Annual ReportS u s t a i n i n g M o m e n t u m

2008

We help shape the dreams of people andsociety in terms of their vision of a home.

About Us

Leopalace21 continues to evolve steadily, as we find new ways ofproviding people with a home.
In the past, rental housing in Japan mostly served as temporary accommodation for people
who would eventually acquire their own homes. The situation changed, however, when
Leopalace21 created a new market by introducing the one-room apartment, which featured
sophisticated functionality and design. By offering a new dream home, we have maintained
our position as leader in Japan,s apartment business.
Meanwhile, as our business finds itself at a crucial juncture, due to the ongoing rapid changeboth in people,s lifestyles and values, as well as in the operating environment of companies,
we are moving beyond the basics of apartment business. We are reaching out to people ina bid to help them realize their dreams. To this end, we will continue to meet the challengeof providing homes and services not previously available. Moreover, it is through ourcontribution to housing that we aim to help achieve a balance among a wide range ofsocial infrastructure needs.
In order to address societal issues and meet the requirements of individuals, we shall holdfast to our corporate philosophy of “Create New Value,” thereby manifesting the company,stradition of working boldly as a pioneer in our field.

1

Business Operations

We aim to provide total housing support tailoredto win customer loyalty across the board.
The dynamic, integrated business approach of Leopalace21 is designed to meetthe diverse needs of customers of all ages.
By providing support for long-term apartment management, our Apartment Construction Subcontracting
Business helps landowners build their asset portfolios. Furthermore, our Leasing Business is pioneering
the development of new markets by focusing on the needs of the young demographic segment. Our
business model, reflecting the synergy produced by the two core businesses, has enabled us toachieve earnings growth.
By utilizing the infrastructure and know-how of our core businesses, we are continuing to develop
aggressively our three strategic businesses; the Residential Business, providing single-family homes
and condominiums that meet the needs of new families in urban areas; the Silver Business, supporting
post-retirement lifestyles of seniors; and the Broadband Business, offering services to enhance lifestyle
convenience and comfort.
In addition, we operate a hotel business in Japan and a resort business overseas, and have commenced
peripheral businesses in the areas of leasing and insurance. Fundamental to this integrated approach
are our strategic ideas, echoing the needs of individuals and society, and our commitment to superior
quality. Our extensive know-how allows us to identify new demand, and has made it possible for us
to become a total housing support company that can win the loyalty of a broad spectrum of age groups.

2

Apartment Construction
Subcontracting

Contents
Leasing

Message to Our Shareholders

4

Feature Story

Residential

Leopalace 21

SilverBroadband

ResortProduct Marketability:
The Source of Sustained Growth10

Overview of Operations

16

Corporate Social Responsibility (CSR)

22

Financial Section

26

Corporate Information

52

Corporate Slogan

54

Cautionary Statements with Respect to Forward-Looking Statements
The business forecasts and other forward-looking statements containedin this annual report are based on information currently available to theCompany and on certain assumptions that the Company has judged to bereasonable. Readers should be aware that a variety of factors might cause
actual results to differ significantly from these forecasts.

Hotel

3

Message to Our Shareholders

Growth through Innovation
Innovation is molding Leopalace21 Corporation into a provider of
total housing solutions. As we adjust to challenges, our new products
and services are expanding our core and strategic businesses.

Yoshiteru Kitagawa
4

President and CEO

Leopalace21 Corporation (hereinafter referred to as Leopalace21) continued to expand its twocore businesses of Apartment Construction Subcontracting and Leasing, but faced a difficult
business environment during the fiscal year ended March 2008 as a result of such factors as
the turmoil in the financial markets caused by the subprime loan crisis in the United States,
rising costs to cover more expensive materials, and a decline in new housing starts stemmingfrom revisions to the Building Standard Law.
Under such circumstance, Leopalace21 posted an increase in revenue for the subject fiscal year,
although profit declined. Net sales on a consolidated basis rose 6.5% to ¥672,974 million, with
operating profit down 6.1% to ¥71,403 million. Net income, as a result of a ¥9,534 million yearend foreign exchange valuation loss from our overseas subsidiary, declined 99.1% to ¥342 million.
We made two forecast revisions during the subject period and, because of the foreign exchange
loss on loans to our Guam subsidiary, results fell well below our initial targets. Although there
was no net cash outflow, we were forced to record a large valuation loss, and I would like tooffer my apologies for the concern this has caused so many of our shareholders and investors.
Despite the painful numbers, we did succeed in the Apartment Construction Subcontracting
Business in increasing orders for long-term construction contracts stemming from the revised
Building Standard Law, while in the Leasing Business we implemented many valuable measures,
including eliminating the short-term “Per Week” units that had consistently been a problem interms of efficiency. In this sense, I think we can say that the fiscal year ended March 2008 wasa period of adjustment during which we uncovered several issues to be addressed in our ongoing
Medium-Term Management Plan, and began to take on new challenges. We plan to continue toadhere to our policy of business expansion, and pursue further increases in our business value.
Thank you for your continued support of Leopalace21.
August 2008

Yoshiteru Kitagawa, President and CEO
Financial Highlights
Leopalace21 Corporation and its subsidiaries
Years ended March 31

Thousands of U.S. dollars,
except where noted

Millions of yen, except where noted

2008

2007

2006

2008

Net sales¥672,974¥631,608¥465,387¥6,716,972

EBITDA

76,56580,56645,340764,198

Operating profit

71,40376,007

40,775

712,673

Net income (loss)

342

37,358(16,582)

3,418¥493,956¥454,820¥412,804

4,930,194

Total net assets*

170,155

185,785

133,622

1,698,328

Total net assets per share (¥ and US$)*1,036.43

1,054.99

839.44

10.34

Net income (loss) per share (¥ and US$)

2.15

234.68(104.17)

0.02

Cash dividend per share (¥ and US$)

80.00

50.00

15.00

0.80

Equity Ratio (%)*

33.4

37.0

32.4

Return on equity (ROE) (%)

0.2

24.8

(11.7)

Return on assets (ROA) (%)*

0.1

8.6

(3.8)

Total assets*

Notes: 1. U.S. dollar amounts are translated from yen at the rate of ¥100.19 = US$1, the approximate rate prevailing at March 31, 2008.
2. The amount of total net assets for the year ended March 2006 represents the value of total shareholders' equity and does not include minority interests.
3. Return on assets (ROA) = Net income/Total assets x 100
4. Items marked are at the fiscal year end.

*5

Message to Our Shareholders

Q 1 How do you see the operating results of the fiscal year ended
March 2008?
,

A Last fiscal year s fall in profits was due to factors such as revision of the Building Standard,
Law, changes in accounting policy, and the yen s appreciation. With core businesses
strong, we expect to see revenue and earnings rise starting this fiscal year.

Multiple factors are behind the increased revenue but declining profit for the fiscal year ended March
2008. In the Apartment Construction Subcontracting Business, revisions to the Building Standard
Law had the effect of lengthening construction periods. This was a common factor for the entire
industry. In the Leasing Business, our costs rose in accordance with the increase in sales locations
and sales personnel. Another factor was a change in the accounting method for the Monthly
Leopalace service, which resulted in an extraordinary loss of ¥30,600 million during the interim
period. Other factors include the rapid appreciation of the yen at the end of the period, and a ¥9,534
million foreign exchange valuation loss on yen-denominated loans to our subsidiary operating aresort facility in Guam.
The market environment was positive overall, however, with leasing demand centered on urban
areas giving a boost to the Leasing Business. The Apartment Construction Subcontracting Businessalso managed to increase orders in the face of longer construction periods arising from revisions to
the Building Standard Law, and contract volume increased 23.8% year on year to ¥421,500 million.
This figure is a new historical high, and we expect it to underpin future sales growth. The change inaccounting method is an adjustment essential to achieving the equalization of income to costs
targeted by the Medium-Term Management Plan, and our overseas subsidiary in Guam has until
recently been close to achieving full-year operating profit on a U.S. dollar basis.
In other words, the core businesses of the Leopalace21 Group ー Apartment Construction
Subcontracting and Leasingーremain strong, and we expect growth to continue. For the fiscal year
ending March 2009, we are forecasting that net sales will increase 13% on a consolidated basis to¥765,000 million, double-digit growth from the previous fiscal year. Our forecast operating profitis ¥72,100 million. We have been somewhat conservative in our profit estimate considering therevised Building Standard Law, financial trends stemming from the subprime loan crisis, and slowdown
in the economic outlook, but consider this to be the minimum level for the current fiscal year.

Actual Results and Forecasts for Construction
Billions of yen
500

Orders received
Balance of orders outstanding
Construction sales

421.5

400

340.6
309.4

300

220.7

225.0

252.2

248.0

224.1

342.6
316.1

327.5

248.6

200

195.2

100

0

6

105.7

2004

109.9

2005

2006

2007

2008

Q 2 What is the status of the Medium-Term Management Plan?
A The fiscal year ending March 2009 is a turn-around year for the plan, and we expect toachieve a surge forward by developing new products and services in urban areas, andimplementing other strategic measures.

The Medium-Term Management Plan: “United Spirit,” announced in December 2006, has two phases,a period for establishing solid business foundations (April 2007 through March 2009), and one for
expanding synergies (April 2009 through March 2011). It calls for further expansion of core businesses,
and steady development of the three strategic businesses. Our targets for the final year of the plan are
net sales on a consolidated basis of ¥1 trillion, with operating profit of ¥100,000 million. During thisturn-around year for the Medium-Term Management Planーthe fiscal year ending March 2009ーwe are
implementing a variety of measures aimed at achieving these targets.
Under the Medium-Term Management Plan, we are pursuing quantitative and qualitative increases inour core businesses, which account for more than 90% of all sales. Strategies for quantitative growthin the Apartment Construction Subcontracting Business include offering new products and services.
For example, around 60% of rental housing in urban areas such as Tokyo, Kanagawa, Nagoya andOsaka is more than 20 years old. The value of land is high in urban areas and excess space is limited,
so demand for rebuilding of these lease properties is a huge market. Leopalace21 plans to stimulate
demand for rebuilding in urban areas by encouraging apartment building owners to reexamine thevalue of their land, and offering them products that provide a higher return. We feel that new strategic
products and services that meet just such a desire will lead to expansion of our core businesses. Let
me point to a few specific initiatives.
We have already introduced five new apartment designs, beginning with the Villa Alta design in July 2006.
In June 2008 we added the Lavo Cerna design, a house with attached apartments aimed at rebuilding
demand among the baby boomer generation. Lavo Cerna is a three-story wood construction, lowering
the cost compared to steel or reinforced concrete. It also more easily meets legal conditions placed onrebuilding, and is a high-margin product. Homeowners with leased space are able to reduce the burdenof their housing loans and other costs, and make their home work for them by generating earnings. We
are also planning to launch Lavo Casa, a three-story wood tenement design. Our plan is to market thesenew designs as strategic products for urban areas in conjunction with companies in other industries,
which we anticipate will make a significant contribution to the overall earnings of the core businesses.
Medium-Term Management Plan

Expand business domains, reinforce growth and earnings potential of core businesses

April 2006

Specific
Strategies
Core
Businesses

Other
Businesses

March 2011

March 2009

Phase I Medium-Term Management Plan

Phase II Medium-Term Management Plan

Establish solid business foundation

Take advantage of expanding synergies

Quantitative expansion

Quantitative expansion

Qualitative improvement

Expand Leasing Business into a
network comprising 400 offices
and a marketing staff of 2,400(phase II)

New apartment products Introduce
new services
Improve labor productivity

Complete development of ALM
leasing system (phase I)
Begin full implementation (phase II)
Pursue strategic M&A activities

Early operation of threestrategic businesses

Three related businesses

Strategic real estatedevelopment businessSet up in three metropolitan markets(phase I)

Target Indicators(FY2011/3)
Consolidated Net Sales¥1 trillion

Launch of corporate leasing,finance and insurance businesses.

Consolidated Operating Profit¥100 billion

Equity Ratio

50%

Secure 7% ROI through ¥100 billion by
investing in strategic real estate assets.

ROE

15%

Core Business
Strategy
Change into a
residential property
asset managementcompany
Overall Strategy
Become a total
support provider

Dividend Payout Ratio

30%

7Message to Our Shareholders
In terms of qualitative improvements, we are engaged in full-scale development and operation of ourasset liability management (ALM) leasing system. The aim of the ALM system is to organically fuse
the apartment management and market data that we have accumulated over more than 20 years
to provide optimal management of vast amounts of deposit assets. To achieve our goal of “transformto a residential property asset management company”ーone of the qualitative goals for our corebusiness and the vision for our Medium-Term Management Planーit is essential for us to make the
ALM leasing system capable of effectively managing the residential assets of our 450,000 units
under management. We have had our existing system in operation 24 hours a day, 365 days per
year. The evaluation is now complete, and since May 2008 we have been moving toward
development of an ALM leasing system for our core businesses.
For our three strategic businessesーthe Broadband, Residential, and Silver (elderly care) businessesー
we have begun full-scale business expansion that effectively utilizes the business infrastructure of
our core businesses in urban areas. Of these, the Broadband and Silver businesses are growing
steadily. The Residential Business has been sluggish owing to the downturn in the real estatemarket, but we expect conditions to improve. The next fiscal year (ending March 2010) will mark thestart of our period for expanding synergiesーthe second phase of our Medium-Term Management
Planーduring which time we aim to expand these strategic businesses, and establish a model thatwill generate synergies with our core businesses. The strategic businesses will also play an importantrole in achieving the other vision of our Medium-Term Management Plan, that of becoming a “Total
Support Provider in the Housing Sector.”
Leopalace21 has also launched three new related businesses: corporate leasing, insurance andfinance. These businesses, along with the three strategic businesses, are a means of increasing the
proportion of sales from sources other than core businesses, and there is ample opportunity for
growth through synergies with existing businesses.

Q 3 What measures is Leopalace21 taking regarding CSR?
A We consider our housing-related business activities to be CSR in the broadest sense. We
established a CSR Committee during the current fiscal year that is coordinating our CSR
activities as a corporate citizen.

Leopalace21 aims to play a part in the development of social
infrastructure, centered on housing. We believe that providing
comprehensive support for housing allows us to maintain our highoccupancy rate, and contribute to the creation of a more vibrantsociety. In this regard, our business activities themselves are CSR
in the broadest sense. Through business activities that strike abalance with the demands of society, and by helping to resolve
social issues, Leopalace21 will be able to achieve long-term growth
as a company.
We are now two years into our Medium-Term Management Plan,and have reached a point that is much like a return to the period of
our founding. We are not simply working to meet numerical targets
through business expansion, but consider the creation of a framework
to govern the Company to ensure CSR activity to be an importantmanagement issue. In June 2006, we instituted a three-headquarters

8

system, and took steps to enhance our corporate governance and compliance. In June 2008, as partof this framework to ensure CSR activity as a corporate citizen, we established a CSR Committee.
Under the guidance of the CSR Committee, Leopalace21 works to strengthen its corporate governanceand compliance, as well as makes a concerted effort as a company in areas ranging from generalenvironmental measures, to more localized efforts such as cleanup campaigns for apartments andsurrounding areas. Our corporate philosophy is to “Create New Value,” reflected in the tradition
established since our founding of boldly addressing the demands and issues of society ahead of others.
Following in this tradition, it is necessary for all executive officers and employees to consider the futureof CSR at Leopalace21.

Q 4 What are your strategies regarding shareholder returns?
A We already have a payout ratio of 30%. We are planning measures to enhance shareholder
value going forward, such as through a share buyback program.

Leopalace21 had a long period of no dividend payments resulting from hangover effects from theeconomic bubble. For those shareholders who supported us through that difficult period, in our
Medium-Term Management Plan we promised a payout ratio of 30% or more, and a stock buyback
program. The payout ratio was increased to 20% in the fiscal year ended March 2007 with a basedividend of ¥50 per share for the full year. For the fiscal year ended March 2008, despite the recordingof an extraordinary loss and foreign currency revaluation loss, we planned to pay a year-end dividend of¥50 per share as initially announced. Together with the interim dividend of ¥30 per share, this was a
full-year dividend of ¥80, with a payout ratio of 30%.
Once we achieve the sales and other targets of the Medium-Term Management Plan, we will havebuilt up a final cash position of over ¥100,000 million, leaving ample room for regulating our payout
ratio or funding a share buyback. Leopalace21 will continue to work to provide its shareholders witheven greater, attractive shareholder value.

Cash Dividend per Share
Yen
100

80

80

60

50

40

20

0

15

15

15

15

2003

2004

2005

2006

2007

2008

9

Feature Story

Product Marketability:
The Source of Sustained Growth
Leopalace21 accounts for an overwhelming market share representing
more than 50% of the housing starts for leased, one-room studioapartment residences of less than 30 square meters for the fiscal year
ended March 2008. Broad acceptance by our main marketing targets,
namely, young singles, reflects the degree to which our varied selectionof apartments meets the wide range of renters’ needs. Moreover, thehigh occupancy rate of 94% enhances satisfaction among apartment
owners. Below we examine the background of this product’s
marketability, from the perspective of renter and apartment owner,in the context of the Apartment Construction Subcontracting andthe Leasing businesses.

10

Keyword No.1

Points of Contact

Assessing the true sentiments of residents
A Step Ahead of Demand

apartment units under management (as of March 31,

Leopalace21 has consistently offered rental apartments2008). The figure represents a huge market. In

that, reflecting feedback, meet specific renter needs.

addition, our nationwide network of 311 leasing

As was the case with the Leopalace21 urban-style,sales locations (as of March 31, 2008) receives

one-room rental apartment buildings launched in

feedback daily from customers with all manner of

1985, the Company’s growth continues to beneeds. Moreover, these sales offices collect feedback

supported by a commitment to the quick, proactivefrom annual surveys of prospective tenants.

development of products that reflect consumer
demand. Even before Leopalace21 began its apartment
leasing business, condominium sales had begun toreveal the needs of residents. Today, however, withconstruction subcontracting and leasing representing
our core business operations, renters’ opinions are
more strategically collected.
Collecting Renter Opinions
LeopalaceBB, our broadband service for renters,
plays a major role in collecting feedback. The valueadded service also provides a means for interactive

Osamu Tonoike Manager, Architectural Division, Construction Business Headquarters

communication. Real-time feedback can be collected

Osamu Tonoike (Manager, Architectural Division,from a wide range of renters, since the broadband

Construction Business Headquarters) states,“Productservice is installed in 394,000 units, or 89.2% of thedevelopment is the process of identifying what rentersand prospective tenants desire, and what they findNumber of Units with Installed Terminals and Installation Rates

unnecessary. Key to any proposal made to a

Thousands of units

landowner regarding apartment management is

500

Number of units with installed terminals
Installation rates

83.3

100

89.2

400

80

394

66
324

300

200

%

high profitability. To attain these goals, it is necessary
to have a product offering that attracts renters. The

60

227

securing renters over the long term and maintaining

40

Company’s leasing division, with its ability to survey
the needs of potential renters, represents a powerfuladvantage.” The numerous points of contact, with

100

0

20

2006

2007

2008

0

renters and prospective tenants, which are criticalfor collecting information on, and understanding,those needs serve to keep competitors at bay.

