Integrated report 2025

Jul 17, 2025 at 6:21 AM UTC · MarketScreener

ANNUAL REPORT 2025

Year Ended March 31, 2025

		Contents
			Page
Part 1		Company Overview……………………………………………………………………………………………………	3
	1	History………………………………………………………………………………………………………………	3
	2	Overview of Business Activities……………………………………………………………………………………	5
	3	Overview of Subsidiaries and Affiliates……………………………………………………………………………	6
	4	Employee Data ……………………………………………………………………………………………………	6
Part 2		Business Overview……………………………………………………………………………………………………	8
	1	Management Policies, Operating Environment, and Issues to Address……………………………………………	8
	2	Management's Analysis of Financial Position, Operating Results, and Cash Flows………………………………	12
Part 3		Financial Reporting……………………………………………………………………………………………………	18
	1	Consolidated Financial Statements…………………………………………………………………………………	18

Independent Auditor's Report

Part 1 Company Overview

History
July 1947 The Company was established for the purpose of leasing stock exchange buildings in Tokyo, Osaka, Nagoya, and other cities, along with all other associated assets, to a newly founded organization composed of stock exchanges and their operators, following the dissolution of the previous owner, the Japan Securities Exchange, pursuant to a law enacted in 1947 to decentralize stock exchanges in Japan.
Based in Tokyo, the Company set up a branch in Osaka and offices in six other cities.
May 1949 Listed on the Tokyo Stock Exchange, Osaka Securities Exchange (currently Osaka Exchange), and Nagoya Stock Exchange
July 1949 Listed on the Fukuoka Stock Exchange July 1950 Listed on the Sapporo Securities Exchange
July 1958 Completed construction of the Fukuoka Shoken Building March 1962 Completed construction of the Kyoto Shoken Building March 1965 Completed construction of the Fukuoka Heiwa Building
April 1965 Commenced sales of residential land in the Heiwadai district of the city of Nagareyama April 1969 Upgraded offices in Nagoya and Fukuoka to branches
May 1972 Completed construction of the Kabutocho Heiwa Building
March 1977 Commenced sales of houses in the Fusaheiwadai district of the city of Abiko
May 1980 Commenced sales of condominium units of the Sunny Park Heights Narita condominium complex
October 1984 Completed construction of the trading floor building (currently Arrows) in the Tokyo Stock Exchange Building complex
December 1984 Established Heiwa Regional Service Co., Ltd. (currently Heiwa Real Estate Property Management Co., Ltd.) April 1987 Completed construction of the Osaka Heiwa Building
April 1988 Completed construction of the main building in the Tokyo Stock Exchange Building complex October 1993 Completed construction of the Daimaru Kyoto Store West Kyodo Building
June 1994 Completed construction of the Daimaru Kyoto Store North Kyodo Building April 2000 Acquired the Mita Heiwa Building
February 2001 Acquired the Uchisaiwaicho Heiwa Building September 2002 Acquired the Dogin Building
March 2004 Completed construction of the Nagoya Heiwa Building
December 2004 Completed construction of the Osaka Securities Exchange Building December 2005 Acquired the Isemachi Heiwa Building
March 2006 Acquired the Sapporo Ekimae Godo Building August 2006 Opened the Sapporo Branch
June 2007 Acquired the Kayabacho 1-Chome Heiwa Building
August 2007 Completed construction of the Nagoya Stock Exchange Building February 2008 Made Housing Service Co., Ltd., a consolidated subsidiary
March 2008 Completed construction of the Hotel Brighton City Osaka Kitahama Acquired the Tenjin Heiwa Building
May 2008 Acquired the Shin-Odori Building
October 2009 Made Canal Investment Trust Co., Ltd. (currently HEIWA REAL ESTATE Asset Management Co., Ltd.), a consolidated subsidiary
February 2010 Completed construction of CentRise Sakae
January 2012 Completed construction of the Ichibancho Heiwa Building
January 2013 Made The Tokyo Shoken Building Incorporated a consolidated subsidiary March 2015 Completed construction of the Maruzen Nagoya Honten Building December 2017 Acquired the Osaka Midosuji Building
March 2019
August 2021
April 2022
March 2024
Acquired the Sakae Sun City Building Opened KABUTO ONE
The Company's shares were listed on the Prime Market of the Tokyo Stock Exchange and the Premier Market of the Nagoya Stock Exchange following the respective market reorganizations of each exchange.
Established the Heiwa Real Estate Group Purpose and formulated the Heiwa Real Estate Group Long-term Vision, "WAY 2040."

Overview of Business Activities

The Heiwa Real Estate Group (hereafter, "the Group") is composed of Heiwa Real Estate Co., Ltd. (hereafter, "the Company"), which files consolidated financial statements as the parent company, and its six consolidated subsidiaries. The main business activities conducted by the Group, the names of the companies engaged in these businesses, and the respective business activities of each of these companies are presented below.

The main business activities conducted by the Group are categorized according to its reportable business segments.

Building Business
Heiwa Real Estate Co., Ltd., The Tokyo Shoken Building Incorporated, Tokyo Hibiya Hotel Corporation, and Tokyo Nihonbashi Kabutocho Hotel Co., Ltd. develop, lease, manage, and sell stock exchange buildings, office buildings, commercial facilities, and residential buildings.
Heiwa Real Estate Property Management Co., Ltd., provides property management services.
Asset Management Business

Heiwa Real Estate Co., Ltd., and HEIWA REAL ESTATE Asset Management Co., Ltd., manage the properties of HEIWA REAL ESTATE REIT, Inc.

Housing Service Co., Ltd., provides real estate agency services. The details above are shown in the following diagram.

平和不動産株式会社	Heiwa Real Estate Co., Ltd.
ビルディング事業	Building Business
アセットマネジメント事業	Asset Management Business
平和不動産プロパティマネジメント株式会社	Heiwa Real Estate Property Management Co., Ltd.
株式会社東京証券会館	The Tokyo Shoken Building Incorporated
東京日比谷ホテル株式会社	Tokyo Hibiya Hotel Corporation
東京日本橋兜町ホテル株式会社	Tokyo Nihonbashi Kabutocho Hotel Co., Ltd.
平和不動産アセットマネジメント株式会社	HEIWA REAL ESTATE Asset Management Co., Ltd.
ハウジングサービス株式会社	Housing Service Co., Ltd.

Overview of Subsidiaries and Affiliates

Company name	Location	Share capital (millions of yen)	Main business activities*	The Company's voting rights and ownership (%)	Related activities
Consolidated subsidiaries					Consigned to manage the Company's leased buildings Rents offices from the Company Officers hold concurrent positions
Heiwa Real Estate Property Management Co., Ltd.*	Chuo-ku, Tokyo	134	Building Business	100.0
Housing Service Co., Ltd.	Chuo-ku, Osaka	95	Asset Management Business	100.0	Officers hold concurrent positions
HEIWA REAL ESTATE Asset Management Co., Ltd.	Chuo-ku, Tokyo	295	Asset Management Business	100.0	Rents offices from the Company Officers hold concurrent positions
					Rents stores to the
The Tokyo Shoken Building Incorporated	Chuo-ku, Tokyo	100	Building Business	100.0	Company Officers hold
					concurrent positions
Tokyo Hibiya Hotel Corporation	Chiyoda-ku, Tokyo	10	Building Business	100.0	Rents hotels from the Company
Tokyo Nihonbashi Kabutocho Hotel Co., Ltd.	Chuo-ku, Tokyo	10	Building Business	100.0	Rents hotels from the Company
Other Affiliates
Taisei Corporation (Note 2)	Shinjuku-ku, Tokyo	122,742	Construction Business, etc.	Being owned 20.12	Entered into a capital and business alliance agreement with the Company.

(Notes) 1. The main business activities correspond to the business segment names.

2. Taisei Corporation submits its annual securities report.

Employee Data

Employees of the Group

(As of March 31, 2025)

Segment	Number of employees
Building Business	142
Asset Management Business	86
Group-wide non-segment	31
Total	259

(Notes) 1. Number of employees refers to full-time employees, excluding employees transferred to organizations outside the Group and including personnel transferred to the Group from other organizations.

