Business Risks

The following are the main risks that the management recognizes that have the potential to significantly influence the financial position, business performance and cash flows of the company and the consolidated subsidiaries. From these main risks the Company has selected risks requiring particular attention during the fiscal year ending March 31, 2022 taking into consideration factors such as the magnitude of the potential impact on its businesses and the external environment. Matters concerning the future and the recognition of risks in the text are as determined by the Group as of the end of the fiscal year ended March 31, 2021. The following, however, does not include all risks. Risks that are unpredictable or deemed insignificant at this point in time may impact on businesses in the future.

(Major Risks)

Risk Category Definition Main Risk Items
(A) Investment risk Risk related to individual investments (real estate investment, strategic investment (M&A), etc.) 1) Risk associated with real estate investment
2) Risk associated with strategic investment (M&A) and new businesses
(B) External risk Risks related to external factors influencing business 3) Risk associated with market changes
4) Risk caused by changes in economic conditions
5) Risk caused by changes in political/social conditions/systems (law, tax system, accounting, others)
6) Risk from lagging behind innovation and changes in the social structure related to the business
(C) Disaster risk Risks generated by disasters that have a large impact on customers and business continuity 7) Risk caused by disasters (earthquakes, typhoons, floods, tsunamis, volcanic eruptions, major fires, epidemics of infectious diseases, etc.) that have a major impact on customers and business continuity
(D) Internal risk Operational risks occurring at the Company and each group company 8) Risk of violations of laws and ordinances
9) Risk of quality defects
10) Risk of occurrence of information system crisis
11) Risk of inadequate response to matters related to human resources
12) Risk of occurrence of fraud and negligence

(Risks requiring particular attention)

(A) Investment risk ・Deterioration of profitability and delay of business schedule in the real estate development business
・Delays in the recovery of businesses substantially impacted by COVID-19 (fitness club business, hotel business, and other businesses)
(B) External risk ・Changes in the stock market or the real estate trading market and the stock market
・Changes in the economies and real estate markets of overseas countries
・Changes in people’s behavior due to COVID-19
・Slowness in taking advantage of continuously-evolving digital technology
(C) Disaster risk ・Increase in natural disasters such as torrential rains
・Impact of COVID-19 epidemics on business continuity
(D) Internal risk ・Occurrence of design and construction defects in the real estate development business
・Delays in the establishment of a human resources systems securing diverse personnel
・Occurrence of information leakage, business delay, damage, etc. due to cyber attacks

The details of each major risk item and main initiatives are as follows.

Risk item 1) Risk associated with real estate investment Risk Category (A) Investment risk
Risk details In the real estate investment and development business carried out by the Group, there are cases in which business does not proceed as planned due to such factors as unexpected soil pollution, delays in obtaining permits and licenses, and the need for additional construction. In such cases, the occurrence of changes in the initial business schedule, delays in completion and recognition timing, and additional costs could affect the Group’s financial position and business performance.
Main initiatives Decisions on the real estate investment/development business are made at the meetings such as the Management Committee or the Board of Directors of the Company or of group companies upon identifying, analyzing and evaluating risk in advance and considering risk taking or risk avoidance policies. In particular, for soil pollution the Company implements a historical survey and a pollution survey in advance and if pollution is confirmed the Company will cease the acquisition of the land or have the pollution removed by a external specialist. Moreover, following the acquisition of the land for development, the department in charge of the business ascertains the risk of any schedule delay and the state of construction costs. Should an especially an important event occur, the department shall report this to the Management Committee or the Board of Directors of the Company or group companies when necessary and respond to the issues.
Risk item 2) Risk associated with strategic investment (M&A) and new businesses Risk Category (A) Investment risk
Risk details The Group positions M&A as one of its growth strategies and aims to enhance the corporate value of the Group by implementing M&A for which synergies can be expected. However, the inability to achieve profit growth from the M&A target companies and synergies expected could affect the Group’s financial position and business performance.
