Creative
Evolution

Annual Report 2017
For the fiscal year ended March 31, 2017

Profile
Leopalace21 has established a unique business model fusing two core businesses, the Development Business, which involves inreal estate development as well as constructing apartments aimed mainly at single person households, and the Leasing Business,
which involves renting units of apartments we manage after they are built.
Through efforts to strengthen the profitability of the Leasing Business, Leopalace21 is moving forward with the establishment of
a “stock-based business model,” which generates stable profits from renting apartments it manages. At the same time, our portfolio extends to the Elderly Care Business and Hotels, Resort & Other Businesses.
In our International Business, we are expanding globally with a focus on Asia.
In these ways, Leopalace21 is a one-stop provider in Japan and overseas of a wide range of real estate services.

Contribute to society by creating
and providing new value based on
the theme of “housing.”
Corporate Philosophy

Mission Statement“Creating New Value”

We seek to always be innovators,
to create without ceasing,

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

and further,
we strive to increase value
for society as a whole.

Adopted on December 16, 2016

Leopalace21 Annual Report 2017

Leopalace21 delivers unique and exclusive values
in Japan and overseas through our four businesses.

Hotels, Resort & Other Businesses

1.4%

Elderly Care Business

2.2%

Development Business15.4%

Net sales composition ratio*‘17/3 FY2016

Leasing Business

81.0%*Numbers are used under new business segments.

01

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Leo palace2 1 An nua l Repor t 2017

Contents

Leopalace21: Who We Are

Initiatives for Creating Value

President Eisei Miyama’s message to stakeholders contains
core information for this integrated report, along with ourframework for creating value and results, and the transition of
our business model over time.

26

Top Interview

35

Special Feature 1: Leopalace21’s Challenge

40

Special Feature 2: Leopalace21’s Work-style Reform

42

Business Overview

03

To Our Stakeholders

04

Trajectory of Growth06

Business Model and Strength08

Leopalace21 Value Creation

10	Leopalace21 Value Creation Responding toSocial Challenges and Needs

At a Glance

44

Leasing Business46
		Responding to Social Challenges andCreating Value
This section is on our business model, our greater point ofdifferentiation, and it explains advantages we think will enable
us to prevail over competitors.

42

Development Business (Construction Business+ Real Estate Development Business)

48

Elderly Care Business

49

Hotels, Resort and Other Businesses

Initiatives for Supporting Corporate Value
50

Corporate Governance Dialogue:
Toward Increasing Corporate Value

58

Corporate Governance64

Leopalace21’s Management Plan and
CSR Activities

18

Ten-Year Consolidated Financial Highlights

20

Consolidated Financial Highlights

22

Business Model Transition

Data Compilation

24

Medium-Term Management Plan Transition

74

Financial Section

122 Data Compilation
128 Corporate Profile

Editorial Policy
We publish an integrated report that combines an annual report with corporate social responsibility (CSR) reporting. The purpose of this report isto enable management to communicate its message to all our stakeholders. We seek to present our management strategy, priority measures, an
overview of business conditions, etc. as well as inform readers about our CSR activities.
This report covers the fiscal year from April 1, 2016 through March 31, 2017 (fiscal year 2016). The scope is Leopalace21 Corporation and its
consolidated subsidiaries in Japan and overseas. Our aim is to publish to the extent possible the latest information available as of the publication
date. With the aim of promoting deeper reader comprehension, the report includes macro-economic data relating to our businesses, and the “DataCompilation” section enables readers to understand trends to date. We take care to explain what we present in ways that are readily understandable
so that the report serves as an effective communication tool that reaches our many stakeholders.
In this report, the main focuses are on what we are doing to create value in the medium- and long-term and our initiatives to reinforce the effectiveness of our corporate governance. It is our hope this report will help our stakeholders obtain a greater understanding of the Company.

Reference Guidelines• ISO26000• GRI (Global Reporting Initiative)
Fourth-generation (G4) of sustainability reporting guidelines

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

Leopalace21 Annual Report 201703

To Our Stakeholders

Initiatives for Creating Value
Initiatives for Supporting Corporate Value
Data Compilation

June 2017
Eisei Miyama
President and CEO

Responding to Social Challenges and Creating Value

In fiscal 2016 (fiscal year ended March 31, 2017), amid improving
environments for employment and incomes, the Japanese economy remained in a mild recovery stage. In the housing sector, thefallback in demand following the consumption tax hike has ebbed,
and with the supply of apartments and other rentals increasing as
more landowners seek to lighten their inheritance tax burden, newhousing starts and new rental housing starts rose for a second successive year.
Amid this environment, we strove to maximize earnings in the final
fiscal year of the most recently finished medium-term management
plan. We did so by raising occupancy rates through efforts to add moretenant services, adding more variations in building categories such as
elderly care facilities, buildings with commercial space, and custombuilt homes, and extending our branch network across Asia.
As a result, consolidated net sales in fiscal 2016 fell short ofour initial forecast but rose 1.8% year on year to ¥520.4 billion.
Operating profit and recurring profit both reached their targets,with operating profit climbing 8.6% year on year to ¥22.8 billion
and recurring profit rising 12.3% year on year to ¥22.3 billion. Profit
attributable to owners of the parent grew 3.9% to ¥20.4 billion.
As for returning profits to shareholders, we reinstated dividends
for the first time in seven years in fiscal 2015, paying a year-end
dividend of¥10 per share. In fiscal 2016, we also paid an interim
dividend, with the combined full-year dividend payment up ¥12 year
on year to ¥22 per share. The dividend payout ratio came to 28.3%.
In fiscal 2017, we released our new three-year medium-term management plan “Creative Evolution 2020.” We will advance measures
based on our basic policy of “supporting continuous growth of corebusinesses in ways that further increase corporate value while constructing a base for growth areas.” Its year-one consolidated targets
are for net sales of ¥540.0 billion, operating profit of ¥23.5 billion andprofit attributable to owners of the parent of ¥14.2 billion.
The one constant in this world is change, and we seize on thatto create social value at the same time we increase our corporate
value by addressing problems involving people and housing.
In closing, I would like to humbly request your continued support and encouragement.

Leopalace21: Who We Are

Based on the theme of “housing,” we create new value and contribute to
making lives even better in the future by providing “housing.”

04

Leo palace2 1 An nua l Repor t 2017

Trajectory of Growth
Created various values of “the first in the industry”
to expand business while contributing to society
Since the establishment in 1973, Leopalace21 has created various values of being “the first in the industry,”
responding to the needs of housing. With our strengths which have been cultivated over the years we will makefurther progress toward the next stage.

1995

Established and launched Master Lease System to pay rents for all units in buildings for up to 30 years,
the first initiative in the industry. (Before 1995, between 2 and 10 years)

Apartments

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

Budgeting maintenance and repair costs for a 30-year period
Secure funds for property maintenanceand future repairs
Master Lease Systempays rents
for all units
in buildings
Management of rental revenues
for a 30-year period
Rent collection operations and other

Pays rents for all units in buildings
regardless of vacancies.
(Rents reviewed once every 2 years)

Recruitment and managementof tenants for a 30-year period
Tenant recruitment anddaily tenant management and other

1993

1985

Net sales(Millions of yen)

800,000

Wish to live
comfortably!

1973

Property
OwnersOpen “Leopalace Resort Guam”

Launch of “Leopalace21”
urban type apartments

1991

Started businessas Miyama Inc.

700,000
1991

600,000

Obtain a patent for“housing with lofts”

500,000
400,000
1989“Hotel Leopalace Sapporo” open

300,000
200,000
100,000
0
1973

High-growth period

1975

1980

Stable-growth period

1985

1990

Bubble period

1995

Bubble collapse period

Leopalace21 Annual Report 20172002

• Open Leopalace Center Seoul
2006• Open Leopalace Center Taipei andLeopalace Center Busan

2014• Establish overseas subsidiary in Cambodia• Open Myanmar Branch2015• Open Hanoi Branch• Establish overseas subsidiary in Philippines,• Establish overseas subsidiary in China

start operating serviced office• Start operating serviced apartment in Thailand• Open Sriracha Branch• Establish overseas subsidiary in Indonesia

2010

2016

2007

• Open Leopalace Center Jongno
2009(Shanghai), open Beijing Branch2012• Establish Woori & Leo PMC Co., Ltd.
in South Korea• Start operating serviced office in Myanmar• Establish overseas subsidiary in Singapore• Start operating serviced apartment in Vietnam
2017

2013

• Establish one overseas subsidiary in Thailand
and one in Vietnam• Scheduled to start operating serviced apartment
in Cambodia

2012

Want to enjoy
living alone tothe full extent

1999

Launch “Monthly Leopalace”
furnished with furniture andhome appliances

Want tofreely rearrange
my roomStart “Room Customize”（current “my DIY”）service

Start broadband business

Adopt computerizedlease agreement

2013

Adopt “Non-soundSystem” asstandard feature

2005

Start Elderly Care
Business

Large Stockof Managed
Apartment

2010

Global recession period

2015 2016

Economy recovery period

Fiscal year ended March 31

Data Compilation

2005

3
4

Initiatives for Supporting Corporate Value

2015

OwnerTenant
Matching
Capabilities

Initiatives for Creating Value

2011

2002

Economic uptrend period

Innovative
Products

Real Estate
Know-howStart “Security System”
installations for apartments

2000

1
2

Innovative
VisionCore Competence

Want tolive in a room
safe and secured
for female

Want to enjoy
internetin my roomof Leopalace21

Responding to Social Challenges and Creating Value• Open Dalian Branch and Guangzhou Branch

Four strengths

Leopalace21: Who We Are

History of Overseas Expansion

05

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Leo palace2 1 An nua l Repor t 2017

Business Model and Strength
Leopalace21’s unique business model led by four strengths
Business model of Leopalace21 is driven by the following four strengths gained from our experience and knowledge amassed across the Group over the years. Harnessing the strengths, with the Leasing Business andDevelopment Business serving as our foundation, we seek to unearth synergies between these two core businesses and the Hotels, Resort & Other Businesses, and we are directing resources to the Elderly Care Businessand International Business in the future to further reinforce our business model.

12Innovative Vision

Innovative Products

Establish and launch
the first Master Lease Systemin the industry

Start selling monthly apartments furnishedwith furniture and home appliances
Install security system for apartments

Open Leopalace Resort Guam

Start “my DIY” service

Start the Elderly Care Business

Promote smart apartments(IoT-ready infrastructure)

Four Strengths

Owner-Tenant
Matching Capabilities

3

Large Stock ofManaged Apartment

Diversified channels to attract tenants

No.3 in Japan in lease management units

Meticulous sales approachto each industry

No.1 in Japan in lease management of
one-room type units!

Consulting in cooperation withprofessionals such as lawyers,
accountants and other4

Leopalace21 Annual Report 201707

Leopalace21: Who We Are

Leasing
Business

Development
Business

Operating two types of agreement,
one is “leasing agreement” easing
the burden of initial cost, and theother is “monthly agreement”
providing a room with furniture andhome appliances on a monthly basis.

Develop high-end products tosatisfy what is required for rental
housing such as low cost, energy
saving and high durability.

Leasing

Solar
Power
Generation

Real Estate
Development

ategy Bus

Core Competence

Hotels, Resort &Other Businesses

Elderly Care
Business

This segment includes Leopalace
Resort which operates sports
facilities, hotel and condominium in
Guam, and Leopalace Hotels which
operates four hotels in Japan.

Provide nursing-care facility andservices, in an environment
marked by full-scale aging
society coming up.

Grow

th S tr

ategy

in
Bus

es

s

Data Compilation◀

Initiatives for Supporting Corporate Value

Real Estate
Know-how▶

roh S tr

in e

◀G

wt

Constructions s▶

International
BusinessusCore B iness▶

Initiatives for Creating Value◀

Responding to Social Challenges and Creating Valueus
Core B iness▶

◀

Leo palace2 1 An nua l Repor t 2017

Leopalace21 Value Creation
Create various values of housing and living places using our unique andexclusive business model

Taking into account social challenges and needs relating to housing and living places, Leopalace21 delivers
values responding to such challenges and needs harnessing our four strengths based on the core competenceof real estate know-how.

Leasing

Operating two types of agreement,
one is “leasing agreement” easing theburden of initial cost, and the other is“monthly agreement” providing aroom with furniture and home
appliances on a monthly basis.

◀G

s s▶

International
Business

ro

wt

us
Core B iness▶

Leasing
Business

Solar
Power
Generation

Increase in single-personhouseholds

Increase in the risk of lower rentand higher vacancy rate caused
by a hefty load of apartment
supplies◀

h S trategy B

us

Inn
ov
a

Business Environmentand Housing-related
Social Challenges and Needs

in e

08

n
isio
V
e
tiv

Core CoReal
Know

Large Stoc

Increase in vacant housingsnationwide

k of
ge

na

Increase in the number of people
over 65 years old with the arrivalof super-aging society

Ma

Hiring interest of companies
is improving due to economic
recoverydA

parHotels, Resort &Other Businesses
This segment includes Leopalace
Resort which operates sports
facilities, hotel and condominium in
Guam, and Leopalace Hotels which
operates four hotels in Japan.

Acceleration of Japanese-affiliatedcompanies going international

Corporate Philosophy
Corporate Ethics Charter

tmen

ts

Leopalace21 Annual Report 201709

Leopalace21: Who We Are

usCore B iness▶

Business Environmentand Housing-related
Social Challenges and Needs

Development
Business

Construction

Develop high-end products tosatisfy what is required for rental
housing such as low cost, energy
saving and high durability.

ts
duc
Pro
ve

Limit new apartment supply to 3
major metro areas where highrental demand can be expectedin the future

mpetencebilitie
s

apa
hin
gC

Provide comfortable and pleasant dormitories and corporate
housings to companies withoutburdenatc

Elderly Care
Business

Provide safe and comfortable
nursing care facilities for affluent
post-retirement years

Provide nursing-care facility andservices, in an environment
marked by full-scale aging
society coming up.

◀

ow

th S trategy B

ne
usi

ss

Compliance, CSR
Corporate Governance

Provide total support for overseas assignments

Data Compilation

Gr

▶

e
Owner-TtM
nan

Initiatives for Supporting Corporate Value

Estate-how

Make proposals of alternative
usage of land, other than apartments, to eliminate anxieties ofowners

Initiatives for Creating Value

Inn
ov
at
i

Real Estate
Development

Expand services such as providing IoT-ready infrastructure fortenants

Responding to Social Challenges and Creating Value◀

10

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Leopalace21 Value Creation Responding to Social Challenges and Needs

Value Creation in Core Businesses
Perceiving accurately what’s happening in the environment where single-person households and vacant housings are increasing nationwide, Leopalace21 creates values by making good use of its competitive superiority.

External Environment

What’s Happening

Increasing single-person households
due to change in marriage
and household formation behaviors

Increase in needs of one-room type housingsfor single-person households

Trend in single-person households (10,000 households)

Number of new housings under construction (housings for rent)

1,841

1,827

1,864

1,871

(1,000 housings)

1,845

427

1,678
1,445

2005

2010

2015

2020

2025

2030

2035

(Forecast) (Forecast) (Forecast) (Forecast)■ Ages 19-64 ■ Over age 65*According to the Year 2013 “Household Projection for Japan” of National Instituteof Population and Social Security Research

292

290

2010

2011

370

358

2013

2014

384

321

2012

2015

2016

■ Below 30㎡ ■ Over 30㎡*According to the “number of new housing starts statistics” of Ministry of Land, Infrastructure,
Transport and Tourism

Increase in vacant housings due toa hefty load of supplies in housings for rent

Mass-migration into metro areas
found by analysis

Number of vacant housings for rent in Japan(1,000 housings) and trend in vacancy ratio

Top 5 prefectures with migration in excess

17.4
12.4

14.3

2,336

14.3

18.8

20.1

20.0

4,476

4,601

3,978

2,619

1988

1993

■ Number of vacant housings

Excessive number of people
migrated in 2016

Tokyo

74,324

Saitama

21,702Kanagawa

16,093Chiba

13,163

Aichi

8,968

3,520

1,834

1983

Prefectures

1998

2003

2008

2013

Vacancy ratio*According to the FY2013 “Housing and Land Survey” of Ministry of Internal Affairs
and Communications*According to the “Report on Internal Migration in Japan” of Ministry of Internal Affairs
and Communications

Leopalace21 Annual Report 201711

Leopalace21: Who We Are

Specialize in one-room typewith furniture and home appliances

One of Japan’s largest landlord(Number of rooms under managementin Japan: 568,739)
Trend in the number of rooms
under management (1,000 rooms)
549

555

562

569

2013

2014

2015

2016

2017

Initiatives for Creating Value

546

Responding to Social Challenges and Creating Value

Value Creation & Competitive Superiority of Leopalace21*As of March end

Number of rooms newly supplied

Number of rooms under management

Kanto region

Kanto region

52%

Kinki
region*Constructions completed in the fiscal year ended March 2017

Kinki
regionChubu
region14% 15%
Data Compilation

14% Chubu
region7%29%

Initiatives for Supporting Corporate Value

Focused on metro areas*As of March end 2017

12

Leo palace2 1 An nua l Repor t 2017

Leopalace21 Value Creation Responding to Social Challenges and Needs

Value Creation in Core Businesses
Perceiving accurately what’s happening in the environment where the risk of lower rent and higher vacancy rateis increasing due to a hefty load of apartment supplies, and where the hiring interest of companies is mounting
due to economic recovery, Leopalace21 creates values by making good use of its competitive superiority.

External Environment

What’s Happening

The risk of lower rent and higher vacancy rateis increased due to a hefty load of supplies
in housings for rent

Increase in the number of potential owners
with anxiety about constructing apartments

Trend in the number of newly constructing housings(1,000 housings) by segment
427
370
309
292

98

2010

321

305

317

290

358

384

353
278

284

292

120

124

124

110

118

112

2011

2012

2013

2014

2015

2016

Owned house

House for rent

Dwelling for sale (condominium)*According to the “number of housing starts statistics” of Ministry of Land, Infrastructure,
Transport and Tourism

Hiring interest of companies ismounting due to economic recovery

Increase in the needs of dormitories
and corporate housings

Effective job opening-to-application ratio(seasonal adjustment value, including part-time)

Trend in company owned corporate housing ratio

1.10

1.15 1.16

1.20

1.24

1.29

1.33

1.37 1.40

1.43

36.5％

36.1％

33.0％

33.7％
26.1％

1.48
22.3％
2013

2014

34.0％

33.7％

31.7％
23.8％

31.1％

2015

2016

21.7％

Trend in occupancy rate of corporate housings
228 232 233 237 242 246 250 253 257 263 265
207 202 200 197 195 192 188 186 184 184 179

89.1％
83.2％
80.9％

2014 2015

Oct

Jan

Apr

Jul

Oct

2016

Jan

Apr

Jul

Oct

2017

Jan

Apr

■ Number of effective job applicants (10,000 persons)■ Number of effective job openings (10,000 openings)

Effective job opening-to-application ratio (times)*According to the “general employment placement situation" of Ministry of Health, Labor and Welfare

2013

Average

88.4％
81.9％
79.6％
2014

Manufacturing

90.7％
83.3％
80.7％
2015

89.8％
81.8％
79.4％
2016

Non-manufacturing*According to “Junkan Fukurikousei” of ROUKEN (Work Research Institute)Leopalace21 Annual Report 201713

Leopalace21: Who We Are

Industry-first Master Lease
System developed

Channel strategies to attract tenants

Management ofrental revenues
for a 30-year period

Budgeting maintenanceand repair costs
for a 30-year period

Directly
managed sales
offices

Main
Channels

Tenants

Apartments
Rents fromMaster Leases

Cooperative
real estateagents

Recruitment andmanagement of tenants
for a 30-year period

Payments of master-lease rents are
made to owners regardless ofwhether or not there are vacancies.

WEB

Value improvement measures for existing properties
Customize and rearrange roon

STB device “Life Stick”

as you like “my DIY”

Initiatives for Creating Value

Property Owners

Partners

Responding to Social Challenges and Creating Value

Value Creation & Competitive Superiority of Leopalace21

Security system
Total

273,620 housings×Strengthen corporate sales (develop meticulous and exclusive sales approach for each industry)

Initiatives for Supporting Corporate Value

IoT-ready “Leo Remocon”

Contract number of units by category of industry

228,708

246,272

262,577

277,261

293,824

+6.0%
+7.4%

+0.7%
’13/3

’14/3

’15/3

’16/3

’17/3

year-on-year■ Manufacturing ■ Contracting ■ Services ■ Retailing■ Catering and restaurants ■ Construction and buildings ■ Other

Transactions
with listedcompanies
Approx.

80%

Usage rateof corporate
customers

56.4%

Data Compilation

+9.1%
+3.7%
+5.1%
+1.6%
+13.9%

14

Leo palace2 1 An nua l Repor t 2017

LeoLeopalace21 Value Creation Responding to Social Challenges and Needs

Customer’s Voice
Leopalace21 has provided housing solutions to a vast number of people. Here, we showcase feedback fromapartment owners and tenants who have actually used our services, as well as from corporations who have used
our properties as employee housing.

Future-looking proposal for a placeof many memories
Mr. Hiromi NoguchiTokyo

I inherited an old house that my aunt, a former schoolteacher, bought 60 years ago.
I didn’t have any funds reserved, and I wasn’t thinking about doing anything newwith the property.
But when I heard about land use from Leopalace21, I began thinking that maybe
there was something I could do with it. After that, we met several times until I wassure of my decision. In the end, I decided to build apartments on the property.
A lot of problems came up building the apartments, but Leopalace21 stuck in mycorner, and thanks to some timely handling of issues, we were able to complete
construction. It was almost unbelievable seeing that old one-story house transformed into shiny new apartments. I am filled with gratitude for the truly fantastic
support of Leopalace21.

Apartment Owner’s Voice

Tenant’s VoiceYou helped my daughter find a placethat we could be happy with
Mr. Soichi Suto
Saitama

Leopalace21 helped my daughter find a place to live on her own for the first time.
We had been getting discouraged because we couldn’t find a place, but the representative from Leopalace21, Ms. Unoki, was really cheerful and encouraged us.
She asked us about everything, from desired conditions to the school activities mydaughter was involved in. She showed us a great apartment that seemed to tick off
everything on our list, so we applied right away.
After that, however, our family objected because the apartment was on thefirst floor, so we had to rethink our choice, and had Ms. Unoki show us somemore places. After spending a day comparing apartments and talking it over withmy daughter, we decided to stick with the apartment we had originally put in an
application for.
We were able to decide on an apartment we could be satisfied with thanks to Ms.
Unoki, who spent an entire day helping us in our search. Please pass on my thanks.

Leopalace21 Annual Report 201715

Leopalace21: Who We Are

Mr. Hitoshi Kinebuchi
Section Manager, General Affairs Division
AOKI Holdings Inc.

Initiatives for Creating ValueIn the past, we used to rent ordinary housing, and house three to four employees per unit. However, problems with things like privacy, noise, and handling offacilities were stressing our employees.
That was our situation when Leopalace21’s staff from the corporate sales
department told us about an arrangement where we could get single-occupancy
apartments with no leasehold deposits or key money, complete with furnitureand electrical appliances. Thanks to this, our expenses and the amount of labor
upon accounting were greatly reduced. It solved all the issues we were facing.
It’s hard to estimate the burden we would be bearing if we had continued with
our previous way of managing employee housing.
Our employees give the apartments high marks for being furnished and having good security. I’m very happy that we switched. It resulted in high satisfaction for the company and our employees.

Responding to Social Challenges and Creating Value

Greatly reduced our burden in terms of
cost and labor

Corporate Customer’s Voice

Mr. Shinya Nishida
Executive Officer, General Manager of General Affairs Department
Tama Home Co., Ltd.

Data Compilation

I’ve been struck by the quality of this service since we introduced employee
housing in 2002. The biggest benefits are the reductions in cost and administrative load.
When we were opening stores nationwide, we had a lot of employees repeatedly being transferred for short durations. Leopalace21 was able to greatly
reduce our expenses because they don’t require a leasehold deposit. Also,
the ability to create a comprehensive agreement covering hundreds of units
reduced our administrative load as well. Our employees appear very satisfied
with the fact that units are fully furnished, and have good security as well. In
addition to employee housing, we also use Leopalace Hotels, and it is so popular with our employees that we have repeat customers. We hope to continue topartner in many ways in addition to employee housing.

Initiatives for Supporting Corporate Value

The selling points are the support andsystem different from ordinary rentals

16

Leo palace2 1 An nua l Repor t 2017

Leopalace21 Value Creation Responding to Social Challenges and Needs

Value Creation in Growth Strategy Business
Perceiving accurately what’s happening in the environment where the number of people over age 65 is increasing with the arrival of a super-aging society, and where the movement of Japanese-affiliated companies goinginternational is accelerated, Leopalace21 creates values by making good use of its competitive superiority.

External Environment

What’s Happening

Increase in the number of people over age 65
with the arrival of super-aging society

Increase in the needs of nursing care facilities

Trend in single-person households

Trend in the number of recipient for care (preventive)
services by the level of care/support needed (10,000 persons)(10,000 households)

1,841

1,827

1,864

1,871

1,845

1,678
762

1,445

811

842

839

839

861

885

691
613
523

697

667

700

729

762

2015

2020

2025

2030

2035

2015 2020 2025 2030 2035 2040 2045 2050 2055 2060

*According to the year 2013 “Household Projection for Japan” of National Instituteof Population and Social Security Research*According to the “Population Projection for Japan as of Jan 2012” of National Institute of Populationand Social Security Research, drafted by the Ministry of Economy, Trade and Industry based on the“FY2014 Population Projections for Japan” of Ministry of Internal Affairs and Communications andthe “FY2014 Long-term Care Benefit Expenditure Survey” of Ministry of Health, Labor and Welfare

386

498

2005

2010

(Forecast) (Forecast) (Forecast) (Forecast) (Forecast)■ Over age 65 ■ Ages 19-64 (Productive age population)(Forecast) (Forecast) (Forecast) (Forecast) (Forecast) (Forecast) (Forecast) (Forecast) (Forecast)

Rapid economic growth prevailingin ASEAN nations

Increase in the number of Japanese-affiliatedcompanies expanding business to ASEAN nations

Change in GDP in ASEAN nations (Billions of Dollars)

Number of companies expanding business into ASEAN
633,552.3

2,474.5

26
20

366.1
1990

625.5

2000

*IMF “World Economic Outlook”

10

2014

2020

(Forecast)〜1970 1971〜 1976〜 1981〜 1986〜 1991〜 1996〜 2001〜 2006〜 2011〜
1975 1980 1985 1990 1995 2000 2005 2010

Cambodia

Myanmar

Laos

Bangladesh*According to the “Results of JETRO’s FY2015 Survey on Business Conditions of Japanese Companies
in Asia and Oceania-Intention to expand business reaches point of saturation” of JETROLeopalace21 Annual Report 201717

Leopalace21: Who We Are

Planning to increase nursing care facilities

Elderly
CareBusiness

April 1, 2017
Tochigi Prefecture

▲ ▲

▲
▲

▲

▲

▲

▲

78 facilities▲

Gunma Prefecture▲▲

Saitama Prefecture

Ibaraki Prefecture
▲
▲
●

▲
▲
▲

Gifu Prefecture

●

●

●

▲

Tokyo

▲
●

▲
▲

▲▲

◆

facilities

Initiatives for Creating Value

▲
▲

▲

86

▲
▲

▲
▲
▲

March end 2019▲▲

Kanagawa Prefecture●▲

Aichi Prefecture

▲

▲

▲

Chiba Prefecture●▲▲

Developing business inSouth Korea

China● Offices where we introduce andconsummate contracts forproperties located in Japan

TaiwanMyanmar16 cities overseas

Initiatives for Supporting Corporate Value

Start serviced apartment business overseas

International
Business

Responding to Social Challenges and Creating Value

Value Creation & Competitive Superiority of Leopalace21● Offices where we introduce andbroker the properties locatedon-site in Asia

ThailandCambodia● Offices where we perform bothof the aforementioned functions

Philippines● Offices where we collect andresearch information for investment

Singapore
Indonesia

Data Compilation

Vietnam

18

Leo palace2 1 An nua l Repor t 2017

Ten-Year Consolidated Financial Highlights		’08/3 FY2007’09/3 FY2008’10/3 FY2009’11/3 FY2010¥
672,973
		302,731
		327,540
		11,173
		6,071		25,456
		511,053
		90,516
		71,402
		3,036
		73,267
		1,261		(1,116)		(5,046)
		76,565
		 342¥
733,235
		334,560
		359,154
		7,952
		5,610
		25,956
		589,833
		93,244
		50,156
		(1,538)
		70,112		(1,538)
		(805)
		(16,072)
		55,939
		9,951¥
620,376
		342,316
		237,062
		8,812
		6,734
		25,451
		570,749
		79,354
		(29,727)
		(47,875)
		29,744		(1,994)
		(1,324)
		(8,278)
		(23,432)
		(79,075)¥
483,537
		355,752
		107,821
		7,785
		6,491
		5,686		448,392
		59,605
		(24,460)
		(30,865)
		11,888		(1,508)
		(1,973)
		(2,002)
		(18,009)
		(41,742)

At year-end:
Total assets
Net assets
Interest-bearing debt¥
493,956
		170,155
		49,710¥
467,300
		146,442
		44,188¥
396,511
		70,979
		61,318¥
298,274
		32,187
		43,858

Cash flow:
Cash flow from operating
Cash flow from investing
Cash flow from financing¥
11,745
		 148
		(26,779)¥
62,843
		(10,048)
		(33,885)¥(12,990)		(8,889)
		15,281¥(28,337)
		13,143
		(15,890)

Amounts per share: (Yen)Net assets
Net income (loss)
Cash dividend¥
1,036.43
		2.15
		80.00¥
967.40		63.54		30.00¥
466.76
		(521.91)
		 –¥
190.84
		(266.48)
		 –

Ratio:
Units under management
Average annual occupancy rate (%)
Orders received (Millions of yen)
Equity ratio (%)
Return on equity (ROE) (%)
Return on assets (ROA) (%)
Payout ratio (%)
Debt/equity ratio (%)
Number of employees		442,025
		92.36		463,044
		33.4
		 0.2
		 0.1
		3,720.9
		 0.3
		8,678		506,742
		88.51
		337,883
		31.3
		 6.4
		 2.1
		47.2
		 0.3
		9,926

		551,773
		82.25
		250,247
		17.9		(72.8)
		(18.3)		 –		 0.9
		8,582		571,656
		80.09
		80,338
		10.8
		(81.0)		(12.0)		 –		 1.4
		7,114

For the years ended March 31
Net sales		 Leasing Business		 Construction Business		 Elderly Care Business		 Hotels & Resort Business		 Other Businesses
Cost of sales
Selling, general and administrative expenses
Operating income (loss)
		 Leasing Business		 Construction Business		 Elderly Care Business		 Hotels & Resort Business		 Other Businesses Adjustments
EBITDA (Operating income + depreciation)
Net income (loss)*Attendant with changes in accounting policies at subsidiaries in the Leasing Business, consolidated accounts reported in the past have been retroactively revised, and historical data forpast fiscal years shown here reflects these retroactive revisions.
(Notes) 1. U.S. dollar amounts are translated from yen at the rate of ¥112.19 = U.S. $1, the approximate rate prevailing at March 31, 2017.
2. Return on equity (ROE) = Net income/average net assets during the fiscal year x 100
3. Return on assets (ROA) = Net income/average total assets during the fiscal year x 100
4. Debt/equity ratio = Interest-bearing debt/(net assets – non-controlling interests)
5. In this report, net income attributable to shareholders of the parent is stated as “net income.”

Reorganized Business Portfolio
Reorganized into Four Businesses, from
Five Previously
We reorganized our business portfolio so as torespond swiftly to customer needs and changes
in the business environment. The reorganization
has enabled swift decision-making, and opened
the way for us to build a structure where we can
improve both social value and our corporate value.

Until Fiscal 2016 (Year ended March 31, 2017)
Leasing Business• Corporate housing management & rental housing brokerage• Rental payment guarantees• International business

Construction Business• Custom-built homes

Elderly Care Business• Elderly care business

Hotels & Resort Business• Hotels and resort business• Travel agency services

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

Leopalace21 Annual Report 2017

(Thousands of U.S. dollars)’16/3 FY2015’17/3 FY2016’17/3 FY2016¥ 458,220
		379,091
		62,913
		8,845
		6,228
		1,142		403,572
		51,278
		
3,369
		4,052
		4,290		(855)
		(1,663)
		(2,454)
		9,416
		 372¥ 454,285
		383,637
		53,369
		9,482
		6,657
		1,137
		396,508
		50,299
		7,477
		8,750
		2,748
		(742)
		(1,005)
		(2,272)
		13,161
		13,398¥ 470,883
		388,562
		63,135
		10,171
		7,571
		1,442
		401,510
		55,906
		13,467
		15,364
		2,951		(610)		(1,118)
		(3,119)		19,460
		15,730¥ 483,247
		399,375
		61,312		10,608
		8,951
		2,999
		407,433
		60,992
		14,822
		20,590
		 211
		(606)
		(1,289)
		(4,084)
		22,558
		15,175¥ 511,513
		410,641
		74,160
		10,798
		11,427
		4,485
		422,604
		67,823
		21,085
		22,848
		3,340		(1,354)
		(697)
		(3,051)
		30,700
		19,631¥ 520,488
		416,594
		74,566
		11,536
		7,244
		10,546
		427,820
		69,769
		22,898
		22,459
		5,051		(1,650)
		(768)		(2,193)
		32,235
		20,401$ 4,639,347
		3,713,291
		664,641
		102,834
		64,574
		94,004
		3,813,355
		621,890
		204,101
		200,191
		45,029
		(14,714)
		(6,850)
		(19,554)
		287,325
		181,843¥ 264,783
		31,761
		51,654¥ 261,649
		56,145
		49,026¥ 288,165
		103,354
		37,227¥ 308,882
		124,928
		44,487¥ 327,609
		144,865
		50,824¥ 337,828
		158,870
		49,918$ 3,011,220
		1,416,083
		444,945¥(3,174)		(3,537)
		7,245¥6,069
		 (6)
		9,148¥
15,584		(6,929)
		8,848¥
15,715
		(17,550)
		1,747¥
22,104
		(11,087)
		1,374¥
27,504
		(8,653)
		(14,048)$ 245,158
		(77,133)
		(125,220)¥
187.50
		
2.21
		 –

¥
265.32
		74.85		 –¥393.05
		69.38		 –¥
475.17
		57.73		 –¥
550.94
		74.68		10.00¥
603.76
		77.61		22.00$
5.38
		0.69
		0.20		556,207
		81.16
		50,019
		12.0		 1.2
		 0.1		 –		 1.6
		
6,165

		546,204
		82.94
		73,006
		21.5
		30.5		 5.1		 –		 0.9
		6,277		548,912
		84.58
		81,139
		35.9		19.7
		 5.7		 –
		 0.4
		6,758

		554,948
		86.57
		87,395
		40.4
		13.2
		 5.1		 –		 0.4
		7,339

		561,961
		87.95
		86,439
		44.2
		14.6
		 6.2
		13.4
		 0.4
		7,846		568,739
		88.53
		87,139
		47.0		13.4
		 6.1
		28.3
		 0.3
		7,695

		 –		 –$ 776,713
		 –
		 –
		 –
		 –
		 –
		 –

From Fiscal 2017 (Year started April 1, 2017)

Initiatives for Supporting Corporate Value’15/3 FY2014

Initiatives for Creating Value’14/3 FY2013

Responding to Social Challenges and Creating Value’13/3 FY2012

Leopalace21: Who We Are(Millions of yen)

’12/3 FY2011

19

Reference: Fiscal 2016 (Millions of yen)

Leasing Business• Custom-built homes• Real estate development

Development Business• Elderly care business

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

Hotels, Resort, and Other Businesses

Net sales

Operating income

421,342

23,00980,321

5,786

11,536(1,667)

7,287

(417)

Data Compilation• Corporate housing management & rental housing brokerage• Rental payment guarantees• International business• Small-sum, short-term insurance• Solar power generation

20

Leo palace2 1 An nua l Repor t 2017

Consolidated Financial Highlights
Net Sales

Operating Profit (Loss)

Operating Margin22.8 billion yen

4.4 %520.4 billion yen
Up 1.8% y/y

Up 8.6% y/y(Billions of yen)(Billions of yen)

800

80

600

Up 0.3 points y/y
（％）

16

60

12

40

8

20

4

0

0

400

200

0

-40

-8

’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016

Operating profit (loss) (left axis)

Operating margin (right axis)

As a result of the fall in occupancy rates due to the global financial crisis
triggered by the 2008 collapse of Lehman Brothers, we have pushed throughbusiness structural reforms in the fiscal year ended March 2010 in order
to control Construction Business by restricting the supply of apartments tospecific areas as well as to enhance Leasing Business earnings. Since then
net sales is demonstrating an upward trend, led by the Leasing Business.
Construction Business has also been on the increase with the rise in demandof construction of apartments since the fiscal year ended March 2014 andachieved revenue growth for 4 consecutive years at March end in 2017.

As for the net sales, the earnings of Leasing Business has deteriorated due tothe global financial crisis triggered by the 2008 collapse of Lehman Brothers,
which led to the fall into the red for 2 consecutive years ended March 2010
and March 2011. After the progress of business structural reforms, overallprofits are continuing to rise steadily for 6 consecutive years since the fiscal
year ended March 2012, in Leasing Business for 5 consecutive years and inConstruction Business for 2 consecutive years.

Total Assets

Net Assets

ROA

337.8 billion yen
Up 3.1% y/y

6.1 %

ROE

158.8 billion yen

Down 0.1 points y/y

Up 9.7% y/y

13.4 %

Down 1.2 points y/y(Billions of yen)(%)(Billions of yen)

(%)

600

16

200

40

450

12

150

30

300

8

100

20

150

4

50

10

0

0

0

0

-20
’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016

Total assets (left axis)

ROA (right axis)

After ROA recorded negative in the fiscal years ended March 2010 and March
2011, structural reforms led to rapid recovery with a steady increase toaround 5-6% since the fiscal year ended March 2013. ROA was 6.1% at theend of March 2017.

