Chapter Developing our Businesses

Business Overview

Summary of business Annual performance The Story of the Group’s Value Creation Single-Family Bolstering competitiveness by expanding business opportunities deriving As a pioneer of industrialized construction, we build Houses sold (Domestic) housing infrastructure—the homes so essential to peo- Single-family houses from social issues ple’s wellbeing. Offering a rich product lineup designed (contracting) 5,917 to accommodate all thinkable needs for safe and enrich- Single-family houses Daiwa Industry has evolved a distinctive business portfolio by addressing social issues through enhanced and expanded value chains ing living environments, we build both subdivisions and (subdivision) 2,066 custom houses. ZEH ratio 41% and broader product variations anticipating future needs. This diverse portfolio and the ability it gives us to draw on Group synergies enable us to offer customers comprehensive business proposals, the ultimate strength that drives our performance and growth. Leveraging this strength, we contribute to society by redeveloping existing communities as well as building whole new ones with a consistent vision. Our Rental Housing Business accommodates diversifying

Rental Housing Rental housing units sold

rental-housing needs. Our services feature vertically (Domestic) Message from the CEO integrated support from soil evaluation to design, Rental housing (low-rise) 31,334 FY2019 principal performance indices by business segment construction, and handover for landowners and quality Rental housing living spaces reflecting the residents perspective, thus (medium- to high-rise) 2,168 ensuring owners of stable, long-term rental income. Units under management Operating income 595,182 Single-Family Houses Net sales (¥billion) *1 (¥billion, Operating income margin)*1 Occupancy ratio 97.6% Rental Housing Condominiums 19.2 18.0 530.0 497.8 (3.6%) (3.6%) Existing Homes We develop, sell, and manage properties nationwide, Condominiums Condominium units sold Commercial Facilities supplying comfortable and safe living spaces that keep (Domestic) Developing our Businesses 98.5 Logistics, Business and their asset value over time. Our condominiums feature (including Cosmos Initia) Corporate Facilities 120.6 (9.8%) 1,005.9 added value appropriate to local attributes, and our Group 2,543 (10.5%) Other Businesses 1,152.3 4,380.2 381.1 synergies-leveraging multiuse developments are active Units under management 15.8 senior-friendly and help reinvigorate urban communities. 371,524 (4.3%)

372.7 16.7 (11.5%) 806.7 145.6 140.6 (17.4%) We work to vitalize the market for quality housing stock,

Existing Homes Renovations buying, renovating, and reselling existing homes and Approx. 53,000*3

Contribution to GHG reduction helping homeowners find buyers with services including Percentage of involvement Message from the CFO Strengthening our Bases Number of employees*2 Capital investments (¥ billion) (1,000t-CO2) relocation support and renovations to maintain building in resale of existing 4 5.8 301 value. We are also expanding the scope of our services single-family houses* 34.1 5,583 30.5 to provide corporate clients with renovation and mainte- Approx. 24% 341 15.4 nance solutions. 10,249 136 0.6 6,927 60 Commercial Facilities 47,133 373.8 4,968 We match landowners and corporate tenants to one Construction projects 173.7 113.4 another to develop commercial facilities meeting their 1,075*5 respective expectations. We marshal our wealth of data Leasing floorspace of 7,840 7,731 on land usage and survey the market to accurately gauge sublease areas within 1,924 1,326 the vicinity’s needs so we can provide facilities finetuned commercial facilities 2 5,069 2,902 (Environment and to local residents’ preferences and help townscapes facili- 6,765,150 m Energy Business) 880 tate the flow of people. Logistics, Business and

Redevelopment of communities born of our comprehensive business proposal capability Corporate Facilities We leverage diverse plans to produce logistics facilities to Development site area accommodate corporate customers’ needs. We were pro- of logistics projects 2 Single-family Commercial active in developing facilities customize for e-commerce 8,138,620m Railroads Tunnels Hospitals Sports clubs Hotels houses facilities during its rapid rise, and we also provide medical, care, Orders received for social welfare, and nursing care facilities, food-industry contract-based medical and Our start-to-finish 6 comprehensive facilities, offices, and factories. nursing care facilities 578* Data Section services for community Comprehensive business proposal capability development

Other Businesses We provide value through businesses that help make Infrastructure Residential Community Lifestyles/services Customer visits to our home people’s lives more pleasant in a spectrum of areas: centers 28,192,000 Redevelopment of hotels, fitness, and health and leisure; and construction Generating capacity of communities support ranging from comprehensive energy solutions to solar power, wind power, home centers, logistic services, and interiors. and hydroelectric power generation facilities 379MW/ 278 sites Logistics Electric power Social-use Expressways Airports Condominiums Schools facilities facilities facilities *1 Figures include intersegment transactions. *4 Percentage of involvement is the proportion of existing-owner property deals (intermediary or direct *2 Regular employees only, total figures include all personnel in the Company (joint). sales) in which the Group was involved. *3 Figures for Daiwa House Reform only *5 Number of facilities constructed by the commercial facilities business of Daiwa House Industry (non-consolidated). *6 Total for Daiwa House Industry (non-consolidated), Daiwa Lease, and Fujita 29 Daiwa House Group Integrated Report 2020 Daiwa House Group Integrated Report 2020 30 Chapter Developing our Businesses

Social issues affecting our businesses and their actions for adapting

We are moving sustainably improve corporate value by pushing ahead with Daiwa House Industry is working to sustainably enhance corporate value in line with the four management items defined in our Corporate

Governance Guidelines (Secure a stable level of profits and maintain or improve growth rates. Maintain and improve profitability based The Story of the Group’s Value Creation businesses working to address materialities on an optimal capital structure. Strengthen the management base required to realize sustained growth. Lower capital cost by enhancing the Group’s trustworthiness and management transparency.) as we move to address materialities identified out of a clear awareness of Social issues/Megatrends The SDGs on which the externalities that will affect the company up to around 2030. In our implementing our Sixth Medium-Term Management Plan, we will Sixth Medium-Term Management Medium term 75th anniversary we will focus be taking action aligned with our basic policy with particular attention to dealing with contingencies like living with COVID-19, domestic Plan Period (to FY2021) (to FY2025) (FY2030) demographic dynamics, and climate change-driven changes in business conditions. We intend to contribute to achieving SDGs, which are ● Changes in the number of ● Regional depopulation, urban globally shared challenges, by focusing on Goal 11: Sustainable cities and communities, with regard to items related to our business and households in population concentration in-house SDG initiatives.

