First Industrial Realty Trust Inc (FR) 2005 Q4 法說會逐字稿

At this time, I would like to welcome everyone to the First Industrial Realty Trust fourth-quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) It is now my pleasure to turn the floor over to First Industrial.

Good morning, everyone. This is Sean O'Neill, Senior Vice President of Investor Relations and Corporate Communications. Before we discuss our results for the quarter, let me remind everyone that the call contains forward-looking statements about First Industrial. A number of factors may cause the Company's actual results to differ materially from those anticipated. These factors can be found in our earnings release that 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 2005 earnings conference call. Before we begin, let me introduce the members of senior management who are here today. JoJo Yap, our Chief Investment Officer, and JoJo will discuss our investment performance and pipeline. David Draft, Executive Vice President of Operations, who will cover our portfolio results. Mike Havala, Chief Financial Officer, who will go through our capital markets activity, balance sheet, and guidance for 2006. And you have just heard from Sean O'Neill, our Senior Vice President of Investor Relations and Corporate Communications.

As we have said in our last earnings call and at investor day, we are focused on growing all aspects of our business -- our capital sources, our investments, our customer and broker relationships, and our earnings from the three engines of growth, net operating income, joint venture earnings, and gains from capital recycling. And grow is precisely what we did.

It was a record year, with $2.3 billion of combined balance sheet and joint venture investments; and that was nearly five times the $472 million that we invested in 2004. This year's year-to-year growth in those investments included some noteworthy transactions, including one of the largest corporate real estate transactions; and this was our $152 million sale leaseback transaction that we completed with Rockwell Automation. It also included one of the largest single portfolio acquisitions; that was a $1 billion portfolio covering eight major markets.

We also had one of our best years for development, placing in service $142 million, with another $355 million approved or under construction. I'm also happy to say that we entered 2006 with one of the largest pipelines in our history, over $900 million in new acquisitions and developments.

So in total, and excluding M&A activity, we acquired more in the United States than all other industrial REITs combined; and we're very pleased with that accomplishment. [It's] a credit not only to our whole team, but it is also the result of a strategy to do more business with corporate customers; and our corporate real estate investments grew by 63% in 2005.

But while we were the largest acquirer in the United States, as we have said before, we still own 1% of the market, which can give you a sense of the size of the growth opportunities that still lie ahead.

Turning to the quarter, Funds from Operations grew 18% from a year ago to $0.99 per share. Those results were driven as I said before by all three engines of growth. Our net operating income benefited from our 11th straight quarter of rising occupancy; it benefited from our joint venture FFO that rose with our new coinvestments with CalSTRS; and it also increased due to our net economic gains.

As we reflect back on 2005, I think we executed very well in our overall strategic plans, with several key accomplishments that I would like to mention. Nearly $2 billion in new joint ventures were formed, solidifying joint ventures as a key component of our business model and our future growth.

Our investments grew fivefold due in large part to the growth of our business volume with corporate America; and also our pipeline of investments group as well. We are in a better place this early in the year than we have ever been with this pipeline.

Our total square footage owned and operated and managed grew to more than 100 million square feet. That is a 42% increase year-to-year. Also, we increased occupancy each quarter; and we see conditions in 2006 quite conducive to further occupancy increases throughout the year.

Net economic gains were at an all-time high at $101 million, reflecting the combined efforts of our investment, portfolio management, and disposition teams, each of whom add value as we systematically buy and develop and then sell properties.

Finally and perhaps most importantly, we expanded our national platform in both new and existing markets. We grew the number and the quality of our employees that support the record levels of investment in assets under management this year.

As an example of the quality of our growing bench strength, we hired two new senior executives since our last earnings call. Jerry Pientka was hired as our Executive Vice President Development. Jerry is regarded as one of the leading development professionals in the country, having developed more than 2 billion square feet, $2 billion of industrial and office properties. Prior to joining us, he was the founder of Verus Partners, and before that he was President of Higgins Development Partners.

We also hired Patrick Hunt as our Executive Director of Joint Ventures to help manage and grow our private capital platform. Pat was President and Chief Operating Officer of Great Lakes REIT; and before that, he was a managing director at Jones Lang LaSalle.

