Star Mica Holdings Co.,Ltd.

The supply-demand balance for family-type second-hand condominiums, which are the investment target of the renovation condominium business, may fluctuate due to the effects of economic conditions, interest rate trends, land price trends, and housing tax systems. Although steady demand is expected to continue, deterioration of the market environment could affect the business in both the procurement and sales aspects. The company continuously monitors the real estate market environment at the Board of Directors and other meeting bodies, and has established a system to respond to environmental changes.

The Group utilizes borrowings from financial institutions when acquiring properties, and changes in the financial environment may lead to an increase in interest expenses. In addition, if the Group breaches financial covenants attached to loan agreements, this could result in acceleration of debt maturity and other consequences that may materially affect operating results and financial condition. As countermeasures, the Group is expanding its network of transacting financial institutions and diversifying its funding methods, while also using interest rate swaps to fix variable interest rates.

For properties held for sale whose profitability has declined, the balance sheet value is recorded at net realizable value, with the difference from book value recognized as a valuation loss. If net realizable value declines due to deterioration in economic conditions or the real estate market, the amount of valuation losses recognized may increase, potentially affecting operating results and financial condition. Net realizable value is estimated based on factors such as property location, size, comparable transaction cases in the surrounding area, and price appraisals by external agents.

Reforms to the consumption tax system may temporarily increase or decrease housing demand, and may also increase the Group's tax burden. Reforms to real estate-related tax systems, such as the mortgage tax deduction and gift tax exemption limits, could increase real estate acquisition and sale costs or reduce consumers' purchasing motivation. Depending on the content of such policies, the Group's operating results and financial condition may be affected.

The Group is subject to regulations such as the Building Lots and Buildings Transaction Business Act, the Act on Specified Joint Real Estate Ventures, and the Financial Instruments and Exchange Act, and the enactment, revision, or abolition of laws may restrict part of the business or result in additional costs. If licenses such as the real estate brokerage license (Star Mica Co., Ltd.'s license is valid until November 30, 2026, etc.) or registration as a financial instruments business operator are revoked or renewal is denied, this would impede the Group's core business activities. The Group strives for smooth renewal of licenses through thorough legal compliance and prevention of misconduct.

Against the backdrop of robust demand in the renovation condominium market, new entrants have increased, intensifying the competitive environment. On the other hand, the Group states that there are no competitors of comparable scale in the acquisition of tenant-occupied family-type second-hand condominiums, which is the Group's main acquisition target, due to the difficulty of acquiring and holding such properties; however, changes in the market environment could alter the competitive landscape. The Group seeks to differentiate itself through its long-standing transaction track record with brokerage firms, rapid price appraisal capabilities, fundraising capacity, and established operational execution systems.

If a case of non-conformity with contract terms is discovered after the acquisition of a second-hand condominium, it may not always be possible to pursue liability against the seller, which could significantly impair the future sale value of the property. In addition, if defects are discovered after the sale of a renovated condominium, the Group may be required to remedy the defect, reduce the price, pay damages, or face contract cancellation, resulting in additional costs or price reductions that may affect operating results and financial condition. The Group addresses this through thorough investigation at the time of acquisition, careful management of renovation design and construction, and provision of property condition reports, among other measures.

If the Group is unable to secure outsourcing contractors meeting required standards due to an increase in the number of properties handled or expansion of the business area, or if construction-related troubles occur, this may affect operating results and financial condition. Similar risks may also arise from surging material costs or logistics delays caused by domestic and international economic conditions. The Group seeks to minimize such impacts by focusing on developing new outsourcing partners and deepening relationships with existing contractors.

The Group's owned real estate properties are located mainly in the Greater Tokyo area, as well as in the Kansai region, Hokkaido, Miyagi Prefecture, Aichi Prefecture, Fukuoka Prefecture, and other areas. Unforeseen accidents or natural disasters such as fires, earthquakes, and tsunamis could cause loss, deterioration, or damage to the Group's owned properties, resulting in unexpected repair cost burdens or declines in sale prices. In addition, a cooling of investment sentiment in the real estate investment market could affect the Group's business development. The Group addresses these risks by promoting diversification of property acquisition areas and, in principle, by obtaining fire insurance and facility liability insurance.

The Group handles a large amount of personal information in connection with the sale and management of renovated condominiums, and in the event of a leak, this could result in damages liability and a decline in social credibility, affecting business activities. The Group strives to reduce the risk of information leakage through the establishment of regulations concerning the handling of personal information and thorough employee training.