First Industrial Realty Trust Inc (FR) 2004 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to your First Industrial Realty Trust Conference Call. All participants have been placed on a listen only mode, and the floor will be open for questions following the presentation. It is now my pleasure to introduce the First Industrial. Gentlemen, you may begin.

Good morning, everyone and thank you for joining us today. Before we discuss our results for the quarter, let me remind you that this conference call contains forward-looking information about First Industrial. A number of factors could cause the Company's actual results to differ materially from those anticipated, including changes in economic conditions generally, and the real estate market specifically, legislative and regulatory changes, including changes to laws governing the taxation of real estate investment trusts; availability of financing; interest rate levels; competition; supply and demand for industrial properties in the Company's current and proposed market areas; potential environmental liabilities; slippage in development or lease-up schedules; tenant credit risks, higher than expected costs; and changes in general accounting principles, policies and guidelines applicable to real estate investment trusts. For further information on these and other factors that could impact the Company and the statements contained herein, reference should be made to the Company's filings with the Securities and Exchange Commission.

I'll now turn the call over to Mike Brennan, President and CEO. Mike.

Thank you very much, Mike, and welcome everybody to our third quarter 2004 earnings conference call. Before we begin our comments today, I would like to introduce the members of our management team that are here today. JoJo Yap, our Chief Investment Officer, who will discuss our investment performance for the quarter; David Draft, Executive Vice President of Operations, who will discuss our portfolio performance; Mike Havala, Chief Financial Officer, who will talk to you about our balance sheet, the capital market's activity, and our guidance for '04 and for '05. And you just heard from Mike Daly, our Director of Investor Relations.

Let me start with kind of a strategic overview of the company. For the benefit of those who are new to our call, or that are maybe newly invested in First Industrial, the Company's strategy is to invest industrial properties in major US markets, and run those properties through regional directors who are proficient in development, redevelopment, and acquisitions. This strategic framework has allowed us to achieve industry-leading internal rates of return, and I attribute that to two things -- first, because its opened up broad avenues for capital deployment, and second, because its key ingredient is really an infrastructure of skilled regional personnel that can serve the increasingly complex needs of the industrial sector's largest property owner, corporate America. And finally, these activities are financed with both public and private capital, assuring us of not only competitively priced capital, but capital that's appropriate to finance all of our business lines from net leases to redevelopments.

Getting into the third quarter results, the 3Q results were driven by three principal factors. First, improving results from our portfolio. This, as you can see from our press release, was the sixth consecutive quarterly increase in occupancy. Second, it was driven by record economic gains, with gains from our KFH Development Fund being the major contributor. And third, it was driven by accelerating capital deployment opportunities. We were a net on-balance-sheet investor by $77 million in the quarter, and purchases from corporate America were the major contributor to that success. The net result at the quarter was that our FFO was $1.22 per share, and that's 7 cents over the midpoint of our range.

Since we've released our guidance for '05, let me just make a few comments about the environment that we're going to operate in in the balance of '04, and into '05. Let me just say that I really like what I see out there, and here’s just a couple of things that we look at. First of all, plant utilization is now at 78 percent: versus where it was about a year ago, 400 basis points lower than that; and that's closing in on the 40 year average of 81.5 percent. Business inventories have increased for 11 consecutive quarters, ant the ISM Index is still strong. It did dip in September, and a little bit in August, but it stands at 58.5. And remember, that over 50 means expansion.

Business spending -- a statistic that, as you know from our prior calls, we think has a very high correlation to industrial space absorption- was up 12.5 per cent in the second quarter. And we anticipate that it'll be up in double digits in the third quarter. And also as an indication of the ability of companies to continue with that business spending, corporate liquidity is close to an all-time high. Corporate cash is now 10.9 per cent of GDP, and that's higher than it has been at any time since 1959. And yes, it is a sign of caution that they are not spending as much as we would like to see them spend, but it's also a sign of capacity for further business spending in the future.

