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First Industrial A Closer Look

Discover the national industrial real estate portfolio of First Industrial, with 947 properties spanning 65.8 million square feet. Learn about their focus on the largest industrial markets in the U.S. and the financial measures commonly used in the industry.

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First Industrial A Closer Look

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  1. First IndustrialA Closer Look Kristi Kohlenberg December 5, 2002

  2. Business Description First Industrial is a national owner, operator and developer of industrial real estate. The company's portfolio consists of 947 properties totaling 65.8 million square feet. The company is headquartered in Chicago and focuses its operations in the 25 largest industrial markets in the U.S.

  3. Initial Purchase • Purchased on December 10, 1999 • 500 shares at $24.625 • 500 shares at $24.75 • Currently $28.03

  4. Introduction to REITs • Real Estate Investment Trust • IRC §856-860 states that REITs are exempt from federal income taxation at the corporate level when it distributes 90% of its taxable income • Measures commonly used: • Funds from Operations (FFO) • Funds Available to Common Shareholders (FAS) • Funds Available for Distribution (FFD)

  5. Competitors

  6. Porter’s 5 Forces • Industry Rivalry - high • Low concentration of real estate companies • Difficult to differentiate –location, price, management • Supplier Power – low • Decreasing in recent economy • Many different sellers of land and buildings • Individual customers do not have significant volume • Prices are market-driven • Buyer Power - moderate • Individual customers do not have significant volume • Increasing in recent economy due to low occupancy – tenants negotiate lower rents

  7. Porter’s 5 Forces (cont’d) • Threat of Substitutes – low • Companies that need industrial space must own or lease, most lease • High switching costs • Customers price sensitive • Threat of new entrants – moderate • Sufficient credit required • Management experience is important • Industry losing profitability - decreases incentive for new entrants

  8. Stock Performance Currently $28.03 52-week High:36.50 52-Week Low: 25.75

  9. Reasons for recent stock price decline • Consistently missing earnings estimates and reducing earnings forecasts • Revenues down 9% this year • Expenses up 6% • Analysts reducing ratings • DB downgraded from buy to hold • SSMB downgraded from hold to sell • Dire outlook for industrial real estate in near future due to downturn in economy • Decreasing rents and low occupancy • Impacts industrial more than residential

  10. DCF

  11. DCF

  12. Future Outlook • FR is selling property to make up for lost rental income – unsustainable • FR counts this income in its Funds from Operations (FFO) EPS, competitors do not – “Gaming” numbers? • Management has shown no intention of reducing dividends despite reduced cash flow and decreased R/E

  13. Recommendation Although we could sell to lock in the 14% profit, my recommendation is to HOLD • Company has high level of disclosure • Focused business model • Experienced management • Undervalued according to DDM • Re-evaluate when year-end numbers come out

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