-100’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016

Net assets (left axis)

ROE (right axis)

ROE recorded negative in the fiscal years ended March 2010 and March 2011,
but recovered rapidly to mark 29.0% in the fiscal year ended March 2013.
This was a temporary phenomenon attributed to high debt ratio, rather than agrowth in profits. After that, as a result of decrease in financial leverage fromcompression of interest-bearing debt as well as the expansion of earnings,
ROE has been hovering around 10%, down slightly in the fiscal year ended
March 2017 when compared with the previous year.

Leopalace21 Annual Report 2017

Interest-bearing Debt (incl. Lease Obligations)32.2 billion yen

49.9 billion yen

Up 5.0% y/y

Down 1.8% y/y(Billions of yen)

90

80

60

60

30

40

0

20

0
’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016

EBITDA, the combination of operating profit and depreciation, has beensteadily increasing since the fiscal year ended March 2012 attributed to thecontinuous growth of operating profit resulted from recovery in earnings andto the increase in depreciation and amortization stemmed from the capital
investment increase in new businesses such as solar power generation business and serviced apartments business in ASEAN nations. EBITDA increased
for 6 consecutive years at March end in 2017.

We have focused on reducing debt ratio in consideration of repayment capacity as well as compression of liabilities since interest-bearing debt marked
61.3 billion yen at March end in 2010, the highest record in the last 10 years.
Upward trend after March end in 2015 is coming mainly from our capital
investments toward new businesses which we assessed as affordable risks.
Debt ratio hovers around 0.4 times.

Rooms under Management

Average Annual Occupancy Rate

88.5 %

Up 1.2% y/y

Up 0.6 points y/y(1,000 rooms)

(%)

600

95
92

450

89
300
86
150

83

0

Initiatives for Supporting Corporate Value

568,739 rooms

Initiatives for Creating Value’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016

Responding to Social Challenges and Creating Value(Billions of yen)

-30

Leopalace21: Who We Are

EBITDA (Operating Profit + Depreciation)

21

80’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016

We believe increasing the number of rooms under management strengths
the base of earnings as we regard revenue from the assets we manage in our
Leasing Business as core revenue. We will continue to supply apartments inareas where we expect strong tenant demand, concentrating on the three major
metro areas where net population inflows continue.

There is a tendency of occupancy rates for rental housing repeating the cycle,
to mark the highest in March when students newly enroll in schools and when
new grads enter into companies, decrease in April then move up gradually
after May. In order to promote long-term occupancy, we have been improving
the value of properties and developing the measures which do not impact theseasonal cycle. Accordingly, the average annual occupancy rate during the
fiscal year under review is on uptrend, showed increase for 6 consecutive
years at March end in 2017.

Data Compilation’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3
FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016

22

Leo palace2 1 An nua l Repor t 2017

Business Model Transition
In the period of economic uptrend, our Construction Business drove our growth, sharply expanding new apartment
supply. Following the global financial crisis triggered by the 2008 collapse of Lehman Brothers, we recorded operating
losses as orders at the Construction Business declined. However, with the business structure reforms we implemented in the year ended March 2011, we have been steadily returning to a stable financial structure.
Our aim amid the current economic recovery period and beyond is to thrive by shifting to a stable earnings modelthat achieves a balanced earnings mix from the Leasing Business and Development Business while expanding our
growth fields of Elderly Care Business and International Business sections.
Economic uptrend period (before the collapse of Lehman Brothers)

Global recession period (after the collapse of Lehman Brothers)

Launch synergy model of “Construction Business” and “Leasing Business“

Synergy model stagnated[30-year Master Lease System] for max 30 years, at first [10 years] fixed rent, after that 2 years-renewal(Billions of yen)800

Net sales andOperating profit■Leasing Business (left axis)■Construction Business (left axis)■Other (left axis)● Operating profit (loss) (right axis)

Restrain orders at
Construction Business

600

400

200

0

-200

2003/3
FY2002

2004/3
FY2003

2005/3
FY2004● Leasing Business2006/3
FY200543.9%● Construction Business 50.0%● Elderly Care Business

0.9%● Hotels & Resort Business1.1%● Other Businesses

2007/3
FY2006

2008/3
FY2007

2007
Composition ratio
by business2009/3
FY2008

2010/3
FY20092011/3
FY2010Embark on businessstructure reforms
Change in business structure

4.1%

New apartment supply is prioritized andConstruction Business leads our growth
(%)

95
90
85
80
0

Average occupancy rate

Decline in occupancy rates
Many tenants vacates apartments
near factories due to the risein unemployment rate

Leopalace21 Annual Report 201723

Leopalace21: Who We Are
Responding to Social Challenges and Creating Value

Economy recovery period (current and hereafter)
Reinforcement of earnings from rental housing[30-year Master Lease System] for max 30 years, at first [2 years] fixed rent, after that 2 years-renewal

Establish a stable earnings structure
based mainly on Leasing Business(Billions of yen)

80

60

40

20

2012/3
FY2011

2013/3
FY2012

2014/3
FY2013

2015/3
FY20142017/3
FY2016

2016/3
FY2015● Leasing Business

80.0%● Construction Business 14.3%● Elderly Care Business

2.2%● Hotels & Resort Business1.4%● Other Businesses

2.0%

Strengthen earning capability from existing
apartments through thorough implementationof business structure reforms

We will focus on
the growth businesses
grounded on thecore businesses
for the next stage

Initiatives for Supporting Corporate Value

2017
Composition ratio
by businessfor theInitiatives for Creating Value0

Occupancy rates improve
Restrict the supply of apartments
to specific areas of high demand
Data Compilation

24

Leo palace2 1 An nua l Repor t 2017

Medium-Term Management Plan Transition

Post(Period: Fiscal year ended March 2011—
Fiscal year ended March 2013)

The plan was revised in 2 years
with an unexpected change
in business environment.

Overview

Net sales & Operating profit (Billions of Yen)■■Net sales ■■Operating profit

564.7

483.5

(Period: Fiscal year ended March 2013—
Fiscal year ended March 2015)

The plan was revised in 2 years after
achieving most of the target goals
in the second year.

Overview

Net sales & Operating profit (Billions of Yen)■■Net sales ■■Operating profit

463.9

560.6
11.7 458.2

5.3

454.2

470.8

467.4

14.1
8.0

3.3

13.4

7.4

-24.4
Forecast Actual
Fiscal year ended March 2011

Forecast Actual
Fiscal year ended March 2012

Forecast Actual
Fiscal year ended March 2013

Average annual occupancy rate (%)
Forecast
83.7
80.1
Fiscal year ended March 2011

Basic
policyAverage annual occupancy rate (%)

ActualForecast
84.5

83.0

81.2

82.9

Fiscal year ended March 2012

Fiscal year ended March 2013

Changing to a stable financial structure
achieving a balanced earnings mix of
the Construction Business andLeasing Business

Achievement
・After 3 years achieved surplus in the year ended March 2012
・The Leasing Business turned into surplus
・Low-cost structure established
Challenges
・Attracting individual tenants and promoting long-term occupancy
・Surplus in the Leasing Business excluding the reversal ofloss reserve for vacancies
・Diversification of supply properties(Expansion of orders other than Master Lease apartments)

Forecast Actual
Fiscal year ended March 2014

Basic
policyActual
85.0
84.6

Fiscal year ended March 2014

Establish a stable financial structure
achieving a balanced earnings mixof the Leasing Business andConstruction Business

Achievement
・Increase in profit by improving the earnings in
the Leasing Business and other・Promote measures for added-values of properties such as
solar power generation system, security system and other・Promote orders and construction of the elderly
care/commercial facilities other than apartments
Challenges
・Attract individual tenants
・Improve profitability of the Construction Business・Drive the growth of new businesses including overseas
expansion and other・Expanding the Elderly Care BusinessLeopalace21 Annual Report 2017

Overview

Achieved all of target values and goals set in the 3-year plan byunderstanding the business environment properly and by clarifying
the key issues and challenges we should address.
Net sales & Operating profit (Billions of Yen)
493.5

483.2

14.5

14.8

525.0

511.5

19.5

21.0

Forecast Actual
Fiscal year ended March 2016

Average annual occupancy rate (%)
86.8
86.6

Basic
policy

22.0

520.4
22.8

Forecast Actual
Fiscal year ended March 2017

Forecast
88.0
88.0

Fiscal year ended March 2016

Actual

89.0
88.5

Fiscal year ended March 2017

Challenge into new fields of business, with a strong base structured byCore Businesses

Achievement
・Achieved profit plan (Established the base for rental housing stock business)
3-year operating profit plan of ¥56 billion vs. actual result of ¥58.8 billion
・Recommenced dividend payments (from the fiscal year ended March 2016)

Data Compilation

Challenges
・Establish the base for growth areas (Elderly Care Business, International Business)
・Enhance profit contribution of affiliate companies
・Improve Balance Sheet (Enhancing asset and capital efficiency)

Initiatives for Supporting Corporate Value

Fiscal year ended March 2015

540.0

Initiatives for Creating Value

Forecast Actual
Fiscal year ended March 2015■■Net sales ■■Operating profit

Responding to Social Challenges and Creating Value(Period: Fiscal year ended March 2015—Fiscal year ended March 2017)

Leopalace21: Who We Are

Let us introduce the history of the changes made on our Medium-Term Management Plan.
During the periods of “Post Change for NEXT” and “Creating Future,” the business environment surrounding us
went through a degradation to an unexpected upturn. Accordingly both plans were revised before reaching to thethird year. In contrast, we were able to achieve most of the target values and goals in “EXPANDING VALUE,” aswe clarified key issues and challenges we should address based on the substantial recognition of the external
environment and incorporated into our plan at the outset.

25

26

Leo palace2 1 An nua l Repor t 2017

Top Interview
We are venturing overseas, drawing on the foundation oftrust and experience we built in Japan as housing professionals. Through our provision of residences where people,
whether Japanese or from overseas, can lead healthy lives,
we are working to increase our corporate value.
1. Creating Shared Value at Leopalace21
2. Corporate Culture at Leopalace21
3. Our Previous Medium-Term Business Plan
4. Future Direction of Market Trends
5. New Medium-Term Management Plan
6. Growth Businesses
7. Corporate Governance
8. Message to Shareholders and Investors

1) Creating Shared Value at Leopalace21

Q

Looking back at the path Leopalace21 has followed since its founding, the Company has created social
value by addressing public concerns that emerge from society’s changing structure such as the uptrend insingle-person households and the onset of an aging society by harnessing the real estate-related knowhow its people have. At the same time, this approach has enabled the Company to increase its corporate
value. It seems Leopalace21’s corporate philosophy contains the notion of creating shared value (increasing
its corporate value by addressing social value concerns). The Company formulated a mission statement in2016. Please share with us your thoughts on these themes.

Since its founding, Leopalace21’s core competence has been its
real estate-related know-how. Looking back, I think we have comethis far by leveraging this know-how to provide various services
that address an array of “gaps” relating to housing. When we tried
to express in words that we have done over the years, the mission
statement we drew up last year was the result. We have more
employees now, and I thought we needed to put forth clearly ourpolicies from a managerial viewpoint to our stakeholders, so wedevised the mission statement. The one constant in this worldis change, and we seize on that to create value and increase ourcorporate value. Our mission statement is composed of four lines
to convey the notion it is only when what we are doing for ourbusiness is also done on behalf of society that we are empowered
to run our business.

Leopalace21 Annual Report 201727

Leopalace21: Who We Are
Responding to Social Challenges and Creating Value
Initiatives for Creating Value

Eisei Miyama
President and CEO,
Leopalace21“Creating New Value”

Mission Statement

1. We keep a close eye on modern-day needs,
and strive to create new value in our own unique way,
through flexible thinking and dynamic, inclusive teamwork.

We seek to always be innovators,

3. We provide new value throughout society
as a leading company within the industry,
to help create a more comfortable and affluent society.

to create without ceasing,and further,
we strive to increase value
for society as a whole.

Adopted on December 16, 2016

Data Compilation

2. We are only happy if our customers are happy.
We are constantly working to improve our products,
services and technologies and to grow as a company.

Initiatives for Supporting Corporate Value

Corporate Philosophy and Mission Statement

28

Leo palace2 1 An nua l Repor t 20172) Corporate Culture at Leopalace21

Q

I understand you are the fourth president in the company’s history. Can you share your thoughts about Leopalace21’s
corporate culture now?

The tenures of the second and third presidents were short, andit was the founder who built up the Company’s foundation.
Leopalace21 had a wholly top-down culture at that time. The
founder would watch what was going on in society at large
and develop his read so he could create new services and swiftly
launch them. Projects that did not fare well were quickly dropped
while those that went well were built upon and steadily advanced.
Our capacity to act with speed is a valuable legacy we have inheritedfrom our founding era. On the flipside, because of a top-down

culture where employees tended to act only after receiving
instructions from above, very few of our employees had the inclination to think up ideas on their own.
What is starkly different between now and then is we are now
a completely bottom-up organization. I now feel the culture we
had on was very out of place on that aspect. Our employees in thefield are the closest to our customers and thus have the best readof their needs. I constantly tell them they need to swiftly develop
services that satisfy those needs, and I feel a culture of bottom-up
initiative is at last taking root at the Company.
Our culture now also differs in one more way from then when
the organization was vertically segregated into silos. We are now
a horizontal organization where information flows across divisions.
At Leopalace21, the vice president is the head of a divisional structure under which all departments and divisions are situated. About
once a week a cross-divisional meeting is held where employees
come together to share information. At these meetings, employees
discuss many topics at the level of ideas with each other so when
we move to the implementation phase, what we come up withhardly ever diverges markedly from customer needs.

3) Our Previous Medium-Term Management PlanQ

The “Expanding Value” Medium-term Management Plan commenced in April 2014. Can you share with us
the achievements of and still-not-fully-resolved issues from the concluded plan?

Business structure reforms were advanced, and under the
recently concluded management plan, “quality” has improved.
What do I mean by quality? Our presumption until then wasthat boosting sales would also boost profits, but our thinking

has shifted to focusing on generating profits rather than sales
growth. In so doing, we noticed the burden of the costs of sales
was greater than we thought, so we decided to put more weighton reviewing costs in implementing the plan. As a result, net

Review of Previous Medium-term Management Plan
Achievements• 	Achieved profit targets (Established solid base for stock business)
Three-year cumulative operating profit: Plan 56.0 billion yen vs. Actual58.8 billion yen• Recommenced dividend payments from FY2015(FY ended March 2016)

19.5
14.1 13.4

14.5 14.8

2014/03

2015/03

21.0

22.5 22.8

8.0 7.4

Future tasks• Establish base for growth areas(Elderly Care Business and International Business)

2013/03

2016/032017/03• Improve profitability of subsidiaries• Improve balance sheet (Greater asset and capital efficiency)■ Operating profit (plan) (Billions of yen)

■ Operating profit (actual) (Billions of yen)

’18/3
FY2017(Forecast)

40
30

Leopalace21 Annual Report 2017

value in the absence of improvements to capital and asset efficiency. The new management plan, which starts in fiscal 2017,is centered on advancing capital and asset efficiency. Moreover,paying stable dividends to return profits to shareholders should
also boost our share price, and steps such as these will, I think,meet shareholder expectations.

Q

Some are voicing concerns about vacant rental dwellings, subleasing and related issues and an oversupply
of apartments. Where do you see market trends heading in the years to come?
the occupancy rates of buildings we manage and refrain frombuilding new apartments in rural locations. Based on that view,
we have concentrated on the three large metro regions since theLehman Brothers collapse.
As for the Elderly Care Business environment, Japan’s
population over age 65 is expected to reach about 30% by 2025.
When that happens, the stock of care facilities across Japan atpresent will hardly be sufficient, so we expect needs for new
facilities to increase. We plan to some extent to work on building
new nursing care facilities.

External Environment: Key Issues and Opportunities for Leopalace21 Group to Address
Recognition of External Environment• Net domestic migration inflow into three major metro regions
continues to overrun• The 2025 problem: population over age 65 is expected to reachabout 30% by 2025

Leasing & Construction• New rental housing starts in FY2016 increased 11.4% year on
year, a brisk trend

Key Issues and Opportunities• Bolster development of services and products that accurately
perceive the market environment of increasing single-person households• Supply apartments in three major metro regions where rental
demand is strong• Work to expand the Elderly Care Business in concert with Japan’s
evolution as an aging society (new construction of nursing carefacilities)• Differentiating our products from competitors is important amid
growth in rental units• Number of vacant rental units in Japan has risen continuously• Limit new apartment supply to three major metro regions whererental demand is strong• Reduction in the basic deduction on inheritance taxes in the January
2015 inheritance tax revision has sharply increased the number ofheirs who are subject to inheritance taxes• Increase in landowners subject to inheritance taxes spurs mediumand-long-term demand for apartment construction as a way tolighten tax burden

Initiatives for Supporting Corporate Value

Demographic Trends• Number of households in Japan is expected to decline but single-personhouseholds in our target cohort of ages 15-64 (productive population) is
expected to trend sideways for nearly the next twenty years

Initiatives for Creating ValueAs for the Leasing Business environment, I think new apartments
will eventually no longer be built in low populations areas. Leopalace21 has stopped doing so since I became president in 2010.
In the past when large companies in the countryside were on atear, company towns boomed and many apartments were built
and people came to live in them. Many of those buildings havebecome empty shells, so there has been a 180-degree reversal in
the environment in these company towns.
The migration of people to large cities has grown even more
pronounced amid the decline in Japan’s overall population.
Given these circumstances, our direction will be to steadily raise

Responding to Social Challenges and Creating Value

4) Future Direction of Market Trends

Leopalace21: Who We Are

sales fell short of the plan’s target but operating profit attained
the plan’s target.
As for unresolved issues, one was the small profit contribution from Group companies. The new medium-term management
plan clearly identifies growth areas but it will be a while before
those areas generate profit, so the profit contribution from Group
companies is vital. Another is our inability to increase corporate

29

Data Compilation

30

Leo palace2 1 An nua l Repor t 20175) New Medium-Term Management PlanQ

The three-year span of the “Creative Evolution 2020” Medium-term Management Plan started in April 2017.
Please tell us about the basic policy, strategies and numerical targets in the new plan.

The basic policy of the “Creative Evolution 2020” Medium-termManagement Plan is to aim to support continuous growth of our corebusinesses while striving to construct a base for growth areas.

Medium-Term Management Plan: Key Points and Strategy

actually set on the high side. As I stated earlier, turning the businesses
in growth areas profitable will take time so we expect Group companies to make an extra effort. In particular, we have high expectations
for Life Living Co., Ltd., the real estate development company weconverted into a Group company in July 2016.

Numerical Targets (consolidated)

Basic Policy• Support continuous growth of core businesses in ways thatfurther increase corporate value while constructing a base for
growth areas(Billions of yen)

2017/3 (FY2016) 2018/3 (FY2017) 2019/3 (FY2018) 2020/3 (FY2019)(Actual)(Plan)(Plan)(Plan)

Sales

520.4

540.0

556.0

575.0

Operating profit

22.8

23.5

24.5

26.0

Net income*1

20.4

14.2

15.0

16.0

• Core businesses: Balance apartment supply and management, andenforce concentration and diversification

Adjusted net income*2

18.4

18.4

19.0

20.0

ROIC

7.1%

–

– 8%〜10%• Growth businesses: Move the Elderly Care Business and International
Business into profit, which are less exposed to shrinking domestic
population

Adjusted ROE*4

12.0%

–

– Maintain 12%

Business Strategies(Value creation via cash flow generation)

Financial Strategies(Value creation via balance sheet management)• Introduce ROIC as a key indicator• Review assert holdings with a view to enhancing asset and capital efficiency• Improve and strengthen distributions to shareholders

The consolidated earnings plan assumes core businesses will grow 3%
on an annualized basis. This plan is in no way premised on stretchedassumptions, and the source of profits is expected to come from further
extending what was achieved in the previous medium-term plan.
In the growth areas, i.e., the International Business and Elderly
Care Business, in contrast, we consider the span of the new
medium-term plan to be a time for seeding. The plan is for thesebusinesses to move into profit in year three and then finally to start
contributing to profits in the next medium-term plan. Over the newplan’s three-year span we will focus on doing as much as we canacross the board to expand profits at Group companies. The profit
weighting of Group companies in the new plan’s earnings targets are*3

The Leopalace21 Group expects to reverse deferred tax assets
during the span of the “Creative Evolution 2020” medium-term
management plan; management indicators are calculated basedon normalized earnings that exclude one-off gains or losses.
*1 Profit attributable to owners of the parent is shown as “net income”*2 Adjusted net income = Net income after adding (subtracting) corporate taxes*3	Return on invested capital (ROIC) = Net operating profit after taxes (NOPLAT) /Interest-bearing debt + Net assets*4	Adjusted ROE = Adjusted net income / Average net assets (average of period-startand period-end net assets)

We also decided to adopt ROIC as a key management indicator.
We will concentrate on how efficiently we can generate profit
using ROIC, putting more focus on managing our balance sheet
properly rather than on single-year profit-loss performance. I doubt
we can increase corporate value unless we keep efficiency inmind, so we decided to adopt ROIC as a key metric and introduced
it into our new medium-term plan. Starting with the management
teams at Group companies, we are working to disseminate thefresh thinking underlying the new plan to all our employees.

6) Growth Businesses
Elderly Care Business

Q

What is the strategy for the Elderly Care Business in concrete terms?

In the previous medium-term plan, I said we would continue tobuild new care facilities but in the new plan we decided to stop
new construction temporarily and focus on improving and reinforcing operations at existing facilities. If we kept building new

facilities (tangible), our focus would invariably be pulled in that
direction, so the speed at which we could improve services (intangible) would not increase.
More than 40% of employees at care facilities are currentlyLeopalace21 Annual Report 2017

the composition of the workforce at facilities will enable us to restrain personnel costs, enabling facilities to move closer to a profit
at which point we will reset. Then, under the next medium-term
management plan, we will start gradually adding new facilities.

Leopalace21: Who We Are

full-timers, so this ratio is the biggest obstacle to improving profits. As shown in the new medium-term plan, we plan to reduce thisratio to about 35% by the plan’s last fiscal year. The full-timer ratio
at other companies in the nursing care industry is about 20%, soonly about one in five workers is a full-time employee. Rightsizing

31

Elderly Care Business• The 2025 problem: population over age 65 is expected to reach about
30% by 2025

• Elderly Care Business is designated as a growth business and focal point• New facilities that have not reached the break even point will continue
to have cumulative losses, so we will temporarily stop construction
after facilities which open by the end of FY2018 (86 facilities total)• Improve earnings power of existing facilities through optimal worker
composition

No. of Facilities
40％

39％

35％

Numerical Targets
18.0
30％
110

76
6

83
9

86
10

86
10

64

70

74

76

76

2016/03(actual)2017/03(actual)

2018/03(plan)

2019/03(plan)

2020/03(plan)■ Kanto■ Chubu

2025/03(plan)

Ratio of full-timers

10
0

180
150
120
90
60

0

-1.7

-1.9

2016/03(actual)2017/03(actual)

2018/03(plan)

0.2

0.8

2020/03(plan)

2025/03(plan)-0.9

2019/03(plan)■ Sales (Billions of yen) ■ Operating profit (Billions of yen)International Business

Q

60
40

What is the strategy for the International Business in20
concrete terms?

As a foundation for overseas expansion, we have built a branch
network, so the biggest goal we set for this business in the new
medium-term plan is building income-generating properties.
We now have three serviced apartments, including one underconstruction, and two serviced offices, so our portfolio is justfive properties at present. Our serviced apartment in Cambodia
is scheduled to commence operations from September 2017. At
present, we are introducing customers to buildings overseas we
did not develop on our own and there is ample need from companies for Japanese-style apartments with some home-country
touches built in. Companies sending employees to live and workoverseas want their employees to be able to live in a proper
apartment since they are sent on assignment at the company’s request. Yet there is a shortage of such apartments at present. Our
goal is to help meet this demand by developing such properties.
Under the previous medium-term plan, we built a branch
network, and under the new medium-term plan, we will plantseeds for growth. Our long-term vision is to proceed to harvest
the fruits of those efforts in the ensuing years.

0
-20
-40

200
150
100
50
0
-50
-100

Data Compilation

30

-1.4

13.0

Initiatives for Supporting Corporate Value

20

12.5

80

40
30

11.5

14.5

Initiatives for Creating Value

)

67
3

10.7

Responding to Social Challenges and Creating Value

Issues and Opportunities

External Environment

32

Leo palace2 1 An nua l Repor t 2017

International Business (Included in Leasing Business for reporting purposes)
Overview of Service Apartments

External Environment

Serviced Apartment in Sriracha,
Thailand• More companies entering ASEAN nations

Issues and Opportunities

Opened:November 2015

Building:

72 rooms with eight floors above groundOccupancy rate: 87.5% (as of March 31, 2017)• Offer high-quality buildings, facilities and services• Since rental unit brokerage is a flow business, we will expand management
and operation of income properties (EXIT policy after a certain period of time)

Serviced Apartment in Ha Noi,
VietnamNumerical Targets
16

0.07

0.25

0.44

0.90

2〜3

1.15

-0.28

-0.28

-0.10

2016/03(actual)2017/03(actual)

2018/03(plan)

2019/03(plan)

August 2016

Building:

56 rooms with ten floors
above ground, one floor
below groundOccupancy rate: 92.9% (as of March 31, 2017)

Serviced Apartment in Phnom
Penh

0.03

-0.27

Opened:Scheduled opening: Summer 20172020/03(plan)

2025/03(plan)■ Sales (Billions of yen) ■ Operating profit (Billions of yen)

Building:

56 rooms with 14 floors
above ground, one floor
below ground200.00133.25

7) Corporate Governance

66.50

On the Addition of Another Outside Director

-0.25

Q

-67.00Tadashi Kodama joined the Board as an outside director in July 2016. Please tell us about the circumstancesthat led Leopalace21 to add another outside director to its Board.

Leopalace21 did not have even one outside director until 2008. As
for my personal standard for inviting an outside director to join,
60
I do not agree with the notion that we must assemble a certain
number of outside directors to meet the Tokyo Stock Exchange’s
40
criteria merely because it issued a rule. My view is not to select20
an outside director because we received a recommendation
backing him or her. If I find someone I want to become an outside0
director, I go to him (or her) and ask him (or her) directly myself tojoin our Board.
-20
Mr. Taya is a partner at Industrial Growth Platform, Inc.,
which is a corporate revitalization firm. He came to Leopalace21
when we were restructuring, and since then has served as an
outside director on our Board.
Leopalace21 believes it is necessary to move forward inoffering thorough education and training to our human resources.
In the past when we hired about 1,000 people a year we did not
focus too much on education because we felt we did not needpeople who could not keep up on their own. This was a period
when the majority of the people we hired left the company in a
few years.

After joining Recruit Co., Ltd., Ms. Sasao subsequently
moved on to new challenges such as becoming the presidentof a nursing care business. How to train and develop people issomething she has thought about and put into practice for many
years. In particular, at TEPCO PARTNERS Co., Inc., where she
took charge as president at a difficult time, she became involvedin the nursing care business as a specialty, and built a recordin reviving the business. She makes statements such as “howshould the company develop employees?,” “company shouldmake effective use of its female employees,” “we are not making
good use of the talents of female employees in this company. We
can make a better and greater company if we raise the potentiality of female workers.”
While that theme of motivating and harnessing female workers is now fashionable in business circles for some reason or other, we do not do something just because it is popular. I thought
she was necessary, so I invited Ms. Sasao to join our Board.
Mr. Kodama, who joined our Board in 2016, has an impressive record as an executive in his years at Aioi Nissay Dowa
Insurance Co., Ltd. and I thought at the time that it would be a

Leopalace21 Annual Report 2017

Leopalace21: Who We Are
Responding to Social Challenges and Creating Value

good idea to ask him to join our Board around the time of his retirement. He understands risk management well, he delved deeply
into detailed numbers when checking our latest medium-term
management plan, and he looked carefully at whether the plan
was thoroughly conceived.
Leopalace21 does not have any ornamental outside directors with scholarly airs. Board meetings are lengthy, boisterous
affairs and where the discussion lands in the end is where it
settles. That is also a form of governance. Some people react
poorly when someone else raises questions about their preconceived beliefs but Board members must have the patience
to listen to people’s opinions. I think it is valuable for executive
officers to face questioning about the methods they selected
to calculate their data sets as it offers them a good opportunity
to provide such strong verification that they can assert from an
objective viewpoint a project will fare well if their framework
were adopted. It is a mistake to forge ahead relying just on
intuition, so that is what I would like outside directors to checkvery rigorously and carefully.

Enhance checking functions to ensure continuous value creation
Gradual increase in weighting of outside directors
and auditors

All three outside directors are corporate executives

Ratio of outside directors andauditors at BoD Meeting and
ASB Meeting

100 %

33 %

* Audit & Supervisory Board (ASB)**From July 2017, the number of outside
directors and auditors is to increase fromfive to six (40% of total)

How Meetings of the Board of Directors are Conducted
All of Leopalace21’s outside directors have distinguished careers as outstanding performers at the frontlines ofbusiness, so I’m sure they have offered valuable proposals that helped increase corporate value at venues suchas Board meetings. Can you provide us with illustrations of what the three outside directors have proposed?
services, this will generate stable revenues. We located an office in Singapore to collect information because of its flexible
access across the region and information flows.
We have started to hire from outside the Company the human resources we need for our International Business. Banks
have people with experience working overseas in ASEAN
nations, so we brought in three or four people with detailed
working knowledge in this area as department heads or executive officers but we still do not have enough, so we plan tohire more in the future.

Data Compilation

Mr. Taya is the one who first started proposing we invest
overseas. If a certain level of return can be earned, new people will appear to invest in such opportunities. Owning such
assets can erode portfolio balance, so assets are sold andproceeds reinvested. Opportunities overseas have opacities
and there are also high risk segments but succumbing to fear
results in paralysis. Considering this, we set up local branches
in relevant markets so we can gather information and avoid
mistakes. Mr. Taya advised the Board to increase the Company’s level of investment if it can earn a return above a certain
level. If we sell a building but provide property management

Initiatives for Supporting Corporate Value

Ratio of outside directors
who are or have been
corporate executives

Initiatives for Creating Value

Bolstering Corporate Governance: Adding Outside Directors

Q

33

34

Leo palace2 1 An nua l Repor t 2017

On the Nomination and Compensation Committee

Q

Apart from the president, all members on the Nomination and Compensation Committee are outside directors. Please share with us the aim of the committee’s composition, what points committee members keep inmind, and how far along the company is in educating and training next-generation management leadership.

It is possible for outside directors to request a meeting if theywant to get a sense of a person’s character and personality, andthe committee holds interviews when deciding on executive officers. Even if we tried to make personnel decisions to keep factions
in balance, that sort of approach is not fashionable these days, so
we feel we ought to weigh each person’s merits in making personnel decisions and have done so.
In addition, we hear an array of opinions about all mattersconcerning our compensation. What we debated and determinedis that setting salaries according to seniority like in past eras does
not accord with the times. I think the compensation system ought
to be one where incentives work as intended so employees work
to increase corporate value as if they were owners. We have hadcommittee members look closely at how well our incentives fit
together with our compensation system.
As for developing the capabilities of our employees, we are
increasing courses for them to obtain various kinds of knowledge
on academic topics and the like and we have invited various
speakers to lecture us on what management should aspire to as aprofession. Even if people retain what they study, however, it will
not amount to much if they do not put it into practice, so I think
it is necessary to provide implementation training to department
managers and deputy department managers below the level ofexecutive officers. As a result, we plan to assign some to subsidiaries in the future to provide them with actual management experience because I think they will come to understand many things ifthey try their hand at management. To use a driving license as anallegory, it would be as if they had just received their provisional

license but felt uncertain about getting behind the steering wheeland driving when asked to do so. At a driving school, it is fine for
an instructor to intervene with a student driver and tell them what
to do and not do but when the driver goes out to drive on public
streets and roads, he or she may feel intimidated and get cold feet.
In such cases, the best way to learn is to go out and try. That iswhen what the person has learned will come back to them. I think
our human resources development efforts are now at that stage.

Strengthening Alignments:
Compensation System with an Earnings Focus
Aligning the conduct of each director and executive officer forvalue creation
Leopalace21 Directors and Executive Officers
Increase ratio of performance-linked compensation: Bonuses and stock
options (revised)• Raise from standard ratio of 25% to 40% (47% for the president)• Embed incentives in the medium-term management plan (new)Group Company Directors and Executive Officers• Create performance-linked compensation system: Bonuses and stock options (new)Group Employees• Personnel system policies based on posts and job descriptions(adopted since FY2014)• Performance-linked bonuses (adopted since FY2011)• 73.3% of employees participate in an employee stock ownership plan(as of May 10, 2017)8) Message to Shareholders and Investors

Q

Leopalace21 reinstated dividends in fiscal 2015 for the first time in seven years and paid an interim dividendin fiscal 2016. Please tell us about the Company’s policies on returning profits to shareholders and capital
allocation.

Our aim is to raise our total return ratio of 50% by fiscal 2019.
This means 50% including share buybacks, which is what wewould like to realize at a minimum. We have accumulated large
holdings of cash and do not plan to increase retained earnings,
so we need to find the right balance in allocating between effective reinvestment and the return of profits to shareholders.
Compared with earlier eras, more M&A proposals haverecently flowed in our direction. I think our decision to spellout our policies on M&A has become known far and wide.
Whether a merger or acquisition yields synergies with ourcore businesses has become one criterion we consider in suchcases. We also investigate proposals on the basis of whether
investing our capital would produce benefits for both the M&A
candidate and for the Group.

June 2017
Eisei Miyama
President and CEO

Leopalace21 Annual Report 201735

Special Feature 1: Leopalace21’s Challenge

Leopalace21: Who We Are

For Great Progress in Growth Businesses

Responding to Social Challenges and Creating Value

Elderly Care
Business
StrategyCore Businesses
Core Businesses

Growth Businesses

Core Businesses

International
Business

Elderly
CareBusiness

Growth Businesses
Growth Businesses
International
Business

Elderly
CareBusiness

Elderly
CareBusiness

Current Medium-termManagement Plan
(fiscal 2017 to fiscal 2019)

Next Medium-termManagement Plan
(fiscal 2020 to fiscal 2022)

Data Compilation

Previous Medium-termManagement Plan
(fiscal 2014 to fiscal 2016)

International
Business

Initiatives for Supporting Corporate Value

We are aiming for long-term growth by identifying the challenges
and needs of an increasingly global and aging society,and providing values that respond to them.

Initiatives for Creating Value

International
Business
Strategy

36

Leo palace2 1 An nua l Repor t 2017

Special Feature 1 International Business Strategy

Expanding our International Businessdrawing on know-how honed in Japan■Net sales ■Operating income

Quantitative targets(Billions of yen)International
Business
Strategy

16.0

2.0〜3.0

0.07

0.25

0.90

0.44

0.03

-0.27

-0.28

-0.28

-0.10

Fiscal2015

Fiscal2016

Fiscal2017

Fiscal2018(Actual)(Actual)1.15(Plan)(Plan)

Fiscal
2019(Plan)

Fiscal2024(Outlook)

Results ofNeed-based

Business
Environment

Initiative

Remarkable ASEAN growth

Opening information-gathering office in Singapore

It is expected that factors such as growing populations and risinglabor productivity will lead to development in the ASEAN region.
As major growth cannot be expected in Japan due to fallingbirthrates and the aging population, many Japanese companies
are expanding to this region, where significant growth is expected, and as a result, the number of Japanese living there is also
growing. Over the past few years, about 70% of all overseas
expansions by Japanese companies have been to Asia. In addition
to the long-time major destinations of Thailand, Malaysia, andSingapore, recent years have also seen increasing expansion intosuch regions as Vietnam, Cambodia, and Myanmar.

In response to this business environment, Leopalace21 is buildingon the real estate-related know-how it has developed in Japanto provide real estate brokerage and introduction services in the
ASEAN region targeting Japanese and Japanese companies, inaddition to its current services of introducing property in Japan toforeign nationals.
In fiscal 2016, we established a subsidiary in Singapore as a baseto gather information about real estate investment projects. Our
Singapore-based subsidiary gathers information about a variety ofbusinesses in the ASEAN region, and we aim to use it as a base forgrowing our business in this region, where major growth is expected.

1

Trends in Japanese Nationals Living Overseas by Region(October 1 ofeach respective year)

2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

Singapore
0

30

60

90

120

■Asia ■Oceania ■North America ■ Central America ■South America■Western Europe ■Eastern Europe/CIS ■Middle East ■Africa

150(Unit: 100,000)

Source: Annual reports of statistics on Japanese nationals overseas, Trends in Japanese nationals living overseas
by region, MOFALeopalace21 Annual Report 2017

Leopalace21: Who We Are

DalianBeijing

Seoul
Busan
Shanghai
Guangzhou

37

Taipei

Hanoi
Responding to Social Challenges and Creating Value

YangonBangkokPhnom Penh

ManilaSriracha
Ho Chi Minh

Singapore

Jakarta

Initiative

FutureGoals

Operating serviced apartments and serviced offices,and offering World Business Support

1

2* Our serviced apartments in Cambodia are scheduled to open in September 2017.

As in Japan, we are aiming to manage more properties
in the ASEAN region, and expand our stock business.

2
We will build a track record with our serviced
apartments and serviced offices, converting themto funds or REITs, or selling them to investors, tofocus solely on property management.

Initiatives for Supporting Corporate Value

The increased number of Japanese companies expanding into the
ASEAN region is creating growing needs for comfortable housing
there. Leopalace21 offers high-quality buildings, facilities, andservices in the region based on these needs. In addition to opening
serviced offices in the Philippines and Myanmar, we operate serviced apartments in Thailand, Vietnam, and Cambodia*. We alsooffer World Business Support, which provides end-to-end support
to employees of Japanese companies assigned overseas.