So these accomplishments that I've just mentioned in 2005 have set the stage for increased and sustainable growth in 2006 and beyond. Now for -- I will turn the discussion over to JoJo.

Thank you, Mike. As Mike highlighted, 2005 was our biggest year ever in terms of growth in investment activity. We closed out the year with our biggest quarter in eight years for on balance sheet acquisitions. So let me get right into our on balance sheet performance.

In the quarter, we were net investors by $239 million. Our investment yield exceeded the yield on dispositions by 206 basis points. As in the past, we expect this yield spread to produce net economic gains as we complete our asset management plans on each investment.

During the quarter, we acquired 77 properties in 21 transactions. We are casting a wide net and are doing more portfolio acquisitions in multiple markets, as well as smaller, single property acquisitions.

Of course, most notable was our $152 million sale leaseback transaction with Rockwell Automation. It was 24 properties spread across 19 markets; but most importantly, it's an example of First Industrial providing a solution to a customer seeking to monetize its real estate holdings, to redeploy capital in its growing businesses.

Overall, our corporate business grew to $525 million in 2005; and that is a 63% growth from 2004. We also acquired a $57 million portfolio in the Baltimore-Washington D.C. market. That is comprised of 16 buildings and 952,000 square feet. We believe that this was a great investment because it had below-market rents at a basis 20% below replacement cost.

On the development side, during the quarter we placed in service developments totaling $81 million, including our 0.5 million square foot build-to-suit for Le Nature in Phoenix. This world-class beverage facility and corporate headquarters was a complex, detailed undertaking; and we already received two awards for this project.

For the full-year 2005, our national infrastructure sourced and acquired $753 million in 80 separate transactions across all our markets. We also placed $142 million of [developments] into service for a total balance sheet investment volume of $895 million.

Just like our investments, our sales were broad-based across all our markets. During the past year, we sold 108 properties in 78 separate transactions for a total of $656 million. Our dispositions group continued to be a core strength and give our capital recycling component of our business a very high degree of certainty.

Let me now go into our joint venture activity. In FirstCal 1 we invested [$64] million for the quarter and $311 million for the year. Remember that the FirstCal 1 adventure is a $950 million joint venture which is of a revolving nature. That is, when we sell assets from the portfolio, we can reinvest freed up capital up to the [$960] million capacity.

In terms of sales, we sold $37 million of joint venture investments last year. With respect to net economic gain, it was $29.6 million for the fourth quarter and $101 million for the full year. Our sales were profitable, as we achieved an unleveraged IRR of 15% and an after-tax profit margin of 15% for the year. We're very proud of our record producing economic gains for 25 consecutive quarters.

Of the gains produced in 2005, 63% were from merchant activity and the remaining 37% from on balance sheet portfolio sales. We expect the composition of our gains to be relatively similar in 2006.

Now I would like to turn to our pipeline. Our overall investment pipeline for both on balance sheet and joint ventures is approximately $901 million. Let me break it down for you. Development currently and soon to be under construction totaled $355 million or approximately 40% of the pipeline. Acquisitions under agreement as of the end of last year was $546 million; and since then we have closed $155 million.

Now I would like to break it down by entity. Out of the $355 million of development, $264 million is for our balance sheet, and the rest for our joint ventures. I just want to point out that the developments on our balance sheet are 81% leased.

Out of the $546 million of acquisitions, $261 million or about half is for our balance sheet, and the rest for our joint ventures.

Please note that in addition to our $355 million development pipeline, our total additional holdings, landholdings of 1,200 acres, can accommodate another 20 to 23 million square feet or approximately 800 to $900 million. Of course, we also continue to add this land inventory as we acquire more for development in our FirstCal 1 venture.

So in closing, I want to point out that our acquisition pipeline for both on balance sheet and joint ventures is robust. Our great team of professionals is actively looking to uncover other opportunities, whether it is multimarket, multiproperty supply chain solutions, or single building transactions across our national platform.

