ES-CON JAPANOur Name Represents Our Core Functions
ES-CON JAPAN Ltd.’s core business is the development ofreal estate, from which the ES of ES-CON JAPAN derives.
ES-CON JAPAN’s business spreads out from its core business of developing condominiums—the CON of ES-CON
JAPAN—to include the development of hotels, neighborhood
shopping centers, logistics centers, etc., and the management of assets and buildings. Japan is the realm in which
the company operates. Thus the name of ES-CON JAPANLtd. was adopted.

Annual Report 2017
For the year ended December 31, 2017https://www.es-conjapan.co.jp/english/

ES-CON JAPAN Annual Report 2017

Embarking on Our Next Phase of Working
for the Future of Japan, Society and Communities
ES-CON JAPAN Ltd. (ES-CON JAPAN) has expanded to the company that it is today, listedon the first tier of the Tokyo Stock Exchange, by developing its main business of condominium
development and spreading to the development of retail, hotels and other types of real estate
properties while focused on planning and delivering a high-value product. We and the next
generation of youth have the responsibility of building a society where people can hope. Thistransformation cannot occur overnight but ES-CON JAPAN is committed to the deliberate
and prudent positive transformation of society and the building of a bright future for Japan.

Corporate Philosophy:
Realizing the Importance of Being a Member of Society
The staff of ES-CON JAPAN spends time thinking about how it can contribute to society in the best possible
manner every day. Applying our findings in contributing to society generates results. At the same time, allmembers of ES-CON JAPAN pursue how they can contribute to the happiness they seek. Our staff is committed to assisting each other so they can sincerely find the next stage of unique personal expression aspired to by
all, while aiming to realize the theme of positively contributing to society.
In this process, we seek to improve society by contributing and delivering better ideas for a better life and tomaterialize our ideals. We seek to transform the connections of people into a significant force through ourhuman resources and to expand the possibilities of society through flexible solutions and concepts generated
through brainstorming.

Table of Contents
Corporate Philosophy . ............................................................. 1
Performance Backed by Distinct Business Sections .............. 2
To Our Shareholders ................................................................ 3
Strategic Steps in Fiscal 2017 . ................................................ 4
Second Medium-Term Business Plan ..................................... 5
Corporate Strategy / Summary of Results .............................. 6
Growth Strategy Under the Second Medium-TermBusiness Plan . ......................................................................... 7
Interview with the President .................................................... 9
Management: Directors and Auditors ................................... 17
Management Policy ................................................................ 19
Direction, Corporate Governance and CSR ........................... 19

1

Company Overview ................................................................. 22
Property Descriptions ............................................................ 23
Financial Section
Management Discussion and Analysis .................................. 29
Consolidated Balance Sheet .................................................. 33
Consolidated Statement of Income and Consolidated
Statement of Comprehensive Income ................................... 35
Consolidated Statement of Changes in Equity . .................... 36
Consolidated Statement of Cash Flows ................................ 37
Notes to Financial Statements .............................................. 38
Investor Information ............................................................... 61

Performance Backed by Distinct Business Sections
ES-CON JAPAN continues to expand operations rooted in real estate. Presently, the businesses of ES-CON
JAPAN can be broken down into the real estate sales business, the real estate leasing business and the real estateplanning agency and consulting business, which accounted for 92.1%, 7.7% and 0.2% respectively of annual
net sales in Fiscal 2017.
Real Estate Sales Business

Real Estate Leasing Business

Real Estate Planning Agency
and Consulting Business

Net Sales

Net Sales

Net Sales

41,168 million yen

3,459 million yen

96 million yen

Segment Income

Segment Income

Segment Income

7,978 million yen

1,761 million yen

85 million yen

To understand the scope of our real estate sales business, ES-CON JAPAN’s net sales and segment income inthis division grew by 34.2% and 66.3% respectively. We sold 476 condominium units, 88% of our annual
target but posted strong increases in profit and sales through the disposition of hotels and retail properties.
ES-CON JAPAN continued to lay the foundation for a strong future by acquiring 13 sites for developing forsale condominiums, 7 retail development sites, 1 hotel development site, 1 logistics site and 1 renovation
property. We are confident that these 23 new sites were acquired at prices that will guarantee a steady andstrong future going forward.
The real estate leasing business fell off by 3.8% annually but remained 33% ahead of initial forecasts. Thisdivision will continue to acquire properties that generate steady rental income and an improvement in our asset
value, and build high-yielding properties with an eye on both long-term ownership and selling them. Looking
ahead, it will consistently provide high-quality properties, centering on land for retail facilities to support theexternal growth strategy of the new REIT for which we are the main sponsor.
Our real estate planning agency and consulting business remains small but is a highly profitable non-asset
business and we will continue to proactively market our planning services and ability to optimize the value of
projects over multiple segments and usages.
ES-CON JAPAN focuses on planning products and provides comfortable and high-quality living by considering lifestyle changes and local characteristics as well as envisioning the happiness of people living in our products. We pursue our goal of becoming a “life developer” that works to develop people’s lifestyles and promote
communication among the residents who meet at our products.

Forward-looking Statements
The earnings outlook and other forward-looking statements contained in this document are based on information currently
available to the management of ES-CON JAPAN and certain assumptions that are thought to be reasonable by ES-CON JAPAN.
Accordingly, actual business performance and other results may differ materially. ES-CON JAPAN assumes no obligation to
update any forward-looking statements in this report as a result of new information or future events.

2

ES-CON JAPAN Annual Report 2017

Strategic Steps in Fiscal 2017
To Our Shareholders
Fiscal 2017 marked the first year under our Second Medium-Term Business Plan titled “IDEAL to
REAL 2019.” We listed a number of targets in the new plan and though some segments have notreached the targets, our overall performance numbers far surpass the targets set in the plan.
Milestones of particular note are the internal sales structure for for-sale condominiums growing toaround thirty staff, launching of the new business segment of logistics development, listing and startof operations of a private REIT with an AUM of about 11 billion yen, and reinforcing our corporate brand through the launch of TV commercials on the Le JADE brand. Our efforts have led toan 18-yen dividend, 3 yen greater than last year, and we continue to progress in our goal to becomea corporation that is needed by society. Your continued support is appreciated.

Takatoshi Ito
President and Representative Director
ES-CON JAPAN Ltd.

1
2
3
4
5

Net Sales

Operating Income(Unit: million yen)

(Unit: million yen)

55,7009,900Profit Attributable to
Owners of Parent(Unit: million yen)

5,456

44,724

6
7
6,000

7,042

34,347

3

Fiscal 2017

Fiscal 2018
(Projection)

Fiscal 2016

8
Fiscal 2017

Fiscal 2018
(Projection)

Fiscal 2016

ES-CON JAPAN acquired land in Hyogo Prefecture and launched
the logistics development business in 2017. We will make best useof our planning capabilities to serve as the base of large-scale logistics facilities and others, leveraging transportation accessibility and will promote the business to contribute to regional development.

Internal Sales Structure
ES-CON JAPAN has positioned the founding of an internal sales structure as a key measure for raising the
profit rate of the firm and directly communicating our message for the development projects we createdbased on our own planning capabilities. As of the end of April 2018, the team is now as large as 32 people.

Raised Additional Capital for Sponsored REIT
The REIT sponsored by ES-CON JAPAN raised capital in December 2017 and applied the capital raised
to the acquisition of assets now totaling 11 billion yen in AUM.

Broadcasted Le JADE Branded TV Commercials
ES-CON JAPAN began broadcasting Le JADE branded TV commercials in January 2017 to reinforce thebrand image and widely advertise its uniquely developed condominiums with bold planning concepts. We
will strive to further enhance corporate value and brands, developing lifestyles that embody the ideals of abroader base of customers in our aim to become a life developer.

Opened the Fukuoka Branch
ES-CON JAPAN opened the Fukuoka Branch in November 2017 with the goal of expanding operations
and contributing to regional revitalization. We started multi-use development such as factory and logistics
facilities as land readjustment business, following large-scale mixed use development.

New “tonarie” Brand for Neighborhood Shopping Centers
ES-CON JAPAN launched a new brand “tonarie” for its lineup of neighborhood shopping centers thatmeet community needs and develop with the community.

Steady Progress of Hotel Development Business
ES-CON JAPAN has proactively developed the hotel development business grasping theinbound needs and 15 projects (1,963 guestrooms) are underway nationwide. We
opened four hotel projects in 2017. We opened Hotel the M Kanazawa Uan, operated
by Solare Hotels and Resorts Co., Ltd., and it is a good fit with the ambience of Kanazawa.

Report of Strategic Early 2018 Step

3,936
4,680

Fiscal 2016

Launched the Logistics Business

Fiscal 2017

Fiscal 2018
(Projection)

Added ESG to Growth Action Plan of Second Medium-Term Business Plan
ES-CON JAPAN revised its Second Medium-Term Business Plan “IDEAL to REAL 2019” in March andadded (7) Creation of new value and realization of sustainable growth by promoting ESG to the Growth
Action Plan of the Second Medium-Term Business Plan. We intend to apply the concepts of environment,
society and governance (ESG) to heightening our corporate value in the market place.

4

ES-CON JAPAN Annual Report 2017

Second Medium-Term Business Plan: IDEAL to REAL 2019

Corporate Strategy

ES-CON JAPAN’s Second Medium-Term Business Plan calls for firmly realizing customers’ ideals and creatinga new future. In other words, to make the ideal real. ES-CON JAPAN is committed to its duty as a life developer to develop “living” itself based on its basic philosophy of placing the customer first. The following page
presents the new corporate strategy under the Second Medium-Term Business Plan and celebrates the nearcomplete achievement of performance targets in the First Medium-Term Business Plan with new numericaltargets.

1. Maximization of corporate value and returning profits to shareholders
2. Establishment of a robust business foundation that can withstand almost any economic environment
3. Building diverse businesses to ensure sustainable and stable growth
4. Building a robust business foundation (quality) and not focusing on corporate scale (quantity)
5. Implementation of corporate social responsibilities that return wealth to shareholders, society and otherstakeholders
Management IndicesFiscal 2016

Fiscal 2017

Fiscal 2019

(Actual)(Actual)(Plan)

Equity ratio

23.6%

24.8%

33.0% ~ 35.0%

ROE

25.1%

28.1%

18.0% ~ 21.0%

ROA

6.0%

6.8%

6.0% ~ 7.0%

ROIC*

6.5%

8.4%

7.0% ~ 9.0%

EPS

58.76 yen

81.77 yen

75 yen ~ 85 yen*ROIC is arrived at using the following formula: operating income after taxes ÷ (shareholders’ equity + interest-bearing liabilities)

Performance Targets(Unit: million yen)

Fiscal 2017
(Actual)(Original Plan)(Plan)(Plan)

45,50044,72457,000 ~ 58,000

55,70060,000 ~ 62,000

30,68742,70041,16854,900 ~ 55,800

52,60057,800 ~ 59,700

Real estate leasing business

3,594

2,600

3,459

1,900 ~ 2,000

2,900

2,000 ~ 2,100

Real estate planning agency
and consulting business

65

200

96

200

200

200

Operating income

4,680

5,700

7,042

7,500 ~ 8,500

9,900

8,200 ~ 9,500

Ordinary income

3,575

4,800

5,988

6,500 ~ 7,500

8,700

7,200 ~ 8,500

Fiscal 2016
(Actual)(Plan)

34,347

Real estate sales businessNet sales

Fiscal 2018

Fiscal 2019

Summary of Results
In the mainstay real estate sales business, the steady progress of the sales of condominiums of the Le JADE
brand and the sales of income-generating properties in the Tokyo metropolitan area and the Kinki area resulted
in the increase in income and profit for Fiscal 2017. As a result of favorable sales and cost reductions, operating
income increased by 50.5% year-on-year to 7,042 million yen, ordinary income increased by 67.5% year-onyear to 5,988 million yen and profit attributable to owners of parent grew to a record high of 5,456 million
yen, surpassing 4,473 million yen in the year ended December 2007. Furthermore, EPS rose from 58.76 yen
to 81.77 yen, surpassing the target in the Second Medium-Term Business Plan IDEAL to REAL starting from2017. Based on the plan, we have steadily promoted the diversification of our businesses, such as retail, hotel
development, logistics development, land readjustment and renovation.

5

6

ES-CON JAPAN Annual Report 2017

Growth Strategy Under the Second Medium-Term Business Plan

1

Further enhancement of core businesses
ES-CON JAPAN will not only expand the number of for-sale condominium units it sells, a core business,but also develop the ability to stably supply the market with 500–600 units annually. Under the Second
Medium-Term Business Plan, the sale of for-sale condominium units will be completely transferred to aninternal sales structure by 2019 to keep expenses within the internal structure and increase profit margins.

5

PROGRESS REPORT: The development properties for sale on the market in 2019 have been secured and the properties for provision in 2020 are being acquired presently. We are presently steadily building the internal sales
structure and have secured about 30 people for our internal sales structure.

2

Heightening corporate value by establishing diverse
aspects of multiple core businesses
ES-CON JAPAN will newly establish the core businesses ofretail development and hotel development. Furthermore,
ES-CON JAPAN will diversify its real estate development businesses and strive to become a general developer that can takeadvantage of multiple and overlapping business opportunities
through a growing number of core businesses.
PROGRESS REPORT: ES-CON-JAPAN is steadily continuing its diversification of real estate businesses adding
logistics development to its existing businesses of for-sale condominiums, retail property development and hotel
development.

3

Securing long-term and stable stock-based revenues through proactive implementation of
the real estate leasing business
ES-CON JAPAN will use the proactive focus on the real estate leasing business as a means to diversify its
real estate products and consequently reduce price fluctuation risks associated with real estate. Thus
ES-CON JAPAN will further heighten its stability by owning good-quality assets that deliver stable rental
income over the long term. Specifically, ES-CON JAPAN is aiming by the end of Fiscal 2019 to either own
or have begun developing rental assets that can cover all general management costs with their rental income.
PROGRESS REPORT: The logistics development business and other new businesses are being steadily added toour retail property and hotel development businesses. Presently we are selecting assets to be owned for the longterm with an eye on balancing these with the sale of assets to our REIT and outside parties.

4

Expansion of real estate sales business by sponsoring a newly-established REIT to which
ES-CON JAPAN will steadily supply good-quality products
ES-CON JAPAN intends to realize the listing of the REIT formed in August 2016 on the Tokyo Stock
Exchange as early as possible. ES-CON JAPAN will steadily supply good-quality properties to the REIT
centering on simple ownership of land beneath retail facilities and thus expand the real estate sales businessof ES-CON JAPAN while supporting the sustainable growth of the REIT.

