First Industrial Realty Trust, Inc. — FY 2022 Form 10-K
Reporting period: Year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. The Company operates as a REIT primarily through First Industrial, L.P.; the Company owned approximately 97.7% of the Operating Partnership at year-end.
Business context
First Industrial owns, manages, acquires, develops, redevelops and sells U.S. industrial real estate. Its year-end in-service portfolio comprised 416 properties and approximately 62.9 million square feet across 18 states, with approximately 1,000 tenants. Portfolio occupancy was 98.8%; weighted-average lease term was 7.4 years.
Key financial metrics
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Total revenue | $539.9 million | $476.3 million | +13.4% |
| Net income | $381.6 million | $277.2 million | +37.7% |
| Net income attributable to common stockholders | $359.1 million | $271.0 million | +32.5% |
| Diluted earnings per share | $2.72 | $2.09 | +30.1% |
| Funds from operations (FFO), available to common stockholders and participating securities | $301.2 million | $256.0 million | +17.7% |
| Cash provided by operating activities | $410.9 million | $266.9 million | +$144.0 million |
| Same-store net operating income (NOI) | $344.7 million | $311.8 million | +10.6% |
Same-store occupancy averaged 98.0%, up from 96.0%. Same-store revenue rose 8.6%, while same-store property expenses increased 4.4%. Same-store NOI margin was approximately 72.6%, compared with 71.3% in 2021. Total property NOI, calculated as revenue less property expenses, was $396.3 million, or approximately 73.4% of revenue; this is not a GAAP operating margin.
Net income growth included significant joint-venture-related gains: equity in income of joint ventures was $114.9 million, versus a $0.2 million loss in 2021. It included the Company’s share of joint-venture land-sale gain and incentive fees. Separately, gain on sale of real estate was $128.3 million, down from $150.3 million. Interest expense increased 11.1% to $49.0 million; the weighted-average debt balance rose, while the average interest rate edged down to 3.41% from 3.45%.
Cash, debt and liquidity
- Year-end total debt was approximately $2.077 billion, up from $1.617 billion. Approximately 93.1% was fixed rate or effectively fixed through swaps; 6.9% was variable rate.
- Cash and cash equivalents plus restricted cash totaled $145.1 million on the balance sheet. Management cited $132.2 million after excluding the joint-venture partner’s share of consolidated cash. The revolver had $604.1 million available at year-end; availability was approximately $610.1 million on February 15, 2023.
- Operating cash flow was $410.9 million; investing cash outflow was $629.1 million, reflecting acquisitions and development spending; financing cash inflow was $304.5 million. Operating cash flow benefited from $118.0 million of joint venture distributions, principally related to a real estate sale.
- Annual common dividend and Operating Partnership distribution increased 9.3% to $1.18 per share or unit. The Company reported meeting its 2022 REIT minimum distribution requirements.
- Management reported covenant compliance at December 31, 2022 and expects to remain compliant in 2023. Debt maturities include approximately $443.3 million in 2025, $200.4 million in 2026 and $556.4 million in 2027.
Material changes and operating activity
- Cash rental rates on new and renewal leases increased 26.7% overall. For 2022 commencements, reported straight-line rent growth was 48.9% on new leases and 40.3% on renewals; these measures are not the same as cash rent growth.
- The Company placed ten developments totaling approximately 4.1 million square feet into service at a total cost of $447.8 million; these properties were fully leased at year-end. Fourteen projects totaling 3.6 million square feet remained under construction, with estimated total investment of $556.2 million and 11% pre-leased.
- It acquired 11 industrial properties and land for aggregate consideration of approximately $299.1 million, sold nine properties and one land parcel for gross proceeds of $178.3 million, and exited the Cleveland market.
- A joint venture sold 358 acres in Arizona for gross proceeds of $255.3 million. The Company reported its economic share of the sale gain as $84.1 million and earned $31.3 million in incentive fees. The JV also has development commitments and related guarantees.
Outlook, risks and unusual items
No formal numerical earnings guidance is provided in the supplied filing text. Management described U.S. industrial fundamentals as favorable in 2022 and expects average cash rents on renewal and new leases in 2023 to exceed comparative expiring or prior rents, based on low market vacancy and its market outlook. It also expects short-term liquidity needs to be met primarily with operating cash flow and selected asset dispositions, with debt or equity issuance and revolver borrowings as potential additional sources.
- Development execution: Remaining estimated costs to complete the Company’s projects under construction were $263.1 million, with most expected within one year; actual costs may exceed estimates. The joint venture also had substantial construction and infrastructure commitments.
- Interest rates and refinancing: Higher rates could increase costs on variable-rate borrowing and refinancing. Management planned to modify LIBOR-indexed debt agreements and swaps before June 2023 as LIBOR transition approached.
- Leasing and market exposure: Economic weakness, tenant defaults, reduced demand, new supply or lower rents could affect occupancy and cash flows. California contributed 23.6% and Pennsylvania 10.7% of 2022 consolidated NOI.
- Other risks: The filing highlights property valuation and impairment estimates, environmental liabilities, natural catastrophes and incomplete insurance coverage, climate-related costs, joint-venture governance and guarantees, REIT qualification, and cybersecurity and litigation risks.
- Contingencies: Legal proceedings in the ordinary course were not expected to materially affect results, financial position or liquidity. Letters of credit and performance bonds totaled $22.6 million. Identified environmental expenditures of up to approximately $5.9 million were accrued.
The financial statements received unqualified audit opinions, and management and the auditor reported effective internal control over financial reporting. The auditor identified purchase price allocation for 2022 acquisitions as a critical audit matter because it required significant valuation judgment.
Important facts for investors to verify
- How much of the reported net income and FFO growth reflects recurring property operations versus joint-venture land-sale gains and incentive fees?
- Whether expected rent growth, high occupancy and tenant retention persist as leases expire; 7.4% of in-service GLA was scheduled to expire in 2023.
- Development leasing, completion costs and funding needs, particularly for the 3.6 million square feet under construction and the joint venture’s projects.
- Debt refinancing needs and borrowing costs, covenant headroom, and completion of the disclosed LIBOR-related contract amendments.
- Actual liquidity available after joint-venture interests, committed development spending and distributions are considered.