new commercial is targeted particularly at tenants, and cleverly conveys the idea that it is better to feel comfortable in your own home than to visit an exclusive restaurant. New "Quarterly Chintai" service The new "Quarterly Chintai" service, which is aimed at companies, utilizes the best features of the monthly rental system for apartments. Under the service, the various expenses associated with tenant contracts are no longer required, and electrical appliances and furniture are included in the rent package. Moreover, because the rental period is three months or longer, the rates are comparatively low. We will work hard to increase the occupancy rate for this kind of accommodation, for which there is broad demand from companies seeking to send employees on medium- and long-term business assignments, house staff in dormitory-style quarters, or send them on short-term transfers. 19

22 Other Activities Diversification in fund-raising methods available to landowners Daito is continually adding new options to its loan program as a means of diversifying the fund-raising methods available to landowners. To this end, we have long maintained alliances with financial institutions. Back in 2001, we began offering nonrecourse loans provided by Lehman Brothers. The amount of principal to be repaid in a nonrecourse loan is restricted to rental income from leased buildings and land. In July 2004, we teamed up with UFJ Trust Bank to offer limited-liability "apartment loans," and in November we launched a new loan program with Mitsubishi Trust and Banking, whereby the valuation of a property is based on its capacity to earn income from building rental. We will continue to seek innovative fund-raising avenues, which will increase the options available to us when making business proposals to landowners, and in turn help boost orders. Expansion of Care Partner business Care Partner Co., Ltd., a Daito subsidiary that provides daytime care for seniors, has received high acclaim from all parts of Japan. At present, there are 15 Care Partner centers in operation, and we plan to open a further seven centers during the current fiscal year. Each center, which occupies one floor of a rental condominium building, makes a worthy contribution to its local community and has earned warm acclaim from building owners. Le Meridien Kuala Lumpur open October 8, 2004, saw the opening of Le Meridien Kuala Lumpur, a 35-story, four-star hotel with 420 guest rooms, including 26 suites. Daito's Malaysian subsidiary has been working on this project since The new hotel is operated by Meridien SA, which has an established reputation in the hotel industry. 20 Daito Trust Construction Co., Ltd.

23 Consolidated Financial Section Contents Trends in Key Figures 22 Consolidated Financial Review 24 Consolidated Balance Sheets 26 Consolidated Statements of Income 28 Consolidated Statements of Shareholders' Equity 29 Consolidated Statements of Cash Flows 30 Notes to Consolidated Financial Statements 31 Independent Auditor's Report 40 21

24 Daito Trust Construction Co., Ltd. and Consolidated Subsidiaries Trends in Key Figures OPERATING RESULTS For the years ended March 31: Net sales 231, ,778 Construction 178, ,470 Real estate 36,915 44,693 Other 15,758 19,614 Gross profit 66,956 85,545 Construction 47,168 63,431 (Gross profit margin %) (26.4) (33.1) Real estate 7,994 8,822 (Gross profit margin %) (21.7) (19.7) Other 11,793 13,291 (Gross profit margin %) (74.8) (67.8) Operating income 21,998 26,920 (Operating income margin %) (9.5) (10.5) Recurring income 21,845 27,586 (Recurring income margin %) (9.4) (10.8) Net income 11,271 15,703 (Net income margin %) (4.9) (6.1) FINANCIAL POSITION As of March 31: Total assets 228, ,428 Current assets 124, ,971 Fixed assets 103, ,474 Current liabilities 60,581 78,278 Long-term liabilities 6,180 7,791 Shareholders equity 162, ,357 CASH FLOWS Cash flows provided by operating activities 19,036 Cash flows (used in) provided by investing activities (5,567) Cash flows used in financing activities (2,722) Cash and cash equivalents at end of year 77,101 PER COMMON SHARE (Yen, U.S. dollars) Net income Shareholders equity 1, , Cash dividends applicable to the year RATIOS ROE (%) Equity ratio (%) Payout ratio (%) Daito Trust Construction Co., Ltd.

25 Millions of Yen Thousands of U.S. Dollars , , , , ,761 $4,595, , , , , ,276 3,591,364 50,980 59,500 66,516 75,743 83, ,140 19,051 20,426 16,050 18,111 24, , , , , , ,299 1,488,775 78,876 83,309 94, , ,436 1,134,915 (33.4) (33.0) (32.2) (32.6) (31.6) 10,388 12,651 13,968 14,545 19, ,719 (20.4) (21.3) (21.0) (19.2) (23.3) 11,569 10,907 12,421 14,167 18, ,130 (60.7) (53.4) (77.4) (78.2) (75.7) 39,427 41,788 44,036 49,077 55, ,700 (12.9) (12.6) (11.7) (11.2) (11.3) 40,750 42,429 45,801 50,348 56, ,644 (13.3) (12.8) (12.2) (11.5) (11.5) 23,200 23,495 24,423 27,976 31, ,439 (7.6) (7.1) (6.5) (6.4) (6.4) 304, , , , ,276 3,825, , , , , ,215 2,572,102 93, , , , ,061 1,252,906 96, , , , ,459 1,518,308 10,084 11,989 15,535 17,261 17, , , , , , ,089 2,141,018 45,516 31,389 31,905 22,735 37, ,420 11,992 (33,505) (519) (20,567) 506 4,728 (6,773) (7,849) (25,829) (18,610) (15,846) (148,093) 128, , , , ,494 (1,210,224) , , , , ,

