レオパレス２１（8848） – Investor Meeting Presentation for the FY Ended March 31, 2022

Leopalace21 CorporationFinancial Results for Fiscal Year 2022This document and reference materials may contain forward-looking statements, but please note that actual results may differ significantly from these forecasts due to various factors.0Table of ContentChapter 1Outline of the Financial Results FY2021 / FY2022 Planp.2Chapter 2Cost OptimizationChapter 3Occupancy Improvement MeasuresChapter 4Offering DX SolutionsChapter 6Construction Defects ManagementAppendixChapter 5Strengthen Governance and Adopting greener technologies p.29p.14p.18p.24p.32p.341Chapter 1Outline of the Financial Results FY2021 / FY2022 Plan2Chap 11: Essence of Management Plan FY2022Consistent Structural Reforms Increase occupancy rate through following occupancy improvement measures.・Foreign national customers:Capture demand generated by technical interns for designated activities and by students ・ Corporate customers: Obtain buy-in for realizing corporate housing strategy as an expert・ Individual customers:Utilize the real estate agents network and attract customers through web-based approach Improve ownership equity by profitable operation aiming for increased occupancy rate and controlled cost structurePromote SustainabilityHandling Construction DefectsManagement Plan FY2022Increase operational sustainability from environmental, social and economical aspectsAchieve sustainable growth and increase mid-to long-term corporate value through undertaking initiatives in strengthening corporate governance, DX solution offerings and adopting greener operation based on social infrastructure of offering company houses and dormitoriesMake steady progress in repairing the construction defects while prioritizing to restore the financial foundationMaterialize repair completion for obvious defects by the end of 20243Chap 12: Management Plan FY2022 BreakdownManagement Plan FY2022Consistent Structural ReformsP8Promote SustainabilityP17Handling Construction DefectsP23Strengthen Leasing Business profitabilityStabilize financial foundationStrengthen GovernanceOffer DX solutionsPromote greener operationsCarry out repair planOptimize cost structureImprove ownership equityAdhere to complianceUtilize ICTReduce CO2emissions in Scope 1, 2, and 3Increase occupancy rateEstablished Procurement DepartmentMake full use of acquired dataDisclosure based on TCFD framework4Chap 13: Roadmap(JPY Billion)Continued measures for structural reforms to increase operating profit by JPY 38.1 billion in FY2021..Already achieved additional JPY 11.7 billion if annualize the impact; total JPY 49.8 billion of improvement is done. We aim to realize operating profit of JPY 25.2 billion through additional structural reform measures and sales efforts.Main Factors of Increase / Decrease of Operating ProfitFY2019OPDecrease in Leasing salesOperating cost reduction excluding provision for apartment vacancy lossReversal of provision for apartment vacancy lossManagement cost reduction Personnel cost reductionOthersFY2021OPIncrease inLeasing salesOperating cost reductionManagement cost ReductionOthersFY2024OPAnnualized cost reduction impact of leasing operation cost mainly as a result of contractual adjustment of master-lease rent: JPY 11.7 billion11.75Chap 14: PL (Actual)Due to steady progress in the structural reforms, all profit items improved compared with those in FY2020.Net income increased by JPY 35.5 billion mainly due to reversal of provision for losses related to repairs and recording income taxes-deterred despite sales and profit items up to recurring profit worsened against the plan.Highlights of ResultsFY2020ActualFY2021Revised PlanFY2021ActualYoYCompared with PlanFactors Contributing to Changes(JPY million)SalesCost of salesGross profitSGAE%%Operating profit(29,182)408,959387,87221,0865.2%50,269(7.1%)399,400398,366(10,592)353,200352,289(35,583)46,20011.6%43,6002,6000.7%46,077+24,99011.6%+6.4p44,302(5,966)1,7740.4%+30,957+7.6pRecurring profit(34,170)(1,800)(2,151)+32,018Net income*(23,680)1,80011,854+35,535+10,054Average Occupancy rateESP (JPY)78.9%84.8881.2%5.4781.2%＋2.3p36.04+120.92+30.57* Net income refers to net income attributable to shareholders of the parent.(1,033) Reduction in construction (910)(122)(0.0p)subcontracting was the main reason.Gross profit improved yoy due to reversal of provision for apartment vacancy loss of JPY 6.6 billion. (Q1: JPY 1.2 billion, Q2: JPY 1.3 billion, Q3: JPY 2.5 billion, Q4: JPY 1.6 billion) and progress in contractual adjustment of master-lease rent.+702 Operating profit improved yoy but did not meet the plan due to recording of provision of allowance for doubtful accounts which offset the reduction in personnel expenses.(825)(0.2p)(351)Net income drastically improved yoyand against the plan mainly due to recording of reversal of provision for losses related to repairs of JPY 11.9 billion and income taxes-deterred of JPY 4.4 billion.(0p) Huge increase in average occupancy rate by implementing the occupancy improving measures6Chap 15: PL (Plan)The Company expects increased sales and profit for FY2022 YoY due to planned increased occupancy rate and cost reduction effect as a result of structural reforms.Plans for FY2023 and FY2024 indicate continuous growth in sales and operating profit.Highlights of Plan(JPY million)FY2022PlanYoYFactors Contributing to Changes410,800+12,433 Sales from Leasing Business grow fast because of planned increase in occupancy rateCost of sales348,800(3,489)Gross profit62,000+15,922FY2023Plan (reference)FY2024Plan (reference)423,100429,300353,400350,100SalesSGAE%%Operating profitRecurring profitNet income*Average Occupancy rateESP (JPY)Continued contractual adjustment for master-lease rent reduces the cost of sales whereas increase in management cost related to maintaining property partially offset the reduction.