Group-wide non-segment refers to employees of administration divisions.

Employees of the Company

(As of March 31, 2025)

Number of employees	Average age of employees	Average years of employment	Average annual salary (thousands of yen)
103	42.5	14.6	11,033

Segment	Number of employees
Building Business	72
Asset Management Business	-
Company-wide non-segment	31
Total	103

(Notes) 1. Number of employees refers to full-time employees, excluding employees transferred to organizations outside the Company and including personnel transferred to the Company from other organizations.

Average annual salary includes bonuses and additional wages.
Company-wide non-segment refers to employees of administration divisions.

Labor unions
Employees of The Tokyo Shoken Building Incorporated, a consolidated subsidiary, have formed a labor union, and the company and the union have maintained a constructive relationship. There are no matters deserving special mention.

Percentages of female employees holding management positions and male employees who have taken childcare leave Reported by the Company

Fiscal 2024
Percentage of female employees holding management positions (Note 1)	Percentage of male employees who have taken childcare leave (Note 2)
15.2%	100.0

(Notes) 1. The percentage of female employees holding management positions was calculated as of March 31, 2025, pursuant to provisions in the Act on Promotion of Women's Participation and Advancement in the Workplace (Act No. 64 of 2015), and in accordance with Paragraph 19-1-1 of the Ministry of Health, Labor and Welfare's Ordinance on the Action Plans for Business Owners (Ordinance No. 162 of 2015) based on this act.

The percentage of male employees who took childcare leave was determined for the fiscal year, pursuant to provisions in the Act on the Welfare of Workers Who Take Care of Children or Other Family Members Including Child Care and Family Care Leave (Act No. 76 of 1991; hereafter, the "Childcare and Family Care Leave Act"), and in accordance with Paragraph 71-6-1 of the Ministry of Health, Labor and Welfare's Ordinance on the Enforcement of this Act (Ordinance No. 25 of 1991).
Employees employed directly by the Company, including those seconded by the Company to other companies, were included in calculations of the percentages of female employees holding management positions and male employees who took childcare leave. Employees seconded to the Company from other companies were not included in these calculations.
The Company has not disclosed differences in the salaries of male and female employees during fiscal 2024, and, therefore, has not included such data in this report, pursuant to provisions in the Act on Promotion of Women's Participation and Advancement in the Workplace, and in accordance with Paragraph 19-1-1 of the Ministry of Health, Labor and Welfare's Ordinance on the Action Plans for Business Owners based on this act.
Consolidated subsidiaries are not subject to disclosure obligations under the Act on Promotion of Women's Participation and Advancement in the Workplace or the Childcare and Family Care Leave Act; therefore, their figures have been omitted.

Part 2 Business Overview

Management Policies, Operating Environment, and Issues to Address

Details of the Group's management policies, operating environment, and issues to address are as follows. Forward-looking statements in this report were based on judgments made as of March 31, 2025.

Management Policies, Operating Environment, and Issues to Address

While the Japanese economy continued to pick up moderately on the back of improved employment and income conditions as well as various economic measures implemented by the government, the impacts of ongoing rising prices, the trends in U.S. policies such as trade policies, and financial capital market trends will need to be closely monitored going forward. In Japan, the urban landscape and lifestyles are undergoing major changes due to various factors, including the diversification and qualitative shifts in workstyles, expanded demand from inbound tourism, population decline, a dwindling birthrate and an aging society, and intensified competition between cities and between regions. Additionally, heightened expectations for improved capital efficiency, the advancement of sustainability management, progress in digital technology, and the increasing threat of natural disasters are all contributing to the rapidly evolving operating environment.

After considering this operating environment, the Company announced the Heiwa Real Estate Group Purpose, "Enriching everyone's future with Bazukuri* that draws people in," and the Heiwa Real Estate Group Long-term Vision, "WAY 2040," on March 29, 2024, followed by the medium-term management plan, "WAY 2040 Stage 1," on April 30, 2024. In accordance with these plans, the Group will work to expand its redevelopment business, cultivate profit growth while enhancing capital efficiency, boost social value, and strengthen its business foundations, in an effort to increase corporate value.

The Company signed a capital and business alliance agreement (hereafter, the "Alliance Agreement") with Taisei Corporation (hereinafter, "Taisei") and signed an agreement concerning tripartite collaboration (hereafter, the "Cooperation Agreement") with Taisei, and Mitsubishi Estate Co., Ltd. (hereinafter, "Mitsubishi Estate") in June 2024 in order to realize the Group Longterm Vision, "WAY 2040." In the capital and business alliance with Taisei, the Company will establish a long-term cooperative relationship and further leverage the strengths of both companies, including their business bases and know-how, to mutually enhance their corporate value by 1) Expansion and speedily promotion in redevelopment business, 2) Collaboration in new business fields such as new real estate (asset class) investment and 3) Promotion of business alliances in the fields of sustainability and digital transformation (DX).

Medium-Term Management Plan: Background to Formulation and Positioning

In the medium-term management plan, WAY 2040 Stage 1 (Fiscal2024-Fiscal2026), we have positioned this period as the initial sprint toward dynamic growth. This involves establishing the Nihonbashi Kabutocho and Kayabacho district brand, undertaking our largest-ever redevelopment projects, located in Sapporo, and venturing into new business domains to realize our vision, characterized by the slogan: Pursue perpetual dynamic growth to become the "Bazukuri Company."

Key Strategies of the Medium-Term Management Plan to Realize Our Vision

Expand redevelopment business: Deploy Bazukuri endeavors that draw people in throughout Japan
1. Establish the Nihonbashi Kabutocho and Kayabacho district brand
  The introduction of new features through the opening of Caption by Hyatt Kabutocho Tokyo, the first of this series in Tokyo, will generate synergies among different aspects and services within the city, enhancing overall urban functionality. Further, we will implement diverse Bazukuri endeavors that draw people in and entrench our Nihonbashi Kabutocho and Kayabacho district brand. This will be achieved primarily through the expansion of FinGATE, a platform supporting the establishment and growth of entrepreneurs and startups, as well as the attraction and operation of unique commercial establishments that bring vibrancy both on weekdays and weekends, and cutting-edge urban sustainability initiatives.
2. Advance our largest-ever redevelopment projects, located in Sapporo
  We will steadily advance toward the completion, in Fiscal2028 of our largest-ever redevelopment projects -the Odori-nishi 4 South, Type 1 District Redevelopment Project and the Sapporo Station South Exit North 4 West 3, Type 1 District Redevelopment Project (provisional names)-as part of our Bazukuri endeavors in Sapporo that people draw in. Through this, we aim to help boost the competitiveness of the city.
3. Expand redevelopment projects nationwide
  To enhance our presence as a Bazukuri Company, we will drive the implementation of redevelopment projects centered around our assets in major cities throughout Japan.
Cultivate profit growth while enhancing capital efficiency: Expand leasing business, promote reinvestment by realizing gains from property sales, and diversify into new business areas
1. Develop a business model for creating added value in the Building Business
  We will realize gains from property sales by renewing our portfolio and sustainably develop our business model focused on creating added value.
2. Expand revenue in the Asset Management Business
  We will strive to increase asset management fees by supporting the growth of HEIWA REAL ESTATE REIT, Inc., and to enhance Group earnings with high capital efficiency through stable growth in brokerage business.
3. Venture into new business domains to realize our vision
  To achieve the dynamic growth emphasized in our Long-term Vision, we will strengthen our hotel business and explore opportunities for expansion into new business domains, primarily through M&A.
Boost social value: Promote sustainability initiatives
1. Implement sustainability management
  We, as a Bazukuri Company, will contribute to realizing a sustainable society by addressing environmental and social issues, including achieving net-zero greenhouse gas (GHG) emissions, while encouraging interactive communication with all stakeholders.
2. Promote the creation of sustainable districts
  We will enhance the competitiveness of our asset portfolio by addressing social issues such as promoting environmental friendliness and boosting disaster preparedness. This will be achieved through building development and operation as well as facility investment, and continued efforts to reduce GHG emissions, among other initiatives.

