Leopalace21 : Consolidated Financial Statements (Japanese Accounting Standard, for the six months ended December 31, 2021)

Consolidated Financial Statements (Japanese Accounting Standard)	February 10, 2022
(For the nine months ended December 31, 2021)
Name of Company Listed: Leopalace21 Corporation	Stock Listing: Tokyo Stock Exchange
Code Number: 8848	URL: http://eg.leopalace21.com/	Location of Head Office: Tokyo
Representative:	Position: President and CEO	Name: Bunya Miyao
Name of Contact Person:	Position: Executive Officer	Name: Shinji Takekura	Telephone: [phone]
Scheduled Date of Filing of Securities Report (Japanese only):	February 14, 2022
Scheduled Date of Commencement of Dividend Payments: －

Supplemental Explanatory Material Prepared: Yes

Results Briefing Held: Yes (for institutional investors and security analysts)

1. Results for the Nine Months ended December 31, 2021 (April 1, 2021 - December 31, 2021)

(1) Consolidated financial results						(Amounts less than JPY 1 million are omitted)
	(The percentage figures indicate rate of gain or loss compared with the same period in the previous fiscal year)
		Net sales		Operating profit	Recurring profit	Net income attributable to
			shareholders of the parent
		JPY million		%	JPY million	%	JPY million	%	JPY million	%
	Nine months ended December 31, 2021	297,470		(3.5)	4,275	－	1,444	－	5,865	－
	Nine months ended December 31, 2020	308,326		(6.2)	(16,585)	－	(20,562)	－	(25,003)	－

(Note) Comprehensive income in the nine months ended December 31, 2021: JPY 8,467 million (－%); Comprehensive income in the nine months ended December 31, 2020: JPY (26,294) million (－%)

				Net income		Diluted net income
				per share			per share
				JPY				JPY
	Nine months ended December 31, 2021	17.83			15.95
	Nine months ended December 31, 2020	(95.18)			－
							No.29, March 31, 2020) have been adopted from
	(Note)	Changes caused by the Accounting	Standard for Revenue	Recognition (ASBJ Statement
		the beginning of Q1 in the fiscal year ending March 31, 2022. The result of Q3 reflected such changes.
(2) Consolidated financial position
				Total assets				Net assets		Equity ratio
				JPY million				JPY million		%
	As of December 31, 2021			143,137		4,209		(3.9)
	As of March 31, 2021			161,708		3,277		(5.3)
	(Reference) Ownership equity as of December 31, 2021: JPY (5,634) million; as of March 31, 2021: JPY (8,494) million
	(Note)	Changes caused by the Accounting Standard for Revenue Recognition (ASBJ Statement No.29, March 31, 2020) have been adopted from

the beginning of Q1 in the fiscal year ending March 31, 2022. The result of Q3 reflected such changes.

2. Dividend Status

			Dividend per share
	End of Q1	End of Q2	End of Q3	End of FY	Annual Total
	JPY	JPY	JPY	JPY	JPY
FY ended March 31, 2021	―	0.00	―	0.00	0.00
FY ending March 31, 2022	―	0.00	―
FY ending March 31, 2022 (Estimate)				0.00	0.00

(Note) Change from the latest dividend estimate: No

3. Consolidated Earnings Forecasts for the Fiscal Year ending March 31, 2022 (April 1, 2021 - March 31, 2022)

(The percentage figures for full fiscal year indicate rate of gain or loss compared with the previous full fiscal year.)

	Net sales		Operating profit	Recurring profit	Net income attributable	Net income
		to shareholders of the
		per share
								parent
	JPY million		%	JPY million	%	JPY million	%	JPY million	%	JPY
FY ending March 31, 2022	399,400		(2.3)	2,600	－	(1,800)	－	1,800	－	5.47

(Note) Change from the latest earnings forecast: No

Changes caused by the Accounting Standard for Revenue Recognition (ASBJ Statement No.29, March 31, 2020) have been adopted from the beginning of Q1 in the fiscal year ending March 31, 2022. Above consolidated earnings forecasts reflected such changes.

