KEEP
A TIGHT REIN

Annual Report 2012
For the fiscal year ended March 31, 2012

LEASING
BUSINESSCONSTRUCTION
BUSINESSREAL ESTATE“ONE-STOP SERVICE PROVIDER”

HOTELS &RESORT BUSINESSELDERLY
CARE &OTHER
BUSINESSESPROFILE
Leopalace21 has established a unique business model fusing two core businesses, a Construction
Business, which involves constructing apartments aimed mainly at single persons, and a Leasing
Business, which involves performing the superintendence of apartments after they are built.
We also operate a Hotels & Resort Business and Elderly Care & other Businesses, making
Leopalace21 a one-stop provider of a wide range of real estate services. Currently, with domestic
rental housing demand on the decline, Leopalace21 is proceeding with apartment construction on an
optimal scale based on an area strategy while also starting to receive orders for elderly care facilities
as well as offices and commercial facilities. At the same time, by strengthening the profitability of the
Leasing Business, Leopalace21 is moving forward with establishment of a stock-based businessmodel capable of generating stable profits from our stock of existing apartments (“stock”).

CONTENTS

2

LEOPALACE21’SCOMPETITIVE ADVANTAGEFEATURE:
16 SPECIAL
MEDIUM-TERM MANAGEMENT PLAN
- CREATING FUTUREOur initial numerical targets and current situation, plan revision
background, and our new Medium-term Management Plan.

4

LEOPALACE21’SNEW STRATEGIES

6

BUSINESS MODEL TRANSITION8TEN-YEAR CONSOLIDATEDFINANCIAL HIGHLIGHTS

22 BUSINESS OVERVIEW
22
24
26
28
29

AT A GLANCELEASING BUSINESSCONSTRUCTION BUSINESSHOTELS AND RESORT BUSINESSELDERLY CARE AND
OTHER BUSINESSESMANAGEMENT STRUCTURE
30 ABUILTON CSR

10 TO OUR STAKEHOLDERS

36 FINANCIAL SECTION

Key points of fiscal year 2011 business results, our major challenges,
and a review of our previous
Medium-term Management Plan.

82 CORPORATE PROFILE

12 INTERVIEW WITH THE PRESIDENT
Our President explains structuralreform efforts aimed at fostering a stable earnings structure,
progress in our Medium-termManagement Plan, our priority
initiatives for the future, andour long-term vision.

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

Leopalace21 Corporation / Annual Report 20121

Leopalace21’s Competitive Advantage

Since the launch of Leopalace21 urban apart-

Number of Apartment Units Under Management(Thousands of Units)

600

ments in 1985, we have steadily built up thenumber of units we manage. We currently
boast some 560,000 managed units across400

Japan, with most being studio-type housing
aimed at single persons. Since they are main-200

ly used by students and single employees living on their own, as well as for short-term0stays such as business trips, approximately
FY03/3 FY04/3 FY05/3 FY06/3 FY07/3 FY08/3 FY09/3 FY10/3 FY11/3 FY12/3

half of the leases are for corporate use ascompany housing or dormitories.

Number of Apartment Units Under Management556,207

units(In 2012, ranked #2 in Japan for number of apartment units under management)
Source: “Shunkan Zenkoku Chintai Jutaku Shinbun,” a weekly newspaper for leased housing in Japan

2

Leopalace21 Corporation / Annual Report 2012

Leopalace21’s Competitive Advantage

Leopalace21’s managed properties are concentrated in three metropolitan areas, which
account for about 70% of all the company’s properties; 36% in the Tokyo area, 16% in the
Nagoya area, and 14% in the Osaka area. We maintain high occupancy rates by concentrating our managed properties in areas where large numbers of people gather, especiallythese three metropolitan areas, which continue to have a population influx.

Population Influx Numbers for Three
Metropolitan Areas

Proportion of Managed Properties,
Nationwide and by Key Area

(Aggregate total for 1954-2011)

Total for3 metropolitan Areas

Approx. 70 %Osaka area

Nagoya area

Nagoya area

16%

1.49 million
0.79 million
peoplepeopleTokyo area

36%

Osaka area

14%

Tokyo area

9.05 million
peopleManaged units

556,207 units

Ministry of Internal Affairs and Communications, Annual Report on the Internal Migrationin Japan Derived from the Basic Resident Registers (published April 26, 2012)

As of the end of March 2012

Proportion of Properties by Area

Total for3 Metropolitan Areas

70

Approx.

%

Leopalace21 Corporation / Annual Report 20123

Leopalace21’s New Strategies

New Channel Strategy

190

sales
offices(Number of Leopalace Partners
Franchise Sales Offices)

The Leopalace Partners franchise system
was started in June 2010 as a new chan-

Domestic Leasing Sales Offices(Number of sales offices)nel for increasing tenants, and as of the400

end of March 2012, the number of fran-300

chise sales offices had grown rapidly to200

190. Through the introduction of this system, we conduct to improve occupancy
rates by having more outlets for attracting customers and reduce our expenses
by curtailing the growth of direct offices.

4

Leopalace21 Corporation / Annual Report 2012

100
0

Jun.

Sept.
Dec.
FY11/3

Direct offices

Partners

Mar.

Jun.

Sept.
Dec.
FY12/3Mar.

Leopalace21’s New Strategies
Measures to Enhance Property Value

Photovoltaic power
generation systems

3,825 buildings(Installation rate: 18.6%)

Installation of Photovoltaic Power
Generation Systems (Cumulative)(Buildings)

4,000

To improve occupancy rates, the rental

3,000

properties themselves must be appeal-

2,000

ing. For the purpose of meeting tenants’

1,000

needs and creating a number of “pre-0Apr. May Jun. Jul. Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar.
FY12/3ferred” properties (the “properties ofchoice” for renters), we are moving forward with the introduction of high addedvalue amenities, such as apartment
security systems that ensure security
and safety 24 hours a day, 365 days ayear and photovoltaic power generation
systems that address environmental
security and safety issues.

Installation of Apartment Security Systems(Cumulative)(Units)60,00045,00030,00015,0000

Apr. May Jun. Jul. Aug.Sept. Oct. Nov. Dec. Jan. Feb. Mar.
FY12/3

Measures to Enhance Property Value

Security Systems

60,667units(Installation rate: 10.9%)

Leopalace21 Corporation / Annual Report 2012

5

BUSINESS MODEL TRANSITION
Traditional Business Model
Earnings Enhancement Cycle

Earnings Deterioration Cycle

Tenants

Tenants (a rapid drop in demand)
Growth inrental income

Leasing

Decline inrental income

Leasing

Leasing

Leasing

Leopalace21

Leopalace21

Construction

Construction

Master lease

Decrease insupply of
new stock

Master lease

Supply of
new stock

OwnersOwnersIn a period of returning to growth after the bubble’s
collapse, there was increased demand for apartments aimed at housing for job transferees (living
away from their families) and company dormitories.
While continuing to steadily meet this need, we substantially increased the new supply of stock andgrew our Construction Business by addressing theconcerns of landowners worried about vacancy risk
through the introduction of a “Master Lease
System.” Our Leasing Business was also supported
by healthy growth in corporate demand, enabling us
to achieve both an increase in rental income andgrowth in the number of apartments leased. During
this period, we realized an “Earnings Enhancement
Cycle,” in which our entire business was led by theConstruction Business as our main business, butwhich also led to growth in our Leasing Business.

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

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

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

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

Stagnation of Synergy Model(Billion Yen)

(Post-Lehman Collapse)

Net Sales and Operating Income

800
600
400
200
0
-400

FY2003

FY2004

FY2005(Each fiscal year ends on March 31)

6

Leopalace21 Corporation / Annual Report 2012

FY2006

FY2007

FY2008FY2009FY2010Future Business Model
Earnings Stabilization Cycle
Tenants (improved occupancy rates)
Leasing

Stable rental income
Rebuilding, measures to enhance
property value, renovations,

Leasing

Existing master leasesystem apartments

Leopalace21
Construction
New supply limited
to specific areas

Master lease

Elderly care facilities/
commercial facilities

Supply via matching ofowners and companies

Built-for-sale products

Supply of leased
housing, etc.

Owners

Outside of the master lease system

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

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

Period of Economic Recovery

Targets for Final Yearof New Medium-Term
Management Plan
(Period Ending March 2015)(The Present and Onward)
Comprehensive Enhancement of Earnings from Stock
Leasing Business (left axis)
Construction Business (left axis)
Others (left axis)
Operating income (loss)(right axis)(Billion Yen)

80
60
40
20

Net sales¥ 476.5 billion
Operating income¥16.9 billion
ROE

0
FY2011FY2012FY2013(Projected)

FY2014(Projected)

FY2015(Projected)-40

20.0 %*For details, please see
the “Special Feature” on p.16.

Leopalace21 Corporation / Annual Report 2012

7

TEN-YEAR CONSOLIDATED FINANCIAL HIGHLIGHTS(Millions of yen)

’03/3
FY2002’04/3
FY2003’05/3
FY2004’06/3
FY2005Net sales
Leasing business
Construction business
Hotels & resort business
Elderly care business & other businesses
Cost of sales
Selling, general and administrative expenses
Operating income (loss)
Leasing business
Construction business
Hotels & resort business
Elderly care business & other businesses
EBITDANet income (loss)¥ 360,368
162,766
190,216
5,927
1,458
268,856
46,98644,525
9,404
41,484(2,736)(1,235)49,232
20,464¥ 422,224
188,863
225,0115,759
2,590
313,084
57,46851,6707,428
54,153(3,849)(3,516)56,922
20,960¥ 476,266
216,590
248,0327,281
4,361
357,546
64,03854,682
7,243
57,051(3,928)(2,640)60,53833,262¥ 465,386
249,695
195,202
8,339
12,149353,928
70,683
40,7758,079
39,452(2,667)(393)
45,340(16,582)

At year-end:
Total assets
Net assets
Interest-bearing debt

¥ 410,340
68,308183,047¥ 421,163
81,419162,665¥ 453,434
149,798
108,786¥ 412,803
133,62264,513¥

26,422(20,958)(1,010)5,464¥

35,032(13,363)(30,129)
21,669¥40,348(8,978)(20,959)
31,370¥56,971(11,266)(47,946)
45,705¥492.06160.5615.00¥

585.82150.9115.00¥

941.06220.7915.00¥

839.44(104.17)15.00

For the years ended March 31

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

16.6
35.8
5.2
9.3
2.7
4,385

19.3
28.0
5.0
9.9
2.0
5,702

33.0
28.8
7.6
6.8
0.7
6,457

32.4
(11.7)
(3.8)
—
0.5
6,868

(Notes)1. The amounts of net assets for the fiscal years ended March 31, 2004, 2005, and 2006 represent the value of total shareholders’ equity of each year-end, and do not include minority interests.
2. EBITDA = Operating income + depreciation
3. Return on equity (ROE) = Net income/average net assets during the fiscal year x 100
4. Return on assets (ROA) = Net income/average total assets during the fiscal year x 100
5. Debt/equity ratio = Interest-bearing debt/ (net assets - minority interests)

Net Sales

Operating Income (Loss)/ Operating Margin

Total Assets/ ROA(Millions of yen)

(Millions of yen)(%)

(Millions of yen)(%)

800,000

80,00016

500,000

10

60,00012

400,000

8

300,000

6

40,0008
200,000

4

20,0004
100,00020

0

600,000

400,000

200,00000

0−40,000−8’03/3 ’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3’03/3 ’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3

FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011

FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011

Operating Income (Loss) (left bar)

8

−20

’03/3 ’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011

Leopalace21 Corporation / Annual Report 2012

Operating Margin (right bar)

Total Assets (left bar)

ROA (right bar)

’07/3
FY2006’08/3
FY2007’09/3
FY2008’10/3
FY2009’11/3
FY2010’12/3
FY2011¥ 631,608
277,163316,117
7,140
31,187474,71380,88776,007
7,031
74,614(2,628)1,091
80,56637,358¥ 672,973
302,731327,540
6,071
36,629511,053
90,516
71,402
3,036
73,267(1,116)645
76,565342¥ 733,235
334,560
359,1545,610
33,908589,833
93,24450,156(1,538)70,112(805)(12,829)55,9399,951¥ 620,376
342,316
237,062
6,734
34,263570,749
79,354(29,727)(47,875)
29,744(1,324)(6,776)(23,432)(79,075)¥ 484,390
356,606
107,8216,491
13,472
448,392
59,605(23,607)(30,094)
11,971(1,974)(1,222)(17,155)(40,889)¥ 459,436
380,307
62,913
6,228
9,987
403,572
51,278
4,585
5,248
4,309
(1,663)(892)
10,632
1,588¥ 454,819
185,784
53,159¥ 493,956
170,155
49,710¥ 467,300
146,442
44,188¥ 396,511
70,97961,318¥ 298,274
33,04043,858¥ 264,783
33,831
51,654¥¥

11,745
148(26,779)
11,893¥62,843(10,048)(33,885)
52,794¥ (12,990)(8,889)15,281(21,879)¥ (28,337)
13,143(15,890)(15,193)¥(3,174)(3,537)
7,245(6,712)¥ 1,054.99
234.6850.00¥ 1,036.43
2.15
80.00

¥

967.40
63.54
30.00

¥

¥

¥

199.73
9.40
—

37.0
24.8
8.6
21.3
0.3
7,409

33.4
0.2
0.1
3,720.9
0.3
8,678

63,308(15,930)(17,018)
47,378Net Assets/ ROE

31.3
6.4
2.1
47.2
0.3
9,926

466.76(521.91)—

11.1(78.7)(11.8)
—
1.3
7,114

17.9
(72.8)(18.3)—
0.9
8,582

EBITDA

195.91(261.03)
—

12.8
4.8
0.6
—
1.5
6,165

Interest-bearing Debt

(Millions of yen)(%)

(Millions of yen)

(Millions of yen)

200,000

40

100,000

200,000

150,000

30

75,000150,000

100,000

20

50,00050,00010

25,000

0

0

0

−80

−25,000

100,000

50,0000’03/3 ’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3’03/3 ’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3’03/3 ’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3

FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011

FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011

FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011

Net Assets (left bar)

ROE (right bar)

Leopalace21 Corporation / Annual Report 20129

TO OUR STAKEHOLDERS

Pushing ahead
with thorough reformof our businessrestructure

10

Leopalace21 Corporation / Annual Report 2012

Against the backdrop of an unclear economic outlook, the business environment has been difficult for
the housing-related industry, including Leopalace21. However, by shifting our focus toward our Leasing
Business and proceeding with the reform of our business structure, we have achieved a return toprofitability. Going forward, we will push ahead with further reforms and implement a growthstrategy with the aim of meeting the objectives stated in our new Medium-term Management Plan.

In the fiscal year ended March 2012 (fiscal 2011), an

However, since it has now become difficult to achieve theuncertain economic outlook persisted amid concerns

targets stated in our Medium-term Management Plan, due

about economic slowdown overseas due to theto a deterioration of the business environment andEuropean debt crisis and rising crude oil prices, whilechanges in our implementation speed (direction and posi-domestically, Japan headed toward a gradual recovery

tioning), we have formulated and implemented a newfrom the economic downturn that resulted in the wake ofMedium-term Management Plan, “Creating Future,”

the Great East Japan Earthquake. In the housing industry,

beginning in the current fiscal year ending March 31, 2013.

overall new housing starts grew 2.7% year on year, but
rental housing starts were sluggish, declining by 0.7%

In fiscal 2012, the first year of this plan, we will further

year on year.

strengthen the profit structure of our Leasing Businessand expand our earnings, targeting operating income of

In this environment, sales declined in our Group’s¥8,000 million and net income of ¥5,500 million, which

Construction Business due to measures for curbing

would represent a second consecutive year-on-year

apartment supply as a result of the shift to the Leasing

increase in earnings.

Business. In contrast, we tried to secure sales in our
Leasing Business by increasing ancillary income withIn order to achieve this, I intend to lead the way and, inrespect to our 560,000 apartments under management.

collaboration with the group as a whole, strive for further
reform of our business restructure, while at the same

As a result of the above, net sales decreased by 5.2%

time paving the way for a growth strategy.

year on year to ¥459,436 million. With regard to income
resulting from progress made in business restructure

In closing, I would like to humbly request the continued

reforms that include a reduction in rental costs, we

support and encouragement of all stakeholders.

achieved profitability for the first time in three fiscal years,
with operating income of ¥4,585 million (compared to an

August 2012

operating loss of ¥23,607 million in the previous fiscal
year) and net income of ¥1,588 million (compared to a net
loss of ¥40,889 million in the previous fiscal year).
Eisei Miyama
President and CEO
Leopalace21 Corporation

Leopalace21 Corporation / Annual Report 201211

INTERVIEW WITH THE PRESIDENT

Leveraging the results ofthe business structure reforms
we have carried out to date and,without relenting in our pursuit of reform,
we will continue to push ahead withthe establishment of an earnings structure
centered on “stock” (leasing based)business activities.

Medium-term Management PlanQ

Please sum up the previous Medium-term Management Plan,“Change for NEXT,” which started in May 2010.

A

Our business structure reforms have yielded results, and we were able to achieve
a profit for the first time in three years.

With the previous Medium-term Management Plan,

recovery in occupancy rates was in sight. We therefore“Change for Next” (from the fiscal year ended Marchshrank our Construction Business (by further restricting

2011 to the fiscal year ending March 2013), the objective

the amount of orders received) while at the same time

was to establish a stable earnings structure that struck aaccelerating efforts to reduce our leasing costs ahead ofbalance of earnings between our Leasing Business andschedule and carrying out a review of the previous

Construction Business, based on the implementation ofMedium-term Management Plan.

various measures aimed at improving profitability and an

Notably, in the fiscal year ending March 2012, manyaction plan for reducing costs and selling, general, andvacancies arose from April due to the impact of the Great

administrative (SG&A) expenses. To this end, we priori-

East Japan Earthquake that occurred in March 2011, so it

tized making our Leasing Business profitable while also

was a difficult year from the very start. However, we

restricting the scale of our Construction Business.

implemented measures to continue moving forward with

Under this plan, we steadily implemented whatever

our transition toward a “stock” (leasing based) businessinternal measures we could to reduce costs and SG&A

(the Leasing Business), and we were also able toexpenses, but the economic slump following theimprove the average annual occupancy rate by 1%.

Lehman Shock was worse than initially expected, and no

12

Leopalace21 Corporation / Annual Report 2012

In order to improve the profitability of our Leasing

Business, it was essential to transform the thinking ofachieve profitability for the first time in three years, andeach and every director and employee. The fact that our

indicating that the initiatives of the previous medium-business structure reforms have yielded results is aterm plan were successful to a certain extent.

reflection of this change in thinking. Previously, our flowbased Construction Business had been driving our revenue, but in light of the future outlook for the Japanese
economy and rental housing market, our employees havecome to understand that it is the profitability of ourLeasing Business which is essential, and unless that is

Trend in Business Performance(Billions of yen)(Billions of yen)

750

45

500

30

250

15

0

0

-250

-15

achieved, there will be no future for us. We strived tomake our Leasing Business profitable, while absorbing asubstantial reduction in orders received in our
Construction Business.

-30

-500

In terms of results, our operating income for the fiscal’10/3,FY2009

year ending March 2012 was ¥4.5 billion, enabling us to

Net sales (left bar)

’11/3,FY2010’12/3,FY2011

Operating income (right bar)Q

What, then, are the issues continuing on fromthe previous Medium-term Management Plan?

A

The priority issues are acquiring individual tenants and promoting long-term occupancy,
setting up a stable profit structure for the Leasing Business,and diversifying the properties we supply.

In the fiscal year ending March 2012, we were able toto expand the scope of activities of the Construction

achieve profitability for the first time in three years by

Business beyond the mainstay master lease systemproceeding with business structure reforms. In an effort

apartments, we devoted efforts to securing orders forto enhance the customer appeal of our Leasing Businessand constructing owner-managed apartments and build-and improve what we call our “tenant placement ability,”

ings to be used as elderly care facilities and commercial

we actively promoted the opening of “Leopalacefacilities. These various measures are continuing to steadily

Partners” franchise sales offices. We also implemented

bear fruit.

measures aimed at enhancing the value of our properties

Therefore, the issue moving forward is not to simply

to make our products more attractive, and moved for-make the Leasing Business profitable for a single year

ward with the introduction of photovoltaic power genera-

but rather to realize profits that are at a stable level, evention systems and security systems. Furthermore, looking

before accounting for decreases in the reserve for apartment vacancy loss. I believe that the following specificTrend in Operating Income for Core Businesses

issues must be addressed by our business divisions. For
the Leasing Business, the issues are how to acquire indi-(Billions of yen)30

vidual tenants and promote long-term occupancy. For the15

Construction Business, the question is how to develop

0

attractive products, an area in which there has been no
active effort in the past few years.

-15

After that, I think it is necessary to devise a new-30

growth strategy addressing the broader picture, which-45

we were unable to do adequately in the previous-60’10/3,FY2009
Leasing Business’11/3,FY2010’12/3,FY2011

Construction BusinessMedium-term Management Plan, which focused on making the Leasing Business profitable as the priority issue.