With these positive increases in the economic indicators, the industrial real estate fundamentals have also improved. By the third quarter, we saw positive absorption again of nearly 50 million square feet. As a result of that, the national occupancy moved up another 20 basis points basis points, following a similar increase in the second quarter.

And while we're not yet at the point where the pricing power has returned to the landlord, the markets are clearly moving in the right direction. And with that I'd pass it off to JoJo, who will talk about our investment performance.

Thanks, Mike. In terms of investment performance, we put in a very solid performance in the third quarter, making a number of significant investments. Overall, we were net investors by $77 million on balance sheet. And we achieved a spread between selling and invested cap grades of 136 basis points. I think it's important to note that of the $146m of investment we made last quarter, 48 per cent were from corporate America, a meaningful level, I think, that continues to validate our focus on that segment of the real estate market.

Let me now give you some investment highlights, starting with several corporate real estate acquisitions. In one transaction, we assisted a customer by assuming a below-market purchase option, purchased the building, and structured a long-term net lease. This solution allowed them to have a long-term tenancy in their key US assembly and distribution facility. We got in return at least 100 basis points yield premium versus what we would have achieved if we had bought this investment in the open market.

In two other corporate real estate deals, we assisted two customers in their supply chain reconfiguration work by structuring sale-leasebacks. We also met their need for an expedited closing that was to be closed in the third quarter. What we got in return was a yield over 11 percent, and a basis well below replacement cost on both investments.

My last example is a transaction that was complicated by the fact that the portfolio included existing buildings, development under construction, and excess land. We provided the seller a customized solution by agreeing to purchase existing buildings, and providing a fixed-price, forward-commitment on the future development. In return, we got a Class A institutional quality property at a below market price. We also got rights to market excess land for build-to-suits.

In terms of our reinvestment pipeline, it's growing in both acquisitions and focuses. In terms of acquisitions, we've closed $36m in the fourth quarter already, and we have another $160m under agreement. That totals $196m, either closed or under agreement to close, in the fourth quarter. In addition, we have offers outstanding, on about $313m of acquisitions. We expect requests for a year-end close, so we have no doubt that a percentage of these offers would close in addition to the $196m I just mentioned.

In terms of build-to-suits, we're very pleased with the pipeline. We have been awarded $99m of build-to-suits in the third quarter that we expect to commence construction on in the fourth quarter. In addition, we are short-listed on $66m of build-to-suits. This acquisition and build-to-suit pipeline that I just mentioned, in addition to our construction in progress, I believe positions us really well to be net investors for the fourth quarter and 2005.

In terms of reinvestment opportunities in the future, there are reasons to be optimistic. The first, is the growth that we have experienced and continue to see in our corporate business. During the first nine months, we achieved a year-over-year growth in our corporate business of 100 percent. I think it's also important to note that 70 percent of the acquisitions we have under agreement is corporate business.

The next reason is the investment we've made, and continue to make, in our human infrastructure. For example, we've added a veteran investment professional in the Baltimore-Washington area in September, and I'm pleased to report that just a couple of days ago, we closed on a $36m investment in the Washington-Dulles area. This property is about a mile from Dulles International Airport. We've also added a national head of Net Lease Investments, who's already leading the charge in increasing our net lease investment pipeline as we speak.

The final reason we're optimistic about the future is that we expect to expand our business through co-investment. These funds, as Mike Brennan had mentioned in the past, will be additive. These funds will expand our development business, and give us added opportunities, and will also allow us to invest in properties the Company either did not invest in, or did invest, but in the limited volume, because of our risk profile, and our capital structure.

In summary, we have a growing pipeline driven mainly by a growing corporate business. We'll also expand our ability to invest through joint ventures, which will allow us to continue our strong investment performance in the future. With that, I'll turn it over to David.