The Group goes beyond the existing business domains to explore opportunities in new businesses as well as examines and makes investments in new asset types. However, the inability to execute business according to original plans or achieve synergies with group companies could affect the Group’s financial position and business performance.
Main initiatives In executing M&A, the main investment targets and investment purposes shall be defined. At the same time, factors such as the synergies with the Group’s existing businesses, business plans, financial details, and contract-related matters shall be carefully examined and considered and M&A shall be implemented when it is determined that this will contribute to the Group’s business results in the future. In addition, after the M&A is executed, the Board of Directors or the Management Committee shall regularly monitor the status of the integration process between the target company and the Group, management issues, and response policies.
In considering new businesses, the Company carefully investigates and examines the synergies with the Group’s existing businesses as well as business plans. A new business is commenced when judgement is made that it will contribute to the business performance of the Group in the future. After entering a new business, its performance is regularly monitored, and if deemed necessary to make modifications or a re-start, it will put to deliberation by the Board of Directors or Management Committee.
Risk item 3) Risk associated with market changes Risk Category (B) External risk
Risk details The Group carries out a variety of real estate-related businesses and any changes in the business environment or market conditions in each business could have an impact on the Group’s business performance. In addition, changes in economic conditions or the occurrence of disasters could have an impact on the business environment or market conditions of real-estate related businesses. In the Residential Development Business Unit, a decline in customer desire to purchase leads to a decrease in sales prices and an increase in inventories and this could result in a situation whereby expected profits under the business plan cannot be secured and valuation losses on inventories held are recorded. In Commercial Real Estate Business Unit, a decline in rent levels, a rise in vacancy rates and increase in the CAP rate that leads to a decline in asset price could result in a situation whereby expected profits under the business plan cannot be secured and valuation losses on inventories and non-current assets held are recorded. In addition, a decline in demand in the real estate transaction market, a share price decline in the REIT market, a decline in demand for investment funds, and a rise in construction cost could have an impact on the Group’s financial condition and business performance.
Main initiatives The Group regularly updates its awareness of the external environment of each business and works to ascertain impacts on business results, monitor the progress of business and improve precision.
When making investment decisions in the real estate investment/development business, our basic policy is to understand and forecast the current and future market conditions and confirm past market trends and curb to a certain extent the impact from changes in market conditions. Moreover, we formulate an investment budget upon undertaking risk assessment to ensure a certain level of soundness regarding our financial condition even if market conditions change rapidly.
In the fiscal year ended March 31, 2021, since the impact of COVID-19 emerged in the real estate-related business environment and market conditions, the Company verified the impact on each business according to each business characteristic of the Group and deliberated on the response policies and future strategies at the Management Committee and other venues. Also, under the state of emergency issued from April to May of this fiscal year ended March 31, 2021, to identify impacts on each business the Company undertook a partial review of the operation of certain internal rules such as standards when making investment decisions at each Group company and responded to risks arising from market changes.
Risk item 4) Risk caused by changes in economic conditions Risk Category (B) External risk
Risk details Domestic and overseas economic recessions, an increase in funding costs due to rising market interest rates, fluctuations in yen-denominated investments and recovered amounts, or amounts of foreign currency assets and liabilities on the consolidated financial statements due to fluctuations in exchange rates could have an impact on the Group’s financial condition and business performance.
Main initiatives Regarding changes in economic conditions, the Group regularly updates its awareness of the external environment and works to ascertain impacts on business results. In addition, since the emergence of the impact of COVID-19, we are paying particularly close attention to trends in corporate earnings, personal income and consumption. In our funding through borrowings, we respond to the risk of rises in short-term interest rates by using mainly long-term and fixed-rate borrowings. For foreign exchange fluctuation risk, we have established a foreign exchange hedging policy that considers the types of businesses we undertake overseas and we operate in accordance with this policy.
