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 2018
For the year ended December 31, 2018https://www.es-conjapan.co.jp/english/

ES-CON JAPAN Annual Report 2018

Committed to Building a Bright Future for Japan

Performance Backed by Distinct Business Sections

ES-CON JAPAN Ltd. (ES-CON JAPAN) develops select retail, hotel and logistics properties, while primarily focusing on high-value residential properties such as condominiums.
We, at ES-CON JAPAN, are committed to creating a new future for Japan by realizing ideal
lifestyle and towns, envisioning the happiness and future of the residents.

ES-CON JAPAN has continued to grow its real estate business. Presently, the businesses of ES-CON JAPANcan be broken down into the real estate sales business, real estate leasing business and real estate planning
agency and consulting business, which posted a growth in combined segment income from 9,825 million yen
in Fiscal 2017 to 14,839 million yen in Fiscal 2018.

Corporate Philosophy:
Realizing the Importance of Being a Member of Society
ES-CON JAPAN’s team is committed to contributing to society in the best possible manner. Applying our
findings derived from our efforts to do so generates results. At the same time, all members of ES-CON JAPANpursue how they can realize the happiness they seek. Our staff is committed to assisting each other in realizing
the goal of positively contributing to society.
In this process, we aim to improve society by delivering and realizing better ideas for a better life. We seek totransform the connections of people into a significant force through our human resources and to expand thepossibilities of society through dynamic 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 2018 . ................................................ 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

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

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.

1

Real Estate Sales Business

Real Estate Leasing Business

Real Estate Planning Agency
and Consulting Business

Net Sales

Net Sales

Net Sales

50,519 million yen

3,400 million yen

405 million yen

Segment Income

Segment Income

Segment Income

12,341 million yen

2,128 million yen

369 million yen

Owned Assets
(Unit: million yen)
ES-CON JAPAN had a solid year in the real estate
sales business. Net sales and segment income in thisFiscal 2018
Fiscal 2017
division grew by 22.7% and 54.7% respectively.
Condominiums
37,19827,344
We sold 539 condominium units, 92.1% of ourRetail properties, etc.
37,28024,390annual target. As for sales ratio by area for condoHotels
5,564
10,821miniums in Fiscal 2018, the Tokyo metropolitan
Other
1,156
1,664
area (56.2%) slightly exceeds the Kinki area
Total
81,19964,219(43.8%), but are at almost the same share of around50%, but we posted strong increases in profit andsales through the disposition of seven hotel projects, profit-generating real estate, land, etc. The profit margin
for the hotel sales was a robust 37.7% on average. ES-CON JAPAN was able to lay the foundation for a strong
future by increasing our inventory assets by 16.9 billion yen compared with the previous fiscal year. In particular, we secured for-sale condominium and retail development sites for business in the future.

Net sales in the real estate leasing business fell by 1.7% compared with the previous fiscal year but remained
17.2% ahead of initial forecasts, segment income grew by 20.8% compared with the previous fiscal year to2,128 million yen. This division will strive to secure stable rental income at retail properties we own, enhance
asset value and continue to acquire properties.
Looking ahead, this segment will focus on land for retail properties and expand our stock business (businessgenerating stable income) to support the external growth strategy of ESCON JAPAN REIT Investment
Corporation (hereinafter, “ESCON REIT” or “the REIT”), the new REIT we listed in December 2018.
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 overmultiple segments and usages. Sales in this segment actually grew a robust 321.4% compared with the previous
fiscal year to 405 million yen, more than double our target. Segment income grew an astounding 332.3% compared with the previous fiscal year to 369 million yen.
ES-CON JAPAN focuses on delivering products that provide comfortable and high-quality living by considering lifestylechanges and local characteristics as well as envisioning the happiness of people living in our properties. We are committed
to becoming a “life developer” that develops people’s lifestyles and creates communities as well as residences.
2

ES-CON JAPAN Annual Report 2018

Strategic Steps in Fiscal 2018
To Our Shareholders
Fiscal 2018 marked the second year under our Second Medium-Term Business Plan titled “IDEAL
to REAL 2019.” We listed a number of targets in the plan and though some segments have notquite reached the targets, our performance numbers generally far surpass the targets set in the planoverall. We revised upward out Fiscal 2019 plan, the final year of the Medium-Term Business Plan.
Major topics are registering over 10 billion yen in ordinary income for the first time since ourfounding, ES-CON JAPAN becoming the equity-method affiliate of Chubu Electric Power Co.,
Inc. (“Chubu Electric Power”) under the business partnership contract, ES-CON JAPAN obtaining
approval from the Tokyo Stock Exchange, Inc. for the listing of ESCON REIT in December followed by its listing in February 2019 and an outstanding increase in income and profit. These
accomplishments contributed to a dividend of 32 yen to our shareholders far
greater than the initially planned 20 yen.
These accomplishments are evidence ofour progress in becoming a corporationthat is needed by society. Your continued
support is appreciated.

1
2
3
4
5

President and Representative Director
ES-CON JAPAN Ltd.

6Net Sales

Operating Income(Unit: million yen)

(Unit: million yen)

74,80011,561

12,50054,325

3

Profit Attributable to
Owners of Parent(Unit: million yen)

7,226

7,800

5,456

44,724

7,042

Fiscal 2018

In 2018, ES-CON JAPAN successfully acquired 17 sites for for-sale condominiums, 2 sites for hotel development, 1 site for community redevelopment business, 4 sites for retail property (including leasehold land)and 3 sites for rental apartments.

Executed Contracts to Sell Five Owned Hotels
ES-CON JAPAN contracted to sell and sold five hotels it developed and owned in the Tokyo and Kinki
areas.

Chubu Electric Power becomes Leading Shareholder and ES-CON JAPAN Concludes
Strategic Alliance with It
Chubu Electric Power acquired 22,980,000 shares off market from our previous leading shareholder and its
related corporations. As a result, Chubu Electric Power is our new leading shareholder and we have concluded a strategic business partnership contract that promotes both business groups by taking advantage ofvarious synergies inherent in the relationship.

Approval of J-REIT Listing in December 2018 and
IPO Conducted with Listing in February 2019
ESCON REIT listed with 25 properties in which ES-CON JAPAN was involved as the sponsor*, acquiredfor 41.6 billion yen and with a 99.5% occupancy rate. The J-REIT is a diversified REIT investing in community based retail properties and land leased for retail and other uses.
*Sponsor involvement refers to properties that ES-CON JAPAN once owned or currently owns.

Takatoshi Ito

Fiscal 2017

Acquisition of 27 New Business Sites

Fiscal 2019
(Projection)

Fiscal 2017

Fiscal 2018

Fiscal 2019
(Projection)

Fiscal 2017

Fiscal 2018

Fiscal 2019
(Projection)

78

Acquisition of Tsukuba Q’t, Tsukuba MOG and Tsukuba Creo
ES-CON JAPAN acquired these retail properties directly linked to Tsukuba Station on the Tsukuba Line.
We will contribute to reinvigorating the area around the station and further development, by utilizing ourknowhow in multi-faceted real estate development, and capitalizing on the strength of it being a traffic hub
in front of Tsukuba Station with its good traffic flow in the station area.

Opening of the Nagoya Branch
ES-CON JAPAN opened its Nagoya Branch on March 1, 2019. The branch is located at 2-4-1 Sakae, Naka
Ward, Nagoya City, Aichi Prefecture. With the opening of the branch, ES-CON JAPAN will proactively
develop a wide variety of real estate development business in the Chubu area jointly with Chuden Real
Estate Co., Inc. (“Chuden Real Estate”) under the Chubu Electric Power Group and further leverage thesynergies between ES-CON JAPAN at the Chubu Electric Power Group.

Opened the neighborhood shopping center, tonarie Yamato-Takada
tonarie Yamato-Takada opened on November 23, 2018. It is a 3-story center with
about 70 tenants located a 1-minute walk from Yamato-Takada Station on the
Kintetsu Osaka Line directly connected to the station via a pedestrian deck.

Launched Business Developing Residences for University Students
ES-CON JAPAN has launched a business developing residences for university students in partnership withGSA Star Asia. The residents will be operated by GSA Star Asia, and the land and building will be sold to
GSA Star Asia and its affiliates after completion of development. The residence is scheduled to be completed in December 2019 and have 149 rooms. It is a 5-minute walk from Kami-Kitazawa Station on the
Keio Line, an excellent location for students.

4

ES-CON JAPAN Annual Report 2018

Second Medium-Term Business Plan: IDEAL to REAL 2019

Corporate Strategy

ES-CON JAPAN’s Second Medium-Term Business Plan aims to firmly realize customers’ ideals and creating a
new future. ES-CON JAPAN is committed to improving the living standards of customers, society and our
future by realizing each “ideal” pursued by our customers. The following page presents the new corporate
strategy under the Second Medium-Term Business Plan and numerically presents the excellent performanceachieved by ES-CON JAPAN under this plan.

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 2018

Equity ratio

23.6%

24.8%

24.9%

ROE

25.1%

28.1%

29.6%

ROA

6.0%

6.8%

7.4%

ROIC*

6.5%

8.4%

10.2%

EPS

58.76 yen

81.77 yen105.98 yen*ROIC is arrived at using the following formula: operating income after taxes ÷ (shareholders’ equity + interest-bearing liabilities)

Performance Targets(Unit: million yen)

Fiscal 2016

Fiscal 2017

Fiscal 2018

34,34744,72454,325

Real estate sales business

30,687

41,16850,519Real estate leasing business

3,594

3,459

3,400

Real estate planning agency and consulting business

65

96

405

Operating income

4,680

7,042

11,561

Ordinary income

3,575

5,988

10,498Net sales

Summary of Results
ES-CON JAPAN delivered significant increases in income and profit far above the plan overall. Consequently,
targets of the original plan for Fiscal 2019 have been revised significantly upwards. The equity ratio is the soleindices that is far below the target and this is primarily because of the acquisition of business sites and proactive
increase in inventory assets to achieve growth. These positive results have been transferred to the shareholders
with the dividend raised from 18 yen for Fiscal 2017 to 32 yen for Fiscal 2018.
ES-CON JAPAN Revised 2019 (Fiscal Year) Numerical Targets Dramatically Upward
Original Plan

Revised Plan

60,000-62,000

74,800Real estate sales business

57,800-59,700

70,250Real estate leasing business

2,000-2,100

4,300

200

250

Operating income

8,200-9,500

12,500Ordinary income

7,200-8,500

11,200Net sales

Real estate planning agency and consulting business

5(Unit: million yen)

6

ES-CON JAPAN Annual Report 2018

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: ES-CON JAPAN has sourced real estate sites that will enable it to supply around 800 condominium units in both 2020 and 2021 to the market in this its core business. The internal sales team has reached 37
people and the profitability of individual projects has risen from 12.1% in Fiscal 2017 to 14.4% in Fiscal 2018.

