Buffett Charity Tip Pays Off in Spades ... for Now

Buffett's endorsement of an unadmired REIT causes the stock to soar -- and the heads to shake.
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Ever since famed investor Warren Buffett announced that he would donate his 20-year-old wallet -- stock tip included -- to the Omaha, Neb., charity Girls Inc., speculation has swirled about just which stock it would be. A consumer-marketing powerhouse like American Express (AXP) - Get Report? Or an overlooked insurer, like Buffett's two previous acquisitions GEICO or General Re?

Well, the secret's out -- and it's neither. After paying $210,000 for the wallet and promising to share the tip with anyone who donated at least $1,000 to the charity, the wallet's new owner at last revealed the stock: It's

First Industrial Realty Trust

(FR) - Get Report

.

The choice caught some by surprise. "Nobody ever accused First Industrial of being terribly forward-thinking," says one buy-side manager. "It's a very average REIT competing in a very average property sector." This manager lays the blame for the company's problems on a real estate portfolio that began in Chicago and spread into second-tier markets in the upper Midwest.

That won't prevent Buffett's many fans from climbing aboard, of course: First Industrial shares are up 1 9/16, or 6%, to 26 1/2 in heavy trading today. And Wall Street just sees it as another opportunity.

Just yesterday, in fact,

Donaldson Lufkin & Jenrette

analyst Larry Raiman had reiterated his buy rating of First Industrial, with a price target of 29 over the next 12 months in a move he said was "fortuitous but coincidental." DLJ has performed banking for the company recently.

Raiman is one of the analysts who warmed to First Industrial's recently announced restructuring, which includes the sale of nearly $1 billion in assets over the next two years, $85 million in debt repayments and about $100 million in stock buybacks. It is also increasing its focus on larger core markets including Chicago, Dallas and Atlanta. "First Industrial is on the right track," says Raiman. "They're strengthening their balance sheet, and will be aggressive in repositioning their portfolio."

But to some, the cheerleading had gone too far. The

Morgan Stanley REIT Index

has moved up nearly 11 points, or over 4%, on the news. Cautions

Warburg Dillon Read

analyst Anthony Davis: "To generalize this as an embrace of the

REIT sector is a bit of a reach." Warburg has provided investment banking services for First Industrial recently.

What's more, those who follow Buffett's lead, especially in REITs, do so at their own risk. For example, while Buffett's April

disclosure of a personal position in

Tanger Factory Outlets

(SKT) - Get Report

sent the stock soaring nearly 20% the following day, those who tried to hop Buffett's train are riding in the caboose. Tanger's price has declined over 18% since the day

after

Buffett's announcement became public. "The momentum players get in and then they get out," says the buy-sider. "In a sector with low liquidity like REITs, trying to profit from Buffett's lead is a sure way to lose money."

Moreover, one long-time Buffett follower thinks Buffett's interest in REITs is a bit odd. "I don't know for sure where he's going with this, except that it can't be an equity play on his part," says Robert Hagstrom, manager of the

(FOCTX)

Legg Mason Focus Trust fund and author of

The Warren Buffett Portfolio

. "It's a bond alternative. He'll never get a 15% rate of return unless you think interest rates are going to 3%." Adds Hagstrom, matter-of-factly, "We don't even know if he owns the stock."

Building Blocks

Last fall in a

column about accounting practices of REITs, one buy-side source cited

Post Properties'

(PPS)

handling of the financial benefit it received from the Atlanta

Olympics

as an example of poor disclosure. Now, 15 months later, Post has taken notice of the story and wants to set the record straight.

Greg Fox, chief accounting officer at Post, via email, wrote the following: "We did not have a significant windfall from the Olympics. In fact, we made a conscious business decision to take a long-term focus and not disrupt our operations for short-term gains." Additionally, he wrote, "we fully disclosed our Olympic profits in operating results and reported them consistently in 1996 and 1997."

Indeed, Post did consistently identify its Olympic income as footnotes in its 1996 and 1997 annual reports. However, the buy-side analyst stands by his claim that in analyst presentations and conference calls, the company did tout its Olympic gains in 1996 -- when the comparisons benefited it, but downplayed them in 1997 when the comparisons did not.

We did attempt to contact the company before the story was originally published. Now, 15 months hence, it's finally responded. Case closed.

Christopher S. Edmonds is president of Resource Dynamics, a private financial consulting firm based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback at

invest@cjnetworks.com.