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 property owners, for the distress and inconveniences caused by construction defects in apartments constructed by Leopalace21. We are deeply sorry for the significant impact on our performance and stock price.

We almost accomplished all-building investigation achieving 98.8% of the target by the end of October 2019. As the next step, we have been concentrating our internal and external resources on repairs since November 2019. With the aim of ensuring that our tenants can use our rooms with peace of mind, all officers and employees of Leopalace21 Corporation are united in their efforts to resolve a series of problems as soon as possible.

Financial results of the nine months ended December 31, 2019

We announced on February 7, 2020 the financial results for the nine months ended December 31, 2019.

Due to the deterioration in business earnings caused by the construction defects, net sales were 328.7 billion yen (down 12.7% year-on-year) and operating loss was 22.8 billion yen (in the same period of the previous year operating income was 6.5 billion yen). A net loss of 24.1 billion yen (an increase of 19.8 billion yen from the same period of the previous year) was recorded due to extraordinary losses of 12.5 billion yen, including the expected cost of repairs.

In the Leasing Business, occupancy rate stayed low due to suspension of new tenant recruitment in properties subject to top-priority investigations, resulting in an occupancy rate of 78.91% (down 6.35 points from the end of the same period of the previous year) and an average occupancy rate during the period of 80.47% (down 8.95 points from the same period of the previous year). However, occupancy rate for January 2020 bounced back to 80.19%, improved compared to December 2019 and recovered to 80% mark. This is because the availability of rooms for tenant recruitment was increased. By the end of this fiscal year, we will further accelerate repair works and the resumption of tenant recruiting, and make every effort to achieve the target occupancy rate of 85% at the end of March 2020.
In addition, we will continue to promote "smart" apartments that utilize the Internet of Things (IoT) to differentiate our properties by installing in all new rooms the standardized equipment of smart stations with AI speaker.

In the Development Business, which is another core business, total orders received for the nine months ended December 31, 2019 (including orders received by Life Living Co., Ltd., a consolidated subsidiary which was sold in October) were 7.5 billion yen (down 86.3% from the same period of the previous year), due to the financial institutions' more cautious loan approval policy for apartment constructions and the suspension of new construction subcontracting operations because of construction defects issues.

On the other hand, the sale of 15 apartment buildings and office buildings and 3 domestic hotels (Sapporo, Sendai, and Hakata) was completed during this cumulative third quarter of the fiscal year with a view to enhancing asset and capital efficiency. In addition, with changes in our business environment, we have transferred all the shares of Life Living Co., Ltd., a consolidated subsidiary.

As we announced on February 7, 2020, Leopalace21 begins the strategic review process for drastic business strategies reconstruction in order to restore the trust of our stakeholders and to ensure the business turnaround. We plan to complete the strategic review process around the end of April, 2020 and finalize and announce the renewed business plans reflecting the outcome of the drastic business strategies reconstruction around in May, 2020.

We would like to ask for your continued support and understanding of the Company's management in the future.

February,2020
Bunya Miyao
President and CEO

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