Manage more properties throughout the ASEAN region

Initiatives for Creating Value

Results ofNeed-based

Data Compilation

Leo palace2 1 An nua l Repor t 2017

Special Feature 1 Elderly Care Business Strategy

Providing value to customers who requirenursing care with our original philosophy■Net sales ■Operating income

Quantitative targets(Billions of yen)

11.5

10.7

Elderly Care
Business
Strategy

18.0
13.0

12.5

14.5

0.2
-1.4

-1.7

-1.9

Fiscal2015

Fiscal2016

Fiscal2017(Actual)(Actual)(Plan)

0.8-0.9
Fiscal2018(Plan)

Fiscal
2019(Plan)

Fiscal2024(Outlook)

Results ofNeed-based

Business
Environment

Initiative

Seniors aged 65 or older will represent
approximately 30% of the population by 2025

Making the Elderly Care Business
into a strategic growth business2025 is the year that the massive “baby boomer generation” will reachlate elderly age, further driving the problem of Japan’s declining birthrate and aging population. This problem is expected to advance rapidly
in urban areas including the Tokyo metropolitan area in the future.
Therefore it is said that 2025 is the year that a variety of problems will
surface, including more seniors with dementia, and problems concerning nursing care, medical treatment, social security costs, and housing.

With consideration for the future external environment, the Leopalace21
Group has positioned the Elderly Care Business as a strategic growthbusiness and moved to increase the number of its facilities. In addition to
day services (same-day service), short-stays (short-term overnight stays),elderly homes with nursing care services/residential style elderly homes(move-in), and group homes (residents with dementia live together), weare also developing services such as home visits, in-home bathing assistance, home visits and nursing care with regular visits and 24 hour support,
and in-home support. As of April 1, 2017, we operate 78 facilities, with plans
to increase this to a total of 86 facilities centered on areas that need them.

1

Elderly population and ratio
4,000 (Unit: 10,000)(%) 40Day services/Short-stays
3,000

30

2,000

20

10

1,000

0

0

19
50
19
55
19
60
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
20
10
20
15
20
16

38

■Age 65 - 69 ■Age 70 - 74 ■Age 75 - 79 ■Age 80 or older (left axis)

Seniors (65 or older) as a percentage of the population (right axis)

Source: Statistics Bureau, Ministry of Internal Affairs and Communications● Offers same-day or overnight services such as

meals, bathing, recreation, and functional training.

Elderly homes with nursing care services/
Residential style elderly homes● We operate elderly homes with nursing care services

where on-site staff provides nursing care service andresidential style elderly homes where patients can use
in-home services such as day services and home visits.

Group Homes● Elderly patients with dementia are accepted andgiven nursing care with attention to detail.

● All residents have their own individual rooms toensure privacy.

Leopalace21 Annual Report 2017

Sekigawa Kanuma
IsezakiOta Tatebayashi

Takasaki ▲ ▲

▲

Honjo
Chichibu▲▲

Horigome

Gunma▲

Tochigi-daicho ▲▲ Hanyu

Gyoda ▲▲

Higashi-matsuyama

Tochigi▲

Kitamoto

YasakaUtsunomiya

Shimodate

Nogi

Yuki

Shinkoga

Koga
Koga-chuo

Day-service, short-stay centers
Sites including fee-based nursing homes
Group homes
Total

Leopalace21: Who We Are“Azumi En” Facility Network
Facilities
54
22
2
78

*As of April 1, 2017

▲ Ina
★ Fee-based home with nursing care,day/short-stay services◆ Fee-based home with nursing care,short-stay service

Gifu■ Fee-based home with nursing care,
day service▲● Fee-based home with nursing care

Gifu

▲ Kakamigahara▲

Kasugai◆★ Fee-based residential homes
with day/short-stay services▲ ToyotaMoriyama ▲
Anjo

Aichi

◆ Fee-based residential homes
with short-stay service● Fee-based residential homes○ Group homes▲ Day/short-stay services● Day services◆ Short-stays

Initiative

FutureGoals

Improve profitability through cost control

12

Initiatives for Creating Value

Results ofNeed-based

Increase facilities
We will increase the number of facilities in order to meetthe growing demand for nursing care, and to address thesocial issue of a lack of nursing care facilities.
April 1, 2017

Plan for March 31, 201986

78 facilities

facilities

2

Initiatives for Supporting Corporate Value

Leopalace21 is forging ahead with initiatives to expand the size of
its network by adding more facilities while working to improve thecosts of sales so each individual facility becomes profitable. Whileit plans to increase the number of facilities to 86 by March 31,
2019, it is working to achieve profitability at the level of individual facilities by controlling the costs of sales, so as not to rely on
economies of scale for earnings from expansion alone.

Responding to Social Challenges and Creating Value

Iwai
Hanasaki-no-oka
Ageo ▲
Showa
Komuro ▲IbarakiMihashi Sakura Minami-sakurai▲▲
Sayama▲▲Hamura▲ Gamou▲ Yoshikawa Shimizu-koen▲▲ Yashio ▲Mizuho Goseki▲
Oume
Irumagawa● Kokinu ● Tsuchiura●
Soka
Yanagisawa
Komakidai
Takamihara
Hirasawa
Higashi-yamato
Sakasai Abiko●
NakanoTatemachi
Tokyo
Tokiwadaira▲ Kamagaya
Takatsukashinden● MisakiNishi-funabashi Namikicho
Katsutadai ▲▲ Ino▲▲ Wakaba▲
Kanagawa
Takaoka Nakazawa
Katsuragi●▲ OyumiTsurumaki
Chiba
Yamakita● Ichihara
Tsukuihama▲ Kisarazu
Hiratsuka ▲Saitama39

Reform cost structure
We will secure revenue by optimizing personnel costs.
employees

Others(929 employees) (contract,part-time,
temporary)

39%

61%

(1,458 employees)

Fiscal 2016

Full-time
employees
Approximately

35%

Others(contract,part-time,
temporary)Approximately

65%

Plan for fiscal 2019

Full-time

employees

39%(929 employees)

Others （contract, part-time, temporary）
61% （1,458 employees）
Full-time employees
Approximately 35%

Data Compilation

Full-time

40

Leo palace2 1 An nua l Repor t 2017

Special Feature 2 Leopalace21’s Work-style Reform

Work-style reform to keep creating value
in the long term

Results of
Leopalace21’s

Enactmentof the law

Initiatives

Government-driven work-style reform

Recognized as “Semi-Nadeshiko Brand”!

Currently, full-scale work-style reform has started under the guidance of the government, including reforming the significance andbehavior of not only women’s but men’s work styles. Legislation
has already taken shape, and is expected to be enacted in 2019.

Leopalace21 was recognized as a “Semi-Nadeshiko Brand” enterprise, a brand promoted jointly by the Ministry of Economy, Tradeand Industry and the Tokyo Stock Exchange. This was due to being
rated highly for putting an emphasis on realizing work-life balancesuch as by reducing overtime work hours and achieving a high rateof employees taking their annual paid leave, as well as on training
for the development of female managers.

The direction of work-style reform in nine fields
Improved treatment
1 for irregular workers

Equal pay for equal work

Raise the minimum wage approximately 3%
per year to ¥1,000 per hour
Set limits on overtime with penalties, introduce interval regulations (obligation to make3 Rectify long hours
efforts to reform)
Support for job-changing
Increase aid for companies to hire mid-career
4 and reemployment
employees, provide more information
Increase telecommuting, promote dual or side
5 Flexible work-styles
employment
Increase opportunities to go back to school,
Empowerment of women
support for the generation with inadequate
6 and youth
employment opportunities
Increase support for continued employment
Promoting employmentof employees 65 years or older and for
7 of the elderly
delayed retirement
Support balance between child- Improve wages and treatment of childcare
8 care/nursing care and workand nursing care staff
examination comprehensively through9 Employment of foreign workers Beginout the government

1

2 Increased wages

Leopalace21 is accelerating through government driven initiatives
the work-style reform it has promoted thus far, and working todevelop human resources who will support medium-term growth.

1. Reduced overtime hours/higher rate of taking annual paid leave
2. Training to promote the empowerment of female employees
3. Introduction of telecommuting
4. Encouraging male employees to take childcare leave
5. Holding diversity forums

Leopalace21 Annual Report 201741

Employees benefitting from work-style reform— What efforts have you made in order to balance work and family? My time is limited, so I assignorder of priority to tasks in order to do my work efficiently. In case I have to leave work suddenly to deal
with family issues, I share my job with coworkers thoroughly to keep work from getting backed up.

Tsukasa Sako

Corporate Management Department,
IR Promotion Office

Masahiko Tsurumoto

Office Manager, Yamato Branch, Kanagawanishi Marketing Department, Leasing Business— What work are you currently engaged in? The Corporate Business Promotion Division, which I
currently work, is involved in initiatives including company-wide operational improvements and planning new measures, as well as holding corporate seminars. The other day, we held the first seminar for
women aiming to become executives, where women from various companies spoke about systems andinitiatives, so it was a very stimulating event.
— What do you focus on when training subordinates? I try to make male and female employees aliketake on new challenges. I also think it’s important for them to face challenges without fear of failure, so I
always give them a job a little bit above their current level. At Leopalace21, both men and women can takethe lead on the same stage, so there are a lot of women active in the workplace.

Department Chief, Corporate Business
Promotion Division

FutureGoals

Recognized under “2017 Certified Healthand Productivity Management Organization
Recognition Program (White 500)”!
Joined the “Iku-Boss Corporate Alliance”!

1

2

150 female managers by March 31, 2021
Female managers (persons)
200 (persons)Leopalace21 has been recognized under the “2017 Certified Health andProductivity Management Organization Recognition Program (White
500),” organized by the Ministry of Economy, Trade and Industry andNippon Kenko Kaigi. We were evaluated highly for using experts to offer health support, holding health forums to check the health conditionsof employees, and promoting work-life balance. Leopalace21 has alsojoined the “Iku-Boss Corporate Alliance” which has the goal of training“iku-bosses,” who care about the work-life balance of subordinatesand other staff at their workplace and support their careers and lives
while also producing good results for the company and enjoying theirown work and personal lives.

87

100
50
0

March 31, 2017

March 31, 2021

(Actual)(Target)2
Raise the ratio of average working yearsof women to average working yearsof men to 80% or higher

65％

80％

March 31, 2017

March 31, 2021

Data Compilation

65％

150

150

Initiatives for Supporting Corporate Value

Initiatives

Initiatives for Creating Value

Results of
Leopalace21’s

Mayumi Hayashima

Responding to Social Challenges and Creating Value— What is it like taking childcare leave as a male manager? I am the manager of a sales office in theleasing business, and I took childcare leave because my wife was in poor health after she gave birth, so
I decided that I didn’t want to leave her with the burden. But I was really worried about how the office
could make up for my work during my leave.
— How was the office managed while you took childcare leave? I took childcare leave for three weeks,
but while I was absent from the office, my subordinates came to feel that they had to work harder, and they
kept work on schedule and operated the office. I think this system also helped to train my subordinates.

Leopalace21: Who We Are— How is it taking childcare leave at Leopalace21? I am currently working reduced hours in investor
relations after taking childcare leave for the second time. I did this with the understanding of people
in my workplace, so I wasn’t worried about taking childcare leave, but to make sure that I could return
to work smoothly, I consciously acquired new information by checking newspapers and the company
website during my leave, and by communicating with my superiors and coworkers.

42

Leo palace2 1 An nua l Repor t 2017

Business Overview

At a G lance
Leasing BusinessBusiness +Real Estate Development Business )42P Development Business (Construction

44P

Segment Overview
This business is involved in leasing rooms in properties we manage based on ourmaster lease system. One rental agreement we offer allows usage fees to be paid
on a monthly basis, the other, the monthly agreement, requires upfront payment ofusage fees.
We seek to secure tenants using our direct offices, franchise sales offices,
cooperative real estate agents and other to raise occupancy rates by offering aricher array of services that improve tenant satisfaction.
We also develop solar power generation business to earn profits from selling theelectric power generated from solar panel installed on leased rooftops of the apartments.

Main Group Companies

Corporate housing
services

Rent guarantee
services

Leasing management Short-term home contents
services (South Korea)
insurance for tenants

Tenant reference
services

Real estate agency(Vietnam)Real estate agency(Thailand)This business engages in construction of mainly apartments and real estate development. We are working to bolster our product competitiveness, offering products
designed from a perspective of female tenants who are the major customers of our
specialty of one-room type and those for young people as well. Outside of apartments, we are expanding the construction of commercial properties and elderly
care facilities. We also plan to expand the construction of custom-built homes andresidences for one block sale.
Morizou Co., Ltd., our subsidiary company, develops custom-built homes madeof Kiso hinoki cypress and Life Living Co., Ltd., another subsidiary company of ours,
develops designer-brand condos of “Branche” series in order to provide the best
method to utilize land.

Main Group Companies

Real estate agency(Cambodia)
Morizou Co., Ltd.
Homes made of Kiso hinoki cypress

Real estate agency(Indonesia)

Real estate agency(Philippines)

Power generation
business

Custom-built homes

Net sales
composition ratio

Investment consulting

Real estate development

Net sales
composition ratio

81.0%

15.4%

‘17/3 FY2016

Power producer
and supplier‘17/3 FY2016

Sales Trend 2017/3 FY2016 Actual and 2018/3 FY2017 Forecast are under new business segments,
450 (Billions of yen)

100 (Billions of yen)
75

300

50
150

25

0

0

’14/3
FY2013’15/3
FY2014’16/3
FY2015’17/3
FY2016’18/3
FY2017(Forecast)’14/3
FY2013’15/3
FY2014’16/3
FY2015’17/3
FY2016’18/3
FY2017(Forecast)

Key Data
Master Lease Apartment Completions (during ’17/3 FY2016)

Occupancy Rates
92（％）

Tohoku region

90

27 apartment buildings, 4.1％

88

Chugoku region

86

33 apartment buildings, 5.0％

84

Chubu region

42 apartment buildings, 6.3％

82

Apr May Jun’14/3 FY2013

Jul

Aug Sep‘15/3 FY2014

Oct Nov Dec Jan‘16/3 FY2015

Feb Mar‘17/3 FY2016

Kyushu/Okinawa

59 apartment buildings, 8.9％

Other

35 apartment buildings, 5.3％

663

apartment
buildings

Tokyo metropolitan area

366 apartment buildings, 55.2％
Kinki region

101 apartment buildings, 15.2％

Leopalace21 Annual Report 201746P Hotels, Resort & Other Businesses

48P

Main Group Companies

Main Group Companies

Azu Life Care Co., Ltd.

Resort businessInitiatives for Creating Value

Hotels, Resort and Other Businesses involve in the management of domestic
hotels, management and operation of resort facilities on the island of Guam,administrative and clerical services and other.

Responding to Social Challenges and Creating Value

Under the brand name “Azumi En,” our network of community-based nursing care businesses spanned 78 locations in the Kanto areas as of April 1, 2017. We manage feebased nursing homes, centers offering day services and short stays, and group homes
as well as businesses offering home visits by nursing care staffs and in-home nursing
care support and other. We are especially focusing on ambulatory-type operations
such as day services and short stays.

Leopalace21: Who We Are

Elderly Care Business43

Travel agency services

Elderly care

Net sales
composition ratio

Net sales
composition ratio

1.4%

Special subsidiary company‘17/3 FY2016

15 (Billions of yen)

12 (Billions of yen)

10

8

5

4

‘17/3 FY2016

0

0

’14/3
FY2013’15/3
FY2014’16/3
FY2015’17/3
FY2016’18/3
FY2017(Forecast)’14/3
FY2013’15/3
FY2014’16/3
FY2015’17/3
FY2016’18/3
FY2017(Forecast)

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

75

75

50

50

25

25

Data Compilation

Elderly Care Facilities Occupancy Rates (Annual Average)
100（％）

00’14/3
FY2013Day services’15/3
FY2014
Short-stays’16/3
FY2015
Private nursing homes and other’17/3
FY2016’14/3
FY2013’15/3
FY2014

Guam Resort

Domestic hotels’16/3
FY2015Initiatives for Supporting Corporate Value

2.1%

’17/3
FY2016

44

Leo palace2 1 An nua l Repor t 2017

Business Overview

Leasing Business
SWOT Analysis
SWOT分析
• No.1 in studio (one-room type)apartments managed• Contracts with individuals sluggish•• 敷金・礼金ゼロのApartments
equipped with

furniture, electric appliances,
マンスリー契約
Internet, and IoT•• 請負と賃貸のCorporate contracts make up

approx. 55% of total contracts
シナジーモデル• 家具家電付き• 壁が薄いなどのマイナスイメージ

S W
Weaknesses
弱み
S W
Opportunities
Threats
O T
機会
脅威
O T
• Population of single productive• Declining population
Strengths

強みworkers expected to remainunchanged in next 20 years

•• UR
賃貸住宅
Consistentincreases in rental

continue to enjoy net population influx
金利優• シェアハウス、•• 住宅ローンに対するThree major metropolitans areas
Increase in corporate recruiting•• 外国人の流入
due to labor shortages• Growing number of Japanesecompanies entering Southeast Asia

apartment vacanciesの影響
across Japan（旧公団住宅）• Geopolitical risks in Southeast Asia

ルームシェアの普及• 金融機関のローン審査の厳格化

Performance
営業損益と期中平均入居率の推移
Operating
Income (Loss) and Average Occupancy Rates
(%)96
（％）
96

（億円）of yen)30
200(Billions

20
100

92
92

10 0

88
88

-300
0

84
84

80
80

-500
-50

’17/3*16/3
’08/3
’13/3
’14/313/3’15/314/3’16/315/3’18/317/3’20/3
07/3’09/3
08/3’10/3
09/3’11/3
10/3’12/3
11/3
12/3
FY2007FY2013
FY201434期FY2008
35期FY2009
36期FY2010
37期FY2011
38期FY2012
39期
40期
41FY2015
期 42FY2016
期 43FY2017
期 44期FY2019(Plan)(Plan)

営業損益
Operating（左軸）
income (loss)期中平均入居率(left axis)
（右軸）

（計画）

Average annual occupancy rate (right axis)* Former segments used until March 2017 fiscal year; new segment classification used thereafter.

日本の賃貸住宅の空き家数と空き家率
Rental Housing Vacancy Numbers and Rates (Japan)(Thousands of units)
5,000
500（万戸）(%) 25
（％）

400
4,000

20

300
3,000

15

200
2,000

10

100
1,000

5
0

00

1983
1983

1988
1988

1993
1993

1998
1998

2003
2003

2008
2008

In the year ended March 2017, sales in the Leasing Businessamounted to ¥421,342 million, up 1.5% from the previous year,
and operating income totaled ¥23,172 million, up 0.4%. During theyear, we sought to generate steady income by promoting measuresto raise property values and encourage long-term residence. We
also addressed demand for corporate dormitories and corporate
housing and enhanced our support system for foreign residents. As
a result, the number of units under management at fiscal year-end
was 568,739, up 6,778 from a year earlier, and the fiscal year-end
occupancy rate was 91.66%, up 1.13 points. Average occupancy
for the year was 88.53%, up 0.58 point from the previous year.

2013
2013

賃貸
Vacancy
・売却用住宅の空き家数
number (rental and for-sale)（左軸）(left axis) 空き家率（右軸）

※ 総務省
「住宅
・土地統計調査」
Vacancyrate(right axis) より

Source: “Housing and Land Survey” (Ministry of Internal Affairs and Communications)

Business Conditions and Issues
In the rental housing market, the number of new construction
starts increased for the second consecutive year amid a prolonged environment of low interest rates and steady demand forapartment construction as a measure to save inheritance taxes.
However, the number of vacant rental houses in Japan has been
consistently increasing, so a recovery in nationwide demand isunlikely. Under such circumstances, we believe a differentiation
strategy based on provision of value-added services is important. This means deploying our unique strengths, which include
concentrated supply of properties in areas where high occupancy
rates can be expected in the future, as well as supply of studioapartments and those with furniture and household appliances. In
addition to discouraging tenant outflow, it is necessary to adopt
other measures, such as proper maintenance and management ofproperties, optimization of rental prices based on market factors,
and periodic reviews of routine property management tasks.

Leopalace21 Annual Report 2017

Leopalace21: Who We Are

Overview of New Medium-Term Management Plan (FY2017-FY2019)
Sales
500 (Billions of yen)

421.3

400

+8%

454.6

300
200
100
0

’20/3
(Plan)
Guest

’17/3

questionnaire

Operating Income
25 (Billions of yen)

23.2

+14%

20
15

Operating Margin

26.5

来店受付
タブレットでお部屋探し
アンケート記入

5.5

5.8+0.3 point(%) 10

部屋探し
8

店舗内 PCで物件をご案内

6
4
2

5
0

0

’17/3

’20/3
(Plan)Key Products and Services

Signature“my DIY”

Industry-first electronic lease contract service
Seeking to improve customer convenience, in November 2015 we introduced tablet terminals at Leopalace
Center, our nationwide leasing offices, becoming the first in the industry to provide an electronic contract service. Without the need for personal seals and document storage, this has led to greater convenience for both
the Company and its customers, and also helps save resources.

MY PAGE

Confirmthe contract
on the WEB

Initiatives for Supporting Corporate Value

Even rental properties can be customized to one’s liking. The number of contracts forour “my DIY” service, which allows tenants to change the wallpaper on one wall for
free, has already reached 32,240. With this service, we aim to promote long-term
occupancy by enabling tenants to personalize and form attachments to their rooms.

Promoting “smart” apartments

Security systems
With “24-hour, 365-day safety and security” as our motto, we have partnered with two major
nationwide security companies to install security systems in properties we manage. The number of
security systems installed has now reached 270,000. We are also focusing on security cameras, andthe number of buildings with cameras in place now exceeds 10,000.

Data Compilation

Leo Remocon enables tenants to use their smartphones to operate home appliances remotely. Even air conditioning and other functions can be controlled from outside. This service will be provided as standard on all
newly constructed residences completed after October 2016. In April 2017, moreover, we have introduced Leo
Lock, a smart lock key that can be opened and locked using a smartphone.

契

タブレ
契約書に

Initiatives for Creating Value

10

Room search

Responding to Social Challenges and Creating Value

A look at the leasing business environment over the period of
our new medium-term management plan reveals that the overall
number of households in Japan is expected to decline but the
number of single-person houses in our target cohort of the productive population (aged 15–64) will trend sideways for the next 20
years (see page 10). Moreover, Japan’s three major metropolitans
areas, which represent our target geographical market, continue toenjoy a net population influx (see page 10). In addition, we expect
companies to continue hiring people due to shortage of manpower,
and we forecast increasing need for dormitories and company residences (see page 12).
Under these circumstances, Leopalace21 will deploy its key
strength—around 570,000 units under management—to enhance
its presence as a one-stop solutions provider that addresses the various needs of corporate clients. At the same time, we will encourage
long-term residence, restrict tenant outflow, embrace demand fromforeign students, and expand female residential occupancies.
In addition, we will broaden our international operations, especially in Southeast Asia, through the supply of serviced apartments
in high-quality buildings with excellent facilities and services.

45

46

Leo palace2 1 An nua l Repor t 2017

Business Overview

Development Business (Construction Business + Real Estate Development Business)
SWOT Analysis• High-quality, high-value-added products(including strong sound insulation)• Reduced construction costs throughseparate ordering and industrialization• Diversifying business to include
construction of elder care facilities,
commercial facilities, and customized
houses, in addition to apartmentbuildings

Strengths
Opportunities• Still gathering know-how outsideof low-rise apartment buildings

S W
O T

• Major increase in taxable people
due to inheritance tax revision• New rental housing construction
starts steadyWeaknesses
Threats• Construction demand peaking
ahead of 2020 Tokyo Olympics;
rising construction costs• Rental property vacancies
increasing across Japan

Performance
Operating Income, Trend in Building Completions
80 (Billions of yen)

(Buildings) 4,000

30

3,000

20

2,000

10

1,000

0

0

’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3* ’18/3

FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017(Plan)

Operating income (left axis)
Number of building completions (right axis)’20/3

FY2019(Plan)In the year ended March 2017, orders received in the Development
Business amounted to ¥87,139 million, up 0.8% from the previous
year, and sales totaled ¥80,316 million, up 8.3%. Operating income
jumped 72.4% year on year, to ¥5,758 million.
During the year, we focused on attracting orders in Japan’s
three major metropolitan areas, where populations continue toincrease and high occupancy rates are expected in the future, while
strategically investing in high-quality, cutting-edge products. We
also launched a new brand aimed at strengthening competitivenessand refreshing our image among tenants. In addition, we expanded
construction variations to optimize land usage while reviewing
product prices and supply channels in order to improve profitability,with segment operating income growing significantly as a result.

* Former segments used until March 2017 fiscal year; new segment classification used thereafter.

Number of New Rental Housing Starts
600 (Thousands of units)

400

200

0

’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3

FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016

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

Business Conditions and Issues
Thanks to recoveries in the domestic economic and our performance, conditions for our Development Business are improving.
Moreover, rental housing construction starts have increased fortwo consecutive years amid brisk demand for apartments due toprolonged low interest rates and adoption of measures to reduce
inheritance taxes. However, vacancy rates are increasing consistently across Japan, and the rental housing market is saturated
when assessed at the national level. In this environment, we will
identify areas where high occupancy rates are likely and implement a more detailed supply plan, including in Japan’s three largest metropolitan areas, aimed at expanding orders. At the productlevel, we will bolster competitiveness by incorporating tenants’perspectives into product development while strengthening earthquake resistance and improving sound insulation and security.

Leopalace21 Annual Report 2017

Leopalace21: Who We Are

Overview of New Medium-Term Management Plan (FY2017-FY2019)

100 (Billions of yen)

+22%

98.2

80.3

80
60
40
20
0

’20/3
(Plan)’17/3

Operating Income

Operating Margin

7.5 (Billions of yen)(%) 15

6.0

5.8

+3%

6.0

12

4.5
3.0

9

7.2

6.4

-0.8 point

1.5

3

0

’20/3
(Plan)

6

0

’17/3

Key Products and Services’20/3(Plan)

Initiatives for Creating Value

’17/3

Sales
Responding to Social Challenges and Creating Value

Over the period of our new medium-term management plan,
our Development Business will benefit from healthy new
500 (Billions of yen)rental housing construction
but the number of vacant
454.6+8% starts,
421.3
400
units continues to rise across Japan (see page10). Moreover,300
construction demand is peaking ahead of the 2020 Tokyo
Olympics, and construction costs are rising, especially with200
respect to labor and materials.
100
Responding to these challenges, Leopalace21 will continue
0
supplying high-quality, high-value-added products and services’20/3
in its quest ’17/3
to become the partner(Plan)of choice among customers. We will also restrict the geographical coverage for rental
housing supply to Japan’s major metropolitan areas, with parOperating Income
Operating Margin
ticular attention to accelerating supply in Tokyo. Meanwhile,+14%(%) 1025 (Billions of yen)
26.5 properties,
we will diversify
such
23.2 into areas outside of rental20
8
as private housing, commercial facilities, elder care facilities,
and multifunctional complexes.
615
5.8issue of rising con5.5 same time, we will address the
At
the
4
10
+0.3 point
struction costs by promoting cost-reduction efforts, such as
2
5separated ordering of materials and acceptance of technical00trainees from Vietnam.

Sales

47

MIRANDA

CLEINOWith fine-tuned floor plans, fittings and fixtures, and specifications based on extensive market surveys, CLEINO-branded designs enable considerable flexibility inmatching the styles and ideas of prospective residents and making their lives evenmore comfortable.

TAIGA (Morizou Co., Ltd.)

Initiatives for Supporting Corporate Value

With “decorative” as its key concept, MIRANDA is a rental housing brand filled withnew ideas that “surprise” and “dazzle” potential tenants and invites fresh thinking
about living spaces that come with unique added value.

Based on flexible designs, custom-built TAIGA homes are made with the highest-quality kiso-hinoki
wood. In addition to durability of such wood, these homes are designed to last 100 years thanks
to innovative features, such as a ventilation system that prevents degradation and reinforcement
against earthquakes.

With an emphasis on design and function, Branche rental apartment buildings are compact and can beconstructed efficiently on small and odd-shaped lots as little as 165 square meters. Here, we employ thepatented “TEN-FOUR CUBE Construction Method” enabling us to incorporate four stories in a 10-meterhigh building, which would be normally limited to three stories using regular construction methods.

Data Compilation

Branche (Life Living Co., Ltd.)

48

Leo palace2 1 An nua l Repor t 2017

Business Overview

Elderly Care Business
Performance
In the Elderly Care Business, which runs the “Azumi En” network of
nursing care facilities, sales in the year ended March 2017 totaled¥11,536 million, up 6.8% from the previous year. The business
reported an operating loss of ¥1,650 million, up ¥296 million, due toa run-up in new facility operating costs.
Positioning elderly care as a strategic growth business, wehave expanded and upgraded our facilities in recent years. As of
April 1, 2017, we operated 78 nursing care facilities, having opened
11 new facilities over the previous one-year period.

Business Conditions and Issues
Conditions in the Elderly Care Business are mixed. On the one
hand, the population of people requiring care is rising, so the market for related services is expected to continue growing. On theother hand, the number of facilities for seniors is also increasing,giving rise to intense competition within the industry, in addition
to difficulties in attracting care personnel. Under these circumstances, we will target a return to profitability at an early stage byincreasing utilization rates and enhancing operational efficiency.

SWOT Analysis• Operation of 78 facilities in Kanto
and Chubu regions• Addressing various needs,
including day service, short stay,and fee-based nursing

Strengths
Opportunities• High labor-cost burden

S W
O T

• People 65 and over to reach 30%
of total population by 2025

Key Products and Services
Weaknesses
Threats• Reduced nursing care fees
following review of nursing careinsurance system

Operating Income (Loss), Trend in Nursing-care Facilities
2 (Billions of yen)

(Number of facilities) 100

1

50

0

0

-1

-2

’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3

FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017(Plan)

Operating income (loss) (left axis)
Number of nursing care facilities (right axis)’20/3

FY2019(Plan)

Azumi EnAs of April 1, 2017, we managed 78 “Azumi En” facilities
in the Kanto and Chubu regions. Services at each facility
include fee-based homes for seniors that offer support for
their daily lives in a family-like atmosphere; group homes
with daily-living support through meticulous nursing care;and day and short-stay services where elderly people livingin their own homes can access services for temporary stays.

Leopalace21 Annual Report 201749

Business Overview

Performance

Business Conditions and Issues
In the Hotels & Resort Business, we are working to stabilize our
performance by encouraging apartment owners and corporate
rental customers to use our facilities and thus improve occupancy rates.

Responding to Social Challenges and Creating ValueIn the year ended March 2017, sales in our Hotels, Resort and Other
Businesses amounted to ¥7,289 million, down 36.5% from theprevious year, and operating loss was ¥752 million, up ¥59 million.
During the year, we sold Hotel Leopalace Asahikawa and Hotel
Leopalace Okayama in Japan, as well as Westin Resort Guam.

Leopalace21: Who We Are

Hotels, Resort and Other Businesses

Key Products and Services
Leopalace Hotels• Business synergies withstakeholders

Strengths
Opportunities• Inadequate marketing to generalcustomers other than stakeholders• Japan: Hotel industry booming
due to economic growth andinbound demand• Guam: Stable for Japanese
travelers; South Korean market
showing remarkable growth

Weaknesses
Threats• Decreasing foreign visitors toJapan due to yen's appreciation• Burden of regular investments torenew facilities

Operating Income (loss)
0 (Billions of yen)-1

-3

’08/3 ’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3* ’18/3

FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017(Plan)’20/3

FY2019(Plan)*Former segments used until March 2017 fiscal year; new segment classification used thereafter.

Leopalace Resort Guam is fully equipped with sports facilities that meet international standards. Its swimming
facilities have been certified as a “JOC authorized swimmingcompetition center,” and its golf courses have been recognized as a “Japan Golf
Association-designatedgolf course.” It is used not
only as a resort but also
as a training camp site forathletes.

Data Compilation-2

Leopalace Resort Guam

Initiatives for Supporting Corporate Value

S W
O T

We currently operate four Leopalace Hotels in Japan(Sapporo, Sendai, Nagoya, and Hakata). Aimed at both
long-term and short-termstays, these hotels run
restaurants under the
direct management of
Leopalace21 and provide
free laundry services.

Initiatives for Creating ValueSWOT Analysis

50

Leo palace2 1 An nua l Repor t 2017

Corporate Governance Dialogue:

Toward Increasing Corporate Value

Tetsuji Taya

Tadashi Kodama

Leopalace21 Outside Director

Leopalace21 Outside Director

Industrial Growth Platform, Inc.
Partner

Former Representative Director, Vice Chairmanof the Board of Directors, Aioi Nissay Dowa
Insurance Co., Ltd.

Building an effective corporate governance system is vital for the company to drive sustainable growth.
Leopalace21 has to date invited people with know-how in different fields to join our Board of Directors as outside
directors. Our three outside directors discuss below how the form of our governance increases corporate value.

Circumstances behind Selection of Outside Directors at Leopalace21
KodamaI am an experienced corporate executive and havesome knowledge about Leopalace21, so President Miyama came tome and asked me to join the Board as an outsider who can look at
Leopalace21 with a fresh perspective. This invitation is what led
me to joining the Board of Directors as an outside director. In my
previous job, I served as vice chairman of the Board of Directors
at a large nonlife insurer and that, in turn, led to my appointment
as chairman of the General Insurance Association of Japan. What
was toughest about serving as the industry association chairman
was dealing with missed or unpaid claims payments and overpriced policy premiums. Faced with such issues within a broadersocial context of placing greater importance on compliance, theBoard was forced to think hard about how to change the company

to put customers first, and it devoted enormous energy to changing the corporate culture. I think such experiences are what led
me to put a high importance on governance, compliance and risk
management.
Taya
The origins of my involvement with Leopalace21
go back to when Lehman Brothers collapsed. This sharply depressed earnings and forced Leopalace21 to launch a reassessment that included business model reform. It was at this juncture that I came on board as an outside advisor. Amid efforts
to revamp its business plan, it was felt an outside perspective
would be needed in the implementation phase and so I joined as
Leopalace21’s first outside director.

Leopalace21 Annual Report 201751

Leopalace21: Who We Are
Initiatives for Creating Value

Yoshiko Sasao

Leopalace21 Outside Director
Executive Officer, Hasegawa Holdings Co., Ltd.
Representative Director and President, Hasegawa
Social Works Co., Ltd.

director. Leopalace21 has been putting remarkable effort intotraining personnel in the past few years, a field I am enthusiastic
about, and I am well versed in the nursing care business. I think all
three of these were factors in my selection.

Protocols and Setting the Tone in Meetings of the Board of Directors

Taya
What sets the tone for the Board is how the president, who is also chair, administers meeting protocols as well as
the directors who participate. I think meetings are run in a waythat creates a positive environment for debate and achieves ahealthy balance.

Sasao
When outside directors express their views on a
management issue, for example, management at times changes
tack very swiftly. If the Board develops a positive view on amatter, it quickly looks to move to an action plan. It surprised methat a company as responsive as Leopalace21 exists. My senseis once the Company is convinced, it will continue down the pathof change.

Data Compilation

Kodama The environment in Board meetings is one where
members can express themselves without much in the way ofconstraints. In that sense, the Board of Directors is resolutely
advancing a transformation in business decision-making.

Initiatives for Supporting Corporate Value

Leopalace21 has been working to improve female
Sasao
motivation and prominence in the workplace as part of its approach to diversity management and President Miyama sought a
female outside director to join the Board. Since I have executive
experience in running a business, I came on board as an outside

Responding to Social Challenges and Creating Value

Three Outside Directors Discuss
How Our Form of Governance
Increases Corporate Value

52

Leo palace2 1 An nua l Repor t 2017

What are Leopalace21’s Strengths? What Weaknesses Does It Need to Overcome?
Regarding strengths
Kodama Touching on what Ms. Sasao said earlier, I thinkmanagement can move fast and decision-making is swift. In business circles, people talk about “big company disease” but there
are no signs of that ailment at Leopalace21. If management isconvinced by an argument, including ones from outside directors,
it immediately moves to put the idea into practice or the plan into
implementation. The Company’s foot work is impressive.
Taya
I also feel management speed is a strength for
Leopalace21. One thing I have started to sense recently is theCompany is highly motivated to tackle new things. Large companies in Japan tend as a general rule to have a strongly negative
reaction to proposals coming from an external party and they areeven less likely to consider a proposal when it comes from a venture company. Yet Leopalace21 is open to investigating promisingideas in a way that is common to companies that are still growing.
The combination of this openness with swift decision-making
enables the Company to move in a positive way.

Sasao
When it sets objectives, Leopalace21 has a remarkable capacity for execution and locomotion. This is the case notmerely for sales and profits but with regards to its capacity tochange its corporate culture and organization. For example, theusage rate of paid vacation days has risen to 72% from about
30% a few years ago, which highlights this capacity for change,

When it sets goals,
Leopalace21 has a remarkable capacity for execution
and locomotion.

although in an aspect that falls outside its sales activities. There
are hardly any companies listed on the first section of the Tokyo
Stock Exchange that change this much, and overtime hours worked
at the Company is now in a declining trend. In view of the steadyincrease in earnings, I think these trends in vacation days andovertime hours worked are wonderful.
Regarding weaknesses
Kodama Leopalace21 is still in some areas at a growth stage,
so I feel some sections of its foundation are a little fragile. Companies in general must manage an array of risks, for example, but
Leopalace21 did not have a framework in place to address risks
such as threats to reputation, for example, when such a scenario
emerges. In view of this, Leopalace21 established a public relations department in April 2017. I think it faces pressure to slowly
turn these fragilities into rock-solid sources of strength.
Taya
I feel depth of its human capital pool is on the shallow side. Leopalace21’s core businesses are clearly identified, so
people that come up the ranks at the core businesses become its
leadership core. Yet when there is a phase shift and the Company
tries something new such as a merger or acquisition and seeks toturn that into a success, I think there is a shortage of people who
can fill such roles. It is at present recruiting and hiring from outside
the Company mainly for positions in new fields but the depth of its
human resources for such roles remains insufficient. Developing
its workforce to the point where more employees can step intosuch roles is also an important issue.
Sasao
The business model of Leopalace21’s existing businesses is outstanding, so I think the Company should aim to move
forward while spelling out its grand vision for the future. It should
rapidly pursue specific goals that are within its immediate grasp
but it is not so effective at forging ahead while articulating a “bigpicture” vision in my opinion.

