THE KYOTO HOTEL, LTD.

As the Company accepts a wide range of customers from Japan and overseas, net sales may be significantly affected by the outbreak of diseases, infectious diseases, natural disasters, wars, terrorism, and similar events. This is a structural risk inherent to the hotel business, which is highly dependent on specific external events, and when such events occur, both occupancy rates and average room rates can be affected. No specific individual countermeasures have been disclosed by the Company.

If natural disasters such as typhoons or earthquakes exceed the range anticipated, hotel facilities may be damaged or deteriorate, potentially affecting business performance and financial condition. While the Company has established systems to minimize the impact of foreseeable events such as power outages, it recognizes that complete preparedness for unforeseen large-scale disasters is difficult.

As the Company provides meal services and sells food products, if a food poisoning incident occurs due to a new pathogen or a lapse in hygiene management, business performance may deteriorate due to damage to brand image. As countermeasures, the Company implements enhanced capital investment and health management, regular on-site inspections and guidance by its Food Hygiene Committee, and periodic employee training.

The Company raises funds through interest-bearing debt. Since the Bank of Japan lifted its zero interest rate policy in March 2024, policy rate hikes have been implemented in July 2024, January 2025, and December 2025, and the risk of increased financial costs from further future rate hikes continues. Although the Company completed refinancing of long-term borrowings, etc. (¥12.1 billion) in March 2025 to secure working capital, and has taken measures such as fixing interest rates on a portion of its borrowings, interest expenses may increase and affect business performance in a medium- to long-term rising interest rate environment.

The Company holds substantial fixed assets related to its hotel facilities. If declines in fair value or profitability make it unlikely that the invested amount will be recovered, impairment losses may be recognized, which could materially affect business performance and financial condition. In its medium-term management strategy, the Company positions strengthening its financial base as its most important priority, and works to secure profit and review and reduce various expenses in each fiscal year.

Labor shortages in the hotel industry are a management challenge for the Group. Although the situation is improving through strengthened recruitment activities, improving the retention rate of newly hired staff and planned securing of personnel continue to be recognized as important challenges. As countermeasures, the Company promotes reviewing wage levels, enhancing employee benefits, supporting the balance between work and childcare/caregiving, improving operational efficiency, and language and customer service training; however, if the labor shortage continues, service quality and business operations may be affected.

In Kyoto City, new hotel openings and renovations have been occurring in succession, intensifying the competitive environment. Hotel Okura Kyoto, built in 1994, had planned room renovation work from 2027 onward, but has decided to postpone it for the time being due to instability in material procurement stemming from the situation in the Middle East, raising the risk that aging facilities could affect competitiveness. For the time being, the Company intends to maintain and improve quality and comfort through planned repairs, equipment upgrades, and routine facility maintenance.

Due to the situation in the Middle East, the environment for procuring materials necessary for construction and renovation has become extremely unstable, leading to the decision to postpone for the time being the room renovation work at Hotel Okura Kyoto (planned for 2027 onward). The postponement of renovations may hinder the maintenance and strengthening of the facility's competitiveness. Going forward, the Company plans to determine the timing for resuming the renovation plan by comprehensively considering the external environment, material procurement environment, and investment profitability.