First Industrial Realty Trust Inc (FR) 2004 Q4 法說會逐字稿

Good morning and welcome to your First Industrial Realty Trust Fourth Quarter Results Conference Call. (Operator instructions) I would now like to turn the call over to First Industrial.

Sean O’Neill: Good morning. This is Sean O’Neill, SVP of Investor Relations and Corporate Communications. Before we discuss our results for the quarter and full year, let me remind everyone that this 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. These factors can be found in our earnings release which is available on our website at www.firstindustrial.com. Now let me turn the call over to Mike Brennan, President and CEO.

Thank you very much, Sean, and welcome everybody to our fourth quarter and year end 2004 earnings conference call. Before I begin, I would like to introduce the members of management that are here with me today. JoJo Yap, our Chief Investment Officer, who will detail our investment performance and pipeline; David Draft, Executive Vice President of Operations, who will discuss our portfolio performance in the fourth quarter and also give you an outlook for the leasing markets; Mike Havala, our Chief Financial Officer, who will go through our capital market's activity, our balance sheet and then talk about our guidance for 2005. And you just heard from Sean O’Neill, who joined us several months ago as our Senior Vice President of Investor Relations, helping Mike Daly who is also in the room too. Just kind of double teaming on the IR/public communications side for the Company.

For the benefit of those who are new to the call, who are newly invested in First Industrial, the Company's strategy is to invest in industrial properties in major US markets, and then manage those investments through regional personnel who are proficient in all aspects of our business, whether it is development, acquisitions or leasing.

This operating platform has allowed us to achieve above average real estate returns, because number one, it has opened up broad avenues for investment for us. Number two, and most important, is that its key ingredient is the local mileage of regional operators who can both source investments locally and also undertake for us complex transactions that require a national network of full service offices.

Finally, our investments are financed with both public and private capital, giving us competitively priced capital, and also capital that's appropriately matched to all the investments we make, whether they are net leases or whether they are redevelopments.

Getting into our year end results, our full year results exceeded expectations and they were driven by three principal factors. First, happy to say improving results from our portfolio. This is the seventh consecutive quarterly increase in occupancy and a contributing factor in driving same-store growth into the positive territory during the fourth quarter of 2004.

Second, the results were driven by record economic gains, with gains from our ongoing capital recycling, the primary contributor, as well as the sale of assets from our first venture with the Kuwait Financial House.

Third, results are influenced by continuing, accelerating capital deployment opportunities. By the end of the year we were a net on balance sheet investor by about $59m. I am happy to say this was the largest new investment volume that the Company has had since 1998. Again, as Jojo will detail, corporate acquisitions played a major role in that success. The net result at the fourth quarter and for the full year was that FFO was $3.53 per share, and 83 cents per share for the fourth quarter, which put us 13 cents over the mid-point of our range.

Looking back at last year at this time, we made a forecast and that forecast was, for one, moderate but steady improvement in the U.S. industrial real estate market; and secondly, despite the improvements that we saw, we also said that we would see rental rolldowns until the industry worked off its excess vacancy. That forecast proved accurate.

Just to review that for a second, the steady improvement portion of that forecast was based upon improving trends we saw in four areas. First, increasing plant utilization, increasing inventory levels, increasing capital spending as well as construction levels that appear to be holding at reasonable levels. The moderate portion of that forecast was based upon plant utilization that at 76.8 percent was still well below historical levels. It was also based on vacancy again, that at 11.6 percent in the beginning of ’04 was still above historical levels. And it was based on the fact that capital spending, while increasing, was still below historical levels when you measured it against overall corporate profitability.

For 2005, there is again ample justification to forecast steady improvement throughout the markets. For one thing, plant utilization has increased from 76.9 percent to 79 percent, so it was a big increase. I think most importantly, it is now only 200 basis points below the 40 year average, so I think it is reasonable to expect that we could meet or exceed that historical level this year.

National occupancies by the end of 2004 had increased 70 basis points and now stand at 89.1 percent after absorbing 174m square feet. So national occupancies are now within striking distance of 90 percent. This is a threshold that we in the industry generally regard as indicative of increasing landlord leverage in the leasing arena.

And finally, in 2004 U.S. corporate profits rose to their highest percentage of GDP in 75 years. And then add to that something we said the last quarter, that corporations are also their most liquid in over four decades, and we have the requisite conditions for strong capital spending. Strong capital spending, in our experience, translates into strong absorption.

