First Industrial Realty Trust, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. The filing combines the Company and its operating partnership, which are managed as one enterprise. First Industrial owned 545 industrial properties across 24 states, totaling approximately 62.4 million square feet. Unless noted, financial amounts below are in millions.
Key financial results
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $93.6 | $92.2 | $280.0 | $272.6 |
| Net income | $32.7 | $14.5 | $101.1 | $31.5 |
| Net income attributable to common shareholders | $31.5 | $13.9 | $97.4 | $30.3 |
| Diluted earnings per share | $0.27 | $0.13 | $0.85 | $0.27 |
| Funds from operations (FFO), as reported by the Company | $42.9 | $39.1 | $123.7 | $99.6 |
| Same-store net operating income (NOI) | $61.3 | $59.2 | $183.4 | $171.9 |
- Revenue and operating performance: Revenue rose 1.5% in Q3 and 2.7% year to date. Same-store revenue increased 2.5% and 2.6%, respectively, primarily from higher rental rates and tenant recoveries. Same-store NOI increased 3.5% in Q3 and 6.7% year to date. Same-store average daily occupancy was 94.3% in Q3 2016 versus 95.3% a year earlier; year-to-date occupancy was 94.7% versus 94.6%.
- Profit and unusual items: Net income growth was substantially affected by real estate sale gains: $16.8 million in Q3 and $60.8 million year to date, compared with $3.0 million and $13.1 million in the comparable 2015 periods. Excluding the effects of sale gains, reported net income is not a direct measure of recurring operating performance. Interest expense fell 13.6% in Q3 and 8.9% year to date, reflecting lower average rates and capitalized interest, partly offset by debt balances and development activity.
- Cash flow: For the first nine months, operating cash flow was $127.2 million versus $120.7 million. Investing used $68.1 million versus $136.1 million, including $95.2 million of property acquisitions, $117.6 million of real estate additions and tenant improvements, and $133.6 million of net property sale proceeds. Financing used $55.0 million versus $72.8 million provided in 2015. Cash and cash equivalents were $8.1 million at quarter-end.
- Debt and liquidity: Debt carrying amount was approximately $1.332 billion at September 30, down from approximately $1.442 billion at December 31, 2015. The company reported $13.4 million of restricted cash and $459.8 million available under its unsecured credit facility at quarter-end; availability was approximately $419.8 million on October 27. It had $163.5 million outstanding on the facility at a 1.67% weighted average rate. About 87.7% of debt was fixed-rate or effectively fixed through swaps. The Company reported covenant compliance.
Material changes and business activity
- During the first nine months, the Company acquired four properties totaling approximately 0.5 million square feet and land parcels for approximately $98.6 million, and sold 50 properties totaling approximately 2.6 million square feet for gross proceeds of approximately $139.0 million.
- Six developments totaling approximately 1.6 million square feet, costing approximately $99.7 million, were placed in service and were 100% leased at September 30. Six properties totaling approximately 2.5 million square feet remained under construction, with estimated total investment of $157.8 million and approximately $94.4 million still to fund.
- The Company issued 5.6 million common shares in a public offering, generating approximately $124.9 million net proceeds. It repaid $159.7 million of notes at maturity and paid off a $57.9 million mortgage loan.
- Quarterly dividends/distributions increased 49% year over year, to $0.19 per share/unit from $0.1275. Year-to-date declared distributions were $0.57 per share/unit.
Outlook, risks and contingencies
- Management provided no specific earnings or operating guidance in the supplied filing text. It expected to fund the $101.9 million of 5.95% notes due May 15, 2017 through credit-facility borrowings, unsecured debt issuance or selected asset sales. Other anticipated liquidity sources include operating cash flow, asset dispositions, debt and equity issuance, and credit-facility borrowings.
- Management said it expected to remain in compliance with financial covenants through the remainder of 2016. A downgrade could increase borrowing costs and limit access to some markets. Market, interest-rate, refinancing, tenant default/non-renewal, occupancy, rental-rate, acquisition and development risks are described; actual construction costs may exceed estimates.
- Derivative agreements had a fair-value liability of approximately $22.3 million for interest-rate swaps. The filing states that the Company had not posted collateral and was not in breach of derivative provisions. Legal proceedings were reported as none; management said ordinary-course legal actions were not expected to materially affect financial condition, operations or liquidity.
- One industrial property was acquired after quarter-end through October 27 for approximately $8.4 million. Disclosure controls were reported effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring leasing and operating performance versus real estate sale gains; review FFO and NOI reconciliations as non-GAAP measures.
- The leasing outlook and occupancy trends, particularly the Q3 same-store occupancy decline, and whether rental-rate gains and tenant recoveries continue.
- Funding and refinancing plans for the $101.9 million 2017 notes, facility capacity, debt maturities, covenant headroom and sensitivity to interest rates or credit-rating changes.
- Construction completion, lease-up, remaining funding needs and potential cost overruns for the properties under development.
- The effect of continued property sales and acquisitions on recurring rent, portfolio quality, liquidity and distributions.