レオパレス２１（8848） – Summary of Financial Results 2022

May 16, 2022 Telephone: +81-50-2016-2907 URL: http://eg.leopalace21.com/ Position: President and CEO Position: Executive Officer Consolidated Financial Statements (Japanese Accounting Standard) (For the fiscal year ended March 31, 2022) Stock Listing: Tokyo Stock Exchange Name of Company Listed: Leopalace21 Corporation Location of Head Office: Tokyo Code Number: 8848 Name: Bunya Miyao Representative: Name: Shinji Takekura Name of Contact Person: June 29, 2022 Scheduled Date of the Ordinary Shareholders’ Meeting June 29, 2022 Scheduled Date of Filing of Securities Report (Japanese only): － 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 Fiscal Year ended March 31, 2022 (April 1, 2021 – March 31, 2022) (1) Consolidated financial results (Amounts less than JPY 1 million are omitted) (The percentage figures indicate rate of gain or loss compared with the last fiscal year) Net sales Operating profit Recurring profit Net income attributable to shareholders of the parent % JPY million － 11,854 (23,680) － FY ended March 31, 2022 FY ended March 31, 2021 (Note) Comprehensive income in the fiscal year ended March 31, 2022: JPY 15,348 million (－%); Comprehensive income in the fiscal year ended March 31, 2021: JPY (25,445) million (－%) JPY million 398,366 408,959 JPY million 1,774 (29,182) % (2.6)－ (5.7) % － － JPY million % (2,151) － (34,170) － Net income per share JPY Diluted net income per share JPY Return on equity % Recurring income / Total capital % FY ended March 31, 2022 FY ended March 31, 2021 (Reference) Share of loss of entities accounted for using equity method in the fiscal year ended March 31, 2022: JPY (162) million Share of loss of entities accounted for using equity method in the fiscal year ended March 31, 2021: JPY (44) million (Note) Changes caused by the Accounting Standard for Revenue Recognition (ASBJ Statement No.29, March 31, 2020) have been adopted from 36.04 (84.88) (1.4) (19.1) 32.23 － － － the beginning of the fiscal year ended March 31, 2022. The result of the fiscal year reflected such changes. Operating profit / Net sales % / Total capital 0.4 (7.1) (2) Consolidated financial position As of March 31, 2022 As of March 31, 2021 (Reference) Ownership equity as of March 31, 2022: JPY 1,068 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 Equity per share JPY Total assets JPY million Net assets JPY million Equity ratio % 3.25 （25.83） 145,430 161,708 11,034 3,277 0.7 (5.3) the beginning of the fiscal year ended March 31, 2022. The result of the fiscal year reflected such changes. (3) Consolidated cash flows FY ended March 31, 2022 FY ended March 31, 2021 2. Dividend Status FY ended March 31, 2021 FY ended March 31, 2022 FY ending March 31, 2023 (Estimate) Cash flows from operating activities JPY Million Cash flows from investing activities JPY Million Cash flows from financing activities JPY Million Cash and cash equivalents at end of year JPY Million (4,460) (40,816) 886 11,829 (5,886) 23,571 44,023 53,346 Dividend per share End of Q1 End of Q2 End of Q3 End of FY Annual JPY ― ― JPY 0.00 0.00 JPY ― ― JPY 0.00 0.00 0.00 JPY 0.00 0.00 0.00 ― 0.00 ― Total cash dividends (annual) JPY Million ― ― Dividend payout ratio (consolidated) % ― ― ― Dividend on equity ratio (consolidated) % ― ― 1 3. Consolidated Earnings Forecasts for the Fiscal Year ending March 31, 2023 (April 1, 2022 – March 31, 2023) (The percentage figures for full fiscal year indicate rate of gain or loss compared with the previous FY; those for the six-month period represent the change compared with the same term in the previous FY.) Net income per share Net income attributable to shareholders of the parent Operating profit Recurring profit Net sales JPY million % JPY million % JPY million % JPY million % JPY 202,400 410,800 1.4 3.1 2,600 221.0 100 (1,000) － (3.04) 11,700 559.2 6,800 24,900 110.0 75.71 – – Six months ending September 30, 2022 FY ending March 31, 2023 (Notes) (1) Changes in major subsidiaries during the fiscal year ended March 2022 (change in specific subsidiaries resulting in a change in the scope of consolidation) : No (2) Changes in accounting policies, procedures or reporting methods used in preparation of financial statements and restatements (i) Changes in accounting policies accompanying revision of accounting standards, etc.: Yes (ii) Changes in accounting policies other than (i) above: No (iii) Changes in accounting estimates: No (iv) Restatements: No (Note) For details please refer to 3. Consolidated Financial Statements (5) Notes Regarding Consolidated Financial Statements (Changes in accounting policies) in p.18 of the attached material. (3) Total number of outstanding shares (common stock) (i) Total number of outstanding shares at term end (including treasury stock) As of March 31, 2022: 329,389,515 shares, As of March 31, 2021: 329,389,515 shares (ii) Total treasury stock at term end As of March 31, 2022: 493,610 shares, As of March 31, 2021: 561,610 shares (iii) Average number of outstanding shares during the period FY ended March 31, 2022: 328,888,640 shares, FY ended March 31, 2021: 279,003,996 shares (Reference) Summary of Non-Consolidated Financial Statements 1. Results of the Fiscal Year Ended March 2022 (April 1, 2021 – March 31, 2022) (1) Non-consolidated financial results FY ended March 31, 2022 FY ended March 31, 2021 FY ended March 31, 2022 FY ended March 31, 2021 Net sales JPY Million 382,822 392,513 % (2.5) (5.2) Operating profit % JPY Million 2,370 (29,226) － － Net income per share Diluted net income per share JPY JPY 43.33 (66.97) 38.75 － (The percentage figures indicate rate of gain or loss compared with the previous FY) Recurring profit % JPY Million (1,050) (29,005) － － Net income JPY Million 14,251 (18,685) % － － (Note) Changes caused by the Accounting Standard for Revenue Recognition (ASBJ Statement No.29, March 31, 2020) have been adopted from the beginning of the fiscal year ended March 2022. The result of the fiscal year reflected such changes. (2) Non-consolidated financial position As of March 31, 2022 As of March 31, 2021 Total assets JPY Million Net assets JPY Million Equity ratio % Equity per share JPY 132,842 146,832 2,979 (6,724) 2.0 (4.8) 7.97 (21.63) (Reference) Ownership equity as of March 31, 2022: JPY 2,621 million; as of March 31, 2021: JPY (7,112) 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 the fiscal year ended March 2022. The result of the fiscal year reflected such changes. 