Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Annual Report2013

For the fiscal year ended March 31, 2013

The challenge of
new growth

Leopalace21 Corporation / Annual Report 2013

2

PROFILE

Leopalace21 has established a unique businessmodel fusing two core businesses, a Construction
Business, which involves constructing apartments
aimed mainly at single persons, and a Leasing
Business, which involves performing the

LEASING
BUSINESS

superintendence of apartments after they are built.
We also operate a Hotels & Resort Business and

CONSTRUCTION
BUSINESSElderly Care & other Businesses, making
Leopalace21 a one-stop provider of a wide range ofreal estate services. Currently, with domestic rental

REAL ESTATE

housing demand on the decline, Leopalace21 is“ONE-STOP SERVICE PROVIDER”

proceeding with apartment construction on an
optimal scale based on an area strategy while also
starting to receive orders for elderly care facilities

ELDERLY CARE&
OTHER BUSINESSES

HOTELS &RESORT BUSINESS

as well as offices and commercial facilities. At thesame time, by strengthening the profitability of the
Leasing Business, Leopalace21 is moving forwardwith establishment of a stock-based businessmodel capable of generating stable profits from ourstock of existing apartments (“stock”).

CONTENTS
Who we are

1 TO OUR STAKEHOLDERS
2 LEOPALACE21’S
EXTERNAL ENVIRONMENT

3 LEOPALACE21’SCOMPETITIVE ADVANTAGE

4 LEOPALACE21’S
STRATEGIES

5 LEOPALACE21’S
NEW BUSINESSES

6 CORPORATE HISTORY
8 BUSINESS MODEL
TRANSITION

10 TEN-YEAR CONSOLIDATEDFINANCIAL HIGHLIGHTS

What our strategy is

12 DIALOGUE:MANAGEMENT OF LEOPALACE21

18

SPECIAL FEATURE:
PROGRESS OF THE MEDIUM-TERM
MANAGEMENT PLAN

What our businesses are

24 BUSINESS OVERVIEW:
AT A GLANCE

How CSR supports
our management

32 A MANAGEMENT STRUCTURE
BUILT ON CSR

Financial Section &Corporate Data

38 FINANCIAL SECTION
84 CORPORATE PROFILE

26 SEGMENT OVERVIEW:LEASING BUSINESS

28 CONSTRUCTION BUSINESS
30 HOTELS & RESORT BUSINESS
31 ELDERLY CARE &OTHER BUSINESSES

Forward-looking Statements
Statements made in this annual report with respect to plans, strategies and future performance that are not historical facts are forwardlooking 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, andcompetitive pricing pressure on, Leopalace21’s products in the marketplace; Leopalace21’s ability to continue to win acceptance for its
products in these highlycompetitive markets; and movements of currency exchange rates.

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

TO
T
O OU
OUR STAKEHOLDERS
The Japanese economic outlook remained uncertain in
the fiscal year ended March 2013 (fiscal 2012). However,since the launch of a new government, there have beenbright signs of economic recovery such as a clear trend of
yen weakening and rising stock prices. Similarly in the
housing industry, the number of new housing starts grew
for a third consecutive year and rental housing starts also
grew for the first time in four years.
Leopalace21’s net sales decreased by 1.1% year on yearto ¥454,222 million due in part to a sales decline in theConstruction Business. Operating income grew by
61.7% year on year to ¥7,414 million due in part to an
improvement in the net balance of income toexpenditures on a recovery in occupancy rates andreduced rental costs in the Leasing Business. Recurringincome grew by 372.1% year on year to ¥11,091 million
due in part to foreign exchange gains caused by sharp
yen depreciation. With regard to net income, while webooked an impairment loss of ¥2,173 million, an increasein deferred tax assets resulted in income tax expenses
deferred of ¥4,670 million. As a result, net income grewby 739.2% year on year to ¥13,335 million.
We achieved steady results in two aims we set for fiscal
2012, the first year of our new Medium-term Management
Plan. Those two aims were: “enhancing the competitiveness of our core businesses” and “implementing
initiatives in new areas through existing businesses.”In fiscal 2013, the second year of the new plan, we
seek to maximize earnings by strengthening services
and increasing the competitiveness of leased managed
properties with “the year of challenge to a new growthstage” as our motto. We aim for operating income of¥14,100 million and net income of ¥11,000 million.
In closing, I would like to humbly request yourcontinued support and encouragement.
June 2013
Eisei Miyama
President and CEO

Leopalace21 Corporation / Annual Report 2013

1

2

LEOPALACE21’S EXTERNAL ENVIRONMENT

Number of New Rental Housing Starts

New housing starts decreased sharply during the period(Number of Housing Units by Use)from the fiscal year ended March 2009 to the fiscal year
ended March 2010 due to the economic slump following(1,000 units)

the Lehman Shock. Subsequently, housing starts have

1,200

gradually started to recover as a result of housing
investment policy and other efforts. The number of housing

800

starts increased to 893,000 units in the fiscal year ended
March 2013, but has not returned to the level before the400

financial crisis sparked by the collapse of Lehman Brothers.
Despite such circumstances, new housing starts for leased

0’09/3
FY2008’10/3
FY2009’11/3
FY2010’12/3
FY2011’13/3
FY2012■ Leased units ■ Residential houses for allotment sales■ Condominium units for allotment sales ■ Owner-occupied houses ■ Others* Source: New residential housing construction work commencement statistics for fiscal 2013,
the Ministry of Land, Infrastructure, Transport, and Tourism

units are moving toward recovery. They temporarily declined
due to Lehman’s collapse, but now remain stable at a levelof about 300,000 units. The number of new housing starts
for leased units increased to 320,000 units for the first timein four years in the fiscal year ended March 2013.

Due to Japan’s declining population, the number ofTrend in Number of Households

households is expected to gradually decline in the near
(1,000 households)

future. On the other hand, single households are expected60,000

to keep growing for a while longer. The number of single
households have grown from 2010’s 16,780,000, and there

40,000are forecasts for single households to continue to growthrough 2025, when the total number of households is

20,000expected to swing to a downturn versus the forecast peak,
and to keep rising until 2030. As a result, forecasts call for

0
’05

’10

’15

’20

’25

’30

’35

(projected) (projected) (projected) (projected) (projected)

18,450,000 households in 2035, an increase of 1,670,000
from 2010, and for the percentage of single households as■ Single ■ Married couple ■ Married couple, children■ Single parent, children ■ Othersa percentage of all households to be 37.2% in 2035, up 4.8* Source: Population Census for 2010, the Ministry of Internal Affairs and Communications;fiscal 2013 report on the number of households and forecasts, the Institute of Population Problems

points from the 32.4% of 2010.

Homeownership and tenancy rates
of households

The 2008 survey (latest) on the total number of housing(%)

units and homeownership rates shows the homeownershiprate was 61.1% and tenancy rate was 35.8%, andhomeownership rates have remained at around 60% since60

the survey started in 1973. This trend varies by region withlow homeownership rates and high tenancy rates in major

40

metropolitan areas in general. Of the top five prefectureswith the lowest homeowner rates, Tokyo is first, Osaka is

20

third, and Fukuoka is fourth. These three prefectures
include major metropolitan areas. In addition, these three

0
Tokyo

Okinawa Fukuoka

Osaka

Hokkaido National
average■ Homeownership rates of households ■ Tenancy rates of households* Source: Residential housing and land survey for fiscal 2008, Statistics Bureau,
Ministry of Internal Affairs and Communications

Leopalace21 Corporation / Annual Report 2013

prefectures are at the top in terms of population, so it canbe said that tenant demand for rental or leased housing islargely concentrated in metropolitan areas such as Tokyo,
Osaka, and Fukuoka.

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

3

LEOPALACE21’S COMPETITIVE ADVANTAGE
Number of Apartment Units
under Management546,204 units(as of the end of March 2013)Market Positioning
Room typeStudio apartments
Leopalace21
Length Longof stay term

Company

D2

Shortterm
CompanyS

Company

D1

Family-type units

Investigatedby Company

Leopalace21 currently boasts some 550,000
managed apartments units featuring furniture andhome appliances across Japan. The company has
achieved solid growth by steadily responding to theneeds of tenants alongside the uptrend in single
person households. Since they are mainly used by
students and single employees living on their own,
as well as for short-term stays such as businesstrips, approximately half of the leases are forcorporate use as company housing or dormitories.

Proportion of Properties
by Major Areas

Total for 3 Metro Areas
Approx.

70%(as of the end of March 2013)

Proportion of Managed Properties,
Nationwide and by Key Area
Total for 3 Metro Areas
Approx.
%70

Kinki area

Metropolitan
area
Chubu area

36%

16%

14%
Managed units

546,204 units(as of the end of March 2013)

Leopalace21’s managed properties are concentrated
in three metropolitan areas, which account for about
70% of all the company’s properties: 36% in the
Metropolitan area, 16% in the Chubu area, and 14%
in the Kinki area. We maintain stable occupancy rates
by concentrating our managed properties in areas
where large numbers of people gather, especiallythese three metropolitan areas, which continue tohave a population influx.
Leopalace21 Corporation / Annual Report 2013

4

LEOPALACE21’S STRATEGIESApartment Security Systems

136,107units
Installation rate: 24.9% (as of the end of March 2013)

Installation of Security Systems(Units)150,000

100,000

50,0000

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

FY 13/3

Leopalace21’s first priority is the safety
and security of our tenants. In addition tooffering auto-lock gates and videointercoms, we are adding properties undermanagement with 24-hour, 365-day safety
and security systems that are overseen
through joint efforts with security
companies.

“Room Customize /My-Collection Plan”
Total Number of Contracts

5,714 cases(as of the end of March 2013)

Total Number of Contracts for“Room Customize /My-Collection Plan”(Units)

6,000

4,000

2,000

0

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

FY 13/3

There are more and more customers who want where
they live to reflect their personalities, even in case ofrental properties. Leopalace21 provides services such as“Room Customize (My Collection Plan),” which allows
tenants to customize one wall of the room by giving
them a choice of free wallpaper, and the “Comfort Plan”(pay service), which allows tenants to choose wallpaperwith features of functions such as odor elimination,
humidity-control, photocatalytic self-cleaning.
Leopalace21 Corporation / Annual Report 2013

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

LEOPALACE21’S NEW BUSINESSESOur Group is focusing on solar power systems as a core project ofour new businesses. Considering its business prospects including
growth and future potential, we are actively engaged in this project invarious forms and are currently proceeding with three main projects.
The first is a project to install solar panels on apartments under(installation rate: 27.1%)
our management. We regard this as a measure to enhance thevalue of our properties, and we completed installation on about
5,900 buildings as of the end of March 2013. This is equivalent to
Installation of Solar Power Systems
about 27% of the roughly 22,000 apartments under our(Buildings)
6,000
management on which solar power systems can be installed.
Another project is “Virtual Solar Power Plants.” Leopalce21
4,000
started this demonstration test in Fukushima Prefecture incollaboration with Fujitsu Ltd. This is a pilot project to promote2,000
residential solar power systems in which our subsidiary leases the0rooftops of apartments we manage from their owners, pays them
Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar.
lease fees, and collects revenues from selling power generated
FY 13/3
utilizing a feed-in-tariff scheme for renewable energy.
The last is “Roof Mega-solar Project.”
For this project, we lease the rooftops of■ Roof Mega-solar Project Scheme
managed apartments from their owners
Providefunds
Revenue
Mitsubishi UFJ Lease &and sell the electricity generated to power
Special Purpose Company (SPC)
Finance Co., Ltd.
(Project
implementing
body)
companies. At the start of this project, weSell power
Electric Powerestablished a special purpose company
Omron Field Engineering
Company
Lend roof
Pay rent
Monitoring, reporting,Co., Ltd.
(SPC) with Mitsubishi UFJ Lease &maintenance
Finance Co., Ltd. and Omron Field
Apartment
Engineering Co., Ltd. to sell generated
ownerspower to power companies. We started
Design and install
this business from this March with theaim of installing systems on 7,000
Leopalace21
Secure installment location
Install solar panels
apartments (100MW).

Solar power systems

5,931 buildings

Leopalace21 Corporation / Annual Report 2013

5

6

CORPORATE HISTORY
Sales breakdown by business

1997■ Real Estate Business (condo sales)

80.6%

Return to net profitss Launch Leopalace Fraternity■ Construction Business

Fiscal Year
Ended
March 1991

2.1%
■ Leasing Business

11.3%

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

6.0%

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

Return toearnings growth

Apartment development/
sales business

Establish our business model

Shift Construction and Leasing Businesses toFull-scale operationof synergy model
分譲→建築請負1988s 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）

2000
s Capital increases to ¥30.52 billion
following third-party allotment of
new sharess Change company name to“Leopalace 21 Corporation”

1996
Return torecurring profits

1989s Capital increases to ¥4.41billions List on over-the-counter market(JASDAQ)s Change company name to“MDI Corporation”

2001
Net worth turns positiveon a consolidated basiss Launch Leopalace REIT,
a series of real estate
securitization products

1990s Capital increases to ¥22.48 billion
Business modelin transition period
Propose and contract
construction ofleased apartments

Our Company
Rental agreement

Property ownersegment(Landowners)

Master Lease contract(promise stable
management)

Construction subcontracting revenue
Management services revenue

Leopalace21 Corporation / Annual Report 2013

Simple and convenient
leasing format(Available for use
starting from 30 days)

Tenant segment

Monthly agreement

Construction
Subcontracting
Business

Leasing
Business

Synergy

Provide various services
that support daily life

Usage fee revenue

Individuals(general)
Corporations(dormitories andcompany housing)Who we are

What our strategy is

How CSR supports
our management

What our businesses are

Sales breakdown by business

Sales breakdown by business■ Leasing Business■ Leasing Business

43.9%

Fiscal Year
Ended
March 2007

Financial Section &Corporate Data

84.4%

■ Construction Business

Fiscal Year
Ended
March 2013

50.0%
■ Hotel & Resort Business

1.1%■ Elderly Care Business & Other Businesses■ Construction Business

11.7%■ Hotel & Resort Business

1.5%■ Elderly Care Business & Other Businesses

4.9%

2.4%

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

2008
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 increase by public offering,
capital increases to ¥55.64 billion
2005
s Number of managed properties
increases to 300,000s Start Residential
and Elderly Care Businesses

Great East Japan
Earthquake

Start Return to GrowthEstablish 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 Full-scale installation of solar power systems
2012
Return to net profitss Launch “Room Customize” service

2006
s Open Leopalace Center Taipei
and Leopalace Center Pusan
2007
s Number of managed properties
increases to 400,000s Open Leopalace Center Jongno, Seouls Start Fukushima virtual solar power plant pilot projectwith Fujitsu Ltd.
s Establish “Woori & Leo PMC Co., Ltd.” in South Koreas First exercise of share subscription rights, capitalincreases to ¥58.31 billions Launch property brokerage business in South Korea
2013s Nationwide launch of “roof mega-solar project”
s Second exercise of share subscription rights,
capital increases to ¥60.41 billion
sThird exercise of share subscription rights,
capital increases to ¥62.86 billions Launch brokerage business in Taiwan

Leopalace21 Corporation / Annual Report 2013

7

8

BUSINESS MODEL TRANSITION
Traditional Business Model
Earnings Enhancement Cycle

Earnings Deterioration Cycle
Tenants

Tenants
Leasing(a rapid drop in demand)

Growth inrental income

Leopalace21

Construction

Master lease

Decline inrental income

Leasing

Leopalace21

Construction

Leasing

Decrease in supply of
new stock

Master lease

Supply of new stock

Owners

Leasing

OwnersAs a result of the rise in the unemployment rate acrossJapan due to the financial crisis triggered by the collapseof Lehman Brothers in 2008, there was also a downturnin apartment demand. At Leopalace21 as well, there
was a series of tenant departures centering on
properties under leasing agreement with corporations,leading to a reduction in rental income and a decline inLeasing Business profits. In addition, the financial crisis,
which brought about more stringent loan screening at
financial institutions, prompted us to curtail the supply of
master lease system apartments to improve occupancy
rates and caused a decline in the number of orders
received in our Construction Business. We fell into an“Earnings Deterioration Cycle,” in which there was ashrinking of our Construction Business linked to thedecline in our Leasing Business profits triggered by thedecrease in tenants.

In a period of returning to growth after the bubble’s
collapse, there was increased demand for apartments
aimed at housing for job transferees (living away fromtheir families) and company dormitories. Whilecontinuing to steadily meet this need, we substantially
increased the new supply of stock and grew ourConstruction Business by addressing the concerns oflandowners worried about vacancy risk through theintroduction of a “Master Lease System.” Our Leasing
Business was also supported by healthy growth incorporate demand, enabling us to achieve both anincrease in rental income and growth in the number ofapartments leased. During this period, we realized an“Earnings Enhancement Cycle,” in which our entire
business was led by the Construction Business as our
main business, but which also led to growth in our
Leasing Business.

“Master Lease System*” master leases up to 30 years, the initial “10-year” fixed rent renewable every two years afterward

Macro-Environment and Business Performance Trends
Period of Returning to Growth

Period of Global Recession(Before the collapse of Lehman Brothers in 2008)
Construction and Leasing Businesses: Full-scale Operation of Synergy Model(Post-Lehman Collapse)(Billion Yen)

800

Stagnation of Synergy Model

Net Sales and Operating Income

600
400
200
0
-400

FY2003

FY2004

FY2005(Each fiscal year ends on March 31)
Leopalace21 Corporation / Annual Report 2013

FY2006

FY2007

FY2008FY2009FY2010Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Future Business Model
Earnings Stabilization Cycle

Tenants

Existing master leasesystem apartments(improved occupancy rates)

Rebuilding, measures toenhance property value,renovations

Leasing

Stable rental
incomeLeopalace21

Elderly care facilities/
commercial facilities

Supply via matching ofowners and companies

Construction

Leasing

Built-for-sale products

Supply of leased
housing, etc.

