Monday, December 24, 2007

* Stock Analysis: FR

Linked here is a PDF copy of my detailed analysis of First Industrial Realty, Inc. (FR) (alt.1, alt.2). Below are some highlights from the above linked analysis:

Company Description: First Industrial Realty Trust, Inc. operates as a real estate investment trust. The company engages in the ownership, management, acquisition, sale, development, and redevelopment industrial real estate in the United States and Canada.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. FR is trading at a premium to all of the four valuations listed above. If I exclude the high and low valuation, and average the remaining two valuations, FR is trading at a 130.0% premium. FR has a Star deducted for trading at a premium.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. FR earned two Stars in this section for 3.) it has grown dividends for 10+ years and 4.) its one year dividend growth rate is greater than its 5 year compound annual growth rate.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description: 1.) NPV MMA Diff. and 2.) Years to >MMA. FR earned one Star in this section for 2.) since its 8.12% dividend yield is well in excess of the current MMA rate.

Other: FR lost money in 2005 ($0.61) and 2006 ($1.42) before recovering in 2007 (+$2.42 est). FR is positioned as one of the largest providers of industrial real estate in the U.S., with a diversified portfolio of long-term customers. In an effort to increase efficiency, companies are increasingly concentrating their business among larger providers such as FR.

Conclusion: FR had a Star deducted in the Fair Value section, two Stars added in the Dividend Analytical Data section and one Star added in the Dividend Income vs. MMA section for a total of Two Stars, which rates it as 2-Star Weak. It is important to note that while FR lost money in 2005 and 2006, it continued to increase its dividend in those years. The ability to not only sustain, but to increase its dividend in the face of adversity is an important attribute of a quality dividend company. Given all the above, along with my current allocation of real estate and this stock, I am neither buying nor selling FR at this time.

Disclaimer: As always this is only my opinion and you should not rely on it. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I own shares of FR.

What are your thoughts on FR?

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