FaithNetwork Co.,Ltd

The Group primarily procures funds for real estate purchases through borrowings from financial institutions. At the end of the consolidated fiscal year under review, the balance of interest-bearing debt reached ¥18,207,778 million (original figure in thousands of yen: ¥18,207,778 thousand), with an interest-bearing debt dependency ratio of 52.6%. If borrowing becomes difficult due to rising interest rates or changes in financial conditions, or if numerous properties cannot be sold within contracted repayment deadlines due to a downturn in the real estate market, making refinancing impossible, this could have a material impact on the Group's financial position and business results. The Group's policy is to conduct fund procurement after analyzing the validity of the property income and expenditure plan for each project, thereby avoiding dependence on specific financial institutions.

Some loan agreements include financial covenants, and breaching these could result in the loss of the benefit of the term and a demand for lump-sum repayment of the borrowings. While the Company currently believes the likelihood of breaching these covenants is low, the possibility that this risk could materialize due to deteriorating business performance or fluctuations in financial indicators cannot be ruled out. If lump-sum repayment is demanded, it would directly lead to a liquidity crisis, potentially causing a severe impact on the financial position.

The real estate industry is highly susceptible to economic conditions such as trends in the economy, interest rates, land prices, construction prices, and tax systems, and rental income may decline due to falling rental market rates or deteriorating occupancy rates. Changes in the lending trends of financial institutions could impede the management of newly built whole-building condominiums, and if demand trends among purchasers deteriorate, this could affect the financial position and business results. The Group conducts its business based on medium- to long-term economic outlooks, but responding to sudden changes in the external environment remains a challenge.

The Company acquires and develops business sites primarily centered on Setagaya Ward, Meguro Ward, and Shibuya Ward (the three southern wards), resulting in business operations being concentrated in this area. If land prices in this area rise sharply or competition with rival companies for land acquisition intensifies, the Company may be unable to acquire quality land as planned, which could affect business results. In addition, there is a risk that strengthened regulations, such as ordinances related to the construction of studio apartment buildings enacted by local municipalities, could necessitate changes to or cancellation of planned developments.

If sales do not proceed as planned due to a sharp economic downturn, rising interest rates, or the impact of real estate-related tax systems, delays in the development of newly built whole-building condominiums or the stagnation of completed inventory may occur, potentially worsening cash flow. If valuation losses are recorded on real estate for sale or real estate for sale in process where market value falls below acquisition cost, this would directly impact the financial position and business results. The Group's policy is to sell properties promptly, but responding to this may become difficult in the event of a sudden change in market conditions.

Since revenue from the transfer of real estate, etc. is recognized at the time of property delivery, there is a tendency for sales and profit to be concentrated in the fourth quarter. In the 25th fiscal period, there was a significant disparity, with fourth-quarter net sales of ¥15,644,498 thousand compared to first-quarter net sales of ¥2,866,196 thousand. If changes in completion timing, construction delays due to natural disasters, etc., or delivery delays occur, revenue may not be recognized during the planned period, potentially affecting the financial position and business results. The Company is working to avoid such concentration by diversifying completion timing and sales destinations.

The Company outsources some or all of the design and construction of newly built whole-building condominiums. If design firms or construction companies encounter financial difficulties, if outsourcing costs increase due to rising construction material prices, or if unforeseen events such as accidents during construction occur, developing and selling properties as planned may become difficult. The Company strives to enhance its inspection system through thorough pile-driving inspections, various inspections by in-house first-class architects, and progress management through monthly regular meetings, but the management risk of outsourcing partners cannot be completely eliminated. This may impact the financial position and business results.

The Group is subject to numerous legal regulations, including the Building Lots and Buildings Transaction Business Act, the Building Standards Act, the City Planning Act, and the Construction Business Act, and holds licenses such as a Real Estate Transaction Business License (valid until March 1, 2027) and Rental Housing Management Business Registration (valid until November 4, 2026). If, for any reason, the Group fails to comply with related laws and regulations and is subject to disciplinary action by the supervisory authorities, or if there are significant changes to legal regulations, this could impede primary business activities such as sales and development, potentially having a material impact on the financial position and business results. The Group has established a system capable of responding to these regulations in order to ensure business continuity.

Of the 12,000,000 shares held by Kabushiki Kaisha 88, the asset management company of Representative Director Jiro Hachiya, 2,400,000 shares (8.0% of the total issued shares of 29,880,000) have been pledged as collateral for a loan from Tokai Tokyo Securities Co., Ltd. If a specified event, such as a breach of contract, occurs, the pledged shares may be sold by the financial institution, which could affect the market price of the Company's shares and could significantly alter the composition of major shareholders, including the largest shareholder and founding president. While no event triggering the execution of the collateral has occurred at this time, this is a matter that investors should note as a share price fluctuation risk.

The Group holds personal information of real estate owners and information on rental property tenants, and if unauthorized use or unforeseen circumstances lead to an information leak, this could result in claims for damages or a loss of credibility, potentially affecting the financial position and business results. In addition, litigation or claims may arise due to noise and sunlight issues during construction, defects, or insufficient explanation of investment risks, and depending on the content and outcome, this could affect the financial position and business results. The Group has implemented measures such as establishing personal information protection regulations, management by a personal information protection manager, and enrollment in housing defect liability insurance, but the risk may increase as the number of sales increases.