Risk Management System

The “Risk Management and Compliance Committee,” chaired by the General Manager of the Administration Division and attended by managers from each department and Group company, met five times during the current fiscal year to promote risk management in the Group. The committee classifies risks into external environment, internal environment, and business process categories, conducts risk assessment of risks extracted from each category in terms of impact and likelihood of occurrence, and identifies risk items that are assessed to have a significant potential impact on corporate activities as risks to be monitored. Furthermore, for each identified risk to be monitored, a responsible person is appointed from the relevant department, and a subcommittee under the committee examines and implements measures to address the risk.
Progress is verified through quarterly monitoring, and corrections and improvements are made as necessary and reported to the Board of Directors.

Risk Management System Diagram

Main risks relating to business conditions and financial status, etc., as stated in the annual securities report, which may affect investors' decisions are as follows.
The forward-looking statements below are based on judgments of the Group as of the end of the consolidated fiscal year under review. Risks that may arise are not limited to the risks below.

（１） Risks associated with changes in economic trends and society systems

The business of the Group is influenced by a variety of factors, including real estate-related social infrastructure; taxes, regulations and other legal systems; securities market and other economic trends; and laws and regulations of other countries in relation to overseas investors with whom we recently have an increasing number of real estate sales transactions. Changes in the above factors may affect the business performance and the financial condition of the Group.
In its Second Medium-Term Management Plan, the first year of which is the FY2022, the Group has set forth four management policies under which it has been strengthening its management foundation. They are: “strengthening the earnings base for business expansion,” “building a network to capture earnings opportunities,” “improving organizational capabilities to support business growth,” and “promoting digitalization to support business expansion and growth.” In the Third Medium-Term Management Plan formulated on February 14, 2025, we further enhance our corporate value by setting “management focused on capital costs and stock price” and “sustainability management” as our management policies and focusing on two business strategies: “expand business domain” and “new value creation.”
In response, we are making efforts to minimize our sensitivity to these risks by offering a wide range of real estate-related products and services and maintaining a portfolio that does not rely on specific business.

（２） Risks associated with purchases/sales

The Real Estate Trading Business, the core business of the Group, focuses on the Tokyo Metropolitan Area (Tokyo, Kanagawa, Chiba, and Saitama Prefectures). Because barriers to entry are low with respect to the purchase and resale of residential-type properties, competition with other companies is intensifying. The competitive environment surrounding investment-type properties is also becoming increasingly severe year after year, partly because of new entry into the market of a leading real estate company. In case the Group is unable to generate targeted profit rate levels due to business conditions, making it difficult to conduct purchase/sales as planned, it may affect the business performance and financial condition of the Group.
In addition to handling a wide range of asset types and price ranges as well as speedy contract and settlement procedures, the Group will also begin developing sales offices in rural areas from 2023 to meet the wide-ranging needs of real estate brokers and asset owners, thereby differentiating itself from its competitors. We strive to purchase and sell a wide range of properties that would be difficult for other companies to purchase, even under difficult conditions, by using the experience and data we have accumulated over the years to revitalize properties that match the characteristics of their location and area.

（３） Risks associated with reliance on interest-bearing debt and interest-rate fluctuations

The Group procures funds for purchasing used real estate in its Real Estate Trading Business primarily through borrowings from financial institutions. As a result, the ratio of interest-bearing debt to total assets at the end of the consolidated fiscal year under review was 55.8%. If interest rates rise or if the lending stance of financial institutions changes due to changes in the monetary condition, it may affect the performance and financial condition of the Group because of increases in interest paid, changes in purchase plans and so forth.
The Group has set a target of no more than 65% for the ratio of interest-bearing debt to total assets as an indicator of financial soundness and strengthens its financial condition by constantly managing equity ratio, debt-to-equity ratio and other indicators. Moreover, the Group has established excellent relationships with financial institutions for smooth transactions by not relying on specific financial institutions and by procure funds through borrowings after analyzing the appropriateness of the sales plan in each individual project.

（４） Risks associated with valuation loss on real estate for sale

The Group applies the Accounting Standards for Measurement of Inventories (ASBJ Statement No. 9 announced on July 4, 2019) to the real estate for sale that the Group owns. For investment-type properties among the real estate for sale held at the end of the fiscal year, we compare the book value after depreciation with net selling price, and if the net selling price is lower than the book value, we record a valuation loss on goods. For residential-type properties among the real estate for sale, such as owned condominium units and detached houses, we compare the purchase price with net selling price, and if the net selling price is lower than the purchase price, we record a valuation loss on goods. If future sales fall short of initial targets due to a decline in the economic or real estate market conditions, real estate for sale may be retained as inventory. The prolonged retention of this real estate may result in a net selling price that is lower than the book value or purchase price, causing a valuation loss on goods, which may affect the performance and financial condition of the Group.
The Group closely monitors trends in the real estate trading market and strives to grasp any impact on its performance, manage work in progress and increase precision. Although the cycle times from the purchase to the sale are short in the Purchase & Resale Business, some inventory is retained for a long time. Accordingly, purchase prices are strictly reviewed when purchasing, and determined to secure certain levels of profits even amid market fluctuations when this inventory is held. Moreover, if some properties are held as inventory, the Group works to improve and enhance investment returns through appropriate renovation plans and rent rates in order to significantly minimize the lowering of net selling prices.

