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 to all of our stakeholders, including tenants and owners, for the distress caused by construction defects in apartments constructed by Leopalace21, confirmed in the fiscal year ended March 31, 2019. I would also like to apologize for the serious impact on the financial results and share price as a result of these construction defects. All officers and employees of the Leopalace21 Group are united in resolving the series of problems as soon as possible, with the aim of ensuring that tenants can live in our apartments with peace of mind.

Financial results of the three months ended June 30, 2019

We recently announced the financial results for the three months ended June 30, 2019, recording net sales of 113.3 billion yen (-12.3% year-on-year), operating loss of 4.2 billion yen (operating profit was 4.1 billion yen in the same period of the previous year), and net loss of 5.7 billion yen. Due to the recording of repair costs and incidental expenses related to parting walls and other construction defects as extraordinary losses, 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 subject quarter dropped to 81.40% (down 10.70 points year-on-year) and the average occupancy rate for the period was 81.90% (down 10.66 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 3.2 billion yen (-80.3% year-on-year).

Due to the above earnings results, we regret to inform that we will not be paying dividends for this fiscal year. We sincerely apologize for the distress caused to our shareholders and other stakeholders.

We will promote reform of our corporate culture to realize the basic policy of benefiting "society as a whole" set forth in our mission statement. In addition, as the most important value for our business activities, we will thoroughly implement "compliance-first" by regularly distributing messages, strengthening compliance training, and introducing personnel evaluations based on measures against compliance.

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

August 2019
Bunya Miyao
President and CEO

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