Demographic trends Declining new housing starts/Lower Compact cities in regions/Increasing desire to own a house demand for housing redevelopment/ Developments regarding smart cities ● Increase in untenanted houses Materiality Social issues and six core segments’ actions Message from the CEO Expansion of the existing housing market ● Shrinking and aging population ● Labor shortage, decline in skilled Greater social acceptance of the elderly construction workers and people requiring nursing care/ Expanding business opportunities deriving Social issues Actions Strengths

Increasing elderly participation in Commercial Facilities Decreasing working-age population/ from social issues ● ● society/ Changing values per- Diversification of tenants LOC System Decline in skilled construction workers/ Increasing demand for health and care taining to living spaces reflecting social trends and ● Necessity of systematically securing human Grow share in core  Organization for in work styles Redevelopment of and working styles local attributes resources in quantitative–qualitative ➊ businesses ➍ communities and home expanding possibilities balance / Enhancing productivity and Segments driving growth ● Changing consumer Steps up involvement in with greater ability to leveraging the talents of human resources ➋ Expanding field of Leveraging our customer behavior and tastes large-scale projects gather intelligence regardless of age, gender, or nationality business ➎ base and stock of existing and offer innovative

properties solutions Developing our Businesses ➌ Expanding geographic ● ● business area

2020 Olympics and Paralympics Shifts in interest rates due to domestic Logistics, Business and Corporate Facilities ● ● Economic & industry factors Advances in business Business establishes itself Ability to identify prom- ● Broader hiring of foreign labor economic stagnation ● sophistication and as Japan’s No. 1 retail ising tracts and diverse ● Linear Chuo Shinkansen starts Balance of flow businesses and stock Consumption tax hikes depressing efficiency due to developer business schemes consumer confidence operation businesses Japanese market Enhanced competition between cities digitalization Acquires customers ● Track record ● Coexisting with COVID-19 ● Holding of Expo 2025 /Kansai, ● Economic growth in through strengthening of building logistics facil- Lower domestic GDP growth / Constructing a portfolio of businesses with attracting IR to Japan developing countries new businesses ities and accumulated Changes in consumer behavior and differing life cycles tastes (burgeoning online activity) / ● Accelerating involvement in open know-how Changes in corporate capital investment innovation patterns (increased teleworking)

Efficient management and financial Message from the CFO Strengthening our Bases soundness aware of capital costs ● More frequent and Uptake of ZEH ● Technical capabilities Single-Family Houses intensifying natural Increased unit price per for ensuring safety and disasters house through combina- security Lowering environmental impacts ● Declining new housing tion housing while reaping corporate profits starts

Segments reorganizing their foundations to achieve renewed growth Expansion of overseas areas ● ● Intensifying social issues ● Resource depletion Growing world through M&A Changes in business environment population Increase in ethical consumption/ Deregulation leading to the launch of The Starting Point Ideas on housing adapted Full-scale social impact evaluation of new markets/ Pursue businesses that are of ● Changing values for working at home business and real estate investment Diversification of the sharing economy service to people pertaining to living and ● Greater disclosure of management ● Changing values pertaining to living working styles information and working styles Standardization of non-financial informa- Ownership-eschewing consumer ● Changes in household Strengthening of ● Vertically integrated tion disclosure by securities exchanges behavior (sharing economy) / Rental Housing numbers in Japan ideas-driven activities management leverag- and Agency/ Diversifications of working styles (more ● Changing values Roll out of local needs-ori- ing Group strengths Progress in sustainable finance/Stronger use of virtual offices, relocation away pertaining to living and ented products ● Full range of peripheral leverage of ESG engagement by from urban centers, employment, hours, institutional investors compensation) / Diversification of Developing working styles Ideas for living spaces services conducive to lifestyles and preferences / Heightening our businesses adapted for working from high occupancy desire to belong to communities home ● Frequent and large-scale natural disasters Greater awareness for BCP/ Intense heat become normalized ● Shift toward more Diversification of revenue streams ● Roll out of local from large-scale multi-use

Condominiums compact regional cities business locations in development, redevelopment, mid-tier cities Technology ● Advancing societal Human Data Section ● Slowdown of China’s economy impacts on ● Economic growth of the emerging ● Increasing global population, China’s Customer and and rebuilding projects ● resources aging and falling Ability to take on the global economy nations population peaks manufacturing birthrate Accommodation of health redevelopment and ● Advent of the AI/IoT/big data society ● Stronger international rules centered Much greater demand for resources, and environmental concerns ● Changing values rebuilding projects on Europe energy, water, food Strengthening Overseas markets Progressively more advanced and efficient our bases pertaining to living and Ideas for living spaces levering specialized business via digitalization/Cyber-attack Increased business opportunities for ● Increased income in emerging adapted for working from business units and intra- threats/Progressive use of ICT in real estate/ solutions to deepening social issues countries Social working styles home Group collaboration Spread of connected homes/Further typified by SDGs/Greater concern over ● Encouraging generational changeover expansion of i-Construction, 5G commercial preventing corruption in the value chain/ Environment Millennials taking central roles/ ● Increase involvement of ● services, and the e-commerce market Expanded influence of international Rising demand for Track record creating Rise of Generation Z Existing Homes codes of conduct concerning human redevelopment of existing customers living spaces and accu- rights, establishment in various coun- ● Progressive social divisions housing complexes Expansion into business mulated know-how tries/Expanded influence of institutional Full-scale acceptance of immigrants/ Corporate governance ● Expanding existing fields ● Livness brand (compre- investors and UN institutions on markets Expanding poorer class Trustworthy and transparent housing market Ideas for living spaces hensive solution) ● Coping with environmental impacts ● Age deterioration of social management structure ● Changing values adapted for working from Greater consumer awareness of infrastructure pertaining to living and home environmental performance/Expanded P.45-46 (Our Three Bases and ESG engagement) percentage of renewable energy working styles

31 Daiwa House Group Integrated Report 2020 Daiwa House Group Integrated Report 2020 32 Chapter Developing our Businesses