2

6

PROGRESS REPORT: ES-CON JAPAN is steadily diversifying its businesses by newly adding logistics development
and community redevelopment projects to its existing businesses of for-sale condominium, retail and hotel property 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 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: ES-CON JAPAN is reinforcing its neighborhood shopping center (NSC) development efforts
as a key element of its retail property development. tonarie Yamato-Takada held its grand opening in November
2018. The second project, tonarie Toga-Mikita held its grand opening in April 2019. ES-CON JAPAN will carefully
select assets for long-term ownership while balancing these with those properties to be sold to REITs and otherexternal buyers.

4

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 has launched a renovation business that is added to its asset management,
retail property management, café and other food service operations and condominium management. We will continue to focus on maximizing the value inherent in real estate.

Heightening corporate value by establishing diverse aspects of multiple core businesses
ES-CON JAPAN will newly establish the core businesses of retail development and hotel development.
Furthermore, ES-CON JAPAN will diversity its real estate development businesses and strive to become ageneral developer that can take advantage of multiple and overlapping business opportunities through a
growing number of core businesses.

Enlarging the breadth and depth of real estate development abilities by enhancing the realestate operations business

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 Le JADE for-sale condominium series.
PROGRESS REPORT: ES-CON JAPAN unveiled the new TV commercial for the Grand Le JADE brand and continues
to be the sponsor of a popular TV program. We will continue to focus on raising the brand power of ES-CON JAPAN.

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.
PROGRESS REPORT: ESG was made a part of the growth strategy and ES-CON JAPAN is striving to obtain the first
GRESB certification in the real estate industry.

Businesses of ES-CON JAPAN

Property
management

Logistics
development

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.
PROGRESS REPORT: ESCON REIT was approved for listing in December 2018 and successfully listed on the J-REIT
market on February 13, 2019.

Commercial
development

Hoteldevelopment

Condominiums
Condominium
management

Seniorbusiness

Operations

Land readjustment

7

International
business

Investment
application

Asset
management

8

ES-CON JAPAN Annual Report 2018

Inte r vie w o f
Pre s ide nt Ta k a t o shi It o
ES-CO N J A PA N Lt d .
April 16, 2019

Q

Comprehensively the results for Fiscal 2018 were superb.
How do you specifically analyze the performance?

In our business, land or sites you acquire today generally post profits two to three years later. In our Fiscal 2018,
we were able to post all-time highs in profit and profitability. So I am very satisfied with the performance forthe year.
Looking at it more specifically, the hotel sites we in particular bought two to three years ago for development
and sold made a very strong contribution to our profits.
Presently, real estate prices, however, have gone up significantly compared to two to three years ago, making
our acquisition prices much higher. So we have to carefully realize profit plans over two to three years. An
analysis of Fiscal 2018 shows that it was a very difficult year to obtain development sites as desired.

Q

A look at the acquisition of sites for development over the past year showsthat fewer hotel sites have been acquired and more retail sites.
Does this mean that you are intentionally emphasizing retail development
more than hotel development in the future and that despite developing
hotels you will be careful and more selective?

Our assets on inventory in 2018 total a little more than 80 billion yen, and compared to 2017 there has been
an increase in retail sites acquired and decrease in hotel sites. Development of hotels is a very competitive area
where it is comparatively easier for other developers to enter.
On the other hand, redevelopment of retail properties for example like tonarie Yamato-Takada, which we
finished late year in Yamato-Takada City, Nara Prefecture, where we negotiated early termination of leases byexisting tenants, began design and planning of a new retail property focused on the next generation and also
negotiated with potential new tenants about taking space in the revamped facility. These sensitive areas are noteasy for competitors to enter. We anticipate that municipalities here in Japan will increasingly be requesting
participation in the repositioning projects of retail properties going forward since retail properties and apartments have a high level of synergy. In particular, we will focus on station front areas, our plans are to reconstruct
and redevelop centering on retail properties and link housing to those facilities. We want to be a key player insuch regional redevelopment. This explains why we have increased the stock of retail sites we have on stock.

Q

Redevelopment is probably an eternal theme of real estate.
Do you think that the main stream of redevelopment will be station front
redevelopment, neighborhood type redevelopment or shopping centers
adjacent to residences?

Yes. In particular, there are very few vacant lots that are available for condominium development. Additionally,large developers aggressively move to purchase these lots. Therefore I am convinced that we can create valuablereal estate development by tackling sites that require an extra degree of patience, negotiation with the land right9

10

ES-CON JAPAN Annual Report 2018

holders, negotiation with tenants and such additional efforts to successfully reach the deal. This is especially thecase since we are in a market where the prices remain high and are unlikely to decline. In this climate, customers
will evaluate us for the value added products we deliver to the market. We will strive to focus on this area.

Q

There were a number of major developments for ES-CON JAPAN in 2018.
In particular, Chubu Electric Power became the main shareholder and you
concluded strategic business partnership contract with them. What is
ES-CON’s position concerning the relationship with Chubu Electric Power?

For us, we have already been blessed by many tangible and intangible effects of Chubu Electric Power becoming
our main shareholder. The change from an individual to a leading corporation has clearly stabilized our capital.
We concluded the strategic business partnership contract on August 28, 2018 and already in March 2019 we
opened our Nagoya Branch and in April two employees were seconded to Chuden Real Estate, a 100% subsidiary of Chubu Electric Power. This will demonstrate synergy with Chubu Electric Power properly supporting
the optimal development of real estate presently owned by the Chubu Electric Power Group.
Furthermore, our end user clients are also enjoying benefits of our business partnership with Chubu ElectricPower supplying electricity in our developments both in the Tokyo metropolitan area and Kansai area. Since it
is a development business, the business partnership will truly begin contributing to performance in two to three
years and this synergy between a power company and developer is not simply the addition of development
strength and capital but our partnership will bring a multiplication of results achieved by combining development strength with capital strength. This partnership also gives us the ability to work on even bigger opportunities and I myself am very eager to see the content of our next business plan.

Capital and Business Partnership with Chubu Electric Power Co., Inc.
In August 2018, we concluded a capital and business partnership with Chubu Electric Power,
becoming an equity method affiliate of Chubu Electric Power, which holds 33.3% of voting rights of our company.

Strengthening the real estate business through capital and business partnership with the Chubu Electric Power Group

Chubu ElectricPower Group
Delivering new communities tolocal customers throughurban development andother efforts to increase
corporate value• Expertise in energy
and other businesses• Sales infrastructure in the
Chubu region

Proactively promoting development
businesses with an eye to future
generations as a life developer giving
concrete form to ideals for people’s
lives and residences• Real estate business expertise

There is clearly a difference in the speed of in-house decision-making between the Chubu Electric Power and
ES-CON JAPAN due to the differences in scale. The key, however, to making this business partnership successful is the extent to which we can share the belief in raising the corporate value and match the sense of speed
needed in this business. ES-CON JAPAN will steadily and assuredly secure the trust of the Chubu ElectricPower Group by carefully generating results in the real estate business. This will in turn be transformed intoeven greater synergy. Obviously we cannot change overnight but key to our transformation will be the reliablegeneration of profits and corporate performance.

Q

The listing of ESCON REIT was approved in December 2018 and it conducted
its IPO in February2019.
How do you assess the long-awaited the IPO the events thereafter?

The just discussed business partnership with Chubu Electric Power and the IPO of ESCON REIT thisFebruary are enormous foundations for ES-CON JAPAN as it enters the next stage of its real estate business.
In particular, it took almost five years to list the ESCON REIT following our initial conceptualization of it.
During the five years, you had the period when many of the small and medium REITs fell below their IPO
price soon after listing and conditions that prevented the REIT market from performing well such as the
Financial Services Agency suppressing the sale of investment trusts paying monthly dividends. These circumstances made us think we will create a J-REIT that could deliver high distributions.
This illustrates that are commencement of activities towards listing a J-REIT began with the belief that
ES-CON JAPAN as a company could help in a small way the shift of money from savings to investment, which
is a theme of Japan. In the sense that we successfully listed in February 2019 and have since maintained a unit
price higher than our list price, our J-REIT has gotten off to a good start.
However, the listing of the J-REIT itself is not a goal it is a development that has gotten us to the starting
line. It is our duty to realize internal growth as the sponsor and to generate steps that meet the expectations ofinvestors and buyers of our investor units.

Synergies• Sales infrastructure in themetropolitan area andKansai region

11

Q

Often times corporate partnerships experience difficulty when the company
as a whole does not share the same enthusiasm as the senior leadership,
but have you faced this?

Urban development, community revitalization

Condominium and other development businesses

Drawing on ES-CON JAPAN’s real estate expertise and Chubu
Electric Power’s strong ties to local communities in urban development and community revitalization that deliver new communities tolocal customers

Drawing on ES-CON JAPAN’s real estate expertise in joint developments with Chuden Real Estate; sales of energy from Chubu ElectricPower to properties developed and owned in the metropolitan area,
Kansai region, and elsewhere; providing ancillary works with the
Chubu Electric Power Group, etc.

Q

Originally, ES-CON JAPAN was a company focused on residential development.
What are your thoughts on residential development going forward?
In a sense, ES-CON JAPAN was a company specialized in residential
development, so what role will it take?

ES-CON JAPAN has maintained residential development business as its core business since its inception. We
have not followed the traditional condominium developer’s business model of increasing sales profit by increasing the supply volume. In other words, the core thinking of our condominium business is to supply customers

12ES-CON JAPAN Annual Report 2018

in need with products in locations that we ourselves would want to live not just make condominiums the driverof our growth. Today, still, all our employees act according to this belief.
Therefore we will continue to develop new condominium product in areas where we would like to live. We
want to solidly focus on providing the market with high quality product and not just with a large supply into
the market.
We are also aware that our for-sale condominium brand Le JADE is still unknown compared to the productof major developers and so we must remain committed to providing high quality standards and facilities tocustomers in great locations. We must also continue to reinforce our internal sales team.
In addition, presently roughly 40% of our condominium sales are sold by our internal sales team. We needto continue to reinforce this team and our goal is to eventually sell all of our condominiums through our internal sales team. Our personnel plan for the medium and long-term will continue to emphasize securing the trustof customers on the front line. This means providing end users with highly satisfactory after services after they
move-in. This is how we need to raise our brand’s power.

Q

If I remember correctly your internal condominium sales team had about
thirty people last year?

We now have 37. It is our goal to raise this to an organization of sixty or seventy people. We recently opened abranch in the Chubu area and in Fukuoka two years ago. We want to employ this branches in helping us
steadily supply the market with about 1,000 condominium units a year. I am more than convinced that ourdevelopment business department has more than enough ability to obtain sites that will enable us to do this.

Q

Last year, the supply of condominiums was greater in the Tokyo metropolitan
area than in the Kinki area. Is this something that will continue for a longtime or something that is temporary and what do you think the ratio ofcondominium supply in Fukuoka and the Chubu region will be going forward?

