Frequently asked questions about Leopalace21's business.

Business as a whole

When was Leopalace21 established?

Leopalace21 was established on August 17, 1973.
Please see the "Corporate Data" section for an outline of the company.

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When were shares made available to the public?

Shares in Leopalace21 were listed on the over-the-counter market (now JASDAQ) on February 3, 1989, and on the 1st Section of the Tokyo Stock Exchange on March 25, 2004.
Please see the "Corporate History" section for an overview of the company's history to date.

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What is Leopalace21's securities code?

Our securities code is 8848.
Please see our "Share Price Chart" for details of our current share price.

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When does your accounting year end?

Leopalace21's accounting year ends on March 31.

Who is Leopalace21's shareholder registry administrator?

Our shareholder registry administrator is Sumitomo Mitsui Trust Bank, Limited.
In fact, we outsource all operations relating to shares in Leopalace21 to Sumitomo Mitsui Trust Bank, Limited. Please see the "Share Procedures" section for contact details.

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Please explain the outline of the business.

We have three business segments: Leasing Business, Elderly Care Business, and Other Businesses which include operation of resort facility in Guam, finance business and others. After the Lehman collapse we adopted business diversification strategy to improve the financial position and we have been making efforts in increasing profitability for the Leasing Business in line with the drastic business strategy restructuring since FY21/3.

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Please explain the details about problems concerning construction defects of properties constructed by Leopalace21.

We sincerely apologize to all of our stakeholders, including tenants and property owners, for the distress caused by construction defects in apartments constructed by Leopalace21. We released construction defects of apartment parting walls in April, 2018 and started all-building investigations. Other problems concerning construction deficiencies were found through the investigations and we released each problem subsequently. We are in the process of repair works, however, we determined to our regret to temporarily reduce the scale of repair works and organizational setup to tackle the construction defects from July 2020, as it is essential to recover our business performance. Please refer to our website "Measures against problems concerning construction defects of properties constructed by Leopalace21" for more information.

Please explain the progress of preventive measures for constructive defects.

Heeding the recommendations concerning preventive measures for construction defects of the External Investigation Committee, we have formulated three main Company-wide recurrence prevention measures: (1) fundamental reform of the corporate culture; (2) restructuring of the system for compliance and risk management; and (3) revision of the construction business framework. We are periodically reporting the progress of each action. Please refer to our website "Fundamental approach to prevent recurrence" for more detail.

Leasing Business

What is the occupancy rate plan?

The construction defects problem among the properties constructed by Leopalace21 was found in 2018. All-building investigations have been almost completed in October 2019. Since November 2019, we have been focusing on repair works and restarted tenant recruitment. The occupancy rates have been showing higher results compared with the same months in the previous fiscal year thanks to implementing occupancy improvement measures such as the area intensive strategy, recovery in the balance of occupied rooms by corporate clients, and stronger relationships with real estate agents in the weakened spread of COVID-19. We aim to achieve, through the continued execution of the said measures, 85.70% at the end of March 2022 and 90.49% at the end of March 2023, an equivalent average level of occupancy rate for ordinary times for FY14/3 - FY18/3 which was free from being affected by the construction defects problem and COVID-19 pandemic.

occupancy rate plan

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What is the reserve for apartment vacancy loss?

The reserve for apartment vacancy loss is set according to the projected loss that could occur during a logically predictable period to prepare for the risk of increased vacancies. The reserve for apartment vacancy loss is calculated based on the profitability of individual buildings, and is marked to market periodically. Therefore, when profit improves due to various reasons such as (i) recovery of occupancy rate, (ii) earning additional revenue and (iii) reduction of cost, reversal of the reserve account will push profits up in the Leasing Business.

What are the strengths and features of the Leasing Business?

We have 573,673 studio-type units under our management as of end of March 2021 and almost all of the units are equipped with furniture and home appliances; our distinctive service of providing standardized rooms across the country. There are needs in the corporate market that the companies such as large blue-chippers like to save cost in relation to already decreasing company housing and dormitories which they used to own, and they prefer to outsource the whole operation to service providers. We offer unique values to match the corporate customers' needs through providing homogeneous rooms nationwide, one-stop customer service responding to all of their housing and dormitories requirements, and advanced digitized contract handling. Approximately 80% of the listed companies have used our service and as a result, more than half of our management units are used by corporate tenants. In order to increase the occupancy rate for FY22/3, we will carry out sales operation through implementing (i) area intensive strategies containing authority delegation of optimizing sales and profit to respective areas, (ii) service provision in response to customer specific requirements, and (iii) stronger tie with real-estate agents.

Leopalace21's features

Leopalace21's features

How many offices do you have in the Leasing Business?

We disclose the related information in the following pages.

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What is the current state of the Development Business?

