First Industrial Realty Trust, Inc. — Q1 2014 Form 10-Q
Business context and period. The company is an industrial-property REIT. For the three months ended March 31, 2014, it owned 651 properties totaling approximately 63.2 million square feet across 25 states. Figures below are unaudited; dollar amounts are in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2014 | Q1 2013 / prior date |
|---|---|---|
| Total revenue | $86.2 | $80.6 |
| Net income (loss) | $5.1 | $(1.1) |
| Net income (loss) available to common stockholders and participating securities | $2.5 | $(4.7) |
| Diluted EPS | $0.02 | $(0.05) |
| Net cash provided by operating activities | $24.1 | $20.4 |
| Cash and cash equivalents | $3.9 | $7.6 at Dec. 31, 2013 |
| Total assets | $2,582.7 | $2,597.5 at Dec. 31, 2013 |
| Total debt, carrying amount | $1,373.0 | $1,296.8 at Dec. 31, 2013 |
| Total liabilities | $1,495.2 | $1,426.3 at Dec. 31, 2013 |
Same-store average occupancy improved to 91.9% from 89.6%. Same-store net operating income (NOI), a non-GAAP measure, rose 2.3% to $55.6 million from $54.3 million. Same-store revenue increased 4.8%, while same-store property expenses increased 14.6%, mainly due to higher snow-removal and bad-debt costs. Total property expenses rose 17.5% to $31.3 million. Distributions were $0.1025 per share, versus $0.085 in Q1 2013.
At March 31, debt comprised $674.7 million of mortgage loans, $446.3 million of senior unsecured notes, a $200 million term loan, and $52 million drawn on the unsecured credit facility. Approximately 96.2% of debt was fixed-rate or effectively fixed by swaps. The company reported $573 million available under its credit facility at quarter-end and approximately $543 million available as of May 5, 2014.
Material changes and unusual items
- Revenue increased 6.9% year over year. Improved same-store occupancy and tenant recoveries contributed; revenues from properties sold declined, partially offsetting growth.
- Net income improved from a loss, helped by $3.0 million of equity income from joint ventures, primarily reflecting the company’s share of property-sale gains. Q1 2013 included a $1.2 million loss on retirement of debt.
- The company redeemed all Series F and Series G preferred shares for a total of $75 million. The redemption and related issuance costs reduced earnings available to common stockholders by $1.5 million.
- In January, the company entered into a seven-year $200 million unsecured term loan at a variable LIBOR-based rate and used swaps to fix the LIBOR component at a weighted average 2.29% through January 2021.
- Operating cash flow was $24.1 million; investing activities used $13.9 million and financing activities used $13.9 million. Cash declined $3.6 million during the quarter.
- The company acquired one property of approximately 0.3 million square feet for about $13.4 million and sold three properties totaling approximately 0.1 million square feet for gross proceeds of about $3.5 million, recognizing a $0.7 million gain.
Outlook, risks and contingencies
No quantified earnings or operating guidance is provided. Management expected to fund the $81.8 million of 2014 Notes due June 2, 2014 and approximately $66 million of mortgage debt maturing or expected to be prepaid by March 31, 2015 with credit-facility borrowings. It expected routine and other capital needs to be met through operating cash flow, selected asset sales, and, subject to market conditions, debt or equity financing. Management stated it believed the company was in covenant compliance and anticipated remaining compliant for the rest of 2014.
Six industrial buildings totaling approximately 1.8 million square feet were under construction, with estimated total costs of $94.6 million and approximately $52 million still to fund; actual completion costs could be higher. Key risks include tenant credit and leasing conditions, economic and industrial-property market changes, interest rates and refinancing access, covenant compliance, development delays or cost overruns, acquisitions and dispositions, environmental liabilities, and REIT qualification. The company noted that a ratings downgrade could raise borrowing costs or restrict market access. It reported no material legal proceedings, risk-factor changes, defaults, or disclosed subsequent events. Disclosure controls were assessed as effective.
Investor verification priorities
- Verify the refinancing or repayment of the $81.8 million notes due June 2, 2014 and the identified near-term mortgage maturities.
- Track credit-facility availability, debt covenants, credit ratings, and the cost and terms of future borrowing.
- Assess whether occupancy and leasing gains can offset rising property expenses; review same-store NOI and renewal versus new-lease rent growth.
- Monitor completion costs, leasing, and funding for the six projects under construction, including the remaining $52 million commitment.
- Separate recurring operating performance from joint-venture sale gains, property-sale gains, and preferred-stock redemption costs when evaluating earnings.