Risk item 5) Risk caused by changes in political/social conditions/ systems (law, tax system, accounting, others) Risk Category (B) External risk
Risk details Various types of laws and regulations in Japan and overseas are applicable to each of the Group’s businesses. For example, in addition to the Real Estate Brokerage Act and the Building Standards Act, other real-estate related laws and regulations as well as the Financial Instruments and Exchange Act are applicable in Japan. In case there are changes or additions to these laws and regulations or other laws and regulations become applicable due to an expansion in the business scope in the future they could have an impact on the Group’s financial position and business performance.
Also, in the case of changes to various tax systems and accounting systems in Japan and overseas that have an impact on the real estate business, the resulting increased costs for acquiring, holding, and selling assets, a decline in customer desire to purchase, a shift in corporate facility strategy, and revision of investment plans could have an impact on the Group’s financial position and business performance.
Overseas, there are risks specific to each country’s social situations and risks related to laws, regulations and tax laws different from those in Japan. In the case of changes in social situations or changes or the establishment of laws, regulations and tax laws that have been unexpected at the beginning of conducting business in each country, the occurrence of new obligations and expenses as well as obstacles to promote business could have an impact on the Group’s financial position and business performance.
Main initiatives We collect and analyze information on trends in various laws and regulations, tax systems and accounting systems from industry groups, external experts, business partners, and consider responses at each of the Company’s respective organizations on the “second line” and discuss those matters expected to have a significant impact at the Board of Directors or the Management Committee depending on the details.
In overseas business, we seek the knowledge of external experts regarding applicable laws, regulations and tax laws when starting a business overseas, and after starting a business we regularly confirm the state of changes to important related laws and regulations that have an impact on business strategy, revenue and expenditures, and progress in countries where we do business and in the case there are any changes discussions are carried out at the Board of Directors or the Management Committee upon evaluating the impact and discussing response policies.
Risk item 6) Risk from lagging behind innovation and changes in the social structure related to the business Risk Category (B) External risk
Risk details Should technological innovation or the emergence of innovative new participants in a variety of real estate-related businesses that the Group engages in result in a large change in the industrial structure or business environment and the Company is late in responding to changes in customer needs accompanying changes in the social structure, the Company’s competitive advantage could decline and this could have an impact on the group’s financial position and business performance.
Additionally, with regard to climate change, should the Company be late in responding to the changing needs of customers for real estate and in responding to technologies related to high environmental performance and energy performance, the competitive advantage of the Company’s products and services could decline and this could have an impact on the Group’s financial position and business performance.
Main initiatives In the midst of a changing business environment, the Group has been creating new and highly unique value for society and customers by leveraging its strengths, such as real estate development capabilities based on the “market-in” concept and a commitment to quality in urban development and real estate-related services. In order to further enhance these strengths, we have established the DX & Innovation Management Dept., which is responsible for research and development of new business fields, planning, promotion, and support for innovation creation, digital strategies, etc. We have also established the “Business Idea Proposal System,” which allows employees of Group companies to propose new businesses, products and services beyond the boundaries of their daily work. At the same time, through the Nomura Real Estate Group Awards, an internal award system, we are working to create a corporate culture that encourages the creation of value through innovation and to strengthen collaboration within the Group. In addition, through the provision of corporate venture capital, the Company is collaborating with the startups that it has taken stakes in, which possess innovative technologies and services, and has begun to provide services that utilize these digital technologies.
For risks related to climate change, the Company analyzes the risks and opportunities regarding events assumed in each scenario upon ascertaining future scenarios such as those in the Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment Report. Concurrently, to properly ascertain customer needs, the Company implements customer satisfaction surveys and implements environmental performance assessments when undertaking the development, product planning and development of condominiums that meet ZEH-M standards and obtains environmental certifications.

