SEIBU HOLDINGS INC.

The Real Estate Business is the core growth driver of the Seibu Group's long-term strategy and faces a wide range of risks including investment decision-making, acquisition of development sites, real estate development, decline in real estate value, and management. In particular, real estate development requires long timeframes and substantial investment, making it susceptible to external factors, and changes in real estate market conditions or surging construction costs may reduce sale profits or cause losses. As countermeasures, the Group is advancing the development of a framework for the Capital Recycle model, the appointment of specialized personnel, appropriate control of the balance sheet, and the construction of an optimal portfolio.

Against the backdrop of Japan's overall declining birthrate, aging population, and population decline, the recruitment market continues to be a seller's market, raising concerns about failure to meet planned hiring targets and the outflow of key personnel and young employees to external companies, which could result in lost business opportunities and reduced strategic execution capability. In particular, at Seibu Real Estate, which serves as the core of the growth strategy, delays in securing specialized personnel to lead the real estate turnover-type business and urban/resort redevelopment directly translate into risks of business stagnation and losses. As countermeasures, the Group has decided to raise starting salaries and existing employee salaries for fiscal 2026, and aims to form a "professional group" through career-track hiring, utilization of side jobs, initiatives to improve job satisfaction, and the promotion of diversity.

Risks are anticipated including a decrease in transportation revenue and trackside business revenue due to population decline along railway lines, a decline in customer satisfaction due to failure to adapt to changing needs accompanying customer aging, and a decline in real estate demand and land prices. Since the Group's business foundation is concentrated in the greater Tokyo metropolitan area, changes in the demographics of that region tend to spread readily to overall business performance. As countermeasures, the Group is promoting a transformation of its business portfolio centered on the Real Estate Business, the development of luxury hotels targeting affluent customers, and town development along the Seibu Railway (Seibu Railway) lines to curb population decline.

A slowdown in the global economy caused by geopolitical risks and other factors, surging fuel and raw material costs, foreign exchange fluctuations, and volatility in the stock market may adversely affect business performance and financial condition. In particular, a decrease in travel and tourism demand amplifies the risk associated with travel and tourism consumption trends, and losses on foreign-currency-denominated assets and liabilities as well as declines in the value of held investment securities also constitute financial risks. As countermeasures, the Group continuously monitors economic conditions and market trends, and implements swift decision-making on Group policy in the event of major changes as well as the construction of an efficient business operation framework.

Due to changes in lifestyles and values triggered by the COVID-19 pandemic and rapid technological innovation such as generative AI, if the Group's products and services fail to adapt to changing customer needs, there is a risk of decline in leasing occupancy rates, reduced rental income, and decreased sales revenue, which could adversely affect business performance and financial condition. The Group's policy is to reduce the likelihood of such risks occurring through company-wide transformation and productivity improvement leveraging digital technology and AI, enhancement of customer experience through data analysis, and the building of a human resource foundation capable of adapting to changes in the internal and external environment.

If personal information leaks occur due to cyberattacks, unauthorized access, virus infection, or loss of PC devices, this could result in claims for damages and a decline in credibility, affecting business performance and financial condition. In addition, information system failures caused by accidents, disasters, or human error could disrupt business operations, leading to a decrease in operating revenue and the incurrence of countermeasure costs. As countermeasures, the Group is implementing system renewal to strengthen security levels, conducting failure response and recovery drills, verifying the safety of partner companies, and fostering employee awareness through e-learning.

There is a risk that revenue in the Urban Transportation & Trackside Business and the Hotel & Leisure Business could decline due to natural disasters such as earthquakes, tsunamis, and typhoons, infectious diseases, and geopolitical risks such as war and terrorism. Since the Group's business bases are concentrated in the greater Tokyo metropolitan area, a large-scale disaster could make it difficult to ensure business continuity company-wide. As countermeasures, the Group is implementing risk reduction through a hotel business model based primarily on management contract (MC) arrangements, ensuring a balance between stable profits and sale profits through the real estate turnover-type business, diversifying risk by region in overseas hotel expansion, and strengthening disaster prevention systems through cooperation with local municipalities along the railway lines.

Given a revenue-expense structure with a high proportion of fixed costs such as personnel expenses and depreciation, even a relatively modest decline in operating revenue could have a significant impact on operating profit. Furthermore, under a business structure that requires continuous substantial capital investment, particularly in the Railway Business (Seibu Railway), rising market interest rates could increase interest payments and financing costs, while also potentially reducing condominium sales revenue and real estate values due to sluggish demand for real estate purchases. As countermeasures, the Group is promoting network expansion through hotel management contract (MC) arrangements, improved asset efficiency through the real estate turnover-type business, the smartification of corporate operations, and strengthened balance sheet management through diversification of funding sources and methods.

If domestic economic deterioration leads to a slowdown in travel and tourism spending, or if political turmoil or diplomatic issues in overseas markets where the Group operates cause a decline in inbound visitors to Japan, non-commuter revenue and other income in the Hotel & Leisure Business and the Urban Transportation & Trackside Business could decrease. At present, uncertainty in the international situation is increasing, raising the risk that a decline in the number of inbound visitors referred to the Group could adversely affect business performance. As countermeasures, the Group is promoting the avoidance of dependence on a single market through global expansion, mutual customer referral between domestic and overseas facilities, transformation toward an asset-light business model, and differentiation leveraging its unique strengths in MICE, resorts, and other areas.

If a serious accident occurs due to deficiencies in the safety management processes for business assets and services, or flaws in accident prevention processes, this could lead to a loss of social credibility, damage to the Group's image, liability for damages, or a business suspension order from administrative authorities. In addition, food safety issues such as food poisoning, foreign object contamination, or the mistaken serving of allergenic ingredients could result in the loss of existing and future customers, including inbound visitors. As countermeasures, the Group continues to develop and operate a transportation safety management framework, implement food safety measures in the Hotel & Leisure Business, and steadily carry out various processes such as safety audits, safety education, and training.