Business Context and Reporting Period
Company: First Industrial Realty Trust, Inc. (First Industrial)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2007
Business Overview: First Industrial is a real estate investment trust (REIT) owning and operating industrial properties. As of March 31, 2007, the Company owned 959 industrial properties (including developments) across 28 U.S. states and one Canadian province, totaling approximately 76.8 million square feet of gross leaseable area (GLA). Operations are conducted primarily through First Industrial, L.P., in which the Company holds an approximate 87.4% interest.
Key Financial Metrics
| Metric | Q1 2007 | Q1 2006 |
|---|---|---|
| Total Revenues | $118.9 million | $88.6 million |
| Net Income | $35.2 million | $22.9 million |
| Net Income Available to Common Stockholders | $29.3 million | $17.3 million |
| Diluted EPS (Common) | $0.66 | $0.39 |
| Net Cash Provided by Operating Activities | $23.3 million | $27.9 million |
| Net Cash Provided by Investing Activities | $34.4 million | $81.6 million |
| Net Cash Used in Financing Activities | ($71.5 million) | ($117.8 million) |
| Total Debt (Mortgage + Senior Unsecured + Line of Credit) | $1.84 billion | $1.83 billion |
| Cash and Cash Equivalents | $2.3 million | $16.1 million |
| Dividends Declared per Common Share | $0.71 | $0.70 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 34.2% to $118.9 million. This was driven by a 1,064.8% increase in revenue from acquired properties ($15.6 million vs. $1.3 million) and a 4.8% increase in same-store property revenue due to higher occupancy rates (92.2% in Q1 2007 vs. 88.8% in Q1 2006).
- Discontinued Operations: Net income was significantly impacted by discontinued operations. The Company sold 35 industrial properties in Q1 2007, generating a gain on sale of $55.4 million (pre-tax). Income from discontinued operations totaled $57.7 million.
- Continuing Operations Loss: Excluding discontinued operations and gains on land sales, the Company reported a loss from continuing operations of $8.2 million, compared to a loss of $14.4 million in the prior year. This improvement was aided by a $5.6 million equity in income from joint ventures.
- Acquisitions and Sales: The Company acquired 60 properties (3.4 million sq. ft.) for approximately $182.8 million and sold 35 properties (4.0 million sq. ft.) for gross proceeds of $223.8 million.
- Debt Structure: Total debt remained relatively stable, though the Company assumed $30.3 million in mortgage debt related to a joint venture acquisition and retired $12.4 million of that debt within the quarter.
Guidance, Outlook, and Risks
- Liquidity and Capital Resources: The Company expects to meet short-term liquidity needs through operating cash flows and investment activities. A significant debt maturity of $150 million (2007 Notes) is due on May 15, 2007; management expects to refinance this via new debt issuance.
- Recent Financing: On May 1, 2007, the Company priced $150 million of senior unsecured debt (2017 Notes II) with a 5.95% coupon, expected to close May 7, 2007. This issuance is intended to refinance the maturing 2007 Notes.
- Development Pipeline: The Company has committed to constructing approximately 3.6 million square feet of industrial properties with estimated total costs of $211.5 million, of which $95.5 million remains to be funded.
- Risk Factors:
- REIT Qualification: Risks exist regarding the characterization of certain service fees and reimbursements. If the IRS challenges these arrangements, the Company could face penalty taxes or fail to maintain REIT status, which would subject it to corporate income tax.
- Market Conditions: Future results depend on occupancy rates, rental rates, and the ability to acquire and sell properties on favorable terms.
- Interest Rate Risk: Approximately 10.8% of total debt is variable rate. The Company utilizes interest rate swaps to manage exposure.
Investor Verification Checklist
- Refinancing Execution: Verify the successful closing of the $150 million 2017 Notes II offering to refinance the $150 million 2007 Notes due May 15, 2007.
- REIT Status Compliance: Monitor any updates regarding the IRS review of service fee arrangements and gross income tests to ensure continued REIT qualification.
- Discontinued Operations Impact: Assess the sustainability of earnings without the one-time gains from the sale of 35 properties included in discontinued operations.
- Development Funding: Track the funding of the remaining $95.5 million required for the 3.6 million square foot development pipeline.
- Joint Venture Consolidation: Review the impact of the January 2007 consolidation of the September 1998 Joint Venture on future financial reporting.