In Fiscal 2018, the Tokyo and Kansai regions had roughly the same sales level but in Fiscal 2019 we expect
Kansai to post slightly higher numbers. If I were to interpret potential markets from a macroeconomic viewpoint, I would say that since the Tokyo market is about four times greater than the Kansai market in size andsince the prices are about 1.5 times, I would expect us to generate six times greater results in the Tokyo market
than the Kansai market.
However, we originated in Kansai and are still not large enough to cover all of the Tokyo metropolitan area.
In particular, we are able to source information about the downtown areas but are limited when it comes to theareas around Yokohama in Kanagawa, areas around Omiya in Saitama and central Chiba City in Chiba. Our
networks there are still weak. We plan to shift personnel to the Tokyo metropolitan area even more.
It is with this in mind also that we are moving our Tokyo office in October so we can form an even stronger
organization and reinforce our efforts in the Tokyo area even more. It is also true that when we compare thesales conditions in Kansai with those in the Tokyo area Kansai is doing very well. An analysis of this phenomenon shows that as prices for condominiums continue to rise nationwide, those in Kansai have been much

13

lower and thus can absorb end user demand. It appears that prices in the Tokyo area have risen a little toomuch. We gather information as said earlier on areas we would like to live in and we would like to develop
projects in. Rather than emphasizing percentages of sales in each area we would like to continue to solidly
provide the market with product in locations in which we are confident.
Therefore, the corporate supply image we imagine is steadily supplying the market with 1,000 units a year.
The balance of the supply by area will depend ultimately on the product being supplied.

Q

ES-CON JAPAN has recently opened branches in Fukuoka and Nagoya.
Could you tell us about the specific movements?

In the case of Fukuoka, we are already considering a number of residential development projects. Following theredevelopment project in Kasuga, we are presently involved in the rezoning and redevelopment of Genboen in
Koga. We have established the rezoning kumiai (association) with about 100 land holders and construction isproceeding along smoothly. The landscaping and roadwork of the project will be completed around Novemberof this year. We will then sell them as residential a logistics park around 2020. Our next step is to find a residential, retail and roadside development in central Fukuoka. Our team is still small in Fukuoka with threepeople but we want to capture the opportunities to repeatedly post strong results.
On the other hand, the Nagoya Branch has begun with staffing of five. We will support the development
work of Chuden Real Estate in the Chubu area and also form joint ventures. There is a plan to transfer the realestate business of Chubu Electric Power to Chuden Real Estate, its subsidiary. We would like to ensure thesemove forward in a timely manner. We would also like to source sites in the real estate market in the Chubu areawith regular members at the Nagoya Branch. Although only two months has passed since the branch was
opened, we have been blessed with a huge source of information as we are now a part of the Chubu ElectricPower Group and we keenly feel the expectation of local companies based on the credit worthiness of Chubu
Electric Power. Consequently, we keenly feel a huge opportunity for the Nagoya Branch.

Q

ES-CON JAPAN had just under 100 employees a few years back,but now it has grown to about 200.
You run the bigger organization and are involved in ESG measures,
but what are the challenges you are emphasizing going forward?

First, with regards to the environment, under the strategic business partnership with Chubu Electric Power wewill focus on the energy business and promote town creation. By being engaged in the development of various
efficient energy businesses will make it possible to realize more environmentally friendly development. As forthe societal aspect of ESG, we must tackle compact cities within the aging of society, which have public facilities, retail and residential all in close proximity. We can contribute significantly to society in this area, that is,the creating of the community in compact cities. This includes operational and management know how on how
to create the community and development know-how on how to develop apartments and retail destinations.
We can contribute significantly to overcoming the issues of society.
As for governance, as a company of only 200 we are still small and I would like to continue realizing a very

14

ES-CON JAPAN Annual Report 2018transparent management of the company. I would also like to meet the expectations of our shareholders evenmore and become a company that is trusted by the market by continuing our commitment to disclosure, etc.
This requires a solid commitment to governance, which I am confident we have.

Q

As we approach the latter half of the final year of the Second Medium-TermBusiness Plan, I assume you are deeply involved in discussing the content of
the Third Medium-Term Business Plan.
Do you anticipate any large changes or goals in the Third Medium-TermBusiness Plan?

We have resolved several large themes facing the company during the Second Medium-Term Business Plan.
These include capital measures, shareholder measures and creating a pipeline function for the development
business that is essential for a real estate developer and the IPO of the J-REIT. The accomplishment of thesemeasures and objectives in the Second Medium-Term Business Plan means that the Third Medium-TermBusiness Plan will look at how to take advantage or apply these foundations to future business. One thing is toensure that ESCON REIT steadily grows.
We need to take solid advantage of Chubu Electric Power’s credit worthiness and more aggressively tackle
the development business. The Third Medium-Term Business Plan needs to not only take up supplying product to the REIT but also focus on the accumulation of our own revenue generating stock with concrete goals.
One approach is to take advantage of this credit worthiness to arrange long-term project financing for apartments that are becoming old or projects that could be good for-sale condominium sites in the future and thentake the steps to change the rights and terms so that the sites can become future condominium sites. Anothersegment will be the renovation business targeting existing buildings. This is an absolute within the dramatic risein cost of real estate and what appears to be the locking of construction costs at expensive levels due to the lackof personnel. We foresee that the coming years will be times where a company’s ability to plan products and totechnically verify the possibilities inherent in the products will be key. The Third Medium-Term Business Plan
will be built around this type of business reinforcement.
I am convinced that the real estate business partnership with Chubu Electric Power can be transformed into
an enormous power including creating systems and organizations for major development projects, REIT bridgefunctions and such and business strategies for the future. It is with these points in mind that I would like toannounce the Third Medium-Term Business Plan sometime during the summer or early autumn.

Q

In other words, we need to increase the people that support society and not the people supported by society.
For example, today Japanese people in their sixties have the energy and mindset of people around 45 years ofage years ago. These people in their sixties believe they will soundly age for another 15 years or so and thus havethe strength and will to work. It cannot be refuted that this number is growing. We can overcome the issues
listed above by consciously training and developing an awareness in these people and in companies that each
person in Japan should move from receiving to the supporting of society.
I have high expectations that in the new Reiwa Era a generation that can respond to these changes in a
flexible manner will emerge and move to transform Japan into a better society with new measures such as
artificial intelligence and laborers from overseas. For these people and for the resurrection of Japan we want toact, though a small company, so that our projects can play a vital role in achieving these changes.
This means taking steps to increase productivity as much as possible. It is irrefutable that automatic vehicles
and robots will begin playing a real role in condominiums and urban creation within only a few years. We must
make sure our antenna firmly grasp these trends and that innovative measures be applied to solve our greatest
issue of declining population. However, we as individuals and corporate citizens must not depend on the nation
but, as corporate citizens, must become the core players in solving these issues and changing trends.
We must not depend on the nation but rather work to create groups of people with the attitude that they
will improve Japan in the future. I believe this is where the changing of ourselves begins. I want to make theThird Medium-Term Business Plan the commencement of an era where we assuredly resurrect ourselves fromthe so-called lost 20 or 25 years.

Takatoshi Ito
President & Representative Director
September 2001
February 2006
March
2007
November 2010
March
2011
January
May

2012
2013

August

2013

July

2014

November 2014

Finally, what do you perceive the market risk to be andhow are you stepping up to it?

September 2016
July

2018

Joined ES-CON JAPANAppointed Executive Officer
Appointed Managing Director
Appointed Head of Business Division
Appointed President & Representative
Director (present post)
Appointed Head of Tokyo OfficeAppointed President & Representative
Director at ES-CON Property(present post)
Appointed Head of Development Divisionat ES-CON JAPANAppointed Director at ES-CON AssetManagement (present post)
Appointed President and Corporate
Officer at ES-CON JAPAN (present post)
Appointed Director at ES-CON Living
Service (present post)
Appointed Director at ES-CON Property(present post)

Japan can be said to be one of the first of the advanced nations to tackle society issues like aging with low
birthrate, social insurance and the declining population. I keenly feel that companies that had become disillusioned with domestic demographics have in part thanks to the efforts of Abenomics slowly changed their perspective to focusing on the world. In relation to this and the reformation of work style we need to take evengreater advantage of women in the work place and extend the retirement age.

15

16

ES-CON JAPAN Annual Report 2018

Management: Directors and Auditors
Minoru Nakanishi

Junya Kikuchi

Senior Managing Director

Director

August
June

2011
2012

March

March
May
August

2013
2013
2013

July
2014
November 2014
March
2015
September 2016
March
2017

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 at ES-CON JAPAN(present post)
Appointed Director at ES-CON Asset Management (present post)
Appointed Executive Officer at ES-CON JAPANAppointed Managing Executive Director at ES-CON JAPANAppointed Managing Executive Officer at ES-CON JAPANAppointed Director at ES-CON Living Service (present post)
Appointed Senior Managing Director at ES-CON JAPAN (present post)
Appointed Senior Managing Officer at ES-CON JAPAN (present post)

Tomohiko EgashiraManaging Director
April
January
July
February
MarchJanuary

2002
2012
2012
2013
2015
2016

March

2017

November 2017
July
2018

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

2010

Appointed Director at ES-CON JAPAN (present post)

Kunio Takahashi
Full-time Auditor [Director]
March
June
March

2013
2013
2016

Appointed Auditor at ES-CON JAPANAppointed Full-Time Auditor
Appointed Director (Full-Time Auditor Director) (present post)

Hiroto Mizobata
Auditor [Director]
March
March

2015
2016

Appointed Auditor at ES-CON JAPANAppointed Director (Auditor Director) (present post)

Kenji Fujita
Director
March
April

2019
2019

Appointed Director at ES-CON JAPAN (present post)
Appointed Head of General Affairs Department (present post)

Kotaro Niwa
Auditor [Director]
March
March

17

2011
2016

Appointed Director at ES-CON JAPANAppointed Director (Auditor Director) (present post)18

ES-CON JAPAN Annual Report 2018

Management 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 2018

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

Nagoya Office
Hirokoji Sakae Building 5F
2-4-1 Sakae
Naka-ku, Nagoya-shi, Aichi 460-0008

Established: April 18, 1995
Paid-in Capital: 6,259,000,000 yen (as of end of 2018)
Sales: 54,325,000,000 yen (consolidated; as of end of 2018)
Number of Employees: 181 (consolidated; as of end of 2018)
142 (on-consolidated; as of end of 2018)
Businesses: Real estate sales, real estate leasing, real estate planning, brokerage and consultation

22

ES-CON JAPAN Annual Report 2018

Property Descriptions

Le JADE Kawasaki(Kawasaki City, Kanagawa Prefecture)- Condominium with two stations and five lines available, theKawasaki Station with the JR Tokaido Line and Keihin Tohoku
Line and the Keikyu Kawasaki Station on the Keikyu Line. It
boasts it excellent access to Yokohama Station, Shinagawa Station and Tokyo Stations.
- The location provides comfort, convenience and security byalso being near La Zona Kawasaki Plaza, a major shopping
center where gourmet foods and fashion can be enjoyed, greenparks, elementary and junior high schools and medical facilities. Thus it is a location blessed with access to diverse benefits.
- 28 diverse plans have been prepared for the 2-4 bedroom
units. ES-CON JAPAN is providing a living environment that is
blessed with access to two roads and excellent accessibility.

