Keihanshin Building : Consolidated Financial Results for the Nine Months Ended December 31, 2021

Note:This document is a translation of a part of the original Japanese version and provided for reference purposes only. In the event of any discrepancy between the Japanese original and this English translation, the Japanese original shall prevail.

Consolidated Financial Results

for the Nine Months Ended December 31, 2021

[Japanese GAAP]

January 25, 2022

Company name: Keihanshin Building Co., Ltd.

Stock exchange listing: Tokyo

Code number: 8818

URL: http://www.keihanshin.co.jp/english/

Representative: Koichi Minami, President

Contact: Toshiki Tabuchi, Operating Officer, General Manager (Accounting Dept)

Phone: 06-6202-7331

Scheduled date of filing quarterly securities report: January 28, 2022

Scheduled date of commencing dividend payments: -

Availability of supplementary briefing material on quarterly financial results: No

Schedule of quarterly financial results briefing session: No

(Amounts of less than one million yen are rounded down)

1. Consolidated Financial Results for the Nine Months Ended December 31, 2021 (April 01, 2021 to December 31, 2021)

2. Dividends

3. Consolidated Financial Results Forecast for the Fiscal Year Ending March 31, 2022(April 01, 2021 to March 31, 2022)

(% indicates changes from the previous corresponding period.)

1. Changes in significant subsidiaries during the nine months ended December 31, 2021 (changes in specified subsidiaries resulting in changes in scope of consolidation): No
2. Accounting policies adopted specially for the preparation of quarterly consolidated financial statements: No
3. Changes in accounting policies, changes in accounting estimates and retrospective restatement
4. 1. Changes in accounting policies due to the revision of accounting standards: Yes
   2. Changes in accounting policies other than 1) above: No
   3. Changes in accounting estimates: No
   4. Retrospective restatement: No
5. Total number of issued shares (common shares)
6. 1. Total number of issued shares at the end of the period (including treasury shares):

1. Total number of treasury shares at the end of the period: December 31, 2021: 161,597 shares

3) Average number of shares during the period:

Nine months ended December 31, 2021: 50,577,908 shares

Nine months ended December 31, 2020: 51,979,509 shares

*This summary is not subject to quarterly review procedures by a certified public accountant or audit firm.

*Appropriate use of business forecasts ; other special items

Information described in this document, such as projections, is prepared based on available information at the time of the release this document and certain assumptions that the Company judged as rational. Actual results may be significantly different due to various factors.

*This document was prepared by combining the table of contents for attachments and notes to the quarterly consolidated financial statements with the documents the Company disclosed on January 25, 2022, which are the summary of the consolidated financial results and the quarterly consolidated financial statements for the nine months ended December 31, 2021.

1. Qualitative Information on Quarterly Financial Results

(1) Explanation of Operating Results

During the third quarter of the fiscal year ending March 31, 2022, the Japanese economy was impacted by the spread of COVID-19 resulting in corporate activities and personal consumption being severely restricted. Expectations mounted for economic activities to return to normal, as movement restrictions were mitigated in conjunction with the lifting of the declaration of the state of emergency and other measures at the end of September 2021. However, the latest surge in the number of new COVID-19 cases in Japan as a result of the new variant has led to increasing concern, and the outlook remains unclear. In the real estate leasing industry, there has been an increasing trend toward downsizing and withdrawal of offices as well as consolidation of hubs against the backdrop of the spread of remote work and other new workstyles, and we will need to closely monitor the trends of the real estate market going forward.

Under such circumstances, the Group's vacancy rate as of December 31, 2021 rose to 0.45% from 0.19% at the end of the previous fiscal year, but it remained at low levels. Although vacancies in some office buildings increased, we are focusing on sales activities to achieve full occupancy. We will continue to enhance the asset value of our existing buildings and maintain our competitive advantage over the surrounding buildings, while at the same time proactively taking initiatives for new investments to expand our business foundation.

For the nine months ended December 31, 2021, consolidated net sales increased by 1,842 million yen (16.0%) year-on-year to 13,323 million yen, thanks to an increase in rental income in conjunction with the commencement of operations of the newly-built Toranomon Building and the OBP Building.

However, due to the posting of expenses including real estate acquisition tax of 652 million yen associated with the OBP Building as one-time expenses and also to an increase in the burden of depreciation, operating profit declined by 363 million yen (8.8%) year-on-year to 3,776 million yen and ordinary profit declined by 398 million yen (9.8%) year-on-year to 3,648 million yen. Profit attributable to owners of parent amounted to 3,412 million yen, a decrease of 588 million yen (14.7%) year-on-year, due to the absence of gain on sale of non-current assets which was reported under extraordinary income in the previous fiscal year.