11

Feature Story

Keyword No.2

Optimum Matching

Making timely, quality product development possible
Exhaustive Analysis of Demand

guaranteed stable operation where business feasibility

The Company’s efforts to determine businessis low. ” Stable operation is guaranteed on the basis

feasibility and quickly commercialize a propertyof the Master Lease System* that, ensuring leasing

begin with the exhaustive analysis of demand

income for up to 30 years, depends on the durability

data, based on the painstaking area marketingof a building. However, since 2000, when Japan

of 1,180 communities nationwide. Tonoike

introduced the Housing Performance Indication

points out, “We check numerous points,

System, Leopalace21 has been recognized forincluding product specifications such as

properties with a lifespan of 50 to 60 years−twoapartment room size and floor plans, living environment,

generations−providing even greater security forlandowners.

style, and government regulations, then consider
common requests. Urban and outlying communities
naturally have different scores, so we develop

Tonoike explains, “Product specifications meet the

products that are area-specific, rather than uniform

needs expressed by renters. construction costs,

nationwide. This allows us to meet a broad spectrum

ease of maintenance, building durability, and rentof needs.” Both the analysis of demand and theschedules are considerations taken into accountrenter feedback collected from numerous points ofwhen determining business feasibility. Communication

contact are utilized when offering products.

between department managers regarding all aspects−
from basic design to construction−is indispensable.”

Ensuring Business Feasibility

The close relationships among departments that

We take into consideration the supply area, number

know the business on the ground help shorten theof property units and other factors based on our

product development cycle. Products are delivered

demand-data analysis and renter feedback regarding

within a year on average, as quickly as in three

a target area in order to provide the owner with amonths, and at most in three years. Products thatplan that has high business feasibility in terms ofmeet a variety of needs can thus be offered in aconstruction, operation, and apartment management.

timely manner. Our product marketability is built“Even if the product has incorporated the desiredon the careful analysis of demand and a speedy

needs,” Tonoike points out, “the owner cannot be

supply structure.

Process Allowing Product Development over a Short Time Frame

Area
marketing andrenter needs

Product
proposal anddetermination

Design andarchitecture(legal andsafety verification)

CAD
internal
design work

Material
andproduction
control* A system that provides support to landowners, from construction through apartment management, for up to 30 years.

12

Logistics

Construction

Keyword No.3

Breaking the Status Quo

New “renter-oriented” leasing styles
Defining a New Image for Rental Apartments
The main distinguishing features in the Leopalace21
product lineup are the ideas that defy convention.
Our namesake Leopalace21 line launched in 1985
enjoyed explosive popularity among young singles,
with its well-appointed exteriors and lofts that wereconsidered extraordinary features at the time. In the
1980s, when the trend to own a home was strong
while the tendency to consider rental housing merely
a temporary expedient was reflected in the inadequate
features and design of such property, our revolutionary
design concepts grabbed the attention of a young

Motohiro Komizu

Division Manager, Corporate Sales Department, Leasing Business Headquarters

generation. Moreover, we discontinued the traditional
Japanese practice of requiring deposits and key

practice. But for renters, this custom was clearly
uncalled for, and so our contracts grew steadilyin number.”
Breaking away from conventional industry practices
and proposing new renter-oriented renting styles
marked the start of a corporate stance that would
be faithfully preserved in subsequent business
policy, and lead to the development of convenient

The Leopalace21 urban-style studio apartment building that debutedon the market in 1985.

rental formats and services. In 1999, we launchedMonthly Leopalace as a line of fully furnishedmoney for rental units, and adopted a breakthroughapartments, complete with electric appliances;

system that allowed renters of the Company’s units

short-term stay apartments; a living support system;

unrestricted relocation nationwide. Motohiro Komizu

and, in 2002, a broadband Internet service as a

(Division Manager, Corporate Sales Department,

standard feature for rental units. Komizu comments,

Leasing Business Headquarters) recounts his“Our constant interaction with renters andexperience in the late 1980s, when the new systemprospective tenants reveals needs that wererolled out nationally: “In Osaka, where I had beenpreviously undetected. Based on these, our young

assigned, a contract fee of approximately 10 months’

employees come up with one innovative idea after

rent was customary, and the industry responded

another. Our corporate environment of speedy

with heavy opposition when we discontinued theexecution is a definite advantage.”13

Feature Story

under management are for corporate use. We
continue to bolster corporate sales, having added
40 sales locations in April 2007, and in April 2008
we added a corporate sales division, staffed mainly
by new employees. To increase corporate contracts,
this division focuses solely on new-accountdevelopment. Komizu notes that breaking fromconvention was key in this area of business as well.
“We assigned new employees to the division so that
Enhanced Corporate Sales

the staff would not be constrained by preconceived

High occupancy rates are a critical aspect of

notions, and would feel free to pursue aggressive

apartment management. Leopalace21 aims tosales activities. The number of contracts for April

improve occupancy rates further by promoting

2008 was 120% higher than for the same month last

greater corporate usage. Initially, the corporate use

year. Our goal is for a 200% year-on-year increase,of apartments was limited to those undergoing

which is not an unattainable target.” With a ratio oftraining and for long-term business-related stays,

one experienced manager for every four sales

but there has been a rapid increase in the use of

executives, and ample time spent on pre-sales

such premises as company dormitories and housing.

training based on past results, painstaking data

Currently, approximately 40% of apartment units

analysis is undertaken to “break the status quo.”

Generating New Demandwith Product Marketability
Expanding Our Customer Target to Include Families and Other Segments
In 2006, Leopalace21 announced a number of newincome, no kids) in the same building; and Leo withproducts that included the 1LDK (one room plus a

Style that allows pets. The increase in DINKS

living room/dining room/kitchen) Villa Scelte line inhouseholds, a declining birthrate, an aging population,

the 40-square-meter class; the New Leovarious line,

and changes in both lifestyles and population

combining units for singles and DINKS (double

dynamics have led to an expanded product lineup.

Villa Scelte

In terms of space and quality, this urban-style
1LDK apartment ranks a step above our otherproducts, allowing us to serve the needs of awider range of the renting population.

14

New Leovarious

This “New Standard Apartment” features two
types of rooms, and is suited to a broad variety of
the lifestyles led by singles and DINKS.

Leo with Style

As the Company,s first pet-friendly apartment, it
helps enhance the experience of living with a petin an urban environment.

Corporate Sales explains, “Increased awareness of
security has led to recommendations for the optionof an automatically locking gate. Companies thesedays have made an effort to provide for individual
employees’ needs, and we are responding to thisLeo Grandir

Family-style apartments with a separate entrance for each unit give the feeling of
single houses.

diversification by introducing properties with optionalfeatures for female employees.” Armed with the

In 2007 we launched the Leo Grandir line for families,

industry’s top brand that boasts a strong track

featuring apartments with the feel of a stand-alone

record, Komizu expressed a desire to propose new

home. The first and second floors have Western-

rental formats, stating, “Our vacancy rate is just 7%−

style rooms, and there is a third-floor attic. Tonoike

considerably below the industry norm. But thatof Product Development says of the concept, “We

represents 40,000 units, and our biggest challenge

responded to the rising needs of renters with families,

this year is to create a mechanism that will fill them.

and landowners have been highly receptive to the

I hope to work together with the Apartment

unique offering.” The duplex style, less common forConstruction Subcontracting Business to bring a

rental units, not only stimulated new demand, butvariety of ideas to fruition.”

also eliminated noise concerns between upper andlower floors. As a step above a one-room studio

Leopalace21 will draw on its plentiful inventory ofapartment of 30 square meters or less, these units

apartments to develop new rental formats andare helping us expand our customer target fromexpand its market. We will reach the next level ofjust young singles to families as well.

business success by building on our core Apartment
Construction Subcontracting and Leasing businesses.

In June 2008, Leopalace21 began marketing Lavo
Cerna, a three-story wood house with attachedapartments that targets baby boomers living in cities.
Designed around the concept of “a house that works
for you,” Lavo Cerna is Leopalace21’s first integrated
residence and lease unit product. For baby boomers
needing to rebuild their aging houses, the attachedapartments provide income to help reduce theirfinancing burden, and can help supplement theirincome after retirement. We aim to open newmarkets with Lavo Cerna by stimulating rebuilding
demand among the baby boomer generation.

Developing Untapped Markets
Optional design features and services also reflect
the needs expressed by recent renters. Komizu of

Lavo Cerna

This residence combined with leasing units is designed for urban neighborhoods. The
right-hand side of the building has two, three-story units each with their own entrance,with the left-hand side a 3LDK residence.

15

Overview of Operations

Leopalace21’s Medium-Term Management Plan calls for further growth of its two core businesses ofApartment Construction Subcontracting and Leasing (which together account for 94% of sales), along withexpansion of non-core businesses. The target for the final year of the Medium-Term Management Plan isfor 75% of the ¥1 trillion in net sales to come from core businesses, with the remaining 25% derived fromthe three strategic businesses we began actively pursing in 2006 (the Broadband, Residential, and Silver(elderly care) businesses), along with three new related businesses launched in the current fiscal year
ending March 2008)−the Corporate Leasing, Insurance, and Finance businesses. We have now reachedthe halfway mark of the business plan, and are in the process of transitioning from “synergies between
core businesses” to “synergies among core, strategic and related businesses.”

Overcoming the turmoil caused by revision of the BuildingStandard Law, and focusing on macro indicators
The revisions to the Building Standard Law implemented onJune 20, 2007, had a substantial impact on real estatedevelopers throughout Japan. The revised law required double
checks of structural calculation documents and more rigorous
procedures for building permit applications, lengthening theapplication process and construction period, and inflating
costs. This had a significant impact on the real estate market,
with annual lease residence housing starts down 19.9% year
on year to 430.8 thousand units as of March 2008 (according
to data from the Ministry of Land, Infrastructure, Transport andTourism). Of these, lease residence housing starts of 30 square
meters or less (the “one-room” units of Leopalace21’s main
business) declined 12.2% during the same period to 112.2
thousand units. At the same time, however, the real supply of
one-room residences offered by Leopalace21 increased 0.7%
year on year to 56.3 thousand units giving us a 50.2% majority
share of such units (compared to 43.8% a year earlier).
Number of Starts for Lease Residences of 30 Square Meters or
Less and Leopalace21’s Market ShareThousands of households

%

160

80
Under 30 m

2

Our units
Our market share

40

0

60

112.2
113.5

108.1

80

127.6

122.8

120

39.6

42.8

2004

50.2
39.6

44.9

40.4

49.7

43.8
55.9

40

56.3
20

2005

2006

2007

2008

0

Source: Housing start statistics for the FY ending March 2007, Ministry of Land,
Infrastructure, Transport and Tourism and the Company,s report.

16

Projection for Number of Single-Person Households andLeopalace21’s Market ShareThousands of households
20,000Aged under 35
Aged 35 to 64
Aged 65 and over

16,00012,911
3,032

12,00015,707

16,563
5,621

17,334
6,311

17,922
6,729

18,237
7,173

14,457
3,865

4,655

5,444

6,351

6,757

7,134

7,531

7,662

5,148

4,701

4,185

3,890

3,662

3,402

2015(E)

2020(E)

2025(E)

2030(E)

4,577
8,000

5,302

4,000

6.5%

Our share

0

2.7%
2000

2005

2010(E)

Source: Excerpted from 2005 Census, Ministry of Internal Affairs and Communications,and 2008 Number of Households and Future Estimates, National Institute ofPopulation

To maintain this momentum it is important for us to implement
strategies based on the two macro indicators of demographics
and population movement. The most prominent demographic
factors are the declining birthrate and aging population, but the
aspect with the biggest impact on our business is the numberof single-person households. According to the national census
and other surveys, the number of such households has risen
steadily in recent years, from 14,457 thousand in 2005, and is
projected to continue to increase, reaching 15,707 thousandin 2010, and 18,237 thousand by 2030. At the same time, ananalysis of population movement data reveal that our MediumTerm Management Plan goal of becoming a “Total Support
Provider in the Housing Sector” will become an increasingly
effective part of our overall strategy. The population of Japan
has continued to become more urban, a trend that has
accelerated in recent years. Considering that the first nine of
the top ten areas gaining population during 2007 were in themetropolitan areas surrounding Tokyo, Osaka and Nagoya,concentrating marketing activities in populated urban areas
where demand for housing is growing will be an important
aspect for Leopalace21 going forward.

At a Glance

Sales (Year ended March 31, 2008)

Core Businesses
Leasing Business

Apartment
Construction
Subcontracting
Business¥302.7 billion¥327.5 billion

Apartment Construction Subcontracting Business
The Apartment Construction Subcontracting Business mainly handles construction under contract,providing landowners with one-room apartments that are low-cost, while offering energy efficiency,
high durability, and stylish design. Finished buildings are managed by the Leasing Business on an
all-inclusive 30-year contract.

Leasing Business
The Leasing Business handles the Leopalace21 leasing system with no deposit or key money, as wellas the Monthly Leopalace Flat service, providing furnished apartments on a monthly basis. Units undermanagement totaled 442,000 in the year ended March 2008. Leopalace21 is using its ALM leasingsystem to shift to a residential property asset management company.

Net Sales by Division
Billions of yen
700

500
400
300

100
0

Strategic Businesses

Three strategic businesses

195.2
2006

302.7

316.1

327.5

2007

2008

Sales (Year ended March 31, 2008)

Strategic Businesses

5%

Silver Business¥35.7 billion

The Silver (elderly care) Business plans and develops community-based elderly group homes, nursing
homes, and other facilities to meet the demands of an aging society. Launched in January 2005, thebusiness had 35 institutions as of the year ended March 2008.
The Broadband Business provides LeopalaceBB broadband services, including digital video rentals,
satellite broadcasts and Internet service to residents of buildings managed by Leopalace21. As of
the year ended March 2008 service was provided to 394,000 units, or 89.2% of all units undermanagement.

277.1
249.6

The Residential Business develops and sells houses and condominiums for long-term residence.
Launched in January 2005, the business draws on the base and expertise of the core businesses tocreate homes with high levels of safety and variability.

Broadband Business

Apartment Construction Subcontracting BusinessLeasing Business

600

200

Residential Business

49%

45%

Net Sales by Division
Billions of yen
40

35.7
30.6

30
20

Strategic Real Estate Development Business
The Strategic Real Estate Development Business develops real estate properties through investment instrategic real estate assets. It also securitizes the properties it develops.

Related Businesses
Three related businesses

Leopalace Leasing Corporation

11.5
10
0

2006

2007

2008

Sales (Year ended March 31, 2008)

Leopalace Leasing provides a corporate dormitory agency service to support the corporate strategiesof the Leasing Business. It is also expected to be a stepping stone to the family-type apartment
business. Established September 2006.

Related Buinesses

Leopalace Finance Co., Ltd.

¥7.0 billion

1%

Leopalace Finance provides real estate-backed loans and other financial services. Established April 2007.

Leopalace Insurance Co., Ltd.
Leopalace Insurance sells household goods insurance to individuals renting apartments through theLeasing Business’s nationwide network of leasing centers. Launched in March 2008.

Net Sales by Division
Billions of yen

Domestic Hotel Business

10

The Domestic Hotel Business operates hotels in major cities throughout Japan based on reasonable prices
and accessibility. In addition to ordinary guests, the hotels are also utilized as apartments by long-term
residents. There are eight hotels nationwide.

8

Overseas Resort Business
The Overseas Resort Business, operated by the wholly-owned subsidiary Leopalace Guam Corporation,
consists of the large-scale resorts Leopalace Resort Manenggon Hills Guam and the Westin Resort Guam.

8.9

7.7

7.0

6
4
2
0

2006

2007

2008

Note: The segment results shown for our Hotel Resort
Business and Other Business are included within
Strategic Businesses and Related Businesses.

17

Overview of Operations
Core Businesses

The main features of the core businesses are the good profitability of Apartment Construction Subcontracting,and the stable growth of Leasing. The synergy created between these two businesses is Leopalace21’s greatest
strength, and provides us with highly stable and secure business operations.

Apartment Construction Subcontracting
Steady orders received in the fiscal year ended March 2008
Orders continued to be strong during the fiscal year ended
March 2008, rising 23.8% year on year to ¥421,534 million,
with the order backlog up 37.8% to ¥342,679 million. This issubstantially greater than the rate of about 10% annually inrecent years, the result of highly strategic marketing anddevelopment of attractive products. In terms of marketing,
we reorganized our leasing sales locations distribution inaccordance with our regional strategy. Under this strategy
we implemented measures to concentrate orders in urban
areas (the metropolitan areas of Tokyo, Osaka and Nagoya),in order to expand our business infrastructure (apartment

stock). We now have a business structure of 130 locations(an increase of three year on year) with 1,600 employees, throughwhich we are uncovering demand focusing on urban areas.
As a result of the harsh business conditions we faced during
the subject fiscal year, including longer construction periods
due to revision of the Building Standard Law and a decline
in the real estate market, sales rose just 3.6% from theprevious fiscal year to ¥327,541 million. However, orders
were steady despite the difficult environment, and we consider
the growth potential for sales to be considerable.

