Integrated Report

2020

For the fiscal year ended March 31, 2020

Leopalace 21 Corporation

To Our Stakeholders

I believe the purpose and social
mission of the Leopalace21 Group
is to carefully protect and expand
the social infrastructure of
approximately 570,000 units
under management, developed
thus far in partnership with
28,000 apartment owners.

Leopalace21 Integrated Report 2020

In the fiscal year ended March 31, 2020, earnings for the Leopalace21 Group fell sharply into the red for thesecond straight year, mainly reflecting work undertaken to address construction defects and lack of recovery in occupancy rates caused by this very problem. I offer my deepest apologies to all our stakeholders forthe serious distress and inconvenience caused.
In light of this situation, we set about examining how we could drastically restructure our business strategies.
Accordingly, in June 2020 we formulated a business plan (medium- to long-term strategy) underpinned by thefollowing three key policies: (1) rebuilding our business foundation through selective concentration;(2) implementing structural reforms; and (3) regaining the trust of society.
Up until June 2020, our strategy had been focused on business diversification, but in order to rebuild ourbusiness foundation, we shifted to a strategy of selective concentration to once again position the Leasing
Business as our core business and focus on bolstering its profitability.
To implement structural reforms, we are stepping up our efforts to transfer or withdraw from non-core,unprofitable businesses, and we also optimized our workforce and cut costs by offering a voluntary retirement program to employees. Taking management responsibilities and reforming corporate governance, wehave reduced the number of directors and executive officers and lowered the compensation levels.
Furthermore, in reviewing the skillset of the Board of Directors based on the current operating environment and challenges faced by management, we are endeavoring to strengthen our management structureand governance system by adding two new outside directors to the Board in February and one in June.
We will strive to regain the trust of society and our stakeholders by carrying out structural reforms andboosting profitability in the Leasing Business to get earnings back on track, in addition to properly dealing
with the problem of construction defects.
As to the serious problem of construction defects, the whole company has been working towards solving it as
quickly as possible, but as it has continued to draw out, we have been unable to maintain adequate skills andhuman resources, which has caused repair works to be delayed. Given that a recovery in earnings is essential
if we are to properly address the problem of construction defects, we are currently reallocating human andmaterial resources, including the result of the voluntary retirement program, and from July 2020 we downsizedtemporarily the scale of repair works and organizational setup.
As for measures to prevent the reoccurrence of construction defects, we are making improvements basedon the following three policies: (1) fundamental reform of the corporate culture; (2) restructuring of the system
for managing compliance and risk; and (3) revision of the construction business framework. So that we neverforget this problem, we have designated May 29 as Change Day 5.29 on which we swear to prevent a reoccurrence by engaging in self-reflection.
I believe it is our raison d’être, or reason for existence and social mission to carefully protect and expand
the social infrastructure of approximately 570,000 units under management, which we have developed thus
far in partnership with 28,000 apartment owners.
Fiscal year 2020 will be an important one in which we steadily execute structural reforms, get earnings
back on course by boosting profitability in our mainstay Leasing Business, and regain the trust of our
stakeholders. In addition to getting earnings back on track, we will aim to enhance medium- to long-term
corporate value by vigorously striving to solve the problem of construction defects.
We look forward to your continued support and understanding.

Bunya Miyao
President and CEO
September 2020

01

02

Le op alace 21 Int egr a t ed Repor t 2020

Contents

To Restore
Toward the Recovery of Business Performance and Trust
Cover 2 To Our Stakeholders
04

Mission Statement, Corporate Philosophy,“10 Promises” of Leopalace21 Group, Profile

06 Leopalace21’s Mid- to Long-Term Strategy
14 Report on Construction Defects
20 CEO Message
26 Corporate Governance System and Initiatives
28 Strengthening Our Management Structure

36

Messages from Outside Directors

40

Directors and Audit & Supervisory Board Members

42

Business Overview
42

At a Glance

44

Leasing Business

47

Development Business (Leasing Segment)

48

Elderly Care Business49

Other Businesses

30 Initiatives Aimed at Improving Effectiveness32 Compliance
34 Risk Management

Editorial Policy
We publish an integrated report that combines an annual report with corporate social responsibility (CSR) reporting. The purpose of this report is to enable
management to communicate its message to all our stakeholders. We seek to present our management strategy, priority measures, an overview of businessconditions, etc. as well as inform readers about our CSR activities.
This report covers the fiscal year from April 1, 2019 through March 31, 2020 (fiscal year 2019). The scope is Leopalace21 Corporation (the “Company”) andits consolidated subsidiaries in Japan and overseas. Our aim is to publish to the extent possible the latest information available as of the publication date.
With the aim of promoting deeper reader comprehension, the report includes macro-economic data relating to our businesses, and the “Data Compilation”
section enables readers to understand trends to date. We take care to explain what we present in ways that are readily understandable so that the reportserves as an effective communication tool that reaches our many stakeholders.
In this report, we focus on explaining our newly formulated mid- to long-term strategy as well as how we are handling the problem of construction
defects. We hope this report helps readers gain a better understanding of the Company.

Leopalace21 Integrated Report 2020

Initiatives for Strengthening Management Foundation50

Leopalace21’s ESG Management
G: S trengthening the Compliance System—Preventing the Recurrence of the Problem ofConstruction Defects

53

G: Regaining the Trust of Property Owners

54

S: Handling Construction Defects

55

S: H
 andling New Lifestyles in
Response to the World with Coronavirus

56

S: W
 ork-Style Reform andHuman Resource Development

59

E: Environmental Accounting

60

E: Environmental Initiatives

62

Ten-Year Consolidated Financial Highlights

64

Consolidated Financial Highlights

67

Non-financial Highlights

68

Financial Section

126

Leopalace21 Data Compilation

132

Corporate Profile

Initiatives for Strengthening Management Foundation

52

Data Compilation

Toward the Recovery of Business Performance and Trust

Trust

03

Data Compilation

Reference Guidelines

Forward-looking Statements• ISO26000• GRI Standards

Statements made in this annual report with respect to plans, strategies and future performancethat are not historical facts are forward-looking statements involving risks and uncertainties. Leopalace21 cautions that a number of factors could cause actual results to differ materially from suchstatements due to a number of factors including, but not limited to, general economic conditions in
Leopalace21’s markets; demand for, and competitive pricing pressure on, Leopalace21’s products
and services in the marketplace; Leopalace21’s ability to continue to win acceptance for its products and services in these highly competitive markets; and movements of currency exchange rates.

04

Le op alace 21 Int egr a t ed Repor t 2020

Mission Statement

We seek to always be innovators,
to create without ceasing,and further,
we strive to increase value
for society as a whole.
Adopted on December 16, 2016

Contribute to society by creating and providing    
Corporate Philosophy“Creating New Value”
1. W e keep a close eye on modern-day needs,
and strive to create new value in our own unique way,
through flexible thinking and dynamic, inclusive teamwork.
2. W e are only happy if our customers are happy.
We are constantly working to improve our products,
services and technologies and to grow as a company.
3. W
 e provide new value throughout society
as a leading company within the industry,
to help create a more comfortable and affluent society.

Leopalace21 Integrated Report 2020

“10 Promises” of Leopalace21 Group

1. We will broadly contribute to society through continuous reform and the creation of new value.
2.	We will aim to be a reliable and admired company with emphasis on equal opportunities andfair business practices.
3.	We will prioritize serving our customers, and listen closely to what they have to say and identify their needs.
4.	We will continue to provide valuable products and services in a timely manner, through constant innovation.
5.	We will create a comfortable working environment where employees can fully exercise their skills andrespect individuality and sense of values.
6. We will create a corporate culture where change and challenge is valued, and independence is respected.
7.	We will provide appropriate returns of our results through fair, transparent and healthy business operations.
8.	We will continue to grow through accurate identification of environmental changes, reforming our businessmodel in a timely manner.
9.	We will contribute to the development of society and the economy, by committing to high ethical standards
and complying with the law.
10.	We will diligently protect the global environment, and contribute to a prosperous society through corporate
activities with close ties to regional communities.
Enacted on April 6, 2018     new value based on the theme of “housing.”
ProfileLeopalace21 is a real estate company built on the following core business: our Development Business, now

Elderly Care Business

Hotels, Resort &Other Businesses

3.4%

1.4%

integrated to Leasing Business, which involves real estatedevelopment as well as constructing apartments aimed
mainly at single person households, and our Leasing
Business, which involves renting units of apartments we

Net sales
composition ratio

manage after they are built.
By strengthening the profitability of the Leasing
Business, Leopalace21 is moving forward with theestablishment of a stock-based business model, which
generates stable profits through the rental of managed
apartments. At the same time, we are involved in the
Elderly Care Business as a strategic business. In theseways, Leopalace21 is a one-stop provider of a wide rangeof real estate services.

’20/3 FY2019

Development
Business

5.5%

Leasing Business

89.7%

05

06

Le op alace 21 Int egr a t ed Repor t 2020

Leopalace21’s Mid- to Long-Term Strategy
Given that we have suffered huge net losses for two years in a row—mainly due to our handling of construction defects
and the resulting worsened occupancy rate—we conducted a drastic business strategy review and shifted from thebusiness diversification strategy we have used until now to a profitability focus strategy with our Leasing Business once
again positioned as a core business through selective concentration. In addition, to drastically improve our constitution in
the interest of increasing our corporate value, we are implementing structural reforms that are based on transferring orwithdrawing from non-core unprofitable businesses and are aimed at achieving solid business-performance recovery.

Reconstruct businessfoundation—selective concentration

Implement
structuralreforms

Restorethe trust of society• Shift from a business diversification strategy to a profitability focus strategy
centered on Leasing Business.

• Promote transferring or withdrawing from non-core unprofitable businesses.
• Offer a voluntary retirement program to achieve workforce rightsizing and cost
reduction.
• Fulfill management responsibility and corporate governance reforms.
Reduce the number of directors and executive officers; curtail their compensation;and make redundant the positions of counselor and advisor.

• Recover business performance by implementing structural reforms andstrengthening profitability of Leasing Business.
• Execute measures for resolving the construction defects problem.

Leopalace21 Integrated Report 2020

In terms of drastic business strategy reconstruction, we have positioned our Leasing Business as a core business and our Elderly Care Businessas a strategic business. We will focus on strengthening our Leasing Business, which is positioned as a core business, such as by increasing ourworkforce for corporate sales and actively utilizing IT to increase the efficiency of our operations. Regarding our Elderly Care Business, we will
try to create a synergy effect with our Leasing Business to attract more senior tenants through needs development, etc. In addition, we haveintegrated our Development Business with the Leasing Segment, and we have stopped taking new orders and reduced the scale of this business in order to concentrate on handling construction defects. We will also promote the transfer of or withdrawal from our Hotels and Resort
Business and International Business, both of which are classified as other businesses. Through this selective concentration, we will once again
position our Leasing Business as a core business and strengthen its profitability. In addition, we offered a company-wide voluntary retirement
program to optimize our workforce and strive to construct a leaner and more efficient business foundation.

Leasing Business• Increase workforce for corporate sales in an attempt to increase the occupancy rate
• Make procedures more efficient by use of IT (Web/AI, IoT and others)

Core
Business

ShrinkDevelopment Business(Leasing segment)• Stop taking new orders in order to concentrate on repair works and resolve theconstruction defects problem

Maintain and continue (expect synergy)

Strategic
Business

Elderly Care BusinessInitiatives for Strengthening Management Foundation

Strengthen

Toward the Recovery of Business Performance and Trust

1. Drastic Business Strategies Reconstruction07• Create synergy effect with leasing business to attract more senior tenants and needs
development for the target audience

Withdraw or transfer

Hotels and Resort
Business,
International Business(Other segment)• Withdraw from hotels business in Japan by transferring Hotel Leopalace Nagoya• Withdraw from the resort business in Guam
• Withdraw from the international business• Transfer subsidiaries which have low synergy possibility with leasing business

Right sizing / Corporate Governance Reform

Company Total• Offer a voluntary retirement program for planned 1,000 with the result of 1,067 applications•R educe the number of directors and executive officers; curtail their compensation;and make redundant the positions of counselor and advisor

Data Compilation

Non-coreBusinesses

08

Le op alace 21 Int egr a t ed Repor t 2020

Leopalace21’s Mid- to Long-Term Strategy

2. Roadmap for Short Term and Mid to Long Term

Our earnings forecast for the fiscal year ending March 2021 is a net loss due mainly to the effects of COVID-19, but we will strive starting in the fiscal year ending March 2022 to improve the occupancy rate of our Leasing Business through efforts that include strengthening our corporate sales, improving our sales efficiency by utilizing IT, and stepping up measures for a new target audience that includes
foreign national tenants and senior tenants. Regarding our Elderly Care Business, we will make efforts to increase our profit throughcontinuous operational improvements as we develop and expand rental housing services in response to the needs of senior tenants.
Regarding our Development Business, although we will reduce the scale, we will also promote the handling of rebuilding demandby existing property owners centered in three major metropolitan areas. Through these measures—which are focused primarily on
strengthening the profitability of our Leasing Business—our goal is to restore our profit to its level before the construction defects
were discovered by the fiscal year ending March 2023.
Short Term (FY21/3 – FY22/3)

Mid to Long Term (FY23/3 onward)

Structural Reforms

Strengthen profitability and strive for further success• Transfer or withdraw from
non-core businesses• Implement a voluntary retirement
for about 1,000 expected applicants• Improve operational efficiency by IT and strengthen measures basedon area or new target audience such as foreign national tenants andsenior tenants for Leasing Business.
• R einforce cooperation with Development Business for apartment
rebuilding demand and Elderly Care Business.

Leasing Business[Strengthen]• Increase workforce for corporatesales• Make use of IT for efficiency
improvement•A ttract more foreign national tenants and senior tenants.
•M ake leasing management more efficient by measures such as smart
lock and web-based contracts.
• Increase the number of managed apartments in Tokyo, Nagoya andOsaka where there is high tenancy demand.

Development
Business[Shrink](Leasing Segment)• Take care of existing landlords• Concentrate on repair works toresolve construction defects• E nsure to satisfy apartment rebuilding demand by existinglandlords centered in three major metropolitan areas.

Elderly Care
Business[Maintain andcontinue]• Increase profitability by continuous operational improvement• Develop and expand Leasing Business catered for the needs of senior tenants• Provide advises and prepare support services such as meal delivery, room cleaning, safety confirmation and watching-over to materialize the above

Hotels, Resort andOther Businesses[Withdraw ortransfer]• Transfer properties or withdraw
from businessCorporate
PolicyLeopalace21 Integrated Report 2020

Our earnings forecast for the fiscal year ending March 2021 is an operating loss of 9.8 billion yen and a net loss attributable to shareholders of the parent of 8 billion yen primarily because of the effects of COVID-19. On the contrary, for the fiscal year ending March
2022, we expect the occupancy rate of our Leasing Business to improve by strengthening corporate sales and improving sales efficiency
resulting from IT (AI and IoT) utilization, so our earnings forecast is an operating profit of 11.3 billion yen and a net income attributable
to shareholders of the parent of 9.9 billion yen. For the fiscal year ending March 2023, we plan to restore our profit to the level before
the construction defects problem was discovered and to achieve an operating profit of 23.5 billion yen and a net income attributable toshareholders of the parent of 19.1 billion yen.

(Millions of yen)

FY18/3
Actual

FY19/3
ActualFY20/3
Actual

FY21/3
Plan*1

FY22/3
Plan (ref.)*1

FY23/3
Plan (ref.)*1

Sales

530,840

505,223

433,553

431,100

451,700

475,200

Gross Profit

96,077

76,23525,441

43,00063,10076,300

%

18.1%

15.1%

5.9%

10.0%

14.0%

16.1%

73,147

68,844

61,91552,80051,90052,80022,9307,390-36,473-9,80011,30023,5004.3%
22,354

1.5%
7,063

-8.4%
-36,341-2.3%-10,200

2.5%
10,7005.0%
23,000

SGAE
Operating profit%

Recurring profit%

Net income*

2

4.2%

1.4%

-8.4%

-2.4%

2.4%

4.8%

14,819-68,662-80,224-8,0009,900

19,100Initiatives for Strengthening Management Foundation

Consolidated statement of income summary—actual and plan

Toward the Recovery of Business Performance and Trust

3. Financial Plans up to FY23/3

09*1 Recorded deferred tax assets based on future taxable income which is conservatively set for one year for FY21/3 (Plan), FY22/3 (Reference), and FY23/3 (Reference).
*2 “Net income” refers to “net income attributable to shareholders of the parent.”(Millions of yen)

FY18/3
Actual*1

512,125

Sales

Leasing Gross Profit

FY19/3
Actual*1

19.1%*2

97,696

FY20/3
Actual*1

485,381
15.9%*2

77,305

FY21/3
Plan

412,746
6.2%*225,432

FY22/3
Plan (ref.)413,900
10.4%*2

43,000FY23/3
Plan (ref.)434,800
14.3%*2

62,100460,100
16.3%*2

75,000OP

29,65913,991-26,041

3,600

23,30034,300Sales

12,807

13,922

14,62014,50014,90015,000

-105

598

929

600

1,000

1,100

OP

-1,596

-846

-547

-700

-700

-800

Sales

5,907

5,919

6,186

2,700

2,000

100

Other*3 Gross Profit

2,042

2,094

1,585

-500

0

200

OP

-846

-1,346-996-2,200-1,3000OP-4,287-4,407-8,888-10,500-10,000-10,000

Elderly
Care

OP*4

Gross Profit*1 Because we changed our segments due to our drastic business strategy reconstruction, we retroactively adjusted the figures for FY18/3, FY19/3 and FY20/3.
*2 The numbers are calculated by Gross profit dividing by Sales.
*3 Hotels, Resorts and Other Businesses is changed to Other Segment in FY21/3.
*4 Adjustments have been increased for H2FY20/3 and FY21/3 onward as they contain personnel cost allocation related to construction defects problem.

Data Compilation

Consolidated segment reporting—actual and plan10

Le op alace 21 Int egr a t ed Repor t 2020

Leopalace21’s Mid- to Long-Term Strategy

4. Mid- to Long-term Strategy for Leasing BusinessOur mid- to long-term vision for our Leasing Business is to offer comfortable living solutions to society as a leader of the industry. We will also
promote the provision of housing offering in terms of quality and quantity demanded by the society as we respond to changes in the businessenvironment including increasing number of foreign national workers and growing single-person households as well as aging population.
Status Quo

Short term■XXXXXXXX(FY21/3 – FY22/3)

Mid-long term (FY23/3 onward)

TargetCustomers• Mainly students and corporate customers•A ttract more foreign national
tenants•A ttract more senior tenants(create synergy effect with
Elderly Care Business)

Properties
and Services• Studio apartment for
single-households (equippedwith furniture and home
appliances)• Introduce products andservices for foreign national
tenants• Increase accessibility by useof IoT devices•D evelop new products/services for senior tenants suchas watching-over service• Increase the number of managed apartments in Tokyo,
Nagoya and Osaka• Face-to-face service is mainstream at Leopalace shops• Increase workforce forcorporate sales• E nhance efficiency by IT(AI/ IoT) for business
P46
		operation• E mploy dynamic pricing modelfor deciding on rent

• Insufficient human resources
due to focusing construction
defects problem• Tightened financing byfinancial institutions• Take care of existinglandlords• C oncentrate on resolving
construction defects problem•M ay upgrade operation
observing the progress inresolving construction defects
and change in financial
institutions’ policy

Leasing Business

Organization
andOperation

Development
Business■Major Indicators for Leasing Business(Millions of yen)

FY18/3
Actual

FY19/3
ActualFY20/3
Actual

FY21/3Plan

FY22/3
Plan (ref.)FY23/3
Plan (ref.)Sales*1

512,125

485,381

412,746

413,900

434,800

460,100

Gross profit(Gross profit/Sales)*1

97,696(19.1%)

77,305(15.9%)

25,432(6.2%)

43,000(10.4%)

62,100(14.3%)

75,000(16.3%)

Operating profit*1

26,062

14,987-20,828

3,600

23,30034,300Managed units (Year end)

570,672

574,798

575,798574,315573,841574,064

Occupancy rate (average)

90.59%

88.34%

80.78%

81.63%

86.87%

89.67%

189

189

189

168

—

—

Direct offices (Year end)
Number of corporate sales sections (Year end)
Number of employees (non-consolidated, Year end)

59

54

52

66

—

—

3,247

3,291

2,742

2,600

2,400

2,400

of which, sales employees

1,546

1,494

1,339

1,100

1,000

1,000

Sales from development business*2 (A+B)

63,636

46,13819,173

12,90010,60023,600of which, construction sub-contracting business (A)58,80742,784

14,815

8,500

9,100

17,700of which, real estate business (B)

4,828

3,354

4,358

4,400

1,500

5,900

*1 B
 ecause we changed our segments due to our drastic business strategy reconstruction, we retroactively adjusted the figures for FY18/3, FY19/3 and FY20/3.
*2 Sales from development business is on a non-consolidated basis.

Leopalace21 Integrated Report 2020

Toward the Recovery of Business Performance and Trust■Plan for Occupancy Rates

11

(%)
95

90
(%)
95
85

90
80

75

Apr
80

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

● FY18/3 Year end rate 93.72%

Average rate 90.59%● FY21/3 (Plan) Year end rate 86.52%

Average rate 81.63%● FY19/3 Year end rate 84.33%

Average rate 88.34%● FY22/3 (Ref.) Year end rate 90.23%

Average rate 86.87%● FY20/3 Year end rate 83.07%

Average rate 80.78%● FY23/3 (Ref.) Year end rate 91.99%

Average rate 89.67%

75(Billions of yen)
75.0
Apr

73.1 -3.6

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

5. SGAE Reduction Perspective
70.0
❶

-1.2
❷

65.0
(Billionsof yen)75.0-0.3 +0.8 68.8 -4.5❸❹❶

73.1 -3.6

70.0
❶

55.0
65.0

-1.2
❷

-0.3 +0.8 68.8 -4.5❸

-1.0

+0.1 -1.4❶ Personnel ❷ Advertisement• Decrease 61.9
by a -7.5
voluntary retirement program -3.8 bil yen❸• Reducing
welfarecosts
for
employees
-0.5
bil
yen
❸ Sales expenses ❹ Others❹• Employees attrition (excluding a decrease due to a voluntary retirement program)-3.0 bil yen

❷

❹
❶

50.0
60.0

-1.0
❷

+0.1 -1.4
❸

❹

❶

-0.1
❷

FY18/3

FY19/3❸61.9 -7.5❹-9.1 bil yen

45.0
55.0

+0.9 -2.3

FY20/3
❶

50.0

-0.1
❷

+0.9 -2.3❸❹-9.1 bil yen-0.9 bil yen

52.8 -4.1+2.0 -0.04 -0.2 -0.9
52.8
❷ ❸+0.7 51.9❹+2.1 +0.3 ❶ Personnel
Advertisement
❷
❶
❸

❶

❷

❹

❸ Sales expenses ❹ Others-0.9 bil yen

FY21/3(Plan)

52.8 -4.1+2.1 +0.3❸❶

FY22/3
FY23/3+2.0 -0.04 -0.2 -0.9
(Reference)(Reference)+0.7 51.9
❹

❷

❶

❸

❹

52.8

❷

45.0
FY18/3

FY19/3

FY20/3

FY21/3(Plan)

FY22/3(Reference)

FY23/3(Reference)

Data Compilation

60.0

Initiatives for Strengthening Management Foundation

85

12

Le op alace 21 Int egr a t ed Repor t 2020

Leopalace21’s Mid- to Long-Term Strategy

6. Number of Employees and Productivity (Sales per Person)■Productivity Changes
180 (Millions of yen)

155.6

180
150 (Millions of yen)

145.4

155.6
150
120
120
90
90
60
60
30

95.2

140.3

131.9

127.3

131.9

127.3

115.1
74.3

87.5
95.2

72.3

68.0

73.9
87.5

71.1
72.3

68.0

73.9

71.1

41.6

FY09/3

FY10/3

FY11/3

30
0
0

145.4

115.1

140.3

150.4

All
FY09/3

Leasing

69.0

66.5

65.8

65.2

67.6

69.0

66.5

41.4

41.6

41.5

38.8

41.9

Leasing
Development
FY10/3 FY11/3 FY12/3

All

67.6

41.7

38.8

FY13/3

35.4

41.9

35.4
FY15/3

FY14/3
FY14/3

FY15/341.6

41.4

FY16/3

FY17/3

FY16/3

FY17/341.5

FY18/3
FY18/3

124.1

116.1

65.2

69.7

FY13/3

118.1

120.0

124.1

116.1

65.8

72.4

FY12/3

120.7

118.1

120.0

69.7

74.3

41.7

41.6

72.4

120.7

133.5
150.4

61.6

34.0

36.9

34.0
FY19/3

FY20/336.9

FY19/3

FY20/3

159.1

133.5
78.7

61.6

159.1

91.3

86.7

91.3
86.7
78.7
Integrated to (New)
Leasing Segment
Integrated to (New)
Leasing Segment
FY21/3

FY22/3(Plan)(Reference) (Reference)

FY23/3

FY21/3

FY22/3(Plan)(Reference) (Reference)

FY23/3Development

7. Cash flow Plan
39.5

40.0 (Billions of yen)

26.4

39.5

40.0 (Billions of yen)
20.0

26.4
20.0
0
0
-20.0

6.0 5.0
15.0

6.6

0.4
-20.1

-20.0
-40.0

7.3

6.6

0.4

19.0

15.0

-20.1

-7.2

7.3
-12.0

-15.1 -15.0-7.2-15.1 -15.0

-40.0
-60.0

-24.1
-12.0

-22.0

-24.1

-22.0

-11.0
-17.0
-11.0
-17.0

9.0
0.0

6.0 5.0-11.0 0.0

19.0
9.0

-1.0
-9.0
-1.0

-11.0

-9.0

FY22/3 (Reference)

FY23/3 (Reference)-51.6
FY18/3

FY19/3

FY20/3

FY21/3 (Plan)-51.6from investing activities ■ Cash flows from financing activities ■ Total cash flows-60.0 ■ Cash flows from operating activities ■ Cash flows
FY18/3

FY19/3

FY20/3

FY21/3 (Plan)

FY22/3 (Reference)

FY23/3 (Reference)■ Cash flows from operating activities ■ Cash flows from investing activities ■ Cash flows from financing activities ■ Total cash flows

Leopalace21 Integrated Report 2020

I hope that Leopalace21 will maintain their high level of service andprovide even more properties in the peripheral areas away from themetropolitan cities.

Feedback froman institution that
accepts international students

Mr. Tsutomu Suzuki,
Kanagawa Instituteof Technology

Feedback froma corporate
customerMr. Ryuichi Kioka,
IDOM Inc.

I hope Leopalace21 will finish its repair works
quickly and continue providing meticulous services.

I want Leopalace21 to utilize its strength as a company that has set up rental
apartments on a nation-wide scale and steadily continue the business.
As an apartment owner, I have been doing business with Leopalace21 for around 20
years. The apartment occupancy rates are fairly easily affected by changes in theexternal environment. Leopalace21 does business throughout the country, whichleads to a sense of security in terms of asset management since I can diversify
my risk. In addition, they offer meticulous management—including everythingfrom tenant recruitment to the resolution of problems between inhabitants—
and the ability to let owners leave everything to Leopalace21 is extremely
useful to me as a property owner. There are no other companies that have
set up rental apartments on a nation-wide scale like Leopalace21. I wantthem to utilize their strength, repair the construction defects and steadily
continue their business.

Feedbackfroman apartment
owner

Mr. ZaimaR

Data Compilation

In addition to international students who come to Japan for shortterm study at our school, our Japanese students also rent Leopalace21
rooms every year. Because the rooms are clean, equipped with all thefurniture and appliances necessary for daily life, and even come withbedding—which companies generally neglect to arrange—they have been
extremely helpful to us. The rooms also have wireless LAN connections,which have been really well received by our students, who use computers ona daily basis. In particular, because students are currently taking their classes
online to help prevent the spread of COVID-19, it is vital for them to have aliving environment with a good internet connection, which Leopalace21 provides.
Regarding the problem with construction defects, I hope Leopalace21 will finish its
repair works quickly and continue providing meticulous services.

Initiatives for Strengthening Management Foundation

My relationship with Leopalace21 goes back around 20 years. Our company has
offices throughout the country, and, thanks to Leopalace21—which provides
high-quality rooms throughout Japan that are better than the general level—we
can relocate our employees in various areas without having to worry. In addition,
because all the necessary furniture and appliances are provided, there is little
financial stress on employees due to moving, which has been really wellreceived by our employees.
When it comes to searching for properties or the procedures to move inor out, we leave everything to Leopalace Leasing, a Leopalace21 groupcompany, and they are always quick to respond, which is a huge help.
I hope that Leopalace21 will maintain their high level of service andprovide even more properties in the peripheral areas away from themetropolitan cities.

Toward the Recovery of Business Performance and Trust

Voice of the Customer

13

14

Le op alace 21 Int egr a t ed Repor t 2020

Report on Construction Defects

Repairs of properties constructed by the Company
The overall repair situation is as shown by the table below, with a repair start rate of 54.3% and a completion rate of 7.7%. In addition,
due to the three factors mentioned under item 2 below, our progress has been delayed, for which we apologize.

1. Overall repair situation
Properties subject to priority investigations(as of August 31, 2020)
Overall

Investigation
andassessment

6 Series

Subtotal

Total

Other series(42 series)

Number of constructed buildings

913

14,37015,28323,80239,085

Number of buildings to be investigated(excluding dismantled buildings)

896

14,265

15,161

23,53938,700

Number of assessed buildings

895

14,241

15,13623,16938,305

99.9%

99.8%

99.8%

98.4%

99.0%

Number of obviously defective buildings *1 *2

851

6,790

7,641

5,985

13,626

Defect rate (versus the number ofassessed buildings)

95.1%

47.7%

50.5%

25.8%

35.6%

848

5,675

6,523

871

7,394

Start rate (versus the number ofobviously defective buildings)

99.6%

83.6%

85.4%

14.6%

54.3%

Number of completed buildings *3

847

196

1,043

12

1,055

99.5%

2.9%

13.7%

0.2%

7.7%

Assessment rate (versus the numberof buildings to be investigated)

Number of started buildings

Repairs

Nail Series

Properties
other thanthose subject
to priority
investigations

Completion rate (versus the numberof obviously defective buildings)(Reference) Number of rooms for which tenant recruitment resumed: 98,522 rooms (+14,378 rooms compared to the end of May)
*1 Obvious defects include obvious parting wall defects in attics, deficiencies of insulation materials in parting walls, exterior wall structures’ deviation from certification, ceiling defects, andnon-compliant parting walls in fire-proof structures.
*2 Apart from the above, 16,457 out of 38,305 buildings contained minor defects.
*3 Completion is recognized and calculated on a building basis, so the time of completion is delayed compared to calculation on a room basis.

2. Repair-work delay factors
1.	Delays in the completion of consultation with specified administrative agencies inrelation to the start of repair works
2. Shortages of construction managing engineers and withdrawal of construction companies
3.	Suspension of repair works due to the declaration of a state of emergency in response to
the COVID-19 pandemic

Leopalace21 Integrated Report 2020

① 事前打合せ③ 状況確認 撮影/一級建築士による確認② 調査準備④ 復旧作業

15

⑤ 報告

報告書

We investigated all of our buildings, with a focus on the confirmation of existence of parting walls as well as any differences between
the actual construction and the construction design documents, etc. We are implementing repair works to eliminate non-conformity
with the Building Standards Act and Fire Service Act starting with properties that have obvious defects.

Investigation of all of our buildings
During our property investigations, a third-party first-class architect accompanied our company’s investigation team, and we either
confirmed the situation on-site or had the third-party first-class architect confirm the situation based on the data of photos taken by theinvestigation team.

Repair-work situation

Actual repair-work situation(1) Laying out curing/protective sheets inside rooms(2) Removing some of the ceiling material(4) Confirming the defects from the opening section[Defect details]
Obvious defects for which no parting
walls have been constructed in attics(5) Correcting defects and completing repairs(3) Securing an opening section for work(6) R estoring the opening section and completing the work

Initiatives for Strengthening Management Foundation

Construction-defect repair works
We conduct repair works while being careful to minimize the trouble we cause for property owners and tenants. It takes from a few
days to about one week to repair the respective rooms.

Toward the Recovery of Business Performance and Trust

3. Property investigations and repair works[Repair details]
Adding parting walls in areas where
none have been constructed

The earnings forecast for the fiscal year ending in March of 2021 is a net loss amid the continuing poor business performance. As it isessential to restore the business for the Company to steadily deal with the construction defects, we decided to reallocate the humanand physical resources, including a voluntary retirement as a part of structural reforms.
As a result, starting in July of 2020, we temporarily reduced both scale of repair works and organizational setup to tackle the construction defects.
However, there is no change in the policy that resolving the construction defects remains a key issue, and the Company will prepare
the operating conditions to deal with the construction defects through structural reforms and steadily carry out the repair works so that
the Company can regain the trust of society.

Data Compilation

4.	Temporary reduction of scale of repair works and organizational setup to focus
on business recovery

16

Le op alace 21 Int egr a t ed Repor t 2020

Report on Construction Defects

Preventive measures and progress
After receiving an investigation report concerning the problem of construction defects from the External Investigation Committee, theCompany determined its preventive-measure policy on May 29, 2019 and then determined and announced the specific recurrenceprevention details in August 2019. The Company considers its recurrence-prevention efforts to be a top-priority administrative issue,
and 60% of the corresponding measures were complete as of the end of August 2020.

Established on Feb 27, 2019
Final report released on May 29, 2019

Established the External Investigation Committee
and received a report
Established theCompliance Management
Headquarters *Determined the policy of
preventive measures

Determined andannounced the detailsof measures

Implemented individual
measures

April 2019

Announced on May 29, 2019

August 2019

August 2019 to the present

Current as of the end of August 2020

Progress of preventive measures
Complete In practiceStartedTotal

92% of the measures announced in Augustof 2019 have been implemented (46 out of
50 items).

1. Fundamental reform of the corporate culture

10

6

0

16

2. Restructuring of the system for
managing compliance and risk

6

5

1

12

3. Revision of the construction business framework

14

5

3

22

■ Complete

Total

30

16

4

50

■ In practice 32%■ Started60%
8%

Announcements related to our efforts to prevent the recurrence of construction defects and our progress
https://www.leopalace21.co.jp/info/en/approach.html* In June 2020, the Compliance Management Headquarters was renamed the Compliance Promotion Headquarters, and the Compliance Management Department
was renamed the Compliance Promotion Department.

Message from the Chief of the Compliance Promotion Headquarters
Over a year has passed since we formulated our preventive measures, and I
believe my most important duty is to eradicate the corporate culture of not being
able to identify risks, as the General Manager of the Compliance Promotion
Headquarters. Therefore, during the past year, we built a system that enables
employees to state their opinions to the management, established a more open
corporate culture, and reviewed our risk management regulations and provided
training to make it possible to gain an understanding of risks before they become
incidents. In addition to steadily promoting preventive measures, we establishedMay 29 every year as Change Day 5.29 in an effort to help make every employee
more aware of the problem so that it is not forgotten. Our goal is to achieve amore open corporate culture generated by the free and open-minded exchange of
opinions and a switch from a top-down to a bottom-up approach.
The management team must endeavor to identify potential risks in the field,
while employees should not be afraid to report any bad news to their managers
immediately. As such, we will continue to make every effort to foster a sense of
ethics and responsibility among all employees, show respect for the personalities
of employees, and nurture human capital that respects diverse values.

Mayumi Hayashima
Chief of the Compliance Promotion Headquarters
and Chief Legal Officer

Leopalace21 Integrated Report 2020

We implemented a suggestion box service through which employees can directly propose ideas to the management team, regional
small meetings, continuous training on compliance, the delivery of compliance messages from the President and CEO, revisions of ourperformance management system, and various other measures to help reform our corporate culture.
In addition, we established May 29 as Change Day 5.29, a day on which we vow to stop the problem of construction defects frombeing forgotten and to prevent the recurrence.
Excerpts from individual action plans

Periodic dissemination of messages concerning our compliance-first policy (started in July 2019)
Complete

In July 2019, a video message from the President and CEO was distributed to all group employees, notifying them of our newcompliance-first management policy. The President and CEO has since sent various messages based on this policy.

Application to business administration

Officers

This system is used to directly collect the proposals of officers and employees
to the management. The number of posts reached 286 as of March 2020.

Suggestion box
for management

Employees

Complete

Establishing a suggestion box for management(started in July 2019)

Suggestion box for management

Initiatives for Strengthening Management Foundation

A video message from Miyao, President and CEO

Toward the Recovery of Business Performance and Trust

1. Fundamental reform of the corporate culture

17

Holding regional small meetings (started in July 2019)
Complete

These meetings are held to promote active dialogue between officers, employees,
and the management. A total of 37 meetings were held from July to December
2019, and 2,310 people participated.
A regional small meeting

Complete

Complete

Reporting the progress of each action plan of preventive measures to the public (started in August 2019)
We made formal announcements on the situation of efforts related to preventive measures to the public.

Developing a customer-oriented corporate culture (started in October 2019)
All officers and employees were invited to write essays on fostering a customer-oriented corporate culture. 62 essays were submitted.

Introduction of a performance rating system, including adherence to our compliance-first policy(started in October 2019)
The personnel rating criteria were revised to evaluate whether employees’ efforts are in line with compliance.

Making all officers and employees understand and follow the reporting rules (started in November 2019)
Complete

We changed the reporting route to be in line with the changes in compliance regulations. We established a route for reporting to thesuperior line in each business division and specified rules for simultaneously reporting to the Compliance Promotion Department.

Data Compilation

Complete

18

Le op alace 21 Int egr a t ed Repor t 2020

Report on Construction Defects

2. Restructuring of the system for managing compliance and risk
In April 2019, we established the Compliance Promotion Headquarters as a headquarters organization. We employed external instructors in October 2019 and January 2020 to train employees to identify potential risks. In addition, we created a system for collecting
information on more potential risks by establishing a Compliance Mailbox operated by the Compliance Promotion Department. We arecontinuing with existing action plans and revise them if necessary.
Excerpts from individual action plans

Improving the operation of the Compliance Committee (started in June 2019)
In practice

We changed to a system under which the Committee is chaired by an outside director elected from between such directors so thatthe operation is looked at from an objective external perspective.

Improving the risk management method (started in October 2019)
In practice

In October 2019 and January 2020, external instructors ran training sessions one and two. This made it possible to analyze andevaluate potential risks identified at each department and to determine the major risks. The results of analyzing and evaluatingthese risks as well as the corresponding countermeasures have been reported to the Risk Management Committee.
Post-training questionnaire results
Q1: Did you understand the details of part 1?

Q2: Did you understand the method for creating the risk scenario in part 1?

■ I completely understood. 67%■ I completely understood. 45%■ I did not really understand. 2%■ I did not really understand. 4%■ I sort of understood. 31%■ I sort of understood. 49%■ I did not understand. 0%■ I did not understand. 2%

Preparing a complaint handling manual (started in October 2019)
In practice(1) For cases where specific complaints are considered obvious risks, we established the rules that require each business division toreport to the Compliance Promotion Department.
(2) We established rules for sharing information with the Compliance Promotion Department regarding issues that include complaints mentioned by tenants and others during calls to our call centers as well as complaints related to construction defects andothers in the negotiations during property-owner visits.

Establishing rules for disseminating information in-house (started in November 2019)
In practice

We established rules for disseminating information on how the Compliance Committee works and disclosing the state of implementation to the Company. We disclosed the state of implementation in-house accordingly.

Establishing a Compliance Mailbox (started in December 2019)
Complete

We established a Compliance Mailbox in the Compliance Promotion Department, thereby building a system to collect information
on more potential risks.

Analyzing risks andresponding to senders

STEP 1
Product planning
Commercialization
examination

STEP 2
Product development
Detailed design

STEP 3
Construction verification
Performance verification

Detailed design of thearchitectural features, structure,equipment, etc.

Construction verification using
a 3D design tool
Construction verification using
a mock-up
Construction verification using
various experiments
Construction verification using
company-owned properties, etc.
Detailed estimate

Structure, equipment,
energy-saving, etc. (approximate

Verification of safety, durability,

Confirmation of legal compliance

Confirmation of legal compliance

Compliance estimate)
Mailbox operation flowconstructability, functionality, etc.

Check whether the required
standards are met

Sales tools, etc.

Risk assessment
and response

Compliance Promotion
Department handling

Compliance Mailbox

Employees

Confirmation of the appropriate verification
method and legal compliance

Architectural design concept

Approval

Compliance Promotion Department

Check whether the confirmation oflegal compliance is appropriate

Board ofDirectors

Check whether consistency with generaldrawings, etc. has been achieved

STEP 4
Production design
Construction manuals

Approval

STEP 5
Product release

Production and construction
drawings

Product Development Section
websiteConstruction manuals

IRLeopalace21 Integrated Report 2020

Q1: Did you understand the details of part 1?

Q2: Did you understand the method for creating the risk scenario in part 1?

