CREATIVEEVOLUTION

Annual Report 2018
For the fiscal year ended March 31, 2018

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

Contribute to society by creating and providing
Corporate Philosophy

Mission Statement“Creating New Value”

We seek to always be innovators,

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

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

Adopted on December 16, 2016

Leopalace21 Annual Report 2018

Leopalace21 delivers unique and exclusive values
in Japan and overseas through our four businesses.
Hotels, Resort & Other Businesses

1.1%

Elderly Care Business

2.4%

Development Business

14.4%

Leasing BusinessNet sales
composition ratio

82.0%’18/3 FY2017

new value based on the theme of “housing.”“10 Promises” of Leopalace21 Group
1. We will broadly contribute to society through continuous reform and the creation of new value.
2. We will aim to be a reliable and admired company with emphasis on equal opportunities and fair		business practices.
3. We will prioritize serving our customers, and listen closely to what they have to say and identify their needs.
4. We will continue to provide valuable products and services in a timely manner, through constant innovation.
5. We will create a comfortable working environment where employees can fully exercise their skills and		respect individuality and sense of values.
6. We will create a corporate culture where change and challenge is valued, and independence is respected.
7. We will provide appropriate returns of our results through fair, transparent and healthy business operations.
8. We will continue to grow through accurate identification of environmental changes, reforming our		business model in a timely manner.
9. We will contribute to the development of society and the economy, by committing to high ethical		standards and complying with the law.
10. We will diligently protect the global environment, and contribute to a prosperous society through		corporate activities with close ties to regional communities.
Enacted on April 6, 2018

01

02

Leo palace2 1 An nua l Repor t 2018

Contents

Leopalace21: Who We Are

Initiatives for Supporting Corporate Value

03 To Our Stakeholders
04 Trajectory of Growth
06 Cultivated Strengths and Business Model

52 Leopalace21’s ESG Management
54 Corporate Governance Dialogue: Toward Increasing
		 Corporate Value in the Medium to Long Term
62 Corporate Governance		62 Corporate Governance System and Initiatives
		66 Compliance		 67 Risk Management
		68 Directors, Audit & Supervisory Board Members,			 and Executive Officers
		71 Engaging in Sound, Constructive Communication
			 with Stakeholders
72 Basic CSR Action Policy
		 72 Providing High-Quality Services and			 Supporting Affluent Living
		 74 Creating Pleasant Work Environments and			 Developing Diverse Human Resources
		 76 Contributing to Local Communities
		78 Creating an Environmentally Friendly Society

Initiatives for Opportunities and Risks of Social Challenges
08 Leopalace21’s Long-term Vision10	Leopalace21’s Initiatives for Opportunities andRisks of Social Challenges
20 Opportunity and Risk Management Discussions
about Social Challenges
22 Business Model Transition

Initiatives for Creating Value
24 Top Interview
32 Creating Value for Stakeholders
34 Initiatives for Property Owner Satisfaction
Initiatives for Tenant Satisfaction
36 Customer’s Voice
38 Special Feature: Human Resources Strategy at Leopalace21
40 Leopalace21 Employee Round Table
44 Business Overview
44 At a Glance
46 Leasing Business48 Development Business
50 Elderly Care Business
51 Hotels, Resort and Other Businesses

Data Compilation
80 Ten-Year Consolidated Financial Highlights
82 Consolidated Financial Highlights
85 Non-financial Highlights
86 Financial Section
136 Data Compilation
142 Corporate Profile

Editorial Policy
We publish an integrated report that combines an annual report with corporate social responsibility (CSR) reporting. The purpose of this report isto enable management to communicate its message to all our stakeholders. We seek to present our management strategy, priority measures, an
overview of business conditions, etc. as well as inform readers about our CSR activities.
This report covers the fiscal year from April 1, 2017 through March 31, 2018 (fiscal year 2017). The scope is Leopalace21 Corporation and its
consolidated subsidiaries in Japan and overseas. Our aim is to publish to the extent possible the latest information available as of the publication
date. With the aim of promoting deeper reader comprehension, the report includes macro-economic data relating to our businesses, and the “DataCompilation” section enables readers to understand trends to date. We take care to explain what we present in ways that are readily understandable
so that the report serves as an effective communication tool that reaches our many stakeholders.
In this report, the main focuses are on what we are doing to create value in the medium- and long-term and our initiatives to reinforce the effectiveness of our corporate governance. It is our hope this report will help our stakeholders obtain a greater understanding of the Company.

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

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

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

To Our Stakeholders

03

In parallel with supporting the continuous growth of core businesses whileconstructing a base for growth areas, we will begin to reform our organization
structure in “the first year of human resources and organization development.”

Initiatives for Supporting Corporate Value
Data Compilation

June 2018
Eisei Miyama
President and CEO

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Leopalace21 was off to a great start this fiscal year, the firstyear of the medium-term management plan. Although the forecasts
were not achieved in the Development Business due to changes inthe environment surrounding apartment construction, the Leasing
Business continued to record increases in revenue and profit. In
addition, we were able to take the required measures in the growthbusinesses, including the International Business.
In the Leasing Business, for example, we have taken steps toimprove our services using IoT and AI. In real estate development,
investors and Leopalace21 have entered into partnerships for ourreal estate specified joint enterprise products. Furthermore, oursubsidiary company, Leopalace Trust Co., Ltd., has acquired theInvestment-based Trust Company license. In the International Business, we opened a serviced apartment in Cambodia and a serviced
office in South Korea.
I would like to take this opportunity to convey my sincerest apologies for the tremendous trouble and distress caused due to deficiencies in the construction of parting walls for some of the apartments
we constructed. This resulted from inadequacy in our management
structure, and the entire management team is taking the situation
very seriously. We have started investigations of all of our apartments. Should we find any deficiencies in the course of the investigations, we will swiftly carry out repair works in consultation withspecific administrative agencies. At the same time, we will endeavor
to determine the cause of this situation and develop a rigorous
quality management system to prevent any recurrences. The entire
Leopalace21 will engage in the investigations and repair works, andwill make every effort to regain the trust of our stakeholders.
In fiscal 2018 (fiscal year ending March 31, 2019), we will ensurethat the above repair works are fully completed. We will also grow
our Development Business by expanding real estate development, as
well as undertake the necessary measures so that our Leasing Business, International Business, and other businesses continue along
a steady growth path. Additionally, we will reform our organization
structure in “the first year of human resources and organization
development,” with a view to transitioning to a holding company.
In closing, I would like to humbly request your continued supportand encouragement.

04

Leo palace2 1 An nua l Repor t 2018

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

1995

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

Apartments

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

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

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

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

1993

1985

Net sales(Millions of yen)

800,000

Wish to live
comfortably!

1973

Property
OwnersOpen “Leopalace Resort Guam”

Launch of “Leopalace21”
urban type apartments

1991

Started businessas Miyama Inc.

700,000
1991

600,000

Obtain a patent for“housing with lofts”

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

300,000
200,000
100,000
0
1973

High-growth period

1975

1980

Stable-growth period

1985

1990

Bubble period

1995

Bubble collapse period

Leopalace21 Annual Report 2018

2014

2002

• Establish overseas subsidiary in Cambodia• Open Myanmar Branch

2006

2015

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

2007• Open Leopalace Center Jongno
2009• Establish overseas subsidiary in China(Shanghai), open Beijing Branch2010• Open Dalian Branch and Guangzhou Branch
2012

in South Korea• Open Hanoi Branch• Establish overseas subsidiary in Philippines,
start operating serviced office• Start operating serviced apartment in Thailand• Open Sriracha Branch• Establish overseas subsidiary in Indonesia

Four strengths

2016

of Leopalace21• Start operating serviced office in Myanmar• Establish overseas subsidiary in Singapore• Start operating serviced apartment in Vietnam

1

2017

2013

• Establish one overseas subsidiary in Thailand
and one in Vietnam• Acquire Enplus Inc. and make it into an affiliate• Start operating serviced apartment in Cambodia
2018

Scale

• Start operating serviced office in South Korea (Seoul)
2012

Want to enjoy
living alone tothe full extent

Start “Room Customize”（current “my DIY”）service

1999

Launch “Monthly Leopalace”
furnished with furniture andhome appliances

Want tofreely rearrange
my room

2
Tenant Matching
Capabilities

Want tolive in a room
safe and secured
for female

Want to enjoy
internetin my room

3

2017

2011

Start “Security System”
installations for apartments
2002

Start broadband business

Innovative
Products

2015

Adopt computerizedlease agreement

4

2013

High-quality
Service

Adopt “Non-soundSystem” asstandard feature

2005

Start Elderly Care
Business

Initiatives for Supporting Corporate Value

Promote smart
apartments
Install “Leo Remocon”
and “Leo Lock”
in sequence

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value• Establish Woori & Leo PMC Co., Ltd.

Leopalace21: Who We Are

History of Overseas Expansion

05

Data Compilation

2000

Economic uptrend period

2005

2010

Global recession period

2015

Economy recovery period

2017

Fiscal year

06

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

Leopalace21’s

are the driving force

1
Scale

Growth Strategy
Business

570,672
28,00082 %● No. 3 in Japan in lease management units*

Number of rooms under management:

Approx.

● Number of apartment owners:● Distribution rate (% of number of cities

Approx.

with properties among all cities in Japan):● Number of newly constructed apartments (FY2017):

566

buildings,

7,191

units

Leasing

Solar
Power
Generation

International
Business

Leasing Business
Operating two types of agreement; “leasing
agreement” easing the burden of initial cost,and “monthly agreement” providing a roomwith furniture and home appliances on amonthly basis.

(As of March 31, 2018)*Source: “The Number of Units under Management Ranking”
of the weekly newspaper Zenkoku Chintai Jutaku Shimbun

Core Business

Hotels, Resort &Other Businesses

2
Tenant Matching
Capabilities● Number of leasing sales offices:307(including overseas
offices and franchisees)

This segment includes Leopalace
Resort which operates sports facilities,
hotel and condominium in Guam, andLeopalace Hotels operated in four locations nationwide.

93.72 %● Occupancy rate:● Corporate contracts: Number of corporate contracts for apartments:

Approx.

310,000

units,

57.8 %● Number of leasing contracts (FY2017):(As of March 31, 2018)of occupied units

Approx.

410,000

Each business generates
in Leopalace21’s

Leopalace21 Annual Report 201807
Leopalace21: Who We Areof our business model

3
Innovative
Products

Construction

Real Estate
Development

Development Business
Developing high-end products to satisfy
what is required for rental housing such as
low cost, energy saving and high durability.

Approx.

● Number of contracts for “my DIY” service:

40,00094 %97 %Ratio of apartments with furniture andhome appliances:

Approx.

● Ratio of apartments with Internet access:Approx.

●● Ratio of apartments with “Leo Lock” installed:

100 %among subject properties

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

four strengths(As of March 31, 2018)

Initiatives for Supporting Corporate Value

Core Business

Elderly Care
Business

4
High-quality
Service

Providing nursing-care facilities
and services, in an environment
marked by full-scale aging society
coming up.

Growth Strategy
Business

synergies and creates value
unique business model

24 hours● Japanese Call Center’s operating hours:● Contracts through corporate housing services:

with

205

companies,● Number of units with security systems installed:(As of March 31, 2018)

for

61,800300,000

Approx.

units

Data Compilation

7● Number of foreign languages supported:08

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Leopalace21’s Long-term Vision
Strive to remain as a company
to create and provide newvalue relating to “housing”
even after 30 years.
Since its founding, Leopalace21 has been
responding to various social challenges andneeds related to people and housing. Thoseefforts include supplying urban-type apartments,
opening an overseas resort hotel, providing
apartments with furniture and home appliances,
starting the Elderly Care Business, and expanding
globally using our real estate know-how
amassed in Japan.
When looking to the future with a long-term
perspective, it is obvious that a variety ofsocial challenges will keep arising in the realestate industry which we are a part of.
Leopalace21 will grow further by continuing toresolve these problems going forward.
By striving together to embody our mission
statement, “We seek to always be innovators,
to create without ceasing, and further, we
strive to increase value for society as a whole”
and resolving those social challenges,
Leopalace21 will develop new value creation
for people and housing not only in Japan but
globally as well.

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

Leopalace21’s Priority Issues
Responding to
declining population

Priority issues(initiatives)

09• Increasing single-person households• Increasing vacant housings

Other priority issues● Response to lifestyle diversification

Page 72● Promotion of diversifying work styles andhuman resources

Page 74● Contribution through our business that helps

strengthen local communities

Responding toaging society• Decrease in productive age population• Increase in the needs for nursing care

Page 76● Lowering of our environmental impact

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Our initiatives responding to the social challenges such as increasing single-person households
and vacant housings caused by declining population are related to the above two SDGs.

Leopalace21’s Initiatives

Main SDGs
related topriority issues

by reducing CO2 emissions

Page 78

stakeholders

Page 71

Leopalace21’s
priority issues

3
2
1
1

2

3

4

Degree of importance to Leopalace21

To identify the social challenges we intend to actively address in the future, weplotted the challenges on a materiality map based on two axes; our stakeholders’level of interest and the degree of importance to Leopalace21. Among thenumerous various challenges, we identified “declining population” and “aging
society” as Leopalace21’s two challenges to be addressed with the highest
priority. Resolving these identified challenges is connected not only to creating
value to our diverse stakeholders but also to realizing the SDGs which wereagreed upon at the United Nations Sustainable Development Summit.

Data Compilation

Stakeholders’ level of interest

Social Challenges We Should Address

4

Initiatives for Supporting Corporate Value● Necessity of dialogues with and disclosure to

Our initiatives responding to the social challenges such as of decreasing productive age population and increasing number of elderly caused by
the aging of society are related to the above
two SDGs.

Leo palace2 1 An nua l Repor t 2018

Leopalace21’s Initiatives for Opportunities
Leopalace21’s business is aimed to resolve issues related to people and housing. Declining population and an
aging society are currently major challenges in the society, including the industry where we belong.
Leopalace21 has been focusing on responding to these challenges. We engage in initiatives that lead to creating
and sustaining value by accurately understanding the things that occur due to the issues and categorizing themas opportunities or risks.

Social Challenges
Future population estimates by age group in Japan (10,000 people)

9,744

9,284

8,808

5

5
204

0

203

204

5

0
203

202

5

0

201

202

6

5
201

0
201

10,192

206

10,642The decline in the birthrate will accelerate in the future. The total populationin Japan is forecast* to drop below
100 million, to 97.44 million by 2055,
and then will continue to decline evenfurther to fall below 90 million by 2065.

011,092

206

11,522

5

12,254 11,913

205

12,806 12,709 12,693 12,53201Declining
Population

205

Challenge(Year)■ Ages 0-14 ■ Ages 15-59 ■ Ages 60-64 ■ Ages 65-69 ■ Ages 70-74 ■ Ages 75 and above ■ Ages unknown* Source: White Paper on Aging Society (June 2017), Cabinet Office, Government of Japan

Challenge

2

Aging
Population

Change in the ratio of the population aged 65 and above (%)

The percentage of aged people in Japanis expected* to continue increasing toreach almost one aged person (ages 65
and above) in every 3 persons by 2035
and one in every 2.6 persons by 2065.

26.6 27.3

4.9 5.3 5.7 6.3

7.1 7.9

9.1 10.3

12.1

14.6

17.4

20.2

28.9 30.0

31.2

32.8

35.3

36.8 37.7 38.0 38.1

38.4

23.0

195
0
195
5
196
0
196
5
197
0
197
5
198
0
198
5
199
0
199
5
200
0
200
5
201
0
201
5
201
6
202
0
202
5
203
0
203
5
204
0
204
5
205
0
205
5
206
0
206
5

10

(Year)■ Young-old population (ages 65-74)■ Old-old population (ages 75 and above)* Source: White Paper on Aging Society (June 2017), Cabinet Office, Government of Japan

Leopalace21 Annual Report 2018

Leopalace21’s Initiatives

Leopalace21: Who We Are

and Risks of Social Challenges

11

Opportunities and risks
What’s happening● Increase in needs for one-

Opportunities● Increase in the number of

The National Institute of Population and Social Security Research foresees a decline in the total numberof households in the future leading up to 2040 while
predicting a continued increase in the total numberof one-person households. The number of householdsof single person in productive age (ages 15-64),
which is our target, is estimated to level off at 10 to
12 million in the next 20 years.

Japanese companies expanding into ASEAN● Excess supply of apartments

Acceleration of corporate global expansion

Risks● Increase in vacant housing

P12-13

P18-19

P14-15
P14-15The number of Japanese companies accelerating
expansion overseas has been continuously increasing
as globalization advances. A survey on the numberof Japanese companies overseas by region from theAnnual Report of Statistics on Japanese Nationals
Overseas (Summary Report 2017) shows that Asia
holds approximately 69% (49,673 bases) of the total,and has held the top position consistently since 2005.

According to the notification status summary in the
Situation of Notified Foreign National Employment
Status by the Ministry of Health, Labour and Welfare
in January 2018, supported by the factors such as theuse of skills training programs, the number of foreign
workers in Japan increased 194,901 (18.0%) year on
year to 1,278,670 as of October 31, 2017, recording
the highest number for 4 straight years.

Opportunities● Increase in foreign workers

and exchange students

Risks

P16-17
P18-19● Decrease in productive age

population● Shortage in human resources		

P18-19for nursing care

P16-17

Data Compilation

Increase in nursing care needs
Survey of Long-term Care Benefit Expenditures by
the Ministry of Health, Labour and Welfare showsthat the needs for nursing care service business are
expected to grow further in the future in line with theconsistent increase of the number of people using
nursing care services.

● Increase in nursing care needs

Initiatives for Supporting Corporate Value

Increase in foreign nationals

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Increase in one-person households

room type housings suitablefor one-person households

12

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SocialChallenge

1 Leopalace21’s Opportunity Initiatives for
Opportunities in a declining population

Increase in needs for one-room type housings suitable for one-person households
Due to the estimate that the total number of households willcontinue to decline in the future up to 2040 while the numberof one-person households will increase, the needs for oneroom type housings suitable for one-person households are
increasing. According to the statistical data for the numberof new housing starts (housings for rent) released by the
Ministry of Land, Infrastructure, Transport and Tourism, thenumber of rental housings of 30m2 or smaller, which is ourbusiness target, has kept increasing since 2011 up to approximately 79,000 units in fiscal 2017 in spite of the year-on-year
decrease of the total number of housings for rent.

Number of new housing starts (housings for rent)(1,000 housings)

290

2011

427
370

358

2013

2014

384

410

321

2012

2015

2016

2017 (FY)■ Less than 30m2 ■ 30m2 or more
Source: New Housing Starts Statistics, Statistics Bureau,
Ministry of Land, Infrastructure, Transport and Tourism

Leopalace21’s opportunity initiatives
Establishing a unique position in the market targeting one-person households
Leopalace21 has been expanding business with urban
type apartments at the core from an early stage throughfocusing on housings for one-person households that are
different from conventional housings, which respond to
the needs for short-term stays as well as housings with
furniture and appliances. We have built and managed
properties that leverage our know-how for one-personhouseholds, such as design, specifications and man-agement, for more than 30 years. We also have rental
properties with a wide range of room types and periods ofstay for residents, and have established a unique footholdthat has comparatively low competition. Our positioning
in a market shared by our competitors is represented as“specializing in one-room type units” as well as “targeting
medium-term stays.”

Room typeOne-room type unit

Leopalace21
Short-termLong-term

Length of stayCompany

CompanyA

B

CompanyC

Family type unit

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

a Declining Population
Competitive advantages of Leopalace21
Maintaining foundation of a long-term
market leader (approx. 570,000 units
managed throughout Japan)

13

Changes in the number of rooms
under management (1,000 units)
549

555

562

569

571

2013

2014

2015

2016

2017

2018

One competitive advantage of Leopalace21 is its overwhelmingly large stock of managed apartments. Since
Leopalace21 (urban type apartments) were released
in 1985, we have grown in a scale that boasts roughly
570,000 rooms (units) under management throughout
Japan to date. We must have a presence in the market
to sustain medium- to long-term competitive advantages. The enormous number of rooms under management
will be our platform to keep the presence as the industry’s market leader for the next 10 or even 20 years.
*As of the end of March

Leopalace21’s differentiation strategy

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

546

Promoting measures to enhance the value of properties matching the needs of the times

my DIYtransition to IoT via “Leo Remocon,” “Leo Lock,” and “Facial
Recognition System;” installation of “PUDO Station” open
delivery lockers that anyone can use; “my DIY” for tenants
to customize rooms as they like; introduction of solar
power generation systems that can contribute to environmental conservation; and security systems that consider
safety and security by linking to major security companies.

STB device “Life Stick”

Leo Remocon

Initiatives for Supporting Corporate Value

Leopalace21 always strives to provide products and services that lead the real estate industry. We are promoting
product development and measures to enhance the valueof existing properties that focus on comfort, environment and disaster prevention, as well as safety andsecurity, which are particularly in high needs by tenants.
Leopalace21 drives forward the development of choiceproperties by advancing measures, including support for a

Data Compilation

×Open-type delivery lockers “PUDO Station”

Security system

Leo Lock14

Leo palace2 1 An nua l Repor t 2018

SocialChallenge

1 Leopalace21 Risk

Initiatives for

Risks in a declining population
Changes in the number of vacant housings for rent (1,000 housings)
and vacancy rate (%) in Japan

Increase in vacant housings in Japan due
to excessive supply of housings for rent

17.4

The number of new rental housing starts in Japan has
been increasing with circumstances that include revisions
to the inheritance tax and prolonged low interest rates
resulting from negative interest rate policy implemented
by the Bank of Japan. However, as the number of regions
constructing new rental housings that exceed the actual
demand has increased, the number of vacant housings has
been consistently increasing. There were roughly 4.6 million vacant housings for rent or sale in 2013 with a vacancy
rate of 19.9%, which is partially becoming a social issue.

12.4

14.3

2,336

14.3

18.8

20.1

19.9

4,476 4,600

3,978
3,520

2,619

1,834

1983

1988

1993

1998

2003

2008

2013 (FY)

Vacancy rate
■ Number of vacant housings for rent or sale
Source: 2013 Housing and Land Survey , Statistics Bureau,
Ministry of Internal Affairs and Communications

Leopalace21’s risk response
Properties centered on metro areas with increased migration
The number of contracts in the Construction Business (current Development Business) decreased tofall into an operating loss as a result of stagnation inapartment demand due to the global financial crisis
triggered by the 2008 collapse of Lehman Brothers.
Through the business structure reforms conductedfrom fiscal 2010, we were able to shift to a stableprofit structure as a result of accelerated initiatives,
such as concentrating of areas to supply properties,
advancing the shift to the Leasing Business (sales
composition changed from 43.9% to 82.0%), andexpanding the variation of construction products in theDevelopment Business.

Focused on metro areas
Top 5 prefectureswith large excess in in-migrants
Prefecture

Net-migration in 2017:(in-migrants)– (out-migrants)

Tokyo75,498Chiba

16,203

Saitama

14,923Kanagawa

13,155

Fukuoka

6,388

Source: Report on Internal Migration in Japan Derived fromthe Basic Resident Registration , Statistics Bureau,
Ministry of Internal Affairs and Communications

Number of rooms newly supplied

Number of rooms under management

Tokyo metropolitan area

52.8%

Tokyo metropolitan area

29.5%

Kinki
regionChubu

13.4% region
7.2%*Constructions completed
in the fiscal year ended March 2018

Kinki
regionChubu
region

14.1% 15.4%*As of the end of March 2018

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

a Declining Population
Leopalace21’s business structure reforms
Reducing construction contracts and establishing a stable revenue and profit structure
focusing on Leasing Business

Increasing profitability of existing
apartments through thoroughimplementation of business structure reforms
2007

2018

net sales
composition bybusinesssegment● Leasing Businessnet sales
composition bybusinesssegment

82.0％. . . . . . . . . . . 43.9％● Construction Business

14.4％
2.4％

(current Development Business) . . 50.0％● Elderly Care Business . . . . . . . . . . 0.9％
● Hotels and Resort Business . . . . . . 1.1％

1.1％

● Other Businesses . . . . . . . . . . . . . 4.1％

Leopalace21’s differentiation strategy
Superior in construction ratio in metro areas inspite of falling short in the supply of new rooms

Number of new apartment buildings constructedby major subleasing companies by area (FY2016 results)

3%

Proposing ideal land use
As an excess supply of apartments is becoming a social
issue, we do not propose apartment construction in areas
where demand is not expected. Leopalace21 proposes
optimal plans to help realize ideal land use in line with
the needs of each region, such as elderly care facilities,
childcare facilities, stores and buildings with commercial
space, and custom-built homes.

Examples of proposals for ideal land use
Childcare facilities

23%

50% 38%12%

48% 44%
8%

34%

60%

6%

Approx. 8,400
Approx. 5,100

Approx. 4,600

Company B

Company C

Custom-built homes

Land use
proposed by
Leopalace21

Stores and buildings
with commercial space

663
Leopalace21

Company A■ Center of 3 major metro areas (Tokyo metro area, Aichi, and Kyoto-Osaka-Kobe region)■ Other part of 3 major metro areas (Kinki and Chubu regions excluding Aichi and Kyoto-Osaka-Kobe region)■ Other
Source: 2017 Competitiveness Analysis of Housing Manufacturers,
JUTAKU SANGYO KENKYUSHO CO., LTD.

Other

Various land usage proposals, including management ofvacant land and housing, as well as support for sales

Data Compilation

74%

Elderly care facilities

Initiatives for Supporting Corporate ValueAs we shifted to a new business structure with theLeasing Business at the core by reducing the number of
construction contracts, we lag behind major subleasing
companies in terms of new apartment supply. However,
Leopalace21 holds the highest construction ratio in major
metro areas where a large demand can be expectedcompared to those subleasing companies.

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Allocating resource to selected and focused areas is indispensablefor the success of business. Development Business of Leopalace21
implements a strategy that concentrates on regions where large
tenant demand is forecast. One indicator to determine this demandis the inflow and outflow of tenants by prefecture summarized in
the “Report on Internal Migration in Japan Derived from the Basic
Resident Registration.” Based on the above report, we determinedthat the prefectures with the highest excessive number of people
moving in against number of people moving out in 2017 were 7
prefectures including the Tokyo metro area such as Tokyo, Chiba,
and Saitama. We are concentrating more than 70% of our new
housing units and about 60% of properties under managementin 3 major metro areas. We are sustaining a stable tenant rate byconcentrating new property supply and property management inmajor cities that will continue to have a booming migration.

15

16

Leo palace2 1 An nua l Repor t 2018

SocialChallenge

2 Leopalace21’s Opportunity Initiatives for
Opportunities in an aging population
Change in the number of peopleusing nursing care services (1,000 people)

Increase in usage needs for nursing carefacilities
Along with the aging of Japan's population, the needs fornursing care service business are expected to grow further
in the future as the number of elderly people requiring nursing care increases year by year. A survey by the Ministry of
Health, Labour and Welfare shows an ongoing increase in
the number of people using nursing care services with thetotal annual number of recipients of these services in fiscal
2016 climbing to 49,413,900 people. In particular, the number of people using in-home services, including day services
and short stays, is also increasing dramatically every year.

40,828.7

2011

42,979.3

2012

44,727.3

2013

46,447.9

2014

48,192.2 49,413.9

2015

2016 (FY)

Source: Survey of Long-term Care Benefit Expenditures,
Ministry of Health, Labour and Welfare* The “total annual number of recipients” is the total number of people who 		received nursing care services each month from May to April of the following year.

Leopalace21’s opportunity initiatives
Creating synergies through cooperation with the Development Business
The Elderly Care Business, which is a growth strategy business, is expected to create synergies through cooperation
with our core businesses. Azumi En nursing care facilities of
the Elderly Care Business have been developed widespreadin the Kanto and Chukyo areas in the same way as the Development Business, one of our core businesses. There arecases where land owners prefer our proposals for an elderly

care facility over an apartment. We believe the Elderly
Care Business is indispensable in considering approaches
to realize effective land use. In the future, we also predictneeds for proposals related to the welfare of customers
entering into corporate contracts, and foresee the Elderly
Care Business as one of those proposals to be developed in
multifaceted cooperation with the Development Business.

Elderly Care Facilities “Azumi En” Area Dispositions (83 facilities as of May 1, 2018)
Development
Business

Elderly
CareBusiness

Cooperation

Apartments for
single-personhouseholds

Isezaki Tatebayashi
Takasaki ▲ ▲Ota▲

Elderlycarefacilities▲

Chichibu

▲

▲

Gifu

Aichi

Shizuoka

Kasugai◆ ▲Toyota * Shizuoka
Moriyama ▲Yaizu ▲ ▲ Fuji
Anjo * Iwata ▲ ▲▲Komuro Ageo ▲Utsunomiya
Nogi
Shinkoga▲ Ina

Hanasaki-no-oka

Shimodate
Yuki
Koga
Koga-chuo
Iwai▲* MitoIbaraki▲Minami-sakurai
Mihashi ▲ Sakura Yoshikawa ▲ Showa▲▲▲ Shimizu-kouen
Mizuho Goseki Gamou ▲●▲ ▲ Yashio
Irumagawa● Kokinu Tsuchiura
Soka
HamuraYanagisawa
Komakidai
Abiko
Sakasai
Higashi-yamato
Hirasawa
Takamihara●
NakanoTatemachi
Tokiwadaira
Takatsukashinden ▲ Kamagaya
Tokyo● MisakiNamikicho
Nishi-funabashi
Katsutadai ▲ ▲ Ino ▲Kanagawa▲ Nakazawa▲ Wakaba
Takaoka▲*Atsugi● Katsuragi▲Oyumi
Yamakita Tsurumaki
Chiba● Ichihara
Tsukuihama
Hiratsuka ▲▲ Kisarazu

SayamaOume

Gifu

Tochigi-daicho ▲▲ Hanyu

Higashi-matsuyama▲

Owners▲Gyoda ▲ Kitamoto

Honjo

Saitama▲ Kakamigahara▲* Azumi En Shizuoka:
Opened in July 2018

Sekigawa Kanuma Tochigi Yaita
Horigome

Gunma

▲
▲

* Azumi En Mito:
Scheduled to open in August 2018
* Azumi En Iwata:
Scheduled to open in September 2018
* Azumi En Atsugi:
Scheduled to open in December 2018
★ Fee-based home with nursing care,day/short-stay services◆ Fee-based home with nursing care,short-stay service■ Fee-based home with nursing care,
day service● Fee-based home with nursing care
★ Fee-based residential homes
with day/short-stay services◆ Fee-based residential homes
with short-stay service● Fee-based residential homes○ Group homes▲ Day/short-stay services● Day services◆ Short-stays

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

an Aging Population
Competitive advantages of Leopalace21
Elderly Care Business as Growth Strategy
Business

LivingLivingGroup homes

Visit/Stay

Elderly
Privatecare
retirement
facilities
homes

Day services/
Short stays

VisitsVisitsVisitingcare
care
Visiting
Regular
Regularvisits andvisits
24 hourandsupport24 hour support
Visiting
Visitingcare
careandandnursing
nursingcarecare
In-homebathingbathing
assistance
In-homeassistance

Assistance
SupportIn-homenursing careassistance
supportChange in the number of Azumi En facilities

48

56

60

58

61

64

66

76

83

35

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (FY)

Leopalace21’s profit improvement strategies

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Leopalace21 positions the Elderly Care Business as a
growth strategy business and is increasing the number offacilities. In addition to day services (same-day service),short-stays (short-term overnight stays), elderly homes
with nursing care services/residential style elderly homes(move-in), and group homes (residents with dementia live
together), we are also developing services such as visiting
care, in-home bathing assistance, visiting care and nursing
care with regular visits and 24 hour support, and in-homesupport. As of May 1, 2018, we operate 83 facilities, withplans to increase the number to the total of 87 facilities
focusing on the areas in need.

17

Improving profitability through quantity increase and cost control

1

2Increase facilities

Reform cost structure

In order to respond to the growing nursing caredemand as well as social challenges, such as ashortage in the number of nursing care facilities, we will increase the number of facilities.

We are working to secure profit by further optimizing labor costs.

May 1, 2018

Plan forMarch 31, 2020

83

87

facilities

facilities

Fiscal 2015
Full-time
employees Others

40%(contract,part-time,
temporary)

60%

Plan for fiscal 2019

Full-time
employees
Approx.

35%

Others(contract,part-time,
temporary)Approx.

65%

Data Compilation

unless we achieve a higher occupancy rate. In light ofthis situation, we are furthering our review of costs
that can achieve profitability at each facility rather
than expanding the number of facilities during thecurrent medium-term management plan. In addition,
we will improve profitability (becoming profitable) at
each facility by various cost control measures, such as
the use of IT.

Initiatives for Supporting Corporate Value

Leopalace21 considers the elderly care market as a
growth market. However, the fierce competition in
the market due to many new entries from different
industries makes it difficult to improve profitability.
Compared to our competitors, we have a high fulltime employee ratio and the fixed costs derived fromthe full-time employees are putting pressure on profit.
Therefore, it has been difficult for us to increase profit

18

Leo palace2 1 An nua l Repor t 2018

SocialChallenge

2 Leopalace21 Risk

Initiatives for

Risks in an aging population
Change in the Japanese Population (Million People)

Dramatic decline in the productive age population

25.5%

The productive age population in Japan has been droppingwith its peak in 1995 due to the progression of declining
birthrate and aging population. The estimated populationof people aged 14 and below has also been continuously
declining since 1982, and there is no stop to the loweringbirthrate. In the future, the total population is expected to
decline to 119.13 million people by 2030 and 92.84 million
people by 2060 while the productive age population is
expected to decline to 68.75 million people by 2030 and
47.93 million people by 2060. On the other hand, the ratioof people aged 75 and above is forecast to continue to rise
to 19.2% by 2030 and 25.7% by 2060.

88

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

2065 (FY)■ Ages 0-14 ■ Ages 15-64 ■ Ages 65-74 ■ Ages 75 and above ■ Age unknown

Ratio of people aged 75 and above*Source: 2017 White Paper on Aging Society, Cabinet Office, Government of Japan

Leopalace21’s global strategy
Overseas expansion of the Leasing Business
Leopalace21 engages in real estate brokerage andintroduction locally for Japanese nationals and Japanese companies, in addition to our conventional
business of introducing real estate in Japan to foreign
nationals, by establishing 16 branches overseas witha focus on the ASEAN region. In South Korea, we established Woori & Leo PMC Ltd. through a merger witha major residential management company to enter
into the leasing management business and gradually

increase the number of management contracts.
Furthermore, in order to respond to the growing
needs for comfortable living in local areas following
the increase of Japanese companies expanding into
the ASEAN region, we operate serviced offices andserviced apartments with high-quality equipment andservices in high-quality buildings. We opened a newservice apartment in Cambodia in December 2017 anda service office in Seoul in May 2018.

Overseas expansion of the Leasing Business (16 branches)
In the past
Beijing

DalianIntroducing properties
in Japan to foreign nationals

Busan

Seoul

Shanghai

Futureexpansion

Guangzhou
Hanoi

for properties in Japan● Branches for introducing and brokering properties● Branches performing both of the above functions

Bangkok
SrirachaTaipeilocated on-site in Asia

YangonIntroducing local real estate brokers
to Japanese nationals and companies
Promoting business expansion
including serviced apartments
and serviced offices● Branches for introducing and consummating contracts

Phnom Penh
Ho Chi Minh
Singapore

Jakarta

Manila● Branch for collecting and researching information

for investment

Leopalace21 Annual Report 2018

Leopalace21’s resilience (response capabilities)
Overseas expansion
emphasizing Asia

Overseas expansion into the ASEAN
region and utilization of foreign workers
in Japan&Use of foreign workers
in JapanUtilization offoreign humanresources

Overseas personnel support and utilization of foreigners as human resources at Leopalace21
Utilizing human resources of ASEAN region

Leopalace21 has brought Enplus Inc. under its umbrella as a subsidiary company in October 2017 toexpand GROS, support services for personnel transfers
between Japan and overseas. Currently, we have 16
offices in Asian countries and provide one-stop services to assist customers, including support to bring inforeign employees, overseas outsourcing of personnel,
and end-to-end support for overseas appointments.

As the labor shortage progresses due to the decline in
the productive age population in Japan, Leopalace21
provides skills training in Vietnam to accept interns whocompleted the training into its contractors in Japan. In
addition, we actively promote utilization of overseas
human resources. For example, we use local companies
in Vietnam and Cambodia to create drawings of ourproperties as part of our BPO.

Overseas entry
supportPremium support
to bring in foreign
employees

1
Facilitating
introductions of
medium- to high-class
SA* in Japan*SA: Serviced apartment

Data Compilation

GROS

End-to-end
support foroverseas
appointments

Overseas
outsourcingof personnel

23Lifestyle support
by bilingual
employees

Facilitating support for
property introductions
in major8cities
3
worldwide

Initiatives for Supporting Corporate Value

Global Relocation Operating Support (GROS)

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating ValueGLOBALVISION

While the productive age population in Japan is expected
to decline, the population in the ASEAN region is growing
along with the increase of work productivity and significant development of the region is expected.
Considering this business environment, Leopalace21 engages in various initiatives to utilize the human resourcesof the ASEAN region that include skills trainings in Vietnam to develop on-site construction workers for Japan,
in addition to conducting local real estate brokerage andintroduction in the ASEAN region.

Businesstravelmanagement

Leopalace21: Who We Are

an Aging Population

19

4
Supporting transfers
between countries

83

Skills training

20

Leo palace2 1 An nua l Repor t 2018

Opportunity and Risk Management Discussions
At the Board of Directors meeting, Leopalace21 determines important matters regarding management including strategies to address social challenges, and monitors the status of business execution as well as directors’
execution of duties. We are enhancing corporate value by systematically responding to the changing businessand management environments.

Challenges discussed at the Board of Directors meeting (Refer to page 64 “Corporate Governance”)
We hold regular Board of Directors meeting once a month as wellas convening the meeting flexibly as necessary to discuss anddetermine various matters, such as strategies, investment criteria,
and management resources in resolving social challenges.
To address social challenges such as declining and aging population, we consider diversification and multipolarization of construction properties other than low-rise apartment buildings is important in Japan, and position our International Business as growthstrategy business for overseas. Furthermore, we also focus on thedevelopment of organization and human resources. We believeboth human resources with entrepreneurial mindset to drive ourCompany and organizational structure enabling innovation are

indispensable. Based on this belief, the Board of Directors is discussing the following challenges:

21

Organization
andhuman assets

Investment
criteria

3

Global strategy(real estate
investments)

4

Domestic
strategy(real estate
investments)

5
M&A

Considerations related to the challenges at the Board of Directors meeting
1. Investment criteria

2. Organization and human resource development(real estate investment/M&A in Japan and overseas)• Implementing on-site training such as the management dutiesof the Company as well as the selection of next-generation
management candidates in addition to extensive humanresource development programs for all employees• Stronger links to prevent the negative effects of vertical sectionalism in addition to entrusting authority and responsibility
to next-generation management through the company system• On-site staff and management to have the same mindset and toshare information• Cultivating objectivity and validity of investment activities
based on WACC
• Distributing risk by setting up investment frameworks by country while incorporating country risk into overseas investments• Overseas investments that sufficiently consider tax systems,
foreign exchange risks, etc.

Finalized action plans(1) Formulation of guidelines for investment management(2) Real estate investment in ASEAN/Japan:
We consider the risks in each ASEAN country to execute realestate investments(3) Merging of Enplus Inc. as our subsidiary:
Enplus Inc. became our subsidiary in October 2017, which
made us Japan’s first relocation management* company.
(4) Offices specializing in development excluding apartments

9 officesout of 59 offices(5) Establishment of Regional Supervision Department(6) Transition to the company system
Trial operation is scheduled to start in October 2018.
* An outsourcing service for global personnel administration that fully manages
processes in the country of origin and destination for corporate personnel
transfers. We also support the movement of personnel for various cases suchas new hires and medium- to long-term business trips and training in addition
to long-term appointments.

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

about Social Challenges

21“ Creating an even more ideal form of Leopalace21 is vital ”
Director, Senior Vice President, General Manager of Sales and Marketing
General Headquarters, General Manager of Corporate Business Promotion
Headquarters (concurrent position)

Our medium-term management plan addresses sustainable growthwith our core businesses as the driving force, but we cannot expect
the same large growth that we have had up until now. Increasing thenumber of apartments is not realistic in Japan where the low birthrate and longevity are in stride. Our core businesses may be in aharsh environment, but creating an even more ideal form of
Leopalace therein is vital. We have positioned the Elderly Care
Business and the International Business as growth businesses, but
especially in terms of our International Business, our name recognition is still limited locally. We will plant the seeds within thismedium-term management plan, including a Joint Venture (JV)
System with local companies. Leopalace21 will spearhead growthand diversify risk by leading the International Business to record 25%
to 30% of operating profit of the entire Company in the long term.

Tadashi Kodama
Outside Director

Data Compilation

The challenge in the Development Business is whether Leopalace21 can provide product design capabilities, such as elderly care facilities in addition toapartments, as well as low-cost products with high-added value.
Along with the aging of owners, issues related to business succession andinheritance will be more apparent. I believe it is vital for us to consider how weshould deal with the stock as well as the flow. New development faces a harshenvironment, but I think a lot of business opportunities can be found by cultivating the stock, such as proposals for rebuilding and renovating properties.
I also think it is important to provide our owners with end-to-end proposals
that include trust into the perspectives of business succession. Rather than
only proposing apartments, projects suitable to the location, such as convenience stores, are important. I think the abundant stock of Leopalace21 will
be our strength in the future.

Initiatives for Supporting Corporate Value“ The challenge is how to leverage the stock held in the future ”

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Tadahiro Miyama

22

Leo palace2 1 An nua l Repor t 2018

Business Model Transition
Following the global financial crisis triggered by the 2008 collapse of Lehman Brothers, the Company recorded operating
losses as orders at the Construction Business (current Development Business) declined. However, with the business structure reforms we implemented in the year ended March 2011, we have steadily returned to a stable earnings structure.
Our aim for the medium-term is to enlarge and grow the scale of our operations to achieve a balanced earnings mix
from the Leasing Business and Development Business while expanding our growth fields of the Elderly Care Business andInternational Business.

