Leopalace21 : Financial Results Briefing for the Three Month Ended June 30, 2022

Leopalace21 Corporation

Financial Results Briefing for the Three Months Ended June 30, 2022

August 5, 2022

Presentation

Kawasaki: Thank you very much for taking time out of your busy schedules today to participate in the financial results briefing of Leopalace21 Corporation for Q1 FY2022.

I'm Kawasaki, and I will be your moderator. Thank you very much for your cooperation.

Today's speakers are Mr. Bunya Miyao, President and CEO, and Shinji Takekura, Director, Chief of the Corporate Management Headquarters.

Mr. Miyao, President and CEO, will now give an overview of the Q1 results for FY2022.

Miyao: Thank you for taking time out of your busy schedules to join us today. I'm Miyao, President and CEO. I would like to provide a summary of our Q1 results for FY2022, our sustainability initiatives, and our response to construction defects.

First, please see page two, the executive summary, for a summary of the Q1 financial results.

There are three key points in this financial statement. The first point is that the Q1 P&L was positive compared to the plan. It was the first operating surplus in four fiscal years and the first final surplus in five fiscal years. Second, the main reason for this is that not only did the average rent increase, but the occupancy rate also increased by more than 3 percentage points YoY. And the third and final point is that we were able to reduce both cost and SGAE YoY and to the plan. These are the three points.

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See page seven. This is the detail of the P&L.

As you can see, net sales were JPY101.4 billion, an increase of JPY1.1 billion YoY, mainly due to an increase in the occupancy rate and a rise in the unit rent.

This is an increase of JPY1 billion over the plan. The typical contribution to this result was the key money income. Key money and security deposit are business practices in localized rental housing. For example, there is no culture of key money in Hokkaido, and in a sense, we have not set key money either.

However, as you know, we often provide company housing to companies that have a nationwide presence. Even in areas such as Hokkaido, where there is no key money culture. Instead of dealing with people in those areas, we can do it all at once at our head office in Tokyo or Osaka and set up key money. In areas where demand is high, such as Hokkaido, we have been able to increase revenues associated with occupancy rates by setting new key money.

We believe that our ability to develop such a strategy is one of the effects of the seven-area intensive strategies that we have been working on since the previous fiscal year.

Cost of sales was JPY86.9 billion, a decrease of JPY3.5 billion YoY, mainly due to the effect of contractual adjustment of master-lease rent. In addition, it is negative JPY1.1 billion compared to the plan, but half of this, or JPY0.5 billion, is a reversal of the provision for apartment vacancy loss. The Company had planned to reverse the provision for apartment vacancy loss in March 2023, but the reversal occurred in Q1, which means that it occurred outside of the plan.

The remaining JPY600 million is due to a delay in the start of maintenance of managed properties, which we announced we would strengthen this fiscal year. We intend to exhaust this amount in Q2 and beyond.

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Gross profit after SGAE was JPY14.4 billion, an increase of JPY4.7 billion YoY and an increase of JPY2.1 billion from the plan.

SGAE was JPY10.9 billion, a reduction of JPY0.8 billion from the plan. This is due to various reviews of operations, including reductions in commission expenses, outsourcing fees, etc., as well as a slight delay in system-related expenses, which are included in repair expenses. We have become much more cost-conscious, and we will continue to make progress within our SGAE plan.

As a result of the above, operating profit was JPY3.5 billion, which, as I mentioned earlier, is the first time in four years that Q1 has returned to profitability.

Here, interest expenses of JPY1.1 billion in non-operating losses resulted in the recording of recurring profit of JPY2.6 billion and other extraordinary losses of JPY0.4 billion, bringing net income to JPY1.6 billion.

The final net income was JPY1.6 billion, and as I mentioned earlier, this was the first profitable result in Q1 in five years.

Page 10 shows the balance sheet.

The topmost cash and deposits at the end of Q1 amounted to JPY43.8 billion, a decrease of JPY1.6 billion from the end of last March.

The decrease in cash and deposits in Q1 is an annual trend. Inevitably, the end of the fiscal year, introduction fees related to occupancy promotion, brokerage fees, and other payments occur in April. As expenses, they were taken in the previous year as well. In addition, during the busy season in February and March, which is the season for moving to a new apartment, there are many leavers. Although the fee which incurs is recorded

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in March, the payment is inevitably made in April, which is the reason for the decrease in cash and deposits in Q1.

However, the rate of decline has decreased compared to the same period in the previous years because we were able to control various things. For your information, the decrease in cash in Q1 last year was JPY9 billion, so we have made some progress in reducing cost controls.

In the second line, as noted, total assets decreased by JPY2.3 billion to JPY143 billion.

As for liability accounts, the balance of provision for losses related to repairs decreased by JPY0.3 billion to JPY17.7 billion. The balance of provision for apartment vacancy loss is JPY5 billion due to a JPY500 million reversal.

Other liabilities, such as accounts payable-other and accrued income taxes, decreased, bringing total liabilities to JPY129.8 billion, a decrease of JPY4.5 billion from the end of the previous fiscal year.

The recording of net income of JPY1.6 billion reduced the negative balance in retained earnings. In addition, other comprehensive income, which is under shareholders' equity, increased by JPY1.3 billion compared to the end of March, due to the foreign currency translation adjustments for the depreciation of the yen.

As a result, ownership equity increased by JPY3 billion YoY to JPY4 billion. The equity ratio was 2.9%, an improvement of 2.2 points.

Total net assets, including non-controlling interests, amounted to JPY13.2 billion, an increase of JPY2.2 billion from the end of the previous fiscal year.

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