First Industrial Realty Trust

First Industrial Realty Trust

Caitlin E. Bizzotto

Zhenzhong (Linden) Lu

Xiaoting Yang

Zheng (Andrea) Zhang

RCMP Presentation 11.08. 2007

Outline

• Company Profile - Caitlin• Overall Look - Andrea• Stock Performance - Xiaoting• Valuation - Linden & Xiaoting• Recommendation - Caitlin

Position

Purchased on Dec 10, 1999• 500 shares at $24.625 and 500 shares for $24.75• Original Book Value of $24,687.50

• The current stock price is $36.98 • Unrealized gain of $12,292.5

• Comprises approximately 9.92% of the portfolio’s market value.

Company Profile

First Industrial Realty Trust, Inc.

• NYSE: FR• Chicago, Illinois-based real estate investment trust (REIT)

focused on industrial properties. • Founded in 1993 by Jay H. Shidler, Chairman of the Board, IPO

in 1994• Lease, develop, redevelop, buy, sell, and manage industrial

facilities in the nation's top 25 industrial markets.• Diversified industrial real estate• Mission: create industrial real estate solutions that mutually

benefit customers and investors• Offers a diverse range of industrial facilities. Most facilities

benefit a company's supply chain

What is REIT?• Real Estate Investment Trust (REIT): a company that owns and

operates income-producing real estates. • REITs’ shares are traded publicly on major stock exchanges,

giving anyone the ability to invest in large-scale real estate.• REITs are required to distribute 90% of their taxable income

annually in the form of dividends, giving high yields to its investors

• Diversification advantage of REIT• Give individual investors opportunity to access real estate

market• relatively low correlation between REITs and other stocks

and bonds

Overall Look

The Economy• Overall growth of economy

• Value of investment fluctuate depending on general conditions of economy

• Occupancy rate• Foreign Exchange: depreciated dollar hurts import but promote

export• Fuel: higher manufacturing cost leads to lower demand for industrial

space• Interest rate:

• The credit crunch may remain in effect, therefore hard for the company to borrow

• Increasing international trade: companies seeking lower manufacturing cost will continue to evolve in global and production distribution patterns, driven up the demand for large distribution facilities at sea ports and inland ports

The Economy• Demographics

• Population growth in southern regions such as south California, Phoenix, Texas and Southern Florida is growing faster than the rest of the country, leading more demand in the future

The Industry• Traditionally, small local

players dominated the market due to lack of access of capital market

• Now, in a transition to an Oligopolistic Industry• Customers bargaining

power low• Risk: Harder to liquidate

investments than other industries

Suppliers• Capital suppliers

• Debt• The consolidation process of banking industry: results

fewer suppliers• Equity: capital market • Joint Venture with large institutional investors such as

pension funds• Good resource for financing but may restrict the

management’s ability to make “buy-sell” decisions when there is an advantageous opportunity

Competitive Advantage of FR

• Differentiated strategy by providing more sophisticated solution and value-added brand• I-N-D-L Platform

• Industry Focus• National Scope• Diverse Facility Types• Local Management & Expertise

• Disciplined Investing• Well diversified• <1% revenue comes from

largest customer

Stock Performance

Historical Price performance

Source: Google financeSource: Google finance

Weight within the PortfolioMarket Port f ol i o

5. 56%11. 50%

9. 71%

0. 96%

9. 92%

2. 98%5. 42%3. 17%

5. 97%

5. 58%

5. 11%

34. 12%

AEEAEOCPRTDFSFRJ KHYKMBMVSNSRCLSRZWAGcash

Correlation within the Portfolio

Valuation

Valuation

• DCF (assumptions and WACC)

• Dividend Discount Model

• Multiples

Beta: 1.05(Bloomberg)

Cost of Equity: 10.07%

Cost of Debt: 6.03%

Weight of Equity: 47%

Weight of Debt: 53%

WACC: 7.46%

WACC

Major Revenue Sources

• Rental Revenue• Occupancy Rate 94.7%• Rental Price• Rental Property Growth Rate

• Revenue from Capital Cycling• Cost of Capital• Ability to identify properties with low

capitalization rate and turn them to properties with high capitalization rate

Key Assumptions for DCF

• Total Asset Growth Rate2007 2008 2009 2010 20113% 2% 3% 4% 4%

• Asset grows 3% up to 3rd quarter, we believe credit crunch will slow down asset growth for next couple of years

• Net Investment is a percentage of Total Asset• Rental revenue is a percentage of Net Investment• Income from Discontinued Operations

• Historical average 24.45%• Forecast 7%

Discount Cash Flow

• DCF Analysis yields a share price of $33.69• DCF relies on too many assumptions which

are hard to predict• Asset growth rate, growth rate of income from capital

recycling, etc.

Dividend Discount Model

• Dividend per Share2002 2003 2004 2005 2006 2007$2.725 $2.74 $2.75 $2.785 $2.81 2.84

• Historical average growth rate= 0.83%• Dividend growth rate= 0.83%

• WACC 7.46%

• DDM yields a share price $42.68

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Sensitivity AnalysisDividend Growth Rate

$42.68 0.00% 0.50% 0.83% 1% 1.50%7% $43.54 $47.17 $49.91 $51.45 $56.60

WACC 7.00% $40.43 $43.54 $45.87 $47.17 $51.457.46% $37.94 $40.66 $42.68 $43.81 $47.48

8% $35.38 $37.73 $39.47 $40.43 $43.548.50% $33.29 $35.38 $36.90 $37.73 $40.43

DDM:Sensitivity Analysis

Multiples

• Our Competitors• Brandywine Realty Trust (BDN) • Highwoods Properties Inc. (HIW) • Liberty Property Trust (LRY)

Highest Lowest Average/CurrentP/E 137.7144 37.8944 80.0792M/B 45.9158 24.8890 36.0461P/S 50.5802 34.6440 45.2297P/EBITDA 49.7371 30.0842 40.5844P/FFO 54.2010 37.7805 48.0303

Multiples

• The most possible price should be in the range of $37.78(P/FFO) to $45.92(M/B)

Multiples

Recommendation• The closing price on November 7th, 2007 of First

Industrial (FR) is $36.98• Our valuation models give:

DCF $33.69

DDM $42.68

Multiples $37.78~$45.92

• Although DCF gives a below market price intrinsic value, we feel that many assumptions are conservative.

• Price/FFO multiple suggests that the stock is trading at a discount comparing to peers• Company has high level of disclosure• Focused business model• Experienced management• Undervalued according to DDM

• We recommend:

HOLD!

Recommendation