Choei Inc.

Demand for rental housing is highly susceptible to economic conditions and the employment environment. If the real estate market stagnates or declines due to an economic downturn or oversupply of condominiums, occupancy rates and rent levels may decline, leading to a decrease in management income and rental income. Since this affects both the real estate management business and the real estate leasing business, the potential impact on operating results and financial condition is significant. As a countermeasure, the Company implements renovations with strong competitive advantage based on area-specific demand trends, and adopts an investment strategy focused on regions less affected by population decline.

The Company owns and manages properties across Japan, and there is a risk that properties may be damaged, destroyed, or deteriorate due to increasingly severe natural disasters such as storms, floods, and earthquakes, as well as man-made disasters such as fires or terrorism. This would reduce management income and rental income, and for company-owned properties, would also incur restoration costs, affecting operating results and financial condition. As a countermeasure, the Company comprehensively maintains casualty insurance coverage and minimizes damage risk through geographic diversification.

The Company operates its business under multiple licenses and permits, including a real estate brokerage license, a registration as a leasing housing management business operator, and a general construction business license. Revocation of any of these licenses for any reason would directly impede business activities. In addition, amendments to or the introduction of new real estate/construction-related laws and regulations or tax systems could affect business strategy and operating results. As a countermeasure, the Company has established a system in which the responsible department and internal/external experts monitor legal amendment information, which is shared at the quarterly Risk Management and Compliance Promotion Committee meetings.

The Company funds the entire acquisition cost of its owned properties through borrowings from financial institutions, and its interest-bearing debt ratio is considerably higher than the level generally considered appropriate. A rapid rise in interest rates would directly affect operating results and financial condition through increased interest expenses, and could also hinder planned property acquisitions if it becomes difficult to acquire properties meeting yield criteria or to secure financing. As a countermeasure, the Company absorbs costs through improved occupancy rates and rent revisions, introduces contract terms that can accommodate rising interest rates, and continuously monitors interest rate trends.

A high proportion of the real estate owned and managed by the Company is designed for single occupants, and the majority is located in Kyoto Prefecture, which has a large student population. There is a risk that a decline in the 18-year-old population and the resulting decrease in student numbers will accelerate an oversupply of rental properties for single occupants. This could lead to rent reductions and higher vacancy rates, potentially decreasing rental income and management income. As a countermeasure, the Company is developing new market segments through the active recruitment of international students and the establishment of a department dedicated to serving foreign residents.

Osamu Nagata, the founder and Representative Director, plays a critical role ranging from determining management policy and strategy to launching new businesses, and there is a risk that operating results and financial condition could be affected if he becomes unable to perform his duties. Following the Board of Directors meeting held after the June 2025 shareholders' meeting, the Company moved to a multi-representative-director structure, advancing its move away from dependence on the founder. In parallel, the Company is working to build a continuous and stable management structure by formalizing internal decision-making procedures and clarifying roles and responsibilities.

Rental real estate accounts for a large proportion of the Company's held assets. If the fair value of held assets declines significantly due to a marked deterioration in the real estate market, the application of impairment accounting could result in the recognition of substantial losses. As a countermeasure, the Company conducts due diligence and formulates income and expenditure plans at the time of property acquisition, continuously analyzes variances between planned and actual income and expenditure after acquisition, and works to maintain and enhance asset value through measures to improve occupancy rates.

The Company holds and manages personal information of owners, tenants, and others, as well as business and management information of its business partners. If information leakage or loss occurs due to computer virus infection or unauthorized access to servers, this could result in loss of reputation, damage claims, business interruption, and recovery costs. As a countermeasure, the Company has strengthened its response to unauthorized access and malware infection by diversifying risk through cloud migration of core systems, implementing detection alerts via EDR, and establishing a 24-hour monitoring system.

The majority of real estate owned and managed by the Company is concentrated in Kyoto Prefecture. Strengthening of region-specific regulations, such as Kyoto City's landscape ordinances, would incur response costs, and there is a risk that an earthquake or disaster in the region, or a downturn in the regional economy, would directly reduce management income and rental income. As a countermeasure, the Company is diversifying risk through geographic diversification across the Kinki, Chubu, Kanto, and Kyushu regions.

Growth of the real estate management business is heavily dependent on securing and developing highly specialized personnel. If the Company is unable to secure the personnel it seeks, or if there is a mass exodus of officers and employees, this could affect operating results and financial condition. As a countermeasure, in addition to strengthening recruitment competitiveness, improving treatment, and enhancing the internal work environment, the Company is working to improve employee retention through measures such as the introduction of a defined contribution pension plan and a restricted stock compensation plan for employees.