Annual Report2014
For the fiscal year ended March 31, 2014

EXPANDING VALUECORPORATE PHILOSOPHY“Creating New Value”
1.
We 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.
We 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.
We provide new value throughout society as a leading company within the industry,
to help create a more comfortable and affluent society.

CONTENTS
Who we are
PROFILE . . . . . . . . . . . . . . . . . . . . . . . . . .
TEN-YEAR CONSOLIDATEDFINANCIAL HIGHLIGHTS . . . . . . . . . . .
TO OUR STAKEHOLDERS . . . . . . . . . . .

What our businesses are

1
2
4

What our strategy is
FORMULATING A NEW MEDIUMTERM MANAGEMENT PLAN . . . . . . . .

6

Towards Attaining Medium-termManagement Plan Goals
Leopalace21’s External Environment . . 11
Competitive Advantage . . . . . . . . . . . 12
Product Appeal . . . . . . . . . . . . . . . . . 14
Leasing know-how . . . . . . . . . . . . . . . 16
Management know-how . . . . . . . . . 17
Solar Power Business . . . . . . . . . . . . 18
Expanding Overseas . . . . . . . . . . . . . 19
Expansion of Elderly Care Business . . 20
Solid Human Resource Base . . . . . . 21
OUR BUSINESS MODEL. . . . . . . . . . . . . 22
BUSINESS STRUCTURE TRANSITION . . 24
DIALOGUE: MANAGEMENT OFLEOPALACE21 . . . . . . . . . . . . . . . . . . . . . 26

BUSINESS OVERVIEWAT A GLANCE . . . . . . . . . . . . . . . . . . . . . 32
LEASING BUSINESS . . . . . . . . . . . . . 34
CONSTRUCTION BUSINESS . . . . . . 36
ELDERLY CARE BUSINESS . . . . . . . . 38
HOTELS & RESORT BUSINESS . . . . 39
OTHER BUSINESSES . . . . . . . . . . . . 40
TOPICS . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

How CSR supports
our management
CSR Activities Support Our New
Medium-term Management Plan . . . . 42
CSR Issues in Leopalace21’s Value Chain . . . 44
Basic CSR Action Policy
Providing High-quality Services andSupporting Affluent Living . . . . . . . . 46
Creating Pleasant Work
Environments and Developing
Diverse Human Resources . . . . . 50
Creating an Environmentally
Friendly Society . . . . . . . . . . . . .

52

Contributing to Local Communities . . . 54
Engaging in Sound, Constructive
Communication with Stakeholders . . . 55
CORPORATE GOVERNANCE . . . . . . . . . 56
BUSINESS AND OTHER RISKS . . . . . . 60

Leopalace21 Corporation / Annual Report 2014

Financial Section &Corporate Data
FINANCIAL SECTION . . . . . . . . . . . . . . 62
Leopalace21 DATA COMPILATION . . . 106
CORPORATE HISTORY . . . . . . . . . . . . . 112
CORPORATE PROFILE . . . . . . . . . . . . . 114

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

PROFILE
Leopalace21 has established a unique businessmodel fusing two core businesses, theConstruction Business, which involves

LEASING
BUSINESS

constructing apartments aimed mainly at single
persons, and the Leasing Business, which

CONSTRUCTION
BUSINESSREAL ESTATE

involves renting units of apartments we manage
after they are built.
Through efforts to strengthen the profitability of
the Leasing Business, Leopalace21 is moving
forward with the establishment of a “stock-typebusiness model,” which generates stable profits“ONE-STOP SERVICE PROVIDER”
OTHER
BUSINESSES

from renting apartments it manages. At the same

HOTELS &RESORT
BUSINESS

time, with a portfolio also extending to the Elderly
Care Business, the Hotels & Resort Business,

ELDERLY CARE
BUSINESS

and Other Businesses, Leopalace21 is a one-stop
provider of a wide range of real estate services.

EDITORIAL POLICY
The purpose of this report is to enable top management to

the latest available as of the publication date, and to ensurecommunicate its message to all our stakeholders. We seek toreaders understand our business trends to date, the reportpresent our management strategy and priority measures andincludes a “Data compilation” section. We take care to explain

provide an overview of business conditions etc. as well as

what we present in ways that are readily understandable so that

inform readers about our CSR activities to promote a deeper

the report serves as an effective communication tool that

understanding of our contribution to building a sustainable

reaches our many stakeholders.

society. As a result, we have from this fiscal year incorporated

Aiming for sustainable growth, Leopalace21 is forging aheadelements of CSR reporting into our annual report, a publication

with measures reflecting the theme of “staying committed to

we have issued for many years.

the challenge of advancing into new areas with our coreThis report covers the fiscal year from April 1, 2013 throughbusinesses as our foundation.” It is our hope we can obtain

March 31, 2014 (fiscal year 2013). The scope is Leopalace21

greater trust and understanding from our stakeholders throughCorporation and its consolidated subsidiaries in Japan andthis report.

overseas. The information in the report is, to the extent possible,

REFERENCE GUIDELINES• ISO26000• Global Reporting Initiative’s (GRI) fourth-generation (G4) of sustainability reporting guidelines

Forward-looking Statements
Statements made in this annual report with respect to plans, strategies and future performance that 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 such statements including, but not limited to, general economic conditions in
Leopalace21’s markets; demand for, and competitive pricing pressure on, Leopalace21’s products in the marketplace; Leopalace21’s ability to continue to win acceptance for its products inthese highly competitive markets; and movements of currency exchange rates.

Leopalace21 Corporation / Annual Report 2014

1

2

TEN-YEAR CONSOLIDATED FINANCIAL HIGHLIGHTS
For the years ended March 31’05/3 FY2004
Net sales
Leasing business
Construction business
Elderly care business
Hotels & resort business
Other businesses
Cost of sales
Selling, general and administrative expenses
Operating income (loss)
Leasing business
Construction business
Elderly care business
Hotels & resort business
Other businesses
EBITDA (Operating income + depreciation)
Net income (loss)’06/3 FY2005’07/3 FY2006’08/3 FY2007¥

476,267
216,591
248,033
—
7,282
4,361
357,546
64,03854,682
7,244
57,051—(3,928)(5,684)60,53833,262¥

465,387249,696
195,202
2,434
8,340
9,715
353,928
70,684
40,7758,079
39,452257(2,668)(4,347)45,340(16,582)¥

631,609277,163316,117
5,345
7,141
25,842474,71380,88876,007
7,031
74,615309(2,628)(3,319)80,56737,358¥672,973
302,731327,541
11,174
6,072
25,456
511,054
90,517
71,403
3,037
73,268
1,262(1,117)(5,047)76,566342¥

453,434
149,798
108,786¥

412,804
133,62264,513¥454,820
185,785
53,160¥493,956
170,156
49,711¥

40,349(8,979)(20,959)¥

56,972(11,266)(47,947)¥

63,308(15,930)(17,019)¥

11,746
148(26,780)¥

941.06220.7915.00¥

839.44(104.17)
15.00¥

1,054.99
234.6850.00¥

1,036.43
2.15
80.00

At year-end:
Total assets
Net assets
Interest-bearing debt
Cash ﬂow:
Cash flow from operations
Cash flow from investing
Cash flow from financing
Amounts per share: (Yen)Net assets
Net income (loss)
Cash dividend
Ratio:
Units under management

304,111344,045

388,500

89.12

92.41

92.84

92.36

263,357

322,253

362,493

463,044

33.0
28.8
7.6
6.8
0.7
6,457

32.4
(11.7)
(3.8)
—
0.5
6,868

37.0
24.8
8.6
21.3
0.3
7,409

33.4
0.2
0.1
3,720.9
0.3
8,678

Occupancy rate (%)
Orders received (Millions of yen)
Equity ratio (%)
Return on equity (ROE)(%)
Return on assets (ROA) (%)
Payout ratio (%)
Debt/equity ratio (%)
Number of employees

442,025(Notes) 1. U.S. dollar amounts are translated from yen at the rate of ¥102.92 = U.S. $1, the approximate rate prevailing at March 31, 2014.
2.The amounts of net assets for the fiscal years ended March 31, 2005 and 2006 represent the value of total shareholders’ equity of each year-end, and do not include minority interests.
3. Return on equity (ROE) = Net income/average net assets during the fiscal year x 100
4. Return on assets (ROA) = Net income/average total assets during the fiscal year x 100
5. Debt/equity ratio = Interest-bearing debt/ (net assets - minority interests)

Net Sales

Operating Income (Loss)/ Operating Margin

Total Assets/ ROA(Millions of yen)

(Millions of yen)(%)

(Millions of yen)(%)

800,000

80,00016

500,000

10

60,00012

400,000

8

300,000

6

40,0008
200,000

4

20,0004
100,000

2

0

0

0

0

600,000

400,000

200,0000−40,000’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3
FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3

FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

Operating Income (Loss) (left axis)
Leopalace21 Corporation / Annual Report 2014−20

−8
’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3

Operating Margin (right axis)

Total Assets (left axis)

ROA (right axis)

What our strategy is

Who we are

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

(Thousands of
U.S. dollars)(Millions of yen)
’09/3 FY2008’10/3 FY2009’11/3 FY2010’12/3 FY2011’13/3 FY2012’14/3 FY2013’14/3 FY2013¥

733,235
334,561
359,155
7,953
5,611
25,956589,834
93,24550,157(1,539)70,113(1,539)(805)(16,073)
55,9399,952¥

620,376
342,316
237,062
8,813
6,734
25,451
570,749
79,355(29,728)(47,876)
29,745(1,994)(1,324)(8,278)(23,432)(79,076)¥484,391
356,606
107,821
7,786
6,492
5,686
448,392
59,606(23,607)(30,094)
11,971(1,510)(1,975)(1,999)(17,156)(40,889)¥

459,437
380,308
62,913
8,845
6,228
1,142
403,573
51,278
4,586
5,249
4,309
(855)
(1,664)(2,453)
10,633
1,589¥

454,222
383,574
53,370
9,482
6,658
1,138
396,509
50,299
7,414
8,688
2,747
(742)
(1,006)35
13,09813,335¥

471,090388,768
63,136
10,172
7,572
1,442
401,51155,906
13,673
15,568
2,954(611)(1,119)138
19,667
15,230$ 4,577,241
3,777,383
613,447
98,83073,56914,012
3,901,189
543,199
132,853
151,260
28,702(5,934)(10,870)
1,338
191,087
147,977¥

467,300
146,443
44,189¥396,51270,97961,318¥298,274
33,041
43,859¥264,783
33,831
51,654¥

261,650
58,151
49,027¥

287,459
104,860
37,227$ 2,793,037
1,018,856
361,708¥

62,843(10,049)(33,885)¥(12,991)(8,889)15,281¥(28,337)
13,144(15,891)¥(3,175)(3,538)
7,245

¥

6,069
(6)
9,149

¥

15,584(6,930)8,848$

151,420(67,331)85,972¥967.40
63.54
30.00

¥

466.76(521.91)—¥

195.91(261.03)—¥199.739.40—¥

274.8074.50—¥

398.78
67.17
—

$

3.87
0.65
—

506,742551,773

571,656556,207546,204

88.51

82.25

80.09

81.16

82.94

84.58

337,883

250,247

80,33850,01973,006

81,139

31.3
6.4
2.1
47.2
0.3
9,926

17.9
(72.8)(18.3)
—
0.9
8,582

11.1
(78.7)(11.8)
—
1.3
7,114

12.8
4.8
0.6
—
1.5
6,165

22.2
29.0
5.1
—
0.8
6,277

36.5
18.7
5.5
—
0.4
6,758

Net Assets/ ROE

EBITDA

548,912Interest-bearing Debt

(Millions of yen)(%)

(Millions of yen)

(Millions of yen)

200,000

40

100,000

150,000

150,000

30

75,000100,000

20

50,00050,00010

25,000100,000

50,000
0

0

0

−80

−25,0000’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3

FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

Net Assets (left axis)

ROE (right axis)
Leopalace21 Corporation / Annual Report 2014

3

4

TO OUR STAKEHOLDERS

Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Staying committed to the challenge of advancing
into new areas with our core businesses
as our foundation
The Japanese economy remained on a gradual recovery track in the fiscal year ended
March 31, 2014 (fiscal 2013), as the government’s economic and monetary policies drove
the yen lower and stock prices higher, leading to improvements in consumer spending
and employment conditions. In the housing industry, new housing starts climbed sharply
and rental housing starts grew for a second consecutive year due in part to rush demandahead of the April 2014 consumption tax hike.
In this environment, we strove to maximize earnings by enhancing the competitivenessof our leased managed properties and bolstering services for tenants given ourdesignation of fiscal 2013, year two of the Medium-term Management Plan, as “the yearof challenge to a new growth stage.”
As a result of steady execution of these plan initiatives, Leopalace21’s net sales rose
3.7% year on year to ¥471,090 million. Along with the increase in sales, operating income
grew 84.4% year on year to ¥13,673 million. Recurring income grew 4.4% year on year to¥11,575 million, and net income expanded 14.2% year on year to ¥15,230 million.
We originally saw fiscal 2014, the third year of our Medium-term Management Plan, as
the plan’s final year. However, with conditions supportive of stronger growth now in place
thanks to dramatic changes in the economic environment, we have drawn up a new
Medium-term Management Plan with new assumptions that commences in fiscal 2014.
The new plan advances initiatives that reflect the theme of “staying committed to thechallenge of advancing into new areas with our core businesses as our foundation.” Ourtargets for the new plan’s first fiscal year are net sales of ¥493,500 million, operating
income of ¥14,500 million, and net income of ¥12,000 million.
In closing, I would like to humbly request your continued support and encouragement.
June 2014
Eisei Miyama
President and CEO

Leopalace21 Corporation / Annual Report 2014

5

6

FORMULATING A NEW MEDIUM-TERM MANAGEMENT PLAN
Our previous Medium-term Management Plan, “Creating Future,” commenced in the fiscal year ended
March 31, 2013 (fiscal 2012) and was scheduled to end in the fiscal year ending March 31, 2015 (fiscal 2014).
However, because of large shifts in economic trends and the business environment in the past two years,
we drew up a new Medium-term Management Plan, “EXPANDING VALUE,” that kicked off on April 1, 2014.
The new plan is more focused on growth-oriented measures, as the business conditions are likely to
improve in the years ahead.

Slogan for the new Medium-term Management Plan

<Basic policy>“Staying committed to the challenge of advancing into new areas
with our core businesses as our foundation”
Three years from fiscal 2014 to fiscal 2016

Looking back at the previous Medium-term Management Plan
We achieved the basic policy goal of the previous plan: “to establish a stable profit structure balanced between the
Leasing Business and Construction Business.”

Key achievements

Key issues we still need to address● Expanded profits thanks to improved earnings

from leasing etc.
● Advanced solar power system installations
and other measures to enhance the value of
properties we manage● Grew construction orders for elderly carefacilities and other non-apartment work

● Attracting single-person tenants● Improving profitability of the Construction

Business● Expanding new businesses such as overseas

operations● Expanding the Elderly Care BusinessResults versus Previous Medium-term Management Plan
Operating income（Billions of yen）20

500 Net sales (Billions of yen)
450

15

400

10

350

5

300

0

‘13/3 FY2012 ‘13/3 FY2012
Plan
Results

Leopalace21 Corporation / Annual Report 2014‘14/3 FY2013 ‘14/3 FY2013
Plan
Results‘15/3 FY2014
Prior mgmt plan

■ Leasing (left axis)■ Construction (left axis)■ Others (left axis)● Operating income (right axis)

Who we are

How CSR supports
our management

What our businesses are

What our strategy is

Financial Section &Corporate Data

The “EXPANDING VALUE” Plan’s Numerical Targets
The new Medium-term Management Plan, “EXPANDING
VALUE,” calls for net sales in fiscal 2016 (the plan’s finalyear) to grow 14.6% versus the fiscal 2013 result,operating income to rise 60.9%, and net income toincrease 24.8% through earnings growth driven by corebusinesses. In addition to sales growth and resulting
earnings growth, the plan also calls for further progress inbolstering the Company’s financial position and sets targets
for the following key management indicators: an equity ratioof 48.0%; ROE of 12.3%; EPS ¥71.7; and ROA of 6.0%.

Consolidated Earnings(Billions of yen) 30

600 (Billions of yen)

400

20

200

10

0

0

‘13/3 FY2012
Results‘14/3 FY2013
Results‘15/3 FY2014
Plan‘16/3 FY2015
Plan‘17/3 FY2016
Plan

Medium-term Management Plan “EXPANDING VALUE”■ Net sales (left axis)■ Operating income (right axis)■ Net income (right axis)‘13/3 FY2012 Results‘14/3 FY2013 Results‘15/3 FY2014 Plan

‘16/3 FY2015 Plan

‘17/3 FY2016 Plan

454.2

471.0

493.5

525.0

540.0

Operating income (¥ bn)

7.4

13.6

14.5

19.5

22.0

Recurring income (¥ bn)

11.0

11.5

13.0

18.0

21.0

Net income (¥ bn)

13.3

15.2

12.0

16.0

19.0

Equity ratio (%)

22.2

36.5

41.0

45.0

48.0

ROE (%)

29.0

18.7

10.0

12.0

12.3

EPS (¥)

74.5

67.2

45.7

61.9

71.7

ROA (%)

5.1

5.5

4.2

5.5

6.0

Net sales (¥ bn)

Note: Tax-effect accounting is not factored into plan targets from ’15/3 FY2014 onward.

On a segment basis, steady earnings are expected from the Leasing Business as in the previous year, and sales
growth is projected in the Construction Business, which has shown signs of expanding demand.

Sales by Segment

Operating Income by Segment

600 (Billions of yen)

20 (Billions of yen)
15

500

10
5

400

0
300

-5
‘13/3
FY2012
Results‘14/3
FY2013Results‘15/3
FY2014Plan‘16/3
FY2015Plan■ Leasing ■ Construction ■ Elderly Care
■ Hotels & Resort ■ Others‘17/3
FY2016Plan‘13/3
FY2012
Results‘14/3
FY2013Results‘15/3
FY2014Plan‘16/3
FY2015Plan‘17/3
FY2016Plan● Leasing ● Construction ● Elderly Care
● Hotels & Resort ● Others

Leopalace21 Corporation / Annual Report 2014

7

8

The “EXPANDING VALUE” Plan’s Numerical Targets
Leasing Business Strategy
In the Leasing Business, improving occupancy rates is
crucial to securing stable profits. For this reason, we
recruit and secure tenants using our directly managed
offices, franchise offices, and cooperative local realestate brokers. We also forge ahead with measures topromote long-term tenancy by expanding our range ofservices for tenants. Our aim is to raise the averageoccupancy rate 4.4 percentage points to 89.0% in thethree years to March 2017.

Units under Management, Average Annual Occupancy Rate(%) 95600 (Thousands of units)

400

90

200

85

0

80

‘08/3
FY2007
Results‘09/3
FY2008Results‘10/3
FY2009Results‘11/3
FY2010Results‘12/3
FY2011Results‘13/3
FY2012
Results‘14/3
FY2013Results‘15/3
FY2014Plan‘16/3
FY2015Plan

For
more details,
see page34‘17/3
FY2016Plan

Medium-term Management Plan
“EXPANDING VALUE”■ Managed units at end-FY (left axis)● Average annual occupancy rate (right axis)

Construction Business Strategy
In the Construction Business, we are working to develop
new products (apartments) that match tenant needs,
while also expanding the variation of construction work
we perform in order to respond to the needs oflandowners who seek to build non-apartment properties
such as elderly care facilities, commercial buildings, andbuilt-to-order homes. We aim to boost sales to ¥100 billion
by responding to a broader range of land usage needs.

Construction Business Sales(%) 40120 (Billions of yen)
90

30

60

20

30

10

For
more details,
see page

0

0

36

‘11/3
FY2010Results‘12/3
FY2011Results‘13/3
FY2012
Results‘14/3
FY2013Results‘15/3
FY2014Plan‘16/3
FY2015Plan‘17/3
FY2016Plan

Medium-term Management Plan
“EXPANDING VALUE”■ Net sales (left axis)● Gross profit margin (right axis)

Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Elderly Care Business Strategy
As for the Elderly Care Business, in light of its considerable
growth potential, we have newly designated it as a
strategic growth business. We are working to open new
facilities in response to the growing population of seniors,
while concurrently moving this business into profit. In the

Elderly Care Business Sales and Operating Income
15 (Billions of yen)

Number of Facilities under Management(Billions of yen) 1.5

10

1.0

5

0.5

0

0

-5

-0.5

-10

-1.0

-15

-1.5
‘13/3
FY2012
Results‘14/3
FY2013Results‘15/3
FY2014Plan‘16/3
FY2015Plan

next three years, we plan to add about 30 facilities withthe aim of reaching 90 facilities under management as ofMarch 31, 2017. Our goal in this span is to make theElderly Care Business profitable at the operating income
level before the allocation of overhead expenses.

100 (Number of facilities)
75
50
25
0

‘17/3
FY2016
Plan■ Net sales (left axis) ● Operating income (right axis)● Operating income before overhead expenses (right axis)‘13/3
FY2012
Results‘14/3
FY2013Results‘15/3
FY2014Plan‘16/3
FY2015Plan‘17/3
FY2016Plan

For
more details,
see page

38
Hotels & Resort Business Strategy
In the Hotels & Resort Business, we use our facilities as venues to provide
services and hospitality to our stakeholders, rather than seeking to expand
the scale of this business. Leopalace Hotels in Japan often host corporateclients on business trips and training programs, and the Guam resorts are
frequented by tenants and property owners for trips and by corporateclients as recreational facilities participating in their employee benefit
programs. By offering these services, these hotels and resorts are
expected to bring in sales promotional benefits to the Company.

For
more details,
see page39

Solar Power Business Strategy
In the solar power business, we are forging ahead with "Roof Megasolar Pro," a business model where we install solar panels on the leased
rooftops of apartments we manage and earn revenues from sellingelectricity generated by panels. We have expanded a variety of solar
power businesses such as one that supports solar panel installations
funded by apartment owners as well as a pilot project in Fukushima
Prefecture through a subsidiary. For fiscal 2014 and onward, however,
we will concentrate our efforts on panel installations on leased rooftops.

For
more details,
see page40

Overseas Business Strategy
We are leveraging the know-how we amassed in Japan to expand into
overseas leasing operations, with a focus on Southeast Asia. Along withintroducing foreigners to properties in Japan, we have also started
brokering local real estate in South Korea and Taiwan to Japaneseindividuals and companies. Moreover, we have entered the Koreanmarket through a leasing management venture with a local enterprise.

For
more details,
see page

19

Leopalace21 Corporation / Annual Report 2014

9

10

New Business Initiatives
The “EXPANDING VALUE” plan reflects our intention
to proactively invest in growth in view of theopportunities to realize strong earnings growth amid a
tailwind arising from a favorable economic
environment. We are particularly focused on our core
Leasing Business and businesses related to the

Earnings growth via
proactive growth investment

Construction Business, namely, “Roof Mega-solar Pro,”
construction of nursing care facilities and commercial
buildings, and the Elderly Care Business. Our aim fornew businesses, particularly overseas real estate
brokerage operations and construction of custom-built
homes, is to make them profitable soon.
Overseas real estate brokerageNewbusinesses

Real estate development in ASEAN
Construction of custom-built homes
Roof Mega-solar Pro

Newbusinesses
Relatedbusinesses
Related businesses

Construction of nursing care facilities
Construction of commercial buildings
Elderly care businessCore businessesCorebusinesses

Construction of mid-rise and high-rise buildings
Rebuilding existing master lease system apartments

A Close-up Look at a New Business
Luxury custom-built “Taiga” homes made with Kiso-hinoki wood jointly designed with Morizou
Leopalace21 has started offering customdesigned and built “Taiga” homes jointly
developed with its partner Morizou Co.,
Ltd. (headquartered in Shibuya ward,
Tokyo; President Koichi Tsuno). Morizou isa custom-home builder using Kiso-hinoki
wood, which is considered among thefinest quality wood grown in Japan.
We are expanding related businesses
where the know-how of the Construction
Business, one of our core businesses, canbe applied, and have begun constructing
nursing care facilities and commercial
buildings. Our partnership with Morizou
and the launch of custom-built “Taiga”
homes developed together with Morizou
are both part of that business expansion.
We will continue to push forward withmeasures that enable us to broaden thevariation of construction work we perform
in a bid to expand our operations.

Leopalace21 Corporation / Annual Report 2014

Who we are

What our businesses are

What our strategy is

How CSR supports
our management

Financial Section &Corporate Data

Towards Attaining Medium-term Management Plan Goals
In April 2014, Leopalace21 commenced a new, growth-oriented Medium-term Management Plan. In thissection, we explain our views on the market outlook on which the new plan is based, what strengths we havethat ought to be useful in achieving plan goals, and what areas we believe we should expand in the future.

■ Leopalace21’s External Environment ■Our outlook for market trends relating to our businesses is as follows.

Steady Trend in Rental Housing Starts
Number of New Housing Starts (Number of Housing Units by Use)
1,000 (1,000 units)
750
500
250
0
’10/3
FY2009’11/3
FY2010’12/3
FY2011’13/3
FY2012’14/3
FY2013■ Rental units ■ Residential houses for allotment sales■ Condominium units for allotment sales ■ Owner-occupied houses ■ Others* Source: New Housing Starts Statistics for the fiscal year ended March 2014,
the Ministry of Land, Infrastructure, Transport, and Tourism

New housing starts dropped sharply during the period fromthe fiscal year ended March 2009 to the fiscal year ended
March 2010 due to the economic slump following theLehman Shock. Since then, however, they have gradually
recovered as a result of policy support for housing
investment and other schemes. In the fiscal year ended
March 2014, the number of housing starts grew for the
fourth consecutive year to 987,254 units thanks to theeconomic recovery along with a lift from rush demandahead of the consumption tax hike. Amid this environment,
new housing starts for rental units increased for thesecond successive year, climbing 15.3% year on year to369,993 units.

Uptrend in Single-person Households to Continue
Trend in Number of Households
60,000 (1,000 households)
40,00020,000
0
’05

’10

’15

’20

’25

’30

’35

(projected) (projected) (projected) (projected) (projected)■ Single ■ Married couple ■ Married couple, children■ Single parent, children ■ Others* Source: 2010 Population Census, the Ministry of Internal Affairs and Communications;Household Projection for Japan (January 2013),
National Institute of Population and Social Security Research

Due to Japan’s declining population, the number ofhouseholds is expected to gradually decline in the near
future. However, single-person households are expected tokeep growing for a while longer. The number of singleperson households has grown from 16,780,000 in 2010,
and there are forecasts for single-person households tocontinue to grow through 2025, when the total number ofhouseholds is expected to start declining, and to keep
rising until 2030. As a result, forecasts call for 18,450,000
households in 2035, an increase of 1,670,000 from 2010,
and for the number of single-person households as apercentage of all households to be 37.2% in 2035, up 4.8
points from the 32.4% of 2010.

Higher Tenancy Rate in Large Cities
Homeownership and Tenancy Rates of Households
60 (%)

40

20

0
Tokyo

Okinawa

Osaka

Fukuoka Hokkaido National
average■ Homeownership rates of households ■ Tenancy rates of households* Source: 2008 Housing and Land Survey, Statistics Bureau, Ministry of Internal Affairs and Communications

The 2008 survey (latest) on the total number of housing
units and homeownership rates shows thehomeownership rate was 61.1% and the tenancy rate was
35.8%, and homeownership rates have remained at around
60% since the survey started in 1973. This trend varies byregion with low homeownership rates and high tenancy
rates in major metropolitan areas in general. Of the top fiveprefectures with the lowest homeowner rates, Tokyo is
first, Osaka is third, and Fukuoka is fourth. They include
major metropolitan areas and are at or near the top in
terms of population. So it can be said that tenant demand
for rental housing is largely concentrated in metropolitan
areas such as Tokyo, Osaka, and Fukuoka.
Leopalace21 Corporation / Annual Report 2014

11

12

Towards Attaining Medium-term Management Plan Goals

Number of Apartment Units under Management

Competitive
Advantage

548,912

No.1

units

(as of the end of March 2014)

The leasing business is so intensely competitive that it is often said “the company that
controls the battle for tenants rules the leasing business.” With over 540,000
apartment units under management, Leopalace21 has won in such a competitiveenvironment and emerged as one of Japan’s largest leasing management company.

Market Positioning
Room typeStudio apartments
Leopalace21
Length Longof stay term

Company

D2

Shortterm
CompanyS

Company

D1

Family-type units

Leopalace21 Corporation / Annual Report 2014

Investigatedby Company

Our leasing business centers on one-room type units, a clear
distinction versus our major competitors focusing on family-type
units. A key feature of the apartments we manage is that they comewith furniture and electrical appliances, and using this as a selling
point, the company has achieved solid growth by responding to theneeds of students, single employees, and others living alone amid
the continued increase in single-person households. We also address
short-term stay needs such as business trips. As a result, nearly halfof our leases are company housing or dormitories for corporate use.

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

13

Towards Attaining Medium-term Management Plan Goals

Proportions by Areas
Competitive
Advantage

Total for Three Major
Metro Areas

No.2(as of the end of March 2014)

70

About

%

Even a large number of units under management does not mean much if they arelocated in areas where tenant demand is not expected to grow. Of the apartments
under Leopalace21’s management, about 70% are located in the three majorurban centers.
TOKYO

NAGOYA

Proportion of Managed Properties,
Nationwide and by Key Area
Metropolitan
area

Total for 3 Metro Areas
Approx.
%70

Chubu area
Kinki area

36%

16%

14%
Managed units

548,912 units(as of the end of March 2014)

OSAKA

The features of rental housing for single-person households differ substantially fromthose for families. Further, there is a clear distinction between areas showing strong
demand for studios and those seeing strong demand for family-type apartments.
Leopalace21 is focused on Japan’s three major metropolitan areas, where thehousing needs of single-person households—the company’s strength—are
substantial. Of our entire managed properties portfolio, about 70% are located in thethree largest metropolitan areas, with the Metropolitan area accounting for 36% of
the total, the Chubu area for 16%, and the Kinki area for 14%. Thanks to the highconcentration of our managed properties in these three urban centers, where
population inflows continue to outpace outflows, our occupancy rates remain stable.
Leopalace21 Corporation / Annual Report 2014

14

Towards Attaining Medium-term Management Plan Goals
Product Appeal“Appealing Products”—
High Value-added Apartments, Fittings,
Facilities, etc.—Attract Tenants.