Strengthen business foundations: Maximize human capital for accelerated growth

Implement management with an awareness of the cost of shareholders' equity and stock price
From fiscal 2024 to fiscal 2026, we have set a ROE target of 7% or more, exceeding the cost of shareholders' equity. For shareholder returns from fiscal 2024 to fiscal 2026, we aim to maintain a consolidated dividend payout ratio of 50% in consideration of the cost of shareholders' equity, capital efficiency, and other factors. We will also flexibly implement share buybacks, taking into account aspects such as stock price, investment plans, and financial condition.
The Company announced its "Initiatives to Further Advance Management Conscious of the Cost of Capital and the Companyʼs Stock Price" on January 31, 2025. If the gain on sale of investment securities recorded as extraordinary income, increases as planned by accelerating efforts to reduce cross-shareholdings, ROE for fiscal 2025 and fiscal 2026 is expected to improve to 8% or more.
Maximize human capital
As part of our Long-term Vision, we will promote human capital management to drive dynamic growth. This involves cultivating human resources capable of realizing our Purpose through career development, as well as individuals proficient in digital DX. Additionally, we will create an organization that promotes and maximizes diversity, while fostering comfortable and vibrant workplaces through health and productivity management, among other measures.

Further strengthen corporate governance

We will bolster corporate governance mainly by enhancing the functions of the Board of Directors and reducing cross-shareholdings.

Quantitative Targets

Financial and non-financial key performance indicators (KPIs)

Financial KPIs	Profit targets	EPS	¥135 or more (Note 3) (fiscal 2026) Forecast: ¥150 or more (Note 3) (fiscal 2026)
	Profit targets	Consolidated operating profit	¥14 billion or more (Note 1) (fiscal 2026)
	Capital efficiency	ROE	7% or more (from fiscal 2024 to fiscal 2026) Results and Forecast: 7.9% (fiscal 2024 results) 8% or more (from fiscal 2025 to fiscal 2026 forecast)
	Shareholder returns	Consolidated dividend payout ratio	We aim to maintain a consolidated dividend payout ratio of approximately 50% (from fiscal 2024 to fiscal 2026) and will flexibly implement share buybacks, taking into account factors such as stock price, investment plans, and financial condition. Annual dividends and dividends forecast per share (Note 3): Fiscal 2024 results: ¥86 (Ordinary dividend: ¥71, Special dividend: ¥15) Fiscal 2025 forecast: ¥88 (Ordinary dividend: ¥73, Special dividend: ¥15) Fiscal 2026 forecast: ¥90 or more (Ordinary dividend: ¥75 or more, Special dividend: ¥15)
Nonfinancial KPIs	Environmental	GHG emissions	Reduce by 80% compared to fiscal 2018 by fiscal 2025 (Scope 1 and 2) Achieve net-zero emissions by fiscal 2050 (Scope 1, 2, and 3)
		Water usage	Reduce in each application year on year
		Waste generation	Reduce in each application year on year
	Social	Ratio of new graduate female hires: 30% or more (five-year average) Ratio of female managers: 20% or more by fiscal 2030 Ratio of mid-career workers in management positions: 40% or more by fiscal 2030 Annual health check uptake: 100% Uptake of cancer screenings (every two years): 100% of employees aged 35 or above Annual stress check uptake: 100% Annual paid holiday uptake: 70% or more Male childcare leave uptake: 100% by fiscal 2030 First aid training qualification: All of our officers and employees
	Governance	Ratio of cross-shareholdings to consolidated net assets: 10% or less by fiscal 2026 Forecast: The Company will accelerate efforts to reduce its cross-shareholdings, aiming to cut the approximately ¥17.5 billion balance as of December 31, 2024, by half or less.

(Notes) 1. Breakdown of consolidated operating profit Building Business: ¥13.8 billion

Asset Management Business: ¥2.4 billion Corporate and elimination: -¥2.2 billion

Reference indicator (financial soundness): Net debt-to-equity (D/E) ratio of approximately 2.0
Since the Company conducted a 2-for-1 stock split effective July 1, 2025, the above figures take this stock

split into account.

The targeted and planned amounts for the KPIs mentioned above, are as of the time this report was submitted. The Company makes no guarantee that these targets will be achieved, and actual results may differ substantially. These targets may be revised in the future due to changes in the operating environment or other factors.

2 Management's Analysis of Financial Position, Operating Results, and Cash Flows

Overview of financial results

An overview of the Group's consolidated financial position, operating results, and cash flows (hereafter, "financial results") in fiscal 2024 is presented as follows.

Financial position and operating results

In fiscal 2024, while the Japanese economy continued to pick up moderately on the back of improved employment and income conditions as well as various economic measures implemented by the government, the impacts of ongoing rising prices, the trends in U.S. policies such as trade policies, and financial capital market trends will need to be closely monitored going forward. Against this backdrop, conditions were favorable in Japan's real estate industry. In the office building leasing market, vacancy rates continued to decline in central Tokyo and average rents have increased, reflecting a rebound in demand for office space driven by improvements in workplace environments. In the real estate investment market, strong investment appetite for domestic real estate remained firm and stable despite the Bank of Japan's termination of negative interest rates and subsequent rate hikes. In this operating environment, the Company's consolidated financial results were mixed. Net sales totaled ¥42,075 million, a decrease of ¥2,357 million (5.3%) compared with the previous fiscal year. Operating profit increased by ¥174 million (1.3%) to

¥13,196 million, while ordinary profit rose by ¥188 million (1.6%) to ¥11,651 million. Profit attributable to owners of parent amounted to ¥9,565 million, up ¥1,115 million (13.2%) year on year.

Consolidated financial results by business segment are as follows.

(Millions of yen)

Segment	Fiscal 2023		Fiscal 2024		Difference
Segment	Net sales	Operating profit	Net sales	Operating profit	Net sales	Operating profit
Building Business	40,544	12,639	37,997	13,010	(2,547)	371
Asset Management Business	3,888	2,197	4,078	2,355	189	157
Adjustments	-	(1,814)	-	(2,169)	-	(355)
Total	44,433	13,022	42,075	13,196	(2,357)	174

Net sales from major tenants and their percentage of net sales in fiscal 2023 and 2024 are as follows.

Tenant	Fiscal 2023		Fiscal 2024
Tenant	Net sales (millions of yen)	Percentage of net sales	Net sales (millions of yen)	Percentage of net sales
HEIWA REAL ESTATE REIT, Inc.	8,164	18.4	8,727	20.7
Godo Kaisha Shinsatsu	4,500	10.1	-	-

(Note) Only tenants that account for 10% or more of net sales are reported as major tenants.

Building Business

In the Building Business segment, leasing revenue increased by ¥1,135 million (4.3%) year on year to ¥27,517 million, primarily due to contributions from building opened in the previous fiscal year, namely the Mercure Hotel Tokyo Hibiya (in Chiyoda-ku, Tokyo) and buildings acquired in the previous fiscal year, as well as to the leasing of newly occupied office space and rent revisions. Revenue from sales of properties decreased by ¥3,815 million (29.9%) to ¥8,965 million, reflecting a year-on-year decrease in proceeds from the sell-off of properties designated as real estate for sale. These results combined with other net sales in this segment brought total net sales to ¥37,997 million, a decrease of ¥2,547 million (6.3%) compared with the previous fiscal year. On the other hand, segment operating profit rose by ¥371 million (2.9%) to ¥13,010 million.

As of March 31, 2025, the vacancy rate of buildings leased by the Heiwa Real Estate Group (excluding buildings for which leases have been suspended due to redevelopment) was 3.25%.

Breakdown of net sales (Millions of yen)

Classification	Fiscal 2023		Fiscal 2024
Classification	Area (m2)	Amount	Area (m2)	Amount
Leasing revenue	Leased land area 3,272.00	26,382	Leased land area 3,335.24	27,517
Leasing revenue	Leased floor space 381,500.28	26,382	Leased floor space 353,508.53	27,517
Revenue from sales of properties	-	12,780	-	8,965
Other	-	1,382	-	1,514
Total	-	40,544	-	37,997

Asset Management Business

In the Asset Management Business segment, asset management revenue increased by ¥215 million (8.4%) to ¥2,781 million, while brokerage commissions decreased by ¥25 million (1.9%) to ¥1,296 million. As a result, segment net sales came to ¥4,078 million, up ¥189 million (4.9%) year on year. Segment operating profit totaled ¥2,355 million, an increase of ¥157 million (7.2%) compared with the previous fiscal year.

