HIGHLIGHTSNORTH AMERICA

www.colliers.com

Q1 2013 | RETAIL

Retail Follows Housing Recovery

MARKET INDICATORS

U.S. RETAIL MARKET*SUMMARY STATISTICS, Q1 2013

Q1 2013*

Q2 2013**

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

* Compared with prior period ** Projected, relative to prior period

Vacancy Rate: 10.06% Change from Q4 2012: -0.03%

Under Construction: 5.2 Million Square Feet

New Supply: 2.1 Million Square Feet

Net Absorption: 4.5 Million Square Feet

ASKING RENTS PER SF Shopping Center Space: $14.80 Change from Q3 2012: +$0.03

*Subset of Colliers markets Source: CoStar

BEST COMPARABLE SALES GROWTH

REPORTING PERIOD

QUARTERLY % CHANGE (Y-o-Y)

Cabelas Q1 2013 24.0

Pier 1 Q4 2013 7.9

Krispy Kreme Q4 2013 7.5

Home Depot Q4 2012 7.1

TJMaxx Q4 2013 7.0

American Apparel Q4 2012 7.0

WORST COMPARABLE SALES GROWTH

REPORTINGPERIOD

QUARTERLY % CHANGE (Y-o-Y)

JC Penney Q4 2012 -31.7

Barnes & Noble Q3 2013 -7.3

Staples Q4 2012 -5.0

Office Depot Q1 2013 -5.0

OfficeMax Q4 2012 -4.6

GameStop Q4 2012 -4.6

JAMES COOK Director of Research | USA

KEY TAKEAWAYS• Jobs and consumer confidence have been a mixed bag

in recent quarters. But the message behind each statistic is clear: The economy is improving…gradually.

• Shopping centers absorbed 4.48 million square feet in Q1 2013, with the national vacancy rate dropping from 10.09 to 10.06 percent. Average asking rents continued their gradual increase, inching up by 0.3 percent to $14.80 per square foot.

• Employment and housing are driving the U.S. retail recovery. The five markets with the most absorption are all on the NAHB/First American Improving Markets Index (IMI), which highlights areas showing long-term growth in employment and housing.

• Tens of millions of square feet of shopping center space are in the development pipeline across Canada. The influx of American retailers has helped keep occupancy high.

• Mexico built more than 1.5 million square feet of new shopping center space last year and is experiencing a surge in new store openings from national and international brands.

In a special focus on restaurants, we examine how brands are navigating the tricky waters of

menu pricing, and conclude that the gravity of the happy medium has pulled quick-service pricing up and casual down. We also look at why chains have to battle for qualified franchisees and the coming shake-up in the crowded fast-casual arena.

HIGHLIGHTS | Q1 2013 | RETAIL | NORTH AMERICA

P. 2 | COLLIERS INTERNATIONAL

Consumer spending rose by 0.7 percent in February and 0.2 percent in March, despite the end of the two-year payroll tax holiday in January. Much of this increase was due to an unusually cold March, which required extra spending for heating. In fact, combined retail and restaurant spending fell in March.

Real GDP grew by 2.5 percent in the first quarter of 2013. The effects of the sequester have yet to take a toll on the economy. Assuming the sequester persists through September, IHS Global Insight projects it will knock 0.4 percent off of 2013 growth. This will cause a see-saw pattern in growth from quarter to quarter, as we bounce from weak to healthy—not quite the steady growth that keeps consumers shopping and retailers expanding, but better than it could be.

EMPLOYMENT AND HOUSING DRIVING U.S. SHOPPING CENTER RECOVERYAmong the varieties of retail property in the U.S., community, neighborhood and strip centers suffered the most following the recession. As a group, these shopping centers saw vacancies peak in 2010 and then gradually decline as the economy improved. Since 2010, the employment and housing recoveries have led to growing consumer spending, and spurred retailer demand for further shopping center space. In the first quarter of 2013, shopping centers absorbed a net 4.48 million square feet and the national vacancy rate dropped from 10.09 to 10.06 percent. Average asking rents continued their gradual increase, inching up by 0.3 percent to $14.80 per square foot. Shopping center construction has remained slow: In the U.S. markets tracked by Colliers, 2.10 million square feet of new shopping center space was built in Q1 2012, with another 5.25 million square feet under construction.

• Chicago saw a 4.1 percent growth in employment since its trough in 2009. The market absorbed 621,107 square feet, more than any other in Q1. It also topped the nation in shopping center construction, with 560,400 square feet.

• Houston and Dallas have each seen substantial economic growth thanks in large part to the energy industry. In Houston, where employment has grown by 10.8% since 2009, the market saw 351,734 square feet of absorption. In Dallas, where employment grew by 8.9%, the market absorbed 250,089 square feet.

• Three more IMI markets also topped the nation. Hawaii, Denver and Phoenix each absorbed more than 300,000 square feet. Hawaii ranked second for new construction, with 283,535 square feet.