Leopalace21 Corporation / Annual Report 201213

Q

Please tell us about the aim of the current Medium-term Management Plan,“Creating Future.”A

The aim is to establish a robust business centered on our Leasing Business,and then pursue further growth.

Following on from the previous plan, the basic policy of

the “stock” (leasing based) business (the Leasing

the current plan is to establish a stable earnings structure

Business). In terms of specific business measures, thethat strikes a balance between both our core businesses.

cornerstone of the plan is to continue with the efforts we

In accordance with this policy, the key theme is how tohave made to date and scrupulously carry out the remain-establish a profit structure that places the emphasis on

ing tasks within the next three years.
At that time, as I mentioned earlier, one issue will bewhat growth strategy to adopt once we have realized“Creating Future” Medium-term Management Plan
(Billions of yen)stable profitability for our Leasing Business. Currently,

500

25

our policy is not to increase the 560,000 managed units

400

20

that form the basis of our stock, which range from 20-

300

15

year-old properties to newly built properties. Since occu-

200

10

100

5

0

0

(Billions of yen)

pancy rates naturally tend to be higher in the newer properties, upgrading the interiors of our stock (rebuilding andrenovation) will provide us with new business moving’12/3,FY2011’13/3,FY2012(projected)

Leasing Business net sales (left bar)
Other Businesses net sales (left bar)

’14/3,FY2013(projected)’15/3,FY2014(projected)

Construction Business net sales (left bar)
Operating income (right bar)forward. Besides this, it is also necessary to consider
enhancing the earnings structure of our non-core businesses, such as the Elderly Care Business and theHotels and Resort Business.

Priority Initiatives for Fiscal 2012

Q

What is the key theme for the current fiscal year (ending March 31, 2013)
in “Creating Future?”A

To push ahead with both the enhancement of the competitiveness of our core businessand the promotion of efforts to move our existing business into new areas,
while creating a foundation for growth.

In the newly begun Medium-term Management Plan,

to improve our leasing costs by reducing management“Creating Future” (from the fiscal year ending Marchwork-related costs and optimizing rent payments.

2013 to the fiscal year ending March 2015), three years

Next, in terms of efforts to expand our existing busi-

from now we are aiming for operating income of ¥16.9

ness into new areas, we are working to increase orders

billion in the fiscal year ending March 2015, which is areceived for properties other than master lease systemthree-fold increase over the previous fiscal year’s operat-

apartments, such as elderly care facilities and retail stores,

ing income.

thereby establishing a foothold for new growth in our

In order to push ahead with this plan, the theme for theConstruction Business.

current fiscal year, ending March 31, 2013, is the cre-At the same time, we will maintain a low-cost structure,ation of a foundation for future growth. With the aim ofwhile ensuring a sufficient allocation of resources to coverenhancing the competitiveness of our core business, we

the essential costs, such as HR, advertising, and sales

are strengthening our sales channels by bolstering sales

promotion, to build momentum toward a growth strategy.

performance through the provision of training at

By implementing these initiatives, we hope to firmly“Leopalace Partners” franchises, while continuing efforts

14

Leopalace21 Corporation / Annual Report 2012

create a foundation for future growth.

Long-term Vision

Q

What is Leopalace21’s aim
for the future?

A

In keeping with our corporate philosophy of “creating new value,” we will
work to be a company that develops
products, services, and technologies
as needs change over time, generating value for society as a whole.

Until now, Leopalace21’s business development has
focused primarily on housing. Moving forward, we do notintend to change our focus, and for the next ten years or
so, I believe that our basic strategy will be to achieve
growth through business centered on our housing stock.
To date, our company has made a habit of focusing our
thinking on the Construction Business involving large unit
values, and in our management plans we have increased
sales by constructing more and more properties. The
idea tended to be as follows; if the number of leased
managed properties increases, then the sales of the
Leasing Business will also increase.

in response to the diverse needs of tenants and owners.
An example of this is the renewable energy business.

If one looks at the future of the Japanese economy and

We are currently still in the process of studying a specificthe rental housing market, however, this type of plan canplan, but there are various other ideas being considered,

no longer be successful. Moving forward, I believe it is nec-

such as the possibility of installing photovoltaic power

essary to not simply provide space but also to supply new

generation systems in our managed stock, for example,

value created by Leopalace21, and link it to our businessand selling electrical power.

To Shareholders and Investors

Q
A

Please explain your thinking regarding the future restoration of the dividend.
The distribution of profits to shareholders is an important management issue, andthrough the steady implementation of our Medium-term Management Plan, we arepaving the way toward restoring the dividend.

Recognizing that returning profits to shareholders is aestablish a stable earnings structure. We are devoting as

key issue in management, I think it is important to quick-much effort as possible to the restoration of the divi-

ly bring about a restoration of the dividend for that pur-dend, but there are no shortcuts and the only way topose. However, I believe that with our company having

reach this goal is to build up our operating income andfinally achieved profitability for the first time in three fis-steadily increase our retained earnings.

cal years in last fiscal year, our first priority should be to

Leopalace21 Corporation / Annual Report 201215

Special Feature: Medium-Term Management Plan
- Creating Future Our Group started the new Medium-Term Management Plan, “Creating
Future.” In this plan, which takes into account the current business environment, we clarify the profile our Group aspires to, and aim to build a solid
business foundation centering on our core Leasing Business andConstruction Business.

Targets and Results of Previous Medium-Term Management Plan
Factoring in the protracted deflationary environment, theearnings management system; (3) shift to a low-cost

previous Medium-Term Management Plan was drawn up

structure; (4) operate our related businesses so thatbased on the domestic economic conditions in fiscal“business resources are directed to core businesses;

2009. The specific business strategies in the plan wereand (5) achieve greater financial stability. Through these(1) make the strengthening of our stable business foun-policies, we had planned to improve operating income,dation our highest priority by working to improve ourbut due to the worse-than-expected business environ-earnings balance through a greater focus on “stock”

ment, as reflected by economic trends, we accelerated(leasing based) business; (2) reform organizations andour initial initiatives, further shrank construction business,rebuild governance with a focus on establishing a newand carried out a review of the previous plan.

Previous Medium-term Management Plan, “Change for NEXT”’10/3, FY2009
Actual’11/3, FY2010
Projected
Actual(Unit: Billion Yen)

’12/3, FY2011
Projected
ActualNet sales

620.3

564.7

484.3

560.6

459.4

Operating income(29.7)

5.3(23.6)

11.7

4.5

Net income(79.0)

3.0(40.8)

5.2

1.5

Equity ratio (%)

17.9

20.8

11.1

23.8

12.8

ROE (%)(72.8)

4.0(78.7)

6.8

4.8

EPS* (Yen)(521.91)19.14(261.03)

34.32

9.40

250.2

156.0

80.3

130.0

50.0

82.3

83.7

80.1

84.5

81.2

Orders received
Average occupancy rateduring the fiscal year (%)*

16

Earnings per share

Leopalace21 Corporation / Annual Report 2012

Background of Revisions to our Previous Medium-Term Management Plan
Rents of Rental Housing Continued their Downward Trend
One of the business environment changes not expected in the previous Medium-Term Management Plan was thefast decline in market rents. The prolonged economic slump has resulted in both lower salaried income andhousehold revenues, so rental housing rents also continued to decline. Under the Group’s contracts with owners,
we were unable to respond quickly to sharp declines in market rents. Thus, more cost-cutting was required.

Private Housing Rents and Contractual Earnings Index(%)

Private Housing Rents

Contractual Earnings Index(Sources) CPI, Monthly Labour Survey

106.0
104.0
102.0
100.0
98.0
0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Number of Individual Contracts Did Not Recover, Reduced Supply Further
Another unexpected change was the delayed recovery in occupancy rates. For corporations, the number of apartments
leased increased to about 220,000 units as of March 31, 2012, partly due to our stepped-up corporate sales. For individuals, we also aimed to increase our contracts, for example by establishing the “Leopalace Partners” franchise system,
which expanded our sales channels. Even so, partly due to the effects of deflation (protracted economic slump), themarket for individual tenants was weak, resulting in a need to shrink our Construction Business (further reduced supply).

Trend in Occupancy Conditions, by Attributes
Number of apartments leased(thousands)

250

Corporations (left axis)
Occupancy rate (right axis)

Individuals (left axis)

Students (left axis)

Occupancy rate
(%)

100

The collapse of
Lehman Brothers

200

90

150
80
100
70

50

0

0

’09/3, FY2008’10/3, FY2009’11/3, FY2010’12/3, FY2011

Leopalace21 Corporation / Annual Report 201217

Numerical Targets in our New Medium-Term Management Plan, “Creating Future”
In our new Medium-Term Management Plan, “Creatingture. We aim to thus improve from our negative ¥3.1 bil-

Future,” we aim for net sales of ¥476.5 billion, operating

lion operating cash flow in the fiscal year ended March

income of ¥16.9 billion, and net income of ¥13.5 billion in2012 to positive ¥13.3 billion in the fiscal year ending

the fiscal year ending March 2015, the final fiscal year ofMarch 2015. We look to improve our shareholders’ equi-

the Plan. In view of current economic conditions withty ratio from 12.8% in the fiscal year ended March 2012

stubborn deflation, this plan assumes that the harsh mar-to 29.5% in the fiscal year ending March 2015.

ket environment will continue. That is, we do not pin our

We aim to greatly boost our return on equity (ROE) tohopes on a scenario where a market turnaround drives

20.0% from 4.8% in the fiscal year ended March 2012,

sales and profits growth. Instead, we plan to achieve

and boost return on assets (ROA) from 0.6% to 5.2% insharp recoveries in both operating income and net

the same period.

income, even in a harsh environment, by further bolstering initiatives to enhance our business structure.
In the new plan, we aim to strengthen our financial
structure along with recovery in our profitability. We will
focus on cash flow, continue a return to our origins in“motazaru-keiei” (non-ownership management), andwork to reinforce the soundness of our financial struc-

New Medium-Term Management Plan “Creating Future”(Unit: Billion Yen)

’12/3, FY2011 ’13/3, FY2012 ’14/3, FY2013 ’15/3, FY2014
ActualProjected
Projected
Projected

Net sales
Operating income
Net income

459.4
4.5
1.5

463.9
8.0
5.5

467.4
14.1
11.0

476.5
16.9
13.5

Net assets
Equity ratio (%)

33.8
12.8

42.8
17.0

58.0
23.1

76.5
29.5

Operating cash flow

(3.1)

2.4

12.0

13.3

ROE (%)EPS (Yen)
ROA (%)

4.8
9.40
0.6

14.3
29.20
2.2

21.8
54.20
4.4

20.0
62.40
5.2

Orders received

50.0

76.8

80.1

78.9

Average occupancy rate during the fiscal year (%)

81.2

83.0

85.0

85.8

18

Leopalace21 Corporation / Annual Report 2012

Basic Policies of New Medium-Term Management Plan, “Creating Future”
Under the new Medium-Term Management Plan, we will

In our Leasing Business, we seek to reform our struc-continue to aim to establish a stable earnings structure

ture so that we are profitable, even at current occupancy

which takes into account the balance of earnings between

rates. In our Construction Business, we narrow down ourour Leasing Business and Construction Business. To this

supply areas and strengthen new business domains (con-end, we established five basic policies, and will work on

struction of non-residential buildings) and product devel-such initiatives in each business.

opment abilities.

Basic policy“Establish a stable profit structure with balance between Leasing Business and Construction Business”(1) Establish a solid profit structure with a “stock” (leasing based) business (the Leasing Business) as a central axis(2) Maximize group profit with our core businesses as a main pillar(3) Establish an earnings management structure of non-core businesses(4) Maintain a low-cost structure, with selection and concentration of strategic costs(5) Execute business measures creating a new social value, and pursue growth by new businesses

Action Plan for Each BusinessLeasing
Business

Construction
Business

RelatedBusiness

OverallBusiness

Create a foundation for growth

New growth stage’13/3, FY2012’14/3, FY2013 / ’15/3, FY2014•Enhance the competitiveness of core businesses•Implement initiatives in new areas
by existing businesses•Support the continuing growth of core businesses•Implement initiatives for new business

Establishment of earnings structure

Further development as a high earning business

Enhance channels
Establish a framework for operating
profitability excluding the reversal ofreserve for apartment vacancy loss

Increase competitiveness of leased managed properties,
with a maximum of 570,000 managed apartment units
Enhance service for tenants
Increase installation of security systems to 35%(10% as of March 31, 2012)
Expand network of offices to 400 (357 offices at March 31, 2012)

Initiatives in new areas

Establish and develop products and business areasthat will form a new earnings base

Expand orders other than master
lease system apartments（elderly care facilities, stores）
Expand orders in areas where highoccupancy rate is expected

Client retention
Strive to retain clients (promote utilization,
collaboration among business divisions)

Expand variety of buildings (energy-saving features,
geared to the elderly, stores, etc.)
Increase installation of solar power systems or
photovoltaic power generation systems to 30%(18% at the end March 2012)

Maximize earnings
Maximize earnings by streamlining operations andmanagement systems, and strengthening collaboration

Cost selection and focus/Growth strategy initiatives
Make strategic cost investments while maintaining a low-cost structure(personnel costs, advertising costs, sales promotion costs)
Move forward with initiatives for new businesses (“Future Project”)

Leopalace21 Corporation / Annual Report 201219

Plan and Policies for Each BusinessLeasing Business
Improve our Cost Structure, Target Large
Increase in Operating Income
In our Leasing Business, we aim for net sales of ¥391.5 bil-Create Properties that Attract Tenants,
Develop our Franchise System,
Strengthen our Corporate Sales Abilities

lion and operating income of ¥16.1 billion in the fiscal year

In our Leasing Business, our business strategy is toending March 2015. Even without assuming a large

enhance our ability to attract customers. In our previous

rebound in occupancy rates, we can achieve our target ofMedium-Term Management Plan, we began to actively

improved operating income. The key will be an improved

develop “Leopalace Partners.” We plan to bolster training

cost structure. By introducing our franchise system, we arefor these partners, increase the number of sales, further

working to move from fixed costs to variable costs and fur-strengthen corporate sales, and work on customizing

ther shrink our leasing costs. We aim to boost our averagerooms to encourage long-term leasing. On the other hand,occupancy rate from 81.2% in the fiscal year ended Marchwe will continue to work to cut management costs, and2012 to 85.8% in the fiscal year ending March 2015.

strengthen our profit structure.

(Billion Yen)

Net sales
Gross income’12/3, FY2011 ’13/3, FY2012 ’14/3, FY2013 ’15/3, FY2014
ActualProjected
Projected
Projected

380.3
38.6

386.6
45.2

389.0
51.6

391.5
53.3

5.2

9.5

15.0

16.1

Leasing Strategy
1. Development of direct offices andLeopalace Partners

Operating income
Average number ofmanaged properties
during the fiscal year
(thousand units)

566

553

554

560

4. Initiatives for international students

Average occupancy rate (%)

81.2

83.0

85.0

85.8

5. Progress in reducing leasing costs

2. Corporate Sales
3. Initiatives to address tenant needs

Hotels and Resort BusinessWork to Boost Occupancy Rates, and Aim toReturn to Profitability in Two Main Businesses
on a Single Fiscal Year Basisrates, aiming to return to profitability in the fiscal year ending March 2015 on a single fiscal year basis.

In our Hotels and Resort Business, we aim for net sales of(Billion Yen)year ending March 2015. In both our hotels in Japan busi-

Net sales

6.2

6.6

6.7

6.8

ness and overseas resort business, we seek to provide

Operating income(loss)

(1.6)

(1.0)

(0.7)

(0.6)

new value and services in order to boost our occupancy

20’12/3, FY2011 ’13/3, FY2012 ’14/3, FY2013 ’15/3, FY2014
ActualProjected
Projected
Projected¥6.8 billion and operating loss of ¥0.6 billion in the fiscal

Leopalace21 Corporation / Annual Report 2012

Construction Business
Still Restraining Sales Growth, But Aiming for 60%
Increase in Total Orders Received to ¥78.9 Billion
In our Construction Business, we aim for net sales of ¥67.4

Strategy to Tighten Focus to Areas where High
Occupancy is Expected, and Introduce LeadingEdge Products

billion and operating income of ¥5.1 billion in the fiscal year

In our Construction Business, we aim to secure contracts

ending March 2015. During the period of our Medium-Termwith a focus on obtaining high utilization rates (occupancy

Management Plan, our policy is to establish a profitable

rates) in apartments after completion. We will continue tostructure for our Leasing Business. To this end, we look topour effort into urban areas with high occupancy rates, andrestrain the growth rate of these sales to 10% or less,work to develop products which meet customer needs

while narrowing down apartment supply targets to areas

such as housing adapted for narrow lots and environmen-

where high occupancy rates are expected and launching dif-tally-friendly housing, and enhanced products which areferentiated products, thereby steadily bringing a recovery inahead of their time such as apartments with two lofts. We

total orders received. In the fiscal year ending March 2015,

will also expand our construction subcontracting of retail

we aim for about a 60% increase over the fiscal year ended

and commercial facilities, and elderly care facilities where

March 2012 in total orders received to ¥78.9 billion.

growth is expected.

(Billion Yen)

Net sales
Apartments
Non-residential
Solar, etc.
Gross income
Operating income
Orders received’12/3, FY2011 ’13/3, FY2012 ’14/3, FY2013 ’15/3, FY2014
ActualProjected
Projected
Projected

62.9
43.8
0.6
18.3

60.2
49.9
2.8
7.4

61.1
53.8
5.1
2.1

67.4
60.2
6.1
0.9

16.7
4.3
50.0

14.4
3.0
76.8

15.7
3.5
80.1

17.8
5.1
78.9

Construction Strategy
1. Supply apartments based on area strategy
2. Develop products that are ahead of their time
3. Build high-quality apartments
4. Rebuild
5. Subcontract buildings for businesses
other than apartments

Elderly Care and Other Businesses
Aim for Higher Occupancy Rates in Private
Residential Homes in our Mainstay Elderly
Care BusinessIn our Elderly Care and Other Businesses, we aim for net
sales of ¥10.7 billion and operating loss of ¥0.5 billion in
the fiscal year ending March 2015. In our elderly care business, we look for net sales of ¥9.6 billion, and a reduced
operating loss of ¥0.6 billion. To achieve our targets, wewill boost occupancy of private residential homes that have
low occupancy rates, and effectively use advertising andother means to boost our ability to attract customers. We
aim to improve occupancy rates to 91.9% in the fiscal year

ending March 2015, up by 15.5 points from the fiscal year
ended March 2012.

(Billion Yen)

’12/3, FY2011 ’13/3, FY2012 ’14/3, FY2013 ’15/3, FY2014
ActualProjected
Projected
Projected

Net sales

8.8

9.1

9.4

9.6

Operating income(loss)

(0.8)

(0.8)

(0.7)

(0.6)

Occupancy rate(day-service) (%)

62.7

66.2

68.4

70.2

Occupancy rate(short-stay) (%)

96.6

96.7

96.7

96.7

Occupancy rate
(private residential
homes, etc.) (%)

76.4

84.7

89.1

91.9

Leopalace21 Corporation / Annual Report 2012

21

BUSINESS OVERVIEW:

AT A GLANCE
Business Description

LEASINGLEASING
BUSINESS
BUSINESSThis business conducts rental, management, etc., of managed properties
based on a master lease system. The leasing options we have developed
include a “rental agreement,” for which usage fees are paid on a monthly
basis, easing the burden of initial costs, and a “monthly agreement,” forwhich usage fees are paid up front, furniture and home appliances areincluded, and payment of water bill and utility costs not required.
Key subsidiaries/affiliates:
Leopalace Leasing Corporation (corporate housing agency/real estate brokerage business)
Plaza Guarantee Co., Ltd. (lease guarantee business)
Leopalace21 Business Consulting (Shanghai) Co., Ltd. (consulting business)
LIXIL RENEWAL Corporation (maintenance business)

CONSTRUCTIONCONNSTRUCCTION
N
BUSINESS
BUSINESSThis business undertakes construction subcontracting of apartments andother buildings. In recent years, in addition to master leased properties that
we lease and manage ourselves after construction, while expanding construction subcontracting of non-apartment buildings such as commercial facilities and nursing homes. We are also devoting effort to developing productswith tenants’ interests in mind. One example is the provision of apartmentswith lofts, which are somewhat of a novelty.

