ES-CON JAPANOur Name Represents Our Core Functions
ES-CON JAPAN Ltd.’s core business is the development ofreal estate, from which the ES of ES-CON JAPAN derives.
ES-CON JAPAN’s business spreads out from its core business of developing condominiums – the CON of ES-CON
JAPAN – to include the development of hotels, neighborhood
shopping centers, logistics centers, etc., and the management of assets and buildings. Japan is the realm in which
the company operates. Thus the name of ES-CON JAPANLtd. was adopted.

Annual Report 2016
For the year ended December 31, 2016
https://www.es-conjapan.co.jp/english/

ES-CON JAPAN Annual Report 2016

Embarking on Our Next Phase of Working
for the Future of Japan, Society and Communities
ES-CON JAPAN Ltd. (ES-CON JAPAN) has expanded to the company that it is today, listedon the first tier of the Tokyo Stock Exchange, by developing its main business of condominium
development and spreading to the development of retail, hotels and other types of real estate
properties while focused on planning and delivering a high-value product. We and the next
generation of youth have the responsibility of building a society where people can hope. Thistransformation cannot occur overnight but ES-CON JAPAN is committed to the deliberate
and prudent positive transformation of society and the building of a bright future for Japan.

Corporate Philosophy:
Realizing the Importance of Being a Member of Society
The staff of ES-CON JAPAN spends time thinking about how it can contribute to society in the best possible
manner every day. Applying our findings in contributing to society generates results. At the same time, allmembers of ES-CON JAPAN pursue how they can contribute to the happiness they seek. Our staff is committed to assisting each other so they can sincerely find the next stage of unique personal expression aspired to by
all, while aiming to realize the theme of positively contributing to society.
In this process, we seek to improve society by contributing and delivering better ideas for a better life andmaterialize our ideals. We seek to transform the connections of people into a significant force through ourhuman resources and to expand the possibilities of society through flexible solutions and concepts generated
through brainstorming.

Forward-looking Statements
The earnings outlook and other forward-looking statements contained in this document are based on information currently
available to the management of ES-CON Japan and certain assumptions that are thought to be reasonable by ES-CON JAPAN.
Accordingly, actual business performance and other results may differ materially. ES-CON JAPAN assumes no obligation to
update any forward-looking statements in this report as a result of new information or future events.

1

Our Backbone, Our Business Segments
ES-CON JAPAN continues to expand operations rooted in real estate. Presently, the businesses of ES-CON
JAPAN can be broken down into the real estate sales business, the real estate leasing business and the real estateplanning agency and consulting business, which accounted for 89.3%, 10.5% and 0.2%, respectively of annual
net sales in Fiscal 2016.
Real Estate Sales Business

Real Estate Leasing Business

Real Estate Planning Agency
and Consulting Business

Net Sales

Net Sales

Net Sales

30,687 million yen

3,594 million yen

65 million yen

Segment Income

Segment Income

Segment Income

4,798 million yen

2,058 million yen

65 million yen

To understand the scope of our real estate sales business, ES-CON JAPAN’s net sales and segment income inthis division grew by 24.5% and 27.3%, respectively. We sold 491 condominium units, giving us robust consolidated year-on-year growth of 44.5%. ES-CON JAPAN also laid the foundation for a strong future by acquiring
11 sites for developing for-sale condominiums, 9 retail development sites, 11 hotel development sites and 2other sites. We are confident that these 33 new sites were acquired at prices that will guarantee a steady and strong
future going forward. The real estate leasing business posted year-on-year increases of 25.8% in net sales and of
28.1% in segment income. This division will continue to acquire properties that generate steady rental income
and an improvement in our asset value, and build high-yielding properties with an eye on both holding andselling them. Looking ahead, it will stably provide high-quality properties, centering on land for retail facilities,
as the main sponsor of our REIT to support its external growth strategy. Our real estate planning agency and consulting business remains small but is a highly profitable non-asset business and we will continue to proactively
market our planning services and ability to optimize the value of projects over multiple segments and usages.
ES-CON JAPAN focuses on planning products and provides comfortable and high-quality living by considering lifestyle changes and local characteristics as well as envisioning the happiness of people living in our products. We pursue our goal of becoming a “life developer” that works to develop people’s lifestyles and promote
communication among the residents who meet at our products.

Table of Contents
Corporate Philosophy . ............................................................. 1
Our Backbone, Our Business Segments ................................. 2
To Our Shareholders ................................................................ 3
Strategic Steps in Fiscal 2016 . ................................................ 4
Achievement of the First Medium-Term Business Plan . ....... 5
Second Medium-Term Business Plan ..................................... 7
Corporate Strategy ................................................................... 8
Growth Strategy Under the Second Medium-TermBusiness Plan . ......................................................................... 9Interview with the President .................................................. 11
Management: Directors and Auditors ................................... 17
Management Policy ................................................................ 19

Direction, Corporate Governance and CSR ........................... 19
Company Overview ................................................................. 22
Financial Section
Management Discussion and Analysis .................................. 23
Consolidated Balance Sheet .................................................. 27
Consolidated Statement of Income and Consolidated
Statement of Comprehensive Income ................................... 29
Consolidated Statement of Changes in Equity . .................... 30
Consolidated Statement of Cash Flows ................................ 31
Notes to Financial Statements .............................................. 32
Investor Information ............................................................... 53

2

ES-CON JAPAN Annual Report 2016

Strategic Steps in Fiscal 2016
To Our Shareholders

1
2

Fiscal 2016 was a great year for ES-CON JAPAN. We exceeded or fulfilled almost all of the targets
in our Medium-Term Business Plan “Make the One for 2016” (Fiscal 2013 to 2016) including
listing on the first tier of the Tokyo Stock Exchange and greatly exceeding previous year results
through proactive, dependable business operations during Fiscal 2016. These efforts have materialized for our shareholders in the form of a dividend of 15 yen per share including a 2 yen commemorative dividend celebrating our listing on the first tier of the Tokyo Stock Exchange. Going forward
we have established a new Medium-Term Business Plan titled “IDEAL to REAL 2019.” We willcontinue to conduct multi-faceted businesses as an integrated real estate developer and evolve andgrow into a company that is needed by society. Your continued support is appreciated.

3

Takatoshi Ito
President & Representative Director
ES-CON JAPAN Ltd.

4
5
6
Net Sales

Operating Income(Unit: million yen)

(Unit: million yen)

45,5005,700(Unit: million yen)

4,680

3,936

4,012

34,347(Projection)

3

4,400

3,039

27,705

Fiscal 2015 Fiscal 2016 Fiscal 2017

Profit Attributable to
Owners of Parent

Fiscal 2015 Fiscal 2016 Fiscal 2017
(Projection)

Fiscal 2015 Fiscal 2016 Fiscal 2017

7
8

Listed on First Tier of Tokyo Stock Exchange
ES-CON JAPAN successfully listed on the first tier on June 23, 2016. This demonstrates the steady growthin corporate value and the advancement to the next stage of the business.

Established ES-CON JAPAN REIT Investment Corporation
ES-CON JAPAN established the ES-CON JAPAN REIT Investment Corporation in August 2016. This
diversified REIT, seeking to go public, is part of our growth strategy and will primarily invest in acquiring
land leased to retail facilities. ES-CON JAPAN will contribute to the further growth of the REIT market
by supplying solid properties to our REIT and also use it to achieve further growth as a general developer.

Founded new company, ES-CON LIVING SERVICE Ltd.
ES-CON JAPAN established ES-CON LIVING SERVICE Ltd. on September 1, 2016 as a means tocreate and strengthen our operations business as a key part of our growth strategy. ES-CON LIVINGSERVICE will focus on condominium management, operating cafes, hotels, and other lodging options,conducting the renovation business, etc.

Launched Second Medium-Term Business Plan
ES-CON JAPAN celebrated reaching the targets of the First Medium-Term Business Plan by announcing
its progression to the next stage with the Second Medium-Term Business Plan “IDEAL to REAL 2019,” a
new three-year plan from Fiscal 2017 to Fiscal 2019.

Formed Business Alliance with Ichigo Inc.
ES-CON JAPAN and Ichigo concluded a business alliance to further mutual growth through information
sharing, with ES-CON JAPAN providing advanced information on their hotel development projects for
Ichigo’s hotel asset pipeline and Ichigo providing advanced information on Ichigo’s ground lease assets for
ES-CON JAPAN’s development activities. The companies successfully conducted transactions in theseareas in 2016.

Cafe Apartment 183 Opened
ES-CON JAPAN’s first condominium with a cafe developed and operated by the group was launched in
2016: Le JADE Setagaya Kinuta. This condominium has a cafe restaurant – Cafe Apartment 183 – on thefirst floor. The restaurant opened in September 2016 and provides concierge services and a dining destination not only for residents of Le JADE Setagaya Kinuta but also the surrounding area.

(Fiscal 2017) Aired New Le JADE Series Commercial
ES-CON JAPAN began filming a new television commercial for its Le JADE condominium series inJanuary 2017. The commercial presents ES-CON JAPAN as a life developer that realizes its customers’
ideals and is one more step towards further improving our corporate value and the brand.

(Fiscal 2017) Selected for the New JPX-Nikkei Mid and Small Cap Index
The Tokyo Stock Exchange and Nikkei Inc. launched the JPX-Nikkei Mid and Small Cap Index in March2017. This is a new index jointly developed by the two parties and ES-CON JAPAN was selected as one ofthe original company stocks for the index.

(Projection)

4

ES-CON JAPAN Annual Report 2016

Achievement of the First Medium-Term Business Plan:
No Complaints, Almost Delivered the Ideal

As of End of December 2012 As of End of December 2016

ES-CON JAPAN’s First Medium-Term Business Plan was known as “Make the One for 2016” and ended in
December 2016. During this three-year plan, ES-CON JAPAN rose to the first tier of the Tokyo Stock Exchange
and delivered on the company’s vitality and durability. Almost all management and performance targets wereachieved as a result of progress in “building a durable and robust management structure no matter the environment.” Total market capitalization at the announcement of the First Medium-Term Business Plan on its formation (August 2013) was 12.5 billion yen and this grew by 2.4 times to about 30.8 billion yen by the end of
the plan in December 2016.
As a result of our measures to return profit to investors, ES-CON JAPAN has raised its dividend for four consecutive years and is paying a dividend per share of 15 yen for Fiscal 2016 (ended December 2016). A comparison between Fiscal 2012 and the end of Fiscal 2016 shows that new assets have increased by about 4.1 times
and the balance of cash and deposits rose by about 3.6 times. This reveals that a robust foundation has steadilygrown that can withstand almost any economic environment.

(Actual)

Net assets

4,203

17,363

About 4.1 times

Cash and deposits

2,234

8,204

About 3.6 times

Segment Targets
Performance of First Medium-Term Business Plan Announced on August 8, 2013

(Unit: million yen)

Fiscal 2013

Fiscal 2014

Fiscal 2015

Fiscal 2016

(Actual)(Actual)(Actual)(Actual)Real estate sales business

10,991

16,227

24,64930,687

Real estate leasing business

2,234

2,479

2,857

3,594

Real estate planning agency
and consulting business

331

136

199

65

13,55818,842

27,70534,347

Real estate sales business

1,123

2,305

3,769

4,798

Real estate leasing business

1,448

1,487

1,606

2,058

Real estate planning agency
and consulting business

309

130

173

65

2,881

3,924

5,549

6,921

Sales

Segment income
Fiscal 2016
Fiscal 2013
(Actual)(Plan)(Minimum
Requirement)(Actual)Achievement
Rate

Equity ratio

21.9%

30.0%

23.6%

78.5%

ROE

27.7%

13.0%

25.1%

193.2%

ROA

4.3%

3.6%

6.0%

165.9%

ROIC

4.2%

6.4%

6.5%

101.2%

EPS

31.14 yen

32.00 yen

58.76 yen

183.6%

BPS

137.14 yen

245.00 yen

259.07 yen

105.7%

Dividend payout ratio

3.2%

25.0%

25.5%

102.1%

Dividend

1 yen

12 yen15 yen125.0%

Total payout ratio

3.2%

35.0%

36.8%

105.1%

As of August 8, 2013

5

Comparison(Actual)

Total

Management Objectives(Announcement of First
Medium-Term Business Plan)

As of End of
December 2016

Comparison

About 12.5 billion yen

About 30.8 billion yen

About 2.4 times

Closing share price180 yen

437 yen

About 2.4 times

Nikkei 225 avg. (reference)

13,605 yen

19,114 yen

About 1.4 times

Market cap(Unit: million yen)

Total

Performance of Original Plan as of December 2016 and Most Recently Revised Plan(Unit: million yen)

Fiscal 2016
Fiscal 2013 Fiscal 2014 Fiscal 2015
(Actual)(Actual)(Actual)(Original
Plan)(Most Recent
Plan)(Actual)(Comparison
to OriginalPlan)

13,55818,842

27,70532,70034,30034,347+1,647

Real estate sales
business

10,991

16,227

24,64929,45030,68030,687+1,237

Real estateleasing business

2,234

2,479

2,857

3,100

3,560

3,594

+494

Real estateplanning agency
and consulting
business

331

136

199

150

60

65

-85

Operating income

1,844

2,815

4,012

4,200

4,580

4,680

+480

Ordinary income

1,200

2,075

3,126

3,300

3,500

3,575

+275

Sales

6

ES-CON JAPAN Annual Report 2016

Second Medium-Term Business Plan: IDEAL to REAL 2019

Corporate Strategy

ES-CON JAPAN’s Second Medium-Term Business Plan calls for firmly realizing customers’ ideals and to create
a new future. In other words, to make the ideal real. ES-CON JAPAN is committed to its duty as a life developer to develop “living” itself based on its basic philosophy of placing the customer first. The following page
presents the new corporate strategy under the Second Medium-Term Business Plan and celebrates the nearcomplete achievement of performance targets in the First Medium-Term Business Plan with new numericaltargets.