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(Notes)

1. Changes in major subsidiaries during the nine months in the fiscal year ending March 2022 (change in specific subsidiaries resulting in a change in the scope of consolidation) : No
2. Use of accounting procedures specific to the preparation of quarterly financial statements: No
3. Changes in accounting policies, procedures or reporting methods used in preparation of financial statements and restatements
4. 1. Changes in accounting policies accompanying revision of accounting standards, etc.: Yes
   2. Changes in accounting policies other than (i) above: No
   3. Changes in accounting estimates: No
   4. Restatements: No

(Note) For details please refer to 2. Consolidated Financial Statements (3) Notes Regarding Consolidated Financial Statements (Changes in accounting policies) in p.11 of the attached material.

(4) Total number of outstanding shares (common stock)

1. Total number of outstanding shares at term end (including treasury stock)

As of December 31, 2021: 329,389,515 shares, As of March 31, 2021: 329,389,515 shares

1. Total treasury stock at term end

As of December 31, 2021: 493,610 shares, As of March 31, 2021: 561,610 shares

1. Average number of outstanding shares during the period

As of December 31, 2021: 328,886,262 shares, As of December 31, 2020: 262,697,988 shares

-Indication regarding the status of auditing:

These financial statements are not subject to auditing under the Financial Instruments and Exchange Act.

• Explanation on the proper use of the business forecasts, and other special notices: (Note on the business forecasts and other forward-looking statements)
  The business forecasts and other forward-looking statements contained in this report are based on information currently available to Leopalace21 (hereinafter the "Company") and on certain assumptions that the Company has judged to be reasonable. Readers should be aware that a variety of factors might cause actual results to differ significantly from these forecasts.
  For assumptions of business forecasts and notes on the proper use of these forecasts, please refer to 1. Business Results (3) Future Predictions in p.6.

(Method for the acquisition of supplemental explanatory material)

Supplemental Explanatory Material is planned to be posted on the Company's website on February 10, 2022.

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【Table of Contents】
1.	Business Results.................................................................................................................................................	4
(1)	Analysis of Business Results ...............................................................................................................................................	4
(2)	Analysis of Consolidated Financial Position ........................................................................................................................	5
(3)	Future Predictions................................................................................................................................................................	6
2.	Consolidated Financial Statements and Notes .................................................................................................	7
(1)	Consolidated Balance Sheets..............................................................................................................................................	7
(2)	Consolidated Statement of Income and Consolidated Statement of Comprehensive Income.............................................	9
	Consolidated Statement of Income .............................................................................................................................................................	9
	Consolidated Statement of Comprehensive Income .................................................................................................................................	10
(3)	Notes Regarding Consolidated Financial Statements........................................................................................................	11
	(Notes regarding the premise of the Company as a going concern) .........................................................................................................	11
	(Note related to the significant changes in the amount of shareholders equity) ........................................................................................	11
	(Changes in accounting policies)...............................................................................................................................................................	11
	(Additional information)..............................................................................................................................................................................	11
	(Segment Information)...............................................................................................................................................................................	12
3.	Other ...................................................................................................................................................................	13
	(Significant Events Relating to Going Concern Assumption) ....................................................................................................................	13
	(State of Progress for Excessive Liabilities Elimination)............................................................................................................................	14

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1.	Business Results
(1)	Analysis of Business Results
				(JPY million)
		Nine months ended	Nine months ended	Difference
		December 31, 2021	December 31, 2020
Net sales	297,470	308,326	(10,856)
Operating profit (loss)	4,275	(16,585)	20,860
Recurring profit (loss)	1,444	(20,562)	22,006
Net income (loss) attributable to	5,865	(25,003)	30,868
shareholders of the parent

The corporate earnings showed a recovery trend in the domestic economy during the nine months of the fiscal year ending March

2022 despite still heavily affected by the spread of COVID-19 pandemic.