Global recession period

Economic uptrend period (before the collapse of Lehman Brothers)(after the collapse of Lehman Brothers)

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

Synergy model stagnated[ 30-year Master Lease System]

for max 30 years, at first [10 years ] fixed rent, after that 2 years-renewal(Billions of yen)800

Restrain orders at
Construction BusinessNet sales and Operating profit■Leasing Business (left axis) ■Development Business* (left axis)■Other (left axis) ● Operating profit (loss) (right axis)

600

400

200

0

*Business segments have been changed from the fiscal year ended March 2018.
-200

2003/3
FY2002

2004/3
FY2003

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

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

4.1%

2007/3
FY2006

2008/3
FY2007

2007
Composition
ratio
by business2009/3
FY2008

2010/3
FY20092011/3
FY20102012/3
FY2011

Embark on businessstructure reforms
Change in business structure

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

95

90

85

80

0

Average occupancy rate

2013/3
FY2012

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

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

Long-term goal

23

(Operating profit)
Overseas

Domestic

Domestic

Reinforcement of earnings from rental housing[30-year Master Lease System]

for max 30 years, at first [2 years] fixed rent, after that 2 years-renewal

Establish a stable earnings structure
based mainly on Leasing Business

Present(Billions of yen)

80

60

40

20

0

2014/3
FY2013

2015/3
FY2014

2016/3
FY2015

2018/3
FY2017● Leasing Business

82.0%● Development Business

14.4%● Elderly Care Business

2.4%● Hotels, Resort andOther Businesses

1.1%

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

2020/3
FY2019(Plan)

Data Compilation

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

2019/3
FY2018(Plan)

Our aim for the long-term
is to expand the domestic
businesses, andsimultaneously, apply thereal estate know-how weacquired in Japan to theoverseas businesses sothat around 25% of ourentire operating profit ismade overseas.

Initiatives for Supporting Corporate Value

2018
Composition
ratio
by business2017/3
FY2016

FutureInitiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Economy recovery period (current and hereafter)

24

Leo palace2 1 An nua l Repor t 2018

Top Interview
Most medium-term management plan targets were met in theplan’s first year.
The fiscal year ending March 2019 has been marked as the“initial year for people-building and organization-building,” ayear in which the focus is squarely placed on developing themanagers of tomorrow while trialling the implementation of acompany system with a view to achieving long-term growth.

1. Our Plans, Management Policy, and Vision
2. Our Organization and People
3. Corporate Governance
4. Distributions to Shareholders
5. Deficiencies Found in Certain Company-developed Properties

1. Our Plans, Management Policy, and VisionQ

One year has passed since the start of the medium-term management plan “Creative Evolution
2020” in April 2017. How do you view the Company’s progress towards plan objectives so far?

On a whole, most of the numerical targets set have been met.
However, when broken down by segment you can see a clear division in areas in which we are performing well and areas in which
we are falling short, and I hope to make the appropriate course
corrections during this medium-term plan period. This is notbased on a false hope that sheer willpower alone can make up
the difference in areas we are lacking. The areas in which we are
deficient are clearly apparent, and we will look to implementing
definite countermeasures while accurately identifying changes in
the market environment.
The Leasing Business has exceeded expectations, with occupancy rate targets being met one year in advance of the set deadline. This segment has also started the second year of the plan ina favorable position, and we are looking to further build on thisgrowth in the year to come.
Conversely, issues remain with the Development Business, withthe construction business in particular struggling due to a wide
range of factors. Moves are now in motion to compensate for thisin the real estate development business, for example, with designer apartments and condominiums produced by Company subsidiary, Life Living Co., Ltd., and other real estate specified joint enterprise products. The designer apartments and condominiums
offered by Life Living are not only highly competitive due to theirunique design sensibilities using a patented approach; they also
make for outstanding investment opportunities for property owners. The real estate specified joint enterprise product “LOVIE” also

Leopalace21 Annual Report 201825
Leopalace21: Who We Are

President and CEO,
Leopalace21

価値創造の取り組み

Data Compilation

East Asia, with most use expected to be from Japanese company
employees traveling to these countries as part of a work transfer.
Increases in the economic strength and national earnings figures ineach of these countries will likely coincide with increased demandfor housing offering higher standards of living, and we will look todeveloping products that meet this build up in demand among the
local population by country as these circumstances arise.
This medium-term management plan has also seen the adoption of ROIC as a key management indicator. To this end, we havestriven to increase asset and capital efficiency and have conducted reviews of held assets while adopting the weighted average
cost of capital (WACC) as a measure of the hurdle rate on investments. A clear example of this is seen with our investments in realestate in South East Asian countries as part of our International
Business. Relying completely on the decisions of responsible persons on-site often leads to inconsistencies in judgment criteria,
producing poor results. With this in mind, the Business
Management Headquarters establishes investment frameworks
and investment criteria with due consideration given to individual
country risks and other factors pertaining to each country.

Initiatives for Supporting Corporate Value

offers an ideal investment opportunity from the perspective ofasset and tax management, with the product selling out as soon
as it became available. With existing apartment owners making up
a considerable customer segment, this consideration for asset utilization in close alignment with customer needs is a major reason
for the favorable returns seen in this segment.
We managed to exceed the planned reduction in deficit in ourElderly Care Business, with this segment on track for a full recovery. While the last 12 years have concentrated on increasing thenumber of new elderly care facilities in operation out of anticipation for future market expansion, these expansion plans have been
temporarily put on hold to focus on restoring each facility to theblack and to ensure appropriate staffing placement is carried out.
With regard to our International Business, we started operating
serviced apartments in Cambodia in December 2017, and opened aserviced office in Seoul in May 2018. In terms of our overseas strategy, accurately analyzing current market conditions is a matter ofthe utmost importance. Customer needs vary in subtle ways fromcountry to country. Having said that, our serviced offices and serviced apartments remain in particularly high demand across South

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Eisei Miyama

26

Leo palace2 1 An nua l Repor t 2018

Medium-term Management Plan: Key Points and Strategy

Numerical Targets
2018/3

Basic Policy

2018/3

2019/3(FY2017) (Plan) (FY2017) (Actual) (FY2018) (Plan)

2020/3(FY2019) (Plan)• Support continuous growth of core businesses in ways that further
increase corporate value while constructing a base for growth areas

Sales

540.0 billion yen 530.8 billion yen 553.0 billion yen 575.0 billion yen

Operating profit

23.5 billion yen 22.9 billion yen 24.5 billion yen 26.0 billion yen

Business Strategies (Value creation via cash flow generation)

Net income*1

14.2 billion yen 14.8 billion yen 15.0 billion yen 16.0 billion yen• Core businesses: Balance apartment supply and management, andenforce concentration and diversification

Adjusted net
income*2

18.4 billion yen 14.2 billion yen 19.0 billion yen 20.0 billion yen• Growth businesses: M ove the Elderly Care Business and International
Business into profit, which are less exposed toshrinking domestic population

ROIC

－

7.5%

8%

8%〜10%

Adjusted
ROE*4

－

9.0%

11%

Maintain
12%

Financial Strategies (Value creation via balance
sheet management)• Introduce ROIC as a key indicator• Review assert holdings with a view to enhancing asset and capital efficiency• Improve and strengthen distributions to shareholders*3*1 Net income attributable to shareholders of the parent is shown as “net income.”*2 Adjusted net income = Net income after adding (subtracting) corporate taxes*3	Return on invested capital (ROIC) = Net operating profit after taxes (NOPLAT) /Interest-bearing debt + Net assets*4	Adjusted ROE = Adjusted net income / Average net assets (average of period-startand period-end net assets)

Performance by Segment
2018/3(Millions of yen)

Leasing
Development
Elderly CareQ

2018/3Compared
to plan(FY2017)(Plan)(FY2017)(Actual)

YoY

Sales

435,000

435,537+14,195+537

Operating profit

25,00026,062+3,052+1,062

Sales

85,00076,587(3,734)(8,412)

Operating profit

5,000

3,663

(2,123)(1,336)

Sales

12,50012,807+1,270+307

Operating profit(1,900)(1,596)+71+303

Hotels, Resort Sales& Others
Operating profit

7,500

5,908

(1,379)(1,591)(1,500)

(846)

(428)

+653

Adjustments(3,100)(4,353)(540)(1,253)Operating profit"Solving issues with people and housing” lies at the heart of Leopalace21’s business model.
Given the current business environment, the Company is now facing major social challenges in
the form of the declining and aging of the population. How do you propose Leopalace21 goes
about tackling and resolving these issues?

Firstly, with regard to internal activities relating to the declining
and aging of the population, we are raising the maximum age of
employment to compensate for the future reduction in the workforce. I myself am turning 61 this year and, provided my healthkeeps, I feel that I can keep working until I am 75. In May thisyear we established the Healthcare Promotion Office to help keep
employees in peak physical condition. We are currently building
an ideal workplace environment so employees can continue towork for a long time as part of internal activities intended atcountering the declining and aging of the population.
Meanwhile, as the decline and aging of the Japanese population continues to reduce the available workforce, the numberof foreign workers in Japan continues to increase. In addition toproviding such foreign workers with housing, we have also
developed measures to respond to, and resolve, potential living
issues, providing seminars introducing foreign workers toJapanese lifestyle habits around the time of their arrival, as

well as call centers providing assistance in 5 languages. While
more and more rental properties are becoming more open to
accepting tenants from overseas, few can match the level of
support we provide.
From a rental perspective, securing tenants over the longterm is vitally important. In 2011 we embarked on a series ofbusiness structure reforms as a hedge against the risks presented by a declining population, concentrating the provision of newapartments in areas of anticipated population growth, such as
the metropolitan area. However, the level of competition forprime real estate locations in major metropolitan centers is
intense, with landowners well versed in the level of demand,and it will take a lot to keep afloat amongst these pressures. To
set ourselves apart, we are concentrating on increasing thevariety of offerings we have available, making building proposals best suited to the land available in addition to our lineup ofapartments, as well as focusing on land development projects

Leopalace21 Annual Report 2018

Q

Our business is one of solving issues relating to people and housing, and our field of business will remain focused on the provisionof housing and offices that offer an exceptional level of comfort,
both now and over the long term. At the moment, most people
know us from our TV commercials and other advertisements as acompany that provides student apartments. However, both now
and in the future there is a need to shift away from a sole focus
on apartments, to become a provider of comfortable housing andreal estate suited to people across all stages of their life, fromnewborn babies to elderly citizens or, to put it more coarsely, toserve and support from the cradle to the grave. With this in mind,
we are seeing an increase in the number of child care and day
nursery facilities found in our buildings, and I hope to see thisProviding comfortableliving environments topeople of all ages

child care business grow over time. Looking ahead, we hope toleverage our housing solutions fit for people of all age groups,
from newborn babies to elderly residents, in resolving theseissues and providing additional services.
While it may not take hold for another 20 to 30 years, we plan
to take this concept overseas as well. If the provision of housing
services meeting the needs of all generations takes off in Japan,
there is no reason why similar services should not also be viable
overseas. Considering issues with the declining population in
Japan, we will look to expanding our services to cover the
ASEAN region in particular, which is expected to see continued
growth. I feel that a similar business model to that employed inJapan could also be applied overseas as well.

Ages 0-5

Ages 5-15

Ages 15-25

Ages 25-45

Ages 45-65

Ages over 65

InfancyChildhood

Adolescence

Adulthood

Middle age

SeniorChild care,
day nursery

Apartments Condominium buildings, Elderly caredetached housing
facilities

Could you speak more on what priority measures have been set for fiscal 2018 in order to achieve thelong-term vision and the current medium-term management plan? Further, what risk factors (business environment, personnel issues, etc.), if any, need to be overcome to promote these measures?
of apartments. In other words, these are specialist units focusedon providing non-apartment building solutions. One area in which
we are seeing particular interest is in construction requests
received for rehabilitation facilities for the elderly. These typicallyinvolve matching the building owner with facility operators once
we have determined the suitability of the site for the constructionof such facilities through consultations with the owner, with theCompany undertaking responsibility for the construction of such
facilities. Looking ahead, we hope to continue to increase thevariety of construction activities in which we are involved in order
to better meet the needs of a broad range of land owners.
Additionally, as with the real estate specified joint enterpriseproducts we commenced sales for in the previous fiscal year, we will

Data Compilation

With the Leasing Business exceeding the plan in its first year, we
will look to implement measures to maintain this pace to keepthese results from sagging. We have purposely held off on
increasing the supply of apartments to the same degree seen previously, focusing rather on boosting occupancy rates at unoccupied properties by maintaining a comprehensive understanding of
the advantages offered at each location and effectively communicating this in a manner that makes up for the apparent downsides
to each property, such as its location, etc.
With regard to the Development Business, we are working
to establish a structure that facilitates non-apartment building
proposals. Of the 59 development offices located across Japan,
9 offices have shifted to proposing buildings that do not consist

Initiatives for Supporting Corporate Value

Long-term vision

Q

Transition toInitiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Transition to

structure building
a company systema holdings system
preparation
Business
activities must be implemented
witha long-term view of the future in mind in order to
Fiscal year ending
Fiscal year
endingFutureMarchthe2019
Marchabove.
2020 Could you detail Leopalace21’s long-term vision?
resolvekind of social issues mentioned

Leopalace21: Who We Are

involving the purchase of attractive land for construction works
Initiatives Relating to the Declining and Aging of the Population
targeting investors.
Internal Activities
Business Response to External Factors
Further, in areas of intense competition we are also witness•Provision of housing to foreign tenants
ing an increase in the number of instances where we are•Rolling out services increasing the level
entrusted with managing apartments built by other companies. I
of comfort of foreign tenants•Raising the maximum employment age
see this as a manifestation of the way our conscientious build•Concentrating the provision of apartments•Establishment of the Healthcare
ing management service has been received favorably, and weon major metropolitan centers
Promotion Office to help keep
employees
in peak physical condition •Expanding our range of construction works
will look to gradually“Initial
expanding thissegment
with a view toyear
for people-building
andorganization-building”•Accepting contracts to manage
increasing building contracts when buildings under manageproperties owned by other companies
ment need rebuilding.
Organization

27

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Leo palace2 1 An nua l Repor t 2018

look to diversifying exit strategies to better respond to the asset
management needs of existing property owners and, in particular, tobetter pursue real estate development in major metropolitan areas.
In terms of our International Business, we have made various
inroads into boosting the brand recognition of Leopalace21 overseas, such as by hosting the Leopalace21 Myanmar Open golf
tournament, and efforts made introducing local properties to stationed employees in Japanese and foreign companies located in
ASEAN countries, together with the development and operationof serviced apartments and serviced offices in this region, haveborne fruit. We will take this opportunity to carry out real estate
investments, etc. using WACC while taking into account country
risks and other risk factors.
In terms of our Elderly Care Business, with targets surrounding
the number of operating facilities now met, our focus now turns
to cost structure reforms. While we will look to bring labor costsin line by cutting back on the ratio of full-time regular employees,
any perceived drop in the level of service quality will not be tolerated. Training sessions on approaches to the Elderly Care
Business continue to be implemented at our Head Office with aview to establishing and improving quality standards. Due to thepotential for inconsistencies in training implemented at individual
facilities caused by differences in the managerial capabilities andthe abilities of those teaching on-site, all employees, whether
regular employees, contract employees, part-time employees, or
temporary dispatch employees, receive their training at our Head
Office. I feel this helps achieve a standard level of service quality.
With regard to risk factors facing us in the current term, themost prominent one that comes to mind is the changing economic
environment. Our main clients in the Leasing Business are corporate enterprises, and we have striven to pull in a well-balancedarray of business clients from all industries without too great afocus on specific industries. Having said that, changes in the economic environment can cause unavoidable damage to certain
industries which, in turn, impacts our Leasing Business as well. I
also see reputational risk as a major pressing concern. When acompany gets to our size, no one can guarantee that certain areas
will not inevitably fall short of expectation. Deficiencies of thisnature require a definitive explanation together with corrective
actions, without ever attempting to conceal.
While the Company has numerous achievements to its name,
we tend to fumble when it comes to briefing the public, and PR
activities in this area have fallen somewhat short. Looking ahead,
we hope to be more comprehensive in strategically promoting our
CSR activities and other contributions the Company has made tosociety at large.

Priority measures for FY2018
Leasing
Business•Strengthen efforts to maintain the current
standard

Development
Business•Propose non-apartment buildings•Expand real estate development•Initiate investments in real estate as ahedge against country risks associatedwith ASEAN countries

International
Business
Elderly Care
Business•Promote cost structure reforms•Implement training at our Head Office toimprove and standardize service levels

2. Our Organization and People

Q

I wonder if there is need for debate as to whether the current Group structure is feasible for rapidly responding to changes in the business environment. What are your views as President on
how the Group organization should be structured?

I get asked on the bringing up of the next lineup of management
personnel all the time, even from Outside Directors, as it is statedin the Corporate Governance Code. I started to grow more awareof this need around 3 years ago, and I have since held various
gatherings and study sessions with different business divisions.
When doing so I see many have picked up management techniques by ear, but have little in the way of practical management
experience. In other words, just like driving a car these people

have got the license yet have not yet driven solo on a public road.
With this in mind, this fiscal year we have started selecting anddeveloping management personnel in earnest, such as by installing department managers as corporate executives at subsidiarycompanies, etc. Looking ahead, we will look to select the next
wave of deputy managers, section chiefs and skilled personnel for
additional training and experience, with those producing particularly outstanding results selected as executive officers.

Leopalace21 Annual Report 2018

“Initial year for people-building and organization-building”
Transition to
a company system

Transition toa holdings system

Fiscal year ending
March 2019

Fiscal year ending
March 2020

FutureEven with society racing towards a digital future, we still see many companies view their
growth as being reliant on “people” and “human resources.” What is Leopalace21’s humanresource strategy?

Data Compilation

Fiscal 2018, the second year of the medium-term management
and what business strategies participants would take if theyplan, was marked as the “initial year for people-building and orgawere in the President’s shoes. Looking ahead, I hope to holdnization-building.” When it comes to human resources, we haveclasses based on my own management experience, and that ofdone all that we can, and all that we can think of. This fiscal year
others as well. In other words, I hope to theme these sessions
the focus has shifted on how these human resources can be leveraround the decisions made by people involved in management
aged. Our human resources strategy can be largely broken down tounder various circumstances, and where they succeeded, andinitiatives implemented across the company as a whole, and initiawhere they failed. While many have heard the stories of promitives intended for human resources in management positions. First,
nent figures in management in other companies and industries,
Ages 0-5
Ages 5-15
Ages 15-25
Ages 25-45
Ages 45-65 Ages over 65
let’s look atLong-term
our company-wide
surprisingly few have heard from those with management experivision activities. It is here that outstanding
Infancy
Adulthood
age decisions
Seniorhuman
resources arebuilt up as members of management,
and it isChildhood
ence atAdolescence
Leopalace21. Decisions
madeMiddle
as President,
Providing
comfortableherelivingthat humanresource development
made by the Management Planning Department, and decisions
environments
to shifts into top gear.
Child care,
Condominium buildings, Elderly care
Apartments
peoplemanagementof all ages
Leopalace21
classes have been held forthelastmade bythe General Managerof the Management
day nursery
detached
housing Headquarters
facilities
couple of years. Up until now, these classes have been themedin light of the risks faced are likely to differ from position to posiaround brainstorming what could be done to better the Company,tion. This is the level of familiarity I am talking about. Many of us

Initiatives for Supporting Corporate Value

Q

Organization
structure building
preparation

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Valuelaboration between Headquarters and those in the field at theforefront of our operations, an area in which we have been particularly lacking. Specifically, this involves fostering a sense ofcohesiveness by gathering branch offices in different regions andholding meetings with all involved. The heads of each region
began giving guidance on how activities can be streamlined ineach region, and what can be done to exchange customer information and boost synergism between each party.

Leopalace21: Who We Are

While eventually we will look to shift to a holding company
structure, in the meantime we will start trialling the operation of acompany system in October of this year. Specifically, we arereviewing changes to our organizational structure in order to takea more earnest approach to the development of management personnel. Naturally, measures countering any ill effects brought
about by the proposed shift to a holding company structure, suchas a weakening of ties between subsidiary companies, havealready been taken into account. Currently the Company is structured in such a manner to promote horizontal ties between departments, a setup that will be carried over even after the adoption ofa holding company structure. Naturally the disadvantage to this isthat everyone tends to prioritize their own company or division
above all else. This is prevented with the evaluation system. We
adopted a personnel evaluation system whereby the achievementsof one’s own company or division accounts for 90% of the weighted score, with the remaining 10% evaluating the level ofcross-functional support provided, that is, the degree to which theemployee collaborated with other Group companies and divisions,and contributed to the optimization of the Group as a whole. Thisfeature is set to make the system function on the whole.
Further, this year we will look to strengthening the level of col-

29

30

Leo palace2 1 An nua l Repor t 2018

only seem to look at the end results, but if we look at the reasonsleading up to decisions made regarding something familiar to us
we can gain a greater insight into why such decisions were made,and whether these decisions resulted in success or failure. I feel

this can serve as an extremely useful frame of reference. We willcontinue to apply this approach to training the next generation ofpotential executive officers working below the current set of
executive officers.

3. Corporate Governance

Q

The Revised Corporate Governance Code was published in June 2018. With the cost of capitalbeing one such area undergoing revision, could you provide some further details on how
Leopalace21 views the cost of capital?

We plan to regularly refer to shareholder equity costs and WACC
values in implementing capital policies and profit distribution measures that ensure a minimum level of distributions to shareholders.
Additionally, we introduced ROIC as a management indicator(enhancing asset and capital efficiency and reviewing held

Q

The revised Corporate Governance Code mentions the need to disclose the Company’s policy
and approach to the curtailment of cross-shareholdings. Could you provide more details on
cross-shareholdings held by Leopalace21?

Currently the Company owns cross-shareholdings in 7 companies, 3 ofwhich are listed companies (Toyo Kanetsu K.K., Nac Co., Ltd., Seven
Industries Co., Ltd.). The Company only acquires stock when doing so
is broadly recognized as an effective means of maintaining andenhancing relationships with clients, capital tie-ups and businessQ

assets), and adopted the use of WACC when determining the hurdle rate for potential investments. As mentioned above, we haveintroduced investment frameworks and investment standards on
a per-country basis, particularly in relation to investments in
ASEAN countries.

partners, and the abovementioned cross-shareholdings have beenacquired with this viewpoint in mind. However, should a meeting of
the Board of Directors raise concerns as to the medium- to long-term
economic rationality of said stock purchases, the need to retain
ownership of said cross-shareholdings will come under review.

The revised Corporate Governance Code also goes into great detail on improving the functionsof the Board of Directors.
How is Leopalace21 currently handling additions to the Code, such as calling on the Board of
Directors to become actively involved in the formulation and administration of succession
plans, and in establishing objective, transparent systems for setting manager compensation?

I meet with people I feel are best suited as Outside Directors to
the Company, describing my vision for the Company to convince
them to come on board. All Outside Directors have experience as
managers. No matter the industry, all managers strive to improvebusiness performance, set a direction for the company to pursue,
and ultimately assume responsibility for the company. Managers
set policy based on a keen understanding of issues faced on-site
and what the market wants. A broad gap emerges in the opinions
and proposals given at meetings of the Board of Directors
between Directors who have experience putting this into practiceas managers and those of a more scholarly bent. Our Board of
Directors meetings consist of animated discussions between
members with management experience that give way to an active
exchange of opinions. We do not determine policy by majority
votes - all decisions implemented are unanimous. Matters are
discussed exhaustively, and decisions are only made when every-

one is convinced. When faced with dissenting opinion, we delve
into the grounds for the objection and, in many cases, convince
the opposing party of a proposal’s merits provided that improvements can be implemented to overcome the risks posed.
One of the most frequent topics of discussion relates to decisions concerning investments and human resources in management
positions, and these discussions are an extremely effective meansof recognizing risks pertaining to such matters. Fielding Board of
Directors positions with internal personnel alone inevitably leads tocertain biases emerging. Our Outside Directors are involved in all
types of Company meetings, and are well versed in Company matters. Additionally, they all maintain a proactive stance towards
investment. They provide invaluable advice for delivering further
Company growth based on a complete understanding of all requirements and a calculated assessment of the risks involved.

Leopalace21 Annual Report 2018

Enhancing checking functions to ensure
continuous value creation

All 3 Outside Directors are corporate executives

100 %4. Distributions to Shareholders

Q

Could you provide more details on distributions to shareholders for FY2018 and the Company’s
future policy on returning profits to shareholders?

Our current medium-term management plan has set a total return
ratio target of 50%. We aim to implement reviews of held assets
based on a management policy that prioritizes the enhancementof asset and capital efficiency, using the net proceeds from asset
sales to invest for future growth, or to provide distributions toshareholders. In fiscal 2017 we secured dividends of 22 yen(dividend payout ratio of 37.9%), and bought back 8 billion yen(10.76 million shares) of our own shares, representing 4.08% of
the total number of issued shares (total return ratio of 92.3%). As
with fiscal 2017, in fiscal 2018 we expect to secure dividends of
22 yen (dividend payout ratio of 37%), with a maximum sharebuyback of 8 billion yen (total return ratio of 90.3%).

Allow me to take this opportunity to apologize for the serious
inconvenience and concern caused by deficiencies of apartment
parting walls found at some Leopalace21 developed properties.
The Company acquired ISO9001 certification in 2008, and has
developed a systematic inspection system.
In 2009 we increased the number of process inspections covered by our inspection system, and in 2015 we introduced final
building inspection testing handled by a third-party inspection
body. That such deficiencies occurred in spite of these enhance-

June 2018
Eisei Miyama
President and CEO

Data Compilation

ments to our inspection system is a matter of utmost concern. Fullbuilding inspections are currently underway at a total of roughly
38,000 properties (apartment housing) developed by Leopalace21.
Looking ahead, we will strengthen our inspection system in an
aim to complete said full building inspections as quickly as possible. Further, in the event that said inspections show further deficiencies, we will promptly complete the necessary repair work inclose liaison with specific administrative agencies. In addition tothis, we will develop exhaustive quality management structures
aimed at conducting additional reviews into the root causes ofthis incident and preventing their recurrence. Leopalace21 will
join together as one in applying itself to the remaining inspection
and repair work that lies ahead in working at our utmost to regain
the trust placed in the Company. We humbly ask for your continued support in this matter.

Initiatives for Supporting Corporate Value

5. Deficiencies Found in Certain Company-developed Properties

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Ratio of Outside Directors
who are or have been
corporate executives

Outside Directors attend all types of Company
and Committee meetings• Board of Directors meetings (monthly)• Corporate Management Council (monthly)• Executive Officers meetings (monthly)• Monitoring meetings (monthly)• Risk Management Committee meetings (monthly)• Compliance Committee meetings (monthly)• Management strategy meetings (monthly)• Outside officer meetings (monthly)• Company meetings (every quarter)• Group management meetings (every half-year period)

Leopalace21: Who We Are

Bolstering Corporate Governance(Enriching Our Lineup of Outside Officers)

31

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Leo palace2 1 An nua l Repor t 2018

Creating Value for Stakeholders
We believe that contributing to a comfortable lifestyle and building an abundant society through our businessactivities will lead us to improve value for all our stakeholders, including our customers and shareholders.
By considering active disclosure of information to and communication with our stakeholders as important,
we strive to build healthy and better partnerships.
To support the company's growth in the medium-and-long term and to increase corporate value, it is vitalto build up bonds of trust with stakeholders and to make stakeholders feel satisfied.

Deliveredvalue

We recognize the creation of corporate value over the mediumand long-term and our sustainable growth as an enterprise stemming from our provision of resources and contributions to apartment tenants, owners, business partners, local communities,
employees, shareholders, and creditors, etc. Proactively communicating with all our stakeholders is set forth as 1 theme of our
Basic CSR Action Policy.

We proactively provide information to shareholders throughmeetings for individual investors, participation in IR events,and small meetings withinstitutional investors.

Shareholders

Together with all stakeholders
Moreover, we also recognize the importance of information disclosure, and are working to disclose financial and non-financial
information in a timely, transparent manner to a wide range ofstakeholders, including our shareholders. Through continued
communication with various stakeholders, we aim to deliver newvalue via our corporate activities.

Deliveredvalue
We actively communicate withlocal residents not only by holding hands-on experience eventsof our apartments, but also by
accepting volunteers at
Azumi-En.

Local Communities

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

Deliveredvalue

Owners
Deliveredvalue
We support our tenants byproviding information throughMY PAGE (a website exclusively
for tenants), holding cooking
classes, as well as organizing
get-togethers and manners
orientations forforeigners.

Tenants

We strengthen our relationshipwith business partners throughtheir participation in cleanup
campaign events in local areas
and around apartment building construction sites.

We develop systems to support
employees' promotions by offering employee training and careerdevelopment programs, establishing a system to support
studying for certifications.

Employees

Data Compilation

Business Partners

Initiatives for Supporting Corporate Value

Deliveredvalue

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

We aim to build positive relationships with owners by making
regular visits to them, providing
support for their asset management, and holding meetings
with owners and otherevents.

Delivered
value

33

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Leo palace2 1 An nua l Repor t 2018

Initiatives for Property Owner Satisfaction
Leopalace21 strives to share
information and maintain communication with property owners through“Class L,” a membership association forproperty owners. By holding Property
Owners’ Meetings and providing services
such as Life-stage Support, we work side
by side with property owners not only
as a business partner for managing apartment leasing, but also
as a life partner.
Property
Owners’ Meeting

Holding of Property Owners’ Meetings
Leopalace21 seeks to build favorable relations with property
owners through Property Owners’ Meetings. In addition toreleasing results reports quarterly, we communicate our corporate policy and timely topics as well as holding social events.
We maintain communication with property owners as a channel
to solicit their opinions, and reflect them in our management

practices. Thanks to these efforts, approximately 70% of theorders received in fiscal 2017 were repeat orders from property
owners who have placed orders with us previously.

Life-stage Support

Future Support

Leopalace21 offers “Life-stage Support” Service for property owners
comprised of three pillars; asset formation, tax planning, and life
planning. Even after agreements have been reached and construction work has been completed, our personnel periodically visit property owners and respond to their individual requests, which include
answering questions about assets, preparing a financial plan, andreviewing and designing a life plan. In fiscal 2017, periodic individual consultation sessions were held 177 times. Furthermore, in May
2018, Leopalace Trust Co., Ltd. was established by acquiring alicense from the Financial Services Agency. Leopalace Trust is thesecond Investment-based Trust Company in the industry, with thefirst one being formed six years ago, and will enable the Company tomeet the needs of an increasingly complex era.

Taking into account the opinions received at Property Owners’
Meetings, Leopalace21 offers “Future Support,” a service that
proposes solutions based on the concerns expressed to us byowners of older properties. Future Support considers the individual circumstances of property owners (family composition, tax status, etc.) and the situation surrounding their property, and presents the best proposal with input from experts. The proposedsolutions address not only apartments, but also how to make useof the owners’ existing properties in ways that accommodate
their concerns, such as renovating, selling, and replacement.

Plan: 250 meetings
Actual: 424 meetings, 8,632 participants

Proposals by Future Support
Continue
managing
apartment

Asset formation

Tax planningLife planningLife plan design
Home / real estate
Financial asset
Second opinion

Income tax
Inheritance tax
Gift tax
Fixed assets tax
Second opinion

Concierge service
Leo Mileage Program
Special service
Members-only event

Modify line ofbusiness or use

Sell theexisting property /purchase anotherpropertyLeopalace21 Annual Report 2018

Etiquette seminar

Call Center and Networking Event Follow-ups

GSC’s activities are aimed at preventing troubles attributable toforeign tenants, and creating an environment that will enable
them to live securely and comfortably with their neighbors andnearby residents. Specifically, GSC holds etiquette seminars at
the Community Space to help foreign tenants with their day-today living in Japan, for example, through teaching them road traffic manners and crime prevention measures, checking their understanding of acceptable conduct, and practicing garbage separation. The etiquette seminars are open not only to tenants, but also
to their roommates and acquaintances. In fiscal 2017, etiquetteseminars were held 209 times and attended by 674 people.
In the case that a complaint is received from a nearby resident
or others regarding noise, garbage or other matters related to etiquette after a foreign tenant has moved in, GSC will visit theapartment to instruct foreign tenants one-on-one and continue tomonitor them to prevent any recurrences.

The Company organizes a number of networking events at GSC’s
Community Space for foreign tenants who are living away fromtheir home countries and are prone to feeling anxious or
stressed from living in the foreign land of Japan. The events are
wide-ranging and include New Year’s party, career support, chigiri-e (Japanese-style paper collage), and nail tip workshop.
Through such events, Leopalace21 establishes opportunities tocommunicate with tenants, and strives to build up trust andimprove their etiquette.
In addition to GSC, our Call Center also provides various consultation services for tenants in five languages; English, Chinese,
Korean, Portuguese, and Vietnamese.

Visits to GSC by Nationality

767+107.8%

China

439

+20.9%

Taiwan 6％

South Korea

Visits to GSC by Nationality and Purpose

102+175.7%

Englishspeaking
countries 6％

English-speaking
countries

69
80

99
36

60

9

44

17

21

14

3

2
25

96

+71.4%

Taiwan91+40.0%

Nepal

14+366.7%Other

83-21.0%

1,592+59.7％

29

40

304

0

65

10

674

29

158

2

China

South English- Taiwan
Korea speaking
countries

Other■Etiquette seminar ■Event ■Consultation on daily life

Nepal

China 28％

48％

Total visitors

67

49

VietnamSouth
Korea 6％

676

540

20

242

Vietnam

FY2017

Data Compilation

Vietnam

Nepal 1％Other 5％100（％）

Total (People) Year-on-Year

Initiatives for Supporting Corporate Value

Implementation of Etiquette Seminars for
Foreign TenantsInitiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

With foreign tenants inJapan rising in number every
year, Leopalace21 is boosting its foreign tenant services, with the Global
Support Center (GSC Shinjuku) which
opened in June 2016 playing the central role.
As a support service exclusively for foreign
tenants, GSC assists foreign tenants intheir native language on all aspectsof living in Japan, including movein orientations and helping with
their troubles during tenancy.

Leopalace21: Who We Are

Initiatives for Tenant Satisfaction

35

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Leo palace2 1 An nua l Repor t 2018

Leopalace21 Value Creation Responding to Social Challenges and Needs

Customer’s Voice
Leopalace21 offers services tailored to the times to a vast number of people, primarily under the “Leasing Business”
and “Development Business.” Here are some of the feedback from owners of an apartment, nursery school, and abuilding with commercial space, as well as a host agency of foreign students and a nursing care facility user.

Owner ofbuilding withcommercial
space

I was able to protect the place dear to me
Mr. Chobei Tanaka Kyoto

I run a narazuke (Japanese pickles) shop which has been in business for over 220 years in
Kyoto. The building was aging, and I had to choose either rebuilding or selling it. Wondering if
there was any way to keep this old shop on the land where it had been for a long time, I went
to Leopalace21 to ask for their advice. Mr. Yamamoto, who was in charge, proposed various
plans in light of the wishes I had expressed. We settled with making a multifunctional facility,with the shop and processing plant on the first floor, my residence on the second floor, and a
hotel on the third floor and above. Since I was able to lease part of the facility to a hotel,
which would be a long-term tenant, I as an owner will not have to worry for some time. In the
coming years, I hope that the place will be used not only by us but also by many other people,
and would like to contribute to society in this manner.

Apartment
owner

Leopalace21 always makes proposals thatlook ahead to the future
Mr. Masayoshi Hirai Tokyo

Our relationship with Leopalace21 has continued since my predecessor’s time, so it has lasted
more than 20 years. My family has been farmers for several generations. My father, too, grew
vegetables in the field, while also running a rental housing business. Back in those times when
my father used to operate the business, he seemed to struggle with having to do it all on his
own. Now that we have Leopalace21 doing everything, it has been a huge help. We currently
own 5 apartment buildings, and at the proposal of Leopalace21, are building a sixth building
which will be an accredited nursery school. Leopalace21 is very good at identifying the needsof society before others do and incorporating them immediately. It would be wonderful if we
could make even a small contribution to society through the opening of this nursery school.

Nurseryschoolowner

I opened an accredited nursery school
Mr. Masaharu Yamashita Nursery school

I had owned a field and been in the agriculture business until a few years ago, when it became
impossible to continue the work due to health reasons. Since I had some concerns, including inheritance matters, I went to discuss with Leopalace21 and ultimately decided to build a nurseryschool. Mr. Ohashi, who worked with me, went far and beyond simply giving me advice on measures to promptly deal with the expiration of the “Productive Green Area” designation in 2022. To
ensure that all the required procedures are completed before the nursery school opens, Mr. Ohashi
managed the schedule, negotiated with the municipality, supported the management of construction work, satisfied the various requirements of business matching with the nursery school operator, and more. The nursery school opened as scheduled thanks to him, and I am truly grateful.

Leopalace21 Annual Report 201837
Leopalace21: Who We Are

It is very helpful that Leopalace21
can provide orientations andperform procedures locally
Mr. Hiroki Hama J. F. Oberlin University

Our division provides preparatory education for foreign students wishing to study
in Japan, and offers a range of programs including a 2-week short-term study program and summer course. Every year, foreign students had a difficult time finding
housing in Japan, and this had been a headache for us. About 3 years ago we consulted Leopalace21, and that is when our relationship started. Since Leopalace21
has branches overseas, students can receive an orientation directly from
Leopalace21 and sign the contract in their countries. After arriving in Japan, they
only have to receive their room key and can move into their rooms immediately. As
this seems to match their needs, many foreign students choose Leopalace21 fortheir housing.

With all the events,
every day is exciting
Ms. Kyoko Shiobara Tokyo

Data Compilation

I have been going to Azumi En since it opened in July 2013. My family visited
Azumi En beforehand, and thought it would be great as it is new and has all
kinds of facilities. Since the food is good and I can meet nice staff, I like
Azumi En the most out of the centers I have used previously. There are many
events. Along with sport and cooking events, students from the nearby
Hosen Gakuen visit for work experience, wind instrument performances, andso on. I look forward to going to Azumi En every day. I especially look forward to the bathing service and my once-a-month haircut.

Initiatives for Supporting Corporate Value

Azumi En
user

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Hostagency offoreignstudents

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Leo palace2 1 An nua l Repor t 2018

SpecialFeatureHuman Resources Strategy at Leopalace21

Advancing our Human Capital Essential for Sustainable Growth
The Company implements a human resources development system that is based on the view that the nurturing of a strong
team of human resources will serve as the basis for building a strong organization, one that can forge a better tomorrow.
This system includes a rich array of programs focusing not only on members of management, but on employees in nonmanagement positions as well as young employees with the intention of having this serve as a stepping stone to boost the
careers of all employees. In the past year we have also started to flesh out initiatives intended to aid employees in theirefforts toward self-improvement, such as by offering group training and correspondence courses open to all comers.

Human Resource Development Program
In addition to programs intended at training employees in how to
fulfill their current work duties in an optimal manner, the Company
is also actively enriching skills development programs for young
employees. The human resource development program offers animportant foundation of support for brushing up one’s work skill set
needed to perform one’s duties, while also providing a smooth stepup to higher positions.

Feature 1: Program administration that emphasizes
career enhancement support
We aid the career development of our employees through a broad
range of human resource systems and measures.
The Company tailors its human resource development programs(training, qualification support programs, etc.) based on the experiencelevels and capabilities of program participants in order to better facilitate
their learning experience so that participants get more out of the training. This approach is based on a philosophy that views the self-directed,
proactive use of said programs by employees as a surefire means of not
only promoting individual career development, but also bolstering
the collective organizational strength of the Company as a whole.

Feature 2: Links to career enhancement
In terms of promotion to management positions, we have implemented promotion qualification accreditation testing in addition
to other measures as a means of carrying out promotions according to actual performance. Looking ahead, we hope to leverage abroad range of human resources information relating to feedbackon the desired career path of individual employees and the stateof skills development initiatives in order to implement improvements across the whole human resources system to better allow
for fair, impartial human resource management.

Feature 3: Supporting the retainment of learned knowledge
We incorporate ways to have employees apply their newfoundawareness and knowledge learned during training programs tohave them acquire first-hand experience.

Feature 4: Providing a broad range of learning andself-development opportunities
Last year, the Company started the “Leo College,” offering classes to all as a means of supporting employees with a high motivation to learn new skills. Leo College has turned into a place ofactive learning, offering group classes at all major Company locations across Japan, as well as correspondence courses.

Association chart showing the relationship between the human resource development program
and the human resource system/measures at the Company
Human resource development program

Training by business division
Qualification support programs

Hierarchy-based training

Skills development
Knowledge/
skills

Personnel evaluation/promotion exams

Other measures

Promotion exams

Career registration
systemRoles/abilities(Competencies)

Personnel evaluation,and feedback on evaluations

Fundamental skills (Dimensions)
Cognitive, communicative, disposition

Promotion exams(Aptitude tests/assessment training)

Development support programs (correspondence classes/open training) open to all providing support for self-development in each skill-building area

Internal
recruitment
programs, etc.

Leopalace21 Annual Report 2018

Overtime working hours (hours)
Paid vacation usage rate (%)
Operating profit(millions of yen)

27.9

27.8

31.7

33.0

13,467

14,822

70.1

72.2

74.1

21,08522,89822,930

22.4
20.0

18.2

2014

2015

2016

2017

• Implementation of surveys on regular workat business sites• Started work-life balance, labor management training• Established a policy on
work-life balance• Introduced an hourbased annual paidvacation system• Started “Slim Work
Innovation” movement• Introduced an annual
vacation plan and arefresh vacation plansystem• Introduced a telework(work from home)system(FY)• Established andannounced a “workstyle policy” at eachbusiness division

Work-life Balance
September 30, 2017 increased from 2.9% in the previous year to25.5%, a significant increase. This already puts the Company clearof the 13.0% target set by the government for 2020.
Such initiatives have received widespread acclaim, with theCompany accredited with the “Platinum Kurumin” mark issued by
the Ministry of Health, Labour and Welfare in October 2017, andthe Company being recognized as a “2018 outstanding health andproductivity management organization (White 500)” run by the
Ministry of Economy, Trade and Industry and Nippon Kenko Kaigi
in February 2018 for the second consecutive year.

Establishment of the Healthcare Promotion Officeand enhancing support systems for employees returning to theworkplace.
(2) Improving dietary habits
Dietitians provide coaching on dietary habits as a means of promoting increased knowledge on dietary habits, lifestyle changes
and physical improvements among employees.
(3) Promoting club activities
This involves creating opportunities for exercise for employees
through the promotion of club activities, including golf, athletics,
baseball (softball), volleyball, basketball, badminton, tennis, soccer, futsal and yoga.
(4) Promoting a smoke-free or reduced smoking lifestyle
We are striving to prevent passive smoking and other such healthhazards through the promotion of a smoke-free/reduced smoking
project which aims to cut the employee smoker rate to 30%.