■ I completely understood. 67%■ I completely understood. 45%■ I did not really understand. 2%■ I did not really understand. 4%■ I sort of understood. 31%■ I sort of understood. 49%■ I did not understand. 0%■ I did not understand. 2%

We reviewed the process up to the completion of products, with a focus on starting to strengthen our check management system inparticular, such as reconstructing a system for performing a detailed examination including product legal compliance and adding on-site
inspections as a step of construction supervision. We continue to work on strengthening the system up to March 2021.

Excerpts from individual action plans

Reconstructing a system for performing a detailed examination, including product legal compliance(started in August 2019)
We divided the development process into five major steps and established a rule so that each step requires approval by theCompliance Promotion Department, an independent in-house organization.
Approval

Compliance Promotion Department
Check whether the required
standards are met

Board ofDirectors

Check whether the confirmation oflegal compliance is appropriate

Confirmation of the appropriate verification
method and legal compliance

Check whether consistency with generaldrawings, etc. has been achieved

STEP 1
Product planning
Commercialization
examination

STEP 2
Product development
Detailed design

STEP 3
Construction verification
Performance verification

STEP 4
Production design
Construction manuals

Architectural design concept

Detailed design of thearchitectural features, structure,equipment, etc.

Production and construction
drawings

Product Development Section
websiteStructure, equipment,
energy-saving, etc. (approximate
estimate)
Confirmation of legal compliance

Verification of safety, durability,
constructability, functionality, etc.
Confirmation of legal compliance

Construction verification using
a 3D design tool
Construction verification using
a mock-up
Construction verification using
various experiments
Construction verification using
company-owned properties, etc.
Detailed estimate

Construction manuals

IR

Approval

STEP 5
Product release

Sales tools, etc.
Commercialization planning

Construction andperformance verification plan

Executive Officers

Product development budget application

Initiatives for Strengthening Management Foundation

New product development process after the change

Toward the Recovery of Business Performance and Trust

3. Revision of the construction business framework

Complete

19* In cases where there are changes to the design, used materials, or certified and notice specifications after the product release, they shall be approved by the Compliance Promotion Department,
followed by consent and approval in accordance with the approval rules.

Measures to prevent inconsistencies when creating construction design documents (started in July 2019)
We employed an outside service provider to start rebuilding our quality standard documents, our former construction manuals, andwill also strengthen our system of checks by managers.

Strengthening inspection mechanism by triple-check system and reviewing document storage system(started in August 2019)
In practice

We started triple-check system by three parties: construction contractors’ inspections and field engineer inspections as well as
inspections conducted by the Inspection Section of the Compliance Promotion Department or an outside inspection agency. We also
reviewed the checklist details and storage system for inspection records and other documents.

Adding on-site inspections as a step of construction supervision (started in October 2019)
Complete

To strengthen our construction supervision system, we added construction supervision using an on-site inspection in the eight important processes and started the operations. In addition, we revised the existing guidelines and checklists, provided intensive training forconstruction supervision using outside consultants, and organized classroom lectures and on-the-job training in the field.

Establishing inspection items and operation rules (started in October 2019)
In practice

We established inspection items and operation rules so that the Construction Legal Section of the Compliance Promotion
Department can conduct construction supervision inspections and started the operations.

Data Compilation

Started20

Le op alace 21 Int egr a t ed Repor t 2020

CEO Message

As we rebuild our business foundationand push ahead with structural reforms,
we also aim to set up an organizational
response for persistent actions to regain
the trust of society that was seriously
undermined by the construction
defects problem.

President and CEO

Bunya Miyao

My first year in office

Focusing on addressing construction
defects and fundamentally reforming ourcorporate culture
More than one year has passed since I took office as President
in May last year. During this time I devoted myself to earnestly
addressing the problem of construction defects as a top priority.
To be more specific, ever since we announced measures aimed
at preventing a reoccurrence on May 29, 2019, I have predominantly focused on two things: (1) promoting these prevention
measures; and (2) instilling in our employees an awareness ofthe matter so that such an incident never happens again.

The measures for preventing the reoccurrence of construction
defects that we announced in May last year revolve aroundthree pillars: (1) fundamental reform of the corporate
culture; (2) restructuring of the system for managing
compliance and risk; and (3) revision of the construction
business framework.
Of these three pillars, I believe that fundamentally reforming
the corporate culture is of primary importance in order to prevent this kind of problem from happening again. When it comesto the topic of addressing construction defects, it is all too easy
to focus on the technical aspect of how repair works are being
carried out, and when that happens, employees with no direct
involvement in the repair works, such as those in accounting orLeopalace21 Integrated Report 2020

Addressing the problem of construction defects

Having completed investigations of allproperties, we are now undertaking repair
works in stages

Initiatives for Strengthening Management Foundation
Data Compilation

In responding to the problem of construction defects, we firstlaunched investigations into all of our apartments, most ofwhich had been completed by the end of October 2019. We thenstarted undertaking repairs and resumed tenant recruitment.
As of the end of August 2020, we had commenced repair works
on 85.4% of properties subject to priority investigations for acompletion rate of 13.7%. The former indicates the percentage
of buildings on which necessary repairs have commenced andthe latter the percentage of completed buildings in which all
rooms have been repaired.
One reason why the completion rate is quite low comparedto the work commencement rate is because once repair work
starts on a building with multiple tenants, it takes quite sometime for work on all rooms to be completed. For example, in aproperty with ten rooms, even if repair works have been completed on nine rooms, the repair is not considered finished until
the remaining one room has also been completed. As explained,even though we are presently undertaking repair works, there
are cases where the long-time lapse is required after starting
repair works and before completion on a building basis.
Given that we face the dilemma of being unable to accept
new tenants without first completing repair works, but at thesame time not having enough funds to carry out new repair
works because we cannot take in new tenants, we made thedecision to temporarily scale down our repair works and organizational setup starting in July 2020 with the reason being that arecovery in earnings is absolutely essential if we are to properly
address the problem of construction defects. Accordingly, thismeans that the repair works on all properties will be completedmuch later than we initially anticipated, but rest assured thatour policy of assigning top priority to solving the problem of
construction defects remains unchanged. Going forward, we
will step up our efforts to undertake repairs by putting in placea system that allows us to work more rapidly and efficiently
by, for example, handling some repair works in-house. Also,
because the delayed repair works schedule is a matter of keeninterest to all stakeholders, we will announce it as soon as
we have a clear view on preparing effective skills and humanresources in the responsible organization. We will demonstrate
our responsibility and persistent efforts to solve this problem
and regain the trust of society.

Toward the Recovery of Business Performance and Trust

sales, will end up taking no interest at all in the matter. Moreover, the construction defects actually originated 25 years ago,so many employees would have been working elsewhere atthat time, while some employees had not even been born yet,so for those employees, this problem is somebody else’s problem. I therefore came to the realization that irrespective of thefact that this is truly an unprecedented crisis for the Company,
our reforms up ahead will gain no traction unless we share thissense of crisis.
Accordingly, in order to push ahead with reforms whilst having all employees carry a sense of ownership in the problem,
we aimed to foster a more open corporate culture in which bottom-up proposals can be actively put forward. This is because
the External Investigation Committee pointed out that our topdown style of management well entrenched since the Company’s founding was likely one factor contributing to the kind of
corporate culture in place at the time the problem occurred. I
too agreed with this assessment.
Therefore, as part of our initiative on reforming our corporate
culture, we started a suggestion box system through which
employees can directly propose ideas or offer their opinions
to the management team for compliance or enhancement ofcorporate value. As a result, I get the feeling that the atmosphere of the workplace has gradually become more open. In
addition, the Company’s officers, including myself, regularly
attend regional small meetings held in various locations acrossJapan to engage in dialogue with employees. My experiencesat these meetings are telling me that our management teamhas changed for the better because it has become more personalized, or in other words, employees can more readily speak
their mind to management now. Furthermore, we periodicallyrun employee attitude surveys so that we can improve the way
we verify whether an ideal corporate culture is being developed
including the entrenchment of a compliance-first policy.
Through these initiatives I certainly feel that our corporate
culture is changing, but to make sure that it is not just temporary, we have designated May 29 as “Change Day 5.29.” It
was on May 29, 2018 that we made an announcement about
construction defects in six different series of properties, andexactly one year later on May 29, 2019, we publicly announced
the causes of the defects and measures for preventing a reoccurrence after accepting the External Investigation Committee’s
final report and recommendations. With this day as our annual
day of reflection, I believe that not allowing our memories ofthe past to fade away will be the best deterrent in order for us
to prevent a reoccurrence.

21

22

Le op alace 21 Int egr a t ed Repor t 2020

We will position the Leasing
Business as our core business andadopt a strategy geared towards
bolstering its profitability.

Fiscal year 2019 earnings

Earnings in the red for two straight years
due primarily to construction defects
In consolidated earnings for fiscal year 2019, net sales cameto 433.5 billion yen (–14.2% YoY) for an operating loss of 36.4
billion yen (versus operating profit of 7.3 billion yen in fiscal year2018). This owed to a decrease in operating revenue stemmingfrom the problem of construction defects. Earnings were in the
red for the second year in a row with a net loss of 80.2 billion yen(YoY increase in net loss of 11.5 billion yen), mainly reflecting
the booking of 24.3 billion yen as a reserve for repairs and otherincidental expenses related to construction defects, recording of
7.6 billion yen as impairment loss and 21.4 billion yen recorded
as income tax adjustment (loss) by deferred tax asset reversals.
The biggest factor behind the earnings deterioration was ourinability to maintain a sufficient occupancy rate. We had targeted
a fiscal year-end occupancy rate of 85%, but it stagnated becauseof the decision to halt recruitment of new tenants for properties
subject to priority investigations, as well as the impact of the
COVID-19 pandemic. As of the end of fiscal year 2019 (March 31,2020) the occupancy rate only reached 83.07% (–1.26pp YoY) foran average annual occupancy rate of 80.78% (–7.56pp YoY).
Still, the occupancy rate rose by 4.16pp in the fourth quarter(Jan–Mar), which is when we usually see the strongest demandfor occupancy throughout the year. The degree of increase ranks
among the best three over the past 15 years, so I do get the
feeling that the demand for our managed units is steadily improving. On the other hand, the occupancy rates dipped below
80% in the third quarter (Oct–Dec), which significantly impacted
the full-year result and therefore the revenue. Also, the impactof the construction defects problem made it difficult to start new

construction work despite the fact that we had received orders,so coupled with such ailing Development Business, earnings fell
short of our initial forecasts.
The value of our net assets has been sharply eroded by thebooking of enormous losses and subsequently the equity ratio at
the end of the previous fiscal year had dropped to as low as 0.7%.
With the goal of turning around our earnings in the shortest timepossible, we made the decision to drastically restructure ourbusiness strategies and carry out structural reforms centering ona policy of selective concentration and the offer of a voluntary
retirement to employees.

Drastic business strategy restructuring

Positioning the Leasing Business as a corebusiness and furthering a policy of
selective concentration
In June this year we announced the implementation of structural reforms centering on a policy of transferring or withdrawing
from non-core unprofitable businesses and offering the voluntary retirement program based on the drastic restructuring ofbusiness strategies in order to get the Company’s performanceback on track and regain the trust of society going forward.
As part of these reforms, we will shift away from our former
strategy of business diversification and instead position the Leasing Business as our core business and adopt a strategy geared
towards bolstering its profitability. Driven by structural reforms
over the two-year period through fiscal year 2021, we will spareno efforts in implementing selective concentration and thensubsequently roll out initiatives based on the notion of strengthening profitability and embracing greater challenges in our core

Leopalace21 Integrated Report 2020

Establishing human resources-relatedmateriality themes
As for our ESG initiatives, it is important that we establish andfocus on addressing materiality issues that are truly essential
to enhancing corporate value. At this point in time, dealing withthe problem of construction defects and making sure that similar incidents never occur again is, in my opinion, a materiality
issue unique to Leopalace21.
At the same time as addressing the materiality of resolving
construction defects problem, we have also identified materiality themes related to human resources, such as work-stylereforms and transforming the mindsets of employees who
support our basic CSR policy of providing high-quality services
and supporting affluent living.
At first glance it might seem contradictory that we identify
human resources to be a materiality theme while also having
offered the voluntary retirement to some 1,000 employees aspart of our structural reforms. However, we believe that employee engagement will be the key after all if Leopalace21 is
to grow in a sustained manner further down the track once ourstructural reforms have been completed.
I think we need to transform ourselves that have the capacity
to set in motion the PDCA cycle whereby each and every employee can properly think for themselves and take actions, as well
as reflect on the recent construction defects problem. To achieve
that, we will require work-style reforms that lead to greater
productivity and employees who are ready to change their waysof thinking so they might engage in work more diligently.

Data Compilation

Furthermore, we will make every effort to reduce labor costs
so that our SG&A expenses are more in line with the size ofour current business operations. This is why we have offered
the voluntary retirement program to some 1,000 employees, theESG

Initiatives for Strengthening Management Foundation

We will continue to transfer
or withdraw from non-core
unprofitable businesses.

first of its kind since the Company was founded. Leveraging thevoluntary retirements, we hope to be able to bring down theratio of SG&A costs to net sales to around 11% from roughly
14% last fiscal year.
With these measures we plan to return to profitability for the
first time since the construction defects came to light. For fiscal
year 2021, we are targeting operating profit of 11.3 billion yen
and net income attributable to shareholders of the parent of 9.9
billion yen. For fiscal year 2022, we are targeting 23.5 billion
yen and 19.1 billion yen respectively.
As we rebuild our business foundation and push ahead withstructural reforms by drastically restructuring our businessstrategies, we will also set up an organizational response for
persistent actions and aim to regain the trust of society thatwas seriously undermined by the construction defects problem.

Toward the Recovery of Business Performance and Trust

Leasing Business. While aiming to reinforce the Leasing Business
up ahead and sustain and continue operations in the Elderly Care
Business, we will also apply a selective concentration approachto our other businesses. For instance, we intend to downsize theDevelopment Business and its building construction operations,and transfer or withdraw from the Hotels and Resort Businessand the International Business, among others.
In terms of specific initiatives designed to bolster profitability in our mainstay Leasing Business, we will mainly look tobeef up our corporate sales workforce, strengthen our ability toacquire foreign national and senior customers, and utilize IT to
improve customer-facing work efficiency. We intend to focus on
corporate contracts, which account for 60% of the tenants in
our properties, increase human resources, and actively engage
in sales activities with the companies that source the high number of units under contract. In this way we will strive to improve
the occupancy rate and by extension shore up profitability.
Meanwhile, we are selling off, and withdrawing from thenon-core unprofitable Hotels and Resort Business and International Business with the sale of assets, including Hotel Leopalace Nagoya and Leopalace Resort Guam. We had thus far
pursued synergies in these businesses with the Leasing Business and sought to business diversification, but going forward
we will transfer or withdraw from these businesses in order toprioritize our handling of the construction defects problem andfocus more heavily on the Leasing Business.

23

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Le op alace 21 Int egr a t ed Repor t 2020

This is why, as part of human resources strategy, we endeavor to further improve our performance management systemand employee training programs. We first identify the types of
employees or managers the Company values highly and then inorder to develop the valued talents we analyze what kind of skills
and experiences are required. We then have the employees undergo relevant training for skill acquisition purpose. We tailor the
performance management system so that the proper evaluation
is established in accordance with the degree of goal attainment.
At the same time, we plan to push ahead with anotherfacet of human resources strategy for specialist employees.
At Leopalace21 we are in need of not just managers who leadthe teams, but also specialists in a broad range of fields suchas design, construction management, finance & accounting,and information systems. We intend to establish performance
management system and training programs for these people sothat we can evaluate their specialist skills—which differ fromorganization management capabilities—and maximize theircontributions to the Company.
P51

Employee engagement andworking styles hold the key
to sustained growth after
the completion of
structural reforms.

Corporate Governance

Strengthening oversight byoutside directors
As we go about tackling the problem of construction defects, it is
my belief that strengthening external oversight is more important
than anything else, no matter what. We have therefore significantly raised the ratio of outside directors by increasing their
number and at the same time, reducing the number of internal
directors. Under the current structure, six, or two thirds, of thenine directors hail from outside of the Company.

Not only did we increase the weight of outside directors to
two thirds, but we also spent time in analyzing and evaluating
what skills each candidate ought to bring to the Board of Directors. Given the Company’s current situation, we believed that theskills most required among the newly appointed outside directors
should be knowledge of construction, experience in corporate
revival, and expert legal knowledge in order to thoroughly implement compliance practices. We therefore appointed three newoutside directors, one from each of these fields of expertise.
Of the three, Yutaka Nakamura worked for many years as a
specialist in product quality and customer satisfaction at a housing
company, while Kazuyasu Fujita plied his trade in corporate revival at a housing hardware company and ultimately served as itspresident. And last but not least is legal expert Akira Watanabe.
To date, he has served as outside director and outside auditor for
about 10 companies, so he is certainly considered a professional
in his role as an outside officer. We have already received someunsparing opinions from all three regarding what the Company
is prepared to do in a scenario in which our business strategy
restructuring does not go according to plan.
The new members of the Board will sit alongside our existingoutside directors, Tadashi Kodama, Tetsuji Taya, and Hisafumi
Koga to form a two-thirds majority. This will allow us to achieve
greater transparency in decision making by the Board of Directors, enhance its effectiveness, and strengthen the corporate
governance. We also expect at times to hear the critical viewsof each outside director, based on their extensive careers andwide-ranging knowledge.
Conversely, the outside directors will be unable to engage inswift decision making if they have no inside knowledge of what
the Company’s operating departments are considering, planning,or putting into action, which would bring our structural reforms
to a halt. To avoid this situation and so that the outside directors
can do more than just monitor finalized plans, we are devising aframework whereby the outside directors take part in the discussions of operating departments from an earlier stage.
P36

Long-term vision

Making sure our rental housing business—
as social infrastructure—is sustainable
Our top priorities right now are resolving the construction defects
problem and taking steps to improve profitability, but so that we
can remain a going concern up ahead, I believe we must also
think through a vision of how we want to conduct our business
operations over the medium to long term.

Leopalace21 Integrated Report 2020

We certainly face difficult circumstances at the moment, but I
am confident that the social infrastructure in the shape of rental housing that we constructed over our 50-year-long history isreally something and our spirit of endeavor to have built up that
infrastructure still remains within the Company as our underlying strength. Therefore, by completing the repairs for construction defects, we will aim for greater heights instead of gettingback to the state prior to the problem and push ahead with awhole host of reforms.
I kindly ask for the understanding of all our stakeholders.

Bunya Miyao

President and CEO
September 2020

Initiatives for Strengthening Management Foundation
Data Compilation

By completing the repairs forconstruction defects, we will aim
for greater heights instead ofgetting back to the state prior to
the problem and push ahead witha whole host of reforms.

In conclusion

Toward the Recovery of Business Performance and TrustEven though Japan is in a stage of population decline andconcerns are emerging about abandoned houses, projections
indicate that the number of single-person households requiring
rental housing—our target market—is unlikely to fall below
10 million anytime in the next 10 years. Going by this forecast,we surmise that demand for our single-person apartments willhold firm for some time to come. On the other hand, there is no
denying that competition to claim the last bit of market shareis intensifying more than ever before. That is why I believe it is
crucial that we harness our facilities, services, and other assetsthat our competitors lack to establish a competitive advantage
and find a way to improve productivity.
At Leopalace21, we currently manage the assets of 28,000
property owners and we supply housing infrastructure to nearly
500,000 tenants. In other words, we bear a heavy responsibility
to both owners and tenants and we believe that contributing toregional economies through our business activities is a matterof course. To that end, I think we need to consider how we canfurther refine the social infrastructure we have built thus far,whilst keeping in mind our goal of firmly gaining a competitive edge in the business of providing rental housing to single
household and steadily running that business.

25

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Le op alace 21 Int egr a t ed Repor t 2020

Corporate Governance System and Initiatives
Basic Approach to Corporate GovernanceCompliance Committee, Personnel Committee, IT Committee,
CSR Executive Committee, and CSR Committee.
We employ a system comprising four headquarters to executebusiness: (1) the Business Operation Headquarters oversee
business execution and collaboration; (2) the Corporate Planning
Headquarters are tasked with management strategy formulation and supervision and also boost collaboration in businessdivisions; (3) the Management Headquarters support businessadministration; and (4) the Compliance Promotion Headquarters
are responsible for the development and oversight of our compliance system.
We also recognize that improving our capabilities to oversee
business operations is a key management issue. That is why wehave in place the Audit & Supervisory Board to monitor businessexecution of directors, set up the Auditing Department to perform
internal audits, and appointed outside directors, through which
we strive to enhance management oversight functions.
Under these systems, we will take steps to clarify the scopeof responsibilities and authority and make every effort to further
strengthen our corporate governance.

The Leopalace21 Group considers developing and strengthening
corporate governance to be one of our most important management issues. With this in mind, we are working to develop management frameworks, structures, and systems that will allow us
to engage in appropriate and speedy decision making, strengthen
our monitoring and oversight functions of decision making, establish compliance systems, improve and reinforce internal control
systems, and build healthy relationships with stakeholders.
To facilitate even faster management decision making andsmoother business execution by the Board of Directors, both
the Corporate Management Council and the Board of Executive
officers have been established to convene meetings prior to
Board of Director meetings. The former discusses importantmatters related to overall business execution, while the purposeof the latter is to share information about Company management. In this way, we aim to strengthen collaboration so thatbusiness execution proceeds smoothly. Moreover, a number of
meeting bodies discuss key management issues and offer theirrecommendations to the Board of Directors so the Board canthoroughly examine them. Those bodies include the Nomination
and Compensation Committee, Risk Management Committee,■Corporate Governance System

As of July 22, 2020

General Shareholders’ Meeting
Appointment / Removal

Corporate Management Council
Board of Executive Officers

Accounting Audit

Inquiry / Proposal

Nomination andCompensation Committee

Appointment / Removal

Accounting Auditor

Board of Directors

Consultation

Cooperating

9 Directors(including 6 Outside Directors)
Auditing

Information Sharing

Appointment / Removal

Audit & Supervisory Board

4 Members (including 2 Outside Audit &Supervisory Board Members)
ProposalAppointment / Removal

Cooperating

Personnel Committee
President and CEO

Inquiry

Operating Departments
Business Operation Headquarters
Corporate Planning Headquarters
Management Headquarters
Compliance Management Headquarters
Subsidiaries

Cooperating

IT Committee

Reporting

Reporting

Auditing
Council

CSR
Committee

Auditing Department

Reporting

CSR Executive
Committee
Apprehending /Apprehending / Management

Management

Apprehending /Management

ReportingCompliance Committee

Apprehending /Management

Reporting

Risk Management
Committee(internal audit)(internal controls)

Inquiry

Auditing
AuditingLeopalace21 Integrated Report 202027

Progress towards Strengthening Governanceand this has resulted in balanced Board composition, including
experience with corporate management, corporate revitalization,business reforms, and legal affairs. In addition, we have established various committees for our Board of Directors to examine
major management issues facing the Company. One of them is
the Nomination and Compensation Committee, which was established in March 2016. The majority of this committee’s members,
six out of seven, are outside directors, and they deliberate on
the best possible appointments, compensation, and other factors
based on their external points of view and knowledge and thenpropose the results of such deliberation to the Board of Directors.

■Major Corporate Governance Initiatives■ Outside Directors (persons)■ Outside Audit & Supervisory Board Members(persons)

3

3

3

2

2

2

2

2

2

2

2

2

2

2

2

2

2

2

1

1

1

1

2

3

2

2

2

2

2

2

2

5

3

6
3

3

3

2

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(FY)

July 2006
1st meeting

Compliance Committee

May 2008
1st meeting
July 2008
1st meeting
April 2009
1st meeting
February 2011
1st meeting

Risk Management Committee
CSR Committee
Personnel Committee
IT Committee

March 2016
1st meeting

Nomination and Compensation Committee

April 2018
1st meeting

CSR Executive Committee

Initiatives for Strengthening Management Foundation

3

1

Toward the Recovery of Business Performance and Trust

We have strengthened our corporate governance system in orderto achieve our corporate philosophy, attain our management plan,
improve our medium- to long-term corporate value, and achievesustained growth. To apply external points of view to our management, we have been appointing outside Audit & Supervisory
Board members for over 25 years, and we appointed outside
directors immediately after the collapse of the Lehman Brothers,
which had a major effect on the management of the Company.
After that, in order to further strengthen the supervisory functionof our management, we increased the number of outside directors and at the last General Shareholders’ Meeting appointed six,

■Members of each established body, etc.
Corporate
Management
Council

Board of
Executive
Officers

◎
○
○
○
○
○
○
○
○

◎
○
○

◎
○
○

Audit & Supervisory
Kenichiro Samejima
Board Member

Notes 2○

Audit & Supervisory
Yoshitaka Murakami
Board Member

Notes 2

Outside Audit &Supervisory Board
MemberJiro Yoshino

Notes 2○

Outside Audit &Supervisory Board
MemberTakao Yuhara

Notes 2

Position

Name

Bunya Miyao

Director

Shigeru Ashida

Director

Mayumi Hayashima

Outside Director

Tadashi Kodama

Outside Director

Tetsuji Taya

Outside Director

Hisafumi Koga

Outside Director

Kazuyasu Fujita

Outside Director

Yutaka Nakamura

Outside Director

Akira Watanabe

Executive Officers
Employees
Outside Experts, etc.

———

Nomination and
Risk
Compensation Management
Committee
Committee

Compliance
Committee

Personnel
Committee

IT Committee

CSR Executive
Committee

CSR
Committee

◎
○
○
○
○
○
○
○
○

○
○
○
○
◎
○
○
○
○

◎
○
○

○
○
◎

○
◎
○

○
◎

○

○

○

○

○

○

○

○

○

○

8
3

8
11
2

2
2
2

4
4

3
8

○

◎
○
○
○
○
○

Notes
1. indicates a chairperson or chairman, while indicates a member.
2. All Audit & Supervisory Board members attend meetings of the Board of Directors, and they supervise the execution of business by the directors.

Data Compilation

President and CEO

Board ofDirectors

○

6
3

18
2

28

Le op alace 21 Int egr a t ed Repor t 2020

Strengthening Our Management Structure
Nomination and Compensation Committee
We have established the Nomination and Compensation Committee as an advisory body to the Board of Directors in order to deliberateon the fairness and appropriateness of officer appointment/removal, compensation and other issues to ensure the transparency of ourmanagement and improve our accountability. This committee consists of the President and CEO as well as outside directors, and—inorder to ensure the independence and neutrality of the committee—all the committee members other than the chairman and thePresident and CEO are appointed only from outside directors.
Members

Chairman: an outside director
Committee members: the President and CEO and five outside directors

Objective

To ensure the appropriateness of decisions related to officer candidates nomination and compensation recommendations

Role

This committee handles the nomination, removal as well as the compensation composition and levels for the President and CEO,directors, Audit & Supervisory Board members, and executive officers considering the company business performance and otherfactors for objective deliberation. The committee reports the results of such deliberation to the Board of Directors.

Number of meetings held in
the fiscal year ending inMarch 2020

11

Main deliberation content

The committee mainly deliberated on the nomination and removal of directors and Audit & Supervisory Board members as well
as officer compensation recommendations. In particular, during the previous fiscal year ended in March 2020, the committee
held deep deliberations on the appointment of the President and CEO, the policy of having a majority of outside directors, andthe selection of outside director candidates based on this policy.

Reasons for appointing new outside directors
In order to regain the trust of our shareholders and other stakeholders by steadily implementing structural reforms and restoring ourbusiness performance, we appointed new outside directors, including the new appointment of Mr. Fujita and Mr. Nakamura at theExtraordinary General Shareholders’ Meeting in February 2020 as well as the new appointment of Mr. Watanabe at the Ordinary
General Shareholders’ Meeting in July 2020. These three outside directors possess skills essential for the execution of Leopalace21’s
upcoming reforms in the fields of corporate revitalization, quality management, and legal affairs.
Name

Reason for appointment

Kazuyasu
FujitaMr. Fujita possesses keen insight accumulated through his career as a senior manager and deep knowledge and experience in corporate management, most notably of which was his active involvement in the planning of proposals for rehabilitation plans in accordance with the Private
Rehabilitation Guidelines at Toyo Shutter Co., Ltd. along with his implementation of a seven-year reconstruction plan as the President andRepresentative Director of said company, where he completed reconstruction in a three-year shorter period. Therefore, we believe that he cancontribute based on his experience and knowledge regarding business revitalization and construction and technology in pushing through drastic
structural reforms and in efforts to realize early recovery of the Company’s social trust and business performance, which were undermined by the
problem concerning construction defects, and that he can play a role in supervising business execution by the Board of Directors, etc. from an
independent and fair perspective. Therefore, the Company has appointed him as an outside director.

YutakaNakamura

After joining Panasonic Homes Co., Ltd, Mr. Nakamura was consistently involved in quality and environmental management, achieving strong
results in lifting that company’s quality and environmental management to the top level in the industry. Moreover, he has experience serving inimportant positions at multiple organizations in the housing industry. Although he has never participated in the management of a company inthe past other than as an outside director or outside Audit & Supervisory Board member, he possesses keen insight accumulated through theabove career and deep knowledge and experience in the fields of quality control and environmental management. Therefore, we believe that hecan contribute based on his experience and knowledge regarding construction and technology in pushing through drastic structural reforms andin efforts to realize early recovery of the Company’s social trust and business performance, which were undermined by the problem concerning
construction defects, and that he can play a role in supervising business execution by the Board of Directors, etc. from an independent and fair
perspective. Therefore, the Company has appointed him as an outside director.

Akira
Watanabe

Mr. Watanabe possesses specialized knowledge as an attorney at law and keen insight accumulated through his career as an outside director ofother companies as well as deep knowledge and experience in corporate management. Therefore, we believe that he can contribute based on
his experience and knowledge regarding legal compliance in pushing through drastic structural reforms and in efforts to realize early recovery of
the Company’s social trust and business performance, which were undermined by the problem concerning construction defects, and that he canplay a role in supervising business execution by the Board of Directors, etc. from an independent and fair perspective. Therefore, the Company
has appointed him as an outside director.

Leopalace21 Integrated Report 2020

29

Skills of officers

Skill set matrix
Attribute
Name

Executive
Position

Expertise, Experience and Knowledge
Age

GenderMember

60

Male

○

Corporate
Corporate rehabilitation, Sales andQuality
management business Marketing management
restructuring

1 BunyaPresident and CEO
Chairman of theBoard of Directors

2 Shigeru

Director
Managing
Executive Officer

56

Male

○

○

Director
Hayashima Executive Officer

47

Female

○

○

○

Miyao

Ashida3 Mayumi

Director

Lead
indepenChairman
dent
Outside

72

Male

○

5 Tetsuji

Director

independent
OutsideMember

56

Male

○

6 Hisafumi

Director

OutsideMember

72

Male

○

7 Kazuyasu

Director

independent
OutsideMember

74

Male

○

8 Yutaka

Director

independent
OutsideMember

61

Male

9 AkiraDirector

independent
OutsideMember73

Male

KodamaTaya

Koga

FujitaNakamura

Watanabe

Critical skill especially for the fiscal year ending March 2021
(Note) As of July 22, 2020

Accounting
and tax
affairs

FinanceIR

Global

○

○

Audit

○

○

○

○

○

○

○

○

○

○

○

○

○
Data Compilation

4 Tadashi

Legal

Initiatives for Strengthening Management Foundation

Nomination
andIndependency
Compensation
Committee○○

Toward the Recovery of Business Performance and Trustreforms and improve the profitability of the Leasing Business,
our core business, in the fiscal year ending March 2021—theskills we are emphasizing in particular during this year are
enclosed by a blue rectangle in the skill matrix below. Ourcurrent directors have at least one of these skills—or as manyas four in some cases—and we expect them to greatly contribute to our efforts to execute structural reforms, restore ourbusiness performance, and regain the trust of society.

Our Board of Directors is aiming to strengthen our governance system and to flexibly and promptly solve problems.
We reviewed the skill set of the Board of Directors given thecurrent business environment, and, in July 2020, we reduced
the total number of directors from 12 to 9 to achieve a suitableboard composition. As shown below, the Company’s directors
possess an extremely broad range of expertise, experience,and knowledge, but—in order to steadily implement structural

○

○

○

30

Le op alace 21 Int egr a t ed Repor t 2020

Initiatives Aimed at Improving Effectiveness
The Board of Directors
The Board of Directors focuses on both ensuring agile management and achieving comprehensive supervisory functions, and it
currently consists of nine directors, including six outside directors. In order to improve corporate value, we consider it important to deliberate on appointing suitable directors, and making
compensation recommendations, which we have incorporated

Internal directors

in the decision-making process by the Nomination andCompensation Committee with outside directors as its members.
In addition to regularly meeting once a month, the Board of
Directors flexibly convenes meetings as necessary to makeimportant management decisions, monitor how business is being
executed, and supervise the execution of duties by directors.

Outside directors

Proposals by the Board of Directors
During the fiscal year ended March 2019, 21 meetings of the Board of Directors were
held, and there were 124 proposals. In contrast, during the fiscal year ended March
2020, there were 33 meetings of the Board of Directors with 144 proposals, a considerable increase over the previous fiscal year. Like the previous fiscal year, the following
three items accounted for a high percentage of the board’s discussion: the businessstrategy and business performance, board member appointment and compensation, andconstruction defects and recurrence prevention.
Business strategy and business performance• During the fiscal year ended March 2019, the main proposals were aimed at building
new revenue stream, including expanding our International Business and the business plans of Group companies.
• During the fiscal year ended March 2020, there was a decrease in proposals related
to new businesses due to a slump in business performance, but the board discussed
drastic business strategies reconstruction and formulated a business plan based on
strategic review results for drastic business strategies reconstruction.

Content of proposals by
the Board of Directors
Fiscal year ended March 2019

18 %
13 %
11%
■ Business strategy and business performance■ Board member appointment and compensation■ Construction defects and recurrence prevention■ Other

Fiscal year ended March 2020

Board member appointment and compensation• The board has discussed board member appointment and compensation in the past
as well, but, during the fiscal year ended March 2020, the board also discussed how
to strengthen the function of the Board of Directors, including analyzing the matrix ofskills required of directors.
Construction defects and recurrence prevention• The board continued its discussions of construction defects and recurrence prevention from the previous fiscal year.
• During the fiscal year ended March 2020, in addition to discussions by the Board of
Directors, the director with knowledge of quality management held regular meetings
with operating departments.

58 %

22 %
46 %

13 %
19 %

■ Business strategy and business performance■ Board member appointment and compensation■ Construction defects and recurrence prevention■ OtherLeopalace21 Integrated Report 202031

Evaluation of the effectiveness of the Board of Directors
completed the strategic review process for drastic businessstrategies reconstruction and formulated a new business plan.
As to rebuilding our undermined brand, succession planning forthe next generation of management, and assisting with female
employees’ career advancement, the board’s initiatives were notsufficient, so the board must continue to make efforts this year.
The Board of Directors agreed to implement the new businessplan as a top priority and to monitor the progress of, discuss,
make decisions on, and make any necessary corrections of initiatives aimed at steadily implementing structural reforms, strengthening the profitability of the Leasing Business, and resolving the
problem of construction defects.

Evaluation of the fiscal year ended March 2020

Points to be
improved• Rebuilding our undermined brand• Succession planning• Assisting with female employees’ career advancement• Steadily implementing structural reforms• Strengthening the profitability of the Leasing Business• Initiatives aimed at resolving the problem of
construction defects

Board members’ compensation
President and CEO. Mr. Kodama, an outside director, currently
serves as the chairman. Also, to take the responsibility of the
management team for the problem of construction defects, we
decided to reduce the amount of remunerations paid to board
members during the period from February 2019 to March 2021
based on the results of an objective examination carried out byoutside directors that sit on the Nomination and Compensation
Committee. Remunerations were reduced by 60% for the
President and CEO, 45%–55% for the other internal directors,
35% for full-time Audit & Supervisory Board members, and 35%–
45% for executive officers. In addition, the remunerations of the
President and CEO as well as an executive officer who was a
director and senior managing executive officer at the time—bothof whom were serving as executive directors when the defects inproperties constructed by the Company were announced—werereduced even more, with the President and CEO suffering a 90%
reduction in total, an additional 30% cut.

Abolishment of the advisor and counselor system
In accordance with a resolution by the Board of Directors, all existing service agreements with current counselor and advisors were
terminated at the end of June 2020, and the advisor and counselor system was abolished.

Data Compilation

The Company’s basic policy is to have a compensation systemfor directors—specifically regarding decisions on the amount ofcompensation, etc. for directors and the method of calculating it—that will contribute to an improvement in the Company’s businessperformance over a diverse range and the enhancement of its
corporate value. The compensation has four components: the basic
remuneration as fixed compensation, the stock options, which aredesigned to boost medium- to long-term Company earnings andcorporate value by sharing the advantages and disadvantages ofstock price fluctuations with the shareholders, the annual performance bonuses on the attainment of single fiscal year management targets, and the medium-term performance bonuses on theattainment of the medium-term management plan.
The compensation of individual directors is decided on
through deliberations by the Nomination and Compensation
Committee to ensure appropriateness in fulfilling the above
objectives. This Committee consists of outside directors and theInitiatives for Strengthening Management Foundation

Positive
points• Implementing compliance reform and restructuring therisk management system• Deepening discussions of management strategy,
examining our drastic business strategy reconstruction
approach, and formulating a business plan

Challenges during the fiscal year ending March 2021

Toward the Recovery of Business Performance and Trust

After the end of the fiscal year ended March 2020, we evaluatedthe function and others to be fulfilled by the Board of Directors,
mainly to improve management issues. The evaluation method
was an individual evaluation using a questionnaire targeting all
the board members. The secretariat of the Board of Directors
aggregated data, analyzed it, and reported to the Board of
Directors to hold discussions. In the evaluation for the fiscal
year ended March 2020, we confirmed that the Company’s Boardof Directors and governance system functioned effectively in general. More specifically, based on the evaluation of the Board of
Directors in the previous fiscal year, we implemented compliancereform, restructured the risk management system, and deepened
discussions on our management strategy. The Board of Directors

32

Le op alace 21 Int egr a t ed Repor t 2020

ComplianceTo entrench an enduring compliance-first policy within the organization, we established the Compliance Promotion Department,
which verifies the legal compliance of our various businesses and products and also builds and operates information management systems, thereby promoting the development of an organizational framework with strong internal controls.

Compliance system
We established the Compliance Promotion Department inresponse to the problem of construction defects in order tofundamentally review and rebuild a solid compliance and risk
management system for the Group. The Compliance Promotion
Department plans and drafts the construction of new systems,
verifies the legal compliance of the Group’s new businesses,
services, products, etc. The Compliance Promotion Department
also takes the lead in sharing information with our design,

construction, and other departments as well as subsidiaries andaffiliates, constructing systems for sharing risk information in thefield throughout the Company, and actively promoting training
and other initiatives aimed at providing knowledge and raisingawareness of compliance. In this way, the department strives tofoster an organizational culture defined by our compliance-firstpolicy, thereby setting the stage for successful management.

Compliance consulting service
To handle cases where legal violations or similar acts byofficers and employees are discovered, the Leopalace21 Grouphas established compliance hotline services to deal with theassociated consultation and reporting in-house, namely theCompliance Promotion Headquarters, outside of the company—a law firm, and for Audit & Supervisory Board members—
the Audit & Supervisory Board. We have also established aCompliance Committee
Board ofDirectors

ReportChairman: an outside director
Committee members:
in-house committee members,
legal advisors,and outside committee members

Compliance hotline(whistle-blowing system)

business partners hotline to handle cases involving our business partners. In addition, we started up Compliance Mailbox
operations to collect a broad range of information from our officers and employees as well as consultation and other contributions, thereby establishing a system for discovering potential
risks that helps to minimize the effects on the Company even incases where incidents do occur.

Compliance hotline
Run by: Compliance
Promotion Department(Compliance Committee
secretariat)

Business partners
hotlineReporting,consultation,etc.

Business divisions,departments,and subsidiaries
and affiliates

Establishment of aCompliance Mailbox

Leopalace21 Integrated Report 2020

33

Compliance Committee
enhancing training and reinforcing information management
systems, as well as strengthening monitoring systems andidentifying problems for improvement.

Toward the Recovery of Business Performance and Trust

With one of the outside directors serving as the chairman,
the Compliance Committee consists of members that include
lawyers and other external experts. To strengthen governance,
the committee develops various compliance measures, such as■Compliance Committee deliberation content

17 items
25 %5 items
7%
13 items
10 items
19 %14 %10 items
14 %■ Whistle-blowing situation and incident reports■ Preventive measures■ Compliance-related training and related reports■ Legal-violation incident reports■ Policy revisions■ Other* Committee meetings held since Mr. Taya, an outside director, assumed office as chairman in June 2019—a total of 10 meetings from June 2019 to March 2020
* The above percentages have been adjusted to come up to 100% in total.

Initiatives for Strengthening Management Foundation

14 items
21%

Declaration to eliminate harassment
We adopted the basic policy of eliminating harassment tomaintain healthy work conditions and increase mutual trustin the workplace aiming for realizing a vibrant company. We
declare the following as a company to eliminate harassment.

We decided to take following initiatives to make effective
the declaration to eliminate harassment.