Minami-Senba I Hotel Project(Chuo Ward, Osaka)- Conveniently located only a 9-minute walk from Shinsaibashi Station on the Osaka Metro Midosuji Line, this location is surrounded by shopping facilities and restaurants.
- 14 floors above ground, 256 guest rooms in total (90 double, 153 twin, 12 triple, 1 universal)

Grand Le JADE Wakamatsucho Residence(Shinjuku Ward, Tokyo)- This condominium is a 3-minute walk from Wakamatsu-Kawada Station on the Toei Oedo Line, offering smooth access to central stations like Shinjuku,
Tokyo and Shibuya and great views from its high elevation.
- Despite being downtown and near the station, the location is a high-value rarity featuring residences with honorable origins such as the Ogasawara
Hakushakutei, built in the early Showa era, and other large estates.

23

Le JADE Southern Gate Toyoda(Hino City, Tokyo)- The site of the condominium is excellent a mere 2-minute walk from Toyoda Station on the
JR Chuo Line. Toyoda is a station where the limited rapid trains stop and the excellent locationnear the station makes direct access to Shinjuku and Tokyo stations possible.

- With its thoughtful exterior use of tile reminiscent of historic buildings and modern glass, mainly south-facing, privacy-focused corner units and protruding patios for light and openness, it provides comfortable, sophisticated living spaces.

- The site is very near retail facilities that enhance one’s life including Aeon Mall Tamadaira noMori, home to a supermarket and about 120 stores. It is also blessed by the natural environment being close to the Kurokawa Seiryu Park, where people can enjoy playing in the natural
waters.

- This property received the 2018 Good Design Award for its disruption of conventional outside space design in urban apartments with eye-catching,boldly sticking out glass balconies on one side and an understated inner courtyard through which wind and light passes through on the other, making
positive use of its two aspects.

- ES-CON JAPAN has delivered a comfortable life via a menu of units designed to satisfy
various lifestyles and realization of an open space with all units facing the south each andbeing corner units on three of their four sides.

24

ES-CON JAPAN Annual Report 2018

Grand Le JADE Okamoto(Higashi Nada Ward, Kobe City)- This project is a short 3-minute walk from Okamoto Stationon the Hankyu Kobe Line at which limited express trains stop
and a mere 2-minute walk from Settsu Motoyama Station on
the JR Kobe Line. Thus the project boasts smooth access to
Kobe Sannomiya Station and Umeda Station.
- It is a convenient location with supermarkets and other shopping facilities, educational facilities and public facilities. The
location is also known for its beautiful cobblestone streetscapes and refined historical atmosphere.
- ES-CON JAPAN insisted on the finest detail of the rock, tileand other designs based on the motif of a western mansion oftimes gone past. A high quality and comfortable living space
has been realized with two units per floor all units facing southand dedicated elevator halls for each residential unit alongwith the use of CUCINA designed kitchens.

Feel Garden Minami-Senri(Suita City, Osaka)- Condominium with three stations and two lines available, including Senriyama Station on the Hankyu Senriyama Line. It is an excellent location with direct access to
Shin Osaka, Umeda and other points in central Osaka.

tonarie Yamato-Takada(Yamato-Takada City, Nara Prefecture)- This property is connected by pedestrian deck to
Yamato-Takada Station on the Kintetsu Osaka Lineand is a mere 3-minute walk from Takada Station on
the JR Wakayama Line.
- The neighborhood shopping center has a terrace
and was conceptualized as a 3D park linked to thesurrounding area.
- It has three floors and about 70 tenants with eachfloor given a theme: the dining table, lifestyle andhobbies and health.

- It is a great location with an excellent balance of facilities supporting lifestyles including tonarie Minami Senri,
which is owned by ESCON REIT, Aeon Minami Senri ESCON JAPAN owns and other major shopping malls, supermarkets, schools, a hospital and parks.
- The project comes with diverse common facilities andservices that enable comfortable lifestyles for various
generations including a concierge counter providing various services and information, an indoor park that allows
playing indoors during bad weather and an inner garden
space known as the community terrace that is locatedtowards the middle of the site.

- tonarie was reborn in November 2018 from a
shopping center that only sold goods to a neighborhood shopping center that gathers and delivers experiences.

Grand Le JADE Shibuya Tomigaya(Shibuya Ward, Tokyo)- An excellent location with speedy, direct access to major stations in central Tokyo including Otemachi Station,
Omotesando Station and Shinjuku Station. The project isa short walk from Yoyogi Koen Station on the Tokyo Metro
Chiyoda Line and Yoyogi Hachiman Station on the Odakyu
Odawara Line.
- The condominium is located at the top of a hill with anexcellent view of Yoyogi Park to the East and a wide open
feel with excellent sunlight and views to the South where
the heights and usages of buildings are most strictly regulated by the law.
- The condominium provides a high quality living environment with great comfort and privacy with all units facing
the south, all units corner units, only two units per floor,
keyed elevator requiring a key for each unit, etc.

25

26

Le JADE Nakano(Nakano Ward, Tokyo)- This condominium is a short walk from
Nakano Station on the JR Chuo, Sobu, Tokyo Metro Tozai Lines and a mere 4-minuteride from Shinjuku by train. Smooth accessto the key stations of Tokyo including Tokyo,
Shibuya and Otemachi.
- Despite being located at the corner of a
type one low-rise residential zone where
there are strict regulations on buildingheight and usage (including part of theneighboring commercial area), it is a very
appealing location undergoing major redevelopment that combines shops and culture from years past with new parks andmajor multi-use facilities in the stationarea.
- Privacy has been secured by creating agreen lane that utilizes a private road andall of the units are facing south. Windows
have been positioned at high locations
near the ceiling making the interiors brightand realizing a sense of openness. The terraces and dedicated gardens make residents feel as if they are in stand-alone
homes. Furthermore, the project enjoys
wonderful sunlight and a fresh breeze.

Renovated Property
Le JADE Bio Funabashi Kita Narashino(Funabashi City, Chiba Prefecture)- The project is located near Kita Narashino Station on
the Toyo Rapid Line and New Keisei Line and Narashino
Station on the New Keisei Line. This enables residents tosmoothly access major downtown stations including Tokyo and Nihonbashi.

Financial Section- The area is well populated with shopping, medical andother convenience enhancing facilities and also boasts a
wealth of public facilities like libraries and educational
facilities and parks. Thus it is also a great location for
raising children.
- New spaces and lifestyles have been provided for the
exclusive areas to meet customer needs such as introducing a system for selecting layouts and color coordination of units. The exterior design has also been revised toarouse thoughts of the forests of Narashino and common
areas have been improved both for safety and design.

Le JADE Nagaokakyo(Nagaokakyo City, Kyoto)- The property is located between the two stations of Nagaokakyo on the JR Tokaido
Honsen and Nagaoka Tenshin on the Hankyu Kyoto Line. Thus it is an excellent location
boasting strong access to Kyoto, Osaka, etc.
- The surrounding area is blessed with a variety of cultural assets including Nagaoka
Tenmangu, a shrine blessed with beautiful seasonal scenes including the Kirishima Azalea, a roughly 150-year old tree designated a natural treasure. It is an excellent locationthat combines streetscapes rich in history with facilities that enhance the living standards including shopping, education and medical facilities.
- The entrance employs a design that blends in with the streetscape by introducing Japanese elements to the exterior including the planting of Japanese-maple (momiji) trees.
Steps have been taken to make it an excellent living space by introducing the latest in
facilities such as a security system where the entrance door can be unlocked with aregistered smart phone.

27

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 2018

Management Discussion and Analysis

Sales(Unit: million yen)

Overview
In the consolidated fiscal year under review (fiscal year ended December 2018), the Japanese economy showed potential tomaintain a moderate recovery due in part to various governmental measures proving effective amid ongoing improvement in
the employment and income situation. The economic outlook remains clouded, however, as the situation calls for attention to
the impact of U.S.-China trade issues on the world economy, uncertainties in overseas economies including the Brexit issues,
the effects of fluctuations in the financial and capital markets and the impact of natural disasters, among other factors.
The real estate industry in which the ES-CON JAPAN Group operates held resilient and firm due in part to low interest
rates from monetary easing policies, but the situation warrants no optimism because of such factors as a rise in land prices,intensified competition over land acquisitions, the risk of higher interest rates and the consumption tax rate hike.
Given such circumstances, the Company proactively developed multifaceted businesses based on the second medium-term
management plan “IDEAL to REAL 2019” which started from the fiscal year ended December 2017.
In the real estate sales business, which is our core business, we conducted income-generating real estate sales, etc., andmade steady progress in condominium sales. We have also placed our focus on hotel development projects incorporating
inbound tourism needs. During the fiscal year under review, we acquired new business sites for 8 projects in the Tokyo
metropolitan area, 16 projects in the Kinki metropolitan area and 3 projects in other areas as well as retail properties, tobe used as the site for for-sale, commercial and other multifaceted development.
In the real estate leasing business, efforts are being made to secure stable rental income from retail properties held by
ES-CON JAPAN and to enhance their asset value. In the real estate planning agency and consulting business, we arefocusing on non-asset and profitable businesses such as entrustment and planning agency consulting services by utilizing
planning abilities as our strength.
In August 2018, the Company concluded a business partnership agreement with Chubu Electric Power Co., Inc., with an
aim to maximize the corporate value of both companies, as it can generate synergistic effects by taking advantage of ourstrengths regarding planning and operational expertise, etc. in the real estate business, and utilizing the strengths of the
Chubu Electric Power Group in energy supply, customer bases in the Chubu region and know-how in facility construction
works it has fostered through its electric power business, etc. In accordance with this, ES-CON JAPAN became an equity-method affiliate of Chubu Electric Power, as the latter acquired 22,980,000 shares of the former to become the largest
shareholder of the Company.
On February 2019, ESCON JAPAN REIT Investment Corporation was listed on the on the Tokyo Stock Exchange Real
Estate Investment Trust Securities Market. ES-CON Asset Management Ltd., a consolidated subsidiary of ES-CON
JAPAN, is entrusted to manage the assets of the new REIT.