Thanks Jojo. This morning I'd like to start with a few comments about industry-wide fundamentals, which continue to support the improving operating results of our own portfolio. First, with respect to occupancy, the national market saw a 20 basis point increase, as Mike mentioned, in the third quarter and now stands at 88.8 percent. Now that was an important step for the national market, as it was the first back-to-back quarterly increase in four years.

In terms of what the future may hold for national occupancy, we know that as the last couple of recoveries took hold, the average -- this is average -- annual occupancy increase was 90 basis points. Now the high was 130 basis points, and that's significant. If history repeats itself, we're closing in on a 90 percent occupancy level, and it's at that point, as we've said on many occasions, that we expect the pricing power to begin reverting back to the landlord.

Net absorption also continues to improve on the national front, increasing in the quarter to 48.2 million square feet. That, too, is significant, as it represent twice the net absorption that occurred in all of 2003; so very significant advance there. New construction also remains in check, in fact, in the third quarter it actually decreased 5 percent from the second quarter.

So with that positive backdrop, I'd just like to now turn to our own portfolio results in the quarter, and also provide some outlook for the quarters ahead. First, occupancy increased in First Industrial's portfolio by a solid 90 basis points, standing at 89.5 -- that's 89.5 percent -- on September 30. That is 70 basis points bps higher than the national average I just quoted a moment ago. And it's also noteworthy, I think, that this increase was really broad-based. Occupancy increased in 75 percent of our regional portfolios quarter-over-quarter. It also, I am pleased to say, involved a diverse range of industries. We're seeing activity across the board.

From a facilities standpoint -- I think this is indicative of the same diversity of activity in occupancy -- four out of our five product types were more highly occupied in the third quarter, as opposed to the second quarter. The markets with the highest occupancy, I'll name a few -- Los Angeles, southern New Jersey, and Dallas-Fort Worth. Markets with the lowest occupancy levels in the quarter included Indianapolis, Minneapolis, and Cincinnati.

So turning to same-store, same-store NOI improved in the quarter to -0.6 percent. That figure compares to -1.7 percent in the prior quarter, so 110 basis point improvement in same-store. Cash-on-cash rental rates declined in the quarter by 5.8 percent, and that is well within our forecasted range. And the duration of our lease terms in the quarter was up a bit from the prior quarter, 5.2 years, and that's very much in line with our historical average.

Leasing costs, TI and lease commission costs came in in the quarter at $2.30 -- that's per square foot -- and slightly less than in the second quarter, so heading in the right direction there, too.

Retention also improved, 69.2 percent in the third. That compares to 66.6 percent in the second.

Now to renewal progress, let me just talk about that. Renewal progress remains very much on-track. That's both in terms of the level of actual renewals, and also with respect to the status of our discussions with tenants that are currently in process. All is well in-hand there.

So in summary, as we look back over the quarter, we really feel that this was a quarter in which we began to more clearly see the positive impact of the industry-wide improvement in those two key measures I cited earlier -- occupancy and absorption.

What are the implications of this for our portfolio in 2005? We believe surely positive. First of all, with respect to occupancy, we look for that to continue to increase. That's based on the occupancy trends during the recoveries that I spoke about a few minutes ago. But it's also based on the activity that we're seeing now within our own portfolio. You put that all together and we look for occupancy to pass the 90 percent mark sometime in the first half of 2005.

And then second, as we continue to sign both new and renewal leases in a stronger environment, we'll see some positive impact on rental rate changes, those will improve, and particularly, we think in the second half of 2005. Now that improvement, I'd just like to note, will be a function really of two main factors. The first is just very simply that a stronger market equals stronger rents, a direct relationship. The second relates to the fact that in 2005, we will be rolling more leases made in soft times, you know, versus 2004 when we rolled leases made in the very strong markets of 1999 and early 2000. So that'll help a lot.

Third, reductions in TI and leasing incentives will gain momentum as the other factors turn more positive. These things typically occur a little later in a recovery. So with all these things working together, which we think they will be going forward, NOI should keep improving. In fact, we expect to see same-store NOI turning positive in the 1 to 3 percent range in 2005.

