A n n u al R ep o rt 2009

Annual Repor t 2009

Leopalace21 Corporation

We help shape the dreams of people andsociety in terms of their vision of a home.
Leopalace21 has been in the apartment business since its founding in 1973,
and over the years has developed a variety of businesses based on the principleof “Create New Value.” We have established a new business model for theapartment business that, taking into account the perspectives of owners andresidents, is growing to become the leading company in the industry, with morethan 500,000 apartments under management throughout Japan.
Our mission is far from over. Leopalace21 will continue working to shape new
dreams for people and their homes.

Fiscal 2008 Saw 507,000 Apartment Units under Management

598,000

553,000

507,000
344,000
216,000(years ended March 31)

136,000
83,000642,000

New Medium-Term Management Plan,“Change for Next”

A new stage of growth amid a
rapidly changing business environment
In December 2006, Leopalace21 announced its five-year mediumterm management plan, “United Spirit.” However, since the global
economic slowdown that began in the United States had aconsiderable impact on Leopalace21's business, we fundamentallyrevised the “United Spirit” plan and formulated the Medium-Term
Plan, “Change for NEXT.” The plan name reflects our desire toestablish a solid business structure resistant to turbulent periods
and less reliant on market conditions, as well as our commitment
to boldly implementing change.
The aim of the new Medium-Term Management Plan is tofundamentally reform Leopalace21's operational structure overthe next three years. It reflects a shift in strategy from expansion
based on long-term macroeconomic indicators, such as
demographics and population migration, to business strategies
able to cope with abrupt changes in business conditions. Under
the new management plan, Leopalace21 will clearly define theselection and concentration of businesses, concentrate management
resources in the core businesses that account for 95% of sales, andestablish a rock-solid business structure able to produce earnings
growth even during difficult periods.

1Difficult times call for proactive reform
Outline of the new management plan
The global economic crisis has had a considerable impact on the Japanese economy.
Despite a recent upturn, for the foreseeable future the business environment for
Leopalace21 is likely to be extremely difficult. Faced with such circumstances,
Leopalace21 has made a concerted effort to formulate a new Medium-Term
Management Plan.
One of the initial aspects of the plan is to strengthen governance through reformof the organizational structure. Business divisions are being consolidated into a
Sales and Marketing General Headquarters and Related Businesses Headquarters,
establishing a structure to promote governance and strategies for each business.
The Management Committee will provide verification of management issues,ensuring careful monitoring of the progress of management and business strategies.
The operational flow will also be improved in order to cut selling, general andadministrative (SG&A) expenses and other costs. We will concentrate management
resources in core businesses, and improve earnings centered on the Leasing,
Business. Further, we will return to Leopalace21 s original business model ofMotazaru Keiei (“non-ownership management”). We will narrow the scope of
capital expenditures and other investments, and raise asset efficiency to expand
corporate value.

March 2012

Basic Strategies: General Policies

April 2009

Organizational Reformand GovernanceConcentration of Management
Resources in Core Businesses

Fundamental Revisionof Our Cost Structure

Return to Focus on Motazaru
Keiei (“non-ownership management”)

Contents

2

3 Consolidated Financial Highlights

24 Corporate Social Responsibility (CSR)

4 Message to Our Shareholders

28 Financial Section

10 Feature Story

54 Glossary

16 Overview of Operations

55 Corporate Information

16

At a Glance

58 Corporate Slogan

18

Apartment Construction Subcontracting Business20

Leasing Business

22

Related Businesses

Consolidated Financial Highlights
Leopalace21 Corporation and its subsidiaries
Years ended March 31

Thousands of U.S. dollars,
except where noted

Millions of yen, except where noted

2009

2008

2007

2009

¥733,235¥672,974¥631,608$7,464,475

Operating income

50,157

71,40376,007

510,606

EBITDA

55,93976,56680,567569,472

Net income (loss)

9,952

342

37,358101,312Net sales

Total assets*¥467,300¥493,956¥454,820$4,757,207

Total net assets*

146,442

170,155

185,785

1,490,814

Interest-bearing debt*

44,18849,711

53,160449,851

Total net assets per share (¥ and US$)*

967.401,036.43

1,054.99

9.85

Net income per share (¥ and US$)

63.54

2.15

234.680.65

Cash dividend per share (¥ and US$)

30.00

80.00

50.00

0.31

Equity Ratio (%)*

31.3

33.4

37.0

Return on equity (ROE)(%)

6.4

0.2

24.8

Return on assets (ROA)(%)*

2.1

0.1

8.6

Payout ratio (%)*

47.2

3720.921.3

Notes: 1. U.S. dollar amounts are translated from yen at the rate of ¥98.23 = US$1, the approximate rate prevailing at March 31, 2009.
2. EBITDA = Operating income + depreciation
3. Return on assets (ROA) = Net income/total assets x 100
4. Items marked with an asterisk are at the fiscal year-end.

Net Sales and Operating Margin
Billions of yen
800

631.6
600

672.9

Interest-Bearing Debt and D/E Ratio
%
15

733.2

Billions of yen
60

0.5

53.1

49.7

44.1

12.0

10

10.6

40

0.3

400

6.8

0.3

0.3

0.4
0.3
0.2

5

20

200

0.1
0

0
2007

2008

Net sales
Operating margin

Forward-Looking Statements
This report contains statements regarding
forecasts of future earnings. Such statements
are judgments based on certain preconditions
and information available to management at
the time of publication, and are not intended
as a guarantee of future performance.
Accordingly, actual revenue and earnings
may differ substantially from these forecasts.

0

0
2007

2009

2008

Net Income per Share and ROE
Yen
250

200

%
30

234.6824.8

2009Interest-bearing debt
D/E ratio

20
150
100

63.54

50

2.15

0
2007

0.2

2008

10

6.4
0
2009

Net income per share
ROE
3

September 2009

Yoshiteru Kitagawa,President and CEO

A New Medium-Term Management Plan for
the Next Stage of Business Development
The rapid deterioration in corporate earnings and consumer spending during
fiscal 2008 (ended March 2009) arising from the turmoil in the financial
markets also had repercussions for Leopalace21. Although consolidated net
sales rose year on year, revenues fell short of plan for the second consecutive
year. In response to this result Leopalace21 launched “Change for NEXT,”a new Medium-Term Management Plan designed to expand unit supply, raise
the occupancy rate and maximize lease revenues to improve earnings in the
Leasing Business, as well as to cut back operating expenses, and reallocate
management resources.

4

Message to Our Shareholders

would you assess the market environment andQ How
Leopalace21's results during fiscal 2008?
Rising sales and declining profit during fiscal 2008
Despite the financial crisis, Leopalace21 posted consolidated net
sales of ¥733,235 million for fiscal 2008 (ended March 2009), an
increase of 9.0% from the previous fiscal year. Broken down bybusiness segment, the Apartment Construction Subcontracting
Business brought in ¥359,155 million (up 9.7% from a year earlier),
and the Leasing Business ¥334,561 million (up 10.5%). Together
these two core businesses account for 95% of sales. Consolidated
operating income, however, was down 29.8% from the previous
fiscal year to ¥50,157 million.The Apartment Construction
Subcontracting Business suffered a sharp falloff in order volume
from the second half of the subject fiscal year, but the introductionof new brands and other measures helped to offset the decline,
and the segment's operating income for the full year amounted to¥70,113 million. In the Leasing Business, however, an unexpectedly
large number of corporate contracts were canceled beginning in
the third quarter, and the segment posted an operating loss of¥1,539 million. Related businesses* also ended with an operating
loss of ¥13,635 million, so overall the profit from the Apartment
Construction Subcontracting Business was offset by approximately¥15,174 million due to losses in other businesses as well as theelimination of ¥4,782 million in inter-segment operating income.

Unexpected outflow of residents
The stock market decline, worsening unemployment and strong
yen led to a sharp decrease in corporate earnings and consumer
spending. Manufacturing lines were stopped, workers were
temporarily sent home, laid off or had contracts canceled, and theresulting termination of leases had a considerable impact on the
Leasing Business. Previous economic downturns had involved
declines in land prices, financial difficulties and other problems,
but there was never an outflow of residents on this scale before.
If we had been able to maintain occupancy, conditions for ourbusiness would not have been so bad.

is your overall assessment of the “United Spirit” plan
Q Whatthat Leopalace21 followed through fiscal 2008?
Achievements: 150,000 units added in three years
Leopalace21 had 344,000 units under management at the startof this three-year plan. By the end of the initial year this had
increased to 388,000 units, then to 442,000 in the second and507,000 in the third, for a total of more than 150,000 additional
units over these three years. The increase in orders and units
supplied in the Apartment Construction Subcontracting Business,and the additional units under management, helped establish
Leopalace21's presence in the one-room studio apartment market.
We estimate that as of the end of fiscal 2008, Leopalace21 had a
56.1% share of the market for supplying one-room studioapartments, and more than 10% of the units under management.

Shortfalls: Failure to reach final-year targets
The previous medium-term management plan was designed toconsist of two phases. Looking back on phase one, from fiscal 2006
to fiscal 2008, in the initial year we mostly achieved our sales andearnings targets. We fell slightly short of target in year two, while
in year three, although the fallout from the financial crisis placed
considerable pressure on both sales and earnings, I believe wemanaged to keep the impact to a minimum. In the third year of thefirst phase of the plan, although sales in the Apartment Construction
Subcontracting Business were 12 percentage points over plan, sales
in the Leasing Business were 4 percentage points under, and related
businesses were 59 percentage points under. On a consolidated
basis, sales were 4 percentage points below plan. Consolidated
operating income was hit particularly hard, falling short of plan

Results of the Previous Medium-Term Management Plan (billions of yen)
Apartment Construction Subcontracting BusinessLeasing BusinessNet sales
1,200

2007

Operating income
90

2008
77.1

76.6
1,000

Related businesses*
Operating income

2009
81.2

76.0
71.4

800

600

400

200

0

766.7
624.5
43.5

631.6
38.3

693.8
66.6
312.2

672.9
42.7
302.7

96.9

733.2
39.5

60

50.1
349.8

334.5

281.0

277.1

300.0

316.1

315.0

327.5

320.0

359.1

Plan

ActualPlan

ActualPlan

Actual300Note: Amounts are after inter-segment eliminations.

Issues That Emerged as a Result of the
Abrupt Changes in the Business Environment
Apartment Construction Subcontracting Business:
Expand supply to spur the profitability of Leasing BusinessLeasing Business: Establish structure to secure earnings through measures
to maximize lease income and reduce operating expenses
Related businesses※: Monitor status of business development and consider
reallocation of management resources*Related businesses comprise Hotel Resort, Residential Sales and Other businesses.

5figures by ¥31,100 million. Operating income was down in bothcore businesses. By the end of the first phase, building a structure
to secure earnings in the Leasing Business, and the supply of units
in the Apartment Construction Subcontracting Business to drive
revenues for the Leasing Business, had emerged as management
issues.

A business structure adaptable to changes in theexternal environment
During the course of the medium-term management plan over the
past three years, Leopalace21 was exposed to many shifts that
affected its management. These included a delay in establishingand implementing revisions to the Building Standards Law, a risein prices for building materials amid appreciation of the yen andspike in the resources market, and the economic slowdown.
It became essential to respond to these changes in the external
environment, along with adjustments to the medium-term
management plan, including the measures in the second phaseof the plan, and revisions to the business structure, products andservices as well as to the organizational framework. We came tofeel that it was necessary for us to establish a business foundation
able to provide earnings growth over the long term, and to rework
the medium-term management plan around the premise that wewill be continually subjected to acute shifts in the businessenvironment.

us about the new Medium-Term Management Plan,
Q Tell“Change for NEXT."
Toward stable management and a new stage of growth
The focus of the new Medium-Term Management Plan, “Change
for NEXT,” is to stabilize management to limit as much as possible
any disruption to the plans and performance of core businesses.
While the economy is beginning to brighten, the slump in consumer
spending will not recover quickly, and we expect the difficult
conditions for housing, condominium, and commercial real estatedevelopment to continue for some time.
For this reason the targets in the new Medium-Term Management
Plan are conservative, and incorporate downside risks to the fullest
extent possible. We are forecasting year-on-year declines in bothsales and earnings for the initial year of the plan, but are committed
to achieving recovery on both counts from the second year.

Management focused on asset efficiency
Leopalace21's plan is to maintain sales at fiscal 2008 levels overthe next three years. We are targeting ¥700,700 million in net
sales in the first year, ¥723,100 million in the second, and ¥751,100
million in the third. The assumptions behind these targets are flatlevels for the Apartment Construction Subcontracting Business inanticipation of a slump in new construction demand, along withgrowth for the Leasing Business (8% to 10% annually) based on
the stock of units under management. For operating income, we
expect a year-on-year decline of more than 50% in the first yearof the plan, and recovery to fiscal 2008 levels by the third year. By
focusing on asset efficiency rather than business scale, we aim toincrease ROE to 13.7% by the third year of the plan, compared to
6.4% in fiscal 2008.
To help achieve these targets, Leopalace21 has established a Sales
and Marketing General Headquarters, and will reform management
to integrate the construction and leasing businesses. The Management
Committee will enhance its framework for addressing individual
management issues, along with monitoring and governancefunctions. We will also invest management resources in corebusinesses, and broaden the variety of our product offerings by
expanding from mainly one-room studio apartments for young
people to include large-scale, one-room and family-style units insuburban areas.

Revise business strategies to address changes in the business climate, overcome the present downturn in earnings,
and increase corporate value
Reform the structure and strengthen governanceConcentrate management
resources on core businesses
Expand areas of unit supply with
the introduction of new products
Broaden channels for securing tenants,
and strengthen corporate operations

Fundamentally reform the cost structure
Regain focus on Motazaru Keiei *New Medium-Term Management Plan

“Change for NEXT”
April 2009-March 2012

Increase the supply of units that contributeto earnings in the Leasing Business
Pursue a “one-stop” strategy (1K to family units)* The Company's model for core businesses is based on construction of apartments on behalf of property owners and entering master-lease agreements with these apartment owners.
We then lease apartments to individual tenants. This model enables us to continue growing our business and earnings without requiring the Company to own the underlying assets or
take on debt. We call this model Motazaru Keiei in Japanese.

6Message to Our Shareholders

Numerical Targets of the New Medium-Term Management Plan
(Consolidated)
Net Sales

Operating Income, Net Income and ROE

Billions of yen

Billions of yen

800

733.2

700.7

723.1

751.1

Operating income

60

Net income

ROE

13.7
50.1
46.7

600

10.2
40

10

34.1

400

6.4
20

200

0

%

15

5.8

24.0

21.7
9.9

5

16.3
8.7

0
2009

2010 (E)2011 (E)2012 (E)020092010 (E)2011 (E)2012 (E)specific measures are you planning for core andQ Whatrelated businesses in the new Medium-Term Management Plan?
Core Businesses: Strengthen the supply lineup

Related Businesses: Enhance monitoring

Leopalace21 has achieved growth up to now through a large supplyof mainly one-room studio apartments for young people. However,tenant turnover is considerable, with 300,000 cancellations andnew contracts following cancellations each year. Around 20% of
those who leave their apartments move to a larger residence.
Products able to accommodate such residents would curb the
number of tenants leaving, and stimulate new demand. Following
this reasoning, Leopalace21 expanded from its specialty in providing
one-room units in industrial districts and the three major urban
areas of Tokyo, Nagoya and Osaka, and from fiscal 2008 introduced
a private residence with attached lease units (Lavo cerna), a largetype one-room unit (LEPIDO), and a family-type unit (Lavo familia).
Offering units suitable for family use, such as a large-type 1K (oneroom plus a kitchen), and large-type 1LDK (one room plus a living
room/dining room/kitchen) and 2LDK (two rooms plus a living
room/dining room/kitchen), allows Leopalace21 to provide a onestop service for residents from one-room to family-use needs.

Leopalace21 will revise and clarify its priorities for the related
businesses and subsidiaries. The business areas we will give special
attention to are those with a close connection to core businesses
and strong performance, mainly Leopalace Insurance Co., Ltd. andLeopalace Leasing Corporation.
Those businesses not closely related to the core businesses or thatare showing weak performance, such as the domestic hotel andoverseas resort businesses, will be placed under a program ofenhanced monitoring, including cost reductions and curbs on newinvestment. The priority for these businesses will be improving
earnings.

As part of this broadening of business, Leopalace21 has also
expanded its supply area to include suburban areas of major urban
areas, along with regional cities. This helps to distribute risk so that
we do not lean too heavily on corporate demand or temporary staff,
and enhances our ability to offer solutions to prospective newowners. It also helps to increase the earnings in the Leasing Businessby securing a stable level of tenants, even if earnings decline in
the Apartment Construction Subcontracting Business.

Note: See the Feature Story on pp. 10-15 and Overview of Operations on pp. 16-23 forfurther details on the new Medium-Term Management Plan, “Change for NEXT.”7

Q What measures are you taking for CSR?
CSR means providing even greater corporate value
Leopalace21 considers providing more corporate value for all
stakeholders to be its highest management priority.The basis of
this philosophy is corporate actions that provide efficient, fair, andtransparent management. The new Medium-Term Management
Plan lays out an organizational structure for effective corporate
governance, with the CSR Committee overseeing the Administrative
Headquarters and the Management Planning Headquarters, while
the Compliance Committee and the Risk Management Committee

focus on business activities. We are also considering bringing in
outside directors to enhance management centered on corporate
governance.
Leopalace21's corporate value lies in its ability to offer landowners
a way to effectively utilize their assets, and to provide tenants with
good-quality residences. A high degree of satisfaction with suchsupply and demand is the CSR that we believe we should offer
society.

Q Finally, what message do you have for stakeholders?
Advice for Leopalace21 employees
I began working for Leopalace21 at the age of 22, inspired by theCompany's founder. My success was in part due to the vigor ofyouth, but the relationships of trust I established with the founderand others were also significant. It is my hope that young people
today form closer relationships with others. Such interactions
reveal the degree to which you can express yourself successfully.
Leopalace21 employees are in general serious people. Their averageage is younger than that of our competitors, but they have earned
a high level of trust from landowners. Leopalace21 employees
conduct neighborhood cleanup activities together with owners forthe apartment buildings and surrounding areas as part of our CSR
program, and I believe that it is this interaction with owners thathelps to deepen their communication skills.

8

The new Medium-Term Management Plan as acommitment to shareholders
The new Medium-Term Management Plan is our commitment toshareholders. We will work to enhance the value of the Apartment
Construction Subcontracting and Leasing businesses that are at theheart of our business, with the aim of building a solid operating
foundation that can weather the wide swings in the businessclimate. The only way to achieve this is to listen carefully andunderstand the needs of each individual customer, and address
them one at a time. Through a concerted effort, we will raise ourcorporate value. I hope I can count on the understanding, support,
and dedication of all stakeholders.

Message to Our Shareholders

Interview with the Chief Financial Officer

Q What is the Motazaru Keiei concept?
Motazaru Keiei is our keyword for a return to the basics
After the collapse of the bubble economy in the 1990s, theindustry began to realize that the focus on “ownership” was a
product of an ever-increasing age. It was at this point that
Leopalace21 decided to adopt a business model of “no assets, nodebt.” The new Medium-Term Management Plan, formulated
under conditions not unlike those at that time, was a reaffirmationthat “non-ownership management” was the essence of a goingThrough Motazaru Keiei management, we will:
Curb capital expenditures and hold fixed costs level
Increase current assets though sales activities
Achieve ROA of 5% and an equity ratio of 38%
Reach total assets turnover of 1.57 times

concern, and sought to return Leopalace21's focus to its corebusinesses. Motazaru Keiei is the keyword driving that process.

Management not dependent on the balance sheet
Leopalace21 does not eschew investment completely, of course.
We make necessary investments, such as those to strengthen ourcore businesses. One specific example, part of a strategy to broaden
the channels for acquiring tenants, was the creation of a website
designed for real estate agents, and holding of regular meetings
with agents to boost the average number of leases per agent fromthe current 1.2 to 2 or more. We also developed a website specificallyfor corporate customers, allowing employees to directly request
units without involving the human resources department.
Leopalace21's network of owners and tenants is linked by theadded value we provide. That is why building liquid assets throughsales activities, or increasing fixed assets through capital expenditures,
does not necessarily enhance our essential corporate value. We
aim for management that does not depend on the balance sheet.

are your policies regarding dividends andQ Whatother forms of shareholder returns?
Maintaining a payout ratio of 30%
Leopalace21 places a high priority on providing returns to shareholders.
Our policy calls for maintaining a payout ratio of 30%, and in fiscal
2008 we paid an interim dividend of ¥30 per share. However,considering our final results for the period, the payout ratio and an
economic situation clouded by a lingering recessionary mood,

we decided to forgo the year-end dividend. For fiscal 2009, we will
strive to achieve the targets of the Medium-Term Management Plan,and expect to maintain a payout ratio of 30%. The same holds true
for the shareholder special benefit program for Leopalace Resort.

