Retail Real EstateMarket Overview

By Walter BialasVice President of Research

Madison Marquette

Recession Rumored at the End of 2007 is Now Official

• Re-benchmarked data show 1.9M jobs lost in 2008

• Last 3 months — 1.2M jobs lost

• November jobs declined 533,000

• Broad pull back across most industries

Unemployment Rising Rapidly

• Unemployment now at 6.7%

• Highest rate in 15 years (since October 1993)

• Consensus is that rate will hit 8.0% in coming months

• Continued job erosion has economists re-vamping forecasts

• Rate could rise to over 9.0%

Economic Uncertainty Has Driven Consumer Confidence to Historic

Lows

• October saw confidence at lowest level ever

• Slight re-bound in November is not material

• Conference Board sees a “recovery” at sustained levels above 80

• Recovery not likely until last half of 2009

Retail Spending Outlook Impacted

• Close relationship between home prices and retail sales historically

• Past price appreciation fueled the “feel good” spending boom

• Consumer retrenchment is both economic and psychological

• Consumer turnaround not expected until home prices stabilize

Shopping Center Sales Decline After Extended Run-Up

• Recent consumer spending cutbacks not seen in tech-bust recession

• Consumer loss of confidence fueling frugality

• Data does not reflect inflation

• Trading down is now common

• Retailer over-expansion now evident in sectors

Department Stores Continue to Struggle

to Find Customers

• Sector decline still underway

• After some stability between 2003 and 2006, sales declines are steady

• Competitive pressures continue to mount from discounters and other sectors

Discounters and Supercenters Enjoying Sustained Sales Growth

• Sector has consistently gained market share

• Organic growth has fueled significant gains

• Current economy favors the sector as consumers trade down

Apparel Sector Slowing with Economy

• Consumer focusing on needs versus wants

Big Ticket Items Particularly Hurt

• Sales declines tied to housing bust• Needs versus wants dictate purchases

Retailers Consolidate and Restructure

to Find Solid Base• Closings in 2008 top 5,600

• Level not seen since the consolidation wave of the 1990s

• Tenants cutting back expansion plans

• First half of 2009 will see an acceleration in closings and filings

Some of the More Notable 2008 Announcements

ANNOUNCED STORE CLOSINGSSELECT RETAILERS AS OF DECEMBER 2008

          

Retailer Stores Closing StatusAnn Taylor 117 Re-Structuring

Banana Republic 25 Re-Structuring

Circuit City 155 Chapter 11

Club Libby Lu 78 Re-Structuring

Disney Stores 98 Chapter 11Fashion Bug / Lane Bryant /

Catherine's146 Re-Structuring

Foot Locker 60 Re-Structuring

Friedman's Jewelers 377 Chapter 11

Linen's n Things 371 Chapter 11

Mervyn's 149 Chapter 7

Pacific Sunwear 154 Re-Structuring

Sharper Image 96 Chapter 11

Starbucks 600 Re-Structuring

Steve & Barry's 276 Chapter 7

Talbots Kids / Talbots Mens 78 Re-Structuring

Tweeter 94 Chapter 11

White Hall Jewelers 355 Chapter 11

Wilson's Leather 103 Chapter 11

Zales Jewelers 105 Re-Structuring

TOTAL 3,437 --—

• No significant tenant concentrations in portfolio

• Limited impact of closures to Madison Marquette portfolio

Retail Projects Under Construction

Beginning to Slow

• Difficult to find project financing

• Net absorption lagging deliveries

• Tenants cutting back expansion plans

• Tenants driving deals that are not economical

Retail Vacancy Rising as Tenants Retrench

• 3Q vacancy 6.6% nationally

• Not all announcements closed

• As additional retailers reposition during 2009, vacancy likely to top 7.2%

• Firmer line between good and marginal locations

• Lack of development pipeline should begin to reduce vacancy in late 2009

Transaction Volume Back to 2001-2002 Levels

• The hot deal market in 2004–2006 over-heated in 2007

• High flow of capital drove underwriting standards to win deals

• Risk not adequately modeled

• Shift in pricing has investors waiting for stability

• Gap between sellers and buyers beginning to shrink

Cap Rates Beginning to Readjust to New Economy

• As of October cap rates for strip centers averaged 7.24%

• Reflects an increase of 43 bps in the last 12 months

• Historically, the spread between 10-year treasuries and cap rates has been 450 to 500 bps

• As of October, the spread has risen from a low of under 200 bps to 343 bps

• Outlook is for this spread to return to 500 bps before stabilizing around 350 bps

Market Over Correction

• September and October saw dramatic declines in REIT values

• REITs overall were trading at 85% of their NAV: Shopping centers declined to 79% and regional malls were at 71%

• Since 2000 this ratio was in the range of 100% to 105%

REIT Dividend Yields Out of Sync

• REIT dividend yield is now 8.18%

• This reflects an increase of 350 bps since the pre-bubble economy

• The spread between REIT yield and 10-year treasuries has grown to over 450 bps

• Historic spreads have been consistently in the range of 50–100 bps

• Even during post-tech bust, this spread only ran 300–350 bps

Recent Retail REIT Performance

• Stock prices down 50-plus percent

• Some impacted by high debt loads and no ability to refinance in frozen credit markets

• Some impacted by active development pipelines

• All impacted by perceived market risks to portfolios from tenant retrenchment

PERFORMANCE SUMMARY

SELECT RETAIL REITS

AS OF DECEMBER 3, 2008

(Millions)

               

    Stock Price (Per Share)CurrentEquity

Cap

Enterprise

ValueTotal Debt(YE 2007)

Implied Cap Rate

1/REIT Ticker 4-Dec-07 CurrentPrice

Decline

General Growth Properties

GGP $45.84 $1.33 97% $490 $24,840 $24,350 10.5%

Macrerich MAC $76.29 $11.32 85% $862 $6,625 $5,763 9.5%

Simon Property Group

SPG $94.44 $46.36 51% $10,469 $27,688 $17,219 8.0%

Taubman Centers

TCO $52.51 $21.57 59% $1,144 $3,845 $2,701 8.0%

Acadia Realty Trust

AKR $25.28 $13.13 48% $433 $951 $518 8.0%

Federal Realty Trust

FRT $81.37 $52.32 36% $3,085 $4,723 $1,638 8.5%

Pennsylvania REIT

PEI $32.53 $3.96 88% $156 $2,431 $2,274 10.6%

Regency Centers

REG $65.52 $31.40 52% $2,198 $4,206 $2,008 10.5%

1/ Implied cap rate based on Wall Street analyst reports from the end of October to early November.