So that'll conclude my report for this morning, and I'll turn the call over to Mike Havala.

Well, thanks, David. The first thing I'd like to start with is a few comments on the strength of our balance sheet and our ratios. Our interest coverage was 3.4 times, and our fixed-charge coverage was 3.1 times for the quarter. These are very solid ratios, which by the way, have improved over the course of the year.

With respect to the qualitative features of our debt, as you know, we have one of the longest debt maturities in the entire re industry at nearly 10 years; 100 percent of our permanent debt is fixed rate. And we have very little secured debt, as 96 percent of our assets are unencumbered by mortgages.

Next, let me move to capital markets. In the third quarter, we redeemed the $125m Series H Preferred Stock. And then we issued about $49m of common stock. This capital was raised because of the expected investment volume that we foresee over the next several quarters. Based on our expectation, this should be accretive to our earnings.

Next, let me give you an update on where we are with the new joint ventures. Of course, there are two elements to any joint venture, the investments and the capital. And we've been making good progress on both fronts. One area that we've especially made good progress on is identifying the assets for these joint ventures upfront. We now expect the majority of the assets to be pre-specified.

As we talked about on our last call, we're pursuing joint ventures in three areas of our business -- development, corporate repositioning, and core stabilized assets. And at this point, here's how we see the joint ventures rolling out. On the development and repositioning side, we see these two areas as being combined into one joint venture, because they have similar risk and return characteristics. We expect the assets for this venture to be largely identified upfront, as I mentioned before. Regarding timing, we expect to execute the joint venture, and fund our first closing near the end of the first quarter, or early second quarter 2005. And then the total size of the venture that we expect here would be in the $300 to $400m range.

Regarding the core stabilized asset area, we're currently working on identifying the assets for joint ventures here. We expect to execute the joint venture, and fund our first closing in the middle of the year. And we expect our investment volume to be about $200m in 2005 in this area. So net-net , we're very much on track in getting the new joint ventures completed.

Next, I want to move to earnings and our guidance. In the third quarter, as you saw, our FFO per share was $1.22, which exceeded even the high end of our range of $1.10 to $1.20. As previously announced, in the third quarter, we closed on the sale of all the properties in our first venture with the Kuwait Finance House. And let me make a few comments about this venture.

First of all, this venture was a big success from start to finish, a real win-win for both partners. And while, of course, I can't give you the economics of our partner or the total fund, due to confidentiality, I can talk about what First Industrial did. First Industrial's cash economic gain was in excess of $32m from the sale here.

Second, while this was a big success, it's important to note that this was accomplished in the ordinary course of our business, that is, using our existing strategy and infrastructure to invest, and manage, and create value in industrial real estate.

And then third, our success here is one reason, among others, that we're very excited about doing the new joint ventures, and the opportunities that we see here.

With respect to the quarter, you may have noticed that our G&A increased. And this is due to several factors. First, we added infrastructure, which includes people and systems. It's related to our corporate real estate program, and our new investments for joint ventures. While this shows up as a G&A expense item, it's really an investment which produces revenues, for example, economic gain, fees, et cetera.

Also with respect to G&A, we saw additional Sarbanes-Oxley costs, which most people are experiencing. And we also had some additional restrictive stock amortization, which of course, is a non-cash expense.

Next, I'd like to make a comment regarding the restatement of the second quarter depreciation expense. We discovered, through our own internal control procedures, an accounting entry error in the second quarter 2004 depreciation calculation of about $1.1m. This translates into 2 cents a share of EPS, but of course, has no impact at all on FFO, because it involved depreciation. I should also mention that it has no impact on any future numbers. And so I think something that's very important to know is that while a restatement was not necessarily required, we chose to disclose it, and to restate the second quarter results, as we felt this was the most appropriate and conservative approach.

