KOSE R.E. Co.,Ltd.

The Group is subject to legal regulations including the Building Lots and Buildings Transaction Business Act, the Act against Unjustifiable Premiums and Misleading Representations, the Act for Promotion of Proper Housing Quality Assurance, and the Act on Advancement of Proper Management of Condominiums. Any revocation of licenses or registrations, or disqualification from renewal, could impede business continuity. The Company holds a license from the Minister of Land, Infrastructure, Transport and Tourism (No. 7271, valid until June 21, 2026), and its subsidiary R Maintenance Co., Ltd. holds condominium management business registration (valid until May 7, 2029). Delayed response to the establishment or revision of relevant laws and regulations could also materially affect business results.

Under the Act for Promotion of Proper Housing Quality Assurance, a 10-year defect liability period is mandated for the basic structural parts of newly built housing. If defect liability arises for properties without insurance coverage, or exceeds the coverage limits of insured properties, business results could be affected. The Company addresses this through outsourcing to design and construction companies, its own independent inspection and confirmation from the design stage, and enrollment in housing defect liability insurance. In addition, if a construction company fails to fulfill defect liability obligations under a construction contract due to bankruptcy or other reasons, the Company may become obligated to perform repairs, creating a risk of unexpected costs.

The Company acquires development sites primarily centered on the Fukuoka metropolitan area, leveraging a network of real estate agents, construction companies, and financial institutions. If site acquisition becomes difficult due to rising land prices or competition for sites, business results could be affected. Although soil contamination and other surveys are conducted at the time of sale and purchase agreements, if problems are discovered after construction begins, or if the seller fails to fulfill defect liability obligations, this could disrupt project development plans. Since site acquisition is fundamental to the business, difficulty in acquisition directly leads to a decline in the supply capacity of properties for sale.

Interest-bearing debt outstanding as of FY2025 (ended January 2025) stood at ¥5,125,040 million (original figure in thousands of yen: ¥5,125,040 thousand), with an interest-bearing debt dependency ratio of 30.1%, a high level. If market interest rates rise beyond expectations, an increase in interest expense could affect business results. The ratio of interest expense to operating income for FY2025 (ended January 2025) rose sharply to 17.7% (compared with 3.5% in FY2024, ended January 2024), indicating heightened interest rate sensitivity. In addition, rising mortgage interest rates could reduce customers' purchasing power, creating a risk that makes it difficult to execute sales plans.

The Group primarily raises funds for development site acquisition and construction costs through borrowings from financial institutions. If fund procurement is disrupted due to deteriorating financial conditions or other factors, it may become difficult to supply properties for sale as planned. While the Company strives to strengthen relationships with financial institutions and diversify fundraising through public offerings, corporate bond issuance, and joint ventures with other companies, interest-bearing debt outstanding increased substantially year on year to ¥5,125,040 thousand in FY2025 (ended January 2025) alongside the expansion of project development, heightening vulnerability to changes in the fundraising environment.

The Company outsources condominium construction to external construction companies. Unexpected increases in construction costs, selective order acceptance by construction companies, bankruptcy of construction companies, or defects in construction quality could disrupt project development plans. While the Company carefully vets construction companies' construction capabilities and financial condition before entering into construction contracts, and conducts process and quality management through first-class certified construction managers, risks stemming from the structure of dependence on outsourcing cannot be eliminated. If a construction company goes bankrupt after a property is completed, the Company may bear repair obligations, creating a risk of unexpected costs.

If rising construction costs, a sharp economic downturn, rising interest rates, or the abolition or revision of housing-related tax systems make it difficult to execute sales plans, a significant increase in completed inventory or project delays could occur, worsening cash flow. Under accounting standards for the valuation of inventories, if valuation losses are recognized on real estate for sale or real estate for sale in progress where market value falls below acquisition cost, business results are directly affected. Net sales for FY2025 (ended January 2025) declined substantially year on year to ¥7,648,834 thousand, indicating a situation requiring close attention to the risk of delayed inventory turnover.

The Group concentrates its management resources in the Fukuoka metropolitan area, making it structurally highly susceptible to economic conditions, employment conditions, rental demand, and land price trends in Fukuoka Prefecture, centered on Fukuoka City. In addition, restrictions on studio-type condominiums exist under ordinances such as Fukuoka City's Ordinance on the Prevention and Coordination of Building Disputes, and if the Company becomes unable to respond to future regulatory changes, business results could be affected. While the Company is expanding into the Tokyo metropolitan area and core cities in Kyushu prefectures to diversify risk, there is also a risk that intensifying competition may prevent it from securing the initially expected profitability.

Asset management condominiums inherently carry risks such as deteriorating rental occupancy rates, declining rent levels, and increased repayment burdens due to rising interest rates. If these risks intensify or loan screening standards tighten, reducing customers' purchasing power, execution of sales plans could become difficult. In addition, if legal regulations on sales methods are strengthened due to the investment product nature of these properties, responding to such changes could require significant time and cost, potentially disrupting sales plans. While the Group supports customers' condominium management operations under real estate leasing management contracts, the business structure remains highly dependent on changes in the external environment.

In the family condominium sales business, property handover timing is concentrated around completion timing, resulting in significant fluctuations in annual and quarterly business results. Looking at quarterly net sales over the past three fiscal years, in FY2023 (ended January 2023), 82% of total sales was concentrated in the fourth quarter, at ¥5,065,497 thousand, highlighting a pronounced skew toward specific quarters. If a significant delay in completion timing occurs due to natural disasters or unforeseen circumstances, it could materially affect business results for that period.