2 2. Non-consolidated Earnings Forecasts for the Fiscal Year Ending March 2023 (April 1, 2022 – March 31, 2023) (The percentage figures for full fiscal year indicate rate of gain or loss compared with the previous FY; those for the six-month period represent the change compared with the same term in the previous FY.) Six months ending September 30, 2022 FY ending March 31, 2023 Net sales Recurring profit Net income JPY Million % JPY Million % JPY Million % Net income per share JPY 195,500 394,700 1.7 3.1 1,300 7,900 － － 1,200 (14.2) 27,600 93.7 3.65 83.92 – 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 p.7 “1. Business Results (4) Future Predictions.” (Method for the acquisition of supplemental explanatory material) Supplemental Explanatory Material is planned to be posted on the Company’s website on May 16, 2022. 3 【Table of Contents】 1. 2. 3. Business Results ………………………………………………………………………………………………………………………………. 5 (1) Analysis of Business Results …………………………………………………………………………………………………………………………….. 5 (2) Analysis of Consolidated Financial Position ………………………………………………………………………………………………………… 6 (3) Analysis of Cash Flows Position ………………………………………………………………………………………………………………………… 7 (4) Future Predictions ……………………………………………………………………………………………………………………………………………. 7 (5) Significant Events Relating to Going Concern Assumption …………………………………………………………………………………….. 7 Basic Approach to Selection of Accounting Standards ……………………………………………………………………….. 8 Consolidated Financial Statements and Notes ……………………………………………………………………………………. 9 (1) Consolidated Balance Sheets ……………………………………………………………………………………………………………………………. 9 (2) Consolidated Statement of Income and Consolidated Statement of Comprehensive Income ……………………………………. 11 Consolidated Statement of Income ……………………………………………………………………………………………………………………………………….. 11 Consolidated Statement of Comprehensive Income ………………………………………………………………………………………………………………… 13 (3) Consolidated Statements of Changes in Net Assets……………………………………………………………………………………………. 14 (4) Consolidated Statements of Cash Flows …………………………………………………………………………………………………………… 16 (5) Notes Regarding Consolidated Financial Statements………………………………………………………………………………………….. 18 (Notes regarding the premise of the Company as a going concern) …………………………………………………………………………………………… 18 (Changes in accounting policies) …………………………………………………………………………………………………………………………………………… 18 (Segment Information) …………………………………………………………………………………………………………………………………………………………. 19 (Information per share) ………………………………………………………………………………………………………………………………………………………… 22 (Significant subsequent event) ……………………………………………………………………………………………………………………………………………… 22 4. Other ………………………………………………………………………………………………………………………………………………. 23 (State of Progress for Excessive Liabilities Elimination) ……………………………………………………………………………………………………………. 23 4 1. Business Results (1) Analysis of Business Results Net sales Operating profit (loss) Recurring profit (loss) Net income (loss) attributable to shareholders of the parent FY ended March 31, 2022 398,366 FY ended March 31, 2021 408,959 1,774 (2,151) 11,854 (29,182) (34,170) (23,680) (JPY million) Percentage change (2.6%) –% –% –% Difference (10,592) 30,957 32,018 35,535 The corporate earnings showed a recovery trend in the domestic economy during the fiscal year ended March 2022 as a result of implementing infection prevention measures and boosting economic activities in parallel in the prolonged effect from COVID-19 pandemic. The outlook however remained uncertain because of outbreak of the Omicron variant and Russian invasion into Ukraine. The new housing starts of leased units increased for the first time in five years (up 9.2% 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 strategy package comprising: focus on supplying apartments in the three metropolitan areas where high occupancy rates are expected in the future; keep and enhance the property value through carrying out appropriate maintenance; implement area intensive strategy to cater for the respective business requirements and customer characteristics; and promote DX solutions for attracting customers by providing convenient services such as web-based contract signing, and other tenant services. Under these circumstances, Leopalace21 Group (the “Group”) 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 in accordance with announcement on structural reforms dated June 5, 2020. The Company strives to stabilize the business and financial position and continuously improve the profitability through cost-cutting efforts across the board. As a result, net sales for the fiscal year ended March 31, 2022 became JPY 398,366 million, a decrease of 2.6% year on year and operating profit was JPY 1,774 million, compared with operating loss of JPY 29,182 million, due to the reduction of cost of sales and SGAE amounting to JPY 41,550 million against the previous fiscal year. The recording of interest expenses of JPY 4,474 million made recurring loss of JPY 2,151 million, a reduction of JPY 32,018 million in recurring loss against the previous fiscal year. The Company managed to record net income attributable to shareholders of the parent of JPY 11,854 million, a profit since the fiscal year ended March 31, 2018, which compared with net loss attributable to shareholders of the parent of JPY 23,680 million for the previous fiscal year. The improvement was mainly contributed by the reversal of provision for losses related to repairs of JPY 11,959 million because of lowered unit repair cost by insourcing repairs and tightened control on supplier selection combined with reduced number of buildings to be repaired due to updated deficiency judgment and increase of demolition, and income taxes – deferred of JPY 4,401 million. The Company has adopted the Accounting Standard for Revenue Recognition (ASBJ Statement No.29, March 31, 2020) from the beginning of the fiscal year ended March 31, 2022. Net sales have been increased by JPY 1,325 million, cost of sales has been reduced by JPY 1,580 million, and operating profit has been increased by JPY 2,905 million, recurring loss has been decreased by the same amount, and income before taxes and other adjustments have been increased by the same amount. For details, please refer to 3. Consolidated Financial Statements (5) Notes Regarding Consolidated Financial Statements (Changes in accounting policies). Result by segment are as follows: Net sales Operating profit FY ended March 31, 2022 FY ended March 31, 2021 Difference FY ended March 31, 2022 FY ended March 31, 2021 Difference (JPY million) Leasing Business 383,043 391,964 (19,385) 27,105 Elderly Care Business Other Businesses Adjustments 14,258 1,064 － 14,524 2,469 － (8,921) (266) (1,405) － 7,719 (789) (1,668) (3,486) 1,774 (720) (1,551) (7,524) (68) (116) 4,038 Total 398,366 408,959 (10,592) (29,182) 30,957 5 (i) Leasing Business In 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, and support for remote services such as web-based customer services, apartment viewing and rental contract signing. In