+3.5%+5,997 Recording of provision for bonuses and sales initiative implementation increase personnel expenses in SGAE. Planned increase in occupancy rate and reduction in cost of sales contribute to the increase in operating profit.+9,925+2.4%+8,951 No extraordinary income/losses are planned. income taxes–deferred is planned based on business performance recovery which contributes to large increase in net income.+13,045+3.8p+39.6Occupancy rate follows the trend similar to that of FY2017.Number of outstanding shares remain the same as FY2021, therefore EPS increases in accordance with net income.15.1%50,30011,7002.8%6,80024,90085.1%75.6* Net income refers to net income attributable to shareholders of the parent.69,70016.5%52,20017,5004.1%12,90013,40088.3%79,20018.4%54,00025,2005.9%22,10019,40091.3%40.7 58.9 7Chap 16: PL (Quarterly Comparison)Quarterly Comparison（百万円）Q1 (Apr-Jun)Q2 (Jul-Sep)Q3 (Oct-Dec)Q4 (Jan-Mar)FY2021 ActualFY2022 PlanFY2021 ActualFY2022 PlanFY2021 ActualFY2022 PlanFY2021 ActualFY2022 PlanSales100,244100,40099,305102,00097,920103,300100,895105,100Cost of sales90,47288,10087,13187,90084,66087,30090,02485,500Gross profit9,77112,30012,17414,10013,25916,00010,87119,600SGAE11,05911,80010,07612,0009,79411,20013,37115,300Operating profit(1,287)5002,0972,1003,4654,800(2,500)4,300Recurring profit(2,241)(800)9092,7773,600(3,596)3,100Net income*(957)(1,400)1,6055,2173,3005,98822,600900400・Planned higher occupancy rates for FY2022 in comparison with FY2021 result in higher sales against the same quarter in the previous fiscal year.Factors Contributing to Changes・Continued contractual adjustment for master-lease rent contributes reducing cost of sales QoQ.・SGAE increases in Q4 because of various sales measures implementation targeted for the busiest season.・No extraordinary income/losses considered for FY2022, therefore quarterly net income for Q1 – Q3 is smaller than therespective quarterly result in FY2021.・Planned recording of income taxes-deferred for Q4 makes substantial increase in net income* Net income refers to net income attributable to shareholders of the parent.8Chap 17: BSOwnership equity + share subscription rights was JPY 1,425 million, hence resulted in excessive liabilities* elimination as of end of March, 2022. * The excessive liabilities per the Tokyo Stock Exchange is defined ownership equity plus share subscription rights.Balance Sheet – main items only(JPY million)FY2020Q3 FY2021FY2021Factors contributing to changes (compared against end of FY2020)Cash and deposits54,86344,13045,523■Cash and deposits Total assets161,708143,137145,430Interest-bearing debt**Provision for loss related to repairs Provision for apartment vacancy loss Common stockCapital surplus35,40933,50912,26281,28255,17433,35125,1037,24933,04518,0865,632100100136,345136,345Total liabilities158,431138,927134,396Retained earnings(142,586)(141,685)(135,749)Total shareholders’ equity (A)(6,474)(5,542)Total accumulated other comprehensive income (B)(2,019)(91)Ownership equity (A)+(B)(8,494)(5,634)Share subscription rightsNon-controlling interestsTotal net assets38811,3833,2773579,4864,2093926751,0683579,60811,034Total liabilities and total net assets161,708143,137145,430** Interest-bearing debt = borrowings + lease obligations2H cash flows was inflow reflecting the successful structural reform effect although balance decreased YoY.■ Provision for losses related to repairs (current: JPY 1.9 bil; non-current: JPY 16.1 bil)Reduced by JPY 3.4 bil in accordance with the progress of repairs and reversal of JPY 11.9 bill due to lowered unit repair cost (Q1: JPY 1.9 bil, Q2: JPY 1.4 bil, Q3: JPY 2.8 bil, Q4: JPY 5.8 bil), hence total reduction of JPY 15.4 bil.Insourcing repair works, lowered unit repair cost , sourcingbased on quotation from multiple suppliers and utilizing internally available resources made the balance of JPY 18 bilin FY2021 from JPY 50.7 bil in FY2018.■ Provision for apartment vacancy loss (current: JPY 4.2bil, non-current: JPY 1.4 bil)Reversal of JPY 6.6 bil (Q1: JPY 1.2 bil, Q2: JPY 1.3 bil, Q3: JPY 2.5 bil, Q4: JPY 1.6 bil) as a result of aggregated impact of improving profitability of out management units and reduced number of the management units as a result of master-ease contract expiration. ■ Ownership equityOwnership equity turned to positive which had been negative up to Q3, because recording of Q4 net income of JPY 5.9 bilincreased retained earnings and increase in total accumulated other comprehensive income resulting from weakened JPY. ■Total net assetsIncrease in ownership equity kept positive total net assets.9Chap 18: CFCash flows from operating activities were JPY (4.4) bil due to expenditure of working capital and carrying out repairs, whereas profitability improvement contributed to improve JPY 36.4 bil YoY. Cash flows from investing activities were JPY 0.8 bil mainly due to sale of non-current assets held by subsidiaries in ASEAN and sale of unlisted stock. Cash flows from financing activities were JPY 5.8 bil resulting partly from Leopalace Power Corporation’s acquisition of