Master lease

New supply limited to specific areas

Owners

Outside of
the master lease system

Looking at the current macro-environment, while there is little hope of an overall
recovery in apartment demand given the unclear economic outlook, there are signsof recovery when it comes to demand in popular areas and demand for properties
with high added value. Amid this environment, we intend to expand the number oforders received for our Construction Business by limiting new supply to specificareas and by incorporating ahead of their time ancillary equipment, such asapartment security and solar power systems, as standard features. At the sametime, we are aiming to improve our Leasing Business profits by securing stablerental income based on high occupancy rates achieved by offering more appealing
apartments. In our Construction Business, over and above these measures, we will
also work to increase orders for elderly care facilities and commercial facilities
through the matching of owners and companies. We are also moving toward therealization of an “Earnings Stabilization Cycle” in future, whereby stable earnings
can be anticipated in both our Construction Business and Leasing Business.

“Master Lease System*” master leases up to 30 years, the initial “2-year” fixed rent renewable every two years afterward*Master Lease System: Leopalace21 leases the entire building from the owner after apartment construction

Period of Economic Recovery

Targets for Final Year of
New Medium-Term
Management Plan

(The Present and Onward)
Comprehensive Enhancement of Earnings from Stock
Leasing Business (left axis)
Construction Business (left axis)
Others (left axis)
Operating income (loss)(right axis)(Billion Yen)

80
60
40
20
0

FY2011FY2012FY2013

FY2014(Projected)

FY2015(Projected)-40(Period Ending March 2015)

Net sales¥ 476.5 billion
Operating income¥16.9 billion
ROE

20.0 %
Leopalace21 Corporation / Annual Report 2013

9

10

TEN-YEAR CONSOLIDATED FINANCIAL HIGHLIGHTS
For the years ended March 31’04/3
FY2003’05/3
FY2004’06/3
FY2005’07/3
FY2006

Net sales
Leasing business
Construction business
Hotels & resort business
Elderly care business & other businesses
Cost of sales
Selling, general and administrative expenses
Operating income (loss)
Leasing business
Construction business
Hotels & resort business
Elderly care business & other businesses
EBITDANet income (loss)¥

422,224
188,864
225,0115,759
2,590
313,085
57,46851,671
7,429
54,154(3,850)(3,516)56,922
20,960¥476,267
216,591
248,033
7,282
4,361
357,546
64,03854,682
7,244
57,051(3,928)(2,641)60,53833,262¥

465,387249,696
195,202
8,340
12,149353,928
70,684
40,7758,079
39,452(2,668)(394)
45,340(16,582)¥

631,609277,163316,117
7,141
31,187474,71380,88876,007
7,031
74,615(2,628)
1,092
80,56737,358¥421,164
81,420162,666¥

453,434
149,798
108,786¥

412,804
133,62264,513¥454,820
185,785
53,160¥35,033(13,363)(30,129)
21,670¥40,349(8,979)(20,959)
31,370¥56,972(11,266)(47,947)
45,706¥63,308(15,930)(17,019)
47,378¥585.82150.9115.00¥

941.06220.7915.00¥

839.44(104.17)15.00¥ 1,054.99
234.6850.00

32.4(11.7)
(3.8)
—
0.5
6,868

37.0
24.8
8.6
21.3
0.3
7,409

At year-end:
Total assets
Net assets
Interest-bearing debt
Cash flow:
Cash flow from operations
Cash flow from investing
Cash flow from financing
Free cash flow
Amounts per share: (Yen)Net assets
Net income (loss)
Cash dividend
Ratio:
Equity ratio (%)
Return on equity (ROE)(%)
Return on assets (ROA) (%)
Payout ratio (%)
Debt/equity ratio (%)
Number of employees

19.3
28.0
5.0
9.9
2.0
5,702

33.0
28.8
7.6
6.8
0.7
6,457

(Notes) 1. U.S. dollar amounts are translated from yen at the rate of ¥94.05 = U.S. $1, the approximate rate prevailing at March 31, 2013.
2.The amounts of net assets for the fiscal years ended March 31, 2004, 2005, and 2006 represent the value of total shareholders’ equity of each year-end, and do not include minority interests.
3. EBITDA = Operating income + depreciation
4. Return on equity (ROE) = Net income/average net assets during the fiscal year x 100
5. Return on assets (ROA) = Net income/average total assets during the fiscal year x 100
6. 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)(%)

80,00016

500,000

10

60,00012

400,000

8

300,000

6

40,0008
200,000

4

20,0004
100,00020

0

800,000

600,000

400,000

200,000

00

0

FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3

FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012

FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012

Operating Income (Loss) (left axis)
Leopalace21 Corporation / Annual Report 2013

−20

−8

−40,000’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3

Operating Margin (right axis)

Total Assets (left axis)

ROA (right axis)

Who we are

What our strategy is

How CSR supports
our management

What our businesses are(Millions of yen)

Financial Section &Corporate Data

(Thousands of U.S. dollars)’08/3
FY2007’09/3
FY2008’10/3
FY2009’11/3
FY2010’12/3
FY2011¥

672,973
302,731327,541
6,072
36,630511,054
90,517
71,403
3,037
73,268(1,117)646
76,566342¥

733,235
334,561
359,155
5,611
33,909589,834
93,24550,157(1,539)70,113(805)(12,830)
55,9399,952¥

620,376
342,316
237,062
6,734
34,264
570,749
79,355(29,728)(47,876)
29,745(1,324)(6,776)(23,432)(79,076)¥484,391
356,606
107,8216,492
13,472
448,392
59,606(23,607)(30,094)
11,971(1,975)(1,222)(17,156)(40,889)¥

459,437
380,308
62,913
6,228
9,987
403,573
51,278
4,586
5,249
4,309
(1,664)(893)
10,633
1,589¥

454,222
383,574
53,3706,658
10,620396,509
50,299
7,414
8,688
2,747
(1,006)(707)
13,09813,335$42,72036,075
5,019
626
999
3,507,281
4,731
697
817
258
(95)
(66)
1,232
1,254

¥

493,956
170,156
49,711¥

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$

24,608
5,469
4,611

¥

11,746
148(26,780)
11,894¥62,843(10,049)(33,885)
52,795¥(12,991)(8,889)15,281(21,880)¥(28,337)
13,144(15,891)(15,193)¥(3,175)(3,538)
7,245(6,712)

¥

6,069
(6)
9,149
6,063

$

571
(1)
860
570

¥ 1,036.43
2.15
80.00

¥

967.40
63.54
30.00

¥

466.76(521.91)—¥

195.91(261.03)—¥199.739.40—¥

274.80
74.50
—

$

25.84
7.01
—

33.4
0.2
0.1
3,720.9
0.3
8,678

31.3
6.4
2.1
47.2
0.3
9,926

17.9
(72.8)(18.3)—
0.9
8,582■ Net Assets/ ROE

11.1(78.7)(11.8)
—
1.3
7,114

’13/3
FY2012

12.8
4.8
0.6
—
1.5
6,165

’13/3
FY2012

22.2
29.0
5.1
—
0.8
6,277

■ EBITDA■ Interest-bearing Debt

(Millions of yen)(%)

(Millions of yen)

(Millions of yen)

200,000

40

100,000

200,000

150,000

30

75,000100,000

20

50,00050,00010

25,000

0

0

0

−80

−25,000

150,000

100,000

50,0000’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3

FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012

FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012

FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012

Net Assets (left axis)

ROE (right axis)
Leopalace21 Corporation / Annual Report 2013

11

12
DIALOGUE:

MANAGEMENT OF LEOPALACE21

Eisei Miyama
Leopalace21 President and CEO

X

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

President Eisei Miyama and Outside Director Tetsuji Taya held a dialogue on
management issues, including the state of business structure reforms,
progress of the Medium-term Management Plan, the strategy for fiscal 2013,and corporate governance.

◆ Business Structure Reforms

Q:

First of all, please tell us about the business structure reforms that you have beenproceeding with in recent years. Please explain what Leopalace21 has sought to achieve
and what its strengths are so we can understand why a company that has been steadily
profitable needed to embark on structure reforms.

Miyama: Our Construction Business builds apartments aimed mainly at single
persons and our Leasing Business leases them. Our fusing of these twobusinesses, construction and leasing, is what sets Leopalace21 apart fromother companies.
I believe Leopalace21’s strengths are its sales capabilities and implementation

Structural reform isneeded to bring about abalance between theConstruction Business andLeasing Business in an eraof market transformation.

Leopalace21 Corporation / Annual Report 2013

speed. As a company with an aptitude for speed, during the era when theeconomy grew year after year, sales at our Construction Business grew rapidly
on orders our sales team secured, and this growth in turn drove sales at the
Leasing Business and overall profits higher.
However, things did not go well when the balance between the Construction
Business and the Leasing Business collapsed due to macroeconomic shifts such

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

as job losses and production adjustments resulting from rapid yen appreciation.
Thus, it became necessary for us to embark on business structure reforms tobring about a balance between the two businesses.

Taya: From my perspective, Leopalace21’s strength is that it started from scratch andhas grown to its current scale. Companies like Leopalace21 share common traits.
They have strong sales capabilities and know when to accelerate. To put it more

I believe our strengths are
our sales capabilities andimplementation speed.

precisely, decision-making at such companies is fast and they are good at execution.
I think Leopalace21, even when looking at details, has been extremely innovative.
However, there is a life cycle in business—a period of growth and a period of
maturation. Leopalace21’s strength has been its skill in accelerating in growth
periods, but in a mature period, the company needs to ease up on theaccelerator or put on the brakes a bit. I believe this was the fundamental factor
leading the company to embark on business structure reforms.

Q:

What are the key specifics in the business structure reforms?
Also, what role does Outside Director Taya play in the reforms?

Miyama: Simply put, we aim to establish a new structure with balance between
our Construction Business and Leasing Business in this period of market
transformation.
Japan’s rental housing market is becoming saturated. Even if our Construction

We aim to maximize
profits at our Leasing
Business by improving
property quality.

Business profits on increased demand, sustained growth cannot be expected
unless sound occupancy rates in the Leasing Business can be secured. Thus,
Leopalace21 is implementing business structure reforms to maximize profits at
our Leasing Business through quality improvement. Specifically, we aim to realizea recovery in profitability at the Leasing Business by enhancing the value added
to properties and reducing rental cost, while shrinking the scale of ourConstruction Business which supplies properties to our Leasing Business.

Taya: My role in the business structure reforms is to serve as a brake in management
decisions as an outsider who has no vested interest in each business. You could also
think of me as a balancer for overall optimization, rather than a partial variety. As the

My role is to serve as abrake as an outsider withno vested interests.

Construction Business itself is profitable, I have been assisting with making better
decisions on “how the business should be as a whole company.”

Leopalace21 Corporation / Annual Report 2013

13

14

◆ Medium-term Management Plan

Q:

Business structure reforms are still moving ahead but the Medium-term Management Plan
that started in fiscal 2012 also aims for growth. Please tell us about your targets.

Miyama: The various measures carried out in the earlier set of business structurereforms were focused on earnings recovery at the Leasing Business. As a result,
we achieved stable profits with our stock of existing apartments, but there is stillroom for growth in sales. That is what the Medium-term Management Plan covers.
The basic policy of the latest Medium-term Management Plan is to “establish a

We aim for stable profits
with our stock of existing
apartments and increased
sales via new businesses.

Q:

system of stable profitability, with balanced income between the Leasing Businessand the Construction Business” while incorporating a growth strategy. Two years
from now in fiscal 2014 we aim for operating income of ¥16.9 billion, a more than
two-fold increase over operating income in the previous fiscal year.

Please tell us about the first year’s results and the second year’s approachin the Medium-term Management Plan.

Miyama: In our Construction Business, sales of solar
power systems—a recently launched product—are
showing favorable progress and the roof mega-solar
project (this unit rents rooftops from apartment owners
and installs solar power systems) has also started. In
addition, in our mainstay domain of apartments, wehave launched new products designed from a female
perspective. In the Leasing Business, we started the“Room Customize” service along with efforts topromote long-term occupancy. In this fiscal year, basedon a foundation of growth created by both businesses,
we are targeting improved profitability by enhancing
the services and competiveness of our leased
managed properties.
Furthermore, we have paved the way for the Leasing
Business overseas. The establishment of the joint
venture “Woori & Leo PMC” with a South Korean
company was one of our achievements in the previous
fiscal year.

Leopalace21 Corporation / Annual Report 2013

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What our businesses are

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our management

Financial Section &Corporate Data

◆ Priority Initiatives for Fiscal 2013

Q:

What are the priority initiatives forfiscal 2013, the second year of theMedium-term Management Plan?

Miyama: Based on the foundation created last year, weplan to “stand on a new stage” in the remaining two yearsof the Medium-term Management Plan, fiscal 2013 andfiscal 2014,while aiming to continue the growth of ourcore businesses. Especially in fiscal 2013, priority will begiven to enhancing our added-value services.
Having worked to improve the value of our properties
by installing security systems in apartments and solar
power systems, we will continue to pour our efforts intosuch improvements this fiscal year. On the other hand,the “Leasing Concierge” service, which offers tenants seamless access to amenu of services from the handling of various complaints to our broad array ofservice guides, will be established in the Leasing Business to increase thesatisfaction of tenants.
In our Construction Business, we will work to improve the quality ofapartments, especially the supply of apartments with excellent sound insulation,
along with expanding the variety of buildings.
At the same time, we would like to continue to propose leading-edge productsthat will be a source of competitiveness.
Moreover, in fiscal 2013 we will work to develop business overseas. In
November 2012, we created a joint venture with Woori Housing Operation andManagement Company, which has the greatest number of managed units in

We will give priority toenhancing added value
and aim for a “new stage.”

South Korea. The management plan is still being drawn up with the aim ofstarting operations from around July of this year. Since there are no businesses
that manage properties leased from owners in South Korea, we plan to bring
Japanese know-how to South Korea to increase the number of managed units
and get the joint venture up and running smoothly.

Taya: This case in South Korea is very rare because we can utilize our management
know-how with no competitive concerns. Since the Japanese population is declining
and the economy maturing, the Construction Business is unlikely to grow significantly.
It is thus sensible to seek growth outside of Japan and we hope this venture forms a
good precedent for our overseas development.

Leopalace21 Corporation / Annual Report 2013

15

16

◆ Corporate GovernanceQ:

Mr. Taya, you are the only Outside Director at Leopalace21. From an outside perspective,
how do you see the state of Corporate Governance of Leopalace21?
And President Miyama, what do you think of the role played by Director Taya?

Taya: Upon assuming the position of Outside Director, I
made some requests of the company. To remove theasymmetric nature of information, which is the weakness of
being outside the company, I asked them to let me attend
day-to-day decision-making meetings, committee meetings,
and the like as well as to set up a system that would enable
me to access all the information necessary to offer advice on
making decisions. I think Leopalace21 has done these things
pretty well.
In addition, I believe that building an internal control
structure and compliance structure involving third parties isalso important for strengthening governance. This company
shows steady progress on this point. Overall, I believe thecorporate governance of Leopalace21 is functioning properly.

Overall, I believe
Leoplalace21’s corporate
governance is functioning
properly.

Furthermore, I believe the purpose of governance is not to strengthen itself per
se but rather to increase corporate value by ensuring the structure established toprevent specific managers from self-serving decision-making is functioning
properly. Leopalace21, under the leadership of management including thePresident, is carrying out business structure reforms to enhance corporate value.
The reforms are advancing smoothly, so I suppose the company’s governance isalso functioning properly.

Miyama: Director Taya is our only Outside Director, but I am extremely gratefulthat he states his opinions objectively concerning what direction Leopalace21
should head.
In management decision-making, the opinions of people who have been

The objective opinions of
the Outside Director are
helpful for management.

collaborating within the same company are bound to be biased in the same
direction. Director Taya sometimes provides a different opinion by suggesting“maybe it isn’t so,” thus I appreciate the checks against this predilection we
obtain through the proper functioning of the Outside Director.

Leopalace21 Corporation / Annual Report 2013

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What our businesses are

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our management

Financial Section &Corporate Data

◆ Long-term Vision

Q:

What is Leopalace21’s aim for the future?

Miyama: Leopalace21 offers “housing,” infrastructure that is essential for daily living.
We have a wide range of businesses, from housing aimed at single persons,with an emphasis on young people, to the Elderly Care Business. In terms ofproperty development, we are pursuing an integrated approach thatencompasses a wide range of buildings. Like the apartments designed from afemale perspective that were launched in the previous fiscal period, I believe in

We aim to take acomprehensive approachin Japan and overseas todeveloping “housing,”
infrastructure that isessential for daily life.

going this route there is a need to further advance proposals “offering newvalue” related to housing, such as unprecedented products or proposals that fit
certain lifestyles.
Furthermore, we will also develop our business targeting overseas markets inthe future. We plan to extend our Leasing Business not only in the current joint
venture with our South Korean partner, but also in other Asian countries.

◆ To Shareholders and Investors

Q:

Having achieved a return toprofitability, I’m sure you arethinking about the future restorationof dividends. What are yourthoughts on restoring dividends?

Miyama: Recognizing that returning profits toshareholders is a key issue in management, I think it isimportant to quickly bring about a restoration of dividends
for that purpose. Currently our retained earnings arenegative, but we are making earnest efforts to pave theway toward restoring dividends.
Over the 40-year history of Leopalace21, we have twice overcome challenging
business circumstances. Reflecting on those experiences, I believe it is important
to make cautious reforms this time. We will be able to meet your expectations
within two to three years, and I would appreciate your long-term perspective.

We seek to meet ourshareholders’ expectations
and pave the way torestoring dividends in two
to three years.

Leopalace21 Corporation / Annual Report 2013

17

18

SPECIAL FEATURE:

PROGRESS OF THE MEDIUM-TERM MANAGEMENT PLAN

Overview and Results of the Medium-Term Management Plan “Creating Future”
Overview

Results

The Medium-Term Management Plan “Creating Future”

The fiscal year ended March 2013, the first fiscal year

is a three-year management plan with the fiscal yearof “Creating Future,” we recorded net sales of ¥454.2

ended March 2013 being its first year. It targets net

billion (our initial projection was ¥463.9 billion),sales of ¥476.5 billion, an operating income of ¥16.9

operating income of ¥7.4 billion (¥8.0 billion), and net

billion, and a net income of ¥13.5 billion in the fiscal

income of ¥13.3 billion (¥5.5 billion). Although both net

year ending March 2015, the final year of the plan.

sales and operating income did not reach our target,

The basic policy of this plan is to “establish a stable

due to improved occupancy rates from measures toprofit structure with balance between the Leasingenhance property value such as “Room Customize,” aBusiness and Construction Business,” and we aim tostrategy for acquiring individual tenants, and increasing

secure operating income, especially in the Leasing

installations of security systems, we steadily improved

Business, while maintaining net sales during the period

Leasing Business profits, which was one of ourat about the same level.

objectives in the Medium-Term Management Plan.