Expanded product lineup to meet new demand
Leopalace21 continues to bolster its product lineup in response
to diversified consumer needs. One of the main features of
our apartments is their functionality: furnished units arecomplete with appliances and broadband Internet access.
In recent years we have been leasing more units for specificlifestyles and needs, such as 1LDK (one room plus a living
room/dining room/kitchen) units for DINKS (double income,no kids), or residences that accommodate pets or offer
enhanced security.
Other recent issues include strengthening marketing in urban
areas with high land prices, providing highly profitable residences
to meet corporate demand for company housing and other

Lavo Cerna

18

Launched in June 2008, Lavo Cerna is a residence combined with leasing units,
designed for urban neighborhoods. Leasing income helps lessen the cost of arebuilding loan.

needs, and developing units for families. In July 2007 we
introduced our first family-oriented residences, the duplex
style Leo Grandir series. In June 2008 we began selling
residences with attached rental apartments, which anticipate
rebuilding demand from baby boomers in urban areas. This
quick product development was made possible throughtightly focused area marketing that allowed us to grasp thenature of a community, as well as surveys conducted among
Leopalace21 residents using broadband Internet service.
Such expertise in developing products that anticipate consumer
needs is one of the strengths of the Apartment Construction
Subcontracting Business.

Lavo Casa

Launched in June 2008, this three-story wood frame apartment utilizes the same
specifications as the lease portion of Lavo Cerna.

Leasing
Nationwide online network one of the greatest strengths
One of the strengths of the Leasing Business−the second
pillar of our core businesses−is the nationwide online network
linking lease units and leasing sales locations. The numberof residences Leopalace21 has built and manages reached442,025 units nationwide as of March 2008. Of these, around
65% in urban areas, with 159,363 units in the Kanto (Tokyo)
region, 61,055 in Kinki (Osaka-Kobe), and 71,039 in Chubu(Nagoya). All of these units were developed in areas where
tightly focused marketing revealed underlying demand,
establishing a structure that allows us to accurately respondto the needs of companies or individuals seeking space.

Leopalace21 is the only company in Japan that has suchan extensive nationwide network of one-room units.
We plan to increase the number of units under management
going forward, and expect to have close to 600,000 units by
the end of the fiscal year ending March 2011, the final yearof our Medium-Term Management Plan. Resident movement
and business expansion stemming from the increase inmanaged units will also present business opportunities for
the Leasing Business.

Enhanced marketing to increase the occupancy rate will be key inthe fiscal year ending March 2009
Although the number of units under management increased
by 53.5 thousand in the fiscal year ended March 2008, theaverage occupancy rate for the year declined 0.4 of apercentage point to 92.4%, due mainly to cessation of salesof the short term “Per Week” units. We also incurred an
extraordinary loss during the subject fiscal year due to achange in accounting procedures for “Monthly Leopalace”
units. Sales in the Leasing Business rose 9.2% year on yearto ¥302,731 million, but the biggest drag on revenue in the
Leasing Business overall was the decline in the occupancy
rate.
Nonetheless, as noted previously we are forecasting an
increase in the number of units under management, and in
anticipation of this increase have expanded our leasing sales

Units Under Management and Occupancy Rate

Occupancy rate

92.4

92.8

94.5

92.4
442

400

%
95

94.0
93.3

600

Another marketing issue is how to further develop corporate
demand, which offers a stable occupancy rate throughout
the year. Corporate contracts already account for over 40%
of units under management, and we are taking steps tostrengthen our corporate sales structure, and increase thenumber of contracts. We expect that such enhanced
marketing capabilities will raise the annual average occupancy
rate to 93.3% during the fiscal year ending March 2009.

Apartment units under management

Thousands of units
800

locations and bolstered staff numbers. The number ofbusiness offices at the end of the subject fiscal year totaled
311 (an increase of 31 year on year) staffed by 2,100
employees, which we plan to increased to 400 locations
with 2,400 employees by the final year of the Medium-Term
Management Plan.

592
507

543

389

90

344

200

0

2006

2007

2008

2009(E)

2010(E)

2011(E)

85

19

Overview of Operations
Strategic Businesses

The three strategic businesses−the Residential, Silver (elderly care) and Broadband businesses−are an
extension of the core businesses, utilizing existing infrastructure for efficient and rapid expansion.

Residential Business: growth in both contracts and sales of single-family homes
The Residential Business targets second-generation baby boomers (born between 1971 and1975), who have graduated from one-room apartments. According to assumed figures for 2005,
around 64% of these second-generation baby boomers−6.3 million people−live in the threemajor metropolitan areas around Tokyo, Nagoya and Osaka. Leopalace21’s first priority has been
to strengthen its business foundations in these three urban areas. The Residential Business hasgrown rapidly since its launch in January 2005, but sales for the fiscal year ended March 2008
fell significantly short of plan, declining 20.3% year on year to ¥11,200 million as a result of
deterioration of the real estate market. However, the number of contracts and sales of singlefamily homes is rising, mainly in the Tokyo metropolitan area, and we are anticipating sales in
the fiscal year ending March 2009 of ¥15,000 million.

Lu Ceruna Series

The skeleton-infill construction allows the layout
to be adapted for changing lifestyles.

Silver (Elderly Care) Business: nursing staff training and other sales efforts key
Many landowners are older or elderly, and while they are a source of orders for elderly care facilities,
they are also potential residents. We are developing this business targeting both the demand andsupply aspects. Approximately 56% of the elderly generation (65 years and older)−14 million people−
live in the three major metropolitan areas, forming an urban-centered base similar to that for the
Residential Business. The key to success in the Silver Business, however, is operations after
completion of the facility. Instead of rushing forward needlessly with business expansion, Leopalace21
first focuses on training care staff and building up other types of operational expertise. The numberof facilities has increased at a rapid rate since the launch of the business in January 2005, and as ofthe end of the fiscal year ended March 2008 the number of facilities had grown by 19 from a year
earlier to 35, with sales up 109.1% to ¥11,100 million, surpassing the ¥10,000 million mark for the
first time. For the fiscal year ending March 2009, however, taking into account our strategy ofemphasizing first acquiring operational expertise, we are forecasting sales of ¥11,500 million.

Azumien Tokiwadaira

The largest unit in the Azumien series, opened
in Matsudo, Chiba in March 2008.

Broadband Business: creating new opportunities, synergies with core businesses
The Broadband Business has the highest sales among the three strategic businesses. Because
the number of broadband subscribers increases together with the number of units undermanagement, synergies are created with the core businesses, particularly the Leasing Business.
The number of units with broadband access at the end of the fiscal year ended March 2008
had increased 21.6% year on year to 394,000 units. Broadband access is now available in 89% of
Leopalace21 units, and we plan to increase this to 94% during the fiscal year ending March 2009.
By 2011 we expect to have a huge broadband stock underpinned by 600,000 units under management.
We plan to draw on this stock to open up new business opportunities in services utilizing media
value, such as advertising and monitoring functions. As a result of the increase in the number ofunits under management, sales in the fiscal year ended March 2008 rose 17.6% year on year to¥13,200 million. We are forecasting sales of ¥14,300 million in the year ending March 2009.
Another strategic business other than these three is the Strategic Real Estate Development
Business. We are making strategic investments of approximately ¥100,000 million over the periodof the Medium-Term Management Plan (April 2007 through March 2011), with the objective ofproviding a nationwide network for the core businesses through the establishment of a Real
Estate Development Business.

20,
Leopalace21 s broadband service(LeopalaceBB)

LeopalaceBB provides TV service with originalcontent in addition to Internet access.

Related Businesses

Synergies among the three new related businesses, Domestic Hotel Business, and Overseas Resort Business

Leopalace21 launched three new related businesses during
the subject fiscal year to support the overall strategies of
the core businesses. Specifically, these are 1) Leopalace
Leasing Corporation, a corporate housing agency businessthat provides a stepping stone into the family-type apartment
business; 2) Leopalace Finance Co. Ltd., which supports
the Strategic Real Estate Development Business; and 3)
Leopalace Insurance Co. Ltd., which provides insurance
to residents of leased apartments. Leopalace Leasing is aseparate unit of the corporate sales division of the Leasing
Business, and is able to pursue sales from other than justone-room units. Leopalace Finance is a separate unit of realestate development operations. It is essential to strategic
real estate development, and also provides us with achannel for information on real estate development.
Leopalace Insurance is the first insurance company of the
Leopalace21 Group. Once these three related businesses
are up to full speed, they will not only provide support forthe core businesses, but will also help to generate new
business opportunities.
In addition to the three new related businesses Leopalace21
also has a Domestic Hotels Business that operates hotels
in major cities throughout Japan (eight locations), as wellas an Overseas Resorts Business that operates integrated
sports facilities and hotels in Guam. The Overseas Resorts
Business had sales of ¥6.0 billion and posted an operating
loss on a yen basis in the fiscal year ended March 2008,
but managed an operating profit on a dollar basis as aresult of a steady occupancy rate and cost reductions.
The aim of these two businesses is to expand synergies
with the core businesses and three strategic businesses.
Excluding the core businesses, the three strategic businesses,
three related businesses and the Overseas Resorts Business
together posted net sales for the fiscal year ended March
2008 of ¥42.7 billion, up 11.5% from the previous fiscal year.
Of this, sales from the three strategic businesses totaled¥35.7 billion. Our goal for the final year of the MediumTerm Management Plan (ending March 2011) is to increase
sales from these businesses to over ¥250 billion, or one
quarter of the ¥1 trillion in sales for Leopalace21 overall.

Hotel Leopalace Nagoya, a stately urban
resort, opened in 2001.
Hotel Leopalace Hakata,with its innovative glass
wall facade.

Leopalace Resort Manenggon Hills,
a premier resort complete withnumerous sports facilities.

Forecasts of Sales

Apartment Construction Subcontracting BusinessLeasing Business
Strategic Businesses and Related Businesses

Billions of yen
1,200

Strategic Businesses and Related
Businesses increase their ratio of
net sales composition.
1,000

1,000.0
255.3

870.0
165.7

800
631.6
30.6

600

35.7
302.7

7.0

424.7
384.3

277.1
465.3

400

672.9
7.7

765.0
47.3
347.4

249.6

8.9
11.5
370.3
316.1

200

0

327.5

320.0

320.0

2010(E)

2011(E)

195.2

2006

2007

2008

2009(E)

Note: The segment results shown for our Hotel Resort Business and Other Business areincluded within Strategic Businesses and Related Businesses.

21

Corporate Social Responsibility (CSR)

Promoting CSR by Creating a Culture of
Responsible Corporate Citizenship

Right: Yoshiteru Kitagawa, President and CEO
Left : Hiroyuki Miyata, Senior Executive Officer,
Head of the Administrative Headquarters

Q1 How does Leopalace21 view the issue of CSR(Corporate Social Responsibility)?
Yoshiteru Kitagawa, President and CEO:The business of Leopalace21 is to help supply the public’s need for housing throughapartment construction and leasing. In other words, we help to satisfy one of the mostbasic needs in people’s lives. In that sense, I think it is safe to say that our corporate
activities in themselves provide an important service to society, and therefore we believe
it is important that our CSR activities should be a natural outgrowth of the way we dobusiness. Simply put, this means that we encourage each of our employees to recognize
how his or her everyday business activities help to serve the needs of society at large.
Motivated by this awareness, we believe that our employees will be able to approacheach day with a fresh desire to serve society through their work. One might say that thekey to CSR in our company lies in the process of helping our employees become moreaware of how their work contributes to the betterment of society. In fact, the businessactivities of Leopalace21, in a broad sense, have been a vehicle that has enabled us topromote CSR activities to encourage the healthy growth and development of local
communities. Typical of these activities have been neighborhood cleanup campaigns
designed to beautify and cleanup areas near properties we have under management.
During these campaigns, building owners, our staff, and local residents all work together
to improve their neighborhoods. Leopalace21 has been organizing neighborhood cleanup
projects for many years, and this program has earned the strong support of local communities.

22

Q2 How do you go about promoting within your company
the concept that your business activities are in themselves
an expression of responsible corporate citizenship?
Hiroyuki Miyata, Senior Executive Officer:
Under the leadership of President Kitagawa, we are taking advantage
of many different opportunities to talk to our employees about the
future of CSR activities at Leopalace21. In addition to messages fromour top leadership, we are carrying out a company-wide educational
campaign, and at the departmental level we have put up posters withthe slogan “CSR is Everyone’s Responsibility.” As part of this campaign,
we are inviting our employees to share their ideas and views of how
Leopalace21 can demonstrate responsible corporate citizenship.This
campaign is being promoted primarily by our new CSR Committee,
which was formed this year. It is hoping to take ideas and suggestions
based on actual everyday experience on the front lines of our businessand develop them into concrete programs. The basic impetus forpromotion of CSR is coming from the top down, but the actual
concrete ideas and proposals will come from the bottom up.

Q3 You have made corporate governance a top management
priority. Please tell us about the system of governance andother measures you have implemented.
Yoshiteru Kitagawa:
Together with compliance, corporate governance is one of the main
pillars supporting our CSR work. The foundation of corporate
governance is the promotion of fairness and transparency inmanagement. To achieve this, we have adopted “Create New Value”
as our corporate philosophy, and we have drawn up and implemented
a “Corporate Code of Ethics” to guide the course of our businessdevelopment. The purpose of this is to ensure that all our businessactivities are firmly established on the bedrock of compliance withsocial ethics. We are working continually to promote this attitude, notonly among our Directors but also among the employees of all ourGroup companies.
In more concrete terms, in June 2006 we set up an Administrative
Headquarters and a Management Planning Headquarters. These,
together with our original Corporate Marketing Headquarters(formerly the Sales and Marketing General Headquarters; the namewas revised in March 2008), comprise a three-headquarters systemthat forms the basis of our system of corporate governance. Under
this system,the Corporate Marketing Headquarters is responsible
for promoting corporate vitality and growth, the Administrative
Headquarters oversees corporate governance, especially in the areaof compliance, and the Management Planning Headquarters handles
all risk control issues as regards business operations.

Corporate Governance Organizational Structure(As of June 1, 2008)

General Meetingof Shareholders
Board of Auditors
Board of Directors
Compliance
Committee
CSR Committee
Risk Management
Committee
President and CEO
Management
Committee
Sales and Marketing
General Headquarters

Administrative
Headquarters

Management Planning
Headquarters●Leopalace21 has adopted director and auditor systems designed to facilitate rapid decision

making and enhance our ability to respond appropriately and promptly to changes in ourbusiness or management environment.
,●The Company s Board of Directors presently consists of 14 members (currently we have no
external board members). In addition to its regularly scheduled monthly meetings, the Board
holds special meetings whenever necessary.
●The Management Committee meets monthly to discuss and evaluate issues related to theimplementation of business plans and policies.
●The Board of Auditors consists of four members (two of whom are appointed from outside
the Company). The effectiveness of the auditors has been strengthened by empowering themto attend meetings of the Board of Directors and to independently conduct investigationsof business operations.

23

Corporate Social Responsibility (CSR)

Q4 Please describe the steps you are taking
to promote compliance.
Yoshiteru Kitagawa:
A Compliance Committee, including non-Company members,
oversees compliance and serves as an advisory body to the Boardof Directors. With its Director responsible for compliance issues
overall, the Administrative Headquarters is primarily responsible fordevising, creating and maintaining a compliance-based management
system, while its Legal Department conducts internal checks.
Reporting directly to the Board, the Company Auditors work with
the Internal Auditing Office to track compliance and identify problems
related to statutes or Company articles of incorporation.
We have implemented a variety of measures Group wide to raiseawareness of the importance of compliance issues. In October 2006
we started a quarterly “Compliance Newsletter,” of which sevenissues have been published. Also since then, the chief of our Legal
Department has conducted 81 Group-training seminars nationwide
designed to improve employee awareness and understanding ofcompliance issues. Then, in May 2007, we introduced e-learning
courses for all staff. So far, there have been five courses, covering
basic issues to the implications of changes in legal statutes.

Q5

In 2008 the Toyako Summit was held inJapan, and is expected to focus further
attention on environmental problems.
Please discuss your stance on theseissues.

Hiroyuki Miyata:
Environmental activities are an important part of our CSR programs.
As a housing developer, it is only natural that we seek to reduce
CO2 emissions and construction waste. We buy structural materials
and other products from companies using environmentally friendly
manufacturing processes that minimize CO2 generation. Moreover,by pre-cutting structural materials at the factory, we reduce on-site
processing and significantly cut construction waste. In terms ofenergy-efficient housing, with more than 450,000 units undermanagement, even slightly improved energy efficiency can havesignificant results. Our CSR campaign asks employees to share
their ideas on ways we can help create a better environment. Not only
because of our commitment to CSR do we promote environmentrelated activities, but also because they generate employee pride.

24

CSR Promotion Structure (Compliance and Risk Management)(As of June 1, 2008)

Reports on CSR activities

Board of Directors

Consultations oncompliance system

CSR
Committee
Formulation ofpolicies andactivity plans

Internal
Auditing OfficeSubmission of
specific opinions

Risk Management
Committee

Compliance
Committee
Determination of policies
Formulation ofannual activity plans
Audit
reports
Auditing
requests

Administrative
Headquarters
Individualcompetent Legal Dept.
corporateorganizations

Formulation ofcompliance manuals
Guidance for annual
activity plans
AdviceReports on
legal risks
and others

Reports on
individual
business
proposals[Secretariatsof Complianceand CSR
Committees](Communication Contact)(Corporate External)(protectionof those
who report)

Compliance
Hotline(Corporate Internal)

Reports
on results

Status investigations
Reports on violations
Guidance for(Divisional Director)
improvement
Implementation of
Person in charge
training sessionsof compliance

Implementation of audits

Individual businessdivision headquarters

Compliance
HotlineReports on
business
proposals

Corporateinternal
communication
Consultation
Opinions

Inquirer
Consulter

Social Action Programs
Business Activities “Friendly to Both People and the Environment”
Leopalace21 emphasizes business activities that are people and environment
friendly. Thus, we have improved the security and convenience of our rental
facilities with card keys and automatically locking gates; introduced a 24-Hour
Medical Consultation Service to provide around-the-clock health-related advice;
and, for many years, have conducted neighborhood cleanup campaigns nearproperties we manage. In addition, apartment wall coverings and furniture arecarefully selected, to avoid formaldehyde and other substances associated withsick-house syndrome.

