First Industrial Realty Trust, Inc. — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013. The company is an industrial-property REIT; it owned 697 properties totaling approximately 62.5 million square feet in 25 states.
Financial performance
| Metric | Q3 2013 | Q3 2012 | First nine months 2013 | First nine months 2012 |
|---|---|---|---|---|
| Total revenue | $83.4 million | $78.6 million | $250.5 million | $239.0 million |
| Net income (loss) | $8.8 million | $9.2 million | $19.0 million | $(0.1) million |
| Net income (loss) attributable to common stockholders and participating securities | $5.0 million | $4.2 million | $5.6 million | $(13.6) million |
| Basic and diluted EPS attributable to common stockholders | $0.05 | $0.04 | $0.05 | $(0.15) |
| Operating cash flow | Not presented by quarter | Not presented by quarter | $85.6 million | $90.8 million |
| FFO available to common stockholders and participating securities | $28.4 million | $27.9 million | $74.8 million | $62.9 million |
| Same-store NOI | $55.9 million | $54.8 million | $168.0 million | $163.9 million |
Revenue increased 6.1% in Q3 and 4.8% year to date. Same-store occupancy averaged 89.8% in Q3 versus 87.4%, and 89.5% year to date versus 87.9%. Same-store revenue growth reflected higher occupancy and tenant recoveries; same-store property expenses rose 9.8% in Q3 and 7.3% year to date, outpacing same-store revenue growth. These figures indicate pressure on property-level margins.
Reported earnings included gains on property sales: discontinued-operations gains of $5.2 million in Q3 and $15.7 million year to date. Year-to-date results also included $2.5 million of continuing-operations impairment charges and $6.2 million of losses from debt retirement. The company recorded a $1.64 million reduction to depreciation and amortization for an adjustment relating to prior periods; management said it was not material to the anticipated full year, current period, or any previous period.
Balance sheet, debt and liquidity
- At September 30, 2013, cash and cash equivalents were $7.3 million; total assets were $2.61 billion and total liabilities were $1.45 billion.
- Debt carrying value was approximately $1.33 billion: $713.0 million of mortgage loans, $445.5 million of senior unsecured notes and $171.0 million drawn on the unsecured credit facility. Debt was 87.1% fixed-rate and 12.9% variable-rate.
- The amended revolving facility has $625 million of capacity, matures September 29, 2017, and had $454 million available at quarter-end. Borrowings then carried a 1.631% weighted-average rate. The company reported covenant compliance.
- Scheduled debt maturities and principal payments total $135.1 million in 2014, including $81.8 million of notes due June 2014 and $21.8 million of mortgage loans maturing before September 30, 2014. Management expected to use the credit facility to meet these near-term maturities.
- For the first nine months, operating cash flow was $85.6 million, investing cash flow was a $65.2 million outflow, and financing cash flow was a $17.9 million outflow. Year-end cash increased $2.4 million to $7.3 million.
- The company paid $150 million to redeem Series J and K preferred stock, and raised approximately $173.8 million net through common-stock offerings. Common distributions accrued at $0.255 per share for the first nine months.
Changes, outlook and risks
- During the first nine months, the company acquired one industrial property and land parcels for approximately $47.3 million, and sold 19 properties totaling approximately 1.7 million square feet plus land parcels. Net sale proceeds were approximately $65.8 million.
- Year-to-date leasing covered 9.8 million square feet. GAAP-basis rent growth was 2.9% overall: 7.6% on renewals and negative 7.4% on new leases. Weighted-average retention on renewals was 75.5%.
- Four development buildings totaling approximately 1.8 million square feet were committed, with estimated total construction costs of $128.6 million and approximately $34.2 million still to fund. Actual completion costs could exceed estimates.
- Management anticipated funding ongoing needs through operating cash flow, asset dispositions, debt and, subject to market conditions and restrictions, equity issuance. It planned to continue selectively marketing properties. The filing provides no specific earnings or FFO guidance.
- Key stated risks include economic and industrial-property market conditions, occupancy and tenant credit, interest rates and access to capital, covenant compliance, competition, acquisition and disposition execution, development costs and timing, and property valuations. A 10% change in variable borrowing rates was estimated to change annual earnings and cash flow by approximately $0.3 million.
- The company paid the agreed IRS refund settlement and related interest during 2013. It reported no legal proceedings and no changes to its risk factors in this filing. Management said disclosure controls were effective.
- After quarter-end through November 1, 2013, the company repaid $32.0 million of mortgage loans, acquired one property for approximately $26.3 million, and sold three properties and a land parcel for approximately $4.6 million.
Important facts for investors to verify
- Whether improved occupancy and renewal rent growth can offset higher property expenses and negative rent growth on new leases.
- Whether planned dispositions and operating cash flow can fund development commitments and the 2014 debt maturities without materially increasing borrowing or equity issuance.
- How much reported earnings depend on property-sale gains, and how underlying recurring results compare with FFO and same-store NOI.
- Whether development projects remain within the estimated budget and schedule, and whether credit-facility availability and covenant compliance are maintained.
- The effects of common-stock issuance and preferred-stock redemptions on per-share results, distributions and the capital structure.