Also, our expanding development pipeline is a direct result of our focus on corporate America and the ongoing supply chain reconfiguration activity. I now would like to turn over the presentation to David Draft.

Okay, thank you, JoJo. Throughout 2005, we saw a broad-based improvement in the operating results of our portfolio. Both NOI and capital recycling gains are being driven higher as our regional teams successfully execute upon their asset management plans in the context of the improving fundamentals we are seeing in the national industrial market. I would like to just comment on those fundamentals before getting into our own portfolio results.

Leasing activity nationwide, strong in the fourth quarter. Occupancy levels climbed 40 basis points to 90.4% nationwide. This is the seventh consecutive quarter of occupancy gains, and the increase of the last three quarters has been the highest on record. For the full year 2005, national occupancy increased 130 basis points.

Business activity is growing, and companies are becoming more confident in their outlook. Many are making capital investments after a period of building up cash positions, as we know, to record levels. Inventories remain lean. Industrial orders and shipments are demonstrating strength.

With respect to new deliveries of industrial buildings in the quarter, that totaled about 44 million square feet. Net absorption in the quarter was approximately 88 million square feet. For the full year 2005, net absorption exceeded 280 million square feet, a very strong number, in fact the strongest performance since 2000.

So demand strongly exceeded supply, and we saw nationwide occupancy gains as a result. The outlook for 2006 was also positive, as net absorption is expected to stay strong.

Now the forecast for market rental rates is good too. Torto Wheaton sees markets rents for 2006 increasing about 360 basis points from 2005 levels. In fact, of the 54 markets included in their forecast, they expect that about 85% of those markets will show positive rental rate growth this year.

So with that national perspective, I would like to turn now to conditions within First Industrial's on balance sheet portfolio. We will start as usual with occupancy, where we posted another solid gain. In-service occupancy increased 80 basis points from the prior quarter, and at year-end stood at 92.4%. That is 200 basis points above the national average. Overall, in 2005, average occupancy increased by 230 basis points from the 2004 average.

With respect to our regional portfolios, we're seeing some of the highest occupancy levels. By that I mean 96% to 99%. In Baltimore-Washington, there government contractors continue to drive space needs. Also in central PA, in southern New Jersey and Philadelphia too, all of which serve as important hubs serving the East Coast. Then finally, demand for space in Los Angeles continues to be exceptionally strong, as it has for quite a long time now.

The demand for space was also broad-based, we're pleased to report, as we leased to a wide range of industries in the quarter, including businesses involved in global logistics, warehousing, food packaging, and consumer products companies, and medical equipment suppliers and distributors as well.

We expect occupancy levels to continue to improve in 2006, averaging 92% to 93% for the year. The first quarter will likely be lower than that, as we manage through the higher rollover that always occurs at the end of a calendar year. But then beginning in the second quarter, we expect to report sequential occupancy increases for each of the remaining quarters, as we reach the full year 92% to 93% average.

With respect to net operating income, total NOI was up 7.1% in the fourth quarter versus the previous year quarter. Full year was up 4.4% versus 2004.

In just the same-store population, NOI was down 3.4% in the fourth quarter. Now for the full year, same-store NOI was -1.1%. That is an improvement compared the -5.6% for 2004. For 2006, we expect same-store NOI growth to be on average 2% to 4% positive.

Turning to rental rates, in the fourth quarter cash on cash rents declined by 2.7%. That is versus a decline of 3.9% in the third quarter of '05, and versus a 6.1% decline in the year-ago quarter. We expect that rental rates in the portfolio will turn positive in the second half of 2006. We're already showing increases in a number of our markets.

With respect to retention, we renewed 61.9% of our expiring square footage in the quarter and 73.6% for the year. I would just like to point out that that 73.6% for the year is more than 800 basis points higher than 2004, and is also the highest level in the last five years.

Tenant improvement and lease commission costs for the year came in at $2.36 per square foot, which is not much different than the 2004 average of $2.30 per square foot. Leasing costs in the quarter were somewhat higher at $3.16 per square foot. We attribute that to the mix between new and renewal leasing being more weighted to new leasing, which is of course more expensive; and because we leased more spaces with a higher office component. For 2006, we expect leasing costs to be pretty much even with the last couple of years.

