Japanese apartment builder logs $400m loss on code violations

Leopalace21 may have to relocate thousands of tenants in buildings with code violations. (Photo by Toshiki Sasazu)

Leopalace21 may have to relocate thousands of tenants in buildings with code violations. (Photo by Toshiki Sasazu)

Repair and tenant relocation costs erode Leopalace21's profits as vacancies rise

TOKYO -- Rental unit provider Leopalace21 suffered a record loss for the April-December period as earnings were squeezed by a series of building-code violations at its properties, the company announced Friday.

The Japanese company reported a nine-month net loss of 43.9 billion yen ($400 million) -- its first loss for the period in seven years. Behind the red ink was an extraordinary loss of 43.4 billion yen associated with such expenses as repair work and relocation of affected tenants. When losses on property sales are factored in, the extraordinary charges totaled 51 billion yen.

Leopalace21's capital stood at 106.9 billion yen at the end of December, down 32% from a year earlier. Sales for the three quarters fell 2% to 376.3 billion yen, while operating profit plunged 65% to 6.5 billion yen.

The company, which trades on the Tokyo Stock Exchange's first section, announced last May problems with partition walls in apartments it has constructed. In a follow-up investigation, it uncovered potential defects in fire resistance and noise insulation for more than 1,300 buildings throughout Japan.

Affected apartments will not be available for occupancy until repair work is completed. Consequently, more and more units have become vacant as new problems were found, eroding the company's earnings power from core operations.

For the full year through March, the company projects its first annual net loss in eight years, ranging between 38 billion and 40 billion yen, depending on how quickly repair work is completed.

Source: Asian Review, 9 Feb 2019