HOTELS
HOTELS &RESORTRESORT BUSINESSBUSINESSVia our overseas subsidiary Leopalace Guam Corporation, this business
manages sports facilities such as golf courses and baseball fields andresort facilities such as hotels and condominiums on the island of Guam. It
also conducts domestic hotel business at eight locations across Japan.
Key subsidiaries/affiliates:
Leopalace Guam Corporation (hotels and resort business/Guam)
Leopalace Travel, Ltd. (travel business)

ELDERLY
ELDERLY CARE
CARE
BUSINESS
BUSINESS &OTHER
OTHER BUSINESSES
BUSINESSES

Under the brand name Azumi En, this business manages private residential
nursing homes, facilities offering day services and short stays, and grouphomes at 58 locations in the Kanto region, and also conducts a regional
community-based nursing care business that includes home visits by nursing care staff and the provision of in-home nursing care support services.
Through a subsidiary, it also provides small-claims and short-term insurance
covering household furnishings aimed at tenants.
Key subsidiaries/affiliates:
Leopalace Insurance Co., Ltd. (small-claims and short-term insurance business)
Leopalace Smile Co., Ltd. (outsourcing business/special subsidiary)22

Leopalace21 Corporation / Annual Report 2012

Key Data

Breakdown of Net Sales

Occupancy Rates

Changes in Net Sales(Billions of yen)

（％）

400

100
300

90

83%

80

200

100

70

0

0

’08/3
FY2007’09/3
FY2008’10/3
FY2009’11/3
FY2010’12/3
FY2011’08/3 ’09/3 ’10/3 ’11/3 ’12/3
FY2007 FY2008 FY2009 FY2010 FY2011

Apartment Construction Sales

24P(Billions of yen)

(Fiscal Year Ending March 2012)

400
Kyushu/Okinawa

Other¥2.3 billion¥3.6 billion

300
Chugoku region¥2.3 billion
Chubu region¥3.0 billion

14%¥43.2 billion

100

Tokyo
metropolitan
area

Kinki region

0¥25.1 billion¥6.9 billion

200’08/3 ’09/3 ’10/3 ’11/3 ’12/3
FY2007 FY2008 FY2009 FY2010 FY2011

Guam/Domestic Hotel Occupancy Rates

26P(Billions of yen)(Annual Average)

8

（％）

100
6

80

1%

60

4

40
2

0

’08/3
FY2007’09/3
FY2008

Resort hotels in Guam
Domestic hotels’10/3
FY2009’11/3
FY2010’12/3
FY20110’08/3 ’09/3 ’10/3 ’11/3 ’12/3
FY2007 FY2008 FY2009 FY2010 FY2011

Westin Resort Guam

Elderly Care Facility Occupancy Rates

28P(Billions of yen)(Annual Average)

40

（％）

100
80

30

60

2%

40

20

20
0

10

’08/3
FY2007’09/3
FY2008’10/3
FY2009’11/3
FY2010Day services
Short-stays
Private residential nursing homes, etc.

’12/3
FY20110’08/3 ’09/3 ’10/3 ’11/3 ’12/3
FY2007 FY2008 FY2009 FY2010 FY2011

Leopalace21 Corporation / Annual Report 2012

29P
23

SEGMENT OVERVIEW:LEASING BUSINESS

Performance

Business Environment and Related Issues

In fiscal 2011, the Leasing Business posted net sales of¥380,307 million (a 6.6% increase from the previous fiscal
year) and operating income of ¥5,248 million (compared
to an operating loss of ¥30,094 million in the previous
fiscal year). In the current fiscal year, in addition toincreasing the number of points of contact for securing
customers through the expansion of our network of franchise sales offices (Leopalace Partners) and strengthening
our corporate sales, we curbed the number of apartment
units under management by restricting property supply to
areas that are expected to see stable tenant demand. As
a result, the number of managed properties at the fiscal
year-end was 556,000 units (down 15,000 units from theprevious fiscal year-end), the occupancy rate at the fiscal
year-end was 83.40% (down 0.29 percentage point fromthe previous fiscal year-end), and the average occupancy
rate during the fiscal year was 81.16% (up 1.07 percentage points from the previous fiscal year).

The rental housing market is already saturated due to thedeclining population, the increase in vacant houses, etc.,
and given these conditions, it is difficult to expect anationwide recovery in demand in the near future. As aresult, in our group’s Leasing Business, it has become
vital to take measures that will enable us to acquire tenants even in this fiercely competitive environment - suchas supplying properties in regions where growth isexpected even though the national population is declining, introducing distinctive products that allow for differentiation, and so forth. In order to do this, it is necessary
to increase the number of tenants by strengthening oursales channels and implementing measures to enhancethe value of our properties while proceeding with cost
reduction by reviewing the master lease rents based onmarket rents, periodically reviewing our property management tasks, etc.

Operating Income (Loss)(Billions of yen)

10

0

-30

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

(%)

5,000

25

4,000

20

3,000

15

2,000

10

1,000

5

-40

-50
’03/3 ’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011

0

1983

1988

1993

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

1998

2003

2008

Proportion of vacant houses (right bar)

* Source: Housing and Land Survey the Ministry of Internal Affairs and Communications

24

Leopalace21 Corporation / Annual Report 20120

Strategies

Key Products/Services

Development of directly managed sales offices
and Leopalace Partners franchise offices:
We are planning to increase the number of directly managed sales offices in metropolitan areas and Leopalace
Partners franchise sales offices in regional and suburban
areas. During fiscal 2012, we will open 13 new directly
managed sales offices and 30 new Leopalace Partners
franchise sales offices, forming a system of 400 sales
offices, while at the same time upgrading our sales capabilities by enhancing the training provided to our
Leopalace Partners.

“Room Customize”:
This innovative service makes it possible for tenants tocustomize their living space to suit their own tastes—
even in rental properties. Two plans are available: the“Designers Plan,” which is designed by an interior designer,and the “My-Collection
Plan,” which allows
tenants to customize
the apartment by giving them a choice of
wallpaper.

Corporate sales:
By building a sales system dedicated to corporate sales
and developing and operating an online site (LAM
System) aimed exclusively at corporate partners, we arecultivating strong relationships with our existing clients
while working to increase the number of new clients tostrengthen corporate sales.
Addressing tenants’ needs:
We are aiming to promote long-term occupancy andimprove occupancy rates through the introduction of differentiated products and services, such as: 1) “RoomCustomize,” customized apartments, either with furnitureand other interior furnishings selected by a prominentinterior designer or apartments that are decorated withwallpaper chosen by the tenant; and apartments that comewith “security systems,” for which there is high demand
among female tenants.
Measures aimed at international students:
In addition to our overseas branches (four sales offices in
China, three in South Korea, and one in Taiwan) and callcenters, we operate an online site (the “LAM School”site) aimed exclusively at partner schools, and are stepping up efforts to respond to growing demand amonginternational students.
Leasing costs:
In addition to reviewing established business practices
such as the cleaning of apartment buildings, while reducing the cost of property management services, we will
optimize rent paid to owners based on the market rates
for neighboring properties, etc., and continue working to
cut costs in general.

Monthly agreements:“Monthly Agreements” are available for short-term use
starting from 30 days. These are furnished units, withutilities charges included in the rent fee, making themsuitable for long-term business trips, or during periods oftraining, etc.
LEONET:
This is a specialized broadband service for Leopalace21
leased apartments.
Tenants can accessthe Internet using
dedicated tuners andtelevisions installedin the units.

Security systems:
With “24-hour, 365-day safety and security” as ourmotto, we have partnered with two major nationwide
security companies to install security systems in newly
built properties and in
existing (previously constructed) properties
under management.

Leopalace21 Corporation / Annual Report 2012

25

SEGMENT OVERVIEW:CONSTRUCTION BUSINESS

Performance

Business Environment and Related Issues

In fiscal 2011, our Construction Business posted net salesof ¥62,913 million (a 41.7% decrease from the previous fiscal year) and operating income of ¥4,309 million (a 64.0%
decrease from the previous fiscal year). Since our priority inthis fiscal year was to improve the profitability of ourLeasing Business, we worked to increase sales of built-forsale apartments not under our management, and promoted
the installation of photovoltaic power generation systems,
which will improve the value of our properties, while also
making efforts to win orders in areas that are expected tosee stable tenant demand. As a result, orders received infiscal 2011* totaled ¥50,019 million (37.7% decrease fromthe previous fiscal year) and the orders received outstanding at fiscal year-end totaled ¥54,498 million (54.7%
decrease from the end of previous fiscal year).

The business environment surrounding our Construction
Business continues to be difficult. In addition to ongoing
uncertainty regarding the domestic economic outlook,there is a downward trend in new housing starts. From apeak of 537,943 units in fiscal 2006, rental housing starts
have continued to decline, with annual new housing
starts remaining at around 300,000 annually in the last
few years. What’s more, there have been major changes
in demand for housing for which it was anticipated there
would be a specific need, such as rental housing aimed
at temporary manufacturing personnel (althoughextremely high demand for such housing had temporarily
been projected, it dropped sharply following the collapseof Lehman Brothers). In order to secure earnings even insuch a difficult environment, it is necessary to identify
areas where high occupancy rates are anticipated anddevelop differentiated products.

* With regard to orders received for the fiscal year under review, cancellations during the period were not subtracted from orders received. If cancellations had been
subtracted from orders received, the orders received for the fiscal year underreview would be a negative figure due to the centralized cancellation processingof long-term retaining leases, including orders received in the previous fiscal
years. Such a negative figure achieved as a result of conventional netting would
not appropriately express the result of orders received during the fiscal year.

Operating Income(Billions of yen)

80

Number of New Rental Housing Starts(Thousands of units)

600

60
400
40
200
20

0

0
’03/3 ’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011’03/3 ’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011* Source: Statistics on New Housing Starts of the Ministry of Land, Infrastructure, Transport, and Tourism

26

Leopalace21 Corporation / Annual Report 2012

Strategies

Key Products/Services

Supply new apartment buildings based on the Area
Strategy:
For buildings that are less than five years old, the occupancy rate is at a high level nationwide (around 90%),and since extremely high demand is also anticipated infuture, especially in Japan’s three major metropolitan
areas, we will continue supplying apartments centeringon those areas.

DUAL-L:
This is rental housing that makes use of lofts, which is astrength of our group. By incorporating the lofts on twoplaces, these apartments offer storage space equivalent
to the amount of living space (in the maximum case) and
respond to tenants’ diverse lifestyle needs.

Developing products that are ahead of their time:
We will push ahead with strengthening our selection ofdifferentiated products, such as housing adapted for narrow lots which is intended as architecture for urban areas
where high occupancy rates are anticipated; environmentally friendly housing that employs photovoltaic power
generation and storage batteries; housing with two lofts
offering an amount of storage space equivalent to the living space; and so forth.
Building high-quality apartments:
We aim to construct high-quality apartments which enable
tenants to live safely, securely, and comfortably, thanks toearthquake resistance based on vibration control braces,sound insulation based on sound-insulating walls andflooring, siding with a self-cleaning function, so that dirt
on walls is naturally washed off by drops of rain, etc.
Rebuilding:For buildings that are at least 15 years old, we will work to
stimulate demand for rebuilding. We will suggest to
apartment building owners that rebuilding, which increases
the attractiveness of a property—such as upgraded toilet
and bathroom plumbing, enlarged kitchens, and enhanced
security systems—will lead to a rise in the occupancy
rate. By doing so, we aim to secure rebuilding orders.
Construction subcontracting for non-residentialbuildings other than apartments:
We are expanding our construction subcontracting of nonresidential buildings such as elderly care facilities, for which
demand will rise in future, and retail/commercial facilities.

Eco-housing/“Sky-stage”:
This is the third edition to our eco-friendly Leco model products. The 1st floor includes aninner garden, and the 2nd floor
has a large-size “sky balcony.”In addition, there are “activeeco” features such as photovoltaic power generation systems and storage batteries,
and also “passive eco” features that make effective useof nature’s energy, like sunlight and ventilation.
Photovoltaic power generation systems:
Our group considers the safety and security of the global
environment to be a key issue. Therefore, we havebegun adding to newly constructed properties photovoltaic power generation systems that will lead to an
expansion of clean energy, and are also promoting theincorporation of thesesystems into our existing managed properties across the country.

Leopalace21 Corporation / Annual Report 201227

SEGMENT OVERVIEW:

HOTELS AND RESORT BUSINESS

Performance

Strategies

In fiscal 2011, net sales for our Hotels and Resort
Business (Guam resort facilities and hotels in Japan)
dropped to ¥6,228 million (4.1% less than the previous
fiscal year) because of the decline in Japanese tourists
due to the impact of the Great East Japan Earthquakeand other factors. We posted an operating loss of ¥1,663
million, which represents an improvement of ¥311 million compared to the previous fiscal year.

At our Guam resort facilities, we will push ahead with ourplan of targeting the elderly market by holding regular
culture classes and so forth. As well, we will promote
the use of condominiums and duplexes (bungalow-stylehousing) as leased housing aimed at affluent locals andU.S. military personnel. As a result of the synergy effectwith our other business divisions, especially collaboration
with our leasing corporate sales department, our hotels
in Japan will increase their use for business purposes
and repeat guests.

Operating Income (Loss)(Billions of yen)0

Key Products/Services

-1

-2

-3

-4
’03/3 ’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011

Business Environment and Related Issues
With regard to our Guam resort facilities, the impact of
the Great East Japan Earthquake has faded, and we areseeing a return of tourist numbers in line with the level offiscal 2010. When it comes to hotels in Japan, on theother hand, competition is growing fiercer due to theincreasing number of business hotels. Moving forward,
for both our hotels in Japan and Guam resort facilities,
our aim is to realize a near-term return to profitability withstable occupancy rates throughout the year.

28

Leopalace21 Corporation / Annual Report 2012

Leopalace Hotels:
We have developed eight domestic locations (Sapporo,
Asahikawa, Sendai, Niigata, Nagoya, Yokkaichi, Okayama,
Hakata). These hotels offer visitors superior comfort during their stay thanks torestaurants that we manage
ourselves, and video on
demand (VOD) that we offer
guests at no charge, etc.

Leopalace Resort Guam:
The Pan Pacific Sports Center
operated within Leopalace
Resort provides a fully
equipped, international-caliber, multi-sport facility set
amid the natural beauty of Guam. It is used not only as aresort but also as a training site for athletes.

SEGMENT OVERVIEW:

ELDERLY CARE AND OTHER BUSINESSES

Performance

Strategies

Thanks to the Azumi En facilities developed by the Group,
net sales for our Elderly Care Business in fiscal 2011
came to ¥8,845 million (a 13.6% increase from the previous fiscal year), and we posted an operating loss of ¥855
million, which represents an improvement of ¥654 million
over the previous fiscal year.

We are targeting improved earnings for our Azumi En
facilities through an increase in occupancy rates while
maintaining them at their current size. In particular, we
are working to improve occupancy rates at private residential homes, which have low rates and are struggling.
We are also aiming to increase our drawing power byramping up promotional activities, such as recruitment
ads, while at the same continuing with our ongoing
efforts to reduce administrative expenses.

Operating Income (Loss) of Elderly Care Business(Billions of yen)

20

Key Products/Services

-2
-4
-6
-14
’03/3 ’04/3 ’05/3 ’06/3 ’07/3 ’08/3 ’09/3 ’10/3 ’11/3 ’12/3
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011

Business Environment and Related Issues
The business environment surrounding our elderly carebusiness is difficult. While the population requiring careis growing and the market is expanding, care costs
remain high and the financial burden of personnel
expenses at facilities is increasing. The challenge for ourGroup is to realize a return to profitability in the near termby improving occupancy rates.

Azumi EnWe manage 58 Azumi En locations in the Kanto region.
At these facilities, we provide residences and care services for elderly people. These facilities include private residential homes, which offer support for daily living in a
family-like atmosphere, group homes that deliver support
for daily living through meticulous care, Day-service facilities that elderly people living in their own homes can visit
on a single day, and Short-stay facilities, where elderly
individuals canstay on a temporary basis.

Leopalace21 Corporation / Annual Report 201229

A MANAGEMENT STRUCTURE BUILT ON CSR

Our Basic Approach to CSR
Leopalace21 shoulders the enormous social responsibilityof providing housing, the most basic form of infrastructure
for human life. To fulfill this responsibility and contribute to
the realization of a sustainable society as a corporate citi-

zen, we have established four basic CSR-related policies.
We are pushing ahead with various initiatives based onthese policies.

CSR Declaration
We, as a corporate citizen, are determined torespond to the expectations of all stakeholders,
including customers, aiming at developing together
and contributing to the realization ofa sustainable society.

Offering services ofsuperior quality anda lifestyle of affluence

Sound and highly
transparent
business activities

Four Basic
Policies

Basic CSR Policy
As a corporate citizen determined to contributeto the realization of a sustainable society,
we have established four basic policies.

Contributions to
the local community /Creation of favorable
work environments

Realization ofa society considerate of
the global environment

Sound and Highly Transparent Business Activities
Corporate Governance
Leopalace21 has positioned the preparation and strengthening of corporate governance as one of its most importantmanagement issues. In order to realize greater corporate
value for all stakeholders, we are aiming for efficient, fair,and highly transparent management, and are working
each year to strengthen our governance structure.
While the Board of Directors, which is our decisionmaking body, seeks to improve the company’s performance through appropriate and prompt decision making,the Board of Auditors, which has been set up as a bodyoverseeing the directors’ executive actions, works tostrengthen management monitoring functions. Besides
clarifying responsibilities and powers by employing a
triple-headquarters structure, we have established aCompliance Committee as an advisory body to the Boardof Directors. Through appointing outside directors thatare highly knowledgeable about corporate management
as the directors and other measures, we aim to continuously enhance corporate governance.

Corporate Governance System

Developments in the Preparation of Corporate
Governance and Internal Control Structure

General Meeting of Shareholders
Appointment/
RemovalAppointment/
RemovalCorporate Management
Board of Directors
Important
Council
8 Directors
Directors/Standing Auditors

Mattersfor
Discussion(including 1
Outside Director)

4 Auditors

Audit

Establishment of the Corporate Code of Ethics

Appointment/
RemovalCreation of an internal control system•Strengthening of the Compliance Committee

Accounting
Auditors(including 2
Outside Auditors)

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

Appointment/
Removal
Accounting
Audit

2006

•Establishment of a Legal Affairs Department•Creation of the internal reporting system

Board of Auditors•Establishment of the Corporate Management Council

2 Standing Auditors /2 Outside Auditors

Formulation of auditing implementation standards

2007

ReportReportAppointment/
Removal/Supervision

Reportsubmitted

2008

President/Executive Officers/
Outside Director/Standing Auditors
Executive Actions

Business Audit

Auditing Department

Establishment of a CSR Committee
Expansion and strengthening of the internal

2010

Auditing Council

related to the internal control system
Introduction of the executive officers system

ReportExecutive Officers Meeting•Formation of a Risk Management Committee

auditing office as the Audit Department
Establishment of an Auditing Council
Appointment of Outside Directors

Number of Board of Directors/Other Meetings Held in
Fiscal 2011 and Attendance Rate of Outside Director

Marketing andSales Headquarters
30

General Planning
Headquarters

Leopalace21 Corporation / Annual Report 2012

Business Management
Headquarters

Board of Directors: 20 meetings, 100%
Corporate Management Council: 12 meetings, 92%

Directors and Auditors (As of June 30, 2012)

Back row from left: Auditor (Outside) Masahiko Nakamura, Auditor (Outside) Koichi Fujiwara, Director Yuzuru Sekiya, Director (Outside) Tetsuji Taya,Director Fumiaki Yamamoto, Standing Auditor Shinya Watanabe and Standing Auditor Masumi Iwakabe
Front row from left: Director Kou Kimura, Director Hiroyuki Miyata, President and CEO Eisei Miyama, Director Tadahiro Miyama
and Director Yoshikazu Miike

Interview with the Outside Director
Q: What do you think are the roles expectedof you as an Outside Director?
I think one of my roles is to serve as a brake in management decisions from the perspective of an outsider who has no vested interest in each case. In
light of the fact that the business was in an extremely difficult situation two years ago when I assumed
the position of Outside Director, there may also havebeen expectations that I would drive the businessrestructuring. I have considerable experience in corporate turnarounds, and I believe that I have managed to make a contribution in that area.

Q: What do you ask of Leopalace21 in order for
you to perform the roles expected of you?
To be provided with the necessary information.
Upon assuming the position of Outside Director, I
confirmed that I would be given proper access to allnecessary information. I also currently attend day-today decision-making meetings, committee meetings, etc., and so I do feel that such an environmentis in place. My impression is that corporate management actively seeks out the opinions of outsiders.

Outside Director

Tetsuji Taya
Taya took part in the establishment of theIndustrial Revitalization Corporation of Japan(IRCJ), where he assumed the position ofManaging Director. After the dissolution of
IRCJ, he established Industrial Growth
Platform, Inc. He assumed the position of
Director of Leopalace21 in 2010.

Q: How much progress has been made to datein the business restructuring of Leopalace21?
There are cases of business restructuring ending up
in failure due to friction inside and outside the company, but in the case of Leopalace21, I think thatbarriers have managed to be overcome as a resultof the leadership demonstrated by the President
and CEO and the rest of corporate management.
As a company that operates a business, the question is not whether a business restructuring was
implemented, but rather whether the profit structure has been improved as a result of the restructuring. Great improvements have been made in that
respect. I see this as evidence that corporate management is making serious restructuring efforts. I
believe that coming up, the next phase will pave
the way for growth, enabling us to resume sustainable growth in the medium and long term.