Regarding Risk Management
Kodama While there is naturally debate about this issue, as
I mentioned earlier regarding the Company’s weaknesses, I think
there are a few frailties in the Company’s foundation given its rapid growth, so it will be important to apply heat, soon if possible, toreveal where those frailties are.
Taya
The Company has been directly confronted with riskin the past as an organization, so it formed the Risk Management
Committee. Outside directors, along with external experts, serveon the committee, so it has a robust composition. There are still

many areas where the committee has room to improve, and as
Mr. Kodama mentioned, the committee is still learning as it goes.
With this framework in place, it is important to remain alert to thechanging environment as this infrastructure is put to use.
Sasao
Leopalace21 has many positives and it does notrealize what those are in some cases. It has rapidly adopted newthings such as products and IoT devices but it does not make aneffort to showcase this in a way that appeals to the public. In thearea of work styles, the Company is a trailblazer but it has notLeopalace21 Annual Report 2017

this appears to the public at large, I think it would be able to avoid
many risks.

Leopalace21: Who We Are

been very effective at communicating this side of its efforts to abroad public audience. If Leopalace21 sincerely draws on public
relations to show this side of itself while keeping in mind how

53

New Medium-Term Management Plan “Creative Evolution 2020”

on its overall capacity to deliver, ranging from differentiationand efficiency to sales capabilities and marketing, as it seeks tosurvive and thrive in such an environment. The new medium-term
management plan is precisely the vehicle to tell investors what it
plans to do to succeed in such an environment and it has. I think it
is headed in the right direction.

Where Growth Businesses are Strong, Where They Need to Improveto enter this field of work. Given this, to attract many elderly
users, it will be important to create environments where users
feel welcomed and workers enjoy working while making someuse of tools like robots. I believe going this route will enable us toattract more users in the greater Tokyo metro area. In rural regionsof the country, nursing care businesses may well be squeezed out
but there is still scope for growth in the large metro regions.

It will be important to create
environments where theelderly feel welcomed andworkers enjoy working while
making use of tools likerobots.

Taya
Unlike our core businesses, the Elderly Care Business is still growing as a market but the very low profit margins
in the field are a problem. In an environment of fierce competition
and thin margins, only companies that can build profitable operations will be able to survive. Leopalace21 is doing its best to
identify answers to this challenge but it remains a struggle. Unless
it can develop a scheme to achieve this sooner than the rest, it isunlikely to be profitable even if it can expand sales. Streamlining

Data Compilation

Developing the Elderly Care Business
Kodama The Elderly Care Business is undoubtedly a growtharea. The elderly population in the greater Tokyo metro area,
where the Company is above all directing its efforts, is projected
to nearly double in the near future. There will thus be many opportunities in this region but what will be most important to locking in
those opportunities is human resources. Yet people are reluctant

Initiatives for Supporting Corporate Value

Sasao
Leopalace21 has introduced many innovative work
style options while making progress in streamlining many operations via conversion to digital formats and introducing products,
services and IoT devices. Moreover, its productivity per hour
worked is very high. If it were seen as a leader in the rental housing sector with innovative work arrangements, I think that could
well become a source of differentiation.

Initiatives for Creating ValueTaya
The macro environment is characterized by fiercer
competition and the rental market is crowded and saturated.
While there is still room to grow, there is a shared recognition by
the Board and senior executive officers that this will not be thecase forever. Yet the total size of the market pie is large, so putting
the stock of rental units it manages to effective use, including
replacements for existing stock, will be an major theme. With themarket starting to shake out losers, the Company will be tested

Leopalace21 will be tested
on its overall capabilities,
from differentiation and efficiency to sales capabilities
and marketing, as it seeks tosurvive a market shakeout.

Responding to Social Challenges and Creating Value

The way forward for Leopalace21’s core businesses amid ashrinking population
Kodama The core operations of leasing and development are
lifelines for Leopalace21. Despite a shrinking overall population
with a growing elderly cohort, the population living in the large
metro regions continues to grow. Its regional strategy is to apply
selectivity and focus tests so it can clearly identify where to direct
its resources and where not to direct them. Moreover, a channel
strategy will be necessary. Leopalace21 has excellent products,
so I think the Company could make better use of public relations to
let people know this. Leopalace21 has one of the largest stock ofrental units in the industry. If it could align this stock with strategy, I think it could pursue even more share and various needs suchas renovation would emerge as opportunities. If it could combine
these effectively, I think the Company could attract new business.

54

Leo palace2 1 An nua l Repor t 2017

operational parts of the business and building a profitable structure will be the biggest challenges.
Sasao

The Elderly Care Business is a revenue growthbusiness, and the business itself has CSR elements, so I would liketo see the Company move forward rapidly on this front. A major mission identified in the new medium-term management plan is moving
the business into profit from losses over the plan’s three-year span
(fiscal year 2017-fiscal year 2019). I would like the Company toattain this goal and build on know-how it gains in making operations
profitable during the current plan so it can be applied to a stage offurther growth over the span of the next medium-term management
plan. When I first joined TEPCO PARTNERS, a nursing care provider, it teetered on the brisk of collapse, so I learned it is important
to instill a sense of crisis in management. Thereafter, I required
each worker to clearly set goals and openly shared information
with the workforce, and in doing so, I helped raise the motivationof each worker. In this way, I was able to make TEPCO PARTNERS
profitable just two years after I came on as an executive.
Factors for making the International Business a successTaya
The target for the International Business is Asia,
where the market for serviced apartments has plenty of growthpotential. A key factor to succeeding in this business will be
securing human resources. Like with M&A, the question of who isgoing to perform key roles is important. Without the right people,
success will not be possible. Moreover, like with the Elderly Care
Business, the question of whether it can build a profitable modelfor this business is crucial. Another key factor is risk management.
Several large companies listed on the first section of the Tokyo
Stock Exchange have recently wobbled or fallen apart after anoverseas acquisition. That even companies with ample experienceand resources could fall into such traps should be an object lesson
for Leopalace21 when making decisions.

In risk management, it needs
to swiftly grasp risks in eachcountry, and to expand in
local markets, it needs toquickly hire and develop good
local people.

Kodama I think Leopalace21’s focus on ASEAN nations in
expanding overseas is the right approach. Per capita GDP in the
ASEAN region is about US$1,000-$3,000 at present, and the paceof GDP growth is expected to be spectacular until it reaches the$10,000 per-head level. With a core focus on serviced apartments
and serviced offices, the Company seeks to lock in demand fromJapanese and overseas multinational companies. I also think it
could also be very lucrative to connect local exchange students
to its leasing business in Japan. Each transaction is still small
but creating a system where the Company can quickly earn large
profits with this business model will be a key challenge. In risk
management, it needs to swiftly grasp risks in each country, and to
expand this business in local markets, it needs to quickly hire anddevelop good local people. In the near term, what will be important is how fast it can raise occupancy rates and fetch profits.
Sasao
Each country has its own customs and ways of
doing business, so I think building networks in each country will be
extremely important. Leopalace21 is sound on investments, andI think there may be a way to go in all at once while making big
investments such as M&A.

Switch Our Focus to Efficient Use of Assets and Capital with an Eye on B/S
Improvement, from a P/L Tilt
Taya
Leopalace21 is working to reshuffle its asset mix
with a focus on adding higher-quality assets to its balance sheet.
In the recent past, it sold Westin Resort Guam and domestic hotels
but it is building a new hotel wing in Japan and rebalancing its

Keeping in mind what levelof performance investors require for metrics such as ROE
and ROIC will be importantfor management.

asset mix not only in apartments but also with such purchases ascondo properties for single persons. I think this is the direction it
will continue to go. From an investor’s perspective, it will mean improving asset and investment efficiency. As for the resulting boost
to profits, it will be important to allocate the marginal increase
between growth investments and returning profits to shareholders in a way that is suitably balanced. To reflect this approach inmanagement decision-making, I think it will be important for management to keep in mind what level of performance for metrics
such as ROE and ROIC investors require. This means growing while
keeping in mind balance sheet effects. That’s what it aims to do
under the new medium-term management plan.

Leopalace21 Annual Report 2017

TayaRegarding the training system, the Company for the
past few years has built in a budget for training, bolstering theentire menu from programs for new graduate hires to those for the
management level. Leopalace21 is a sales company and budgets
goals every fiscal year and is good at attaining them. Yet thispattern results in employees focusing on the short term. What isin short supply in this context are people with medium-and-longterm horizons who look at the world with a broader view.
Sasao
I agree with Mr. Taya. I think it must train people
who think like managers. I think that is why it needs an education
system. I think it is very important to test their mettle as managers
in a variety of situations such as making them the president of aGroup company, seconding them to another company to work as an
executive or sending them to an overseas business.

A survey of Leopalace21
female employees showed
30% want to advance in theircareers, a level well above
the overall average in Japan.

Data Compilation

this front rank among the best, so I think its initiatives have goneover well in the industry. On training, about twenty sessions instilling a career orientation were conducted towards female employees in the leader-class. On this basis, Leopalace21 was selected
as a “Semi-Nadeshiko Brand” for its programs that raise female
employee motivation. I think it should aim higher to become a fully
fledged “Nadeshiko Brand” but in a way that goes beyond merely moving up the rankings. What I mean is the Company should
aim to build a track record as a place where female employees
succeed. In a survey of female employees on whether they seek
to be promoted, 30% at Leopalace21 answered affirmatively, alevel well above the overall average in Japan and the single digit
percentage common at conventional companies. In that sense, I
think the Company attracts many ambitious women who want toimprove themselves.

Initiatives for Supporting Corporate Value

Sasao
In terms of diversity, Leopalace21 is actively seeking
to create a workplace that motivates women to aim higher intheir careers. In a conventional company, a program to promote
female advancement in the workplace would mean the president
issuing an order to increase the number of women in managerial
positions, so the focus would be merely on increasing numbers.
Yet a program genuinely aimed at motivating women to aim higher
in their careers would mean creating a corporate culture that isinclusive and changing how jobs are structured and, on that basis,
mentoring women who would like to aim for a managerial post.
Leopalace21 has been able to anticipate such tendencies andso has gone further than simply trying to increase the number offemale managers. It established the Work-Life Balance Promotion
Office, which is still a rarity in Japan, and assigned eight people tostaff it, versus the two or three employees a conventional company would assign to such an office. Members of this office also
survey all its sites across Japan to check if employees are unsatisfied with their workplaces and if overtime work hours are declining. The Company is also introducing very innovative initiatives. It
has sought, for example, to increase overall employee motivation
while organizing an event on the theme of raising female employee
motivation after about a year of preparation. In an effort to let its
stakeholders and the public know about its initiatives, I suggested
to Leopalace21 putting information about them on its website. I
think such efforts have been seen in a positive light by external
parties. Its earnings are solid, and the depth of its initiatives on

Initiatives for Creating Value

Diversity Initiatives Warrant an “Semi-Nadeshiko Brand” Ranking

Responding to Social Challenges and Creating Value

Kodama For further growth in the future, it must hire a diverse array of people, and if there is an internal shortage of humanresources, it will be necessary to invite in people from outside theCompany. Even if there are management challenges, the Company
must continue to bring on board a minimum number of people every
year to maintain balance in the distribution of years of service in theworkforce. In most cases companies facing trying circumstances cut
back hiring to a bare minimum for about five years. When the small
cohorts hired in those years become its middle layer a decade or solater, however, this creates a “gap” in the years-of-service distribution of the workforce and severs the link between generations. It canhire people with specialist capabilities from outside the Company but
even if it makes a concerted effort to bring in mid-career hires, theyoften do not mesh well into core businesses. The challenge facing
Leopalace21 is how well it can clear such hurdles. With our businesses expanding, I think it will be necessary to remake our education
system. Leopalace21 is a company that is devoted to education andtraining, and I think a somewhat broader education will be necessary.

Leopalace21: Who We Are

Human Resources Necessary for Future Sustainable Growth

55

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Returning Profits to Shareholders, Collaborating with Stakeholders
Kodama Leopalace21 has teetered on the edge of financial
collapse several times in its history but it has been able to riseagain like Phoenix from the ashes. The Company has finally replenished its level of shareholders’ equity and reinstated dividends
as a way to return profits to shareholders, after refraining frompaying dividends following Lehman Brothers’ collapse. Investors
increasingly expect companies to return profits to shareholders,
and the Company believes many opportunities to return profits toshareholders will emerge as it reshuffles its asset mix. I think it isimportant to set forth measures in a constructive manner and win
the understanding and trust of shareholders. In contrast, I think
the Company needs to accelerate initiatives to provide value tostakeholders, including employees.
Taya
The Company is finally at a point where it is generating stable cash flow, as was stated earlier. Against this backdrop, while senior management will increasingly need to factor
in environment, governance and social (ESG) considerations, I
think it should allocate a portion of the cash flow generated by its

businesses to investing in growth opportunities that increase its
corporate value and a portion to returning funds to shareholders. I
think senior management pays considerable attention to the latter
point, including the dividend payout ratio and measures to return
profits to shareholders.
KodamaI think it will be necessary to increase the dividend alittle. At a minimum, I think the shareholder payout ratio will need
to be raised to about 30% to 40%, and the total return ratio willneed to be raised to about 50%.
Sasao

Sector leaders tend to return a thick slice of profits
to shareholders, so I think the Company needs to move closer tothat level but it may also need to reinvest in growth opportunities.
President Miyama is tilting heavily toward reinvesting a large
chunk of profits into growth opportunities and he is outstanding at
execution and takes responsibility for what he says. I think communicating with shareholders and the market while finding a way
to keep a good balance are the most important considerations.

Proposals for Realizing Aims of the Corporate Governance Code from the Viewpoint of
Outside Directors
The Code recognizes stakeholders such as employees, suppliers and local communities provide resources and make contributions that enable companies to grow sustainably and create corporate value over the medium-and-long term, and it encourages
companies to strive for proper collaboration with such stakeholders
Kodama I reckon stakeholders would like to see outside
directors perform the role of building support for risk-taking. It issimple to put a brake on things. When the time comes to make a
new growth investment, it is our mission to create an environmentthat enables risk taking, and it is important to carefully watch
risks. Unless outside directors adopt such an approach, it seems
growth opportunities in the years ahead will be few and scarce.
Taya
For companies to grow over the medium-and-long
term, it is vital to build up bonds of trust over the medium-and-longterm with stakeholders. I feel making stakeholders, including
workers and owners, feel more satisfied will be supportive ofcorporate value. I believe it is important to not look out for only
one stakeholder group but to find the proper balance among all
stakeholder groups.

Sasao
In a context where the Company is delving deeper
in its existing businesses, I think outside directors should facilitate
more robust communication with stakeholders. One more point towatch when offering advice on how to increase corporate value isthat there is little value in doing so like an art critic or pundit. Outside
directors need to understand the conditions facing the key people atthe business and make an effort to offer concrete views by asking
ourselves what can be done to make the business run better.

There is little value inoffering vague advice like apundit when proposing ways
to increase corporate value.

Leopalace21 Annual Report 2017

Tayafor management-level human resources but not developing internal
candidates for top posts would be a personnel development failure. In
particular, to identify candidates for the post of president of a company
as large as Leopalace21, it is necessary to test a smaller group of candidates in various situations to find ones who can perform such a role.
Sasao
The Nomination and Compensation Committee has
been well run, so I think the Company is nearing a point where it
can compile a list of candidates for senior management posts anddiscuss how to mentor them.

CSR Activities

I would like to focus on the remarkable improveTaya
ments in the working environment at the Company over the past
few years. I have been surprised at the scale of the changes, evenwhen seen from the standpoint of individual indicators such as thedecline in the rate of employee turnover or the vertiginous decline
in overtime hours worked, and bonuses have increased. I think it iswonderful that such changes can be executed in a short span.
Companies in non-financial sectors normally do not
Sasaochange this much. Leopalace21 has impressive initiatives both interms of working environment and diversity. I hope in the future thestructure in place for growth businesses such as the Elderly Care
Business will support sufficient profit generation. There are many
ways to focus on improving care for those with dementia. To contribute to comprehensive community care systems, the Company
could hold lectures on dementia and increase the number of people
who complete a course in dementia care and are awarded the orange wrist band as “community dementia leaders.” If the Company
forges ahead with the Elderly Care Business as a focus, I think it
will be able to further improve its image in CSR-related matters.

Data Compilation

Kodama CSR activities are an area where Leopalace21 is making considerable effort but its use of public relations to bring its CSR
activities to public attention has been clumsy. Especially in the areasof “contributing to the local community” and “creating an environmentally friendly society,” I think the Company has fared well in putting its ideas into practice. It generates electricity from solar panels
installed on rooftops leased from apartment owners, it has sharply
reduced gasoline use by its sales vehicle fleet, and it has reduced
paper use volumes by 10% for color paper and 5% for general-use
paper. Leopalace21 is an eco-friendly company as the statistics on
the results of these programs show, and I think this is something it
should do more to let its stakeholders and the public know about.
The neighborhood cleanup campaign it promotes could perhaps
be extended beyond new graduate hires and locals in the neighborhood to include mass mobilizations of the entire workforce,
including veteran employees, once or twice a year. Cleanup
campaigns are highly visible, so I think they are a reliable way toappeal to local communities and would increase the satisfaction ofparticipating employees. If Leopalace21 could widen the scope of
its activities more and makes more effective use of public relations, I think the effects these activities vis-à-vis stakeholders andthe public would increase.

Initiatives for Supporting Corporate Value

If Leopalace21 could widen
the scope of its activities andmake more effective use of
PR, I think the effects of such
efforts vis-à-vis stakeholders
would increase.

Initiatives for Creating ValueI think it is difficult to develop employees into amanagement-level human resource unless they have the requisite
experiences and sufficient standing. A person who has never madeimportant management decisions will not be able to run an organization even if he or she is put in charge. As Mr. Kodama says, I think it
is necessary to construct a program and create routes for mentoringeach generation to ensure promising employees gain the necessary
standing, authority and experience. From the perspective of cognitive diversity, I think it is important to look outside the Company

It is difficult to develop employees into a management-level
human resource unless they
have the requisite experiences
and sufficient standing. A
person who has never madeimportant management decisions will not be able to run anorganization even if he or she
is put in charge.

Responding to Social Challenges and Creating Value

Kodama This theme is one of the most important for any
Company. I think, for starters, it is important for the Personnel Department to establish a program for each generation for the purposeof developing a management team. Leopalace21 has many Group
companies and unless employees are actively given opportunities todemonstrate their capabilities and mettle in many fields, no middle
management layer that can see the business like a top executive
will emerge. One major challenge is developing young candidates for
management-level positions by assigning them to executive posts at
Group companies and, on occasion, naming one to a top position.

Leopalace21: Who We Are

Nurturing Candidates for Next-Generation Management Roles

57

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Corporate Governance

Strengthening Governance for Sustainable Growth
Leopalace21 aims to realize its corporate philosophy, achieve management plans, and improve medium- tolong-term corporate value through the strengthening of corporate governance.

Progress Towards Strengthening Governance
Leopalace21, which contributes to society by creating living
environments, has a governance system that includes a Boardof Directors, one third of which are outside officers who offer
objective points of view. The outside directors in particular utilize
their practical and specialized perspectives cultivated throughcorporate management experience in various industries in order torealize proper decision-making and management oversight.
Our committees include the Nomination and Compensation
Committee responsible for discussing the selection of officers anddeciding their compensation, the Risk Management Committee
responsible for dealing with risks that arise in business operations,the CSR Committee responsible for working to resolve CSR challenges, the Compliance Committee responsible for developing andoperating our legal compliance system, the Personnel Committee
responsible for discussing the utilization of human resources, andthe IT Committee responsible for developing our IT environment.
Committee members discuss matters including outside experts.

Leopalace21 has stated its corporate philosophy as “creating newvalue,” and in December 2016, it formulated the mission statement,“Constant reform, relentless creation, higher value, for all of society.”
We believe that it is possible to improve value for all of our
stakeholders including customers and shareholders by striving toembody this corporate philosophy and mission statement, and contributing to more comfortable living and a more prosperous society.
In order to realize this, it is critical that we establish a corporate governance system that is efficient, fair, and highly transparent, so we regard developing and strengthening that system
as one of our most important management tasks. Our company
is organized as a company with an Audit & Supervisory Board,
where outside directors and Audit & Supervisory Board members
who meet the conditions of independent officers are appointed
to strengthen the management oversight functions. Furthermore,committees are established in order to examine the primary management issues in the company.

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

3

3

3

2

2

2

2

2

2

2

2

2

2

2

2

2

1

1

1

1

1

2

3

3

3

2

2

2

2

2

2

2

2

2

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

Compliance Committee

July 2006
1st meeting

Risk Management Committee

May 2008
1st meeting

CSR Committee

July 2008
1st meeting

Personnel Committee
IT Committee
Nomination and Compensation Committee

April 2009
1st meeting
February 2011
1st meeting
March 2016
1st meetingLeopalace21 Annual Report 201759

Leopalace21: Who We Are

Four Characteristics of Leopalace21’s Governance2

Outside directors withcorporate management experience

Ratio of outside officers
Approximately

10%

In addition to appointing outside Audit & Supervisory Board
members since 1993, the Company has also invited outside
directors since 2009. As of July 2017, there are six outside
officers appointed, including three outside directors and threeoutside Audit & Supervisory Board members, so the ratio ofoutside officers has been raised significantly since our founding.

All three outside directors of the Company have corporate
management experience, including one management consulting
company partner, one former nursing care business company
executive, and one former non-life insurance company executive. They offer advice and supervision mainly in the Corporate
Management Council and Board of Directors meetings frombroad, diverse perspectives.

Members of the Nomination andCompensation Committee

4

Reflecting the opinions of institutional
investors, analysts, and shareholders
on management
Shareholders/investors

Management
team

Initiatives for Supporting Corporate Value

3

40%

Initiatives for Creating Value100%

All members of the Nomination andCompensation Committee are outside directors
with the exception of the President and CEO

Gradually increasing
the ratio of outside officers

Responding to Social Challenges and Creating Value

1

All three outside directors have
corporate management experience

IR Promotion
OfficeThe IR Promotion Office plays the role of bridging the gap
between capital markets and the management team, and it
holds over 200 dialogues with investors and shareholders among
others annually. They earnestly communicate the vision andstrategy Leopalace21 is working to achieve, collect opinionsfrom investors and others, and give feedback to executives inorder to build a virtuous cycle of corporate management.

Data Compilation

Selecting officers and deciding their compensation is a very
important element of building a strong foundation for management, and it is inadvisable to decide these matters with justthe logic inside the company. Leopalace21’s Nomination andCompensation Committee consists entirely of outside directors
except for the President and CEO, in order to select and decidecompensation for officers objectively, transparently, and fairly.

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Leo palace2 1 An nua l Repor t 2017

Corporate GovernanceCorporate Governance System and Initiatives
As of June 29, 2017

General Shareholders’ Meeting
Appointment/Removal

Nomination and Compensation
Committee
Corporate Management Council(Directors/standing Audit &Supervisory Board Members)

Executive Board

Accounting
Audit

Appointment/Removal(All directors/President and CEO)

Discuss
Information
Sharing

Appointment/
RemovalPresident and CEO
ReportReportWork-Life Balance
Promotion Office
Guidance and
Education

Business Execution Department
Marketing and Sales Headquarters(in each business department）
Corporate Business Promotion Headquarters
Management Planning Headquarters
Management Headquarters
Subsidiaries and affiliates

Accounting Auditor

11 Directors(including 3 outside directors)

Cooperation

Audit
ReportingAppointment/
RemovalAppointment/Removal

Board of Directors

Appointment/
Removal(Directors/Executive Officers/standing Audit &Supervisory Board Members)

Appointment/Removal

Personnel Committee

Inquiry

Cooperation

Audit & Supervisory Board

4 Audit & Supervisory Board Members(including 3 Outside Audit &Supervisory Board Members)

Auditing
Council

Cooperation

IT Committee
Auditing Department

Understanding/Management Report

CSR Committee

Understanding/Management ReportCompliance Committee

Understanding/Management Report

Risk Management
Committee(internal audit) (audit controls)
Inquiry

Audit
Audit

Governance System
Board of Directors(Meetings convened 16 times in fiscal 2016)

Audit & Supervisory Board(Meetings convened 9 times in fiscal 2016)

The Board of Directors is focused on both ensuring the mobility ofmanagement and enhancing its supervisory functions. It currently consists of eleven directors including three outside directors.
We consider proper appointment of directors to be important for
improving corporate value, thus we include discussing this matter in
the Nomination and Compensation Committee composed of outside
directors, together with determining compensation, in the decisionmaking process.
The President and CEO serves as the Chairman of the Board of
Directors. In addition to regular monthly meetings, the Board also
holds meetings flexibly as necessary to decide important mattersconcerning management, as well as monitor the status of businessperformance and supervise the execution of duties by directors.

The Audit & Supervisory Board is focused on strengthening thesupervision of directors’ execution of their duties, and currently
consists of four Audit & Supervisory Board members including
three outside Audit & Supervisory Board members. Based on theaudit plan of the Audit & Supervisory Board, the Board has a system to enhance the effectiveness of audits such as by appearing atimportant meetings including the Board of Directors, investigating
business conditions, and maintaining proper collaboration with the
Auditing Department, Accounting Auditors, and outside directors.
Resolutions of the Audit & Supervisory Board are implemented witha majority votes of Audit & Supervisory Board members following
deliberation based on adequate evidence. The Audit & Supervisory
Board also works to deepen mutual recognition with the President
and CEO, such as by regularly meeting with the President and CEO
to exchange opinions on challenges the company should tackle andimportant matters to discuss in the auditing process.

Leopalace21 Annual Report 2017

Leopalace21: Who We Are

Risk Management Committee(Meetings convened 12 times in fiscal 2016)

The Nomination and Compensation Committee selects directors,
Audit & Supervisory Board members, and executive officers, anddecides the compensation of these officers. To make the best selections and decisions of compensation in order to achieve management plans and improve corporate value in the medium to long term,
the Nomination and Compensation Committee consists of threeoutside directors and the President and CEO. Making full use of theperspectives of these outside directors who constitute the majority,
the Committee conducts careful deliberations with an emphasison transparency and fairness. It has also established a mechanism
where members of the Nomination and Compensation Committee
meet with each candidate and determine their true quality when
appointing officers.

The Risk Management Committee was established as an advisory
body to the Board of Directors in order to comprehensively understand and manage risks faced by the Leopalace21 Group, and theCommittee manages the Group’s risk. The Committee is composedof members including outside experts such as lawyers, with the
President and CEO as chairman of the Committee. In addition tochecking the status of risk management, the Committee plans andimplements programs such as training in order to reduce and prevent
risk. Each department finds and analyzes risk concerning its own
business, then formulates risk countermeasures to manage risk andreports this to the Risk Management Committee.

IT Committee(Meetings convened 4 times in fiscal 2016)

Deliberation in the Nomination and Compensation
Committee to ensure fairness and transparency& Supervisory Board Members(Millions of yen)

Total remuneration, etc. across categories
Total
Basic
remuneration remuneration Stock options

Bonuses

8 Directors (excludes outside directors)

370

312

58

—

3 Audit & Supervisory Board members(excludes outside Audit & Supervisory
Board members)

31

31

—

—

5 Outside directors/Audit & Supervisory
Board members

54

54

—

—

* The above includes one Audit & Supervisory Board member who resigned as of June 29, 2016
and one Audit & Supervisory Board member who resigned as of June 29, 2017.

Data Compilation

Compensation for directors comprises four categories: basic
remuneration, stock options, annual bonuses, and medium-termbusiness plan period bonuses. Our basic policy is a compensation
system that contributes to improved performance and corporate
value in diverse ranges, and compensation is decided following
deliberation by the Nomination and Compensation Committee.

■ Amount of Compensation Awarded to Directors and Audit

Initiatives for Supporting Corporate Value

Officer Compensation

Initiatives for Creating Value

The Corporate Management Council discusses important mattersconcerning the overall execution of business so as to acceleratemanagement decision-making and facilitate business execution.
The Council is composed of all directors and standing Audit &Supervisory Board members, and is conducted by the President and
CEO generally once per month, or more often as necessary. Specificmatters for discussion in the Corporate Management Council include
matters discussed by the Board of Directors, important mattersconcerning overall management, matters requiring approval thatconcern important business operations, and other matters raised by
the President and CEO. Other stakeholders can attend as necessary.

The IT Committee is operated in order to optimize IT investment by
the Group for the purpose of improving operational efficiency. This
Committee meets once every quarter, and is chaired by the General
Manager of the Management Headquarters. It mainly discusses
IT operation policy in the new medium-term management plan,
including the use of AI and IoT, etc. to advance initiatives such as
ecosystem, innovation, and open data, with the goal of shifting fromour current computerization focused on improving and expanding thebusiness to digital innovation that will enable new creation.

Responding to Social Challenges and Creating Value

Nomination and Compensation Committee(Meetings convened 3 times in fiscal 2016)

Corporate Management Council(Meetings convened 12 times in fiscal 2016)

61

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Outside Officers
Ensuring the Effectiveness of Governance with Outside Perspectives
By nominating outside directors as well as outside Audit & Supervisory Board members, Leopalace21 strives to strengthen the oversight function to ensure that decision-making by the Board and business execution comply with relevant laws and regulations in order to achieve management transparency and fairness. At the same time, it hopes that the outside directors and Audit & Supervisory Board members provide advice from an objective standpoint based on the experience and knowledge they have obtained through their business careers as well as their insight as executives. The Company
informed the Tokyo Stock Exchange that three outside directors and three outside Audit & Supervisory Board members (six in total) are independent
directors/auditors, a regulatory criteria for independence.
■ Reasons for appointment of outside directors and Audit & Supervisory Board members and career summary, etc.
Tadashi Kodama (Outside Director)
Reason forappointment

The Company expects that he will provide advice on the overall management of
the Company, using his abundant insight as a senior manager of a listed company.

Career summary

April 1970	Joined The Dai-Tokyo Fire & Marine Insurance Co., Ltd. (nowAioi Nissay Dowa Insurance Co., Ltd.)
June 2001	Director, Aioi Insurance Co., Ltd. (now Aioi Nissay Dowa Insurance Co., Ltd.)
April 2004
Representative Director, President, Aioi Insurance Co., Ltd.
April 2010	Representative Director, Executive Officer, MS&AD InsuranceGroup Holdings, Inc.
October 2010	Representative Director, Vice Chairman of the Board of Directors, Aioi Nissay Dowa Insurance Co., Ltd.
June 2015
Retired from Aioi Nissay Dowa Insurance Co., Ltd.
June 2016
Director, the Company (current)

Attendance atBoard of Directors Board of Directors meetings: 13 of 13 meetings
meetings

Tetsuji Taya (Outside Director)
Reason forappointment

Career summary

The Company expects that he will actively provide advice from an independentand fair perspective during Board of Directors meetings and other meetings, using
the keen insight he has accumulated during his career and his deep knowledge andexperience in corporate management.
April 1987
Joined The Fuji Bank, Limited (now Mizuho Bank, Ltd.)
April 2007	Board Member & Managing Director, Industrial Growth
Platform, Inc.
September 2009 Representative Director, Industrial Growth Platform, Inc.
June 2010
Director, the Company (Current)
March 2011	Board Member & Managing Director, Industrial Growth
Platform, Inc. (Current)

Attendance atBoard of Directors Board of Directors meetings: 16 of 16 meetings
meetings

Masahiko Nakamura (Outside Audit & Supervisory Board Member)
Reason forappointment

Career summary

Attendance atBoard of Directors Board of Directors meetings: 16 of 16 meetings
meetings and Au- Audit & Supervisory Board meetings: 9 of 9 meetings
dit & Supervisory
Board meetings

Takao Yuhara (Outside Audit & Supervisory Board Member)
Reason forappointment

Career summary

Yoshiko Sasao (Outside Director)
Reason forappointment

Career summary

The Company expects that she will supervise business execution of the Company
from an independent and fair perspective, using her keen insight as a senior manager
of business corporations and her deep knowledge and experience in corporate
management.
April 1984
Joined Recruit Co., Ltd.
April 2000
Joined RECRUIT STAFFING CO., LTD. on loan
April 2004	Joined RECRUIT STAFFING CO., LTD.
Manager of Marketing Support 1 Division
April 2006
Joined Tokyo Electric Power Company, Incorporated
November 2007 Joined TEPCO PARTNERS Co., Inc. on loan, Managing Director
July 2010
Representative Director, TEPCO PARTNERS Co., Inc.
June 2015
Director, the Company (current)
June 2015	Representative Director, SHiDAX BEAUTY CARE MANAGEMENT CORPORATION
April 2017	Executive Officer, Hasegawa Holdings Co., Ltd.
Representative Director, Hasegawa Social Works Co., Ltd

Attendance atBoard of Directors Board of Directors meetings: 16 of 16 meetings
meetings

The Company expects that he will supervise the Company’s management from an
objective perspective, using his abundant experience and wealth of expertise in thefields of tax administration and financial accounting accumulated as an employee of
the National Tax Agency and a certified tax accountant.
April 1966
Joined Sendai Regional Taxation Bureau, National Tax Agency
July 1994	Deputy District Director of Musashino Tax Office, National Tax
AgencyJuly 2002	District Director of Suginami Tax Office, Tokyo Regional Taxation
Bureau, National Tax Agency
July 2006	Assistant Regional Commissioner (Fourth Large Enterprise Examination), Tokyo Regional Taxation Bureau, National Tax Agency
August 2007	Established Masahiko Nakamura Certified Tax Accountant
Office, Representative, Masahiko Nakamura Certified Tax
Accountant Office (Current)
June 2010
Audit & Supervisory Board Member, the Company (Current)
July 2015
Outside Audit & Supervisory Board Member, HOMENET Co., Ltd. (Current)

The Company expects that he will supervise the Company’s management from an
objective perspective, using his high level of knowledge in many fields and abundant
experience and expert knowledge as an audit & supervisory board member ofseveral companies.
May 1971
Joined Sony Corporation
June 2003	Corporate Senior Vice President and Group CFO, Corporate
Executive Officer, Sony Corporation
December 2007	Managing Executive Officer, Zensho Co., Ltd. (now ZENSHOHOLDINGS CO., LTD.)
June 2008
Audit & Supervisory Board Member, Ricoh Company, Ltd. (Current)
May 2011
Managing Executive Director and CFO, Zensho Co., Ltd.
June 2013
Audit & Supervisory Board Member, mofiria Corporation (Current)
June 2014
Auditor, KAMEDA SEIKA CO., LTD. (Current)
June 2015
Audit & Supervisory Board Member, the Company (Current)
December 2015 Auditor, T.HASEGAWA CO., LTD.

Attendance atBoard of Directors Board of Directors meetings: 12 of 13 meetings
meetings and Au- Audit & Supervisory Board meetings: 9 of 9 meetings
dit & Supervisory
Board meetings

Jiro Yoshino (Outside Audit & Supervisory Board Member)
Reason forappointment

Career summary

The Company believes that Mr. Jiro Yoshino will appropriately supervise the Company’s management from an objective perspective, using his abundant experience andwealth of expertise accumulated as an executive officer and Audit & Supervisory
Board member of a listed company.
April 1978
Joined Dai-Tokyo Fire and Marine Insurance Co., Ltd.
April 2001	General Manager, Market Development Department, Aioi Insurance Co., Ltd.
April 2012	Managing Executive Officer, Aioi Nissay Dowa Insurance Co., Ltd.
June 2013
Standing Audit & Supervisory Board member, MS&AD InsuranceGroup Holdings, Inc.
June 2017
Audit & Supervisory Board Member, the Company (Current)

Attendance atBoard of Directors Because Mr. Yoshino accepted this post in June 2017, he has not yet attended
meetings and Au- meetings of the Board of Directors or the Audit & Supervisory Board.
dit & Supervisory
Board meetings

Compliance and Risk Management
Leopalace21 strives to identify and correct problems by setting compliance with laws and regulations andsocial ethics as the base for corporate activities.
The basic policy of the internal control system is to base our corporate
activities on compliance with laws and regulations as well as with social ethics. We are working to identify and correct problems from time
to time, and to further improve and reinforce internal control systems.
With regard to the compliance system, the Compliance Committee has been set up as an advisory body to the Board of Directors, inaddition to the establishment of the Corporate Code of Ethics and aninternal reporting system with the aim of strengthening compliance.
With the president serving as chair, the Compliance Committee

includes lawyers and other external experts. As one plank in our platform to bolster governance, the committee develops various measuresrelating to compliance such as enhancing educational training andreinforcing the information management system. We are also working
to bolster monitoring systems and to identify and improve problems.
With regard to the risk management system, the Risk Management
Committee has been created as an advisory body to the Board of Directors to ascertain and manage the risks facing the entire Company in acomprehensive manner, with a view to strengthening risk management.

Leopalace21 Annual Report 201763

Directors (As of June 29, 2017)
Leopalace21: Who We Are
Responding to Social Challenges and Creating Value

Back row, left to right/ Outside Director Tadashi Kodama, Outside Director Tetsuji Taya, Outside Director Yoshiko Sasao, Director Yoshikazu Miike, Director Hiroyuki Harada, Director Bunya Miyao
Bottom row, left to right/ Director Hiroshi Takeda, Director Tadahiro Miyama, President and CEO Eisei Miyama, Director Yuzuru Sekiya, Director Kazuto Tajiri

Executive Officers (As of June 29, 2017)
Initiatives for Creating Value
Initiatives for Supporting Corporate Value

Back row, left to right/ Executive Officer Kazunori Tanimoto, Executive Officer Yasushi Mizuno, Executive Officer Tatsuya Sasaki, Executive Officer Yoshiyuki Ichikawa
Bottom row, left to right/ Executive Officer Hideki Matsunaga, Managing Executive Officer Naomichi Mochida, Managing Executive Officer Motoyoshi Ohishi,
Executive Officer Seiji Shinozaki, Executive Officer Shu Ikeda

Data Compilation

Back row, left to right/ Executive Officer Minoru Wada, Executive Officer Katsuhiko Nanameki, Executive Officer Kiyoshi Arai, Executive Officer Hidetoshi Hara
Bottom row, left to right/ Executive Officer Shigeru Ashida, Managing Executive Officer Fujio Sato, Senior Executive Officer Satoshi Abe,Managing Executive Officer Hiromi Ito, Executive Officer Kenichiro Samejima

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Leo palace2 1 An nua l Repor t 2017

Leopalace21’s Management Plan and CSR Activities
Based on our corporate philosophy of “creating new value,” Leopalace21 strives to meet the expectations of all
our stakeholders and continues to be a contributor to building a sustainable society in ways that suit the needs ofthe times.

