1. First Industrial A 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 Currently $28.03
500 shares at $24.625
500 shares at $24.75
Currently $28.03

4. Introduction to REITs Real Estate Investment Trust
IRC § 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 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

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 $ week High: 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