As for action plans stipulating specific initiatives, weOn the other hand, net income greatly exceeded ourworked to “create a foundation for growth” in the fiscal

projection due to foreign exchange gains of ¥5.5 billion

year ended March 2013 and we will implementthat resulted from a sharp depreciation in the yen at themeasures to leap to a “new growth stage” in the fiscal

end of the period, as well as income tax adjustments

years ending March 2014 and March 2015.

of –¥4.6 billion resulted from accumulation of deferred
tax assets.

■ Projections and Results of the Medium-Term Management Plan
'13/3 FY2012(Unit: Billion Yen)

'14/3 FY2013'15/3 FY2014

Projected

Projected

Projected

ActualExecution rateversus plan

463.9

454.2

(9.6)

467.4

476.5

Operating income

8.0

7.4

(0.5)

14.1

16.9

Net income

5.5

13.3

7.8

11.0

13.5

Net assets

42.8

58.1

15.3

58.0

76.5

Equity ratio (%)

17.0

22.2

5.2

23.1

29.5

Operating cash flow

2.4

6.0

3.6

12.0

13.3

ROE (%)

14.3

29.0

14.7

21.8

20.0

EPS (Yen)

29.2

74.5

45.3

54.2

62.4

ROA (%)

2.2

5.1

2.9

4.4

5.2

Orders received

76.8

73.0

(3.8)

80.1

78.9

Average occupancy rateduring the fiscal year (%)

83.0

82.94

(0.06)

85.0

85.8

Net sales

Leopalace21 Corporation / Annual Report 2013

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Action Plan for Each Business (fiscal year ended March 2013: create a foundation for growth)
In the fiscal year ended March 2013, we worked to

In the Construction Business, based on measures for“create a foundation for growth” centering on enhancing

curbing orders we targeted even greater profitability

the competitiveness of core businesses and implementing

improvements by narrowing down target areas for receiving

initiatives in new areas by existing businesses.

orders and moving forward with measures to expand orders

As for specific measures of the Leasing Business, wefor construction work of facilities other than apartments.

promoted improvement of occupancy rates by creating more

As for Related Businesses, we poured effort into

attractive products through measures to enhance property

client retention, for example, maximally utilizing existingvalue, while we strengthened the sales capabilities byfacilities with the aim of increasing repeat users.

expanding sales channels. With these measures, we

Summing up these results, in terms of initiatives for

aimed to achieve operating profitability excluding thethe first fiscal year, we believe there was steadyreversal of reserve for apartment vacancy loss.

progress leading to the following fiscal years.

Enhance Competitiveness of Core Businesses
Efforts to Expand Our Existing Business into New Areas
Create a foundation for growth
Action plan

Results (fiscal year ended March 2013)

Leasing
Business

Establishment ofa stronger earnings structure
Expansion of sales channels

Compared to the end of the previous fiscal year, direct offices (domestic) increased by
25 to 174 sales offices. Combined with the increase of two in partner offices, thenumber of domestic leasing offices has increased to 366 sales offices (349 sales
offices at the end of the previous fiscal year).

Operating profitability
excluding the reversal ofreserve for apartment
vacancy loss

Compared to the end of the fiscal year ended March 2012, the reversal of the reserve
for apartment vacancy losses for the fiscal year ended March 2013 was ¥5.2 billion(projection was reversal of ¥2.5 billion) due to profitability improvement and acontraction of the average remaining term of aggregate apartment leases. The
reversal exceeded the forecast but we were able to achieve our target of operating
profitability excluding the reversal of reserve for apartment vacancy loss.

Construction
Business

Initiatives in new areas
Expand orders in areas
where occupancy rate is highAs a result of our consistent efforts to win orders in areas where high occupancy rates
can be expected in the future, specifically in the three metropolitan areas of Tokyo,
Kinki, and Chubu, the Tokyo metropolitan area accounted for 55% of orders received
in the Construction Business and the three metropolitan areas accounted for 73% oforders received.

Expand orders other thanapartments(elderly care facilities, stores)

Since the latter half of the fiscal year ended March 2012, we have started construction
subcontracting of non-residential buildings other than apartments such as elderly carefacilities and commercial facilities. This fiscal year, which is the second year of
implementation, we were able to steadily expand orders with the amount of orders
received at ¥3.4 billion for elderly care facilities and ¥400 million for commercial facilities.

RelatedBusiness

Client retention

Client retention

Occupancy rates improved and exceeded our projections in both sales and grossprofits at both the Hotels & Resort Business and the Elderly Care Business. This wasachieved by strengthening collaboration among business divisions with efforts suchas promotion activities for corporate clients in the Leasing Business. Notably, theElderly Care Business achieved its first profitable month partly due to a business
transformation implemented for some facilities.

Leopalace21 Corporation / Annual Report 2013

19

20

Action Plan for Each Business (Fiscal Years ending March 2014 and 2015: New Growth Stage)
The fiscal years ending March 2014 and March 2015,

In the Construction Business, we will hurry to establish

with our on-going motto “create a foundation for growth”

products and business areas that are expected to form aas the base, will be the two years in which we aim for a

new earnings base. Besides promoting the expansion of

new growth stage.

orders for elderly care facilities, commercial facilities, etc.,

We will work harder to realize high profitability in thewe will advance installations of solar power systems andLeasing Business. As such, besides making efforts toinitiatives to turn selling electrical power into one of ourincrease the competitiveness of leased managed

businesses. As for related businesses such as the Hotels &properties and enhance services for tenants, we will

Resort Business and the Elderly Care Business, we willcontinue to promote security system installations, forutilize existing facilities and work for streamlining operations

which there is high demand among tenants.

and management systems to maximize earnings.

Support Continuing Growth of Core Businesses
Implement Initiatives for New BusinessLeasing: Further Development as a High Earnings Business(1) Increase competitiveness of leased managed
properties by capping apartment units at 570,000■ Number of Apartment Units under Management
and Occupancy Rate

The number of managed apartments units is 546,204 units,(Units)（%）

holding the top position in the industry. In the future we think

800,000

100

600,000

75

400,000

50

200,000

25

there will be a need to scrap and build existing apartments
given the likely increase in difficulty of securing suitable landfor constructing new apartments. As such, we set our target
for the maximum number of apartment units we will manage
at 570,000, aim to decrease the vacancy rate of the properties
we manage, improve the occupancy rate from the current
82.9% (fiscal year ended March 2013) by reviewing leased

0

0
’12/3
FY2011

managed properties and improving competitiveness, etc. We
expect such efforts to lead to increased profits.

(2) Enhance services for tenants
Responding to high demand from individual tenants, we
provide “Room Customize” as a part of an enhanced set ofservices for tenants, in which even rooms in rental properties
can be personalized. We seek to enhance our product lineup
with offerings such as “My-Collection Plan,” in which custom
wallpaper is free on one wall, with a selection of more than 100
types of wallpaper. On top of this, selection of wallpaper for the“Comfort Plan” includes features or functions such as odor
elimination, humidity control, and photocatalytic self-cleaning.

Leopalace21 Corporation / Annual Report 2013

’13/3
FY2012’14/3
FY2013(projected)’15/3
FY2014(projected)■ Occupied units (left axis) ■ Vacant units (left axis) ■ New units (left axis)

Occupancy rate (right axis)

Who we are

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Financial Section &Corporate Data

(3) Install security systems
Leopalace21 is actively installing security systems, which
are highly desired by corporations and female customers.
We are implementing a plan to increase the number ofapartment units with security systems installed from136,107 units (installation rate of 24.9%) as of the end of
March 2013 to 190,000 units (installation rate of 35%) by
the end of March 2015.

(4) Structure of 400 Leasing Sales Offices
In the Leasing Business, we continue to increase thenumber of sales offices to enhance profitability. Particularly,
we are actively opening new sales offices in the three
metropolitan areas of Tokyo, Kinki, and Chubu, where highoccupancy rates can be anticipated in the future.
Leopalace21 is operating its sales offices in two forms —■ Leasing Sales Offices(Number of sales offices)

400
300

partners franchise sales offices in addition to directly
managed sales offices. In the future we will increase directly
managed sales offices in regions with many customer

200
100

needs while maintaining the current scale for partner
franchise sales offices. We will work to enhance the 366

0’11/3
FY2010sales offices as of the end of March 2013 and aim to build astructure of 400 sales offices by the end of March 2015.

’12/3
FY2011’13/3
FY2012■ Direct offices ■ Partners

Construction: Establish and Develop Products and Business Areas that will Form a New Earnings Base
(1) Expand variety of buildings (energy-saving features,
geared to seniors, stores, etc.)
Networks with landowners through apartment construction andnetworks with corporations that use our rental housings havebecome one of the strengths of Leopalace21. In these networks,
demand to construct not only apartments but elderly care facilities
and commercial facilities as well on unused land is arising. As such,
we are working to expand the variety of buildings such as facilities for
elderly care and retail shops.
As for apartments, we intend to raise ourpower of persuasion towards landowners by
expanding the lineup of products that match
future demand, for example, developing andselling the environmentally friendly eco
residence “Sky-Stage.”

Leopalace21 Corporation / Annual Report 2013

21

22

(2) Solar power system installation rate of 30%
As a solar power systems business, our solar panel
installation business is advancing with orders from apartment
owners. The cumulative total number of solar panels we haveinstalled to date is 5,931 buildings (installment rate of 27.1%)
and the generating capacity amounts to 64MW. This isequivalent to the energy consumption of 20,000 households.
In the feed-in-tariff scheme for renewable energy thattook effect from July 1, 2012, the acceleration of theinstallment of large solar power systems with capacities ofover 10 kW is thought to be a cause for the increase of■ Installation of Solar Power Systems

installments on apartments.

(Buildings)

Due to consideration for the environment and such, it isexpected that the number of apartment owners desiring

8,000

7,000
6,000

installation of solar power systems will increase in the future
as well. In addition, since J-PEC (Japan Photovoltaic
Expansion Center) will continue to provide subsidies for

4,000
2,000

cases where capacities are less than 10kW, we intend toadvance initiatives aiming to install 7,000 solar powersystems (installment rate of 30%) by the end of March 2015.

Start of Roof Mega-solar Project
We have started the Roof Mega-solar Project, which
installs solar panels on rooftops rented from multiple
apartment owners and sells generated power to electric
power companies.
As the first stage of starting the business, weestablished a special purpose company (SPC) that will be
the project-implementing body of the power generation
business with Mitsubishi UFJ Lease & Finance Co. Ltd.,
which will provide leases on equipment necessary for solar
power generation, and Omron Field Engineering Co., Ltd.,
which will carry out routine maintenance of the systems aswell as monitor power generation.
The installation of solar panels is planned to rent therooftops of properties managed by Leopalace21, and in the
future it is planned to be expanded nationwide, growing toabout 7,000 buildings (capacity of 100MW, equivalent to
the energy consumption of 30,000 households).

Leopalace21 Corporation / Annual Report 2013

0
’12/3
FY2011’13/3
FY2012’15/3
FY2014(projected)

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Financial Section &Corporate Data

Related: Maximizing Earnings
Streamlining Operations and Management Systems

Association enhancement designation course. TheseIn the Hotels & Resort Business, we will continue tofacts certainly contribute to increasing the occupancy

strengthen collaboration among business divisions

rates of neighboring hotels while raising the appeal ofsuch as promoting utilization by customers of thethe facilities themselves.

Leasing Business. In addition, the Guam resort has an

On the other hand, we promote efficiency in theappeal as a sports facility as well, and we are working

Elderly Care Business with efforts such as changing theto streamline operations and management systems. As

business model of some operated facilities to more

an example, Leopalace21’s pool has been designatedprofitable ones, namely from fee-based residential homes

by JOC as a competition enhancement center and its

to fee-based homes with nursing care, and revising

golf course has been certified as a Japan Golf

payment plans to make these facilities more accessible.

Implement Initiatives for New Businesses
Entering Leased Housing Market through Joint Venture with
South Korean Company
We established a joint venture with Woori Housing Operation &Management Company, a major residential property managementcompany of South Korea that manages 360,000 apartment units, andentered South Korea’s leased housing market. This type of initiative isthe first of its kind, and we aim for a smooth launch of the business byintroducing the knowhow cultivated in Japan to South Korea.
A unique leasing contract system called “chonse” has been
popularized in South Korea, but in recent years it has been shifting to aleasing contract system called “wolse” that is similar to Japan’s
leasing contract, which is likely to revitalize the rental housing market
in South Korea. Given this shift and the absence of a schematizedleased housing management service by a South Korean company, andwith the provision of our knowhow, we believe the prospects for thebusiness in South Korea are extremely promising.

■ Ratio of “Chonse” and “Wolse”
(%)

100
75
50
25
0
’05/3 FY2004’10/3 FY2009■ Chonse ■ Wolse

Start of Real Estate Brokerage Services
in South Korea and Taiwan
Following the launch of Leopalace Seoul Jongno office inSouth Korea, brokerage services have also started in the
Leopalace Taipei office in Taiwan in March 2013. Both offices
provide support for contract procedures and follow-throughservices for tenants after their move into a property. These
efforts contribute to the success of Japanese companies, who
are our main customers, expanding overseas, enabling themto provide their employees safe and comfortable residences.

Leopalace21 Corporation / Annual Report 2013

23

24
BUSINESS OVERVIEW:

AT A GLANCELEASING BUSINESS▶26PThis business manages procedures involved with renting theunits of managed properties based on a master lease system.
The rental agreement we developed allows usage fees to be
paid on a monthly basis, easing the burden of initial costs. Our
monthly agreement requires usage fees to be paid up front but it
includes furniture and home appliances and does not require
payment of water bills and utility costs. In addition, through“Woori & Leo PMC,” the joint venture established in South Korea
last year (November 2012), Leopalace21 has opened the way for

CONSTRUCTION BUSINESS▶28PThis business undertakes construction subcontracting ofapartments and other buildings. In the previous fiscal year
(ended March 2013), sales of solar power systems werefavorable. Along with apartments, construction subcontracting
for commercial facilities and nursing homes is also expanding.
In addition, we are also pouring effort into developing andimproving the quality of products such as apartments withexcellent sound insulation and apartments designed from afemale perspective.

expansion of its leasing management business overseas.

Key subsidiaries/affiliates:• Leopalace Leasing Corporation(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)

Breakdown of
Net Sales

Breakdown of
Net Sales

84%

12%

Occupancy Rates

Apartment Construction Sales(Fiscal Year Ended March 2013)

(%)

100

Kyushu/Okinawa

Other¥3.4 billion¥3.2 billion

Chugoku regionTokyo
metropolitan
area

90
80

¥2.2 billion¥ 33.0¥18.0 billion

billion70
0’09/3
FY2008’10/3
FY2009’11/3
FY2010’12/3
FY2011’13/3
FY2012

Chubu region

Kinki region¥2.5 billion¥3.5 billion

Changes in Net Sales

Changes in Net Sales(Billions of yen)(Billions of yen)

400

400

300

300

200

200

100

100

0

0
’09/3
FY2008’10/3
FY2009’11/3
FY2010

Leopalace21 Corporation / Annual Report 2013

’12/3
FY2011’13/3
FY2012’09/3
FY2008’10/3
FY2009’11/3
FY2010’12/3
FY2011’13/3
FY2012

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

HOTELS & RESORT BUSINESS ▶30P

ELDERLY CARE & OTHER BUSINESSES ▶31P

Via our overseas subsidiary Leopalace Guam Corporation, thisbusiness manages sports facilities such as golf courses andbaseball fields as well as resort facilities such as hotels andcondominiums on the island of Guam. It also operates hotels
at eight locations across Japan.

Under the brand name Azumi En, this business manages
private residential nursing homes, facilities offering day
services and short stays, and group homes at 58 locations in
the Kanto region. It also runs a regional community-based
nursing care business that includes home visits by nursing
care staff and the provision of in-home nursing care support
services. Through a subsidiary, it also provides small-claims
and short-term insurance covering household furnishings
aimed at tenants.

Key subsidiaries/affiliates:

Key subsidiaries/affiliates:• Leopalace Guam Corporation(hotels and resort business/Guam)• Leopalace Travel, Ltd.
(travel business)• Leopalace Insurance Co., Ltd.
(small-claims and short-term
insurance business)• Leopalace Smile Co., Ltd.
(outsourcing business/special subsidiary)• Leopalace Power Co., Ltd.
(large-scale power generation business)

Breakdown of
Net Sales

1%

Guam/Domestic Hotel Occupancy Rates

2%

Elderly Care Facility Occupancy Rates(Annual Average)(Annual Average)

(%)

(%)

100

100

75

75

50

50

25

25

0

Breakdown of
Net Sales

0’09/3
FY2008’10/3
FY2009

Leopalace Resort Guam

’11/3
FY2010’12/3
FY2011

Westin Resort Guam

’13/3
FY2012
Domestic hotels’09/3
FY2008Day services’10/3
FY2009’11/3
FY2010

Short-stays

Changes in Net Sales(Billions of yen)(Billions of yen)

40

6

30

4

20

2

10

’13/3
FY2012

Private residential nursing homes, etc.

