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.

We sincerely apologize for the distress and trouble caused by the construction deficiencies resulting from inadequacies in our management system. We will work together as a company in conducting investigations and repair works, and take effort to restore trust as soon as possible.

Investigations of all buildings are planned to be completed by June 2019, and we will prioritize investigations on the subject series announced in April and May (14,709 buildings). For buildings with construction deficiencies, we will be consulting with specific administrative agencies and conducting repair works at our expense.

We will continue further investigations concerning the cause of the deficiencies, and organize a structure to prevent recurrence and strive for thorough quality control.

We recently announced the financial results of three months ended June 30, 2018, recording a year-on-year increase in net sales of 0.6%. However, operating profit decreased 40.8% and recorded net loss of 957 million yen because of an extraordinary loss of 5 billion recorded as a reserve for losses related to parting wall deficiencies confirmed in certain apartments constructed by the Company. Net sales, gross profit, operating profit, and recurring profit exceeded forecasts.

In the Leasing Business, due in part to the company capturing corporate dormitory demand which increased as employment rates improved, the average occupancy rate was 92.56% (+2.11p year-on-year). On the other hand, operating profit decreased both year-on-year and compared to forecast, because we suspended recuruiting new tenants into buildings subject to top-priority investigations. We will continue to expand tenant services such as the introduction of IoT in our apartments and furnishing smart station devices equipped with AI speakers to our new apartments. In addition, "Man on the Curtain," which the Company implemented as a crime prevention measure as part of enhancement of security system of our apartments, received an award from the International Public Relations Association. We aim for stable profits led by occupancy improvement and differentiation of apartments.

In the Development Business, we concentrated orders in metropolitan areas such as Tokyo, and orders received (including real estate development sales) reached 16.4 billion yen (-16.8% year-on-year). Although orders did not meet forecasts because of the rough battles against competitors in the metropolitan areas and the negative environment of apartment construction, we opened "real estate development only" offices from this fiscal year in order to expand our construction variations and product line-up such as elderly care facilities and commercial facilities.

We have announced share buybacks on May 2018 (up to 8.3 million shares and 8.0 billion yen), and we have already repurchased 5.06 million shares and 3.1 billion yen as of the end of July 2018.

We will set the fiscal year ending March 2019, the second year of our medium-term management plan, as "the first year to be human resources and organization development." We will build the foundation to cultivate human resources with strong entrepreneurial spirits, along with an organization structure which will be able to implement reformation of our businesses. In addition, "Health Care Promotion Office" has been newly established under the CEO in order to further accelerate our health care management. In July 2018, we participated in "TELEWORK DAYS 2018" implemented by the Ministry of Internal Affairs and Communications and relevant ministries and agencies, and Tokyo, and we are promoting remote work such as telework. We are continuing to create pleasant working environment and improving productivity as well as promote ESG management including our solar power business and strengthening our corporate governance.

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

August 2018
Eisei Miyama
President and CEO

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