Single-Family Houses Business Principal companies: Daiwa House Industry (non-consolidated), Stanley-Martin Communities, Rawson Group Rental Housing Business Principal companies: Daiwa House Industry (non-consolidated), Daiwa Living COMPANIES

Strengthening competitiveness with a know-how–leveraging lineup as well as Expanding share by identifying promising tracts of land and providing quality rebuilding our organization for ensuring stable quality living spaces with a tenant perspective The Story of the Group’s Value Creation

Business developments for the Sixth Medium-Term Management Plan Business developments for the Sixth Medium-Term Management Plan

Performance targets (¥ billion) Basic policy Performance targets (¥ billion) Basic policy ■ Sales Operating income ■ Sales Construction Rental management Sale of development properties 1. Center on xevoΣ, raise the unit price by expanding sales such as of Operating income 1. Step up engagement in urban areas, gain more orders for 23.8 22.0 115.0 xevoΣ PREMIUM for the wealthy and high value-added products 104.6 three-stories and medium- to high-rise properties 18.0 98.5 540.0 2. Strengthen initiatives for combination housing (housing combined 1,160.0 2. Shift to larger properties, e.g. rental housing jointly used with 503.5 1,054.7 1,005.9 Message from the CEO with rentals, stores, clinics, etc.) 49.2 tenants, nursing care facilities, dormitories and company housing 410.0 22.9 880.0 5.9 3. Emphasize marketing of environment-conscious houses (e.g. ZEH) 514.5 3. Capture demand for rebuilding of existing properties 542.9 50.0 and disaster-resilient houses, promote IoT-integrated single-family 4. Progressively greater efficiency in management operations lever- 497.8 574.4 houses, help solve social issues through business aging IT, IoT, and AI-based labor-saving 1.0 490.9 439.9 4. Expand business outside Japan in areas with stable growth 299.5 5. Develop rental housing with excellent local partners in the United anticipated, via Stanley-Martin Communities in the United States States 2018 2019 2020 2021 (FY) and Rawson Group in Australia 2018 2019 2020 2021 (FY) (Plan) (Plan) (Plan) (Plan)

Note: FY2018 figures for post-reorganization segments Note: FY2018 figures for post-reorganization segments Developing our Businesses

Looking back at FY2019 and actions going forward Looking back at FY2019 and actions going forward

Single-family houses sales rankings (FY2019) Fiscal 2019 sales were ¥497.8 billion (-1.1% YoY), and operating Product lineup Fiscal 2019 sales were ¥1,005.9 billion (-4.6% YoY) and operating

Ranking Company name Number of sales units income ¥18.0 billion (-24.3%). The domestic housing order Proposing local needs-oriented rental-housing products income ¥98.5 billion (-5.8%). The order environment remained environment remained tough due to a reactionary fall-off after a challenging as financial institutions tightened their lending crite- 1 12,606 Suburban Urban surge in demand in the run-up to the October 2019 consumption ria. Fiscal 2019 rental housing starts totaled 330,000 (-14% YoY). In 2 SEKISUI CHEMICAL 10,200

tax hike. However, average unit price was up ¥2.3 million to ¥39.6 our contracting business, we extended our efforts beyond pure Message from the CFO Strengthening our Bases 3 Homes 9,111 million due to sales of our flagship xevoΣ, the higher-priced xevoΣ residential properties, with business proposals including mixed 4 Daiwa House Industry 7,983 PREMIUM, and others such as disaster-ready homes with solar retail and medium- to high-rise rental housing in urban areas and 5 Sumitomo Forestry 7,738 power generation and storage batteries for power self-sufficiency city centers and medical and welfare facilities. In our management * Compiled from data published by the companies concerned in emergencies. We launched an exclusive online product, and operations business, we are also expanding our services to Lifegenic, in November 2019, diversifying our order channels. meet diversifying tenant needs and boosting the value of existing Sales for single-family houses Overseas, US-based Stanley-Martin put in a strong performance. properties. We have roughly 590,000 units under management, per unit (¥million) 39.6 Rental housing (low-rise) Rental housing (medium- to high-rise) 37.3 For fiscal 2020, we forecast sales of ¥410.0 billion and operating and maintain a high 97.6% occupancy rate. We sold 47% of our 35.9 In suburban areas, we are helping own- In urban centers, we offer high-revenue 34.3 income of ¥1.0 billion. This factors in the impact on marketing ers secure stable revenue streams and properties that fully leverage site property stake in the Aurelien rental housing development in the reduce their tax burdens with two- and advantages with three-story and from temporary closures of home showrooms and restraint in three-story products that contribute to medium-rise buildings US, which has maintained occupancy of over 90% since opening, business negotiations due to COVID-19. As work styles evolve, we refined townscapes and make effective to Daiwa House Global REIT Investment Corporation. use of plot space. aim to grow orders with offerings such as “Kaiteki Work Place” and For fiscal 2020, we forecast sales of ¥880.0 billion and operating “Tsunagari Work Pit” that enable customers to work from home in income of ¥50.0 billion. This factors in the impact on marketing 2016 2017 2018 2019 (FY) Units under Group management/ Occupancy ratio Web-only offering comfort. from event cancellations and postponed business talks due to Lifegenic Units under Group management (thousand) Occupancy ratio (%) COVID-19. We expect construction used as an inheritance tax strategy to stay firm, and will continue to bolster our product Product lineup 97.4 97.1 97.3 97.6 96.9 line-up to meet local needs and work to grow orders in areas such • Diverse lineup tailored to customer attributes 572 595 as repair and rebuilding. Data Section • Building out high-end offerings for the well-to-do 510 543 471 High Rental housing sales rankings (FY2019) xevo03 skye, skye+ (3- story houses) (3-, 4-, or 5-story reinforced steel houses) PREMIUM Ranking Company name Number of sales units Share GranWood xevoΣ PREMIUM 1 53,307 Approx. 15%

xevo xevoΣ 2015 2016 2017 2018 2019 (FY) 2 Daiwa House Industry 33,502 Approx. 10% (flagship products) GranWood 3 Sekisui House 27,981 Approx. 8% xevo ADVANCE * Compiled from data published by the companies concerned xevoB (housing Lifegenic development products) (Web-only offering) Low

Wooden structure Price range (image) Steel structure

33 Daiwa House Group Integrated Report 2020 Daiwa House Group Integrated Report 2020 34 Chapter Developing our Businesses

