Leopalace21 : Messages and Q&A Session of the Briefing for Third Quarter (ended December 31, 2021)

Leopalace21 Corporation

Financial Results Briefing for the Nine Months Ended December 31, 2021

February 10, 2022

Event Summary

[Company Name]	Leopalace21 Corporation
[Company ID]	8848-QCODE
[Event Language]	JPN
[Event Type]	Earnings Announcement
[Event Name]	Financial Results Briefing for the Nine Months Ended December 31, 2021
[Fiscal Period]	FY2021 Q3
[Date]	February 10, 2022
[Number of Pages]	22
[Time]	17:00 - 17:45
	(Total: 45 minutes, Presentation: 28 minutes, Q&A: 17 minutes)
[Venue]	Webcast
[Venue Size]
[Participants]
[Number of Speakers]	4
	Bunya Miyao	President and CEO, Chief of the Business
		Operation Headquarters
	Shigeru Ashida	Director, Managing Executive Officer, Chief
		of Corporate Management Headquarters,
		Chief of Construction Defects Response
		Headquarters
	Shinji Takekura	Executive Officer, Senior Department
		Manager, Corporate Planning Department
	Wataru Kawasaki	Corporate Planning Department, IR
		Promotion Office
[Analyst Names]*	Yasuhisa Hashimoto	Mizuho Securities Co., Ltd.
	Kouki Ozawa	SBI Securities Co., Ltd.
	Junichi Tazawa	SMBC Nikko Securities Co., Ltd.

*Analysts that SCRIPTS Asia was able to identify from the audio who spoke during Q&A.

Presentation

Kawasaki: Thank you very much for taking time out of your busy schedules to participate in the financial results briefing for the third quarter of the fiscal year ending March 2022 of Leopalace21 Corporation today. I am Kawasaki, and I will be the moderator. Thank you.

Today's speakers and question-and-answer session will be led by the following three people: Bunya Miyao, President and CEO; Shigeru Ashida, Director, Managing Executive Officer, Chief of Corporate Management Headquarters; and Shinji Takekura, Executive Officer, Senior Department Manager, Corporate Planning Department.

In this briefing, there will be time for a question-and-answer session after the financial report. Questions will be accepted in text format via the Q&A function in the control panel. Please note that only one question may be included per text. If you have multiple questions, please send us multiple messages.

Please note that due to time constraints, we may not be able to answer all of your questions. We would appreciate your understanding in advance. Please note that the chat function is not available, so if you have any problems, please let us know using the Q&A function.

We will also ask you to complete a one-minute questionnaire after the briefing. We look forward to your cooperation. The meeting is scheduled to end at 18:00.

We will now begin our presentation on the financial results for the third quarter of the fiscal year ending March 2022.

Miyao: Thank you very much for taking time out of your busy schedule to join us today. I am Miyao, President and CEO. I would like to explain our business results for the third quarter of the fiscal year ending March 2022, as well as the revision of the full-year business forecast announced on February 4.

First, in the financial results for the third quarter of the fiscal year ending March 2022, net sales decreased by JPY10.8 billion YoY and JPY1.8 billion compared to the plan, but we were able to improve gross and other profit compared to both the previous fiscal year and plan.

The reason for the YoY decline in net sales was a decrease in sales of construction and real estate sales due to the impact of the suspension of new orders. On the other hand, there are two factors for the decrease in revenue compared to the plan. One is that more tenants than expected have vacated their rooms due to the spread of the Omicron strain, and the other is the continued decline in contracted rents, as reported previously.

While we are moving forward with cost and expense reductions steadily, there has been a slight delay in contractual adjusting of master lease rent, but it is still within the range that can be handled by time lag in reporting in the fiscal year. In addition, a reversal of the provision for apartment vacancy loss in the cost of sales of JPY5 billion was made, and the cost of sales was reduced by JPY24.8 billion from the previous fiscal year.

SG&A expenses were reduced by JPY6.8 billion YoY. As a result, we were able to achieve an operating profit of JPY4.2 billion, a significant improvement over the previous fiscal year. Recurring profit remained to be at JPY1.4 billion due to the burden of JPY3.3 billion in interest payments on a JPY3.3 billion loan with share subscription rights. However, as a result of a JPY6.1 billion reversal of the provision for losses related to repairs, net income was JPY5.8 billion, an improvement of JPY30.8 billion YoY, and we were able to achieve profitability in the third quarter as well.

Ownership equity as of the end of the third quarter was negative JPY5.6 billion, but net assets, reflecting share subscription rights and non-controlling interests, were positive JPY4.2 billion.

Next, I will explain the revision to our full-year earnings forecasts. Please see page 10 of the document. This is a summary of the plan, as well as factors for changes.

Net sales forecast was revised down by JPY1.2 billion, or 0.3%, from the previous plan announced on November 8.

The main reasons for this, as in the third quarter results, are that the occupancy rate has not met the plan due to more than expected leavers from rooms and that the recovery of unit rent has been delayed.

With regard to rent in particular, we told you at the previous briefing that we would gradually raise the rent in the second half of the fiscal year, and although we are gradually raising the rent, it is not yet complete. On the other hand, ASUKA SSI, tenant contents insurance provider, a subsidiary of the Company, has newly included in its plan an increase in revenue from the conclusion of reinsurance contracts.

Although the occupancy rate plan has been revised slightly downward due to an increase in leavers, we believe that there is no problem with our sales strategy and sales capabilities. In particular, the fourth quarter is the time to capture demand for new graduates in corporate tenants, and as a result of interviews with various companies, we have already confirmed that demand is even higher than last year, specifically, demand for nearly 25,000 leased corporate housing units for a tenant without family.

Last fiscal year, we received about 15,000 contracts for a demand of about 20,000 rooms, and we believe that we will be able to capture the same proportion this year. Last year, we started the interview to find out demand around October to confirm rooms at early stage. However, this year, we are trying to determine