MAINICHI COMNET CO., LTD.

Under sublease contracts with real estate owners (10 to 15 years), the Company bears the obligation to pay a fixed monthly rent regardless of whether units are occupied. If vacancies occur on a large scale over an extended period, this could have a material impact on the Group's business performance. Although measures such as free-rent period clauses and rent revision clauses have been incorporated into contracts, the Company recognizes that these measures are not fully sufficient.

Since the development-to-sale cycle for student rental housing typically requires one and a half to three years, a deterioration in the real estate market due to changes in economic conditions could result in valuation losses on properties held for sale or a prolonged period for capital recovery. In addition, because the Company relies on financial institution borrowings for the majority of acquisition funds, a significant rise in interest rates is also expected to affect business performance.

Revenue related to move-ins in the Real Estate Management segment is concentrated in the fourth quarter (March to May), and revenue related to new graduate recruitment in the Human Resources Solutions segment is also weighted toward the third and fourth quarters, resulting in a consistently negative cumulative consolidated ordinary income for the first half (June to November). In the results for the fiscal year ended May 2021, consolidated ordinary income was -¥52,027 thousand in the second quarter and -¥83,382 thousand in the third quarter, with 99.0% of full-year profit concentrated in the fourth quarter.

The population aged 18 has decreased by approximately 28,000 (approximately 2.3%) compared to 10 years ago, and the Company expects a further decrease of approximately 10% over the next 10 years compared to the current level. Although the Company recognizes that the number of university students in the Tokyo metropolitan area is expected to remain stable for the time being, if the declining birthrate progresses further and the target customer base of students decreases sharply, this could have a significant impact on the Group's business performance.

The Group develops student rental housing taking into account trends in student numbers and the tendency to live away from home, but if a university consolidation or campus relocation occurs, the supply-demand balance of surrounding properties could be disrupted. In regions with a high degree of dependence on a specific university, vacancy increases could occur intensively, potentially having a significant impact on business performance.

Although both the Real Estate Solutions Business and the Student Life Solutions Business have begun to expand into some regional areas, operations remain concentrated in the Tokyo metropolitan area (particularly the Tokyo region). If a large-scale disaster such as a major earthquake directly beneath Tokyo were to occur, this could have a material impact on the Group's business performance.

If trouble occurs at an outsourcing partner, such as a chartered bus accident, a large-scale fire at a rental property, or food poisoning at a property offering meal services, even if the Group takes maximum possible measures in response, the decline in external reputation and reputational damage may exceed expected levels. Such incidents are recognized as a risk that could have a significant impact on business performance.

The Group conducts business under multiple legal regulations, including the Building Lots and Buildings Transaction Business Act (license from the Minister of Land, Infrastructure, Transport and Tourism), the Travel Agency Act (license from the Commissioner of the Japan Tourism Agency), and the Employment Security Act (license from the Minister of Health, Labour and Welfare). If these laws and regulations are amended in the future, business activities may be constrained, potentially affecting the Group's overall earnings structure.

The Group holds large volumes of personal information, including tenant information and customer information, and if a serious incident such as an information leak were to occur, this could have a material impact on the business and business performance through damage claims and loss of trust. As countermeasures, the Group utilizes advanced security technology, conducts internal training, and has established guidelines, and the Company and Works Japan Co., Ltd. have obtained the Privacy Mark certification.

In the event of an outbreak of an infectious disease such as COVID-19, a temporary increase in move-outs and a decline in occupancy rates due to prolonged remote classes at universities (Real Estate Management segment), a significant decline in revenue due to the cancellation of camps, training trips, and similar events (Extracurricular Activities Solutions segment), and restraint in new graduate recruitment due to deteriorating corporate performance (Human Resources Solutions segment) could have a material impact across all of the Group's businesses.