Sumitomo Realty & Development : Corporate Governance Report 2021/12/23

Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail.

Corporate Governance Report

Last Update: December 23, 2021

Sumitomo Realty & Development Co., Ltd.

Kojun Nishima, Representative Director and President

Contact: General Affairs Department

Securities Code: 8830 https://www.sumitomo-rd.co.jp/english/

The corporate governance of Sumitomo Realty & Development Co., Ltd. (the "Company") is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information

1. Basic Views

The Company is a comprehensive real estate enterprise of the Sumitomo Group which has a history of 430 years and inherits Sumitomo's business philosophy of "Placing prime importance on integrity and sound management in the conduct of its business" and "Under no circumstances, shall it pursue easy gains." The Company's slogan, "Integrity and Innovation" expresses its corporate stance to all stakeholders including employees, customers, business partners, creditors, shareholders, etc. This includes the pride as a developer which values "Integrity" above all, and creates new corporate value with a pioneering spirit, without pursuing easy gains under any circumstances.

Under this slogan, we have set forth our fundamental mission as to "create even better social assets for the next generation," and our basic management policy aims to contribute to addressing various social issues such as the environment, while at the same time maximizing corporate value through each business.

This fundamental mission also includes a reminder "do not rest on seniors' laurels and make the best efforts for a better company for the next generation." At this point in time, we believe that the management of the Company should continue to be carried out by people mainly from within the Company who have inherited the strong will to sow the seeds of growth for the sake of the next generation. In so doing, we believe that employees will be able to maintain a high level of motivation to eventually participate in management.

In consideration of this basic stance, we are working to further strengthen and enhance corporate governance so as to contribute to the improvement of the Company's corporate value over the medium- to long-term, by working on collaboration and dialogue with all stakeholders including shareholders, improving the efficiency of decision- making, appropriate supervision of execution, and proper disclosure of information.

[Reasons for Non-compliance with the Principles of the Corporate Governance Code] [Updated]

The Company has been operating under the "Eighth Management Plan" and the current fiscal year is the final year of the plan. Currently, it is discussing the next medium-term management plan at the Board of Directors, the Executive Committee, etc. The Company is also considering the implementation system for the next plan, taking into account the Corporate Governance Code revised in June 2021. As soon as the details of the next medium-term management plan and its implementation system are finalized, we will announce them as well as the revised report at an appropriate time.

[Supplementary Principle 1.2.4] Creating an Infrastructure Allowing Electronic Voting and English Translations of Notice of Convocation of General Meeting of Shareholders

As the percentage of voting rights exercised at the general meeting of shareholders has stayed above 90% in past years, the Company has not taken measures to make the percentage higher. However, in light of the increased

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efficiency in the exercise of voting rights by institutional investors, the Company plans to introduce electronic voting at the Ordinary General Meeting of Shareholders to be held in June 2022.

English translations of notice of convocation of general meeting of shareholders are posted on the Company's website and TDnet since before.

[Supplementary Principle 4.10.1] Voluntary Nomination Committee and Compensation Committee

As stated in the Basic Views, we believe that people from within the Company should be the core member of management and execution, and we are aiming to have a management system in which the Board of Directors, which is mainly composed of people from within the Company, bears responsibility for execution, and the corporate auditors take on the management supervision function. Hence, we have not established voluntary committees, but we have established the following system to obtain appropriate involvement and advice from independent outside directors and outside corporate auditors in order to ensure independence and objectivity in the nomination and compensation of directors and executive officers.

Regarding the nomination of candidates for directors and the appointment of executive officers, the candidates are narrowed down after several meetings of the Executive Committee, and decisions are made after thorough deliberation at the Board of Directors meetings, taking into account the independent and objective opinions of the independent outside directors and outside corporate auditors regarding the candidates. Independent outside directors and outside corporate auditors have opportunities to know relevant information such as the background, insights and achievements of internal directors and executive officers at several occasions such as meetings of the Committee of Outside Directors and Auditors, Briefings for Outside Directors, and meetings of the Board of Corporate Auditors.

Regarding the compensation for directors and executive officers, the total amount of compensation is determined based on a clear linkage to business performance, and the policy for the determination of the content of compensation, etc. for each individual is determined by a resolution of the Board of Directors, with the participation of independent outside directors and outside corporate auditors. In the determination policy, the compensation for each director and executive officer is fixed compensation only and the amount paid to each of them is determined upon agreement by the Chairman of the Board and Representative Directors, a total of four directors.

For details, please refer to [Disclosure Based on the Principles of the Corporate Governance Code], [Principle 3.1], (3) and (4).

[Disclosure Based on the Principles of the Corporate Governance Code] [Updated]

[Principle 1.4] Strategic Shareholdings

The Company may acquire and hold shares of business partners, etc., if it is deemed to contribute to the Company's sustainable growth and medium- to long-term enhancement of corporate value primarily from the standpoint of establishing and strengthening stable and long-term business relationships with business partners, etc.

Among the strategic shareholdings, the Company assesses major stocks in terms of whether or not to hold each individual strategic shareholding, comprehensively taking into account the benefits and risks from each holding in light of the aforementioned purpose of holding at important meetings such as meetings of the Executive Committee in which directors and executive officers participate.

