WHAT'S NEW IN NET LEASE

Boulder Group's breaks down retail sales by cap rate showing some fluctuations when it comes to price per square foot.

RETAIL PROPERTIES
CAP RATE BRACKET AVG. PRICE AVG. $/SQ. FT. % OF DEALS
0.00-6.99% $3,146,116.43 $388.93 36.09
7.00-7.99 2,516,293.20 284.76 28.04
8.00-8.99 1,778,736.30 208.89 18.26
9.00-9.99 1,290,884.32 158.79 6.99
10.00-10.99 1,049,944.87 163.23 5.50
11.00+ 1,169,495.89 276.85 5.13

Cap rates seemed to bottom out in the $7-million range on retail net lease transactions during the first quarter.

RETAIL PROPERTIES
PRICING BRACKET AVG. CAP AVG. $/SQ. FT. % OF DEALS
0-$999,999 8.38% $172.44 35.30
1,000,000-$1,999,999 7.40 350.07 28.36
2,000,000-$2,999,999 7.08 399.68 13.68
3,000,000-$3,999,999 7.21 344.57 7.46
4,000,000-$4,999,999 7.10 321.80 4.50
5,000,000-$5,999,999 7.03 348.28 3.23
6,000,000-$6,999,999 7.01 373.23 1.98
7,000,000-$7,999,999 6.58 348.74 1.21
8,000,000-$8,999,999 6.96 287.72 0.98
9,000,000-$9,999,999 7.19 373.40 0.65
10,000,000+ 6.56 358.34 2.66
Source: Boulder net Lease Funds LLC

Mean cap rates by property type during the first quarter.

Q1 2007
SECTOR MEAN CAP CHANGE
Industrial 8.00 0 bps
Retail 7.27 2 bps
Office 7.64 7 bps
10-Year 4.69 26 bps
Prime 8.25 0 bps
LIBOR (6-Mo.) 5.39 9 bps

SCOPING OUT THE SCENE

Existing inventory for both community and neighborhood centers is fast approaching one billion square feet.

INVENTORY (SF UNITS)
Community Neighborhood
1999 835,491,000 781,609,000
2000 860,417,000 798,922,000
2001 902,924,000 833,926,000
2002 920,428,000 846,662,000
2003 933,186,000 860,686,000
2004 948,584,000 876,498,000
2005 966,005,000 893,030,000
2006 979,312,000 906,519,000

The amount of space available at community centers rose in 2006 after falling the two previous years.

COMMUNITY VACANCY
Vacant Stock Occupied Stock
1999 56,517,000 778,974,000
2000 53,019,000 807,398,000
2001 63,638,000 839,286,000
2002 69,447,000 850,981,000
2003 71,215,000 861,971,000
2004 68,608,000 879,976,000
2005 64,076,000 901,929,000
2006 67,213,000 912,099,000

Net absorption at both community and neighborhood centers hit their lowest points in years in 2006.

NET ABSORPTION
Community Neighborhood
1999 13,800,000 13,753,000
2000 21,264,000 14,953,000
2001 9,082,000 5,675,000
2002 11,695,000 14,086,000
2003 10,991,000 14,457,000
2004 18,005,000 14,401,000
2005 21,953,000 12,935,000
2006 10,170,000 8,966,000

The number of completions dropped in 2006 after reaching record highs in 2005 for both community and neighborhood centers.

COMPLETIONS
Community Neighborhood
1999 12,790,000 9,715,000
2000 15,684,000 8,834,000
2001 16,259,000 10,438,000
2002 16,867,000 12,438,000
2003 12,758,000 14,024,000
2004 15,398,000 15,812,000
2005 17,421,000 16,532,000
2006 13,307,000 13,489,000

There was also more vacant space at neighborhood centers in 2006, reaching the highest point ever.

NEIGHBORHOOD VACANCY
Vacant Stock Occupied Stock
1999 56,711,000 724,898,000
2000 52,084,000 746,838,000
2001 59,723,000 774,203,000
2002 58,373,000 788,289,000
2003 57,940,000 802,746,000
2004 59,351,000 817,147,000
2005 62,948,000 830,082,000
2006 67,471,000 839,048,000

Even with a slowing leasing environment, the percent of vacant space at both formats remained at healthy levels.

VACANCY %
Community Neighborhood
1999 6.8 7.3
2000 6.2 6.5
2001 7.0 7.2
2002 7.5 6.9
2003 7.6 6.7
2004 7.2 6.8
2005 6.6 7.0
2006 6.9 7.4

Note: The Reis database includes neighborhood and community retail properties in complexes with 5,000 or more square feet. Although the database may also contain selected freestanding, mixed-use, outlet center, power center and regional properties, these are excluded from inventory, completions and all otherReis competitive retail statistics.

WHO IS BUYING RETAIL?