1. Maximization of corporate value and returning profits to shareholders
2. Establishment of a robust business foundation that can withstand almost any economic environment
3. Building diverse businesses to ensure sustainable and stable growth
4. Building a robust business foundation (quality) and not focusing on corporate scale (quantity)
5. Implementation of corporate social responsibilities that return wealth to shareholders, society and otherstakeholders

Management IndicesFiscal 2016

Fiscal 2019

(Actual)(Plan)

Equity ratio

23.6%

33.0% ~ 35.0%

ROE

25.1%

18.0% ~ 21.0%

ROA

6.0%

6.0% ~ 7.0%

ROIC*

6.5%

7.0% ~ 9.0%

EPS

58.76 yen

75 yen ~ 85 yen*ROIC is arrived at using the following formula: operating income after taxes ÷ (shareholders’ equity + interest-bearing liabilities)

Performance Targets

Fiscal 2019

Fiscal 2016

Fiscal 2017

Fiscal 2018

(Actual)(Plan)(Plan)(Revised in early
2017)34,34745,50057,000 ~ 58,000

60,000 ~ 62,000

Real estate sales business

30,68742,70054,900 ~ 55,800

57,800 ~ 59,700

Real estate leasing business

3,594

2,600

1,900 ~ 2,000

2,000 ~ 2,100

Real estate planning agency
and consulting business

65

200

200

200

Operating income

4,680

5,700

7,500 ~ 8,500

8,200 ~ 9,500

Ordinary income

3,575

4,800

6,500 ~ 7,500

7,200 ~ 8,500

Net sales

7(Unit: million yen)

8

ES-CON JAPAN Annual Report 2016

Growth Strategy Under the Second Medium-Term Business Plan

1
2

Further enhancement of core businesses
ES-CON JAPAN does not want to just expand the for-sale condominium units it sells, a core business, butalso to stably supply the market with 500 to 600 units. Under the Second Medium-Term Business Plan, thesale of for-sale condominium units will be completely transferred to an internal sales team by 2019, the lastyear of the plan. This will be used to further heighten the trust of customers and to keep sales expenses that
had been paid to outside vendors in the traditional organization within the internal team to increase profit
margins.

5

Heightening corporate value by establishing diverse aspects of multiple core businesses
ES-CON JAPAN will maintain the for-sale condominium business as its main core business but will also
newly establish the core businesses of retail development and hotel development. Furthermore, ES-CON
JAPAN will diversify real estate development businesses and strive to become a general developer that cantake advantage of multiple and overlapping business opportunities through increasing core businesses.

6

Enlarging the breadth and depth of realestate development abilities by enhancing
the real estate operations business
ES-CON JAPAN will strive to become a comprehensive, unique general developer that not only
develops real estate but also possesses the operations teams to operate the real estate in the optimaluse format. In addition to asset management, i.e.
property management of retail facilities, the groupcompanies of ES-CON JAPAN will also proactively operate hotels, run cafes and other dining
establishments, manage and operate condominiums and conduct renovations. In this manner,
ES-CON JAPAN will optimally realize the maximum value of real estate.

Heightening the corporate brand power
ES-CON JAPAN will heighten the corporate brand strength through proactive PR strategies and commit
itself to raising the quality of its Le JADE for-sale condominium series. ES-CON JAPAN will heighten thebrand recognition of its products by gaining the overwhelming trust and support of its customers throughthese measures.

Businesses of ES-CON JAPAN

3
4
9

Securing long-term and stable stock-based revenues through proactive implementation of
the real estate leasing business
ES-CON JAPAN will use the proactive implementation of the real estate leasing business as a means todiversify the real estate products provided and thus reduce price fluctuation risks. Thus ES-CON JAPANwill strive to further heighten the stability of management by owning good-quality assets that deliver stablerental income over the long term. Specifically, ES-CON JAPAN is aiming by the end of Fiscal 2019, thelast year of the Second Medium-Term Business Plan, to either own or have begun developing rental assetsthat can cover all general management costs with their rental income.

Expansion of real estate sales business by acting as the main sponsor of a newly-established
REIT to steadily supply good quality products
ES-CON JAPAN intends to realize the listing of the investment corporation formed in August 2016 on theTokyo Stock Exchange as early as possible. ES-CON JAPAN as the main sponsor of the REIT’s external
growth will steadily supply good-quality properties centering on simple ownership of land beneath retailfacilities and thus expand the real estate sales business of ES-CON JAPAN while supporting the sustainablegrowth of the REIT.

Investment
management

For-salesubdivisions(condominiums anddetached houses)

Life DeveloperHoteldevelopment

Development ofincome producing Logistics
real estateLand planningand organization

Redevelopment

Retaildevelopment

Renovation

Operations

10

ES-CON JAPAN Annual Report 2016

Q

Your year-on-year performance on a consolidated basis is robust withsales up 24.0%, ordinary profit up 14.4% and net profit up 29.5% in Fiscal
2016 (ended December 2016). Consequently, ES-CON JAPAN also raised
its dividend significantly. To what do you attribute this performance?

ES-CON JAPAN just completed its First MediumTerm Business Plan in December. We were able tosell individual condominium units at higher prices
than our plan and that was the biggest reason forthese strong results. Additionally, the sale of buildings as rental apartments also attained higher prices
than we originally planned. These two combined tobe the main reason for producing greater than
anticipated growth in income and profit. This trend
has increased in our first quarter of the new fiscal
year with results once again being robust.

Q
In te r vi e w
with t he Pre si d e n t
Takatoshi Ito, President & Representative Director of ES-CON JAPAN, has just come
off a robust fiscal year full of eclipsed goals and an upwardly-revised dividend.
Now in the midst of ES-CON JAPAN’s Second Medium-Term Business Plan,
we sat down to talk with the leader.

11

In the new Second Medium-Term Business Plan
we have committed to a progressive dividend,
which we will not reduce. For the fiscal year underreview the dividend was raised from 8 to 15 yen. At
our present stock price of around 420 yen, the dividend yield is just under 4%, compared to the average of around 2% for first-tier companies on theTokyo Stock Exchange. The honest truth is wewould love to have a higher stock price and webelieve our results worthy of that but we are committed to growing the company and returning
profits to our shareholders.

How do you perceive the real estate market going forward andwhat are your projections for the next few years?

We believe the market will continue to do well andour Second Medium-Term Business Plan remains
robust. The sale of income properties today is being
conducted at high prices with 3% level cap rates.
Although this is high, we are still able to secure
properties and opportunities where we can develop
and sell properties at high returns and make a sizeable profit. The key is to not ignore your businessmodel and secure properties that make sense inyour model. We are dedicated to buying properties
that first and foremost can be developed as condominiums and still make appropriate levels of
income for us. However, if other uses such as apartments, hotels, retail, etc. can make more, we are

flexible with what we do. It must be noted that we
carefully design our products based on market
studies and knowledge of the location of our condominiums and conduct developments that meetthose characteristics. This is why we have robust
results. Careful planning is the key to our success.
The present condition in which acquisition andconstruction costs are high has created a situationin the condominium business where some products
sell and some do not. Ours continue to sell wellwith little inventory. The market looks favorably on
our products because of the care we put into them.

12

ES-CON JAPAN Annual Report 2016

Q

ES-CON JAPAN has just completed its First Medium-Term Business
Plan. How do you evaluate performance under it?

We formulated our First Medium-Term Business
Plan four years ago. We were bold with our projections then and six months into the plan we knew
we were doing well. Eighteen months in, we wereconvinced that our results would be much better
than our plan. This is because of the favorable
market and our approach to development based on
careful study and originality. We believe in our
products. Thus, simply put, we are elated with our
results but convinced they are due to careful planning as well as our focus on the product and ourclientele.
Our multi-directional approach to development isbased on a model where we are convinced we will
do well with our pillar for-sale condominium product, but possibly even better with other segments.

Q

Hotels became a great option because of growing
inbound traffic and long-term returns. Rising construction and land costs have meant that sites 10 to
15 minutes from a station, previously ideal for
inexpensive condominiums, now require flexibility
and our internal planning team has found that weare able to develop strong neighborhood shoppingwith excellent tenant demand along major thoroughfares and be competitive with housing developers in doing so. Our ability to take advantage ofthe favorable market and funds from our rights
offering during the First Medium-Term Business
Plan means I have no real regrets. Furthermore, wehave strengthened our company staff from 70 toaround 150 and their dedication to learning on thefront lines of the industry has created our passion
for originality and quality.

What are the key points of ES-CON JAPAN’s Second Medium-TermBusiness Plan?

The Second Medium-Term Business Plan can beeasily summarized into two points. First, the listingof our new J-REIT. The real estate market is full of
peaks and valleys and having a reliable exit for ourstrong products means these peaks and valleys canbe more easily overcome. In other words, listing our
J-REIT will solidify our growth pattern. Second,
we want our own team to take the lead in condominium sales – our core business. In the present

13planning of our products means more time andeffort goes into each property but customers appreciate this and that appreciation transforms into
sales.

condition of supplying premium products to customers, we need to internalize the team so we candemonstrate our efforts and planning and appeal to
our customers. This will increase the efficiency andperception of our Le JADE brand and help it tobecome a market leader. Each Le JADE property is
unique: from the terrace restaurant in our Setagaya
Kinuta property, to our new Le JADE product in theexquisite residential area of Tomigaya. Careful

We do not want to pursue sales quantity. Our aim
is to steadily supply 500 to 600 units of carefullyplanned for-sale condominiums a year. This emphasis on quality prevents the cookie-cutter approachfrom taking over and allows us to provide condominiums people want to live in. Following thisapproach, we are generating a profit margin of over
13% in our base area and this will be complemented
by strong performance in our other segments.

Q

ES-CON JAPAN has adopted a progressive dividend policy.
Are you saying that even in a poor economy you will follow this strategy and,if so, how will you avoid lowering it in an economic downturn?

We are committed to this dividend policy. Right
now we have approximately 70 million outstanding
stocks. This means at a 15-yen dividend we pay out
a little over 1 billion yen. So we need to secure this.
However, this is not a difficult goal in our minds
because we have not set unattainable targets in our

Q

Second Medium-Term Business Plan. This means
the properties needed to reach our targets havealready been sourced and are in the pipeline. We
will need to maintain our dividend even when income
drops because we are committed to this goal andare firmly convinced that this is achievable.

ES-CON JAPAN established the ES-CON JAPAN REIT Investment
Corporation in August 2016 and noted that the J-REIT would specialize inthe ownership of land leased to developments and neighborhood shopping
centers. What can you tell us about the J-REIT plans?

We are preparing a unique J-REIT. No J-REIT todate has been built on a platform of so-called sokochi, land leased long-term to developments. Thisapproach is based on steady long-term leases andwe believe it will generate high dividends for ourunitholders. We plan to have 50% of our REIT
holdings in such properties and 50% in neighborhood shopping centers. As a result of delaying the14

ES-CON JAPAN Annual Report 2016

Q

listing by one year, we have been able to raise our
AUM from 40 billion to 60 billion yen, and createa strong portfolio. We have also been able to secure
external growth properties following the listingwith a neighborhood shopping center we are building in Nara prefecture and in one other location.
Despite the current weak indices and slightly weak
J-REIT market, we believe a strong REIT with agood message and product listed with the rightteam will do very well. We intend to list this REIT
within 2017.

Q

How are you positioning the development of hotels among your businesses
and would you like to build them into a pillar of the company?

Honestly, the pricing of land today forces us to be
selective about the projects we work on as land has
really become too expensive. Ultimately, the key islocation, location, location. We are flexible about
what we build in locations so that again the bestplanned product can be built for that location.

Q

We want to become the developer of choice for customers. We want to create opportunities for people
to meet and create communities. Most developers
will focus on central Tokyo. We will focus on suburban towns and regions making compact cities
and serve these ambitions with neighborhood
shopping centers, condominiums and hotels thathave character and play vital roles in constructing
these compact vibrant communities. We would liketo be the one-stop destination for customers desiring this result.

We would also like to supply these good real estate
products to our REIT in order to deliver a strong
REIT product with excellent quality to investors in
the J-REIT market.
Finally we would like to service the growing
inbound population with our distinctive manner.
We are developing or have developed fifteen hotels
to date and we intend to learn from our contracted
operators so that we can one day skillfully operate
our own hotels in a manner that enables us tobecome a destination of choice to the inbound andJapanese hotel-users.

Takatoshi Ito
President & Representative Director
Sep. 2001
Feb. 2006
Mar. 2007
Mar. 2011

What will you focus on for qualitative growth of your business pillars andwhat balance do you want between development of for-salecondominiums, apartments, hotels and neighborhood shopping centers?

Our qualitative growth is built upon careful planning that is ideal for the locations we find advantageous acquisitions in. Our ideal balance, as outlinedin the Second Medium-Term Business Plan, andthat we are aiming to achieve from our next fiscal
year onwards is 600 for-sale condominium units atsales of around 30 billion yen, around 15 billion

15

However, we will not abandon our business modelof acquiring properties that would also work as forsale condominium sites so our acquisition speed
tends to be slower than operators that want a hotel
no matter what.

