Business Context and Reporting Period
Company: First Industrial Realty Trust, Inc. (First Industrial)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: First Industrial is a Maryland-domiciled Real Estate Investment Trust (REIT) owning and operating industrial properties. As of March 31, 2010, the portfolio consisted of 781 industrial properties across 28 U.S. states and one Canadian province, totaling approximately 69.0 million square feet of gross leasable area (GLA). The company also holds noncontrolling interests in seven joint ventures focused on industrial real estate.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenues | $89.7 million | $111.3 million |
| Net Loss (Consolidated) | $(18.8) million | $(12.5) million |
| Net Loss Attributable to Common Stockholders | $(21.9) million | $(15.4) million |
| Net Loss Per Share (Basic & Diluted) | $(0.35) | $(0.35) |
| Net Cash Provided by Operating Activities | $4.9 million | $20.8 million |
| Cash and Cash Equivalents (Ending) | $107.2 million | $37.8 million |
| Total Debt (Carrying Value) | $1.91 billion | $2.00 billion |
| Same-Store Occupancy Rate | 81.4% | 85.9% |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 19.4% to $89.7 million. This was driven primarily by a 98.5% drop in construction revenues (due to project completions) and a 4.0% decrease in same-store property revenues due to lower occupancy rates.
- Impairment Charge: The company recorded a non-cash impairment loss of $9.2 million on a property in Grand Rapids, Michigan, following a lease negotiation review. No impairment was recorded in Q1 2009.
- Restructuring Costs: Restructuring charges decreased significantly to $0.3 million in Q1 2010 compared to $4.7 million in Q1 2009, as the major severance and lease termination costs were incurred in the prior year.
- Debt Reduction: Total debt decreased by approximately $90 million. The company repurchased $160 million of senior unsecured debt via a tender offer and originated $27.5 million in new mortgage financings.
- Asset Sales: The company sold three industrial properties and several land parcels for gross proceeds of $44.3 million, resulting in a gain on sale of $5.1 million (including $4.0 million in discontinued operations).
Guidance, Outlook, and Risks
Liquidity and Covenant Compliance: Management anticipates compliance with financial covenants throughout 2010 but notes they expect to exceed minimum leverage and fixed charge coverage requirements by only a "thin margin." Compliance relies on internal EBITDA projections regarding occupancy, rental rates, and property sales.
Capital Strategy: To enhance liquidity and reduce indebtedness, the company plans to:
- Retain Capital: Distribute minimum dividends required for REIT status; no common dividends were paid in Q1 2010.
- Asset Sales: Continue selectively marketing properties for sale to pay down debt.
- Financing: Pursue additional mortgage financings and opportunistic equity offerings (issued $6.0 million via DRIP in Q1).
Subsequent Events & Contingencies:
- Debt Redemption: On April 26, 2010, the company redeemed the remaining $70.8 million of its 2011 Notes, expecting to recognize a $4.3 million loss on early retirement in Q2 2010.
- Tax Litigation: The Michigan Supreme Court reversed a favorable lower court decision regarding business loss carryforwards. The company expects to reverse a $1.4 million receivable and re-establish an $0.8 million accrual in Q2 2010.
- Joint Ventures: Discussions are ongoing regarding the future of several joint ventures; no definitive agreements were reached as of May 3, 2010.
Investor Verification Checklist
- Verify the company's ability to meet debt covenants given the "thin margin" warning and reliance on property sales.
- Monitor the impact of the $4.3 million expected loss on debt retirement in Q2 2010 on earnings.
- Assess the outcome of the Michigan tax litigation and the resulting $2.2 million net charge in Q2 2010.
- Track occupancy rates and rental rate trends, as same-store occupancy declined to 81.4%.
- Review the status of joint venture discussions, as potential dissolution could impact future cost structures.