First Industrial's Craft: Chicago-Based First Industrial Realty Trust Inc. Has Mastered the Industrial Real Estate Business, and Then Some. One Motto of This Real Estate Investment Trust Is "People, People, People," Reflecting Its Focus on Recruiting Top Talent

Article excerpt

CHICAGO-BASED FIRST INDUSTRIAL REALTY TRUST INC., A LEADING player in the world of industrial real estate, is on its way to another good year in the wake of a strong 2004 showing. [??] The real estate investment trust (REIT) is the nation's largest provider of diversified industrial real estate. In 2004, the firm leased a total of 22.1 million square feet, generated record net economic gains of $97.9 million, executed a record volume of business with corporate America, established the highest level of new investment in six years and recruited new talent for key markets. [??] Building on these results, First Industrial is charting further gains in 2005 and 2006 based on rising demand for real estate services. [??] The three most important indicators of industrial demand are capital spending, plant capacity and inventory levels, according to Michael Brennan, president and chief executive officer of First Industrial. [??] "All three are up," Brennan notes. "Capital spending is at its highest level, manufacturing capacity utilization rose nearly 300 basis points in 2004 and is close to reaching historic levels while inventory levels rose 8 percent over 2003." [??] Those factors combined to drive industrial space absorption nationwide to around 173 million square feet in 2004, compared with approximately 21 million square feet in 2003, Brennan says. At the same time, national industrial occupancies rose 60 basis points to 89.1 percent at the end of 2004 (from 88.5 percent at the end of 2003), according to Boston-based Torto Wheaton Research.

"Our firm's occupancies should rise and investment activity, should increase--especially in the build-to-suit areas as companies expand," says Brennan. "Supply-chain activity is back off the shelf, so companies are involved in acquisition and development work. We are well-positioned to meet their needs."

First Industrial leases, develops, redevelops, sells and manages five different property types, including bulk warehouses, light industrial, research and development (R & D)/flex, regional warehouses and manufacturing facilities. It operates in the nation's top 25 industrial markets. Seventy-five percent of its income is generated from rentals and the remaining 25 percent from gains on sales of properties, which Brennan considers a good balance.

First Industrial's financial muscle is reflected in its Funds From Operations (FFO) per share/unit stats. FFO, the REIT world's most common income measure, represents net income available to common stockholders adjusted for non-cash depreciation and amortization expenses.

The firm's FFO per share/unit increased 1.7 percent to $3.53 in 2004, yersus $3.47 in 2003. Results include a $0.17 per share/unit noncash charge resulting from the write-off of initial offering costs associated with issuance of its series D, E and H preferred shares.

Commenting on 2004 results Brennan said in a February 2005 media release, "Shareholders again benefited from our ability to create value through active portfolio and investment management."

Looking ahead, Brennan foresees an "extrapromising" outlook. "There's every indication that 2005 and 2006 will be strong years," he noted in the release. "Our results will set the stage for what will hopefully become very good years for the industrial real estate business going forward."

However, Brennan cautions that a number of variables could impact the firm's ability to deliver targeted results--including interest rates, supply and demand, and the timing and yields for divestment and investment.

CalSTRS joint venture

One of the foremost of the REIT's recent projects is the formation of a real estate joint venture with the California State Teachers' Retirement System (CalSTRS), Sacramento, California, announced on March 21, 2005. CalSTRS is one of the nation's pre-eminent institutional investors.

The joint venture will invest in the development and repositioning of real estate, including land throughout the United States. …

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