26 Consolidated Financial Review Revenues and Earnings Net Sales ( billions) In the year ended March 31, 2005, consolidated net sales of the Daito Trust Construction Group amounted to billion, up 12.1% from the previous fiscal period. Operating income rose 13.5%, to 55.7 billion, and recurring income climbed 12.6%, to 56.6 billion. Net income was up 12.6%, to 31.5 billion. All figures represented record-high levels for the second consecutive year. Sales are classified into the three core segments: construction, real estate, and other operations Construction The value of orders received in Daito's construction business rose 7.6%, to billion. This was the result of measures taken to strengthen Daito's organization and sales capabilities, which included the construction of a new sales center at the beginning of the term and restructuring of the Company's sales organization. Our business also benefited from healthy sales of Meridio, a new product introduced in September 2004, as well as fortification of our consulting capabilities for customers. Sales in the construction segment rose 11.5%, to billion, supported by strong orders and the high value of orders received. The gross profit margin for completed projects decreased 1.0 point, to 31.6%, due to increases in the cost of steel beams and other materials. 0 '01 '02 '03 '04 '05 Operating Income ( billions) Real Estate In the real estate segment, we strengthened our sales capabilities in the previous fiscal year by increasing the number of salespeople and establishing new offices. In the year under review, we worked hard to raise awareness of Daito's services by launching "e-heya Net" as the new brand for our lease brokerage service. We also enhanced our offerings on the Internet and revamped our television commercial. As a result, the number of tenants placed rose 14.6%, to 121,273, on a non-consolidated basis, while the occupancy rate improved significantly. The number of leased properties under Daito's management reached more than 390,000 at fiscal year-end, up 11.8% from a year earlier, leading to an increase in management fee income. Good occupancy rates for Shinagawa East One Tower, which combines leased office space and a hotel, and the Shanghai Garden Plaza complex of serviced apartments in Shanghai, also helped bolster sales in this segment. Real estate sales in fiscal 2004, therefore, rose 9.8%, to 83.1 billion. Other Operations Revenue from other operations jumped 34.3%, to 24.3 billion. This was due to a number of factors, including an increase in Daito Kyosaikai membership and an increase in supply by our LP gas sales businesses '01 '02 '03 '04 '05 Net Income ( billions) '01 '02 '03 '04 '05 24 Daito Trust Construction Co., Ltd.

27 Total Assets ( billions) '01 '02 '03 '04 '05 Shareholders' Equity and Shareholders' Equity Ratio Shareholders' equity Shareholders' equity ratio ( billions) (%) Assets Total assets at fiscal year-end amounted to billion, up 12.2% from a year earlier. Major factors in this change were a rise in cash and deposits accompanying higher sales, as well as increases in notes and accounts receivable, construction revenues, and operating loans. Shareholders' equity rose 6.8%, to billion, as a result of a 5.0% increase in retained earnings, to billion. The shareholders' equity ratio slipped 2.8 points, to 56.0%, while shareholders' equity per share rose , to 1, Cash Flows Cash and cash equivalents at the end of the year totaled billion, up 21.9 billion from a year earlier. Net cash provided by operating activities rose a solid 64.4%, to 37.3 billion. Factors in this change included a 10.1% increase in income before taxes and other adjustments, to 55.4 billion; a 8.0 billion increase in receivables from uncompleted projects related to work in progress, a 7.7 billion increase in trade payables due to project completions being concentrated at the end of each fiscal year; and a 15.2 billion increase in operating loans. Net cash provided by investing activities totaled 500 million, compared with 20.5 billion used in such activities in the previous year. This was mainly due to investments made to match the timing of securities maturity and redemption. Net cash used in financing activities was 15.8 billion, down 14.9%. Principal factors included 13.2 billion in purchases of treasury stock and 8.2 billion in dividends paid. 0 '01 '02 '03 '04 '05 Financial indicators for the Daito Group Key recent financial indicators are shown below Shareholders equity ratio (%) Shareholders equity ratio on a market value basis (%) Years to maturity (years) Interest coverage ratio (times) 5, , , ,051.6 Note: Shareholders equity ratio on a market value basis is the total market value of shares issued and outstanding divided by total assets. The total market value of shares is calculated by multiplying the closing price at the end of the fiscal year by the total number of shares issued and outstanding (exclusive of treasury stock). 25