So I would just like to wrap up my comments this morning by summarizing some of the key reasons we look forward to further increasing portfolio performance in 2006. First, our leasing and property management teams have grown in both size and expertise. We provided the detail of that at our investor day last fall.

Second, our customer satisfaction efforts continue to be a competitive advantage. In 2005, we exceeded the widely respected Kingsley Index by the widest margin ever. We expect to significantly outpace the industry again in 2006.

Third, our space readiness program, which is one of the focal points of our leasing efforts, continues to drive occupancy. Tenants tell us that the top-notch condition of our space is often a key factor in their decision to sign on with First Industrial.

Finally, we're continuing to see a strong level of showings and RFPs as well as faster, more confident decision-making within most industries, all of which of course drives NOI through higher occupancy and better rental rates. So with that, I would like to turn the call over to Mike Havala.

Well, thanks, David. The first area that I would like to start with is capital markets. As part of our growth plan, our objective is to both increase our capital base and lower our cost of capital. In 2005, we are very active in accomplishing this especially with what we did with our new joint ventures. We increased our capital base by $2.5 billion in the last 12 months, which is over a 60% increase in our capital base.

As previously announced, we raised over $500 million of private equity capital; and this resulted in additional total capital capacity of $2 billion. That is including both the equity and the debt in those ventures.

The significance of the new ventures is that we now have the cost of capital advantage as well as a significantly increased investment capacity, which together make us even more competitive in the marketplace. This addition to our capital base gives us a bigger platform, including more markets, more customers, and more talent inside of our Company.

All in all, the new joint ventures are a new engine of growth for the Company. FFO from joint ventures is expected to grow substantially in 2006, about doubling where it was in 2005. As a demonstration of this growth, note that our total FFO from joint ventures was $13 million in the second half of 2005, versus $3 million in the first half of 2005.

Then as we mentioned last quarter, we have added substantially to our supplemental disclosure regarding joint ventures. Specifically I will point you to page 12 and footnote a-k. Then in addition as we discussed previously at our investor day, we expect to raise more private capital in 2006 as well.

We also added capital capacity on our balance sheet. We did this by increasing our line of credit from $300 million to $500 million; and then we did this by raising a combination of preferred stock, Common Stock, and unsecured notes netting about $350 million of increased capital capacity.

The purpose of our increasing our capital base on our balance sheet was to be able to take advantage of more investment opportunities, which we did do in the fourth quarter.

Note that through this growth period we're continuing to maintain a strong balance sheet. We have a weighted average debt maturity of 8.7 years, 100% of our permanent debt is fixed rate, and our fixed charge coverage is strong at 2.6 times.

With respect to FFO in 2005, you may recall that we raised our guidance twice during 2005. We are pleased that we beat the midpoint of the new higher guidance coming in at 361 for the year.

Importantly, that momentum is continuing into 2006 as all engines of our growth, that is, all three revenue sources, are expected to increase. Hence the double-digit FFO growth for our guidance.

Next, let me talk about some specifics regarding our fourth quarter. First our FFO per share grew to $0.99, which is up 18% from the fourth-quarter 2004. During the fourth quarter, in order to facilitate larger immediate acquisitions, we raised temporary capital in the form of $187 million of preferred stock and $125 million of credit facility debt. Note that all of this temporary capital was paid off in January with permanent capital executions, namely, $150 million of preferred stock and $200 million of 10-year notes.

Turning now to G&A expense for the quarter, as we previously discussed, included in the G&A line item are both fixed and variable costs of running our business. In the supplemental, we have provided some additional disclosure on a portion of G&A that is directly tied to economic gains. Specifically that is the compensation of our investment officers, who produce to those investment gains. For the fourth quarter that amount was 3.1 million, which again is shown in the supplemental.

Then please note that the unallocated amount of G&A, which is $13.9 million for the quarter, that also supports the production of economic gain as well as supports the rest of our business.

In the fourth quarter you may have noticed that our total G&A increased. This is due primarily to the significant increase in the size of the Company with our expanded investment and capital base, and also due to higher compensation costs related to higher gains and increased earnings.