Leopalace21 Corporation / Annual Report 201231Organization of CSR Promotion, Compliance and Risk Management
We ensure that our corporate activities are in compliOrganization of CSR Promotion, Compliance and Risk Management
ance with laws and regulations, and also social ethics.
Board of Directors
ReportReportReport
In particular, we have strengthened the compliance
Compliance Committee CSR Committee
Risk Management
structure through the establishment of an internalCommittee
Chairperson:
Chairperson:
Corporate Code of Ethics, an internal reporting system,
President and CEO
General Manager ofChairperson:
Members:
Business Management
President and CEO
and a Compliance Committee.
Internal committee
Headquarters
Members:
members andMembers:
Internal committee
The Compliance Committee, which serves as thelegal counsel
CSR officers
members and external
committee members
advisory body to the Board of Directors, is chaired by(lawyers and accountants)
the President and CEO. The Compliance Committee
Compliance Hotline
Jurisdiction of the Generalis comprised of lawyers and internal committee
and Legal Affairs
Department
members, and undertakes various initiatives to proWhistleblowers, consulters, etc.
mote compliance. Such initiatives include
Each business division and department
training as well as the expansion and upgrading of the information management system.
Specific Compliance Initiatives
CSR activities are promoted by the CSR
Implementation period /Committee under the direct control of the Board
Description
ThemesFrequencyof Directors, while the Risk Management
2007-2012 /E-learning“Insider Trading,” etc.
Committee oversees risk management comTotal: 18 times
pany-wide. Concerning the internal audit sysPublication of compliance2006-2011 /“Sexual Harassment,” etc.
newsletter
Total: 18 times
tem, in addition to the Auditing Department,“Organized Crime
which is an internal auditing unit independent
Compliance training
Nov. 2011Exclusion Ordinances and(group training)of each operations unit, we have established
Our Response,” etc.
the Auditing Council to effect an even greater
Compliance training (training forSept. 2011 /“Internal Reporting”
employees of Group companies)
Total: 6 times
strengthening of the Department, and we areworking to verify, evaluate, and improve its
Apr. 2010-Mar. 2011 /Compliance training“Information Management,”
Total: 7 times
effectiveness in accordance with our basic(training for non-management “Working Hours” andApr. 2011-Aug. 2011 /employees)“Harassment”
policies for internal control systems.
Total: 39 times

Offering services of superior quality and a lifestyle of affluence
The supply of high-quality housing, especially the supplyof high-quality rental housing is still a serious social issue
today. As a company that provides rental housing, we are
striving to offer residences in which superior-quality services and an affluent lifestyle can be enjoyed.

Call center staff

32

Leopalace21 Corporation / Annual Report 2012

We are developing new products, one after another,that meet the diverse needs of residents and needs thatchange with the times. In recent years, we havelaunched the “Room Customize” service, which allows
tenants to freely change the interior design of apartments. We have also started offering apartments
equipped with security systems. In addition, we makeproposals on effective land utilization. We propose subcontracting the construction of elderly care facilities andpartial leased residences, in which rental income helps
alleviate the burden of mortgage loan payments.
In addition, service centers have been established in
129 locations across Japan (as of the end of June 2012)
to also support comfortable everyday living. The
Leopalace Service Center in Saitama Prefecture accepts
phone inquiries from all over Japan 24 hours a day.

Contributions to the local community / Creation of a favorable work environment
As a member of the local community, we strive to contribute to the community. At the same time, we endeavor
to create a work environment in which employees candemonstrate their abilities.
To help in the reconstruction following the Great East
Japan Earthquake, in addition to collecting aid in the formof donations, we extended support through the provisionof housing—specifically, the construction of temporary
housing—as well as private master lease system housing
through the application of the Disaster Relief Act, andalso offered discounts on rental housing for those affected by the Earthquake.
In addition, we engage in day-to-day activities that contribute to society, such as a “Clean Campaign,” in which wetake part in local cleanup activities, “Children Emergency
Call 110,” collaborative action for blood donations, and a“Volunteer Vendor” campaign, in which part of vending
machine sales are donated to welfare organizations.
As part of the initiatives for creating a vibrant work environment, we have introduced such systems as “Mental

Health Support,” “Length-of-Service Awards,” and a“Return to Employment System.” We are actively providing support for the bearing and raising of children, while
promoting both the employment of the disabled (throughthe establishment of Leopalace Smile Co., Ltd.) and the hiring of seniors. The employment rate for the disabled, at
1.51% on April 1, 2008 (prior to the establishment of
Leopalace Smile), rose to 2.05% at the end of March 2012.

Workplace scene at Leopalace Smile

Realization of a society considerate of the global environment
We aim to undertake corporate activities in a way that
reduces the stress on the environment. We also ask our
great many apartment tenants, too, for their cooperationin conserving energy and other initiatives.
As an initiative for reducing environmental stress, weoffer our overall environmentally friendly “Leco Model”
apartments, which meet the demand for clean energy
and are equipped with photovoltaic power generation

systems, storage batteries, and various other types ofenergy-saving equipment. We are also promoting the
introduction of photovoltaic power generation systems at
existing apartments under our management. In addition,
we are implementing initiatives to introduce water-saving
faucets and water-saving shower heads in the apartments under our management.
In addition to the above, as day-to-day initiatives for
reducing the environmental stress with our businessactivities, we implement “Cool Biz” and “Warm Biz”
campaigns, make efforts to halt unnecessary engine
idling, promote green procurement, and have discontinued the use of disposable chopsticks at directly-managed
hotels, among other activities. Through such activities,
we contribute to the realization of a society that shows
consideration to the global environment.
For details on our CSR activities, please see:
CSR Report (http://www.leopalace21.co.jp/IR/library/csr/index.html)*Available in Japanese only

Scene of the installation of photovoltaic power generation system

Leopalace21 Corporation / Annual Report 201233

Business and Other Risks
Listed below are the principal risks that we believe could

3. Profit

affect the Leopalace21 Group’s business performance

The Leopalace21 Group includes overseas subsidiaries

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

involved in the hotel and resort business, and as a resultand does not cover all the risks that could affect Groupour business results may be affected by exchange ratebusinesses. All forward-looking statements included

fluctuations. Our consolidated subsidiary Leopalace

herein reflect the judgment of the Leopalace21 Group

Guam Corporation has borrowed funds in the form ofmanagement as of the end of the consolidated fiscal

yen-denominated loans from Leopalace21 for the pur-term under review.

pose of acquiring facilities and equipment. Because thevalue of this debt is calculated each year as of the date of

1. Revenue-related Risk

account settlement, the Company is subject to foreign

Leopalace21 apartments are primarily utilized by single

exchange gain or loss. Therefore it is possible that future

persons, and corporate contracts typically involve short-

fluctuations in exchange rates could affect the Group’s

term leases of apartments for use as company dormitories

business performance and financial position.

by workers travelling on company business. As a result,changes in the performance of the overall economy andcorporate business results could affect employment rates

4. Risks Associated with Tangible Fixed Assets
and Real Estate Held for Resaleor the demand for business trips, and this could negatively

Impairment losses or appraisal losses due to declines in

impact occupancy rates at the Company’s apartments.

the current market value of marketable securities, prop-

In addition, we have included in our forecasts all con-erty for sale, fixed assets, or other assets could adverse-

tracted orders for apartment construction, however thely affect the Company’s business performance as well as

possibility that the client may not be able to obtain theits financial position. Moreover, with regard to thenecessary financing or loans from a financial institution isCompany’s hotel and resort related businesses, there

an important risk factor. Changes in the willingness of finan-

will be a continuing need for regular investments in facili-

cial institutions to provide credit, changes in the assessedty replacement and renewal. As a result, changes invalue of real estate to be used as collateral, and fluctua-

depreciation expenses could have an effect on thetions in interest rates could affect Company revenues andCompany’s business performance.

adversely affect the Company’s business results.
5. Loan Losses, and Provision for Bad Debt
2. Cost of Sales

The Company conducts financing activities, and carries

Based on the Company’s apartment construction contract,

on its books a balance for operating loans receivable

the Company concludes a master lease agreement withcomprising apartment construction loans and real estateapartment owners to lease back the constructed apart-

equity loans. The Company also may guarantee the housing

ment for a period of time and at a rent level that are bothloans and membership fee loans offered to its customers

fixed at the time the contract is concluded. Therefore,by financial institutions. Apartment and other loans wherefluctuations in the amount of rental income received

repayment has become doubtful are accounted for sepa-

from tenants during the contract period could adversely

rately as doubtful receivables (tangible), and a provision isaffect the Company’s profitability.

made for bad debt in each such case; however, our business results could be affected if amounts of uncollectible
debt should increase, or if we should be obliged to honor
claims pertaining to these loan guarantees.

34

Leopalace21 Corporation / Annual Report 2012

6. Reserve for Apartment Vacancy Lossinterest-bearing debt, non-consolidated operating income

In order to prepare for a risk of losses due to an increase

fall below the prescribed limits of a financial covenant,in apartment vacancies, Leopalace21 has established athere is a possibility that the Company, at the behest of“Reserve for apartment vacancy loss” equal to the amountthe financial institution, could forfeit the benefit of theof loss that may be expected to be incurred during a rea-term for the subject loan. Further, should the Company

sonably estimable period. The amount of this reserve isviolate the conditions of a financial covenant, there is abased on the rent levels set for individual leased units,

possibility that the Company could also forfeit the benefit

the number of households, and occupancy rate forecastsof the term for corporate bonds or other borrowings.

calculated for each apartment building. Should any of

Leopalace21 is improving its business performancethese figures fall below the estimated values it could

through the execution of the business plan, and continually

become necessary to increase the amount of theimplements to the best of its ability measures to avoid vio-

reserve, and this could adversely affect the results of thelating these financial covenants and the resulting forfeiture

Company’s leasing business.

of the benefit of the term. However, should the Company
forfeit the benefit of the term for its loans, this could have

7. Leasehold Deposits and Guarantee Deposits

a major impact on the Company’s operating performance.

Leopalace21 has long-term deposits from property owners
held as an advance for apartment repair and renovation.

9. Information Leaks

These consist mainly of deposits received from property

The Leopalace21 Group holds a great deal of information,

owners as a portion of future repair and renovation

including personal information obtained through the con-expenses, following the dissolution of Leopalace21

sent of, or as a result of non-disclosure agreements with

Owners Mutual Insurance Association. Leopalace21

client companies. To control information security, themakes a concerted effort as a leasing business operator

Company has drawn up the required information security

to ensure the soundness of the apartment maintenanceguidelines, and set up a Compliance Committee to thor-

structure, through which properties fully leased from theoughly educate our executive officers and employees

owner are operated and maintained. However, an unex-

about information security issues. Nevertheless, in thepected, large-scale repair or renovation could have an

unlikely event that a leak of information of some typeimpact on Leopalace21’s financial position.

should occur, there is a possibility that the Group’s repu-

Leopalace21 also has deposits for Leopalace Resort
memberships related to the Guam resort business, mosttation could be damaged, and that business performancemight be affected.

of which date to the opening of the resort complex inJuly 1993. The Leopalace21 Group works to increase

10. Other Risks

member usage by improving facilities and member serv-

The Group is aware that it incurs a variety of risks in theices, but should there be an unexpected number ofcourse of promoting its businesses, and it attempts torequests for reimbursement of these deposits, this could

prevent, distribute or avoid risk whenever possible.

have an impact on Leopalace21’s financial position.

Nevertheless, the Group’s business performance andfinancial position may be affected by changes in economic

8. Financial Covenantsconditions, the real estate market, the financial and stock

Financial covenants have been set on the numerous loan

markets, legal regulations, natural disasters, and a variety

agreements that Leopalace21 has concluded with finan-of other factors.

cial institutions. Accordingly, should consolidated or nonconsolidated net assets, consolidated or non-consolidated

Leopalace21 Corporation / Annual Report 2012

35

FINANCIAL SECTION

MANAGEMENT’S DISCUSSION AND ANALYSIS ....................................... 37
CONSOLIDATED BALANCE SHEETS ......................................................... 42
CONSOLIDATED STATEMENTS OF OPERATIONS ..................................... 44
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ............... 45
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY......................... 46
CONSOLIDATED STATEMENTS OF CASH FLOWS .................................... 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................. 49
INDEPENDENT AUDITOR’S REPORT......................................................... 81

36

Leopalace21 Corporation / Annual Report 2012

FINANCIAL SECTION:

MANAGEMENT’S DISCUSSION AND ANALYSIS

1. Operating Environment
During the current fiscal year under review, the Japanese
economy showed a gradual recovery trend from the economic slowdown caused by the Great East Japan
Earthquake but the downturn in the overseas economy
against the backdrop of the European sovereign debt crisis and higher crude oil prices and their impact on foreignexchange rates and share prices means that the outlook
for the future remains unclear. In the housing industry,
new housing starts during fiscal year 2011 increased by
2.7% year-on-year, but looking at rental housing only,
starts fell by 0.7% year-on-year, the third consecutive
annual decline.
In this environment, net sales in the construction business recorded a significant decline, due to measures forcurbing apartment supply as a result of the shift to theleasing business, but the Leopalace21 Group sought tosecure sales in its leasing business by increasing various
ancillary revenues. Further, occupancy rates recovered as
the result of strengthened corporate sales along withthorough cost cutting measures, which brought theGroup its first profit in three years.

(2) Earnings
Although net sales decreased, gross profit was ¥55,864
million, (increased ¥19,865 million from the previous fiscal year), operating income came to ¥4,586 million(increased ¥28,193 million from the previous fiscal year),and net income was ¥1,589 million (increased ¥42,478
million from the previous fiscal year) making black for the
first time in these three years.
In the leasing business, operating income was ¥5,249
million (compared to operating loss of ¥30,094 million in
the previous fiscal year). This was due to a ¥13,398 million
reversal in the reserve for apartment vacancy loss (compression of cost of sales) associated with improved occupancy of corporate tenants and cost cutting efforts, etc.
Although the construction business has continuously
been striving to tackle cost reduction, such as lowering
material procurement costs and review of offices andhuman resource, etc., it posted an operating profit of¥4,309 million (down 64.0% year-on-year) in proportion
to a reduction in sales.

Change in operating income(Billions of yen)

2. Analysis of Business Results

15(1) Net Sales
Net sales for the fiscal year under review were ¥459,437
million (down 5.2% year-on-year). In the construction
business, net sales came to ¥62,913 million (down
41.7% year-on-year) because of the holding back ofapartment construction as a result of the transition to a
stock business model. The leasing business has benefited from expanded auxiliary income and the sales of security systems, and reported net sales of ¥380,308 million(up 6.6% year-on-year).

Change in net sales(Billions of yen)
600
500

Construction Hotel &FY11/3 Leasing
+23.7
-44.9
Resort484.4-0.3

Elderly
Care+1.1

Others-4.5

FY12/3
459.4

400
300

Leasing
356.6

200
100
0

Construction
107.8

Leasing
380.3
Construction
62.9

Hotel &
Construction Resort
+0.3
-7.7

10
5

Elderly
Care+0.7

Others Adjustments
-0.3
-0.1
FY12/3

4.6

0Leasing
+35.3

-5
-10
-15

FY11/3
-23.6

-20
-25

(3) Segment Information
Leasing Business
The occupancy rate at the end of FY2011 was 83.40%(down 0.29 points from the end of the previous fiscal
year), and the average occupancy rate during the fiscal
year under review was 81.16% (up 1.07 points year-onyear), enabling us to secure a stable occupancy rate. Thisis mainly due to strengthening corporate sales, implementing various campaigns, as well as controlling the numberof units under management by supplying apartments inareas that are expected to see stable tenant demand.
Corporate occupied units hit the highest record of219,239 units (up 8.2 points year-on-year).
There were 556,207 units under management at theend of the fiscal year under review (down 15,449 units

Leopalace21 Corporation / Annual Report 201237

from last fiscal year). The number of direct offices at theend of this fiscal year was 167 (increasing 3), and the number of franchise offices was 190 (increasing 69).
Construction Business
Orders received during the fiscal year under review were¥50,019 million (down 37.7% from the previous fiscal
year) and the orders received outstanding at the end of
the fiscal year under review stood at ¥54,498 million(down 54.7% from the previous fiscal year). This has
been the result of controlling the number of units undermanagement by supplying apartments in areas that are
expected to see stable tenant demand, putting the top
priority on improvements in the earnings structure of theleasing business. Regarding order figures for the fiscal
year under review, cancellations during the period were
not subtracted from orders received but were recorded
after being subtracted from the orders received outstanding. If it is as before, consolidated orders received for the
fiscal year under review would have been -¥5,299 million.
On the other hand, we promote sales of “properties managed by their owners” and the installation of solar powersystems which will lead to enhancing property values. In
addition, we will strengthen construction business profitability through subcontracting for business-use buildings, suchas elderly care facilities, offices, and commercial facilities.
Hotel & Resort BusinessNet sales in resort facilities in Guam and hotels in Japan
were ¥6,228 million (down 4.1% year on year), and theoperating loss was ¥1,664 million (increasing ¥311 million in loss)
Elderly Care & Other Businesses
In elderly care, net sales were ¥8,845 million (improving
13.6% year-on-year), and operating loss was ¥855 million(improving ¥655 million).
In other businesses such as the small-claims and shortterm insurance business, the finance business and theresidential sales business, net sales were ¥1,142 million(down 79.9% year on year), and the operating loss was¥38 million (compared to operating income amounted to¥288 million in the previous fiscal year) .

3. Analysis of Financial Position(1) Position of Assets, Liabilities, and Net assets
Total assets at the end of the subject fiscal year declined¥33,491 million from the end of the previous fiscal year,

38

Leopalace21 Corporation / Annual Report 2012to ¥264,783 million. This was mainly attributable todecreases in prepaid expenses of ¥4,881 million, buildings and structures of ¥4,075 million, land of ¥2,745 million, and long-term prepaid expenses of ¥15,928 million.
Total liabilities decreased ¥34,281 million from the endof the previous fiscal year, to ¥230,952 million. This primarily reflected an increase in interest-bearing debt of¥7,796 million, and long-term advances received of¥7,078 million, and decreases in advances received of¥18,081 million, reserve for apartment vacancy loss of¥13,398 million, and lease/guarantee deposits receivedof ¥16,182 million.
Net assets increased ¥790 million from the end of theprevious fiscal year, to ¥33,831 million, chiefly due to anincrease of ¥950 million in the negative balance of foreign currency translation adjustments and an increase of¥1,589 million in retained earnings because of the posting of a net income. The ratio of shareholders’ equity toassets rose 1.7 points from the end of the previous fiscal
year, to 12.8%.

Equity Ratio
(%)

37.0

40

33.0 32.4

33.4

31.3

30

20

16.6

19.3

17.9
11.1 12.8

1002003 2004 2005 2006 2007 2008 2009 2010 2011 2012

(2) Cash Flow Position
Cash flow from operating activities was a net outflow of¥3,175 million (a decline of ¥25,162 million net outflow
from the last consolidated fiscal year). This was mainly
due to a decline of long-term prepaid expenses to¥20,617 million while the reserve for apartment vacancy
loss declined to ¥13,398 million and a decline in guarantee deposits received to ¥16,386 million.
Cash flow from investing activities was a net outflow
of ¥3,538 million, (compared to a net inflow of ¥13,144
million in the last consolidated fiscal year). This is mainly
due to payment for the purchase of property, plant andequipment and intangible assets of ¥817 million, payments for time deposits of ¥419 million (after deducting

revenue from expiring time deposits) and other payments (long-term specified trusts, etc.) of ¥2,289 million.
Cash flow from financing activities was a net inflow of¥7,245 million (compared to a net outflow of ¥15,891 million in the previous consolidated fiscal year). This is mainly due to net proceeds from borrowing of ¥8,415 million(after deducting loan repayments and redemption of corporate bonds) and repayment of finance lease obligationsof ¥1,262 million.
As a result, cash and cash equivalents at the end of theconsolidated fiscal year under review was ¥40,878 million, an increase of ¥386 million from the previous consolidated fiscal year.
(3) Events that could have a significant impact on the
Company’s management
The Leopalace21 Group recorded operating losses andnet losses for the previous two consecutive fiscal years
but, by steadily implementing management reforms,
operating income of ¥4,586 million and net income of¥1,589 million were recorded for the consolidated fiscal
year under review as the foundation has been built for abusiness structure that can be a stable source of profit
for the leasing business, the Group’s stock business. As
a result of this, it has been judged that the events that
could have a significant impact on company management
have been resolved.

4. Capital Strategy
On February 27, 2012, issuance of 1st to 3rd series ofstock acquisition rights (with option to reset strike price)through third-party allotment was completed (Target Issue
Program “TIP”* subject to Issuer’s approval for exercise).
The allottee is Deutsch Bank AG, London Branch.