The Group operates under a single segment of the "Building lease business," which is primarily engaged in the leasing of land and buildings. The status of each business division operated by the Group is as follows.

1) Office Buildings

The Group owns and leases a total of eight office buildings, mainly in city centers of Osaka and Tokyo. We are developing safe and comfortable office buildings equipped with the latest features, and even with aged buildings, we strive to offer comfortable business spaces comparable to new buildings by means of systematic facility renewal and maintenance. Furthermore, at the newest buildings, we meet BCP needs by leveraging our expertise in the operation of datacenter buildings.

Amid the trend toward teleworking and downsizing of offices due to the spread of COVID-19, the impact on the Group's office building business has been currently minimal and we have maintained a low vacancy rate. Owing to the completion of the Toranomon Building and the contribution from rental income thanks to improved occupancy rates of existing buildings, consolidated net sales from the office building business amounted to 3,206 million yen (net sales ratio: 24.1%).

2) Datacenter Buildings

The Group is developing datacenter buildings mainly in the city center of Osaka, and owns and leases a total of eight datacenter buildings, including the OBP Building, which was newly completed in April 2021. The Group's urban-type datacenter buildings boast the latest specifications including advanced disaster prevention features by the adoption of seismic isolation structures, among others, stable power supplies in emergencies utilizing large emergency-use generators, and state-of-the-art security systems. Furthermore, our solid maintenance and management services based on our rich track record of datacenter building leases are also highly regarded.

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With factors such as the popularization of telework and promotion of digital transformation (DX), the demand for and profile of datacenters is expected to grow further, along with anticipated further increases in data communication volume. Owing to the contribution from the OBP Building's rental income, consolidated net sales from the datacenter building business stood at 6,773 million yen (net sales ratio: 50.8%).

3) WINS Buildings

WINS buildings refer to the facilities that sell off-track betting tickets for Japan Racing Association (JRA) races held all over Japan. The Group owns and leases a total of five WINS buildings in the central area of the cities of Kyoto, Osaka, and Kobe. Since the Group's founding, the WINS buildings business has continued to be one of our core businesses that generate stable revenue. To provide safe, convenient, and comfortable premises to horse-racing fans, we have continued to clean up and make improvements to the facilities.

While the share of sales of tickets at WINS buildings is on a declining trend as online betting becomes widespread due to the impact of the spread of COVID-19, the impact on our business performance is minimal owing to the leasing system by fixed rent. Consolidated net sales from the WINS buildings business amounted to 2,605 million yen (net sales ratio: 19.6%).

4) Commercial Buildings and Logistics Warehouses

The Group has been developing the leasing business for commercial buildings and logistics warehouses since the 1970s. We used to have road-side-type commercial facilities located across Japan, but these have been progressively sold in response to changing needs and we are currently promoting acquisition of more conveniently located properties in accordance with our Mid-Term Business Plan. The Group owns and leases five commercial buildings and logistics warehouses in the country, particularly in the Kansai Region and the Tokyo metropolitan area.

The impact of the COVID-19 pandemic on our facilities has been minor even for comparatively easily affected commercial buildings, as they are leased to retailers of daily necessities such as supermarkets. Also, strong demand for logistics warehouses is predicted to continue due to factors such as the proliferation of electronic commerce (EC). Consolidated net sales from the commercial buildings and logistics warehouses business stood at 736 million yen (net sales ratio: 5.5%).

(2) Explanation of Financial Position

Total assets at the end of the nine months ended December 31, 2021 amounted to 149,458 million yen, a decrease of 4,584 million yen (3.0%) from the end of the previous fiscal year. This was mainly due to a decrease of 15,748 million yen in cash and deposits as a result of the final payment for the OBP Building, despite an increase of 9,554 million yen in property, plant and equipment due to factors such as the completion of the OBP Building and an increase of 1,911 million yen in consumption taxes refund receivable as a result of posting large amounts of suspense consumption tax paid in conjunction with the completion of the OBP Building.

Total liabilities at the end of the nine months ended December 31, 2021 amounted to 79,546 million yen, a decrease of 3,957 million yen (4.7%) from the end of the previous fiscal year. This was mainly due to a decrease of 3,020 million yen in income taxes payable as a result of a final tax payment and a decrease of 1,367 million yen in interest-bearing debt as a result of repayment.

Total net assets at the end of the nine months ended December 31, 2021 amounted to 69,912 million yen, a decrease of 627 million yen (0.9%) compared to the end of the previous fiscal year. This was due to a decrease of 963 million yen in retained earnings, as a result of 1,682 million yen in dividends of surplus and 2,693 million in cancellation of treasury shares, despite the posting of profit attributable to owners of parent of 3,412 million yen.

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