Cash Dividends per Share

Yen
100

80

80
60

50

40
20
0

30
15

15

15

2004

2005

2006

2007

2008

2009

Hiroyuki Miyata,
Senior Executive Officer, Head of the Administrative Headquarters

9

The Financial Crisis as Turning Point:
A New Medium-Term Management Plan
for a New Stage of Growth
The new Medium-Term Management Plan, “Change for NEXT,” was formulated as Leopalace21
steered to avoid disaster amid the sudden shifts in the business environment brought on by thefinancial crisis. The new plan, developed as a return to the basics of the core businesses, lays out
fundamental measures to be implemented according to a three-year roadmap. The aim of theplan is for Leopalace21 to make a concerted effort as a corporate group to revise the businessstructure to be adaptable to sudden shifts in the business climate, to improve profitability in thecore and related businesses , and to implement other measures that will build a foundation for
the next stage of growth.

Roadmap for the New Medium-Term Management Plan
April
2009
● Reform business structure to allow response
to sudden changes in the business environment

April
2010
● Improve earnings through implementationof strategies for each business

April
2011
● Move to next stage of growth on completionof business restructuring

Business/Financial Strategy
Structural reform

Begin restructuring aimed at integrated
management of the Apartment Construction
Subcontracting and Leasing businesses.
Strengthen administrative structure for related
businesses, and establish committees toaddress specific management issues.

Core businesses

Offer broad range of units through a fullproduct lineup, and secure new tenants.

Related businesses

Core businesses

Continue and accelerate integrated managementof the Apartment Construction Subcontracting
and Leasing businesses.

Pursue external strategies through businesstie-ups and outsourcing.

Core businesses (proactive marketing)
Increase variation in available units with salesof 1K, large 1K and family-type unit.
Revise business and earnings structure for the
Leasing Business.

Related businesses

Focus on priority businesses, consider
reallocation of management resources.

Management streamlining

Reduce operating and fixed expenses.

Target (Benefits)
Strengthen governance
Secure orders for the Apartment
Construction Subcontracting Business
Improve income for the Leasing Business
Concentrate management resources incore businesses
Fundamentally reform the cost structure

10

Increase earnings for the Leasing
Business
Scale back related businesses

Achieve profitability for the Leasing
Business

March
2012

Feature Story

Main Points of the New Medium-Term Management Plan
A Fresh Start That Gets Back to Basics
The goal for the first year of the new Medium-Term Management
Plan is to transform the business structure so that it is better able
to adapt to sudden shifts in the business climate. Senior Managing
Director Eisei Miyama, head of the Management Planning Headquarters,
has noted, “The foundation of the new Medium-Term Management
Plan, based on a careful reflection on the substantial damage to theprevious management plan caused by the financial crisis, is to returnsquarely to the original business structure of the core businesses.”
The four main strategies to achieve this are: (1) strengthening
corporate governance through organizational reform; (2) concentrating
management resources into the two core businesses of Apartment
Construction Subcontracting and Leasing; (3) fundamentally revising
the cost structure; and (4) carefully managing numerical targets.
The focus is on building an earnings structure that will be resilienteven if the economy does not immediately recover.

Stronger Corporate Governance
Leopalace21 has two aims in strengthening corporate governance.
The first is to organically separate management functions to allow
for timely decision-making from a comprehensive perspective.
Leopalace21 has grown to a size in which it manages more than
500,000 units, making control solely through top-down management
difficult. Under the new Medium-Term Management Plan, Leopalace21
will establish five committees, including an IT Committee, Investment
Committee, and Construction/Leasing Unification Committee. The
Construction/Leasing Unification Committee, for example, willuse information and feedback obtained from worksites and leaseproperties to consider the future direction of business from a varietyof angles. The issues raised in committees will be submitted to theManagement Committee for decision. “This process will enhance
management transparency,” says Director Miyama.
The other goal is to clarify roles and responsibilities. Specifically,
the focus on core businesses will be clarified by unifying the leasing,subcontracting and construction divisions under a Sales and Marketing
General Headquarters, and consolidating related businesses undera Related Businesses Headquarters. The idea is to streamline
operations by shifting personnel in the business planning andadministrative divisions to the sales divisions of core businesses.

Renewed Focus on Motazaru Keiei to Reduce Costs
Leopalace21 is altering the fundamentals of its cost structure. This
includes a renewed focus on Motazaru Keiei, the concept ofearning profits without owning land or maintaining business offices.
“Reform of the cost structure is vital,” explains Director Miyama.

Eisei Miyama
Senior Managing
Director, Head of
the Management
Planning
Headquarters“We want to determine the extent to which we can enhance
performance by consolidating business offices, and incurring as little
cost as possible.” Leopalace21 has already consolidated 100 leasing
office locations. The question then becomes how to find and attract
tenants. “The alliances we have been forming with real estate agents
since the latter half of 2008 have begun to produce results,” says
Miyama. Leopalace21 has many years of in-house experience withmethods of attracting potential residents. However, with the numberof units under management now more than 500,000, we havereached a new stage of stronger ties with real estate agents. For
the new products launched on the market last year, Leopalace21
accepted the common industry practice of charging a security
deposit and gratuity to the landlord. “This was to put us on thesame page as the real estate agents,” explains Miyama. “We havealready begun to see the benefits, with the number of lease contracts
in the first quarter for the new Medium-Term Management Planup 1.3 to 1.4 times that of the same period of the previous fiscal
year. Leopalace21 expects to lower the ratio of sales and generaladministrative expenses by around 2 percentage points by the thirdyear of the new plan, equivalent to around ¥13,800 million.
Management of numerical targets will also be linked to the leasing
asset liability management (ALM) system* currently in development.
Once completed, the leasing ALM system will allow detailed cost
control for each apartment complex on a nationwide level. Cost
control will also allow for comprehensive management of earnings.
Cost control and management of earnings for every apartmentcomplex nationwide will enhance earnings in the Leasing Business,and provide growth for the Apartment Construction Subcontracting
Business. The entirety of investment during the fiscal year ending
March 2010 is being directed into this leasing ALM system and a
hotel in Sendai. All other investment has been temporarily suspended.
* The leasing ALM system is an IT system to support optimal management of apartment
units. See page 20 for details.

11

Numerical Target: Sales by Segment
Billions of yen

500
400

Numerical Target: Operating Income by Segment

Apartment Construction Subcontracting BusinessLeasing Business
Related businesses

New Medium-Term Management Plan
433.3

398.2
359.1
334.7

300

Apartment Construction Subcontracting BusinessLeasing Business
Related businesses

Billions of yen

80

70.1

New Medium-Term Management Plan

60
48.4

361.1
300.2

40

300.2

300.1

46.4

45.8

20
6.5

200
0
100
44.1
0

2009

44.2
2010 (E)-20
29.62011 (E)(1.5)(13.6)

22.6
2012 (E)

-40

2009

(5.8)

(2.2)

(4.1) (3.8)(16.9)
2010 (E)2011 (E)2012 (E)

Note: Amounts shown are prior to inter-segment eliminations.

The Changing Nature of Leopalace21
Unification of the Leasing andApartment Construction Subcontracting Businesses
The concentration of management resources and unification ofcore businesses is one of the major aims of the new Medium-Term
Management Plan. Tadahiro Miyama, Executive Director ofManagement and head of the Sales and Marketing General
Headquarters, explains that the unification stems from the decline
in the occupancy rate since the financial crisis. As manufacturers
implemented hiring freezes and other measures as part of thescaling back of production, areas where factories are locatedexperienced widespread outflows of tenants. These outflows andthe fall in the occupancy rate prompted Leopalace21 to revise theway it conducts business.
Up to this point, there has been a division between the Leasing
Business and the Apartment Construction Subcontracting Business,despite both being under the same corporate umbrella. The
Apartment Construction Subcontracting Business sold to thelandowner, drawing profit from the construction of apartmentbuildings, while the Leasing Business focused on individuals andcorporations, earning profit from leasing. The businesses functioned
differently because of the difference in the customer target. However,in the current economic environment tenants no longer automaticallyfill the apartments being built, and it has become difficult to securesufficient earnings with the two businesses acting separately.
“Earnings in the Apartment Construction Subcontracting Business,were considerable, which linked to the Company s growth,” explains
Director Miyama. “Going forward, however, it is important for us
to consider the earnings from both businesses, and find a way to12

respond to shifts in the environment in a timely manner.” Interaction
between staff members of the Leasing and the Apartment Construction
Subcontracting businesses has already begun. By thoroughly
examining the characteristics of each particular area, including thereasons for the fluctuations in the occupancy rate, and by conducting
in-depth planning and considering the requirements for apartmentlayouts, the exchange of detailed information between the two corebusinesses is helping drive the development of new products.

A “One-Stop Solution” Strategy
The unification of the Leasing Business and the Apartment
Construction Subcontracting Business is also closely related to
product strategies. A full 95% of the units managed by Leopalace21

Tadahiro Miyama
Executive Director ofManagement, Head of
the Sales and Marketing
General Headquarters

Feature Story

Residences for Changing Life Circumstances

1K

Large-type 1K

Family Units

University students, new recruits, etc.
(including temporary housing)

Adults, DINKs, etc.
(including employees on extended assignment)

Families, etc.
(including sharing with roommates)

are one-room (1K) apartments. The problem with a lineup consisting
mainly of one-room units is that if tenants get married, there arefew choices when it comes to finding a new residence, and so they
move out. To address this problem, Leopalace21 has introduced
large 1K and family-type units. These new products allow Leopalace21
to retain as customers the tenants who move from regular one-room
units. This “one-stop solution” strategy is another of the central
pillars of the new Medium-Term Management Plan.
The one-stop solution strategy allows Leopalace21 to develop newsales channels. “The focus of the Apartment Construction Subcontracting
Business on one-room units limited the scope of sales to cities andother specific areas, and by offering family-type units we expand
sales to new areas,” says Director Miyama. “This will also change
the image for Leopalace21 from a provider of one-room units toinclude families as well, and lead to growth in demand.” By offering
a full product lineup, the Apartment Construction Subcontracting
Business will be able to expand its marketing from one-room units
in major urban centers and government-designated cities to include
family-type units in suburban areas.

Greater Emphasis on Corporate Marketing
Leopalace21 is also shifting its focus for corporate marketing to a
one-stop solution strategy. Despite being the undisputed leader,
in one-room units, Leopalace21 s share of the corporate market isonly 10%. Director Miyama is confident that in the current recession
Leopalace21 is able to offer corporations something that otherhousing companies cannot in terms of corporate dorms andcompany housing. With an eye toward increasing its market share,
Leopalace21 is setting its sights on cuts in corporate benefit
expenses, and offering a flexible response to the demand forcorporate dorms and company housing. Along with expanding
the product lineup, “Leopalace21 is able to offer a wide range ofsolutions as a provider of apartment rental services,” stressed
Director Miyama. This is because of the master lease agreements
Leopalace21 has with apartment owners, together with theadvantage of scale provided by more than 500,000 units under,management. Leopalace21 s nationwide chain of apartmentsallows it to offer units with a common standard and equal format.
The ability to offer distinctive products is also a significant factor.

Monitoring Is the Watchword for Related Businesses' Strategies
Improving Earnings Is the Highest Priority
With the concentration of management resources in core businesses
under the new Medium-Term Management Plan, Leopalace21 isprioritizing related businesses, and stepping up its monitoring.
The strategic businesses under the previous medium-term
management plan, including the Silver, Domestic Hotel, Overseas
Resort, and Residential Sales businesses, have been consolidated
under related businesses and designated as areas for increased
monitoring. At the same time, Leopalace Insurance Co., Ltd. andLeopalace Leasing Corporation, because of their strong connection
to core businesses, will be strategically developed as subsidiarybusinesses in alliance with the core businesses.

The person overseeing all the related businesses, with the exceptionof the subsidiary businesses of Leopalace Insurance and Leopalace
Leasing, is Director Yoshikazu Miike. “I have been placed in chargeof all the related businesses so that the other directors can focus
on the core businesses,” says Director Miike. “I will do my best to
improve earnings in the Residential Sales, Silver, Domestic Hotel,
and Overseas Resort businesses.” Despite this huge responsibility,
Miike says that “Finding ways to reduce losses and achieve
profitability is a real challenge. I am looking forward to it.”13

Initiatives for Each Business
The businesses to be strengthened will be separated into thosebusinesses where the priority is on improving the balance ofrevenue and expenditure, and those where the focus is on internal
development in anticipation of a recovery in the economy. The
former are the Silver and Residential Sales businesses. The main
issue for the Silver Business is the low occupancy rate for facilities,
due mainly to the time needed to reach resident target numbers.
“We have built Azumien locations on the idle land of apartment
owners, but have no plans to increase the number of facilities,”says Miike. The focus will be on raising the occupancy rate at thecurrent business scale, and improving the balance of revenue andexpenditure.
For the Residential Sales Business, which posted a loss of ¥10,665
million in the fiscal year ended March 2009, Leopalace21 plans
to continue to conduct business at a minimal level, and will notacquire any new properties for sale.
The Domestic Hotel Business has suffered from a decline in corporate
demand due to the economic recession, and on the assumptionthat the economy will not recover quickly, the priority will be on
increasing employee motivation and other internal reforms. The“Smile Campaign” is one example. The more employees smile,

Yoshikazu Miike
Director, Head of the Related Businesses Headquarters

the greater the customer satisfaction. The focus will be on suchbasic aspects of the service industry. This will also be implemented
for the Silver and Overseas Resort businesses, says Director Miike.
For the Overseas Resort Business, with travel to Guam down overall,
Leopalace21 will strengthen its marketing by drawing on thestrengths of its sports and general resort facilities, while also
reforming operations and cutting costs.

Orientation of Related Businesses and Subsidiaries■ Management resources will be concentrated in core businesses during the new Medium-Term Management Plan

Related businesses will be prioritized.

High Profitability

Priority fields
Fields for increased
monitoring

Weak
Connection toCore Businesses

Leopalace
Insurance Co., Ltd.

Domestic HotelBusiness

Leopalace
Leasing Corporation

StrongConnection toCore Businesses

Overseas Resort Business

Silver Business

Leopalace
Finance Co., Ltd.

Residential Sales Business
Low Profitability

We will give priority to concentrating management resources in core businesses, and strengthen monitoring ofrelated businesses.

14

Feature Story

Japan,s Rental Housing Market and Leopalace21,
Outlook for Japan s Rental Housing Market
The number of Japanese households in leased residences rose by
three million over the 15 years from 1990 to 2005. Despite suchnegative factors as stagnant population growth, a declining
birthrate and an aging population, along with asset deflation, therental housing market has continued to grow. The driver has been
single person households. The number of households in privately
owned rental housing rose from 10.21 million in 1990 to 13.00
million in 2005, with the proportion of single person households
increasing by around 10 percentage points, from 4.91 million(48%) to 7.35 million (57%). These renters are mainly young
persons up to 34 years old, and as the number of single personhouseholds rises in tandem with the trend toward later marriage
and more people choosing to remain single, these young people
accounted for 44% of renters as of 2005.
For the landowners who invest in these properties, during the eraof rising land prices (until 1990) rental housing was a means oflowering taxes, while since the era of land price deflation (from1990) it helped avoid higher taxes on idle residential land. Investors
also turned to apartments in the face of falling stock prices andlower yields on bank deposits. Reductions in corporate benefits andcutbacks in corporate dormitories have also contributed to theincrease in demand for rental housing.

The Rise of Rental Housing Construction andManagement Companies
Rental housing construction and management companies, suchas Leopalace21 and Daito Trust Construction Co., Ltd., have since
the latter half of the 1990s offered a package service for apartment
construction and management. They provide landowners who
would prefer not to manage their own rental property with rent
guarantees and a master lease service (subleasing), as well as
standardization of construction specifications for one-room units,
and the acquisition of tenants. These companies provide enhanced
convenience for renters by offering monthly and other short-term
rentals, furnished apartments and other services, following a growth
track using a business model that differentiates them from local
property companies and building contractors.
As of 2008, the three leading firms of Leopalace21, Daito Trust
Construction Co., Ltd. and Sekisui House, Ltd. had a combined totalof approximately 1.4 million units* under management. Leopalace21
had the top share (56%) of new housing starts for rental propertiesof 30 square meters or less.
* Source: Shukan Zenkoku Chintai Jutaku Shimbun, 2008 Nationwide Ranking of Numberof Units under Management from 720 Companies (July 28, 2008).

New Housing Starts (by Use)
Company housing and other
Owner-occupied houses
Condominium apartments

House with land (after subdivision)
Leased apartments

Thousands of households

1,400
1,200

1,249.3

1,193.0

1,285.2
1,035.5

1,039.1

2008

2009

1,000
800
600
400
200
0

2005

2006

2007

Number of Starts of Lease, Residences of 30 Square Meters
or Less and Leopalace21 s Market Share
Under 30m2

Our units

Our market share

Thousands of households

%

160

80

120

80

127.6

122.8

113.5

116.9

112.2
39.6

44.9

40.4

49.7

50.2

60
56.1

43.8
55.9

56.3

65.6

40

0

40

20

2005

2006

2007

2008

2009

0

Sources: Housing Starts Statistics of the FY Ended March 2009; Ministry of Land,
Infrastructure, Transport and Tourism; our figures.

Single Person Households Increasing, Growing Older
The number of single person households, including public housing,is anticipated to rise from 12.91 million in 2000 to 18.24 million by
2030, with the increase consisting mainly of middle-aged persons
35 and older, and elderly households 65 and older. Such long-term,
estimates are also part of the reason for Leopalace21 s shift tohousing for older residents and family-type units.

15

Overview of Operations
Leopalace21 is working to reform its business structure under its new Medium-Term Management Plan,“Change for NEXT.” We are concentrating management resources in the two core businesses that accountfor 95% of revenue (Apartment Construction Subcontracting and Leasing) in order to strengthen the foundations
for a new stage of growth.

At a Glance

Related Businesses

Core Businesses

Apartment Construction Subcontracting Business

16

The Apartment Construction Subcontracting
Business mainly handles construction undercontract, providing landowners with one-roomapartments that are low-cost, while offering
energy efficiency, high durability, and stylishdesign. Finished buildings are managed by
the Leasing Business on an all-inclusive 30year contract. The business had 126 locations
as of the year ended March 2009 (down four
year on year).

Sales (Year ended March 31, 2009)

Sales and Operating Income
Billions of yen

Sales

400

359.1

327.5

316.1

Operating income

300

49%

¥359.1 billion

200

100

0

74.6

2007

73.2

2008

70.1

2009

Leopalace Leasing Corporation

Silver Business

Leopalace Leasing provides a corporate dormitory agency
service to support the corporate strategies of the Leasing
Business. It is also expected to be a stepping stone to thefamily-type apartment business. Established September 2006.

The Silver (elderly care) Business plans and develops
community-based elderly group homes, nursing homes, andother facilities to meet the demands of an aging society.
Launched in January 2005, the business had 49 institutions
as of the year ended March 2009.

Leopalace Finance Co., Ltd.
Leopalace Finance provides real estate-backed loans andother financial services. Established April 2007.

Leopalace Insurance Co., Ltd.
Leopalace Insurance sells household goods insurance toindividuals and corporate clients renting apartments throughthe Leasing Business,s nationwide network of leasing centers.
Launched in March 2008.

Overseas Resort Business
The Overseas Resort Business, operated by the wholly owned
subsidiary Leopalace Guam Corporation, consists of the largescale resorts Leopalace Resort Manenggon Hills Guam andthe Westin Resort Guam.

Overview of Operations

Leasing Business
The Leasing Business handles lease properties witha lease period of six months or longer, as well asmonthly rental contracts for furnished apartments.
With more than 500,000 units under management,
Leopalace21 is looking to use the leasing ALM
system to turn the business into a residential
property asset management company. The businesshad 291 locations as of the year ended March2009 (down 20 year on year), with 507,000 units
under management (up 65,000). The Broadband
Business, one of the former strategic businesses,
was integrated into this business from the fiscal
year ending March 2010.

Sales (Year ended March 31, 2009)

Sales and Operating Income (Loss)
Billions of yen

Sales

Operating income

400
300

334.5

302.7

277.1

200

46%

100

¥334.5 billion

7.0

0
-100

3.0
(1.5)

2007

2008

2009

Domestic Hotel Business
The Domestic Hotel Business operates hotels in major cities
throughout Japan, based on a model of reasonable prices andeasy accessibility. Hotels also function as business offices forcore businesses, and regional sales offices. There are eight
hotels nationwide.

Residential Sales Business
The Residential Sales Business consists mainly of the detachedhome sales from the former Residential Business. Leopalace21
has placed a temporary freeze on new real estate investment.

Sales (Year ended March 31, 2009)

Sales and Operating Income (Loss)
Billions of yen
50
40

Sales

42.7

38.3

Operating income

39.5

30

5%

¥39.5 billion

20
10
0
-10
-20

(1.5)

(0.4)
(13.6)

2007

2008

2009

Notes: 1.The segment results shown for our Hotel Resort Business, Residential Sales Business and Other Business are included within Related businesses.
2.Amounts shown in graphs are after inter-segment eliminations.

17Core Businesses

Apartment Construction Subcontracting
Leopalace21 is pursuing a strategy of broadening its product lineup from mainstay one-room apartments toinclude large-scale, one-room and family-style units.