Enlarging the breadth and depth of real estate development abilities by enhancing the realestate operations business
ES-CON JAPAN will strive to become a comprehensive, unique general developer that not only develops
real estate but also possesses the operation teams to operate the real estate in their optimal form. In addition
to managing retail properties, the group companies of ES-CON JAPAN will also proactively operate hotels,
restaurants and cafes, and manage and renovate condominiums. ES-CON JAPAN will apply the strategy
to maximize the value of its real estate.
PROGRESS REPORT: ES-CON JAPAN launched its renovation business and added to its diversified range of services: asset management, property management for retail properties, the operation of cafes and restaurants andthe management of apartments. ES-CON JAPAN will continue to maximize the value of owning real estate.

6

Heightening the corporate brand power
ES-CON JAPAN will further strengthen the corporate brand through proactive PR strategies and commit
itself to raising the quality of its Le JADE for-sale condominium series.
PROGRESS REPORT: ES-CON JAPAN began broadcasting TV commercials on the Le JADE brand of condominiums
from Fiscal 2017 and sponsored a popular TV program. ES-CON JAPAN will continue to focus on reinforcing its
corporate brand.

7

Creating new values and realizing sustainable growth by promoting ESG
ES-CON JAPAN makes it a basic philosophy to place the customer first and heighten its corporate value
in the marketplace from the standpoint of the environment, society and governance (ESG). Moreover,
ES-CON JAPAN is committed to address the changing values over time through urban development, andto handle issues surrounding our society as a life developer.

Businesses of ES-CON JAPANRenovation

Real estate

Redevelopment
Land
planning

Management

Residential
leasing

IDEAL to
REAL

Investment
application

Life Developer

Hotel

Commercial

PROGRESS REPORT: We procured capital in December 2017 to establish ES-CON JAPAN REIT as a private REIT
with 11 billion yen in assets under management.

Operation

7

Logistics

Property
management

8

ES-CON JAPAN Annual Report 2017

Q

The first year of your new Medium-Term Business Plan has ended.
What is your appraisal of the first year?

We have basically done better than targeted overall in the first year of the new strategy and performed strongly.
We have completed 100% plus of our sourcing last year, which is connected to the net sales for the final yearof the plan.

Q

In one specific area—the sale of condominium units—ES-CON JAPAN fellbehind its initial targets for Fiscal 2017. Can you provide insight into this?

There were two projects where sales did not satisfy our plans—Hananokicho, Minami Ward in Yokohama andChushojima, Fushimi Ward in Kyoto. The reason was that the number of individually contracted for-sale units
were below the targets at the time the buildings were completed and originally handed over. Additionally, one
factor behind the “slow” sales for the Hananokicho and Chushojima properties is that both are low-rise condominiums, which meant a slightly shorter sales period was planned. However, the amount by which we fell below
our targets was more than covered by sales in the hotel business, overall.
On the other hand, sales after completion of the properties have progressed steadily without any need to discount prices and we expect both projects to sell out in the first half of the new fiscal year, specifically in June.
Our products are highly evaluated and our customers are highly satisfied.

In te r vi e w
with t he Pre si d e n t
Takatoshi Ito, President & Representative Director of ES-CON JAPAN, has just come
off a robust fiscal year full of eclipsed goals and an upwardly-revised dividend.
Now in the midst of ES-CON JAPAN’s Second Medium-Term Business Plan,
we sat down to talk with the leader.

9Q

You recently opened a hotel in Hayabusacho, Chiyoda Ward.
Is the hotel business progressing smoothly?

We plan to sell about 20 billion yen worth of hotels this year. We have received purchase orders from not only
Japanese customers but also overseas customers in Hong Kong and Singapore. We put the brakes on our sourcing of land for hotels last year because there has been a large volume of hotels supplied to the market recently
as well as a surge in land prices. The projects we launched two years ago are being completed this year and next
year and they will make solid contributions to our revenues during the coming two fiscal years. Recently we are
active in acquiring properties worth investing in and we plan to acquire a property very soon. We will continue
to carefully select good properties that are suitable for hotels.

10

ES-CON JAPAN Annual Report 2017

Q

Has it become difficult to source new properties for development with therecent overall rise in market prices?

The intensification in market competition is inevitably leading to a rise in sourcing costs. On the other hand,
there continues to be no sign of a drop in construction costs. There is a need to project both profit margins andprofit amounts conservatively.

Q

Can you name the good and the bad of 2017?

We have adjusted to new prices in the condominium market during 2017 as sourcing prices rose so much. We
were able to surpass our initial profit plans. We were fortunate in that our closing rate was far better than thatof competitors in our for-sale business. Our new logistics business and redevelopment of old commercial facilities businesses have both started out well. The fact that these businesses will be able to serve as pillars in thenext two fiscal years is also a good development.

Q

Can you discuss progress towards being able to secure income from theleasing business that covers general and administrative expenses?

Q

How is the development of your first logistics property progressing?

We have acquired about 30,000 tsubos located about 3 minutes from the Tojo Interchange in Hyogo Prefecture.
In Kansai, the Ibaraki City and Takatsuki City areas are popular interior areas for logistics centers. GLP, Daiwa
House, Nomura Realty & Development and others are developing major logistics centers with five floors andsix levels in those areas. We are developing a large logistics center that doesn’t overlap with them. Our facility isa single story 12,000-tsubo facility accessible from four directions.
We are not developing a mega logistics facility but rather creating a model case for developing a single-story
logistics facility with high functionality. Construction designs have been approved, the single 100% tenant has
been found and construction has started. We will complete construction in November 2019. I am certain that
we have established a good model case as the first transaction of a new strategy.
As a member of the preparatory association for the land rezoning project association in Genboen, Koga City,
Fukuoka as well as a project agent, we were directly involved with the negotiations with residents and the construction began in March of this year. Through this land rezoning project, we will develop 60,000 tsubos of residential land for a logistics park. Through the logistics development project we were involved with in Tojo, we
found that the restructuring of the logistics industry has progressed with the recent demand for e-commerce. In
the project in Koga City, we plan to not only build a logistics center on the site, but lease entire single-story warehouses and sell residences to corporations as a logistics park. Under the restructuring of the logistics industry, we
further exert our existential value and raison d’etre as a developer by involving ourselves in the logistics project,land rezoning project consultancy, project agency and multi-use development.
ES-CON JAPAN intends to solidify its presence and the value of its participation as a developer in logistics andland rezoning projects.

We have been able to acquire quality properties despite the intensifying competition for sourcing new product.
Therefore, although our balance sheet has become a little bloated, to balance our assets we sold commercial properties
to our REIT as part of preparations for the listing of our REIT in the future and we also launched a private REIT in
December 2017. Consequently, our income from the leasing business slightly shrank in 2017.
We will develop a financial foundation for covering general and administrative expenses with income from our leasing business. We are halfway to our ideal financial position. It is our intent to build up a solid organization that canmaintain sustainable growth within three to four years.

1112

ES-CON JAPAN Annual Report 2017

Q

Are the unit construction costs cheaper for this type of facility than themega logistics properties that are often built now?

Yes, they are less expensive. We are also implementing environmental measures this time. We will be installing
solar panels on the flat roof of the warehouse.

Q

Can you tell us about your new Fukuoka Branch?

A representative example of major
development conducted by ES-CON
JAPAN is the 49-hectare development project in Kasuga City, Fukuoka
Prefecture. It has been 15 years since
this development project began. The
opening of a branch in Fukuoka hasenabled us to gather more information on opportunities in the market.
For example, we will be beginning
the new land rezoning project in Koga once the Kasuga project winds down. In Fukuoka—just like the Tokyoand Kansai areas—there is demand for not only housing but also for hotels and retail. Opening the Fukuoka
Branch will enable us to realize the development of hotels and residences.

Q

Can you tell us about any developments regarding your private REIT andlisted REIT?

The REIT market, including REIT indexes, did not perform well last year due to a correction in the REIT
market through suppressing investment trusts. Signs of a recovery in the index have been apparent since thebeginning of 2018. We are currently conducting preparations with an eye to list this fall. Our listing will
depend on the market but most of the sourcing of the portfolio is done and we intend to originate a REIT thatwill be sustainable. We intend to realize it this year or next year.

13

Q

Prices in the real estate market are peaking and some say it may be a
bubble. Within these conditions, how do you see ES-CON JAPAN
performing in the market in 2018-2020?

The present environment will continue through 2018and 2019. The consumption tax is to be raised in
October 2019 and so I see a market correction possibly starting from around that period. On the other
hand, another perspective is that Japanese real estate is
being highly valued again by overseas buyers andthere is great potential in Japanese real estate.
As for the growth speed of the company, it is essential
to not only improve performance and grow profits but
to establish management pillars that enable sustainablegrowth, and we will nurture and train new and existing
staff. Following the Fukuoka branch that was opened
last year, we intend to develop our business in a mannerthat takes advantage of our multi-faceted development
skills also in Nagoya, Sendai and Sapporo. Therefore,
the training of staff is indispensable. Reinforcing thiswithin the company will enable us to achieve solid, reliable growth and to pursue the realization of a meaningful company and not just a pursuer of numericaltargets.

Q

Why did you raise your dividend to 18 yen per share for Fiscal 2017?

In our last business plan we introduced a progressive dividend policy, where we are committed to not lowering
the dividend and paying out 15 yen per share. Our performance last year and profit after taxes led to the decision to pay a dividend of 18 yen per share (up 3 yen). Our corporate value will be enhanced by not only constantly being aware of maintaining a balance in our performance, internal reserves and overall dividend payout
ratio, but also by realizing the dividend promised to shareholders. We also conducted a buyback of treasury
stocks last year and maintained a total return ratio of over 30% in Fiscal 2017.

14

ES-CON JAPAN Annual Report 2017

Q

What is the intent behind recently adding Environmental, Social andGovernance (ESG) to your growth strategy?

As for the “E” or environment, we intend to emphasize environmental performance within our development
projects. For example, installing solar panels, implementing energy saving measures in housing development, etc.
As for the “S” or social, we are responsible for forming a community with the people in the areas where wedevelop retail facilities. As developers, we do not want to end our roles just with the actual hardware development, but we want to commit ourselves to jointly forming communities with the people in the trade zones ofour retail properties. We intend to communicate this approach to our stakeholders, including investors.
As for “G” or governance, we intend to further implement highly transparent management of the company
including our future growth strategy. In addition to timely disclosure, we intend to create a governance systemthat is aware of responsibilities as a listed firm. We
intend to not be a firm that follows the traditional
inward looking Japanese management style but toalways be aware of our growth strategy and to
become a sustainable firm that is conscious of local
society and the environment. We will establish
clear objectives as a company and execute strategies
to achieve these while raising the awarenessthroughout the company of these objectives. It iswith these thoughts and objectives that we incorporated ESG targets in our business plan from the
new fiscal year.

Kansai region. It is our intent to grow Le JADE into a brand with power in the next year and onwards. We intend
to develop the Grand Le JADE series in relatively high grade areas of Tokyo, such as Bancho and Shirokane.
Presently, we have promoted the establishment of an internal sales structure in the condominium business. We
have gradually developed an internal sales structure with more than 30 people on the internal sales team. Every
member of the internal sales team recommends our unique products created with passion to our customers
with confidence, resulting in not only reducing costs paid to parties outside the company (sales commissionfees), but shortening the contract period and increasing sales. We will also refine our brand strategies and continue to develop fans of our products.
We continue to realize solid growth by prudently controlling costs, and aim to enhance our performance andcontinuously contribute to society. In 2018, we intend to continue to further solidify our distinctive positionin the detailed planning and competitive products in our mainstay condominium market, diversify businesses
with commercial development, hotels and logistics, and further enhance our financial foundation. We will
steadily enhance our performance and provide returns to shareholders through dividends. As the representativeof ES-CON JAPAN, I sincerely ask for your continued support and patronage.

Takatoshi Ito
President & Representative Director
Sep. 2001
Feb. 2006
Mar. 2007
Mar. 2011
May 2013
July 2014
Sep. 2016

Q

Joined ES-CON JAPANAppointed Executive Officer
Appointed Managing Director
Appointed President & Representative Director(present post)
Appointed President & Representative Director
at ES-CON PROPERTY (present post)
Appointed Director at ES-CON ASSETMANAGEMENT (present post)
Appointed Director at ES-CON LIVING SERVICE(present post)

Starting last year, you put a new emphasis on corporate branding
including running TV commercials. How do you rate the success of thesemeasures?

We started broadcasting TV commercials last year. Our commercials focused on the ES-CON JAPAN condominium brand of Le JADE. The message thoroughly focused on the fact that there are no two buildings that are
identical throughout the world and that we are committed to the characteristics of each property and constructing buildings that match the locality and its environment. We have seen clear indications that the Le JADE
brand’s recognition in the marketplace is gradually growing in the Tokyo metropolitan area in addition to the15

16ES-CON JAPAN Annual Report 2017Management: Directors and Auditors
Minoru Nakanishi

Junya Kikuchi

Senior Managing Director

Director

Aug. 2011
June 2012
Mar. 2013
May 2013
Aug. 2013
July 2014
Nov. 2014
Mar. 2015
Sep. 2016
Mar. 2017

Mar. 2010

Joined ES-CON JAPANAppointed Executive Officer (Head of Finance and Accounting Department)
Appointed Director
Appointed Director at ES-CON PROPERTY (present post)
Appointed Head of Management Division (present post)
Appointed Director at ES-CON ASSET MANAGEMENT (present post)
Appointed Operating Officer
Appointed Executive Director and Managing Executive Officer
Appointed Director at ES-CON LIVING SERVICE (present post)
Appointed Senior Managing Director (present post)

Feb. 2013
Jan. 2014
June 2014

Apr. 2016
Aug. 2017

Tomohiko Egashira

Kunio Takahashi

Managing Director

Full-time Auditor [Director]

Apr. 2002
Jan. 2012
July 2012
Feb. 2013
Mar. 2015
Jan. 2016
Mar. 2017
Nov. 2017

Apr. 1975
June 2003

Joined ES-CON JAPANAppointed Head and Corporate Officer of Business Division
Appointed Head and Corporate Officer of Tokyo Division
Appointed Head and Corporate Officer of Development Division
Appointed Director (present post)
Appointed Head and Corporate Officer of Development Division
Appointed Managing Director (present post)
Appointed Managing Director, Managing Executive Officer, Head Corporate
Officer of Development Division and Head of Fukuoka Branch Office (present
post)

Apr. 2004
June 2005
June 2010
Mar. 2013
June 2013
Mar. 2016

Joined Daiwa Bank, Limited (currently Resona Bank Co., Ltd.)
Appointed Executive Officer and Head of Osaka Public Affairs Department at
Resona Bank Co., Ltd.
Appointed Auditor at Saitama Resona Bank Co., Ltd.
Appointed Auditor at Kinki Bank of Osaka Co., Ltd.
Appointed Auditor at Nippon Metal Industry Co., Ltd.
Appointed Auditor at ES-CON JAPANAppointed Auditor at Shikibo Co., Ltd.
Appointed Full-time Auditor
Appointed Full-time Auditor [Director] (present post)