treasury stock. Total cash flows were JPY (9.2) bil.Cash Flow(JPY Billion)+9.3・Income before taxes and other adjustments +9.6・Depreciation, amortization of goodwill・Reversal of provision for loss related to repairs・Increase in allowance for doubtful accounts+2.3・Decrease in provision for apartment vacancy loss (6.6)・Decrease in accounts payable (1.0)・Decrease in advances received (2.1)・Payment related to repairs -11.9(2.1)・Purchase and sale of properties(0.7)・Purchase of intangible assets (0.7)・Purchase and sale of investment securities +1.1・Repayment of finance lease・Subsidiary’s Acquisition of Treasury Stock (1.4)・Payment of dividend to non-controlling shareholders (1.1)(3.2)10-5.8 0.8 -4.4 23.5 11.8 -40.8 -60-40-2002040Cash flows fromfinancing activitiesCash flows frominvesting activitiesCash flows fromoperating activities44.0 53.3 0204060Cash and cash equivalentsat end of period23.5 11.8 -5.8 0.8 -4.4 -20-1001020Cash and cash equivalentsat end of periodCash flows fromfinancing activitiesCash flows frominvesting activitiesCash flows fromoperating activitiesFY2020 Full yearFY2021 Full year23.5 11.8 -5.8 0.8 -4.4 -20-1001020Cash and cash equivalentsat end of periodCash flows fromfinancing activitiesCash flows frominvesting activitiesCash flows fromoperating activitiesFY2020 Full yearFY2021 Full year23.5 11.8 -5.8 0.8 -4.4 -20-1001020Cash and cash equivalentsat end of periodCash flows fromfinancing activitiesCash flows frominvesting activitiesCash flows fromoperating activitiesFY2020 Full yearFY2021 Full yearChap 19: Forecast of Main IndicatorsThanks to continued structural reforms and improved balance sheet, EPS, ROE, ROIC and Equity ratio indicators reached favorable levels. Cash conversion cycle, a strength of the Company, remains to be negative days, which shows high efficiency of funds operations. Net income per share (EPS*)Equity ratio**EPS＝Net income / Number of shares outstanding *Equity ratio＝Ownership equity / Total capital (Liability and Net assets)*100ROE*・ROIC**Cash conversion cycle (CCC*)* ROE＝Net income / Ownership equity**ROIC＝NOPAT / Investment capital (Interest-bearing debt + shareholders’ equity)*CCC: The cash conversion cycle (CCC) is a metric that expresses the length of time (in days) thatit takes for a company to convert its investments in inventory and other resources into cashflows from sales.CCC = Receivables turnover period + Inventory turnover period – Payables turnover period11-36.7 -36.0 -34.5 -32.1 FY2021FY2022PlanFY2023Plan (refference)FY2024Plan (refference)-36.7 -36.0 -34.5 -32.1 FY2021FY2022PlanFY2023Plan (refference)FY2024Plan (refference)36.0475.7140.7458.99FY2021FY2022PlanFY2023Plan (refference)FY2024Plan (refference)0.7%16.0%23.0%32.7%FY2021FY2022PlanFY2023Plan (refference)FY2024Plan (refference)1,185%93.6%33.7%32.0%3.5%11.9%14.8%16.8%FY2021FY2022PlanFY2023Plan (refference)FY2024Plan (refference)ROEROICChap 110: PL GraphOperating profit has been increasing since FY2019 reflecting the profit structure improvement.Continued structural reforms increased net income to sales ratio and that of FY2024 outperforms FY2017.(JPY billion)(JPY billion)SalesGross profit(JPY billion)(JPY billion)Operating profitNet income** Net income refers to net income attributable to shareholders of the parent.12530.8505.2433.5408.9398.3410.8423.1429.3FY18/3ActualFY19/3ActualFY20/3ActualFY21/3ActualFY22/3ActualFY23/3PlanFY24/3Plan(refference)FY25/3Plan(refference)96.076.225.421.046.062.069.779.218.1%15.1%5.9%5.2%11.6%15.1%16.5%18.4%0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%18.0%20.0%0255075100FY18/3ActualFY19/3ActualFY20/3ActualFY21/3ActualFY22/3ActualFY23/3PlanFY24/3Plan(refference)FY25/3Plan(refference)Gross profit%22.9 7.3 (36.4)(29.1)1.7 11.7 17.5 25.2 4.3%1.5%-8.4%-7.1%0.4%2.8%4.1%5.9%-10.0%-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%(40)(20)02040FY18/3ActualFY19/3ActualFY20/3ActualFY21/3ActualFY22/3ActualFY23/3PlanFY24/3Plan(refference)FY25/3Plan(refference)14.8 (68.6)(80.2)(23.6)11.8 24.9 13.4 19.4 FY18/3ActualFY19/3ActualFY20/3ActualFY21/3ActualFY22/3ActualFY23/3PlanFY24/3Plan(refference)FY25/3Plan(refference)Chap 111: BS GraphThe Company eliminated excessive liabilities per Tokyo Stock Exchange’s definition at the end of March 2022. In addition to strengthening capital by recording net income, the Company starts to consider from FY2022 to FY2024 implementing shareholders return such as payment of dividends and share buybacks.Ownership equity + Share subscription rightsOwnership equity(JPY billion)(JPY billion)(JPY billion)(JPY billion)Cash and depositsTotal net assets13159.3 81.3 1.5 (8.1)1.4 26.9 40.2 61.0 FY18/3ActualFY19/3ActualFY20/3ActualFY21/3ActualFY22/3ActualFY23/3PlanFY24/3Plan(refference)FY25/3Plan(refference)159.080.91.3-8.41.026.639.860.7FY18/3ActualFY19/3ActualFY20/3ActualFY21/3ActualFY22/3ActualFY23/3PlanFY24/3Plan(refference)FY25/3Plan(refference)159.4 81.3 1.5 3.2 11.0 36.0 49.2 70.0 FY18/3ActualFY19/3ActualFY20/3ActualFY21/3ActualFY22/3ActualFY23/3PlanFY24/3Plan(refference)FY25/3Plan(refference)159.4 81.3 1.5 3.2 11.0 36.0 49.2 70.0 FY18/3ActualFY19/3ActualFY20/3ActualFY21/3ActualFY22/3ActualFY23/3PlanFY24/3Plan(refference)FY25/3Plan(refference)159.4 81.3 1.5 3.2 11.0 36.0 49.2 70.0 FY18/3ActualFY19/3ActualFY20/3ActualFY21/3ActualFY22/3ActualFY23/3PlanFY24/3Plan(refference)FY25/3Plan(refference)159.4 81.3 1.5 3.2 11.0 36.0 49.2 70.0 FY18/3ActualFY19/3ActualFY20/3ActualFY21/3ActualFY22/3ActualFY23/3PlanFY24/3Plan(refference)FY25/3Plan(refference)159.4 