Below are the main risks that could affect the Group's business performance, share price, financial condition, etc. We have determined these matters concerning the future as of the end of the first quarter of the fiscal year ending December 2020.
1) 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 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, Money Lending Business Act, etc. We conduct real estate sales and related business as a real estate company licensed under the Real Estate Brokerage Act, Act on Advancement of Proper Condominium Management, etc., but their abolition or creation of new legal restrictions could affect the Group's business performance.
2) Impact of fluctuation in economic conditions, interest rate trends, etc.
The Group’s core business, that relating to condominiums, utilizes our past record, experience and knowledge, and specializes in product planning including site purchasing. We pride ourselves on offering attractive products not only in terms of location but also in qualities such as design, construction, specifications and facilities while staying highly competitive in pricing. In each property plan, we carefully consider the sale price based on a range of factors, but if selling at our decided price becomes difficult because the supply-and-demand balance worsens due to economic conditions, interest rates, the tax system, land price trends, etc., or the quality of the condominium dealer declines, price competition with rivals intensifies, construction costs soar, etc. or delivery is delayed or unplanned costs arise due to construction delays caused by flaws such as underground impediments, inferior construction, contractor bankruptcy, etc., this could affect the Group's business performance.
In our real estate leasing business, we also take measures against the risks of rent decline and vacancy rate increase, but depending on economic conditions, the departure of a major commercial facility tenant or usage conditions, rent or owned asset occupancy may decline, which could affect the Group's business performance.
3) Impact of decline in asset value
In the event that the asset value of the Group’s inventory and fixed assets declines due to economic trends or the deterioration of real estate market conditions, resulting in the write-down of inventory asset book value and the recording of impairment loss, this could affect the Group's business performance.
4) 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.
5) 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.
6) 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 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 file storage of personal information, introduced 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 leaks, 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.
7) 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.
*If the spread of the novel coronavirus (COVID-19) infection is prolonged, the stagnation or worsening of economic activities is anticipated due to the declaration of a state of emergency by the Japanese government and other factors.
In such an event, the following business risks, etc. could occur.
(1) Although the impacts on the real estate leasing business are yet to be determined, the decrease in rents due to the closure of retail properties as well as the decrease in sales of tenants due to the drop in the number of visitors and other factors, as well as the bankruptcy of tenants and other risks may occur.
(2) In the real estate sales business, reduction in the appetite for investment by investors, decrease in real estate prices due to the worsening of the financing environment due to financial contraction and other factors.