Now a little closer to home, we think that it is going to be a good year at First Industrial based on all the work we did throughout 2004 to position ourselves for the opportunities that lie ahead of us in the next several years, and some of those we mentioned in our press release that we released last night. As Jojo and David and Mike will discuss a little further, we enter 2005 with the largest pipeline of investments that we’ve had in six years, a testament to the correctness of our efforts to focus on the corporate real estate market.

We are also moving closer to further expanding our private capital capacity, a move that will give us greater ability to serve our customer base and continue with our value-added investing.

Finally, we’ve added new markets in 2004 and we’ve added new people. That is going to broaden our geographic reach and deepen our bench both in the field and at the home office.

So all in all, the state of the economy, the conditions within the industrial market and our own readiness have set the stage nicely for what should be a solid 2005. With that, I would ask Jojo to continue the discussion on the investment side.

Thanks, Mike. We achieved a very solid performance in 2004. We invested a total of $483m in acquisitions and development placed in service for the year. This makes us a net investor for the year by $59m. As in the past, we continue to be an accretive investor, through achieving yields of 9.6 percent which exceeded the yield on sales by 130 basis points for the year. I would like to note that this yield spread is consistent with our five-year average of 133 basis points between investment and sales.

In terms of the economic profits, we achieved a record $97.9m for the year. The source of these profits continue to be broad based, and it was achieved by harvesting value from investments in 23 cities and 76 separate transactions, including assets from our first venture with Kuwait Finance House.

We owe the results to our disciplined application of our asset management plans throughout all of our investment activities, which includes merchant development, redevelopment and value-added acquisitions. I would also like to note that our profit margins of approximately 15 percent on sales in 2004 is in line with historical margins of approximately 14 percent. We also achieved significant value creation, as evidenced by our achievement of an unleveraged rate of return of 20.6 percent.

I want to point out that the profit margin and IRR results does not include the sale of assets from our venture with Kuwait Finance House. It would be higher if it did.

In terms of the investment pipeline, it is at the highest level coming into a new year since 1998, at $392m. This is especially noteworthy if you consider that January has traditionally been a slow month for investment activity. In terms of acquisitions, total closed and under agreement is at $145m. In terms of development, we have $173m under construction, which is 75 percent leased. In addition, we are under agreement on $74m of build to suits.

The $392m investment pipeline would represent 60 percent of our midpoint of our investment volume guidance for 2005. In addition, we have offers outstanding on about $270m of acquisitions, and have been short-listed on over $60m of build to suits. We believe this activity positions us really well to meet our investment goals this year.

There are a number of reasons why our investment pipeline is strong. First, we owe it to our national infrastructure. For example, the investments last year came from 60 separate transactions executed by each and every one of our 32 transaction officers across the nation. They continue to execute, as evidenced by our current investment pipeline, which is spread across 45 transactions across the nation.

Second is the growth that we experience and continue to see in our corporate business. For example, we executed 30 corporate transactions amounting to $321m in 2004. This is more than double the $148m volume we achieved in 2003. We expect this trend to continue as we expand existing relationships and build new ones.

In addition, there are industry trends that should lead to greater corporate business. For example, M&A activity in 2004 was the highest since 2000, as companies continue to consolidate and shed redundant assets, we expect an increase in repositioning opportunities. We also expect to see further movement from production-centric to customer-centric supply chains as corporations continue to reconfigure their supply chains.

Another reason for our strong investment pipeline is the investment we have made and continue to make in our human infrastructure. For example, we added a veteran investment professional in the Baltimore/Washington area in the third quarter of last year. Since that time, we have invested $49m in that market. As you may recall, we also added a national head of net lease investment third quarter of last year. Since that time, we have closed on $93m of net lease investments and have $33m under agreement.

Recently, we added a seasoned investment professional in the San Francisco Bay area, who we expect will start executing on investment opportunities in Northern California.

Finally, we are in the process of adding three investment professionals in the Southern California market to strengthen our position there.

Our investment in these people will give us more ways to invest capital profitably and serve our customers better than at any point in our Company’s history.

The final reason we are optimistic about our investment pipeline is that we expect to expand our business through co-investment. We are gratified that there has been such a strong level of interest by investors to partner with First Industrial. They obviously value the franchise that we have built, our expertise, our ability to execute and our track record. The new joint venture will give us added opportunities to invest and it will complement our business, since we will be able to leverage our national infrastructure and also expand and deepen our relationship with corporate America. With that, I will turn it over to David.