NATIONAL RETAIL INDEX
RANK RANK 06-07
MSA 07 06 CHANGE
New York City 1 4 3
Ft. Lauderdale 2 9 7
Phoenix 3 5 2
Oakland 4 3 -1
Seattle 5 8 3
San Diego 6 1 -5
Orange County 7 2 -5
San Francisco 8 7 -1
Washington D.C. 9 6 -3
San Jose 10 17 7
West Palm Beach 11 12 1
Los Angeles 12 14 2
Las Vegas 13 19 6
Atlanta 14 13 -1
Austin 15 11 -4
Riverside/San Bernardino 16 10 -6
Portland 17 21 4
Boston 18 15 -3
Northern New Jersey 19 16 -3
Miami 20 20 0
Tucson 21 18 -3
Chicago 22 22 0
Tampa 23 25 2
Dallas/Ft. Worth 24 26 2
Denver 25 24 -1
Houston 26 29 3
Orlando 27 23 -4
Sacramento 28 27 -1
San Antonio 29 32 3
Minneapolis/St. Paul 30 30 0
Philadelphia 31 28 -3
Charlotte 32 35 3
Jacksonville 33 31 -2
Salt Lake City 34 34 0
New Haven 35 33 -2
Indianapolis 36 37 1
Kansas City 37 39 2
Columbus 38 41 3
Milwaukee 39 36 -3
Detroit 40 38 -2
Cleveland 41 40 -1
Cincinnati 42 42 0
Source: Marcus & Millichap

AND THE WINNER IS…

Centro Properties Group was the top buyer of retail property in 2006.

2006 VOLUME
Buyer Name Type $ millions Props.
Centro Properties Group Foreign $3,702 162
Kimco Realty REIT/Public $3,623 150
Watt Commercial Properties Inc. Private $3,185 156
Prudential RE Investors Institutional $2,825 107
Triple Five Group Private $1,800 1
Staubach Capital Partners Private $1,293 342
Weingarten Realty REIT/Public $942 34
Investcorp Foreign $764 37
Inland Real Estate Group Syndicator $760 33
Inland Real Estate Corp. REIT/Public $653 22
Source: Real Capital Analytics

RETAIL REITS RALLY ON

After another banner year in 2006, retail REIT stocks are off to another hot start in 2007. Leading the way are regional mall REITs, which, as of late April, were already up 13.85 percent for the year.

RETAIL REIT TOTAL RETURNS
Total Returns (%) 1994-2007
COMPOSITE REIT INDEX
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07*
Retail 3.19 5.10 34.65 16.99 -4.94 -11.77 17.97 30.42 21.07 46.77 40.23 11.80 29.01 9.80
Shopping Centers 1.75 7.36 33.55 21.44 -6.99 -10.71 15.10 29.89 17.72 43.12 36.25 9.27 34.87 6.41
Regional Malls 8.77 3.00 45.27 13.69 -2.62 -14.58 23.50 31.88 24.56 52.24 45.01 16.54 23.83 13.85
Freestanding -5.49 31.59 30.77 17.77 -6.25 -4.89 8.95 23.95 21.76 35.91 32.87 -0.49 30.74 1.77
* Through April 20
Source: NAREIT

RETAIL REITS WIN

Over the last five years, mall REITs have posted an amazing 332 percent return while shopping centers have delivered a 246 percent return, leading all other property sectors in Merrill Lynch's coverage universe.

HISTORIC RATES OF RETURN
Estimated sub-sector total rates of return
SECTOR YEAR TO DATE LAST 12 MONTHS LAST 3 YEARS LAST 5 YEARS
Industrial 5.50% 26.10% 111.00% 192.00%
Diversified 0.90 25.60 107.00 180.00
Self Storage -1.20 24.80 120.00 175.00
Net Lease 3.00 21.60 78.00 163.00
Malls 15.50 37.30 139.00 332.00
Health Care 1.70 37.60 81.00 169.00
Shopping Centers 7.30 31.00 124.00 246.00
Office 3.00 25.60 112.00 181.00
Apartments -2.50 17.50 118.00 145.00
Hotels 8.60 27.30 98.00 111.00
Manufactured Housing -0.20 15.80 34.00 75.00
Entire Index 4.20 27.00 110.00 170.00
Source: Merrill Lynch

REITs tapped public markets heavily in 2006 and are off to a fast start in 2007.

U.S. REITS
Equity offerings ($ in millions)
YEAR PROCEEDS FROM COMMON SHARES
1990 $288.50
1991 $495.90
1992 $1,581.70
1993 $11,629.00
1994 $9,578.30
1995 $5,786.30
1996 $8,743.20
1997 $20,894.00
1998 $10,982.10
1999 $3,241.50
2000 $826.60
2001 $2,898.90
2002 $2,996.50
2003 $5,746.10
2004 $11,222.00
2005 $8,782.30
2006 $14,727.90
2007* $3,156.00
*As of 4/19/2007 Source: Merrill Lynch