order to achieve stable occupancy rates, the Company has been 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 March 2022 was 85.10% (up 3.38 points from the end of the previous fiscal year) with average occupancy rate of 81.22% (up 2.33 points year on year). The demand for apartment rooms was recovering due to the slowdown impact of COVID-19 pandemic, restored demand by corporate customers which had been subdued, and successful measure of strengthened tie with real estate agents. The number of units under management was 567 thousand (a decrease of 6,300 from the end of the previous fiscal year). The number of direct leasing sales offices at the end of March 2022 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 2,792 million (down 52.9% year on year) and the backlog of orders was JPY 6,133 million (down 36.5% from the end of the previous fiscal year). As a result, net sales came to JPY 383,043 million (down 2.3% year on year) due to the lowered unit rent resulting from the impact of COVID-19 pandemic and the reduction of construction subcontracting business. Operating profit was JPY 7,719 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 based on aggregated impact of improving profitability of our management units (operating loss of JPY 19,385 million was recorded 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. Net sales during the fiscal year ended March 31, 2022 were JPY 14,258 million (down 1.8% year on year), and operating loss was JPY 789 million (a deterioration of JPY 68 million year on year) due to a decrease in the number of users for elderly care services as a result of being concerned about the infection risk of COVID-19. The number of facilities was 87 as of the end of the fiscal year ended March 31, 2022. (iii) Other Businesses Net sales of the Other Businesses including resort facilities in Guam were JPY 1,064 million (down 56.9% year on year) and operating loss was JPY 1,668 million (a deterioration of JPY 116 million year on year) mainly due to a significant decline in occupancy rates in Guam because of COVID-19 pandemic. (2) Analysis of Consolidated Financial Position March 31, 2022 March 31, 2021 Difference Percentage change 145,430 134,396 11,034 161,708 158,431 3,277 (16,278) (24,035) 7,757 (JPY million) (10.1%) (15.2%) 236.7% Assets Liabilities Net assets Total assets at the end of March 2022 decreased by JPY 16,278 million from the end of the previous fiscal year to JPY 145,430 million. This was mainly attributable to the decrease of the following items: JPY 9,340 million in cash and deposits, JPY 1,088 million in other accounts receivable, JPY 1,055 million in machinery, equipment, and vehicles (net), JPY 1,529 million in leased assets (net), JPY 2,272 million in others (net) – non-current assets, and JPY 1,030 million in others (net) – intangible fixed assets, whereas recorded the increase of JPY 4,402 million in deferred tax assets and JPY 2,336 million in allowance for doubtful accounts. Total liabilities decreased by JPY 24,035 million from the end of the previous fiscal year to JPY 134,396 million. This was mainly attributed to the decrease of the following items: JPY 2,116 million in in lease obligations, JPY 15,422 million in provision for losses related to repairs, and JPY 6,629 million in provision for apartment vacancy loss. Total net assets increased by JPY 7,757 million from the end of the previous fiscal year to JPY 11,034 million. This was mainly due to an increase of JPY 2,623 million in foreign currency transaction adjustments and the recording of JPY 11,854 million in net income attributable to shareholders of the parent, on the other hand, non-controlling interests decreased by JPY 1,774 million 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 ended March 2022. The equity ratio improved by 6.0 points from the end of the previous fiscal year to 0.7%. 6 (3) Analysis of Cash Flows Position Cash flows from operating activities was a net outflow of JPY 4,460 million, a reduction of JPY 36,355 million in net outflow year on year. This was mainly due to a recording of JPY 9,693 million in income before taxes and other adjustments, JPY 9,352 million in depreciation, and JPY 2,355 million in increase in allowance for doubtful accounts, whereas JPY 11,959 million in reversal of provision for losses related to repairs, JPY 6,629 million for the reduction of provision for apartment vacancy loss, JPY 2,188 million for the decrease in advances received, JPY 4,455 million in interest paid, and JPY 2,172 million in payment related to repairs were recorded. Cash flows from investing activities was a net inflow of JPY 886 million, a reduction of JPY 10,943 million in net inflow year on year. This was mainly due to JPY 1,180 million of proceeds from sale of investment securities. Cash flows from financing activities was a net outflow of JPY 5,886 million, which is compared with a net inflow of JPY 23,571 million in the previous fiscal year. This was mainly due to JPY 3,239 million of expenditure in repayment of finance lease obligations, JPY 1,400 million of expenditure in payment for purchased treasury stock by a consolidated subsidiary, and JPY 1,171 million of expenditure in payment of dividends to a non-controlling shareholder. As a result, cash and cash equivalents at the end of the fiscal year ended March 2022 became JPY 44,023 million, decreased by JPY 9,322 million from the end of the previous fiscal year. (Reference) Trends in cash flow indicators FY ended March 31, 2018 FY ended March 31, 2019 FY ended March 31, 2020 FY ended March 31, 2021 FY ended March 31, 2022 Equity ratio (%) Market price based equity ratio (%) Ratio of cash flow to interest- bearing debt (year) Interest coverage ratio 47.2 66.3 2.0 38.2 27.7 18.5 － － 0.7 33.0 － － (5.3) 31.1 － － 0.7 45.7 － － Equity ratio: Total shareholders’ equity combined with total accumulated other comprehensive income / total assets Market price based equity ratio: Market capitalization / total assets Ratio of cash flow to interest-bearing debt: Interest-bearing debt / cash flow Interest coverage ratio: Cash flow / interest paid (Note 1) Ratios are calculated based on consolidated financial data. (Note 2) Market capitalization is calculated as closing price at the end of the fiscal year multiplied by shares outstanding at the end of the fiscal year (excluding treasury stock). (Note 3) Cash flow is cash flow from operating activities from the Consolidated Statements of Cash Flow. Interest-bearing debt is all of the debt noted on the Consolidated Balance Sheets on which interest is being paid. (Note 4) Ratio of cash flow to interest- bearing debt and interest coverage ratio for FY ended March 2019 till FY ended March 2022 are omitted since cash