Next, let me talk about our guidance. For 2004, as you saw, we narrowed the range as we got closer to year-end. But unchanged is the midpoint of our previous guidance. And remember that this guidance was recently increased, back in August. We see GAAP EPS of $2.05 to $2.15 for the year and FFO per share of $3.35 to $3.45. The key assumptions are outlined in the press release, so I won't reiterate those here.

With respect to 2005 guidance, we’re establishing our initial guidance, we see GAAP EPS of $1.75 to $1.95 and FFO per share of $3.40 to $3.60. I should note that we anticipate this to be back end weighted similar to what you've seen in prior years. Again, the assumptions here are laid out in the press release. But maybe I should make one comment here. And that's the fact that the growth we've expect in 2005 is coming from portfolio NOI.

With that, let me just conclude and say that our financial position remains very strong, and is, in fact, improving. We're very excited about our new opportunities, which should help grow the Company in 2005 and beyond. And with that, let me turn it over to Mike Brennan.

Thank you very much, Mike. And I'd just like to make a few summary comments before we open it up for questions. First, is that the industrial markets are no longer lagging. It took 18 months for this to happen, but the economic recovery, and the industrial real estate market recovery are now moving in lock-step with each other.

Second, as JoJo mentioned, the pipeline's growing, and we're now hitting on both the acquisition and the development fronts. And finally, as Mike has just mentioned, capital's being procured from two fronts as well, both public and private, giving us the competitive capital to advance our business plan.

So with that, moderator, I would like to open it up to the floor for questions.

Thank you. The floor is now open for questions. (Caller Instructions)

Lou Taylor, Deutsche Bank.

Three questions. Okay. For Mike Havala, in looking at your guidance for '04 to '05, and pulling out the gain piece, it looks like the kind of core or operations, if you will, goes from around that kind of a $1.60 plus or minus in '04, to about $1.80 in '05. How much of that increase is coming from kind of the properties, versus how much is coming from, say, fees related to some of the joint ventures and more on the services side?

Well, when you look at '05 compared to '04, NOI in '05 should be greater than '04 really because of two main reasons. The first is that we see positive same-store growth, as David mentioned, about 1 percent to 3 percent, in that range. And secondly, as we're net investors here in the second half of '04, and also into '05, those numbers really kick in in earnest in '05. So that's, you know, the two main reasons we see NOI being up in '05 compared to '04.

We also anticipate some fees from the new joint ventures that we're undertaking here. And that would be in the $5 to $10m range, so an important number, but not an extremely high number.

Okay. Second question just pertains to the occupancy. And I haven't had a chance to get all the way through the supplemental yet. The occupancy gains you had in the quarter, how much of that -- , what was the occupancy gains for the same-store?

Occupancy for same-store was about flat, 88 percent in the third quarter of '03, versus 88 percent in the third quarter of '04.

Okay. So then what contributed to the sequential gain? Did you sell some properties with average occupancy less than, you know, what the same-store was?

Yeah, that's right, Lou.

All right, great. And then the third piece, again, for Mike Havala, in terms of your gains in '05, the $80 to $90m, what percent do you see coming from merchant versus existing building sales?

Lou, with respect to your question, are you looking for the breakout of the gains that we anticipate in '05?

Yeah, '05. You mean, the $80 to $90m, just, you know, ballpark, you know, merchant versus land versus you know, existing building.

This is JoJo. In '05, - looking at our pipeline, we expect the competition to be 50 percent, roughly 50 percent existing, and 50 percent merchant and land sales.

All right, great.

John Stewart, Smith Barney.

It's John Stewart here with Jon Litt, and Krupal Ruval. Mike Havala, could you give us a bit of additional color on the nature of the accounting error that led to the depreciation restatement?

Yeah, it was basically a simple journal entry, if you will, a low-level accounting error that again, we caught through our internal controls, and we corrected it. And while it's, you know, arguably not material, we thought that we should restate, because that was the more conservative thing to do.

Got it. So it wasn't a policy, per se, it was just a journal entry error?

