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First Industrial Realty Trust, Inc. (FR)

First Industrial Realty Trust, Inc. (FR). RCMP Presentation 3.9.06 Kristoffer Inton. Our Position. Purchased on Dec 10, 1999 500 shares for 24.625 and 500 shares for 24.75 Original Book Value of $24,687.50 Cost of holding adjusted every year for dividends

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First Industrial Realty Trust, Inc. (FR)

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  1. First Industrial Realty Trust, Inc. (FR) RCMP Presentation 3.9.06 Kristoffer Inton

  2. Our Position • Purchased on Dec 10, 1999 • 500 shares for 24.625 and 500 shares for 24.75 • Original Book Value of $24,687.50 • Cost of holding adjusted every year for dividends • Currently hold 1,018.28 shares currently at $39.29 with a listed book value of $20,154.16 • Unrealized gain of $19,848 (98.48%)

  3. Company History • Shidler Group founded in 1972 • Midwest operations would become First Industrial, formed in 1993 and IPO in June 1994 • Co-founded by former Shindler Group-Michael Brennan (CEO), Michael Havala (CFO), Johannson Yap (CIO) • Focus on acquiring land and property that local managers can create value with

  4. Company Information • Chicago, Illinois-based real estate investment trust (REIT) focused on industrial properties • Not subject to federal income tax, but must distribute 90% of taxable income to shareholders • Lease, develop, redevelop, buy, sell, and manage industrial facilities in the top 25 U.S. industrial markets

  5. The Economy • Controlled by general economic factors, highly dependent on industrial output • Rising fuel costs not a direct factor, but higher costs for manufacturers not good for industrial REITs • Expected continued economic growth and increased demand for space to increase

  6. The Industry • Disparity between public and private market for real estate • Trend for privatization of industrial REITs (5 this year alone) • Private investors willing to pay a premium over public investors in order to acquire real estate assets in bulk • Expected industry total return of 10% in 2006

  7. The Business • Largest national provider of diversified industrial real estate • 845 Properties owned with 2,500 tenants • <1% revenue comes from largest customer • Occupancy rates are up, but well below historical averages *from 2004 Annual Report

  8. The Strategy • I-N-D-L platform • Industrial focus • National scope • Diverse facility types • Local management and expertise • STP investment process • Seller-> find opportunity to buy under-value • Transaction-> complex transactions that reduces competing buyers • Property-> property that have greatest upside in hands of experience and expertise • Disciplined risk management • Diversified portfolio • Methodical investment/divestment process • Strong balance sheet • Local managers attentive to risk

  9. Competitive Advantage • High-quality customer service • 90% of tenants would recommend FR • 2 Hour Rule • Flexibility to adapt products to customer needs- “All things industrial.” • Local management • High local expertise, quick response • Solid balance sheet and strong financial position • 98% of properties unencumbered by mortgages

  10. Company Comparison

  11. Stock performance (1 year trailing)

  12. Stock performance (5 year vs. S&P)

  13. Stock performance

  14. Dividends • Since the purchase of the stock, dividends have been paid every quarter and have been increased 5 times • Currently paying $0.70 per share every quarter

  15. Financial Analysis • Business is directly related to growth in the balance sheet, particularly Net Investments in Real Estate • Expense growth outpaces revenue growth • Grew balance sheet at historical rates • Grew income statement in proportion to Net Investments in Real Estate

  16. Financial Projections • With sustainable growth at 4% and WACC at 6.5%, the DCF values the stock between $39.38-$48.13 • Performance suggests management would be able to support continued dividend growth • 2006 EPS Forecast of $2.22 is within management guidance of $2.10-$2.30

  17. Multiples Analysis • FFO/Share multiples based on three competitors and peer average: 16.99x • FR’s implied FFO/Share based on FFO and share price- 8.71x • FR price using calculated peer multiple- $75.13 • First Industrial is valued at a discount versus its competitors

  18. Recommendation: Hold • DCF suggests price range $39.38-$48.13 vs. current price of 39.29 • FFO/Price multiple suggests that the stock is trading at a large discount in comparison to its peers • Although not the best performing company, it has provided consistent and growing dividends. I believe that FR’s skilled management and quality business strategy will continue to improve performance.

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