flow from operating activities is negative. (4) Future Predictions Concerning future predictions, both implementing infection prevention measures and boosting economic activities are progressing and leasing demand from foreign nationals will recover due to the relaxation of immigration restrictions. Therefore, the Company anticipate that the impact on the Group’s business performance will be limited although it is still uncertain when the COVID-19 pandemic is over. The Company will strive to strengthen the profitability of the leasing business and stabilize the financial base by continuing drastic business structural reforms in the following fiscal year. Concerning consolidated earnings forecasts for the consolidated fiscal year ending March 2023, the net sales are JPY 410,800 million (an increase of 3.1% year on year), operating profit of JPY 11,700 million (an increase of 559.2% year on year), recurring profit of JPY 6,800 million (recurring loss of JPY 2,151 million in the previous fiscal year) and net income attributable to shareholders of the parent of JPY 24,900 million (an increase of 110.0% year on year). This forward-looking statement is based on the information which is available on the date of release, but actual results may differ significantly from these forecasts due to various factors. (5) Significant Events Relating to Going Concern Assumption The Group recorded an operating loss in the previous fiscal year for two consecutive years and a net loss attributable to shareholders of the parent as well as negative cash flows from operating activities for three consecutive years; therefore, there were events or conditions that raise significant doubt about the Company’s going concern assumption. In order to resolve this situation, the Group raised in November 2020 funds by issuance of new shares through third-party allotment, by a loan with share subscription rights, and by issuance of preferred stock by a consolidated subsidiary Leopalace Power Corporation 7 to raise total funds of JPY 57,215 million. Furthermore, the Group has been engaged in measures for drastic structural reforms such as transferring or withdrawing from non-core and unprofitable businesses, contractual adjustment of master-lease rent as a result of agreement with the property owners, and reduction of management cost for improved financial position. The Company has been also working to improve occupancy rates to stabilize the business performance by strengthening customer acquisition through longer reach of customers through the strengthened tie with real estate agents network and promotion of remote services such as web-bases customer service, apartment viewing and contract signing. In the fiscal year ended March 2022, the Company recorded operating profit of JPY 1,774 million and net income attributable to shareholders of the parent of JPY 11,854 million and thus attained profitability. In terms of cash liquidity, the balance of cash and deposits as of the end of the fiscal year ended March 2022 was JPY 45,523 million, which is sufficient funds to carry on as a going concern for the present time. Consequently, the Group believes that there are no significant uncertainties regarding the going concern assumption. 2. Basic Approach to Selection of Accounting Standards The Group prepares consolidated financial statements according to the Japanese accounting standards in consideration of comparability in terms of the period of consolidated financial statements and comparability among companies. As for the application of the International Financial Reporting Standards (IFRS), we will take the appropriate actions in light of the change in the ratio of foreign shareholders and movements of other companies in the same industry in Japan, among other factors. 8 3. Consolidated Financial Statements and Notes (1) Consolidated Balance Sheets March 31, 2022 March 31, 2021 (JPY million) Current assets Cash and deposits Trade receivables Accounts receivable for completed projects Securities Real estate for sale Real estate for sale in progress Payment for construction in progress Raw materials and supplies Prepaid expenses Other accounts receivable Others Allowance for doubtful accounts Total current assets Non-current assets Property, plant, and equipment Buildings and structures (net) Accumulated depreciation Net Machinery, equipment, and vehicles (net) Accumulated depreciation Net Land Leased assets (net) Accumulated depreciation Net Construction in progress Others (net) Accumulated depreciation Net Total property, plant, and equipment Intangible fixed assets Goodwill Others Total intangible fixed assets Investments and other assets Investment securities Long-term loans Bad debts Long-term prepaid expenses Deferred tax assets Others Allowance for doubtful accounts Total investments and other assets Total non-current assets Total assets 9 45,523 8,618 443 200 693 – 213 405 1,634 730 3,954 (2,255) 60,161 56,173 (37,321) 18,852 20,794 (13,260) 7,534 31,269 26,461 (24,485) 1,976 92 18,483 (13,557) 4,926 64,652 6 3,130 3,136 5,180 1,126 267 577 6,596 4,647 (914) 17,480 85,269 145,430 54,863 7,930 524 100 180 349 238 497 2,076 1,819 4,199 (182) 72,598 53,778 (34,220) 19,557 20,601 (12,011) 8,589 31,118 28,924 (25,418) 3,506 82 18,358 (11,160) 7,198 70,052 12 4,161 4,173 5,431 1,096 249 1,121 2,194 5,443 (651) 14,883 89,109 161,708 March 31, 2022 March 31, 2021 (JPY million) Current liabilities Accounts payable Accounts payable for completed projects Short-term borrowings Lease obligations Accounts payable -other Accrued income taxes Advances received Customer advances for projects in progress Provision for warranty obligations on completed projects Provision for fulfillment of guarantees Provision for losses related to repairs Provision for apartment vacancy loss Others Total current liabilities Non-current liabilities Long-term debt Lease obligations Long-term advances received Lease/guarantee deposits received Provision for losses related to repairs Deferred tax liabilities Provision for apartment vacancy loss Liability for retirement benefits Others Total non-current liabilities Total liabilities Shareholders’ equity Common stock Capital surplus Retained earnings Treasury stock Total shareholders’ equity Accumulated other comprehensive income Net unrealized gains on other securities Foreign currency translation adjustments Remeasurements of defined benefit plans Total accumulated other comprehensive income Share subscription rights Non-controlling interests Total net assets Total liabilities and net assets 10 2,552 427 53 1,992 9,123 1,304 31,733 268 7 2,187 1,941 4,218 3,732 59,542 30,429 569 7,151 7,382 16,145 11 1,414 9,525 2,222 74,854 134,396 100 136,345 (135,749) (302) 