The impact of the economic recession
and financial market turmoil

Strengthening the product lineup
Leopalace21 has until now concentrated on building fully
functional one-room (1K) units, incorporating suchamenities as appliances, furnishings and broadband Internet,
connections, in Japan s three major urban areas (aroundTokyo, Osaka and Nagoya). However, with the number ofunits available for the Leasing Business at over 500,000
units, the previous model of building and leasing standardized
one-room (1K) apartments needs to be revised. It is also
necessary for us to develop products that will allow
Leopalace21 to address the needs of existing tenants
seeking to move to a different residence, to provide
company housing and meet other types of corporate
demand, and to expand into a wider operating area.

The turmoil in financial markets in the latter half of 2008
caused a rapid deterioration in the business environment
for Leopalace21, including the collapse of the non-recourse
loan market that provided our main source of financing.
As a result, orders for the fiscal year ended March 2009were down 36.2% year on year, a sharp decline from the
10% annual growth in orders Leopalace21 has recorded inrecent years. Sales rose 9.7% from a year earlier to ¥359,155
million on the completion of apartment buildings from theorder backlog at the end of the previous fiscal year, though
operating income declined 4.3% to ¥70,113 million. The
number of units available increased by 65,600 units, up
16.5% from a year earlier. As a result, Leopalace21 had a
56.1% share of housing starts of 30 square meters or
less. Overall, the need to develop attractive products andimplement strategic marketing to achieve a recovery inorders became clear.

In June 2008 Leopalace21 launched Lavo cerna, a private
residence with attached lease units. This was followed by
the launch in November 2008 of LEPIDO, a large-scale oneroom unit, and in July 2008 by the family-type unit Lavo
familia. The offering of a full product lineup allows
Leopalace21 to expand its marketing operations into areas
where it was previously difficult to win orders because theproduct did not meet certain conditions. The developmentof family-type and other large-scale units not only gives
property owners a wider range of options, but is also
beneficial in the securing of financing.

Actual Results and Forecast for Apartment Construction Subcontracting Business
Orders received
Balance of orders outstanding
Sales

Billions of yen
500

421.5
400

340.6

316.1

342.6
327.5

300

248.6

359.1
300.2
269.1 252.8 300.0

252.8

300.1
300.0

252.8

300.2
300.0

252.8

200

100

0

18

2007

2008

2009

2010 (E)2011 (E)2012 (E)Overview of Operations

Strengthening the product lineup and regional strategies
Secure orders and expand supply to spurthe Leasing Business

Offer a full product lineup by introducing residences with attached lease units,large-type 1K and family-type units

Offer a full product lineup with Specialized 1K units
Traditional 1K
Leopalace21 Series“Con Grazia”(19.87m2 23.18m2)

Residence with
Attached Lease Unit
LEO NEXT Series“Lavo cerna”(21.65m2 56.04m2)(Living area 12.4m2)(Living area 33.0m2)

NEW

Urban areas (city centers, commercial districts)

Increase supply in areas with high demand

Sales measures to achieve a recovery
in demand
Leopalace21's new Medium-Term Management Plan,“Change for NEXT” incorporates a variety of measures
aimed at achieving a recovery in demand. One of theseis attracting more property owners with a fuller productlineup, in order to increase the number of new, repeat
and referral customers. Specifically, we are expanding“Class L,” a member service organization for apartment
owners that works to deepen communication withapartment owners through such means as social gatherings,
and a new support organization. The expansion of “Class L”
will strengthen ties with existing apartment owners,
while also helping to increase the number of repeat andreferral customers.
To help ensure a smooth recovery in orders, Leopalace21
also launched new financing initiatives in response to theshock following the collapse of the non-recourse loan
market. We have worked to stabilize financing since thelatter half of 2008 by supporting the use of public financing
from the Japan Housing Finance Agency, and affiliated loans.

Large-type 1K
LEO NEXT Series“LEPIDO”(26.08m2 37.26m2)(Living area 20.13m2)

NEW

Family-type Unit
LEO NEXT Series“Lavo familia”(40.26m2 56.45m2)

NEW(Living area 30.58m2)

Suburban areas (outlying neighborhoods, regional cities)

One room upgrade

Family use

Broaden range of tenant targets with new products

Outlook for the next fiscal year
For the first fiscal year of the new Medium-Term Management
Plan, ending March 2010, Leopalace21 plans to secure¥300,000 million in orders, mainly by strengthening
marketing focused on new products. The order backlog
was down sharply at the end of the subject fiscal year
compared to a year earlier, and we forecast sales for the
fiscal year ending March 2010 to decline 16.4% year
on year to ¥300,200 million. We anticipate that operating
income will fall sharply, down 31% year on year to ¥48,400
million (¥70,113 million in the subject fiscal year). A cautious
stance in the Apartment Construction Subcontracting
Business in the new Medium-Term Management Plan has
the revenue forecast for this business below that of the
Leasing Business, but in terms of earnings we anticipate
that the business will remain the earnings driver for theentire company over the next three years. (Forecast figures
are prior to inter-segment transactions.)

19Core Businesses

Leasing

Leopalace21 has implement a three-year program of measures, including innovation in marketing strategies,
to turn around the decline in the occupancy rate caused by large numbers of lease cancellations.

Operating loss due to decline in
the occupancy rate
The number of units built under contract and managed by
Leopalace21 nationwide reached 506,742 during the fiscal
year ended March 2009. Geographically, most of these areconcentrated in Japan,s three major urban areas aroundTokyo, Osaka and Nagoya, with these three regions
accounting for 65.8% of the total. While the number ofunits under management has steadily risen, occupancy
declined from the previous fiscal year, falling to 88.5% in
the subject fiscal year as a result of large numbers of leasecancellations centered on manufacturing areas, stemmingfrom the economic downturn. Sales rose 10.5% year on
year to ¥334,561 million on the back of an increase in thenumber of units under management, but the businessposted an operating loss of ¥1,539 million for the year due
to the decline in occupancy rate. Improving the occupancy
rate and earnings is a priority issue.

Measures to improve theoccupancy rate and earnings
Leopalace21's new Medium-Term Management Plan
incorporates a variety of measures aimed at improving theLeasing Asset Liability Management (ALM) System
Leopalace21 is developing a comprehensive management system
to help optimize apartment management through multifaceted
analysis and monitoring. The system is scheduled to go into
operation from May 2010.
Formulate strategies
Make improvements
and issue directives

Liabilities

ALM
SystemAssets

ImplementCollect and analyze
results

Support for successful implementation of strategic measures■ Maximize total profit between Apartment Construction Subcontracting andLeasing businesses■ Find the best balance between leasing income and master lease expenses■ Lease reform to maximize lease income and occupancy■ Optimize property refurbishment costs

Increase earnings in the Leasing Business
20

occupancy rate and earnings. The key is optimization oflease rates and maximization of lease income, along witheffective marketing measures to support this. For the
optimization of lease rates, it is important to develop asophisticated capability to manage by area both assets, thelease fees earned from apartments, along with liabilities,
the rent payments for the units. Leopalace21 is currently
building a new asset liability management (ALM) system,
which is expected to go into full-scale operation from spring2010. This system will allow Leopalace21 to get a pictureof the sales and earnings figures for each property in a timely
manner. The ability to manage earnings by property willthen allow Leopalace21 to analyze performance by areaand product, which will be a major asset in terms of sales
strategy.

Alliances with real estate agents
Leopalace21 is shifting its marketing strategy from expanding
business locations and hiring more personnel in favor of
integration of offices, and drawing on external resources
such as real estate agents. Stronger ties with real estateagents are particularly necessary to secure residents for 1K
units in regional cities. As part of its strategy to increase
the number of affiliated agents and residence contracts
concluded through real estate agents, Leopalace21 is
implementing focused measures that include forming tradeassociations, and building a special website for affiliatedfirms. The number of affiliated agents reached 21,550
during the fiscal year ended March 2009, and we plan toexpand this to 26,000 firms during the fiscal year ending
March 2010.

Strengthening marketing tocorporations
Corporate leases, which had accounted for more than 40%
of all units under management during the previous fiscal
year, declined following the large number of cancellationsin the latter half of 2008. However, the economic slowdown
has made cutting benefit costs a priority for companies.
Leopalace21 is helping companies cut costs by pooling
sublease properties nationwide to allow for a more flexible

Overview of Operations

Apartment Units under Management and Occupancy Rate

response to demand for corporate dormitories and housing.
In addition to stronger marketing for existing 1K units,
Leopalace21 plans to stimulate latent demand amongcorporate clients with its new large-scale 1K and familytype units. Further, to enhance sales efficiency Leopalace21
has revised its sales method of attracting residents bybusiness location within a corporation, in favor of a greater
focus on the head offices of corporate groups, and gaining
lease contracts by corporate groups.

Apartment units under management
Occupancy rate

Thousands of units
800

92.8

642

92.4

600

553

507
442
400

389

%
95

88.5

598
90

87.2

87.5

85.1

85

200

Attracting residents overseas

0Japan's low birthrate, growing number of the elderly anddeclining population makes it impossible over the long term
to rely solely on domestic demand. Leopalace21 opened
an office in Seoul in 2002 to develop demand overseas,
and now has three locations in South Korea (two in Seoul
and one in Pusan), and one office in Taiwan (Taipei). In
China we established a local subsidiary in Shanghai in July
2009, then opened an office in Beijing in August. We plan
to open at three more locations in China as part of the newthree-year Medium-Term Management Plan.

2007

2008

2009

2010 (E)2011 (E)2012 (E)80

However, we anticipate that as a result of the launch of new
products and various marketing measures that the occupancy
rate will gradually rise from the second year of the new
Medium-Term Management Plan. Sales for the fiscal year
ending March 2010 are forecast to rise 7.9% year on year to¥361,100 million, due mainly to an increase in the numberof units under management, and the integration of the
Broadband Business into the Leasing Business during theperiod. In terms of earnings, Leopalace21 forecasts anoperating loss for the fiscal year ending March 2010 of¥16,900 million, due to the impact from the decline in theoccupancy rate. However, we expect earnings to gradually
improve as a result of the integration of business offices andother efforts. (Forecast figures are prior to inter-segment
transactions.)

Outlook for the next fiscal year
Corporate earnings have begun to recover, but Leopalace21
maintains its cautious stance, and forecasts that the occupancy
rate in the fiscal year ending March 2010 will fall 3.4
percentage points from the previous fiscal year to 85.1%.
Sales strategies
Establish a structure to secure earnings

Optimize lease rates; implements measures to retain and increase number of tenants

Makeup of managed properties, and strategies to maximize lease income and secure tenants

Existing properties (mainly 1K)

New properties supplied from FY2010/3(Regional cities)(Major cities)

1K

Maximize rent income by
optimizing rent levels

Systematically revise rent
levels in areas with highdemand(Governmentdesignated cities)

Enhance use of realestate agents

Increase number ofcorporate clients

Make securing tenants
relatively easyFreeze supply of 1K units except
in government-designated cities

Large-type 1K
Family-type(Nationwide)
Increase earnings by raising
rent levels
Latent demand among corporate clients;
tenants already in
1K units move to new apartments
21

Related Businesses
Related businesses account for 5% of sales. Leopalace21 freezes or develops individual business fields, dependingon the degree of their relation to core businesses. The swift restoration of profitability is a priority issue in the newthree-year Medium-Term Management Plan.

Residential Sales

Overseas Resort

The Residential Sales Business comprises the former
Residential Business and Strategic Real Estate Development
Business, with revenue consisting mainly of sales of theresidences of the former Residential Business. Leopalace21
entered the Residential Business in January 2005, expanding
sales of residential units mainly in the three major urban
areas of Tokyo, Osaka and Nagoya. However, the businessenvironment deteriorated sharply with the weakening of
the real estate market from the latter half of 2007, alongwith the impact from the financial crisis in the latter halfof 2008, and sales for the fiscal year ended March 2009amounted to ¥11,469 million, against a target of ¥15,000
million. Anticipating that demand would remain soft for
the foreseeable future, Leopalace21 revised the earnings
structure for the business, including ceasing new landpurchases and liquidating inventories. New investment in
the Strategic Real Estate Development Business has also
been frozen in accordance with the policy of concentrating
management resources in core businesses.

The Overseas Resort Business consists of the operation of a
combined sports and hotel facility in Guam. Renovation of
the resort and various measures to attract guests increased
the utilization rate in the previous fiscal year, but the rate
fell again as the number of tourists declined following the
global economic recession in the latter half of 2008. Alongwith the appreciation in the value of the yen, sales for the
fiscal year ended March 2009 were down 7.6% from theprevious fiscal year to ¥5,611 million. The business posted
an operating loss of ¥805 million. On a stand-alone basis,
however, for the fiscal year ended December 2008 Leopalace
Guam Corporation recorded sales of $79 million with
operating income of $4.9 million, providing sufficient
cash flow. Leopalace21 is drawing on the strengths of an
integrated resort facility in an effort to improve the utilization
rate, and continues to focus on cutting costs.

Silver Business (Elderly Care)
The Silver Business, like the former Residential Business,had grown at a rapid rate, with the number of facilities
increasingly mainly in urban areas. The number of facilities
rose by 14 during the fiscal year ended March 2009, to 49
locations. However, sales for the same period fell well
below plan, declining 28.8% year on year to ¥7,953 million.
The business also had operational difficulties, including ashortfall in the number of residents compared to plan. The
key to success in the Silver Business is the operations once
construction of the facility is completed. We are focusing
on training care staff
and building othertypes of operational
expertise, and will
step up efforts to
attract residents andraise the occupancy
Azumien Abikorate.
The facility opened in Abiko, Chiba in July 2008.
22

Leopalace Resort
Manenggon Hills, a premierresort complete withnumerous sports facilities.

Domestic Hotels
The Domestic Hotel Business consists of the operation ofeight hotels in major cities throughout Japan. Despite theeconomic slowdown, drop in corporate demand and otherfactors that have weakened the business environment,
Leopalace21 manages to improve the occupancy rate

Overview of Operations

Hotel Leopalace Hakata, with its
innovative glass wall facade.

Hotel Leopalace Nagoya, a stately urban
resort, opened in 2001.

through marketing measures tailored to each individual
area, along with a range of initiatives that include shortterm stays and attracting corporate business. We willcontinue to focus on reducing costs.

Three subsidiary businesses
The previous medium-term management plan included theestablishment of three new subsidiaries that would support
the core businesses. These are: (1) Leopalace Leasing
Corporation, a corporate housing agency business tofacilitate entry into the family-type apartment business; (2)Leopalace Insurance Co., Ltd., which provides insurance toresidents of leased apartments, and (3) Leopalace Finance

Co. Ltd., to support the Strategic Real Estate Development
Business. Of these, Leopalace Leasing and Leopalace
Insurance are working to provide support to solidify thefoundation of the core businesses, and achieve profitability
as quickly as possible.

Outlook for the next fiscal year
Sales in the related businesses are forecast to be on a parwith the previous fiscal year at ¥44,200 million for the fiscal
year ending March 2010, but in line with the revisions to
Leopalace21's expansion strategy, sales are expected to fallto ¥29,600 million in the fiscal year ending March 2011,
and to ¥22,600 million in the fiscal year ending March 2012.
This is one of the steps in prioritizing improvement inearnings, a central issue for related businesses. Leopalace21
forecasts that the operating loss of ¥13,635 million in thefiscal year ended March 2009 will narrow to ¥5,800 million
in the fiscal year ending March 2010, with gradual reductions
thereafter. (Forecast figures are prior to inter-segment
transactions.)

Current status and initiatives
Leopalace
Leasing
Corporation

Introductory one-room units are the mainstay product, with little differentiation from competitors for family-style units.

Leopalace InsuranceCo., Ltd.

There is potential to expand the business base linked to the Leasing Business, and secure stable cash flow.

Silver Business
Overseas
Resort Business
Domestic HotelBusiness

Residential
Sales Business

Leopalace FinanceCo., Ltd.

We will begin offering family-style units, and focus on establishing a foundation for attracting corporate customers.

We will maintain the current sales structure, and work to achieve profitability as quickly as possible.

Occupancy of facilities is low, with earnings in the operating division sluggish.
We will halt orders for construction of new facilities, and focus on increasing occupancy at existing facilities.

The number of visitors to Guam has declined since October 2008 as a result of the economic downturn.
We will implement comprehensive measures to strengthen sales utilizing resort facilities and cut costs.

The business environment for the hotel industry overall has deteriorated with the economic slowdown andfall in corporate demand.
We will focus on increasing occupancy rates and cutting costs.

,
Land prices are in a correction phase and we anticipate a boost from the government s economic measures,
but expect demand to remain sluggish for the time being.
We will dispose of current inventory, and refrain from new land purchases.

Deterioration in the secured loan market for real estate agents has generated bad debt.
We will implement credit controls that strictly evaluate secured real estate, and provide bridge financing forapartment construction.

Note: Leopalace Leasing Corporation and Leopalace Insurance Co., Ltd. are designated as priority fields in the new Medium-Term Management Plan due to their degree of relation to the corebusinesses. All other businesses are designated for enhanced monitoring.

23

Corporate Social Responsibility (CSR)

We Are Taking theFirst Steps toward Realizing
a Sustainable Society
Leopalace21 now has over 500,000 apartment units under management.
It is no exaggeration to say that these apartments have become an
essential part of Japan's social infrastructure. As our business has grown,
the role that we play and the expectations placed on us have grownincreasingly larger. What should we do to help resolve the issues
surrounding people and their homes? What can we do today for the
global environment? To make our vision a reality, in 2008 Leopalace21
implemented a full-scale CSR program.

Basic Policies for CSR
Leopalace21, conscious of its responsibilities as a corporate citizen, has established four basic policies tocontribute to the development of a sustainable society.
Quality Service and Comfortable Living
We offer new lifestyles to provide our customers with safe, secureand comfortable living.

Sound and Highly
Transparent Business
Activities

Quality Service andComfortable Living

Contribution to Society and a Positive Work Environment
We participate in social action programs to enhance communication
with society, and contribute to the development of local communities.
We also ensure a positive work environment for our employees.

Realization of an Environmentally Friendly Society

Four Basic
Policies

We recognize that our business activities have a significant
impact on the global environment, and seek to lessen theenvironmental load in all areas of our business to realize asustainable society.

Sound and Highly Transparent Business Activities
We strengthen corporate governance, ensure compliance, andconduct sound and transparent business as part of our accountability
to society.

24

Contribution to Society anda Positive Work Environment
Realization of
an Environmentally Friendly SocietyCorporate Social Responsibility (CSR)

Strengthening Corporate Governance
Leopalace21 considers the establishment and strengthening of corporate governance to be one of its highest
management priorities, and aims for efficient, fair and highly transparent management.
About the Board of Directors

Corporate Governance Organizational Structure

The Board of Directors is the decision-making body. It holds a
regular monthly meeting, with extraordinary meetings convened
as necessary. The Board of Directors makes decisions on
significant matters regarding management, and oversees the
conduct of operations.

About the Board of Auditors

General Meeting of Shareholders
Board of Auditors
Board of Directors
Management Committee

Compliance Committee

Disclosure Committee

Risk Management Committee

IT Committee

CSR Committee

Investment Committee

The Board of Auditors provides a check on decision making. It
is composed of four auditors, two of whom are outside auditors.
In accordance with the board's auditing plan, auditors attend
important meetings of the Board of Directors, monitor the
conduct of operations, and perform other duties to create anefficient and effective auditing structure.

Human Resources Committee

President and CEO

Internal Auditing OfficeConstruction /Leasing
Unification Committee

Sales and Marketing
General Headquarters

Related Businesses
Headquarters

Management Planning
Headquarters

Administrative
Headquarters

Ensuring Compliance
Leopalace21 works to expand and strengthen its compliance structure by formulating a Corporate Code of
Ethics, setting up an internal framework for reporting compliance violations, and establishing a Compliance
Committee to advise the Board of Directors. As part of its program to strengthen compliance, Leopalace21
plans and implements a wide range of compliance-related measures, including the conduct of training
sessions, and expanding the framework for information management.
CSR Promotion Structure (Compliance and Risk Management)

In fiscal 2008, Leopalace21 conducted complianceseminars using e-learning tools.

Board of Directors

Seminar Topics
Compliance Committee

CSR Committee

Risk Management Committee

Administrative
Headquarters

Management Planning
Headquarters

Legal Dept.

Management Planning Dept.

Compliance Hotline

Business Headquarters
Person in charge of CSR/Person
in charge of ComplianceInternal Auditing Office

The Revised Road Traffic Act

Workplace Harassment

CSR and Corporate Ethics

Protection of Personal Information

A “Compliance Hotline” has been set up to counsel
employees who have uncovered a legal or ethicalviolation. Information on
the hotline is provided ona single card along with
the Corporate Code of Ethics,
which is distributed to all
employees.

Inquirer
Consulter25

Leopalace21 conducts CSR activities at all its business locations.
These activities, based on the Four Basic Policies, must be conducted with the efforts of all employees,
from directors on down. This section introduces the particular measures conducted at each workplace.