Data Compilation

In May 2018 the Company established the Healthcare Promotion
Office, an organization that reports directly to the President. The
Healthcare Promotion Office is permanently staffed by publichealth nurses, clinical psychologists and other healthcare professionals to provide our employees with the healthcare support theyneed. The Office’s core activities for fiscal 2018 center on 4 key
areas, (1) developing sound mental health, (2) improving
dietary habits, (3) promoting club activities, and (4) implementing initiatives that promote a smoke-free or reduced
smoking lifestyle.
Specifically, these initiatives involve the following.
(1) Developing sound mental healthThis involves developing a workplace environment that all
employees can actively take part in by following up on employees
who have undergone training, have been on leave, or have justreturned to the workplace by phone, email or through counseling,

Initiatives for Supporting Corporate Value

Promoting a good work-life balance was raised as an area of
focus for bolstering human resources as a step towards achieving
the medium-term management plan announced by the Company
in May 2017. With the launch of the Work-Life Balance Promotion
Office in January 2014, the Company has actively taken strides
towards establishing an easier work environment for all employees through the introduction of the refresh vacation plan system,
the hour-based annual paid vacation system, telework system,and other such measures.
In November 2016 we also introduced initiatives promoting theuse of childcare leave by male employees, and in March 2017 we
joined the “Iku-Boss Corporate Alliance” established by NPO
Fathering Japan. The “Iku-Boss Corporate Alliance” is a corporate
network aimed at fostering managers (i.e., “iku-bosses”) to deliver
results for the organization and still find time to enjoy their workand private lives while keeping in mind the work-life balance of
employees reporting to them. As a result of these initiatives, theratio of male employees starting childcare leave among male
employees whose spouse gave birth between October 1, 2016 andInitiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value2013• Started monitoring ofwork hours

Leopalace21: Who We Are

Results of work style reform implemented

39

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Leo palace2 1 An nua l Repor t 2018

Leopalace21

Employee
Round Table

Promotion of Work-style Reformand Business Efficiency Initiatives
Tokyo Branch 1-2,
Subcontracting Business Division

Masahiko Tanabe
We must change to become a company
able to keep pace with the needs of thegeneration. I think we always have tocontinue to grow as individuals.

East Japan Branch, Corporate Sales Supervision
Department

Yumi Toi
I would like to strengthen employee development by everyone having a future
goal and vision, and build a workplace
where we can grow together.

Tokyo Metropolitan Block 1 (PCR),
PCR Promotion Department

Yuri Oshima
I would like to incorporate a wide range
of knowledge from daily studies toimprove productivity as I can’t guideother employees if I don’t understand it
myself.
Capabilities Development Promotion Department,
Leasing Management Supervision Headquarters

Teppei Saito
I would like to improve the workplaceenvironment and further humanresource development while creating
an environment where everyone has amanagement perspective and considers
income and expenditure.

Q

How have your work
styles changed throughwork-style reform?

Tanabe The greatest change I have seen over my 14 years
since I joined the company in 2004 is setting a time to end the
day in advance. In the past, the atmosphere was one where wewould work until we finish the task at hand. Now, we think about
the time we finish our work. This way of thinking has dramatically changed how I use time. On the other hand, the office has
become a place where people feel free to leave at the time they
have set even if the work is not done. This is one area where weneed to do better.
When I joined Leopalace21, most of the women working
Toiwould resign after they got married but now, there is a colleague
who has married and has two children and is currently taking amaternity leave. The Company is also fostering a working environment where people can take advantage of its systems. I think wehave come a long way in building branch offices able to support
and cover employees who are on maternity leave.
In the past, employees who were married to one another wereunable to work at the same branch office. This often meant thatthe female employees would resign when their husbands weretransferred. Today, the Company has put in place a system formarried couples to continue to work by assigning them to the sameoffice or to offices on different sides of the same station.

Leopalace21 Annual Report 201841
Leopalace21: Who We Are

Oshima I joined the company at a time when there was no
convention for men to take childcare leave. Back then, I was incharge of sales at one of our branch offices and sometimes had towork on weekends and holidays. Today, I feel like that generation
has ended and I now live in a completely different one. I first set
a time as a goal, and then work backwards from that time. I movewhat I can to the next day and start from order of priority. Although
the drawback is that I make a minor compromise and move tasks
to the next day when the set time comes. This is something I hope
to change in the future.

Corporate Business Promotion Department,
Corporate Business Promotion Headquarters

Yuri Kawasaki
I would like to make information suchas the voices, activities and needs ofcustomers obtained by members who
work directly with the customers visible
and into shape.

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Leopalace21 is advancing the establishment of a motivating workplace environment conscious of work-life balance.
In this round table, employees working in each department specifically discussed the changes to their work
styles and the progress of making businesses more efficient.

Planning & Design Block 1, Product Technology
Supervision Department

Kaori Takimoto

International Sales Department,International Business Supervision Department

Yuji Takayama
International business is one of thegrowth strategies of our Company, andbecoming profitable is our current mission. I would like to increase the recognition of Leopalace21 overseas as well.

Work-Life Balance Promotion Office

Yasuko Matsuura
I would like to foster an even better
company by encouraging every employee to take advantage of the internal
offering system and support programsfor the acquisition of certifications at
the Company.

Data Compilation

Kawasaki I would sit at my desk looking at my computer untillate into the night when I first started working at the Leopalace
Center Yokohama. This was an exciting time in the Company rightbefore it went public. I was in charge of tasks such as accounting
and deposits in addition to acting as business liaison with theHead Office. Then, I was transferred to engage in sales at the
Corporate Sales Department 3 years after that. I think the relationship between the Head Office and the field has changed since
I first joined the Company. The relationship started as the Head

I would like to play a role in creating
new products by not only being versedin the businesses that I am directly
involved with but also understanding
the businesses of other departments.

Initiatives for Supporting Corporate Value

I have been engaging in leasing management since
Saito
I joined the Company. I manage properties and products whileworking with owners and tenants as well as the neighborhood
community and stakeholders. The tendency back then was to work
until the task was done. Today, each employee has a habit of focusing on efficiency because we have to consider how to increase
our productivity in the limited amount of time that we have. Thishas heightened the skills of each individual to think. I feel like theCompany has become bottom-up rather than top-down.

42

Leo palace2 1 An nua l Repor t 2018

Office sending messages while the field staff just executed theorders. The corporate climate today encourages the Head Office tolisten closely to the field staff to incite innovation throughout theentire Company. I also had felt a gap between the Head Office andthe field before, but the organization has gradually changed andvarious departments have been established. I was working in thefield until my transfer to the Head Office in 2015. When I moved
to the Head Office, the Senior Vice President said to me, “You are
the bridge between the field and the Head Office. Make sure you
listen to ideas from both sides and take action that would utilize
both of them.” I think messages that are sent from the management team throughout the entire Company in a wide range ofcircumstances create this environment and level of speed. My
own motivation today has changed from what it once was when I
first joined the Company.

Takimoto I have worked in the Planning and Design Section
since I joined the Company. There was a lot of overtime andsometimes even worked on weekends and holidays. Everything isa lot different today. I don’t have to work on weekends or holidays
anymore and I can actively telecommute because I am a technicalstaff. For example, I telecommute from my house when planningapartments for a client, which is part of my day-to-day work at
the section I work in. I am able to send what I create at homeas data to the office and check it later at the office without any
issue. I think this helps to facilitate better efficiency because
I don’t need to waste time going to the office. In addition, ourworkplace is actively promoting employees with reduced hours totelecommute. This also helps create a work environment friendly
to women, I think.
Takayama When I joined the Company, an atmospherefocused on efficiency was already in place. My supervisor encouraged me to go home at 6:00 p.m. on Wednesdays. Our International Business Department has a busy season in which we had towork until about 10:00 p.m. on some nights. That hasn’t happened
recently, though. However, we still sometimes have to work late
due to the time difference between the countries we are in charge,

but non-management employees can leave early in that case while
management stays a little longer.
Furthermore, LINE WORKS, which was implemented for meetings, has been very helpful in improving productivity recently.
Previously, we had set up a projector and gathered in a conference room when holding overseas meetings. However, with LINE
WORKS, we no longer need meeting rooms or projectors and cantalk with 10 to 20 people worldwide by using earphones at ourdesks. There is no need to printout materials as we look at themon our computer screens. We sometimes had run into problems
where materials were not prepared by the start of a meeting or
could not finish work on time, but this conference system hashelped save time and sometimes even made the start of meetings
ahead of schedule.

Matsuura I was assigned to the IT Department at the Head
Office when I joined the Company to configure internal systems,
install and design infrastructure, and deploy computers among
other things. There was a lot of overtime and work during nights,
weekends, and holidays when we were replacing systems. Since
then, I have taken childcare leave twice and returned to work. I
am currently working in the Work-Life Balance Promotion Office
to promote work-style reform and diversity. The Company offers
more programs today that allow employees to take up to 3 yearsof childcare leave. I myself have found the programs very helpful
because I can even take leave by the hour if I need to look after asick child.
The Work-Life Balance Promotion Office also works to build
an inclusive environment where diverse people can work at thesame level from women and LGBTs to people with disabilities
and elderly. The amount of overtime has also dropped, but our
next challenge is to see how much we can increase productivity
in the future. It isn’t enough just to implement programs. We
have to change the corporate climate or otherwise employees
will not take advantage of those programs. I feel like the entire
Company is changing from our President addressing work-lifebalance and the active participation of women on our homepage,and establishment of a new Healthcare Promotion Office.

Leopalace21 Annual Report 2018

Kawasaki I was assigned to the AI Section/Fintech Sectionin May. We utilize AI, Fintech, and other state-of-the-art technology in the aim of further improving productivity. We strive toward
the goal of incorporating AI into rental fee optimization, property
searches, and other daily operations to generate more time fortasks which people can be highly productive in. I still have a lot tolearn, but I am doing my best every day hearing from companies
that are helping us.

Tanabe Adoption of AI is underway in each of our businessdivisions. However, in solution sales I’m currently involved in, welook for solutions to issues our customers haven’t realized they
have. Our job is to make sure we solve the problems our customers
face. This is something only a human being can do.
Kawasaki In the Corporate Business Promotion Headquarters, we foster greater business efficiency by leveraging leading
technology while also promoting solution sales. I want to create
more time for our unique solution sales by utilizing a variety oftechnology to handle simple operations. I hope we can increase
our corporate value by listening closely to the real challenges ourcustomers face and finding solutions to them. I don’t feel AI isa threat if we are able to find the appropriate balance between
people and technology. We should not waste the valuable time ofour excellent employees on minimal internal tasks, but rather takefull advantage of beneficial technology such as AI.

Initiatives for Supporting Corporate ValueI am sure systemization will continue to evolve in the
Saito
future, but only a person can do things like negotiating with customers. I think we need to become even more efficient in our workso we can devote more time to creative jobs only people can do.
The adoption of AI is also progressing in my department. We had
been responding to calls from customers with a call center until
we adopted the Leo support system. Now, customers can write acomment on the homepage and receive the appropriate guidance
about their inquiry by the AI. By separating our tasks from what AI

Takimoto As I am sure many have seen on the news, asystem has been developed to incorporate lot conditions and otheraspects of construction and derive an appropriate building when
considering the design of a building. In the future, I hope we canincorporate these systems in a way that will bring a synergistic
effect so that we will leave tasks up to AI that can be handled by
AI while taking advantage of that extra time in customer relations.

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

The Corporate Sales Department introduced a system
Toiable to check messages from customers even while outside of theoffice 4 years ago by giving every employee a company mobile
phone. We have also put in place a system that shares client
information as a team. Someone in the team can respond to ourcustomers so that they will not be left unattended. This system
ensures greater customer satisfaction and also promotes better
productivity in the Company. This innovation was realized after
consulting with the Systems Department about requests fromfield staff for a better way to handle inquiries from customers
when outside the office. Productivity is higher than ever thanks tothis system.

can do, we are improving our work styles.

Leopalace21: Who We Are

We are promoting even greater productivity via the adoption of AI, etc.
while heightening customer satisfaction.

43

Data Compilation

44

Leo palace2 1 An nua l Repor t 2018

Business Overview

At a Glance
Leasing Business

46P

Development Business

48P

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

Main Group Companies

Corporate housing
services

Rent guarantee
services

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

Tenant reference
services

Real estate agency(Vietnam)Real estate agency(Thailand)

Real estate agency(Indonesia)

Real estate agency(Philippines)

Investment consulting

Power generation
business

Power producer
and supplierLand trust, Real estate
management trust

Relocation
management

This business engages in construction of mainly apartments and real estate development. We are working to bolster our product competitiveness, offering products
designed from a perspective of female tenants who are the major customers of
our specialty of 1-room type units and those for young people as well. Outsideof apartments, we are expanding the construction of commercial properties andelderly care facilities. We also plan to further diversify into the construction ofcustom-built homes and residences for one block sale. Morizou Co., Ltd., our subsidiary company, develops custom-built homes made of Kiso hinoki cypress, and Life
Living Co., Ltd., another subsidiary company of ours, develops designer-brand condosof the “Branche” series in order to make the best proposals for utilizing land.

Main Group Companies

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

Real estate development

Custom-built homes

Net sales
composition ratio

Net sales
composition ratio

82.0%

14.4%

‘18/3 FY2017‘18/3 FY2017

Sales Trend Results of FY2016 (ended March 31, 2017) and after are adjusted to new segments
450 (Billions of yen)

100 (Billions of yen)
75

300

50
150

25
0

0

’15/3
FY2014’16/3
FY2015’17/3
FY2016’18/3
FY2017’19/3
FY2018(Forecast)

Key Data
Occupancy Rates’15/3
FY2014’16/3
FY2015’17/3
FY2016’19/3
FY2018(Forecast)

Master Lease Apartment Completions (during ’18/3 FY2017)94（％）

Tohoku region

92

20 apartment buildings, 3.5％

90

Chugoku region

88

32 apartment buildings, 5.7％

86

Chubu region

43 apartment buildings, 7.6％

84

Apr May Jun‘15/3 FY2014’18/3
FY2017

Jul

Aug Sep Oct Nov Dec Jan Feb Mar‘16/3 FY2015‘17/3 FY2016‘18/3 FY2017

Kyushu/Okinawa

59 apartment buildings, 10.4％

Other

16 apartment buildings, 2.8％

566

apartment
buildings

Tokyo metropolitan area

317 apartment buildings, 56.0％
Kinki region

79 apartment buildings, 14.0％

Leopalace21 Annual Report 2018

50P

51P

Hotels, Resort and Other Businesses are involved in the management of domestic hotels, management and operation of resort facilities on the island of Guam,travel agency services, clerical agency services and other businesses.

Main Group Companies

Main Group Companies

Azu Life Care Co., Ltd.

Resort businessInitiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Under the brand name “Azumi En,” our network of community-based nursing carebusinesses spanned 83 locations mainly in the Kanto areas as of May 1, 2018. We
manage fee-based nursing homes, centers offering day services and short stays,
and group homes as well as businesses offering home visits by nursing care staffs
and in-home nursing care support and other services. We are especially focusing
on ambulatory-type operations such as day services and short stays.

Hotels, Resort & Other Businesses

Leopalace21: Who We Are

Elderly Care Business45

Travel agency services

Elderly care

Net sales
composition ratio

2.4%

1.1%

Special subsidiary company‘18/3 FY2017

15 (Billions of yen)

12 (Billions of yen)

10

8

5

4

‘18/3 FY2017’15/3
FY2014’16/3
FY2015’17/3
FY2016’18/3
FY2017’19/3
FY2018(Forecast)’15/3
FY2014’16/3
FY2015’17/3
FY2016’18/3
FY2017’19/3
FY2018(Forecast)

Elderly Care Facilities Occupancy Rates (Annual Average)

Guam/Domestic Hotels Occupancy Rates (Annual Average)

100（％）

100（％）

75

75

50

50

25

25

0

0

’15/3
FY2014Day services’16/3
FY2015
Short-stays’17/3
FY2016
Private nursing homes and other’18/3
FY2017’15/3
FY2014’16/3
FY2015

Guam Resort

Domestic hotels’17/3
FY2016’18/3
FY2017

Data Compilation

00Initiatives for Supporting Corporate Value

Net sales
composition ratio

46

Leo palace2 1 An nua l Repor t 2018

Business Overview

Leasing Business
SWOT Analysis• No.1 in studio (one-room type)apartments managed• Apartments equipped with
furniture, electric appliances,
Internet, and IoT• Corporate contracts make up
approx. 58% of total contracts

Strengths
Opportunities• Population of single productive
workers expected to remainunchanged in next 20 years• Three major metropolitans areas
continue to enjoy net population influx• Increase in corporate recruiting
due to labor shortages• Growing number of Japanesecompanies entering ASEAN• Contracts with individuals sluggish

S W
O T

Weaknesses
Threats• Declining population• Consistent increases in rental
apartment vacancies across Japan• Geopolitical risks in ASEAN

Performance
Operating Income (Loss) and Average Occupancy Rates(%) 9630 (Billions of yen)

20

92

10

88

0

84

80

-50

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

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

FY2019(Plan)

In fiscal 2017, sales in the Leasing Business amounted to 435,537
million yen, up 3.4% from the previous year, and operating income
totaled 26,062 million yen, up 13.3%. During the year, we sought
to secure stable occupancy rates by addressing demand for corporate dormitories and corporate housing and enhancing our support
system for foreign tenants. Meanwhile, we provided IoT-readyapartments that increase tenant satisfaction. As a result, the number of units under our management at fiscal year-end was 570,672,
up 1,833 from a year earlier, and the fiscal year-end occupancy
rate was 93.72%, up 2.06 points. The average occupancy rate forthe year was 90.59%, up 2.06 points from the previous year.

Operating income (loss) (left axis)
Average annual occupancy rate (right axis)

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

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

4,000

20

3,000

15

2,000

10

1,000

5
0

0

1983

1988

1993

1998

2003

2008

2013 (FY)

Vacancy number (rental and for-sale) (left axis)
Vacancy rate (right axis)
Source: “Housing and Land Survey” (Ministry of Internal Affairs and Communications)

In the rental housing market, the number of new construction
starts decreased for the first time in 3 years with the drop in demand for apartment construction as a measure to save inheritancetaxes, and the change in environment for apartment loan financing.
However, there has been a continuous increase in the constructionof properties that are 30 square meters or smaller, which are theCompany’s target market. The number of vacant rental houses inJapan has been consistently increasing, so a recovery in nationwide demand is unlikely. Under such circumstances, we believe a
differentiation strategy is important based on concentrated supplyof properties in areas where high occupancy rates can be expected in the future, and provision of value-added services that deploy
our unique strengths. In addition to discouraging tenant outflow,
it is necessary to adopt other measures, such as proper maintenance and management of properties, optimization of rental andsublease prices based on market factors, and periodic reviews ofroutine property management tasks.

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

Progress of measures related to the medium-term management plan (FY2017-FY2019)
Sales
500 (Billions of yen)
400

421.3

435.5

447.2

’17/3

’18/3

’19/3
(Plan)

1

454.6

300
200
100
0

’20/3

Guest(Plan)
questionnaire

Operating Income

Operating Margin

29.4

30 (Billions of yen)
24

26.0

23.0

18

来店受付

(%)
10
部屋探し

タブレットでお部屋探し
アンケート記入

店舗内
8 PCで物件をご案内

26.5

6.6

6.0

5.5

12

Room search

5.8

6

6
4
2

0

0

’17/3

’18/3

’19/3
(Plan)’20/3(Plan)

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

A look at the leasing business environment over the period of
our medium-term management plan reveals that the numberof single-person houses in our target cohort of the productive
population (aged 15–64) will trend sideways for the next 20 years.
Moreover, Japan’s 3 major metropolitans areas, which represent
our target geographical market, continue to enjoy a net populationinflux. In addition, we expect companies to continue hiring people
due to shortage of manpower, and we forecast increasing need for
dormitories and company residences. Under these circumstances,
Leopalace21 will deploy its key strength—around 570,000 units
under management—to enhance its presence as a one-stop
solutions provider that addresses the various needs of corporateclients. At the same time, we will encourage long-term residence,
restrict tenant outflow, embrace demand from foreign students,and expand female residential occupancies.
In fiscal 2017, we began making rent assessments, property
searches, and call center services using AI as part of our pilot projects under the above concept. In addition, we have started offering
private lodging properties in Ohta-ku, Tokyo, which is designated asa private lodging special zone. Moreover, our international operations have made strides, especially in the ASEAN region.

47

Signature

タブレ6
契約書に

Key Products and Services“my DIY”

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

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

Security systems
With “24-hour, 365-day safety and security” as our motto, we have partnered with two major nationwide security companies to install security systems in properties we manage. The number of security
systems installed has now reached 290,000. In June 2017, we acquired Superior Disaster Prevention
Leasing certification.

Confirmthe contract
on the WEB

Data Compilation

Promoting “smart” apartments

MY PAGE

Initiatives for Supporting Corporate Value

Even rental properties can be customized to one’s liking. The number of contracts forour “my DIY” service, which allows tenants to change the wallpaper on 1 wall for free,
has already reached 39,594. This fiscal year, we held various contests and aimed tohave tenants personalize and form greater attachments to their rooms.

契7

4

3

1

48

Leo palace2 1 An nua l Repor t 2018

Business Overview

Development Business
SWOT Analysis• High-quality, high-value-added products(including strong sound insulation)• Reduced construction costs throughseparate ordering and industrialization

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

S W
O T

• Major increase in taxable people
due to inheritance tax revision• New rental housing construction
under 30m2 starts steady• Diversifying business to include
construction of elder care facilities,
commercial facilities, and customized
houses, in addition to apartmentbuildings

Weaknesses
Threats• Construction demand peaking
ahead of 2020 Tokyo Olympics;
rising construction costs• Rental property vacancies
increasing across Japan

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

(Buildings) 4,000

30

3,000

20

2,000

10

1,000

0

0

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

FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

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

FY2019(Plan)*Figures for FY2016 (ended March 31, 2017) and after are adjusted to new segments.

Number of New Rental Housing Starts

In fiscal 2017, orders received in the Development Business amounted to 75,905 million yen, down 13.3% from the previous year, andsales totaled 76,587 million yen, down 4.6%. Operating income fell
36.7% year on year, to 3,663 million yen.
We focused on attracting orders in Japan’s 3 major metropolitan
areas, where populations continue to increase and high occupancy
rates are expected in the future, while strategically investing in highquality, cutting-edge products. We also launched new brands aimed
at strengthening competitiveness and refreshing our image among
tenants. In addition, we expanded construction variations to optimize
land usage while reviewing product prices and supply channels in orderto improve profitability, with segment operating income growing significantly as a result. Nevertheless, during the fiscal year under review,
from the effects of media reports on apartment construction and apartment loans, orders were sluggish and profits consequently decreased.

500 (Thousands of units)

Business Conditions and Issues

400
300
200
100
0

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

FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017■ Less than 30m2 ■ 30m2 or more
Source: Statistics on New Housing Starts, Ministry of Land, Infrastructure,
Transport and Tourism

Despite signs of improvements in corporate profits as well as
employment and income conditions, conditions for our Development
Business have become temporarily unfavorable due to media reports
on apartment construction and apartment loans. As a result, rental
housing construction starts have decreased for the first time in 3
years. Meanwhile, there has been an increase in the constructionof properties that are 30 square meters or smaller, an area which
the Company excels in. The rental housing market is, nonetheless,saturated when assessed at the national level. In this environment,
we will identify areas where high occupancy rates are likely andimplement a more detailed supply plan, including in Japan’s threelargest metropolitan areas, aimed at expanding orders. At the product level, we will bolster competitiveness by incorporating tenants’perspectives into product development while strengthening earthquake resistance and improving sound insulation and security.

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

Progress of measures related to the medium-term management plan (FY2017-FY2019)(Plan)

Sales
100 (Billions of yen)
80

80.3

76.5

’17/3

’18/3

85.8

98.2

60
40
20
0

’19/3
(Plan)’20/3(Plan)

Operating Income

Operating Margin(%) 157.5 (Billions of yen)
6.0

6.0

5.7

4.5

7.2

3.0

9

3.6
4.8

1.5
0

(Plan)

6.4

2.2

’18/3

’19/3
(Plan)

6
3

2.6
’17/3

12

0

’20/3
(Plan)

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Over the period of our medium-term management plan, ourSales Development Business will benefit from healthy new constructionof rental housing that are 30 square meters or smaller, butyen)
500 (Billions ofstarts
454.6
447.2 to rise435.5units continues
421.3
the
numberof vacantacross Japan. As a
400
result, the intensification of market competition is unavoidable.
300
Under such circumstances, Leopalace21 will continue supplying
200
high-quality, high-value-added products and services in its quest
100
to become the partner of choice among customers.
During this fiscal year, we began soliciting investors for real0estate ’17/3
specified joint
products ’20/3
for the LOVIE rental’19/3’18/3enterprise(Plan)
condominium series in Tokyo. In
addition, (Plan)
we founded Leopalace
Trust, which aims to strengthen supports and consulting services
forIncomecustomer asset succession. Leopalace
Trust acquired
OperatingOperatingMarginthe InTrust Company
licensefromtheFinancial
30 (Billions ofvestment-basedyen)(%) 10Services
29.4
26.5
26.0
Agency
in
May
2018.
24
8
23.0
From the fiscal year ending March 2019, in order to tap into
18
6
6.0
6.6 we will take measures
non-apartment
development
properties,
5.5
5.8
12
that include converting some of our branch offices into the4 ones
specializing in non-apartment facilities such as social welfare
62
facilities
andcommercial
facilities.
We
will
promotetheoptimal00
allocationof branches
includingthe closingof Sendai Office No. 2.
’19/3
’20/3
’17/3
’18/3

49

Key Products and Services
MIRANDA

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

Custom-built houses made of Kiso hinoki cypress (Morizou Co., Ltd.)

Branche (Life Living Co., Ltd.)With an emphasis on design and function, Branche rental apartment buildings are compact and canbe constructed efficiently on small and odd-shaped lots as little as 165 square meters. Here, we
employ the patented “TEN-FOUR CUBE Construction Method” enabling us to incorporate 4 stories
in a 10-meter-high building, which would be normally limited to 3 stories using regular construction
method, giving it significantly higher expected returns in rent.

Data Compilation

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

Initiatives for Supporting Corporate Value

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

50

Leo palace2 1 An nua l Repor t 2018

Business Overview

Elderly Care Business
Performance
In the Elderly Care Business, which runs the Company’s “Azumi
En” network of nursing care facilities, sales in fiscal 2017 totaled
12,807 million yen, up 11.0% from the previous year. The business
reported an operating loss of 1,596 million yen, loss decrease of
71 million yen, due to improvements in occupancy rates and otherfactors. Positioning elderly care as a strategic growth business,
we have expanded and upgraded our facilities in recent years.
As of May 1, 2018, we operated 83 nursing care facilities, having
opened 7 new facilities over the previous 1-year period.

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

SWOT Analysis• Operation of 83 facilities in Kanto
and Chubu regions• Addressing various needs,
including day service, short stay,and fee-based nursing

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

• High labor-cost burden

S W
O T

Weaknesses
Threats• Reduced nursing care fees
following review of nursing careinsurance system

Key Products and Services
Azumi En

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

(Number of facilities) 100

1

50

0

0

-1

-2

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

FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

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

FY2019(Plan)

As of May 1, 2018, we managed 83 “Azumi En” facilities in
the Kanto and Chubu regions. Services at each facility include
fee-based homes for seniors that offer support for their daily
lives in a family-like atmosphere; group homes with daily-living support through meticulous nursing care; and day andshort-stay services where elderly people living in their own
homes can access services for temporary stays.

Leopalace21 Annual Report 2018

Hotels, Resort and Other Businesses
Performance

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

SWOT Analysis• Business synergies withstakeholders

Strengths
Opportunities• Inadequate marketing to generalcustomers other than stakeholders

S W
O T

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

Key Products and Services
Leopalace Hotels
We currently operate four Leopalace Hotels in Japan (Sapporo, Sendai, Nagoya, and Hakata). Aimed at both long-termand short-term stays, thesehotels run restaurants under the direct managementof Leopalace21 and provide
free laundry services.

Operating Income (loss)
0 (Billions of yen)

Leopalace Resort Guam-2

-3

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

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

FY2019(Plan)*Figures for FY2016 (ended March 31, 2017) and after are adjusted to new segments.

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

Data Compilation-1

Initiatives for Supporting Corporate Value• Japan: Hotel industry booming
due to economic growth andinbound demand• Guam: Stable for Japanese
travelers; South Korean market
showing remarkable growth

Weaknesses

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

In fiscal 2017, sales in our Hotels, Resort and Other Businesses
amounted to 5,908 million yen, down 18.9% from the previous
year, and operating loss was 846 million yen, loss increase of 428
million yen. During the year, we opened a new annex of Hotel
Leopalace Sapporo, doubling the number of rooms from 86 to 195.
Outside of Japan, the occupancy rate of Leopalace Resort Guamdecreased as a consequence of reports on North Korea’s missile
launch in August 2017.

Leopalace21: Who We Are

Business Overview

51

52

Leo palace2 1 An nua l Repor t 2018

Initiatives for Supporting Corporate Value

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

Achieving a Sustainable Society
The Sustainable Development Goals (SDGs) are global targets for the years 2016 to 2030 that were adopted at theUnited Nations Summit in September 2015. They consistof 17 universal goals and 169 targets, which are applied
to all countries including developed countries, addressing
challenges such as disparities, sustainable consumption
and production, and climate change. The Company strives
to meet the needs and demands of society and contributeto solving the issues through initiatives which are in linewith our Basic CSR Action Policy.

Leopalace21’s Basic CSR Action Policy
The Company has established a Basic CSR Action Policy with 5 themes in response to the needs of our stakeholders, socialand environmental problems, and the requirements of ISO26000 and other standards and guidelines, and has been steadily
taking actions. Based on compliance and corporate governance that support our businesses, we intend to implement
CSR activities in accordance with the policy, with the aim of “creating new value” together with all of our stakeholders.

Tenants
Apartment owners
Client companies Facility users
Compliance

Local
communities

GovernanceSocialCorporate GovernanceEngaging in sound, constructive
communication with stakeholders
Providing high-quality services andsupporting affluent living

Basic CSR Action Policy

Creating pleasant work environments anddeveloping diverse human resources

Creating
new value

Contributing to local communities

Employees

Environment

Creating an environmentally friendly society

Corporate Ethics Charter

Corporate Philosophy

Investors and shareholders
Global environment

Leopalace21 Annual Report 201853
Leopalace21: Who We Are

The SDGs aim to address challenges in a range of fields, many of which overlap with the Company’s initiatives that
contribute to society through our businesses. Under our independently developed 5 themes of the Basic CSR Action
Policy, the Company has identified activities that contribute to the relevant SDGs. In this way, we promote actions
under the ESG (Environment, Social, Governance) framework with a view to realizing our long-term vision.

Basic CSR Action Policy
Engaging in sound,constructive communication with
Goal 17
stakeholders

SDGs to which We Aim to ContributeStrengthen the means of implementation andrevitalize the global partnership for sustainable development

P71

Basic CSR Action Policy

SocialProvidinghigh-quality services and supporting affluent living

Creating pleasantwork environments
and developing
diverse humanresources
P74
Contributing tolocal communities

Goal 10

Reduce inequality within and among countries

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

Goal 13

Take urgent action to combat climate change and its impacts

Goal 3

Ensure healthy lives and promote well-being for all at all ages

Goal 5

Achieve gender equality and empower all women and girls

Goal 8Goal 4
Goal 10

Reduce inequality within and among countries

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

Basic CSR Action Policy

Environment

Creating anenvironmentallyfriendly society
P78

Promote sustained, inclusive and sustainable economic growth,
full and productive employment and decent work for all
Ensure inclusive and equitable quality education andpromote lifelong learning opportunities for all

SDGs to which We Aim to Contribute
Goal 3

Ensure healthy lives and promote well-being for all at all ages

Goal 7

Ensure access to affordable, reliable, sustainable and modern
energy for all

Goal 13

Take urgent action to combat climate change and its impacts

Data Compilation

P76

SDGs to which We Aim to Contribute

Initiatives for Supporting Corporate Value

P72

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Governance• Corporate Governance Dialogue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  P54
• Basic View on Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  P62
• Progress Towards Strengthening Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  P63
• 3 Characteristics of Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  P63
• For Effective Board of Directors Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  P64
• Officer Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P65• Evaluating Effectiveness of the Board of Directors Meetings. . . . . . . . . . . . . . . . . . . . .  P65
• Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P66• Risk Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  P67
• Directors, Audit & Supervisory Board Members, Executive Officers . . . . . . . . . . . . . . . . . . . . . . P68

54

Leo palace2 1 An nua l Repor t 2018

Corporate Governance Dialogue: Toward Increasing

Tetsuji Taya

Tadashi Kodama

Board Member & Managing Director,
Industrial Growth Platform, Inc.

Former Representative Director, Vice Chairman of theBoard of Directors, Aioi Nissay Dowa Insurance Co., Ltd.

Leopalace21 Outside Director

Leopalace21 Outside Director

In an era of dramatically changing business environments and unpredictable future, incorporating the perspectives of outsiders into business management is vital for the company to drive sustainable growth. Leopalace21
appoints people with know-how in different fields as outside directors. Our 3 outside directors discussed how
governance should be conducted for increasing the corporate value of Leopalace21 in the medium to long term.

Business Environment and Leopalace21’s Adaptation
Social challenges being addressed by Leopalace21
Kodama The declining birthrate, aging population and decreasing working population are social challenges that affectnot only Leopalace21 but also the entire country of Japan. In theface of such major challenges, apartments were supplied continuously and demand for them increased prematurely, primarily
due to the inheritance tax revision and the low interest rate
under the negative interest rate policy of the Bank of Japan. We
are now seeing their adverse effects being manifested.
In addition, regional disparities are emerging as anothermajor challenge. We considered what impact they would haveon the Company over the next several years and undertook
development activities in metro areas. While the business environment is difficult, the Company has been able to orient its

activities toward a certain direction.
Currently, existing properties are rapidly aging. For about adecade, we saw thousands of apartments being supplied annually, and there is a risk of property values falling. Furthermore,
new technologies including IT have been developed in recent
years but have only been adopted in new properties, and this
too is becoming a problem. We will need to think about how to
overcome these challenges.

Taya It was around the time of the Lehman Brothers collapse when the Company began to recognize the issue of theexcess supply of apartments that would arise from the population decline and other major challenges. I believe Leopalace21

Leopalace21 Annual Report 2018

Leopalace21 Outside Director
Executive Officer (Responsible for Work Style Reform),
JDC Corporation

sources who can perform them. M&A is expected to pick up not
only of businesses but also of human resources, and the Company, too, will actively incorporate experienced, veteran talents.

Leopalace21’s strengths and challenges to be overcome
Kodama Our key strength lies in the high competitivenessof our core business products, combined with the Company’s
ability to match owners and tenants almost all on its own. The
occupancy rate in fiscal 2017 was 90.59%. Supporting this iscorporate sales capabilities, which I believe is another strengthof the Company. That said, if the occupancy rate becomes thishigh, there would be no properties to supply even if demand
increases further, and this will become an issue. In the Development Business, the issue is how to enhance our capabilities,
including the design and cost of non-apartment products such as
nursing care facilities and shops.
The overwhelming number of rooms under the management

Data Compilation

Sasao Leopalace21 shifted its business model to the Leasing
Business in metro areas all at once. With that at the core, theCompany put its energy into corporate sales and other activities,
and thereby, achieved its current high profitability. Meanwhile,
the Company faces the challenges of increasing the profitabilityof the Elderly Care Business and International Business in ashort period of time, and how to maintain the high occupancy
rate of over 90% in the Leasing Business. If market competition
intensifies, productivity will go down inevitably. Figuring out
how to resolve this productivity issue will also be important.

Initiatives for Supporting Corporate Value

was the first company to change course toward adjusting
supply to demand, despite its strong expansionary intentions.
Leopalace21 is quick to incorporate new things based on thetimes and the needs of stakeholders.
The next issue for the Company is the Development part ofLeasing and Development that constitute the 2 core businesses.
While it is good that the Company changed its focus to leasing,its growth will reach a limit without supply. In other words, theCompany will need to explore how to carry out development
taking into account collaboration with leasing, as well as how
the Elderly Care Business and International Business can draw
on the know-how the Company has accumulated to contributeto future growth.
At the same time, attempting anything new requires human re-

価値創造の取り組み

Yoshiko Sasao

社会的課題への対応と価値創造

3 Outside Directors Discuss
How Governance Should Be
Conducted for Increasing
Corporate Value

Leopalace21: Who We Are

Corporate Value in the Medium to Long Term

55

56

Leo palace2 1 An nua l Repor t 2018of Leopalace21 is also an issue. What to do with this stock is a
critical matter. The business environment is difficult for new development, but there are still significant business opportunities
that can be seized by making good use of this stock.
Furthermore, the Company has developed real estate products for investment, in accordance with the Act on Specified
Joint Real Estate Ventures. Given their good locations, the products were sold in a very short amount of time. Since this has
provided some know-how in development, I think the Company
will be able to further expand its business if it can acquire goodreal estate and develop them successfully.

The corporate culture andatmosphere are at the sourceof the Company’s strength.
The three of us are discussing about retaining them.

Taya The strength of Leopalace21 is well depicted by its
mission statement. It contains a line that reads, “We seek toalways be innovators, to create without ceasing.” This is theconcept of open innovation. Leopalace21 used to be a closed
company which sought to complete everything on its own, rather than partnering with other companies. In the last few years,
however, in response to the changes in the social environmentand so on, it has come to adopt the concept of open innovation, as in corporate governance. The recently announced new
initiatives related to IoT are precisely connected to this. This
is to say, the Company’s strength is its management ability
which allows it to instantly incorporate new things that leadto increasing value and respond flexibly to changes. Moreover,
Leopalace21 also has cultural strengths. There are often companies that attempt open innovation, but in many cases, they
fail because they cannot let go of the past. The Company has
a corporate atmosphere that does not really dwell on the past.
This can also serve as a strength.
Conversely, what about the weaknesses of Leopalace21?
I would say the fact that the Company possesses the corecommodity of apartments but has not been able to find otherrevenue sources is a weakness. In this regard, the Company
will need to activate its business with corporations throughM&A and other means.

Kodama I agree that the corporate culture and atmosphere
are at the source of the Company’s strength. For a company
that has become this large in scale, it has few internal procedures. Companies of a certain scale with a history spend
considerable time on procedures. Since long ago, Leopalace21
has consistently kept procedures to a minimum. This, on theflip side, is also a weakness.
In terms of governance strengthening this time, one of thechallenges is pursuing this without losing the benefits of thecorporate culture. The three of us are always discussing about
retaining this corporate atmosphere and culture.
Sasao The Company’s strength is its strong ambition toachieve targets, and the fact that once a decision is made it
carries through with it. Up to now, the people at the head office and the headquarters of each business division have done
an outstanding job identifying the needs of customers on the
ground, creating good products and services, and implementing
them swiftly, and as a result, the Company has expanded in ashort period of time. As the market environment changes andcompetition intensifies, however, it will become difficult for
the head office and headquarters to be involved in everything
as they were in the past. Therefore, it will be important that
employees on the ground keep their eyes open to the needs andsubtle changes of customers, while making the best adjustmentsfrom the viewpoint of the entire company and manifest resultsin piecemeal.

It will be important to keepeyes open to the needs andsubtle changes of customers,
while making the best adjustments from the viewpoint of
the entire company and manifest results in piecemeal.

Leopalace21’s risks and responses
Kodama Responding to risk requires a broader perspective. It
is becoming necessary to take the overall balance into consideration even when you deal with a standalone risk. Leopalace21 issimilar to retail business and had placed relatively more weighton advertising. I made a point that there was no public relations
department for risk management. Then, last year, a relevant
department was set up immediately. If harmful rumors spreador other risks were to arise, there is now a system in place fordisclosing information to stakeholders appropriately and quickly.
Going forward, it will become key to provide good information
to the market, albeit in a different form from before. An example
is IR activities. By taking initiative to release information to themarket, risk can be avoided. Leopalace21 is becoming a company that can carry out offensive risk management, so to speak.

Leopalace21 Annual Report 2018

Corporate Governance of Leopalace21
Role of outside directors at Leopalace21

Sasao In addition to of course fulfilling the supervisory
function under the Governance Code, I, as an outside director,
hope to increase the Company’s brand value by engaging in
my specialty of promoting diversity management, including
promotion of women’s empowerment, and the Elderly Care
Business in which I have management experience. To this end,
I am collecting information including about companies promoting women’s empowerment and diversity management. In addition, I share information with the members of the Work-Life
Balance Promotion Office, make clear what the Company iscurrently lacking, and brainstorm what strategies Leopalace21
should take based on its strengths to become an industry pioneer. I am taking steps to be able to play a supporting role forpeople on the ground while coordinating with the public relations team.
As a result of these efforts, the Company ranks in among
the companies leading in the promotion of women’s empowerment and work-life balance. To further strengthen these
efforts, it will be essential not only to simply incorporate theleading industry trends and the approaches of advanced companies, but also to integrate them to fit the corporate culture
and strengths of Leopalace21.

Data Compilation

Taya As far as formalities go, whether or not an environment can be created that allows the people executing thebusiness to maintain motivation will impact the Company’svalue creation. One of our roles is to give appropriate advice,for example, on executive appointments, compensation system, and incentive creation, and this is what we have actually
been doing.
While the three of us are not from this industry, we haveexperience in corporate management. In that sense, we also
have the role of serving as discussion counterparts and helping
to identify how value can be created in a mature market andso forth.

Our role is to support value
creation in a mature market.

Initiatives for Supporting Corporate Value

Kodama To put it plainly, outside directors rigorously checkthe progress of the medium-term management plan, as well as
monitor and supervise compliance and management. Having
said that, our most important role is not only to serve as a brake,
but also to make judgments on risk-taking for growth. Unless wedo that, we cannot have hopes for increasing corporate value. It
is the role of outside directors to convey opinions frankly to top
management. In short, we must always be conscious of creating
an environment of tension and cooperation. Rather than focusing on the agenda items or themes in front of us, it is important
to make recommendations by taking one step back.
The medium-term management plan is essential for thesustainable growth of the Company. Additionally, it must carry through with the plan to increase corporate value, making
it imperative that outside directors check the stages of theplan. Furthermore, it is vital that outside directors take a step
forward and engage in discussions based on the long-term
future vision.

