Risk Management System

In promoting the Group’s risk management, the “Risk Management and Compliance Committee,” chaired by the General Manager of the Administration Division and attended by the heads of each department and Group company, met five times during the current consolidated fiscal year. At these meetings, risks were classified into the categories of external environment, business strategy, business processes, and legal/compliance, and the risks identified within each category were assessed in terms of impact and likelihood, thereby conducting a risk assessment. Among these, risks that were considered likely to have a significant impact on the Group’s corporate activities and to require priority action during the fiscal year were identified as risks subject to monitoring. For each such risk, a person responsible is appointed from the relevant department, and countermeasures are examined and implemented by subcommittees under the Committee. Progress is reviewed through quarterly monitoring, and corrective or improvement measures are taken as necessary and reported to the Board of Directors.

Risk Management System Diagram

Main risks relating to business conditions and financial status, etc., as stated in the annual securities report, which may affect investors' decisions are as follows.
The forward-looking statements below are based on judgments of the Group as of the end of the consolidated fiscal year under review. Risks that may arise are not limited to the risks below.

（１） Risks associated with changes in economic trends and society systems

The Group’s business is affected by a variety of factors, including real estate as a form of social infrastructure, legal systems such as taxation and various regulations, economic trends such as developments in the stock market, and trends in legal and regulatory changes in various countries and in the review of systems governing foreign acquisition of real estate, accompanying the increase in sales to overseas investors. Changes in any of these factors may affect the Group’s operating results, financial position, and other aspects of its business.
The Group provides a diverse range of real estate-related products and services and is working to build a portfolio that does not depend on any one business. Through this approach, we seek not only to minimize the risks arising from adverse impacts, but also to proactively turn changes in economic and other conditions into opportunities for business growth.
In the Third Medium-Term Management Plan formulated on February 14, 2025, we set “Management that is Conscious of the Cost of Capital and Stock Price” and “Sustainability Management” as management policies, and positioned “Expansion of Business Domains” and “Creation of New Value” as the two pillars of our business strategy, through which we are working to further enhance corporate value. In addition, from 2025, we launched the asset management business and are also working to secure stable earnings through the expansion of assets under management.

（２） Risks Related to the Tax System Review for Real Estate Fractional Ownership Products

The Group’s business is subject to the impact of revisions to various tax systems and legal regulations. In the FY2026 Tax Reform Outline announced on December 19, 2025, the policy to review the inheritance tax valuation method for fractionalized real estate products was expressly stated. If investor needs were to change as a result of such tax reform, sales opportunities for fractionalized real estate products could be impaired, which in turn could affect the Group’s operating results, financial position, and other aspects of its business.
The Group strives to accurately capture investor needs for fractionalized real estate products and to secure stable demand regardless of changes in the inheritance tax valuation method. Going forward, we will further strengthen our efforts to diversify products and structuring schemes that can fully highlight the benefits of diversified investment rather than focusing solely on tax-saving effects, expand exit strategies, and broaden our sales network. In addition, in order to appropriately communicate the impact of the tax reform, we are strengthening risk explanations to investors and enhancing the information we provide to them.

（３） Risks associated with purchases/sales

The Real Estate Trading Business, the core business of the Group, focuses on the Tokyo Metropolitan Area (Tokyo, Kanagawa, Chiba, and Saitama Prefectures). Because barriers to entry are low with respect to the purchase and resale of residential-type properties, competition with other companies is intensifying. The competitive environment surrounding investment-type properties is also becoming increasingly severe year after year, partly because of new entry into the market of a leading real estate company. In case the Group is unable to generate targeted profit rate levels due to business conditions, making it difficult to conduct purchase/sales as planned, it may affect the business performance and financial condition of the Group.
In addition to handling a wide range of asset types and price ranges as well as speedy contract and settlement procedures, the Group will also begin developing sales offices in rural areas from 2023 to meet the wide-ranging needs of real estate brokers and asset owners, thereby differentiating itself from its competitors. We strive to purchase and sell a wide range of properties that would be difficult for other companies to purchase, even under difficult conditions, by using the experience and data we have accumulated over the years to revitalize properties that match the characteristics of their location and area.

（４） Risks associated with reliance on interest-bearing debt and interest-rate fluctuations

The Group procures funds for purchasing used real estate in its Real Estate Trading Business primarily through borrowings from financial institutions. As a result, the ratio of interest-bearing debt to total assets at the end of the consolidated fiscal year under review was 58.8%. If interest rates rise or if the lending stance of financial institutions changes due to changes in the monetary condition, it may affect the performance and financial condition of the Group because of increases in interest paid, changes in purchase plans and so forth.
The Group has set a target of no more than 65% for the ratio of interest-bearing debt to total assets as an indicator of financial soundness and strengthens its financial condition by constantly managing equity ratio, debt-to-equity ratio and other indicators. Moreover, the Group has established excellent relationships with financial institutions for smooth transactions by not relying on specific financial institutions and by procure funds through borrowings after analyzing the appropriateness of the sales plan in each individual project.

