TOSEI CORPORATION

A deterioration in domestic or overseas economic conditions could lead to a decline in appetite for real estate investment, a decrease in real estate transactions, and rising vacancy rates or falling rents. Demand for office buildings and commercial facilities is highly susceptible to economic trends, and the purchasing intent of residential buyers is also easily affected by the employment environment and other factors. As countermeasures, the Group conducts regular monitoring of economic trends and real estate market conditions, cultivates market insight by area and use, and strengthens investment judgment and leasing capabilities.

Land and building acquisition costs and construction costs are mainly funded through borrowings from financial institutions on a project-by-project basis, resulting in a consistently certain level of interest-bearing debt ratio to total assets. A sharp rise in interest rates or a significant change in financial institutions' lending stance could adversely affect business results and financial condition due to a deterioration in the fundraising environment. In addition, breach of financial covenants attached to certain borrowings, or delays in project sales or shortfalls in sale amounts, could affect cash flow. The Group strives for stable fundraising through the establishment of credit lines and interest rate fixing.

In the event of a major earthquake in the Tokyo metropolitan area, or other natural disasters such as storms and floods, or man-made disasters such as war, terrorism, or fire, the value of real estate held for investment, operation, development, or management could be significantly impaired. A decline in hotel occupancy rates due to reduced demand following a disaster could also occur. Each major Group company has formulated a BCP (Business Continuity Plan) and made preparations to continue or quickly restore critical operations even in the event of a disaster.

The Group conducts business based on a wide range of laws and regulations, including the Building Lots and Buildings Transaction Business Act, the Building Standards Act, the Financial Instruments and Exchange Act, the Act on Specified Joint Real Estate Ventures, and the Hotel Business Act. Tightened regulation or the introduction of new regulations could constrain business activities. If licenses or permits are revoked due to legal violations, or if administrative dispositions are imposed, this could have a material impact on business activities. The Group ensures thorough legal compliance through information sharing and deliberation at the Risk and Compliance Committee and ongoing compliance training.

The Group operates its business having obtained numerous licenses and permits, including a real estate brokerage license, financial instruments business registration, a specified joint real estate business license, condominium management business registration, and a hotel business license. If fraudulent conduct or a violation of disqualification provisions by officers occurs, there is a risk that these licenses and permits could be revoked, which could seriously impede business continuity. No grounds for revocation of licenses or permits have arisen to date, but the Group continues to strive for compliance with relevant laws and regulations.

Changes to accounting standards or real estate taxation could affect business results and financial condition through increased costs related to holding, acquiring, or selling assets. Given the nature of the real estate business, tax changes directly affect transaction costs and holding costs, resulting in a significant spillover effect on business performance. As a countermeasure, the Group strives to collect information on changes to accounting standards and real estate taxation in a timely manner in order to identify impacts at an early stage.

The Group is engaged in real estate tech businesses utilizing crowdfunding, security tokens, and digital matching, but the performance of these businesses is subject to various uncertainties. The occurrence of risks beyond expectations, or changes in laws and regulations, could affect financial position and business results. The Group is building an internal management structure, enhancing personnel, and obtaining insurance coverage, while regularly monitoring the progress of business strategy and changes in the business environment, and revising strategy in a timely manner in response to environmental changes.

The structure of the labor market is undergoing major changes due to the declining working-age population associated with the falling birthrate and aging population, and the spread of values that emphasize employee job satisfaction and empathy with the company. If human resource attrition occurs or ongoing recruitment and development of talent proves insufficient, this could impede business continuity and expansion and affect financial position and business results. Under the management philosophy of "placing people at the core of management and continuing to develop true professionals who are rich in spirit," the Group regards employee health and safety as an important management issue and is actively working to improve the workplace environment and implement measures to maintain and promote health.

If there are delays or deficiencies in mitigation and adaptation measures against physical damage from climate change, tightened climate-related regulations, or the transition to a decarbonized/low-carbon society, this could affect financial position and business results. In addition, insufficient efforts toward ESG management could undermine trust from local communities, customers, investors, and the market, thereby affecting business strategy and business results. The Group has established the "Tosei Group ESG Policy" and "Environmental Policy," and has set up a Sustainability Committee to develop and strengthen its promotion framework.

Delays or deficiencies in the development of frameworks, action plans, and information disclosure related to human capital management—including securing diversity in human resources, talent development and appointment, and improvement of the internal environment—could affect the securing of core personnel who are a source of corporate value creation, as well as market evaluation. This includes the risk of undermining evaluation of substantive contribution to the business, beyond superficial ESG assessment. The Group strives to reduce risks related to its human resources strategy through the establishment of the "Tosei Group Human Rights Policy" and "Health Management Policy," and by strengthening its promotion framework through the Sustainability Committee.