Business Risks

The following are the principal risks identified by management that may have a significant impact on the consolidated financial position, operating results, and cash flows of Leopalace21 (the “Group”), based on the Annual Securities Report (available only in Japanese). However, these do not represent an exhaustive list of all risks the Group may face, nor do the measures described fully eliminate such risks. All forward-looking statements in this document reflect the judgment of the Group as of the end of the consolidated fiscal year ended March 2026.

Main risks

(1) Risk Related to Rising Costs and Changes in the Business Environment Affecting Profitability

［Risk Scenario］

The Group’s business is supported by collaboration with numerous partner companies and by supply chains for raw materials and equipment. However, changes in domestic and global economic conditions, price fluctuations, or unforeseen events such as terrorism, geopolitical instability, large-scale demonstrations, conflicts, civil unrest, and the spread of infectious diseases, may arise or continue for an extended period. These factors may lead to rising prices of raw materials and equipment, delivery delays, supply constraints, and disruptions in logistics, resulting in supply chain interruptions.
Consequently, fluctuations in raw material prices and labor costs—including procurement costs for fixtures and construction costs at managed properties—as well as construction delays and cost increases associated with alternative sourcing may occur, which could affect the Group’s cost structure, profitability, and overall operations, including transaction terms and pricing strategies. Furthermore, regarding transactions with partner companies, the Group is required to respond in accordance with social demands and trends in relevant laws and regulations. Depending on the status of such responses, the Group may revise transaction terms or change suppliers, which could affect the stability of its supply chain.
If these factors occur individually or in combination, they could have a material impact on the Group’s financial condition, operating results, and cash flows.

［Countermeasures］

The Leasing Business strives to secure profitability by implementing appropriate rent-setting strategies based on area characteristics and supply-demand trends, while also revising pricing levels in consideration of medium- to long-term cost structures and property values, alongside initiatives to improve occupancy rates.
Development Business works to control costs by promoting standardization of design and construction processes, reviewing construction methods, continuously monitoring price trends of key materials, securing multiple procurement sources, and enhancing budget execution and construction schedule management. These efforts aim to reduce dependence on specific suppliers and minimize the impact of supply chain disruptions.
At the contract stage, profitability is assessed based on external conditions, pricing terms, areas for new apartment supply, and contract details are carefully determined to reflect market trends appropriately and mitigate the impact of cost fluctuations.
In addition, the Group strives to build stable relationships with partner companies while considering social expectations and regulatory developments.
The Group will continue to closely monitor changes in the business environment and strengthen its cost management framework and profitability-focused operations to minimize the impact on its business performance.

(2) Risk Related to Natural Disasters and Climate Change

［Risk Scenario］

The Group operates offices, apartments, and other facilities in Japan and overseas, and large-scale natural disasters such as earthquakes, typhoons, and floods may cause direct damage to employees, customers, facilities, and properties, as well as indirect damage such as disruptions to communication networks.
Such events may result in losses due to business interruptions, as well as costs for inspections, emergency responses for managed properties, and social support activities. In particular, in the event of a major earthquake directly beneath the Tokyo metropolitan area, the head office and its employees may be significantly affected, which could severely disrupt business activities and internal systems.
These factors could have a significant impact on the Group’s financial position, operating results, and cash flows.

［Countermeasures］

The Group has established a business continuity plan (BCP) to ensure that critical operations are not interrupted or can be restored within a short period. These include systems to quickly assess internal and business damage and to implement recovery and damage containment measures.
In addition, the Group is strengthening its response framework by clarifying command structures and delegation of authority in times of disaster and establishing guidelines for recovery construction, including safety assurance and prompt restoration of occupancy.
During the fiscal year ended in March 2026, the Group conducted practical training for officers and plans to expand such training to employees to enhance organization-wide responsiveness.
Furthermore, a subcommittee on Management Strategy and Finance under the Risk Management Committee discusses and addresses measures related to natural disasters and climate change.

(3) Risk Related to IT Systems and Information Security

［Risk Scenario］

With the expansion of mobile work environments and collaboration with external partners, the number of devices capable of accessing critical data has increased, leading to greater exposure to cyberattacks.
Cyber incidents such as ransomware attacks may result in system failures, leakage of customer information, disruption of property management operations, liability for damages to customers and business partners, and a loss of trust. In addition, supply chain attacks through business partners or security weaknesses at outsourced service providers may lead to the external leakage of personal information.
Furthermore, as the use of AI rapidly expands, risks such as privacy violations, data leakage, use of inaccurate information due to AI hallucinations, and unintended infringement of intellectual property rights may arise.
These risks could have a significant impact on the Group’s financial position, operating results, and cash flows.

［Countermeasures］

Based on frameworks such as ISO standards and the NIST (National Institute of Standards and Technology) cybersecurity framework, the Group implements comprehensive information security measures.
The Group strengthens governance and coordination through dedicated security functions, conducts regular incident response training, and performs ongoing vulnerability assessments. Security checks are also conducted for both new and existing business partners.
To address increasingly sophisticated cyber threats, the Group enhances security measures for endpoints, cloud environments, and network filtering from a medium- to long-term perspective. Monitoring is conducted through a Security Operation Center (SOC) in collaboration with external security firms, and certified cybersecurity professionals are assigned internally.
Measures to prevent information leakage are reinforced across prevention, detection, and post-incident response stages, while risks are quantitatively assessed through continuous evaluation.
The Group also updates internal policies and conducts employee training, including E-Learning and targeted phishing simulations.
Regarding AI usage, guidelines have been established to improve literacy, and third-party AI services are subject to prior assessment, including restrictions on data use, storage, and opt-out capabilities.
A subcommittee on “Information and System Management” under the Risk Management Committee oversees ongoing discussions and responses related to IT systems and information security.

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