REITs and the CPI (Consumer Price Index)

Comments on REITs and the CPI

REITs are generally able to pass through increases in operating expenses
with a slight time lag.

Office REITs have leases that generally include escalators, resetting rents annually,
or with once a year supplemental charges for common area costs, including energy.

For Residential REITs, average lease term is slightly more than 1 year, so higher
energy costs can hurt operating results for a period of 12 months.

Hotel REITs can immediately adjust room rates, but discounting may offset this,
particularly as airline fare increases may lead to restrictions on corporate travel.

Retail REITs are generally unaffected by CPI increases. Many Retail REITs have
net leases, while others can easily adjust leases for higher costs.

Financial REITs are affected most by interest rate increases, so the only impact
from the CPI is anticipation of higher rates due to continuing CPI pressure.

Health Care REITs have leases that are tied to the EBITDAR of their tenants, so
Health Care REITs are relatively unaffected by higher energy costs or other
CPI cost increases.

Conclusion:

We think REITs are generally well positioned to absorb or passthrough a higher CPI.

Concern over CPI may bring investors back to REITs as a relatively non-cyclical
part of the stock market. REIT yields attract defensive investors.

We view CPI concerns as a net positive for REITs relative to other market sectors.

Comments from REITonAIM 05/17/2006