Breakdown of net sales (Millions of yen)

Classification	Fiscal 2023	Fiscal 2024	Difference
Asset management revenue	2,565	2,781	215
Brokerage commissions	1,322	1,296	(25)
Total	3,888	4,078	189

Cash flows

As of March 31, 2025, consolidated cash and cash equivalents amounted to ¥25,241 million, down ¥1,074 million compared with March 31, 2024.

Fiscal 2024 consolidated results for each category of cash flows and main factors underlying the results are as follows.

Cash flows from operating activities

Net cash provided by operating activities totaled ¥16,048 million, compared with ¥19,584 million in the previous fiscal year. Major inflows included profit before income taxes of ¥12,434 million and a decrease in inventories of ¥3,584 million.

Cash flows from investing activities

Net cash used in investing activities amounted to ¥24,839 million, compared with ¥19,356 million in the previous fiscal year. Main outflows included ¥23,717 million for the purchase of property, plant and equipment, and ¥1,908 million in payments for acquisition of investment securities.

Cash flows from financing activities

Net cash provided by financing activities came to ¥7,716 million, compared with ¥280 million in the previous fiscal year. Main outflows included ¥17,008 million for repayments of long-term borrowings, ¥9,058 million for purchase of treasury shares,

¥5,974 million for dividends paid, and ¥3,624 million for redemption of bonds, while main inflows included ¥43,639 million in proceeds from long-term borrowings.

(Reference) Results for cash flow-related indicators

Indicator	As of March 31, 2021	As of March 31, 2022	As of March 31, 2023	As of March 31, 2024	As of March 31, 2025
Equity ratio	31.1%	31.7%	30.0%	30.9%	28.1%
Market cap-to-assets ratio	33.7%	38.4%	34.0%	36.0%	37.4%
Debt repayment period (years)	26.0	6.0	9.5	11.8	15.8
Interest coverage ratio (times)	6.2	24.2	16.2	11.8	8.5
Net D/E ratio	1.6	1.5	1.7	1.6	1.9

(Notes) 1. The following formulas for calculating the indicators shown above are based on consolidated financial results.

Equity ratio = shareholders' equity ÷ total assets

Market cap-to-assets ratio = market capitalization ÷ total assets

Debt repayment period = interest-bearing liabilities ÷ net cash provided by operating activities Interest coverage ratio = net cash provided by operating activities ÷ interest expenses

Net D/E ratio = (interest-bearing liabilities - cash and deposits + securities) ÷ net assets

Interest-bearing liabilities comprise short-term borrowings, the current portion of bonds payable, the current portion of longterm borrowings, certain other current liabilities, bonds payable, long-term borrowings, and long-term accounts payable-other, as stated in the consolidated balance sheets. Interest expenses used in the calculations are recorded in the consolidated statements of income.
Net cash provided by operating activities used for the calculations are recorded in the consolidated statements of cash flows.

Production, orders, and net sales
Results related to production, orders, and net sales for each segment are presented above in 1) Financial position and operating results.

Management's analysis of business results and issues for consideration

Management's recognition and analysis of the Group's financial results as well as issues for consideration are presented below. Forward-looking statements in this report were based on judgments made as of March 31, 2025.

Recognition and analysis of financial position and operating results, and issues for consideration

The Group announced the Heiwa Real Estate Group Purpose, "Enriching everyone's future with Bazukuri that draws people in," and the Heiwa Real Estate Group Long-term Vision, "WAY 2040," on March 29, 2024, followed by a new medium-term management plan, "WAY 2040 Stage 1," on April 30, 2024. In accordance with these plans, the Group will work to expand its redevelopment business, cultivate profit growth while enhancing capital efficiency, boost social value, and strengthen its business foundations, in an effort to increase corporate value. In fiscal 2024, we focused on external growth by carrying out the Sapporo Station South Exit North 4 West 3, Type 1 District Redevelopment Project (Sapporo City, Hokkaido), Odori-nishi 4 South, Type 1 District Redevelopment Project (Sapporo City, Hokkaido), and Caption by Hyatt Kabutocho Tokyo (Chuo-ku, Tokyo), and the acquisition of ORSUS Kiyosumi-shirakawa Riverfront and ORSUS Shimura-sakaue, as well as internal growth through the acquisition of hotel business revenue from "Mercure Tokyo Hibiya" (Chiyoda-ku, Tokyo), which opened in the previous fiscal year. Among consolidated financial results, operating profit increased by ¥174 million to ¥13,196 million. Profit attributable to owners of parent increased by ¥1,115 million to ¥9,565 million, mainly reflecting the recording of a gain on sale of investment securities following a reduction of cross-shareholdings and a decrease in income taxes - deferred resulting from the recognition of deferred tax assets.

Major factors that could have a significant impact on the Group's operating results include trends in the domestic economy and real estate market, particularly the office building leasing market and real estate investment market.

Total assets, total liabilities, and net assets as of March 31, 2024, and March 31, 2025, were as follows:

(Millions of yen)

	As of March 31, 2024	As of March 31, 2025	Difference
Total assets	405,979	419,541	13,561
Total liabilities	280,334	301,541	21,207
Net assets	125,645	117,999	(7,646)
Interest-bearing liabilities	231,323	254,072	22,749

(Note) Interest-bearing liabilities were composed of short-term borrowings, the current portion of bonds payable, the current portion of long-term borrowings, certain other current liabilities, bonds payable, long-term borrowings, and long-term accounts payable-other.

Total assets

As of March 31, 2025, total assets amounted to ¥419,541 million, an increase of ¥13,561 million compared with March 31, 2024. Among the main factors underlying this result, land decreased by ¥14,072 million and buildings and structures decreased by

¥5,238 million, construction in progress rose by ¥26,217 million, and real estate for sale increased by ¥9,175 million which reflected reclassification from fixed assets to real estate for sale, reclassification of accounts and payment of participation fee following the approval of rights conversion for the Sapporo redevelopment project, construction cost outlays for Caption by Hyatt Kabutocho Tokyo (Chuo-ku, Tokyo), and the recording of depreciation expense.

In the consolidated balance sheets, the combined balance of leased property and real estate that includes the portion used as lease property was ¥311,316 million as of March 31, 2025, an increase of ¥6,828 million compared with April 1, 2024. As of March 31, 2025, the market value of the Company's holdings was ¥439,801 million, an increase of ¥18,554 million from April 1, 2024.

Total liabilities

As of March 31, 2025, total liabilities amounted to ¥301,541 million, an increase of ¥21,207 million compared with March 31, 2024. Among the main factors underlying this result, interest-bearing liabilities rose by ¥22,749 million.

As of March 31, 2025, the balance of interest-bearing liabilities was ¥254,072 million, and the net D/E ratio stood at 1.9. The Company has set a net D/E ratio target of 2.0 in its indicator of financial soundness of medium-term management plan, WAY 2040 Stage 1, and has kept the ratio within this range.

Net assets

As of March 31, 2025, net assets stood at ¥117,999 million, a decrease of ¥7,646 million compared with March 31, 2024. This was mainly while retained earnings increased by ¥3,568 million, the decrease was mainly due to an acquisition of treasury stock of ¥9,054 million.

As of March 31, 2025, in addition to flexibly implementing 2.4 million of share buybacks, as part of efforts to further promote management with an awareness of the cost of shareholders' equity and stock price, the Company accelerated the reduction of cross-shareholdings. In line with our basic policy on shareholder returns of maintaining a consolidated dividend payout ratio of 50%, the Company implemented special dividends, in addition to ordinary dividends.

The Company's recognition and analysis of its financial position and operating results by business segment along with related issues for consideration are as follows.