Well thank you, Jojo. I would like to just start with a few comments on industrial real estate fundamentals. We saw continued improvement in the fourth quarter. Net absorption totaled 57m square feet in the quarter, that is the strongest quarterly absorption performance in four years. This level of absorption strongly outpaced new deliveries, which were 36m square feet in the quarter. It is noteworthy that that is the third consecutive quarter in the past 16 in which demand has exceeded supply.

If you look at the full year 2004, 174m square feet were absorbed, and that compares to 20m square feet absorbed the year earlier in 2003. So a big jump in absorption.

The increase in absorption continues to translate into lower availability rates across the country. At year end, the national availability rate stood at 10.9 percent. That is a 30 basis point improvement from the third quarter, and as Mike stated a few minutes ago, a 70 basis point improvement year-over-year.

Notably, the fourth quarter improvement is the third straight quarter of improvement, and is the first time that the national availability rate has moved below 11 percent since the fourth quarter of 2002.

So with this improvement as a backdrop, let’s take a look at First Industrial’s portfolio, which posted steadily improving occupancies throughout 2004. At year end, our in-service occupancy had increased to 90.1 percent, and that is a 60 basis point increase over the third quarter and a full 170 basis point gain over the prior year end.

The fourth quarter gain also marks the seventh consecutive quarter, again as Mike stated, that we had an increase; seven quarters in a row. And this improvement continues to be broad-based as well, as two-thirds of our regional portfolios increased occupancy from the previous year.

Just call out a few markets where occupancy was strongest. That would be Southern New Jersey, Los Angeles, St. Louis as well. Phoenix too. The weakest markets included Indianapolis, Tampa, and Minneapolis.

Now based on fourth quarter leasing, some of the most active industries in the quarter included logistical providers, medical suppliers as well, and construction material distributors. Same store, let’s look at same store. That was up 90 basis points in the fourth quarter of 2004 as compared to the fourth quarter of 2003. That is the first time in six quarters that same store NOI was up quarter over quarter. So a nice sequential result there.

Other portfolio statistics remained on track as well with previous guidance, and I just would like to recite a few now. That would be within guidance both for the quarter and the year. Retention in the quarter was 58.2 percent and that is on a square footage basis. We retained 73.8 percent of our leases in the quarter. Now for the year, we are right in our historical norm. We retained 65.2 percent of our square footage and 72 percent of our leases.

Our progress on leases rolling in 2005 is also on track as we expect that annual renewal levels will be in line with the historical norm again. This is based, of course, on leases already renewed as well as discussions in progress with our expiring tenants.

Rental rates continued to roll down as we expected. Again, within the range of previous guidance. The cash on cash fourth quarter decline was 6.1 percent. Just note that that is not much different than the third quarter. For the year, rents declined by an average 4.7 percent. A bit of good news there, in that the 4.7 percent is an 80 basis point improvement over the decline of 5.5 percent in 2003.

Let’s look at leasing costs. They came in for the year at $2.30 per square foot, for the quarter $2.78 per square foot. Just also mention that the annual level is somewhat higher than in the past, again within expectations. Just to let you know that an important factor in this is the percentage of new leasing in 2004 as compared to prior years. In fact, in 2004 the amount of new leasing increased by about 10 percent over the prior year, and even over 2002, a 10 percent increase. As you know, new leasing costs typically run – our experience has been about $2 per square foot more than the cost for renewal leasing. So that is definitely a significant factor there.

In summing up 2004, well it surely was a time when the leasing environment started to turn the corner. Quarter by quarter, we saw both actual and prospective deal activity on the increase, and even higher leasing costs and rental rate decreases were tempered by the significant increases that we experienced in occupancy, the big driver.

With continued progress on a macro economic front, and a continued drop in the national availability rate to 10 percent or less, we expect to regain some leverage in negotiating rental rates and lease concessions. We think that will start happening sometime in the second half of this year, 2005. We project cash on cash rental rate changes in 2005 will be in the range of flat to negative 5 percent and leasing costs to be similar to 2004. We look for our in-service occupancy to increase about 200 basis points this year, with the increase being weighted toward the last quarter when we expect to move above 92 percent.

We also look for about all of our markets to contribute to the occupancy increase with the strongest markets being on in the east and west coasts, the more challenging markets will include Atlanta and Indianapolis again this year, we think. And our projected level of occupancy, we look for same-store NOI to be positive in the range of 1-3 percent in 2005.