U.S. RETAIL PROPERTY SALES VOLUME SLIPSRetail property sales volume was down 30% year-over-year in the first quarter of 2013, according to data from Real Capital Analytics. However, the single-tenant investment sector saw $1.3 billion in transactions, a 98% jump in volume year-over-year. Cap rates across all retail products, which had been dropping since 2010, have remained flat for nearly a year. The average national retail cap rate is 7.3%.

Employment and Confidence: The Big Picture The true drivers of retail spending—jobs and consumer confidence—have been a mixed bag in recent quarters. But the macro message behind each statistic is clear: The economy is improving…gradually.

• Since the explosion of unemployment, which peaked in 2009, the situation has gradually improved. April saw an encouraging 165,000 jobs added, and the unemployment rate fell one tenth of a percent. There is a slow recovery underway.

• The Conference Board’s Consumer Confidence Index (CCI) was down in March and up in April. The Thomson Reuters/University of Michigan Consumer Sentiment Index was down in April and up in March. While at the micro level these indices appear contradictory, the larger trend in consumer confidence has been positive: Since November 2008, the CCI has risen from 55.3 to 76.4 in April 2013. But like employment, it has had ups and downs along the way.

HOUSING RECOVERY IS THE BACKBONEHousing fundamentals are strong, making up much of the backbone of current economic growth. Housing starts rose by 28% in 2012, and both the number and average price of home sales are on the rise. This improvement has bolstered consumer spending, as some consumers spend to outfit their new homes, while others feel more willing to spend because of the psychological effects of owning a home with a rising market value.

BELLWETHER ECONOMIC INDICATORS

Q-o-Q CHANGE (%) Y-o-Y CHANGE (%)

GDP U.S. 0.6 1.8

GDP Canada* 0.1 1.1

GDP Mexico* 0.7 3.2

Retail Trade Sales** 0.6 2.8

*Q4 2012 growth rates of real GDP. Source: OECD **Advanced estimate of U.S. retail and food services for March 2013. Source: U.S. Dept of Commerce

MARCH 2012 DEC 2012 MARCH 2013

Consumer Confidence – Overall 69.5 65.1 59.7

Housing Market Index 28 47 44

NRA Restaurant Performance Index (RPI) 102.2 99.7 100.6

National Unemployment Rate (%) 8.2 7.8 7.6

HIGHLIGHTS | Q1 2013 | RETAIL | NORTH AMERICA

COLLIERS INTERNATIONAL | P. 3

Tens of millions of square feet of shopping center space are in the development pipeline across the country. Outlet malls, new enclosed malls, mixed-use town centers and major redevelopments of existing malls are all on the slate. Seasons of Tuxedo, a 1.5 million square foot IKEA-anchored center in Winnipeg, completed construction this year. Outlet malls have sprung up in Canada, with proposed, existing and under-construction projects in Vancouver, Toronto and Ottawa. Tsawwassen Mills and Tsawwassen Commons, with a combined 1.8 million square feet of retail and office space in metro Vancouver, are set to open in 2015.

Online sales have begun to make an impact on Canadian brick-and-mortar retailers, causing Staples and Best Buy to each reduce their physical presence. Best Buy Canada will close 15 of its 58 locations, and Staples will downsize 39 of its 330 locations, reducing its typical footprint from about 25,000 square feet to 15,000 square feet.

The added competition from new American stores and the growing popularity of online retail have also helped to keep down core inflation. One danger for Canadian retailers is that with a strong Canadian dollar, consumers are more likely to cross the border and do their shopping in the United States. Net spending by Canadian consumers abroad as a percentage of total consumption has grown to an historic high.

Mexico’s Growth Opportunities Attract Retailer InvestmentMexico’s dynamic economic environment is attractive to foreign invest-ment looking for growth in an emerging market. The country’s consumer income stability, job growth and growing consumer debt have fostered demand for new retailers and shopping centers.

The largest deal of the quarter is an example of one REIT’s shift in strategy. Vornado’s sale of Green Acres Mall in Valley Stream, New York, came after Chairman Steve Roth wrote in his annual investment letter that he sees a “bubble on the horizon.” Vornado plans to sell more than it will buy in the near future, focusing instead on leasing and value creation. Seeing an opportunity to create value of its own, Macerich paid $278 per square foot for the Long Island mall, which includes struggling tenants Sears and JC Penney.

In another notable sale, Extell Development, in a joint venture with Starwood Capital Group, purchased a former Pathmark grocery site in New York City for almost $150 million (including a lease buyout of $46.5 million). The Lower East Side site will be redeveloped to include one million square feet of luxury apartments, an underground garage and urban retail.

CMBS LEADS LENDERS IN RETAIL EXPOSURE, RISK APPETITECommercial mortgage-backed securities (CMBS) lending began its resurgence in 2010 and is on pace to grow even further in 2013. With first-quarter CMBS originations already at $30 billion, we are on track to surpass 2012’s total of $48 billion. Additionally, properties with CMBS loans have higher average cap rates, indicating a larger risk appetite than other lenders such as banks or insurance companies. Retail properties are more exposed than other property types: 42 percent of all retail loans in 2012 were CMBS originations.