Analysis of financial position

As of March 31, 2025, Building Business segment assets amounted to ¥358,049 million, an increase of ¥16,604 million compared with March 31, 2024. This mainly reflected reclassification from fixed assets to real estate for sale, the reclassification of accounts and payment of participation fees following the approval of rights conversion for the Sapporo redevelopment project, construction cost outlays for Caption by Hyatt Kabutocho Tokyo (Chuo-ku, Tokyo), and the recording of depreciation expense. Asset Management Business segment assets totaled ¥23,181 million, down ¥1,472 million compared with March 31, 2024. This was largely due to a decrease in the market value of investment units of HEIWA REAL ESTATE REIT, Inc. held by the Company.

Segment assets (Millions of yen)

	As of March 31, 2024	As of March 31, 2025	Difference
Building Business	341,445	358,049	16,604
Asset Management Business	24,653	23,181	(1,472)
Adjustments	39,881	38,310	(1,570)
Amount in consolidated financial statements	405,979	419,541	13,561

Analysis of operating results

Operating results for each segment are presented above in (1) Overview of financial results, 1) Financial position and operating results.

Analysis of cash flows, issues for consideration, and sourcing and liquidity of funds
An analysis of cash flows for fiscal 2024 is presented in (1) Overview of financial results, 2) Cash flows.
The Group's sources of funds include cash inflows from its business activities, loans from financial institutions, and bonds issued by the Company. The funds it secures are allocated in a manner that ensures a sound balance between working capital, shareholder returns, internal reserves needed for maintaining stable operations, and investments for future growth, such as redevelopment and building businesses. The Group's working capital is mainly used to pay expenses for the operation of business assets, operating expenses, including selling, general and administrative expenses, and non-operating expenses, such as interest expenses.
As a basic policy, the Company maintains an appropriate level of discipline when financing and procuring funds, using the net D/E ratio as an indicator of financial discipline. As of March 31, 2025, interest-bearing liabilities, which include loans and corporate bonds, stood at ¥254,072 million; net interest-bearing liabilities, which exclude marketable securities and cash and deposits from interest-bearing liabilities, amounted to ¥228,731 million; and the net D/E ratio came to 1.9.
The Company will return profits to shareholders based on the assumption that its businesses, particularly the redevelopment and building businesses, will operate stably over the long term, and sufficient internal reserves for raising shareholder value will be secured. As a basic policy, the Company aimed for a consolidated total shareholder return ratio of around 50% from fiscal 2024 to 2026, taking into account returns on business investments while focusing on capital cost and capital efficiency. As part of efforts to further promote management with an awareness of the cost of shareholders' equity and stock price, the Company accelerated the reduction of cross-shareholdings. In line with our basic policy on shareholder returns of maintaining a consolidated dividend payout ratio of 50%, the Company implemented special dividends, in addition to ordinary dividends. In accordance with this policy, the Company paid dividends totaling ¥5,771 million for fiscal 2024, which included a special dividend of ¥1,006 million. As a result, the consolidated total shareholder return ratio stood at 60.8%.
Significant accounting policies and estimates

The Group prepares its consolidated financial statements in accordance with accounting standards generally accepted in Japan. When preparing these statements, accounting estimates are made based on reasonable standard.

More details are presented in Part 3 Financial Reporting, Consolidated Financial Statements, 6. Notes to Consolidated Financial Statements, Note 2 Significant Accounting Policies.

Accounting estimates are necessary for the impairment of fixed assets and valuation of real estate for sale, in particular. Information concerning the impact of uncertainty inherent in such estimates and assumptions as well as changes therein on operating results is presented in Part 3 Financial Reporting, Consolidated Financial Statements, 6. Notes to Consolidated Financial Statements, Note 3 Significant Accounting Estimates.

Additional Information

Building Business

Breakdown of net sales, segment profit (loss), and depreciation (Millions of yen)

Classification	Fiscal 2023			Fiscal 2024
Classification	Net sales	Segment profit (loss)	Depreciation	Net sales	Segment profit (loss)	Depreciation
Leasing revenue	26,382	8,007	5,681	27,517	8,664	5,551
Revenue from sales of properties	12,780	4,808	-	8,965	4,519	-
Other	1,382	(176)	5	1,514	(173)	4
Total	40,544	12,639	5,687	37,997	13,010	5,556

(Note) Leasing revenue includes sales and expenses associated with restaurant operations. In fiscal 2023, these operations contributed

¥500 million to net sales, reduced segment profit by ¥20 million, and accounted for ¥35 million in depreciation. In fiscal 2024, they contributed ¥558 million to net sales, reduced segment profit by ¥9 million, and included ¥29 million in depreciation.

Asset Management Business

Breakdown of net sales, segment profit, and depreciation (Millions of yen)

Classification	Fiscal 2023			Fiscal 2024
Classification	Net sales	Segment profit	Depreciation	Net sales	Segment profit	Depreciation
Asset management revenue	2,565	1,885	9	2,781	2,038	13
Brokerage commissions	1,322	312	2	1,296	316	2
Total	3,888	2,197	11	4,078	2,355	16

Part 3 Financial Reporting

Consolidated Financial Statements

Consolidated Balance Sheets

Assets

(Millions of yen) As of March 31, 2024 As of March 31, 2025

Current assets
Cash and deposits (Notes 11 and 13)	20,416	19,343
Trade accounts receivable (Notes 7, 13, and 21)	2,114	2,291
Securities (Notes 11, 13, and 14)	8,005	5,997
Real estate for sale (Note 7)	20,645	29,821
Real estate for sale in process (Note 7)	567	32
Operating investments in capital (Notes 13 and 14)	551	1,173
Other	956	1,376
Allowance for doubtful accounts	(0)	(0)
Total current assets	53,257	60,036
Non-current assets
Property, plant and equipment
Buildings and structures (Note 7)	180,769	172,277
Accumulated depreciation	(96,211)	(92,957)
Buildings and structures, net (Note 7)	84,557	79,319
Machinery, equipment and vehicles	2,259	2,063
Accumulated depreciation	(1,834)	(1,691)
Machinery, equipment and vehicles, net (Note 425 371 7)
Tools, furniture and fixtures	2,669	2,851
Accumulated depreciation	(1,839)	(2,047)
Tools, furniture and fixtures, net (Note 7)	829	804
Land (Note 7)	184,669	170,597
Construction in progress	5,039	31,257
Total property, plant and equipment	275,522	282,350
Intangible assets
Leasehold interests in land (Note 7)	30,492	30,374
Goodwill (Notes 11 and 22)	645	602
Other	181	187
Total intangible assets	31,320	31,164
Investments and other assets
Investment securities (Notes 7, 13, and 14)	38,072	37,027
Deferred tax assets (Note 18)	250	243
Other	7,175	8,391
Total investments and other assets	45,498	45,662
Total non-current assets	352,341	359,177
Deferred assets
Bond issuance costs	381	326
Total deferred assets	381	326
Total assets	405,979	419,541

Liabilities

(Millions of yen) As of March 31, 2024 As of March 31, 2025

Current liabilities

Trade accounts payable (Note 13)	1,923	1,698
Current portion of bonds payable (Notes 13 and 25)	3,624	4,259
Short-term borrowings (Notes 13 and 25)	800	800
Current portion of long-term borrowings (Notes 13 and 25)	16,681	18,695
Income taxes payable (Note 18)	1,674	2,560
Accrued consumption taxes	1,738	123
Provision for bonuses for directors (and other officers)	109	126
Provision for bonuses	272	301
Other (Notes 7, 21, and 25)	2,228	3,841
Total current liabilities	29,052	32,407
Non-current liabilities
Bonds payable (Notes 13 and 25)	27,864	23,605
Long-term borrowings (Notes 13, 15, and 25)	173,703	198,320
Long-term accounts payable - other (Notes 13 and 25)	8,391	8,133
Leasehold and guarantee deposits received (Note 13)	23,636	23,206
Deferred tax liabilities (Note 18)	9,466	7,368
Deferred tax liabilities for land revaluation (Note 7)	7,186	7,333
Provision for share awards	213	310
Retirement benefit liability (Note 16)	126	180
Asset retirement obligations (Note 19)	683	675
Other	9	-
Total non-current liabilities	251,282	269,134
Total liabilities	280,334	301,541
Net assets
Shareholders' equity
Share capital	21,492	21,492
Capital surplus	19,720	19,720
Retained earnings	61,012	64,580
Treasury shares	(9,989)	(19,043)
Total shareholders' equity	92,235	86,749
Accumulated other comprehensive income
Valuation difference on available-for-sale securities	17,339	15,265
Deferred gains or losses on hedges	(6)	54
Revaluation reserve for land (Note 7)	16,076	15,928
Total accumulated other comprehensive income	33,409	31,249
Total net assets	125,645	117,999
Total liabilities and net assets	405,979	419,541