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

Creating anenvironmentallyfriendly society

Creating pleasant work
environments and developing
diverse human resources

Contributing tolocal communities

Clientcompanies
Apartment tenants,
landowners
Local
communities

Providing high-quality
services and supporting
affluent living

In 2013, we devised a new Basic CSR Action Policy with five themes
in response to the changing needs of our stakeholders, social andenvironmental problems, and the requirements of ISO26000 andother standards and guidelines.
Based on compliance and corporate governance that supports
our businesses, we intend to implement CSR activities in accordancewith the new policy, with the aim of “creating new value” together
with all of our stakeholders.
We update our key performance indicators (KPIs) and key topics
for our CSR initiatives from time to time to address CSR issues thatare linked to our businesses and change in concert with the currentsof the times. The new KPIs established in fiscal 2016 have been
introduced to the relevant divisions and departments.

Compliance

ance
Corporate Govern

Corporate
Code of Ethics

ophy
Corporate Philos

Employees
Globalenvironment
Investors andshareholders

CSR Management
In our CSR management, members of the CSR Committee serve as
coordinators to bring together divisions and departments to engage
in various CSR initiatives. The general manager of the Management
Planning Headquarters chairs the committee. Meeting four times a
year, the CSR Committee receives reports on progress against quantitative targets set each quarter by each division and department
regarding initiatives that comport with the five themes of the BasicCSR Action Policy, and moves initiatives to the next phase of the
PDCA cycle.
Key topics and KPIs are approved by the CSR Committee, andthese are periodically reported to the Board of Directors.

Stakeholder’s Voice
Even more than before, stakeholders
call on companies to advance meaningful initiatives on environment,social and governance (ESG) themes.
In environmental and social fields,
we confirm the progress of initiatives
Yuzuru Sekiya
at the quarterly meeting of the CSR
Director, SeniorCommittee, and the committee has
Executive Officer, CSR
been able to effectively calibrate
Committee Chairman
the administration of such initiatives
such as receiving reports only from divisions and departments
tasked with specific initiatives on items where they fall shortof target. We take seriously the expectations of society such as
United Nations Social Development Goals (SDGs) in our efforts
to contribute to creating better societies.

Basic CSR Action Policy

Restatement as ISO26000 Core Subjects

Providing high-quality services and supporting affluent living

Consumer issues

Creating pleasant work environments and developing diverse human resources

Human rights, labor practices

Contributing to local communities

Community involvement and development

Creating an environmentally friendly society

Environment

Engaging in sound, constructive communication with stakeholders

Stakeholder engagement

Leopalace21 Annual Report 2017

Basic CSR Action Policy

SDGs to which We Aim to Contribute

Goal 11Make cities and human settlements inclusive, safe,
resilient and sustainable

Goal 5

Achieve gender equality and empower all women andgirls

Goal 8Promote sustained, inclusive and sustainable economic
growth, full and productive employment and decent
work for all

Goal 11Make cities and human settlements inclusive, safe,
resilient and sustainable

Goal 7

Ensure access to affordable, reliable, sustainable andmodern energy for all

Goal 13

Take urgent action to combat climate change and its
impacts

Goal 12

Ensure sustainable consumption and production
patterns

Providing high-quality services andsupporting affluent living

Creating pleasant work environments
and developing diverse human resources

Contributing to local communities

Initiatives for Supporting Corporate Value

Ensure inclusive and equitable quality education andpromote lifelong learning opportunities for all

Initiatives for Creating Value

Goal 4

Responding to Social Challenges and Creating ValueAt a United Nations summit held in September 2015, the Sustainable Development Goals (SDGs) were unanimously agreed upon as aframework for action plans through 2030 for the sake of people, theplanet and prosperity. In response to social needs and demand, we
aim to contribute to addressing challenges through initiatives alignedwith our basic CSR action policies.

Leopalace21: Who We Are

Sustainable Development Goals: Our SDG Initiatives

65

Creating an environmentally friendly
society
Data Compilation

Engaging in sound, constructive
communication with stakeholders

66

Leo palace2 1 An nua l Repor t 2017

Basic CSR Action Policy

Providing High-Quality Services and Supporting Affluent Living
Amid the growing diversity of rental housing needs in an increasingly diverse society, we offer tenants living
spaces that are comfortable and pleasant via new lifestyle proposals.

Our Basic View: Lifestyle Diversification
Attendant with shifting family composition reflecting the twin demographic trends of a growing elderly cohort and a low fertility rate and changing
times, the number of single-person households continues to grow. At the same time, the foreign population in Japan continues to grow, with athree-fold increase in the number of international exchange students enrolled in schools in Japan compared with the 1990 level. At Leopalace21,
we are responding to social needs arising from the growing diversity of lifestyles, and we see such changes as offering opportunities to develop
products and services in tune with the times.

Examples of Our Initiatives

1>

Promoting Smart Apartments“Leo Lock” Smart Lock Installations

We developed jointly with smart lock marketer Glamo Inc. a smart lock customized to match
Leopalace21 specifications called “Leo Lock.” We will install these locks in Leopalace21
apartments completed after October 2017 on orders received as far back as April 2017,with plans in the works to install them in about 10,000 rooms per year in the rollout’s initial
phase. We expect Leopalace21 to be the largest provider in Japan of rental housing with
network-linked smart locks and home appliance controls. With Leo Lock functionality, theCompany can remotely manage key cylinder replacements, key handovers, and responses
to lost key inquiries so it can sharply reduce administrative costs as well as make life moreconvenient for tenants. Moreover, Leo Lock coupled with Leo Remocon makes it possible toconfirm remotely whether the main door lock is open or locked, change the default setting for
in-room lighting to automatically switch on or shut off depending on whether this lock is open
or locked, and control home appliances.

“Leo Remocon” a Standard Feature in All New-Build Apartments
Installed in the apartments of new buildings completed after October 2016, Leo Remocon isa device that enables tenants to use their smartphones to remotely control home applianceswith a remote control infrared receiver while also displaying in-room temperature, humidity,
and illumination. We provide dedicated apps for Leo Remocon so tenants can use proprietaryfunctions such as “Life Stick” compatibility.

New Services Using “Life Stick”
The recently developed “Life Stick” is a remote control for set top box (STB) devices and canaccess apps for Android TV via the LEONET internet service platform we provide tenants. It
has been a standard feature in Leopalace21 apartments since July 2016, when rollout to the560,000 rooms we manage across Japan began. With smart devices accelerating a diversifying trend in consumer lifestyles, we aim to provide services that align with this trend such as
daily life information like weather data and Wi-Fi access points.

Leopalace21 Annual Report 2017

Promoting Our Electronic Contract Service■ Sequence of steps for rental apartment contracts (individual contracts)
Guest
questionnaire

Room search

Customer reception
at a branch office
Have customers looking
for a room respondto a questionnaire
via a tablet

MY PAGE

Signature

Room searchContract
consummation

Provide contract
confirmation online

Show customers
available apartments
on a branch PC

Use tablet to secure
e-signature forelectronic contract

Enable tenants toview their contracts
at any time via
MY PAGE after signing

Selected as “Competitive IT Strategy Company”

3>

Initiatives for Creating ValueIn May 2017, Leopalace21 was recognized as a “Competitive IT Strategy Company” by a program jointly
promoted by the Ministry of Economy, Trade and Industry (METI) and the Tokyo Stock Exchange (TSE)that selects listed companies with initiatives that actively use IT to create value, introduce management
innovation, increase profit levels and improve productivity. Initiatives such as our industry-first electronic
contract service and adoption of IoT devices in rental housing we manage have enabled Leopalace21 todifferentiate itself, and we will further expand services we offer customers using IT.

Services for International Tenants, Supporting Smooth Move-ins, Comfortable Living
MY PAGEMY PAGE

WEB上で
契約書確認

Main Activities and Targets the CSR Committee Oversees
Main Activities

FY2016 Targets

Provide value-added services to tenants

Introduce new tenant services
Implement events for tenants

Partner with corporations

Form tie-up plans with corporations

Self-assessments

FY2017 Targets

20 services
20 events

11 services
33 events○

12 services
36 events

18 cases

32 cases◎

40 cases18 events

8 events

×18 events

Host get-togethers for exchange
students		

70 meeting sites

47 meeting sites

×

70 meeting sites

Reduce incoming calls to service centers

Incoming call ratio (monthly avg.) vis-à-vis total no. of
tenants
9.5%

8.8%

◎

Below 8.5%

Devise and market products that takesurroundings into accountCumulative security system installations 270,400 rooms
Cumulative security camera installations 9,700 buildings

279,609 rooms
10,223 buildings◎

287,634 rooms
12,058 buildings◎: Attainment above 120% ◯: Attainment below 120% but above 100% △: Attainment below 100% but above 70% ×: Attainment below 70%

Data Compilation

Support schools and students via industryHost events
academia-government cooperation

FY2016 Results

Initiatives for Supporting Corporate Value

Across multiple dimensions, we provide support to enable international tenants to live comfortably. We hold get-togethers for exchange students and orientations on tenant
manners
Confirm
contract
where we inform tenants about key dos and don’ts for contracts, move-ins, andthe
departures,on the WEB
and in fiscal 2016, 620 people came to gatherings such as these held at 47 sites across Japan.
In our personnel assignments to our domestic offices, we are proactively assigning employeeswith foreign citizenship (171 employees as of March 31, 2017) as we continue to help people
coming to Japan by supporting convenient apartment searches and comfortable living.

Responding to Social Challenges and Creating Value

We launched Leo-sign, the first electronic contract service in therental housing industry, for tenants on corporate contracts in January
2015 and for those on individual contracts in November 2015. The
cumulative number of corporate contracts facilitated via this service
was 29,878 as of March 31, 2017, with registered companies reaching 778. The cumulative number of individual contracts facilitated is
62,291, or 73.5% of electronic contracts facilitated.

Leopalace21: Who We Are

2>

67

68

Leo palace2 1 An nua l Repor t 2017

Basic CSR Action Policy

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

Our Basic View: Diversifying Work Styles and Human Resources
At Leopalace21, we think people from a wide range of backgrounds with diverse perspectives, including women, enable us to respond to diversifying social needs, contribute to the creation of new value, and contribute in a major way to our growth. We aim to create workplaces where
employees with diverse backgrounds find it easy to work together effectively and can apply their skills and talents on the job.

Examples of Our Initiatives
At Leopalace21, we are promoting “a health management strategy” based on “the Leopalace21 Group health and productivity management declaration.”

1>

Recognized as 2017 Outstanding Health and Productivity Management Organization

Leopalace21 was named a “2017 outstanding health and productivity management organization” in the large enterprise category (White 500) in a February 2017 announcement recognizing companies that excel in this field by the Ministry of Economy, Trade and Industry (METI)
and Nippon Kenko Kaigi. The certification system in particular celebrates corporations suchas large companies and small and mid-sized enterprises (SMEs) that put outstanding healthmanagement into practice based on initiatives linked to regional health issues and healthpromotion initiatives advanced by Nihon Kenko Kaigi.

Our Main Initiatives

Health Support Using Experts
With the establishment of a health management office at the head office, Leopalace21
disseminates recommendations from public health nurses for follow-ups after initial check-ups
and, through public health guidance, encourages disease prevention and preventative measures to keep disorders from becoming serious. We also implement workplace improvement
activities and line care training through stress checks.

Training for managers on promoting the role of womenin the workplace

Health Forums
Employees can check their health status using “smart health check” measurement instrumentsthat estimate skin age and brain age at events we hold several times a year. Lectures on healthmatters, courses on yoga and breathing methods, and health consultations with public healthnurses are among the features of forums we organize.

Promoting Work-Life Balance
The number of employees working long hours has declined sharply through monitoring of work
hours and surveys on regular work at business sites we operate with the launch of the WorkLife Balance Promotion Office in January 2014. With use of the summer and winter five-day
annual vacation plan and the “refresh” three-day vacation plan, which can be used at anytime
throughout the year, the paid vacation day usage rate came in at 72.2%, the second successive
year it stayed above 70%.

Training for female employees

Training for female employeesLeopalace21 Annual Report 2017

Joined “Iku Boss” Corporate Alliance

Employee Training System

The regular training system splits along two lines: training according to employee rank and training according to division. The former
is designed to enable all employees to obtain the knowledge andcapabilities they need in a series of stages. The latter is aimed
at enabling employees to polish their expertise and thus improvecustomer satisfaction.
■ Employee Training System
FY2014FY2015FY2016

No. of participants

2,739

3,220

6,510

Per-head training costs (yen)77,087

81,21851,397Main Activities and Targets the CSR Committee Oversees
Main Activities

FY2016 Targets

FY2016 Results

Self-assessments

Initiatives for Supporting Corporate ValueIn March 2017, Leopalace21 joined the “Iku Boss” Corporate Alliance established by NPO Fathering Japan.
The alliance is aimed at socializing managers (i.e., bosses) todeliver results for the organization and still find time to enjoy theirwork and private lives while keeping in mind the work-life balance of
employees reporting to them. It is a company network that aims totransform the way managers and executives think about such matters.

4>

Initiatives for Creating Value

3>

The Work-Life Balance Promotion
Office, a unit that reports directly tothe president, was established tofoster improvement in long working
hours, an issue especially prevalent
in the real estate sector. ThroughHiroyuki
initiatives, the office has achieved
Haradamuch in bringing about changes in theManagement
way our employees view their work
Headquarters,such as changing what is valued from
Vice General Manager
long hours to productivity and sharply
Director
reducing the employee turnover rate.
We will continue to strive to improve the working environment
so we can show the value our employees create in their work.

Responding to Social Challenges and Creating Value

Leopalace21 was recognized as a “Semi-Nadeshiko Brand” enterprisefor its efforts to promote female success in the workplace by a joint program run by the Ministry of Economy, Trade and Industry (METI) and theTokyo Stock Exchange (TSE). The program, which launched five years ago
and added the Semi-Nadeshiko Brand category in 2017 , evaluates companies listed on the TSE first section and recognizes those in each sector
that stand out for promoting the role of women in the workplace, including their efforts to foster an environment that encourages women tocontinue working, as “Nadeshiko Brand” enterprises. Along with themainstay category, the program now also names one “Semi-Nadeshiko
Brand” enterprise in each sector, with the total in the new category
coming to 25 companies. For the real estate sector, Leopalace21
was named in the new category. We will continue to strive to create
working environments where employees can do their best work andrealize their potential through measures that lead to improved worklife balance and promote female success in the workplace.

Stakeholder’s Voice

Leopalace21: Who We Are2

as a “Semi-Nadeshiko> Recognized
Brand” Enterprise

69

FY2017 Targets

Paid vacation day usage rate

70%

72.2%

〇

70%

Implement planned employee training

No. of training participants

5,064 persons

6,510 persons◎

5,184 persons

Provide compliance training

e-learning enrollment rateover 90%

82.3%△

Compliance hotline
Total no. of calls
fielded in FY2017:
110 calls

Hire diverse human resources

Disabled employee ratio

over 2.29%

2.27%

〇

Over 2.40%

Contribute to fields involving disabled
persons

No. of disabled who joined workplace tours 250 persons
No. who received OTJ training
355 persons
No. of offsite lectures
3 times375 persons
242 persons
2 times○

250 persons
245 persons
3 times

Data Compilation

Accommodate diverse working styles

70

Leo palace2 1 An nua l Repor t 2017

Basic CSR Action Policy

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

Our Basic View: Our Businesses Help Strengthen Local Community
With more people living in dense cities and the rural countryside becoming depopulated, connections within communities are becoming moretenuous, and these trends have given rise to many problems such as elderly people dying alone and more crime targeting children. At Leopalace21,
we are promoting initiatives to contribute to local communities through our businesses and employees and hands-on interaction with local communities, an important stakeholder group. We think such contributions will build confidence in our operations in local communities. Our aim is tobecome a welcomed, trusted company.

Examples of Our Initiatives

1>

Lockers for Around-the-Clock Package Pickups and Drop-offs
in twelve buildings, starting with Leopalace RX Nakano Sakaue in
September 2016. As the lockers can be used by all residents living
nearby, they not only make life more convenient for Leopalace21
apartment tenants but also contribute to the community. We plan
to install many more PUDO stations with the aim of increasing sites
with these lockers to as many as 100 in total as of March 31, 2018.

PUDO stations, run by Packcity Japan, a joint venture between
France’s Neopost Shipping S.A. and Japan’s Yamato Transport Co.,
Ltd., are lockers that accept deliveries that recipients can pick up
at any time. A recipient tells the sender the PUDO station where a
package should be delivered, and once the delivery has been made,the recipient only needs to input two passwords to pick up the delivery. As of March 2017, Leopalace21 has installed PUDO stations■ Sequence for Pickups
Tell Sender the PUDO Station where a Package Should Be Delivered

PUDO station
requirementsfor packages• Packages that can fit into PUDO station lockers:
combined height-width-depth (3D) of 100cm or less and less than 10kg
• Only packages storable at room temperature (valuables are also not accepted)

When
Purchasepurchasing ❶ a productat an EC site

In case of
re-delivery❶

Requesta re-delivery❷ Recipient selects

a suitable PUDO station❸ Shipper delivers package

to the PUDO station locker❹ Recipient receives two four-digit

passwords for pickup via email

Recipient Picks Up Package at PUDO Station
Enter first four-digit password＊＊＊＊

Enter second four-digit password
＊＊＊＊

1 2 3

1 2 3

4 5 6

4 5 6

0 ⬅

0 ⬅

7 8 9

❶ Input two four-digit passwords

7 8 9❷ Place finger on a touch panel

as “signature”❸ Locker door opens, recipien

removes he package❹ Locker door closes

Leopalace21 Annual Report 2017

Leopalace21: Who We Are

2>Sports Promotion

Golfer Marika Komiya(Champion of 15th GGC)

Golfer Hikari Fujita

Golfer Risa Murata

Responding to Social Challenges and Creating Value

We support many pro athletes through provision of our facilities. We
aim to contribute to society with sports promotions that advancecompetitive athletic sports through our sponsorships. We are sponsors of the Japan national swimming team and the Japan Swimming
Federation, a public interest incorporated federation, and the Japan
Weightlifting Association, a public interest incorporated federation.
We have been the title sponsor of “Leopalace21 Myanmar Open,” agolf tournament for professional male golfers in the ASEAN region
where we are expanding, for two successive years in a bid to increase our name recognition there. The Guam Governor’s Cup, a golf
tournament for professional female golfers whose main sponsor is
the Guam Visitors Bureau, is held at Leopalace Resort Guam.

3>

71

Special Supporter of “Iki Ultra Marathon 2016”
Initiatives for Creating Value

Leopalace21 is an official sponsor of the Iki Ultra Marathon, a firsttime event held in Nagasaki Prefecture in October 2016. As a way
to showcase Iki city’s appeal with the aim of contributing to tourism
promotion and the regional economy, the ultra marathon is held on
the island of Ikinoshima, which Japan’s Agency for Cultural Affairscertified as a Japan Heritage story in 2015, to commemorate its partin the certified “Ancient Bridge to the Continent” story. We will strive
to stimulate regional economies and foster regional revitalization bycontributing to regional communities through sports promotions.

Main Activities

Implement cleanup campaigns

FY2016 Results

Self-assessments

FY2017 Targets

No. of cleanup events at construction sites
5.1 persons per site
5 participants per site
No. of companywide cleanup campaigns held
3 times
4 times
Total no. of participants
A total of 1,939 persons
A total of 3,780 persons
No. of cleanup events at domestic hotels
21 times
24 times〇

5 persons per site△

24 times

Support for UNHCR (UN institutions supporting refugees)¥800,000¥624,672△¥800,000

Contributions from property owners
660 “Leo Miles” point packages donated858 point packages◎

760 points packages

Donations from “volunteer” vending machines¥1,520,000¥1,649,867〇¥1,600,000

All hotels registered〇

Finished

191 offices〇

Finished

76 facilities〇

Finished

All domestic hotels remain registered
Register our network for“Kodomo #110”

No. of sales offices registered

190 offices

Azumi En facilities are registered when newly opened△

4 times
A total of 3,780 persons

Data Compilation

Collect charitable contributions

FY2016 Targets

Initiatives for Supporting Corporate Value

Main Activities and Targets the CSR Committee Oversees

72

Leo palace2 1 An nua l Repor t 2017

Basic CSR Action Policy

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

Our Basic View: Lowering Our Environmental Impact by Reducing CO2 Emissions
The Paris Agreement reached at the COP21 in Paris in 2015 adopts a long-term target to reduce greenhouse gas (GHG) emissions from humanactivities to effectively zero. We will be hands on in taking responsibility for reducing our environmental impacts. Our aim is to be a firm thatgrows sustainably in harmony with society through effective resource use and the provision of value-added goods and services that factor inenvironmental considerations.

Examples of Our Initiatives> Reducing Our Environmental Impact via Business Activities
We are working to reduce the environmental burden of our businessactivities. In fiscal 2016, like in fiscal 2015, we implemented a “CoolBiz” dress code for summer and an Eco-green cards program, executed an initiative to reuse discarded materials, added more minicars to our fleet, and converted more facilities to LED lighting.
The head office monitors electricity usage, and we continue toadvance ambitious initiatives in recognition of the large size of the
impacts of our business activities on the environment. The solar
power generation systems we installed on roofs of properties wemanage reduced CO2 emissions by an estimated 55,000t CO2, andwithin that, the systems installed on company-owned properties
reduced CO2 emissions by an estimated 19,000t CO2. The reduction
via company-managed properties is equivalent to the amount of CO2
absorbed per year by about six million Japanese cedar trees (assumes
a forty-year life span for Japanese cedar trees), and the reduction
via company-owned buildings is equivalent to the amount of CO2
absorbed per year by about two million Japanese cedar trees.
(Our conversion estimates are based on Forestry Agency calculations).

CO2 Emissions for Gas and Electricity
20,000 (t-CO2)

18,90016,4692,133

15,000

1,576

6,982

6,111

10,000
5,000

9,786

8,781

0

FY2015FY2016■Leopalace hotels ■Azumi-En nursing facilities ■Head office and branches

Main Activities and Targets the CSR Committee Oversees
Main Activities

FY2016 Targets

FY2016 Results

Self-assessments

Spread solar power generation systems

Reduction in CO2 emissions at owned properties via
solar power generation
23,000t CO2

19,235t CO2〇

23,000t CO2

Tree-planting events

Promote CO2 reduction and forest conservation byorganizing tree-planting events as a part of our Guamtour programs——

100 participants

Reuse discarded materials

Reuse 5,125 boxes of documents past their retention date
Purchased 36,000 rolls of recycled toilet paper

980 boxes
38,972 rolls〇

2,199 boxes
42,000 rolls

FY2017 Targets

Leopalace21 Annual Report 201773

Basic CSR Action Policy

Through our business activities, we actively disclose information to and engage in dialogue with our stakeholders to build healthy, positive partnerships.

Leopalace21: Who We Are

Engaging in Sound, Constructive Communication with Stakeholders

Our Basic View: Importance of Dialogue and Disclosure

Leopalace21’s Main Stakeholders• System where heads(employees) follow-up withownersApartment• Meetings with apartment
Ownersowners (231 meetings)• Hold events and seminars• Owners surveyed at building
completion stage• Reports on maintenance status

Apartment
Tenants

Business
Partners

Employees• Leopalace21 workplace
experience days
•Accept volunteers groups at
Azumi-En (2.6 events permonth on average at all
facilities)• Employee training• Activities to promote
career formation• System to support
studying for
certifications• Results briefings for investors
and analysts• Small meetings withinstitutional investors (297 meetings)
Investors/ • Participate in IR events (21 events)
Shareholders• Programs to support careerdevelopment activities (28 events)

Local
Communities

Main Activities

Build positive relationships with owners

FY2016 Targets

No. of meetings for owners

FY2016 Results

250 times

Self-assessments

FY2017 Targets

231 times△

250 times

Offer programs for students to support
their career development

No. of sessions in student programs to support careerdevelopment
35 times + all leasing offices across Japan

28 times〇

28 times

Conduct proactive IR activities

No. of meetings for individual investors, including IR fairs
20 times

21 times〇

22 times

Data Compilation

Main Activities and Targets the CSR Committee Oversees

Initiatives for Supporting Corporate Value• Cleanup campaign
events(1,939 participants)• Joint events withbusiness partners

Initiatives for Creating Value• MY PAGE (website
exclusively for tenants)• Cooking classes for women• Get-togethers, manners
orientations for foreigners• Tenant surveys• Tenant monitors

Responding to Social Challenges and Creating Value

We recognize the creation of corporate value over the medium- and long-term and our sustainable growth as an enterprise stemming from ourprovision of resources and contributions to customers, business partners, local communities, employees, shareholders, and creditors. We areworking to disclose financial and non-financial information in a timely, transparent manner to a wide range of stakeholders, including our shareholders. Through continued proactive dialogue with various stakeholders, we aim to deliver new value via our corporate activities by graspingsocial needs with greater precision.

74

Leo palace2 1 An nua l Repor t 2017

Financial Section
Management’s Discussion and Analysis..................................... 75
Consolidated Balance Sheets....................................................... 78
Consolidated Statements of Operations...................................... 80
Consolidated Statements of Comprehensive Income............... 81
Consolidated Statements of Changes in Net Assets................. 82
Consolidated Statements of Cash Flows..................................... 83
Notes to Consolidated Financial Statements.............................. 85
Independent Auditor’s Report..................................................... 121

Leopalace21 Annual Report 201775

Financial Section

Net Sales by Segment
FY2015FY2016

ChangeLeasing
Construction
Elderly Care
Hotels & Resort
OthersTotal

410,641
74,16010,798
11,427
4,485
511,513416,594
74,566
11,536
7,244
10,546
520,488

5,952
406
738
(4,183)
6,060
8,974

(2) Earnings
Gross profit was 92,668 million yen (up 4.2% year-on-year), operating
profit was 22,898 million yen (up 8.6% year-on-year), recurring profit
was 22,355 million yen (up 12.3% year-on-year), and net income
attributable to shareholders of the parent was 20,401 million yen (up3.9% year-on-year).

(Millions of Yen)FY2015FY2016

ChangeLeasing
Construction
Elderly Care
Hotels & Resort
OthersAdjustments
Total

22,8483,340(1,354)(697)
337(3,388)21,08522,4595,051(1,650)(768)
1,432(3,626)22,898

(389)
1,711
(296)
(70)
1,095
(238)
1,812

23

Construction
+1.7

22

0

FY2015 Leasing
-0.3
21.0

Hotels &Resort
-0.07

Eq
(%)

50
40

Adjustments-0.2
Elderly
Care
-0.2

21
20

Others+1.0

FY2016
22.8(3) Segment Information
Leasing Business
24
The occupancy rate at the end of the consolidated fiscal year was
2 3 (up 1.13 points from the end of last fiscal year) and the aver91.66%
age occupancy
rate for the fiscal year was 88.53% (up 0.58 points
22
from last fiscal year).
2 1 Leasing Business, to establish stable occupancy, theIn theCompanies
2 0 provided wealth of value-added life to their tenants suchas “my DIY” (formerly known as “Room Customize”) which enable ten19
ants to arrange their rooms, providing an internet service “LEONET”
website for tenants, and security system installations in alliance withlarge security companies as well as further strengthening sales forcorporate
5 customers and increase foreign tenants by refining customer
support. The number of units under management at the end of the con4
solidated fiscal year was 568 thousand (increasing 6 thousand fromthe end3 of last fiscal year), and the number of direct offices was 189(no change).
The number of franchise offices was 119 (decreasing 11).
2
As a result of the above, net sales amounted to 416,594 million
yen (up11.4% year-on-year), and operating profit was 22,459 million
yen (down
0 1.7% year-on-year).
Construction Business
Orders received during the consolidated fiscal year were 87,139 million yen (up 0.8% from last fiscal year) and the orders received outstanding at the end of the consolidated fiscal year stood at 67,257
million yen (up 1.4% from last fiscal year).
In the Construction Business, the Companies focused on supplying
apartments in metropolitan areas where solid leasing demand isanticipated supported by an increase in population, as well as providing high quality and forefront strategic products. In addition, theGroup implemented a new brand attempting to strengthen productcompetitiveness and refresh the image of tenants, expanded construction variations based on “ideal land use,” and has begun reconsidering suppliers and its product prices to improve profitability.
Also, subsidiary Morizou Co., Ltd., provides luxury custom-built
homes made with Kiso-hinoki.
As a result, net sales came to 74,566 million yen (up 0.5% year-onyear), and operating profit was 5,051 million yen (up 51.2% year-on-year).

30

Data Compilation

Operating Profit by Segment

24

Initiatives for Supporting Corporate Value(Millions of Yen)

(Billions of yen)

Initiatives for Creating Value

2. Analysis of Business Results(1) Net Sales
Net sales during the fiscal year were 520,488 million yen (up 1.8%
year-on-year). In the Leasing Business, net sales was 416,594 million
yen (up 1.4% year-on-year), and net sales in the Construction
Business was 74,566 million yen (up 0.5% year-on-year).

Change in Operating Profit

Responding to Social Challenges and Creating Value

1. Operating Environment
During the subject consolidated fiscal year, the domestic economy
showed gradual progression supported by improvements in corporate
earnings, employment, and corporate earnings.
New housing starts of leased units have increased for two consecutive years (up 11.4% year-on-year), due to the prolonged period of
low interest rates and strong demand for apartment construction as a
strategy to reduce inheritance taxes. On the other hand, as the numberof vacant houses continues to increase and recovery in nationwide
demand becomes difficult, achieving stable occupancy rates requires
constructing apartments in areas with high demand, in addition to providing high-quality products and services that meet tenants’ needs.
Under these conditions, the Leopalace21 Group (the “Companies”)
aimed to achieve targets of the Medium-term Management Plan
“EXPANDING VALUE,” by building a solid management structure
focusing on the core businesses, made up of Leasing andConstruction. In addition, the Group aims to establish new businesses
that will contribute to future growth.

Leopalace21: Who We Are

Management’s Discussion and Analysis

20
10
0

(Fisc

76

Leo palace2 1 An nua l Repor t 2017

Elderly Care BusinessNet sales were 11,536 million yen (up 6.8% year-on-year), and operating loss was 1,650 million yen (increasing loss of 296 million yen
year-on-year).
Hotels & Resort BusinessNet sales in resort facilities in Guam and hotels in Japan were 7,244
million yen (down 36.6% year-on-year), and the operating loss was
768 million yen (increasing loss of 70 million yen year-on-year).
Westin Resort Guam was sold in April 2016.
Other Businesses
In Other Businesses such as the real estate business, the solar power
generation business, and the small-claims and short-term insurance
business, net sales were 10,546 million yen (up 135.1% year-on-year),and operating profit was 1,432 million yen (up 324.6% year-on-year).
3. Analysis of Financial Position(1) Position of Assets, Liabilities, and Net assets
Total assets at the end of the fiscal year increased 10,219 million yen
from the end of the previous fiscal year to 337,828 million yen. Thiswas mainly attributable to an increase of 16,389 million yen in cash
and cash equivalents, 4,234 million yen in leased assets (net), 4,223
million yen in investment securities, 3,011 million yen in deferred tax
assets, and, despite a decrease of 16,152 million yen in buildings andstructures (net) and 3,852 million yen in land.
Total liabilities decreased 3,785 million yen from the end of theprevious fiscal year to 178,958 million yen. This primarily reflected adecrease of 5,579 million yen in borrowings and bonds, 3,099 million
yen in long and short term advances received, despite an increase inlease obligations of 4,673 million yen and 1,070 million yen in liability
for retirement benefit.
Net assets increased 14,004 million yen from the end of the previous fiscal year to 158,870 million yen, due to a recording of 20,401
million yen in net income attributable to shareholders of the parent
despite a payment of dividends of 5,257 million yen and a decrease inforeign currency translation adjustments of 1,624 million yen. The
ratio of shareholders’ equity to assets rose 2.8 points from the end of
the previous fiscal year to 47.0%.

Equity Ratio

22.2

2012

(1) Management Policies
Under our corporate philosophy of “creating new value,” our aims are
as follows: 1) we keep a close eye on modern-day needs, and strive to

50

30

36.5

33.4 31.3
17.9

20
10

41.0

44.7 47.0

11.1 12.8

0(Fiscal year)

2007

2008

2009

2010

2011

4.	Fundamental Policy on the Distribution of Earnings andDividends
To increase shareholders’ value, the Companies will not only distribute profit earned from business measures in the form of dividends,
but will maximize mid- to long-term corporate value and increase EPS(earnings per share) through investments in matters such as realestate, overseas businesses, mergers and acquisitions, IT, andresearch and development. Concerning the dividend payout ratio, theCompanies will set a medium-term goal of 30% (in respect to consolidated net income), in addition to maintaining a stable dividend.
For the subject fiscal year, the Companies have paid a year-end
dividend of 12 yen. A mid-term dividend was 10 yen, meaning a totalof 22 yen and 28.3% of dividend payout ratio.
For the next fiscal year, the Companies plan a mid-term dividend of
10 yen, a year-end dividend of 12 yen, with a total of 22 yen.
5.	Management Policies, Business Environment, Key Issues
to Address
Forward-looking statements in the discussion below are based on
judgments by the Companies as of the end of the latest consolidated fiscal period.

(%)

40

(2) Cash Flow Position
Cash flow from operating activities was a net inflow of 27,504 million
yen (an increase of 5,399 million yen in net inflow from the previous
fiscal year). This was mainly due to 21,622 million yen of income
before taxes and minority interests, and 9,336 million yen of depreciation, despite a decrease in advances received of 3,141 million yen
and income taxes paid of 3,839 million yen.
Cash flow from investing activities was a net outflow of 8,653 million yen (a decrease of 2,433 million yen in net outflow from the previous fiscal year). This was primarily due to payment for deposit of
fixed deposits of 11,878 million yen, payment for purchase of sharesin subsidiaries of 5,402 million yen, payments for the purchase ofproperty, plant and equipment of 4,318 million yen, despite 16,744
million yen of proceeds from sale of property, plant and equipment.
Cash flow from financing activities was a net outflow of 14,048
million yen (net inflow of 1,374 million yen in the previous fiscal year).
This was chiefly due to payment of dividend of 5,257 million yen,
repayment of debt and redemption of bonds of 5,578 million yen(after deduction of proceeds from debt), and a repayment of financelease obligations of 3,212 million yen.
As a result, cash and cash equivalents at the end of the consolidated fiscal year under review stood at 91,766 million yen, an increaseof 4,940 million yen from the end of the previous fiscal year.

2013

2014

2015

2016

Leopalace21 Annual Report 2017

Initiatives for Creating Value

		 *ROIC = Return on invested capital = net operating profit after taxes (NOPLAT) ÷
Interest-bearing debt + Net assets

Rebalance our asset holdings:
		Deploy operating cash flows and proceeds from sales of
low-efficiency assets into growth investments, actively use
these sources of cash to return profits to shareholders
Improve and strengthen distributions to shareholders:		Introduce a total return ratio in an effort to execute policies toreturn profits to shareholders, including a share repurchase plan(3) Management Metrics Cited in Management Plan as Targets
The following management metrics are cited in the medium-term management plan as targets for the plan’s final fiscal year of fiscal 2019.
Fiscal 2019

Management Metrics
ROIC

8%-10%*1

At least 40%

Equity Ratio*3

About 10%

*1 ROIC = Net operating profit after taxes (NOPLAT) ÷ (interest-bearing debt + net assets)*2 Adjusted ROE = (net income + adjustments for corporate taxes, etc.) ÷ average of startFY net assets and end-FY net assets*3 Adjusted EPS growth = (recurring income + goodwill amortization) ÷ issued shares
outstanding

Data Compilation

Maintain 12%

Adjusted ROE *2
Adjusted EPS Growth

Initiatives for Supporting Corporate ValueBusiness Strategies (Create value via cash flow generation)
Core businesses:			Maintain a healthy balance between our apartment supply andapartment management businesses while pursuing concentration and diversification
Growth Strategies:			Move the Elderly Care Business and International Business
into profit as they each carve out differing roles in view of theshrinking domestic population
In the Leasing Business, the number of vacant rental units inJapan continues to rise. To retain competitiveness in this environment, we seek to differentiate our products by adding value inmany ways such as providing furnished apartments with furnitureand home appliances, internet service LEONET, and IoT devices forapartments such as Leo Remocon. We are also investigating athird-way lease contract to accompany our mainstay lease contracts and short-term monthly contracts. Companies are expected
to increase hiring as labor markets tighten, and to ensure we capture demand for company-provided housing, we are working tolighten the work load for corporate clients by providing one-stop

Financial Strategies (Create value through balance sheet management)
Introduce ROIC*-based management:		Create value through balance sheet management and shift awayfrom profit-focused management, and aim to optimize our capital composition

Responding to Social Challenges and Creating Value(2) Business Environment and Key Issues to Address
Regarding population trends, a factor affecting the business environment, the total number of households in Japan is expected to decline
but single-person households in the productive population (ages 15 to64), our target cohort, is expected to trend sideways for nearly thenext twenty years. Net domestic migration to the three major metro
regions (inflows exceed outflows) will continue. Moreover, the population over age 65 is expected to reach about 30% by 2025, a threshold where Japan will attain “super-aging society” status.
The trend in new rental housing starts is robust, and we expect
apartment construction demand to grow over the medium and longterms as the reduction in the basic deduction for inheritance taxes in
the January 2015 tax revision has sharply increased the number ofheirs who are subject to inheritance taxes.
Based on this outlook, we devised the medium-term management
plan “Creative Evolution 2020,” a three-year plan commencing in fiscal year 2017 premised on a basic policy of “support for continuous
growth of core businesses in ways that further increase corporate
value while constructing a base for growth areas.” Our aim is to create new social value and corporate value through the execution ofbusiness strategies spelled out below.

service for leasing solutions via specialized corporate sales teams
set up to cater to each sector. Moreover, we are moving into thedevelopment and operation of serviced apartments and offices in
the ASEAN region to benefit from growth, reducing our reliance on
declining-population Japan.
In the Development Business (construction contracting and realestate development), we will limit rental housing supply to large
cities where there is strong tenant demand for high-quality,
high-value-added products and services. At the same time, we will
look to diversify our construction order mix to respond to various
needs amid a sharp increase in the number of landowners who aresubject to inheritance taxes due to the reduction to the basic
deduction for inheritance taxes in the January 2015 tax revision.
The Elderly Care Business, which we have designated as a
growth business, will strive to improve its earnings power throughefforts to optimize its workforce composition with the aim ofrestarting construction of new nursing care facilities in tandem(with the needs) of an aging society.