Changes in Net Sales
8’12/3
FY201100’09/3
FY2008’10/3
FY2009’11/3
FY2010’12/3
FY2011’13/3
FY2012’09/3
FY2008’10/3
FY2009’11/3
FY2010’12/3
FY2011’13/3
FY2012

Leopalace21 Corporation / Annual Report 2013

25

26
SEGMENT OVERVIEW:LEASING BUSINESS

Performance
In fiscal 2012, the Leasing Business posted net sales of¥383,574 million (a 0.9% increase from the previous
fiscal year) and operating income of ¥8,688 million (a65.6% increase from the previous fiscal year). In thecurrent fiscal year, we increased points of contact forcustomers through the expansion of our network of
franchise sales offices (Leopalace Partners) andstrengthened our corporate sales. We also curbed thenumber of apartment units under management by
restricting property supply to areas that are expected tosee stable tenant demand. As a result, the number ofmanaged properties at the fiscal year-end was 546,000
units (down 10,000 units from the previous fiscal yearend), the occupancy rate at the fiscal year-end was
84.81% (up 1.41 percentage point from the previous

fiscal year-end), and the average occupancy rate during
the fiscal year was 82.94% (up 1.78 percentage points
from the previous fiscal year).

Operating Income (Loss)(Billions of yen)

10
0
-30
-40
-50
’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3
FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012

Business Environment and Related Issues
The domestic rental housing market is already saturated
due to the declining population and the increase invacant houses. 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
far as we can to differentiate our services by making fulluse of our distinctive strengths like studio-type housing
and rental agreements that include furniture and home
appliances, and by taking steps that will enable us toattract tenants even in this fiercely competitiveenvironment. In addition, to secure stable occupancy
rates it is necessary to limit tenant outflow while moving
ahead with cost reduction by reviewing master leaserents based on market rent levels and periodicallyreviewing our property management tasks.

Leopalace21 Corporation / Annual Report 2013

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

Who we are

What our strategy is

What our businesses are

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 leave and present
them with a proposal to relocate to another Leopalace21managed apartment. In addition, we are also making
creative efforts in services such as “Room Customize.”

Corporate sales:
By building a sales system that is not overly reliant on
one particular industry, we have made our portfolio
resilient to economic swings. In addition, we cultivate
strong relationships with our existing clients and work toincrease new clients to strengthen corporate sales bydeveloping and operating an online site (LAM System)
aimed exclusively at corporate partners.

Measures aimed at female tenants:
Females comprise only 30% of Leopalace21’s tenants.
We aim to attract more female tenants by offering

How CSR supports
our management

Financial Section &Corporate Data

comfortable places for women, such as apartments withsecurity systems, and thereby raise occupancy rates.
Specifically, we intend to enhance our services targeting
women living on their own. For example, we plan tooffer housing with plenty of storage space or with anefficient kitchen where tenants can fully enjoy cooking.

Measures aimed at international students:
Along with our overseas branch network with four sales
offices in China, three in South Korea, and one in Taiwan
and our call centers, we operate an online site (the“LAM School” site) aimed exclusively at partner
schools. We are stepping up efforts to respond to
growing demand among international students.

Expanding business overseas:
We until recently provided overseas customers rental
housing in Japan through outlets overseas, but in thenear future, we will expand our leasing management
and brokerage services in overseas markets and work tofacilitate stepped-up cooperation between our overseas
units and Japanese corporate sales function.

Key Products/Services“Room Customize”:
This innovative service enables tenants to customize their living space to suit their own
tastes—even in rental properties. The number of contracts for the “My-Collection
Plan” service, which allows tenants to change the wallpaper on one wall for free,
has already exceeded 5,000. With this service, we aim to promote long-term
occupancy by enabling tenants to personalize and form attachments to their rooms.

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 have partnered withtwo major nationwide security companies to install security systems in properties
we manage. The number of security system installations has already exceeded
130,000 units.

Overseas outlets:
Our overseas branch network includes four sales offices in China, three in South Korea,
and one in Taiwan. Through our overseas branches, we provide rental housing mainly
to people coming from overseas to Japan. In the near future, we will step up
development of our real estate brokerage services overseas so we can respond to
the needs of Japanese companies expanding overseas in terms of housing.
Leopalace21 Corporation / Annual Report 2013

27

28
SEGMENT OVERVIEW:CONSTRUCTION BUSINESS

Performance
In fiscal 2012, our Construction Business posted net
sales of ¥53,370 million (a 15.2% decrease from theprevious fiscal year) and operating income of ¥2,747
million (a 36.2% decrease from the previous fiscal year).
Since our priority in fiscal 2012 was to improve theprofitability of our Leasing Business, we made effort towin orders in areas that are expected to see stabletenant demand, while also promoting the installation ofsolar power systems which will improve the value of ourproperties. As a result, orders received in fiscal 2012
totaled ¥73,007 million (a 46.0% increase from theprevious fiscal year) and the orders received outstanding
at fiscal year-end totaled ¥47,461 million (a 12.9%
increase from the end of previous fiscal year).

Operating Income(Billions of yen)

80
60
40
20
0
’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3
FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012

Business Environment and Related Issues
Due to domestic economy recovery and an improvementin Leopalace21’s performance, the environment facing
our Construction Business is improving. On the other
hand, as shown by the continued decline in new rental
housing starts from a peak of 537,943 units in fiscal
2006, the rental housing market is saturated whenassessed at the national level. In such a difficult
environment, we aim to identify areas where highoccupancy rates are likely and expand construction
orders received based on a more detailed supply plan,
notably in Japan’s three largest metropolitan areas. As
for products, we aim to enhance product quality by
developing products from the perspective of tenants,
particularly of females, as well as implementing soundinsulation and security measures.

Leopalace21 Corporation / Annual Report 2013

Number of New Rental Housing Starts(Thousands of units)

600

400

200

0
’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3
FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012* 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

How CSR supports
our management

Financial Section &Corporate Data

Strategies
Actively supply apartment buildings in limitedareas:
Since the occupancy rate is high for relatively newbuildings and we anticipate extremely high demand in
the future, especially in Japan’s three major
metropolitan areas, we aim to expand the number ofapartments we supply, especially in those areas. In
order to establish a sales system based on demand forapartments, we opened a branch in April in Aichi
Prefecture’s Toyota and a branch in Fukushima
Prefecture’s Koriyama.

Enhancing product quality:
Having already installed sound-insulated flooring, walls,
and drainpipes, we will work hard to increase noise
insulation by providing “non-sound floors,” which morethan double the level of noise reduction compared toconventional wooden structures. We aim to erase theperception that Leopalace21 properties have thin walls
and build high-quality apartments that enable tenants tolive comfortably.

Market expansion with new products:
We will increase female tenants with products createdfrom a female perspective. Along with this, we havelaunched partial leased residences, which are designed
to combine a home with rental spaces, to cultivate newmarkets in effective land use. As for apartments, weplan to provide reinforced concrete structures as analternative to the mostly wooden construction of ourconventional apartments.

Sales of solar power systems:
In the previous fiscal period, we channeled our efforts
into sales of solar power systems for existing
apartments as one measure to enhance property value.
From this fiscal period, we will shift our focus to oursolar power business that leases rooftops fromapartment owners, but this is within the scope of ourongoing efforts to implement measures to enhance
property value.

Construction subcontracting for non-residentialbuildings other than apartments:
We are expanding our construction subcontracting of
non-residential buildings such as elderly care facilities,
for which demand will rise in future, and retail/commercial facilities.

Key Products/Services“Arma-L”:
Our first apartment with the concept of “a room designed from thefemale perspective” features a storage wall, a counter-type wall
dresser with a large mirror, and a counter-type open kitchen. All ofthese features are intended to remind the tenant of a hotel.

“Smaio”:
Our partial leased residences are built with steel-bracing construction.
The residential space for the owner can be freely designed to suitpersonal preferences, and the attached rental rooms are leased en
bloc by Leopalace21, creating a steady source of income for the owner.

“Non-sound floor V-model” with excellent sound-insulation:
We make our sound-insulated flooring, the highest level in theindustry for wooden rental housing, available for all our apartment
products as an optional extra. In terms of light/heavy floor impact
sound insulation, our sound-insulated flooring is three times more
effective and reduces audible noise to one-third of the previous levelversus current standard flooring.

High sound-insulated flooring, non-sound floor V-model (optional)
Sound-insulated sheets
Plaster board

Woodenceiling joists
Glass wool
Wooden ceiling beams
Original shearing-typevibration-proof ceiling hangers

Sound-insulating flooring
ALC board
Ply board
Floor-reinforcing materials
Floor beams
Wooden ceiling joists
Reinforced plaster board
Plaster board

Special vibration-proof dampers

Leopalace21 Corporation / Annual Report 2013

29

30
SEGMENT OVERVIEW:

HOTELS & RESORT BUSINESS

Performance

Operating Income (Loss)

In fiscal 2012, net sales at our Hotels and Resort
Business (Guam resort facilities and hotels in Japan)
grew to ¥6,658 million (6.9% more than the previous
fiscal year) due to an increase in the number of tourists
going overseas from Japan and vice versa. We posted
an operating loss of ¥1,006 million, which represents an
improvement of ¥658 million compared to the previous
fiscal year.

(Billions of yen)

Business Environment and Related Issues

Strategies

Attendant with the increase in the number of tourists
from Japan going overseas, the business environment
for our Guam resorts is turning favorable. Moreover, wehave been consistently attracting tourists from Asian
countries like South Korea, China, and Taiwan, while
domestic demand, particularly from business travelers, isalso increasing along with the recent economic pickup.

To encourage longer stays by senior citizens, we market
our Guam resorts 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. Furthermore, at various sports events held
throughout Japan, we rigorously facilitate sales activities
and encourage people to stay at our hotels in eightdomestic locations.

0
-1
-2
-3
-4
’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3
FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012

Key Products/Services
Leopalace Hotels:
Our hotels are situated across Japan in eight locations: Sapporo, Asahikawa,
Sendai, Niigata, Nagoya, Yokkaichi, Okayama, and Hakata. These hotels run
restaurants under the direct management of Leopalace21 and provide freelaundry facilities aimed at both long-term and short-term stays.

Leopalace Resort Guam:
Leopalace Guam resort is fully equipped with sports facilities that meetinternational standards. Its swimming facilities have been authorized as a “JOCauthorized 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 2013

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

SEGMENT OVERVIEW:

ELDERLY CARE & OTHER BUSINESSES

Performance
Thanks to the “Azumi En” facilities developed by theGroup, net sales at our Elderly Care Business in fiscal
2012 came to ¥9,482 million (a 7.2% increase from theprevious fiscal year). This business posted an operating
loss of ¥742 million, which represents an improvementof ¥113 million over the previous fiscal year.

Operating Income (Loss)(Billions of yen)

2
0
-2
-4
-6
-14
’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3
FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012

Business Environment and Related Issues
The business environment surrounding our elderly carebusiness is difficult. While the population requiring careis growing and the market is expanding, the number offacilities for seniors is also increasing. As a result,competition with other companies in the same businesshas grown much fiercer. Under such circumstances, we
aim to realize a near-term return to profitability throughcreative efforts and expansion of services at existing
facilities, but we are also looking at the development of
new facilities to attract demand with certainty.

Strategies
As for low-occupancy facilities for seniors, we aim to
improve occupancy rates by offering creative services ineach facility and building detailed strategies. At highoccupancy facilities, we will increase our service stations
based on surveys of surrounding markets. Up until now,
we have been leasing and managing only facilities webuilt, but in the future, we will start to extend ourservices to other companies’ properties as well.

Key Products/Services
Azumi En:
Currently, we manage 58 “Azumi En” facilities in the Kanto region.
Services at each facility include private residential homes that offer
support for daily living in a family-like atmosphere, group homes withdaily-living support through meticulous care, dayservices in which elderly people living in their own
homes can come for one-day or temporary stays
and so forth.

Leopalace21 Corporation / Annual Report 2013

31

32

A MANAGEMENT STRUCTURE BUILT ON CSR
Leopalace21’s New Basic CSR-related Policy
To respond to needs of the time and ensure our“Creating New Value”

consistency with various guidelines, including

Basic CSR Action Policy

ISO26000, we revised our four Basic CSR

In line with these basic policies and based oncompliance with the law and corporate ethics asSound and active
communication with
our stakeholders

related initiatives.

Clientcompanies
Apartment tenants
Land owners
Local
communities

Realization of a society
considerate of
the global environment

currently implementing five new basic CSR-

Creation of comfortable work
environments and cultivationof diverse human resourcesbusinesses, we have established and areContributions to
the local community

To further develop CSR activities through ourOffering services ofsuperior quality andaffluent lifestyles

Policies, which we originally formulated in 2009.

Employees
Globalenvironment
Investors andshareholders

Compliance

ance
Corporate Govern

Corporate
Code of Ethics

ophy
Corporate Philos

well as corporate governance, we aim to “create
new value” together with all stakeholders
through the promotion of CSR activities.

Corporate Governance System
Features of Management Structure

Ingenuity in Management

The Board of Directors, our decision-making body, seeks

For efficient management

to improve the Company’s performance through appropriate

The Board of Directors, besides holding regular meetingsand prompt decision-making by flexibly responding toonce a month, hold meetings as necessary and decidechanges in the business and management environment.

important matters concerning management as well as

The Board of Auditors, which has been set up as a body tocheck the progress of business execution. Furthermore,

oversee the directors’ executive actions, works to strengthen

members of the Corporate Management Council and the

management monitoring functions. The Board of Directors

Executive Officer Meeting meet as necessary wherecomprises eight directors, including one outside director.

they deliberate on important matters concerning

On April 1, 2012, with the aim of strengthening ourmanagement, discuss policies and effectiveplanning functions, we established the General Planning

implementation, and examine countermeasures related

Headquarters. Together with the Marketing and Sales

to business execution.

Headquarters and the Business Management
Headquarters, the General Planning Headquarters forms

For fair managementa tripartite structure. With this structure in place to clarify

Our Board of Auditors work to enhance the effectivenessresponsibilities and authorities, we aim to continuouslyof management by attending important meetings,

enhance our systems and corporate governance.

including Board of Directors meetings, and by surveying

In addition, for thorough governance implementation

the status of business execution based on their audit

throughout the Leopalace21 Group, the General Manager

program. Moreover, to ensure objective neutrality inof the Business Management Headquarters is responsible

management monitoring functions, we have appointed

for management of Leopalace21 and its associated

two outside auditors along with two inside auditors.

companies, as well as promoting the smooth exchange of

The Auditing Department, which is under the direct

information and group activities. Moreover, each director

supervision of the President and CEO, performs audits in

is responsible for the associated companies in a specificcollaboration with the auditors, and reports the results atbusiness category and ensures the smooth functioning of

the monthly Board of Directors meetings.

our CSR promotion, compliance, and risk management
systems, which reflect management-plan-based
measures and smooth business execution.
Leopalace21 Corporation / Annual Report 2013

Who we are

What our strategy is

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

■ Corporate Governance System
General Meeting of Shareholders
Appointment/Removal

Corporate Management Council
Directors/Standing Auditors

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

Appointment/Removal

Important
Mattersfor
Discussion

Board of Directors
8 Directors(including 1 Outside Director)
4 Auditors(including 2 Outside Auditors)

Accounting
Audit

Appointment/
Removal

Accounting Auditors
Board of Auditors

Audit

2 Standing Auditors /2 Outside Auditors

ReportAppointment/
Removal/Supervision

ReportReportsubmitted
ReportExecutive Officers Meeting
President/Executive Officers/Outside Director/Standing Auditors

Executive Actions

Marketing and Sales Headquarters

Appointment/Removal

Business Audit

General Planning Headquarters

Auditing Council
Auditing Department

Business Management Headquarters

Directors (As of June 27, 2013)

From the left: Outside Director Tetsuji Taya, Director Hiroyuki Harada, Director Yuzuru Sekiya, President and CEO Eisei Miyama,
Director Tadahiro Miyama, Director Yoshikazu Miike, Director Kou Kimura and Director Kazuto Tajiri

Leopalace21 Corporation / Annual Report 2013

33

34

Organization of CSR Promotion, Compliance and Risk Management
We ensure that our corporate activities are in compliance■ Organization of CSR Promotion, Complianceand Risk Managementwith laws and regulations, and also social ethics. In particular,
we have strengthened the compliance structure through theBoard of Directors
ReportReportReportCompliance Committee

CSR Committee

Chairperson:
President and CEO
Members:
Internal committee
members andlegal counsel

Chairperson:
General Manager ofBusiness Management
Headquarters
Members:
CSR officers

Risk Management
Committee

establishment of a Corporate Code of Ethics, an internalreporting system, and a Compliance Committee.
The Compliance Committee, which serves as theadvisory body to the Board of Directors, is chaired by the
President and CEO. The Compliance Committee iscomprised of lawyers and internal committee members,
and undertakes various initiatives to promote compliance.
Such initiatives include training as well as the expansion and

Chairperson:
President and CEO
Members:
Internal committee
members and external
committee members(lawyers and accountants)

Compliance Hotline
Jurisdiction of the Generaland Legal Affairs
Department

upgrading of the information management system.

Whistleblowers, consulters, etc.

Each business division and department

CSR activities are promoted by the CSR Committee
under the direct control of the Board of
Directors, while the Risk Management■ Specific Compliance Initiatives(fiscal year ended March 31, 2013)

Committee oversees risk management
Description

Themes

Implementation
Frequency

audit system, in addition to the Auditing

E-learning“Contracts,” etc.

2 times

Department, which is an internal auditing

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

bimonthlybasis

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

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

2 timescompany-wide. Concerning the internal

unit independent of each operations unit,
we have established the Auditing Council
to effect an even greater strengthening of
the Department, and we are working toverify, evaluate, and improve its
effectiveness in accordance with our basic
policies for internal control systems.

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

3 timesCompliance training (training
for new employees)

1 time“The Basics of Compliance,” etc.