Product Appeal No.1

Comfortable Living
Environments
We offer tenants comfortable living
environments via a raft of products
we developed with high-value-added,
original fittings and specifications
that meet the needs of tomorrow’s
rental housing market.

Product Appeal No.2

Eco-consciousness andDisaster Preparedness
Solar panel systems etc. have been
installed in light of environmental
concerns, and superior earthquake
resistance and durability are factored
in for disaster preparedness at the
housing design stage.

Product Appeal No.3

Safety andSecurity Measures
With our thoroughgoing emphasis on
the housing basics of safety andsecurity, we offer residences whereanyone can live in safety andcomfort.

Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

As the top runner in the leasing industry, Leopalace21 develops products thatfactor in the needs of the rental housing market. In particular, we offer appealing
housing products along three dimensions of particular importance to tenants—
comfortable living environments, eco-consciousness and disaster preparedness,and safety and security.

Leopalace21 has consistently focused on developing
high-value-added products in response to tenantneeds. As a way to ensure that neighbors are notbothered by loud noises, we have developed andinstalled sound-insulating walls and floorings thatexceed the requirements of the Building Standards
Act, as well as sound-dampening drainage pipes for
kitchens, toilets, etc. that reduce the transmission ofsounds of water draining and flushing.

High Sound-insulated Flooring (Non-Sound Floor)
This flooring diminishes the transmission of loud noises from higher floors to lower floors. Compared withconventional flooring, the new flooring is one rank more effective as sound insulation in wooden structures
and three ranks more effective in steel-framed structures.
Wooden Structures

Steel Structures
Newestconstruction
methodConventional
formSound-insulating flooring
ALC board
Plasterboard
Plyboard

Floor-reinforcing materials
Floor beams

Glass wool
Wooden ceiling joists
Wooden ceiling carrying rods

Plasterboard
Wooden ceiling joists

Original high-damping shearing-typevibration-proof ceiling hangers

Harnessing our advanced
engineering know-how in full, ourLeco series of eco-conscious
residences employ passive designs
that capture natural heat and use
cool breezes to enable comfortableliving while reducing electricity
consumption. In addition, we offer abroad array of eco-conscious
products including rental apartmentswith solar panel installations.

Newestconstruction
methodConventional
formSound-insulating flooring
Plyboard

High-density
sound-insulation sheet

Glass wool

ALC board
Steel beams
Steel ceiling joists
Two-layer plasterboard

Original high-viscosity specialty
vibration-proof ceiling hangers

Hot summer sunbeams are regulated
Warm winter sunbeams are captured
Power of the sun is converted into energy

Blocks sightlines ,controls breezes and sunlight

Uses rain to preserve beauty
Directs wind fl
ows into rooms

Uses rainwater effectively

A major requirement for companies
providing dormitories and housing fortheir employees, as well as female
tenants living alone, etc. is safety.
Our comprehensive set of measures
to ensure the safety and security ofour tenants include the installation ofapartment security systems etc. via
operational tie-ups with major
security providers.

Leopalace21 Corporation / Annual Report 2014

15

16

Towards Attaining Medium-term Management Plan Goals

Our Strength Lies in Our “Diverse Services”
and “Unique Tenant Attraction Capabilities.”

Leasingknow-how

We keep high occupancy rates at Leopalace21-managed rental properties. Two
factors behind our ability to do this are (1) “diverse services” that respond tochanging markets and needs and (2) superior leasing know-how based on “uniquetenant attraction capabilities.”

Leasing know-how No.1

Diverse Services
Our broad array of services is finetuned to cater to diverse lifestyles
including our popular “RoomCustomize” plans, quite originalcompared with other industry
offerings.

Leasing know-how No.2+

Unique Tenant Attraction Capabilities
We have built tenant marketing systems including
sales offices, the internet, and seminars for thoselooking at rental housing options to cover all
segments of the market—individuals, corporations
and institutions, and students. We demonstrate ourability to attract tenants across segments byproviding a diverse array of information and adopting
many measures.

Occupancy Rate Trends

II

(%)
88
86

Year ended March 31, 2014
Year ended March 31, 2013
Year ended March 31, 2012
Year ended March 31, 2011

84
82
80
78

Apr.

May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

(Occupancy rate (%) = occupied units/units under management)

Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Towards Attaining Medium-term Management Plan Goals
Management
know-howAll-around “Management Know-how”

As the leader of the leasing industry, Leopalace21 has been involved across all
aspects of the lifecycle of apartments for over 30 years. We believe in our allaround “management know-how” to execute property management, which isessential to apartment business.

Leopalace21’s complete management system
All-around management know-how

Tenant management

Neighborhood relations

Management operations thatengage tenants from moving
in to moving out

Responding to incidents
involving neighbors andneighborhood associations

Collecting usage fees, meeting tenants
when they move out, responding to claims,
offering guidance to all kinds of tenants, etc.

Responding to violations of parking andtrash-disposal rules, negotiations with neighbors
and neighborhood associations, etc.

Service Center Operational Status
FY ended March 31, 2014

Staff headcountNumber of inquiries

Managers:
17
Employees:
53
Temp-staff, part-timers: 41609,877

Building management
Building management fromcleaning to inspections
Cleaning patrols and mandatory inspections,building inspections and diagnosis, repair proposals, etc.

Drawing up budgets for costs
relating to repair andmaintenance; a system designed
to uphold building performancethrough planned repair andmaintenance services

Building maintenance system+

Total maintenance services
for furniture andhome appliances

Maintenance services to always
keep furniture and home
appliances in good condition

Preserving a fine-tuned responsiveness to tenant needs
and the asset value of apartments
Realizing a long-term stable management model
Leopalace21 Corporation / Annual Report 2014

17

18

Towards Attaining Medium-term Management Plan Goals
Solar PowerBusiness

Solar Power Systems

9,001

buildings (125.8MW)(Installation rate 40.9%)

Mitigating global warming is a problem facing people everywhere. Leopalace21
has set up solar power generation businesses via an array of approaches such as
installing solar panels on the rooftops of apartments we manage. Through the useof natural energy sources, we are moving forward with measures to counter
global warming.

We are focusing on solar power systems as a promising new businessendeavor that also contributes to mitigating global warming. We areproceeding with three kinds of solar power businesses. The first is a businessinstalling solar panels acquired using investment funds from apartment
owners. The second is to lease the rooftops of apartments we manage fromtheir owners so as to generate solar power from panels installed onthese rooftops and then sell this electricity to power utilities. The third isa mega-solar design and construction business that uses idle sites.
Our main focus at present is the business of solar power generationfrom panels installed on leased rooftops. Since launching this business in
September 2012, we have installed panels on 2,372 buildings, and we will
move forward with panel installations on viable rooftops.

Installations of Solar Power Systems (cumulative)（Buildings）

10,0005,000

0Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar.

FY ended March 31, 2014

Our Business Models for Solar Power Penetration (As of the end of March 2014)
Business models

Starting month

Buildings where installed, cumulative

1

Owners fund panel installations and receive revenues
Solar panel installations via owner investment
from selling electricity

Mar. 2011

6,629 (79.7MW)

2

Solar panel installations on leased rooftops

Power generation on rooftops we leased from owners

Sep. 2012

2,372 (46.1MW)

Leopalace Power Corporation, the Group’s subsidiary, runs pilot
project with Environment Ministry

Sep. 2012

67 (1.2MW)b through a public offering*

Power generation business by Leopalace Power Corporation

Dec. 2013

1,047 (20.3MW)

c SPC-based tie-ups

Power generation operations set up as SPCs or corporations

Feb. 2013

1,258 (24.6MW)

3

Mega-solar design and construction projects as a way to use idle sites

Sep. 2013

Tomisato City, Chiba Pref. (1.7MW)*Panel installations funded through a public offering are scheduled to be completed in the fiscal year ending March 31, 2015.

TOTAL

9,001 (125.8MW)

a Fukushima verification pilot business
Power generation business funded

Mega-solar projects using idle sites*For details, see “Creating an Environmentally Friendly Society” on pages 52-53.
Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

19

Towards Attaining Medium-term Management Plan Goals

Applying Our Unique Know-how 0verseas

ExpandingOverseas10

offices ⇒(as of fiscal year ended March 31, 2014)20

offices(as of fiscal year ended March 31, 2017)

If a business model remains reliant on the Japanese market, our business would contract
as population decline leads to a shrinking domestic market. We are thus expanding to
not-yet-mature leasing markets overseas, leveraging our know-how in leasing
management and construction businesses that we have amassed over many years.

Our
approachto dateIntroducing properties
in Japan to foreigners
Expansion in China, South Korea,
and Taiwan+

Our future
approach

DalianBeijing

South Korea
Gangnam, Seoul

Brokering properties
in Asia to Japaneseindividuals andcompanies overseas

Jongno, Seoul
Busan

China
Shanghai

Expansion in South Korea,
Taiwan, Thailand, and Vietnam

Guangzhou

TaipeiTaiwanMyanmarSales office expansion plan: 20 sites

Laos(as of the year ending March 31, 2017)

Thailand
BangkokVietnam
Cambodia
Ho Chi Minh

● Offices introducing properties
in Japan● Offices brokering properties
in Asia as well as introducing
properties in Japan■ Countries Leopalace21 plansto enter in fiscal 2014

Leopalace21 Corporation / Annual Report 2014

20

Towards Attaining Medium-term Management Plan Goals

Expansion of Local Community-rooted
Businesses

Expansion ofElderly Care
Business

Staying true to a “local community roots” concept, Leopalace21 is working to
expand its elderly care businesses, centering on group homes, day-service centers,
and fee-based homes with nursing care and fee-based residential homes.

Group Homes

Day-service, Short-stayNursing Care Centers• These homes provide personalized
nursing care to elderly dementia
patients.

• These centers provide same-day
and overnight nursing care services.

• One feature of these homes iscompletely private rooms that
preserve privacy.

• Satellite day-service centers are inan expansion phase.

Fee-based Homes with
Nursing Care and Fee-based
Residential Homes• These are private long-term
residences with onsite staff
providing nursing care.

“Azumi En” Facility Map

Tochigi

Sekigawa

Yuki
Koga
Shinkoga
Koga-chuo

Hanyu
Gyoda

Honjo

Chichibu

SayamaOume Irumagawa

Hanasaki-no-oka

MihashiHirasawa
Tatemachi

Iwai

Showa
Minami-sakurai
Gamou Yoshikawa
KokinuMizuho Goseki
YashioSoka
YanagiKomakidai sawa

KomuroAbiko
SakasaiNakanoTokyo
Takatsukashinden

WakabaIbarakiTsuchiura

Takamihara

Tsukuihama
Yamakita

Sites including fee-based nursing homes

Namikicho

Ino

Chiba
Ichihara★ Fee-based home with nursing care,day/short-stay services◆ Fee-based home with nursing care,short-stay service■ Fee-based home with nursing care,
day service★ Fee-based residential homes
with day/short-stay services◆ Fee-based residential homes
with short-stay service● Fee-based residential homes○ Group homes▲ Day/short-stay services● Day services

Leopalace21 Corporation / Annual Report 2014

2
38
21
61

● Fee-based home with nursing care

Katsuragi
Takaoka Nakazawa
Oyumi
Ichihara

Tsurumaki

Day-service, short-stay centers*As of the end of March 31, 2014

Tokiwadaira
Misaki

Kanagawa

Group homes

Total

Ina

Higashi- Kitamoto
matsuyama
Ageo

Saitama

Shimodate

Nogi

KanumaOta Tatebayashi

Facilities

Utsunomiya

Horigome

Gunma“Azumi En” Facility Network

Yaita

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Towards Attaining Medium-term Management Plan Goals
Solid Human
Resource BaseStrengthening Human Resources, a Key
Source of Competitiveness
Solid Human Resource BaseWe see our workforce as the source of our competitiveness. Thus, in order tofoster a comfortable work environment that allows it to fully exercise its
individuality and capability, we are pushing ahead with policies that promote
work-life balance and the hiring of diverse personnel.

Solid Human Resource Base No.1

Promoting Work-Life Balance
Leopalace21 sees the promotion of work-life balance as an important issue. As aresult, we are fostering an array of measures to shorten working hours and allow fordiverse working styles. We are also working to obtain a Kurumin mark*.
* The Kurumin certification mark is awarded to companies that meet certain criteria set by the Ministry of Health,Labour and Welfare on policies supporting workers raising children.

Solid Human Resource Base No.2

Hiring and Developing Diverse Human Resources
Leopalace21 strives to hire and develop diverse human resources. As of the end of
March 2014, disabled workers accounted for 2.07% of our workforce (the statutory
employment rate for disabled people was 2.0%) and female workers for 27.6%. We
also employ 162 foreign nationals.

*For details, see a “Creating Pleasant Work Environments and Developing Diverse Human Resources” on pages 50-51.
Leopalace21 Corporation / Annual Report 2014

21

22

OUR BUSINESS MODEL
Built a Distinctive Business Model Based on
Our 30-year Master Lease System
Leopalace21 considers the Leasing Business and the Construction Business its two corepillars. Through these two businesses, the Company is able to address simultaneously
the two most important themes in the apartment sector: effectively using the sitesof landowners who supply apartments; and supplying quality housing to prospective
tenants who need to rent. The foundation supporting the two core businesses is ourindustry-pioneering 30-year master lease system, and on this basis, we have built abusiness model that differentiates us from competitors.

Leasing
Business

Master Lease
System1

Existing apartments undermaster lease system

Leasing-related
businesses

Construction ofbuildings otherthan apartments

Rebuilding, property valueenhancement measures, renovation

Corporate housing
management
Rent payment guarantee

4

Overseas office &housing brokerage

Nursing care facilities,
commercial buildings,
built-to-order houses

Apartments
3

Tenants(corporations,individuals)

Apartment
ownerss 5SE BY OWNERS
and tenantss 5SE BY CORPORATE CLIENTS
for trips and employee
BENEFIT PROGRAMS

2Other Businesses

Hotels & Resort
Business(Small-amount,
Short-term Insurance,
Solar Power Generation)

Elderly Care
Businesss /PERATES FACILITIES BUILT BY
the Construction Business

Leopalace21 Corporation / Annual Report 2014

Construction
Businesss )NSURANCE SALES TO TENANTS
s 3OLAR POWER GENERATION
on leased rooftops

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

1 Leopalace21 Developed and Commenced the Industry’s First “Master Lease System”
What our apartment owners dislike most in managing
apartments long term is the risk of losing out on rent
revenues due to vacancies. With this in mind, wedeveloped an industry-first 30-year master leasesystem, which offers apartment and condo owners atotal support package from construction to
management for up to 30 years. Under this system,
we pay rents to owners and provide management,
maintenance, and repair services in order to reduce
their burden and help secure their stable income. The
master lease system could pose the risk of higherthan-expected vacancies but we are trying to mitigate
the risk by continuously undertaking innovative
efforts. The efforts include supplying properties thatmatch the needs of customers and communities,
enhancing the appeal of buildings across many
dimensions such as interiors, exteriors, and fixtures,
diversifying contracts.

Budgeting Maintenanceand Repair Costs
for a 30-year Period

Management ofRental Revenues
for a 30-year Period

Secures funds for property
maintenance and future repairs

Rent collection operations etc.

Tenants
Individuals (general)Companies (dorms,
company-leased housing)

Apartments

2 Restrict New Supplies to Specific Areas
In order to succeed in business, it is essential to apply
selectivity and focus to resource allocation so as tomaximize gains from resources that a company has. We
restrict our focus to areas in large urban centers, where
demand for apartments for singles, a key demographic forour business model, is greatest, and maximize ourpotential by concentrating new supply in these areas.

Recruitment andManagement of Tenants
for a 30-year Period

Rents fromMaster Leases

Tenant recruitment and everyday
tenant management operations etc.

Property Owners
Payments of master-lease rents are made to owners
regardless of whether or not there are vacancies

Proportion of Managed Properties,
Nationwide and by Key Area
Metropolitan
area

Total for 3 Metro Areas
Approx.
%70

Kinki area

Chubu area

36%

16%

14%

3 Channel Strategy Aimed at Attracting Tenants
Dir
e
O

Main
Channelsive Realrat
pe te Brokers
aanaged Coym
Est o
ctl fices
f

Partn
er

s

The leasing business can also be seen as a matching businessthat brings together apartment owners who need tenants andprospective tenants who need rental housing. Therefore, it isimportant for us to turn a dispersed population of would-be
renters into tenants. To this end, we strive to maximize theopportunities to recruit tenants via a wide variety of channels,
including directly managed offices, Leopalace Partners, andcooperative local real estate brokers, our online presence.

Web

4 Measures to Enhance Existing Property Values
To keep occupancy rates high, it is necessary to ensure that aproperty constantly remains attractive to tenants. We use a variety
of measures to enhance existing property values and ensure thatthe properties we manage are preferred by tenants. These
measures include installing security systems in consideration of
the safety and peace of mind of tenants and solar power systems
that help conserve the environment and introducing “RoomCustomize” plans, which improve the appeal of older properties.
Leopalace21 Corporation / Annual Report 2014

23

24

BUSINESS STRUCTURE TRANSITIONIn the period of economic growth in the run-up to the global financial crisis, theConstruction Business drove our growth, sharply expanding new apartment supply.
Following the 2008 collapse of Lehman Brothers, however, we recorded operating
losses as orders at the Construction Business declined.
Our aim, amid the current economic recovery and beyond, is to thrive due to a shift
to a stable earnings model that achieves a balanced earnings mix from the Leasing
Business and Construction Business.

Macro-Environment and Business Performance Trends
Economic Expansion

Period of Global Recession(Before the collapse of Lehman Brothers in 2008)(Post-Lehman Collapse)

Construction and Leasing Businesses: Full-scale Operation of Synergy Model

Stagnation of Synergy Model

2003
Leopalace Resort Guam commences second phase(hotels, sports facilities such as a baseball field)

2005
Number of managed properties increases to 300,000
Starts elderly care businesses

2004
Lists on 1st section of Tokyo Stock Exchange

2006
Starts leasing-related businesses (corporate housing
management, marketing contents insurance to tenants)
2007
Number of managed properties increases to 400,000

2009
Number of managed properties
increases to 500,000
Opens Shanghai unit to introduce
Japanese rental housing to exchange
students etc.
2010
Number of managed properties
increases to 550,000

Master lease system: up to 30 years, rent fixed for initial “10-year” renewable every two years thereafter(Billions of yen)800

Net Sales and Operating Income
Leasing Business (left axis)
Construction Business (left axis)
Operating income (loss)(right axis)
Others (left axis)

600
400
200
0
-400

FY2002

FY2003

FY2004

FY2005FY2006

FY2007FY2008

FY2009(Each fiscal year ends on March 31)

In economic expansion in the run-up to the global financial
crisis, demand grew for apartments for company employeestransferred to locations away from where their families live or
as company dormitories not only in large cities but also
regional communities. While continuing to steadily meet thisneed, we substantially increased the new supply of apartment
stock and grew our Construction Business by addressing theconcerns of landowners about vacancy risk through theintroduction of the 30-year master lease system. The Leasing
Business was also supported by healthy growth in corporate
demand, enabling us to achieve rental income growth inconcert with growth in the number of apartments leased.
During this span, we realized an “Earnings Enhancement
Cycle,” where the Construction Business led our performanceand also drove growth at the Leasing Business.

Leopalace21 Corporation / Annual Report 2014

As a result of the rise in the unemployment rate acrossJapan due to the global financial crisis triggered by the 2008
collapse of Lehman Brothers, apartment demand alsosagged. Many tenants vacated apartments we managednear factories in regional communities, and the decline inrental income eroded profits at the Leasing Business. In
addition, the financial crisis caused financial institutions totighten loan screening, which in turn reduced orders at theConstruction Business. We fell into an “Earnings
Deterioration Cycle,” where the Construction Businessshrank following earnings erosion at the Leasing Businesscaused by the decrease in tenants.

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Period of Economic Recovery

Targets for Final Year of
New Medium-Term
Management Plan

(The Present and Onward)
Comprehensive Enhancement of Earnings from Stock2010
Launches Leopalace Partners
franchise system
2011
Full-scale installation of security
systems for apartments
Full-scale launch of solar
power systems for apartments

Financial Section &Corporate Data

(Period Ending March 2017)2012
Launches “Room Customize” service
2013
Launches nationwide “Roof Mega-solar Pro”
Establishes local units in Thailand and Vietnam to introduce local properties toJapanese companies
Increases capital to ¥62.86 billion via exercise of share acquisition rights

Net sales¥ 540.0 billion
Operating income

2014
Capital increases to ¥75.28 billion via public offering and third-party allotment¥ 22.0 billion

Master lease system: up to 30 years, rent fixed for initial“2-year” renewable every two years thereafter(Billions of yen)

80

ROE

12.3 %

60
40
20
0FY2010FY2011

FY2012FY2013

We implemented business structure reforms in the wake of the
global financial crisis amid a series of weak earnings. While sharply
restricting the supply of apartments to specific areas in theConstruction Business, we strove to cut costs and boost rental
income through improvement in occupancy rates, in an effort torebuild the profitability of the Leasing Business. We also commenced
sales of security systems and solar power systems as a way toenhance the property value of the existing buildings we managed.
In fiscal 2011, we returned to profit after two fiscal years oflosses in the wake of the global financial crisis, and since then we
have established a stable earnings model based on the Leasing
Business. Together with aforementioned business structurereforms, our success in reorienting the earnings model reflects
an upturn in business sentiment and stronger corporate demandfor employee housing and dorms, benefiting from the pickup in
stock prices and yen weakening following the December 2012
start of the Abe administration.

FY
2014

-40

(Plan)At the Leasing Business, we have worked to realize steadyprofit improvement through high occupancy rates deliveredby offering innovative products and services, in addition to
restricting apartment supply to areas where tenant demandis strong. The innovative products and services include
security systems and solar power systems (2011), the“Room Customize” service (2012), and Arma-L apartments
designed from a female perspective (2013). At theConstruction Business, we are striving to broaden our ordermix beyond our existing mainstay in apartments toencompass facilities for seniors, commercial buildings, builtto-order homes etc. We are also rolling out new businesses
such as the solar power systems and rental housing
brokerage in Asia.

Leopalace21 Corporation / Annual Report 2014

25

26

DIALOGUE: MANAGEMENT OF LEOPALACE21
President Eisei Miyama and Outside Director Tetsuji Taya discussed management
issues, including the progress of business structure reforms, key points in the
new Medium-term Management Plan, and corporate governance.

Eisei Miyama
Leopalace21 President and CEO

X

Tetsuji Taya
Leopalace21 Outside Director(Industrial Growth Platform, Inc.
Partner & Managing Director)

Business Structure Reforms■ First of all, please tell us what kinds of results business structuralreforms have yielded so far. Also, can you sum up in simple terms what
remains to be done?
We think the stock-type
Leasing Business now has asystem in place where it canreliably increase profits.

Miyama: The major theme of our business structure reforms has been tochange our structure to one that generates stable earnings from the Leasing
Business, a stock-type business. I think this is nearly done. In the past, theCompany relied on the Construction Business to earn profits but we think thestock-type Leasing Business now has a system in place where it can reliably
increase profits.
In reforming our earnings structure, we have been able to control costs
better than we assumed in our budget. Yet, on the matter of improving theoperating efficiency of our apartments under management—that is, raising theoccupancy rate—the trend has been largely as planned but a bit below ourbudget assumption.
■ In your analysis, what factors are behind the occupancy rate trending
below the budget assumption?
Miyama: We use two channels to secure clients: one is to sign individuals whocome to Leopalace Centers to contracts, and the other is corporate sales. While
corporate sales have outpaced our plan, the trend in signing up individuals has
lagged our plan a bit. Our challenge from here is to bolster our efforts aimed atsigning up retail clients.

Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

■ This question is for Mr. Taya. As Outside Director, how do you evaluate thepast two years in terms of business structure reforms?
Taya: From my standpoint, what is most important in management is to executereliably according to plan. In that sense, it was an extremely important decision
for management to reorient the Company towards the Leasing Business andaway from the Construction Business, which has been an earnings engine.
Moreover, I think it was a major accomplishment to have effected this transition

I think it was a major
accomplishment to havereoriented the Company
towards the Leasing
Business, away from theConstruction Business ayear ahead of schedule.

a year ahead of schedule.

Medium-term Management Plan
■ With attainment of the business structural reforms now in sight,
management formulated a new Medium-term Management Plan, entitled“EXPANDING VALUE,” that commenced from April 2014. With regards tothe new plan’s goals and changes in the external environment
management took into account in crafting the plan, can you tell us whatmanagement saw as the main points?
Miyama: The previous medium-term plan was not predicated on an economic
recovery. The outlook has brightened since then thanks in part to a boost from
Abenomics, and our new plan factors in this environment.
■ If the new management plan assumes vastly different economic conditions
than the previous one did, I would then presume as a business plan, some
aspects were substantially revised.
Miyama: Actually, there are positives and negatives that we need to review.
First, in a recovering economy, improving employment conditions areaccompanied by rising consumer incomes. This is a positive for the stock-typebusiness, i.e., Leasing Business.
On the other hand, there is a serious shortage of skilled laborers in building
trades with the emergence of a further raft of public works projects ahead of the2020 Tokyo Summer Olympics. This factor is pushing up construction costs andso has a negative impact. If nothing was done, our profit margins would be
dampened. So, I think a very major theme for us is how to reflect this factor into
plan assumptions.
■ Does the management plan to take steps to address this matter?
Miyama: To address this pressing issue, we are studying the option of bringing
in skilled laborers from overseas, and since the shortage of skilled laborers is a
structural one, the steps we are taking are linked to our stepped-up expansion
overseas, where we see potential to develop foreign human resources.

Leopalace21 Corporation / Annual Report 2014

27

28

■ Please tell us about new initiatives that were not a part of the previous
management plan.
Miyama: One is the development of operations overseas. We entered Vietnam
and Thailand in fiscal 2013 and we want to further accelerate those efforts fromhere. Depending on conditions, we are thinking of pushing ahead actively
overseas in real estate brokerage and investment.
■ What is the status of the South Korean venture, a part of the overseas
expansion that goes back to 2013?
Miyama: Our entry into South Korea is moving forward with the establishment
Our goal for the first yearof the project is to attain
1,000 apartments undermanagement.

of a joint venture to manage real estate with a local corporate investor.
Following an amendment to a Korean housing law in February 2014, a fulllaunch of the real estate management venture commenced. Our goal for the
first year of the project is to attain 1,000 apartments under management.
■ Do you think business methods like those in use in Japan can be applied overseas?
Miyama: I think it is possible. In Korea, we are at the stage of graduallyabsorbing the local culture, but I think we can customize the approach we use inJapan a bit for the Korean market and start to accept construction orders soon.
By the final year of the new management plan, we would like to have built up a
track record to some extent in orders for construction subcontracting.
■ Apart from overseas, are there any new initiatives in the
new plan?
Miyama: In Japan, there are plans for the Elderly Care
Business. We have until now operated the Elderly Care
Business without increasing the number of facilities. Yet, as wehave established operating methods based on our experience todate, we decided to increase the number of facilities in the new
management plan. In the next three years, we aim to open 29
facilities to bring the total we manage to 90.
■ There is a perception the Elderly Care Business is in an
intensely competitive sector. As Outside Director, what do
you think about channeling resources into this business?
Taya: The focus in the past when the Company expanded theElderly Care Business was on construction, and the mistakes

I think the Elderly Care
Business will be one
where Leopalace21 cansuperbly harness its
capacity to execute withspeed and power.

made by expanding too fast then have taught management
what should be done this time. As the expansion plans are
informed by past experience, I am not worried this time.
Leopalace21 is a large business, so when the Company starts
a new venture, the venture must be at least a certain scale or it
will not contribute visibly to overall earnings. I think the Elderly
Care Business will be one where Leopalace21 can superbly
harness its capacity to execute with speed and power.

Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

■ Are the two themes discussed above priorities for the Company among the
new initiatives in the management plan?
Miyama: Yes. The solar power business is also a focus. Our subsidiary
Leopalace Power Corporation has commenced operations and is alreadyobtaining consent from owners on leasing rooftops. The solar power business is

The solar power businessis ready to build up a
track record throughLeopalace Power.

ready to build up a track record through Leopalace Power in the current fiscal
year and the next one.

Corporate Governance■ A new headquarters was established in April. Please tell us about the rationale
for this move.
Miyama: As a company that has excelled in marketing
going back to its founding, Leopalace21 has come this far
with a vertical organizational structure. The newheadquarters was set up to build up our organizational
capabilities while retaining the advantage of the verticalstructure, or the capacity to execute with speed. The newheadquarters—the Corporate Business Promotion
Headquarters—is meant to facilitate collaboration among
nimble vertically-organized divisions and departments.
I think the new headquarters could also yield otherbenefits. It will work to improve the real strength of theCompany as a whole by boosting collaboration and raisemanagement plan execution performance by improving
governance capabilities. At the same time, a cross-sectionalorganizational system may reveal areas of operational overlap
etc. and enable us to reduce unnecessary expenditures.

Long-term Vision■ In formulating the new Medium-term Management Plan, did management’s
thinking about its long-term vision change in any way?
Miyama: I would like to see Leopalace21 look beyond Japan and become a bit
more global, building rental properties around the world, especially in the
ASEAN region, and increasing profits from these assets.
The domestic market will naturally be an important one for us in the future,
but to increase profits at home, we would need to sharply increase our rental

I would like to see
Leopalace21 look beyond
Japan and become a bit
more global, building
rental properties aroundthe world and increasing
profits from these assets.

housing stock in major metropolitan areas. I feel we are nearing the limits ofsuch an approach, however.
As a result, I believe the Company ought to seek growth opportunities inSoutheast Asia. As Japanese companies are increasingly forging ahead in theregion, we intend to expand our Leasing Business there with a focus on
attracting Japanese companies as tenants.
Leopalace21 Corporation / Annual Report 2014

29

30

■ What strengths does Leopalace21 have that can be applied overseas?
I still believe our capacity
to manage hundreds ofthousands of rental
properties under a single
corporate umbrella is adefinitive strength.

Miyama: I still believe our capacity to manage hundreds of thousands of rental
properties under a single corporate umbrella is a definitive strength. Our
structure for everyday operations has been built up over the years, and we do
not face difficulties when entering overseas markets in hiring local employees
and launching operations.
A test of this is what we are doing in South Korea, and so far 99% of theoperations we carry out in Japan can also be applied there. The remaining 1%
involves matters such as laws that lead to differences in the way real estateleasing is conducted in a given market. So only minor adjustments are needed,and I am confident future entry into ASEAN markets, which we are studying,
will not be difficult to execute.