Outline of stock acquisition rights (SAR)
1st

2nd

3rd

Total

14 million
14 million
14 million
42 million
SARs issued
Total issue price ¥3.09 million ¥2.99 million ¥2.89 million ¥8.98 million
¥250
¥300
¥350
—
Strike price
Funds to be raised ¥3.5 billion ¥4.2 billion ¥4.9 billion ¥12.6 billion
3 years
3 years
3 years
3 years
Exercise period
7.98%
7.98%
7.98%
23.94%
Dilution rate
* Target Issue Program “TIP” subject to Issuer’s approval for exercise. The
Company can set three different strike prices, and issue new shares by stages inaccordance with the increase of the Company’s share price. The share acquisitionrights may not be exercised without the approval of the Company.
* Option to reset strike price: The strike price may be reset by resolution of theBoard of Directors of the Company. (The price is reset to 92% of the closing priceof the previous business day, with a minimum strike price of ¥150.)

5. Fundamental Policy on the Distribution of
Earnings and Dividends
The Leopalace21 Group acknowledges that the distribution of profit to shareholders is an important management issue. However, retained earnings are negative so
it is with deep regret that the Group will pass on theterm-end dividend. The Group also plans to pass on its
dividends for the next fiscal year but will endeavor torecover retained earnings through a stable profit structure with the aim of restoring the dividend.

6. Business and Other Risks
Listed below are the principal risks that we believe could
affect the Leopalace21 Group’s business performanceand financial position. However, this list is not all-inclusive and does not cover all the risks that could affectGroup businesses. All forward-looking statements included herein reflect the judgment of the Leopalace21 Groupmanagement as of the end of the consolidated fiscal
term under review.
(1) Revenue-related Risk
Leopalace21 apartments are primarily utilized by single
persons, and corporate contracts typically involve shortterm leases of apartments for use as company dormitories by workers travelling on company business. As aresult, changes in the performance of the overall economy and corporate business results could affect employment rates or the demand for business trips, and this
could negatively impact occupancy rates at theCompany’s apartments.
In addition, we have included in our forecasts all contracted orders for apartment construction, however the possibility that the client may not be able to obtain the necessaryfinancing or loans from a financial institution is an important risk factor. Changes in the willingness of financial
institutions to provide credit, changes in the assessedvalue of real estate to be used as collateral, and fluctuations in interest rates could affect Company revenues
and adversely affect the Company’s business results.
(2) Cost of Sales
Based on the Company’s apartment construction contract, the Company concludes a master lease agreementwith apartment owners to lease back the constructedapartment for a period of time and at a rent level that areboth fixed at the time the contract is concluded.
Therefore, fluctuations in the amount of rental income

Leopalace21 Corporation / Annual Report 201239

received from tenants during the contract period could
adversely affect the Company’s profitability.
(3) Profit
The Leopalace21 Group includes overseas subsidiaries
involved in the hotel and resort business, and as a result
our business results may be affected by exchange rate
fluctuations. Our consolidated subsidiary Leopalace
Guam Corporation has borrowed funds in the form of
yen-denominated loans from Leopalace21 for the purpose of acquiring facilities and equipment. Because thevalue of this debt is calculated each year as of the date ofaccount settlement, the Company is subject to foreignexchange gain or loss. Therefore it is possible that futurefluctuations in exchange rates could affect the Group’sbusiness performance and financial position.
(4) Risks Associated with Tangible Assets and Real
Estate Held for Resale
Impairment losses or appraisal losses due to declines in
the current market value of marketable securities, property for sale, fixed assets, or other assets could adversely affect the Company’s business performance as well as
its financial position. Moreover, with regard to theCompany’s hotel and resort related businesses, there
will be a continuing need for regular investments in facility replacement and renewal. As a result, changes in
depreciation expenses could have an effect on the
Company’s business performance.
(5) Loan Losses, and Provision for Bad Debt
The Company conducts financing activities, and carries on
its books a balance for operating loans receivable comprising apartment construction loans and real estate equity loans. The Company also may guarantee the housing
loans and membership fee loans offered to its customers
by financial institutions. Apartment and other loans where
repayment has become doubtful are accounted for separately as doubtful receivables (tangible), and a provision ismade for bad debt in each such case; however, our business results could be affected if amounts of uncollectible
debt should increase, or if we should be obliged to honor
claims pertaining to these loan guarantees.

40

Leopalace21 Corporation / Annual Report 2012

(6) Reserve for Apartment Vacancy Loss
In order to prepare for a risk of losses due to an increase
in apartment vacancies, Leopalace21 has established a“reserve for apartment vacancy loss” equal to theamount of loss that may be expected to be incurred during a reasonably estimable period. The amount of thisreserve is based on the rent levels set for individual
leased units, the number of households, and occupancy
rate forecasts calculated for each apartment building.
Should any of these figures fall below the estimated values it could become necessary to increase the amount of
the reserve, and this could adversely affect the results of
the Company’s leasing business.
(7) Leasehold Deposits and Guarantee Deposits
Leopalace21 has long-term deposits from property owners held as an advance for apartment repair and renovation. These consist mainly of deposits received fromproperty owners as a portion of future repair and renovation expenses, following the dissolution of Leopalace21
Owners Mutual Insurance Association. Leopalace21
makes a concerted effort as a leasing business operator
to ensure the soundness of the apartment maintenancestructure, through which properties fully leased from theowner are operated and maintained. However, an unexpected, large-scale repair or renovation could have an
impact on Leopalace21’s financial position.
Leopalace21 also has deposits for Leopalace Resort
memberships related to the Guam resort business, mostof which date to the opening of the resort complex inJuly 1993. The Leopalace21 Group works to increase
member usage by improving facilities and member services, but should there be an unexpected number ofrequests for reimbursement of these deposits, this could
have an impact on Leopalace21’s financial position.
(8) Financial Covenants
Financial covenants have been set on the numerous loan
agreements that Leopalace21 has concluded with financial institutions. Accordingly, should consolidated or nonconsolidated net assets, consolidated or non-consolidated
interest-bearing debt, non-consolidated operating income
fall below the prescribed limits of a financial covenant,there is a possibility that the Company, at the behest of
the financial institution, could forfeit the benefit of theterm for the subject loan. Further, should the Company
violate the conditions of a financial covenant, there is apossibility that the Company could also forfeit the benefitof the term for corporate bonds or other borrowings.
Leopalace21 is improving its business performancethrough the execution of the business plan, and continually implements to the best of its ability measures toavoid violating these financial covenants and the resulting forfeiture of the benefit of the term. However,should the Company forfeit the benefit of the term forits loans, this could have a major impact on the
Company’s operating performance.
(9) Information Leaks
The Leopalace21 Group holds a great deal of information,
including personal information obtained through the consent of, or as a result of non-disclosure agreements withclient companies. To control information security, theCompany has drawn up the required information security
guidelines, and set up a Compliance Committee to thoroughly educate our executive officers and employees
about information security issues. Nevertheless, in theunlikely event that a leak of information of some typeshould occur, there is a possibility that the Group’s reputation could be damaged, and that business performancemight be affected.
(10) Other Risks
The Group is aware that it incurs a variety of risks in thecourse of promoting its businesses, and it attempts toprevent, distribute or avoid risk whenever possible.
Nevertheless, the Group’s business performance andfinancial position may be affected by changes in economic conditions, the real estate market, the financial andstock markets, legal regulations, natural disasters, and avariety of other factors.

Leopalace21 Corporation / Annual Report 201241

FINANCIAL SECTION:CONSOLIDATED BALANCE SHEETS
Leopalace21 Corporation and consolidated subsidiaries
March 31, 2012 and 2011

Thousands of
U.S. dollars (Note 1)

Millions of yen

2012

2011

2012

ASSETS
Current assets:
Cash and cash equivalents (Notes 2-(2), 4, 5-(2))
Trade receivables (Note 5-(2))
Accounts receivable for completed projects (Note 5-(2))
Operating loans (Note 5-(2))
Securities (Notes 2-(4), 5-(2), 6)
Real estate for sale / property inventories (Note 2-(3))
Real estate for sale in process (Note 11-(c))
Payment for construction in progress
Raw materials and supplies
Prepaid expenses
Deferred tax assets (Note 10)
Other accounts receivable
Other
Allowance for doubtful accounts (Note 2-(10))
Total current assets

41,478
4,541
1,004
2,420
10
14
—
620
491
18,998
3,093
1,153
9,687
(447)
83,062

40,675
6,260
2,118
4,311
—
14
105
587
458
23,878
3,713
1,235
11,870(1,005)
94,219504,659
55,253
12,21829,438
122
169
—
7,549
5,979
231,145
37,63814,025
117,843(5,434)
1,010,604

Property, plant and equipment: (Notes 2-(6), 2-(22))
Buildings and structures (Notes 11-(c), 8)
Accumulated depreciation
Net (Note 11-(c))
Land (Notes 11-(c), 8)
Leased assets (Note 2-(19))
Accumulated depreciation
Net
Construction in progress
Other (Note 20-(a))
Accumulated depreciationNet
Total property, plant and equipment

106,865(51,749)
55,116
82,106
6,842(3,936)2,906
28
13,664(11,807)
1,857
142,013108,931(49,740)
59,191
84,851
6,238(2,727)3,511
67
13,893(11,228)
2,665
150,285

1,300,223(629,622)
670,601
998,976
83,247(47,886)
35,361
337
166,245(143,656)
22,5891,727,864

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

7,080
6,490
588
2,838
18,295
3,319
62
4,426
(3,390)39,708
264,783

7,589
6,534
601
4,453
34,223
2,269
76
3,103
(5,078)53,770298,274

86,13678,9597,155
34,525
222,595
40,382752
53,879(41,250)
483,133
3,221,601

The accompanying notes are an integral part of these statements.

42

Leopalace21 Corporation / Annual Report 2012

Thousands of
U.S. dollars (Note 1)

Millions of yen

LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable (Note 5-(2))
Accounts payable for completed projects (Note 5-(2))
Short-term borrowings (Notes 5-(2), 11)Current portion of long-term debt (Notes 5-(2), 11)Bonds due within one year (Note 5-(2))
Lease obligations (Notes 5-(2), 11-(a))
Accounts payable-otherAccrued expenses
Accrued income taxes
Advances received
Customer advances for projects in progress
Reserve for warranty obligations on completed projects(Note 2-(13))
Reserve for fulfillment of guarantees (Note 2-(14))
Reserve for disaster losses (Note 2-(15))
Reserve for switch to terrestrial digital broadcasts (Note 2-(16))
Asset retirement obligations (Note 18)
Other
Total current liabilities
Non-current liabilities:
Bonds (Note 5-(2))
Long-term debt (Notes 5-(2), 7-(2), 11)Lease obligations (Notes 5-(2), 11-(a))
Retirement benefit reserves (Notes 2-(11), 13)
Reserve for apartment vacancy loss (Note 2-(12))
Lease/guarantee deposits received
Asset retirement obligations (Note 18)
Long-term advances received
Long-term other payable
Other
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity:
Common stock: (Note 19)
Authorized: 250,000,000 shares
Issued: 175,443,915 shares
Capital surplus
Retained earnings
Treasury stock 6,867,850 shares (Note 19)
Total shareholders’ equity
Accumulated other comprehensive income:Net unrealized gains on “other securities” (Note 2-(4))
Deferred gains or losses on hedges
Foreign currency translation adjustments (Note 2-(21))
Total accumulated other comprehensive income
Share subscription rights
Total net assets
Total liabilities and net assets

2012

2011

2012

2,791
13,31438,904
6,801
560
1,348
14,2085
324
79,074
2,957

2,699
12,634
22,691
11,811560
1,230
11,6864427
97,154
4,055

33,958161,985
473,344
82,746
6,813
16,406
172,869
65
3,944
962,082
35,980

57
391
51
123
28
5,360
166,296

134
136
1,189
1,188
30
6,092
173,720

688
4,757
618
1,491
338
65,2252,023,309

2,040
—
2,001
8,041
19,2079,854
50
21,9089
1,546
64,656230,952

2,600
2,228
2,739
7,874
32,60526,03548
14,8301,210
1,344
91,513
265,233

24,821—
24,345
97,835
233,693
119,887612
266,558114
18,803786,668
2,809,977

56,56356,563

688,196

33,884(44,964)(4,959)40,52434,334(46,553)(5,501)
38,843412,262(547,069)(60,339)
493,050249—(6,969)(6,720)27
33,831
264,783204(3)(6,019)(5,818)16
33,041
298,274

3,035—(84,789)(81,754)328
411,624
3,221,601

Leopalace21 Corporation / Annual Report 2012

43

FINANCIAL SECTION:CONSOLIDATED STATEMENTS OF OPERATIONS
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2012 and 2011

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 (loss) (Note 22)
Other income (expenses):
Interest and dividend income
Equity in earnings (loss) of affiliated companies
Foreign exchange losses, net (Note 2-(20))
Interest expenses
Commission fee
Gain on sale of property, plant and equipment (Note 14)
Gain on sale of investment securities
Gain from cancellation of contracted work
Gain on bad debt recovered
Gain on adjustment of accounts payable
Rent income
Reversal of allowance for disaster losses (Note 2-(15))
Reversal of allowance for switch to terrestrial digital broadcasts(Note 2-(16))
Reversal of allowance for doubtful receivables
Reversal of retirement benefit payable for directors
Reversal of allowance for employees’ bonuses
Reversal of share subscription rights
Loss on sale of property, plant and equipment (Note 15)
Loss on disposal of property, plant and equipment (Note 16)
Impairment loss (Note 8)
Loss on sale of investment securities
Provision for bad debt
Loss on cancellation of structured deposits
Disaster loss (Note 2-(15))
Expenses for switch to terrestrial digital broadcasts
Provision for switch to terrestrial digital broadcasts (Note 2-(16))
Other-net
Income (loss) before income taxes
Income taxes (Note 2-(18))
Current
RefundDeferred
Net income (loss)
The accompanying notes are an integral part of these statements.

44

Leopalace21 Corporation / Annual Report 2012

2012

2011

2012

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

484,391
448,392
35,99959,606(23,607)5,589,935
4,910,241
679,694
623,897
55,797

110
(664)
(581)
(1,375)
(633)
1
—
50
418
411
—
320

114
(268)
(5,561)(1,627)
(926)
2,046
65
50
—
—
84
—

1,339
(8,073)(7,064)(16,732)(7,700)
14
—
610
5,088
5,005
—
3,889

222
—
1,185
—
2
(0)
(111)
(2,611)
—
—
—
(4)
—
—
26
1,352

—
254
—
2,605
83
(15)
(101)
(2,228)
(173)
(356)
(754)
(1,263)(340)(1,188)(12)(33,118)

2,697—
14,420—20(0)(1,351)(31,764)
—
—
—
(55)
—
—
315
16,455

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

208
(19)
7,583
7,772
(40,890)

2,498
(159)
(5,217)(2,878)19,333

FINANCIAL SECTION:CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2012 and 2011

Thousands of
U.S. dollars (Note 1)

Millions of yen

Net income (loss)
Other comprehensive income
Net unrealized gains on “other securities”
Foreign currency translation adjustments (Note 2-(21))
Share of other comprehensive income in affiliates
Total
Comprehensive income
Comprehensive income attributable to shareholders of
the parent entity

2012

2011

2012

1,589

(40,890)

19,333

45
(950)
3
(902)
687

80
939
2
1,021
(39,869)550(11,564)40(10,974)
8,359

687

(39,869)

8,359

The accompanying notes are an integral part of these statements.

Leopalace21 Corporation / Annual Report 2012

45

FINANCIAL SECTION:CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2012 and 2011

Millions of yen
Shareholders’ equity

Balance as ofApril 1, 2010
Cash dividend
Net loss
Issuance of new shares
Purchase oftreasury stock
Sales of treasury stock
Net change of items otherthan shareholders’ equity
Total change during period
Balance as ofMarch 31, 2011
Cash dividend

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

55,64133,894(5,663)(6,143)922

922(40,890)(482)

77,729

124

(5)

Share
Total
Foreignaccumulated subscription
currency
otherrightstranslation comprehensive
adjustments
income(6,958)(6,839)89

Total net
assets70,979(40,890)
1,844(40,890)
1,844

(0)

(0)
160

(0)
642

160

922

440

(40,890)642(38,886)

80
80

2
2

939
939

1,021
1,021

(73)
(73)

(37,938)

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

38,843204(3)(6,019)(5,818)16

33,041

Net income
Issuance of new shares
Purchase oftreasury stock
Sales of treasury stock
Net change of items otherthan shareholders’ equity
Total change during period
Balance as ofMarch 31, 2012

Accumulated other comprehensive income
Net unrealized
DeferredTotal
gains onlosses onshareholders’“otherhedgesequitysecurities”

1,589

1,589

1,589

(0)
92

(0)

543

(0)
(450)

56,563

948

92

(450)

1,589

543

1,681

45
45

3
3

(950)
(950)

(902)
(902)

11
11

(891)
790

33,884(44,964)(4,959)40,524249—(6,969)(6,720)27

33,831Thousands of U.S. dollars (Note 1)
Shareholders’ equity

Balance as ofMarch 31, 2011
Cash dividend
Net profit
Issuance of new shares
Purchase oftreasury stock
Sales of treasury stock
Net change of items otherthan shareholders’ equity
Total change during period
Balance as ofMarch 31, 2012

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

688,196

417,743(566,402)(66,943)

19,333(5,480)688,196472,594

2,485

(40)

Share
Total
Foreignaccumulated subscription
currency
otherrightstranslation comprehensive
adjustments
income(73,226)(70,781)

194

Total net
assets402,007

19,333

19,333

(0)
6,604

(0)
1,123

(0)
1,124

(5,480)19,333

6,604

20,456

550
550

40
40

(11,564)(11,564)(10,973)(10,973)

134
134(10,840)
9,617

412,262(547,069)(60,339)

493,050

3,035—(84,789)(81,754)328

411,624

The accompanying notes are an integral part of these statements.

46

Accumulated other comprehensive income
Net unrealized
Total
Deferred
gains onshareholders’losses on“otherequityhedgessecurities”

Leopalace21 Corporation / Annual Report 2012

FINANCIAL SECTION:CONSOLIDATED STATEMENTS OF CASH FLOWS
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2012 and 2011

Thousands of
U.S. dollars (Note 1)

Millions of yen

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

2012

2011

2012

1,352
6,047
329
(13,398)(1,185)(819)(33,118)
6,451
386
877
—
—

16,45573,572
4,002(163,014)(14,420)(9,965)

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

—
(114)
1,627
5,561
268
(2,031)
101
2,228
1,263
—
340
1,188
—
109
7,821
3,837
550
20,253(31,706)(5,370)13,441(19,692)
2,518(1,992)(25,204)113(1,617)(1,629)(28,337)(10,270)(1,339)16,732
7,064
8,073
(13)
1,351
31,76455(3,889)——(2,697)—47,0531,272(407)
250,841
42,380(13,361)(133,915)(199,362)(13,153)
50,326(14,865)
1,192(18,041)(6,911)(38,625)

The accompanying notes are an integral part of these statements.

Leopalace21 Corporation / Annual Report 201247

Thousands of
U.S. dollars (Note 1)

Millions of yen

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

48

Leopalace21 Corporation / Annual Report 2012

2012

2011

2012

(579)
13
(238)
(111)
61
(34)
59
(800)
381
(2,290)(3,538)(1,354)
12,742(1,897)
(20)
993
(69)
218
(3,713)6,575(331)
13,144(7,040)155(2,898)(1,349)
742
(411)
714
(9,734)
4,632(27,855)(43,044)

16,839(625)(7,238)(1,262)
(560)
—
91
(0)
7,245
(147)
386
40,49240,87816,500(3,529)(29,003)(1,198)
(560)
1,741
158
(0)
(15,891)(456)(31,540)
72,03240,492

204,879(7,610)(88,067)(15,352)(6,813)—1,117(0)88,154(1,791)
4,694
492,665
497,359

FINANCIAL SECTION:NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2012 and 2011

1. Basis of Presenting Consolidated Financial
Statements
The accompanying consolidated financial statements of
Leopalace21 Corporation (the “Company”) have been
prepared in accordance with the provisions set forth in
the Financial Instruments and Exchange Act of Japan andits related accounting regulations and in conformity withaccounting 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 been reformatted and translated into English (withcertain expanded disclosure) from the consolidated financial statements of the Company prepared in accordancewith accounting principles generally accepted in Japanand filed with the Financial Services Agency as requiredby the Financial Instruments and Exchange Act of Japan.
Some supplementary information included in the statutory consolidated financial statements, but not required forfair presentation, is not presented in the accompanying
consolidated financial statements.
The translation of the Japanese yen amounts into
U.S. dollars is included solely for the convenience ofreaders outside Japan, using the prevailing exchange
rate at March 31, 2012, which was ¥82.19 to U.S.$1.00.
Such translation should not be construed as a representation that the Japanese yen amounts have been, could
have been, or could in the future be, converted into
U.S. dollars at this or any other rate of exchange.
Certain amounts in the prior year’s financial statements
have been reclassified to conform to the current fiscal
year’s presentation.