Condominiums Business Principal companies: Daiwa House Industry (non-consolidated), Cosmos Initia, Daiwa LifeNext Existing Homes Business Principal companies: Daiwa House Reform, Nihon Jyutaku Ryutu, Daiwa House Industry (non-consolidated)

We are diversifying revenue sources by undertaking large-scale multi-use Working to expand business by actively advancing our Livness comprehensive- development, redevelopment, and rebuilding projects in regional mid-tier solution brand building on our accumulated experience and know-how in cre- The Story of the Group’s Value Creation cities leveraging Group synergies ating living spaces Business developments for the Sixth Medium-Term Management Plan Business developments for the Sixth Medium-Term Management Plan

Performance targets (¥ billion) Basic policy Performance targets (¥ billion) Basic policy ■ Sales Construction Rental management ■ Sales Operating income 1. Expand large-scale, multi-use development projects highlighting Operating income 1. Raise the profile of the Livness brand to raise our involvement in 20.7 20.0 Group synergy brokerage, purchase, or resale of our own properties 15.8 2. Redeveloping terminal station areas in main provincial cities 2. Actively expand our purchasing and resale business utilizing our

372.7 380.0 customer stock and new construction sales networks Message from the CEO 343.5 3. Development of condominiums for small households or for the 16.7 16.0 84.7 300.0 elderly 13.7 3. Increase our renovation workforce via active recruiting activities 121.8 76.3 160.0 4. Raising the value of existing properties, expanding their purchase 145.6 4. Construct marketing and construction systems in business 131.7 and resale 110.0 fields to engage in maintenance and renovation of commercial 288.0 -3.0 properties 221.6 223.6 5.0 5. Raise the value of existing properties and expand resales 6. Promote the Livness town projects 2018 2019 2020 2021 (FY) 2018 2019 2020 2021 (FY) (Plan) (Plan) (Plan) (Plan) Developing our Businesses Note: FY2018 figures for post-reorganization segments Note: FY2018 figures for post-reorganization segments

Looking back at FY2019 and actions going forward Looking back at FY2019 and actions going forward

Condominium units for sales by area Fiscal 2019 sales were ¥372.7 billion (+8.5% YoY) and operating Example renovation project Fiscal 2019 sales were ¥145.6 billion (+10.5% YoY) and operating (Daiwa House Industry, non-consolidated) income ¥15.8 billion (-23.4%). In Japan, new building supply income ¥16.7 billion (+22.1%). We stepped up inspections (reg- Kyush 4% Hokkaido/Tohoku 6% Before numbers fell for the first time in three years and selling prices ular inspections at appropriate intervals) to strengthen relations Chugoku/Shikoku 1% remained high. We are engaged in mixed use residential/ with owners of single-family houses and rental properties the Message from the CFO Strengthening our Bases Kinki 22% commercial developments incorporating single-family houses, Company has built and proposed renovations to extend war-

FY2019 Kanto 50% commercial facilities, and medical and nursing care facilities. We rantee periods. We also sold household power storage batteries 2,218 launched sales of projects such as Premist Funabashi Tsukada to single-family house owners approaching the end of purchase Chubu 17% (Chiba) and Premist Tower Sapporo Naebo (Hokkaido). Sales at periods for renewable energy under the feed-in tariff scheme. We Livness More Ibaraki (Osaka), entailing the complete renovation also focused on offering maintenance services to business assets of entire buildings under our Livness project to stimulate sales of corporate customers to grow orders. Condominium buildings and units under management by area of existing residential properties, are going smoothly. Group As part of the Livness project to stimulate sales of high-quality Units under management (10 thousand units) Kanto Kinki Other area company Cosmos Initia sold all the units on offer in Selesage existing housing, we held nationwide seminars and sales After Number of buildings under management (buildings) Omotesando (Tokyo), an investment property. The management campaigns for owners of single-family houses and condos. In 6,466 6,625 6,171 6,332 and operations business had 370,000 units under management. fiscal 2019, we were involved in 24% of resale transactions of our 37.1 For fiscal 2020, we forecast sales of ¥300.0 billion and an oper- single-family houses through brokerage or purchase and resale. 34.1 35.3 36.0 5.1 4.6 4.8 4.9 ating loss of ¥3.0 billion, as COVID-19 impacts marketing through For fiscal 2020, we forecast sales of ¥110.0 billion and operating 14.6 15.1 15.5 15.9 the temporary closure of display condos. We plan to review mar- income of ¥5.0 billion. This works in restraint in carrying out mar- keting methods and grow business opportunities by means such keting activities such as regular inspections of existing owners’ 14.8 15.2 15.4 16.0 as virtual tours of properties and sales of completed inventory properties due to COVID-19. 2016 2017 2018 2019 (FY) and multi-use developments drawing on the Group’s full range of

competencies. Data Section Project sampling Housing renovation sales ranking (FY2018) New deals closed, by customer type (¥ billion) Other 15% Ranking Company name Sales 1 Sekisui House Group 141.4 2 Sumitomo Realty & Development Group 124.3 General customers 12% FY2019 3 Daiwa House Group 114.5

Existing owners 4 Sekisui Chemical Group 95.0 73% 5 Sumitomo Forestry Group 70.3

* Compiled from data of Reform Sangyo Shimbun Premist Tower Osaka Premist Shiroganedai (Tokyo) Initia Gran Sapporo Naebo (Cosmos Initia) Selesage Nakameguro (Cosmos Initia) Shinmachi Laurel Court (Osaka) (Hokkaido) (Tokyo)

35 Daiwa House Group Integrated Report 2020 Daiwa House Group Integrated Report 2020 36 Chapter Developing our Businesses

Commercial Facilities Business Principal companies: Daiwa House Industry (non-consolidated), Daiwa Lease, Daiwa Royal, Daiwa Information Service Logistics, Business and Corporate Facilities Business Principal companies: Daiwa House Industry (non-consolidated), Fujita, Daiwa Lease

Helping invigorate communities and accommodate diversifying work- and Producing facility construction leveraging our ability to identify promising life-styles with intelligence-gathering and solution-formulation capabilities sites and diverse business schemes to accommodate digitalization-driven The Story of the Group’s Value Creation cultivated with our distinctive LOC system advances in logistics-facility sophistication and efficiency Business developments for the Sixth Medium-Term Management Plan Business developments for the Sixth Medium-Term Management Plan

