First Industrial Realty Trust, Inc. — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. Unless otherwise noted, financial amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions.
Business context and reporting period
The company is an industrial-property REIT. At quarter-end it owned 745 properties across 26 U.S. states and one Canadian province, totaling approximately 66.9 million square feet of gross leasable area. Its primary revenue sources are rents and tenant recoveries.
Financial and operating results
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Total revenue | $76.8 million | $76.3 million | $232.6 million | $235.7 million |
| Net loss attributable to common stockholders | $8.9 million | $154.3 million | $22.3 million | $194.7 million |
| Net loss per share | $0.10 | $2.44 | $0.28 | $3.11 |
| Net cash from operating activities | Not provided for quarter | $64.1 million | $57.1 million |
Same-store average occupancy improved to 85.8% in Q3 from 82.4% a year earlier, and to 85.4% for the nine-month period from 81.7%. Management said same-store rental revenue was broadly flat: higher occupancy was offset by lower rental rates. Nine-month total revenue declined 1.3%, primarily reflecting property sales and lower joint-venture fees.
Continuing-operations revenue less property expenses was approximately $51.4 million for Q3 and $153.6 million for the first nine months. These are simple derived property-level spreads, not company-reported operating margins. Interest expense was $24.4 million in Q3 and $76.9 million for nine months; nine-month interest expense fell 2.3% year over year, mainly with lower average debt balances, partly offset by higher average interest rates.
At September 30, total assets were $2.70 billion, cash and equivalents were $47.9 million, and total debt carrying value was approximately $1.51 billion. Debt was about $1.74 billion at December 31, 2010. Approximately 89.4% of debt was fixed-rate and 10.6% variable-rate. Net cash from investing activities was $19.7 million and net cash used in financing was $61.7 million for the first nine months.
Material changes versus the prior comparable period
- The common-stockholder loss narrowed substantially from 2010, when large real-estate impairment charges drove reported losses. Nine-month 2011 net impairment was $2.3 million, compared with $173.0 million in 2010; the 2011 figure includes impairment reversals.
- Q3 2011 included $6.0 million of gains on sales within discontinued operations. For the first nine months, discontinued operations produced $14.8 million of income, including $13.4 million in property-sale gains, versus a $73.3 million loss in the prior-year period.
- The company issued 17.3 million common shares through two public offerings, generating approximately $201.5 million net proceeds, and raised a further $1.4 million net through its at-the-market program. Common shares outstanding rose to 86.6 million at November 2, 2011, from 68.8 million at year-end 2010.
- It sold 30 properties and one land parcel in the first nine months, with approximately $74.3 million gross proceeds, and acquired one property. It also secured $255.9 million of mortgage loans and repurchased or retired senior notes and mortgage debt.
Liquidity, outlook, risks and unusual items
At September 30, the company reported $138.7 million available under its unsecured credit facility, subject to restrictions. It expected to repay $61.8 million of notes due April 2012 using facility borrowings and to refinance the facility, which matures September 28, 2012. Management stated that it believed it was in compliance with debt covenants and expected to remain compliant through 2011. It also anticipated meeting liquidity needs with operating cash flow, asset dispositions, debt and, subject to market conditions, equity issuance.
The company had not paid a common-stock dividend in 2011 and said a fourth-quarter dividend would depend on taxable income; if required, it might be paid in a combination of cash and shares. No specific earnings, occupancy or revenue guidance was provided.
Key risks include refinancing and capital-market access, covenant compliance, interest rates, tenant creditworthiness, economic and industrial-property market conditions, asset values and further impairment changes, and the ability to sell identified non-strategic assets. At quarter-end, 76 properties totaling approximately 7.0 million square feet and several land parcels were classified as held for sale; the filing cautions that a sale is not assured. A property was transferred to a lender in satisfaction of a $5.0 million non-recourse mortgage, resulting in a $0.1 million loss. The company recorded $4.6 million of debt-retirement losses for the nine-month period. It reported no material adverse effect expected from ordinary-course legal proceedings and no risk-factor changes in Part II.
After quarter-end, the company reported a property sale for approximately $0.5 million and partial note repurchases expected to produce an approximately $0.1 million net gain. A 10% change in interest rates on variable-rate debt was estimated to change annual net income and cash flows by approximately $0.5 million.
Investor facts to verify
- Whether the 2012 notes and September 2012 credit-facility maturity were refinanced on acceptable terms, and whether facility availability and covenant headroom remained adequate.
- Whether held-for-sale properties and land were sold, at what proceeds, and whether additional impairments or reversals were recorded.
- Whether occupancy and rental rates continued to improve, given lower same-store rental rates offsetting occupancy gains in this period.
- The effect of share issuance and any cash-and-stock dividend decisions on per-share results and liquidity.
- Whether subsequent debt transactions and the planned disposition program changed debt levels, costs or refinancing requirements.