First Industrial shares, tracked in green, have lost about three-quarters of their value this year, while an index of industrial and office REITs tracked by the National Association of REITs, in red, has fallen less than 40 percent.
First Industrial Realty Trust Inc. cut nearly half its employees and will discontinue its European operations after swinging to a loss in the fourth quarter, performing worse than analysts expected thanks to millions in charges and depreciation of its 100 million square foot portfolio.
The Chicago-based real estate investment trust, which owns 800 industrial properties such as warehouses, factories and storage space, reported a net loss of $72.3 million, or $1.66 per diluted share, in the fourth quarter compared with a profit of $48.3 million, or $1 per diluted share, in the same period the year before, according to a company report released after market close Monday.
First Industrial’s funds from operations, a common measure of REIT performance, dropped to a loss of $43.9 million, or 89 cents per diluted share, from a gain of $60.8 million, or $1.22 per diluted share, in the fourth quarter of 2007. The FFO loss is more than five times the analysts' estimated loss of 17 cents compiled by Zacks Investment Research Inc. in Chicago.
The company brought in $145.4 million in revenue, a 44.3 percent increase over $100.7 million in the fourth quarter of 2007.
More than $43 million in impairment charges from joint-venture investments docked fourth quarter profits and helped spur First Industrial—whose clients include area corporations such as Walgreen Co., Caterpillar Inc., Solo Cup Co. and Smurfit-Stone Container Corp.—to cut costs.
“We have a vigorous focus on cost-reduction as every dollar counts in this environment,” said CEO Bruce Duncan, who was appointed in January, during the company’s conference call Tuesday.
First Industrial reduced its workforce by 43 percent to 295 employees and did not award year-end employee bonuses in 2008. The company also ended its European operations, which began in July 2007, and shut its European headquarters in Belgium.
“The board and management did not expect to reach the levels of investment and profitability needed within the next several years to justify our investments there,” Duncan said.
Struggling corporate clients, such as now-bankrupt Circuit City, which had to reject a lease for a build-to-suit property in Pennsylvania, make it more difficult for industrial and office REITs like First Industrial to maintain occupancy. Its occupancy rate was 85 percent in 2008. That figure is expected to fall to 81 or 82 percent this year, according to First Industrial's acting chief financial officer, Scott Musil.
“The next two to three years will be all about hand-to-hand combat in the marketplace for tenants and we will be aggressive both in attracting them and retaining them," said Musil.Last year, the company earned $41.2 million, or $2.05 a share, a 73 percent drop from its 2007 earnings of $155 million, or $4.64 a share. Annual revenue in 2008 jumped 38 percent to $526.3 million, from $380.2 million.
Janney Montgomery Scott LLC’s Stephanie Krewson rates the stock neutral and listed First Industrial second among the Bottom 15 Performing Equity REITs, according to a report released Monday.
Shares of First Industrial have lost nearly three-quarters of their value in 2009, closing at a 52-week low of $1.91 on Tuesday, down 19 cents, or 9 percent, from the day before.