The new housing starts of leased units increased for the ten months in a row (up 7.9% year on year). In the rental housing market, the number of vacant houses continues to increase, and in order to secure a stable occupancy rates amid difficulty in recovering nationwide demand, the Company believes it is important to implement a differentiation strategy by providing value-added services and by focusing on supplying apartments in the three metropolitan areas where high occupancy rates are expected in the future.

Under these circumstances, Leopalace21 Group (the "Group") posted a significant loss for the three years in a row in the previous fiscal year, mainly due to a deterioration in the occupancy rates caused by the construction defects. The Company announced "Notice Concerning Implementing Structural Reforms based on Strategic Review Results for Drastic Business Strategies Reconstruction" on June 5, 2020 and took selective concentration approach with prioritized allocation of the management resources into the Leasing Business, a core business, and continued structural reforms to fundamentally improve the business structure. The Company strives to stabilize the business and financial position and continuously improve the profitability.

As a result, net sales for the nine months ended December 31, 2021 became JPY 297,470 million, a decrease of 3.5% year on year and operating profit was JPY 4,275 million, compared with operating loss of JPY 16,585 million, due to the reduction of cost of sales and SGAE amounting to JPY 31,716 million against the same period in the previous fiscal year. The recording of interest expenses of JPY 3,374 million made recurring profit of JPY 1,444 million, which compared with recurring loss of JPY 20,562 million for the same period ended December 31, 2020.

The Company managed to record net income attributable to shareholders of the parent of JPY 5,865 million, which compared with net loss attributable to shareholders of the parent of JPY 25,003 million for the same period last fiscal year, in addition to operating profit and recurring profit. The improvement was mainly contributed by the reversal of provision for losses related to repairs of JPY 6,144 million because of lowered unit repair cost by placing batch orders and by insourcing repairs combined with reduced number of buildings to be repaired due to updated deficiency judgment and increase of demolition.

The Company has adopted the Accounting Standard for Revenue Recognition (ASBJ Statement No.29, March 31, 2020) from Q1 in the fiscal year ending March 31, 2022. Net sales for Q3 have been increased by JPY 140 million, cost of sales has been reduced by JPY 1,216 million, and operating profit, recurring profit, and income before taxes and other adjustments have been increased by JPY 1,357 million.

For details, please refer to 2. Consolidated Financial Statements (3) Notes Regarding Consolidated Financial Statements (Changes in accounting policies).

Result by segment are as follows:

						(JPY million)
		Net sales			Operating profit
	Nine months	Nine months		Nine months	Nine months
	ended	ended	Difference	ended	ended	Difference
	December 31,	December 31,	December 31,	December 31,
	2021	2020		2021	2020
Leasing Business	285,696	295,224	(9,528)	8,588	(8,933)	17,522
Elderly Care Business	10,890	10,956	(65)	(456)	(461)	5
Other Businesses	884	2,145	(1,261)	(1,148)	(1,138)	(9)
Adjustments	－	－	－	(2,708)	(6,051)	3,343
Total	297,470	308,326	(10,856)	4,275	(16,585)	20,860

(i) Leasing Business

In the Leasing Business, the Company provides abundant value-added services such as my DIY which allows the tenants to customize a selected single wall of the room, promotion of the transition to smart apartments which enables electrical appliances and door locks, to be operated by smartphone, support for so-called remote services such as web-based customer services, apartment

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viewing and rental contract signing, and security services in collaboration with leading security companies. Also, in order to achieve stable occupancy rates, the Company is strengthening sales to the corporate customers through top-level sales led by President and CEO which aims to recover the trust damaged by the construction defects problem and to ask for the customers to use increased number of apartment rooms, strengthening tie with real estate agents as well as implementing area intensive approach which deals with area specific requirements.