81.3 1.5 3.2 11.0 36.0 49.2 70.0 FY18/3ActualFY19/3ActualFY20/3ActualFY21/3ActualFY22/3ActualFY23/3PlanFY24/3Plan(refference)FY25/3Plan(refference)106.584.560.554.845.548.956.973.3FY18/3ActualFY19/3ActualFY20/3ActualFY21/3ActualFY22/3ActualFY23/3PlanFY24/3Plan(refference)FY25/3Plan(refference)Chapter 2Optimize Cost Structure14Chap 21: Reduction of Cost of Sales and SGAECost of sales and SGAE successfully achieved the plan by making reduction of JPY 41.5 billion through efficiency improvement measures such as cost curtailment across the board and reviewing operation flow.FY2021 Revised Plan (Feb.)FY2021 Actual Decrease in Cost of Sales -Main Items Decrease in Cost of Sales -Main Items・Leasing operationAbout JPY -12.2 billion・Leasing managementAbout JPY -6.5billion ・Construction and real estateAbout JPY -10.9 billion・Leasing operationAbout JPY -15.9 billion・Leasing managementAbout JPY -6.5 billion・Construction and real estate About JPY -10.9 billion(JPY billion)(JPY billion)Sales commission+0.4Advertising+1.0438.1Cost of sales(34.6)Personnel(5.0)Others(3.0)396.8FY2021PlanProvision of allowance for doubtful accountsAdvertising+0.4Sales commission+0.4438.1Cost of sales(35.5)Personnel(6.0)Others(0.7)396.5FY2020ActualPlan: Reduction of JPY 41.2 billionFY2020ActualActual: Reduction of JPY 41.5 billionFY2021Actual15Chap 22: FY2022 Optimize Cost Structure -Cost of Sales PlanThe Company will see increased leasing management cost based on proper maintenance for apartment buildings in FY2022 but expect continued reduction of cost of sales against the previous fiscal year, reflecting progress in contractual adjustment for master-lease rent and cost of operating Leonet, internet services. Cost of Sale PlanDecrease in Cost of Sales –Main Items(JPY billion)Leasing operation cost reduction in FY2021 is sure to produce JPY 11.7 billion of reduction on an annualized basis.(11.7)Leasing Operation: YoY JPY -8.3 billion・Continued contractual adjustment for master-lease rent since FY2021 makes substantial reduction in rent payable to owners.・Provision for apartment vacancy loss (- means positive)FY2021: JPY – 6.6 billion, FY2022: JPY – 3.0 billion(JPY 3.6 billion YoY)・Utilities expenses for monthly rental contracts increase JPY 1.2 billion YoY due to occupancy rate improvement and rise in electricity and gas ratesLeasing Management: YoY JPY ＋6.3 billion・Leasing management cost substantially increases reflecting increasing number of maintenance operation despite continued operation flow improvement since FY2021.Construction and Real Estate: YoY JPY -0.3 billion・level off due to ceased new order intake, same as FY2021. 16 FY2017-FY2022 Total decrease: About JPY 85.9 billion FY2021-FY2022 Total decrease: About JPY 3.4 billion434.7428.9408.1387.8352.2348.8330370410450FY18/3ActualFY19/3ActualFY20/3ActualFY21/3ActualFY22/3ActualFY23/3PlanChap 23: FY2022 Optimize Cost Structure -SGAE PlanPersonnel expenses increase because of recording provision for bonuses; increase in taxes and public charges and sales commission expense are offset by cost reduction as a result of operation efficiency improvement measures and selective concentration for optimizing cost structure.SGAE PlanMeasures(JPY billion)YoY+5.9+1.5(0.0)+0.4+4.1 Centralized leasing operation・Rental contracts operation in the respective leasing sales offices is centralized in Tokyo and Osaka area.・Improve operation efficiency through increased portion of non-regular workforce and efficient deployment.・Establish two centralized sites in Saitama and Osaka in FY2022.・Time-saving effect after centralizationSaving time: 120 thousand hours per year Outsourced call center operation・Keep 24 hours a day / 7 days a week operation without redundant staffs・Outsourced for a specific time of hours a day to achieve overall efficiency・Objectives:１．Cost reduction: approx. JPY 120 million / year (FY2021 actual)２．Reduction in system license fee by smaller number of staffs３．Keep reasonable level of response rate and quality17 FY2017-FY2022 Reduction in personnelAbout JPY 18.6 billion FY2020-FY2021 closed 80 leasing offices (FY2020: 50, FY2021: 30)Reduction of about JPY 0.4 billion Main items of “Others”Taxes, commission fees, rental fees, repair and maintenance7316886195024435030200400600800FY18/3ActualFY19/3ActualFY20/3ActualFY21/3ActualFY22/3ActualFY23/3Plan73,14768,84461,91550,26944,30250,300020,00040,00060,00080,000FY18/3ActualFY19/3ActualFY20/3ActualFY21/3ActualFY22/3ActualFY23/3PlanPersonnelAdvertisingSales commissionOthersChapter 3Occupancy Improvement MeasuresChap 31: Occupancy Rate from FY2016 – FY2021Occupancy rate had been increasing until FY 2017 after the Lehman collapse, it started to decrease from FY2018 due to the construction defects problem and COVID-19. By implementing measures to improve occupancy rate, it bottomed out in December FY2020 and turned to a recovery trend.Occupancy RateShifted to a recovery trend thanks to the structural reformsStarted to decrease because of the construction defect problemsStayed at a low level due to COVID-191991.66%93.72%84.33%83.07%81.72%85.10%75%80%85%90%95%JunSepDecMarJunSepDecMarJunSepDecMarJunSepDecMarJunSepDecMarJunSepDecMarFY2016FY2017FY2018FY2019FY2020FY2021Chap 32: Occupancy Rate in FY2021 / FY2022 PlanThe occupancy rate has been improved over FY2020 – FY2021 due to the occupancy rate boosting measures amid reducing impact by COVID-19 pandemic.The Company strives to achieve 88.44% at the end of FY2022 and 85.05% as the average of FY2022 by continued occupancy rate boosting measures.Occupancy RateFY2013-FY2017Average 87.67%Apr-AugSep-DecJan-MarDownward trends because the number of leavers increase at the completion of training sessions in the corporate customer segment and moving demand is settled down concerning going to college or getting a job in the individual customer segment.Slight upward trends in Sep backed by corporate customers’ relocation demand and increase of international students for enrollment in autumn; marginal changes for Oct – Dec lacking demand-generating events.Upward trends due to factors comprising corporate customers’ relocation demand for the coming fiscal year, and emerging new students and new workers who look for apartment rooms. Approx. 