〈Matters related to COVID-19〉
COVID-19 has triggered rapid changes are occurring in lifestyles, work styles, and attitudes toward consumption and leisure. During the fiscal year ended March 31, 2021, each department worked to promote business activities adapted to the changes that have accelerated during the pandemic, such as remote sales / electronic contract systems and the expansion of the shared office business. They have also endeavored to identify diversifying customer needs and explore new types of added value.
Risk item 7) Risk caused by disasters (earthquakes, typhoons, floods, tsunamis, volcanic eruptions, major fires, epidemics of infectious diseases, etc.) that have a major impact on customers and business continuity Risk Category (C) Disaster risk
Risk details Large earthquakes, storms and flood damage, and infectious disease epidemics could make it difficult for the Company and its business partners to undertake normal business and there could be cases of the occurrence of the risk of loss of earnings and the risk of delay of earnings. Risk of loss of earnings include decreases in leasing revenue and operational revenue due to the suspension of operations or restrictions on facilities that the Group owns and operates and a decrease in income due to the loss of business opportunities.
Moreover, risk of delay of earnings include changes in sales recording period due to the suspension of operations for housing sales and changes in the timing of sales recording/completion due to the extension of construction periods owing to such factors as suspension of construction by contractors and these could have an impact on the Group’s business results and financial condition. In addition, natural disasters such as earthquakes, fires, storms and floods, or sudden accidents, could result in damage or loss of real estate owned, operated or managed by the Group and this could have an impact on the Group’s financial condition and business performance.
Main initiatives The Group recognizes that the frequency of disasters has increased, and this is an important social issue. Based on discussions with government and disaster preparedness experts, we are working to ensure the safety and security in the event a disaster occurs. We engage in disaster preparedness activities to ensure that, if a disaster occurs, its impact is minimized and the Group and its employees are able to continue business and their normal lives. We have formulated a business continuity plan (BCP) and action plan and engage in initiatives related to the Group’s business continuity.
In preparing for an earthquake occurring directly under the Tokyo Metropolitan Area, we have established a BCP and an emergency chain of command, assigned duties to ensure business continuity, and established a system to minimize the impact of disasters. Furthermore, once per year we hold Disaster Task Force Establishment Drills to ensure the responses prescribed by the BCP are effective, insuring the safety of executives and employees and establishing a chain of command system, so that we are prepared for restoring business after an emergency.
In addition, the Company has established a checklist of actions to be taken when a typhoon’s landfall is forecast and formulates an action plan for preparations and initial responses when a disaster occurs overseas.
Regarding earthquakes, fires, storms, floods, and other sudden accidents, we have set up regulations for responses to torrential rains and flooding, formulated a disaster response manual, and created a disaster preparedness guidebook for distribution to residents, management associations, tenants, and facility users in the properties we own to ensure their safety and bring them peace of mind when a disaster occurs.

〈Matters related to COVID-19〉
In accordance with the established BCP for addressing the outbreak of a new strain of influenza, the Group formulated a basic response policy and continuously updates this policy. In addition, a task force chaired by the Group’s CEO has been established. This task force gathers information published by the local and national governments and other authorities. Ensuring the health of customers, employees and their families and preventing the spread of infection are positioned as priorities. Taking this into account, the Group is implementing the following measures to ensure business continuity.
・Active use of remote working and staggered commuting
・Strengthen the system environment to carry out remote work
・R Measures to reduce the risk of infection, mainly by implementing the thorough use of masks and the installation of acrylic partitions and disinfectant stations
・Early implementation of measures to reduce the risk of secondary infection inside the company, including instructing employees that come in peripheral contact with infected individuals or individuals that have come in close contact with an infected person to stay home
・Select core operations and establish an action manual aimed to business continuity during an infection epidemic
・Establish common rules mainly related to infection prevention and the flow for taking PCR tests and make it common knowledge among all executives and workers
・As a Group as a whole, create a reporting and instruction system in the event of an outbreak of infected individuals or individuals that have come in close contact with an infected person
・Moreover, from the perspective of preventing the spread of infection, the fitness club were closed, and rent deferral and exemption measures were taken to a certain extent in order to support the business continuity of retail facility tenants affected by the government / local government’s request for suspension. In these businesses, including the hotel business, which was directly affected by the decrease in tourists, we were forced to temporarily reduce sales, but through our business activities, we are trying to solve social issues and at the same time meet the needs of our customers. We believe that this is a corporate behavior that is in line with the concept of promoting sustainability, and that it will contribute to improving corporate value from a medium- to long-term perspective.