What is ES-CON JAPAN’s social duty and what is your ideal company?

May 2013
July 2014
Sep. 2016

Joined ES-CON JAPANAppointed Executive Officer
Appointed Managing Director
Appointed President & Representative Director(present post)
Appointed President & Representative Director
at ES-CON PROPERTY (present post)
Appointed Director at ES-CON ASSETMANAGEMENT (present post)
Appointed Director at ES-CON LIVING SERVICE(present post)

yen in sales of neighborhood shopping centers,
sales of around 10 billion to 15 billion yen in developed hotels and joining these segments about a year
or two later are logistics properties of around 5 billion yen annually. This is a breakdown at which weare confident that we can market products indemand.

16

ES-CON JAPAN Annual Report 2016

Management: Directors and Auditors
Minoru Nakanishi

Junya Kikuchi

Senior Managing Director

Director

Aug. 2011
June 2012
Mar. 2013
May 2013
Aug. 2013
July 2014
Nov. 2014
Mar. 2015
Sep. 2016
Mar. 2017

Mar. 2010

Joined ES-CON JAPANAppointed Executive Officer (Head of Finance and Accounting Department)
Appointed Director
Appointed Director at ES-CON PROPERTY (present post)
Appointed Head of Management Division (present post)
Appointed Director at ES-CON ASSET MANAGEMENT (present post)
Appointed Operating Officer
Appointed Executive Director and Managing Executive Officer
Appointed Director at ES-CON LIVING SERVICE (present post)
Appointed Senior Managing Director (present post)

Feb. 2013
Jan. 2014
June 2014

Tomohiko Egashira

Kunio Takahashi

Managing Director

Full-time Auditor [Director]

Apr. 2002
Jan. 2012
July 2012
Feb. 2013
Mar. 2015
Jan. 2016
Mar. 2017

Apr. 1975
June 2003

Joined ES-CON JAPANAppointed Head and Corporate Officer of Business Division
Appointed Head and Corporate Officer of Tokyo Division
Appointed Head and Corporate Officer of Development Division
Appointed Director (present post)
Appointed Head and Corporate Officer of Development Division
Appointed Managing Director (present post)

Apr. 2004
June 2005
June 2010
Mar. 2013
June 2013
Mar. 2016

Joined Daiwa Bank, Limited (currently Resona Bank Co., Ltd.)
Appointed Executive Officer and Head of Osaka Public Affairs Department at
Resona Bank Co., Ltd.
Appointed Auditor at Saitama Resona Bank Co., Ltd.
Appointed Auditor at Kinki Bank of Osaka Co., Ltd.
Appointed Auditor at Nippon Metal Industry Co., Ltd.
Appointed Auditor at ES-CON JAPANAppointed Auditor at Shikibo Co., Ltd.
Appointed Full-time Auditor
Appointed Full-time Auditor [Director] (present post)

Keiko Akashi

Hiroto Mizobata

Director

Auditor [Director]

Sep. 2001
Feb. 2005
Mar. 2007
Mar. 2010
Nov. 2010
Mar. 2011
Feb. 2013
May 2013
Aug. 2013
Nov. 2014
Mar. 2015
Sep. 2016
Mar. 2017

Joined ES-CON JAPANAppointed Head of Sales Integration Department of Residential Development
Division
Appointed Head of Business Management OfficeAppointed Director
Appointed Head of Management Department (present post)
Appointed Head of Business Management Department
Appointed Head of Planning and Sales Department
Appointed Director at ES-CON PROPERTY (present post)
Appointed Head of Planning and Sales Department
Appointed Operating Officer
Appointed Executive Director and Managing Executive Officer
Appointed President and Representative Director at ES-CON LIVING SERVICE(present post)
Appointed Director (present post)

Apr. 1986
Mar. 1988
Dec. 1991
Mar. 1992
Mar. 2015
Mar. 2016

Joined KPMG Asahi Shinwa Accounting, Inc. (currently KPMG AZSA LLC)
Registered as certified public accountant
Registered as licensed tax accountant
Appointed Representative at Mizobata Certified Public Accountant Office(present post)
Appointed Auditor at ES-CON JAPANAppointed Auditor [Director] (present post)

Kotaro Niwa
Auditor [Director]
Oct. 2000
May 2006
May 2010
Mar. 2011
Mar. 2016

17

Joined ES-CON JAPANAppointed Director (present post)
Appointed Director at NB Construction Co., Ltd. (present post)
Appointed Representative director at Integrated Solutions Co., Ltd.
(present post)
Appointed Representative employee at Hoyu Certified Public Accountant Office(present post)
Appointed Representative at NB Networks (present post)

Joined Oshima Partners Law Office as Registered Lawyer
Appointed Head at Niwa Partners Law OfficeAppointed Partner at IPAX Law Office (present post)
Appointed Director at ES-CON JAPAN (present post)
Appointed Auditor [Director] (present post)18

ES-CON JAPAN Annual Report 2016

Management Policy

supervision and auditing of work are overseen by the Board of Directors and Board of Auditors.

1. ES-CON JAPAN is committed to realizing the unlimited potential of real estate through its information
sourcing, planning and product development ability to create new value that sincerely satisfies customers.

(1) The Board of Directors is comprised of eight people: four directors in charge of various operations, one
director with a non-operational focus, and three auditors who are also directors. Of these, one shall be awoman, three shall be outside directors, two shall be independent outside directors and the president of theBoard shall be the President.

2. ES-CON JAPAN is committed to achieving management that is a step more proactive than the competition by implementing work management that has a robust defense based on ROA, cash flow and thoroughrisk management.
3. ES-CON JAPAN is committed to becoming a limited-scale team of professionals that can maintain theability to respond quickly and maintain flexibility within a rapidly changing society.
4. ES-CON JAPAN will maintain and build robust relationships of cooperation by respecting and appreciating competitors at all times whether inside or outside the company.
5. ES-CON JAPAN is committed to building a “well-ventilated” bottom-up organization while also building
an enhanced internal audit system consciously aware of compliance and governance.

Direction, Corporate Governance and CSR
Corporate Philosophy
We ask our employees to think daily about how they should live their lives, how they should participate insociety, what kind of fruit they will bear society by contributing and, as a result, how the happiness desired byeach and every one of us will be attained through these efforts.
Our employees assist and encourage each other to achieve the above goal. ES-CON JAPAN pursues a management that continues to provide fields as steps to self-realization of the unique characteristics pursued by each of
our employees.
Corporate Vision“Life Developer”
ES-CON JAPAN seeks to be a life developer; that is, a company that develops not only the hardware of thecondominium itself but also conceptualizes and develops the lives of residents.
This is our goal at ES-CON JAPAN. We are creating “new wealth” that traditional real estate firms cannot
achieve with solutions provided by our small cross-organizational teams that overcome the boundaries of divisions. ES-CON JAPAN teams connect people, communities and the future.
Corporate Mission
Development of the “New Norm Neighborhood”
Our teams create, connect and expand values built into local areas. We do not perceive the term “Local” as anantonym to “Urban” but rather as a location where residents are proud of the area where they live.
System of Corporate Governance
ES-CON JAPAN boasts a Board of Auditors and a structure whereby the implementation, management,

19• In principle, the Board holds meetings at least once a month where the management and auditing functions are heightened by vetting and discussing important items on the agenda.
• Speed and flexibility of operations is secured by entrusting directors responsible for operations with related decisions inline with the articles of incorporation. The scope to which operations are entrusted to individual directors is strictly
managed in line with monetary and other criteria stipulated by the Board of Directors. Furthermore, the status of vital
operations that have been entrusted to the Board shall be reported to the Board of Directors without delay.

(2) Board of Auditors
The Board of Auditors is entirely comprised of outside directors so that the three members can all heighten their
management supervisory function and the independence of such. There are two independent outside directors
and one full-time auditor.
• In principle, the Board shall meet once a month and the accounting auditor, party in charge of corporate governance,
directors in charge of operations and other executives can be instructed to attend the Board meeting by an auditor asneeded. The Board shall report its findings in a timely and appropriate manner.
• Auditors shall take steps to ensure they grasp the present status of operations for each division and the issues they face.
These steps include regular exchanges of opinion with the President & Representative Director and the interviewing ofcorporate executives such as directors in charge of operations when necessary.
• The full-time auditor shall participate in divisional meetings attended by directors in charge of operations and executions of each division along with regularly-held management meetings where members are comprised primarily of
directors in charge of operations. The participation of the full-time auditor ensures that management conditions andthe progress on business plans can be shared.
• The Board shall check important documents like ringi circulation documents and other decision-confirmation documents and coordinate with the internal audit division to verify that the implementation of operations by directors islegal and appropriate. The full-time auditor is also nominated to be the lead auditor so that governance is further
strengthened.

Corporate Governance
ES-CON JAPAN believes the present system and organization of corporate governance is appropriate because
it contributes to the sustainable improvement of corporate value.
1. Directors who are Members of the Board of Auditors reinforce the auditing functions and execution ability of the Board of Directors by being able to vote on agenda items at Board of Directors’ meetings.
2. The entrusting of vital operations to directors in charge of operations secures speed, dynamism and flexibility of operations and prevents loss of business opportunities.
3. Directors who are also auditors are able to state opinions concerning the nomination and compensationof directors who are not auditors, thus reinforcing the transparency of the process.

20

ES-CON JAPAN Annual Report 2016

Basic Philosophy of Corporate GovernanceThe corporate activities of ES-CON JAPAN are supported by a vast group of stakeholders including customers,
shareholders and vendors. ES-CON JAPAN believes that corporate governance is a key theme for enhancing
its trust and reputation among its shareholders and pledges to continue efforts to heighten its governance. In
addition to naturally pursuing the fulfillment of legally required functions related to the Boards of Directors
and Auditors, ES-CON JAPAN will fulfill its social responsibilities by endeavoring to also improve the efficiency and transparency of corporate management by conducting external and internal audits on a regularbasis.
Thorough Implementation of ComplianceThis shall be implemented and achieved by committing to company-wide compliance with the department
responsible for compliance cooperating with each internal department under the instruction of the officer
responsible for compliance. ES-CON JAPAN has summarized its Code of Conduct under a Compliance
Activity Standard, Compliance Manual and Compliance Rules as the organization for realizing its commitment to compliance. The Code of Conduct designates the activities to be conducted by officers and employees
to comply with laws, regulations and social norms based on due diligence regarding the Corporate Ethics
Charter that declares the implementation of corporate ethics and corporate social responsibilities.
Implementation of CSR Activities
ES-CON JAPAN emphasizes the development and design of real estate properties that take into consideration
the global environment by constantly thinking of the environmental load generated by business activities.
ES-CON JAPAN implements various measures in each property that consider the environment including
installing disposers that reduce raw garbage, installing water-conserving toilets that reduce the volume of waterused by 50%, and the use of thermal baths with high humidifying effects. ES-CON JAPAN is committed tothe proactive building of “resource-conserving housing” that reduces the environmental load so that we canbuild a better future.

21

Company Overview: ES-CON JAPAN Ltd.

Tokyo Head Office
Try Edge Ochanomizu Building 12F
4-2-5 Kanda Surugadai
Chiyoda-ku, Tokyo 101-0062

Osaka Head Office
Meiji Yasuda Seimei Osaka Midosuji Building 13F
4-1-1 Fushimi-machi
Chuo-ku, Osaka 541-0044

Established: April 18, 1995
Paid-in Capital: 6,068,642,518 yen (as of May 2017)
Sales: 34,347 million yen (consolidated results for Fiscal 2016)
Number of Employees: 125 (consolidated, Fiscal 2016), 91 (non-consolidated, Fiscal 2016)
Businesses: Real estate development, sales, leasing, brokering, etc.

22

ES-CON JAPAN Annual Report 2016

Sales

Financial Section

Operating Income/Ordinary Income(Unit: million yen)

(Unit: million yen)

34,347
27,705

10,184

Fiscal2012

13,558

Fiscal
2014

Fiscal2015

Fiscal2016

Net Income Attributable to Parent(Unit: million yen)

1,200

Fiscal
2012

Fiscal2013

2,411

In the consolidated fiscal year under review (fiscal year ended December 2016), the Japanese economy showed potential
to continue a moderate recovery due in part to the government’s various economic measures amid ongoing improvementin the employment and income situation. However, the outlook was also unclear due in part to the slowdown in overseas
economies, the effects of fluctuations in financial and capital markets and the U.S. political transition.
The real estate industry, in which the ES-CON JAPAN Group operates, held firm due in part to low interest rates frommonetary easing policies, but factors including the rise in land prices and the intensification of competition for landacquisitions created a situation that does not warrant optimism.
In the business environment described above, in the real estate sales business, which is our core business, revenue-generating real estate sales, land planning and sales, etc. were conducted, and steady progress was also made in condominium
sales. In the real estate leasing business, efforts are being made to secure stable rental income from and enhance asset valueof retail properties held by ES-CON JAPAN.
In the real estate planning agency and consulting business, focus is being placed on achieving high profit margins throughsubcontracting, planning agency and consulting and other non-asset products by leveraging the planning and otherstrengths of ES-CON JAPAN.