Disaster Relief
Leopalace21 has a donations program to support recovery work in areas hit by
natural disasters. It donated ¥5 million to Kashiwazaki City, hard hit in 2007 by,
the Niigata-ken Chuetsu-Oki Earthquake. We also responded quickly to China s
Sichuan Earthquake in 2008. With an office in Shanghai and employing many
Chinese nationals in Japan and abroad, we quickly set up a program whereby theCompany matched donations from Group company directors and the Leopalace21
Owners Mutual Insurance Association. Soon we were able to donate ¥8 million
through the Japan Red Cross Society.

Presentation of our donation to theJapan Red Cross Society

Helping Athletes Achieve Their Dreams throughSports Promotions
Through its various businesses, Leopalace21 has found new waysof providing “Homes for People” and helping devoted athletes,
achieve their dreams. In November 2001, we organized a women ssoftball team that has developed into a perennial candidate for,league champion. Some of its members have even joined Japan snational team and participated in Olympic Games. As softball gains
popularity, junior and senior high school players are increasing.
The Leopalace21 team is helping promote local sports by visiting
schools nationwide to help train young players.
In addition, we support beach volleyball competitions and, as an
official sponsor of the Japanese Swimming Federation, we lend
support to Japanese swimmers. Despite having previously focusedon supporting amateur competitions, in February 2008 we became
an official sponsor of the Japan Professional Football League(J-League), because we admire its policy of contributing to local
communities by establishing hometown-based support systems.

25

Financial Section

Consolidated Six-Year Summary

Leopalace21 Corporation and consolidated subsidiaries
Years ended March 31

Thousands of U.S.
dollars, except
where noted

Millions of yen, except where noted

2008

2007

2006

2005

2004

2003

2008

¥672,974¥631,608¥465,387¥476,267¥422,224¥360,369$6,716,972

Apartment Construction Subcontracting

327,541

316,117

195,202

248,033

225,011

190,217

3,269,195

Leasing

302,731

277,163249,696

216,591

188,864

162,766

3,021,570

For the year:
Net sales

Hotel Resort

6,072

7,141

8,340

7,282

5,759

5,928

60,603

Other

36,63031,187

12,149

4,361

2,590

1,458

365,604

Cost of sales

511,054474,713353,928

357,546

313,085

268,857

5,100,846

Selling, general and administrative expenses

90,51780,88870,68464,03957,46846,986

903,453

Operating profit

71,40376,007

40,77554,682

51,671

44,526712,673

Net income (loss)

342

37,358(16,582)

33,262

20,96020,464

3,418¥493,956¥454,820¥412,804¥453,434¥421,164¥410,340$4,930,194

170,155

185,785

133,622

149,798

81,42068,3091,698,328

Total net assets¥1,036.43¥1,054.99¥839.44¥941.06¥585.82¥492.06$10.34

Net income (loss)

2.15

234.68(104.17)220.79150.91160.56

0.02

Cash dividends

80.00

50.00

15.00

15.00

15.00

15.00

0.80

Equity ratio (%)

33.4

37.0

32.4

33.0

19.3

16.6

Return on equity (ROE) (%)

0.2

24.8

(11.7)

28.8

28.0

35.8

Return on assets (ROA) (%)

0.1

8.6

(3.8)

7.6

5.0

5.2

Number of employees

8,678

7,409

6,868

6,457

5,702

4,385

At year-end:
Total assets
Total net assets

Amounts per share:

Ratios:

Notes: 1. U.S. dollar amounts are translated from yen at the rate of ¥100.19 = US$1, the approximate rate prevailing at March 31, 2008.
2.The amounts of total net assets for the years ended March 2003, 2004, 2005 and 2006 represent the value of total shareholders' equity and do not include minority interests.
3. Net loss for the year ended March 31, 2006 is the result of impairment losses posted after adoption of new accounting standards for impairment of fixed assets.

26,Management s Discussion and Analysis

Operating Environment

Apartment Construction Subcontracting Business accounted for 48.7%

During fiscal 2008 (the fiscal year ended March 31, 2008), the Japaneseof sales (down 1.3 percentage points from the previous fiscal year), theeconomy continued on course for recovery on the back of improved

Leasing Business 45.0% (up 1.1 percentage points), the Hotel Resort

corporate earnings and increases in private capital expenditures. However,Business 0.9% (down 0.2 percentage point), and the Other Businessa decelerating trend strengthened during the second half of the year

5.4% (up 0.5 percentage point).

due to turmoil in financial markets caused by the subprime loan crisisin the United States, and the impact on consumer spending due to rising

Sales growth in the Apartment Construction Subcontracting Businessprices to reflect higher materials costs. In residential investment duringslowed compared to that of the previous fiscal year, due mainly to longer

the subject fiscal year, with the impact from the implementation of theconstruction periods resulting from the implementation of the revised

revised Building Standard Law new housing starts declined for the first

Building Standard Law, and a lag between conclusion of contracts

time in five years (down 19.4%), and leased housing fell for the first time

and the recording of sales on completed properties during the previous

in seven years (down 19.9%).

fiscal year, which led to a considerable increase in sales. Orders remained
strong, however, and are expected to underpin sales growth during,

Under such circumstances, in the Leopalace21 Group s Apartment
Construction Subcontracting Business orders continued to be strong

fiscal 2009.

despite longer construction periods due to the revised Building Standard

Earnings

Law, and the impact of rising prices for materials. The rapid appreciation

The cost of sales increased 7.7% year on year to ¥511,054 million. Byof the yen at the end of the period also generated valuation losses insegment, the cost of sales for the Apartment Construction Subcontracting

overseas businesses.

Business rose 3.8% to ¥217,263 million, and for the Leasing Businessincreased 11.2% to ¥253,584 million. The combined cost of sales for

Net Sales

the Hotel Resort and Other segments rose 8.1% year on year toConsolidated net sales for the subject fiscal year rose 6.5% from the¥40,207 million. As a proportion of the cost of sales, the Apartment

previous fiscal year to ¥672,974 million. By segment, sales in theConstruction Subcontracting Business accounted for 42.5% (down 1.6

Apartment Construction Subcontracting Business rose 3.6% year on

percentage points year on year), the Leasing Business 49.6% (up 1.5

year to ¥327,541 million, and in the Leasing segment were up 9.2% topercentage points), and the combined Hotel Resort and Other segments¥302,731 million. Sales in the Hotel Resort Business declined 15.0%

7.9% (up 0.1 percentage point). Because the year-on-year growth infrom a year earlier to ¥6,072 million, while sales of the Other Businessthe cost of sales was slightly over that for net sales, the gross profit

increased 17.5% to ¥36,630 million. As a proportion of sales, themargin fell 0.7 percentage point from the previous fiscal year to 24.1%.

Net Sales

Operating Profit and Operating Profit Margin

Millions of yen

Millions of yen

800,000

80,000%Operating Profit
Operating Profit Margin631,608

672,974

12.4

12.2

60,000600,000

51,671
476,267

465,387

400,000

360,369

200,000

0

2004

2005

2006

2007

2008

12.0

12.0

10.6

40,7758.8

40,0008.0

20,000

4.0

0
2003

71,40354,682
11.5

44,526422,224

16.0

76,007

2003

2004

2005

2006

2007

2008

0

Note: Decline in operating profit and operating profit margin for the year ended March 31, 2006
is the result of the postponement of a scheduled construction contracts.

27,Management s Discussion and Analysis

Selling, general and administrative (SG&A) expenses rose 11.9% year

mainly to ¥47,754 million as an “adjustment to advances received ”

on year to ¥90,517 million. Because this was greater than the year-on-

stemming from a change in accounting method for the Monthly

year growth in net sales, SG&A expenses as a proportion of net sales

Leopalace service, and a ¥9,534 million foreign exchange loss arising

increased 0.7 percentage point from the previous fiscal year to 13.5%.

from the rapid appreciation of the yen. As a result, income before

As a result, operating profit declined 6.1% year on year to ¥71,403

income taxes and minority interests for the fiscal year under review

million, with the operating profit margin down 1.4 percentage points

amounted to ¥12,424 million (compared to ¥69,330 million in theyear on year to 10.6%.

previous fiscal year). Net income totaled ¥342 million (compared to¥37,358 million in the previous fiscal year).

The balance of other income (expenses) was net other expenses of¥58,979 million, a considerable increase compared with net other

Return on assets (ROA) was 0.1% (compared to 8.6% in the previous

expenses of ¥6,677 million for the previous fiscal year. This was due

fiscal year), and ROE 0.2% (compared to 24.8% a year earlier).

Net Income and Net Income Margin

ROA

Millions of yen

60,000Net Income
Net Income Margin

7.0
5.7

8.6
7.6

5.0

4.0

33,262
20,464%10

5.9

40,00020,000

%
8.0

5.2
5

37,3585.0

20,960

0.1

0.0

0.1

0

342

(3.6)

0
2003

2004

2005

2007

(3.8)

(16,582)-20,000

-4.0

2008

-8.0

2006

-5

2003

2004

2005

2006

2007

2008

ROE
%
40

35.8
30

28.0

28.8

24.8

20

10

0.2
0

-10

(11.7)
-20

28

2003

2004

2005

2006

2007

2008

Note: Net loss, negative ROE and ROA for the year ended March 31, 2006 are the result of
impairment losses posted after adoption of new accounting standards for impairment of fixed
assets.

Segment Information
Apartment Construction Subcontracting

Resort Guam, and cost reductions generated an additional benefit. The,

Group sold the Trianon Palace, a Westin Hotel in France, in October 2006.

Sales in Apartment Construction Subcontracting, one of the Group s
two core businesses, rose 3.6% year on year to ¥327,541 million.

Other

Despite the impact of longer construction periods stemming from the

The Other segment consists of residential and other real estate sales−aimplementation of the revised Building Standard Law, orders continued

strategic division for the Group−together with the Silver and Broadband

to be strong due to restructuring and strengthening of sales locations

businesses, and Finance business providing real estate equity loans forbased on regional strategies, and an enhanced product lineup thatbusiness. Sales in this segment rose 17.5% over the previous fiscal

included the introduction of new products, such as 1LDK* apartments,

year to ¥36,630 million, though operating profit declined 40.8% tofamily-type units, and buildings with enhanced security. Contract volume¥646 million. This segment handles residential and other real estateincreased 23.8% year on year to a record ¥421,534 million, with thesales in the Tokyo metropolitan, Kyoto-Osaka-Kobe and Nagoyabalance of contracts on hand rising 37.8% to ¥342,679 million. There

metropolitan areas, which were affected by the deterioration of the real

were 130 sales locations at the end of the fiscal year ended March

estate market during the second half of the fiscal year under review.

2008, up three from the end of the previous fiscal year.

The Silver Business continued to increase its number of care facilities
for the elderly, reaching a total of 35 in the Tokyo metropolitan region

The segment operating profit decreased 1.8% year on year to ¥73,268

as of the end of the fiscal year ended March 2008 (compared to 16 in

million, with the operating profit margin down 1.2 percentage points tothe previous fiscal year). In the Broadband Business, subscriber

22.4%. Cost increases stemming from rising materials prices and thenumbers are rising steadily. On March 31, 2008, Leopalace Insurance

incorporation of higher-quality facilities were absorbed by careful

Co., Ltd. completed its registration as a small-sum, short-term insurance

attention to cost and process management.

underwriter.

*1LDK refers to one room plus a living room/dining room/kitchen.

Financial Position

Leasing,
Sales in the Leasing Business, the Group s other core business, rose
9.2% year on year to ¥302,731 million. At the end of the fiscal year to
March 2008, there were 442,000 apartment units under management,a year-on-year increase of 54,000 units. The cessation of sales for the
low-margin weekly rental service led to a year-on-year decline in the
average occupancy rate for the period of 0.4 percentage point to 92.4%.

Total current assets increased ¥ 32,128 million from the end of theprevious fiscal year to ¥218,684 million. Increases consisted mainly of¥10,054 million in real estate for sale/property inventories; ¥ 7,287

million in operating loans; ¥ 11,549 million in trade receivables andaccounts receivable for completed projects plus other accounts
receivable; while decreases consisted mainly of ¥14,202 million in cash
and cash equivalents. Total fixed assets plus total investments andother assets rose ¥ 7,008 million from the end of the previous fiscal
year to ¥275,272 million. Increases consisted mainly of ¥10,628 million

The operating profit decreased 56.8% year on year to ¥3,037 million,

in long-term prepaid expenses; while decreases consisted mainly ofwith the operating profit margin down 1.5 percentage points to 1.0%.

¥2,496 million in construction in progress. As a result, total assets at

The main reason for the profit decrease was anticipatory investments

the end of the fiscal year ended March 2008 were up ¥39,136 million

to expand sales locations and personnel numbers in anticipation of afrom the end of the previous fiscal year to ¥493,956 million.

future increase in the number of units under management, along withefforts to strengthen corporate and branch office sales, as well as the

Total current liabilities increased ¥51,708 million from the end of thebuilding maintenance and management structure. The number of sales

previous fiscal year to ¥268,622 million. Increases consisted mainly of

locations at the end of the fiscal year under review was 311, an increase¥51,753 million in advances received; and ¥12,132 million in accountsof 31 from the previous fiscal year.

payable including payables for completed projects; while decreases
consisted mainly of ¥12,713 million in accrued income taxes. Total long-

Hotel Resort

term liabilities increased ¥ 3,058 million from the end of the previous

Sales in the Hotel Resort segment decreased 15.0% year on year tofiscal year to ¥55,179 million. Increases consisted mainly of ¥10,753¥6,072 million, and the segment recorded an operating loss of ¥1,117

million in lease/guarantee deposits received; while decreases consisted

million (an improvement of ¥1,511 million from the previous fiscal year).

mainly of ¥7,120 million in long-term debts. As a result, total liabilities

Occupancy rates held steady at the Group's integrated sports resort

for the fiscal year ended March 2008 were up ¥ 54,766 million fromin Guam, Leopalace Resort Manenggon Hills Guam, and at the Westin

the end of the previous fiscal year to ¥323,801 million. The balance of29,Management s Discussion and Analysis

interest-bearing debt, as a result of efforts to cut borrowing, decreased

Consequently, the balance of cash and cash equivalents at the end of¥3,449 million from the previous fiscal year to ¥49,710 million.

the fiscal year ended March 2008, less ¥405 million in effect of exchange
rate changes on cash and cash equivalents, stood at ¥60,965 million,

Total net assets amounted to ¥170,155 million at the end of the fiscal

a decrease of ¥14,202 million from the end of the previous fiscal year.

year under review, a decrease of ¥ 15,630 million from ¥ 185,785
million at the end of the previous fiscal year. The equity ratio for the
fiscal year ended March 2008 was 33.4%.

Free Cash Flows
Millions of yen
50,00045,705Equity Ratio%
40.0

40,000

37.0
33.0

32.4

33.4

30.0

20.0

31,37030,00018,96020,00016.6

47,37819.3

11,89410,000

10.0

2,336
0
2003

2004

2005

2006

2007

2008

0
2003

2004

2005

2006

2007

2008

Cash Flows

Basic Policy on Distribution of Earnings
Leopalace21 Corporation considers return of profit to shareholders to

Net cash provided by operating activities amounted to ¥11,746 million,

be a management priority. To improve the return of profit to shareholders,a net decrease of ¥51,562 million over the previous fiscal year. Net

it is our policy to pay dividends at a payout ratio of 30%. We also makeinflows included ¥12,424 million from income before income taxes andeffective utilization and investment of retained earnings to enhance theminority interests; and ¥51,804 million in increase in advances received;

corporate value of the Leopalace21 Group.

against net outflows of ¥31,840 million in income taxes paid.
For the fiscal year ended March 31, 2008, Leopalace21 paid an interim
Net cash provided by investing activities amounted to ¥148 million, adividend of ¥30 per share. Year-end dividends, despite considerable

net increase of ¥16,078 million compared to ¥15,930 million in cash

extraordinary losses and losses on exchange rate fluctuations, wereused in the previous fiscal year. Cash payments included ¥6,887¥50 per share, for a full-year dividend of ¥80 per share (an increase of

million in payment for purchase of tangible fixed assets; and ¥3,393¥30 per share from the previous fiscal year). For the fiscal year ending

million in payment for purchase of investment securities; but this was

March 31, 2009, we plan to pay an interim dividend of ¥30 per share,

offset by ¥12,145 million in proceeds from sales of tangible fixed assets.

and a year-end dividend of ¥30 per share, for a full-year payout of ¥60
per share.

Net cash used in financing activities amounted to ¥26,780 million, a
net increase of ¥9,761 million compared to the previous fiscal year.
This was due mainly to ¥3,459 million in repayment of long-term debt
and redemption of privately placed bonds (less proceeds from debt);¥12,484 million in payment for refundment of amount invested byminority shareholders; and ¥ 10,360 million in dividends paid forshareholders.
30Business and Other Risks

Loan Losses, and Provision for Bad Debt

Listed below are the principal risks that we believe could affect the,
Leopalace21 Group s business performance and financial position.

The Company conducts financing activities, and carries on its books a

However, this list is not all-inclusive and does not cover all the risks thatloans and real estate equity loans. The Company also may guarantee thecould affect Group businesses. All forward-looking statements included

housing loans and membership fee loans offered to its customers byherein reflect the judgment of the Leopalace21 Group management asfinancial institutions. Apartment and other loans where repayment hasof the end of the consolidated fiscal term under review.

become doubtful are accounted for separately as doubtful receivables

balance for operating loans receivable comprising apartment construction(tangible), and a provision is made for bad debt in each such case;
Foreign Exchange Risk

however, our business results could be affected if amounts of

The Leopalace21 Group includes overseas subsidiaries involved in theuncollectible debt should increase, or if we should be obliged to honor

hotel and resort business, and as a result our business results may beclaims pertaining to these loan guarantees.

affected by exchange rate fluctuations. Our consolidated subsidiary
Leopalace Guam Corporation has borrowed funds in the form of yen-

Seasonal Risk

denominated loans from Leopalace21 for the purpose of acquiring

The structure of Group businesses is such that net sales tend to be

facilities and equipment. Because the value of this debt is calculated

higher in the second half of the fiscal year than in the first, both in oureach year as of the date of account settlement, the Company is subject

Apartment Construction Subcontracting and in our Leasing businesses.

to foreign exchange gain or loss. Therefore it is possible that future,fluctuations in exchange rates could affect the Group s businessIn our Apartment Construction Subcontracting business, a large majority

performance and financial position.

a peak. Leasing income is also higher in the second half of the yearof contracts call for completion by March, when leasing demand is atthan in the first, because the number of apartments under management

Leasehold Deposits and Guarantee Deposits

rises steadily throughout the year as new apartments are completed.