Now I’ll just finish up by mentioning to everyone that we have recently invested in our leasing effort as well. We’ve appointed three senior level leasing directors to work directly with each of our regional leasing teams. These directors, they each have a long history at First Industrial of achieving exceptional leasing results. So we now have them in a position to leverage the success across all of our regional portfolios. We look for good things to come from that.

So we look forward to reporting more good news as we move through 2005. There are a lot of good reasons to expect that to happen. At this point, I will turn the call over to Mike Havala.

Thanks, David. First I would like to give you an update on where we are with our new joint ventures. As we have talked about previously, we are pursuing joint ventures in three areas of our business, that is development, corporate repositioning and then core stabilized assets. At this point, here is where we are on these.

With respect to development and repositioning, these two areas we are combining into one single joint venture, simply because they have similar risk/return characteristics. If you remember on our last conference call which was in October, we said that we expected to execute the joint venture by the end of the first quarter 2005. We have good news on that front. The fact that we are right on schedule and we expect to close the joint venture and fund the first property closing here in the first quarter of 2005.

Of course, once the joint venture is closed, we will make the appropriate public announcement and provide you with more details on the transaction.

Next in talking about core and the stabilized assets, we are currently working on identifying assets for ventures in this area. Remember, we see this type of asset in the normal course of our sourcing investments. So as we see things that make sense for a core asset joint venture, we will execute the joint venture at that point in time. The timing will be a little less identifiable here.

Next, I would like to make a few comments about the strength of our balance sheet and our ratios. For 2004, our interest coverage was 3.0 times; our fixed charge coverage was 2.5 times; and these are very solid ratios which, by the way, have improved in 2004 compared to 2003.

Regarding the qualitative features of our debt, we have one of the longest debt maturities in the entire REIT industry at about 9.5 years. 100 percent of our permanent debt is fixed rate, and we have very little secured debt, as over 96 percent of our assets are unencumbered by mortgages, which of course is very important and even critical to have a true capital recycling business model.

The next area I want to go through is our earnings and our guidance. With respect to 2004, we are very pleased with our results, as Mike mentioned, beating the midpoint of our guidance by 13 cents. And remember also earlier in the year 2000 we had already raised guidance for 2000. As you saw, FFO per share was $3.53 for the year, and for the fourth quarter it was 83 cents. The primary reason for this increase over our guidance is our transactional income came in higher than originally projected, simply because we did better than expected on a number of transactions.

The last comment I want to make about 2004 is you may have noticed our G&A increased in 2004 relative to 2003, and this is due just to a couple factors. We had an increase in costs to be a public company, including Sarbanes-Oxley compliance costs and so forth. We added infrastructure which Mike and David talked to you about as well, and then we had additional incentive compensation in 2004 vs. 2003.

Regarding our guidance, for the whole year 2005 we are reaffirming our FFO per share guidance at $3.40-3.60. Our GAAP EPS, we see coming in at $1.60-1.80 in 2005. And because the assumptions have been laid out in the press release, I won’t go into detail here, but just note that we anticipate that our earnings will be somewhat back-end weighted in 2005.

One other point that I would like to make out is that in 2004, 78 percent of our revenues came from rent and 22 percent of our revenues came from transactional income, i.e. gains. In 2005, we expect that about 80 percent of our revenues will come from rent, and about 20 percent will come from transactional income. I just wanted to point that out to you.

With that, let me just conclude and say that our financial position remains very strong and we are very excited about our new opportunities which will help us grow the company in 2005 and beyond. With that, let me turn it back over to Mike Brennan.

Thank you very much, Mike. I would just like to make two summary comments, and then moderator, we will open it up for questions. Number one is the strength of the economy. Clearly I think the signs are unambiguously clear that we are moving in the right direction and that has helped property fundamentals move us significantly closer to a landlord’s market.

The second thing is the strength of the Company. We have a stronger bench, we are covering more geography, have more capability. We will have greater capital availability.

Third, we are gaining significant traction in the corporate real estate arena, a very important strategic market for us, and that has resulted in a bigger pipeline. Also last, but certainly not least, greater leasing and greater occupancy.

Overall, I think we are going to have a good and solid year in 2005 and are looking forward to taking your questions. Moderator, could we open it up.

(Operator instructions) Your first question comes from John Stewart with Smith Barney.

Hi guys, it is Krupal Raval with John Stewart. A couple quick questions. One, regarding your G&A expense for next year, given the bump this year, what would you expect a decent run rate to be?

We would expect our run rate for G&A for 2005 to be very similar to what you saw in the second half of 2004.

So roughly about 11 and change for the quarter?