Operating Results
Business performance for the fiscal year ended December 2016 included net sales of 34,347 million yen (up 24.0% compared with the previous fiscal year), operating income of 4,680 million yen (up 16.6% compared with the previous fiscal
year), ordinary income of 3,575 million yen (up 14.4% compared with the previous fiscal year) and profit attributable toowners of parent of 3,936 million yen (up 29.5% compared with the previous fiscal year).
Moreover, under the Medium-Term Business Plan “Make the One for 2016” for the four-year period from the fiscal year
ended December 2013 to the fiscal year ended December 2016, the abovementioned commercial development business,
hotel development business and other new business operations, as well as shifting away from a concentration on thecondominium sales business, led to greater evolution and growth as a general real estate developer than planned and led
to achieving almost all management and performance targets.

23

Fiscal
2016
58.76

44.65

31.14

1,905

259.0734.59
208.28169.05137.14

78.88
392
Fiscal
2012

Fiscal2015(Unit: yen)
Net Assets
Net Income

3,039

Overview

Fiscal2014

Per Share Information
3,936Management Discussion and Analysis

3,575

3,126

2,075

1,844

1,504
860

Fiscal
2013

4,012
2,815

18,842The Management Discussion and Analysis, Financial Statements and Notes to Financial Statements contained in this report areoutside the scope of the auditing procedures under the Financial Instruments and Exchange Act of Japan, and have not been
audited. However, the original financial data and descriptions in Japanese used as the base for the translation of this English
version have been audited.

4,680

Operating Income
Ordinary Income

7.72
Fiscal
2013

Fiscal
2014

Fiscal2015

Fiscal2016

Fiscal
2012

Fiscal
2013

Fiscal
2014

Fiscal2015

Fiscal2016

Results by Segment
Real estate sales businessIn the real estate sales business, activities included promoting condominium sales and selling real estate for sale and realestate for sale in process, resulting in net sales of 30,687 million yen (up 24.5% compared with the previous fiscal year)
and segment income of 4,798 million yen (up 27.3% compared with the previous fiscal year).

Real estate leasing businessIn the real estate leasing business, focus was placed onleasing activities and the property management businessin view of enhancement of asset value, including increase
in rental income of owned revenue-generating realestate, resulting in net sales of 3,594 million yen (up25.8% compared with the previous fiscal year) and segment income of 2,058 million yen (up 28.1% comparedwith the previous fiscal year).

Real estate planning agency and consulting
business

Sales Distribution Ratio by Segment
0.7%
10.3%

0.2%
10.5%

Fiscal2015
89.0%

Fiscal2016
89.3%

Real Estate Sales Business
Real Estate Leasing Business
Real Estate Planning Agency and Consulting BusinessIn the real estate planning agency and consulting business, although proactive efforts were made in such24

ES-CON JAPAN Annual Report 2016

aspects as entrustment with planning, consulting and other services by making best use of planning and multi-facetedbusiness building abilities, the result was net sales of 65 million yen (down 67.3% compared with the previous fiscal year)
and segment income of 65 million yen (down 62.5% compared with the previous fiscal year).
Real Estate Sales Business

Real Estate Leasing Business(Unit: million yen)

(Unit: million yen)

Net Sales
Segment Income

2,479

4,798

3,769

16,227

1,487

2,058

130

Fiscal 2014 Fiscal 2015 Fiscal 2016

173

65
65

Cash and deposits:
8,204
Real estate for sale:
6,103
Real estate for sale in process: 39,319

Liabilities and net assets: 58,088

Net assets: 13,994

Non-current liabilities: 30,603

Shareholders’equity: 13,989

Long-term loans
payable: 29,588

Fiscal 2016

Liabilities and net assets: 73,703

Shareholders’equity: 17,338

Non-current liabilities: 30,847
Long-term loans
payable: 29,784

Current liabilities: 13,490
Short-term loans payable: 1,267
Current portion of
long-term loans payable: 8,317
Current portion of bonds: 557

Current liabilities: 25,492
Short-term loans payable: 4,308
Current portion of
long-term loans payable: 16,753
Current portion of bonds:
40

Status of Cash Flows

Assets at the end of the fiscal year ended December 2016 increased by 15,614 million yen compared with the end of theprevious fiscal year to 73,703 million yen. This was mainly attributable to cash and deposits increasing by 3,687 million
yen, inventories increasing by 17,468 million yen and deferred tax assets increasing by 1,548 million yen, and property,
plant and equipment decreasing by 8,700 million yen.
Liabilities increased by 12,245 million yen compared with the end of the previous fiscal year to 56,339 million yen. This was
mainly attributable to long-term loans payable, short-term loans payable and bonds payable increasing by 11,304 million yen.
Net assets increased by 3,369 million yen compared with the end of the previous fiscal year to 17,363 million yen. Thiswas mainly attributable to recording profit of 3,936 million yen.
Rent-Producing Assets

Equity Ratio
24.1

Fiscal 2015

Net assets: 17,363

Assets, Liabilities and Net Assets

23.2

Current assets: 57,654

Fiscal 2014 Fiscal 2015 Fiscal 2016

The consolidated financial data represents a robust year that further strengthens the soundness of ES-CON JAPAN as wellas the entire consolidated group. Proactive business led our equity ratio to fall slightly to 23.6% but that was more thanoffset by our cash and deposits increasing 81.7% year-on-year.

21.9

Liabilities andNet Assets

Cash and deposits:
4,516
Real estate for sale:
4,744Real estate for sale in process: 22,676

Total assets: 73,703

Property, plant and equipment: 13,147
Intangible assets:
17
Investments and other assets: 2,883

Analysis of Financial Position(Unit: %)Current assets: 35,578

Non-current assets: 16,048

136

2,305

Fiscal 2014 Fiscal 2015 Fiscal 2016

Fiscal 2016

199

1,606

Total assets: 58,088

Property, plant and equipment: 21,848
Intangible assets:
11
Investments and other assets:
623

Net Sales
Segment Income

2,857

Fiscal 2015

(Unit: million yen)

Non-current assets: 22,483

Real Estate Planning Agency
and Consulting Business

3,594
24,649Assets(Unit: million yen)

Net Sales
Segment Income

30,687

Overview of Consolidated Balance Sheet

Inventory
Inventory+ +fixedfixed
assetsassetsCash flows from operating activities
Cash flows from operating activities in the fiscal year ended December 2016 amounted to net cash used in operating
activities of 14,684 million yen (net cash used in operating activities of 3,877 million yen in the previous fiscal year). Thiswas mainly attributable to recording profit before income taxes of 2,628 million yen, impairment loss (non-cash expense)of 1,042 million yen and increase in inventories of 17,033 million yen.

Assets by Segment
Other
Other
5% 5%

23.6

Cash and cash equivalents (“net cash”) in the fiscal year ended December 2016 increased by 3,976 million yen comparedwith the end of the previous fiscal year to 8,191 million yen (4,214 million yen at the end of the previous fiscal year). The
following outlines the cash flows and the factors of changes in cash flows in the fiscal year ended December 2016.

HotelHotel
25%25%

For-saleFor-sale
38%38%Cash flows from investing activities
Cash flows from investing activities in the fiscal year ended December 2016 amounted to net cash provided by investing
activities of 7,656 million yen (net cash provided by investing activities of 61 million yen in the previous fiscal year). Thiswas mainly attributable to sales of non-current assets amounting to net proceeds of 7,343 million yen.

27.527.5
billionbillionyen yen
89.0%
89.0%

9.2
Fiscal
2012

25

Fiscal
2013

Fiscal
2014

Fiscal2015

Fiscal2016

NOI ofNOI
owned
of owned
income-producing
income-producing
real estate:real estate:
Cap rate
Cap ofrate
about
of about
6.7%6.7%

RetailRetail32%32%
Inventory
Inventory
assetsassets45.445.4
billionbillionyen yenCash flows from financing activities
Cash flows from financing activities in the fiscal year ended December 2016 amounted to net cash provided by financing activitiesof 11,003 million yen (net cash provided by financing activities of 3,683 million yen in the previous fiscal year). This was mainly
attributable to proceeds from and repayments of long-term loans payable and short-term loans payable amounting to net proceedsof 11,672 million yen, purchase of treasury shares of 54 million yen and cash dividends paid of 541 million yen.

26

ES-CON JAPAN Annual Report 2016

Consolidated Balance Sheet(Unit: million yen)

AssetsCurrent assets
Cash and deposits
Notes and accounts receivable - trade
Operational investment securities
Real estate for sale
Real estate for sale in process
Deferred tax assets
Other
Allowance for doubtful accounts
Total current assets
Non-current assets
Property, plant and equipment
Buildings and structures
Accumulated depreciation
Buildings and structures, net
Land
Leased assets
Accumulated depreciation
Leased assets, net
Construction in progress
Other
Accumulated depreciation
Other, net
Total property, plant and equipment
Intangible assets
Other
Total intangible assets
Investments and other assets
Investment securities
Deferred tax assets
Other
Allowance for doubtful accounts
Total investments and other assets
Total non-current assets
Deferred assets
Share issuance cost
Total deferred assets
Total assets

27(Unit: million yen)

Fiscal 2015

Fiscal 2016

Fiscal 2015

Fiscal 2016(as of December 31, 2015)(as of December 31, 2016)(as of December 31, 2015)(as of December 31, 2016)

1,267
8,317
557
3
963
84
1,345
3
947
13,4904,308
16,753
40
4
1,087
69
1,357
—
1,871
25,492—29,588
4
29
5
82
892
30,60344,094150
29,784
4
54
13
83
757
30,84756,339

6,029
1,758
7,024
(821)
13,9896,034
1,763
10,417(876)
17,338——4
13,99458,08822
22
317,36373,703

4,516
85
547
4,744
22,676702
2,304—
35,578

8,204
285
—
6,103
39,319
127
3,687
(73)
57,654

5,391(1,445)
3,946
17,864
13
(4)
8
3
90
(65)
25
21,8485,351(1,614)
3,737
9,320
18
(8)
9
—
158
(77)
80
13,147

11
11

17
17

147
3
476
(2)
623
22,483

226
2,127
533
(4)
2,883
16,04826
26
58,088——73,703Liabilities
Current liabilities
Short-term loans payable
Current portion of long-term loans payable
Current portion of bonds
Lease obligations
Accounts payable - other
Income taxes payable
Advances received
Asset retirement obligations
Other
Total current liabilities
Non-current liabilities
Bonds payable
Long-term loans payable
Lease obligations
Provision for directors’ share-based benefits
Provision for share-based benefits
Asset retirement obligations
Other
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury shares
Total shareholders’ equity
Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Total accumulated other comprehensive income
Subscription rights to shares
Total net assets
Total liabilities and net assets

28

ES-CON JAPAN Annual Report 2016

Consolidated Statement of Income andConsolidated Statement of Comprehensive Income
Consolidated Statement of IncomeNet sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Advertising expenses
Sales commission
Directors’ compensations
Salaries and allowances
Provision for directors’ share-based benefits
Provision for share-based benefits
Commission fee
Taxes and dues
Other
Total selling, general and administrative expenses
Operating income
Non-operating income
Interest income
Dividend income
Cancellation income
Other
Total non-operating income
Non-operating expenses
Interest expenses
Share issuance cost
Other
Total non-operating expenses
Ordinary income
Extraordinary income
Gain on sales of non-current assets
Gain on reversal of subscription rights to shares
Total extraordinary income
Extraordinary losses
Loss on sales of non-current assets
Loss on retirement of non-current assets
Impairment loss
Loss on valuation of investment securities
Total extraordinary losses
Profit before income taxes
Income taxes - current
Income taxes - deferred
Total income taxes
ProfitProfit attributable to owners of parent

29

Consolidated Statement of Comprehensive Income(Unit: million yen)

Fiscal 2015

Fiscal 2016

(from January 1, 2015
to December 31, 2015)(from January 1, 2016
to December 31, 2016)

27,70521,015
6,690

34,34725,494
8,852

722
437
157
546
29
5
146
140
491
2,677
4,012

1,369
655
172
758
24
7
199
404
580
4,172
4,680

0
0
18
0
21

0
1
8
1
11

795
53
58
907
3,126

999
26
90
1,116
3,575

—
0
0

172
0
172

—
0
7
—
7
3,119
126
(46)
79
3,039
3,039

36
0
1,042
42
1,120
2,628
240
(1,548)(1,308)
3,936
3,936

(Unit: million yen)

Fiscal 2015

Fiscal 2016

(from January 1, 2015
to December 31, 2015)(from January 1, 2016
to December 31, 2016)

3,039

3,936

—
—
3,039
3,039
—

22
22
3,958
3,958
—

ProfitOther comprehensive income
Valuation difference on available-for-sale securities, before tax
Total other comprehensive income
Comprehensive income
Comprehensive income attributable to owners of parent
Comprehensive income attributable to non-controlling interests

Consolidated Statement of Changes in Equity
Fiscal year ended December 2015 (from January 1, 2015 to December 31, 2015)

(Unit: million yen)

Shareholders’ equity

Capitalstock
Balance at beginning of current period
Changes of items during period
Issuance of new shares
Dividends of surplus
Profit attributable to owners of parent
Purchase of treasury shares
Net changes of items other thanshareholders’ equity
Total changes of items during period
Balance at end of current period

6,019

SubTotal
scription Total net
Capital Retained Treasury share- rights to assets
surplus earnings shares holders’ shares
equity
1,748
4,192
(311)
11,648811,656

9

9

19
(206)
3,039
(509)

(206)
3,039
(509)