Integrated Reporting■ In the past few years, an increasing number of companies are reporting
financial and non-financial information in a unified format known as integrated
reporting. What are your thoughts on this integrated reporting?
Miyama: I think integrated reporting reflects the growing importance of nonfinancial information in a context where corporate reporting had been targeted
mainly at investors and focused exclusively on items linked to earnings.
From this viewpoint, our expansion of the leasing managementbusiness overseas meets social needs that had not existed until
recently in those nations, and in that sense is a business that
contributes to society. I think a place to live is a necessity foreveryone wherever they live on the planet, and know-how in leasing
management is needed around the world.
Moreover, in expanding our operations into the ASEAN region, we
train and develop the skills of local employees. This is a new spur forthe development of a deeper human resources pool in the region andis a source of value in that sense. If we are able to help alleviate theshortage of skilled workers in Japan by enabling overseas laborers tolearn building trades, this works to our advantage as a business.
In my view, the problem of a shortage of skilled laborers in Japanapplies not only to the Construction Business but also to the Elderly
Care Business.

Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

■ As Outside Director, Mr. Taya, what are your thoughts on integrated reporting?
Taya: First, I think a major underlying prerequisite to achieving
what people would like to see from integrated reporting—that is,companies in a broad sense meeting their social
responsibilities—is for companies to adopt a long-term
perspective in how they think about issues. Leopalace21 fought
hard to survive and get where it is today and so did not reallyhave enough leeway to look far ahead then. But now that it isnearly done with its business structural reforms, I think theCompany is at a stage where it can identify and prioritize whatneeds to be done and get to work on execution. As the
expectations of society for companies will continue to growstronger, I look forward to seeing Leopalace21 address these
expectations by leveraging fields where it excels.
From this perspective, I believe our solar power businessexemplifies what I meant about Leopalace21 leveraging fields
where it excels to contribute to society. Using a rental housing
stock of over 500,000 units, it is building a distributed solar powerbusiness. This is a model that other companies would be hardpressed to copy.

To Shareholders and Other Investors■ In closing, please tell us your thoughts about improving shareholder value
such as through dividends and shareholder returns.
Miyama: First of all, with regards to dividends, the Company went through aperiod of substantial negative retained earnings and so was unable to pay
dividends. But as we accumulate earnings, we look to restore dividends, withWe look to start off withrestoring dividends.

the aim of doing so before the end of the current management plan.
The other thing we can do to improve shareholder value is to increase theshare price. Rather than a quick boost, however, we seek to do so by staying
true to the notion of working hard to build up profits over time. While othercompanies are taking steps such as share buybacks, we are not consideringsuch measures at this stage. We look to start off with restoring dividends.

Leopalace21 Corporation / Annual Report 2014

31

32

BUSINESS OVERVIEWAT A GLANCE
Segment overview/key subsidiaries and affiliates

LEASING BUSINESSThis business is involved with renting units of managed properties based on a master
lease system. One rental agreement we developed allows usage fees to be paid on amonthly basis, easing the burden of initial costs. Another contract, the “monthly
agreement,” requires upfront payment of usage fees for furniture and home appliances
but does not require payment of water bills and utility costs. We seek to secure tenants
using our outlets, franchise sales offices, cooperative real estate agents etc. and raiseoccupancy rates by offering a richer array of services that improve tenant satisfaction.
• Leopalace Leasing Corporatio (corporate housing agency/real estate brokerage business)• Plaza Guarantee Co., Ltd. (lease guarantee business)• Leopalace21 Business Consulting (Shanghai) Co., Ltd. (consulting business)• LIXIL RENEWAL Corporation (maintenance business)• Woori & Leo PMC Co., Ltd. (leasing management services business)• Leopalace21 (Thailand) CO., LTD. (real estate agency)• LEOPALACE21 VIETNAM CO., LTD. (real estate agency)

CONSTRUCTION BUSINESSThis business engages in constructing apartments etc. We are working to bolster
the appeal of our products, offering products designed from a female perspective,
those for young people living on their own for the first time, etc. Outside ofapartments, the business is expanding in the construction of commercial
properties and nursing homes. Moreover, we also plan to expand the construction
business for custom-built homes.
To boost the construction business for custom-built homes, we are adding
variations in the construction work we perform such as commencing sales of
products jointly developed with Morizou Co., Ltd., which offers high-end custombuilt homes.

ELDERLY CARE BUSINESS

Under the brand name Azumi En, this community-based nursing care business
manages fee-based nursing homes, centers offering day services and short stays,
and group homes at 61 locations in the Kanto region as well as providing home
visits by nursing care staff, in-home nursing care support, etc.

HOTELS & RESORT BUSINESS

Through our overseas subsidiary Leopalace Guam Corp., this business manages
sports facilities such as golf courses and baseball fields as well as resort facilities
such as hotels and condominiums on the island of Guam. It also operates hotels ateight locations across Japan.
• Leopalace Guam Corporation (hotels and resort business/Guam)• Leopalace Travel Co., Ltd. (travel business)

OTHER BUSINESSES

This business mostly comprises small-amount, short-term insurance and solar
power generation. The latter business focuses on installing solar power systems
purchased using in-house funds on leased rooftops, earning profits from resellingthe electricity generated (“Roof Mega-solar Pro”).
• Asuka SSI (small-amount, short-term insurance)• Leopalace Smile Co., Ltd. (special subsidiary for providing clerical services)• Leopalace Power Corporation (solar power generation)

Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

What our businesses are

Net Sales Breakdown(FY ended March 31, 2014)

Key Data

How CSR supports
our management

Financial Section &Corporate Data

Changes in Net Sales

Occupancy Rates
100 (%)

400 (Billions of yen)

90

300

80

82.5%

70

200

34
page

100

0

0

’11/3
FY2010’12/3
FY2011’13/3
FY2012’14/3
FY2013’11/3
FY2010’12/3
FY2011’13/3
FY2012’14/3
FY2013’15/3
FY2014(Projected)

Apartment Construction Sales(Fiscal Year Ended March 2014)

120 (Billions of yen)

Chugoku region

Other¥3.5 billion¥0.6 billion

Tohoku region¥3.6 billion¥ 46.6

Kyushu/Okinawa

billion¥4.5 billion

Tokyo
metropolitan
area

80

13.4%

¥25.1 billion

Chubu region

Kinki region¥3.5 billion¥5.8 billion

36
page

40
0

’11/3
FY2010’12/3
FY2011’13/3
FY2012’14/3
FY2013*Completion basis, excluding sales of solar power systems’15/3
FY2014(Projected)

Elderly Care Facility Occupancy Rates(Annual Average)

12 (Billions of yen)

100 (%)
75

8

50

2.2%

25

38
page

4

0
0

’11/3
FY2010’12/3
FY2011’13/3
FY2012’14/3
FY2013’11/3
FY2010

Short-stays
Day services
Private residential nursing homes, etc.

’12/3
FY2011’13/3
FY2012’14/3
FY2013’15/3
FY2014(Projected)

Guam/Domestic Hotel Occupancy Rates(Annual Average)

8 (Billions of yen)

100 (%)
6

75
50

1.6%

25

4

39
page

2

0
0

’11/3
FY2010’12/3
FY2011

Leopalace Resort Guam
Domestic hotels’13/3
FY2012’14/3
FY2013’11/3
FY2010Westin Resort Guam

’12/3
FY2011’13/3
FY2012’14/3
FY2013’15/3
FY2014(Projected)

6 (Billions of yen)
4

0.3%

40
page

2
0

’11/3
FY2010’12/3
FY2011’13/3
FY2012’14/3
FY2013’15/3
FY2014(Projected)

Leopalace21 Corporation / Annual Report 2014

33

34

SEGMENT OVERVIEWLEASING BUSINESS

Performance
In fiscal 2013, the Leasing Business posted net salesof ¥388,768 million (a 1.4% increase from the previous
fiscal year) and operating income of ¥15,568 million (a79.2% increase from the previous fiscal year). In the fiscal
year under review, we advanced a corporate sales policy
aimed at avoiding overreliance on any sector, restrained
tenant departures via proactive relocation proposals,
added more variations to the “Room Customize” service,
and increased the number of apartments where security
systems have been installed. These measures and others
enabled us to keep occupancy rates stable and promote
long-term tenant occupancy. As a result, the number ofmanaged properties at the fiscal year-end was 548,912
units (up 2,708 units from the previous fiscal year-end), theoccupancy rate at the fiscal year-end was 87.47% (up 2.66

Business Environment and Related Issues
The domestic rental housing market is already saturated
due to the declining population and an increase in vacanthouses. Given these conditions, it is difficult to expect
a nationwide recovery in demand in the near future. As
a result, in our Leasing Business, we are going as far
as we can to differentiate our services by making fulluse of our distinctive strengths like studio apartments
and rental agreements that include furniture and home
appliances, and by taking steps that enable us to attract
tenants even in this fiercely competitive environment. In
addition, to secure stable occupancy rates it is necessary
to limit tenant outflow while moving ahead with cost
reduction by reviewing master lease rents based on

percentage points from the previous fiscal year-end), andthe average annual occupancy rate was 84.58% (up 1.64
percentage points from the previous fiscal year).

Operating Income and Average Annual Occupancy Rate
(Billions of yen)

(%)

20

95

10

92

0

89

-30

86

-40

83

-50

80
’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3
FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013
Operating income (left axis)

Average annual occupancy rate (right axis)

market rent levels and periodically reviewing our property
management tasks.

Number of Vacant Rental Housing and the Proportion of Vacant Houses (Japan)(Thousands of units)

(%)

5,000

25

4,000

20

3,000

15

2,000

10

1,000

5

0

0
1983

1988

1993

Number of vacant houses for rent or sale (left axis)

1998

2003

2008

Proportion of vacant houses (right axis)* Source: Housing and Land Survey the Ministry of Internal Affairs and Communications
Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Strategies
Promoting long-term occupancy and limiting tenant outflow:
In order to secure stable occupancy rates, it is important
not only to increase tenants but also to limit tenant
outflow. Thus, we contact tenants who plan to leaveand present them with a proposal to relocate to another
Leopalace21-managed apartment. In addition, we are
drawing on fresh ideas such as the “Room Customize”
menu and the MY PAGE website exclusively for tenants
to spruce up our service mix.
Corporate sales:
By building a sales system that is not overly reliant on one
particular industry, we have made our portfolio resilientto economic swings. In addition, our development andoperation of LAM System, a website aimed exclusively
at corporate partners, enables us to cultivate strong
relationships with our existing clients and strive to add newclients and thus bolsters our marketing to corporations.
Measures aimed at female tenants:
Females comprise only 30% of Leopalace21’s tenants.
We aim to attract more female tenants by offering

places where women find it comfortable to live, suchas apartments with security systems, and thereby raiseoccupancy rates. Specifically, we intend to enhance ourservices targeting women living on their own. For example,
we plan to do more to offer housing with plenty of storage
space or with a kitchen where tenants can enjoy cooking.
Measures aimed at international students:
Along with our overseas branch network with foursales offices in China, three in South Korea, and one in
Taiwan and our call centers, we operate an online site,“LAM School,” aimed exclusively at partner schools.
We are stepping up efforts to capture demand amonginternational students.
Expanding business overseas:
We have to date provided overseas customers withrental housing in Japan through outlets overseas, but weare expanding our leasing management and brokerage
services in overseas markets and working to facilitate
greater collaboration between our overseas units andJapanese corporate sales function.

Key Products/Services“Room Customize”:
This innovative service enables tenants to customize their living space
to suit their own tastes—even for rental properties. The number ofcontracts for the “Room Customize” service, which allows tenants
to change the wallpaper on one wall for free, has already exceeded
14,000. With this service, we aim to promote long-term occupancy byenabling tenants to personalize and form attachments to their rooms.
MY PAGE website for tenants:
Through this website exclusively for tenants we developed in collaboration
with corporate partners, tenants can use myriad services such asbroadband Internet access service LEONET, online shopping, cleaning
services, home delivery of dry-cleaned items etc. We also provide tenantswith various services and campaign information via this website.
Monthly agreements:
Monthly agreements for as few as 30 days are available for short-term use.
These are furnished units, with utilities charges included in the rental fee,making them suitable for long-term business trips or periods of training.
Security systems:
With “24-hour, 365-day safety and security” as our motto, we havepartnered with two major nationwide security companies to install
security systems in properties we manage. The number of security
system installations has already exceeded 180,000 units. We are also
focusing on security camera installations, with the number of buildings
with cameras in place now above 3,000.
Leopalace21 Corporation / Annual Report 2014

35

36

SEGMENT OVERVIEWCONSTRUCTION BUSINESS

Performance
In fiscal 2013, the Construction Business posted net salesof ¥63,136 million (a 18.3% increase from the previous
fiscal year) and operating income of ¥2,954 million (a7.5% increase from the previous fiscal year). Given thehigh priority we put on improving earnings at the Leasing
Business, order acquisition efforts of the Construction
Business continued to be focused on the three largest
metropolitan areas, where high occupancy rates are
expected. We also channeled our efforts into obtaining
construction orders for nursing-care homes, commercial
buildings, and other non-apartment buildings as well as
installations of solar power systems. As a result, orders
received in fiscal 2013 totaled ¥81,139 million (an 11.1%

increase from the previous fiscal year) and orders received
outstanding at fiscal year-end totaled ¥44,470 million (a6.3% decrease from the end of previous fiscal year).

Operating Income(Billions of yen)

80

60

40

20

0
’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3
FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

Business Environment and Related Issues
Due to recovery in the domestic economy and ourearnings, the environment facing our Construction
Business is improving. On the other hand, as shown by thecontinued decline in new rental housing starts from a peakof 537,943 units in fiscal 2006, the rental housing market
is saturated when assessed at the national level. In sucha difficult environment, we aim to identify areas wherehigh occupancy rates are likely and expand construction
orders received based on a more detailed supply plan,
notably in the three largest metropolitan areas. As for
products, we aim to enhance product quality by developing
products from the perspective of tenants, particularly thatof females, as well as implementing measures to improvesound insulation and security.
Leopalace21 Corporation / Annual Report 2014

Number of New Rental Housing Starts(Thousands of units)

600

400

200

0
’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3
FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013* Source: Statistics on New Housing Starts of the Ministry of Land, Infrastructure, Transport, and Tourism

Who we are

What our strategy is

What our businesses are

Strategies
Actively supplying apartments to specific areas:
Since the occupancy rate is high for relatively newbuildings and, in particular, extremely high demand
continues to be expected in Japan’s three largest
metropolitan areas, we aim to expand the number ofapartments we supply, focusing on those areas. To
establish a sales system based on tenant demand forapartments, we opened five new branches in April 2014,
mostly in the greater Tokyo metropolitan area.
Enhancing product quality:
We are actively working to reduce unwanted noise bycombining sound-insulating flooring (“non-sound floor”),
walls, and drainage pipes in a “non-sound system” withan industry-leading level of sound insulation that comes
as a standard feature in apartments we build. We aim
to erase the perception that Leopalace21 buildings havethin walls and build high-quality apartments that enable
tenants to live comfortably.

How CSR supports
our management

Financial Section &Corporate Data

Market expansion via new products:
We are adding more female tenants with the introductionof products created from a female perspective. We havealso launched sales of products targeting young people
living on their own for the first time.
Sales of solar power systems:
Starting from the previous fiscal period, we shifted our
focus to the Roof Mega-solar Pro, and this remains one
measure we are implementing to enhance the property
value of existing buildings.
Broadening our building construction mix:
We are expanding the construction of non-apartmentbuildings for business uses such as elderly care facilities,
for which demand is expected to grow, and buildings
with retail/commercial space etc. We have started
offering custom-built “Taiga” homes, a product that
we jointly developed with partner Morizou Co., Ltd.,
which is a provider of built-to-order homes made using
high-quality Kiso-hinoki wood. Our product lineup thus
responds to a wide range of land-use needs.

Key Products/Services
Arma-L tri-EL:
With three lofts of an area equal to the bedroom, living room, andkitchen/dining space (1LDK), these apartments come with amenities
designed from a female perspective such as an open-counter kitchen
and a powder space featuring a sink and countertop with a large mirror.
UNI BIRTH:
Targeting young people living on their own for the first time, theseapartments keep private room size to 20-23 square meters and comewith amenities useful to singles living alone for the first time such as
wireless LAN, a security system, and a separate sink vanity with a mirror.
Custom-built “Taiga” homes:
Based on a flexible design, built-to-order “Taiga” homes are made withthe highest quality Kiso-hinoki wood. In addition to durability of hinoki
wood materials, these homes are designed to last a hundred years
thanks to innovative features like a ventilation system that protects
against degradation and reinforcements against earthquakes.

Leopalace21 Corporation / Annual Report 2014

37

38

SEGMENT OVERVIEW

ELDERLY CARE BUSINESS

Performance
Thanks to the “Azumi En” facilities etc. developed by
the Group, net sales at our Elderly Care Business in fiscal
2013 came to ¥10,172 million (a 7.3% increase from theprevious fiscal year). This business posted an operating
loss of ¥611 million, an improvement of ¥132 million
versus the previous fiscal year.

Operating Income (Loss)(Billions of yen)

2
1
0
-1
-2
’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3
FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

Business Environment and Related Issues
The business environment surrounding the Elderly Care
Business is difficult. While the population requiring careis growing and the market is expanding, the numberof facilities for seniors is also increasing. As a result,competition with other companies in the same businessis growing fiercer. Under such circumstances, we aim torealize a near-term return to profitability through creative
efforts and expansion of services at existing facilities, but
we are also looking at the development of new facilities toattract demand with certainty.

Strategies
We have placed the Elderly Care Business under the
management of the Marketing and Sales Headquarters,
just as we have done for the two core businesses(Leasing Business and Construction Business), anddesignated it a strategic growth business. With
occupancy rates at existing facilities stable, the Elderly
Care Business is moving forward with establishing new
facilities in cooperation with the Construction Businesswith the aim of improving earnings.

Key Products/Services
Azumi En:
Currently, we manage 61 “Azumi En” facilities in the Kanto region. Services
at each facility include fee-based homes for seniors that offer support for
their daily lives in a family-like atmosphere, group homes with daily-living
support through fine-tuned nursing care, day and short-stayservices in which elderly people living in their own homes
can access services for a day or come for temporary stays
and so forth.

Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

SEGMENT OVERVIEW

HOTELS & RESORT BUSINESS

Performance
In fiscal 2013, net sales at our Hotels and Resort Business(Guam resort facilities and hotels in Japan) grew to ¥7,572
million (a 13.7% increase from the previous fiscal year)
thanks to the success of our campaign promoting use
by corporate partners etc. of our Leasing Business. Yet,
due to heavy depreciation costs, the operating loss at thisbusiness came to ¥1,119 million, widening ¥113 million
from the previous fiscal year.

Operating Income (Loss)(Billions of yen)

0
-1
-2
-3
-4
’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3
FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

Strategies
Business Environment and Related Issues
Attendant with the increase in the number of tourists fromJapan going overseas, the business environment for our
Guam resorts is turning favorable. Moreover, we havebeen consistently attracting tourists from Asian countries
like South Korea, China, and Taiwan, while domestic
demand, particularly from business travelers, is also
increasing along with the recent economic pickup.

To encourage longer stays by senior citizens, we market ourGuam resorts in ways that raise their profiles as golf resorts.
In addition, we are putting greater effort into attracting
visitors from Asia. At our domestic hotels, we offer the
event halls in our hotel facilities for sports group activities
and company training exercises. We also encourage our
stakeholders, starting with shareholders and extending toproperty owners, tenants, and corporate partners, to use
these facilities, to help promote sales in our two core pillars,
the Leasing Business and the Construction Business.

Key Products/Services
Leopalace Hotels:
Our hotels are situated across Japan in eight locations: Sapporo, Asahikawa, Sendai,
Niigata, Nagoya, Yokkaichi, Okayama, and Hakata. Aimed at both long-term andshort-term stays, these hotels run restaurants under the direct management of
Leopalace21 and provide free laundry facilities.
Leopalace Resort Guam:
Leopalace Guam resort is fully equipped with sports facilities that meetinternational standards. Its swimming facilities have been authorized as a “JOC
authorized swimming competition center” and its golf courses have beenrecognized as a “Japan Golf Association-designated golf course.” It is used not only
as a resort but also as a training site for athletes.
Leopalace21 Corporation / Annual Report 2014

39

40

SEGMENT OVERVIEWOTHER BUSINESSES

Performance
In fiscal 2013, net sales at Other Businesses, which
includes small-amount, short-term insurance and solar
power businesses, came to ¥1,442 million (a 26.7%
increase from the previous fiscal year) and operating
income came to ¥138 million (a 290.4% increase from theprevious fiscal year).

Operating Income (Loss)(Billions of yen)

5
0
-5
-10
-15
-20
’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3
FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

Business Environment and Related Issues
Since the feed-in-tariff (FIT) scheme for renewable energy
took effect in July 2012, power utilities have been required
to purchase electricity generated by renewable energy
sources such as solar and wind at fixed prices for aprescribed period. The FIT purchase price is adjusted every
year to take into account changes in the cost of renewableenergy facilities, and the purchase price for solar powerhas fallen every year since the scheme commenced. As
a result, solar panels installed relatively soon after thescheme launched offer greater economic benefits.

Strategies
Since the previous fiscal year, we have scaled up oursolar power businesses through our energy subsidiary
Leopalace Power Corporation. Using some of the funds
raised through a public equity offering announced in
November 2013, we have pressed ahead with solar
panel installations on the rooftops of apartments wemanage. We aim to secure stable earnings from thesepanels, as fixed purchase prices are guaranteed for 20
years under the FIT scheme.

Key Products/Services
Solar power systems:
Most of the apartments we manage have flat roofs with more surface area than is common
for normal housing, so many of these rooftops are well suited for solar panel installations.
Since these apartments were built based on our designs, we can install on these rooftops
without extra costs such as spending on new tests to investigate whether they canwithstand more weight etc.
We are also careful to ensure that our solar panel installations do not negatively impact
apartments. We install in-house developed metal grippers onto rooftop protrusions and place
panels on top of these grippers so that drilling holes into roofs can be avoided. Our installation
method means rainwater leaks are not a concern.

Leopalace21 Corporation / Annual Report 2014

Metal Gripper

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

TOPICS: Information Disclosure for Stakeholders
We believe that proactively disclosing information in an appropriate manner isimportant to building relationships based on trust and deepening mutual understanding
with stakeholders such as shareholders and other investors. With our website as
the main vehicle of our disclosure efforts, we have moved forward on this score. We
offer a broad array of disclosure content, ranging from materials aimed at institutional
investors to those designed to be easy to understand for individual investors, and ourefforts have garnered positive recognition by third-party organizations.

Won a Bronze Award for the Second Successive Year in Gomez IR Site Ranking
We put great store on our website as a vehicle to communicate information to ourshareholders and other investors. To this end, we have established a dedicatedsite for individual investors, where we provide materials about our strategy, thebusiness environment etc. along with data on our financial position and earnings
reports. Initiatives such as these aimed at educating investors about our businesshave been well received, and our website has earned a Bronze Award for thesecond successive year (the second highest ranking in Japan’s real estate sector)
in the Gomez Investor Relations (IR) site ranking. The Gomez IR site ranking is anannual assessment where Morningstar Japan K.K. evaluates IR websites aimed
at shareholders and other investors for usability and content richness.

Introducing Leopalace21 via Illustrated “Manga” Stories
A section on our website called “Understand Leopalace21 throughManga” introduces our business in ways that anyone can easily
understand. The web pages use four-panel cartoons (“Manga”) to
explain in a readily understandable way our business model,
distinctive features and strengths, and our two core operations, theLeasing Business and Construction Business. Beneath the “Manga”
stories we outline on-going initiatives etc. and provide links to pages
that go into more detail on specifics.

IR Seminars Targeted at Individual Investors
As part of our IR activities for individual investors, we participate inseminars for individual investors where we can meet andcommunicate with them in person. We gave explanations to individual
investors in person, held small briefings, and engaged in otheroutreach efforts at the Tokyo Stock Exchange (TSE) IR Festa 2014
(sponsored by the TSE) and the Nomura IR Individual Investor Fair(sponsored by Nomura Investor Relations Co., Ltd.) in fiscal 2013.
Including these two events, we participated in a total of nine seminars
or events for individual investors in the fiscal year under review, andwe intend to remain a participant in the years to come.

Leopalace21 Corporation / Annual Report 2014

41

42

CSR Activities Support Our New Medium-term Management Plan
Based on our corporate philosophy of “creating new value,” Leopalace21 strives tomeet the expectations of all our stakeholders and continue to be a contributor tobuilding a sustainable society in ways that suit the needs of the times.

CSR Activities Support Attainment of New Medium-term Management Plan Goals
It is our belief that CSR activities are a pillar of our operations thatplay an important role in supporting from the base of financial
activities the attainment of the targets in “EXPANDING VALUE,”
the new Medium-term Management Plan.
Having defined CSR activity goals relating to management
measures in our Medium-term Management Plan, we commenced
initiatives that step up development of non-financial activities.

Leop

alace21’s CSR activities

Medium-term Management
Plan’s CSR indicators

Medium-term Management Plan goals

Related CSR fields(1) Achieve sustainable, balanced
growth at core businesses
and maximize group profits• Improve services for property owners andtenants
It is important to improve the satisfaction of
the main clients of our core businesses.

Number of incoming calls tothe service center• Diversity management
It is important to foster a diverse workforce
in order to respond to the needs of a diverse
society.

Ratio of female managers
Number of employees withforeign citizenship• Advance solar power businesses
We will continue to be contributors to
supplying electricity from safe, stable clean
energy sources.

Aggregate kWh generated bysolar power systems• Maintain positive relationships withstakeholders
We will continue to hold meetings for property
owners to report the latest conditions.
We will continue to further promote cleanup
campaign events and participation.

Number of owner events
organized
Number of cleanup campaign
events and participants(2) Enter new domains andbusinesses that create newsocial value(3) Retain a low-cost structureand strategic “selectivity andfocus” approach to costs

CSR Management
In our CSR management, members of the CSR
Committee, which is chaired by the General Manager ofthe Management Planning Headquarters, serve as
coordinators to bring together separate divisions anddepartments, while engaging in their own CSR

Leopalace21 Corporation / Annual Report 2014

management.
The CSR committee meets four times a year to checkthe progress of initiatives that meet the Basic CSR
Action Policy and discuss the future direction of theinitiatives. In such ways, the committee promotes CSR.

Who we are

What our strategy is

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

Basic CSR Action Policy
In 2013, we devised a new Basic CSR Action Policy inresponse to changing modern needs and therequirements of ISO 26000 and other standards andguidelines.
We will steadily press ahead with newly establishedfive themes of the policy in order to expand CSR

activities even further through our businesses.
Based on compliance and corporate governance that
supports our businesses, we intend to implement CSR
activities in accordance with the new policy, with the aimof “creating new value” together with all of our
stakeholders.

“Creating New Value”
Basic CSR Action Policy
Engaging in sound,constructive communication
with stakeholders

Creating anenvironmentallyfriendly society

Creating pleasant work
environments and developing
diverse human resources

Contributing tolocal communities

Basic CSR Action Policy

Providing high-quality
services and supporting
affluent living

Clientcompanies
Apartment tenants,
landowners
Local
communities

Compliance

ance
Corporate Govern

Corporate
Code of Ethics

ophy
Corporate PhilosCore subjects underISO 26000 etc.

Employees
Globalenvironment
Investors andshareholders

Main activities

Key Performance Indicators (KPI)• Providing high-quality services thatenable safety and peace of mind

Number of rooms with security
systems installed
Number of buildings withsecurity cameras installed

Providing highquality services andsupporting affluent
livingConsumer issues

Creating pleasantwork environments
and developing
diverse humanresources

Human rights
Labor practices

Creating anenvironmentallyfriendly society

Natural environment

Contributing tolocal communities

Community
involvement• Involving stakeholders in cleanup
activities

Number of cleanup events
Number of cleanup participants

Engaging in sound,constructive
communication
with stakeholders

Stakeholder
engagement• Communicating with diverse
stakeholders

Number of meetings forlandowners
Number of events held fortenants• Improving client services further• Promoting work-life balance• Paying heed to diversity• Running solar power businesses• Factoring environmental considerations
into our business activities

Number of employees
participating in training
Overtime work hours

Number of buildings with solar
power systems installed
CO 2 emissions reduction

Leopalace21 Corporation / Annual Report 2014

43

44

CSR Issues in Leopalace21’s Value Chain
There are a range of social issues that we believe warrant attention at our corepillars, the Leasing Business and the Construction Business. With the aim ofcontributing to society through our businesses, we are implementing initiatives
based on the five themes of the Basic CSR Action Policy.

Construction
Design andExecution

Rental Sales
at Counters,
Corporate SalesCSR Issues: Construction, and Design and Execution

CSR Issues: Rental Sales at Counters, Corporate Sales

There are a range of CSR issues that we believe
warrant consideration in designing and constructing
apartments and buildings so as to enable landowners
to make the most effective use of their valuable land.
Among these are ensuring building quality and onsite
safety, factoring in environmental considerations,
adhering to compliance frameworks, following CSR
procurement guidelines, and maintaining amicable
relations with neighboring residents.
At Leopalace21, all of our projects are supervisedby construction managing engineers, who are
specialists accredited by the government, in order toensure quality.
We do our utmost to ensure the onsite safety of all
those involved in construction work as well as
people nearby by mapping out various risks inadvance in line with the construction safety manual.

We offer rental properties to individuals who visit our
offices around the country and corporate clients intheir search for rental housing. In marketing rental
housing to individuals and corporations, there are arange of CSR issues that we believe warrant
consideration. Among these are adhering tocompliance frameworks, protecting client privacy,
and improving the quality of our response to clients.
As for personal information, under the leadershipof the General Manager of the Management
Headquarters, the Compliance Committee moves
ahead with the proper use and management ofprivate information in accordance with the Personal
Information Protection Law and other relevant
regulations as well as our privacy policies. Further,
we have systems in place that enable us to respondswiftly if an unexpected event occurs.

