Business Context and Reporting Period
Company: First Industrial Realty Trust, Inc. (First Industrial)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2005
Overview: First Industrial is a Maryland-domiciled Real Estate Investment Trust (REIT) focused on industrial properties. As of September 30, 2005, the Company owned 908 industrial properties (including developments) across 27 states, comprising approximately 75.9 million square feet of gross leasable area (GLA). Operations are conducted primarily through First Industrial, L.P., in which the Company holds an approximate 86.8% interest.
Key Financial Metrics
All figures in thousands, except per share data.
| Metric | Three Months Ended Sep 30, 2005 | Nine Months Ended Sep 30, 2005 |
|---|---|---|
| Total Revenues | $101,826 | $269,334 |
| Net Income | $23,494 | $61,639 |
| Net Income Available to Common Stockholders | $21,184 | $54,709 |
| Diluted EPS (Common) | $0.50 | $1.29 |
| Dividends Declared per Common Share | $0.695 | $2.085 |
| Net Cash Provided by Operating Activities | N/A | $37,027 |
| Net Cash Used in Investing Activities | N/A | ($146,495) |
| Net Cash Provided by Financing Activities | N/A | $104,544 |
| Total Assets | $2,939,892 | $2,939,892 |
| Total Liabilities | $1,959,625 | $1,959,625 |
| Total Debt (Mortgage + Senior Unsecured + Line of Credit) | $1,787,106 | $1,787,106 |
| Cash and Cash Equivalents | $0 | $0 |
Material Changes vs. Prior Comparable Period
- Revenue Growth: Total revenues increased 36.3% for the three months and 21.2% for the nine months ended September 30, 2005, compared to the same periods in 2004. This was driven by acquisitions (165 properties acquired since Dec 31, 2003) and build-to-suit-for-sale revenues ($10.7 million for the nine months).
- Net Income Decline: Net income available to common stockholders decreased 36.8% for the three months and 22.5% for the nine months compared to 2004. The decline is primarily attributed to a significant decrease in "Equity in Income of Joint Ventures" (down $32.8 million for the quarter and $33.6 million for the nine months) due to the sale of all properties in the December 2001 Joint Venture in the prior year.
- Discontinued Operations: Income from discontinued operations was substantial, driven by gains on the sale of 66 industrial properties ($85.7 million gain for the nine months). The Company sold 66 properties for gross proceeds of approximately $472.6 million during the nine-month period.
- Expense Increases: General and administrative expenses increased 37.5% for the quarter and 38.5% for the nine months, largely due to increased employee compensation and professional services. Interest expense increased due to a higher weighted average debt balance and interest rate.
- Restatement: The Company restated prior period financials (2004) to reallocate income tax benefits/expense between continuing operations, discontinued operations, and gains on sale of real estate, rather than allocating the entire amount to discontinued operations.
Guidance, Outlook, Risks, and Unusual Items
- Capital Strategy: The Company continues to redeploy capital from lower-yield properties into higher-yield acquisitions and developments. It utilizes proceeds from property sales, unsecured lines of credit, and equity issuances to fund growth.
- Debt and Liquidity: The Company amended its unsecured line of credit in August 2005, increasing capacity to $500 million (with an option to increase to $600 million) and extending maturity to 2008. As of September 30, 2005, $380.5 million was drawn. Approximately 78.7% of total debt is fixed-rate.
- Subsequent Events:
- Issued 6,000,000 depositary shares of Series I Preferred Stock for $150 million in a private placement (Nov 8, 2005).
- Acquired 18 additional properties for $56.4 million and sold 4 properties for $11.9 million between Oct 1 and Nov 2, 2005.
- Entered into a new interest rate protection agreement (Oct 17, 2005) for a build-to-suit project.
- Risks: Key risks include changes in economic conditions, interest rate fluctuations (21.3% of debt is variable), tenant credit risk, and the ability to access external capital on favorable terms. The Company faces competition for acquisitions and development opportunities.
- Unusual Items: The Company recognized a $0.7 million gain on the mark-to-market of an interest rate protection agreement and a $0.08 million gain on the early retirement of debt. Significant gains on property sales are classified as discontinued operations.
Investor Verification Checklist
- Joint Venture Income: Verify the sustainability of earnings given the one-time nature of the prior year's joint venture sale gain which inflated 2004 comparables.
- Debt Maturities: Review the schedule of debt maturities, noting $50.5 million due in the remainder of 2005 and $157.4 million due in 2006.
- Occupancy Rates: Confirm current occupancy rates for "Same Store" properties (89.9% as of Sep 30, 2005) and the pipeline for properties "Not In Service."
- Dividend Coverage: Assess the ability to maintain the $0.695 quarterly dividend given the decline in net income available to common stockholders.
- Restatement Impact: Ensure analysis of year-over-year growth accounts for the tax allocation restatement affecting 2004 figures.