First Industrial Realty Trust

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First Industrial Realty Trust

• Caitlin E. Bizzotto
• Zhenzhong (Linden) Lu
• Xiaoting Yang
• Zheng (Andrea) Zhang

RCMP Presentation 11.08. 2007
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Outline

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

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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 portfolios
  market value.

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Company Profile
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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

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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

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Overall Look
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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

9
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

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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

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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
  managements ability to make buy-sell decisions
  when there is an advantageous opportunity

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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
• lt1 revenue comes from
• largest customer

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Stock Performance
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Historical Price performance
Source Google finance
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Weight within the Portfolio
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Correlation within the Portfolio
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Valuation
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Valuation

• DCF (assumptions and WACC)
• Dividend Discount Model
• Multiples

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Beta 1.05(Bloomberg)Cost of
Equity 10.07Cost of Debt 6.03Weight of
Equity 47Weight of Debt 53 WACC 7.46

• WACC

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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

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Key Assumptions for DCF

• Total Asset Growth Rate
• 2007 2008 2009 2010 2011
• 3 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

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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.

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Dividend Discount Model

• Dividend per Share
• 2002 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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DDMSensitivity Analysis
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Multiples

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

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Multiples
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Multiples

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

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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 37.7845.92
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Recommendation

• 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!