Quality Service and Comfortable Living
Convenient and Comfortable Residences
Leopalace21's Apartment Construction
Subcontracting Division has acquired ISO
9001 quality control certification at thehead office and all branch office locations.
Along with these quality controls, we haveincorporated security systems and barrierfree facilities as part of an ongoing effort toensure our apartments are safe and secure.

Less Hassle for Finding
an Apartment
All procedures can be conducted overthe Internet, from application to
payment. Systems are also in place
to help foreigners and others withouta ready guarantor find an apartment.

Support after Moving Day
Leopalace21 is bolstering its support
framework to provide greater peaceof mind, including operating a rapid
response service to immediately
deal with any housing problems,and a 24-hour medical consultation
service to handle any health issues.

Sound and Highly Transparent Business Activities
Well-Developed IR Program
Leopalace21 has a proactive IR program to provide
shareholders and investors with timely and easyto-understand disclosure.

Compliance Measures
Leopalace21 creates original instructional materials
tailored to the particular workplace.

For shareholders and individual investors:
Regularly issued reports; corporate briefings forindividual investors
For institutional investors:
Publication of an Investors Guide (Japanese andEnglish, annually); results briefings; overseas IR
activities
Leopalace21 also conducts comprehensive IR
activities, including updates to the IR site on thecorporate homepage.

26

Compliance Committee Secretariat

CSR Committee Secretariat

Leopalace21 believes that continued awareness and thoroughknowledge is both necessary and essential to further compliance,
and annually conducts group training sessions and e-learning
programs based on social conditions. Through these programs,
Leopalace21 seeks to foster an autonomous ethical sense, andensure compliance in line with social norms. As the most effective
texts for these educational programs are those that take accountof the current state of the Company, all materials are created bycommittee secretariats. These activities also help ensure thecontinuation of company operations, and we intend to continue
to strictly follow this program.

Corporate Social Responsibility (CSR)

Contribution to Society and a Positive Work Environment
Contribution to Society
Keeping Neighborhoods Safe
Leopalace21 has registered 223 of its
branch offices as Kodomo 110 locations,places where children can go to gethelp in times of trouble. We also workwith owners to install security lights on
the outside of buildings.
Clean-Up Campaigns
All Leopalace21 offices nationwide actively participate in local
clean-up activities together with owners.
Social Contribution through Sport
Leopalace21's women's softball team visits local vocational andday-care centers during its nationwide touring schedule, helping
to improve communication. Since March 2009, we have heldsoccer camps for kids in association with the Japan Professional
Football League.
Participation in Blood Drives
Leopalace21 regularly conducts in-houseblood drives. A total of 111 employees
participated in the blood drive at the head
office held in December 2008.

Creating a Positive Work Environment
Using Employee Feedback to Create a Vibrant Workplace
The Human Resources Department
considers employees to be important
stakeholders for the Company, andstrives to provide them with apositive work environment. One
area of particular focus is creating afair evaluation system. The greater
motivation provided by a fair system
leads to the Company's growth,
Yoshihisa Okazaki
which in turn provides benefits to Manager, Human Resources
investors and all stakeholders. Department
Leopalace21 has recently launched a system in which
employees make a self-assessment every six months, andhold an individual meeting with their supervisor, the resultsof which are linked to the appraisal. The system is still underdevelopment, and we will continue to incorporate employee
feedback to improve the human resources system and createa more vibrant workplace.

Realization of an Environmentally Friendly Society
Leopalace21 works to lessen the environmental burden in its corporate activities,
and to secure the cooperation of apartment residents in helping to conserve energy.
Leopalace21,s Environmental Measures by the Numbers

20&28

Office heating andcooling settings

61.11

Percentage of water-saving
faucets and shower heads,
All of Leopalace21 s branch offices participate in the “coolbiz” and “warm biz” campaigns. The heating is set at 20ºC,
and air conditioning at 28ºC.

Water-saving faucets and shower heads are being installed
to reduce water consumption at apartments, with installation
completed at 61.11% of all units (as of August 2008). All
new apartment complexes have these facilities, and weare working to increase the percentage at existing buildings.

78.57

Green purchasing rate

3,600

Vehicles with stop idlingstickers,
Leopalace21 s policy is to purchase building materials andfixtures in accordance with the Act on Promoting Green
Purchasing. We have achieved a rate of 78.57% for specificprocured items.

Stop idling stickers have been placed on the about 3,600
vehicles operated by Leopalace21 nationwide. Engines areturned off while at idle to conserve energy and reduce
emissions.

27

Consolidated Six-Year Summary
Leopalace21 Corporation and consolidated subsidiaries
Years ended March 31

Thousands of U.S.
dollars, except
where noted

Millions of yen, except where noted

2009

2008

2007

2006

2005

2004

2009

For the year:¥733,235¥672,974¥631,608¥465,387¥476,267¥422,224$7,464,475

Apartment Construction Subcontracting

359,155

327,541

316,117

195,202

248,033

225,0113,656,264

Leasing334,561

302,731

277,163249,696

216,591

188,864

3,405,891

Hotel Resort

5,611

6,072

7,141

8,340

7,282

5,759

57,121

Residential Sales

11,46911,281

14,150

1,745

140

─

116,755

Other

22,43925,34917,037

10,404

4,221

2,590

228,444

Cost of sales

589,834

511,054474,713353,928

357,546

313,085

6,004,621

Selling, general and administrative expenses

93,24490,51780,88870,68464,03957,468949,248

Operating income

50,157

71,40376,007

40,77554,682

51,671

510,606

EBITDA

55,93976,56680,56745,34060,53856,922569,472

Net income (loss)

9,952

342

37,358(16,582)

33,262

20,960101,312

Total assets¥467,300¥493,956¥454,820¥412,804¥453,434¥421,164$4,757,207

Total net assets

146,442

170,155

185,785

133,622

149,798

81,4201,490,814

Interest-bearing debt

44,18849,711

53,16064,513

108,786

162,666

449,851

Total net assets¥967.40¥1,036.43¥1,054.99¥839.44¥941.06¥585.82$9.85

Net income (loss)

63.54

2.15

234.68(104.17)220.79150.91

0.65

Cash dividends

30.00

80.00

50.00

15.00

15.00

15.00

0.31

Equity ratio (%)

31.3

33.4

37.0

32.4

33.0

19.3

Return on equity (ROE) (%)

6.4

0.2

24.8

(11.7)

28.8

28.0

Return on assets (ROA) (%)

2.1

0.1

8.6

(3.8)

7.6

5.0

Payout ratio (%)

47.2

3,720.9

21.3

─

6.8

9.9

Debt/equity ratio

0.3

0.3

0.3

0.5

0.7

2.0

9,926

8,678

7,409

6,868

6,457

5,702

Net sales

At year-end:

Amounts per share:

Ratios:Number of employees

Notes: 1. U.S. dollar amounts are translated from yen at the rate of ¥98.23 = US$1, the approximate rate prevailing at March 31, 2009.
2. The Residential Sales division is classified separately from other divisions in the year ended March 31, 2009. Accordingly, the numbers for the years ended March, 2004, 2005, 2006, 2007 and 2008
were reclassified appropriately.
3. The amounts of total net assets for the years ended March 2004, 2005 and 2006 represent the value of total shareholders’ equity and do not include minority interests.
4. Net loss for the year ended March 31, 2006 is the result of impairment losses posted after adoption of new accounting standards for impairment of property, plant and equipment.
5. EBITDA = Operating income + depreciation
6. Return on assets (ROA) = Net income/total assets x 100
7. Debt/equity ratio = Interest-bearing debt/(net assets _ minority interests)&

Management’s Discussion and Analysis

Operating Environment
During fiscal 2009 (the fiscal year ended March 31, 2009), the economic environment included declining share prices, a decline in employment, and appreciation of the yen due to the turmoil triggeredby the U.S. financial markets, leading to a sharp decline in consumer
spending and corporate earnings. The broad effects of the economic
slowdown were not limited to decreased earnings for the financial
and real estate industries and corporate bankruptcies, but extended
also to industries such as automobiles and manufacturing.
In residential investment during the subject fiscal year, new housing
starts exceeded one million, totaling 1,039,000 (up 0.3%) and including 444,000 leased homes (up 3.2%), reversing a 19.9% decline
in the previous fiscal year. This reversal was a reaction to the large
decline in the previous fiscal year due to the implementation of therevised Building Standards Law, and it is expected that a residential
investment will continue to face challenges in the fiscal year ending
March 31, 2010.
Under such circumstances, the Leopalace21 Group succeeded inboosting revenue from the previous fiscal year, but operating income declined. To respond to these changes in the operating environment and ensure continued corporate growth, Leopalace21 hascreated a new Medium-Term Management Plan, “Change for NEXT,”and is working to rebuild its business platform.

leased properties following the completion of apartment construction for the large number of remaining orders at the end of theprevious fiscal year.
However, sales for the Hotel Resort Business fell 7.6% due to the appreciation of the yen in the period, and totaled ¥5,611 million; theResidential Sales Business increased slightly by 1.7% to ¥11,469 million; and the Other Business (Silver, Broadband, Finance etc.) fell
11.5%, to ¥22,439 million.
As a proportion of total sales by segment, the Apartment Construction Subcontracting Business accounted for 49.0% (up 0.3 percentage point year on year) and the Leasing Business 45.6% (up 0.6 percentage point), with these two segments accounting for 94.6% of
total net sales. The Hotel Resort Business accounted for 0.8% (down
0.1 percentage point), the Residential Sales Business 1.6%, and the
Other Business 3.1%.
Furthermore, the Residential Sales Business, which was formerly partof the Other Business, is shown as an independent category from thesubject fiscal year. The comparison to the previous fiscal year is madeafter converting last year’s sales to the new category.

Earnings

Consolidated net sales for the subject fiscal year totaled ¥733,235
million (up 9.0%). By segment, sales in the Apartment Construction
Subcontracting Business, one core segment, totaled ¥359,155 million (up 9.7%), and sales in the Leasing Business, another core segment, totaled ¥334,561 million (up 10.5%), representing increased
revenue in both segments. This was a result of the higher number of

The cost of sales expanded 15.4% year on year to ¥589,834 million,a higher rate of increase than net sales in the period. This was dueto the delay in the implementation of the revised Building Standards
Law and higher materials costs, leading to a 13.7% increase in the
Apartment Construction Subcontracting Business and a 12.2% risein the Leasing Business, as well as the capitalization of write-down
on real estate for sales. As a result, the gross profit was ¥143,401
million with a gross margin of 19.6%, falling 4.5 percentage points
year on year.

Net Sales

Operating Income and Operating Margin

Millions of yen

Millions of yen%

800,000

80,00016

Net Sales

631,608

71,403672,97412.2
60,000600,000

51,671
476,267

76,007

Operating income
Operating margin733,235

12.0

54,682
11.5

10.6

40,775465,387

422,224

12

50,1578.8
40,000400,000

8

6.8

20,000200,000

4

0

0
2004

2005

2006

2007

2008

2009

2004

2005

2006

2007

2008

2009

0

Note: Decline in operating income and operating margin for the year ended March 31, 2006
is the result of the postponement of scheduled construction contracts.

29

Management’s Discussion and Analysis

Selling, general and administrative (SG&A) expenses rose 3.0% year
on year to ¥93,244 million. While we sought to control rental andother costs, due to increased loss reserves and personnel costs, operating income totaled only ¥50,157 million for the subject fiscal
year, falling 29.8% year on year.

million in the previous fiscal year), with net income totaling ¥9,952
million (compared to ¥342 million in the previous fiscal year).

The balance of other income (expenses) was net other expenses of¥16,711 million, a considerable decrease from net other expenses of¥58,979 million for the previous fiscal year, which had included a¥47,755 million adjustment to advances received stemming from achange in accounting method for the Monthly Leopalace service,and ¥9,534 million in foreign exchange losses. The market decline
during the fiscal year under review led to sharp losses from thedownward revaluation of rental properties, with the number of suchproperties increasing (from 32 rental apartments in the previous fiscal year to 59 in the current fiscal year) and impairment loss totaling¥2,808 million (compared to ¥702 million in the previous fiscal year).
To reflect decreased occupancy rates, a provision for apartment vacancy loss of ¥4,314 million was recorded. However, foreign exchange losses from end-period, yen-based valuations of overseas
subsidiaries totaled ¥1,877 million, a large year-on-year decrease. As
a result, income before income taxes and minority interests for the
subject fiscal year totaled ¥33,446 million (compared to ¥12,424

Segment Information

Net Income and Net Margin%

Millions of yen
60,0007.0

5.0
40,00020,000Net income
Net margin

5.9

8

4

33,26237,358

1.4
0

9,952
342

(3.6)
2004

Apartment Construction Subcontracting
The Apartment Construction Subcontracting Business, one of theGroup’s two core businesses, remained strong in the first quarter ofthe subject fiscal year due to the clearing of orders from the previous fiscal year that remained at the end of the fiscal year. However,
due to the turmoil in the financial markets, the securitization market
disappeared for non-recourse loans, the driving force for subcontracted apartment loans and, reflecting the stricter investment
stance taken by financial institutions, contract volume from the second quarter onward remained well below the previous year’s level.
As a result, contract volume totaled only ¥269,147 million (down
36.2% compared to the previous fiscal year), with the balance ofcontracts on hand totaling only ¥252,853 million (down 26.2% compared to the previous fiscal year).
In response, the Group focused on the new LEO NEXT Series products and the urban-style rental housing, the Lavo Series, as well asfamily rental needs, an area in which the Group had struggled in thepast, and housing with attached rental units. In addition, in November 2008 we released LEPIDO, which is designed as an emergency
response to the need for products eligible to receive support fromthe Japan Housing Finance Agency. There were 204 orders for LEPIDO products at the end of the fiscal year under review, totaling¥19,600 million in sales.

0.1

20,9600Return on assets (ROA) was 2.1% (compared to 0.1% in the previous
fiscal year), and ROE was 6.4% (compared to 0.2% a year earlier).

2005

2007

2008

2009

(16,582)-20,000

-4

-8

2006

To respond to the demand for financing, the Group has shifted from
non-recourse loans to recourse loans, streamlined sales locations
and worked toward staffing optimization (the total number of sales
locations decreased by four in the subject fiscal year to 126). Furthermore, while the increase in materials costs was absorbed bythorough controls on cost and production, it could not make up for

ROE

ROA

%
40

%
10

7.6
30
20

28.0

28.8

24.8
5

8.6

5.0

10

6.4

0

0.2

2.1
0

0.1

-10

(3.8)

(11.7)
-20

2004

2005

2006

2007

2008

2009

-5

2004

2005

2006

2007

2008

2009

Note: Net loss, negative ROE and ROA for the year ended March 31, 2006 are the result of impairment losses
posted after adoption of new accounting standards for impairment of property, plant and equipment.

30

the rise in management costs including personnel costs, and theconsequent decrease in operating margin.
As a result, sales totaled ¥359,155 million (up 9.7% from the previous fiscal year) and operating income amounted to ¥70,113 million(down 4.3% from the previous fiscal year).

lion in loss on devaluation of real estate for sales affected earnings;
although sales rose 1.7% from the previous fiscal year to ¥11,469
million, the Company recorded an operating loss of ¥10,665 million,a large increase from the operating loss of ¥1,209 million of theprevious fiscal year.

Other
Leasing
Apartment units under management have increased steadily, centered on the Tokyo metropolitan, Osaka and Nagoya metropolitan
areas, and reached 507,000 apartment units at the end of the fiscal
year (a year-on-year increase of 65,000 units). However, in responseto the economic slowdown, major manufacturers have decreased orsuspended production and carried out restructuring, resulting inlarge-scale cancellations of contract apartments due to the halt in
hiring of subcontracted employees. As a result, the average occupancy rate for the subject fiscal year was 88.5%, falling 3.9 percentage points from the previous fiscal year (a reduction of around
20,000 units). This led to an operating loss of ¥1,539 million (compared to operating income of ¥3,037 million in the previous fiscal
year), while sales increased to ¥334,561 million (up 10.5% comparedto the previous fiscal year).
The Group responded with the December emergency release of the
Leopalace21 Housing Support System in cooperation with the Ministry of Health Labour and Welfare’s Employment Stabilization
Funding program, which supported 1,051 cases at the end of the
fiscal year under review. In response to the decrease in occupancy
rates, reserve for apartment vacancy loss of ¥4,314 million was recorded. Furthermore, as a measure to improve occupancy rates, theGroup has worked to enhance sales efforts for corporations, as well
as lowered rental fees for certain properties to respond to vacancies. Following the conclusion of rental contracts, the rental fee
prior to the lowered level was again revised. Rental fee revisions (increases) for properties that have passed a given period of time arealso being steadily implemented. To increase operating efficiency ofsales locations, the number of sales locations was set at 291 at theend of the fiscal year under review (a decrease of 20 sales locations
compared to the previous fiscal year), and a subsidiary was established in China to respond to the demand of foreign exchange
students to boost sales.

Hotel Resort
Operations remained steady for the integrated sports resort inGuam, Leopalace Resort Manenggon Hills Guam, and at the Westin
Resort Guam. As a result of the appreciation of the yen during theperiod, however, sales totaled ¥5,611 million (down 7.6% from theprevious fiscal year), resulting in an operating loss of ¥805 million(an improvement of ¥312 million compared to the previous fiscal
year).

Residential Sales BusinessAs a result of the declining market, the capitalization of ¥8,664 mil-

The Broadband Business has seen a steady expansion in subscriber
numbers, and the number of care facilities for the Silver Business totaled 49 at the end of the subject fiscal year (an increase of 14 compared to the previous fiscal year). Leopalace Insurance Co., Ltd. also
launched its resident insurance business in the subject fiscal year.
As a result, sales for the Other Business totaled ¥22,439 million(down 11.5% compared to the previous fiscal year), resulting in an
operating loss of ¥2,165 million (reversing ¥1,855 million in operating income in the previous fiscal year).

Financial Position
Total assets decreased ¥26,656 million (5.4%) from the end of theprevious fiscal year to ¥467,300 million. This was a result of a decrease in current assets (¥26,669 million) and an increase in property,
plant and equipment plus investments and other assets (¥13 million).
Regarding current assets, the cash and cash equivalents position expanded due to the decline of the market (increasing ¥17,411 million
from the previous fiscal year). Trade receivables and accounts receivable for completed projects totaled ¥9,471 million; real estate
for sale/property inventories totaled ¥7,560 million; all decreasing
and totaling ¥192,015 million at the end of the subject fiscal year.
Among property, plant and equipment plus investments and otherassets, efforts were made to reduce total property, plant, and equipment (down ¥7,780 million from the previous fiscal year), and theGroup dedicated itself to returning to Motazaru Keiei *, limiting theincrease of property, plant and equipment plus investments andother assets to ¥13 million. As a result, property, plant and equipment plus investments and other assets rose to ¥275,285 million.
Current liabilities decreased ¥37,189 million from the end of theprevious fiscal year, totaling ¥231,433 million at the end of the subject fiscal year, as a result of decreased accounts payable including
accounts payable for completed projects (¥59,001 million), and decreased customer advances for projects in progress (¥14,836 million). Long-term liabilities totaled ¥89,425 million at the end of thesubject fiscal year (up ¥34,246 million compared to the previous fiscal year), resulting from a reduction in long-term debt of ¥5,498 million from the previous fiscal year, reserves for apartment vacancy
loss, and an increase in lease/guarantee deposits received of¥31,142 million. As a result, total liabilities amounted to ¥320,858
million (down ¥2,943 million compared to the previous fiscal year).
Furthermore, the balance of interest-bearing debt, including debts
to be paid within one year, totaled ¥44,188 million at the end of thesubject fiscal year, declining ¥5,523 million from the previous fiscal
year (down 11.1%).

!

Management’s Discussion and Analysis

Total net assets amounted to ¥146,442 million, down ¥23,713 million (13.9%), following ¥6,444 million in share buybacks. As a result,the equity ratio stood at 31.3% (33.4% at the end of the previous
fiscal year).
*The model for the Company’s core businesses is based on construction of apartmentson behalf of property owners and entering master-lease agreements with these apartment owners. We then lease apartments to individual tenants. This model enables us tocontinue growing our business and earnings without requiring the Company to own
the underlying assets or take on debt. We call this model Motazaru Keiei in Japanese.

Interest-Bearing Debt and Debt/Equity Ratio
Millions of yen
180,000

3.0

162,666

Interest-bearing debt
Debt/equity ratio

150,000

2.5

2.0
120,000

2.0

108,786

90,0001.5

64,51360,00053,1601.0

49,711

44,188

0.3

0.3

0.3

2007

2008

2009

0.7
0.5

30,000

0.5

0

0.0
2004

2005

2006

Equity Ratio
%
40

33.0

32.4

37.0

33.4

31.3

Cash FlowsNet cash provided by operating activities amounted to ¥62,843 million(up ¥51,097 million from the previous fiscal year). This was the result of
income before income taxes and minority interests of ¥33,446 million(up ¥21,022 million), a decrease of ¥26,860 million in accounts payable,
and an increase of ¥31,180 million in guarantee deposits received.
Net cash used in investing activities amounted to ¥10,048 million(compared to net cash provided of ¥148 million in the previous fiscal year). The main factors were ¥5,375 million in purchase of property, plant and equipment including rental property and ¥2,444
million in purchase of intangible assets including core systems.
Net cash used in financing activities amounted to ¥33,885 million(an increase of ¥7,105 million from the previous fiscal year). This wasdue to ¥9,320 million in repayment for debt and the redemption ofprivately placed bonds (less proceeds from debt), ¥6,444 million inpurchases of treasury stock, and ¥12,750 million in dividends paid
to shareholders.