Declaration to eliminate harassment

1. Formulate a basic policy for eliminating harassment

2. We will not overlook any acts of harassment.
3. We will make serious efforts to eliminate actsof harassment.

2. Raise awareness of human rights• Since harassment is a violation of human rights, we will raise awareness ofhuman rights within the Company.
• We will increase everyone’s awareness to try to understand others’ standpoints
and feelings and to behave respecting the difference.

3. Conduct the training for harassment prevention
4. Apply stricter penalties against harassment offenders• An employee’s case is handled for decision by the committee of rewarding andpenalizing employees with the Chief of Management Headquarters as chair.
• A director’s case is handled for decision by the Board of Directors after the caseis deliberated at the nomination and compensation committee chaired by theleading outside director.

5. Increase effectiveness of consultation desk
• We will respond to a wide range of consultations and deal with cases, including
delicate issues of harassment. We will fairly protect the privacy for both the victim ofharassment and alleged harassment offender.

Data Compilation

1. We will not tolerate harassment.

Initiatives to eliminate harassment

34

Le op alace 21 Int egr a t ed Repor t 2020

Risk Management
Restructuring of the risk management system
and analyzes risks related to the work it is in charge of, formulates a risk response plan to manage these risks, and reports
the results to the Risk Management Committee.
The Risk Management Committee regularly meets once amonth and whenever the chair determines that an extraordinary
meeting is required, and it offers consultation and guidance
to ensure that risk is appropriately managed by each department. Furthermore, the general manager of the ComplianceManagement Headquarters reports on the status of risk management to the Board of Directors on a quarterly basis.

In order to grasp and manage Company-wide risks andstrengthen our risk management framework, we have put inplace a Risk Management Committee as an advisory body to
the Board of Directors. The President and CEO serves as chairof this Committee, while the general managers of the Corporate
Planning Headquarters and the Compliance Promotion
Headquarters serve as vice-chairs. Other members of theCommittee comprise external experts such as lawyers. The
Committee not only monitors risk management status, but alsoplans and implements training sessions and works to mitigate
or prevent risks from materializing. Each department identifies■Risk management system diagram
Board of Directors
Inquiry

Risk Management Committee Chairman: President and CEO

ReportReportConfirmation and improvement instructions, etc.
Confirmation and investigation instructions, etc.

Risk Management Officer (vice-chairman)

General manager of the Corporate Planning Headquarters
ReportRisk Management Committee secretariat

ReportGeneral manager of the Compliance Promotion Headquarters

Confirmation,
investigation, etc.

ReportReportConfirmation and improvement instructions, etc.

Risk management manager
Confirmation and improvement instructions, etc.

ReportPerson in charge of risk management
ReportOfficers and employees

Review of the risk management method
To manage both materialized risks, or incidents and potential
risks, in October 2019 and January 2020, we invited external
instructors to hold risk management training sessions andworkshops for the senior managers of our departments as wellas the top management of the subsidiaries and affiliates.
The objective of these workshop-style training sessions was
to make everyone aware of new risk management methods by
giving them the opportunity to learn the basics of risk management in particular, gain an awareness of the risk management

activities the Company is aiming for, and help them master
unified Company-wide risk assessment methods such as risk
identification, analysis, and evaluation.
Each of our departments, subsidiaries, and affiliates reports
the results of analyzing and evaluating identified risks as wellas the corresponding response plan to the Risk Management
Committee, and—by continuing to regularly report the
response situation to the committee—they strive to achieve
highly effective risk management.

Leopalace21 Integrated Report 2020

35

Implementing training related to risk management
persons in charge of risk management as well as risk management managers understand their roles.
To encourage improved risk sensitivity among all our officers
and employees, we will continue implementing E-Learning,
posting training materials on our website, thereby striving toensure that everyone reports and shares risk information toprevent the materialization of risks while improving our corporate culture.

First risk management training session
Part 1: basic risk management training(1) Understand what risk is(2) Master basic knowledge of risk management

Targetaudience

Officers, Audit & Supervisory Board members, general managers of business divisions, senior managers of departments, top
management of subsidiaries and affiliates, etc.

Number of part 1
participants

86

Part 2: risk identification workshop
Objectives(1) Master risk assessment methods—risk identification and risk-scenario creation(2) Master methods for managing potential risks

Targetaudience

General managers of business divisions, senior managers of
departments, top management of subsidiaries and affiliates,
etc.

Date and time: Fri, October 4, 2019, 15:00 to 17:30

Number of part 2
participants

Initiatives for Strengthening Management Foundation

Objectives

Toward the Recovery of Business Performance and Trust

To achieve objectives that included improving risk sensitivity,
we implemented educational training for all of our officers
and employees, including Group companies, in October 2019
and January 2020, which gave them the opportunity to learn
about differences between risks and incidents, methods andapproaches for increasing risk sensitivity, detailed methods andapproaches for identifying risks while working, and methods of
response when risks are identified.
In addition, in August 2020, we implemented training to help

56

Place: head office basement conference room

Second risk management training session

Training in
October 2019

Training inJanuary 2020

1. Risk identification

Identify risks of which the effects on the Company andbusiness divisions could not be ignored if they occur

2. Examination ofcurrent measures

Use measures as criteria to determine the risk severity

3. Risk analysis andevaluation

Assign an order of priority to risks and clarify therisk-response targets

4. Risk response

Determine risk countermeasures

Date and time: Tue, January 14, 2020, 15:00 to 17:00
Place: head office basement conference room
Participants: 54 comprising senior managers of the departments and top management of subsidiaries and affiliates

Data Compilation

Master risk assessment methods

36

Le op alace 21 Int egr a t ed Repor t 2020

Messages from Outside Directors

Developing a mechanism
through which bad news
quickly reaches the ears of
the president, the head of PR,
should be the basisof risk management.

Hisafumi Koga
Outside Director, Leopalace21 Corporation
Executive Chairman, Kyodo Public Relations Co., Ltd.

I have 45 years of experience working as a reporter and manager at K.K. Kyodo News. I also served as president of the news
agency for around three years, so based on my knowledge andnetwork of contacts, I help the Company address issues concerning mainly PR, crisis management, and IR. Since my appointment
as Outside Director in 2019, I have liaised with the relevant
officials at the government ministries and agencies regarding
the Company’s construction defects by taking advantage of thepersonal connections I accumulated during my days as a reporter.
Having forged some trusting relationships over the course of one
year, I think I have been able to considerably deepen the understanding of a number of officials at the relevant authorities.
Also, because risk management is basically information
warfare, it can be hard to obtain facts about how much risk isout there and where it comes from. In my opinion, risk management should be founded on the development of a systemthrough which all employees strain their ears as self-made PR
officers to keep tabs on negative and positive information about
Leopalace21 so that any bad news can quickly reach the ears of
the president, who is essentially the head of PR.

Leopalace21 has 570,000 units under management nationwide,most of which are furnished with furniture and home appliances.
From this perspective, the Company contributes enormously tothe supply of employee lodgings for companies across Japan andit has become a part of public social infrastructure.
The nature of the Company’s corporate culture up until now wascertainly outdated in some respects, but with the management
team led by Bunya Miyao, President and CEO, instigating a freshwave of reforms, I am confident that it can transition to a corporatecharacter that is more appropriate for a publicly listed company.
No other real estate firm has a business model quite like thatof Leopalace21, which serves the best interests of both property owners and tenants. And there are no other companies thatcan do what Leopalace21 does, so for these reasons I hope toemphatically communicate to all employees just how important
the Company’s reason for existence is.
While I understand that the Company faces the tough surroundings now, I think one of my roles is to safeguard this business model and create situations that help various stakeholders
gain a better understanding of it.

Leopalace21 Integrated Report 2020

Toward the Recovery of Business Performance and Trust

To prevent similar problems
from occurring in the future,a system must be put
in place so that
employees can report eventhe smallest of incidents tomanagement.

Initiatives for Strengthening Management Foundation

Kazuyasu Fujita
Outside Director, Leopalace21 Corporation
Former President and Representative Director,
Toyo Shutter Co., Ltd.

reports from employees about even the smallest incidents.
In order to develop such a framework, it is vital that management, which includes the leadership team and executive
officers, first visits every nook and cranny of the Company’s
worksites to hear for themselves the thoughts of employees
and what concerns them in the field.
It is said that having employees who sense that they too areplaying a part in the Company’s management raises both spirits
and capabilities by roughly 50%, as opposed to when they
simply do as they are told. I am guessing that up until now the
management team have not set up very many opportunities todirectly listen to the opinions of employees who are close to
the customers.
I myself plan to hear what the employees have to say by getting around all the main branches and offices throughout Japanso that I can deepen my knowledge of worksite operations. And
I also hope to assist in the development of a system that let
employees accurately relay to the head office their thoughts
and opinions.

Data Compilation

I worked as a public servant for roughly five years before
joining Toyo Shutter Co., Ltd. After working in almost all of thecompany’s departments, including production and sales, I thenserved as officer and president.
How I will utilize my former experience to help Leopalace21
is something of an unknown even to me, but given my background in manufacturing, I believe the employees working in
the field are of the utmost importance.
The construction defects that occurred did not happen all at
once. They started occurring more than 20 years ago, but ultimately there was no awareness of the issues for all that time.
Manufacturers like Toyo Shutter, which is where I worked,
recall products if they are found to be faulty because a defective product could be the cause of a fatal accident. However,
Leopalace21’s management never presupposed that such an incident would ever occur, which is probably why it did eventually
happen. Moving forward, I think a reoccurrence can be prevented if a system is developed that enables management to collect

37

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Le op alace 21 Int egr a t ed Repor t 2020

Messages from Outside Directors

My role is to figure out
how to quickly rein in costs
and resolve the construction
defects problem.

Yutaka Nakamura
Outside Director, Leopalace21 Corporation
Former Senior Principal for Quality &Customer Satisfaction, Panasonic Homes Co., Ltd.

For 38 years I worked at Panasonic Homes in the administration
departments responsible for product quality, environment, IT, andinformation security. The business of building a home for customers
to live in for a lengthy period of time and sustaining its value as an
asset is also a common theme at Leopalace21, so I think I can utilize
what I have experienced in my career so far.
In particular, I recognize my chief missions to be assisting theappropriate and swift repair of construction defects and establishing a quality control system.
Firstly regarding the Company’s response to the construction
defects problem, the majority of the repair works are being carriedout on defects that are in violation of the Building Standards Act,but during the investigations employees in charge discovered issues
other than those non-conformities, and they assumed that theyneed to deal with such new issues in addition to the core violation
defects, meaning that the scope of repairs was expanded to include
repair works not originally planned.
The Company is therefore narrowing its focus on the defects that
violate the Building Standards Act and is working hard to prioritize
the completion of those repair works. And in terms of cost control,
I work together with everyone in the Emergency Headquarters forConstruction Defects to repair as many units as possible at minimal
cost in the tough financial circumstances, by implementing budget
control on every unit for continuously streamlining repair works.

Addressing the construction defects is a challenge that the whole
Company must prioritize and follow it through to the very end inan effort to turn the business back on track and regain the trust ofsociety. Quality is the result of management. Quality control is to
manage to improve or correct the results. The essence of quality
control is to employ the available means in advance to prevent problems from occurring. It is urgent for all employees, and in particular
the management team, to seriously reflect on why the construction
defects occurred and set about rebuilding all of the Company’s systems and contracts, including product development, sales, design,
construction, and after-sales service.
Leopalace21 is a pioneer in the housing market by introducing thesubleasing approach to apartment management and establishing abusiness model that involves property owners. But just as this approach was steadily gaining momentum, the problem of construction
defects came to light. While management has agonized over how todeal with the problem, ultimately the experience it gains from overcoming the critical situation it currently faces will most likely be whatsustains the creation of new Leopalace21. I feel that there are many
talented employees at the Company. I will do everything in my power
to assist the management team and employees as they work together
to find solutions to the immediate challenges, get the Company on
track towards a new growth strategy, and in doing so, turn earnings
around so that property owners and shareholders can rest at ease.

Leopalace21 Integrated Report 2020

Toward the Recovery of Business Performance and Trust

To realize a recovery,
each and every employee must set
a medium- to long-term planwith the individual time-boundactions to follow and materialize.

Initiatives for Strengthening Management Foundation

Akira Watanabe
Outside Director, Leopalace21
Partner, Comm & Path Law OfficeDirector, ASIA PILE HOLDINGS CORPORATION
Outside Director, MAEDA ROAD CONSTRUCTION Co., Ltd.

everyone is in uncharted waters, so in that sense, nobody
knows the right formula. Accordingly, everyone must think forthemselves. Presuming that somebody else will provide for you
is out of the question.
In addition, each and every employee needs to set their own
five- or ten-year plan and make it with concrete time-boundactions. It is crucial that employees review whether they aremeeting their daily goals. If they fail to achieve them, they must
examine the reasons why. Even bigger goals can be achieved
if this process of review and self-awareness is perpetually
repeated. Quite simply, anything can be achieved if you put
your mind to it.
While the Company’s credibility has been severely damagedby this recent problem, I think the change in leadership has
afforded Leopalace21 the opportunity to change course andcreate a new business model. I feel upbeat about the current
restructuring and I intend to harness my experience to support
the Company in any way I can.

Data Compilation

I possess expert knowledge as an attorney at law and I havealso been directly involved in the rehabilitation of a numberof companies. With the aim of regaining the trust of societythat was lost as a result of the Company’s construction defects
problem and improving earnings as soon as possible, I hope tothrow my support behind the Company’s revival by drawing on
all of my accumulated knowledge and experience.
In order to recover this lost confidence and prevent a reoccurrence, the Company is striving to instill a compliance-firstpolicy into its business practices as one prevention measure.
I hope to see the Company knuckle down on this because
it is extremely important that top management emphasizes
compliance and spreads awareness about it among employees, including the management team. I think that trust can beregained in the future if all employees align their aspirationsin the same direction and go about their work positively andhonestly, no matter what their roles are in the Company.
This is because when it comes to company reconstruction,

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Le op alace 21 Int egr a t ed Repor t 2020

Directors and Audit & Supervisory Board Members

Internal Director (As of July 22, 2020)

President and CEO
GM of Business Operation Headquarters

Director, Managing Executive Officer, Chief of the Corporate
Planning Headquarters, Chief of the Emergency Headquarters
for Construction Defects (concurrent)

Director, Executive Officer, Chief of the Management
Headquarters, Chief of the Compliance Promotion
Headquarters, CLO*(concurrent) *CLO: Chief Legal Officer

Apr. 1988 Joined Leopalace21 Corporation
Nov. 2003 Deputy Manager of the Financial Department
Apr. 2010 General Manager of the Corporate Planning Department
May 2012 General Manager of Business Operation Headquarters
Apr. 2013 Administrative Officer
Apr. 2014 Executive Officer
Jun. 2019	Director and Managing Executive Officer (current)
Chief of the Emergency Headquarters for Construction
Defects (current)
Jul. 2020 Chief of the Corporate Planning Headquarters (current)

Apr. 1996 Joined Leopalace21 Corporation
Apr. 2009	Deputy Department Manager of the East Japan
Corporate Sales Section, Leasing Business 3rd Sales
Department, Leasing Business Division
Jul. 2010	Department Manager of the East Japan 2nd Corporate
Sales Department, Leasing Business Division
Apr. 2014	Department Manager of the Corporate Business
Promotion Department
Apr. 2015 Administrative Officer
Apr. 2018 Executive Officer
Jun. 2019	Director and Executive Officer (current)
Chief of the Compliance Management Headquarters,
Chief Legal Officer (CLO)
Jun. 2020	Chief of the Compliance Promotion Headquarters,
Chief Legal Officer (CLO) (current)
Jul. 2020 Chief of the Management Headquarters (current)

Outside Director

Outside Director

Outside Director

Apr. 1970	Joined The Dai-Tokyo Fire & Marine Insurance Co., Ltd.
(now Aioi Nissay Dowa Insurance Co., Ltd.)
Jun. 2001	Director, Aioi Insurance Co., Ltd.
(now Aioi Nissay Dowa Insurance Co., Ltd.)
Apr. 2002 Managing Director, Aioi Insurance Co., Ltd.
Apr. 2003 Senior Managing Director, Aioi Insurance Co., Ltd.
Apr. 2004	Representative Director, President,
Aioi Insurance Co., Ltd.
Apr. 2010	Representative Director, Vice Chairman of the Board of
Directors, Aioi Insurance Co., Ltd.
Representative Director, Executive Officer, MS&AD
Insurance Group Holdings, Inc.
Oct. 2010	Representative Director, Vice Chairman of the Board of
Directors, Aioi Nissay Dowa Insurance Co., Ltd.
Jun. 2011	Director, Vice Chairman of the Board of Directors,
Aioi Nissay Dowa Insurance Co., Ltd.
Jun. 2012	Senior Advisor, Aioi Nissay Dowa Insurance Co., Ltd.
Jun. 2015	Retired from Aioi Nissay Dowa Insurance Co., Ltd.
Jun. 2016	Outside Director, Leopalace21 Corporation (current)

Apr. 1987	Joined The Fuji Bank, Limited (now Mizuho Bank, Ltd.)
Jun. 1998 Joined Merrill Lynch Securities Co., Ltd.
Apr. 2003	Managing Director, Industrial Revitalization Corporationof Japan
Apr. 2007	Board Member & Managing Director,
Industrial Growth Platform, Inc.
Sep. 2009	Representative Director, Acting CEO,
Industrial Growth Platform, Inc.
Jun. 2010	Outside Director, Leopalace21 Corporation (current)
Mar. 2011	Board Member & Managing Director,
Industrial Growth Platform, Inc.
Dec. 2019	Board Member & Managing Director, CFO,
Industrial Growth Platform, Inc. (current)

Apr. 1971 Joined Kyodo News
Jun. 2007	Administrative Officer, General Manager of theManagement Planning Department and General
Manager of the President’s Office, Kyodo News
Jun. 2010 Director and Senior Vice President, Kyodo News
Jun. 2011 President and CEO, Kyodo News
Jun. 2014 Counselor, Kyodo NewsMar. 2016	Executive Chairman, Kyodo Public Relations Co., Ltd.
(current)
Jun. 2019 Outside Director, Leopalace21 Corporation (current)

Bunya Miyao
Apr. 1983 Joined Nakamichi Leasing Co., Ltd.
Jun. 1990 Joined Leopalace21 Corporation
Sep. 2000 Deputy Manager of the Financial Department
Jul. 2008 General Manager of the Resort Business Headquarters
Jul. 2010	General Manager of the Corporate Planning Department
Jul. 2012 Administrative Officer
Apr. 2013 Executive Officer
Jun. 2016 Director and Executive Officer
May 2017	Representative in charge of the Corporate Planning
Department, the Public Relations Department
Apr. 2018	Director and Managing Executive Officer
Representative in charge of Corporate Planning andInvestor Relations
May 2019 President and CEO (current)
Jun. 2019 GM of Business Operation Headquarters (current)

Shigeru Ashida

Mayumi Hayashima

Outside Directors (As of July 22, 2020)

Tadashi Kodama

Tetsuji Taya

Hisafumi Koga

Leopalace21 Integrated Report 2020

41

Outside Directors (As of July 22, 2020)

Outside Director

Apr. 1965	Joined the Osaka Prefectural Government
Nov. 1970	Joined Toyo Shutter Co., Ltd.
Oct. 1999	Business Administration Manager, Toyo Shutter Co., Ltd.
Jun. 2000	Director, Manager of Business Promotion Department
and Purchasing Department, Toyo Shutter Co., Ltd.
Jun. 2002	President and Representative Director, Toyo Shutter Co.,Ltd.
Apr. 2006	President and Representative Director, Executive Officer
for General Supervision, Toyo Shutter Co., Ltd.
Jun. 2010	Special Adviser, Toyo Shutter Co., Ltd.
Jun. 2011 Resigned from Toyo Shutter Co., Ltd.
Sep. 2011	Established Management Consulting Partners Inc.,
President and Representative Director, Management
Consulting Partner, Inc. (current)
Feb. 2020 Outside Director, Leopalace21 Corporation (current)

Apr. 1981	Joined National Housing Materials Co., Ltd. (nowPanasonic Homes Co., Ltd.)
Oct. 2002	Manager of Quality & Environmental Promotion
Department, Panasonic Homes Co., Ltd.
Oct. 2006	Manager of Quality, Environment & IT Department,
Panasonic Homes Co., Ltd.
Apr. 2011	Councilor, Manager of Corporate Quality &Environmental Division, Panasonic Homes Co., Ltd.
Apr. 2012	Senior Councilor, Manager of Corporate Quality &Environmental Division, Panasonic Homes Co., Ltd.
Apr. 2018	Senior Principal for Quality & Customer Satisfaction,
Panasonic Homes Co., Ltd.
Mar. 2019	Resigned from Panasonic Homes Co., Ltd.
Feb. 2020 Outside Director, Leopalace21 Corporation (current)

Apr. 1973	Registered as an attorney at law
Nov. 2006 External Statutory Auditor, FAST RETAILING CO., LTD.
Jun. 2007 Outside Director, MAEDA CORPORATION
Jun. 2007	Outside Audit & Supervisory Board Member,
KADOKAWA GROUP HOLDINGS, INC. (now KADOKAWACORPORATION) (current)
Apr. 2010	Outside Director, MS&AD Insurance Group Holdings, Inc
Mar. 2013	Outside Director, DUNLOP SPORTS CO., LTD.
Oct. 2015	Director, ASIA PILE HOLDINGS CORPORATION (current)
Sep. 2018 Partner, Comm & Path Law Office (current)
Jun. 2019	Outside Director, MAEDA ROAD CONSTRUCTION Co.,
Ltd. (current)
Jul. 2020 Outside Director, Leopalace21 Corporation (current)

Yutaka Nakamura

Akira Watanabe

Audit & Supervisory Board Members (As of July 22, 2020)

Full-time Audit & Supervisory Board
MemberAudit & Supervisory Board Member (Outside)

Audit & Supervisory Board Member

Kenichiro Samejima

Takao Yuhara

Yoshitaka Murakami

Apr. 1978	Joined The Dai-Tokyo Fire & Marine
Insurance Co., Ltd. (now Aioi Nissay
Dowa Insurance Co., Ltd.)
Apr. 2012	Managing Executive Officer,
Aioi Nissay Dowa Insurance Co., Ltd.
Executive Officer, MS&AD InsuranceGroup Holdings, Inc.
Jun. 2013	Full-time Audit & Supervisory Board
Member, MS&AD Insurance Group
Holdings, Inc.
Jun. 2017	Full-time Audit & Supervisory Board
Member, Leopalace21 Corporation(current)

Apr. 1984	Joined Nikkei House Co., Ltd.
Feb. 1986	Joined Leopalace21 Corporation
Apr. 1999	Department Manager of the StoreManagement Department, Leopalace
World Shinjuku, Leasing Business Division
Oct. 1999	Department Manager of the Planning
Department, Head Office, Leasing
Business Division
Apr. 2009	Executive Officer and Department
Manager of the Operations Department,
Leasing BusinessFeb. 2010	Department Manager of the Planningand Operations Department,
Leasing Business Division
Apr. 2012	Department Manager of the Information
Systems Department
Jul. 2012	Administrative Officer
Apr. 2014	Executive Officer
Jul. 2019	Management Headquarters, in charge ofInformation Systems
Jun. 2020	Administrative Officer and Head of Audit &Supervisory Board Members Office
Jul. 2020	Full-time Audit & Supervisory Board
Member (current)

Apr. 1969	Joined NIPPON CHEMICAL INDUSTRIAL
CO.,LTD.
May 1971	Joined Sony Corporation
Jun. 2003	Corporate Senior Vice President andGroup CFO, Corporate
Executive Officer, Sony Corporation
Dec. 2007	Managing Executive Officer,
Zensho Co., Ltd. (now ZENSHOHOLDINGS CO., LTD.)
Jun. 2008	Audit & Supervisory Board Member,
Ricoh Company, Ltd.
May 2011	Managing Executive Director and CFO,
Zensho Co., Ltd.
Jun. 2013	Audit & Supervisory Board Member,mofiria Corporation
Jun. 2014	Auditor, KAMEDA SEIKA CO., LTD. (current)
Jun. 2015	Audit & Supervisory Board Member,
Leopalace21 Corporation (current)
Dec. 2015	Auditor, T.HASEGAWA CO., LTD.
Dec. 2019	Outside Director, T.HASEGAWA CO., LTD.
(current)

Apr. 1972 Joined Ministry of FinanceJul. 1993	Management and Co-ordination Assistant
Regional Commissioner, Tokyo Regional
Taxation Bureau
Jul. 1998	Large Enterprise Examination and Criminal
Investigation Deputy Commissioner,
National Tax Agency
Jun. 2000	Taxation Deputy Commissioner, National
Tax Agency
Jun. 2003	First Deputy Commissioner,
National Tax Agency
Oct. 2005	Senior Executive Officer, East Nippon
Expressway Company Limited
Jun. 2011	Full-time Audit & Supervisory Board
Member, Credit Saison Co., Ltd.
Jun. 2019	Outside Director, Leopalace21 Corporation
Jul. 2020	Audit & Supervisory Board Member,
Leopalace21 Corporation (current)

Jiro Yoshino

Data Compilation

Full-time Audit & Supervisory Board
Member (Outside)

Initiatives for Strengthening Management Foundation

Outside Director

Kazuyasu Fujita

Toward the Recovery of Business Performance and Trust

Outside Director

42

Le op alace 21 Int egr a t ed Repor t 2020

Business Overview At a Glance– FY2019

Leasing
Business

Net sales
composition ratio’20/3 FY2019

89.7%

Leasing

Development
Business

Net sales
composition ratio’20/3 FY2019

5.5%

Elderly Care
Business

Net sales
composition ratio’20/3 FY2019

3.4%

Hotels, Resort andOther Businesses

Net sales
composition ratio’20/3 FY2019

1.4%

Elde
rly C

O th
er

are

Leopalace21 Integrated Report 2020

43

FY2020 –Leasing Business

P44• Increase workforce for corporate sales in an attempt to increase the occupancy rate

Toward the Recovery of Business Performance and TrustCore
Business• Make operations more efficient by use of IT (Web/AI, IoT and others)• Make leasing management more efficient by measures such as smart lock and web-based contracts• Increase the number of managed apartments in Tokyo, Nagoya and Osaka where there arehigh tenancy demand

Core
Business

Development Business (Leasing Segment)

P47• S top taking new orders in order to concentrate on repair
works and resolve the construction defects problem

Initiatives for Strengthening Management Foundation• Attract more foreign national tenants and senior tenants• Ensure to satisfy apartment rebuilding demand by existinglandlords centered in three major metropolitan areas

Non-coreBusiness

Elderly Care Business

P48• Create synergy effect with leasing business to attract
more senior tenants and needs development for the target
audience

Other Businesses• Hotels & Resort Business: transfer the businessas soon as possible• International Business: transfer or withdraw
from the business

P49

Data Compilation

Strategic
Business

44

Le op alace 21 Int egr a t ed Repor t 2020

Business Overview Leasing Business
Sales and Operating Income
600.0 (Billions of yen)(Billions of yen) 60.0

400.0

40.0

200.0

20.0

0

0
-50.0

’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3* ’18/3 ’19/3 ’20/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

Sales (left axis)

1500

600

1000

400

500

200

0

0

-500

-200

マイナス分

Operating income (loss) (right axis)

プ*Figures for FY2016 (ended March 31, 2017) and after are adjusted to new segments.

Sales and Operating Income
600.0 (Billions of yen)(Billions of yen) 60.0

400.0

40.0

200.0

20.0

0

0
-50.0

’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3* ’18/3 ’19/3 ’20/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

Sales (left axis)

1500

600

1000

400

500

200

0

0

-500

-200

マイナス分

Operating income (loss) (right axis)

プ*Figures for FY2016 (ended March 31, 2017) and after are adjusted to new segments.

Sales and Operating Income
600.0 (Billions of yen)
AverageOccupancy Rates(Billions of yen) 60.0

92 (%)
400.0

40.0

89
200.0

20.0

86 0

0

83

-50.0

’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3* ’18/3 ’19/3 ’20/3
80
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3 ’19/3 ’20/3
FY2013 income
FY2014 FY2015
FY2016 axis)
FY2017 FY2018 FY2019
Sales (leftFY2010axis) FY2011 FY2012
Operating(loss) (right*Figures for FY2016 (ended March 31, 2017) and after are adjusted to new segments.

Average Occupancy Rates
92 (%)
89
86
83

Business results
1500

600

Duringthe fiscal year ended March 2020, our Leasing Business net
92
1000
400
sales were 388,939 million yen (–8.8% YoY), and operating loss was
89
500
20,828million yen (compared to operating profit of 14,987 million200
86
yen
0 in the previous fiscal year). These decreases were due to the 0fiscal-year-end
occupancy rate of 83.07% (–1.26 points YoY) and-200
the
83
-500
average annual occupancy rate of 80.78% (–7.56 points YoY). The80
マイナス分
disappointing results werecaused by (1) delays in the completionof repair works and resumption of tenant recruitment due to prioritizing inspections of all our buildings for parting walls and otherconstruction defects as well as delays in setting up organizational
preparation and (2) reduced demand by the companies’ restricted
newhires and relocations as a result of COVID-19 toward the end of92
the fiscal year—generally our busiest months. The number of rooms
89
under management was 575,798 (+1,000 rooms YoY) at the end of
86 fiscal year ended March 2020.
the
83

80

80

’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3 ’19/3 ’20/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

Average Occupancy Rates
92 (%)
RentalHousing Vacancy Numbers and Rates (Japan)
5,000
89 (Thousands of units)(%) 25

4,000
86
3,000

20
15

83
2,000

10

80
1,000
0

5

’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3 ’19/3 ’20/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
FY1983 FY1988 FY1993 FY1998 FY2003 FY2008 FY2013 FY2018

Vacancy number—rental and for-sale (left axis)

0

The number of new rental housing construction starts decreased
for the third year in a row. In addition, the number of construction
starts for properties no larger than 30 square meters—our target
92
market—decreased
for the second year in a row, while the numberof89
25vacant houses for rent continued to increase, which suggests thata20
recovery in nationwide demand is unlikely. In this environment, we
86
believea differentiation strategy is key: specifically, a concentrated
1583
supplyofproperties in areas where we anticipate high occupancy
10
rates
80
5 in the future and the provision of value-added services leveraging0 our unique strengths.

Vacancy rate (right axis)*Source: “Housing and Land Survey” (Ministry of Internal Affairs and Communications)

Rental Housing Vacancy Numbers and Rates (Japan)
5,000 (Thousands of units)(%) 25

4,000

20

3,000

15

Business conditions and issues

25
20

プ

Leopalace21 Integrated Report 202045

Mid- to long-term strategy
Sales
500.0 (Billions of yen)
400.0

434.8

413.9

460.1

300.0
200.0
100.0
0

’21/3

’22/3

’23/3

(for reference)(for reference)

Operating Income
40.0 (Billions of yen)

34.3

30.0

23.3

20.0

3.6
’21/3

’22/3

’23/3

(for reference)(for reference)

Key Products and Services

Rental agreements :These are general rental agreements that are initially agreed to for at least one year and are then renewed
every two years after that. This service is for people searching for rental properties to use for at least one
year. No brokerage fees are required for any of these properties, which helps decrease initial costs at thetime of move-in. The tenants pay the monthly rent.

Initiatives for Strengthening Management Foundation

10.0
0

Toward the Recovery of Business Performance and Trust

Under our mid- to long-term strategy—based on the theme of rebuilding our business foundation—we are shifting from our past businessdiversification strategy to a profitability focus strategy for the Leasing
Business. Regarding the medium-term market environment for the Leasing Business, we expect solid rental demand from corporate customers
as well as foreign national customers. The companies are decreasing
the use of the company-owned housing system and instead mainly
utilize rental housing for the employees under corporate contract. The
Japanese government plans to accept up to around 350,000 foreign
workers during the five-year period starting in 2019 based on the enforcement of revisions to the Immigration Control Act to help deal withJapan’s domestic labor shortage. As a short-term measure, we stop
the flagging occupancy rates by increasing our workforce for corporate
sales and utilizing IT to improve sales efficiency. In the medium to longterm, we aim to meet the housing demand in terms of quality and quantity required by society and regain the profit level we had before theproblem of construction defects was discovered. To realize the aims, weare going to employ the measures such as attracting additional foreign
national tenants and senior tenants, increasing the efficiency of ourlease management operation through the use of smart locks, electronic
contracts, etc., and increasing the number of rooms under managementin Tokyo, Nagoya, Osaka, and other areas with high rental needs.

Monthly agreements :my DIY :With this service, even rental properties can be customized to one’s liking. The number of contracts for my
DIY service, which allows tenants to change the wallpaper on one wall for free, has reached 48,716 as ofthe end of June 2020. The ratio of men versus women using the service is 50-50, which means a higher
percentage of women tenants opt for the service as the overall tenants ratio is 70-30.

Promoting smart apartments :Leo Remocon enables tenants to use their smartphones to operate home appliances remotely and isprovided as standard equipment with all newly constructed apartments completed since October 2016.
Leo Lock, a smart lock that enables tenants to lock and unlock the front door using a smartphone, hasbeen installed as standard on properties completed since October 2017.

Data Compilation

These are fixed-term rental agreements that are used in the short-term period as short as 30 days. Because
all of the rooms are fully furnished with furniture and home appliances, tenants can move in only with theirpersonal belongings. There is no need of monthly utility payment, which makes the rooms fit for people whoneed accommodations for their long-term business trips or attending training sessions. The tenants pay
usage fees in lump sum upfront according to the usage period.

46

Le op alace 21 Int egr a t ed Repor t 2020

Business Overview Leasing BusinessPriority measures

Utilizing IT to improve sales efficiency
In our drastic business strategy reconstruction, we are shifting to a profitability focus strategy centered on our Leasing Business, and in particularduring the fiscal years ending March 2021 and 2022 we have identified the improvement of the sales efficiency of the Leasing Business by utilizing IT
as a priority measure. Below, we are introducing three initiatives to realize this priority measure.

Web-based rental agreements

Leo-sign—digitized contract

We started this initiative in June 2019 and had 392 contracts during
the fiscal year ended March 2020. The number of contracts reached acumulative total of 833 by the end of August 2020. Normally, customers have to visit our offices for us to explain important mattersregarding the agreement, but this is handled via a video call. In thecase of properties with Leo Lock—7,760 rooms nationwide, there isno need for customers to visit our offices for key handover.
Because we have implemented a voluntary retirement system, thenumber of employees has decreased. We are reducing the numberof directly managed leasing sales offices to improve the productivityof the Leasing Business, and we can achieve further labor savings bypromoting web-based rental agreements.
The web-based rental agreements are available to all Leopalace21-managed properties, and there are needs for both rental
agreements and monthly agreements. In addition, we expect a considerable increase in efficiency as a result of using Leo-sign service,
digitized contract for corporate clients once restrictions are removed
by legislation.
We are currently aiming for 20,000 agreements per year, and wehave specified this figure as a CSR-activity KPI for the fiscal year ending
March 2021. We are focusing on this as a way to respond to the newlifestyle of our customers in the world with Coronavirus.
P55

The computerized contract service was introduced for our corporateclients in January 2015. As of the end of June 2020, the service wasused in 8,407 cases, or 26.9% of our corporate contracts.
Because rental agreements can be concluded without having tomeet face-to-face, the time necessary to mail documents can be eliminated, which achieves speedier handling from when customers submit
requests until they move in. As the service allows the client company
to set up an in-house approver, agreements can be completed withnecessary approval procedure in place all on the web. Because
agreement documents can be approved even in telecommuting work
conditions at both ends, Leo-sign satisfies online and paperless needsin the world with Coronavirus. The paperless approach reduces paperuse, thus contributes to decrease environmental impact.
Leo-sign service is only used for rental agreements but not formonthly agreements because of legal reasons. Handling agreement
documents online greatly reduces the operational burden faced byour employees and the corporate clients, so we can expect increasinglevel of acceptance by the companies.

We are introducing advanced IT for each step of the agreement
process and promoting smarter rental agreements.

Introducing
properties

Rentalagreements

Agreement
document
creation andstorageWeb-based
rental agreements
AI-based property
searchesServices for corporate clients

Leo-sign

Services for individuals

AI-based property searches—automatic property suggestions
The service started operating in September 2018. The system acquires
room-search契約プロセスのそれぞれの場面において先進的なITを導入。
requests from customers and then automatically sends
賃貸契約のスマート化を促進する。
them back information on properties that match the conditions thecustomers indicate. The service utilizes nomad cloud, which is provid契約書類
ed by ITANDI, Inc.
物件紹介
賃貸契約
作成
保管
Approximately 20% of room-search requests from corporate・clients
are dealt with
AI-based suggestions,and yieldedjust under 70%
AI物件検索賃貸WEB契約（個人）
contract closing, which is as good as the outcome by human beings.
Leo-sign（法人）
Our AI-aided property-search system is linked to NAVITIME andLINE. We started introducing the service to leasing offices in October
2019, aiming to reduce both working hours and costs.
Distribution of an access URL for the customer screen

CorporateclientRegistration of room conditions

Alert notification

Automatic
Property suggestions
suggestions
Manual suggestions

Automatic or manual property
suggestions can be selected.

Questions on properties

Our company’s property
search engine

Alert notification &task registration*2

Automatic
Responses AI-based responses*1
to questions
Manual responses*1 The automatic AI-based response rate is over 50%.
*2 In cases where an AI-based response is not possible, task registration is executed.

Leopalace21

Leopalace21 Integrated Report 2020

47

Business Overview Development Business (Leasing Segment)
Sales and Operating Income
120.0 (Billions of yen)(Billions of yen) 12.0

80.0

8.0

40.0

4.0

0

0

Sales (left axis)

Operating income (loss) (right axis)*Figures for FY2016 (ended March 31, 2017) and after are adjusted to new segments.

Sales and Operating Income
120.0 (Billions of yen)(Billions of yen) 12.0

80.0

8.0

40.0

4.0

0

0
-8.0

’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3* ’18/3 ’19/3 ’20/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

Sales (left axis)

Operating income (loss) (right axis)

120.0 (Billions of yen)

Number of Completed Apartment Buildings(Billions of yen) 12.0

1,500
80.0 (Buildings)

8.0

1,200
40.0
900
0
600

4.0
0
-8.0

300

’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3* ’18/3 ’19/3 ’20/3
0
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3 ’19/3 ’20/3
FY2013 income
FY2014 FY2015
FY2016axis)
FY2017 FY2018 FY2019
Sales (leftFY2010axis) FY2011 FY2012
Operating(loss) (rightBusiness results

80

80
40

During the fiscal year ended March 2020, our Development Business00
net sales were 23,806 million yen (–59.6% YoY), and operating loss
-80 5,181 million yen (an additional loss of 4,185 million yen YoY).
-40
was
Our total orders received amounted to 7,814 million yen (–87.9%
マイナス分YoY), and the backlog of orders at the end of the fiscal year amounted to 27,696 billion yen (–55.6% YoY).
These decreases were due to stopping acceptance of new orders
because of construction defects including parting walls in addition
240
120
to
more fierce competition in major metropolitan areas and changes
inthe apartment-loan financing environment.
160
80
80
0

40

Business conditions and issues

-80

0
-40

The number of new rental housing construction starts decreased forthe third year in a row. Inマイナス分
addition, the number of construction starts
for properties no larger than 30 square meters—our target market—
decreased for the second year in a row, while the number of vacanthousesfor rent continued to increase, which suggests that a recov240
120
ery
in
nationwide
demandisunlikely.
At
the
same
time,
there
is
an
160
80
ongoing population influx into the three major metropolitan areas, and80
40
the number of international students is on an increasing trend, which
0 there are areas where rental demand remains fairly solid. In this0
meanenvironment,
we believe a differentiation strategy is key: specifically,-80-40
focusing on areas where we anticipate high occupancy rates in the
future and the provision マイナス分
of value-added services built on our strengths.

*Figures for FY2016 (ended March 31, 2017) and after are adjusted to new segments.

Mid- to long-term strategy
Number of Completed Apartment Buildings
1,500 (Buildings)
1,200
900
600

0

’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3 ’19/3 ’20/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

Number of Completed Apartment Buildings
1,500 (Buildings)

Number of New Rental Housing Starts

1,200
500 (Thousands of units)
900
400
600
300
300
200
100 0
0

’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3 ’19/3 ’20/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3 ’19/3 ’20/3

30m2 or lessmore than 30m2

*Source: Statistics on New Housing Starts, Ministry of Land, Infrastructure, Transport and Tourism

Number of New Rental Housing Starts
500 (Thousands of units)
400
300

Data Compilation

300

Under our mid- to long-term strategy—based on the theme of rebuilding our business foundation—we are shifting from our past businessdiversification strategy to a profitability focus strategy for the Leasing
Business. Based on this policy, we implemented reorganization bytransferring the previous construction subcontracting sales departments in the Development Business to the Leasing Business, thereby
renewing the Leasing Business by integrating the Development
Business into it. In addition, we established Wealth Management
Departments under the umbrella of Leasing Business Division tostrengthen our connection with property owners and regain their trust.
There was a shortage of human resources to handle construction
defects in the Development Business, and the financial institutions
stopped new loans for apartment buildings, we will take care of property owners and focus on handling construction defects through theWealth Management Departments in the short term. In the medium tolong term, depending on the progress of repairing construction defects
and loan resumption, we will ensure to meet rebuilding demand by
existing property owners centered in the three major metropolitan
areas—where demand by companies and foreign workers is expected
to remain solid—thereby increasing our scale and contributing tostronger Leasing Business profitability.

