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Wednesday, November 25, 2009

First Industrial Realty Trust: Cautious Optimism and Income from Preferreds

We own preferred shares in First Industrial Realty Trust (common is FR, preferred "J" series is FR-PrJ). First Industrial is a beleaguered real estate investment trust (REIT) that is working to recover from a debt-fed acquisition binge during real estate boom times. While high leverage and poor operating fundamentals are a risk, the good news is that new management is moving in the right direction by reducing debt and streamlining the company. As a result, we expect the company to keep paying the preferred J equity 's $0.45313 cash dividend each quarter ($1.813 annualized on $15.60 price for current yield of 11.6%). Further, the preferred should move toward face value of $25.00 over time, assuming the world doesn't fall apart and industrial America perks up at some point.

With regard to our recent update on the economy, select commentary from First Industrial's 11/05/09 conference call is worth sharing - sourced from SeekingAlpha.com:
  • Looking at customer demand, with vacancies near all time high, all of our markets remained very competitive as our public peers and regional competitors are generally focused on occupancy. On the first [point], 12 of our 29 markets showed an increase in occupancy compared to only 4 in the previous quarter.
  • Customer activity and interest has definitely picked up over the last few months, as we are again increasing traffic to our vacancies in nearly all of our markets across North America.
  • This has yet to translate into a significant number of signed leases, but this increased activity is definitely a marked departure from where we were earlier in the year. In our conversation with customers and prospects, many businesses are shifting from a wait and see or even a survival mode and becoming more focused instead on growth plans and related supply chain needs.
  • Some of the traffic is no doubt choppy, very choppy, but most is related to businesses with real needs considering their options. Our people in the field are focused, are making sure we win more than our share. We are aggressively pursuing tenants to improve occupancy, using our definitive advantages in the marketplace, which includes the ability to fund TIs and free rent where they make economic sense and our record in reputation for great customer service.
Although we'd like to see increased activity translate into new leases, signs of stability are encouraging. Per our prior posts, the sky isn't falling.... Separately, we'll soon share more on the importance of dividends.

Happy investing,

Jeffrey Walkenhorst

Disclosure: Long FR-PrJ.

© 2009 Jeffrey Walkenhorst
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