Business Risks

The Group is working on “real estate revitalization and utilization” mainly in central Tokyo and developing one stop real-estate services that include brokerage, management, guarantee, construction, leasing, and trading, centered on office buildings and commercial buildings in central Tokyo, which is influential in enhancing market competitiveness as a company. However, the Group’s operating results and financial position may be affected by a downturn in the real estate market, such　as a rise in vacancy rate or a decline in rent, due to worsening economic conditions.

The Group’s businesses are comprised of Replanning Business, Rental Building Business, brokerage and leasing, Property Management Business, Building Maintenance Business, Rent Guarantee Business, Conference Room Rental Business, Hotel Development Business, Hotel Operation Business, Overseas 　Development Business, and Construction Business. These businesses are characterized by the organic combination of these businesses to provide consistent services related to commercial real estate. In addition, the Company aims to maintain and strengthen its competitiveness and differentiate itself from competitors by conducting business operations in a coordinated manner, such as by linking the functions of each business unit for comprehensive strengths and purchasing potentially superior properties from a broad network of clients. However, if this advantage is not maintained, the Group’s operating results and financial position may be affected.

① Replanning Business is a revitalization business that mainly targets commercial real estate. It is a business that improves profits by regenerating commercial real estate that is inactive or has high vacancy rate and low profits. The buyer is an individual or corporation that invests mainly in real estate for rent incomeIn the event of turmoil in the financial markets due to worsening economic conditions or a credit crunch, etc., the distribution market for real estate may be sluggish, and the inventories value of properties handled in Replanning Business may decline. In addition, sales activities may not progress as planned, which may have an impact on the Group’s operating results and financial position.

② Replanning Business procures funds mainly by borrowing from financial institutions and purchases properties, so the interest-bearing debt balance changes depending on the status of property purchases and sales. In raising funds, the Company does not rely on borrowings from specific financial institutions and strives to raise funds on stable and appropriate terms while always balancing with multiple financial institutions. However, if turmoil in the financial markets arises due to a credit crunch or other factors, the Group’s operating results and financial position may be adversely affected due to a failure to procure the necessary funds for business development.

③ Replanning Business will purchase the property and sell it after the completion of replanning. Cost of sales and net sales of the business will be recorded when the property is sold. In addition, the amount per transaction is high compared to revenues from other Real Estate Service Business, etc. Consequently, the Group’s operating results and financial position may be affected by factors such as the timing of the sale and changes in amount.

The Group is responsible for everything from planning, development, revitalization and management of hotels. Some of the properties owned by the Group may be sold to investors after stable operations. However, the basic business model is to continue leasing and operating the property even after it is sold. Unlike the Replanning Business, in the Hotel Development Business, there are cases in which the Company starts development from scratch by purchasing land on its own. In such cases, the Group’s operating results and financial position may be affected by the fact that it takes a considerable period of time to complete the project, which may result in a longer period of time during which it is unable to record revenue, such as hotel room revenue, or by the fact that the Group’s business period may be relatively longer making it more susceptible to economic fluctuations.

Hotel Operation Business generally tends to be affected by economic trends and consumer spending. Accordingly, the Group’s operating results and financial position may be affected by a decline in demand for business trips by companies and a decline in demand for leisure activities by individuals due to the sluggish economy, oversupply of rooms due to the opening of new hotels, or a decline in room rates and occupancy rate due to the spread of infectious diseases. In addition, fluctuations in foreign currency exchange rates, territorial disputes with neighboring countries, growing anti-Japanese sentiment, and other changes in the situation may lead to a decrease in the number of foreign tourists, a reduction in travel forecast, or a decline in consumer confidence. These changes may have an impact on the Group’s operating results and financial position.

The Group’s strategy is to expand its Overseas Business. However, the Group may be exposed to risks such as exchange rate trends, differences in religions, cultures and business practices, uncertainty in economic conditions, political instability such as conflicts, civil commotions, terrorism and riots, and problems in local labor-management relations. There are also risks associated with political, economic, legal or other obstacles, such as investment regulations, restrictions on remittances and tax system reforms including tax rate changes. The expansion of Overseas Business operations may require a long period of time before the realization of investment profits and may affect the Group’s operating results and financial position.

In the event of a natural disaster such as an earthquake, storm or flood, or a man-made disaster such as a war, terrorism or fire, the value of real estate held, managed or invested by the Group may be significantly impaired, which may have an impact on the Group’s operating results and financial position.

There is a possibility that a lawsuit or other claim may be filed by a business partner or client in connection with a property for which the Group conducts trading, leasing, trading or leasing brokerage or management. The contents and results of these lawsuits may affect the Group’s operating results and financial position.

As a corporate citizen, we are aware of the inevitableness and importance of addressing global environmental issues. Any delay in the use of products with low environmental impact or in the initiatives toward a carbonneutral society could lead to a decline in the social reputation of the Group, which in turn could affect its performance.

The Group relies on external suppliers for materials and fixtures. In the event of a supply shortage, delivery delay or price hike in materials and fixtures that are used in the Group’s products in a cross-sectional manner, the Group’s business period may be prolonged, or business costs may rise, adversely affecting the Group’s operating results.

Our group secures short-term and long-term interest-bearing debts from financial institutions and other sources to operate and expand our business.
When new financing is necessary, the cost of capital may increase during periods of rising market interest rates. Furthermore, an increase in market interest rates may lead to a decline in the purchasing intent of real estate buyers and an increase in the expected return on realstate demanded by investors. This could result in a decrease in our group's real estate sales revenue and a decline in the value of our owned assets. Consequently, our group's business, financial condition, and operating results may be adversely affected.

Our group operates businesses overseas, and fluctuations in foreign exchange rates can affect the costs of financing overseas operations, the amount of profit or loss from overseas operations included in our consolidated financial statements, and the amounts recorded for assets and liabilities. Significant fluctuations in exchange rates can also influence import prices, impacting construction and energy costs, and may become a factor in cost variations in our group's individual businesses. Additionally, changes in exchange rates can affect the performance of tenant companies, potentially impacting our group's rental income.