Cohen & Steers

U.S. Real Estate Securities Strategy

MARCH 31, 2009* INVESTMENT COMMENTARY

We would like to share with you our review and outlook for unsecured bonds, above the $500 million originally planned,
the U.S. real estate securities market as of March 31, 2009. For along with $550 million from a secondary stock offering.
the month, the FTSE NAREIT Equity REIT Index had a total AMB Property, which owns and operates industrial
return of +4.1%. For the quarter, the index had a total return warehouses, raised more than $500 million.
of –31.9%. In April, Kimco Realty, the largest owner of U.S. shopping
centers, raised more than $600 million, and ProLogis, the
Investment Review world’s largest warehouse manager and developer, raised
$1 billion.
Stocks declined in the first quarter amid a weak economy
and mostly sluggish capital markets, factors that took a Cohen & Steers was instrumental in these capital raisings,
disproportionately higher toll on real estate securities for and was a cornerstone investor in the offerings. We believe
much of the period. these transactions have demonstrated to the market that
high-quality REITs have access to capital and can reduce
Following a negative January, equities fell in February as their leverage, as needed. In our view, these companies, along
investors reacted unfavorably to the new administration’s with others that have strong balance sheets, will weather this
proposed fiscal budget and were also disappointed with a lack recession and credit cycle and remain industry leaders.
of specifics on how the government would address the banking
crisis. At the end of the month, General Electric announced
that it would cut its dividend and the government revealed FTSE NAREIT PERFORMANCE
that it would exchange preferred stock for a $25 billion stake
in Citigroup’s common stock; these events added to the
FTSE NAREIT Equity
uncertainty, and markets hit multi-year lows in early March. Period REIT Index
Q109 -31.9%
More clarity on policy lifted REITs in March
1 Year -58.2%
Although volatility remained high, conditions improved after
3 Years -25.1%
the Federal Reserve stated that it would make substantial
purchases of long-term Treasury and mortgage-backed 5 Years -8.6%
bonds. Equities received another boost when Treasury 10 Years 3.9%
Secretary Geithner unveiled the details of his Public Private Total returns of the FTSE NAREIT Equity REIT Index, an unmanaged capitalization-weighted
Investment Program (PPIP) rescue plan, which involves index of all equity real estate investment trusts. Periods greater than one year are annualized.
working with private investors to purchase assets from banks. Past performance does not guarantee future results. This information is not representative of
any Cohen & Steers account and no such account will seek to replicate an index. You cannot
The program allows for the purchase of “legacy” securities invest directly in an index.
backed by commercial real estate mortgages (and the purchase
of mortgages themselves). Yield spreads on commercial
mortgage-backed securities—a traditional means of real estate
financing—narrowed, and REITs had a strong rally in response FTSE NAREIT CHARACTERISTICS
to the news.
Discount to Net Asset Value -5.7%
Recapitalization comes to the United States Dividend Yield 9.9%
In the wake of successful recapitalization by select commercial Price/Cash Flow (est. ‘09) 8.8x
real estate companies in the United Kingdom and Australia, Price/Cash Flow Growth (est. ‘9 vs. ‘08) -8.8%
U.S. REITs have begun to raise new capital. Their goals Price/Cash Flow Growth (est. ‘10 vs. ‘09) -7.8%
are similar: to strengthen their balance sheets, meet debt Weighted Average Market Cap. $3.2B
maturities and have enough liquidity to take advantage of
Total Market Capitalization $119.1B
buying opportunities.
Number of Securities 98
In March, Simon Property Group, the largest owner of U.S.
malls, raised $1.2 billion through a concurrent debt and equity Source: Cohen & Steers
Characteristics are market capitalization-weighted averages of estimates for companies in the
offering. The company received $650 million from the sale of FTSE NAREIT Equity REIT Index.

