THIS IS NOT YOUR FATHER'S EQUITY REIT MARKET

Implications: If this writer is correct there is very little to worry about for holders of stock in mall and strip shopping center REITs. While I am not an expert in other types of equity REITs, my experience tells me that they generally move in tandem to the shopping center REITs. It is my firm belief that this writer has overlooked several key elements that must be factored into any analysis of the near term prospects of shopping center REITs. My commentary will outline the two most important factors that will prevent the shopping center REITs from making any substantial rebound in the foreseeable future.

Analysis: By far the most important factor overhanging the entire mall REIT industry is the continued threat of further anchor store closings.  This factor was not even mentioned in the article by Janet Morrissey that appeared in the current issue of INVESTMENT NEWS.

We have seen in recent weeks the announced closings of over 200 anchor stores which will have a significant impact on the FFO of over 200 malls, many of which are part of the portfolio of a wide variety of mall REITS.  However, the real problem is yet to be announced. We know that Mr. Lampert has indicated he wants to close "between 200 & 300 under performing Sears stores" while the management of Bon-Ton's and Dillard's have announced they "are starting a much more aggressive store closing program".

When the closing of significant number of stores by any or all of these three giant anchor department stores will have a profound impact on each of these retailer's stock prices, the domino impact on their host mall REITs will have an even more profound and longer lasting impact.

The reason it will be longer lasting is that there are simply no replacement anchors to be had in the marketplace. The reason it will be more profound is that each anchor store closing not only causes a 125,000 + sq. ft. space to "go dark", but it also severely reduces the customer foot traffic in the entire wing of the mall. Every one of the inline retailers that rely on the customer traffic generated by the vacant anchor will be hurt and probably not want to renew their lease in that section of the mall.

There are many mall REITs that will be impacted over the next five years and Ms. Morrissey totally ignored these facts when making her overly optimistic projections.