392 (39) 746 (31) 675 357 9,608 11,034 145,430 3,172 514 114 3,133 9,593 696 28,239 541 67 2,783 3,777 9,301 3,861 65,798 30,615 1,544 7,869 6,423 29,732 9 2,960 9,650 3,826 92,633 158,431 81,282 55,174 (142,586) (344) (6,474) (0) (1,877) (142) (2,019) 388 11,383 3,277 161,708 (2) Consolidated Statement of Income and Consolidated Statement of Comprehensive Income Consolidated Statement of Income (JPY million) FY ended March 31, 2022 (Apr 2021–Mar 2022) FY ended March 31, 2021 (Apr 2020–Mar 2021) Net sales Sales from Leasing Business Sales from Other Businesses Total net sales Cost of sales Cost of sales from Leasing Business Cost of sales from Other Businesses Total cost of sales Gross profit Selling, general and administrative expense Advertising expenses Sales commission expense Provision of allowance for doubtful accounts Directors’ compensation Salary and bonuses Retirement benefit cost Rent expense Depreciation and amortization Taxes and public charges Other Total selling, general, and administrative expenses Operating profit (loss) Non-operating income Interest income Dividend income Valuation gains of investment securities Foreign exchange gains Employment adjustment subsidy Other Total non-operating income Non-operating expenses Interest expenses Funding costs Share of loss of entities accounted for using equity method Other Total non-operating expenses Recurring profit (loss) Extraordinary income Gains on sale of property, plant and equipment Gains on sale of investment securities Gain on sale of shares in the subsidiary Reversal of provision for losses related to repairs Total extraordinary income Extraordinary losses Loss on sale of property, plant and equipment 11 391,964 16,994 408,959 370,872 17,000 387,872 21,086 2,302 1,852 107 351 19,218 1,883 2,944 2,202 5,695 13,708 50,269 (29,182) 66 84 141 110 243 438 1,084 2,171 2,904 44 951 6,072 (34,170) 225 4,065 0 15,374 19,664 18 383,043 15,322 398,366 336,339 15,950 352,289 46,077 2,718 2,328 2,202 302 14,960 1,263 2,517 2,079 4,530 11,399 44,302 1,774 34 65 129 1 242 354 827 4,474 – 162 117 4,754 (2,151) 120 0 – 11,959 12,080 – Loss on retirement of property, plant and equipment Impairment loss Loss related to repairs Loss on sale of investment securities Special severance allowance Retirement benefit cost Loss on liquidation of subsidiaries and associated companies Loss on valuation of investment securities Loss on closure of offices Total extraordinary losses Income (loss) before taxes and other adjustments Income taxes Income taxes-deferred Total income taxes Net income (loss) Net income (loss) attributable to non-controlling interests Net income (loss) attributable to shareholders of the parent 45 118 – – – – – – 69 234 9,693 1,444 (4,401) (2,956) 12,650 795 11,854 114 4,041 982 114 2,479 427 151 90 – 8,419 (22,925) 710 (429) 280 (23,205) 475 (23,680) 12 Consolidated Statement of Comprehensive Income Net income (loss) Other comprehensive income Net unrealized gains on other securities Foreign currency translation adjustments Remeasurements of defined benefit plans Share of other comprehensive income of entities using equity method Total other comprehensive income Comprehensive income (Breakdown) Comprehensive income attributable to shareholders of the parent Comprehensive income attributable to non-controlling interests FY ended March 31, 2022 (Apr 2021–Mar 2022) 12,650 (38) 2,623 111 1 2,697 15,348 14,550 798 (JPY million) FY ended Mar 31, 2021 (Apr 2020–Mar 2021) (23,205) (1,047) (1,597) 403 0 (2,240) (25,445) (25,920) 474 13 Total change in the FY Balance at the current year-end (81,182) 100 81,170 136,345 11,800 (135,749) 41 (302) 11,830 392 (3) Consolidated Statements of Changes in Net Assets Fiscal year ended March 2022 (April 1, 2021 – March 31, 2022) Shareholders’ equity (JPY Million) Common stock Capital surplus Retained earnings Treasury stock Total 81,282 55,174 (142,586) (344) Balance at the previous year-end Cumulative effect due to change in accounting policy Balance at the previous year-end reflecting the change in accounting policy Change in the fiscal year Issuance of new shares Capital reduction Net income attributable to shareholders of parent Disposal of treasury stock Change in the scope of consolidation Change in share of parent from transactions with non-controlling interests Changes in items other than shareholders’ equity (net) Balance at the previous year-end Cumulative effect due to change in accounting policy Balance at the previous year-end reflecting the change in accounting policy Change in the fiscal year Issuance of new shares Capital reduction Net income attributable to shareholders of parent Disposal of treasury stock Change in the scope of consolidation Change in share of parent from transactions with non-controlling interests Changes in items other than shareholders’ equity (net) Total change in the FY Balance at the current year-end 81,282 55,174 (147,550) (344) (11,438) (81,182) 81,182 (4,963) 11,854 (53) 41 Accumulated other comprehensive income Net unrealized gains on “other securities” Foreign currency translation adjustments Remeasurements of defined benefit plans Total Share subscription rights Non- controlling interests Total net assets (0) (1,877) (142) (2,019) 388 11,383 3,277 (0) (1,877) (142) (2,019) 388 11,383 (1,686) (38) (38) (39) 2,623 2,623 746 111 111 (31) 2,695 2,695 675 (30) (30) 357 (1,774) (1,774) 9,608 (6,474) (4,963) 11,854 – – 30 (53) (1) (4,963) 11,854 – – 30 (53) (1) 890 12,721 11,034 (10) (1) 14 Fiscal year ended March 2021 (April 1, 2020 – March 31, 2021) Shareholders’ equity (JPY Million) Common stock Capital surplus Retained earnings Treasury stock Total 75,282 45,148 (118,874) (473) 75,282 45,148 (118,874) (473) Issuance of new shares 5,999 5,999 (23,680) (32) 128 Total change in the FY Balance at the current year-end 5,999 81,282 (23,712) (142,586) 128 (344) Accumulated other comprehensive income Net unrealized gains on “other securities” Foreign currency translation adjustments Remeasurements of defined benefit plans Total Share subscription rights Non- controlling interests Total net assets 1,047 (280) (546) (220) 269 16 1,589 1,047 (280) (546) (220) 269 16 1,589 (1,047) (1,047) (0) (1,596) (1,596) (1,877) 403 403 (2,240) (2,240) (142) (2,019) 119 119 388 11,366 11,366 11,383 Balance at the previous year-end Cumulative effect due to change in accounting policy Balance at the previous year-end reflecting the change in accounting policy Change in the fiscal year Capital reduction Net income attributable to shareholders of parent Disposal of treasury stock Change in the scope of consolidation Change in share of parent from transactions with non-controlling interests Changes in items other than shareholders’ equity (net) Balance at the previous year-end Cumulative effect due to change in accounting policy Balance at the previous year-end reflecting the change in accounting policy Change in the fiscal year Issuance of new shares Capital reduction Net income attributable to shareholders of parent Disposal of treasury stock Change in the scope of consolidation Change in share of parent from transactions with non-controlling interests Changes in items other than shareholders’ equity (net) Total change in the FY Balance at the current year-end 1,083 – 1,083 11,999 – (23,680) 96 – 4,026 (7,557) (6,474) – – 11,999 (23,680) 96 – 4,026 9,245 1,687 3,277 4,026 10,026 55,174 15 (4) Consolidated Statements of Cash Flows Cash flows from operating activities Income (loss) before taxes and other adjustments Depreciation Impairment loss Reversal of reserve for losses related to repairs Loss related to repairs Special severance allowance Amortization of goodwill Increase (decrease) in allowance for doubtful accounts Increase (decrease) in liability for retirement benefits Increase (decrease) in reserve for apartment vacancy loss Losses on liquidation of subsidiaries and affiliates Interest and dividend income Interest expense Funding costs Foreign exchange loss (gain) Equity in losses (earnings) of affiliated companies Loss (gain) on sale of property, plant and equipment Loss on retirement of property, plant and equipment Loss (gain) from valuation of investment securities Loss (gain) from sale of investment securities Loss (gain) on sale of shares in subsidiaries Decrease (increase) in accounts receivable Decrease (increase) in real estate for sale in progress Decrease (increase) in payment for construction in progress Decrease (increase) in long-term prepaid expenses Increase (decrease) in accounts payable Increase (decrease) in customer advances for projects in progress Increase (decrease) in advances received Increase (decrease) in guarantee deposits received Increase (decrease) in accrued consumption taxes Other Subtotal Interest and dividends received Interest paid Payment related to repairs Payment of special severance allowance Income taxes paid Net cash provided by operating activities FY ended March 31, 2022 (Apr 2021–Mar 2022) 9,693 9,352 118 (11,959) – – 7 2,355 (14) (6,629) – (100) 4,474 – (1) 162 (120) 45 (129) (0) – (523) 2 25 535 (1,029) (272) (2,188) 701 121 (2,023) 2,603 (JPY Million) FY ended March 31, 2021 (Apr 2020–Mar 2021) (22,925) 10,416 4,041 (15,374) 982 2,479 6 340 1,360 (3,644) 151 (150) 2,171 2,904 (110) 44 (206) 114 (50) (3,951) (0) (579) 3,432 486 744 (5,861) (1,241) (5,327) 603 (421) 1,804 (27,759) 105 (4,455) (2,172) – (541) (4,460) 154 (1,500) (8,313) (2,479) (918) (40,816) 16 Cash flows from investing activities Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Payment for purchase of intangible assets Proceeds from redemption of securities Payment for purchase of investment securities Proceeds from sale of investment securities Proceeds from liquidation of subsidiaries Payment for sale of shares in subsidiaries due to change in scope of consolidation Proceeds from sale of shares in subsidiaries due to change in scope of consolidation Payment for loans Proceeds from collection of loans Payment for deposit of fixed deposits Proceeds from withdrawal of fixed deposits Other Net cash provided by (used in) investing activities Cash flows from financing activities Repayment of short-term debt Proceeds from long-term debt Repayment of long-term debt Repayment of finance lease obligations Proceeds from issuance of shares Proceeds from issuance of stock acquisition rights Payment of funding costs Payment for redemption of bonds Payment for purchased treasury stock by a consolidated subsidiary, Payment for acquisition of shares in subsidiaries not pertaining to change in scope of consolidation Proceeds from share issuance to a non-controlling shareholder Payment of dividends to a non-controlling shareholder Proceeds from exercise of stock options Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Decrease in cash and cash equivalents on exclusion from consolidation Cash and cash equivalents at end of period FY ended March 31, 2022 (Apr 2021–Mar 2022) (705) 1,458 (781) – (313) 1,180 – – – (31) 73 – 17 (10) 886 (JPY Million) FY ended March 31, 2021 (Apr 2020–Mar 2021) (2,328) 4,167 (509) 5,600 (363) 4,341 18 (92) 7 (36) 57 (4) 67 904 11,829 – – (75) (3,239) – – – – (1,400) (0) – (1,171) 0 (5,886) 220 (9,240) 53,346 (82) 44,023 (847) 30,234 (17,790) (4,181) 11,999 215 (2,868) (8,103) – – 15,000 (87) 0 23,571 (154) (5,570) 58,916 – 53,346 17 (5) Notes Regarding Consolidated Financial Statements (Notes regarding the premise of the Company as a going concern) There are no relevant items. (Changes in accounting policies) (Application of Accounting Standard for Revenue Recognition) The Company adopted the Accounting Standard for Revenue Recognition (ASBJ Statement No.29, March 31, 2020) from the beginning of the fiscal year ended March 2022 and started to recognize the revenue when the Company transfers a promised goods or services to a customer with the amount which the Company expects to receive from the customer as a consideration. As a result, instead of recognizing revenue in one go for key money, reduction of rent, handling charge for monthly rental contract, and other handling charges for service provision, such revenue have been divided by the tenants’ average staying period in the apartment on a pro rata basis. The whole income from LEONET service used to be recognized as a revenue prior to the change but the new amount of revenue is the income from LEONET users deducted by the Company’s cost payable to the service supplier. At the application of the new accounting policy based on the Accounting Standard for Revenue Recognition, the Company followed the specific transitional handling as stated in the item 84 of the Accounting Standard for Revenue Recognition. The Company adjusted the beginning retained earnings by cumulative-effect amount to reflect the retrospective application of account processing from the beginning of the fiscal year ended March 2022. However, the Company has not applied the accounting policy in accordance with the item 86 of the said Accounting Standard for the contracts with most of the revenue recognition has been completed prior to the beginning of the fiscal year ended March 2022, following the previous accounting policy. The Company followed the item 86 (1) of the Accounting Standard for Revenue Recognition and did the account processing for the contracts which were modified prior to the beginning of the fiscal year ended March 2022 and adjusted the beginning retained earnings by the cumulative-effect amount. As