（５） Risks Related to Financial Covenants

Based on a resolution adopted at the Board of Directors meeting held on March 14, 2025, the Company entered into a syndicated loan agreement with eight financial institutions. This agreement contains financial covenants, and if the Company breaches any of these covenants, it may lose the benefit of time, which could have an impact on the Company’s financial condition.
In the Third Medium-Term Management Plan, the Group has set financial indicators such as the equity ratio and net D/E ratio as important management indicators (KPIs).
Also from the perspective of preventing any breach of the financial covenants, the Board of Directors monitors changes in the financial condition based on these indicators and strives to maintain and improve a sound financial position. In addition, the Group seeks to reduce liquidity risk by maintaining a certain level of cash and cash equivalents.

（６） Risks associated with valuation loss on real estate for sale

The Group applies the Accounting Standards for Measurement of Inventories (ASBJ Statement No. 9 announced on July 4, 2019) to the real estate for sale that the Group owns. For investment-type properties among the real estate for sale held at the end of the fiscal year, we compare the book value after depreciation with net selling price, and if the net selling price is lower than the book value, we record a valuation loss on goods. For residential-type properties among the real estate for sale, such as owned condominium units and detached houses, we compare the purchase price with net selling price, and if the net selling price is lower than the purchase price, we record a valuation loss on goods. If future sales fall short of initial targets due to a decline in the economic or real estate market conditions, real estate for sale may be retained as inventory. The prolonged retention of this real estate may result in a net selling price that is lower than the book value or purchase price, causing a valuation loss on goods, which may affect the performance and financial condition of the Group.
The Group closely monitors trends in the real estate transaction market and strives to understand their impact on business performance, as well as to improve business progress management and forecasting accuracy. In determining acquisition prices, we conduct rigorous reviews so as to ensure appropriate profit can be secured even if market conditions change while properties are held for sale. Although the Purchase and Resale Business operates on a short cycle from acquisition to sale, even in cases where properties remain in inventory for a prolonged period, we strive to minimize any decline in net realizable value by implementing appropriate renovation plans and improving investment yields through proper rent setting.

（７） Risks associated with legal regulations

The real estate industry in which the Group operates is subject to various legal regulations, including the Real Estate Transaction Business Act, the Construction Business Act, the Act on Specified Joint Real Estate Ventures, the Building Standards Act, the City Planning Act, the National Land Use Planning Act, the Act on Land and Building Leases, the Act against Unjustifiable Premiums and Misleading Representations, the Fair Competition Code Concerning Real Estate Representations, and the Financial Instruments and Exchange Act. If these legal regulations are revised or abolished, or if new legal regulations are introduced in the future, the Group’s operating results, financial position, and other aspects of its business may be affected.
The Group is committed to ensuring compliance with applicable laws and regulations. However, if any violation of laws or regulations were to occur in the future for any reason, and the Group were to become subject to administrative sanctions by the relevant authorities, such as suspension of business operations or revocation of licenses, the Group’s business activities could be disrupted, which in turn could affect its operating results, financial position, and other aspects of its business.
Within the Group, the Legal and Compliance Department plays a central role in responding to various legal regulations. In addition to raising awareness of legal compliance through training programs and seminars for employees, the Group, through the operation of the Risk Management and Compliance Committee, examines countermeasures for major risks across the Group and formulates preventive measures against compliance violations from the perspectives of risk management and crisis management. In the event of revisions to applicable legal regulations, the Group strives to keep abreast of the latest information in coordination with in-house counsel, external institutions, and outside legal counsel, and to ensure that such information is thoroughly shared throughout the Group.

The validity periods of licenses and permits for which applicable laws and regulations prescribe expiration periods are as shown in the table below.

（８） Risks related to information security

The Group handles large amounts of confidential information, including personal information, in each of its businesses.In handling this confidential information, we strive to comply with relevant laws and regulations, including the Act on the Protection of Personal Information, and ensure appropriate handling.
In the event that confidential information is leaked due to unforeseen circumstances, such as the occurrence of an information security incident, the Company's business performance and financial standing may be affected by a decrease in social credibility, etc. In addition, information system trouble or other damage caused by a cyberattack or similar incident may seriously affect the Group's business continuity.
Within the Group, the Information Systems Department and the Legal and Compliance Department play central roles in conducting awareness-raising activities and training on the handling of confidential information and personal data, thereby helping to prevent information leaks caused by human error. The Group also formulates and reviews internal rules on the handling of information in order to strengthen governance relating to information security. In the event that an information security incident, including a cyberattack, should occur, the Group is working to strengthen the organizational and operational foundations relating to its information systems so that risks can be appropriately controlled and any negative impact on business activities can be minimized.