About 40% of Group leasehold and guarantee deposits held by the

For this reason, we expect our business results in terms of both net

Company are Leopalace Resort membership deposits related to oursales and profits to be higher in the second half of the fiscal year.

Guam resort business, most of which date back to the time when theresort complex opened in July 1993. The Group is working to increase,
member usage by improving our facilities and members services;

Information Leaks

however, our financial position could be affected if we should receive

personal information obtained through the consent of, or as a result ofan unexpected amount of claims requesting the return of these deposits.

non-disclosure agreements with, client companies. To control information

The Leopalace21 Group holds a great deal of information, including

security, the Company has drawn up the required information security
Tangible Fixed Assets, and Real Estate Properties for Sale

guidelines, and set up a Compliance Committee to thoroughly educate

Because the Leopalace21 Group owns rental real estate and resort-

our executive officers and employees about information security issues.

related properties, tangible fixed assets account for a relatively highproportion (40.3%) of our total assets. We make every effort to sell idle

Nevertheless, in the unlikely event that a leak of information of some,
type should occur, there is a possibility that the Group s reputation

assets or underperforming properties; however, in future fiscal terms we

could be damaged, and that business performance might be affected.

have plans to acquire or build new rental properties, and to replace ormaintain facilities associated with our hotel and resort business, so we

Other Risks

will need to make capital investments and replace facilities on an ongoing,basis. As a result, the Group s business results could be affected if we

The Group is aware that it incurs a variety of risks in the course ofpost a loss on the sale or disposal of fixed assets, or impairment losses,

promoting its businesses, and it attempts to prevent, distribute or avoid,
risk whenever possible. Nevertheless, the Group s business performance

as a result of changes in real estate prices, or if depreciation costs

and financial position may be affected by changes in economic conditions,should rise significantly as a result of facility renewal. The Leopalace21

the real estate market, the financial and stock markets, legal regulations,Group, because it includes a residential and other real estate sales

natural disasters, and a variety of other factors.

business, owns real estate properties for sale. These properties are
subject to fluctuations in the real estate market that could result in a loss
on valuation of inventory assets or loss on sale, with the possibility that,
the Group s business results could be affected.
31

C onsolidated Balance Sheets
Leopalace21 Corporation and consolidated subsidiaries
March 31, 2008 and 2007

Millions of yen
2008

2007

2008

¥ 60,965
15,15915,78937,82012,54324,62912,08528,05913,084(1,449)¥ 75,167)
9,594)
8,502)
27,766)
9,541)
21,819)5,077)
22,075)8,305)(1,290)$ 608,498
151,304
157,593
377,480
125,192
245,822
120,623
280,054
130,586(14,458)

Total current assets

218,684

186,556)

2,182,694

Fixed assets (Note 10, 11, 14):Land
Buildings and structures
Construction in progress
Other
Accumulated depreciation

116,296
122,984
1,902
13,471(55,529)

118,255)
124,648)
4,398)
12,129)(52,318)

1,160,752
1,227,511
18,979134,457(554,233)

199,124

207,112)

1,987,466

Investments and other assets (Note 14):
Intangible assets
Investment securities (Note 8)Long-term loans
Deferred tax assets (Note 13)
Long-term accounts receivable (Note 12)Long-term prepaid expenses
Other
Allowance for doubtful accounts

622
9,082
2,400
3,388
4,016
53,356
5,449(2,165)569)
7,934)
2,281)
3,074)
2,125)
42,728)5,016)(2,575)

6,209
90,651
23,95333,81940,079532,552
54,379(21,608)

Total investments and other assets

76,14861,152)760,034¥493,956¥454,820)$4,930,194

ASSETS
Current assets:
Cash and cash equivalents (Note 7)
Trade receivables and accounts receivable for completed projects
Operating loans
Real estate for sale/property inventories
Inventories
Prepaid expenses
Deferred tax assets (Note 13)
Other accounts receivable
Other
Allowance for doubtful accounts

Total fixed assets

Total assets
The accompanying notes are an integral part of these statements.

32

Thousands of
U.S. dollars (Note 1)

Millions of yen
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable including payables for completed projects
Short-term borrowings (Note 14)
Accrued income taxes
Advances received
Customer advances for projects in progress
Allowance for employees’ bonuses
Reserve for warranty obligations on completed projects
Other
Total current liabilities
Long-term liabilities:
Long-term debt (Note 14)
Retirement benefit reserves (Note 15)
Retirement benefit reserves for directors
Reserve for rents due on master lease agreements
Lease/guarantee deposits received

Thousands of
U.S. dollars (Note 1)

2008

2007

2008

¥ 89,524
21,316
14,30898,49721,752
3,243
1,042
18,940¥ 77,392)
17,645)27,021)
46,744)23,530)2,799)
─)21,783)$ 893,539
212,753
142,809983,102
217,108
32,373
10,398
189,040

268,622

216,914)2,681,122

28,395
5,065
1,592
399
19,72835,515)
4,111)
2,986)
534)
8,975)

283,41250,55015,894
3,984
196,904

Total long-term liabilities

55,17952,121)

550,744

Total liabilities

323,801

269,035)

3,231,866

55,64155,641)

555,351

34,10576,211(99)

34,105)85,700)(97)

340,402760,666
(982)

90
(763)
4,970

532)
(7,737)
17,641)897(7,613)49,607

Net assets
Shareholders’ equity:
Share capital:
Authorized: 250,000,000 shares
Issued: 159,543,915 shares
Capital surplus
Retained earnings
Treasury stockー165,059 shares
Valuation and translation adjustments
Net unrealized gains on “other securities”
Translation adjustments
Minority interests
Total net assets

170,155

185,785)

1,698,328

Total liabilities and net assets¥493,956¥454,820)$4,930,194

33

C onsolidated Statements of Operations
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2008 and 2007

Thousands of
U.S. dollars (Note 1)

Millions of yen
2008

2007

2008

Net sales
Cost of sales¥672,974
511,054¥631,608)
474,713)$6,716,972
5,100,846

Gross profit
Selling, general and administrative expenses

161,920
90,517

156,895)
80,888)1,616,126
903,453

71,40376,007)

712,673

246
4
105
20
ー
(9,534)ー561(1,463)
(852)
4,466
(121)
(142)
(702)
(907)
(795)
ー
ー
255
202
(47,755)(594)(1,378)(1,200)
605

50)
166)
(2,321)
123)
501)
─)
2,515)
1,119)(1,333)
(606)
7)
(17)
(216)
(3,009)(210)(710)(2,790)
(446)
─)
─)
─)
─)
─)
─)
500)

2,455
45
1,045
198
ー
(95,159)ー
5,596(14,599)(8,499)44,572(1,207)(1,418)(7,005)(9,049)(7,930)
ー
ー
2,547
2,012
(476,642)(5,931)(13,759)(11,977)
6,040

12,424

69,330)124,008

17,4501,415(7,040)257

26,438)
─)4,662)
872)

174,164
14,120(70,263)
2,569

342

¥ 37,358)

Operating profit
Other income (expenses):
Interest income
Gain on sales of investment securities
Equity in earnings of affiliated companies
Valuation gain on interest-rate swap
Foreign exchange gain
Foreign exchange loss
Gain on sales of affiliates’ stock
Gain on sales of affiliates’ bonds
Interest expenses
Other financial expenses
Gain on sales of property, plant and equipment (Note 16)
Loss on sales of property, plant and equipment (Note 17)
Loss on disposal of property, plant and equipment (Note 18)
Impairment loss (Note 10)
Loss on devaluation of investment securities
Transfer to allowance for bad debt
Provision for accrued retirement benefits for directors
Provision for accrued rents on master lease properties
Gain on consumption tax
Insurance received
Adjustment to advances received
Consumption tax for previous period
Provision for accrued warranty obligations on completed projects
Payment of retirement benefits for directors
Other, net
Income before income taxes and minority interests
Income taxes
Income taxーcurrent
Income taxーprevious period
Income taxesーdeferred
Minority interests
Net income
The accompanying notes are an integral part of these statements.

34

¥

$

3,418

C onsolidated Statements of Shareholders’ Equity
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2008 and 2007

Millions of yen
Shareholders’ equity

Balance as ofMarch 31, 2006
Cash dividend by
appropriation ofretained earnings
Cash dividend
Net income
Purchases of treasury
stock
Sales of treasury stock
Net change of items
other thanshareholders’ equity
Total change during
periodBalance as ofMarch 31, 2007
Cash dividend
Net income
Purchases of treasury
stock
Increase due to decreaseof affiliated companies
Decrease due toincrease of consolidated
subsidiaries
Net change of items
other thanshareholders’ equity
Total change during
periodBalance as ofMarch 31, 2008

Share
capitalCapitalsurplusRetainedearnings¥55,641¥33,760¥53,123)

Valuation and translation adjustments
Net
Total
Foreign
Minority
Total
unrealized
valuation
Treasurycurrencyinterests
shareholders’ gains on
and
stock
translation
equity“othertranslation
adjustments
securities”
adjustments

Total net
assets¥(198)¥151,274)(2,391)(2,390)37,358)
(3)
104)

345

¥142,326)¥715)¥(9,419)¥(8,704)¥17,652)(2,391)(2,390)37,358)(2,391)(2,390)37,358)

(3)
449)

(3)
449)
(183)

1,682)

1,499

(11)

1,488)

─

345

32,577)

101)

33,023)(183)

1,682)

1,499

(11)

34,511)¥55,641¥34,105¥85,700)(10,360)342¥ (97)¥175,349)(10,360)
342

¥532)

¥(7,737)¥(7,205)¥17,641)¥185,785)(10,360)
342

(2)

(2)

(2)

540

540

540

(11)

(11)

(11)
(442)

6,974

6,532

(12,671)(6,139)ーー(9,489)(2)(9,491)

(442)

6,974

6,532

(12,671)(15,630)¥55,641¥34,105¥76,211¥ (99)¥165,858¥ 90¥ (763)¥ (673)¥ 4,970¥170,155

Thousands of
U.S. dollars (Note 1)
Shareholders’ equity
Share
capitalBalance as ofMarch 31, 2007
$555,351
Cash dividend
Net income
Purchases of treasury
stock
Increase due to decreaseof affiliated companies
Decrease due toincrease of consolidated
subsidiaries
Net change of items
other thanshareholders’ equity
Total change during
periodーBalance as ofMarch 31, 2008
$555,351

CapitalsurplusRetainedearnings$340,402$855,375(103,400)
3,418

Valuation and translation adjustments
Net
Total
Foreign
Minority
Total
unrealized
valuation
Treasurycurrencyinterests
shareholders’ gains on
and
stock
translation
equity“othertranslation
adjustments
securities”
adjustments$5,310$(77,232)$(71,922)

Total net
assets$(964)$1,750,164(103,400)
3,418$176,080 $1,854,322(103,400)
3,418

(18)

(18)

(18)

5,389

5,389

5,389

(116)

(116)

(116)
(4,413)69,61965,206(126,473)(61,267)(126,473)(155,994)

ー(94,709)(18)(94,727)(4,413)69,61965,206$340,402$760,666$(982)$1,655,437$ 897$ (7,613)$ (6,716)$ 49,607 $1,698,328
35

C onsolidated Statements of Cash Flows
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2008 and 2007

Millions of yen
2008
2007
Cash flows from operating activities:
Income before income taxes and minority interests
Depreciation expenses
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in retirement benefit reserves for directors
Interest and dividend income
Interest expense
Foreign exchange loss (gain)
Equity in earnings of affiliated companies
Gain on sale of tangible fixed assets
Loss on sale of tangible fixed assets
Write-offs of tangible fixed assets
Impairment loss
Gain on sales of affiliates’ stock
Gain on sales of affiliates’ bonds
Gain on sales of investment securities
Loss on devaluation of investment securities
Decrease (increase) in accounts receivable
Decrease (increase) in real estate for sale
Decrease (increase) in work in process
Decrease (increase) in long-term prepaid expenses
Increase (decrease) in accounts payable
Increase (decrease) in customer advances for projects in progress
Increase (decrease) in advances received
Increase (decrease) in guarantee deposits received
Increase (decrease) in accrued consumption taxes
Other
Sub-totalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities:
Payment for purchase of tangible fixed assets
Proceeds from sales of tangible fixed assets
Fees paid related to sale and disposal of tangible fixed assets
Payment for purchase of affiliates’ stock
Proceeds from sales of affiliates’ stock
Proceeds from sales of affiliates’ bonds
Payment for purchase of investment securities
Proceeds from sales of investment securities
Payment for loans madeProceeds from collection of loans
Other
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from short-term debt
Repayments for short-term debt
Proceeds from long-term debt
Repayments for long-term debt
Payments for purchase depreciation on privately placed bonds
Payments for redemptions of privately placed bonds
Dividends paid for minority shareholders
Refundment of amount invested by minority shareholders
Payment for purchases of treasury stock
Dividends paid for shareholders
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents of newly consolidated subsidiaries
Cash and cash equivalents at end of year (Note 7)
The accompanying notes are an integral part of these statements.

36

Thousands of
U.S. dollars (Note 1)
2008¥12,424
5,163
591(1,394)
(338)
1,463
9,534
(105)
(4,466)
121
142
702
ー
(561)
(4)
907
(21,746)(11,238)(2,973)(12,465)
12,226(1,778)51,804
10,568(3,156)(726)
44,695367(1,476)(31,840)
11,746¥69,330)
4,560)
160)
2,986)(136)
1,333)(501)
2,321)
─)
17)216)
3,009)(2,515)(1,119)
(166)
210)
914)
(18,554)
26,431)(12,367)(2,571)(18,532)
9,093)(780)
2,923)
2,766)
69,028)130)(1,290)(4,560)63,308)$124,008
51,533
5,898(13,914)(3,378)
14,59995,159(1,045)(44,572)
1,207
1,418
7,005
ー)
(5,596)(45)
9,049(217,047)(112,164)(29,677)(124,418)
122,024(17,742)
517,061
105,476(31,497)(7,236)446,106
3,664(14,736)(317,800)
117,234(6,887)
12,145(179)
ーーー(3,393)
731
(370)
203
(2,102)
148(21,830)9)(119)(1,100)4,110)
2,881)(792)
1,001)(1,379)3,647)(2,358)(15,930)(68,743)
121,217(1,788)ーーー(33,866)
7,295(3,689)2,025(20,973)
1,478

78,610(82,389)
22,000(17,454)(3,100)(1,126)(475)(12,484)(2)(10,360)(26,780)(405)(15,291)
75,167
1,089¥60,965

34,190)(32,454)
13,000)(22,656)(2,007)(1,435)
(873)
─)
(3)
(4,781)(17,019)
195)
30,554)44,613)
─)¥75,167)

784,609(822,323)
219,583(174,213)(30,941)(11,241)(4,741)(124,604)(18)(103,400)(267,289)(4,043)(152,620)
750,244
10,874$608,498

N otes to Consolidated Financial Statements
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2008 and 2007

1. United States Dollar Amounts
The U.S. dollar amounts are included solely for convenience and havebeen translated only as a matter of arithmetical computation at the rateof ¥100.19 = US$1.00, the current rate on March 31, 2008.
This translation should not be construed as a representation thatthe yen amounts actually represent, or could be converted into,
U.S. dollars.

2. Basis of Presenting Consolidated Financial Statements
Leopalace21 Corporation (the “Company”) and its subsidiaries (the“Companies”) maintain their record and prepare their financial statements in accordance with accounting principles generally accepted inJapan. The accompanying consolidated financial statements incorporate certain modifications in format to the statutory financial statements
and include certain additional notes that were not contained in the statutory financial statements, so as to make the financial statements moremeaningful to readers outside Japan. Certain amounts in the prioryear’s financial statements have been reclassified to conform to thecurrent year’s presentation.

3. Summary of Significant Accounting Policies(1) Consolidation
The accompanying consolidated financial statements as of March 31,
2008 include the accounts of the Company and its 10 (8 as of March
31, 2007) significant subsidiaries. Affiliated companies over which theCompany exercises significant influence in terms of their operating andfinancial policies have been included in the consolidated financial statements on an equity basis. Investments in 1 (2 as of March 31, 2007)
affiliate have been included as of March 31, 2008. All significant intercompany balances and transactions have been eliminated in consolidation.
Investments in subsidiaries and affiliates that are not consolidated or
accounted for by the equity method are carried at cost or less. Where
there has been a permanent decline in the value of such investments,
the Company has written down the investments.
The difference at the dates of acquisition between the cost and the underlying net equity of investments in consolidated subsidiaries and affiliated companies accounted for by the equity method is being amortized by the straight-line method over a period of 10 years.
Since the fiscal year end for certain consolidated subsidiaries is December 31, their financial statements as of that date are used in the
preparation of the Company’s consolidated financial statement. Whensignificant transactions occur at those subsidiaries between their fiscal
year end and the Company’s fiscal year end, these transactions are included in consolidation as necessary.
(2) Cash and cash equivalents
For the purpose of the statements of cash flows, the Company considers all highly liquid investments with insignificant risk of change in valuethat have maturities of generally 3 months or less when purchased tobe cash equivalents.
(3) Inventories
Real estate for sale is stated at cost determined by the specific identified cost method. Raw materials are stated at cost determined by theperiodic average method. Stored goods are stated at cost determined
mainly by the last-purchase-price method.
(4) Marketable and investment securities
Held-to-maturity securities are stated at amortized cost (straight-line

method). “Other securities” with available fair market values are stated
at fair market value. Unrealized gains or losses on these securities arereported, net of applicable income taxes, as a separate component of
net assets. Realized gains or losses on sale of such securities are computed using moving-average cost.
(5) Derivatives
1) Content of transactions
Derivative transactions used by the Company are limited to interest rate
swaps.
2) Policy regarding derivative transactions
All of the derivative transactions engaged in by the Company are used
exclusively for hedging against interest or foreign exchange risk. The
Company does not conduct derivative transactions for investment purposes.
3) Purpose of the transactions
With regard to variable loans, the Company carries out interest rate
cap and interest rate swap transactions to reduce the risks associatedwith the possibility of future increases in market interest rates.
Derivative transactions are accounted for using hedge accounting.
1. Hedge accounting method
The Company uses the deferral hedge accounting method.
The interest rate swaps that meet specific matching criteria arerecognized and included in interest expense or income.
2. Hedging method and hedge targets
Hedging method
Hedge targets
Interest rate swap
Debt
3. Hedge method
Interest rate swaps are utilized as a hedge against possible futureinterest rate increases, in amounts that fall within the range of theparticular liability being hedged.
4. Method used to evaluate the effectiveness of the hedge
Cumulative interest rate fluctuations and changes in cash flows
are compared to evaluate the effectiveness of hedge targets andhedge methods. However, evaluation as of the date of settlementof the effectiveness of interest rate swaps that meet specificmatching criteria is omitted.
4) Risks associated with derivative transactions
The interest rate swap transactions used by the Company are associated with interest rate risk.
The contracting parties used by the Company are all highly reliable
Japanese financial institutions, and the risk of their failure to honor acontract is considered to be negligible.
5) Risk control system
The Company’s basic policy on derivative transactions is determinedby the Board of Directors, and the Accounting Department is then responsible for executing and monitoring this policy in accordance withthe regulations set out in the Company’s “Rules for Managing Derivative Transactions.”
The status of derivative transactions is reported to the Board of Directors on a regular basis to further reinforce our risk management.
6) Additional explanations about “Items pertaining to the market valueof transactions”
As regards the market value of transactions, contracted values represent the calculated value of the notational principal of the transaction;these values do not reflect the size of the risk associated with thetransaction.

