FIRST INDUSTRIAL REALTY TRUST INC quarterly report, Q3 FY2023

First Industrial Realty Trust, Inc. — Q3 2023 Form 10-Q

Reporting period: Three and nine months ended September 30, 2023. The filing combines the Company and its operating partnership, First Industrial, L.P.; results are substantially aligned. The REIT owned 434 industrial properties across 18 states, totaling approximately 67.2 million square feet.

Financial performance

Metric	Q3 2023	Q3 2022	Nine months 2023	Nine months 2022
Total revenue	$155.1 million	$139.8 million	$456.8 million	$395.3 million
Net income	$77.1 million	$126.9 million	$194.1 million	$297.7 million
Net income available to common shareholders	$74.9 million	$123.8 million	$185.4 million	$276.9 million
Diluted earnings per share	$0.57	$0.94	$1.40	$2.10
Operating cash flow	Not stated quarterly	Not stated quarterly	$240.4 million	$346.0 million

Q3 revenue rose 11.0%; nine-month revenue rose 15.5%. Growth reflected higher same-store rents and tenant recoveries, development lease-up, and other revenue.
Same-store NOI increased 7.4% in Q3 and 8.7% for the nine-month period. Same-store average daily occupancy was 97.1% in Q3 and 97.7% for the nine months, compared with 98.1% and 97.9%, respectively, in 2022.
Nine-month FFO available to common shareholders and participating securities, a non-GAAP measure, was $240.2 million, versus $222.5 million. Q3 FFO was $81.3 million, versus $79.2 million.
Interest expense increased to $19.9 million in Q3 from $13.1 million, and to $53.9 million for nine months from $33.1 million. Management attributed the increase to higher average rates and debt balances, as well as lower capitalized interest.

Balance sheet, cash flow and liquidity

At September 30, total assets were $5.15 billion and net real estate investment was $4.65 billion. Total liabilities were $2.54 billion.
Total debt was approximately $2.21 billion, up from $2.08 billion at December 31, 2022. Debt fair value was approximately $2.06 billion. About 87.5% of debt was fixed-rate, including $925 million of floating-rate term loans hedged with swaps; 12.5% was variable-rate.
Cash and cash equivalents were $54.3 million on the consolidated balance sheet. Management reported approximately $53.2 million after excluding the joint venture partner’s share, plus $472.4 million available on the $750 million revolving facility at quarter-end. Facility availability was approximately $419.4 million on October 20.
Nine-month operating cash flow was $240.4 million; investing outflow was $322.9 million and financing outflow was $8.4 million. Cash, cash equivalents and restricted cash ended the period at $54.3 million, down from $145.1 million at year-end.
Quarterly dividends/distributions were $0.32 per share/unit, an 8.5% increase over the 2022 rate. Nine-month cash dividends and unit distributions paid totaled $126.1 million.

Material changes and operating activity

Net income declined year over year in both periods, chiefly reflecting lower gains from real estate sales and sharply lower equity income from the joint venture. In 2022, the joint venture recorded a large land-sale gain; in 2023, its nine-month net income included a $40.3 million land-sale gain. The Company’s nine-month equity in joint venture income fell to $30.6 million from $118.2 million.
Q3 real estate sale gains were $34.4 million, versus $83.9 million; nine-month gains were $47.4 million, versus $84.2 million. Higher revenue was partly offset by rising property expenses, depreciation and interest expense.
During the first nine months, the Company acquired two properties and five land parcels for total purchase price of $87.7 million, and sold four properties and two land parcels for gross proceeds of $61.4 million.
At quarter-end, seven development projects totaling approximately 2.2 million square feet were under construction, with estimated total investment of $345 million and approximately $152.6 million still to fund.
For leases commenced in the first nine months, management reported cash rental-rate increases of 58.9% on new and renewal leasing; Q3 increases were 39.4%. The filing’s lease table reports straight-line rent growth of 83.8% and 59.7%, respectively, using a different calculation.

Outlook, risks and unusual items

No specific full-year earnings or operating guidance is provided in the supplied filing text. Management expects short-term liquidity needs to be met through operating cash flow and selected asset dispositions, with debt, equity or revolver borrowings also possible depending on market conditions. Long-term funding may include dispositions, debt and equity issuance.
Management expected covenant compliance over the following 12 months and reported compliance with debt covenants at September 30. The company’s senior unsecured ratings were BBB/Stable from S&P and Fitch and Baa2/Stable from Moody’s.
Key risks include interest-rate and financing availability, covenant compliance, tenant defaults or non-renewals, lower rents or occupancy, development cost overruns or delays, property market conditions, environmental matters, and joint-venture risks. Management estimated a 10% increase in the SOFR component would have raised nine-month interest expense by approximately $0.9 million based on average floating-rate debt.
The Company provided completion and customary other guarantees for a joint venture development project with a $79.7 million loan balance and approximately $210.3 million estimated investment. Management did not expect significant payments under the guarantees, but the amount of any additional costs could not be estimated.
Management reported no material adverse effect expected from ordinary-course legal proceedings; no legal proceedings or material changes to previously disclosed risk factors were reported. No subsequent events were noted.

Important facts for investors to verify

Whether same-store rent growth and occupancy remain resilient as occupancy eased from 2022 levels and Q3 leasing rent increases moderated from the nine-month figure.
Whether development budgets, remaining funding needs and lease-up assumptions hold, including the joint venture project subject to completion guarantees.
How higher interest expense, scheduled maturities (including $575.3 million in 2025) and revolving-credit availability affect liquidity and refinancing costs.
How much future earnings and cash flow depend on property-sale gains and joint venture income, which were substantially lower than in 2022.
Reconcile reported consolidated cash with management’s adjusted cash figure and confirm current revolver availability, which changed between September 30 and October 20.