Wealth Management, Inc.

In the Asset Management Business and Real Estate Business, one-time revenues such as real estate advisory revenue and real estate sales income account for a high proportion of earnings, creating a risk that such revenue could decline significantly due to deterioration in the real estate market environment. In addition, economic downturn, substantial interest rate increases, declines in real estate prices, rising vacancy rates, and falling rents could compound and place pressure on business performance. The Group is working to diversify its earnings structure by increasing the number of transactions and expanding sales in the Hotel Operations Business.

The Group's business performance is highly dependent on specific real estate transactions, and in the current consolidated fiscal year as well, the success or failure of specific transactions has had a major impact on performance. This situation is expected to continue going forward, creating a risk that the failure of a single transaction could directly affect overall performance. The Group aims to build a balanced earnings structure by increasing the number of transactions and expanding sales in the Hotel Operations Business.

Revenue from the Hotel Operations Business is subject to risk of fluctuation due to economic conditions, the spread of infectious diseases, competitor activity, natural disasters, and other factors. In addition, under master lease agreements, since fixed rent is paid regardless of hotel occupancy, if hotel occupancy deteriorates beyond expectations, lease rent received may fall below the master lease rent payable, resulting in a negative spread. Furthermore, if lease agreements with hotel operating companies or tenants are not renewed or are cancelled, rental income could decline.

Due to price increases, yen depreciation, and rises in real interest rates, property acquisition costs, development costs, hotel operating expenses, and other costs have been rising sharply, and continued increases are expected for the foreseeable future. In outsourced construction work as well, labor shortages in the construction industry combined with rapid cost increases raise concerns about delays in concluding construction contracts and construction schedule delays. The Group is responding by reflecting these costs in sales prices and accommodation rates, through thorough cost management, and by diversifying its funding sources; however, if cost increases exceed the scope of these reductions, business performance could be affected.

Some of the loan agreements the Group has entered into with financial institutions include financial covenants, and if these are breached, the lending financial institution could demand acceleration of the loan, resulting in loss of the benefit of the grace period for repayment. Loss of this benefit could have a significant impact on cash flow and pose a risk to the continuity of business operations. The Group strives to comply with these financial covenants in the course of its business activities.

Riches Management Co., Ltd. holds various licenses and is subject to regulation under the Building Lots and Buildings Transaction Business Act, the Financial Instruments and Exchange Act, the Money Lending Business Act, the Act on Specified Joint Real Estate Ventures, and other related laws; World Brands Collection Hotels & Resorts Co., Ltd. is subject to the Hotel Business Act and other related laws; and Wealth Realty Management Co., Ltd. is subject to regulation under investment management business licenses and other related laws. If these various regulations are changed or strengthened in the future, or if businesses that are currently unregulated become newly subject to regulation, this could result in additional compliance costs or adverse effects on business promotion. For new businesses (such as STO, regenerative medicine, and food sales), related laws and accounting/tax treatment are in many cases not yet fully established, and depending on the direction of future legislative developments, business performance could be affected.

The Asset Management Business is operated by a small organization, and securing personnel with advanced expertise in real estate investment, financial transactions, tax and accounting, and other areas is essential; however, the job market is in a state of excess demand, creating a high risk of recruitment delays and personnel attrition. If a sudden loss of personnel were to occur, this could seriously impair service quality, management administration, financial reporting, and information disclosure functions. In the Hotel Operations Business as well, the labor shortage within the industry is severe, and business performance could be affected by increased operating costs due to wage increases or by lost sales due to labor shortages.

The Group handles personal information, confidential information of business partners, insider information of listed companies, and other sensitive data, and if such information were leaked, improperly transmitted, or used unfairly, this could result in legal liability, loss of credibility, and deterioration of brand value. The Group strives to establish and maintain a strict information management system and thoroughly communicates compliance with laws and internal regulations to officers and employees. However, the risk of an information security incident occurring despite the establishment of such management systems cannot be eliminated.

Some of the special purpose companies with which Riches Management Co., Ltd. has entered into asset management agreements use a structure involving anonymous partnership (tokumei kumiai) agreements, and industry-wide accounting practice for determining the scope of consolidation for such structures remains unsettled. If new accounting standards are implemented or practical guidance is published that establishes rules significantly different from the Company's current policy for determining the scope of consolidation, this could result in major changes to that policy and affect business performance. The Company currently determines control and influence on a case-by-case basis in accordance with current corporate accounting standards and practical solutions reports.

The Group positions M&A and capital alliances as a means of business expansion aimed at growing assets under management for the Asset Management Business and diversifying the real estate assets in which it invests; execution of such transactions requires prior consent from Dai-ichi Life Holdings, Inc. There is a risk that expected results may not be achieved following the execution of an M&A transaction or capital alliance, such as through the discovery of contingent liabilities, which could affect business performance. The Group's policy is to conduct sufficient due diligence in advance to mitigate various risks.