Risk item 8) Risk of violations of laws and ordinances Risk Category (D) Internal risk
Risk details In the real estate brokerage business, the main business of the Group, there are cases when the Company receives administrative sanctions from government authorities due to a violation of laws such as an error in explaining important matters to customers, misrepresentation of facts, or non-notification of disadvantageous matters. Also, in the case the Group violates the Building Standards Act, the Financial Instruments and Exchange Act, Companies Act, Act on the Protection of Personal Information, Act on Prohibition of Private Monopolization and Maintenance of Fair Trade, and other laws related to the Group’s business, the loss of the Group’s credibility and the imposition of fines could have an impact on the Group’s business performance.
Main initiatives The Company has formulated the Nomura Real Estate Group Code of Action that defines the basic code of actions for executives and employees, including complying with laws and regulations and acting with higher ethical standards, and prescribed internal rules. We are making efforts to familiarize employees with the Code of Action and internal rules through periodic training, promote education on an ongoing basis and facilitate enlightenment. For primary laws such as the Real Estate Brokerage Act, we formulate a business work flow specific to each law to ensure legal compliance, ensure a thorough awareness through training and on-the-job training (OJT), and implement regular voluntary inspections for compliance.
In addition, regarding the inappropriate entertainment of foreign public officials and other civil servants, the Company has established “regulations to prevent the bribery of foreign public official and other civil servants” and “bribery prevention guidelines.” The Company is implementing regular training for executives, employees and overseas local hires related to overseas businesses.
Risk item 9) Risk of quality defects Risk Category (D) Internal risk
Risk details In case of deficiencies such as design and construction defects in the Group’s real estate development business or in the case of a management deficiency in the properties for leasing or under management, the loss of trust in the Group, unexpected costs and delays in development plans and operation plans could have an impact on the Group’s business performance.
Main initiatives In the real estate development business, to secure quality in design and construction upon placing an order for the design and construction work of a building with a third party who has a certain level of creditability and technical capabilities, the Group prescribed the Design and Construction Standards (structure, construction, equipment, and electrical) and the Quality Manuals and ensure thorough compliance from the parties with which we order design and construction work while also checking the state of construction and carrying out quality inspections as the ordering party. Regarding leased and managed properties, we will prepare business standard documents related to property management and safety and temporary construction guidelines for repair work as we undertake business. We will also provide property insurance for damages in the unlikely event of a deficiency or accident.
Risk item 10) Risk of occurrence of information system crisis Risk Category (D) Internal risk
Risk details To achieve sustainable growth as the diversity of products and services provided to customers increases, the Group believes it must further improve productivity and work efficiency and is actively utilizing the benefits of the Internet (the Cloud) (speed, flexibility, cost) for establishing an ICT environment and promoting DX to achieve these improvements. In addition, the Group handles a large volume of personal information in each business due to necessity in executing business.
For this reason, in the unlikely case the Company’s system cannot be used normally or in case personal information is leaked to the outside due to unexpected circumstances such as cyberattacks and unauthorized access, the loss of credibility and the resulting decrease in sales and damage compensation costs could have an impact on the Company’s business performance.