Performance targets (¥ billion) Basic policy Performance targets (¥ billion) Basic policy ■ Sales Construction Rental management Sale of development properties ■ Sales Construction Rental management Sale of development properties Operating income 1. Leverage area characteristics to expand commissions for large Operating income 1. Developing logistics facilities incorporating multiple functions like projects, e.g. logistics facilities, offices, medical and nursing care offices, R&D, etc., or high value-added logistics facilities adopting 160.0 120.6 facilities, and hotels 110.0 the IoT/AI 142.5 140.6 100.3 100.0 2. Expand the profit-earning real estate business by purchasing 2. Maintaining current build-to-suit (BTS) logistics facilities accurately Message from the CEO 840.0 1,152.3 82.0 1,140.0 806.7 1,026.3 730.5 25.9 existing properties 140.6 meeting tenant needs and rapid development of multi-use 710.0 85.8 16.8 230.4 81.1 880.0 facilities 38.2 3. Expand the development and sale of investment properties 71.4 146.3 225.4 221.3 4. Strengthen our overseas business by entering the ASEAN and 78.7 3. Promoting mixed use development for large medical, care, or North American markets 869.0 930.6 social welfare facilities 488.2488.2 550.3550.3 450.4 654.9 4. Widen destination countries overseas by developing logistics real estate and industrial parks 2018 2019 2020 2021 (FY) 2018 2019 2020 2021 (FY)

(Plan) (Plan) (Plan) (Plan) Developing our Businesses

Note: FY2018 figures for post-reorganization segments Note: FY2018 figures for post-reorganization segments

Looking back at FY2019 and actions going forward Looking back at FY2019 and actions going forward

LOC System Fiscal 2019 sales were ¥806.7 billion (+10.4% YoY) and operating Orders received, by segment Fiscal 2019 sales were ¥1,152.3 billion (+12.3% YoY) and oper- Approx. 30% income ¥140.6 billion (-1.4%). We were proactive in construction (Daiwa House Industry, unconsolidated) ating income ¥120.6 billion (+20.2%). Amid solid demand from (FY2019) projects for various uses outside retail, and we developed Other 11.3% logistics facilities driven by growth in e-commerce, we developed Corporate Land tenants Leasing contract owners hotels and commercial complexes in the central areas of major Branch o ces Logistics multi-tenant and high-performance logistics facilities to meet Message from the CFO Strengthening our Bases cities in Japan. Contracts for childcare facilities and medical and 11.8% facilities the various needs of our tenants. Leasing proceeded smoothly 35.2% [More than 4,200] [Members of Owners Clubs: nursing care facilities were solid in areas with convenient lifestyle Medical and FY2019 and floor space at multi-tenant logistics facilities open for a year approx. 6,700] nursing care amenities. We are stepping up our efforts for buildings that are facilities or more was virtually fully occupied. In medical/nursing care Proposal of Construction 14.3% location for contract increasingly larger and multi-use in nature. The average price per Factories facilities, we stepped up our proposals to rebuild and relocate, store opening building increased from ¥380 million in fiscal 2018 to ¥490 million 27.4% targeting clients in outdated facilities and hospitals that did not in fiscal 2019. Large projects of ¥1.0 billion or more accounted for meet earthquake resistance standards. In support for offices and Daiwa House Industry about 30% of total contracts, helping drive sales growth. factories, we started redeveloping the Hiroshima-Nishi Airport site Stock business growth is being driven by in-house devel- Aggregate logistics-facility floorspace developed under the into an industrial park, Hiroshima Innovation Techno Port, and opments of mixed-use properties. In April 2019, we opened D Project real estate securitization scheme* started making moves to attract companies. We also made solid [Marketing staff: approx. 730] (thousand m2) GRANODE Hiroshima, a commercial/office/hotel building, and progress in selling development properties, and sales exceeded Hokkaido 167 Ratio of contracts by facilities (based on contract amount) Kyushu 561 in June 2020, we opened a large commercial facility in Okinawa, Tohoku our initial forecasts. Other 9% Chugoku/Shikoku 348 iias Okinawa Toyosaki. Overseas, we acquired Trade, a commercial 240 For fiscal 2020, we forecast sales of ¥880.0 billion and operating facility in California, in October 2019. Kinki income of ¥82.0 billion, in light of the impact of COVID-19 in delay- For fiscal 2020, we forecast sales of ¥710.0 billion and operating 804 Total Approx. ing business negotiations and other marketing activities. We are 8,138 income of ¥100.0 billion. This allows for the impact of COVID-19 Hokushinetsu/Chubu boosting our proposals to sectors with prospects of capex growth FY2019 798 on marketing activities such as delayed negotiations and its effect Kanto and attracting companies to industrial parks to grow orders. Stores 35% 5,217 on business operations at city hotels and commercial facilities Data Section * Includes 251 facilities under construction (of which 203 are BTS and 48, multi-tenant facilities) Non stores 56% operated by the Group. We will redouble our efforts in major projects and work to grow the business. Price per building trend (¥ million) 490

380 320 280 220

Logistics facility Hospital Expressway (Fujita) Gymnasium (Daiwa Lease) 2015 2016 2017 2018 2019 (FY) Mixed-use property Nursery school (March 2019 photo by and courtesy of Yokkaichi Construction Office, NEXCO Central) 37 Daiwa House Group Integrated Report 2020 Daiwa House Group Integrated Report 2020 38 Chapter Developing our Businesses

Other Businesses

Providing value in a spectrum of area related to people’s lives like construction Other Businesses The Story of the Group’s Value Creation support, environment and energy, and health and leisure Principal companies: Daiwa House Parking, Daiwa House Financial, Business developments for the Sixth Medium-Term Management Plan Daiwa House Insurance Daiwa House is also involved in the parking business, which Performance targets (¥ billion) Looking back at FY2019 and actions going forward contributes to society by providing profitable, high-convenience ■ Sales parking areas. We also manage private homes for the elderly and Operating income Fiscal 2019 sales were ¥530.0 billion (+9.7% YoY) and operating assisted-living residential facilities for seniors. These provide residen- 20.0 income ¥19.2 billion (+42.4%). The Environment and Energy and 19.2 tial and other facilities where elderly people can live in comfort. Our 13.5 Construction Support businesses performed strongly, but from Wind generation business range of financial services is also developing, including credit cards

