WADAKOHSAN CORPORATION

Because revenue from Condominium Sales is recognized upon handover after completion, if purchasing sentiment weakens due to economic trends, interest rate movements, oversupply, or changes in housing tax systems, delays in revenue recognition timing may occur. Revenue for the fiscal year under review (FY2025, ended February 2025) was ¥40,130 million, and the quarterly composition ratio showed a bias ranging from 27.36% to 33.88%. There is also a structural risk of skewed quarterly performance due to concentration of completion timing.

The Company primarily procures funds for development land acquisition, rental real estate purchases, and construction financing through borrowings from financial institutions, and the ratio of interest-bearing debt to total assets remained high at 51.8% for FY2025 (ended February 2025) (52.0% in the previous fiscal year). If the current interest rate level fluctuates, business profit may be squeezed, potentially affecting business performance and financial condition. As part of diversifying fund procurement, the Company has undertaken a public offering of new shares (¥1,023 million) and committed syndicated loans.

Some borrowings from financial institutions are subject to financial covenants, and the balance of such borrowings as of the end of the fiscal year under review amounted to ¥15,169 million. If the financial covenants are breached, the Company may lose the benefit of the term and this could have a significant impact on cash flow. The Company addresses this by avoiding dependence on specific financial institutions and negotiating financing on a property-by-property basis, but the risk of covenant breach remains an issue requiring ongoing management.

The Company conducts its real estate sales business based on its real estate brokerage license (Minister of Land, Infrastructure, Transport and Tourism License (4) No. 7158, valid from November 17, 2020 to November 16, 2025), and if grounds for license revocation arise or the license cannot be renewed, this may have a material impact on business performance. No grounds for revocation as stipulated under Articles 66 and 67 of the Building Lots and Buildings Transaction Business Act currently exist, but ongoing legal compliance is a prerequisite for business continuity.

The real estate industry is subject to legal regulations such as the National Land Use Planning Act, the Building Lots and Buildings Transaction Business Act, the Building Standards Act, the City Planning Act, and the Act for Promotion of Quality Assurance of Housing, and changes in housing policy or the abolition, revision, or introduction of regulations may affect business performance. The industry has remained resilient due to government housing support measures, but policy changes, including those related to finance, could impact both demand and costs. No specific countermeasures by the Company are disclosed.

Under the fixed asset impairment accounting standard (applied from February 2007) and the inventory valuation standard (applied from February 2009), deterioration in real estate market conditions or economic fluctuations may result in impairment write-downs of book value to recoverable amounts, or valuation losses on inventory where market value (net realizable value) falls below acquisition cost. Given the large scale of assets such as development land and buildings for Condominium Sales, the impact of market deterioration would directly affect business performance.

Key areas such as the Kobe-Akashi area, the Hanshin area, and Osaka Prefecture are popular among home buyers and have many competitors, so depending on the state of competitive entry, there is a risk of decline in land acquisition capability and condominium sales capability, as well as price fluctuations. Intensified competition could simultaneously raise land acquisition costs and put downward pressure on sales prices, squeezing profit margins. No specific competitive countermeasures by the Company are disclosed in the securities report.

Design work is outsourced to architectural design firms, building construction to construction companies, and sales of condominium units to housing sales companies, respectively, and if issues such as design oligopoly, improper use of construction materials, or falsification of sales materials leading to customer overloans occur, resulting in declines in operational standards or quality, this may affect business performance. The Company states it maintains continuous and stable business relationships with each partner, but the structure of dependence on outsourcing limits direct control over quality management.

The Company holds a large volume of personal information belonging to numerous customers, including Condominium Sales purchasers and rental apartment tenants, and the volume of such information is expected to continue to increase. If an unforeseen event causes a large-scale external leak of personal information, this could affect business performance through loss of credibility or costs arising from damage claims. As countermeasures, the Company complies with the Act on the Protection of Personal Information, has established a basic policy and handling regulations for personal information, and has developed an internal information management system.

If human movement is significantly restricted due to natural disasters such as earthquakes or wind and flood damage, human-caused disasters such as accidents or fires, or pandemics caused by infectious diseases, progress on business plans may fall short of targets, affecting business performance. Since the Company's main business areas are concentrated in urban areas such as Hanshin, Kobe, and Osaka, the impact of a large-scale disaster could be extensive. No specific countermeasures such as a business continuity plan (BCP) are disclosed in the securities report.