Keiko Akashi

Hiroto Mizobata

Director

Auditor [Director]

Sep. 2001
Feb. 2005
Mar. 2007
Mar. 2010
Nov. 2010
Mar. 2011
Feb. 2013
May 2013
Aug. 2013
Nov. 2014
Mar. 2015
Sep. 2016
Mar. 2017

Joined ES-CON JAPANAppointed Head of Sales Integration Department of Residential Development
Division
Appointed Head of Business Management OfficeAppointed Director
Appointed Head of Management Department (present post)
Appointed Head of Business Management Department
Appointed Head of Planning and Sales Department
Appointed Director at ES-CON PROPERTY (present post)
Appointed Head of Planning and Sales Department
Appointed Operating Officer
Appointed Executive Director and Managing Executive Officer
Appointed President and Representative Director at ES-CON LIVING SERVICE(present post)
Appointed Director (present post)

Apr. 1986
Mar. 1988
Dec. 1991
Mar. 1992
Mar. 2015
Mar. 2016

Joined KPMG Asahi Shinwa Accounting, Inc. (currently KPMG AZSA LLC)
Registered as certified public accountant
Registered as licensed tax accountant
Appointed Representative at Mizobata Certified Public Accountant Office(present post)
Appointed Auditor at ES-CON JAPANAppointed Auditor [Director] (present post)

Kotaro Niwa
Auditor [Director]
Oct. 2000
May 2006
May 2010
Mar. 2011
Mar. 2016

17

Joined ES-CON JAPANAppointed Director (present post)
Appointed Director at NB Construction Co., Ltd. (present post)
Appointed Representative Director at Integrated Solutions Co., Ltd.
(present post)
Appointed Representative Employee at Hoyu Certified Public Accountant Office(present post)
Appointed Representative at NB Networks (present post)
Appointed Director at System House R & C Co., Ltd. (present post)
Appointed Director at P Parking International Private Limited (present post)

Joined Oshima Partners Law Office as Registered Lawyer
Appointed Head at Niwa Partners Law OfficeAppointed Partner at IPAX Law Office (present post)
Appointed Director at ES-CON JAPAN (present post)
Appointed Auditor [Director] (present post)18

ES-CON JAPAN Annual Report 2017Management Policy
1. ES-CON JAPAN is committed to realizing the unlimited potential of real estate through its information
sourcing, planning and product development ability to create new value that sincerely satisfies customers.
2. ES-CON JAPAN is committed to achieving management that is a step more proactive than the competition by implementing work management that has a robust defense based on ROA, cash flow and thoroughrisk management.
3. ES-CON JAPAN is committed to becoming a limited-scale team of professionals that can maintain theability to respond quickly and maintain flexibility within a rapidly changing society.
4. ES-CON JAPAN will maintain and build robust relationships of cooperation by respecting and appreciating competitors at all times whether inside or outside the company.
5. ES-CON JAPAN is committed to building a “well-ventilated” bottom-up organization while also building
an enhanced internal audit system consciously aware of compliance and governance.

Direction, Corporate Governance and CSR
Corporate Philosophy
We ask our employees to think daily about how they should live their lives, how they should participate insociety, what kind of fruit they will bear society by contributing and, as a result, how the happiness desired byeach and every one of us will be attained through these efforts.
Our employees assist and encourage each other to achieve the above goal. ES-CON JAPAN pursues a management that continues to provide fields as steps to self-realization of the unique characteristics pursued by each of
our employees.
Corporate Vision“Life Developer”
ES-CON JAPAN seeks to be a life developer; that is, a company that develops not only the hardware of thecondominium itself but also conceptualizes and develops the lives of residents.
This is our goal at ES-CON JAPAN. We are creating “new wealth” that traditional real estate firms cannot
achieve with solutions provided by our small cross-organizational teams that overcome the boundaries of divisions. ES-CON JAPAN teams connect people, communities and the future.
Corporate Mission
Development of the “New Norm Neighborhood”
Our teams create, connect and expand values built into local areas. We do not perceive the term “local” as anantonym to “urban” but rather as a location where residents are proud of the area where they live.

(1) The Board of Directors is comprised of eight people: four directors in charge of various operations, one
director with a non-operational focus, and three auditors who are also directors. Of these, one shall be awoman, three shall be outside directors, two shall be independent outside directors and the president of theBoard shall be the President.
• In principle, the Board holds meetings at least once a month where the management and auditing functions are heightened by vetting and discussing important items on the agenda.
• Speed and flexibility of operations is secured by entrusting directors responsible for operations with related decisions inline with the articles of incorporation. The scope to which operations are entrusted to individual directors is strictly
managed in line with monetary and other criteria stipulated by the Board of Directors. Furthermore, the status of vital
operations that have been entrusted to the Board shall be reported to the Board of Directors without delay.

(2) Board of Auditors
The Board of Auditors is entirely comprised of outside directors so that the three members can all heighten their
management supervisory function and the independence of such. There are two independent outside directors
and one full-time auditor.
• In principle, the Board shall meet once a month and the accounting auditor, party in charge of corporate governance,
directors in charge of operations and other executives can be instructed to attend the Board meeting by an auditor asneeded. The Board shall report its findings in a timely and appropriate manner.
• Auditors shall take steps to ensure they grasp the present status of operations for each division and the issues they face.
These steps include regular exchanges of opinion with the President & Representative Director and the interviewing ofcorporate executives such as directors in charge of operations when necessary.
• The full-time auditor shall participate in divisional meetings attended by directors in charge of operations and executions of each division along with regularly-held management meetings where members are comprised primarily of
directors in charge of operations. The participation of the full-time auditor ensures that management conditions andthe progress on business plans can be shared.
• The Board shall check important documents like ringi circulation documents and other decision-confirmation documents and coordinate with the internal audit division to verify that the implementation of operations by directors islegal and appropriate. The full-time auditor is also nominated to be the lead auditor so that governance is further
strengthened.

Corporate Governance
ES-CON JAPAN believes the present system and organization of corporate governance is appropriate because
it contributes to the sustainable improvement of corporate value.
1. Directors who are Members of the Board of Auditors reinforce the auditing functions and execution ability of the Board of Directors by being able to vote on agenda items at Board of Directors’ meetings.
2. The entrusting of vital operations to directors in charge of operations secures speed, dynamism and flexibility of operations and prevents loss of business opportunities.
3. Directors who are also auditors are able to state opinions concerning the nomination and compensationof directors who are not auditors, thus reinforcing the transparency of the process.

System of Corporate Governance
ES-CON JAPAN boasts a Board of Auditors and a structure whereby the implementation, management,
supervision and auditing of work are overseen by the Board of Directors and Board of Auditors.

19

20

ES-CON JAPAN Annual Report 2017

Basic Philosophy of Corporate GovernanceThe corporate activities of ES-CON JAPAN are supported by a vast group of stakeholders including customers,
shareholders and vendors. ES-CON JAPAN believes that corporate governance is a key theme for enhancing
its trust and reputation among its shareholders and pledges to continue efforts to heighten its governance. In
addition to naturally pursuing the fulfillment of legally required functions related to the Boards of Directors
and Auditors, ES-CON JAPAN will fulfill its social responsibilities by endeavoring to also improve the efficiency and transparency of corporate management by conducting external and internal audits on a regularbasis.
Thorough Implementation of ComplianceThis shall be implemented and achieved by committing to company-wide compliance with the department
responsible for compliance cooperating with each internal department under the instruction of the officer
responsible for compliance. ES-CON JAPAN has summarized its Code of Conduct under a Compliance
Activity Standard, Compliance Manual and Compliance Rules as the organization for realizing its commitment to compliance. The Code of Conduct designates the activities to be conducted by officers and employees
to comply with laws, regulations and social norms based on due diligence regarding the Corporate Ethics
Charter that declares the implementation of corporate ethics and corporate social responsibilities.
Implementation of CSR Activities
ES-CON JAPAN emphasizes the development and design of real estate properties that take into consideration
the global environment by constantly thinking of the environmental load generated by business activities.
ES-CON JAPAN implements various measures in each property that consider the environment including
installing disposers that reduce raw garbage, installing water-conserving toilets that reduce the volume of waterused by 50%, and the use of thermal baths with high humidifying effects. ES-CON JAPAN is committed tothe proactive building of “resource-conserving housing” that reduces the environmental load so that we canbuild a better future. Furthermore, ES-CON JAPAN proactively supports regional revitalization projects andsuch as part of the measures of the Japanese government to address the decreasing population and super-aging
society.

21

Company Overview: ES-CON JAPAN Ltd.

Tokyo Head Office
Try Edge Ochanomizu Building 12F
4-2-5 Kanda Surugadai
Chiyoda-ku, Tokyo 101-0062

Osaka Head Office
Meiji Yasuda Seimei Osaka Midosuji Building 13F
4-1-1 Fushimi-machi
Chuo-ku, Osaka 541-0044

Fukuoka Office
Yasuda The seventh Building 9F
13-15 Kamikawabata-machi
Hakata-ku, Fukuoka 812-0026
Established: April 18, 1995
Paid-in Capital: 6,258,440,018 yen (as of May 2018)
Sales: 44,724 million yen (consolidated results for Fiscal 2017)
Number of Employees: 158 (consolidated, Fiscal 2017), 123 (non-consolidated, Fiscal 2017)
Businesses: Real estate development, sales, leasing, brokering, etc.

22

ES-CON JAPAN Annual Report 2017

Property Descriptions

Le JADE Takatsuki Cross(Takatsuki-shi, Osaka)- Conveniently located near three stations with twolines for smooth access toward Osaka and Kyoto.
- In addition to a concentration of everyday facilities
such as supermarkets conveniently within walking
distance, a great location for raising children, beingnear public facilities such as schools, a library andparks.

Le JADE Fushimi Chushojima(Fushimi-ku, Kyoto-shi, Kyoto)- Provides unique living spaces with features suchas a party lounge with kitchen and terrace for resident gatherings.

- A 7-minute walk from Keihan Chushojima Station, which offers direct access to
Kansai’s most urban areas such as Osaka and Kyoto.
- A combination of everyday convenience with large retail facilities nearby and acalm, historical atmosphere unique to Kyoto with seasonal scenery and events.
- Open sky balconies that protrude up to 2.3 m creating “outdoor living rooms” forreading and other hobbies with a great view.

Grand Le JADE Shibuya Tomigaya(Shibuya-ku, Tokyo)- An extremely convenient location that allows
quick, direct access to major stations in central
Tokyo such as Shinjuku, Omotesando andOtemachi from the nearest two stations.
- On the south side is a type-one low-rise residential zone in which building height and use ismost severely restricted, making for exceptional sunshine, views and openness.
- Two private residences per floor with dedicated elevator foyers facing the entrance of eachresidence. Bi-directional elevator doors are designed to open only toward one’s own residence, ensuring independence and privacy.

Le JADE Southern Gate Toyoda(Toyoda, Hino-shi, Tokyo)- A 2-minute walk from Toyoda Station on the JR Chuo Line.
Conveniently located for daily commuting directly into central
Tokyo areas such as Tokyo Station and Shinjuku Station.
- Plenty of convenient facilities for everyday life such as large
retail facilities in the surrounding area as well as Kurokawaseiryu Park, where children can play in the natural springwater, within walking distance. A location blessed with bothconvenience and nature.

tonarie(Suita-shi, Osaka; Kawanishi-shi, Hyogo;
Yamatotakada-shi, Nara; Sakai-shi, Osaka)- Our new retail facility brand, launched in May 2017.
- The name is meant to connote “being part of the neighborhood and developing together with it, always being alongsidecustomers’ lifestyles.”- We launched the brand with tonarie Yamato-Takada and tonarie Toga-Mikita.

Le JADE Yokohama Hananoki(Yokohama-shi, Kanagawa)- Use of two lines through three stations allows smooth accessto Yokohama and Shin-Yokohama as well as Shinagawa andother major stations in central Tokyo.
- Conveniently located within comfortable bicycling and walking
distance of central Yokohama in a rare flat area.
- In addition to everyday facilities such as shops and clinics
within walking distance, there are also a variety of exercise facilities including several large parks with lush greenery.
- Unique living spaces with shared facilities such as the entrance lounge designed to look like a ship cabin to connote Yokohama’s seafaring history and one wall in each living roomwith 72 color options.

23

24

ES-CON JAPAN Annual Report 2017

Grand Le JADE Okamoto(Higashinada-ku, Kobe-shi, Hyogo)- Smooth access to Kobe-Sannomiya Station and Umeda Station with two lines through two stations, one of them a limited
express stop.
- The location combines the convenience of shopping, educational, public and other facilities with beautiful cobbled streets
and a historic, sophisticated atmosphere.
- Designed in detail with stone and tile along the motif of an oldWestern-style house, each floor contains two residences, allfacing south, with a dedicated elevator hall in front of each residence for greater privacy, CUCINA kitchens and other features
for comfortable, high-class living spaces.

Le JADE Kawasaki(Kawasaki-shi, Kanagawa)- Conveniently located near two stations with five lines, allowing
easy access to Shinagawa, Tokyo, Yokohama and other stations.
- In addition to large retail facilities in the vicinity, the location isblessed with parks full of greenery, elementary and junior highschools, clinics and other facilities for complete comfort, convenience and peace of mind.

Grand Le JADE Ochanomizu(Bunkyo-ku, Tokyo)- Offering quick access to downtown areas such as Tokyo Station,
Ginza and Shinjuku with nine lines through nine stations yet nevertheless located in a calm area back away from the main road, it
is attractive for its quiet surroundings.
- Within walking distance are major, landmark retail facilities
with cafes, restaurants, supermarkets, drugstores as well as
public facilities such as large and small green parks and a library, healthcare facilities such as a general hospital, and otherconvenient everyday facilities.
- This unique living space includes a lounge hall designed to look
like an Eastern resort, with large windows and greenery cultivated inside and outside giving it an open feel, and BGM in both thehall and elevators.

Hotel the M Kanazawa Uan(Oyamamachi, Kanazawa-shi, Ishikawa)- Located in central Kanazawa near tourist spots such as Kanazawa Castle Park,
Kenroku-en and Omicho Market.
- Its exterior matches Kanazawa’s classic cityscape and culture and interiorshared areas and guest rooms incorporate Japanese tastes.

Le JADE Minamimorimachi(Kita-ku, Osaka-shi, Osaka)- Use of three lines through two stations offers easy access to central areas of Osakasuch as Umeda, Kitashinchi, Kitahama and Kyobashi.
- Near a full array of convenient everyday facilities such as medical and public facilities
as well as Tenjinbashisuji Shopping Street, containing around 600 shops, while still aquiet living environment.
- With three residences per floor, each on a corner, and hotel-like internal corridors,
this is a highly private living space.

