Stifel Nudges First Industrial Into Sight

On Tuesday, Stifel Nicolaus & Co. analyst John Guinee published a note titled "Fair Valued By Any Metric," upgrading $2.3 billion cap First Industrial Realty Trust, Inc. (NYSE: FR) from Hold to Buy.

Notably, on Monday, First Industrial shareholders were paid a quarterly dividend of $0.1275 per share, which represents a 24.4 percent dividend increase.

Tale Of The Tape – Tuesday

First Industrial has traded in a 52-week range of $16.48 to $22.46 per share.

Related Link: Stifel Nicolaus Upgrades First Industrial Realty To Buy

Tale Of The Tape – 5-Year Perspective

Perhaps a better gauge for long-term investors is to look at First Industrial's five-year performance as compared to the Vanguard REIT Index Fund (NYSE: VNQ) – a good proxy for the equity REIT sector.

Even with the recent increase noted above, First Industrial currently pays a dividend yield of only 2.5 percent, one reason why REIT investors focused on income may not have had the stock on their radar screen.

Citi Presentation Slides, March 2015

As reported by Citi, First Industrial owned or had under development approximately 65.6 million square feet of industrial and flex space at the end of 2014.

First Industrial – Metrics Y/Y Comparison

First Industrial – Net Debt/EBITDA Improvement

Stifel's Perspective

Stifel has upgraded First Industrial to buy and has attached a $22 price target to the rating.

Stifel is basing its $22 PT on 2015E FFO of 17.2x per share and AFFO of 24.2x per share and "a current implied NOI cap rate of 6.2 percent."

The current Stifel PT represents a potential upside of approximately 8 percent, or a total return of 10.5 percent based upon a prior close of $20.36 per share.

Stifel is taking into account recent industrial portfolio sales and an expectation of future industrial portfolio sales at cap rates south of 6 percent cap.

Related Link: 5 Slides Explain Phenomenal Prologis JV Bet On US Industrial Real Estate

Notably, of all the industrial REITs Stifel covers, Guinee believes First Industrial has a clear advantage, "FR offers the greatest likelihood of cap rate compression and multiple expansion in the current environment."

Stifel – First Industrial Positives

First Industrial has demonstrated an ability to create value, with Stifel noting that:

• "Big box development should grow earnings and improve the portfolio's profile."
• First Industrial is "leasing up the development and value-add acquisitions to grow earnings."
• FR has shown the ability to increase the dividend annually.

Finally, Stifel expects to see debt-cost reduction increasing FFO.

Stifel – First Industrial Concerns

Stifel noted, that the "low-hanging fruit is mostly picked," citing specifics, including:

• The portfolio has a relatively small average size of approximately 98,000 SF per building, which equates to more small tenants and flex space.
• First Industrial owns the "oldest portfolio (average estimated completion date is 1984) of their peer group."
• Capex costs remain high and First Industrial has a "cost of capital disadvantage" relative to some of its peers.

 
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