In Canada, an Influx of American Retailers Helps Keep Occupancy UpCanadian shopping center vacancy rates have remained low across major markets as American and other international retailers continue to fill available space. Canada added 8 million square feet of shopping center space in 2012, but the nation’s retail square footage per capita actually dropped, thanks to strong population growth.

Canadian malls produce significantly higher sales per square foot than American malls. According to the International Council of Shopping Centers (ICSC), Canadian mall productivity for non-anchor space in 2012 was CA$603 per square foot, compared with US$455 in the United States. Canadian consumers have fewer shopping options than their U.S. counterparts, and American department stores Target and Nordstrom and specialty retailers like J. Crew and Apple are eager to tap into that market. Nordstrom will open five Canadian locations between 2014 and 2016, the first four of which will be in spots vacated by Sears Canada. La Maison Simons is also selectively picking up prime mall sites. Simons has seven locations in Canada and recently opened its first location outside of Quebec. Target’s ambitious Canadian expansion is going full-bore as it reopens 124 former Zellers locations in 2013. (Target acquired 189 Zellers leaseholds in 2011.)

IN MEXICO, FASHION MALLS DOMINATE NEW SHOPPING CENTER CONSTRUCTION

9%NEIGHBORHOODCENTER

28%POWER CENTER

3%COMMUNITY CENTER

2%ENTERTAINMENT CENTER

58%FASHION MALL

1.9 Million Square Feet of

Construction in 2012*

*Shopping centers larger than 32,808 square feet (10,000 square meters)

Continued on page 5

HIGHLIGHTS | Q1 2013 | RETAIL | NORTH AMERICA

P. 4 | COLLIERS INTERNATIONAL

NOTE: CoStar’s periodic building reclassifications, rather than actual new supply, can result in larger-than-expected changes to inventory numbers. Care should be taken when making quarter-over-quarter comparisons. *Community and Neighborhood Centers | **Select Colliers offices track their own retail market data. | ***Hawaii data is year-end data. | Sources: CoStar, Colliers Research

UNITED STATES | SHOPPING CENTER MARKET STATISTICS

MARKETINVENTORY* MAR 31, 2013

(SF)

NEW SUPPLY 2013

(SF)

UNDER CONSTRUCTION

(SF)

VACANCY RATEDEC 31, 2012

(%)

VACANCY RATE MAR 31, 2013

(%)

ABSORPTION Q1 2013

(SF)

QUOTED RENT MAR 31, 2013(US$/PSF)

Q-o-Q CHANGE IN RENT(%)

