First Industrial Realty Trust Hits Its Stride

Mar. 6.13 | About: First Industrial (FR)

On January 22nd Seeking Alpha published my article predicting that First Industrial Realty Trust (NYSE:FR) would, within its 4Q12 earnings report, reinstate a common share dividend and, subsequently, experience significant share price appreciation. If you don't test the results, financial journalism is no more than white noise.

So how did I do?

Company Name Ticker Closing Price 01/20/13 ($) Closing Price 03/05/2013 ($) Delta (%) Performance vs. RMZ
DCT Industrial Trust Inc. (NYSE:DCT) 6.95 7.45 7.19% 2.3x
EastGroup Properties Inc. (NYSE:EGP) 55.09 57.17 3.78% 1.2x
First Industrial Realty Trust 14.70 16.40 11.56% 3.7x
Monmouth Real Estate (NYSE:MNR) 10.27 11.06 7.69% 2.5x
Prologis Inc. (NYSE:PLD) 39.50 40.03 1.34% 0.4x
STAG Industrial Inc. (NYSE:STAG) 19.96 21.70 8.72% 2.8x
Terreno Realty Corp. (NYSE:TRNO) 16.40 18.02 9.88% 3.2x
MSCIU REIT Index (RMZ) RMZ 935.12 964.38 3.13% 1.0x
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My earlier article forecast that FR would reinstate a dividend and that in matching the sector average payout ratio FR would set a rate at $0.68/share. In their February 20th earnings report, FR reinstated the dividend at an annualized rate of $0.34/share. A huge miss on my part, but consistent with a conservative management who successfully averted disaster throughout the worst of times. In the conference call Q&A management expressed their intention to grow the dividend. It's a long way from $.34 to $0.68, but they'll get there.

In my prior article I forecast that the reinstatement of a dividend would generate legions of new shareholders for FR. I think the (anemic) reinstatement accomplished that, but on March 4th First Industrial Realty Trust announced a secondary offering of 8.4MM new common shares. That's a lot of new shareholders and the share price held stable.

THE REPORT CARD

Since the article's publication, FR has returned more than 3.7x the REIT index, but I forecast that the share price would approach $18. I overestimated management's willingness to disperse cashflow and the market will only pay so much for yield. FR will trade in the mid $16 and rise with the incremental increase of their dividend.

Even though the stock delivered 3.7X the index return over the period, I was too optimistic on share price. I deserve a B grade on the recommendation.

THE AMERICAN BANDSTAND RATING

Though the dividend level was a disappointment, all other aspects of operations at First Industrial are positive. Leasing is strong, development is strong, cost of capital/financial engineering is strong.

At 2nd Market Capital we track 150 REITs. In any given year we're long 30 different issues. Most of the time we're 90% invested in fewer than 10 companies

We are still long FR, FR-J, Fr-K. First Industrial's management team merits the most trust in our experience.

On the American Bandstand Scale First Industrial Realty Trust has a good beat and you can dance to it.

First Industrial Realty Trust is a good company.

Disclosure: 2nd Market Capital and its affiliated accounts are long FR, FR-J, and FR-K. This article is for informational purposes only. It is not a recommendation to buy or sell any security and is strictly the opinion of the writer.

Disclosure: I am long FR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.