I was confronted at an analyst conference about six weeks ago about rumors that we were talking to The Mills Corporation. The standard lawyers' scripted response is "We don't comment on market rumors," but I answered, "Sure, we're talking to them." That confirmation was big news, which I must say I find a little strange. Of course we're talking to them; that's our job. We talk to lots of people about lots of things; that’s also our job. And by the way, everybody else in mall-land and opportunity-fundland and even hedge-fund-land is also talking to them.

Just for fun, we were recently playing with some numbers. We do that a lot. Our New York Office segment had 2005 EBITDA of $341 million. This number represents a 15.6% return on our original cost of all these assets. First point— on average our income from these assets has more than doubled since we acquired them. Second point—if New York cap rates are, say, 5%, we have more than tripled our money here, a mark-to-market profit of over $4.5 billion.

A group of us (including John Goff and Ron Burkle) were reviewing comparable values for companies in the industrial sector, where it is apparently common practice to bundle merchant building profits in FFO. That got me thinking. Our practice, as executed by Chief Financial Officer Joe Macnow, is kind of the opposite. We go to great lengths to allow the reader of our financial statements to "deconstruct" our earnings. This transparency (and our multi-segment approach) makes for very thick financial disclosure, but it is worth it.

While we are on accounting—accounting is the only zero tolerance game that we play. Zero tolerance means no

mistakes and no shading, ever. A business franchise and reputation built up over a lifetime can be squandered with even just one serious accounting misstep. Thanks to Joe, Ross Morrison, Matt Iocco and the entire Zero Tolerance Gang in Paramus.

It's a global world now. Almost every major country in the free world will soon have copycat REIT legislation—several already have. Ditto for securitized CMBS. The transfer from private to public securitized real estate took about 15 years in America. My guess is it will take about only onethird as long in non-American markets. Cross border tax treaties will be slower to come, but are even more important to create a global real estate market.

Housing seems to be slowing. Some call it a bubble; I don't know. There is too much supply in many markets and housing prices seem to have entered the sticker shock phase. But, the market for scarce income producing investment grade real estate, however, continues to thrive. As I've said for many years in this letter—scarce investment grade real estate has been re-priced and today's prices, give or take, will hold—get used to them.

There has been an epidemic of public to private transactions in real estate at premiums and in size. This seems to support the conclusion, with which we agree, that public market trading prices are cheap to private values.

And, think about this—the increase in rents which we expect is largely still in front of us.