25

Mirakita City Himeji(Himeji-shi, Hyogo)- Two stops from the nearest station to JR Himeji Station, from which
Shinkansen bullet trains offer speedy access to all of Japan.
- This large-scale integrated residential and retail redevelopment isplanned to include a commercial building with a library and clinics. Its
main draw is its comfortable living environment with various neighboring retail facilities, schools, hospitals, public facilities, parks andmore within walking distance.
- In addition to providing shared spaces that can be used in a variety ofways such as guest rooms for accommodation and the “owners’
lounge” with tables and bookshelves and a kids’ space in the corner,
the residential building and retail building each have their own direct
elevators, enhancing security.

26

Financial Section

The Management Discussion and Analysis, Financial Statements and Notes to Financial Statements contained in this report areoutside the scope of the auditing procedures under the Financial Instruments and Exchange Act of Japan, and have not been
audited. However, the original financial data and descriptions in Japanese used as the base for the translation of this English
version have been audited.

ES-CON JAPAN Annual Report 2017Management Discussion and Analysis

Sales

44,724(Unit: million yen)In the consolidated fiscal year under review (fiscal year ended December 2017), the Japanese economy was poised to stayon track toward a moderate recovery, partly due to various governmental measures proving effective amid ongoing
improvement in the employment and income situation. The outlook remains cloudy, however, as attention must be paid
to the growing geopolitical risks, uncertainty in overseas economies and the impact of fluctuations in the financial andcapital markets.
The real estate industry in which the ES-CON JAPAN Group operates remained solid and strong thanks to the lowinterest environment stemming from the monetary easing policy, among other factors. Still, optimism is not allowed in
the face of rising land prices, intensified competition over land acquisitions and other difficulties.

13,558

Fiscal2013

In December 2017, ES-CON JAPAN REIT Investment Corporation completed a capital increase to become a private
REIT with an asset size of approximately 11 billion yen, and started preparations for listing.

1,844
1,200

Fiscal
2014

Fiscal2015

Fiscal2016

Net Income Attributable to Parent(Unit: million yen)

Fiscal
2017

5,456

Fiscal
2013

Fiscal
2014

Fiscal
2015

4,680
3,575

Fiscal2016

Per Share Information
259.07208.28137.14

2,411

Fiscal2017

315.14(Unit: yen)

81.77

169.05

3,039

Fiscal
2013

3,126

2,815
2,075

Net Assets
Net Income

3,936

1,905

In the real estate leasing business, efforts are being made to secure stable rental income from, and enhance asset value of,retail properties held by ES-CON JAPAN. Focus is also being placed on the real estate planning agency and consulting
business which, built on our planning capabilities and other strengths, calls for high profit margins from such non-asset
operations as subcontracting, planning agency and consulting.

4,012

18,842

7,042
5,988

Operating Income
Ordinary Income

27,705Given such circumstances, the Company proactively implemented multifaceted business operations based on the “IDEAL
to REAL 2019,” its second medium-term management plan that started in the fiscal year under review.
In the real estate sales business, which is our core business, we were engaged in income-generating real estate sales, while
seeing condominium sales make steady progress. During the fiscal year under review, we acquired new business sites for
11 projects in the Tokyo metropolitan area, 10 projects in the Kinki area and 2 projects in other areas for developing forsale condominiums, retail properties, renovation businesses, hotels, logistics facilities and other purposes for the future.

(Unit: million yen)

34,347

Overview

Operating Income/Ordinary Income

58.76
44.65

Fiscal
2014

Fiscal2015

Fiscal2016

Fiscal
2017

31.14

34.59

Fiscal
2013

Fiscal
2014

Fiscal2015

Fiscal2016

Fiscal2017

Results by Segment
Real estate sales businessIn the real estate sales business, we promoted condominium sales while working to sell real estate for sale and real estate
for sale in process, resulting in net sales of 41,168 million yen (up 34.2% year-on-year) and segment income of 7,978
million yen (up 66.3% year-on-year).

Real estate leasing business

Operating Results
As a result of our endeavors in multifaceted business operations for further business development and enhancement ofcorporate value, we posted net sales of 44,724 million yen (up 30.2%), operating income of 7,042 million yen (up50.5%), ordinary income of 5,988 million yen (up 67.5%) and profit attributable to owners of parent of 5,456 million
yen (up 38.6%), all on a year-on-year basis, for the fiscal year ended December 2017.
Furthermore, profit attributable to owners of parent marked a new record high, exceeding the 4,473 million yen recordedin the fiscal year ended December 2007.

In the real estate leasing business, we focused on leasing activities and the property management in an effort to enhance
asset value, including an increase in rental income from the income-generating real estate we own. Nevertheless, due tosale of certain income-generating real estate owned as
Sales Distribution Ratio by Segment
non-current assets and other factors, net sales decreased
3.8% year-on-year to 3,459 million yen and segment
0.2%
0.2%
income dropped 14.4% year-on-year to 1,761 million
10.5%
7.7%
yen.

Real estate planning agency and consulting
business
In the real estate planning agency and consulting business, proactive efforts were made in receiving orders forplanning, consultation and other consigned services bymaking best use of our planning capabilities and29

Fiscal2016

89.3%

Fiscal2017

92.1%

Real Estate Sales Business
Real Estate Leasing Business
Real Estate Planning Agency and Consulting Business30

ES-CON JAPAN Annual Report 2017

Real Estate Sales Business

Real Estate Leasing Business(Unit: million yen)

(Unit: million yen)

Net Sales
Segment Income(Unit: million yen)

Net Sales
Segment Income

41,16830,687

Real Estate Planning Agency
and Consulting Business

3,594

7,978
2,857

24,649Fiscal 2017

1,761

3,769

173

Fiscal2016

Fiscal2017

Fiscal2015

Fiscal2016

Fiscal2017

Fiscal2015

Fiscal2016

Total assets: 73,703

Non-current assets: 5,930

85

Property, plant and equipment: 1,729
Intangible assets:
28
Investments and other assets: 4,173

Fiscal2017

Liabilities and Fiscal 2016
Net Assets

multifaceted business building abilities, resulting in net sales of 96 million yen (up 47.8% year-on-year) and segment
income of 85 million yen (up 31.2% year-on-year).

Fiscal 2017

Analysis of Financial Position

Liabilities increased by 8,662 million yen compared with the end of the previous fiscal year to 65,002 million yen. This was
mainly attributable to an increase in long-term loans payable and short-term loans payable by 5,444 million yen in total.
Net assets increased by 4,069 million yen compared with the end of the previous fiscal year to 21,433 million yen. Thiswas due to recording of 5,456 million yen as profit attributable to owners of parent despite payment of 1,017 million as
cash dividends and acquisition of treasury shares by 748 million yen. As a result, the equity ratio came to 24.8% (23.6%
at the end of the previous year).
Interest-bearing Liabilities(Unit: million yen)

(Unit: million yen)

43,695

9,587
Fiscal2013

31

56,54486,43551,17773,70350,141

58,08831,67035,43039,739Cash and deposits:
10,667
Real estate for sale:
4,162
Real estate for sale in process: 60,057

Non-current liabilities: 30,847
Long-term loans
payable: 29,784

Current liabilities: 25,492
Short-term loans payable: 4,308
Current portion of
long-term loans payable: 16,753
Current portion of bonds:
40

Liabilities and net assets: 86,435

Shareholders’equity: 21,411

Assets at the end of the fiscal year ended December 2017 increased by 12,732 million yen compared with the end of theprevious fiscal year to 86,435 million yen. This was mainly attributable to an increase in cash and deposits by 2,463 million yen, inventories by 18,765 million yen and investments in securities by 1,674 million yen, respectively, offsetting thedecrease of 11,418 million yen due to sale of property, plant and equipment and other factors.

Current assets: 80,504

Liabilities and net assets: 73,703

Net assets: 21,433

Assets, liabilities and net assets

Total Assets
Net Assets

Shareholders’equity: 17,338

Cash and deposits:
8,204
Real estate for sale:
6,103
Real estate for sale in process: 39,319

Total assets: 86,435

Net assets: 17,363

Total Assets/Net Assets

Current assets: 57,654

96
65
65

Fiscal2015

Fiscal 2016

Property, plant and equipment: 13,147
Intangible assets:
17
Investments and other assets: 2,883

199

2,058

1,606

4,798

Assets(Unit: million yen)

Non-current assets: 16,048

Net Sales
Segment Income

3,459

Overview of Consolidated Balance Sheet

Non-current liabilities: 32,337
Long-term loans
payable: 31,874

Current liabilities: 32,664
Short-term loans payable: 1,953
Current portion of
long-term loans payable: 22,462
Current portion of bonds:
40

Status of Cash Flows
Cash and cash equivalents (“net cash”) in the fiscal year under review increased by 2,453 million yen compared with theend of the previous fiscal year to 10,644 million yen (8,191 million yen at the end of the previous fiscal year). The following outlines the cash flows and the factors of changes in cash flows in the fiscal year ended December 2017.

Cash flows from operating activities
Cash flows from operating activities in the fiscal year ended December 2017 amounted to net cash used in operating
activities of 10,694 million yen (net cash used in operating activities of 14,684 million yen in the previous fiscal year). Thiswas mainly attributable to recording 6,232 million yen as profit before income taxes and an increase in inventories by
18,943 million yen.

Cash flows from investing activities
Cash flows from investing activities in the fiscal year ended December 2017 amounted to net cash provided by investing
activities of 9,167 million yen (net cash provided by investing activities of 7,656 million yen in the previous fiscal year).
This was mainly attributable to sale of non-current assets amounting to net proceeds of 11,651 million yen.

Cash flows from financing activities
11,65613,994

Fiscal
2014

Fiscal2015

17,363Fiscal2016

21,433Fiscal2017

Fiscal
2013

Fiscal
2014

Fiscal2015

Fiscal2016

Fiscal2017

Cash flows from financing activities in the fiscal year ended December 2017 amounted to net cash provided by financing
activities of 3,979 million yen (net cash provided by financing activities of 11,003 million yen in the previous fiscal year).
This was mainly attributable to proceeds from and repayments of long-term loans payable and short-term loans payableamounting to net proceeds of 5,444 million yen, payments due to purchase of treasury shares of 748 million yen and cash
dividends paid of 1,016 million yen.

32

ES-CON JAPAN Annual Report 2017

Consolidated Balance Sheet(Unit: million yen)

AssetsCurrent assets
Cash and deposits
Notes and accounts receivable - trade
Real estate for sale
Real estate for sale in process
Deferred tax assets
Other
Allowance for doubtful accounts
Total current assets
Non-current assets
Property, plant and equipment
Buildings and structures
Accumulated depreciation
Buildings and structures, net
Land
Leased assets
Accumulated depreciation
Leased assets, net
Other
Accumulated depreciation
Other, net
Total property, plant and equipment
Intangible assets
Other
Total intangible assets
Investments and other assets
Investment securities
Deferred tax assets
Other
Allowance for doubtful accounts
Total investments and other assets
Total non-current assets
Total assets

33(Unit: million yen)

Fiscal 2016

Fiscal 2017

Fiscal 2016

Fiscal 2017(as of December 31, 2016)(as of December 31, 2017)(as of December 31, 2016)(as of December 31, 2017)

4,308
16,753
40
4
1,087
69
1,357
1,831
39
25,492

1,953
22,462
40
1
1,615
467
1,467
4,368
287
32,664150
29,784
4
54
13
83
757
30,84756,339110
31,874
2
82
18
93
155
32,33765,002

6,034
1,763
10,417(876)
17,338

6,224
1,953
14,322(1,089)21,41122
22
317,36373,7032020
121,43386,435

8,204
285
6,103
39,319
127
3,687
(73)
57,654

10,667497
4,162
60,057298
4,819—
80,504

5,351(1,614)
3,737
9,320
18
(8)
9
158
(77)
80
13,147

1,476
(410)
1,066
623
18
(13)
4
129
(93)
35
1,729

17
17

28
28

226
2,127
533
(4)
2,883
16,04873,703

1,901
1,675
600
(4)
4,173
5,930
86,435

Liabilities
Current liabilities
Short-term loans payable
Current portion of long-term loans payable
Current portion of bonds
Lease obligations
Accounts payable - other
Income taxes payable
Advances received
Deposits received
Other
Total current liabilities
Non-current liabilities
Bonds payable
Long-term loans payable
Lease obligations
Provision for directors’ share-based benefits
Provision for share-based benefits
Asset retirement obligations
Other
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Capital stock
Capital surplus
Retained earnings
Treasury shares
Total shareholders’ equity
Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Total accumulated other comprehensive income
Subscription rights to shares
Total net assets
Total liabilities and net assets

34

ES-CON JAPAN Annual Report 2017

Consolidated Statement of Income andConsolidated Statement of Comprehensive Income

Consolidated Statement of Comprehensive IncomeConsolidated Statement of Income

ProfitOther comprehensive income
Valuation difference on available-for-sale securities
Total other comprehensive income
Comprehensive income
Comprehensive income attributable to owners of parent
Comprehensive income attributable to non-controlling interests

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Advertising expenses
Sales commission
Directors’ compensations
Salaries and allowances
Provision for directors’ share-based benefits
Provision for share-based benefits
Commission fee
Taxes and dues
Other
Total selling, general and administrative expenses
Operating income
Non-operating income
Interest income
Dividend income
Cancellation income
Reversal of allowance for doubtful accounts
Other
Total non-operating income
Non-operating expenses
Interest expenses
Share issuance cost
Other
Total non-operating expenses
Ordinary income
Extraordinary income
Gain on sales of non-current assets
Gain on sales of shares of subsidiaries and associates
Gain on reversal of subscription rights to shares
Total extraordinary income
Extraordinary losses
Loss on sales of non-current assets
Loss on retirement of non-current assets
Impairment loss
Loss on valuation of investment securities
Total extraordinary losses
Profit before income taxes
Income taxes - current
Income taxes - deferred
Total income taxes
ProfitProfit attributable to owners of parent

35(Unit: million yen)

Fiscal 2016

Fiscal 2017(from January 1, 2016
to December 31, 2016)(from January 1, 2017
to December 31, 2017)34,34725,494
8,852

44,72433,164
11,559

1,369
655
172
758
24
7
199
404
580
4,172
4,680

1,501
515
175
963
30
5
224
351
749
4,517
7,042

0
1
8
—
1
11

0
2
24
29
1
58

999
26
90
1,116
3,575

1,093
—
18
1,112
5,988

172
—
0
172

372
22
—
395

36
0
1,042
42
1,120
2,628
240
(1,548)(1,308)
3,936
3,936

—
0
150
—
150
6,232
497
279
776
5,456
5,456

(Unit: million yen)