Yeah, it was not about methodology, or policy, or anything like that. It was more of a clerical type mistake.

Okay. If I looked at your guidance for the balance of the year, and the assumptions that you've outlined today, versus what you laid out when you raised guidance a couple months ago, all of the drivers that you've listed seem to be the same or better than what you'd given guidance for previously. So can you help me understand why the top of the range is coming down? Are there other drivers that you haven't identified that are contributing to that or what's the story there?

Yeah, we narrowed the range, because as we get closer to year-end, of course, we have greater visibility on where those numbers are. I'm not sure of the rest of your question, maybe if you can repeat, or if there was something more specific that you were asking.

Well, looking at your current guidance versus the last quarter guidance that you gave, your third quarter came in 2 cents above the high end of the expectation, and every variable that you listed in your guidance from this -- from the previous round to this round, is the same or higher in terms of contribution to earnings. So I guess I just wasn't clear why the top end of the range is coming down for the rest of the year.

Again, just greater visibility. We see additional gains. We saw additional gains in the third quarter versus originally estimated, as well as in the fourth quarter as well, based on the timing of investments. Divestments have been factored in there as well, of course. Additional costs in G&A impact it as well. But the net-net, the midpoint of our guidance, as you mentioned, has remained the same.

If I look at your FFO reconciliation the $5.7m deduct for accumulated depreciation on joint venture real estate sold, was that related to the Kuwait Finance House joint venture?

Yes.

So I guess if these are depreciated assets, can you help us understand why the gain was classified as merchant building rather than existing portfolio sales?

Yes, remember this was our development going venture. And we developed these assets, and then we recapitalized them with private capital. And so these were, you know, a continuing part of that program that was just recapitalized along our way to a final sale, which we, of course, have no ownership in today.

Yes. Just a couple quick questions for JoJo. JoJo, how much of the $117m of acquisitions in the third quarter was represented by the sale-leaseback transactions that you talked about?

I mentioned three sale-leasebacks.

And what was the dollar volume?

It's approximately 35 percent because 46 percent of the acquisitions were corporate. Does that answer your question?

Yes.

No, that answers the question. Can you tell us what the average occupancy was on those acquisitions?

The sale-leasebacks were 100 percent.

Right, and what about the rest?

The average occupancy for the whole acquisition pipeline -- acquisition closed in the third quarter, was 95 percent.

Okay, so the stabilized -- the 9.6 percent stabilized cap rate that you quote is pretty close to the going in yield.

Absolutely.

Okay, that's it for me.

Christine McElroy, Banc of America

I'm trying to reconcile your third quarter upside, and Mike Havala, you mentioned that the KFH gains were a big part of the upside. But you completed the sale on August 27, and you released your new guidance on August 30. So I'm wondering weren't those gains included in the guidance that you released? And you know, if that's the case, what was the additional upside?

The additional upside in the third quarter actually was mostly due to other transactions that we had during the quarter that closed later in the quarter.

Which were?

A number of different sales that we had.

Okay. And you mentioned earlier you're seeing -- you expect to see a positive impact on your rents in the second half of '05. Is that -- do you mean by that positive rent rollover or positive market rent growth?

More on the rollover side. I mean, I think in the second half, we will start to see, you know, just a little bit more growth, just in market rates in general. And they've been relatively flat for some time. But I would attribute it mostly to rollover.

So you actually expect to see your rents on your renewals go up?

Well, you know, you talk about the second half of the year, there I think, you know, we're going to see them go up in some cases, down in others, probably pretty close to flat, you know, on the balance.

Okay, so the mark to market on your '05 rollovers you would say is probably flat?

Yeah, I would say it's probably flat to -5. You know, it depends on which half we're talking about. Earlier in the year, we'll be under more pressure as we've forecasted for some time. Second half of the year, we'll be approaching flat. That's how I would characterize it.

