First Industrial A Closer Look Kristi Kohlenberg December 5, 2002

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.

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

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)

Competitors

Porter’s 5 Forces Industry Rivalry - high Supplier Power – low 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 Increasing in recent economy due to low occupancy – tenants negotiate lower rents

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

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

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

DCF

DCF

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

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