Offering services of superior quality and affluent lifestyles
In matters concerning housing, the supply of high-quality
housing, especially of high-quality rental housing, is still ainternational customers.
Through initiatives such as these, we strive to offer

serious social issue today. Specifically, protecting

residences where superior-quality services and affluent

residences from break-ins and burglary targeting single-

lifestyles can be enjoyed.

person households when tenants are out is an urgent
necessity. Leopalace21 aims to offer residences withbeefed-up crime and disaster prevention functions, taking
the initiative with this issue by installing security systems
in managed properties and enhancing crime prevention
specifications along with the support given to our tenants.
In addition, there are higher expectations than before
for rental housing that is suited to diverse modern
lifestyles as the percentage of single-person households
exceed 30% of all households. Leopalace21 continues totake steps to further diversify, such as developing
apartments for female tenants and enhancing support for● Rental housing website in Chinese,

Korean, and Portuguese
Leopalace21 Corporation / Annual Report 2013

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Contributions to Local Communities
The progress of urbanization and depopulation is increasingly

Furthermore, we engage in day-to-day activities thatweakening the region’s connections, which have always

contribute to society. These include cooperating with blood

existed in Japan. Leopalace21 aims to support local

donations, an Ecocap Program that collects caps of plastic

contribution activities that lead to the creation of connections

bottles, the “Leopalace Recycle Reading” that donatesand solidarity in society. In each region where we develop

profits from collecting old books to the Japanese Red

our businesses, we take a flexible approach to deepen

Cross Society, and a

relationships with our stakeholders through various“Volunteer Vendor”

activities. These include a “Clean Campaign,” in which we

campaign, in which atake part in local cleanup activities together with owners

part of vending machineand corporate partners, support for workplace experiences

sales are donated toat our elderly care facility “Azumi En,” “Children

welfare organizations.

Emergency Call 110,” and snow-removal support.
● Clean Campaign

Creation of a Comfortable Work Environment and Cultivation of Diverse Human Resources
Due to an aging population, declining birthrate, andabout working hours. Leopalace21 promotes better work-

decreasing workforce, it has now become morelife balance by introducing various working-hour systems

important than ever for employees to achieve work-life

including childcare leave, shorter working hours, and● The staff of the newly establishedbalance. Companies

nursing care leave, as well as promoting shorter orthus need toflexible working hours. Furthermore, we actively promoteenhance various

employment of the disabled and foreign nationals as wellsystems, step up

as foster a better working environment for women.

efforts to promote

Through these initiatives, we aim to create adiversified working

comfortable and encouraging work environment wherestyles and find ways

each employee can demonstrate a greater range ofto be more flexible

individuality and ability.

women’s planning room

Realization of a society considerate of the global environment
One of our missions is to address the electrical power

to develop the eco-friendly rental housing of tomorrowproblem resulting from the Great East Japan Earthquake.

through actual measurement of rental housing

We are promoting the installation of solar power systems

environmental performance and proceeding with theto help relieve the problem. Along with our business ofdevelopment of eco-conscious housing.

installing solar panels on the rooftops of existing
apartments, we established a special-purpose company
to focus on the “Roof Mega-solar Project,” which started
in March 2013 as a solar power business.
In addition, we have adopted an initiative to reducegreenhouse gas emissions, which are on the increase.
We aim to contribute to reducing environmental stressthroughout our corporate activities. For example, we seek

● Actual measurement inenvironmental performance

For details on our CSR activities, please see:
CSR Report (http://www.leopalace21.co.jp/IR/library/csr/index.html)*Available in Japanese only
Leopalace21 Corporation / Annual Report 2013

35

36

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 2013

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 ofowners held as an advance for apartment repair andinformation, including personal information obtained

renovation. These consist mainly of deposits received

through the consent of, or as a result of non-disclosure

from property owners as a portion of future repair andagreements with client companies. To control information

renovation expenses, following the dissolution of

security, the Company has drawn up the required

Leopalace21 Owners Mutual Insurance Association.

information security guidelines, and set up a Compliance

Leopalace21 makes a concerted effort as a leasing

Committee to thoroughly educate our executive officers

business operator to ensure the soundness of theand employees 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 2013

37

38

FINANCIAL SECTIONManagement’s Discussion and Analysis .................................................. 39
Consolidated Balance Sheets ................................................................... 44
Consolidated Statements of Operations .................................................. 46
Consolidated Statements of Comprehensive Income ............................. 47
Consolidated Statements of Changes in Equity ...................................... 48
Consolidated Statements of Cash Flows ................................................. 49
Notes to Consolidated Financial Statements ........................................... 50
Independent Auditor’s Report .................................................................. 83

Leopalace21 Corporation / Annual Report 2013

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

1. Operating Environment
During the fiscal year under review, the future of theJapanese economy remained uncertain, primarily due toslower growth in the global economy and the prolonged
appreciation of the yen. After the end of the year,
however, circumstances changed so that an economic
recovery began to be expected, given the weaker yen
and rising stock prices, reflecting the easy monetary
policy promoted by the new government. In the housing
industry, new housing starts during fiscal year 2012
increased for the third consecutive year, and new
housing starts for rental housing also turned up for the
first time in four years (up 10.7% year-on-year).
Under these conditions, the Leopalace Group made it its
basic policy to “establish a system of stable profitability,with balanced income between the Leasing Business andthe Construction Business” in the Medium-termManagement Plan, and implemented various measures
mainly in the Leasing Business, for the current fiscal year,
the first year of the Medium-Term Management Plan, tomake it the year of “creating a foundation for new growth.”(2) Earnings
Gross profit was ¥57,713 million (up 3.3% yoy), operating
profit was ¥7,414 million (up 61.7% yoy), recurring profit
was ¥11,091 million (up 372.1% yoy), mainly due tounrealized foreign exchange gains of ¥5,592 million.
Net income drastically increased to ¥13,335 million (up739.2% yoy), mainly reflecting income taxes-deferredof - ¥4,670 million due to the accumulation of deferred
tax assets, despite the posting of an impairment loss of¥2,173 million.
■ Operating Income by Segment(Millions of Yen)FY2011FY2012

ChangeLeasing
Construction
Hotels & Resort
Elderly Care
OthersAdjustments
Total

5,249
4,309
(1,664)(855)(38)(2,416)
4,586

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

3,439
(1,562)
658
113
73
107
2,828

Change in Operating Income(Billions of yen)

2. Analysis of Business Results(1) Net Sales
Net sales during the fiscal year under review were¥454,222 million (down 1.1% yoy). In the Construction
Business, net sales declined to ¥53,370 million (down
15.2% yoy). On the other hand, net sales of the Leasing
Business rose to ¥383,574 million (up 0.9% yoy) due torecovery in the occupancy rate and favorable sales of
security systems.
■ Net Sales by Segment(Millions of Yen)FY2011FY2012

ChangeLeasing
Construction
Hotels & Resort
Elderly Care
OthersTotal

380,308
62,913
6,228
8,845
1,142
459,437

383,574
53,370
6,658
9,482
1,138
454,2223,266(9,544)430
637(4)(5,215)

10

Leasing+3.4

5

FY2011
4.6

Hotel &
ResortConstruction +0.7
-1.6

ElderlyCare+0.1

Others Adjustments
+0.1
+0.1

FY2012
7.4

0(3) Segment Information
Leasing Business
The occupancy rate at the end of the fiscal year underreview was 84.81% (up 1.41 points from the end of last
fiscal year) and the average occupancy rate for the fiscal
year under review was 82.94% (up 1.78 points from last
fiscal year).
In the Leasing Business, to ensure stable occupancy
rates, in addition to strengthening Leopalace Partners
stores and corporate sales and taking steps to raise thevalue of property by installing security systems, “RoomCustomize” was introduced as a new service in May oflast year. This service aims at expanding the number offemale tenants and encourages long-term tenancies. In

Leopalace21 Corporation / Annual Report 2013

39

40

addition, the Company continues to adjust rents paid
based on market rents, and to cut costs by reviewing
routine property management tasks such as cleaningand patrolling.
The number of units under management at the end of
the fiscal year under review was 546,000 (decreasing
10,000 from the end of last fiscal year), and the numberof direct offices was 182 (increasing 15). The number offranchise offices was 192 (increasing 2).
As a result of the above, net sales amounted to¥383,574 million (up 0.9% yoy), and operating income
was ¥8,688 million (up 65.5% yoy).
Construction Business
Orders received during the fiscal year under review were¥73,007 million (up 46.0% yoy) and the orders received
outstanding at the end of the fiscal year under review
stood at ¥47,461 million (down 12.9% yoy).
In the Construction Business, the Company focused
its activities to provide apartments in areas where solid
demand for apartments was anticipated, aiming tocontribute to higher income in the Leasing Business. It
also promoted sales of built-for-sale products that did nothave an impact on the number of units supplied, andbuildings such as elderly care facilities and commercial
facilities, as well as the installation of solar power
generation systems, etc. that increase product value.
As a result, net sales came to ¥53,370 million (down
15.2% yoy), and operating income was ¥2,747 million(down 36.2% yoy).

3. Analysis of Financial Position(1) Position of Assets, Liabilities, and Net assets
Total assets at the end of the fiscal year under review
declined ¥3,133 million from the end of the previous
fiscal year, to ¥261,650 million. This was mainly
attributable to an increase of ¥15,204 million in cash andcash equivalents and decreases of ¥6,226 million in
prepaid expenses, ¥2,962 million in other (deposits paid,etc.) under current assets, and ¥10,167 million in longterm prepaid expenses.
Total liabilities decreased ¥27,453 million from the endof the previous fiscal year, to ¥203,499 million. This
primarily reflected decreases of ¥2,627 million ininterest-bearing debt, ¥19,587 million in advances
received and long-term advances received, and ¥5,256
million in reserve for apartment vacancy loss.
Net assets were up ¥24,320 million from the end of
the previous fiscal year, to ¥58,151 million, chiefly due toan increase of ¥2,093 million in negative foreign currencytranslation adjustments balance, an increase of ¥12,609
million in common stock and capital surplus as a result of
the exercise of stock acquisition rights, and an increaseof ¥13,335 million in retained earnings due to the postingof net income. The ratio of shareholders’ equity to assets
rose 9.4 points from the end of the previous fiscal year,
to 22.2%.

Equity Ratio
(%)

40

37.0
33.0 32.4

30

Hotels & Resort BusinessNet sales in resort facilities in Guam and hotels in Japan
were ¥6,658 million (up 6.9% yoy), and the operating
loss was ¥1,006 million (improving ¥658 million).
Elderly Care BusinessNet sales were ¥9,482 million (up 7.2% yoy), andoperating loss was ¥742 million (improving ¥113 million).
Other Businesses
In Other Businesses such as the small-claims and shortterm insurance business, the residential sales business,and the finance business, net sales were ¥1,138 million(down 0.4% yoy), and the operating income was ¥35
million (compared to operating loss amounted to ¥38
million in the previous fiscal year) .

Leopalace21 Corporation / Annual Report 2013

20
10

16.6

19.3

33.4

31.3
22.2
17.9
11.1 12.8

02003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

(2) Cash Flow Position
Cash flow from operating activities was a net inflow of¥6,069 million (compared to a net outflow of ¥3,175
million in the previous fiscal year). This was mainly due
to a decrease of ¥19,587 million in advances received, aforeign exchange gain of ¥5,592 million, a decline of¥5,256 million in reserve for apartment vacancy loss, aswell as a decrease of ¥16,300 million in long-term prepaid

Who we are

What our strategy is

What our businesses are

expenses, depreciation of ¥5,684 million, other (collectionof deposits paid, etc.) of ¥4,302 million, and income
before taxes and minority interests of ¥8,971 million.
Cash flow from investing activities was a net outflow
of ¥6 million (a decline of ¥3,532 million in net outflow
from the previous fiscal year). This was primarily due toproceeds from the withdrawal of time deposits of ¥300
million (net of payments for time deposits) and other(collection of long-term trust funds, etc.) of ¥483 million,
as well as payments for the purchase of property, plantand equipment of ¥891 million.
Cash flow from financing activities was a net inflow of¥9,149 million (an increase of ¥1,903 million in net inflow
from the previous fiscal year). This was chiefly due to therepayment of interest-bearing debt of ¥3,481 million (netof proceeds from debt) and proceeds from the issuanceof shares of ¥12,552 million.
As a result, cash and cash equivalents at the end of
the consolidated fiscal year under review stood at¥56,382 million, an increase of ¥15,504 million from theend of the previous fiscal year.

4.Fundamental Policy on the Distribution of
Earnings and Dividends
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.

5. Outlook
Based on its fundamental policy of “establishing a stableprofit structure by striking a balance between profits fromthe Construction Business and from the Leasing Business”
established in its Medium-Term Management Plan, theCompany aims to build solid management strength.
The Company aims to develop the Leasing Businessfurther as a highly profitable business by taking various
steps such as expanding its sales network through newstore openings (a sales structure of 400 stores),improving strong corporate sales, addressing tenantneeds through “Room Customize” and the installation of
security systems, strengthening efforts for foreign
students who demonstrate solid demand, and reducing

How CSR supports
our management

Financial Section &Corporate Data

costs by reviewing routine property management tasks
and setting reasonable rents.
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 forreconstruction and business buildings such as elderly
care and commercial facilities. As a company-widemeasure, the Company will also maintain a low cost
structure while strategically investing in the costs(personnel, advertising, and sales promotion expenses)
necessary to expand future sales and earnings.
With respect to the funds procured from the exerciseof stock acquisition rights in the fiscal year under review(¥12.6 billion), the Company intends to appropriate theseto expenses to develop mission-critical systems andleasing business–related investments (investments inmeasures to improve income and expenditures in the
Leasing Business and capital investments in rental
properties owned by the Company).
In the next fiscal year, making it the year of “Newgrowth stage,” the Company aims at strengthening asystem of stable profitability mainly based on the
Leasing Business, which have established in this fiscal
year, and cultivating a new foundation of profits.
As for the consolidated business results of the fiscal
year ending March 2014, the Company expect sales of
467,400 million (up 2.9% year-on-year), operating
income of 14,100 million (up 90.2%), recurring income of
12,200 million (up 10.0%), and net income of 11,000
million (down 17.5%).
The Company has set its financial targets for the fiscal
year ending March 31, 2015, the final year of its MediumTerm Management Plan, at ¥476,500 million for net sales,¥16,900 million for operating income, ¥13,500 million fornet income, 20.0% for ROE, and 5.2% for ROA.

6.Issues to be Addressed by the Company(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

Leopalace21 Corporation / Annual Report 2013

41

42

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 and sales campaigns for individual clients,
expanding its sales network through new store
openings, and providing a variety of services for tenants.

(2) Cost of Sales
Based on the Company’s apartment construction
contract, the Company concludes a master leaseagreement with apartment owners to lease back theconstructed apartment for a period of time and at a rent
level that are both fixed at the time the contract isconcluded. Therefore, fluctuations in the amount ofrental income received from tenants during the contract
period could adversely affect the Company’s profitability.

(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 andimplementing measures to increase the value of
properties, in addition to establishing a rental housing
management company in South Korea and operating a“leased roof solar power generation business” through aspecial purpose company, the Company will continue towork on developing new products and services, as wellas its revenue base.

(3) Risks Associated with Tangible Fixed Assets andReal Estate Held for Resale
Impairment losses or appraisal losses due to declines in
the current market value of marketable securities,
property for sale, fixed assets, or other assets could
adversely affect the Company’s business performanceas well as its financial position. Moreover, with regard to
the Company’s Hotel and Resort Businesses, there will
be a continuing need for regular investments in facility
replacement and renewal. As a result, changes in
depreciation expenses could have an effect on the
Company’s business performance.

7. Business and Other Risks(1) Revenue-related Risk
Leopalace21 apartments are primarily utilized by single
persons, and corporate contracts typically involve shortterm leases of apartments for use as company
dormitories by workers travelling on company business.
As a result, changes in the performance of the overall
economy and corporate business results could affect
employment rates or the demand for business trips, andthis could negatively impact occupancy rates at theCompany’s apartments.
In addition, the Company have included in its forecasts
all contracted orders for apartment construction,
however the possibility that the client may not be able toobtain the necessary financing or loans from a financial
institution is an important risk factor. Changes in thewillingness of financial institutions to provide credit,changes in the assessed value of real estate to be used
as collateral, and fluctuations in interest rates could
affect the Company revenues and adversely affect theCompany’s business results.

Leopalace21 Corporation / Annual Report 2013(4) Loan Losses, and Reserve for Bad Debt
The Company conducts financing activities, and carries
on its books a balance for operating loans receivable
comprising apartment construction loans and real estate
equity loans. The Company also may guarantee thehousing loans and membership fee loans offered to its
customers by financial institutions. Apartment and otherloans where repayment has become doubtful areaccounted for separately as doubtful receivables(tangible), and a reserve is made for bad debt in eachsuch case; however, the Company’s business results
could be affected if amounts of uncollectible debt should
increase, or if the Company should be obliged to honor
claims pertaining to these loan guarantees.
(5) Reserve for Apartment Vacancy Loss
In order to prepare for a risk of losses due to an increase
in apartment vacancies, Leopalace21 has established a“Reserve for apartment vacancy loss” reserve fundequal to the amount of loss that may be expected to be
incurred during a reasonably estimable period. The
amount of this reserve is based on the rent levels set forindividual leased units, the number of households, andoccupancy rate forecasts calculated for each apartment

Who we are

What our strategy is

What our businesses arebuilding. Should any of these figures fall below theestimated values it could become necessary to increase
the amount of the reserve, and this could adversely
affect the results of the Company’s Leasing Business.
(6) Leasehold Deposits and Guarantee Deposits
The Company has long-term deposits from property
owners held as an advance for apartment repair andrenovation. These consist mainly of deposits received
from property owners as a portion of future repair andrenovation expenses, following the dissolution of
Leopalace21 Owners Mutual Insurance Association. The
Company makes a concerted effort as a leasing business
operator to ensure the soundness of the apartment
maintenance structure, through which properties fully
leased from the owner are operated and maintained.
However, an unexpected, large-scale repair or renovation
could have an impact on the company’s financial position.
The Company also has deposits for memberships
related to the Guam resort business, most of which dateto the opening of the resort complex in July 1993. The
Leopalace21 Group works to increase member usage byimproving facilities and member services, but should
there be an unexpected number of requests forreimbursement of these deposits, this could have an
impact on the Company’s financial position.

