KATITAS Co., Ltd.

If a deterioration in economic conditions or a decline in income reduces homebuyers' purchasing intentions, price-reduced sales of renovated resale homes may increase, potentially affecting operating results. Both KATITAS, which targets regional cities, and Replace, which targets suburban areas of the three major metropolitan regions, are affected by deteriorating regional economies, demographic changes, and shifts in consumer preferences. If the existing home resale market fails to grow as anticipated, this could also affect business performance.

Approximately 80% of customers use mortgage loans, and a significant rise in interest rates could increase monthly repayment burdens, reduce purchasing intentions, and lead financial institutions to tighten lending conditions. Because the Group's borrowings are also at variable interest rates, rising rates present a dual risk by directly increasing the Group's own interest expenses. If the interest rate environment changes significantly due to Bank of Japan policy changes or other factors, this could have a material impact on operating results and financial condition.

Sourcing used homes cheaply and stably is fundamental to the business, but stable sourcing may become difficult due to real estate market fluctuations, rising purchase prices from intensified competition, insufficient funding capacity or labor shortages, disasters, or reputational damage. The Group responds through raising brand awareness and building relationships with real estate brokerage companies, but if sourcing is disrupted, this directly affects operating results through a decline in the number of units sold.

There is a risk that the holding period of inventory assets becomes prolonged due to deteriorating real estate market conditions, errors in needs assessment, discovery of unexpected defects, or bankruptcy of renovation partner companies. The Group records write-downs to expected sellable prices and valuation losses based on elapsed holding periods for prolonged inventory, but if the proportion of long-stagnant properties increases, this could adversely affect operating results and financial condition. A decline in inventory turnover also directly leads to a deterioration in capital efficiency.

As of the end of March 2026, borrowings accounted for 28.4% of total liabilities and net assets, and since funding is procured at variable interest rates, there is a risk that interest expenses will increase when market rates rise. Loan agreements include financial covenants, and if the Group violates or breaches these covenants, it could lose the benefit of the term and have a material impact on cash flow. If lending stances of counterparty financial institutions change and financing becomes difficult, this could also hinder business continuity.

All renovation work depends on outsourcing to renovation partner companies, creating risks of increased outsourcing costs due to carpenter shortages and other factors, significant delays in construction schedules, and quality deterioration in properties for sale due to inadequate quality control. The Group addresses this through its own checklists, dedicated construction departments, and the development of new partner companies, but if a partner company goes bankrupt or halts order acceptance, this could affect the merchandising schedule and operating results.

In addition to the need for wide-area recruitment associated with nationwide expansion, developing specialized personnel who handle everything from sourcing surveys to renovation planning and sales in an integrated manner is a source of competitive advantage. If recruitment falls short of plans, training and education programs fail to produce results, or personnel turnover occurs within a short period, this could lead to reduced competitiveness and increased recruitment and compensation costs. The Group conducts regular new graduate recruitment alongside mid-career hiring, but competition for talent across the real estate industry as a whole is intensifying.

The Group operates its business under numerous laws and regulations, including the Building Lots and Buildings Transaction Business Act, the Building Standards Act, and the Act for Promotion of Ensuring Housing Quality, and tightened regulations, legal amendments, or license revocation could have a material impact on operating results. In particular, if the government's used home policy initiatives, such as mandatory third-party inspections, mandatory seismic diagnosis, or bringing energy efficiency standards in line with those for new construction, are implemented, the cost burden on the Group's business model could increase substantially. The compliance officer and administrative headquarters address this primarily through training programs, but the risk of changes in the regulatory environment persists continuously.

Nitori, which holds 34.1% of total issued shares, is an other affiliated company, and the Company, as an equity-method affiliate of Nitori, is subject to a certain degree of influence over decision-making on important matters. If Nitori's shareholding ratio changes significantly in the future, its business strategy changes, or the business alliance does not succeed, this could affect the Company's share price formation and operating results. Although an oversight framework involving independent outside directors is in place, the risk of conflicts of interest with the major shareholder is a matter minority shareholders should keep in mind.

In addition to the risk of loss or damage to held inventory due to natural disasters, there are transition risks associated with climate change (higher building material procurement costs due to tightened energy efficiency regulations and the introduction of carbon taxes) and physical risks (reduced sourcing opportunities due to shorter housing lifespans and lower renovation work efficiency). Nationwide diversified holdings are said to limit the impact of damage to individual properties, but if a severe, wide-area disaster coincides with the suspension of operations by renovation partner companies, this could have a significant impact on operating results. The Group addresses this through measures such as switching to renewable energy electricity with non-fossil certificates, but future regulatory tightening could result in additional countermeasure costs.