Albuquerque, NM 9,357,745 0 11,646 12.4 11.7 59,523 13.27 1.3Atlanta, GA 143,184,402 2,200 64,977 14.5 14.6 -91,494 12.85 1.0Bakersfield, CA 9,218,188 0 30,934 9.1 8.9 12,532 14.12 0.9Baltimore, MD 45,887,036 49,863 41,500 7.8 7.6 112,182 19.15 2.2Birmingham, AL 32,861,126 137,000 0 11.1 10.8 89,472 11.41 n/aBoise, ID 13,184,888 0 18,098 11.0 10.8 35,592 12.24 2.0Boston, MA 88,170,235 0 3,900 6.5 6.5 -33,068 15.55 0.3Charleston, SC** 16,792,668 7.3 6.9 12.82 -17.1Charlotte, NC 51,849,351 15,000 5,177 12.0 11.6 231,162 13.08 -1.2Chicago, IL 160,270,592 560,400 157,000 12.2 11.7 621,107 15.62 2.9Cincinnati, OH 35,918,886 0 0 13.2 13.1 25,010 10.54 -0.5Cleveland, OH 60,626,327 9,700 6,000 12.5 12.2 169,081 10.05 -3.1Columbia, SC 14,932,030 0 0 10.0 9.8 -1,812 10.27 -2.2Columbus, OH 32,684,609 0 124,437 11.0 10.7 70,743 11.68 -0.4Dallas/Ft. Worth, TX 152,332,565 71,599 329,532 12.8 12.6 250,089 13.13 -1.4Denver, CO 73,031,397 25,807 19,931 9.5 9.1 303,556 14.10 1.7Detroit, MI 73,132,356 17,100 111,100 15.4 15.2 108,002 12.45 0.5Fresno, CA** 25,192,720 276,563 386,321 13.6 12.9 127,839 13.24 -1.7Ft. Lauderdale-Broward, FL 48,709,104 0 6,007 9.3 9.3 15,893 17.59 0.4Greenville/Spartanburg, SC 29,553,542 4,800 59,000 10.4 10.8 -110,939 9.11 2.0Hartford, CT 42,426,173 0 44,700 8.7 8.3 141,080 13.09 -0.9Hawaii*** 22,466,081 283,535 540,000 6.3 n/a 340,649 38.40 0.0Houston, TX 151,452,085 10,000 135,230 9.8 9.6 351,734 14.31 2.0Indianapolis, IN 40,078,169 0 36,183 11.4 11.3 3,544 11.85 2.0Jacksonville, FL 38,982,251 89,905 34,787 12.0 11.4 235,502 12.80 0.8Kansas City, MO-KS 39,495,416 0 60,000 13.1 12.9 78,515 11.81 -1.1Las Vegas, NV ** 44,201,964 0 0 10.7 10.4 119,649 16.20 -0.7Little Rock, AR 15,007,964 0 0 7.9 8.4 -61,327 10.63 0.4Long Island, NY 53,460,462 0 53,300 5.2 5.3 -11,319 22.86 -2.1Los Angeles – Inland Empire, CA 85,642,305 65,072 78,973 11.8 11.8 4,039 16.92 -0.1Los Angeles, CA 154,562,752 24,622 148,269 7.3 7.2 106,540 22.20 -0.9Louisville, KY 28,179,753 7,307 21,800 10.3 10.5 -65,141 10.86 -1.0Memphis, TN 30,779,841 14,080 0 14.4 13.7 187,565 10.88 0.3Miami-Dade County, FL 46,850,779 3,643 49,762 4.8 4.9 -30,282 23.41 -0.6Milwaukee, WI 34,722,964 2,800 5,558 11.6 11.7 -44,731 11.26 -1.4Minneapolis, MN ** 65,282,915 19,350 130,836 6.4 6.4 -21,064 15.53 0.3Nashville, TN 29,918,740 17,537 20,000 12.0 11.7 84,103 12.92 -0.3New Jersey – Northern 92,098,990 9,200 42,800 9.9 9.7 234,354 19.41 -0.6Oakland/East Bay, CA 41,308,389 53,304 88,400 6.3 6.1 78,999 20.93 -0.5Omaha, NE** 29,897,451 82,659 556,621 9.3 9.3 -31,342 12.19 2.4Orange County, CA 65,586,140 0 0 7.0 6.8 92,552 22.37 -1.5Orlando, FL 63,361,112 0 0 12.0 11.8 128,431 13.65 -1.5Palm Beach County, FL 35,349,625 15,659 4,446 9.5 9.0 182,228 16.51 0.6Philadelphia, PA 151,828,180 0 134,500 10.0 10.0 -55,667 14.23 -0.7Phoenix, AZ 104,350,972 73,142 18,543 15.6 15.3 303,341 13.59 -0.5Pittsburgh, PA 32,683,640 16,000 23,400 5.6 5.5 14,829 11.40 -0.5Portland, OR 35,924,753 0 0 9.1 8.6 174,104 16.53 1.5Raleigh/Durham/Chapel Hill, NC 38,388,032 53,424 0 8.9 8.7 42,051 14.68 0.1Reno, NV 13,955,444 0 6,500 14.5 14.2 40,211 14.73 -1.1Richmond, VA 29,899,453 14,400 15,500 11.4 11.1 85,654 13.14 0.2Sacramento, CA 37,193,248 3,800 0 12.4 12.3 33,472 16.80 3.4San Diego, CA 54,225,614 63,941 190,383 7.4 7.2 103,581 20.60 1.6San Francisco, CA 9,400,841 0 0 3.8 3.9 -13,706 26.52 0.9San Jose/South Bay, CA 30,574,677 0 0 6.4 6.1 77,280 25.53 -2.4Savannah, GA 7,447,066 0 0 9.5 9.4 6,238 14.74 1.8Seattle/Puget Sound, WA 58,307,050 4,358 350,009 9.1 8.9 107,125 17.63 -1.0St. Louis, MO 55,439,026 0 57,500 11.0 11.0 21,178 11.91 -0.9Stockton, CA 19,660,494 0 0 10.2 10.2 112 14.94 -1.4Tampa/St Petersburg, FL 87,621,579 0 24,232 10.6 11.0 -402,251 13.05 -0.1Washington, DC 82,078,726 11,000 399,982 7.0 7.2 -194,615 21.64 -2.7West Michigan** 18,107,823 0 13,000 10.1 10.0 22,159 10.70 0.4Westchester County, NY 50,874,312 0 585,299 7.0 6.9 24,090 19.38 0.2TOTALS 3,285,963,018 2,108,770 5,246,073 10.09 10.06 4,487,934 14.80 0.3

HIGHLIGHTS | Q1 2013 | RETAIL | NORTH AMERICA

COLLIERS INTERNATIONAL | P. 5

Mexico saw over 1.5 million square feet of new shopping center space built in 2012, including Plaza El Dorado, a fashion mall in Boca del Rio, Veracruz, anchored by Liverpool and Chedraui. Several large mixed-use projects are now in the planning stage. These micro-city projects will include residential, retail and office, as well as parks and service buildings. Medica Sur City and Vía Vallejo are two notable examples.