9
6,029

9
1,758

2,832
7,024

(509)
(821)

19
(206)
3,039
(509)

2,341
13,989Fiscal year ended December 2016 (from January 1, 2016 to December 31, 2016)

(4)

(4)

(4)
4

2,337
13,994(Unit: million yen)

Accumulated othercomprehensive income
SubValuation
Total
scription Total net
Total
Redifference on accumulated rights to assets
TreaCapitalshareavailableothertainedsury
sharessurplusholders’
for-salecomprehenearnings shares
equitysecurities sive income
1,758
7,024
(821) 13,989——
4 13,994
Shareholders’ equity

Capitalstock
Balance at beginning of current period
Changes of items during period
Issuance of new shares
Dividends of surplus
Profit attributable to owners of parent
Purchase of treasury shares
Disposal of treasury shares
Net changes of items other thanshareholders’ equity
Total changes of items during period
Balance at end of current period

6,029
5

5
(543)
3,936
(54)
0

5
6,034

5
1,763

3,392
10,417

(54)
(876)

10
(543)
3,936
(54)
0

3,348
17,338

10
(543)
3,936
(54)
0
22

22

(1)

21

22
22

22
22

(1)
3

3,369
17,36330

ES-CON JAPAN Annual Report 2016

Consolidated Statement of Cash Flows

Notes to Financial Statements

(Unit: million yen)

Cash flows from operating activities
Profit before income taxes
Depreciation
Impairment loss
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in provision for directors’ share-based benefits
Increase (decrease) in provision for share-based benefits
Interest and dividend income
Interest expenses
Share issuance cost
Loss (gain) on sales of non-current assets
Loss on retirement of non-current assets
Loss (gain) on valuation of investment securities
Decrease (increase) in notes and accounts receivable - trade
Decrease (increase) in inventories
Decrease (increase) in prepaid expenses
Increase (decrease) in accounts payable - other
Decrease/increase in consumption taxes receivable/payable
Increase (decrease) in advances received
Increase (decrease) in deposits received
Decrease (increase) in other assets
Increase (decrease) in other liabilities
SubtotalInterest and dividend income received
Interest expenses paid
Income taxes (paid) refund
Net cash provided by (used in) operating activities
Cash flows from investing activities
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of investment securities
Proceeds from withdrawal of investment securities
Purchase of non-current assets
Proceeds from sales of non-current assets
Payments for asset retirement obligations
Collection of loans receivable
Proceeds from guarantee deposits received
Repayments of guarantee deposits received
Payments for investments in capital
Net cash provided by (used in) investing activities
Cash flows from financing activities
Increase in short-term loans payable
Decrease in short-term loans payable
Proceeds from long-term loans payable
Repayments of long-term loans payable
Proceeds from issuance of bonds
Redemption of bonds
Repayments of lease obligations
Repayments of installment payables
Proceeds from issuance of common shares
Purchase of treasury shares
Cash dividends paid
Proceeds from release of deposits as collateral
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

31

Fiscal 2015

Fiscal 2016

(from January 1, 2015
to December 31, 2015)(from January 1, 2016
to December 31, 2016)

3,119
264
7
0
29
5
(1)
795
53
—
0
—
(35)
(7,366)
(433)
549
17
524
(132)
(407)
(2)
(3,013)
1
(836)
(28)
(3,877)

2,628
229
1,042
74
24
7
(1)
999
26
(136)
0
42
(200)
(17,033)
199
162
(385)
11
258
(1,462)
165(13,349)
1(1,060)(275)(14,684)

(18)
24
(60)
30
(73)
23
—
1
338
(204)
—
61

(18)
18
(110)
10
(223)
7,343
(3)
0
1,120
(440)
(41)
7,656

1,921
(2,833)
17,692(11,918)
—
(557)
(3)
—
15
(509)
(205)
83
3,683
(132)
4,347
4,214

11,887(8,846)28,915(20,284)
200
(567)
(4)
(2)
9
(54)
(541)
293
11,003
3,976
4,214
8,191

1. Organization
ES-CON JAPAN Ltd. (ES-CON JAPAN or the Company) is a Japanese real estate company established in 1995. It
conducts planning, development and sales of for-sale condominiums, retail facilities and other properties; leasing of
owned properties; property management services; for-sale condominium management services; consignment, planning,brokerage and consulting services for real estate-related matters; and real estate investment advisory services. ES-CON
JAPAN was listed on the second tier of the Tokyo Stock Exchange in 2015, and successfully rose to the first tier in June
2016.

2. Basis of Presentation
The accompanying consolidated financial statements of ES-CON JAPAN and its consolidated subsidiaries (the “Group”)
are a translation of the financial statements that 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 in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to the applicationand disclosure requirements of International Financial Reporting Standards.
The Company’s accounting period is a twelve-month period, which ends at the end of December each year. Unless otherwise specified, amounts have been rounded down to the nearest thousand yen in the accompanying financial statements
and the notes thereto. As a result, the total shown in the financial statements and notes thereto do not necessarily agreewith the sum of the individual account balances.

3. Summary of Significant Accounting Policies(1) Consolidation

The Company has seven consolidated subsidiaries as of December 31, 2016, as follows:
ES-CON PROPERTY Co., Ltd.
ES-CON ASSET MANAGEMENT Co., Ltd.
ES-CON LIVING SERVICE Ltd.
ES-CON JAPAN REIT Investment Corporation
E-STATE Co., Ltd.
Pro Net ES-CON Eight, Ltd.
Aries Investment Two, LLC.
ES-CON LIVING SERVICE Ltd. and ES-CON JAPAN REIT Investment Corporation
were newly established in the fiscal year ended December 31, 2016, and were included in
the scope of consolidation.

(2) Valuation standard andmethod for significant
assets1) Securities
Other securities
Securities with fair value are stated using the market price method based on the market
price, etc. at the end of the fiscal year (valuation difference is directly charged to shareholders’ equity, and selling costs are calculated by using the moving-average method).

32

ES-CON JAPAN Annual Report 2016

Securities without fair value are stated by the cost method using the moving-averagemethod.
However, silent partnership and limited liability partnership equity interests are stated attheir net asset value. As for income and loses from silent partnership and limited liability
partnership equity interests, the net amount of income or losses equivalent to the equity
interests are recorded as net sales or cost of sales, respectively, with the relevant operational investment securities and investment securities set as corresponding accounts.
2) Inventories
Real estate for sale is stated using the cost method (the value on the balance sheet is calculated using the method of reducing book value due to a decline in profitability).
Real estate for sale in process is stated using the cost method at net asset value (the valueon the balance sheet is calculated by using the method of reducing book value due to a
decline in profitability).
(3) Depreciation method forsignificant depreciable
assets1) Property, plant and equipment (excluding leased assets)
The declining-balance method is applied.
However, the straight-line method is applied to buildings (excluding facilities attached tobuildings) acquired on or after April 1, 1998 and facilities attached to buildings andstructures acquired on or after April 1, 2016.
2) Intangible assets (excluding leased assets)
Software for internal use is amortized using the straight-line method over the useful lives(5 years) estimated by the Company.
Trademarks are amortized using the straight-line method over 10 years.
3) Leased assets
For finance leases without any transfer of ownership of leased assets, the straight-line
method is adopted with a residual value of zero, deeming the lease period to be equal tothe useful lives of the assets.

(4) Standards for recording
significant allowances

1) Allowance for doubtful accounts
To prepare for expected losses from bad debts, such as notes and accounts receivable –trade and loans receivable, the Company records estimated uncollectible amounts basedon the historical loan loss ratio for general accounts receivable, and by considering individual collectibility for certain specific receivables such as doubtful accounts receivables.
2) Provision for directors’ share-based benefits
To prepare for granting the Company’s shares to its directors based on its share-based
benefit rules for directors, the Company records estimated amount of share-based benefit
obligations as of the end of the consolidated fiscal year as a provision.

(5) Scope of funds in the
consolidated statementof cash flows

The funds (cash and cash equivalents) in the consolidated statement of cash flows consistof cash on hand, deposits that can be withdrawn at any time, and short-term investmentswith a maturity of 3 months or less from the date of acquisition, which are readily convertible to cash and bear only an insignificant risk of changes in value.

(6) Other significant items
fundamental topreparing the financial
statements

1) Accounting for deferred assets
Share issuance cost is amortized by the straight-line method over 3 years.
2) Accounting for consumption taxes
Consumption taxes are excluded from the transaction amounts. Non-deductible consumption taxes are recorded as expenses for the relevant consolidated fiscal year.

(Changes in Accounting Policies)
Application of Accounting Standard for Business Combinations, Etc.
“Accounting Standard for Business Combinations” (Accounting Standards Board of Japan (ASBJ) Statement No. 21;
September 13, 2013), “Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No. 22; September
13, 2013), “Accounting Standard for Business Divestitures” (ASBJ Statement No. 7; September 13, 2013), etc. are applied,
starting from the fiscal year ended December 2016. Accordingly, the presentation of net income, etc. has been changed,
and the presentation has been changed from minority interests to non-controlling interests. To reflect the changes inpresentation, the consolidated financial statements for the fiscal year ended December 2015 have been restated.

Application of Practical Solution on a Change in Depreciation Method Due to Tax Reform 2016
In line with amendment of the Corporation Tax Act, “Practical Solution on a Change in Depreciation Method Due to Tax
Reform 2016” (Practical Issues Task Force (PITF) No. 32; June 17, 2016) is applied, starting from the fiscal year ended
December 2016. Accordingly, the depreciation method has been changed from the declining-balance method to thestraight-line method for facilities attached to buildings and structures acquired on or after April 1, 2016. As a result,operating income, ordinary income and profit before income taxes for the fiscal year ended December 2016 each increasedby 3 million yen.

(Additional Information)
Implementation Guidance on Recoverability of Deferred Tax Assets“Implementation Guidance on Recoverability of Deferred Tax Assets” (ASBJ Guidance No. 26; March 28, 2016) can beapplied, starting from the consolidated financial statements for the end of the fiscal year ended December 2016, and isthus applied, starting from the fiscal year ended December 2016.

3) Provision for share-based benefits
To prepare for granting the Company’s shares to its employees based on its share-based
benefit rules, the Company records estimated amount of share-based benefit obligations
as of the end of the consolidated fiscal year as a provision.

33

34

ES-CON JAPAN Annual Report 2016

4. Notes to Consolidated Balance Sheet(4) Breakdown of loss on retirement of non-current assets is as follows:
Fiscal 2015

Fiscal 2016

(from January 1, 2015
to December 31, 2015)(from January 1, 2016
to December 31, 2016)

Buildings and structures
Property, plant and equipment (Other)

—
0

0
0

Total

0

0

(1) Pledged assets and secured debts
Assets provided as collateral are as follows:

(Unit: million yen)

Fiscal 2015

Fiscal 2016(as of December 31, 2015)(as of December 31, 2016)

Cash and deposits
Real estate for sale
Real estate for sale in process
Buildings and structures
Land

293
4,669
22,265
3,594
17,864

(293)
(—)
(—)
(—)
(7,635)—
5,396
38,615
3,506
9,320

(—)
(—)
(—)
(—)
(—)

Total

48,688(7,928)56,839(—)(Note) In the above table, figures in parentheses indicate the assets provided as collateral for non-recourse debt.

Debts secured by the above assets provided as collateral are as follows:

(Unit: million yen)

Fiscal 2016(as of December 31, 2016)

Short-term loans payable
Current portion of long-term loans payable
Long-term loans payable

1,067
8,144
28,313(—)(—)(2,700)3,051
16,46828,848

(—)
(—)
(—)

Total

37,524(2,700)48,368(—)(Note) In the above table, figures in parentheses indicate non-recourse debt.

In the fiscal year ended December 31, 2016, the ES-CON JAPAN Group realized impairment loss on the following asset
groups. (Unit: million yen)
Location

Use

Type

(1) The reduction of book value of inventories, held for sale in the ordinary course of business, due to a
(Unit: million yen)decline in profitability is as follows:
Fiscal 2015

Fiscal 2016

(from January 1, 2015
to December 31, 2015)(from January 1, 2016
to December 31, 2016)

886(2) Breakdown of gain on sales of non-current assets is as follows:

Suita City, Osaka

Rental real estate

Building and land

Kawanishi City, Hyogo

Eatery business facilities

Facilities attached to buildings

8
1,042

Not applicable

7. Notes to Consolidated Statement of Changes in Equity
Fiscal 2015 (from January 1, 2015 to December 31, 2015)(1) Type and Number of Shares Issued and Outstanding and Type and Number of Treasury SharesFiscal 2015

Fiscal 2016

(from January 1, 2015
to December 31, 2015)(from January 1, 2016
to December 31, 2016)—

172(Unit: million yen)

Fiscal 2015

Fiscal 2016

(from January 1, 2015
to December 31, 2015)(from January 1, 2016
to December 31, 2016)—36

Number of sharesat beginning of
Fiscal 2015

Increase in
number of shares
during the fiscal
year

Decrease in
number of shares
during the fiscal
year

Number of sharesat end of Fiscal
2015

70,317,887

194,000—

70,511,887

70,317,887

194,000—

70,511,887

1,413,500

1,928,500—

3,342,000

1,413,500

1,928,500—

3,342,000

Issued shares
Common shares
Total

35

1,033

(Note) The ES-CON JAPAN Group classifies its individual properties into asset groups as minimum units for generating cash flows.
For the asset groups where profitability dropped significantly as the Company’s policy is to sell rental real estate owned by its consolidated subsidiaries for the purpose of further enhancing asset efficiency and its financial standing, among other factors, the ES-CON JAPAN Group reduced thebook value of the relevant asset groups to net realizable value and recorded the reduced amount (1,042 million yen) as impairment loss.
Breakdown of the impairment loss consists of 1,033 million yen (124 million yen for the building and 909 million yen for the land) in Suita City,
Osaka and 8 million yen (8 million yen for facilities attached to buildings) in Kawanishi City, Hyogo.
Furthermore, the collectible amount of the relevant asset groups is measured by using net sales value, which is calculated by using the estimated sales value for buildings and lands and setting the value of the facilities attached to buildings at zero because no sale is anticipated.