3.8 point increase is targeted for Q4.FY2022 PlanEnd 88.44%Avg. 85.05%FY2021 PlanEnd 85.10%Avg. 81.24%FY2021End 85.10%Avg. 81.22%FY2020End 81.72%Avg. 78.89%2075%80%85%90%AprMayJunJulAugSepOctNovDecJanFebMarChap 33: Occupancy Improvement Measures in FY2022The Company implements measures of boosting occupancy rate for segmented customers to achieve the plan.Efforts are made to attract increasing number of foreign national customers of technical interns for designated activities and international students reflecting the relaxation of immigration restrictions in FY2021.Acquire larger share at each corporate customerAttract increased number of individual customers through real estate agents and use of web-based servicesObtain customer’s buy-in for realizing corporate housing strategy as an expert Strengthen sales to real estate agencies by working with major real estate agents and Village House in Fortress group. Top-level sales activities Achievement in FY2021Involve senior management team in customer interaction for resolving issues. Strengthen sales organizational structureReorganized the sales departments from five to eight in Tokyo metropolitan area aiming for increased customer interaction time. Individual customer strategy・Number of rental contracts through real estate agencies: 35,576 (an increase of 34.2% YoY)・Ratio of contracts with individual customers through agencies: 38.9% (an increase of 6.9p YoY）*1Strengthen web-based customer attractionPromote customers’ use of rooms by responding to specific customer requirement.Reinforced digital marketing⇒ Increase responses by drawing more traffic to the CompanySelected five industries for increased market share: staffing & outsourcing, construction, transport, food service, and distributionwebsiteAttract specified skilled workers for increased use of rooms*2Increase the use of rooms by specified skilled workers by collaborating with staffing agencies for foreign nationals and establishing stronger relationship with the support agencies.*2Attract international students for increased use of roomsAcquire the increasing demand by international students coming to Japan as a result of relaxation of immigration restrictions. Utilize seven IFCs, and strengthen relationship with real estate agencies and service providers which cater for students’ needs. *1 Refer to P25 for details*2 Refer to P22 for details21Chap 34: Acquiring Demand from Foreign NationalsThe number of foreign nationals is expected to gradually increase due to the relaxation of immigration restrictions.Targets are set for each category of immigrants, aiming to acquire tenants at the level of FY2019 which is before the expansion of COVID-19.FY2022 PlanNumber of contracts by foreign nationals (individual only)Acquire about 13,000 contracts (+65% YoY)TargetMain measures to get responseInternational students• University, business college, Japanese language school• Real estate agents• Study abroad center▼Number of non-immigrants who have been issued a “Certificate of Eligibility” (as of January 4, 2022)Workers• Real estate agents• Employment AgenciesSpecified skilled workersTechnical intern trainees• Specified skilled workers support organizations• Real estate agents• Companies accepting foreign workers• Supervising organizations• Companies accepting foreign workers22International students, 152,900Technical intern trainees, 129,100Family stay, 29,300Technogolies, Human knowleges, International works, 29,000Entertaiment, 12,900Others, 46,800400,000Chap 35: Occupied Units by Foreign NationalsNumber of units used by foreign national tenants is about 330 thousand, comprising about 180 thousand individual customers and 140 thousand under corporate contracts, 6.9% of total occupation.（FY2021 result: (0.7) p. YoY, (0.1) p. QoQ)Occupied Units by Foreign Nationals (Excluding Corporate Contracts)International Students in Japan*1(Persons)(Units)18,771 units(YoY-11.9%)Foreign Workers in Japan*2(Persons)■Manufacturing ■Wholesale & retail ■Construction■Hospitality ■Healthcare and welfare ■Others*1 Excerpt from “Result of an Annual survey of International Students in Japan 2020” (Japan Student Services Organization)*2 Excerpt from “Employment status of foreign workers in Japan” as of end of Oct 2021 (Ministry of Health, Labor, and Welfare)23161,145184,155208,379239,287267,042298,980312,214279,597242,444050,000100,000150,000200,000250,000300,000350,00020132014201520162017201820192020202105,00010,00015,00020,00025,000SepMarSepMarSepMarSepMarFY2018FY2019FY2020FY2021ChinaS. KoreaTaiwanVietnamThailandOther Southeast Asia717,504787,627907,8961,083,7691,278,6701,460,4631,658,8041,724,3281,727,2210500,0001,000,0001,500,0002,000,000201320142015201620172018201920202021Chapter 