First Industrial Realty Trust, Inc. — Q2 2017 Form 10-Q
Business context and reporting period
Quarter and six months ended June 30, 2017. First Industrial is a REIT focused on owning, managing, acquiring, selling, developing and redeveloping industrial real estate. At quarter-end, it owned 524 properties across 22 states, with approximately 63.3 million square feet of gross leasable area. Results are reported jointly with First Industrial, L.P., the operating partnership through which substantially all operations are conducted.
Key financial metrics
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Total revenue | $97.6 million | $93.0 million | $195.0 million | $186.5 million |
| Net income | $38.9 million | $52.1 million | $62.3 million | $68.4 million |
| Net income per share | $0.32 | $0.43 | $0.51 | $0.58 |
| Funds from operations (FFO), available to common stockholders and participating securities | $45.3 million | $42.3 million | $87.7 million | $80.8 million |
| Net cash from operating activities | — | $92.4 million | $74.1 million |
Q2 same-store net operating income (NOI) was $65.5 million, up from $62.9 million; six-month same-store NOI was $130.4 million, versus $124.2 million. Same-store average occupancy was 95.7% in Q2 and 95.9% for the first half, compared with 96.7% in both 2016 periods.
At June 30, cash and cash equivalents were $11.6 million, with restricted cash of $5.6 million. Total indebtedness was approximately $1.35 billion; 90.6% was fixed-rate, including $460 million of variable-rate term loans hedged to fixed rates. The unsecured credit facility had $497 million available. Total liabilities were $1.49 billion and total equity was $1.37 billion.
Material changes versus comparable periods
- Q2 revenue increased 4.9%, while net income fell 25.4% and EPS declined from $0.43 to $0.32. The primary comparison factor was lower real estate sale gains: $20.9 million in Q2 2017 versus $36.8 million in Q2 2016.
- For the first half, revenue rose 4.5%, but net income declined; real estate sale gains were $28.9 million versus $44.0 million. Same-store revenue growth was partly offset by lower occupancy.
- First-half operating cash flow increased to $92.4 million. Investing cash outflow widened to $107.0 million from $29.1 million, reflecting greater acquisitions and real estate investment, while financing cash flow was positive $16.3 million versus negative $44.6 million.
- First-half activity included four property acquisitions and land parcels for approximately $94.5 million, and sales of 20 properties for gross proceeds of $59.1 million. The company also issued $200 million of private-placement notes and raised $74.9 million net through a public share offering.
Outlook, management commentary, risks and unusual items
- No specific earnings or operating guidance is provided in the filing. Management expects to fund near-term requirements with operating cash flow, asset dispositions and financing sources. It expected to use the unsecured credit facility for $55 million of notes due December 2017 and $160.5 million of mortgages maturing before June 30, 2018.
- Management stated it was in compliance with debt covenants and anticipated remaining compliant through 2017. It cited risks including economic and property-market changes, interest rates and financing access, tenant defaults or non-renewals, occupancy and rent declines, development cost overruns or delays, and REIT qualification and covenant compliance.
- Six properties totaling approximately 0.9 million square feet were under construction, with estimated total investment of $86.7 million and approximately $48 million remaining to fund. Actual completion costs could exceed estimates.
- An aggregate $8.2 million insurance receivable was outstanding for fire damage at two properties. The company believed the losses were insured but noted collection and repair-cost reimbursement were not assured.
- A $1.7 million first-half loss from debt retirement reflected mortgage prepayment penalties and write-offs of deferred financing costs. The income-tax provision increased due to taxable gains from real estate sales at a taxable REIT subsidiary.
- Three additional properties were sold from July 1 through July 27, 2017, for approximately $18.3 million. The filing reported no legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the lower same-store occupancy stabilizes and whether rental-rate growth and tenant recoveries continue.
- How the company will refinance or repay near-term maturities, and whether credit-facility access and covenant compliance remain adequate.
- Whether planned development spending stays within budget and projects lease up as expected.
- Whether the $8.2 million insurance receivable is collected and fire-damaged properties are repaired without material unreimbursed costs.
- How much reported earnings depend on property-sale gains; assess recurring performance using GAAP results alongside the company’s non-GAAP FFO and NOI measures.