a result of the above account processing, net sales were increased by JPY 1,325 million, cost of sales was decreased by JPY 1,580 million. Consequently operating profit was increased by JPY 2,905 million, recurring loss was decreased by the same amount, and income before taxes and other adjustments were increased by the same amount. The beginning balance of retained earnings was reduced by JPY 4,963 million. The Company put the impact on per share information in the relevant part of the document. The Company followed the transitional handling stated in item 89–3 of the Accounting Standard for Revenue Recognition and did not mention note on revenue recognition related to the previous fiscal year ended March 2021. (Application of Accounting Standard for Fair Value Measurement) The Company adopted the Accounting Standard for Fair Value Measurement (ASBJ Statement No.30, July 4, 2019, hereinafter “Accounting Standard for FVM”) from the beginning of the fiscal year ended March 2022. The Company determined to apply the new accounting policy for future following the transitional handling stated in the item 19 of the Accounting Standard for FVM and in the item 44-2 of the Accounting Standard for Financial Instruments (ASBJ Statement No.10, July 4, 2019). The effect of the application on the Consolidated Financial Statements is immaterial. 18 (Segment Information) (1) Overview of Reportable Segment The Company’s reportable segments are the components for which separate financial information is available, and whose operating results are reviewed regularly by the board of directors in order to determine allocation of resources and assess segment performance. There are three reportable segments: Leasing Business, Elderly Care Business, and Other Businesses. Leasing Business operations comprise the leasing and management of apartment buildings and other properties, maintenance work, internet service, rent obligation guarantee, company residence agency business, solar power generation business, small-amount short-term insurance business, real estate brokerage business, and management of serviced apartments and offices. Elderly Care Business operates elderly care facilities. Other Businesses operate mainly Guam resort facilities. (2) Calculation Method for Sales, Profit or Loss, Assets, Liabilities and other Items by Reportable Segment The accounting methods for reportable segments are in accordance to accounting policies adopted in the preparation of consolidated financial statements. The reportable segment profit (loss) represent operating profit (loss). Inter-segment sales and transfers are based on prevailing market prices. (3) Changes in Reportable Segment As mentioned in changes in accounting policies, the Company adopted the Accounting Standard for Revenue Recognition (ASBJ Statement No.29, March 31, 2020) and changed the handling of revenue recognition from the beginning of the fiscal year ended March 2022. The same rule applied to the profits or losses by reportable segment. As a result, net sales of Leasing Business were increased by JPY 1,325 million and segment profit was increased by JPY 2,905 million. (4) Net sales, Profit or loss, Assets and Liabilities and Other Items by Reportable Segment (i) Information on net sales including breakdown, profit or loss, liabilities and other items by reportable segment FY ended March 2022 (April 1, 2021 – March 31, 2022) Reportable segments Leasing Business Elderly Care Business Other Businesses Total Adjustments (Note 1) (JPY million) Amount stated in Consolidated Statement of Income (Note 2) Net sales Rent income Ancillary service income Maintenance Rental guarantee Furniture insurance Company housing agency fee Roof lease solar power generation Construction subcontracting Other Sales from contracts with customer Other sales Sales to customers Inter-segment sales and transfers Total Segment profit (loss) Segment assets Other items Depreciation Increase in property, plant and equipment, and intangible fixed assets 278,740 53,517 35,315 4,559 3,744 788 2,775 3,145 456 383,043 – 383,043 76 383,120 7,719 63,393 6,480 1,596 – – – – – – – – 14,258 14,258 – 14,258 – 14,258 (789) 3,261 32 5 19 – – – – – – – – 1,064 1,064 – 1,064 249 1,314 (1,668) 21,369 1,087 278,740 53,517 35,315 4,559 3,744 788 2,775 3,145 15,779 398,366 – 398,366 326 398,692 5,261 88,024 7,600 – – – – – – – – – – – – (326) (326) (3,486) 57,406 1,752 278,740 53,517 35,315 4,559 3,744 788 2,775 3,145 15,779 398,366 – 398,366 – 398,366 1,774 145,430 9,352 2,137 22 1,624 513 FY ended March 2021 (April 1, 2020 – March 31, 2021) Reportable segments Net sales Sales to customers Inter-segment sales and transfers Total Segment profit (loss) Segment assets Other items Depreciation Increase in property, plant and equipment, and intangible fixed assets Leasing Business Elderly Care Business Other Businesses Total 391,964 143 392,108 (19,385) 71,800 7,456 2,204 14,524 – 14,524 (720) 3,557 47 26 2,469 603 3,073 (1,551) 20,881 1,097 408,959 747 409,706 (21,658) 96,239 8,601 Adjustments (Note 1) (JPY million) Amount stated in Consolidated Statement of Income (Note 2) – (747) (747) (7,524) 65,469 1,815 408,959 – 408,959 (29,182) 161,708 10,416 154 2,386 608 2,994 Note 1: Breakdown of adjustments is as follows. Segment profit or loss FY ended March 31, 2022 FY ended March 31, 2021 (JPY Million) Inter-segment eliminations Corporate expenses* Total 169 (7,693) (7,524) *Corporate expenses consist mainly of general administrative expenses for administrative departments that are not part of reportable segments. 153 (3,639) (3,486) Segment assets Surplus operating funds, long-term investment capital, and assets which do not belong to reportable segments FY ended March 31, 2022 FY ended March 31, 2021 (JPY Million) 57,406 65,469 Increase in property, plant and equipment, and intangible fixed assets (JPY Million) Capital investments which do not belong to reportable segments FY ended March 31, 2022 FY ended March 31, 2021 513 608 Note 2: Segment profit or loss is adjusted to the operating profit or loss on the Consolidated Statement of Income (Related Information) Fiscal Year ended March 2022 (April 1, 2021 – March 31, 2022) 1. Information by product and service As we disclosed the information by segment, the Company left out the information by product and service. 2. Information by country/region (1) Sales As the sales to customers amounted more than 90% of the total sales on the consolidated statement of income, the Company left out the description. 