Leopalace21: Who We Are

create new value in our own unique way, through flexible thinking anddynamic, inclusive teamwork; 2) we are only happy if our customers
are happy; we are constantly working to improve our products, services and technologies and to grow as a company; and 3) we provide
new value throughout society as a leading company within the industry and (seek) to help create a more comfortable and affluent society.

77

78

Leo palace2 1 An nua l Repor t 2017

Financial Section

Consolidated Balance Sheets
Leopalace21 Corporation and consolidated subsidiaries
March 31, 2017 and 2016

Thousands of U.S.
dollars (Note 1)

Millions of yen

ASSETS
Current assets:
		 Cash and cash equivalents (Notes 2-(2), 4, 5-(2), 11-(3))
		 Trade receivables (Note 5-(2))
		 Accounts receivable for completed projects (Note 5-(2))
		 Operating loans (Note 5-(2))
		 Securities (Notes 2-(4), 5-(2), 6)
		 Real estate for sale
		 Real estate for sale in process
		 Payment for construction in progress (Note 2-(14))
		 Raw materials and supplies
		Prepaid expenses
		 Deferred tax assets (Notes 2-(19), 10)		 Other accounts receivable
		Others
		 Allowance for doubtful accounts (Notes 2-(11), 5-(2))
			Total current assets
Non-current assets:
Property, plant and equipment: (Notes 2-(6), 2-(23), 8)
		 Buildings and structures (Note 17)
			Accumulated depreciation
			Net		 Machinery, equipment, and vehicles
			Accumulated depreciation
			Net		 Land (Note 17)
		 Leased assets (Notes 2-(20), 20)
			Accumulated depreciation
			Net		 Construction in progress
		Other			Accumulated depreciation
			Net			 Total property, plant and equipment
Intangible fixed assets:
		 Goodwill (Note 2-(18))
		 Others (Note 2-(8))
			 Total intangible fixed assets
Investments and other assets:
		 Investment securities (Notes 2-(4), 5-(2), 6, 11-(3))
		 Long-term loans (Note 5-(2))
		 Bad debts (Notes 5-(2), 9)
		 Long-term prepaid expenses (Note 2-(9))
		 Deferred tax assets (Notes 2-(19), 10)
		Others
		 Allowance for doubtful accounts (Notes 2-(11), 5-(2))
			 Total investments and other assets
			Total non-current assets
Deferred assets:
		 Bond issuance cost			Total deferred assets
			 Total assets (Note 22)
The accompanying notes are an integral part of these statements.

2017

2016

2017

104,432
6,547
2,355
675
121
421
1,849
518
526
2,827
8,636
831
4,228
(186)
133,786

88,043
6,779
1,992
885
880
21
—
785
588
2,847
6,377
1,630
4,283
(212)
114,904

930,851
58,357
20,998
6,022
1,078
3,759
16,4894,625
4,693
25,20076,984
7,413
37,688(1,660)1,192,501

102,680(60,852)
41,827
21,741(7,535)
14,20680,38824,795(11,143)
13,652
3,911
9,770(8,489)1,281
155,267

130,653(72,673)
57,97923,369(7,264)
16,10584,241
17,663(8,246)9,417
2,444
11,850(10,001)
1,848
172,036915,233(542,405)
372,827
193,789(67,163)
126,626
716,542
221,010(99,323)
121,687
34,86387,091(75,667)
11,423
1,383,970

3,181
8,461
11,642

1,530
7,804
9,334

28,35775,418103,775

12,453
516
1,246
3,820
17,4863,129(2,073)36,579203,489

8,230
544
1,256
3,686
16,7342,232(2,023)30,661
212,033

111,004
4,601
11,106
34,057
155,865
27,891(18,478)
326,048
1,813,793

552
552
337,828

671
671
327,609

4,924
4,924
3,011,220

Leopalace21 Annual Report 2017

2,606
12,193
265
1,412
4,326
3,054
19,2295
2,919
40,766
5,026
447
860
34
4,301
97,44925,193
108,623—
11,25935,35041,425
169,94512
22,676
356,569
47,967
3,680
9,645
386
36,542869,279

16,035
13,267
10,73916,614
7,152
148
3,183
11,29577
2,920
81,433
178,958

20,001
14,106
7,659
18,950
7,516
208
3,802
10,22469
2,754
85,294
182,743

142,927
118,260
95,722148,093
63,754
1,324
28,373
100,682690
26,028725,857
1,595,137

75,282
45,23539,923(3,660)156,779

75,282
45,235
24,779(3,660)141,636

671,025
403,202355,852(32,630)
1,397,449

574
2,027
(668)
1,933
136
20
158,870
337,828

435
3,651
(895)
3,190
18
20
144,865
327,609

5,124
18,071(5,961)
17,235
1,219
178
1,416,083
3,011,220

Data Compilation

2,826
12,186
—
1,263
3,966
4,647
19,0661
2,544
40,003
5,381
412
1,082
43
4,099
97,524

Initiatives for Supporting Corporate Value

The accompanying notes are an integral part of these statements.

2017

Initiatives for Creating Value

Capital surplus
Retained earnings
Treasury stock: 4,569,920 shares in 2017 and 4,569,520 shares in 2016 (Note 19)
		 Total shareholders’ equity
Accumulated other comprehensive income:Net unrealized gains on “other securities” (Note 2-(4))
Foreign currency translation adjustments (Note 2-(22))
Remeasurements of defined benefit plans (Note 12)
		 Total accumulated other comprehensive income
Share subscription rights
Non-controlling interests
		 Total net assets
		 Total liabilities and net assets

2016

Responding to Social Challenges and Creating ValueLIABILITIES 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)Current portion of long-term debt (Notes 5-(2), 5-(3), 11)Bonds due within one year (Notes 5-(2), 5-(3), 11)Lease obligations (Notes 5-(2), 5-(3), 11)
Accounts payable—otherAccrued expenses
Accrued income taxes
Advances received (Note 2-(17))
Customer advances for projects in progress
Reserve for warranty obligations on completed projects (Note 2-(14))
Reserve for fulfillment of guarantees (Note 2-(15))
Asset retirement obligations (Note 18)
Others		 Total current liabilities
Non-current liabilities:
Bonds (Notes 5-(2), 5-(3), 11)Long-term debt (Notes 5-(2), 5-(3), 11)Lease obligations (Notes 5-(2), 5-(3), 11)Long-term advances received (Note 2-(17))
Lease/guarantee deposits received
Deferred tax liabilities
Reserve for apartment vacancy loss (Note 2-(13))
Liability for retirement benefit (Notes 2-(12), 12)
Asset retirement obligations (Note 18)
Others		 Total non-current liabilities
		 Total liabilities
Net assets
Shareholders’ equity:
Common stock: (Note 19)
		 Authorized: 500,000,000 shares in 2017 and 2016
		 Issued: 267,443,915 shares in 2017 and 20162017

Leopalace21: Who We Are

Thousands of U.S.
dollars (Note 1)

Millions of yen

79

80

Leo palace2 1 An nua l Repor t 2017

Financial Section

Consolidated Statements of Operations
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2017 and 2016

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

Net sales (Note 22)
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit (Note 22)
Other income (expenses):
Interest and dividend income
Equity in losses of affiliated companies
Foreign exchange gains (losses), net (Note 2-(21))
Interest expenses
Commission fee
Gain on sale of property, plant and equipment (Note 14)
Amortization of deposits received income
Compensation income
Gain (losses) on valuation of investment securities (Note 2-(4))
Loss on sale of property, plant and equipment (Note 15)
Loss on retirement of property, plant and equipment (Note 16)
Impairment loss (Note 2-(7), 8)
Bond issuance cost (Note 2-(10))
Loss on disaster (Note 2-(25))
Others—net
Income before income taxes
Income taxes (Note 2-(19))
Current
RefundDeferred
Net income
Net income attributable to non-controlling interests
Net income attributable to shareholders of the parent (Note 23)
The accompanying notes are an integral part of these statements.

2017

2016

2017

520,488427,820
92,66869,76922,898511,513

4,639,347
3,813,355
825,992
621,890
204,101

199
(6)
36
(734)
(46)
408
21
—
166
(314)
(149)
(589)
(241)
(88)
62
21,622

121

3,245
(3)
(2,031)
1,210
20,411
10
20,401

422,604
88,90967,82321,085

(9)
(267)
(944)
(171)
26
102
61
55
(1)
(147)
(616)
(165)
—
18
19,1502,999(19)(3,458)(478)
19,628(2)
19,631

1,777
(60)
324
(6,542)
(412)
3,645
189
—
1,485
(2,801)(1,335)(5,254)(2,152)(789)
552
192,727
28,931(28)(18,108)
10,794
181,933
89
181,843

Leopalace21 Annual Report 2017

81

Financial Section

Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2017 and 2016

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

2016

2017

20,411

19,628

181,933

139(1,624)226
0(1,257)
19,153
19,143
10

55

1,245
(14,483)
2,023
4(11,209)170,723
170,633
90

107
125
(1)
286
19,915
19,917(2)

The accompanying notes are an integral part of these statements.

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

201
—
201
(61)
139

2017

96

1,795
—
1,795
(549)
1,245

(30)
65
(10)
55

(1,631)6(1,624)—(1,624)

107

(135)
362
226
—
226

(96)

0
(1,257)

—
107
—
107

221
125
—
125
(1)
286

(14,545)61(14,483)—(14,483)(1,211)
3,234
2,023
—
2,023

Initiatives for Supporting Corporate Value

Net unrealized gains on “other securities”
Amount accrued in the fiscal year
Rearrangements and adjustments
		 Amount before tax effects adjustments
		 Tax effects
Net unrealized gains on “other securities”
Foreign currency translation adjustments (Note 2-(22))
Amount accrued in the fiscal year
Rearrangements and adjustments
		 Amount before tax effects adjustments
		 Tax effects
		 Foreign currency translation adjustments
Remeasurements of defined benefit plans
Amount accrued in the fiscal year
Rearrangements and adjustments
		 Amount before tax effects adjustments
		 Tax effects
		 Remeasurements of defined benefit plans
Share of other comprehensive income of entities account for using equity
Amount accrued in the fiscal year		Total2016

Initiatives for Creating Value2017

Responding to Social Challenges and Creating Value

Net income
Other comprehensive income
Net unrealized gains on “other securities”
Foreign currency translation adjustments (Note 2-(22))
Remeasurements of defined benefit plans
Share of other comprehensive income of entities account for using equity
Total
Comprehensive income
Comprehensive income attributable to shareholders of the parent
Comprehensive income attributable to non-controlling interests

2017

Leopalace21: Who We Are

Consolidated Statements of Comprehensive Income

4(11,209)
Data Compilation

82

Leo palace2 1 An nua l Repor t 2017

Financial Section

Consolidated Statements of Changes in Net Assets
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2017 and 2016

Millions of yen
Shareholders’ equity

Balance as of April 1, 2015
Cumulative effects of changes
		 in accounting policies
Restated balance after changes
in accounting policies
Deficit disposition
Net income attributable to		 shareholders of the parent
Acquisition of treasury stock
Net change of items other		 than shareholders’ equity
Total change during period
Balance as of March 31, 2016
Dividend of surplus
Net income attributable to		 shareholders of the parent
Acquisition of treasury stock
Net change of items other than
		shareholders’ equity
Total change during period
Balance as of March 31, 2017

Accumulated other comprehensive income

Commonstock

CapitalsurplusRetainedearnings

Treasury
stock

Share
Net unrealized
Foreign
Total accumulated
Total
Remeasurements
subscription
gains oncurrency
othershareholders’of defined benefit
rights“othertranslation
comprehensive
equityplans
securities”
adjustments
income75,28251,501427(3,660)123,550(1,545)75,28251,501(1,117)(6,266)

6,266

379

3,545

(1,021)

2,904

18

Noncontrollinginterests

Total net
assets0

126,473(1,545)(3,660)19,631122,005(1,545)379

3,545(1,021)

2,904

18

0

124,928——

19,631

19,631

(0)

(0)

(0)
55

105

125

286

—

20

306

—

(6,266)25,897(0)

19,631

55

105

125

286

—

20

19,93775,282

45,235

24,779(5,257)(3,660)141,636(5,257)

435

3,651

(895)

3,190

18

20

144,865(5,257)

20,401—75,282—
45,235

15,14339,923

20,401

20,401

(0)

(0)

(0)

(0)
(3,660)15,143
156,779

139(1,624)226(1,257)118(0)(1,138)139574(1,624)
2,027

226
(668)

(1,257)
1,933

118
136

(0)
20

14,004
158,870

Noncontrollinginterests

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

Balance as of March 31, 2016
Deficit disposition
Net income attributable to		 shareholders of the parent

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

671,025

403,202220,871(46,862)(32,628)

181,843(2)

Acquisition of treasury stock
Net change of items other than
		shareholders’ equity
Total change during period
Balance as of March 31, 2017

Accumulated other comprehensive income—
671,025—
403,202

The accompanying notes are an integral part of these statements.

134,981355,852Share
Net unrealized
Foreign
Total accumulated
Total
Remeasurements
subscription
gains oncurrency
othershareholders’of defined benefit
rights“othertranslation
comprehensive
equityplans
securities”
adjustments
income1,262,470(46,862)

3,878

32,548(7,984)28,442160

180

1,291,254(46,862)

181,843

181,843

(2)

(2)

(2)
134,978(32,630) 1,397,449

1,245(14,476)

2,023(11,207)

1,059

(1)

(10,149)

1,245
5,124

(14,476)
18,071

2,023(5,961)(11,207)
17,235

1,059
1,219

(1)
178

124,829
1,416,083

Leopalace21 Annual Report 2017

83

Financial Section

Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2017 and 2016

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

21,622
9,336
428
201
(619)
(199)
734
(36)
6
(166)
(94)
149
589
88
633
(139)
272
324
(883)
296
(3,141)
(407)
(6)
2,770
31,760273(690)(3,839)27,504

19,150192,727
83,223
3,818
1,792(5,519)(1,777)
6,542
(324)
60
(1,485)
(843)
1,335
5,254
789
5,647
(1,246)2,424
2,894(7,872)2,646(28,000)(3,635)(54)
24,696
283,093
2,440(6,155)(34,219)
245,158

9,614
154
180
(1,477)
(121)
944
267
9
(58)
(24)
147
616
—
32
—
(138)
643
(2,701)(1,903)(5,477)
(448)
911
3,961
24,28489(937)(1,331)
22,104

Initiatives for Supporting Corporate Value

2017

Initiatives for Creating Value

The accompanying notes are an integral part of these statements.

2016

Responding to Social Challenges and Creating Value

Cash flows from operating activities:
Income before income taxes
Depreciation
Amortization of goodwill
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in reserve for apartment vacancy loss
Interest and dividend income
Interest expense
Foreign exchange loss (gain)
Equity in losses (earnings) of affiliated companies
Loss (gain) on valuation of investment securities
Loss (gain) on sale of property, plant and equipment
Loss on retirement of property, plant and equipment
Impairment loss
Loss on disaster
Decrease (increase) in accounts receivable
Decrease (increase) in real estate for sale in progress
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
Others		Subtotal
Interest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities

2017

Leopalace21: Who We Are

Consolidated Statements of Cash Flows

Data Compilation

84

Leo palace2 1 An nua l Repor t 2017

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 purchase of shares in subsidiaries (Note 25-(8))
Payment for loans
Proceeds from collection of loans
Payments for purchase of time deposits
Proceeds from withdrawal of time deposits
OthersNet 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
Proceeds from share issuance to non-controlling shareholders
Proceeds from issuance of bonds
Payment for redemption of bonds
Payment for purchases of treasury stock
Cash dividends paid
Dividends paid to non-controlling interests
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.

2017

2016

2017

(4,318)16,744(959)(2,761)
14(5,402)(22)
22(11,878)
1,200(1,292)(8,653)(9,053)(38,492)
149,253(8,554)(24,610)
127(48,158)(202)
200(105,874)
10,696(11,517)(77,133)

200
(265)
235
(1,423)(3,212)——(4,326)(0)(5,257)—(14,048)137
4,940
86,826
91,766666(754)(1,515)
93
—
(58)
21
(1,100)600
12(11,087)
399
(176)
8,544
(23,244)(2,397)23
21,220(2,993)
(0)
—
(0)
1,374
(70)
12,321
74,50486,826

1,782(2,362)
2,103(12,688)(28,631)——(38,559)(2)(46,862)—(125,220)1,229
44,034
773,919
817,953

Leopalace21 Annual Report 201785

Financial Section

Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2017 and 2016

Initiatives for Supporting Corporate Value
Data Compilation(2) Cash and cash equivalents
For the purpose of the statements of cash flows, the Company considers all highly liquid investments with insignificant risk of change
in value that have maturities of generally three months or less whenpurchased to be cash equivalents. These include cash on hand,demand deposits at banks and highly liquid short-term investments

Initiatives for Creating Value

2. Summary of Significant Accounting Policies(1) Consolidation
Names of significant subsidiaries (21 in total)
Leopalace Leasing Corporation
Plaza Guarantee Co., Ltd.
Leopalace21 Business Consulting (Shanghai) Co., Ltd.
LEOPALACE21 VIETNAM CO., LTD.
Leopalace21 (Thailand) CO., LTD.
Leopalace21 (Cambodia) Co., Ltd.
LEOPALACE21 REAL ESTATE (CAMBODIA) Co., Ltd.
LEOPALACE21 PHILIPPINES INC.
PT. Leopalace21 Properti Manajemen
PT. Leopalace Duasatu Realty
Leopalace21 Singapore Pte. Ltd.
Morizou Co., Ltd.
Azu Life Care Co., Ltd.
Leopalace Guam Corporation
WING MATE CO., LTD.
Life Living Co., Ltd.
Leopalace Power Corporation
Leopalace Energy Corporation

ASUKA SSI
Leopalace Smile Co., Ltd.
The accompanying consolidated financial statements as of March
31, 2017 include the accounts of the Company and its 21 (21 as ofMarch 31, 2016) subsidiaries (together, the “Companies”). Of these
21 subsidiaries, Leopalace21 Singapore Pte. Ltd. has been includedin the scope of consolidation because it was established in this consolidated fiscal year, and Life Living Co., Ltd. whose shares wereacquired in the consolidated fiscal year under review, has also been
included in the scope of consolidation. Leopalace21 (Shanghai)
Property Management Co., Ltd. has been excluded from the scope of
consolidation as a result of completion of liquidation. Also, shares of
Leopalace Guam Service Corporation has been transferred, andtherefore has been excluded from the scope of consolidation.
Affiliated companies over which the Company exercises significant
influence in terms of their operating and financial policies have been
included in the consolidated financial statements on an equity method. Investments in 1 affiliate (1 as of March 31, 2016) have been
included for the year ended March 31, 2017. All significant intercompany balances and transactions have been eliminated.
Investments in subsidiaries and affiliates that are not consolidated or accounted for by the equity method are carried at cost or
less. Where there has been a permanent decline in the value ofsuch investments, the Company has written down the investments.
The balance sheet date of Leopalace21 Business Consulting(Shanghai) Co., Ltd., LEOPALACE21 VIETNAM CO., LTD.,
Leopalace21 (Thailand) CO., LTD., Leopalace21 (Cambodia) Co., Ltd.,LEOPALACE21 REAL ESTATE (CAMBODIA) Co., Ltd., LEOPALACE21
PHILIPPINES INC., PT. Leopalace21 Properti Manajemen, PT.
Leopalace Duasatu Realty, Leopalace21 Singapore Pte. Ltd.,
Leopalace Guam Corporation, Leopalace Guam Distributing
Corporation, and WING MATE CO., LTD. is December 31, andMorizou Co., Ltd. is February 28. Since the difference between the
Company’s fiscal year end is less than three months, their financial
statements as of that date are used in the preparation of theCompany’s consolidated financial statement. When significant
transactions occur at those subsidiaries between their fiscal year
end and the Company’s fiscal year end, these transactions areincluded in consolidation as necessary.

Responding to Social Challenges and Creating Value

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of Leopalace21
Corporation (the “Company”) have been prepared in accordance withthe provisions set forth in the Financial Instruments and Exchange Act
of Japan and its related accounting regulations and in conformity
with accounting principles generally accepted in Japan, which are
different in certain respects as to application and disclosure requirements from International Financial Reporting Standards.
The accompanying consolidated financial statements have beenreformatted and translated into English (with certain expanded disclosure) from the consolidated financial statements of the Company
prepared in accordance with accounting principles generally accepted in Japan and filed with the Financial Services Agency as
required by the Financial Instruments and Exchange Act of Japan.
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, 2017, which was 112.19
yen to US$1.00. Such translation should not be construed as a representation that the Japanese yen amounts have been, could havebeen, or could in the future be, converted into U.S. dollars at this or
any other rate of exchange. Certain amounts in the previous year’s
financial statements have been reclassified to conform to the current fiscal year’s presentation.
Figures are rounded down to the nearest 1,000,000 yen or $1,000.

Leopalace21: Who We Are

Notes to Consolidated Financial Statements

86

Leo palace2 1 An nua l Repor t 2017with negligible risk of fluctuation in value and maturities of lessthan 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 amortized cost(straight-line method).
Other securities with available fair market values are stated atfair market value at the end of the fiscal year of each consolidated
companies. Other securities without available fair market values
are stated at cost by the moving-average method.
Unrealized gains or losses on these securities are reported, net of
applicable income taxes, as a separate component of net assets. Costof securities sold is computed using the moving-average method.
Investments in silent partnerships are reported using the equity
method, based on the latest financial statements available as at theclosing dates stipulated by the respective partnership contracts.
(5) Derivative financial instruments and hedge accounting
1. Accounting principles
		 Fair market value
2. Derivative transactions are accounted for using hedge
		accounting.
		 (a) Hedge accounting method			The Company uses the deferred hedge accounting method.
			The interest rate swaps that meet specific matching criteria
are recognized and included in interest expense or income.
		 (b) Hedging instrument and hedged items
			 Hedging instrument Interest rate swaps
			 Hedged items
Long-term debt
		 (c) Hedge policy			Interest rate swaps are utilized as a hedge against possible future interest rate increases, in amounts that fallwithin the range of the particular liability being hedged.
		 (d) Method used to evaluate the effectiveness of the hedge
			Cumulative interest rate fluctuations and changes in cash
flows are compared to evaluate the effectiveness ofhedged item and hedging instrument. However, evaluation
as of the date of settlement of the effectiveness of interest
rate swaps that meet specific matching criteria is omitted.
(6) Property, plant and equipment (except for leased assets)
Buildings for rent of the Company and domestic consolidated subsidiaries are stated at cost. Depreciation is computed generally on
the straight-line basis. The range of useful lives is principally from22 to 47 years for buildings for rent.
Property, plant and equipment other than buildings for rent of theCompany and domestic consolidated subsidiaries are stated at cost.
Depreciation is computed generally by the declining-balance method. However, buildings (excluding accompanying facilities) obtainedon or after April 1, 1998, and building accessories and structures
obtained on or after April 1, 2016, are depreciated by the straightline method. The range of useful lives is principally from 15 to 50
years for buildings and structures, 17 years for machinery, equipment
and vehicles, and 5 to 10 years for tools, furniture and fixtures.
Property, plant and equipment of the consolidated overseas subsidiaries are depreciated by the straight-line method based on thelocal GAAP. The range of useful lives is principally from 20 to 40
years for buildings and structures and from 3 to 5 years for tools,
furniture and fixtures.
(7) Long-lived assets
The Companies review long-lived assets for impairment whenever
events or changes in circumstance indicate the carrying amount ofan asset or asset group may not be recoverable. An impairment loss
would be recognized if the carrying amount of an asset or asset
group exceeded the sum of the undiscounted future cash flows
expected to be generated by the continued use and eventual disposition of the asset or asset group. The impairment loss would bemeasured as the amount by which the carrying amount of theassets exceeds their recoverable amount, which is the higher of the
discounted cash flows from the continued use and eventual disposition of the assets, or the net selling price at disposition.
(8) Intangible assets
Software for internal use is amortized on a straight-line basis overthe estimated useful life of 5 years.
(9) Long-term prepaid expenses
Long-term prepaid expenses are amortized evenly over a period
mainly from 3 to 5 years.

Leopalace21 Annual Report 2017(12) Liability for retirement benefit
In conjunction with the calculation of retirement benefit obligations,the method for attributing projected retirement benefits for the period
up to the end of the current fiscal is based on a straight-line basis.
Past service cost is amortized by the straight-line method over a
specified period (5 years) within the average remaining service
years of employees at the time of accrual. Actuarial gains/losses,
which are prorated according to the straight-line method over a
specified period (5 years) within the average remaining service
years of employees at the time of accrual, are amortized startingfrom the next fiscal year of the respective accruals.
Unrecognized actuarial gains/losses and unrecognized past service cost are posted, factoring in tax effects, as the cumulative
amount of adjustments related to cumulated other comprehensive
income in the net assets.

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

(13) Reserve for apartment vacancy loss
Reserve for vacancy losses on apartment units managed undermaster lease agreements is calculated according to the projected
loss that could occur during a logically predictable period to prepare
for the risk of increased vacancies. It is based on estimated losses
resulting from current rental income and expected future occupancy
rates for each rental property managed by the leasing division of
the Company.

(15) Reserve for fulfillment of guarantees
In order to provide for losses due to its rent obligation guarantees
business, the Company’s consolidated subsidiary, Plaza Guarantee(19) Income taxes
Income taxes comprise corporate, inhabitant and enterprise taxes.
The asset and liability approach is used to recognize deferred
tax assets and liabilities for the expected future tax consequencesof temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes.
(20) Leases
Leases are depreciated by the straight-line method over the leaseterm of respective assets as their useful lives with no residual value.
(21) Foreign currency transactions
All monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the current exchange
rates as of each balance sheet date. The foreign exchange gains
and losses from translation are recognized in the consolidated
statements of operations.

Data Compilation(14) 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.

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

Initiatives for Supporting Corporate Value(16) Revenues and costs of construction contracts
In recognizing construction revenues and costs of constructions inprocess, the percentage-of-completion method is applied to suchcontracts in which the outcome of the construction activity isdeemed certain by the end of the fiscal year ended March 31, 2017,
while the completed contract method is applied to other constructions. Progress of construction is estimated based on the method of
the ratio of actual cost incurred to total cost.

Initiatives for Creating Value(11) Allowance for doubtful accounts
The Companies maintain an allowance for doubtful accounts toreserve for potentially uncollectible receivables. A general provision
for doubtful receivables is provided by applying a certain reserve
percentage of the receivables based on experience from past transactions. A specific reserve is provided for the estimated amounts tobe uncollectible based on the customers’ financial condition orother pertinent factors.

Responding to Social Challenges and Creating Value

Co., Ltd., records the amount of loss expected based on the rate ofpast guarantee fulfillments.

Leopalace21: Who We Are(10) Bond issuance costs
Bond issuance costs are amortized evenly until maturity.

87

88

Leo palace2 1 An nua l Repor t 2017(22) Foreign currency financial statements
The assets and liabilities of consolidated overseas subsidiaries aretranslated into Japanese yen at the current exchange rates as ofeach balance sheet date, and income and expenses are translated
at the average exchange rates of the fiscal year. Foreign currencytranslation adjustments resulting from the translation of assets, liabilities and net assets are included in foreign currency translation
adjustments and non-controlling interests as a separate componentof net assets.
(23) Interest capitalization
Leopalace Guam Corporation, a consolidated subsidiary, capitalizedinterest paid on borrowing for real estate development business forthe development period into acquisition cost of property, plant andequipment.
Capitalized interests included in carrying value of property, plantand equipment were 345 million yen ($3,081 thousand) and 2,194
million yen as of March 31, 2017 and 2016, respectively.
(24) Consumption taxes
National and local consumption taxes are basically excluded fromtransaction amounts. However, Asuka SSI, a consolidated subsidiary,
includes national and local consumption taxes in operating expenses
and general and administrative expenses. The nondeductible portionof consumption taxes on the purchase of assets is recorded as longterm prepaid expenses and amortized evenly over 5 years.
(25) Loss on disaster
Rental apartments owned by the Company were damaged by the
Kumamoto earthquake in 2016, and restoration costs were recorded
under disaster loss in the fiscal year ended March 2017.

fees as a bulk amount at the time of concluding contracts. From thisfiscal year, by referencing Accounting Practice Committee Research
Report No. 13 “Research Report on Revenue Recognition in Japan(Interim report)” from the Japanese Institute of Certified Public
Accountants, the Company has decided to recognize revenue over areasonably determined period.
The Company has determined that this change is appropriate inreflecting the economic actualities of the business, and that it ispossible since a certain period of time has passed from the start of
the guarantee business, and the average guarantee period can bereasonably determined. This change in accounting policy has been
retrospectively applied to the consolidated financial statements forthe previous fiscal year.
As a result, an increase of 718 million yen ($6,406 thousand) ofdeferred tax asset and 2,064 million yen ($18,403 thousand) ofadvanced received, despite a decrease of 1,345 million yen($11,997 thousand) of retained earnings as compared with the figures prior to the retrospective application in the consolidated balance sheet of the previous year. Net sales, operating profit, andincome before income taxes each increased by 88 million yen ($792
thousand), and net income attributable to shareholders of the parent increased by 199 million yen ($1,774 thousand). Income before
income taxes and others in cash flows from operating activities
increased by 88 and 1 million yen ($792 and 11 thousand), respectively, and advances received decreased by 90 million yen ($804
thousand). Net assets at the beginning of the previous fiscal year
reflected the cumulative effects, which resulted in a decrease of
1,545 million yen ($13,771 thousand) in retained earnings.

(26) Earnings per share
Basic earnings per share of common stock is computed by net
income available to common shareholders divided by the weightedaverage number of common stock outstanding for the period.
Diluted earnings per share of common stock reflects the potential dilution that could occur if securities or other contracts to issuecommon stock were converted or exercised into common stock or
resulted in the issuance of common stock.

(Application of the Practical Solution on Accounting on a
Change in Depreciation Method Due to Tax Reform 2016)
Following the revision of the Corporation Tax Act, the “Practical
Solution on a Change in Depreciation Method Due to Tax Reform
2016” (ASBJ PITF No. 32, June 17, 2016) was adopted effectivefrom the fiscal year under review. The depreciation method forfacilities attached to buildings and structures acquired on or after
April 1, 2016 was also changed from the declining balance method
to the straight line method. As a result, operating profit and income
before income taxes during the subject fiscal year each increasedby 9 million yen ($85 thousand).

3. Additional Information(Changes in Accounting Policies)(Change in revenue recognition standard)
Plaza Guarantee Co., Ltd., a consolidated subsidiary of Leopalace21
Corporation, had previously recognized revenue from guarantee(Changes in presentation)(Consolidated Statements of Operations)“Bond issuance cost,” which was included in “Other” under “Nonoperating expenses” for the previous fiscal year, exceeds ten
hundredths (10/100) of the total amount of non-operating expenses.

Leopalace21 Annual Report 2017

“Other,” “Non-operating expenses” in the consolidated statementsof operations for the previous fiscal year is reclassified as 165 million yen ($1,475 thousand) under “Bond issuance cost” and 135 million yen ($1,203 thousand) under “Other.”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

2017

104,432(12,666)
91,76688,043930,851(112,897)
817,953(1,217)86,826

				 The derivative contracts represent interest-rate swap
transactions designed to hedge against the risk of future fluctuations in interest rates on borrowings, etc. Interest rate
swap transactions used by the Company are exposed to risksof fluctuations in the market interest rate. For details on
hedge accounting with respect to hedging instruments,
hedged items, hedging policy and the method for evaluating
hedging effectiveness, please refer to the aforementioned “2.
(5) Derivative financial instruments and hedge accounting.”

Data Compilation(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 andloss reduction of accounts where collection is doubtful due
to worsening credit or similar problems.
				 Regarding securities and investment securities, theCompany periodically investigates and understands theshare price and the financial condition of the shareissuing organization. In addition, for items other thanheld-to-maturity securities, the Company considers therelationship with the trading partner companies and constantly re-evaluates its holdings.
				 The basic policy of derivatives trading is determined by
the board of directors, and the execution and administrationof derivatives transactions are conducted in accordance with
the Company’s “Derivatives Trading Management Rules.”The derivatives trading management situation is periodicallyreported to the board of directors for comprehensive risk
management. The Company’s counterparties for derivative

Initiatives for Supporting Corporate Value(b) Nature and extent of risks arising from financial instruments			Operating receivables and loans outstanding are exposed tocredit risk.
				 Foreign currency denominated debts and credits originated in conjunction with overseas business development are
exposed to exchange risk.
				 Securities are mainly held-to-maturity securities andshares of the companies with which the Company has abusiness relationship, and those securities are exposed tomarket risk.
				 Almost all accounts payable and accounts payable forcompleted projects which are operating liabilities are scheduled to be paid within one year.
				 Loans payable, corporate bonds, and lease obligations
related to finance lease transactions are mainly for the purpose of raising funds necessary for investment in facilities,
and the longest repayment date is 15 years subsequent to
the fiscal year end.

2016

Initiatives for Creating Value

5. Financial Instruments(1) The financial instruments and related disclosures(a) Policy for financial instruments			The Companies are mainly involved in raising funds (mostlybank borrowing and corporate bond issuance) needed forcapital investment to carry out Leasing Business andConstruction 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 rate and exchange rate risks, and have apolicy not to conduct speculative trading.

2017

Responding to Social Challenges and Creating Value

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

Leopalace21: Who We Are

It has therefore been decided to present the “Bond issuance cost”
separately. To reflect this change in the presentation method, theconsolidated financial statements for the previous fiscal year havebeen reclassified.
As a result, 300 million yen ($2,679 thousand) shown under

89

90

Leo palace2 1 An nua l Repor t 2017contracts are highly creditworthy financial institutions inJapan, and therefore it does not assume the risk of counterparty default on these contracts.
				 Trade payables and debts are exposed to liquidity risk,
but this risk is monitored by various means such as the
preparation of a monthly financial plan by each company in
the Companies.

the quoted market price, or reasonably assessed value if aquoted market price is not available.
				 Fair value of financial instruments which quoted market
price is not available is calculated based on a fluctuating
factor, and the value might differ if different assumptions areused. Contract sums, etc. in notes to derivative contracts do
not themselves represent the volume of market risk on derivative contracts.

(d) Supplementary explanations on fair value of financial
instruments
			Fair value of financial instruments are measured based on(2) Fair value of financial instruments
The carrying value on the consolidated balance sheet and fair value of financial instruments as of March 31, 2017 and 2016 as well as the differences between these values are described below. Financial instruments whose fair values appear to be extremely difficult to determine are notincluded in the table. (See Note (b))
Millions of yen

March 31, 2017
(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 debts
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

104,432
8,903
3,777
675
(95)
580
516
(97)
419
1,246
(1,246)—
118,112
15,012—20,001
14,53015,38664,931—

104,432
8,903
3,798

—
—
20

720

140

419

—

—
118,273
15,012—
20,041
14,61015,54865,212
—

—
161
—
—
40
79
162
281
－—

Leopalace21 Annual Report 2017

March 31, 2016

Difference

88,043
8,772
4,457
885
(112)
773
544
(86)
457
1,256
(1,256)—
102,504
14,800265
24,327
15,518
10,71365,624—88,043
8,772
4,488

—
—
30

965

192

457

—

—
102,726
14,800265
24,425
15,866
10,801
66,158
—

—
222
—
—
98
347
88
534
—

Thousands of U.S. dollars

Fair value

Difference(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 debts
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

930,851
79,35633,673
6,022
(852)
5,170
4,601
(866)
3,735
11,106(11,106)—
1,052,787
133,817—
178,277
129,519
137,147
578,762—

930,851
79,35633,860

—
—
186

6,420

1,250

3,735

—

—
1,054,224
133,817—
178,634
130,226
138,591
581,269
—

—
1,437
—
—
356
706
1,444
2,507
—

(*1) Operating loans, long-term loans and bad debts have deductions of their respective allowance for doubtful accounts, which are recorded
separately.
(*2) As of March 31, 2017 and 2016, bonds due within one year of 3,966 million yen ($35,350 thousand for 2017) and 4,326 million yen, andcurrent portion of long-term debt of 1,263 million yen ($11,259 thousand for 2017) and 1,412 million yen are included in bonds and longterm debt, respectively.

