Real estate investment trusts (REITs) in the US are counting the cost of letting space to tenants in the so-called new economy businesses. Some REITs, however, have protected their cash flow by invoking the letters of credit (L/Cs) they had insisted on when they signed up fledgling dot.com enterprises.

Kilroy Realty Corporation, for example, had L/Cs in place that covered the value of two years rental of properties to the online toy retailer, store eToys. It filed for bankruptcy in March but Kilroy - which had also arranged L/Cs to cover the costs of remarketing the properties - escaped this particular dot.com crash relatively unscathed.

Other REITs have not enjoyed such protection. AMB Property Corporation's third largest tenant was the Webvan Group Inc., which filed for US bankruptcy protection in July. This contributed to non-cash charges reported by AMB for the second quarter of 2001 of US$16.1 million, which the corporation said was the result of poor performing investments in real estate for use by businesses in the technology and e-commerce sectors. AMB said it had recorded a $1.4 million depreciation charge due to costs related to leases with Webvan.

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