37

(6) Tangible assets
Rental buildings of the Company and domestic consolidated subsidiaries are stated at cost. Depreciation is computed generally on thestraight-line basis. The principal estimated useful lives used for computing rental buildings’ depreciation are from 22 to 47 years.
Tangible assets other than rental buildings of the Company and domestic consolidated subsidiaries are stated at cost. Depreciation iscomputed generally on the declining-balance method. However, buildings obtained after April 1, 1998 are depreciated on the straight-line
method. The principal estimated useful lives used for computing buildings’ and structures’ depreciation are from 40 to 50 years and machinery and equipment are 5 years.
Property, plan and equipment of the overseas consolidated subsidiaries are amortized using the straight-line method based on GAAP ofthe country. The principal estimated useful lives used for computing
buildings’ and structures’ depreciation are from 30 to 40 years andmachinery and equipment are 5 years.
(Change in significant accounting policy)
Pursuant to an amendment to the Corporate Tax Law, the Companies
changed their depreciation method for tangible fixed assets acquiredon or after April 1, 2007 to a method based on the amended Corporate Tax Law from the fiscal year ended March 31, 2008. As a result,operating profit and income before income taxes and minority interests
decreased by ¥198 million (US$1,979 thousand).
(Additional information)
Pursuant to an amendment to the Corporate Tax Law, the Companies
depreciate the difference between 5% of the acquisition cost and thememorandum price of tangible fixed assets acquired on or before
March 31, 2007. From the fiscal year following the consolidated fiscal
year that a tangible fixed asset is depreciated to the previously allowable 5% limit using a method based on the preamended Corporate Tax
Law, the difference is depreciated evenly over 5 years and included indepreciation and amortization. This accounting change had no material
impact on the consolidated financial statements.
(7) Long-lived assets
On August 9, 2002 the Business Accounting Council issued a Statement of Opinion, “Accounting for impairment of Fixed Assets,” and on
October 31, 2003 the Accounting Standards Board of Japan (“ASB”)
issued ASB Guidance No. 6 “Guidance for Accounting Standard for
Impairment of Fixed Assets.” These new pronouncements are effective
for fiscal years beginning on or after April 1, 2005 with early adoption
permitted for fiscal years ending on or after March 31, 2004.
The Company and its subsidiaries review long-lives assets for impairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset group may not be recoverable. An
impairment loss would be recognized if the carrying amount of an asset
or asset group exceeded the sum of the undiscounted future cash
flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the assets exceeds their recoverable amount, which is the higher of the discounted
cash flows from the continued use and eventual disposition of the assets, or the net selling price at disposition.
(8) Deferred charges
All costs incurred in connection with the issuance of corporate bonds
are amortized over 3 years using the straight-line method.
(9) Long-term prepaid expenses
Long-term prepaid expenses are amortized using the straight-line
method mainly from 3 to 5 years.

38(10) Allowance for doubtful accounts
The Companies provide the allowance for doubtful accounts by the method that uses the percentage of its own actual experience of bad debt loss
written off against the balance of total receivables plus the amount deemednecessary to cover individual accounts estimated to be uncollectible.
(11) Allowance for employees’ bonuses
Allowance for employees’ bonuses is provided for the payment of
employees’ bonuses based on estimated amounts of future payments
attributed to the current fiscal year.
(12) Retirement benefit reserves
Retirement benefit reserves for employees are provided mainly at an
amount calculated based on the retirement benefit obligation as of the balance sheet date. The retirement benefit obligation is attributed to each period by the straight-line method over the estimated years of service of theeligible employees. Actuarial gain and loss of the Companies are amortizedin the year following the year in which the gain or loss is recognized by thestraight-line method over a period (5 years) which is shorter than the average remaining years of service of the employees.
Some domestic consolidated subsidiaries calculate retirement benefit
reserves based on compendium method.
(13) Retirement benefit reserves for directors
The Company recognizes liabilities for retirement benefits for directors
at an amount in accordance with the internal regulations had all directors been terminated as of the balance sheet date.
(14) Reserve for rents due on master lease agreements
Reserve for rents on master lease agreements is provided by the Company
in its leasing business in recognition of potential losses on master leaseagreements. This is calculated based on estimates of the excess amountof master lease expenses due apartment owners compared with estimatedrent income from apartment tenants over the period of the agreements.
(15) Reserve for warranty obligations on completed projects
Reserve for warranty obligations on completed projects is provided in
an amount based on the Company’s past experience, with an additional amount deemed necessary in the future for execution of warranty
obligations regarding construction projects.
(Change in significant accounting policy)
Expense for warranty obligations on completed projects had been recognized on an accrual basis in the past. Taking into account conservative accounting practices of recent years, increasing sales in the subcontracting division and the proper matching of costs and revenues,
the Company has recognized reserve for warranty obligations on completed projects in an amount based on the Company’s past experience, with an additional amount deemed necessary in the future for execution of warranty obligations regarding construction projects since
the fiscal year ended March 31, 2008. Due to this change, the difference between provision for accrued warranty obligations on completed
projects for the past years and estimated amount at March 31, 2008 is-¥337 million (-US$3,361 thousand) in “Cost of sales” and provision for
accrued warranty obligations on completed projects for the past years
is ¥1,378 million (US$13,759 thousand) in “Other expenses.”
As a result, operating profit decreased by ¥337 million (US$3,361 thousand) and income before income taxes and minority interests decreased by ¥1,042 million (US$10,398 thousand). The influence on thesegment information is described in Note 23.
(16) Income taxes
Income taxes comprise corporate, inhabitant and enterprise taxes.
The asset and liability approach is used to recognize deferred tax assets
and liabilities for the expected future tax consequences of temporarydifferences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
(17) Lease transactions
Non-cancelable lease transactions are primarily accounted for as operatingleases except that lease agreements which stipulate the transfer of ownership of the leased assets to the lessee are accounted as finance leases.
(18) Foreign currency transactions
All monetary receivables and payables denominated in foreign currencies
are translated into Japanese yen at the current exchange rates as of eachbalance sheet date. The foreign exchange gains and losses from translation are recognized in the consolidated statements of income.
The assets and liabilities of consolidated overseas subsidiaries aretranslated into Japanese yen at the current exchange rates as of eachbalance sheet date and revenues and expenses are translated at the
average exchange rates of the fiscal year. Exchange difference is included in foreign currency translation adjustments.
(19) Interest capitalization
Leopalace Guam Corporation, a consolidated subsidiary, capitalizedinterest paid for real estate development business for the development
period into tangible fixed assets.
Capitalized interests in tangible fixed assets were ¥2,585 million(US$25,804 thousand) as of March 31, 2008.
(20) Consumption taxes
National and local consumption taxes are excluded from transaction
amounts. Non-deductible portions of consumption taxes on the purchases of tangible fixed assets are capitalized as long-term expenses
and depreciated using the straight-line method for 5 years.
(21) Net income per share
Basic net income per share of common stock is computed by net income available to common shareholders divided by the weightedaverage number of common shares outstanding for the period.

Company booked the effect at the beginning of the term ¥30,670 million(US$306,123 thousand) as “Adjustment to advances received” in other expenses. The influence on the segment information is described in Note 23.

5. Changes in Presentation
Consolidated statements of cash flows
Amounts posted under “Gain on sale of tangible fixed assets” were included in “Other” up to the previous term. Due to its increased significance,
however, the amount is reported separately for this reporting term.
“Gain on sale of tangible fixed assets” would have amounted to -¥7 million(-US$72 thousand) for the previous term under the current classification.

6. Additional information
The balance of advances received for the Monthly Leopalace producthad previously been calculated based on the sales amount and number of units occupied during each month. However, the Company has
invested in its core IT system to enhance its processing capabilities, including the completion of an accounting system for advances received
for the Monthly Leopalace product. The new system enables detailed
reporting of balances of advances received for each user and usage
agreement, resulting in a difference arising in the balance of advances
received compared with the previous method of calculation.
As a result, advances received increased by ¥17,084 million(US$170,519 thousand) and income before income taxes and minority
interests decreased same amount.

7. Cash and Cash Equivalents
There is no difference between “Cash and cash equivalents” in the
consolidated balance sheet and “Cash and cash equivalents” in the
consolidated statements of cash flows.

8. Securities and Investment Securities(a) At March 31, 2008 and 2007, information with respect to held-tomaturity securities for which market prices were available was summarized as follows:
Millions of yen

4. Changes in Significant Accounting Policies
Previously, for the Monthly Leopalace product sold up to September
30, 2007, of the room charges and one-off lease charges received at
the time the product was sold, only room charges received for periods
after the end of the fiscal year in question were recognized as advances received, and one-off lease charges were recognized as revenue atthe time the product was sold. However, from the fiscal year ended
March 31, 2008, all the charges received are recognized as advances
received and are subsequently booked as revenue when the services
are actually used.
This change in accounting policy reflects recent mainstream accounting practice, which emphasizes comprehensive recognition of obligations as part of prudent accounting practice. A new accounting system
for managing advances received from the Monthly Leopalace productwas completed during the fiscal year ended March 31, 2008. As a result, the Company is now able to calculate advances received fromeach product user on a real-time basis in relation to the overall usage
charges received. By using this new accounting system, the Company
is able to closely match revenue derived from advances paid by users
for products and services with cost of sales items, such as rental expenses, and water, lighting and heating expenses, thereby providing
accurate information on revenue and expenses applicable to each period and enabling the Company to increase the soundness of its financial position.
As a result, net sales and operating profit increased by ¥11,955 million(US$119,326 thousand) and income before income taxes and minority interests decreased by ¥18,715 million (US$186,797 thousand) as the

March 31, 2008

BalancesheetMarketvalue

Unrecognizedgain (loss)

Unrecognized gain items:
Government and municipal bonds, etc.
Corporate bonds
Other

¥ ─
─
─

¥ ─
─
─

¥ ─)
─)
─)

─

─

─)

─
─
601

─
─
591

─)
─)
(10)

Subtotal
Unrecognized loss items:
Government and municipal bonds, etc.
Corporate bonds
Other
Subtotal

601

591

(10)

Total

¥601

¥591

¥(10)

March 31, 2007

BalancesheetMarketvalue

Unrecognizedgain (loss)

¥

─
─
500

¥ ─
─
500

¥─)
─)
0)

500

500

0)

─
─
501

─
─
496

─)
─)
(5)

Millions of yen

Unrecognized gain items:
Government and municipal bonds, etc.
Corporate bonds
Other
Subtotal
Unrecognized loss items:
Government and municipal bonds, etc.
Corporate bonds
Other
Subtotal
Total

501

496

(5)

¥1,001

¥996

¥ (5)

39

Thousands of U.S. dollars

Thousands of U.S. dollars
March 31, 2008
Unrecognized gain items:
Government and municipal bonds, etc.
Corporate bonds
Other

BalancesheetMarketvalue$$

Unrecognizedgain (loss)

─
─
─

$ ─)
─)
─)

─

─

─)

─
─
5,995

─
─
5,896

─)
─)
(99)

Subtotal

5,995

5,896

(99)

Total

$5,995$5,896$(99)

Subtotal
Unrecognized loss items:
Government and municipal bonds, etc.
Corporate bonds
Other

─
─
─

(b) Marketable securities classified as “other securities” as of March 31,
2008 and 2007 were as follows:
Millions of yen
Carrying
value

Unrealized
gain (loss)

¥ 797

¥320)

74
─
─
─

0)
)─)
─)
─)

551

871

320)

985

985

114
─
500
520

114
─
392
464

─)
)
(0)
─)
(108)
(56)

Subtotal

2,119

1,955

(164)

Total

¥2,670¥2,826¥156)

March 31, 2008

Acquisition
cost

Securities whose carrying value
exceeds their acquisition cost:
Stock
¥ 477
Bonds:
Government and municipal bonds, etc.
74
Corporate bonds
─
Other
─
Other
─
Subtotal
Securities whose acquisition costexceeds their carrying value:
Stock
Bonds:
Government and municipal bonds, etc.
Corporate bonds
Other
Other

March 31, 2008

March 31, 2007

Subtotal
Securities whose acquisition costexceeds their carrying value:
Stock
Bonds:
Government and municipal bonds, etc.
Corporate bonds
Other
Other
Subtotal
Total

40

Unrealized
gain (loss)$ 7,959$3,193)

735
─
─
─

1)
─)
─)
─)

Subtotal
Securities whose acquisition costexceeds their carrying value:
Stock
Bonds:
Government and municipal bonds, etc.
Corporate bonds
Other
Other

5,500

8,694

3,194)

9,832

9,832

─)

1,139
─
4,991
5,191

1,138
─
3,912
4,627

(1)
─)
(1,079)(564)

Subtotal

21,153

19,509(1,644)

Total$26,653$28,203$1,550)The companies recognized ¥843 million (US$8,416 thousand) of loss
on devaluation of marketable securities in stocks in the fiscal year
ended March 31, 2008 and ¥62 million (US$ 622 thousand) and ¥210
million of loss on devaluation of marketable securities in mutual funds inthe years ended March 31, 2008 and 2007. Other securities are considered as impaired when market value is 30% or more lower than acquisition cost.
(c) Proceeds from sales of “other securities” for the years ended March
31, 2008 and 2007 were ¥707 million (US$7,056 thousand) and¥3,868 million, respectively. Gross realized gains on these sales
were ¥4 million (US$45 thousand) and ¥1,234 million for the years
ended March 31, 2008 and 2007.
(d) Securities without market value as of March 31, 2008 and 2007
were as follows:
Millions of yen

Carrying
value

Unrealized
gain (loss)¥1,369

¥863)

─
─
─
105

─)
─)
─)
2)

609

1,474

865

─

─

208
─
─
501

207
─
─
498

─)
)
(1)
─)
─)
(3)

Securities whose carrying value
exceeds their acquisition cost:
Stock¥1,506
Bonds:
Government and municipal bonds, etc.
─Corporate bonds
─
Other
─
Other
103

Carrying
value

Securities whose carrying value
exceeds their acquisition cost:Stock$14,766
Bonds:
Government and municipal bonds, etc.
734
Corporate bonds
─
Other
─
Other
─

Millions of yen
Acquisition
cost

Acquisition
cost

709

705

(4)

¥1,318¥2,179¥861)

2008
Available for “other securities”:
Unlisted securities¥1,797
Unlisted bonds
Subordinated bonds
824
OthersSubordinated trust beneficiary right inloans receivable and money claims
505
Investments for limited partnership ininvestment business
509
Preferred equity contribution securities
1,500
Total

¥5,135

Thousands of
U.S. dollars

2007

2008

¥2,718$17,932

824

8,227

508

5,040

536
─

5,086
14,972¥2,586$51,257

(e) The redemption schedule for securities with maturity dates classified
as available-for sale securities is summarized as follows:
Millions of yen
March 31, 2008
Bonds:
Government andmunicipal bonds, etc.
Corporate bonds
Other
Other

Due inone yearor less

Due after one Due after five
year through years throughfive years
ten years

¥15
─
─
─

¥ 173
─
100
1,573

¥

Total

¥15

¥1,846¥1,114

March 31, 2007

Due inone yearor less

─
─
300
814

Due after
ten years

¥

─
824
700
505

¥2,029Millions of yen

Bonds:
Government andmunicipal bonds, etc.
Corporate bonds
Other
Other

Due after one Due after five
year through years throughfive years
ten years

¥177
─
─
96

¥

Total

¥30

¥273

¥1,239March 31, 2008

Due inone yearor less

─
─
301
938

¥

─
824
695
507

¥2,026

Due after one Due after five
year through years throughfive years
ten years

$150
─
─
─

$ 1,727─
998
15,703$$150$18,428$11,118

─
─
2,994
8,124

Due after
ten years

$

─
8,227
6,987
5,035

$20,249(f) Investments in securities include investments in unconsolidated
subsidiaries and affiliates were ¥536 million (US$5,345 thousand)and ¥2,220 million as of March 31, 2008 and 2007.

Derivative transactions for the years ended March 31, 2008 and 2007
were as follows:
Millions of yen

Transactions Interest-rate
outsideswaps
marketReceivefloating rate
and pay
fixed rate$─

Unrealized
gain (loss)

$─

$─

$─

(Notes) 1. Method of calculating market valueMarket value is calculated based on the value provided by the financial
institution that is party to transaction.
2. Excludes derivative transactions subject to hedging accounting.

(a) The Companies recognized impairment loss of the following asset
group during the year ended March 31, 2008.