2. Summary of Significant Accounting Policies(1) Consolidation
The accompanying consolidated financial statements asof March 31, 2012 include the accounts of the Company
and its 9 (9 as of March 31, 2011) significant subsidiaries(together, the “Companies”). Affiliated companies overwhich the Company exercises significant influence interms of their operating and financial policies have been
included in the consolidated financial statements on an
equity basis. Investments in 2 affiliates (1 affiliate for theyear ended March 31, 2011) have been included for theyear ended March 31, 2012. All significant intercompany

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

Leopalace21 Corporation / Annual Report 201249

(5) Derivatives
Derivative transactions are accounted for using hedge
accounting.
1.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.
2.Hedging method and hedge targets
Hedging method
Hedge targets
Interest rate swaps Debt
3.Hedge policy
Interest rate swaps are utilized as a hedge against
possible future interest rate increases, in amounts
that fall within the range of the particular liability
being hedged.
4.Method used to evaluate the effectiveness of thehedge
Cumulative interest rate fluctuations and changes incash flows are compared to evaluate the effectiveness of hedge targets and hedge methods.
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 iscomputed generally on the straight-line basis. The range
of useful lives is principally from 22 to 47 years forbuildings for rent.
Property, plant and equipment other than buildings forrent of the Company and domestic consolidated subsidiaries are stated at cost. Depreciation is computed
generally by the declining-balance method. However,buildings (excluding accompanying facilities) obtained on
or after April 1, 1998 are depreciated by the straight-line
method. The range of useful lives is principally from 40 to
50 years for buildings and structures and 5 years formachinery and equipment.
Property, plant and equipment of the consolidated

50

Leopalace21 Corporation / Annual Report 2012

overseas subsidiaries are depreciated by the straightline method based on the local GAAP. The range ofuseful lives is principally from 30 to 40 years for buildings and structures and from 3 to 5 years for machineryand equipment.
(7) Long-lived assets
The Companies review long-lived assets for impairment whenever events or changes in circumstanceindicate the carrying amount of an asset or asset group
may not be recoverable. An impairment loss would berecognized if the carrying amount of an asset or asset
group exceeded the sum of the undiscounted future
cash flows expected to be generated by the continued
use and eventual disposition of the asset or asset
group. The impairment loss would be measured as theamount by which the carrying amount of the assets
exceeds their recoverable amount, which is the higherof 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 over the 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.
(10) Allowance for doubtful accounts
The Companies maintain an allowance for doubtful
accounts to reserve for potentially uncollectible receivables. A general provision for doubtful receivables is provided by applying a certain reserve percentage of thereceivables based on experience from past transactions.
A specific reserve is provided for the estimated amounts
to be uncollectible based on the customers’ financial condition or other pertinent factors.
(11) Retirement benefit reserves
Retirement benefit reserves for employees are provided
based on the retirement benefit obligation as of the balance sheet date.
Unrecognized actuarial gain or loss is to be amortizedon the straight-line basis over 5 years from the followingyear when the gain or loss is incurred, which is shorter
than the average remaining years of service of the eligible employees.
Prior service cost is amortized by the straight-line
method over 5 years, which is shorter than the averageremaining years of service of the eligible employees.
Some domestic consolidated subsidiaries calculate retirement benefit reserves based on the simplified method.
(12) Reserve for apartment vacancy loss
Reserve for vacancy losses on apartment units managed
under master lease agreements is calculated according
to the projected loss that could occur during a logically
predictable period to prepare for the risk of increased
vacancies. It is based on estimated losses resulting fromcurrent rental income and expected future occupancy
rates for each rental property managed by the leasing
division of the Company.
(13) 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 calculatedusing the percentage of the past execution of warranty
obligations on the completed projects.
(14) Reserve for fulfillment of guarantees
In order to provide for losses attributable to its lease guarantee business, the Company’s consolidated subsidiary,
Plaza Guarantee Co., Ltd., records the amount of loss
expected based on the rate of past guarantee fulfillments.
(15) Reserve for disaster losses
In order to provide for restoration costs and other losses
stemming from the Great East Japan Earthquake, theCompany records the anticipated amount for such losses.
Reserve for disaster loss amounting to ¥320 million($3,889 thousand) out of ¥1,189 million, which wasreserved in the previous year, was reversed in the year
ended March 31, 2012.
(16) Reserve for switch to terrestrial digital broadcasts
The estimated cost of purchasing applicable equipment
is provided for expenditures resulting from theswitchover to terrestrial digital broadcasts.

Reserve for switch to terrestrial digital broadcasts
amounting to ¥222 million ($2,697 thousand) was
reversed in the year ended March 31, 2012.
(17) Revenues and costs of construction contracts
In recognizing construction revenues and costs of constructions in process, the percentage-of-completion
method is applied to such contracts in which the outcome of the construction activity is deemed certain by
the end of the fiscal year ended March 31, 2012, while
the completed contract method is applied to other constructions. Progress of construction is estimated basedon the method of the ratio of actual cost incurred tototal cost.
(18) Income taxes
Income taxes comprise corporate, inhabitant and enterprise taxes.
The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between
the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income
tax purposes.
(19) Leases
Finance leases that are deemed to transfer ownership ofleased property to the lessee (excluding leases that existed on or before March 31, 2008) are accounted for in amanner similar to sales transactions and depreciated by
the straight-line method over the lease-term of respective assets as their useful lives with no residual value.
Any finance lease transactions executed before March
31, 2008, where ownership of the leased assets is nottransferred to the lessee, are accounted for as operatinglease transactions.
(20) Foreign currency transactions
All monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at thecurrent exchange rates as of each balance sheet date. The
foreign exchange gains and losses from translation are recognized in the consolidated statements of operations.
(21) Foreign currency financial statements
The assets and liabilities of consolidated overseas sub-Leopalace21 Corporation / Annual Report 201251

sidiaries are translated into Japanese yen at the current
exchange rates as of each balance sheet date, andincome and expenses are translated at the averageexchange rates of the fiscal year. Foreign currency translation adjustments resulting from the translation ofassets, liabilities and net assets are included in translation adjustments as a separate component of net assets.
(22) Interest capitalization
Leopalace Guam Corporation, a consolidated subsidiary,
capitalized interest paid on borrowing for real estatedevelopment business for the development period intoacquisition cost of property, plant and equipment.
Capitalized interests included in carrying value of property, plant and equipment were ¥1,588 million ($19,315
thousand) and ¥1,709 million as of March 31, 2012 and2011, respectively.
(23) Consumption taxes
National and local consumption taxes are basically
excluded from transaction amounts. However,
LEOPALACE SSI, a consolidated subsidiary, includes
national and local consumption taxes in operating
expenses and general and administrative expenses. The
nondeductible portion of consumption taxes on the pur-52

Leopalace21 Corporation / Annual Report 2012chase of assets is recorded as long-term prepaid expenses and amortized evenly over 5 years.
(24) Earnings per share
Basic earnings per share of common stock is computedby net income available to common shareholders divided
by the weighted-average number of common shares outstanding for the period.
Diluted earnings per share of common stock reflects
the potential dilution that could occur if securities orother contracts to issue common stock were converted
or exercised into common stock or resulted in theissuance of common stock.

3. Additional Information
Application of Accounting Standards for Accounting
Changes and Error Corrections
From the beginning of the current fiscal year underreview, the Company has applied “Accounting Standards
for Accounting Changes and Error Corrections” (ASBJ
Statement No. 24, December 4, 2009) and “Guidance on
the Accounting Standards for Accounting Changes andError Corrections” (ASBJ Guidance No. 24, December 4,2009) to accounting changes and the correction of pasterrors on and after April 1, 2011.

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

Millions of yen

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

5. Financial Instruments(1) The financial instruments and related disclosures
1)Policy for financial instruments
The Companies are mainly involved in raising funds(mostly bank borrowing and corporate bond issuance)needed for capital investment to carry out Leasing
Business and Construction Business. Temporary
excess funds are invested in highly secure financial
assets, and short-term working capital is raised byborrowing from the bank. The Companies conduct
derivative transactions primarily for the purpose of
avoiding the below mentioned risk, and has a policy
not to conduct speculative trading.
2)Nature and extent of risks arising from financial
instruments
Operating receivables such as trade receivables andaccounts receivable for completed projects are
exposed to credit risk.
Foreign currency denominated loans originated inconjunction with overseas business development are
exposed to exchange risk.
Securities are mainly held-to-maturity securities
and shares of the companies with which theCompany has a business relationship, and thosesecurities are exposed to market risk.
Almost all accounts payable and accounts payable
for completed projects which are operating liabilities
are scheduled to be paid within one year.
Loans payable, corporate bonds, and 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 issix years subsequent to fiscal year end.
Derivative transactions are interest rate swaps
whose purpose is to hedge against the risk of futureinterest rate fluctuations related to loans payable.
The interest rate swaps carry a risk of fluctuations in

2012

2011

2012

41,478(600)
40,87840,675(183)
40,492504,659(7,300)497,359

market interest rates.
For details of hedging method, hedge targets,hedging policy and the method for evaluating hedging effectiveness concerning hedge accounting,please refer to aforementioned “2. Summary of
Significant Accounting Policies, (5) Derivatives.”
3)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 isalso organized for early detection and loss reductionof accounts where collection is doubtful due to worsening credit or similar problems.
Regarding securities and investment securities,
the Company periodically investigates and understands the share price and the financial condition of
the share issuing organization. In addition, for items
other than held-to-maturity securities, the Company
considers the relationship with the trading partnercompanies and constantly re-evaluates its holdings.
The basic policy of derivatives trading is determined by the board of directors, and the execution
and administration of 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. Furthermore, the contracted counterparty to derivative trades is always a highly credit
worthy Japanese financial institution, so it can berecognized that the risk of contract breach by theother party is close to zero.
Trade payables and debts are exposed to liquidity
risk, but this risk is monitored by various means suchas the preparation of a monthly financial plan by eachcompany in the Companies.

Leopalace21 Corporation / Annual Report 2012534)Supplementary explanations on fair value offinancial instruments
Fair value of financial instruments are measured basedon the quoted market price, or reasonably assessedvalue if a quoted market price is not available.
Fair value of financial instruments which quoted
market price is not available is calculated based on afluctuating factor, and the value might differ if different assumptions are used.
In addition, the contract amount of the derivativetransactions described in “7. Derivative Transactions”

does not represent the market risk of the derivativetransactions.
(2) Fair value of financial instruments
The carrying amount on the consolidated balance sheet
and fair value of financial instruments as of March 31,
2012 and 2011 as well as the differences between thesevalues are described below. Financial instruments whose
fair values appear to be extremely difficult to determine
are not included in the table. (See (Note 2))

Millions of yen

March 31, 2012
(1) Cash and cash equivalents(2) Trade receivables and accounts receivable forcompleted projects(3) Securities and investment securities(4) Operating loans
Allowance for doubtful accounts (*1)Net(5) Long-term loans
Allowance for doubtful accounts (*1)Net(6) Bad debt
Allowance for doubtful accounts (*1)
Net
Total assets(1) Accounts payable and accounts payable for completed projects(2) Short-term borrowings(3) Bonds (*2)(4) Current portion of long-term debt
(5) Lease obligations
Total liabilities
Derivatives transactions

54

Leopalace21 Corporation / Annual Report 2012

Carrying value

Fair value

Difference

41,47841,478

—

5,545
3,329
2,420
(127)
2,293
588
(96)
492
2,838
(2,698)140
53,277
16,10538,904
2,600
6,801
3,349
67,759
—

5,545
3,338

—
9

2,557

264

492

—

140
53,550
16,10538,904
2,607
6,800
3,299
67,715
—

—
273
—
—
7
(1)
(50)
(44)
—

Millions of yen

March 31, 2011
(1) Cash and cash equivalents(2) Trade receivables and accounts receivable forcompleted projects(3) Investment securities(4) Operating loans
Allowance for doubtful accounts (*1)Net(5) Long-term loans
Allowance for doubtful accounts (*1)Net(6) Bad debt
Allowance for doubtful accounts (*1)
Net
Total assets(1) Accounts payable and accounts payable for completed projects(2) Short-term borrowings(3) Bonds (*2)(4) Long-term debt (*2)(5) Lease obligations
Total liabilities
Derivatives transactions

Carrying value

Fair value

Difference

40,67540,675

—

8,378
2,702
4,311
(713)
3,598
601
(119)
482
4,453
(4,441)
12
55,847
15,333
22,691
3,160
14,0393,969
59,192
—

8,378
2,713

—
11

4,318

720

482

—

12
56,57815,333
22,6913,140
14,0293,864
59,057
—

—
731
—
—
(20)
(10)
(105)
(135)
—

Thousands of U.S. dollars

March 31, 2012
(1) Cash and cash equivalents(2) Trade receivables and accounts receivable forcompleted projects(3) Securities and investment securities(4) Operating loans
Allowance for doubtful accounts (*1)Net(5) Long-term loans
Allowance for doubtful accounts (*1)Net(6) Bad debt
Allowance for doubtful accounts (*1)
Net
Total assets(1) Accounts payable and accounts payable for completed projects(2) Short-term borrowings(3) Bonds (*2)(4) Current portion of long-term debt
(5) Lease obligations
Total liabilities
Derivatives transactions

Carrying value

Fair value

504,659

504,659

Difference—

67,47140,50629,438(1,539)27,8997,155(1,169)5,986
34,526(32,828)
1,698
648,219
195,943
473,344
31,63482,74640,752
824,419—

67,471
40,616—110

31,112

3,213

5,986

—

1,698
651,542
195,943
473,344
31,72282,73340,146
823,888
—

—
3,323
—
—
88
(13)
(606)
(531)
—

Leopalace21 Corporation / Annual Report 201255

(*1) Operating loans, long-term loans and bad debts havedeductions of their respective allowance for doubtful
accounts, which are recorded separately.
(*2) Current portion of long-term debt (¥11,811 million)
and bonds due within one year (¥560 million) in the
consolidated balance sheets as of March 31, 2011,
are included in long-term debt and bonds. Also,
bonds due within one year (¥560 million, $6,813
thousand) in the consolidated balance sheets as ofMarch 31, 2012, is included in bonds.

principal with interest by the discount rate (i.e. theestimated interest rate for new transaction).
Long-term loans
Bad debt
The fiscal year-end outstanding balances are calculated mainly using expected future cash flows of thepotentially recoverable principal and interest.

Notes:
1) Matters concerning the calculation method for thefair value of financial instruments, and securities
and derivatives transactions

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

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

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

Securities and investment securities
Shares are stated at the stock exchange quoted
price; bonds are stated at either the stock exchange
quoted price or the price presented by transacting
financial institutions.
For notes to securities by holding purposes, pleaserefer to “6. Securities.”

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

Operating loans
The fair value of operating loans is stated at the netpresent value, which is calculated by discounting the56

Leopalace21 Corporation / Annual Report 2012

Derivatives transactions
Please refer to “7. Derivatives Transactions” below.

2) Financial instruments whose fair value appear to be extremely difficult to determine
Thousands of
U.S. dollars

Millions of yen

Item

2012

2011

2012

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

1,198
824
903
245
3,170

1,848
824
907
253
3,832

14,571
10,02910,9882,987
38,575As they have no market value, and as it is understood that it is extremely difficult to estimate their future cash flow, theabove financial instruments are not included in “Assets: (3) Securities and investment securities.”
3) The scheduled redemption amount of monetary claims and investment securities with maturity subsequent tofiscal year end
Millions of yen

March 31, 2012
Cash and deposits
Trade receivables and accounts receivable forcompleted projects
Securities and investment securities
Held-to-maturity debt securities(1) Government and municipal bonds(2) Corporate bonds
Other securities with maturities(1) Government and municipal bonds(2) Bonds(Corporate bonds)(3) Others
Operating loans
Long-term loans
Bad debts
Total

Due within 1 year

Due after 1 year
through 5 years

Due after 5 years
through 10 years

Due after
10 years

41,478

—

—

—

5,546

—

—

—

—
—

800
—

—
—

—
—

10

1,151

544

—

—
—
358
22
—
47,414

—
246
1,166
64
—
3,427

—
—
815
23
—
1,382

824
903
80
479
2,838
5,124

Leopalace21 Corporation / Annual Report 201257

Millions of yen

March 31, 2011
Cash and deposits
Trade receivables and accounts receivable forcompleted projects
Investment securities
Held-to-maturity debt securities(1) Government and municipal bonds(2) Corporate bonds
Other securities with maturities(1) Government and municipal bonds(2) Bonds(Corporate bonds)(3) Others
Operating loans
Long-term loans
Bad debts
Total

Due within 1 year

Due after 1 year
through 5 years

Due after 5 years
through 10 years

Due after
10 years

40,675

—

—

—

8,378

—

—

—

—
—

700
—

—
—

—
—

—

599

545

—

—
—
513
17
—
49,583

—
252
1,693
57
—
3,301

—
—
1,466
24
—
2,035

824
907
639
503
4,453
7,326

Thousands of U.S. dollars

March 31, 2012
Cash and deposits
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

58

Leopalace21 Corporation / Annual Report 2012

Due within 1 year

Due after 1 year
through 5 years

Due after 5 years
through 10 years

Due after
10 years

504,659———

67,471

—

—

—

—
—

9,734
—

—
—

—
—

122

14,004

6,619

—

—
—
4,361
266
—
576,879—
2,987
14,182790—
41,697

—
—
9,916
277
—
16,812

10,02910,988979
5,823
34,52562,344

6. Securities(a) At March 31, 2012 and 2011, information with respect to held-to-maturity debt securities for which market prices
were available was summarized as follows:
Millions of yen

March 31, 2012
Unrecognized gain items:
Government and municipal bonds
Corporate bonds
OthersSubtotal
Unrecognized loss items:
Government and municipal bonds
Corporate bonds
OthersSubtotal
Total

Carrying valueMarket value

Unrecognized gain

800
—
—
800

809
—
—
809

9
—
—
9

—
—
—
—
800

—
—
—
—
809

—
—
—
—
9

Millions of yen

March 31, 2011
Unrecognized gain items:
Government and municipal bonds
Corporate bonds
OthersSubtotal
Unrecognized loss items:
Government and municipal bonds
Corporate bonds
OthersSubtotal
Total

Carrying valueMarket value

Unrecognized gain

700
—
—
700

710
—
—
710

10
—
—
10

—
—
—
—
700

—
—
—
—
710

—
—
—
—
10

Thousands of U.S. dollars

March 31, 2012
Unrecognized gain items:
Government and municipal bonds
Corporate bonds
OthersSubtotal
Unrecognized loss items:
Government and municipal bonds
Corporate bonds
OthersSubtotal
Total

Carrying valueMarket value

Unrecognized gain

9,733
—
—
9,733

9,843
—
—
9,843

110
—
—
110

—
—
—
—
9,733

—
—
—
—
9,843

—
—
—
—
110

Leopalace21 Corporation / Annual Report 201259

(b) Investment securities classified as other securities as of March 31, 2012 and 2011 were as follows:
Millions of yen

March 31, 2012
Securities whose carrying value exceeds their acquisition cost:
Stock
Bonds:
Government and municipal bonds
Corporate bonds
OthersOthersSubtotal
Securities whose acquisition cost exceeds their carrying value:
Stock
Bonds:
Government and municipal bonds
Corporate bonds
OthersOthersSubtotal
Total

Carrying value

Acquisition cost

Unrealized gain
(loss)

773

447

326

1,431
—
—
75
2,279

1,407
—
—
71
1,925

24
—
—
4
354

13

13

—

237
—
—
—
250
2,529

237
—
—
—
250
2,175

(0)
—
—
—
(0)
354

Millions of yen

March 31, 2011
Securities whose carrying value exceeds their acquisition cost:
Stock
Bonds:
Government and municipal bonds
Corporate bonds
OthersOthersSubtotal
Securities whose acquisition cost exceeds their carrying value:
Stock
Bonds:
Government and municipal bonds
Corporate bonds
OthersOthersSubtotal
Total

60

Leopalace21 Corporation / Annual Report 2012

Carrying value

Acquisition cost

Unrealized gain
(loss)

831

447

384

728
—
—
75
1,634

721
—
—
71
1,239

7
—
—
4
395

12

13

(1)

357
—
—
—
369
2,003

360
—
—
—
373
1,612

(3)
—
—
—
(4)
391

Thousands of U.S. dollars

March 31, 2012
Securities whose carrying value exceeds their acquisition cost:
Stock
Bonds:
Government and municipal bonds
Corporate bonds
OthersOthersSubtotal
Securities whose acquisition cost exceeds their carrying value:
Stock
Bonds:
Government and municipal bonds
Corporate bonds
OthersOthersSubtotal
Total(Note)March 31, 2012
¥1,198 million ($14,571 thousand) of non-listed shares,¥824 million ($10,029 thousand) of non-listed bonds (subordinate corporate bonds), ¥903 million ($10,988 thousand) of subordinate beneficiary rights to loans andmoney in trust, and ¥246 million ($2,987 thousand) ofcontributions to investment business limited partnerships
are not included in the other securities given above
because they have no market value and assigning themfair market prices is recognized to be extremely difficult.
March 31, 2011
¥1,848 million of non-listed shares, ¥824 million of non-Carrying value

Acquisition cost

Unrealized gain
(loss)

9,410

5,439

3,971

17,415——907
27,732

17,117——863
23,419

298
—
—
44
4,313

158

158

—

2,883
—
—
—
3,041
30,773

2,885
—
—
—
3,043
26,462

(2)
—
—
—
(2)
4,311

listed bonds (subordinate corporate bonds), ¥907 millionof subordinate beneficiary rights to loans and money intrust, and ¥252 million of contributions to investment
business limited partnerships are not included in theother securities given above because they have no market value and assigning them fair market prices is recognized to be extremely difficult.
Among the above items, non-listed bonds (subordinate
corporate bonds) and subordinate beneficiary rights toloans and money in trust were acquired by the Company
in conjunction with the securitization of nonexempt property type apartment loans, the financing executed primarily as contract work fee payment loans from financial
institutions to the Company.

