ES-CON JAPANOur Name Represents Our Core Functions
ES-CON was coined from a combination of “real estate” and“constellation.” All people connected by ES-CON JAPANproduce powerful lights of various colors creating a beautiful harmony that shines brightly into the future—we aspire
to be a “constellation in the real estate industry.” Japan is
the realm in which the company operates. Thus the name of
ES-CON JAPAN Ltd. was adopted.

Annual Report 2019
For the year ended December 31, 2019https://www.es-conjapan.co.jp/english/

ES-CON JAPAN Annual Report 2019

Committed to Building a Bright Future for Japan

Performance Backed by Distinct Business Sections

ES-CON JAPAN Ltd. (“ES-CON JAPAN”) develops a comprehensive selection of realestate assets including retail, hotel and logistics properties, while primarily focusing on highvalue condominiums and other residential properties. We at ES-CON JAPAN are committed to creating a new future for Japan by realizing ideal lifestyles and towns that envision thehappiness and future of residents.

ES-CON JAPAN has once again enjoyed a strong year in real estate. Presently, the businesses of ES-CON JAPANcan be divided into the real estate sales business, real estate leasing business and real estate planning agency andconsulting business, which posted a growth in combined segment income from 14,839 million yen in Fiscal 2018
to 17,091 million yen in Fiscal 2019, a substantial increase of 15.2%.

Corporate Philosophy:
Realizing the Importance of Being a Member of Society
The ES-CON JAPAN Group is committed to contributing to society in the best possible manner. Applying our
findings derived from our efforts to do so generates results. At the same time, all members of ES-CON JAPANpursue how they can realize the happiness they seek. Our staff is committed to assisting each other in realizing
the goal of positively contributing to society.
In this process, we aim to improve society by delivering and realizing better ideas for a better life. We seek totransform the connections of people into a significant force through our human resources and to expand thepossibilities of society through dynamic solutions and concepts generated through brainstorming.

Table of Contents
Corporate Philosophy . ............................................................. 1
Performance Backed by Distinct Business Sections .............. 2
To Our Shareholders ................................................................ 3
Assessing the Second Medium-Term Management Plan:IDEAL to REAL 2019 ................................................................. 4
Management Indices Under IDEAL to REAL 2019 .................. 4
Growth Strategies and Primary Steps Taken
Under the Second Medium-Term Management Plan . ........... 5
Primary Steps Taken ................................................................ 5
Significant Achievements of Fiscal 2019 ................................. 6
Solid Steps Forward in the Alliance with Chubu ElectricPower ........................................................................................ 8Three-way Support Agreement ............................................... 8ESG Initiatives . ......................................................................... 9
Major ESG Strategies Under the New Medium-Term
Management Plan .................................................................. 10
ES-CON JAPAN: Diversifying Business Overseas . ............... 11
ESCON JAPAN REIT Investment Corporation ....................... 12

Third Medium-Term Management Plan:IDEAL to REAL 2022 ............................................................... 12Interview of President Takatoshi Ito ...................................... 15
Management: Directors and Auditors ................................... 21
Management Policy ................................................................ 23
Direction, Corporate Governance and CSR ............................23
Company Overview ................................................................. 26
Property Descriptions ............................................................ 27
Financial Section
Management Discussion and Analysis .................................. 31
Consolidated Balance Sheet .................................................. 35
Consolidated Statement of Income and Consolidated
Statement of Comprehensive Income ................................... 37
Consolidated Statement of Changes in Equity . .................... 38
Consolidated Statement of Cash Flows ................................ 39
Notes to Financial Statements .............................................. 40
Investor Information ............................................................... 65

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

Real Estate Sales Business

Real Estate Leasing Business

Real Estate Planning Agency
and Consulting Business

Net Sales

Net Sales

Net Sales

66,710 million yen

5,022 million yen

372 million yen

Segment Income

Segment Income

Segment Income

13,802 million yen

3,001 million yen

286 million yen

Owned Assets
(Unit: million yen)
ES-CON JAPAN had a solid year in the real estate sales
business. Net sales and segment income in this division grew
Fiscal 2019 Fiscal 2018by 32.0% and 11.8% respectively. We sold 648 condoCondominiums
43,58837,198minium units, 85.4% of our annual target. This total was
Retail properties, etc. 35,155
37,280greater than the previous year but fell short primarily because
Hotels1,734
5,564
delivery of Le JADE Tsujido Higashi Kaigan slid into the
Other
3,377
1,156
next fiscal year. ES-CON JAPAN posted strong increases in
Total
83,854
81,199profit and sales through the disposition of hotel projects,
profit-generating real estate, land, etc. and sales of retailproperties to ESCON JAPAN REIT Investment Corporation (“ESCON REIT” or “the REIT”) and other factors. Hotel sales was 12.6 billion yen and the profit margin for hotel sales was a robust 46.1% on average. ES-CON
JAPAN sold 13.7 billion yen in assets to the REIT it sponsors. ES-CON JAPAN continues to lay a strong foundation for a robust future by securing land for for-sale condominiums and retail sites for future business.
Net sales in the real estate leasing business grew 47.7% compared with the previous fiscal year and segment
income grew by 41.0% over the same period to 3,001 million yen. This division will strive to secure stablerental income at retail properties we own and enhance asset value. The acquisitions of Aeon Minamisenri anda retail property in Tsukuba and completion of the community-based retail properties tonarie Yamato-Takada
and tonarie Toga-Mikita among others greatly contributed to the strong performance in this segment.
Looking ahead, this segment will focus on land for retail properties and expand our stock business, a business generating stable income, to support the external growth strategy of ESCON REIT, the J-REIT we listed in February 2019.
In the real estate planning agency and consulting business, ES-CON JAPAN focuses on non-asset andprofitable businesses such as entrustment and planning agency consulting services by utilizing planning abilities as our strengths. Although sales in this segment decreased by 8.1% compared with the previous fiscal year,
segment income amounted to 286 million yen. We intend to continue to raise our performance in this segment
under the already announced Third Medium-Term Business Plan.
ES-CON JAPAN focuses on delivering products that provide comfortable and high-quality living by considering lifestyle changes and local characteristics as well as envisioning the happiness of the people living in our properties. We are committed to becoming a “life developer” that develops people’s lifestyles and creates communities aswell as residences. As part of such initiatives, we acquired all the shares of One’s Own House Co., Ltd. (currently
ES-CON Home Ltd.) and Rise Home Co., Ltd. (currently ES-CON Craft Ltd.), which build and sell detachedhouses mainly in Saitama Prefecture, with the goal of increasing sales of homes and condominiums in the Saitama
area. We expect making them our subsidiaries to contribute to greater business expansion in the metropolitan area.

2

ES-CON JAPAN Annual Report 2019

Assessing the Second Medium-Term Management Plan:IDEAL to REAL 2019

To Our Shareholders
In the fiscal year under review (Fiscal 2019), ES-CON JAPAN fulfilled almost all of the targets in its
Second Medium-Term Business Plan titled “IDEAL to REAL 2019” (Fiscal 2017- Fiscal 2019), with thesteady progress in sales of its for-sale condominiums series “Le JADE” and “Grand Le JADE” in the Tokyo
metropolitan area and the Kinki area, retail property brand “tonarie,” and real estate for sale including
hotels, significantly surpassing the performance for the same period in the previous fiscal year. In 2019,
ESCON REIT was listed in February, Nagoya Branch was opened in March, a business site was acquiredin Higashi Ward of Nagoya City and the joint project “Nagoya City Higashi Ward Shirakabe 4-Chome
Project (tentative name)” with Chuden Real Estate Co., Inc. (“Chuden Real Estate”) was announced. We
will achieve synergy effects with Chubu Electric Power Co., Inc. (“Chubu Electric Power”) under thebusiness partnership. We have formulated our Third Medium-Term Business Plan “IDEAL to REAL
2022” for the three-year period from Fiscal 2020 to Fiscal 2022 aiming for further leaps and stable growthin our next stage. Going forward, we aim to maximize corporate value by developing multifaceted businesses by properly addressing thediversifying social issues with thepromotion of ESG initiatives tofulfill our targets. Your continued
support is appreciated.

Takatoshi Ito
President andRepresentative Director
ES-CON JAPAN Ltd.

Fiscal 2019 marks the end of ES-CON JAPAN’s Second Medium-Term Management Plan titled “IDEAL to
REAL 2019.” In the Second Medium-Term Management Plan that followed our First Medium-Term
Management Plan titled “Make the One for 2016” that ended in Fiscal 2016, we have followed the basic philosophy of being a customer-first business, fulfilled our mission as a “life developer” that facilitates living itself
and carried out business as a company that is needed by society. As a result, we attained almost all the management and performance targets. In comparison to Fiscal 2016, net sales grew about 2.1 times, operating income
grew about 2.8 times and ordinary income grew about 3.3 times in Fiscal 2019.
(Unit: million yen)Amount of
Fiscal 2019Year-on- increase/ decrease(compared to(actual)year change
Fiscal 2016)

Fiscal 2016(actual)Fiscal 2019
(initial target)

34,34760,000-62,000

72,106

32.7%+37,759

Real Estate Sales Business

30,68757,800-59,700

66,71032.0%+36,023

Real Estate Leasing Business

3,594

2,000-2,100

5,022

47.7%

+1,428

65

200

372

-8.1%

+307

Operating Income

4,680

8,200-9,500

12,912

11.7%+8,232

Ordinary Income

3,575

7,200-8,500

11,81012.5%+8,235Net Sales

Real Estate Planning Agency andConsulting Business(Note) Though the year-on-year growth for the Real Estate Planning Agency and Consulting Business was -8.1%, the business itself grew tremendously
over the medium-term management plan to 5 times sales at the inception of the plan.

Management Indices Under IDEAL to REAL 2019

Net Sales

Operating Income(Unit: million yen)

(Unit: million yen)

86,00012,912

Profit Attributable to
Owners of Parent
13,30011,561

72,106

As for the management indices in the Second Medium-Term Management Plan, ES-CON JAPAN was able tosatisfy four of its five indicators. The equity ratio fell below the original target due to our proactive acquisitionof development and other properties following our capital alliance with Chubu Electric Power. In addition,
though the target for the equity ratio was unmet, ES-CON JAPAN did raise the ratio to 25.3% from 23.6%
in Fiscal 2016.

(Unit: million yen)

8,155

8,500

54,325

Fiscal 20183

Fiscal 2019

Fiscal 2020
(Projection)

Fiscal 2018

Fiscal 2016

Fiscal 2019 (initial target)

Fiscal 2019 (Actual)

Equity Ratio (%)

23.6

33.0-35.0

25.3

ROE (%)

25.1

18.0-21.0

26.8

ROA (%)

6.0

6.0-7.0

6.7

ROIC (%)

6.5

7.0-9.0

7.5

EPS (yen)

58.76

75-85

119.17

7,226

Fiscal 2019

Fiscal 2020
(Projection)

Fiscal 2018

Fiscal 2019

Fiscal 2020
(Projection)

4

ES-CON JAPAN Annual Report 2019

Furthermore, ES-CON JAPAN adopts a progressive dividend policy and the dividend has increased for the
fourth consecutive year.
Fiscal 2016

Fiscal 2017

Fiscal 2018

Fiscal 2019

Dividend (yen)

15

18

32

36

Dividend ratio (%)

25.5

22.0

30.2

30.2

Treasury Stock Buyback (million yen)

429

449

-

40

Total Return Ratio (%)

36.8

30.9

30.2

31.0

Growth Strategies and Primary Steps Taken Under the Second MediumTerm Management Plan
• Reinforcement of core businesses• Heighten corporate value by establishing diverse aspects of multiple core businesses• Secure steady long-term stock income through proactive implementation of the real estate leasing business• Expand real estate sales by steadily supplying good properties to our originated listed REIT and for which
ES-CON JAPAN is the main sponsor• Expand the breadth and depth of our real estate development ability by enhancing our real estate operations
business• Improve our corporate brand• Use the implementation of ESG measures to create new corporate value and grow sustainably

Primary Steps Taken
1. In our core business of condominium development and sales, we sold 476 units in Fiscal 2017 (sales of 19.5
billion yen), 539 units in Fiscal 2018 (25.0 billion yen) and 648 units in Fiscal 2019 (28.5 billion yen). We
have also acquired the sites that will allow us to supply 760 units in Fiscal 2020 (about 36.0 billion yen),
1,200 units in Fiscal 2021 (about 55.0 billion yen) and 480 units in Fiscal 2022 (about 25.0 billion yen).
The internal sales team we established is also steadily growing and has reached 32 people.
2. ES-CON JAPAN has also expanded its presence in the retail property and hotel development businesses. We
are focused on and developing the new areas logistics center development, site rezoning and development
and overseas real estate investment and development.
3. We have particularly strengthened the development of neighborhood shopping centers in the area of retaildevelopment. In November 2018 we opened tonarie Yamato-Takada, and in April 2019 tonarie Toga-Mikita.
We also acquired retail properties that are already in operation including Tsukuba Q’t, Tsukuba MOG in
December 2018, Tsukuba CREO in March 2019 and Oh! Me Otsu Terrace in October 2019. These properties are at the center of our strategies for increasing the value of retail properties in operation and aggressive
redevelopment.

5

4. On February 13, 2019, ESCON REIT listed on the Real Estate Investment Trust Securities Market of theTokyo Stock Exchange. The REIT has also concluded support agreements with Chubu Electric Power andChuden Real Estate. R&I also rated ESCON REIT in November 2019 giving it an A- (stable) rating.
5. ES-CON JAPAN launched the renovation business in addition to asset management, property managementof retail properties and dining operation businesses such as cafes and the apartment management business.
6. ES-CON JAPAN continues to reinforce its corporate brand by releasing a new TV commercial for theGrand Le JADE brand and continuing as a sponsor of a popular TV program.
7. Le JADE Okurayama became ES-CON JAPAN’s first business adopted in the Ministry of the Environment’s
Fiscal 2019 High-Rise ZEH-M Support Projects. ES-CON JAPAN also became the first Japanese businessfirm granted a “Green Star” and “2 Star” rating under the developer appraisal system of GRESB Real Estate
Developer Assessment.

