GREENS CO.,LTD.

The Group's hotel business revenue is significantly affected by trends in the domestic economy and personal consumption, as well as fluctuations in the number of inbound visitors to Japan. Foreign exchange rates, diplomatic policy, natural disasters, epidemics and similar factors influence the number of inbound visitors, while stagnation in corporate activity and deterioration in employment conditions lead to a decrease in individual and corporate guests. Should these factors coincide, they may have a compounded adverse effect on the Group's business performance and financial condition.

Competition within the industry is intensifying due to new entries by competing hotels and the diversification of lodging services such as private lodging (minpaku). Maintaining competitiveness requires substantial capital expenditure, including renovations and remodeling, and if such measures fail to function effectively, this could lead to a decrease in operating revenue through price reductions. The Group strives to maintain and strengthen its competitiveness through operations utilizing Revenue Management.

In the event of natural disasters such as earthquakes and typhoons, large-scale accidents, acts of terrorism, or infectious diseases such as COVID-19 or novel influenza, hotel closures and a significant decline in tourist numbers are a concern. The occurrence of countermeasure costs and a decrease in operating revenue may affect business performance and financial condition. The Group positions "safety and security" as a key priority and takes thorough measures to ensure the safety of its facilities.

A substantial portion of the Group's operating costs consists of fixed costs such as personnel expenses, depreciation, and rent for hotel land and buildings, resulting in a structure in which a decline in sales has a significant impact on operating income. In addition, there is seasonal variation, with the number of guests increasing in summer and decreasing in winter, and sales and operating income tend to decline in the third quarter of the consolidated fiscal year. This high fixed-cost earnings structure amplifies the risk of downside pressure on performance during periods of demand fluctuation.

The consolidated subsidiary Choice Hotels Japan Co., Ltd. has entered into a master franchise agreement with Choice Hotels Licensing B.V. Grounds for termination include failure to meet the annual allotted number of stores to be developed, acquisition of 20% or more of shares or acquisition of control by a third party, and the appointment of a director affiliated with a competing company, among others. If the agreement were to be terminated, the trademark (brand name) of Choice Hotels International would become unusable, resulting in the need to review business strategy and incurring various costs associated with a brand change. As of the date of submission of this document, none of the grounds for termination have been triggered.

The Group procures many of its store-related assets through operating lease transactions, which are currently treated as off-balance-sheet items in the consolidated financial statements. If changes to lease accounting standards or other rules were to require on-balance-sheet treatment, an amount equivalent to the outstanding lease contract balance would be recognized, potentially causing a significant decline in the equity ratio. In addition, if the profitability of leased stores deteriorates, impairment losses on lease assets may occur, potentially affecting business performance.

The Group is subject to a wide range of laws and regulations, including the Hotel Business Act, the Food Sanitation Act, the Building Standards Act, the Fire Service Act, and the Act on the Protection of Personal Information. Violations could result in administrative dispositions such as revocation of licenses or suspension of business operations. Significant changes to existing regulations or the introduction of new regulations could increase compliance costs and restrict business activities. In addition, the introduction or revision of tax systems could also affect business performance and financial condition.

It is anticipated that the difficulty of securing young workers due to the declining birthrate and aging population will become even more severe going forward, and labor costs are expected to rise due to increases in the minimum wage and social insurance premium rates. A shortage of human resources may lead to increased workload concentration on existing employees, longer working hours, higher turnover rates, and increased recruitment costs, potentially affecting business performance and financial condition. Given the nature of the hotel business, securing a certain number of employees is an essential condition for business continuity.

There is a risk that utility costs will rise due to increases in crude oil prices stemming from unstable international conditions, and increases in food material prices due to poor weather conditions may also affect business performance. In addition, increases in outsourcing fees for room cleaning, driven by labor shortages at cleaning companies, are also a factor putting pressure on earnings. These cost increases may have a compounded impact on the Group's business performance and financial condition.

The Group positions M&A as part of its medium- to long-term growth strategy; however, it may be unable to execute an acquisition due to the absence of a suitable acquisition target, failure to reach agreement on terms, difficulty in raising funds, or failure to obtain necessary licenses and approvals, among other factors. Even where an acquisition is executed, the anticipated benefits may not be realized as expected due to factors such as the ability to integrate with existing businesses, the development of internal control systems, and the realization of cost-effectiveness. If an M&A transaction fails to produce the expected results, it may have an adverse effect on the Group's business performance and financial condition.