<Relevant Basic CSR Action Policy><Relevant Basic CSR Action Policy>

Providing high-quality services and supporting
affluent living
Creating pleasant work environments anddeveloping diverse human resources
Creating an environmentally friendly society
Contributing to local communities
Engaging in sound, constructive communication
with stakeholders

Providing high-quality services and supporting
affluent living
Creating pleasant work environments anddeveloping diverse human resources

For more details, see page 46-55
Leopalace21 Corporation / Annual Report 2014

For more details, see page 46-51

Who we are

What our strategy is

Tenants
Move-in

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Rental Housing
Management

CSR Issues: Rental Housing Management
There are a range of CSR issues that we believe
warrant consideration in managing apartments
across Japan. Among these are adhering tocompliance frameworks, protecting privacy,
factoring in global environmental considerations,improving the quality of our response tolandowners and tenants, ensuring quality for
comfortable living, and maintaining good relations
with local communities.
Beyond fundamentals such as protecting thevaluable assets of landowners and supporting
tenants’ comfortable living, we strive daily to build
better relationships with all our stakeholders so as
to continue to develop our businesses and services
in a sustainable manner.

<Relevant Basic CSR Action Policy>
Providing high-quality services and supporting
affluent living
Creating pleasant work environments anddeveloping diverse human resources
Creating an environmentally friendly society
Contributing to local communities
Engaging in sound, constructive communication
with stakeholders
For more details, see page 46-55
Leopalace21 Corporation / Annual Report 201445

46
Basic CSR Action Policy

Providing High-quality Services and Supporting Affluent Living (1)Amid a growing diversity of rental housing needs in an increasingly diverse society, we offer
tenants living spaces that are comfortable and pleasant to live in through new lifestyle proposals.

Social Backdrop: Diversifying Lifestyles
In the past, a husband, wife, and one or morechildren comprised a customary household but astimes have changed, the number of single-personhouseholds has grown, and the number ofmembers per household continues to decline. In
concert with these trends, rental housing needs
are becoming more diverse.

● Trend in Number of Households by Category  4HOUSANDS OF HOUSEHOLDS  

’’’ PLAN ’ PLAN ’ PLAN ’ PLAN ’ PLAN

■ 3INGLE ■ -ARRIED COUPLE ■ -ARRIED COUPLE CHILDREN■ 3INGLE PARENT CHILDREN ■ /THERS
3OURCE  0OPULATION #ENSUS THE -INISTRY OF )NTERNAL !FFAIRS AND #OMMUNICATIONS(OUSEHOLD 0ROJECTION FOR *APAN *ANUARY .ATIONAL )NSTITUTE OF 0OPULATION AND 3OCIAL 3ECURITY 2ESEARCH

Main Activities, KPIs, Goals, and Achievements
Main Activities:

Provide high-quality services that enable safety and peace of mind,
improve client services further
Key Performance Indicators: Number of buildings with security systems installed, number of buildings
with security cameras installed

Fiscal 2013 goalss 190,000 rooms
4ARGET FOR CUMULATIVE SECURITY SYSTEMINSTALLATIONS BY -ARCH  Fiscal 2013 achievementss 187,756 rooms#UMULATIVE SECURITY SYSTEMINSTALLATIONS AS OF -ARCH  Fiscal 2014 goalss About 220,000 rooms KP I
4ARGET FOR CUMULATIVE SECURITY SYSTEMINSTALLATIONS BY -ARCH  s 4,500 buildings K P I
4ARGET FOR CUMULATIVE SECURITY CAMERAINSTALLATIONS BY -ARCH  s %XPAND A PRODUCT LINEUP WITH
SOUND INSULATION FIXTURES

s 5PGRADED SPECIFICATIONS OF
h.ON 3OUND &LOOR v A SOUND INSULATEDWOOD PRODUCT

s %XPAND , #LUB /FF MEMBERSHIPSPECIAL DEALS FOR TENANTS

s ,AUNCHED DEDICATED TENANT SITE
h-9 0!'%v AND ADDED 20 services
INCLUDING , #LUB /FF

Leopalace21 Corporation / Annual Report 2014

s !DD 24 NEW TENANT SERVICES AVAILABLE
ON THE DEDICATED TENANT SITE h-9 0!'%v

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Initiative Summary: Ideas for Expressing Individuality in Living
Supporting Self Expression via “Room Customize”
In response to the desire of tenants to express theirpreferences even in a rented space, we launched “RoomCustomize” services in May 2012 to allow tenants tocustomize their room to suit their preferences.
“Room Customize” plans allow tenants to customize
one wall by giving them a choice of free wallpaper, alongwith options to use wall stickers, tacks, tape, etc. or install
wall-mounted shelves on that wall. There are about
150,000 rooms nationwide, including ones with tenants,
where “Room Customize” plans are available. The
cumulative number of “Room Customize” contracts
reached 14,061 as of March 31, 2014.
In contrast to services for detached homes and family
housing, “Room Customize” plans target singles living on
their own and enable them to express their individuality
and preferences in their rental rooms. We will continue tobroaden this service going forward.

● Cumulative Number of “Room Customize” Contracts  .UMBER OF CONTRACTS

14,061 
5,714

 

!PR
-AY
*UN
*UL
!UG
3EP
/CT
.OV
$EC
*AN
&EB
-AR
!PR
-AY
*UN
*UL
!UG
3EP
/CT
.OV
$EC
*AN
&EB
-AR


@ &9

Stakeholder’s Voice
oice
Tatsuya Sasaki, General Manager, Leasing Sales
gement Division
Planning and Management

Our popular “Room Customize”
service, which was launched in
May 2012, enables tenants tocasually change their room to suit their preferences. The
number opting for it has exceeded 14,000 in the roughly
two years since it was launched. Based on our
corporate philosophy of “creating new value,” we havelaunched many new services for rental housing,including patented lofts, rooms that come with furnitureand home appliances, and broadband. One of these was
the rollout of the “Room Customize” service as a way
to encourage tenants to form attachments to their roomand thus promote long-term tenancy.
We show prospective tenants model rooms featuring“Room Customize” plans that our employees createdthemselves in vacant rooms nationwide. In addition topromoting sales, this program has contributed toenhancing the marketing capabilities of our employees.

@ &9“Arma-L” Series for Female Tenants
To accompany the “Arma-L” apartments for female
tenants, which come with plenty of storage space andfurniture, we have developed and launched the “Arma-L
tri-EL,” which combines this plan with features of ourmainstay DUAL-L product, which has two lofts.
These apartments combine the bedroom, living room,
and kitchen/dining space (1LDK) into a luxurious spacethat features many ideas informed by a female
perspective such as a powder space, wall-mounted
storage, and an open-counter kitchen.
Amid a rising ratio of women living on their own,
especially in cities, the number of female tenants living
in our rental housing is expected to increase. We willcontinue to respond to this social need by providing
housing where women feel comfortable living.

TOPICS Developed an “Arma-L” Temporary @cosme Model

SUUMO, a real estate and housing website (run by
Recruit Sumai Company Ltd.), and @cosme, Japan’slargest beauty and cosmetics website (run by istyleInc.), released an attitude survey they conducted on
beauty, health, and living conditions in February 2014.
About 70% of the survey’s respondents said they tookcare of their body and skin or put on cosmetics while
doing something else, and the activity most cited by those
70% was watching TV. When asked to name what about
the place or fixtures of their residence that most frustrated
them, many respondents cited lighting and storage spacearound the bathroom sink, lighting and sunlight exposurein the living room, and bathroom storage space.
Based on these survey results, we upgraded our“Arma-L” plans to even better reflect a female
perspective.

Leopalace21 Corporation / Annual Report 201447

48
Basic CSR Action Policy

Providing High-quality Services and Supporting Affluent Living (2)Initiative Summary: Offering Safe, Secure Residences
Using Security Systems to Bolster Crime Prevention

Stakeholder’s Voice

Through our alliances with two leaders in security
services, SECOM Co., Ltd. and Sohgo Security Services
Co., Ltd. (ALSOK), we have moved ahead with security
system installations at existing properties we manage
and installed security systems as a standard feature in
the rooms of newly built
apartments. The numberof buidlings with security
systems installed
reached 187,756 as ofMarch 31, 2014, or a
34.2% installation ratio.

Offering Peace of Mind with Security Cameras
and Other Home Security Systems
Apart from affordable rent, security is one of the mostimportant features to tenants living on their own. We
began mass deployment of security cameras in new andexisting apartments in 2011 to monitor and record
intruders and unwanted persons lingering onsite. The
number of buildings nationwide with security cameras
installed exceeded 3,000 (49,203 households) as ofMarch 31, 2014.
We will continue to move ahead with the installationof security cameras in order to contribute to the creationof environments that uphold the safety and peace ofmind not only of our apartment tenants but also ofneighboring residents.

Mr. Kentaro Ogawa,Section Chief, Sales Department, Johoku branch,
Sohgo Security Services Co., Ltd. (ALSOK)

The idea that our services thatmeet diversifying lifestyles andconsumer needs could match up
with Leopalace21’s business model was the starting
point of our relationship, and customers have since thenshared many positive comments with us about ourcontribution. Since we installed security cameras,
tenants have told us they felt safe living on their own,
while landowners told us illegal waste dumping andunauthorized parking have gone away entirely.

● Features Singles Value Most Apart from Affordable Rent
0

1

20

30

Bathtub, toilet in separate rooms

2 Distance from station, commute time3

Age of building

4

Security features

5

Floor plan

6

Good natural lighting

7

Kitchen spaciousness

8

Storage space

9 Nearness to supermarket, convenience store
10 Rooms not at ground-level or below groundSource: October 2010 COBS ONLINE survey, 432 respondents

Leopalace21 Corporation / Annual Report 2014

10

Security isimportantto tenants

40 (%)

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Initiative Summary: Improving Customer Satisfaction with High-quality Service
Making Room Searches More Convenient,
Helping Make Move-ins Go Smoothly
The Leopalace21 website offers a complete suite ofservices online from room searches to room
applications, enabling many who are busy or live faraway to use our services.
As a general rule, we seek to respond to customers
with foreign citizenship in their native language. Asidefrom Japanese, our rental housing website is currently
available in four languages—English, Chinese, Korean,and Portuguese. Our call center can respond to calls inthese four languages, along with Vietnamese. In
addition to the above, we have assigned 162
employees with foreign citizenship (as of March 31,2014) to Leopalace Centers etc. across Japan toprovide foreign clients with native-language support
ranging from apartment searches to helping themsettle in after their move.
With eight offices in China, Korea, and Taiwan, ouroverseas network enables customers who areplanning to stay in Japan to search apartments andconsummate contracts before they arrive in Japan. We
will continue to provide support for convenient
apartment searches and comfortable living to students
and workers coming to Japan, who have been
increasing in number in the past several years.

Service Centers Offering Full Support After Move-ins
Leopalace21 has systems in place to respond swiftly tovarious problems and emergencies that can arise after
moving in to an apartment. At our service centers, our
specialist communicators listen carefully to what eachcustomer has to say and, after confirming what precisely
the customer is requesting, do their best to respond. By
analyzing inquiry content and continuously adding andupdating the list of frequently asked questions (FAQs) on
our website, we ease customer doubts and anxieties andimprove satisfaction levels, and thus enable them to live
safe, comfortable lives in the apartments we manage.
In addition, we offer an around-the-clock response
service for troubles such as lost keys and repairs towater-related facilities like bathrooms and kitchens, etc.
to customers who enroll in our optional “Life support
service*.”

Broadening Our Range of Tenant Services
Since the April 2013 launch of MY PAGE, a site
exclusively for tenants, we have provided an extensive
range of tenant services that reshape conventional
notions of what people expect from rental housing,such as concierge services to respond to requests
from tenants.

● Trend in Incoming Calls to Our Service Centers
1,000,000 (Number of calls)
750,000
500,000
250,000
0(Fiscal year)

’08

’09

’10

’11

’12

’13

■ Inquiries ■ Maintenance ■ Complaints and claims*The “Life support service” is optional.

Leopalace21 Corporation / Annual Report 201449

50
Basic CSR Action Policy

Creating Pleasant Work Environments and Developing Diverse Human Resources
We believe human resources are important as upholders of our corporate philosophy of “creating
new value.” Our aim is to build pleasant workplaces where people enjoy working, enabling all
employees to express their diverse individuality and develop and harness their capabilities.

Social Backdrop: Diversifying Work Styles
Work styles are growing increasingly diverse formany reasons, from the shrinking labor force
attendant with Japan’s aging population toeconomic circumstances and the advance of
women in society. There is a growing importanceplaced on achieving work-life balance, andcompanies are increasingly expected to takesteps and adopt systems that promote greater
work-style flexibility and revise working hours etc.

● Trends in Labor Force(Millions of people)

80
60
40
20
0
’90

’95

’00

’06

’12

’17 plan ’30 plan

■ Age 15-29 ■ Age 30-59 ■ Age 60-64 ■ Age 65＋
Source: For 1990, 1995, 2000, and 2006, we draw on data in The Labor Force Survey,
published by the Statistics Bureau of the Ministry of Internal Affairs and Communications;from 2012 onward, we draw on data in the 2007 Labor Force Supply and Demand Estimates,
published by the Japan Institute for Labour Policy and Training.

Main Activities, KPIs, Goals, and Achievements
Main Activities:
Promoting work-life balance, paying heed to diversity
Key Performance Indicators: Number of employees participating in training, hours of overtime work

Fiscal 2013 goalss Attain goals of the next action plan
(introduce a half-day vacation system
during fiscal 2013)

Fiscal 2013 achievementss 1,582 people
Number of employees who used
the half-day vacation system since
it commenced on July 1, 2013

Fiscal 2014 goalss 3,200 people K P I
Implement planned employee training(Number of employees participatingin training)s 7% reduction K P I
Implement initiatives to reduce
overtime work hours(Year-on-year percentage reduction
in hours of overtime work)s Continue to provide lectures, company
tours, and on-the-job (OTJ) learning
opportunities at special subsidiary
Leopalace Smile Co., Ltd.

s 365 people
Number of company-tour visitorss 2.0%
Statutory employment ratio of
disabled people

s 2.07% (as of March 31, 2014)
Actual employment ratio of
disabled people

Leopalace21 Corporation / Annual Report 2014s 71 people
Number of people receiving OTJ training

Who we are

What our strategy is

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

51

Initiative Summary: Creating Worker-friendly Workplaces
Promotion of Work-life Balance
We believe promoting work-life balance is an important
issue, and we are moving ahead with various initiatives
such as promoting diverse styles of working andshortening work hours. We obtained a next-generation
certification mark (the Kurumin mark) in step with anaction plan based on the Act for Promotion of Measures
to Support the Development of the Next Generation
published by the Ministry of Health,Labour and Welfare aimed at promoting
worker-friendly workplaces. We continue
to execute initiatives in the action plan
we devised (shown below).
The Kurumin mark

TOPICS Established Work-life Balance Promotion Office
The Company established a new office for thepromotion of work-life balance, which reports directly
to the President, in January 2014. The new office isdesigned to promote the growth of all employees andraise awareness of labor management issues as well as
to create a work environment where employees canachieve their full potential and capabilities.
We will continue making concerted efforts to createeven more worker-friendly environments.

■ Action Plan Goals (January 2013-January 2015)

Members of theWork-life Balance
Promotion Office

Goal 1: Create an environment where workers can readilytake child-care leave(Men: at least one male employee takes child-care leave
during the relevant period; Women: a usage rate amongfemale employees of over 80%)

Goal 2: Implement measures to reduce hours ofovertime work
Goal 3: Study feasibility of introducing a half-day
vacation system

Initiative Summary: Developing Diverse Human Resources
Appointment of Diverse Human Resources
We aim to achieve new growth by improving ourcapabilities as an organization by helping to develop thecapabilities of each employee through our training
system.
Our training system is essentially split along two lines:
training according to employee rank and training
according to division. The former is divided into seven
ranks going from new hires up to management
executives and targets all of our divisions from leasing,construction, and elderly care to domestic hotels andresorts etc. The aim is to promote employees in eachrank to play the roles they are expected to perform andto obtain knowledge and know-how they need.
Regardless of which division they belong to, all
Leopalace21 employees can obtain the basic capabilities
and knowledge they need as they move up the ladder tohigher ranks.
As for training according to division, we offer programsfor employees to learn the expert knowledge and skills
each division requires. Our aim is to improve customer
satisfaction by sprucing up the expertise of ouremployees.

Fiscal 2013 results

Fiscal 2014 plan

Number of training programs

3

9

Number of participants

460

3,200

Training costs per-person¥76,326

About ¥85,000

Number of training days

70

173

Stakeholder’s Voice
oice
Tatsushi Ishikura, General Manager,
Human Resources

To achieve the goals set in
the new Medium-termManagement Plan that kicked
off in fiscal 2014, we need tomake our organization andpeople stronger. In particular, we will introduce a newprogram to enhance marketing capabilities of sales
staff in order to expand training programs for managers
to improve their management capabilities. We seek toimprove customer satisfaction by improving the skills of
employees who are closest to our clients and toenhance employee satisfaction by expanding ourtraining system, which was scaled back in theaftermath of the collapse of Lehman Brothers.

Leopalace21 Corporation / Annual Report 2014

52
Basic CSR Action Policy

Creating an Environmentally Friendly Society
Recognizing the large impact our business activities have on the global environment, we
remain steadfast in our pursuit of low-environmental-impact housing, and we are working
to reduce the environmental burden that arises from all of our business activities.

Social Backdrop: Environmental Degradation on a Global Scale, Growing Demand for Clean Energy
Japan’s total greenhouse gas emissions (GHG) in fiscal 2012 came to 1,343 million metric tons
(CO2 equivalent), representing a 36.6 million ton increase in emissions, or a 2.8% rise year on
year, from the fiscal 2011 level. Amid the growing threats to the natural environment aroundthe world, interest in solar power generation is growing as a safe, sustainable form of energy.

● Japan’s GHG Emissions and Attainment versus Kyoto Protocol Emission Targets
Forest etc.
carbon sinks(3.9% of base year)

1.5 Emissions (billions of metric tons, CO2 eq.)

1.0

0.5

Kyoto protocol
CP1 targets

Kyoto mechanism
credit
(5.9% of base year)

Actualtotal
emissions0Base year ’05
’90

’08

’09

’10

’11

’12

’08-’12
five-year average

Adjusted five-year
average:-8.4%
from base year** Total emissions and removals for the Kyoto Protocol target will befinalized based on a technical review process to be effected in fiscal
2014 under the UN Framework Convention on Climate Change and the
Kyoto Protocol. Also, following the December 31, 2012 expiration of the
Kyoto Protocol’s first commitment period (CP1), the Kyoto mechanism
credits are to be finalized after the current adjustment period ends
(it is expected to be in the second half of 2015 and beyond).
* Final estimates of Japan’s greenhouse gas emissions released by the
Ministry of the Environment (April 2014)

Main Activities, KPIs, Goals, and Achievements
Main Activities:

Solar power businesses, factoring environmental considerations
into our business activities
Key Performance Indicators: Number of buildings with solar power systems installed,adjusted CO 2 emission reductions

Fiscal 2013 goals

Fiscal 2013 achievements

s 7,000 buildings
Cumulative number of buildings withsolar power systems installed as ofMarch 31, 2015

s 9,001 buildings
Cumulative number of buildings withsolar power systems installed as ofMarch 31, 2014

Fiscal 2014 goals
s 3,000 buildings K P I
Number of buildings with solar powersystems installed for the year
(38,370,634 kWh, adjusted CO2 emission
reduction of 12,068 tons)s 2EDUCE ELECTRICITY CONSUMPTION AND
CO2 emissions by replacing KP I
multifunction printerss 2EDUCE GASOLINE CONSUMPTION BY
using eco-carss Expand and improve “Leco series”
products

s “Sky-stage” six buildings“Li-stage” three buildings completed

s 20% reduction
Target for reducing disposal volume of
construction materialss Evaluated the use of pre-cut
construction materials for lofts
at one site

Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

What our businesses are

Initiative Summary: Growth of Solar Power Businesses
TOPICS

Since March 2011, we have actively moved forward withthree kinds of solar power businesses: (1) installing solar
panels acquired using investment funds from apartment
owners, (2) Roof Mega-solar Pro, and (3) executing
mega-solar projects on idle land. We have installed solar
power systems on a total of 9,001 buildings as of March
31, 2014 for a total generation capacity of 125.8 MW.
We will continue to push ahead with initiatives to advancesolar power as a source of safe, renewable energy.

How CSR supports
our management

Financial Section &Corporate Data

Consummating Agreement with Kanagawa Prefecture
on Promoting Solar Power Systems on Leased Rooftops

Leopalace21 signed an agreement with Kanagawa
Prefecture to promote the spread of solar powersystems in June 2013.
The Kanagawa Prefecture government is promoting
the spread of solar power systems through rooftop
leasing across the prefecture. Of the 2,900 apartmentbuildings we manage in Kanagawa Prefecture, it has
targeted 700 buildings for solar power systeminstallations (total generation capacity is expected to be
8.4 MW) through our rooftop solar power businesses.

Leopalace21 President
Eisei Miyama (left) and
Kanagawa Prefecture Governor
Yuji Kuroiwa (right)
Mega-solar project in Tomisato city,
Chiba Prefecture

Initiative Summary: Reducing Environmental Impact of Our Business Activities
We are working to reduce the environmental burden of ourbusiness activities. The activities we implemented on this theme
in fiscal 2013 are listed in the box to the right. We plan to lease
more eco-friendly cars for company use in fiscal 2014.
Recognizing the large impact we have on the global
environment, we plan to continue to actively implement initiatives
to reduce our environmental impact.

● Fiscal 2013-Implemented Initiatives to
Reduce Our Environmental Impact
Energy-saving measures at apartmentbuildings
Implementing “Cool biz” dress code in summer,“Warm biz” in winter
Initiatives to reduce water use●Annual Electricity Consumption at Head OfficeEco-cards, Eco-green cards

4 (Millions of kWh)3

Initiatives to reduce electricity consumption

2
1
0(Fiscal year)

’07

’08

’09

’10

’11

’12

’13

Initiative Summary: Solar Power Business Helps to Reduce Environmental Impact
While we are striving to reduce CO 2 emissions in ourbusiness activities as much as possible (see initiatives
above), we have also sharply cut CO 2 emissions throughthe energy generation of our solar power businesses
and, on an adjusted basis, these have offset the burdenof our business activities on the global environment. We
plan to move ahead with initiatives to reduce ourenvironmental impact further in the future.
CO2 emission reductions we have achieved throughour solar power businesses totaled 37,967 metric tons in
the years through March 2014, and we expect this trend
to continue.

● CO2 Emissions from Leopalace21 Sites in Fiscal 2012
30,000 (metric tons of CO2 emissions)
20,00022,809

Our adjusted CO2 emissions
were reduced by a total of
20,508 metric tons via our solar
power system installations
through fiscal 2012.

10,00002,301-20,508t-CO2

CO2 emissions fromour business activities

Leopalace21 Corporation / Annual Report 2014

53

54
Basic CSR Action Policy

Contributing to Local Communities
Together with local communities, we are continuing our activities in our immediate surroundings
as a company providing housing with the aim of creating places where people can live in safety.

Social Backdrop: Weakening Local Community Connections
With more people living in dense cities and the rural countryside becoming depopulated,connections within communities are becoming more tenuous, and these trends have given rise to
many problems such as elderly people dying alone and more crime targeting children. The
importance of local community connections is recognized in emergencies in particular, but there has
been little progress recently in moving forward with policies to address the aforementioned trends.

● Interaction among Neighbors
0

20

40

60

80

100 (%)

0

’75

’00

’86

’07

20

40

60

80

100 (%)’97■ Friendly interaction ■ Interaction but without closeness■ Little interaction ■ No interaction ■ Don’t know

■ A lot of interaction ■ Some interaction ■ Not much interaction■ Almost no interaction ■ There is no one who falls into the above categories■ No response

Source: Data is drawn from Cabinet Office’s Public Opinion Poll on the Social Awareness (1975, 1986, and 1997) as well as a special summary of the National Survey on Lifestyle Preferences (2000, 2007).

Main Activities, KPIs, Goals, and Achievements
Main Activities:
Stakeholder participation in cleanup events
Key Performance Indicators: Number of cleanup events, number of participants

Fiscal 2013 goalss %NTIRE COMPANY IN UNISON CONTINUES
with our cleanup campaign

Fiscal 2013 achievements
s %NTIRE COMPANY IN UNISON:
total of three events, 3,040 buildings,

3,642 participants
Immediate vicinity of construction sites:
1,995 sites, 9,561 participantss Workplace experience days for students
hosted at all eight domestic hotelss Four hotels hosted a total of 21 schools

s !DVANCE DONATION COLLECTION ACTIVITIES
for the Ultraman Foundations $ONATIONS COLLECTED ¥213,238
Participants: 326 people

Initiative Summary: Creating Livable Communities via Cleanup Campaign
We are continuing with our neighborhoodcleanup campaign to encourage our employees
to form attachments to the neighborhoods andcommunities where they work and to deepen
interaction with our stakeholders.
Cleanup campaign
Entire company in unison(three events)
Immediate vicinity of
construction sites

Performance data
3,642 participants
at 3,040 buildings
9,561 participants
at 1,995 buildings

Leopalace21 Corporation / Annual Report 2014

Fiscal 2014 goalss %NTIRE COMPANY IN UNISON K PI
Hold four events( about 1,000 buildings per event)
Immediate vicinity of construction sites:
2,000 sites, 10,000 participants

Initiative Summary: Contributing in Many Ways via Core Businesses
We contribute to communities in various
forms through our core businesses. We are
actively promoting employee participation insocial contribution activities such as hosting
workplace experience days for students at
the hotels and nursing care facilities we
operate, cooperating with “Kodomo #110”(emergency refuge for children), and helping
neighbors remove snow from sidewalks,
driveways, and rooftops.

Who we are

What our strategy is

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

Basic CSR Action Policy

Engaging in Sound, Constructive Communication with Stakeholders
Through our business activities, we actively disclose information to andcommunicate with our stakeholders to build healthy, positive partnerships.

Main Activities, KPIs
Main Activities:
Communication with diverse stakeholders
Key Performance Indicators: Number of meetings for landowners, number of events held for tenants

We are implementing a range of initiatives to build positive relationships with our stakeholders.
<Tenants><Owners>• MY PAGE (website
exclusively for tenants)• Cooking classes for women• Tenant surveys• Tenant monitors• Set up a system where employees
in charge follows up with owners• Host apartment owner meetings• Arrange events and seminars

Apartment
tenants

Landowners<Partners><Employee>
Partners• Cleanup
campaign events

Local
communities

Employees• Provide employee
training

Investors/
shareholders<Local communities>• Host workplace
experience days
for students<Investors/shareholders>• Hold earnings results briefings• Arrange small meetings
for institutional investors• Participate in IR events

Third-party opinion: Close-up on Leopalace21’s CSR Reporting

Takashi Fukushima,
Representative Director
Sustainability Accounting
Co., Ltd.

Leopalace21’s CSR framework is clear. It recognizes the important role of CSR as a pillar toachieving the targets set out in “EXPANDING VALUE,” its new Medium-term Management Plan.
It designates key performance indicators (KPIs) for each of the five themes of the Basic CSR
Action Policy and attempts to locate CSR issues within the processes of its multiple value chains.
It is easy for readers to understand the significance and progress of its initiatives in the context of
its reporting framework where it identifies each action theme and social backdrop, and thenreports on the goals at the start of the relevant fiscal year, what it achieved in the fiscal year underreview, and what the goal is for the next fiscal year.
I sat in and observed two meetings of the CSR Committee, where top executives coached andmentored those involved with each department’s CSR initiatives. It is unfortunate the sincerity
with which people in the field are executing initiatives aimed at “creating new value” is not fully
conveyed because of the space constraints of this paper report.
From here, I would like to see Leopalace21 integrate all divisions’ initiatives under the five themes of
the Basic CSR Action Policy and advance its CSR so that KPI serves as a benchmark for activity progress.

Leopalace21 Corporation / Annual Report 2014

55

56

CORPORATE GOVERNANCE
Leopalace21 sees the maintenance and reinforcement of corporate governance as oneof our most critical management tasks. In addition to putting related systems into
place, the Company discloses information and keeps management organizations andmanagement systems in working order to ensure corporate governance functions well.

Our Corporate Governance Philosophy
We see the construction and reinforcement of corporate
governance as one of our most critical management tasks,
and it is our basic philosophy of corporate activities to pursue
efficient, fair, and highly transparent operations to attaingreater corporate value for the sake of all our stakeholders.
Based on this philosophy, we seek to improve
management organizations and management systems
through such measures as reinforcing check-and-balance
functions in our decision-making processes and building
good relations with shareholders, business partners, etc.
Specifically, we set up the Board of Directors toenhance business performance through appropriate andrapid decision-making, responding dynamically to changes inthe business and management environment. At the sametime, we strive for stronger management oversight
through the Board of Auditors, a body set up to monitor
business execution by directors. Moreover, throughcommittees set up as consultative bodies to the Board of
Directors, we have established a compliance system andrisk management system.
We established a new headquarters division, called the

Corporate Business Promotion Headquarters, in April 2014
to enhance collaboration among business divisions. The
addition of this headquarters to the tripartite structure inplace until then—the Marketing and Sales Headquarters, theManagement Planning Headquarters (previously named
General Planning Headquarters), and the Management
Headquarters (previously called Business Management
Headquarters)—has created a four-headquarters system.
With this structure in place to clarify responsibilities andauthorities, we aim to continuously enhance our systems
and corporate governance.
We are assertively moving forward with information
disclosure activities through the public relations group in theManagement Planning Division. While working to provide afuller array of information disclosure on our website, we
conduct information disclosure activities via participation inbusiness presentations aimed at individual investors and IR
fairs organized by third parties. We hold regularly scheduled
meetings attended by Japan-based analysts and institutional
investors, and top executive officers etc. visit investors inNorth America, Asia, and Europe when necessary.

● Corporate Governance System
General Shareholders’ Meeting
Appointment/Removal

Corporate Management Council
All directors/standing auditors

Appointment/
RemovalImportant
Matters for
Discussion

Various Committees
・Risk Management Committee・CSR Committee
・Compliance Committee
・Personnel Committee
・IT Committee

Appointment/
RemovalInquireAccounting
Audit

Accounting Auditors
Cooperation

Board of Directors
8 Directors(including
1 outside director)

Appointment/
RemovalBoard of Auditors
Audit

2 Standing Auditors /2 Outside Auditors

ReportAppointment/
RemovalAppointment/
RemovalAuditing Council
報告

Cooperation

ReportReportExecutive Board

President and CEO

All Directors
Outside director/standing auditors

Marketing andSales Headquarters
Leopalace21 Corporation / Annual Report 2014

MultualInformation
Sharing

Corporate Business
Promotion Headquarters

Auditing Department(internal audit, internal controls)

ReportWork-Life Balance
Promotion Office

Management
Planning Headquarters

Management
Headquarters

Executive
Actions

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Governance System and Initiatives
Board of Directors
The Board of Directors (the Board), a decision-making body,is composed of eight directors, including one outside
director. It holds regular meetings once a month, while
extraordinary meetings can be called at any time as required,in order for decisions to be made on critical management
matters as well as to monitor business performance.
Furthermore, regular meetings of the Corporate
Management Council are held to discuss business operation
policies or to study measures for their implementation.

