First Industrial Realty Trust, Inc' FR

1
First Industrial Realty Trust, Inc. (FR)

• Ross Pevitz
• Matt Storkman
• Dave Wetherell
• RCMP Presentation
• 3.15.2007

2
Position

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

• Current Stock Price 45.37
• 20,682.5 unrealized gain (84)

• 14.17 of portfolio market value

3
REIT Portfolio Advantages

• Diversification
• Low correlation with Market
• Dividends
• High Yields
• Stability
• Rents

Market Analysis, Research and Education group of
Fidelity Management Research Co., Do REITs
Still Provide Diversification?, (Nov. 22, 2006),
available at lthttp//personal.fidelity.com/myfidel
ity/email.html?http//myfidelity.members.fidelity.
com/investorsWeekly/cms/FEA0611reits.dynmfSession
IdBSH3N2TVEIWUECQEFEPCFEY?keywordinterviewssour
cecdFEAgt (last visited Mar. 5, 2007).
4
Company Profile
5
Company History

• First Industrial was organized in 1993, IPO 1994
• Michael Brennan (CEO), Michael Havala (CFO),
  Johannson Yap (CIO)
• Chicago, Illinois based Industrial Real Estate
  Investment Trust (REIT)
• Eliminates corporate income tax
• Distribute 90 of taxable income to shareholders

6
Company Info

• Mission is to create Industrial RE solutions
• Lease, develop, redevelop, buy, sell, and manage
  industrial facilities in the top 25 industrial
  markets
• 1 investor in US industrial real estate, Big
  Player
• More than 100 mil square feet of industrial space
• 1200 buildings

7
Strategy

• I-N-D-L Platform
• Industry Focus
• National Scope
• Diverse Facility Types
• Local Management Expertise

• Disciplined Investing
• Diversified

8
Competitive Advantage

• Leading Customer Service
• Rated 4.35 on 5 point scale, Kingsley Index is
  3.85
• 9/10 customers would recommend First Industrial

First Industrial Realty Trust Inc., First
Industrial at the NYSSA 17th Annual REIT
Conference, (Mar. 1, 2007), available at
lthttp//phx.corporate-ir.net/phoenix.zhtml?c69181
pIROL-presentationsgt (last visited Mar. 5,
2007).
9
Competitive Advantages

• Local Market Expertise
• Average 20 years of experience, specialists
• Speed, Service Responsiveness
• 2 hour rule
• Due-diligence and closings in 10 days
• Flexibility
• Strong Financial Standing
• No financial contingencies

10
(No Transcript)
11
Economic Future Performance

• Mixed Reviews
• Flat or slight downward trend in GDP
• Forecast flat interest rates

First Industrial Realty Trust Inc., First
Industrial at the NYSSA 17th Annual REIT
Conference, (Mar. 1, 2007), available at
lthttp//phx.corporate-ir.net/phoenix.zhtml?c69181
pIROL-presentationsgt (last visited Mar. 5,
2007).
12
Negative Economic Factors

• Energy, Construction, and Land Costs on Rise
• Weaker housing market
• Manufacturing Output
• Rebounded
• Experience growth with Economy

• New Development Limited

(2007 US Econ Analysis)
Philip Kibel, Industrial Stability Faces
Challenges, Real Estate Portfolio, Mar.-Apr.
2003, available at lthttp//www.nareit.com/portfoli
omag/03marapr/sector.shtmlgt (last visited Mar. 5,
2007).
13
Positive Economic Factors

• Falling Cap Rates (NOI/ Property Value)
• Heavy Inflows of Institutional Money
• Tightening of the Leasing Market
• Raise in Inventories
• Decline in Vacancy Rates
• At 7.5 from 8.1 last year
• Strong Global Trade
• Imports increased 9, Exports increased

• Greater demand for industrial property

Philip Kibel, Industrial Stability Faces
Challenges, Real Estate Portfolio, Mar.-Apr.
2003, available at lthttp//www.nareit.com/portfoli
omag/03marapr/sector.shtmlgt (last visited Mar. 5,
2007).
14
Geographic Status

• Coastal Markets - high demand
• Midwest Markets - less demand
• International Markets- high demand
• Asian countries - better growth prospects

Philip Kibel, Industrial Stability Faces
Challenges, Real Estate Portfolio, Mar.-Apr.
2003, available at lthttp//www.nareit.com/portfoli
omag/03marapr/sector.shtmlgt (last visited Mar. 5,
2007).
15
Growth Drivers

• Corporate Customer Focus
• 2/3 of Industrial RE in US
• 7 expected increase in business spending 07
• Supply Chain Reconfiguration
• Increase in Supply Chain Complexity
• Retooling of Industrial Supply Chain Trend
• Demographic Trend
• International Trade

16
Company Trends

• Enhanced Acquisition, Development Net-lease
• Joint Venture
• Capital Raising- 4.5 billion past 2 years
• JV Income-Tripled in 06 from 05
• Fees earned developing properties for 3rd parties

17
Relation to Portfolio
18
Five Year Portfolio Performance
19
Portfolio Correlation Covariance
20
Total Portfolio Perspective