プ

プ
Initiatives for Strengthening Management Foundation*Figures for FY2016 (ended March 31, 2017) and after are adjusted to new segments.

Sales and Operating Income

160

120

Toward the Recovery of Business Performance and Trust-8.0’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3* ’18/3 ’19/3 ’20/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

240

プ

48

Le op alace 21 Int egr a t ed Repor t 2020

Business Overview Elderly Care Business
Sales and Operating Income (Loss)
20.0 (Billions of yen)(Billions of yen) 2.0

10.0

1.0

0

0
-1.0
-2.0

’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3* ’18/3 ’19/3 ’20/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

Sales (left axis)0

During the fiscal year ended March 2020, the net sales of our Elderly-10

Care Business, which runs nursing care facilities, were 14,620 million-20

yen (+5.0% YoY). The overall profitability improved as a result of theof 559 million yen. During the fiscal year ended March of 2020, no newSales and Operating Income (Loss)facilities were opened, but as a result of initiatives aimed at improving(Billions of yen) 2.0

10.0

1.0

0

0
-1.0
-2.0

’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3* ’18/3 ’19/3 ’20/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY201920
customersatisfaction, we were able to increase the utilization rate of

all10our services, starting with our core day service.
0
-10
-20

Business conditions and issues

Conditions in the Elderly Care Business are mixed. On the one hand,

Operating income (loss) (right axis)

the population of elderly people requiring care is rising, so the market*Figures for FY2016 (ended March 31, 2017) and after are adjusted to new segments.

Sales and Operating Income (Loss)
20.0 (Billions of yen)
Numberof Nursing Care Facilities

Business results

YoY improvement in the operating profit of 286 million yen, with a loss

*Figures for FY2016 (ended March 31, 2017) and after are adjusted to new segments.

Sales (left axis)

10occupancy rate of existing facilities starting to increase, leading to a

Operating income (loss) (right axis)

20.0 (Billions of yen)

20

for related services is expected to continue growing. On the other(Billions of yen) 2.0

20 the number of facilities for seniors is also increasing, giving rise
hand,

100
10.0 (Number of facilities)

1.0

80
0
60

to10intense competition within the industry, in addition to difficulties in0attracting
care personnel. Under these circumstances, we are aiming
0

-1.0

40

-2.0

20
0

’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3* ’18/3 ’19/3 ’20/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3 ’19/3 ’20/3
FY2013 income
FY2014 FY2015
FY2016axis)
FY2017 FY2018 FY2019
Sales (leftFY2010axis) FY2011 FY2012
Operating(loss) (rightto control costs and achieve profitability at an early stage by continu-10

ing to increase utilization rates and enhance operational efficiency.
-20*Figures for FY2016 (ended March 31, 2017) and after are adjusted to new segments.

Key Products and Services

Number of Nursing Care Facilities
100 (Number of facilities)

Azumi En :8060

As of March 31, 2020, we managed 87 Azumi En facilities in40

the Kanto and Chubu regions. Services at each facility include

20

fee-based homes for seniors that offer support for their daily
lives in a homelike atmosphere, group homes with daily-living

0

support through meticulous nursing care, and day and short-’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3 ’19/3 ’20/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

stay services where elderly people living in their own homes
can access services for short-term stays.

Number of Nursing Care Facilities
100 (Number of facilities)

Sales and Operating Income (Loss) Plans

80 (Billions of yen)
20.0(Billions of yen) 2.0

60
10.0
40

1.0

20
0
0

0

’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3 ’19/3 ’20/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
’21/3
’22/3
’23/3

Sales (left axis)

-1.0

20
10
0
-10

Operating income (loss) (right axis)

Sales and Operating Income (Loss) Plans
20.0 (Billions of yen)
10.0(Billions of yen) 2.0

1.0

20

Leopalace21 Integrated Report 2020

49

Business Overview Other Businesses
Sales and Operating Income (Loss)
20.0 (Billions of yen)(Billions of yen) 6.0

10.0

3.0

0

0

’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3* ’18/3 ’19/3 ’20/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

Sales (left axis)

30

Business results and our future policy

Duringthe fiscal year ended March 2020, the net sales of Hotels,0

Resort, and Other Businesses were 6,186 million yen (+4.5% YoY),-30 operating loss improved by 346 million yen YoY, for a total lossandof 1 billion yen. In an attempt to increase efficiency for the use of
assets and capital, of our four hotels in Sapporo, Sendai, Nagoya,

Operating income (loss) (right axis)*Figures for FY2016 (ended March 31, 2017) and after are adjusted to new segments.

Fukuoka (Hakata), we sold the ones in Sapporo, Sendai, and Fukuoka

Sales and Operating Income (Loss)
20.0 (Billions of yen)(Billions of yen) 6.0

3.0

10.0

in October 2019.
60In line with our policy of promoting the transfer of or withdrawal

from non-core businesses as part of drastic business strategy re30

structuring, we sold our hotel in Nagoya in September 2020 to further
0

0
-3.0

Resort Business in Guam as soon as possible, observing the global-30

spread of COVID-19 and its effects to determine the optimal time.

’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3* ’18/3 ’19/3 ’20/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

Sales (left axis)

0
reducethe Hotels & Resort Business. We also plan to transfer the

Operating income (loss) (right axis)

Sales and Operating Income (Loss)
20.0 (Billions of yen)(Billions of yen) 6.0

Guam/Domestic Hotels Occupancy Rates (Annual Average)
100 (%)
10.0
80

3.0

600

0

40
-3.0

20

’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3* ’18/3 ’19/3 ’20/3
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
’16/3
’17/3
’18/3
’19/3
’20/3
Sales (leftaxis)
Operating income(loss) (rightFY2018
axis)
FY2015FY2016FY2017FY201960
30

Leopalace Resort Guam :0 Leopalace Resort Guam is fully equipped with sports facil-30

ities that meet international standards. Its swimming poolhas been certified as a JOC-authorized swimming competition center and its golf courses are certified by the Japan
Golf Association to host training camps. Furthermore, the*Figures for FY2016 (ended March 31, 2017) and after are adjusted to new segments.

Domestic hotels

Key Products and Services

Guam Resort

resort’s Medallion Rooms have been awarded the highest

Initiatives for Strengthening Management Foundation*Figures for FY2016 (ended March 31, 2017) and after are adjusted to new segments.

0

Toward the Recovery of Business Performance and Trust

-3.0

60

hotel grade of L by the Japan Travel Bureau.

Guam/Domestic Hotels Occupancy Rates (Annual Average)
100 (%)
80
60
40

Data Compilation

20
0

’16/3
FY2015’17/3
FY2016

Domestic hotels’18/3
FY2017’19/3
FY2018’20/3
FY2019

Guam Resort

Guam/Domestic Hotels Occupancy Rates (Annual Average)
100 (%)

Sales and Operating Income (Loss) Plans80
3.0 (Billions of yen)

30

60
1.5
40

15

0
20

0

-1.5
0
-3.0

’16/3
FY2015’17/3
FY2016’21/3’18/3
FY2017’22/3’19/3
FY2018Domestic hotels
Guam Resort
Sales
Operating income (loss)’20/3
FY2019
’23/3

-15
-30

Sales and Operating Income (Loss) Plans
3.0 (Billions of yen)
1.5

30
15

50

Le op alace 21 Int egr a t ed Repor t 2020

Leopalace21’s ESG Management
Based on our corporate philosophy of “creating new value,” Leopalace21 promotes ESG activities to meet the expectations of arange of stakeholders and develop a sustainable society in line with the needs of the times.

Achieving a Sustainable Society
The Sustainable Development Goals (SDGs) are global targets forthe years 2016 to 2030 that were adopted at the United Nations
Summit in September 2015. They consist of 17 universal goals and
169 targets, which are applied to all countries including developed
countries, addressing challenges such as disparities, sustainableconsumption and production, and climate change. The Company
strives to meet the needs and demands of society and contribute tosolving the issues through initiatives which are in line with our BasicCSR Action Policy.

Identifying new material issues given the contribution to resolving SDG issues, etc.
Leopalace21’s
priority issues

To identify social challenges that we will actively strive to resolve inthe future, we plotted issues on a materiality map that has two axes:
level of interest to stakeholders and importance to Leopalace21. In
addition, of the many plotted issues, we defined the ones we need
into three categories: E (environment), S (social), and G (governance).
We have also specified KPIs for each material issue and are promoting specific initiatives to resolve these issues.
By working to resolve the identified issues, we can not only create
value for our various stakeholders but also help achieve the SDGs
adopted at the UN Sustainable Development Summit.

Level of interest to stakeholders

to prioritize in particular as highly material, and we classified them

4
3
2
1
1

2

3

Importance to Leopalace21

4

51

Leopalace21 Integrated Report 2020

In addition to organizing the identified material issues within an ESG (environment/social/governance) framework, we have incorporated the corresponding issues into our five-theme Basic CSR Action Policy. We havealso specified KPIs for each material issue and are promoting specific initiatives to resolve these issues.
Toward the Recovery of Business Performance and Trust

Leopalace21’s Basic CSR Action Policy
1. Providing high-quality services and supporting affluent living
2. Contributing to local communities
3. Creating pleasant work environments and developing diverse human resources
4. Creating an environmentally friendly society
5. Engaging in sound, constructive communication with stakeholders

Field

Materiality

Basic CSR
PolicyRegaining the Trust of Property
Owners5

Number of regular individual consultation meetings
held for property owners: 80

Materiality

Basic CSR
PolicyKPI

4
3
2

Related SDGs

1

Reducing vacancies with suspended tenant recruitLeopalace21’s
1ment: reduction to approximately 30,000 rooms by thepriority issues
end of March 2021

Handling New Lifestyles in Responseto the World with Coronavirus

1

Number of web-based rental agreements: 20,000

Level of interest to stakeholders

Handling Construction Defects

1

4

2

Initiatives for Strengthening Management Foundation

3、5

Number of calls/posts received via our compliancehotline: 100

Level of interest to stakeholders

Number of submissions to our Suggestion Box forManagement: 200

Governance

Leopalpriority

Related SDGs

5

Strengthening the Compliance
System—Preventing the Recurrence of the
Problem of Construction Defects

Field

KPI

3

Importance to Leopalace

Ratio of paid leave usage: 85%

32Career development support: implementing careerdevelopment training for 265 young employees

SocialWork-Style Reform and Human
Resource Development

Data Compilation

Productivity improvement: net sales per person of
78.7 million yen

3

1 training program: imOrganizational hierarchy-based
plementing a program targeting grade II staff, including
grade III in some cases
1

2

3

4

Disabled employee ratio: meet the target of 2.30%

Importance to Leopalace21

Implementing training for foreign nursing care staff:
9 times
Field

Materiality

Environmental Accounting
Environment

Basic CSR
Policy4

KPI

Reducing Scope 1 and 2 CO2 emissions: a 26%
reduction by FY 2030 compared to FY 2016

Related SDGs

52

Le op alace 21 Int egr a t ed Repor t 2020

Leopalace21’s ESG Management

Strengthening the Compliance System—Preventing the Recurrence of
the Problem of Construction Defects• Number of submissions to our Suggestion Box for Management —a suggestion box service

KPIs

through which employees can directly propose ideas to the management team: 200• Number of calls/posts received via our compliance hotline: 100

Leopalace21’s initiatives

Suggestion Box for Management
In July 2019, we started operating a Suggestion Box forManagement as a system for employees to make direct suggestions

Number of suggestion box submissions (accumulated total)
300 (submissions)to the management. Submissions to this suggestion box are divided
into seven categories that include improving our corporate value, im-200

proving our corporate culture, and improving our work environment.
After these submissions are reported to the management, they are100

discussed by directors, outside directors, and executive officers andthen reflected in the business administration.

0

Jul

Aug

Sep

Oct

Nov

Dec

* The suggestion box was established in July 2019.

Jan

Feb

Mar
(FY ended March ’20)

Compliance Hotline
We have set up multiple channels of compliance hotline both in-house
300 (submissions)run by Legal Affairs Group and outside the Company, a contact in a

Number of calls/posts received via our hotline (total)
150 (calls)

law firm, to handle consultation and reporting in cases where legal
200

violations or similar acts by officers and employees are discovered.

100

We run the compliance hotline in accordance with both whis100

tleblower-protection and our internal reporting regulations, and—in50

addition to protecting whistleblowers—we take suitable action
0

based on the investigation results in order to improve problems.
understanding
Jul In addition,
Aug Sep to deepen
Oct Noveveryone’s
Dec JanFeb Mar of compliance, all(FY ended*ofTheoursuggestionbox
wasestablished
in
July
2019.
officers and employees always carry thecard March
which’20)
indicates
our compliance hotlines.

0

Apr May Jun

Jul

Aug Sep Oct Nov Dec Jan Feb Mar(FY ended March ’20)

Leopalace21 Integrated Report 2020

KPI

Toward the Recovery of Business Performance and Trust

Regaining the Trust of Property Owners

53• Number of regular individual consultation meetings held for property owners: 80
Initiatives for Strengthening Management Foundation

Leopalace21’s initiatives

Regular individual consultation meetings for property owners
Leopalace21 holds regular individual consultation meetings throughout the country as a way to support better life plan designs for thevarious assets of property owners. Because property owners canconsult with tax accountants and other experts at these meetings
regarding their questions concerning tax affairs, inheritance, assets,etc., they can take advantage of in-depth consultation.

Number of meetings held
in FY 2019

145 total

Number of participants
in FY 2019578 total

We respond to any requests to explain the problem of construction defects, our financial status, and other issues, thereby striving
to regain the trust of our property owners. In addition to individual
ing sessions throughout the country as a way for Leopalace property
owners all over Japan to interact with our employees.
Due to the effects of the COVID-19, we are not currently holding
these briefing sessions, whereas our President and other officers

West Japan area

East Japan area

50 meetings,
203 participants

75 meetings,
297 participants

explained the problem of construction defects and measures we aretaking to prevent reoccurrence, our financial status and the businessdevelopment to property owners at the briefing sessions held in
fiscal year 2019.
We have received a lot of feedbacks from property owners,
including their questions and anxieties as well as matters thatinterest them, and opinions on the problem of construction defects
and preventive measures in particular accounted for approximately
61% of everything we heard. We will continue to listen to feedback
from our property owners as we strive to regain their trust and build
a good relationship with them.

Central Japan area

20 meetings,
78 participants

Data Compilation

consultation meetings, we also regularly hold property owner brief-

54

Le op alace 21 Int egr a t ed Repor t 2020

Leopalace21’s ESG Management

Handling Construction Defects

KPI• Reducing vacancies with suspended tenant recruitment: reduction to approximately
30,000 rooms by the end of March 2021

Leopalace21’s initiatives

Resuming tenant recruitment in apartment rooms
The number of vacancies increased as a result of suspending tenant
recruitment for properties that have construction defects. We areworking hard to reduce the number of vacancies with suspended
tenant recruitment to approximately 30,000 by the end of March
2021 from around 50,000 as of the end of March 2020.
Regarding properties with confirmed defects, we are gradually
resuming tenant recruitment when the repair work is complete. At
the same time, regarding rooms for which a certain level of fireproof
performance has been confirmed through fire-resistance verification,
we are carefully explaining to tenants that there is no serious problem with living in the rooms as we resume recruiting new tenants toimprove the occupancy rate.

Example of an obvious defectConstruction defects related to parting
walls in attics and other areas
Failure to satisfy standards related tofire-resistance performance andsound-insulation performanceNon-compliance of exterior wallswith specifications
Failure to comply with the requirements forcertification by the Minister of Land,
Infrastructure, Transport and Tourism inrelation to fireproof structures

Non-compliance of parting wallswith specifications
Non-compliance of ceilings withspecifications
Failure to satisfy the fire-resistance performancestandards of the Building Standards Act

a. Failure to satisfy standards related tosound-insulation performanceb. Failure to comply with the requirements forcertification by the Minister of Land,
Infrastructure, Transport and Tourism inrelation to fireproof structures

Example of a gap or other minor defect

Before repairs

After repairs

Before repairs

After repairs

Only some of the required parting
wall for the second-floor attic wasconstructed.

Gypsum boards was installed to serveas parting walls throughout the attic,
and fire-resistant putty was used toprevent the gap in roofing material andbeam. The corner-bracing joint wasalso filled with fire-resistant putty.
Therefore, there remains no gap.

This is the space above the ceiling ofa first-floor unit. The parting wall does
not extend to the flooring material of
the second floor, which has resulted
in a gap.

We filled the gap between the top of
the parting wall and the flooring material of the second floor with fire-resistant putty. This eliminated the gap.

Leopalace21 Integrated Report 2020

KPI

Toward the Recovery of Business Performance and Trust

Handling New Lifestyles in Response to
the World with Coronavirus

55• Number of web-based rental agreements: 20,000

Web-based application system for rental properties
Rental agreements for which it is not necessary to visit our offices

When contracts are sent, they comewith a special Leo Lock card

Tenants are notified of their PIN codesby email on the day they move in

Tenants use the PIN code to
unlock the door the first time
when they move in

Tenants receive a key-delivery
confirmation letter enclosed with mailed
web-based agreement documents

Number of web-based rental agreements (accumulated total)
1,000 (agreements)
750
500
250
0

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
FY ended March ’20

FY ended March ’21

Data Compilation

In June 2019, we introduced the online tenancy application system,
a web-based application system provided by ITANDI, Inc., therebybuilding a system that enables customers to conclude agreements
without visiting our offices. In addition, in February 2020, we started
up operations enabling non-face-to-face key delivery—for properties
with Leo Lock, therefore making it possible for our customers toconclude rental agreements and even move in without ever visiting
our offices.
Furthermore, in September 2020, to help deal with life in theworld with coronavirus, we started accepting web-based rental
agreements at directly managed sales offices throughout thecountry. Our web-based rental agreement service enables customers
to perform the entire agreement procedure without having to meetface-to-face by making it possible to fill out the tenancy application
form and submit identity verification documents online and hear
explanations of important matters via video call.
Until now, we have accepted all web-based agreements throughour Leopalace21 Niigata Call Center, and by expanding this service todirectly managed sales offices throughout the country, we can provide
information on the surrounding environment and other local details,
thereby offering almost similar service to face-to-face at our offices.
In terms of our web-based agreement results, we concluded 833
such agreements from the outset of the service in June 2019 toAugust 2020. Through the recent service expansion, we are aiming
for results of 20,000 agreements per year, including the handling ofoverseas target audience.

Initiatives for Strengthening Management Foundation

Leopalace21’s initiatives

56

Le op alace 21 Int egr a t ed Repor t 2020

Leopalace21’s ESG Management

Work-Style Reform andHuman Resource Development
1,000 (agreements)
750
500
250
0

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
FY ended March ’20

KPIs

FY ended March ’21• Ratio of paid leave usage: 85%• Productivity improvement: net sales per person of 78.7 million yen

1,000 (agreements)

Leopalace21’s initiatives

750
500

Promoting paid leave usage

250
0

We consider work-life balance promotion an important issue,
and part of this includes creating a system and work environJul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
ment that make it easy for our employees to use their paid leave
FY ended March ’20
FY ended March ’21
entitlement. More specifically, we are promoting the usage of thesummer and winter planned five-day annual leave as well as thethree-day refreshment leave, which can be used anytime throughout the year, and we have also introduced a half-day paid leaveand hourly paid leave system. These efforts resulted in a paid
leave usage ratio of 84.3% in the fiscal year ended March 2020,
a considerable improvement over the ratio of 31.7% in the fiscal
year ended March 2014.

Changes in the ratio of paid leave usage
100 (%)

1

75

1

50
25
0
FY ended
March ’14

FY ended
March ’15

FY ended
March ’16

FY ended
March ’17

FY ended
March ’18

FY ended
March ’19

FY ended
March ’20

Improving productivity
100 (%)
7550
25
0

Due to the combined effects of the problem of construction defects
and the COVID-19 impact, our business performance is in a major
slump. During the current fiscal year ended March 2021, as thenumber of employees decreases due to both the implementation ofa voluntary retirement system and attrition, it is essential to rebuild
our business performance, so improving the productivity per person
is an extremely important issue.
In addition to promoting the utilization of a flexible work system—including telecommuting—to support for the balance of workandchildcare,etc., weare also
implementing
various
FY ended
FY ended nursing
FY endedcare,
FY ended
FY ended
FY ended
FY ended
March ’14
March ’15
’16
March ’17
March ’18
March ’19
March ’20
types
of training
toMarchimprovethe abilityof eachof ouremployees andtry to increase our net sales per person.

Changes in the net sales per person
180 (Millions of yen)
155.6

120

145.4 140.3

115.1

150.4
131.9 127.3

120.7 118.1 120.0 116.1 124.1

95.2
72.3

87.5

60
73.9

0

68.0

74.3

72.4

69.7

41.7

38.8

41.9

65.8

65.2

67.6

69.0

41.4

41.6

41.5

66.5

71.1
41.6

35.4

34.0

159.1

133.5

78.7

86.7

91.3

61.6
Integration withour (new)36.9 Leasing Business

FY ended FY ended FY ended FY ended FY ended FY ended FY ended FY ended FY ended FY ended FY ended FY ended FY ended FY ended FY ended
March March March March March March March March March March March March March March March
’20
’21
’22
’23
’19
’18
’17
’16
’15
’14
’13
’12
’11
’10
’09
(Planned) (Reference) (Reference)

Entire company

Leasing Business

Development BusinessLeopalace21 Integrated Report 2020

Leopalace21’s initiatives

Career development support

Organizational hierarchy-based training program
Our goal is to be an organization at which each employee can pursue
self-actualization by independently striving to develop their abilities as anautonomous and self-propelled member of our team, and we run a training
system in line with this goal. Our organizational hierarchy-based training
program—which helps employees develop the abilities required at eachlevel of our hierarchy—includes not only group-based training but alsopre- and post-training assignments as well as E-Learning, all of which areintended to help employees continuously and gradually master required
abilities. To start, we are implementing E-Learning-based training fromfiscal year 2020 to fiscal year 2022 for employees on grade II and grade III
in some cases, which are equivalent to the junior grades in our job grading
system. In the future, we plan to expand our training program to encompass employees on other grades as well.

Data Compilation

In order to support the autonomous career development and careerformation of our employees, we have implemented a career planningsystem under which each employee considers their career plan andthen meets with their superior concerning its details. We are also
running a job posting system that includes the disclosure of in-house
recruitment opportunities and gives each employee the chance toapply to departments that match the employee’s personal career goals.
In the past, we have implemented the training of career development support specific to young, middle-aged, and senior employees,
but—given the situation surrounding the spread of COVID-19 thisfiscal year—we are planning to implement training limited to young
employees in the Tokyo metropolitan area.

Initiatives for Strengthening Management Foundation*1. The grade equivalent to the junior grade in our job grading system*2. A total of 11 times from December 2020 to December 2022 with one time during the fiscal year ending March 2021

Toward the Recovery of Business Performance and Trust

KPIs

•C
 areer development support: implementing career development training for 265 young employees• Organizational hierarchy-based training program: implementing a program targeting grade
II*1 staff, including grade III in some cases *2

57

58

Le op alace 21 Int egr a t ed Repor t 2020

Leopalace21’s ESG Management

Work-Style Reform andHuman Resource Development

KPIs• Disabled employee ratio: meet the target of 2.30%• Implementing training for foreign nursing care staff: 9 times

Leopalace21’s initiatives

Ensuring the job satisfaction of disabled persons
Leopalace21 is aiming to expand its hiring of disabled persons. To
do so, we established Leopalace Smile Co., Ltd. in August 2009
and received the authorization as a special subsidiary company inNovember 2009. This company currently handles the Leopalace
Group’s mail sorting, shipping, and related outsourced work. Ouroperations are aimed at achieving the normalization of society.

Training foreign nursing care staff
To deal with our shortage of nursing care staff, we are striving topromote the hiring of foreign nationals through a comprehensive
range of support systems, including the introduction of a tablet-based nursing care record system that supports English, rent
subsidies on our apartments for staff that have come to Japan fromabroad, and covering the costs of such staff returning to their homecountries once per year.
As of the end of August 2020, we had 34 foreign nursing care
employees—mainly Filipinos—and we plan to hire more.

Foreign staff in training

Leopalace21 Integrated Report 2020

KPI

Toward the Recovery of Business Performance and Trust

Environmental Accounting• Reducing Scope 1 and 2 CO2 emissions: a 26% reduction by FY 2030 compared to FY 2016

Environmental accounting
The Japanese government’s new greenhouse gas emission reduction
goal starting in 2020 is to reduce such emissions by 26% by fiscal
year 2030 compared to fiscal year 2013, or by 24.5% compared tofiscal year 2005. In line with this goal, we have set a goal of reducing the Scope 1 and 2 CO2 emissions—emissions from the use ofelectricity and gas, and vehicle gasoline— of our facilities by 26%
by FY 2030 compared to FY 2016.
In fiscal year 2016, we started disclosing our total CO2 emissions,and the total results for each fiscal year are shown on our website

and in the integrated reports. Regarding our totalization process andresults, we have obtained the guarantee of an independent third
party to increase the reliability of the information we present.
Each of our employees will continue to maintain an awarenessof the environment as they go about their work, and as a company
we will continue to conduct environmental protection activities,
including the reduction of company cars and the green procurementof business supplies.

Data Compilation

CO2 emissions (Scope 1 and 2)
25,000 (t-CO2)

20,004

19,186

18,076

FY ended March ’18

FY ended March ’19

16,79615,00010,0005,000
0FY ended March ’17
Scope 1 (emissions from the use of gas)

Initiatives for Strengthening Management Foundation

Leopalace21’s initiatives

20,00059

Scope 1 (emissions from vehicle gasoline)

FY ended March ’20

Scope 2 (emissions from the use of electricity)

60

Le op alace 21 Int egr a t ed Repor t 2020

Leopalace21’s ESG Management

Environmental Initiatives

Leopalace21’s initiatives

Operation under our CSR Procurement Guidelines
In September 2019, we established our CSR Procurement Guidelines,
and our overall Group operates in accordance with them. These
guidelines stipulate a number of environmental consideration items,
including striving to reduce our environmental impact to help attainthe SDGs as well as following environmental laws and regulations
not only in Japan but also in other countries and regions where we
do business.
In addition, by explaining these guidelines to our stakeholders
through business partners, etc., we also conduct publicity activities
regarding our environmental activities.

Consideration for the environment(an excerpt from our CSR Procurement Guidelines)• Observe environmental laws and regulations in countries
and regions in which we operate• Strive to reduce our environmental impact in order to help
build a sustainable society• Strive to reduce and appropriately manage waste• Conduct business activities considering the surrounding environment and biodiversity
The Leopalace21 Group CSR Procurement Guidelines

Introducing a total waste management system
Companies are required to appropriately
manage industrial waste generated asa result of their business activities inline with the Waste Management andPublic Cleansing Act. Therefore, we
introduced a total waste management
system provided by JEMS Inc. at all ofour branches with construction responsibilities starting in August 2019. Thissystem enables us to centrally manage
waste by utilizing a cloud service tohandle permits possessed by industrial
waste disposal companies, waste disposal consignment contracts concluded
with disposal companies, and electronic
manifests for waste.

Leopalace21

Partial paperwork request

Leopalace Waste Management Center

Manifest

Viewing waste management
electronic contract
information
Utilization of total waste management
cloud service GENESYS-ECO

Information
sharing on
the system

Consignment
contract

Information registration/Contract management/
Creation and issuance of monthly report/
Compliance management

Viewing electronic
contract information

Manifest issuance after
consistency check
Visualization of manifest progress
management

Permitcertificate

Collection and disposal companies

Dramatically improved
waste compliance throughspecialized BPO

Leopalace21 Integrated Report 2020

61

Toward the Recovery of Business Performance and Trust
Initiatives for Strengthening Management Foundation

62 Ten-Year Consolidated Financial Highlights
64 Consolidated Financial Highlights
67 Non-financial Highlights
68 Management’s Discussion and Analysis
72 Consolidated Balance Sheet
74 Consolidated Statement of Income
75 Consolidated Statement of Comprehensive Income
76 Consolidated Statement of Changes in Equity
77 Consolidated Statement of Cash Flows
79 Notes to Consolidated Financial Statements
123 Independent Auditor’s Report
126 Leopalace21 Data Compilation
132 Corporate Profile

Data Compilation

Data Compilation

62

Le op alace 21 Int egr a t ed Repor t 2020

Ten-Year Consolidated Financial Highlights		’11/3 FY2010’12/3 FY2011’13/3 FY2012’14/3 FY2013

483,537
355,752
107,821
7,785
12,178448,392
59,605(24,460)(30,865)
11,888(1,508)(1,689)(2,286)(18,009)(32,662)(41,742)458,220
379,091
62,913
8,845
7,370
403,572
51,278
3,369
4,052
4,290
(855)
(1,702)(2,415)
9,416
1,133
372

454,285
383,637
53,3699,482
7,795
396,508
50,299
7,477
8,750
2,748
(742)
(970)
(2,308)
13,161
11,154
13,398

470,883
388,562
63,135
10,171
9,013
401,51055,906
13,467
15,364
2,951
(610)
(981)
(3,256)
19,46011,36815,730At year-end:
Total assets
Net assets
Interest-bearing debt
Cash and deposit balance

298,274
32,18743,85840,674

264,783
31,761
51,654
41,477

261,649
56,14549,026
56,681

288,165
103,354
37,22774,767

Cash flow:
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities(28,337)
13,143(15,890)(3,174)(3,537)
7,245

6,069
(6)
9,148

15,584(6,929)8,848

Amounts per share: (Yen)Net assets
Net income (loss)
Cash dividend

190.84(266.48)–187.502.21–

265.3274.85–

393.05
69.38–

Ratio:
Units under management
Average annual occupancy rate (%)
Orders received (Millions of yen)
Equity ratio (%)
Return on equity (ROE) (%)
Return on assets (ROA) (%)
Dividend payout ratio (%)
Debt/equity ratio (%)
Number of employees

571,656
80.09
80,33810.8(81.0)
(9.4)
–
1.4
7,114

556,207
81.16
50,019
12.0
1.2
0.4
–
1.6
6,165

546,204
82.94
73,006
21.5
30.5
4.2
–
0.9
6,277

548,912
84.58
81,139
35.9
19.7
4.1
–
0.4
6,758

For the years ended March 31
Net sales		 Leasing Business		 Construction Business (current Development Business)
		 Elderly Care Business		 Hotel, Resort & Other Businesses
Cost of sales
Selling, general and administrative expenses
Operating income (loss)
		 Leasing Business		 Construction Business (current Development Business)
		 Elderly Care Business		 Hotel, Resort & Other Businesses
		 Adjustments
EBITDA (Operating income + depreciation)
Recurring income (loss)
Net income (loss)*Attendant with changes in accounting policies at subsidiaries in the Leasing Business, consolidated accounts reported in the past have been retroactively revised, and historical data forpast fiscal years shown here reflects these retroactive revisions.
(Notes) 1. U.S. dollar amounts are translated from yen at the rate of ¥108.83 = U.S. $1, the approximate rate prevailing at March 31, 2020.
2. Return on equity (ROE) = Net income/average net assets during the fiscal year x 100
3. Return on assets (ROA) = Recurring income/average total assets during the fiscal year x 100
4. Debt/equity ratio = Interest-bearing debt/(net assets – non-controlling interests)
5. In this report, net income attributable to shareholders of the parent is stated as “net income.”
6. R egarding the Hotels, Resort & Other Businesses, we added the results of the Hotels & Resort Business to the results of Others for the period from the fiscal year ended March 2011 to thefiscal year ended March 2016, and then we changed the segments in the fiscal year ended March 2018, so we retroactively changed the figures for the fiscal year ended March 2017 to the
new segment (Hotels, Resort & Other Businesses).

Reorganized Business Portfolio
Until Fiscal Year 2016 (Year ended March 2017)
Leasing Business• Corporate housing management & rental housing brokerage• Rental payment guarantees• International business

Construction Business • Custom-built homes
Elderly Care Business • Elderly care business• Hotels and resort business
Hotels & Resort Business • Travel agency services

Others• Small-amount, short-term insurance• Solar power generation• Clerical services agency• Real estate development

From Fiscal Year 2017 (Year ended March 2018)• Corporate housing management & rental housing brokerage• Rental payment guarantees• International business• Small-amount, short-term insurance• Solar power generation

Leasing Business• Custom-built homes• Real estate development

Development Business• Elderly care business

Elderly Care Business• Hotels and resort business• Travel agency services• Clerical agency services

Hotels, Resort andOther BusinessesLeopalace21 Integrated Report 2020

(Millions of yen)

63

(Thousands of U.S. dollars)’17/3 FY2016’18/3 FY2017’19/3 FY2018’20/3 FY2019’20/3 FY2019

483,247
399,375
61,312
10,608
11,950407,433
60,992
14,822
20,590211(606)(1,257)(4,116)22,55813,483
15,175

511,513
410,641
74,16010,79815,913422,604
67,82321,08522,8483,340(1,354)(360)(3,388)30,70019,90919,631

520,488421,342
80,321
11,536
7,287
427,820
69,76922,89823,0095,786(1,667)(417)(3,812)
32,23522,355
20,401

530,840
435,537
76,587
12,807
5,908
434,762
73,14722,93026,062
3,663(1,596)(846)(4,353)34,65622,354
14,819505,223
426,388
58,992
13,922
5,919
428,988
68,844
7,390
14,987(995)(846)(1,346)(4,407)
20,336
7,063(68,662)

433,553
388,939
23,806
14,6206,186
408,11261,915(36,473)(20,828)(5,181)(559)(1,000)(8,903)(24,316)(36,341)(80,224)

3,983,769
3,573,827
218,753
134,346
56,841
3,749,996
568,916(335,143)(191,384)(47,607)(5,145)(9,193)(81,812)(223,436)(333,929)(737,150)

308,882
124,928
44,48775,221

327,609
144,865
50,82488,043337,828
158,870
49,918104,432

337,134
159,438
53,829106,543

291,790
81,33848,04784,536

196,953
1,589
36,13760,501

1,809,735
14,605332,059555,929

15,715(17,550)
1,747

22,104(11,087)
1,374

27,504(8,653)(14,048)

27,338(2,336)(18,354)(7,212)
7,379(15,181)(51,639)
39,533(12,048)(474,501)
363,263(110,709)

475.1757.73–

550.9474.68
10.00

603.7677.61
22.00

630.8458.02
22.00

331.87(278.58)–5.34(328.77)–

0.05(3.02)–

554,948
86.57
87,395
40.4
13.2
4.5
–
0.4
7,339

561,961
87.95
86,439
44.2
14.6
6.3
13.4
0.4
7,846

568,739
88.53
87,139
47.0
13.4
6.7
28.3
0.3
7,695

570,672
90.59
75,905
47.2
9.3
6.6
37.9
0.3
7,690

574,798
88.34
64,495
27.7(57.2)
2.2
–
0.6
7,600

575,798
80.78
7,814
0.7
(195.1)(14.9)
–
23.0
7,043

Initiatives for Strengthening Management Foundation’16/3 FY2015

Toward the Recovery of Business Performance and Trust’15/3 FY2014

71,807

Data Compilation

Reference: Fiscal Year 2019 (Millions of yen)
Net sales

Operating income (loss)

388,939(20,828)

From Fiscal Year 2020 (Year ending March 2021)

Core
Business

Leasing Business
Development Business(Leasing Segment)

23,806(5,181)

14,620(559)

Strategic
Business

Elderly Care Business

6,186(1,000)Non-coreBusinesses

Other Businesses

64

Le op alace 21 Int egr a t ed Repor t 2020

Consolidated Financial Highlights

Net sales

Operating profit (loss)

Operating margin

433.5 billion yen-36.4 billion yen-8.4 %

Down 14.2% y/y

7.3 billion yen in fiscal 2018

Down 9.9 points y/y(Billions of yen)(Billions of yen)

600.0

40.0

(%)

10

20.0

5

0

0

-20.0

-5

400.0

200.0

0

-40.0

’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

-10

’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

Operating profit (loss) (left axis)

Operating margin (right axis)

Starting in the fiscal year ended March 2010, the net sales of ourLeasing Business in particular were continuously on an increasing
trend—due in part to our efforts to strengthen the profitability of the
Leasing Business—but our sales declined for the second year in a row
starting in the fiscal year ended March 2019 due to the construction
defects problem causing a decrease in occupancy rates, which led to adecrease in rental income, etc., as well as the effects of stopping neworders for apartment construction.

The earnings of the Leasing Business were decreased by the impact of
the global financial crisis, and our operating profit fell into the red forthe second year in a row in the fiscal year ended March 2011. Later, we
shifted to a business model focused on our Leasing Business, and werecorded seven straight years of profit growth starting in the fiscal year
ended March 2012, but our profit declined for two years in a row startingin the fiscal year ended March 2019 due to decreased business earnings
resulting from the construction defects problem.

Net income attributable to shareholders of the parent

EBITDA (Operating profit + depreciation)-80.2 billion yen-24.3 billion yen-68.6 billion yen in fiscal 201820.3 billion yen in fiscal 2018

(Billions of yen)(Billions of yen)

30.0

60.0

20.0
30.0
10.0
0
0

-30.0

-90.0

’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

Just like operating profit, earnings in the Leasing Business were dented
by the impact of the global financial crisis, and our net profit attributable to shareholders of the parent fell into the red for the second year
in a row in the fiscal year ended March 2011. Later, we shifted to abusiness model focused on our Leasing Business, and our net profit
returned to the black in the fiscal year ended March 2012 and continued
to increase thereafter, but our profit declined for three years in a row
after that as a result of booking an impairment loss in the fiscal year
ended March 2018 as well as the construction defects problem startingin the fiscal year ended March 2019.

Our EBITDA—mainly the combination of operating profit and depreciation—steadily increased starting in the fiscal year ended March2012 owing to sustained operating profit growth due to the recovery of
our earnings as well as higher depreciation stemming from increased
capital investments in new businesses in the last few years, including serviced apartments in the ASEAN region. However, our EBITDA
declined for two years in a row starting in the fiscal year ended March
2019 due to the construction defects problem.

65

Leopalace21 Integrated Report 2020

Total assets

ROA

Net assets

ROE-14.9 %

1.5 billion yen-195.1 %Down 17.1 points y/y

Down 98.0% y/y

Down 137.8 points y/y(Billions of yen)

(%)

400.0

60

200.0

(Billions of yen)

(%)

200.0

40

150.0

30

100.0

20

50.0

10

0

0

30

0

0

-300

-30

’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

ROA (right axis)

Net assets (left axis)

ROE (right axis)

Our ROA recovered rapidly after returning to the black in the fiscal year
ended March 2012. In particular, it roughly trended in the 4% to 6%
range starting in the fiscal year ended March 2013, climbing to 6.6% in
the fiscal year ended March 2018, but it then declined starting in thefiscal year ended March 2019 due to a major drop in our profit resulting
from the impact of the construction defects problem, reaching –14.9%
in the fiscal year ended March 2020.

As a result of our earnings steadily increasing due to our Leasing
Business in particular, our ROE hovered in the 10% range starting in
the fiscal year ended March 2015. However, it then declined startingin the fiscal year ended March 2019 due to a major drop in our profit
resulting from the impact of the construction defects problem, reachinga negative value for the second year in a row in the fiscal year ended
March 2020.

Equity ratio

Interest-bearing debt —incl. Lease obligations

0.7 %Initiatives for Strengthening Management Foundation

Total assets (left axis)

Toward the Recovery of Business Performance and Trust

196.9 billion yen
Down 32.5% y/y

36.1billion yen

Down 27 points y/y

Down 24.8% y/y(%)(Billions of yen)

50

60.0

40

Data Compilation

40.0
30

20
20.0
10
0

0

’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

When earnings remained in the red for the second straight year in thefiscal year ended March 2011, the equity ratio had slumped as far as
10.8%. In step with the earnings recovery since then, however, we haveendeavored to raise the equity ratio and achieve financial soundness.
Accordingly, the equity ratio recovered to 47.2% at the end of March
2018, but it was dragged back down starting at the end of March 2019
due to the impact of the construction defects problem, and at the endof March 2020 we ended up booking net losses of 80.2 billion yen andan equity ratio of 0.7%.

In the last 10 years, we have focused on reducing and curtailing thedebt ratio in consideration of our repayment capacity as well as thecompression of our total liabilities. These efforts reduced our liabilities
to 36.1 billion yen at the end of March 2020, and our debt ratio hassince remained low.

66

Le op alace 21 Int egr a t ed Repor t 2020

Free cash flow

Cash and deposit balance-12.1billion yen

60.5 billion yen

0.1 billion yen in fiscal 2018

Down 28.4% y/y(Billions of yen)(Billions of yen)

30.0

120.0

15.0

90.0

0

60.0

-15.0

30.0

-30.0

0

’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

While we have increased our cash flows from operating activities
mainly in the form of net income before tax adjustments since theglobal financial crisis, we have curtailed the outflow of cash used forcapital investments and other investing activities. However, our cash
flows from operating activities were negative for two years straightstarting in the fiscal year ended March 2019, and, in the fiscal year
ended March 2020, our free cash flow was –12.1 billion yen.