Leopalace21 Corporation / Annual Report 201261

(c) Proceeds from sales of other securities and gain or loss on these sales for the years ended March 31, 2012 and 2011were summarized as follows:
March 31, 2012
None
Millions of yen

March 31, 2011
Stock
Bonds:
Government and municipal bonds
Corporate bonds
OthersOthers
Total

Proceeds from sale

Gains

Losses

78

30

1

—
—
258
192
528

—
—
—
35
65

—
—
87
33
121

(d) Proceeds from sales of held-to-maturity debt securities for the year ended March 31, 2012 and 2011 were as follows:
March 31, 2012
None
Millions of yen

March 31, 2011

Cost of sale

Others (Structured bonds)
Reasons for sale

200
148
(52)
Change in management policy of surplus funds

Proceeds from sale

Gain (loss)(e) 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)

62

Leopalace21 Corporation / Annual Report 2012

2012

2011

2012

94

744

1,141

7. Derivative Transactions(1) Derivatives transaction not subject to the application of hedge accounting
Not applicable.
(2) Derivatives transactions subject to the application of hedge accounting
Interest rate-related derivatives
March 31, 2012
Hedge accounting method

Exceptional accounting
treatments applied tointerest rate swaps

Type of derivatives

Interest rate swaps - pay
fixed interest andreceived floating interest

Major hedged
items

Current portion of
long-term debt

Millions of yen

Contract amountAmount of more than 1
year-period contracts

Fair value

831—(Note)March 31, 2011
Hedge accounting method

Exceptional accounting
treatments applied tointerest rate swaps

Type of derivatives

Interest rate swaps - pay
fixed interest andreceived floating interest

Major hedged
itemsLong-term debt

Millions of yen

Contract amountAmount of more than 1
year-period contracts

Fair value

1,719

831

(Note)March 31, 2012
Hedge accounting method

Exceptional accounting
treatments applied tointerest rate swaps

Type of derivatives

Interest rate swaps - pay
fixed interest andreceived floating interest

Major hedged
items

Current portion of
long-term debt

Thousands of U.S. dollars

Contract amountAmount of more than 1
year-period contracts

Fair value

10,111—(Note)(Note)
Interest rate swaps subject to the application of exceptional accounting treatments are recognized together with hedged
items (i.e. long-term debt), therefore their fair value are included in the fair value of the relevant long-term debt or current
portion of long-term debt.

Leopalace21 Corporation / Annual Report 2012

63

8. Long-lived Assets
The Companies recognized impairment loss on the following asset groups for the years ended March 31, 2012 and 2011:
March 31, 2012
Impairment loss

PurposeRental assets (Apartmentbuildings and others, 142 units)
Assets to be disposed

Category

Location

Buildings and structures
Land
Buildings and structures
Others (equipment)

Meguro-ku,
Tokyo, etc.
Nakano-ku, Tokyo

Category

Location

Total

Millions of yen

Thousands of
U.S. dollars

156
2,452
2
1
2,611

1,895
29,83022
1731,764

March 31, 2011
Impairment loss

PurposeMillions of yen

Rental assets (Apartmentbuildings and others, 108 units)
Hotel

Buildings and structures
Land
Land

Idle assets (Training facilities
and others, 2 units)
Total

Buildings and structuresLand

The Companies recognized each property in domestic
rental assets as a unit and grouped overseas assets bymanagerial accounting segmentation.
The Companies wrote down book value of the rental
assets whose profitability decreased seriously due to theslump in the rental income market and continuous decline
in land prices, to recoverable amounts and recognized the
reduced values as impairment losses. As for the assets tobe disposed, the Companies reduced the book value toSetagaya-ku,
Tokyo, etc.
Sapporo city,
Hokkaido
Miura city,
Kanagawa, etc.

297
1,793
40
58
40
2,228

zero and recognized impairment loss in full.
Recoverable amounts of rental assets were measured
at the higher of their values in use or their net realizablevalues in sale. Value in use was computed by discounting
its future cash flows at 3.8%, while net realizable value insale was determined based on publicly appraised value.
Recoverability of assets to be disposed was determinedzero because these assets will be disposed due to officerelocation.

9. Bad Debts
Bad debts are claims as stipulated under Article 32, Paragraph 1, and Item 10 of the Regulation concerning Financial
Statements. Bad debt at March 31, 2012 and 2011 consisted of the following:Thousands of
U.S. dollars

Millions of yen

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

64

Leopalace21 Corporation / Annual Report 2012

2012

2011

2012

5
1,110
1,241
482
2,838

35
2,333
1,609
476
4,453

67
13,50515,095
5,858
34,525

10. Income Taxes(a) Significant components of deferred tax assets and liabilities as of March 31, 2012 and 2011 were as follows:
Thousands of
U.S. dollars

Millions of yen

Deferred tax assets:
Loss carried forward for tax purposes
Impairment loss
Reserve for apartment vacancy loss
Advances from customers for rent income
Subsidiaries' foreign exchange loss
Retirement benefit reserves
Loss on devaluation of property, plant and equipment
Allowance for doubtful accounts
Deposits received
Loss on devaluation of real estate for sale
Bonuses payable
Sales promotion cost
Excess amortization on software
Reserve for fulfillment of guarantees
Excess depreciation
Asset retirement obligations
Other payables
Sales discount for construction contracts
Elimination of unrealized gain
Accrued enterprise tax
Reserve for switch to terrestrial digital broadcasts
Loss on devaluation of securities
Bad debt loss
Reserve for warranty obligations on completed project
Reserve for disaster losses
Low-value assets
Retirement benefit payable for directors
OthersSub-total
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Net unrealized gain on other securities
Fixed asset retirement expenses
Total deferred tax liabilities
Net deferred tax assets(b) Reconciliation of the differences between the normal
effective statutory tax rate and the actual effective tax
rate for the years ended March 31, 2012 and 2011 was
not stated since the Company posted no taxable
income and loss before income taxes, respectively.
(c) Impact of Change in the Corporate Tax Rate on Deferred
Tax Assets and Liabilities
The “Act for Partial Revision of the Income Tax Act etc.
for the Purpose of Creating Taxation System
Responding to Changes in Economic and Social

2012

2011

2012

38,58620,026
7,163
6,697
3,825
2,880
1,427
947
687
434
395
342
249
139
139
116
92
86
76
48
47
27
26
22
19
11
—
172
84,678(78,122)6,556

33,53821,414
13,267
11,329
3,849
3,204
1,630
1,592
652
560
—
581
336
55
161
157
181
120
82
84
484
642
34
54
484
8
482
130
95,110(88,981)6,129

469,470
243,654
87,152
81,48546,54435,044
17,367
11,526
8,356
5,280
4,811
4,160
3,032
1,695
1,693
1,410
1,113
1,045
921
587
567
332
317
262
235
129
—
2,089
1,030,276(950,504)
79,772

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

(138)
(9)
(147)
5,982

(1,656)(96)(1,752)78,020

Structures” (Act No.114 of 2011) and the “Act on
Special Measures for Securing Financial Resources
Necessary to Implement Measures for Reconstruction
Following the Great East Japan Earthquake” (ActNo.117 of 2011) were promulgated on December 2,
2011 and beginning with consolidated fiscal years starting on April 1, 2012 or later, the corporate tax rate will
be lowered and the Special Corporation Reconstruction
Tax will be imposed. As a result, the effective statutory
tax rate used in the calculation of deferred tax assets
and deferred tax liabilities will be temporarily cut from
Leopalace21 Corporation / Annual Report 201265

net deferred tax assets will decline by ¥621 million($7,550 thousand) while income tax-deferred will
increase by ¥640 million ($7,785 thousand) and net
unrealized gains on other securities will increase by ¥19
million ($235 thousand).

40.69% to 38.01% beginning with the consolidated fiscal year stared on April 1, 2012 through the consolidated fiscal year starting on April 1, 2014 and, beginningwith the consolidated fiscal year starting on April 1,
2015, the effective statutory tax rate will be temporarily
cut to 35.64%. As a result of these tax rate changes,

11. Short-term Borrowings and Long-term Debt(a) Short-term borrowings, long-term debt and lease obligations at March 31, 2012 and 2011 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Short-term borrowings,
with average interest rate of 2.73%
Current portion of long-term debt,
with average interest rate of 2.18%
Current portion of lease obligations,with average interest rate of 5.13%
Long-term debt
Lease obligations, long-term, due 2013 to 2018,with average interest rate of 6.87%
Total

2012

2011

2012

38,904

22,691

473,344

6,801

11,81182,746

1,348
—

1,230
2,228

16,406—

2,001
49,054

2,739
40,69924,346596,842(Notes)1.To calculate “average interest rate,” weighted-average rates and fiscal year-end balances are used.
2.The redemption schedule of long-term loans payable and lease obligations (excluding current portion) for 5 years subsequent to March 31, 2012, is summarized in (b) below.
(b) Scheduled repayment amount of bonds payable and lease obligations subsequent to fiscal year end was as follows:
Schedule of bonds
Millions of yen
Due within 1 year

Due after 1 year
through 2 years

Due after 2 years
through 3 years

Due after 3 years
through 4 years

Due after 4 years
through 5 years

560

560

560

560

360

Due within 1 year

Due after 1 year
through 2 years

Due after 2 years
through 3 years

Due after 3 years
through 4 years

Due after 4 years
through 5 years

6,813

6,813

6,813

6,813

4,380

Due after 1 year
through 2 years

Due after 2 years
through 3 years

Due after 3 years
through 4 years

Due after 4 years
through 5 years

1,047

530

321

90

Thousands of U.S. dollars

Schedule of loans
Millions of yen

Lease obligation

Thousands of U.S. dollars

Lease obligation
66

Due after 1 year
through 2 years

Due after 2 years
through 3 years

Due after 3 years
through 4 years

Due after 4 years
through 5 years

12,733

6,448

3,909

1,091

Leopalace21 Corporation / Annual Report 2012

(c) Assets pledged as collateral for short-term borrowings and long-term debt at March 31, 2012 and 2011 were as follows:
Thousands of
U.S. dollars

Millions of yen

Real estate for sale in process
Buildings and structures
Land
Investment securities
Others in Investments and other assets (Membership right)
Total

2012

2011

2012

—
54,34881,585879
420
137,232

20
58,351
84,334936
420
144,061—
661,248
992,642
10,697
5,110
1,669,697(d) Secured borrowings with pledge of collateral at March 31, 2012 and 2011 were as follows:
Thousands of
U.S. dollars

Millions of yen

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

2012

2011

2012

36,654
6,801—
43,45520,066
11,811
2,228
34,105445,969
82,746—
528,715(e) Investment securities which have been deposited with the Legal Affairs Bureau at March 31, 2012 and 2011 were as follows:
Thousands of
U.S. dollars

Millions of yen

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

2012

2011

2012

30
695
104

25
615
100

367
8,462
1,260

731

238

8,896

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

Millions of yen

Total commitment available
Less amount utilized
Balance available

2012

2011

2012

16,50016,500—16,50016,500—200,754
200,754—

Leopalace21 Corporation / Annual Report 201267

13. Retirement Benefit Plans(a) The following table sets forth the funded and accrued status of the plans, and the amounts recognized in the consolidated balance sheets as of March 31, 2012 and 2011 for the Companies’ defined benefit plans:
Thousands of
U.S. dollars

Millions of yen

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

2012

2011

2012

(8,359)55263(8,041)(7,538)79(415)(7,874)(101,703)
666
3,202(97,835)

Certain consolidated subsidiaries apply simplified methods in calculating their projected benefit obligations.
(b) The following table sets forth the funded and accrued status of the entire pension plan as of March 31, 2011 and 2010.
Thousands of
U.S. dollars

Millions of yen

Pension assets
Projected benefit obligation
Difference
For the years ended March 31, 2012 and 2011, the main
components of the difference were unrecognized priorservice costs of ¥1,491 million ($18,137 thousand) and¥1,871 million, and insufficient amount carried forwardof ¥6,599 million ($80,286 thousand) and ¥5,092 million,
respectively. The Company recognized the special annuity premium of ¥86 million ($1,046 thousand) and ¥103
million as an expense in the years ended March 31,
2012 and 2011, respectively. The ¥6,599 million

2012

2011

2012

43,44951,538(8,089)43,85150,814(6,963)

528,637
627,060(98,423)($80,286 thousand) of insufficient amount carried forward will be settled by increasing the rate of special
annuity premium based on fiscal recalculation.
The annuity premium contributory proportion of theentire pension plan was 32% and 36% as of March 31,
2012 and 2011, respectively.
The Company has a welfare pension fund. In the welfare pension fund, it cannot reasonably calculate the portion of the pension assets attributed to the Company.

(c) The components of retirement benefit expenses for the years ended March 31, 2012 and 2011 were summarized as follows:
Thousands of
U.S. dollars

Millions of yen

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

2012

2011

2012

2,043
165
(18)
24
2,214

2,525
170
132
24
2,851

24,860
2,009
(224)
295
26,940(Notes) 1.For the years ended March 31, 2012 and 2011, contributions to the welfare pension fund, which were recorded in service cost, were ¥1,130 million ($13,753 thousand) and ¥1,375 million, including ¥447 million ($5,444
thousand) and ¥539 million of employee contribution, respectively.
2.All the retirement benefit expenses of the domestic consolidated subsidiaries adopting the simplified method
were recorded in service cost.

68

Leopalace21 Corporation / Annual Report 2012

(d) The assumptions used in accounting for the above plans are as follows:
Assumptions used in accounting for
retirement benefits
Periodical allocation of estimated retirement benefit
Discount rate
Amortization period of prior service cost

Same as right
0.83%
Same as right.

Amortization period of actuarial gain or loss

Same as right.

Based on the resolution of eliminating retirement benefit
plans and its payment to directors, approved in the 36th
Annual General Shareholders’ Meeting held on June 29,
2009, an expected amount of ¥1,185 million was record-

2012

2011

Straight-line method
2.20%
5 years(Amortized evenly over a period not exceeding the expected average remaining working
lives of the employee fromthe time of occurrence.)
5 years from the following
fiscal year
(Amortized evenly over a period not exceeding the expected average remaining working
lives of the employee
from the time of occurrence.)

ed as long-term other payable. Since the consent to giveup the retirement benefit was obtained from the eligible
directors, a reversal of long-term other payable wasapproved by the Board of Directors on May 6, 2011.

14. Gain on Sale of Property, Plant and Equipment
Gain on sale of property, plant and equipment for the years ended March 31, 2012 and 2011 were as follows:
Thousands of
U.S. dollars

Millions of yen

Buildings and structures
Land
Others
Total

2012

2011

2012

1
0
—
1

45
2,000
1
2,046

13
1
—
14

15. Loss on Sale of Property, Plant and Equipment
Loss on sale of property, plant and equipment for the years ended March 31, 2012 and 2011 were as follows:
Thousands of
U.S. dollars

Millions of yen

Buildings and structures
Others
Total

2012

2011

2012

0
—
0

2
13
15

0
—
0

Leopalace21 Corporation / Annual Report 201269

16. Loss on Disposal of Property, Plant and Equipment
Loss on disposal of property, plant and equipment for the years ended March 31, 2012 and 2011 were as follows:
Thousands of
U.S. dollars

Millions of yen

Buildings and structures
Leased assets
OthersIntangible assets
Total

17. Rental Properties
The Company possesses rental apartments in major
cities and regions throughout Japan. Also, Leopalace
Guam Corporation as a subsidiary company possesses
rental housing within resorts, and Plaza Guarantee Co.,
Ltd. as a subsidiary company possesses buildings forrent. For the years ended March 31, 2012 and 2011,

2012

2011

2012

88
—
22
1
111

89
0
12
—
101

1,072
—
271
7
1,350

income arising from these rental properties were ¥4,122
million ($50,146 thousand) and ¥4,764 million, andimpairment losses were ¥2,607 million ($31,725 thousand) and ¥2,188 million, respectively.
Also, the changes in book value of rental properties during the year ended March 31, 2012 and 2011, and the fairvalue as of March 31, 2012 and 2011 were as follows:

March 31, 2012
Millions of yen
Book Value
Fair Value
Balance as of April 1, 2011

Increase/Decrease

Balance as of March 31, 2012

73,051(3,788)69,26365,251March 31, 2011
Millions of yen
Book Value
Fair Value
Balance as of April 1, 2010

Increase/Decrease

Balance as of March 31, 201185,082(12,031)73,051

75,982

March 31, 2012
Thousands of U.S. dollars
Book Value
Fair Value
Balance as of April 1, 2011

Increase/Decrease

Balance as of March 31, 2012

888,801(46,083)

842,718

793,908(Notes)
1. Book value recorded on the consolidated balance sheets is the amount after deducting accumulated depreciation andaccumulated impairment loss from acquisition cost.
2. The main decrease was impairment loss of ¥2,607 million ($31,725 thousand) for the year ended March 31, 2012, andimpairment loss of ¥2,188 million and sale of property, plant and equipment of ¥8,872 million for the year ended
March 31, 2011.
3. Fair value as of the end of the current fiscal year is calculated by the Company mainly based on “Real-estateappraisal standards.”

70

Leopalace21 Corporation / Annual Report 2012

years from its acquisition and the discount rate at
0.295% to 1.358% are used to calculate the amountof the asset retirement obligations.
For the restoration obligations under term leaseholdinterest agreement for rental properties, the estimatedperiod of use at 11-30 years depending on the periodof the agreements (useful lives of buildings according
to the former Act on Land and Building Lease) and thediscount rate at 1.329% to 2.301% are used to calculate the amount of the asset retirement obligations.
For asbestos removal expenses in company-owned
apartments, the estimated period of removal at 3
years and the discount rate at 0.193% are used to calculate the amount of the asset retirement obligations.

18. Asset Retirement Obligations
Out of asset retirement obligations, item recorded on the
consolidated balance sheet were as follows:(1) Outline of the asset retirement obligations
Asset retirement obligations are restoration obligations under real estate rental agreement for shop andterm leasehold interest agreement for rental properties and asbestos removal expenses in companyowned apartments.
(2) Calculation method of the asset retirement obligations
For the restoration obligations under real estate rental
agreement for shop, the estimated period of use at 5(3) Changes in the total amount of the asset retirement obligations during the year were as follows:
Thousands of
U.S. dollars

Millions of yen

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

2012

2011

2012

78
4
1
(6)
1
78

101
5
1
(29)
(0)
78

951
44
10
(70)
14
949

19. Supplemental Information on the Statement of Changes in Equity
Shares issued and treasury stocks for the year ended March 31, 2012 were as follows:
Type of shares

Shares issued
Common stock
Total
Treasury stock
Common stock
Total

April 1, 2011

Increase

Decrease

March 31, 2012

175,443,915
175,443,915

—
—

—
—

175,443,915
175,443,915

6,867,850
6,867,850

170
170

677,500
677,500

6,190,520
6,190,520(Notes) 1.Breakdown of amounts of increase was as follows:
Purchase of shares of less than one unit 170 shares
2. Breakdown of amounts of decrease was as follows:
Sell off of shares from “Leopalace 21 Employee Stock Ownership Committee Trust Account” to the Board for
Employees’ Ownership 677,500 shares
3. Number of treasury stock includes 1,621,400 shares held by the Trust Account as of the end of this fiscal year.

