KITANO CONSTRUCTION CORP.

An economic downturn could lead companies to curb capital expenditures, while soaring material and energy prices could raise costs, potentially reducing order opportunities and worsening profitability. In addition, deterioration in the business conditions of ordering parties prior to project completion could result in delayed collection of construction payments or bad debts, and demand could also decline due to disasters, both of which could contribute to a contraction of the construction market. The securities report does not describe specific countermeasures, and this risk is disclosed as a factor whereby market conditions directly affect business performance.

If a serious accident occurs during construction of a design-build project, or if contractual non-conformity is found after completion, the Group may incur substantial costs, adversely affecting business performance. Given the nature of the construction industry, inadequate quality control or unforeseen accidents can also affect the Company's creditworthiness. The securities report does not describe specific preventive measures and discloses this as an existing risk.

In overseas construction projects, political upheaval or riots in the host country could suspend or halt construction, and changes in local government policy or tax systems could cause cost increases. There is also a risk that political instability could make it difficult to ensure the safety of expatriate employees. Such events could disrupt the progress of construction work and affect the Group's business performance.

Foreign exchange fluctuation risk may materialize in overseas construction projects and the overseas hotel business. In the construction business, the Company promptly hedges through forward foreign exchange contracts once an order is confirmed, but complete avoidance of risk may be difficult in the case of sudden fluctuations in the foreign exchange market. The overseas hotel business is likewise exposed to the risk of being affected by exchange rate fluctuations.

The Group holds a large amount of real estate, including real estate for sale, and if fair value declines due to a deterioration in real estate market conditions, valuation losses could arise, affecting business performance. Real estate market conditions are susceptible to interest rate trends and economic fluctuations, and the larger the scale of assets held, the greater the impact of this risk. The securities report does not describe specific hedging measures.

The Group holds a large number of investment securities, including unlisted shares, and depending on conditions in the securities markets, fair value could decline, resulting in valuation losses. Unlisted shares in particular have low market liquidity, which limits the Group's options for responding once impairment in value materializes. The securities report does not describe specific risk management methods.

If the business conditions of affiliated companies within the Group change, this could affect the performance of the Group as a whole. Although the Company states that it endeavors to manage operations soundly, the risk that deterioration in the business environment of affiliated companies could spread to consolidated performance cannot be ruled out. The securities report does not provide details of a specific monitoring framework or support policy.

The construction business is subject to a wide range of legal regulations, including the Building Standards Act, and if an event of non-compliance occurs, there is a risk of business suspension orders or suspension of bidding eligibility imposed by government authorities. Such dispositions would directly result in the loss of order opportunities and could have a material impact on business performance. The securities report does not describe a specific compliance framework.