How CSR supports
our management

Financial Section &Corporate Data

Committee to thoroughly educate the Group’s executive
officers and employees about information security
issues. Nevertheless, in the unlikely event that a leak of
information of some type should occur, there is apossibility that the Group’s reputation could be damaged,
and that business performance might be affected.
(9) Other Risks
The Leopalace21 Group is aware that it incurs a variety
of risks in the course of promoting its businesses, and it
attempts to prevent, distribute or avoid risk wheneverpossible. Nevertheless, the Group’s business performanceand financial position may be affected by changes in
economic conditions, the real estate market, the financial
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 the Company 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.
(8) Information Leaks
The Leopalace21 Group holds a great deal of
information, including personal information obtained
through the consent of, or as a result of non-disclosureagreements with client companies. To control information
security, the Company has drawn up the required
information security guidelines, and set up a Compliance

Leopalace21 Corporation / Annual Report 2013

43

44
FINANCIAL SECTION:CONSOLIDATED BALANCE SHEETS
Leopalace21 Corporation and consolidated subsidiaries
March 31, 2013 and 2012

Thousands of
U.S. dollars (Note 1)

Millions of yen

2013

2012

2013

Cash and cash equivalents (Notes 2-(2), 4, 5-(2))

56,682

41,478602,678

Trade receivables (Note 5-(2))

4,360

4,541

46,362

Accounts receivable for completed projects (Note 5-(2))

2,232

1,004

23,729Operating loans (Note 5-(2))

ASSETS
Current assets:

1,880

2,420

19,987

Securities (Notes 2-(4), 5-(2), 6)

505

10

5,369

Real estate for sale / property inventories (Note 2-(3))

—

14

—

Payment for construction in progress (Note 2-(14))

340

620

3,615

Raw materials and supplies

457

491

4,863

Prepaid expenses

12,772

18,998135,803

Deferred tax assets (Note 2-(17), 10)

4,274

3,093

45,443

Other accounts receivable

1,017

1,153

10,816

Other

6,723

9,687

71,485

Allowance for doubtful accounts (Note 2-(9), 5-(2))

(346)

(447)

(3,682)90,896

83,062966,468

Buildings and structures (Notes 8, 11-(2), 17)111,350

106,865

1,183,941

Accumulated depreciation(56,609)(51,749)(601,908)

Net

54,741

55,116582,033

Land (Notes 11-(2), 8, 17)80,781

82,106858,910

Total current assets
Property, plant and equipment: (Notes 2-(5), 2-(21))

Leased assets (Note 2-(18))

6,833

6,842

72,652

Accumulated depreciation(5,034)(3,936)(53,526)

Net

1,799

2,906

19,126

Construction in progress

176

28

1,867

Other (Note 21-(1)-(a))

13,34813,664

141,941

Accumulated depreciation(11,847)(11,807)(125,963)

1,501

1,857

15,978138,998

142,013

1,477,914

Intangible assets (Note 2-(7))

6,613

7,080

70,315Investment securities (Notes 2-(4), 5-(2), 6, 11-(2))

7,177

6,490

76,309Net
Total property, plant and equipment
Investments and other assets:

571

588

6,070

Bad debt (Notes 5-(2), 9)

1,900

2,838

20,204Long-term prepaid expenses (Note 2-(8))

8,12818,29586,419Deferred tax assets (Note 2-(17), 10)

6,586

3,319

70,028

48

62

511

Long-term loans (Note 5-(2))

Bond issuance cost
Other (Note 11-(2))

3,339

4,426

35,506

Allowance for doubtful accounts (Notes 2-(9), 5-(2))(2,606)(3,390)(27,713)

Total investments and other assets

31,75639,708337,649

Total assets (Note 23)

261,650

264,783

2,782,031

The accompanying notes are an integral part of these statements.
Leopalace21 Corporation / Annual Report 2013

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 (Note 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))
Reserve for disaster losses
Reserve for switch to terrestrial digital broadcasts
Asset retirement obligations (Note 18)
Other
Total current liabilities
Non-current liabilities:
Bonds (Note 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
Retirement benefit reserves (Notes 2-(10), 13)
Reserve for apartment vacancy loss (Note 2-(11))
Asset retirement obligations (Note 18)
Other (Note 2-(16))
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity:
Common stock: (Note 20)
Authorized: 250,000,000 shares in 2013 and 2012
Issued: 217,443,915 shares in 2013 and 175,443,915 shares in 2012
Capital surplus
Retained earnings
Treasury stock: 6,190,520 shares in 2013 and 5,900,320 shares in 2012 (Note 20)
Total shareholders’ equity
Accumulated other comprehensive income:Net unrealized gains on “other securities” (Note 2-(4))
Foreign currency translation adjustments (Note 2-(20))
Total accumulated other comprehensive income
Share subscription rights
Total net assets
Total liabilities and net assets

Financial Section &Corporate Data

2013

2012

2013

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

2,791
13,31438,904
6,801
560
1,348
14,2085324
58,302
2,957
57
391
51
123
28
5,360
145,524

28,394
152,122
126,262
31,2605,954
11,672140,905
137
4,192
521,388
40,482
763
4,864
—
—
396
49,178
1,117,969

1,480
30,0201,054
32,358
8,984
8,634
13,95149
1,824
98,354203,499

2,040
—
2,001
42,6809,854
8,041
19,20750
1,555
85,428230,952

15,736319,192
11,209344,051
95,52691,804
148,334
521
19,3881,045,761
2,163,730

62,86756,563

668,446

39,425(31,019)(4,727)66,54633,884(44,964)(4,959)40,524

419,188(329,810)(50,259)
707,565648(9,061)(8,413)18
58,151
261,650249(6,969)(6,720)27
33,831
264,783

6,891(96,347)(89,456)192
618,301
2,782,031

Leopalace21 Corporation / Annual Report 2013

45

46
FINANCIAL SECTION:CONSOLIDATED STATEMENTS OF OPERATIONS
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2013 and 2012

Thousands of
U.S. dollars (Note 1)

Millions of yen

Net sales (Note 23)
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit (Note 23)
Other income (expenses):
Interest and dividend income
Equity in losses of affiliated companies
Foreign exchange gains (losses), net (Note 2-(19))
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 bad debt recovered
Gain on adjustment of accounts payable
Gain on liquidation of subsidiaries
Reversal of allowance for disaster losses
Reversal of allowance for switch to terrestrial digital broadcasts
Reversal of retirement benefit payable for directors
Loss on sale of property, plant and equipment (Note 15)
Loss on disposal of property, plant and equipment (Note 16)
Impairment loss (Note 2-(6), 8)
Reversal of share subscription rights
Disaster loss
Consumption tax refund
Other-net
Income before income taxes
Income taxes (Note 2-(17))
Current
RefundDeferred
Net income (Note 24)
The accompanying notes are an integral part of these statements.

Leopalace21 Corporation / Annual Report 2013

2013

2012

2013

454,222396,50957,71350,2997,414

459,437
403,573
55,864
51,2784,586

4,829,581
4,215,938
613,643534,81378,830

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

110
(664)
(581)
(1,375)
(633)
1
—
50
418
411
—
320
222
1,185
(0)
(111)
(2,611)
2
(4)
—
26
1,352

998
(3)
59,463(15,135)(5,835)
—
59
402
—
—
746
33
690
—
—
(904)
(23,105)——
1,157(2,009)95,387313(7)(4,670)(4,364)
13,335

205
(13)
(429)
(237)
1,589

3,329
(73)
(49,658)(46,402)141,789

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

FINANCIAL SECTION:CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2013 and 2012

Thousands of
U.S. dollars (Note 1)

Millions of yen

Net income
Other comprehensive income
Net unrealized gains on “other securities”
Foreign currency translation adjustments (Note 2-(20))
Share of other comprehensive income in affiliates
Total
Comprehensive income
Comprehensive income attributable to shareholders of the parent entity

2013

2012

2013

13,335

1,589

141,789399(2,093)0(1,694)
11,641
11,641

45
(950)
3
(902)
687
687

4,239
(22,254)
4(18,011)
123,778
123,778

The accompanying notes are an integral part of these statements.

Leopalace21 Corporation / Annual Report 2013

47

48
FINANCIAL SECTION:CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2013 and 2012

Millions of yen
Shareholders’ equity

Accumulated other comprehensive income
Total
shareholders’equityCommonstock

CapitalsurplusRetainedearnings

Treasurystock

56,56334,334(46,553)
1,589(5,501)

38,843
1,589

(0)
542

(0)
92

Net unrealized
gains on“othersecurities”

Deferred
losses onhedges

204

(3)

Share
Total
Foreignaccumulated subscription
currency
otherrightstranslation comprehensive
adjustments
incomeTotal net
assetsBalance as ofApril 1, 2011
Net income
Purchase oftreasury stock
Sales of treasury stock
Net change of items otherthan shareholders’ equity
Total change during period
Balance as ofMarch 31, 2012
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 ofMarch 31, 2013

(450)

(450)

1,589

542

1,681

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

6,304

6,304
(153)

40,524
13,335
12,608
79

232

(610)
610

(6,019)(5,818)16

33,041
1,589
(0)
92

45
45

3
3

(950)
(950)

(902)
(902)

11
11

(891)
790

249

—

(6,969)(6,720)27

33,831
13,335
12,608
79

(610)

(610)

610

610

6,304

5,541

13,945232

26,022399
399—(2,092)(2,092)(1,693)(1,693)(9)(9)(1,702)
24,32062,86739,425(31,019)(4,727)66,546648—(9,061)(8,413)18

58,151Thousands of U.S. dollars (Note 1)
Shareholders’ equity

Balance as ofMarch 31, 2012
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 ofMarch 31, 2013

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

601,413360,275(478,081)
141,789(52,731)

67,03367,033(1,638)2,472(6,482)
6,482

Accumulated other comprehensive income
Total
shareholders’equity430,876
141,789
134,066
834

Net unrealized
gains on“othersecurities”

Deferred
losses onhedges

2,652

—

Share
Total
Foreignaccumulated subscription
currency
otherrightstranslation comprehensive
adjustments
income(74,097)(71,445)288

Total net
assets359,719
141,789
134,066834(6,482)(6,482)

6,482

6,482

67,03358,913

148,271

2,472

276,689

4,239
4,239

—

(22,250)(22,250)(18,011)(18,011)

(96)
(96)

(18,107)258,582

668,446

419,188(329,810)(50,259)

707,565

6,891—(96,347)(89,456)192

618,301

Leopalace21 Corporation / Annual Report 2013

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

FINANCIAL SECTION:CONSOLIDATED STATEMENTS OF CASH FLOWS
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2013 and 2012

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 retirement benefit payable for directors
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
Disaster 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

2013

2012

2013

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

1,352
6,047
329
(13,398)(1,185)
(819)
(844)
(110)
1,375
581
664
(1)
111
2,611
4
(320)
(222)
—
3,867
105
(33)
20,617
3,483(1,098)(11,006)(16,386)(1,081)4,135(1,222)98(1,483)(568)(3,175)

95,38760,433(1,034)(55,889)
—
(216)
(613)
(998)
15,135(59,463)3—904
23,105
—
(33)
(690)
(59)
(1,085)
148
2,982
173,308(5,350)9,039(208,265)(10,985)796
45,74482,304853(13,791)(4,836)64,530

The accompanying notes are an integral part of these statements.

Leopalace21 Corporation / Annual Report 2013

49

50

Thousands of
U.S. dollars (Note 1)

Millions of yen

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 2013

2013

2012

2013

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

(579)
13
(238)
(111)
61
(34)
59
(800)
381
(2,290)(3,538)(7,520)—(1,952)
—
900
(226)
413
(3,190)
6,380
5,131
(64)

2,609
(29,638)
32,268(6,801)(1,359)(560)
12,552
78
—
9,149
292
15,50440,87856,382

16,839(625)—(7,238)(1,262)
(560)
—
91
(0)
7,245
(146)
386
40,49240,87827,736(315,128)
343,092(72,312)(14,449)(5,954)133,456
834—
97,275
3,106
164,847434,641
599,488

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

FINANCIAL SECTION:NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2013 and 2012

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, 2013, which was ¥94.05 to U.S.$1.00. Suchtranslation should not be construed as a representationthat the Japanese yen amounts have been, could havebeen, or could in the future be, converted into U.S.
dollars at this or any other rate of exchange. Certain
amounts in the prior year’s financial statements havebeen 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, 2013 include the accounts of the Company
and its 10 (9 as of March 31, 2012) significant
subsidiaries (together, the “Companies”). Affiliatedcompanies over which the Company exercises
significant influence in terms of their operating andfinancial policies have been included in the consolidated
financial statements on an equity basis. Investments in 2
affiliates (2 affiliates for the year ended March 31, 2012)
have been included for the year ended March 31, 2013.
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 2013

51

52

(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 and 5 years formachinery and equipment.
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 andstructures and from 3 to 5 years for machinery andequipment.
(6) Long-lived assets
The Companies review long-lived assets for impairment
whenever events or changes in circumstance indicate
the carrying amount of an asset or asset group may not
be recoverable. An impairment loss would be recognized
if the carrying amount of an asset or asset groupexceeded the sum of the undiscounted future cash flows
expected to be generated by the continued use andeventual disposition of the asset or asset group. The
impairment loss would be measured as the amount bywhich the carrying amount of the assets exceeds theirrecoverable amount, which is the higher of the
discounted cash flows from the continued use andeventual disposition of the assets, or the net selling priceat 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 2013

(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) Retirement benefit reserves
Retirement benefit reserves for employees are provided
based on the retirement benefit obligation as of thebalance sheet date.
Unrecognized actuarial gain or loss is to be amortizedon the straight-line basis over 5 years from the following
year when the gain or loss is incurred, which is shorter
than the average remaining years of service of theeligible employees.
Prior service cost is amortized by the straight-line
method over 5 years, which is shorter than the averageremaining years of service of the eligible employees.
Some domestic consolidated subsidiaries calculate
retirement benefit reserves based on the simplified
method.
(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.

Who we are

What our strategy is

What our businesses are(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 the amountof loss expected based on the rate of past guarantee
fulfillments.
(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 theoutcome of the construction activity is deemed certainby the end of the fiscal year ended March 31, 2013,
while the completed contract method is applied toother constructions. Progress of construction isestimated based on the method of the ratio of actual
cost incurred to total cost.
(15) Advances received
With respect to advances received, such as rent,
although the entire amount was given in the past by
including it in “advances received” under “current
liabilities,” the Company decided in the third quarter ofthe fiscal year under review to show the portion
corresponding to more than a year by including it in“long-term advances received” under “non-current
liabilities,” and the portion corresponding to a year orless by including it in “advances received” under“current liabilities.”
The classification above applies in the wake of creatinga system that makes advances received, such as rent,
correspond more accurately to the lease period
information for the lease agreements in the third quarterof the fiscal year under review. This allows the Company
to more clearly present the characteristics and actual
transactions of the Company’s leasing business which
receives rents, etc. over a long period of time, such asmonthly usage fees, as advances received.
To reflect this change in presentation methods, theCompany has reclassified its consolidated financial
statements for the previous fiscal year. As a result, the¥79,074 million shown in “advances received” under“current liabilities” and the ¥21,908 million shown in“long-term advances received” under “non-current
liabilities” in the consolidated balance sheets for theprevious fiscal year have been reclassified as ¥58,302
million in “advances received” and ¥42,680 million in“long-term advances received.”

How CSR supports
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Financial Section &Corporate Data

(16) Long-term other payable“Long-term other payable” under “non-current
liabilities,” which was presented independently in theprevious fiscal year, is presented by including it in“Other” in the fiscal year under review, as thesignificance of its amount has become minor.
To reflect this change in presentation methods, theCompany has reclassified its consolidated financial
statements for the previous fiscal year. As a result, the¥9 million shown in “long-term other payable” under“non-current liabilities” in the consolidated balance
sheets for the previous fiscal year have been reclassified
into “Other.”(17) 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.
(18) 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.
(19) 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
are recognized in the consolidated statements ofoperations.

Leopalace21 Corporation / Annual Report 2013

53

54

(20) 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.
(21) 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 ¥1,720 million($18,286 thousand) and ¥1,588 million as of March 31,
2013 and 2012, respectively.
(22) Consumption taxes
National and local consumption taxes are basically
excluded from transaction amounts. However,
LEOPALACE SSI, a consolidated subsidiary, includes
national and local consumption taxes in operating
expenses and general and administrative expenses. The
nondeductible portion of consumption taxes on thepurchase of assets is recorded as long-term prepaid
expenses and amortized evenly over 5 years.
(23) 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 2013

3. Additional Information(Changes in Accounting Policies)
Change of depreciation method
The Company and its consolidated subsidiaries in Japan
have changed the depreciation method for property,
plant and equipment acquired on or after April 1, 2012 tothat specified in the revised Corporation Tax Act inassociation with the revision of the Corporation Tax Act.
The impact of this change on profits and losses in thefiscal year under review is minor.
(New Accounting Standard and Guidance Not Yet
Applied)“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)(1) Overview
Under the current requirements, actuarial gains andlosses and past service costs after adjusting for tax
effects are recognized in the net assets section of theconsolidated balance sheet and then the net cumulative
surplus (deficit) is recognized as an asset (liability).
Methods that can be applied for attributing expected
retirement benefits to periods are to be limited to thebenefit formula basis, along with the straight-line basis.
Furthermore, the calculation method for the discountrate has been revised.
(2) Effective Dates
The new standard and guidance are to take effect fromthe end of the fiscal year ending March 31, 2014.
However, the revision that limits the methods for
attributing expected retirement benefits to periods istake effect from the beginning of the fiscal year ending
March 2015.
(3) Effects Arising from Applying New Standard
and Guidance
The effects expected to arise from applying the new
accounting standard and guidance on consolidated
financial statements are currently being assessed.

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

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 are operating
liabilities are scheduled to be paid within one year.
Loans payable, corporate bonds, and leaseobligations related to finance lease transactions
are mainly for the purpose of raising funds
necessary for investment in facilities, and thelongest 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.

2013

2012

2013

56,682(300)
56,382

41,478(600)
40,878602,678(3,190)599,488(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 is determinedby the board of directors, and the execution andadministration of derivatives transactions are
conducted in accordance with the Company’s“Derivatives Trading Management Rules.” The
derivatives trading management situation isperiodically reported to the board of directors forcomprehensive 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 ona fluctuating factor, and the value might differ if
different assumptions are used.