Fiscal 2016

Fiscal 2017(from January 1, 2016
to December 31, 2016)(from January 1, 2017
to December 31, 2017)

3,936

5,456

22
22
3,958
3,958
—

(2)
(2)
5,453
5,453
—

Consolidated Statement of Changes in Equity
Fiscal year ended December 2016 (from January 1, 2016 to December 31, 2016)

(Unit: million yen)

Accumulated othercomprehensive income
SubValuation
Total
scription Total net
Total
Redifference on accumulated rights to assets
TreaCapitalshareavailableothertainedsury
sharessurplusholders’
for-salecomprehenearnings shares
equitysecurities sive income
1,758
7,024
(821) 13,989——
4 13,994
Shareholders’ equity

Capitalstock
Balance at beginning of fiscal year
Changes of items during fiscal year
Issuance of new shares
Dividends of surplus
Profit attributable to owners of parent
Purchase of treasury shares
Disposal of treasury shares
Net changes of items other thanshareholders’ equity
Total changes of items during fiscal year
Balance at end of fiscal year

6,029
5

5
(543)
3,936
(54)
0

5
6,034

5
1,763

3,392
10,417

(54)
(876)

10
(543)
3,936
(54)
0
3,348
17,338

10
(543)
3,936
(54)
0
22

22

(1)

21

22
22

22
22

(1)
3

3,369
17,363Fiscal year ended December 2017 (from January 1, 2017 to December 31, 2017)

(Unit: million yen)

Accumulated othercomprehensive income
SubValuation
Total
scription Total net
Total
Redifference on accumulated rights to assets
TreaCapitalshareavailableothertainedsury
sharessurplusholders’
for-salecomprehenearnings shares
equitysecurities sive income
1,763 10,417(876) 17,338
22
22
3 17,363
Shareholders’ equity

Capitalstock
Balance at beginning of fiscal year
Changes of items during fiscal year
Issuance of new shares
Dividends of surplus
Profit attributable to owners of parent
Purchase of treasury shares
Disposal of treasury shares
Retirement of treasury shares
Net changes of items other thanshareholders’ equity
Total changes of items during fiscal year
Balance at end of fiscal year

6,034
190

190
(1,017)
5,456

(533)
190
6,224

190
1,953

3,905
14,322

(748)
2
533
(212)
(1,089)380(1,017)
5,456
(748)
2
—
4,073
21,411380(1,017)
5,456
(748)
2
—
(2)

(2)

(1)

(3)

(2)
20

(2)
20

(1)
1

4,069
21,43336

ES-CON JAPAN Annual Report 2017

Consolidated Statement of Cash Flows

Notes to Financial Statements

(Unit: million yen)

Cash flows from operating activities
Profit before income taxes
Depreciation
Impairment loss
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in provision for directors’ share-based benefits
Increase (decrease) in provision for share-based benefits
Interest and dividend income
Interest expenses
Share issuance cost
Loss (gain) on sales of non-current assets
Loss on retirement of non-current assets
Loss (gain) on valuation of investment securities
Loss (gain) on sales of shares of subsidiaries and associates
Decrease (increase) in notes and accounts receivable - trade
Decrease (increase) in inventories
Decrease (increase) in prepaid expenses
Increase (decrease) in accounts payable - other
Decrease/increase in consumption taxes receivable/payable
Increase (decrease) in advances received
Increase (decrease) in deposits received
Decrease (increase) in other assets
Increase (decrease) in other liabilities
SubtotalInterest and dividend income received
Interest expenses paid
Income taxes (paid) refund
Net cash provided by (used in) operating activities
Cash flows from investing activities
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of investment securities
Proceeds from withdrawal of investment securities
Purchase of non-current assets
Proceeds from sales of non-current assets
Payments for asset retirement obligations
Proceeds from sales of shares of subsidiaries resulting in change
in scope of consolidation
Collection of loans receivable
Proceeds from guarantee deposits received
Repayments of guarantee deposits received
Payments for investments in capital
Net cash provided by (used in) investing activities
Cash flows from financing activities
Increase in short-term loans payable
Decrease in short-term loans payable
Proceeds from long-term loans payable
Repayments of long-term loans payable
Proceeds from issuance of bonds
Redemption of bonds
Repayments of lease obligations
Repayments of installment payables
Proceeds from issuance of common shares
Purchase of treasury shares
Cash dividends paid
Proceeds from release of deposits as collateral
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

37

Fiscal 2016

Fiscal 2017(from January 1, 2016
to December 31, 2016)(from January 1, 2017
to December 31, 2017)

2,628
229
1,042
74
24
7
(1)
999
26
(136)
0
42
—
(200)
(17,033)
199
162
(385)
11
258
(1,462)
165(13,349)
1(1,060)(275)(14,684)

6,232
186
150
(73)
28
5
(2)
1,093
—
(372)
0
—
(22)
(211)
(18,943)
(529)
532
368
110
2,597
(614)
54
(9,409)2(1,148)(139)(10,694)

(18)
18
(110)
10
(223)
7,343
(3)

(18)
18
(1,711)
14(200)
11,651
(0)

—

34

0
1,120
(440)
(41)
7,656

0
615
(1,232)(4)
9,167

11,887(8,846)28,915(20,284)
200
(567)
(4)
(2)
9
(54)
(541)
293
11,003
3,976
4,214
8,191

10,830(13,184)
45,348(37,549)
—
(40)
(4)
(32)
378
(748)
(1,016)
—
3,979
2,453
8,191
10,644

1. Organization
ES-CON JAPAN Ltd. (ES-CON JAPAN or the Company) is a Japanese real estate company established in 1995. It
conducts planning, development and sales of for-sale condominiums, retail facilities and other properties; leasing of
owned properties; property management services; for-sale condominium management services; consignment, planning,brokerage and consulting services for real estate-related matters; and real estate investment advisory services. ES-CON
JAPAN was listed on the second tier of the Tokyo Stock Exchange in 2015, and successfully rose to the first tier in June
2016.

2. Basis of Presentation
The accompanying consolidated financial statements of ES-CON JAPAN and its consolidated subsidiaries (the “Group”)
are a translation of the financial statements that have been prepared in accordance with the provisions set forth in the
Financial Instruments and Exchange Act of Japan and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to the applicationand disclosure requirements of International Financial Reporting Standards.
The Company’s accounting period is a twelve-month period, which ends at the end of December each year. Unless otherwise specified, amounts have been rounded down to the nearest thousand yen in the accompanying financial statements
and the notes thereto. As a result, the total shown in the financial statements and notes thereto do not necessarily agreewith the sum of the individual account balances.

3. Summary of Significant Accounting Policies(1) Consolidation

The Company has five consolidated subsidiaries as of December 31, 2017, as follows:
ES-CON PROPERTY Co., Ltd.
ES-CON ASSET MANAGEMENT Co., Ltd.
ES-CON LIVING SERVICE Ltd.
E-STATE Co., Ltd.
Aries Investment Two, LLC.
For E-STATE Co., Ltd., a resolution on corporate dissolution was made at its general
meeting of shareholders held in November 2017. For Aries Investment Two, LLC., which
had been reorganized from a limited liability company to a joint-stock company inAugust 2017, a resolution on corporate dissolution was made at its general meeting ofshareholders, and the liquidation was completed in January 2018.
Pro Net ES-CON Eight, Ltd. and ES-CON JAPAN REIT Investment Corporation,
which had been consolidated subsidiaries in the fiscal year ended December 2016, were
deconsolidated due to completion of liquidation for the former and transfer of the investment units held by ES-CON JAPAN to NBNS Investment Limited Liability Partnershipin December 2017 for the latter.

38

ES-CON JAPAN Annual Report 2017(2) Equity-method affiliates

The Company has one equity-method affiliate, as follows:
NBNS Investment Limited Liability Partnership(5) Standards for recording
significant allowances

The Company and its consolidated subsidiaries are limited liability partners of NBNS
Investment Limited Liability Partnership and have no business execution right. However,as the Company is practically influential, it decided to make NBNS Investment Limited
Liability Partnership its equity-method affiliate, starting in the fiscal year ended December
31, 2017.
(3) Valuation standard andmethod for significant
assets1) Securities
Other securities
Securities with fair value are stated using the market price method based on the market
price, etc. at the end of the fiscal year (valuation difference is directly charged to shareholders’ equity, and selling costs are calculated by using the moving-average method).
Securities without fair value are stated by the cost method using the moving-averagemethod.
However, silent partnership and limited liability partnership equity interests are stated attheir net asset value. As for income and losses from silent partnership and limited liability
partnership equity interests, the net amount of income or losses equivalent to the equity
interests are recorded as net sales or cost of sales, respectively, with the relevant investment
securities set as corresponding accounts.
2) Inventories
Real estate for sale is stated using the cost method (the value on the balance sheet is calculated using the method of reducing book value due to a decline in profitability).
Real estate for sale in process is stated using the cost method at net asset value (the valueon the balance sheet is calculated by using the method of reducing book value due to a
decline in profitability).

(4) Depreciation method forsignificant depreciable
assets1) Property, plant and equipment (excluding leased assets)
The declining-balance method is applied.
However, the straight-line method is applied to buildings (excluding facilities attached tobuildings) acquired on or after April 1, 1998 and facilities attached to buildings andstructures acquired on or after April 1, 2016.
2) Intangible assets (excluding leased assets)
Software for internal use is amortized using the straight-line method over the useful lives(5 years) estimated by the Company.
Trademarks are amortized using the straight-line method over 10 years.
3) Leased assets
For finance leases without any transfer of ownership of leased assets, the straight-line
method is adopted with a residual value of zero, deeming the lease period to be equal tothe useful lives of the assets.

1) Allowance for doubtful accounts
To prepare for expected losses from bad debts, such as notes and accounts receivable –trade and loans receivable, the Company records estimated uncollectible amounts basedon the historical loan loss ratio for general accounts receivable, and by considering individual collectibility for certain specific receivables such as doubtful accounts receivables.
2) Provision for directors’ share-based benefits
To prepare for granting the Company’s shares to its directors based on its share-based
benefit rules for directors, the Company records estimated amount of share-based benefit
obligations as of the end of the consolidated fiscal year as a provision.
3) Provision for share-based benefits
To prepare for granting the Company’s shares to its employees based on its share-based
benefit rules, the Company records estimated amount of share-based benefit obligations
as of the end of the consolidated fiscal year as a provision.

(6) Scope of funds in the
consolidated statementof cash flows

The funds (cash and cash equivalents) in the consolidated statement of cash flows consist(7) Other significant items
fundamental topreparing the financial
statements

1) Accounting for deferred assets
Share issuance cost is amortized by the straight-line method over 3 years.

of cash on hand, deposits that can be withdrawn at any time, and short-term investmentswith a maturity of 3 months or less from the date of acquisition, which are readily convertible to cash and bear only an insignificant risk of changes in value.

2) Accounting for consumption taxes
Consumption taxes are excluded from the transaction amounts. Non-deductible consumption taxes are recorded as expenses for the relevant consolidated fiscal year.

(Changes in Accounting Policies)
Not applicable.

(Changes in Presentation)
Balance sheet
It was decided that Deposits received, which had been included in Other of Current liabilities for the fiscal year ended
December 31, 2016, shall be separately presented for the fiscal year ended December 31, 2017, as the relevant amountsurpassed 5/100 of Total liabilities and net assets. To reflect the change in presentation, the consolidated financial statements for the fiscal year ended December 31, 2016 have been restated.
As a result, the 1,871 million yen that was indicated as Other of Current liabilities in the balance sheet for the fiscal year
ended December 31, 2016 has been restated as 1,831 million yen in Deposits received and 39 million yen in Other,respectively.

(Additional Information)
Not applicable.

39

40

ES-CON JAPAN Annual Report 2017

4. Notes to Consolidated Balance Sheet(2) Breakdown of loss on retirement of non-current assets is as follows:

(1) Equity in equity-method affiliate

Fiscal 2016

Fiscal 2017(from January 1, 2016
to December 31, 2016)(from January 1, 2017
to December 31, 2017)

Buildings and structures
Property, plant and equipment (Other)

0
0

0
—

Total

0

0

(Unit: million yen)

Fiscal 2016

Fiscal 2017(as of December 31, 2016)(as of December 31, 2017)

—

1,007

Investment securities (equity capital)(Unit: million yen)

(2) Pledged assets and secured debts
Assets provided as collateral are as follows:

(Unit: million yen)(3) Impairment loss
In the fiscal year ended December 31, 2016, the ES-CON JAPAN Group realized impairment loss on the following asset
groups. (Unit: million yen)

Fiscal 2016

Fiscal 2017(as of December 31, 2016)(as of December 31, 2017)

Real estate for sale
Real estate for sale in process
Buildings and structures
Land

5,396
38,615
3,506
9,320

2,025
56,758
939
623

Total

56,83960,345

Total

Debts secured by the above assets provided as collateral are as follows:

(Unit: million yen)

Fiscal 2016

Fiscal 2017(as of December 31, 2016)(as of December 31, 2017)

Short-term loans payable
Current portion of long-term loans payable
Long-term loans payable

3,051
16,46828,8481,487
22,077
31,174

Total

48,36854,7395. Notes to Consolidated Statement of Income(1) Breakdown of gain on sales of non-current assets is as follows:

(Unit: million yen)

Fiscal 2016

Fiscal 2017(from January 1, 2016
to December 31, 2016)(from January 1, 2017
to December 31, 2017)Land
Buildings and structures
Property, plant and equipment (Other)

172
—
—

182
189
0

Total

172

372

Location

Use

Type

Suita City, Osaka

Rental real estate

Building and land

Kawanishi City, Hyogo

Eatery business facilities

Facilities attached to buildings

Impairment loss
1,033
8
1,042

(Note) The ES-CON JAPAN Group classifies its individual properties into asset groups as minimum units for generating cash flows.
For the asset groups where profitability dropped significantly as the Company’s policy is to sell rental real estate owned by its consolidated subsidiaries for the purpose of further enhancing asset efficiency and its financial standing, among other factors, the ES-CON JAPAN Group reduced thebook value of the relevant asset groups to net realizable value and recorded the reduced amount (1,042 million yen) as impairment loss.
Breakdown of the impairment loss consists of 1,033 million yen (124 million yen for the building and 909 million yen for the land) in Suita City,
Osaka and 8 million yen (8 million yen for facilities attached to buildings) in Kawanishi City, Hyogo.
Furthermore, the collectible amount of the relevant asset groups is measured by using net sales value, which is calculated by using the estimated sales value for buildings and lands and setting the value of the facilities attached to buildings at zero because no sale is anticipated.

