Business Context and Reporting Period
Company: First Industrial Realty Trust, Inc. (First Industrial)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2007
Business Overview: First Industrial is a real estate investment trust (REIT) owning and operating industrial properties. As of June 30, 2007, the portfolio consisted of 935 industrial properties (including developments) across 28 U.S. states and one Canadian province, totaling approximately 77.8 million square feet of gross leaseable area (GLA). The company operates primarily through First Industrial, L.P., in which it holds an approximate 87.5% interest.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2007 | Six Months Ended June 30, 2006 |
|---|---|---|
| Total Revenues | $230.3 million | $176.3 million |
| Net Income | $72.6 million | $55.2 million |
| Net Income Available to Common Stockholders | $59.0 million | $44.5 million |
| Diluted EPS (Common) | $1.33 | $1.01 |
| Net Cash Provided by Operating Activities | $61.7 million | $53.4 million |
| Total Assets | $3.31 billion | $3.22 billion |
| Total Debt (Mortgage + Senior Unsecured + Line of Credit) | $1.98 billion | $1.83 billion |
| Cash and Cash Equivalents | $4.1 million | $16.1 million |
| Restricted Cash | $44.8 million | $16.0 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 30.7% year-over-year. This was driven by a 5.6% increase in same-store property revenues (due to higher occupancy rates rising from 90.0% to 93.5%), a 529.8% increase in revenues from acquired properties, and new revenue streams from build-to-suit development and contractor services.
- Discontinued Operations: A significant portion of net income ($97.1 million for the six months) was derived from discontinued operations, primarily due to gains on the sale of 84 industrial properties. The gain on sale of real estate included in discontinued operations was $114.8 million.
- Portfolio Activity: The company acquired 80 industrial properties (5.8 million sq. ft.) for approximately $314.9 million and sold 85 industrial properties (7.7 million sq. ft.) for gross proceeds of approximately $440.3 million.
- Debt Structure: The company issued $150 million in senior unsecured debt (2017 II Notes) and retired $150 million in 2007 Unsecured Notes. Borrowings under the unsecured line of credit increased to $347 million from $207 million.
- Joint Ventures: Equity in income of joint ventures increased by $10.0 million, largely due to the company's share of gains on property sales from the March 2005 and September 2005 Joint Ventures.
Guidance, Outlook, and Risks
- Liquidity: The company maintains a $500 million unsecured revolving credit facility. As of July 27, 2007, approximately $78.5 million was available for additional borrowings. Management expects to meet long-term liquidity needs through asset dispositions, long-term debt, and equity issuances.
- Dividends: The company declared a dividend of $0.71 per common share for the second quarter of 2007, totaling approximately $36.9 million.
- Development Commitments: The company has committed to construction projects totaling approximately 2.6 million square feet, with estimated remaining funding needs of approximately $94.4 million.
- Market Risk: Approximately 82.5% of total debt is fixed-rate, while 17.5% is variable-rate. A 10% change in interest rates on variable-rate debt would impact future net income by approximately $2.1 million annually.
- Contingencies: The company is litigating a tax position with the State of Michigan regarding business loss carryforwards involving approximately $1.4 million in unrecognized tax benefits. Management does not expect legal actions to have a materially adverse effect.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the sustainability of earnings by analyzing Net Income excluding the $97.1 million gain from discontinued operations, as continuing operations reported a loss of $15.2 million for the six-month period.
- Debt Maturities: Review the schedule of debt maturities, noting $350.1 million due in 2008 and $407.3 million due in 2011, to assess refinancing risks.
- Occupancy Trends: Confirm the 93.5% same-store occupancy rate and its impact on future rental revenue stability.
- Development Exposure: Assess the $94.4 million remaining funding requirement for development projects and the risk of cost overruns.
- Joint Venture Performance: Evaluate the reliance on joint venture income ($17.3 million for the six months) and the terms of the May 2003, March 2005, and September 2005 Joint Ventures.