Koryojyuhan Co., Ltd.

There is a risk that customers' willingness to sell or purchase investment properties, land, and used homes may decline due to economic downturn, rising interest rates, rising land prices, tax system changes, or changes in financial institutions' lending stance. This directly affects real estate sales revenue and brokerage business revenue (sales). The Group responds through timely purchasing and product development based on market analysis and regional characteristics, but cannot completely control changes in the external environment.

The Real Estate Distribution Business and Real Estate Management Business have low entry barriers, creating a risk that competition may intensify due to new entrants or area expansion by competitors. If competitors expand multiple stores into the Mito and Hitachinaka areas, or if a competitor with strong proposal capabilities takes away managed units, it may become difficult to secure customers and properties in both the brokerage and management businesses. The Company counters this through a dominant strategy and strengthened real estate information gathering capabilities, but other areas are still in a growth stage.

There is a risk that long-term declines in Japan's population and number of households will intensify competition for tenants and cause rent levels to fall overall. In the Real Estate Management Business, this is expected to result in decreased Leasing Business Revenue (Company-owned & Leased Properties) and management fees, while in the Real Estate Distribution Business, decreased brokerage business revenue (leasing) and a shrinking pool of real estate buyers are expected to reduce sales revenue and brokerage revenue (sales). The temporary increase in the number of households due to an increase in single-person households is expected to reverse in the future, making this a mid-to-long-term structural risk.

If property sales stagnate due to deterioration in real estate market conditions or other factors, there is a risk that holding periods will lengthen, sales prices will need to be lowered, and inventory valuation losses will need to be recorded. An increase in stagnant inventory also directly leads to an increase in interest-bearing debt, undermining financial soundness. The Group conducts purchasing after carefully analyzing demand forecasts, regional conditions, and customer needs, but cannot completely avoid market fluctuations.

Due to capital expenditures such as real estate product purchasing and solar power generation equipment, the Group tends to have a high ratio of interest-bearing debt, creating a risk that funding costs will increase in a rising interest rate environment. The Group strives to maintain appropriate inventory levels by treating the inventory turnover period (in principle 6 months, 1 year for large-scale condominium developments) as a key management indicator, but is directly affected by financial institutions' lending stance and interest rate trends when procuring funds for developing new investment real estate.

There is a risk that if procurement prices and building material prices rise due to soaring construction costs stemming from natural disasters, intensifying competition, or changes in the economic environment, profit margins related to real estate sales revenue will be squeezed. The Group continues to promote the commercialization of reinforced concrete properties and small wooden rental housing as an ongoing business, resulting in a business structure susceptible to cost increases. If a large-scale disaster similar to the Great East Japan Earthquake were to recur, a simultaneous surge in costs and decline in demand could occur.

There is a risk that natural disasters such as typhoons and earthquakes may cause damage or collapse of real estate products prior to delivery, or reduce customers' willingness to purchase. The Company operates primarily in and around Mito City, Ibaraki Prefecture, and the impact of a large-scale disaster similar to the Great East Japan Earthquake recurring could be significant. In addition, if a resurgence of infections occurs due to the emergence of new variants of COVID-19 or other causes, this could also have a material impact on the business and results of operations.

Muneaki Usui, Chairman and Representative Director, is the founder of the Company and, as the largest shareholder holding 932,700 shares (a shareholding ratio of 33.73%) out of a total of 2,764,800 issued shares, plays a critical role in determining management policy and strategy. If he becomes unable to perform his duties for any reason, there is a risk of significant disruption to management continuity. The Company is working to reduce this dependence by promoting collective decision-making and delegation of authority, but at present, establishing a substitute framework remains a challenge.

If licenses and registrations such as the Real Estate Brokerage License (Minister of Land, Infrastructure, Transport and Tourism (4) No. 7026) or the Rental Housing Management Business Registration (Minister of Land, Infrastructure, Transport and Tourism (2) No. 002086) are revoked, there is a risk that the continuation of the Company's main businesses will be significantly restricted. The Real Estate Brokerage License reached its expiration date on March 31, 2025, and as of the date of submission, is under renewal review (the previous license remains valid in the meantime). The Group strives to ensure thorough legal compliance and prevent the occurrence of grounds for revocation, but cannot completely eliminate the risk of future regulatory changes or violations.

The Group holds large volumes of personal information belonging to purchasing customers and rental tenants, as well as personal identification numbers of employees and business partners. If an information leak occurs due to human error or unauthorized access, there is a risk of reputational damage and claims for damages. The Group implements measures such as restricting access privileges, preventing external intrusion, and conducting employee education, but cannot completely eliminate the risk of sophisticated cyberattacks or internal misconduct.