Which is Performing Better, First Industrial or Terreno Realty? (Part 2/2)


Click here if you haven’t read Part 1.

First Industrial and Terreno Realty have been two of the few stocks in the industrial sector that performed in a positive manner year to date. For example, STAG Industrial has decreased by 22 percent this year, Terreno has returned a positive 6.4 percent and First Industrial has returned a positive 3.2 percent. Terreno’s total return is at 11 percent while First Industrial is at 7.1 percent, both strong figures.

Both companies have a strong debt profile. Although First Industrial’s total debt to total capitalization is greater than Terreno Realty’s (38 vs. 28 percent), they are within the sector range. Three credit agencies have rated First’s senior unsecured notes as investment grade.

This is what Standard & Poor’s said about First Industrial’s recent upgrade in September,

“We are raising our corporate credit rating on First Industrial to ‘BBB-‘ from ‘BB+’, driven by strong recent operating performance and improving credit metrics, which we believe are sustainable based on favorable industrial real estate demand.”

Also in September, Terreno closed a large private placement of $100 million in senior unsecured notes at average interest rates lower than First Industrial’s.

Investors have been underwhelmed by First Industrial’s lower dividend yield of 2.4 percent. This is not much greater than a ten-year yield, and is far below the sector median’s 3.7 percent.

On the other hand, First Industrial does have one of the most conservative dividend payouts in the segment. This translates into the fact that the company could easily position itself on par with their peers. First Industrial has kept their dividend payout to Adjusted FFO under 50 percent all along.

chart06In addition, First Industrial has shown generosity by increasing growth rates since it reinstated dividends in 2013. The Q3 dividend is 24 percent higher than the same quarter last year. Still, investors wonder whether management has failed to be generous enough. The company did not make any dividend distribution from 2009 to 2013.

In the end, we have yet to detect a clear winner, although our scorecard has shifted towards Terreno. If you are willing to take a larger risk for the potential reward of a higher yield, then Terreno may be the way to go.

Source: First Industrial Realty Trust (NYSE:FR), Terreno Realty Corporation (NYSE:TRNO), STAG Industrial (NYSE:STAG), Standard & Poor’s

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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