FIRST INDUSTRIAL REALTY TRUST INC quarterly report, Q1 FY2017

Business Context and Reporting Period

First Industrial Realty Trust, Inc. and its operating partnership own, lease, acquire, sell, develop and redevelop industrial real estate. This combined Form 10-Q covers the three months ended March 31, 2017; the Trust owned approximately 96.7% of the partnership. At quarter-end, the company reported 526 industrial properties in 23 states, totaling approximately 62.7 million square feet.

Financial and Operating Performance

Unless stated otherwise, dollar amounts are in millions. Results are consolidated and unaudited.

At March 31, cash and cash equivalents were $19.0 million, restricted cash was $7.5 million, and $372 million remained available under the unsecured credit facility. Debt principal was approximately $1.377 billion; 81.7% was fixed-rate or effectively fixed through swaps, and 18.3% was variable-rate. The quarter-end weighted average rate on credit-facility borrowings was 1.99%. Total assets were $2.805 billion and total liabilities were $1.520 billion.

Changes Versus the Prior Comparable Period

• Revenue rose 4.2%; same-store revenue increased 3.1%, primarily from higher rental rates and tenant recoveries. Same-store occupancy was unchanged at 95.8%.
• Net income increased to $23.5 million from $16.3 million; diluted EPS rose to $0.19 from $0.14. FFO increased about 10% and same-store NOI about 6%.
• Interest expense declined 11.6% to $14.4 million, reflecting a lower average debt balance, more capitalized interest and a slightly lower average interest rate. Depreciation and amortization fell 8.5%.
• Results included an $8.0 million gain on real estate sales, compared with $7.3 million a year earlier, and a $1.7 million loss on debt retirement, versus none in Q1 2016. Comprehensive income also reflected a $2.2 million mark-to-market gain on interest-rate protection agreements; the comparable period had a $12.5 million loss.
• Operating cash flow was higher year over year. Investing used $27.7 million, including property additions and development, partly offset by $19.9 million of net sale proceeds. Financing used $1.8 million; the company paid down $36.1 million of mortgage loans and increased net credit-facility borrowings.
• The declared quarterly dividend/distribution was $0.21 per share or unit, up 10.5% from the 2016 quarterly rate.

Outlook, Commentary and Risks

• Management provided no quantified earnings or FFO guidance in the supplied filing text. It expected to fund the $101.9 million 2017 II Notes due May 15, 2017 and $55.0 million 2017 Notes due December 1, 2017 with credit-facility borrowings and/or unsecured debt issuance.
• Management expected short-term needs to be met principally from operating cash flow and selected asset sales, with debt or equity issuance and credit-facility borrowings also potential sources. It anticipated covenant compliance for the remainder of 2017. The company reported compliance with applicable debt covenants at March 31.
• During Q1, the company acquired one land parcel for approximately $15.0 million and sold 12 properties totaling approximately 0.3 million square feet for gross proceeds of approximately $20.5 million. Eight properties totaling approximately 1.8 million square feet were under construction; estimated total investment was $135.7 million, with $71.7 million remaining to fund. Actual completion costs could exceed estimates.
• After quarter-end, the operating partnership issued $125 million of 4.30% notes due 2027 and $75 million of 4.40% notes due 2029. One industrial property was acquired for approximately $11.2 million between April 1 and April 27.
• A fire on April 3 damaged a 0.08-million-square-foot Los Angeles building. Management believed damages were insured, subject to a $25,000 deductible, but stated that recovery of repair costs was not assured. The filing also identifies risks from economic and industrial property market conditions, tenant defaults or nonrenewals, rents and vacancies, financing costs and availability, construction costs and delays, and covenant compliance. Management reported no material changes to the risk factors in its 2016 Form 10-K.
• The company adopted the revised business-definition standard in 2017; management expected future real-estate acquisition costs generally to be capitalized rather than expensed. It was evaluating the effects of forthcoming lease, revenue, credit-loss and cash-flow accounting standards.

Important Facts for Investors to Verify

• How the $156.9 million of 2017 senior-note maturities were funded, and the resulting borrowing levels, interest costs and credit-facility availability.
• Whether occupancy, rental-rate growth, tenant recoveries and same-store NOI continued to improve after Q1.
• Remaining funding needs, timing, leasing and budget performance for the eight properties under construction.
• Insurance proceeds, repair costs and any operating impact from the April 3 Los Angeles fire.
• Actual sale proceeds and acquisition/development returns, given the contribution of real-estate sale gains to reported earnings.