ES-CON JAPAN Ltd.

There is a risk that sales in the Residential Condominium Sales and Real Estate Development businesses may not progress as planned due to deterioration in the supply-demand balance caused by changes in economic trends, interest rates, tax systems, and land prices, as well as soaring construction costs and difficulty in procurement. In addition, subsurface obstacles or construction defects may cause delays in delivery timing or unexpected cost burdens. The Real Estate Leasing Business also carries the risk of decreased rental income due to the withdrawal of major tenants or a decline in occupancy rates.

The Group primarily procures funds for land acquisition costs through borrowings such as project finance, and as of FY2026 (ending March 2026), the balance of interest-bearing debt stood at ¥369,769 million, with the interest-bearing debt ratio at 72.5% of total assets, a high level. Interest expenses have also increased sharply, from ¥2,650 million in FY2024 (ended March 2024) to ¥5,439 million in FY2026 (ending March 2026). If financing becomes insufficient or unsuccessful due to rising procurement interest rates or significant deterioration in the financial environment, this could have a material impact on business performance and financial condition. Since becoming a consolidated subsidiary of Chubu Electric Power Co., Inc., the Group has been working to establish a more agile fundraising environment.

The real estate industry is subject to numerous laws and regulations, including the Building Lots and Buildings Transaction Business Act, the Building Standards Act, the Real Estate Specified Joint Enterprise Act, and the Financial Instruments and Exchange Act, and Group companies hold a wide range of licenses, permits, and registrations. Amendments or abolitions of these laws, or the enactment of new laws such as the Act on Proper Transactions with Specified Entrusted Business Operators, may impose constraints on business operations. If a company falls under grounds for revocation of a license or permit, there is a risk of direct disruption to business continuity.

If the Group or its officers and employees violate relevant laws and regulations such as the Companies Act, the Building Lots and Buildings Transaction Business Act, the Construction Business Act, the Financial Instruments and Exchange Act, the Personal Information Protection Act, or the Labor Standards Act, they may be subject to administrative sanctions from relevant authorities. Such sanctions could result in loss of social credibility and liability for damages, potentially affecting business performance, financial condition, and market reputation. The Risk Management Committee monitors risk conditions and shares information company-wide.

The Group holds a wide range of personal information from condominium purchasers, rental tenants, and purchasers of perpetual usage rights for ossuaries, among others. There is a risk that unexpected cyberattacks, computer virus intrusions, or equipment failures could result in the leakage of personal information or the suspension or malfunction of critical systems. This could lead to a loss of social credibility, liability for damages, and disruption of business activities. The Group strives to minimize these risks through the introduction of the latest security tools and regular employee training. Sales outsourcing partners are also required to use the company's management systems, and confidentiality is supervised accordingly.

The real estate business requires diverse expertise, and securing highly specialized personnel as well as recruiting and developing management-level staff and the next generation of young employees is essential for advancing the business. If the Group is unable to sufficiently secure and develop the talent it needs, or if capable personnel leave the company, this could affect business performance, financial condition, and future business development. The Group has established a mid- to long-term strategy that integrates three pillars:

While the Group's policy is to expand its business domains and transform its revenue structure through strategic M&A, there is no guarantee that M&A transactions will be concluded on appropriate terms, and if the business does not progress as originally planned after an acquisition, there is a risk that goodwill impairment may occur. Although thorough due diligence on the financial and business condition of target companies is conducted in advance, integration risks after acquisition and changes in the business environment could affect business performance and financial condition.

In a society where an increase in weather-related disasters is anticipated, business continuity risk due to climate change is rising, which could affect business performance and financial condition. In 2022, the Group announced its support for the TCFD recommendations and has been analyzing and disclosing the risks and opportunities that climate change presents to its business based on the TCFD framework. Both transition risks and physical risks could affect the value of real estate development projects and held assets, as well as business continuity.

If significant litigation is filed in the future, it could affect business performance and financial condition. The Risk Management Committee, composed of directors and department heads, monitors risk conditions and shares information company-wide to manage litigation risk. Given the Group's diversified business operations spanning real estate development, sales, and management, there is an inherent risk of litigation arising with customers, business partners, and government authorities.

Group companies such as ESCON, ESCON Property, ESCON Asset Management, and ESCON Living Service hold numerous licenses and permits, including Building Lots and Buildings Transaction Business licenses, construction business permits, financial instruments business registrations, and real estate specified joint enterprise permits, and maintaining these is a prerequisite for business continuity. If a company falls under grounds for revocation, such as violations of director disqualification provisions, insufficient capital, or the absence of a responsible manager, business continuity may become difficult. The Group has established a licensing and permit management system across the organization and strives for appropriate renewal and maintenance.