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Sasao The facts reported about the Company in the news
media must be taken seriously and addressed sincerely andswiftly, while striving to regain trust. At the same time, making steady efforts to communicate the positive aspects of theCompany and its initiatives will help to earn trust and become
one form of risk management. Sometimes I wondered why theCompany doesn’t communicate with the mass media when it
has so many positive features. The Company is now beginningto have a structure in place that allows this, but it should
engage the media even more proactively. Similarly, although
the Company engages in what is truly a diverse range of CSR
activities, they were not obvious at all. The Company needs
to come up with a clear CSR policy and develop a story that it
can tell.

Leopalace21: Who We Are

Taya What is good about Leopalace21 is its quickness. It
is extremely sensitive to risk. The Company is confronting risks
squarely in an environment which exposes it to various risks.
The Company’s structure allowing information to be communicated up the chain is another positive feature. If an advice isreceived, the Company has the momentum to immediately makesystem adjustments. The approach is very advanced. As for
major management risks, given how the Company is made up of
monoculture, decisions made by top management have relatively more importance. It is therefore critical to examine whether
the decisions are truly correct and whether there are no risks.
The management understands this and intends to have management decisions examined in light of the perspectives of us threeoutsiders who have management experience. In this sense, theCompany has a high sensitivity to risk.

57

58

Leo palace2 1 An nua l Repor t 2018

Protocols and setting the tone in meetings of the Board of Directors
Kodama The Corporate Governance Code consists of 73
principles. Companies must comply with the principles, and if
not, state the reason. The Company is in compliance with nearly
all items, and its Board of Directors meeting and information
provision mechanisms are deemed to be of a very high level. For
instance, formal rules are being established for discussing andmonitoring an array of projects, including investment projects.
Our task is to determine what discussions would take place andwhat kind of vision would be set forth based on this platform.
Taya Revising the KPIs has also been raised for discussion. As the Company’s business model is development andleasing, development was originally contracted and balance
sheets were not used for business management. Doing newthings, such as the Elderly Care Business, International Business, and M&As of new businesses, however, requires the useof balance sheets to a great extent. At such major strategic
turning points, dialogue with investors becomes non-sensible
unless the KPIs are revised. Against this background, ROIC
was set as one of the KPI targets in a timely manner in order
to fit with the strategy’s vision.
When a decision is made to make global investments, outside directors contribute towards clarifying the investment
standards and establishing the necessary standards and KPIs
based on the strategy. Know-how is also shared across the
directors. Sometimes directors offer new perspectives during
the discussions, such as on how know-how in Japan can beutilized to do something overseas as part of the services forcorporate customers.

Sometimes directors offer new
perspectives during the discussions on the overseas businessdevelopment strategy.

Sasao Expressing views often leads to more in-depth anddetailed discussions at the meetings of the Board of Directors.
As an outside director, I give heed to asking, for example, forclarification of the synergy effects between a certain projectand existing businesses, clarification of the demerits and risks
when there is a lot of discussion only on the merits, a simpler
explanation of the KPIs because they are hard to understand,or whether the KPIs have been fully permeated across theorganization, to ensure that the discussions at the meetings ofBoard of Directors contribute to increasing the corporate valueof the Company.

Expressing views often
leads to more in-depth anddetailed discussions at themeetings of the Board of
Directors.

Kodama I think it is common for outside directors to receive
a lecture on the agenda items prior to the Board of Directors
meetings. There is nothing like that at the Company. Instead,regular meetings, executive officer meetings, monitoring meetings, Risk Management Committee meetings, Compliance Committee meetings, management strategy meetings, as well as theBoard of Directors meetings and company-wide meetings areheld quarterly, and a Group management team meeting is held
semi-annually. Outside directors are requested to attend thesemeetings. I gather that in place of lectures before the Board of
Directors meetings, outside directors are expected to attend
these meetings to gather sufficient information.
That is not to say that you would be able to understand everything by attending the meetings. Board of Outside Directors
meetings have been initiated to deepen understanding of theCompany and for all outside directors to have the same information. It started with outside directors, for conversation’s sake,asking each other to share information after the Board of Directors meeting.
After about a year had passed, it was decided that themeeting would be joined by outside Audit & Supervisory Board
members, standing Audit & Supervisory Board members, andthe general manager of the Auditing Department. It was alsodecided that an outside officers meeting would be held withthese members following a Board of Directors meeting. Internal
regulations have been established for this purpose.
What is being done at this meeting? Since the meeting is
attended by the general manager of the Auditing Department,
audit reports are given periodically and an explanation is provided regarding what is happening on the ground and at the branchlevel. Members of relevant divisions and departments attend
depending on the theme of each meeting, and all members arebriefed and exchange opinions. At the last meeting, a memberof the nursing care department was invited to present on the
future prospects of the nursing care business, which was followed by a Q&A session with everyone. Outside directors can
get almost all of the information through this meeting and themeetings I mentioned earlier.

Leopalace21 Annual Report 2018

Officer compensation
man Brothers. With the next medium-term management plan
starting, discussion on introducing performance-linked compensation for officer compensation raised questions about whether
the indicators to be added could be explained accurately to theofficers and whether they will understand them. So it was decided that profits would be returned to a broad range of stakeholders in a relatively simple manner.
A more sophisticated evaluation system will be developed,
and efforts will be made to ensure that the stakeholders including shareholders will have a greater understanding.

A more sophisticated officer
compensation system will be
developed, and efforts will
be made to ensure stakeholder understanding.

Kodama As Mr. Taya has said, we are at last beginning to
see the Company taking shape following the collapse of Leh-

Initiatives for Supporting Corporate Value

Taya I was appointed outside director after the collapseof Lehman Brothers, when discussions were focused on reducing compensation. Since then, the Company’s view on officer
compensation has shifted to how to normalize and deepen therelationship with the stakeholders that were affected after
the collapse of Lehman Brothers, namely, the shareholders andapartment owners. Of course, the Company has been returning
profits to shareholders, including in the form of share buybacks
and dividends. The Company is at last transitioning to growthmode, and the compensation of executive officers now fluctuates based on their commitment to results and the ratio in
which they were achieved.
The compensation structure is not that complex yet. At thisstage, compensation varies slightly depending on the commitment made to the business plan and the achievement ratio. It
looks ahead to single fiscal year results and the results underthe medium-term management plan.

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Kodama So, on the contrary, the directors may become
assimilated unless a line is drawn somewhere. Although we

try to be careful with what we say day-to-day, oftentimes I
regret having made an executive officer-type remark. I do feel,
however, that giving an executive-type advice allows the people attending the meeting to conduct frank discussions. If weoverly monitor, we would not be able to receive any information. On this point, I think we have found a good balance. With
regard to the issues raised at the Board of Outside Directors
meetings, on behalf of the Board I first share the information
with the President or Senior Vice President, and then share theinformation with officers and those in charge once every few
months to ensure that it is communicated as the opinions ofoutside directors. In that sense, I believe we have a relationshipof moderate tension and cooperation.

Leopalace21: Who We Are

Sasao At the previous discussion, since there was talk about
integrating the customer center in Saitama with Niigata’s, thestatus of customer centers was explained, given that the centers are the first to hear the voices of customers. We discussed
matters such as the functions of each customer center, what
would change with the integration, and whether anyone had
resigned. All members went through the complaints that werereceived by the customer centers.
I attend various meetings, and discussions like the one I justmentioned take place every time. In that respect, it feels like theinformation comes to you.

59

Human Resources Strategy
Sasao The Company puts a lot of effort into its human resources. The training cost per employee is quite high. In addition
to sales personnel training and training for skills enhancement
to increase customer satisfaction, training is conducted by occupation, by rank, regarding compliance, and regarding women’s
empowerment. The Company has also built a training facility
within a building it owns in Fujisawa, which goes to show that
the Company makes unparalleled efforts. In Toyo Keizai’s CSR

ranking, Leopalace21 ranked in 33rd in the human resources category, putting it amongst the top-ranking companies in Japan.
The women’s empowerment initiative is fundamentally basedon work-life balance and work style reform. Overtime work has
decreased dramatically, and the ratio of employees taking paidvacation has risen to over 70%. Furthermore, last year, the ratioof employees who took paternity leave rose to more than 25%.
These values are top-notch figures among Japanese companies,

Data Compilation

Human resources development, women’s empowerment, and work style reform60

Leo palace2 1 An nua l Repor t 2018with Leopalace21 receiving the “Platinum Kurumin” certification as a good supporter of child-rearing from the Ministry of
Health, Labour and Welfare (MHLW), a rare feat in this industry. Although it was not selected this year, last year the Company was selected as a “Semi-Nadeshiko Brand” for its programs
that raise female employee motivation. It was also selected asa Certified Health and Productivity Management Organization(White 500).
Given this situation, the Company receives many requests
from a range of companies wanting to hear about its humanresources development.
This transformation was triggered by President Miyama’s
strong desire to manage businesses with good governance andto transform Leopalace21 into an outstanding company.

Taya The corporate culture was originally imperfect. The
Company sought to transform something that was more or lessimperfect into something superior all of a sudden. Its intention isreflected in the dramatic improvements in the figures.
Kodama At last year’s Board of Directors meeting, theCompany indicated where it performed poorly on CSR. I statedthat this was because of its inadequate approach. With regard
to paternity leave, I suggested that the Company approachthe eligible male employees since it is clear who they are. The
Company quickly went ahead with this. A year later, the ratioof employees who took paternity leave rose to an astonishing
figure of over 25%.
Sasao This is usually an unthinkable figure in the real estatebusiness. It is not something you can accomplish even if you set
your mind to it. When the President used to be a general manager, there was a female employee who worked very hard. At
the time, he wondered what could be done so that she would
work longer. This experience seemed to have played a significant role in the improvements.
Efforts are also being made to recruit human resources. A
considerable number of personnel and expenses are being
invested for recruitment, including the injection of a sizeable
number of recruiters. Accordingly, the number of applicants has
increased significantly. Around 300 people are being selectedfrom a pool of 20,000 people. In the past, the turnover rate wasextremely high, so new graduate hires were recruited in large
numbers. Today, the turnover rate has decreased quite substan-tially, and the Company no longer needs to hire so many people.

Kodama Speaking of the turnover rate, the rate for firstyear new graduate hires has improved tremendously. At one
time, the turnover rate at the Company was very high. The
current rate is an improvement compared to then, and also
compared with other companies. Major companies are also
struggling with the first-year turnover rate. I believe the Company’s figures have improved thanks to the development of awell-established system, including new employee training.
The human resources department is dealing with all issues
related to the vast number of human resources. The Company
excels in determining which specific issues it would address
and taking action from there—for example, it decides which
MHLW certifications it will pursue and which goals it will embark upon.
Sasao It is amazing that performance has not fallen evenwith the dramatic improvement in the work-life balance.
Overtime work has decreased from 30-40 hours per month
to less than 20 hours. The ratio of employees who take paidvacation increased from around 30% to over 70%. Performance has increased even with these improvements, which
is outstanding.

The Company receives many
requests from a range ofcompanies wanting to hear
about its human resources
development.

Kodama Certainly, improving the work-life balance has
made steady progress. The Company has also done an excellent job using IT systems to improve performance. More IT isbeing adopted in operations, for example, the shift to electronic
lease contracts and OCR document reading. The Company isalso endeavoring to calculate rent prices using AI, albeit this is
still in the initial stages. Furthermore, cost-efficient measures
are being taken by partnering with ventures instead of using
expensive systems offered by top line vendors.

Employing foreign human resources
Sasao In terms of human resources, priority is being given
to securing foreign employees in light of the declining population in Japan. Specifically, the Company actively employs technical trainees from Vietnam. It has training centers and otherfacilities in the countries to train people, so that they are readyto work immediately upon arriving in Japan. That said, such
employees are still small in number.

Leopalace21 Annual Report 2018

pected that foreign employees can help strengthen supports
for foreign residents in Japan who are anticipated to grow innumber, as well as work in ASEAN countries where Leopalace21 is expanding its business.

Taya Companies compete for talented personnel, so it ishard to find them from the outside. You have to train humanresources. For starters, there is the question of what “management human resources” is. First of all, if management isabout decision-making, they must have the information and

It is important that they get
to experience an array ofbusinesses, and accumulate
and deepen their know-how.

experience to make decisions. If so, they need to be able tocollect and analyze information, think logically, and make decisions. In the case of a company in which everything is decided
top-down, the people below will stop making decisions. Trying
to get people who have not been making decisions to make adecision will obviously not work. That is why people need to
be fully experienced in making decisions.
Furthermore, if employees have experience only in a single
business, the know-how they need to do something new will
inevitably be one-sided. In this light, it is important that they
get to experience an array of businesses, and accumulate anddeepen their know-how.
The Company will develop management human resources
with decision-making and know-how as dual pillars.

ESG Activities of Leopalace21

Sasao As far as ESG is concerned, the Company executes the
Elderly Care Business which registers as much as 13 billion yen insales. It is, however, not really known that Leopalace21 operates
Azumi En, elderly care facilities. Likewise, it is not well known
that there is a special subsidiary called Leopalace Smile, which
was established to give rewarding workplaces and an opportunity
to work to people with disabilities who have the will and ability
to work. This company has a steady business performance and isoperated without relying on subsidies. Since there are ESG-typebusinesses such as the Elderly Care Business and a special subsidiary within the Group, it is vital that the Company contributes
to the community and society by finding synergies with existing
businesses, with the ESG-type businesses forming a core foundation. Leopalace21 should further appeal why it is engaged in the
Elderly Care Business and why it has a special subsidiary.

Data Compilation

Taya
I consider that environmental contribution activities
have the objective of increasing corporate value, and that environmental contribution itself is not the objective. In that regard,
we should be thinking about how profit can be made or how theenvironmental footprint can be decreased through engaging inenvironmental contribution activities within the scope of theCompany’s business. The adoption of technology discussed earlier falls in line with this concept. Ideally, the Company advances
initiatives for increasing corporate value, and in this process,ultimately aims to make an environmental contribution.

Leopalace21 will become ahighly acclaimed company
if it continues to execute
excellent initiatives and cansuccessfully appeal thisglobally.

Initiatives for Supporting Corporate Value

Kodama The Company has many positive attributes but is
not good at appealing them in a unified manner. For example,
the Company utilizes tons of resources to build properties.
Subsidiary company Morizou Co., Ltd. and others log trees andmake use of lumber remnants in an eco-friendly manner. There
are many more things that the Company can appeal. It should
acquire environmental ISO certification.
It is not easy to acquire environmental ISO certification. But
if the Company can appeal all of the aspects to outsiders, i.e.,
communicate them to the market, Leopalace21 will be highly
acclaimed by the market and investors.

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Developing the next generation of management human resources

Leopalace21: Who We Are

Kodama More foreign nationals are being recruited straightout of university. In 2018, over 10 such foreign nationals were
hired. To enhance supports for the increasing number of Brazilian tenants, new graduate hires from Portugal were recruited
this year at the request of personnel on the ground. It is ex-

61

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Leo palace2 1 An nua l Repor t 2018

Corporate GovernanceCorporate Governance System and Initiatives
Basic View on Corporate Governancepurpose of rapid decision-making by management and smoothbusiness operation. In addition, the Executive Board is held toshare information about company management, with a view tooperating business smoothly and strengthening coordination forbusiness operation.
Moreover, the Board of Directors has set up committees to
examine the key management issues of the Company.
Specifically, they are: the Risk Management Committee responsible for dealing with risks that arise in business operations; theCSR Executive Committee and CSR Committee responsible forworking to resolve CSR challenges; the Compliance Committee
responsible for developing and operating our legal compliancesystem; the Personnel Committee responsible for discussing theutilization of human resources; the IT Committee responsible fordeveloping our IT environment; and the Nomination andCompensation Committee responsible for discussing the selectionof officers and deciding their compensation.

The Company sees the construction and strengthening of corporate governance as one of its most critical management tasks,
and will aim to realize its corporate philosophy, achieve management plans, increase corporate value in the medium to long term,
and grow continuously by strengthening of this corporate governance. Furthermore, our basic philosophy of corporate activities is
to pursue efficient, fair, and highly transparent operations toattain greater corporate value for the sake of all our stakeholders.
Based on this philosophy, we endeavor to improve our management structure, management organization, and management
system mainly through appropriate and rapid decision-making,reinforcing the monitoring function of our decision-making, establishment of a compliance system, improvement and strengtheningof an internal control system, and establishment of good relations
with stakeholders.
The Board of Directors holds the Corporate Management
Council before the meeting of the Board of Directors to discuss
important matters concerning overall business operations for the

As of June 28, 2018

General Shareholders’ Meeting
Appointment/Removal

Nomination and Compensation
Committee

Appointment/Removal
Accounting
Audit

Appointment/Removal

Appointment/Removal

Accounting Auditor(All directors/President and CEO)Corporate Management Council

Discuss

Appointment/
RemovalExecutive Board

Information
Sharing

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

Appointment/
RemovalReportReport

Healthcare
Promotion
OfficeWork-Life
Balance
Promotion
OfficeGuidance and
Education

Guidance and
Education

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

Cooperation

11 Directors(including 3 outside directors)

Audit
ReportingPresident and CEO

Business Execution
Department

Board of Directors

Cooperation

Personnel Committee
Inquiry

ReportAudit & Supervisory Board

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

Auditing
Council

Cooperation

IT Committee
Auditing Department

Report

CSR
ReportCSR
Committee Understanding/ Executive
Committee
Management

Understanding/Management
Understanding/Management

ReportUnderstanding/Management

Report(internal audit) (audit controls)

Inquiry

Compliance Committee
Risk Management
Committee

Audit

Audit

Leopalace21 Annual Report 201863
Leopalace21: Who We Are

Progress Towards Strengthening Governanceincreased the number of outside directors and 3 are currently
appointed, all of whom satisfy the requirements for an independent officer and have experience in corporate management in various industries. Additionally, committees have been establishedat the Board of Directors to examine key management issues of
the Company. Notably, the Nomination and Compensation
Committee set up in March 2016 is comprised of 4 members, 3 ofwhom, i.e., a majority are outside directors. The Committee seeks
to make the best appointments and determine compensation bytaking into account outside perspectives and know-how.

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

3

3

3

3

2

2

2

2

2

2

2

2

2

2

2

2

2

2

2

1

1

1

1

1

2

3

2

2

2

2

2

2

2

3

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (FY)
July 2006
1st meeting

Compliance Committee

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

Risk Management Committee
CSR Committee
Personnel Committee
IT Committee

March 2016
1st meeting

Nomination and Compensation Committee

Three Characteristics of Leopalace21’s Governance1

100%
All 3 outside directors of the Company have
corporate management experience. They offer
advice and supervision mainly in the Corporate
Management Council and Board of Directors
meetings from broad, diverse perspectives.

Ratio of outside officers

Approximately

10%

3

All members of the Nomination andCompensation Committee areoutside directors with the exceptionof the President and CEO
Members of the Nomination andCompensation Committee40%

As of June 2018, there are 6 outside officers
appointed, including 3 outside directors and3 outside Audit & Supervisory Board members, so the ratio of outside officers has
been raised significantly since our founding.

The Company’s Nomination and Compensation Committee consists entirely of outside
directors except for the President, in order
to select and decide compensation for officers objectively, transparently, and fairly.

Data Compilation

Outside directors withcorporate management experience2

Gradually increasing
the ratio of outside officers

Initiatives for Supporting Corporate Value

April 2018
1st meeting

CSR Executive Committee

All three outside directors
have corporate
management experience

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

The Company has taken steps to strengthen the corporate governance system to realize its corporate philosophy, achieve
management plans, increase corporate value in the medium tolong term, and grow continuously. In terms of incorporating theperspective of outsiders into management, we have appointed
outside Audit & Supervisory Board members from over 25 years
ago and, immediately following the collapse of Lehman Brothers
which had a significant impact on the Company’s corporate
management, appointed outside directors. Since then, to further
enhance the supervisory functions of management, we

64

Leo palace2 1 An nua l Repor t 2018

Corporate Governance

For Effective Board of Directors Meetings
Board of Directors (Meetings convened 16 times infiscal 2017)
The Board of Directors is focused on both ensuring the mobility ofmanagement and enhancing its supervisory functions. It currently
consists of 11 directors including 3 outside directors. We consider
proper appointment of directors to be important for increasing
corporate value, thus we include discussing this matter in the
Nomination and Compensation Committee composed of outside
directors, together with determining compensation, in the decision-making process. The President and CEO serves as the
Chairman of the Board of Directors. In addition to regular monthly
meetings, the Board also holds meetings flexibly as necessary to
decide important matters concerning management, as well as
monitor the status of business performance and supervise theexecution of duties by directors.

Board Meeting Agenda
The Board of Directors meetings discuss a range of themes covering all areas of management. As we transition to the stage ofaggressive business management with the advancement ofbusiness structure reforms and the cementing of the managementfoundation, the agenda items include not only M&A and realestate in Japan, but also increasing matters related to investment
and new business in other countries (primarily the ASEAN region).

10.7％

Fiscal 2016

22.2％

Fiscal 2017

■ Investment and new business ■ Other

Seminars for Directors
To execute future business operations and increase corporate
value, it is essential that management resources including directors acquire a deeper level of necessary knowledge. The
Company organizes seminars for directors to provide opportuniTopic

Theme

ties and support for such knowledge acquisition.
In fiscal 2017, seminars were held on crisis management,
human resources development, work-life balance, diversity andother business matters.
Participants

Crisismanagement

Crisis management
communications

Directors, Audit & Supervisory Board members, Executive Officers,
othersHuman resources
development

Inspiring innovation

Directors, Audit & Supervisory Board members, Executive Officers,
othersWork-life balance

Work-life balance asa management strategy

Leopalace21 (incl. group companies) Directors, Audit &Supervisory Board members, Executive Officers, and managers(vice general manager and above) at head office and nearby offices

Diversity

Diversity and work-style reform

Leopalace21 (incl. group companies) Directors, Audit &Supervisory Board members, Executive Officers, assistant generalmanagers and higher-level officers and employees, and managers(vice general manager and above) at head office and nearby offices

Other businessmatters

Real estate business opportunities
in 2020 and beyond

Directors, Audit & Supervisory Board members, Executive Officers,
othersLeopalace21 Annual Report 201865
Leopalace21: Who We Are

Officer Compensation■ Nomination and Compensation Committee

The compensation of directors of the Company is designed tomotivate directors to execute their duties to the fullest toachieve management plans and increase corporate value in themedium to long term. Therefore, compensation is comprised offour categories; basic remuneration (fixed compensation), stock
options (performance-linked compensation), annual bonuses,
and medium-term management plan period bonuses. They arepaid according to their respective purposes. Whereas the ratioof fixed compensation to performance-linked compensation
had been around 75:25, the proportion of performance-linked
compensation was increased, changing the ratio to 54:46 for
the President and to an average of 60:40 for other directors infiscal 2017.
The compensation of individual directors is decided upon
10.7％％
deliberation at the Nomination and 22.2
Compensation
Committee
to ensure it is appropriate for fulfilling the above objectives.
The Committee is comprised of 3 outside directors and thePresident and CEO.

Meeting

Discussion Items

1st Meeting

Selection and compensation amount of Executive Officers
for FY2017
Selection of Audit & Supervisory Board member candidates
for FY2017

2nd Meeting

FY2017 officer compensation and FY2018 performance indicators

3rd Meeting

Selection and compensation amount of Executive Officers
for FY2017

4th Meeting

New appointment and reappointment of director
candidates and Executive Officers for FY2018■ Composition of Officer Compensation
President

Average of Other Directors

Performancelinked
16％

30％

Performancelinked
14％

26％

54％ Fixed■ Basic remuneration■ Bonuses ■ Stock options

Fiscal 2017

■ Investment and new business ■ Other*1 The stock option compensation amount is based on the composition value at the time ofthe officer compensation system revision (May 2017).
*2 Medium-term management plan period bonuses are not included.

■ Amount of Compensation Awarded to Directors and Audit & Supervisory Board Members

Directors (excludes outside directors)
Audit & Supervisory Board members (excludes outside
Audit & Supervisory Board members)
Outside directors/Audit & Supervisory Board members

Total
remuneration(Millions of yen)

Total remuneration, etc. across categories
Basic remuneration
Stock options
BonusesNo. of relevant
officers

563

325

77

160

8

19

19

—

—

2

71

71

—

—

6

* The above includes 1 Audit & Supervisory Board member who resigned as of June 28, 2018.

Evaluating Effectiveness of Board of Directors Meetings
future management resources. In light of these evaluation findings,
it was decided that the primary activities of the Board in FY2018
would be “deepening the discussion on each of the businessstrategies” for the medium term and implementing the“Management Resources Development Plan (Succession Plan).”■ Fiscal 2017 Board of Directors Meetings: Main Evaluation Findings
Monitor by setting
KPIs

Revise KPIs of each business division, as well as
subsidiaries and affiliates, and conduct monitoring
using the revised KPIs from the second half of the year.

Set forthinvestment criteria

Establish Guidelines on Investment Project Management.
Conduct implementation and monitoring from second
half of the year.

Establish measuresfor developing thefuture management
resources

Establish the Management Resources Development
Plan (Succession Plan). Commence with a selectedgroup from fiscal 2018.

Data Compilation

After the business year has ended, the Company conducts an evaluation of the functions to be fulfilled by the Board of Directors meetings, mainly to make improvements on management issues. For theevaluation, all members of the Board of Directors meetings areevaluated individually through a questionnaire. The Secretariat forthe meetings aggregates and analyzes the data and reports to theBoard of Directors, and related discussions are then conducted. The
fiscal 2017 evaluation showed that the medium-term management
strategy and the development of the future management resourceswere matters of great importance for the Company, and while initiatives for these matters appeared to be improving, members
viewed that further improvements could be made. Furthermore, theBoard was able to carry out monitoring by setting KPIs, set forthinvestment criteria, and establish measures for developing theInitiatives for Supporting Corporate Value

Officer category

60％ Fixed

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Fiscal 2016

Meetings convened 4 times a year

66

Leo palace2 1 An nua l Repor t 2018

Corporate GovernanceCompliance
Leopalace21 conducts business based on our corporate philosophy of “creating new value.” As part of that process,we have created a Corporate Ethics Charter. We are determined to establish legal and social compliance as the cornerstone of our corporate activities. This is exemplified by our President and CEO, whose role is to increase awareness about the spirit of this code and continuously share it with all officers and employees of all group companies.

To set legal and social compliance as the cornerstone of our corporate activities
Compliance Hotline
We have set up an internal compliance hotline (the Legal
Department) and an external compliance hotline (a law firm) for
accepting reports from our officers and employees and providing
guidance to them when they find a possible violation of laws andregulations or unfair practices.
The compliance hotline system ensures whistleblower protection and an appropriate response based on the result of an investigation in accordance with the Whistleblower Protection Act andour Whistleblowing Regulations. We will make improvements
regarding any problem identified. The system also serves as asuggestion box so that officers and employees can submit, in confidence, opinions about the Company.
It should be noted that we have set up a partner hotline for
accepting reports from officers and employees of our business
partners which have continuous business relationships with us
and providing guidance to them when they find a possible violation of laws and regulations or unfair practices within the
Company. Similar steps as those taken with our hotline system
will be followed.

We operate the external hotline
Of the hotlines that have been set
up to strengthen the compliancesystem, the Marunouchi Sogo Law
Office operates the external
hotline. A lawyer in charge hears
the issue from an officer or employee, reports to the Compliance
Marunouchi Sogo
Committee Secretariat, and proceLaw Officedures are taken including an investigation. If there is a violation of compliance, measures
will be taken appropriately to correct it (we also accept
anonymous reports to ensure that a broad range of people
can access the hotline). Going forward, we will continue towork hard to increase compliance of the Company.

Education and Training

Responses to Anti-social Forces

The Company continuously strives to increase compliance awareness and knowledge of each officer and employee.
Group trainings are held for our officers and employees, including new graduates and mid-career hires, to deepen their understanding of our view on compliance and the basic policy of theCompany. Furthermore, compliance officers are assigned within
departments to proactively increase awareness of and advancemeasures on compliance. Groups trainings are also conducted forthese officers to further their understanding of our view on compliance, raise their awareness, and understand their role.
As part of the Company-wide efforts to eliminate harassment,
outside instructors offer group training by employee rank that is
specific to harassment prevention.
In addition, the Company conducts awareness-raising activities
and e-learning courses as appropriate on themes that match theneeds of the times, such as harassment prevention, information
handling, and LGBT, thereby promoting compliance of the entire
Company and further expanding its corporate ethical horizon.

We clearly state in our Corporate Ethics Charter that any “association with anti-social forces be eliminated.” We have no relations
with anti-social forces or organizations that threaten the social
order and safety and stand firmly against them.

Anti-Bribery Policy
Leopalace21 has adopted an anti-bribery policy to counter briberyin the countries and regions where the Company engages in business activities.

Leopalace21 Annual Report 2018

Risk Management
Leopalace21 has developed a risk management system for identifying risks, preventing their manifestation, andaddressing actualized risks. For disasters and other emergency situations, we have a system to give appropriate
instructions and take proper responses in order to avoid confusion, achieve a swift business recovery, as well as
continue and restore the business.

The Leopalace21 Group has created the Risk Management
Committee as an advisory body to the Board of Directors to ascertain and manage the risks facing the entire Company in a comprehensive manner, with a view to strengthening risk management.
The Risk Management Committee is composed of members including outside experts such as lawyers. In addition to checking thestatus of risk management, the Committee plans and implements
programs such as training in order to reduce and prevent risk.
The Risk Management Committee is convened once a monthfor regular meetings and as needed when considered necessary
by the chairman. The General Manager of the Management
Headquarters makes quarterly reports on the risk management
status to the Board of Directors.

Risk Management Committee
ChairmanPresident and CEO

General Manager of Management
Vice Chairman
Planning Headquarters and General(Risk Management Officer)
Manager of Management Headquarters• Head of business divisions
When the head of business divisions detects a risk at the organization under their jurisdiction, or is informed about a risk, theyreport about the risk and the responses to the President and CEO.

The heads of business divisions as well as subsidiaries and affiliates analyze the known risks considering their level of impact,
likelihood, and other factors, and examine coping measures basedon the analysis. The Risk Management Committee assesses theanalysis results and coping measures and instructs their review
as necessary.

ISO27001 (ISMS) Certification Acquisition(Information Management System Strengthening)
Leopalace21 (Information System Department) has acquired
ISO27001 (ISMS) certification to assure that we are a partner
trusted by customers. ISO27001 is one of the international standards for information security and is also known as “Information
Security Management System.”
In addition to this certification, Leopalace21 will take appropriate management measures to ensure that its information
assets related to all of its business activities are protected fromhacking, leakage, alteration, destruction, unauthorized use, andinterference with use. The Company will also immediately takeappropriate remedial actions when necessary. Furthermore, wewill continuously improve the security level by implementing thePlan-Do-Check-Act (PDCA) cycle.

ISO 688408 / ISO 27001* Acquired by the Information
System Department

Data Compilation• Risk Management Officer
The General Manager of the Management Planning Headquarters
who serves as one of the Risk Management Officers fulfills therole of: (1) developing strategic PR policies and other information
dissemination policies; (2) developing policies for coping with reputational risks and implementing the measures; and (3) conducting
external relations during crises. The General Manager of the Management Headquarters who serves as the other Risk Management
Officer fulfills the role of: (1) managing risks of Leopalace21 andmaking legal assessments; and (2) dealing with lawsuits.
Both of the Risk Management Officers will give instructions
to the Risk Management Committee Secretariat to check andinvestigate the risks facing the Company, as well as report to
the President and CEO and the Risk Management Committee regarding the details and coping measures for the risks they think
are necessary.

<Risk analysis and assessment>

Initiatives for Supporting Corporate Value<Role of employees>• Head of departments & subsidiaries and affiliates
The head of departments and the head of subsidiaries and affiliates keep abreast of the risks facing their departments and companies, respectively, and when a risk is found, take the necessary
measures immediately. In addition, the head of departments andthe head of subsidiaries and affiliates report the risk and themeasures taken to the head of business divisions and risk manager, as well as to the head of the departments under their jurisdiction and the risk manager of the departments, respectively.

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Risk Management Regulations

Leopalace21: Who We Are

Corporate Governance

67

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Leo palace2 1 An nua l Repor t 2018

Corporate GovernanceDirectors, Audit & Supervisory Board Members,
Directors (As of June 28, 2018)

President and CEO

Director and Senior Vice President

Director and Senior Executive Officer

Oct. 1977 Joined Leopalace21 Corporation
Jun. 1990 Director
Jan. 1996 Executive Director of Management
Nov. 1996 General Manager of the Leasing Business		Headquarters
Apr. 2003 Senior Managing Director
Apr. 2009 General Manager of the Management
		Planning Headquarters
Dec.2009 Vice President and Representative Director
Feb. 2010 President and CEO (current)
Jun. 2010 President and CEO (current)

Sep. 1985 Joined Leopalace21 Corporation
Jun. 2003 Director
May 2007 Executive Director of Management
May 2011 Director and Senior Executive Officer/
		General Manager of the Marketing and		Sales Headquarters (current)
Apr. 2014 Director and Senior Vice President (current)/
		General Manager of the Corporate Business		Promotion Headquarters (current)

Apr. 1980 Joined the Sumitomo Bank, Limited
Apr. 2010 Joined Leopalace21 Corporation on loan/
		Executive Officer/Deputy General Manager
		of the Management Headquarters
Jun. 2010 Director and Executive Officer
Apr. 2014 Director and Senior Executive Officer (current)/
		General Manager of the Management
		Planning Headquarters (current)
Apr. 2015 General Manager of the Hotel and Resort
		Business Division

Director and Senior Executive Officer

Director and Senior Executive Officer

Director and Managing Executive Officer

Apr. 1988 Joined Leopalace21 Corporation
Apr. 2009 Director and Executive Officer/General Manager
		of the Sales Planning Department, Subcontracting
		Business Division
May 2011 General Manager of the Asset Management
		Department, Leasing Business Division
Apr. 2013 Managing Executive Officer/General
		Manager of the Leasing Business DivisionJun. 2015 Director and Senior Executive Officer (current)
Apr. 2016 General Manager of the Apartment Construction Subcon		 tracting Business Division (current)/Deputy General		Manager of the Marketing and Sales Headquarters (current)

Apr. 1975 Joined the Kyowa Bank, Ltd.
Apr. 2013 Joined Leopalace21 Corporation/
		Managing Executive Officer/General Manager
		of the Business Management Headquarters
Jun. 2013 Director and Managing Executive Officer
Apr. 2014 General Manager of the Management
		Headquarters (current)
Apr. 2016 Director and Senior Executive Officer (current)

Apr. 1980 Joined NISSANSHA INC.
Jan. 1985 Joined Leopalace21 Corporation
Oct. 2004 General Manager of the Personnel Department
May 2007 Executive Officer
Jun. 2013 Director and Executive Officer
Jan. 2014 General Manager of the Work-life Balance		Promotion Office (current)
Apr. 2014 Deputy General Manager of the Management
		Headquarters (current)
Apr. 2016 Director and Managing Executive Officer (current)
May 2018 General Manager of the Healthcare Promotion
		Office (current)

Director and Managing Executive Officer

Director and Managing Executive Officer

Apr. 1983 Joined Nakamichi Leasing Co., Ltd.
Jun. 1990 Joined Leopalace21 Corporation
Sep.2000 Deputy Manager of the Financial Department
Jul. 2008 General Manager of the Resort Business		Headquarters
Jul. 2010 General Manager of the Management
		Planning Department
Apr. 2013 Executive Officer
Jun. 2016 Director and Executive Officer
Apr. 2018 Director and Managing Executive Officer
		(current)/Representative in charge of		Management Planning and Investor Relations,
		Management Planning Department (current)

Apr. 1983 Joined the Kyowa Bank, Ltd.
Apr. 2015 Joined Resona Business Services Co., Ltd./		Senior Managing Director
Apr. 2017 Joined Leopalace21 Corporation/Managing
		Executive Officer/Deputy General Manager
		of the Management Headquarters (current)
Jun. 2018 Director and Managing Executive Officer
		(current)

Eisei Miyama

Hiroshi Takeda

Bunya Miyao

Tadahiro Miyama

Kazuto Tajiri

Hiromi Ito (New Candidate)

Yuzuru Sekiya

Hiroyuki Harada

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

and Executive Officers

Director (Outside)

Director (Outside)

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

Apr. 1987 Joined the Fuji Bank, Limited
Jun. 1998 Joined Merrill Lynch Securities Co., Ltd.
Apr. 2003 Managing Director, Industrial Revitalization
		Corporation of Japan
Apr. 2007 Board Member & Managing Director,
		Industrial Growth Platform, Inc. (current)
Jun. 2010 Outside Director, Leopalace21 Corporation
		(current)

Apr. 1984 Joined Recruit Co., Ltd.
Apr. 2006 Joined Tokyo Electric Power Company, Incorporated
Nov.2007 Joined TEPCO PARTNERS Co, Inc. on loan/
		Managing Director
Jun. 2012 President, TEPCO PARTNERS Co, Inc.
Jun. 2015 Outside Director, Leopalace21 Corporation (current)		President and Representative Director,
		SHiDAX BEAUTY CARE MANAGEMENT		CORPORATION
Apr. 2017 President and Representative Director,
		Hasegawa Social Works Co., Ltd.
May 2018 Executive Officer, JDC Corporation (current)

Tetsuji Taya

Yoshiko Sasao

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Director (Outside)

Tadashi Kodama

69

Audit & Supervisory Board Members (As of June 28, 2018)

Initiatives for Supporting Corporate Value

Standing Audit & Supervisory Board
Member (Outside)

Audit & Supervisory Board Member(Outside)

Audit & Supervisory Board Member(Outside)

Jun. 1983 Joined JAPAN LIFE Co., Ltd.
May 1987 Joined Leopalace21 Corporation
Apr. 2007 General Manager of Leasing
		Inspection Unit, Leasing Business		Division
Apr. 2010 General Manager of Area
		Strategies Department
Apr. 2012 General Manager of Auditing		Department
Nov. 2015 Auditor, Morizou Co., Ltd. (current)
Jun. 2016 Standing Audit & Supervisory
		Board Member (current)

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

Apr. 1966 Joined Sendai Regional Taxation
		Bureau, National Tax Agency
Jul. 2006 Assistant Regional Commissioner
		(Fourth Large Enterprise Examination),		Tokyo Regional Taxation Bureau,
		National Tax Agency
Aug. 2007 Established Masahiko Nakamura
		Certified Tax Accountant Office,		Representative, Masahiko Nakamura
		Certified Tax Accountant Office		(current)
Jun. 2010 Audit & Supervisory Board Member,		
Leopalace21 Corporation (current)

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

Atsunori Nasu

Jiro Yoshino

Masahiko Nakamura

Takao Yuhara

Data Compilation

Standing Audit & Supervisory Board
Member

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Leo palace2 1 An nua l Repor t 2018

Corporate Governance

Executive Officers (As of June 28, 2018)

Back row, left to right: Executive Officer Minoru Wada, Executive Officer Mayumi Hayashima, Executive Officer Kiyoshi Arai, Executive Officer Norihito Fukushima
Front row, left to right: Executive Officer Shigeru Ashida, Managing Executive Officer Fujio Sato, Senior Executive Officer Satoshi Abe, Executive Officer Kenichiro Samejima,
Executive Officer Katsuhiko Nanameki

Back row, left to right: Executive Officer Kazunori Tanimoto, Executive Officer Yasushi Mizuno, Executive Officer Tatsuya Sasaki, Executive Officer Yoshiyuki Ichikawa
Front row, left to right: Managing Executive Officer Naomichi Mochida, Senior Executive Officer Motoyoshi Ohishi, Managing Executive Officer Seiji Shinozaki,
Executive Officer Shu Ikeda

Leopalace21 Annual Report 2018

Engaging in Sound, Constructive Communication with Stakeholders
Through our business activities, we actively disclose information to and engage in dialogue with our stakeholders tobuild healthy, positive partnerships.

Leopalace21: Who We Are

Corporate Governance71

Our Basic View: Importance of Dialogue and Disclosure

Main Activities and Targets the CSR Committee Oversees
Main Activities

SDGs

Restatement
as ISO26000
Core Subjects

Build positive relationships with owners
Offer programs for jobseeking students to support career-development
activities

7. Community
involvement

Conduct proactive
IR activities

FY2017 Targets

FY2017 Results

Selfassessments

FY2018 Targets

No. of meetings for owners

250 times

424 times◎

500 times

No. of events conducted

30 times

35 times〇

29 times

No. of events conducted for investors
and shareholders
22 times

22 times〇

22 times◎: Attainment above 120% ◯: Attainment below 120% but above 100% △: Attainment below 100% but above 70% ×: Attainment below 70%

Overview of IR Activities

IR Awards

IR activities (April 1, 2017 - March 31, 2018)
Briefing for analysts and institutional investors

No. oftimes
2

No. of people orcompanies
122 people2

8 people

Meeting with analysts and institutional investors

146

263 companies

Visit to foreign institutional investors

2

25 companies

Briefing for individual investors

27

3,526 people

PR Activities (Media Gathering,
Full-Page Newspaper Ad, and Others)
In September 2017, the Company held a gathering for members ofvarious media outlets, such as newspaper reporters, magazine
editors, and TV network producers, attended by 58 people in total.
Furthermore, an advertisement of the Company was placed innewspapers 4 times.

Internet IR
優良賞

2017

Data Compilation

Facility tour for analysts and individual investors

The Company was awarded the Internet IR Excellence Awardfor its website in 2017 granted by Daiwa Investor Relations
Co., Ltd. We also received the “Silver” score in the Gomez IR
Site Ranking 2017 by Morningstar Japan K.K. as well as the
5th IR Good Visual Award judged and selected by the IR Good
Visual Award Committee (Japan Investor Relations
Associations, Value Create Inc.).

Initiatives for Supporting Corporate Value

Leopalace21’s primary IR activities include releasing a range of IR
tools on our website, results briefings for analysts and institutional investors, individual meetings, visits to foreign institutional
investors, and tours of our facilities. We also actively conduct IR
activities for individual investors. In addition to holding briefings
for shareholders and property owners, we disclose information on
our website for individual investors so that they can obtain aclearer understanding of the Company, including information on
the Company’s history and market trends, 3-year plan and numerical targets, and business strategy.