Leopalace21 Corporation / Annual Report 2013

55

56

(2) Fair value of financial instruments
The carrying amount on the consolidated balance sheet and fair value of financial instruments as of March 31, 2013
and 2012 as well as the differences between these values are described below. Financial instruments whose fairvalues appear to be extremely difficult to determine are not included in the table. (See (Note 2))
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 (*2)(5) Lease obligations
Total liabilities
Derivative transactions

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
66,004—56,682
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
—

Millions of yen

March 31, 2012
(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 (*2)(5) Lease obligations
Total liabilities
Derivative transactions
Leopalace21 Corporation / Annual Report 2013

Carrying value

Fair value

Difference

41,478
5,545
3,329
2,420
(127)
2,293
588
(96)
492
2,838
(2,698)140
53,277
16,10538,904
2,600
6,801
3,349
67,759—41,478
5,545
3,338
—
—
2,557
—
—
492
—
—
140
53,550
16,10538,904
2,607
6,800
3,299
67,715
—

—
—
9

264

—

—
273
—
—
7
(1)
(50)
(44)
—

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Thousands of U.S. dollars

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 (*2)(5) Lease obligations
Total liabilities
Derivative transactions

Carrying value

Fair value

Difference

602,678
70,09150,293
19,987(1,492)
18,495
6,070
(963)
5,107
20,204(19,836)368
747,032
180,516
126,262
21,690350,452
22,881
701,801—

602,678
70,09150,423——
22,108

—
—
130
—
—
3,613

5,107

—

368
750,775
180,516
126,262
21,841
350,452
23,917
702,988
—

—
3,743
—
—
151
—
1,036
1,187
—

(*1) Operating loans, long-term loans and bad debts have deductions of their respective allowance for doubtful
accounts, which are recorded separately.
(*2) Bonds due within one year (¥560 million) in the consolidated balance sheets as of March 31, 2012, are included inbonds. Also, current portion of long-term debt (¥2,940 million, $31,260 thousand) and bonds due within one year(¥560 million, $5,954 thousand) in the consolidated balance sheets as of March 31, 2013, is included in long-term
debt and bonds, respectively.
Notes:(a)Matters concerning the calculation method forthe fair 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 2013

57

58

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.

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
interest rate in consideration of residual value andcredit risk).

Short-term borrowings
Long-term debt, Current portion of long-term
debt
Lease obligations
These liabilities are stated at the net present value,(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

2013

2012

2013

1,118
824
899
111
2,952

1,198
824
903
245
3,170

11,880
8,764
9,561
1,180
31,385As 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, 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

Leopalace21 Corporation / Annual Report 2013

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

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, 2012
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

41,478

—

—

—

5,546

—

—

—

—
—

800
—

—
—

—
—

10

1,151

544

—

—
—
358
22
—
47,414

—
246
1,166
64
—
3,427

—
—
815
23
—
1,382

824
903
81
479
2,838
5,125

Due within 1 year

Due after 1 year
through 5 years

Thousands of U.S. dollars

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 after 5 years
through 10 years

Due after
10 years

602,678———

70,091

—

—

—

5,316
—

8,506
—

—
—

—
—

53

14,833

5,784

—

—
—
3,218
215
—
681,571—
1,180
10,321511—
35,351

—
—
5,827
234
—
11,845

8,764
9,561
621
5,110
20,20444,260

Leopalace21 Corporation / Annual Report 2013

59

60

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

March 31, 2013

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

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, 2012

Due within
1 yearDue after 1
through 2 years

Due after 2
through 3 years

Due after 3
through 4 years

Due after 4
through 5 years

Due after
5 years

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

38,904
560
6,801
1,348
47,613

—
560
—
1,047
1,607

—
560
—
530
1,090

—
560
—
321
881

—
360
—
90
450

—
—
—
13
13

March 31, 2013

Due within
1 yearDue after 1
through 2 years

Due after 2
through 3 years

Due after 3
through 4 years

Due after 4
through 5 years

Due after
5 years

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

126,262
5,954
31,26011,672
175,148—
5,954
31,2606,191
43,405—
5,954
287,932
3,788
297,674

—
3,828
—
1,065
4,893

—
—
—
165
165

—
—
—
—
—

—
—
—
16
16

Due after
5 years—————

Millions of yen

Thousands of U.S. dollars

6. Securities(1) At March 31, 2013 and 2012, information with respect to held-to-maturity debt securities
for which market prices were available was summarized as follows:
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

Leopalace21 Corporation / Annual Report 2013

Carrying valueMarket value

Unrecognized gain

1,321
—
—
1,321

1,333
—
—
1,333

12
—
—
12

—
—
—
—
1,321

—
—
—
—
1,333

—
—
—
—
12

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, 2012
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

800
—
—
800

809
—
—
809

9
—
—
9

—
—
—
—
800

—
—
—
—
809

—
—
—
—
9

Thousands of U.S. dollars

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

14,042——
14,042

14,172——
14,172

130
—
—
130

—
—
—
—
14,042————
14,172

—
—
—
—
130

(2) Investment securities classified as other securities as of March 31, 2013 and 2012 were as follows:
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

Leopalace21 Corporation / Annual Report 2013

61

62

Millions of yen

March 31, 2012
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)

773

447

326

1,431
—
—
75
2,279

1,407
—
—
71
1,925

24
—
—
4
354

13

13

—

237
—
—
—
250
2,529

237
—
—
—
250
2,175

(0)
—
—
—
(0)
354

Thousands of U.S. dollars

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

Leopalace21 Corporation / Annual Report 2013

Carrying value

Acquisition cost

Unrealized gain
(loss)

15,567

4,753

10,81420,097———35,664

19,648———24,401

449———
11,263

133

138

(5)

454
—
—
—
587
36,251

456
—
—
—
594
24,995

(2)
—
—
—
(7)
11,256

Who we are

What our strategy is

What our businesses are(Note)March 31, 2013
¥1,118 million ($11,880 thousand) of non-listed shares,¥824 million ($8,764 thousand) of non-listed bonds(subordinate corporate bonds), ¥899 million ($9,561
thousand) of subordinate beneficiary rights to loans andmoney in trust, and ¥111 million ($1,180 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.
March 31, 2012
¥1,198 million of non-listed shares, ¥824 million of non-

How CSR supports
our management

Financial Section &Corporate Datalisted bonds (subordinate corporate bonds), ¥903 millionof subordinate beneficiary rights to loans and money intrust, and ¥245 million of contributions to investment
business limited partnerships are not included in theother securities given above because they have nomarket value and assigning them fair market prices isrecognized to be extremely difficult.
Among the above items, non-listed bonds (subordinate
corporate bonds) and subordinate beneficiary rights toloans and money in trust were acquired by the Company
in conjunction with the securitization of nonexempt
property type apartment loans, the financing executed
primarily as contract work fee payment loans fromfinancial institutions to the Company.

(3) Proceeds from sales of other securities and gain or loss on these sales for the years ended March 31, 2013
and 2012 were summarized as follows:
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

—
—
—
—
—

March 31, 2012
None

Thousands of U.S. dollars

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

Proceeds from sale

Gains

Losses

—

—

—

—
—
—
813
813

—
—
—
59
59

—
—
—
—
—

(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

2013

2012

2013

14
7

94
—

144
77

Leopalace21 Corporation / Annual Report 2013

63

64

7. Derivative Transactions(1) Derivatives transaction not subject to the application of hedge accounting
Not applicable.
(2) Derivatives transactions subject to the application of hedge accounting
Interest rate-related derivatives
March 31, 2013
None
March 31, 2012
Millions of yen

Hedge
accounting method

Exceptional accounting
treatments applied tointerest rate swaps

Type of derivatives

Major hedged
itemsInterest rate
swaps - pay fixedinterest andreceived floatinginterest

Current portionof long-term
debt

Contract amountAmount of morethan 1 year-period
contracts

Fair value

831—(Note)(Note) Interest rate swaps subject to the application of exceptional accounting treatments are recognized together withhedged items (i.e. long-term debt), therefore their fair value are included in the fair value of the relevant longterm debt or current portion of long-term debt.

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

2013

2012

2013

59,657
13,872
24,037
20,172
11,817

62,68814,47424,302
18,736
11,043634,315
147,498
255,572
214,481
125,642(2) The Companies recognized impairment loss on the following asset groups for the years ended March 31,
2013 and 2012:
March 31, 2013
Impairment loss
PurposeRental assets(Apartment buildings
and others, 96 units)
Idle assets
Total

Leopalace21 Corporation / Annual Report 2013

Category

Buildings andStructures
Land
Land

Location

Ota-ku,Tokyo, etc.
Higashi-kagawa
City, Kagawa

Millions of yen

Thousands of
U.S. dollars

160
1,744

1,700
18,539

269
2,173

2,866
23,105

Who we are

What our strategy is

How CSR supports
our management

What our businesses are

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

Financial Section &Corporate Data

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.

March 31, 2012
Impairment loss
PurposeCategory

Location
Millions of yen

Rental assets(Apartment buildings
and others, 142 units)
Assets to be disposed

Buildings andStructures
Land
Buildings andStructures
Others (equipment)

Meguro-ku,
Tokyo, etc.

156
2,452

Nakano-ku,
Tokyo

2
1
2,611

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, to recoverable amounts and recognized
the reduced values as impairment losses. As for theassets to be disposed, the Companies reduced the bookvalue to zero and recognized impairment loss in full.
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 assets to be disposed was determinedzero because these assets will be disposed due to officerelocation.

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, 2013 and 2012 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

2013

2012

2013

14
1,100
369
417
1,900

5
1,110
1,241
482
2,838

145
11,701
3,927
4,431
20,204

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10. Income Taxes(1) Significant components of deferred tax assets and liabilities as of March 31, 2013 and 2012 were as follows:
Thousands of
U.S. dollars

Millions of yen

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

2013

2012

2013

44,181
21,326
5,189
4,259
3,094
2,393
1,427
887
601
453
424
256
163
144
135
116
83
82
61
48
27
16
12
11
—
—
200
85,588(74,360)
11,22838,58620,026
7,163
6,697
2,880
3,825
1,427
947
687
395
434
249
139
342
139
116
92
76
86
48
22
27
11
26
47
19
172
84,678(78,122)6,556

469,763
226,756
55,17645,28632,89225,441
15,177
9,428
6,389
4,815
4,511
2,726
1,734
1,529
1,438
1,237
880
872
644
508
290
171
129
112
—
—
2,119
910,023(790,635)
119,388

(359)
(9)
(368)
10,860

(136)
(8)
(144)
6,412

(3,816)(101)(3,917)
115,471(2) Reconciliation of the differences between the normal effective statutory tax rate and the actual effective tax
rate for the years ended March 31, 2013 and 2012 was not stated since the Company posted no taxable income.

Leopalace21 Corporation / Annual Report 2013

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

11. Short-term Borrowings and Long-term Debt
(1) Short-term borrowings, long-term debt and lease obligations at March 31, 2013 and 2012 consisted of
the following:Thousands of
U.S. dollars

Millions of yen

Short-term borrowings,
with average interest rate of 2.57%
Current portion of long-term debt,
with average interest rate of 2.85%
Current portion of lease obligations,with average interest rate of 5.58%
Long-term debt, due 2014 to 2015,
with average interest rate of 3.29%
Lease obligations, long-term, due 2014 to 2018,with average interest rate of 8.06%
Total

2013

2012

2013

11,87538,904

126,262

2,940

6,801

31,260

1,098

1,348

11,67230,020—319,192

1,054
46,9872,001
49,054

11,209499,595(Notes)To calculate “average interest rate,” weighted-average rates and fiscal year-end balances are used.
(2) Assets pledged as collateral for short-term borrowings and long-term debt at March 31, 2013 and 2012 wereas follows:
Thousands of
U.S. dollars

Millions of yen

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

2013

2012

2013

54,07980,5371,569
420
136,605

54,34881,585879
420
137,232

574,998
856,326
16,685
4,466
1,452,475(3) Secured borrowings with pledge of collateral at March 31, 2013 and 2012 were as follows:
Thousands of
U.S. dollars

Millions of yen

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

2013

2012

2013

10,0002,940
30,02042,96036,654
6,801—
43,455

106,326
31,260319,192
456,778

Leopalace21 Corporation / Annual Report 2013

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(4) Investment securities which have been deposited with the Legal Affairs Bureau at March 31, 2013 and 2012were 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

2013

2012

2013

45
759
107

30
695
104

478
8,071
1,141

919

731

9,768

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

2013

2012

2013

10,00010,000—16,50016,500—106,326
106,326—

13. Retirement Benefit Plans(1) The following table sets forth the funded and accrued status of the plans, and the amounts recognized in the
consolidated balance sheets as of March 31, 2013 and 2012 for the Companies’ defined benefit plans:
Thousands of
U.S. dollars

Millions of yen

Projected benefit obligation
Unrecognized prior service cost
Unrecognized actuarial gain or loss
Retirement benefit reserves

2013

2012

2013

(9,033)31368(8,634)(8,359)55263(8,041)(96,043)
323
3,916(91,804)

Certain consolidated subsidiaries apply simplified methods in calculating their projected benefit obligations.
(2) The following table sets forth the funded and accrued status of the entire pension plan as of March 31, 2012
and 2011.
Thousands of
U.S. dollars

Millions of yen

Pension assets
Projected benefit obligation
Difference

For the years ended March 31, 2012 and 2011, the main
components of the difference were unrecognized priorservice costs of ¥1,194 million ($12,697 thousand) and¥1,491 million, and insufficient amount carried forward of¥7,817 million ($83,111 thousand) and ¥6,599 million,
respectively. The Company recognized the special annuity
Leopalace21 Corporation / Annual Report 2013

2013

2012

2013

44,13953,150(9,011)43,44951,538(8,089)469,311565,119(95,808)

premium of ¥83 million ($878 thousand) and ¥86 million
as an expense in the years ended March 31, 2012 and2011, respectively. The ¥7,817 million ($83,111 thousand)of insufficient amount carried forward will be settled byincreasing the rate of special annuity premium based on
fiscal recalculation.

Who we are

What our strategy is

What our businesses are

The annuity premium contributory proportion of theentire pension plan was 33% and 32% as of March 31,
2013 and 2012, respectively.

How CSR supports
our management

Financial Section &Corporate Data

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

(3) The components of retirement benefit expenses for the years ended March 31, 2013 and 2012 weresummarized as follows:
Thousands of
U.S. dollars

Millions of yen

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

2013

2012

2013

2,025
69
83
24
2,201

2,043
165
(18)
24
2,214

21,529736
882
258
23,405(Notes) 1. For the years ended March 31, 2013 and 2012, contributions to the welfare pension fund, which wererecorded in service cost, were ¥1,129 million ($12,006 thousand) and ¥1,130 million, including ¥444 million($4,719 thousand) and ¥447 million of employee contribution, respectively.
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:
Assumptions used in accounting for
retirement benefits

Periodical allocation of estimatedretirement benefit
Discount rate
Amortization period ofprior service cost

Amortization period of
actuarial gain or loss

2013

2012

Straight-line method

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.)

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.)

Based on the resolution of eliminating retirement benefit
plans and its payment to directors, approved in the 36th
Annual General Shareholders’ Meeting held on June 29,
2009, an expected amount of ¥1,185 million wasrecorded as long-term other payable. Since the consent
to give up the retirement benefit was obtained from theeligible directors, a reversal of long-term other payable
was approved by the Board of Directors on May 6, 2011.

Leopalace21 Corporation / Annual Report 2013

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14. Gain on Sale of Property, Plant and Equipment
Gain on sale of property, plant and equipment for the years ended March 31, 2013 and 2012 were as follows:
Thousands of
U.S. dollars

Millions of yen

Buildings and structures
Land
Total

2013

2012

2013

—
—
—

1
0
1

—
—
—

15. Loss on Sale of Property, Plant and Equipment
Loss on sale of property, plant and equipment for the years ended March 31, 2013 and 2012 were as follows:
Thousands of
U.S. dollars

Millions of yen

Buildings and structures
Total

2013

2012

2013

—
—

0
0

—
—

16. Loss on Disposal of Property, Plant and Equipment
Loss on disposal of property, plant and equipment for the years ended March 31, 2013 and 2012 were as follows:
Thousands of
U.S. dollars

Millions of yen

Buildings and structures
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, 2013 and 2012,

2013

2012

2013

31
54
—
85

88
22
1
111

327
577
—
904

income arising from these rental properties were ¥4,186
million ($44,511 thousand) and ¥4,122 million, andimpairment losses were ¥2,173 million ($23,105
thousand) and ¥2,607 million, respectively.
Also, the changes in book value of rental properties
during the year ended March 31, 2013 and 2012, and thefair value as of March 31, 2013 and 2012 were as follows:

March 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

March 31, 2012
Millions of yen

Carrying value
Balance as of April 1, 2011

Increase/Decrease

Balance as of March 31, 2012

Fair value as ofMarch 31, 2012

73,051(3,788)69,26365,251

Leopalace21 Corporation / Annual Report 2013

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

March 31, 2013
Thousands of U.S. dollars

Carrying value
Balance as of April 1, 2012

Increase/Decrease

Balance as of March 31, 2013

Fair value as ofMarch 31, 2013

736,448(36,276)

700,172

687,143(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 ¥2,173 million ($23,105 thousand) and ¥2,607 million for the year
ended March 31, 2013 and 2012, 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
Out of asset retirement obligations, item recorded on the
consolidated balance sheet were as follows:(1) Outline of the asset retirement obligations
Asset retirement obligations are restoration
obligations under real estate rental agreement forshop and term leasehold interest agreement for rental
properties and asbestos removal expenses incompany-owned apartments.
(2) Calculation method of the asset retirement obligations
For the restoration obligations under real estate rental
agreement for shop, the estimated period of use at 5
years from its acquisition and the discount rate at

0.120% to 1.797% are used to calculate the amountof the asset retirement obligations.
For the restoration obligations under term leaseholdinterest agreement for rental properties, theestimated period of use at 11-30 years depending on
the period of the agreements (useful lives of buildings
according to the former Act on Land and Building
Lease) and the discount rate at 1.329% to 2.301%
are used to calculate the amount of the asset
retirement obligations.
For asbestos removal expenses in company-owned
apartments, the estimated period of removal at 3 years
and the discount rate at 0.193% are used to calculate
the amount of the asset retirement obligations.