Significant Achievements of Fiscal 2019
ES-CON JAPAN acquired 21 sites for development in Fiscal 2019 with 4 in the Tokyo metropolitan area, 13
in the Kinki metropolitan area, 3 in the Chubu metropolitan area and one other. These properties will be
developed as condominiums and commercial projects including retail destinations.
January 
ES-CON JAPAN began selling Le JADE Tsujido Higashi Kaigan.
February 
ESCON REIT listed on the Tokyo Stock Exchange Real Estate Investment Trust Securities Market. ES-CON
JAPAN launched its overseas business with an investment in a Hawaii real estate fund, completed the sale oftwo new condominiums (Le JADE Kuzuha and Le JADE Sumakaihin Koen) and acquired new business site infront of Nishi-Akashi Station.
March ES-CON JAPAN opened the Nagoya Branch, sold out Grand Le JADE Ochanomizu, began selling multiple
new condominium projects. We acquired the Tsukuba CREO retail property and new development land in Higashinari Ward, Osaka City and
Hiratsuka City as well as launched the logistics center brand LOGITRES.
April ESCON JAPAN fully sold out Grand Le JADE Takatsuki Tenjin and opened tonarie Toga-Mikita community-based shopping center on April 26.
May 
ES-CON JAPAN acquired a new development site in Suita City.
June 
ES-CON JAPAN acquired new development sites in Nagoya City and Ibaraki City, concluded a contract to6

ES-CON JAPAN Annual Report 2019acquire the shares of One’s Own House Co., Ltd. and Rise Home Co., Ltd. (executed on July 1). We also
concluded the sale of one housing site/for-sale condominium and began selling Le JADE Utsukushigaoka.
July 
ES-CON JAPAN acquired three new business sites and a retail property in Sapporo City. We also completed
the sale of two condominium projects and invested in ESCON REIT.
August 
ES-CON JAPAN acquired new business sites in Hikone City and Osaka Prefecture and joined a project todevelop a condominium in Bangkok. We also conducted a share buyback on the market.
September 
ES-CON JAPAN obtained “Green Star” and “2 Star” rating from the Global Real Estate Sustainability
Benchmark (GRESB) and concluded a three-party agreement between Chuden Real Estate, ESCON REIT
and ES-CON Asset Management. Le JADE Okurayama became ES-CON JAPAN’s first business adopted in
the Ministry of the Environment’s “Fiscal 2019 High-Rise ZEH-M Support Projects.”.
October ES-CON JAPAN acquired retail property and a new development site. We also won Fiscal 2019 Good DesignAwards for Le JADE Nakano and tonarie Yamato-Takada. We made a donation for the research of the WT1cancer vaccine, a cancer immunotherapy. We sold all units in Le JADE Nakano and began selling Grand Le
JADE Shukugawa Residence.
November 
R&I assigned ESCON REIT an A- (stable) rating. For-sale real estate was sold to Chuden Real Estate. ES-CON
JAPAN completed the sale of multiple condominium projects and began selling Le JADE Nishiakashi.
December 
ES-CON JAPAN launched its Third Medium-Term Management Plan “IDEAL to REAL 2022,” began a joint
venture with Chuden Real Estate provisionally named Nagoya City Higashi Ward Shirakabe 4-chome Project
and acquired a new business site.
Significant News for Fiscal 2020 (from January to February)
ESCON REIT successfully conducted its first PO. ES-CON JAPAN obtained the naming rights for the
Hokkaido Nippon-Ham Fighters’ new stadium that will be named ES CON FIELD HOKKAIDO andalso opened its first neighborhood shopping center in the Tokyo metropolitan area, tonarie Utsunomiya.

ES CON FIELD HOKKAIDO

7

tonarie Utsunomiya

Solid Steps Forward in the Alliance with Chubu Electric Power
Since the conclusion of a capital and business partnership agreement with Chubu Electric Power in August 2018,
ES-CON JAPAN positions the Chubu region as a core business area comparable to the Tokyo metropolitan area
and the Kansai region, and established the Nagoya Branch in March 2019. Concerning the Nagoya City Higashi
Ward Shirakabe 4-Chome Project (tentative name), we acquired a business site in June 2019 and will conduct a
joint project for condominium development with Chuden Real Estate. In addition to the promotion of suchjoint projects, the Chubu Electric Power Group and ES-CON JAPAN will promote joint research and development of next generation condominiums utilizing living environments, energy, artificial intelligence (AI) such as
next generation smart houses, connected homes, etc. and optimal use of real estate owned by the Chubu ElectricPower Group by applying our real estate knowhow and next generation smart houses, connected homes, etc.
As for the properties developed by ES-CON JAPAN, the Chubu Electric Power Group has become a candidate for the acquisition of the properties, selling the properties to Chuden Real Estate, utilizing the warehousing function. ES-CON JAPAN and Chubu Electric Power have also exchanged personnel with Chubu ElectricPower assigning one director of ES-CON JAPAN from March 2019 and two ES-CON JAPAN employees
assigned to Chuden Real Estate from April 2019. At the same time, ES-CON JAPAN continues to develop
businesses utilizing our strength of speed while maintaining the independence of ES-CON JAPAN.

Three-way Support Agreement
On September 27, 2019, Chuden Real Estate, ESCON REIT and ES-CON Asset Management concluded athree-way support agreement. The support is extensive and includes the warehousing service provided by
Chuden Real Estate to ESCON REIT. ES-CON JAPAN believes that this support agreement will lead to thegrowth of ESCON REIT and to realization of synergy between ES-CON JAPAN and the Chubu ElectricPower Group in the real estate business. ES-CON JAPAN sold owned retail properties and commercial leasehold to Chuden Real Estate for about 9.5 billion yen utilizing the warehousing function in February 2020.
Under the support agreement, Chuden Electric Power, Chuden Real Estate and ES-CON JAPAN mutuallyprovide the following.
Chuden Real Estate

Chubu Electric Power

ES-CON JAPAN

Information provision

O

O

O

Preferred acquisition and negotiation rights

—

—

O

Warehousing

O

—

O

Redevelopment support

—

—

O

Environmentally-friendly technology

O

O

—

PM & BM operations

O

O

O

Leasing support

O

—

O

Personnel support

O

—

O

Same boat investment

O

—

O

Permission to use corporate logo

O

O

O

8

ES-CON JAPAN Annual Report 2019

ESG Initiatives
ES CON FIELD Hokkaido: Contributing to Enriching Lives in Hokkaido

Major ESG Strategies Under the New Medium-Term Management Plan

ES-CON JAPAN is scheduled to participate in the district development of the approximately 9,400 m2 of landadjoining the new ballpark of Hokkaido Nippon-Ham Fighters scheduled for opening in 2023. In January
2020, we acquired the naming rights for the new ballpark and it will be named “ES CON FIELD HOKKAIDO.”
The area surrounding the ballpark is an important base as a planned site for a sports park in Kitahiroshima
City and is part of a large-scale development area for HOKKAIDO BALLPARK F VILLAGE (total development area: approx. 36.7 ha) with construction of a new station also planned. We are scheduled to participate
in the development of various real estate in the area such as a hotel on the approximately 9,400 m2 of landadjoining the ballpark. Under the naming rights agreement, ES-CON JAPAN has the right to name and promote the new ballpark. Beyond the acquisition of the naming rights, we aim to revitalize the entire communityand contribute to society from the perspective of ESG through real estate development as a mission of a comprehensive developer.
We plan to open a branch in Hokkaido in July 2020 and will seize this opportunity to support sports andcultural promotion for the happiness of the residents of Hokkaido and to contribute to the revitalization anddevelopment of the entire community.

Positioning the “addressing social problems by promoting ESG” as one of the key management strategies in the
Third Medium-Term Management Plan (Fiscal 2020 to Fiscal 2022), ES-CON JAPAN believes that it is its
duty to contribute to the community through business activities as a good corporate citizen.
Under the corporate message “IDEAL to REAL (turning ideals into reality and creating a new future),”ES-CON JAPAN is committed to address the changing values over time and aims to realize a sustainable society along with sustainable growth by addressing social issues through the promotion of ESG as a life developerthat strives for ideal housing and living.
Based on the “ESG Management Policy,” ES-CON JAPAN positions addressing social issues through promotion of ESG initiatives as a management strategy. Specifically, we assign the Director, Head of President’s
Office as the person in charge, and divide the ESG Promotion Group that is comprised of selected members
from different departments into the “E (Environment) team,” “S (Social) team” and “G (Governance) team.”
We then set annual targets for each team and promote ESG initiatives.
In Fiscal 2019 ES-CON JAPAN participated in the “GRESB Real Estate Developer Assessment” for realestate developers and became the first Japanese business company to receive “Green Star” and “2 Star”
ratings.
The following are our major ESG initiatives.

[Overview of the Naming Rights and New Ballpark][Environment]

Name of ballpark

ES CON FIELD HOKKAIDO

Period of contract

Long-term contract of 10 years or more starting from January 2020

Project partner

Hokkaido Nippon-Ham Fighters Baseball Club Co., Ltd.
Fighters Sports & Entertainment Co., Ltd.

Location

Inside Kitahiroshima Sports Park (Kyoei, Kitahiroshima City, Hokkaido)

Transportation

Approx. 22-minute walk from Kita-Hiroshima Station on the JR Chitose Line
Approx. 2-minute walk from the new station to be constructed near theballpark• Promoting the spread of ZEH-M (net zero energy housing)• Conducting environmentally and socially friendly real estate research and development through industry-academia
collaboration and collaboration with other industries• Promoting the improvement of operational efficiency with IT and increasing the percentage of people taking maternity
leave, childcare leave and paid holidays• Activating in-house communication through holding club activities, no overtime days and other events

Building Area

Approx. 50,000 m2

Capacity

Approx. 35,000

Number of Floors

6 floors above ground (70 meters from the ground) and 2 below (field)

Specifications

Retractable roof, natural grass[Social]• Contributing to regional revitalization and creation of communities through the development of “tonarie,” a community-based retail property• Assigning and increasing the number of people supporting those with dementia at retail properties, holding training
courses and conducting test driving of shopping taxis• Promoting proactive recruitment and success of female employees, the elderly and people with disabilities• Supporting “Nakanoshima Children’s Book Forest” and research of the “WT1 Cancer Vaccine,” a cancer
immunotherapy• Acquiring naming rights for the new ballpark of Hokkaido Nippon-Ham Fighters and participating in the surrounding
district development[Governance]• Conducting timely disclosure of business activities and management status• Holding regular and emergency meetings of the risk management committee, and thoroughly reporting to the risk
management committee in the case of an emergency or when an emergency is likely to occur• Establishing the Nomination and Remuneration Advisory Committee• Succession plan (successor candidate system) initiatives

910

ES-CON JAPAN Annual Report 2019

ES-CON JAPAN: Diversifying Business Overseas

ESCON JAPAN REIT Investment Corporation

ES-CON JAPAN launched overseas business development
as part of its new business development initiatives.
In March 2019, ES-CON JAPAN invested in BlackSand
Capital Opportunity Fund II-A L.P. that targets realestate opportunistic investments within the State of
Hawaii. This is a 5 million- dollar investment in a Hawaiifocused closed-end investment fund, which conducts
opportunistic investment in Hawaii. ES-CON JAPAN
believes that its commitment to the Fund will provide a
bridgehead for its entry into the real estate investment
business in overseas markets, going forward. The Fund to
be invested in by ES-CON JAPAN will target investments
A multifaceted real estate business capable of contributing
globally to society
in a variety of real estate fields including, retail properties,
office buildings, industrial facilities, apartments, hotels and for-sale housing in accordance with changes inmarket conditions. In terms of investment targets, the Fund looks to real properties, debt/securities, development/redevelopment projects and various other forms of real estate assets. As such, ES-CON JAPAN believes
that the Fund should be a beneficial investment instrument.
In addition, ES-CON JAPAN established its subsidiary ESCON JAPAN (Thailand) Co., Ltd. in Thailand in
July 2019, through which ES-CON JAPAN participated in a for-sale condominium project “KNIGHTSBRIDGESUKHUMVIT THEPHARAK” (474 units) undertaken by Origin Property PCL, a real estate developer inThailand. The condominium is located just a 1-minute walk from Thipphawan Station of the Mass Rapid
Transit (MRT) scheduled to open in 2021. This is a development project in an area with retail properties,
international schools, etc. in the surrounding area, which is expected to develop further.
ES-CON JAPAN will continue to focus its endeavors on developing new business fields with an eye on thenext era, and shall globally implement a multifaceted real estate business that can contribute to society.

ESCON REIT listed in February 2019 with ES-CON JAPAN as its main sponsor. In February 2020, it conducted its first public offering to raise its portfolio size to 51,980 million yen on an acquisition price basis.
ESCON REIT primarily invests in neighborhood shopping centers within the Kinki, Chukyo and Fukuoka
metropolitan areas and highly stable retail properties (leasehold land). ESCON REIT aims to build a portfolio
roughly split into these two asset types. Growth is supported by the diversified development and real estate
management capabilities of ES-CON JAPAN and use of Chubu Electric Power Group’s real estate informationand expertise. Furthermore, ESCON REIT was given an A- (stable) rating by R&I in November 2019.

The ES-CON JAPAN GROUP

Corporate Strategy Under the Third Medium-Term Management Plan
ES-CON JAPANOverseasbusiness

Commercial
development

Group Companies

Retail property
management
Collaboration

Logistics
development

Real estate
investment
management – AM

Rezoning andredevelopment
projects

For-salecondominium
and housingdevelopment

Hoteldevelopment

Apartment/condo
management
Collaboration

Officedevelopment

For-leaseresidencedevelopment

Saitama housingbusiness

REIT

As of February 2020
Portfolio
28 assets

Acquisition
Price

Appraised
Amount51.9 billion yen 56.7 billion yen

Occupancy

Appraised NOI
Yield

Appraised NOI
Yield After
Depreciation

Average
Remaining
Lease Term

99.6%

5.1%

4.6%

11.29 years

Third Medium-Term Management Plan: IDEAL to REAL 2022
ES-CON JAPAN launched its Third Medium-Term Management Plan, “IDEAL to REAL 2022,” over thethree-year period from Fiscal 2020 to Fiscal 2022 to take our business to the next level. The plan numerically calls
for net sales of 110,000 million yen and operating income of 15,200 million yen a year at the end of the plan.

Basic Policy
Aim to maximize corporate value by setting on track “management stability and sustainable growth” and also
accurately addressing the diversifying social issues through promotion of ESG initiatives.

1. Management stability and sustainable growth(1) Diversify businesses
1) Diversify development businesses and make them core businesses
In our condominium business, ES-CON JAPAN aims to steadily supply around 1,200 units per year in Kanto,
Kansai and now Chukyo as a new key region. In our retail development business, we will continue to develop
the “tonarie” brand of neighborhood shopping centers and contribute to revitalizing regions and promoting
compact cities by redeveloping and revitalizing operated retail properties.
In our other businesses, in addition to having developed 17 buildings in our hotel business, we will strengthen
our logistics business, which launched a new brand, LOGITRES, and undertake a variety of developments
such as office buildings and other projects.
2) Diversify business areas
ES-CON JAPAN intends to strengthen our business in the Chubu region known as Chukyo, growing it into

The ES-CON JAPAN GROUP
11

12

ES-CON JAPAN Annual Report 2019a base as important as the Tokyo metropolitan area and Kansai. We will also make an even greater contribution
to society by diversifying our areas of business through ES-CON Home and ES-CON Craft, which became
housing business subsidiaries in Saitama Prefecture in 2019, and aggressively investing in overseas business.
(2) Stabilize revenue structure by securing stock revenue bases
1) Strengthen real estate leasing business by developing and holding revenue-generating properties
ES-CON JAPAN seeks to secure stock income (revenue) that covers general and administrative expenses. Our
goal for general and administrative expense coverage of real estate segment income for Fiscal 2022, the final
year of the plan, is 81%.
2) Strengthen real estate operation business revenue
Specifically we want to reinforce our asset management revenue, property management revenue and management revenue and operation capabilities through three subsidiaries of ES-CON Asset Management, ES-CON
Property and ES-CON Living Service.
(3) Exert synergistic effects with the Chubu Electric Power Group
ES-CON JAPAN will use its real estate business know-how and Chubu Electric Power Group’s energy businessexpertise to engage in large development and other joint projects and research development of next-generation
condominiums.