Basic Policy on Distribution of Earnings
Leopalace21 Corporation considers return of profit to shareholders
to be a management priority, making it our policy to pay dividends
at a payout ratio of 30%. While we again paid an interim dividend of¥30 per share in the fiscal year under review, in consideration of thedecline in full-year results and the lack of clarity on the future direction of the economy, we will not pay a year-end dividend (full-year
dividend of ¥30 per share). For the next fiscal year, while the operating environment is likely to remain challenging, we plan to maintainour payout ratio of 30%.

30

Outlook for the Next Fiscal Year
20

19.3

10

0
2004

2005

2006

2007

2008

2009

Free Cash FlowMillions of yen
60,00052,79545,70547,37840,00031,37020,00018,96011,8940
2004!

In the fiscal year ending March 31, 2010, the first year of our new
Medium-Term Management Plan, we began restructuring aimed at
integrated management of the Apartment Construction Subcontracting and Leasing businesses. The Apartment Construction Subcontracting Business will focus on increasing new business centeredon the new brand LEO NEXT, with a contract balance of ¥300,000
million planned, and as the contract balance for the fiscal year under review greatly declined from that of the previous year, we expect sales to reach only ¥300,000 million. In the Leasing Business,the occupancy rate declined due to the unexpectedly large amountof new vacancies resulting from the sharp economic slowdown, and
the Group is working to enhance its corporate sales and utilizationof real estate agents to improve the situation. At the same time,company-wide cost cutting is being carried out. The number ofunits under management is expected to increase by 46,000 units(553,000 units at the end of the fiscal year).

2005

2006

2007

2008

2009

In an operating environment that remains challenging, our results
forecasts for the next fiscal year are conservative. We forecast consolidated net sales of ¥700,700 million (down 4.4% from the fiscal
year under review), operating income of ¥21,700 million (down
56.7%) and net income of ¥8,700 million (down 12.6%).

Business and Other Risks
Listed below are the principal risks that we believe could affect the
Leopalace21 Group’s business performance and financial position.
However, this list is not all-inclusive and does not cover all the risks
that could affect Group businesses. All forward-looking statements
included herein reflect the judgment of the Leopalace21 Groupmanagement as of the end of the consolidated fiscal term underreview.

Foreign Exchange Risk
The Leopalace21 Group includes overseas subsidiaries involved in
the hotel and resort business, and as a result our business results
may be affected by exchange rate fluctuations. Our consolidated
subsidiary Leopalace Guam Corporation has borrowed funds in theform of yen-denominated loans from Leopalace21 for the purposeof acquiring facilities and equipment. Because the value of this debt
is calculated each year as of the date of account settlement, theCompany is subject to foreign exchange gain or loss. Therefore it ispossible that future fluctuations in exchange rates could affect theGroup’s business performance and financial position.

Leasehold Deposits and Guarantee Deposits
Leopalace21 has long-term deposits from property owners held as
an advance for apartment repair and renovation. These consist
mainly of deposits received from property owners as a portion of future repair and renovation expenses, following the dissolution of
Leopalace21 Owners Mutual Insurance Association. Leopalace21
makes a concerted effort as a leasing business operator to ensure
the soundness of the apartment maintenance structure, throughwhich properties fully leased from the owner are operated andmaintained. However, an unexpected, large-scale repair or renovation could have an impact on Leopalace21’s financial position.

a residential and other real estate sales business, owns real estate
properties for sale. These properties are subject to fluctuations in
the real estate market that could result in a loss on valuation of inventory assets or loss on sale, with the possibility that the Group’sbusiness results could be affected.

Loan Losses, and Provision for Bad Debt
The Company conducts financing activities, and carries on its books
a balance for operating loans receivable comprising apartment construction loans and real estate equity loans. The Company also may
guarantee the housing loans and membership fee loans offeredto its customers by financial institutions. Apartment and otherloans where repayment has become doubtful are accounted forseparately as doubtful receivables (tangible), and a provision ismade for bad debt in each such case; however, our businessresults could be affected if amounts of uncollectible debt should
increase, or if we should be obliged to honor claims pertaining
to these loan guarantees.

Seasonal Risk
The structure of Group businesses is such that net sales tend to behigher in the second half of the fiscal year than in the first, both in
our Apartment Construction Subcontracting and Leasing businesses. In our Apartment Construction Subcontracting Business, a large
majority of contracts call for completion by March, when leasing demand is at a peak. Leasing income is also higher in the second halfof the year than in the first, because the number of apartment
units under management rises steadily throughout the year as newapartments are completed. For this reason, we expect our businessresults in terms of both net sales and profits to be higher in thesecond half of the fiscal year.

Information Leaks
Leopalace21 also has deposits for Leopalace Resort memberships
related to the Guam resort business, most of which date to the
opening of the resort complex in July 1993. The Leopalace21 Group
works to increase member usage by improving facilities and member services, but should there be an unexpected number of requests for reimbursement of these deposits, this could have an
impact on Leopalace21’s financial position.

Tangible Fixed Assets, and Real Estate Properties for Sale
Because the Leopalace21 Group owns rental real estate and resortrelated properties, tangible fixed assets account for a relatively highproportion (40.9%) of our total assets. We make every effort to sellidle assets or underperforming properties; however, in future fiscal
terms we have plans to acquire or build new rental properties, andto replace or maintain facilities associated with our hotel and resort
business, so we will need to make capital investments and replacefacilities on an ongoing basis. As a result, the Group’s business results could be affected if we post a loss on the sale or disposal of
fixed assets, or impairment losses, as a result of changes in real estate prices, or if depreciation costs should rise significantly as a result of facility renewal. The Leopalace21 Group, because it includes

The Leopalace21 Group holds a great deal of information, including
personal information obtained through the consent of, or as a resultof non-disclosure agreements with, client companies. To control information security, the Company has drawn up the required information security guidelines, and set up a Compliance Committee tothoroughly educate our executive officers and employees about information security issues. Nevertheless, in the unlikely event that aleak of information of some type should occur, there is a possibility
that the Group’s reputation could be damaged, and that businessperformance might be affected.

Other Risks
The Group is aware that it incurs a variety of risks in the course ofpromoting its businesses, and it attempts to prevent, distribute or
avoid risk whenever possible. Nevertheless, the Group’s businessperformance and financial position may be affected by changes in
economic conditions, the real estate market, the financial and stock
markets, legal regulations, natural disasters, and a variety of otherfactors.

!!

Consolidated Balance Sheets
Leopalace21 Corporation and consolidated subsidiaries
March 31, 2009 and 2008

Millions of yen
2009

2008

2009

¥ 78,376
6,793
2,678
10,043
7,560
21,267
14,925598
27,672
8,046
2,596(1,472)
12,933¥ 60,965
6,381
8,778
15,7898,590
29,23011,792751
24,62912,08528,059(1,449)13,084$ 797,881
69,15527,267102,243
76,967
216,494
151,9446,088
281,705
81,91026,431(14,988)
131,654

192,015

218,684

1,954,751

114,915
112,758
3,990
2,884
13,088(56,291)

116,296
122,984
─
1,902
13,471(55,529)

1,169,852
1,147,896
40,61829,361
133,236(573,046)

Total property, plant and equipment

191,344

199,124

1,947,917

Investments and other assets (Note 10):Intangible assets
Investment securities (Note 5)Long-term loans
Deferred tax assets (Note 9)
Bad debt (Note 8)Long-term prepaid expenses
Other
Allowance for doubtful accounts

3,028
6,103
996
5,474
4,564
61,132
8,127(5,483)

622
9,082
2,400
3,388
4,016
53,356
5,449(2,165)30,822
62,131
10,13655,73046,458622,339
82,742(55,819)

Total investments and other assets

83,941

76,148854,539¥467,300¥493,956$4,757,207

ASSETS
Current assets:
Cash and cash equivalents (Note 4)
Trade receivables
Accounts receivable for completed projects
Operating loans
Real estate for sale/property inventories
Real estate for sale in process
Payment for construction in progress
Raw materials and supplies
Prepaid expenses
Deferred tax assets (Note 9)
Other accounts receivable
Allowance for doubtful accounts
Other
Total current assets
Property, plant and equipment (Notes 3, 7, 10):Land
Buildings and structures
Leased assets
Construction in progress
Other
Accumulated depreciation

Total assets
The accompanying notes are an integral part of these statements.

!"

Thousands of
U.S. dollars (Note 1)

Thousands of
U.S. dollars (Note 1)

Millions of yen
2009
LIABILITIES AND NET ASSETS
Current liabilities:
Accounts payable
Accounts payable for completed projects
Short-term borrowings (Note 10)
Accrued income taxes
Advances received
Customer advances for projects in progress
Allowance for employees’ bonuses
Reserve for warranty obligations on completed projects
Other
Total current liabilities
Long-term liabilities:
Long-term debt (Note 10)
Lease obligations
Retirement benefit reserves (Note 11)
Retirement benefit reserves for directors
Reserve for rents due on master lease agreements
Reserve for apartment vacancy loss
Lease/guarantee deposits received
Other

¥

2009

2008

$

36,514600,641
186,150
134,973
997,103
151,032
38,26911,440199,905

3,587
59,001
18,286
13,25897,945
14,836
3,759
1,124
19,637¥

231,433

268,622

2,356,027

22,897
3,006
6,194
1,282
ー
4,620
50,870556

28,395
─
5,065
1,592
399
─
19,728233,100
30,602
63,053
13,050ー
47,034
517,869
5,658

2,614
86,91021,316
14,30898,49721,752
3,243
1,042
18,940Total long-term liabilities

89,42555,179910,366

Total liabilities

320,858

323,801

3,266,393

55,64155,641

566,433

34,10573,413(6,543)

34,10576,211(99)

347,194
747,355(66,599)17(8)(10,183)
ー

90
─
(763)
4,970

175
(78)
(103,666)
ーTotal net assets

146,442

170,155

1,490,814

Total liabilities and net assets¥467,300¥493,956$4,757,207

Net assets
Shareholders’ equity:
Common stock:
Authorized: 250,000,000 shares
Issued: 159,543,915 shares
Capital surplus
Retained earnings
Treasury stockー8,165,714 shares
Valuation and translation adjustments
Net unrealized gains on “other securities”
Deferred losses on hedges
Translation adjustments
Minority interests!#

Consolidated Statements of Income
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2009 and 2008

Thousands of
U.S. dollars (Note 1)

Millions of yen
2009

2008

2009

Net sales
Cost of sales¥733,235
589,834¥672,974
511,054$7,464,475
6,004,621

Gross profit
Selling, general and administrative expenses

143,401
93,244

161,920
90,517

1,459,854
949,248

50,157

71,403

510,606297
325
ー(1,877)ー(1,224)
(780)
(1)
(162)
(2,560)(2,808)(3,405)
(786)
ー
ー
ー
ー
(4,314)
ー
399
185

291
105
20
(9,534)561(1,463)
(852)
4,345
(142)
─
(702)
(907)
(795)
255
(47,755)(594)(1,378)
─
(1,200)
─
766

3,019
3,304
ー
(19,106)ー(12,464)(7,943)(4)(1,650)(26,061)(28,583)(34,666)(8,005)ーーーー(43,910)
ー
4,063
1,887

33,446

12,424340,487

21,502
(0)
(0)
1,992
ー

17,450─
1,415(7,040)257

218,901(1)(4)
20,279ー342$ 101,312

Operating income
Other income (expenses):
Interest and dividend income
Equity in earnings of affiliated companies
Gain on valuation of interest-rate swap
Foreign exchange losses
Gain on sale of affiliates’ bonds
Interest expenses
Commission fee
Gain (loss) on sales of property, plant and equipment (Notes 12, 13)Loss on disposal of property, plant and equipment (Note 14)
Loss on devaluation of real estate for saleImpairment loss (Note 7)
Loss on devaluation of investment securities
Provision for bad debt
Gain on consumption tax
Adjustment to advances received
Consumption tax for previous period
Provision for warranty obligations on completed projects
Provision for apartment vacancy loss
Payment of retirement benefits for directors
Reversal of reserve for rents due on master lease agreement
Other, net
Income before income taxes and minority interests
Income taxes
Income taxーcurrent
Income taxーrefund
Income taxーprevious period
Income taxesーdeferred
Minority interests
Net income
The accompanying notes are an integral part of these statements.

!$

¥

9,952

¥

Consolidated Statements of Shareholders’ Equity
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2009 and 2008

Millions of yen
Shareholders’ equity

Balance as ofMarch 31, 2007

Commonstock

CapitalsurplusRetainedearnings

Net
Total
Total
unrealized Deferred
valuation
Treasury
Translation
shareholders’ gains on losses on
and
stock
adjustments
equityhedges“othertranslation
securities”
adjustments¥55,641¥34,105¥85,700¥

Cash dividend
Net income
Purchases of treasury
stock
Increase due todecrease of affiliatedcompanies
Decrease due toincrease of consolidated
subsidiaries
Net change of items
other thanshareholders’ equity
Total change during
periodBalance as ofMarch 31, 2008

(97) ¥175,349

(2)

540

540

540

(11)

(11)

(11)

¥76,211

(442)

6,974

6,532

(12,671)(6,139)(9,491)

(442)

6,974

6,532

(12,671)(15,630)(99) ¥165,858¥ 90(763) ¥

(673) ¥ 4,970 ¥170,155(2)¥(12,750)
9,952(6,444)(2,798)¥55,641¥34,105¥─ ¥ (7,737) ¥ (7,205) ¥17,641 ¥185,785(2)(9,489)¥34,105

Total net
assets(10,360)342(2)¥55,641¥532

Minority
interests(10,360)
342(10,360)
342

Cash dividend
Net income
Purchases of treasurystock
Net change of items
other thanshareholders’ equity
Total change during
periodBalance as ofMarch 31, 2009

Valuation and translation adjustments¥73,413¥─ ¥(12,750)
9,952(12,750)
9,952(6,444)(6,444)(73)(8)(9,420)(9,501)(4,970)(14,471)(9,242)(73)(8)(9,420)(9,501)(4,970)(23,713)¥(6,543) ¥156,616¥ 17(6,444)¥ (8) ¥(10,183) ¥(10,174) ¥ー ¥146,442

Thousands of
U.S. dollars (Note 1)
Shareholders’ equity
Commonstock
Balance as ofMarch 31, 2008
Cash dividend
Net income
Purchases of treasurystock
Net change of items
other thanshareholders’ equity
Total change during
periodBalance as ofMarch 31, 2009

CapitalsurplusRetainedearnings

Valuation and translation adjustments

Net
Total
Total
unrealized Deferred
valuation
Treasury
Translation
shareholders’ gains on losses on
and
stock
adjustments
equityhedges“othertranslation
securities”
adjustments$566,433 $347,194 $775,843 $ (1,001) $1,688,469(129,800)
101,312(65,598)

$915

$─ $

(7,765) $Minority
interests

Total net
assets(6,850) $50,597$1,732,216(129,800)
101,312(129,800)
101,312(65,598)(65,598)

(740)

(78)

(95,901)(96,719) (50,597)(147,317)(94,085)

(740)

(78)

(95,901)(96,719) (50,597)(241,402)$566,433 $347,194 $747,355 $(66,599) $1,594,383

$175

ー

$1,490,814(28,488)(65,598)$ (78) $(103,666) $(103,569) $The accompanying notes are an integral part of these statements.

!%

Consolidated Statements of Cash Flows
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2009 and 2008

Millions of yen
Cash flows from operating activities:
Income before income taxes and minority interests
Depreciation
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in retirement benefit reserves for directors
Increase (decrease) in reserve for apartment vacancy loss
Interest and dividend income
Interest expense
Foreign exchange losses
Equity in earnings of affiliated companies
Loss (gain) on sale of property, plant and equipment
Write-offs of property, plant and equipment
Loss on devaluation of real estate for saleImpairment loss
Gain on sale of affiliates’ bonds
Gain on sale of investment securities
Loss on devaluation of investment securities
Decrease (increase) in accounts receivable
Decrease (increase) in real estate for sale
Decrease (increase) in payment for construction in progress
Decrease (increase) in long-term prepaid expenses
Increase (decrease) in accounts payable
Increase (decrease) in customer advances for projects in progress
Increase (decrease) in advances received
Increase (decrease) in guarantee deposits received
Increase (decrease) in accrued consumption taxes
Other
Sub-totalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities:
Payment for property, plant and equipment
Proceeds from sale of property, plant and equipment
Payment for purchase of intangible assets
Payment for purchase of investment securities
Proceeds from sale of investment securities
Payment for loans
Proceeds from collection of loans
Other
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from short-term debt
Repayments for short-term debt
Proceeds from long-term debt
Repayments for long-term debt
Repayments of lease obligations
Payment for redemption by purchase on privately placed bonds
Payment for redemptions of privately placed bonds
Dividends paid to minority shareholders
Refund of amount invested by minority interests
Payment for purchase of treasury stock
Dividends paid to shareholders
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents of newly consolidated subsidiaries
Cash and cash equivalents at end of year (Note 4)
The accompanying notes are an integral part of these statements.

!&

Thousands of
U.S. dollars (Note 1)

2009

2008

2009

¥33,446
5,783
3,638
(311)
4,620
(297)
1,224
1,877
(325)
1
162
2,560
2,808
ー
ー
3,405
35,868
4,941(3,133)(10,854)(26,860)(6,916)(506)
31,1801,549
2,490
86,350603(1,225)(22,885)
62,843¥12,424
5,163
591(1,394)
─
(338)
1,463
9,534
(105)
(4,345)
142
─
702
(561)
(4)
907
(21,746)(11,238)(2,973)(12,465)
12,226(1,778)51,804
10,568(3,156)(726)
44,695367(1,476)(31,840)
11,746$340,487
58,86737,033(3,161)47,034(3,019)12,464
19,106(3,304)
4
1,650
26,061
28,583ーー
34,666365,146
50,303(31,897)(110,497)(273,442)(70,407)(5,151)
317,422
15,77025,343879,061
6,141(12,473)(232,971)
639,758(5,375)227(2,444)
(499)
80
(536)
301
(1,802)(10,048)(6,887)
12,145(57)(3,393)
731
(370)
203
(2,224)
148(54,717)2,315(24,880)(5,077)812(5,461)
3,067(18,358)(102,299)

29,000(29,000)
18,000(22,226)(401)
ー(5,094)ー(4,970)(6,444)(12,750)(33,885)(1,499)17,41160,965
ー¥78,376

78,610(82,389)
22,000(17,454)─
(3,100)(1,126)(475)(12,484)(2)(10,360)(26,780)(405)(15,291)
75,167
1,089¥60,965

295,225(295,225)
183,243(226,266)(4,080)ー(51,861)ー(50,597)(65,597)(129,800)(344,958)(15,259)
177,242620,639ー$797,881

Notes to Consolidated Financial Statements
Leopalace21 Corporation and consolidated subsidiaries
For the years ended March 31, 2009 and 2008

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of Leopalace21
Corporation (the “Company”) have been prepared in accordance with theprovisions set forth in the Financial Instruments and Exchange Act ofJapan and its related accounting regulations and in conformity withaccounting principles generally accepted in Japan, which are different incertain respects as to application and disclosure requirements fromInternational Financial Reporting Standards.
The accompanying consolidated financial statements have beenreformatted and translated into English (with certain expandeddisclosure) from the consolidated financial statements of the Company
prepared in accordance with Japanese generally accepted accounting
principles and filed with the Financial Services Agency as required by the
Financial Instruments and Exchange Act of Japan. Some supplementary
information included in the statutory Japanese language consolidated
financial statements, but not required for fair presentation, is notpresented in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars is included
solely for the convenience of readers outside Japan, using the prevailingexchange rate at March 31, 2009, which was ¥98.23 to US$1.00. Suchtranslation should not be construed as a representation that the Japanese
yen amounts have been, could have been, or could in the future be,converted into U.S. dollars at this or any other rate of exchange. Certain
amounts in the prior year’s financial statements have been reclassified toconform to the current year’s presentation.