Mexico is experiencing a surge in new store openings from national and international brands, as well as the creation of new concepts. Last year, Home Depot opened its hundredth store in Mexico, and has said it may open as many as 25 more in the future. National restaurant operator Corporación Mexicana de Restaurantes is introducing Olive Garden, Red Lobster and the Capital Grille to Mexican diners, and will open at least 37 locations in the next few years under its agreement with Darden Restaurants. Starbucks, which has been present in the market for ten years, will reach nearly 500 locations by 2015. Operator Alsea will open between 80 and 100 restaurants in 2013 across several brands, including 45 Starbucks, 20 Domino’s Pizza, 10 Italianni’s, six PF Chang’s and three Chili’s.

Colliers expects this large domestic and foreign capital investment in retail to continue over the next several years.

Restaurant SpotlightRESTAURANT CHAINS BATTLE FOR QUALIFIED FRANCHISES

Restaurant sales are growing, but many chains have seen their expansion limited by the sheer quantity of concepts seeking franchisees and a dearth of experienced operators. According to data from the National Restaurant Association (NRA), nominal sales grew by 4.2 percent year-over-year in 2012 and are forecast to grow a further 3.8 percent in 2013. Chains are relying heavily on franchisees to support this expansion: Bank lending to franchisees is at its highest level since the recession, and U.S. Small Business Administration loans and the EB-5 Investor Visa program have also propelled chain expansion.

ADULT-ONLY RESTAURANT VISITS RISE

-5.0

-4.0

2008 2009 2010

% tra�c change vs. prior year

2011

Adult-only parties

Parties with kids

2012

-3.0

-2.0

-1.0

0.0

1.0

Source: The NPD Group

In the first three quarters of 2012 there were 9,857 new restaurants and bars in the U.S., according to preliminary figures from the Bureau of Labor Statistics. Franchises bent on growth must compete to attract qualified franchisees, and some chains will have to choose between taking a risk on an inexperienced operator or scaling back their expansion plans.

FAST-CASUAL SEGMENT PROSPERS, BUT ONLY A HANDFUL OF NATIONAL LEADERS WILL EMERGEA host of casual operators are testing the waters with fast-casual pilot programs. Applebee’s, Red Robin, Famous Dave’s and even Denny’s are trying to get in on this hottest of restaurant segments. And who can blame them? In an uncertain economy, these chains strike a balance between quality and value that’s irresistible to consumers, which is how a concept like Chipotle Mexican Grill—which some thought to be mature—can report 20.2% sales growth in 2012.

While we hold positive expectations for the fast-casual segment, we are cautious about how many real winners will emerge from the crowded field. Many players are in a frenzy to reach critical mass; a few will deploy enough successful stores to support a national advertising campaign and a few others will end up as successful regional operators. With little new construction and few open end-caps, new players are aggressively pursuing opportunities and competing with other users that also seek these high-visibility spots.

GRAVITY OF ECONOMICS PULLS MENU PRICES TOWARD EARTHMany quick-service restaurants (QSRs) relied on dollar menus and other discounts to prop up customer traffic during the recession. Fine-dining chains like Flemings and Ruth’s Chris suffered dramatic declines in same-store sales, which remain significantly below pre-recession peaks despite recent steady growth. Now QSRs are raising prices on value menus, while polished chains are using fixed-price menus to drop theirs. Meanwhile, fast-casual chains continue on with price points in the happy middle.

QUICK-SERVICE RESTAURANTS LABOR TO PUSH UP DISCOUNT MENU PRICESWith commodity and labor costs on the rise, QSRs have walked a tightrope, reining in discoun ts to improve margins while still attracting value-conscious consumers. According to data from the NRA, QSR menu prices grew by 3.2 percent in 2012, up a full percent from the 2.2 percent growth seen in 2011.

Some QSRs are repositioning “dollar menus” as “value menus” that still offer appealing discounts, but allow them to break through the one-dollar ceiling. Until the beginning of this year, McDonald’s had been marketing its Extra Value menu with higher price points, but a decline in same-store sales has led to a return to value. McDonald’s has expanded its dollar menu, though it is less extensive than it once was and features many add-on items such as the side salad. Others are increasing the items on their single-item value menus to nearly two-dollars. Wendy’s, Burger King, Arby’s and others have opted for more pricing flexibility with their discount

Continued on page 8

HIGHLIGHTS | Q1 2013 | RETAIL | NORTH AMERICA

P. 6 | COLLIERS INTERNATIONAL

DISCOUNTERS

Big Lots (U.S.) Q4 2012 (3.5) (4.6) Canadian operations post first profit since acquisition in 2011, total sales increase 5%

Costco (U.S., with/excl. fuel) Q2 2013 5.0 / 5.0 7.0 / 6.0 fared well in U.S. but cited weak international sales; will open 10 new stores by Sept 2013

Dollar General Q4 2012 3.0 4.0 4Q sales driven by consumables w/perishables leading the way, opened in 2 new states (CA/MA)

Dollar Tree Q4 2012 2.4 1.6 increase in both ticket sales and store traffic; opened 47 stores in Q4

DSW Q4 2012 3.6 6.3 positive growth comps in all business segments, strongest in men's footwear & accessories

