Fitch Ratings believes the maintenance of sufficient liquidity represents the primary credit risk t o U.S. equit y REITs despit e recent opport unist ic act ions t o reduce financial pressures. Challenges remain, including:

Limited visibility regarding net operating income capitalization rates, which continues to stress commercial property values constraining the magnitude of institutional investor-secured debt lending volume.

Recent improvements in financial markets indicate some positive momentum. Four Fit ch-rat ed REITs have accessed t he unsecured debt market since March at yields of bet ween 7.0% and 10.75%. In addit ion, several REITs have execut ed bond t ender offers in recent months, while common equity issuances of over $12 billion have enabled REITs t o reduce leverage and bolst er liquidit y since t he beginning of 2009.

Fit ch has undert aken a review of it s liquidit y met rics and added a met ric t hat scales a company\u2019 s liquidity surplus or shortfall based on its size, calculated as the liquidity surplus or deficit divided by cash flows from operating activities based on a first- quarter 2009 run rate through Dec. 31, 2010. The tables on pages 4\ue0007 provide an evaluation of issuers\u2019 liquidity by sector and rating indicating this new metric. While most REITs possess a liquidity surplus, Fitch anticipates that more REITs will likely have liquidity deficits starting next quarter, when Fitch will begin to include 2011 debt mat urit ies in it s liquidit y calculat ions.

Year t o dat e, Fit ch\u2019 s rat ing act ions have included 15 downgrades, 16 affirmat ions, and two upgrades. Certain downgrades have been driven by weakening liquidity profiles, while further rating downgrades may occur in instances where liquidity shortfalls become a growing concern. Nevert heless, despit e various challenges, many REITs have taken advantage of opportunities to bolster liquidity. Given that opportunities are company-specific rather than broad for the sector, Fitch\u2019s view is to \u201c hold the applause\u201d on REIT liquidit y and highlight s t he following challenges.

revolving credit facilit ies mat ure beyond Dec. 31, 2010. Wit hin t he t ables on page 4\ue0007, Fit ch has reduced t he borrowing capacit y under revolving lines of credit by 33% for REITs t hat have revolving lines of credit t hat mat ure before Dec. 31, 2010 after taking into account extension options for illustrative purposes. This capacity reduct ion reflect s a \u201c what if\u201d scenario for cert ain REITs as revolving credit facilit y maturities approach. While a limited number of REITs have either recently ext ended or increased t he borrowing capacit y under such revolving facilit ies, Fit ch believes that many of these facilities will be reduced in size. For its rated universe, Fitch does not believe that many of these facilities will be converted from unsecured to secured given the strong lending relationships most of these

issuers have with their banking groups. That said, for weaker issuers across t he equit y REIT universe, t he prevalence of secured credit facilities will likely increase given banks\u2019 limit ed capit al and concerns regarding borrower credit .

constitute a panacea for REIT liquidity, as the unsecured bond market remains unattractive to most equity REITs. Credit spreads have tightened, but indicative pricing across the industry remains unattractive to many companies, particularly relat ive t o secured debt .

secured funding in the commercial mortgage-backed securities (CMBS) market. Although the inclusion of legacy CMBS for eligibility under the Federal Reserve\u2019 s Term Asset Backed Securit ies Loan Facilit y beginning in July may play a role in t he restoration of investor confidence in commercial real estate, CMBS issuance volumes are highly unlikely t o be rest ored t o pre-2008 levels.

to date have allowed companies to reduce uses of liquidity, such transactions have been a byproduct of bonds t rading at discount s t o par, which have included securit ies issued by REITs with below-investment-grade issuer default ratings (IDRs). Spreads have t ight ened recent ly, shrinking t he arbit rage opport unit y bond t enders present .

to date by REITs, the re-equitization wave has enabled REITs to strengthen their capit al bases. However, invest or demand may be driven in part by low share prices relative to net asset values, while share prices of certain other equity REITs are such t hat prospect ive equit y issuances are unlikely.

Year t o dat e, 18 REITs have launched t ender offers t o repurchase approximat ely $7.0 billion of out st anding bonds and have t endered for approximately $3.1 billion of securit ies. Many REITs t hat have launched t ender of f ers have IDRs in t he \u2018 BBB\u2019 rat ing cat egory. Fit ch\u2019 s rat ings for REITs t hat have launched t ender offers range widely, from Public St orage (which has an IDR of \u2018 A\u2019 by Fit ch, wit h a St able Rat ing Out look) t o Cent ro NP LLC (which has an IDR of \u2018 CCC\u2019 by Fit ch, wit h a Negat ive Rat ing Out look). Fit ch views consummat ed t ender offers as encouraging in that they demonstrate REITs\u2019 ability to reduce their future funding obligations and temporarily reduce cash interest expense by utilizing low-cost unsecured lines of credit. Such t ender offers have been affected by REITs wit h capacity under their credit facilities. REITs that have not executed tender offers may have limited liquidity to launch t ender offers, while ot hers have short er t em f unding needs t o address.