Since the global financial crisis, as a result of an increase in our cash
flows from operating activities, curtailing the outflow of cash used
for capital investments and other investing activities, and selling off
owned assets, our cash and deposit balance increased. However,
due to factors that included our cash flows from operating activities
becoming negative starting in the fiscal year ended March 2019, ourcash and deposit balance dropped to 60.5 billion yen at the end of
March 2020.

Units under management

Average annual occupancy rate

575,798 unit

80.8 %

Up 0.2% y/y

Down 7.5 points y/y(Thousands of unit)

(%)

600

90

450

80

300

70

150

60

0

50

’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

Because expanding our number of units under management
strengthens our earnings base, we strived to expand our number ofunits under management by supplying more properties in areas where
we expect strong tenant demand, with a focus on Japan’s three major
metropolitan areas in particular. However, we are currently focusedon improving the occupancy rate of properties we already manage as
opposed to increasing the quantity of properties. At the end of March
2020, we increased our units under management by 1,000 comparedto the previous year to 575,798.

Rental housing occupancy rates tend to peak in March ahead of the
new school year and before new company recruits head off to work.
Occupancy rates then typically decrease in April, before gradually picking
up again. To encourage long-term tenancy, we have been working toenhance the value of our properties and implementing measures to try to
weaken the impact of this seasonal cycle. As a result, our average annual
occupancy rate had gradually increased before it was pulled back down
for two years straight starting in the fiscal year ended March 2019 by the
impact of the construction defects problem.

Leopalace21 Integrated Report 202067

Non-financial Highlights

No. of employees on childcare leave

Ratio of paid leave usage84.3 %Up 12.6% y/y

Up 7.5 points y/y(Person)

(%)

300

80

60
200
40
100
20

0

0

’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

Under the guidance of the Japanese government, work-style reforms
for both men and women are gaining momentum. This includes thesignificance of working styles and associated changes in behavior.
To this end, we are taking steps towards developing a workplaceenvironment with systems in place to make it easier for employees torequest childcare leave, in addition to considering improvements towork-life balance, such as reducing the amount of overtime work andencouraging increased use of paid holidays. As a result, the numberof employees taking leave is increasing year after year, while thenumber of male employees taking paternity leave is also on the rise.

The dissemination of work-style reform implemented by the Company
has caused a shift in employees’ sense of value attributed to work,from one that prioritized long working hours to one that emphasizes
productivity. With efforts to promote the use of paid leave, such as
the summer and winter planned five-day annual leave and the threeday refreshment leave, which can be used anytime throughout theyear, the paid holidays usage rate has dramatically increased since
the fiscal year ended March 2016, and this is the fifth successive year
it stayed above 70%.

Rate of workforce turnoverNo. of employees with foreign citizenship12.4 %

Initiatives for Strengthening Management Foundation

’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

Toward the Recovery of Business Performance and Trust

268 people

366 people

Up 3.8 points y/y

Up 4.3% y/y(%)(Person)

30

400

300

Data Compilation

20
200
10
100

0

0

’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

’11
’12
’13
’14
’15
’16
’17
’18
’19
’20
FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019

The Company places utmost importance on “human resources,” andimplements employee training programs and other measures thatfacilitate all employees in expressing their diverse individuality andharnessing their capabilities. In addition to this, we aim to build
pleasant workplaces where people enjoy work as part of an effort
to improve issues with long working hours that are specific to thisindustry. As a result, we successfully reduced the employee turnoverrate, which was 24.2% in the fiscal year ended March 2011 (nineyears ago), to 12.4% in the fiscal year ended March 2020.

We believe that a workforce of people from a broad array ofbackgrounds with diverse values helps create new value and greatly
contributes to the Company’s growth. We are therefore actively
hiring foreign national employees in order to secure the personnel
needed to achieve such levels of diversity. Our number of nonJapanese employees increased again by the end of March 2020,
reaching 366 employees.

68

Le op alace 21 Int egr a t ed Repor t 2020

Financial Section

Management’s Discussion and Analysis
1. Operating Environment
During the subject consolidated fiscal year, although the domestic
economy showed gradual progression supported by improvementsin employment and individual income, we are afraid that theeconomic prospects have very much worsened because of slow
economic activities on a global scale due to COVID-19 impact.
New housing starts of leased units decreased three years ina row (down 14.2% year on year), due to the financial institutions’ stringent loan screening policy for apartment loans. As thenumber of vacant houses continues to increase and recovery innationwide demand becomes difficult, achieving stable occupancy
rates requires differentiation strategy, which means constructing
apartments in areas with high demand, in addition to providing
value-added products and services that meet tenants’ needs.
Under these conditions, in the subject consolidated fiscal year,
Leopalace21 Corporation with its consolidated subsidiaries (the“Company” and collectively the “Companies”) posted a significant loss for the second consecutive year, mainly due to repair
expenses incurred to tackle the construction defects and a deterioration in the occupancy rate caused by the construction defects.
In response, on June 5, 2020, the Company announced a businessplan (medium-to long-term strategies) centered on Reconstructbusiness foundation – selective concentration, Implement structural reforms, and Restore social trust, and worked to offer a
voluntary retirement program and reduce the number of directors
and executive officers. Also, in order to resolve the problem concerning construction defects as soon as possible, we have been
intensively working on to carry out repair works.
2. Analysis of Business Results(1) Net Sales
Company earnings deteriorated, and consolidated net sales forthe subject fiscal year came to 433,553 million yen (down 14.2%
year on year). New tenant recruitments on properties were
delayed because of prioritization on priority investigations andbelated organizational response to support repair works, as well
as restricted demand for new hires and relocations because of
COVID-19 impact in the busiest months. As a result, net salesof the Leasing Business decreased to 388,939 million yen (down
8.8% year on year). In the Development Business, net sales cameto 23,806 million yen (down 59.6% year on year).

Net Sales by Segment(Million of Yen)FY2018FY2019ChangeLeasing Business

426,388388,939(37,449)

Development Business

58,99223,806(35,185)

Elderly Care Business

13,922

14,620698

Hotels, Resort, & Other Business

5,919

6,186

266

505,223

433,553(71,669)

Total(2) Earnings
Gross profit was 25,441 million yen (down 66.6% year on year),
operating loss was 36,473 million yen (operating profit of 7,390
million yen for previous fiscal year) and recurring loss was 36,341
million yen (recurring profit of 7,063 million yen for previous fiscal
year) and net loss attributable to shareholders of the parent was
80,224 million yen (down 11,561 million yen compared to the previous fiscal year).
This was due to extraordinary losses of 24,395 million yen
recorded as a reserve for repairs and other incidental expenses
related to construction defects, 7,620 million yen recorded as an
impairment loss for non-current assets and goodwill, and 21,485
million yen recorded as income taxes adjustment (loss).
Operating Profit by Segment(Millions of Yen)FY2018FY2019ChangeLeasing Business

14,987(20,828)(35,815)(995)(5,181)(4,185)Development Business
Elderly Care Business

(846)

(559)

286

Hotels, Resort, & Other Business(1,346)(1,000)346

Adjustments(4,407)(8,903)(4,496)

Total

7,390

(36,473)(43,864)

Leopalace21 Integrated Report 2020

Change in Operating Profit(Billions of yen)

5
0

7.39

-5
-10

Leasing-35.81-15-36.47

-20
-25
-30

Development
-4.18

-35

ElderlyCare+0.28

Hotels,Resort &Others+0.34

Adjustments-4.49

FY2018FY2019Elderly Care Business
The profitability of the Elderly Care Business, a strategic growthbusiness, improved
due to increases in the occupancy rate of50
existing facilities,
and is steadily transitioning to turn profitable.
40
Net sales3were
14,620
million yen (up 5.0% year on year) and0
operating loss was 559 million yen (improvement of 286 million
20
yen year on year).
100Hotels, Resort & Other Businesses
Net sales of the Hotels, Resort & Other Businesses, including
resort facilities in Guam, hotels in Japan, travelling business andfinance business, were 6,186 million yen (up 4.5% year on year)
and operating loss was 1,000 million yen (an improvement of 346
million yen year on year).

Data Compilation

10(3) Segment Information
5
Leasing Business
0
The Company offers the industry-first electronic rental agreement-5 security systems in alliance with large security compaservice,nies-10 as a part of the value-added services. In addition, to achieve
stable-15 occupancy rates, we are strengthening sales towards
corporate customers to respond to their dormitory and housing-20
demand and increasing support for foreign tenants.
-25
Since new tenant recruitments on properties were delayed-30
because of prioritization on priority investigations and belatedorganizational
response to support repair works, as well as corpo-35
rate-40 customers’ restricted demand for new hires and relocations
because of COVID-19 impact in the busiest months, the occupancy
rate at the end of the subject fiscal year was 83.07% (down 1.26
points from the end of the previous fiscal year) and the averageoccupancy rate was 80.78% (down 7.56 points year on year). The
number of units under management at the end of the subject
fiscal year was 575 thousand (increased by one thousand from theend of the previous fiscal year).
As a result, net sales amounted to 388,939 million yen (down
8.8% year on year) and operating loss was 20,828 million yen(operating profit of 14,987 million yen for the previous fiscal year)
due to decrease of rent income and others caused by deterioration of the occupancy rate and increase of 3,178 million yen inreserve for apartment vacancy loss.

Initiatives for Strengthening Management Foundation-40

Toward the Recovery of Business Performance and Trust

10

Development BusinessIn the Development
Business, the Company focused on supplying
(%)
50
47.2
apartments in the three metropolitan areas where44.7
solid47.0
leasing
41.0
40 is anticipated supported by an36.5
demandincrease in population.
30
As a result of orders becoming sluggish due to intensified
22.2
17.9metropolitan areas and changes in the envi- 27.7
competitionin the20
11.1 12.8
ronment
10 of apartment loans, in addition to stop taking new orders
for apartment
construction because of the construction defect0’11/3 during’12/3 ’13/3’14/3 ’15/3’16/3’18/3 ’19/3
problems, orders’10/3
received
the subject
fiscalyear’17/3
amounted
to 7,814 million yen (down 87.9% year on year) and the orders
received outstanding stood at 27,696 million yen (down 55.6%
from the end of the previous fiscal year).
The Company sold the shares in Life Living Co., Ltd., which wasa consolidated subsidiary, and therefore the orders received andoutstanding orders of Life Living Co., Ltd. are not included in the
consolidated results.
Consequently, net sales came to 23,806 million yen (down 59.6%
year on year) and operating loss was 5,181 million yen (a loss
increase of 4,185 million yen compared to the previous fiscal year).

69

70

Le op alace 21 Int egr a t ed Repor t 2020

3. Analysis of Consolidated Financial Position(1) Position of Assets, Liabilities, and Net assets
Total assets at the end of the fiscal year decreased by 94,837 million yen from the end of the previous fiscal year to 196,953 million
yen. This was mainly attributable to a decrease of 24,034 million
yen in cash and cash equivalents, a decrease of 16,678 million
yen in buildings and structures (net) due to sale of apartmentbuildings for rental use and hotels and posting impairment loss
and others, 12,328 million yen in land, 4,534 million yen in leased
assets (net), 4,043 million yen in securities and investment securities, and 22,352 million yen in deferred tax assets.
Total liabilities decreased by 15,088 million yen from the end of
the previous fiscal year to 195,363 million yen. This was mainly
due to an increase of 5,540 million yen in reserve for losses
related to repairs and 3,178 million yen in reserve for apartment vacancy loss, whereas a decrease of 11,909 million yen ininterest-bearing debt, 5,056 million yen in short and long-term
advances received, and 3,469 million yen in accounts payable forcompleted projects.
Net assets decreased by 79,748 million yen from the end of theprevious fiscal year to 1,589 million yen. This was mainly due toan increase of 766 million yen in net unrealized gains on “othersecurities,” and a recording of 80,224 million yen in net loss
attributable to shareholders of the parent. The ratio of shareholders’ equity to assets dropped by 27.0 points from the end of theprevious fiscal year to 0.7%.
(2) Cash Flow Position
Cash flow from operating activities was a net outflow of 51,639
million yen (an increase of net outflow of 44,427 million yen
compared to the previous fiscal year). This was mainly due toa recording of 12,157 million yen in depreciation, 7,620 million
yen of impairment loss and an increase of 21,501 million yen inreserve for losses related to repairs, and an increase of 3,178
million yen in reserve for apartment vacancy loss, whereas arecording of 58,013 million yen of net loss before taxes and otheradjustments, 7,973 million yen of gain on sales of property, plantand equipment, 2,368 million yen of gain on sale of investment
securities, a decrease of 5,032 million yen of advances received
and 18,855 million yen of payment related to repairs.
Cash flow from investing activities was a net inflow of 39,533
million yen (an increase of 32,154 million yen in net inflow
compared to the previous fiscal year). This was mainly due to arecording of 3,601 million yen of purchase of property, plant andequipment, whereas a recording of 32,057 million yen of proceedsfrom sale of property, plant and equipment and 8,213 million yenof proceeds from sale of investment securities.
Cash flow from financing activities was a net outflow of 12,048
million yen (a decrease of 3,132 million yen in net outflow fromthe previous fiscal year). This was mainly due to 5,093 million yenof repayment of lease obligations and 6,955 million yen of repayment of debt and redemption of bonds.
As a result, cash and cash equivalents at the end of the subject
fiscal year stood at 58,916 million yen, decreased by 24,102 million yen from the end of the previous fiscal year.
4. Management Policies, Business Environment,
Key Issues to Address
Forward-looking statements in the discussion below are basedon judgments by the Company as of the time of preparing thisintegrated report.
(1) Management Policies
The Company recorded a significant loss for the second consecutive year, mainly due to the construction defects problem
and resultant decrease in the occupancy rate. In the light of thesituation we determined to employ a strategy of concentration
with the Leasing Business turning to the core and becoming more
profitable and shift away from the business diversification.
We have been preparing the operating environments for the
strategy to work and are in the middle of implementing the structural reforms such as (i) promoting to transfer or withdraw from
non-core unprofitable businesses, (ii) offering the voluntary retirement program to achieve workforce rightsizing and cost reduction,and (iii) reducing the number of directors and executive officers,
to curtail their compensation and make redundant the positionsof counselor and advisor to fulfill management responsibility andexecute corporate governance reforms.
(2) Business Environment and Key Issues to Address
Regarding population trends, a factor affecting the businessenvironment, the total number of households in Japan is expected
to decline after the peak of 2025 but single-person households is
expected to increase up to 2030 and keep the level of about 20
million households till 2040. Net domestic migration to the threemajor metro regions (inflows exceed outflows) will continue.
Furthermore, the population aged 65 or over will mark 30% of
the total population and continue to rise for the following years.
The decreasing trend in productive population (aged 15 – 64) willcontinue and a planned increase in foreign workers will partlyLeopalace21 Integrated Report 2020

Data Compilation

Financial Strategies
We aim to secure stable funds necessary for its businessactivities and maintain liquidity by selling the Company-owned
properties, thereby securing sufficient funds to meet anticipateddemand based on its funding plans.
To make firmer the Company’s financial base, we endeavor toeliminate the excessive liabilities and realize improvement of thefinancial structure by increasing its equity capital, and to raise necessary funds to meet the essential funding requirements, such as
payment of repair works expenses related to construction defects,
repayment for the existing borrowings and redemption of bonds.
Please see the details in 33. Subsequent Events (4) Issuanceof New Shares through Third Party Allotment, (5) Issuance of theStock Acquisition Rights in connection with the Loan with Stock
Acquisition Rights through Third Party Allotment, and Fundraisingthrough the Loan with Stock Acquisition Rights, and (6) Issuanceof Preferred Stock by a Consolidated Subsidiary Through Third
Party Allotment.
We keep securing funds to meet the demand and sold a numberof Company-owned properties for lease in the following fiscal
year. Please see the details in 33. Subsequent Events (7) Sale ofNon-current Assets.
We sold the Company-owned shares in a certain listed company in order to secure stable funds for the operations and maintain adequate liquidity. Please see the details in 33. Subsequent
Events (2) Sale of investment securities.

Initiatives for Strengthening Management Foundation

Business Strategies
We conducted a strategic review for drastic business strategies
reconstruction. The review yielded the new business strategies andthe need to implement structural reforms so that we should drastically improve the financial base for increased corporate value.
Core business:	We determined to reorganize the structure centered on the
Leasing Business and focus on it to increase the profitability
by improving operational efficiency through IT and strengthen
measures on areas or new target customers such as foreign
national tenants and senior tenants. The former Development
Business is integrated to the Leasing Business to focus on landlords support and on resolving construction defects and ensure
to satisfy apartment rebuilding demand by existing landlords inthe three major metropolitan areas.
Strategic business:	We consider the Elderly Care Business as strategic and aims tocreate synergy effect with the Leasing Business to attract further senior tenants and develop needs for the target customers.
Structural reforms:
	We withdrew from hotel business in Japan by transferring
Hotel Leopalace Nagoya. Regarding resort business in Guamand the International Business, we will look for opportunities totransfer the respective businesses.

Voluntary retirement program:	We offered the voluntary retirement program to respond to thebusiness structure changes based on selective concentration
strategy with the aim to realize workforce rightsizing to the
future operations in the tough business conditions, and further
reduce the fixed cost.

Toward the Recovery of Business Performance and Trust

compensate for the lacking workforce in the aging society.
The number of new housing starts of leased units continued
to decline for the three consecutive years due to changes in thebusiness environment, including the financial institutions’ tighter
lending criteria for apartment loans and the dropout of demand
for the inheritors’ strategies to reduce inheritance tax.
Under these circumstances, we need to turnaround the business by acquiring the additional corporate demand for providing
their employees with company-provided housing or dormitories.
We increased the number of staff for the corporate sales to capture the demand and make use of IT for efficiency improvement
so that we can raise the occupancy rates. We will continue to
execute 50 itemized actions to avoid the recurrence of construction defects problem in parallel to conducting the repair works
with available resources after reallocated manpower and physicalresources considering the voluntary retirement program impact.
We aim to restore social trust by recovering the business performance and by addressing the construction defects problem sothat we can resume the tenant recruitment as soon as possible.

71

72

Le op alace 21 Int egr a t ed Repor t 2020

Financial Section

Consolidated Balance Sheet
Leopalace21 Corporation and consolidated subsidiaries
March 31, 2020 and 2019
Thousands of U.S. dollars(Note 1)Millions of yen

2020

2019

2020

60,501
7,260
532
132
5,951
1,189
2,797
725
539
3,053
1,242
4,543
(164)
88,30484,536
6,908
1,709
256
1,254
1,027
5,554
680
565
2,952
1,198
4,255
(142)
110,757

555,929
66,714
4,889
1,219
54,685
10,92725,702
6,662
4,961
28,054
11,416
41,747(1,512)
811,398

64,333(40,469)
23,863
20,690(10,892)
9,798
36,89330,756(23,558)
7,197
208
16,817(9,244)
7,572
85,534

88,833(48,291)
40,542
21,414(10,228)
11,18549,221
32,178(20,446)
11,732
3,470
15,283(8,220)
7,062
123,215591,137(371,861)
219,276
190,119(100,088)
90,030338,997
282,614(216,475)
66,1391,915
154,525(84,940)
69,585785,9443, 28, 33
3, 17

127
5,376
5,504

2,324
7,250
9,575

1,176
49,40250,5783, 6, 7, 12, 33
6
6, 10
3
3, 4, 11

8,163
1,025
225
2,250
1,297
5,328
(905)
17,385
108,424

16,903
501
214
3,252
23,6504,333(941)
47,914
180,705

75,0089,424
2,073
20,682
11,921
48,962(8,324)
159,748996,271

224
224
196,953327
327
291,790

2,064
2,064
1,809,735

Notes

ASSETS
Current assets:
Cash and cash equivalents
Trade receivables
Accounts receivable for completed projects
Operating loans
Securities
Real estate for sale
Real estate for sale in process
Payment for construction in progress
Raw materials and supplies
Prepaid expenses
Other accounts receivable
OthersAllowance for doubtful accounts
Total current assets
Non-current assets:
Property, plant and equipment:
Buildings and structures
Accumulated depreciation
Net
Machinery, equipment, and vehicles
Accumulated depreciation
Net
Land
Leased assets
Accumulated depreciation
Net
Construction in progress
Other
Accumulated depreciationNet
Total property, plant and equipment
Intangible fixed assets:
Goodwill
OthersTotal intangible fixed assets
Investments and other assets:
Investment securities
Long-term loans
Bad debts
Long-term prepaid expenses
Deferred tax assets
OthersAllowance for doubtful accounts
Total investments and other assets
Total non-current assets
Deferred assets:
Bond issuance cost
Total deferred assets
Total assets
The accompanying notes are an integral part of these statements.

3, 5, 6, 12
6
6
6
3, 6, 7, 12

3

3, 6, 113, 4, 9, 11, 15, 28, 33
3, 4, 12, 15, 16, 17

9, 15, 16, 17
3, 17, 26

3, 6, 11

Leopalace21 Integrated Report 2020

Thousands of U.S. dollars(Note 1)Millions of yen

LIABILITIES AND NET ASSETS
Current liabilities:
Electronically recorded obligations - operating
Accounts payable
Accounts payable for completed projects
Short-term borrowings
Current portion of long-term debt
Bonds due within one year
Lease obligations
Accounts payable - otherAccrued income taxes
Advances received
Customer advances for projects in progress
Reserve for warranty obligations on completed projects
Reserve for fulfillment of guarantees
Reserve for losses related to repairs (short-term)
Reserve for apartment vacancy loss (short-term)
Asset retirement obligations
OthersTotal current liabilities
Non-current liabilities:
Bonds
Long-term debt
Lease obligations
Long-term advances received
Lease/guarantee deposits received
Deferred tax liabilities
Reserve for losses related to repairs
Reserve for apartment vacancy loss
Liability for retirement benefit
Asset retirement obligations
OthersTotal non-current liabilities
Total liabilities
Net assets
Shareholders’ equity:
Common stock:
Authorized: 500,000,000 shares in 2020 and 2019
Issued: 244,882,515 shares in 2020 and in 2019
Capital surplus
Retained earnings
Treasury stock: 771,210 shares in 2020 and
1,067,510 shares in 2019
Total shareholders’ equity
Accumulated other comprehensive income:Net unrealized gains on other securities
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Share subscription rights
Non-controlling interests
Total net assets
Total liabilities and net assets

176
3,376
1,245
847
2,659
3,066
4,344
14,935840
31,997
1,783
117
1,200
8,302
11,71544
3,354
90,006

897
4,037
4,715
1,070
2,768
3,966
5,320
14,922
798
34,635
3,651
347
1,138
50,707
8,826
44
3,919
141,765

1,621
31,02911,447
7,790
24,43628,17239,923
137,232
7,725
294,009
16,383
1,080
11,02676,284
107,649405
30,818827,036

5,037
15,650
4,532
9,451
6,286
5
47,945
4,191
8,701
89
3,465
105,357
195,363

8,103
18,318
8,501
11,869
6,599
5
—
3,902
8,213
86
3,086
68,687
210,452

46,283
143,809
41,644
86,84757,76847
440,557
38,514
79,957822
31,840968,092
1,795,129

75,28245,148(118,874)

75,28245,148(38,635)

691,742
414,853(1,092,291)

25

(473)
1,083

(655)
81,140(4,349)
9,955

3, 11
3
13

1,047
(280)
(546)
220
269
16
1,589
196,953

280
(176)
(327)
(224)
404
17
81,338291,790

9,620(2,577)(5,018)
2,024
2,471
154
14,605
1,809,735

The accompanying notes are an integral part of these statements.

6
6
6, 12
12
6
6, 12

3, 11
3, 11
3, 11

11, 24

6, 12
6, 12
6, 12
3

3, 11
11, 2425

Data Compilation

2020

Initiatives for Strengthening Management Foundation

2019

Toward the Recovery of Business Performance and Trust

2020

Notes

73

74

Le op alace 21 Int egr a t ed Repor t 2020

Financial Section

Consolidated Statement of Income
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2020 and 2019
Thousands of U.S. dollars(Note 1)Millions of yen
Notes

Net sales
Sales from Leasing Business
Sales from Development Business
Sales from Other Businesses
Cost of sales
Cost of sales from Leasing Business
Cost of sales from Development Business
Cost of sales from Other Businesses
Gross profit
Selling, general and administrative expenses
Advertising expenses
Sales commission expense
Transfer to reserve for bad debt
Directors’ bonuses
Salary and bonuses
Transfer to reserve for Directors’ bonuses
Retirement benefit cost
Rent expense
Depreciation and amortization
Taxes and public charges
Other
Operating profit
Non-operating income
Interest income
Dividend income
Investment returns from anonymous associations
Gains on valuation of investment securities
Foreign exchange gain
Share of profit of entities accounted for using equity method
Other
Non-operating expenses
Interest expenses
Bond issuance cost
Foreign exchange losses
Share of loss of entities accounted for using equity method
Commission income refund
Other
Recurring profit
Extraordinary income
Gain on sale of property, plant and equipment
Gain on sale of investment securities
Gain on reversal of share subscription rights
Gain on cancelling contracts
Extraordinary losses
Loss on sale of property, plant and equipment
Loss on retirement of property, plant and equipment
Impairment loss
Provision of reserve for losses related to repairs
Loss related to repairs
Provision of reserve for apartment vacancy loss
Loss on sale of shares in subsidiaries
Repair expenses
Special severance allowance
Income before income taxes
Income taxes
Current
Deferred
Net income
Net loss attributable to non-controlling interests
Net loss attributable to shareholders of the parent
The accompanying notes are an integral part of these statements.

28

28

3, 33

3

32

2020

2019

2020

433,553
388,939
23,80620,807408,112
368,094
19,41520,601
25,441
61,915
1,964
2,111
117
493
26,282
—
1,878
2,899
2,582
5,958
17,626(36,473)
1,788
146
181
977
166
—
—
317
1,656
624
161
157
72
255
384
(36,341)
11,681
8,945
2,368
17
350
33,353972
71
7,620
21,501
2,894
—
2
63
227
(58,013)
22,211726
21,485(80,224)(0)(80,224)505,223
426,388
58,992
19,842428,988363,651
44,597
20,73976,23568,844
3,008
1,978
112
997
30,134
(10)
1,809
2,727
2,731
5,221
20,132
7,390
891
113
172
—
185
148
1
270
1,218
748
191
—
—
—
278
7,063
245
245
—
—
—
72,1480
117
7,560
50,707
4,079
9,684
—
—
—
(64,840)
3,880
756
3,124
(68,720)(58)(68,662)

3,983,769
3,573,827
218,753
191,1883,749,996
3,382,288
178,403
189,303
233,772
568,916
18,055
19,401
1,083
4,531
241,497—
17,264
26,64323,73054,749161,959(335,143)
16,436
1,342
1,667
8,982
1,529
—
—
2,913
15,222
5,740
1,487
1,445
662
2,349
3,536
(333,929)
107,337
82,197
21,765
157
3,216
306,475
8,934
657
70,024
197,566
26,596
—
21
584
2,089
(533,067)
204,089
6,671
197,418(737,157)(6)(737,150)

Leopalace21 Integrated Report 202075

Financial Section

Consolidated Statement of Comprehensive Income
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2020 and 2019
Thousands of U.S. dollars(Note 1)Millions of yen
Notes

3

2019

2020

(80,224)(68,720)(737,157)

766
(100)
(218)

(306)
(1,045)
14

7,046
(924)
(2,008)(3)
444(79,780)(4)(1,342)(70,063)

(30)
4,083
(733,073)(79,779)(70,004)(733,065)

(0)

(58)

(8)

Toward the Recovery of Business Performance and Trust

Net income
Other comprehensive income
Net unrealized gains on other securities
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Share of other comprehensive income of entities accounted forusing equity method
Total
Comprehensive income
Comprehensive income attributable toshareholders of the parent
Comprehensive income attributable tonon-controlling interests

2020

The accompanying notes are an integral part of these statements.

Notes

2019

2020

1,691
(586)
1,105
(338)
766

(442)
—
(442)
135
(306)

15,543(5,387)
10,156(3,109)
7,046

(100)
—
(100)
—
(100)

(1,045)—(1,045)—(1,045)

(924)
—
(924)
—
(924)

(249)
175
(73)
(144)
(218)

(216)
237
20
(6)
14

(2,295)
1,616(679)(1,328)(2,008)

(3)
444

(4)
(1,342)

(30)
4,083

3

Data Compilation

Net unrealized gains on other securities
Amount accrued in the fiscal year
Rearrangements and adjustments
Amount before tax effects adjustments
Tax effects
Net unrealized gains on other securities
Foreign currency translation adjustments
Amount accrued in the fiscal year
Rearrangements and adjustments
Amount before tax effects adjustments
Tax effects
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Amount accrued in the fiscal year
Rearrangements and adjustments
Amount before tax effects adjustments
Tax effects
Remeasurements of defined benefit plans
Share of other comprehensive income of entities accounted forusing equity method
Amount accrued in the fiscal year
Total

2020

Initiatives for Strengthening Management Foundation

Thousands of U.S. dollars(Note 1)Millions of yen

76

Le op alace 21 Int egr a t ed Repor t 2020

Financial Section

Consolidated Statement of Changes in Equity
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2020 and 2019

Millions of yen
Shareholders’ equity

Balance as of March 31, 2018
Dividend of surplus
Net income attributable toshareholders of the parent
Acquisition of treasury stock
Disposal of treasury stock
Retirement of treasury stock
Change in share of parent
from transactions with
non-controlling interests
Net change of items otherthan shareholders’ equity
Total change during period
Balance as of March 31, 2019
Dividend of surplus
Net income attributable toshareholders of the parent
Acquisition of treasury stock
Disposal of treasury stock
Retirement of treasury stock
Change in the scope of
consolidation
Net change of items otherthan shareholders’ equity
Total change during period
Balance as of March 31, 2020

Accumulated other comprehensive income

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

75,282

45,23537,839(430)(3,025)(68,662)(5,012)—(4,787)

4,787

(86)

Total
Net unrealized
shareholders’ gains on other
equitysecurities

157,926

586

Total
Share
Foreign
Remeasurements accumulated Subscription
currency
otherof definedrightstranslation
benefit plans comprehensive
adjustments
income

872

(341)

1,117

284

Noncontrollinginterests

Total net
assets109

159,438(3,025)(3,025)(68,662)(68,662)(5,012)(5,012)

—

—

—

—

—

—

(86)

(86)
(306)

(1,049)14(1,342)120(92)(1,313)—(86)(76,474)(225)(76,786)(306)(1,049)14(1,342)

120(92)(78,100)

75,28245,148(38,635)(655)

81,140

280

(176)

(327)

(224)

404

17

81,338—(80,224)——(80,224)(80,224)

—

—

(47)

181

134

—

134

—

—

—

—

—

33

—

33

33
766

(103)

(218)

444

(135)

(0)

(307)

—

—

(80,238)181(80,056)

766

(103)

(218)

444

(135)

(0)

(79,748)

75,28245,148(118,874)

(473)

1,083

1,047

(280)

(546)

220

269

16

1,589

Noncontrollinginterests

Total net
assets162

747,387

Thousands of U.S. dollars (Note 1)
Shareholders’ equity

Balance as of March 31, 2019
Dividend of surplus
Net income attributable toshareholders of the parent
Acquisition of treasury stock
Disposal of treasury stock
Retirement of treasury stock
Change in the scope of
consolidation
Net change of items otherthan shareholders’ equity
Total change during period
Balance as of March 31, 2020

Accumulated other comprehensive income

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

691,742

414,853(355,009)(6,020)—(737,150)

Total
Net unrealized
shareholders’ gains on other
equitysecurities

745,566

2,574

Total
Share
Foreign
Remeasurements accumulated Subscription
currency
otherof definedrightstranslation
benefit plans comprehensive
adjustments
income(1,624)(3,010)(2,061)

3,719

—

—

(737,150)(737,150)

—

—

(436)

1,671

1,234

—

1,234

—

—

—

—

—

304

—

304

304
7,046

(952)

(2,008)

4,085(1,247)(8)(2,829)——(737,282)

1,671(735,611)

7,046

(952)

(2,008)

4,085(1,247)(8)(732,781)

691,742

414,853(1,092,291)(4,349)

9,955

9,620

(2,577)(5,018)

2,024

2,471

154

14,605The accompanying notes are an integral part of these statements.

Leopalace21 Integrated Report 2020

77

Financial Section

Consolidated Statement of Cash Flows
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2020 and 2019
Thousands of U.S. dollars(Note 1)Millions of yen

2019

2020

Income before income taxes(58,013)(64,840)(533,067)

Depreciation and amortization

12,157

12,945

111,706

Impairment loss

7,620

7,560

70,024

Loss related to repairs

2,894

4,079

26,596

Amortization of goodwill

260

560

2,393

Cash flows from operating activities:

Increase (decrease) in allowance for doubtful accounts

40(1,105)375

Increase (decrease) in liability for retirement benefits

413

895

3,802

Increase (decrease) in reserve for apartment vacancy loss

3,178

9,684

29,204

Increase (decrease) in reserve for losses related to repairs

21,50150,707

197,566

(327)

(285)

(3,010)Interest and dividend income

624

748

5,740

157

(148)

1,445

Share of loss (profit) of entities accounted for using equity method

72

(1)

662

Loss (gain) on valuation of investment securities

(166)

(185)

(1,529)Loss (gain) on sale of property, plant and equipment(7,973)(245)(73,262)

Loss on retirement of property, plant and equipment

71

117

657

Loss (gain) on sale of investment securities(2,368)—(21,765)

Investment returns from anonymous associations

(977)

—

(8,982)Gain on reversal of share subscription rights

(17)

—

(157)

Gain on cancelling contracts

(350)

—

(3,216)2—

21

Loss on sale of shares in subsidiaries

1,095

1,310

10,065Decrease (increase) in real estate for sale in progress(852)(3,058)(7,830)Decrease (increase) in payment for construction in progress

(46)

(222)

(424)

Decrease (increase) in long-term prepaid expenses

878

571

8,072

Increase (decrease) in accounts payable(1,922)(8,125)(17,669)

Increase (decrease) in customer advances for projects in progress(1,868)(940)(17,170)

Increase (decrease) in advances received(5,032)(9,311)(46,245)

Increase (decrease) in guarantee deposits received

(383)

(372)

(3,523)

Increase (decrease) in accrued consumption taxes

1,038

113

(890)

Others(2,810)(2,612)(25,828)

Subtotal(32,029)(3,165)(294,310)

Interest and dividends received

455

465

4,182

Interest paid

(574)

(749)

(5,277)(18,855)(2,960)(173,253)

(635)

(800)

(5,841)(51,639)(7,212)(474,501)

Reserve for losses related to repairs paid
Income taxes paid
Net cash provided by operating activities
The accompanying notes are an integral part of these statements.

Data Compilation

Decrease (increase) in accounts receivable

Initiatives for Strengthening Management Foundation

Interest expense
Foreign exchange loss (gain)

Toward the Recovery of Business Performance and Trust

2020

Notes

78

Le op alace 21 Int egr a t ed Repor t 2020

Thousands of U.S. dollars(Note 1)Millions of yen

2020

Notes

2019

2020

Cash flows from investing activities:
Payment for purchase of property, plant and equipment(3,601)(7,718)(33,094)

Proceeds from sale of property, plant and equipment

32,057

10,059294,563

Payment for purchase of intangible assets(142)(1,083)(1,312)

Payment for purchase of investment securities(1,082)(231)(9,951)

Proceeds from sale of investment securities

8,213

21

75,467

Payments for sale of shares in subsidiaries that
result in change in scope of consolidation

(101)

—

(933)

Proceeds from sale of shares in subsidiaries that
result in change in scope of consolidation

4,292

—

39,439Payment for loans

(657)

(1)

(6,037)

Proceeds from collection of loans

960

14

8,829

Payments for purchase of time deposits(68)(1,500)(625)

Proceeds from withdrawal of time deposits

—

8,126

—

(335)

(308)

(3,080)39,533

7,379

363,263

Proceeds from short-term borrowings

—

1,070

—

Repayment of short-term borrowings

(222)

(50)

(2,041)OthersNet cash provided by (used in) investing activities
Cash flows from financing activities:

Proceeds from long-term debt

—

3,960

—

Repayment of long-term debt

(2,767)(2,397)(25,425)

Repayment of finance lease obligations(5,093)(5,640)(46,802)

Payment for redemption of bonds(3,966)(3,966)(36,442)

Payment for purchases of treasury stock—(5,012)—

Payments from changes in ownership interests in subsidiaries
that do not result in change in scope of consolidation

—

(112)

—

Dividends paid to non-controlling interests

—

(8)

—

Proceeds from exercise of stock options

0

—

2

Cash dividends paid—

(3,025)—(12,048)(15,181)(110,709)

Net cash provided by (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 at end of year
The accompanying notes are an integral part of these statements.

5

51

(213)

476

(24,102)(15,227)(221,471)

83,01998,246

762,834

58,916

83,019541,363

Leopalace21 Integrated Report 2020

79

Financial Section

Notes to Consolidated Financial Statements
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2020 and 2019(2) Cash and cash equivalents
For the purpose of the statement of cash flows, the Company considers all highly liquid investments with insignificant risk of change
in value and maturities of generally three months or less as cash
equivalents. These include cash on hand, demand deposits at banks
and highly liquid short-term investments with negligible risk of fluctuation in value and maturities of less than three months.

Data Compilation

3. Summary of Significant Accounting Policies(1) Consolidation
Names of significant subsidiaries (24 in total)
Leopalace Leasing Corporation
Plaza Guarantee Co., Ltd.
Leopalace Power Corporation
Leopalace Energy Corporation
ASUKA SSI
Enplus Inc.
Leopalace21 Business Consulting (Shanghai) Co., Ltd.
LEOPALACE21 VIETNAM CO., LTD.
Leopalace21 (Thailand) CO., LTD.
Leopalace21 (Cambodia) Co., Ltd.
LEOPALACE21 PHILIPPINES INC.
PT. Leopalace Duasatu Realty
Leopalace21 Singapore Pte. Ltd.
Morizou Co., Ltd.
Azu Life Care Co., Ltd.
Leopalace Guam Corporation
WING MATE CO., LTD.
Leopalace Smile Co., Ltd.

Initiatives for Strengthening Management Foundation

2. Going concern assumption
There are no issues applicable to the going concern assumption.

Leopalace Trust Co., LTD. (now Mirai Support Trust Co., Ltd.)
has been excluded from the scope of consolidation in the year
ended March 2020 because the Company’s share of holding in
Mirai Support Trust was decreased as a result of the Company’s
partial sale of shares in Mirai Support Trust and its third party
allotment.
The Company sold all the shares in Life Living Co., Ltd. in theyear ended March 2020 and excluded it from the scope of consolidation.
The accompanying consolidated financial statements as ofMarch 31, 2020 include the accounts of the Company and its 24(26 as of March 31, 2019) subsidiaries and four associated companies Woori & Leo PMC Co., Ltd, Ancora Residential Fund LP, PT
TEGUH BINA KARYA, and Learn JP Corp. in equity method (together, “the Companies”). Among these four associated companies,
Ancora Residential Fund LP, PT TEGUH BINA KARYA, and Learn JP
Corp. are newly consolidated in equity method in the current fiscal
year. The fiscal year closing dates of these three companies aredifferent from the consolidated balance sheet date. The respective
financial statements of the Companies were used for consolidation. Associated companies over which the Company exercises significant influence in terms of the operating and financial policies
have been included in the consolidated financial statements inequity method. All significant intercompany balances and transactions have been eliminated.
The Company acquired the shares in TRUMAN HOLDINGSLIMITED during the fiscal year ended March 2020 and included it in
the companies where the Company applies the equity method forconsolidation. The total assets, sales, net income (loss) and retained
earnings both on an equity method basis and other items do notmake material impact on the consolidated financial statements.
The balance sheet dates of Leopalace Guam Corporation,
Leopalace Guam Distributing Corporation, and 15 other subsidiaries are all the same, being December 31. For the consolidated
entities whose fiscal year ends different from that of the Company
but within 3 months, their financial results are used in the preparation of consolidated financial statements. When significant
transactions occur to those subsidiaries between their fiscal year
ends and the Company’s fiscal year end, those transactions arenecessarily adjusted to consolidate.

Toward the Recovery of Business Performance and Trust

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of Leopalace21
Corporation (“the Company”) have been prepared in accordance withthe provisions of Financial Instruments and Exchange Act of Japan,
its related accounting regulations and in conformity with accounting principles generally accepted in Japan, which are different incertain respects, as to application and disclosure requirements fromInternational Financial Reporting Standards.
The accompanying consolidated financial statements have beenreformatted and translated into English (with certain expanded disclosure) from the consolidated financial statements of the Company
prepared in accordance with accounting principles generally accepted in Japan and filed with the Financial Services Agency as requiredby the Financial Instruments and Exchange Act of Japan.
The translation of the Japanese yen amounts into U.S. dollars is
prepared solely for the convenience of readers outside Japan, using
the prevailing exchange rate at March 31, 2020, which was 108.83
yen to US$1.00. Such translation should not be construed as a representation that the Japanese yen amounts have been, could havebeen, or could in the future be, converted into U.S. dollars at this or
any other rate of exchange. Certain amounts in the previous year’s
financial statements have been reclassified to conform to the current
fiscal year’s presentation.
Figures are rounded down to the nearest 1,000,000 yen or $1,000.