Governance:a. Promoting greater disclosure for timely understanding of project and business statusesb. Building a governance system that can ensure sound, stable and transparent managementc. Reinforcing risk management in correlation with greater risks accompanying growth of business
3. Return to shareholders
In our dividend and capital policy, ES-CON JAPAN introduced a progressive dividend policy that sets thedividend payout ratio at 30% or more and, like in the Second Medium-Term Management Plan, aims for thedividend amount per share to not fall below the previous fiscal year’s dividend per share (DPS), making it apolicy to “not decrease the dividend amount, but rather only maintain or increase the dividend amount” inprinciple in order to strengthen returns to shareholders and for sustainably enhance corporate value.
Performance Plan Under the New Medium-Term Management Plan
Fiscal 2019
(Actual)Fiscal 2020
(Planned)

Fiscal 2021
(Planned)

Fiscal 2022
(Planned)

Net Sales (million yen)

72,10686,000100,000

110,000

Operating Income (million yen)

12,912

13,30014,00015,200Management Indicators Under the Medium-Term Management Plan
(4) External growth of ESCON REIT
1) Steady mutual growth as sponsor of ESCON REIT
ES-CON JAPAN will provide preferential negotiation rights and rights of first refusal to ESCON REIT andpromote external growth of ESCON REIT through the steady supply of properties as its sponsor.
2) Mutual growth through collaboration with the Chubu Electric Power Group (supporter of ESCON REIT)
Aiming for mutual growth, Chubu Electric Power Group will secure properties that can be supplied to ESCONREIT through support functions such as warehousing.
2. Address social issues through promotion of ESG initiatives
Environment:a. Reducing our environmental burden through energy conservation, circulation of resources and the promotion of environmentally friendly development, etc.
b. Improving the local environment through urban developmentc. Committing to work reforms with the aim of promoting healthy employee and employee family lives andultimately greater motivation and job satisfaction

Fiscal 2019 (Actual)

Fiscal 2022 (Planned)

ROE

26.8%

20.0%

ROIC

7.5%

5.5%

Equity Ratio

25.3%

25.0%

Dividend Payout Ratio

30.2%

30.0% or more

Performance of Real Estate Sales Business
Sales Shareby Area

2018
4.9%

Kanto

45.3%

2019
Chubu 6.5% Other

Other

7.2%

Kansai

49.7%

Kanto

28.3%

13

5.7%

Kansai

57.9%

Kanto

33.2%

80,000Net Sales
Units Soldmillion yen

66,710 648
million yen

Social:a. Creating a new future for local communities through regional revitalization based on urban developmentb. Promoting diversity in the workplacec. Socially contributing to better medical and welfare care and supporting safe, secure and comfortable lives
d. Developing overseas businesses as a means to realize global SDGs

2020
Other

50,519million yen

539

Kansai

61.0%

1,200

1,200

Fiscal 2021

Fiscal 2022

(Planned)(Planned)

units

units

765
units

units

units

Fiscal 2018

Fiscal 2019

(Actual)(Actual)Fiscal 2020
(Projection)

14

ES-CON JAPAN Annual Report 2019

Q

Can you first give us an overview of the current market conditions?

Well, the price of real estate continues to be high. Financial institutions started becoming a little stricter with theirfinancing in the summer to fall. However, this trend hasn’t transformed into an adjustment of prices as of yet.

Q

Do you not find it strange that even a well-known foreign asset manager
recently stepped in and bought back assets it had sold,and at a much higher price?

The positive yield gap in Japan, and stability of politics and the economy are being judged positively by theoverseas investment community and this is resulting in such transactions occurring. For the time being, thismeans that price adjustment will not occur.

Q

It is clear that the pressure from banks has been placed on independent
real estate firms, but does this not work in the favor of ES-CON JAPAN,
as a member of the Chubu Electric Power Group?

We are blessed by the very robust support provided by the strong credit of the Chubu Electric Power Group.
While independent developers are forced to keep an eye on the status of financial institutions, we remain able
to proactively select and acquire high-quality properties.

Interview ofPresident Takatoshi Ito
ES- CON JAPAN L t d .
Feb r u a r y 3, 2020

15

Q

Initially your share price dropped a little after Chubu Electric Poweracquired your shares, but can you explain why the share price stabilized
and rebounded since then?

Eighteen months have passed since we entered a capital and business partnership with Chubu Electric Powerand we feel that the market has positively interpreted the ensuing steps we took from opening a Nagoya Branch
to listing ESCON REIT, the three company support agreement concluded between Chuden Real Estate,
ESCON REIT and ES-CON ASSET MANAGEMENT Ltd. (the Asset Manager), as well as acquisitions by
ESCON REIT.

16

ES-CON JAPAN Annual Report 2019

Specifically, we will begin joint ventures on various condominiums during this year and onward.
Unfortunately, it takes several years before large development projects like smart cities for the next generation
are reflected in the performance, but I am confident that we are steadily demonstrating the synergy of ourcapital and business partnership with Chubu Electric Power. The market should assess us even more highly if
we publicize our accomplishments more effectively going forward.

Q

Do you feel you will be able to achieve the targets outlined in your new Third
Medium-Term Management Plan titled “IDEAL to REAL 2022” despite thedifficulty in acquiring properties?

The high prices of the current market make it difficult to acquire properties, but it does not make sense toacquire properties at prices that would not be profitable for us. Therefore we will continue to prudently selectthe properties we acquire. With that in mind, as for the Third Medium-Term Management Plan, we formulated it to put us on track to achieve business stability and sustainable growth. The prospects for 2020 and 2021
acquisitions are bright. We are presently in the market working to acquire properties to be sold in 2022 - weneed to scrutinize opportunities and not miss them. Our company is presently devoted to ensuring that ourobjectives under the Third Medium-Term Management Plan are met.

Q

Perspective drawing of the new ballpark (exterior view)

What is ES-CON JAPAN’s position on the environment,
society and governance (ESG) and its observance within the company?

As a corporate citizen we must not only generate profits but also contribute to local society through our business activities. This has taken the form of considering the environment, supporting the local community andbuilding a transparent management structure. We will be delivering a new condominium, Le Jade Okurayama,
our first to be adopted as one of the Ministry of the Environment’s FY2019 High-Rise ZEH-M Support
Projects, to market this year in Yokohama City, Kanagawa Prefecture, and we intend to focus on developing
more eco-friendly multi-family housing projects hereafter at a pace of one ZEH-M per year. Furthermore,through the synergy of our capital and business partnership with Chubu Electric Power, we will conduct joint
research into next-generation smart houses, connected homes and more, doing next-generation urban development through use of living environment energy, AI, etc.

17Q

You announced that ES-CON JAPAN had secured the naming rights forthe new ballpark being built by the Nippon-Ham Fighters in Hokkaido thatwill be named “ES CON FIELD HOKKAIDO.” What are the benefits of
securing these rights and did you find it difficult to gain understanding
within the company?

When I heard about the concept for this ballpark, I was impressed by the grand concept to not only build aballpark but also a town around it. I am elated that we were able to secure the opportunity to participate in thesurrounding town development as a developer. Honestly, the naming rights were not our first priority. In fact,
the Nippon-Ham Fighters made the proposal for the naming rights at the time our other discussions werebearing fruit. Thus our goal was not just to raise the awareness of ES-CON
JAPAN as a developer through the naming rights, but also to raise people’s
recognition of ES-CON JAPAN in the market by participating in this globally unique ballpark development. We, as a company, believe it was and is an
excellent opportunity.
When it was explained to our Board of Directors, I found that they deeply
shared the same conviction as I that this was a great opportunity in tandem with18

ES-CON JAPAN Annual Report 2019

the town development. They also understood that it was much more than simple naming rights. We have decided
to establish a base in Hokkaido in July 2020 that will help us heighten the synergy by reinforcing development ofreal estate in Hokkaido along with the ballpark concept. Thus we plan to make our company even stronger byleveraging this opportunity presented by working with a baseball team that is loved by the people of Hokkaido.

Q

Several years ago you talked about the importance of the stock business andusing the rents generated to cover general and administrative expenses, and ease
operations during economic downturns. Do you still believe in this approach?

We believe that as the company grows, it is important to increase the ratio of real estate leasing business revenues (stock-based revenues). Profits from “flow” business alone, especially the condominium development
business, are always subject to significant volatility. Therefore, we want to stabilize our financial foundation
with stock-based revenues and accumulate capital with our “fee-based” business.

Q

Until this past year, you were developing and selling many hotels,
but it appears this has tapered off.
What are you positioning as new businesses?

As for hotels, I think there is a bit of over-supply right now. With a five to ten year perspective it is irrefutablethat the number of inbound travelers will increase. I believe the oversupply can be covered with future demand,
but we started slowing down our hotel development from about eighteen months ago because of other issues
such as a lack of labor, lack of good operators and the fact that good operators had opened enough hotels fortheir capacity. Furthermore, land acquisition prices rose significantly within the hotel boom and we remaincommitted to our model of not going out of our way to buy expensive land. Therefore, sales from hotels will
inevitably drop compared to the last two years.
As for the business sectors that we see that can replace this, we continue to be good at developing neighborhood shopping centers and redeveloping existing retail properties. Therefore development in this area is growing. Furthermore, we have launched a new logistics property brand “LOGITRES” and completed the first
property “LOGITRES Tojo” in Kato City, Hyogo Prefecture, in September 2019. Our actions in the new
business have enabled us to properly ascertain the needs of logistics properties including those of the cargoowners, and this has helped mold our strategy. We have also launched a land readjustment project to develop a
logistics park in Koga City, Fukuoka Prefecture, for which construction was completed in December of lastyear. We will strengthen our logistics business as a potential core business.
In addition, since hotel demand has settled down, we will work to develop and supply office buildings on
the scale that we previously did with hotels. We will primarily be involved in developing office buildings toensure steady growth and as a new focus.

19

We have positioned the formation of a foundation for further growth as the key component of the new
Third Medium-Term Management Plan. This includes tackling new businesses to achieve steady growth, reinforcing the organization, spreading a greater awareness of the importance of compliance and further creating abase to ensure greater growth. These three years are also positioned as a preparatory time for achieving greater
growth from 2023 onwards. We intend to maximize our corporate value for continued growth, so I would liketo again ask for the support of our shareholders.

Q

What can you tell us about ES-CON JAPAN’s strategies for overseas?

We started initiatives to invest overseas last year. However, unlike major corporations, we do not specify the area
or target and strategically invest in those areas. Instead, we utilize our network of relationships and make decisions based on each piece of information and opportunity we obtain. Thus we have started a wide variety of
projects. This is really our seed planting time for the overseas business. These three years are when we build trustwith the leaders of local overseas corporations so we can utilize relationships in those areas.
We are now planning to embark overseas in 2023 and after with the companies we have built relationshipsof trust with over the next three years. Of course, we can make some successful investments within the current
Third Medium-Term Management Plan that ends in 2022, but I believe the large growth in our overseas business will happen in earnest from 2023.

Q

In closing, you have conducted a number of M&As including a company thatbuilds homes in Saitama Prefecture. How do you assess your M&As to date?

The home builder was our first M&A. We invested funds and acquired its shares to make it a subsidiary and I
believe over the past year we have been able to share our corporate vision and philosophy and to align our
vectors so that its business is more focused on the customer, and not only the subsidiary but ES-CON JAPANcan further contribute to local communities.
Our new subsidiaries ES-CON Home and ES-CON Craft are located in an area where we have no knowledge and specialize in homes, an area where customer needs are distinctly different from those of our customers.
However, we are convinced they have a solid grasp of the needs of their clients. I believe we have been able tobuild up the foundation of the companies in the past six months so that they can contribute to the profitabilityof our group. It is my intent to gradually consider other M&A opportunities after verifying their fit with ourgroup, their corporate culture and their vision.
We look forward to and sincerely request your continued support.

20

ES-CON JAPAN Annual Report 2019

Management: Directors and Auditors

Tadashi Fukuda

Junya Kikuchi

Tomohiko Egashira

Takatoshi Ito

Minoru Nakanishi

Kenji Fujita

Takatoshi Ito President & Representative Director

Tomohiko Egashira Managing Director

September 2001
February 2006
March
2007
March
2011
May
2013
July
2014
November 2014
September 2016
July
2018
July
2019

April
January
July
February
MarchJanuary

2002
2012
2012
2013
2015
2016

March

2017

December 2019
January
2020

Joined ES-CON JAPANAppointed Operating Officer
Appointed Managing Director
Appointed President and Representative Director (present post)
Appointed President and Representative Director at ES-CON Property
Appointed Director at ES-CON Asset Management (present post)
Appointed Executive Operating Officer at ES-CON JAPAN (present post)
Appointed Director at ES-CON Living Service (present post)
Appointed Director at ES-CON Property (present post)
Appointed Director at One’s Own House Co., Ltd. (currently ES-CON Home) (present post)
Appointed Director at Rise Home Co., Ltd. (currently ES-CON Craft) (present post)
Appointed Director at ES-CON Global Works (present post)
Appointed member of Nomination and Remuneration Advisory Committee at ES-CON JAPAN (present post)

November 2017
July
2018

2011
2012
2013
2013
2013
2014
2014
2015

September 2016
March
2017
December 2019

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 at ES-CON JAPAN (present post)
Appointed Director at ES-CON Asset Management (present post)
Appointed Operating Officer at ES-CON JAPANAppointed Managing Executive Officer at ES-CON JAPANAppointed Managing Operating Officer at ES-CON JAPANAppointed Director at ES-CON Living Service (present post)
Appointed Senior Managing Director at ES-CON JAPAN (present post)
Appointed Senior Operating Officer at ES-CON JAPAN (present post)
Appointed Director at ES-CON Global Works (present post)

Hiroto Mizobata

Joined ES-CON JAPANAppointed Head of Corporate Officer Division
Appointed Head of Corporate Officer Tokyo Division
Appointed Head of Corporate Officer Development Division
Appointed Director
Appointed Operating Officer
Appointed Operating Officer and Head of Development Division (present post)
Appointed Managing Director (present post)
Appointed Managing Operating Officer and Head of Development Division (present post)
Appointed Head of Fukuoka Branch OfficeAppointed Director at ES-CON Property (present post)

Kenji Fujita Director
March

2019

January

2020

Minoru Nakanishi Senior Managing Director
August
June
March
May
AugustJuly
November
March

Masayoshi Nishitake

Appointed Director at ES-CON JAPAN (present post)
Appointed Operating Officer (present post)
Appointed Head of General Affairs Department
Appointed Head of President’s Office at ES-CON JAPAN (present post)

Junya Kikuchi Director
March

2010

Appointed Director at ES-CON JAPAN (present post)

Masayoshi Nishitake Full-Time Auditor [Director]
March

2020

Appointed Director (Full-Time Auditor Director) at ES-CON JAPAN (present post)
Appointed member of Nomination and Remuneration Advisory Committee at ES-CON JAPAN (present post)

Hiroto Mizobata Auditor [Director]
March
March
January

2015
2016
2020

Appointed Auditor at ES-CON JAPANAppointed Director at ES-CON JAPAN (Auditor Director) (present post)
Appointed member of Nomination and Remuneration Advisory Committee at ES-CON JAPAN (present post)

Tadashi Fukuda Auditor [Director]
March

21

2020

Appointed Director (Auditor Director) at ES-CON JAPAN (present post)
Appointed member of Nomination and Remuneration Advisory Committee at ES-CON JAPAN (present post)

22

ES-CON JAPAN Annual Report 2019

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

23(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.
• 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 our 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.

(3) Nomination and Remuneration Advisory Committee
The Nomination and Remuneration Advisory Committee deliberates and determines the nomination andremuneration of directors as an advisory body of the board of directors.
The committee shall be composed of members, of which at least more than half shall be outside directors, andthus strengthen the independence and transparency concerning nominations and remuneration.
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.
24

ES-CON JAPAN Annual Report 2019

Basic Philosophy of Corporate GovernanceThe corporate activities of ES-CON JAPAN are made possible by the support of our customers, shareholders,business partners, local communities, and other stakeholders. In order to maintain the trust of these stakeholders, we recognize the importance of robust corporate governance. In addition to the legally-mandated functionsof the board of directors and auditing committee, we use internal and external audits to improve management
efficiency and transparency to fulfill our responsibility to society.

Company Overview: ES-CON JAPAN Ltd.
Tokyo Head Office
20F The Okura Prestige Tower
2-10-4 Toranomon, Minato-ku, Tokyo, 105-0001 Japan
TEL: +81-3-6230-9303
FAX: +81-3-6230-9304

Thorough Implementation of Compliance
Based on our Corporate Ethics and Conduct Charter, which declares our implementation of corporate ethics
and social responsibility, we have set out a Compliance Code of Conduct and a Compliance Manual so that
officers and employees behave in a way that conforms to laws, regulations, our Articles of Incorporation, andsocial norms, and have established a thorough enforcement structure in our Compliance Regulations. Full
implementation of these is achieved through the instructions of the compliance officer and cooperation of thecompliance department and each other department.

