Overvalued Industrial REIT Will Underperform In Uncertain Markets

Key Takeaways

• Exceptional rental growth and strong occupancy may not be sustainable as market dynamics normalize, posing risks to future revenue and earnings expectations.
  
• Access to low-cost capital and recent development success could be challenged by rising interest rates and shifting tenant demand, potentially compressing margins and cash flow.
  
• Continued demand, limited new supply, diverse tenant base, and strong financial position support stable revenue growth and resilience in key industrial real estate markets.

Catalysts

First Industrial Realty Trust, Inc. (NYSE: FR) is a leading U.S.-only owner, operator, developer and acquirer of logistics properties.

• The company is currently benefiting from exceptionally strong rental rate growth (cash rental rate increases of 33–38% on new and renewal leasing), likely reflecting the ongoing shift toward e-commerce and supply chain reorganization; investors may be overestimating the sustainability of these double-digit rent spreads given evolving demand and increased tenant caution, which could inflate both current revenue and forward earnings expectations.
  
• With new construction starts in key markets at a 10-year low and limited new Class A supply, there is heightened pricing power and above-average occupancy for owners like First Industrial; if investors are pricing in persistently low vacancies and strong rent escalations, any normalization in supply/demand could lead to lower expected net margins and cash flow than currently baked into valuations.
  
• Recent success in leasing newly developed space and the rapid lease-up of large projects could be leading the market to overvalue the company's ability to repeatedly generate high-yielding, fully leased developments; future development cycles may not replicate these conditions, impacting revenue growth and long-term earnings trajectories if competition or demand softens.
  
• The company's access to BBB+ rated, low-cost, long-term capital (recent $450 million bond offering) enhances its ability to fund acquisitions and development in constrained markets, but if higher-for-longer interest rates persist, borrowing costs may rise, thereby compressing net margins and reducing future return on equity.
  
• Current occupancy rates and NOI growth are supported by supply/demand imbalances in core markets and technology-driven tenant requirements, but delayed leasing activity and tenant decision-making due to tariff and macro uncertainty introduce risks to occupancy, which-if not fully reflected-can lead to downward revisions in revenue and funds from operations.

First Industrial Realty Trust Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming First Industrial Realty Trust's revenue will grow by 7.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 38.7% today to 30.9% in 3 years time.
• Analysts expect earnings to reach $269.5 million (and earnings per share of $1.92) by about July 2028, down from $270.9 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $213.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.1x on those 2028 earnings, up from 24.7x today. This future PE is greater than the current PE for the US Industrial REITs industry at 28.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.82%, as per the Simply Wall St company report.

First Industrial Realty Trust Future Earnings Per Share Growth

Risks

• Persistent strong rental rate growth on new and renewal leasing (with cash rental rate increases of 33-38%) and above-average same-store NOI growth (8.7%) suggest First Industrial's properties remain in high demand, underpinned by favorable long-term secular trends in e-commerce and supply chain reorganization. This supports continuing revenue and NOI expansion.
  
• Limited new industrial supply, with new construction starts at 10-year lows and high pre-leasing rates in core, supply-constrained target markets, positions First Industrial to benefit from tightening market conditions and sustained pricing power, which may bolster occupancy rates, net margins, and long-term earnings.
  
• Strategic, disciplined development activity in infill locations with historically low submarket vacancies and an active, diverse tenant base (including notable e-commerce players such as Amazon), enables the company to achieve high lease-up rates and target cash yields (~8%), supporting stable revenue and EBITDA growth.
  
• Strong balance sheet and recent credit rating upgrade to BBB+ facilitate access to low-cost capital, as evidenced by the oversubscribed bond offering, enhancing the company's ability to fund value-accretive acquisitions and developments, thus supporting long-term earnings and cash flow resilience.
  
• The breadth of tenant demand (including food & beverage, 3PLs, automotive, manufacturing, and especially e-commerce), coupled with relatively stable to growing demand across key fast-growing markets like Nashville, Florida, and parts of Dallas and Houston, positions First Industrial to capitalize on secular industrial real estate growth, reducing revenue and occupancy risk over the long term.

Valuation

• The analysts have a consensus price target of $55.533 for First Industrial Realty Trust based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $64.0, and the most bearish reporting a price target of just $51.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $873.1 million, earnings will come to $269.5 million, and it would be trading on a PE ratio of 35.1x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $50.51, the analyst price target of $55.53 is 9.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.