(Unit: million yen)

(3) Breakdown of loss on sales of non-current assets is as follows:

Land

Impairment loss

6. Notes to Consolidated Statement of Comprehensive Income

5. Notes to Consolidated Statement of Income

Land(5) Impairment loss

Total

Fiscal 2015(as of December 31, 2015)

Cost of sales(Unit: million yen)

Treasury shares
Common shares
Total(Notes) 1. The increase in the number of common shares issued and outstanding (194,000 shares) is due to exercise of subscription rights to shares.

36

ES-CON JAPAN Annual Report 2016

2. The increase in the number of treasury shares in common shares is due to an increase of 554,200 shares through acquisition based on thetrust agreement for the share-based payment benefits trust for directors, an increase of 235,400 shares through acquisition based on thetrust agreement for the share-based payment benefits type ESOP trust, and an increase of 1,138,900 shares through acquisition of treasury
shares based on the resolution by the Board of Directors.
3. The number of treasury shares in common shares includes the Company’s shares owned by the share-based payment benefits trust for
directors and the share-based payment benefits type ESOP trust (the share-based payment benefits trust for directors: 0 shares at the
beginning of Fiscal 2015 and 554,200 shares at the end of Fiscal 2015; the share-based payment benefits type ESOP trust: 0 shares at the
beginning of Fiscal 2015 and 235,400 shares at the end of Fiscal 2015).

Category

Reportingcompany(parent
company)

Number of shares subject to subscription rights(shares)

Beginningof Fiscal
2015

Increaseduring the
fiscal year

Decreaseduring the
fiscal year

Balance at
end ofFiscal 2015

End ofFiscal 2015 (million yen)

3,395,000—

75,0003,320,000

3

—

—

—

—

—

0

—

3,395,000—

75,0003,320,000

4(Note) T he decrease in the fifth offer of subscription rights to shares in Fiscal 2015 (75,000 shares) comprises a decrease of 60,000 shares throughexercise of subscription rights to shares and a decrease of 15,000 shares due to expiry of subscription rights to shares.

1) Dividends paid

March 20, 2015
Annual General Meeting of
Shareholders

Type of shares

Total dividends Dividend per(million yen)share (yen)CommonsharesMarch 25, 2016
Annual General Meeting of
Shareholders

Type ofsharesCommonshares70,511,887

83,000—70,594,887

70,511,887

83,000—70,594,887

3,342,000

241,700

100

3,583,600

3,342,000

241,700

100

3,583,600

Treasury shares
Common shares(Notes) 1. The increase in the number of common shares issued and outstanding (83,000 shares) is due to exercise of subscription rights to shares.
2. The increase in the number of treasury shares in common shares (241,700 shares) is due to acquisition of treasury shares based on the
resolution by the Board of Directors.
3. The decrease in the number of treasury shares in common shares (100 shares) is due to provision of shares to the qualifying employees by
the share-based payment benefits type ESOP trust.
4. The number of treasury shares in common shares includes the Company’s shares owned by the share-based payment benefits trust for
directors and the share-based payment benefits type ESOP trust (the share-based payment benefits trust for directors: 554,200 shares at the
beginning of Fiscal 2016 and 554,200 shares at the end of Fiscal 2016; the share-based payment benefits type ESOP trust: 235,400 shares atthe beginning of Fiscal 2016 and 235,300 shares at the end of Fiscal 2016).

(2) Subscription Rights to Shares and Subscription Rights to Treasury Shares

Category

206

Record date

Effective date

December 31,
2014

3.00

March 23,20152) Dividends for which the record date was within the fiscal year but the effective date for the dividends was in the following fiscal year
(Resolution)

Number of sharesat end of Fiscal
2016

Total

(3) Dividends(Resolution)

Decrease in
number of shares
during the fiscal
year

Common shares(Note)

Total

Increase in
number of shares
during the fiscal
year

Total

Fifth offer ofCommonsubscription
rights to shares shares
Subscription
rights to sharesas stock option

Number of sharesat beginning of
Fiscal 2016
Issued shares(2) Subscription Rights to Shares and Subscription Rights to Treasury Shares
Type of shares
Breakdown ofsubject to
subscription
subscription
rights to sharesrightsFiscal 2016 (from January 1, 2016 to December 31, 2016)(1) Type and Number of Shares Issued and Outstanding and Type and Number of Treasury Shares

Total
dividends(million yen)

543

Source ofdividends
Retainedearnings

Dividend
per share

Record date

Effective
date

December 31,
2015

March 28,
2016

(yen)

8.00

(Note) T he total amount of dividends includes 4 million yen of dividends allocated to the Company’s shares owned by the share-based payment benefits
trust for directors and 1 million yen of dividends allocated to the Company’s shares owned by the share-based payment benefits type ESOP trust.

Reportingcompany(parent
company)

Type of sharessubject toBreakdown ofsubscription
subscription
rights to shares rights tosharesFifth offer ofCommonsubscription
rights to shares shares

Number of shares subject to subscription rights
to shares (shares)

Balance at
end ofFiscal 2016

Beginningof Fiscal
2016

Increaseduring the
fiscal year

Decreaseduring the
fiscal year

3,320,000—

153,000

3,167,000

3

3,320,000—

153,000

3,167,000

3

End ofFiscal 2016 (million yen)

(Note)

Total—(Note) The decrease in the fifth offer of subscription rights to shares in Fiscal 2016 (153,000 shares) comprises a decrease of 54,000 shares due to theexercise of subscription rights to shares and a decrease of 99,000 shares due to the expiry of subscription rights to shares.

(3) Dividends
1) Dividends paid
(Resolution)
March 25, 2016
Annual General Meeting of
Shareholders

Type of shares
CommonsharesTotal dividends Dividend per(million yen)share (yen)
543

8.00

Record date
December 31,
2015

Effective date
March 28,
2016

(Note) The total amount of dividends includes 4 million yen of dividends to the Company’s shares owned by the share-based payment benefits trust for
directors and 1 million yen of dividends to the Company’s shares owned by the share-based payment benefits type ESOP trust.

37

38

ES-CON JAPAN Annual Report 20162) Dividends for which the record date was within the fiscal year but the effective date for the dividends was in the following fiscal year
(Resolution)

Type ofsharesMarch 24, 2017
Annual General Meeting of
Shareholders

CommonsharesTotal
dividends(million yen)

1,017

Dividend
per share

Source ofdividends

Effective
date

Record date(yen)

Retainedearnings

15.00

December 31,
2016

March 27,2017

(Note) T he total amount of dividends includes 8 million yen of dividends to the Company’s shares owned by the share-based payment benefits trust for
directors and 3 million yen of dividends to the Company’s shares owned by the share-based payment benefits type ESOP trust.

8. Notes to Consolidated Statement of Cash Flows(1) Operating Lease Transactions
Unearned lease payments for non-cancellable operating lease transactions(Unit: million yen)

Fiscal 2015

Fiscal 2016(as of December 31, 2015)(as of December 31, 2016)

Due within one year

1,192

1,099

Due after one year

6,481

3,937

Total

7,673

5,036

10. Financial Instruments(1) Relationship between the year-end balance of cash and cash equivalents and the amounts of accounts on(Unit: million yen)
the consolidated balance sheet
Fiscal 2015

Fiscal 2016

(from January 1, 2015
to December 31, 2015)(from January 1, 2016
to December 31, 2016)

Cash and deposits
Time deposits with maturities of more than 3 months
Deposits pledged as collateral
Deposits of share-based payment benefits trust

4,516
(3)
(293)
(5)

8,204
(3)
—
(10)

Cash and cash equivalents

4,214

8,191

9. Lease Transactions(Lessee)(1) Finance Lease Transactions
Finance lease transactions without any transfer of ownership of leased assets
1) Leased assets
Property, plant and equipment
Consists of vehicles, etc.

(1) Conditions of Financial Instruments
1) Policy for financial instruments
The ES-CON JAPAN Group manages funds only through short-term deposits, etc., and procures funds mainly throughborrowing from banks and other financial institutions.
2) Description of financial instruments and associated risks, and risk management structure
Among operating receivables, notes and accounts receivable – trade are exposed to customer credit risks. The Company
averts such risks by receiving guarantee deposits for part of them. Moreover, in terms of these risks, it conducts credit
control and account balance management for respective customers in accordance with the internal rules of the ES-CON
JAPAN Group, and works to early identify and mitigate concerns about accounts becoming uncollectible due to suchfactors as worsening of financial conditions at its business customers.
Among operating payables, accounts payable – other are to be fully paid within one year.
Among loans and bonds payable, short-term loans payable and bonds payable are procured mainly as working capital, andlong-term loans payable are procured mainly for funding real estate development projects. While loans are exposed toliquidity risks related to fund procurement, the ES-CON JAPAN Group manages risks through such measures as preparing funding plans on a monthly basis.
3) Supplementary explanation on fair value, etc. of financial instruments
The fair value of financial instruments, aside from values based on market price, includes values based on reasonable calculations when there is no market price. Certain variable factors are adopted in calculating those values, and there may becases where the values will vary when different assumptions, etc. are adopted.

2) Depreciation method for leased assets
As described in 3. Summary of Significant Accounting Policies, (3) Depreciation method for significant depreciable assets(2) Operating Lease Transactions
Unearned lease payments for non-cancellable operating lease transactions39(Lessor)(Unit: million yen)

Fiscal 2015

Fiscal 2016(as of December 31, 2015)(as of December 31, 2016)

Due within one year

128

74

Due after one year

532

458

Total

661

532

(2) Fair Value, Etc. of Financial Instruments
The following table shows the book values on the consolidated balance sheet, fair value and the difference between them.
The following table does not include items for which determining the fair value is recognized to be extremely difficult (SeeNote 2 below).

40

ES-CON JAPAN Annual Report 2016

Fiscal 2015 (as of December 31, 2015)

3. Scheduled redemption amount of monetary claims and securities with maturities after closing of accounts.

(Unit: million yen)

Fiscal 2015 (as of December 31, 2015)

Book value recordedon the balance sheet

Fair value

Due within 1 year

Difference(1) Cash and deposits(2) Notes and accounts receivable - trade

4,516
85

4,516
85

—
—

Total of assets

4,602

4,602

—

(1) Accounts payable - other(2) Short-term loans payable(3) Long-term loans payable*1(4) Bonds payable*2

963
1,267
37,906
557

963
1,267
38,162
557

—
—
256
—

Total of liabilities

40,69440,950

256

—
—

Total

4,602

—

—

—
(Unit: million yen)Due in 1 to 5 years

Due in 5 to 10 years

Due in 10 years or more

Cash and deposits
Notes and accounts receivable - trade

8,204
285

—
—

—
—

—
—

Total

8,490

—

—

—

Fiscal 2015 (as of December 31, 2015)

(Unit: million yen)Due in 1 to
2 years

Due in 2 to
3 years

Due in 3 to
4 years

Due in 4 to
5 years

Due in 5 years
or moreShort-term loans payable

1,267

—

—

—

—

—

Long-term loans payable

8,317

11,8891,585

12,874

657

2,581

557

—

—

—

—

—

10,142

11,8891,585

12,874657

2,581

Bonds payable

Fiscal 2016 (as of December 31, 2016)

8,204
285

8,204
285

—
—

49

49

—

8,540

8,540

—

(1) Accounts payable - other(2) Short-term loans payable(3) Long-term loans payable*1(4) Bonds payable*2

1,087
4,308
46,537
190

1,087
4,308
46,981
187

—
—
444
(2)

Total of liabilities

52,12352,565442*1 Long-term loans payable includes current portion of long-term loans payable.
*2 Bonds payable includes current portion of bonds payable.
(Notes) 1. Calculation method for fair value of financial instruments and matters related to derivative transactions.
Assets(1) Cash and deposits and (2) Notes and accounts receivable - trade
As these are settled within a short period of time, the fair value is approximately the same as the book value and is thus stated at that book value.
(3) Investment securities
With regard to investment securities, the fair value of stocks is determined by their price on stock exchanges.
Liabilities(1) Accounts payable – other and (2) Short-term loans payable
As these are settled within a short period of time, the fair value is approximately the same as the book value and is thus stated at that book value.
(3) Long-term loans payable and (4) Bonds payable
The fair value of these financial instruments is based on the method of calculating by discounting the sum of their principal by a rate
assumed as being applicable to a new similar borrowing to be made or bonds payable to be issued by the Company.
2. Financial instruments for which discerning fair value is recognized to be extremely difficult.
(Unit: million yen)
Fiscal 2015(as of December 31, 2015)

Fiscal 2016(as of December 31, 2016)

1) Listed shares

79102) Silent partnership equity investment, etc.