Osaka Head Office
13F Meiji Yasuda Life Insurance Osaka Midosuji Building
4-1-1 Fushimimachi, Chuo-ku, Osaka, 541-0044 Japan
TEL: +81-6-6223-8050
FAX: +81-6-6223-8051
Nagoya Office

CSR Initiatives
With the environmental burden produced by business activities constantly in mind, we prioritize environmentally-friendly development and design. Whether it is installing garbage disposals that reduce food waste, toilets
that use 50% less water, or highly-insulated thermal baths, we take measures to consider the environment in allof our properties. We are assertively promoting resource-saving housing that reduces the environmental burden
in order to build a better future.

5F Hirokoji Sakae Building
2-4-1 Sakae, Naka-ku, Nagoya, Aichi, 460-0008 Japan
TEL: +81-52-218-4820
FAX: +81-52-218-4821
Fukuoka Office
9F Yasuda No. 7 Building
13-15 Kamikawabatamachi, Hakata-ku, Fukuoka, 812-0026 Japan
TEL: +81-92-283-1531
FAX: +81-92-283-1532

Furthermore, we are actively supporting the government’s regional revitalization projects, undertaken to address
population decline and the super-aging society.
• Osaka Prefecture’s regional revitalization projects• Midosuji illumination project• Urban space project to enjoy the Port of Osaka and entire Kansai region by bicycle• Project to improve inflow by public transportation• New child-raising subsidy project• Fukuoka Prefecture’s regional revitalization projects• Sacred Island of Okinoshima and Associated Sites in the Munakata Region revitalization project• Junior athlete training project• Supporting member of architect Tadao Ando’s Nakanoshima Forest of Children’s Books Fund

Established: April 18, 1995
Capital: 6,275,000,000 yen (as of end of 2019)
Revenue: 72,106,000,000 yen (consolidated; fiscal year ended December 2019)
Number of Employees: 234 (consolidated; as of end of 2019)
159 (non-consolidated; as of end of 2019)
Businesses: Real estate sale
Real estate leasing
Real estate planning, brokerage and consultation

25

26

ES-CON JAPAN Annual Report 2019

Property Descriptions

Grand Le JADE Takatsuki Tenjin[Condominium]- This condominium is near Takatsuki Station on the JR Kyoto
Line and Takatsuki-shi Station on the Hankyu Kyoto Line, offering transfer-less access to central Kyoto and Osaka.
- JR Takatsuki Station is surrounded by diverse facilities foreveryday life, public services and large-scale shopping centers,
and the completion of the JR Takatsuki Station Northeast
District Land Readjustment Project in 2016 made the location
convenient and cutting-edge with a hospital, plaza and more.
- With an entrance adorned with trees and flowers reminiscentof the nearby Jogu Tenmangu Shrine, all residences facing
south and only two residences per floor to maintain a sense of
independence and openness, it is an elegant building with bothnature and local history in spite of its urban setting.

tonarie Yamato-Takada(Good Design Award 2019)[Retail property]

Grand Le JADE Todoroki[Condominium]- This property enables direct access to popular areas such as Jiyugaoka and Futakotamagawa from Todoroki and Oyamadai Stations on the Tokyu
Oimachi Line. It also offers smooth access to major stations in central Tokyo including Shibuya, Roppongi and Shinagawa Stations, and is also convenientin terms of commuting and shopping on weekends and holidays.
- It is located in a quiet category I exclusive low-rise residential district on a gentle hill, and historical and cultural spots such as Todoroki Valley, which is
the only valley in the 23 wards of Tokyo and designated as a place of scenic beauty in Tokyo, and Todoroki Fudoson, which is also famous as a sacred spot,
are located in the surrounding area. Also, a supermarket, library, elementary school and junior high school are located within a 10-minute waking distance, and the location is attractive with high convenience and excellent quality.
- It has a stately exterior design suitable for the Todoroki area with a long history, and abundant plants within the site, creating a space with full of greenery. The four seasons at the courtyard can be enjoyed from the entrance and lounge that have large glass windows, and the property offers a comfortableand beautiful living space to residents such as having a private garden where people can relax like a detached house and a flat underground self-propelledparking lot at some units.

- This property is directly connected to Yamato-Takada
Station on the Kintetsu Osaka Line by a pedestrian deck. It
is situated in a convenient location within 30 minutes from
Osaka-Namba Station and faces Prefectural Road 5. It isalso close from major roads, and offers easy access bycar.

Le JADE Sumakaihin Koen
[Condominium]- This condominium is a three-minute walk from Sumakaihinkoen
Station on the JR Kobe Line and a 10-minute walk from
Tsukimiyama Station, an express stop on the Sanyo Electric
Railway Main Line, offering smooth access to Sannomiya, Osakaand other downtown areas.

- It is a retail property occupied by a large supermarket as
its core tenant as well as by a fresh food store, bakery,fitness club and clinic, which can be used by everyone in
the local community on a daily basis, and forming acommunity.

- An excellent living environment with educational facilities,
stores and medical facilities within walking distance, this location is also near the beach – a mere three-minute walk to Suma
Seaside Park and five-minute walk to Suma Beach.
- The exterior and entrance design incorporate local Suma
motifs such as the beach, pine trees and waves, while options for
personal yards, parking spots and two-story apartments create
an extensive menu of plan variations for individual tastes.

Le JADE Shinkanaoka Park Fields[Condominium]- This condominium is a four-minute walk from Shinkanaoka
Station on the Osaka Metro Midosuji Line, offering transfer-lessaccess to Shin-Osaka Station, from which Tennoji Station, Umeda
Station and other parts of central Osaka as well as the Tokaido
Shinkansen are accessible, making for easy commuting and travel.
- With large retail facilities, financial institutions, government facilities and various educational facilities around Shinkanaoka Station,
Shinkanaoka Park in front of the condominium and the sports facilities of Kanaoka Park and 320,000 trees of 200 different species at
Oizumi Ryokuchi Park a 15-minute walk away, the area is appealing
both for its convenience and nature.
- With over 80% of the 204 residences facing southwest overlooking
the park, providing a great view and natural light, and extensive
common facilities such as the beautiful Fields Garden for residents
to relax and interact and a library with books selected by the
Junkudo bookstore and a room for parties, this is a comfortableliving space for all ages.

27

28

ES-CON JAPAN Annual Report 2019

Grand Le JADE Shonan Enoshima[Condominium]- This property is located along National Route 134, which is the
symbol of Shonan, and is a 9-minute walk from Katase-Enoshima
Station on the Odakyu Enoshima Line and Shonan-Kaigan-Koen
Station on the Enoshima Electric Railway Line. It is situated in afavorable location offering smooth access to major stations in central Tokyo including Tokyo, Shinjuku and Shibuya Stations and situated also near the beach (approx. 120m).
- Its surrounding is a location where a park overlooking the beach of
Shonan and leisure facilities including “Enoshima Aquarium” arelocated and where various retail properties, cafes and other restaurants, educational facilities and medical facilities concentrate.
- It consists mainly of residential units facing the southwest direction with an ocean view overlooking the shoreline and Mt. Fuji. It
adopts a design enabling residents to enjoy the life of Shonan suchas having a sky deck on the rooftop and a shower room with lockers
and a place to store surfboards inside the building, and offers aunique living space like a resort.

Le JADE Nakano (Good Design Award 2019)[Condominium]- This condominium is a three-minute walk from three stations on four lines, including Nakano Station on the JR Chuo, Sobu, and Tokyo Metro Tozai Linesand Higashi-Nakano Station on the Toei Oedo Line, offering smooth access to major stations in central Tokyo like Shinjuku, Tokyo, Shibuya and Otemachi
Stations.
- Despite being in a quiet, Type I low-rise residential zone where there are strict regulations on building height and usage, it is also an appealing location
due to legacy shopping streets like Nakano Broadway and Nakano Sun Mall as well as a major redevelopment on the south side of Nakano Station.
- A green lane along a private road south of the building ensures privacy, and all of the residences face south. In some, windows near the ceiling brighten
the interior and enhance the feeling of openness. With terraces and personal gardens making the apartments feel like detached houses, this is a bright,
open, high-quality living space.

Le JADE Tsujido Higashi Kaigan[Condominium]- This condominium is near Tsujido Station on the
JR Tokaido Main Line and Kugenuma-Kaigan
Station on the Odakyu Enoshima Line, offering
direct access to major stations in central Tokyo like
Yokohama, Shinagawa and Tokyo Stations as well as
popular tourist spots like Kamakura and Enoshima.

tonarie Utsunomiya[Retail property]- In the area surrounding JR Utsunomiya Station, light railtransit (LRT) is scheduled to open in 2022, and development of
new city bases such as convention facilities, hotels and retailproperties are currently in progress and further revitalization is
expected. “tonarie Utsunomiya,” the first facility under ES-CON
JAPAN’s brand “tonarie” in the Kanto district, opened at a location which is a 1-minute walk from the west exit of JR
Utsunomiya Station with such local environment.
- It is a retail property with a household appliance store as wellas handling various products and services including general
clothing, books and cooking studios, and used by everyone in
the local community on a daily basis.

LOGITRES Tojo
[Logistics property]- This property is close to “Hyogo Tojo Interchange” on the Chugoku Expressway,
and is situated in a location with excellent traffic convenience offering easy accessto the Kansai and Chugoku regions.
- It acquired a certification of Rank A in Comprehensive Assessment System for
Built Environment Efficiency (CASBEE). In addition, this property is an environmentally friendly logistics property adopting ES-CON JAPAN’s first solar power
generation business.

- Located near Shonan’s rich nature and a mere
four-minute walk to the beach, the buildings are ina Type I low-rise residential zone where there arestrict regulations on building height and usage anda quiet residential neighborhood with even stricter
regulations on scenery preservation, but strikes anappealing balance with ample parks, medical facilities, educational facilities and shops nearby.
- With all residences facing south, an owner’s
garden between the two low-rise buildings, one
facing the sea and one facing the garden, and over
470 Washington palms and other iconic trees on thepremises, the design feels like a resort matching
the beautiful surrounding neighborhood.

29

30

ES-CON JAPAN Annual Report 2019

Financial Section
The 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.

Operating Results
As a result of these endeavors, business performance for Fiscal 2019 was net sales of 72,106 million yen (up 32.7%),
operating income of 12,912 million yen (up 11.7%), ordinary income of 11,810 million yen (up 12.5%) and profit
72,106
72,106

Sales(Unit: million yen)Management Discussion and Analysis
Overview
In the consolidated fiscal year under review (fiscal year ended December 2019, or Fiscal 2019), the Japanese economy remainedin a situation that calls for attention to the impact of the U.S.-China trade friction on the world economy as well as uncertainties in overseas economies, including the downside risk in the Chinese economy and the issue of Brexit, in addition to the effectsof fluctuation in the financial and capital markets. These and other factors have kept the outlook of the economy clouded.
The real estate industry in which the ES-CON JAPAN Group operates held firm due in part to low interest rates frommonetary easing policies, yet the situation warrants no optimism because of such factors as a rise in land prices, intensifiedcompetition in acquiring land and construction costs remaining high.
Given such circumstances, we have proactively developed multifaceted businesses in Fiscal 2019 as the final fiscal year of“IDEAL to REAL 2019,” the second medium-term management plan set for the period of three years from Fiscal 2017 to
Fiscal 2019. Our efforts resulted in performance that accompanied figures substantially higher than the initially plannedtargets and management goals that are generally in line with the plans.
In the real estate sales business, which is our core business, we conducted income-generating real estate sales, etc., andmade steady progress in condominium sales with many projects sold out upon completion or contracted to sell out before
completion. For the hotel development projects incorporating inbound tourism needs, sales of 3 projects developed in
Osaka have completed. We also acquired several new retail properties in regional cities while working on value enhancement of retail properties under operation and redevelopment projects, and worked to promote diversification of the officedevelopment business with an eye on the next era and globalization.
In the real estate leasing business, efforts are being made to secure stable rental income from retail properties held by theCompany and to enhance their asset value. In the real estate planning agency and consulting business, focus is placed on
being a business achieving high profit margins through subcontracting, planning agency and consulting and other nonassets by leveraging the planning and other strengths of ES-CON JAPAN.
With ESCON JAPAN REIT Investment Corporation (“ESCON REIT”) listed on the Tokyo Stock Exchange Real Estate
Investment Trust Securities Market in February 2019, the ES-CON JAPAN Group fully supports enhancement of earnings and stable growth of ESCON REIT as a sponsor and aims for further growth. As part of the endeavors, a support
agreement was concluded with Chuden Real Estate Co., Inc. to cover a wide range of support including warehousing
function. A sale and purchase agreement was concluded in November 2019 for the transfer of certain retail properties
owned by ES-CON JAPAN to Chuden Real Estate utilizing temporary warehousing function with a precondition totransfer the real estate to ESCON REIT, based on the support agreement.
In July 2019, ES-CON JAPAN acquired shares of One’s Own House Co., Ltd. (currently ES-CON Home Ltd.) and Rise
Home Co., Ltd., (currently ES-CON Craft Ltd.) both specializing in detached houses, and made them fully-owned subsidiaries. The Company has also embarked on development of its overseas business, investing in a Hawaii-focused realestate investment fund and establishing a subsidiary in Thailand to participate in a joint development project for a condominium near central Bangkok.

31

27,70527,705

FiscalFiscal2015
2015

34,34734,347

FiscalFiscal2016
2016

44,72444,724

Operating Income
Operating
IncomeOrdinary Income
Ordinary Income

54,32554,325

4,680
4,012
4,680
3,575
4,012
3,126
3,575
3,126

FiscalFiscal2017
2017(Unit: million yen)

FiscalFiscal
2018
2018

7,226
7,226

FiscalFiscal
2019
2019

8,155
8,155

FiscalFiscal2015
2015

FiscalFiscal
2016
2016

3,936
3,936

44.65
44.65
FiscalFiscal2016
2016

FiscalFiscal2017
2017

FiscalFiscal2018
2018

FiscalFiscal2019
2019

attributable to owners of parent of 8,155 million yen (up12.9%), all on a year-on-year basis.

Results by Segment
Real estate sales businessIn the real estate sales business, activities including sales ofcondominiums and income-generating real estate resulted
in net sales of 66,710 million yen (up 32.1% year-on-year)
and segment income of 13,802 million yen (up 11.8%
year-on-year).

FiscalFiscal2017
2017

FiscalFiscal2018
2018

FiscalFiscal2015
2015

FiscalFiscal2019
2019

490.08490.08(Unit: yen)

208.28208.28

11,810

7,042
7,042
5,988
5,988

Per Share Information
400.47400.47

Net Assets
Net
Net Assets
IncomeNet Income

5,456
5,456

FiscalFiscal2015
2015

11,561
11,561
10,498
10,498(Unit: million yen)

Net Income Attributable to Parent

3,039
3,039

12,912

Operating Income/Ordinary Income 12,912
11,810259.07259.07315.14315.14119.17119.17105.98105.98

81.77
81.77

58.76
58.76

FiscalFiscal2015
2015

FiscalFiscal2017
2017

FiscalFiscal2018
2018

FiscalFiscal2019
2019

Sales Distribution Ratio by Segment
0.7%
6.3%

0.5%
7.0%

Fiscal2018

93.0%

Fiscal2019

92.5%

Real Estate Sales Business
Real Estate Leasing Business
Real Estate Planning Agency and Consulting Business

Real estate leasing businessIn the real estate leasing business, focus was placed on leasing activities and the property management business in view ofenhancement of asset value, including increase in rental income of owned income-generating real estate, resulting in net
sales of 5,022 million yen (up 47.7% year-on-year) and segment income of 3,001 million yen (up 41.0% year-on-year).

