Azplanning Co.,Ltd.

As of the end of February 2025, the interest-bearing debt ratio stood at an extremely high 316.93%, with the Company relying mainly on financial institution borrowings to fund real estate acquisitions. In the event of rising market interest rates or a suspension of lending due to a decline in creditworthiness, the Company may be forced to bear increased interest expenses and change its business plans. As a countermeasure, the Company is avoiding dependence on specific financial institutions and promoting the acquisition of financing on a property-by-property basis as well as diversification of funding methods.

In some cases, the repayment deadline for borrowings used to purchase real estate for sale is set within one year, and if a property cannot be sold as planned, there is a risk that cash flow will deteriorate significantly. In addition, if the sale price falls significantly below plan, this will also affect business performance. The Company strives to achieve sales as originally planned by leveraging its long-cultivated expertise in evaluating and leasing income real estate.

Some loan agreements are subject to financial covenants, and if these covenants are violated, the Company may lose the benefit of the term and be required to repay the borrowings in a lump sum. This poses a risk of a sudden deterioration in the Company's financial condition. Disclosure of specific countermeasures in the securities report is limited, and maintaining financial discipline remains an important issue.

The real estate industry is highly susceptible to economic trends, land prices, vacancy rates, sales prices, interest rates, tax systems, and other factors, and the Group is exposed to similar risks. If changes in circumstances or differences in interpretation of tax systems occur in the Tokyo metropolitan area and three surrounding prefectures, which are the Group's main operating area, this could affect business performance. The Group seeks to reduce this risk by purchasing and selling a diverse range of real estate for sale that is not dependent on a specific type or scale.

In the Tokyo metropolitan area, the Group's main sales area, price competition with major developers and others is intensifying, and since entry into the market only requires obtaining a real estate brokerage license, an increase in new entrants is also expected. If it becomes difficult to acquire quality properties due to intensifying competition, this could adversely affect business performance. The Group is working to reduce this risk by leveraging its value-up capabilities for income real estate as a competitive advantage and by expanding the Real Estate Sales Business.

If the value of real estate for sale falls below book value due to a deterioration in economic conditions or the real estate market, a loss on the write-down of inventory will occur. In addition, for leasing business assets, if undiscounted future cash flows fall below book value, an impairment loss will be recorded. The Group has established a system to continuously monitor real estate market trends and prevent disruption to its original sales plans through appropriate purchasing management.

Since the business model records revenue and cost of sales at the time of property sale after value-up work is completed, performance can fluctuate significantly depending on the timing of sales of high-value properties, given the large amount involved per transaction. If sales of high-value properties are concentrated in or delayed from a particular period, this could result in significant skew in quarterly or annual performance. The Group strives to build a system that can secure alternative properties by expanding its inventory of real estate for sale.

The Group conducts business under numerous laws and regulations, including the Building Lots and Buildings Transaction Business Act, the Construction Business Act, the Financial Instruments and Exchange Act, and the Real Estate Specified Joint Enterprise Act. If a license is revoked or administrative action is taken due to a violation or misconduct, this could result in restrictions on the scope of business and a decline in social credibility. There is also a risk of increased costs due to the abolition, revision, strengthening, or change in interpretation of laws and regulations. The Administration Department works with retained attorneys and various professional advisors and conducts compliance training for officers and employees to ensure thorough legal compliance.

Toshihito Matsumoto, Representative Director and President, plays an important role in formulating and deciding management policy and business strategy and in driving business forward, and there is concern about the impact on business performance should he become unable to carry out his duties. The Group is working to build a system that eliminates excessive dependence on him as the business expands, but at present the degree of dependence remains high. Developing a successor and strengthening the organizational structure remain ongoing challenges.

If outsourcing partners for facility maintenance, cleaning, and construction work in the Real Estate Management Business, or design offices and construction companies involved in new condominium development, experience financial difficulties, bankruptcy, or accidents during construction, this could delay delivery schedules and make it difficult to develop and sell properties as planned. In addition, rising outsourcing costs due to increases in construction material prices may also affect business performance. The Group strives to reduce this risk by securing multiple outsourcing partners and conducting credit checks, interviews, and license verification when selecting partners.