The main risks that could impact ES-CON JAPAN Group’s operating results, share prices, financial status, etc., are listed below. Statements concerning future matters are based on the judgements of ES-CON JAPAN Group as of the end of the fiscal year ended December 2020.
1) Impact of the Spread of COVID-19
The spread of COVID-19 is continuing and a renewed state of emergency has been declared, etc. Given that COVID-19’s impact on the economy is grave and that there are concerns over its further spread, it is extremely difficult to foresee the future real estate market trends. If the pandemic continues over a long term, the economy is expected to further deteriorate. In such a case, the operating results, financial position, and status of cash flow of ES-CON JAPAN Group may be materially impacted due to posting of appraisal loss of inventories and impairment loss, etc.
Possible risks in business segments are as follows.
(1) Condominium sales
In the condominium sales business, although the number of visitors to showrooms dropped significantly during the state of emergency of April to May 2020 and caused a slowdown in sales, the number picked up gradually after the state of emergency was lifted. The current situation indicates that the actual demand for housing under the pandemic remains stronger than expected. However, given the renewed state of emergency declared in January 2021, the future remains unpredictable, and it is possible that sales could slow in light of unstable economic trends brought by the prolonged pandemic.
(2) Real estate (other) sales business
There is a risk that real estate prices could decrease due to a reduced appetite for investment among investors, the worsening financing environment resulting from financial contraction, and other factors.
(3) Retail properties
ES-CON JAPAN Group owns and manages retail properties centering on community-based shopping centers with supermarkets as the core tenant. Supermarkets, drug stores, etc., selling daily essentials continued operations during the state of emergency and have posted sales exceeding 100% year on year. However, other tenants, such as restaurants, apparel shops and sports clubs have seen a slow return of customers and are still facing difficulty in business operations. As such, there is a risk of possible decrease in planned real estate leasing income due to rent reduction requests, uncollected rents of bankrupted tenants, difficulty in soliciting new tenants, etc.
ES-CON JAPAN has been promoting hotel development projects in recent years, and has completed sales for 15 out of its 17 projects. As to the 2 projects underway (Fukuoka City Project opened in March 2020 and Osaka City Project opened in January 2021), there is a risk of possible delay in the sales period or decrease in sales prices due to the sluggish occupancy rate and difficulty in predicting the time needed for recovery.
While having adopted remote work and off-peak commuting, ES-CON JAPAN Group will continue to thoroughly implement measures to prevent the spread of COVID-19, such as mask-wearing, hand-washing, sanitizing hands with alcohol and avoiding three Cs (closed spaces, crowded places, close-contact settings).
2) Legal Restrictions, etc.
In addition to the restrictions of the Companies Act and the Financial Instruments and Exchange Act, the real estate industry to which the ES-CON JAPAN Group belongs is subject to the restrictions of the National Land Use Planning Act, Real Estate Brokerage Act, Building Standards Act, Act on Maintenance of Sanitation in Buildings, Act on Specified Joint Real Estate Ventures, Act on Securitization of Assets, Trust Business Act, and Money Lending Business Act, etc.
In addition, ES-CON JAPAN Group conducts real estate sales and related business as a real estate company licensed under the Real Estate Brokerage Act and the Act on Advancement of Proper Condominium Management, etc., but the abolition of these or creation of new legal restrictions could affect ES-CON JAPAN Group's business performance.
3) Dependence on Interest-Bearing Liabilities
The Group procures funds for land acquisition, etc. related to its real estate business primarily through borrowings from financial institutions involved in project finance. In our condominium sale business, it takes time to get from land acquisition to commercialization or sale, so the ratio of interest-bearing liabilities to total assets is relatively high. We are committed to building and maintaining good business relationships with financial institutions including the main banks and strengthening and stabilizing our financial foundation, but raising insufficient or unreliable capital due to increased interest rates or a significant deterioration of the financial environment could affect the Group's business performance and financial condition.
4) Human Resources
Rather than vertical integration, the Group seeks to build an organizational structure that is closely linked horizontally, oriented toward efficiency and agile management, able to flexibly promote business and manifest the greatest value and performance with the smallest number of people. Our real estate-related business requires diverse expertise, making personnel an extremely important business resource. In order to conduct reliable business and grow as a Group, it is indispensable that we strive to share expertise and information and continue to improve employees' abilities as well as secure highly specialized personnel and employ, nurture and educate executives and young employees who will be the leaders of the next generation. However, failing to secure or nurture the human resources sought by the Group or losing outstanding personnel could affect the Group's business performance and future business development.
5) Management of Personal Information
In the course of the Group's business, we receive the personal information of customers who have purchased condominiums or detached houses, have considered doing so, or reside in rental apartments as a business operator handling personal information under the Act on the Protection of Personal Information. We have established rules (a basic policy, regulations and a manual) on the handling of personal information to improve the process and, regarding the system, we have implemented strict storage of personal information, introduced an OA system monitoring software, and restricted access in order to refine our handling of both personal and non-personal information.
However, in the event of unforeseen circumstances causing personal information to be leaked, sales could fall due to a loss of trust in the Group or costs could be incurred due to compensation for damages, which in turn could affect the Group's business performance.
6) Important Litigation
Regarding the risk of becoming subject to litigation, the Risk Management Committee consisting of directors and risk management members from each division monitors risks and shares information across the Group. Important litigation could affect the Group's business performance and financial condition.