Board of Auditors
The Board of Auditors (BOA), composed of four members(two standing auditors and two non-standing auditors), is abody set up to monitor business execution by directors.
BOA members attend important meetings of the Board etc.
in accordance with the audit plan to monitor the decisionmaking process for key decisions and the progress ofoperational strategies set by the directors. At the same time,
BOA strives to ensure the system in place enhances audit
effectiveness by conducting operational statusinvestigations and periodically exchanging views andopinions with the president.

Outside Directors/Outside Auditors
By nominating an Outside Director as well as Outside
Auditors, Leopalace21 strives to strengthen the oversightfunction to ensure that decision-making and businessexecution by the Board comply with relevant laws andregulations in order to achieve management transparency andfairness. At the same time, it hopes that the outside directors
and auditors provide advice from an objective standpoint basedon their experience and knowledge they have obtained throughtheir business careers as well as their insight as executives.
With regards to ensuring the outside director and outside
auditors nominated are independent from the Company, ourpolicy is to make certain that they have no personnel, capital, or
business ties with or other interest in the Company and thatno conflict of interest with common shareholders arises.

● Attendance at Board Meetings by Outside Director
Tetsuji Taya

Attended 15 of 16 Board Meetings●Attendance at Board and BOA Meetings by Outside Auditors
Koichi Fujiwara

Attended 14 of 16 Board Meetings
Attended 8 of 10 BOA Meetings

control and internal audit functions and conducts audits,
including of subsidiaries and affiliates. The Auditing Council,
set up to maintain sound internal controls, is tasked with
monitoring management activities and risk management andthereby strengthens governance.

Accounting Audit
Leopalace21 has hired Grant Thornton Taiyo ASG to audit its
financial statements. The auditing contract we signed is foraudits to be performed in accordance with Japanese legislation,
the Companies Act, and the Financial Instruments andExchange Act. The status of audits by our accounting auditor
is reported at regular intervals to the Board of Auditors.

Compensation for Members of Board of Directors
Compensation etc. for members of the Board of Directors
comprises three categories: basic compensation, stock
options, and bonuses. Compensation is determined basedon the policies described below. The compensation etc. ofauditors is decided by the auditors after mutual consultation
within a framework determined at the shareholder meetingthat sets a ceiling on the aggregate amount.
(Basic Compensation)
This is determined for each member of the Board based on
a comprehensive assessment of the attributes of theoperations they oversee, the scope of these operations,
their business performance, etc.
(Stock options)Leopalace21 has adopted a stock-based compensation stock
option plan with the objectives of ensuring board members
and stockholders share gains and losses from share pricemovements and of enhancing earnings performance. The sizeof the grant takes into account earnings and share priceperformance, and is calculated based on our corporate
bylaws, including whether or not a grant is awarded. The
outside director is not allocated any stock options.
(Bonuses)
The size of the bonus awarded, including whether or not one isawarded, reflects quantitative factors such as company earnings
etc. and qualitative factors such as bolstering the managementfoundation etc. and factors in a comprehensive assessment of
the magnitude of contribution by each director etc. The outside
director is not awarded a bonus.

● Amount of Compensation Awarded to

Directors and Auditors(Millions of yen)
Total compensation etc. across categories

Masahiko Nakamura

Attended 15 of 16 Board Meetings

Total
Basic
compensation compensation

Attended 10 of 10 BOA Meetings

Stockoptions

Bonuses

8 board members (excludes OD)

234

234

—

—

Internal Audit

3 auditors (excludes OA)

31

31

—

—

The Auditing Department, established as a department
directly reporting to the president, oversees the internal

3 outside directors/auditors

19

19

—

—

* The table includes one director and one auditor who retired as of June 27, 2013;
OD = outside director and OA = outside auditor.
Leopalace21 Corporation / Annual Report 2014

57

58

Compliance and Risk Management Systems
The basic policy of the internal control system is to baseour corporate activities on compliance with laws andregulations as well as with social ethics. We are working
to identify and correct problems from time to time, andto further improve and reinforce internal control systems.
With regards to the compliance system, theCompliance Committee has been set up as an advisory
body to the Board of Directors, in addition to theestablishment of the Corporate Code of Ethics and aninternal reporting system, aiming to strengthen
compliance. With the president serving as chair, theCompliance Committee includes lawyers and otherexternal experts. As one plank in our efforts to bolster
governance, the committee develops various measuresrelating to compliance such as enhancing educational
training and reinforcing the information management
system. We are also working to bolster monitoring
systems and to identify and improve problems, and have
put into place a system to assertively implement
compliance-related measures onsite where operations
are conducted, assigning a person responsible forcompliance at each division and department.

● Specific Initiatives Concerning Compliance (Fiscal year ended March 31, 2014)
Description

Theme

Implementation
Frequency

E-learning“Contracts,” etc.

E-learning (training for new and mid-career employees)“Information Management,” etc.

Compliance training“ Reporter Protection and Utilization ofInternal Reporting System,” etc.

2 timesCompliance training (training for executive officers)“Legal Responsibilities of Directors,” etc.

2 timesCompliance training (training for management employees)“Harassment,” etc.

3 timesCompliance training (training for new employees)“The Basics of Compliance,” etc.

1 timeA seminar by a Tokyo Stock Exchange lecturer“Key Insider Trading Regulations and Case Studies”

1 timeWith regards to the risk management system, the Risk
Management Committee has been created as anadvisory body to the Board of Directors to ascertain andmanage the risks facing the entire Company in acomprehensive manner, with a view to strengthening
risk management. With the president serving as chair,
the Risk Management Committee includes lawyers andother external experts. It not only verifies risk
management conditions but also plans and implements

Leopalace21 Corporation / Annual Report 2014

2 timesTwo-monthunit

training and other measures in its efforts to reduce risk
and increase preparedness and prevention. Each division
extracts and analyzes risks concerning their operations,establishes and supervises risk countermeasures, andreports these efforts to the Risk Management
Committee. The committee ensures the proper
management of risks in each division throughconsultation and guidance.

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Directors (As of April 1, 2014)

Back row, left to right
Director Hiroyuki Harada, Director Yoshikazu Miike, Director Kou Kimura, Outside Director Tetsuji Taya
Bottom row, left to right
Director Yuzuru Sekiya, President and CEO Eisei Miyama, Director Tadahiro Miyama, Director Kazuto Tajiri

Executive Officers (As of April 1, 2014)

Back row, left to rightExecutive Officer Shigeru Ashida, Executive Officer Kenichiro Samejima, Executive Officer Seiji Shinozaki, Executive Officer Bunya Miyao,
Executive Officer Motoyoshi Ohishi, Executive Officer Yasushi Mizuno
Bottom row, left to rightExecutive Officer Fujio Sato, Managing Executive Officer Satoshi Abe, Senior Executive Officer Hiroshi Takeda,
Managing Executive Officer Yousuke Kitagawa, Managing Executive Officer Naomichi Mochida, Executive Officer Hideki Matsunaga

Leopalace21 Corporation / Annual Report 2014

59

60

BUSINESS AND OTHER RISKS
Listed below are the principal risks that we believe could
affect the Leopalace21 Group’s business performance

3. Risks Associated with Tangible Fixed Assets
and Real Estate Held for Resale

and financial position. However, this list is not all-inclusive

Impairment losses or appraisal losses due to declines inand does not cover all the risks that could affect Groupthe current market value of marketable securities,businesses. All forward-looking statements included

property for sale, fixed assets, or other assets could

herein reflect the judgment of the Leopalace21 Groupadversely affect the Company’s business performance

management as of the end of the consolidated fiscal

as well as its financial position. Moreover, with regard toterm under review.

the Company’s hotel and resort related businesses,
there will be a continuing need for regular investments in

1. Revenue-related Risk

facility replacement and renewal. As a result, changes in

Leopalace21 apartments are primarily utilized by single

depreciation expenses could have an effect on the

persons, and corporate contracts typically involve short-Company’s business performance.

term leases of apartments for use as company
dormitories by workers travelling on company business.

4. Loan Losses, and Reserve for Bad Debt

As a result, changes in the performance of the overall

The Company conducts financing activities, and carries

economy and corporate business results could affecton its books a balance for operating loans receivable

employment rates or the demand for business trips, andcomprising apartment construction loans and real estatethis could negatively impact occupancy rates at theequity loans. The Company also may guarantee theCompany’s apartments.

housing loans and membership fee loans offered to its

In addition, we have included in our forecasts all

customers by financial institutions. Apartment and othercontracted orders for apartment construction, howeverloans where repayment has become doubtful are

the possibility that the client may not be able to obtainaccounted for separately as doubtful receivables

the necessary financing or loans from a financial(tangible), and a reserve is made for bad debt in each

institution is an important risk factor. Changes in thesuch case; however, our business results could be

willingness of financial institutions to provide credit,

affected if amounts of uncollectible debt shouldchanges in the assessed value of real estate to be used

increase, or if we should be obliged to honor claims

as collateral, and fluctuations in interest rates could

pertaining to these loan guarantees.

affect Company revenues and adversely affect theCompany’s business results.

5. Reserve for Apartment Vacancy Loss
In order to prepare for a risk of losses due to an increase

2. Cost of Sales

in apartment vacancies, Leopalace21 has established a

Based on the Company’s apartment construction“Reserve for apartment vacancy loss” reserve fund equal

contract, the Company concludes a master leaseto the amount of loss that may be expected to beagreement with apartment owners to lease back theincurred during a reasonably estimable period. The

constructed apartment for a period of time and at a rent

amount of this reserve is based on the rent levels set forlevel that are both fixed at the time the contract is

individual leased units, the number of households, andconcluded. Therefore, fluctuations in the amount ofoccupancy rate forecasts calculated for each apartment

rental income received from tenants during the contract

building. Should any of these figures fall below theperiod could adversely affect the Company’s profitability.

estimated values it could become necessary to increase
the amount of the reserve, and this could adversely affectthe results of the Company’s leasing business.

Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

6. Leasehold Deposits and Guarantee Deposits

8. Information Leaks

Leopalace21 has long-term deposits from property

The Leopalace21 Group holds a great deal of information,

owners held as an advance for apartment repair andincluding personal information obtained through therenovation. These consist mainly of deposits received

consent of, or as a result of non-disclosure agreementsfrom property owners as a portion of future repair andwith client companies. To control information security,

renovation expenses, following the dissolution of

the Company has drawn up the required information

Leopalace21 Owners Mutual Insurance Association.

security guidelines, and set up a Compliance Committee

Leopalace21 makes a concerted effort as a leasing

to thoroughly educate our executive officers andbusiness operator to ensure the soundness of theemployees about information security issues.

apartment maintenance structure, through which

Nevertheless, in the unlikely event that a leak ofproperties fully leased from the owner are operated andinformation of some type should occur, there is amaintained. However, an unexpected, large-scale repair

possibility that the Group’s reputation could be damaged,

or renovation could have an impact on Leopalace21’s

and that business performance might be affected.

financial position.
Leopalace21 also has deposits for Leopalace Resort

9. Other Risks

memberships related to the Guam resort business, most

The Group is aware that it incurs a variety of risks in theof which date to the opening of the resort complex incourse of promoting its businesses, and it attempts toJuly 1993. The Leopalace21 Group works to increase

prevent, distribute or avoid risk whenever possible.

member usage by improving facilities and member

Nevertheless, the Group’s business performance andservices, but should there be an unexpected number offinancial position may be affected by changes inrequests for reimbursement of these deposits, this could

economic conditions, the real estate market, the financial

have an impact on Leopalace21’s financial position.

and stock markets, legal regulations, natural disasters,
and a variety of other factors.

7. Financial Covenants
Financial covenants have been set on the numerous loan
agreements that Leopalace21 has concluded withfinancial institutions. Accordingly, should consolidated or
non-consolidated net assets, consolidated or nonconsolidated interest-bearing debt, non-consolidated
operating income violate the conditions of a financial
covenant, there is a possibility that the Company, at thebehest of the financial institution, could forfeit thebenefit of the term for corporate bonds or otherborrowings, which could have an impact on the
Company’s operating performance.

Leopalace21 Corporation / Annual Report 2014

61

62

FINANCIAL SECTIONManagement’s Discussion and Analysis .................................................. 63
Consolidated Balance Sheets ................................................................... 66
Consolidated Statements of Operations .................................................. 68
Consolidated Statements of Comprehensive Income ............................. 69
Consolidated Statements of Changes in Net Assets ............................... 70
Consolidated Statements of Cash Flows ................................................. 71
Notes to Consolidated Financial Statements ........................................... 73
Independent Auditor’s Report ................................................................ 105

Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

FINANCIAL SECTION

MANAGEMENT’S DISCUSSION AND ANALYSIS■ Operating Income by Segment

1. Operating Environment
During the fiscal year under review, the continuing recovery
in the Japanese economy, although moderate, wasevidenced primarily by the yen’s progressive weakening andthe appreciation of stock prices, reflecting the government’s
economic and monetary policies, as well as signs of arecovery in consumer spending and employment situation.
In the housing rental industry, due to last minute surge
in demand before increase in taxation, new housing
starts increased for the second consecutive year (up15.3% year-on-year) and the number of vacant houses
has also been increasing steadily. To achieve stable
occupancy rates against the backdrop of this oversupply
in the market, housing supply in selected areas and highquality housing and services are required.
Under these conditions, the Leopalace Group positions
the fiscal year under review, the second year of theMedium-term Management Plan, as a year to reach a
new growth stage. Based on the foundations built in theprevious fiscal year, the Group sought to maximize
profits by making its properties under management morecompetitive and enhancing tenant services.

2. Analysis of Business Results(1) Net Sales
Net sales during the fiscal year under were ¥471,090
million (up 3.7% year-on-year). In the Leasing business,
net sales was ¥388,768 million (up 1.4% year-on-year),and net sales in the Construction business was ¥63,136
million (up 18.3% year-on-year).
■ Net Sales by Segment(Millions of Yen)FY2012FY2013

ChangeLeasing
Construction
Elderly Care
Hotels & Resort
OthersTotal

383,574
53,370
9,482
6,658
1,138
454,222388,768
63,136
10,1727,572
1,442
471,090

5,194
9,766
689
914
304
16,868(2) Earnings
Gross profit was ¥69,579 million (up 20.6% year-onyear), operating profit was ¥13,673 million (up 84.4%
year-on-year), and recurring profit was ¥11,575 million (up4.4% year-on-year). Net income drastically increased to¥15,230 million (up 14.2% year-on-year), mainly reflecting
income taxes—deferred of - ¥5,182 million due to theaccumulation of deferred tax assets, despite the postingof an impairment loss of ¥779 million.

(Millions of Yen)FY2012FY2013

ChangeLeasing
Construction
Elderly Care
Hotels & Resort
OthersAdjustments
Total

8,688
2,747
(742)
(1,006)35(2,308)7,414

15,568
2,954(611)(1,119)138(3,257)
13,673

6,880
207
132
(113)
102
(949)
6,259

Change in Operating Income(Billions of Yen)

Elderly
Construction Care
+0.1
+0.2

16

Others+0.1
Hotels &Resort-0.1

12Adjustments
-0.9

8

4

FY2012
7.4

Leasing+6.9

FY2013
13.7

0(3) Segment Information
Leasing Business
The occupancy rate at the end of the consolidated fiscal
year under review was 87.47% (up 2.66 points from theend of last fiscal year) and the average occupancy rate
for the fiscal year under review was 84.58% (up 1.64
points from last fiscal year).
In the Leasing business, the Company strove toachieve stable occupancy rates and encouraged longterm tenancies by promoting corporate sales in allindustries, keeping tenants from leaving its properties
through active proposals of relocation, providing a variety
of apartments in the “Room-Customize” service, andincreasing apartment buildings with security systems
installed. The Company continued to adjust rents paid
based on market rents and to cut costs by reviewing
routine property management tasks.
The number of units under management at the end of
the consolidated fiscal year under review was 548
thousand (increasing 2 thousand from the end of last
fiscal year), and the number of direct offices was 184(increasing 2). The number of franchise offices was 164(decreasing 28).
As a result of the above, net sales amounted to¥388,768 million (up 1.4% year-on-year), and operating
income was ¥15,568 million (up 79.2% year-on-year).

Leopalace21 Corporation / Annual Report 2014

63

64

Construction Business
Orders received during the consolidated fiscal year underreview were ¥81,139 million (up 11.1% from last fiscal
year) and the orders received outstanding at the end of
the consolidated fiscal year under review stood at¥44,470 million (down 6.3% from last fiscal year).
In the Construction business, the Company continued
to focus on receiving orders for apartments in areas
where solid demand was anticipated, especially in thethree metropolitan areas, prioritizing increasing
profitability in the Leasing business. Meanwhile, theCompany promoted installation of solar power systems
and construction of buildings other than apartmentbuildings, including elderly care facilities and stores. The
Company also strove to enhance product capabilities, forexample by installing a non-sound system to significantly
enhance noise insulation. As a result, net sales came to¥63,136 million (up 18.3% year-on-year), and operating
income was ¥2,954 million (up 7.5%).

Total liabilities decreased ¥20,900 million from the end of
the previous fiscal year, to ¥182,599 million. This primarilyreflected an increase of ¥2,749 million in accounts
payable—other and ¥1,435 million of customer advances
for projects in progress. In addition, a decrease of ¥11,800
million in interest-bearing debt, ¥8,715 million in long andshort-term advances received and ¥4,598 million in reserve
for apartment vacancy loss lead to this lead to this result.
Net assets were up ¥46,709 million from the end of
the previous fiscal year, to ¥104,860 million, chiefly due
to an increase of ¥24,830 million in common stock andcapital surplus via issuance of new shares, a decrease of¥6,945 million in negative foreign currency translation
adjustments balance and an increase of ¥15,230 million
in retained earnings due to the posting of net income.
The ratio of shareholders’ equity to assets rose 14.3
points from the end of the previous fiscal year, to 36.5%.

Equity Ratio(%)

Elderly Care BusinessNet sales were ¥10,172 million (up 7.3% year-on-year),and operating loss was ¥611 million (improving ¥132
million).
Hotels & Resort BusinessNet sales in resort facilities in Guam and hotels in Japan
were ¥7,572 million (up 13.7% year-on-year), and theoperating loss was ¥1,119 million (increasing ¥113 million
in loss).
Other Businesses
In Other businesses such as the small-claims and shortterm insurance business, the finance business, and thesolar power generation business, net sales were ¥1,442
million (up 26.7% year-on-year), and the operating
income was ¥138 million (up 290.4% year-on-year).

3. Analysis of Financial Position(1) Position of Assets, Liabilities, and Net assets
Total assets at the end of the fiscal year under review
increased ¥25,809 million from the end of the previous
fiscal year, to ¥287,459 million. This was mainly
attributable to a decrease of ¥6,093 million in prepaid
expenses and ¥4,408 million in long-term prepaid
expenses and increase of ¥18,085 million in cash andcash equivalents, ¥13,505 million in tangible fixed assetsand ¥5,440 million in deferred tax assets.

Leopalace21 Corporation / Annual Report 2014

40

37.0
33.0 32.4

30
20
10

16.6

19.3

33.4

36.5
31.3
22.2
17.9
11.1 12.8

0(Fiscal year) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

(2) Cash Flow Position
Cash flow from operating activities was a net inflow of¥15,584 million (an increase of ¥9,515 million in net inflow
from the previous fiscal year). This was mainly due to adecrease of ¥8,718 million in advances received and ¥4,598
million in reserve for apartment vacancy loss, as well as adecrease of ¥10,067 million in long-term prepaid expenses,¥5,994 million of depreciation and ¥10,782 million ofincome before income taxes and minority interests.
Cash flow from investing activities was a net outflow of¥6,930 million (an increase of ¥6,924 million in net outflow
from the previous fiscal year). This was primarily due topayments of ¥6,445 million for the purchase of property,
plant and equipment as well as intangible assets.
Cash flow from financing activities was a net inflow of¥8,848 million (a decline of ¥300 million in net inflow
from the previous fiscal year). This was chiefly due tothe repayment of interest-bearing debt of ¥16,588

Who we are

What our strategy is

What our businesses are

million and proceeds from issuance of common stock of¥24,708 million.
As a result, cash and cash equivalents at the end of
the consolidated fiscal year under review stood at¥74,150 million, an increase of ¥17,768 million from theend of the previous fiscal year.

How CSR supports
our management

Financial Section &Corporate Data

The Leopalace21 Group acknowledges that the
distribution of profit to shareholders is an importantmanagement issue. However, retained earnings arenegative so it is with deep regret that the Group willpass on the term-end dividend. The Group also plans topass on its dividends for the next fiscal year but will
endeavor to recover retained earnings through a stableprofit structure with the aim of restoring the dividend.

(personnel, advertising, and sales promotion expenses)
necessary to expand future sales and earnings.
In the next fiscal year, the Company will strengthen ourcompetitiveness by taking in our core business as thebase, expanding elderly care business by cooperating with
Construction business and full-scale initiation of solar
power generation business and overseas business.
As for the consolidated business results of the fiscal year
ending March 2015, we expect sales of ¥493,500 million(up 4.8% year-on-year), operating income of ¥14,500 million(up 6.0%), recurring income of ¥13,000 million (up 12.3%),
and net income of ¥12,000 million (down 21.2%).
The Company has set its financial targets for the fiscal
year ending March 31, 2017, the final year of its new
Medium-term Management Plan, at ¥540.0 billion fornet sales, ¥22.0 billion for operating income, ¥19.0 billion
for net income, 12.3% for ROE, and 6.0% for ROA.

5. Outlook

6. Issues to be Addressed by the Company

The Company aims to build solid management strength
based on its fundamental policy of “focusing on corebusinesses and challenging itself with new businessfields” as established in its New Medium-Term
Management Plan.
The Company aims to develop the leasing businessfurther as a highly profitable business by taking various
steps such as improving strong corporate sales,
addressing tenant needs through “Room Customize”
and the installation of security systems, strengthening
efforts for foreign students who demonstrate solid
demand, expanding its sales network through new store
openings, and reducing costs by reviewing routine
property management tasks.
In the Construction business, the Company will seek a
new profit foundation through measures such as
supplying apartments in urban areas where a highoccupancy rate is expected, offering advanced new
products, building high-quality apartments by paying
attention to earthquake protection and sound insulation,etc., and expanding the number of orders received forbusiness buildings such as elderly care and commercial
facilities and built-to-order houses. In the new MediumTerm Management Plan, the Company positions theelderly care business as a growth strategy area and will
endeavor to promote the opening of care facilities throughcollaboration with the construction business. As acompany-wide measure, the Company will also maintain a
low cost structure while strategically investing in the costs(1) Acquisition of individual clients and thepromotion of long-term occupancy
With respect to the tenants in the Company’s properties
under management, corporate clients constitute a rising
trend while individual clients constitute a declining trend.
The Company’s policy is to continue to enhance strong
corporate sales, however, taking into consideration the factthat corporate clients are easily impacted by economic
cycles, from the perspective of assuring stable sales andearnings, the Company will also strengthen its efforts totake in individual clients and promote long-term occupancy
through measures such as implementing advertising andsales campaigns for individual clients, expanding its sales
network through new store openings, and providing avariety of services for tenants.

4. Fundamental Policy on the Distribution of
Earnings and Dividends(2) Improving earnings power and developing new
businesses
For the Group to grow sustainably, improving its earnings
power in the Leasing Business and developing new
business domains will be necessary. Although theCompany has already made efforts to increase its earnings
power by enhancing tenant services and implementing
measures to increase the value of properties, in addition toestablishing a rental housing management company inSouth Korea and operating a “leased roof solar power
generation business” through a special purpose company,
the Company will continue to work on developing new
products and services, as well as its revenue base.

Leopalace21 Corporation / Annual Report 2014

65

66
FINANCIAL SECTIONCONSOLIDATED BALANCE SHEETS
Leopalace21 Corporation and consolidated subsidiaries
March 31, 2014 and 2013

Thousands of
U.S. dollars (Note 1)

Millions of yen

2014

2013

2014

ASSETS
Current assets:
Cash and cash equivalents (Notes 2-(2), 4, 5-(2))
Trade receivables (Note 5-(2))
Accounts receivable for completed projects (Note 5-(2))
Operating loans (Note 5-(2))
Securities (Notes 2-(4), 5-(2), 6)
Payment for construction in progress (Note 2-(14))
Raw materials and supplies
Prepaid expenses
Deferred tax assets (Notes 2-(16), 10)
Other accounts receivable
Other
Allowance for doubtful accounts (Notes 2-(9), 5-(2))
Total current assets

74,767
5,490
1,651
1,430
350
501
464
6,680
4,148
1,585
5,480
(222)
102,324

56,682
4,360
2,232
1,880
505
340
457
12,772
4,274
1,017
6,723
(346)
90,896

726,459
53,344
16,044
13,892
3,404
4,868
4,513
64,90140,30015,39753,244(2,154)994,212

Property, plant and equipment: (Notes 2-(5), 2-(20))
Buildings and structures (Notes 8, 11-(2), 17)
Accumulated depreciation
Net
Machinery, equipment, and vehicles
Accumulated depreciation
Net
Land (Notes 11-(2), 8, 17)
Leased assets (Note 2-(17))
Accumulated depreciation
Net
Construction in progress
Other (Note 20-(1)-(a))
Accumulated depreciationNet
Total property, plant and equipment

121,075(64,001)
57,074
7,327(3,376)
3,951
81,801
11,471(6,303)
5,168
3,713
10,843(10,047)796
152,503111,350(56,609)54,741
3,274(2,652)622
80,781
6,833(5,034)
1,799
176
10,074(9,195)879
138,998

1,176,400(621,854)
554,546
71,190(32,803)38,387794,798
111,451(61,239)
50,212
36,073
105,366(97,617)
7,749
1,481,765

Investments and other assets:
Intangible assets (Note 2-(7))
Investment securities (Notes 2-(4), 5-(2), 6, 11-(2))
Long-term loans (Note 5-(2))
Bad debt (Notes 5-(2), 9)
Long-term prepaid expenses (Note 2-(8))
Deferred tax assets (Notes 2-(16), 10)
Bond issuance cost
Other (Note 11-(2))
Allowance for doubtful accounts (Notes 2-(9), 5-(2))
Total investments and other assets
Total assets (Note 22)

6,601
7,258
563
1,420
3,720
12,15234
3,038(2,154)
32,632
287,459

6,613
7,177
571
1,900
8,128
6,586
48
3,339
(2,606)31,756261,650

64,141
70,5195,468
13,79936,143
118,074
334
29,510(20,928)
317,060
2,793,037

The accompanying notes are an integral part of these statements.
Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Thousands of
U.S. dollars (Note 1)

Millions of yen

LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable (Note 5-(2))
Accounts payable for completed projects (Note 5-(2))
Short-term borrowings (Notes 5-(2), 5-(3), 11, 12)Current portion of long-term debt (Notes 5-(2), 5-(3), 11)Bonds due within one year (Notes 5-(2), 5-(3))
Lease obligations (Notes 5-(2), 5-(3), 11-(1))
Accounts payable—otherAccrued expenses
Accrued income taxes
Advances received (Note 2-(15))
Customer advances for projects in progress
Reserve for warranty obligations on completed projects (Note 2-(12))
Reserve for fulfillment of guarantees (Note 2-(13))
Asset retirement obligations (Note 18)
Other
Total current liabilities
Non-current liabilities:
Bonds (Notes 5-(2), 5-(3))
Long-term debt (Notes 5-(2), 5-(3), 11)Lease obligations (Notes 5-(2), 5-(3), 11-(1))
Long-term advances received (Note 2-(15))
Lease/guarantee deposits received
Deferred tax liabilities
Retirement benefit reserves (Notes 2-(10), 13)
Reserve for apartment vacancy loss (Note 2-(11))
Liability for retirement benefit
Asset retirement obligations (Note 18)
Other
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity:
Common stock: (Note 19)
Authorized: 500,000,000 shares in 2014 and 250,000,000 shares in 2013
Issued: 267,443,915 shares in 2014 and 217,443,915 shares in 2013
Capital surplus
Retained earnings
Treasury stock: 4,569,210 shares in 2014 and 5,900,320 shares in 2013 (Note 19)
Total shareholders’ equity
Accumulated other comprehensive income:Net unrealized gains on “other securities” (Note 2-(4))
Foreign currency translation adjustments (Note 2-(19))
Remeasurements of defined benefit plans (Notes 3, 13)
Total accumulated other comprehensive income
Share subscription rights
Minority interests
Total net assets
Total liabilities and net assets

Financial Section &Corporate Data

2014

2013

2014

2,686
12,129
—
2,940
560
1,576
16,001
2
999
45,051
5,242
232
583
43
4,517
92,561

2,670
14,307
11,875
2,940
560
1,098
13,25213394
49,037
3,807
72
457
37
4,626
105,145

26,097
117,846—
28,566
5,441
15,308155,47220
9,706
437,732
50,934
2,253
5,662
414
43,896899,347920
27,077
4,154
27,629
8,492
136
—
9,353
10,05044
2,183
90,038
182,599

1,480
30,0201,054
32,358
8,984
—
8,634
13,951—49
1,824
98,354203,499

8,939
263,090
40,365
268,447
82,513
1,320—
90,87697,653424
21,207874,834
1,774,181

75,28251,501(15,789)(3,660)107,334

62,86739,425(31,019)(4,727)66,546

731,465
500,403(153,409)(35,566)
1,042,893

427(2,116)(816)(2,505)18
13
104,860
287,459648(9,061)—(8,413)18—
58,151
261,650

4,153(20,567)(7,925)(24,339)
175
127
1,018,856
2,793,037

Leopalace21 Corporation / Annual Report 2014

67

68
FINANCIAL SECTIONCONSOLIDATED STATEMENTS OF OPERATIONS
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2014 and 2013

Thousands of
U.S. dollars (Note 1)

Millions of yen

Net sales (Note 22)
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit (Note 22)
Other income (expenses):
Interest and dividend income
Equity in gains of affiliated companies
Equity in losses of affiliated companies
Foreign exchange gains (losses), net (Note 2-(18))
Interest expenses
Commission fee
Gain on sale of property, plant and equipment (Note 14)
Gain on sale of investment securities (Note 6)
Gain from cancellation of contracted work
Gain on liquidation of subsidiaries
Reversal of allowance for disaster losses
Reversal of allowance for switch to terrestrial digital broadcasts
Loss on sale of property, plant and equipment (Note 15)
Loss on disposal of property, plant and equipment (Note 16)
Impairment loss (Notes 2-(6), 8)
Consumption tax refund
Other—net
Income before income taxes
Income taxes (Note 2-(16))
Current
RefundDeferredIncome before minority interests
Minority interests
Net income (Note 23)
The accompanying notes are an integral part of these statements.