In the fiscal year ended December 31, 2017, the ES-CON JAPAN Group realized impairment loss on the following asset
group. (Unit: million yen)
Location

Use

Type

Impairment loss

Setagaya Ward, Tokyo

Eatery business facilities

Facilities attached to buildings

38

Otsu City, Shiga

Lodging business facilities

Facilities attached to buildings

111

Total

150

(Note) The ES-CON JAPAN Group classifies its individual properties into asset groups as minimum units for generating cash flows.
For the asset groups indicated above, a decrease in profitability caused net realizable value to drop significantly. Because of the change, theCompany reduced the book value of the relevant asset groups to the net realizable value and recorded the reduced amount (150 million yen) as
impairment loss.
Breakdown of the impairment loss consists of 38 million yen (30 million yen for facilities attached to buildings and 8 million yen for others) in
Setagaya Ward, Tokyo and 111 million yen (78 million yen for facilities attached to buildings and 33 million yen for others) in Otsu City, Shiga.
Furthermore, the net realizable value of the relevant asset groups is measured by using their use value, which is set as zero because theestimate amount of future cash flows is expected to turn negative.

6. Notes to Consolidated Statement of Comprehensive Income
Not applicable.

41

42

ES-CON JAPAN Annual Report 2017

7. Notes to Consolidated Statement of Changes in Equity(3) Dividends
1) Dividends paid

Fiscal 2016 (from January 1, 2016 to December 31, 2016)(1) Type and Number of Shares Issued and Outstanding and Type and Number of Treasury Shares(Resolution)

Increase in
number of shares
during the fiscal
year

Decrease in
number of shares
during the fiscal
year

Number of sharesat end of Fiscal
2016

70,511,887

83,000—70,594,887

70,511,887

83,000—70,594,887

Number of sharesat beginning of
Fiscal 2016

Total
Treasury shares

Total

3,342,000

241,700

100

3,583,600

3,342,000

241,700

100

3,583,600(Notes) 1. The increase in the number of common shares issued and outstanding (83,000 shares) is due to exercise of subscription rights to shares.
2. The increase in the number of treasury shares in common shares (241,700 shares) is due to acquisition of treasury shares based on the
resolution by the Board of Directors.
3. The decrease in the number of treasury shares in common shares (100 shares) is due to provision of shares to the qualifying employees by
the share-based payment benefits type ESOP trust.
4. The number of treasury shares in common shares includes the Company’s shares owned by the share-based payment benefits trust for
directors and the share-based payment benefits type ESOP trust (the share-based payment benefits trust for directors: 554,200 shares at the
beginning of Fiscal 2016 and 554,200 shares at the end of Fiscal 2016; the share-based payment benefits type ESOP trust: 235,400 shares atthe beginning of Fiscal 2016 and 235,300 shares at the end of Fiscal 2016).

March 24, 2017
Annual General Meeting of
Shareholders

Category

Reportingcompany(parent
company)
Total

Fifth offer ofCommonsubscription
rights to shares shares

Number of shares subject to subscription rights
to shares (shares)

Balance at
end ofFiscal 2016

Beginningof Fiscal
2016

Increaseduring the
fiscal year

Decreaseduring the
fiscal year

3,320,000—

153,000

3,167,000

3

3,320,000—

153,000

3,167,000

3

End ofFiscal 2016 (million yen)

(Note) T he decrease in the fifth offer of subscription rights to shares in Fiscal 2016 (153,000 shares) comprises a decrease of 54,000 shares due to theexercise of subscription rights to shares and a decrease of 99,000 shares due to the expiry of subscription rights to shares.

43

December 31,
2015

8.00

March 28,
2016

Total
dividends

Type ofshares(million yen)

Commonshares

1,017

Source ofdividends
Retainedearnings

Dividend
per share

Record date

Effective
date

December 31,
2016

March 27,
2017

(yen)

15.00

Fiscal 2017 (from January 1, 2017 to December 31, 2017)(1) Type and Number of Shares Issued and Outstanding and Type and Number of Treasury Shares
Number of sharesat beginning of
Fiscal 2017

Increase in
number of shares
during the fiscal
year

Decrease in
number of shares
during the fiscal
year

Number of sharesat end of Fiscal
2017

70,594,887

2,408,500

1,800,000

71,203,387

70,594,887

2,408,500

1,800,000

71,203,387

3,583,600

1,422,800

1,811,100

3,195,300

3,583,600

1,422,800

1,811,100

3,195,300

Issued shares
Common shares
Total(Note)—

543

Effective date

(Note) The total amount of dividends includes 8 million yen of dividends to the Company’s shares owned by the share-based payment benefits trust for
directors and 3 million yen of dividends to the Company’s shares owned by the share-based payment benefits type ESOP trust.

(2) Subscription Rights to Shares and Subscription Rights to Treasury Shares
Type of sharessubject toBreakdown ofsubscription
subscription
rights to shares rights tosharesCommonsharesRecord date2) Dividends for which the record date was within the fiscal year but the effective date for the dividends was in the following fiscal year
(Resolution)

Common shares

Total dividends Dividend per(million yen)share (yen)(Note) The total amount of dividends includes 4 million yen of dividends to the Company’s shares owned by the share-based payment benefits trust for
directors and 1 million yen of dividends to the Company’s shares owned by the share-based payment benefits type ESOP trust.

Issued shares
Common shares

March 25, 2016
Annual General Meeting of
Shareholders

Type of shares

Treasury shares
Common shares
Total(Notes) 1. The increase in the number of common shares issued and outstanding (2,408,500 shares) is due to exercise of the fifth offer of subscription
rights to shares, and the decrease (1,800,000 shares) is due to retirement of treasury shares.
2. The increase in the number of treasury shares in common shares (1,422,800 shares) is due to acquisition of treasury shares based on the
resolution by the Board of Directors.
3. The decrease in the number of treasury shares in common shares (1,811,100 shares) is due to retirement of treasury shares (1,800,000
shares), provision of shares to the qualifying directors by the share-based payment benefits trust (11,000 shares) and provision of shares tothe qualifying employees by the share-based payment benefits type ESOP trust (100 shares).
4. The number of treasury shares in common shares includes the Company’s shares owned by the share-based payment benefits trust for
directors and the share-based payment benefits type ESOP trust (the share-based payment benefits trust for directors: 554,200 shares at the
beginning of Fiscal 2017 and 543,200 shares at the end of Fiscal 2017; the share-based payment benefits type ESOP trust: 235,300 shares atthe beginning of Fiscal 2017 and 235,200 shares at the end of Fiscal 2017).

44

ES-CON JAPAN Annual Report 2017

8. Notes to Consolidated Statement of Cash Flows(2) Subscription Rights to Shares and Subscription Rights to Treasury Shares

Category

Reportingcompany(parent
company)

Type of sharessubject toBreakdown ofsubscription
subscription
rights to shares rights tosharesFifth offer ofCommonsubscription
rights to shares shares

Number of shares subject to subscription rights
to shares (shares)

Balance at
end ofFiscal 2017

Beginningof Fiscal
2017

Increaseduring the
fiscal year

Decreaseduring the
fiscal year

3,167,000—

2,408,500

758,5000—1,400,000—

1,400,000

03,167,000

1,400,000

2,408,500

2,158,500

1

End ofFiscal 2017 (million yen)

(Note 1)

Sixth offer ofCommonsubscription
rights to shares shares(1) Relationship between the year-end balance of cash and cash equivalents and the amounts of accounts on(Unit: million yen)
the consolidated balance sheet
Fiscal 2016

Fiscal 2017(from January 1, 2016
to December 31, 2016)(from January 1, 2017
to December 31, 2017)

Cash and deposits
Time deposits with maturities of more than 3 months
Deposits of share-based payment benefits trust

8,204
(3)
(10)

10,667(3)(20)

Cash and cash equivalents

8,191

10,644(Note 2)

Total—

(Notes) 1. The increase in the number of common shares issued and outstanding (2,408,500 shares) is due to exercise of the fifth offer of subscription
rights to shares.
2. The increase in the number of treasury shares in common shares (1,400,000 shares) is due to issuance of subscription rights to shares.
3. For the sixth offer of subscription rights to shares, the first day of the exercise period has not yet arrived.

(3) Dividends
1) Dividends paid
(Resolution)
March 24, 2017
Annual General Meeting of
Shareholders

Type of shares
CommonsharesTotal dividends Dividend per(million yen)share (yen)1,017

Record date

Effective date

December 31,
2016

15.00

March 27,2017

(Note) T he total amount of dividends includes 8 million yen of dividends to the Company’s shares owned by the share-based payment benefits trust for
directors and 3 million yen of dividends to the Company’s shares owned by the share-based payment benefits type ESOP trust.

2) Dividends for which the record date was within the fiscal year but the effective date for the dividends was in the following fiscal year
(Resolution)
March 23, 2018
Annual General Meeting of
Shareholders

Type ofsharesCommonsharesTotal
dividends(million yen)

1,238

Source ofdividends
Retainedearnings

Dividend
per share

Record date

Effective
date

December 31,
2017

March 26,
2018

(yen)

18.00

(Note) T he total amount of dividends includes 9 million yen of dividends to the Company’s shares owned by the share-based payment benefits trust for
directors and 4 million yen of dividends to the Company’s shares owned by the share-based payment benefits type ESOP trust.

(2) Major assets and liabilities of a company that was deconsolidated in the fiscal year ended December 31,
2017 due to sale of investment units
ES-CON JAPAN REIT Investment Corporation was deconsolidated due to sale of investment units held by ES-CON
JAPAN. Breakdown of the assets and liabilities of the corporation upon the sale as well as the sale price of the investment
units and the gain on sale are as follows:
(Unit: million yen)
Current assets
Non-current assets
Current liabilities
Unrealized gain
Gain on sale of investment units

929
10
(34)
22
22

Sale price of investment units
Cash and cash equivalents

950
(915)

Difference: income from sale34

9. Lease Transactions(Lessee)(1) Finance Lease Transactions
Finance lease transactions without any transfer of ownership of leased assets
1) Leased assets
Property, plant and equipment
Consists of vehicles, etc.
2) Depreciation method for leased assets
As described in 3. Summary of Significant Accounting Policies, (4) Depreciation method for significant depreciable assets

45

46

ES-CON JAPAN Annual Report 2017(2) Operating Lease Transactions
Unearned lease payments for non-cancellable operating lease transactions(Unit: million yen)

Fiscal 2016

Fiscal 2017(as of December 31, 2016)(as of December 31, 2017)

Due within one year74

52

Due after one year

458

61

Total

532

114

3) Supplementary explanation on fair value, etc. of financial instruments
The fair value of financial instruments, aside from values based on market price, includes values based on reasonable calculations when there is no market price. Certain variable factors are adopted in calculating those values, and there may becases where the values will vary when different assumptions, etc. are adopted.

(2) Fair Value, Etc. of Financial Instruments
The following table shows the book values on the consolidated balance sheet, fair value and the difference between them.
The following table does not include items for which determining the fair value is recognized to be extremely difficult (SeeNote 2 below).
Fiscal 2016 (as of December 31, 2016)

(Lessor)Book value recordedon the balance sheet(1) Operating Lease Transactions
Unearned lease payments for non-cancellable operating lease transactions(Unit: million yen)

Fair value

Difference(1) Cash and deposits(2) Notes and accounts receivable - trade(3) Investment securities
Other securities

8,204
285

8,204
285

—
—

49

49

—

4,897

Total of assets

8,540

8,540

—

5,424

(1) Accounts payable - other(2) Deposits received(3) Short-term loans payable(4) Long-term loans payable*1(5) Bonds payable*2

1,087
1,831
4,308
46,537
190

1,087
1,831
4,308
46,981
187

—
—
—
444
(2)

Total of liabilities

53,95454,397

442

Fiscal 2016

Fiscal 2017(as of December 31, 2016)(as of December 31, 2017)

Due within one year

1,099

526

Due after one year

3,937

Total

5,036

10. Financial Instruments(1) Conditions of Financial Instruments
1) Policy for financial instruments
The ES-CON JAPAN Group manages funds only through short-term deposits, etc., and procures funds mainly throughborrowing from banks and other financial institutions.
2) Description of financial instruments and associated risks, and risk management structure
Among operating receivables, notes and accounts receivable – trade are exposed to customer credit risks. The Company
averts such risks by receiving guarantee deposits for part of them. Moreover, in terms of these risks, it conducts credit
control and account balance management for respective customers in accordance with the internal rules of the ES-CON
JAPAN Group, and works to identify and mitigate concerns about accounts becoming uncollectible due to such factors as
worsening of financial conditions at its business customers at an early stage.
Investment securities mainly consist of shares owned over a medium to long term in order to strengthen relationships withbusiness partners, and equity investment in investment limited liability partnership and silent partnership. Listed sharesare exposed to market price fluctuation risks, but the Company periodically checks their fair value. Non-listed shares andequity investment in investment limited liability partnership and silent partnership have the risks from worsening financial
conditions, etc. of the issuer companies, investment limited liability partnership and silent partnership, but the Company
periodically checks their financial conditions and other factors through financial statements and other materials.
Among operating payables, accounts payable – other are to be fully paid within one year.
Deposits received mainly consist of guarantee deposits received from tenants of income-generating real estate, and funds
deposited by joint venture partners of certain real estate development projects.

47(Unit: million yen)

*1 Long-term loans payable includes current portion of long-term loans payable.
*2 Bonds payable includes current portion of bonds payable.

Fiscal 2017 (as of December 31, 2017)

(Unit: million yen)Book value recordedon the balance sheet

Fair value

Difference(1) Cash and deposits(2) Notes and accounts receivable - trade(3) Investment securities
Other securities

10,667497

10,667
497

—
—

47

47

—

Total of assets

11,213

11,213—(1) Accounts payable - other(2) Deposits received(3) Short-term loans payable(4) Long-term loans payable*1(5) Bonds payable*2

1,615
4,368
1,953
54,337
150

1,615
4,368
1,953
54,330
148

—
—
—
(6)
(1)

Total of liabilities

62,42462,416(7)*1 Long-term loans payable includes current portion of long-term loans payable.
*2 Bonds payable includes current portion of bonds payable.

48

ES-CON JAPAN Annual Report 2017

(Notes) 1. Calculation method for fair value of financial instruments and matters related to derivative transactions.
Assets(1) Cash and deposits and (2) Notes and accounts receivable - trade
As these are settled within a short period of time, the fair value is approximately the same as the book value and is thus stated at that book value.
(3) Investment securities
With regard to investment securities, the fair value of stocks is determined by their price on stock exchanges.
Liabilities(1) Accounts payable – other, (2) Deposits received and (3) Short-term loans payable
As these are settled within a short period of time, the fair value is approximately the same as the book value and is thus stated at that book value.
(4) Long-term loans payable and (5) Bonds payable
The fair value of these financial instruments is based on the method of calculating by discounting the sum of their principal by a rate
assumed as being applicable to a new similar borrowing to be made or bonds payable to be issued by the Company.
2. Financial instruments for which discerning fair value is recognized to be extremely difficult.
(Unit: million yen)

Fiscal 2016(as of December 31, 2016)

Category

Fiscal 2017(as of December 31, 2017)

1) Non-listed shares

10102) Investment limited liability partnership equity investment

—

1,007

3) Silent partnership equity investment, etc.

