Columbia Works Inc.

The real estate industry is highly susceptible to economic conditions, interest rates, land prices, and foreign exchange rates. In a rising interest rate environment, financing costs may increase, the value of held real estate may decline, and demand for residential and investment real estate may weaken. While land prices have continued to trend upward, particularly in the three major metropolitan areas, a decline in land prices due to deteriorating economic conditions could result in lower sales prices and valuation losses on inventory and fixed assets. The Group seeks to mitigate risk through profitability management on a project-by-project basis, improved accuracy of sales plans, and strengthened relationships with financial institutions, but rapid changes in the environment may be difficult to address.

Construction costs have been trending upward due to rising material prices, increasing labor costs, and a shortage of construction workers. If construction costs exceed expectations or securing construction companies becomes difficult, there is a risk of extended construction periods. This could lead to reduced profitability on development projects and delays in delivery timing, potentially affecting business performance and financial condition. The Group works to control this risk through more sophisticated cost estimation, securing multiple candidate construction companies, and optimizing construction schedules and specifications.

Since revenue from the real estate development services business depends on the timing of the sale and delivery of properties, if deliveries are concentrated in a particular quarter or at fiscal year-end, quarterly operating results may fluctuate significantly. If delivery timing is delayed beyond the fiscal year-end due to natural disasters, accidents, construction delays, or protracted administrative procedures, there is a risk that the corresponding revenue and profit will not be recognized in that period. The Group addresses this by incorporating projects scheduled for delivery near fiscal year-end into the following period's sales plan, but delays due to external factors cannot be entirely avoided.

In the course of business, the Group has opportunities to obtain confidential information from business partners and personal information of customers. Should an information leak occur due to unforeseen circumstances, it could significantly damage the Group's social credibility and result in compensation costs, thereby affecting business performance and financial condition. The Group has established information security management regulations and personal information handling regulations, and conducts regular compliance training to thoroughly instill confidentiality obligations. However, it is difficult to completely eliminate unforeseen events such as cyberattacks or internal misconduct.

Recruiting, securing, and developing excellent personnel is a key challenge for business expansion. If recruitment and development do not proceed as planned, or if talented personnel leave the company, this could lead to a decline in competitiveness, constraints on business expansion, and lower service levels. The Group works to secure personnel by promoting communication among employees and instilling the corporate philosophy, against a backdrop of intensifying competition for talent in the real estate industry.

The Group is subject to numerous legal regulations, including the Building Lots and Buildings Transaction Business Act, the Building Standards Act, the City Planning Act, and the Financial Instruments and Exchange Act. Significant changes to these regulations, or the revocation or non-renewal of licenses, could materially impede business operations. The Group holds multiple licenses, including real estate brokerage business licenses, real estate specified joint enterprise licenses, and investment management business registration, some of which have set expiration dates (for example, Columbia Community Co., Ltd.'s real estate brokerage business license is valid until November 20, 2025). Although the Group has established a legal compliance framework, changes in the regulatory environment could have a material effect on business performance and financial condition.

The Group procures funds for its real estate development business primarily through borrowings from financial institutions. At the end of the current consolidated fiscal year, the balance of interest-bearing debt stood at ¥46,803 million, with a dependence ratio on interest-bearing debt of a high 70.0%. Given the ongoing need for continued acquisition of development land and construction funds, the dependence ratio on interest-bearing debt is expected to remain at 70% or higher for the foreseeable future. There is a risk that rising interest rates could increase interest expenses and that changes in financial institutions' lending stance could constrain fundraising. The Finance Department manages liquidity risk through timely updates to cash flow plans, maintenance of liquidity on hand, and strengthened relationships with financial institutions.

There are numerous competitors in the real estate development business, particularly in major metropolitan areas. Intensifying competition could lead to rising acquisition prices for development land, difficulty securing quality projects, and declining sales prices. The Group seeks differentiation through a system in which project personnel handle everything from acquisition through development and sales, as well as by leveraging the Group's leasing management, hotel operations, and asset management functions. However, if land acquisition and product planning do not proceed as planned, this could affect business performance and financial condition.

Founder and Representative Director Jun Nakauchi possesses extensive experience and knowledge in the real estate development business and plays an important role in determining and executing management policy and business strategy. Should he become unable to continue his duties for any reason, this could affect business performance and financial condition. The Group is working to build a structure that reduces excessive dependence on him through information sharing among directors and senior staff at board meetings and other venues, and through strengthening its management organization.

At the end of the current consolidated fiscal year, real estate for sale and real estate for sale in process accounted for a high 67.1% of total assets. If changes in the economic environment make it difficult to sell properties at expected prices, the Group may need to record valuation losses on inventory. In addition, a significant decline in the fair value of real estate for lease could result in impairment losses on fixed assets. The Group addresses this through acquisition, development, and sales based on medium- to long-term economic outlooks, as well as early commercialization and sales based on market trends, but rapid market deterioration may be difficult to address.