615

166

Total

694

176

These are not subject to disclosure of fair value because discerning fair value is recognized to be extremely difficult as there is no market priceand future cash flows cannot be estimated.

41

—
—

4. Scheduled repayment amount of bonds payable, long-term loans payable and other interest-bearing liabilities after closing of accounts.

Difference

Total of assets

Category

—
—

Total

Fair value

Due in 10 years or more

4,516
85

Due within 1 year

(Unit: million yen)Book value recordedon the balance sheet

Due in 5 to 10 years

Cash and deposits
Notes and accounts receivable - trade

Due within
1 yearFiscal 2016 (as of December 31, 2016)

Due in 1 to 5 years

Fiscal 2016 (as of December 31, 2016)

*1 Long-term loans payable includes current portion of long-term loans payable.
*2 Bonds payable includes current portion of bonds payable.

(1) Cash and deposits(2) Notes and accounts receivable - trade(3) Investment securities
Other securities(Unit: million yen)

(Unit: million yen)

Due within
1 yearDue in 1 to
2 years

Due in 2 to
3 years

Due in 3 to
4 years

Due in 4 to
5 years

Due in 5 years
or moreShort-term loans payable

4,308

—

—

—

—

—

Long-term loans payable

16,753

15,547

10,321

731

2,115

1,068

40

40

40

40

30

—

21,101

15,587

10,361

771

2,145

1,068

Bonds payable
Total

11. Notes to Securities(1) Other Securities
Fiscal 2015 (from January 1, 2015 to December 31, 2015)
Not applicable
Fiscal 2016 (from January 1, 2016 to December 31, 2016)
Type
Securities with book values on the consolidatedbalance sheet exceeding acquisition cost
Total(1) Shares(Unit: million yen)Book value recordedon the balance sheet

Acquisition
cost

49

27

22

49

27

22

Difference(Note) The table above does not include non-listed shares and silent partnership equity investment, etc. (book value recorded on the consolidated balance
sheet: 176 million yen) as Other securities, because discerning fair value is recognized to be extremely difficult as there is no market price.

(2) Securities with Declared Impairment
In Fiscal 2016, the Company realized impairment of 42 million yen for securities (42 million yen in shares classified asother securities).
The Company shall realize impairment for the entire amount if the fair value as of the end of the fiscal year has increased
or decreased by 50% or more from the acquisition cost, and for the amount deemed necessary if the fair value has
decreased by around 30% to 50%, with considerations given to the possibility of recovery.

42

ES-CON JAPAN Annual Report 2016

12. Notes to Derivative Transactions2) Size and changes of stock options
The following table describes the stock option plan that existed in Fiscal 2015 ended December 31, 2015. The number ofstock options indicates the number of shares when the stock options are exercised.

Not applicable(i) Number of stock options

13. Notes to Retirement Benefits

2012 Stock Option Plan

Fiscal 2015 (from January 1, 2015 to December 31, 2015)(1) Description of Retirement Benefit Plans Adopted by the Company
The Company and certain consolidated subsidiaries have adopted a defined contribution pension plan.

(2) Defined Contribution Pension Plan
The Company and certain consolidated subsidiaries paid 6 million yen for the defined contribution pension plan.

Fiscal 2016 (from January 1, 2016 to December 31, 2016)(1) Description of Retirement Benefit Plans Adopted by the Company
The Company and certain consolidated subsidiaries have adopted a defined contribution pension plan.

Before right allotment (shares)
Balance of unexercised options at the end of the previous consolidated fiscal year—

Granted—Expired—Right allotment—

Balance of unexercised options—

After right allotment (shares)
Balance of unexercised options at the end of the previous consolidated fiscal year

29,000

Right allotment—(2) Defined Contribution Pension Plan

Exercise of right

29,000

The Company and certain consolidated subsidiaries paid 8 million yen for the defined contribution pension plan.

Expired—Balance of unexercised options—

14. Notes to Stock Options, Etc.

(Note) The number of shares indicates the converted figure after the 1-to-100 stock split the Company conducted on December 1, 2012.

(ii) Unit price information

(1) Expensed Amount and Account Related to Stock Options
Not applicable2012 Stock Option Plan

(2) Description, Size and Changes of Stock Options
1) Description of stock options
2012 Stock Option Plan
Category and number of eligible persons(Unit: yen)

4 directors and 58 employees of ES-CON JAPAN

Exercise price

43

Average share price upon exercise

260

Fair unit price valuation (as of the date of grant)

30.26(Note) The exercise price has been adjusted through the execution of the subscription rights to shares based on the rights offering (allotment of
non-commitment-type/listing-type subscription rights to shares without contribution), and is converted to the exercise price after the adjustment.

Number of stock options by type of shares (Note) Common shares: 900,000 shares
Date of grant of options

April 27, 2012

Vesting conditions

The grantee must be, at the time of exercise of option, a director,
an employee or in the similar position of the Company or its
subsidiaries

Covered period of work

From April 27, 2012 to April 24, 2014

Exercise period

From April 25, 2014 to April 24, 2016(3) Method for Estimating the Number of Stock Options after Right Allotment
The method of reflecting only the actual number of expired options has been adopted, since it is difficult to reasonably
estimate the number of expired options in the future.

(Note) T he number of stock options is indicated by the number of shares when the stock options are exercised. The number of shares indicates theconverted figure after the 1-to-100 stock split the Company conducted on December 1, 2012.

43

44

ES-CON JAPAN Annual Report 201615. Notes to Tax Effect Accounting(1) Significant Components of Deferred Tax Assets and Deferred Tax Liabilities

(Unit: million yen)

Fiscal 2015

Fiscal 2016(as of December 31, 2015)(as of December 31, 2016)

2,663
768
380
573
27
48

2,749
144
716
38
25
46

—

1,856

71

89

4,532

5,666

(3,814)(3,402)

717

2,264

Deferred tax assets
Net operating loss carried forward
Loss on valuation of inventories
Impairment loss
Loss on valuation of investment securities
Asset retirement obligations
Unrecorded interest receivable
Temporary difference related to investments in
subsidiaries
Other
Subtotal of deferred tax assets
Valuation allowance
Total of deferred tax assets

(12)

(10)

Total of deferred tax liabilities

(12)

(10)

Deferred tax assets, net

705

2,254

(2) Significant Components of Material Difference between the Effective Statutory Tax Rate and Income(Unit: %)Tax Rate Applicable after Applying Tax Effect Accounting

Income tax rate after applying tax effect accounting

16. Notes to Business Combination, Etc.
Not applicable

17. Notes to Asset Retirement Obligations
Asset retirement obligations that are recorded on the consolidated balance sheet(1) Description of the Relevant Asset Retirement Obligations
The Company is obliged to restore its Tokyo Head Office, Osaka Head Office and Fukuoka Office to the original state inaccordance with each of the real estate lease agreements.

(2) Calculation Method of the Amount of the Asset Retirement Obligations

Deferred tax liabilities
Asset retirement expenses

Effective statutory tax rate
(Adjustment)
Permanently non-deductible entertainment and otherexpenses
Per-capita inhabitants tax
Increase/decrease in valuation allowance
Impact of change in tax rate
Other

1, 2018, and will be changed to 30.7% for the temporary differences that are expected to be reversed in and after the
consolidated fiscal year starting January 1, 2019.
Due to the change in the tax rate, the amount of deferred tax assets (the amount obtained by deducting the amount ofdeferred tax liabilities) decreased by 147 million yen, and income taxes – deferred that was recorded for Fiscal 2016
increased by 147 million yen.

Fiscal 2015

Fiscal 2016(as of December 31, 2015)(as of December 31, 2016)

35.6

33.0

0.3

0.3

0.3
(35.4)
1.8
0.0

0.3(88.8)
5.6
(0.2)

2.6

(49.8)

The amount of the asset retirement obligations is calculated by using discount rates of 0.4% to 1.9%, with the expectedperiod of use estimated to be 3 years to 18 years.

(3) Increase/Decrease of the Total Amount of the Asset Retirement Obligations(Unit: million yen)

Fiscal 2015

Fiscal 2016

(from January 1, 2015
to December 31, 2015)(from January 1, 2016
to December 31, 2016)

Balance at beginning of fiscal year
Increase due to acquisition of property, plant and equipment
Adjustments over passage of time
Decrease due to implementation of asset retirement
obligations
Other

53
32
1

86
—
1

—

(3)

(0)

—

Balance at end of fiscal year8683(3) Adjustment of Deferred Tax Assets and Deferred Tax Liabilities due to Changes in Income Tax Rate, Etc.
With the Act Concerning Partial Amendment of the Income Tax Act, Etc. (Act No. 15 of 2016) and the Act Concerning
Partial Amendment of the Local Tax Act, Etc. (Act No. 13 of 2016) passing the Diet on March 29, 2016, the income tax
rate will be lowered, effective for the consolidated fiscal year starting on or after April 1, 2016. In accordance with this, theeffective statutory tax rate used to calculate deferred tax assets and deferred tax liabilities will be changed to 30.9% for the
temporary differences that are expected to be reversed in the consolidated fiscal years starting January 1, 2017 and January

45

46

ES-CON JAPAN Annual Report 201618. Notes to Rental Real Estate(3) Information on Net Sales, Income or Loss, Assets and Other Item Amounts by Reportable Segment
Fiscal 2015 (from January 1, 2015 to December 31, 2015)

The Company and certain of its consolidated subsidiaries own retail facilities and land for retail facilities, etc. Income orloss from leasing these rental properties during Fiscal 2015 totaled 1,113 million yen in income (with rental income
recorded as net sales and rental expenses recorded as cost of sales). Income or loss from leasing these rental properties
during Fiscal 2016 totaled 759 million yen in income (with rental income recorded as net sales and rental expenses
recorded as cost of sales).
The book value for the rental real estate as stated in the consolidated balance sheet, the amount of increase/decrease during
the fiscal year and fair value were as follows:
(Unit: million yen)
Fiscal 2015

Fiscal 2016

(from January 1, 2015
to December 31, 2015)(from January 1, 2016
to December 31, 2016)

Book value recorded on the consolidated balance sheet

Reportable segment

Amount on
consolidated financial
statements

Real estatesales
business

Real estateleasingbusiness

Real estateplanning
agency andconsulting
business

24,6492,857

199

27,705—27,705

—

—

—

—

—

—

Total

24,6492,857

199

27,705—27,705Net sales
Net sales to externalcustomers
Intersegment net sales ortransfers

Reconciliation

Total(Note 1)

(Note 2)

Balance at beginning of fiscal year

24,44921,674

Segment income

3,769

1,606

173

5,549

(1,536)

4,012

Increase/decrease during fiscal year

(2,775)(8,841)

Segment assets

30,00522,337

7

52,351

5,737

58,088

Balance at end of fiscal year

21,674

12,832

21,28913,540

Other items
Depreciation
Increase in property,
plant and equipment andintangible assets

3

239

—

242

22

264

9

29

—

38

59

98

Fair value at end of fiscal year

(Notes) 1. The book value recorded on the consolidated balance sheet represents the amount obtained by deducting accumulated depreciation andaccumulated impairment loss from acquisition cost.
2. Of the amount of increase/decrease during fiscal year, the amount of decrease during Fiscal 2015 is primarily attributable to transfer to realestate for sale due to change of holding purposes (2,549 million yen) and depreciation (235 million yen). The amount of decrease during Fiscal
2016 is primarily attributable to sales of non-current assets (7,161 million yen), impairment loss of non-current assets (1,033 million yen),transfer to real estate for sale in process due to change of holding purposes (473 million yen) and depreciation (180 million yen).
3. Fair value at end of fiscal year indicates the amount calculated on the basis of Japan’s Real Estate Appraisal Standards, using appraisals byoutside real estate appraisers as a reference.

19. Segment Information(Notes) 1. Reconciliations are as follows:(1) The reconciliation of segment income of -1,536 million yen is from corporate expenses not attributable to any reportable segment.
Corporate expenses are general and administrative expenses not attributable to reportable segments.
(2) The reconciliation of segment assets of 5,737 million yen is mainly from surplus operating funds (cash and deposits) and administrative
assets, etc. not attributable to reportable segments.
(3) The reconciliation of depreciation of 22 million yen is from depreciation on corporate assets not attributable to reportable segments.
(4) The reconciliation of increase in property, plant and equipment and intangible assets of 59 million yen is from increase in corporate assets
not attributable to reportable segments.
2. Segment income is reconciled with operating income on the consolidated statement of income.

(1) Overview of Reportable Segments

Fiscal 2016 (from January 1, 2016 to December 31, 2016)

The reportable segments of the ES-CON JAPAN Group are, among the Group’s business units, those for which separate
financial information can be obtained and that are to be regularly reviewed by the Board of Directors and other meeting
structures in order to decide the distribution of management resources and to assess business performance.
The ES-CON JAPAN Group integrates individual projects that have similar features in terms of products and services into
three reportable segments of Real estate sales business, Real estate leasing business and Real estate planning agency andconsulting business.

(Unit: million yen)

Reportable segment

Amount on
consolidated financial
statements

Real estatesales
business

Real estateleasingbusiness

Real estateplanning
agency andconsulting
business

30,6873,594

65

34,347—34,347

—

—

—

—

—

—

Reconciliation

Total(Note 1)

(Note 2)

Real estate leasing business: Leasing of real estate, etc.

Net sales
Net sales to externalcustomers
Intersegment net sales ortransfers

Real estate planning agency and consulting business: Consigned operations of real estate-related services, brokerage

Total

30,6873,594

65

34,347—34,347of transactions, sales agency, etc.

