MUGEN ESTATE Co.,Ltd

The real estate market is affected by a variety of external factors, including tax systems, laws and regulations, the stock market, and regulations targeting foreign investors, and any changes in these factors could impact business results and financial condition. As a countermeasure, the Company is building a diverse portfolio of real estate-related products and services that does not depend on any specific business, and has newly established the Asset Management Business in 2025 to secure stable revenue.

The FY2026 (ending March 2027) Tax Reform Outline announced on December 19, 2025 explicitly states a policy to review the inheritance tax valuation method for fractionalized real estate products, and changes in investor needs could impair sales opportunities. As a countermeasure, the Company is strengthening its appeal of diversified investment benefits that do not depend on tax-saving effects, diversifying the products and schemes it structures, expanding exit strategies and its sales network, and enhancing risk explanations to investors.

The mainstay Real Estate Sales Business operates mainly in the one metropolis and three prefectures of the greater Tokyo area, but purchase and resale of residential real estate has low barriers to entry and is subject to intensifying competition, while the competitive environment for investment real estate is also becoming increasingly severe year by year due to new entrants by major real estate companies. If the Company is unable to secure planned profit margins or conduct procurement and sales as planned, its business results and financial condition may be affected. As a countermeasure, the Company is differentiating itself by handling a wide range of asset types and price ranges, speedy contracting and settlement, and expansion of regional sales offices since 2023.

The Group procures funds for purchasing used real estate mainly through borrowings from financial institutions, and its dependence ratio on interest-bearing debt reached 58.8% at the end of the fiscal year under review. If financial conditions change, leading to rising interest rates or a shift in financial institutions' lending stance, the Company may be forced to increase interest payments or change its procurement plans. As a countermeasure, the Company has set an interest-bearing debt dependence ratio of 65% or below as a financial soundness indicator and continuously manages its equity ratio and net D/E ratio.

Based on a resolution of the Board of Directors on March 14, 2025, the Company entered into a syndicated loan agreement with eight financial institutions, and if it violates the financial covenants attached to this agreement, it may lose the benefit of time and this could have a material impact on its financial condition. As a countermeasure, the Company has set the equity ratio, net D/E ratio, and other metrics as KPIs in its Third Medium-Term Management Plan, and is working to reduce liquidity risk through Board of Directors monitoring and maintaining a certain level of cash and deposits.

Real estate for sale held by the Company is valued based on the Accounting Standard for Measurement of Inventories (ASBJ Statement No. 9), and if inventory remains unsold for an extended period due to a deterioration in economic conditions or the real estate market, the net realizable value may fall below book value or acquisition cost, requiring recognition of a valuation loss on inventory. As a countermeasure, the Company continuously monitors trends in the real estate sales market and strictly scrutinizes purchase prices, while also working to improve and enhance investment yields through appropriate renovation planning and rent setting even when inventory becomes long-term.

The real estate industry is subject to numerous legal regulations, including the Building Lots and Buildings Transaction Business Act, the Act on Specified Joint Real Estate Ventures, and the Financial Instruments and Exchange Act, and if laws are amended or abolished, new regulations are introduced, or business suspension or license revocation occurs due to violations of laws and regulations, business activities may be disrupted, potentially affecting business results and financial condition. As a countermeasure, the Legal and Compliance Department leads compliance training, while working with in-house lawyers, external institutions, and retained legal counsel to stay informed of the latest regulatory information and ensure it is thoroughly communicated.

Each business handles a large amount of confidential information, including personal information, and if an information security incident or external information leak occurs, business results and financial condition may be affected due to a decline in social credibility, among other factors. In addition, if an information system failure occurs due to a cyberattack or other cause, business continuity could be seriously affected. The Company addresses this through awareness activities and training conducted jointly by the Information Systems Department and the Legal and Compliance Department, along with strengthening information security governance.

For sold renovated used real estate, the Company bears warranty liability for at least two years after delivery, and for newly built homes, it bears warranty liability for ten years after delivery regarding defects in structurally load-bearing parts and other key elements. If non-conformity with the contract occurs, unplanned costs such as repairs, damages, or contract cancellation may arise. As a countermeasure, the Company conducts quality checks using its own checklist before and upon completion of renovation work, performs inspections and repairs six months after delivery, and has established a rapid response system centered on in-house lawyers.

The Company recognizes the continuous securing and development of excellent human resources as a top priority issue, and if it is unable to secure and develop the human resources it seeks as planned, its business results and financial condition may be affected. As a countermeasure, the Company is promoting the acquisition of high-quality personnel through diverse recruitment channels, early development of capable employees through enhanced training programs for younger staff and new graduates, and the creation of a work environment conducive to retention by reducing turnover through post-hire follow-up support.