Will First Industrial Realty Trust Offer A Dividend In 2012?

| About: First Industrial (FR)

On its February 23rd earnings call, First Industrial Realty Trust (NYSE:FR) had a lot of positive comments to make about 4th quarter operating results, but most surprising was CEO Bruce Duncan's expressed desire and intent to reinstate regular dividends on their common stock. To appreciate the significance of this announcement, you should look at what FR and its sector peers have been through over the last few years.

The booming economy of the early 2000s led to increased demand for the distribution and warehouse space. In response, new properties were built in anticipation of continued usage. With the crash of 2008, the distribution and warehouse sector was left with excessive supply and dwindling demand. Like any other flooded market, rents storage facilities were able to charge dropped significantly and many companies of this sector were left with mountains of debt and diminished income. FR common stock plummeted from over $30 to as low as $1.76 a share and management was forced to pull dividends with the last one being paid in December 2008.

Duncan stipulated that two conditions be satisfied before reinstatement of dividends: reduction of corporate debt and better leasing/occupancy.

Debt reduction: FR has been selling real estate extensively throughout this last year. At the end of 2010 FR owned 774 properties which decreased to 739 by the end of 2011. Much of these proceeds have gone to paying down their debt. In December 2011, First Industrial Realty signed a new line of credit agreement with greater capacity at lower cost. Flexible credit availability is particularly important for REITs.

Better leasing/occupancy: Total occupancy has increased to 88% in 4Q11, up from 85% in 4Q10. However, revenues are still down as rental rates have decreased 11.3% over this same period. Once the economy recovers, and consequentially leasing rates recover, the revenue from stronger occupancy can be fully realized.

With an improving balance sheet, it is becoming more plausible that FR will reinstate dividends on their common stock within the year. Since FFO for 2012 is projected at $0.93-$1.03 per share, one can reasonably speculate the amount of the potential dividend could be around $0.40-$0.50 per share. Using a recent share price of around $12.00 this is a 3.3%-4.1% annual yield. Investors in FR can rest assured that the CEO has interest aligned with those of investors as he personally owns over 830,000 shares of FR common.

Generally speaking, when a sector is adversely affected by economic conditions, it will bounce back with the economy as long as it survives. First Industrial Realty has already rebounded nicely and has potential to continue its upward trend as the economy improves.


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Income investors searching for yield should consider FR, as the preferreds (FR-J and FR-K) already offer strong dividend yields and currently trade below par. The common stock may become yet another source of yield in the event of dividend reinstatement.

Disclosure: I am long (FR). 2nd Market Capital and its affiliated accounts are long FR common, FR-J, and FR-K.