Business and Other Risks

The following are the major risks that management recognizes as having the potential to materially affect the financial position, operating results, and cash flows of consolidated companies, among other matters related to the business and accounting conditions described in the Annual Securities Report.

Forward-looking statements in the text are based on the judgment of the Group as of the end of the current fiscal year.

For each of the following items, if it is difficult to reasonably foresee the degree and timing of the possibility of such risk materializing, or the impact of such risk on the Group's business performance and other conditions when such risk materializes, no description of the degree and timing of such possibility or impact is provided. The Group has established a basic policy and management system for risk management in its Risk Management Regulations, and appropriately manages compliance-related risks, risks associated with daily business activities, risks associated with information, and various risks surrounding its business to prevent the materialization of such risks.

With regard to the development and sale of income-producing buildings in the Real Estate Development and Real Estate Solutions businesses, changes in various circumstances, such as an economic downturn, rising interest rates, and changes in the tax system, may cause a decline in sales prices and an outflow of funds from the real estate market.
In addition, because condominium development takes approximately two years from the acquisition of land to the acceptance of completion, macroeconomic changes such as land price trends, interest rate trends, and financial conditions may occur during this period, and if real estate market conditions deteriorate as a result, the Group's business performance and financial position may be affected.
In addition, if, in a situation where acquisition prices for land rise due to intensified competition to acquire land for real estate, or construction material prices rise, and it is difficult to pass these increases on in sales prices, gross profit may be squeezed, which may affect our group's performance and financial position.
To address this risk, the Company will closely monitor future trends in the domestic economy and monitor trends in the real estate market as appropriate, and will work to mitigate this risk in a timely manner.

Sales and profits in the Real Estate Development Business and the Real Estate Solutions Business are greatly affected by the scale and profit margin of each project, and since sales in these businesses are recorded at the time of delivery to customers, the progress of each project, changes in sales plans, changes in sales trends, and changes in delivery dates due to delays in construction work, etc. may affect the Group's performance and financial position. Also, changes in the timing of delivery of large-scale projects may affect the Group's performance and financial position.

Our group subcontracts almost all construction work. If we are unable to secure a sufficient number of subcontractors that meet our selection criteria, if the construction period is delayed due to poor business performance or the peak season of the subcontractor, or if subcontracting prices increase due to a labor shortage, construction costs may increase and the construction period may be prolonged, which may affect our group's performance and financial position.

If the value of real estate for sale declines significantly due to deterioration of economic conditions or real estate market conditions, the Group's business performance and financial position may be affected due to losses resulting from write-downs of the book value of inventory assets.

The Group is pursuing a "develop and own" strategy designed to maximize income gains. In the event of a significant decline in the profitability of real estate for rent, such as a fall in rent levels or an increase in vacancy rates due to deterioration of economic conditions or real estate market conditions, the Group may incur losses resulting from the write-down of the book value of fixed assets, which may affect the Group's performance and financial position.

The Group raises funds to acquire land for development and income-producing buildings, and pay construction costs, mainly through borrowings from financial institutions, and the Group tends to rely heavily on interest-bearing debt as a percentage of total assets. Therefore, if we are unable to procure funds as expected or if market interest rates rise due to economic conditions or other factors, our group's business performance and financial position may be affected.

The properties owned by the Group may be destroyed, degraded, or damaged and their value may be affected by fire, explosion, lightning, wind and snow or ice damage, water damage, fire due to an earthquake, rupture due to an earthquake, collapse due to an earthquake, eruption, tsunami, electrical accidents, mechanical accidents, and other unforeseen accidents, as well as war, riot, civil commotion, terrorism, and other events. In addition, the Group’s business may be affected by a decrease in demand for real estate as a result of a downturn in investment sentiment toward real estate due to a natural disaster or unforeseen accident. In such cases, the Group's performance and financial position may be affected.

The Group is subject to various real estate-related laws and regulations, primarily the Real Estate Brokerage Act and the Building Standards Act, as well as the Financial Instruments and Exchange Act, and has obtained licenses and registrations, including a Real Estate Brokerage License, first-class architect office registration, Type II Financial Instruments and Exchange Business registration, and Investment Management Business registration.

The Group is working to strengthen its internal control and improve compliance systems, and there have been no cases in the past, including as of the date of submission of this document, of revocation or refusal to renew licenses, registrations, or the like. However, if, regrettably, a violation of these laws and regulations occurs in the future and a license, registration, etc. is revoked or an administrative disposition is issued, there may be an impact on our group's business performance and financial position.