80

Le op alace 21 Int egr a t ed Repor t 2020(3) Inventories
Real estate for sale and real estate for sale in process are primarily
stated at cost (presented in net book value less write-down when
profitability declines) determined by the specific identification method.
Costs on construction contracts in progress are primarily stated atcost determined by the specific identification method.
Raw materials and supplies are primarily stated at cost (presented
in net book value less write-down when profitability declines) determined by the last purchase price method.
Cost of sales for the Development Business includes the
reduced book value which is caused by the declined contribution of
inventories to profitability.
Millions of yen

Thousands of
U.S. dollars

Item

2020

2019

2020

Loss from inventory revaluation

634

—

5,827

(4) Securities
Held-to-maturity debt securities are stated at amortized cost(straight-line method).
Other securities with available fair values are stated at fairvalue at the end of the fiscal year of each consolidated company.
Other securities without available fair values are stated at cost by
the moving-average method.
Unrealized gains or losses on these securities are reported, netof income taxes, as a separate component of net assets. Cost of
securities sold is computed using the moving-average method.
Investments in silent partnership are reported in the equity
method, based on the latest financial statements available as at theclosing dates stipulated by the respective partnership contracts.
(5) Derivative financial instruments and hedge accounting
Accounting principles: Fair value(6) Property, plant and equipment (except for leased assets)
Property, plant and equipment for rent of the Company and domestic consolidated subsidiaries are stated at cost. Depreciation iscomputed generally on the straight-line basis. The useful lives are
principally from 22 to 47 years for buildings and structures for rent.
Property, plant and equipment other than above of theCompany and domestic consolidated subsidiaries are stated atcost. Depreciation is computed generally by the declining-balancemethod. However, buildings (excluding facilities attached to buildings) obtained on or after April 1, 1998, and facilities attached tobuildings and structures obtained on or after April 1, 2016, aredepreciated by the straight-line method. The useful lives are principally from 15 to 50 years for buildings and structures, 17 years
for machinery, equipment and vehicles, and 5 to 10 years for tools,
furniture and fixtures.
Property, plant and equipment of the consolidated overseas
subsidiaries are depreciated by the straight-line method basedon the local GAAP. The useful lives are principally from 20 to 40
years for buildings and structures and from 3 to 5 years for tools,
furniture and fixtures.
(7) Intangible fixed asset
Software for internal use is amortized on a straight-line basis overthe estimated useful life of 5 years.
(8) Long-term prepaid expenses
Long-term prepaid expenses are amortized evenly over a period
mainly from 3 to 5 years.
(9) Bond issuance cost
Bond issuance costs are amortized evenly until maturity.
(10) Allowance for doubtful accounts
The Companies maintain an allowance for doubtful accounts toreserve for potentially uncollectible receivables. A provision forgeneral doubtful receivables is provided by applying a certain
reserve percentage of the receivables based on experience frompast transactions. A specific reserve is recorded for the estimatedamount to be uncollectible based on the customers’ financial condition or other pertinent factors.
(11) Liability for retirement benefit
In conjunction with the calculation of retirement benefit obligations,the method for attributing projected retirement benefits for theperiod up to the current fiscal end is based on a straight-line basis.
Actuarial gains/losses, which are prorated according to thestraight-line method over a specified period (5 years) within the
average remaining service years of employees at the time ofaccrual, are amortized starting from the next fiscal year of therespective accruals. Unrecognized actuarial gains/losses areposted after tax effects, as the cumulative amount of adjustments
attributed to accumulated other comprehensive income in the net
assets. Certain consolidated subsidiaries have adopted a simplified method of calculation with liability for retirement benefits
and retirement benefits expense. Under this simplified method,
retirement benefit obligation is deemed to be equal to the amountwhich would be required to pay if all eligible employees voluntarily
retire at the end of the fiscal year.
(12) Reserve for apartment vacancy loss
Reserve for vacancy losses on apartment units managed undermaster lease agreements is calculated according to the projected
loss that could incur during a reasonably estimable period to prepare for the risk of increasing vacancies. It is based on estimatedlosses resulting from current rental income and expected futureoccupancy rates for each rental property managed by the leasing
business division of the Company and included in the cost of saleof the leasing business division.

Leopalace21 Integrated Report 2020(14) Reserve for warranty obligations on completed projects
Reserve for warranty obligations on completed projects is accrued
to reserve for execution of warranty obligations under defectliabilities in the future. It is calculated using the percentage of thepast execution of warranty obligations on the completed projects.
(15) Reserve for fulfillment of guarantees
In order to reserve for losses due to its rent obligation guarantees
business, the Company’s consolidated subsidiary, Plaza Guarantee
Co., Ltd., records the amount of loss expected based on the rate ofpast guarantee fulfillments.

(17) Advances received
With respect to advances received, such as rent, the Company
reports the portion corresponding to more than a year in “longterm advances received” under “non-current liabilities,” and the
portion corresponding to a year or less in “advances received”
under “current liabilities.” This allows the Company to moreclearly present the characteristics and actual transactions of theCompany’s leasing business.

(19) 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 consequencesof temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes.

(22) Foreign currency financial statements
The assets and liabilities of consolidated overseas subsidiaries
are translated into Japanese yen at the spot exchange rates as ofeach balance sheet date, and income and expenses are translated
at the average exchange rates of the fiscal year. Foreign currencytranslation adjustments resulting from the translation of assets,
liabilities and net assets are reclassified into foreign currencytranslation adjustments and non-controlling interests.
(23) Interest capitalization
Leopalace Guam Corporation, a consolidated subsidiary, of whichinterest paid on borrowing for real estate development businessfor the development period capitalized into acquisition cost of
property, plant and equipment.
Capitalized interests included in carrying value of property,
plant and equipment were 318 million yen ($2,924 thousand) as ofMarch 31, 2020.
(24) Consumption taxes
National and local consumption taxes are basically excluded fromtransaction amounts. However, transaction amounts of Asuka SSI,a consolidated subsidiary, include national and local consumption
taxes. The nondeductible portion of consumption taxes on thepurchase of assets is recorded as long-term prepaid expenses andamortized evenly over 5 years.
(25) Earnings per share
Basic earnings per share of common stock is computed by net
income available to common shareholders divided by the weighted-average number of common stock outstanding for the period.
Diluted earnings per share of common stock reflects the potential dilution that could occur if securities or other contracts to issuecommon stock were converted or exercised into common stock or
resulted in the issuance of common stock.

Data Compilation(18) Amortization method and period of goodwill
The Company has adopted a policy whereby goodwill is amortizedon a straight-line basis over the period in which the economic
benefits are expected to be realized. However, if the amount is
negligible, it is amortized at once when it takes place.

(21) Foreign currency transactions
All monetary receivables and payables denominated in foreign
currencies are translated into Japanese yen at the spot exchange
rates as of each balance sheet date. The foreign exchange gains
and losses from translation are recognized in the consolidated
statement of income.

Initiatives for Strengthening Management Foundation(16) Revenues and costs of construction contracts
In recognizing construction revenues and costs of constructions inprocess, the percentage-of-completion method is applied to suchcontracts in which the outcome of the construction activity is deemedcertain by the end of the fiscal year, while the completed contract
method is applied to other constructions. Progress rate of construction
is estimated based on the method of the ratio of actual cost incurred
to total estimated cost.

(20) Leased assets
Leased assets are depreciated by the straight-line method overthe lease-term of respective assets as their useful lives with noresidual value.

Toward the Recovery of Business Performance and Trust(13) Reserve for losses related to repairs
In order to reserve for the losses related to repairs, an estimatedamount of provision is recorded based on the defect rate, etc.

81

82

Le op alace 21 Int egr a t ed Repor t 2020

4. Additional Information(1)Unapplied Accounting Standards for Revenue Recognition
and related Implementation Guidances• Accounting Standard for Revenue Recognition (ASBJ Statement
No.29 issued on March 31, 2020 by Accounting Standards Boardof Japan)• Implementation Guidance on Accounting Standard for Revenue
Recognition (ASBJ Guidance No.30 issued on March 31, 2020 byAccounting Standards Board of Japan)• Implementation Guidance on Disclosures about Fair Value of
Financial Instruments (ASBJ Guidance No.19 issued on March
31, 2020 by Accounting Standards Board of Japan)(a) Summary
The International Accounting Standards Board (IASB) and
Financial Accounting Standards Board (FASB) jointly developed
the converged accounting standards for revenue recognition
and announced, “Revenue from Contracts with Customers”(IFRS 15 in IASB and Topic 606 in FASB) in May 2014. IFRS 15
is effective for annual reporting periods beginning on or after
1 January 2018 and Topic 606 is effective for annual reporting
periods beginning on or after December 15, 2017. AccountingStandards Board of Japan (ASBJ) then developed andannounced ASBJ Statement No.29, ASBJ Guidance No.30 and
ASBJ Guidance No.19 to progress with the change.
ASBJ developed the accounting standards for revenue
recognition by adopting the basic rules in IFRS 15, for the basic
policy that is to be consistent with IFRS 15 and to take advantage of the financial compatibility with IFRS 15. Additionally,
considering the accounting practices that Japan has carried out
so far, substitutive treatments have been supplemented the
new standard without affecting the financial comparability.
(b) Effective date
The new standards will be effective from the beginning of the
fiscal year ending March 2022.
(c) I mpact of the application of the relevant accounting
standards
The impact of the application of Accounting Standard for
Revenue Recognition on consolidated financial statements iscurrently being evaluated.
(2) Unapplied Accounting Standards for Fair Value
Measurement and related Implementation Guidances• Accounting Standard for Fair Value Measurement (ASBJ
Statement No.30 issued on July 4, 2019 by AccountingStandards Board of Japan)• Accounting Standard for Measurement of Inventories (ASBJ
Standard No.9 issued on July 4, 2019 by Accounting Standards
Board of Japan)•A ccounting Standard for Financial Instruments (ASBJ Statement
No.10 issued on July 4, 2019 by Accounting Standards Board ofJapan)• Implementation Guidance on Accounting Standard for Fair Value
Measurement (ASBJ Guidance No.31 issued on July 4, 2019 byAccounting Standards Board of Japan)• Implementation Guidance on Disclosures about Fair Value of
Financial Instruments (ASBJ Guidance No.19 issued on March
31, 2020 by Accounting Standards Board of Japan)(a) Summary
Considering nearly identical details of fair value measurementby the International Accounting Standards Board (IASB) andthe Financial Accounting Standards Board (FASB), namely IFRS
13 “Fair Value Measurement” under International Financial
Reporting Standards (IFRS) and Topic 820 of “Fair Value
Measurement” in the Accounting Standards Codification under
U.S. GAAP Accounting Standards, the Accounting Standards
Board of Japan disclosed the “Accounting Standards for Fair
Value Measurement” in an effort to ensure Japanese GAAP isconsistent with international accounting principles principallywith respect to the guidance and disclosures about fair value offinancial instruments.
The Accounting Standards Board of Japan adopted a basic
policy that a uniform calculation method should be employedin the development of the accounting standard for improving
the comparability of financial statements between the companies in and outside Japan and accepted the provisions of
IFRS No. 13. In addition, the Accounting Standards Board ofJapan accepted the other handling of individual items without
affecting the financial comparability of financial statements,
considering the accounting practices that had been conductedso far in Japan.
(b) Effective date
The new standards will be effective from the beginning of the
fiscal year ending March 2022.
(c) I mpact of the application of the relevant accounting
standards
The impact of the application of the Accounting Standard for
Measurement of Fair Value on consolidated financial statements has not been determined at this time.
(3) U napplied Accounting Standard for Accounting Policy
Disclosure, Accounting Changes and Error Corrections• Accounting Standard for Accounting Policy Disclosures,
Accounting Changes and Error Corrections (ASBJ Statement
No.24 issued on March 31, 2020 by Accounting Standards Boardof Japan)Leopalace21 Integrated Report 2020(4) Unapplied Accounting Standard for Disclosure of
Accounting Estimates• Accounting Standards for the Disclosure of Accounting
Estimates (ASBJ Statement No. 31 issued on March 31, 2020 byAccounting Standards Board of Japan)(5) Changes in the purpose of holding tangible fixed assets
The Companies transferred 49 million yen ($453 thousand) to buildings and structures, 344 million yen ($3,161 thousand) in land, and4 million yen ($37 thousand) in other (tools, furniture and fixtures)to 102 million yen ($938 thousand) in real estate for sale and 295
million yen ($2,714 thousand) in real estate for sale in progress due
to a change in the purpose of holding a part of property, plant andequipment during the year ended March 2020.
(6) Provision of reserve for losses related to repair works
The entire amount of provision of reserve for losses related to
repair works was recorded as current liabilities. Considering the
progress of repair works, a portion of the provision recognized as
not used within one year in the current fiscal year, is recorded as
non-current liabilities.
(7) A ccounting estimates for the spread of COVID-19 andits impact
The Companies assume that the spread of COVID-19 and theresulting economic sluggishness will continue for the time being
and affect their overall business.
In particular the number of tenancy agreements in Leasing
Business, our mainstay business, will remain weak until June
2020. Based on the assumption, accounting estimates such as therecoverability of deferred tax assets are made.
The best estimates are made based on a variety of information
available at the time of preparation of the consolidated financial
statements. In the event of a change in the time for the ending of
COVID-19 pandemic and its impact on the economic environment
due to uncertainty in the assumptions used in the estimates, thismay have an impact on the companies’ financial position andresults of operations.

5. Cash and Cash Equivalents(1) A reconciliation between cash and cash equivalents in the consolidated balance sheet and consolidated statement of cash
flows are as follows:
Thousands of
U.S. dollars

Millions of yen

Cash and cash equivalents in the consolidated balance sheet
Time deposits with original maturities of more than three months
Cash and cash equivalents in the consolidated statement of cash flows

2020

2019

2020

60,501(1,585)58,916

84,536(1,517)
83,019555,929(14,565)
541,363

Data Compilation(a) Summary
As to the “sources of estimation uncertainty” which arerequired in the paragraph 125 of International AccountingStandards No. 1, “Presentation of Financial Statements,”
issued by the International Accounting Standards Board (IASB)
in 2003 (“IAS No.1”), the Accounting Standards Board of Japan
received requests for examining the disclosure of information
as a note in the Japanese standard as highly useful information to the users of financial statements. The AccountingStandards Board of Japan developed and published AccountingStandard for Disclosure of Accounting Estimates (hereinafter,“Accounting Standard for Disclosure”).
The Accounting Standards Board of Japan adopted a policyof displaying principles and respecting the company’s judgment
on individual disclosure in the light of their purpose of disclo-(b) Expected date
The new standards will be effective from the end of the fiscal
year ending March 31, 2021.

Initiatives for Strengthening Management Foundation(b) Effective date
The new standards will be effective from the end of the fiscal
year ending March 31, 2021.

sure instead of expanding specific details of the individual
notes. The Accounting Standards Board of Japan determined torefer to the provisions of IAS No. 1, Paragraph 125.

Toward the Recovery of Business Performance and Trust(a) Summary
The Accounting Standards Board of Japan made necessary
amendments and published as accounting standard foraccounting policy disclosure, accounting changes and error
corrections, in response to the recommendations for enhancing
the notes to “accounting principles and procedures adopted incases where relevant accounting standards are unclear.”
As to the notes related to “accounting principles and procedures adopted in cases where the provisions of relevant
accounting standards are unclear,” the Accounting Standards
Board of Japan determined to follow the annotation No.1-2of the Corporate Accounting Principles in order to avoid theimpact on the practices in cases where relevant accounting
standards are clear.

83

84

Le op alace 21 Int egr a t ed Repor t 2020(2) Major assets and liabilities related to the company whichwere excluded from consolidation as a result of theCompany’s sale of shares in the company
The breakdown of assets and liabilities at the time of sale of sharesin Life Living Co., Ltd., selling price and revenue from the sale, which
excluded Life Living Co., Ltd. from consolidation, for the year ended
March 31, 2020 were as follows.

Current assets
Non-current assets
Goodwill
Current liabilities
Non-current liabilities
Loss on sale of shares
Sale value
Cash and cash equivalents
Proceeds from sale

Millions of yen

Thousands of
U.S. dollars

2020

2020

5,435
722
953
(1,389)
(12)
(2)
5,706
(1,414)
4,292

49,943
6,638
8,757(12,767)(116)(21)
52,433(12,993)
39,439For the year ended March 2019
None

6. Financial Instruments(1) The financial instruments and related disclosures(a) Policy for financial instruments
The Companies are mainly involved in raising funds (mostly bankborrowing and corporate bond issuance) needed for planned
capital investments. Temporary excess funds are invested inhighly secured financial assets, and short-term working capitalis raised by borrowing from the bank. The Companies conduct
derivative transactions primarily for the purpose of avoiding
interest rate and exchange rate risks, and have a policy not to
conduct speculative trading.
(b) Nature and extent of risks arising from financial instruments
Operating receivables and loans outstanding are exposed tocredit risk.
Foreign currency denominated debts and credits originated inconjunction with overseas business development are exposed to
exchange rate risk.
Securities and investment securities are mainly held-tomaturity securities and shares of the companies with which
the Company has a business or capital alliance, and thosesecurities are exposed to market risk and credit risk associatedwith the issuers.
Almost all electronically recorded obligations, accounts payable, accounts payable for completed projects which are operating liabilities, and account payable-other are scheduled to be
paid within one year.
Loans payable, corporate bonds, and lease obligations related
to finance lease transactions are mainly for the purpose of raisingfunds necessary for investment in facilities, and the longest repayment date is 12 years subsequent to the fiscal year end.
As of end of the year ended March 2020, there was no balance of derivative transactions.
(c) Risk management for financial instruments
Credit risk management for operating receivables and loans outstanding follows the “Receivables management rules”. Whileeach business division manages the extension of credit to its
customers, and each division is also organized for early detection and loss reduction of accounts where collection is doubtful
due to worsening credit or similar problems.
Regarding securities and investment securities, the Company
periodically investigates and understands the share price andthe financial condition of the share issuing organization. In addition, for items other than held-to-maturity securities, theCompany considers the relationship with the trading partnercompanies and constantly re-evaluates its holdings.
The basic policy of derivatives trading is determined by theboard of directors, and the execution and administration ofderivatives transactions are conducted in accordance with theCompany’s “Derivatives Trading Management Rules”. The derivatives trading management situation is periodically reported tothe board of directors for comprehensive risk management.
Trade payables and debts are exposed to liquidity risk, but
this risk is monitored by various means such as the preparationof a monthly financial plan by each company in the Companies.
(d) S upplementary explanations on fair value offinancial instruments
Fair value of financial instruments is measured based on thequoted market price, or reasonably assessed value if a quoted
market price is not available.
Fair value of financial instruments whose quoted market
price is not available is calculated based on a fluctuating factor,
and the value might differ if different assumptions are used.

Leopalace21 Integrated Report 2020

Millions of yen

March 31, 2020

Fair value

Difference

60,501
7,792
2,713
132
(5)
126
1,025
(83)
942
225
(225)
—
72,077
176
4,622
14,935847
8,103
18,3108,877
55,87260,501
7,792
2,724

—
—
10

140

13

942

—

—
72,102
176
4,622
14,935847
8,117
18,436
9,705
56,841

—
24
—
—
—
—
14
126
828
969

Initiatives for Strengthening Management Foundation(1) Cash and cash equivalents(2) Trade receivables and accounts receivable for completed projects(3) Securities and investment securities(4) Operating loans
Allowance for doubtful accounts *(i)Net(5) Long-term loans
Allowance for doubtful accounts *(i)Net(6) Bad debts
Allowance for doubtful accounts *(i)
Net
Total
(1) Electronically recorded obligations(2) Accounts payable and accounts payable for completed projects(3) Accounts payable-other(4) Short-term borrowings(5) Bonds *(ii)(6) Long-term debt *(ii)(7) Lease obligations
Total

Carrying value

Toward the Recovery of Business Performance and Trust(2) Fair value of financial instruments
The carrying value on the consolidated balance sheet and fair value of financial instruments as of March 31, 2020 and 2019 as well as the differences between these values are described below. Financial instruments whose fair values appear to be extremely difficult to determine are notincluded in the table.

85*Notes:(i)	Operating loans, long-term loans and bad debts have deductions of their respective allowance for doubtful accounts, which are recorded separately.
(ii)	As of March 31, 2020, bonds due within one year of 3,066 million yen and current portion of long-term debt of 2,659 million yen are included in bonds
and long-term debt.
Data Compilation

86

Le op alace 21 Int egr a t ed Repor t 2020

Millions of yen

March 31, 2019(1) Cash and cash equivalents(2) Trade receivables and accounts receivable for completed projects(3) Securities and investment securities(4) Operating loans
Allowance for doubtful accounts *(i)Net(5) Long-term loans
Allowance for doubtful accounts *(i)Net(6) Bad debts
Allowance for doubtful accounts *(i)
Net
Total
(1) Electronically recorded obligations(2) Accounts payable and accounts payable for completed projects(3) Accounts payable-other(4) Short-term borrowings(5) Bonds *(ii)(6) Long-term debt *(ii)(7) Lease obligations
Total

Carrying value

Fair value

Difference

84,536
8,617
3,518
256
(27)
229
501
(91)
409
214
(214)
—
97,311
897
8,752
14,922
1,070
12,06921,086
13,821
72,62084,536
8,617
3,534

—
—
16

269

39

409

—

—
97,367897
8,752
14,922
1,070
12,102
21,30913,66972,723

—
55
—
—
—
—
33
222
(152)
103

*Notes:(i)	Operating loans, long-term loans and bad debts have deductions of their respective allowance for doubtful accounts, which are recorded separately.
(ii)	As of March 31, 2019, bonds due within one year of 3,966 million yen, and current portion of long-term debt of 2,768 million yen are included inbonds and long-term debt.
Thousands of U.S. dollars

March 31, 2020
(1) Cash and cash equivalents(2) Trade receivables and accounts receivable for completed projects(3) Securities and investment securities(4) Operating loans
Allowance for doubtful accounts *(i)Net(5) Long-term loans
Allowance for doubtful accounts *(i)Net(6) Bad debts
Allowance for doubtful accounts *(i)
Net
Total
(1) Electronically recorded obligations(2) Accounts payable and accounts payable for completed projects(3) Accounts payable-other(4) Short-term borrowings(5) Bonds *(ii)(6) Long-term debt *(ii)(7) Lease obligations
Total

Carrying value

Fair value

Difference

555,929
71,60424,936
1,219
(53)
1,166
9,424
(763)
8,661
2,073
(2,073)—
662,296
1,621
42,477137,232
7,790
74,455
168,245
81,567513,390555,929
71,60425,031

—
—
94

1,294

128

8,661

—

—
662,519
1,621
42,477137,232
7,790
74,587
169,410
89,176522,295

—
222
—
—
—
—
131
1,164
7,608
8,904

*Notes:(i) Operating loans, long-term loans and bad debts have deductions of their respective allowance for doubtful accounts, which are recorded separately.
(ii)	As of March 31, 2020, bonds due within one year of $28,172 thousand and current portion of long-term debt of $24,436 thousand are included inbonds and long-term debt.

Leopalace21 Integrated Report 202087

Notes:(a) Matters concerning the calculation method for the fair value of financial instruments, securities, and derivative transactions

Securities and investment securities
Shares are stated at the stock exchange quoted price; bonds are stated at either the stock exchange quoted price or the price presented
by transacting financial institutions.
For notes to securities by holding purposes, please refer to “7. Securities”.
Operating loans
The fair value of operating loans is stated at the net present value, which is calculated by discounting the principal with interest by thediscount rate (i.e. the estimated interest rate for new transaction).

Liabilities
Electronically recorded obligations
Accounts payable and accounts payable for completed projects
Account payable-other
Short-term borrowings
These liabilities are stated at carrying amount as they are settled in the short-term and their fair values approximate their carrying amount.

Initiatives for Strengthening Management Foundation

Long-term loans
Bad debts
The fiscal year-end outstanding balances are calculated mainly using expected future cash flows of the potentially recoverable principal
and interest.

Toward the Recovery of Business Performance and Trust

AssetsCash and cash equivalents
Trade receivables and accounts receivable for completed projects
These assets are stated at carrying amount as they are settled in the short-term and their fair values approximate their carrying amount.

Bonds
Bonds issued by the Company are privately offered, and their fair value is stated at the net present value, which is calculated by discounting the principal with interest by the discount rate (i.e. the current market interest rate in consideration of residual value and credit risk).

(b) Financial instruments whose fair value appear to be extremely difficult to recognize
Thousands of
U.S. dollars

Millions of yen

Item

2020

2019

2020

Unlisted shares
Unconsolidated subsidiaries and associates
Unlisted bonds (subordinate corporate bonds)
Subordinate beneficiary rights to loans and accounts receivable in trust
Investments in silent partnership
Total

2,935
1,060
6,424
866
114
11,400

4,510
70
6,424
870
2,764
14,64026,974
9,741
59,0307,961
1,050
104,757

As they have no market value, and as it is understood that it is extremely difficult to estimate their future cash flow, the above financial
instruments are not included in “Assets: Securities and investment securities”.

Data Compilation

Long-term debt,
Lease obligations
These liabilities are stated at the net present value, which is calculated by discounting the principal with interest by the discount rate (i.e.
the estimated interest rate for new borrowings or lease transaction).

88

Le op alace 21 Int egr a t ed Repor t 2020(c) The scheduled redemption amounts of monetary claims and investment securities with maturity subsequent to fiscal year end
Millions of yen

Due within 1 year

Due after 1 year
through 5 years

Due after 5 years
through 10 years

Due after
10 years

60,501

—

—

—

7,792

—

—

—

200
—

200
—

500
—

—
—

150
5,600
—
46
145
—
74,436

—
—
—
52
414
—
666

36
—
—
21
18
—
575

—
824
866
12
447
225
2,376

Due within 1 year

Due after 1 year
through 5 years

Due after 5 years
through 10 years

Due after
10 years

Cash and cash equivalents

84,536———

Trade receivables and accounts receivable forcompleted projects

8,617

—

—

—

(1) Government and municipal bonds

400

400

500

—

(2) Corporate bonds

—

—

—

—

(1) Government and municipal bonds

852

150

—

—

(2) Bonds (Corporate bonds)

—

5,600

—

824

(3) Others

—

—

—

870

Operating loans

109

104

26

16

March 31, 2020
Cash and cash equivalents
Trade receivables and accounts receivable forcompleted projects
Securities and investment securities
Held-to-maturity debt securities(1) Government and municipal bonds(2) Corporate bonds
Other securities with maturities(1) Government and municipal bonds(2) Bonds (Corporate bonds)(3) Others
Operating loans
Long-term loans
Bad debts
Total

Millions of yen

March 31, 2019

Securities and investment securities
Held-to-maturity debt securities

Other securities with maturities

Long-term loans

11

23

16

451

Bad debts

—

—

—

214

94,526

6,277

542

2,377

Total

Leopalace21 Integrated Report 2020

89

Thousands of U.S. dollars

Due after 5 years
through 10 years

Cash and cash equivalents

555,929———

Trade receivables and accounts receivable for completed
projects

71,604

—

—

—

1,837

1,837

4,594

—

—

—

—

—

(1) Government and municipal bonds

1,378

—

330

—

(2) Bonds (Corporate bonds)

51,456

—

—

7,573

—

—

—

7,961

March 31, 2020

Due after
10 years

Securities and investment securities
Held-to-maturity debt securities(1) Government and municipal bonds(2) Corporate bonds
Other securities with maturities(3) Others

430

478

199

110

1,332

3,810

166

4,115

Bad debts
Total

—

—

—

2,073

683,968

6,126

5,291

21,834(3) Scheduled repayment amounts of bonds payable, long-term debt, lease obligations, and other interest-bearing debt subsequent to fiscal year end is as follows:
Millions of yen

Due within
1 yearDue after 1
through 2 years

Due after 2
through 3 years

Due after 3
through 4 years

Due after 4
through 5 years

Due after
5 years

Short-term borrowings

847

—

—

—

—

—

Bonds

3,066

3,066

1,971

—

—

—

Long-term debt

2,659

2,639

2,437

1,396

1,405

7,771

Lease obligations

4,344

3,113

1,151

238

28

—

Total

10,918

8,818

5,560

1,634

1,434

7,771

March 31, 2019

Due within
1 yearDue after 1
through 2 years

Due after 2
through 3 years

Due after 3
through 4 years

Due after 4
through 5 years

Due after
5 years

March 31, 2020

Initiatives for Strengthening Management Foundation

Operating loans
Long-term loans

Toward the Recovery of Business Performance and Trust

Due within 1 year

Due after 1 year
through 5 years

Millions of yen

1,070

—

—

—

—

—

Bonds

3,966

3,066

3,066

1,971

—

—

Long-term debt

2,768

2,660

2,639

2,438

1,396

9,182

Lease obligations

5,320

4,267

3,029

1,060

144

—

Total

13,124

9,993

8,735

5,469

1,541

9,182

March 31, 2020

Due within
1 yearDue after 1
through 2 years

Due after 2
through 3 years

Due after 4
through 5 years

Due after
5 years

Thousands of U.S. dollars

Due after 3
through 4 years

Short-term borrowings

7,790

—

—

—

—

—

Bonds

28,172

28,172

18,110———Long-term debt

24,43624,25022,39912,82912,916

71,413

Lease obligations

39,92328,606

10,583

2,193

260

—

Total

100,322

81,02851,09315,023

13,177

71,413

Data Compilation

Short-term borrowings

90

Le op alace 21 Int egr a t ed Repor t 2020

7. Securities(1) On March 31, 2020 and 2019, information with respect to held-to-maturity debt securities for which market prices are available
is summarized as follows:
Millions of yen

Consolidated balance
sheet amount

Fair value

Difference

Government and municipal bonds

905

915

10

Corporate bonds

—

—

—

March 31, 2020
Securities whose fair value exceeds the consolidatedbalance sheet amount:

Others———Subtotal

905

915

10

Government and municipal bonds

—

—

—

Corporate bonds

—

—

—

Others———Subtotal

—

—

—

Total

905

915

10

Securities whose fair value does not exceed the consolidatedbalance sheet amount:

Millions of yen

March 31, 2019

Consolidated balance
sheet amount

Fair value

Difference

Securities whose fair value exceeds the consolidatedbalance sheet amount:
Government and municipal bonds

1,309

1,325

16

Corporate bonds

—

—

—

Others

—

—

—

1,309

1,325

16

Subtotal
Securities whose fair value does not exceed the consolidatedbalance sheet amount:
Government and municipal bonds

—

—

—

Corporate bonds

—

—

—

Others———Subtotal

—

—

—

Total

1,309

1,325

16

Leopalace21 Integrated Report 2020

91

Thousands of U.S. dollars

Fair value

Difference

8,317

8,412

94

Corporate bonds

—

—

—

Others

—

—

—

8,317

8,412

94

Government and municipal bonds

—

—

—

Corporate bonds

—

—

—

Others———March 31, 2020
Securities whose fair value exceeds the consolidatedbalance sheet amount:
Government and municipal bonds

Subtotal
Securities whose fair value does not exceed the consolidatedbalance sheet amount:

Subtotal

—

—

—

Total

8,317

8,412

94

Millions of yen

Consolidated balance
sheet amount

Acquisition cost

Difference

1,610

100

1,510

Government and municipal bonds

112

111

0

Corporate bonds

—

—

—

Others———Others

—

—

—

1,722

211

1,510

12

13

(0)

March 31, 2020
Securities whose consolidated balance sheet amount exceeds
their acquisition cost:
Stock
Bonds:

Subtotal

Initiatives for Strengthening Management Foundation(2) Investment securities classified as other securities as of March 31, 2020 and 2019 are as follows:

Toward the Recovery of Business Performance and Trust

Consolidated balance
sheet amount

Securities whose consolidated balance sheet amount does not exceed
their acquisition cost:
Bonds:
Government and municipal bonds

74

74

(0)

Corporate bonds

—

—

—

Others———Others———Subtotal

86

87

(0)

Total

1,808

299

1,509

Note:
March 31, 2020
2,935 million yen of unlisted shares, 1,060 million yen of unconsolidated subsidiary shares and associates, 6,424 million yen of unlisted bonds(subordinate corporate bonds), 866 million yen of subordinate beneficiary rights to loans and accounts receivable in trust, and 114 million yen
of investments in silent partnership, are not included in the other securities given above, because they have no fair value and assigning themfair market prices is recognized to be extremely difficult. The Company acquired the unlisted bonds (subordinate corporate bonds) and thesubordinate beneficiary rights to loans and accounts receivable in trust, as a result of the securitization of non-recourse apartment loansthat financial institutions had loaned to clients as funds for paying construction charges to the Company.

Data Compilation

Stock

92

Le op alace 21 Int egr a t ed Repor t 2020

Millions of yen

Consolidated balance
sheet amount

Acquisition cost

Difference

862

460

402

Government and municipal bonds

965

959

6

Corporate bonds

—

—

—

Others———Others

—

—

—

1,827

1,419

408

342

347

(4)

Government and municipal bonds

38

38

(0)

Corporate bonds

—

—

—

Others———March 31, 2019
Securities whose consolidated balance sheet amount exceeds
their acquisition cost:
Stock
Bonds:

Subtotal
Securities whose consolidated balance sheet amount does not exceed
their acquisition cost:
Stock
Bonds:

Others———Subtotal

380

385

(4)

Total

2,208

1,804

403

Note:
March 31, 2019
4,510 million yen of unlisted shares, 70 million yen of unconsolidated subsidiary shares and associates, 6,424 million yen of unlisted bonds(subordinate corporate bonds), 870 million yen of subordinate beneficiary rights to loans and account receivable in trust, and 2,764 million
yen of investments in silent partnership, are not included in the other securities given above, because they have no fair value and assigningthem fair market prices is recognized to be extremely difficult. The Company acquired the unlisted bonds (subordinate corporate bonds) andthe subordinate beneficiary rights to loans and accounts receivable in trust, as a result of the securitization of non-recourse apartment loansthat financial institutions had loaned to clients as funds for paying construction charges to the Company.

Leopalace21 Integrated Report 2020

93

Thousands of U.S. dollars

March 31, 2020

Acquisition cost

Difference

14,793918

13,874

Securities whose consolidated balance sheet amount exceeds
their acquisition cost:
Stock
Bonds:
1,029

1,029

0

Corporate bonds

—

—

—

Others———Others———15,823

1,947

13,875

112

119

(7)

Government and municipal bonds

683

684

(1)

Corporate bonds

—

—

—

Others———Government and municipal bonds

Subtotal
Securities whose consolidated balance sheet amount does not exceed
their acquisition cost:
Stock

Toward the Recovery of Business Performance and Trust

Consolidated balance
sheet amount

Bonds:———

Subtotal

795

804

(8)

Total

16,6182,752

13,866

Note:
March 31, 2020
$26,974 thousand of unlisted shares, $9,741 thousand of unconsolidated subsidiary shares and associates, $59,030 thousand of unlistedbonds (subordinate corporate bonds), $7,961 thousand of subordinate beneficiary rights to loans and accounts receivable in trust, and $1,050
thousand of investments in silent partnership, are not included in the other securities given above, because they have no fair value andassigning them fair market prices is recognized to be extremely difficult. The Company acquired the unlisted bonds (subordinate corporate
bonds) and the subordinate beneficiary rights to loans and accounts receivable in trust, as a result of the securitization of non-recourse
apartment loans that financial institutions had loaned to clients as funds for paying construction charges to the Company.

Millions of yen

March 31, 2020
Stock

Proceeds from sale

Gain on sale in total

Loss on sale in total

4,782

2,368

—

Bonds:
Government and municipal bonds

—

—

—

Corporate bonds

—

—

—
—

Others——Others

3,400

977

—

Total

8,182

3,346

—

March 31, 2019
None

Data Compilation(3) Proceeds from sales of other securities and gain or loss on these sales for the years ended March 31, 2020 and 2019 are summarized as follows:

Initiatives for Strengthening Management Foundation

Others94

Le op alace 21 Int egr a t ed Repor t 2020

Thousands of U.S. dollars

March 31, 2020

Proceeds from sale

Gain on sale in total

Loss on sale in total

43,947

21,765—Stock
Bonds:
Government and municipal bonds

—

—

—

Corporate bonds

—

—

—

Others———Others31,241

8,982

—

Total

75,18930,748—(4) Investment in associates included in investment securities of the consolidated balance sheet is as follows:
Thousands of
U.S. dollars

Millions of yen

Investment securities (stocks)
Of which, investment in joint venture

2020

2019

2020

1,060

70

9,741

77

70

715

8. Derivative Transactions(1) Derivative transaction not subjected to the application of hedge accounting
For the year ended March 31, 2020
None
For the year ended March 31, 2019None(2) Derivative transaction subjected to the application of hedge accounting
For the year ended March 31, 2020
None
For the year ended March 31, 2019
None

9. Main Properties(1) Breakdown of major plants, properties, and equipment are as follows:
Thousands of
U.S. dollars

Millions of yen

2020

2019

2020

Residential properties for rent

7,334

17,134

67,395

Domestic hotels

1,401

13,034

12,873

Head office and branches

25,94028,760238,355

Leopalace Resort Manenggon Hills Guam

21,586

26,632

198,347

Leopalace Power (solar power systems)

8,896

10,08881,748

Leopalace21 Integrated Report 202095(2) Due to acceptance of national subsidies, the following reduction entry amount is deducted from the acquisition cost of relevant assets:
Thousands of
U.S. dollars

Millions of yen

2019

2020

155

155

1,424

(3) The Companies recognize impairment loss on the following asset groups for the years ended March 31, 2020 and 2019:
March 31, 2020
PurposeCategory

Location

Rental assets (Apartment buildings and others, 3 units)

Land

Minami-ku, Yokohama-shi etc.

Hotel

Buildings and Structures

Chigusa-ku, Nagoya-shi

Millions of yen

Thousands of
U.S. dollars

285

2,621

298

2,738

Land

941

8,648

Construction in progress

41

379

Buildings and Structures

Guam

Land
Bangkok, Thailand

2,749

25,260

1,068

9,816

191

1,763

111

1,020

Rental assets(Serviced apartments)

Buildings and Structures

Rental assets(Serviced apartments)

Buildings and Structures

Phnom Penh, Cambodia

693

6,372

Business assets

SoftwareNakano-ku, Tokyo

45

417

Shared assets

Buildings and Structures

Construction (Development)
Section, Nakano-ku, Tokyo etc.

102

938

59

542

Shared assets

Buildings and Structures

Elderly Care Section,
Kanuma-shi, Tochigi etc.

51

473

OthersGoodwill

—

982

9,031

7,620

70,024

Land

Land

Total

flows at 5.7%, while net realizable value is determined based on
publicly appraised value.
For the domestic business, which has been in a continuous
operating loss, the book values of shared assets were reduced
to the recoverable amount, and the amount of the reduction wasrecorded as impairment loss.
The recoverable amount of shared assets is measured based on
the net selling price based on the value in use and posted prices.
In addition, for the goodwill posted when the Company
acquired Morizou Co. Ltd., the Company recorded all of theunamortized balance of the goodwill as impairment loss because
profitability in the original business plan examined at the time ofacquisition was no longer expected.

Data Compilation

The Companies recognize each property in domestic rental assets
as a unit, domestic shared assets as a business section, and groupthe overseas assets by managerial accounting segmentation. In
addition, the Companies group by company the assets which apart of consolidated subsidiaries possess.
The Companies wrote down book value of rental assets whose
profitability seriously declined, a hotel, resort facilities, and etc. torecoverable amount and recognized the reduced values as impairment losses.
Recoverable amount of rental assets, a hotel, and etc. aremeasured in the higher of their values in use or their net realizablevalues. Recoverable amount of overseas real estates for lease andresort facilities was based on the appraisal value by a real estateappraiser. Value in use is computed by discounting its future cash

Initiatives for Strengthening Management Foundation

Resort facilities

Impairment loss

Toward the Recovery of Business Performance and Trust

Machinery, equipment, and vehicles

2020

96

Le op alace 21 Int egr a t ed Repor t 2020

March 31, 2019
PurposeRental assets (Apartment buildings and others, 113 units)

Category

Buildings and Structures

Impairment loss

Location

Millions of yen

Odawara-shi, Kanagawa etc.

Land

Total

The Companies recognize each property in domestic rental
assets as a unit, and group the overseas assets by managerial
accounting segmentation.
The Companies wrote down book values of rental assets

938
6,621
7,560

decided to be sold to recoverable amount and recognized the
reduced values as impairment losses.
Recoverable amount of rental assets is measured in net realizable value.