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

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

I

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Leo palace2 1 An nua l Repor t 2018

Basic CSR Action Policy

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

Our Basic View: Lifestyle Diversification
Attendant with shifting family composition reflecting the twin demographic trends of a growing elderly cohort and a low
fertility rate and changing times, the number of single-person households continues to grow. At Leopalace21, we are responding
to social needs arising from the growing diversity of lifestyles, and we see such changes as offering opportunities to develop
products and services in tune with the times.

Examples of Our Initiatives

1 Rent Assessment System Utilizing AI, a First in the Real Estate Industry
The Company and AI inside Inc. have jointly developed a rent
assessment system using AI inside’s “Neural X artificial intelligence(AI)” system to help determine rents and optimize the operationof properties. The system was introduced on February 1, 2018.
By introducing this system, which is capable of learning not
only the rent-setting data accumulated by Leopalace21, but also
basic information, location conditions, information about thesurrounding area, as well as a vast amount of data using deeplearning technology, the Company can now calculate prices toreflect a property’s inherent value and the unique strengths of
Leopalace21. This has made it possible to properly calculate
rents and strategically set rents, along with improving the worklife balance of employees and cutting costs. Leopalace21 willcontinue to proactively incorporate the latest technologies,
including AI.

2 Opening of Azumi En Fuji, Nursing Care Facility with the Latest IoT Systems
The Company’s subsidiary Azu Life Care Co., Ltd. opened the nursing care facility Azumi En Fuji (day and short-stay services), which
has introduced and employs IoT systems, in February 2018.
In addition to installing a security camera system to watch
over and prevent users from leaving the facility, it has introduced
a bed-leaving sensor that detects the status of people who are
sleeping simply by placing it on their bed, and a finger veinauthentication key that locks and unlocks doors using finger veins
instead of a key, making Azumi En Fuji a nursing care facility that
employs the largest number of IoT systems in Shizuoka
Prefecture.* We will make active use of IoT systems to manage
the health of facility users, improve services to increase security,and lessen the burden on facility staff.

Azumi En Fuji

*Leopalace21 survey

Security camera systemfor protecting facility users

Bed-leaving sensor

Finger vein authentication key

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

Affluent Living
Main Activities and Targets the CSR Committee Oversees
Main Activities

SDGs

Restatement
as ISO26000
Core Subjects

FY2017 Targets

FY2017 Results

Selfassessments

FY2018 Targets

Security system
Security camera

8 ,025 rooms
1,835 buildings

9,763 rooms
1,976 buildings〇

6,667 rooms
1,380 buildings

Reduce incoming calls
to service centers

Incoming call ratio (monthly avg.) vis-à-vis
total no. of tenants
Below 8.5%

8.3%

〇

Below 8.0%

18 events

16 events△

18 events

Install parcel delivery
lockers

No. of approved locker locations 100 locations

74 locations△

70 locations

Develop support system
for rising number offoreign tenants

Manner seminar and event

263 times◎

Manner seminar
participants: 2,500

6. Consumer
issuesIndustry-academia-government
partnership planning

210 times◎: Attainment above 120% ◯: Attainment below 120% but above 100% △: Attainment below 100% but above 70% ×: Attainment below 70%

3 Safe and Secure Housing

Selected as “Competitive IT Strategy
Company” for 2 Consecutive Years

Data Compilation

We were recognized among the “2018 Competitive IT Strategy Company” selected by the
Ministry of Economy, Trade and Industry (METI) and the Tokyo Stock Exchange (TSE). With the
population declining and population inflow restricted to major metro areas, Leopalace21 iscommitted to better developing products and services that correctly gauge the needs of tenants. Our growth strategy enshrines differentiation with other companies through industry-firstmeasures utilizing digital technology such as the “first facial recognition system for rental
properties” and “industry-first rent assessment system utilizing AI.”

Initiatives for Supporting Corporate Value

To meet the needs of tenants and property owners who seek
homes with strong security systems, the Company has tied up
with the leading security service companies, SECOM CO., LTD.
and SOHGO SECURITY SERVICES CO., LTD., to install security systems in 290,000 rooms, which make up a majority of properties
under our management. We are also boosting our security measures by becoming the first in the industry to introduce a cloudbased security camera service at our rental properties.
Furthermore, all apartments of the Company’s core MIRANDA
and CLEINO brands have acquired the “Excellent Security Rental
Apartment” certification, a program established by the Japan
National Crime Prevention Association and the Center for Better
Living that certifies apartments which meet their security criteria.

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Devise and market
products that take surroundings into accountSupport schools andstudents via industryacademia-government
cooperation

73

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Leo palace2 1 An nua l Repor t 2018

Basic CSR Action Policy

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

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

Examples of Our Initiatives

1

Recognized as 2018 Outstanding Healthand Productivity Management Organization(White 500) with a Maximum 5-Star Rating

The Company was named a “2018 outstanding health and productivity management organization” in the large enterprise
category (White 500) in a February 2018
announcement recognizing companies
that excel in this field by the Ministry of
Economy, Trade and Industry (METI) andNippon Kenko Kaigi. This is the second consecutive year that
Leopalace21 was recognized following on from last year.

2 Acquired Platinum Kurumin Certification
The Company has obtained special Platinum Kurumin certificationfor establishing an action plan in accordance with the Act on
Advancement of Measures to Support Raising Next-Generation
Children and going beyond satisfying all criteria to strive for evenhigher standards. Only 153 companies inJapan (as of August 2017) have received
the Platinum Kurumin certification,
which recognizes companies that engage
in more superior childrearing supports
than the Kurumin certification.

3 Received the Honorable Mention Award for Telework Promotion
In January 2018, the Company received the Telework Promotion
Honorable Mention Award presented by the Japan Telework
Association, in recognition of our activities that contribute to achieving a society where diverse human resources can play active roles.
Telework initiatives of Leopalace21
In order to promote telework, we have introduced systems for
employees to work at home 4 times a week and to work remotelyusing mobile devices, as well as electronic contracts. As a result,work efficiency increased, creating more communication timewith customers. They have also led to greater work-life balance,
including supports for balancing work and childcare or nursing
care. Moreover, shifting 95% of contracts from paper to electronic
formats has resulted in outcomes such as reduction in expenses
and 4.1 hours less overtime work at the Asset Management
Department compared to the previous year.

At-home Work

Remote Work
Using Mobile DeviceStart

May 2016

April 2016

LocationHome

Client office,while traveling, etc.

Implementing
Departments

Full-time employees with shortened work hours for childcare or
nursing care who engage in tasks
suited for at-home work

Sales personnel ofAsset Management
Department, etc.

TargetEmployees

Approx. 60 employees; No. using
the program: 37 employees

Approx. 250 employees

Applicable
Tasks

Quantitative work (includes managers); up to 4 days per week

Sales and contractualwork• Report to supervisor his/her plan

Basis of
Evaluationand performance before and after
commencing at-home work
• Quantitative work enables supervisors to have a more detailed understanding of employees’ progress
and achievements compared towhen they are at the office, making
evaluations easierAs employees belong tosales departments thatengage in out-of-office
work, no notable changes

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

Developing Diverse Human Resources
Main Activities and Targets the CSR Committee Oversees
Main Activities

SDGs

Restatement
as ISO26000
Core Subjects

FY2017 Targets

Selfassessments

FY2017 Results

FY2018 Targets

Paid vacation day usage rate

70%

74.08%〇

70%

Planned human resources development

No. of training participants		
A total of 5,184 persons

A total of
6,217 persons◎

A total of
3,441 persons

2. Human rights
Disabled employee ratio
3. Labor practices

2.40%

2.28%

〇

2.30%

Diversity forumHeld

4 times

4 times〇

4 times

Health forum

Held

5 times

5 times〇

5 times◎: Attainment above 120% ◯: Attainment below 120% but above 100% △: Attainment below 100% but above 70% ×: Attainment below 70%

4 Paternity Leave Rate Reached 25.5%300 (Days)

30 (%)

80
25.5

20

200

1
100

137

0
137

5

3
113

2.9

1.1

0

’14/3

’15/3

177

144

’16/3

’17/3

10

0

’18/3

Employees who took maternity leave (left axis)
Employees who took paternity leave (left axis)
Paternity leave rate (right axis)

5 Established Healthcare Promotion Office Under the President

No.

Activities

1

Mental Health
Promotion Project2

Dietary Improvement
Project

3

4

Content

main activities include implementing the Mental Health
Promotion Project and Dietary Improvement Project, recommending club activities, and organizing non-smoking and smoking
reduction campaigns. We will increase employees’ health awareness by further reinforcing the linkages between health and business management, and thereby, deepen employee engagement.
Purpose and Effects• Implement mental health education (e.g., anger management, stress control)
Learn about appropriate stress relief methods• Strengthen counseling follow-ups by clinical psychologists for employees

who are on leave or have returned to work

Facilitate smooth return to work

Deepen knowledge on diet
Improve lifestyle habits and practices
Create physical exercise opportunities for employees
Recommend club activi- • Plan to launch 20 sports clubs, e.g., volleyball, badminton, tennis, futsal,
Promote smooth intra-company communications
and yogaties
Enhance work-life balance• Conduct employee questionnaire twice a year and disclose non-smokers’ views
Organize non-smoking• Hold non-smoking activities coinciding with the World No Tobacco Day on May 31 Lower smoking rateand smoking reduction• Organize Non-Smoking and Smoking Reduction Month twice a year and Deter second-hand smoking
campaigns
promote awareness-raising activities• Organize diet coaching by a certified nutritionist

Data Compilation

In May 2018, the Company established the Healthcare Promotion
Office, a specialized body under the direct control of the
President, in order to create a workplace environment where
employees can stay healthy, both mentally and physically, by
being highly conscious of their health and work dynamically. The
Office is staffed with specialists including health nurses and clinical psychologists who offer health supports to employees. The

Initiatives for Supporting Corporate Value

The Company has introduced the “Welcome Baby Registration
System” and other programs to encourage employees to takepaternity leaves. As a result, the percentage of employees whose
spouse gave birth between October 1, 2016 and September 30,
2017 and took paternity leaves reached 25.5%, a significant
improvement from the 2.9% of the previous year. The Company
has thus already achieved the 13% target by 2020 set by the government. We will continue to take measures that contribute toimproving work-life balance to create a workplace environment
where employees can unleash their capabilities and potential tothe maximum and increase customer satisfaction.

Acquisition of Parental Leave

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Accommodate diverse
working styles

Hire diverse humanresources75

76

Leo palace2 1 An nua l Repor t 2018

Basic CSR Action Policy

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

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

Examples of Our Initiatives
Agreement on Creating Anti-Crime Communities with Saitama Prefecture
1 Concluded
and Saitama Prefectural Police
The Company concluded the Agreement on Creating Anti-Crime
Communities with Saitama Prefecture and Saitama Prefectural
Police in February 2018. The Agreement is aimed at protecting
children, women, and the elderly from crime and enabling people
in Saitama Prefecture to live safely and securely through thecoordinated efforts of the Company, Prefecture, and Prefectural
Police for preventing crime. We will work even more closely with
Saitama Prefecture to realize safe and secure communities by
installing security cameras and home security systems at theproperties we manage, holding security seminars for property
owners, placing anti-crime stickers at the Company’s offices,among other initiatives.

(From left) Governor of Saitama Prefecture, Leopalace21’s Ko Sato,and Chief of Saitama Prefectural Police

2 Collaborated with Fukaya City Half Marathon
As part of our contribution to society, we collaborated for the second consecutive year with Fukaya City Half Marathon held in
Fukaya City, Saitama Prefecture. Our booth at the venue had an
exhibit using the Company’s “my DIY” service that allows for customization including changing the wallpaper. In addition, we conducted a questionnaire on the design of the living space of Fukkachan, the mascot of Fukaya City. Based on the questionnaire
results, we made a showroom using “my DIY” and made it available for public viewing.

Fukka-chan’s room
(From left) Fukaya City’s mascot Fukka-chan, Leopalace21’s signature squirrel Leopalis-kun

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

Main Activities and Targets the CSR Committee Oversees
Main Activities

SDGs

Restatement
as ISO26000
Core Subjects

Implement cleanup
campaigns

7. Community
involvement

Contributions fromproperty owners

FY2017 Targets

FY2017 Results

Selfassessments

FY2018 Targets

No. of cleanup events at construction sites
5 participants per site

5.19 persons per site〇

5 persons per site

No. of companywide cleanup campaigns
4 timesheld:
4 times
A total of 3,037 persons
Total no. of participants: A total of 3,780 persons〇

3 times

Donation“Leo Miles” donatedDonations from “volunteer” vending machines
Sports promotion

800,000 yen

500,035 yen

×

650,000 yen

760 point packages

1,020 point
packages◎

1,100 point
packages

1,600,000 yen

1,736,986 yen〇

2,000,000 yen

Event organization: 3Sponsor: 3

New

Event organization: 1
Sponsor: 4◎: Attainment above 120% ◯: Attainment below 120% but above 100% △: Attainment below 100% but above 70% ×: Attainment below 70%

3 Sports Promotion

Baseball player, Mr. Yuki Yanagita (Fukuoka SoftBank Hawks), Eisei Miyama, President and CEO

Initiatives for Supporting Corporate Value

The Company supports many pro athletes through provision of
our facilities and aims to contribute to society with sports promotions that advance competitive athletic sports through oursponsorships. We are sponsors of golf tournaments in Guam andthe ASEAN region, Ultra Marathon on Iki Island in Nagasaki
Prefecture, the Japan national swimming team of the Japan
Swimming Federation, and the Japan Weightlifting Association.
In addition, we have newly signed a contract with Fukuoka
SoftBank HAWKS Corp. to become a team sponsor for the2018 season.

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Support for UNHCR(UN agency supporting
refugees)

77

Data Compilation

Golfer Paul Peterson, Champion of Leopalace21 Myanmar Open 2018
Iki Ultra Marathon

s78

Leo palace2 1 An nua l Repor t 2018

Basic CSR Action Policy

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

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

Examples of Our Initiatives

1 Reducing Our Environmental Impact via Business Activities
We are working to reduce the environmental footprint of theCompany’s business activities. In fiscal 2017, like in fiscal 2016,
we implemented a “Warm Biz” and “Cool Biz” dress code for winterand summer as well as an Eco-green cards program, executed an
initiative to reuse discarded materials, added more mini-cars to
our fleet, and converted more facilities to LED lighting.

2 CO Emissions (Scope 1, 2, 3)
2

We consider environmental impact monitoring to be essential forenvironmental conservation activities. In fiscal 2017, we calculated CO2 emissions from electricity and gas use as well as CO2 emissions from driving gasoline vehicles. We also started disclosing

CO2 Emissions from Electricity and Gas Use
20,000 (t-CO2)
15,00018,9002,133

216,4691,576

15,696
1,943

6,111

6,043

9,786

8,781

7,710

’16/3

’17/3

’18/3

6,982

10,0005,000

CO2 emissions for Scope 3, given the importance of understanding
the CO2 amounts emitted in upstream and downstream businessactivities in order to identify processes requiring environmental
conservation efforts.
With regard to the Company’s business activities, CO2 emissions fromand gas use at rental housing are high, andCOelectricity
2 Emissions from Driving Gasoline Vehicles(t-CO )
5,000
therefore,
providingenergy-saving rental housing is an area in
4,104 the most contribution to reducing
4,000
which theCompany can make
3,615
3,490
our environmental
impact. Monitoring has further revealed that
3,000
the Company
2,000 has succeeded in lowering CO2 emissions in Scopes
1 and 2 (electricity
and gas use and gasoline use) and Scope 3
1,000
over the past3
years.
0

0■Head office and branches ■Azumi En nursing care facilities ■Leopalace Hotels’16/3

CO2 Emissions from Driving Gasoline Vehicles

CO2 Emissions (Scope 3)

5,000 (t-CO2)

1,000 (Thousand t-CO2)

4,000
3,000

4,104

800

3,615Gasoline Vehicles
3,490
CO2 Emissions from Driving

600

5,000 (t-CO2)

2,000

4,000

1,000

3,000

0

2,000
1,000

4,104

3,615

3,490

400
200
0

’16/3

’17/3

’18/3

’17/3

600

’18/3

E
873
52
18
4
799

873
52
18
4

864
45
34
4
781

E

E

864
45
34
4

C

400

812
799
781
’16/3
’17/3
’18/3
■Category 13 (Electricity and gas use at rental properties)
0■Category 3 (Electricity),
6 (Business trips), 7 (Employee commute)■Category 2 (Capital goods) ■Categorypurchase)’16/3 1 (Materials ’17/3’18/3■Category 13 (Electricity and gas use at rental properties)■Category 3 (Electricity), 6 (Business trips), 7 (Employee commute)■Category 2 (Capital goods) ■Category 1 (Materials purchase)
200

0

’16/3

907
58
33
CO2 Emissions
4 (Scope 3)
1,000 (Thousand t-CO2)
907
58
800
33
812
4

’17/3

’18/3

■

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

Main Activities and Targets the CSR Committee Oversees
Main Activities

Restatement
as ISO26000
Core Subjects

SDGs

FY2017 Targets

Amount of reduction

Collect PET bottle caps
and make donations for
vaccines

PET bottle cap
CO2 reduction
Polio vaccine

Develop ZEH rental
housing that contributes to
low-carbon society

Selfassessments

23,000 t-CO2

24,590 t-CO2〇

1,600,000 caps
12,600 kg
For 2,000 people

1,221,360 caps
9,618 kg
For 1,527 people△

4. Environment

FY2018 Targets

23,000 t-CO2
1,400,000 caps
11,025 kg
For 1,750 people
Acquire ZEH certification for participating
properties

New

Develop IoT that can contribute to the environment

New

Develop 2 items

Reduce CO2 emissions

New

5% reduction
from FY2016◎: Attainment above 120% ◯: Attainment below 120% but above 100% △: Attainment below 100% but above 70% ×: Attainment below 70%

3 Environmental Accounting
2

Environmental Accounting (Related to Solar Power Generation)
Economic impact(revenue from electricity sale) 3,008 million yen
Eco impact
24,343t-CO2 reduction

3,039 million yen
24,590t-CO2 reduction

2,537
452

2,000
1,000

2,085

0

1,837
’18/3

’17/3
■Depreciation cost ■Maintenance and other costs

3,039 million yen
24,590t-CO2 reduction

1,000
0

* Net zero energy house: House with zero net primary energy consumption per year

Performance Comparison of Morizou Homes and Various Standards
The insulation standard of a home is set forth as a region-specific UA value indicating the insulation
performance of the envelope of a building. The smaller the value, the higher the insulation performance.
1.0 UA value (W/m2・K)

0.87

0.8

Cost of environmental conservation
3,000 (Million yen)
2,000

Energy Home (ZEH*) to 50% by 2020. We will continue to develop
eco-friendly homes to enable people to live economically andcomfortably and to contribute to the creation of forests that protect the finite natural environment.

0.6

2,537
452
2,085
’17/3

■Depreciation cost ■Maintenance and other costs

2,274
438
1,837
’18/3

0.4

≒0.36

≒0.46

0.5

Morizou B
specification

ZEH insulation
standard
Region 3

0.6

0.2
0
Morizou A
specification

ZEH insulation
standard
Regions 4-7* Morizou makes homes not based on pre-determined plans but with freedom of choice.
Therefore, the insulation performance (UA value) varies slightly by layout and specification.

2013 Energy-saving
standard
Regions 5-7

Data Compilation(revenue from electricity sale) 3,008 million yen
Eco impact
24,343t-CO2 reduction

T
p

2,274
438

4 Contributing to a Low-Carbon Society by Building ZEH Housing
The Company’s subsidiary Morizou Co., Ltd. offers “100-Year ofHomes” made of kiso-hinoki, a premium precious wood. Morizou
homes have industry-leading insulation and airtightness, andachieve high-energy efficiency by adopting designs that make themost use of the blessings of natural light and wind. Aiming tobuild a low-carbon recycling society to solve global warming
issues, we will install energy creation facilities such as solar
Environmental
Accounting (Related to Solar Power Generation)
power systems with the goal of increasing the adoption of Zero
Economic impact

P

Cost of environmental conservation
3,000 (Million yen)

Initiatives for Supporting Corporate Value

CO2 Emissions(Scopemakes3) active efforts to reduce its environmental
The Company
1,000 (Thousand t-CO )907
impact through solar power873
generation. The864right figure illustrates
58
52
45
800
33
18
34
the results of4 applying our solar
power generation
to environmen4
4600
tal accounting.
400
were reduced
equivalent to theCO2 emissions
812
799 by 24,590t,781
200
amount of CO2 absorbed per year by about 2 million Japanese0cedar trees (assumes a 40-year life span for Japanese cedar’16/3’17/3 calculations’18/3
trees) basedon the preliminaryof the Forestry■Category 13 (Electricity and gas use at rental properties)
Agency.
In
terms
ofeconomic
performance,
surplus
was achieved■Category 3 (Electricity), 6 (Business trips), 7 (Employee commute)■Categoryfollowing
2 (Capital goods)■Category
1 (Materials
purchase)on from
the previous
fiscalyear.

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating ValueContribute to CO2 reduction
by solar power generation

FY2017 Results

79

*

80

Leo palace2 1 An nua l Repor t 2018

Ten-Year Consolidated Financial Highlights		’09/3 FY2008’10/3 FY2009’11/3 FY2010¥
733,235
		334,560
		359,154
		7,952
		5,610
		25,956
		589,833
		93,244
		50,156
		(1,538)
		70,112		(1,538)
		(805)
		(16,072)
		55,939
		46,785
		9,951¥
620,376
		342,316
		237,062
		8,812
		6,734
		25,451
		570,749
		79,354
		(29,727)
		(47,875)
		29,744		(1,994)
		(1,324)
		(8,278)
		(23,432)
		(33,831)
		(79,075)¥
483,537
		355,752
		107,821
		7,785
		6,491
		5,686		448,392
		59,605
		(24,460)
		(30,865)
		11,888		(1,508)
		(1,973)
		(2,002)
		(18,009)
		(32,662)
		(41,742)¥
458,220
		379,091
		62,913
		8,845
		6,228
		1,142		403,572
		51,278
		
3,369
		4,052
		4,290		(855)
		(1,663)
		(2,454)
		9,416
		1,133
		 372

At year-end:
Total assets
Net assets
Interest-bearing debt¥
467,300
		146,442
		44,188¥
396,511
		70,979
		61,318¥
298,274
		32,187
		43,858¥
264,783
		
31,761
		51,654

Cash flow:
Cash flow from operating
Cash flow from investing
Cash flow from financing¥
62,843
		(10,048)
		(33,885)¥(12,990)		(8,889)
		15,281¥(28,337)
		13,143
		(15,890)¥(3,174)		(3,537)
		7,245

Amounts per share: (Yen)Net assets
Net income (loss)
Cash dividend¥
967.40		63.54		30.00¥
466.76
		(521.91)
		 –¥
190.84
		(266.48)
		 –¥
187.50		2.21		 –

Ratio:
Units under management
Average annual occupancy rate (%)
Orders received (Millions of yen)
Equity ratio (%)
Return on equity (ROE) (%)
Return on assets (ROA) (%)
Payout ratio (%)
Debt/equity ratio (%)
Number of employees		506,742
		88.51
		337,883
		31.3
		 6.4
		 9.7
		47.2
		 0.3
		9,926

		551,773
		82.25
		250,247
		17.9		(72.8)
		 (7.8)		 –		 0.9
		8,582		571,656
		80.09
		80,338
		10.8
		(81.0)		 (9.4)		 –		 1.4
		7,114

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

For the years ended March 31
Net sales		 Leasing Business		 Construction Business (current Development Business)
		 Elderly Care Business		 Hotels & Resort Business		 Other Businesses
Cost of sales
Selling, general and administrative expenses
Operating income (loss)
		 Leasing Business		 Construction Business (current Development Business)
		 Elderly Care Business		 Hotels & Resort Business		 Other Businesses Adjustments
EBITDA (Operating income + depreciation)
Recurring income (loss)
Net income (loss)’12/3 FY2011*Attendant with changes in accounting policies at subsidiaries in the Leasing Business, consolidated accounts reported in the past have been retroactively revised, and historical data forpast fiscal years shown here reflects these retroactive revisions.
(Notes) 1. U.S. dollar amounts are translated from yen at the rate of ¥106.24 = U.S. $1, the approximate rate prevailing at March 31, 2018.
2. Return on equity (ROE) = Net income/average net assets during the fiscal year x 100
3. Return on assets (ROA) = Recurring income/average total assets during the fiscal year x 100
4. Debt/equity ratio = Interest-bearing debt/(net assets – non-controlling interests)
5. In this report, net income attributable to shareholders of the parent is stated as “net income.”
6. The numbers for fiscal 2016 (year ended March 31, 2017) and fiscal 2017 (year ended March 31, 2018) are displayed under new business segments. New segment of
		 “Hotels & Resort/Other Businesses/Adjustments” is used for “Hotels & Resort Business” in the relevant fiscal years.

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

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

Construction Business• Custom-built homes

Elderly Care Business• Elderly care business

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

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

Leopalace21 Annual Report 2018

(Thousands of U.S. dollars)’16/3 FY2015’17/3 FY2015’18/3 FY2017’18/3 FY2017¥
454,285
		383,637
		53,369
		9,482
		6,657
		1,137
		396,508
		50,299
		7,477
		8,750
		2,748
		(742)
		(1,005)
		(2,272)
		13,161
		11,154
		13,398¥
470,883		388,562
		63,135
		10,171
		7,571
		1,442
		401,510
		55,906
		13,467
		15,364
		2,951		(610)		(1,118)
		(3,119)		19,460
		11,368
		15,730¥
483,247
		399,375
		61,312		10,608
		8,951
		2,999
		407,433
		60,992
		14,822
		20,590
		 211
		(606)
		(1,289)
		(4,084)
		22,558
		13,483
		15,175¥
511,513
		410,641
		74,160
		10,798
		11,427
		4,485
		422,604
		67,823
		21,085
		22,848
		3,340		(1,354)
		(697)
		(3,051)
		30,700
		19,909
		19,631¥
520,488		421,342
		80,321
		11,536
		7,287		 –		427,820
		69,769
		22,898
		23,009
		5,786		(1,667)
		(4,230)
		 –
		32,235
		22,355
		20,401¥
530,840
		435,537
		76,587
		12,807
		5,908		 –		434,762
		73,147
		22,930
		26,062
		3,663		(1,596)
		(5,199)		 –
		34,656
		22,354
		14,819		$ 4,996,613
		4,099,566
		720,889
		120,547
		55,610		 –
		4,092,265
		688,515
		215,832
		245,312
		34,483
		(15,024)		(48,939)
		 –		326,213
		210,413
		139,490¥
261,649
		56,145
		49,026¥
288,165
		103,354
		37,227¥
308,882
		124,928
		44,487¥
327,609
		144,865
		50,824¥
337,828
		158,870
		49,918¥
337,257
		159,438
		53,829$ 3,174,490
		1,500,740
		506,682¥
6,069
		 (6)
		9,148¥
15,584		(6,929)
		8,848¥
15,715
		(17,550)
		1,747¥
22,104
		(11,087)
		1,374¥
27,504
		(8,653)
		(14,048)¥
27,338		(2,336)
		(18,354)$
257,329
		(21,996)
		(172,767)¥
265.32
		74.85		 –¥393.05
		69.38		 –¥
475.17
		57.73		 –¥
550.94
		74.68		10.00¥
603.76
		77.61		22.00¥
630.84
		58.02		22.00$
5.94
		0.55
		0.21

		546,204
		82.94
		73,006
		21.5
		30.5
		 4.2		 –
		 0.9
		6,277		548,912
		84.58
		81,139
		35.9		19.7
		 4.1		 –		 0.4
		6,758

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

		561,961
		87.95
		86,439
		44.2
		14.6
		 6.3
		13.4
		 0.4
		7,846		568,739
		88.53
		87,139
		47.0		13.4
		 6.7
		28.3
		 0.3
		7,695

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

		 –
		 –
$
714,469
		 –
		 –
		 –
		 –
		 –
		 –

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

Leasing Business• Custom-built homes• Real estate development

Development Business• Elderly care business

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

Hotels, Resort and Other Businesses

Reference: Fiscal 2017 (Millions of yen)
Net sales

Operating income

435,537

26,062

76,587

3,663

12,807(1,596)

5,908

(846)

Data Compilation

From Fiscal 2017 (Year ended March 31, 2018)

Initiatives for Supporting Corporate Value’15/3 FY2014

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value’14/3 FY2013

Leopalace21: Who We Are(Millions of yen)

’13/3 FY2012

81

82

Leo palace2 1 An nua l Repor t 2018

Consolidated Financial Highlights
Net Sales

Operating Profit (Loss)

530.8 billion yen

22.9 billion yen

Up 2.0% y/y

Up 0.1% y/y(Billions of yen)(Billions of yen)

800

80

600

Operating Margin

4.3 %Down 0.1 points y/y
（％）

16

60

12

40

8

20

4

0

0

400

200

0

-40
’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017-8’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

Operating profit (loss) (left axis)

Operating margin (right axis)

As a result of the fall in occupancy rates, stagnation in rent earnings andthe sharp drop in the supply of new apartments due to the global financial
crisis triggered by the 2008 collapse of Lehman Brothers, we have pushed
through business structural reforms in the fiscal year ended March 2010
in order to control the Construction Business as well as to enhance
Leasing Business earnings. Since then, net sales are demonstrating an
upward trend, led by the Leasing Business, and the Company has achieved
revenue growth for 5 consecutive years.

As with net sales, the earnings of the Leasing Business have deteriorated
due to the global financial crisis triggered by the 2008 collapse of Lehman
Brothers, which led to the fall into the red for 2 consecutive years ended
March 2010 and March 2011. After the progress of business structuralreforms based on the profits of the Leasing Business, overall profits arecontinuing to rise steadily for 7 consecutive years since the fiscal year
ended March 2012, and in the Leasing Business for 6 consecutive years.

Net income attributable to shareholders of the parent

EBITDA (Operating Profit + Depreciation)

14.8 billion yen

34.7 billion yen

Down 27.4% y/y

Up 7.5% y/y(Billions of yen)(Billions of yen)

30

90

20

60

10

30

0

0

-90

-30
’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

As with operating profit, the earnings of the Leasing Business have deteriorated due to the global financial crisis triggered by the 2008 collapse of
Lehman Brothers, which led to the fall into the red for 2 consecutive years
ended March 2010 and March 2011. After the progress of business structural reforms, the Company returned to the black in the fiscal year ended
March 2012, and has consistently recorded recurring profit growth sincethen. Profits dropped for the first time in 4 years following an impairment
loss recorded as an extraordinary loss in the fiscal year ended March 2018.

EBITDA, the combination of operating profit and depreciation, hasbeen steadily increasing since the fiscal year ended March 2012. This
is attributed to the continuous growth of operating profit resulted fromrecovery in earnings and to the increase in depreciation and amortization
stemmed from the capital investment increase in new businesses such as
the serviced apartment business in the ASEAN region. EBITDA increased
for 7 consecutive years in the fiscal year ended March 2018.

Leopalace21 Annual Report 2018337.2 billion yen
Down 0.2% y/y

ROA

Net Assets

6.6 %Up 0.4% y/y（％）(Billions of yen)

500

ROE

159.4 billion yen

Down 0.1 points y/y
10

5

0

0

9.3 %

Down 4.1 points y/y（％）(Billions of yen)

200

40

150

30

100

20

50

10

0

0

-5

-10

-100

’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

Total assets (left axis)’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

Net assets (left axis)

ROA (right axis)

ROE (right axis)

Structural reforms have led to a rapid recovery in ROA since returning
to the black in the fiscal year ended March 2012. ROA has shown steadyincreases in the 5-6% range since the fiscal year ended March 2013, andreached 6.6% in the fiscal year ended March 2018.

In terms of ROE, while structural reforms intended at bolstering the Company’s profit structure succeeded in steadily boosting profits, a compression of interest bearing debt resulted in a decrease in financial leverage.
As a result, ROE has been hovering in the 10% bracket since the fiscal
year ended March 2014. ROE dropped to 9.3% in the fiscal year ended
March 2018 due to a decrease in net earnings spurred on by a temporary
increase in impairment loss.

Equity ratio

Interest-bearing Debt (incl. Lease Obligations)53.8 billion yen

Up 0.2 points y/y（%）

Up 7.8% y/y(Billions of yen)

50

80

40

60

30
40
20
20

10

’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

Following 2 consecutive years in the red, the equity ratio dropped to10.8% in the fiscal year ended March 2011. Following the recovery inearnings since then, we have endeavored to raise the equity ratio, andsucceeded in ensuring the financial solvency of the business. Having
achieved a sufficient level of financial solvency with the equity ratio now
at 47.2% as of the fiscal year ended March 2018, we are now looking at
implementing a flexible capital policy based on “enhancing capital andasset efficiency.”

We have focused on reducing and curtailing the debt ratio in consideration of
repayment capacity as well as compression of liabilities since interestbearing debt marked 61.3 billion yen in the fiscal year ended March 2010,
the highest record in the last 10 years. These efforts reduced our liabilities
to 53.8 billion yen as of the fiscal year ended March 2018. The debt ratio
has remained low for 2 consecutive years, hovering at around 0.3 times.

Data Compilation

00Initiatives for Supporting Corporate Value

47.2 %

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

250

Leopalace21: Who We Are

Total Assets

83

84

Leo palace2 1 An nua l Repor t 2018

Consolidated Financial Highlights
Free Cash flow

Cash Dividend

25.0 billion yen

22.00 yenUp 32.6% y/y

No Change(Billions of yen)

(Yen)

75

40

50

30

25

20

0

10

-25

0
’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

While structural reforms have bolstered earnings and cash flows haveincreased from operating activities largely stemming from income before
income taxes, cash flow spending for capital investment and otherinvesting activities has been curtailed. Income from the sale of fixed
assets resulting from a review of held assets, together with promoting theacquisition of fixed assets resulted in free cash flows for the fiscal year
ended March 2018 of 25.0 billion yen.

Dividend payments were reinstated in the fiscal year ended March
2016 following 6 consecutive years of omitted payments from when net
earnings fell into the red in the fiscal year ended March 2010 until thefiscal year ended March 2015 after the Company had returned to turninga profit. Further, the Company’s basic policy towards returning profits
to shareholders is maximizing earnings per share, and thus improving
shareholder value, through investments and M&As aimed at maximizing
the value of the firm over the medium-and-long term and ensuring theredistribution of profits in the form of dividends.

Units under management

Average annual occupancy rate

570,672 unit

90.6 %

Up 0.3% y/y

Up 2.1 points y/y(Thousands of unit)

(%)

600

95
92

450

89
300
86
150

83

0

80
’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

Increasing the number of rooms under management directly strengthens
the base of earnings as we regard revenue from the assets we manage
in our Leasing Business as core revenue. We will continue to supply apartments in areas where we expect strong tenant demand, concentrating on
the three major metro areas where net population inflows continue. While
we sold approximately 4,000 Company-held apartment rooms, the numberof rooms under management continued to increase slightly in the fiscal
year ended March 2018.

There is a tendency of occupancy rates for rental housing repeating thecycle, to mark the highest in March when students newly enroll in schools
and when new grads enter into companies, decrease in April then moveup gradually after May. In order to promote long-term occupancy, we
have been improving the value of properties and developing the measures
which are not affected by the seasonal cycle. Accordingly, the average annual occupancy rate during the fiscal year under review is on an uptrend,
showing an increase for 7 consecutive years as of the fiscal year ended
March 2018.

Leopalace21 Annual Report 2018

No. of employees on childcare leave

Ratio of paid vacation usage

257 person

74.1%

Up 72.5% y/y

Up 1.9 points y/y(Person)

(%)

300

80

40
100
20

0
’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

Currently work-style reform is underway under the guidance of the government,
including a wide-sweeping reform of the working styles of both women and men
in terms of both their significance and actions taken. To this end, the Company
has taken steps towards developing a workplace environment with systems inplace to make it easier to request childcare leave, in addition to implementing further considerations for enhancing work-life balance, such as reducing the amountof overtime work, and encouraging a high ratio of paid vacation usage. As aresult, we are seeing an increase in the number of employees taking childcare
leave, with a notable increase among male employees as well.

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

Rate of workforce turnover (Based on the employees actually in the office)No. of employees with foreign citizenship334 person

Up 1.0 points y/y

Up 11.7% y/y(%)(Person)

30

400

300
20
200
10
100

0
’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017’09/3 ’10/3 ’11/3 ’12/3 ’13/3 ’14/3 ’15/3 ’16/3 ’17/3 ’18/3
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

The Company places utmost importance on “human resources,” and implements employee training programs and other measures that facilitate
all employees in expressing their diverse individuality and harnessing
their capabilities. In addition to this, we aim to build pleasant workplaces where people enjoy work as part of an effort to improve issues withlong working hours that are specific to this industry. As a result of these
initiatives, we have successfully reduced the employee turnover rate from
13.3% 10 years ago in the fiscal year ended March 2009, to 8.1% in thefiscal year ended March 2018.

The Company sees people from a wide range of backgrounds with diverse
perspectives as the main contributors to the creation of new value, and itis these human resources that contribute in a major way to our growth. To
achieve this, we are actively hiring foreign nationals in order to secure thepersonnel needed to achieve the level of diversity required. The numberof employees from foreign backgrounds exceeded 300 in the fiscal year
ended March 2018, marking a three-fold growth from 10 years ago in thefiscal year ended March 2009.

Data Compilation0

Initiatives for Supporting Corporate Value

8.1%

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

60
200

0

Leopalace21: Who We Are

Non-financial Highlights

85

86

Leo palace2 1 An nua l Repor t 2018

Financial Section
Management’s Discussion and Analysis..................................... 87
Consolidated Balance Sheets....................................................... 90
Consolidated Statements of Operations...................................... 92
Consolidated Statements of Comprehensive Income............... 93
Consolidated Statements of Changes in Net Assets................. 94
Consolidated Statements of Cash Flows..................................... 95
Notes to Consolidated Financial Statements.............................. 97
Independent Auditor’s Report..................................................... 135

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

Financial Section

Management’s Discussion and Analysis

2. Analysis of Business Results(1) Net Sales
Net sales during the fiscal year under review were 530,840 million yen(up 2.0% year-on-year). In the Leasing Business, net sales was 435,537
million yen (up 3.4% year-on-year), and net sales in the Development
Business was 76,587 million yen (down 4.6% year-on-year).

(Millions of Yen)FY2016FY2017

ChangeLeasing

421,342435,537

14,195Development

80,321

76,587(3,734)

Elderly Care

11,536

12,807

1,270

Hotels, Resort, & Other Business

7,287

5,908

(1,379)520,488

530,840

10,351

Total

Operating Profit by Segment(Millions of Yen)FY2016FY2017

ChangeLeasing

23,00926,062

3,052

Development

5,786

3,663

(2,123)

Elderly Care

(1,667)(1,596)71

Hotels, Resort, & Other Business

(417)

(846)

(428)

Adjustments(3,812)(4,353)

(540)

Total

22,89822,930

31

(%)

28

50
Leasing
+3.0

26

40
Elderly
Care
+0.07

24
Development
-2.1

22
20

FY201622.8

30
Hotels,Resort & Adjustments-0.5
Others-0.4

FY201722.9

0(3) Segment Information
Leasing Business28
The occupancy rate at the end of the fiscal year was 93.72% (up 2.06
6 the end of last fiscal year) and the average occupancy rate
points2 fromfor the2 4fiscal year was 90.59% (up 2.06 points from last fiscal year).
In the Leasing Business, the Company provides added-value ser2 as “my DIY” (formerly known as “Room Customize”) which
vices2suchenable2 0tenants to decorate their rooms, internet service “LEONET,”and security system installations in alliance with large security com18
panies. Also, in order to achieve stable occupancy rates, the Company
is strengthening sales against corporate customers and increasing
support for foreign tenants. In the ASEAN region, the Company develops and
1 0 manages serviced apartments and offices.
The number of units under management at the end of the fiscal
8
year was 570 thousand (increasing 1 thousand from the end of last
6
fiscal year),and the number of direct offices was 189 (no change).
The numberof franchise offices was 118 (decreasing 1).
4
As a result of the above, net sales amounted to 435,537 million
yen (up23.4% year-on-year), and operating profit was 26,062 million
yen (up013.3% year-on-year).
Development Business
Orders received during the fiscal year were 75,905 million yen (down
13.3% from last fiscal year) and the orders received outstanding at
the end of the fiscal year stood at 63,966 million yen (down 5.1%
from the end of last fiscal year).
In the Development Business, the Company focused on supplying
apartments in the 3 metropolitan areas where solid leasing demand
is anticipated supported by an increase in population, as well as providing high quality and forefront strategic products. In addition, theCompany implemented a new brand attempting to strengthen productcompetitiveness, expanded construction variations based on “ideal
land use,” and have begun reconsidering suppliers and product prices
to improve profitability.
Also, subsidiary Life Living Co., Ltd. provides development businessof condominiums and apartments and subsidiary Morizou Co., Ltd.,
provides luxury custom-built homes made with Kiso-hinoki.
As a result, net sales came to 76,587 million yen (down 4.6% year-onyear), and operating profit was 3,663 million yen (down 36.7% year-on-year).

Data Compilation(2) Earnings
Gross profit was 96,077 million yen (up 3.7% year-on-year), operating
profit was 22,930 million yen (up 0.1% year-on-year), recurring profit
was 22,354 million yen (down 0.0% year-on-year), and net income
attributable to shareholders of the parent was 14,819 million yen(down 27.4% year-on-year).

Eq(Billions of yen)

Initiatives for Supporting Corporate ValueNet Sales by Segment

Change in Operating Profit

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

1. Operating Environment
During the subject consolidated fiscal year, the domestic economy
showed gradual progression supported by improvements in corporate
earnings, employment, and corporate earnings.
New housing starts of leased units decreased for the first time in 3
years (down 4.0% year-on-year), due to the saturation in demand for
inheritance tax reduction strategies as well as the environmental
change in apartment loans. As the number of vacant houses continues to increase and recovery in nationwide demand becomes difficult,achieving stable occupancy rates requires constructing apartments inareas with high demand, in addition to providing high-quality products and services that meet tenants’ needs.
Under these conditions, the Leopalace21 Corporation (the“Company”) announced the Medium-term Management Plan “Creative
Evolution 2020” starting in the fiscal year ended March 31, 2018, aiming to create corporate and new social value with the basic policy of“Supporting continuous growth of core businesses in ways that further
increase corporate value while constructing a base for growth areas.”