Data Compilation

Carrying value

Initiatives for Supporting Corporate Value

March 31, 2017

Initiatives for Creating Value

Fair value

Responding to Social Challenges and Creating Value(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 debts
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

Leopalace21: Who We Are

Millions of yen

91

92

Leo palace2 1 An nua l Repor t 2017

Notes:(a) Matters concerning the calculation method for the fairvalue of financial instruments, securities, and derivativetransactions
Assets		 Cash and cash equivalents		Trade receivables and accounts receivable for completed projects
		These assets are stated at carrying amount as they are settled in the short-term and their fair values approximate theircarrying amount.
		 Securities and investment securities		Shares are stated at the stock exchange quoted price; bonds arestated 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 net present
value, which is calculated by discounting the principal withinterest by the discount rate (i.e. the estimated interest rate
for new transaction).
		 Long-term loans
		 Bad debts
		The fiscal year-end outstanding balances are calculated

mainly using expected future cash flows of the potentially
recoverable principal and interest.
Liabilities
		 Accounts payable and accounts payable for completed
		projects
		 Short-term borrowings		These liabilities are stated at carrying amount as they aresettled in the short-term and their fair values approximate
their carrying amount.
		Bonds
		Bonds issued by the Company are privately offered, and theirfair value is stated at the net present value, which is calculated by discounting the principal with interest by the discount rate (i.e. the current market interest rate in consideration of residual value and credit risk).
		 Long-term debt, Current portion of long-term debt
		 Lease obligations
		These liabilities are stated at the net present value, which is
calculated by discounting the principal with interest by thediscount rate (i.e. the estimated interest rate for new borrowings or lease transaction).
Derivative transactions
		 Please refer to “7. Derivative Transactions.”(b) Financial instruments whose fair value appear to be extremely difficult to determine
Thousands of
U.S. dollars

Millions of yen

Item

2017

2016

2017

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

4,566
824
879
2,526
8,796

2,815

40,701
7,346
7,839
22,521
78,409

824
886
125
4,652

As they have no market value, and as it is understood that it is extremely difficult to estimate their future cash flow, the above financial
instruments are not included in “Assets: Securities and investment securities.”Leopalace21 Annual Report 2017

Millions of yen

March 31, 2017
Cash and cash equivalents

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)

104,432

—

—

—

8,903

—

—

—

50
—

1,020
—

300
—

—
—

71

1,042

—

—

—

—

—

824

—
165
10
—
113,631

—
429
32
—
2,524

—
56
13
—
370

879
23
459
1,246
3,433

Due within 1 year

Due after 1 year
through 5 years

Due after 5 years
through 10 years

Due after
10 years

88,043

—

—

—

8,772

—

—

—

150

1,020

300

—

—

—

—

—

780

1,113

—

—

—

—

—

824

—

—

—

886

180

593

83

27

12

31

42

458

Millions of yen

March 31, 2016
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

—

—

—

1,256

97,938

2,758

425

3,453

Initiatives for Supporting Corporate ValueDue after
10 years

Initiatives for Creating Value

		(3)Others
Operating loans
Long-term loans
Bad debts
Total

Due after 5 years
through 10 years

Responding to Social Challenges and Creating Value

Trade receivables and accounts receivable forcompleted projects

Due within 1 year

Due after 1 year
through 5 years

Leopalace21: Who We Are(c) The scheduled redemption amount of monetary claims and investment securities with maturity subsequent to fiscal year end

93

Data Compilation

94

Leo palace2 1 An nua l Repor t 2017

Thousands of U.S. dollars

March 31, 2017

Due after 1 year
through 5 years

Due within 1 year

Due after 5 years
through 10 years

Due after
10 years

Cash and cash equivalents

930,851———

Trade receivables and accounts receivable forcompleted projects

79,356

—

—

—

445
—

9,091
—

2,674
—

—
—

632

9,287

—

—

—

—

—

7,346

—
1,474
92
—
1,012,852

—
3,831
291
—
22,502

—
505
120
—
3,300

7,839
211
4,097
11,10630,601

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(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, 2017

Due within
1 yearDue after 1
through 2 years

Due after 2
through 3 years

Due after 3
through 4 years

Due after 4
through 5 years

Due after
5 years

Bonds
Long-term debt
Lease obligations
Total

3,966
1,263
4,647
9,876

3,966
1,205
4,327
9,498

3,966
1,098
3,299
8,364

3,066
995
2,208
6,270

3,066
967
903
4,937

1,971
9,000
—
10,971March 31, 2016

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

Millions of yen

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

265

—

—

—

—

—

4,326

3,966

3,966

3,966

3,066

5,037

1,412

1,202

1,143

1,034

931

9,795

3,054

3,000

2,648

1,574

433

1

9,057

8,168

7,758

6,575

4,430

14,834

Thousands of U.S. dollars

March 31, 2017

Due within
1 yearDue after 1
through 2 years

Due after 2
through 3 years

Due after 3
through 4 years

Due after 4
through 5 years

Due after
5 years

Bonds
Long-term debt
Lease obligations
Total

35,350
11,25941,42588,03535,35010,74538,57084,66635,3509,790
29,411
74,552

27,328
8,877
19,68455,88927,3288,625
8,055
44,01017,56880,222—
97,790

Leopalace21 Annual Report 2017

Leopalace21: Who We Are

6. Securities(1) At March 31, 2017 and 2016, information with respect to held-to-maturity debt securities for which market prices were available was summarized as follows:

95

Millions of yen

Market value

Difference

1,393
—
—
1,393

1,414
—
—
1,414

20
—
—
20

—
—
—
—
1,393

—
—
—
—
1,414

—
—
—
—
20

Securities whose consolidated balance sheet amount exceeds
their acquisition cost:
Government and municipal bonds
Corporate bonds
Others		Subtotal
Securities whose consolidated balance sheet amount does notexceed their acquisition cost:
Government and municipal bonds
Corporate bonds
Others		Subtotal
		TotalMillions of yen

March 31, 2016

Consolidated balance
sheet amountMarket value

Difference

1,502

1,533

30

Securities whose consolidated balance sheet amount exceeds
their acquisition cost:
—

—

—

—

—

—

1,502

1,533

30

—

—

—

—

—

—

—

—

—

—

—

—

1,502

1,533

30

Securities whose consolidated balance sheet amount does notexceed their acquisition cost:
Government and municipal bonds
Corporate bonds
Others		Subtotal
		Total

Initiatives for Supporting Corporate Value

Government and municipal bonds
Corporate bonds
Others		Subtotal

Initiatives for Creating Value

Consolidated balance
sheet amountResponding to Social Challenges and Creating Value

March 31, 2017

Data Compilation

96

Leo palace2 1 An nua l Repor t 2017

Thousands of U.S. dollars

March 31, 2017

Consolidatedbalance sheet
amountMarket value

Difference

12,424——
12,424

12,610——12,610

186
—
—
186

—
—
—
—
12,424————
12,610

—
—
—
—
186

Securities whose consolidated balance sheet amount exceeds
their acquisition cost:
Government and municipal bonds
Corporate bonds
Others		Subtotal
Securities whose consolidated balance sheet amount does notexceed their acquisition cost:
Government and municipal bonds
Corporate bonds
Others		Subtotal
		Total(2) Investment securities classified as other securities as of March 31, 2017 and 2016 were as follows:
Millions of yen

March 31, 2017

Consolidated balance
sheet amount

Acquisition cost

Difference

1,265

460

805

1,080
—
—
—
2,345

1,056
—
—
—
1,516

23
—
—
—
828

—

—

—

38
—
—
—
38
2,383

38
—
—
—
38
1,555

(0)
—
—
—
(0)
828

Securities whose consolidated balance sheet amount exceeds
their acquisition cost:
Stock
Bonds:
		 Government and municipal bonds
		 Corporate bonds
		Others
Others		Subtotal
Securities whose consolidated balance sheet amount does notexceed their acquisition cost:
Stock
Bonds:
		 Government and municipal bonds
		 Corporate bonds
		Others
Others		Subtotal
		TotalLeopalace21 Annual Report 2017

March 31, 2016

Difference

1,040

446

593

1,863
—
—
—
2,904

1,829
—
—
—
2,276

34
—
—
—
628

12

13

(0)

38
—
—
—
50
2,955

38
—
—
—
51
2,328

(0)
—
—
—
(1)
627

Securities whose consolidated balance sheet amount exceeds
their acquisition cost:
Stock
Bonds:
		 Government and municipal bonds
		 Corporate bonds
		Others
Others		Subtotal
Securities whose consolidated balance sheet amount does notexceed their acquisition cost:
Stock
Bonds:
		 Government and municipal bonds
		 Corporate bonds
		Others
Others		Subtotal
		TotalThousands of U.S. dollars

March 31, 2017

Consolidated balance
sheet amount

Acquisition cost

Difference

11,281

4,100

7,180

9,627
—
—
—
20,908

9,421———
13,521

206
—
—
—
7,387

—

—

—

340
—
—
—
340
21,249

341
—
—
—
341
13,863

(1)
—
—
—
(1)
7,386

Initiatives for Creating Value

Acquisition cost

Responding to Social Challenges and Creating Value

Consolidated balance
sheet amount

Leopalace21: Who We Are

Millions of yen

97

Securities whose consolidated balance sheet amount exceeds
their acquisition cost:

Securities whose consolidated balance sheet amount does notexceed their acquisition cost:

Data Compilation

Stock
Bonds:
		 Government and municipal bonds
		 Corporate bonds
		Others
Others		Subtotal
		Total

Initiatives for Supporting Corporate Value

Stock
Bonds:
		 Government and municipal bonds
		 Corporate bonds
		Others
Others		Subtotal

98

Leo palace2 1 An nua l Repor t 2017

(Note)March 31, 2017
4,566 million yen ($40,701 thousand) of non-listed shares, 824 million yen ($7,346 thousand) of non-listed company bonds (subordinate corporate bonds), 879 million yen ($7,839 thousand) of subordinate beneficiary rights to loans and money in trust, and 2,526 million yen ($22,521 thousand) of contributions to silent partnerships
are not included in the other securities given above because they
have no market value and assigning them fair market prices is recognized to be extremely difficult. The Company acquired thenon-listed company bonds (subordinate corporate bonds) and thesubordinate beneficiary rights to loans and money in trust as aresult of the securitization of non-recourse apartment loans that
financial institutions had loaned to clients as funds for paying
charges for jobs contracted to the Company.

March 31, 2016
2,815 million yen of non-listed shares, 824 million yen of non-listedcompany bonds (subordinate corporate bonds), 886 million yen ofsubordinate beneficiary rights to loans and money in trust, and 125
million yen of contributions to silent partnerships are not includedin the other securities given above because they have no market
value and assigning them fair market prices is recognized to be
extremely difficult. The Company acquired the non-listed company
bonds (subordinate corporate bonds) and the subordinate beneficiary rights to loans and money in trust as a result of the securitization of non-recourse apartment loans that financial institutions
had loaned to clients as funds for paying charges for jobs contracted to the Company.

(3) Proceeds from sales of other securities and gain or loss on these sales for the years ended March 31, 2017 and 2016 weresummarized as follows:
March 31, 2017
None
March 31, 2016
None(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

7. Derivative Transactions(1) Derivative transaction not subject to the application of hedge accounting
March 31, 2017
None
March 31, 2016
None

2017

2016

2017

63
63

23

563
563

23

Leopalace21 Annual Report 2017

Leopalace21: Who We Are(2) Derivative transaction subject to the application of hedge accounting
March 31, 2017
Type of transaction

Major hedged item

Exceptional accounting treatment
for interest rate swaps

Interest rate swaps, floatingreceived rate and fixed paid rateLong-term debt

Millions of yen

8

Thousands of
U.S. dollars

74

Contract value, etc.
Millions of yen

Thousands of
U.S. dollars

58

519

Fair value(Note)(Note)
The fair value of interest rate swaps subject to exceptional accounting treatment is included in the fair value of the corresponding long-term
debt because they are recognized together with hedged long-term debt.

Hedge accounting method

Type of transaction

Major hedged item

Exceptional accounting treatment
for interest rate swaps

Interest rate swaps, floatingreceived rate and fixed paid rateLong-term debt

Contract value, etc. lasting longer than one year
Millions of yen

Contract value, etc.
Millions of yen

158

Fair value(Note)(Note)
The fair value of interest rate swaps subject to exceptional accounting treatment is included in the fair value of the corresponding long-term
debt because they are recognized together with hedged 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

2016

2017

53,145
10,91324,22626,193—13,00357,007473,708
97,278215,940
233,477—
115,90212,56324,34027,223
14,561
14,735

Data Compilation

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

2017

Initiatives for Supporting Corporate Value

58

Initiatives for Creating Value

March 31, 2016

Responding to Social Challenges and Creating Value

Hedge accounting method

Contract value, etc. lasting longer than one year

99

100

Leo palace2 1 An nua l Repor t 2017(2)	Due to acceptance of national subsidies, the following reduction entry amount was deducted from the acquisition cost of
relevant assets:
Thousands of
U.S. dollars

Millions of yen

Machinery, equipment, and vehicles

2017

2016

2017

155

155

1,381

(3) The Companies recognized impairment loss on the following asset groups for the years ended March 31, 2017 and 2016:
March 31, 2017
PurposeCategory

Rental assets (Apartment buildings Buildings and Structuresand others, 21 units)
Land

Location

Ohita-shi, Ohita, etc.

Total

The Companies recognized each property in domestic rental
assets as a unit and grouped overseas assets by managerial
accounting segmentation.
The Companies wrote down book value of rental assets planned
to be sold and 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

Impairment loss
Millions of yen

Thousands of
U.S. dollars

131
458
589

1,170
4,084
5,254

as impairment losses.
Recoverable amounts of rental assets were measured at thehigher of their values in use or their net realizable values in sale.
Value in use was computed by discounting its future cash flows at
3.9%, while net realizable value in sale was determined based on
publicly appraised value.

March 31, 206
PurposeCategory

Location

Impairment loss
Millions of yen

Rental assets (Apartment buildings Landand others, 21 units)

Odawara-shi, Kanagawa, etc.

605

Idle assets

Miura-shi, Kanagawa, etc.

4

Buildings and Structures
Land

Total

The Companies recognized each property in domestic rental
assets as a unit and grouped overseas assets by managerial
accounting segmentation.
The Companies wrote down book value of the rental assets andidle 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. The book value of the idle assets to be sold7
616

is reduced to its recoverable value, and such reduction is recorded
as an impairment loss under extraordinary loss.
Recoverable amounts of rental assets were measured at thehigher of their values in use or their net realizable values in sale.
Value in use was computed by discounting its future cash flows at
4.9%, while net realizable value in sale was determined based on
publicly appraised value.

Leopalace21 Annual Report 2017

Thousands of
U.S. dollars

Millions of yen

2017

2016

2017

1,050
73
121
1,246

1,066

9,359
659
1,086
11,106

73
116
1,256

10. Income Taxes(1) Significant components of deferred tax assets and liabilities as of March 31, 2017 and 2016 were as follows:
Thousands of
U.S. dollars

Millions of yen

33,80021,012
3,458
1,536
1,164
980
815
769
702
695
445
374
358
332
324
291
259
136
125
110
543
68,239(41,772)
26,46738,26521,947
3,130
1,321
1,226
1,172
877
—
—
691
727
298
364
277
388
273
205
125
138
120
428
71,981(49,344)
22,636301,278
187,292
30,82913,69910,382
8,736
7,272
6,860
6,259
6,200
3,974
3,342
3,196
2,962
2,892
2,594
2,316
1,217
1,118
983
4,842
608,252(372,335)
235,917

(203)
(253)
(35)
(492)
25,974

(249)
(192)
(9)
(451)
22,185(1,817)(2,261)(313)(4,392)
231,524

Data Compilation

2017

Initiatives for Supporting Corporate Value

2016

Initiatives for Creating Value

Deferred tax assets:
Loss carried forward for tax purposes
Impairment loss
Liability for retirement benefit
Bonuses payable
Loss on devaluation of property, plant and equipment
Reserve for apartment vacancy loss
Elimination of unrealized gain
Asset adjustments
Advances received
Allowance for doubtful accounts
Advances from customers for rent income
Reserve for fulfillment of guarantees
Loss on devaluation of real estate for sale
Excess amortization on software
Deposits received
Accrued enterprise tax
Other payable
Asset retirement obligations
Reserve for warranty obligations on completed project
Sales promotion cost
Others
Sub total
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Reserve for special depreciation
Net unrealized gain on other securities
Fixed asset retirement expenses
Total deferred tax liabilities
Net deferred tax assets

2017

Responding to Social Challenges and Creating Value

Claims in the process of bankruptcy
Bad debts
Others
Total

Leopalace21: Who We Are

9. Bad Debts
Bad debts are claims as stipulated under Article 32, Paragraph 1, and Item 10 of the Regulation concerning Financial Statements. Bad debts
at March 31, 2017 and 2016 consisted of the following:

101

102

Leo palace2 1 An nua l Repor t 2017(2) Reconciliation of the differences between the normal effective statutory tax rate and the actual effective tax rate for theyears ended March 31, 2017 and 2016 were as follows:
Normal effective statutory tax rate
Adjustments:
Effect from decrease in valuation reserve
Impact of change in income tax rates
Entertainment and other expenses not deductible for income tax purposes
Per capital portion of inhabitants taxes
Tax deduction based on Tax Credits for Salary Growth
OthersActual effective tax rate

2017

2016

30.9%

33.1%

(29.8)
—
4.6
1.1
(1.1)
(0.1)
5.6

(53.9)
12.5
6.6
1.2
(1.1)
(0.3)
(1.9)

11. Short-term Borrowings and Long-term Debt
(1) Short-term borrowings, long-term debt and lease obligations at March 31, 2017 and 2016 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017

2016

2017

—

265

—

Current portion of long-term debt,
with average interest rate of 1.49%

1,263

1,412

11,259Current portion of lease obligations,with average interest rate of 3.90%

4,647

3,054

41,425Long-term debt, due 2018 to 2031,
with average interest rate of 1.41%

13,267

14,106

118,260

Lease obligations, long-term, due 2018 to 2021,
with average interest rate of 3.37%

10,7397,659

95,722

Total

29,917

26,497

266,667

Short-term borrowings(Note)
To calculate “average interest rate,” weighted-average rates and fiscal year-end balances are used. Please note, however, that the current portion of lease obligations and lease obligations (net of the current portion) are recorded in the consolidated balance sheet in the amount before
deducting the interest portion from total lease expenses for certain consolidated subsidiaries, and that such lease obligations are not includedin the calculation of the average interest rate.
(2) The amounts of long-term debt and lease obligations (excluding their current portion) scheduled for repayment in five years
from the consolidated settlement of accounts were as follows:
Millions of yen

Long-term debt
Lease obligations
Thousands of U.S. dollars

Long-term debt
Lease obligations

Due after 1 through 2 years

Due after 2 through 3 years

Due after 3 through 4 years

Due after 4 through 5 years

1,205

1,098

995

967

4,327

3,299

2,208

903

Due after 1 through 2 years

Due after 2 through 3 years

Due after 3 through 4 years

Due after 4 through 5 years

10,745

9,790

8,877

8,625

38,57029,411

19,6848,055

Leopalace21 Annual Report 2017

Thousands of
U.S. dollars

Millions of yen

2017

2016

2017

17
55
72

17

151
492
644

55
72

(4) Securities and investment securities which have been deposited with the Legal Affairs Bureau at March 31, 2017 and 2016
were as follows:
Thousands of
U.S. dollars

Millions of yen

2016

2017

45

45

402

Deposit for housing construction warranty
Deposit for housing defect warranty

1,045
109

976
109

9,316
976

Advanced payment certificate in accordance with Payment andSettlement Regulations

628

678

5,597

Deposit for operation stipulated in Building Lots and Buildings 		
Transaction Business Act(5) Bonds at March 31, 2017 and 2016 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Company nameName of bondIssuance date

2017

2016

2017

—

360
(360)

—

12th unsecured
straight bondSeptember 30, 2009

Leopalace21
Corporation

13th unsecured
straight bondOctober 31, 2014

2,700
(900)

3,600
(900)

24,066(8,022)

Leopalace21
Corporation

14th unsecured
straight bondSeptember 30, 2015

9,401
(1,666)

11,067(1,666)

83,795(14,849)

Leopalace21
Corporation

15th unsecured
straight bondSeptember 30, 2015

7,900
(1,400)9,300(1,400)70,416(12,478)

20,001(3,966)24,327(4,326)

178,277(35,350)

Total—

Company nameName of bondInterest rate (%)

Collateral

Date of maturity

Leopalace21
Corporation

12th unsecured
straight bond

—

—

—

Leopalace21
Corporation

13th unsecured
straight bond

0.19

None

October 31, 2019

Leopalace21
Corporation

14th unsecured
straight bond

0.12

None

September 30, 2022

Leopalace21
Corporation

15th unsecured
straight bond

0.63

—

—

None
—

September 30, 2022
—

Total

(Note) Figures in parentheses represent the current portion.

Data Compilation—

Initiatives for Supporting Corporate Value

Leopalace21
Corporation

Initiatives for Creating Value2017

Responding to Social Challenges and Creating Value

Cash and cash equivalents
Investment securities
Total

Leopalace21: Who We Are(3) Assets pledged as collateral for short-term borrowings and long-term debt at March 31, 2017 and 2016 were as follows:

103

104

Leo palace2 1 An nua l Repor t 2017(6) The amounts of bonds maturity in five years from the consolidated settlement of accounts were as follows:
Millions of yen

Due within 1 year

Due after 1
through 2 years

Due after 2
through 3 years

Due after 3
through 4 years

Due after 4
through 5 years

3,966

3,966

3,966

3,066

3,066

Due within 1 year

Due after 1
through 2 years

Due after 2
through 3 years

Due after 3
through 4 years

Due after 4
through 5 years

35,35035,35035,35027,32827,328

Thousands of U.S. dollars

12. Retirement Benefit Plans(1) Outline of retirement benefit plans
In addition to implementing a lump-sum retirement distribution
plan, the Companies has been a member of the “Japan Housing
Construction Industry Employees’ Pension Fund” integrated
employees’ pension funds. However, this pension fund has been
dissolved on March 22, 2016 under the approval of the Minister of
Health and Labour and Welfare. The Company has adopted adefined contribution plan as of April 2016.
Also, retirement allowances may be paid with a premium for
retired employees.

With regards to integrated employees’ pension funds, since
the amount of contribution by the Companies corresponding to thepension assets cannot be reasonably determined, the necessarycontribution amount is recorded as a retirement benefit expense.
(2) Multi-employer plans
The amount of requested contributions for the employees’ pension
fund program under multi-employer plans, which is processed withthe same accounting method as the defined contribution program
for the year ended March 31, 2016, was 1,300 million yen.

Recent funding status of the multi-employer plan as of March 31, 2016 and 2015 were as follows:
Thousands of
U.S. dollars

Millions of yen

2016

2015

2016

Pension assets—

64,010—Total of amount of benefit obligations under pension funding
programs and amount of minimum actuarial liabilities—

68,960—Difference—(4,950)—The main components of the difference were unrecognized past service costs of 3,572 million yen and deficiency carried forward of
1,378 million yen for the years ended March 31, 2016. The
Companies recognized the special annuity premium of 96 million
yen as an expense for the year ended March 31, 2016.
The deficiency carried forward of 1,378 million yen will betreated by a method such as increasing the ratio of special premiums as necessary based on pension actuarial revaluation. Further,
the percentages below do not match the actual percentage borneby the Companies.
Ratio of the Companies in the amount of contributions for the multiemployer program was 35% from April 1, 2015 to March 31, 2016.

Leopalace21 Annual Report 2017

Thousands of
U.S. dollars

Millions of yen

2017

2016

2017

10,224
1,252
45
135
(363)
11,295

9,351

91,139
11,163404
1,211(3,237)
100,682

1,164
37
96
(425)
10,224(b) List of adjustments between the closing balances of retirement benefit obligations and pension assets and the liabilities andassets related to the retirement benefit posted in the consolidated balance sheet were as follows:
Thousands of
U.S. dollars

Millions of yen

2017

—
—
—

—
—

—
—
—

Unfunded retirement benefit obligations

11,295

10,224

100,682

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

11,295

10,224

100,682

Liability for retirement benefit

11,295

10,224

100,682

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

11,295

10,224

100,682

Funded retirement benefit obligations
Pension assets—(c) Retirement benefit expenses and breakdown amounts were as follows:
Thousands of
U.S. dollars

Millions of yen

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

2017

2016

2017

1,252
45
362
1,660

2,464

11,163404
3,234
14,803

37
221
2,724

Data Compilation(Notes) 1. Contributions of 1,300 million yen, including 516 million yen attributable to employees for the “Japan Housing Construction
Industry Employees’ Pension Fund” integrated employees’ pension funds, are included in the service cost for the year ended March
31, 2016.
2. Retirement benefit expenses of domestic consolidated subsidiaries, which are calculated based on a simplified method, are posted
as service cost.

Initiatives for Supporting Corporate Value

2016

Initiatives for Creating Value2017

Responding to Social Challenges and Creating Value

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

Leopalace21: Who We Are(2) Defined benefit plan(a) List of adjustments between the balances of retirement benefit obligations at the beginning and end of year were as follows:

105

106

Leo palace2 1 An nua l Repor t 2017(d) Items posted as the remeasurements of defined benefit plans (before deduction of tax effects) were as follows:
Thousands of
U.S. dollars

Millions of yen

Actuarial gains/losses
Total

2017

2016

2017

(226)
(226)

(125)

(2,023)(2,023)(125)(e) Cumulative items posted as the remeasurements of defined benefit plans (before deduction of tax effects) were as follows:
Thousands of
U.S. dollars

Millions of yen

Unrecognized actuarial gains/losses
Total

2017

2016

2017

668
668

895

5,961
5,961

895

(f) Main calculation basis for actuarial assumptions at the end of the fiscal year:
Discount rates for the years ended March 31, 2017 and 2016 were 0.03% to 0.89%.
(4) Defined contribution plan
The necessary contribution amount for the defined contribution plan was 503 million yen ($4,483 thousand) for the year ended March 31, 2017.

13. Stock Options(1) Stock option expenses recorded relating to stock options:Thousands of
U.S. dollars

Millions of yen

Selling, general and administrative expenses

2017

2016

2017

118

—

1,059

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

Title and number of grantees
Type and number of stock options
Grant date
Vesting conditions
Vesting period
Exercise period

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

(Note) Reported by converting to the number of shares2016 Stock Option

8 Directors (excluding outside Directors) and 12
executive officers of Leopalace21 Corporation
Common stock: 252,700 shares
August 18, 2016
No applicable vesting conditions are specified
No applicable period of service is specified
From August 19, 2016 to August 18, 2046

Leopalace21 Annual Report 2017

Leopalace21: Who We Are(b) Stock options granted and activities:
Number of stock options as of the fiscal year ended March 31, 2017 are reported by converting to the number of shares.

107

Number of stock options:2009 Stock Option

2016 Stock Option

—

—

—

252,700———

252,700——

65,000——252,700———
252,700

2009 Stock Option

2016 Stock Option

Price information (yen):
Exercise price
Average stock price at exercise
Fair value at the grant date

826

1

—

—

277

547

2016 Stock Option

Expected volatility (note 1)
Expected life of option (note 2)
Expected dividends (note 3)
Risk-free interest rate (note 4)

57.345%15 years
10 yen per share
0.073%(Notes) 1. Estimated based on the actual stock prices of 15 years from August 2001 to August 2016.
2. The expected life of option could not be estimated rationally due to an insufficient amount of data. Therefore, it was estimatedassuming that the options are exercised at the middle point of the exercise period.
3. Based on actual dividends for the fiscal year ended March 31, 2016.
4. Yield Japanese government bond of corresponding to the expected life of option.

Data Compilation(4) Estimate method of the number of stock options vested:
Only the actual number of forfeited stock options is reflected because it is difficult to rationally estimate the actual number of stock options
that will be forfeited in the future.

Initiatives for Supporting Corporate Value(3) Estimate method of fair value of stock options:2016 Stock options granted in the fiscal year ended March 31, 2017 were valued using the Black-Scholes option pricing model and theassumptions were as follows:

Initiatives for Creating Value—
65,000

Responding to Social Challenges and Creating Value

None-vested (number of shares)
Previous fiscal year-end
GrantedForfeited
VestedOutstanding
Vested (number of shares)
Previous fiscal year-end
VestedExercised
Forfeited
Outstanding

108

Leo palace2 1 An nua l Repor t 2017

14. Gain on Sale of Fixed Assets
Gain on sale of fixed assets for the years ended March 31, 2017 and 2016 were as follows:
Thousands of
U.S. dollars

Millions of yen

Buildings and structures
Machinery, equipment, and vehicles
Land
Other (Property, plant, and equipment)
Total

2017

2016

2017

328
4
74
1
408

23
2
—

2,928
36
666
14
3,645

—
26

15. Loss on Sale of Fixed Assets
Loss on sale of fixed assets for the years ended March 31, 2017 and 2016 were as follows:
Thousands of
U.S. dollars

Millions of yen

Buildings and structures
Machinery, equipment, and vehicles
Land
Construction in progress
Others (Property, plant and equipment)
Others (Intangible assets)
Total

2017

2016

2017

48
0
259
2
3
—
314

—
—
0

433
2
2,312
22
30
—
2,801

—
0
0
1

16. Loss on Retirement of Property, Plant and Equipment
Loss on disposal of property, plant and equipment for the years ended March 31, 2017 and 2016 were as follows:
Thousands of
U.S. dollars

Millions of yen

Buildings and structures
Construction in progress
Others (Property, plant and equipment)
Others (Intangible assets)
Total

17. Rental Properties
The Company possesses rental apartments in major cities andregions throughout Japan. As a subsidiary company, Leopalace
Guam Corporation possesses rental housing within resorts,
Leopalace21 (Thailand) CO., LTD. and Leopalace21 (Cambodia) Co.,
Ltd. possesses and develops serviced apartments, and Plaza
Guarantee Co., Ltd. possesses buildings for rent. For the years

2017

2016

2017

82
4
2
60
149

139

739
36
18
542
1,335

—
3
4
147

ended March 31, 2017 and 2016, income arising from these rental
properties were 4,152 million yen ($37,011 thousand) and 4,302 million yen, and impairment losses were 589 million yen ($5,254 thousand) and 605 million yen, respectively.
Also, the changes in book value of rental properties during theyear ended March 31, 2017 and 2016, and the fair value as ofMarch 31, 2017 and 2016 were as follows:

March 31, 2017
Millions of yen

Consolidated balance sheet amount
Balance as of April 1, 2016

Increase/Decrease

Balance as of March 31, 2017

Fair value as ofMarch 31, 2017

64,159(2,413)61,74563,987

Leopalace21 Annual Report 2017

109

Leopalace21: Who We Are

March 31, 2016
Millions of yen

Consolidated balance sheet amount
Balance as of April 1, 2015

Increase/Decrease

Balance as of March 31, 2016

Fair value as ofMarch 31, 2016

63,819339

64,15966,145

Thousands of U.S. dollars

Consolidated balance sheet amount
Balance as of April 1, 2016

Increase/Decrease

Balance as of March 31, 2017

Fair value as ofMarch 31, 2017571,879(21,513)550,365

570,350

18. Asset Retirement Obligations
Omitted due to immateriality
19. Supplemental Information on the Statement of Changes in Net Assets
Shares issued and treasury stocks for the year ended March 31, 2017 were as follows:

Initiatives for Creating Value(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. For the years ended March 31, 2017 and 2016, the main increase was the acquirement and development of serviced apartments of 649
million yen ($5,785 thousand) and 1,278 million yen, and the main decreases was the sale of rental properties of 1,652 million yen($14,733 thousand) and - million yen and an impairment loss of 589 million yen ($5,254 thousand) and 605 million yen, respectively.
3. Fair value as of the end of the current consolidated fiscal year is calculated by the Company mainly based on “Real-estateappraisal standards.”

Responding to Social Challenges and Creating Value

March 31, 2017

SharesApril 1, 2016

Increase

Decrease

March 31, 2017

Shares issued
Common stock

267,443,915——

267,443,915

Total

267,443,915——

267,443,915

Treasury stock
Common stock

4,569,520

400—

4,569,920

Total

4,569,520

400—

4,569,920(Note) Increase in treasury stock of 400 shares is the purchase of shares less than one unit.

Initiatives for Supporting Corporate Value

Type of shares

Stock acquisition rights (SAR) and own share options for the year ended March 31, 2017 were as follows:
Type

Outstanding as of March 31, 2017

April 1, 2016

Increase

Decrease

March 31, 2017

—

—

—

—

—

—

—

—

—

—

Millions of yen

136
136

Thousands of
U.S. dollars

1,219
1,219

Data Compilation

SARs as stock option
Total

Number of shares issued upon exercise of SARs

Class of sharesissued upon exerciseof SARs

110

Leo palace2 1 An nua l Repor t 2017

Matters concerning dividends for the year ended March 31, 2017 were as follows:(1) Amount of dividends paid:(Resolution)

Total amount of dividends

Class of shares

Millions of yen

Thousands of U.S. dollars

June 29, 2016
General shareholders’ meeting

Common stock

2,628

23,431

November 4, 2016
Board of Directors’ Meeting

Common stock

2,628

23,431Dividends per share

Source of dividend

Retained earnings
Retained earnings

Yen

U.S. dollars

10
10

0.08
0.08

Basis date

Effective date

March 31, 2016
September 30, 2016

June 30, 2016
December 12, 2016

(2) Dividends which basis dates are in the current consolidated year but have effective dates in the next year:(Resolution)

Total amount of dividends

Class of shares

June 29, 2017
General shareholders’ meeting

Millions of yen

Thousands of U.S. dollars

3,154

28,117

Common stock
Dividends per share

Source of dividend

Retained earnings

Yen

U.S. dollars

10

0.08

Basis date

Effective date

March 31, 2017

June 30, 2017

Shares issued and treasury stocks for the year ended March 31, 2016 were as follows:
SharesType of shares

Shares issued
Common stock
Total
Treasury stock
Common stock

April 1, 2015

Increase

Decrease

March 31, 2016

267,443,915——

267,443,915

267,443,915——

267,443,915

4,569,430

90—

4,569,520

4,569,430

90—

4,569,520

Total(Note) Increase in treasury stock of 90 shares is the purchase of shares less than one unit.
Stock acquisition rights (SAR) and own share options for the year ended March 31, 2016 were as follows:
Type

SARs as stock option
Total

Outstanding as ofMarch 31, 2016

Number of shares issued upon exercise of SARs

Class of sharesissued upon exercise of SARs

April 1, 2015

Increase

Decrease

March 31, 2016

Millions of yen

—

—

—

—

—

18

—

—

—

—

—

18

Leopalace21 Annual Report 2017

Leopalace21: Who We Are

Matters concerning dividends for the year ended March 31, 2016 were as follows:(1) Amount of dividends paid: None
(2) Dividends which basis dates are in the current consolidated year but have effective dates in the next year:(Resolution)

Retained earnings

Millions of yen

Common stock
Dividends per share
Yen

10

2,628

Basis date

Effective date

March 31, 2016

June 30, 2016

20. Leases(1) Finance lease transactions
The Companies primarily lease furniture and electronic appliances, for apartments of their leasing business. Leases are depreciated by thestraight-line method over the lease-term of respective assets as their useful lives with no residual value.

Millions of yen

March 31, 2017

Future lease payments Prepaid lease payments

Differences

238,120(237,983)

1,144(1,144)

236,975(236,839)

Due after one year

155,147(154,864)

2,569(2,569)152,577(152,294)

Total

393,267(392,848)

3,714(3,714)

389,552(389,133)

Millions of yen

March 31, 2016

Future lease payments Prepaid lease payments

Differences

Due within one year

242,226(242,209)

1,315(1,315)240,911(240,893)

Due after one year

240,091(240,070)

2,723(2,723)

237,367(237,346)

Total

482,317(482,279)

4,039(4,039)478,278(478,239)

Initiatives for Supporting Corporate Value

Due within one year

Initiatives for Creating Value(2) Operating lease transactions
Future minimum lease payments related to non-cancelable operating leases subsequent to March 31, 2017 and 2016 were as follows:

Responding to Social Challenges and Creating Value

Source of dividend

Total amount of dividends

Class of shares

June 29, 2016
General shareholders’ meeting

111

Thousands of U.S. dollars
Future lease payments Prepaid lease payments

Differences

Due within one year

2,122,474(2,121,255)

10,202(10,202)

2,112,272(2,111,053)

Due after one year

1,382,895(1,380,376)

22,907(22,907)

1,359,988(1,357,469)

Total

3,505,370(3,501,631)

33,109(33,109)3,472,260(3,468,522)

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

Data Compilation

March 31, 2017

112

Leo palace2 1 An nua l Repor t 2017

21. Contingent Liabilities
Contingent liabilities as of March 31, 2017 and 2016 were as follows:
Thousands of
U.S. dollars

Millions of yen

2017

2016

2017

Contingent liabilities to financial institutions forcustomers who have a home mortgage

734

838

6,543

Contingent liabilities to financial institutions forcustomers who have a membership loan

3

3

32

737

841

6,576

Total

(2) C
 alculation Method for Sales, Profits and Losses, Assets,
and other Items by Reportable Segment
The accounting methods for reportable segments are basically thesame as that presented in “Summary of Significant Accounting
Policies.” The reportable segment profits (losses) represent operating profit (loss). Inter-segment sales and transfers are based on prevailing market prices.

22. Segment Information(1) Overview of Reportable Segments
The Companies’ reportable segments are the components for which
separate financial information is available, and whose operating
results are reviewed regularly by the board of directors in order todetermine allocation of resources and assess segment performance.
The Companies have four reportable segments, the Leasing
Business, Construction Business, Elderly Care Business and Hotels& Resort Business.
The Leasing Business operations comprise the leasing andmanagement of apartment buildings and other properties, repair
work, broadband internet service, rent obligation guarantee, andthe company residence agency business. The Construction
Business constructs apartments and other buildings and installs
solar power systems on a contract basis. The Elderly Care Business
operates elderly care facilities. The Hotels & Resort Business operates hotels and resort facilities.

(Change in revenue recognition standard)
As stated in the changes in accounting policies, Plaza Guarantee Co.,
Ltd., a consolidated subsidiary of Leopalace21 Corporation, haschanged its revenue recognition standard starting this fiscal year. Thischange in accounting policy has been retrospectively applied to theconsolidated financial statements for the previous fiscal year. As aresult, for fiscal year ended March 2016, sales in the Leasing Businesshas increased 88 million yen. Segment profit (loss) has increased 87
million yen in the Leasing Business, 1 million yen in the Construction
Business, 0 million yen in the Elderly Care Business, 0 million yen in
the Hotels & Resort Business, and 0 million yen in “Others.”(3) Information Regarding Sales, Profits and Losses, Assets, and other Items by Reportable Segment for the years ended March
31, 2017 and 2016 were as follows:
Millions of yen
Reportable segment

March 31, 2017

Leasing
Business

Construction
Business

Elderly Care
Business

Hotels &ResortBusiness

Segment Total

Sales
Sales to customers

416,594

74,566

11,536

7,244

951

610

—

417,545
22,459101,31275,176
5,051
15,808

4,608

9,078

Inter-segment sales 							and transfers
Total
Segment profit (loss)
Segment assets
Other items
Depreciation
Increase in property,		 plant, and equipment,
		 and intangible assets

OthersTotal

509,942

10,546

3,058

4,620

11,536(1,650)2,918

10,302(768)
53,436

179

81

84

123

Adjustments

Consolidated Total

520,488—

520,488

173

4,793

(4,793)—

514,562
25,091
173,475

10,7201,432
26,835525,282
26,524200,310(4,793)(3,626)
137,517

520,488
22,898337,828

1,374

6,244

1,855

8,129

1,207

9,336

1,934

11,221

952

12,173

1,568

13,741

Leopalace21 Annual Report 2017

Leopalace21: Who We Are(Notes) 1. The “Others” classification is the business segment not included in reportable segments, and comprises the small-claims andshort-term insurance business, solar power business, and financing business.
2.	Breakdown of adjustments was as follows:		 Segment profit (loss)
Thousands of
U.S. dollars(277)(3,349)(3,626)(2,472)(29,854)(32,326)

	*Corporate expenses consist mainly of general administrative expenses for administrative departments that are not part of reportable segments.