2. Summary of Significant Accounting Policies(1) Consolidation
The accompanying consolidated financial statements as of March 31, 2009
include the accounts of the Company and its 7 (10 as of March 31, 2008)
significant subsidiaries (together, the “Companies”). Affiliated companies
over which the Company exercises significant influence in terms of theiroperating and financial policies have been included in the consolidated
financial statements on an equity basis. Investments in 1 affiliate havebeen included for the years ended March 31, 2009 and 2008. 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 such investments, theCompany has written down the investments.
Since the fiscal year end for certain consolidated subsidiaries is December
31, their financial statements as of that date are used in the preparationof the Company’s consolidated financial statement. When significant
transactions occur at those subsidiaries between their fiscal year end andthe Company’s fiscal year end, these transactions are included inconsolidation as necessary.
(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 thathave maturities of generally 3 months or less when purchased to be cash
equivalents.
(3) Inventories
Inventories of the Companies are primarily stated at cost (reflecting write
down due to decline in profitability) determined by the specificidentification method.
(Change in accounting policy)
The Company has applied the “Accounting Standard for Measurement of
Inventories” (ASBJ Statement No. 9, issued by the ASBJ on July 5, 2006) for
the year ended March 31, 2009.

As a result of this change, operating income decreased by ¥8,664 million($88,202 thousand) and income before income taxes and minority
interests decreased by ¥11,224 million ($114,263 thousand). The effect on
segment information is described in Note 20.
A revaluation loss on real estate for sales of ¥8,664 million ($88,202
thousand), after reflecting write downs due to a decline in profitability, is
included in cost of sales for the year ended March 31, 2009.
(4) Marketable and investment securities
Held-to-maturity securities are stated at amortized cost (straight-line
method). “Other securities” with available fair market values are stated atfair market value. Unrealized gains or losses on these securities arereported, net of applicable income taxes, as a separate component of net
assets. Realized gains or losses on sale of such securities are computed
using moving-average cost.
(5) Derivatives
1) Content of transactions
Derivative transactions used by the Company are limited to interest rate
swaps.
2) Policy regarding derivative transactions
All of the derivative transactions engaged in by the Company are used
exclusively for hedging against interest or foreign exchange risk. The
Company does not conduct derivative transactions for investment
purposes.
3) Purpose of the transactions
With regard to variable loans, the Company carries out interest rate cap
and interest rate swap transactions to reduce the risks associated with thepossibility of future increases in market interest rates.
Derivative transactions are accounted for using hedge accounting.
1. Hedge accounting method
The Company uses the deferral hedge accounting method.
The interest rate swaps that meet specific matching criteria arerecognized and included in interest expense or income.
2. Hedging method and hedge targets
Hedging method
Hedge targets
Interest rate swaps
Debt
3. Hedge method
Interest rate swaps are utilized as a hedge against possible futureinterest rate increases, in amounts that fall within the range of theparticular liability being hedged.
4. Method used to evaluate the effectiveness of the hedge
Cumulative interest rate fluctuations and changes in cash flows arecompared to evaluate the effectiveness of hedge targets and hedge
methods. However, evaluation as of the date of settlement of theeffectiveness of interest rate swaps that meet specific matching
criteria is omitted.
4) Risks associated with derivative transactions
The interest rate swap transactions used by the Company are associatedwith interest rate risk.
The contracting parties used by the Company are all highly reliable
Japanese financial institutions, and the risk of their failure to honor acontract is considered to be negligible.
5) Risk control system
The Company’s basic policy on derivative transactions is determined by
the Board of Directors, and the Accounting Department is thenresponsible for executing and monitoring this policy in accordance withthe regulations set out in the Company’s “Rules for Managing Derivative
Transactions.”!'

The status of derivative transactions is reported to the Board of Directors
on a regular basis to further reinforce our risk management.
6) Additional explanations about “Items pertaining to the market value oftransactions”
As regards the market value of transactions, contracted values represent
the calculated value of the notational principal of the transaction; thesevalues do not reflect the size of the risk associated with the transaction.
(6) Property, plant and equipment (except for leased assets)
Rental buildings 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 from 22 to 47 years for rentalbuildings.
Property, plant and equipment other than rental buildings of theCompany and domestic consolidated subsidiaries are stated at cost.
Depreciation is computed generally by the declining-balance method.
However, buildings obtained on or after April 1, 1998 are depreciated by
the straight-line method. The range of useful lives is principally from 40 to
50 years for buildings and structures and 5 years for machinery andequipment.
Property, plant and equipment of the consolidated overseas subsidiaries
are depreciated by the straight-line method based on the GAAP of thecountry. The range of useful lives is principally from 30 to 40 years forbuildings and structures and from 3 to 5 years for machinery andequipment.
(7) Long-lived assets
The Companies review long-lived assets for impairment whenever eventsor changes in circumstance indicate the carrying amount of an asset or
asset group may not be recoverable. An impairment loss would berecognized if the carrying amount of an asset or asset group exceeded
the sum of the undiscounted future cash flows expected to result fromthe continued use and eventual disposition of the asset or asset group.
The impairment loss would be measured as the amount by which thecarrying amount of the assets exceeds their recoverable amount, which is
the higher of the discounted cash flows from the continued use andeventual disposition of the assets, or the net selling price at disposition.
(8) Deferred charges
All costs incurred in connection with the issuance of corporate bonds areamortized over 3 years using the straight-line method.
(9) Long-term prepaid expenses
Long-term prepaid expenses are amortized evenly over a period mainly
from 3 to 5 years.
(10) Allowance for doubtful accounts
The Companies provide the allowance for doubtful accounts by themethod that uses the percentage of its own actual experience of bad
debt loss written off against the balance of total receivables plus theamount deemed necessary to cover individual accounts estimated to beuncollectible.
(11) Allowance for employees’ bonuses
Allowance for employees’ bonuses is provided for the payment of
employees’ bonuses based on estimated amounts of future payments
attributed to the current fiscal year.
(12) Retirement benefit reserves
Retirement benefit reserves for employees are provided mainly at an
amount calculated based on the retirement benefit obligation as of thebalance sheet date. The retirement benefit obligation is attributed to eachperiod by the straight-line method over the estimated years of service ofthe eligible employees. Actuarial gain and loss of the Companies are"amortized in the year following the year in which the gain or loss isrecognized by the straight-line method over a period (5 years) that isshorter than the average remaining years of service of the employees.
Some domestic consolidated subsidiaries calculate retirement benefit
reserves based on the compendium method.
(13) Retirement benefit reserves for directors
The Company recognizes liabilities for retirement benefits for directors at
an amount in accordance with the internal regulations had all directors
been terminated as of the balance sheet date.
(14) Reserve for apartment vacancy loss
Reserve for vacancy losses on apartment units managed under master
lease agreements is based on estimated losses resulting from historicalrental income and occupancy rates for each rental property managed by
the leasing division of the Company.
(Change in accounting policy)
Prior to the change, the Company computed the reserve for rents due on
the master lease agreements by estimates of master lease expenses dueapartment owners compared with estimated rent income fromapartment tenants over the period of the agreements. However, with therecent economic slowdown along with the increase in the number ofrental properties managed by the Company, the decline in occupancy
rates is expected to take on more significance. Considering the current
trends in accounting treatment for the valuation of allowances andreserves, the Company decided to discontinue the “reserve for rents due
on master lease agreements” method in favor of the valuation method
based on expected rental income and historical vacancy rates.
As a result of this change, an additional ¥307 million ($3,124 thousand)was recorded in cost of sales for the year ended March 31, 2009, ¥4,313
million ($43,910 thousand) incurred in the prior year was reclassified toother expenses, and reserve for rents due on master lease agreements of¥399 million ($4,063 thousand) as of March 31, 2008 was reversed andtaken into income as other income for the year ended March 31, 2009.
The effect of these changes was to reduce operating income by ¥246
million ($2,503 thousand) and income before income tax and minority
interests by ¥4,160 million ($42,349 thousand) for the year ended March
31, 2009.
Although the Company used the previous method to provide for the
expected loss on the master lease agreements through the first threequarters of the year ended March 31, 2009, the sudden economic reversal
in the latter half of the year necessitated that the Company implement
and evaluate a more conservative and preferable valuation method
during the peak leasing periods of February and March 2009. Had thechange in method been implemented at the beginning of the year,
operating income would have increased by ¥533 million ($5,427
thousand) and income before income tax and minority interests
decreased by ¥3,381 million ($34,420 thousand) for the first three quarterof the year ended March 31, 2009.
(15) Reserve for warranty obligations on completed projects
Reserve for warranty obligations on completed projects is provided in an
amount based on the Company’s past experience, with an additionalamount deemed necessary in the future for execution of warranty
obligations regarding construction projects.
(16) Income taxes
Income taxes comprise corporate, inhabitant and enterprise taxes.
The asset and liability approach is used to recognize deferred tax assets andliabilities for the expected future tax consequences of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

(17) Leases
Finance leases that are deemed to transfer ownership of leased property
to the lessee (excluding leases that existed on or before March 31, 2008)
are accounted for in a manner similar to sales transactions anddepreciated by the straight-line method over the lease term with noresidual value.
(Change in accounting policy)
Effective from the year ended March 31, 2009, the Company has adopted
the “Accounting Standards for Lease Transactions” (ASBJ Statements No.
13, as revised on March 30, 2007) and “Implementation Guidance on
Accounting Standards for Lease Transactions” (ASBJ Guidance No. 16, asrevised on March 30, 2007).
Under the previous accounting standard, finance leases that do nottransfer ownership of leased property were permitted to be accounted
for as operating lease transactions. The new accounting standard requiresthat all finance lease transactions be accounted for in a manner similar tosales transactions.
Finance lease transactions that existed on or before March 31, 2008 andhave been accounted for as operating leases, continue to be accounted
for as operating leases.
As a result of this change, operating income increased by ¥2 million ($17thousand) and income before income taxes and minority interests
decreased by ¥92 million ($939 thousand) for the year ended March 31,
2009.
In addition, future minimum lease payments related to non-cancelable
operating lease transactions are described in Note 18 for the year ended
March 31, 2009.
(18) Foreign currency transactions
All monetary receivables and payables denominated in foreign currencies
are translated into Japanese yen at the current exchange rates as of eachbalance sheet date. The foreign exchange gains and losses fromtranslation are recognized in the consolidated statements of income.
The assets and liabilities of consolidated overseas subsidiaries aretranslated into Japanese yen at the current exchange rates as of eachbalance sheet date and revenues and expenses are translated at the
average exchange rates of the fiscal year. Exchange differences areincluded in foreign currency translation adjustments.
(19) Interest capitalization
Leopalace Guam Corporation, a consolidated subsidiary, capitalizedinterest paid on borrowing for real estate development business for thedevelopment period into acquisition cost of property, plant andequipment.
Capitalized interests included in carrying value of property, plant andequipment were ¥2,011 million ($20,472 thousand) and ¥2,585 million forthe years ended March 31, 2009 and 2008, respectively.
(20) Consumption taxes
National and local consumption taxes are basically excluded fromtransaction amounts. However, Leopalace Insurance Co., Ltd, aconsolidated subsidiary, includes national and local consumption taxes inoperating expenses and general and administrative expenses. The
nondeductible portion of consumption taxes on the purchase of assets isrecorded as long-term prepaid expenses and amortized evenly over 5
years.

include consumption taxes in operating expenses and general andadministrative expenses. There is no effect on net income because of thischange.
(21) Net income per share
Basic net income per share of common stock is computed by net income
available to common shareholders divided by the weighted-average
number of common shares outstanding for the period.

3. Changes in Presentation
Effective from the year ended March 31, 2009, pursuant to the applicationof “Cabinet Office Ordinance on a Part of Regulation for Terminology,
Forms and Presentation of Financial Statements” (Cabinet Office
Ordinance Statement No. 50, issued on August 7, 2008), the Companies
have classified real estate for sale and real estate for sale in process
separately, which were both included in real estate for sale as of March
31, 2008.

4. Cash and Cash Equivalents
There is no difference between “Cash and cash equivalents” in the
consolidated balance sheet and “Cash and cash equivalents” in the
consolidated statements of cash flows.

5. Securities and Investment Securities(a) At March 31, 2009 and 2008, information with respect to “held-tomaturity securities” for which market prices were available wassummarized as follows:
Millions of yen
March 31, 2009

BalancesheetMarketvalue

Unrecognizedgain (loss)

Unrecognized gain items:
Government and municipal bonds, etc.
Corporate bonds
Other

¥ 398
ー
ー

¥ 405
ー
ー

¥ 7
ー
ー

398

405

7

100
ー
601

100
ー
588

0
ー
(13)

Subtotal
Unrecognized loss items:
Government and municipal bonds, etc.
Corporate bonds
Other
Subtotal

701

688

(13)

Total

¥1,099¥1,093¥ (6)March 31, 2008

BalancesheetMarketvalue

Unrecognizedgain (loss)

¥ ─
─
─

¥ ─
─
─

¥ ─
─
─

─

─

─

─
─
601

─
─
591

─
─
(10)

Millions of yen

Unrecognized gain items:
Government and municipal bonds, etc.
Corporate bonds
Other
Subtotal
Unrecognized loss items:
Government and municipal bonds, etc.
Corporate bonds
Other
Subtotal

601

591

(10)

Total

¥601

¥591

¥ (10)(Change in accounting policy)
Previously, Leopalace Insurance Co., Ltd, a consolidated subsidiary,
excluded consumption taxes from transaction amounts. However, theCompany started a small-amount and short-term insurance business inthe year ended March 31, 2009 and changed the accounting method to"Thousands of U.S. dollars

Thousands of U.S. dollars

March 31, 2009

BalancesheetMarketvalue

Unrecognizedgain (loss)

Unrecognized gain items:
Government and municipal bonds, etc.
Corporate bonds
Other$ 4,056ーー$ 4,126
ー
ー

$ 70
ー
ー

4,056

4,126

70

1,021
ー
6,112

1,016
ー
5,984

(5)
ー
(128)

Subtotal
Unrecognized loss items:
Government and municipal bonds, etc.
Corporate bonds
Other
Subtotal
Total

7,133

7,000

(133)

$11,189$11,126$ (63)(b) Marketable securities classified as “other securities” as of March 31,
2009 and 2008 were as follows:
Millions of yen
March 31, 2009
Securities whose carrying value
exceeds their acquisition cost:
Stock
Bonds:
Government and municipal bonds, etc.
Corporate bonds
Other
Other
Subtotal
Securities whose acquisition costexceeds their carrying value:
Stock
Bonds:
Government and municipal bonds, etc.
Corporate bonds
Other
Other
Subtotal
Total

Acquisition
cost

Carrying
value

Unrealized
gain (loss)

Securities whose carrying value
exceeds their acquisition cost:
Stock
Bonds:
Government and municipal bonds, etc.
Corporate bonds
Other
Other
Subtotal
Securities whose acquisition costexceeds their carrying value:
Stock
Bonds:
Government and municipal bonds, etc.
Corporate bonds
Other
Other

"

Securities whose carrying value
exceeds their acquisition cost:
Stock
Bonds:
Government and municipal bonds, etc.
Corporate bonds
Other
Other
Subtotal
Securities whose acquisition costexceeds their carrying value:
Stock
Bonds:
Government and municipal bonds, etc.
Corporate bonds
Other
Other
Subtotal
Total

¥ 382

¥ 539

¥157

173
ー
ー
96

173
ー
ー
97

0
ー
ー
1

651

809

158

78

75

(3)

ー
ー
345
294

ー
ー
345
251

ー
ー
ー
(43)

717

671

(46)

¥1,368¥1,480¥112

Acquisition
cost

Carrying
value

Unrealized
gain (loss)

¥ 477

¥ 797

¥320

74
─
─
─

74
─
─
─

0
─
─
─

551

871

320

985
114
─
500
520

985
114
─
392
464

Carrying
value

Unrealized
gain (loss)$ 3,893$ 5,487$1,594

1,759
ー
ー
973

1,763
ー
ー
986

4
ー
ー
13

6,625

8,236

1,611

790

763

(27)

ー
ー
3,512
2,993

ー
ー
3,512
2,553

ー
ー
ー
(440)

7,295

6,828

(467)

$13,920$15,064$1,144The Company recognized impairment loss of ¥1,002 million ($10,205
thousand) on stocks classified as “other securities” with market value,¥155 million ($1,578 thousand) on bonds classified as “other securities”
with market value, and ¥99 million ($1,012 thousand) on mutual funds
classified as “other securities” with market value for the year ended March
31, 2009. The Company recognized impairment loss of ¥843 million on
stocks classified as “other securities” with market value, and ¥62 millions
on mutual funds classified as “other securities” with market value for theyear ended March 31, 2008. Impairment loss was recognized on securities
whose market value had declined by 30% or more of acquisition cost at
year-end.
(c) Proceeds from sales of “other securities” for the years ended March 31,
2009 and 2008 were ¥42 million ($428 thousand) and ¥707 million,
respectively. Gross realized gains on these sales were nil and ¥4
million for the years ended March 31, 2009 and 2008, respectively.
(d) Securities without market value as of March 31, 2009 and 2008 were as
follows:

Millions of yen
March 31, 2008

March 31, 2009

Acquisition
cost

─
(0)
─
(108)
(56)

Subtotal

2,119

1,955

(164)

Total

¥2,670¥2,826¥156

Millions of yen
Other securities
Unlisted securities
Unlisted bonds:
Subordinated bonds
Others:Subordinated trust beneficiary right inloans receivable and money claims
Investments for limited partnership ininvestment business
Preferred equity contribution securities
Total

Thousands of
U.S. dollars

2009

2008

2009

¥1,106¥1,797$11,263

824

824

8,391

502

505

5,112

409
ー

509
1,500

4,158
ー

¥2,841¥5,135$28,924

The Company recognized impairment loss of ¥648 million ($6,600
thousand) on unlisted securities and ¥1,500 million ($15,270 thousand)on preferred equity contribution securities for the year ended March 31,
2009. The Company recognized impairment loss of ¥1 million on unlisted
securities for the year ended March 31, 2008. Impairment loss wasrecognized on securities without market value when net asset value ofthe securities had declined by 50% or more of the acquisition cost.

(e) The redemption schedule for securities with maturity dates classified
as “other securities” and “held-to-maturity securities” is summarized asfollows:(For the year ended March 31, 2008)
PurposeMarch 31, 2009
Bonds:
Government andmunicipal bonds, etc.
Corporate bonds
Other
Other

¥153
ー
100
97

¥520
ー
ー
ー

¥ー
ー
300
408

¥

¥350

¥520

¥708

¥2,026Total

Due after 1
Due after 5
year through years through5 years
10 years

Due after
10 years

ー
824
700
502

Millions of yen
Due in1 yearor less

March 31, 2008
Bonds:
Government andmunicipal bonds, etc.
Corporate bonds
Other
Other
Total

Due after 1
Due after 5
year through years through5 years
10 years

─
─
300
814

¥15
─
─
─

¥ 173
─
100
1,573

¥

¥15

¥1,846¥1,114Due after
10 years

¥

─
824
700
505

¥2,029Thousands of U.S. dollars

March 31, 2009

Due in1 yearor less

Bonds:
Government andmunicipal bonds, etc.
Corporate bonds
Other
Other

$1,558ー
1,018
986$5,294
ー
ー
ー

$

ー
ー
3,054
4,158

$

$3,562$5,294$7,212$20,624Total

Due after 1
Due after 5
year through years through5 years
10 years

Due after
10 years

ー
8,391
7,126
5,107

(f) Investments in securities, including investments in unconsolidated
subsidiaries and affiliates, were ¥837 million ($8,516 thousand) and¥536 million as of March 31, 2009 and 2008, respectively.

Impairment loss

Location

Millions of yen

Millions of yen
Due in1 yearor less

Category

Rental assets(32 blocks ofapartments)

Buildings andstructures

Osaka City,
Osaka, etc.

Land

¥139
563

The Companies recognized each property in domestic rental assets asa unit and grouped overseas assets by administration accountingclassification.
The Companies reduced book value of the rental assets, idle assets andbusiness assets whose profitability decreased seriously due to a decline incurrent rental rates and continuous decline in land prices, to recoverable
amounts and recognized the reduced values as impairment losses of¥2,808 million ($28,583 thousand) and ¥702 million for the years ended
March 31, 2009 and 2008, respectively.
Recoverable amounts of rental assets were measured by values in current
use, which were calculated based on the present values of future cash
flows, using a discount rate of 4.6%.

8. Change from Current Assets to Land and Construction in
Progress
The Companies have reclassified real estate for sale in process of ¥2,056
million ($20,935 thousand) that had been categorized as current assets
into land of ¥1,421 million ($14,471 thousand) and construction inprogress of ¥635 million ($6,464 thousand) due to change in possession
purpose as of March 31, 2009.

9. Bad Debt
Bad debt at March 31, 2009 and 2008 consisted of the following:
Millions of yen
Claim in bankruptcy
Claim in the process of bankruptcy
Bad debt
Others
Total

Thousands of
U.S. dollars

2009

2008

¥

10
3,488
866
200

¥

14
2,346
1,499
157

$

2009

¥4,564¥4,016$46,458

103
35,5068,819
2,030

6. Derivative Transactions
There is no balance of derivative transactions outstanding as of March 31,
2009 and 2008.

7. Long-Lived Assets
The Companies recognized impairment loss of the following asset groupfor the years ended March 31, 2009 and 2008:(For the year ended March 31, 2009)
Impairment loss
PurposeRental assets(59 blocks ofapartments)

Category

Location

Buildings andstructures
Sapporo City,
Hokkaido, etc.
Land

Millions of yen

Thousands of
U.S. dollars¥ 681$ 6,927

2,127

21,656"!