28 Daito Trust Construction Co., Ltd. and Consolidated Subsidiaries Consolidated Balance Sheets March 31, 2005 and 2004 Millions of Yen Thousands of U.S. Dollars (Note 1) ASSETS CURRENT ASSETS: Cash and cash equivalents 129, ,568 $1,210,224 Time deposits 8,000 7,001 74,766 Marketable securities (Notes 3 and 5) 8,244 7,037 77,046 Notes and accounts receivable: Construction contracts 29,470 22, ,420 Other 2,712 1,863 25,345 Short-term loans 53,510 38, ,093 Inventories (Note 6) 27,100 25, ,271 Deferred tax assets (Note 9) 8,839 7,953 82,607 Other current assets 8,255 11,785 77,149 Allowance for doubtful accounts (413) (337) (3,859) Total current assets 275, ,671 2,572,102 PROPERTY AND EQUIPMENT: Land 42,015 42, ,663 Buildings and structures 51,028 43, ,897 Furniture and equipment 3,982 2,804 37,214 Construction in progress 5,710 Total 97,026 93, ,785 Accumulated depreciation (9,427) (6,579) (88,102) Net property and equipment 87,599 87, ,682 INVESTMENTS AND OTHER ASSETS: Investment securities (Notes 3 and 5) 15,110 17, ,214 Subordinated bond (Note 4) 4,738 3,214 44,280 Guarantee deposits 10,765 10, ,607 Investments in an unconsolidated subsidiary and an associated company ,233 Deferred tax assets (Note 9) 3,637 2,640 33,990 Deferred tax assets on revaluation on land 5,098 5,098 47,644 Other assets 6,872 8,440 64,224 Total investments and other assets 46,462 47, ,224 TOTAL 409, ,754 $3,825,009 See notes to consolidated financial statements. 26 Daito Trust Construction Co., Ltd.

29 Millions of Yen Thousands of U.S. Dollars (Note 1) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable 45,504 34,258 $ 425,271 Advances received 53,397 45, ,037 Income taxes payable (Note 9) 18,087 16, ,037 Accrued employees bonuses 10,972 8, ,542 Provision for guaranteed payment on vacant rooms 3,075 3,153 28,738 Other current liabilities 31,421 25, ,654 Total current liabilities 162, ,035 1,518,308 LONG-TERM LIABILITIES: Liability for retirement benefits (Note 7) 5,687 5,183 53,149 Deposit received for guarantee 11,188 11, ,560 Other ,962 Total long-term liabilities 17,727 17, ,672 CONTINGENT LIABILITIES (Note 15) SHAREHOLDERS EQUITY (Notes 8 and 16): Common stock authorized, 332,255,400 shares issued, 129,358,232 shares in 2005 and 132,531,832 shares in ,060 29, ,588 Capital surplus 34,540 34, ,803 Retained earnings 187, ,718 1,754,607 Land revaluation difference (7,428) (7,428) (69,420) Unrealized gain on available-for-sale securities 2,371 2,505 22,158 Foreign currency translation adjustments (3,033) (2,642) (28,345) Total 243, ,754 2,273,401 Treasury stock at cost, 6,048,800 shares in 2005 and 8,407,248 shares in 2004 (14,164) (20,295) (132,373) Total shareholders equity 229, ,458 2,141,018 TOTAL 409, ,754 $3,825,009 27

30 Daito Trust Construction Co., Ltd. and Consolidated Subsidiaries Consolidated Statements of Income Years Ended March 31, 2005 and 2004 Millions of Yen Thousands of U.S. Dollars (Note 1) NET SALES: Construction contracts 384, ,772 $3,591,364 Brokerage and real estate management 83,154 75, ,140 Other (Note 10) 24,330 18, ,383 Total net sales 491, ,627 4,595,897 COST OF SALES: Construction contracts 262, ,355 2,456,439 Brokerage and real estate management 63,710 61, ,420 Other 5,912 3,944 55,252 Total cost of sales 332, ,497 3,107,112 Gross profit 159, ,129 1,488,775 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 10 and 11) 103,584 92, ,074 Operating income 55,715 49, ,700 OTHER INCOME (EXPENSES) Net (Note 12) (297) 1,240 (2,775) INCOME BEFORE INCOME TAXES 55,417 50, ,915 INCOME TAXES (Note 9): Current 25,703 23, ,214 Deferred (1,792) (1,239) (16,747) Total income taxes 23,911 22, ,467 NET INCOME 31,505 27,976 $ 294,439 Yen U.S. Dollars PER SHARE OF COMMON STOCK (Notes 2.s and 17): Basic net income $ 2.34 Diluted net income Cash dividends applicable to the year See notes to consolidated financial statements. 28 Daito Trust Construction Co., Ltd.