During the 6th period (ended June 2010), there continued to be concerns about the economic downturn. Companies’ motivation for capital investment was weak and employment conditions remained severe although the Japanese economy got back on a mild recovery path. However, Industrial & Infrastructure Fund Investment Corporation ("IIF") continued to steadily manage properties built on the strength of its portfolio: a firm rent base and long-term rent contracts.

IIF also worked on improving the distributions by replacing properties, based on the enhanced financial foundation and increased stability that it had focused on in the previous period. Specifically, IIF sold the IIF Funabashi Logistics Center for about 9 billion yen in March 2010, while it acquired the IIF Narashino Logistics Center (land with leasehold interest) (acquisition price: about 1.2 billion yen) in February 2010. It also bought the IIF Totsuka Technology Center (land with leasehold interest ) (acquisition price: about 4.5 billion yen) in March 2010.

There were the following three important points in these series of measures. First, both of the newly acquired assets are land with leasehold interest and IIF will not own buildings on these properties, so there will be no depreciation expenses. As a result, it can realize a high yield after depreciation, which will help to increase the distributions in the sixth period and beyond. Second, IIF realized a gain on sale of about 460 million yen when it sold the IIF Funabashi Logistics Center. Consequently, earnings for the sixth period significantly exceeded the initial projections. Combining this with steady income from existing properties, it has managed to increase both income and profit. Third, IIF has about 4 billion yen of cash reserves left after replacing a number of properties, and these reserves can be appropriated for purchasing high-yield properties, for instance.

Corporate reorganization proceedings for three JAL Group companies began in January 2010. However, this had no impact on earnings for the current period of the IIF Haneda Airport Maintenance Center, which is a portfolio item of IIF and has Japan Airlines International Co., Ltd. as tenant.

IIF will continue striving for steady growth while managing properties by making full use of industrial properties to secure stable and long-term earnings. We would appreciate the continued support of our investment unit holders.

Yasuyuki Kuratsu
President and Executive Director
Industrial & Infrastructure Fund Investment Corporation