Palma Co,.Ltd

If the investment market stagnates due to economic downturn, rising interest rates, real estate price fluctuations, or oversupply of facilities, there is a risk of decreased self-storage facility users, increased delinquency in usage fees, extended sales periods, and increased completed inventory. Because the Company specializes in the self-storage business, it is structurally susceptible to industry-wide economic fluctuations. As countermeasures, the Company conducts regular monitoring of economic trends and real estate market conditions, cultivates market insight tailored to area, scale, and use, and strengthens its investment judgment and leasing capabilities.

In the Business Solution Service, the Company acts as joint guarantor for self-storage usage fees, and when users default on payment, the Company makes advance payments, giving rise to indemnity claims that may not be fully collectible. Although the Company records an allowance for doubtful accounts based on the actual bad debt ratio over the past three years, if actual bad debts exceed expectations or if the allowance standards need to be revised, additional provisions could affect business performance and financial condition. Guarantee fee rates are set taking into account past occurrences of uncollected amounts, but there is a risk that the allowance could become insufficient in the event of a sudden change in the economic environment.

Revenue from the Turnkey Solution Service is primarily derived from the sale amount of real estate properties, which tends to be substantially larger than that from other services, so quarterly revenue and earnings may be short-term skewed depending on whether property sales occur. If the timing of property delivery is delayed beyond the fiscal year-end due to natural disasters, accidents, or other unforeseeable factors, or if a property scheduled for completion and delivery near the fiscal year-end is pushed into the following period, this directly affects the results for that period. The Company's overall performance is inherently subject to the structural risk of being heavily influenced by trends in the Turnkey Solution Service.

The Company procures part of the funds for acquiring land for self-storage facility development and construction costs mainly through borrowings from financial institutions, and the ratio of interest-bearing debt to total assets stood at 23.7% as of the fiscal year ended September 2025. Rising interest rates or increases in the real estate investment market's or the Company's risk premium could increase interest expenses and affect business performance. As a countermeasure, the Company seeks to reduce risk by avoiding dependence on specific financial institutions and soliciting financing on a case-by-case basis, but if difficulties arise in fundraising, this could affect business development.

The Company outsources design, construction, leasing management, building management, and other functions in the Turnkey Solution Service to external contractors. If construction accidents occur, development costs rise due to soaring labor and material costs, or unforeseen circumstances such as false reporting, breach of contract, or bankruptcy of external contractors occur, construction delays or suspensions could affect operating results and financial condition. Additionally, if an external contractor becomes insolvent after construction completion, defect repair obligations that should have been borne by the contractor may not be fulfilled, creating a risk of unexpected cost burdens on the Company. Company employees participate in meetings with external contractors as needed to confirm quality and progress management, but it is difficult to completely eliminate this risk.

For properties developed and sold under the Turnkey Solution Service, the Company may enter into Master Lease (Rental Operations) agreements, which give rise to lease obligations for the Company. If such properties fail to reach the expected occupancy rate, rental income may fall below the master lease payments due, which could adversely affect the Company's business performance. Since occupancy rates are influenced by market conditions and competitive circumstances, this risk is inherently subject to external factors.

The Company acquires business-use land primarily in the Tokyo metropolitan area to develop and sell self-storage facilities such as "Keep It," but if it becomes difficult to obtain sufficient real estate-related information, or if soil contamination that could not be identified in pre-acquisition surveys is discovered after the acquisition contract is concluded, additional costs and changes to the development schedule may arise, potentially affecting business performance and financial condition. Since the business model relies on the quality and quantity of real estate-related information, a decline in information-gathering capability directly leads to a decline in competitiveness.

The Company accumulates highly confidential information, including personal information of self-storage users and corporate information of self-storage operators. If system failures, information leaks, or malfunctions occur due to destruction or breakdown of communication infrastructure, this could affect the Company's social credibility, business performance, and financial condition. The Company implements security measures such as firewalls to prevent unauthorized access and regular backups, but complete protection cannot be guaranteed given the increasing sophistication of cyberattacks. The Company also continuously raises employee awareness of the importance of information management.

Dear Life Co., Ltd. holds 39.29% of the Company's issued common shares (excluding treasury shares), and may exert influence, regardless of the wishes of other shareholders, over matters requiring shareholder approval such as the election of directors and auditors, corporate reorganizations including mergers, transfer of material assets, amendments to the articles of incorporation, and disposal of surplus. Additionally, if reputational or other risks materialize at Dear Life Co., Ltd., such risks could also spread to the Company. The concurrent holding of positions (the Chairman of the Board and one other director also serve as officers of Dear Life Co., Ltd.) presents a challenge in ensuring governance independence.

The Company is subject to regulation under the Building Lots and Buildings Transaction Business Act, the Building Standards Act, the City Planning Act, the Financial Instruments and Exchange Act, the Worker Dispatching Act, and various other laws and local ordinances, and holds a Real Estate Brokerage License (valid until February 2030), a Paid Employment Placement Business License (valid until April 2030), and a General Worker Dispatching Business License (valid until May 2028). If any of these licenses or permits were to be revoked for any reason, this could have a material impact on business performance and financial condition. Legal amendments or tightening of regulations could also affect business operations and performance, and the Company addresses this through employee training and strengthening its compliance system.