Message from the President

On behalf of Leopalace21, I would like to take this opportunity to convey my gratitude to our shareholders and investors for their continued support.

Response to construction defects

I would like to express my sincere apologies to all of our stakeholders, including apartment owners and tenants, for the distress caused by the large number of defects found in properties constructed by Leopalace21.

In April and May 2018, we announced construction defects related to parting walls, and proceeded with investigations and repairs. During the course of the investigations, additional defects suspected of violating laws and regulations were identified, and announced in February 2019. In addition, certain defects were confirmed in properties other than those subject to top-priority investigations, and were announced in April 2019. Executives and employees, including management, are determined to marshal efforts to conduct investigations and repairs, and restore trust as soon as possible.

Financial results of the fiscal year ended March 31, 2019

We recently announced the financial results for the fiscal year ended March 31, 2019, recording net sales of 505.2 billion yen (-4.8% year-on-year), operating profit of 7.3 billion yen (-67.8% year-on-year), and net loss of 68.6 billion yen. This is the result of extraordinary losses related to repairs, reserve for apartment vacancy loss, and impairment losses (loss on sales of our apartment properties), as well as deterioration of our business results caused by construction defects.

In the Leasing Business, both occupancy rates and profits decreased because we suspended recruitment of new tenants into apartments subject to top-priority investigations which impacts tenant matching. Occupancy rate at the end of the fiscal year dropped to 84.33% (down 9.39 points year-on-year) and the average occupancy rate for the period was 88.34% (down 2.25 points year-on-year). We will marshal corporate forces in conducting investigations and repairs, and resume renting of units as soon as possible. Also, we will continue to expand tenant services such as the introduction of IoT in our apartments, aiming to increase competitiveness of our products.

In the Development Business, although we concentrated orders in metropolitan areas such as Tokyo, orders decreased under the negative environment surrounding the apartment construction industry. Orders received (including real estate development sales) reached 64.4 billion yen (-15.0% year-on-year).

In response to the construction defects, my responsibility has been to lead the Company in conducting investigations and repairs as a top priority. However, in addition to a recording of a large loss and a sharp decline in stock prices, I have taken seriously the fact that construction defects were confirmed in apartments constructed after my appointment as President. I believe that restructuring management is necessary to restore damage to trust and earnings as soon as possible and therefore have decided to resign from the position of President and CEO.

Bunya Miyao, current Director and Managing Executive Officer, will become President and CEO as of May 30, 2019. Going forward, Mr. Miyao and outside directors will be expected to build a new management system based on the final report of the External Investigation Committee.

Leopalace21 would like to request the continued support and encouragement of all our stakeholders.

May 2019
Eisei Miyama
President and CEO

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