Contract Portion maturing
amountover one year¥─PurposeCategory

Rental assets(32 blocks ofapartments)

Buildings andstructures¥─Marketvalue

Unrealized
gain (loss)¥─¥─Millions of yen
March 31, 2008

Contract Portion maturing
amountover one year

Marketvalue

Unrealized
gain (loss)

Transactions Interest-rate
outsideswaps
marketReceivefloating rate
and pay
fixed rate

¥10,000

¥(20)

¥(20)

¥─

Land

Location

Osaka City,
Osaka

Millions of yen Thousands of
U.S. dollars¥139$1,382563

5,623

The Companies recognized each property in domestic rental assets asa unit and grouped overseas assets by administration accounting classification.
The Companies reduced book value of the rental assets, idle assets
and business assets whose profitability decreased seriously due to a
decline in current rental rates and continuous decline in land prices, torecoverable amounts and recognized the reduced values as impairment losses of ¥702 million (US$7,005 thousand).
Recoverable amounts of rental assets were measured by values in current use, which were calculated based on the present values of future
cash flows, using a discount rate of 4.6%.
(b) The Companies recognized impairment loss of the following asset
group during the year ended March 31, 2007.
Purpose

9. Derivative Transactions

March 31, 2008

Transactions Interest-rate
outsideswaps
marketReceivefloating rate
and pay
fixed rate

Marketvalue

10. Long-Lived Assets
Due after
ten years

Thousands of U.S. dollars

Total

March 31, 2008

Impairment loss

¥30
─
─
─

Bonds:
Government andmunicipal bonds, etc.
Corporate bonds
Other
Other

Thousands of U.S. dollars
Contract Portion maturing
amountover one year

Rental assets(94 blocks ofapartments)

Category
Buildings andstructures
Land

Location
Meguro ward,
Tokyo

Impairment loss
(Millions of yen)
¥ 624
2,385

The Companies recognized each property in domestic rental assets asa unit and grouped overseas assets by administration accounting classification.
The Companies reduced book value of the rental assets, idle assets
and business assets whose profitability decreased seriously due to a
decline in current rental rates and continuous decline in land prices, torecoverable amounts and recognized the reduced values as impairment losses of ¥3,009 million.
Recoverable amounts of rental assets were measured by values in current use, which were calculated based on the present values of future
cash flows, using a discount rate of 4.6%.

11. Change from Fixed Assets to Real Estate for Sale
Land value at ¥1,256 million (US$12,532 thousand) and ¥1,687 million
which had been categorized as fixed assets was changed to real estate for sale due to change in possession purpose since the years
ended March 31, 2008 and 2007.
41

12. Long-Term Accounts Receivable
Long-term accounts receivable at March 31, 2008 and 2007 consistedof the following:Thousands of
U.S. dollars

Millions of yen
Claim in bankruptcy
Claim in the process of bankruptcy
Long-term accounts receivable
Others
Total

2008

2007

¥

14
2,346
1,499
157

¥

50
4
1,224
847

$

¥4,016¥2,125$40,079

2008

134
23,416
14,964
1,565

13. Deferred Tax Assets and Liabilities(a) Significant components of deferred tax assets and liabilities as ofMarch 31, 2008 and 2007 were as follows:
Thousands of
U.S. dollars

Millions of yen
2008
Deferred tax assets:
Impairment loss
¥23,175
Loss carried forward for tax purposes
13,709Advances from customers for rent income 8,064
Allowance for doubtful accounts
2,732
Retirement benefit reserves
2,061
Devaluation loss on fixed assets
1,630
Allowance for employees’ bonuses
1,320
Accrued business tax
1,093
Retirement benefit reserves for directors
648
Deposits received632
Bad debt loss
580
Account payable537
Reserve for warranty obligations oncompleted projects
424
Devaluation loss on securities
417
Evaluation loss on real estate for sale
255
Excess depreciation
219
Excess depreciation on software
197
Reserves for rents due on master leaseagreements
162
Elimination of unrealized loss
123
Other
344
Sub-total
58,322
Less: valuation allowance(42,767)
Total deferred tax assets
15,555
Deferred tax liabilities:
Net unrealized gain on “other securities”
(82)
Other
Total deferred tax liabilities
Net deferred tax assets

42

2007

2008

¥24,207)
13,759)853)
428)
1,673)
1,630)
1,139)
2,060)
1,215)
491)
56)
441)

$231,308
136,826
80,49027,271
20,56916,266
13,173
10,911
6,467
6,312
5,789
5,364

─)
60)
255)
343)
144)

4,231
4,158
2,549
2,187
1,962

217)
228)
209)

1,621
1,230
3,431

49,408)(40,819)8,589)

582,115(426,853)
155,262

(365)

(820)

ー

(73)

ー

(82)

(438)

(820)

¥15,473¥ 8,151)$154,442(b) Reconciliation of the differences between the statutory tax rate andthe effective income tax rate for the year ended March 31, 2008
and 2007 was as follows:
2008

2007

Statutory tax rate
Valuation allowances
Non-deductible expenses including entertainment
expenses
Tax for prior fiscal periods
Equity in earnings of affiliated companies
Inhabitant tax
Dividends excluded from taxable income
Gain on sales of affiliates’ bonds
Others40.69%
27.00%

40.69%
1.97%

12.17%
11.39%
ー
2.12%
ー
ー
1.80%

2.37%
─
1.36%
0.29%
-0.73%-1.15%
0.06%

Effective income tax rate

95.17%

44.86%

14. Short-Term Borrowings and Long-Term Debt(a) Short-term borrowings and long-term debt at March 31, 2008 and2007 consisted of the following:Thousands of
U.S. dollars

Millions of yen
Short-term borrowings
Current portion of long-term debt
Long-term debt
Total

2008

2007

2008

¥16,221
5,095
28,395¥ 3,778
13,86735,515$161,906
50,847
283,412¥49,711¥53,160$496,165(b) Assets pledged as collateral for short-term borrowings and longterm debt at March 31, 2008 and 2007 were as follows:
Thousands of
U.S. dollars

Millions of yen
Buildings and structures
Land
Investment securities
Others in Investments and other assets(Membership right)
Total

2008

2007

2008

¥14,071
46,04593¥15,164
46,66792$140,441
459,578
931

420

420

4,192

¥60,629¥62,343$605,142(c) The aggregate annual maturities of long-term debt subsequent toMarch 31, 2008 are summarized as follows:
For the year ending March 31
2010
2011
2012
2013 and thereafter

Millions of yen

Thousands of
U.S. dollars¥11,488
9,288
6,788
831

$114,662
92,70467,7528,294

15. Retirement Benefit Plans

16. Gain on Sales of Property, Plant and Equipment(a) The following table sets forth the funded and accrued status of theplans, and the amounts recognized in the consolidated balance
sheets as of March 31, 2008 and 2007 for the Companies’ defined
benefit plans:

Gain on sales of property, plant and equipment for the years ended
March 31, 2008 and 2007 was as follows:

Thousands of
U.S. dollars

Millions of yen
2008

2007

2008

Projected benefit obligation
Unrecognized actuarial gain or loss¥(5,630)
565)¥(4,645)534)$(56,189)
5,639

Retirement benefit reserves¥(5,065)¥(4,111)$(50,550)

The Company has a welfare pension fund. In the welfare pension fund,it cannot reasonably calculate the portion of the pension assets attributed to the Company.

Millions of yen
Buildings and structures
Land
Others
Total

2008

2007

2008

¥ 697
3,736
33

¥─
─
7

$ 6,958
37,291323¥4,466¥ 7$44,572

17. Loss on Sales of Property, Plant and Equipment
Loss on sales of property, plant and equipment for the years ended
March 31, 2008 and 2007 was as follows:(b) The following table sets forth the funded and accrued status of theentire pension plan as of March 31, 2007.
Pension assets
Projected benefit obligation¥52,226
45,161

Difference¥ 7,065

Total

The main components of the difference are unrecognized prior service
costs ¥2,485 million and other reserves ¥8,006 million. The Company
recognized the special annuity premium of ¥109 million (US$1,093
thousand) as an expense in the fiscal year ended March 31, 2008.
Annuity premium contributory proportion of the entire pension plan is
37% as of March 31, 2008.
The pension assets attributed to the Company based on the contribution ratio were ¥17,367 million as of March 31, 2007.
(c) The components of retirement benefit expenses for the years ended
March 31, 2008 and 2007 were outlined as follows:
Millions of yen
Service cost
Interest cost
Amortization of actuarial gain or loss
Total

Millions of yen
Buildings and structures
OthersMillions of yen

Thousands of
U.S. dollars

2008

2007

2008

¥2,656102
186¥2,27084
164$26,507
1,020
1,861

¥2,944¥2,518$29,388(Note) 1. Contribution to welfare pension fund was ¥1,771 million (US$17,679
thousand) and ¥1,518 million in the year ended March 31, 2008 and2007.
2. All the retirement benefit expenses of the domestic consolidated
subsidiaries that adopt the compendium method were recoded inservice cost.

Thousands of
U.S. dollars

Thousands of
U.S. dollars

2008

2007

2008

¥120
1

¥─
17

$1,201
6

¥121

¥ 17

$1,207

18. Loss on Disposal of Property, Plant and Equipment
Loss on disposal of property, plant and equipment for the years ended
March 31, 2008 and 2007 was as follows:
Thousands of
U.S. dollars

Millions of yen
2008

2007

2008

¥72
70
ー

¥ 56
44
116

$ 717
701
ー

¥142

¥216

$1,418

Buildings and structures
OthersConstruction in progress
Total

19. Shares Outstanding and Treasury Stocks
Shares outstanding and treasury stocks for the year ended March 31,
2008 were as follows:
Type of shares
Shares outstanding
Common stock
Total
Treasury stock
Common stock
Total

March 31, 2007 Increase

Decrease March 31, 2008

159,543,915

──

159,543,915

159,543,915

──

159,543,915

164,521538

─

165,059

164,521538

─

165,059(Notes) 1. An increase of 538 shares was due to purchases of fractional shares.

(d) The assumptions used in accounting for the above plans are as
follows:
Assumptions used in accounting for
retirement benefits
Periodical allocation of estimatedretirement benefit
Discount rate
Amortization period of actuarial gain or loss

2008

2007

Benefits-years-ofservice approach
2.2%
5 years

Benefits-years-ofservice approach
2.2%
5 years

Shares outstanding and treasury stocks for the year ended March 31,
2007 were as follows:
Type of shares
Shares outstanding
Common stock
Total
Treasury stock
Common stock
Total

March 31, 2006 Increase

Decrease March 31, 2007

159,543,915

──

159,543,915

159,543,915

──

159,543,915

363,850671

200,000

164,521363,850671

200,000

164,521(Notes) 1. An increase of 671 shares was due to purchases of fractional shares.
2. A decrease of 200,000 shares was due to sales by affiliates to which
the equity method was applied.

43

20. Cash Dividends(a) Cash dividends for the year ended March 31, 2008 were as follows:
Resolution
General shareholders’ meeting on
June 28, 2007
Board of Directors’ meeting on
November 22, 2007

Type of shares

Gross amount(Millions of yen)

Gross amount(Thousands of
U.S. dollars)

Per share(Yen)

Per share(U.S. dollars)Common stock¥5,578$55,677

¥35

$0.35

Common stock

4,781

47,72330

0.30

Record date

Date in effect ofdividend

March 31,2007
September 30,
2007

June 29,2007
December 7,
2007Cash dividends for the year ended March 31, 2007 were as follows:
Resolution
General shareholders’ meeting on
June 29, 2006
Board of Directors’ meeting on
November 16, 2006

Type of shares

Gross amount(Millions of yen)

Per share(Yen)

Date in effect ofdividend

Common stock¥2,391¥15

March 31, 2006

June 29, 2006

Common stock

2,391

15

September 30, 2006

December 12, 2006

Record date(b) Dividends for which the record date was in the year ended March 31, 2008 but for which the date in effect would be in the next fiscal year were as
follows:
Resolution
General shareholders’ meeting on
June 27, 2008

Gross amountGross amount (Thousands of(Millions of yen) U.S. dollars)

Source ofdividends

Type of shares
Common stock

Retainedearnings¥7,969$79,538

Per share(Yen)

Per share(U.S. dollars)

Record date

Date in effect ofdividend

¥50

$0.50

March 31,2008

June 30,
2008

Dividends for which the record date was in the year ended March 31, 2007 but for which the date in effect would be in the next fiscal year were as
follows:
Type of shares

Source ofdividends

Gross amount(Millions of yen)

Per share(Yen)

Record date

Date in effect ofdividend

Common stock

Retained earnings¥5,578¥35

March 31,2007

June 29,
2007

Resolution
General shareholders’ meeting on
June 28, 2007

21. Leases(a) The following pro forma amounts represent the acquisition cost, accumulated depreciation and net book value of leased property as ofMarch 31, 2008 and 2007:
Millions of yen

Thousands of
U.S. dollars

2007

2008

2008

¥

14
22,175¥

206
21,792$

141
221,328

Estimated amount of depreciation by
the straight-line method over thelease period
Estimated interest cost

Accumulated depreciation
VehiclesEquipment¥

6
10,273¥72
10,179$56
102,532

22. Contingent Liabilities

Net book value
VehiclesEquipment

¥

¥

$

8
11,902

134
11,613

Year ending March 31
20092010 and thereafter
Total

Thousands of
U.S. dollars

Finance lease Operating lease

Finance lease Operating lease¥ 3,368
9,111

¥ 70
77

$ 33,613
90,936$ 701
768¥12,479¥147$124,549$1,469Annual lease expenses charged to income were ¥4,725 million(US$47,156 thousand) and ¥4,503 million for the years ended March
31, 2008 and 2007, respectively.

2008

2007

2008

¥4,161611¥3,921
655$41,530
6,099

Contingent liabilities for the years ended March 31, 2008 and 2007
were as follows:

85
118,796

Millions of yen

Thousands of
U.S. dollars

Millions of yen

Acquisition cost
VehiclesEquipment(b) The amounts of outstanding future lease payments due at March
31, 2008 including the interest portion thereon, were summarized
as follows:

44(c) Future minimum lease payments (including the interest portion
thereon) subsequent to March 31, 2008 and 2007 for finance leasetransactions accounted for as operating leases were summarized asfollows:

Thousands of
U.S. dollars

Millions of yen
Contingent liabilities to financial
institutions for customers who havea home mortgage
Contingent liabilities to financial
institutions for customers who havea membership loan
Subordinated contingent liabilities tofinancial institutions for customers
who have an apartment loan withnonexempt property
Total

2008

2007

2008

¥2,044¥2,114$20,399

30

30

299

3

10

34

¥2,077¥2,154$20,732

23. Segment Information(a) Business segments
Segment information by business group for the years ended March 31, 2008 and 2007 was as follows:
Millions of yen
Apartment
Construction
Subcontracting
Division

Leasing
Division

Hotel
ResortDivision

Other
Division

Segment
totals¥327,541
─¥302,731
23¥ 6,072)
4,200)¥36,630
─

¥672,974
4,223

Total
Operating expenses

327,541
254,273

302,754299,717

10,272)
11,389)36,63035,984

Operating profit (loss)¥ 73,268¥

3,037¥ (1,117)¥¥ 70,768
550
─
575¥213,118
2,193
702
4,022

¥53,444
1,789
─
652

Apartment
Construction
Subcontracting
Division

Leasing
Division

Hotel
ResortDivision¥316,117─

¥277,163
3

Total
Operating expenses

316,117
241,503

Operating profit (loss)

Year ended March 31, 2008
(1) Net sales and operating profit (loss)
Sales
Sales to customers
Inter-segment sales and transfers

Elimination orcommon assets

─)(4,223)¥672,974
─

677,197
601,363(4,223)208)

672,974
601,571646¥ 75,834¥ (4,431)¥ 71,403¥61,152182
─
179¥398,482
4,714
702
5,428

¥95,474
449
─
1,495

¥493,956
5,163
702
6,923

Other
Division

Segment
totalsElimination orcommon assets

Consolidated
totals¥ 7,141)
3,702)¥31,187─¥631,608
3,705

277,166
270,135

10,843)
13,471)

31,18730,096¥ 74,614¥7,031¥ (2,628)¥ 51,339
388
─242¥207,581
2,000
3,009
5,064

¥55,868)
1,889)
─)
933)

Apartment
Construction
Subcontracting
Division

Leasing
Division

Hotel
ResortDivision$3,269,195
─

$3,021,570
226

Total
Operating expenses

3,269,195
2,537,907

Operating profit (loss)(2) Assets, depreciation, impairment
losses and capital expenditures
AssetsDepreciation
Impairment losses
Capital expenditures¥

Consolidated
totalsMillions of yen
Year ended March 31, 2007
(1) Net sales and operating profit (loss)
Sales
Sales to customers
Inter-segment sales and transfers(2) Assets, depreciation, impairment
losses and capital expenditures
AssetsDepreciation
Impairment losses
Capital expenditures¥─)(3,705)¥631,608
─635,313555,205(3,705)396)

631,608555,601¥ 1,091¥ 80,108¥ (4,101)¥ 76,007¥40,42577─
228¥355,213
4,354
3,009
6,467

¥99,607)206)
─)15,385)¥454,820
4,560
3,009
21,852

Other
Division

Segment
totalsElimination orcommon assets

Consolidated
totals$ 60,603)
41,921)$365,604
─

$6,716,972
42,1473,021,796
2,991,488

102,524)
113,671)

365,604
359,159$ 731,288$

30,308$ (11,147)$$ 706,334
5,493
─
5,745

$2,127,139
21,893
7,005
40,141$533,433
17,850─
6,513

Thousands of U.S. Dollars
Year ended March 31, 2008
(1) Net sales and operating profit (loss)
Sales
Sales to customers
Inter-segment sales and transfers(2) Assets, depreciation, impairment
losses and capital expenditures
AssetsDepreciation
Impairment losses
Capital expenditures$─)(42,147)$6,716,972
─

6,759,119
6,002,225(42,147)
2,074)

6,716,972
6,004,299

6,445$ 756,894$ (44,221)$ 712,673$610,363
1,819
─
1,783

$3,977,269
47,055
7,005
54,182$952,925
4,478
─
14,919$4,930,194
51,533
7,005
69,101(Notes) 1. The above segments are defined according to our own internal management system.
2. Segments and business content(1) Apartment Construction Subcontracting Division
Contract apartment construction(2) Leasing Division
Apartment leasing, management, related services and repairs(3) Hotel Resort Division
Hotel and resort management, sales of resort club memberships, etc.
(4) Other Division
Financial services (real-estate loans, etc.), residential business, broadband business, silver business
3. Major items and amounts included in “Elimination or common assets” are as follows.