Leopalace21 Corporation / Annual Report 2014

2014

2013

2014

471,090
401,51169,57955,906
13,673454,222396,50957,71350,2997,414

4,577,241
3,901,189
676,052
543,199
132,853110
3—
10(1,575)
(551)
0
—
18
—
—
—
(1)
(14)
(779)
—
(112)
10,782

94
—
0
5,592
(1,423)
(549)
—
6
38
70
3
65
—
(85)
(2,173)
109
(190)
8,971

1,073
26
—
97
(15,300)(5,352)
3
—
178
—
—
—
(12)
(132)
(7,568)—(1,109)104,757768(31)(5,182)(4,445)
15,227(3)
15,230313(7)(4,670)(4,364)
13,335—
13,335

7,464(306)(50,346)(43,188)
147,945(32)
147,977

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

FINANCIAL SECTIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2014 and 2013

Thousands of
U.S. dollars (Note 1)

Millions of yen

Income before minority interests
Other comprehensive income
Net unrealized gains on “other securities”
Foreign currency translation adjustments (Note 2-(19))
Share of other comprehensive income in affiliates
Total
Comprehensive income
Comprehensive income attributable to shareholders of the parent entity
Comprehensive income attributable to minority interests

2014

2013

2014

15,227

13,335

147,945

(221)
6,943
1
6,723
21,95021,954(4)399(2,093)0(1,694)
11,641
11,641—(2,144)
67,464
11
65,331
213,276
213,310(34)

The accompanying notes are an integral part of these statements.

Leopalace21 Corporation / Annual Report 2014

69

70
FINANCIAL SECTIONCONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2014 and 2013

Millions of yen
Shareholders’ equity

Balance as of April 1, 2012

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

56,56333,884(44,964)
13,335(4,959)

6,304

6,304
(153)

Net income
Issuance of new shares
Sales of treasury stock
Decrease from decreasein affiliated companies
Increase from decreasein affiliated companies
Net change of items otherthan shareholders’ equity
Total change during period
Balance as of March 31, 2013
Net income
Issuance of new shares
Acquisition of treasury stock
Sales of treasury stock
Net change of items otherthan shareholders’ equity
Total change during period
Balance as of March 31, 2014

Accumulated other comprehensive income

232

(610)
610

6,304
62,867

5,541
39,425

12,415

12,415

13,945(31,019)
15,230(339)

12,41575,282

12,07651,501

15,230(15,789)

Total
shareholders’equityNet unrealized
gains on “othersecurities”

Foreigncurrencytranslation
adjustments

40,524
13,335
12,60879

249(6,969)—(6,720)27

Minority
interests

Total net
assets—33,831
13,335
12,608
79

(610)

(610)

610

610

(0)
1,067

26,022
66,546
15,23024,830
(0)
728

1,067
(3,660)40,788107,334232(4,727)

Share
Total accumulated
Remeasurements
subscription
otherof definedrightscomprehensive
benefit plansincome

399
399
648

(2,092)(2,092)(9,061)———(1,693)(1,693)(8,413)

(9)
(9)
18

—
—
—

(1,702)
24,32058,151
15,23024,830
(0)
728

(221)
(221)
427

6,945
6,945
(2,116)

(816)
(816)
(816)

5,908
5,908
(2,505)

—
—
18

13
13
13

5,921
46,709104,860

Minority
interests

Total net
assetsThousands of U.S. dollars (Note 1)
Shareholders’ equity
Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Balance as of March 31, 2013 610,837
Net income
Issuance of new shares
120,628
Acquisition of treasury stock

383,061(301,386)
147,977(45,927)

120,628(0)
Sales of treasury stock
10,361(3,286)
Net change of items otherthan shareholders’ equity
Total change during period
10,361
147,977
120,628
117,342
Balance as of March 31, 2014 731,465
500,403 (153,409) (35,566)
The accompanying notes are an integral part of these statements.

Leopalace21 Corporation / Annual Report 2014

Accumulated other comprehensive income
Share
Total accumulated
Remeasurements
subscription
otherof definedrightscomprehensive
benefit plansincomeTotal
shareholders’equityNet unrealized
gains on “othersecurities”

Foreigncurrencytranslation
adjustments

646,585
147,977
241,256
(0)
7,075

6,297

(88,044)—(81,747)

175—

565,013
147,977
241,256(0)
7,075(2,144)(2,144)
4,153

67,47767,477(20,567)(7,925)(7,925)(7,925)57,40857,408(24,339)

—
—
175

127
127
127

57,535453,843
1,018,856

396,308
1,042,893

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

FINANCIAL SECTIONCONSOLIDATED STATEMENTS OF CASH FLOWS
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2014 and 2013

Thousands of
U.S. dollars (Note 1)

Millions of yen

Cash flows from operating activities:
Income before income taxes
Depreciation
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in reserve for apartment vacancy loss
Increase (decrease) in allowance for disaster losses
Increase (decrease) in allowance for switch to terrestrial digital broadcasts
Interest and dividend income
Interest expense
Foreign exchange loss (gain)
Equity in losses (earnings) of affiliated companies
Loss (gain) on sale of property, plant and equipment
Loss on disposal of property, plant and equipment
Impairment loss
Reversal of allowance for disaster losses
Reversal of allowance for switch to terrestrial digital broadcasts
Loss (gain) on sale of investment securities
Decrease (increase) in accounts receivable
Decrease (increase) in real estate for sale
Decrease (increase) in payment for construction in progress
Decrease (increase) in long-term prepaid expenses
Increase (decrease) in accounts payable
Increase (decrease) in customer advances for projects in progress
Increase (decrease) in advances received
Increase (decrease) in guarantee deposits received
Increase (decrease) in accrued consumption taxes
Other
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash used in operating activities

2014

2013

2014

10,782
5,994(269)(4,598)
—
—
(110)
1,575
(10)
(3)
1
14
779
—
—
—
(193)
—
(161)
10,067(2,513)
1,346(8,718)
(533)
(519)
4,626
17,55798(1,585)(486)
15,584

8,971
5,684
(97)
(5,256)
(20)
(58)
(94)
1,423
(5,592)
0

104,757
58,235(2,615)(44,674)——(1,073)
15,300
(97)
(26)
9
132
7,568
—
—
—
(1,878)—(1,565)
97,818(24,418)
13,083(84,708)(5,183)(5,045)44,969170,589954(15,399)(4,724)
151,420

85
2,173
(3)
(65)
(6)
(102)
14
280
16,300(503)
850(19,587)(1,033)
75
4,302
7,741
80
(1,297)
(455)
6,069

The accompanying notes are an integral part of these statements.

Leopalace21 Corporation / Annual Report 2014

71

72

Thousands of
U.S. dollars (Note 1)

Millions of yen

2014

Cash flows from investing activities:
Payment for purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Payment for purchase of intangible assets
Payment for purchase of investment securities
Proceeds from sale of investment securities
Payment for loans
Proceeds from collection of loans
Payments for purchase of time deposits
Proceeds from withdrawal of time deposits
Other
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from short-term borrowings
Repayment of short-term borrowings
Proceeds from long-term debt
Repayment of long-term debt
Repayment of finance lease obligations
Payment for redemption of bonds
Proceeds from issuance of common stock
Proceeds from sales of treasury stock
Payment for purchases of treasury stock
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 (Note 4)
The accompanying notes are an integral part of these statements.

Leopalace21 Corporation / Annual Report 2014

2013

2014

(5,481)
3
(964)
(216)
20
(15)
36
(700)
400
(13)
(6,930)

(707)
—
(184)
—
85
(21)
39
(300)
600
482
(6)

(53,252)
32(9,365)(2,101)
195
(148)
353
(6,801)
3,887(131)(67,331)—(11,875)—(2,943)(1,210)(560)
24,708
728
(0)
8,848
266
17,76856,382
74,1502,609(29,638)
32,268(6,801)(1,359)(560)
12,552
78
—
9,149
292
15,50440,87856,382—(115,382)—(28,593)(11,760)(5,441)240,0727,076(0)85,972
2,581
172,642
547,822
720,464Who we are

What our strategy is

What our businesses are

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our management

Financial Section &Corporate Data

FINANCIAL SECTIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2014 and 2013

1. Basis of Presenting Consolidated Financial
Statements
The accompanying consolidated financial statements of
Leopalace21 Corporation (the “Company”) have been
prepared in accordance with the provisions set forth in
the Financial Instruments and Exchange Act of Japanand its related accounting regulations and in conformity
with accounting principles generally accepted in Japan,
which are different in certain respects as to applicationand disclosure requirements from International Financial
Reporting Standards.
The accompanying consolidated financial statements
have been reformatted and translated into English (withcertain expanded disclosure) from the consolidated
financial statements of the Company prepared inaccordance with accounting principles generally
accepted in Japan and filed with the Financial Services
Agency as required by the Financial Instruments andExchange Act of Japan. Some supplementary
information included in the statutory consolidated
financial statements, but not required for fairpresentation, is not presented in the accompanying
consolidated financial statements.
The translation of the Japanese yen amounts into U.S.
dollars is included solely for the convenience of readers
outside Japan, using the prevailing exchange rate at March
31, 2014, which was ¥102.92 to US$1.00. Such translation
should not be construed as a representation that theJapanese yen amounts have been, could have been, or
could in the future be, converted into U.S. dollars at thisor any other rate of exchange. Certain amounts in theprior year’s financial statements have been reclassified
to conform to the current fiscal year’s presentation.

2. Summary of Significant Accounting Policies(1) Consolidation
The accompanying consolidated financial statements asof March 31, 2014 include the accounts of the Company
and its 13 (10 as of March 31, 2013) significant
subsidiaries (together, the “Companies”). Affiliatedcompanies over which the Company exercises significant
influence in terms of their operating and financial policies
have been included in the consolidated financial
statements on an equity basis. Investments in 2 affiliates(2 as of March 31, 2013) have been included for the year
ended March 31, 2014. All significant intercompany

balances and transactions have been eliminated.
Investments in subsidiaries and affiliates that are notconsolidated or accounted for by the equity method are
carried at cost or less. Where there has been apermanent decline in the value of such investments, theCompany has written down the investments.
Since the fiscal year end for certain consolidated
subsidiaries is December 31, their financial statements
as of that date are used in the preparation of theCompany’s consolidated financial statement. Whensignificant transactions occur at those subsidiaries
between their fiscal year end and the Company’s fiscal
year end, these transactions are included in consolidation
as necessary.
(2) Cash and cash equivalents
For the purpose of the statements of cash flows, theCompany considers all highly liquid investments withinsignificant risk of change in value that have maturities
of generally three months or less when purchased to be
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.
(3) Inventories
Inventories of the Companies are primarily stated at cost(reflecting write down due to decline in profitability)
determined by the specific identification method.
(4) Securities
Held-to-maturity debt securities are stated at amortizedcost (straight-line method).
Other securities with available fair market values arestated at fair market value at the end of the fiscal year ofeach consolidated companies. Other securities without
available fair market values are stated at cost by themoving-average method.
Unrealized gains or losses on these securities arereported, net of applicable income taxes, as a separate
component of net assets. Cost of securities sold iscomputed using the moving-average method.
Investments in limited investment partnerships arereported using the equity method, based on the latest
financial statements available as at the closing dates
stipulated by the respective partnership contracts.

Leopalace21 Corporation / Annual Report 2014

73

74

(5) Property, plant and equipment(except for leased assets)
Buildings for rent of the Company and domestic
consolidated subsidiaries are stated at cost. Depreciationis computed generally on the straight-line basis. The
range of useful lives is principally from 22 to 47 years forbuildings for rent.
Property, plant and equipment other than buildings forrent of the Company and domestic consolidated
subsidiaries are stated at cost. Depreciation is computed
generally by the declining-balance method. However,buildings (excluding accompanying facilities) obtained on
or after April 1, 1998 are depreciated by the straight-line
method. The range of useful lives is principally from 40 to
50 years for buildings and structures, 17 years formachinery, equipment and vehicles, and 5 years fortools, furniture and fixtures.
Property, plant and equipment of the consolidated
overseas subsidiaries are depreciated by the straight-line
method based on the local GAAP. The range of useful lives
is principally from 30 to 40 years for buildings and structuresand from 3 to 5 years for machinery and equipment.
(6) Long-lived assets
The Companies review long-lived assets for impairment
whenever events or changes in circumstance indicate thecarrying amount of an asset or asset group may not berecoverable. An impairment loss would be recognized if
the carrying amount of an asset or asset group exceeded
the sum of the undiscounted future cash flows expected
to be generated by the continued use and eventual
disposition of the asset or asset group. The impairment
loss would be measured as the amount by which thecarrying amount of the assets exceeds their recoverable
amount, which is the higher of the discounted cash flows
from the continued use and eventual disposition of theassets, or the net selling price at disposition.
(7) Intangible assets
Software for internal use is amortized on a straight-line
basis over the 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.

Leopalace21 Corporation / Annual Report 2014

(9) Allowance for doubtful accounts
The Companies maintain an allowance for doubtful
accounts to reserve for potentially uncollectible
receivables. A general provision for doubtful receivables
is provided by applying a certain reserve percentage ofthe receivables based on experience from pasttransactions. A specific reserve is provided for theestimated amounts to be uncollectible based on thecustomers’ financial condition or other pertinent factors.
(10) Liability for retirement benefit
In conjunction with the calculation of retirement benefit
obligations, the method for attributing projected
retirement benefits for the period up to the end of thecurrent fiscal is based on straight-line basis.
Past service cost is amortized by the straight-line
method over a specified period (5 years) within the
average remaining service years of employees at thetime of accrual. Actuarial gains/losses, which areprorated according to the straight-line method over a
specified period (5 years) within the average remaining
service years of employees at the time of accrual, areamortized starting from the next fiscal year of therespective accruals.
Unrecognized actuarial gains/losses and unrecognized
past service cost are posted, factoring in tax effects, as
the cumulative amount of adjustments related tocumulated other comprehensive income in the net assets.
(11) Reserve for apartment vacancy loss
Reserve for vacancy losses on apartment units managed
under master lease agreements is calculated according
to the projected loss that could occur during a logically
predictable period to prepare for the risk of increased
vacancies. It is based on estimated losses resulting fromcurrent rental income and expected future occupancy
rates for each rental property managed by the leasing
division of the Company.
(12) Reserve for warranty obligations on completed
projects
Reserve for warranty obligations on completed projects
is provided to reserve for execution of warranty
obligations under defect liabilities in the future. It is
calculated using the percentage of the past execution of
warranty obligations on the completed projects.

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Financial Section &Corporate Data

(13) Reserve for fulfillment of guarantees
In order to provide for losses attributable to its leaseguarantee business, the Company’s consolidated
subsidiary, Plaza Guarantee Co., Ltd., records theamount of loss expected based on the rate of pastguarantee fulfillments.

(18) Foreign currency transactions
All monetary receivables and payables denominated inforeign currencies are translated into Japanese yen at thecurrent exchange rates as of each balance sheet date. The
foreign exchange gains and losses from translation arerecognized in the consolidated statements of operations.

(14) Revenues and costs of construction contracts
In recognizing construction revenues and costs ofconstructions in process, the percentage-of-completion
method is applied to such contracts in which the outcomeof the construction activity is deemed certain by the end of
the fiscal year ended March 31, 2014, while the completed
contract method is applied to other constructions.
Progress of construction is estimated based on themethod of the ratio of actual cost incurred to total cost.

(19) Foreign currency financial statements
The assets and liabilities of consolidated overseas
subsidiaries are translated into Japanese yen at thecurrent exchange rates as of each balance sheet date,and income and expenses are translated at the averageexchange rates of the fiscal year. Foreign currencytranslation adjustments resulting from the translation ofassets, liabilities and net assets are included in translation
adjustments as a separate component of net assets.

(15) Advances received
With respect to advances received, such as rent, theCompany reports the portion corresponding to more than ayear in “long-term 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 more clearly present the characteristics andactual transactions of the Company’s leasing business
which receives rents, etc. over a long period of time,such as monthly usage fees, as advances received.

(20) Interest capitalization
Leopalace Guam Corporation, a consolidated subsidiary,
capitalized interest paid on borrowing for real estatedevelopment business for the development period intoacquisition cost of property, plant and equipment.
Capitalized interests included in carrying value of
property, plant and equipment were ¥2,035 million($19,771 thousand) and ¥1,720 million as of March 31,
2014 and 2013, respectively.

(16) Income taxes
Income taxes comprise corporate, inhabitant andenterprise taxes.
The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between
the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income
tax purposes.
(17) Leases
Finance leases that are deemed to transfer ownership ofleased property to the lessee (excluding leases thatexisted on or before March 31, 2008) are accounted for ina manner similar to sales transactions and depreciated by
the straight-line method over the lease-term of respective
assets as their useful lives with no residual value.
Any finance lease transactions executed before March
31, 2008, where ownership of the leased assets is nottransferred to the lessee, are accounted for as operatinglease transactions.

(21) Consumption taxes
National and local consumption taxes are basically
excluded from transaction amounts. However, ASUKA
SSI, a consolidated subsidiary, includes national and local
consumption taxes in operating expenses and generaland administrative expenses. The nondeductible portionof consumption taxes on the purchase of assets isrecorded as long-term prepaid expenses and amortizedevenly over 5 years.
(22) Earnings per share
Basic earnings per share of common stock is computedby net income available to common shareholders divided
by the weighted-average number of common shares
outstanding for the period.
Diluted earnings per share of common stock reflects
the potential dilution that could occur if securities orother contracts to issue common stock were converted
or exercised into common stock or resulted in theissuance of common stock.

Leopalace21 Corporation / Annual Report 2014

75

76

3. Additional Information(Changes in Accounting Policies)(Application of accounting policies related toretirement benefits)
The Company has applied the “Accounting Standard for
Retirement Benefits” (ASBJ Statement No. 26, May 17,2012) and “Guidance on Accounting Standard for
Retirement Benefits” (ASBJ Guidance No. 25, May 17,2012) since the end of the subject fiscal year (excluding
section 35 of the “Accounting Standard for Retirement
Benefits” and section 67 of the “Guidance on
Accounting Standard for Retirement Benefits”). The
accounting method has been changed to recording theamount remaining after deducting pension assets fromretirement benefit obligations as liability for retirement
benefit, and unrecognized actuarial differences andunrecognized past service costs are recorded as liability
for retirement benefit.
Application of accounting policies related to retirement
benefits is in accordance to the transitional
measures stated in section 37 of the “AccountingStandard for Retirement Benefits.” As of the end of thesubject fiscal year, the effected amount due to thechange is recorded as remeasurements of defined
benefit plans under other comprehensive income.
As a result, ¥10,050 million ($97,653 thousand) has
been recorded as liability for retirement benefit, andcumulative amount of other comprehensive income has
decreased ¥816 million ($7,925 thousand). Also, net
assets per share has decreased ¥3.10 ($0.03).
(New Accounting Standard and Guidance Not Yet
Applied)• “Accounting Standard for Retirement Benefits” (ASBJ
Statement No.26, May 17, 2012)• “Guidance on Accounting Standard for Retirement
Benefits”(ASBJ Guidance No.25, May 17, 2012)(1) Overview
Revisions have been made to the amortization of
unrecognized actuarial gains/losses and unrecognizedprior service cost, the calculating process of retirement
benefit obligations and service cost, as well as the
expansion of disclosure.

Leopalace21 Corporation / Annual Report 2014

(2) Effective Dates
Revision to the calculating process of retirement benefit
obligations and service cost applies from the beginningof the fiscal year ending March 31, 2015. Since therevised accounting standards stipulate provisions
regarding transitional processes, the revision is not
retroactively applicable to consolidated financial
statements for past periods.
(3) Effects Arising from Applying New Standard
and GuidanceConcerning the revision to the calculating process ofretirement benefit obligations and service cost, theamount of impact to the consolidated financial
statements is currently under review.
(Changes in presentation)(Consolidated Balance Sheet)“Machinery, equipment and vehicles (net amount),”
which was included in “Other (net amount)” in“Property, plant and equipment” in the previous fiscal
year, is posted as a separate item in the fiscal year underreview as its amount exceeds 1/100th of total assets.
Consolidated financial statements for the previous fiscal
year have been restated in order to reflect this change indescription.
As a result, ¥1,503 million posted as “Other (netamount)” in “Property, plant and equipment” in the
consolidated financial statement of the previous fiscal
year has been restated as ¥622 million for “Machinery,equipment and vehicles (net amount),” and ¥881 million
for “Other (net amount).”

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Financial Section &Corporate Data

4. Cash and Cash Equivalents
A reconciliation between cash and cash equivalents in the consolidated balance sheets and consolidated statements ofcash flows are as follows:
Thousands of
U.S. dollars

Millions of yen

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

5. Financial Instruments(1) The financial instruments and related disclosures(a) Policy for financial instruments
The Companies are mainly involved in raisingfunds (mostly bank borrowing and corporate bondissuance) needed for capital investment to carry
out Leasing Business and Construction Business.
Temporary excess funds are invested in highly
secure financial assets, and short-term working
capital is raised by borrowing from the bank. The
Companies conduct derivative transactions
primarily for the purpose of avoiding interest rateand exchange rate risks, and has a policy not to
conduct speculative trading.
(b) Nature and extent of risks arising fromfinancial instruments
Operating receivables such as trade receivables
and accounts receivable for completed projects are
exposed to credit risk.
Foreign currency denominated debts and credits
originated in conjunction with overseas businessdevelopment are exposed to exchange risk.
Securities are mainly held-to-maturity securities
and shares of the companies with which theCompany has a business relationship, and thosesecurities are exposed to market risk.
Almost all accounts payable and accounts
payable for completed projects which areoperating liabilities are scheduled to be paid within
one year.
Loans payable, corporate bonds, and leaseobligations related to finance lease transactions aremainly for the purpose of raising funds necessary forinvestment in facilities, and the longest repayment
date is five years subsequent to fiscal year end.
There are no derivatives transaction balances
remaining as of the end of this fiscal year.

2014

2013

2014

74,767(617)
74,15056,682(300)
56,382

726,459(5,995)
720,464(c) Risk management for financial instruments
Credit risk management for operating receivables
and loans outstanding follows the “Receivables
management rules.” While each business division
manages the extension of credit to its customers,
it 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 andunderstands the share price and the financial
condition of the share issuing organization. In
addition, for items other than held-to-maturity
securities, the Company considers the relationshipwith the trading partner companies and constantly
re-evaluates its holdings.
The basic policy of derivatives trading isdetermined by the board of directors, and theexecution and administration of derivatives
transactions are conducted in accordance with theCompany’s “Derivatives Trading Management
Rules.” The derivatives trading management
situation is periodically reported to the board of
directors for comprehensive risk management.
Trade payables and debts are exposed toliquidity risk, but this risk is monitored by various
means such as the preparation of a monthly
financial plan by each company in the Companies.
(d) Supplementary explanations on fair value offinancial instruments
Fair value of financial instruments are measured basedon the quoted market price, or reasonably assessedvalue if a quoted market price is not available.
Fair value of financial instruments which quoted
market price is not available is calculated based on afluctuating factor, and the value might differ if different
assumptions are used.

Leopalace21 Corporation / Annual Report 2014

77

78

(2) Fair value of financial instruments
The carrying amount on the consolidated balance sheet and fair value of financial instruments as of March 31, 2014 and2013 as well as the differences between these values are described below. Financial instruments whose fair values
appear to be extremely difficult to determine are not included in the table. (See Note (b))
Millions of yen

March 31, 2014
(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 (*1)Net(5) Long-term loans
Allowance for doubtful accounts (*1)Net(6) Bad debt
Allowance for doubtful accounts (*1)
Net
Total assets(1) Accounts payable and accounts payable for completed projects(2) Bonds (*2)(3) Long-term debt (*2)(4) Lease obligations
Total liabilities

Carrying value

Fair value

Difference

74,767
7,141
4,462
1,430
(106)
1,324
563
(97)
466
1,420
(1,387)33
88,193
14,8151,480
30,017
5,730
52,042

74,767
7,141
4,473

—
—
11

1,571

247

466

—

33
88,451
14,815
1,487
30,017
5,789
52,108

—
258
—
7
—
59
66

Millions of yen

March 31, 2013
(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 (*1)Net(5) Long-term loans
Allowance for doubtful accounts (*1)Net(6) Bad debt
Allowance for doubtful accounts (*1)
Net
Total assets(1) Accounts payable and accounts payable for completed projects(2) Short-term borrowings(3) Bonds (*2)(4) Long-term debt
(5) Lease obligations
Total liabilities

Leopalace21 Corporation / Annual Report 2014

Carrying value

Fair value

Difference

56,682
6,592
4,730
1,880
(141)
1,739
571
(91)
480
1,900
(1,865)35
70,258
16,977
11,8752,040
32,9602,152
66,00456,682
6,592
4,742

—
—
12

2,080

341

480

—

35
70,611
16,977
11,8752,054
32,9602,250
66,116

—
353
—
—
14
—
98
112

Who we are

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our management

Financial Section &Corporate Data

Thousands of U.S. dollars

March 31, 2014
(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 (*1)Net(5) Long-term loans
Allowance for doubtful accounts (*1)Net(6) Bad debt
Allowance for doubtful accounts (*1)
Net
Total assets(1) Accounts payable and accounts payable for completed projects(2) Bonds (*2)(3) Long-term debt (*2)(4) Lease obligations
Total liabilities

Carrying value

Fair value

Difference

726,459
69,38843,356
13,892(1,032)
12,860
5,468
(942)
4,526
13,799(13,481)318
856,907
143,943
14,380291,655
55,673505,651

726,459
69,38843,460——104

15,264

2,404

4,526

—

318
859,415
143,943
14,449291,655
56,245506,292

—
2,508
—
69
—
572
641

(*1) Operating loans, long-term loans and bad debts have deductions of their respective allowance for doubtful
accounts, which are recorded separately.
(*2) As of March 31, 2014 and 2013, bonds due within one year of ¥560 million ($5,441 thousand for 2014) and current
portion of long-term debt of ¥2,940 million ($28,566 thousand for 2014) are included in bonds and long-term debt,
respectively.
Notes:(a)Matters concerning the calculation method for thefair value of financial instruments and securities
AssetsCash and cash equivalents
Trade receivables and accounts receivable forcompleted projects
These assets are stated at carrying amount as they
are settled in the short-term and their fair values
approximate their carrying amount.
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 “6. Securities.”
Operating loans
The fair value of operating loans is stated at the netpresent value, which is calculated by discounting theprincipal with interest by the discount rate (i.e. theestimated interest rate for new transaction).
Long-term loans
Bad debt
The fiscal year-end outstanding balances arecalculated mainly using expected future cash flowsof the potentially recoverable principal and interest.

Leopalace21 Corporation / Annual Report 2014

79

80

interest rate in consideration of residual value andcredit risk).

Liabilities
Accounts payable and accounts payable forcompleted projects
These liabilities are stated at carrying amount asthey are settled in the short-term and their fairvalues approximate their carrying amount.

Long-term debt, Current portion of long-term
debt
Lease obligations
These liabilities are stated at the net present value,
which is calculated by discounting the principal withinterest by the discount rate (i.e. the estimatedinterest rate for new borrowings or leasetransaction).