Between $10-11m per quarter.

Another quick question I had was the other expense of $1.8m in the fourth quarter. What was in that?

Where exactly are you looking?

On the statement of operations, the other expenses, $1.798m.

Other expenses that we have would relate to property such as marketing expenses, so when we market a space to lease that would go into that number. Bad debt expense would go into that number. Other miscellaneous types of expenses that are not in the line items – real estate taxes, utilities, property maintenance, that sort of thing.

Well the reason I ask is because it runs to roughly more than half of the full year totals. So are you seeing more bad debt expense? Is anything going on there that we should know about?

There is nothing from a trends point of view there.

So far as the lease expirations go, ’05 you guys have a good amount of space rolling, 25-26 percent by rent. Is there any particular market that you see more rollover, or is it pretty consistent? How does that break out?

This is Dave. First of all, let me just comment on the level of the rollover in 2005. You know, we entered really we are entering this year, have started this year with a very similar level as the last several years. If you look back at the last several years, in fact in 2004 we were actually looking at a higher rollover level than what we are for 2005. Of course, market conditions having improved substantially from a year ago and certainly two years ago, we feel very comfortable that the market will help us this year more than it has in the past.

I will also just say to you that we have got about 2,500 tenants, so the volume of renewals is very large. We do about three per business day, so that really mitigates the volatility. Third, if you just look back to what our history has been in terms of our renewal rates, it has been very consistent, year in and year out. Again, you have to really look at it on an annual basis.

With respect to whether we have any rollover concentrated in any one market, any one quarter, any one product type, the answer is we don’t. It is very consistent across all of those areas as it has been for the last several years running.

And one last question, it is probably for Mike Havala. About the JVs, I am not sure, I can’t remember if there is a particular dollar amount you are targeting for the value of the JVs?

There is not. What we will do is we will announce what we actually did once the first joint venture is executed. Again, what we expect to achieve here in the first quarter. So we will wait until more detail and comment at that point in time.

Great, thanks a lot guys.

Thank you.

Thank you. (Operator instructions) David Taylor with David P. Taylor & Co.

I have a few assorted questions. I am a little confused. You mentioned in the press release that NOI was up fractionally, I believe it was 10 basis points year-over-year. Investment in properties is up; gains from the sales of properties is up; yet, both net income and FFO as you define it is down. What am I missing?

For the year, our FFO was actually up in 2004 relative to 2003.

I was asking more in terms of the fourth quarter.

Yes, it would just be the other line items. For example, the G&A expense would be one of those line items that if you look at the comparison in the fourth quarter of 2003 vs. 2004 –

It was up by $5m.

Right, so that is an impact in the comparison quarters.

How much did Sarbanes Oxley cost you in the fourth quarter?

I am not going to comment on particular line items, but certainly we as well as other companies saw a meaningful increase in those costs to make sure that we were compliant with Section 404 of Sarbanes-Oxley and so forth.

So was it a significant portion of the increase in G&A?

It was a portion of it, yes.

Okay. Looking forward on that particular expense item, is it reasonable to assume that it will only go up by the amount of inflation? Assuming no change in the law, going forward? Have we seen the full Sarbanes-Oxley impact in ’04?

Hopefully costs going forward go down, because remember there was a lot of upfront costs that most companies had to spend because everybody was getting up the learning curve on exactly what was being required. So David, hopefully those costs actually go down on a going forward basis.

Thank you very much.

Sure. Thank you.

Thank you. Your next question is coming from Paul Puryear with Raymond James.

Good morning, guys.

Hey, Paul.

It is a similar question, Mike Havala or Mike Brennan, either one. If you could just sort of talk through what has happened in the G&A category. Because from 2002 your G&A is up 135 percent, your revenues are up 8-9 percent. I know some of the answer has to do with asset sales. But can you talk us through that a little bit? The numbers are getting so large, I think we are at a point where we need some more breakout of that $40m run rate.

Let me refer you to the 2004 annual number vs. the 2003 annual number. It is better to look at it on an annual basis rather than just quarter to quarter, because you may have aberrations happening in one quarter vs. another. So if you look at the difference between 2003, the whole year, and 2004, the difference was about 45-46 percent. And again, as we cited before, it is more expensive to be a public company these days. In addition to Sarbanes Oxley, you have other costs. D&O insurance has gone up for everybody because of issues with other companies out there. Those premiums, we have more board of directors meetings and so on. So it is just more expensive to be a public company these days.