10. Bad Debts
Bad debts are claims as stipulated under Article 32, Paragraph 1, and Item 10 of the Regulation concerning Financial Statements. Bad debts
on March 31, 2020 and 2019 consist of the following:Thousands of
U.S. dollars

Millions of yen

2020

2019

2020

Bad debts

70

70

649

Others

154

144

1,423

Total

225

214

2,073

Leopalace21 Integrated Report 2020

97

11. Income Taxes(1) Significant components of deferred tax assets and liabilities as of March 31, 2020 and 2019 are as follows:
2020

42,165
17,223
7,288
4,870
4,346
683
513
415
377
332
254
206
202
168
145
100
57
36
8
7
—
1,251
80,655(42,045)(36,769)(78,814)
1,840

33,935
15,526
7,294
3,897
4,096
601
573
393
463
494
253
188
239
110
139
99
57
105
55
775
307
605
70,216(23,985)(22,324)(46,309)23,907

387,446
158,256
66,97544,75539,938
6,277
4,713
3,815
3,467
3,053
2,339
1,897
1,862
1,548
1,336
921
529
330
79
72
—
11,495
741,115(386,338)(337,861)(724,199)
16,915

(66)
(462)
(19)
(548)
1,292

(112)
(123)
(26)
(262)
23,644(612)(4,245)(183)(5,041)
11,873*Notes:(i)	The valuation allowance increases by 32,505 million yen from the previous fiscal year. The main increases were 18,059 million yen in valuation allowance for loss carryforwards due to change in the company classification and 14,445 million yen in valuation allowance from
temporary differences.

Data Compilation

2019

Initiatives for Strengthening Management Foundation

Deferred tax assets:
Loss carried forward for tax purposes *(ii)Reserve for losses related to repairs
Impairment loss
Reserve for apartment vacancy loss
Retirement benefit liability
Advances received
Elimination of unrealized gain
Reserve for fulfillment of guarantees
Excess amortization on software
Allowance for doubtful accounts
Advances from customers
Loss on valuation of real estate for sale
Deposits received
Accounts payable - other
Asset retirement obligations
Accrued enterprise tax
Loss on valuation of property, plant and equipment
Reserve for warranty obligations on completed project
Sales promotion costAccrued bonuses
Asset adjustments
Others
Sub total
Valuation allowance for tax loss carryforwards *(ii)Valuation allowance for deductible temporary differences
Less: valuation allowance *(i)Total deferred tax assets
Deferred tax liabilities:
Reserve for special depreciation
Net unrealized gain on other securities
Fixed asset retirement expenses
Total deferred tax liabilities
Net deferred tax assets

2020

Toward the Recovery of Business Performance and Trust

Thousands of
U.S. dollars

Millions of yen

98

Le op alace 21 Int egr a t ed Repor t 2020(ii)	Loss carryforwards for tax purposes and deferred tax assets carried forward by due date.
Millions of yen

Due within
1 yearDue after 1
through 2 years

Due after 2
through 3 years

Due after 3
through 4 years

Due after 4
through 5 years

Due after
5 years

Total

Tax loss carryforwards *(i)

7,197

4,596

664

816

1,174

27,71742,165

Valuation allowance(7,197)(4,596)

(664)

(816)

(1,103)(27,666)(42,045)

Deferred tax asset

—

—

—

—

70

50

120*(ii)

March 31, 2020

*Notes:(i)	Tax loss carryforwards are calculated by multiplying the statutory tax rate.
(ii)	Deferred tax assets of 120 million are recorded for tax loss carryforwards of 42,165 million (the amount multiplied by the statutory tax
rate). The Company does not recognize a valuation allowance for such tax loss carryforwards to the extent that it is deemed recoverable
based on projected future taxable income.
Millions of yen

Due within
1 yearDue after 1
through 2 years

Due after 2
through 3 years

Due after 3
through 4 years

Due after 4
through 5 years

Due after
5 years

Total

Tax loss carryforwards *(iii)

4,715

7,200

4,599

640

881

15,89933,935

Valuation allowance(4,715)(4,499)(2,289)

(640)

(826)

(11,013)(23,985)

Deferred tax asset

—

2,700

2,309

—

54

4,885

9,950*(iv)March 31, 2019

*Notes:(iii)	Tax loss carryforwards are calculated by multiplying the statutory tax rate.
(iv)	Deferred tax assets of 9,950 million are recorded for tax loss carryforwards of 33,935 million (the amount multiplied by the statutory tax
rate). The Company does not recognize a valuation allowance for such tax loss carryforwards to the extent that it is deemed recoverable
based on projected future taxable income.
Thousands of U.S. dollars

March 31, 2020

Due within
1 yearDue after 1
through 2 years

Due after 2
through 3 years

Due after 3
through 4 years

Due after 4
through 5 years

Due after
5 years

Total

Tax loss carryforwards *(v)66,131

42,236

6,105

7,499

10,790254,683

387,446

Valuation allowance(66,131)(42,236)(6,105)(7,499)(10,143)(254,221)(386,338)

Deferred tax asset

—

—

—

—

646

461

1,108*(vi)*Notes:(v) Tax loss carryforwards are calculated by multiplying the statutory tax rate.
(vi)	Deferred tax assets of US$1,108 thousand dollars are recorded for tax loss carryforwards of US$387,446 thousand (the amount multiplied by the statutory tax rate). The Company does not recognize a valuation allowance for such tax loss carryforwards to the extent that
it is deemed recoverable based on projected future taxable income.
(2) Reconciliation of the differences between the normal effective statutory tax rate and the actual effective tax rate for the year
ended March 31, 2019 and 2020:
It is not applicable because of negative taxable income of the fiscal years.

Leopalace21 Integrated Report 2020

99

12. Short-term Borrowings and Long-term Debt
(1) Short-term borrowings, long-term debt and lease obligations on March 31, 2019 and 2020 consist of the following:
2020

2019

2020

Short-term borrowings

847

1,070

7,790

Current portion of long-term debt, with average interest rate of 0.96%

2,659

2,768

24,436

Current portion of lease obligations, with average interest rate of 2.79%

4,344

5,320

39,923Long-term debt, due 2021 to 2032, with average interest rate of 1.46%

15,65018,318143,809

Long-term lease obligations, due 2021 to 2025, with average interest rate of 2.78%

4,532

8,501

41,644

Total

28,03435,978257,603(2) The amounts of long-term debt and lease obligations (excluding their current portion) scheduled for repayment in five years
from fiscal year ended March 31, 2020 are as follows:
Millions of yen
Due after 1 through 2 years

Due after 2 through 3 years

Due after 3 through 4 years

Due after 4 through 5 years

Long-term debt

2,639

2,437

1,396

1,405

Lease obligations

3,113

1,151

238

28

Thousands of U.S. dollars
Due after 1 through 2 years

Due after 2 through 3 years

Due after 3 through 4 years

Due after 4 through 5 years

Long-term debt

24,25022,39912,82912,916

Lease obligations

28,606

10,583

2,193

260

Initiatives for Strengthening Management Foundation

Note:
The average interest rates above are calculated in weighted average in terms of the fiscal year-end balance of the borrowings and debts.
Please note, however, that the current portion of lease obligations and lease obligations (net of the current portion) are recorded in the consolidated balance sheet in the amount before deducting the interest portion from total lease liabilities for certain consolidated subsidiaries,
and that such lease obligations are not included in the calculation of the average interest rate.

Toward the Recovery of Business Performance and Trust

Thousands of
U.S. dollars

Millions of yen(3) Assets pledged as collateral for short-term borrowings and long-term debt on March 31, 2020 and 2019 are as follows:
2020

2019

2020

Cash and cash equivalents

130

105

1,199

Others (current assets)

251

—

2,314
497

Buildings and structures

54

63

Machinery, equipment, and vehicles

83

113

767

Others (intangible fixed assets)

730

767

6,711

Investment securities

36

55

334

Others (investments and other assets)

108

116

998

Total

1,395

1,221

12,822

Data Compilation

Thousands of
U.S. dollars

Millions of yen

100

Le op alace 21 Int egr a t ed Repor t 2020

(4) Liabilities with collateral at March 31, 2020 and 2019 are as follows:
Thousands of
U.S. dollars

Millions of yen

2020

2019

2020

Current portion of long-term debt

76

79

704

Long-term debt

629

714

5,782

Total

706

793

6,487

Note:
Within the assets pledged as collateral, cash and cash equivalents and investment securities are pledged as collateral for investees of consolidated subsidiaries and lenders of client’s housing loans, and there are no liabilities with collateral.
(5) Securities and investment securities which have been deposited with the Legal Affairs Bureau on March 31, 2020 and 2019 are
as follows:
Thousands of
U.S. dollars

Millions of yen

2020

2019

2020

Deposit for housing construction warranty

1,156

1,122

10,622

Advanced payment certificate in accordance with Payment Services Act

628

628

5,770

Deposit for business security under the Insurance Business Act

120

120

1,104

Deposit for housing defect warranty

109

109

1,001

Deposit for operation stipulated in Building Lots andBuildings Transaction Business Act

95

136

878

Guarantee deposits based on the Trust Business Act

—

25

—

Others9486(6) Bond balances on March 31, 2020 and 2019 consist of the following:Thousands of
U.S. dollars

Millions of yen

Company nameName of bondIssuance date

2020

2019

2020

Leopalace21 Corporation 13th unsecured straight bondOctober 31, 2014

—
(—)

900
(900)

—
(—)

Leopalace21 Corporation 14th unsecured straight bondSeptember 30, 2015

4,403
(1,666)

6,069(1,666)40,457(15,308)

Leopalace21 Corporation 15th unsecured straight bondSeptember 30, 2015

3,700
(1,400)

5,100(1,400)33,997(12,864)

8,103(3,066)

12,069(3,966)74,455(28,172)

Total

Note:
Figures in parentheses represent the current portion.
Company nameName of bondInterest rate (%)

Collateral

Date of maturity

Leopalace21 Corporation

13th unsecured straight bond

0.21

None

October 31, 2019

Leopalace21 Corporation

14th unsecured straight bond

0.13

None

September 30, 2022

Leopalace21 Corporation

15th unsecured straight bond

0.63

None

September 30, 2022

Leopalace21 Integrated Report 2020

101

(7) The amount of bonds maturity in 5 years from the consolidated balance sheet date are as follows:
Millions of yen

Due after 1 through 2 years

Due after 2 through 3 years

Due after 3 through 4 years

Due after 4 through 5 years

3,066

3,066

1,971

—

—

Due after 3 through 4 years

Due after 4 through 5 years

Thousands of U.S. dollars

Due within 1 year

Due after 1 through 2 years

Due after 2 through 3 years

28,172

28,172

18,110—reference to job level and length of service.
Also, retirement allowances may be paid with a premium for
retired employees.
Certain consolidated subsidiaries have adopted a simplified
method in calculating the liability for retirement benefits andretirement benefit liabilities expense. Since the amount is immaterial, it is included in following notes based on the general rule.

(2) Defined benefit pension plan(a) List of adjustments between the balances of retirement benefit obligations at the beginning and end of year are as follows:
Thousands of
U.S. dollars

Millions of yen

2019

2020

Beginning balance of retirement benefit obligations

13,215

12,338

121,431

Service cost

1,468

1,401

13,492

Interest cost

67

63

621

Actuarial gains and losses accrued

11

59

103

Retirement benefits paid

(1,186)(648)(10,897)

Closing balance of retirement benefit obligations

13,576

13,215

124,750(b) List of adjustments between the balances of pension assets at the beginning and end of year are as follows:
Thousands of
U.S. dollars

Millions of yen

Beginning balance of pension assets

2020

2019

2020

5,001

5,000

45,955

Expected return on plan assets

111

158

1,028

Actuarial gains and losses accrued

(238)

(157)

(2,191)

Closing balance of pension assets

4,874

5,001

44,792

Data Compilation

2020

Initiatives for Strengthening Management Foundation

13. Retirement Benefit Plans(1) Outline of retirement benefit plans
The Companies have an unfunded defined benefit pension plan
and a defined contribution pension plan to provide for employees’
retirement benefits. The defined benefit plan is a lump-sum retirement distribution plan (unfunded, but certain plans are funded as
the Companies have adopted a retirement benefit trust for the
lump-sum retirement distribution plan), and the amounts of retirement benefits are provided mainly based on accumulated points in—

Toward the Recovery of Business Performance and Trust

Due within 1 year

102

Le op alace 21 Int egr a t ed Repor t 2020(c) List of adjustments between the closing balances of retirement benefit obligations and pension assets and the liabilities andassets related to the retirement benefit posted in the consolidated balance sheet are as follows:
Thousands of
U.S. dollars

Millions of yen

2020

2019

2020

Funded retirement benefit obligations

13,576

13,215

124,750

Pension assets(4,874)(5,001)(44,792)

8,701

8,213

79,957———

Net amount of the liabilities and assets posted in the consolidated balance sheet

8,701

8,213

79,957

Liability for retirement benefit

8,701

8,213

79,957

Net amount of the liabilities and assets posted in the consolidated balance sheet

8,701

8,213

79,957

Unfunded retirement benefit obligations(d) Retirement benefit expenses and breakdown amounts are as follows:
Thousands of
U.S. dollars

Millions of yen

Service cost

2020

2019

2020

1,468

1,401

13,492

67

63

621

Expected return on plan assets

(111)

(158)

(1,028)

Amortization of actuarial gain or loss

175

237

1,616

Retirement benefit expenses related to the defined benefit plan

1,599

1,543

14,701

Interest cost(e) Items posted as the remeasurements of defined benefit plans (before tax effects) are as follows:
Thousands of
U.S. dollars

Millions of yen

2020

2019

2020

Actuarial gains/losses

73

(20)

678

Total

73

(20)

678

(f) Cumulative items posted as the remeasurements of defined benefit plans (before tax effects) are as follows:
Thousands of
U.S. dollars

Millions of yen

2020

2019

2020

Unrecognized actuarial gains/losses

546

472

5,018

Total

546

472

5,018

2020

2019

99%
—
1%
100%

92%
6%
2%
100%

(g) Matters concerning pension assets are as follows:(1) Major components of pension assets
Bonds
SharesOthersTotal

Note:Total of pension assets is the amount contributed to retirement benefits trust from the lump-sum retirement distribution plan.

Leopalace21 Integrated Report 2020(h) Main calculation basis for actuarial assumptions are as follows (shown as weighted average):
Discount rate
Expected long-term rate of return on pension assets

2020

2019

0.03 – 0.89%
1.43%

0.03 – 0.97%
2.17%(3) Defined contribution pension plan
The necessary contribution amount for the defined contribution plan was 566 million yen ($5,201 thousand) and 597 million yen for the years
ended March 31, 2020 and 2019, respectively.

Thousands of
U.S. dollars

Millions of yen

Selling, general and administrative expenses

2020

2019

2020

15

100

142

(2) Gain recorded relating to unused and expired share subscription rights
Thousands of
U.S. dollars

Millions of yen

Gain on reversal of share subscription rights

2020

2019

2020

17

—

157

Initiatives for Strengthening Management Foundation

14. Stock Options(1) Stock option expenses recorded relating to stock options:

Toward the Recovery of Business Performance and Trust(2) Method of determining the long-term expected rate of return
The expected long-term rate of return on pension assets is determined considering the allocation of the pension assets expected currently and in
the future and the long-term rates of return which are expected currently and in the future from the various components of the pension assets.

103(3) Outline of stock options and activities are as follows:(a) Outline of stock options:2009 Stock Option

Type and numberof stock options*
Grant date
Vesting conditions
Vesting period
Exercise period* Note:Reported by converting to the number of shares2016 Stock Option

2017 Stock Option

2018 Stock Option

8 Directors (excluding
outside Directors) and12 executive officers of
Leopalace21 Corporation

8 Directors (excluding
outside Directors) and15 executive officers of
Leopalace21 Corporation,and 9 Directors ofsubsidiaries

8 Directors (excluding
outside Directors) and16 executive officers of
Leopalace21 Corporation,and 15 Directors ofsubsidiaries

Common stock: 252,700
sharesAugust 18, 2016

Common stock: 282,800
shares
September 14, 2017

Common stock: 348,000
shares
September 14, 2018

Not applicable vesting
conditions are specified

Not applicable vesting
conditions are specified

Not applicable vesting
conditions are specified

Not applicable period ofservice is specified
From August 19, 2016 toAugust 18, 2046

Not applicable period ofservice is specified
From September 15, 2017
to September 14, 2047

Not applicable period ofservice is specified
From September 15, 2018
to September 14, 2048

Data Compilation

Title and numberof grantees

Executive officers(excluding Directors) andemployees of Leopalace21
Corporation, and Directors
and employees ofsignificant subsidiaries
33 people
Common stock:71,000 shares
August 17, 2009
Continuous services fromthe grant date (August 17,2009) to the end of vesting
period (August 17, 2011)
From August 17, 2009 toAugust 17, 2011
From August 18, 2011 toJune 27, 2019

104

Le op alace 21 Int egr a t ed Repor t 2020(b) Stock option transactions:
Number of stock options as of the fiscal year ended March 31, 2020 is reported by converting to the number of shares.
Number of stock options:2009 Stock Option

2016 Stock Option

2017 Stock Option

2018 Stock Option

Non-vested (number of shares)
Previous fiscal year-end

—

—

—

—

Granted

—

—

—

—

Forfeited

—

—

—

—

Vested————Outstanding

—

—

—

—

62,000252,700

282,800

348,000

—

—

—

—

Exercised—

81,70092,500122,100

Forfeited

62,000————171,000

190,300

225,900

Vested (number of shares)
Previous fiscal year-end
VestedOutstanding

Price information (yen):2009 Stock Option

2016 Stock Option

2017 Stock Option

2018 Stock Option

Exercise price

826

1

1

1

Average stock price at exercise

—

292

293

288

Fair value at the grant date

277

547

528

332

(4) Estimate method of fair value of stock options:
None(5) Estimate method of the number of stock options vested:
Due to the difficulty in rationally estimating the actual number of stock options that will be forfeited in the future, the actual number of forfeited stock options is adopted in the estimate.

15. Gain on Sale of Property, Plant and Equipment
Gain on sale of non-current assets for the years ended March 31, 2020 and 2019 are as follows:
Thousands of
U.S. dollars

Millions of yen

Buildings and structures
Machinery, equipment, and vehicles
Land
Others (Property, plant, and equipment)
Total

2020

2019

2020

3,137
0
5,808
—
8,945

242
2
—
0
245

28,827053,369—82,197

Leopalace21 Integrated Report 2020

105

16. Loss on Sale of Property, Plant and Equipment
Loss on sale of non-current assets for the years ended March 31, 2020 and 2019 are as follows:

Buildings and structures
Machinery, equipment, and vehicles
Land
Others (Property, plant and equipment)
Total

2020

2019

2020

697
0
274
—
972

0
0
0
0
0

6,407
0
2,526
—
8,934

17. Loss on Retirement of Non-current Assets
Loss on disposal of non-current assets for the years ended March 31, 2020 and 2019 are as follows:
Thousands of
U.S. dollars

Millions of yen

2020

2019

2020

64
1
—
0
3
1
71

82
0
3
—
9
21
117

589
13
—
0
36
17
657

18. Loss related to repairs
For the year ended March 2019 and the year ended March 2020, repair costs and incidental expenses are incurred as repair works to thedefect properties constructed by the Company.

20. Provision of reserve for apartment vacancy loss
For the year ended March 2019, we estimated the reduction of occupancy rates and resultant vacancy loss because of suspended recruitment
for tenants arising from the construction defects problem. As the estimated loss was temporary and a large amount which was not stemmed
from ordinary business operations, the Company recorded it as provision of reserve for apartment vacancy loss in extraordinary losses.
For the year ended March 2020
None

21. Special severance allowance
For the year ended March 2020, the special severance allowance was paid to the employees who left the Company as a result of sale of thethree domestic hotels in Sapporo, Sendai and Hakata.
For the year ended March 2019
None

Data Compilation

19. Provision of reserve for losses related to repairs
For the year ended in March 2019 and the year ended in March 2020, the Company recorded the provision for estimated losses related to
repairs based on the rate of construction defects and other factors in order to prepare for the repair costs and incidental expenses for theconstruction defects related to the properties constructed by the Company.

Initiatives for Strengthening Management Foundation

Buildings and structures
Construction in progress
Land
Leased assets
Others (Property, plant and equipment)
Others (Intangible fixed asset)
Total

Toward the Recovery of Business Performance and Trust

Thousands of
U.S. dollars

Millions of yen

106

Le op alace 21 Int egr a t ed Repor t 202022. Repair expenses
For the year ended March 2020, the repair expenses were related to the repairs conducted for the properties which were sold in the previous
fiscal years.
For the year ended March 2019
None

23. Rental Properties
The Companies possesses rental apartments in major cities andregions throughout Japan. Some subsidiaries possess rental residences and office buildings, in addition they develop and possess serviced
apartments. For the years ended March 31, 2020 and 2019, income
arising from these rental properties are 910 million yen ($8,368 thou-sand) and 1,902 million yen, and impairment losses are 1,407 million
yen ($12,931 thousand) and 7,560 million yen, respectively.
Furthermore, the changes in book value of rental properties
during the years ended March 31, 2020 and 2019, and the fairvalue as of March 31, 2020 and 2019 are as follows:

March 31, 2020
Millions of yen

Balance as of April 1, 2019

Increase/(Decrease)

Balance as of March 31, 2020

Fair value as of March 31, 2020

27,036(13,150)

13,886

17,585

March 31, 2019
Millions of yen

Balance as of April 1, 2018

Increase/(Decrease)

Balance as of March 31, 2019

Fair value as of March 31, 2018

44,769(17,732)

27,03633,760March 31, 2020
Thousands of U.S. dollars

Balance as of April 1, 2019

Increase/(Decrease)

Balance as of March 31, 2020

Fair value as of March 31, 2020

248,431(120,837)

127,593

161,588

Notes:(i)	Book values recorded on the consolidated balance sheets are the amount after deducting accumulated depreciation and accumulated
impairment loss from acquisition cost.
(ii)	For the years ended March 31, 2020 and 2019, the main decreases are due to the sale of rental properties in 11,714 million yen ($107,638
thousand) and 9,556 million yen, and impairment losses in 1,407 million yen ($12,931 thousand) and 7,560 million yen, respectively.
(iii) Fair value as of the end of the current fiscal year is calculated by the Company mainly based on “Real-estate appraisal standards”.

24. Asset Retirement Obligations
Disclosure is omitted due to immateriality in the consolidated financial statements.

Leopalace21 Integrated Report 2020

SharesType of shares

April 1, 2019

Increase

Decrease

March 31, 2020

Shares issued
Common stock

244,882,515——

244,882,515

Total

244,882,515——

244,882,515

Treasury stock
Common stock

1,067,510—

296,300

771,210

Total

1,067,510—

296,300

771,210Note:
The 296 thousand shares decrease in treasury stock is resulting from the exercise of subscription rights to shares.

Number of shares issued upon exercise of SARs

Outstanding as of March 31, 2020

Class of sharesissued upon
exercise of SARs

April 1, 2019

Increase

Decrease

March 31, 2020

Millions of yen

Thousands of
U.S. dollars

SARs as stock option

—

—

—

—

—

269

2,471

Total

—

—

—

—

—

269

2,471

Type

(c) Matters concerning dividends for the year ended March 31, 2020 are as follows:
None-There are no dividends with record dates in the current consolidated year but with effective dates in the next year:

Initiatives for Strengthening Management Foundation(b) Stock acquisition rights (SAR) and treasury share acquisition rights for the year ended March 31, 2020 are as follows:

Toward the Recovery of Business Performance and Trust

25. Supplemental Information to the Statement of Changes in Equity(1) Main changes in net assets for the year ended March 31, 2020(a) Shares issued and treasury stocks for the year ended March 31, 2020 are as follows:

107(2) Main changes in equity for the year ended March 31, 2019(a) Shares issued and treasury stocks for the year ended March 31, 2019 are as follows:
SharesApril 1, 2018

Increase

Decrease

March 31, 2019

Shares issued
Common stock *(i)252,682,515—

7,800,000

244,882,515

Total

252,682,515—

7,800,000

244,882,515

Treasury stock
Common stock *(ii),(iii)

567,4208,300,090

7,800,000

1,067,510

Total

567,4208,300,090

7,800,000

1,067,510*Notes:(i)	The 7,800 thousand shares decrease in common stock issued is due to the retirement of treasury stock resolved at the meeting of Boardof Directors.
(ii)	The 8,300 thousand shares increase in treasury stock is due to the 8,300 thousand shares acquisition resolved at the meeting of Board of
Directors, accompanied with the purchase of 0 thousand shares less than one unit.
(iii)	The 7,800 thousand shares decrease in treasury stock is due to the retirement of treasury stock resolved at the meeting ofBoard of Directors.

Data Compilation

Type of shares

108

Le op alace 21 Int egr a t ed Repor t 2020(b) Stock acquisition rights (SAR) and treasury share acquisition rights for the year ended March 31, 2019 are as follows:
Outstanding as ofMarch 31, 2019

Class of sharesissued upon
exercise of SARs

April 1, 2018

Increase

Decrease

March 31, 2019

Millions of yen

SARs as stock option

—

—

—

—

—

404

Total

—

—

—

—

—

404

Type

Number of shares issued upon exercise of SARs(c) Matters concerning dividends for the year ended March 31, 2019 are as follows:- Dividends paid:
Resolution

June 28, 2018
General shareholders’ meeting

Class of shares

Common stock

Total amount of dividends

Dividends per share

Millions of yen

Yen

3,025

12

Record date

Effective date

March 31,2018

June 29,2018- There are no dividends with record dates in the current consolidated year but with effective dates in the next year:

26. Leased assets(1) Finance lease transactions
The Company primarily leases furniture and electronic appliances
to apartments in their leasing business. Leased assets are depreciated in the straight-line method over the lease-term of respective
assets as their useful lives, with no residual value.

(2) Operating lease transactions
Future minimum lease payments related to non-cancelable operating leases subsequent to March 31, 2020 and 2019 are as follows:

Millions of yen

March 31, 2020

Future lease payments Prepaid lease payments

Differences

Due within one year

234,427(234,225)

805
(805)

233,622(233,420)

Due after one year

100,070(99,774)

1,089(1,089)98,981(98,684)

Total

334,498(333,999)

1,894(1,894)

332,603(332,104)

Millions of yen

March 31, 2019

Future lease payments Prepaid lease payments

Differences

Due within one year

235,191(234,998)

1,032(1,032)

234,159(233,965)

Due after one year

99,333(98,866)

1,740(1,740)97,593(97,125)

Total

334,525(333,864)

2,773(2,773)331,752(331,091)

Thousands of U.S. dollars

March 31, 2020

Future lease payments Prepaid lease payments

Differences

Due within one year

2,154,072(2,152,215)

7,402(7,402)

2,146,670(2,144,813)

Due after one year

919,516(916,788)

10,008(10,008)

909,507(906,779)

Total

3,073,588(3,069,003)

17,410(17,410)

3,056,178(3,051,593)

Note:Future minimum lease payments fixed under master lease agreements in leasing business are shown in parentheses.

Leopalace21 Integrated Report 2020

109

27. Guarantee Obligations
Guaranteed obligations as of March 31, 2020 and 2019 are as follows:

Guarantee obligations to financial institutions forcustomers who have a home mortgage
Guarantee obligations to financial institutions forcustomers who have a membership loan
Total

2019

2020

468

505

4,303

3
472

3
509

33
4,337

Development Business operations comprise the construction subcontracting of apartments, detached houses and others. The Elderly
Care Business operates elderly care facilities. The Hotels, Resort
and Other Business operates hotels and resort facilities etc.
(2) C alculation Method for Sales, Profits and Losses, Assets,
Liabilities, and other Items by Reportable Segment
The accounting methods for reportable segments are in accordance to accounting policies adopted in the preparation of consolidated financial statements. The reportable segment profits(losses) represent operating profits (losses). Inter-segment sales
and transfers are based on prevailing market prices.

Initiatives for Strengthening Management Foundation

28. Segment Information(1) Overview of Reportable Segments
The Company’s reportable segments are the components for which
separate financial information is available, and whose operating
results are reviewed regularly by the board of directors in order todetermine allocation of resources and assess segment performance.
The Company comprises four segments, the Leasing Business,
Development Business, Elderly Care Business and Hotels, Resort
and Other Businesses.
The Leasing Business operations comprise the leasing and management of apartment buildings and other properties, repair works,
broadband internet service, rent obligation guarantee, the company
residence agency business, solar power generation business,and small-amount short-term insurance business and others. The

2020

Toward the Recovery of Business Performance and Trust

Thousands of
U.S. dollars

Millions of yen(3) Information Regarding Sales, Profits and Losses, Assets, Liabilities, and other Items by Reportable Segment for the years
ended March 31, 2020 and 2019 are as follows:
Millions of yen
Reportable segment

March 31, 2020

Consolidated
Total

433,5532,695
436,249(27,569)
117,173—(2,695)(2,695)(8,903)79,779433,553—433,553(36,473)
196,953

1,441

10,005

2,151

12,157

480

3,833

45

3,879

Development
Business

Elderly Care
Business

Hotels, Resort, &Segment Total
Other Business

388,939257
389,197(20,828)75,09923,80627
23,834(5,181)
11,15014,620—14,620
(559)
3,470

6,186
2,410
8,596
(1,000)27,452

8,351

112

100

3,269

83

0

Data Compilation

Sales
Sales to customers
Inter-segment sales and transfers
Total
Segment profit (loss)
Segment assets
Other items
Depreciation
Increase in property, plant, andequipment, and intangible fixed asset

Adjustments

Leasing
Business

110

Le op alace 21 Int egr a t ed Repor t 2020

Notes:(i) Breakdown of adjustments is as follows:
Segment profit (loss)
Inter-segment eliminations
Corporate expenses*
Total

Millions of yen

Thousands of
U.S. dollars(91)(8,812)(8,903)(840)(80,972)(81,812)*Corporate expenses consist mainly of general administrative expenses for administrative departments that are not part of reportable segments.
Adjustments in segment assets (79,779 million yen, $733,068 thousand) consist mainly of surplus operating funds, long-term investment capital, and assets, which do not belong to reportable segments.
Adjustments in the increase of property, plant, and equipment, and intangible fixed asset (45 million yen, $422 thousand) consist of capital
expenditures which do not belong to reportable segments.
(ii) Segment profit (loss) is adjusted to operating profit (loss) on the consolidated statement of income.
Millions of yen
Reportable segment

March 31, 2019
Sales
Sales to customers
Inter-segment sales and transfers
Total
Segment profit (loss)
Segment assets
Other items
Depreciation
Increase in property, plant, andequipment, and intangible fixed asset

Adjustments

Consolidated
Total

505,2233,859
509,083
11,798
181,487—(3,859)(3,859)(4,407)110,303505,223—505,2237,390
291,790

1,480

10,7452,200

12,945

1,614

8,878

909

9,788

Leasing
Business

Development
Business

Elderly Care
Business

Hotels, Resort, & Segment Total
Other Business

426,388226
426,615
14,987
96,77058,992
1
58,993(995)
25,854

13,922—
13,922
(846)
3,587

5,919
3,632
9,551
(1,346)55,274

8,940

219

104

7,068

154

40

Notes:(i) Breakdown of adjustments is as follows:
Segment profit (loss)
Millions of yen

Inter-segment eliminations
Corporate expenses*
Total

(166)
(4,240)(4,407)*Corporate expenses consist mainly of general administrative expenses for administrative departments that are not part of reportable segments.
Adjustments in segment assets (110,303 million yen) consist mainly of surplus operating funds, long-term investment capital, and assets, which
do not belong to reportable segments.
Adjustments in the increase of property, plant, and equipment, and intangible fixed asset (909 million yen) consist of capital expenditures which
do not belong to reportable segments.
(ii) Segment profit (loss) is adjusted to operating profit (loss) on the consolidated statement of income.

Leopalace21 Integrated Report 2020

111

Thousands of U.S. dollars
Reportable segment

Sales
Sales to customers
Inter-segment sales and transfers
Total
Segment profit (loss)
Segment assets
Other items
Depreciation
Increase in property, plant, andequipment, and intangible fixed asset

Consolidated
Total

3,983,769
24,772
4,008,541(253,330)
1,076,666—(24,772)(24,772)(81,812)733,068

3,983,769—
3,983,769(335,143)
1,809,735

13,24491,93919,766

111,706

4,415

35,229422

35,651Development
Business

Elderly Care
Business

Hotels, Resort, & Segment Total
Other Business

3,573,827
2,368
3,576,195(191,384)
690,064

218,753250
219,004(47,607)
102,459

134,346—
134,346(5,145)31,89056,841
22,152
78,994(9,193)
252,252

76,742

1,032

919

30,043767

2

2. Geographic area
(1) Sales
Information concerning sales by geographic area is omitted, since more than 90% of sales reported in the consolidated statement ofincome are generated in Japan.
(2) Plant, property, and equipment
March 31, 2020

Initiatives for Strengthening Management Foundation

Related information
1. Products and services
Information concerning products and services is omitted, since similar information is reported in “28. Segment Information”.

Toward the Recovery of Business Performance and Trust

March 31, 2020

Adjustments

Leasing
Business

Millions of yen
Japan

Trust territory of U.S.A. Guam

Kingdom of Thailand

Kingdom of Cambodia

Other

Total

62,071

21,586

887

755

232

85,534Japan

Trust territory of U.S.A. Guam

Kingdom of Thailand

Kingdom of Cambodia

Other

Total

93,654

26,632

1,170

1,555

202

123,215

Japan

Trust territory of U.S.A. Guam

Kingdom of Thailand

Kingdom of Cambodia

Other

Total

570,352

198,351

8,158

6,943

2,138

785,944

March 31, 2019
Millions of yen

Thousands of U.S. dollars

Data Compilation

March 31, 2020

112

Le op alace 21 Int egr a t ed Repor t 2020

3. Major customers
Information concerning sales to major customers is omitted, since no sales to any particular customer exceed 10% of sales reported in the
consolidated statement of income.
Information concerning impairment loss on non-current assets by reportable segments
March 31, 2020
Millions of yen

Leasing BusinessImpairment loss

1,327

Development Business Elderly Care Business

1,144

Hotels, Resort, &Other Business

Adjustments

Consolidated total

5,097

—

7,620

Hotels, Resort, &Other Business

Adjustments

Consolidated total

—

—

7,560

Hotels, Resort, &Other Business

Adjustments

Consolidated total

46,843—70,024

Hotels, Resort, &Other Business

Adjustments

Consolidated total

—
—

—
—

260
127

51

March 31, 2019
Millions of yen

Leasing BusinessImpairment loss

7,560

Development Business Elderly Care Business——

March 31, 2020
Thousands of U.S. dollars

Leasing BusinessImpairment loss

12,195Development Business Elderly Care Business

10,512

473

Information concerning goodwill amortization and unamortized balance by reportable segments
March 31, 2020
Millions of yen

Leasing Business

Goodwill amortization
Balance45127Development Business Elderly Care Business

215
—

—
—

Note:
The Company posted 982 million yen ($9,031 thousand) of impairment loss for goodwill in Development Business. The Company sold all theshares in Life Living Co., Ltd. in the year ended March 2020 and excluded it from the scope of consolidation, which resulted in the reductionof goodwill by 953 ($8,757 thousand) million yen in Development Business.

Leopalace21 Integrated Report 2020

113

March 31, 2019
Millions of yen

Goodwill amortization
Balance

Development Business Elderly Care Business

Hotels, Resort, &Other Business

Adjustments

Consolidated total

—
—

—
—

560
2,324

45
173

515
2,151

—
—

Leasing Business

Development
Business

Elderly Care Business

Hotels, Resort, &Other Business

Adjustments

Consolidated total

414
1,176

1,979
—

—
—

—
—

—
—

2,393
1,176

March 31, 2020
Thousands of U.S. dollar

Goodwill amortization
Balance

29. Amounts per Share(1) The following tables set forth the net assets and net income per share of common stock for the years ended March 31, 2020
and 2019
Yen

Net assets
Net loss attributable to shareholders of the parent

U.S. dollars

2020

2019

2020

5.34
328.77331.87278.580.04
3.02

Note that diluted net income per share is not indicated because net loss per share is indicated, although there are potential common shareswith dilutive effects.

Initiatives for Strengthening Management Foundation

Information concerning gain on negative goodwill by reportable segments
For the years ended March 31, 2020 and 2019
None

Toward the Recovery of Business Performance and Trust

Leasing Business(2) Basis of computation of basic and diluted net income per share for the years ended March 31, 2020 and 2019 is as follows:
Thousands of
U.S. dollars

Millions of yen

2019

2020

80,224—80,224
244,011

68,662—
68,662
246,473
Stock acquisitionrights (620)

737,150—
737,150
244,011——

Data Compilation

Net loss attributable to shareholders of the parent
Amount not attributable to common stock
Net loss attributable to common stock
Basic weighted-average shares during the year (Thousands of shares)
Dilutive securities without dilutive effects and excluded from calculation ofdiluted net income per share.

2020

114

Le op alace 21 Int egr a t ed Repor t 2020

30. Related Party Transactions
The following tables set forth related party transactions for the years ended March 31, 2020 and 2019.
For the year ended March 31, 2020
None
For the year ended March 31, 2019(a) Unconsolidated subsidiaries and associates
None(b) Directors and major individual shareholders
Attribute

Name

Address

Directors and close relatives

Kei Ishida—

Directors and close relatives

Toshiko Miyoshi

—

Name

Transaction

Attribute

Directors and close relatives

Kei Ishida

Directors and close relatives

Toshiko Miyoshi

Leasingbrokeragecommissions
Leasing ofapartments

Capital stockBusiness or position

Percentage of shareownership

—

—

—

—

—

—

Millions of yen

Transaction amountMillions of yen

Account

Relation

Real estate
brokerage, etc.
Leasing of landand building

BalanceMillions of yen

17

Accounts payable

0

26

—

—

Notes:(i) Consumption taxes are not included in amounts.
(ii) Conditions on real estate brokerage and leasing of land and building are the same as those on transactions with third parties.
(iii) Kei Ishida is a close relative of Eisei Miyama, Director of the Company.
(iv) Toshiko Miyoshi is a close relative of Tadahiro Miyama, Director of the Company.
(v) Both Eisei Miyama and Tadahiro Miyama retired as Directors at the Ordinary General Meeting of Shareholders held on June 27, 2019.

31. Business Combinations
Business Combination under common control
None
32. Other
The following tables set forth quarterly information for the year ended March 31, 2020.
Cumulative period

First quarter

Second quarter

Third quarter

Full-year

Net sales (Millions of yen)

113,324

221,517

328,721433,553

Income (loss) before income taxes (Millions of yen)

(7,652)(24,706)(25,199)(58,013)

Net income (loss) attributable to shareholders of the parent(Millions of yen)

(5,736)(24,435)(24,137)(80,224)

Net income (loss) per share (yen)(23.53)(100.17)(98.93)(328.77)

First quarter

Second quarter

Third quarter

Full-year(23.53)(76.62)

1.22(229.76)

Accounting period

Net income (loss) per share (yen)Leopalace21 Integrated Report 2020

Cumulative period

First quarter

Second quarter

Third quarter

Full-year

2,035,443

3,020,502

3,983,769(70,319)(227,017)(231,549)(533,067)

Net income (loss) attributable to shareholders of the parent(Thousands of U.S. dollars)(52,708)(224,526)(221,793)(737,150)(0.21)(0.92)(0.90)(3.02)First quarter

Second quarter

Third quarter

Full-year(0.21)(0.70)

0.01(2.11)Net sales (Thousands of U.S. dollars)

Net income (loss) per share (dollars)
Accounting period

Net income (loss) per share (dollars)(2) Sale of investment securities
Pursuant to a resolution at the Board of Directors meeting held on June 26, 2020, the Company determined to sell the shares owned by theCompany in a certain listed company in order to secure stable funds for the operations and maintain adequate liquidity. The Company started
selling the shares in July, 2020 and completed the sale. The Company will record 4,063 million yen ($37,340 thousand) as gain on sale of theinvestment securities in extraordinary income for the second quarter of the fiscal year ending March 2021. The sales price was 4,162 million
yen ($38,251 thousand) and the book value was 1,610 million yen ($14,793 thousand).

Data Compilation(b) Outline of voluntary retirement(i) Eligible applicants; Employees aged 35 or older as of April 1, 2020(ii) Expected number of applicants; About 1,000(iii) Application period; From June 22, 2020 to July 31, 2020(iv) Planned leave date; August 31, 2020(v) Others;
In addition to the retirement allowances stipulated in the retirement allowance regulations, the Company will pay special severance
allowance to the applicants and will provide them with outplacement service.
(c) Estimated loss due to the voluntary retirement
The Company posted 2,481 million yen ($22,799 thousand) of special severance allowance as extraordinary losses for the first quarter ofthe fiscal year ending March 2021.

Initiatives for Strengthening Management Foundation

33. Subsequent Events(1) Offer a voluntary retirement program
The Board of Directors resolved at the meeting held on June 5, 2020 to offer a voluntary retirement program as part of implementing structural reforms so that the Company should be able to realize drastically reviewed business strategies and increase the corporate value.
(a) Reasons for offering the voluntary retirement program
In the continuing tough business climate surrounding the Company, it decided on offering the voluntary retirement program to respond tothe business structure changes based on selective concentration strategy with the aim to realize workforce rightsizing to the future operations and to further reduce the fixed cost.