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 Cohen & Steers
U.S. Real Estate Securities Strategy
MARCH 31, 2009* INVESTMENT COMMENTARY

In other news, industrial REIT ProLogis received $845 million
in cash from the previously announced sale of its operations in
China and its property fund interests in Japan. The company
was also reported to be close to selling some of its U.S.
properties, part of a goal to deleverage its balance sheet by
$2 billion in 2009.
REITs’ credit was upgraded
J.P. Morgan upgraded its U.S. REIT credit recommendation
in March, to overweight from neutral, citing the positive
implications of the bank rescue plans. The upgrade was also based
on capital raising and balance sheet news. In addition to Simon,
AMB and ProLogis, the report noted Liberty Property’s placing of
$320 million in mortgage bonds and BRE Property’s tendering to
buy back and retire $380 million in unsecured bonds.
We are encouraged that the capital markets for real estate
companies showed signs of unlocking in the quarter. Over the
rest of the year we expect more real estate companies to raise
capital in anticipation of debt coming due in the next several
years. Some companies have more immediate needs than
others; even for those with currently strong balance sheets,
we think that additional capital will help remove uncertainty.
Although capital raisings can be dilutive, we believe that
investors will welcome efforts to strengthen balance sheets.
As REITs raise and preserve cash to meet debt maturities—
including through the use of dividend reductions, dividend
payments in stocks and asset sales—they will also be better
positioned to make distressed property acquisitions when
opportunities arise.

Portfolio performance
Our portfolios declined in the quarter and performed in line FTSE NAREIT PROPERTY SECTOR TOTAL RETURNS
with their benchmarks. Factors that contributed to relative Q109
return included our stock selection and underweight in the Manufactured Home -2.4%
shopping center sector (which had a total return of –41.6% Specialty -11.0%
within the index). This reflected our underweight in Kimco Free Standing -12.6%
Realty, which underperformed on concerns over its capital Industrial/Office -26.0%
needs. Our overweight position in the manufactured home Health Care -27.8%
sector (–2.4%) aided returns, as it benefited from stable Apartment -30.6%
cash flows. Self Storage -32.2%
Our stock selection and underweight in the apartment Office -33.1%
sector (–30.6%) detracted from relative return. Specifically, Regional Mall -36.9%
Hotel -38.2%
Apartment Investment & Management struggled. While the
Shopping Center -41.6%
company has higher leverage, we believe it will continue to
Diversified -41.7%
obtain financing on favorable terms. Our overweight in the
Industrial -41.9%
regional mall sector (–36.9%) and stock selection in the office
Equity REIT Index -31.9%
sector (-33.1%) also hindered performance.
Total returns of the FTSE NAREIT Equity REIT Index, an unmanaged capitalization-weighted
index of all equity real estate investment trusts. Periods greater than one year are annualized.
investment outlook Past performance does not guarantee future results. This information is not representative of
any Cohen & Steers account and no such account will seek to replicate an index. You cannot
Although it is too soon to know if the worst of the financial invest directly in an index.
crisis is behind us, the various monetary and fiscal policies now
in place give some grounds for optimism. The major initiative
outlined in March, PPIP, includes the use of private capital to
purchase troubled assets clogging the credit markets, using
investment structures that match those assets. Considering
recent developments, we expect economic conditions to
improve in late 2009 or early 2010 (healthier banks are a
precondition for growth), followed by a strengthening in real
estate fundamentals.

IR86 Q109 2
280 Park Avenue • New York NY 10017 • 212.832.3232 • cohenandsteers.com
 Cohen & Steers
U.S. Real Estate Securities Strategy
MARCH 31, 2009* INVESTMENT COMMENTARY

Update: General Growth Properties

General Growth Properties (GGP), the second-largest
mall owner and operator in the United States, filed for
Chapter 11 bankruptcy protection on April 16. This did
not come as a surprise to us or to the market, considering
that last November GGP started trading at or below
a dollar, indicating a high probability of bankruptcy.
Cohen & Steers does not have a position in the company.
We do not expect this to have a material impact on
the valuations of mall stocks, nor do we anticipate
similar actions by other REITs. GGP’s bankruptcy is a
company-specific event that was triggered by excessive
leverage and its use of short-term debt to execute an
aggressive acquisition program. When the credit crisis
hit, the company was unable to refinance its debt due
to lenders’ more stringent underwriting standards. This
development stands in contrast to the increasing number
of REITs that have demonstrated access to capital as
highlighted above.

The views and opinions in the preceding commentary are

as of the date of publication and are subject to change.
This material represents an assessment of the market
environment at a specific point in time, should not be relied
upon as investment advice and is not intended to predict or
depict performance of any investment.

* The information presented above is as of April 20, 2009, for informational purposes only and does not constitute a recommendation to buy or sell a security or other investment.

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