First Industrial Realty Trust, Inc. — Q3 2015 Form 10-Q
Business context and reporting period
Quarter ended September 30, 2015. First Industrial is a REIT focused on owning, managing, acquiring, selling, developing and redeveloping industrial properties. At quarter-end it owned 629 properties in 25 states, totaling approximately 63.9 million square feet. The Company owned approximately 96.2% of First Industrial, L.P.; the entities report as one managed enterprise.
Key financial metrics
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $92.2 million | $86.4 million | $272.6 million | $254.3 million |
| Net income | $14.5 million | $22.2 million | $31.5 million | $31.5 million |
| Net income available to common stockholders | $13.9 million | $21.3 million | $30.3 million | $27.8 million |
| Basic and diluted EPS | $0.13 | $0.19 | $0.27 | $0.25 |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $120.7 million | $95.9 million |
| FFO available to common stockholders and participating securities | $39.1 million | $35.5 million | $99.6 million | $92.8 million |
| Same-store NOI | $60.8 million | $57.4 million | $177.9 million | $168.5 million |
For Q3, same-store occupancy averaged 94.6%, versus 93.3% a year earlier; for the nine-month period it averaged 93.8%, versus 92.9%. Same-store revenue rose 2.2% in Q3 and 2.5% year to date. Same-store NOI increased approximately 5.9% in Q3 and 5.6% year to date. Distributions were $0.1275 per share for Q3 and $0.3825 for the first nine months, up from $0.1025 and $0.3075, respectively, in 2014.
At September 30, cash and cash equivalents were $66.9 million. Total indebtedness was approximately $1.471 billion: $590.9 million of mortgages, $364.9 million of senior unsecured notes, $460.0 million of term loans and $55.0 million drawn on the revolving credit facility. The company reported $563.0 million of additional revolver capacity. Approximately 96.3% of debt was fixed-rate, including term debt hedged with swaps. Total assets were $2.707 billion and total liabilities were $1.627 billion.
Material changes versus the prior comparable period
- Revenue grew 6.7% in Q3 and 7.2% over nine months. Management attributed growth to improved occupancy in same-store and redeveloped properties and contributions from acquisitions, partly offset by properties sold.
- Q3 net income declined from $22.2 million to $14.5 million, while income from continuing operations rose from $8.3 million to $14.5 million. The prior-year quarter included $13.4 million of gains from property sales reported in discontinued operations; 2015 property disposition gains are generally included in continuing operations under the newly adopted discontinued-operations standard.
- Nine-month net income was essentially unchanged. Lower interest expense and higher same-store and redevelopment revenue were offset in part by an $11.5 million loss on the settlement and mark-to-market reclassification of interest-rate protection agreements, lower joint-venture income, and the absence of 2014 discontinued-operation gains.
- Debt increased by approximately $121 million from year-end 2014, principally reflecting a new $260 million term loan and changes in revolver borrowings. The company used the loan proceeds in its broader debt and capital program.
Outlook, risks and unusual items
- No specific earnings or operating guidance was provided. Management expected short-term liquidity needs to be met through operating cash flow, asset sales and available financing. The $159.7 million 5.75% notes due January 2016 and $81.3 million of mortgage debt maturing or expected to be prepaid by September 2016 were expected to be addressed with revolver borrowings or other long-term unsecured debt.
- The revolving credit facility is $625 million, matures in March 2019, and has an option to extend by one year subject to restrictions. The new $260 million seven-year term loan bears variable-rate interest, hedged to fixed through interest-rate protection agreements. Management reported covenant compliance at quarter-end and anticipated continued compliance for the rest of 2015.
- In the first nine months, the company acquired three properties totaling approximately 0.6 million square feet and land parcels for about $73.0 million; it sold 15 properties totaling approximately 1.0 million square feet and land parcels for gross proceeds of about $50.1 million, recognizing $13.1 million in gains. Seven properties totaling 0.3 million square feet were held for sale at quarter-end; sale completion was not assured.
- Nine industrial buildings totaling approximately 2.2 million square feet were under construction, with estimated total investment of $148.2 million and approximately $73.1 million remaining to fund. Actual completion costs may exceed estimates.
- After quarter-end through October 30, the company acquired three properties and two land parcels for approximately $71.2 million, sold 29 properties for approximately $28.2 million, and prepaid $22.9 million of mortgage debt.
- Key risks include economic and industrial-property market conditions, tenant credit and lease-up, acquisition and development execution and costs, asset-sale conditions, refinancing and interest rates, access to capital, covenant compliance, REIT qualification and environmental liabilities. Management reported no material change to previously disclosed risk factors and no legal proceedings expected to materially affect the company.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the 2016 note maturity refinancing plan and the availability, pricing and covenant headroom of unsecured financing.
- Review property-level occupancy, rent growth, tenant retention and lease-up progress, including the reported leasing activity and development pipeline.
- Assess the expected costs, timing and funding of projects under construction, and whether additional asset sales are completed on acceptable terms.
- Evaluate recurring operating performance separately from disposition gains and the $11.5 million interest-rate hedge settlement/reclassification loss; FFO and NOI are non-GAAP measures and are not substitutes for cash flow or net income.
- Track interest-rate exposure, derivative valuations and the terms of debt covenants; management’s compliance assessment does not eliminate the risk of future constraint or higher borrowing costs.