（９） Risks associated with liability for contractual noncompliance and lawsuits, etc.

With respect to the used and refurbished properties sold by the Group, the Group bears liability for contractual nonconformity for at least two years after delivery in accordance with the provisions of the Civil Code and the Real Estate Transaction Business Act. In addition, for newly built houses sold by the Group, the Group bears warranty liability for a period of ten years after delivery with respect to defects in major structural parts and certain other components of the house, pursuant to the provisions of the Civil Code and the Act on the Promotion of Quality Assurance of Housing. Therefore, if a property sold by the Group is found to have any contractual nonconformity, the Group may be required to bear unexpected costs arising from repairs to the nonconforming portion, payment of damages, cancellation of the contract, or other measures.
At present, there are no material lawsuits relating to properties sold by the Group that have a direct impact on the Group’s business performance. However, if business procedures were found to lack legality or appropriateness, complaints or other claims could arise, and litigation resulting from such disputes may occur. If any of the above events were to arise in the future, the Group’s operating results, financial position, and other aspects of its business could be affected depending on the nature and outcome of the matter.
In order to ensure quality, the Group conducts quality checks using its own checklists both before renovation work begins and upon completion of such work. In addition, for applicable residential properties, the Group issues warranty certificates and conducts inspections approximately six months after delivery, carrying out repairs for any defects found in order to strengthen after-sales service. Furthermore, the Group is working to enhance its internal framework, including by implementing measures to reduce complaints, in order to prevent lawsuits, disputes, or claims from arising.
In the unlikely event that any lawsuit, dispute, or claim does arise, the Group has established a system centered on its in-house counsel to promptly ascertain the facts and respond appropriately, thereby striving to minimize risk.

（10） Risks associated with natural/man-made disasters

The Group operates its Purchase and Resale Business primarily in the Tokyo metropolitan area, comprising Tokyo, Kanagawa, Chiba, and Saitama, while also expanding the business into regional cities throughout Japan, and the used properties it handles are located across the country. If natural disasters such as earthquakes, fires, or floods, or man-made disasters such as large-scale accidents or terrorist attacks, occur anywhere in Japan, the safety of the Group’s officers and employees may be threatened, the continuity of the Group’s business operations may become difficult, and the used properties owned by the Group may be lost, damaged, or deteriorated, resulting in a significant decline in sales value or rental income.
To minimize damage, maintain critical operations, and achieve early recovery in the event of emergencies such as natural or man-made disasters, the Group has established a Business Continuity Plan (BCP) setting out action plans for business continuity in the event of a disaster.
In addition, with regard to the selection and management of properties it owns, the Group refrains from holding properties built under the former Building Standards Act and, even when it does hold such properties, seeks to minimize the impact of a major earthquake by conducting rigorous seismic assessments.

（11） Risks associated with securing human resources

The Group recognizes that to continually secure and foster talented human resources is the top management task to overcome a variety of business challenges. Accordingly, we pursue a strategy of cultivating responsible employees with a good understanding of the Group's management philosophy by recruiting talented mid-career professionals and new graduates and by working to enhance its education and training programs. However, if progress in securing and fostering human resources that the Group requires is not made in accordance to the plans, it may affect its performance and financial condition.
Within the Group, we strive to secure high-quality talent by selecting diverse recruitment channels and proactively approaching potential candidates who are expected to demonstrate capabilities in line with the Group’s culture and values. In addition, by enhancing training programs for younger employees and new graduate hires and providing proactive and effective training, we aim to help them become productive at an early stage. Furthermore, with the aim of reducing turnover, we are working to create a work environment in which employees can settle in more easily by providing follow-up support after joining the Company, regardless of whether they are mid-career hires or new graduates.

（12） Risk of bankruptcy of contractors in developments

When the Group constructs entire buildings for sale, it outsources the construction work to external contractors. Accordingly, if the Group is unable to secure a sufficient number of contractors that meet its selection criteria, or if construction delays or increases in subcontracting costs occur due to financial difficulties or labor shortages at contracted construction companies, the Group’s operating results, financial position, and other aspects of its business may be affected.
The Group is working to build a construction system that does not depend on any specific contractor by expanding its network of external construction companies. In addition to actively developing new relationships, including through introductions from employees and other related parties such as business partners, the Group strives to secure cooperating contractors while also maintaining and strengthening good relationships with its existing contractors.