The occupancy rate at the end of December 31, 2021 was 80.45% (up 3.38 points from the same month end in the previous fiscal year) with average occupancy rate of 80.65% (up 2.07 points year on year). The demand for apartment rooms was recovering due to the slowdown impact of COVID-19 pandemic and measures such as top-level sales and strengthened tie with real estate agents produced positive results. The number of units under management was 571 thousand (a decrease of 1,900 from the end of the previous fiscal year).

The number of direct leasing sales offices at the end of December 31, 2021 was 109 (a reduction of 30 from the end of the previous fiscal year). That reflected efforts to increase the operational efficiency and productivity.

The orders received was JPY 1,862 million (down 60.8 % year on year) and the outstanding orders as of end of December 31,

2021 stood at JPY 7,065 million (down 38.5 % from the end of the previous fiscal year). This was due to the Company's ceasing of new bookings because of the construction defects problem such as parting walls.

As a result, net sales came to JPY 285,696 million (down 3.2% year on year) due to the reduction of construction subcontracting business and lowered unit rent due to the impact of COVID-19 pandemic. Operating profit was JPY 8,588 million due to the reduction of management cost and SGAE, contractual adjustment of master-lease rent as a result of agreement with the property owners and reversal of provision for apartment vacancy loss (operating loss of JPY 8,933 million was recorded in Q3 in the fiscal year ended March 31, 2021).

(ii) Elderly Care Business

The Company has been cutting the operational cost by continuous efficiency improvement for the Elderly Care Business, a strategic growth business. Net sales during the nine months ended December 31, 2021 were JPY 10,890 million (down 0.6% year on year), and operating loss was JPY 456 million (an improvement of JPY 5 million year on year) due to a decrease in the number of users for elderly care services concerning about the infection risk of COVID-19. The number of facilities was 87 as of the end of Q3 in the fiscal year ending March 31, 2022.

(iii) Other Businesses

Net sales of the Other Businesses including resort facilities in Guam and finance business, were JPY 884 million (down 58.8% year on year) and operating loss was JPY 1,148 million (an increase of loss by JPY 9 million year on year) due mainly to a significant decline in occupancy rates in Guam because of COVID-19 pandemic.

(2) Analysis of Consolidated Financial Position

			(JPY million)
	Assets	Liabilities	Net assets
As of December 31 ,2021	143,137	138,927	4,209
As of March 31, 2021	161,708	158,431	3,277
Difference	(18,571)	(19,504)	932
Change rate	(11.5%)	(12.3%)	28.4%

Total assets at the end of December 31, 2021 decreased by JPY 18,571 million from the end of the previous fiscal year to JPY 143,137 million. This was mainly attributable to the decrease of the following items: JPY 10,733 million in cash and deposits, JPY 2,467 million in others (mostly accounts receivable), JPY 1,405 million in leased assets (net), and JPY 1,638 million in others (non-current assets).

Total liabilities decreased by JPY 19,504 million from the end of the previous fiscal year to JPY 138,927 million. This was mainly attributed to the decrease of the following items: JPY 2,102 million in accounts payable - other, JPY 1,804 million in lease obligations, JPY 8,406 million in provision for losses related to repairs, and JPY 5,012 million in provision for apartment vacancy loss.

Total net assets increased by JPY 932 million from the end of the previous fiscal year to JPY 4,209 million. This was mainly due to an increase of JPY 1,901 million in foreign currency transaction adjustments and the recording of JPY 5,865 million in net income attributable to shareholders of the parent, on the other hand, non-controlling interests decreased by JPY 1,896 as a result of dividend payment to a non-controlling shareholder by a consolidated subsidiary and its payment for purchased treasury stock, and retained earnings decreased by JPY 4,963 million resulting from retrospective application of the Accounting Standard for Revenue Recognition as of the beginning of the fiscal year ending March 2022. The equity ratio improved by 1.4 points from the end of the previous fiscal year to minus 3.9%.

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