166

836

Total

176

1,853

Due in 5 to 10 years

Due in 10 years or more

Cash and deposits
Notes and accounts receivable - trade

8,204
285

—
—

—
—

—
—

Total

8,490

—

—

—

Fiscal 2017 (as of December 31, 2017)

(Unit: million yen)
Due within 1 year

Due in 1 to 5 years

Due in 5 to 10 years

Due in 10 years or more

Cash and deposits
Notes and accounts receivable - trade

10,667
497

—
—

—
—

—
—

Total

11,165———

4. Scheduled repayment amount of bonds payable, long-term loans payable and other interest-bearing liabilities after closing of accounts.
Fiscal 2016 (as of December 31, 2016)

(Unit: million yen)

Due within
1 yearDue in 1 to
2 years

Due in 2 to
3 years

Due in 3 to
4 years

Due in 4 to
5 years

Due in 5 years
or moreShort-term loans payable

4,308

—

—

—

—

—

Long-term loans payable

16,753

15,547

10,321

731

2,115

1,068

40

40

40

40

30

—

21,101

15,587

10,361

771

2,145

1,068

Bonds payable
Total
Fiscal 2017 (as of December 31, 2017)

(Unit: million yen)

Due within
1 yearDue in 1 to
2 years

Due in 2 to
3 years

Due in 3 to
4 years

Due in 4 to
5 years

Due in 5 years
or moreShort-term loans payable

1,953

—

—

—

—

—

Long-term loans payable

22,462

19,681

1,019

2,514

6,850

1,808

Bonds payable
Total

40

40

40

30

—

—

24,456

19,721

1,059

2,544

6,850

1,808

5. Changes in presentation
Deposits received was newly included in the notes herein, starting in the fiscal year ended December 31, 2017, as the amount has become moremeaningful. To reflect the change in presentation, the relevant figures are indicated for the fiscal year ended December 31, 2016.

49

Type
Securities with book values on the consolidatedbalance sheet exceeding acquisition cost

(Unit: million yen)Book value recordedon the balance sheet

Acquisition
cost

49

27

22

49

27

22

(1) Shares

Total

Type

(Unit: million yen)Due in 1 to 5 years

Fiscal 2016 (from January 1, 2016 to December 31, 2016)

Fiscal 2017 (from January 1, 2016 to December 31, 2017)

3. Scheduled redemption amount of monetary claims and securities with maturities after closing of accounts.

Due within 1 year

(1) Other Securities

Difference(Note) The table above does not include non-listed shares and silent partnership equity investment, etc. (book value recorded on the consolidated balance
sheet: 176 million yen) as Other securities, because discerning fair value is recognized to be extremely difficult as there is no market price.

These are not subject to disclosure of fair value because discerning fair value is recognized to be extremely difficult as there is no market priceand future cash flows cannot be estimated.

Fiscal 2016 (as of December 31, 2016)

11. Notes to Securities

Securities with book values on the consolidatedbalance sheet exceeding acquisition cost

(Unit: million yen)Book value recordedon the balance sheet

Acquisition
cost

47

27

20

47

27

20

(1) Shares

Total

Difference(Note) The table above does not include non-listed shares, investment limited liability partnership equity investment and silent partnership equity
investment, etc. (book value recorded on the consolidated balance sheet: 1,853 million yen) as Other securities, because discerning fair value isrecognized to be extremely difficult as there is no market price.

12. Notes to Derivative Transactions
Not applicable

13. Notes to Retirement Benefits
Fiscal 2016 (from January 1, 2016 to December 31, 2016)(1) Description of Retirement Benefit Plans Adopted by the Company
The Company and certain consolidated subsidiaries have adopted a defined contribution pension plan.

(2) Defined Contribution Pension Plan
The Company and certain consolidated subsidiaries paid 8 million yen for the defined contribution pension plan.

Fiscal 2017 (from January 1, 2017 to December 31, 2017)(1) Description of Retirement Benefit Plans Adopted by the Company
The Company and certain consolidated subsidiaries have adopted a defined contribution pension plan.

(2) Defined Contribution Pension Plan
The Company and certain consolidated subsidiaries paid 9 million yen for the defined contribution pension plan.

50

ES-CON JAPAN Annual Report 2017

14. Notes to Stock Options, Etc.

16. Notes to Business Combination, Etc.

Not applicable.

(Business separation)

15. Notes to Tax Effect Accounting

The Company transferred all the investment units of ES-CON JAPAN REIT Investment Corporation, which had been a
consolidated subsidiary, to NBNS Investment Limited Liability Partnership.

(1) Significant Components of Deferred Tax Assets and Deferred Tax Liabilities

(Unit: million yen)

Fiscal 2016

Fiscal 2017(as of December 31, 2016)(as of December 31, 2017)

2,749
144
716
38
25
46

1,830
169
46
39
28
46

1,856

1,642

89

106

5,666

3,910

Valuation allowance(3,402)(1,924)

Total of deferred tax assets

2,264

1,986

Deferred tax liabilities
Asset retirement expenses
Other

(10)
—

(11)
(0)

Total of deferred tax liabilities

(10)

(11)

2,254

1,974

Deferred tax assets
Net operating loss carried forward
Loss on valuation of inventories
Impairment loss
Loss on valuation of investment securities
Asset retirement obligations
Unrecorded interest receivable
Temporary difference related to investments in
subsidiaries
Other
Subtotal of deferred tax assets

Deferred tax assets, net

1. Overview of business separation(1) Name of the company to which the business was separated
NBNS Investment Limited Liability Partnership(2) Description of the separated businessHolding of and distribution of profits from income-generating real estate conducted by ES-CON JAPAN REIT Investment
Corporation(3) Major reason of conducting business separation
The Company transferred all of the investment units of ES-CON JAPAN REIT Investment Corporation to NBNS
Investment Limited Liability Partnership on December 1, 2017 as part of the capital policy for ES-CON JAPAN REIT
Investment Corporation to acquire properties.

(4) Date of business separation
December 1, 2017(5) Matters related to other aspects of the transaction including legal format
Transfer of investment units with considerations paid by cash

2. Overview of accounting treatment conducted(1) Amount of transferred income and loss
22 million yen in gain on sale of affiliate shares(2) Significant Components of Material Difference between the Effective Statutory Tax Rate and Income(Unit: %)Tax Rate Applicable after Applying Tax Effect Accounting

51

Fiscal 2016

Fiscal 2017(as of December 31, 2016)(as of December 31, 2017)

33.0

30.9

Effective statutory tax rate
(Adjustment)
Permanently non-deductible entertainment and otherexpenses
Per-capita inhabitants tax
Increase/decrease in valuation allowance
Impact of change in tax rate
Other

0.3

0.2

0.3
(88.8)
5.6
(0.2)

0.2
(18.7)
0.0(0.1)

Income tax rate after applying tax effect accounting(49.8)

12.5(2) Fair book value of assets and liabilities of the transferred business and major breakdown (Unit: million yen)
Current assets
Non-current assets

929
10

Total assets

939

Current liabilities

34

Total liabilities

34(3) Accounting treatment
The difference between the book value of ES-CON JAPAN REIT Investment Corporation on the consolidated balance
sheet and the sales amount, etc. are recorded as Gain on sales of shares of subsidiaries and associates in Extraordinary
income.

52

ES-CON JAPAN Annual Report 2017

The book value for the rental real estate as stated in the consolidated balance sheet, the amount of increase/decrease during
the fiscal year and fair value were as follows:
(Unit: million yen)

3. Name of the reportable segment that included the separated business
Real estate leasing business

Fiscal 2016

Fiscal 2017(from January 1, 2016
to December 31, 2016)(from January 1, 2017
to December 31, 2017)

Balance at beginning of fiscal year

21,674

12,832

Increase/decrease during fiscal year

(8,841)(11,270)

Balance at end of fiscal year

12,832

1,562

13,5401,950

4. Estimated income and loss of the separated business recorded on the consolidated statement of income
for the relevant fiscal year
The description is omitted as it gives minimum impact on the consolidated statement of income for the fiscal year ended
December 31, 2017.

17. Notes to Asset Retirement Obligations(Asset retirement obligations that are recorded on the consolidated balance sheet)(1) Description of the Relevant Asset Retirement Obligations
The Company is obliged to restore its Tokyo Head Office, Osaka Head Office and Fukuoka Office to the original state inaccordance with each of the real estate lease agreements.

(2) Calculation Method of the Amount of the Asset Retirement Obligations

Book value recorded on the consolidated balance sheet

Fair value at end of fiscal year

(Notes) 1. The book value recorded on the consolidated balance sheet represents the amount obtained by deducting accumulated depreciation andaccumulated impairment loss from acquisition cost.
2. Of the amount of increase/decrease during fiscal year, the amount of decrease during Fiscal 2016 is primarily attributable to sales of
non-current assets (7,161 million yen), impairment loss of non-current assets (1,033 million yen), transfer to real estate for sale in process
due to change of holding purposes (473 million yen) and depreciation (180 million yen). The amount of decrease during Fiscal 2017 is primarily attributable to sales of non-current assets (11,163 million yen) and depreciation (117 million yen).
3. Fair value at end of fiscal year indicates the amount calculated on the basis of Japan’s Real Estate Appraisal Standards, using appraisals byoutside real estate appraisers as a reference.

The amount of the asset retirement obligations is calculated by using discount rates of 0.6% to 1.9%, with the expectedperiod of use estimated to be 10 years to 18 years.

19. Segment Information(3) Increase/Decrease of the Total Amount of the Asset Retirement Obligations(1) Overview of Reportable Segments(Unit: million yen)

Fiscal 2016

Fiscal 2017(from January 1, 2016
to December 31, 2016)(from January 1, 2017
to December 31, 2017)

Balance at beginning of fiscal year
Increase due to acquisition of property, plant and equipment
Adjustments over passage of time
Decrease due to implementation of asset retirement
obligations

86
—
1

83
9
1

(3)

(0)

Balance at end of fiscal year

83

93

The reportable segments of the ES-CON JAPAN Group are, among the Group’s business units, those for which separate
financial information can be obtained and that are to be regularly reviewed by the Board of Directors and other meeting
structures in order to decide the distribution of management resources and to assess business performance.
The ES-CON JAPAN Group integrates individual projects that have similar features in terms of products and services into
three reportable segments of Real estate sales business, Real estate leasing business and Real estate planning agency andconsulting business.
Each of the reportable segments mainly comprises the following operations.
Real estate sales business: Development and sale of for-sale condominiums and retail facilities, sale of land, etc.
Real estate leasing business: Leasing of real estate, etc.
Real estate planning agency and consulting business: Consigned operations of real estate-related services, brokerage

53

18. Notes to Rental Real Estateof transactions, sales agency, etc.

The Company and certain of its consolidated subsidiaries own retail facilities and land for retail facilities, etc. Income orloss from leasing these rental properties during Fiscal 2016 totaled 759 million yen in income (with rental income recorded
as net sales and rental expenses recorded as cost of sales). Income or loss from leasing these rental properties during Fiscal
2017 totaled 497 million yen in income (with rental income recorded as net sales and rental expenses recorded as cost of
sales).

(2) Calculation Method of Net Sales, Income or Loss, Assets and Other Item Amounts by Reportable Segment
The accounting method for the reported business segments is the same as described in “Summary of significant accounting
policies.”

54

ES-CON JAPAN Annual Report 2017(3) Information on Net Sales, Income or Loss, Assets and Other Item Amounts by Reportable Segment
Fiscal 2016 (from January 1, 2016 to December 31, 2016)

(Unit: million yen)

Reportable segment

Amount on
Reconcilia- consolidated financial
tion
statements(Note 1)

Real estate
Real estate Real estate planning
Total
sales
leasingagency andbusinessbusiness
consulting
business
Net sales
Net sales to external customers
Intersegment net sales ortransfers(Note 2)

20. Related Information

30,6873,594

65

34,347—34,347

—

—

—

—

—

—

Total

30,6873,594

65

34,347—34,347

Segment income

4,798

2,058

65

6,921

(2,241)

4,680

Segment assets

48,004

14,673

062,67811,02473,703

—

192

—

192

37

229

—

193

—

193

19

213

Other items
Depreciation
Increase in property,
plant and equipment andintangible assets(Notes) 1. Reconciliations are as follows:(1) The reconciliation of segment income of -2,241 million yen is from corporate expenses not attributable to any reportable segment.
Corporate expenses are general and administrative expenses not attributable to reportable segments.
(2) The reconciliation of segment assets of 11,024 million yen is mainly from surplus operating funds (cash and deposits) and administrative
assets, etc. not attributable to reportable segments.
(3) The reconciliation of depreciation of 37 million yen is from depreciation on corporate assets not attributable to reportable segments.
(4) The reconciliation of increase in property, plant and equipment and intangible assets of 19 million yen is from an increase in corporate
assets not attributable to reportable segments.
2. Segment income is reconciled with operating income on the consolidated statement of income.

Fiscal 2017 (from January 1, 2017 to December 31, 2017)

(Unit: million yen)

Reportable segment

Amount on
Reconcilia- consolidated financial
tion
statements(Note 1)

Real estate
Real estate Real estate planning
Total
sales
leasingagency andbusinessbusiness
consulting
business
Net sales
Net sales to external customers
Intersegment net sales ortransfers

55(Note 2)

41,1683,459

96

44,724—44,724

—

—

—

—

—

—

Total

41,1683,459

96

44,724—44,724

Segment income

7,978

1,761

85

9,825

(2,782)

7,042

Segment assets

68,0455,043

373,092

13,34286,435

—

146

—

146

39

186

—

1,007

—

1,007

—

1,007

—

10

—

10

83

93

Other items
Depreciation
Investment in equity method
affiliates
Increase in property,
plant and equipment andintangible assets(Notes) 1. Reconciliations are as follows:(1) The reconciliation of segment income of -2,782 million yen is from corporate expenses not attributable to any reportable segment.
Corporate expenses are general and administrative expenses not attributable to reportable segments.
(2) The reconciliation of segment assets of 13,342 million yen is mainly from surplus operating funds (cash and deposits) and administrative
assets, etc. not attributable to reportable segments.
(3) The reconciliation of depreciation of 39 million yen is from depreciation on corporate assets not attributable to reportable segments.
(4) The reconciliation of increase in property, plant and equipment and intangible assets of 83 million yen is from an increase in corporate
assets not attributable to reportable segments.
2. Segment income is reconciled with operating income on the consolidated statement of income.