87

20
10
0

(Fisc

88

Leo palace2 1 An nua l Repor t 2018

Elderly Care BusinessNet sales were 12,807 million yen (up 11.0% year-on-year), and operating
loss was 1,596 million yen (loss decrease of 71 million yen year-on-year).
Hotels, Resort & Other BusinessNet sales in resort facilities in Guam and hotels in Japan, and otherbusinesses including the finance business were 5,908 million yen(down 18.9% year-on-year), and the operating loss was 846 million
yen (loss increase of 428 million yen year-on-year).
3. Analysis of Financial Position(1) Position of Assets, Liabilities, and Net assets
Total assets at the end of the fiscal year decreased 570 million yen
from the end of the previous fiscal year to 337,257 million yen. Thiswas mainly attributable to a decrease of 16,750 million yen in land
due to sale of assets, despite an increase of 5,546 million yen in
investment securities, 2,376 million yen leased assets (net), and2,111 million yen in cash and cash equivalents.
Total liabilities decreased 1,139 million yen from the end of theprevious fiscal year to 177,819 million yen. This primarily reflecteda decrease of 3,966 million yen in bonds, 3,956 million yen in liability for retirement benefits due to the establishment of a retirement
benefit trust, 2,902 million yen in accounts payable for completed
projects, and 1,601 million yen in accrued income taxes, despite anincrease of 5,077 million yen in borrowings, 3,271 million yen inaccounts payable-other, and 2,800 million yen in lease obligations.
Net assets increased 568 million yen from the end of the previous
fiscal year to 159,438 million yen, due to a recording of 14,819 million
yen in net income attributable to shareholders of the parent despite apayment of dividends of 5,675 million yen and share repurchases of
8,000 million yen. The ratio of shareholders’ equity to assets rose 0.2
points from the end of the previous fiscal year to 47.2%.

Equity Ratio
(%)

50
40
30

36.5

31.3
17.9

20
10

41.0

44.7 47.0 47.2

22.2
11.1 12.8

0(Fiscal year)

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

(2) Cash Flow Position
Cash flow from operating activities was a net inflow of 27,338 million yen (a decrease of 165 million yen in net inflow from the previous fiscal year). This was mainly due to 15,150 million yen ofincome before taxes and minority interests, 11,726 million yen of
depreciation and amortization, and 7,594 million yen in impairment

loss, despite a decrease of 3,786 million yen in liability for retirement benefits due to the establishment of a retirement benefit trustand income taxes paid of 1,902 million yen.
Cash flow from investing activities was a net outflow of 2,336
million yen (an increase of 6,316 million yen in net inflow from theprevious fiscal year). This was primarily due to proceeds from saleof property, plant and equipment of 14,121 million yen and proceeds from withdrawal of time deposits of 5,486 million yen,despite payment for purchase of property, plant and equipment of
11,218 million yen and payment for purchase of investment securities of 5,966 million yen.
Cash flow from financing activities was a net outflow of 18,354 million yen (a decrease of 4,306 million yen in net outflow from the previous
fiscal year). This was chiefly due to payment for purchases of treasury
stock of 8,000 million yen, payment of dividends of 5,675 million yen,
and a repayment of finance lease obligations of 4,953 million yen.
As a result, cash and cash equivalents at the end of the consolidated fiscal year under review stood at 98,246 million yen, an increaseof 6,480 million yen from the end of the previous fiscal year.
4.	Fundamental Policy on the Distribution of Earnings andDividends
To increase shareholders’ value, the Company will not only distributeprofit earned from business measures in the form of dividends, but will
maximize mid- to long-term corporate value and increase EPS (earnings
per share) through investments in matters such as real estate, overseas
businesses, mergers and acquisitions, IT, and research and development.
In the Medium-term Management Plan, the Company have set a total
return ratio target (50% in the fiscal year ending March 2019), and will
aim to distribute profit to shareholders by flexibly repurchasing shares
while monitoring share price trends, with proceeds from asset sales.
For the subject fiscal year, the Company plans to pay a year-end
dividend of 12 yen. The mid-term dividend was 10 yen, meaning a
total of 22 yen, with a dividend payout ratio of 37.9% and a total
return ratio of 92.3%.
For the fiscal year 19/3, the Company plans a mid-term dividendof 10 yen, a year-end dividend of 12 yen, with a total of 22 yen.
5.	Management Policies, Business Environment, Key Issues
to Address
Forward-looking statements in the discussion below are based on
judgments by the Company as of the end of the latest consolidated
fiscal period.
(1) Management Policies
Under our corporate philosophy of “creating new value,” our aims are
as follows: 1) we keep a close eye on modern-day needs, and strive tocreate new value in our own unique way, through flexible thinking anddynamic, inclusive teamwork; 2) we are only happy if our customers

Leopalace21 Annual Report 201889
Leopalace21: Who We Are

are happy; we are constantly working to improve our products, services and technologies and to grow as a company; and 3) we provide
new value throughout society as a leading company within the industry and (seek) to help create a more comfortable and affluent society.

(3) Management Metrics Cited in Management Plan as Targets
The following management metrics are cited in the Medium-termManagement Plan as targets for the plan’s final fiscal year of fiscal 2019.
Fiscal 2019

Management Metrics

8%-10%*1

Adjusted ROE

Maintain 12%*2

At least 40%

Equity Ratio
Adjusted EPS Growth*3

About 10%

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

Data Compilation

ROIC

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

Financial Strategies (Create value through balance sheet management)
Introduce ROIC*1-based management:		Create value through balance sheet management and shift awayfrom profit-focused management, and aim to optimize our capital composition
Rebalance our asset holdings:
		Deploy operating cash flows and proceeds from sales of
low-efficiency assets into growth investments, actively use
these sources of cash to return profits to shareholders
Improve and strengthen distributions to shareholders:		Introduce a total return ratio in an effort to execute policies toreturn profits to shareholders, including a share repurchase plan

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value(2) Business Environment and Key Issues to Address
Regarding population trends, a factor affecting the business environment, the total number of households in Japan is expected to decline
but single-person households in the productive population (ages 15 to64), our target cohort, is expected to trend sideways for nearly thenext 20 years. Net domestic migration to the 3 major metro regions(inflows exceed outflows) will continue. Moreover, the population
over age 65 is expected to reach about 30% by 2025, a thresholdwhere Japan will attain “super-aging society” status.
Although new housing starts of leased units during the fiscal year
ended March 2018 decreased 4.0%, new housing starts of leased
units for single-person households (under 30m2) is robust andincreased 3.1% year-on-year, and we expect apartment construction
demand to grow over the medium and long terms as the reduction in
the basic deduction for inheritance taxes in the January 2015 tax revision has sharply increased the number of heirs who are subject toinheritance taxes.
Under these circumstances, we devised the Medium-termManagement Plan “Creative Evolution 2020,” a 3-year plan commencing in fiscal year 2017 premised on a basic policy of “support forcontinuous growth of core businesses in ways that further increase
corporate value while constructing a base for growth areas.” Our aim
is to create new social value and corporate value through the execution of business strategies spelled out below.

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

90

Leo palace2 1 An nua l Repor t 2018

Financial Section

Consolidated Balance Sheets
Leopalace21 Corporation and consolidated subsidiaries
March 31, 2018 and 2017

Thousands of U.S.
dollars (Note 1)

Millions of yen

ASSETS
Current assets:
Cash and cash equivalents (Notes 2-(2), 4, 5-(2), 11-(3))
Trade receivables (Note 5-(2))
Accounts receivable for completed projects (Note 5-(2))
Operating loans (Note 5-(2))
Securities (Notes 2-(4), 5-(2), 6)
Real estate for sale
Real estate for sale in process
Payment for construction in progress (Note 2-(14))
Raw materials and supplies
Prepaid expenses
Deferred tax assets (Notes 2-(20), 10)
Other accounts receivable
OthersAllowance for doubtful accounts (Notes 2-(11), 5-(2))
Total current assets
Non-current assets:
Property, plant and equipment: (Notes 2-(6), 2-(24), 8)
Buildings and structures (Note 17)
Accumulated depreciation
Net
Machinery, equipment, and vehicles
Accumulated depreciation
Net
Land (Note 17)
Leased assets (Notes 2-(21), 20)
Accumulated depreciation
Net
Construction in progress
Other
Accumulated depreciationNet
Total property, plant and equipment
Intangible fixed assets:
Goodwill (Note 2-(19))
Others (Note 2-(8))
Total intangible fixed assets
Investments and other assets:
Investment securities (Notes 2-(4), 5-(2), 6, 11-(3))
Long-term loans (Note 5-(2))
Bad debts (Notes 5-(2), 9)
Long-term prepaid expenses (Note 2-(9))
Deferred tax assets (Notes 2-(20), 10)
OthersAllowance for doubtful accounts (Notes 2-(11), 5-(2))
Total investments and other assets
Total non-current assets
Deferred assets:
Bond issuance cost
Total deferred assets
Total assets (Note 22)
The accompanying notes are an integral part of these statements.

2018

2017

2018

106,543
7,626
1,957
389
462
952
2,571
458
528
3,544
8,494
1,027
4,249
(145)
138,661

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

1,002,860
71,786
18,424
3,669
4,353
8,963
24,205
4,311
4,979
33,35979,953
9,673
39,996(1,366)1,305,170

93,363(50,657)
42,705
21,254(8,707)
12,54763,63831,839(15,810)
16,0285,208
10,990(7,775)3,215
143,344

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

878,799(476,824)
401,975
200,062(81,956)
118,105
599,003299,691(148,820)
150,870
49,030103,453(73,186)
30,266
1,349,251

2,886
8,102
10,9883,181
8,461
11,642

27,16676,264103,430

17,999
513
1,264
3,831
18,2683,969(2,023)
43,823
198,156

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

169,426
4,836
11,89936,060171,953
37,362(19,043)
412,495
1,865,177

440
440
337,257552
552
337,828

4,142
4,142
3,174,490

Leopalace21 Annual Report 201891
Leopalace21: Who We Are

Thousands of U.S.
dollars (Note 1)

Millions of yen

1,451
4,245
7,832
1,210
1,754
3,966
5,960
22,337942
39,964
4,592
389
1,158
43
4,363
100,212—2,826
12,186
—
1,263
3,966
4,647
19,0662,544
40,003
5,381
412
1,082
43
4,101
97,524

13,65839,96073,726
11,38916,51337,33056,100210,257
8,874
376,173
43,226
3,662
10,906410
41,076943,265

12,06916,643
12,22615,853
6,989
122
10
3,044
7,338
84
3,224
77,606
177,819

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

113,601
156,662
115,084
149,22265,786
1,157
96
28,654
69,077791
30,349730,484
1,673,750

75,282
45,23537,839(430)
157,926

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

708,606
425,783
356,167(4,049)1,486,508

586
872
(341)
1,117
284
109
159,438
337,257

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

5,525
8,212
(3,216)
10,5212,676
1,034
1,500,740
3,174,490

Data Compilation2018

Initiatives for Supporting Corporate Value

The accompanying notes are an integral part of these statements.

2017

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating ValueLIABILITIES AND NET ASSETS
Current liabilities:
Electronically recorded obligations—operating
Accounts payable (Note 5-(2))
Accounts payable for completed projects (Note 5-(2))
Short-term borrowings (Notes 5-(2), 5-(3), 11)Current portion of long-term debt (Notes 5-(2), 5-(3), 11)Bonds due within one year (Notes 5-(2), 5-(3), 11)Lease obligations (Notes 5-(2), 5-(3), 11)
Accounts payable—otherAccrued income taxes
Advances received (Note 2-(18))
Customer advances for projects in progress
Reserve for warranty obligations on completed projects (Note 2-(14))
Reserve for fulfillment of guarantees (Note 2-(15))
Asset retirement obligations (Note 18)
OthersTotal current liabilities
Non-current liabilities:
Bonds (Notes 5-(2), 5-(3), 11)Long-term debt (Notes 5-(2), 5-(3), 11)Lease obligations (Notes 5-(2), 5-(3), 11)Long-term advances received (Note 2-(18))
Lease/guarantee deposits received
Deferred tax liabilities
Provision for Directors’ bonuses
Reserve for apartment vacancy loss (Note 2-(13))
Liability for retirement benefit (Notes 2-(12), 12)
Asset retirement obligations (Note 18)
OthersTotal non-current liabilities
Total liabilities
Net assets
Shareholders’ equity:
Common stock: (Note 19)
Authorized: 500,000,000 shares in 2018 and 2017
Issued: 252,682,515 shares in 2018 and 267,443,915 shares in 2017
Capital surplus
Retained earnings
Treasury stock: 567,420 shares in 2018 and 4,569,520 shares in 2017 (Note 19)
Total shareholders’ equity
Accumulated other comprehensive income:Net unrealized gains on “other securities” (Note 2-(4))
Foreign currency translation adjustments (Note 2-(23))
Remeasurements of defined benefit plans (Note 12)
Total accumulated other comprehensive income
Share subscription rights
Non-controlling interests
Total net assets
Total liabilities and net assets

2018

92

Leo palace2 1 An nua l Repor t 2018

Financial Section

Consolidated Statements of Operations
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2018 and 2017

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

Net sales (Note 22)
Sales from Leasing Business
Sales from Development Business
Sales from Other Businesses
Cost of sales
Cost of sales from Leasing Business
Cost of sales from Development Business
Cost of sales from Other Businesses
Gross profit
Selling, general and administrative expenses
Advertising expenses
Sales commission expense
Transfer to reserve for bad debt
Directors’ bonuses
Salary and bonuses
Transfer to reserve for Directors’ bonuses
Retirement benefit cost
Rent expense
Depreciation and amortization
Taxes and public charges
Other
Operating profit (Note 22)
Non-operating income
Interest income
Dividend income
Valuation gains of investment securities
Foreign exchange gain
Other
Non-operating expenses
Interest expenses
Bond issuance fee
Foreign exchange losses
Equity in losses of affiliated companies
Other
Recurring profit
Extraordinary income
Gain on sales of property, plant and equipment
Extraordinary losses
Loss on sale of property, plant and equipment
Loss on retirement of property, plant and equipment
Impairment loss
Loss on cancellations of contracts
Loss on compensation for damage
Loss on disaster loss
Income before income taxes
Income taxes (Note 2-(20))
Current
RefundDeferred
Net income
Net income attributable to non-controlling interests
Net income attributable to shareholders of the parent (Note 23)
The accompanying notes are an integral part of these statements.

2018

2017

2018

530,840
435,537
76,587
18,715434,762359,262
55,201
20,29896,077
73,147
4,235
2,289
51
799
33,408
10
1,844
2,769
2,679
4,965
20,09322,930
674
109
162
186
—
216
1,250
783
212
137
0
115
22,354
927
927
8,131
27
112
7,594
66
330
—
15,150
337
856
—
(519)
14,813(6)
14,819520,488421,342
80,321
18,824
427,820351,228
57,293
19,297
92,66869,769
3,816
2,278
39
742
32,469
—
1,818
2,724
1,649
4,972
19,25922,898
572
80
118
166
36
170
1,115
734
241
—
6
133
22,355
408
408
1,142
314
149
589
—
—
88
21,622
1,210
3,245
(3)
(2,031)
20,411
10
20,401

4,996,613
4,099,566
720,889
176,158
4,092,265
3,381,611
519,594
191,059904,347
688,515
39,86921,553
480
7,524
314,46396
17,362
26,06425,221
46,740189,137
215,832
6,348
1,027
1,525
1,756
—
2,038
11,767
7,378
1,997
1,291
9
1,090
210,413
8,726
8,726
76,535258
1,058
71,484627
3,106—
142,604
3,174
8,063
—
(4,889)139,430(60)
139,490

Leopalace21 Annual Report 2018

Consolidated Statements of Comprehensive Income
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2018 and 2017

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

2018

2017

2018

14,813

20,411

139,430

12(1,161)327
6(815)
13,997
14,003(6)

139(1,624)226
0(1,257)
19,153
19,14310

113(10,928)
3,078
57(7,679)131,750
131,810(59)

The accompanying notes are an integral part of these statements.

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

2018

17
—
17
(5)
12

201
—
201
(61)
139

163
—
163
(50)
113

(1,161)—(1,161)—(1,161)(1,631)6(1,624)—(1,624)(10,928)—(10,928)—(10,928)

(82)
258
176
150
327

(135)
362
226
—
226

(772)
2,430
1,658
1,419
3,078

6
(815)

0
(1,257)57(7,679)

Data Compilation

2017

Initiatives for Supporting Corporate Value

Net unrealized gains on “other securities”
Amount accrued in the fiscal year
Rearrangements and adjustments
Amount before tax effects adjustments
Tax effects
Net unrealized gains on “other securities”
Foreign currency translation adjustments (Note 2-(23))
Amount accrued in the fiscal year
Rearrangements and adjustments
Amount before tax effects adjustments
Tax effects
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Amount accrued in the fiscal year
Rearrangements and adjustments
Amount before tax effects adjustments
Tax effects
Remeasurements of defined benefit plans
Share of other comprehensive income of entities account for using equity method
Amount accrued in the fiscal year
Total

2018

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Net income
Other comprehensive income
Net unrealized gains on “other securities”
Foreign currency translation adjustments (Note 2-(23))
Remeasurements of defined benefit plans
Share of other comprehensive income of entities account for using equity method
Total
Comprehensive income
Comprehensive income attributable to shareholders of the parent
Comprehensive income attributable to non-controlling interests

Leopalace21: Who We Are

Financial Section

93

94

Leo palace2 1 An nua l Repor t 2018

Financial Section

Consolidated Statements of Changes in Net Assets
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2018 and 2017

Millions of yen
Shareholders’ equity

Balance as of March 31, 2016

Accumulated other comprehensive income

Commonstock

CapitalsurplusRetainedearnings

Treasury
stock

Share
Net unrealized
Foreign
Total accumulated
Total
Remeasurements
subscription
gains oncurrency
othershareholders’of defined benefit
rights“othertranslation
comprehensive
equityplans
securities”
adjustments
income75,282

45,235

24,779(3,660)141,636

435

3,651

(895)

3,190

18

Noncontrollinginterests

Total net
assets20

144,865

Dividend of surplus(5,257)(5,257)(5,257)

Net income attributable toshareholders of the parent

20,401

20,401

20,401

(0)

(0)

(0)

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

139

(1,624)226(1,257)118(0)(1,138)——15,143(0)

15,143139(1,624)226(1,257)118(0)

14,00475,282

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

574

2,027

(668)

1,933

136

20

158,870

Dividend of surplus(5,675)

Net income attributable toshareholders of the parent

14,819Acquisition of treasury stock(5,675)(5,675)

14,81914,819(8,000)(8,000)(8,000)

Disposal of treasury stock

1

—

2

3

3

Retirement of treasury stock(1)(11,227)

11,228——Net change of items otherthan shareholders’ equity
Total change during period
Balance as of March 31, 201812

(1,154)

327

(815)

147

89

(578)

—

—

(2,083)

3,230

1,146

12

(1,154)

327

(815)

147

89

568

75,282

45,23537,839(430)

157,926

586

872

(341)

1,117

284

109

159,438

Noncontrollinginterests

Total net
assets188

1,495,391

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

Balance as of March 31, 2017

Accumulated other comprehensive income

Commonstock

CapitalsurplusRetainedearnings

Treasury
stock

Share
Net unrealized
Foreign
Total accumulated
Total
Remeasurements
subscription
gains oncurrency
othershareholders’of defined benefit
rights“othertranslation
comprehensive
equityplans
securities”
adjustments
income708,606

425,783

375,781(34,458)

1,475,713

Dividend of surplus(53,422)

Net income attributable toshareholders of the parent

139,490

Acquisition of treasury stock

5,411

19,084(6,295)

18,2001,288(53,422)(53,422)

139,490

139,490(75,304)(75,304)(75,304)

Disposal of treasury stock

9

—

21

31

31

Retirement of treasury stock(9)(105,682)

105,691——
113(10,871)

3,078(7,679)

1,388

845

—

—

(19,614)30,40910,794113(10,871)

3,078(7,679)

1,388

845

5,349

708,606

425,783

356,167(4,049) 1,486,508

5,525

8,212

(3,216)

10,521

2,676

1,034

1,500,740

Net change of items otherthan shareholders’ equity
Total change during period
Balance as of March 31, 2018

The accompanying notes are an integral part of these statements.

(5,445)

Leopalace21 Annual Report 2018

Consolidated Statements of Cash Flows
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2018 and 2017

Leopalace21: Who We Are

Financial Section

95

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

2018

2017

2018

Income before income taxes

15,15021,622

142,604

Depreciation

11,726

9,336

110,380

Impairment loss

7,594

589

71,484

Cash flows from operating activities:

—

88

—

330

—

3,106

Amortization of goodwill

522

428

4,918

Increase (decrease) in allowance for doubtful accounts

28

201

268

Increase (decrease) in liability for retirement benefits(3,786)

1,297(35,637)

Increase (decrease) in reserve for apartment vacancy loss

(138)

(619)

(1,307)

Interest and dividend income

(271)

(199)

(2,553)

Interest expense

783

734

7,378

Foreign exchange loss (gain)

137

(36)

1,291

Equity in losses (earnings) of affiliated companies

0

6

9

Loss (gain) on valuation of investment securities

(186)

(166)

(1,756)

Loss (gain) on sale of property, plant and equipment

(899)

(94)

(8,468)

112

149

1,058

(252)

633

(2,372)

Decrease (increase) in real estate for sale in progress

(960)

(139)

(9,041)

Decrease (increase) in payment for construction in progress

60

272

572

Decrease (increase) in long-term prepaid expenses

369

324

3,481

Increase (decrease) in accounts payable(1,105)(883)(10,401)

Increase (decrease) in customer advances for projects in progress

(789)

296

(7,427)

Increase (decrease) in advances received(823)(3,141)(7,752)

Increase (decrease) in guarantee deposits received

(159)

(407)

(1,503)

Increase (decrease) in accrued consumption taxes

934

(6)

8,791

Others

1,220

1,473

11,491

Subtotal

29,60031,760278,617

355

273

3,350

Interest and dividends received
Interest paid

(714)

(690)

(6,729)

Income taxes paid

(1,902)(3,839)(17,908)

Net cash provided by operating activities

27,33827,504257,329

Initiatives for Supporting Corporate Value

Loss on retirement of property, plant and equipment
Decrease (increase) in accounts receivable

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Loss on disaster
Loss on compensation for damage

The accompanying notes are an integral part of these statements.

Data Compilation

96

Leo palace2 1 An nua l Repor t 2018

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

2018

2017

2018

Cash flows from investing activities:
Payment for purchase of property, plant and equipment(11,218)(4,318)(105,594)

Proceeds from sale of property, plant and equipment

14,121

16,744

132,916

Payment for purchase of intangible assets

(818)

(959)

(7,703)

Payment for purchase of investment securities(5,966)(2,761)(56,159)

Proceeds from sale of investment securities

22

14

209

(401)

(5,402)(3,777)

(8)

(22)

(80)

Payment for purchase of shares in subsidiaries (Note 25-(8))
Payment for loans
Proceeds from collection of loans
Payments for purchase of time deposits

14

22

140

(1,500)(11,878)(14,118)

Proceeds from withdrawal of time deposits

5,486

1,200

51,641Others(2,068)(1,292)(19,470)

Net cash provided by (used in) investing activities(2,336)(8,653)(21,996)

Cash flows from financing activities:
Proceeds from short-term borrowings

2,455

200

23,113

Repayment of short-term borrowings(1,250)(265)(11,765)

Proceeds from long-term debt

4,303

235

40,507

Repayment of long-term debt

(1,268)(1,423)(11,936)

Repayment of finance lease obligations(4,953)(3,212)(46,623)

Payment for redemption of bonds(3,966)(4,326)(37,330)

Payment for purchases of treasury stock(8,000)(0)(75,304)

Dividends paid to non-controlling interests

(3)

—

(28)

Proceeds from exercise of stock options

2

—

23

Cash dividends paid

(5,675)(5,257)(53,422)Net cash provided by (used in) financing activities(18,354)(14,048)(172,767)

Effect of exchange rate changes on cash and cash equivalents

(166)

137

(1,563)

Net increase (decrease) in cash and cash equivalents

6,480

4,940

61,000Cash and cash equivalents at beginning of year

91,76686,826

863,763

Cash and cash equivalents at end of year (Note 4)

98,246

91,766

924,763

The accompanying notes are an integral part of these statements.

Leopalace21 Annual Report 2018

Notes to Consolidated Financial Statements
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2018 and 2017(2) Cash and cash equivalents
For the purpose of the statements of cash flows, the Company considers all highly liquid investments with insignificant risk of change
in value that have maturities of generally three months or less whenpurchased to be cash equivalents. These include cash on hand,demand deposits at banks and highly liquid short-term investmentswith negligible risk of fluctuation in value and maturities of less than
three months.

(4) Securities
Held-to-maturity debt securities are stated at amortized cost(straight-line method).
Other securities with available fair market values are stated atfair market value at the end of the fiscal year of each consolidated
companies. Other securities without available fair market values
are stated at cost by the moving-average method.
Unrealized gains or losses on these securities are reported, net of
applicable income taxes, as a separate component of net assets. Cost

Data Compilation(3) Inventories
Real estate for sale and real estate for sale in process are primarily
stated at cost (reflecting write down due to decline in profitability)
determined by the specific identification method.
Payments for construction in progress are primarily stated atcost determined by the specific identification method.
Raw materials and supplies are primarily stated at cost (reflecting write down due to decline in profitability) determined by the lastpurchase price method.

Initiatives for Supporting Corporate Value

2. Summary of Significant Accounting Policies(1) Consolidation
Names of significant subsidiaries (25 in total)
Leopalace Leasing Corporation
Plaza Guarantee Co., Ltd.
Leopalace Power Corporation
Leopalace Energy Corporation
ASUKA SSI
Enplus Inc.
Leopalace21 Business Consulting (Shanghai) Co.,Ltd.
LEOPALACE21 VIETNAM CO.,LTD.
Leopalace21 (Thailand) CO.,LTD.
Leopalace21 (Cambodia) Co.,Ltd.
LEOPALACE21 PHILIPPINES INC.
PT.Leopalace Duasatu Realty
Leopalace21 Singapore Pte. Ltd.
Life Living Co.,Ltd.
Morizou Co.,Ltd.
Azu Life Care Co.,Ltd.
Leopalace Guam Corporation
WING MATE CO.,LTD.
Leopalace Smile Co.,Ltd.
The accompanying consolidated financial statements as of March
31, 2018 include the accounts of the Company and its 25 (21 as ofMarch 31, 2017) subsidiaries (together, the “Companies”). Of these
25 subsidiaries, Enplus Inc., ASPENN INVESTMENTS PTE.LTD., andInternational Commercial Warehousing Services Co., Ltd. have been
included in the scope of consolidation because their shares wereacquired in the consolidated fiscal year under review. Affiliatedcompanies over which the Company exercises significant influencein terms of their operating and financial policies have been included in the consolidated financial statements on an equity method.
Investments in 1 affiliate (1 as of March 31, 2017) have been included for the year ended March 31, 2018. All significant intercompany
balances and transactions have been eliminated.
Investments in subsidiaries and affiliates that are not consolidated or accounted for by the equity method are carried at cost or
less. Where there has been a permanent decline in the value of suchinvestments, the Company has written down the investments.
The balance sheet date of Leopalace Guam Corporation,
Leopalace Guam Distributing Corporation, and 14 other subsidiaries
is December 31, and Morizou Co., Ltd. is February 28. Since thedifference between the Company’s fiscal year end is less than threemonths, their financial statements as of that 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.

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of Leopalace21
Corporation (the “Company”) have been prepared in accordance withthe provisions set forth in the Financial Instruments and Exchange
Act of Japan and its related accounting regulations and in conformity
with accounting principles generally accepted in Japan, which are
different in certain respects as to application and disclosure requirements from International Financial Reporting Standards.
The accompanying consolidated financial statements have beenreformatted and translated into English (with certain expanded disclosure) from the consolidated financial statements of the Company
prepared in accordance with accounting principles generally acceptedin Japan and filed with the Financial Services Agency as required by
the Financial Instruments and Exchange Act of Japan.
The translation of the Japanese yen amounts into U.S. dollars is
included solely for the convenience of readers outside Japan, using
the prevailing exchange rate at March 31, 2018, which was 106.24
yen to US$1.00. Such translation should not be construed as a representation that the Japanese yen amounts have been, could havebeen, or could in the future be, converted into U.S. dollars at this or
any other rate of exchange. Certain amounts in the previous year’s
financial statements have been reclassified to conform to the current
fiscal year’s presentation.
Figures are rounded down to the nearest 1,000,000 yen or $1,000.

Leopalace21: Who We Are

Financial Section

97

98

Leo palace2 1 An nua l Repor t 2018of securities sold is computed using the moving-average method.
Investments in silent partnerships are reported using the equity
method, based on the latest financial statements available as at theclosing dates stipulated by the respective partnership contracts.
(5) Derivative financial instruments and hedge accounting
1. Accounting principles
		 Fair market value
2. Derivative transactions are accounted for using hedge
accounting.
		 (a) Hedge accounting method			The Company uses the deferred hedge accounting method.
The interest rate swaps that meet specific matching criteria
are recognized and included in interest expense or income.
		 (b) Hedging instrument and hedged items
			 Hedging instrument Interest rate swaps
			 Hedged items
Long-term debt
		 (c) Hedge policy			Interest rate swaps are utilized as a hedge against possible future interest rate increases, in amounts that fallwithin the range of the particular liability being hedged.

(7) Long-lived assets
The Companies review long-lived assets for impairment whenever
events or changes in circumstance indicate the carrying amountof an asset or asset group may not be recoverable. An impairment
loss would be recognized if the carrying amount of an asset or
asset group exceeded the sum of the undiscounted future cash
flows expected to be generated by the continued use and eventual
disposition of the asset or asset group. The impairment loss would
be measured as the amount by which the carrying amount of theassets exceeds their recoverable amount, which is the higher of the
discounted cash flows from the continued use and eventual disposition of the assets, or the net selling price at disposition.
(8) Intangible assets
Software for internal use is amortized on a straight-line basis overthe estimated useful life of 5 years.
(9) Long-term prepaid expenses
Long-term prepaid expenses are amortized evenly over a period
mainly from 3 to 5 years.
(10) Bond issuance costs
Bond issuance costs are amortized evenly until maturity.

		 (d) Method used to evaluate the effectiveness of the hedge
			Cumulative interest rate fluctuations and changes incash flows are compared to evaluate the effectiveness ofhedged item and hedging instrument. However, evaluation
as of the date of settlement of the effectiveness of interest
rate swaps that meet specific matching criteria is omitted.

(11) Allowance for doubtful accounts
The Companies maintain an allowance for doubtful accounts to reservefor potentially uncollectible receivables. A general provision for doubtful receivables is provided by applying a certain reserve percentage ofthe receivables based on experience from past transactions. A specificreserve is provided for the estimated amounts to be uncollectible basedon the customers’ financial condition or other pertinent factors.

(6) Property, plant and equipment (except for leased assets)
Buildings for rent of the Company and domestic consolidated subsidiaries are stated at cost. Depreciation is computed generally on
the straight-line basis. The range of useful lives is principally from22 to 47 years for buildings for rent.
Property, plant and equipment other than buildings for rent of theCompany and domestic consolidated subsidiaries are stated at cost.
Depreciation is computed generally by the declining-balance method. However, buildings (excluding accompanying facilities) obtainedon or after April 1, 1998, and building accessories and structures
obtained on or after April 1, 2016, are depreciated by the straightline method. The range of useful lives is principally from 15 to 50
years for buildings and structures, 17 years for machinery, equipment
and vehicles, and 5 to 10 years for tools, furniture and fixtures.
Property, plant and equipment of the consolidated overseas
subsidiaries are depreciated by the straight-line method based on
the local GAAP. The range of useful lives is principally from 20 to 40
years for buildings and structures and from 3 to 5 years for tools,
furniture and fixtures.

(12) Liability for retirement benefit
In conjunction with the calculation of retirement benefit obligations,the method for attributing projected retirement benefits for the period
up to the end of the current fiscal is based on a straight-line basis.
Actuarial gains/losses, which are prorated according to thestraight-line method over a specified period (5 years) within the average remaining service years of employees at the time of accrual, areamortized starting from the next fiscal year of the respective accruals.
Past service cost is amortized by the straight-line method over a specified period (5 years) within the average remaining service years of
employees at the time of accrual.
Unrecognized actuarial gains/losses and unrecognized past
service cost are posted, factoring in tax effects, as the cumulative
amount of adjustments related to cumulated other comprehensive
income in the net assets.
Certain consolidated subsidiaries have adopted a simplified method of calculation with liability for retirement benefits and retirement
benefits expense. Under this simplified method, retirement benefit
obligation is deemed to be equal to the amount which would beLeopalace21 Annual Report 201899
Leopalace21: Who We Are

required to pay if all eligible employees voluntarily retired at the endof the fiscal year.

(14) Reserve for warranty obligations on completed projects
Reserve for warranty obligations on completed projects is provided
to reserve for execution of warranty obligations under defect liabilities in the future. It is calculated using the percentage of the past
execution of warranty obligations on the completed projects.
(15) Reserve for fulfillment of guarantees
In order to provide for losses due to its rent obligation guarantees
business, the Company’s consolidated subsidiary, Plaza Guarantee
Co., Ltd., records the amount of loss expected based on the rate ofpast guarantee fulfillments.
(16) Reserve for Directors’ compensation
The estimated amount of bonus payments relevant to the consolidated fiscal year is provided to cover the payment of bonuses todirectors.

(22) Foreign currency transactions
All monetary receivables and payables denominated in foreign
currencies are translated into Japanese yen at the current exchange
rates as of each balance sheet date. The foreign exchange gains
and losses from translation are recognized in the consolidated
statements of operations.
(23) Foreign currency financial statements
The assets and liabilities of consolidated overseas subsidiaries aretranslated into Japanese yen at the current exchange rates as ofeach balance sheet date, and income and expenses are translated
at the average exchange rates of the fiscal year. Foreign currencytranslation adjustments resulting from the translation of assets,
liabilities and net assets are included in foreign currency translation
adjustments and non-controlling interests as a separate componentof net assets.
(24) Interest capitalization
Leopalace Guam Corporation, a consolidated subsidiary, capitalizedinterest paid on borrowing for real estate development business forthe development period into acquisition cost of property, plant andequipment.
Capitalized interests included in carrying value of property, plantand equipment were 335 million yen ($3,156 thousand) and 345
million yen as of March 31, 2018 and 2017, respectively.
(25) Consumption taxes
National and local consumption taxes are basically excluded fromtransaction amounts. However, Asuka SSI, a consolidated subsidiary,
includes national and local consumption taxes. The nondeductible
portion of consumption taxes on the purchase of assets is recorded
as long-term prepaid expenses and amortized evenly over 5 years.

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

(26) Loss on cancellations of contracts
Tenant rent guarantee contracts were cancelled due to rental
assets being sold, and the Company paid for the period not yet
elapsed and the amount was recorded under loss on cancellationsof contracts in the fiscal year ended March 2018.

Data Compilation(18) Advances received
With respect to advances received, such as rent, the Company reports
the portion corresponding to more than a year in “long-term advances
received” under “non-current liabilities,” and the portion corresponding to a year or less in “advances received” under “current liabilities.”
This allows the Company to more clearly present the characteristics
and actual transactions of the Company’s leasing business.

Initiatives for Supporting Corporate Value(17) Revenues and costs of construction contracts
In recognizing construction revenues and costs of constructions inprocess, the percentage-of-completion method is applied to suchcontracts in which the outcome of the construction activity is deemedcertain by the end of the fiscal year ended March 31, 2018, while thecompleted contract method is applied to other constructions. Progressof construction is estimated based on the method of the ratio of actual cost incurred to total cost.

(21) Leases
Leases are depreciated by the straight-line method over the leaseterm of respective assets as their useful lives with no residual value.

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value(13) 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 riskof increased vacancies. It is based on estimated losses resulting fromcurrent rental income and expected future occupancy rates for eachrental property managed by the leasing division of the Company.

(20) 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 andliabilities for financial reporting purposes and the amounts used forincome tax purposes.

100

Leo palace2 1 An nua l Repor t 2018(27) Compensation for damage
The Company compensated removal costs of buried objects in landsold in the past, and the amount was recorded as compensation fordamage in the fiscal year ended March 2018.

(3) Impact of the application of the relevant accounting standards
The impact of the application of Accounting Standard for Revenue
Recognition on consolidated financial statements is currently being
evaluated.

(28) Loss on disaster
Rental apartments owned by the Company were damaged by the
Kumamoto earthquake in 2016, and restoration costs were recorded
under disaster loss in the fiscal year ended March 2017.

Changes in presentation(Consolidated Balance Sheets)“Accrued expenses,” which was presented as a separate item in“Current Liabilities” in the previous consolidated balance sheets, isincluded in “Others” in current consolidated balance sheets, due toa lack of materiality in terms of monetary amounts. Reclassification
is implemented to the consolidate items of previous fiscal year toreflect this change in presentation.
As a result, 1 million yen, which was presented as “Accrued
expenses” in “Current Liabilities” in the previous consolidated balance sheet, has been reclassified to “Others” for the previous fiscal
year in the current consolidated balance sheet.

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

3. Additional Information(Unapplied Accounting Standards, etc.)
・Accounting Standard for Revenue Recognition (ASBJ Statement
No.29 issued on March 30, 2018 by Accounting Standards Boardof Japan)・Implementation Guidance on Accounting Standard for Revenue
Recognition (ASBJ Statement No.30 issued on March 30, 2018
by Accounting Standards Board of Japan)(1) Summary
The International Accounting Standards Board (IASB) and Financial
Accounting Standards Board (FASB) jointly developed the converged
accounting standards for revenue recognition and announced“Revenue from Contracts with Customers” (IFRS 15 in IASB and
Topic 606 in FASB) in May 2014. IFRS 15 is effective for annual
reporting periods beginning on or after 1 January 2018 and Topic
606 is effective for annual reporting periods beginning on or after
December 15, 2017. Accounting Standards Board of Japan (ASBJ)
then developed and announced ASBJ Statement No.29 and ASBJ
Guidance No.30 to progress with the change.
ASBJ developed the accounting standards for revenue recognition by adopting the basic rules in IFRS 15, for the basic policythat is to be consistent with IFRS 15 and to take advantage of thefinancial compatibility with IFRS 15. Additionally, considering theaccounting practices that Japan has carried out so far, substitutive
treatments have been supplemented the new standard without
affecting the financial comparability.
(2) Effective date
The new standards will be effective from the beginning of the fiscal
year ended in March, 2022.

(Consolidated Statements of Operations)
As presented in “(1) Overview of Reportable Segments” in “22.
Segment Information,” “Net sales” and “Cost of sales” arepresented in “Leasing Business,” “Development Business” and“Other Businesses” instead of “Leasing Business,” “Construction
Business” and “Other Businesses.” Reclassification is implemented to the consolidate items of previous fiscal year to reflect thischange in presentation.
As a result, 416,594 million yen, 74,566 million yen and 29,327
million yen, which were presented as “Net sales” from “Leasing
Business,” “Construction Business” and “Other Businesses” inthe previous consolidated statements of operations, have been
reclassified to “Net sales” from “Leasing Business,” “Development
Business” and “Other Businesses,” amounting to 421,342 million
yen, 80,321 million yen, and 18,824 million yen, respectively for theprevious fiscal year.
In addition, 349,112 million yen, 52,800 million yen and 25,907
million yen, which were presented as “Cost of sales” from “Leasing
Business,” “Construction Business” and “Other Businesses” in theprevious consolidated statements of operations, have been reclassified to the “Cost of sales” from “Leasing Business,” “Development
Business” and “Other Businesses” amounting to 351,228 million
yen, 57,293 million yen, and 19,297 million yen respectively for theprevious fiscal year.
“Gain from amortization of deposits payable,” which was presented as a separate item in “Non-operating income” in the previous consolidated statements of operations, is included in “Others”
in the current consolidated statements of operations, due to a lackof materiality in terms of monetary amounts. Reclassification is
implemented to the consolidate items of the previous fiscal year toreflect this change in presentation.
As a result, 21 million yen, which was presented as “Gain fromamortization of deposits payable” in “Non-operating income” in theLeopalace21 Annual Report 2018101
Leopalace21: Who We Are(Consolidated Statements of Cash Flows)“Increase (decrease) in liability for retirement benefits,” which
was included in “Other” in “Cash flows from operating activities”
in the previous consolidated statements of cash flows, is presented as a separate item, starting from the current fiscal year,
to reflect its increased materiality in terms of monetary amounts.
Reclassification is implemented to the consolidate items of previous fiscal year to reflect this change in presentation.
As a result, 2,770 million yen, which was presented as “Other”
in “Cash flows from operating activities” in the previous consolidated statement of cash flows, has been reclassified as “Increase(decrease) in liability for retirement benefits” and “Other,” amounting
to 1,297 million yen and 1,473 million yen, respectively for the previous fiscal year in the current consolidated statements of operations.

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

2018

106,543(8,297)
98,246

104,432(12,666)

1,002,860(78,096)

91,766

924,763

able, and accounts payable for completed projects which areoperating liabilities are scheduled to be paid within one year.
Loans payable, corporate bonds, and lease obligations
related to finance lease transactions are mainly for the purpose of raising funds necessary for investment in facilities,
and the longest repayment date is 14 years subsequent to
the fiscal year end.
The derivative contracts represent interest-rate swap
transactions designed to hedge against the risk of future fluctuations in interest rates on borrowings, etc. Interest rate
swap transactions used by the Company are exposed to risksof fluctuations in the market interest rate. For details on
hedge accounting with respect to hedging instruments,
hedged items, hedging policy and the method for evaluating
hedging effectiveness, please refer to the aforementioned “2.
(5) Derivative financial instruments and hedge accounting.”(c) Risk management for financial instruments
Credit risk management for operating receivables and loans
outstanding follows the “Receivables management rules.”While each business division manages the extension of credit to its customers, it is also organized for early detection andloss reduction of accounts where collection is doubtful due

Data Compilation(b) Nature and extent of risks arising from financial instruments
Operating receivables and loans outstanding are exposed tocredit risk.
Foreign currency denominated debts and credits originated in conjunction with overseas business development are
exposed to exchange risk.
Securities are mainly held-to-maturity securities andshares of the companies with which the Company has a business or capital alliance, and those securities are exposed tomarket risk and credit risk associated with the issuers.
Almost all electronically recorded obligations, accounts pay-

2017

Initiatives for Supporting Corporate Value

5. Financial Instruments(1) The financial instruments and related disclosures(a) Policy for financial instruments
The Companies are mainly involved in raising funds (mostlybank borrowing and corporate bond issuance) needed forplanned capital investments. Temporary excess funds areinvested in highly secure financial assets, and short-termworking capital is raised by borrowing from the bank. The
Companies conduct derivative transactions primarily for the
purpose of avoiding interest rate and exchange rate risks,and have a policy not to conduct speculative trading.