Millions of yen
Reportable segment
Construction
Business

Elderly Care
Business

Hotels &ResortBusiness

Segment Total

Sales
Sales to customers

410,641

74,16010,798

11,427507,028

4,485

944

2,614

—

3,640

7,199

411,586

76,774

10,79815,06822,8483,340(1,354)(697)

100,048

16,755

2,657

3,740

205

6,245

91

Inter-segment sales 							and transfers
Total
Segment profit (loss)
Segment assets
Other items
Depreciation
Increase in property,		 plant, and equipment,
		 and intangible assets

Others

Total

Adjustments

Consolidated Total

511,513—

511,513

149

7,349

(7,349)—541,228

4,635

518,863(7,349)511,513

24,136337

24,474(3,388)21,08555,246

174,707

23,076

197,784

129,825

327,609

49

2,013

6,009

2,059

8,069

1,544

9,614

271

1,850

8,459

3,917

12,376

1,599

13,976(Notes) 1. The “Others” classification is the business segment not included in reportable segments, and comprises the small-claims andshort-term insurance business, solar power business, and financing business.
2.	Breakdown of adjustments was as follows:		 Segment profit (loss)
Inter-segment eliminations
Corporate expenses*
Total

(320)
(3,067)(3,388)

	*Corporate expenses consist mainly of general administrative expenses for administrative departments that are not part of reportable segments.

Data Compilation

Millions of yen

Initiatives for Supporting Corporate Value

March 31, 2016

Leasing
Business

Initiatives for Creating Value		Adjustments in segment assets (137,517 million yen, $1,225,759 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 (1,568 million yen, $13,979 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.

Responding to Social Challenges and Creating Value

Inter-segment eliminations
Corporate expenses*
Total

Millions of yen

113

114

Leo palace2 1 An nua l Repor t 2017

		Adjustments in segment assets (129,825 million yen) consist mainly of surplus operating funds, long-term investment capital, andassets which do not belong to reportable segments.
			 Adjustments in the increase of property, plant, and equipment, and intangible assets (1,599 million yen) 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.
Thousands of U.S. dollars
Reportable segment

March 31, 2017

Leasing
Business

Construction
Business

Elderly Care
Business

Hotels &ResortBusiness

Segment Total

Sales
Sales to customers

3,713,291

664,641

102,834

64,574

8,481

5,438

—

3,721,773
200,191
903,042670,080
45,029140,905

41,07980,920Inter-segment sales 							and transfers
Total
Segment profit (loss)
Segment assets
Other items
Depreciation
Increase in property,		 plant, and equipment,
		 and intangible assets

OthersTotal

4,545,342

94,00427,26041,180102,834(14,714)26,01091,835(6,850)476,306

1,598

730

751

1,099

Adjustments

Consolidated Total

4,639,347—

4,369,347

1,550

42,730(42,730)—

4,586,523
223,655
1,546,265

95,554
12,772
239,194

4,682,077
236,428
1,785,460(42,730)(32,326)
1,225,759

4,639,347
204,101
3,011,220

12,25255,65916,802

72,461

10,761

83,223

17,246

100,018

8,486

108,505

13,979122,484

Related information
1. Products and services
Information concerning products and services has been omitted, since similar information is reported in “22. Segment Information.”
2. Geographic area
(1) Sales	Information concerning sales by geographic area has been omitted, since more than 90% of sales reported in the consolidated statement ofoperations are generated in Japan.
(2) Plant, property, and equipment
March 31, 2017
Millions of yen
Japan

Trust territory of People’s Republic
U.S.A. Guamof China

127,111

26,193

Kingdom ofThailandSocialist Republicof Vietnam

Kingdom of
Cambodia

Republic of thePhilippines

Republic ofIndonesia

Singapore

Total

1,200

6

656

86

9

0

155,267

1

March 31, 2016
Millions of yen
Japan

Trust territory of
U.S.A. Guam

People’s Republic of
China

Kingdom ofThailandSocialist Republic ofVietnamKingdom of
Cambodia

Republic of thePhilippines

Republic ofIndonesia

Total

128,355

41,785

1

1,283

6

468

120

15

172,036

Leopalace21 Annual Report 2017

Leopalace21: Who We Are

March 31, 2017
Thousands of U.S. dollars
Japan

Trust territory of People’s Republic
U.S.A. Guamof China

1,133,005

233,4779

Kingdom ofThailandSocialist Republicof Vietnam

Kingdom of
Cambodia

Republic of thePhilippines

Republic ofIndonesia

Singapore

Total

10,701

61

5,855

769

89

0

1,383,970

Information concerning impairment loss on fixed assets by reportable segments
March 31, 2017
Millions of yen

Impairment loss

Leasing Business

589—

Elderly Care Business

Hotels & Resort
Business

OthersAdjustments

Consolidated total

—

—

—

—

589

Leasing Business

Construction
Business

Elderly Care Business

Hotels & Resort
Business

OthersAdjustments

Consolidated total

605

—

—

—

—

11

616

Leasing Business

Construction
Business

Elderly Care Business

Hotels & Resort
Business

OthersAdjustments

Consolidated total

5,254

—

—

—

—

—

5,254

Responding to Social Challenges and Creating Value

3. Major customers
Information concerning sales to major customers has been omitted, since sales to any particular customer does not exceed 10% of sales
reported in the consolidated statement of operations.

Construction
Business

115

March 31, 2016

Impairment loss

March 31, 2017
Thousands of U.S. dollars

Impairment loss

Millions of yen

Goodwill amortization
Balance

Leasing Business

Construction
Business

—
—

168
1,361

Leasing Business

Construction
Business

Elderly Care Business

Hotels & Resort
Business

OthersAdjustments

Consolidated total

—
—

—
—

259
1,819

—
—

428
3,181

Elderly Care Business

Hotels & Resort
Business

OthersAdjustments

Consolidated total

March 31, 2016
Millions of yen

Goodwill amortization
Balance

154

—

—

—

—

154

1,530

—

—

—

—

1,530

Leasing Business

Construction
Business

Elderly Care Business

Hotels & Resort
Business

OthersAdjustments

Consolidated total

—
—

1,501
12,139

—
—

—
—

2,316
16,217——

3,818
28,357

March 31, 2017
Thousands of U.S. dollars

Goodwill amortization
Balance

Data Compilation——

Initiatives for Supporting Corporate Value

Information concerning goodwill amortization and unamortized balance by reportable segments
March 31, 2017

Initiatives for Creating Value

Millions of yen

116

Leo palace2 1 An nua l Repor t 2017

Information concerning gain on negative goodwill by reportable segments
For the years ended March 31, 2017 and 2016
Not applicable.

23. Amounts per Share(1) The following tables set forth the net assets and net income per share of common stock for the years ended March 31, 2017and 2016.
Yen

Net assets
Net income attributable to shareholders of the parent
Basic
DilutedU.S. dollars

2017

2016

2017

603.76550.94

5.38

77.61
77.56

74.68

0.69
0.69

—

(Notes) 1. Diluted net income attributable to shareholders of the parent per share for the fiscal year ended March 31, 2016 is omitted since
there were no dilutive securities that have dilutive effects.
2. Basis of computation of basic and diluted net income per share for the years ended March 31, 2017 and 2016 was as follows.
3. As noted in “Changes in Accounting Policies,” the change in accounting policy applied in the fiscal year ended March 31, 2017 has
been retrospectively applied to the consolidated financial statements for the fiscal year ended March 31, 2016. As a result, net assets
per share has decreased 5.12 yen ($0.05) and net income attributable to shareholders of the parent per share has increased 0.76
yen ($0.01) compared with the figures prior to the retrospective application in the consolidated balance sheet of the previous year.
(2) Basis of computation of basic and diluted net income per share for the years ended March 31, 2017 and 2016 was as follows:
Thousands of
U.S. dollars

Millions of yen

2017

2016

2017

Basic net income per share
Net income attributable to shareholders of the parent
Amount not attributable to common stock
Net income attributable to common stock

20,401—
20,401

19,432
19,432

181,843—
181,843

Weighted-average shares during the year
(Thousands of shares)

262,874

262,874

262,874

—
156

—

—
—

Diluted net income per share
Net income attributable to shareholders of the parent
Increase in the number of common stock (Thousands of shares)
Dilutive securities that didn’t have dilutive effects
and therefore were not included in the calculation ofdiluted net income per share.

—

New stock acquisition rights (650)

24. Related Party Transactions
The following tables set forth related party transactions for the years ended March 31, 2017 and 2016.
For the year ended March 31, 2017(a) Unconsolidated subsidiaries and affiliates
None—Leopalace21 Annual Report 2017

Capital stock
Attribute

Address

Toshiko Miyoshi

Millions of yen

Thousands of
U.S. dollars

Business or position

Percentage of shareownership

—

—

—

—

Millions of yen

Thousands of
U.S. dollars

Account

26

232

—

Transaction amountAttribute

Directors andclose relatives

Name

Transaction

Toshiko Miyoshi

Leasing ofapartments

Relation

Leasing of landand building
BalanceThousands of
U.S. dollars——

Relation

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, 2016(a) Unconsolidated subsidiaries and affiliates
None(b) Directors and major individual shareholders
Attribute

Directors andclose relatives

Directors andclose relatives

Address

Toshiko Miyoshi

—

Name

Transaction

Toshiko Miyoshi

Leasing ofapartments

Capital stock
Millions of yen

Business or
position

Percentage ofshare ownership

—

—

—

Transaction amountMillions of yen

26

Account

Prepaid expenses

Leasing of landand building
BalanceMillions of yen—(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.

(b) Major reasons for the business combination:			To strengthen its core Leasing and Construction Businesses and expand into new business fields by leveraging Life Living Co., Ltd.’s
excellent development records in the Tokyo metropolitan, Nagoya, and Fukuoka areas, as well as its unique product lineup, which
includes four-story reinforced concrete condominiums and three-story wooden apartments.

Data Compilation

25. Business Combinations
Business Combination through Acquisitions(1) Outline of the business combination:(a) Name of the acquired company and its business activities:
			Name of the acquired company: SBI Life Living Co., Ltd.
			Business activities:
Real estate business (planning, architect, development, and sales of investment income properties)

Initiatives for Supporting Corporate Value

Attribute

Name

Initiatives for Creating Value

Millions of yen

Responding to Social Challenges and Creating Value

Directors andclose relatives

Name

Leopalace21: Who We Are(b) Directors and major individual shareholders

117

118

Leo palace2 1 An nua l Repor t 2017(c) Effective date of the business combination:
			July 1, 2016(d) Legal structure of the business combination:
			Stock acquisition(e) Name of the company subsequent to the business combination
			Life Living Co., Ltd. has changed in its business name from SBI Life Living Co., Ltd. as of July 1, 2016(f) Percentage of voting rights acquired by Leopalace21:
			100%(g) Primary basis for determining the acquirer:
			Due to the fact that Leopalace21 has acquired Life Living Co., Ltd. through stock acquisition with cash considerations.
(2) Period of business performances of the acquired company to be included in the Consolidated Statements of Operations in thefiscal year ended March 2017:
From July 1, 2016 to March 31, 2017(3) Acquisition cost of the acquired company and its details:
Consideration for the acquisition (cash)
Acquisition cost

Millions of yen

Thousands of
U.S. dollars

5,700
5,700

50,80650,806

Millions of yen

Thousands of
U.S. dollars(4) Main contents of acquisition-related costs:
Advisory cost, etc.

92

828

(5) Amount, source, method and period of goodwill amortization:(a) Amount of goodwill:
Amount of goodwill

Millions of yen

Thousands of
U.S. dollars

2,079

18,534(b) Source of goodwill:			Calculated based primarily on a reasonable estimation of future excess earning power expected from the expansion of Life Living Co.,
Ltd.’s investment-type condominium development business.
(c) Method and period of goodwill amortization:
			Straight-line method (six years)

Leopalace21 Annual Report 2017

Thousands of
U.S. dollars

2,771
1,130
3,901
232
48
281

24,70010,07934,779
2,073
433
2,507

(7) Estimated amount of impact on the consolidated statements of operations for the fiscal year ended March 2017 based on theassumption that the business combination was completed on the first day of the consolidated fiscal year under review, as wellas the calculation method thereof:(Calculation method for the estimated amount)
The estimated amount of impact is the difference between net sales
and profit/loss information calculated based on the assumption thatthe business combination was completed on the first day of the consolidated fiscal year under review and the net sales and profit/loss

Thousands of
U.S. dollars

547
(83)
(82)
(85)

4,884
(742)
(732)
(759)

information presented in the consolidated statements of operations of
the acquiring company. In addition, the amortized amount has been calculated based on the assumption that the goodwill recognized when
the business combination was completed had been generated on thefirst day of the consolidated fiscal year under review.

Current assets
Fixed assets
Goodwill
Current liabilities
Long-term liabilities
Acquisition cost
Cash and cash equivalents
Balance: total acquisition-related costs

Millions of yen

Thousands of
U.S. dollars

2,771
1,130
2,079
(232)
(48)
5,700
(432)
5,267

24,70010,07918,534(2,073)(433)
50,806(3,857)
46,948Initiatives for Supporting Corporate Value(8) Breakdown of major assets and liabilities of Life Living Co., Ltd.:The breakdown of major assets and liabilities of Life Living Co., Ltd. as of the start of the acquisition as well as the acquisition cost andacquisition-related costs are as follows:

Initiatives for Creating Value

Net sales
Operating profit (loss)
Recurring income (loss)
Net income (loss) attributable to shareholders of the parent

Millions of yen

Responding to Social Challenges and Creating Value

Current assets
Fixed assets
Total assets
Current liabilities
Long-term liabilities
Total liabilities

Millions of yen

Leopalace21: Who We Are(6) Amount, source, method and period of goodwill amortization

119

Data Compilation

120

Leo palace2 1 An nua l Repor t 2017

26. Other
The following tables set forth quarterly information for the year ended March 31, 2017.
(Cumulative period)First quarter

Second quarter

Third quarter

Full-year

125,998
5,304

255,190
11,476

380,634
15,517

520,488
21,622

Net income attributable to shareholdersof the parent (Millions of yen)

4,429

9,688

12,854

20,401

Net income per share (yen)

16.85

36.85

48.90

77.61

First quarter

Second quarter

Third quarter

Full-year

16.85

20.00

12.05

28.71

Net sales (Millions of yen)
Income before income taxes (Millions of yen)

(Accounting period)

Net income per share (yen)(Cumulative period)

Net sales (Thousands of U.S. dollars)
Income before income taxes (Thousands of U.S. dollars)
Net income attributable to shareholdersof the parent (Thousands of U.S. dollars)
Net income per share (U.S. dollars)(Accounting period)

Net income per share (U.S. dollars)

27. Subsequent Events
Not applicableFirst quarter

Second quarter

Third quarter

Full-year

1,123,082
47,2852,274,631
102,292

3,392,762
138,311

4,639,347
192,727

39,78586,353

114,581

181,843

0.15

0.32

0.43

0.69

First quarter

Second quarter

Third quarter

Full-year

0.15

0.17

0.10

0.25

121
Leopalace21 Annual Report 2017

Leopalace21: Who We Are

Responding to Social Challenges and Creating Value

Initiatives for Creating Value

Initiatives for Supporting Corporate Value

Data Compilation

122

Leo palace2 1 An nua l Repor t 2017

Data Compilation
External Environment<Number of New Housing Starts>(1,000 units)

In the year ended March 2017, the number of new housing starts increased
for the second consecutive year. Rental housing starts also grew for the second successive year, rising 11.4% to 427,275 units. Starts of rental units lessthan 30 square meters aimed mainly at single-person households remainedrobust, surging 25.5% year on year to 76,428 units.

Rental units
Of which, rental units under 30m

2

Other
Total

FY2015FY2016

358
48
522
880

384
61
537
921

427
76
547
974

Source: New residential housing construction work commencement statistics,
the Ministry of Land, Infrastructure, Transport, and Tourism<Number of Households>
The number of households in Japan is expected
to decline from 2020 due to the nation’s trendsof aging population and low fertility rate. On theother hand, the number of single-person households, including in our target cohort of the productive population (aged 15–64), are expected totrend sideways from here.

FY2014(1,000 households)

Single-person households
Of which, under 25
Of which, age 25-34
Of which, age 35-64
Of which, age 65 or older
Married couples
Married couples with children
Single-parent with children
Others
Total

2015
2020
2025
2030
2035
(forecast) (forecast) (forecast) (forecast) (forecast)

2005

2010

14,458
2,178
2,971
5,444
3,865
9,637
14,6464,112
6,212
49,063

16,784
2,060
2,999
6,745
4,980
10,26914,474
4,535
5,779
51,842

17,637
1,952
2,721
6,956
6,008
10,861
14,274
4,982
5,150
52,904

18,270
1,885
2,531
7,175
6,679
11,037
13,8145,338
4,594
53,05318,648
1,760
2,441
7,440
7,007
10,973
13,132
5,558
4,127
52,43918,718
1,645
2,311
7,464
7,298
10,782
12,3405,648
3,743
51,231

18,456
1,515
2,147
7,172
7,622
10,50011,532
5,645
3,421
49,555

Source: January 2013 estimates on the number of households and forecasts, the National Institute of Population and Social Security Research<Number of Vacant Homes in Japan>
Amid the concentration of populations in cities,
the number of vacant homes is growing, especially in regional areas. The number of vacant
properties in Japan available for rent or salestands at 4,601,000 units, or one in five homes,
according to the most recent Housing and Land
Survey, published in fiscal 2013.

Number of vacanthouses for rent or sale
(1,000 units)
Ratio of vacant
dwellings (%)

1983

1988

1993

1998

2003

2008

2013

1,834

2,336

2,619

3,520

3,978

4,476

4,601

12.4

14.3

14.3

17.4

18.8

20.1

20.0

Source: Housing and Land Survey, the Ministry of Internal Affairs and Communications

Leasing Business Data
<Apartment Rooms under Management >As of March 31, 2017, apartments under management—the earnings foundation for our
Leasing Business—numbered 568,739, rising forthe fourth consecutive year. The proportion of ourportfolio located in our focus regions of Kanto,
Chubu, and Kinki remained high at around 70%.

(Rooms)Hokkaido
TohokuKita-Kanto
Tokyo metro area
Hokuriku-Koshinetsu
Chubu
Kinki
Chugoku
Shikoku
Kyushu-Okinawa
Total

FY2014FY2015FY2016

14,19934,30040,126
158,322
40,63087,22578,906
37,83814,497
48,905554,948

14,132
34,84340,381
161,756
40,64387,71179,79038,43914,53549,731561,961

14,08835,27040,553
165,590
40,63988,08680,71538,798
14,67150,329568,739

Leopalace21 Annual Report 2017

Corporations
Individuals
Students
Total

FY2015Units%

FY2016
Units%

262,577
182,142
50,768495,487

277,261
183,008
48,451
508,720

293,824
180,61746,857521,298<Average Annual Occupancy Rate>
Similar to the year-end occupancy rate, the average annual occupancy rate is on a recovery path. The averageannual occupancy rate in the year under review was
88.5%, rising for the sixth consecutive year. This in partreflected a rise in long-term lease contracts and a progressive trend towards longer occupancy periods.

Average annual
occupancy rate

End-FY2014

TohokuKita-Kanto
Tokyo metro area
Hokuriku-Koshinetsu

Chugoku
Kyushu-Okinawa

Services centers, no. of incoming calls
Of which, inquiries
Of which, maintenance related
Of which, complaints or claims
Tenant response rates from Internet (new contracts only)

No. of lease sales offices
Of which, Leopalace Centers
Of which, Leopalace Partners (franchisees)
No. of leasing sales personnel
Of which, Leopalace Centers
Of which, corporate sales

FY2014FY2015FY2016

329
188
141
1,558
1,110
448

319
189
130
1,662
1,183
479

308
189
119
1,701
1,174
527

FY2014FY2015FY2016

226,801
5,505
608,294433,589
137,740
36,96554,455

256,900
7,848
576,764
412,947
129,614
34,20357,556279,609
10,223
530,804
373,062
125,734
32,00845,673

Data Compilation

Security cameras installed (cumulative, buildings)

84.7
94.1
87.2
92.6
90.0
91.1
91.3
93.8
90.0
93.9
91.7

81.8
94.4
85.5
92.8
88.3
89.1
90.6
92.5
87.0
90.7
90.5

Initiatives for Supporting Corporate Value

Total

End-FY2016

End-FY2015

79.4
94.3
85.0
92.5
84.4
86.4
89.6
91.4
83.7
90.6
89.3

Initiatives for Creating Value

Hokkaido

Shikoku

Security systems installed (cumulative, rooms)

88.5

88.0

(%)

Chubu

The Leasing Business is forging ahead with building a
network balanced between directly managed leasing
sales offices and franchisee-run offices. Meanwhile, we
continue to bolster our sales force, which totaled 1,701
people as of March 31, 2017, up 2.3% year on year.

56.4
34.6
9.0
100.0

FY2016FY2015

86.6

Kinki

<Number of Leasing Sales Offices
and Sales Personnel>

54.5
36.0
9.5
100.0

(%)

FY2014<Fiscal Yearend Occupancy Rates by Region>
Japan has now emerged from the recession following
the global financial crisis. As of March 31, 2017, ouroverall occupancy rate was 91.7%, up 1.2 points froma year earlier. The occupancy rate exceeded 90% in all
regions, except Hokkaido and Kita-Kanto.

53.0
36.8
10.2
100.0

Responding to Social Challenges and Creating Value

We are strengthening our marketing efforts aimed at corporations, where we can expect stable, long-term income.
As of March 31, 2017, the number of corporate contracts
for apartments stood at 293,824 units, up 6.0% from ayear earlier. The composition ratio was 56.4%, accounted
for more than 50% of our lease portfolio for the fourthconsecutive year.

FY2014
Units%

Leopalace21: Who We Are<Leases by Contract Type>

123

124

Leo palace2 1 An nua l Repor t 2017

Development Business Data
<Orders>
In fiscal 2016, orders increased for the first time in two
years, reaching 87,139 million yen. In addition to mainstay apartments, orders for detached housing at subsidiary Morizou Co., Ltd. were healthy. The balance of orders
at fiscal year-end stood at 67.2 billion yen.

(Millions of yen)

FY2014

Building categories
Apartments
Elderly care facilities
Stores & commercial space
Custom-built homes*
Solar power systems
Total

FY201579,798
4,343
536
—
2,715
87,39577,004
2,872
2,040
4,502
18
86,439FY201679,424
2,377
562
4,763
13
87,139*Subsidiary Morizou<Apartments Completions>
The number of apartments completed declined 3.2%
year on year, to 663 in fiscal 2016. Of these, completionsof mainstay two-story models decreased, but we enjoyed an increase in completions of buildings with threestories, where demand is high in urban areas. Together,three- and four-story buildings accounted for around
one-quarter of our total completions.

<Apartment Completions by Region>
Our sales activities focus on Japan’s three major largest
metropolitan areas due to strength of demand. Amongthese, the number of apartment completions in the Tokyo
area continues to increase. However, completions are
declining in the Tohoku region, where restoration demand
related to the Great East Japan Earthquake has tapered,as well as in Chubu, Chugoku, Kyushu, and Okinawa.

<Solar Power Systems Installed, andTotal Kilowatt Capacity Installed>
During the year, we continued promoting solar powersystem installations as a source of earnings growth for
the Construction Business. Within our portfolio, however, the number of buildings suitable for solar power
installation is limited, and for this reason the number ofsuch installations remained mostly unchanged from theprevious fiscal year.

<Sales Offices Accepting Construction
Orders, Sales Personnel>
Demand for apartment construction has been recovering
nationwide in recent years. In this environment, ourstrategy is to concentrate on regions in which strong
demand can be expected.

(Buildings)

FY2014

537
92
27
656

Two stories
Three stories
Four stories or more
Total

FY2016FY2015

485
154
24
663

513
125
47
685

(Buildings)

FY2014

45
28
306
5
66
90
54
3
59
656

TohokuKita Kanto
Tokyo metro area
Hokuriku-Koshinetsu
Chubu
Kinki
Chugoku
Shikoku
Kyushu-Okinawa
Total

FY2016FY2015

27
21
366
5
42
101
33
9
59
663

46
20
342
5
57
98
39
7
71
685

(Cumulative)

FY2014FY2016FY2015

No. of buildings with solar
power systems installed

12,356

12,964

12,987

Of which, no. ofbuildings with systems
installed by LP21 Group

3,969

4,493

4,495

Power generation
capacity installed (kW)172,399

182,070

182,465

Of which, power
capacity installed by
LP21 Group (kW)58,69467,06067,099FY2014

Sales offices responsible forconstruction orders (offices)
Sales personnel responsible for construction orders(personnel)

FY2016FY2015

60

60

60

418

427

381

Leopalace21 Annual Report 2017

<Number of Facilities>(Facilities)

FY2016FY2015Fee-based homes

21

21

21

Day services, Short stays

40

44

53

Group homes

2

2

2

Total

63

67

76

<Utilization Rate>(Utilization rate, %)The utilization rate at fee-based homes for seniors andgroup homes remained high at over 90%. In this business,
we are focusing on temporary-type offerings, notably
day services and short stays. The utilization rate for day
services improved but the rate for short stays declined.

FY2014FY2016FY2015Day services

67.2

66.3

72.5

Short stays

98.1

92.3

87.6

Fee-based homes &group homes

93.5

92.4

93.0

Responding to Social Challenges and Creating ValueThe Elderly Care Business had a network of over 60
facilities, mainly in the Tokyo Metropolitan Area. Positioning this segment as a growth business, we are also
expanding in the Chubu region, with a focus on facilities
offering day services and short stays.

FY2014

Leopalace21: Who We Are

Elderly Care Business Data

125

Initiatives for Creating Value

Hotels and Resort Business Data
<Leopalace Resort Guam>
Leopalace Resort Guam, a resort operated in Guam, continues to improve profitability through efforts toencourage usage by the Company’s stakeholders, including corporate clients.
(Utilization rate, %)

2015

2016

No. of visitors to Guam*(thousands)

1,343

1,409

1,535

No. of visitors to Leopalace
Resort Country Club (users)

54,00052,00050,000No. of stakeholder visitors(people who stayed, recreational
facility users)

30,00044,00047,000(30.0%of the total)

2014**

2016

2015

Leopalace Resort Guam

71.0

60.2

55.9

Westin Resort Guam

86.0

82.6

—

* We sold Westin Resort Guam in April 2016.

* Data on the number of visitors to Guam, Guam Visitors Bureau (a government agency)** Leopalace Resort Guam’s fiscal year corresponds with the calendar year.

<Leopalace Hotels>
Leopalace21 operates business hotels across Japan. We encourage
usage of these hotels by stakeholders, including corporate clients on
business trips.

(Utilization rate, %)FY2014FY2015FY2016

82.1

79.1

75.0

Sapporo

88.1

87.9

90.4

Sendai

81.4

78.0

78.1

Niigata**

68.1

62.9

—

Nagoya

76.6

80.5

80.9

Yokkaichi*

81.1

—

—

Okayama***

75.7

73.3

75.9

Hakata91.9

94.2

13,581

11,64894.8
11,168

No. of stakeholder stays(persons)* Hotel Leopalace Yokkaichi was sold in August 2014.
** Hotel Leopalace Niigata was sold in July 2015.
*** Hotel Leopalace Asahikawa and Okayama was sold in August 2016.

(7.1% of the total)

Data Compilation

Asahikawa***

Initiatives for Supporting Corporate Value

2014**

126

Leo palace2 1 An nua l Repor t 2017

Social Key Performance Indicators<Governance>
FY2014FY2016FY2015

1
0
329
277
32
20

Outside directors
Female directors
Yakuin* remuneration (millions of yen)
Directors (excludes outside directors)
Audit & Supervisory Board members (excludes outside ASB members)
Outside directors and ASB members

3
1
455
370
31
54

2
1
347
280
32
34

*In this table, “yakuin” refers to directors, Audit & Supervisory Board members, and outside directors.

<Employee Composition (Parent company)>
FY2014Men

Total

No. of employees
No. of career-track
employees
No. of temporary
hires
Average age
Average cumulative
years of service

Women

FY2015Men

Total

FY2016
Men

Total

Women

Women

6,149

4,402

1,747

6,413

4,491

1,922

6,541

4,551

1,990

5,668

4,193

1,475

5,961

4,274

1,687

6,086

4,335

1,751

481

209

272

452

217

235

455

216

239

35 years,
10 months
7 years,
6 months

36 years,
8 months
8 years,
6 months

33 years,
8 months
4 years,
11 months

35 years,
11 months
7 years,
9 months

36 years,
11 months
8 years,
11 months

33 years,
7 months
5 years,
0 months

36 years,
3 months
8 years,
3 months

37 years,
4 months
9 years,
5 months

33 years,
10 months
5 years,
6 months

Women

Total

FY2016
Men

Women

120
137
58.0%

184.2
22.4
128
116
70.1%
8.7%
10.9%

<Work-life Balance (Parent company)>
FY2014
Men

Total

Comparison of total working hours
Overtime work hours
No. of employees on short work-hours schedules
No. of employees on childcare leave
Ratio of paid vacation usage
Rate of workforce turnover
Ratio of new hires

192.8
27.8
125
137
33.0%
10.3%
14.4%

5
0
23.9%

<Diversity (Consolidated (excluding Guam), Parent company+ Leopalace Smile for disabled employees)>
FY2014

No. of disabled employees (averageannual rate)
No. of employees on childcare leave(average annual rate)
No. of mandatory retirees that havebeen rehired*
No. of employees with foreign
citizenshipNo. of foreign managers
Ratio of females of employee hiring
No. of female managers
Female manager ratio

FY2015FY2015
Men

4
3
64.2%

Women

Total

124
113
85.1%

178.4
20.0
154
149
72.2%
7.5%
7.8%

5
5
68.4%

149
144
81.7%

<Support for Employees Seeking to Obtain Qualifications >FY2014FY2015FY2016FY2016

No. using support for obtaining qualifications

96

490

1,003

—

364

875

116.9

123.5

137.2

No. using support system for obtaining
specified qualifications

2.04%

2.05%

2.14%

—

21

21

25

28

27

No. in program for language skills improvement
No. using a discount program for textbooks for the Takken real estate transaction specialist exam

52

52

51

215

277

298

22
55.1%
60
4.1%

19
61.0%
75
4.9%

19
61.4%
87
5.3%

No. awarded a bonus for obtaining
Takken qualification

44

53

56

*Employees who reach the mandatory retirement age can be rehired on a different contract.

“Takuchi tatemono torihiki shi” or “Takken”: This qualification recognizes those who passed a test on
Japanese building lots and transactions law.

Leopalace21 Annual Report 2017

<Labor Safety and Health>
678
316
1,372
453
367
142
35
496
184
375

FY2014

49

28

37

Accidents requiring
time off work
Accidents not requiring time off work

18

8

16

31

20

21

<Stakeholder Communication Initiatives>
FY2014

No. of owner meetings

FY2016FY2015

193

257

231

17

19

21

—

31

28

15,497

14,23914,143

No. of IR events (meetings for individual
investors, etc.)
Career-support activity
programs

3,203

3,598

1,939

<Efforts to Reduce our Environmental Impact>

12,294

10,641

12,204

2,254

2,577

2,509

<Community Contributions>
FY2014FY2016FY2015

255

256

271

609

571

571

FY2014

Annual CO2 emissions of
the Group (t-CO2)

FY2015FY2016—

18,90016,468

Solar power generation
capacity (kW)172,399

182,070

182,465

CO2 reduction via solar
power generation (t-CO2)

52,01054,92755,047

Initiatives for Creating Value

No. of cleanup campaign
participants
Of which, in vicinity ofexisting properties
Of which, in vicinity of
construction sites
Total sum of donations(thousands of yen)
Leopalace21-affiliatedoffices etc. registeredfor “Kodomo #110*”
No. joining observation tours and OTJ
training at Leopalace
Smile**FY2016FY2015

No. of labor accidents

Responding to Social Challenges and Creating Value

Real estate broker
Rental property manager
General insurance solicitor (basic course/fire insurance course)
Architect (first-class, second-class)
Building construction management engineer (1st Grade, 2nd Grade)
Certified skilled worker of financial planning (1st Grade, 2nd Grade)
Land surveyor
Care worker
Care manager
Home care worker

Leopalace21: Who We Are<Certified Employees (as of May 2017)>

127* ”Kodomo #110” is a program where private-sector businesses register to provide emergency
refuge to children who feel threatened or troubled.
** Leopalace Smile Co., Ltd. is a special subsidiary set up to employ the disabled under Article 44 of
the Act for Employment Promotion etc. of Persons with Disabilities.

Initiatives for Supporting Corporate Value
Data Compilation

128

Leo palace2 1 An nua l Repor t 2017

Corporate Profile
Corporate Data

Members of Board of Directors and Auditors(As of March 31, 2017)

Company Name:
Leopalace21 Corporation
Head Office:2-54-11 Honcho, Nakano-ku, Tokyo
TEL: +81-3-5350-0001 (Main Line)
Established:
August 17, 1973
Paid-in Capital:
75,282.36 million yen
Operations:	Construction, leasing and sales of apartments, condominiums,	and residential housing; development and operation of resort
facilities; hotel business; broadband business; and elderly carebusiness, etc.
Number of Employees:
7,695 (consolidated basis)
6,542 (non-consolidated basis)

Directors
President and CEO
Director
Director
Director
Director
Director
Director
Director
Director (Outside)
Director (Outside)
Director (Outside)(As of June 29, 2017)

Eisei Miyama
Tadahiro Miyama
Yuzuru Sekiya
Hiroshi Takeda
Kazuto Tajiri
Yoshikazu Miike
Hiroyuki Harada
Bunya Miyao
Tadashi Kodama
Tetsuji Taya
Yoshiko Sasao

Audit & Supervisory Board Members
Standing Audit & Supervisory Board Member			
Atsunori Nasu
Standing Audit & Supervisory Board Member (Outside)		
			
Jiro Yoshino
Audit & Supervisory Board Member (Outside)		
			
Masahiko Nakamura
Audit & Supervisory Board Member (Outside)		
			
Takao Yuhara

Major Shareholders (Top10)(As of March 31, 2017)

Thousands ofSharesPercentage of
Outstanding Shares

1 Japan Trustee Services Bank, Ltd. (Trust Account)40,952

15.57%

2 BNYML - NON TREATY ACCOUNT

12,002

4.56%

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

10,788

4.10%

4 STATE STREET BANK AND TRUST COMPANY 505225

6,063

2.30%

5 Stockholding Association for Leopalace21’s Business Connection

5,682

2.16%

6 Trust & Custody Services Bank, Ltd.

4,920

1.87%

7 TAIYO HANEI FUND,L.P.CEO & FOUNDING PARTNER BRIAN K HEYWOOD

4,876

1.85%

8 BBH FOR FIDELITY LOW-PRICED STOCK FUND (PRINCIPAL ALL SECTOR SUBPORTFOLIO)

4,562

1.73%

9 STATE STREET BANK AND TRUST COMPANY 505019

4,504

1.71%

10 BBH FOR FIDELITY SMALL CAP STOCK FUND

4,169

1.58%

Shareholders

Note: Of the shares listed above, those held in trust accounts as part of trust bank operations are as follows:
Japan Trustee Services Bank, Ltd. (Trust Account)
40,050 thousand shares
The Master Trust Bank of Japan, Ltd. (Trust Account) 10,470 thousand shares
Trust & Custody Services Bank, Ltd.
4,920 thousand shares

Stock Information(As of June 29, 2017)

Shareholder Composition

Number of Shares:
Authorized:
500,000,000
Outstanding:
263,443,915■ Financial Services Providers

Number of Shareholders:
64,976 (As of March 31, 2017)■ Business

Listing:First Section of the Tokyo Stock Exchange(Security code: 8848)
Transfer Agent:
Mitsubishi UFJ Trust and Banking Corporation(Securities Companies)

1.90 %

Corporations andOther Legal Entities

2.64 %■ Financial Institutions

23.58 %(As of March 31, 2017)■ Treasury Stocks

1.71 %■ Individuals

and Other

20.46 %■ Foreign
Corporations

49.71 %

Leopalace21 Annual Report 2017

Total Number ofManaged Rooms

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

Number of Managed Rooms

568,739 units
Total Number of
Directly Managed Sales Offices

2
9
Hokkaido Area

14,088

Responding to Social Challenges and Creating Value

3
5,510
2
Okinawa Area

182 offices

Total Number ofPartners Franchise Sales Offices

118 offices

9
13

40,63938,798

Tohoku Area

Kinki Area

Chugoku Area

7
1535,270

Hokuriku/Koshinetsu
Area

14
25

80,71511
11

Leopalace21: Who We Are

Number of Apartment Rooms under Management and Domestic Leasing Sales Offices by Area (As of March 31, 2017)

129

40,553

5
14

Kita-Kanto Area

16
24

88,08614
15

44,819Initiatives for Creating Value

5
14,671
5
Shikoku Area

32
49

165,590

Chubu Area

Kyushu Area

Share Price and Trading Volume(As of March 31, 2017)

Share Price

Trading Volume(Thousand shares)
60,000600

45,000400

30,000200

15,000

0

0

Apr.
2016

May

Jun.

Jul.

Aug.

Sept.

Oct.

Nov.

Dec.

Jan.
2017

Feb.

Mar.

Data Compilation

(Yen)
800

Initiatives for Supporting Corporate Value

Metropolitan Area

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 2017
Printed in Japan