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 withinterest by the discount rate (i.e. the current market(b) Financial instruments whose fair value appear to be extremely difficult to determine
Thousands of
U.S. dollars

Millions of yen

Unlisted shares
Unlisted bonds (subordinate corporate bonds)
Subordinate beneficiary rights of loans and accounts receivable in trustContributions to limited investment partnerships
Total

2014

2013

2014

1,146
824
895
281
3,146

1,118
824
899
111
2,952

11,131
8,009
8,698
2,729
30,567As they have no market value, and as it is understood that it is extremely difficult to estimate their future cash flow, theabove financial instruments are not included in “Assets: (3) Securities and investment securities.”(c) The scheduled redemption amount of monetary claims and investment securities with maturity subsequent
to fiscal year end
Millions of yen

March 31, 2014

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

Leopalace21 Corporation / Annual Report 2014

Due within 1 year

Due after 1 year
through 5 years

Due after 5 years
through 10 years

Due after
10 years

74,767

—

—

—

7,141

—

—

—

200
—

500
—

600
—

—
—

150

1,310

544

—

—
—
249
19
—
82,526

—
95
800
39
—
2,744

—
—
336
22
—
1,502

824
895
45
483
1,420
3,667

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Millions of yen

March 31, 2013
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

Due within 1 year

Due after 1 year
through 5 years

Due after 5 years
through 10 years

Due after
10 years

56,682

—

—

—

6,592

—

—

—

500
—

800
—

—
—

—
—

5

1,395

544

—

—
—
303
20
—
64,102

—
111
971
48
—
3,325

—
—
548
22
—
1,114

824
900
58
481
1,900
4,163

Due within 1 year

Due after 1 year
through 5 years

Thousands of U.S. dollars

March 31, 2014
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

Due after 5 years
through 10 years

Due after
10 years

726,459———

69,388

—

—

—

1,943
—

4,858
—

5,830
—

—
—

1,458

12,728

5,285

—

—
—
2,418
180
—
801,846

—
923
7,770
384
—
26,663

—
—
3,271
214
—
14,600

8,009
8,698
433
4,690
13,79935,629

Leopalace21 Corporation / Annual Report 2014

81

82

(3) Scheduled repayment amount of bonds payable, long-term debt, lease obligations, and other interestbearing debt subsequent to fiscal year end was as follows:
Millions of yen

March 31, 2014

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

Bonds
Long-term debt
Lease obligations
Total

560
2,940
1,576
5,076

560
27,077
1,389
29,026

360
—
1,143
1,503

—
—
1,023
1,023

March 31, 2013

Due within
1 yearDue after 1
through 2 years

Due after 2
through 3 years

Due after 3
through 4 years

Short-term borrowings
Bonds
Long-term debt
Lease obligations
Total

11,875
560
2,940
1,098
16,473

—
560
2,940
582
4,082

—
560
27,080356
27,996

—
360
—
100
460

March 31, 2014

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

Bonds
Long-term debt
Lease obligations
Total

5,441
28,56615,30849,3155,441
263,090
13,495
282,026

3,498—
11,105
14,603

—
—
9,944
9,944

—
—
5,820
5,820

—
—
—
—

—
—
599
599

Due after
5 years————

Millions of yen

Due after 4
through 5 years

—
—
—
16
16

Due after
5 years—————

Thousands of U.S. dollars

6. Securities(1) At March 31, 2014 and 2013, information with respect to held-to-maturity debt securities for which market
prices were available was summarized as follows:
Millions of yen

March 31, 2014
Unrecognized gain items:
Government and municipal bonds
Corporate bonds
OthersSubtotal
Unrecognized loss items:
Government and municipal bonds
Corporate bonds
OthersSubtotal
Total

Leopalace21 Corporation / Annual Report 2014

Carrying valueMarket value

Unrealized gain
(loss)

1,232
—
—
1,232

1,243
—
—
1,243

11
—
—
11

107
—
—
107
1,339

107
—
—
107
1,350

(0)
—
—
(0)
11

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Millions of yen

March 31, 2013
Unrecognized gain items:
Government and municipal bonds
Corporate bonds
OthersSubtotal
Unrecognized loss items:
Government and municipal bonds
Corporate bonds
OthersSubtotal
Total

Carrying valueMarket value

Unrecognized gain

1,321
—
—
1,321

1,333
—
—
1,333

12
—
—
12

—
—
—
—
1,321

—
—
—
—
1,333

—
—
—
—
12

Thousands of U.S. dollars

March 31, 2014
Unrecognized gain items:
Government and municipal bonds
Corporate bonds
OthersSubtotal
Unrecognized loss items:
Government and municipal bonds
Corporate bonds
OthersSubtotal
Total

Carrying valueMarket value

Unrealized gain
(loss)

11,976——
11,976

12,082——
12,082

106
—
—
106

1,039
—
—
1,039
13,015

1,037
—
—
1,037
13,119

(2)
—
—
(2)
104

(2) Investment securities classified as other securities as of March 31, 2014 and 2013 were as follows:
Millions of yen

March 31, 2014
Securities whose carrying value exceeds their acquisition cost:
Stock
Bonds:
Government and municipal bonds
Corporate bonds
OthersOthersSubtotal
Securities whose acquisition cost exceeds their carrying value:
Stock
Bonds:
Government and municipal bonds
Corporate bonds
OthersOthersSubtotal
Total

Carrying value

Acquisition cost

Unrealized gain
(loss)

1,128

460

668

1,917
—
—
—
3,045

1,883
—
—
—
2,343

34
—
—
—
702

—

—

—

78
—
—
—
78
3,123

78
—
—
—
78
2,421

(0)
—
—
—
(0)
702

Leopalace21 Corporation / Annual Report 2014

83

84

Millions of yen

March 31, 2013
Securities whose carrying value exceeds their acquisition cost:
Stock
Bonds:
Government and municipal bonds
Corporate bonds
OthersOthersSubtotal
Securities whose acquisition cost exceeds their carrying value:
Stock
Bonds:
Government and municipal bonds
Corporate bonds
OthersOthersSubtotal
Total

Carrying value

Acquisition cost

Unrealized gain
(loss)

1,464

447

1,017

1,890
—
—
—
3,354

1,848
—
—
—
2,295

42
—
—
—
1,059

12

13

(1)

43
—
—
—
55
3,409

43
—
—
—
56
2,351

(0)
—
—
—
(1)
1,058

Thousands of U.S. dollars

March 31, 2014
Securities whose carrying value exceeds their acquisition cost:
Stock
Bonds:
Government and municipal bonds
Corporate bonds
OthersOthersSubtotal
Securities whose acquisition cost exceeds their carrying value:
Stock
Bonds:
Government and municipal bonds
Corporate bonds
OthersOthersSubtotal
Total

Leopalace21 Corporation / Annual Report 2014

Carrying value

Acquisition cost

Unrealized gain
(loss)

10,965

4,470

6,495

18,621———
29,586

18,290———22,760

331
—
—
—
6,826

—

—

—

755
—
—
—
755
30,341

757
—
—
—
757
23,517

(2)
—
—
—
(2)
6,824

Who we are

What our strategy is

What our businesses are(Note)March 31, 2014
¥1,146 million ($11,131 thousand) of non-listed shares,¥824 million ($8,009 thousand) of non-listed bonds(subordinate corporate bonds), ¥895 million ($8,698
thousand) of subordinate beneficiary rights to loans andmoney in trust, and ¥281 million ($2,729 thousand) ofcontributions to investment business limited partnerships
are not included in the other securities given above
because they have no market value and assigning themfair market prices is recognized to be extremely difficult.

How CSR supports
our management

Financial Section &Corporate Data

March 31, 2013
¥1,118 million of non-listed shares, ¥824 million of nonlisted bonds, ¥899 million of subordinate beneficiaryrights to loans and money in trust, and ¥111 million ofcontributions to investment business limited partnerships
are not included in the other securities given above
because they have no market value and assigning themfair market prices is recognized to be extremely difficult.

(3) Proceeds from sales of other securities and gain or loss on these sales for the years ended March 31, 2014
and 2013 were summarized as follows:
March 31, 2014
None
Millions of yen

March 31, 2013
Stock
Bonds:
Government and municipal bonds
Corporate bonds
OthersOthers
Total

Proceeds from sale

Gains

Losses

—

—

—

—
—
—
76
76

—
—
—
6
6

—
—
—
—
—

(4) In addition, investment in affiliates included in investment securities of the consolidated balance sheet was
as follows:
Thousands of
U.S. dollars

Millions of yen

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

2014

2013

2014

42
28

14
7

407
276

7. Derivative Transactions
None

Leopalace21 Corporation / Annual Report 2014

85

86

8. Long-lived Assets(1) Breakdown of major plants, properties, and equipments were as follows:
Thousands of
U.S. dollars

Millions of yen

Residential properties for rent
Domestic hotels
Head office and branches
Leopalace Resort Manenggon Hills GuamWestin Resort Guam
Leopalace Power (solar power systems)

2014

2013

2014

57,83013,41024,19323,784
13,7742,973

59,657
13,872
24,037
20,172
11,817—561,896130,302
235,063
231,090
133,830
28,890(2) Due to acceptance of national subsidies, the following reduction entry amount was deducted from theacquisition cost of relevant assets:
Thousands of
U.S. dollars

Millions of yen

2014

2013

2014

155

69

1,506

Machinery, equipment, and vehicles(3) The Companies recognized impairment loss on the following asset groups for the years ended March 31,
2014 and 2013:
March 31, 2014
Impairment loss
PurposeRental assets(Apartment buildings
and others, 70 units)
Total

Category

Buildings andStructuresLand

The Companies recognized each property in domestic
rental assets as a unit and grouped overseas assets bymanagerial accounting segmentation.
The Companies wrote down book value of the rental
assets whose profitability decreased seriously due to theslump in the rental income market and continuous
decline in land prices, to recoverable amounts andLeopalace21 Corporation / Annual Report 2014

Location

Kobe-shi,Hyogo, etc.

Millions of yen

Thousands of
U.S. dollars

99
680
779

959
6,609
7,568

recognized the reduced values as impairment losses.
Recoverable amounts of rental assets were measured
at the higher of their values in use or their net realizablevalues in sale. Value in use was computed by discounting
its future cash flows at 3.8%, while net realizable value insale was determined based on publicly appraised value.

Who we are

What our strategy is

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

March 31, 2013
Impairment loss
PurposeCategory

Location
Millions of yen

Rental assets(Apartment buildings
and others, 96 units)
Idle assets

Buildings andStructures
Land
Land

Ota-ku,Tokyo, etc.

160
1,744

Higashi-kagawa
City, Kagawa

269
2,173

Total

The Companies recognized each property in domestic
rental assets as a unit and grouped overseas assets bymanagerial accounting segmentation.
The Companies wrote down book value of the rental
assets whose profitability decreased seriously due to theslump in the rental income market and continuous
decline in land prices, and idle assets, to recoverable
amounts and recognized the reduced values as

impairment losses.
Recoverable amounts of rental assets were measured
at the higher of their values in use or their net realizablevalues in sale. Value in use was computed by discounting
its future cash flows at 3.8%, while net realizable value insale was determined based on publicly appraised value.
Recoverability of inactive assets was calculated using
net selling value based on real estate appraisal values.

9. Bad Debts
Bad debts are claims as stipulated under Article 32, Paragraph 1, and Item 10 of the Regulation concerning Financial
Statements. Bad debt at March 31, 2014 and 2013 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Claims in bankruptcy
Claims in the process of bankruptcy
Bad debts
Others
Total

2014

2013

2014

—
1,092
186
142
1,420

14
1,100
369
417
1,900

—
10,611
1,811
1,377
13,799

Leopalace21 Corporation / Annual Report 2014

87

88

10. Income Taxes(1) Significant components of deferred tax assets and liabilities as of March 31, 2014 and 2013 were as follows:
Thousands of
U.S. dollars

Millions of yen

Deferred tax assets:
Loss carried forward for tax purposes
Impairment loss
Liability for retirement benefit
Retirement benefit reserves
Reserve for apartment vacancy loss
Advances from customers for rent income
Loss on devaluation of property, plant and equipment
Bonuses payable
Allowance for doubtful accounts
Deposits received
Loss on devaluation of real estate for sale
Elimination of unrealized gain
Excess amortization on software
Reserve for fulfillment of guarantees
Sales promotion cost
Excess depreciation
Accrued enterprise tax
Asset retirement obligations
Bad debt loss
Reserve for warranty obligations on completed project
Other payables
Sales discount for construction contracts
Loss on devaluation of securities
Low-value assets
Subsidiaries’ foreign exchange loss
OthersSub-total
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Net unrealized gain on other securities
Reserve for special depreciation
Fixed asset retirement expenses
Total deferred tax liabilities
Net deferred tax assets

Leopalace21 Corporation / Annual Report 2014

2014

2013

2014

47,00023,036
3,582
—
3,333
2,552
1,427
742
705
519
424
375
279
208
184
135
129
126
89
83
78
35
16
12
—
242
85,311(68,724)
16,58744,181
21,326
—
3,094
5,189
4,259
1,427
453
887
601
424
82
256
163
144
135
48
116
11
27
83
61
16
12
2,393
200
85,588(74,360)
11,228456,663
223,820
34,804—32,38824,795
13,869
7,206
6,850
5,042
4,122
3,640
2,711
2,018
1,785
1,308
1,252
1,223
861
803
758
339
156
119
—
2,376
828,908(667,745)
161,163

(237)
(178)
(8)
(423)
16,164

(359)
—
(9)
(368)
10,860(2,300)(1,734)(76)(4,110)(157,053)

Who we are

What our strategy is

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

(2) Reconciliation of the differences between the normal effective statutory tax rate and the actual effective tax
rate for the years ended March 31, 2014 and 2013 were as follows:
March 31, 2014
Normal effective statutory tax rate
Adjustments:
Effect from decrease in valuation reserve
Entertainment and other expenses not deductible for income tax purposes
Impact of change in income tax rates
Per capital portion of inhabitants taxes
Other
Actual effective tax rate

38.01%(95.10)
9.23
4.98
1.94
(0.29)(41.23)

March 31, 2013
Not stated since the Company posted no taxable income.
(3) Change in amount of deferred tax assets and liabilities due to the change in income tax rates
The “Bill for Partial Amendment of the Income Tax Act. etc.” enacted on March 31, 2014 stipulates that the special
corporate tax for reconstruction will no longer be applied for the fiscal years beginning on or after April 1, 2014. As aresult, the normal effective statutory tax rate used to calculate deferred tax assets and liabilities will be changed from38.01% to 35.64% for temporary differences expected to be recovered or settled in the fiscal year beginning April 1, 2014.
Due to the above changes, the amount of deferred tax assets (after deducting the amount of deferred tax liabilities)
decreased ¥277 million ($2,688 thousand) and income taxes deferred increased by the same amount.

11. Short-term Borrowings and Long-term Debt
(1) Short-term borrowings, long-term debt and lease obligations at March 31, 2014 and 2013 consisted of
the following:Thousands of
U.S. dollars

Millions of yen

Short-term borrowings
Current portion of long-term debt,
with average interest rate of 2.31%
Current portion of lease obligations,with average interest rate of 5.76%
Long-term debt, due 2014 to 2015,
with average interest rate of 2.79%
Lease obligations, long-term, due 2014 to 2019,with average interest rate of 5.65%
Total

2014

2013

—

11,875

2014

—

2,940

2,940

28,566

1,576

1,098

15,30827,07730,020263,090

4,154
35,747

1,054
46,98740,365347,329(Note)
To calculate “average interest rate,” weighted-average rates and fiscal year-end balances are used.

Leopalace21 Corporation / Annual Report 2014

89

90

(2) Assets pledged as collateral for short-term borrowings and long-term debt at March 31, 2014 and 2013 wereas follows:
Thousands of
U.S. dollars

Millions of yen

Cash and cash equivalents
Securities
Buildings and structures
Land
Investment securities
Others in Investments and other assets (Membership right)
Total

2014

2013

2014

17
92
56,451
81,3851,129
420
139,494——
54,07980,5371,569
420
136,605

165
897
548,490790,763
10,964
4,081
1,355,360(3) Secured borrowings with pledge of collateral at March 31, 2014 and 2013 were as follows:
Thousands of
U.S. dollars

Millions of yen

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

2014

2013

2014

—
2,940
27,07730,017

10,0002,940
30,02042,960—28,566
263,089
291,655(4) Securities and investment securities which have been deposited with the Legal Affairs Bureau at March 31,
2014 and 2013 were as follows:
Thousands of
U.S. dollars

Millions of yen

Deposit for operation stipulated in Building Lots andBuildings Transaction Business Act
Deposit for housing construction warranty
Deposit for housing defect warranty
Advanced payment certificate in accordance with
Payment and Settlement Regulations

2014

2013

2014

50
820
108

45
759
107

485
7,969
1,045

919

919

8,932

12. Commitment LineFor efficient procurement of working capital, the Company maintains commitment line contracts with two financial institutions.
As of the end of the current fiscal year, the unexercised portion of facilities based on the contract was as follows:
Thousands of
U.S. dollars

Millions of yen

Total commitment available
Less amount utilized
Balance available

Leopalace21 Corporation / Annual Report 2014

2014

2013

2014

10,000—10,00010,00010,000—97,163—
97,163

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

13. Retirement Benefit Plans
For the year ended March 31, 2014
(1) Multi-employer plans
The amount of requested contributions for the employees’ pension fund program under multi-employer plans, which
is processed with the same accounting method as that for the defined contribution program, was ¥1,215 million($11,805 thousand).
Recent funding status of the multi-employer plan as of March 31, 2013 were as follows:

Pension assets
Projected benefit obligation
Difference

The main components of the difference were unrecognized
past service costs of ¥3,622 million ($35,192 thousand).
The Company recognized the special annuity premium of¥93 million ($907 thousand) as an expense.

Millions of yen

Thousands of
U.S. dollars

50,48653,020(2,534)

490,541
515,157(24,616)

Ratio of Companies in the amount of contributions forthe multi-employer program was 34% from April 1, 2013
to March 31, 2014.

(2) Defined benefit plan(a) List of adjustments between the balances of retirement benefit obligations at the beginning and end of year
were as follows:

Beginning balance of retirement benefit obligations
Service cost
Interest cost
Actuarial gains and losses accrued
Retirement benefits paid
Past service cost
Closing balance of retirement benefit obligations

Millions of yen

Thousands of
U.S. dollars

8,634
879
75
890
(458)
30
10,05083,892
8,539
726
8,654
(4,453)295
97,653(b) List of adjustments between the closing balances of retirement benefit obligations and pension assets and theliabilities and assets related to the retirement benefit posted in the consolidated balance sheet were as follows:
Millions of yen

Funded retirement benefit obligations
Pension assets

Thousands of
U.S. dollars

—
—
—

—
—
—

Unfunded retirement benefit obligations
Net amount of the liabilities and assets posted in the consolidated balance sheet

10,05010,05097,65397,653Liability for retirement benefit
Net amount of the liabilities and assets posted in the consolidated balance sheet

10,05010,05097,65397,653

Leopalace21 Corporation / Annual Report 2014

91

92

(c) Retirement benefit expenses and breakdown amounts were as follows:

Service cost
Interest cost
Amortization of actuarial gain or loss
Amortization of past service cost
Retirement benefit expenses related to the defined benefit program

Millions of yen

Thousands of
U.S. dollars

2,094
75
81
24
2,274

20,344727
788
236
22,095(Notes) 1. Contributions of ¥1,215 million ($11,805 thousand), including ¥473 million ($4,599 thousand) attributable toemployees) for the “Japan Housing Construction Industry Employees’ Pension Fund” integrated employees’
pension funds, are included in the service cost.
2. Retirement benefit expenses of domestic consolidated subsidiaries, which are calculated based on asimplified method, are posted as service cost.
(d) Items posted as the remeasurements of defined benefit plans (before deduction of tax effects) were as follows:

Unrecognized past service cost
Unrecognized actuarial gains/losses
Total

Millions of yen

Thousands of
U.S. dollars

6
810
816

59
7,866
7,925

(e) Main calculation basis for actuarial assumptions at the end of the fiscal year under review:
Discount rate: 0.83%
For the year ended March 31, 2013
(1) The funded and accrued status of the entire pension plan as of March 31, 2012 were as follows:
Millions of yen

Pension assets
Projected benefit obligation
Difference

The main components of the difference were
unrecognized prior service costs of ¥1,194 million andinsufficient amount carried forward of ¥7,817 million. The
Company recognized the special annuity premium of ¥83
million as an expense in the years ended March 31, 2012.
The ¥7,817 million of insufficient amount carried forward
will be settled by increasing the rate of special annuity

Leopalace21 Corporation / Annual Report 2014

44,13953,150(9,011)premium based on fiscal recalculation.
The annuity premium contributory proportion of theentire pension plan was 33% as of March 31, 2013.
The Company has a welfare pension fund. In thewelfare pension fund, it cannot reasonably calculate theportion of the pension assets attributed to the Company.

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Financial Section &Corporate Data

(2) The funded and accrued status of the plans, and the amounts recognized in the consolidated balance sheets
as of March 31, 2013 for the Companies’ defined benefit plans were as follows:
Millions of yen

Projected benefit obligation
Unrecognized prior service cost
Unrecognized actuarial gain or loss
Retirement benefit reserves(9,033)31368(8,634)

Certain consolidated subsidiaries apply simplified methods in calculating their projected benefit obligations.
(3) The components of retirement benefit expenses for the years ended March 31, 2013 were summarized as follows:
Millions of yen

Service cost
Interest cost
Amortization of actuarial gain or loss
Amortization of prior service cost
Total

2,025
69
83
24
2,201

(Notes) 1. Contributions to the welfare pension fund, which were recorded in service cost, were ¥1,129 million,
including ¥444 million of employee contribution.
2. All the retirement benefit expenses of the domestic consolidated subsidiaries adopting the simplified method
were recorded in service cost.
(4) The assumptions used in accounting for the above plans are as follows:
Periodical allocation of estimated retirement benefit
Discount rate
Amortization period of prior service cost

Straight-line method
0.83%
5 years(Amortized evenly over a period notexceeding the expected averageremaining working lives of the employee
from the time of occurrence.)
5 years from the following fiscal year
(Amortized evenly over a period notexceeding the expected averageremaining working lives of the employee
from the time of occurrence.)

Amortization period of actuarial gain or loss

14. Gain on Sale of Property, Plant and Equipment
Gain on sale of property, plant and equipment for the years ended March 31, 2014 and 2013 were as follows:
Thousands of
U.S. dollars

Millions of yen

Machinery, equipment, and vehicles

2014

2013

2014

0

—

3

Leopalace21 Corporation / Annual Report 2014

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94

15. Loss on Sale of Property, Plant and Equipment
Loss on sale of property, plant and equipment for the years ended March 31, 2014 and 2013 were as follows:
Thousands of
U.S. dollars

Millions of yen

Land

2014

2013

2014

1

—

12

16. Loss on Disposal of Property, Plant and Equipment
Loss on disposal of property, plant and equipment for the years ended March 31, 2014 and 2013 were as follows:
Thousands of
U.S. dollars

Millions of yen

Buildings and structures
Machinery, equipment, and vehicles
OthersIntangible assets
Total

17. Rental Properties
The Company possesses rental apartments in major
cities and regions throughout Japan. Also, Leopalace
Guam Corporation as a subsidiary company possesses
rental housing within resorts, and Plaza Guarantee Co.,
Ltd. as a subsidiary company possesses buildings forrent. For the years ended March 31, 2014 and 2013,

2014

2013

2014

12
0
2
0
14

31
—
54
—
85

114
0
15
3
132

income arising from these rental properties were ¥4,058
million ($39,426 thousand) and ¥4,186 million, andimpairment losses were ¥779 million ($7,568 thousand)and ¥2,173 million, respectively.
Also, the changes in book value of rental properties
during the year ended March 31, 2014 and 2013, and thefair value as of March 31, 2014 and 2013 were as follows:

March 31, 2014
Millions of yen

Carrying value
Balance as of April 1, 2013

Increase/Decrease

Balance as of March 31, 2014

Fair value as ofMarch 31, 2014

65,851(1,821)64,03062,559March 31, 2013
Millions of yen

Carrying value
Balance as of April 1, 2012

Increase/Decrease

Balance as of March 31, 2013

Fair value as ofMarch 31, 2013

69,263(3,412)65,85164,626

Leopalace21 Corporation / Annual Report 2014

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Financial Section &Corporate Data

March 31, 2014
Thousands of U.S. dollars

Carrying value
Balance as of April 1, 2013

Increase/Decrease

Balance as of March 31, 2014

Fair value as ofMarch 31, 2014

639,829(17,694)622,135

607,838(Notes) 1. Carrying value recorded on the consolidated balance sheets is the amount after deducting accumulated
depreciation and accumulated impairment loss from acquisition cost.
2. The main decrease was impairment loss of ¥779 million ($7,568 thousand) and ¥2,173 million for the year
ended March 31, 2014 and 2013, respectively.
3. Fair value as of the end of the current fiscal year is calculated by the Company mainly based on “Real-estateappraisal standards.”

18. Asset Retirement Obligations
Omitted due to immateriality

19. Supplemental Information on the Statement of Changes in Equity
Shares issued and treasury stocks for the year ended March 31, 2014 were as follows:
Type of shares

Shares issued
Common stock
Total
Treasury stock
Common stock
Total

April 1, 2013

Increase

Decrease

March 31, 2014

217,443,915
217,443,915

50,000,000
50,000,000——

267,443,915
267,443,915

5,900,320
5,900,320

90
90

1,331,200
1,331,200

4,569,210
4,569,210(Notes) 1. Breakdown of amounts of increase in shares issued was as follows:
Issuance of new shares
50,000,000 shares
2. Breakdown of amounts of increase in treasury stock was as follows:
Purchase of shares less than one unit
90 shares
3. Breakdown of amounts of decrease in treasury stock was as follows:
Sell off of shares from “Leopalace 21 Employee Stock Ownership Committee Trust Account” to the Board for
Employees’ Ownership
68,600 shares
Sell off of remaining shares from settlement of trust account1,262,600 shares
Stock acquisition rights (SAR) and own share options for the year ended March 31, 2014 were as follows:
Type

SARs as stock option
Total

Class of sharesissued upon
exercise of
SARs

—
—

Number of shares issued upon exercise of SARs

Outstanding as of March 31, 2014

April 1, 2013

Increase

Decrease

March 31, 2014

Millions of yen

Thousands of
U.S. dollars

—
—

—
—

—
—

—
—

18
18

175
175

Leopalace21 Corporation / Annual Report 2014

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96

Shares issued and treasury stocks for the year ended March 31, 2013 were as follows:
Type of shares

Shares issued
Common stock
Total
Treasury stock
Common stock
Total

April 1, 2012

Increase

Decrease

March 31, 2013

175,443,915
175,443,915

42,000,000
42,000,000——

217,443,915
217,443,915

6,190,520
6,190,520——

290,200
290,200

5,900,320
5,900,320(Notes) 1. Breakdown of amounts of increase was as follows:
Exercise of stock acquisition rights
42,000,000 shares
2. Breakdown of amounts of decrease was as follows:
Sell off of shares from “Leopalace 21 Employee Stock Ownership Committee Trust Account” to the Board
for Employees’ Ownership
290,200 shares
3. Number of treasury stock includes 1,331,200 shares held by the Trust Account as of March 31, 2013.
Stock acquisition rights (SAR) and own share options for the year ended March 31, 2013 were as follows:
Type

Class of sharesissued upon
exercise of
SARs

SARs as stock option—
1st series SARs
Common stock
2nd series SARs
Common stock
3rd series SARs
Common stock
Total—

Number of shares issued upon exercise of SARs

Outstanding as ofMarch 31, 2013
March 31, 2013
Millions of yen

April 1, 2012

Increase

Decrease—
14,000,000
14,000,000
14,000,000
42,000,000

—
—
—
—
—

—
14,000,000
14,000,000
14,000,000
42,000,000

18
—
—
—
18

—
—
—
—
—

(Note) The decrease of 1st to 3rd series SARs is due to the exercise of SARs.

20. Leases(1) Finance lease transactions
The Companies primarily lease furniture and electronic
appliances, for apartments of their leasing business.
(a) The following pro forma amounts represent theacquisition cost, accumulated depreciation and net

book value of leased property as of March 31, 2014
and 2013, which would have been reflected in theaccompanying consolidated balance sheets if financeaccounting had been applied to the finance leases
that existed on or before March 31, 2008 and are
currently accounted for as operating leases:
Thousands of
U.S. dollars

Millions of yen

Acquisition cost
Equipment
Accumulated depreciation
Equipment
Net book value
Equipment

Leopalace21 Corporation / Annual Report 2014

2014

2013

2014

652

5,574

6,334

604

5,256

5,871

48

318

463

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Financial Section &Corporate Data(b) The amounts of outstanding future lease payments under finance lease subsequent to March 31, 2014 and 2013
including the interest portion thereon were summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Due within one year
Due after one year
Total

2014

2013

2014

55
—
55

300
55
355

535
—
535

(c) Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2014 and 2013 forfinance lease transactions accounted for as operating leases were summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Lease payment
Estimated amount of depreciation by
the straight-line method over the lease period
Estimated interest cost by the interest method(d) Method of estimating amount of depreciation:
Amounts corresponding to pro forma depreciation
under finance leases were computed by the straightline method in which the lease period is used as theuseful lives and it is assumed that the residual valueof the relevant assets falls to nil at the end of thelease period.

2014

2013

2014

307

1,351

2,978

270
7

1,168
44

2,623
67

(e) Method of estimating interest cost:
Estimated interest cost is calculated as the difference
between the total amount of lease payments and theacquisition cost of leased properties, and allocatedbetween each period using the interest method.

(2) Operating lease transactions
Future minimum lease payments related to non-cancelable operating leases subsequent to March 31, 2014 and 2013
were as follows:
Millions of yen

March 31, 2014

Future lease
payments

Prepaid lease
payments

Differences

Due within one year

249,305(249,296)
495,733(495,714)
745,038(745,010)

5,166(5,166)
3,292(3,292)8,458(8,458)244,139(244,130)
492,441(492,422)
736,580(736,552)

Due after one year
Total

Leopalace21 Corporation / Annual Report 2014

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98

Millions of yen

March 31, 2013

Future lease
payments

Prepaid lease
payments

Differences

Due within one year

253,341(253,338)
651,064(651,055)
904,405(904,393)

11,059(11,059)
7,466(7,466)
18,525(18,525)

242,282(242,279)
643,598(643,589)
885,880(885,868)

Due after one year
Total

Thousands of U.S. dollars

March 31, 2014

Future lease
payments

Prepaid lease
payments

Differences

Due within one year

2,422,311(2,422,228)
4,816,686(4,816,498)
7,238,997(7,238,726)

50,194(50,194)
31,985(31,985)
82,179(82,179)

2,372,117(2,372,034)
4,784,701(4,784,513)
7,156,818(7,156,547)

Due after one year
Total

Future operating lease payments fixed under master lease agreements in leasing business are shown in parentheses.

21. Contingent Liabilities
Contingent liabilities as of March 31, 2014 and 2013 were as follows:
Thousands of
U.S. dollars

Millions of yen

Contingent liabilities to financial institutions forcustomers who have a home mortgage
Contingent liabilities to financial institutions forcustomers who have a membership loan
Total

22. Segment Information(1) Overview of Reportable Segments
The Companies’ reportable segments are thecomponents for which separate financial information isavailable, and whose operating results are reviewed
regularly by the board of directors in order to determine
allocation of resources and assess segment performance.
The Companies have four reportable segments, theLeasing Business, Construction Business, Hotels &Resort Business and Elderly Care Business.
The Leasing Business operations comprise the leasing
and management of apartment buildings and otherproperties, repair work, broadband internet service, rent
guarantee, and the company residence agency business.

Leopalace21 Corporation / Annual Report 2014

2014

2013

2014

1,126

1,336

10,942

16
1,142

16
1,352

152
11,094The Construction Business constructs apartments andother buildings and installs solar power systems on acontract basis. The Hotels & Resort Business operates
hotels and resort facilities. The Elderly Care Business
operates elderly care facilities.
(2) Calculation Method for Sales, Profits and Losses,
Assets, and other Items by Reportable Segment
The accounting methods for reportable segments arebasically the same as that presented in “Summary of
Significant Accounting Policies.” The reportable segment
profits (losses) represent operating income (loss). Intersegment sales and transfers are based on prevailingmarket prices.

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Financial Section &Corporate Data

(3) Information Regarding Sales, Profits and Losses, Assets, and other Items by Reportable Segment for theyears ended March 31, 2014 and 2013 were as follows:
Millions of yen

Reportable segment

March 31, 2014
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 assets

Adjustments

Consolidated
Total

—

471,090

Leasing
Business

Construction
Business

Hotels &ResortBusiness

Elderly Care

Segment

Business

Total

388,768

63,136

7,572

10,172

469,6481,442

471,090593
389,361
15,56898,316

6,684
69,8202,954
16,122

2,505
10,077(1,119)50,710—
9,782
10,172 479,430(611)
16,792
2,372 167,520

107
1,549
138
10,6629,889
480,979
16,930178,182

2,579

175

1,857

41

4,652

157

4,809

1,184

5,993

4,698

52

438

38

5,226

6,785

12,011

2,704

14,715

OthersTotal(9,889)—(9,889) 471,090(3,257)
13,673
109,277 287,459(Notes) 1. The “Others” classification is the business segment not included in reportable segments, and comprises thesmall-claims and short-term insurance business, financing business, residential sales business, and solar
power business.
2. Breakdown of adjustments was as follows:
Segment profit (loss)

Inter-segment eliminations
Corporate expenses*
Total

Millions of yen

Thousands of
U.S. dollars(642)(2,615)(3,257)(6,235)(25,408)(31,643)*Corporate expenses consist mainly of general administrative expenses for administrative departments that are
not part of reportable segments.
Adjustments in segment assets (¥109,277 million, $1,061,770 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 assets (¥2,704 million, $26,270
thousand) consist of capital investments which do not belong to reportable segments.
3. Segment profit (loss) is adjusted to operating profit on the consolidated statements of operations.