Family Dollar Q2 2013 2.9 6.6 double digit market share gains in Consumables over the last 12-, 26- and 52-week periods

Fred's Super Dollar Q4 2012 4.8 (2.5) pharmacy department continues to perform well, will address general merch sales in 2013

Kohl's Q4 2012 1.9 1.1 e-commerce sales up 43% for the quarter; exclusive Only-at-Kohl's labels performed strongest

Ross Q4 2012 5.0 6.0 for the quarter, juniors performed best; geographically strength was broad based

Sam's Club (U.S., excl. fuel) Q4 2013 2.3 2.7 sales growth slowed late in Q4 and was most pronounced from business members

Target Q4 2012 0.4 2.9 strong results from Credit Card division; free wireless now available in all Target stores

TJ Maxx Q4 2013 7.0 7.0 raised long term view for HomeGoods to 750–825 stores versus prior est of 750

Tuesday Morning Q3 2013 2.8 5.6 customer traffic was flat but saw a 3.7% increase in average ticket

Walmart (U.S.) Q4 2013 1.0 1.5 underlying business of Walmart is strong, slower sales due to delay in tax refunds

UNITED STATES | RETAILER REPORT CARD

RETAILERMOST RECENT

REPORTING PERIOD

% CHG IN Y-o-Y SALES

(MOST RECENT QTR)

% CHG IN Y-o-Y SALES (PREVIOUS QTR)

COMMENTS OUTLOOK

DEPARTMENT STORES

Belk Q3 2012 5.8 4.9 converting 15 more stores to flagships through remodels and enhanced premium brands

Dillard's Q4 2012 3.0 5.0 10th consecutive quarterly comparable comps increase; sales weakest in home & furniture

JCPenney Q4 2012 (31.7) (26.1) store traffic fell 17%; replaced Ron Johnson with previous CEO Mike Ullman

Macy's Q4 2012 3.9 3.7 strong holiday sales with strength in handbags, watches, furniture, men's overall & mattresses

Nordstrom Q3 2012 6.3 10.7 full-line stores +2.2%, Rack +7.1%; increased CapEx attributable to Rack & Manhattan store dev.

Neiman Marcus Q2 2013 5.3 5.4 womens sportswear and shoes, designer handbags and jewelry & mens were strong performers

Saks Fifth Avenue Q4 2012 0.7 3.3 NYC flagship store lagged in sales due to impact of Hurricane Sandy & decreased tourism

Sears (U.S.) Q4 2012 0.8 (1.6) Sears apparel category has achieved comp store sales increases for 6 consecutive quarters

The Bon Ton Q4 2012 1.0 1.9 focusing on better-balanced merchandise assortment, enhanced marketing & e-commerce

AUTO

Advance Auto Parts Q4 2012 (1.9) (1.8) launched in-house credit program; entered NYC boroughs for the first time

AutoZone (U.S.) Q2 2013 1.8 0.2 purchased Web-based auto parts retailer, AutoAnything, to generate material sales growth

O'Reilly Auto Parts Q1 2013 0.6 4.2 implementing loyalty program to grow loyalty amongst the DIY customer

Pep Boys Q4 2012 (2.6) (2.7) 2013 CapEx is $65 million for 31 new service & tire centers, 7 new supercenters

GROCERY

The Fresh Market Q4 2012 1.9 5.6 consumer trends in 4Q will make management cautious; upbeat about new store openings

Harris Teeter Q2 2013 3.6 2.5 promotional strategies were effective in driving unit sales & increasing market share

Kroger (excl. fuel) Q3 2012 3.0 3.2 record Q3 EPS; will build, expand, or relocate 50 stores during calendar year 2013

Roundy's Q4 2012 (2.1) (3.6) own brand product sales strong; discount grocers impacting sales in Milwaukee & MN markets

Safeway (total/excl. fuel) Q1 2013 0.7 / 1.5 1.2 / 0.8 sales flat, but management team predicting market share gains through 2013

SuperValu (Retail food) Q4 2013 (4.1) (4.5) eliminated 100 positions at headquarters in Q4; added 200 private label items to collection

Whole Foods Q2 2013 6.9 7.2 demand for healthy foods continues to grow; opened 6 locations in the second quarter

HOBBY

Barnes & Noble (retail) Q3 2013 (7.3) (2.9) proposal to purchase all assets of the retail segment by company founder being evaluated

Best Buy (U.S.) Q4 2013 (0.8) (4.3) designating 2014 as a transition year, will require further investment to advance transformation

Cabela's Q1 2013 24.0 12.0 in addition to expected strong ammunition & gun sales CAB saw increases in 10 of 13 categories

Dick's Sporting Goods Q4 2012 1.2 5.1 2013 growth investments include omni-channel retailing, store remodels, new concepts

GameStop (global) Q4 2012 (4.6) (8.3) continued declines in hardware business in 4Q12, will continue to be slow until 4Q13

hhgregg Q3 2013 (9.7) (8.8) shifting product mix away from video, electronics to appliances, furniture, fitness equip.

