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Japanese apartment provider finds more building defects

Leopalace21 says 14,000 tenants need to relocate

Japanese builder Leopalace21 looks to cover expenses for relocating 14,000 tenants from apartments that it constructed. (Photo by Toshiki Sasazu)

TOKYO -- Rental unit provider Leopalace21 said on Thursday that possible construction code violations were found in an additional 1,324 of its apartment buildings, affecting about 14,000 residents with potential relocation.

The company, listed on the Tokyo Stock Exchange's first section, uncovered additional issues with fire resistance and noise insulation in a follow-up investigation to a problem with a partition wall that surfaced in May 2018.

The affected buildings, built between 1996 and 2001, were located in 33 of Japan's 47 prefectures.

"The aim was to boost construction efficiency, not to save costs," CEO Eisei Miyama told a news conference on Thursday, explaining the defects. Faced with fierce competition, the company used materials that did not comply with building codes to shorten construction times.

Leopalace21 will first notify 7,782 residents in 641 buildings with potential fire resistance issues of the need to relocate, with the company offering to pay all related expenses.

Including those living in buildings with noise insulation issues, about 14,000 may be asked to relocate.

Also on Thursday, the company downgraded its fiscal 2018 earnings guidance for the third time as it set aside funds for repairs. It now projects a 38 billion yen to 40 billion yen ($345 million to $365 million) net loss, compared with a previously forecast loss of 5 billion yen to 7 billion yen. The company will skip its dividend payout.

Leopalace21 shares plunged on Friday, hitting 415 yen at one point, down 100 yen from the previous close and less than half their price at the beginning of May 2018.

The company's stock has been popular with foreign investors, who accounted for 60% of shareholders. The stock has a high return ratio of at least 50% and a unique business model, which includes furnished units for subleases.

However, the defects and insufficient explanations are causing a sell-off in shares, with investor confidence plunging as the company downgrades its outlook for the third time.

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