Consolidated Statements of Income

Net sales (Notes 8, 21, and 22)	44,433	42,075
Cost of sales	25,863	23,028
Gross profit	18,569	19,046
Selling, general and administrative expenses
Salaries and allowances	1,610	1,618
Provision for bonuses for directors (and other officers)	112	126
Provision for bonuses	180	202
Provision for share awards	87	100
Retirement benefit expenses	24	103
Commission expenses	848	915
Other	2,683	2,783
Total selling, general and administrative expenses	5,547	5,850
Operating profit (Note 22)	13,022	13,196
Non-operating income
Interest income	17	18
Dividend income	382	529
Miscellaneous income	44	26
Total non-operating income	444	575
Non-operating expenses
Interest expenses	1,664	1,891
Amortization of bond issuance costs	50	52
Miscellaneous losses	287	176
Total non-operating expenses	2,003	2,120
Ordinary profit	11,463	11,651
Extraordinary income
Gain on sale of investment securities	1,215	799
Subsidy income	2	-
Total extraordinary income	1,218	799
Extraordinary losses
Loss on retirement of non-current assets (Note 8)	20	16
Impairment losses (Notes 8 and 22)	66	-
Loss on tax purpose reduction entry of non-current assets	2	-
Loss on valuation of investment securities	181	-
Total extraordinary losses	271	16
Profit before income taxes	12,409	12,434
Income taxes - current	4,040	4,361
Income taxes - deferred	(81)	(1,493)
Total income taxes (Note 18)	3,959	2,868
Profit	8,450	9,565
Profit attributable to owners of parent	8,450	9,565

(Millions of yen) Year ended March 31, 2024 Year ended March 31, 2025

Consolidated Statements of Comprehensive Income

Profit	8,450	9,565
Other comprehensive income (Note 9)
Valuation difference on available-for-sale securities	1,896	(2,073)
Deferred gains or losses on hedges	(6)	60
Revaluation reserve for land	-	(147)
Total other comprehensive income	1,889	(2,160)
Comprehensive income (Note 9)	10,340	7,405
Comprehensive income attributable to
Comprehensive income attributable to owners of parent	10,340	7,405

(Millions of yen) Year ended March 31, 2024 Year ended March 31, 2025

Consolidated Statements of Changes in Equity

Year ended March 31, 2024

(Millions of yen)

	Shareholders' equity
	Share capital	Capital surplus	Retained earnings	Treasury shares	Total shareholders' equity
Balance at beginning of period	21,492	19,720	56,298	(9,997)	87,513
Changes during period
Dividends of surplus			(4,027)		(4,027)
Profit attributable to owners of parent			8,450		8,450
Purchase of treasury shares				(12)	(12)
Disposal of treasury shares		0		20	20
Reversal of revaluation reserve for land			290		290
Net changes in items other than shareholders' equity
Total changes during period	-	0	4,713	7	4,721
Balance at end of period	21,492	19,720	61,012	(9,989)	92,235

	Accumulated other comprehensive income				Total net assets
	Valuation difference on available-for-sale securities	Deferred gains or losses on hedges	Revaluation reserve for land	Total accumulated other comprehensive income	Total net assets
Balance at beginning of period	15,443	-	16,366	31,810	119,324
Changes during period
Dividends of surplus					(4,027)
Profit attributable to owners of parent					8,450
Purchase of treasury shares					(12)
Disposal of treasury shares					20
Reversal of revaluation reserve for land					290
Net changes in items other than shareholders' equity	1,896	(6)	(290)	1,599	1,599
Total changes during period	1,896	(6)	(290)	1,599	6,321
Balance at end of period	17,339	(6)	16,076	33,409	125,645

Year ended March 31, 2025

(Millions of yen)

	Shareholders' equity
	Share capital	Capital surplus	Retained earnings	Treasury shares	Total shareholders' equity
Balance at beginning of period	21,492	19,720	61,012	(9,989)	92,235
Changes during period
Dividends of surplus			(5,997)		(5,997)
Profit attributable to owners of parent			9,565		9,565
Purchase of treasury shares				(9,058)	(9,058)
Disposal of treasury shares		0		4	4
Reversal of revaluation reserve for land			-		-
Net changes in items other than shareholders' equity
Total changes during period	-	0	3,568	(9,054)	(5,485)
Balance at end of period	21,492	19,720	64,580	(19,043)	86,749

	Accumulated other comprehensive income				Total net assets
	Valuation difference on available-for-sale securities	Deferred gains or losses on hedges	Revaluation reserve for land	Total accumulated other comprehensive income	Total net assets
Balance at beginning of period	17,339	(6)	16,076	33,409	125,645
Changes during period
Dividends of surplus					(5,997)
Profit attributable to owners of parent					9,565
Purchase of treasury shares					(9,058)
Disposal of treasury shares					4
Reversal of revaluation reserve for land					-
Net changes in items other than shareholders' equity	(2,073)	60	(147)	(2,160)	(2,160)
Total changes during period	(2,073)	60	(147)	(2,160)	(7,646)
Balance at end of period	15,265	54	15,928	31,249	117,999

Consolidated Statements of Cash Flows

Cash flows from operating activities
Profit before income taxes	12,409	12,434
Depreciation	5,778	5,636
Loss on retirement of non-current assets	20	16
Impairment losses	66	-
Amortization of goodwill	7	42
Loss (gain) on valuation of investment securities	181	-
Increase (decrease) in allowance for doubtful accounts	(24)	0
Increase (decrease) in provision for bonuses	15	29
Increase (decrease) in retirement benefit liability	(108)	54
Interest and dividend income	(400)	(548)
Interest expenses	1,664	1,891
Amortization of bond issuance costs	50	52
Loss (gain) on sale of investment securities	(1,215)	(799)
Decrease (increase) in trade receivables	(147)	(176)
Decrease (increase) in inventories	6,273	3,584
Decrease (increase) in operating investments in capital	475	(621)
Decrease (increase) in prepaid expenses	(10)	20
Decrease (increase) in accounts receivable - other	264	(1,020)
Increase (decrease) in trade payables	(144)	(105)
Increase (decrease) in advances received	(46)	1,394
Increase (decrease) in accrued consumption taxes	1,096	(1,615)
Increase (decrease) in deposits received	26	117
Increase (decrease) in leasehold and guarantee deposits received	(181)	(909)
Other, net	(253)	1,355
Subtotal	25,798	20,832
Interest and dividends received	422	548
Interest paid	(1,650)	(1,864)
Income taxes paid	(4,984)	(3,467)
Net cash provided by (used in) operating activities	19,584	16,048

(Millions of yen) Year ended March 31, 2024 Year ended March 31, 2025

(Millions of yen)

	Year ended March 31, 2024	Year ended March 31, 2025
Cash flows from investing activities
Purchase of securities	(4,000)	-
Proceeds from sale and redemption of securities	4,000	2,005
Purchase of investment securities	(1,290)	(1,908)
Proceeds from sale and redemption of investment securities	1,816	1,039
Payments for acquisition of businesses (Note 11)	(1,231)	-
Purchase of property, plant and equipment	(18,190)	(23,717)
Purchase of intangible assets	(74)	(900)
Purchase of long-term prepaid expenses	(396)	(1,408)
Payments of guarantee deposits	(65)	(248)
Proceeds from refund of guarantee deposits	73	288
Other, net	1	10
Net cash provided by (used in) investing activities	(19,356)	(24,839)
Cash flows from financing activities
Net increase (decrease) in short-term borrowings	(3,000)	-
Proceeds from long-term borrowings	19,827	43,639
Repayments of long-term borrowings	(16,050)	(17,008)
Proceeds from issuance of bonds	3,500	-
Redemption of bonds	(3,648)	(3,624)
Proceeds from increased long-term accounts payable	3,800	-
Repayments of long-term accounts payable	-	(258)
Purchase of treasury shares	(14)	(9,058)
Dividends paid	(4,012)	(5,974)
Other, net	(120)	(0)
Net cash provided by (used in) financing activities	280	7,716
Effect of exchange rate change on cash and cash equivalents	-	-
Net increase (decrease) in cash and cash equivalents	508	(1,074)
Cash and cash equivalents at beginning of period	25,807	26,316
Cash and cash equivalents at end of period (Note 11)	26,316	25,241