February 2020 onward, occupancy rates in the Resort Hotel business Message from the CEO 530.0 520.0 and insurance agencies. 483.0 480.0 declined significantly and fitness clubs were closed temporarily due The Company is also working on creating model working styles to COVID-19. reforms utilizing robotics technologies, for use in hospitals, care For fiscal 2020, we forecast sales of ¥480.0 billion and an operating Health and Leisure facilities, factories, and construction sites. loss of ¥16.0 billion due to the ongoing impact of the pandemic on Principal companies: Daiwa Resort, Sports Club NAS -16.0 resort hotels and fitness clubs. We aim to tap into domestic tourist demand in the hotel business. Resort hotels

2018 2019 2020 2021 (FY)

(Plan) (Plan) Daiwa Resort operates 27 resort hotels under the Daiwa Royal Hotel Developing our Businesses brand and seven city hotels under the D-CITY brand. Its hotels are all Note: FY2018 figures for post-reorganization segments designed to serve their communities as well as please guests.

Features and strengths Car parking business Construction Support Interiors business

Principal companies: DesignArc creates spaces embodying contemporary trends and cus- Royal Home Center, Daiwa Logistics, DesignArc tomer needs for the interiors of hotels, offices, and other commercial THE HAMANAKO Message from the CFO Strengthening our Bases spaces as well as living spaces in single-family houses, condomini- (Hamanako Royal Hotel) Home centers ums, and housing showrooms. Royal Home Center has 57 locations across Japan offering their communities unique services and local needs-tailored selections of DIY, interior, gardening, and pet goods, as well as renovation and professional grade building materials.

THE KASHIHARA (Kashihara Royal Hotel)

Interiors business Fitness clubs

Environment and Energy Sports Club NAS operates 71 facilities nationwide. Designed to satisfy the people’s growing interest in getting exercise and maintaining Principal companies: Daiwa House Industry (non-consoli- Home center business health and beauty, they provide spaces where people of all ages can dated), Daiwa Energy, Eneserve Corporation have fun staying (or getting) in shape. Daiwa House Industry, Daiwa Energy, and Eneserve Corporation Logistics services provide environmental and energy solutions from energy creation, Data Section Daiwa Logistics operates a logistics network with a massive 94 bases energy saving, and power storage to electricity generation and retail- throughout Japan to deliver logistics services tailored to customers’ ing. Taking a strategic approach to climate change, we are working business models. to transform our successes in saving, creating, and storing energy to enhance our competitiveness. Currently our 278 solar, wind, and hydroelectric generating facilities have 379MW of capacity.

Photovoltaic power Logistics business generation business Sports Club NAS

39 Daiwa House Group Integrated Report 2020 Daiwa House Group Integrated Report 2020 40 Chapter Developing our Businesses

Feature What you need to know Daiwa House Group’s Real Estate Development

Committed to securing profits and maximizing investor value by creating Status on sale of development properties The Story of the Group’s Value Creation quality, competitive properties Developed property sales (recovery of investment) The Daiwa House Group takes three factors into consideration to (¥ billion) ensure the optimal timing when selling real estate available for sale: Developed property sales revenues 1) growth of our Group’s REITs; 2) our earnings; and 3) cash flows. Mid-Term Management Plan and Real Estate Development 189.5 Developed property sales pro ts 52.3 We set a hurdle rate internal rate of return (IRR) as one of the invest- Operating income margin (%) Real estate development at Daiwa House Industry starts with through cross-segment collaboration,” and we bolstered our asset 151.9 ment criteria for property development. In the Fifth Medium-Term ascertaining the value of potential sites, selecting a site, and then management functions in order to actively invest in real estate 37.7 Management Plan, we were able to realize larger-than-expected 35.1 36.4 planning a building optimized for site conditions and local needs, development and expand our own property rental and rental gains that exceeded net operating income (NOI, effective rental 29.1 103.0 then screening the potential development project according to property management businesses. Prompted by the 2012 J-REIT 26.2 88.1 income) due to rising property-market prices and falling property 79.4 22.1 19.1 20.4 69.0 proprietary investment criteria set by the Real Estate Investment listing of Daiwa House REIT Investment Corporation, we began 57.2 cap rates. 46.1

Committee. Only projects that meet these criteria move forward. building a capital-recirculating business model in which recovered 49.3 At the land acquisition or entry stage, we keep a close eye on Message from the CEO 29.4 27.9 Since its founding Daiwa House Industry has accumulated tech- investment capital is used to finance a new round of development. 21.1 17.5 22.8 trends in the real estate market, and look for the best sites. At the 7.7 9.4 4.3 5.1 nology and expertise leveraging our strengths as a developer of And leveraging the relationships we have built with tenants, we are construction stage we offer a rich variety of buildings and exploit large-scale residential subdivisions, resorts, condominiums, and expanding the scope of support for corporate customers. 2011 2012 2013 2014 2015 2016 2017 2018 2019 (FY) our construction capabilities as a general contractor to maintain and like projects and our strengths as a general contractor constructing Our real estate development business’s modus of securing profits extend our competitive advantage. buildings and structures for diverse uses. and maximizing investor value by creating quality, competitive The theme of our Second Mid-Term Management Plan of properties, is now one of Daiwa House Industry’s stalwart business Investments in Real Estate Development and Risk Management 2008 was to “strengthen our comprehensive real estate business models. Establishment of Real Estate Investment Committee of the amounts, any projects related to the 2020 Tokyo Olympics and Developing our Businesses The Company’s Real Estate Investment Committee is established to ensure Paralympics Games, projects involving operation of highly public facili- Third Medium-Term Fourth Medium-Term Fifth Medium-Term Sixth Medium-Term First and Second Management Plan Management Plan Management Plan Management Plan that appropriate decisions will be made about potential investments in the ties or the like (concessions pertaining to airports, parks, roads or other Medium-Term FY2011–2012 FY2013–2015 FY2016–2018 FY2019–2021 similar infrastructure), and other potential newsworthy projects, which –FY2005 Management Plans real estate development business after sufficient deliberations and discus- FY2005–2010 Invested: ¥196.5 billion Invested: ¥542 billion Invested: ¥765.8 billion Invested: ¥1,000 billion (Plan) sions through assessments of their feasibility and risks. As a rule, a meeting may significantly affect society, will be on the Committee’s agenda for Sold: ¥78.7 billion Sold: ¥118 billion Sold: ¥331 billion Sold: ¥670 billion (Plan) of the Committee will be held once in every 10 days or so and chaired by the deliberation, whether the land or facilities are owned publicly or privately. 1962 2005 2012 2013 2016 president of the Company. The Company’s decisions will be made through Furthermore, if a potential project poses a significant reputational risk to • Develops the • Yokohama Shiki-no-Mori Foleo, the • Daiwa House • New D-project Logistics • Daiwa House REIT 2019 large-scale Habikino first directly managed large-scale REIT Investment (DPL) logistics facility brand Investment Corporation • Daiwa House Global REIT an electronic collective decision-making process, which will proceed in the Company, or if the Company may essentially take total responsibility Neopolis housing combined commercial facility of its Corporation lists on launches merges with Daiwa House Investment Corporation complex kind, opens for business J-REIT • Capital increased to ¥161.6 Residential Investment established parallel with the Committee, and will be resolved by the Board of Directors. for a potential project due to the structure of its business partners even

