A.D.Works Group Co.,Ltd.

The real estate industry is highly susceptible to economic conditions such as business trends, interest rate trends, and land price trends. If changes occur that exceed forecasts, this could disrupt the real estate market and result in an asset value decline greater than anticipated. The Group has adopted a policy of paying close attention to economic conditions and mitigating real estate-related risks while maximizing earnings; however, it may be difficult to respond to sudden changes in the external environment.

The income-producing real estate held and managed by the Group is regionally concentrated, primarily in the Tokyo metropolitan area domestically and mainly in Los Angeles, United States, overseas. If a localized event such as an earthquake, wildfire, or the spread of infectious disease occurs, economic activity in the affected region could be disrupted, potentially affecting the Group's business performance and financial position. The structural limitation on diversification effects due to regional concentration is a risk factor, and a large-scale disaster in a specific region could simultaneously affect multiple properties held by the Group.

The Group holds a large volume of customer information, including owners and tenants of rental apartments, office buildings, and commercial facilities, as well as sellers and buyers of income-producing real estate, and this information is expected to further increase and become more detailed as the business expands. If customer information is leaked, stolen, or otherwise compromised due to unforeseen circumstances, this could lead to claims for damages and a decline in trust, adversely affecting the Group's business performance and financial position. While the Group focuses on protecting customer information through thorough internal information management systems, complete prevention cannot be guaranteed.

The Group raises funds by approaching financial institutions for loans on a project-by-project basis, and if, for whatever reason, it is unable to secure financing as planned, this could hinder business development. In addition, the primary source of repayment for interest-bearing debt is proceeds from the sale of income-producing real estate, and if conditions such as the timing or amount of sales deteriorate from expectations, this would affect business performance and financial position. Although the Group has adopted a policy of avoiding dependence on any specific financial institution, procurement from multiple institutions could also become difficult when market conditions deteriorate.

The Group procures funds for the acquisition of income-producing real estate and other purposes through borrowings from financial institutions, and as of the end of the fiscal year ended December 2025, interest-bearing debt balance stood at a high level, accounting for 63.5% of consolidated total assets. In a rising market interest rate environment, there is a risk that increased interest expenses and similar costs could worsen business performance and financial position, with the high degree of financial leverage amplifying fluctuations in earnings. While the Group maintains a policy of actively pursuing diversification of funding methods, it currently remains highly dependent on borrowings.

The Group has raised funds in direct financial markets in the past, including four rights offerings, but faces challenges in terms of experience, information, and specialized personnel in establishing diverse fundraising methods aimed at optimizing its financial balance. If this diversification is delayed or fails to materialize, the Group's fundraising capability could be significantly weakened, affecting business performance and financial position. Securing diverse fundraising methods is essential for continuously improving asset profitability, and delays in achieving this could constrain medium- to long-term growth.

The Group's business is built upon personnel with highly specialized knowledge and extensive experience in real estate and related businesses. If executive personnel such as the Representative Director, directors in charge of each division, and division heads become unable to perform their duties and suitable replacement personnel cannot be secured in a timely manner, this could affect business performance. The Group is also working to strengthen its competitiveness in the recruitment market through cultivating organizational culture, utilizing remote work, and responding to work-style reforms, but if it is unable to sufficiently secure the personnel it seeks, this could also affect business performance. The risk that insufficient investment in human capital could lead to a decline in recruitment competitiveness is also noted.

The Group operates its business by obtaining numerous licenses and registrations both domestically and overseas, including a real estate brokerage license, financial instruments business operator registration, real estate specified joint enterprise permit, and rental housing management business registration. If any of these were revoked or renewal were denied for any reason, this could cause significant disruption to business activities. While no events involving license revocation or similar issues have occurred to date, future changes in laws or regulatory trends could affect business performance and financial position. While the Group maintains a policy of thorough compliance with legal regulations, costs may also arise in responding to changes in the regulatory environment.

The Group operates an income-producing real estate sales business targeting domestic Japanese investors, based in Los Angeles, United States. Due to factors such as rising interest rates since 2022, the Los Angeles real estate market has continued to undergo price adjustments, with existing home prices having declined from their peak, leaving uncertainty about the market outlook. Reviews of the tax treatment of overseas real estate held by domestic Japanese investors, or changes in local U.S. laws and regulations, could reduce the rationale for such investments, posing a risk to the earnings of the U.S. business. This creates a structure in which risks related to market conditions, taxation, and regulation overlap in triplicate.