WASHINGTON HOTEL CORPORATION

An economic downturn leading to contraction in corporate activity and lower salary levels could reduce both business and tourism demand. In addition, during infectious disease outbreaks, travel restrictions and requests to refrain from movement could cause a significant decline in accommodation demand, and even after the outbreak subsides, demand may not recover to pre-outbreak levels due to changes in lifestyle and business styles. There is also seasonal variation, with the fourth quarter tending to show lower sales and profit compared to other quarters due to reduced business demand at the start of the year and the shorter number of days in February.

In addition to existing competitors, new entrants from other industries may intensify competition, potentially leading to lower occupancy rates and declining room rates. Since price declines caused by excessive competition directly lead to reduced sales, the impact on the earnings structure is significant. There are also cases where competitors open nearby after a new store opening, which poses a risk to store opening strategy.

Under the accounting standard for leases published in September 2024, on-balance-sheet treatment of operating lease transactions will be required from FY2028 (ending March 2028). In the current fiscal year (FY2026, ending March 2026), the outstanding lease payments for non-cancellable operating leases reached ¥14,788,203 million (converted from the original figures stated in thousands of yen, approximately ¥14,788 million), and this amount may increase further at the time of application. On-balance-sheet recognition could result in a decline in the equity ratio and impairment of lease assets, potentially having a material impact on financial indicators and operating results.

The Company's interest-bearing debt includes items subject to variable interest rates, and in a rising interest rate environment, interest payments and funding costs may increase. Rising crude oil and fuel prices due to instability in the international situation could also be a factor increasing procurement costs. These cost increases pose a risk of deteriorating profitability.

The Company holds a large number of tangible fixed assets such as hotel buildings, and if the estimated future cash flows decline due to a fall in real estate values or a deterioration in business performance, impairment losses may occur. Although the Company applies impairment accounting and regularly verifies recoverability, a market downturn exceeding a certain scale could have a material impact on the financial condition.

The hotel business is highly dependent on human services, and there is a risk that business operations could stagnate due to difficulty in hiring or the loss of personnel to other companies. In addition to increases in the minimum wage and social insurance premium rates, rising outsourcing unit costs for cleaning services (due to labor shortages) are also compounding the issue, and increases in labor and recruitment costs may affect business performance and financial condition.

The Company holds customer information such as guests' names and contact information in its accommodation system and membership system "Washington Net." If an information leak occurs due to hacking or similar incidents, it could lead to a decline in social credibility and risk of damages claims. A system outage caused by computer virus infection would also directly lead to a stagnation of business operations.

The Company leases hotel and restaurant real estate on a long-term basis in many cases, and business continuity at such locations may become difficult if the property owner becomes insolvent or otherwise fails. Additionally, in the event of early termination initiated by the Company, an obligation to pay a portion of the outstanding rent for the remaining lease period may arise, which could become a financial burden.

Tightening of regulations or the introduction of new regulations under the Hotel Business Act, Building Standards Act, Fire Service Act, Food Sanitation Act, and other laws may increase compliance costs and operational constraints. If industrial accidents or harassment issues occur, there is a risk of a decline in social credibility and the imposition of significant fines or damages claims. The Company has taken measures such as confirmation by its retained attorney regarding inappropriate representations in premiums and prizes, but complete elimination is difficult, raising concerns about the impact on corporate value.

Since the Company (Washington Hotel Plaza) and Fujita Kanko Inc. (Washington Hotel) jointly filed for the "Washington Hotel" trademark and operate it as a chain, investors and consumers may misidentify the operating entity. If an incident that damages the brand image occurs on Fujita Kanko's side, such as a fire or food poisoning, the Company's reputation could decline, posing a risk to its business performance and financial condition.