（５） Risk of bankruptcy of contractors in developments

When the Group builds a single building for sale, it entrusts the construction work to an external construction company. We actively develop links with new contractors, such as through referral of construction contractors through employees, business partners, and other related parties, and work to maintain and build stronger and better relationships with existing construction contractors. If we fail to sufficiently secure a contractor that meets the Group's selection criteria, or if the construction period is delayed and outsourcing prices rise due to difficulties in the management or labor shortages of construction contractors, the Group's business performance and financial standing may be affected.

（６） Risks associated with legal regulations

The real estate industry, in which the Group operates, is regulated by laws such as the Building Lots and Buildings Transaction Business Act, the Building Standards Act, the City Planning Act, the National Land Use Planning Act, the Act on Land and Building Leases, the Act against Unjustifiable Premiums and Misleading Representations and the Fair Competition Code Concerning Indication of Real Estate. The revision or abolition of these legal regulations or the enforcement of new laws and regulations in the future may affect the performance and financial condition of the Group. The Group ensures its compliance with legal regulations. If, however, a legal violation occurs for some reason in the future and the Group's operation is suspended or its licenses are revoked by the regulatory authorities, its business activities will be interrupted and the performance and financial condition of the Group may be affected.
The Legal & Compliance Department plays a central role in the Group’s response to various legal regulations and raises awareness of legal compliance and compliance by providing compliance training and seminars to employees. The Risk Management and Compliance Committee also examines measures to address the major risks of the Group as a whole from the perspective of risk management and crisis management, and formulates measures to prevent compliance violations.
We strive to obtain the latest information on any revision of relevant legal regulations in collaboration with external organs and lawyers, and ensure that all employees in the Group are thoroughly aware of this information.

The following table lists the effective periods and other expiration dates of legal regulations specified by laws, regulations and contracts.

（７） Risks associated with liability for contractual noncompliance and lawsuits, etc.

The Group is legally responsible for contractual nonconformities for two years after delivery of used and refurbished houses it sells, in accordance with the provisions of the Civil Code and the Real Estate Brokerage Act. In addition, for newly constructed houses that the Group sells, the Group bears the liability for defect warranty for ten years after delivery, mainly with respect to defects in the main aspects of the structural resistance of the houses, pursuant to the provisions of the Civil Code and the Housing Quality Assurance Act. To thoroughly ensure quality control, the Group checks the quality of properties using its own original checklist before the renovation work starts and when work is completed. However, if there is a contractual nonconformity in a sold property, it may be necessary to bear unscheduled costs for the repair of the nonconforming part, compensation for damages, or termination of contract, etc. Additionally, regarding the properties sold, although the Group has not been subject to the filing of significant lawsuits that directly affect business results, if legality or appropriateness is lacking in business procedures, then there is a possibility that complaints, etc., may be received, and lawsuits may arise in connection with them.
To prevent such lawsuits, disputes, or claims from arising, the Group is working to improve its internal systems, including establishing a department dedicated to handling complaints and taking measures to reduce such complaints. However, if such an event occurs in the future, depending on its nature and outcome, it may have an impact on the Group’s business performance and financial position.

（８） Risks related to information security

The Group handles large amounts of confidential information, including personal information, in each of its businesses. In handling this confidential information, we strive to comply with relevant laws and regulations, including the Act on the Protection of Personal Information, and ensure appropriate handling. In the event that confidential information is leaked due to unforeseen circumstances, such as the occurrence of an information security incident, the Company's business performance and financial standing may be affected by a decrease in social credibility, etc. In addition, information system trouble or other damage caused by a cyberattack or similar incident may seriously affect the Group's business continuity.

（９） Risks associated with natural/man-made disasters

The Group operates a real estate purchase and resale business mainly in the Tokyo Metropolitan area (Tokyo, Kanagawa, Chiba, and Saitama prefectures), and the pre-owned properties it handles are located mainly in the same areas. If a natural disaster, such as an earthquake, a fire and flood, or a man-made disaster, such as a large accident or terrorist attack, strikes the Tokyo Metropolitan area, the used real estate owned by the Group may be lost, damaged or degraded, and its resale value or rental revenue may be significantly decreased.
Even if a natural or man-made disaster strikes a region other than the Tokyo Metropolitan area, a decline in consumer confidence may affect the performance and financial condition of the Group.
As part of the earthquake countermeasures, the Group refrains from owning properties constructed while the old Building Standards Act was in force, and examines the seismic capacity of properties owned, aiming to minimize the impact if risks are realized.

（10） Risks associated with securing human resources

The Group recognizes that to continually secure and foster talented human resources is the top management task to overcome a variety of business challenges. Accordingly, we pursue a strategy of cultivating responsible employees with a good understanding of the Group's management philosophy by recruiting talented mid-career professionals and new graduates and by working to enhance its education and training programs. However, if progress in securing and fostering human resources that the Group requires is not made in accordance to the plans, it may affect its performance and financial condition.
Under its personnel system, the Group has defined human resources needed for the expansion of the Group and built a system to support the growth of each employee (a personnel framework by the kind of work and an appraisal system that encourages growth and rewarding wage system) by renewing its personnel assessment system, as an initiative aimed at achieving further growth. However, if the functioning of the Group's personnel system is hindered by poor evaluator skills and communication with subordinates, it may lead to a decrease in employees' motivation or outflow of human resources.