SYLA Holdings Co., Ltd.

The Company was indicted in July 2023 on suspicion of violating the Investment Deposit and Interest Rate Law, among other charges, and was sentenced by the Tokyo District Court in March 2024 to a fine of ¥12 million. While settlements with former borrowers are progressing, there remains a possibility that damages lawsuits or other legal actions may be filed by other former borrowers in the future, raising concerns over the impact on social credibility. The referral of the former representative director and president to prosecutors also exists as a related matter, constituting a significant governance risk.

The real estate industry is subject to numerous laws and regulations, including the National Land Use Planning Act, the Building Lots and Buildings Transaction Business Act, and the Building Standards Act, and future tightening of regulations may constrain business activities. In particular, the real estate crowdfunding service "Rimawari-kun" is operated based on the Act on Specified Joint Real Estate Ventures, but given the short history of this market, the risk of legal amendments is high. If regulations are tightened, this may have a material impact on business operations, financial condition, and operating results.

The core Development Business is highly susceptible to domestic economic conditions, real estate market trends, interest rate movements, and real estate-related tax systems, and fluctuations in these factors influence the acquisition of properties for development and demand trends. A deterioration in the economic environment has a structurally direct impact on both sales and profits. Because the business model is dependent on specific external conditions, it exhibits high sensitivity to changes in the macro environment.

In the Development Business and Real Estate Sales Business, purchasers primarily use housing loans, and rising interest rates directly suppress demand. In addition, since a portion of project funds and financing for the acquisition of new condominium inventory properties relies on borrowings from financial institutions, rising interest rates also directly lead to increased funding costs. Significant fluctuations in interest rate trends and financial conditions could cause substantial variation in business performance.

Held inventory includes properties not intended for short-term sale (such as unsold properties based on past purchasing policies, or properties acquired at low prices as part of processing other companies' non-performing assets). Deterioration in market conditions or changes in customer needs could lead to prolonged inventory stagnation, declining sales prices, and increased valuation losses and funding burden. These risks affect both business performance and financial condition.

Building material prices and construction labor costs continue to rise in condominium construction, and an increase in construction contract amounts could reduce profit margins. This structure affects both in-house construction and orders placed with external construction companies. If rising construction costs cannot be passed on to sales prices, this will have an adverse impact on business performance and financial condition.

Since real estate sales are recognized on a delivery basis, if the delivery timing of large-scale projects, whose sales and profit/loss per project significantly affect financial figures, deviates from plan, this creates imbalances in quarterly and annual profit and loss. Although project management and deadline management are thoroughly implemented, the risk of delivery delays due to external factors cannot be eliminated. The seasonality and unevenness of financial condition and operating results are factors that make it difficult for investors to forecast business performance.

In the Development Business and Construction Business, construction contracts are concluded with construction companies, but if a construction company falls into credit difficulties, there is a risk of construction delays and other issues. Economic losses due to a decline in a counterparty's creditworthiness could affect business performance, making monitoring of the financial soundness of construction companies important. If dependence on a specific construction company is high, the impact could be more serious.

In the event of natural disasters such as earthquakes, storms, and floods, or the spread of infectious diseases, the value of held real estate could be significantly impaired. The Group's held real estate has a high proportion located in the Tokyo metropolitan area, taking into account demand at the time of sale, and there is a risk that the impact on business performance could be concentrated and severe in the event of a major earthquake directly beneath the capital. The limited geographic diversification is a structural factor that amplifies this risk.

In soliciting large-scale projects through "Rimawari-kun," if the amount falls below the minimum threshold for formation, the project is not formed and the subscribed amounts are returned to investors. Continued non-formation of projects could lead to a decrease in applications from investors, potentially adversely affecting the Group's business performance. In addition, in the event of non-formation, depending on the terms of the real estate sales contract, penalty payments to the seller may arise, creating a risk of additional financial burden.