We have stopped order intake for new apartments because we need to prioritize repair works after we identified the construction defects. We have not set the target schedule to resume the order intake, and in the meantime we plan to take orders just for management service for existing apartments which were built by somebody else as well as orders for new apartments so that we can increase the number of apartment rooms under management.

In order to offset the decreasing value for existing apartments with the lapse of time, we have been implementing value-added measures such as renovation and IoT devices installation as a part of DX promotion initiatives.

The Development Business was integrated into the Leasing Business in FY21/3.

What is the master leasing system? What is the risk of the master leasing system?

The master leasing system is a system to support the apartment management of owners, from construction to management operations, for a maximum of 30 years. The system involves rent payment to the owners, as well as management operation and repair to take the burden off of the owners, contributing to a flow of steady income.

The biggest risk in the lease housing management is the incurrence of vacancies. In our case, with the 30-year master leasing contract, a fixed rent is paid to the owners for a certain period regardless of the possibility of vacancies. Therefore, our biggest possible risk is having larger number of vacancies than the one envisaged in each master leasing contract during this period.

In addition, in the Leasing Business, to control vacancies, or to raise occupancy rate, as well as the appropriate adjustment of room rent will also become important to increase profitability.

How to determine rent to apartment owners under master lease system?

We consider the surrounding market conditions, and whether or not rooms are equipped with furniture and home appliances, internet connection services, and security equipment such as security cameras for determining rent payment to the owners. Then we consider vacancy risks and propose appropriate rent from a comprehensive perspective.

The apartment business plan shown at the beginning of the contract is based on the assumption that a certain economic situation will continue, but it is difficult to predict economic fluctuations for the next 30 years. We would like the apartment owners to understand that a review of the rent would be required because of the surrounding market rent and economics changes.

About the method of renewal for rent payment to apartment owners under master lease system

There is an opportunity to review the rent payment to the owners every two years after the fixed rent period.

If there is a discrepancy between the rent under master lease system and the neighboring market rent at the time of rent renewal, we will consult for rent renewal by explaining the situation for each property. We will be consulting the apartment owners, in accordance with the law enforcing sublessors' proper operation of rental property management in effect from June 2021, for increase of the rent under master lease system if the neighboring market rent is rising, and vice versa.

Please note that the details of contract (contract period, building age, layout, location, market rent) differ for each property, so we will discuss rent renewal individually and the rent will be renewed under a mutual agreement between the apartment owners and Leopalace21.

How do we maintain the apartments under our management?

We operate apartment building maintenance package service to take care of repairing requirements in the future for the convenience of apartment owners. A deduction of fixed monthly fee payment calculated from the number of rooms and square measure per apartment building out of the monthly rent payment under the master lease system enables the apartment owners to be free from sporadic repairing costs which cover damages to the interior items such as wall papers and wooden floors and others as well as exterior items such as roofs and parking lots counting more than 70 items in total.

The package service, however, does not cover the damages caused by earthquakes, winds and floods and the owners are responsible for such damages.

In addition to the weekly cleaning service, we conduct periodic building check and report the result to the owners.

About maintenance of furniture and home appliances

We have contracted with each owner for "Furniture and Home Appliances Comprehensive Maintenance Service" in order to keep the furniture and home appliances installed in the rooms in good condition at all times and to make sure that the tenants can move in with peace of mind. By paying a monthly service charge of 2,000 yen per room during the master lease period, Leopalace21 will be responsible for any maintenance and replacement. The apartment owners can make yearly operating cost predictable by having the comprehensive maintenance service.

Please note that there is also a case that we cannot replace the home appliances immediately even during the rental contract period because tenants remain occupying the room, or some of the furniture cannot be physically replaced such as built-in furniture. Please be assured that items that need to be replaced are replaced at any time.

Leopalace21 will continue our attentive management services in providing our tenants with comfortable rooms, and keeping apartments, which are our owners' important assets, always in good conditions.

Other Businesses

Please tell me about the resort facility in Guam.

Leopalace Resort is a composite sports resort facility located in the Manenggon hills area near the center of the island. The resort area covers almost 1% of the entire island of Guam with 5.2 million square meters. On-site facilities include a hotel, condominiums, a spa, not to mention the Pan-Pacific Sports Center. This center is a world class sporting complex that draws not just tourists, our apartment owners, and corporate clients but also professional athletes who come here either as part of a team camp or just for their own personal training. However, we plan to make early transfer of the Guam company in the process of the structural reforms for drastic business strategies reconstruction.

Please tell me about the International Business.

We have been providing brokerage and operating serviced apartments and offices utilizing local national staff. However, we plan to transfer or withdraw from the International Business in the process of the structural reforms for drastic business strategies reconstruction.

What is your policy on profit distribution to shareholders?

Distribution of profit to shareholders is an important management issue. However, in consideration of recent performance, we regrettably decided not to pay dividends. In addition, we have decided to abolish the shareholder benefits program. Please see "Notice Concerning Abolishing Shareholder Benefits Program" for details.

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