Fiscal 2016 (from January 1, 2016 to December 31, 2016)(1) Information by Product and Service
Descriptions are omitted as identical information is disclosed in the segment information section.

(2) Information by Region
1) Net sales
Not applicable as the Company records no net sales to external customers outside Japan.
2) Property, plant and equipment
Not applicable as the Company has no property, plant and equipment outside Japan.

(3) Information by Major Customer
Descriptions are omitted as the Company’s net sales for any individual customer is less than 10% of net sales recorded in
the consolidated statement of income.

Fiscal 2017 (from January 1, 2017 to December 31, 2017)(1) Information by Product and Service
Descriptions are omitted as identical information is disclosed in the segment information section.

(2) Information by Region
1) Net sales
Not applicable as the Company records no net sales to external customers outside Japan.
2) Property, plant and equipment
Not applicable as the Company has no property, plant and equipment outside Japan.

(3) Information by Major Customer
Customer’s nameSales (million yen)

Related segment

ES-CON JAPAN REIT Investment Corporation

7,417

Real estate sales business

Aries LLC

5,920

Real estate sales business56

ES-CON JAPAN Annual Report 201721. Information on Impairment Loss on Non-current Assets by Reportable
Segment
Fiscal 2016 (from January 1, 2016 to December 31, 2016)
Real estate
sales businessImpairment loss

(Unit: million yen)

Real estateplanning agency Eliminations orReal estate
corporateleasing business and consulting
business

—

1,042

—

Not applicable.

Fiscal 2017 (from January 1, 2017 to December 31, 2017)(1) Transactions with Related Parties
1) Transactions between the filing party of these consolidated financial statements and related parties
a. Officers of the filing party of these consolidated financial statements and major shareholders (individuals only), etc.

Total

—

(2) Notes to Parent Company or Important Affiliates

1,042
Type

Fiscal 2017 (from January 1, 2017 to December 31, 2017)
Real estate
sales businessImpairment loss

(Unit: million yen)

Real estateplanning agency Eliminations orReal estate
corporateleasing business and consulting
business

—

150

Name

—

Officer

Takatoshi
Ito

—

—

150

22. Information on Amortization of Goodwill and Unamortized Balance byReportable Segment
Not applicable

Business
description
or occupation(million
yen)

Total

—

Paid-in
capitalorequityLocation
investment

Officer

MinoruNakanishi——

The Company’s share of
voting rights,
etc. [orownership ofsuch in the
Company]

President
and RepreOwnership in
sentative
the CompaDirector ofny: 1.7%
the Company
Ownership in
Director of
the Compathe Company
ny: 0.2%

DescripDescription
tion ofof transacrelation
tionship—

Exercise ofsubscription
rights tosharesTransaction
amount(millionyen)

Category

Balanceat end offiscalyear(million
yen)

71

—

—

47

—

—

31

—

—

28

—

—

(Note)—

Exercise ofsubscription
rights toshares(Note)

Officer

Tomohiko
Egashira——

Ownership in
Director of
the Compathe Company
ny: 0.4%—

Exercise ofsubscription
rights toshares(Note)

23. Information on Gain on Negative Goodwill by Reportable Segment
Not applicable

Officer

Keiko
Akashi——

Ownership in
Director of
the Compathe Company
ny: 0.6%—

Exercise ofsubscription
rights toshares(Note)

24. Information on Related Parties(Note) The transaction indicates the exercise of subscription rights to shares, issued based on the resolution made at the Board of Directors’ meeting
held on October 31, 2013, conducted during the fiscal year ended December 31, 2017. The figure does not include consumption taxes.

Fiscal 2016 (from January 1, 2016 to December 31, 2016)(1) Transactions with Related Parties

b. Non-consolidated subsidiaries of the filing party of these consolidated financial statements and affiliates

1) Transactions between the filing party of these consolidated financial statements and related parties
a. Officers of the filing party of these consolidated financial statements and major shareholders (individuals only), etc.
Not applicable.

Type

Name

Paid-in
capitalorequityLocation
investment(millionyen)b. Non-consolidated subsidiaries of the filing party of these consolidated financial statements and affiliates
Not applicable.
2) Transactions between the consolidated subsidiaries of the filing party of these consolidated financial statements andrelated parties
Not applicable.

NBNS
Investment
KanazaLimited
Affiliate
wa City,
Liability
Ishikawa
Partnership(Note 2)

2,060

Business
description
or occupation

The Company’s share of
voting rights,
etc. [orownership ofsuch in the
Company]

DescripDescription
tion ofof transacrelation
tionshipTransaction
amount(millionyen)

Category

Balanceat end offiscalyear(millionyen)(Note 1)

UnderEquity
taking ofinvestment in Owned by theformaES-CON
Company:tion andJAPAN REIT 50.0%
equityInvestment(4.9%)
investCorporation
ment

Undertakingof equity
investment

920

—

—

950

—

—

(Note 3)

Sale ofinvestment
units(Note 4)

57

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ES-CON JAPAN Annual Report 2017

(Notes) 1. The figure in parenthesis in The Company’s share of voting rights, etc. [or ownership of such in the Company] represents the ownership ratio
by consolidated subsidiaries and is included in the Company’s share
2. The Company and its consolidated subsidiaries are limited liability partners of NBNS Investment Limited Liability Partnership and have nobusiness execution right. However, as the Company is practically influential, it has made NBNS Investment Limited Liability Partnership its
equity-method affiliate.
3. The Company undertook part of the capital increase conducted by NBNS Investment Limited Liability Partnership.
4. The Company transferred all of the investment units of ES-CON JAPAN REIT Investment Corporation, which was fully-owned by the Company,
to NBNS Investment Limited Liability Partnership. The sale price of the investment units was determined reasonably, with considerations
given to the practical value and other factors. A bullet payment was made by cash.

2) Transactions between the consolidated subsidiaries of the filing party of these consolidated financial statements andrelated parties

Type

Name

Paid-in
capitalorequityLocation
investment

Business
description
or occupation(millionyen)

NBNS
Investment
KanazaLimited
Affiliate
wa City,
Liability
Ishikawa
Partnership(Note 2)

2,060

The Company’s share of
voting rights,
etc. [orownership ofsuch in the
Company]

DescripDescription
tion ofof transacrelation
tionshipTransaction
amount(millionyen)

Balanceat end offiscalyear

Category(millionyen)

Undertaking of
Owned by theformaCompany:tion and
50.0%
equity(4.9%)
investment

Undertakingof equity
investment

90

—

—

(Note 3)(Notes) 1. The figure in parenthesis in The Company’s share of voting rights, etc. [or ownership of such in the Company] represents the ownership ratio
by consolidated subsidiaries and is included in the Company’s share
2. The Company and its consolidated subsidiaries are limited liability partners of NBNS Investment Limited Liability Partnership and have nobusiness execution right. However, as the Company is practically influential, it has made NBNS Investment Limited Liability Partnership its
equity-method affiliate.
3. ES-CON LIVING SERVICE Ltd., one of the Company’s consolidated subsidiaries, undertook part of the capital increase conducted by NBNS
Investment Limited Liability Partnership.

25. Per Share Information

Fiscal 2017(from January 1, 2017
to December 31, 2017)

Basic earnings per share
Profit attributable to owners of parent (million yen)
Profit not attributable to common shareholders (million yen)
Profit attributable to owners of parent for common shares(million yen)
Period-average number of common shares (shares)

3,936

5,456

—

—

3,936

5,456

66,988,398

66,724,613

Adjustments to profit attributable to owners of parent(million yen)——

Increase in common shares (shares)

Description of dilutive shares without dilutive effect and notincluded in the calculation of diluted earnings per share

1,572,883—

1,641,286
Sixth offer of subscription rights
to shares based on resolution by
the Board of Directors’ meetingon December 1, 2017
Common shares:
1,400,000 shares

26. Significant Subsequent Events[Acquisition of Treasury Shares]
The Company resolved at its Board of Directors’ meeting held on December 1, 2017 on the acquisition of its treasury
shares and the specific method for acquisition, pursuant to the provisions of Article 156 of the Companies Act, which areapplied in place of the provisions of Article 165-3 of the Act, and implemented the acquisition of treasury shares as indicated below.

(1) Reason for Acquiring Treasury Shares

(Unit: yen)

Fiscal 2016

Fiscal 2017(from January 1, 2016
to December 31, 2016)(from January 1, 2017
to December 31, 2017)

Net assets per share

259.07315.14

Basic earnings per share

58.76

81.77

Diluted earnings per share

57.41

79.81

(Notes) 1. In calculating net assets per share, the Company’s shares owned by the share-based payment benefits trust for directors and share-based
payment benefits type ESOP trust (the share-based payment benefits trust for directors: 554,200 shares for Fiscal 2016 and 543,200 sharesfor Fiscal 2017; the share-based payment benefits type ESOP trust: 235,300 shares for Fiscal 2016 and 235,200 shares for Fiscal 2017) are
included in treasury shares, which are excluded from the number of shares issued and outstanding at end of the fiscal year.
2. In calculating basic earnings per share and diluted earnings per share, the Company’s shares owned by the share-based payment benefits
trust for directors and the share-based payment benefits type ESOP trust (789,596 shares for Fiscal 2016 and 781,062 shares for Fiscal 2017)
are included in treasury shares, which are excluded when calculating the period-average number of shares.

59

Fiscal 2016
(from January 1, 2016
to December 31, 2016)

Diluted earnings per share(Note 1)Equityinvestment in
ES-CON
JAPAN REIT
Investment
Corporation

3. The basis for the calculation of basic earnings per share and diluted earnings per share is as follows:

The Company acquired its treasury shares in order to enhance capital efficiency and conduct flexible capital policy inaccordance with changes in the business management environment.

(2) Description of Resolution on the Acquisition
1) Type of shares to acquire: Common shares
2) Number of shares to acquire: 900,000 shares (maximum)(Ratio to the number of shares issued and outstanding (excluding treasury shares): 1.3%)
3) Total acquisition price of shares: 450 million yen (maximum)
4) Acquisition period: From December 11, 2017 to February 28, 20185) Acquisition method: Market buying in a trust scheme(3) Others
Conducting market buying in a trust scheme as stated above, the Company acquired 646,500 shares of its common shares(acquisition price: 449 million yen) by January 15, 2018 (agreed upon on January 10, 2018) and completed the acquisition of treasury shares.
Furthermore, the Company acquired 450,000 shares of its common shares (acquisition price: 319 million yen) by
December 31, 2017.

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ES-CON JAPAN Annual Report 2017

Investor Information

Notes for Investors
Fiscal year: January 1 to December 31
Securities code: 8892

Status of Share Price (from January 4, 2017 to May 31, 2018)(Unit: million shares)(Unit: yen)

5

1,200
Trading volume (left scale)
Share price (right scale)

1,000

4

Standard date for regular general meeting of shareholders: End of March
Standard date for submission of periodic securities report: End of March
Standard date for start of end-of-year dividend: December 31
The names of shareholders to be paid interim dividends shall be finalized on June 30 in the event they are to be paid.
Listing exchange: First tier, Tokyo Stock Exchange
Total number of shares issued and outstanding: 71,631,387 shares (as of March 31, 2018)

800
3

Share units: 100 shares
600

Institution managing the Shareholder Register Manager’s Extraordinary Account:
Sumitomo Mitsui Trust & Banking, 1-4-1 Marunouchi, Chiyoda-ku, Tokyo

400

Contact: Transfer Agent Department, Sumitomo Mitsui Trust & Banking, 2-8-4 Izumi, Suginami-ku, Tokyo 168-0063
Toll-free: 0120-782-031 (Japan only)
Agency services are available at the main branch and all branches of Sumitomo Mitsui Trust & Banking nationwide.

2

1

200

0
Jan. 4, 2017

Mar. 31, 2017

Jun. 30, 2017

Sep. 29, 2017

Dec. 29, 2017

Mar. 30, 20180
May 31, 2018

Major Shareholders (as of March 31, 2018)
Name

No. of shares owned

Ownership ratio (%)

1

Koryu Oh

10,600,000

15.3

2

Tenma Seiryu Co., Ltd.

9,000,000

13.0

3Nissei Build Kogyo Co., Ltd.

6,500,000

9.4

4San Ai Housing Corp.

6,090,000

8.8

5Seiryu Asset Management Co., Ltd.

3,000,000

4.3

6Japan Trustee Services Bank, Ltd.

2,711,600

3.9

7The Master Trust Bank of Japan, Ltd.

1,532,200

2.2

8

Takatoshi Ito

1,199,200

1.7

9Oberweis International Opportunities Institutional Fund

932,100

1.3

10

Oberweis International Opportunities Fund

806,500

1.1(Notes) 1. ES-CON JAPAN retains 2,613,400 shares of its own stock, but they are excluded from the list of major shareholders above.
2. Treasury shares are excluded from the calculation of ownership ratios.
3. Ownership ratio is rounded down to the first decimal place.

61

Total number of shareholders: 7,604 shareholders (as of March 31, 2018)

Notification of address change, etc.:
Please notify the securities firm that holds your investment account. Shareholders who have extraordinary accounts because they
do not have an account at the securities firm should contact Sumitomo Mitsui Trust & Banking, the account manager for extraordinary accounts.
Payment of unpaid dividends: Please notify Sumitomo Mitsui Trust & Banking, the shareholder register manager.
Announcement method: Electronic announcements (https://www.es-conjapan.co.jp/) (Japanese)
However, the announcement shall be made via Nihon Keizai Shimbun when an accident or other development makes announcement via electronic announcement impossible.

Shareholders who have owned shares in ES-CON JAPAN for at least one year since June 30 of each year andwho own more than 1,000 shares are eligible to receive shareholder benefits.

Disclaimer
This annual report contains selected information including a partial translation of certain documents originally prepared in accordance with the Financial Instruments and Exchange Act of Japan (FIEA) and other relevant laws. The document has been prepared solely for the convenience of readers outside Japan and, unless otherwise specified, the information contained herein does
not constitute disclosure documents stipulated by the FIEA, or requested by the listing regulations of the Tokyo Stock Exchange
or other related rules and regulations.
English terms for Japanese legal, accounting, tax and business concepts used herein may not be identical to the equivalentJapanese terms. If there are any discrepancies between the original Japanese documents and English translation, the Japanese
documents will always govern the meaning and interpretation. Neither ES-CON JAPAN nor any of its directors, officers, employees, partners, shareholders, agents, affiliates or their advisors will be responsible or liable for the completeness, appropriateness or accuracy of English translations contained herein.

62