Leopalace21 Corporation / Annual Report 2012

71

Stock acquisition rights (SAR) and own share options for the year ended March 31, 2012 were as follows:
Type

SARs asstock option
1st series SARs
2nd series SARs
3rd series SARs
Total

Class of sharesissued upon exerciseof SARs

April 1, 2011

Increase

Decrease—
Common stock
Common stock
Common stock
—

—
—
—
—
—

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

—
—
—
—
—

Number of shares issued upon exercise of SARs

Outstanding as of March 31, 2012
Thousands of
U.S. dollars

March 31, 2012 Millions of yen—
14,000,000
14,000,000
14,000,000
42,000,000

219
38
36
35
328

18
3
3
3
27

(Note) The increase of 1st to 3rd series SARs is due to the issue of SARs.
Shares issued and treasury stocks for the year ended March 31, 2011 were as follows:
Type of shares

Shares issued
Common stock
Total
Treasury stock
Common stock
Total

April 1, 2010

Increase

Decrease

March 31, 2011

159,543,915
159,543,915

15,900,000
15,900,000——

175,443,915
175,443,915

7,667,387
7,667,387

63
63

799,600
799,600

6,867,850
6,867,850(Notes) 1.Breakdown of amounts of increase was as follows:
New shares issued through third-party allotment 15,900,000 shares
Purchase of shares of less than one unit 63 shares
2.Breakdown of amounts of decrease was as follows:
Sell off of shares from “Leopalace 21 Employee Stock Ownership Committee Trust Account” to the Board for
Employees’ Ownership 799,600 shares
3.Number of treasury stock includes 2,298,900 shares held by the Trust Account as of the end of this fiscal year.
Stock acquisition rights (SAR) and own share options for the year ended March 31, 2011 were as follows:
Type

SARs asstock option
Total

72

Class of sharesissued upon exerciseof SARs

April 1, 2010

Increase

Decrease

—
—

—
—

—
—

—
—

Outstanding as ofMarch 31, 2011

Number of shares issued upon exercise of SARs

Leopalace21 Corporation / Annual Report 2012

March 31, 2011 Millions of yen

—
—

16
16

20. Leases(1) Finance lease transactions
The Companies primarily lease furniture and electronic appliances, for apartments of their leasing business, and software.
(a) The following pro forma amounts represent the acquisition cost, accumulated depreciation and net book valueof leased property as of March 31, 2012 and 2011, which
would have been reflected in the accompanying consolidated balance sheets if finance accounting had been
applied to the finance leases that existed on or before
March 31, 2008 and are currently accounted for as operating leases:
Thousands of
U.S. dollars

Millions of yen

Acquisition cost
VehicleEquipment
Accumulated depreciation
VehicleEquipment
Net book value
VehicleEquipment

2012

2011

2012

7
9,707

7
13,352

87
118,102

7
8,222

5
9,965

81
100,031

1
1,485

2
3,387

7
18,071(b) The amounts of outstanding future lease payments under finance lease subsequent to March 31, 2012 and 2011
including the interest portion thereon were summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Due within one year
Due after one year
Total

2012

2011

2012

1,307
355
1,662

2,056
1,665
3,721

15,906
4,315
20,221(c) Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2012 and 2011 forfinance lease transactions accounted for as operating leases were summarized as follows:
Thousands of
U.S. dollars

Millions of yen

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

2012

2011

2012

2,179

2,759

26,507

1,900
123

2,418
230

23,1151,494(e) Method of estimating interest cost:
Estimated interest cost is calculated as the difference
between the total amount of lease payments and theacquisition cost of leased properties, and allocatedbetween each period using the interest method.

Leopalace21 Corporation / Annual Report 201273

(2) Operating lease transactions
Future minimum lease payments related to non-cancelable operating leases subsequent to March 31, 2012 and 2011 were as follows:
March 31, 2012
Millions of yen

Due within
one year
Due after
one year
Total

Thousands of U.S. dollars

Future lease
payments

Prepaid lease
payments

Differences

Future lease
payments

Prepaid lease
payments

Differences

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

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

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

3,260,908(3,260,904)
10,361,135(10,361,135)
13,622,043(13,622,039)

207,777(207,777)
215,935(215,935)
423,712(423,712)

3,053,131(3,053,127)
10,145,200(10,145,200)
13,198,331(13,198,327)

March 31, 2011
Millions of yen

Due within
one year
Due after
one year
Total

Future lease
payments

Prepaid lease
payments

Differences

284,838(284,827)
1,035,629(1,035,629)
1,320,467(1,320,456)

21,959(21,959)
33,482(33,482)
55,441(55,441)

262,879(262,868)
1,002,147(1,002,147)
1,265,026(1,265,015)

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

21. Contingent Liabilities
Contingent liabilities as of March 31, 2012 and 2011 were as follows:
Thousands of
U.S. dollars

Millions of yen

Contingent liabilities to financial institutions forcustomers who have a home mortgage
Contingent liabilities to financial institutions forcustomers who have a membership loan
Contingent liabilities to suppliers of affiliated company(Toyo Miyama Kogyo Co., Ltd.)
Total

74

Leopalace21 Corporation / Annual Report 2012

2012

2011

2012

1,470

1,615

17,882

22

22

267

213
1,705

—
1,637

2,590
20,739

resort facilities, and sells resort memberships. The
Elderly Care Business operates elderly care facilities.
From the year ended March 31, 2012, the Elderly
Care Business was isolated from the Others in consideration of its significance. The Residential Sales
Business has been incorporated in the Others, due tothe decrease in importance from operation reductions.

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 to determine allocationof resources and assess segment performance.
The Companies have four reportable segments, theLeasing Business, Construction Business, Hotels &Resort Business and Elderly Care Business.
The Leasing Business operations comprise the leasing and management of apartment buildings and otherproperties, repair work, broadband internet service,rent guarantee, and the company residence agency
business. The Construction Business constructs
apartments and other buildings on a contract basis.
The Hotels & Resort Business operates hotels and(2) Calculation Method for Sales, Profits and Losses,
Assets, and other Items by Reportable Segment
The accounting methods for reportable segments arebasically the same as that presented in “Summary of
Significant Accounting Policies.” The reportable segment profits (losses) represent operating income(loss). Inter-segment sales and transfers are based onprevailing market prices.

(3) Information Regarding Sales, Profits and Losses, Assets, and other Items by Reportable Segment for the years
ended March 31, 2012 and 2011 were as follows:
Millions of yen
Reportable segment

March 31, 2012

Hotels &ResortBusiness

Elderly Care
Business

Segment
Total

62,914

6,228

8,845

—
62,914
4,309
16,1301,218
7,446(1,664)42,096251

9

Leasing Construction
Business
Business

Sales
Sales to customers 380,308
Inter-segment sales
and transfers
427
380,735
Total
5,249
Segment profit (loss)
131,747
Segment assets
Other items
2,661
Depreciation
Increase in property,
plant, and equipment,755
and intangible assets

Adjustments

Consolidated
Total

OthersTotal

458,295

1,142

459,437—

459,437

—
8,845
(855)
2,299

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

60
1,202
(37)
4,371

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

1,804

67

4,783

47

4,830

1,217

6,047

381

1

1,146

44

1,190

294

1,484

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

Inter-segment eliminations
Corporate expenses*
Total

Millions of yen

Thousands of
U.S. dollars

20(2,436)(2,416)

243(29,634)(29,391)*Corporate expenses consist mainly of general administrative expenses for administrative departments thatare not part of reportable segments.

Leopalace21 Corporation / Annual Report 201275

Adjustments in segment assets (¥68,141 million, $829,063 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 (¥294 million, $3,574
thousand) consist of capital investments which do not belong to reportable segments.
3.Segment profit (loss) is adjusted to operating profit on the consolidated statements of operations.

Millions of yen
Reportable segment

March 31, 2011

Hotels &ResortBusiness

Elderly Care
Business

Segment
Total

107,821

6,492

7,786

—
107,821
11,97122,0691,696
8,188(1,975)45,728423

95

Leasing Construction
Business
Business

Sales
Sales to customers 356,606
Inter-segment sales
and transfers
451
357,057
Total
Segment profit (loss) (30,094)
156,272
Segment assets
Other items
2,670
Depreciation
Increase in property,
plant, and equipment,385
and intangible assets

Adjustments

Consolidated
Total

OthersTotal

478,705

5,686

484,391—

484,391—
7,786(1,510)
2,297

2,147
480,852(21,608)
226,366

36
5,722
288
5,413

2,183
486,574(21,320)
231,779(2,183)(2,183)(2,287)66,495—484,391(23,607)298,274

1,919

71

5,083

38

5,121

1,330

6,451

405

15

900

46

946

2,636

3,582

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

Inter-segment eliminations
Corporate expenses*
Total

46
(2,333)(2,287)*Corporate expenses consist mainly of general administrative expenses for administrative departments thatare not part of reportable segments.
Adjustments in segment assets (¥66,495 million) consist mainly of surplus operating funds, long-term investment capital, and assets which do not belong to reportable segments.
Adjustments in the increase of property, plant, and equipment, and intangible assets (¥2,636 million) consistof capital investments which do not belong to reportable segments.
3.Segment profit (loss) is adjusted to operating loss on the consolidated statements of operations.

76

Leopalace21 Corporation / Annual Report 2012

Thousands of U.S. dollars
Reportable segment

March 31, 2012

Leasing Construction
Business
Business

Sales
Sales to customers 4,627,179 765,464
Inter-segment sales
and transfers
5,201—
4,632,380 765,464
Total
63,860 52,430
Segment profit (loss)
1,602,952 196,252
Segment assets
Other items
32,3783,052
Depreciation
Increase in property,
plant, and equipment,
9,188
101
and intangible assets

Hotels &ResortBusiness

Elderly Care
Business

75,779107,617 5,576,039

Segment
Total

OthersTotal

13,896

5,589,935

Adjustments

Consolidated
Total— 5,589,935—
20,745 (20,745)
730
14,626 5,610,680 (20,745) 5,589,935
55,79785,188 (29,391)(458)
53,177 2,392,537 829,064 3,221,601

20,015—
14,81490,593 107,617 5,596,054
85,646(20,240) (10,404)
27,980 2,339,360
512,176
21,947810

58,187574

58,761

14,81173,572

4,639

12

13,940538

14,4783,574

18,052

Related information
1. Products and services
Information concerning products and services has been omitted, since similar information is reported in “22. Segment
Information.”
2. Geographic area
(1) Sales
Information concerning sales by geographic area has been omitted, since more than 90% of sales reported in the consolidated statement of operations are generated in Japan.
(2) Plant, property, and equipment
March 31, 2012
Millions of yen
Japan

Trust territory of U.S.A. Guam

People's Republic of China

Total

112,20329,804

6

142,013

March 31, 2011
Millions of yen
Japan

Trust territory of U.S.A. Guam

People's Republic of China

Total

118,084

32,191

10150,285

March 31, 2012
Thousands of U.S. dollars
Japan

Trust territory of U.S.A. Guam

People's Republic of China

Total

1,365,168

362,62076

1,727,864

3. Major customers
Information concerning sales to major customers has been omitted, since sales to any particular customer does notexceed 10% of sales reported in the consolidated statement of operations.

Leopalace21 Corporation / Annual Report 201277

Information concerning impairment loss on fixed assets by reportable segments
March 31, 2012
Millions of yen

Leasing
Business

Impairment loss

Construction Hotels & Resort
Business
Business

2,607

—

—

Elderly Care
Business

OthersAdjustments

Consolidated
Total

—

4

—

2,611

Elderly Care
Business

OthersAdjustments

Consolidated
Total

—

—

98

2,228

Elderly Care
Business

OthersAdjustments

Consolidated
Total

—

39

—

31,764

March 31, 2011
Millions of yen

Leasing
Business

Impairment loss

Construction Hotels & Resort
Business
Business

2,090

—

40

March 31, 2012
Thousands of U.S. dollars

Leasing
Business

Impairment loss

Construction Hotels & Resort
Business
Business

31,725——

Information concerning goodwill amortization and unamortized balance by reportable segments
For the years ended March 31, 2012 and 2011
Not applicable.
Information concerning gain on negative goodwill by reportable segments
For the years ended March 31, 2012 and 2011
Not applicable.

78

Leopalace21 Corporation / Annual Report 2012

23. Amounts per Share(a) The following tables set forth the net assets and net income (loss) per share of common stock for the years ended
March 31, 2012 and 2011.
Yen

Net assets
Net income (loss)
Basic
DilutedU.S. dollars

2012

2011

2012

199.73195.91

2.43

9.40
9.40

(261.03)
—

0.11
0.11

Diluted net income per share for the year ended March 31, 2011 is not stated since the Company posted net loss per share.
(b) Basis of computation of basic and diluted net income (loss) per share for the years ended March 31, 2012 and 2011
was as follows:
Thousands of
U.S. dollars

Millions of yen

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

2012

2011

2012

1,589
—
1,589
168,996(40,890)—(40,890)
156,649

19,333—
19,333
168,996

Thousands of
U.S. dollars

Millions of yen

2012

Diluted net income per share
Adjustment to net income
Increase in common stock (Thousands of shares)(of which, stock acquisition rights, thousands of shares)
Dilutive securities that didn't have dilutive effects andtherefore were not included in the calculation ofdiluted net income per share.
The Company recognizes stocks held by “Leopalace 21
Employee Stock Ownership Committee Trust Account”(1,621,400 shares as of the end of the year ended March
31, 2012, and 2,298,900 shares as of the end of the year

2011

2012

—
—
—
34
34
—
(34)
(34)
(—)
New stock
New stock
New stockacquisition rights acquisition rights acquisition rights(710)(28,000,650)(28,000,650)
ended March 31, 2011) as the treasury stock. As a result,
those numbers are eliminated in calculating “weightedaverage number of common shares during the fiscal year.”

Leopalace21 Corporation / Annual Report 201279

24. Related Party Transactions
The following tables set forth related party transactions for the years ended March 31, 2012 and 2011.
For the year ended March 31, 2012(a) Unconsolidated subsidiaries and affiliates
None(b) Directors and major individual shareholders
Capital stock

Attribute

Directors
and close
relatives

Name

Address
Millions of yen

Thousands of
U.S. dollars

Business or
position

Percentageof shareownership

ToshikoMiyoshiTakeshi
Yoshioka

—

—

—

—

—

—

—

—

—

—

Name

Transaction

Relation

Leasing of landand buildings
Leasing of landand buildings

Transaction amountAttribute

Directors
and close
relatives

ToshikoMiyoshiTakeshi
Yoshioka

Leasing ofapartments
Leasing ofapartments

Millions of yen

Thousands of
U.S. dollars

26

317

10

127

Balance

Account
Millions of yen

Thousands of
U.S. dollars

14

168

—

—

Long-term
prepaid expenses—(Notes) 1.Consumption taxes were not included in amounts.
2.Conditions of transactions:(a) Conditions of leasing of apartments are the same as transactions with third parties.
(b) Conditions of sale of land are the same as transactions with third parties.
3.Toshiko Miyoshi is a close relative of Tadahiro Miyama, Director of the Company.
4.Takeshi Yoshioka is a close relative of Yoshikazu Miike, Director of the Company.
For the year ended March 31, 2011(a) Unconsolidated subsidiaries and affiliates
Capital stock

Attribute

Name

Address

Business or position
Millions of yen

AffiliateToyo Miyama Kisarazu
Kogyo Co., City, Chiba
Ltd.

100

Production andsales of building
materials

Transaction amountAttribute

Name

Transaction

Toyo
MiyamaKogyo Co.,
Ltd.

Purchasesof building
materials
and others

50.0%

Relation

Purchases of building
materials and others

Balance

Account
Millions of yen

Millions of yen

Affiliate

Percentage of shareownership

13,254

Accounts
payable forcompletedprojects

1,232(Notes) 1.Consumption taxes were not included in transaction amounts but included in balance.
2.Conditions of transactions:(a) Conditions of purchases of building materials are the same as transactions with third parties.
80

Leopalace21 Corporation / Annual Report 2012

(b) Directors and major individual shareholders
Capital stock

Attribute

Name

Address

Business or position

Percentage of shareownership

Millions of yen

Directors andclose relatives

Company where
major
shareholders(individual) andclose relatives
have majorityof voting rights

AttributeToshikoMiyoshiTakeshi
Yoshioka
MDI

Name

—

—

—

—

—

—

—

—

Nakano,Tokyo

100

Real estatebusiness—

Transaction amountAccount

Relation

Leasing of land andbuildings
Leasing of land andbuildings
Real estate brokerage

Balance

Transaction
Millions of yen

Directors andclose relatives

Company where
major
shareholders(individual) andclose relatives
have majorityof voting rights

ToshikoMiyoshiTakeshi
Yoshioka
MDI

Leasing ofapartments
Leasing ofapartments
Brokerage ofreal estate
held for sale19

12Long-term prepaid
expenses
—

21

—

—

26

—

(Notes) 1.Consumption taxes were not included in amounts.
2.Conditions of transactions:(a) Conditions of leasing of apartments are the same as transactions with third parties.
(b) Conditions of sale of land are the same as transactions with third parties.
3.Toshiko Miyoshi is a close relative of Tadahiro Miyama, Director of the Company.
4.Takeshi Yoshioka is a close relative of Yoshikazu Miike, Director of the Company.
5.MDI is a company where the major shareholder (Yusuke Miyama) of the Company and his close relative(s)have 100% of the voting rights. Yusuke Miyama is no longer one of the major individual shareholders after
December 21, 2010.

Leopalace21 Corporation / Annual Report 201281

25. Other
The following tables set forth quarterly information for the years ended March 31, 2012.
Millions of yen(Cumulative period)First quarter

Second quarter

Third quarter

Full-year

Net sales
Income (loss) before
income taxes
Net income (loss)
Net income (loss)
per share (yen)105,486

223,044

332,450

459,437(3,744)(3,799)(5,112)(5,203)(1,530)(2,061)

1,352
1,589

(22.51)(30.82)(12.20)9.40(Accounting period)First quarter

Second quarter

Third quarter

Full-year

Net income (loss)
per share (yen)(22.51)(8.31)

18.58

21.57

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

Second quarter

Third quarter

Full-year

Net sales
Income (loss) before
income taxes
Net income (loss)
Net income (loss)
per share (U.S. dollar)

1,283,444

2,713,761

4,044,902

5,589,935(45,551)(46,218)(62,191)(63,306)(18,614)(25,081)

16,455
19,333(0.27)(0.37)(0.15)

0.11(Accounting period)First quarter

Second quarter

Third quarter

Full-year

Net income (loss)
per share (U.S. dollar)(0.27)(0.10)

0.23

0.26

26. Subsequent Events
Not applicable.

82

Leopalace21 Corporation / Annual Report 2012

Leopalace21 Corporation / Annual Report 201283

CORPORATE PROFILE

Corporate Data

(As of March 31, 2012)

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:¥56,562.86 million
Operations:
Construction, leasing and sales of apartments, condominiums, and residential housing; development andoperation of resort facilities; hotel business; broadband
business; and elderly care business, etc.

Members of Board of Directors and Auditors(As of June 30, 2012)

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

Eisei Miyama
Tadahiro Miyama
Hiroyuki Miyata
Fumiaki Yamamoto
Yuzuru Sekiya
Yoshikazu Miike
Kou Kimura
Tetsuji Taya

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

Shinya Watanabe
Masumi Iwakabe
Koichi Fujiwara
Masahiko Nakamura

Number of Employees:
6,165 (consolidated basis)
5,361 (non-consolidated basis)

Major Shareholders (Top 10)
Shareholders

1 LIXIL Corporation
2 State Street Bank and Trust Company 505019
3 Stockholding Association for Leopalace21’s Business Connection
4 Goldman Sachs International
5 Leopalace21 Corporation
6 Bank of New York GCM Client Account JPRD ISG FEAC
7 Credit Suisse Securities (Europe) Ltd. Main Account
8 CBNY DFA INTL SMALL CAP VALUE PORTFOLIO
9 Morgan Stanley & Co. LLC
10 Japan Trustee Services Bank, Ltd. (Trust Account)

Stock Information(As of March 31, 2012)

Number of Shares:
Authorized: 500,000,000
Outstanding: 175,443,915
Number of Shareholders:
35,585
Listing:First Section of the Tokyo Stock Exchange(Security code: 8848)
Transfer Agent:
Mitsubishi UFJ Trust and Banking Corporation

84

Leopalace21 Corporation / Annual Report 2012

(As of March 31, 2012)

Number of Shares

Percentage of Outstanding Shares

15,900,000
12,245,600
6,934,700
6,829,000
4,569,120
4,425,800

9.06%
6.97%
3.95%
3.89%
2.60%
2.52%

4,313,034
3,861,887
3,365,613
3,262,500

2.45%
2.20%
1.91%
1.85%

Shareholder Composition (As of March 31, 2012)
Breakdown by Number of Shares:
Financial Instruments
Business Operations(Securities Companies)
2.67%

Financial
Institutions
11.71%

Foreign Corporations
35.19%

Treasury Stocks
2.60%

Individuals
and Other
35.17%

Business Corporations
and Other Legal Entities
12.66%

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

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

Number of
Leased Managed Properties

556,207 units
Total Number of
Directly Managed Sales Offices

6
6
Hokkaido Area

14,4294
5,274
2
Okinawa Area

159 offices(As of March 31, 2012)

Total Number ofPartners Franchise Sales Offices

190 offices
12
12

40,86922
22

79,82733,194

Hokuriku/Koshinetsu
Area

20
10

37,069

13
15

Tohoku Area
Kinki Area

Chugoku Area

41,00311
11

Kita-Kanto Area

5
5
Shikoku Area

14,58231
21

89,25917
1443,68949
41

157,012

Chubu Area

Kyushu Area

Metropolitan Area

Share Price and Trading Volume(As of March 31, 2012)

Share Price

Trading Volume(Yen)(Thousand shares)

400

240,000

300

200,000

200

160,000

100

120,000
80,00040,000

0

Apr.
2011

May

Jun.

Jul.

Aug.

Sept.

Oct.

Nov.

Dec.

Jan.
2012

0

Feb.

Mar.

Leopalace21 Corporation / Annual Report 201285

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 2012