Notes to Consolidated Financial Statements
Note 1 － Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of Heiwa Real Estate Co., Ltd. (the "Company") and its subsidiaries (collectively, the "Group") have been prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Act of Japan and its related accounting regulations, and accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards.
The accompanying consolidated financial statements have been compiled from the consolidated financial statements of the Company prepared in accordance with Japanese GAAP and translated into English for the benefit of readers outside Japan. In addition, the notes to the consolidated financial statements include information which may not be required under Japanese GAAP but is presented herein as additional information.
Note 2 － Significant Accounting Policies
1. Scope of consolidation
  1. Consolidated subsidiaries: 6 Names of consolidated subsidiaries:
    Heiwa Real Estate Property Management Co., Ltd. Housing Service Co., Ltd.
    HEIWA REAL ESTATE Asset Management Co., Ltd. The Tokyo Shoken Building Incorporated
    Tokyo Hibiya Hotel Corporation
    Tokyo Nihonbashi Kabutocho Hotel Co., Ltd.
    Tokyo Nihonbashi Kabutocho Hotel Co., Ltd. was newly established and included in the scope of consolidation during the fiscal year ended March 31, 2025.
  2. Names, etc., of major non-consolidated subsidiaries Major non-consolidated subsidiaries
  The Company has no major non-consolidated subsidiaries to report. (Reason for exclusion from scope of consolidation)
  Non-consolidated subsidiaries are small-scale businesses, and their aggregated total assets, net sales, profit/loss (corresponding to the equity owned by the Company), and retained earnings (corresponding to the equity owned by the Company) have no significant effect on the overall results of the consolidated financial statements.
2. Application of the equity method
  1. Names of major non-consolidated subsidiaries not accounted for using the equity method The Company has no major non-consolidated subsidiaries to report.
  2. Reason for exclusion from application of equity method accounting
    A non-consolidated subsidiary not accounted for using the equity method is excluded from the scope of application of equity method accounting because its profit/loss (corresponding to the equity owned by the Company) and retained earnings (corresponding to the equity owned by the Company), etc., have an immaterial effect on the consolidated financial statements and are insignificant as a whole.
3. Matters related to the fiscal year period of consolidated subsidiaries
  The accounting year of consolidated subsidiaries Tokyo Hibiya Hotel Corporation and Tokyo Nihonbashi Kabutocho Hotel Co., Ltd. ends on the last day of February.
  This closing date was used for the preparation of these consolidated financial statements; however, if any significant transactions occur between March 1 and the end of the consolidated fiscal year on March 31, adjustments to the consolidated financial statements will be implemented as necessary.
4. Accounting policy

Method and basis of valuation of significant assets
1. Securities
  Held-to-maturity bonds
  Held-to-maturity bonds are valued at cost, with cost being determined using the amortized cost method (straight-line method).
  Available-for-sale securities
  1. Investments other than stocks without quoted market prices
    The market value method is used for investments other than stocks without quoted market prices (differences in valuation are included directly in net assets, and costs of securities sold are calculated using the moving-average method).
  2. Stocks without quoted market prices
    They are mainly valued at cost determined using the moving-average method.
2. Inventories

Inventories are valued at cost determined by the specific identification method (the value in the consolidated balance sheet is appraised by the write-down of the book value of inventories based on the deterioration of profitability).(2) Depreciation method for significant depreciable assets

Property, plant and equipment (excluding leased assets)
Depreciation of property, plant and equipment is computed using the declining balance method. The straight-line method, however, is used for the Tokyo Stock Exchange Building and one other building, as well as for buildings (excluding attached facilities) acquired on or after April 1, 1998, and facilities and structures attached to buildings acquired on or after April 1, 2016.
Depreciation of consolidated subsidiaries' property, plant and equipment is computed using the straight-line method. The principal useful lives of property, plant and equipment are as follows:
Buildings and structures: 2-65 years Machinery, equipment and vehicles: 2-30 years Tools, furniture and fixtures: 2-20 years
Intangible assets (excluding leased assets)
Amortization of intangible assets is computed using the straight-line method. The cost of software for internal use is amortized using the straight-line method based on the expected useful life of the software (five years).
Leased assets

Leased assets are depreciated to a residual value of zero using the straight-line method over the lease period.

Method of accounting for significant deferred assets Bond issuance costs
Bond issuance costs are amortized using the straight-line method over the period until bond redemption.
Basis of accounting for significant allowances and provisions
1. Allowance for doubtful accounts
  An allowance for doubtful accounts is provided to cover losses on trade accounts receivable and bad debts at an amount estimated based on the historical write-off ratio for general accounts receivable. For doubtful accounts receivable, the allowance is determined at the amount estimated to be uncollectible on an individual basis.
2. Provision for bonuses for directors (and other officers)
  Provision for bonuses for directors (and other officers) is calculated based on the total amount of estimated bonus payments.
3. Provision for bonuses
  Provision for bonuses for employees is calculated based on the total amount of estimated bonus payments.
4. Provision for share awards
  The provision for share awards was calculated based on the expected amount of stock compensation obligations as of March 31, 2025 in order to provide the Company's stock as compensation to directors and executive officers of the Company and certain subsidiaries in accordance with its share-based remuneration rules, and as compensation to its employees in accordance with share-based remuneration rules concerning the trust for the Company's stock ownership plan for employees.
Accounting for retirement benefits
In order to provide the retirement benefits of employees and pension recipients, retirement benefit liability is calculated at an amount equal to the projected benefit obligation as of March 31, 2025 minus the fair value of pension assets. Retirement benefit liability is not calculated for any consolidated subsidiary that has a defined contribution retirement plan.
Basis for calculating significant revenues and expenses
Details about the primary performance obligations of the Heiwa Real Estate Group's main businesses that generate revenue from contracts with customers, and the points in time when such performance obligations are generally satisfied (the points in time when revenues are generally recognized) are as follows.
1. Building Business
  Revenue from sales of properties
  The Company generates revenue from sales of properties by increasing the value of properties it has acquired through redevelopment, lease-ups, and renovations, and then selling them at prices that exceed their acquisition prices. The Company has performance obligations to deliver properties based on real estate sales agreements.
  These performance obligations are satisfied at the time of delivering a property, and revenue is recognized once the property is delivered.
2. Asset Management Business
  Asset management revenue from management fees
  The Company generates asset management revenue from management fees obtained through asset management services provided to HEIWA REAL ESTATE REIT, Inc. Based on property lease agreements, the Company has performance obligations to manage properties, handle leasing and financing, and acquire and transfer ownership of properties.
  Its performance obligations to manage properties and handle leasing and financing are satisfied by providing these services over their specified periods of time, and revenue is recognized in proportion to the degree these performance obligations are satisfied.
  Its performance obligations to acquire and transfer ownership of properties are satisfied once an acquisition or transfer of a property has been completed, and revenue is recognized at either of those points in time.
Method of significant hedge accounting
1. Method of hedge accounting
  The Company applies deferred hedge accounting. The special treatment applies to interest rate swaps because they meet the requirements.
2. Hedging instruments and hedged items Hedging instruments: interest rate swaps Hedged items: interest rates of borrowings
3. Policy of hedging transactions
  Interest rate swap transactions are conducted to reduce the exposure to fluctuations in the interest rates of borrowings.
4. Method of assessing hedge effectiveness
  Hedge effectiveness is assessed by comparing the percentage differences between accumulated changes in cash flows of hedged items and the hedging instruments that are applied.
  Interest rate swaps for which special treatment is applied; however, are excluded from this assessment of hedge effectiveness.
Method and period of goodwill amortization
Goodwill is amortized using the straight-line method over the period in which it has an effect.
Scope of cash and cash equivalents in the consolidated statements of cash flows
Cash and cash equivalents consist of cash on hand, cash in banks that can be withdrawn on demand, and short-term investments with maturities of three months or less from the acquisition date, which are highly liquid instruments that can be easily converted into cash and are exposed to little risk of change in value.
Other important matters for the preparation of consolidated financial statements Accounting for consumption taxes

In principle, non-deductible consumption taxes were charged as expenses in the fiscal year ended March 31, 2025.