Segment income

4,798

2,058

65

6,921

(2,241)

4,680

Segment assets

48,004

14,673

062,67811,02473,703

—

192

—

192

37

229

—

193

—

193

19

213

Each of the reportable segments mainly comprises the following operations.
Real estate sales business: Development and sale of for-sale condominiums and retail facilities, sale of land, etc.

(2) Calculation Method of Net Sales, Income or Loss, Assets and Other Item Amounts by Reportable Segment
The accounting method for the reported business segments is the same as described in “Summary of significant accounting
policies.”

47(Unit: million yen)

Other items
Depreciation
Increase in property,
plant and equipment andintangible assets

48

ES-CON JAPAN Annual Report 2016

(Notes) 1. Reconciliations are as follows:(1) The reconciliation of segment income of -2,241 million yen is from corporate expenses not attributable to any reportable segment.
Corporate expenses are general and administrative expenses not attributable to reportable segments.
(2) The reconciliation of segment assets of 11,024 million yen is mainly from surplus operating funds (cash and deposits) and administrative
assets, etc. not attributable to reportable segments.
(3) The reconciliation of depreciation of 37 million yen is from depreciation on corporate assets not attributable to reportable segments.
(4) The reconciliation of increase in property, plant and equipment and intangible assets of 19 million yen is from an increase in corporate
assets not attributable to reportable segments.
2. Segment income is reconciled with operating income on the consolidated statement of income.

21. Information on Impairment Loss on Non-current Assets by Reportable
Segment
Fiscal 2015 (from January 1, 2015 to December 31, 2015)
Real estate
sales business20. Related Information
Impairment loss

Real estate
Real estate leas- planning agency Eliminations or
corporateand consulting
ing businessbusiness———(Note) For Fiscal 2015, the Company recorded impairment loss on its former head office in line with relocation of the head office.

Descriptions are omitted as identical information is disclosed in the segment information section.

Fiscal 2016 (from January 1, 2016 to December 31, 2016)
Real estate
sales business

1) Net sales
Not applicable as the Company records no net sales to external customers outside Japan.
Impairment loss

2) Property, plant and equipment
Not applicable as the Company has no property, plant and equipment outside Japan.

1,042

7

(Unit: million yen)

Real estateplanning agency Eliminations orReal estate
corporateleasing business and consulting
business

—

Total

7

Fiscal 2015 (from January 1, 2015 to December 31, 2015)(1) Information by Product and Service(2) Information by Region

—

Total

—

1,042

22. Information on Amortization of Goodwill and Unamortized Balance byReportable Segment(3) Information by Major Customer
Customer’s nameSales (million yen)

Related segment

Kawaramachi Holdings GK

3,150

Real estate sales business

Fiscal 2016 (from January 1, 2016 to December 31, 2016)(1) Information by Product and Service
Descriptions are omitted as identical information is disclosed in the segment information section.

(2) Information by Region
1) Net sales
Not applicable as the Company records no net sales to external customers outside Japan.
2) Property, plant and equipment
Not applicable as the Company has no property, plant and equipment outside Japan.

(3) Information by Major Customer
Descriptions are omitted as the Company’s net sales for any individual customer is less than 10% of net sales recorded in
the consolidated statement of income.

49(Unit: million yen)

Not applicable

23. Information on Gain on Negative Goodwill by Reportable Segment
Not applicable

24. Information on Related Parties(1) Transactions with Related Parties
1) Transactions between the filing party of these consolidated financial statements and related parties
Officers of the filing party of these consolidated financial statements and major shareholders (individuals only), etc.
Fiscal 2015 (from January 1, 2015 to December 31, 2015)
Type: Officer
Name: Hiroto Mizobata
Location: —Paid-in capital or equity investment: —Business description or occupation: Auditor of the Company
The Company’s share of voting rights, etc. [or ownership of such in the Company]: O wnership in the
Company 0.0%
Description of relationship: —Description of transaction: Sale of a condominium unit (Note)50

ES-CON JAPAN Annual Report 201626. Significant Subsequent Events

Transaction amount: 49 million yen
Category: —Balance at end of fiscal year: —(Note) T he transaction represents sale of a for-sale condominium unit, and the terms and conditions of the transaction were determined in the samemanner as in general transactions. The transaction amount does not include consumption taxes.

Fiscal 2016 (from January 1, 2016 to December 31, 2016)
Not applicable2) Transactions between the consolidated subsidiaries of the filing party of these consolidated financial statements andrelated parties
Descriptions are omitted as the transactions are immaterial.

(2) Notes to Parent Company or Important Affiliates[Acquisition of Treasury Shares]
The Company resolved at its Board of Directors’ meeting held on December 27, 2016 on the acquisition of its treasury
shares and the specific method for acquisition, pursuant to the provisions of Article 156 of the Companies Act, which areapplied in place of the provisions of Article 165-3 of the Act, and implemented the acquisition of treasury shares as indicated below.

(1) Reason for Acquiring Treasury Shares
The Company acquired its treasury shares in order to enhance capital efficiency and conduct flexible capital policy inaccordance with changes in the business management environment.

(2) Description of Resolution on the Acquisition

Not applicable

25. Per Share Information
(Unit: yen)

Fiscal 2015

Fiscal 2016

(from January 1, 2015
to December 31, 2015)(from January 1, 2016
to December 31, 2016)

1) Type of shares to acquire: Common shares
2) Number of shares to acquire: 1
 ,350,000 shares (maximum)(Ratio to the number of shares issued and outstanding (excluding treasury shares): 1.9%)
3) Total acquisition price of shares: 430 million yen (maximum)
4) Acquisition period: From January 4, 2017 to March 31, 20175) Acquisition method: Market buying in a trust scheme

Net assets per share

208.28259.07(3) Others

Basic earnings per share

44.65

58.76

Diluted earnings per share

44.50

57.41

Conducting market buying in a trust scheme as stated above, the Company acquired 972,800 shares of its common shares(acquisition price: 429 million yen) by January 11, 2017 and completed the acquisition of treasury shares.

(Notes) 1. In calculating net assets per share, the Company’s shares owned by the share-based payment benefits trust for directors and share-based
payment benefits type ESOP trust (the share-based payment benefits trust for directors: 554,200 shares for Fiscal 2015 and 554,200 sharesfor Fiscal 2016; the share-based payment benefits type ESOP trust: 235,400 shares for Fiscal 2015 and 235,300 shares for Fiscal 2016) are
included in treasury shares, which are excluded from the number of shares issued and outstanding at end of the fiscal year.
2. In calculating basic earnings per share and diluted earnings per share, the Company’s shares owned by the share-based payment benefits
trust for directors and the share-based payment benefits type ESOP trust (581,233 shares for Fiscal 2015 and 789,596 shares for Fiscal 2016)
are included in treasury shares, which are excluded when calculating the period-average number of shares.
3. The basis for the calculation of basic earnings per share and diluted earnings per share is as follows:
Fiscal 2015
(from January 1, 2015
to December 31, 2015)

Fiscal 2016
(from January 1, 2016
to December 31, 2016)

Profit not attributable to common shareholders (million yen)
Profit attributable to owners of parent for common shares(million yen)
Period-average number of common shares (shares)

3,039

3,936

—

—

3,039

3,936

68,069,666

66,988,398

Increase in common shares (shares)

Description of dilutive shares without dilutive effect and notincluded in the calculation of diluted earnings per share(1) Reason for Transfer(2) Description of the Transferred Asset
Type and location of the asset
Land and building(6-chome, Senriyama-Nishi,
Suita City, Osaka)

Diluted earnings per share
Adjustments to profit attributable to owners of parent(million yen)

Pro Net ES-CON Eight, Ltd., a consolidated subsidiary of the Company, resolved at its Board of Directors’ meeting heldon March 1, 2017 on the transfer of non-current assets, and sold the relevant assets as of the same date.

It was decided to transfer the following rental real estate owned by Pro Net ES-CON Eight, Ltd. in order to further
enhance the capital efficiency and financial standing of the ES-CON JAPAN Group.

Basic earnings per share
Profit attributable to owners of parent (million yen)

[Transfer of Non-current Assets]——

223,945

1,572,883

Fifth offer of subscription rights toshares based on resolution by the
Board of Directors’ meeting on
October 31, 2013
Common shares: 3,042,000 shares

Transfer priceBook value

Gain on sale

Current status

8,363 million yen

8,350 million yen

11 million yen

Retail facility(3) BuyerStar Light Bridge 2 GK—

(4) Transfer Date
March 1, 2017

51

52

ES-CON JAPAN Annual Report 2016

[Cancellation of Treasury Shares]

Notes for Investors

The Company resolved at its Board of Directors’ meeting held on March 24, 2017 on the cancellation of treasury sharespursuant to the provisions of Article 178 of the Companies Act.

Fiscal year: January 1 to December 31
Securities code: 8892
Standard date for regular general meeting of shareholders: End of March(1) Reason for Cancellation of Treasury Shares
As part of its capital policy, the Company will cancel part of the treasury shares it has acquired in order to enhance capitalefficiency and conduct flexible capital policy in accordance with changes in the business management environment.

Standard date for submission of periodic securities report: End of March
Standard date for start of end-of-year dividend: December 31
The names of shareholders to be paid interim dividends shall be finalized on June 30 in the event they are to be paid.
Listing exchange: First tier, Tokyo Stock Exchange
Total number of shares issued and outstanding: 69,097,887 shares (as of March 31, 2017)(2) Overview of Cancellation of Treasury Shares

Total number of shareholders: 8,051 shareholders (as of March 31, 2017)1) Type of shares to cancel: The Company’s common shares
2) Number of shares to cancel: 1,800,000 shares
3) Cancellation date (planned): March 30, 20174) Number of shares issued and outstanding after cancellation: 68,794,887 shares

Share units: 100 shares
Institution managing the Shareholder Register Manager’s Extraordinary Account:
Sumitomo Mitsui Trust & Banking, 1-4-1 Marunouchi, Chiyoda-ku, Tokyo
Contact: Transfer Agent Department, Sumitomo Mitsui Trust & Banking, 2-8-4 Izumi, Suginami-ku, Tokyo 168-0063
Toll-free: 0120-782-031 (Japan only)
Agency services are available at the main branch and all branches of Sumitomo Mitsui Trust & Banking nationwide.

Investor Information

Notification of address change, etc.:
Please notify the securities firm that holds your investment account. Shareholders who have extraordinary accounts because they
do not have an account at the securities firm should contact Sumitomo Mitsui Trust & Banking, the account manager for extraordinary accounts.

Status of Share Price (from January 4, 2016 to May 31, 2017)

Payment of unpaid dividends: Please notify Sumitomo Mitsui Trust & Banking, the shareholder register manager.

(Unit: million shares)(Unit: yen)

12500
Trading volume (left scale)

Announcement method: Electronic announcements (https://www.es-conjapan.co.jp/) (Japanese)
However, the announcement shall be made via Nihon Keizai Shimbun when an accident or other development makes announcement via electronic announcement impossible.

Share price (right scale)

10

400

8
300

Shareholders who have owned shares in ES-CON JAPAN for at least one year since June 30 of each year andwho own more than 1,000 shares are eligible to receive shareholder benefits.

6
200
4
100

2
0
Jan. 4, 2016

Mar. 31, 2016

Jun. 30, 2016

Sep. 30, 2016

Dec. 30, 2016

0Mar. 31, 2017 May 31, 2017

Major Shareholders (as of March 31, 2017)
Name

No. of shares Ownershipowned
ratio (%)

1

Koryu Oh

10,600,000

15.3

2

Nissei Build Kogyo Co., Ltd.

6,500,000

9.4

3San Ai Housing Corp.

6,090,000

8.8

4Seiryu Asset Management
Co., Ltd.

3,000,000

4.3

4Seiryu Amusement Co., Ltd.

3,000,000

4.3

4Seiko Leisure Co., Ltd.

3,000,000

4.3

Name

No. of shares Ownershipowned
ratio (%)

4

Tenma Seiryu Co., Ltd.

3,000,000

4.3

8Japan Trustee Services Bank,
Ltd.

1,917,200

2.7

9NS Corporation

1,360,300

1.9

10The Master Trust Bank ofJapan, Ltd.

1,202,400

1.7

992,200

1.4

11 Takatoshi Ito(Notes) 1. ES-CON JAPAN retains 1,966,900 shares of its own stock, but they are excluded from the list of major shareholders above.
2. Treasury shares are excluded from the calculation of ownership ratios.
3. Ownership ratio is rounded down to the first decimal place.

53

Disclaimer
This annual report contains selected information including a partial translation of certain documents originally prepared in accordance with the Financial Instruments and Exchange Act of Japan (FIEA) and other relevant laws. The document has been prepared solely for the convenience of readers outside Japan and, unless otherwise specified, the information contained herein does
not constitute disclosure documents stipulated by the FIEA, or requested by the listing regulations of the Tokyo Stock Exchange
or other related rules and regulations.
English terms for Japanese legal, accounting, tax and business concepts used herein may not be identical to the equivalentJapanese terms. If there are any discrepancies between the original Japanese documents and English translation, the Japanese
documents will always govern the meaning and interpretation. Neither ES-CON JAPAN nor any of its directors, officers, employees, partners, shareholders, agents, affiliates or their advisors will be responsible or liable for the completeness, appropriateness or accuracy of English translations contained herein.

54