4Offer DX SolutionsChap 41: Web-based Customer AttractionFocus on digital marketing for FY2022 for effective investment and make use of rental website with multi-language support for acquiring increased number of inquiries from potential tenants including foreign nationals to grow successful rental contracts.Optimize Digital MarketingRental Website with Multi-language SupportMajor initiatives for FY2022１ Add method of digital marketing and renew rental website for room-search２ Look into tracking records of the users-visitors and monitor the profitability of each media３Actively post the rental units information on real estate portal sites Accommodate five languages: English, Chinese in both traditional/simplified characters, Korean and VietnameseTarget for FY2022:Number of website users-visitors +46% yoyNumber of rental contract conversion +61% yoyContinue to further strengthen digital marketing Full functionality of room search to application of contract from anywhere in the world Language is no longer a restriction for foreign national customers to look for a room through specifying conditions to cope with individual needs 25Chap 42: Promote Web-based Rental ContractsLeopalace21 has digitized all the process to conclude rental contracts with the customers apart from the term tenant contracts which require by law written documents to be presented to the tenants.Every step from room search to contract signing can be completed without face-to-face transactions.Development of Web-based Contracts(cases)Number of web-based contracts 2015- Leo-sign （Electronic 2019- Web-based contract 2020- Web-based customer 2021- eKYCcontract）Launched in 2015.Fit for increasing trends of skipping seals on paper.Employed by corporates for 56,456 cases (34.0%) during FY2021.Launched in Jun 2019.Enabled non-face-to-face contract signing.FY2021 plan: 25,000FY2021 results: 25,641services(Know Your Customer)Launched in Oct 2020. Enabled to use online room viewing and customer services. All procedures are possible without visiting our leasing sales offices combined with WEB-based contract signing and LeoLock.Launched in Jan 2021.Replaces submission of identityverification document and interviewfor identity verification with adigitized ID document and a web-based interview.2605,00010,00015,00020,00025,00030,00035,00040,00045,000AprMayJunJulAugSepOctNovDecJan-21FebMarAprMayJunJulAugSepOctNovDecJanFebMarChap 43: Offer Services for TenantsStarted to install smart locks in FY2022 in addition to the services which we have been providing.Changed the connectivity and updated LEONET to be able to handle a large data capacity that is less likely to cause line delay.Smart lockLEONET Leopalace21 is installing the smart locks to 440 thousand apartment units, or approx. 80% of its apartment units under management, starting from June 2022. The smart lock enables tenants to view rooms or move in the room without visiting leasing sales office for key handover. It prevents face-to-face procedure as a protective measure against infectious diseases. Tenants can avoid the lost key because the entrance door can be unlocked by multiple authentication method using a smart phone, a smart card, or a PIN entry to a numeric keypad. Internet connection service comes standard with all apartment rooms which also offers various content such as CS broadcasts and shopping. Upgrade the connection mode for FY2022 for increased benefit of tenants from the current PPPoE to IPoEmethod for broader bandwidth to avoid delay n transmission speed step by step. 27Chap 44: Accumulated data utilizationApply AI technology to the huge accumulated data through Leasing Business operation.Investigate a business possibility of selling outside AI-powered creditworthiness scoring service and further develop to a platform business. Possibility to develop to a platform businessPrepare a scheme by use of AI-powered creditworthiness scoring serviceRent payment historical dataTenantsComplaint dataUse of Leonet dataUtilize platform serviceAccumulated data infrastructure for analysisAI ModellingScoringLEO Score572・・・・・Improve efficiencyin debt collectionImprove accuracy in tenant screeningMarket data for other companies in the same industryEnter into the lending business28Chapter 5Strengthen Corporate Governance / Promote Greener OperationsChap 51: Strengthen Corporate GovernanceFurther improve risk sensitivity and compliance awareness of all officers and employees by strengthening the functions of risk and compliance representatives in each department.Procurement department was established in January 2022 so that it contributes to fortify the governance system and adhere to Leopalace21 Group CSR Procurement Guidelines.Promote complianceEstablished Procurement Department and Procurement Management CommitteeAiming to transform into a corporate culture that motivates staffs to think and act based on Compliance First policyTightened the control of procurement process of goods and services including supplier selection based on Leopalace21 Group CSR Procurement GuidelinesInitiatives in FY2022Procurement department Improve risk sensitivity and compliance awareness The Compliance Promotion Department aims to improve the risk sensitivity and compliance awareness of officers and employees through the trainings and development of teaching materials of that reflect the various specific cases of risk and compliance accumulated so far and the request by officers and