Operating Results

54,32554,32527,70527,70544,72444,724

FiscalFiscal2015
2015

34,34734,347

4,680
4,012
4,680
3,575
4,012
3,126
3,575
2,815
3,126
2,815
2,075
2,075
FiscalFiscal2017
2017

FiscalFiscal2018
2018

Net Income Attributable to Parent

7,226
7,226

FiscalFiscal2016
2016(Unit: million yen)

3,039
3,039

FiscalFiscal2014
2014

FiscalFiscal
2015
2015

3,936
3,936

FiscalFiscal2015
2015

FiscalFiscal2016
2016

169.05169.05

FiscalFiscal2017
2017

FiscalFiscal2018
2018

FiscalFiscal2017
2017

208.28208.2844.65
44.65

FiscalFiscal2014
2014

FiscalFiscal2015
2015

259.07259.07

FiscalFiscal20182018

400.47400.47(Unit: yen)

34.59
34.59
FiscalFiscal2014
2014

FiscalFiscal
2016
2016

7,042
7,042
5,988
5,988

Per Share Information
Net Assets
Net
Net Assets
IncomeNet Income

5,456
5,456

2,411
2,411

10,498(Unit: million yen)

Operating Income
Operating
IncomeOrdinary Income
Ordinary Income

18,842
18,842

FiscalFiscal2014
2014

11,561

Operating Income/Ordinary Income 11,561
10,498315.14315.14105.98105.98

81.77
81.77

58.76
58.76

FiscalFiscal2016
2016

FiscalFiscal2017
2017

FiscalFiscal2018
2018(up 75.3%) and profit attributable to owners of parent of 7,226 million yen (up 32.4%), all compared with the previous
fiscal year.

Results by Segment

Sales Distribution Ratio by Segment
0.2%

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 50,519 million
yen (up 22.7% compared with the previous fiscal year) andsegment income of 12,341 million yen (up 54.7% compared with the previous fiscal year).

Real estate leasing business

7.7%

0.7%
6.3%

Fiscal2017

92.1%

Fiscal2018

93.0%

Real Estate Sales Business
Real Estate Leasing Business
Real Estate Planning Agency and Consulting BusinessIn the real estate leasing business, we focused on leasing activities and the property management business in an effort to enhance asset value, including an increase in rental income fromthe income-generating real estate we own. Although net sales decreased 1.7% compared with the previous fiscal year to 3,400
million yen, segment income grew 20.8% compared with the previous fiscal year to 2,128 million yen.

Real estate planning agency and consulting businessAs a result of these endeavors, business performance for the fiscal year ended December 2018 was net sales of 54,325
million yen (up 21.5%), operating income of 11,561 million yen (up 64.2%), ordinary income of 10,498 million yen

29

In the real estate planning agency and consulting business, proactive efforts were made in receiving orders for planning,
consultation and other consigned services by making the best use of our planning capabilities and multifaceted business30

ES-CON JAPAN Annual Report 2018

Real Estate Sales Business

Real Estate Leasing Business(Unit: million yen)

(Unit: million yen)

Net Sales
Segment Income

50,51941,168

Real Estate Planning Agency
and Consulting Business(Unit: million yen)

Net Sales
Segment Income

12,341

3,594

30,687

3,459

405

3,400
369

2,128

2,058

7,978

Net Sales
Segment Income

Overview of Consolidated Balance Sheet
AssetsFiscal 2017

Total assets: 86,435

Non-current assets: 5,930

Current assets: 80,504

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

Fiscal 2018

1,761

(Unit: million yen)

Cash and deposits:
10,667
Real estate for sale:
4,162
Real estate for sale in process: 60,057

Total assets: 109,747
Current assets: 104,890

Non-current assets: 4,856

4,798
65
65
Fiscal2016

Fiscal2017

Fiscal2018

Fiscal2016

Fiscal2017

Fiscal2018

Fiscal2016

96

Property, plant and equipment: 1,658
Intangible assets:
30
Investments and other assets: 3,167

85
Fiscal2017

Fiscal2018

Liabilities and Fiscal 2017
Net Assets

Liabilities and net assets: 86,435
Non-current liabilities: 32,337

Net assets: 21,433

building abilities, resulting in net sales of 405 million yen (up 321.4% compared with the previous fiscal year) and segment income of 369 million yen (up 332.3% compared with the previous fiscal year).

Analysis of Financial Position

Long-term loans
payable: 31,874

Fiscal 2018

Liabilities and net assets: 109,747

Shareholders’equity: 27,352

Assets at the end of the fiscal year ended December 2018 increased by 23,311 million yen compared with the end of theprevious fiscal year to 109,747 million yen. This was mainly attributable to cash and deposits increasing by 5,930 million
yen and inventories increasing by 16,978 million yen, respectively.
Liabilities increased by 17,385 million yen in comparison with the end of the previous fiscal year to 82,387 million yen. Thiswas mainly attributable to long-term loans payable and short-term loans payable increasing by 14,152 million yen in total.

Current liabilities: 32,664

Shareholders’equity: 21,411

Net assets: 27,359

Assets, liabilities and net assets

Cash and deposits:
16,598
Real estate for sale:
15,308
Real estate for sale in process: 65,890

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

Non-current liabilities: 45,176
Long-term loans
payable: 44,568

Current liabilities: 37,210
Short-term loans payable: 1,720
Current portion of
long-term loans payable: 23,993
Current portion of bonds:
40

Status of Cash flows
Cash and cash equivalents (“net cash”) in the fiscal year under review increased by 5,918 million yen compared with theend of the previous fiscal year to 16,563 million yen (10,644 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 2018.

Cash flows from operating activities
Net assets increased by 5,926 million yen in comparison with the end of the previous fiscal year to 27,359 million yen.
This was due to recording of 7,226 million yen as profit attributable to owners of parent despite payment of 1,238 million
yen as dividends of surplus and acquisition of treasury shares by 131 million yen. As a result, the equity ratio came to
24.9% (24.8% at the end of the previous fiscal year).

Cash flows from operating activities in the fiscal year ended December 2018 amounted to net cash used in operating
activities of 7,123 million yen (net cash used in operating activities of 10,694 million yen in the previous fiscal year). Thiswas mainly attributable to recording 10,445 million yen as profit before income taxes and an increase in inventories by
16,489 million yen.

Total Assets/Net Assets

Interest-bearing Liabilities

Cash flows from investing activities(Unit: million yen)

(Unit: million yen)

109,747

Total Assets
Net Assets

86,43551,17773,70350,141

31

58,08835,43011,65613,994

17,363Fiscal
2014

Fiscal2015

Fiscal2016

21,433Fiscal2017

70,66156,54439,739Cash flows from financing activities

27,359Fiscal2018

Fiscal2014

Cash flows from investing activities in the fiscal year ended December 2018 amounted to net cash provided by investing
activities of 223 million yen (net cash provided by investing activities of 9,167 million yen in the previous fiscal year). Thiswas mainly attributable to proceeds from and repayments of guarantee deposits received amounting to net proceeds of 796
million yen.

Fiscal2015

Fiscal2016

Fiscal2017

Fiscal2018

Cash flows from financing activities in the fiscal year ended December 2018 amounted to net cash provided by financing
activities of 12,818 million yen (net cash provided by financing activities of 3,979 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 14,152 million yen, cash dividends paid of 1,237 million yen and payments of 131 million
yen for purchasing treasury shares.

32

ES-CON JAPAN Annual Report 2018

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
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 2017

Fiscal 2018

Fiscal 2017

Fiscal 2018(as of December 31, 2017)(as of December 31, 2018)(as of December 31, 2017)(as of December 31, 2018)

1,953
22,462
40
1
1,615
467
1,467
4,368
—
287
32,664

1,720
23,993
40
0
1,731
1,448
3,051
4,933
33
255
37,210110
31,874
2
82
18
93
155
32,33765,002

270
44,568
1
97
30
77
130
45,17682,387

6,224
1,953
14,322(1,089)21,411

6,259
1,988
20,310(1,207)27,3522020
121,43386,4356
6
1
27,359109,747

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

16,598491
15,30865,890247
6,353
104,890

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

1,459
(462)
997
623
9
(6)
2
142
(107)
35
1,658

28
28

30
30

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

2,077
111
1,016
(37)
3,167
4,856
109,747

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
Asset retirement obligations
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 2018

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
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 retirement of non-current assets
Impairment loss
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 2017

Fiscal 2018(from January 1, 2017
to December 31, 2017)(from January 1, 2018
to December 31, 2018)

44,72433,164
11,55954,32537,397
16,927

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

1,965
459
190
1,126
28
12
373
328
881
5,366
11,561

0
2
24
29
1
58

0
2
12
—
2
17

1,093
18
1,112
5,988

1,020
60
1,080
10,498

372
22
—
395

—
—
0
0

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

5
47
52
10,445
1,604
1,615
3,219
7,226
7,226

(Unit: million yen)

Fiscal 2017

Fiscal 2018(from January 1, 2017
to December 31, 2017)(from January 1, 2018
to December 31, 2018)

5,456

7,226

(2)
(2)
5,453
5,453
—

(14)
(14)
7,211
7,211
—

Consolidated Statement of Changes in Equity
Fiscal 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
21,433Fiscal year ended December 2018 (from January 1, 2018 to December 31, 2018)

(Unit: million yen)

Accumulated othercomprehensive income
SubValuation
Total
scription Total net
Total
Redifference on accumulated rights to assets
TreaCapitalshareavailableothertainedsury
share
surplusholders’
for-salecomprehenearnings shares
equitysecurities sive income
1,953 14,322(1,089) 21,411
20
20
1 21,433
Shareholders’ equity

Capitalstock
Balance at beginning of current period
Changes of items during period
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 period
Balance at end of current period

6,224
35

35
(1,238)
7,226
(131)
13

35
6,259

35
1,988

5,987
20,310(117)(1,207)70(1,238)
7,226
(131)
13
5,940
27,35270(1,238)
7,226
(131)
13
(14)

(14)

0

(14)

(14)
6

(14)
6

0
1

5,926
27,35936

ES-CON JAPAN Annual Report 2018

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
Loss (gain) on sales of non-current assets
Loss on retirement of non-current assets
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
Payments of loans receivableCollection 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
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 2017

Fiscal 2018(from January 1, 2017
to December 31, 2017)(from January 1, 2018
to December 31, 2018)

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)

10,445
80
47
33
15
12
(2)
1,020
—
5
—
5
(16,489)
(475)
111
(45)
1,584
(220)
(1,548)(1)(5,421)2(1,085)(619)(7,123)(18)
18(1,711)
14(200)
11,651
(0)

(18)
18
(180)
21
(443)
83
—

34

—

—
0
615
(1,232)
(4)
9,167

(37)
0
1,578
(782)
(17)
223

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

7,581(7,814)38,884(24,659)
200
(40)
(1)
(33)
70
(131)
(1,237)
12,818
5,918
10,644
16,563

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 three consolidated subsidiaries as of December 31, 2018, as follows:
ES-CON PROPERTY Ltd.
ES-CON ASSET MANAGEMENT Ltd.
ES-CON LIVING SERVICE Ltd.
Furthermore, E-STATE Co., Ltd. and Aries Investment Two, LLC, which had been consolidated subsidiaries in the fiscal year ended December 2017, were both deconsolidated
due to completion of liquidation.

