Miyakoshi Holdings, Inc.

The financial statements of overseas subsidiaries (mainly in China) are prepared in local currency, and there is a risk that the amounts recorded in the consolidated financial statements will fluctuate depending on the exchange rate used for translation into yen. In addition, capital increases and investments from Japan into the real estate redevelopment business (WIC Project) may be affected by the exchange rate at the time of payment, which could impact the effective investment amount. China's economic conditions and trends in Japan-US economic policy are cited as the main factors driving exchange rate fluctuations.

The advanced major foreign-affiliated companies from over 30 countries and more than 200 companies overseas that will occupy the WIC Project require high building standards with respect to disaster resistance, environmental consideration, and energy-saving specifications. To address the risk of disasters of unpredictable scale associated with global warming, buildings must be constructed in line with high-level standards such as China Green Building Certification, international LEED Certification, and international WELL Certification, which may affect construction costs and schedules. As a countermeasure, the company has adopted building designs premised on obtaining high-level international certifications.

The WIC Project may be affected by economic slowdown and deterioration in real estate market conditions both within and outside China, and given the long-term, large-scale investment involved, close attention to market fluctuations is required. In a scenario of market deterioration, there is a risk of direct impact on the profitability and asset value of the development business. As a countermeasure, the company has formed a special team within the group to actively promote the recruitment of advanced major companies from Japan, Europe, the US, and Asia ahead of building construction.

If geopolitical risks such as the situation in Ukraine or the Middle East become prolonged, global economic growth could be restrained, and companies in Japan, Europe, the US, and Asia may refrain from new investments. This poses a risk of hindering tenant recruitment activities for the WIC Project. At present, the company judges that there is no significant direct impact on its group's business, but notes that caution is warranted in a prolonged scenario.

During the consolidated fiscal year under review, a decrease in rental income due to tenant departures, impairment of land use rights due to demolition of existing leased properties, and other factors resulted in a significant decrease in operating revenue, a significant operating loss, ordinary loss, net loss, and significant negative operating cash flow. During the period until completion of the WIC Project, rental income will be temporarily unavailable, which may have a material impact on the business results and cash flows for the following fiscal year and beyond. Given that cash on hand represents a high level of 42% of total assets, the company has judged that there is no material uncertainty regarding the going concern assumption.

During the consolidated fiscal year under review, the recording of a provision for allowance for doubtful accounts against long-term loans receivable further worsened the ordinary loss and net loss. If the collectibility of long-term loans receivable declines further, additional provisions may become necessary, posing a risk of further deterioration in the financial position. At present, based on the high level of cash on hand (42% of total assets), the company judges that there is no material uncertainty regarding the going concern assumption.

The WIC Project is a large-scale, long-term project aimed at recruiting advanced major foreign-affiliated companies from over 30 countries and more than 200 companies overseas, and the progress of this redevelopment business is a major factor affecting the company group's business performance. During the period until completion, rental income cannot be expected, and there is a risk that delays in the construction process or stagnation in recruitment activities could push back the timing of revenue recovery. As a countermeasure, a dedicated team is promoting tenant recruitment activities ahead of building construction.

The company group's main business base is in China, and changes in China's domestic economic policy, real estate regulations, foreign investment regulations, and other factors may directly affect business operations. China's real estate market is highly susceptible to government regulation, and there is a risk that stricter regulations or market intervention could affect the profitability and financing of the development business. The securities report explicitly cites China's economic conditions as one of the main factors behind exchange rate fluctuation risk.

The WIC Project requires the acquisition of multiple high-level international certifications, including China Green Building Certification, international LEED Certification, and international WELL Certification, and compliance with these certification standards is a prerequisite for building design and construction. If delays in obtaining certification or changes in standards occur, this may affect the construction schedule and construction costs, and could also hinder tenant recruitment activities. The increasing stringency of certification standards due to global warming is also cited as an ongoing risk factor.

During the consolidated fiscal year under review, significant negative operating cash flow was recorded, and as the redevelopment business progresses, it is expected that the situation in which rental income cannot be expected temporarily will continue into the following fiscal year and beyond. There are concerns about the impact on cash flow due to the combination of large-scale, long-term investment and decreased income; however, as of the end of the consolidated fiscal year under review, cash on hand stood at a high level of 42% of total assets, and the company has judged that there is no material uncertainty regarding the going concern assumption.