1978 2006 billion through public offer- Corporation to become a The Committee will deliberate over potential domestic or overseas though the Company’s investment ratio is low, then the project will Message from the CFO be Strengthening our Bases ing (53.15 million shares) comprehensive REIT • Our first Royal Hotel • Daiwa House REIT Management investment projects of a certain amount or more, according to the invest- deliberated, regardless of the investment amount requirement. branded resort, the Co., Ltd. established and third-party allocation • D Project Ariake I large-scale (7.35 million shares) logistics center completed Noto Royal Hotel, 2007 ment amount classifications, to facilitate the collective decision-making The Committee has been sitting since 2008 and had considered a total opens 2015 for sole use by • Daiwa House REIT Investment Co., Ltd. process and the Board of Directors’ resolutions. However, regardless of 341 projects as of the end of fiscal 2019. 1987 Corporation established • Construction begins on Kansai Gateway, the largest • Construction of DPL Milestones • Develops condomini- 2008 Nagareyama, our ums for sale comprehensive logistics Deliberation and decision-making process according to impact of risk (based on investment amount) • Completes construction of the terminal in the Kansai largest-ever logistics center, 2003 Royal Parks Tower Minamisenju, Region, for Yamato Holdings begins • Begins developing our first proprietary luxury rental Co., Ltd. High Deliberation Decision-making logistics facilities condominium built by our own investment amount) capital • iias TSUKUBA, one of the (based on Resolutions by the Board of Directors largest mixed-use commercial Risk Deliberation by Real Estate Investment Committee Electronical properties in the northern Kanto Any potential project will be subject to a Region, opens for business collective resolution by the Board of Directors if the Real • Morimoto Asset Management Potential newsworthy projects that may significantly decision-making Estate Investment Committee finds it necessary, (later Daiwa House Asset affect society will be on the Committee’s agenda for or depending on certain conditions, such as the Management) made into a Low location of the business (overseas). consolidated subsidiary deliberation • BLife Investment Corporation (BLI; now Daiwa House Residential Investment Corporation) Deliberation based on unique criteria groundwater contamination, soil conditions, proneness to flooding investment units acquired Royal Parks Toyosu (Tokyo) iias TSUKUBA (Ibaraki) DPL Nagareyama (Chiba) The Real Estate Investment Committee deliberates potential projects and other disasters, environmental impacts and appropriateness of based on explanations given by the drafting and related departments. construction costs) as well as whether going ahead with the invest- Real estate development investment and invested real estate trends The Company has set hurdle rates for the internal rate of return (IRR) ment is consistent with the Company’s management philosophy,

as investment criteria. The implementation of a potential investment management strategies, and brand image. Thus, a project that is Data Section Real estate development investment and invested Having actively invested in real estate developments to ensure future will be adopted if the relevant rate requirement is met. At the same economically viable as an investment might not go ahead if other real estate trends (¥ billion) 1,228.6 growth, at the end of March 2019 we achieved a ¥1 trillion balance time, the Committee’s deliberations involve risk assessments (16 aspects significantly conflict with the Company’s overall goals or Real estate available for sale 1,077.9 367.9 on investment real estate intended as a future revenue source. At departments, 26 items) from multiple perspectives, including social vision, or has a significant environmental impact. In fiscal 2019 the 971.9 Pro t-earning real estates 903.9 341.1 present, since the value of properties being rented among real estate and environmental ones (legal risks and risks associated with soil or Committee considered 50 projects, of which two were put on hold. Investments 326.2 available for sale is just over ¥300.0 billion, we are actively investing 716.2 314.9 860.7 Major real estate development projects subject to deliberation Risk assessment for investment decisions 625.7 in construction of properties for occupancy. Moving forward, while 736.7 520.7 282.0 achieving stable income gains by maintain a constant 70% or so Single-family houses, Profit-earning real estate through [Economic risk assessment] • Set IRR hurdle rates* 645.7 413.2 262.1 condominiums and other purchase or lease of land or 381.4 242.1 589.0 occupancy rate at the balance of our investment real estate, we will real estate for sale construction of buildings • Consistency with management philosophy, management 205.0 434.1 196.6 363.4 be working to achieve a balance that, depending on conditions, will [Multilateral risk strategies and brand image 278.5 3,626 • Legal risks 98.5 98.0 208.1 assessment 184.7 280.6 yield capital gains as well. Profit-earning real estate involving Private Finance Initiative (PFI), • Environmental impact, such as soil or groundwater pollution, 264.5 (16 departments, ground condition risks 162.3 220.8 220.6 capital contributions to special redevelopment, land readjust- 159.0 • Environment impacts purpose companies (SPCs) or the like ment and other similar projects 26 items)] 2011 2012 2013 2014 2015 2016 2017 2018 2019 (FY) • Appropriateness of construction costs, etc. * To be set based on the WACC (weighted average cost of shareholders’ equity and liabilities) by taking into consideration additional factors such as risk premiums. 41 Daiwa House Group Integrated Report 2020 Daiwa House Group Integrated Report 2020 42 Chapter Developing our Businesses