10. Deferred Tax Assets and Liabilities

11. Short-Term Borrowings and Long-Term Debt(a) Significant components of deferred tax assets and liabilities as ofMarch 31, 2009 and 2008 were as follows:(a) Short-term borrowings, long-term debt and lease obligations at March
31, 2009 and 2008 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2009
Deferred tax assets:
Impairment loss
¥20,986
Loss carried forward for tax purposes 11,523
Loss on devaluation of real estate for sale
4,757
Advances from customers for rent income
3,644
Retirement benefit reserves
2,520
Subsidiaries’ foreign exchange loss
2,013
Reserve for apartment vacancy loss
1,880
Loss on devaluation of property, plantand equipment
1,630
Allowance for employees’ bonuses
1,530
Allowance for doubtful accounts
1,369
Accrued business tax
1,015
Deposits received
811
Loss on devaluation of securities
705
Other payable
577
Retirement benefit reserves for directors
522
Reserve for warranty obligations oncompleted project
457
Excess amortization on software
293
Excess depreciation
202
Sales discount for construction contracts
136
Elimination of unrealized loss
96
Loss on investment properties
63
Bad debt loss
41
Reserves for rents due on master
lease agreements
ー
Other
271
Sub-total
57,041
Less: valuation allowance(43,477)
Total deferred tax assets
13,564
Deferred tax liabilities:
Net unrealized gain on “other securities”(44)
Total deferred tax liabilities
Net deferred tax assets

2008

2009

¥23,175
13,709
255
8,064
2,061
─
─

$213,645
117,311
48,42337,09225,656
20,494
19,138

1,630
1,320
2,732
1,093
632
417
537
648

16,59015,572
13,933
10,333
8,259
7,176
5,875
5,310

424
197
219
─
123
─
580

4,655
2,983
2,052
1,382
976
645
413

162
344

ー
2,773

58,322(42,767)
15,555580,686(442,606)
138,080

(82)

(440)

(44)

(82)

(440)

¥13,520¥15,473$137,640

Short-term borrowings:
Current portion of long-term debt
Current portion of lease obligations
Unsecured corporate bonds due on
September 30, 2008
Long-term debt
Lease obligations, long term
Total

2009

2008

Statutory tax rate
Valuation allowances
Non-deductible expenses including entertainment
expenses
Inhabitant tax
Tax for prior fiscal periods
Others40.69%
17.76

40.69%
27.00

9.84
0.91
ー
1.05

12.17
2.12
11.39
1.80

Effective income tax rate

70.25%

95.17%

2009

2008

2009

¥17,493793¥16,221─

$178,080
8,070

ー
22,897
3,006

5,095
28,395
─ー
233,100
30,602¥44,189¥49,711$449,852(b) Assets pledged as collateral for short-term borrowings and long-term
debt at March 31, 2009 and 2008 were as follows:
Thousands of
U.S. dollars

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

2009

2008

2009

¥12,549
43,85893¥14,071
46,045
93$127,752
446,481
950

420

420

4,276

¥56,920¥60,629$579,459(c) The aggregate annual maturities of long-term debt subsequent toMarch 31, 2009 are summarized as follows:
For the year ending March 31
2010
2011
2012
2013
2014 and thereafter

Millions of yen

Thousands of
U.S. dollars¥17,493
15,2786,788
831
─

$178,080
155,537
69,1038,460
─(d) The aggregate annual maturities of lease obligation subsequent toMarch 31, 2009 are summarized as follows:
For the year ending March 31(b) Reconciliation of the differences between the statutory tax rate andthe effective income tax rate for the years ended March 31, 2009 and2008 was as follows:

Thousands of
U.S. dollars

Millions of yen

2010
2011
2012
2013
2014 and thereafter

Millions of yen

Thousands of
U.S. dollars

¥793
824
778
773
631

$8,070
8,391
7,921
7,868
6,422

12. Retirement Benefit Plans(a) The following table sets forth the funded and accrued status of theplans, and the amounts recognized in the consolidated balance sheets
as of March 31, 2009 and 2008 for the Companies’ defined benefit
plans:
Millions of yen

Thousands of
U.S. dollars

2009

2008

2009

Projected benefit obligation
Unrecognized actuarial gain or loss¥(6,815)621¥(5,630)
565$(69,378)
6,325

Retirement benefit reserves¥(6,194)¥(5,065)$(63,053)

Certain consolidated subsidiaries apply simplified methods in calculating
their projected benefit obligations.

""(b) The following table sets forth the funded and accrued status of theentire pension plan as of March 31, 2008 and 2007.
Thousands of
U.S. dollars

Millions of yen

14. Loss on Sale of Property, Plant and Equipment
Loss on sale of property, plant and equipment for the years ended March
31, 2009 and 2008 was as follows:
Millions of yen

As of March 31,
2008

2007

2008

Pension assets
Projected benefit obligation¥45,804
50,403¥52,226
45,161$466,294
513,113Difference¥ (4,599)¥ 7,065$ (46,819)

The main components of the difference for the year ended March 31, 2009
are unrecognized prior service costs of ¥2,455 million ($24,995 thousand)and insufficient amount carried forward of ¥2,937 million ($29,897
thousand). The main components of difference for the year ended March
31, 2008 are unrecognized prior service costs of ¥2,485 million and otherreserves of ¥8,006 million. The Company recognized the special annuity
premium of ¥131 million ($1,333 thousand) and ¥109 million as an expensein the years ended March 31, 2009 and 2008, respectively. The insufficientamount carried forward will be settled by increasing the rate of special
annuity premium based on recalculation of the financial situation.
The annuity premium contributory proportion of the entire pension planis 43% and 37% as of March 31, 2009 and 2008, respectively.
The Company has a welfare pension fund. In the welfare pension fund, itcannot reasonably calculate the portion of the pension assets attributed
to the Company.
(c) The components of retirement benefit expenses for the years ended
March 31, 2009 and 2008 were summarized as follows:
Thousands of
U.S. dollars

Millions of yen
Service cost
Interest cost
Amortization of actuarial gain or loss
Total

Buildings and structures
Others

2009

2008

2009

¥ー
1

¥120
1
¥121

$ー
6

¥ 1

Total

Thousands of
U.S. dollars$ 6

15. Loss on Disposal of Property, Plant and Equipment
Loss on disposal of property, plant and equipment for the years ended
March 31, 2009 and 2008 was as follows:
Thousands of
U.S. dollars

Millions of yen
Buildings and structures
OthersConstruction in progress
Intangible assets
Total

2009

2008

2009

¥ 96
13
20
33

¥ 72
70
—
—

$ 977
130
204
339

¥162

¥142

$1,65016. Shares Outstanding and Treasury Stocks
Shares outstanding and treasury stocks for the year ended March 31,
2009 were as follows:
Type of shares

March 31, 2008

Increase

Shares outstanding
Common stock

Decrease March 31, 2009

159,543,915——

159,543,915

159,543,915——

159,543,915

2009

2008

2009

Total

¥3,145123
188¥2,656102
186$32,015
1,256
1,916

Treasury stock
Common stock

165,059

8,000,655—

8,165,714

Total

165,059

8,000,655—

8,165,714¥3,456$35,187¥2,944

Notes: 1. Contributions to the welfare pension fund were ¥2,074 million ($21,114
thousand) and ¥1,771 million in the years ended March 31, 2009 and2008, respectively.
2. All the retirement benefit expenses of the domestic consolidated
subsidiaries adopting the simplified method were recorded in service
cost.

(d) The assumptions used in accounting for the above plans are as
follows:
Assumptions used in accounting for
retirement benefits
Periodical allocation of estimatedretirement benefit
Discount rate
Amortization period of actuarial gain or loss

2009

2008

Benefits-years-ofservice approach
2.2%
5 years

Benefits-years-ofservice approach
2.2%
5 years

Note: 1. An increase of 8,000,655 shares was due to purchases of common
stock (8,000,000 shares) by resolution of the Board of Directors’
meeting and purchases of odd-lot shares of less than one unit (655
shares).

Shares outstanding and treasury stocks for the year ended March 31,
2008 were as follows:
Type of shares

March 31, 2007

Increase

Shares outstanding
Common stock

159,543,915——

159,543,915

159,543,915——

159,543,915

Treasury stock
Common stock

164,521538—

165,059

Total

164,521538—

165,059

Total

Decrease March 31, 2008

Note: 1. An increase of 538 shares was due to purchases of odd-lot shares ofless than one unit.

13. Gain on Sale of Property, Plant and Equipment
Gain on sale of property, plant and equipment for the years ended March
31, 2009 and 2008 was as follows:
Millions of yen
Buildings and structures
Land
Others
Total

Thousands of
U.S. dollars

2009

2008

2009

¥ー
ー
0

¥ 697
3,736
33

$ー
ー
2

¥ 0

¥4,466$ 2"#

17. Cash Dividends(a) Cash dividends for the year ended March 31, 2009 were as follows:

Resolution
General shareholders’ meeting on
June 27, 2008
Board of Directors’ meeting on
November 4, 2008

Type of shares

Gross amount(millions of yen)

Gross amount(thousands of
U.S. dollars)

Per share(yen)

Per share(U.S. dollars)Common stock¥7,969$81,125

¥50

$0.51

Common stock

4,781

48,67530

0.31

Record date

Date in effect ofdividend

March 31,2008
September 30,
2008

June 30,
2008
November 25,
2008

Cash dividends for the year ended March 31, 2008 were as follows:
Resolution
General shareholders’ meeting on
June 28, 2007
Board of Directors’ meeting on
November 22, 2007

Type of shares

Gross amount(millions of yen)

Per share(yen)

Common stock¥5,578¥35

March 31, 2007

June 29, 2007

Common stock

4,781

30

September 30, 2007

December 7, 2007

Date in effect ofdividend

Record date(b) There is no dividend that will be in effect in the year ended March 31, 2010 and recorded in the year ended March 31, 2009.

18. Leases
The Companies primarily lease furniture and electronic appliances, forapartments of their leasing business, and software.
(a) The following pro forma amounts represent the acquisition cost,
accumulated depreciation and net book value of leased property as ofMarch 31, 2009 and 2008, which would have been reflected in theaccompanying consolidated balance sheets if finance accounting had
been applied to the finance leases that existed on or before March 31,
2008 and are currently accounted for as operating leases:
Millions of yen
2009

Thousands of
U.S. dollars

2008

2009

Acquisition cost
VehiclesEquipment¥

11
17,466¥14
22,175$

110
177,807

Accumulated depreciation
VehiclesEquipment

¥

5
8,836

¥

6
10,273$49
89,955Net book value
VehiclesEquipment

¥

6
8,630

¥

$

(b) The amounts of outstanding future lease payments under financelease subsequent to March 31, 2009 including the interest portion
thereon were summarized as follows:
Millions of yen

Thousands of
U.S. dollars¥2,835
6,307$28,856
64,208¥9,142$93,064

Due within one year
Due after one year
Total

Annual lease expenses charged to income were ¥4,038 million ($41,107
thousand) and ¥4,725 million for the years ended March 31, 2009 and2008, respectively.
(c) Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2009 and 2008 for finance lease transactions accounted for as operating leases were summarized as follows:
Thousands of
U.S. dollars

Millions of yen

8
11,902

61
87,852Estimated amount of depreciation by
the straight-line method over thelease period
Estimated interest cost

2009

2008

2009

¥3,495540¥4,161
611$35,5785,499(d) Future minimum lease payments related to non-cancelable operating leases subsequent to March 31, 2009 were as follows:
Millions of yen"$

Thousands of U.S. dollars
Differences

Future lease
payments

Prepaid lease
payments

Differences¥ 25,269¥(25,269)¥ 230,703¥ (230,645)$ 2,605,843$ (2,605,251)$ 257,243$(257,243)$ 2,348,601$ (2,348,008)

1,172,276(1,172,226)

59,774(59,774)

1,112,501(1,112,452)

11,933,990(11,933,487)

608,515(608,515)

11,325,474(11,324,972)¥ 1,428,248¥(1,428,140)¥ 85,043¥(85,043)¥ 1,343,204¥(1,343,097)$ 14,539,833$(14,538,738)$ 865,758$(865,758)$ 13,674,075$(13,672,980)

Future lease
payments

Prepaid lease
payments

Due within
one year¥ 255,972¥ (255,914)

Due after
one yearTotal

19. Contingent Liabilities

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

Contingent liabilities for the years ended March 31, 2009 and 2008 wereas follows:(e) Future minimum lease payments under operating leases subsequent
to March 31, 2008 were as follows:
Millions of yen
Due within one year
Due after one year
Total

Thousands of
U.S. dollars

Millions of yen
Contingent liabilities to financial
institutions for customers who havea home mortgage
Contingent liabilities to financial
institutions for customers who havea membership loan
Subordinated contingent liabilities tofinancial institutions for customers
who have an apartment loan withnonexempt property

¥ 70
77
¥147

Total

2009

2008

2009

¥1,810¥2,044$18,428

30

30

305

1

3

7

¥1,841¥2,077$18,740

Eliminationor common
assetsConsolidated
totals

20. Segment Information(a) Business segments
Segment information by business groups for the years ended March 31, 2009 and 2008 was as follows:
Millions of yen
Apartment
Construction
Subcontracting
Division

Leasing
Division

Hotel
ResortDivision

Residential
Sales
Division

Other
Division

Segment
totals¥359,155
ー¥334,561
216¥ 5,611
4,605¥ 11,469
ー¥22,439ー¥733,235
4,821

Total
Operating expenses

359,155
289,042

334,777
336,316

10,216
11,021

11,46922,134

22,43924,604

Operating income (loss)¥ 70,113¥ (1,539)

¥

(805)

¥(10,665)¥ 41,900
537
ー
278¥214,657
2,863
2,808
5,379

¥43,267
1,657
ー
489

¥ 28,907
10ー
6Apartment
Construction
Subcontracting
Division

Leasing
Division

Hotel
ResortDivision

Residential
Sales
Division¥327,541
─¥302,731
23¥ 6,072
4,200

Total
Operating expenses

327,541
254,273

302,754299,717

Operating income (loss)¥ 73,268¥¥ 70,768
550
─
575

Year ended March 31, 2009
(1) Net sales and operating income (loss)
Sales
Sales to customers
Inter-segment sales and transfers(2) Assets, depreciation, impairment
losses and capital expenditures
AssetsDepreciation
Impairment losses
Capital expenditures

ー(4,821)¥733,235ー

738,056
683,117(4,821)(39)

733,235
683,078¥ (2,165)¥ 54,939¥ (4,782)¥ 50,157¥17,668
296
ー
1,447

¥346,399
5,363
2,808
7,599

¥120,901
419
ー
4,155

¥467,300
5,782
2,808
11,754

Other
Division

Segment
totalsEliminationor common
assetsConsolidated
totals¥11,281─

¥25,349─

¥672,974
4,223

─
(4,223)¥672,974
─

10,272
11,38911,281
12,49025,34923,494

677,197
601,363(4,223)208

672,974
601,571

3,037¥ (1,117)¥ (1,209)¥ 1,855¥ 75,834¥ (4,431)¥ 71,403¥213,118
2,193
702
4,022

¥53,444
1,789
─
653

¥39,97441─
30¥21,178141─
148¥398,482
4,714
702
5,428

¥95,474
449
─
1,495

¥493,956
5,163
702
6,923

¥

Millions of yen

Years ended March 31, 2008
(1) Net sales and operating income (loss)
Sales
Sales to customers
Inter-segment sales and transfers(2) Assets, depreciation, impairment
losses and capital expenditures
AssetsDepreciation
Impairment losses
Capital expenditures¥"%

Thousands of U.S. dollars
Apartment
Construction
Subcontracting
Division

Leasing
Division

Hotel
ResortDivision

Residential
Sales
Division

Other
Division

Segment
totals(1) Net sales and operating income (loss)
Sales$3,656,264
Sales to customersーInter-segment sales and transfers$3,405,891
2,200$ 57,121
46,880$ 116,755
ー$228,444
ー$7,464,475
49,080Total
Operating expenses

3,656,264
2,942,503

3,408,091
3,423,757

104,001
112,198

116,755
225,325

228,444
250,484

7,513,555
6,954,267

Operating income (loss)$ 713,761$(15,666)$ (8,197)$(108,570)$ (22,040)$ 559,288$$ 426,546
5,463
ー
2,831

$2,185,252
29,15028,58354,764$440,462
16,872
ー
4,981$ 294,274
102
ー
56$179,871
3,006
ー
14,725$3,526,405
54,59328,58377,357

Years ended March 31, 2009

(2) Assets, depreciation, impairment
losses and capital expenditures
AssetsDepreciation
Impairment losses
Capital expenditures

Eliminationor common
assetsConsolidated
totalsー(49,080)$7,464,475
ー(49,080)(398)

7,464,475
6,953,869(48,682)$ 510,606$1,230,802
4,274
ー
42,298$4,757,207
58,86728,583
119,655$

Notes: 1. The above segments are defined according to our own internal management system.
2. Segments and business content(1) Apartment Construction Subcontracting Division
Contract apartment construction(2) Leasing Division
Apartment leasing, management, related services and repairs(3) Hotel Resort Division
Hotel and resort management, sales of resort club memberships, etc.
(4) Residential Sales Division
Sale of detached houses(5) Other Division
Broadband Business, Silver Business, financial services (real-estate loans, etc.), small amount andshort-term insurance business
3. Major items and amounts included in “Elimination or common assets” are as follows.

Millions of yen
2009

Thousands of
U.S. dollars

2008

2009

Operating expenses unable to beallocated included in “Elimination orcommon assets”

¥

4,993

¥ 4,535$

Amount of corporate assets
included in “Elimination orcommon assets”

120,902

95,4741,230,802

Main component
Management expenses of the General Affairs Department of the Company submitting
the consolidated financial statements.

50,825
Surplus funds under management at submitting company (cash and deposits,marketable securities, etc.), long-term investment funds (investment securities, etc.),
and assets related to management operations.

(Change in business segments)
The residential sales division is classified separately from other divisions in the year ended March 31, 2009 because the absolute amount of its operating loss
exceeded 10% of the absolute amount of total operating income from the segments that generate operating “income.” Accordingly, the numbers for theyear ended March 31, 2008 were reclassified appropriately.
(Change in accounting policy)
Inventory measurement
As discussed in Note 2 (3), effective from the year ended March 31, 2009, the Company has applied the “Accounting Standard for Measurement of
Inventories” (ASBJ Statement No. 9 issued on July 5, 2006). As a result of this change, the operating expense and operating loss increased by ¥8,664 million($88,202 thousand) for the Residential Sales Division for the year ended March 31, 2009 compared to the figures obtained by the previous method of
calculation.
Reserve for apartment vacancy loss
As discussed in Note 2 (14), effective from the year ended March 31, 2009, the Company accounts for the reserve for loss on the master lease agreement as“reserve for apartment vacancy loss” by calculating estimated losses resulting from historical rental income and occupancy rates. As a result of this change,
the operating expense increased by ¥246 million ($2,503 thousand) and operating income decreased by the same amount for the Leasing Divisioncompared to the figures obtained by the previous method of calculation.

"&

(b) Geographical segments
Segment information by geographic area for the years ended March 31, 2009 and 2008 was as follows:
Millions of yen
Elimination orcommon assets

Consolidated
totalsー(5,192)¥733,235ー738,427
683,488(5,192)(410)

733,235
683,078996¥ 54,939¥ (4,782)¥ 50,157¥304,788¥41,610¥346,398¥120,902¥467,300

Japan

Trust territory of
U.S.A. Guam

Segment totals

Elimination orcommon assets

Consolidated
totals¥668,493
159¥ 4,481
4,677¥672,974
4,836

─
(4,836)¥672,974
─

Total
Operating expenses

668,652
593,045

9,158
8,931

677,810
601,976(4,836)(405)

672,974
601,571

Operating income (loss)¥ 75,607¥

227¥ 75,834¥ (4,431)¥ 71,403¥346,254¥52,228¥398,482¥95,474¥493,956

Japan

Trust territory of
U.S.A. Guam

Segment totals

Elimination orcommon assets

Consolidated
totals$7,423,779
1,175$ 40,696
51,681$7,464,475
52,856

Total
Operating expenses

7,424,954
6,875,808

92,377
82,234

7,517,331
6,958,042

Operating income (loss)$ 549,146$ 10,143$ 559,289$$3,102,803$423,602$3,526,405

Japan

Trust territory of
U.S.A. Guam

Segment totals¥729,238
115¥ 3,997
5,077¥733,235
5,192

Total
Operating expenses

729,353
675,410

9,074
8,078

Operating income (loss)¥ 53,943¥

Year ended March 31, 2009
(1) Net sales and operating income (loss)
Sales
Sales to customers
Inter-segment sales and transfers(2) Assets
Assets¥Millions of yen
Year ended March 31, 2008
(1) Net sales and operating income (loss)
Sales
Sales to customers
Inter-segment sales and transfers(2) Assets
Assets¥Thousands of U.S. dollars
Year ended March 31, 2009
(1) Net sales and operating income (loss)
Sales
Sales to customers
Inter-segment sales and transfers(2) Assets
Assetsー(52,856)$7,464,475
ー(52,856)(4,173)7,464,475
6,953,869(48,683)$ 510,606$1,230,802$4,757,207$

Notes: 1. Geographic area is defined by geographic contiguity.
2. Major items and amounts included in “Elimination or common assets” are the same as in Note 3 in “Business segments.”(Change in accounting policy)
Inventory measurement
As discussed in Note 2 (3), effective from the year ended March 31, 2009, the Company has applied the “Accounting Standard for Measurement of
Inventories” (ASBJ Statement No. 9 issued on July 5, 2006). As a result of this change, operating expenses increased by ¥8,664 million ($88,202 thousand)and operating income decreased by the same amount in the Japan segment for the year ended March 31, 2009 compared to the figures obtained by theprevious method of calculation.
Reserve for apartment vacancy loss
As discussed in Note 2 (14), effective from the year ended March 31, 2009, the Company accounts for the reserve for loss on the master lease agreement as“reserve for apartment vacancy loss” by calculating estimated losses resulting from historical rental income and occupancy rates. As a result of this change,
operating expenses increased by ¥246 million ($2,503 thousand) and operating income decreased by the same amount in the Japan segment compared to
the figures obtained by the previous method of calculation.
(c) Overseas sales
As overseas sales constituted less than 10% of consolidated net sales for the years ended March 31, 2009 and 2008, overseas sales information has been
omitted.

