First Industrial Realty Trust, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. First Industrial owns, manages, acquires, develops and sells industrial real estate through First Industrial, L.P. At quarter-end, it owned 439 properties across 20 states, totaling approximately 63.0 million square feet.
Financial performance
Amounts below are in millions, except per-share data. The Company and Operating Partnership report substantially the same consolidated operating results.
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Total revenue | $116.2 | $106.6 | $335.7 | $315.2 |
| Net income | $36.7 | $80.0 | $114.7 | $145.1 |
| Company diluted EPS | $0.28 | $0.62 | $0.88 | $1.12 |
| FFO available to common stockholders and participating securities | $63.0 | $56.4 | $178.2 | $163.9 |
| Same-store NOI | $71.7 | $70.8 | $215.3 | $204.7 |
- For the first nine months, cash provided by operating activities was $190.1 million, essentially unchanged from $190.2 million. Investing used $274.4 million, while financing provided $102.6 million. Cash, cash equivalents and restricted cash ended the period at $171.1 million.
- At September 30, total debt was approximately $1.614 billion, compared with $1.491 billion at year-end 2019. The company reported no outstanding balance on its unsecured credit facility and $724.6 million available to borrow. All debt was fixed-rate or effectively fixed through swaps.
- Total assets were $3.739 billion and total liabilities were $1.850 billion. Quarterly dividends were $0.25 per share, up from $0.23 in 2019.
Changes versus comparable periods
- Revenue rose 9.0% in Q3 and 6.5% for the first nine months. Same-store NOI increased 1.3% and 5.2%, respectively; same-store occupancy averaged 96.8% in Q3 versus 97.7%, and 97.1% year to date versus 97.6%.
- Net income and EPS declined substantially, primarily because real estate sale gains were lower: $6.5 million in Q3 2020 versus $52.5 million in Q3 2019, and $29.6 million year to date versus $53.4 million. Prior-year nine-month results also included $16.3 million of joint-venture income, including a land-sale gain and accrued incentive fees; 2020 recorded a small joint-venture loss.
- FFO increased despite lower GAAP net income, reflecting FFO’s exclusion of real estate depreciation and sale gains. FFO is a non-GAAP measure and is not a substitute for GAAP income or operating cash flow.
- Year-to-date acquisitions included seven properties and six land parcels; the company sold 14 properties. It issued $300 million of private placement notes and raised $78.7 million net through its at-the-market equity program.
Outlook, risks and unusual items
- The filing provides no specific earnings or FFO guidance. Management said first-nine-month results were in line with expectations but warned that COVID-19 could adversely affect results, collections, tenants and capital markets.
- As of October 22, the reported rental-billing collection rate for Q2 and Q3 was 99%. The company granted $1.0 million of rent deferrals to 18 tenants; $0.3 million remained outstanding as of that date. It also recorded $1.2 million of reserves or cash-basis rental adjustments and reversed $1.4 million of deferred rent receivables due to collection concerns.
- Management paused new speculative vertical development early in 2020, then planned to begin two South Florida projects in Q4 based on market conditions. Estimated remaining development and related funding needs were approximately $50 million for the rest of 2020 and $100 million for 2021 and beyond. Six properties totaling about 1.1 million square feet were under construction; approximately $48 million of an estimated $104.9 million total investment remained to be funded.
- Debt maturities include a $200 million term loan due July 2021, with two one-year extension options subject to conditions, and approximately $63 million of mortgage debt maturing in October 2021. The credit facility also matures in October 2021 and is extendable for one year subject to conditions. The company reported covenant compliance and expected to remain compliant over the following 12 months.
- Other notable items: $6.5 million of insurance settlement proceeds contributed to revenue; accelerated depreciation and amortization related to certain early lease terminations; and the company recognized a small accelerated loss on a swap after the expected hedged transaction was no longer probable. Management did not expect significant payments under its joint-venture guarantees, but completion and cost-overrun guarantees are disclosed.
- Management identified COVID-19, tenant defaults or non-renewals, occupancy and rent pressure, development costs and delays, financing access, interest rates, covenant compliance, property values, and joint-venture risks as material uncertainties. It reported no legal proceedings expected to materially affect the company and no material change in internal control over financial reporting.
Key facts for investors to verify
- Whether rental collections remain strong and deferred or at-risk rent is recovered, including subsequent changes in tenant credit quality and occupancy.
- Refinancing or extension plans for 2021 maturities, available facility capacity, borrowing costs, and continued covenant compliance.
- Actual costs, funding needs, leasing and completion timing for projects under construction and the planned South Florida developments.
- How much earnings and cash flow depend on one-time sale gains, insurance proceeds, and other nonrecurring items versus ongoing property operations.
- Performance and funding obligations of the Phoenix joint ventures, including the disclosed construction and completion guarantees.