Regarding our FFO guidance for 2006, we expect double-digit growth. That is based on the midpoint of our 2006 guidance, which is $4 per share. This represents a significant acceleration in our growth rate.

As I mentioned before, all three revenue sources are expected to increase in 2006. First, NOI is expected to grow 2% to 4% on a same-store basis, as fundamentals should continue to improve. Second, our net economic gain is expected to increase to a range of 100 to $120 million as our expanded infrastructure should produce more investment profits.

Third, our JV FFO is expected to increase to 30 to $35 million, up from $16 million as the ventures that we executed in 2005 fully take hold in 2006. Note that further details on our guidance are included in our press release.

Then one last item that I want to point out is that the accelerated growth that we see for 2006 will significantly improve our dividend coverage. We expect our FFO payout ratio to be in the low 70s, and the FAD payout ratio to be the high 80s.

So with that, let me just conclude by saying that we were very pleased with what we accomplished in 2005, and we're even more excited about our outlook for 2006. So with that, let me turn it back over to Mike Brennan.

Okay. Well, Mike, thank you very much. Before we get into any questions, I just wanted to say that today we took a bit longer for our prepared remarks than usual, but we wanted to make sure that we described how much the organization has grown over the last 12 months. It was nothing short of a transformational year for First Industrial.

As a result of the investments that we have made in our platform, we became the largest acquirer of industrial real estate in the United States as confirmed by Real Capital Analytics. Our business with corporate customers was up 63%. Our assets under management increased by 42%, and our pipeline of transactions, as JoJo mentioned, already stands at more than $900 million.

The growth in the infrastructure, the portfolio, and the pipeline is what will drive double-digit growth in FFO in 2006. But longer term, I think there is even greater significance in the platform we're building. We believe that there will be a continuing structural shift, where more corporate customers look to integrated real estate providers like First Industrial to help them with their supply chain needs.

We also see an environment where the coinvestments with private institutional capital will increasingly shift to those with value creation infrastructures and access to strong deal flow. We are in a very good place at a very good time.

So, thank you very much. Now, moderator, we would like to open it up for any questions.

(OPERATOR INSTRUCTIONS) Ross Nussbaum, Banc of America Securities.

Thank you, it's John Kim with Ross. A couple questions on guidance. Your range of expected sales, and this is in your wholly-owned assets, increased $100 million. But then the cap rate also declined 50 basis points. Does this mean you are expecting to see better pricing on your asset sales? Or do you just expect to sell more in terms of square footage?

Yes, with respect to the sales volume in 2006, we increased a bit of that [lot] because of the acquisitions that we did in the fourth quarter. With respect to the cap rates that we foresee in 2006, that is really just a reflection of the market. If you look at our average cap rate, at what we sold at in 2005, it was about 7.5%. So really that is more of an updating of our guidance to the market conditions as we see them.

Then your same-store NOI guidance in '06 is positive 2% to 4% which is a turnaround from '05. What do you attribute this to?

John, Ross, this is Dave. Really two things, an increase in occupancy for sure. As we said, we expect to average 92% to 93% in 2006, and most of that population is, of course, same store. Then improving rental rates as well.

Your same store occupancy was actually flat for the year. Were there particular markets -- were there some markets in particular that you were disappointed with?

No, I would not say that, John. I would really say it is more due to a change in population on the same-store side. Same store, for us, may be a little different than for others, given our capital recycling program that we have.

So we see properties move in and out in a couple of the markets in particular; Tampa is one for example where we sold about 11 buildings, all of them full, in the last half of 2005. So that is going to impact same-store occupancy and same-store NOI. So I would attribute it to that.

Just as a reminder, the Duke assets will not be included in your same-store portfolio in '06, is that correct?

That is correct.

Okay, I'm still trying to understand why you raised common equity in December. You recycled capital pretty effectively. You raised joint venture equity. Then you also raised your common dividend? Was it really necessary to raise common equity?

Basically, we saw a need for additional capital on our balance sheet. That was due totally to the investment opportunities that we had. (inaudible) those were very immediate investment opportunities that we had.