Real estate planning agency and consulting business32

ES-CON JAPAN Annual Report 2019

Real Estate Sales Business

Real Estate Leasing Business(Unit: million yen)

(Unit: million yen)

Net Sales
Segment Income

Net Sales
Segment Income

66,71012,341

Real Estate Planning Agency
and Consulting Business(Unit: million yen)

5,022

50,5193,459

41,168

3,400

405

3,001

372

369

2,128

7,978

286

1,761
96

Fiscal2018

Fiscal
2019

Fiscal2017

Fiscal2018

Fiscal
2019

Fiscal2017

Fiscal 2018

Fiscal2018

Fiscal2019

Total assets: 109,747

Fiscal 2019

Liabilities and Fiscal 2018
Net Assets

Shareholders’equity: 27,352

Fiscal 2019

Interest-bearing Liabilities

Total Assets
Net Assets(Unit: million yen)

70,661

109,747
86,43551,17773,703

Non-current liabilities: 45,176
Long-term loans
payable: 44,568

13,994

17,363

21,433Fiscal2015

Fiscal2016

Fiscal2017

27,359Fiscal2018

56,544

Short-term loans payable: 1,720
Current portion of
long-term loans payable: 23,993
Current portion of bonds:
40

Liabilities and net assets: 132,696
Non-current liabilities: 48,950
Long-term loans
payable: 47,720

Current liabilities: 50,199
Short-term loans payable: 4,580
Current portion of
long-term loans payable: 32,415
Current portion of bonds:
40

Status of Cash Flows
Cash and cash equivalents (“net cash”) in Fiscal 2019 increased by 5,849 million yen compared with the end of Fiscal 2018
to 22,413 million yen (16,563 million yen at the end of Fiscal 2018). The following outlines the cash flows and the factorsof changes in cash flows in fiscal year ended December 2019.

Cash flows from operating activities
Cash flows from operating activities in Fiscal 2019 amounted to net cash provided by operating activities of 122 million
yen (net cash used in operating activities of 7,123 million yen in Fiscal 2018). This was mainly attributable to recording
profit before income taxes of 11,803 million yen and increase in inventories of 10,179 million yen.

Cash flows from investing activities

Cash flows from financing activities

33,546

Fiscal2019

Current liabilities: 37,210

Cash flows from investing activities in Fiscal 2019 amounted to net cash used in investing activities of 4,770 million yen(net cash provided by investing activities of 223 million yen in Fiscal 2018). This was mainly attributable to purchase ofinvestment securities of 1,641 million yen and purchase of non-current assets of 3,295 million yen.

39,73958,08833

85,019Cash and deposits:
22,511
Real estate for sale:
24,234
Real estate for sale in process: 59,619

Liabilities and net assets: 109,747

Assets, Liabilities and Net Assets

132,696

Current assets: 114,137

Non-current assets: 18,558

Shareholders’equity: 33,288

Assets at the end of Fiscal 2019 increased by 22,949 million yen compared with the end of Fiscal 2018 to 132,696 million
yen. This was mainly attributable to cash and deposits increasing by 5,912 million yen, inventories increasing by 11,066
million yen and land increasing by 2,092 million yen while part of real estate for sale in process (8,410 million yen) wastransferred to buildings and structures (504 million yen) and land (7,905 million yen) due to a change in the purpose ofholding the real estate.
Liabilities increased by 16,762 million yen in comparison with the end of Fiscal 2018 to 99,149 million yen. This was mainly
attributable to long-term loans payable, short-term loans payable and bonds increasing by 14,392 million yen in total.
Net assets increased by 6,187 million yen in comparison with the end of Fiscal 2018 to 33,546 million yen. This was due
to recording of 8,155 million yen as profit attributable to owners of parent against payment of 2,209 million yen in dividends of surplus and 40 million yen in the purchase of treasury shares. As a result, the equity ratio came to 25.3% (24.9%
at the end of Fiscal 2018).

Cash and deposits:
16,598
Real estate for sale:
15,308
Real estate for sale in process: 65,890

Total assets: 132,696

Net assets: 33,546

Analysis of Financial Position(Unit: million yen)

Current assets: 104,642

Property, plant and equipment: 1,658
Intangible assets:
30
Investments and other assets: 3,415

Net assets: 27,359

In the real estate planning agency and consulting business, proactive efforts were made in receiving orders for planning,
consultation and other consigned services by making the best use of our planning and multifaceted business building
abilities. Net sales stood at 372 million yen (down 8.2% year-on-year) and segment income was 286 million yen (down
22.2% year-on-year).

Total Assets/Net Assets(Unit: million yen)

Property, plant and equipment: 13,433
Intangible assets:
492
Investments and other assets: 4,632

85
Fiscal2017

AssetsNon-current assets: 5,104

Net Sales
Segment Income

13,802

Overview of Consolidated Balance Sheet

Fiscal2015

Fiscal2016

Fiscal2017

Fiscal2018

Fiscal2019

Cash flows from financing activities in Fiscal 2019 amounted to net cash provided by financing activities of 10,501 million
yen (net cash provided by financing activities of 12,818 million yen in Fiscal 2018). This was mainly attributable to proceeds from and repayments of long-term loans payable and short-term loans payable amounting to net proceeds of 12,793
million yen, cash dividends paid of 2,207 million yen and payments due to purchase of treasury shares of 40 million yen.

34

ES-CON JAPAN Annual Report 2019

Consolidated Balance Sheet(Unit: million yen)

AssetsCurrent assets
Cash and deposits
Notes and accounts receivable - trade
Real estate for sale
Deferred tax assets
Other
Total current assets
Non-current assets
Property, plant and equipment
Buildings and structures
Accumulated depreciation
Buildings and structures, net
VehiclesAccumulated depreciation
Vehicles, net
Land
Leased assets
Accumulated depreciation
Leased assets, net
Construction in progress
Other
Accumulated depreciation
Other, net
Total property, plant and equipment
Intangible assets
Goodwill
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
Total assets

35(Unit: million yen)

Fiscal 2018

Fiscal 2019

Fiscal 2018

Fiscal 2019(as of December 31, 2018)(as of December 31, 2019)(as of December 31, 2018)(as of December 31, 2019)

1,720
23,993
40
0
1,731
1,448
3,051
4,933
33
255
37,2104,580
32,415
40
1
2,097
3,396
2,809
4,733
—
126
50,199270
44,568
1
—
97
30
77
130
45,17682,387230
47,720
0
2
114
35
249
597
48,95099,1496,259
1,988
20,310(1,207)27,3526,275
2,004
26,256(1,247)33,2886—
6
1—
27,359109,747

256
(0)
256
1
0
33,546132,696

16,598491
15,30865,8906,353
104,642

22,511
598
24,234
59,6197,173
114,137

1,459
(462)
997
—
—
—
623
9
(6)
2
—
142
(107)
35
1,658

3,216
(566)
2,649
7
(6)
1
10,621
4
(3)
1
0
281
(122)
159
13,433

—
30
30

436
56
492

2,077
359
1,016
(37)
3,415
5,104
109,747

2,711
662
1,296
(37)
4,632
18,558132,696

Liabilities
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
Deposits received
Asset retirement obligations
Other
Total current liabilities
Non-current liabilities
Bonds payable
Long-term loans payable
Lease obligations
Deferred tax liabilities
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
Foreign currency translation adjustment
Total accumulated other comprehensive income
Subscription rights to shares
Non-controlling interests
Total net assets
Total liabilities and net assets

36

ES-CON JAPAN Annual Report 2019

Consolidated Statement of Income andConsolidated Statement of Comprehensive Income

Consolidated Statement of Comprehensive IncomeConsolidated Statement of Income

ProfitOther comprehensive income
Valuation difference on available-for-sale securities
Foreign currency translation adjustment
Total other comprehensive income
Comprehensive income
Comprehensive income attributable to:Comprehensive income attributable to owners of parent
Comprehensive income attributable to non-controlling interests

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
Reversal of allowance for doubtful accounts
Other
Total non-operating income
Non-operating expenses
Interest expenses
Share of loss of entities accounted for using equity method
Other
Total non-operating expenses
Ordinary income
Extraordinary income
Gain on reversal of subscription rights to shares
Total extraordinary income
Extraordinary losses
Loss on retirement of non-current assets
Impairment loss
Total extraordinary losses
Profit before income taxes
Income taxes - current
Income taxes - deferred
Total income taxes
ProfitProfit attributable to owners of parent

37(Unit: million yen)

Fiscal 2018

Fiscal 2019(from January 1, 2018
to December 31, 2018)(from January 1, 2019
to December 31, 2019)

54,32537,397
16,927

72,10652,33919,767

1,965
459
190
1,126
28
12
373
328
881
5,366
11,561

2,218
726
210
1,375
16
5
388
639
1,273
6,854
12,912

0
2
12
—
2
17

5
35
30
8
4
84

1,020
—
60
1,080
10,498

1,143
33
9
1,186
11,810

0
0

0
0

5
47
52
10,445
1,604
1,615
3,219
7,226
7,226

7
—
7
11,803
4,057
(409)
3,648
8,155
8,155

(Unit: million yen)

Fiscal 2018

Fiscal 2019(from January 1, 2018
to December 31, 2018)(from January 1, 2019
to December 31, 2019)

7,226

8,155

(14)
—
(14)
7,211

250
(0)
250
8,405

7,211
—

8,405
—

Consolidated Statement of Changes in Equity
Fiscal year ended December 2018 (from January 1, 2018 to December 31, 2018)

(Unit: million yen)

Accumulated othercomprehensive income
Sub­
Total
scription Total net
Total
Valuation
accumulated rights to assets
Capital Retained Treasury share- difference on
other
share
surplus earnings shares holders’ available-forcomprehenequity sale securities
sive income
1,953 14,322(1,089) 21,411
20
20
1 21,433
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

6,224
35

35
(1,238)
7,226
(131)
13

35
6,259

35
1,988

5,987
20,310(117)(1,207)70(1,238)
7,226
(131)
13
5,940
27,35270(1,238)
7,226
(131)
13
(14)

(14)

0

(14)

(14)
6

(14)
6

0
1

5,926
27,359Fiscal year ended December 2019 (from January 1, 2019 to December 31, 2019)

(Unit: million yen)

Accumulated othercomprehensive income
Total
Sub­
Valuation Foreign
Total
accumu- scription NonTotal difference currency
Trea­
lated rights to controlling net
share- on avail- translaCapital Capital Re­tainedinterests assets
sury
other
share
stock surplus earnings
holders’ able-for- tion
sharescompreequity
sale
adjusthensive
securities ment
incomeBalance at beginning of current period 6,259 1,988 20,310 (1,207) 27,352
6—
6
1— 27,359
Changes of items during period
Issuance of new shares
15
15
30
30
Dividends of surplus(2,209)(2,209)(2,209)Profit attributable to owners of parent
8,155
8,155
8,155
Purchase of treasury shares
(40)
(40)
(40)
Disposal of treasury shares000
Net changes of items other than
250
(0)
250
(0)
0
250
shareholders’ equity
Total changes of items during period
15
15 5,945(40) 5,936
250
(0)
250
(0)
0 6,187
0 33,546
Balance at end of current period
6,275 2,004 26,256 (1,247) 33,288
256
(0)
256
1
Shareholders’ equity

38

ES-CON JAPAN Annual Report 2019

Consolidated Statement of Cash Flows

Notes to Financial Statements

(Unit: million yen)

Cash flows from operating activities
Profit before income taxes
Depreciation
Impairment loss
Amortization of goodwill
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
Foreign exchange losses (gains)Share of loss (profit) of entities accounted for using equity method
Loss on retirement of non-current assets
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
Purchase of shares of subsidiaries resulting in change in scope of
consolidation
Payments of loans receivableCollection 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
Proceeds from share issuance to non-controlling shareholders
Purchase of treasury shares
Cash dividends paid
Net cash provided by (used in) financing activities
Translation differences on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
39

Fiscal 2018

Fiscal 2019(from January 1, 2018
to December 31, 2018)(from January 1, 2019
to December 31, 2019)

10,445
80
47
—
33
15
12
(2)
1,020
—
—
5
5
(16,489)
(475)
111
(45)
1,584
(220)
(1,548)(1)(5,421)2(1,085)(619)(7,123)

11,803
176
—
48
—
16
5
(40)
1,143
(8)
33
7
(84)
(10,179)
55
135
(239)
(246)
95
638
75
3,436
40
(1,109)(2,245)
122

(18)
18
(180)
21
(443)
83
—

(18)
18
(1,641)516(3,295)
61
(3)

—

(310)

(37)
0
1,578
(782)
(17)
223

(300)
0
1,130
(927)
—
(4,770)7,581(7,814)38,884(24,659)
200
(40)
(1)
(33)
70
—
(131)
(1,237)
12,818—
5,918
10,644
16,563

6,714(5,220)44,231(32,930)
—
(40)
(0)
(34)
30
0
(40)
(2,207)
10,501(3)
5,849
16,563
22,413

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 properties 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 JAPANwas 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 million yen in the accompanying financial statements andthe notes thereto. As a result, the total shown in the financial statements and notes thereto do not necessarily agree withthe sum of the individual account balances.

3. Summary of Significant Accounting Policies(1) Consolidation

The Company has seven consolidated subsidiaries as of December 31, 2019, as follows:
ES-CON Property Ltd.
ES-CON Asset Management Ltd.
ES-CON Living Service Ltd.
One’s Own House Co., Ltd.
Rise Home Co., Ltd.
ESCON JAPAN (Thailand) CO., LTD.
ESCON JAPAN (Thailand) CO., LTD., which was newly established in the fiscal year
ended December 2019, and One’s Own House Co., Ltd. and Rise Home Co., Ltd., bothof which the Company made its subsidiaries by acquiring their entire shares, were
included in the scope of consolidation.
Of these consolidated subsidiaries, the accounting period of ESCON JAPAN (Thailand)CO., LTD. ends on November 30. In preparing the accompanying financial statements,
its financial statements as of the date are used, while making necessary adjustments formaterial transactions that took place between December 1 and December 31, the day forsettlement of consolidated accounts.
Furthermore, ESCON USA LLC is not included in the scope of consolidation as it is a small
company and its total assets, net sales, net loss (equivalent to the Company’s equity interest)and surplus, etc. do not pose any material impact on the consolidated financial statements.

40

ES-CON JAPAN Annual Report 2019(2) Equity-method affiliates

ORIGIN KNIGHTSBRIDGE THEPHARAK CO., LTD., of which the Company
acquired equity interest in the fiscal year ended December 2019, and GCB Mezzanine
GK, in which the Company made silent partnership investment, were included in thescope of equity-method accounting.
NBNS Investment Limited Liability Partnership, which was an equity-method affiliate in
the fiscal year ended December 2018, was excluded from the scope of equity-method
accounting as its liquidation was completed.
Furthermore, ESCON USA LLC is not included in the scope of equity-method accounting as it is a small company and its total assets, net sales, net loss (equivalent to theCompany’s equity interest) and surplus, etc. do not pose any material impact on the
consolidated financial statements.
(3) 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).
Securities without fair value are stated by the cost method using the moving-averagemethod.
However, silent partnership and limited liability partnership equity interests, etc. arestated at their net asset value. As for income and losses from silent partnership and limited
liability partnership equity interests, etc., 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 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).

(4) 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.

413) 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.

The Company has two equity-method affiliates, as follows:
ORIGIN KNIGHTSBRIDGE THEPHARAK CO., LTD.
GCB Mezzanine GK(5) 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.
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.

