Leopalace21: Q3 Briefing Messages and Q&A Session (ended December 31, 2021)

Company Leopalace21

Briefing on financial results for the nine months ended December 31, 2021

February 10, 2022

Summary of the event

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

Presentation

Kawa: Thank you very much for taking the time out of your busy schedules to participate in Leopalace21 Corporation’s Third Quarter Fiscal Year Ending March 2022 Financial Results Briefing today. I’m Kawasaki and I’ll be the moderator. Thank you.

Today’s speakers and Q&A session will be led by the following three people: Bunya Miyao, President and CEO; Shigeru Ashida, Director, General Manager, Head of Corporate Management Headquarters; and Shinji Takekura, General Manager, Senior Department Manager, Corporate Planning Department.

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

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

We will also ask you to complete a one-minute questionnaire after the briefing. We look forward to your cooperation. The meeting should end at 6:00 p.m.

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

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

First, in the financial results for the third quarter of the fiscal year ending March 2022, net sales were down JPY 10.8 billion year-over-year and JPY 1.8 billion lower than plan, but we were able to improve gross profit and other profit relative to both. previous exercise and plan.

The reason for the annual drop in net sales was a drop in construction sales and real estate sales due to the impact of the suspension of new orders. On the other hand, two factors explain the decline in revenues compared to the plan. One is that more tenants than expected have left their rooms due to the spread of the Omicron strain, and the other is the continued decline in contract rents, as previously reported.

While we are making steady progress in reducing costs and expenses, there has been a slight delay in the contractual adjustment of the head lease rent, but it remains within the range that can be managed by the lag in reporting during some exercice. In addition, a reversal of the provision for loss of apartment vacancy in cost of sales of 5 billion JPY was made, and the cost of sales was reduced by 24.8 billion JPY compared to the prior year.

SG&A expenses were reduced by 6.8 billion JPY year-on-year. As a result, we were able to realize an operating profit of JPY 4.2 billion, a significant improvement over the prior year. Recurring profit remained at JPY 1.4 billion due to the charge of JPY 3.3 billion in interest payments on a JPY 3.3 billion loan with equity subscription rights. However, following a 6.1 billion yen reversal of the repair loss provision, net profit was 5.8 billion yen, an improvement of 30.8 billion yen year-on-year , and we were able to achieve profitability in the third quarter while doing well.

Equity at the end of the third quarter was negative 5.6 billion JPY, but net assets, reflecting equity subscription rights and non-controlling interests, were positive 4.2 billion JPY.

Next, I’ll explain the revision to our full-year earnings forecast. Please see page 10 of the document. This is a summary of the plan, as well as the drivers for change.

The net sales forecast has been revised down by JPY 1.2 billion, or 0.3%, from the previous plan announced on November 8.

The main reasons for this, as in the third quarter results, are that the occupancy rate did not reach the plan due to a higher than expected number of room vacancies and that the recovery of unit rents has been delayed.

Regarding the rent in particular, we told you in the previous briefing that we would gradually increase the rent during the second half of the financial year, and although we are gradually increasing the rent, it is not over yet. On the other hand, ASUKA SSI, provider of tenant property insurance, a subsidiary of the Company, recently included in its plan an increase in income from the conclusion of reinsurance contracts.

Although the occupancy rate plan has been revised slightly downwards due to an increase in departures, we believe that there is no problem with our commercial strategy and our sales capacities. In particular, the fourth quarter is the time to capture the demand for new graduates in tenant companies, and following interviews with various companies, we have already confirmed that the demand is even higher than last year, in particular, the demand for nearly 25,000 companies rented accommodation for a tenant without a family.

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