Given the fact that when we do add capital to the balance sheet, we do want to make sure we keep our balance sheet strong. It would be real easy to grow earnings just by leveraging up the Company, but that is not what we want to do.

So the opportunities that we saw in the investment side, the returns on those, exceed the cost of capital. Again the mix of capital that we raised was common, preferred, and then unsecured notes; it was a mix that keeps our balance sheet strong.

I guess my question is, why not retain more capital and maybe even lower your dividend? Wouldn't that be more efficient on a cost basis?

Well, as Mike said, when you look at the mix of capital that we raised, it was an optimal mix that helped keep our cost of capital lower. With respect to the dividend, that is a decision for the Board based upon the business conditions we outline in the plan.

We have 11% earnings growth, and as Mike mentioned, we will have an FFO payout ratio about in the 70s; and FAD payout ratio in the 80s. So we think that puts us in a pretty good position.

Okay, thank you.

John Stewart from Citigroup.

It's John Stewart here with Jon Litt. With regards to the $100 million to $120 million of net economic gains that you expect to book in '06, first of all, can you confirm that that is entirely on balance sheet and doesn't include any of the Duke asset sales? Also can you give us a sense for the visibility that you have into those gains at this point in time?

With respect to the first part, the 100 to $120 million of net economic gain does not include activity in joint ventures. That is separate from that. So with respect to the rest of the question, I think JoJo --?

This is JoJo. Let me give you some color on that. If you look at the midpoint of the net economic gains, (indiscernible) 110 million. If you look at only the on balance sheet midpoint of the range, it's about 750 million. So you're looking about 14.67% after-tax profit margin.

I just want to point out for 2005 we are ending the year at 15.3% margin. So that margin is consistent in what we have done in the past. In fact, our four-year average is about 15.2%, if you look at (inaudible).

So we are comfortable with that. I just want to point out that the sales volume midpoint of the guidance, the $750 million, are all covered with existing assets, John, that we own already today. So there are -- some of the assets require some leasing, but all of the assets are in our balance sheet. We do not need to replenish or add to those assets to meet the sales volume guidance.

Let me say it differently. How much of that do you have under contract?

The net economic gains are assets that we already own. The midpoint of the volume, $750 million, is going to come under properties -- from properties that we already own on balance sheet. We don't have to buy them anymore.

I meant in terms of the sales.

That's right. Oh, in terms of what -- okay, now I understand what you're saying. In terms of what we have under contract, our total volume right now is approximately under agreement for on balance sheet about $400 million. Under agreement.

Conversely, given the visibility that you have into the acquisition pipeline, and Mike Brennan, your comment is that it's better than you've ever been at this point in the year, I guess my question is -- why stand pat on guidance at this point?

Well, we hope to have another great year. That is a good question; you've got to talk to my management and give them a pep talk. Now what -- I think it was realistically assessed, because we have a big infrastructure and a growing one.

I hope that we do better, but this was arrived at based upon not only the volume that we want to do but the investment standards that we want to maintain. So if we do better later on, we will announce it then.

Okay. Were there any either one-time charges in the same-store expense pool in the fourth quarter of '05 or lease termination fees in '04 that contributed to the negative growth rate? How do you kind of help us bridge the gap from -3.4% in the fourth quarter back up to 3% in '06?

That is a good question, John, I'm actually glad you asked that. In the fourth quarter we did -- if you compare the fourth quarter of 2005 to the fourth quarter of 2004, the -3.4%, more than half of that had to do just with the straightline rents. Your population of straightline rents is always changing, and straightline rents turn at certain times and so forth. So anyway, that had to do mostly with straightline rents.

So as we know that the biggest driver with respect to same-store is occupancy, and as we see occupancy increasing in 2006, we see our same-store growing anywhere from the 2% to 4% in 2006. So I am glad you pointed that out, because there was somewhat of an anomaly in our fourth quarter which dragged down that particular number.

That is also why we prefer to look at same store more on an annual basis too. It just gives you a little longer view and smoothes out some of those 90-day aberrations that you might have. So, okay?