(2) Equity-method affiliates

The Company has one equity-method affiliate, as follows:
NBNS Investment Limited Liability Partnership
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.

38

ES-CON JAPAN Annual Report 2018(3) Valuation standard andmethod for significant
assets(4) Depreciation method forsignificant depreciable
assets(6) Scope of funds in the
consolidated statementof cash flows

The funds (cash and cash equivalents) in the consolidated statement of cash flows consistof 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.
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.

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).

(7) Other significant items
fundamental topreparing the financial
statements(Changes in Accounting Policies)

1) 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.

(5) Standards for recording
significant allowances

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.

393) 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.

1) 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.

“Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights, which Involve
Considerations, with Vesting Conditions” (Practical Issues Task Force (PTIF) No. 36; January 12, 2018) was applied,
starting from April 1, 2018. Accordingly, for the transactions granting the employees and others stock acquisition rights,
which involve considerations, with vesting conditions, the Company decided to conduct accounting treatment based on
the Accounting Standard for Share-based Payment (Accounting Standards Board of Japan (ASBJ) Statement No. 8;
December 27, 2005).
However, as the application of the PTIF No. 36 follows the transitional treatment stipulated in Article 36-10-(3) of the
PTIF No. 36, the Company continues to conduct the accounting treatment that have been conventionally applied for thetransactions that granted its employees and others stock acquisition rights, which involve considerations, with vesting
conditions prior to the application date of the PTIF No. 36.

[Unapplied Accounting Standard and Implementation Guidance]
1. Implementation Guidance on Tax Effect Accounting, etc.
• Implementation Guidance on Tax Effect Accounting (Accounting Standards Board of Japan (ASBJ) Guidance No. 28;
revised on February 16, 2018)• Implementation Guidance on Recoverability of Deferred Tax Assets (ASBJ Guidance No. 26: final revision on February
16, 2018)(1) Overview
The following revisions deemed necessary were made to the Implementation Guidance on Tax Effect Accounting, etc.
upon the transfer of the practical guidance on tax effect accounting by The Japanese Institute of Certified Public
Accountants to the Accounting Standards Board of Japan, while fundamentally adhering to the initial content.
(Major revisions to the accounting treatment)• Treatment of the temporary difference in the future taxable amounts for subsidiary shares, etc. in the financial statements
on a non-consolidated basis• Treatment of recoverability of deferred tax assets of corporations that fall under the category of (Classification 1)

40

ES-CON JAPAN Annual Report 2018(2) Scheduled date of the application
The Company will adopt the implementation guidance from the beginning of the fiscal year ending December 2019.
(3) Impact of the application of the respective accounting standard and implementation guidance
The impact on the consolidated financial statements from adoption of the Implementation Guidance on Tax EffectAccounting, etc. is currently being assessed.

2. Accounting Standard for Revenue Recognition, etc.
• Accounting Standard for Revenue Recognition (ASBJ Corporate Accounting Standards No. 29; March 30, 2018)• Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Implementation Guidance ofCorporate Accounting Standards No. 30; March 30, 2018)(1) Overview
The International Accounting Standard Board (“IASB”) and the Financial Accounting Standards Board (“FASB”) havejointly developed the comprehensive accounting standard for revenue recognition, and have published “Revenue fromContracts with Customers” (IFRS No. 15 issued by IASB and Topic 606 issued by FASB) in May 2014. As IFRS No. 15
is effective for annual periods beginning on or after January 1, 2018 and Topic 606 is effective for annual periods beginning after December 15, 2017, ASBJ has developed the comprehensive accounting standard for revenue recognition, andannounced it along with the implementation guidance.
As a basic policy to develop the accounting standards for revenue recognition, ASBJ decided to incorporate the basic
principles from IFRS No. 15 in order to ensure the comparability among Financial Statements based on IFRS, U.S. GAAP
and Japanese GAAP. The comparability between the financial statements is one of the benefits of the consistency withIFRS No. 15. In addition, in the case there is an item where consideration should be given to special treatment in Japan,
the alternative treatment is accepted to the extent consistency is maintained.
(2) Scheduled date of the application
The Company will adopt the Accounting Standard and Implementation Guidance from the beginning of the fiscal year
ending December 2022.
(3) Impact of the application of the respective Accounting Standard and Implementation Guidance
The impact on the consolidated financial statements from adoption of the Accounting Standard and Implementation
Guidance for Revenue Recognition is currently being assessed.

4. Notes to Consolidated Balance Sheet(1) Equity in equity-method affiliate(Additional Information)

Fiscal 2018(as of December 31, 2018)

1,007

1,039

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

(Unit: million yen)

Fiscal 2017

Fiscal 2018(as of December 31, 2017)(as of December 31, 2018)

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

2,025
56,758939
623

13,55662,372
903
623

Total

60,34577,456

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

(Unit: million yen)

Fiscal 2017

Fiscal 2018(as of December 31, 2017)(as of December 31, 2018)

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

1,487
22,077
31,1741,550
23,47643,905

Total

54,73968,933

5. Notes to Consolidated Statement of Income(1) Book value reduction due to lowered profitability of inventories held for the purpose of ordinary sales is(Unit: million yen)
as follows:

Cost of sales

Fiscal 2017

Fiscal 2018(from January 1, 2017
to December 31, 2017)(from January 1, 2018
to December 31, 2018)—(2) Breakdown of loss on retirement of non-current assets is as follows:

Not applicable.

41

Fiscal 2017(as of December 31, 2017)

Investment securities (equity capital)(Changes in Presentation)
Not applicable.

(Unit: million yen)

171

(Unit: million yen)

Fiscal 2017

Fiscal 2018(from January 1, 2017
to December 31, 2017)(from January 1, 2018
to December 31, 2018)

Buildings and structures
Property, plant and equipment (Other)

0
—

5
0

Total

0

5

42

ES-CON JAPAN Annual Report 2018(3) Impairment loss
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.

In the fiscal year ended December 31, 2018, the ES-CON JAPAN Group realized impairment loss on the following asset
groups. (Unit: million yen)
Location

Use

Type

Impairment loss

Headquarters(Chiyoda Ward, Tokyo)

OfficeFacilities attached to buildings

47(Note) The ES-CON JAPAN Group classifies its individual properties into asset groups as minimum units for generating cash flows.
In the fiscal year ended December 2018, the Company made a decision to relocate its headquarters functions. Of the office facilities, the Company reduced the book value of the non-current assets that have no prospect of use in the future to the net realizable value and recorded the
reduced amount (47 million yen) as impairment loss.
Breakdown of the impairment loss consists of 39 million yen for facilities attached to buildings and 7 million yen for others.
Furthermore, the net realizable value is measured by using the net sale value, which is set as zero because no possibility of sale is anticipated.

6. Notes to Consolidated Statement of Comprehensive Income(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).

(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 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

Treasury shares

43

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

Sixth offer ofCommonsubscription
rights to shares shares

End ofFiscal 2017 (million yen)

(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.

March 24, 2017
Annual General Meeting of
Shareholders

3,583,600

1,422,800

1,811,100

3,195,300

3,583,600

1,422,800

1,811,100

3,195,300

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) 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) Dividends for which the record date was within the fiscal year but the effective date for the dividends was in the following fiscal year

Issued shares

Total

Increaseduring the
fiscal year

(Note 1)

(Resolution)

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

Common shares

Beginningof Fiscal
20171) Dividends paid

7. Notes to Consolidated Statement of Changes in Equity

Total

Balance at
end ofFiscal 2017

(3) Dividends

Not applicable.

Common shares

Number of shares subject to subscription rights
to shares (shares)(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) The 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.

44

ES-CON JAPAN Annual Report 2018

Fiscal 2018 (from January 1, 2018 to December 31, 2018)(1) Type and Number of Shares Issued and Outstanding and Type and Number of Treasury Shares(3) Dividends
1) Dividends paid

Increase in
number of shares
during the fiscal
year

Decrease in
number of shares
during the fiscal
year

Number of sharesat end of Fiscal
2018

71,203,387

446,000—

71,649,387

71,203,387

446,000—

71,649,387

Number of sharesat beginning of
Fiscal 2018
Issued shares
Common shares
Total
Treasury shares
Common shares
Total

3,195,300

196,500

56,9003,334,900

3,195,300

196,500

56,9003,334,900(Notes) 1. The increase in the number of common shares issued and outstanding (446,000 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 (196,500 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 (56,900 shares) is due to provision of shares to the qualifying directors by
the share-based payment benefits trust (56,000 shares) and provision of shares to the qualifying employees by the share-based payment
benefits type ESOP trust (900 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: 543,200 shares at the
beginning of Fiscal 2018 and 487,200 shares at the end of Fiscal 2018; the share-based payment benefits type ESOP trust: 235,200 shares atthe beginning of Fiscal 2018 and 234,300 shares at the end of Fiscal 2018).

(2) Subscription Rights to Shares and Subscription Rights to Treasury Shares

Category

Reportingcompany(parent company)

Total

Type of sharessubject toBreakdown ofsubscription
subscription
rights to shares rights tosharesNumber of shares subject to subscription rights
to shares (shares)

Balance at
end ofFiscal 2018

(Resolution)

Type of shares

March 23, 2018
Annual General Meeting of
Shareholder

Commonshares1,238(Resolution)

Type ofsharesMarch 26, 2019
Annual General Meeting of
Shareholders

CommonsharesTotal
dividends(million yen)

2,209

March 26,
2018

Dividend
per share

Source ofdividends

Record date

Effective
date

December 31,
2018

March 27,
2019

(yen)

Retainedearnings

32.00

8. Notes to Consolidated Statement of Cash Flows elationship between the year-end balance of cash and cash equivalents and the amounts of accounts on theR(Unit: million yen)consolidated balance sheet
Fiscal 2017

Fiscal 2018(from January 1, 2017
to December 31, 2017)(from January 1, 2018
to December 31, 2018)

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

10,667(3)(20)

16,598(3)(32)

Cash and cash equivalents

10,644

16,563

Fifth offer ofCommonsubscription
rights to shares shares(Note 1)

758,500—

446,000

Sixth offer ofCommonsubscription
rights to shares shares(Note 2)

1,400,000—

101,000

1,299,000

19. Lease Transactions

2,158,000—

547,000

1,611,500

1(Lessee)End ofFiscal 2018 (million yen)

(Notes) 1. The decrease in the number of common shares issued and outstanding (446,000 shares) is due to exercise of the fifth offer of subscription
rights to shares.
2. The decrease in the number of treasury shares in common shares (101,000 shares) is due to expiration 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.