"'21. Amounts per Share(a) The following table sets forth the net assets and net income per shareof common stock for the years ended March 31, 2009 and 2008.
Yen
2008

2009

2009

¥967.40¥1,036.43

$9.85

63.54

2.15

0.65

Net income
Amount not allocated tocommon stock
Net income allocated tocommon stock
Weighted-average shares
during the year
(thousands of shares)(b) Basis of computation of net assets per share at March 31, 2009 and2008 was as follows:

¥

2008

9,952

2009

342

$101,312

ー

─

ー

9,952

342

101,312

156,620

159,379

156,620¥

Thousands of
U.S. dollars

Millions of yen
Net assets
Amount not allocated tocommon stock
Net assets allocated tocommon stock
Shares issued outstanding at
end of year
(Thousands of shares)

Thousands of
U.S. dollars

Millions of yen

U.S. dollars

2009
Net assets
Net income
Basic(c) Basis of computation of basic net income per share for the years
ended March 31, 2009 and 2008 was as follows:

2009

2008

2009

¥146,442¥170,155$1,490,814

ー

4,970

ー

146,442

165,185

1,490,814

151,378

159,379

151,378

22. Related Party Transactions
The following table sets forth related party transactions for the years ended March 31, 2009 and 2008.
(For the year ended March 31, 2009)(a) Unconsolidated subsidiaries and affiliates
Capital stock
Attribute

Name

Address

AffiliateToyo Miyama
Kogyo Co., Ltd.

Kisarazu
City, Chiba

Millions of yen

Thousands of
U.S. dollars¥100$1,018Business or position

Percentage of shareownership of theCompany

Production and sales ofbuilding materials

50.0%

Relation–Purchases of building
materials and others–Interlocking directors

Transaction amount#

Attribute

Name

Transaction

AffiliateToyo Miyama
Kogyo Co., Ltd.

Purchases ofbuilding materials
and others

Millions of yen

Thousands of
U.S. dollars¥41,387$421,324

Balance
Account
Accounts payable
for completed
projects

Millions ofyen

Thousands of
U.S. dollars¥10,571$107,615

(b) Directors and major shareholders
Capital stock
Attribute

Director andclose relatives

Millions of yen

Thousands of
U.S. dollars

Business or position

Percentage of shareownership of theCompany

Relation───

President and CEO

0.5%

Leasing of land and building

Toshiko Miyoshi

─

─

─

─

─

Sales of real estate
Leasing of land and buildings

Takeshi Yoshioka

─

─

─

─

─

Leasing of land and buildings

Name

Address

Yoshiteru Kitagawa

Transaction amountAttribute

Director andclose relatives

Name

Transaction

Yoshiteru Kitagawa

BalanceMillions of yen

Thousands of
U.S. dollars

Account

Millions ofyen

Thousands of
U.S. dollars

Leasing of apartments

¥10

$ 97

─

¥─

$ ─

Toshiko Miyoshi

Sale of land
Leasing of apartments

52
─

531
─

─
Long-term prepaid expenses

─
29

─
290

Takeshi Yoshioka

Leasing of apartments

13

132

─

─

─

Notes: 1. Consumption taxes were not included in transaction amounts but included in balance.
2. Conditions of transactions:(a) Conditions of purchases of building material were the same as transactions with third parties.
(b) Conditions of leasing of apartments are the same as transactions with third parties.
(c) Conditions of sale of land are the same as transactions with third parties.
3. Toshiko Miyoshi is a close relative of Tadahiro Miyama, Executive Director of Management.
4. Takeshi Yoshioka is a close relative of Yoshikazu Miike, Director of the Company.

(Additional information)
Effective from the year ended March 31, 2009, the Company has applied the “Accounting Standard for Related Party Disclosures” (ASBJ Statement No. 11,
issued by the ASBJ on October 17, 2006) and “Implementation Guidance on Accounting Standard for Related Party Disclosures” (ASBJ Guidance No. 13,
issued on October 17, 2006). There was no change in the scope of disclosure as a result.
(For the year ended March 31, 2008)(a) Directors and individual major shareholders
Capital stock
Attribute

Name

Address

Business or position
Millions of yen

Director andcompany whose
majority of voting
right is ownedby the director
and close
relatives

Individual main
shareholder

Relation

Percentage of shareownership of theCompany

Interlocking
directors

Relation inbusiness

Yoshiteru Kitagawa

──President and CEO

0.5%

─

─

Eisei Miyama──Senior Managing Director

0.0%

─

─

Yoshikazu Miike──

Director

0.0%

─

─

Satoshi Abe──

Director───Yousuke Kitagawa

──

Director

0.0%

─

─

Katsumi Furuhata──

Full-time Corporate Auditor

─

─

─

Miyamaso Co., Ltd.

Iki City,
Nagasaki¥6

Hotel business──Leasing ofbuilding

─

─

─

13.3%

─

─

Yusuke Miyama#Transaction amountAttribute

Name

Balance
Account

Transaction
Millions of yen

Director andcompany whose
majority of voting
rights are ownedby the director andclose relatives

Individual main
shareholder

Millions of yen

Yoshiteru Kitagawa

Leasing of land and buildings

¥ 4

─

¥─

Eisei Miyama

Leasing of land and buildings

5

─

─

Yoshikazu Miike

Leasing of land and buildings

5

─

─

Satoshi Abe

Leasing of land and buildings

3

─

─

Yousuke Kitagawa

Leasing of land and buildings

2

─

─

Katsumi Furuhata

Leasing of land and buildings

0

─

─

Miyamaso Co., Ltd.

Leasing of buildings

6

─

─

Yusuke Miyama

Interest on loans

62“Other” in current assets¥62

Notes: 1. Miyamaso Co., Ltd. is a company whose majority of voting rights are owned by close relatives of Eisei Miyama, Senior Managing Director of the Company.
2. Conditions of transactions(a) Conditions of leasing of land and buildings are the same as transactions with third parties.
(b) Conditions of interest on loans are decided taking into account market interest rates.
(c) Katsumi Furuhata retired from the position of director on June 27, 2008.
3. Consumption taxes were not included in the transaction amounts above.

(b) Subsidiaries and others

Business or position

Percentage of shareownership of theCompany

Production and salesof building material

50.0%

Capital stock
Attribute

Name

Address
Millions of yen

AffiliateToyo Miyama
Kogyo Co., Ltd.

Kisarazu
City, Chiba¥100

RelationInterlocking
directors

Relation inbusiness

2 interlocking
directors

Purchases ofbuilding
materials andothersTransaction amountAttribute

Name

Transaction

Balance
Account

Millions of yen
AffiliateToyo Miyama
Kogyo Co., Ltd.

Purchases of building materials
and others¥29,816

Millions of yen
Accounts payable forcompleted projects¥9,892

Notes: 1. Conditions of transactions
Conditions of purchases of building materials were the same as transactions with third parties.
2. Consumption taxes were not included in the transaction amount above but included in the balance.

23. Subsequent Events
On June 29, 2009, the Company’s shareholders in the 36th annual shareholders’ meeting approved resolutions to terminate the retirement benefit plan for
its directors then in place pursuant to Japanese Companies Act; to issue stock options in a stock-based compensation plan; and to issue stock options withfavorable terms to certain eligible executive officers, employees, as well as directors of major subsidiaries who have been approved by the Board of
Directors.

#

Report of Independent Auditors#!

Glossary“A Residential Property Asset Management Company”
One of the corporate visions in the previous medium-term management plan,
and a long- and medium-term goal for the core businesses. Leopalace21 considers
the more than 500,000 units it has under management to be assets (residential
property assets) entrusted to it by apartment owners, and seeks to establish abusiness model that will provide efficient management of those assets andincreased earnings.
(P17)“A Total Support Provider in the Housing Sector”
One of the corporate visions in the previous medium-term management plan.
Under this vision, Leopalace21 seeks to provide products and services thatmeet a wide range of needs in terms of utilization of land, and housing.
Census
A statistical survey of trends in Japan's population, households, workforce andother national characteristics, conducted every five years. The most recent
census was in 2005. The census indicated such trends as the falling birthrate
and the aging of the population, an increase in the number of single personhouseholds, and the concentration of the population in the three major urban
areas around Tokyo, Osaka and Nagoya.
Leasing Asset Liability Management (ALM) System
A management system to optimize management of apartment units, to be
introduced in fiscal 2010. Once operating at full capacity, the system will allow
for the management of costs and earnings at each apartment building on anationwide level. This is expected to improve earnings in the Leasing Business,and lead to growth in the Apartment Construction Subcontracting Business.
(P11, 17, 20)
Master Lease System (MasterLease Agreements)
Under the Master Lease System, Leopalace21 builds an apartment undercontract with the landowner, and leases the entire building for up to 30 years.
Leopalace21 manages all aspects of the subleased units, including the findingof prospective tenants, concluding the rental contracts, and collecting the rent
payments. The system guarantees owners a stable lease income.
(P13, 32, 35, 36, 40, 44, 47-49)
Motazaru Keiei
Literally “non-ownership management,” one of the basic strategies of the new
Medium-Term Management Plan, “Change for NEXT.” It was formulated in the
1990s as a “no assets, no debt” management model for the core businesses tofree them from relying on the balance sheet. Motazaru Keiei provides the basis
for Leopalace21's business model of building apartments under contract withlandowners, concluding a master lease agreements and subleasing the units.
(P2, 6, 9, 11, 31, 32)
Non-recourse Loans
A type of financing in which the lender's recovery is limited to proceeds fromrent or the scope of business assets. Banks have expanded financing with nonrecourse loans in recent years, but the market contracted sharply during thefinancial crisis in fall 2008, with a significant impact on Leopalace21's financing.
(P18, 19, 30)
Number of Units under Management
The number of apartment units managed by Leopalace21.
(P5, 11, 13, 15, 17, 20, 21, 24, 31-33)
Occupancy Rate
The ratio of leased units to the number of units under management.
(P4, 12, 14, 20-23, 30-32, 40)
54

One-Room Apartments (1K)
One-room (1K) apartments are living spaces with a single living room andattached kitchenette. Leopalace21 has focused on providing one-room apartmentsof 30 square meters or less for young people in urban areas, but since fiscal
2008 has expanded its lineup to include family-type units and other layouts.
(P5-7, 13, 15, 16, 18-21, 23)
Public Financing (Japan Housing Finance Agency)
The Japan Housing Finance Agency (JHF; formerly the Government Housing
Loan Corporation) is an independent administrative institution established tohelp support the stable and efficient issuance of housing loans by private
financial institutions. Leopalace21 has been selling products applicable for JHF
support since 2008 in an effort to expand financing.
(P19, 30)
Reserve for Apartment Vacancy Loss
Leopalace21 changed its accounting policy from the fiscal year ended March2009 to provide against losses incurred from vacancies under master leaseagreements. Leopalace21 makes a rational estimate of expected losses during
the subject period based on the amount of rent set for each lease contract andthe occupancy rate, and records this amount as a “Reserve for apartment
vacancy loss.”(P31, 35, 38, 40, 44, 48, 49)
Revised Building Standards Law
The revised Building Standards Law was promulgated in June 2008, adding
modifications to the previous law intended to prevent a reoccurrence of theincident involving falsification of earthquake-resistance data. The inspection
period was extended to allow for stricter building inspections and other checks,
resulting in a substantial decrease in the number of new housing starts.
(P6, 29)
Second-Generation Baby Boomers
As of 2006, this group-consisting of the generation born between 1971 and1975-totaled 9.6 million people nationwide, with more than 60% concentrated
in the three major urban areas around Tokyo, Osaka and Nagoya.
Security Deposit / Landlord Gratuity
These are common practices when renting apartments in Japan. The security
deposit provides a guarantee against non-payment of rent, while the gratuity
paid to the landlord expresses appreciation to the owner for renting the unit.
Leopalace21 used to offer apartments with no security deposit or gratuity, butrevised this practice in July 2009 as part of its expanded ties with real estateagents.
(P11)
Unification of Construction and Leasing
One of the basic strategies of the new Medium-Term Management Plan
“Change for NEXT.” In response to the decline in the occupancy rate following
the financial crisis in fall 2008, Leopalace21 consolidated the Apartment
Construction Subcontracting Business and the Leasing Business under theSales and Marketing General Headquarters, restructuring its management byintegrating the two businesses. This unification is intended to strengthen thebusiness structure centered on the core businesses, and provide for greater
asset efficiency.
(P6, 10-12, 25, 32)

Corporate Information

Group Companies(As of March 31, 2009)

Equity stakes held by
Leopalace21

Company

Main Business

DOMESTIC
Subsidiaries
Leopalace Leasing Corporation
Leopalace Finance Co., Ltd.
Leopalace Insurance Co., Ltd.
Leopalace Travel, Ltd.

100%
100%
100%
100%

Company housing and real estate agent
Financial services
Small amount and short-term insurance businessTravel agent

Affiliates
Toyo Miyama Kogyo Co., Ltd.

50%

Manufacture and sale of housing materials

OVERSEASLEOPALACE GUAM CORPORATION

100%

Hotel/resort operations in Guam

Note: Apart from the companies listed above, there are two companies (100% owned indirectly by Leopalace21) with operational permits.

Organization(As of April 1, 2009)

General Meeting of Shareholders
Board of Directors
Management Committee

Compliance Committee
Risk Management Committee

Disclosure Committee
IT Committee
Investment Committee
Human Resources Committee
Construction/Leasing Unification Committee

Board of Auditors

CSR Committee
President and CEO
President's OfficeInternal Auditing OfficeInternal Control Promotion Office
Loan Examination Department
Accounting Department

Administrative Headquarters

Legal Affairs Department
Human Resources Department
General Affairs Department
Public Relations Office

Management Planning Headquarters

Management Planning Department
Information Systems Department
Advertising Department
Hotel Resort Business

Related Business Headquarters

Silver BusinessResidential Sales BusinessLeasing Business

Sales and Marketing General Headquarters

Construction BusinessSubcontracting Business55

Leopalace21 Corporation
Head Office:2-54-11 Honcho, Nakano-ku,
Tokyo 164-8622, Japan
Tel: +81-3-5350-0001
http://www.leopalace21.co.jp

Board of Directors and Auditors

Date of Establishment:
August 17, 1973

(As of June 29, 2009)

President and CEO

Yoshiteru Kitagawa

Senior Managing Director

Eisei Miyama

Executive Director of Management

Tadahiro Miyama

Directors

Hiroyuki Miyata
Yoshikazu Miike

Share Capital:¥55,640.66 million

Kou Kimura

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

Satoshi Abe

Yousuke Kitagawa

Number of Employees:
9,926 (consolidated basis);9,017 (non-consolidated basis)

Hiroshi Takeda
Naomichi MochidaStanding Auditors

Yoshinori Uehara
Shinya Watanabe

Auditors

Masami Matsushita
Koichi Fujiwara

Apartment Units under Management by Area
Total number of units in Japan(As of March 31, 2009)

Koshinetsu
22,122 units

506,742

Hokkaido
13,528 units

Hokuriku
15,580 units
Kinki
70,088 units

Tohoku31,663 units

Chugoku
34,695 units
Shikoku
13,243 units
Kyushu & Okinawa
42,693 units

Kanto
179,335 units

Tokai
83,795 units

56

Corporate Information

Major Shareholders (Top 10)(As of March 31, 2009)

Name of shareholder

No. of shares held

% of shares held

21,251,774
8,165,714
7,228,400
6,245,800

13.32
5.12
4.53
3.91

6,157,793

3.86

6,105,200
2,745,900

3.83
1.72

2,437,395

1.53

2,350,000

1.47

1,952,349

1.22

Yusuke Miyama
Leopalace21 Corporation
Japan Trustee Service Bank, Ltd. (Trust Account 4G)
Japan Trustee Service Bank, Ltd. (Trust Account)
State Street Bank and Trust Company 505223 (standing proxy agent:Mizuho Corporate Bank, Ltd.)The Master Trust Bank of Japan, Ltd. (Trust Account)
Toyo Kanetsu K.K.
The Chase Manhattan Bank, N.A. London SL Omnibus Account(standing proxy agent: Mizuho Corporate Bank, Ltd.)MDI Corporation
Mellon Bank, N.A. as agent for its client Mellon Omnibus US Pension(standing proxy agent: Mizuho Corporate Bank, Ltd.)
Number of Shares:
Authorized: 250,000,000
Issued and outstanding: 159,543,915
Number of Shareholders:
25,339Composition of Shareholders
Treasury stocks
5.12%(As of March 31, 2009)

Securities companies
1.08%

Business corporations
and other legal entities
5.21%

Foreign corporations
39.38%

Financial institutions
18.83%

Individuals and other30.38%

Stock Exchange Listing:Tokyo Stock Exchange (ticker: 8848)
Transfer agent:
Mitsubishi UFJ Trust and Banking Corporation

Monthly Stock Data (TSE)Monthly Stock Price Range (Yen)

TOPIX average

Leopalace21

5,000

TOPIX
2,000

4,000

1,600

3,000

1,200

2,000

800

1,000

400

0

0

Thousands of shares
60,00050,00040,00030,00020,00010,0000

2007/3

2008/3

2009/357

Corporate Slogan

Toward an Efficient, Fair and Transparent Management System

Director

Senior Managing Director

President and CEO

Executive Director

Director

Yoshikazu Miike

Eisei Miyama

Yoshiteru Kitagawa

Tadahiro Miyama

Hiroyuki Miyata

Leopalace21 considers better corporate governance to be one ofits most important management priorities.
Our aim is for efficient, fair and transparent managementthat will achieve higher corporate value for all stakeholders.
58Corporate History
2009

Number of units under management reached 507,000
Launched the family-type unit Lavo familia
Launched new Three-Year Medium-Term Management Plan, “Change for NEXT” in May

2008

Number of units under management reached 442,000
Started three related businesses, Leopalace Leasing, Leopalace Financing and Leopalace Insurance
Launched Lavo Cerna, a residence with attached apartments

2007

Number of units under management reached 389,000

2006

Opened Leopalace Center Taipei and Leopalace Center Pusan
Launched Five-Year Medium-Term Management Plan,“United Spirit” in December

2005

Number of units under management reached 300,000
Started Residential and Silver businesses

2004

Listed on 1st Section of Tokyo Stock Exchange
Increased capital to ¥55.64 billion by public offering
Opened Leopalace Center Shanghai

2002

Number of units under management reached 200,000
Introduced our Monthly Leopalace Flat service
Started our Broadband Business
Launched Leopalace REIT II and III, a series of securitized real estate products
Opened Leopalace World Nagoya and Leopalace Center Seoul

2001

Launched Leopalace REIT, a securitized real estate product2000

Increased capital to ¥30.52 billion througha third-party allotment of new shares
Changed company name to Leopalace21 Corporation

1999

Launched the Monthly Leopalace short-term rental service

1998

Number of units under management reached 100,000
Leopalace21 Villa Colonna wins the 1998 Good Design Award

1997

Established the Leopalace21 Owners’ Mutual Insurance Association

1993

Opened Leopalace Resort Manenggon Hills, Guam

1989

Listed on JASDAQ

1988

Introduced a unique membership-based rental system for our tenants

1985

Introduced Leopalace21 urban-style, one-room rental apartment buildings

1979

Increased capital to ¥100 million

1973

Started business as Miyama Inc., a real estate brokerage

59Leopalace21 Corporation
2-54-11 Honcho, Nakano-ku, Tokyo 164-8622, Japan
TEL: +81-3-5350-0001 Main Line
FAX: +81-3-5350-0058
URL: http://www.leopalace21.co.jp

SGS-COC-004300

This annual report was printed on FSC-certified paper with soy ink.
Printed in Japan.