Main initiatives As we actively promote initiatives that utilize information systems and ICT, we believe that ensuring information security will be of unprecedented importance and we have strengthened measures to restrict access via Internet connections as well as measures for log management and the loss of information devices and are progressing with the establishment of an ICT environment in preparation for cyber attacks and information leaks by conducting system security diagnosis by the third party and introducing a behavior detection system for virus scanning and abnormal movements.
The Company is also striving to comply with relevant laws and regulations for personal information and to ensure proper handling of this information. Moreover, with the aim of realizing organized management of information and maintaining and improving security levels within the Group, we have prescribed the Information Security Regulations and the Information Handling Guidelines, regularly provide education and enlightenment to our employees, protect the rights and interests of our customers and ensure the stable operation of an ICT environment within the Group. In addition, the Company has cyber insurance in preparation for an unlikely accident such as an information leakage.
Risk item 11) Risk of inadequate response to matters related to human resources Risk Category (D) Internal risk
Risk details We regard human resources as our largest asset and the source of new value creation for the sustainable growth of the Group. Therefore, in the event that the working hours of Group executives and employees are not properly ascertained and long working hours damage the health of executives and employees and we receive administrative sanctions from government authorities because our personnel system and its operation do not comply with labor standards and related laws and regulations, the outflow of the Group’s human resources, the loss of trust, and the imposition of fines could have an impact on the Group’s business performance.
There is a risk the Group’s inability to secure required personnel due to delays in the establishment of a labor environment that takes in a diverse range of human resources (employees that work short hours mainly due to childcare and nursing, sexual minorities, people with disabilities, seniors, foreign nationals and others) will be a factor in a decline in corporate competitiveness.
In terms of personnel and labor management at overseas bases, there is risk of administrative sanctions by government authorities for introducing or operating a system that violates local labor laws and customs, the risk of losing know-how due to the retirement of local employees, and a risk that the health of employees will be damaged due to the lack of systems to provide appropriate support for living in a foreign country.
Main initiatives The Group prescribes working with vigor and achieving wellness as its action guideline. The Group aims to provide wellness management so that all its executives and employees can carry out their work energetically and in good physical and mental health, which leads to sustainable corporate growth.
Along with introducing various systems, including recommendations to take paid leave, the promotion of teleworking, and a program for taking time off or working shorter hours for childcare and nursing and to build a labor environment conducive for a diverse workforce, we are working to improve the level of understanding related to diversity among executives and employees through regular training sessions. In order to properly grasp working hours, we have introduced an attendance management system to manage it, and especially for long working hours, we regularly monitor the situation.Furthermore, the compliance of our personnel system and its operation is regularly verified by outside experts to prevent the emergence of risks.
Moreover, overseas there are local laws, cultures, and customs. Therefore, we utilize the knowledge of external experts to build personnel/labor systems, establish consultation desks for staff stationed overseas, and provide services to help the staffs find, and provide support for visits to, medical institutions.
Risk item 12) Risk of occurrence of fraud and negligence Risk Category (D) Internal risk
Risk details Within the Group, risk could occur due to fraud perpetuated by executives and employees, information leakage due to improper management of information, and operational negligence. In the case this risk emerges, the loss of credibility and the resulting decrease in sales and damage compensation costs could have an impact on the Company’s business performance.
Main initiatives Group executives and employees comply with laws and regulations as well as with the internal rules and regulations established by each company of Nomura Real Estate Group. Furthermore, we have established the Nomura Real Estate Group Code of Ethics with the aim of acting in accordance with even higher ethical standards, and we continuously provide education and enlightenment to executives and employees.
In addition, the Company has established a system to enhance the effectiveness of compliance activities in each workplace by assigning a compliance promotion officer to each department, office and branch of the Company and Group companies. Furthermore, the Company has established the “Nomura Real Estate Group Risk Helpline,” an internal whistleblowing system shared by all Group companies, and has set up internal and external contact points for reporting wrongdoing and seeking advice on how to proceed. Informants are also assured of the confidentiality of their reports, and are prevented from being treated unfavorably by reason of their reports.