Okay. And then just a follow-up from an earlier question, on your -- the KFH sale qualifying as merchant income. The -- I guess, the assets are depreciated. Do you generally assign depreciated assets to your merchant sales?

Let me explain that a little further, Christine. Remember, as well, part of the gain that we recognized in the third quarter was the deferred gain from when we sold these to the venture, you know, upon completion. So, you know, I think you are very familiar with that concept. If you have $100 gain, and you sell it to a venture, of which you're a 15 percent partner of, you don't recognize 15 percent of a gain. And so that gain is the deferred gain, which then gets recognized when the asset is sold out of the venture, and your interest then is zero. So part of the gain that you saw during the quarter was related to the deferred gain that was not recognized under the GAAP rules upon original sale into the venture.

So that was part of the development process. And again, remember, when we look at these assets, you know, we recapitalized these assets in the joint venture. These were development assets that First Industrial developed and recapitalized the venture and then eventually sold in the third quarter.

Okay, thanks.

The floor remains open for questions at this time. (Operator Instructions)

I'd like to go back to your revised guidance for '04, because it's still not clear to me. I'm looking at your increased guidance for net economic gains for the year, compared to what you had outlined in the third quarter, I believe has increased by approximately 25 to 35 cents a share, give or take a penny. Yet, your midpoint of your guidance has remained pretty much the same. Can you outline where in the business --, obviously there's other points of the business that are coming in below previous expectations. Can you reconcile that for me?

Sure, it's just that basically, I think I went through this a little bit before, but it has to do with the timing of investments and sales. When you invest in properties, or sell them, just the timing of that can have a big impact on your numbers in the short run. It has to do with, again, better visibility of the numbers as we said before and has to do with G&A, as we mentioned before on the infrastructure investment that we've made in people and systems and the corporate real estate side in joint ventures. So those are the main drivers as well as the second quarter gains were a little bit higher, and NOI was a little bit lower than originally projected as well.

Okay, maybe I'll follow-up offline just to get a little more color on that. My other question relates to the 1.2m primary shares that you sold in the market, a little before quarter end. I know in terms of filings that you have out there, I know you've given yourselves the opportunity to sell up to 3.9m shares. And I'd like for you to elaborate a little bit on what your motivation would be to come back to the market in the context of some of the opportunities you see in front of you.

Sure. Well, our objective, at the time we issued that, was to raise about $50m. And that was based, again, on the fact of the investments that we saw coming down the pipeline. So, we achieved our objective there for what we wanted to raise at that time.

So at this point in time, you see no need to go back to the public markets?

Not necessarily, based on our plan, based on our expectations in our pipeline, and so forth.

Thank you.

Gary, if JoJo gets real lucky next quarter and brings in many big fish, it could change, but right -- I mean, you know, we don't anticipate that. That's not part of our business plan for '05. But you know, if we should be so fortunate as to find many great opportunities, we will not hesitate to use private capital or public capital to finance , you know, good business deals.

Thanks for that comment, Mike.

Sure.

Paul Puryear, Raymond James & Associates.

Say, in this earning season, we've heard some companies talk about demand pace slowing as the year has progressed, and not necessarily in industrial, but I really wanted to hear your comments on that.

Paul, this is Dave. We sure haven't seen demand slowing. Actually, you know, I think as evident by our projections, not only by our quarterly results, but by our future projections, you know, demand has really picked up for us. And it's picked up for us, as I said, across 75 percent of our regional portfolios. And you know, we very much look for more of the same. I don't think our forecasts are, you know, drastically optimistic, but they're certainly solidly optimistic.