In addition, if the Group's business activities are constrained by amendments to or enactment of related laws and regulations, or if the Group is unable to adequately respond to such amendments or laws and regulations, the Group's business performance and financial position may be affected.

As a response to this risk, the Company conducts periodic compliance training to ensure that officers and employees are always aware of legal compliance in their work.

Our group handles a great deal of personal information in each of our businesses out of necessity when conducting business. We strive to ensure that such personal information is properly obtained, managed, and handled in accordance with the Act on the Protection of Personal Information and other related laws and regulations. However, if personal information were to leak outside the Group due to unforeseen circumstances, the Group's business performance and financial position could be affected by a loss of trust in the Group and the resulting decrease in sales and compensation for damages.
To address such risks, the Information Security Committee, consisting of representatives from each department, will develop a system to appropriately manage the information handled by the company and promote the implementation and operation of the system.

We may be subject to lawsuits or other claims arising out of or resulting from defects in properties we sell, customer complaints about the management conditions of properties we manage, or problems with tenants when they move in or out. The content and outcome of these lawsuits and other claims may affect the Group's business performance and financial position.

If there is a defect in the real estate to be sold, the seller is liable to the buyer for the defect warranty. In the unlikely event that a property sold by the Group is found to be seriously defective (including, but not limited to, defects in construction, or transfer or revision of construction data in a construction report), the Group will be liable to the seller for defects even if the direct cause of the defect is due to a cause other than the Group's fault. In such cases, the Group may be forced to bear unplanned expenses for repairing such defects, rebuilding, etc., which may affect the Group's business performance and financial position.

Since the future growth of the Group depends heavily on human resources, particularly excellent personnel, it is an essential condition for us to secure and develop professional personnel with high expertise and abundant experience in the real estate and financial fields. However, if we are unable to secure the personnel we seek as planned, it may affect the Group's performance and financial position.

As of the date of submission of this document, the Group operates overseas in Singapore and Vietnam and conducts foreign currency transactions in U.S. dollars, Singapore dollars, and Vietnamese dong, and is therefore affected by fluctuations in the exchange rates of these currencies.

Revisions to taxation systems related to real estate in the countries in which the Group operates, such as an increase in the consumption tax rate due to a revision of the Consumption Tax Law, could increase funds necessary for real estate acquisition and affect our business strategies, which may affect the Group's business performance and financial position.

① The Impact on Operating Results, etc.
If the spread of COVID-19, the occurrence of a mutant strain, or the outbreak of a new infectious disease other than COVID-19, results in travel restrictions or requests to refrain from leaving the house, and if bringing any of these under control is prolonged due to a prolonged stagnation of economic activities in Japan and abroad, occupancy rates at hotels and commercial facilities owned and operated by the Group may drop significantly, and there is a possibility that the business results of the Hotel Business segment may not improve, which may affect the business performance of the Group.
As of the date of submission of this document, the outlook for the end of the pandemic is uncertain, but we expect that after the pandemic, the business will begin to recover with domestic travel demand from Japanese nationals and demand from foreigners visiting Japan based on the government's tourism-oriented policies, and we will continue to invest in hotel assets while closely monitoring the external environment with an eye on the time after the pandemic. 

② The Impact of the Risk of Employee Infection
To ensure the health and safety of our employees, their families, and business partners as a top priority, the Group has established a Countermeasures Committee chaired by the President and CEO, formulated a basic policy regarding measures to prevent infection in accordance with government and municipal policies, and is doing its utmost to provide instructions and support to all Group sites. Specifically, we are striving to prevent the spread of infection by limiting contact opportunities as much as possible through the following efforts.
・Introduced telecommuting, online meetings, and online communication tools
・Staggered work hours, encourage car and bicycle commuting
・Restrictions on non-essential and non-urgent work and business travel
However, if an employee becomes infected with COVID-19 and the infection spreads within the company, smooth business operations may be affected due to reduced sales opportunities resulting from the closure of offices.

The Company strives to establish and operate internal control over financial reporting. For complicated accounting procedures, we consult with our audit firm in advance to enhance the accuracy of accounting procedures. However, there is a possibility that internal control audits by our audit firm may identify significant deficiencies in internal control over financial reporting. In addition, after submitting quarterly reports and annual securities reports, the audit firm may discuss the matter again, and as a result, the conclusion or audit opinion may change, and a corrected report may have to be submitted. In such a case, the Group's business performance and financial position may be adversely affected, and its social credibility and reputation in the market may decline.