First Industrial Repositioning on Track

CHICAGO- After it embarked on a dubious acquisition tear several years ago, First Industrial REIT’s board elevated Mike Brennan to CEO with a mandate to clean up the mess and reposition the country’s largest diversified industrial REIT. Brennan says that his strategy for realigning the trust’s assets is on track. Analysts agree and some have been upgrading their recommendations on First Industrial’s stock.

“The whole point of our $500-million disposition program is to recycle capital into higher yielding assets,” says Brennan. “The aim is to increase the returns from our portfolio.”

To accomplish this, Brennan has embarked on an aggressive disposition program to exit markets where returns have been unacceptable. The cash from these dispositions will be recycled into new markets across the country, the most important of which are Los Angeles, Dallas, Denver, Chicago, Northern New Jersey and Atlanta, according to Brennan. The latest disposition was announced earlier this month, a big sale of First Industrial’s entire Long Island portfolio to an undisclosed buyer.

“It looks like they are going to pretty much have the dispositions taken care of by the end of the year,” says Louis Taylor, real estate analyst at Prudential Securities. “Brennan is improving the quality of the asset base, improving returns and leveraging their core competence, which is owning and managing properties and doing developments for large corporate clients.” Taylor just raised his recommendation on First Industrial to “Strong Buy” from “Accumulate”.

In a big boost to First Industrial’s strategy of providing value added services to large corporate clients, earlier this month the trust announced it would be developing a $1.7 million-sf warehouse facility for Proctor & Gamble in Pennsylvania. Brennan says these types of deals are more profitable for First Industrial because the REIT is able to provide some unique services that clients are willing to pay more for.

Louis says he expects that FFO growth for First Industrial will average between 8% and 10% annually for the next three years. That will be in line with other industrial REITS, but substantially higher than REITS generally. First Industrial reports third quarter earnings Oct. 25.