Similarly, t he equit y issuance wave has been encouraging for REIT liquidit y, as year t o dat e, 38 REITs have raised an aggregate of approximat ely $12.8 billion in proceeds. With certain companies reluctant to issue at these prices due to resultant dilution, liquidit y across t he equit y market s is not uniformly st rong.

Year to date in 2009, $18.2 billion in CMBS have been issued but approximately $18.1 billion of these securities were non-U.S. CMBS transactions. Insurance companies have also reduced primary market commercial mort gage originat ions.

$4.6 billion issued by six REITs in 2008. Discount s t o yield declined following Simon Propert y Group, L.P.\u2019 s $650 million 10-year 10.35% not e issuance on March 20, 2009 priced t o yield 10.75% (rat ed \u2018 A\ue000\u2019 by Fit ch, wit h a St able Rat ing Out look). For example, on May 26, 2009 WEA Finance LLC, an affiliat e of The Westfield Group, issued $700 million five-year 7.5% notes priced to yield 7.75% (rated \u2018 A\ue000\u2019 by Fitch, with a Stable Rating Outlook). However, credit spreads remain high across the REIT sector, ranging from approximately 400\ue000800 basis points over 10-year treasury notes for many investment-grade-rated issuers. In Fitch\u2019 s view, the five unsecured bond transactions year to date do not yet constitute a broader trend to indicat e t hat t he unsecured bond market has reached a market -clearing level.

As not ed in Fit ch\u2019 s April 2, 2009 liquidit y st udy titled \u201c U.S. Equity REIT Liquidit y Updat e: The Clock is Ticking,\u201d REITs continue to rely principally on the secured debt markets, unused capacit y under bank revolving lines of credit , and ret ained cash flow t o address near-term unsecured debt maturities. Of the companies in the table on pages 4\ue0005, amounts available under bank lines have been reduced to 51.0% of total sources of liquidit y as of March 31, 2009 (aft er t aking int o account reduct ions in revolving line of credit borrowing capacity for revolving credit facilities that mature before Dec. 31, 2010 after extension options), compared with 64.4% of total sources of liquidity as of Dec. 31, 2008. Cert ain companies have used proceeds from recent ly raised capit al t o reduce borrowings under bank lines. However, Fitch remains particularly concerned wit h companies t hat are almost exclusively reliant on bank revolving lines of credit for unsecured bond mat urit y t akeout s.

In this environment, it has been rare for REITs to both extend and increase the borrowing capacity under revolving lines of credit. As such, for illustrative purposes, Fitch has reduced the borrowing capacity under revolving lines of credit by 33% for REITs that have such revolving line of credit maturities. For other companies, commit ment sizes of revolving credit facilit ies t hat mat ure before Dec. 31, 2010 (aft er t aking int o account ext ension opt ions) may be reduced. One except ion is Vent as, Inc., which has an IDR of \u2018 BBB\ue000\u2019 by Fitch, with a Positive Rating Outlook. In March 2009, Vent as announced it ext ended and amended it s unsecured revolving credit facilit ies t o April 2012, increasing t he t ot al borrowing capacit y from $850 million t o $867 million.

There are no \u201c bright lines\u201d regarding mapping the magnitude of the liquidity surplus or shortfall to a specific IDR. However, a large maj ority of REITs with investment- grade IDRs have liquidit y surpluses. Addit ionally, Fit ch has added a met ric t hat scales a company\u2019 s liquidit y surplus or short fall based on its size, calculat ed as t he liquidit y surplus or deficit divided by cash flows from operating activities based on a first- quart er 2009 run rat e t hrough Dec. 31, 2010.

Even t hough 36 REITs in t he t able on pages 4\ue0005 have liquidit y surpluses and eight have liquidity shortfalls through Dec. 31, 2010, Fitch anticipates that more REITs will likely have liquidity deficits starting next quarter, when Fitch will begin to include 2011 debt maturities in the liquidity calculations. Year to date, Fitch\u2019 s rating actions have included 15 downgrades, 16 affirmat ions, and t wo upgrades. Cert ain downgrades have been driven by weakening liquidity profiles, while further rating downgrades may occur in instances where liquidity shortfalls become a growing concern. Nevertheless, despite various challenges, many REITs have taken advantage of opportunities to bolster liquidity. Given that opportunities are company-specific rather than broad for the sector, Fitch\u2019 s view is to hold t he applause on REIT liquidit y.