(6) Standards for conversionof significant assets or
liabilities denominatedin foreign currencies into
Japanese yen

Monetary claims and monetary liabilities denominated in foreign currencies are translated into Japanese yen at the spot exchange rate on the date of closing of accounts, withtranslation differences included in the statements of income. As for the consolidated
overseas subsidiaries, etc., assets and liabilities are translated into Japanese yen at the spot
exchange rate on the date of their closing of accounts, while revenues and expenses aretranslated into Japanese yen at the average period-average exchange rate. The translationdifferences are included in foreign currency translation adjustment and non-controllinginterests under net assets on the balance sheet.

(7) Method and period ofamortization of goodwill

Goodwill is amortized regularly for over a reasonable period of up to 20 years, with theuseful life estimated individually.

(8) 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.

(9) Other significant items
fundamental topreparing the financial
statements

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)
Not applicable42

ES-CON JAPAN Annual Report 2019

[Unapplied Accounting Standard and Implementation Guidance]
1. Accounting Standard for Revenue Recognition, etc.
• Accounting Standard for Revenue Recognition (ASBJ Corporate Accounting Standards No. 29; March 30, 2018)• Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Implementation Guidance ofCorporate Accounting Standards No. 30; March 30, 2018)(1) Overview
The International Accounting Standard Board (“IASB”) and the Financial Accounting Standards Board (“FASB”) havejointly developed the comprehensive accounting standard for revenue recognition, and have published “Revenue fromContracts with Customers” (IFRS No. 15 issued by IASB and Topic 606 issued by FASB) in May 2014. As IFRS No. 15
is effective for annual periods beginning on or after January 1, 2018 and Topic 606 is effective for annual periods beginning after December 15, 2017, ASBJ has developed the comprehensive accounting standard for revenue recognition, andannounced it along with the implementation guidance.
As a basic policy to develop the accounting standards for revenue recognition, ASBJ decided to incorporate the basic
principles from IFRS No. 15 in order to ensure the comparability among Financial Statements based on IFRS, U.S. GAAP
and Japanese GAAP. The comparability between the financial statements is one of the benefits of the consistency withIFRS No. 15. In addition, in the case there is an item where consideration should be given to special treatment in Japan,
the alternative treatment is accepted to the extent consistency is maintained.
(2) Scheduled date of the application
The Company will adopt the Accounting Standard and Implementation Guidance from the beginning of the fiscal year
ending December 2022.
(3) Impact of the application of the respective Accounting Standard and Implementation Guidance
The impact on the consolidated financial statements from adoption of the Accounting Standard and Implementation
Guidance for Revenue Recognition is currently being assessed.

2. Accounting Standard for Fair Value Measurement, etc.
• Accounting Standard for Fair Value Measurement (ASBJ Statement No. 30; July 4, 2019)• Implementation Guidance on Accounting Standard for Fair Value Measurement (ASBJ Guidance No. 31; July 4, 2019)• Accounting Standard for Measurement of Inventories (ASBJ Statement No. 9; July 4, 2019)• Accounting Standard for Financial Instruments (ASBJ Statement No. 10; July 4, 2019)(1) Overview
In order to improve the comparability between the provisions in international accounting standards and those in theJapanese accounting standard, ASBJ developed the Accounting Standard for Fair Value Measurement and the
Implementation Guidance on Accounting Standard for Fair Value Measurement (the “Fair Value Measurement AccountingStandard, Etc.”) to determine the guidance, etc. regarding the measurement method of fair value. The Fair Value
Measurement Accounting Standard, Etc. shall be applied to the fair value of the following items:- Financial instruments under the Accounting Standard for Financial Instruments- Inventories held for the purpose of trading under the Accounting Standard for Measurement of Inventories(3) Impact of the application of the accounting standard, etc.
The impact on the consolidated financial statements from adoption of the Accounting Standard Fair Value Measurement,
etc. is currently being assessed.

(Changes in Presentation)
Changes associated with the adoption of “Partial Amendments to ‘Accounting Standard for Tax EffectAccounting’”
The Company applied the “Partial Amendments to ‘Accounting Standard for Tax Effect Accounting’” (ASBJ Statement
No. 28; February 16, 2018) from the beginning of the fiscal year ended December 31, 2019. Accordingly, the indication
method has been changed to indicate deferred tax assets under investments and other assets and deferred tax liabilities
under non-current liabilities.
As a result, deferred tax assets (247 million yen) indicated under current assets in the balance sheet of the previous consolidated fiscal year is included in deferred tax assets (359 million yen) under investments and other assets.

(Additional Information)
Change in the purpose of holding
By changing the purpose of holding, part of the real estate for sale in process (8,410 million yen) has been transferred tobuildings and structures (504 million yen) and land (7,905 million yen) for the fiscal year ended December 31, 2019.

4. Notes to Consolidated Balance Sheet(1) Unconsolidated subsidiaries and affiliates

Investment securities (equity capital)
Investment securities (shares)(Unit: million yen)

Fiscal 2018

Fiscal 2019(as of December 31, 2018)(as of December 31, 2019)

1,039
—

31
407

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

(Unit: million yen)

Fiscal 2018

Fiscal 2019(as of December 31, 2018)(as of December 31, 2019)

Cash and deposits
Real estate for sale
Real estate for sale in process
Buildings and structures
Land—
13,55662,372903
623

20
23,02556,177
2,033
10,621

Total

77,45691,877(2) Scheduled date of adoption
The Company will adopt the Fair Value Measurement Accounting Standard, Etc. from the beginning of the fiscal year
ending December 31, 2022.

43

44

ES-CON JAPAN Annual Report 2019

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

(Unit: million yen)

Fiscal 2018

Fiscal 2019(as of December 31, 2018)(as of December 31, 2019)

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

1,550
23,47643,905

4,042
31,642
46,340Total

68,93382,025In the fiscal year ended December 31, 2019, the ES-CON JAPAN Group realized no impairment loss.

6. Notes to Consolidated Statement of Comprehensive Income(3) Contingent liabilities
The Company, together with the business partners in proportion to the respective equity investment ratios, is contingently
liable to invest in the following company for its borrowings from financial institutions. The balance of borrowings of therelevant company is as follows. The figure in parenthesis indicates the balance of the Company’s unexecuted equity investment under its silent partnership agreement.
(Unit: million yen)
Fiscal 2018

Fiscal 2019(as of December 31, 2018)(as of December 31, 2019)MERCURIA SPV3 CO., LTD.

—(—)

(Note) The ES-CON JAPAN Group classifies its individual properties into asset groups as minimum units for generating cash flows.
In the fiscal year ended December 2018, the Company made a decision to relocate its headquarters functions. Of the office facilities, theCompany reduced the book value of the non-current assets that have no prospect of use in the future to the net realizable value and recorded the
reduced amount (47 million yen) as impairment loss.
Breakdown of the impairment loss consists of 39 million yen for facilities attached to buildings and 7 million yen for others.
Furthermore, the net realizable value is measured by using the net sale value, which is set as zero because no possibility of sale is anticipated.

308
(490)

(1) Reclassification adjustments and tax effects to each component of other comprehensive income(Unit: million yen)

Valuation difference on available-for-sale securities:
Amounts arising during the fiscal year

Cost of sales

Fiscal 2018

Fiscal 2019(from January 1, 2018
to December 31, 2018)(from January 1, 2019
to December 31, 2019)

171

921

Fiscal 2019(from January 1, 2019
to December 31, 2019)

(14)

361

—

—

Subtotal before tax effect adjustments
Tax effect

(14)
—

361
(110)

Valuation difference on available-for-sale securities

(14)

250

Foreign currency translation adjustment:
Amounts arising during the fiscal year—

(0)

Share of other comprehensive income/(loss) ofequity-method affiliate:
Amounts arising during the fiscal year—

(0)

Total other comprehensive income

(14)

250

Reclassification adjustments

5. Notes to Consolidated Statement of Income(1) Book value reduction due to lowered profitability of inventories held for the purpose of ordinary sales is(Unit: million yen)
as follows:

Fiscal 2018(from January 1, 2018
to December 31, 2018)

7. Notes to Consolidated Statement of Changes in Equity(2) Breakdown of loss on retirement of non-current assets is as follows:

(Unit: million yen)

Fiscal 2018

Fiscal 2019(from January 1, 2018
to December 31, 2018)(from January 1, 2019
to December 31, 2019)

Buildings and structures
Property, plant and equipment (Other)
Intangible assets (Other)

5
0
—

2
1
4

Total

5

7

Fiscal 2018 (from January 1, 2018 to December 31, 2018)(1) Type and Number of Shares Issued and Outstanding and Type and Number of Treasury Shares
Increase in
Number of shares
number of sharesat beginning ofduring the fiscal
Fiscal 2018year
Issued shares
Common shares (Note 1)

45(3) Impairment loss

Total

In the fiscal year ended December 31, 2018, the ES-CON JAPAN Group realized impairment loss on the following asset(Unit: million yen)groups. 

Treasury shares

Location

Use

Type

Former headquarters(Chiyoda Ward, Tokyo)

OfficeFacilities attached to buildings

Impairment loss

Decrease in
Number of shares
number of sharesat end of Fiscal
during the fiscal
2018
year

Common shares (Note 2)(Note 3)
Total

71,203,387

446,000—

71,649,387

71,203,387

446,000—

71,649,387

3,195,300

196,500

56,9003,334,900

3,195,300

196,500

56,9003,334,900

47

46

ES-CON JAPAN Annual Report 2019

(Notes) 1. The increase in the number of common shares issued and outstanding (446,000 shares) is due to exercise of the fifth offer of subscription
rights to shares.
2. The increase in the number of treasury shares in common shares (196,500 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 (56,900 shares) is due to provision of shares to the qualifying directors by
the share-based payment benefits trust (56,000 shares) and provision of shares to the qualifying employees by the share-based payment
benefits type ESOP trust (900 shares).
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: 543,200 shares at the
beginning of Fiscal 2018 and 487,200 shares at the end of Fiscal 2018; the share-based payment benefits type ESOP trust: 235,200 shares atthe beginning of Fiscal 2018 and 234,300 shares at the end of Fiscal 2018).

Category

Reportingcompany(parent
company)

Decreaseduring the
fiscal year

Increaseduring the
fiscal year

Balance at
end ofFiscal 2018

End ofFiscal 2018 (million yen)Fifth offer ofCommonsubscription
rights to shares shares(Note 1)

758,500—

446,000

312,500

0

Sixth offer ofCommonsubscription
rights to shares shares(Note 2)

1,400,000—

101,000

1,299,000

1

2,158,500—

547,000

1,611,500

1

Total

—

(Notes) 1. The decrease in the number of common shares issued and outstanding (446,000 shares) is due to exercise of the fifth offer of subscription
rights to shares.
2. The decrease in the number of treasury shares in common shares (101,000 shares) is due to expiration of subscription rights to shares andexercise of the sixth offer of subscription rights to shares.
3. For the sixth offer of subscription rights to shares, the first day of the exercise period has not yet arrived.

March 23, 2018
Annual General Meeting of
Shareholder

CommonsharesTotal dividends Dividend per(million yen)share (yen)1,238

Record date

Effective date

December 31,
2017

18.00

March 26,2018

(Note) T he total amount of dividends includes 9 million yen of dividends to the Company’s shares owned by the share-based payment benefits trust for
directors and 4 million yen of dividends to the Company’s shares owned by the share-based payment benefits type ESOP trust.

2) 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)
March 26, 2019
Annual General Meeting of
Shareholders

Type ofsharesCommonsharesTotal
dividends(million yen)

2,209

Source ofdividends
Retainedearnings

Dividend
per share

Record date

Effective
date

December 31,
2018

March 27,
2019

(yen)

32.00

192,500—

71,841,887

71,649,387

192,500—

71,841,887

3,334,900

61,0001,200

3,394,700

3,334,900

61,0001,200

3,394,700

Common shares (Note 2)(Note 3)
Total(Notes) 1. The increase in the number of common shares issued and outstanding (192,500 shares) is due to exercise of the fifth offer of subscription
rights to shares.
2. The increase in the number of treasury shares in common shares (61,000 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 (1,200 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: 487,200 shares at the
beginning of Fiscal 2019 and 487,200 shares at the end of Fiscal 2019; the share-based payment benefits type ESOP trust: 234,300 shares atthe beginning of Fiscal 2019 and 233,100 shares at the end of Fiscal 2019).

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

Category

1) Dividends paid
Type of shares

71,649,387

Treasury shares(3) Dividends(Resolution)

Decrease in
Number of shares
number of sharesat end of Fiscal
during the fiscal
2019
year

Issued shares

Total

Number of shares subject to subscription rights
to shares (shares)
Beginningof Fiscal
2018

Increase in
Number of shares
number of sharesat beginning ofduring the fiscal
Fiscal 2019year

Common shares (Note 1)(2) Subscription Rights to Shares and Subscription Rights to Treasury Shares
Type of sharessubject toBreakdown ofsubscription
subscription
rights to shares rights tosharesFiscal 2019 (from January 1, 2019 to December 31, 2019)(1) Type and Number of Shares Issued and Outstanding and Type and Number of Treasury Shares

Reportingcompany(parent
company)

Total

Type of sharessubject toBreakdown ofsubscription
subscription
rights to shares rights tosharesNumber of shares subject to subscription rights
to shares (shares)

Balance at
end ofFiscal 2019

Beginningof Fiscal
2019

Increaseduring the
fiscal year

Decreaseduring the
fiscal year

Fifth offer ofCommonsubscription
rights to shares shares(Note 1)

312,500—

192,500

120,000

0

Sixth offer ofCommonsubscription
rights to shares shares(Note 2)

1,299,000—

37,5001,261,500

1

1,611,500—

230,000

1,381,500

1—

End ofFiscal 2019 (million yen)

(Notes) 1. The decrease in the number of common shares issued and outstanding (192,500 shares) is due to exercise of the fifth offer of subscription
rights to shares.
2. The decrease in the number of treasury shares in common shares (37,500 shares) is due to expiration of the sixth offer of subscription rights
to shares.
3. For the sixth offer of subscription rights to shares, the first day of the exercise period has not yet arrived.

(Note) T he total amount of dividends includes 15 million yen of dividends to the Company’s shares owned by the share-based payment benefits trust for
directors and 7 million yen of dividends to the Company’s shares owned by the share-based payment benefits type ESOP trust.

47

48

ES-CON JAPAN Annual Report 2019

9. Lease Transactions(3) Dividends
1) Dividends paid
(Resolution)
March 26, 2019
Annual General Meeting of
Shareholders

Type of shares

Total dividends Dividend per(million yen)share (yen)Commonshares2,209Record date

Effective date(1) Finance Lease Transactions
December 31,
2018

32.00

March 27,2019

(Note) T he total amount of dividends includes 15 million yen of dividends to the Company’s shares owned by the share-based payment benefits trust for
directors and 7 million yen of dividends to the Company’s shares owned by the share-based payment benefits type ESOP trust.

2) 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)
March 26, 2020
Annual General Meeting of
Shareholders

Type ofsharesCommonsharesTotal
dividends(million yen)

Dividend
per share

Source ofdividends

2,490

Effective
date

Record date(yen)

Retainedearnings

36.00

Finance lease transactions without any transfer of ownership of leased assets
1) Leased assets
Property, plant and equipment
Consists of vehicles, etc.
2) Depreciation method for leased assets
As described in 3. Summary of Significant Accounting Policies, (4) Depreciation method for significant depreciable assets(2) Operating Lease Transactions
December 31,
2019

March 27,2020

(Note) T he total amount of dividends includes 17 million yen of dividends to the Company’s shares owned by the share-based payment benefits trust for
directors and 8 million yen of dividends to the Company’s shares owned by the share-based payment benefits type ESOP trust.

