URBANET CORPORATION CO., LTD.

The core real estate development and sales business is highly susceptible to economic conditions, interest rate trends, real estate demand, and housing tax systems. A sharp economic downturn, significant interest rate hikes, or a decline in selling prices due to worsening supply-demand conditions would directly impact business performance. Turmoil in financial markets could also result in loans falling through, reduced customer purchasing intent, or write-downs on the valuation of owned real estate. As countermeasures, the Group is strengthening monitoring of economic and interest rate trends and striving to promptly conclude sales contracts after obtaining building confirmation.

The ratio of interest-bearing debt to total assets at the end of the consolidated fiscal year under review stood at a high level of 67.2%, and interest rate increases resulting from changes in financial conditions would directly raise financial costs and affect business performance. In addition, the Group relies on indirect financing from financial institutions to fund land acquisition, creating a risk that changes in financial institutions' stance toward real estate lending could impede fundraising. As countermeasures, the Group is building good relationships with multiple financial institutions, expanding transactions with new financial institutions, and promoting diversification of funding through direct financing methods such as equity.

Land acquisition in popular areas such as the 23 wards of Tokyo, Kawasaki City, and Yokohama City may not proceed as planned due to intensifying competition with other companies and rising prices, posing a risk of impeding the stable land acquisition essential for sustainable growth. In addition, regarding soil contamination, buried objects, and industrial waste discovered at the time of land acquisition, under the current environment where priority is given to securing development land, the disposal costs are currently borne by the Group, and unexpected issues could result in additional costs. As countermeasures, the Group is strengthening relationships with existing information sources, developing new sources, and thoroughly conducting prior surveys.

Soaring prices of building materials and rising labor costs, caused by supply chain disruptions from overseas conflicts, yen depreciation, and additional tariffs, could increase construction costs and put pressure on business performance. In addition, construction period delays caused by the chronic labor shortage in the construction industry, application of work-style reform-related laws, adverse weather, natural disasters, and the spread of infectious diseases could push back the handover timing beyond the fiscal year-end, affecting the timing of revenue recognition. As countermeasures, the Group is continuously implementing early ordering of construction work, utilization of alternative building materials, diversification of procurement sources, and financial due diligence and information gathering on outsourcing partners.

Outsourcing of construction work is concentrated with Godo Koumuten Co., Ltd., and a sudden change in the business relationship with this company could impede business continuity. In addition, an unforeseen event occurring at a major sales destination could have a material impact on business performance. As countermeasures, the Group is focusing on developing new outsourcing partners to avoid excessive concentration and securing sales channels across multiple areas, including condominium sales companies, wealthy individuals, and funds.

If real estate market conditions deteriorate sharply while the conclusion of sales contracts is delayed, there is a risk of recording valuation losses or inventory stagnation. For sales to end users in the detached house, condominium, terrace house, and apartment businesses as well, the likelihood of sale may decline due to economic fluctuations. As countermeasures, for urban rental condominiums, the Group strives to shorten the period from land purchase to building confirmation and conclude sales contracts as quickly as possible, while for condominiums, the Group restrains development during periods of high risk from economic fluctuations.

The Group holds rental real estate and a hotel (near Kamata Station, Tokyo), and if rent levels decline and vacancy rates rise due to deteriorating economic conditions or real estate market conditions, or if hotel occupancy rates and room rates decline due to a resurgence of infectious diseases or worsening economic conditions, losses associated with the write-down of fixed asset book value would occur, affecting business performance and financial condition. The Group seeks to mitigate losses by taking out property and casualty insurance in preparation for management deficiencies and accidents.

The Group is subject to numerous laws and regulations, including the Construction Business Act, the Building Lots and Buildings Transaction Business Act, the Financial Instruments and Exchange Act, and the Hotel Business Act, and the enactment or revision of new regulations could affect business performance. In particular, if ordinances regulating the construction of studio apartments (such as raising minimum unit floor area requirements) are enacted, this would have a direct impact on the core business. In addition, the revocation or expiration of licenses or permits could impede business activities.

In the Group's key development areas, including the 23 wards of Tokyo, Kawasaki City, and Yokohama City, in addition to the risk of a major earthquake, large typhoons and localized torrential rains caused by climate change are occurring frequently, posing risks such as impact on the ground of properties under development and collapse of buildings under construction. If these risks materialize, they could affect business performance through construction delays and losses. As countermeasures, the Group requires confirmation of hazard maps when purchasing development land and implements measures to minimize damage at construction sites.

If important information such as trade secrets or personal information is leaked, there is a risk of reputational damage in addition to the impact on business performance. In addition, litigation may arise from noise, vibration, or sunlight-blocking issues raised by residents near development areas, claims based on non-conformity liability for sold properties, and litigation stemming from tenant complaints or rent arrears in the condominium management and rental management businesses. As countermeasures, the Group is establishing an information security management system, taking out property and casualty insurance, and strengthening dialogue with neighboring residents.