(3) Changes in the total amount of the asset retirement obligations during the year were as follows:
Thousands of
U.S. dollars

Millions of yen

Balance at beginning of year
Increase due to acquisition of tangible fixed assets
Adjustments due to the passage of time
Decrease due to fulfillment of asset retirement obligations
OthersBalance at end of year

19. Business Combinations
Transactions under Common Control(1) Overview of Transaction(a)Name and Business of Combined Company
Name of the company: Leopalace Guam Corporation
Business description: Operation of hotels and resort
facilities

2013

2012

2013

78
9
1
(2)
0
86

78
4
1
(6)
1
78

830
100
9
(23)
1
917

(b)Date of Business Combination
March 26, 2013(c)Legal Form of Business Combination
Debt equity swap(d)Name of Company after Business Combination
The company’s name has not changed.

Leopalace21 Corporation / Annual Report 2013

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(e) Other Transactions
Leopalace Guam Corporation increased capitalthrough the conversion of loan claims into
investment in kind with the aim of decreasing
Leopalace Guam Corporation's interest-bearing
debt, strengthening Leopalace Guam Corporation’s
financial structure via the enhancement of its
capital base, and minimizing short-term foreign
currency exchange risk exposure. Moreover, there
has been no change as a result of this investment
in Leopalace21 Corporation’s ownership ratio in
Leopalace Guam Corporation, which has been andremains a wholly-owned consolidated subsidiary of
Leopalace21 Corporation.
(2) Overview of Account Treatments
This business combination is treated as transactions
under common control based on the “AccountingStandard for Business Combinations” (ASBJ Statement
No.21, December 26, 2008) and “Revised Guidance on
Accounting Standard for Business Combinations andAccounting Standard for Business Divestitures” (ASBJ
Guidance No.10, Revised December 26, 2008).

(3) Items Concerning Additional Acquisitions of Subsidiary Shares(a) Acquisition Cost and Breakdown

Consideration for
Acquisition

Millions of yen

Thousands of
U.S. dollars

44,319471,228

9,025
35,294

95,964375,263

Total face value of loan claims subject to conversion
into equity as an investment in kindNet of doubtful account allowance for loans claims
subject to investment in kind

Acquisition Cost(b) Goodwill amount, causes, amortization method and amortization period
Not applicable.

20. Supplemental Information on the Statement of Changes in Equity
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 the end of this fiscal year.

Leopalace21 Corporation / Annual Report 2013

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

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 of March 31, 2013

April 1, 2012

Increase

Decrease

March 31, 2013

Millions of yen

Thousands of
U.S. dollars—
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

192
—
—
—
192

(Note) The decrease of 1st to 3rd series SARs is due to the exercise of SARs.
Shares issued and treasury stocks for the year ended March 31, 2012 were as follows:
Type of shares

Shares issued
Common stock
Total
Treasury stock
Common stock
Total

April 1, 2011

Increase

Decrease

March 31, 2012

175,443,915
175,443,915

—
—

—
—

175,443,915
175,443,915

6,867,850
6,867,850

170
170

677,500
677,500

6,190,520
6,190,520

1. Breakdown of amounts of increase was as follows:
Purchase of shares of less than one unit
170 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
677,500 shares
3. Number of treasury stock includes 1,621,400 shares held by the Trust Account as of March 31, 2012.
Stock acquisition rights (SAR) and own share options for the year ended March 31, 2012 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
April 1, 2011

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

Outstanding as ofMarch 31, 2012
March 31, 2012
Millions of yen

—
—
—
—
—

18
3
3
3
27

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

Leopalace21 Corporation / Annual Report 2013

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21. Leases(1) Finance lease transactions
The Companies primarily lease furniture and electronic
appliances, for apartments of their leasing business, andsoftware.
(a) The following pro forma amounts represent theacquisition cost, accumulated depreciation and net
book value of leased property as of March 31, 2013
and 2012, 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
VehiclesEquipment
Accumulated depreciation
VehiclesEquipment
Net book value
VehiclesEquipment

2013

2012

2013

—
5,574

8
9,707

—
59,261

—
5,256

7
8,222

—
55,884

—
318

1
1,485

—
3,377

( b) The amounts of outstanding future lease payments under finance lease subsequent to March 31, 2013 and 2012
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

2013

2012

2013

300
55
355

1,307
355
1,662

3,186
585
3,771

(c) Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2013 and 2012 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.

Leopalace21 Corporation / Annual Report 2013

2013

2012

2013

1,351

2,179

14,363

1,168
44

1,900
123

12,421463(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.

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

(2) Operating lease transactions
Future minimum lease payments related to non-cancelable operating leases subsequent to March 31, 2013 and 2012were as follows:
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

Millions of yen

March 31, 2012

Future lease
payments

Prepaid lease
payments

Differences

Due within one year

268,014(268,014)
851,582(851,582)
1,119,596(1,119,596)

17,077(17,077)
17,748(17,748)
34,825(34,825)

250,937(250,937)
833,834(833,834)
1,084,771(1,084,771)

Due after one year
Total

Thousands of U.S. dollars

March 31, 2013

Future lease
payments

Prepaid lease
payments

Differences

Due within one year

2,693,683(2,693,652)
6,922,537(6,922,440)
9,616,220(9,616,092)

117,586(117,586)
79,387(79,387)
196,973(196,973)

2,576,097(2,576,066)
6,843,150(6,843,053)
9,419,247(9,419,119)

Due after one year
Total

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

22. Contingent Liabilities
Contingent liabilities as of March 31, 2013 and 2012 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
Contingent liabilities to suppliers of affiliated company(Toyo Miyama Kogyo Co., Ltd.)
Total

2013

2012

2013

1,336

1,470

14,206

16

22

166

—
1,352

213
1,705

—
14,372

Leopalace21 Corporation / Annual Report 2013

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76

agency business. The Construction Businessconstructs apartments and other buildings and installs
solar power systems on a contract basis. The Hotels& Resort Business operates hotels and resort
facilities. The Elderly Care Business operates elderly
care facilities.

23. Segment Information(1) Overview of Reportable Segments
The Companies’ reportable segments are thecomponents for which separate financial information
is available, and whose operating results are reviewed
regularly by the board of directors in order todetermine allocation of resources and assess
segment performance.
The Companies have four reportable segments, theLeasing Business, Construction Business, Hotels &Resort Business and Elderly Care Business.
The Leasing Business operations comprise theleasing and management of apartment buildings andother properties, repair work, broadband internet
service, rent guarantee, and the company residence(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 reportablesegment profits (losses) represent operating income(loss). Inter-segment sales and transfers are based onprevailing market prices.

(3) Information Regarding Sales, Profits and Losses, Assets, and other Items by Reportable Segment for theyears ended March 31, 2013 and 2012 were as follows:
Millions of yen

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

Leasing
Business

Reportable segment
Hotels & Elderly Care
Construction
ResortBusiness
Business
Business

Segment
Total

Others

Total

Adjustments

Consolidated
Total

—

454,222

383,574

53,370

6,658

9,482

453,084

1,138

454,222483
384,057
8,688
107,726388
53,7582,747
15,851

1,865
8,523(1,006)
43,692—
2,736
9,482 455,820
(742)
9,687
2,193 169,462

77
1,215
35
4,380

2,813
457,035
9,722
173,842

2,594

199

1,708

67

4,568

53

4,621

1,063

5,684

113

7

184

29

333

281

614

566

1,180

(2,813)—(2,813) 454,222(2,308)7,414
87,808 261,650(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(38)(2,270)(2,308)(403)(24,139)(24,542)*Corporate expenses consist mainly of general administrative expenses for administrative departments that are
not part of reportable segments.

Leopalace21 Corporation / Annual Report 2013

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Adjustments in segment assets (¥87,808 million, $933,635 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 (¥566 million, $6,027
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.
Millions of yen

Reportable segment

March 31, 2012
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

459,437—

459,437

60
1,202
(37)
4,371

1,705
461,142
7,002
196,643(1,705)(1,705)(2,416)
68,140—459,437
4,586
264,783

4,783

47

4,830

1,217

6,047

1,146

44

1,190

294

1,484

Leasing
Business

Construction
Business

Hotels &ResortBusiness

Elderly Care
Business

Segment
Total

380,308

62,914

6,228

8,845

458,295

1,142

427
380,735
5,249
131,747—
62,914
4,309
16,1301,218
7,446(1,664)42,096

—
8,845
(855)
2,299

1,645
459,940
7,039
192,272

2,661

251

1,804

67

755

9

381

1

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, and residential sales business.
2. Breakdown of adjustments was as follows:
Segment profit (loss)
Millions of yen

Inter-segment eliminations
Corporate expenses*
Total

20
(2,436)(2,416)*Corporate expenses consist mainly of general administrative expenses for administrative departments that are
not part of reportable segments.
Adjustments in segment assets (¥68,140 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 (¥294 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 2013

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78

Thousands of U.S. dollars

Reportable segment

March 31, 2013

Leasing
Business

Sales
Sales to customers 4,078,407
Inter-segment sales
and transfers
5,136
Total
4,083,543
Segment profit (loss)
92,372
Segment assets
1,145,415
Other items
Depreciation
27,578
Increase in property,
plant, and equipment,
and intangible assets
1,197

Consolidated
Total

Construction
Business

Hotels &ResortBusiness

567,463

70,790100,822 4,817,482

12,099 4,829,581— 4,829,581

4,129
571,592
29,211
168,533

19,830—29,09590,620 100,822 4,846,577(10,694)(7,892) 102,997
464,567
23,317 1,801,832

810
29,905
12,909 4,859,486
375 103,372
46,564 1,848,396(29,905)—(29,905) 4,829,581(24,542)
78,830933,635 2,782,031

Elderly Care
Business

OthersSegment
Total

Total

Adjustments

2,117

18,156717

48,568561

49,12911,30460,433

77

1,954

311

3,539

2,985

6,524

6,027

12,551

Related information
1. Products and services
Information concerning products and services has been omitted, since similar information is reported in “23. 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, 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, 2012
Millions of yen

Japan

Trust territory of U.S.A. Guam

People’s Republic of China

Total

112,20329,804

6

142,013

March 31, 2013
Thousands of U.S. dollars

Japan

Trust territory of U.S.A. Guam

People’s Republic of China

Total

1,137,500

340,37143

1,477,914

Leopalace21 Corporation / Annual Report 2013

Who we are

What our strategy is

How CSR supports
our management

What our businesses are

Financial Section &Corporate Data

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, 2013
Millions of yen

Impairment loss

Leasing
Business

Construction
Business

Hotels & Resort
Business

Elderly Care
Business

OthersAdjustments

Consolidated
Total

1,903

—

—

—

—

270

2,173

March 31, 2012
Millions of yen

Impairment loss

Leasing
Business

Construction
Business

Hotels & Resort
Business

Elderly Care
Business

OthersAdjustments

Consolidated
Total

2,607

—

—

—

4

—

2,173

Leasing
Business

Construction
Business

Hotels & Resort
Business

Elderly Care
Business

OthersAdjustments

Consolidated
Total

20,239

—

—

—

—

2,866

23,105

March 31, 2013
Thousands of U.S. dollars

Impairment loss

Information concerning goodwill amortization and unamortized balance by reportable segments
For the years ended March 31, 2013 and 2012
Not applicable.
Information concerning gain on negative goodwill by reportable segments
For the years ended March 31, 2013 and 2012
Not applicable.

24. 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, 2013 and 2012.
Yen

Net assets
Net income
Basic
DilutedU.S. dollars

2013

2012

2013

274.80199.73

2.92

74.50
74.48

9.40
9.40

0.79
0.79

Leopalace21 Corporation / Annual Report 2013

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80

(2) Basis of computation of basic and diluted net income per share for the years ended March 31, 2013 and 2012
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)

2013

2012

2013

13,335—
13,335

1,589
—
1,589

141,789—
141,789

179,002

168,996

179,002

Thousands of
U.S. dollars

Millions of yen

2013

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

The Company recognizes stocks held by “Leopalace 21
Employee Stock Ownership Committee Trust Account”(1,331,200 shares as of the end of the year ended March
31, 2013, and 1,621,400 shares as of the end of the year

2012

—
—
—
41
41
34
(41)
(41)
(34)
New stock
New stock
New stockacquisition rights acquisition rights acquisition rights(650)(28,000,650)(650)

ended March 31, 2012) as the treasury stock. As a result,
those numbers are eliminated in calculating “weightedaverage number of common shares during the fiscal year.”

25. Related Party Transactions
The following tables set forth related party transactions for the years ended March 31, 2013 and 2012.
For the year ended March 31, 2013(a) Unconsolidated subsidiaries and affiliates
None

Leopalace21 Corporation / Annual Report 2013

2013

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Datab) 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 amount

Relation

Leasing of landand building

BalanceMillions of yen

Thousands of
U.S. dollars

26

277

Account

Millions of yen

Thousands of
U.S. dollars

886Long-term
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.
For the year ended March 31, 2012(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
Takeshi Yoshioka

—
—

—
—

—
—

—
—

Leasing of land and building
Leasing of land and building

Attribute

Name

Directors andclose relatives

Transaction

Toshiko Miyoshi Leasing of apartments
Takeshi Yoshioka Leasing of apartments

Transaction amount(Millions of yen)Account

Balance(Millions of yen)

26
10Long-term prepaid expenses—

14—(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.
4. Takeshi Yoshioka is a close relative of Yoshikazu Miike, Director of the Company.

Leopalace21 Corporation / Annual Report 2013

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82

26. Other
The following tables set forth quarterly information for the years ended March 31, 2013.
Millions of yen(Cumulative period)First quarter

Second quarter

Third quarter

Full-year

Net sales
Income (loss) before income taxes
Net income (loss)
Net income (loss) per share (yen)106,450(3,954)(4,009)(23.67)219,998(2,140)(2,258)(13.15)329,834
5,247
5,045
29.10

454,222
8,971
13,33574.50(Accounting period)First quarter

Second quarter

Third quarter

Full-year

Net income (loss) per share (yen)(23.67)

10.06

41.33

42.26

Thousands of U.S. dollars(Cumulative period)First quarter

Second quarter

Third quarter

Full-year

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

1,131,843(42,041)(42,631)(0.25)

2,339,158(22,754)(24,010)(0.14)

3,507,007
55,78453,6430.31

4,829,581
95,387
141,7890.79(Accounting period)First quarter

Second quarter

Third quarter

Full-year(0.25)

0.11

0.44

0.45

Net income (loss) per share (dollars)

27. Subsequent Events
Not applicable.

Leopalace21 Corporation / Annual Report 2013

Who we are

What our strategy is

What our businesses are

How CSR supports
our management

Financial Section &Corporate Data

Leopalace21 Corporation / Annual Report 2013

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CORPORATE PROFILE● Corporate Data

(As of March 31, 2013)● Members of Board of Directors and Auditors(As of June 27, 2013)

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:¥62,867.36 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
Yoshikazu Miike
Kou Kimura
Kazuto Tajiri
Hiroyuki Harada
Tetsuji Taya

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

Masumi Iwakabe
Mutsuhiro Yamada
Koichi Fujiwara
Masahiko Nakamura

Number of Employees:
6,277 (consolidated basis)
5,390 (non-consolidated basis)● Major Shareholders (Top10)(As of March 31, 2013)

Thousands ofSharesPercentage of
Outstanding Shares

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

19,7009.25%

2 Goldman Sachs International

13,254

6.22%

3 State Street Bank and Trust Company 505019

12,973

6.09%

4 LIXIL Corporation

10,500

4.93%

5 Stockholding Association for Leopalace21’s Business Connection

6,853

3.21%

Shareholders

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

6,030

2.83%

7 MSIP CLIENT SECURITIES

3,562

1.67%

8 Shin Takahashi

3,229

1.51%

9 Credit Suisse Securities (Europe) Ltd. Main Account

3,123

1.46%

10 MSCO CUSTOMER SECURITIES

3,030

1.42%

Notes: (1) Leopalace21 holds 4,569 thousand shares in treasury stock, but is excluded from the major shareholders list above.
(2) Of the shares in the major shareholders list above, those held in trust accounts as part of trust banking operations are as follows:
Japan Trustee Services Bank, Ltd. (Trust Account)
19,670 thousand shares
The Master Trust Bank of Japan, Ltd. (Trust Account) 6,030 thousand shares(3) Treasury stock is excluded in calculating the percentage of outstanding shares.

● Stock Information(As of March 31, 2013)

Number of Shares:
Authorized: 500,000,000
Outstanding: 217,443,915
Number of Shareholders:
35,586
Listing:First Section of the Tokyo Stock Exchange(Security code: 8848)
Transfer Agent:
Mitsubishi UFJ Trust and Banking Corporation

Leopalace21 Corporation / Annual Report 2013

● Shareholder Composition(As of March 31, 2013)■ Financial Instruments■ Treasury Stocks

Business Operations(Securities Companies)
3.5%

2.1%

■ BusinessCorporations
and Other
Legal Entities
7.8%■ Financial

Institutions

16.4%■ Individuals

and Other
27.5%■ Foreign
Corporations
42.8%

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

48

14,267
4
5,195
2
Okinawa Area

174 offices(As of March 31, 2013)

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

Number of
Leased Managed Properties

546,204 units

85

Hokkaido Area

Total Number ofPartners Franchise Sales Offices

192 offices

13
13

40,68026
2477,807

Tohoku Area

18
10

36,97512
1533,294

Hokuriku/Koshinetsu
Area

Kinki Area

Chugoku Area

12
14

39,837Kita-Kanto Area

6
5
Shikoku Area

14,49886,63121
15

43,090

28
23

48
45

153,930
Chubu Area

Kyushu Area

Metropolitan Area

● Share Price and Trading Volume(As of March 31, 2013)

Share Price

Trading Volume(Yen)(Thousand shares)

500

120,000

400

100,000

300

80,000200

60,000100

40,00020,000

0

Apr.
2012

May

Jun.

Jul.

Aug.

Sept.

Oct.

Nov.

Dec.

Jan.
2013

0

Feb.

Mar.

Leopalace21 Corporation / Annual Report 2013

1
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 2013

Leopalace21 Corporation / Annual Report 2013