To create and maintain a portfolio that will provide stable revenues and achieve ongoing growth in unitholder value, the primary focus of our property selection policy will be on long-term usability and versatility. The long-term usability of a property is of particular importance, because assets such as manufacturing and research and development facilities and infrastructure facilities are often designed and constructed based on the needs of a particular tenant and are not always adaptable to other tenants.

In analyzing the long-term usability of a property, we will consider tenant reliability, rent levels in the market, existing lease agreements and, in the case of manufacturing, research and development, and infrastructure facilities, the industry in which the tenant operates. In evaluating the tenant's industry, we will first evaluate the competitiveness and future viability of the industry, consumer trends in the industry and the regulatory environment surrounding the industry. Next, we will analyze the competitive position, business plan and financial condition of the tenant within that industry. Finally, we will evaluate whether the facility is likely to be used by the tenant on a long-term basis. To this end, we will evaluate the marketability and competitiveness of the business operated by the tenant at the facility and, if the facility is one of a number of facilities with which the tenant conducts its business, we will also evaluate the relative utility of that particular facility within the tenant's overall business. To conduct the above analysis, we may employ outside consultants to obtain industry reports and conduct interviews with tenants.

In addition to considering the long-term usability of a property, we will also evaluate its versatility in order to assess the level of risk in the event that a tenant were to terminate or fail to renew its existing lease. First, we will evaluate the general suitability of the location for an industrial or infrastructure facility by examining whether other industries are located in the surrounding area as well as examining the suitability of the area for other tenants, including tenants in the same industry as the current tenant along with those in different industries. Next, we will analyze the general versatility of the location. For example, if the property is located within an urban or suburban area and adequately meets the transportation needs of commuters, we may analyze the possibility of converting the property from industrial to residential or retail use.

In some instances, we may invest in a property that does not completely satisfy the above requirements regarding versatility, but such an investment will only be undertaken after serious consideration of its long-term usability.

By focusing on the versatility of a property's location, we expect to invest largely in urban and suburban properties where versatility of the location is generally expected. We will also focus on properties that are located in industrial areas where suitability of the location for an industrial or infrastructure facility is expected. In certain instances, we may also invest in properties that are located in areas that do not fall into either of the above-mentioned categories, as described in the following table:

• *1    Japan's three major urban areas are the greater Tokyo, Osaka and Nagoya areas. The greater Tokyo area consists of Tokyo, Kanagawa, Chiba and Saitama prefectures; the greater Osaka area consists of Shiga, Kyoto, Osaka, Hyogo, Nara and Wakayama prefectures; and the greater Nagoya area consists of Aichi, Mie and Gifu prefectures.
• *2    Cities designated by government ordinance are cities with a population greater than 500,000 that have been designated by government ordinance. They currently are Kobe, Kyoto, Nagoya, Osaka, Yokohama, Kitakyushu, Fukuoka, Kawasaki, Sapporo, Hiroshima, Sendai, Chiba, Saitama, Shizuoka, Sakai, Niigata and Hamamatsu.
• *3    Industrial zones means industrial zones as defined in METI's Report of Industry Statistics.

We have set the following guidelines for our target portfolio:

We also intend to have at least 80% of our portfolio (based on appraised value) consist of properties that are in operation.

While we intend to satisfy the foregoing target percentages, there may be instances, particularly after property acquisitions or dispositions, when we do not comply with these target percentages.