Unearned lease payments for non-cancellable operating lease transactions(Unit: million yen)

Fiscal 2018

Fiscal 2019(as of December 31, 2018)(as of December 31, 2019)

Due within one year

55

298

8. Notes to Consolidated Statement of Cash FlowsDue after one year

9

434

Total

64

732

(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(Lessor)Fiscal 2018

Fiscal 2019(from January 1, 2018
to December 31, 2018)(from January 1, 2019
to December 31, 2019)

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

16,598(3)(32)

22,511(44)(53)

Cash and cash equivalents

16,563

22,413(2) Major breakdown of assets and liabilities of the companies that were newly consolidated in the fiscal year
ended March 31, 2019 through acquisition of their shares
In association with the new consolidation of One’s Own House Co., Ltd. and Rise Home Co., Ltd. through acquisitionof their shares, the following table indicates the breakdown of the assets and liabilities and the relationship between theacquisition price and expenditures for acquisition (net) at the beginning of consolidation.
(Unit: million yen)
Current assets
Non-current assets
Goodwill
Current liabilities
Non-current liabilities

2,462
37
485
(1,640)(190)

Acquisition price of newly consolidated subsidiaries
Cash and cash equivalents of newly consolidated subsidiaries

1,154
(843)

Difference: expenditures for acquisition of shares of the subsidiaries accompanying
changes in the scope of consolidation
49(Lessee)310(1) Operating Lease Transactions
Unearned lease payments for non-cancellable operating lease transactions(Unit: million yen)

Fiscal 2018

Fiscal 2019(as of December 31, 2018)(as of December 31, 2019)

Due within one year

644

486

Due after one year

3,906

2,276

Total

4,550

2,763

10. Financial Instruments(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 identify and mitigate concerns about accounts becoming uncollectible due to such factors as

50

ES-CON JAPAN Annual Report 2019worsening of financial conditions at its business customers at an early stage.
Investment securities mainly consist of shares owned over a medium to long term in order to strengthen relationships withbusiness partners and silent partnership, etc. Listed shares, etc. are exposed to market price fluctuation risks, but theCompany periodically checks their fair value. Non-listed shares and silent partnership, etc. have the risks from worsening
financial conditions, etc. of the issuer companies and silent partnership, etc., but the Company periodically checks theirfinancial conditions and other factors through financial statements and other materials.
Among operating payables, accounts payable – other are to be fully paid within one year.
Deposits received mainly consist of guarantee deposits received from tenants of income-generating real estate, and funds
deposited by joint venture partners of certain real estate development projects.
Among loans payable and bonds payable, short-term loans payable and bonds payable are procured mainly for working
capital, and long-term loans payable are procured mainly for real estate development projects. In addition, while loans
payable are exposed to liquidity risks related to fund procurement, the ES-CON JAPAN Group manages the risks throughsuch measures as preparing capital 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) 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).
Fiscal 2018 (as of December 31, 2018)

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

Difference

Difference(1) Cash and deposits(2) Notes and accounts receivable - trade(3) Investment securities
Other securities

22,511598

22,511
598

—
—

1,543

1,543

—

Total of assets

24,65424,654—(1) Accounts payable - other(2) Deposits received(3) Short-term loans payable(4) Long-term loans payable*1(5) Bonds payable*2

2,097
4,733
4,580
80,135
270

2,097
4,733
4,580
80,164
270

—
—
—
29
0

Total of liabilities

91,816

91,84529*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, (2) Deposits received and (3) 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.
(4) Long-term loans payable and (5) 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.

Category

16,598491

Fair value

2. Financial instruments for which discerning fair value is recognized to be extremely difficult.
(1) Cash and deposits(2) Notes and accounts receivable - trade(3) Investment securities
Other securities

16,598
491
33

33

—

Total of assets

17,124

17,124—(1) Accounts payable - other(2) Deposits received(3) Short-term loans payable(4) Long-term loans payable*1(5) Bonds payable*2

1,731
4,933
1,720
68,562
310

1,731
4,933
1,720
68,640
310

—
—
—
78
0

Total of liabilities

77,25877,33678*1 Long-term loans payable includes current portion of long-term loans payable.
*2 Bonds payable includes current portion of bonds payable.

51

Fair value

Fiscal 2019 (as of December 31, 2019)

——Fiscal 2018(as of December 31, 2018)

Fiscal 2019(as of December 31, 2019)

10

417

1) Non-listed shares
2) Investment limited liability partnership equity investment

1,039

—

993

749

2,043

1,167

3) Silent partnership equity investment, etc.
Total

(Unit: million yen)

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.
3. Scheduled redemption amount of monetary claims and securities with maturities after closing of accounts.
Fiscal 2018 (as of December 31, 2018)

(Unit: million yen)
Due within 1 year

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

16,598
491

—
—

—
—

—
—

Total

17,090———Fiscal 2019 (as of December 31, 2019)

(Unit: million yen)
Due within 1 year

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 - trade22,511
598

—
—

—
—

—
—

Total

23,110

—

—

—

52

ES-CON JAPAN Annual Report 2019

4. Scheduled repayment amount of bonds payable, long-term loans payable and other interest-bearing liabilities after closing of accounts.
Fiscal 2018 (as of December 31, 2018)

(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

1,720

—

—

—

—

—

Long-term loans payable

23,993

20,306

6,962

7,747

7,365

2,186

40

40

230

—

—

—

25,754

20,346

7,192

7,747

7,365

2,186

Bonds payable
Total
Fiscal 2019 (as of December 31, 2019)
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

The Company and certain consolidated subsidiaries paid 13 million yen for the defined contribution pension plan.

4,580

—

—

—

—

—

16,60812,409

8,868

4,246

5,587

40

230

—

—

—

—

37,035

16,83812,409

8,868

4,246

5,587

11. Notes to Securities(1) Other Securities

Type
Securities with book values on the consolidatedbalance sheet exceeding acquisition cost

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

Acquisition
cost

33

27

6

33

27

6

(1) Shares

Total

Difference(Note) The table above does not include non-listed shares, investment limited liability partnership equity investment and silent partnership equity investment, etc. (book value recorded on the consolidated balance sheet: 2,043 million yen) as Other securities, because discerning fair value is recognized to be extremely difficult as there is no market price.

Fiscal 2019 (from January 1, 2019 to December 31, 2019)

(Unit: million yen)

(Additional Information)(Adoption of the Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights, which
Involve Considerations, with Vesting Conditions, etc.)
For transactions granting employees and others stock acquisition rights, which involve considerations, with vesting conditions conducted prior to the application date of the Practical Solution on Transactions Granting Employees and Others
Stock Acquisition Rights, which Involve Considerations, with Vesting Conditions (Practical Issues Task Force (PTIF) No.
36; January 12, 2018), the Company continues to conduct the accounting treatment that have been conventionallyapplied for such transactions.

1. Overview of the stock acquisition rights, which involve considerations, with vesting conditions(1) Descriptions of the stock acquisition rights, which involve considerations, with vesting conditions
5th subscription rights to shares

6th subscription rights to shares

Category and number of
eligible persons

49 people comprising the Company’s
directors (in-house) and employees

146 people comprising the Company’s
directors and employees and the employees of its subsidiaries

Number of stock options bytype of shares (Note 1)

Common shares: 3,500,000 shares

Common shares: 1,400,000 shares

Date of grant of options

November 29, 2013

December 27, 2017

Acquisition
cost(1) Shares

34

27

6

(2) Other

1,509

1,149

360

Vesting conditions(Note 2)

(Note 3)

1,543

1,176

367

Covered period of work

Not specified

Not specified

Exercise period

From April 1, 2015 to November 28, 2020 From April 1, 2021 to December 26, 2025

Total

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: 1,167 million yen) as Other securities, because discerning fair value is recognized to be extremely difficult as there is no market price.

12. Notes to Derivative Transactions
Not applicable

13. Notes to Retirement Benefits
Fiscal 2018 (from January 1, 2018 to December 31, 2018)(1) Description of Retirement Benefit Plans Adopted by the Company
The Company and certain consolidated subsidiaries have adopted a defined contribution pension plan.
53

14. Notes to Stock Options, Etc.

Book value recordedon the balance sheet

Type
Securities with book values on the consolidatedbalance sheet exceeding acquisition cost

The Company and certain consolidated subsidiaries have adopted a defined contribution pension plan.

(2) Defined Contribution Pension Plan

32,415

Fiscal 2018 (from January 1, 2018 to December 31, 2018)

Fiscal 2019 (from January 1, 2019 to December 31, 2019)(1) Description of Retirement Benefit Plans Adopted by the Company

Due in 5 years
or moreLong-term loans payable

Total

The Company and certain consolidated subsidiaries paid 11 million yen for the defined contribution pension plan.

(Unit: million yen)

Short-term loans payable

Bonds payable(2) Defined Contribution Pension Plan

(Notes) 1. The figures have been converted to the number of shares.
2. The vesting conditions to exercise the subscription rights to shares are as follows;(1) T he persons eligible for the subscription rights to shares may not exercise their rights from the fiscal year ended December 2014 to the fiscal
year ended December 2016 if the operating income (referring to the operating income in the consolidated statement of income described in
the Company’s securities report (or statement of income if no consolidated statement of income is prepared); the same shall apply hereinafter) falls below 1,790 million yen.
(2) W hen (1) above is satisfied, the persons eligible for the subscription rights to shares may exercise their rights for the number of sharedequivalent to 10% of the subscription rights to shares allotted to them if the operating income for any of the fiscal years ended December
2014 through December 2016 exceeds 2,500 million yen. Furthermore, when the number of the subscription rights to shares they can exercise has a portion less than one share, the number shall be rounded down to one share.
(3) E ven before (1) above is satisfied, the persons eligible for the subscription rights to shares may exercise the entire subscription rights toshares allotted to them if the cumulative operating income for the fiscal years ended December 2014 through December 2016 exceeds 7,000
million yen. Furthermore, they may exercise the entire subscription rights to shares allotted to them if the cumulative operating income forthe fiscal years ended December 2014 through December 2015 exceeds 7,000 million yen.
(4) In determining the operating income for (1) through (3) above, if material changes are made to the concept of the operating income to bereferred to due to changes in the applicable accounting standards, etc., the Company shall otherwise determine the appropriate indicators to
be referred to at the Board of Directors to the extent reasonable.

54

ES-CON JAPAN Annual Report 2019(5) The persons eligible for the subscription rights to shares must be directors, auditors or employees of the Company or its affiliates when they
exercise their subscription rights to shares; however, this shall not apply for their retirement from office due to expiration of tenure, retirement at predetermined age or for other reasons deemed reasonable by the Board of Directors.
(6) Successors of the persons eligible for the subscription rights to shares may not exercise the subscription rights to shares; however, thisshall not apply if the persons eligible for the subscription rights to shares died of accidents during their work or if the Board of Directors
approve that there is fair reason to allow the said successors to exercise the subscription rights to shares.
(7) The subscription rights to shares may not be exercised if such an exercise cause the Company’s number of shares issued and outstanding to
exceed the authorized number of shares at that time.
(8) The subscription rights to shares may not be exercised for less than one share each.
3. The vesting conditions to exercise the subscription rights to shares are as follows;(1) The persons eligible for the subscription rights to shares may exercise the subscription rights to shares allotted to them, starting on the firstday of the month following the date when the securities report for the fiscal year ending December 2020 is submitted, if the Company’s
operating income for all the fiscal years ending December 2018 through December 2020 exceeds the respective amounts described in thefollowing items. When the number of the subscription rights to shares they can exercise has a portion less than one share, the number shallbe rounded down to one share.
1) If the operating income for the fiscal year ended December 2018 exceeded 8,500 million yen
2) If the operating income for the fiscal year ending December 2019 exceeds 9,500 million yen
3) If the operating income for the fiscal year ending December 2020 exceeds 10,000 million yen
Furthermore, in determining the operating income stated above, the operating income in the consolidated statement of income described in
the Company’s securities report (or statement of income if no consolidated statement of income is prepared) shall be referred to. In addition,
if material changes are made to the concept of the items to be referred to due to such reasons as application of the international financial
reporting standards, the Company shall otherwise determine the appropriate indicators to be referred to at the Board of Directors to theextent reasonable (the same shall be applied hereinafter).
(2) The persons eligible for the subscription rights to shares must be directors, auditors or employees of the Company or its affiliates when they
exercise their subscription rights to shares; however, this shall not apply for their retirement from office due to expiration of tenure, retirement at predetermined age or for other reasons deemed reasonable by the Board of Directors.
(3) Successors of the persons eligible for the subscription rights to shares may not exercise the stock acquisition rights; however, this shall not
apply if the persons eligible for the subscription rights to shares died of accidents during their work or if the Board of Directors approve that
there is fair reason to allow the said successors to exercise the subscription rights to shares.
(4) The subscription rights to shares may not be exercised if such an exercise cause the Company’s number of shares issued and outstanding to
exceed the authorized number of shares at that time.
(5) The subscription rights to shares may not be exercised for less than one share each.

(2) Size and changes of the stock acquisition rights, which involve considerations, with vesting conditions
The following table describes the stock option plan that existed in Fiscal 2019 ended December 31, 2019. The number ofstock options indicates the number of shares when the stock options are exercised.
1) Number of stock options
5th subscription rights to shares 6th subscription rights to shares
Before right allotment (shares)
Balance of unexercised options at the endof the previous fiscal year—

1,299,000

Granted——Expired—37,500

Right allotment——

Balance of unexercised options—

1,261,500

312,500—

Right allotment——

Exercise of right

192,500———

120,000—

2) Unit price information

(Unit: yen)

Exercise price

157

627

Average share price upon exercise

821—

2. Overview of the adopted accounting treatment
When issuing the subscription rights to shares, the Company records the paid-in amount corresponding to the issuance as
Subscription rights to shares in Net assets of the balance sheet. When the subscription rights to shares are exercised andnew shares are issued, the Company re-states the paid-in amount corresponding to the issuance of the said subscription
rights to shares and the paid-in amount corresponding to the exercise of the subscription rights to shares as Capital stock
and Capital surplus.
Furthermore, when the subscription rights to shares are expired, the Company records the amount corresponding to the
expiration as profits for the fiscal year in which the expiration has been finalized.

15. Notes to Tax Effect Accounting(1) Significant Components of Deferred Tax Assets and Deferred Tax Liabilities

(Unit: million yen)

Fiscal 2018

Fiscal 2019(as of December 31, 2018)(as of December 31, 2019)

Deferred tax assets
Net operating loss carried forward
Loss on valuation of inventories
Impairment loss
Loss on valuation of investment securities
Asset retirement obligations
Other

16
314
47
20
34
161

1
592
33
23
76
295

Subtotal of deferred tax assets

594

1,023

Valuation allowance

(227)

(192)

Total of deferred tax assets

366

831

Deferred tax liabilities
Asset retirement expenses
Loss on valuation of other securities
Other

(7)
—
(0)

(58)
(110)
(3)

Total of deferred tax liabilities

(7)

(172)

359

659

Deferred tax assets, net

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

ExpiredBalance of unexercised options

55(2) Significant Components of Material Difference between the Effective Statutory Tax Rate and Income
Tax Rate Applicable after Applying Tax Effect Accounting
Fiscal 2018

Fiscal 2019(as of December 31, 2018)(as of December 31, 2019)

The note is omitted as the difference between theeffective statutory tax rate and the income tax rateapplicable after applying tax effect accounting is lessthan 5/100 of the effective statutory tax rate.

The note is omitted as the difference between theeffective statutory tax rate and the income tax rateapplicable after applying tax effect accounting is lessthan 5/100 of the effective statutory tax rate.

56

ES-CON JAPAN Annual Report 201916. Notes to Business Combination, Etc.

3. Acquisition cost of the acquired companies (total of the above-mentioned two companies) and breakdownof considerations by type

(Business combination through acquisition)

Considerations of the acquisition: Cash
Acquisition cost:				

The Company made a resolution at its Board of Directors’ meeting held on June 26, 2019 to acquire the entire shares ofOne’s Own House Co., Ltd. and Rise Home Co., Ltd. and make them its subsidiaries. The Company also concluded sharetransfer agreements as of the date, and acquired their entire shares as of July 1, 2019.

