AZUMA HOUSE Co., Ltd.

If purchaser demand deteriorates due to fluctuations in economic trends, interest rates, or land prices, there is a risk that the net realizable value of real estate for sale will fall below its acquisition cost, requiring recognition of inventory valuation losses. Impairment losses on fixed assets are also anticipated, potentially affecting business results and financial condition. As a countermeasure, the Company regularly monitors the income and expenditure status of real estate for sale and fixed assets, verifying appropriate pricing and implementing profitability improvement measures.

The Group is subject to numerous laws and regulations, including the Building Lots and Buildings Transaction Business Act, the Construction Business Act, the Hotel Business Act, and the Food Sanitation Act. If any license or permit is revoked or renewal is denied, this would significantly hinder business activities. Although no grounds for revocation currently exist, future compliance violations could materially affect business results and financial condition. The Group seeks to mitigate this risk through employee training, development of a compliance framework, monitoring via internal audits, and deliberation of responses at the Risk and Compliance Committee.

In the real estate industry, the Group competes with numerous operators, including major companies with superior capital strength and brand power, and intensifying competition may lead to prolonged sales periods and deteriorating profitability due to discounted sales. Competition for customers is also intensifying in the hotel and restaurant businesses, raising concerns about the impact on business results and financial condition. The Group addresses this through one-stop sales leveraging synergies across segments and differentiation through improved customer satisfaction.

If restrictions or suspensions in the supply of naphtha-based construction materials, or continued sharp price increases, occur, this could lead to substantial cost increases and delays in construction processes and delivery, making it difficult to secure planned sales and profits. Difficulty in procuring materials is a risk fundamental to the real estate sales business. The Group is examining a variety of means for procuring equivalent or substitute products and striving to achieve a stable supply.

Since funds for acquiring real estate are primarily procured through borrowings from financial institutions, the Group has a high degree of dependence on interest-bearing debt, and rising interest rate levels due to changes in the financial environment may directly affect business results and financial condition. In a rising interest rate environment, increased funding costs risk squeezing profitability. The Group addresses this by maintaining relationships with its main banks, expanding and developing relationships with financial institutions, and diversifying its fund-raising methods.

Since real estate-related businesses require advanced expertise, human resources are a critical management resource, and if securing and developing personnel does not proceed as planned, or if capable personnel leave for outside opportunities, this could hinder business promotion and corporate growth. Because the Group adopts an organizational structure aiming for maximum performance with a small workforce, the impact of human resource risk is relatively significant. The Group seeks to secure and retain personnel through seminar attendance, an incentive program for qualification acquisition, and obtaining recognition as an excellent health management corporation.

If a large-scale earthquake, storm or flood damage, or a serious infectious disease occurs, ensuring the safety of employees may become difficult, potentially making business continuity impossible. Although the Group has established crisis management regulations and a BCP, many crisis events are difficult to predict, and avoidance of all damage cannot be guaranteed. The Group works to reduce and diversify risk through data and line duplication, disaster prevention drills, supply of buildings with earthquake-resistant and vibration-control performance, and coverage through housing defect liability insurance and ground guarantees.

The Group holds a large amount of personal information through its business activities, and if an unforeseen information leak occurs, this could damage its reputation and give rise to liability for damages, potentially affecting business results and financial condition. Because customer information is handled across a wide range of businesses including real estate, hotels, and restaurants, the scope of leakage risk is broad. The Group works to prevent information leakage through setting access permissions, introducing external intrusion prevention systems and systems restricting removal of data, and developing various information management regulations.

If problems such as food poisoning or foreign object contamination occur in restaurant operations, this could lead to business suspension orders or reputational damage, potentially affecting business results and financial condition. The restaurant business forms part of the business foundation in cooperation with the hotel business, and reputational damage could spread to the credibility of the entire Group. The Group strives to reduce the risk of occurrence through developing food sanitation manuals, HACCP initiatives, and monitoring through internal audits.

Complaints and disputes arising from discrepancies in understanding with customers or the occurrence of defects, among other causes, may give rise to litigation or other claims, and depending on the content and outcome, this could affect business results and financial condition. While no litigation currently affecting business results has been filed, potential risks continue to exist given the nature of the real estate and construction businesses. The Group seeks to reduce litigation risk through deliberation of responses at the Risk and Compliance Committee, coordination with lawyers, and building a consistent quality control system from land selection through architectural design.