In addition, we’ve added some infrastructure, people, and I should point out, by the way, that the people we have been adding have been people that are aimed at top line growth.

What I mean by that are people that are working on the leasing front, or people that are working in the transactional area. So we are very focused on that top line growth.

The other area was incentive compensation that was higher in 2004 vs. 2003.

Paul, Mike Brennan. Two quick comments. Another way to look at the G&A is it is our investment in the corporate real estate arena that we have talked about over the last couple of years. The more we do, the better we get and the more customers we have, the more repeat customers we get. That would probably be the bottom line in terms of 70 percent of the G&A. It really reflects our initiative with corporate America. I think that initial upfront investment continues to pay dividends, as Jojo mentioned, and we think that business is just in its infancy. Every year it has gotten better and better. That is why we spent the money. Mike Havala - First Industrial Realty Trust, Inc. - CFO Also I should add that in addition, part of what is in G&A is our restricted stock amortization, which of course is a non-cash expense. That was higher in 2004 vs. 2003 as well.

It just looks like the definition, you are beyond the definition of G&A here. It is really the cost to run IIS or whatever the division is. It seems like you need to match revenues and expenses and show us another profit center, almost, and break out pure corporate G&A so we can see it.

I understand that, Paul. Unfortunately GAAP accounting requires us to report it a certain way, and that is how we report it.

I mean, this is as much information as we can see on it. We haven’t seen increases like this in any company. I understand what is driving it to some extent, but it just seems like you could provide more information. That’s all.

Thank you, Paul.

Thank you. Your next question is coming from Gary Freeman with Gem Realty.

Thanks. Either Mike could probably take this question. In your guidance for net economic gains for 2005, can you give us a sense of what percentage is going to come from the existing portfolio operating properties?

Gary, hi. This is Jojo.

Hi, Jojo.

In 2005 the merchant development activities, which is merchant development, redevelopment and land sales would be right about 60 percent and our projected range for existing properties, the rest was just about 40 percent.

Okay, so if I wanted to go a step further and compare your FFO to those of your peers, should I back those existing property gains out of your FFO?

Absolutely not, because some of our peers, as you know, report FFO the same or very similar as we do.

Let me restate that. If I wanted to compare your FFO to the majority of the REIT universe –

Well you are free to, I guess, do the analysis like you would like to do with respect to how you compare one company vs. another.

Okay, thank you.

Thank you.

Thank you. (Operator instructions) Your next question is coming from David Taylor with David P. Taylor & Co.

Thank you. A philosophical issue on the point of gains. Some people view them one way, some people view them another. I am looking at a research report from a well-known Wall Street firm and the analyst is making the point that in his opinion, gains are more volatile and less predictable than rental income.

My thought is that just the reverse is true, that you have an unrealized gain on the property you can more or less pick and choose your quarters to when you want to realize it, which would make it very predictable, at least from your standpoint. Where do you come down on that?

This is Mike Brennan, David. I actually think that the gains, based upon the way we do our business, actually are more volatile than say rental rate income, for a number of reasons. Some of the gains that we produce in a quarter relate to immediate buys and resells, you can’t predict that. The second part of it relates to, we sell a property when we are done with our asset management plan, then we go into the market and sell the property. We don’t control when they close. If somebody decides they are going to close on April second rather than March 31, then you have what shows up as volatility. I think they are right in that regard. It is different from the question of volatility. I absolutely think they are sustainable. If you take a look at our market value relative to undepreciated book, you can see there resides a huge reservoir of untapped gains that we will look to harvest at the peak level of that asset. So I would concede the fact that it introduces volatility, but I view that as a vital part of what we do in the business and that we are continuing to grow that.

Does it result in increased volatility, say on an annual basis, rather than on a quarterly basis as you cited?

It is far more muted on an annual basis. On an annual basis, I'd comfortably say that what we expect that we would do in a particular year, we should get done within a year. But quarter to quarter, sure it's volatile. You've seen the good side of volatility this quarter and a year ago you saw the bad side of volatility.

Jojo also mentioned, and this is important too, that we have so many different ways that we create value, whether it is land sales, redevelopments, developments, standard resales. It comes from 25 different markets, comes from 75-80 different transactions. So we are really not dependant upon one or two transactions to meet our goals. Does that satisfy your questions on that?

Thank you.

Okay, thanks.

Thank you. At this time I would like to turn the floor back over to Mr. Brennan for any closing comments.

Okay well thank you very much. We appreciate your questions and your interest. We look forward to updating you next quarter. Thank you.

Thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day.