Toward the Recovery of Business Performance and Trust

1,041,300

Income (loss) before income taxes (Thousands of U.S. dollars)

115

116

Le op alace 21 Int egr a t ed Repor t 2020

(3) Changes in reportable segmentation
The Company determined at the Board of Directors meeting held on June 4, 2020 that the Company’s business should be reported inthree segments, “Leasing Business,” “Elderly Care Business,” and “Other Businesses” from the year ending March 2021 in comparison to
the previous four reportable segments as “Leasing Business,” “Development Business,” “Elderly Care Business,” and “Hotels, Resort &Other Businesses.”This is in line with the Company’s announcement dated June 5, 2020 in the “Notice Concerning Implementing Structural Reforms basedon Strategic Review Results for Drastic Business Strategies Reconstruction” where the Companies made the drastic business strategies
reconstruction and determined to shift from a strategy of business diversification to a strategy of strengthening profitability of Leasing
Business. As a result, “Development Business” was newly classified as a part of “Leasing Business” because it is responsible for strengthening the relationship with the existing owners who lease their apartments to the Company and for providing comprehensive services tothose owners; “Hotels, Resort & Other Businesses” was renamed “Other Businesses” based on the policy of withdrawing from the business
related to the hotels and resort.
The sales, operating loss, assets and other items for the year ended March 2020 in accordance with the segments after the change
are as follows.
(a) Information Regarding Sales, Profits and Losses, Assets, and other Items by Reportable Segment for the year ended March
31, 2020
Millions of yen
Reportable segment

March 31, 2020
Sales
Sales to customers
Inter-segment sales and transfers
Total
Segment profit (loss)
Segment assets
Other items
Depreciation
Increase in property, plant, and equipment,
and intangible fixed asset

Adjustments

Consolidated Total

433,5532,620
436,174(27,585)
117,173—(2,620)(2,620)(8,888)79,779433,553—433,553(36,473)
196,953

1,441

10,005

2,151

12,157

480

3,833

45

3,879

Leasing Business

Elderly Care
Business

Other Businesses

Segment Total

412,746209
412,956(26,041)
86,25014,620—14,620
(547)
3,470

6,186
2,410
8,596
(996)
27,452

8,464

100

3,353

0

Thousands of U.S. dollars
Reportable segment

March 31, 2020
Sales
Sales to customers
Inter-segment sales and transfers
Total
Segment profit (loss)
Segment assets
Other items
Depreciation
Increase in property, plant, and equipment,
and intangible fixed asset

Adjustments

Consolidated Total

3,983,769
24,0804,007,849(253,471)
1,076,666—(24,080)(24,080)(81,671)733,068

3,983,769—
3,983,769(335,143)
1,809,735

13,24491,93919,766

111,706

4,415

35,229422

35,651

Leasing Business

Elderly Care
Business

Other Businesses

Segment Total

3,792,580
1,927
3,974,508(239,282)
792,524

134,346—
134,346(5,031)
31,89056,841
22,152
78,994(9,156)
252,252

77,775919

30,8102

Leopalace21 Integrated Report 2020

Inter-segment eliminations
Corporate expenses*
Total

Millions of yen

Thousands of
U.S. dollars(85)(8,802)(8,888)(787)(80,884)(81,671)*Corporate expenses consist mainly of general administrative expenses for administrative departments that are not part of reportable segments.
Adjustments in segment assets (79,779 million yen, $733,068 thousand) consist mainly of surplus operating funds, long-term investment capital, and assets, which do not belong to reportable segments.
Adjustments in the increase of property, plant, and equipment, and intangible fixed asset (45 million yen, $422 thousand) consist of capital
expenditures which do not belong to reportable segments.
(ii) Segment profit (loss) is adjusted to operating profit (loss) on the consolidated statement of income.

Millions of yen

Impairment loss

Leasing Business

Elderly Care Business

Hotels, Resort, &Other Business

Adjustments

Consolidated total

2,471

51

5,097

—

7,620

March 31, 2020
Thousands of U.S. dollars

Impairment loss

Leasing Business

Elderly Care Business

Hotels, Resort, &Other Business

Adjustments

Consolidated total

22,708473

46,843—70,024

Adjustments

Consolidated total

—
—

260
127

(c) Information concerning goodwill amortization and unamortized balance by reportable segments
March 31, 2020

Initiatives for Strengthening Management Foundation(b) Information concerning impairment loss on non-current assets by reportable segments
March 31, 2020

Toward the Recovery of Business Performance and Trust

Notes:(i) Breakdown of adjustments is as follows:
Segment profit (loss)

117

Millions of yen

Elderly Care Business

260
127

—
—

—
—

Note:
The Company posted 982 million yen ($9,031 thousand) of impairment loss for goodwill in Development Business. The Company sold all theshares in Life Living Co., Ltd. in the year ended March 2020 and excluded it from the scope of consolidation, which resulted in the reductionof goodwill by 953 ($8,757 thousand) million yen in Development Business.
March 31, 2020
Thousands of U.S. dollar

Goodwill amortization
Balance

Leasing Business

Elderly Care Business

Hotels, Resort, &Other Business

Adjustments

Consolidated total

2,393
1,176

—
—

—
—

—
—

2,393
1,176

Data Compilation

Goodwill amortization
Balance

Leasing Business

Hotels, Resort, &Other Business118

Le op alace 21 Int egr a t ed Repor t 2020

(4) Issuance of New Shares through Third Party Allotment
Pursuant to a resolution at the Board of Directors meeting held on September 30, 2020 to the issuance of new shares through third party
allotment (“New Shares”), the Company entered into the agreement for issuance of new shares through third party allotment on the samedate as follows.
[Offering related to the Issuance of New Shares](1) Type and number of shares to be issued

Common stock, 84,507,000 shares(2) Issue price142 yen ($1.3) per share(3) Amount to be raised

11,999,994,000 yen ($110,263 thousand)(4) Per-share amount for capital incorporation

71 yen ($0.6) per share(5) Amount of capital incorporation

5,999,997,000 yen ($55,131 thousand)(6) Date of payment

November 2, 2020

(7) Method of offering or allotment (Scheduled Allottee)

All shares will be allotted to Chidori Godo Kaisha (Note 1) through third party
allotment(8) Use of funds (Note 2)- Payment of repair work expenses related to construction defects such as parting
walls found in the properties constructed by the Company- Repayment of Leopalace Power Corporation’s existing borrowings- Redemption of bonds(9) Others

Each item above shall be subject to the effectiveness of the securities registration statement under the Financial Instruments and Exchange Act of Japan, andthe completion of the prior notification procedures under the Foreign Exchange
and Foreign Trade Act of Japan (“Foreign Exchange Act”) by the Scheduled
Allottee in respect of the Issuance of New Shares.

(Notes)1. Chidori Godo Kaisha is a related company of Fortress Investment Group LLC.
2. T he Company believes that the fundraising methods described below (collectively the “Scheme”), from the viewpoints of eliminating theCompany’s excessive liabilities and its medium-to long-term financial strategy, form an integral part of the Scheme. The Company therefore describes the use of funds which corresponds to the total amount of fundraising.
(i) Issuance of the New Shares through third party allotment,(ii) Issuance of the stock acquisition rights in connection with the loan with stock acquisition rights through third party allotment, and(iii) Issuance of the preferred stock of Leopalace Power Corporation, a Company’s wholly-owned subsidiary.

Leopalace21 Integrated Report 2020

[Offering related to the Issuance of the Stock Acquisition Rights]
November 2, 2020

(2) Total number of stock acquisition rights

159,748,700 units(3) Issue price

215,660,745 yen ($1,981 thousand) (in total) (1.35 yen ($0.0) per unit of the Stock
Acquisition Rights)(4) Number of dilutive shares resulting from the issuance

159,748,700 shares(5) Exercise price142 yen ($1.3)(6) Method of offering or allotment(Scheduled Allottee)

All units will be allotted to Chidori Godo Kaisha, the Scheduled Allottee, throughthird party allotment.

(7) Exercise period

From November 2, 2020 (inclusive) to November 2, 2025 (inclusive)(8) Others

Each item above shall be subject to the effectiveness of the securities registration statement under the Financial Instruments and Exchange Act of Japan, andthe completion of the prior notification procedures under the Foreign Exchange
Act by the Scheduled Allottee in respect of the Issuance of New Shares.

Initiatives for Strengthening Management Foundation(1) Date of allotment

Toward the Recovery of Business Performance and Trust(5) Issuance of the Stock Acquisition Rights in connection with the Loan with Stock Acquisition Rights through Third Party
Allotment, and Fundraising through the Loan with Stock Acquisition Rights
Pursuant to resolutions at the Board of Directors meeting held on September 30, 2020 to the issuance of 5th Series of Stock Acquisition
Rights (“Stock Acquisition Rights”) in connection with the Loan with stock acquisition rights (“Loan”) through third party allotment, theCompany entered into the agreement for the third party allotment agreement and loan agreement on the same date as follows.

119

Data Compilation

120

Le op alace 21 Int egr a t ed Repor t 2020

[Outline of the Loan](1) Borrower

Leopalace21 Corporation(2) Lender

Kaede Godo Kaisha (Note 1)(3) Principal amount of loan

30,000,000,000 yen ($275,659 thousand)(4) Date of execution of agreement

September 30, 2020

(5) Loan drawdown dateNovember 2, 2020

(6) Maturity dateNovember 4, 2025

(7) Voluntary prepayment

Prepayment may be made after three (3) years from the loan drawdown date;provided, however, that, after two (2) years from the drawdown date, prepayment
may be made only during the period when the occupancy rate of the Company’s
properties reaches a certain level.

(8) Applicable interest rate

14.5% per annum
However, only during the period when the occupancy rate of the Company’s properties reaches a certain level, the applicable interest rate is 10.0% per annum.

(9) Up-front fee

2.00%(10) Security interests

Real estate, loan receivables held against the Company’s subsidiaries, stock ofsubsidiaries (Leopalace Leasing Corporation, Plaza Guarantee Co., Ltd., and Azu
Life Care Co., Ltd.), etc.

(11) Guaranty

Joint and several guarantees by the Company’s subsidiaries (Leopalace Leasing
Corporation, Plaza Guarantee Co., Ltd., and Azu Life Care Co., Ltd.)(12) Use of funds (Note 2)- Payment of repair work expenses related to construction defects such as parting
walls found in the properties constructed by the Company- Repayment of Leopalace Power Corporation’s existing borrowings- Redemption of bonds(13) Exercise of stock acquisition rights

If contributions in cash are made upon exercise of the stock acquisition rights, theamount of such contribution in cash will be used to prepay a portion of the principal amount of the loan principal receivables and the loan interest receivables to
the Company under a loan agreement concerning the Loan between the Company
and the Loan lender (the loan principal receivables and the loan interest receivables shall be hereinafter referred to as the “the Loan Receivables”).
If contributions in the Loan Receivables are made upon exercise of the stockacquisition rights, the Loan Receivables so contributed will be deemed to havebecome due and payable and extinguished by merger up to the amount of suchclaim at the same time as such contribution.

(Notes)1. Kaede Godo Kaisha is a related company of Fortress Investment Group LLC.
2. T he Company believes that from the viewpoints of eliminating the Company’s excessive liabilities and its medium-to long-term financial
strategy, the fundraising through the Loan with stock acquisition rights forms an integral part of the Scheme. The Company therefore
describes the use of funds which corresponds to the total amount of fundraising.

Leopalace21 Integrated Report 2020

[Outline of Leopalace Power Corporation and details of issuance of Preferred Stock](2) Location

2-54-11, Honcho, Nakano-ku, Tokyo(3) Representative

Shigeru Ashida(4) Ownership ratio

Wholly-owned subsidiary of the Company(5) Type and number of shares to be issued

Class A Preferred Stock, 750,000 shares(6) Issue price

20,000 yen ($183.7) per share(7) Total issue price

15,000,000,000 yen ($137,829 thousand)(8) Per-share amount for capital incorporation

10,000 yen ($91.8) per share(9) Amount of capital incorporation

7,500,000,000 yen ($68,914 thousand)(10) Date of payment

November 2, 2020(11) Method of offering or allotment (Scheduled Allottee)(Note 1)

All of the Preferred Stock will be allotted to Kikyo Godo Kaisha and Willow
Investment Holdings L.P. through third party allotment.

(12) Preferred dividend- The rate which is the higher of 7 percent per annum or the internal rate of returnfor the Preferred Stock approved at the class shareholders’ meeting comprising
the preferred stock holders- Preferred dividend is cumulative and non-participating, and no dividends of surplus will be paid in excess of the preferred dividend and unpaid and cumulating
preferred dividend.

(13) Use of funds (Note 2)- Payment of repair work expenses related to construction defects such as parting
walls found in the properties constructed by the Company- Repayment of Leopalace Power Corporation’s existing borrowings- Redemption of bonds(14) Others- The Preferred Stock may be converted into shares of Leopalace Power
Corporation’s common stock. The voting ratio will be 99.78%, assuming that
all the Preferred Stock are converted into common stock. The total number ofissued and outstanding shares of Leopalace Power Corporation is 1,600.
- The Scheduled Allottee of Preferred Stock may request Leopalace Power
Corporation to purchase the Preferred Stock.
- The number of one full unit of the Preferred Stock is 909 shares, and the total
number of voting rights carried by the Preferred Stock represents 34.0% of thetotal voting rights of Leopalace Power Corporation.

(Notes)
1. Kikyo Godo Kaisha and Willow Investment Holdings L.P. are the related companies of Fortress Investment Group LLC.
2. T he Company believes that from the viewpoints of eliminating the Company’s excessive liabilities and its medium-to long-term financial
strategy, the fundraising through the Issuance of Preferred Stock forms an integral part of the Scheme. The Company therefore describes
the use of funds which corresponds to the total amount of fundraising.
(7) Sale of Non-current Assets
The Company resolved at the Board of Directors meeting held on July 30, 2020 to sell 17 residential properties for lease and completed
the sale process as of August 31, 2020. It is intended for the Company to realize the efficient utilization of its managerial resources and tostrengthen the financial base. The sales price was 2,297 million yen ($21,108 thousand) and the book value was 5,633 million yen ($51,763
thousand).

Data Compilation

Leopalace Power Corporation

Initiatives for Strengthening Management Foundation(1) Company Name

Toward the Recovery of Business Performance and Trust(6) Issuance of Preferred Stock by a Consolidated Subsidiary Through Third Party Allotment
Leopalace Power Corporation, a wholly owned subsidiary of the Company, pursuant to a resolution of its Board of Directors meeting held on
September 30, 2020 to the issuance of preferred stock (“Preferred Stock”) through third party allotment, entered into the Preferred Stockallotment agreement on the same date as follows.

121

122

Le op alace 21 Int egr a t ed Repor t 2020

34. Contingent Liabilities
The Company announced on April 27, 2018, that there were partial
discrepancies between construction certificate documents and theactual construction of two apartment series “Gold Nail” and “NewGold Nail” (hereinafter, the “Nail Series”), constructed by theCompany between 1994 and 1995.
The Company also declared that the Company will investigate
all the properties in the two series and carry out repair works tothe properties with such discrepancies in the light of the responsibilities as a construction company.
In addition, the Company announced on May 29, 2018 that
because a part of six apartment series constructed by theCompany from 1996 to 2009, “Gold Residence, New Silver
Residence, New Gold Residence, Special Steel Residence, Better
Steel Residence, and Con Grazia” (hereinafter, the “Six Series”),
were considered to have the possibility of violating the BuildingStandards Act in Japan, the Company will investigate all properties constructed by the Company and carry out repair works for theproperties in question.
For apartment series other than the above “Nail Series” and“Six Series” which are subject to priority investigation, it was confirmed that part of those properties had defects due to the lack ofadequate construction supervision.
Subsequently, it was newly confirmed that during the all-building investigations, the parting walls and exterior walls of part of
the three apartment series “Gold Residence, New Gold Residence,
and Villa Alta” constructed from 1996 to 2001 were built with
foamed urethane, instead of glass wool described in the design
drawings and documents, and there were defects in the construction finish of the ceilings that make up the floor of the rooms ina part of “Gold Residence” series. The Company identified thedefective buildings based on manufacturing list of the building
components for those properties with foamed urethane instead ofglass wool, and based on the description in the design drawingsand documents for those properties with defective construction
finish of the ceilings. Since the properties in which these identified
defects were not constructed in accordance with the notificationof the Ministry of Land, Infrastructure, Transport and Tourism(hereinafter, “MLIT”) or the specifications certified by the Ministerof Land, Infrastructure, Transport and Tourism, the Company
reported these issues to the MLIT and announced on February 7,
2019 that the Company will carry out the repair works to make theproperties conform to the statutory specifications.
In the process of continuing the all-building investigations, it

was confirmed that the fire-resistant structures in parting walls ofsome of the steel-framed properties constructed by the Company
did not conform to the specifications certified by the Ministerof Land, Infrastructure, Transport and Tourism. As a result, theCompany reported it to MLIT and announced on May 29, 2019 that
the Company will carry out repair works to make the properties
conform to the statutory specifications.
The Company has been making concerted efforts to quickly
resolve construction defects. Amid the failing business performance and worsened financial position, the Company is reallocating human and material resources including a voluntary retirement
program as a part of the structural reforms, and temporarily
reduced the scale of repair works and organizational setup to deal
with the construction defects.
Under these circumstances, the Company made a tentative
repair plan to complete the repairs by the end of December 2020
for approximately 2,000 rooms mainly composed of the vacantrooms for which the tenant recruitment had been suspended. The
Company announced on August 28, 2020 that it would review thescale of repair works and organizational setup, and notify the further repair plan once the Company confirms prospect for businessrecovery and improvement for financial position.
As a result of these events, to prepare for incurrence of repair
costs and incidental expenses, such as expenses to compensate
for the rent of vacancies of properties managed by other companies, relocation expenses for tenants, and external investigation
expenses, related to the defects in properties constructed by theCompany, the Company reasonably estimated and recorded theamount for reserve for losses related to repairs at the end of thecurrent fiscal year, depending on changing conditions of the detailsof the defects including the repair method, repair unit cost andnecessity or method for the tenant to relocate.
However, as the repair works are currently in progress, and in
the event that there are any changes in the assumptions on which
the calculation of reserve for losses related to repairs is based
going forward, repair costs incurred and incidental expenses andothers may exceed the amount for which the reserve has alreadybeen made.
Accordingly, depending on the progress of repair works andother factors in the following fiscal years, there may be an impact
on the Companies’ consolidated financial results due to the additional reserve for losses related to repairs.

123
Leopalace21 Integrated Report 2020

Toward the Recovery of Business Performance and Trust

Initiatives for Strengthening Management Foundation

Data Compilation

124

Le op alace 21 Int egr a t ed Repor t 2020

125
Leopalace21 Integrated Report 2020

Toward the Recovery of Business Performance and Trust

Initiatives for Strengthening Management Foundation

Data Compilation

126

Le op alace 21 Int egr a t ed Repor t 2020

Leopalace21 Data Compilation
External Environment
Number of New Housing Starts
In fiscal year 2019, the number of new housing starts decreased by
7.3% year on year. Meanwhile, rental housing starts decreased forthe second year in a row, falling by 14.3% year on year to 334,509
units. Starts of rental units of less than 30 square meters aimed
mainly at single-person households also declined, falling by 27.8%
year on year to 52,640 units.

(1,000 units)

Rental housing
Of which, rental units under 30m2
Other
Total

FY2017FY2018FY2019

410
79
536
946

390
73
563
953

335
53
549
884

Source: N ew housing starts statistics, the Ministry of Land, Infrastructure, Transport, and Tourism

Number of Households
The number of households in Japan is expected
to decline starting 2025 due to the nation’s trendsof an aging population and low fertility rate.
On the other hand, the number of single-personhouseholds is expected to continue increasing
steadily until 2030.

(1,000 households)

Single-person households
Of which, under age 25
Of which, age 25-34
Of which, age 35-64
Of which, age 65 or older
Married couples
Married couples with children
Single-parent with children
Others
Total

2010

2015

16,785
2,060
2,999
6,745
4,980
10,26914,474
4,535
5,779
51,842

18,418
2,021
2,987
7,157
6,253
10,75814,342
4,770
5,044
53,332

2020

2025

2030

2035

2040

(forecast)(forecast)(forecast)(forecast)(forecast)

19,342
2,009
2,830
7,479
7,025
11,101
14,1345,020
4,510
54,107

19,960
1,879
2,795
7,774
7,512
11,203
13,693
5,137
4,123
54,116

20,254
1,781
2,705
7,809
7,959
11,138
13,1185,141
3,833
53,484

20,233
1,681
2,558
7,577
8,418
10,96012,465
5,074
3,583
52,315

19,944
1,584
2,429
6,968
8,963
10,715
11,8244,924
3,350
50,757

Source: 2018 estimates on the number of households and forecasts, the National Institute of Population andSocial Security Research

Number of Vacant Homes in Japan
Amid the concentration of populations in cities,
the number of vacant homes is growing, especiallyin rural areas. The number of vacant properties inJapan available for rent or sale stands at 4,600,000
units, or one in five homes, according to the mostrecent Housing and Land Survey, published in fiscal
2018, and is becoming a social problem.

1988

1993

1998

2003

2008

2013

2018

Number of vacant houses
2,336 2,619 3,520 3,978 4,476 4,600 4,604
for rent or sale (1,000 units)
Tenancy (1,000 units)
14,015 15,691 16,730 17,166 17,770 18,519 19,065
Ratio of vacant dwellings
14.3
14.3
17.4
18.8
20.1
19.9
19.5
(%)
Source: Housing and Land Survey (2018), the Ministry of Internal Affairs and Communications

Leasing Business Data
Apartment Rooms under Management
As of March 31, 2020, apartments under management—the earnings base for our Leasing
Business—numbered 575,798, rising for the seventh consecutive year. The growth rate in our focus
regions of Kanto (the Tokyo metropolitan area andKita-Kanto), Chubu, and Kinki remained high andaccounted for around 70% of the total number.

(Rooms)Hokkaido
TohokuKita-Kanto
Tokyo metro area
Hokuriku-Koshinetsu
Chubu
Kinki
Chugoku
Shikoku
Kyushu-Okinawa
Total

FY2017FY2018FY201913,93235,43440,321
168,313
40,09587,91680,362
38,945
14,671
50,683570,672

13,90935,65240,494
170,358
40,00388,19480,861
39,208
14,691
51,428574,798

13,86635,62340,494
171,080
39,981
88,08681,011
39,415
14,73651,506575,798

Leopalace21 Integrated Report 2020

127

Leases by Contract TypeFY2017

Corporations
Individuals
Students
Total

FY2019FY2018

Units

%

Units

%

Units

%

309,062
178,643
47,142534,847

57.8
33.4
8.8
100.0

280,643
163,318
40,757484,718

57.9
33.7
8.4
100.0

272,566
165,594
40,135478,295

57.0
34.6
8.4
100.0

Average Annual Occupancy Rate
Both the year-end occupancy rate and the average annual
occupancy rate declined due to the impact of the construction defects problem. The year-end occupancy ratein the fiscal year ended March 2020 fell 1.2 points from ayear earlier, while the average annual occupancy rate fell
7.5 points from a year earlier.

(%)

Average annual occupancy rate

FY2019

90.6

88.3

80.8

End-FY2017

End-FY2018

End-FY2019

87.1
94.5
90.7
94.2
92.7
94.5
93.8
93.1
91.8
96.1
93.7

69.0
84.8
80.3
86.0
79.1
85.1
83.1
88.0
84.3
87.6
84.3

73.1
84.7
77.2
84.9
79.1
81.9
81.5
87.0
83.4
87.4
83.1

FY2017FY2018FY2019

307
189

302
189

295
189

118

113

106

1,546

1,494

1,339

Fiscal Yearend Occupancy Rates by Region
Last year, although the occupancy rate continued to
decline in many regions of Japan due to the effects of theconstruction defects problem, the amount of the decline
is decreasing. The Chubu region showed the largest decrease, falling by 3.2 points year on year. Meanwhile, the
Hokkaido region, which showed a significant decrease
last year, actually increased by 4.1 points year on year.

(%)

Hokkaido
TohokuKita-Kanto
Tokyo metro area
Hokuriku-Koshinetsu
Chubu
Kinki
Chugoku
Shikoku
Kyushu-Okinawa
Total

Number of Leasing Sales Offices andSales Personnel
For our Leasing Business, we are forging ahead bybuilding a network balanced between directly managed
leasing sales offices and offices run by franchisees(partners). We are continuing to optimize our sales force,
which totaled 1,339 people as of March 31, 2020, down
10.4% year on year.

No. of lease sales offices
Of which, Leopalace Centers
Of which, Leopalace Partners(franchisees)
No. of leasing sales personnel

Subsidiary Equipments and Services
Security systems installed (cumulative, rooms)
Security cameras installed (cumulative, buildings)
Services centers, no. of incoming calls
Of which, inquiries
Of which, maintenance related
Of which, complaints or claims
Tenant response rates from Internet (new contracts only)

FY2017FY2018FY2019296,564
12,824
515,750
361,678
121,672
32,40045,971

308,944
14,410387,398
254,334
106,508
26,55630,009313,382
14,671
382,518
266,644
92,762
23,112
16,360

Data Compilation

FY2018Initiatives for Strengthening Management Foundation

FY2017

Toward the Recovery of Business Performance and Trust

We are strengthening our marketing efforts aimed atcorporations, where we can expect stable, long-term
earnings. As of March 31, 2020, the number of corporate
contracts for apartments stood at 272,566 units, down
2.9% from a year earlier due to the ongoing effects of theconstruction defects problem. Nevertheless, the composition ratio was 57.0%, accounting for more than 50% of
our lease portfolio for the seventh consecutive year.

128

Le op alace 21 Int egr a t ed Repor t 2020

Development Business Data
OrdersIn the fiscal year ended March 2020, our orders showed asignificant decrease for the second year in a row, fallingto 7,814 million yen due to the impact of apartment
orders being curbed by factors that included us focusing
on the resolving the construction defects problem. Our
custom-built home orders of subsidiary Morizou also
decreased to 2,526 million yen.

(Millions of yen)

Building categories
Apartments
Elderly care facilities
Stores & commercial space
Custom-built homes*
Solar power systems
Total

FY2017FY2018FY201969,712
706
1,390
4,097
0
75,90556,859
931
1,934
4,771
0
64,495

4,852
156
280
2,526
0
7,814

FY2017FY2018FY2019

566
369
185
12

381
259
116
6

163
109
50
4

FY2017FY2018FY2019

20
13
317
1
43
79
32
2
59
566

25
9
196
0
39
54
18
2
38
381

2
4
82
2
6
30
17
2
18
163

FY2017FY2018FY2019

60

35

29

530

475

105

*Subsidiary Morizou

Apartments Completions
The number of apartment buildings completed in thefiscal year ended March 2020 declined by 57.2% year on
year to 163. Completed wooden, steel-frame and reinforced-concrete buildings all decreased due to the impactof curbed orders. Approximately 70% of the completed
apartments were wooden.

(Buildings)

Apartments completions
WoodenSteel-frame
Reinforced-concrete

Apartment Completions by Region
By area, the number of apartment completions is declining in Tohoku, Kita-Kanto, the Tokyo metropolitan area,
Chubu, Kinki, Chugoku, and Kyushu-Okinawa due to theimpact of measures to curb orders.

(Buildings)

TohokuKita-Kanto
Tokyo metro area
Hokuriku-Koshinetsu
Chubu
Kinki
Chugoku
Shikoku
Kyushu-Okinawa
Total

Sales Offices Accepting Construction Orders,
Sales Personnel
Long-term demand for apartment construction is
expected to decline nationwide. In this environment, ourstrategy is to concentrate our sales offices and personnel in regions where strong demand can be expected.
However, we are currently committing our workforce
to the resolution of the construction defects problem,
which we consider our top priority.

Sales offices responsible forconstruction orders (offices)
Sales personnel responsible forconstruction orders (personnel)

Leopalace21 Integrated Report 2020

129

Elderly Care Business Data
Number of Facilities(Facilities)

Fee-based homes
Day services, Short stays
Group homes
Total

FY2017FY2018FY2019

21
60
2
83

21
64
2
87

21
64
2
87

FY2017FY2018FY2019

72.8
90.2

72.6
93.6

72.8
95.6

88.8

91.6

92.4

Utilization Rate

(Utilization rate, %)The utilization rate of fee-based homes for seniors andgroup homes as well as short stays remained high,exceeding 90%. We are focusing on temporary-typeofferings, notably day services and short stays, and theutilization rate of both is improving every year.

Day services
Short stays
Fee-based homes &group homes

Leopalace Resort Guam
Before, we were encouraging the usage of Leopalace Resort Guam, a resort operated in Guam, by our corporate clients and other stakeholders,
but we have decided to withdraw from or reduce this business in line with the structural reforms we announced in June 2020.
(Utilization rate, %)

2017

1,545

1,549

1,667

47

45

45

55

(53.4%of the total)

46(53.6%of the total)

Leopalace Resort Guam

2018

2019

50.7

43.2

50.5

FY2017FY2018FY2019

83.6
77.8
79.6
94.9
11,788

82.2
76.4
78.8
94.9
11,707

79.0
67.4
58.5
83.2
12,58139(43.5%of the total)

Data Compilation

No. of visitors to Guam*(thousands)
No. of visitors to Leopalace
Resort Country Club (users)(thousands)
No. of stakeholder visitors(people who stayed,
recreational facility users)(thousands)

2017

2019

2018

Initiatives for Strengthening Management Foundation

Hotels and Resort Business Data

Toward the Recovery of Business Performance and Trust

We have positioned our Elderly Care Business as a
growth strategy business, and our plan is to work on
increasing the stability of this business to handle Japan’s
aging population. At the end of March 2020, we had atotal of 87 facilities.

* Data on the number of visitors to Guam, Guam Visitors Bureau (a government agency)

Leopalace Hotels
Before, Leopalace Hotels was encouraging the usage of business hotels
by corporate clients on business trips and other stakeholders, but wehave decided to withdraw from or reduce this business in line with thestructural reforms we announced in June 2020.

(Utilization rate, %)SapporoSendai
NagoyaHakataNo. of stakeholder stays(persons)(8.6%
of the total)(7.4%
of the total)(8.7%
of the total)

130

Le op alace 21 Int egr a t ed Repor t 2020

Social Key Performance Indicators
The Company engages in the respective CSR initiatives under the leadership of the CSR Committee, which is chaired by the CSR officer, in collaboration with divisions and departments. Meeting four times a year, the CSR Committee receives reports on the progress of initiatives in linewith the five themes of the Basic CSR Action Policy, based on the quarterly quantitative targets set by each division and department, and moves
initiatives to the next phase of the PDCA cycle. Key topics and KPIs are approved by the CSR Committee, and these are periodically reported to
the Board of Directors to conduct CSR activities. In addition, this year, we identified new material issues related to ESG (environment, social, andgovernance) and specified KPIs for each of these issues.

Governance
FY2017FY2018FY2019

3
1
655
563
19
71

3
1
595
495
19
80

7
2
228
131
13
83

Outside directors
Female directors
Directors’ compensation (millions of yen)
Directors (excludes outside directors)
Audit & Supervisory Board members (excludes outside ASB members)
Outside directors and ASB members

Employee Composition (Parent company)
FY2017

No. of employees
No. of regular employees
No. of temporary hires
Average age
Average cumulative yearsof service

FY2019FY2018
Total

Total

Men

Women

Total

Men

Women

6,494
5,998
496
36 years,
11 months
8 years,
11 months

4,509
4,265
244
38 years,
0 months
10 years,
2 months

1,985
1,733
252
34 years,
5 months
6 years,
1 months

6,331
5,833
498
37 years,
7 months
9 years,
7 months

4,395
4,142
253
38 years,
7 months
10 years,
10 months

1,936
1,691
245
35 years,
2 months
6 years,
7 months

Women

Total

176
177
82.5%
12.2%
10.3%

173.0
15.0
199
238
76.8%
8.6%
19.1%

Men

Women

5,814
4,035
5,461
3,830
353
205
38 years, 39 years,
8 months 3 months
10 years, 11 years,
6 months 10 months

1,779
1,631
148
36 years,
4 months
7 years,
6 months

Work-life Balance (Parent company)
FY2017
Total

Total number of working hours per month
Overtime work hours per month
No. of employees with reduced working hours
No. of employees on childcare leave
Rate of paid leave usage
Rate of workforce turnover
Ratio of new hires

176.7
18.2
188
257
74.1%
8.1%
12.5%

Men

12
80
70.6%
6.3%
14.6%

FY2019FY2018
Men

11
55
74.4%
7.2%
18.2%

Women

Total

Men

Women

188
183
82.6%
12.0%
20.3%

166.3
13.3
277
268
84.3%
12.4%
22.1%

15
37
83.1%
11.2%
17.3%

262
231
87.1%
15.1%
28.3%

Diversity (Consolidated (excluding Guam), Parent company + Leopalace Smile for disabled employees)
FY2017Total

No. of disabled employees (annual average)% of disabled employees (annual average rate)
No. of mandatory retirees that have been rehired*
No. of employees with foreign citizenshipNo. of foreign national managers
Number of people newly employed
Gender ratio for new hires
No. of managers
Gender ratio for managers

159.7
2.17%
22
334
20
722
100.0%
1,707
100.0%

Men

19
124
15
327
45.3%
1,603
93.9%

FY2019FY2018
Women

Total

3
210
5
395
54.7%
104
6.1%

161.9
2.23%
31
351
25
725
100.0%
1,758
100.0%

Men

24
144
20
336
46.3%
1,648
93.7%

Women

Total

Men

Women

7
207
5
389
53.7%
110
6.3%

154.0
2.26%
21
366
26
523
100.0%
1,671
100.0%

17
143
20
229
44.7%
1,549
92.7%

4
203
6
294
55.3%
122
7.3%

* Employees who reach the mandatory retirement age can be rehired on a different contract.

Support for Employees Seeking to Obtain Qualifications
No. using support for obtaining qualifications
No. using support system for obtaining specified qualifications
No. in program for language skills improvement
No. awarded an incentive payment for obtaining Takken qualification

FY2017FY2018FY2019

742
651
16
75

368
245
15
108

266
144
13
109

“Takuchi tatemono torihiki shi” or “Takken”: This qualification recognizes those who passed a test on Japanese Building Lots and Building Transaction Business Act.

Leopalace21 Integrated Report 2020

Certified Employees (as of March 2020)

Community Contributions
899
537
994
374
296
283
34
705
178
373

Labor Safety and HealthNo. of cleanup campaign participants
Of which, in vicinity of existing properties
Of which, in vicinity of construction sites
Total sum of donations (thousands of yen)
No. joining observation tours and
OTJ training at Leopalace Smile*

FY2017FY2018FY201914,013
3,037
10,976
2,378

6,142
—**
6,142
3,754

2,309
0
2,309
3,708

444

417

111

*	Leopalace Smile Co., Ltd. is a special subsidiary set up to employ the disabled under Article
44 of the Act for Employment Promotion etc. of Persons with Disabilities.
**	Cleanup campaign was held all together in the management center of 170 branches once infiscal 2018.

Efforts to Reduce our Environmental Impact
FY2017FY2018FY2019No. of labor accidents

44

55

56

Accidents requiring time off work

3

14

21

Accidents not requiring time off work

41

41

35

Stakeholder Communication Initiatives

FY2018FY201915,696

14,73013,624

Head office and branches

7,710

6,185

6,343

Azumi En nursing care facilities

6,043

6,056

4,899

Leopalace hotels
CO2 emissions from vehicle gasoline(t-CO2)
Scope 3 CO2 emissions (t-CO2)

1,943

2,489

2,381

3,490

3,345

3,172

864,448786,510

692,463

FY2017FY2018FY2019

424

517

381

22

19

5

Category 1 (purchased materials)

44,81031,263

10,8980Category 2 (capital goods)

34,127

29,835

12,692

4,409

4,338

5,701

781,102724,543

663,171

35

35

Category 3 (electricity-related)
Category 6 (business travel)
Category 7 (employee commuting)
Category 13 (electricity andgas use by rental housing)

Initiatives for Strengthening Management Foundation

FY2017CO2 emissions from the use ofelectricity and gas use (t-CO2)

Toward the Recovery of Business Performance and Trust

Real estate broker
Rental property manager
General insurance solicitor (basic course/fire insurance course)
Architect (first-class, second-class)
Building construction management engineer (1st Grade, 2nd Grade)
Certified skilled worker of financial planning (1st Grade, 2nd Grade)
Land surveyor, Assistant land surveyor
Care worker
Care support specialist
Home-visit care worker (1st Grade, 2nd Grade)

No. of property owner briefing sessions
No. of IR events(meetings for individual investors, etc.)
Career-support activity programs

131

Data Compilation

132

Le op alace 21 Int egr a t ed Repor t 2020

Corporate Profile
Corporate Data
Company Name:(As of March 31, 2020)

Leopalace21 Corporation

Head Office:	2-54-11 Honcho, Nakano-ku, Tokyo
TEL: +81-3-5350-0001 (Main Line)
Established:

August 17, 1973

Paid-in Capital:

75,282.36 million yen

Operations:	Construction, leasing and sales of apartments, condominiums, and residential
housing; development and operation ofresort facilities; hotel business; broadband
business; and elderly care business, etc.
Number of Employees:	7,043 (consolidated basis)
5,820 (non-consolidated basis)

Members of Board of Directors and Auditors (As of July 22, 2020)
Directors
President and CEO
Director
Director
Director (Outside)
Director (Outside)
Director (Outside)
Director (Outside)
Director (Outside)
Director (Outside)

Bunya Miyao
Shigeru Ashida
Mayumi Hayashima
Tadashi Kodama
Tetsuji Taya
Hisafumi Koga
Kazuyasu Fujita
Yutaka Nakamura
Akira Watanabe

Audit & Supervisory Board Members
Full-time Audit & Supervisory Board Member (Outside)
Jiro Yoshino
Full-time Audit & Supervisory Board Member
Kenichiro Samejima
Audit & Supervisory Board Member (Outside)
Takao Yuhara
Audit & Supervisory Board Member
Yoshitaka Murakami

Major Shareholders (Top10)(As of May 28, 2020)

Shareholders

Thousands ofSharesPercentage of
Outstanding Shares

1 Ardisia Investment, Inc

48,68319.94

2 City Index Eleventh Co., Ltd.

21,9048.97

3 S-GRANT.CO.,LTD.

16,456

6.74

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

7,640

3.13

5 Japan Trustee Services Bank, Ltd. (Trust Account5)

5,283

2.16

6 Stockholding Association for Leopalace21’s Business Connection

4,975

2.03

7 JP MORGAN BANK (IRELAND) PLC 380423

4,742

1.94

8 Stockholding Association for Leopalace21’s Employees

4,013

1.64

9 UBS AG LONDON A/C IPB SEGREGATED CLIENT ACCOUNT

3,825

1.56

10 STATE STREET BANK AND TRUST COMPANY 505103

3,639

1.49

Note1:	The number of shares held in trust accounts for trust bank operations by The Master Trust Bank of Japan, Ltd. (Trust Account) and Japan Trustee Services Bank, Ltd. (Trust Account5) as of May 28, 2020are not included because they could not be confirmed.
Note2: The above shareholding ratios are calculated excluding treasury stock.

Stock Information(As of May 28, 2020)

Number of Shares:
Authorized:
Outstanding:

500,000,000
244,882,515

Number of Shareholders:

58,902

Shareholder Composition
Financial Instruments
Business Operators

1.95 %

Business Firms andOther Legal Entities

Listing:	First Section of the Tokyo Stock
Exchange (Security code: 8848)

37.83 %

Administrator of Shareholder Registry:
Sumitomo Mitsui Trust Bank

Financial
Institutions

12.86 %(As of May 28, 2020)
Treasury Stocks

0.32 %

Individuals
and Other

29.98 %
Foreign
Corporations

17.06 %

133

Leopalace21 Integrated Report 2020

Number of Apartment Rooms under Management and Domestic Leasing Sales Offices by Region
Total Number ofManaged Rooms

Number of Franchised Sales Offices
Number of Directly Managed Sales Offices

Number of Managed Rooms

2
7
Hokkaido Region

13,5783
5,896
2
Okinawa Region

161offices
Total Number ofFranchised Sales Offices

712

39,981105 offices

Tohoku Region

10
10
Kinki Region

Chugoku Region

61335,339Hokuriku/Koshinetsu
Region13
24

81,00039,469Toward the Recovery of Business Performance and Trust

574,846 units
Total Number of
Directly Managed Sales Offices(As of August 31, 2020)

40,490Initiatives for Strengthening Management Foundation

3
11

Kita-Kanto Region

3
5
Shikoku Region

14,73688,03115
1345,50214
21

170,824

29
43

Chubu Region

Kyushu Region

Metropolitan Area

Share Price and Trading Volume(As of March 31, 2020)(Yen)(Thousand shares)

500

250,000

400

200,000300

150,000

200

100,000

100

50,000

0

0

Apr
2019

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan
2020

Feb

Mar

Data Compilation

Trading Volume

Share PriceLeopalace21 Corporation
2-54-11 Honcho, Nakano-ku, Tokyo 164-8622, Japan
TEL: +81-3-5350-0001 (Main Line)
http://eg.leopalace21.com/©Leopalace21 Corporation 2020
Printed in Japan