2018

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

previous consolidated statements of operations, has been reclassified to “Others” for the previous fiscal year in the current consolidated statements of operations.
“Commission fee,” which was presented as a separate item in“Non-operating expenses” in the previous consolidated statementsof operations, is included in “Others” in current consolidated statements of operations, due to a lack of materiality in terms of monetary amounts. Reclassification is implemented to the consolidate
items of previous fiscal year to reflect this change in presentation.
As a result, 46 million yen, which was presented as“Commission fee” in “Non-operating expense” in the previous
consolidated statements of operations, has been reclassified to“Others” for the previous fiscal year in the current consolidated
statements of operations.

102

Leo palace2 1 An nua l Repor t 2018

to worsening credit or similar problems.
Regarding securities and investment securities, theCompany periodically investigates and understands theshare price and the financial condition of the share issuingorganization. In addition, for items other than held-to-maturity securities, the Company considers the relationship withthe trading partner companies and constantly re-evaluates
its holdings.
The basic policy of derivatives trading is determined by
the board of directors, and the execution and administrationof derivatives transactions are conducted in accordance with
the Company’s “Derivatives Trading Management Rules.”The derivatives trading management situation is periodicallyreported to the board of directors for comprehensive risk
management. The Company’s counterparties for derivative
contracts are highly creditworthy financial institutions inJapan, and therefore it does not assume the risk of counter-party default on these contracts.
Trade payables and debts are exposed to liquidity risk,
but this risk is monitored by various means such as the
preparation of a monthly financial plan by each company in
the Companies.
(d) S upplementary explanations on fair value of financial
instruments
Fair value of financial instruments are measured based on
the quoted market price, or reasonably assessed value if aquoted market price is not available.
Fair value of financial instruments which quoted market
price is not available is calculated based on a fluctuating
factor, and the value might differ if different assumptions areused. Contract sums, etc. in notes to derivative contracts do
not themselves represent the volume of market risk on derivative contracts.

(2) Fair value of financial instruments
The carrying value on the consolidated balance sheet and fair value of financial instruments as of March 31, 2018 and 2017 as well as the differences between these values are described below. Financial instruments whose fair values appear to be extremely difficult to determine are notincluded in the table. (See Note (b))
Millions of yen

March 31, 2018
(1) Cash and cash equivalents(2) Trade receivables and accounts receivable for completed projects(3) Securities and investment securities(4) Operating loans
Allowance for doubtful accounts (*1)Net(5) Long-term loans
Allowance for doubtful accounts (*1)Net(6) Bad debts
Allowance for doubtful accounts (*1)
Net
Total assets(1) Electronically recorded obligations(2) Accounts payable and accounts payable for completed projects(3) Short-term borrowings(4) Bonds (*2)(5) Long-term debt (*2)(6) Lease obligations
Total liabilities
Derivative transactions

Carrying value

Fair value

Difference

106,543
9,584
4,018
389
(43)
346
513
(96)
417
1,264
(1,253)
10
120,920
1,451
12,078
1,210
16,035
18,39818,18667,359—106,543
9,584
4,032

—
—
13

410

64

417

—

10
120,998
1,451
12,0781,210
16,063
18,531
18,21867,552
—

—
78
—
—
—
28
133
32
193
—

Leopalace21 Annual Report 2018103
Leopalace21: Who We Are

Millions of yen

March 31, 2017

Fair value

Difference

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

104,432
8,903
3,798

—
—
20

720

140

419

—

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

—
161
—
—
40
79
162
281
—

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value(1) Cash and cash equivalents(2) Trade receivables and accounts receivable for completed projects(3) Securities and investment securities(4) Operating loans
Allowance for doubtful accounts (*1)Net(5) Long-term loans
Allowance for doubtful accounts (*1)Net(6) Bad debts
Allowance for doubtful accounts (*1)
Net
Total assets(1) Accounts payable and accounts payable for completed projects(2) Short-term borrowings(3) Bonds (*2)(4) Long-term debt (*2)(5) Lease obligations
Total liabilities
Derivative transactions

Carrying value

Thousands of U.S. dollars

Fair value

Difference(1) Cash and cash equivalents(2) Trade receivables and accounts receivable for completed projects(3) Securities and investment securities(4) Operating loans
Allowance for doubtful accounts (*1)Net(5) Long-term loans
Allowance for doubtful accounts (*1)Net(6) Bad debts
Allowance for doubtful accounts (*1)
Net
Total assets(1) Electronically recorded obligations(2) Accounts payable and accounts payable for completed projects(3) Short-term borrowings(4) Bonds (*2)(5) Long-term debt (*2)(6) Lease obligations
Total liabilities
Derivative transactions

1,002,860
90,21137,823
3,669
(410)
3,259
4,836
(907)
3,928
11,899(11,796)102
1,138,185
13,658113,686
11,389150,931
173,175
171,185
634,027—

1,002,860
90,211
37,954

—
—
131

3,862

603

3,928

—

102
1,138,920
13,658113,686
11,389151,199
174,430
171,487
635,851
—

—
734
—
—
—
267
1,254
302
1,824
—

(*1) Operating loans, long-term loans and bad debts have deductions of their respective allowance for doubtful accounts, which are recorded separately.
(*2)	As of March 31, 2018 and 2017, bonds due within one year of 3,966 million yen ($37,330 thousand for 2018) and 3,966 million yen, and current portionof long-term debt of 1,754 million yen ($16,513 thousand for 2018) and 1,263 million yen are included in bonds and long-term debt, respectively.

Data Compilation

Carrying value

Initiatives for Supporting Corporate Value

March 31, 2018

104

Leo palace2 1 An nua l Repor t 2018

(Notes)(a) Matters concerning the calculation method for the fairvalue of financial instruments, securities, and derivativetransactions
AssetsCash and cash equivalents
Trade receivables and accounts receivable for completed projects
These assets are stated at carrying amount as they are settled in the short-term and their fair values approximate theircarrying amount.
Securities and investment securities
Shares are stated at the stock exchange quoted price; bonds
are stated at either the stock exchange quoted price or the
price presented by transacting financial institutions.
For notes to securities by holding purposes, please refer
to “6. Securities.”
Operating loans
The fair value of operating loans is stated at the net present
value, which is calculated by discounting the principal withinterest by the discount rate (i.e. the estimated interest rate
for new transaction).
Long-term loans
Bad debts
The fiscal year-end outstanding balances are calculated

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

Millions of yen

Item

2018

2017

2018

Unlisted shares

4,595

4,566

43,255

Unlisted bonds (subordinate corporate bonds)

6,424

824

60,469Subordinate beneficiary rights of loans and accounts receivable in trust

875

879

8,238

Contributions to limited investment partnerships

2,549

2,526

23,994

Total

14,444

8,796

135,957

As they have no market value, and as it is understood that it is extremely difficult to estimate their future cash flow, the above financial
instruments are not included in “Assets: Securities and investment securities.”Leopalace21 Annual Report 2018

105
Leopalace21: Who We Are(c) The scheduled redemption amount of monetary claims and investment securities with maturity subsequent to fiscal year end
Millions of yen

Due after
10 years

106,543

—

—

—

9,584

—

—

—

(1) Government and municipal bonds

420

800

100

—

(2) Corporate bonds

—

—

—

—

(1) Government and municipal bonds

40

1,002

—

—

(2) Bonds (Corporate bonds)

—

5,600

—

824

(3) Others

—

—

—

875

Operating loans

122

213

33

19

Long-term loans

9

32

12

459

Bad debts

—

10

—

1,253

116,720

7,658

146

3,431

Due within 1 year

Due after 1 year
through 5 years

Due after 5 years
through 10 years

Due after
10 years

104,432

—

—

—

8,903

—

—

—

(1) Government and municipal bonds

50

1,020

300

—

(2) Corporate bonds

—

—

—

—

(1) Government and municipal bonds

71

1,042

—

—

(2) Bonds (Corporate bonds)

—

—

—

824

(3) Others

—

—

—

879

Operating loans

165

429

56

23

Cash and cash equivalents
Trade receivables and accounts receivable forcompleted projects
Securities and investment securities
Held-to-maturity debt securities

Other securities with maturities

Total

Millions of yen

March 31, 2017
Cash and cash equivalents
Trade receivables and accounts receivable forcompleted projects
Securities and investment securities
Held-to-maturity debt securities

Other securities with maturities

10

32

13

459

Bad debts

—

—

—

1,246

113,631

2,524

370

3,433

Total

Data Compilation

Long-term loans

Initiatives for Supporting Corporate ValueDue after 5 years
through 10 years

March 31, 2018

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Due within 1 year

Due after 1 year
through 5 years

106

Leo palace2 1 An nua l Repor t 2018

Thousands of U.S. dollars

March 31, 2018

Due after 1 year
through 5 years

Due within 1 year

Cash and cash equivalents
Trade receivables and accounts receivable forcompleted projects

Due after 5 years
through 10 years

Due after
10 years

1,002,860———

90,211

—

—

—

3,953

7,530

941

—

—

—

—

—

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

376

9,431

—

—

(2) Bonds (Corporate bonds)—

52,710—7,758(3) Others

—

—

—

8,238

Operating loans

1,152

2,012

316

187

Long-term loans

92

302

118

4,322

Bad debts
Total

—

102

—

11,796

1,098,646

72,0901,376

32,303(3) Scheduled repayment amount of bonds payable, long-term debt, lease obligations, and other interest-bearing debt subsequent
to fiscal year end was as follows:
Millions of yen

March 31, 2018

Due within
1 yearDue after 1
through 2 years

Due after 2
through 3 years

Due after 3
through 4 years

Due after 4
through 5 years

Due after
5 years

Short-term borrowings

1,210

—

—

—

—

—

Bonds

3,966

3,966

3,066

3,066

1,971

—

Long-term debt

1,754

1,640

1,501

1,475

1,424

10,602

Lease obligations

5,960

4,966

3,911

2,664

683

—

Total

12,890

10,573

8,478

7,206

4,079

10,602

Due within
1 yearDue after 1
through 2 years

Due after 2
through 3 years

Due after 3
through 4 years

Due after 4
through 5 years

Due after
5 years

Bonds

3,966

3,966

3,966

3,066

3,066

1,971

Long-term debt

1,263

1,205

1,098

995

967

9,000

Lease obligations

4,647

4,327

3,299

2,208

903

—

Total

9,876

9,498

8,364

6,270

4,937

10,971

Due within
1 yearDue after 1
through 2 years

Due after 2
through 3 years

Due after 4
through 5 years

Due after
5 years

Millions of yen

March 31, 2017

Thousands of U.S. dollars

March 31, 2018

Due after 3
through 4 years

Short-term borrowings

11,389

—

—

—

—

—

Bonds

37,33037,33028,85928,85918,552—Long-term debt

16,513

15,44014,12913,88913,40899,794

Lease obligations

56,10046,74936,81825,082

6,434

—

Total

121,333

99,52079,807

67,83038,39599,794

Leopalace21 Annual Report 2018107
Leopalace21: Who We Are

6. Securities(1) At March 31, 2018 and 2017, information with respect to held-to-maturity debt securities for which market prices were available was summarized as follows:
Millions of yen

Consolidated balance
sheet amountMarket value

Difference

Securities whose consolidated balance sheet amount exceeds
their acquisition cost:
1,334

1,348

13

Corporate bonds

—

—

—

Others

—

—

—

1,334

1,348

13

Government and municipal bonds

—

—

—

Corporate bonds

—

—

—

Government and municipal bonds

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

Others———Subtotal

—

—

—

Total

1,334

1,348

13

Millions of yen

March 31, 2017

Consolidated balance
sheet amountMarket value

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

March 31, 2018

Difference

Securities whose consolidated balance sheet amount exceeds
their acquisition cost:
1,393

1,414

20

Corporate bonds

—

—

—

Others

—

—

—

1,393

1,414

20

Government and municipal bonds

—

—

—

Corporate bonds

—

—

—

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

Others———Subtotal

—

—

—

Total

1,393

1,414

20

Initiatives for Supporting Corporate Value

Government and municipal bonds

Data Compilation

108

Leo palace2 1 An nua l Repor t 2018

Thousands of U.S. dollars

Consolidated balance
sheet amountMarket value

Difference

12,565

12,696131

Corporate bonds

—

—

—

Others———12,565

12,696131

Government and municipal bonds

—

—

—

Corporate bonds

—

—

—

Others———March 31, 2018
Securities whose consolidated balance sheet amount exceeds
their acquisition cost:
Government and municipal bonds

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

Subtotal
Total

—

—

—

12,565

12,696131(2) Investment securities classified as other securities as of March 31, 2018 and 2017 were as follows:
Millions of yen

Consolidated balance
sheet amount

Acquisition cost

Difference

1,314

460

854

1,006

992

13

Corporate bonds

—

—

—

Others———Others

—

—

—

2,321

1,452

868

323

346

(22)

38

38

(0)

March 31, 2018
Securities whose consolidated balance sheet amount exceeds
their acquisition cost:
Stock
Bonds:
Government and municipal bonds

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

—

—

—

Others———Others———Subtotal

362

384

(22)

Total

2,683

1,837

846

Leopalace21 Annual Report 2018109
Leopalace21: Who We Are

Millions of yen

Acquisition cost

Difference

1,265

460

805

1,080

1,056

23

Corporate bonds

—

—

—

Others———Securities whose consolidated balance sheet amount exceeds
their acquisition cost:
Stock
Bonds:
Government and municipal bonds

Others

—

—

—

2,345

1,516

828

—

—

—

Government and municipal bonds

38

38

(0)

Corporate bonds

—

—

—

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

Others———Others———Subtotal

38

38

(0)

Total

2,383

1,555

828

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Consolidated balance
sheet amountMarch 31, 2017

Thousands of U.S. dollars

Difference

12,377

4,330

8,047

9,471

9,343

128

Corporate bonds

—

—

—

Others———Others———21,84913,673

8,175

3,049

3,260

(210)

Government and municipal bonds

358

360

(1)

Corporate bonds

—

—

—

Others———Securities whose consolidated balance sheet amount exceeds
their acquisition cost:
Stock
Bonds:
Government and municipal bonds

Subtotal
Securities whose consolidated balance sheet amount does notexceed their acquisition cost:
Stock
Bonds:———

Subtotal

3,408

3,620

(212)

Total

25,257

17,293

7,963

OthersData Compilation

Acquisition cost

Initiatives for Supporting Corporate Value

Consolidated balance
sheet amountMarch 31, 2018

110

Leo palace2 1 An nua l Repor t 2018

(Note)March 31, 2018
4,595 million yen ($43,255 thousand) of non-listed shares, 6,424
million yen ($60,469 thousand) of non-listed company bonds(subordinate corporate bonds), 875 million yen ($8,238 thousand)of subordinate beneficiary rights to loans and money in trust, and
2,549 million yen ($23,994 thousand) of contributions to silent
partnerships are not included in the other securities given above
because they have no market value and assigning them fair market prices is recognized to be extremely difficult. The Company
acquired the non-listed company bonds (subordinate corporate
bonds) and the subordinate beneficiary rights to loans and moneyin trust as a result of the securitization of non-recourse apartment
loans that financial institutions had loaned to clients as funds forpaying charges for jobs contracted to the Company.

March 31, 2017
4,566 million yen of non-listed shares, 824 million yen of non-listedcompany bonds (subordinate corporate bonds), 879 million yen ofsubordinate beneficiary rights to loans and money in trust, and2,526 million yen of contributions to silent partnerships are notincluded in the other securities given above because they have nomarket value and assigning them fair market prices is recognized
to be extremely difficult. The Company acquired the non-listedcompany bonds (subordinate corporate bonds) and the subordinate
beneficiary rights to loans and money in trust as a result of the
securitization of non-recourse apartment loans that financial institutions had loaned to clients as funds for paying charges for jobs
contracted to the Company.

(3) Proceeds from sales of other securities and gain or loss on these sales for the years ended March 31, 2018 and 2017 weresummarized as follows:
March 31, 2018
None
March 31, 2017
None(4) In addition, investment in affiliates included in investment securities of the consolidated balance sheet was as follows:
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Investment securities (stocks)

68

63

643

Of which, investment in joint venture

68

63

643

7. Derivative Transactions(1) Derivative transaction not subject to the application of hedge accounting
March 31, 2018
None
March 31, 2017
None

Leopalace21 Annual Report 2018111
Leopalace21: Who We Are(2) Derivative transaction subject to the application of hedge accounting
March 31, 2018
Type of transaction

Major hedged item

Exceptional accounting treatment
for interest rate swaps

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

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

Thousands of
U.S. dollars——

Contract value, etc.
Millions of yen

Thousands of
U.S. dollars

878

Fair value(Note)(Note)
The fair value of interest rate swaps subject to exceptional accounting treatment is included in the fair value of the corresponding long-term
debt because they are recognized together with hedged long-term debt.
March 31, 2017
Hedge accounting method

Type of transaction

Major hedged item

Exceptional accounting treatment
for interest rate swaps

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

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

8

Contract value, etc.
Millions of yen

58

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Hedge accounting method

Fair value(Note)

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

Millions of yen

2017

2018

Residential properties for rent

34,54954,299325,204

Domestic hotels

13,707

10,913129,027

Head office and branches

29,004

26,582

273,013

Leopalace Resort Manenggon Hills Guam

26,42626,193233,861

Leopalace Power (solar power systems)

13,08814,879123,202

Data Compilation2018

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

112

Leo palace2 1 An nua l Repor t 2018(2) Due to acceptance of national subsidies, the following reduction entry amount was deducted from the acquisition cost of
relevant assets:
Thousands of
U.S. dollars

Millions of yen

Machinery, equipment, and vehicles

2018

2017

2018

155

155

1,459

(3) The Companies recognized impairment loss on the following asset groups for the years ended March 31, 2018 and 2017:
March 31, 2018
PurposeCategory

Rental assets (Apartment buildings Buildings and Structuresand others, 319 units)
Land

Location

Minami-ku, Kyoto, etc.

Rental assets (Furniture and appli- Leased assets, etc.
ances equipped in apartments)
Idle assets (1 land)Land

Higashi Kagawa-shi, Kagawa

Total

The Companies recognized each property in domestic rental
assets as a unit and grouped overseas assets by managerial
accounting segmentation.
The Companies wrote down book value of rental assets
planned to be sold, and rental assets and idle assets whose profitability seriously decreased to recoverable amounts and recognizedImpairment loss
Millions of yen

Thousands of
U.S. dollars

587

5,533

6,848

64,463

118

1,113

39

373

7,594

71,484the reduced values as impairment losses.
Recoverable amounts of rental assets were measured at thehigher of their values in use or their net realizable values in sale.
Value in use was computed by discounting its future cash flows at
3.9%, while net realizable value in sale was determined based on
publicly appraised value.

March 31, 2017
PurposeCategory

Rental assets (Apartment buildings Buildings and Structuresand others, 30 units)
Land
Total

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

Location

Ohita-shi, Ohita, etc.

Impairment loss
Millions of yen

131
458
589

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

Leopalace21 Annual Report 2018113
Leopalace21: Who We Are

9. Bad Debts
Bad debts are claims as stipulated under Article 32, Paragraph 1, and Item 10 of the Regulation concerning Financial Statements. Bad debts
at March 31, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2017

2018

1,039

1,050

9,789

Bad debts

97

73

914

Others

127

121

1,195

Total

1,264

1,246

11,899Claims in the process of bankruptcy

10. Income Taxes(1) Significant components of deferred tax assets and liabilities as of March 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars

Millions of yen

2017

2018

34,435
14,762
3,779
1,598
932
722
668
650
589
537
443
400
359
307
288
237
150
136
117
96
618
61,832(34,747)
27,08433,80021,012
3,458
1,536
980
702
695
815
1,164
769
332
374
445
324
259
358
291
136
125
110
543
68,239(41,772)
26,467324,124
138,954
35,577
15,042
8,774
6,796
6,295
6,123
5,545
5,060
4,177
3,773
3,379
2,896
2,712
2,237
1,412
1,280
1,109
905
5,823
582,003(327,064)
254,939

(157)
(259)
(28)
(445)
26,639

(203)
(253)
(35)
(492)
25,974(1,486)(2,438)(263)(4,188)250,750

Data Compilation2018

Initiatives for Supporting Corporate Value

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

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

2018

114

Leo palace2 1 An nua l Repor t 2018(2) Reconciliation of the differences between the normal effective statutory tax rate and the actual effective tax rate for the years
ended March 31, 2018 and 2017 were as follows:
2018

2017

30.9%

30.9%

(37.9)(29.8)

Entertainment and other expenses not deductible for income tax purposes

7.5

4.6

Per capital portion of inhabitants taxes

1.6

1.1

Tax deduction based on Tax Credits for Salary Growth

(0.1)

(1.1)

Others0.2(0.1)

Actual effective tax rate

2.2

5.6

Normal effective statutory tax rate
Adjustments:
Effect from decrease in valuation reserve

11. Short-term Borrowings and Long-term Debt
(1) Short-term borrowings, long-term debt and lease obligations at March 31, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Short-term borrowings

1,210

—

11,389Current portion of long-term debt,
with average interest rate of 1.40%

1,754

1,263

16,513Current portion of lease obligations,with average interest rate of 3.34%

5,960

4,647

56,100Long-term debt, due 2019 to 2031,
with average interest rate of 1.51%

16,643

13,267

156,662

Long-term lease obligations, due 2019 to 2022,with average interest rate of 2.85%

12,226

10,739115,084

Total

37,79429,917355,750(Note)
The average interest rates above were calculated in weighted average in terms of the fiscal year-end balance of the borrowings and debts.
Please note, however, that the current portion of lease obligations and lease obligations (net of the current portion) were recorded in the
consolidated balance sheet in the amount before deducting the interest portion from total lease liabilities for certain consolidated subsidiaries, and that such lease obligations are not included in the calculation of the average interest rate.
(2) The amounts of long-term debt and lease obligations (excluding their current portion) scheduled for repayment in five years
from the consolidated settlement of accounts were as follows:
Millions of yen

Due after 1 through 2 years

Due after 2 through 3 years

Due after 3 through 4 years

Due after 4 through 5 years

Long-term debt

1,640

1,501

1,475

1,424

Lease obligations

4,966

3,911

2,664

683

Due after 1 through 2 years

Due after 2 through 3 years

Due after 3 through 4 years

Due after 4 through 5 years

Long-term debt

15,44014,12913,88913,408

Lease obligations

46,74936,81825,082

6,434

Thousands of U.S. dollars

Leopalace21 Annual Report 2018115
Leopalace21: Who We Are(3) Assets pledged as collateral for short-term borrowings and long-term debt at March 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

17

17

160

Others (intangible fixed assets)

669

—

6,297

Investment securities

55

55

518

Others (investments and other assets)

131

—

1,239

Total

872

72

8,216

(4) Liabilities with collateral at March 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Current portion of long-term debt

27

—

262

Long-term debt

704

—

6,626

Total

731

—

6,889

(Note)Of the assets pledged as collateral, cash and cash equivalents and investment securities are pledged as collateral for investees of consolidated subsidiaries and lenders of housing loans by clients, and there are no liabilities with collateral.

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Cash and cash equivalents(5) Securities and investment securities which have been deposited with the Legal Affairs Bureau at March 31, 2018 and 2017
were as follows:
Thousands of
U.S. dollars

Millions of yen

Deposit for operation stipulated in Building Lots and Buildings
Transaction Business Act

2017

2018

40

45

376

Deposit for housing construction warranty

1,104

1,045

10,400

Deposit for housing defect warranty

109

109

1,028

Advanced payment certificate in accordance with Payment andSettlement Regulations

628

628

5,911

(6) Bonds at March 31, 2018 and 2017 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Name of bondIssuance date

2018

2017

2018

Leopalace21
Corporation

13th unsecured
straight bondOctober 31, 2014

1,800
(900)

2,700
(900)

16,942(8,471)

Leopalace21
Corporation

14th unsecured
straight bondSeptember 30, 2015

7,735
(1,666)

9,401(1,666)72,806(15,681)

Leopalace21
Corporation

15th unsecured
straight bondSeptember 30, 2015

6,500
(1,400)7,900(1,400)61,182(13,177)

Total

—

—

16,035(3,966)20,001(3,966)150,931(37,330)(Note) Figures in parentheses represent the current portion.

Data Compilation

Company name

Initiatives for Supporting Corporate Value

2018

116

Leo palace2 1 An nua l Repor t 2018

Company nameName of bondInterest rate (%)

Collateral

Date of maturity

Leopalace21 Corporation

13th unsecured straight bond

0.20

None

October 31, 2019

Leopalace21 Corporation

14th unsecured straight bond

0.13

None

September 30, 2022

Leopalace21 Corporation

15th unsecured straight bond

0.63

None

September 30, 2022

(7) The amounts of bonds maturity in 5 years from the consolidated settlement of accounts were as follows:
Millions of yen

Due within 1 year

Due after 1
through 2 years

Due after 2
through 3 years

Due after 3
through 4 years

Due after 4
through 5 years

3,966

3,966

3,066

3,066

1,971

Thousands of U.S. dollars

Due within 1 year

Due after 1
through 2 years

Due after 2
through 3 years

Due after 3
through 4 years

Due after 4
through 5 years

37,33037,33028,85928,85918,552

12. Retirement Benefit Plans(1) Outline of retirement benefit plans
The Companies have an unfunded defined benefit plan and defined
contribution plan to provide for employees’ retirement benefits.
The defined benefit plan is a lump-sum retirement distribution plan
(unfunded, but certain plans are funded as the Companies haveadopted a retirement benefit trust for the lump-sum retirement
distribution plan), and the amounts of retirement benefits areprovided mainly based on accumulated points by reference to job

level and length of service.
Also, retirement allowances may be paid with a premium for
retired employees.
Certain consolidated subsidiaries have adopted a simplified
method of calculation with liability for retirement benefits andretirement benefits expense which have been included in accounting for defined benefit plans since the amounts are immaterial.

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

Millions of yen

2018

2017

2018

Beginning balance of retirement benefit obligations

11,295

10,224

106,321

Service cost

1,359

1,252

12,797

Interest cost

55

45

520

Actuarial gains and losses accrued

82

135

772

(459)

(363)

(4,322)Retirement benefits paid
OthersClosing balance of retirement benefit obligations

5

—

51

12,338

11,295

116,140

Leopalace21 Annual Report 2018117
Leopalace21: Who We Are(b) List of adjustments between the balances of pension assets at the beginning and end of year were as follows:
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

—

—

5,000

—

47,063

Closing balance of pension assets

5,000

—

47,063(c) List of adjustments between the closing balances of retirement benefit obligations and pension assets and the liabilities andassets related to the retirement benefit posted in the consolidated balance sheet were as follows:
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Funded retirement benefit obligations

12,338—116,140

Pension assets(5,000)—(47,063)

7,338—

69,077

Unfunded retirement benefit obligations—

11,295—

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

7,338

11,29569,077

Liability for retirement benefit

7,338

11,29569,077

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

7,338

11,29569,077

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value—

Securities contribution to retirement benefits trust

Beginning balance of pension assets(d) Retirement benefit expenses and breakdown amounts were as follows:

Service cost

2018

2017

2018

1,359

1,252

12,797

Interest cost

55

45

520

Amortization of actuarial gain or loss

258

362

2,430

Retirement benefit expenses related to the defined benefit program

1,673

1,660

15,748(e) Items posted as the remeasurements of defined benefit plans (before deduction of tax effects) were as follows:
Thousands of
U.S. dollars

Millions of yen

2017

2018

Actuarial gains/losses

(176)

(226)

(1,658)

Total

(176)

(226)

(1,658)(f) Cumulative items posted as the remeasurements of defined benefit plans (before deduction of tax effects) were as follows:
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Unrecognized actuarial gains/losses

492

668

4,636

Total

492

668

4,636

Data Compilation2018

Initiatives for Supporting Corporate Value

Thousands of
U.S. dollars

Millions of yen

118

Leo palace2 1 An nua l Repor t 2018(g) Matters concerning pension assets were as follows:(1) Major components of pension assets
Cash and cash equivalents
Total

2018

2017

100%
100%

—%
—%

(Note) Total of pension assets is equal to the securities contribution to retirement benefits trust from the lump-sum retirement distribution plan.
(2) Method of determining the long-term expected rate of return
The long-term expected rate of return on pension assets is determined considering the allocation of the pension assets expected currently
and in the future and the long-term rates of return which are expected currently and in the future from the various components of the pension assets.
(h) Main calculation basis for actuarial assumptions were as follows (shown as weighted average):
Discount rate
Expected long-term rate of return on pension assets

2018

2017

0.03 – 0.97%
3.17%

0.03 – 0.89%—(3) Defined contribution plan
The necessary contribution amount for the defined contribution plan was 557 million yen ($5,246 thousand) and 503 million yen for the year
ended March 31, 2018 and 2017, respectively.

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

Millions of yen

Selling, general and administrative expenses

2018

2017

2018

128

118

1,214

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

2016 Stock Option

Executive officers (excluding
Directors) and employees of
8 Directors (excluding outside
Leopalace21 Corporation, andTitle and number of grantees
Directors) and 12 executive offiDirectors and employees of signifcers of Leopalace21 Corporation
icant subsidiaries
33 people
Type and number of stock options Common stock: 71,000 shares
Common stock: 252,700 shares
Grant dateAugust 17, 2009
August 18, 2016
Continuous services from the
grant date (August 17, 2009) toNo applicable vesting conditions
Vesting conditions
the end of vesting period (August are specified
17, 2011)
From August 17, 2009 to August No applicable period of service isVesting period
17, 2011
specified
From August 18, 2011 to June 27, From August 19, 2016 to August
Exercise period
201918, 2046(Note) Reported by converting to the number of shares2017 Stock Option

8 Directors (excluding outside
Directors) and 15 executive officers of Leopalace21 Corporation,and 9 Directors of subsidiaries
Common stock: 282,800 shares
September 14, 2017
No applicable vesting conditions
are specified
No applicable period of service is
specified
From September 15, 2017 to
September 14, 2047

Leopalace21 Annual Report 2018119
Leopalace21: Who We Are(b) Stock option transactions:
Number of stock options as of the fiscal year ended March 31, 2018 are reported by converting to the number of shares.
Number of stock options:2016 Stock Option

2017 Stock Option

Non-vested (number of shares)
Previous fiscal year-end

—

—

—

Granted

——282,800

Forfeited———

Vested——282,800

Outstanding

—

—

—

Vested (number of shares)
Previous fiscal year-end

65,000252,700—

Vested——282,800

Exercised

3,000

—

—

Forfeited———

62,000252,700

282,800

2009 Stock Option

2016 Stock Option

2017 Stock Option

Outstanding

Price information (yen):
Exercise price

826

1

1

Average stock price at exercise

856

—

—

Fair value at the grant date

277

547

528

2017 Stock Option

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

55.693%15 years
22 yen per share
0.299%(4) Estimate method of the number of stock options vested:
Due to the difficulty in rationally estimating the actual number of stock options that will be forfeited in the future, the actual number of forfeited stock options is adopted in the estimate.

Data Compilation(Notes) 1. Estimated based on the actual stock prices in a period of 15 years from September 2002 to September 2017.
2. T he expected life of option could not be estimated rationally due to an insufficient amount of data. Therefore, it was estimatedassuming that the options are exercised at the middle point of the exercise period.
3. Based on actual dividends for the fiscal year ended March 31, 2018.
4. Yield of the Japanese government bond, corresponding to period of the expected life of option.

Initiatives for Supporting Corporate Value(3) Estimate method of fair value of stock options:2017 Stock options granted in the fiscal year ended March 31, 2018 were valued using the Black-Scholes option pricing model and theassumptions were as follows:

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value2009 Stock Option

120

Leo palace2 1 An nua l Repor t 2018

14. Gain on Sale of Non-current Assets
Gain on sale of non-current assets for the years ended March 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars

Millions of yen

Buildings and structures

2018

2017

2018

915

328

8,620

Machinery, equipment, and vehicles

9

4

88

Land

—

74

—

Other (Property, plant, and equipment)
Total

1

1

18

927

408

8,726

15. Loss on Sale of Non-current Assets
Loss on sale of non-current assets for the years ended March 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Buildings and structures

—

48

—

Machinery, equipment, and vehicles

—

0

—

Land

27

259

257

Construction in progress

—

2

—

Others (Property, plant and equipment)

0

3

0

Total

27

314

258

16. Loss on Retirement of Non-current Assets
Loss on disposal of non-current assets for the years ended March 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars

Millions of yen

2018

2017

2018

Buildings and structures

82

82

773

Construction in progress

—

4

—

Others (Property, plant and equipment)

30

2

284

Others (Intangible assets)

—

60

—

Total

112

149

1,058

17. Rental Properties
The Company possesses rental apartments in major cities andregions throughout Japan. Some subsidiaries possess rental residences and offices, and develop and possess serviced apartments.
For the years ended March 31, 2018 and 2017, income arising fromthese rental properties were 2,773 million yen ($26,103 thousand)and 4,152 million yen, and impairment losses were 7,476 million
yen ($70,371 thousand) and 589 million yen, respectively.
Furthermore, the changes in book value of rental properties
during the year ended March 31, 2018 and 2017, and the fair value
as of March 31, 2018 and 2017 were as follows:

March 31, 2018
Millions of yen

Balance as of April 1, 2017

Increase/(Decrease)

Balance as of March 31, 2018

Fair value as of March 31, 2018

61,745(16,975)

44,76949,516

Leopalace21 Annual Report 2018121
Leopalace21: Who We Are

March 31, 2017
Millions of yen

Balance as of April 1, 2016

Increase/(Decrease)

Balance as of March 31, 2017

Fair value as of March 31, 2017

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

Thousands of U.S. dollars

Balance as of April 1, 2017

Increase/(Decrease)

Balance as of March 31, 2018

Fair value as of March 31, 2018581,189(159,787)

421,401

466,079(Notes) 1. B ook values recorded on the consolidated balance sheets were the amount after deducting accumulated depreciation and accumulated impairment loss from acquisition cost.
2. F or the years ended March 31, 2018 and 2017, the increase was mainly due to investments in serviced apartments of the ASEAN
region in 1,942 million yen ($18,283 thousand) and 649 million yen, and the main decreases was the sale of rental properties in
12,739 million yen ($119,908 thousand) and 1,652 million yen and impairment losses in 7,476 million yen ($70,371 thousand) and
589 million yen, respectively.
3. F air value as of the end of the current consolidated fiscal year end is calculated by the Company mainly based on “Real-estateappraisal standards.”

18. Asset Retirement Obligations
Disclosure is omitted due to immateriality in the consolidated financial statements.

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

March 31, 201819. Supplemental Information to the Statement of Changes in Net Assets
Shares issued and treasury stocks for the year ended March 31, 2018 were as follows:
SharesApril 1, 2017

Increase

Decrease

March 31, 2018

Shares issued
Common stock (Note 1)

267,443,915—

14,761,400

252,682,515

Total

267,443,915—

14,761,400

252,682,515

Treasury stock
Common stock (Notes 2, 3)

4,569,920

10,761,900

14,764,400

567,420

Total

4,569,920

10,761,900

14,764,400

567,420

Stock acquisition rights (SAR) and own share options for the year ended March 31, 2018 were as follows:
Number of shares issued upon exercise of SARs

Outstanding as of March 31, 2018

Class of sharesissued upon exerciseof SARs

April 1, 2017

Increase

Decrease

March 31, 2018

SARs as stock option

—

—

—

—

—

284

2,676

Total

—

—

—

—

—

284

2,676

Type

Millions of yen

Thousands of
U.S. dollars

Data Compilation(Notes) 1. D ecrease in common stock issued of 14,761 thousand shares is due to the retirement of treasury stock resolved at the meeting ofBoard of Directors.
2. Increase in treasury stock of 10,761 thousand shares is due to the acquisition of treasury stock of 10,761 thousand shares
resolved at the meeting of Board of Directors, accompanied with 0 thousand shares of purchase of shares less than one unit.
3. D
 ecrease in treasury stock of 14,764 thousand shares is due to the retirement of treasury stock of 14,761 thousand shares andexercise of stock options of 3 thousand shares.

Initiatives for Supporting Corporate Value

Type of shares

122

Leo palace2 1 An nua l Repor t 2018

Matters concerning dividends for the year ended March 31, 2018 were as follows:(1) Dividends paid:(Resolution)

June 29, 2017
General shareholders’ meeting
November 10, 2017
Board of Directors’ Meeting

Total amount of dividends

Class of shares

Millions of yen

Thousands of U.S. dollars

Common stock

3,154

29,692

Common stock

2,521

23,730

Dividends per share

Source of dividend

Yen

Record date

U.S. dollars

Effective date

Retained earnings

12

0.11

March 31, 2017

June 30, 2017

Retained earnings

10

0.09

September 30, 2017

December 11, 2017

(2) Dividends with record dates in the current consolidated year but effective dates in the next year:(Resolution)

Total amount of dividends

Class of shares

June 28, 2018
General shareholders’ meeting

Millions of yen

Thousands of U.S. dollars

3,025

28,476

Common stock
Dividends per share

Source of dividend

Retained earnings

Yen

U.S. dollars

12

0.11

Record date

Effective date

March 31, 2018

June 29, 2018

Shares issued and treasury stocks for the year ended March 31, 2017 were as follows:
SharesType of shares

April 1, 2016

Increase

Decrease

March 31, 2017

Shares issued
Common stock

267,443,915——

267,443,915

Total

267,443,915——

267,443,915

Treasury stock
Common stock

4,569,520

400—

4,569,920

Total

4,569,520

400—

4,569,920(Note) Increase in treasury stock of 400 shares is due to the purchase of shares less than one unit.
Stock acquisition rights (SAR) and own share options for the year ended March 31, 2017 were as follows:
Outstanding as ofMarch 31, 2017

Number of shares issued upon exercise of SARs

Class of sharesissued upon exerciseof SARs

April 1, 2016

Increase

Decrease

March 31, 2017

SARs as stock option

—

—

—

—

—

136

Total

—

—

—

—

—

136

Type

Millions of yen

Leopalace21 Annual Report 2018123
Leopalace21: Who We Are

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

Total amount of dividends

Class of shares

Millions of yen

Common stock

2,628

November 4, 2016
Board of Directors’ Meeting

Common stock

2,628

Source of dividend

Dividends per share
Yen

Record date

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

June 29, 2016
General shareholders’ meeting

Effective date

Retained earnings

10

March 31, 2016

June 30, 2016

Retained earnings

10

September 30, 2016

December 12, 2016

(2) Dividends with record dates in the current consolidated year but effective dates in the next year:(Resolution)

June 29, 2017
General shareholders’ meeting
Source of dividend

Retained earnings

Total amount of dividends

Class of shares

Millions of yen

Common stock
Dividends per share
Yen

12

3,154

Record date

Effective date

March 31, 2017

June 30, 2017(2) Operating lease transactions
Future minimum lease payments related to non-cancelable operating leases subsequent to March 31, 2018 and 2017 were as follows:
Millions of yen

March 31, 2018
Due within one year

Total

236,656(236,522)
119,977(119,764)
356,633(356,286)

1,126(1,126)
2,218(2,218)3,344(3,344)

Differences

235,529(235,395)
117,759(117,546)
353,289(352,942)

Data Compilation

Due after one year

Future lease payments Prepaid lease payments

Initiatives for Supporting Corporate Value

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

124

Leo palace2 1 An nua l Repor t 2018

Millions of yen

March 31, 2017
Due within one year
Due after one year
Total

Future lease payments Prepaid lease payments

238,120(237,983)
155,147(154,864)
393,267(392,848)

1,144(1,144)2,569(2,569)3,714(3,714)

Differences

236,975(236,839)
152,577(152,294)
389,552(389,133)

Thousands of U.S. dollars

March 31, 2018
Due within one year
Due after one year
Total

Future lease payments Prepaid lease payments

2,227,562(2,226,299)
1,129,305(1,127,304)
3,356,867(3,353,603)

10,603(10,603)
20,878(20,878)
31,481(31,481)

Differences

2,216,958(2,215,696)
1,108,427(1,106,425)
3,325,386(3,322,122)

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

21. Guaranteed Obligations
Guaranteed obligations as of March 31, 2018 and 2017 were as follows:
Thousands of
U.S. dollars

Millions of yen

Guaranteed obligations to financial institutions forcustomers who have a home mortgage
Guaranteed obligations to financial institutions forcustomers who have a membership loan
Total

22. Segment Information(1) Overview of Reportable Segments
The Company’s reportable segments are the components for which
separate financial information is available, and whose operating
results are reviewed regularly by the board of directors in order todetermine allocation of resources and assess segment performance.
Effective from the current consolidated fiscal year, reportable segments were changed from four segments comprising
the Leasing Business, Construction Business, Elderly Care
Business and Hotels & Resort Business, to the Leasing Business,
Development Business, Elderly Care Business and Hotels, Resort
and Other Businesses.
This change in reportable segments was the result of realignment of business areas according to the new medium-term management plan.
The Leasing Business operations comprise the leasing andmanagement of apartment buildings and other properties, repair
work, broadband internet service, rent obligation guarantee, the

2018

2017

2018

589

734

5,549

3
593

3
737

34
5,583

company residence agency business, solar power generation business, and small-amount short-term insurance business and others.
The Development Business operations comprise the construction
subcontracting of apartments, detached houses and developmentof condominiums and others. The Elderly Care Business operates
elderly care facilities. The Hotels, Resort and Other Business operates hotels and resort facilities etc.
Segment information for the previous consolidated fiscal year
is restated based on the changed reportable segments.
(2) Calculation Method for Sales, Profits and Losses, Assets,
and other Items by Reportable Segment
The accounting methods for reportable segments are in accordance to accounting policies adopted in the preparation of consolidated financial statements. The reportable segment profits(losses) represent operating profits (losses). Inter-segment sales
and transfers are based on prevailing market prices.

