First Industrial Realty Trust, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. First Industrial is an industrial-property REIT operating primarily through First Industrial, L.P. At quarter-end, it owned 462 properties across 21 states, comprising approximately 63.4 million square feet. The Company held an approximately 97.8% interest in the Operating Partnership.
Key financial metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $104.1 million | $98.8 million | $208.6 million | $198.6 million |
| Net income | $40.7 million | $46.4 million | $65.1 million | $83.9 million |
| Net income per share | $0.31 | $0.36 | $0.50 | $0.67 |
| FFO available to common stockholders and participating securities | $55.1 million | $48.5 million | $107.6 million | $94.9 million |
| Same-store NOI | $70.2 million | $68.1 million | $139.5 million | $135.3 million |
Q2 same-store NOI increased 3.0%; average daily same-store occupancy was 96.7%, compared with 97.0% a year earlier. Six-month same-store occupancy was 96.9%, versus 97.1%. FFO and NOI are non-GAAP supplemental measures, not substitutes for GAAP results or cash flow.
For the first six months, operating cash flow was $120.1 million, versus $93.8 million; investing cash flow was negative $157.6 million, versus negative $139.5 million; and financing cash flow was positive $20.5 million, versus positive $76.7 million. Cash, cash equivalents and restricted cash ended the period at $33.4 million, down $16.9 million since year-end.
At June 30, total debt was approximately $1.389 billion, excluding unamortized debt issuance costs; balance-sheet debt was lower after those costs. Cash was $33.4 million and additional credit-facility capacity was $565.4 million. The company reported $1.2308 billion, or 88.6%, of fixed-rate debt, including term loans swapped to fixed rates; $158.0 million, or 11.4%, was variable-rate. Total assets were $3.255 billion and total liabilities were $1.580 billion. Quarterly dividends were $0.23 per share/unit.
Material changes and notable items
- Revenue rose 5.3% in Q2 and 5.0% for the first half, principally from higher same-store rents and recoveries, acquired properties, and increased occupancy at developments. Same-store revenue grew 3.2% in Q2 and 3.5% year to date.
- Net income and EPS declined year over year, despite revenue growth. The main comparison was substantially lower real-estate sale gains: $1.1 million in Q2 2019 versus $25.1 million in Q2 2018, and $0.9 million for the first half versus $45.2 million.
- Equity income from the joint venture was $15.5 million in Q2 and $16.4 million for the first half, compared with near zero in the prior-year periods. It included the company’s share of land-sale gains and a $4.9 million accrued incentive fee. The incentive fee is subject to final joint-venture performance and is expected to be paid toward the venture’s end.
- The company acquired four industrial properties and four land parcels in the first half, and sold two properties. Separately, its joint venture sold three parcels totaling 236 acres. The company’s six-month share of joint-venture gain included amounts offset against the basis of land it purchased from the venture.
- The company had 14 properties totaling approximately 4.5 million square feet under construction. Estimated total investment was $336.5 million, of which approximately $188.4 million remained to be funded; actual completion costs could exceed estimates.
- ASC 842 lease accounting was adopted January 1, 2019, adding $11.9 million of right-of-use assets and $12.3 million of lease liabilities at quarter-end. Certain presentation changes affect comparability, though the filing says the 2018 reclassification had no effect on results.
Outlook, liquidity and risks
Management said it expects operating cash flow and other liquidity sources to meet near-term needs. It anticipated paying or prepaying $56.8 million of mortgage debt before June 30, 2020 using credit-facility borrowings, excess cash flow and/or asset sales. Longer-term needs—including acquisitions, development and debt maturities—may be funded through asset sales, secured or unsecured borrowing, or equity and debt issuance, subject to market conditions. Management expected covenant compliance for the remainder of 2019 and reported compliance at June 30.
Debt maturities were concentrated in 2021 ($425.1 million) and 2022 ($341.6 million). The company cited risks including economic and industrial-property market changes, tenant defaults or non-renewals, occupancy and rent pressure, construction cost overruns or delays, financing availability and interest rates, covenant compliance, and REIT qualification. It reported no material change to previously disclosed risk factors and no legal proceedings expected to materially affect the company.
Subsequent to quarter-end, the Operating Partnership issued $150 million of 3.97% guaranteed senior notes due 2029. From July 1 through July 26, the company also acquired three properties and two land parcels for approximately $31.7 million and sold one property and one land parcel for approximately $6.2 million. These are post-quarter events, not June 30 balances.
Important facts for investors to verify
- Whether operating growth and leasing momentum persist, given slightly lower same-store occupancy and the reliance of reported net income on property and joint-venture sale gains.
- The joint venture’s final performance, incentive-fee calculation and payment timing; the $4.9 million accrued fee was not yet paid.
- Funding and completion costs for the development pipeline, including the approximately $188.4 million still to be funded and potential cost overruns.
- Liquidity and refinancing plans for the 2021–2022 maturity concentration, including the impact of the post-quarter $150 million note issuance.
- Credit-facility availability, covenant headroom, interest-rate exposure and the effect of refinancing or any credit-rating change.
- Comparability of 2019 and 2018 results after lease-accounting presentation changes, and the assumptions behind non-GAAP FFO and same-store NOI.