4. Item and amount of major acquisition-related expenses

1. Overview of business combination

5. Amount of generated goodwill, grounds for generation, amortization method and amortization period(1) Name and business description of the acquired companies
Name of the acquired company

One’s Own House Co., Ltd.

Rise Home Co., Ltd.

Business description

Sale of detached houses and purchaseand resale of used houses, etc.

Construction of detached houses, etc.

(2) Major reason of conducting business combination
One’s Own House Co., Ltd. conducts sales of detached houses and Rise Home Co., Ltd. conducts construction of
detached houses, both in Saitama Prefecture.
The Saitama area is a particularly attractive market in the Tokyo metropolitan area, with a prospect of stable development
as a city for commuters to central Tokyo, and is also considered to help the Company to further expand its business in theTokyo metropolitan area. Accordingly, the Company decided to acquire their shares (make them its subsidiaries) in orderto reinforce its real estate development business centering on for-sale condominiums and for-sale detached houses in
Saitama Prefecture.
(3) Date of business combination
July 1, 2019(4) Legal format of business combination
Acquisition of shares with considerations paid by cash(5) Company name after business combination
One’s Own House Co., Ltd.
Rise Home Co., Ltd.

(Note) In March 2020, One’s Own House Co., Ltd. and Rise Home Co., Ltd. were renamed to ES-CON Home Ltd. and ES-CON Craft Ltd., respectively.

(6) Ratio of acquired voting rights
100%(7) Major grounds for deciding on the companies to be acquired
By acquiring the shares of the companies with considerations paid by cash

2. Period during which the performance of the acquired companies is included in the Company’s Consolidated
Financial Statements for the fiscal year ended December 31, 2019
From July 1, 2019 to December 31, 201957

1,154 million yen
1,154 million yen

Compensation and fees, etc. for advisory services

46 million yen(1) Amount of goodwill generated
485 million yen(2) Grounds for generation
Reflects the excess earning power that is expected to arise through the business implementation in the future(3) Amortization method and amortization period
To be amortized evenly over 5 years using the straight-line method

6. Amounts and major breakdown of assets acquired and liabilities assumed on the date of businesscombination
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities

2,462 million yen
37 million yen
2,500 million yen
1,640 million yen
189 million yen
1,830 million yen

7. Estimate amount of the impact on the consolidated statement of income of the fiscal year ended December 2019 on
the supposition that the business combination completed on the beginning day of the fiscal year, and its calculation
methodNet sales
1,714 million yen
Operating income
74 million yen
Ordinary income
62 million yen
Profit before income taxes
69 million yen
Profit attributable to owners of parent
28 million yen
Profit per share
0.42 yen(Calculation method of the estimate amount)
The estimate amount of the impact indicates the difference between net sales as well as income information calculated on
the supposition that the business combination completed on the beginning day of the fiscal year and net income as wellas income information on the consolidated statement of income of the fiscal year of the acquired companies.
In addition, the estimate amount of impact takes into account the amortization amount of goodwill, etc. deemed to havebeen generated on the beginning date of the fiscal period ended December 2019.
Furthermore, no audit certificate has been given to these notes.

58

ES-CON JAPAN Annual Report 201917. Notes to Asset Retirement Obligations

19. Segment Information(Asset retirement obligations that are recorded on the consolidated balance sheet)(1) Overview of Reportable Segments(1) Description of the Relevant Asset Retirement Obligations
The Company is mainly obliged to restore its Tokyo Head Office, Osaka Head Office, Fukuoka Office and Nagoya Office
to the original state in accordance with each of the real estate lease agreements.

(2) Calculation Method of the Amount of the Asset Retirement Obligations
The amount of the asset retirement obligations is calculated by using discount rates of 0.0% to 1.9%, with the expectedperiod of use estimated to be 6 years to 18 years.

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

Fiscal 2018

Fiscal 2019(from January 1, 2018
to December 31, 2018)(from January 1, 2019
to December 31, 2019)

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

93
14
1

111
172
1

—

(3)

2

(33)

Balance at end of fiscal year

111

249

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.
Each of the reportable segments mainly comprises the following operations.
Real estate sales business: Development and sale of for-sale condominiums and retail properties, sale of land, etc.
Real estate leasing business: Leasing of real estate, etc.
Real estate planning agency and consulting business: Consigned operations of real estate-related services, brokerageof transactions, sales agency, 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.”(3) Information on Net Sales, Income or Loss, Assets and Other Item Amounts by Reportable Segment
Fiscal 2018 (from January 1, 2018 to December 31, 2018)
Reportable segment

Fiscal 2018

Fiscal 2019(from January 1, 2018
to December 31, 2018)(from January 1, 2019
to December 31, 2019)

Book value recorded on the consolidated balance sheet
Balance at beginning of fiscal year

1,562

1,526

Increase/decrease during fiscal year(35)

11,1301,526

12,657

1,980

13,270

Balance at end of fiscal year
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 2018 is primarily attributable to depreciation (35million yen). The amount of increase during Fiscal 2019 is primarily attributable to acquisition of rental real estate (2,823 million yen) andtransfer from real estate for sale in process due to a change in the holding purpose (8,410 million yen), and the amount of decrease is primarily attributable to depreciation (104 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.

59

Amount on
consoliReconcilia­
dated
tion
financial(Note 1)statements

Real estate
Real estate Real estate planning
Total
sales
leasingagency andbusinessbusiness
consulting
business

18. Notes to Rental Real Estate
The Company owns retail properties, medical facilities and other properties. Income or loss from leasing these rental
properties during Fiscal 2018 totaled 96 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 2019 totaled 578
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)

(Unit: million yen)

Net sales
Net sales to external customers
Intersegment net sales or transfers(Note 2)50,519
—

3,400
—

405
—

54,325———54,325—

Total

50,5193,400

405

54,325—54,325

Segment income

12,341

2,128

369

14,839(3,277)

11,561

Segment assets

85,6416,265

1791,924

17,822

109,747

—

36

—

36

43

80

—

1,039

—

1,039

—

1,039

—

5

—

5

43

49

Other items
Depreciation
Investment in equity method
affiliates
Increase in property, plant andequipment and intangible assets(Notes) 1. Reconciliations are as follows:(1) The reconciliation of segment income of -3,277 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 17,822 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 43 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 43 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.

60

ES-CON JAPAN Annual Report 2019

Fiscal 2019 (from January 1, 2019 to December 31, 2019)

(Unit: million yen)

Reportable segment

Amount on
consoliReconcilia­
dated
tion
financial(Note 1)statements

Real estate
Real estate Real estate planning
Total
sales
leasingagency andbusinessbusiness
consulting
business
Net sales
Net sales to external customers
Intersegment net sales or transfers(Note 2)

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.

66,710
—

5,022
—

372
—

72,106———

72,106—

Total

66,7105,022

372

72,106—

72,106

Segment income

13,802

3,001

286

17,091(4,178)12,912

Segment assets

90,633

17,216

2

107,852

24,843

132,696

—
48

105
—

—
—

105
48

71
—

176
48

417

—

—

417

—

417

485

2,824

—

3,309

577

3,886

Other items
Depreciation
Amortization of goodwill
Investment in equity method
affiliates
Increase in property, plant andequipment and intangible assets

Fiscal 2019 (from January 1, 2019 to December 31, 2019)(1) Information by Product and Service(Notes) 1. Reconciliations are as follows:(1) The reconciliation of segment income of -4,178 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 24,843 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 71 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 577 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.

20. Related Information

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

(3) Information by Major Customer
Customer’s nameSales (million yen)

Related segment

ESCON JAPAN REIT Investment Corporation

14,137

Real estate sales business
Real estate leasing business21. Information on Impairment Loss on Non-current Assets by Reportable
Segment
Fiscal 2018 (from January 1, 2018 to December 31, 2018)

(Unit: million yen)

Real estate
Real estate
Real estate planning agency Eliminations
Total
sales business leasing business and consulting businessor corporate
Impairment loss

—

—

—

47

47

Fiscal 2019 (from January 1, 2019 to December 31, 2019)
Not applicable

Fiscal 2018 (from January 1, 2018 to December 31, 2018)(1) Information by Product and Service
Descriptions are omitted as identical information is disclosed in the segment information section.

22. Information on Amortization of Goodwill and Unamortized Balance byReportable Segment(2) Information by Region
1) Net sales
Not applicable as the Company records no net sales to external customers outside Japan.

Fiscal 2018 (from January 1, 2018 to December 31, 2018)2) Property, plant and equipment
Not applicable as the Company has no property, plant and equipment outside Japan.

Fiscal 2019 (from January 1, 2019 to December 31, 2019)

Not applicable

Real estate
Real estate leas- Real estate planning agency Eliminations
Total
sales business ing businessand consulting businessor corporate(3) Information by Major Customer

61(Unit: million yen)

Customer’s nameSales (million yen)

Related segment

Ascendas Hospitality Honmachi TMK

10,290Real estate sales business

Amortization amountduring the fiscal year

48

—

—

—

48

Balance at the end of
the fiscal year

436

—

—

—

436

62

ES-CON JAPAN Annual Report 2019

23. Information on Gain on Negative Goodwill by Reportable Segmentb. Officers of the filing party of these consolidated financial statements and major shareholders (individuals only), etc.
Not applicableNot applicablec. Consolidated subsidiaries of the filing party of these consolidated financial statements and affiliates
Not applicable.

24. Information on Related Parties

2) Transactions between the consolidated subsidiaries of the filing party of these consolidated financial statements and related parties
Not applicable.

Fiscal 2018 (from January 1, 2018 to December 31, 2018)(1) Transactions with Related Parties
1) Transactions between the filing party of these consolidated financial statements and related parties
a. Officers of the filing party of these consolidated financial statements and major shareholders (individuals only), etc.

Type

Name

Location

Paid-in
capital orBusiness
equitydescription
investormentoccupation(millionyen)

Officer

Keiko Akashi——

Director of
the Company

The Company’s
share of voting
rights, etc. [orownership ofsuch in the
Company]

Ownership in the
Company: 0.8%

Transaction
Description of Description ofamountrelationship transaction

Category(million yen)—

Exercise ofsubscription
rights toshares21

Balance at
end offiscal year
(million yen)——

(Note 1)
(Notes) 1. The transaction indicates the exercise of subscription rights to shares, issued based on the resolution made at the Board of Directors’ meeting held on October 31, 2013, conducted during the fiscal year ended December 31, 2018. The figure does not include consumption taxes.
2. Keiko Akashi does no longer fall into the category of related parties as she resigned the office of director as of October 30, 2018. Accordingly,
the transaction amount covers the transactions for the period when she was a related party, and the ownership in the Company indicates theshare as of the end of the fiscal year.

b. Non-consolidated subsidiaries of the filing party of these consolidated financial statements and affiliates
Not applicable2) Transactions between the consolidated subsidiaries of the filing party of these consolidated financial statements and related parties
Not applicable.

(Unit: yen)

Fiscal 2018

Fiscal 2019(from January 1, 2018
to December 31, 2018)(from January 1, 2019
to December 31, 2019)

Net assets per share

400.47490.08

Basic earnings per share

105.98119.17

Diluted earnings per share

105.48118.93(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: 487,200 shares for Fiscal 2018 and 487,200 sharesfor Fiscal 2019; the share-based payment benefits type ESOP trust: 234,300 shares for Fiscal 2018 and 233,100 shares for Fiscal 2019) 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 (768,063 shares for Fiscal 2018 and 721,142 shares for Fiscal 2019)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 2018(from January 1, 2018
to December 31, 2018)

Profit not attributable to common shareholders (million yen)
Profit attributable to owners of parent for common shares(million yen)

Fiscal 2019 (from January 1, 2019 to December 31, 2019)(1) Transactions with Related Parties

Period-average number of common shares (shares)

Location

Subsidiary of
Chuden Real Naka-ku,
other
Estate Co., Inc. Nagoya-shi
affiliates

Paid-in
The Company’s
capital or
share of voting
Business
equityrights, etc. [ordescription or
investownership of
occupation
mentsuch in the(million yen)Company]
100

Real estatebusiness—

Fiscal 2019(from January 1, 2019
to December 31, 2019)

Transaction
Description of Description ofamountrelationship transaction

Adjustments to profit attributable to owners of parent(million yen)
Increase in common shares (shares)

Category(million yen)Transfer ofreal estateTransfer ofreal estate for
sale

9,515

7,226

8,155

—

—

7,226

8,155

68,185,053

68,433,365——

Diluted earnings per share

1) Transactions between the filing party of these consolidated financial statements and related parties
a. Subsidiaries, etc. of other affiliates of the filing party of these consolidated financial statements
Balance at
end offiscal year

Description of dilutive shares without dilutive effect and notincluded in the calculation of diluted earnings per share(million yen)

Advances
received

475(Note 2)

(Notes) 1. The figure does not include consumption taxes.
2. The Company sold retail properties and lands for retail properties. The transaction amount has been reasonably determined in considerationof the real estate appraisal value. Payment terms require payment of the amount equivalent to 5% upon contracting and the rest upon implementation of the transaction. Furthermore, implementation of the transaction completed on February 4, 2020.

63

25. Per Share Information

Profit attributable to owners of parent (million yen)

Not applicable.

Name

Not applicable.

Basic earnings per share(2) Notes to Parent Company or Important Affiliates

Type(2) Notes to Parent Company or Important Affiliates

320,110
Sixth offer of subscription rights
to shares based on resolution by
the Board of Directors’ meetingon December 1, 2017
Common shares:
1,299,000 shares

136,502
Sixth offer of subscription rights
to shares based on resolution by
the Board of Directors’ meetingon December 1, 2017
Common shares:
1,261,500 shares

26. Significant Subsequent Events
Not applicable64ES-CON JAPAN Annual Report 2019

Investor Information

Notes for Investors
Fiscal year: January 1 to December 31
Securities code: 8892

Status of Share Price (from January 4, 2019 to April 30, 2020)(Unit: million shares)

3(Unit: yen)

1,200

Trading volume (left scale)
Share price (right scale)

2

1,000

Standard date for regular general meeting of shareholders: End of March
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: 71,841,887 shares (as of March 31, 2020)

2

800

Total number of shareholders: 10,259 shareholders (as of March 31, 2020)
Share units: 100 shares

1

600

Institution managing the Shareholder Register Manager’s Extraordinary Account:
Sumitomo Mitsui Trust & Banking, 1-4-1 Marunouchi, Chiyoda-ku, Tokyo

1

400

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.

0

200

0
Jan. 4, 2019

Mar. 29, 2019

Jun. 28, 2019

Sep. 30, 2019

Dec. 30, 20190
Apr. 30, 2020

Major Shareholders (as of March 31, 2020)
Name

No. of shares owned

Ownership ratio (%)

1

Chubu Electric Power Co., Inc.

22,980,000

31.98

2

Nissei Build Kogyo Co., Ltd.

6,500,000

9.04

3Tenma Seiryu Co., Ltd.

3,610,000

5.02

4ES-CON JAPAN Ltd.

2,674,400

3.72

5Koryu Oh

2,100,000

2.92

6Japan Trustee Services Bank, Ltd. (Trust account)

1,764,600

2,45

7

The Master Trust Bank of Japan, Ltd. (Trust account)

1,432,500

1,99

8

Takatoshi Ito

1,205,400

1.67

9Japan Trustee Services Bank, Ltd. (Trust account 5)726,100

1.01

10

NS Corporation Co., Ltd.

700,300

0.97(Notes) 1. Treasury shares are excluded from the calculation of ownership ratios.
2. Ownership ratio is rounded down to the first decimal place.

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

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.

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.

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