Office Depot (N. America) Q1 2013 (5.0) (6.0) merger with OfficeMax currently under way

OfficeMax (retail) Q4 2012 (4.6) (2.6) merger with Office Depot currently under way

PetSmart Q4 2012 4.6 6.5 comp transactions positive for the 11th consecutive quarter

Staples (N. America) Q4 2012 (5.0) (2.0) realigned business segments to better address changing needs of the Staples customer

HIGHLIGHTS | Q1 2013 | RETAIL | NORTH AMERICA

COLLIERS INTERNATIONAL | P. 7

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Aaron's (corporate-owned) Q1 2013 3.4 4.6 reduced revenue and earnings guidance for the year due to market conditionsBed Bath & Beyond Q4 2013 2.5 1.7 continued World Market integration and made substantial progress on website improvements Home Depot (U.S.) Q4 2012 7.1 4.3 positively affected by Hurricane Sandy repairs and the improving housing marketLowe's (U.S.) Q4 2012 1.9 1.8 10 of 14 product categories had positive comps in Q4; aided by Hurricane Sandy repairsPier 1 Q4 2013 7.9 7.9 roll-out of new POS complete this summer; 30 new stores in fiscal 2014Williams-Sonoma Q4 2012 4.0 8.5 will open first international location (Australia) in May; positively impacted by housing marketPHARMACY

CVS Q1 2013 (1.2) 4.3 pharmacy same-store sales declined 2.3% due to new generic introductionsRite Aid Q4 2013 2.0 (1.5) 2013: company record for full-year adj. EBITDA & generated full-year net incomeWalgreens Q2 2013 (2.6) (8.0) rewards program, "With Our Balance," has reached 60 million members

SPECIALTY APPAREL

American Apparel (w./excl. online) Q4 2012 7.0 / 42.0 20.0 / 21.0 opened 225K SF distribution center in effort to minimize future overhead costs increaseAnn Taylor Q4 2012 1.0 4.0 launched international shipping to more than 100 countries to expand global reach of brandsThe Buckle Q4 2012 flat 2.4 online sales (not included in comp sales) showed growth of 8.4%Destination Maternity Q2 2013 1.6 1.9 completed closure of all leased departments in Babies R Us locationsThe Gap (all) Q4 2012 5.0 6.0 acquired Intermix, discontinued operations at Fourth & Towne; online sales increased 28%H&M Q1 2013 3.0 flat price perception strategy continues to pressure profitabilityHot Topic Q4 2012 2.6 0.1 announced plans to merge with companies owned by Sycamore PartnersLimited Brands (all) Q4 2012 5.0 5.0 CapEx increase vs. last year attributable to increased real estate investment at VSMen's Wearhouse Q4 2012 1.0 9.5 reevaluating alternatives for K&G operations, view MW & Moores as core strengthsZumiez Q4 2012 (1.0) 3.7 men's and juniors apparel comped positive, all others comped negative

RESTAURANTS

Applebee's Q1 2013 (1.3) 0.9 Q1 econ. conditions decreased traffic, comp sales; “2 for $20” doing wellBJ's Restaurants Q1 2013 0.4 3.0 13th consecutive qtr of comp growth; will open up to 4 new restaurants in Q2, 17 by YE 2013Bloomin' Brands Q1 2013 1.6 3.6 continued international growth, new restaurants in Asia & BrazilBob Evans Q2 2013 1.0 1.0 corporate focus on restaurant updates; post-"refresh" locations lift sales 5%, ROI 20%Brinker Int'l (system-wide) Q3 2013 0.2 0.9 Maggiano's (+0.4%) achieved 13th qtr of comp growthBuffalo Wild Wings (owned) Q1 2013 1.4 5.8 developing new guest-facing technologies; has enhanced sports programming in locationsBurger King (U.S./Canada) Q1 2013 (3.0) 3.7 value-oriented promotions were successful when paired with premium limited-time offersCheesecake Factory (total) Q1 2013 2.0 2.5 Cheesecake (+1.6%) performing well both domestically & abroad; closed 3 Grand Lux Cafes