Note 3 － Significant Accounting Estimates

Impairment of non-current assets

Amounts recorded in the consolidated financial statements for the fiscal year ended March 31, 2025.

(Millions of yen)

	Year ended March 31, 2024	Year ended March 31, 2025
Property, plant and equipment	275,522	282,350
Leasehold interests in land and goodwill among intangible assets	31,138	30,977
Impairment losses	66	-

Information on the details of the significant accounting estimates for identified items
1. Method for calculating amounts recorded in the consolidated financial statements for the fiscal year ended March 31, 2025
  In principle, individual assets that generate cash flows independently from other asset groups are recognized as the minimum unit for indications of impairment.
  Indications of impairment include recurring operating losses, significant deteriorating of the business environment, and significant declines in market value.
  If indications of impairment are deemed to exist, the Company will decide whether to recognize an impairment loss. If recording an impairment loss is deemed necessary, the Company will compare the undiscounted future cash flow with the book value, and if the undiscounted future cash flow is less than the book value, the Company will reduce the book value to a recoverable amount (either the net sales price or the value in use, whichever is higher), and record the reduced book value as an
  impairment loss.
2. Main assumptions used for significant accounting estimates
  The Group sets market values based on the real estate appraisal value determined by external real estate appraisers (hereafter, "externally appraised real estate value"). Future cash flows and recoverable amounts are estimated based on the externally appraised real estate value and forecasts of the asset group's operating results, which includes assumptions regarding future rent levels, occupancy rates, operating expenses, and other factors.
  In addition, for its real estate redevelopment projects in Tokyo (Nihonbashi Kabutocho and Kayabacho district) and Sapporo, the Company groups together multiple assets from the time when redevelopment plans are deemed feasible based on negotiations with landowners.
3. Possible impact of changes in main assumptions on results recorded in consolidated financial statements for the following fiscal year
  The main assumptions listed in 2), above, are derived from the best estimates based on available information as of March 31, 2025; however, if those assumptions change due to changes in redevelopment projects or market conditions, the Group's performance could be affected, such as recording impairment losses.

Valuation of real estate for sale

Amounts recorded in the consolidated financial statements for the fiscal year ended March 31, 2025

(Millions of yen)

Year ended March

31, 2024

Year ended March

31, 2025

Real estate for sale

20,645

29,821

Real estate for sale in process

567

Information on the details of the significant accounting estimates for identified items
1. Method for calculating amounts recorded in the consolidated financial statements for the fiscal year ended March 31, 2025
  The net sales price of real estate for sale and real estate for sale in process is estimated based on the expected sales price minus the expected amount of site preparation and building construction costs and the expected amount of selling expenses. If the net sales price is less than the book value, the difference is recorded in cost of sales as a loss on revaluation of inventories.
2. Main assumptions used for significant accounting estimates
  To estimate the expected sales price, the Group takes into account the externally appraised real estate value, its rental rates and forecast yields, and the impact of falling demand in the future, among other factors.
  As of March 31, 2025, the Group had estimated the expected sales prices of its residential buildings based on its rental rates and forecast yields, and assumed no major fluctuations in rental rates and forecast yields in the real estate market going forward.
3. Possible impact of changes in main assumptions on results recorded in consolidated financial statements for the following fiscal year

The main assumptions listed in 2), above, are derived from the best estimates based on available information as of March 31, 2025, however, if those assumptions change due to certain factors, such as lower than expected sales prices caused by falling demand in the real estate market, the Group's performance could be affected, such as recording a loss on revaluation of inventories.

Note 4 － Changes in Accounting Policies

Application of the Accounting Standards for Current Income Taxes

Effective from April 1, 2024, the Company applied the revised Accounting Standard for Current Income Taxes (Statement No. 27) issued by the Accounting Standards Board of Japan (ASBJ) on October 28, 2022. Accordingly, the Company applied the revised classification of income taxes, specifically taxation related to other comprehensive income, in accordance with the transitional accounting treatment subject to Paragraph 20-3 of this standard as well as Paragraph 65-2 (2) of the revised Implementation Guidance on Tax Effect Accounting (Guidance No. 28) issued by ASBJ on October 28, 2022. This change in accounting policy did not impact on results posted in the consolidated financial statements for the period under review.

Note 5 － Accounting Standards Not Yet Adopted

Accounting Standard for Lease Transactions (ASBJ Statement No. 34 (revised)) issued on September 13, 2024
Guidance on Accounting Standard for Lease Transactions (ASBJ Guidance No. 33 (revised)) issued on September 13, 2024

Overview
As part of the efforts to make Japanese GAAP internationally consistent, the ASBJ has been considering the development of
accounting standard for lease transactions that recognize assets and liabilities for all leases of lessees, based on international accounting standards. As a basic policy, the ASBJ published lease accounting standards based on the single accounting model of IFRS 16, but with the aim of making it simple and convenient by adopting only major provisions rather than all provisions of IFRS 16, and making it basically unnecessary to revise the provisions of IFRS 16 for non-consolidated financial statements.
As for the accounting treatment of lessees, a single accounting model for allocating the cost of a lease to the lessee, as in IFRS 16, is applied to all leases, regardless of whether the lease is a finance lease or an operating lease, in which depreciation on the right-of-use asset and interest expense on the lease liability are recognized.
Scheduled date of application
The Company will apply the accounting standards, etc. from the beginning of the fiscal year ending March 31, 2028.
Impact of applying the accounting standards, etc.

The impact of applying the revised Accounting Standard for Lease Transactions on the consolidated financial statements is currently being assessed.

Note 6 － Additional Information

Performance-based stock compensation plan for directors and executive officers

The Company has established a performance-based stock compensation plan for its executive officers (excluding non-residents of Japan), managing officers (excluding those who have been specially appointed to be in charge of the Audit Committee Office, as well as managing officers of Group companies and non-residents of Japan), and directors and managing officers of the Company's major subsidiaries (excluding part-time directors, directors or managing officers who have been seconded from the Company, and non-residents of Japan).

Overview of the ownership plan
A trust established with funds contributed by the Company acquires company stock to be used as compensation for directors and officers eligible under the plan (listed above). Through the trust, company stock or a cash amount equivalent to the value of the stock is delivered to these individuals in an amount commensurate with the number of points each has earned based on share-based remuneration rules set by the Company's Board of Directors. As a rule, they will receive this compensation upon retiring from their respective post.
Company stock held in the trust

Company stock held in the trust is calculated based on the book value of the stock (excluding incidental expenses) and is included in treasury shares under net assets. The book value of the applicable treasury shares amounted to ¥304 million as of March 31, 2024, and ¥304 million as of March 31, 2025, and the amount of treasury shares totaled 98,700 shares as of March 31, 2024, and 98,700 shares as of March 31, 2025.

Stock ownership plan for employees

The Company has set up a stock ownership plan for employees as a means to provide them with incentives.

Overview of the ownership plan
The plan provides employees with the Company's stock or a cash amount equivalent to the market value of the stock commensurate with a number of points awarded based on share-based remuneration rules concerning the trust for the Company's stock compensation plan for employees set by the Board of Directors. The shares for the plan are acquired by a trust that has been set up using funds contributed by the Company.
Company stock held in the trust

Company stock held in the trust is calculated based on the book value of the stock (excluding incidental expenses) and is included in treasury shares under net assets. The book value of the applicable treasury shares amounted to ¥295 million as of March 31, 2024, and ¥291 million as of March 31, 2025, and the amount of treasury shares totaled 70,300 shares as of March 31, 2024, and 69,300 shares as of March 31, 2025.

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Heiwa Real Estate: Financial Results Briefing Material for the Fiscal Year Ended March 31, 2025Jun 13, 2025

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