Last question, does the 30 to $35 million in JV FFO, does that only contemplate the three existing JVs? Or does that take into account additional JV capital that you might raise in '06?

Also can you give us a sense for how that contribution breaks down over the year? Do you expect it to be back-end loaded or ratable across the quarters?

Sure, a couple of questions in there, John, so I will try to make sure I answer all of those. But the 30 to $35 million in JV FFO is -- the vast majority of that relates to the existing joint venture that we already have in place. That of course includes fees, incentives, payments that we get, gains, and so forth.

With respect to where that is going to be weighted, beginning of the year, the end of the year, probably a little bit more towards the second half of the year versus the first half of the year.

How much?

Maybe 40%, 60%, but not hugely, but certainly a little bit more weighted toward the back-end of the year, as projects comes to completion and those are the values created and realized more towards the middle to the end of the year.

Okay, that's helpful. Thank you.

(OPERATOR INSTRUCTIONS) Kristin Brown from Deutsche Bank.

I just add a follow-up question on the JV income. I just wondered why it went down in the fourth quarter versus the third quarter? It looked like Funds from Operations were up, but fees were down, so what was the decrease there?

It is just a matter of the mix of exactly what occurs, what activity occurs during that period of time. From our joint ventures, we get many different types of fees. We get fees for development, for leasing, property management, asset management, and sales. So it really depends on what occurs during the quarter.

So your level of develop and your level of leasing so on and so forth are going to impact the numbers from any one given quarter to the next. Then, of course, any investment profits that we have, that will vary a little bit from quarter-to-quarter as well.

Okay, as for margins on sales, I think you said they were 15% during the quarter.

Correct.

I know that number bounces around; but are you still comfortable with that sort of average going forward?

Yes, looking at our pipeline today, yes, we are comfortable. In fact, it is visible because out of the pipeline I just mentioned a while ago, we already closed $107 million of the $400 million pipeline I already mentioned. It is already under agreement, so we have visibility there.

We expect by, in the next week or so, that we would close (indiscernible) 100. So I mean we're getting more and more visibility on that, and it's in line with historical averages too.

Okay, thank you.

(OPERATOR INSTRUCTIONS) Stephanie Krewson from BB&T.

Excellent quarter and great year. I don't want to stir things up or start any rumors, God knows, but just running a basic analysis now on your Company, that is analogous to CenterPoint's going private value, I only have to use a 7 cap on your real estate to get to a 51 or $52 valuation.

With that in mind, are you, A, frustrated by your public stock price and the market's inability to recognize the value that you create every day and have been creating for at least six or seven years? And B, what does the Board think about it? Have you considered going private?

A couple of questions in there to answer. Are we pleased with our stock price? No we're not. We think the value of the enterprise and the business prospects that we have are outpacing the stock price. So, no, we're not.

With respect to the CenterPoint acquisition itself, or let's just talk about that for a second, I think that without getting into numbers, I think what we are pleased to see is that the market validated, put a high-value on a value-creating infrastructure. That is a highly sought-after asset.

I think the other implication of it is that that value-creation infrastructure is probably better exercised over a wider geographic area. So we think that what we have done and what we are doing are precisely the way to create value.

In respect to anything that we might entertain in the future, let me just say right now that the Board and myself and our management team are very pleased with the organization that we have and the plan that we have.

The evidence of our efforts is -- certainly you can certainly see that in the '05 results where we built a strong infrastructure. You can see that in the '06 forecast where we have an 11% earnings growth. So we're very pleased with what we have, and we think that what we have done in creating the infrastructure is precisely the way to create value.

So would like to see it recognized sooner? Of course, but there is no question that we're doing the right thing by the plan that we have.

Thanks, Mike. Once again, I'm a huge fan and I certainly don't want to see you guys go private; but it is a little frustrating. So great job.

Okay, thanks a lot.

Thank you. I would now like to turn the floor back over to First Industrial.

Okay, well, if there are no further questions, we will see and talk to everybody on the next earnings call. Thank you.

This concludes today's First Industrial Realty Trust conference call. You may now disconnect.