First Industrial Realty Trust, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. The filing presents the Company and its operating partnership as one managed enterprise; figures below generally refer to consolidated results. Amounts are in U.S. dollars.
Business context and operating performance
The company owns, manages, acquires, develops and sells industrial real estate. At quarter-end, it owned 435 properties across 18 states, totaling approximately 66.7 million square feet. In-service occupancy was 97.7%; average same-store occupancy was 97.6% for Q2 and 98.0% for the first half.
For leases commencing in the first half, cash rental rates increased 62.7% on new and renewal leasing; the reported increase for Q2 was 74.1%. These are leasing measures, not reported revenue growth.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $152.2 million | $130.0 million | $301.6 million | $255.6 million |
| Net income | $56.2 million | $133.7 million | $117.0 million | $170.8 million |
| Net income per common share, diluted | $0.41 | $0.88 | $0.84 | $1.16 |
| FFO available to common stockholders and participating securities | $81.2 million | $74.2 million | $158.9 million | $143.3 million |
| Same-store NOI | $96.7 million | $87.3 million | $189.7 million | $173.4 million |
Revenue rose 17.1% in Q2 and 18.0% in the first half. Same-store NOI increased 10.8% and 9.4%, respectively. FFO, a non-GAAP measure, increased 9.5% in Q2 and 10.9% in the first half. GAAP net income declined substantially against unusually high prior-year joint venture gains and incentive fees. Q2 equity income from the joint venture was $1.4 million, versus $118.2 million a year earlier; first-half equity income was $29.1 million, versus $118.2 million. The filing reports no operating margin measure.
First-half operating cash flow was $156.1 million, down from $258.9 million. Investing used $251.1 million, compared with $407.9 million; financing provided $18.0 million, compared with $225.5 million. Cash, cash equivalents and restricted cash totaled $68.1 million at June 30, down from $145.1 million at year-end. The company reported approximately $66.5 million of cash excluding the joint venture partner’s share, and $489.1 million available on its revolving credit facility at quarter-end.
Total debt carrying value was approximately $2.19 billion, versus $2.08 billion at December 31, 2022. Of debt excluding unamortized issuance costs, 88.2% was fixed rate and 11.8% variable rate; $925 million of term loans was effectively fixed through interest-rate swaps. Weighted-average debt outstanding and rates rose year over year, contributing to first-half interest expense increasing 70% to $34.0 million. The company reported covenant compliance at June 30.
Material changes and notable activity
- Same-store revenue increased with higher rental rates, occupancy and tenant recoveries. Same-store occupancy averaged 98.0% in the first half versus 97.8% in 2022.
- The company acquired two small industrial properties and four land parcels in the first half; it also sold one property and one land parcel. It recognized a $13.1 million gain on those sales.
- The joint venture sold about 31 acres in Phoenix, recognizing a $40.1 million gain at the venture level. The company reported its economic share of the gain as $19.6 million and earned $8.5 million of first-half incentive fees. These items were far below the prior-year venture land-sale gains and fees.
- Quarterly dividends and unit distributions were $0.32 per share/unit, up 8.5% from the 2022 quarterly rate. No shares were issued under the company’s new at-the-market program during the first half.
Outlook, risks and contingencies
No quantified 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 needs may be funded through dispositions, debt and equity issuance. Management stated it expects to remain in covenant compliance over the next 12 months.
Nine development projects totaling approximately 2.7 million square feet were under construction, with estimated total investment of $440.6 million and approximately $236.7 million remaining to fund. The filing cautions that actual completion costs could exceed estimates. The company also provided completion and other guarantees for a joint venture development; management did not expect significant payments, but the amount of any additional costs cannot be estimated. Other cited risks include interest rates and financing access, tenant defaults or non-renewals, occupancy and rent pressure, construction costs and delays, property market conditions, environmental matters, and joint venture risks. The company reported no material change to its previously disclosed risk factors and no material legal proceedings.
After quarter-end, the company sold three industrial properties for $3.45 million, excluding transaction costs. The credit facility and the 2021 term loan were amended to replace LIBOR with SOFR; the amended rates took effect after June 30.
Important facts for investors to verify
- Whether leasing spreads, high occupancy and same-store NOI growth persist, and how rent concessions and lease costs affect realized cash returns.
- How much of the decline in GAAP net income reflects nonrecurring prior-year joint venture gains and fees versus changes in ongoing property operations.
- Development funding, completion timing and cost exposure, including the joint venture guarantees.
- Debt maturities, variable-rate exposure, future borrowing costs and continued covenant compliance.
- The reconciliation and comparability of non-GAAP FFO and NOI measures to GAAP results and cash flows.