employees. Newly established department in the Business Management Headquarters on Jan 26, 2022 in order to adhere to the CSR Procurement Guidelines. Procurement department will proceed with planning and execution of purchasing processes such as bidding, and will procure based on transparent and strict purchasing processes such as bidding for each type of transaction and type of procured product. Strengthen the functions of risk and compliance officers in each departmentEach department will proactively respond to risk and compliance cases to improve self-propelled responsiveness and at the same time improve risk sensitivity and compliance awareness of each department.Procurement Management Committee Chaired by CEO and consisted of GM of the Business Management Headquarters, CLO, and the head of each management department. Deliberation and decision on important matters related to purchasing, ensuring appropriate quality and stricter selection of suppliers.30Chap 52: Promote Greener OperationThe Japanese government set a goal of reducing the CO2 emissions by 46% in FY2030 compared to FY2013. In line with this goal, the Company have set a goal of reducing the Scope 1 and 2 CO2 emissions – emissions from the use of electricity and gas, and vehicle gasoline by 26%.CO2 Emissions for Scope 1 and 2Disclosure Based on TCFD FrameworkGoal:Reduce the emissions by 26% in FY2030 compared to FY2016（t-co2） The Company expressed to support the recommendations by TCFD and participated in the consortium during FY2021. Launched a project for disclosure based on TCFD framework. The Company plans to disclose its activities in June 2022 on HP and the corporate governance report.CO2 Emissions for Scope 3（t-co2）-42.4%3120,08419,18618,07616,79611,56205,00010,00015,00020,00025,000FY2016FY2017FY2018FY2019FY2020Scope2 (emission from the use of electlicity)Scope1 (emission from vehicle gasoline)20,08419,18618,07616,79611,56205,00010,00015,00020,00025,000FY2016FY2017FY2018FY2019FY2020Scope1 (emission from the use of gas)Scope1 (emission from vehicle gasoline)Scope2 (emission from the use of electlicity)873,167864,448786,510692,463693,3880200,000400,000600,000800,0001,000,000FY2016FY2017FY2018FY2019FY2020Chapter 6Handling Construction DefectsChap 61: Repair Works on Properties Constructed by Leopalace21Expected number of repaired units in the future: About 38,000 roomsOf the 98,200 rooms that have been deducted from “requiring repairs” and “repairs completed”, 22,606 units have already been found to be defective by the investigation. It is expected that about 38,000 units will be requiring repairs, including 15,000 uninvestigated rooms that are predicted to be defective based on the results of the investigation so far.(As of April 2022)Apartment seriesNo. of buildingsNail Series / Six SeriesTotalOther Series Total15,28323,80239,085No. of buildingscontaining obviousdefectsNo. of all roomswhich correspondsto No of buildingscontaining obviousdefectsNo. of roomsrequiring repairsNo. of rooms withrepairs completed7,7644,630121,95272,08690,40158,59845,2095,640Expected No. of to-be-repaired rooms 22,00016,00038,000Grand Total 12,394194,038148,99950,849Steadily repairing construction defects while continuing to rebuild the financial base. Aim to eliminate obvious defects by the end of 2024.* Progress of repair work: https://www.leopalace21.co.jp/info/pdf/2021/progress.pdf* Fundamental approach to prevent recurrence：https://www.leopalace21.co.jp/info/pdf/2021/progress.pdf33Appendix1: Corporate ProfileCorporate Data (as of March 31, 2022) Group Companies (as of March 31, 2022)Plaza GuaranteeRent guaranteeASUKA SSITenant contents insuranceWoori & Leo PMCLeasing management in South KoreaLeopalace21 Business Consulting(Shanghai)Tenant recruitmentLEOPALACE21 PHILIPPINES INC.Serviced Officein the PhilippinesEstablished Paid-in CapitalAugust 17, 1973JPY 100 millionRepresentative DirectorBunya Miyao, President and CEOEmployeesAuthorized Shares4,356 (consolidated), 3,589 (non-consolidated)750,000,000Outstanding Shares329,389,515 shares (not including 159,748,700 dilutive shares) Shareholders50,972Business ModelOffer 570,000 studio-type units equipped with furniture and home appliancesapprox. 80% of listed companies have used Leopalace21’s servicesMaster lease system to pay rents for all units up to 30 yearsTenants(Individual/Corporate)Tenant recruitment and managementPayment for BuildingLeopalace21Property ownersRent paymentMaster-lease rents*Master leaseApartment buildingand maintenanceApartments*Payments of master-lease rents are made to owners regardless of vacancies(Rents are reviewed every two years)lanoitan-retnI*Leopalace21Singapore Pte. Ltd.Investment managementLeopalace LeasingCorporate housing agentLeopalace PowerPower generationMorizouBuilt-to-order homesAzu Life CareElderly care serviceignsaeLl-poeveD ylredEl*tnemeraCsrehOtLeopalace GuamResort BusinessLeopalace SmileSpecial subsidiary• Results of the International Business and the Development Business arereported under the Leasing Business segment352: Results TrendLeopalace21 reported operating losses for two consecutive years in FY2009 and FY2010 affected by the Lehman Collapse. As a result, the Company shifted the business model to center on the Leasing Business in order to realize a stable earnings structure for the mid to long term. Construction defects problem was revealed in FY2018. The Company recorded operating losses for the two consecutive years from FY2019 hit by COVID-19 