20 (2) Non-current Assets Japan US Territory of Guam Thailand Cambodia Others Total 44,212 20,331 0 0 107 64,652 (JPY Million) 3. Information by major customer As there are no customers to whom the sales accounts for more than 10% of the total sales on the consolidated statement of income, the Company left out the description of related matters. Fiscal Year ended March 2021 (April 1, 2020 – March 31, 2021) 1. Information by product and service As we disclosed the information by segment, the Company left out the information by product and service. 2. Information by country/region (1) Sales (2) Non-current Assets As the sales to customers amounted more than 90% of the total sales on the consolidated statement of income, the Company left out the description. Japan US Territory of Guam Thailand Cambodia Others Total 49,316 19,412 512 667 143 70,052 (JPY Million) 3. Information by major customer As there are no customers to whom the sales accounts for more than 10% of the total sales on the consolidated statement of income, the Company left out the description of related matters. (Information related to the impairment losses on non-current assets by reportable segment) Fiscal Year ended March 2022 (April 1, 2021 – March 31, 2022) Impairment losses Fiscal Year ended March 2021 (April 1, 2020 – March 31, 2021) Leasing Business Elderly Care Business 115 Other Businesses – Segment Total/Adjustments – Impairment losses 3,950 Leasing Business Elderly Care Business Other Businesses 82 Segment Total/Adjustments – (JPY Million) Total 118 (JPY Million) Total 4,041 (Information related to the amortization of goodwill and balance of goodwill by reportable segment) Fiscal Year ended March 2022 (April 1, 2021 – March 31, 2022) Leasing Business Elderly Care Business Other Businesses – Segment Total/Adjustments – – – (JPY Million) Total 7 6 Amortization of goodwill Unamortized balance of goodwill 3 8 – – 7 6 21 Fiscal Year ended March 2021 (April 1, 2020 – March 31, 2021) Leasing Business Elderly Care Business Other Business Amortization of goodwill Unamortized balance of goodwill 6 12 – – Segment Total/Adjustments – – – – (JPY Million) Total 6 12 (Note) We recorded JPY 107 million of impairment loss on goodwill in Leasing Business. (Information related to the gain on negative goodwill by reportable segment) Fiscal Year ended March 2022 (April 1, 2021 – March 31, 2022) and Fiscal Year ended March 2021 (April 1, 2020 – March 31, 2021) There is no relevant information. (Information per share) Net assets per share Net income or loss per share Diluted net income per share (Note) 1. Diluted net income per share are not stated because a net loss was recorded for the previous fiscal year. 2. The basis for calculation for net income or loss per share and diluted net income is as follows: FY ended March 31, 2022 (Apr 2021 – Mar 2022) JPY 3.25 FY ended March 31, 2021 (Apr 2020 – Mar 2021) JPY (25.83) JPY 36.04 JPY 32.23 JPY (84.88) FY ended March 31, 2022 (Apr 2021 – Mar 2022) FY ended March 31, 2021 (Apr 2020 –Mar 2021) 11,854 － 11,854 328,888 － 38,927 － (23,680) － (23,680) 279,003 － － － Net income per share Net income or loss attributable to shareholders of the parent (JPY million) Amount not attributable to common stock (JPY million) Net income or loss attributable to shareholders of the parent for common stock (JPY million) Basic weighted-average shares during the fiscal year (thousands of shares) Net income adjustment attributable to shareholders of the parent (JPY million) Increase of common stock (thousands of shares) Dilutive securities without dilutive effects and excluded from calculation of diluted net income per share (Significant subsequent event) There is no applicable item. 22 Diluted net income per share (Note) As mentioned in changes in accounting policies, the Company adopted the Accounting Standard for Revenue Recognition (ASBJ Statement No.29, March 31, 2020) and followed the specific transitional handling as stated in the item 84 of the Accounting Standard for Revenue Recognition. Consequently, net asset per share was reduced by JPY 6.26, net income per share and diluted net income per share were increased by JPY 8.83 and JPY 7.90 respectively. 4. Other (State of Progress for Excessive Liabilities Elimination) The Group has been engaged in (i) continued drastic structural reforms and (ii) improvement of the occupancy rates, in accordance with the profitability improvement plan which was announced on May 14, 2021 with the title of Notice Concerning Efforts in Excessive Liabilities Elimination. (i) Continued drastic structural reforms The Company completed sale of non-current assets of a Thai subsidiary and a Cambodian subsidiary, and started the liquidation proceedings of the subsidiaries in Thailand, Cambodia and Indonesia in the fiscal year ended March 2022. As such the Company has made stable progress in transferring or withdrawing from non-core and unprofitable business since the previous fiscal year. In addition the Company has taken steps in improving management such as concluding pro rata reinsurance contracts by ASUKA SSI and centralized procurement through establishing the Procurement Department. Cost-cutting efforts have been continued for curtailed operation cost and management cost in the cost of sales, as well as lowering fixed cost through abolishing or merging leasing sales offices and increased operational efficiency. The cost of sales was JPY 352,289 million, a reduction of JPY 55,822 million in comparison with two years ago and a reduction of JPY 35,583 million year on year. SGAE was JPY 44,302 million, a reduction of JPY 17,612 million in comparison with two years ago, and a reduction of JPY 5,966 million year on year. (ii) Improvement of the occupancy rates The Company implemented the sales strategies such as prioritized allocation of management resources into the Leasing Business, introduction of area intensive approach, DX solution promotions such as web-based customer services, apartment viewing and rental contract signing, as well as longer reach of customers through the strengthened tie with real estate agents network. The number of web-based contracts was increased to 25,641 (an increase of 87.2% year on year) and the number of contracts through real estate agents network was increased to 35,576 (an increase of 34.2% year on year). The average occupancy rate through the fiscal year was 81.22%, which was below the plan by 0.02 points, in the midst of world pandemic of Omicron variant of COVID-19, but the occupancy rate at the end of fiscal year was 85.10%, which went exactly to plan. Consequently the Company recorded the operating profit of JPY 1,774 million and net income attributable to shareholders of the parent of JPY 11,854 million, thus eliminated the excessive liabilities* at the end of the fiscal year ended March 2022. * The excessive liabilities per the Tokyo Stock Exchange is defined as ownership equity plus subscription rights. 23