Feature What you need to know Daiwa House Group’s Overseas Businesses

Delivering quality construction and services to people all over the world while By region The Story of the Group’s Value Creation sharpening our business acumen and lowering risk for the whole Group The Americas (North America) ASEAN and South Asia

Mid-Term Management Plan and Overseas Businesses Daiwa House Industries is working to expand the geographical Daiwa House Industry contribute to economic growth in ASEAN presence of its housing businesses in the US through M&A and countries by developing industrial parks, condominiums, Desiring to bring Daiwa House Industry’s quality architectural workmanship and services to people around the world, we began venturing outside by accumulating experience in rental housing. We hope to hotels, and other infrastructure. eventually extend coverage nationwide. Japan in the 1960s. Maximizing on business resources they have accumulated since then, the Group’s overseas interests now span 21 countries and In Indonesia, Vietnam, and Thailand we develop logistics facilities territories where we concentrate most of our efforts to grow overseas. In FY2019, we sold a portion of our Aurelien Apartments, a rental leveraging the experience and technologies we have cultivated in Internally, we organize our spheres of overseas activity into five administrative areas: East Asia, ASEAN and South Asia, Pacific, Americas, and housing property with stabile occupancy, to Daiwa House REIT Japan. One of the particular strengths of our logistics facilities is their Europe. Maximizing on the strengths of the Group and continuing to make sustainable project investment, we are working to achieve overseas Investment Corporation, our REIT investment arm. capacity to provide storage in the four temperature bands (frozen,

sales of ¥400 billion in FY2021, the final year of the Sixth Medium-Term Management Plan. At the Single-Family Houses Business, in February 2020 our refrigerated, dry, and ambient) indispensable to the food industry. Message from the CEO First and Second Stanley-Martin Communities, LLC, subsidiary acquired the North and Moving forward we will be working to expand business and recover Third Medium-Term Fourth Medium-Term Fifth Medium-Term Sixth Medium-Term Medium-Term South Carolina interests of Essex Homes Southeast, Inc., and in the our investments efficiently by selling the developed properties to Management Plans Management Plan Management Plan Management Plan Management Plan FY2005–2010 FY2011–2012 FY2013–2015 FY2016–2018 FY2019–2021 same month Trumark Companies, LLC, a west-coast single-family Daiwa House Global REIT Investment Corporation. home builder, joined the Group fold as well. Both developments Further, in Vietnam we are pressing ahead with work on The Americas (North America) ● 2011 Rental Housing Business helped us further extend our presence in a “smiling curve” joining Midtown, a multi-use project being developed jointly with Nomura Pacific (Australia) the US east, south, and west. Real Estate Development, Sumitomo Forestry, and a local partner, ● 2017 Single-Family Houses Business ASEAN and South Asia We also purchased TRADE, an existing mall in Irving, California, Phu My Hung Group. Units built during the first phase are now being

East Asia (China) ● 2019 Commercial which lies in the middle of an area experiencing rapid population offered to the public, with sales contracts concluded for 84% at the Developing our Businesses Facilities Business Other growth. We intend to acquire mall operating and management end of June 2020. Handover is scheduled for completion in 2022. ● 2011 Condominiums Business know-how from local partners and provide incentives for Japanese ● 2017 Rental Housing Business businesses to move in.

● 2018 Single-Family Houses Business

● 2011 Logistics, Business and Corporate Facilities Business

● 2015 Condominiums Business, Single-Family Houses Business D Project Malaysia I (logistics facility) Message from the CFO Strengthening our Bases ● A Stanley-Martin 2018 Rental Housing Business single-family house (architectural rendering) ● 2006 Condominiums Business East Asia (China) ● 2011 Commercial Facilities Business Providing the trust and confidence of Japanese brands through ● 2013 Construction (Fujita) the full suite of services from development to post–move-in customer care

An Essex Homes single- A Grace Residence condominium development is under construction Sixth Medium-Term Management Plan Progress family house (architectural rendering) in Nantong, Jiangsu province. Of 1,480 units, 1,054 were already on sale by the end of June 2020 with a closing rate of 65%. Meanwhile, Investment in real estate overseas is progressing smoothly Daiwa House Global REIT Investment Corporation and we have formed a global REIT as an overseas business another Grace Residence being built in Changzhou, also a Jiangsu Pacific (Australia) investment exit strategy We established the Daiwa House Global REIT Investment Corporation city. Here, 636 of 900 units were on the market by the end of June with a 99% closing rate. Both are sited in areas popular with the local We are pursuing M&A deals to expand our sales coverage in in September 2019 to function as a strategy for exiting overseas Providing quality living spaces drawing on residential housing the robust US single-family houses market upper and upper-middle segments. They have won acclaim for their project investments going forward. Something unprecedented in and real estate development knowhow accumulated in Japan Japan, the private REIT allows incorporation of overseas real estate dependable quality and are slated for completion in fiscal 2022. Performance targets (¥ billion) into the mix. In Australia’s housing market, the Rawson Group pressed forward To date we have been involved in the construction of over Sales Operating income with house building and land development amid an improvement 5,000 condominium units in China and have begun providing

■ ■ Data Section North America China in house buying sentiment following the July 2019 elections. It is post–move-in customer care like that in Japan to enable us to build ■ Australia ■ Other 400.0 ■ ASEAN now working to fill its order books after having reworked its pricing long-term relationships with our overseas customers as well. strategies to better fit potential homeowners’ needs. 155.0 278.5 277.3 In 2018 we launched in the suburbs of Sydney, New South Wales, the Box Hill Project, a large-scale subdivision development 99.0 117.3 210.0 24.0 65.0 encompassing some 1,500 lots. 54.5 123.4 70.0 And our Flour Mill of Summer Hill and Tempo (Drummoyne 12.912.9 57.2 40.3 Project) development projects outside Sydney have also sold out. 6.26.2 45.1 22.0 40.0 36.2 34.2 The Grace Residence 22.2 0 condominium develop in 50.7 43.0 21.1 70.0 9.3 Changzhou, Jiangsu (architectural rendering) 2018 2019 2020 2021 (FY) (Plan) (Plan) Rental housing property Note: Totals include consolidation adjustments Aurelien Apartments (Chicago, Illinois, USA)

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