December 31,
2017

18.00

(Note) The total amount of dividends includes 15 million yen of dividends to the Company’s shares owned by the share-based payment benefits trust for
directors and 7 million yen of dividends to the Company’s shares owned by the share-based payment benefits type ESOP trust.

Decreaseduring the
fiscal year0

Effective 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

Increaseduring the
fiscal year

312,500

Record date

(Note) The 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.

Beginningof Fiscal
2018—

Total dividends Dividend per(million yen)share (yen)(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 2018

(2) Operating Lease Transactions
Unearned lease payments for non-cancellable operating lease transactions(Unit: million yen)

Fiscal 2017

Fiscal 2018(as of December 31, 2017)(as of December 31, 2018)

Due within one year

52

55

Due after one year

61

9

Total

114

64

payable are exposed to liquidity risks related to fund procurement, the ES-CON Japan Group manages the risks throughsuch measures as preparing capital plans on a monthly basis.
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).

(Lessor)(1) Operating Lease Transactions
Unearned lease payments for non-cancellable operating lease transactions(Unit: million yen)

Fiscal 2017

Fiscal 2018(as of December 31, 2017)(as of December 31, 2018)

Due within one year

526

644

Due after one year

4,897

3,906

Total

5,424

4,550

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.
Among loans payable and bonds payable, short-term loans payable and bonds payable are procured mainly for working
capital, and long-term loans payable are procured mainly for real estate development projects. In addition, while loans

47

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.

Fiscal 2018 (as of December 31, 2018)

(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

16,598491

16,598
491

—
—

33

33

—

Total of assets

17,124

17,124—(1) Accounts payable - other(2) Deposits received(3) Short-term loans payable(4) Long-term loans payable*1(5) Bonds payable*2

1,731
4,933
1,720
68,562
310

1,731
4,933
1,720
68,640
310

—
—
—
78
0

Total of liabilities

77,25877,33678*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 2018

(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 2017(as of December 31, 2017)

Category
1) Non-listed shares
2) Investment limited liability partnership equity investment

10

10

1,007

1,039

3) Silent partnership equity investment, etc.
Total

Fiscal 2018(as of December 31, 2018)

836

993

1,853

2,043

11. Notes to Securities(1) Other Securities
Fiscal 2017 (from January 1, 2017 to December 31, 2017)
Type
Securities with book values on the consolidatedbalance sheet exceeding acquisition cost

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———

Fiscal 2018 (as of December 31, 2018)

47

27

20

47

27

20

(1) SharesFiscal 2018 (from January 1, 2018 to December 31, 2018)

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

Acquisition
cost

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.

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

Due within 1 year

Book value recordedon the balance sheet

Total

Type

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 2017 (as of December 31, 2017)

(Unit: million yen)

Securities with book values on the consolidatedbalance sheet exceeding acquisition cost

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

Acquisition
cost

33

27

6

33

27

6

(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: 2,043 million yen) as Other securities, because discerning fair value isrecognized to be extremely difficult as there is no market price.

(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

16,598
491

—
—

—
—

—
—

Total

17,090———12. Notes to Derivative Transactions
Not applicable

4. Scheduled repayment amount of bonds payable, long-term loans payable and other interest-bearing liabilities after closing of accounts.
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

Fiscal 2018 (as of December 31, 2018)

(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

1,720

—

—

—

—

—

Long-term loans payable

23,993

20,306

6,962

7,747

7,365

2,186

40

40

230

—

—

—

25,754

20,346

7,192

7,747

7,365

2,186

Bonds payable
Total

13. Notes to Retirement Benefits
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.

Fiscal 2018 (from January 1, 2018 to December 31, 2018)(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 11 million yen for the defined contribution pension plan.

49

50

ES-CON JAPAN Annual Report 2018

14. Notes to Stock Options, Etc.
(Additional Information)(Adoption of the Practical Solution on Transactions Granting Employees and Others Stock Acquisition Rights, which
Involve Considerations, with Vesting Conditions, etc.)
For transactions granting employees and others stock acquisition rights, which involve considerations, with vesting conditions conducted prior to the application date of the Practical Solution on Transactions Granting Employees and Others
Stock Acquisition Rights, which Involve Considerations, with Vesting Conditions (Practical Issues Task Force (PTIF) No.
36; January 12, 2018), the Company continues to conduct the accounting treatment that have been conventionallyapplied for such transactions.

1. Overview of the stock acquisition rights, which involve considerations, with vesting conditions(1) Descriptions of the stock acquisition rights, which involve considerations, with vesting conditions
5th subscription rights to shares
Category and number of
eligible persons

49 people comprising the Company’s
directors (in-house) and employees

6th subscription rights to shares
146 people comprising the Company’s
directors and employees and the employees of its subsidiaries

Number of stock options bytype of shares (Note 1)

Common shares: 3,500,000 shares

Common shares: 1,400,000 shares

Date of grant of options

November 29, 2013

December 27, 2017

Vesting conditions(Note 2)

(Note 3)Covered period of work

Not specified

Not specified

Exercise period

From April 1, 2015 to November 28, 2020 From April 1, 2021 to December 26, 2025

(Notes) 1. The figures have been converted to the number of shares.
2. The vesting conditions to exercise the subscription rights to shares are as follows;(1) The persons eligible for the subscription rights to shares may exercise their rights if the operating income (referring to the operating incomein the consolidated statement of income described in the Company’s securities report (or statement of income if no consolidated statementof income is prepared); the same shall apply hereinafter) falls below 1,790 million yen.
(2) When (1) above is satisfied, the persons eligible for the subscription rights to shares may exercise their rights for the number of sharedequivalent to 10% of the subscription rights to shares allotted to them if the operating income for any of the fiscal years ended December
2014 through December 2016 exceeds 2,500 million yen. Furthermore, when the number of the subscription rights to shares they can
exercise has a portion less than one share, the number shall be rounded down to one share.
(3) Even before (1) above is satisfied, the persons eligible for the subscription rights to shares may exercise the entire subscription rights toshares allotted to them if the cumulative operating income for the fiscal years ended December 2014 through December 2016 exceeds 7,000
million yen. Furthermore, they may exercise the entire subscription rights to shares allotted to them if the cumulative operating income forthe fiscal years ended December 2014 through December 2015 exceeds 7,000 million yen.
(4) In determining the operating income for (1) through (3) above, if material changes are made to the concept of the operating income to bereferred to due to changes in the applicable accounting standards, etc., the Company shall otherwise determine the appropriate indicators to
be referred to at the Board of Directors to the extent reasonable.
(5) The persons eligible for the subscription rights to shares must be directors, auditors or employees of the Company or its affiliates when they
exercise their subscription rights to shares; however, this shall not apply for their retirement from office due to expiration of tenure, retirement at predetermined age or for other reasons deemed reasonable by the Board of Directors.
(6) Successors of the persons eligible for the subscription rights to shares may not exercise the subscription rights to shares; however, thisshall not apply if the persons eligible for the subscription rights to shares died of accidents during their work or if the Board of Directors
approve that there is fair reason to allow the said successors to exercise the subscription rights to shares.
(7) The subscription rights to shares may not be exercised if such an exercise cause the Company’s number of shares issued and outstanding to
exceed the authorized number of shares at that time.
(8) The subscription rights to shares may not be exercised for less than one share each.
3. The vesting conditions to exercise the subscription rights to shares are as follows;(1) The persons eligible for the subscription rights to shares may exercise the subscription rights to shares allotted to them, starting on the firstday of the month following the date when the securities report for the fiscal year ending December 2020 is submitted, if the Company’s
operating income for all the fiscal years ending December 2018 through December 2020 exceeds the respective amounts described in thefollowing items. When the number of the subscription rights to shares they can exercise has a portion less than one share, the number shallbe rounded down to one share.

511) If the operating income for the fiscal year ended December 2018 exceeded 8,500 million yen
2) If the operating income for the fiscal year ending December 2019 exceeds 9,500 million yen
3) If the operating income for the fiscal year ending December 2020 exceeds 10,000 million yen
Furthermore, in determining the operating income stated above, the operating income in the consolidated statement of income described in
the Company’s securities report (or statement of income if no consolidated statement of income is prepared) shall be referred to. In addition,
if material changes are made to the concept of the items to be referred to due to such reasons as application of the international financial
reporting standards, the Company shall otherwise determine the appropriate indicators to be referred to at the Board of Directors to theextent reasonable (the same shall be applied hereinafter).
(2) The persons eligible for the subscription rights to shares must be directors, auditors or employees of the Company or its affiliates when they
exercise their subscription rights to shares; however, this shall not apply for their retirement from office due to expiration of tenure, retirement at predetermined age or for other reasons deemed reasonable by the Board of Directors.
(3) Successors of the persons eligible for the subscription rights to shares may not exercise the stock acquisition rights; however, this shall not
apply if the persons eligible for the subscription rights to shares died of accidents during their work or if the Board of Directors approve that
there is fair reason to allow the said successors to exercise the subscription rights to shares.
(4) The subscription rights to shares may not be exercised if such an exercise cause the Company’s number of shares issued and outstanding to
exceed the authorized number of shares at that time.
(5) The subscription rights to shares may not be exercised for less than one share each.

(2) Size and changes of the stock acquisition rights, which involve considerations, with vesting conditions
The following table describes the stock option plan that existed in Fiscal 2018 ended December 31, 2018. The number ofstock options indicates the number of shares when the stock options are exercised.
1) Number of stock options
5th subscription rights to shares 6th subscription rights to shares
Before right allotment (shares)
Balance of unexercised options at the endof the previous fiscal year—

1,400,000

Granted——Expired—101,000

Right allotment——

Balance of unexercised options—

1,299,000

758,500—

Right allotment——

Exercise of right

446,000———

312,500—

After right allotment (shares)
Balance of unexercised options at the endof the previous fiscal year

ExpiredBalance of unexercised options

2) Unit price information

(Unit: yen)

Exercise price

157

627

Average share price upon exercise891—

2. Overview of the adopted accounting treatment
When issuing the subscription rights to shares, the Company records the paid-in amount corresponding to the issuance as
Subscription rights to shares in Net assets of the balance sheet. When the subscription rights to shares are exercised andnew shares are issued, the Company re-states the paid-in amount corresponding to the issuance of the said subscription
rights to shares and the paid-in amount corresponding to the exercise of the subscription rights to shares as Capital stock
and Capital surplus.

52

ES-CON JAPAN Annual Report 2018

Furthermore, when the subscription rights to shares are expired, the Company records the amount corresponding to the
expiration as profits for the fiscal year in which the expiration has been finalized.

