Download First Industrial Realty Trust

First Industrial
Realty Trust
RCMP Presentation
11.08. 2007
Caitlin E. Bizzotto
Zhenzhong (Linden) Lu
Xiaoting Yang
Zheng (Andrea) Zhang
Outline
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•
•
•
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Company Profile - Caitlin
Overall Look - Andrea
Stock Performance - Xiaoting
Valuation - Linden & Xiaoting
Recommendation - Caitlin
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 portfolio’s
market value.
Company Profile
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
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
Overall Look
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
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
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
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
management’s ability to make “buy-sell” decisions when
there is an advantageous opportunity
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
• <1% revenue comes from
largest customer
Stock Performance
Historical Price performance
Source: Google finance
Weight within the Portfolio
Market Portfolio
5.56%
11.50%
34.12%
9.71%
0.96%
9.92%
5.11%
5.58%
5.97%
2.98%
5.42%
3.17%
AEE
AEO
CPRT
DFS
FR
JKHY
KMB
MVSN
SRCL
SRZ
WAG
cash
Correlation within the Portfolio
Valuation
Valuation
• DCF (assumptions and WACC)
• Dividend Discount Model
• Multiples
WACC
Beta:
Cost of Equity:
Cost of Debt:
Weight of Equity:
Weight of Debt:
WACC:
1.05(Bloomberg)
10.07%
6.03%
47%
53%
7.46%
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
Key Assumptions for DCF
• Total Asset Growth Rate
2007
3%
2008
2%
2009
3%
2010
4%
2011
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%
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.
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%
QuickTime™ and a
TIFF (Uncompressed) decompressor
are needed to see this picture.
• DDM yields a share price $42.68
DDM:Sensitivity Analysis
Sensitivity Analysis
WACC
$42.68
7%
7.00%
7.46%
8%
8.50%
Dividend Growth Rate
0.00%
0.50%
$43.54
$47.17
$40.43
$43.54
$37.94
$40.66
$35.38
$37.73
$33.29
$35.38
0.83%
$49.91
$45.87
$42.68
$39.47
$36.90
1%
$51.45
$47.17
$43.81
$40.43
$37.73
1.50%
$56.60
$51.45
$47.48
$43.54
$40.43
Multiples
• Our Competitors
• Brandywine Realty Trust (BDN)
• Highwoods Properties Inc. (HIW)
• Liberty Property Trust (LRY)
Multiples
P/E
M/B
P/S
P/EBITDA
P/FFO
Highest
Lowest
Average/Current
137.7144
37.8944
80.0792
45.9158
24.8890
36.0461
50.5802
34.6440
45.2297
49.7371
30.0842
40.5844
54.2010
37.7805
48.0303
Multiples
• The most possible price should be in the
range of $37.78(P/FFO) to $45.92(M/B)
Recommendation
• The closing price on November 7th, 2007 of First
Industrial (FR) is $36.98
• Our valuation models give:
DCF
DDM
Multiples
$33.69
$42.68
$37.78~$45.92
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!