impact despite its effort to be profitable by implementing structural reforms in FY2020. Operating income became positive in FY2021 by continuing structural reforms.Results TrendsSales (JPY billion)OP (JPY billion)36334.5342.3355.7379.0383.6388.5399.3410.6421.3435.5426.3388.9391.9383.0359.1237.0107.862.953.363.161.374.180.376.558.925.4733.2620.3483.5458.2454.2470.8483.2511.5520.4530.8505.2433.5408.9398.350.1 -29.7-24.43.3 7.4 13.4 14.8 21.0 22.8 22.9 7.3 -36.4 -29.1 1.7 -40-20020406080-2000200400600800OthersDevelopmetLeasingOperating profit3: Occupied by its by IndustryApproximately 80% of listed companies in Japan have used Leopalace21 services. The strong demand remained in staffing & outsourcing and construction during FY2021. Food service, hospitality, and retail also remained at a high rate of increase in Q4 due to the mitigated impact of COVID-19 pandemic.Number of Occupied Units by Industry(Units)(42,352)(42,358)(41,704)(43,046)(42,776)(43,349)(42,841)(44,372)YoY*QoQ*+5.2%+8.1%+0.9%+8.8%Food service(2.3)%+8.9%Hospitality(4.2)%+7.0%Manufacturing+0.6%+10.8%Retail(0.6)%+8.4%Others+24.0%+10.9%Staffing & outsourcing+8.3%+0.4%Construction* YoY： compared with Q4 FY2020, QoQ：compared with Q3 FY20213756,56557,12854,90558,23858,46861,00560,64163,09539,71238,46141,55846,98448,41850,64052,55158,25739,21838,48836,95539,86539,74338,04236,53639,60837,30436,47636,06939,39637,69036,54235,77139,64038,89437,79636,67338,41236,33534,93134,40936,81030,27328,90427,57029,09328,00127,15826,12128,43414,48914,21513,85614,82614,48914,23313,75014,966256,455251,468247,586266,814263,144262,551259,779280,8101Q2Q3Q4Q1Q2Q3Q4QFY2020FY20214: Shares of Occupied Units by Customer SegmentThe number of corporate and individual occupied units has increased YoY by implementing measures to improve the occupancy rate and mitigated impact of COVID-19 pandemic.Students decreased YoY due to the decrease in international students resulting from immigration restrictions.Shares of Occupied Units by Group** Figures are as of the end of each quarter38303,701 287,615 275,786 280,643 270,586 263,822 256,592 272,566 256,455 251,468 247,586 266,814263,144262,553259,779280,811177,072 173,189 168,462 163,318 158,634 158,059 158,933 165,594 162,769 160,928 159,393 164,441165,058167,115165,587167,38045,965 45,707 44,852 40,757 39,005 39,150 38,767 40,135 37,316 36,201 35,477 37,54835,47034,95934,53334,597526,738 506,511 489,100 484,718 468,225 461,031 454,292 478,295 456,540 448,597 442,456 468,803 463,672 464,627 459,899 482,788 0100,000200,000300,000400,000500,000600,000Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4FY2018FY2019FY2020FY2021Corporate-occupied unitsIndividual-occupied unitsStudent-occupied units5: Units and Occupancy Rates by AreaOccupancy rate of all prefectures except Tokushima increased QoQ due to the implementation of measures to improve occupancy rate and the mitigated impact by COVID-19 pandemic.The national market has been divided into 7 areas from FY2021 in which sales, cost and profit are individually managed.Managed Units and Occupancy Rates by AreaManaged unit: in thousands, Occupancy:%Q4 FY2021Q4 FY2021ManagedunitsOccupancy rate YoYQoQManagedunitsOccupancy rate YoYQoQManaged unit: in thousands, Occupancy:%Q4 FY2021ManagedunitsOccupancy rate YoYQoQHokkaido1378% ＋8pAomoriIwateMiyagiAkitaYamagataFukushimaIbarakiTochigiGunmaSaitamaChibaTokyoKanagawaToyamaIshikawa1084%83% ±0P82% ±0P78% ±0P84%94%94%84%84%85%80%86%90%80%+1p+5p+3p+8p+6p+7p+3p+2p+3p+6p+4p4324101511124634454155+6p+1p+2p+5p+8p+3p+5p+5p+4p+1p+4p+5p+6p+7p+6p+4pManaged unit: in thousands, Occupancy:%FukuiYamanashiNaganoNiigataGifuShizuokaAichiMieShigaKyotoOsakaHyogoNaraWakayamaTottoriShimane1186%4497893322254112312294%86%79%87%77%89%85%94%89%83%85%87%+1p+5p+6p+1p+4p+2p+5p+9p+8p+4p+3p+3p+5p77%±0p91% △2p96%+3p+5p+3p+3p+2p+5p+4p+4p+5p+6p+5p+5p+5p+4p+4p+3p+3pFukuoka2087%OkayamaHiroshimaYamaguchiTokushimaKagawaEhimeKochiSagaNagasakiKumamotoOitaMiyazakiKagoshimaOkinawaTotal121484%±0p88%90%+2p+3p89%+6p △1p80% △1p72542327423586%86%91%93%90%84%+1p+4p+2p+4p+1p+5p+1p84% △1p86%±0p94%±0p+3p+5p+7p+5p+3p+4p+5p+6p+4p+5p+4p+4p+3p+2p+5p75% △3p56785%+3p* YoY： compared with Q4 FY2020, QoQ：compared with Q3 FY2021396: Market Data -Estimated Future Population and Single-person HouseholdsTotal population will decrease to 110.92 million in 2040, accelerating the aging society in Japan. On the other hand, single-person households, which is our main target, will continue to increase.Number of General Households by CategoryNumber of Single-person Households by Age(Millions of people)(Thousands of households)25,00020,00010,0005,0001,9671,8985,44419,960 20,254 20,233 19,94419,34216,7853,958 4,700 5,045 5,075 5,12218,4183,36915,00014,4572,6932,884 3,067 2,812 2,913 3,3432,2876,745 7,157 7,479 7,774 7,809 7,5773,8416,9682,971 2,999 2,987 2,830 2,795 2,705 2,558 2,4292,178 2,060 2,021 2,009 1,879 1,781 1,681 1,58420402005 2010 2015 2020(E)(E)2030(E)2035(E)2025(E)0under 2525-3435 – 6465-74 Over 75Source: White Paper on the Ageing Society prepared by Cabinet OfficeExcerpted from “Future Estimates of Households in Japan” (2018, National Institute of Population and Social Security Research)401281281271251231191151119.1 11.0 12.7 14.9 17.8 19.2 19.6 20.2 051015202505010015020052010201520202025203020352040UnknownOver 7565-7415-640-14% of Over 75Leopalace21 CorporationTEL：+81-50-2016-2907E-mail：ir@leopalace21.com© Leopalace21 Corporation. 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