Elitz Holdings.Co,Ltd.

The Group's core business is rental housing brokerage, and if the rental housing market weakens due to the declining birthrate and aging population, the reduced demand for student lodging resulting from the entrenchment of online classes, and the shrinking demand for corporate relocations, this will directly and adversely affect business performance. If the market downturn becomes prolonged, there is a risk that both the number of brokerage transactions and management revenue will decline. The Group is working to mitigate this impact by diversifying its customer base to capture the diversification of single-person households (expansion into middle-aged and elderly demographics).

The Group relies primarily on listing property information on real estate portal sites to attract customers, and there is a risk that revenue could fluctuate significantly due to changes in search algorithms on portal sites or a decline in advertising effectiveness. Although the Group routinely measures and optimizes the effectiveness of its advertising expenditure, if the expected customer acquisition effect is not achieved, this could affect business performance and financial condition. The customer acquisition structure's high dependence on portal sites constitutes a structural vulnerability.

If amendments are made to real estate-related laws and ordinances, including the Building Lots and Buildings Transaction Business Act, or if the ceiling on rental brokerage commissions (currently one month's rent combined for landlord and tenant) is revised downward, this could have a material impact on earnings. In addition, if a violation of laws or regulations occurs, there is a risk of receiving administrative sanctions such as a business suspension order. The Group holds numerous licenses and permits, including for the building lots and buildings transaction business, rental housing management business, and specified joint real estate ventures, and conducts its operations with compliance as the highest priority.

The Group handles a large volume of customer personal information in its rental brokerage and management businesses, and if a cyberattack, information leakage by an officer or employee, or system failure occurs, it could damage the Group's social credibility and brand image and adversely affect business performance. The Group obtained Privacy Mark certification in July 2020 and is proceeding with the introduction of endpoint security using cloud-based security software and the enhancement of its internal network based on recommendations from external specialist organizations. While no incidents have occurred to date, continuous strengthening of countermeasures is necessary in light of increasingly sophisticated threats.

The Group's business involves complex and voluminous administrative processing, which inherently carries operational risks such as clerical errors, fraud, and management-related operational issues. While the Group is working to strengthen its operational infrastructure, including system management, and its business management framework, if an accident or fraudulent act occurs, it could have a material impact on business performance and financial condition. In particular, given the structure in which operations are concentrated during the busy season (January to March), operational risk is relatively elevated during this period.

A stagnation or decline in the real estate market due to an economic downturn or an oversupply of condominiums would lead to a decrease in management revenue through lower occupancy rates and declining rent levels at managed properties. It would also adversely affect the Real Estate Leasing Business through a decline in the value of self-owned real estate and reduced rental income. The Group seeks to diversify this impact through its vertically integrated model spanning brokerage, management, and leasing, but if the market downturn becomes prolonged, an impact on business performance and financial condition is unavoidable.

The real estate industry is labor-intensive and characterized by a high turnover rate, and amid a continuing labor market favorable to job seekers, it remains difficult to secure excellent personnel. A shortage of personnel could lower the quality of operations and constrain business expansion, potentially affecting business performance and financial condition. The Group is working to build an attractive company by enhancing working conditions and welfare benefit programs, but continued efforts are needed to address the industry-wide structural challenge of labor shortages.

If a significant decline in the profitability of cash flows from held fixed assets or a significant decline in their market value is recognized due to falling rent levels, rising vacancy rates, or deteriorating financial conditions resulting from a downturn in the real estate market, the application of impairment accounting could affect business performance and financial condition. The potential timing of occurrence has been identified as within one year, making this a risk requiring short-term monitoring. The Group holds consolidated interest-bearing debt of ¥1,789 million (18.7% of total assets), and its interest coverage ratio stands at 52.6 times, indicating that financial soundness is being maintained.

The majority of the real estate owned and managed by the Group is concentrated in Kyoto Prefecture, giving rise to a risk of additional costs arising from the tightening of region-specific regulations, such as Kyoto City's landscape ordinances. In addition, if a natural disaster such as an earthquake or a downturn in the regional economy occurs in the Kyoto and Shiga area, there is a risk that management revenue and rental income could decline simultaneously. The Group is progressively expanding its business area into Nara Prefecture and Hyogo Prefecture and working to reduce this risk through the geographic diversification of its managed properties.

Founder and Representative Director Tsuneyoshi Makino plays a central role in determining management policy and strategy and in commercializing new businesses, and there are concerns about the impact on business performance and financial condition should it become difficult for him to continue performing his duties. The Group is working to strengthen information sharing among officers and executive staff and to strengthen its management organization in order to eliminate excessive dependence on any single individual, but the structural reliance on the founder is a challenge that is difficult to resolve in the short term.