Chipotle Q1 2013 1.0 3.8 165–180 locations expected to open in 2013; flat or single-digit comp sales expectedDarden (Basic/Specialty) Q3 2013 (4.6) / 2.3 (2.7) / 0.7 all three chains comped lower: Olive Garden (-4.1&), Red Lobster (-6.6%), Longhorn (-1.6%)Denny's (system-wide) Q1 2012 (0.7) 1.3 battled headwinds from payroll tax & high gas prices by rolling out new value menusDomino's Q1 2013 6.2 3.7 increased advertising, value prices & higher-quality food offerings drove sale increasesDunkin' Donuts (U.S.) Q1 2013 1.7 3.2 strategic development and investment aimed at increasing franchisee profitabilityEinstein Noah Q1 2013 (0.6) 1.4 3.1% increase in average sales check was offset by decline in number of transactionsJack in the Box (system-wide) Q4 2012 3.1 2.8 quarter sales growth nearly 2x the QSR sandwich segment average; gaining market shareKona Grill, Inc. Q1 2013 (2.6) 0.1 secured $20 million in credit for new restaurant development, current remodelsKrispy Kreme (company stores) Q4 2013 7.5 6.8 increased FY 2013 outlook; predicted double-digit earnings growth for FY 2014McDonald's (U.S.) Q1 2013 (1.2) 0.3 continued reinvestment to fuel growth; restaurant modernization & new food itemsMimi's Café Q2 2013 (5.6) (3.3) $50 million sale to French operator of multiple café brands should drive ops efficienciesPanera Bread Q1 2013 5.0 5.1 opened 123 locations in 2012, continues to put money into further expansionPapa John's (N. America) Q1 2013 1.6 5.2 acquired 50 locations in Denver & Minneapolis from franchisee, inc company owned sales 9.8%Qdoba (system-wide) Q4 2012 0.4 2.1 looking to further differentiate from competitors by elevating catering businessRuby Tuesday, Inc. Q3 2013 (2.8) 0.3 predicting flat sales for the remainder of the year; continue to expand Lime Fresh conceptRuth's Hospitality Ruth's Chris Q1 2013 6.6 5.4 12th consecutive quarter of positive comp sales, 13th straight quarter of traffic gains Mitchell's Fish Market Q1 2013 1.5 3.4 testing new items at lower price points but high returns to boost sales on underperforming daysStarbucks (Americas) Q2 2013 6.0 7.0 raised projected store openings (globally) to 1650 over previous target of 1300Yum! Brands (U.S.) Q1 2013 2.0 3.0 Taco Bell: 6% SSS due to success of Doritos Locos & Cantina Bell platforms

*Sources: Company Reports, Colliers Research

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HIGHLIGHTS | Q1 2013 | RETAIL | NORTH AMERICA

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CONTRIBUTORS

Mark Keschl | National Director, Retail Services Group | USA

KC Conway | EMD, Market Analytics | USA

Ann Natunewicz | Vice President, Retail Services Group | San Francisco

Jeff Simonson | U.S. Senior Research Analyst | USA

Bridget Berry | Research Analyst | USA

Aaron Finkelstein | Communications Manager | USA

Jennifer Macatiag | Graphic Designer | USA

482 offices in 62 countries on 6 continentsUnited States: 140Canada: 42Latin America: 20Asia Pacific: 195EMEA: 85

• $2 billion in annual revenue

• 13,500 professionals and staff

• 1.12 billion square feet under management

• $71 billion USD in total transaction value

• More than 400 retail professionals in 80 U.S. offices

Copyright © 2013 Colliers International.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.Accelerating success.

menus. Arby’s is piloting a Snack ‘n Save menu, in an effort to shift the focus of the discount menu away from meals in favor of snacks and add-ons.

But decreasing discounts too quickly may backfire and price out family visitors. Growth in restaurant visits by families remained flat in 2012, according to data from the NPD Group’s CREST service. Given that family visits make up such a large share of their traffic, QSRs should be concerned that families who had come to expect one-dollar price points will be less attracted by two-dollar ones.

CASUAL AND POLISHED CHAINS FOCUS ON VALUE While casual restaurant customers may not be as sensitive as QSR regulars to a one-dollar price hike, there is still no doubt that value continues to be a prime strategy for casual chains.

Applebee’s and Chili’s have offered a selection of two meals for $20 for some time. Darden, which operates Red Lobster, Olive Garden and LongHorn Steakhouse, saw a significant drop in same-store sales across the chains in February. This may have prompted the operator to introduce value options of its own, including two-for-one entree deals at Red Lobster and Olive Garden. Ruby Tuesday has also changed course, abandoning its 2012 strategy of upgrading the chain to a polished-casual option. Here again, the return to value and a renewed focus on core casual customers was perhaps the result of a 2.8 percent drop in same-store sales in February.

Even polished and fine-dining brands are finding they can offer a deal that generates traffic without sacrificing quality. Ruth’s Chris, Capital Grille and Sullivan’s have all added everyday fixed-price menu options at some or all locations, with prices ranging from $39 to $53 per diner. Roy’s, a concept of Bloomin’ Brands, has offered a $36.95 prix fixe menu on Mondays for several years.

RESTAURANT SEGMENTS POSITION FOR TOMORROW’S CONSUMERIt is no fluke that fast casual is the sector du jour. Many consumers feel more extravagant than they once did, yet are still cautious of overspending. Fast casual offers the happy marriage of premium quality with lower price points. We expect affordable quality to continue to be an attractive option for diners even as the economic recovery continues and attitudes shift. While many of the new concepts on the crowded stage may not manage to break into the national scene, the fast-casual sector as a whole has a bright future.

For QSR and fast-casual brands, the constant push and pull between lower traffic-generating price points and the need to increase margins is a tricky challenge. While it may make sense to hold down prices a bit longer in the QSR world, many brands are now showing a willingness to test the waters in favor of healthier margins.