First Industrial Realty Trust, Inc. — Q1 2019 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2019. The company is a REIT focused on owning, managing, acquiring, developing, and selling industrial real estate. At quarter-end it owned 458 properties across 21 states, totaling approximately 63.2 million square feet. Operations are conducted primarily through First Industrial, L.P.; the company held an approximately 97.8% interest in the partnership.
Financial and operating performance
- Revenue: $104.5 million, up 4.8% from $99.8 million. Lease revenue was $103.6 million.
- Profit: Net income was $24.3 million, versus $37.5 million; diluted EPS was $0.19, versus $0.30.
- FFO: $52.5 million, up from $46.3 million. FFO is a non-GAAP measure.
- Same-store operations: Average occupancy was 97.1% in both periods. Same-store NOI increased 3.2% to $69.4 million; same-store revenue rose 3.9%, while property expenses increased 6.7%.
- Leasing: 3.5 million square feet commenced during the quarter. Reported straight-line rent growth was 16.7% weighted average; renewal leases had 16.0% growth and 86.0% tenant retention.
- Cash flow: Operating cash flow was $41.7 million, compared with $37.0 million. Investing used $57.0 million, compared with $75.2 million; financing used $4.2 million, compared with providing $60.1 million in Q1 2018.
- Cash and liquidity: Cash and cash equivalents were $20.4 million and restricted cash was $10.5 million at quarter-end. The company reported $621.4 million of remaining credit-facility availability at March 31, and approximately $592.4 million at April 26.
- Debt: Debt totaled approximately $1.334 billion, excluding unamortized issuance costs. The company reported 92.4% fixed-rate and 7.6% variable-rate debt, with $460 million of term loans effectively fixed through swaps. Debt fair value was estimated at $1.360 billion.
Material changes versus the prior comparable period
- Revenue increased $4.8 million, principally from higher same-store rental rates and recoveries, acquired properties, and improved occupancy at developments.
- Net income declined mainly because Q1 2018 included a $20.1 million real estate sale gain; Q1 2019 recorded a $0.2 million sale loss. Q1 2018 also included a $2.8 million impairment charge, while Q1 2019 had none.
- General and administrative expense decreased 16.5%, largely because Q1 2018 included $1.3 million of severance expense. Depreciation and amortization increased 6.1% to $30.1 million.
- Operating cash flow improved by $4.7 million, reflecting higher NOI, partly offset by lower NOI from property dispositions. Investing outflow decreased as acquisitions and development spending fell, partly offset by lower disposition proceeds.
- The company adopted the new lease accounting standard on January 1, 2019, recognizing $12.0 million of operating lease right-of-use assets and $12.4 million of lease liabilities. The filing says the adoption did not materially change lessor revenue recognition.
Outlook, commentary, risks, and unusual items
- No specific earnings or operating guidance is provided. Management expects short-term needs to be met through operating cash flow, selected asset sales, and available credit; it expects to fund longer-term needs through asset sales and debt or equity financing, subject to market conditions.
- Management anticipated paying or prepaying $35.3 million of mortgage debt before March 31, 2020 and stated it expected to remain in compliance with financial covenants for the remainder of 2019. The company reported covenant compliance at March 31.
- Fourteen industrial properties totaling approximately 3.9 million square feet were under construction. Estimated total investment was $297.5 million, with approximately $193.8 million remaining to be funded; actual completion costs could exceed estimates.
- The company acquired one industrial property and two land parcels for approximately $18.3 million, sold one property for gross proceeds of $10.5 million, and repaid $72.1 million of mortgage loans. It declared a quarterly dividend of $0.23 per share or unit, up 5.7% from the 2018 quarterly rate.
- Debt maturities are concentrated in 2021 and 2022, with scheduled principal of approximately $369.1 million and $341.6 million, respectively. Interest rates, refinancing access, tenant defaults or non-renewals, occupancy and rental rates, development costs and delays, and property-market conditions are identified risks.
- The filing reports no material change to previously disclosed risk factors and no material legal proceedings. Management stated disclosure controls were effective.
Important facts for investors to verify
- Whether same-store rent and NOI growth can continue as property expenses rise faster than same-store revenue.
- Whether the construction pipeline is completed within budget and on schedule, and how remaining funding will be sourced.
- Available credit-facility capacity and refinancing plans for the 2021–2022 debt maturities, including covenant headroom.
- The sustainability of the increased $0.23 quarterly dividend relative to cash flow, capital spending, and debt obligations.
- How reported performance compares using GAAP net income and non-GAAP FFO, given the prior-period property-sale gain and current-period joint-venture sale activity.