Leopalace21 Corporation / Annual Report 2014

99

100

Millions of yen

Reportable segment

March 31, 2013
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 assets

Adjustments

Consolidated
Total

454,222—454,222

77
1,215
35
4,380

2,813
457,035
9,722
173,842(2,813)(2,813)(2,308)87,808—454,2227,414
261,650

4,568

53

4,621

1,063

5,684

333

281

614

566

1,180

Leasing
Business

Construction
Business

Hotels &ResortBusiness

Elderly Care
Business

Segment
Total

383,574

53,370

6,658

9,482

453,0841,138

483
384,057
8,688
107,726388
53,7582,747
15,851

1,865
8,523(1,006)
43,692

—
9,482
(742)
2,193

2,736
455,820
9,687
169,462

2,594

199

1,708

67

113

7

184

29

Others

Total(Notes) 1. The “Others” classification is the business segment not included in reportable segments, and comprises thesmall-claims and short-term insurance business, financing business, residential sales business, and solar
power business.
2.Breakdown of adjustments was as follows:
Segment profit (loss)
Millions of yen

Inter-segment eliminations
Corporate expenses*
Total

(38)
(2,270)(2,308)*Corporate expenses consist mainly of general administrative expenses for administrative departments that are
not part of reportable segments.
Adjustments in segment assets (¥87,808 million) 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 assets (¥566 million) consist ofcapital investments which do not belong to reportable segments.
3. Segment profit (loss) is adjusted to operating profit on the consolidated statements of operations.

Leopalace21 Corporation / Annual Report 2014

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Financial Section &Corporate Data

Thousands of U.S. dollars

Reportable segment

March 31, 2014

Leasing
Business

Sales
Sales to customers 3,777,383
Inter-segment sales
and transfers
5,759
Total
3,783,142
Segment profit (loss)
151,260
Segment assets
955,265
Other items
Depreciation
25,057
Increase in property,
plant, and equipment,
and intangible assets
45,649Consolidated
Total

Construction
Business

Hotels &ResortBusiness

613,447

73,56998,830 4,563,229

14,012 4,577,241

64,947678,394
28,702
156,645

24,345
97,914(10,870)
492,714—95,051
98,830 4,658,280(5,934) 163,158
23,045 1,627,669

1,036
96,087(96,087)—
15,048 4,673,328 (96,087) 4,577,241
1,338 164,496(31,643) 132,853
103,597 1,731,266 1,061,771 2,793,037

1,703

18,048394

45,202

1,528

46,73011,504

58,234

509

4,253

364

50,77565,928116,703

26,270142,973

Elderly Care

Segment

Business

Total

Others

Total

Adjustments— 4,577,241

Related information
1. Products and services
Information concerning products and services has been omitted, since similar information is reported in “22. Segment
Information.”
2. Geographic area
(1) Sales
Information concerning sales by geographic area has been omitted, since more than 90% of sales reported in the
consolidated statement of operations are generated in Japan.
(2) Plant, property, and equipment
March 31, 2014
Millions of yen

Japan

Trust territory of
U.S.A. Guam

People’s Republic of
China

Kingdom of Thailand

Total

114,682

37,8192

0

152,503

March 31, 2013
Millions of yen

Japan

Trust territory of
U.S.A. Guam

People’s Republic of
China

Total

106,982

32,012

4

138,998

March 31, 2014
Thousands of U.S. dollars

Japan

Trust territory of
U.S.A. Guam

People’s Republic of
China

Kingdom of Thailand

Total

1,114,287

367,45522

1

1,481,765

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3. Major customers
Information concerning sales to major customers has been omitted, since sales to any particular customer does notexceed 10% of sales reported in the consolidated statement of operations.
Information concerning impairment loss on fixed assets by reportable segments
March 31, 2014
Millions of yen

Impairment loss

Leasing
Business

Construction
Business

Hotels & Resort
Business

Elderly Care
Business

OthersAdjustments

Consolidated
total

779

—

—

—

—

—

779

Leasing
Business

Construction
Business

Hotels & Resort
Business

Elderly Care
Business

OthersAdjustments

Consolidated
total

1,903

—

—

—

—

270

2,173

Leasing
Business

Construction
Business

Hotels & Resort
Business

Elderly Care
Business

OthersAdjustments

Consolidated
total

7,568

—

—

—

—

—

7,568

March 31, 2013
Millions of yen

Impairment loss

March 31, 2014
Thousands of U.S. dollars

Impairment loss

Information concerning goodwill amortization and unamortized balance by reportable segments
For the years ended March 31, 2014 and 2013
Not applicable.
Information concerning gain on negative goodwill by reportable segments
For the years ended March 31, 2014 and 2013
Not applicable.

23. 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, 2014 and 2013.
Yen

Net assets
Net income
Basic
DilutedLeopalace21 Corporation / Annual Report 2014

U.S. dollars

2014

2013

2014

398.78274.80

3.87

67.17
—

74.50
74.48

0.65
—

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Financial Section &Corporate Data

(2) Basis of computation of basic and diluted net income per share for the years ended March 31, 2014 and 2013
was as follows:
Thousands of
U.S. dollars

Millions of yen

Basic net income per share
Net income
Amount not attributable to common stock
Net income attributable to common stock
Weighted-average shares during the year
(Thousands of shares)

2014

2013

2014

15,230—15,23013,335—
13,335

147,977—
147,977

226,724

179,002226,724

Thousands of
U.S. dollars

Millions of yen

2014

Diluted net income per share
Adjustment to net income
Increase in common stock (Thousands of shares)(of which, stock acquisition rights, thousands of shares)
Dilutive securities that didn’t have dilutive effects
and therefore were not included in the calculation ofdiluted net income per share

2013

2014

—
—
—
—
—
41
(—)
(—)
(41)
New stock
New stock
New stockacquisition rights acquisition rights acquisition rights
(650)
(650)
(650)

24. Related Party Transactions
The following tables set forth related party transactions for the years ended March 31, 2014 and 2013.
For the year ended March 31, 2014(a) Unconsolidated subsidiaries and affiliates
None(b) Directors and major individual shareholders
Capital stock
Attribute

Name

Address

Directors andclose relatives

ToshikoMiyoshi—

Attribute

Name

Transaction

Directors andclose relatives

ToshikoMiyoshi

Leasing ofapartments

Millions of yen

Thousands of
U.S. dollars——

Business or
position

Percentage ofshare ownership——Transaction amountMillions of yen

Thousands of
U.S. dollars

26

253

Relation

Leasing of landand building

Balance

Account

Millions of yen

Thousands of
U.S. dollars

223

Prepaid
expenses(Notes) 1. Consumption taxes were not included in amounts.
2. Conditions of leasing of apartments are the same as transactions with third parties.
3. Toshiko Miyoshi is a close relative of Tadahiro Miyama, Director of the Company.

Leopalace21 Corporation / Annual Report 2014

103

104

For the year ended March 31, 2013(a) Unconsolidated subsidiaries and affiliates
None(b) Directors and major individual shareholders
Attribute

Name

Address

Capital stock(Millions of yen)

Business or
position

Percentage ofshare ownership

Relation

Directors andclose relatives

Toshiko Miyoshi

—

—

—

—

Leasing of land and building

Attribute

Name

Transaction

Transaction amount(Millions of yen)Account

Balance(Millions of yen)

Directors andclose relatives

Toshiko Miyoshi

Leasing of apartments

26Long-term prepaid expenses

8(Notes) 1. Consumption taxes were not included in amounts.
2. Conditions of leasing of apartments are the same as transactions with third parties.
3. Toshiko Miyoshi is a close relative of Tadahiro Miyama, Director of the Company.

25. Other
The following tables set forth quarterly information for the year ended March 31, 2014.
Millions of yen(Cumulative period)First quarter

Second quarter

Third quarter

Full-year

Net sales
Income before income taxes
Net income
Net income per share (yen)114,876
1,510
1,371
6.48

231,673
4,282
3,921
18.53

343,465
7,039
6,403
29.77

471,090
10,782
15,23067.17(Accounting period)First quarter

Second quarter

Third quarter

Full-year

6.48

12.05

11.18

33.63

Net income per share (yen)Thousands of U.S. dollars(Cumulative period)First quarter

Second quarter

Third quarter

Full-year

Net sales
Income before income taxes
Net income
Net income per share (dollars)

1,116,169
14,675
13,3230.06

2,251,001
41,604
38,1020.18

3,337,206
68,39262,2100.29

4,577,241
104,757
147,977
0.65(Accounting period)First quarter

Second quarter

Third quarter

Full-year

0.06

0.12

0.11

0.33

Net income per share (dollars)

26. Subsequent Events
Not applicable.

Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Leopalace21 Corporation / Annual Report 2014

105

106

Leopalace21 DATA COMPILATION
External
Environment

Number of New Housing Starts

1,000 (1,000 units)

The number of new housing starts for rental
units grew for a second successive year,
climbing 15.3% year on year to 369,993 units.
Of these, units under 30 square meters
aimed mainly at singles increased 17.8% year
on year to 36,217.

750
500
250
0

FY2011FY20122

2■ Rental units (over 30m )FY2013■ Rental units (under 30m )■ Rental units (other)

Source: New residential housing construction work commencement statistics, the Ministry of Land, Infrastructure,
Transport, and Tourism

Number of Households

60,000 (1,000 households)

20,000 (1,000 households)

The number of households in Japan is
expected to decline from 2020 due to Japan’s
twin demographic trends of a growing elderly
cohort and a low fertility rate. On the other
hand, single households, especially ones withpeople over the age of 35, are expected tokeep growing for a while longer.

45,00015,00030,00010,00015,000

5,000

0

0

’05 ’10 ’15 ’20 ’25 ’30 ’35’05 ’10 ’15 ’20 ’25 ’30 ’35

plan plan plan plan plan

plan plan plan plan plan

■ Single ■ Married couple■ Married couple, children■ Single parent, children ■ Others■ Single (under age 35)■ Single (age 35-64)■ Single (over age 65)

Source: January 2013 estimates on the number of households and forecasts, the Institute of Population Problems

Number of Vacant Homes
in Japan

5,000 (1,000 units)
4,000

20

The number of vacant homes is growing,particularly in rural countryside areas, amid
the growing concentration of people living incities. The number of vacant properties inJapan available for rent or sale stands at
4,476,000 units, or one in five homes,
according the fiscal 2008 Housing and Land
Survey, the most recently published one.

3,000

15

2,000

10

1,000

5

Leopalace21 Corporation / Annual Report 2014(%) 25

0

0

’83

’88

’93

’98

’03

’08

■ Number of vacant houses for rent or sale (left) ● Ratio of vacant dwellings (right)
Source: Housing and Land Survey, the Ministry of Internal Affairs and Communications

Who we are

What our strategy is

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

Leasing
Data

Apartment Units underManagement
The number of apartment units we haveunder management is the earnings
foundation of the Leasing Business. For the
first time in two years, the number of units
under management swung into growth,rising to 548,912 as of the end of March 31,
2014. The proportion of our total portfolio
located in our focus areas of Kanto, Chubu,
and Kinki stands at about 70%.

Leases by Contract TypeWe are strengthening our marketing efforts
aimed at corporations, a group where wesee prospects for long-term stable earnings.
Thanks to these efforts, the number ofcorporate contracts for apartments grew
7.7% year on year to 246,272 units as ofMarch 31, 2014, raising corporate contracts
to over 50% of our lease portfolio at 51.3%.

Fiscal Yearend Occupancy
Rates by Area
With the economy now fully beyond theslump that followed the global financial
crisis, the occupancy rate of our portfolio
improved 2.7 percentage points to 87.5% asof March 31, 2014. The occupancy rate ofproperties located in the Tohoku, greater
Tokyo, Chugoku, and Kyushu-Okinawa
regions all stood at over 90%.

600,000 (units)

400,000

200,000

0

FY2011FY2012FY2013■ Hokkaido ■ Tohoku ■ Kita Kanto ■ Greater Tokyo Area ■ Hokuriku-Koshinetsu■ Chubu ■ Kinki ■ Chugoku ■ Shikoku ■ Kyushu-Okinawa

500,000 (units)
400,000
300,000
200,000
100,000
0

FY2011FY2012FY2013■ Corporations ■ Individuals ■ Students■ Of the individuals and student groups, those with foreign citizenship

100 (%)

90

80

70

Hokkaido Tohoku■ FY2011■ FY2012

Kita
Kanto

Greater Hokuriku- Chubu
Tokyo Koshinetsu
Area

Kinki

Chugoku Shikoku KyushuOkinawa■ FY2013

Leopalace21 Corporation / Annual Report 2014

107

108

Leasing
Data

Average Annual Occupancy
Rate
Like the fiscal yearend occupancy rate, theaverage annual occupancy rate recovered
during the fiscal year under review. The
average annual occupancy rate was 84.6%
in fiscal 2013, the third successive year ofincrease. This reflected longer occupancy asa result of the consummation of long-termlease contracts.

Growing Number of Sales
Offices and Sales Personnel
The Leasing Business is forging ahead withmeasures to develop a balanced sales
structure split between directly run sales
offices and franchisee offices. On the other
hand, we continue to bolster our sales
personnel workforce, which grew 10.2% year
on year to 1,371 people as of March 31, 2014.

86 (%)

84

82

80

FY2011FY2012FY2013400 (Offices)(Personnel) 1,600

300

1,200

200

800

100

400

0

0

FY2011FY2012FY2013■ Lease sales offices (Leopalace Centers) ■ Lease sales offices (Leopalace Partners franchisees)■ Leasing sales personnel (Leopalace Centers) ■ Leasing sales personnel (corporate sales)

Fiscal 2011

Fiscal 2012

Fiscal 2013

60,734136,064

187,756

0

1,326

3,145

Service centers, no. of incoming calls

710,898

590,867

609,877

Of which, inquiries

485,735

394,075

428,293

Of which, maintenance related

154,663

143,476

144,059

Of which, complaints or claims

70,50053,31637,525

No. of tenant meetings with high-school students*

3,757

8,454

8,626

Internet tenant response rates (new contracts only)

99,339105,011

97,523

Security systems installed (cumulative, rooms)
Security cameras installed (cumulative, buildings)* This refers to the number of prospective tenant meetings held with third-year high-school students.

Leopalace21 Corporation / Annual Report 2014

Who we are

What our strategy is

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

109

Construction
Data

Orders100,000 (Millions of yen)Orders rose for a second successive year infiscal 2013, climbing 11.1% year on year to¥81.139 billion. In addition to signs ofrecovery in apartment orders, theConstruction Business is pushing forwardwith the development of new fields such as
nursing care facilities as well as stores andcommercial buildings etc.

75,00050,00025,0000FY2011

Apartments completed

800 (Buildings)

The number of apartment buildings
completed rose 14.3% year on year to 582
units in fiscal 2013. Of those, low-risebuildings with three stories or less remained
the main driver but the trend towards a morediverse mix continues, as buildings with fourstories or more accounted for about 5% of
the total.

600

Solar power systems installed,
total kW capacity installed
Solar power system installations continued as
one prong of earnings growth at theConstruction Business. The cumulative
number of buildings where solar powersystems have been installed came to 9,001 in
fiscal 2013, lifting total power generation
capacity to 125,836 kW.

Sales Offices Accepting Construction
Orders, Sales Personnel
There have been efforts to scale back offices andsales personnel responsible for construction
subcontracting work in keeping with thebusiness structural reforms aimed at making theLeasing Business the centerpiece of thecompany’s earnings model, but in response to
the demand recovery driven by Abenomics, theConstruction Business added offices and salepersonnel once again.

FY2012FY2013■ Apartments ■ Nursing care facilities ■ Stores/Commercial buildings ■ Solar power systems

400
200
0

FY2011■ Three stories or less

FY2012FY2013■ Four stories or more

(kW) 150,000

9,000 (Buildings)

6,000

100,000

3,000

50,0000

0FY2011FY2012FY2013■ Number of buildings where solar power system installed (cumulative)■ Of those, number of buildings where the Leopalace21 Group installed systems (cumulative)■ Power generation capacity installed (cumulative)）■ Of that, power generation capacity installed by the Leopalace21 Group (cumulative)

60 (Offices)(Personnel) 400

45

300

30

200

15

100
0

0

FY2011FY2012FY2013■ Construction Business offices ■ Sales personnel responsible for construction subcontracting

Leopalace21 Corporation / Annual Report 2014

110

Elderly Care
Data

Number of facilities

80

Expanding primarily in the greater Tokyo
metropolitan area, the Elderly Care
Business now operates about 60 facilities.
It opened three new facilities offering day
services and short stays in fiscal 2013 withthe expectation they will be profitable.

60
40
20
0

FY2011FY2012FY2013■ Fee-based homes for seniors ■ Day services/short stays ■ Group homes

Occupancy rate

100 (%)The Elderly Care Business is working to
improve occupancy rates in an effort to be
profitable. As a result of such efforts,
occupancy rates improved across allservice categories—day services, shortstays, fee-based homes for seniors, andgroup homes.

90
80
70
60

FY2011FY2012FY2013● Day services ● Short stays ● Fee-based homes for seniors

Hotels &Resort Data

Leopalace Resort GuamAt Leopalace Resort Guam, a resort facility
the company runs in Guam, the occupancy
rate improved on efforts to promote usage
by stakeholders such as corporate clients.

150 (Total no. of visitors to Guam*) (No. of users, no. of stays per 10,000 people) 6

100

4

80

50

2

60

0

40

0

FY2011FY2012FY2013

FY2011■ No. of visitors to Guam* ■ No. of Leopalace Resort Country Club visitors■ No. of stakeholder stays

Leopalace Hotels
Leopalace21 operates eight hotels acrossJapan, where it promotes usage by various
stakeholders. In fiscal 2013, the number ofstays at these hotels increased 27.7% year
on year to 17,922.

● Leopalace Resort

FY2013

FY2012● Westin Resort

90 (Occupancy rate %)(No. of stays) 18,000

80

12,000

70

6,000

0

60

Asahikawa Sapporo

Sendai■ FY2011 ■ FY2012 ■ FY2013
Leopalace21 Corporation / Annual Report 2014

100 (Occupancy rate %)*Data on the number of visitors to Guam, Guam Visitors Bureau (a government agency)

Niigata

Nagoya Yokkaichi Okayama

HakataNo. ofstakeholder staysWho we are

What our strategy is

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

Social KPIs

Employees with foreign
citizenship, ratio of foreign
managers
We aim to expand the Leasing Businessoverseas, especially in the ASEAN region,
as a way to drive growth. We are hiring
more employees with foreign citizenship to
prepare for further future expansion globallyand adding more foreign managers,
although the increase in the latter is gradual.

Employee data

Fiscal 2011

Fiscal 2012

Fiscal 2013

5,361
35.7
25.6
2.8
2.06
107
1.2
50
44
5
45

5,390
36.2
26.0
3.0
2.07
144
1.2
70
44
1
43

5,781
35.9
27.6
3.3
2.07
162
1.3
77
68
15
39

No. of employees
Average age
Female employee ratio
Female manager ratio
Disabled employee ratio (consolidated)
No. of employees with foreign citizenship
Ratio of foreign managers
No. of employees who used child care leave
No. of employees on short work-hours schedule
No. of employees who used nursing care leave
No. of labor accident incidents

Ratio of female managers
We aim to hire diverse human resources,
including women and people with foreign
citizenship, as one of our initiatives to contributeas a corporate citizen to the creation of asustainable society. Within our diverse humanresources, the ratio of female employees was
27.6% as of March 31, 2014, continuing theuptrend of the past several years.

Employees by
age group (parent)

Under
age 29

Age
30-39

Age
40-49

Age
50-59

Over
age 60Total

Totals

1,634

2,625

940

492

90

5,781

Males

952

2,083

727

346

75

4,183

Females

682

542

213

146

15

1,598

CSR initiatives

Fiscal 2011

Fiscal 2012

Fiscal 2013

Cleanup campaign participants

9,574
75
9,499
186
130
56
0
9
0
1,580,986
1,976
59
82

17,166
5,274
11,892
193
135
58
0
138
1
1,434,459
1,793
50
123

13,203
3,642
9,561
228
133
65
30
211
5
328,661411
50
436

Of which, in the vicinity of existing properties
Of which, in the vicinity of newly built properties
Registered for “Kodomo #110”
Of which, Leopalace Center offices
Of which, Leopalace Partners franchisees
Of which, Azumi En facilities
No. of meetings for apartment owners
No. of building tour fairs for students
No. of PET bottle caps collected for Ecocap Movement*(No. of polio vaccines)
No. of students on domestic hotel observation tours
No. of tours, OTJ training accepted at Leopalace Smile*** The Ecocap Movement is an NPO that accepts used PET bottle caps collected by companies and other organizations and sells them to recycling vendors
and uses the proceeds to fund donations to an NPO that purchases polio vaccine for children.
** 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.

Leopalace21 Corporation / Annual Report 2014

111

112

CORPORATE HISTORY
Sales breakdown by business

Fiscal Year
Ended
March 1991

1997
s Launch Leopalace Fraternity■ Real Estate Business (condo sales) ... 80.6%■ Construction Business ................... 2.1%
■ Leasing Business...........................11.3%■ Other Businesses ........................... 6.0%

1998
s Number of managed properties
increases to 100,000s Leopalace 21 wins 1998
Good Design Award

1973
s Establishment

1999s Launch Monthly Leopalace
Flat service including furnitureand consumer electronics

1985
s Full-scale launch of Leopalace 21
urban apartmentss Capital increases to ¥132 million
1986s Capital increases to ¥452 million

1991s Acquire a patent for housing with lofts

1987
s Capital increases to ¥760 millions Capital increases to ¥2.74 billion

1993s Open Leopalace Resort Guam

GrowthPeriodPost-Bubble
PeriodBubblePeriodBusiness modeltransition

Apartment development/
sales business

Establish our business model

1988
s Launch a unique membership-basedtenant systems Launch an online management ofbuildings and tenants

1995
s Launch corporate
membership sales（Shift from built-for-sale toconstruction subcontracting）

1989s Capital increases to ¥4.42 billions List on over-the-counter market(JASDAQ)s Change company name to“MDI Corporation”
1990s Capital increases to ¥22.48 billion

Economic
growth period
Full launch of a synergy model combining
Construction
and Leasing Businesses
分譲→建築請負

2000
s Capital increases to ¥30.52 billion
following third-party allotment of
new sharess Change company name to“Leopalace21 Corporation”
2001s Launch Leopalace REIT,
a series of real estate
securitization products

Business modelin transition period

Leopalace21 Developed and Commenced the Industry’s First “Master Lease System”
Budgeting maintenance andrepair costs for a 30-year period
Secures funds for property maintenanceand future repairs

Apartments
Management of rental revenues
for a 30-year period
Tenants

Rent collection operations etc.

Individuals (general)Companies (dorms,
company-leased housing)

Recruitment and management of
tenants for a 30-year period
Tenant recruitment and everyday tenant
management operations etc.

Leopalace21 Corporation / Annual Report 2014

Rents frommaster leases Property owners
Payments of master-leaserents are made to owners
regardless of whether or notthere are vacancies

Who we are

What our strategy isSales breakdown by business

Fiscal Year
Ended
March 2007

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

Sales breakdown by business■ Leasing Business............. 43.9%■ Construction Business .... 50.0%■ Elderly Care Business ............ 0.9%
■ Hotels & Resort Business ... 1.1%
■ Other Businesses .................. 4.1%

2002
s Capital increases via public offering
to ¥37.24 billions Start broadband
businesss Open Leopalace Center Gangnam, Seouls Launch Monthly Leopalace Flatss Number of managed properties increases to 200,000

Fiscal Year
Ended
March 20142008
s Launch of membership-based ‘Class-L’ service
2009
s Number of managed properties increases to 500,000s Open Leopalace21 Business Consulting (Shanghai) Co., Ltd.
Open Beijing Branch
2010
s Number of managed properties increases to 550,000s Launch Leopalace Partners franchise systems Capital increases to ¥56.56 billion following third-party
allotment of new sharess Open Shanghai Corporation Dalian Branch and Guangzhou Branch

Global Recession
Lehman Collapse
Comprehensive enhancementof stock-based earnings

2004
s List on 1st Section ofTokyo Stock Exchanges Capital increases via public offering
to ¥55.64 billion
2005
s Number of managed properties
increases to 300,000s Start Residential
and Elderly Care Businesses
2006
s Open Leopalace Center Taipei
and Leopalace Center Busan
2007
s Number of managed properties
increases to 400,000s Open Leopalace Center Jongno, Seoul■ Leasing Business............. 82.5%■ Construction Business .... 13.4%■ Elderly Care Business ............ 2.2%
■ Hotels & Resort Business ... 1.6%
■ Other Businesses .................. 0.3%

Great East Japan
Earthquake

Economic recovery period

Establish New Growth Stage
Formulate Medium-Term Management中期経営計画
Plan Creating Future「Creating Future」策定

2011
s Full-scale installation of security systems
for apartmentss Commences full sales launch of solar power systems
2012s Launch “Room Customize” services Start FukushimaFu
virtual solar power plant pilot projectFuwith FujitsuLtd.
s Establis
Establish “Woori & Leo PMC Co., Ltd.” in South Koreas First exercise
exof share subscription rights, capitalincreas to ¥58.31 billion
increasess Launch property brokerage business in South Korea
2013s Nationw
Nationwide launch of “Roof Mega-solar Pro”
s Second exercise of share subscription rights,
capital increases to ¥60.42 billion
sThird exercise of share subscription rights,
capital increases to ¥62.87 billions Launch brokerage business in Taiwans Install our “non-sound system” with improved
sound insulation in apartments as standard fixturess Establish local units in Thailand and Vietnam tointroduce local properties to Japanese companies
2014s Capital increases via public offering and third-party
allotment to ¥75.28 billion

Leopalace21 Corporation / Annual Report 2014

113

114

CORPORATE PROFILE
Corporate Data

(As of March 31, 2014)

Members of Board of Directors and Auditors(As of April 1, 2014)

Company Name:
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
Operations:
Construction, leasing and sales of apartments,
condominiums, and residential housing; development
and operation of resort facilities; hotel business;broadband business; and elderly care business, etc.

Directors
President and CEO
Director
Director
Director
Director
Director
Director
Director (Outside)

Eisei Miyama
Tadahiro Miyama
Yuzuru Sekiya
Kazuto Tajiri
Yoshikazu Miike
Kou Kimura
Hiroyuki Harada
Tetsuji Taya

Auditors
Standing Auditor
Standing Auditor
Auditor (Outside)
Auditor (Outside)

Masumi Iwakabe
Mutsuhiro Yamada
Koichi Fujiwara
Masahiko Nakamura

Number of Employees:
6,758 (consolidated basis)
5,781 (non-consolidated basis)

Major Shareholders (Top10)(As of March 31, 2014)

Thousands ofSharesPercentage of
Outstanding Shares

1 Japan Trustee Services Bank, Ltd. (Trust Account)

25,3529.48%

2 Goldman Sachs International

16,213

6.06%

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

15,587

5.83%

4 LIXIL Realty, Corp.

10,5003.93%

5 Goldman, Sachs & Co. (Regular Account)

9,805

3.67%

6 UBS Securities LLC-HFS Customer Segregated Account

9,614

3.59%

7 Deutsche Bank AG London-PB Non-treaty Clients 613

7,162

2.68%

8 Stockholding Association for Leopalace21’s Business Connection

5,791

2.16%

9 BBH for Fidelity Low-Priced Stock Fund (Principal All Sector Subportfolio)

5,000

1.87%

10 Leopalace21 Corporation

4,569

1.71%

Shareholders

Note: Of the shares listed above, those held in trust accounts as part of trust bank operations are as follows:
Japan Trustee Services Bank, Ltd. (Trust Account)
25,034 thousand shares
The Master Trust Bank of Japan, Ltd. (Trust Account) 15,587 thousand shares

Stock Information(As of March 31, 2014)

Number of Shares:
Authorized: 500,000,000
Outstanding: 267,443,915
Number of Shareholders:
39,166
Listing:First Section of the Tokyo Stock Exchange(Security code: 8848)
Transfer Agent:
Mitsubishi UFJ Trust and Banking Corporation

Leopalace21 Corporation / Annual Report 2014

Shareholder Composition(As of March 31, 2014)■ Financial Instruments■ Treasury Stocks

Business Operations(Securities Companies)
2.40%

1.71%

■ BusinessCorporations
and Other
Legal Entities
6.87%■ Financial

Institutions

19.25%■ Individuals

and Other
20.66%■ Foreign
Corporations
49.10%

Who we are

What our strategy is

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

Number of Apartment Units under Management and Domestic Leasing Sales Offices by Areas
Total Number ofUnits in Japan

Total Number of
Directly Managed Sales Offices

4 3
8 8
Hokkaido Area

14,2294
5,059
2
Okinawa Area

176 offices(As of March 31, 2014)

Number of Partners Franchise Sales Offices
Number of Directly Managed Sales Offices

Number of
Leased Managed Properties

548,912 units

115

Total Number ofPartners Franchise Sales Offices

164 offices

12
13

40,64922
24

78,153

Tohoku Area

14
10

37,2928
15

33,704

Hokuriku/Koshinetsu
Area

Kinki Area

Chugoku Area

39,874

11
14

Kita-Kanto Area

6
5
Shikoku Area

14,48386,64216
15

43,259

24
23

44
47

155,568

Chubu Area

Kyushu Area

Metropolitan Area

Share Price and Trading Volume(As of March 31, 2014)

Share Price

Trading Volume(Yen)(Thousand shares)

800

80,000600

60,000400

40,000200

20,000

0

Apr.
2013

May

Jun.

Jul.

Aug.

Sept.

Oct.

Nov.

Dec.

Jan.
2014

0

Feb.

Mar.

Leopalace21 Corporation / Annual Report 2014

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 2014