• Low risk contribution s 5.5
• Low correlation .2
• Solid performance µ 1.5

Approx. 14 of holdings
21
Valuation
22
Discounted Cash Flow Model

• Revenues were modeled as a percentage of the
  value of FRs Net Investment in Real Estate
• Costs were also modeled as a percentage of this
  figure
• Net Investment in Real Estate was driven by
  Total Asset Growth rate
• Change in Assets Held for Sale account also
  adds to annual FCF
• This signifies that property intended to be sold
  has been sold, creating liquidity for the REIT

23
Discounted Cash Flow Valuation

• WACC 8.06
• Current Capital Structure is 50/50 debt-to-equity
• 2006 Company held 115M in Assets held for sale
• Large NWC investment, to create liquidity during
  2007

24
Discounted Cash Flow Valuation

• DCF Analysis yields a share price of 45.10
• 10 Range of value falling anywhere from 40 -
  50
• This value is very close to its current market
  share price
• Stock has traded in this range for 9 months
• Relative to other valuation methods, the DCF
  valuation forms a mid-range estimate
• DuPont Analysis

25
Capitalization Rate Valuation

• Capitalization Rate explanation
• Ratio of property value to net income that can be
  derived from a property
• Capitalization Rates change by type of property
  (warehouses vs retail vs rental housing)
• Capitalization rates also change over time
  depending on demand for the market
• After calculating net revenues and expenses
  directly attributable to real estate (no
  depreciation, financing, or other expense), an
  industry cap rate was applied to find the value
  of FRs real estate portfolio
• Assumes value of real estate to be the value of
  the firm

26
Capitalization Rate Valuation

• Study of capitalization rates of different
  property types across 20 different greater
  metropolitan areas
• University of Southern California
• Range from 8.74 - 9.62 for the warehouse
  category
• Average of 9.16
• Due to current economic expectations, projected a
  2007 decrease in cap rate, and increased it in
  2009
• Capitalization rate valuations yields a per share
  value of 35.41
• Valuation forms a low-end estimate, and does not
  consider growth prospects for FR or any held
  companies/properties

• Rena C. Sivitandou Petros S. Sivitanides,
  Exploring Capitalization Rate Differentials
  Across Property Types, 22(3) Real Estate Issues,
  47-54, (1997), available at http//www.usc.edu/sch
  ools/sppd/lusk/research/pdf/exploring_cap.pdf
  (last visited Mar. 13, 2007).

27
Comparables

• Who
• Highwoods Properties, Inc (HIW)
• AMB Property Corp. (AMB)
• Prologis (PLD)
• Bloomberg Industrial Warehouse REIT Index
• Why
• Industry specific
• Strong/Solid performers
• Multiples in line with Industry

28
Multiples

• FFO
• P/Revenue
• P/EBITDA
• Dividend Yield

29
Bloomberg L.P. (2007) REIT Metrics and equity
descriptions for FR US, AMB US, PLD US, HIW US.
Retrieved Mar. 14, 2007 from Bloomberg database.
30
Performance Vs. Competitors

http//moneycentral.msn.com/home.asp
31
Overall Recommendation
Valuation Summary

• Hold
• First Industrials fundamentals do not support
  their current valuation vs. competitors the
  industry
• Stock price is expected to be brought more in
  line with its peers, yielding positive price
  performance
• Long term investment perspective
• Good diversification for the Portfolio

32
References

• Bloomberg L.P. (2007) REIT Metrics and equity
  descriptions for FR US, AMB US, PLD US, HIW US.
  Retrieved Mar. 14, 2007 from Bloomberg database.
• First Industrial Realty Trust Inc., First
  Industrial at the NYSSA 17th Annual REIT
  Conference, (Mar. 1, 2007), available at
  lthttp//phx.corporate-ir.net/phoenix.zhtml?c69181
  pIROL-presentationsgt (last visited Mar. 5,
  2007).
• Market Analysis, Research and Education group of
  Fidelity Management Research Co., Do REITs
  Still Provide Diversification?, (Nov. 22, 2006),
  available at lthttp//personal.fidelity.com/myfidel
  ity/email.html?http//myfidelity.members.fidelity.
  com/investorsWeekly/cms/FEA0611reits.dynmfSession
  IdBSH3N2TVEIWUECQEFEPCFEY?keywordinterviewssour
  cecdFEAgt (last visited Mar. 5, 2007).
• Mergent Online, First Industrial Company Data,
  available at http//www.mergentonline.com.proxy2.l
  ibrary.uiuc.edu/ (last visited Mar. 9, 2007).
• Philip Kibel, Industrial Stability Faces
  Challenges, Real Estate Portfolio, Mar.-Apr.
  2003, available at lthttp//www.nareit.com/portfoli
  omag/03marapr/sector.shtmlgt (last visited Mar. 5,
  2007).
• Rena C. Sivitandou Petros S. Sivitanides,
  Exploring Capitalization Rate Differentials
  Across Property Types, 22(3) Real Estate Issues,
  47-54, (1997), available at http//www.usc.edu/sch
  ools/sppd/lusk/research/pdf/exploring_cap.pdf
  (last visited Mar. 13, 2007).