45

Millions of yen
2008
Operating expenses unable to beallocated included in “Elimination orcommon assets”
Amount of corporate assets
included in “Elimination orcommon assets”¥ 4,535
95,4742007¥ 4,101
99,606

Thousands of
U.S. dollars
Main component

2008$ 45,261
952,926

Management expenses of the General Affairs Department of the Company submitting
the consolidated financial statements.
Surplus funds under management at submitting company (cash and deposits,marketable securities, etc.), long-term investment funds (investment securities, etc.),
and assets related to management operations.

(Change in accounting policy)
Reserve for warranty obligations on completed projects
Due to a change in accounting policy regarding reserves for warranty obligations on completed projects, operating expenses in the Apartment Construction Subcontracting Division decreased ¥337 million (US$3,361 thousand) and operating profit increased the same amount in the fiscal year
ended March 31, 2008.
Revenue recognition
Due to a change in accounting policy regarding revenue recognition, sales in the Leasing Division increased ¥11,955 million (US$119,326 thousand)and operating profit increased the same amount in the fiscal year ended March 31, 2008.
(b) Geographical segments
Segment information by geographic area for the years ended March 31, 2008 and 2007 were as follows:
Millions of yen
Japan

Trust territory of
U.S.A. GuamFranceSegment totals¥668,493
159¥ 4,481
4,677¥1,251)18)¥672,974
4,836

Total
Operating expenses

668,652
593,045

9,158
8,931

1,269)
1,387)

Operating profit (loss)¥ 75,607¥

227¥346,254¥52,228

Japan

Trust territory of
U.S.A. Guam

¥626,250
333

Total
Operating expenses

626,583
545,361

Operating profit (loss)¥ 81,222¥¥300,846¥54,367)

Japan

Trust territory of
U.S.A. GuamFranceSegment totals$6,672,249
1,583$ 44,723
46,684$10,601)
152)$6,716,972
48,267

Total
Operating expenses

6,673,832
5,919,207

91,407
89,13810,753)
11,748)Operating profit (loss)$ 754,625

$

2,269

$

$3,455,981$521,287$

Year ended March 31, 2008
(1) Net sales and operating profit (loss)
Sales
Sales to customers
Inter-segment sales and transfers(2) Assets
AssetsElimination orcommon assets

Consolidated
totals─(4,836)¥672,974
─

677,810
601,976(4,836)(405)

672,974
601,571¥ (118)¥75,834¥ (4,431)¥ 71,403

─)¥398,482¥95,474)¥493,956

FranceSegment totals

Elimination orcommon assets

Consolidated
totals¥ 4,107)3,824)¥1,251)18)¥631,608
4,175

7,931)
8,927)

1,269)
1,387)(996)¥

Millions of yen
Year ended March 31, 2007
(1) Net sales and operating profit (loss)
Sales
Sales to customers
Inter-segment sales and transfers(2) Assets
Assets─(4,175)¥631,608
─

635,783
555,675(4,175)(74)631,608555,601¥ (118)¥ 80,108¥ (4,101)¥ 76,007¥¥355,213¥99,607)¥454,820

Elimination orcommon assets

Consolidated
totals─)¥

Thousands of U.S. Dollars
Year ended March 31, 2008
(1) Net sales and operating profit (loss)
Sales
Sales to customers
Inter-segment sales and transfers(2) Assets
Assets─)(48,267)$6,716,972
─

6,765,239
6,008,345(48,267)(4,046)

6,716,972
6,004,299(995)$ 756,894$ (44,221)$ 712,673

─)$3,977,268$952,926)$4,930,194(Notes) 1. Geographic area is defined by geographic contiguity.
2. Major items and amounts included in “Elimination or common assets” are same as Note 3 in “Business segment.”46$

(Change in accounting policy)
Reserve for warranty obligations on completed projects
Due to a change in accounting policy regarding reserves for warranty obligations on completed projects, operating expenses in the Japan segment decreased ¥337 million (US$3,361 thousand) and operating profit increased the same amount in the year ended March 31, 2008.
Revenue recognition
Due to a change in accounting policy regarding revenue recognition, sales in the Japan segment increased ¥11,955 million (US$119,326 thousand)and operating profit increased the same amount in the year ended March 31, 2008.
(c) Overseas sales
As overseas sales constituted less than 10% of consolidated net sales for the years ended March 31, 2008 and 2007, overseas sales information has
been omitted.

24. Amounts per Share(a) The following table sets forth the net assets and net income (loss)
per share of common stock for the years ended March 31, 2008
and 2007.
Yen
Net assets
Net income
Basic

U.S. dollars

2008

2007

2008

¥1,036.43¥1,054.99$10.342.15

234.680.02(b) Basis of computation of net assets per share at March 31, 2008
and 2007 was as follows:
Thousands of
U.S. dollars

Millions of yen
Net assets
Amount not allocated to thecommon stock
Net assets allocated to thecommon stock
Shares issued outstanding at
end of year
(Thousands of shares)

2008

2007

2008

¥170,155¥185,785$1,698,328

4,970

17,64149,607

165,185

168,144

1,648,721

159,379

159,379

ー(c) Basis of computation of basic net income per share for the years
ended March 31, 2008 and 2007 was as follows:
Thousands of
U.S. dollars

Millions of yen
2007

2008

342

¥ 37,358$3,418

ー

─

ー

342

37,3583,418

159,379

159,186ー2008
Net income
Amount not allocated to thecommon stock
Net income allocated to thecommon stock
Shares issued outstanding at
end of year
(Thousands of shares)¥4725. Related Party Transactions
The following table sets forth related party transactions for the years ended March 31, 2008 and 2007.
(For the year ended March 31, 2008)(a) Director and individual major shareholder
Capital stock
Attribute

Director andcompany whose
majority of voting
right is ownedby the director
and close
relatives

Individual main
shareholder

Relation

Millions of yen

Thousands of
U.S. dollars

Business or position

Percentage of shareownership of theCompany

Interlocking
directors

Relation inbusiness───

President and CEO

0.5%

─

─

Eisei Miyama

─

─

─

Senior Managing
Director

0.0%

─

─

Yoshikazu Miike

─

─

─

Director

0.0%

─

─

Satoshi Abe

─

─

─

Director───Yousuke Kitagawa

─

─

─

Director

0.0%

─

─

Katsumi Furuhata

─

─

─

Full-time Corporate
Auditor───

Miyamaso Co., Ltd.

Iki City,
Nagasaki¥6$60

Hotel business──Leasing ofbuilding

─

─

─

13.3%

─

─

Name

Address

Yoshiteru Kitagawa

Yusuke Miyama

─Transaction amountAttribute

Director andcompany whose
majority of voting
right is ownedby the director
and close
relatives

Individual main
shareholder

NameTransaction

Yoshiteru Kitagawa

BalanceMillions of yen

Thousands of
U.S. dollars

Account

Millions ofyen

Thousands of
U.S. dollars

Leasing of land andbuilding

¥ 4

$ 45

─

─

─

Eisei Miyama

Leasing of land andbuilding

5

59

─

─

─

Yoshikazu Miike

Leasing of land andbuilding

5

53

─

─

─

Satoshi Abe

Leasing of land andbuilding

3

34

─

─

─

Yousuke Kitagawa

Leasing of land andbuilding

2

27

─

─

─

Katsumi Furuhata

Leasing of land andbuilding

0

5

─

─

─

Miyamaso Co., Ltd.

Commitment of IT
network related affairs

6

65

─

─

─

Yusuke Miyama

Interest on loans

62

621

“Other” in current assets

¥62

$621

(Notes) 1. Miyamaso Co., Ltd. is a company whose majority of voting right is owned by close relatives of Eisei Miyama, Senior Managing Director of the Company.
2. Conditions of transactions(a) Conditions of leasing of land and buildings are the same as transactions with third parties.
(b) Conditions of interest on loans are decided taking into account market interest rates.
(c) Katsumi Furuhara retired from the position of director on June 27, 2008.
3. Consumption taxes were not included in the transaction amount above.

48

(b) Subsidiaries and others
Capital stock
Attribute

Affiliate

Name

Address

Toyo Miyama
Kogyo Co., Ltd.

Kisarazu
City,
Chiba

Business or position

Thousands ofMillions of yen
U.S. dollars¥100

Production andsales of building
material$998

Percentage of shareownership of theCompany
50.0%

RelationInterlocking
directors

Relation inbusiness

2 interlocking
directors

Purchase ofbuilding
materials andothersTransaction amountAttribute
Affiliate

Name

Transaction

Toyo Miyama
Kogyo Co., Ltd.

BalanceMillions of yen

Thousands of
U.S. dollars

Account

Millions ofyen

Thousands of
U.S. dollars¥29,816$297,596

Accounts payable¥9,892$98,737

Percentage of shareownership of theCompany

Interlocking
directors

Relation inbusiness

Purchase of building
materials and others(Notes) 1. Conditions of transactions
Conditions of purchases of building materials were the same as transactions with third parties.
2. Consumption taxes were not included in the transaction amount above but included in the balance.

(For the year ended March 31, 2007)(a) Director and individual major shareholder

Attribute

Director andcompany whose
majority of voting
right is ownedby the director
and close
relatives

Address

Capital stock(Millions of yen)

Yoshiteru Kitagawa

──President and CEO

0.5%

─

─

Eisei Miyama──Senior Managing Director

0.0%

─

─

Kuniaki Sasahara──Senior Managing Director

0.0%

─

─

Yoshikazu Miike──

Director

0.0%

─

─

Satoshi Abe──

Director───Yousuke Kitagawa

──

Director

0.0%

─

─

Tomio Oba──

Director

0.0%

─

─

Katsumi Furuhata──

Full-time Corporate Auditor

─

─

─

BobbyTech Ltd.

Minato ward,
Tokyo

─

Receiving
service

Attribute

Director andcompany whose
majority of voting
right is ownedby the director
and close
relatives

Relation

Name

Name

¥3

Business or position

IT solutions businessTransaction─Transaction amount(Millions of yen)Account

Balance(Millions of yen)

Yoshiteru Kitagawa

Leasing of land and building

¥11

─

─

Eisei Miyama

Leasing of land and building

6

─

─

Kuniaki Sasahara

Subleasing of land and building

0

─

─

Yoshikazu Miike

Leasing of land and building

5

─

─

Satoshi Abe

Leasing of land and building

3

─

─

Yousuke Kitagawa

Leasing of land and building

3

─

─

Tomio Oba

Leasing of land and building

6

─

─

Katsumi Furuhata

Leasing of land and building

1

─

─

17

Accounts
payable¥8

BobbyTech Ltd.

Commitment of IT network related affairs(Notes) 1. BobbyTech Ltd. is a company whose majority of voting right is owned by close relatives of Kuniaki Sasahara, Senior Managing Director of the Company.
2. Conditions of transactions(a) Conditions of leasing of land and building are the same as transactions with third parties.
(b) Conditions of commitment of IT network-related affairs are the same as transactions with third parties.
(c) Kuniaki Sasahara retired from the position of director on June 29, 2007 and Tomio Oba retired from the position of director on March 18, 2007.
3. Consumption taxes were not included in the transaction amounts above.

49

(b) Subsidiaries and others
Capital stock(Millions of yen)

Business or position¥100

Production and salesof building material

Relation

Name

Address

AffiliateToyo Miyama
Kogyo Co., Ltd.

Kisarazu City,
Chiba

Attribute

Name

Transaction

Transaction amount(Millions of yen)Account

Balance(Millions of yen)AffiliateToyo Miyama Kogyo
Co., Ltd.

Purchase of building
materials and others¥25,233

Accounts payable¥9,574(Notes) 1. Conditions of transactions
Conditions of purchases of building materials were the same as transactions with third parties.
2. Consumption taxes were not included in the transaction amount above but included in the balance.

50

Percentage of shareownership of theCompany

Attribute

50.0%

Interlocking
directors

Relation inbusiness

2 interlocking
directors

Purchase ofbuilding
materials andothersR eport of Independent Auditors

51

Corporate Information

Leopalace21 Corporation(As of March 31, 2008)

Head Office:2-54-11 Honcho, Nakano-ku,
Tokyo 164-8622, Japan
Tel: +81-3-5350-0001 Fax: +81-3-5350-0058
http://www.leopalace21.co.jp
Date of Establishment:
August 17, 1973

Leopalace21 Group(As of March 31, 2008)

Leopalace21 Corporation

Apartment Construction Subcontracting Division

Toyo Miyama Kogyo Co., Ltd.
(Manufacture and sale of housing materials)

Share Capital:¥55,640.66 million(50.0%)

Leasing Division

Operations:
Construction, leasing, and sales of apartments,
condominiums, and residential housing;development and operation of resort facilities;
hotel business; broadband business;silver business, etc.
Number of Employees:
8,678 (consolidated basis);7,771 (non-consolidated basis)

SPC Leopalace REIT (Real estate leasing)

SPC Leopalace REIT II (Real estate leasing)

SPC Leopalace REIT III (Real estate leasing)
Leopalace Leasing Corporation*(Company housing agency and real estate agency)

Board of Directors and Auditors(As of June 27, 2008)

President and CEO

Yoshiteru Kitagawa

Senior Managing Director

Eisei Miyama

Executive Director of Management

Tadahiro Miyama

Directors

Hiroyuki Miyata

Hotel and Resort Related Division

LEOPALACE GUAM CORPORATION(Hotel/resort operations in Guam)

Leopalace Travel, Ltd.

Kou Kimura
Yoshikazu Miike
Satoshi Abe(100%)(Travel agency)(100%)(100%)

Other Division

Leopalace Finance Co., Ltd.*(Financial Business)

Leopalace Insurance Co., Ltd.*(100%)(100%)

Yousuke Kitagawa
Hiroshi Takeda
Naomichi Mochida
Full-time Corporate Auditors

Yoshitaka Kouda
Yoshinori Uehara

Corporate Auditors

Masami Matsushita
Koichi Fujiwara

52

Domestic consolidated subsidiary
Foreign consolidated subsidiary
Equity-method affiliates
Notes: 1. Numbers within parentheses represent equity stakes held by Leopalace21.
2. Apart from the companies listed above, there are two companies (100%owned indirectly by Leopalace21) with operational permits
3. Those marked with an asterisk (*) are new consolidated subsidiaries.

Major Shareholders (Top 10)(As of March 31, 2008)

Name of shareholders

No. of shares held

% of shares held

Yusuke Miyama

21,251,774

13.32

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

10,389,500

6.51

Japan Trustee Services Bank, Ltd. (Trust Account)

6,594,400

4.13

State Street Bank and Trust Company Standing Proxy, Mizuho Corporate Bank, Ltd.

4,837,881

3.03

Chase Manhattan Bank GTS Clients Account Escrow Standing Proxy, Mizuho Corporate Bank, Ltd.

3,828,105

2,39State Street Bank and Trust Company 505103 Standing Proxy, Mizuho Corporate Bank, Ltd.

3,282,062

2.05

Trust & Custody Services Bank, Ltd. (Investment Trust Account)

3,079,900

1.93

Investors Bank West Pension Fund Clients, Standing Proxy, Standard Chartered Bank

2,827,800

1.77

Toyo Kanetsu K.K.

2,745,900

1.72

MDI Corporation

2,350,000

1.47

Number of Shares:
Authorized: 250,000,000
Issued and outstanding: 159,543,915

Treasury stocks(As of March 31, 2008)

0.10%
Securities companies

1.05%

Number of Shareholders:
13,792Foreign corporations

Business corporations
and other legal entities

5.16%

Stock Exchange Listing:Tokyo Stock Exchange (Ticker: 8848)
Transfer Agent:
Mitsubishi UFJ Trust and Banking Corporation

48.28%

Composition of
Shareholders

Individuals and other
Financial institutions

23.88%

21.52%

Monthly Stock Price Range and Trading Volume
Yen
6,000

Topix average

Leopalace21

5,000
4,000
3,000
2,000
1,000
0

2005/3

2006/3

2007/3

2008/3

2006/3

2007/3

2008/3Thousands of shares
50,00040,00030,00020,00010,00002005/353

Corporate Slogan

A single dream for a united purpose

A United Spirit to meet today’s constant demand for new value and constant change
A united purpose to fulfill our customers’ dreams
A united purpose for building a comfortable future
A united purpose aiming at a new goal
A united purpose of both employees and customers at the new Leopalace21
to realize a rich and comfortable lifestyle

54

2008

Number of units under management reached 442,000
Started three related businesses, Leopalace Leasing, Leopalace Financing, and Leopalace Insurance
Launched Lavo Cerna, a residence with attached apartments

2007

Number of units under management reached 389,000

Opened Leopalace Center Taipei and Leopalace Center Pusan
Launched new Five-Year Medium-Term Management Plan:“United Spirit” in December

2006
2005

Started Residential and Silver businesses
Number of units under management reached 300,000

2004

Listed on 1st Section of Tokyo Stock Exchange
Increased capital to ¥55.64 billion by public offering
Opened Leopalace Center Shanghai

2002

Introduced our Monthly Leopalace Flat service
Started our Broadband Business
Launched Leopalace REIT II and III, a series of securitized real estate products
Opened Leopalace World Nagoya and Leopalace Center Seoul
Number of units under management reached 200,000

2001

Launched Leopalace REIT,
a securitized real estate productIncreased capital to ¥30.52 billion througha third-party allotment of new shares
Changed company name to Leopalace21 Corporation

2000

1999

Launched the Monthly Leopalace short-term rental service

1998

Leopalace21 Villa Colonna wins the 1998 Good Design Award
Number of units under management reached 100,000.

1997

1993

1989

1988

1985

1979

1973

Corporate History

Established the Leopalace21 Owners’ Mutual Insurance Association

Opened Leopalace Resort Manenggon Hills, Guam

Listed on JASDAQ

Introduced a unique membership-based rental system for our tenants

Introduced Leopalace21 urban-style, one-room rental apartment buildings

Increased capital to ¥100 million

Started business as Miyama Inc., a real estate brokerage

55Leopalace21 Corporation
2-54-11 Honcho, Nakano-ku, Tokyo 164-8622, Japan
TEL: +81-3-5350-0001 Main Line
FAX: +81-3-5350-0058
URL: http://www.leopalace21.co.jp

SGS-COC-004300

This annual report was printed on FSC-certified paper with soy ink.
Printed in Japan.