(Asset retirement obligations that are recorded on the consolidated balance sheet)

15. Notes to Tax Effect Accounting(1) Description of the Relevant Asset Retirement Obligations(1) Significant Components of Deferred Tax Assets and Deferred Tax Liabilities

(Unit: million yen)

Fiscal 2017

Fiscal 2018(as of December 31, 2017)(as of December 31, 2018)

1,830
169
46
39
28
46

16
314
47
20
34
—

1,642

—

106

161

3,910

594

Valuation allowance(1,924)(227)

Total of deferred tax assets

1,986

366

Deferred tax liabilities
Asset retirement expenses
Other

(11)
(0)

(7)
(0)

Total of deferred tax liabilities

(11)

(7)

1,974

359

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(2) Significant Components of Material Difference between the Effective Statutory Tax Rate and Income(Unit: %)Tax Rate Applicable after Applying Tax Effect Accounting
Fiscal 2017

Fiscal 2018(as of December 31, 2017)(as of December 31, 2018)

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

0.2
(18.7)
0.0(0.1)

Income tax rate after applying tax effect accounting

12.5

16. Notes to Business Combination, Etc.
Not applicable53

17. Notes to Asset Retirement Obligations

30.9
0.2

The note is omitted as
the difference between
the effective statutory tax
rate and the income tax
rate applicable after
applying tax effect accounting is less than
5/100 of the effective
statutory tax rate.

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
The amount of the asset retirement obligations is calculated by using discount rates of 0.0% to 1.9%, with the expectedperiod of use estimated to be 6 years to 18 years.

(3) Increase/Decrease of the Total Amount of the Asset Retirement Obligations(Unit: million yen)

Fiscal 2017

Fiscal 2018(from January 1, 2017
to December 31, 2017)(from January 1, 2018
to December 31, 2018)

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
Other

83
9
1

93
14
1

(0)

—

—

2

Balance at end of fiscal year

93

111

18. Notes to Rental Real Estate
The Company owns medical facilities and other properties. 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 ascost of sales). Income or loss from leasing these rental properties during Fiscal 2018 totaled 96 million yen in income (withrental income recorded as net sales and rental expenses recorded as cost of sales).
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)
Fiscal 2017

Fiscal 2018(from January 1, 2017
to December 31, 2017)(from January 1, 2018
to December 31, 2018)

Balance at beginning of fiscal year

12,832

1,562

Increase/decrease during fiscal year

(11,270)

(35)

1,562

1,526

1,950

1,980

Book value recorded on the consolidated balance sheet

Balance at end of fiscal year
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 2017 is primarily attributable to sales of
non-current assets (11,163 million yen) and depreciation (117 million yen). The amount of decrease during Fiscal 2018 is primarily attributable to depreciation (35 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.

54

ES-CON JAPAN Annual Report 201819. Segment Information

Fiscal 2018 (from January 1, 2018 to December 31, 2018)

(Unit: million yen)

Reportable segment(1) Overview of Reportable Segments
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, brokerageof transactions, sales agency, etc.

(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.”(3) Information on Net Sales, Income or Loss, Assets and Other Item Amounts by Reportable Segment
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 or transfers(Note 2)

Net sales
Net sales to external customers
Intersegment net sales or transfers(Note 2)50,519
—

3,400
—

405
—

54,325———54,325—

Total

50,5193,400

405

54,325—54,325

Segment income

12,341

2,128

369

14,839(3,277)

11,561

Segment assets

85,6416,265

1791,924

17,822

109,747

—

36

—

36

43

80

—

1,039

—

1,039

—

1,039

—

5

—

5

43

49

Other items
Depreciation
Investment in equity method
affiliates
Increase in property, plant andequipment and intangible assets(Notes) 1. Reconciliations are as follows:(1) The reconciliation of segment income of -3,277 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 17,822 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 43 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 43 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.

20. Related Information
Fiscal 2017 (from January 1, 2017 to December 31, 2017)(1) Information by Product and Service

41,168
—

3,459
—

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(2) Information by Region

Segment assets

68,0455,043

373,092

13,34286,435

1) Net sales
Not applicable as the Company records no net sales to external customers outside Japan.

—

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.

55

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

Real estate
Real estate Real estate planning
Total
sales
leasingagency andbusinessbusiness
consulting
business

Descriptions are omitted as identical information is disclosed in the segment information section.

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

ESCON JAPAN REIT Investment Corporation

7,417

Real estate sales business

Aries LLC

5,920

Real estate sales business56

ES-CON JAPAN Annual Report 2018

Fiscal 2018 (from January 1, 2018 to December 31, 2018)(1) Information by Product and Service

24. Information on Related Parties

Descriptions are omitted as identical information is disclosed in the segment information section.

Fiscal 2017 (from January 1, 2017 to December 31, 2017)(1) Transactions with Related Parties(2) Information by Region

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.

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.

Type

Name

Paid-in
capitalorequityLocation
investment

Business
description
oroccupation(millionyen)(3) Information by Major Customer
Customer’s nameSales (million yen)

Related segment

Ascendas Hospitality Honmachi TMK

10,290Real estate sales business21. Information on Impairment Loss on Non-current Assets by Reportable
Segment

Officer

Officer

Takatoshi
Ito

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 ofofrelatransaction
tionship—

Exercise ofsubscription
rights tosharesTransaction
amount(millionyen)

Category

Balanceat end offiscalyear(million
yen)

71

—

—

47

—

—

31

—

—

28

—

—

(Note)—

Exercise ofsubscription
rights toshares(Note)

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—

Officer

Tomohiko
Egashira

—

—

Total

—

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

Exercise ofsubscription
rights toshares(Note)

150

Officer

Keiko
Akashi——

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

Exercise ofsubscription
rights toshares(Note)

Fiscal 2018 (from January 1, 2018 to December 31, 2018)
Real estate
sales businessImpairment loss—

(Unit: million yen)

Real estateplanning agency Eliminations orReal estate
corporateleasing business and consulting
business——b. Non-consolidated subsidiaries of the filing party of these consolidated financial statements and affiliates

Total

47

(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.

47
Type

Name

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

23. Information on Gain on Negative Goodwill by Reportable Segment

Paid-in
capitalorequityLocation
investment(millionyen)

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

2,060

Business
description
oroccupation

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

DescripDescription
tion ofofrelatransaction
tionshipTransaction
amount(millionyen)

Category

Balanceat end offiscalyear(millionyen)(Note 1)

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

Undertakingof equity
investment

920

—

—

950

—

—

(Note 3)

Sale ofinvestment
units(Note 4)

Not applicable

57(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 share58

ES-CON JAPAN Annual Report 2018

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 ESCON 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
oroccupation(millionyen)

NBNS
Investment
KanazaLimited
Affiliate
wa City,
Liability
Ishikawa
Partnership

2,060(Note 2)The Company’s share of
voting rights,
etc. [orownership ofsuch in the
Company]

DescripDescription
tion ofofrelatransaction
tionshipTransaction
amount(millionyen)

Category

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

Undertakingof equity
investment

90

—

—

(Note 3)

Type

Name

(millionyen)

Officer

Keiko
Akashi——

Ownership in
Director of
the Compathe Company
ny: 0.8%(Unit: yen)

Fiscal 2017

Fiscal 2018(from January 1, 2017
to December 31, 2017)(from January 1, 2018
to December 31, 2018)

Net assets per share

315.14400.47

Basic earnings per share

81.77

105.98

Diluted earnings per share

79.81

105.48(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: 543,200 shares for Fiscal 2017 and 487,200 sharesfor Fiscal 2018; the share-based payment benefits type ESOP trust: 235,200 shares for Fiscal 2017 and 234,300 shares for Fiscal 2018) 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 (781,062 shares for Fiscal 2017 and 768,063 shares for Fiscal 2018)
are included in treasury shares, which are excluded when calculating the period-average number of shares.
3. The basis for the calculation of basic earnings per share and diluted earnings per share is as follows:
Fiscal 2017(from January 1, 2017
to December 31, 2017)

Profit attributable to owners of parent (million yen)

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.

Business
description
oroccupation



Fiscal 2018(from January 1, 2018
to December 31, 2018)

Basic earnings per share

Fiscal 2018 (from January 1, 2018 to December 31, 2018)(1) Transactions with Related Parties

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

Not applicable.

(millionyen)(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.

Paid-in
capitalorequityLocation
investment(2) Notes to Parent Company or Important Affiliates

25. Per Share Information
Balanceat end offiscalyear(Note 1)Equityinvestment in
ESCON
JAPAN REIT
Investment
Corporation

2) Transactions between the consolidated subsidiaries of the filing party of these consolidated financial statements andrelated parties
Not applicable.

DescripDescription
tion ofofrelatransaction
tionship—

Exercise ofsubscription
rights tosharesTransaction
amount(millionyen)

Category

Balanceat end offiscalyear(millionyen)

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)

—

7,226

—

—

5,456

7,226

66,724,613

68,185,053——

Diluted earnings per share
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

21

5,456

—

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

320,110
Sixth offer of subscription rights
to shares based on resolution by
the Board of Directors’ meetingon December 1, 2017
Common shares:
1,299,000 shares(Note 1)
(Notes) 1. 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, 2018. The figure does not include consumption taxes.
2. Keiko Akashi does no longer fall into the category of related parties as she resigned the office of director as of October 30, 2018. Accordingly,
the transaction amount covers the transactions for the period when she was a related party, and the ownership in the Company indicates theshare as of the end of the fiscal year.

26. Significant Subsequent Events
Not applicableb. Non-consolidated subsidiaries of the filing party of these consolidated financial statements and affiliates
Not applicable59

60

ES-CON JAPAN Annual Report 2018

Investor Information

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

Status of Share Price (from January 4, 2018 to May 31, 2019)(Unit: million shares)

6(Unit: yen)

1,200

Trading volume (left scale)
Share price (right scale)

5

1,000

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: 71,806,887 shares (as of March 31, 2019)

4

800

Total number of shareholders: 9,047 shareholders (as of March 31, 2019)
Share units: 100 shares

3

600

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

2

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.

1

200

0
Jan. 4, 2018

Mar. 30, 2018

Jun. 29, 2018

Sep. 28, 2018

Dec. 28, 2018

0Mar. 29, 2019 May 31, 2019

Major Shareholders (as of March 31, 2019)
Name

No. of shares owned

Ownership ratio (%)

1

Chubu Electric Power Co., Inc.

22,980,000

33.21

2

Nissei Build Kogyo Co., Ltd.

6,500,000

9.39

3

Tenma Seiryu Co., Ltd.

3,610,000

5.21

4ES-CON JAPAN Ltd.

2,613,400

3.77

5BNY GCM CLIENT ACCOUNT JPRD AC ISG (FE-AC)

2,217,312

3.20

6

Koryu Oh

2,100,000

3.03

7Japan Trustee Services Bank, Ltd.

2,049,400

2.96

8

Takatoshi Ito

1,202,400

1.73

9The Master Trust Bank of Japan, Ltd.

842,300

1.21

10

NS Corporation Co., Ltd.

800,300

1.15(Notes) 1. Treasury shares are excluded from the calculation of ownership ratios.
2. Ownership ratio is rounded down to the first decimal place.

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.

61

62