Hey, Paul, you know, I mentioned in my comments when I opened up that another thing that is really pretty interesting is just the amount of liquidity that companies have today. And you know, obviously, they're not spending it as -- into the proportion of which they earned it. But if there's some clarity, a little bit more clarity on the economy, and Iraq, and oil prices, and so forth, we know from the discussions with our corporate managers that they're -- a lot of these guys are still pushing back projects that they'd like to do. And they've got the liquidity to do it. So, you know, you get a little bit more clarity. You've got the, you know, you've got the wherewithal to do it. And we get --, you know, I read the comments from Alan Greenspan every time, and one of the things he constantly says is, you know, "I'm waiting for the other shoe to drop." He means that, you know, companies have yet to really push the pedal to the metal in relationship to their earnings. And yet, as I mentioned, the amount of spending, business spending, has still been pretty darn good. So, you know, we're hopeful that we'll see that pick up to historic levels. But as Dave mentioned, we're seeing some pretty good demand anyway.

What about in the different product types, say, the distribution space versus bulk. Are you seeing a difference there or in flex?

Well, I would say -- Paul, it's Dave again -- I would say that, you know, still the higher finished spaces, in general, tend to be a little bit slower. So R&D and flex, and again it's a generalization, but for the most part, would not be as active as our regional warehouse, light industrial, even bulk warehouse product. There's a lot of product moving around. If we look at the leases that we signed in the third quarter, you know, there's a good mix. But I'll tell you, there's a fair amount of logistics, distribution, and product movement companies involved in that leasing activity. So I would say the bigger spaces, for a change, you know, the moderate to bigger spaces, have been more active. And the smaller spaces, which generally were more active earlier in the recovery, you know, have moderated out a little bit in favor of those larger spaces. And that's a good development for us.

Thank you.

Scott O'Shea, Deutsche Bank.

Quick questions. Are there any plans to replace any of the preferred stock that was called recently?

No. , we took care of that earlier in the year, Scott, the Series H that we redeemed in the third quarter. We had done a bond offering back in June. And we used the proceeds from that essentially to pay that off.

So if you look out, say, through '05, it looks like just kind of your base business forecast. You're going to be a net investor here in the rest of '04, and through '05. Is most of that going to be pushed into the bank market and the bond market then in terms of funding?

Well, remember we've already raised part of that capital with respect to the common equity that we raised. So that takes care of the majority of that. And you know, other capital we might raise will remain to be seen. But one of the reasons also, I'll go back to raising common equity, is we wanted to make sure that as we added and grew our company and grew the balance sheet, that we did it in a way that was not increasing leverage. I know other companies out there have added assets and added leverage, but that was not our plan. We like our capital structure and want to keep it in balance from where it is today.

Great. And the G&A investments that you mentioned in terms of people, systems, Sarbanes-Oxley, overhead, that kind of stuff. Is any of that really more one-time this quarter, or do you see that as kind of being a permanent kind of run-rate going forward?

I'll say a little bit is one-time, the fact that you have some upfront costs on some of those. But I think our run-rate going forward will be somewhere close to the third quarter, maybe a little bit lower, but close to the third quarter number.

Okay, great. That's all. Thank you.

David Copp, RBC Capital.

I'm here with Jay as well. Most of our questions have already been answered at this point, but could you talk a bit about what you've got under contract in the way of assets for sale? You mentioned a pretty strong pipeline on the buy side. What're you looking for at this point in terms of sales in the fourth quarter?

We expect to sell in the fourth quarter anywhere from $100 to $200m. The composition of that sales pipeline is 100 percent identified. In fact, I'm pleased to tell you that about $116m of our sales is already either closed, or under agreement to be sold. So we feel good about, you know, the $100 to $200m of sales in the fourth quarter.

Okay, great. And then looking at your development pipeline, which is about $220 million, of the $121 million that's not just strict build-to-suit, what's the level of leasing on that portion?

Yes, it's 66 percent.

Okay, very good, thank you.

There appear to be no further questions at this time. I'd like to turn the floor back over to First Industrial.

Okay, well, thanks, everybody, for calling in, and appreciate your questions. And I guess we'll see many of you in Los Angeles at NAREIT. Thanks a lot.

Thank you, ladies and gentlemen, this does conclude today's First Industrial Realty Conference Call. You may disconnect your lines at this time, and have a great day.