For shares that are deemed to have lost their significance of continuous holding, the Company individually examines the significance of shareholding, and takes appropriate measures including the reduction of strategic shareholdings.

When exercising voting rights, the Company decides whether to approve or reject proposals individually, after deliberating such factors as the management policies and strategies of investee companies, comprehensively taking into consideration whether they contribute to the improvement of corporate value and the common interests of shareholders from a medium- to long-term perspective.

In addition, whether to approve or reject proposals that may have a significant impact on the common interests of shareholders is decided through dialogue with the investee companies.

[Principle 1.7] Related Party Transactions

Based on the disclosure requirements prescribed in the Accounting Standards Board of Japan's Implementation Guidance, the Company periodically requests reporting and verification every year, and the Board of Directors monitors the appropriateness of those transactions.

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[Supplementary Principle 2.4.1] Ensuring Diversity in the Promotion to Core Human Resources

We have been actively promoting diversity since before, based on the awareness that the existence of diverse perspectives and values reflecting a variety of experiences, skills and characteristics within the Company is a strength that supports the sustainable growth of the Company.

For more than 20 years, we have been actively hiring people with diverse careers at other companies as individuals who can be immediately effective in the Company. Today, mid-career hires with work experience at other companies account for 90% of our employees, and are the source of the Company's growth.

In addition, we believe that equal opportunity in promoting employees to management positions is the most important factor for increasing their motivation, so we promote employees based solely on their enthusiasm, ability, and achievements, regardless of gender or whether they were hired as new graduates or as mid-career hires. As a result, more than 60% of our managers are currently mid-career hires, ensuring diversity in the managerial positions.

We are also actively working on the promotion of female participation and career advancement. Firstly, we have announced a numerical target for the ratio of female employees in sales and engineering positions that support our front line operations (25% in sales and 13% in engineering positions). By further increasing the ratio of female in our employees and working on their career development to expand the pool of our human resources, we will increase the number of female employees for future promotion and gradually promote them to managerial positions.

We believe that diversity in managerial positions should be ensured naturally as a result of fair appointments. We believe that setting a numerical target for diversity in managerial positions may distort equal opportunity in the appointment of managers and lower the morale of employees as a whole, and therefore we will not set such a numerical target.

[Principle 2.6] Roles of Corporate Pension Funds as Asset Owners

The Company's retirement benefit plan consists of pension benefits of contract-type corporate pension plans and lump-sum payment plans. The Company, as an asset owner, regularly verifies the management status of pension funds while entrusting the management to multiple institutions that have adopted the stewardship code. The Company also strives to enable the department in charge of corporate pension to perform appropriate activities such as monitoring of management institutions, by appointing personnel with necessary experience and qualities and training such personnel.

[Principle 3.1] Full Disclosure

(1) Management principles, management strategies and management plans

These are published on the Company's website and in securities reports and integrated reports.

1. Basic views and basic policy on corporate governance These are described in "I.1. Basic Views" of this report.
2. Basic policy and process on determination of compensation for directors and executive officers

We introduced a performance-based compensation system, which the total annual compensation for all directors is set at just 1% of consolidated ordinary profit. We also introduced an executive officer system, which enables the appointment of officers comparable to directors necessary for business expansion. Accordingly, with the agreement of all directors, the compensation of executive officers is also to be paid from the aforementioned total amount of compensation for directors.

The policy for the determination of the content of compensation, etc. for individual directors and executive officers is established by resolution of the Board of Directors. In the determination policy, the compensation for each director and executive officer is fixed compensation only and the amount paid to each of them is determined upon agreement by the Chairman of the Board and Representative Directors, a total of four directors, in consideration of duties and level of contribution to performance of each of them.

1. Policy and process on the nomination of candidates for directors and corporate auditors and the appointment and dismissal of executive officers

Regarding the nomination of candidates for directors and corporate auditors and the appointment of executive officers, we narrow down the candidates through several meetings of the Executive Committee, from among those who have a wealth of experience, high-level insight and sophisticated expertise that will contribute to the Company's sustainable growth and medium- to long-term increase of corporate value. The Board of Directors makes decisions after thorough deliberation, taking into account the independent and objective opinions of independent outside directors and outside corporate auditors. Independent outside directors and outside corporate

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auditors have opportunities to know relevant information such as the background, insights and achievements of internal directors, executive officers and internal corporate auditors at several occasions such as meetings of the Committee of Outside Directors and Auditors, Briefings for Outside Directors, and meetings of the Board of Corporate Auditors.

Dismissal of executive officers is decided after thorough deliberation at the meetings of the Board of Directors, which are attended by independent outside directors and outside corporate auditors.

1. For candidates for directors and corporate auditors resolved in (4) above, their background and the reasons for their nomination are individually described in the Notice of Convocation of General Meeting of Shareholders.