Leopalace21 Annual Report 2018125
Leopalace21: Who We Are(3) Information Regarding Sales, Profits and Losses, Assets, and other Items by Reportable Segment for the years ended March
31, 2018 and 2017 were as follows:
Millions of yen
Reportable segment

Sales
Sales to customers
Inter-segment sales and transfers
Total
Segment profit (loss)
Segment assets
Other items
Depreciation
Increase in property, plant, andequipment, and intangible assets

Consolidated
Total

530,840
3,738
534,578
27,283
192,450—(3,738)(3,738)(4,353)
144,807

530,840—
530,840
22,930337,257

1,278

9,526

2,199

11,726

5,369

19,787637

20,424Development
Business

Elderly Care
Business

Hotels, Resort, & Segment Total
Other Business

435,537131
435,669
26,062
112,516

76,58765
76,652
3,663
19,572

12,807—
12,807(1,596)
3,553

5,908
3,541
9,449
(846)
56,808

7,946

195

106

14,207

117

93(Notes) 1. Breakdown of adjustments was as follows:
Segment profit (loss)
Inter-segment eliminations
Corporate expenses*
Total

Millions of yen

Thousands of
U.S. dollars(243)(4,109)(4,353)(2,295)(38,678)(40,974)

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

March 31, 2018

Adjustments

Leasing
Business*Corporate expenses consist mainly of general administrative expenses for administrative departments that are not part ofreportable segments.

Millions of yen
Reportable segment

March 31, 2017

Consolidated
Total

520,4883,872
524,361
26,711
200,310—(3,872)(3,872)(3,812)
137,517

520,488—
520,488
22,898337,828

1,377

8,129

1,207

9,336

2,790

12,173

1,568

13,741Development
Business

Elderly Care
Business

Hotels, Resort, & Segment Total
Other Business

421,34232
421,374
23,009121,642

80,321
610
80,931
5,786
20,834

11,536—
11,536(1,667)
2,918

7,287
3,230
10,517(417)
54,915

6,484

184

81

9,171

87

123

Data Compilation

Sales
Sales to customers
Inter-segment sales and transfers
Total
Segment profit (loss)
Segment assets
Other items
Depreciation
Increase in property, plant, andequipment, and intangible assets

Adjustments

Leasing
Business

Initiatives for Supporting Corporate Value

Adjustments in segment assets (144,807 million yen, $1,363,022 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 (637 million yen, $5,997 thousand) consist of capital expenditures which do not belong to reportable segments.
2. Segment profit (loss) is adjusted to operating profit on the consolidated statements of operations.

126

Leo palace2 1 An nua l Repor t 2018

(Notes) 1. Breakdown of adjustments was as follows:
Segment profit (loss)
Millions of yen

Inter-segment eliminations
Corporate expenses*
Total

(277)
(3,535)(3,812)*Corporate expenses consist mainly of general administrative expenses for administrative departments that are not part ofreportable segments.
Adjustments in segment assets (137,517 million yen) consist mainly of surplus operating funds, long-term investment capital, andassets, which do not belong to reportable segments.
Adjustments in the increase of property, plant, and equipment, and intangible assets (1,568 million yen) consist of capital
expenditures which do not belong to reportable segments.
2. Segment profit (loss) is adjusted to operating profit on the consolidated statements of operations.
Thousands of U.S. dollars
Reportable segment

March 31, 2018
Sales
Sales to customers
Inter-segment sales and transfers
Total
Segment profit (loss)
Segment assets
Other items
Depreciation
Increase in property, plant, andequipment, and intangible assets

Adjustments

Consolidated
Total

4,996,613
35,1885,031,802
256,807
1,811,468—(35,188)(35,188)(40,974)
1,363,022

4,996,613—
4,996,613
215,832
3,174,490

12,03589,67320,707110,381

50,542

186,251

5,997

192,248

Leasing
Business

Development
Business

Elderly Care
Business

Hotels, Resort, & Segment Total
Other Business

4,099,566
1,239
4,100,805
245,312
1,059,078

720,889618
721,50734,483
184,229

120,547—
120,547(15,024)
33,44455,61033,33088,940(7,964)
534,716

74,794

1,843

1,000

133,726

1,106

875

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 statementof operations are generated in Japan.
(2) Plant, property, and equipment
March 31, 2018
Millions of yen
Japan

Trust territory of U.S.A. Guam

Kingdom of Thailand

Kingdom of Cambodia

Other

Total

113,867

26,426

1,231

1,645

172

143,344

Leopalace21 Annual Report 2018127
Leopalace21: Who We Are

March 31, 2017
Millions of yen
Japan

Trust territory of U.S.A. Guam

Kingdom of Thailand

Kingdom of Cambodia

Other

Total

127,111

26,193

1,200

656

104

155,267

Thousands of U.S. dollars
Japan

Trust territory of U.S.A. Guam

Kingdom of Thailand

Kingdom of Cambodia

Other

Total

1,071,797

248,745

11,594

15,4891,624

1,349,251

3. Major customers
Information concerning sales to major customers has been omitted, since no sales to any particular customer exceed 10% of sales reported
in the consolidated statement of operations.
Information concerning impairment loss on non-current assets by reportable segments
March 31, 2018
Millions of yen

Leasing BusinessImpairment loss

7,554

Development Business Elderly Care Business—

Hotels, Resort &Other Business

Adjustments

Consolidated total

—

39

7,594

Hotels, Resort &Other Business

Adjustments

Consolidated total

—

—

589

Hotels, Resort &Other Business

Adjustments

Consolidated total—

373

71,484

Hotels, Resort &Other Business

Adjustments

Consolidated total

—
—

—
—

522
2,886

Hotels, Resort &Other Business

Adjustments

Consolidated total

—
—

—
—

428
3,181

—

March 31, 2017

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

March 31, 2018

Millions of yen

Leasing BusinessImpairment loss

589

Development Business Elderly Care Business——Thousands of U.S. dollars

Leasing BusinessImpairment loss

71,110Development Business Elderly Care Business——Information concerning goodwill amortization and unamortized balance by reportable segments
March 31, 2018
Millions of yen

Leasing Business

7
219

515
2,666

—
—

March 31, 2017
Millions of yen

Leasing Business

Goodwill amortization
Balance——

Development Business Elderly Care Business

428
3,181

—
—

Data Compilation

Goodwill amortization
Balance

Development Business Elderly Care BusinessInitiatives for Supporting Corporate Value

March 31, 2018

128

Leo palace2 1 An nua l Repor t 2018

March 31, 2018
Thousands of U.S. dollar

Leasing Business

Goodwill amortization
Balance

Development Business Elderly Care Business

70
2,068

4,847
25,097——

Hotels, Resort &Other Business

Adjustments

Consolidated total

—
—

—
—

4,918
27,166

Information concerning gain on negative goodwill by reportable segments
For the years ended March 31, 2018 and 2017
Not applicable.

23. Amounts per Share(1) The following tables set forth the net assets and net income per share of common stock for the years ended March 31, 2018and 2017.
Yen

Net assets
Net income attributable to shareholders of the parent
Basic
DilutedU.S. dollars

2018

2017

2018

630.84603.76

5.94

58.02
57.93

77.61
77.56

0.55
0.55

(2) Basis of computation of basic and diluted net income per share for the years ended March 31, 2018 and 2017 was as follows:
Thousands of
U.S. dollars

Millions of yen

Basic net income per share
Net income attributable to shareholders of the parent
Amount not attributable to common stock
Net income attributable to common stock
Basic weighted-average shares during the year (Thousands of shares)
Diluted net income per share
Net income attributable to shareholders of the parent
Increase in the number of common stock (Thousands of shares)
Dilutive securities without dilutive effects and excluded from calculation ofdiluted net income per share

2018

2017

2018

14,819—14,819255,412

20,401—
20,401
262,874

139,490—
139,490
255,412

—
—
156
406
New stock acqui- New stock acquisisition rights (620) tion rights (650)

24. Related Party Transactions
The following tables set forth related party transactions for the years ended March 31, 2018 and 2017.
For the year ended March 31, 2018(a) Unconsolidated subsidiaries and affiliates
None

—
406

Leopalace21 Annual Report 2018129
Leopalace21: Who We Are(b) Directors and major individual shareholders
Capital stock
Name

Address

Directors andclose relatives

Toshiko Miyoshi

Attribute

Name

Transaction

Toshiko Miyoshi

Leasing ofapartments—

Millions of yen

Thousands of
U.S. dollars

Business or position

Percentage of shareownership

—

—

—

—

Millions of yen

Thousands of
U.S. dollars

Account

26

245

Leasing of landand building
Balance

Transaction amount

Directors andclose relatives

Relation

Prepaid expenses

Millions of yen

Thousands of
U.S. dollars——(Notes) 1. Consumption taxes were not included in amounts.
2. Conditions on leasing the apartments are the same as those on transactions with third parties.
3. Toshiko Miyoshi is a close relative of Tadahiro Miyama, Director of the Company.
For the year ended March 31, 2017(a) Unconsolidated subsidiaries and affiliates
None(b) Directors and major individual shareholders
Capital stock
Name

Address

Directors andclose relatives

Toshiko Miyoshi

Attribute

Name

Transaction

Toshiko Miyoshi

Leasing ofapartments—

Millions of yen—

Business or position

Percentage of shareownership——

Directors andclose relatives

26

Leasing of landand building

Balance

Transaction amountMillions of yen

Relation

Account

Prepaid expenses

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

Name of the acquired company Enplus Inc.
Business activities

Management of serviced apartments for foreigners, brokerage of residences, relocation management business (total management service related to international personnel relocation)(b) Major reasons for the business combination:
The International Business is positioned as a strategic growth business in the Company’s medium-term management plan. The acquisition of Enplus Inc., aiming to expand international and domestic businesses, will solve the human resource problems in Japanesecompanies’ accelerating globalization as well as that in the establishment of foreign companies’ Japan branches.
(c) Effective date of the business combination:
October 2, 2017

Data Compilation

25. Business Combinations
Business Combination through Acquisitions(1) Outline of the business combination:(a) Name of the acquired company and its business activities:

Initiatives for Supporting Corporate Value

Attribute

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Attribute

130

Leo palace2 1 An nua l Repor t 2018(d) Legal structure of the business combination:
Stock acquisition(e) Name of the company subsequent to the business combination
No change(f) Percentage of voting rights acquired by Leopalace21:66.7%(g) Completion of acquisition
Leopalace21 completed the acquisition of Enplus Inc. through stock acquisition with cash considerations.
(2) Period of business performances of the acquired company to be included in the Consolidated Statements of Operations in thefiscal year ended March 2018:
From November 1, 2017 to December 31, 2017(3) Acquisition cost of the acquired company and its details:
Consideration for the acquisition (cash)
Acquisition cost

Millions of yen

Thousands of
U.S. dollars

354
354

3,332
3,332

Millions of yen

Thousands of
U.S. dollars

439Millions of yen

Thousands of
U.S. dollars

190

1,789

(4) Main contents of acquisition-related costs:
Advisory cost, etc.

(5) Amount, creation, method and period of goodwill amortization:(a) Amount of goodwill:
Goodwill(b) Creation of goodwill:
It was primarily based on a reasonable estimation of future earning power expected from the expansion of relocation managementbusiness of Enplus Inc.
(c) Method and period of goodwill amortization:
Straight-line method (5 years)(6) Assets and liabilities absorbed at the date of combination:
Millions of yen

Thousands of
U.S. dollars

Current assets

436

4,110

Non-current assets
Total assets
Current liabilities
Long-term liabilities
Total liabilities

145
582
258
78
336

1,370
5,481
2,429
738
3,167

Leopalace21 Annual Report 2018131
Leopalace21: Who We Are(7) Estimated amount of impact on the consolidated statements of operations for the fiscal year ended March 2018 based on theassumption that the business combination was completed on the first day of the consolidated fiscal year under review, as wellas the calculation method thereof:
Thousands of
U.S. dollars

1,054

9,921

Operating profit (loss)

(30)

(286)

Recurring income (loss)

(48)

(454)

Net income (loss) attributable to shareholders of the parent

(73)

(690)

Net sales(Calculation method for the estimated amount)
The estimated amount of impact is the difference between net
sales and profit/loss information calculated based on the assumption that the business combination was completed on the first dayof the consolidated fiscal year under review and the net sales andprofit/loss information presented in the consolidated statementsof operations of the acquiring company at the date of acquisition.
In addition, the amortized amount has been calculated based on
the assumption that the goodwill recognized when the businesscombination was completed had been generated on the first dayof the consolidated fiscal year under review. Non-audited.

(8) Breakdown of major assets and liabilities of Enplus Inc.
The breakdown of major assets and liabilities of Enplus Inc. as of the beginning of the consolidation as well as net of cash acquired are
as follows:
Thousands of
U.S. dollars

Current assets

436

4,110

Non-current assets

145

1,370

Goodwill

190

1,789

Current liabilities(258)(2,429)Long-term liabilities

(78)

(738)

Non-controlling interests

(81)

(771)

Acquisition cost

354

3,332

Cash and cash equivalents(309)(2,911)

44

420

Balance: acquisitions of businesses-net of cash acquired

Business Combination through Acquisitions(1) Outline of the business combination:(a) Name of the acquired company and its business activities:

Business activities

Real estate business (management of income-producing properties for investment)(b) Major reasons for the business combination:
To strengthen the revenue base by acquiring income-producing investment properties(c) Effective date of the business combination:
November 1, 2017

Data Compilation

Name of the acquired company ASPENN INVESTMENTS PTE.LTD.
Plus, International Commercial Warehousing Services Co.,Ltd., a subsidiary of the acquired company became a subsidiary of the Company, accompanied with the acquisitions

Initiatives for Supporting Corporate Value

Millions of yen

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Millions of yen

132

Leo palace2 1 An nua l Repor t 2018(d) Legal structure of the business combination:
Stock acquisition(e) Name of the company subsequent to the business combination
No change(f) Percentage of voting rights acquired by Leopalace21:
95.0%(g) Completion of acquisition
Leopalace21 Singapore Pte. Ltd., a consolidated subsidiary of Leopalace21, completed the acquisition of ASPENN INVESTMENTS PTE.
LTD. through stock acquisition with cash considerations.
(2) Period of business performances of the acquired company to be included in the Consolidated Statements of Operations in thefiscal year ended March 2018:
From November 1, 2017 to December 31, 2017(3) Acquisition cost of the acquired company and its details:
Millions of yen

Thousands of
U.S. dollars

Consideration for the acquisition (cash)

356

3,356

Acquisition cost

356

3,356

Millions of yen

Thousands of
U.S. dollars

20

190

Millions of yen

Thousands of
U.S. dollars

35

336

(4) Main contents of acquisition-related costs:
Advisory cost, etc.

(5) Amount, creation, method and period of goodwill amortization:(a) Amount of goodwill:
Goodwill(b) Creation of goodwill:
It was primarily based on a reasonable estimation of future earning power expected from the business expansion of ASPENNINVESTMENTS PTE.LTD.
(c) Method and period of goodwill amortization:
Straight-line method (5 years)

Leopalace21 Annual Report 2018133
Leopalace21: Who We Are(6) Assets and liabilities absorbed at the date of combination:
Thousands of
U.S. dollars

Current assets

123

1,158

Non-current assets

929

8,751

Total assets

1,052

9,910

Current liabilities

1095

Long-term liabilities

710

6,690

Total liabilities

720

6,785

(7) Estimated amount of impact on the consolidated statements of operations for the fiscal year ended March 2018 based on theassumption that the business combination was completed on the first day of the consolidated fiscal year under review, as wellas the calculation method thereof:
Millions of yen

Thousands of
U.S. dollars

Net sales

47

443

Operating profit (loss)

(32)

(303)

Recurring income (loss)

(32)

(303)

Net income (loss) attributable to shareholders of the parent

(30)

(290)

(Calculation method for the estimated amount)
The estimated amount of impact is the difference between net
sales and profit/loss information calculated based on the assumption that the business combination was completed on the first dayof the consolidated fiscal year under review and the net sales andprofit/loss information presented in the consolidated statementsof operations of the acquiring company at the date of acquisition.
In addition, the amortized amount has been calculated based on
the assumption that the goodwill recognized when the businesscombination was completed had been generated on the first dayof the consolidated fiscal year under review. Non-audited.

Millions of yen

Thousands of
U.S. dollars

Current assets

123

1,158

Non-current assets

929

8,751

Goodwill

35

336

(10)

(95)

Long-term liabilities(710)(6,690)553Foreign currency translation adjustments
Non-controlling interests

(16)

(158)

Acquisition cost

356

3,356

Cash and cash equivalents

(29)

(274)

Balance: acquisitions of businesses-net of cash acquired

327

3,082

Data Compilation

Current liabilities

Initiatives for Supporting Corporate Value(8) Breakdown of major assets and liabilities of ASPENN INVESTMENTS PTE.LTD. and International Commercial Warehousing
Services Co.,Ltd.
The breakdown of major assets and liabilities of ASPENN INVESTMENTS PTE.LTD. and International Commercial Warehousing Services
Co.,Ltd. as of the beginning of the consolidation as well as net of cash acquired are as follows:

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Millions of yen

134

Leo palace2 1 An nua l Repor t 2018

26. Other
The following tables set forth quarterly information for the year ended March 31, 2018.
(Cumulative period)

Net sales (Millions of yen)First quarter

Second quarter

Third quarter

Full-year

128,450

258,740

385,521

530,840

Income before income taxes (Millions of yen)

(570)

6,319

11,95415,150Net income attributable to shareholders of the parent (Millions of yen)

5,559

9,488

12,863

14,819Net income per share (yen)

21.19

36.68

50.15

58.02

First quarter

Second quarter

Third quarter

Full-year

21.19

15.40

13.39

7.76

First quarter

Second quarter

Third quarter

Full-year

1,209,062

2,435,432

3,628,775

4,996,613

Income before income taxes (Thousands of U.S. dollars)(5,367)59,478112,521

142,604

Net income attributable to shareholders of the parent(Thousands of U.S. dollars)

52,33289,308121,083

139,490

0.20

0.35

0.47

0.55

First quarter

Second quarter

Third quarter

Full-year

0.20

0.14

0.13

0.07

(Accounting period)

Net income per share (yen)(Cumulative period)

Net sales (Thousands of U.S. dollars)

Net income per share (U.S. dollars)(Accounting period)

Net income per share (U.S. dollars)

27. Subsequent Events
Not applicable
28. Contingent Liabilities(1) The Company announced on April 27, 2018 that there werepartly discrepancies between construction drawings on noticeof verification of building construction and the actual construction of apartment series “Gold Nail” and “New Gold Nail”(“subject properties”), developed by Leopalace21 between
1994 and 1995.
The Company also announced that all subject properties will
be investigated and repair works to be carried out on all properties with discrepancies with construction drawings on noticeof verification of building construction, in consideration of the
responsibilities as a construction company.
Going forward, the Company will promptly arrange theschedule for the investigation of subject properties with owners and occupants and repair works to be carried out sequentially from the completion of investigation of subject properties.
Also, the Company will undertake investigations in addition
to ordinary periodic inspections of all Leopalace series otherthan the subject properties, and will make timely and appropriate responses.

(2) The Company announced on May 29, 2018 that a part of apartments constructed by the Company during 1996 and 2009, issuspected of violating the Building Standard Law. The Company
also announced that all apartments of 37,853 buildings developed by Leopalace21 will be investigated and repair works to
be carried out.
Going forward, the Company will arrange the investigationof all apartments of 37,853 buildings and repair works to be
carried out sequentially from the completion of investigation of
all apartments with the problems.
There is a possibility that repair costs will arise due to the matter of (1) and (2) above, and this could impact the future financial
position and operating results of the Company, but it is difficult
to rationally estimate the amount at this moment as the Company
just started the investigation of individual properties.

135
Leopalace21 Annual Report 2018

Leopalace21: Who We Are

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

Initiatives for Supporting Corporate Value

Data Compilation

136

Leo palace2 1 An nua l Repor t 2018

Data Compilation
External Environment<Number of New Housing Starts>(1,000 units)

In the year ended March 2018, the number of new housing starts decreased
for the first time in 3 years. Rental housing starts also declined for the firsttime in 3 years, falling by 4.0% year on year to 410,355 units. Starts of rental
units less than 30 square meters aimed mainly at single-person households
remained robust, rising 3.1% year on year to 78,796 units.

Rental units
Of which, rental units under 30m2
Other
Total

FY2016FY2017

384
61
537
921

427
76
547
974

410
79
536
946

Source: New residential housing construction work commencement statistics,
the Ministry of Land, Infrastructure, Transport, and Tourism<Number of Households>
The number of households in Japan is expected
to decline from 2025 due to the nation’s trendsof aging population and low fertility rate. On theother hand, the number of single-person households, including in our target cohort of the productive population (aged 15–64), are expected tocontinue to increase.

FY2015(1,000 households)

Single-person households
Of which, under 25
Of which, age 25-34
Of which, age 35-64
Of which, age 65 or older
Married couples
Married couples with children
Single-parent with children
Others
Total

2020
2025
2030
2035
(forecast) (forecast) (forecast) (forecast)

2005

2010

2015

14,457
2,178
2,971
5,444
3,865
9,637
14,6464,112
6,212
49,063

16,785
2,060
2,999
6,745
4,980
10,26914,474
4,535
5,779
51,842

18,418
2,021
2,987
7,157
6,253
10,75814,342
4,770
5,044
53,332

19,342
2,009
2,830
7,479
7,025
11,101
14,1345,020
4,510
54,107

19,960
1,879
2,795
7,774
7,512
11,203
13,693
5,137
4,123
54,116

20,254
1,781
2,705
7,809
7,959
11,138
13,1185,141
3,833
53,484

20,233
1,681
2,558
7,577
8,418
10,96012,465
5,074
3,583
52,315

Source: January 2013 estimates on the number of households and forecasts, the National Institute of Population and Social Security Research<Number of Vacant Homes in Japan>
Amid the concentration of populations in cities,
the number of vacant homes is growing, especially in regional areas. The number of vacant
properties in Japan available for rent or salestands at 4,600,000 units, or one in five homes,
according to the most recent Housing and Land
Survey, published in fiscal 2013, and is becoming
a social problem.

Number of vacanthouses for rent or sale
(1,000 units)
Tenancy (1,000 units)
Ratio of vacant
dwellings (%)

1983

1988

1993

1998

2003

2008

2013

1,834

2,336

2,619

3,520

3,978

4,476

4,600

12,951

14,015

15,691

16,73017,166

17,77018,519

12.4

14.3

14.3

17.4

18.8

20.1

19.9

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

Leasing Business Data
<Apartment Rooms under Management >As of March 31, 2018, apartments under management—the earnings foundation for our
Leasing Business—numbered 570,672, rising forthe fifth consecutive year. The proportion of ourportfolio located in our focus regions of Kanto(Tokyo metro area and Kita-Kanto), Chubu, andKinki remained high at around 70%.

(Rooms)Hokkaido
TohokuKita-Kanto
Tokyo metro area
Hokuriku-Koshinetsu
Chubu
Kinki
Chugoku
Shikoku
Kyushu-Okinawa
Total

FY2015FY2016FY2017

14,132
34,84340,381
161,756
40,64387,71179,79038,43914,53549,731561,961

14,08835,27040,553
165,590
40,63988,08680,71538,798
14,67150,329568,739

13,93235,43440,321
168,313
40,09587,91680,362
38,945
14,671
50,683570,672

Leopalace21 Annual Report 2018

Corporations
Individuals
Students
Total

FY2015Units%

FY2016Units%

FY2017Units%

277,261
183,008
48,451
508,720

293,824
180,61746,857521,298

309,062
178,643
47,142534,847<Average Annual Occupancy Rate>
Similar to the year-end occupancy rate, the averageannual occupancy rate is on a recovery path. The average annual occupancy rate in the year under review
was 90.6%, rising for the seventh consecutive year. The
primary reason was the trend towards longer occupancy
periods due to factors such as the success of measures
for increasing property value.

Average annual
occupancy rate(%)

Hokkaido
TohokuKita-Kanto
Tokyo metro area
Hokuriku-Koshinetsu

Shikoku
Kyushu-Okinawa
Total

Services centers, no. of incoming calls
Of which, inquiries
Of which, maintenance related
Of which, complaints or claims
Tenant response rates from Internet (new contracts only)

81.8
94.4
85.5
92.8
88.3
89.1
90.6
92.5
87.0
90.7
90.5

87.1
94.5
90.7
94.2
92.7
94.5
93.8
93.1
91.8
96.1
93.7

84.7
94.1
87.2
92.6
90.0
91.1
91.3
93.8
89.9
93.9
91.7

No. of lease sales offices
Of which, Leopalace Centers
Of which, Leopalace Partners (franchisees)
No. of leasing sales personnel

FY2015FY2016FY2017

319
189
130
1,606

308
189
119
1,589

307
189
118
1,546

FY2015FY2016FY2017

256,900
7,848
576,764
412,947
129,614
34,20357,556279,609
10,223
530,804
373,062
125,734
32,00845,673

296,564
12,778515,750
361,678
121,672
32,40045,971

Data Compilation

Security cameras installed (cumulative, buildings)

End-FY2017

End-FY2016

Initiatives for Supporting Corporate Value

Chugoku

Security systems installed (cumulative, rooms)

90.6

88.5

End-FY2015

Chubu

The Leasing Business is forging ahead with building a
network balanced between directly managed leasing
sales offices and franchisee-run offices. We continue to
optimize our sales force, which totaled 1,546 people asof March 31, 2018, down 2.7% year on year.

57.8
33.4
8.8
100.0

FY2017FY2016

88.0

Kinki

<Number of Leasing Sales Offices
and Sales Personnel>

56.4
34.6
9.0
100.0

(%)

FY2015<Fiscal Yearend Occupancy Rates by Region>
Japan has now emerged from the recession following
the global financial crisis. As of March 31, 2018, ouroverall occupancy rate was 93.7%, up 2.0 points froma year earlier. The occupancy rate exceeded 90% in all
regions, except Hokkaido.

54.5
36.0
9.5
100.0

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

We are strengthening our marketing efforts aimed atcorporations, where we can expect stable, long-term
income. As of March 31, 2018, the number of corporate
contracts for apartments stood at 309,062 units, up 5.2%
from a year earlier. The composition ratio was 57.8%,
accounted for more than 50% of our lease portfolio for
the fifth consecutive year.

Leopalace21: Who We Are<Leases by Contract Type>

137

138

Leo palace2 1 An nua l Repor t 2018

Development Business Data
<Orders>
In fiscal 2017, orders stood at 75,905 million yen due tothe impacts of measures for curbing apartment orders.
By building category, however, orders were strong forstores and buildings with commercial space, increasing
147.3% year on year to 1,390 million yen.

(Millions of yen)

FY2015

Building categories
Apartments
Elderly care facilities
Stores & commercial space
Custom-built homes*
Solar power systems
Total

FY201677,004
2,872
2,040
4,502
18
86,43979,424
2,377
562
4,763
13
87,139FY2017

69,712
706
1,390
4,097
0
75,905*Subsidiary Morizou<Apartments Completions>
The number of apartment buildings completed declined
14.6% year on year, to 566 in fiscal 2017. Of these,
completions of mainstay 2-story models decreased, but
we enjoyed an increase in completions of buildings with
3 and 4 stories, where demand is high in urban areas.
Together, 3- and 4-story buildings accounted for around
30% of our total completions.

(Buildings)

FY2015<Apartment Completions by Region>
The number of apartment completions is declining in Tohoku, Kita-Kanto, Tokyo metro area, Hokuriku-Koshinetsu,
Kinki, Chugoku, and Shikoku due to the impacts of measures for curbing orders.

<Sales Offices Accepting Construction
Orders, Sales Personnel>
The long-term outlook is for demand for apartment construction to decline nationwide. In this environment, ourstrategy is to concentrate our sales offices and personnel
in regions where strong demand can be expected.

513
125
47
685

Two stories
Three stories
Four stories or more
Total

FY2017FY2016

376
160
30
566

485
154
24
663

(Buildings)

FY2015

46
20
342
5
57
98
39
7
71
685

TohokuKita Kanto
Tokyo metro area
Hokuriku-Koshinetsu
Chubu
Kinki
Chugoku
Shikoku
Kyushu-Okinawa
Total

FY2015

Sales offices responsible forconstruction orders (offices)
Sales personnel responsible for construction orders(personnel)

FY2017FY2016

20
13
317
1
43
79
32
2
59
566

27
21
366
5
42
101
33
9
59
663

FY2017FY2016

60

60

60

616

566

530

Leopalace21 Annual Report 2018

Leopalace21: Who We Are

Elderly Care Business Data
<Number of Facilities>

139(Facilities)

FY2017FY2016

Fee-based homes

21

21

21

Day services, Short stays

44

53

60

Group homes

2

2

2

Total

67

76

83

<Utilization Rate>(Utilization rate, %)The utilization rate at fee-based homes for seniors
and group homes remained high at about 90%. In thisbusiness, we are focusing on temporary-type offerings,
notably day services and short stays. The utilization rate
improved for both.

FY2015FY2017FY2016Day services

66.3

72.5

72.8

Short stays

92.3

87.6

90.2

Fee-based homes &group homes

92.4

93.0

88.8

Hotels and Resort Business Data
<Leopalace Resort Guam>
Leopalace Resort Guam, a resort operated in Guam, continues to improve profitability through efforts to encourage usage by the Company’s stakeholders, including corporate clients.
(Utilization rate, %)

2015

1,409

No. of visitors to Leopalace
Resort Country Club (users)

52,000No. of stakeholder visitors(people who stayed, recreational
facility users)

44,000

1,536

2017

1,544

50,00047,00047,00055,000(30.0%of the total)

2015

2017

2016

Leopalace Resort Guam

60.2

55.9

50.7

Westin Resort Guam

82.6

—

—

* We sold Westin Resort Guam in April 2016.

(53.4%of the total)*Data on the number of visitors to Guam, Guam Visitors Bureau (a government agency)<Leopalace Hotels>
Leopalace21 operates business hotels across Japan. We encourage
usage of these hotels by stakeholders, including corporate clients on
business trips.

(Utilization rate, %)FY2015FY2016FY2017

79.1

75.0

—

Sapporo

87.9

90.4

83.6

Sendai

78.0

78.1

77.8

Niigata*

62.9

—

—

Nagoya

80.5

80.9

79.6

Okayama**

73.3

75.9

—

HakataNo. of stakeholder stays(persons)

94.2

94.8
11,168

94.9
11,788

11,648(7.1% of the total)* Hotel Leopalace Niigata was sold in July 2015.
** Hotel Leopalace Asahikawa and Okayama was sold in August 2016.

(8.6% of the total)

Data Compilation

Asahikawa**

Initiatives for Supporting Corporate Value

No. of visitors to Guam*(thousands)

2016

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating ValueThe Elderly Care Business has expanded its network offacilities, mainly in the Tokyo metropolitan area. Positioning this segment as a growth business, we are further
expanding the network, including the Chubu region, witha focus on facilities offering day services and short stays.

FY2015

140

Leo palace2 1 An nua l Repor t 2018

Social Key Performance Indicators
The Company engages in the respective CSR initiatives under the leadership of the CSR Committee chaired by the CSR officer, working
together with divisions and departments. Meeting 4 times a year, the CSR Committee receives reports on the progress of the initiatives
that comport with the five themes of the Basic CSR Action Policy, based on the quarterly quantitative targets set by each division anddepartment, and moves initiatives to the next phase of the PDCA cycle. Key topics and KPIs are approved by the CSR Committee, andthese are periodically reported to the Board of Directors. Furthermore, this year, the CSR Executive Committee was newly established asa superior body of the CSR Committee. It meets twice a year to establish CSR policies, set medium- to long-term targets, as well as
approve and check the progress of yearly plans.

<Governance>
FY2015FY2017FY2016

2
1
347
280
32
34

Outside directors
Female directors
Officer compensation (millions of yen)
Directors (excludes outside directors)
Audit & Supervisory Board members (excludes outside ASB members)
Outside directors and ASB members

3
1
655
563
19
71

3
1
455
370
31
54

<Employee Composition (Parent company)>Total

No. of employees
No. of career-track employees
No. of temporary hires
Average age
Average cumulative years of service

FY2015
Men

Women

Total

FY2016
Men

6,413
5,961
452

4,491
4,274
217

1,922
1,687
235

6,541
6,086
455

4,551
4,335
216

35 years,
11 months
7 years,
9 months

36 years,
11 months
8 years,
11 months

33 years,
7 months
5 years,
0 months

36 years,
3 months
8 years,
3 months

37 years,
4 months
9 years,
5 months

Women

FY2017
Men

Total

Women

6,494
5,998
496

4,509
4,265
244

1,985
1,733
252

33 years, 36 years,
10 months 11 months
5 years,
8 years,
6 months 11 months

38 years,
0 months
10 years,
2 months

34 years,
5 months
6 years,
1 months

1,990
1,751
239

<Work-life Balance (Parent company)>
Total

Comparison of total working hours
Overtime work hours
No. of employees on short work-hours schedules
No. of employees on childcare leave
Ratio of paid vacation usage
Rate of workforce turnover
Ratio of new hires

FY2015
Men

Women

4
3
64.2%
6.5%
14.8%

178.4
20.0
124
154
113
149
85.1% 72.2%
11.5%
7.1%
6.7%
7.5%

184.2
22.4
128
116
70.1%
8.0%
10.7%

Total

FY2017
Men

Women

12
80
70.6%
6.3%
14.6%

176
177
82.5%
12.2%
10.3%

FY2017
Men

Women

159.7
2.17%
2
22
19
191
334
124
5
20
15
479
722
327
52.3% 100.0% 45.3%
87
1,707
1,603
5.4% 100.0% 93.9%

3
210
5
395
54.7%
104
6.1%

FY2016
Men

Women

5
5
68.4%
5.4%
7.0%

176.7
18.2
149
188
144
257
81.7% 74.1%
10.9%
8.1%
7.9% 12.5%

Total<Diversity (Consolidated (excluding Guam), Parent company + Leopalace Smile for disabled employees)>
Total

No. of disabled employees (average annual rate)% of disabled employees (average annual rate)
No. of mandatory retirees that have been rehired*
No. of employees with foreign citizenshipNo. of foreign managers
Number of people employed
Employment ratio (gender ratio)
No. of managers
Ratio of managers (gender ratio)

FY2015
Men

148.0
2.05%
28
26
275
107
19
16
1,081
511
100.0% 47.3%
1,538
1,463
100.0% 95.1%

Women

Total

FY2016
Men

158.6
2.14%
2
27
25
168
299
108
3
19
14
570
915
436
52.7% 100.0% 47.7%
75
1,622
1,535
4.9% 100.0% 94.6%

Total

Women

*Employees who reach the mandatory retirement age can be rehired on a different contract.

<Support for Employees Seeking to Obtain Qualifications>
FY2015

No. using support for obtaining qualifications
No. using support system for obtaining specified qualifications
No. in program for language skills improvement
No. awarded a bonus for obtaining Takken qualification

FY2016

490
364
21
54

“Takuchi tatemono torihiki shi” or “Takken”: This qualification recognizes those who passed a test on Japanese building lots and transactions law.

1,003
875
21
56

FY2017

742
651
16
75

Leopalace21 Annual Report 2018

<Efforts to Reduce our Environmental Impact>
15,696

Head office and branches

9,786
6,982
2,133

8,781
6,111
1,576

7,710
6,043
1,943

4,104

3,615

3,490

907,727

873,167

864,448

812,091

798,946

781,102

3,926

4,337

4,409

33,24958,462

17,892
51,992

34,12744,810No. of buildings with solar powersystems

12,964

12,987

12,995

No. of buildings with systems
installed by LP21 Group

4,493

4,495

4,494

Solar power generation capacity (kW)

182,070

182,443

182,591

Capacity of systems installedby LP21 Group (kW)67,06067,10067,10054,92755,04055,084

20,231

24,343

24,590Category 13 (electricity and gas
use by rental housing)Category 3 (electricity-related)
Category 6 (business travel)

37

44

Accidents requiring
time off work
Accidents not requiring time off work

8

16

3

20

21

41

<Stakeholder Communication Initiatives>
FY2017FY2016

257

231

424

19

21

22

31

35

28

<Community Contributions>
FY2015FY2016FY2017

14,2393,598
10,641
2,577

14,143
1,939
12,2042,509

14,013
3,037
10,976
2,378

571

571

444

* Leopalace Smile Co., Ltd. is a special subsidiary set up to employ the disabled under Article 44 of
the Act for Employment Promotion etc. of Persons with Disabilities.

Category 7 (employee commuting)
Category 2 (capital goods)
Category 1 (purchased materials)

CO2 reduction via solar power
generation (t-CO2)
Reduction via systems installedby LP21 Group (t-CO2)

Initiatives for Supporting Corporate Value

No. of cleanup campaign participants
Of which, in vicinity of existing properties
Of which, in vicinity of construction sites
Total sum of donations (thousands of yen)
No. joining observation tours and OTJ
training at Leopalace Smile*

16,469

Scope 3 CO2 emissions (t-CO2)28

No. of IR events (meetings for individual
investors, etc.)
Career-support activity
programs

18,900CO2 emissions from vehicle gasoline(t-CO2)

No. of labor accidents

No. of owner meetings

FY2017

Leopalace hotels

FY2017FY2016FY2015FY2016

Azumi En nursing care facilities<Labor Safety and Health>
FY2015FY2015CO2 emissions from electricity andgas use (t-CO2)

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

747
375
1,282
446
360
224
35
556
189
373

Real estate broker
Rental property manager
General insurance solicitor (basic course/fire insurance course)
Architect (first-class, second-class)
Building construction management engineer (1st Grade, 2nd Grade)
Certified skilled worker of financial planning (1st Grade, 2nd Grade)
Land surveyor
Care worker
Care manager
Home care worker

Leopalace21: Who We Are<Certified Employees (as of March 2018)>

141

Data Compilation

142

Leo palace2 1 An nua l Repor t 2018

Corporate Profile
Corporate Data

(As of March 31, 2018)

Company Name:
Leopalace21 Corporation
Head Office:2-54-11 Honcho, Nakano-ku, Tokyo
TEL: +81-3-5350-0001 (Main Line)
Established:
August 17, 1973
Paid-in Capital:
75,282.36 million yen
Operations:	Construction, leasing and sales of apartments, condominiums,	and residential housing; development and operation of resort
facilities; hotel business; broadband business; and elderly carebusiness, etc.
Number of Employees:
7,690 (consolidated basis)
6,494 (non-consolidated basis)

Members of Board of Directors and Auditors (As of June 28, 2018)
Directors
President and CEO
Director
Director
Director
Director
Director
Director
Director
Director (Outside)
Director (Outside)
Director (Outside)

Eisei Miyama
Tadahiro Miyama
Yuzuru Sekiya
Hiroshi Takeda
Kazuto Tajiri
Hiroyuki Harada
Bunya Miyao
Hiromi Ito
Tadashi Kodama
Tetsuji Taya
Yoshiko Sasao

Audit & Supervisory Board Members
Standing Audit & Supervisory Board Member			
Atsunori Nasu
Standing Audit & Supervisory Board Member (Outside)		
			
Jiro Yoshino
Audit & Supervisory Board Member (Outside)		
			
Masahiko Nakamura
Audit & Supervisory Board Member (Outside)		
			
Takao Yuhara

Major Shareholders (Top10)(As of March 31, 2018)

Thousands ofSharesPercentage of
Outstanding Shares

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

39,202

15.54%

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

10,056

3.98%

3 THE BANK OF NEW YORK MELLON SA／NV 10

7,279

2.88%

4 STATE STREET BANK AND TRUST COMPANY

6,825

2.70%

5 Stockholding Association for Leopalace21’s Business Connection

5,592

2.21%

6 THE BANK OF NEW YORK MELLON 140040

5,166

2.04%

7 THE BANK OF NEW YORK MELLON 140044

4,896

1.94%

8 STATE STREET BANK AND TRUST COMPANY 505223

4,755

1.88%

9 TAIYO HANEI FUND, L. P．

4,719

1.87%

10 STATE STREET BANK AND TRUST CLIENT OMNIBUS ACCOUNT OM02 505002

4,184

1.65%

Shareholders

Note1: Of the shares listed above, those held in trust accounts as part of trust bank operations are as follows:
Japan Trustee Services Bank, Ltd. (Trust Account)
38,367 thousand shares
The Master Trust Bank of Japan, Ltd. (Trust Account) 9,793 thousand shares
Note2: The above shareholding ratios are calculated excluding treasury stock.

Stock Information(As of March 31, 2018)

Shareholder Composition

Number of Shares:
Authorized:
500,000,000
Outstanding:
252,682,515■ Financial Services Providers

Number of Shareholders:
44,404■ Business

Listing:First Section of the Tokyo Stock Exchange(Security code: 8848)
Transfer Agent:
Mitsubishi UFJ Trust and Banking Corporation(Securities Companies)

1.73 %

Corporations andOther Legal Entities

2.44 %■ Financial Institutions

23.43 %(As of March 31, 2018)■ Treasury Stocks

0.22 %■ Individuals

and Other

13.89 %■ Foreign
Corporations

58.29 %

Leopalace21 Annual Report 2018

Total Number ofManaged Rooms

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

Number of Managed Rooms

570,672 units
Total Number of
Directly Managed Sales Offices

2
9
Hokkaido Area

13,932

Initiatives for Opportunities and Risks of Social Challenges Initiatives for Creating Value

3
5,725
2
Okinawa Area

182 offices

Total Number ofPartners Franchise Sales Offices

118 offices

8
13

40,09538,945

Tohoku Area

Kinki Area

Chugoku Area

6
1535,434

Hokuriku/Koshinetsu
Area

14
25

80,36210
1140,321

5
14

Kita-Kanto Area

5
14,671
5
Shikoku Area

16
24

87,91615
1544,95834
49

168,313

Chubu Area

Kyushu Area

Share Price and Trading Volume(As of March 31, 2018)

Share Price

Trading Volume(Thousand shares)
60,000750

40,000550

20,000

350

0

May

Jun.

Jul.

Aug.

Sept.

Oct.

Nov.

Dec.

Jan.
2018

Feb.

Mar.

Data Compilation

(Yen)
950

Initiatives for Supporting Corporate Value

Metropolitan Area

Apr.
2017

Leopalace21: Who We Are

Number of Apartment Rooms under Management and Domestic Leasing Sales Offices by Area (As of March 31, 2018)143

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 2018
Printed in Japan