[Supplementary Principle 3.1.3] Initiatives for Sustainability

The Company has been practicing Sustainability Management that inherits Sumitomo's Business Philosophy. Under the fundamental mission to "Create even better social assets for the next generation," we have identified our materiality as "Disaster resistant," "Environmentally friendly," "Together with the community" and "People friendly." We aim to contribute to addressing social issues, at the same time maximizing our corporate value by promoting ESG through our business activities. We will also contribute to the achievement of UN's Sustainable Development Goals (SDGs).

In regard to climate change, we recognize and support the importance of the Paris Agreement and other agreements related to global warming countermeasures, and we are working to significantly reduce greenhouse gas emissions through a range of measures, including renovating existing buildings so that high-efficiency equipment can be installed.

We also recognize that climate change has the potential to have a significant impact on our business activities not only as a risk but also as an opportunity. With this in mind, we are working to address climate change issues in conjunction with our respective stakeholders including suppliers, business partners, tenants, and industry organizations.

Other initiatives for sustainability, such as disaster-resistant urban development, contribution to local community, respect for human rights and promotion of diversity are described on the Company's website and in the integrated reports.

[Supplementary Principle 4.1.1] Disclosure of Scope of Delegation to Management The following matters shall be resolved by the Board of Directors:

1. Matters prescribed in the Companies Act and other laws and regulations
2. Matters prescribed in the articles of incorporation
3. Matters delegated by a resolution of the general meeting of shareholders
4. Other important management matters

The following matters shall be reported to the Board of Directors:

1. Status of execution of business and other matters prescribed in the Companies Act and other laws and regulations
2. Other matters deemed necessary by the Board of Directors

[Principle 4.9] Independence Standards and Qualification for Independent Outside Directors

The Company appoints outside directors who will be independent officers based on the requirements for outside directors prescribed in the Companies Act and the independence criteria set by the Tokyo Stock Exchange.

[Supplementary Principle 4.11.1] View on the Balance between Knowledge, Experience and Skills among the Board of Directors, as well as on Diversity and Size

The policy regarding the Board of Directors is to prioritize that the Board as a whole has knowledge, experience and skills necessary for corporate management, and to maintain the appropriate balance, diversity and size to allow prompt decision-making.

As stated in "I.1. Basic Views," we believe that the management of the Company should be carried out by people mainly from within the Company. Therefore, the Board of Directors is comprised of eight directors from within the Company who are deeply familiar with the significance of always looking resolutely forward and continuing to invest for sustainable growth, and two outside directors with experience as chairman and president of listed companies, who have superior character and insight and understand the Company's management principles.

The qualifications of each director are indicated in the biography and reasons for their nomination in the Notice of Convocation of General Meeting of Shareholders at the time of their election.

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[Supplementary Principle 4.11.2] Disclosure of Concurrent Positions of Officers

Significant concurrent positions, etc. are described in the notice of convocation of the ordinary general meeting of shareholders. Please refer to the "Notice of Convocation of General Meeting of Shareholders" on the Company's website.

[Supplementary Principle 4.11.3] Evaluation of Effectiveness of the Board of Directors

At the meeting of the Board of Directors held on March 15, 2021, analysis and evaluation of the structure and the operational status of the Board of Directors were performed, and it was confirmed that the effectiveness of the Board of Directors was secured appropriately.

[Supplementary Principle 4.14.2] Policy for Training Officers

The Company periodically briefs outside directors and outside corporate auditors on the industry to which the Company belongs, the Company's history, business overview, financial information, strategies, organizations, etc. and offers all officers, including outside directors and outside corporate auditors, opportunities for gaining information necessary for them to fulfill their roles and responsibilities.

[Principle 5.1] Policy for Constructive Dialogue with Shareholders

The Company strives to provide explanation of the Company's corporate management and business activities through general meetings of shareholders, financial results briefing sessions, individual meetings, and other opportunities for communication with shareholders and investors.

If a shareholder requests a dialogue, the Company's policy is that the ESG Promotion Office will respond to such request appropriately under the supervision of the responsible director, etc. depending on the objective of the dialogue, the method of communication, the number of shares held, the attributes, etc.

Regarding dialogues with shareholders, the Company exercises due care concerning the handling of insider information, and gives feedback on the details of the dialogues as necessary at important meetings such as meetings of the Executive Committee attended by directors and executive officers and managerial personnel.

2. Capital Structure

		Foreign Shareholding Ratio	More than 20% and Less than 30%
[Status of Major Shareholders] [Updated]
		Name/Company Name				Number of			Percentage
					Shares Held			(%)
	The Master Trust Bank of Japan, Ltd. (Trust account)		73,726,100	15.56
	Custody Bank of Japan, Ltd. (Trust account)			24,624,500	5.20
	Sumitomo Mitsui Banking Corporation			11,990,199	2.53
	Custody Bank of Japan, Ltd. (Trust account 4)			10,948,900	2.31
	Taisei Corporation			9,550,000	2.02
	Daikin Industries, Ltd.			8,367,000	1.77
	Shimizu Corporation			7,500,000	1.58
	Obayashi Corporation			7,490,589	1.58
	Maeda Corporation			7,244,000	1.53
	SSBTC CLIENT OMNIBUS ACCOUNT			6,208,554	1.31
		Controlling Shareholder (except for Parent		―
		Company)
		Parent Company		None

Supplementary Explanation

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