First Industrial Realty Trust, Inc. — Q2 2015 Form 10-Q
Business context and period: Unaudited results for the quarter and six months ended June 30, 2015, compared with the corresponding 2014 periods. The industrial-property REIT owned 630 properties in 25 states, totaling approximately 63.4 million square feet.
Key financial metrics
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Total revenue | $90.5 million | $84.0 million | $180.4 million | $167.9 million |
| Net income attributable to First Industrial | $14.0 million | $4.0 million | $16.4 million | $9.0 million |
| Common-stockholder EPS | $0.13 | $0.04 | $0.15 | $0.06 |
| FFO available to common stockholders and participating securities | $38.7 million | $30.7 million | $60.5 million | $57.2 million |
| Same-store NOI | $59.4 million | $56.8 million | $117.2 million | $111.4 million |
Q2 revenue increased 7.6%; six-month revenue increased 7.4%. Same-store average occupancy was 93.9% in Q2 and 93.3% for the first half, versus 92.4% and 92.6%, respectively, in 2014. The common distribution was $0.1275 per share for Q2 and $0.2550 for the first half.
Cash flow, liquidity and debt: First-half operating cash flow was $74.7 million, investing cash outflow $48.4 million, and financing cash outflow $30.7 million. Cash and cash equivalents were $5.1 million at June 30. Total debt carrying value was approximately $1.350 billion; $427 million was available under the $625 million revolving credit facility at quarter-end. Fixed-rate debt, including debt hedged to fixed, was 85.9% of total debt. The company reported covenant compliance.
Material changes and unusual items
- First-half net income rose versus 2014, helped by $10.1 million of real-estate sale gains and lower interest expense; 2014 also included preferred-stock dividends and redemption costs not present in 2015.
- The company sold 12 properties totaling approximately 0.9 million square feet for gross proceeds of about $42.6 million. Sales generated a $10.1 million gain. Under newly adopted discontinued-operations guidance, 2015 property sales were reported in continuing operations.
- A $11.5 million settlement loss on interest-rate protection agreements affected first-half results and cash flow. In Q2, the related agreements contributed a $1.4 million mark-to-market gain. The company said the hedges were settled after a planned unsecured-debt offering was no longer considered probable within the designated period.
- Acquired two properties totaling approximately 0.2 million square feet and land parcels for about $26.5 million during the first half. Seven buildings totaling approximately 1.4 million square feet were under construction; estimated total investment was $102.3 million, with $53.9 million remaining to fund.
- The $159.7 million 5.75% notes mature January 15, 2016; $81.7 million of mortgage debt also matures or was expected to be prepaid before June 30, 2016. Management expected to address these obligations with credit-facility borrowings or other long-term unsecured debt.
Outlook, risks and contingencies
No numerical earnings or operating guidance was provided. Management planned to continue selectively marketing properties for sale and expected liquidity needs to be met through operating cash flow, asset dispositions, the credit facility, and, subject to market conditions, debt or equity issuance. It anticipated covenant compliance for the remainder of 2015.
Management highlighted exposure to economic and industrial-property market conditions, occupancy and rental rates, tenant creditworthiness, development costs and delays, financing availability and interest rates, refinancing, covenant compliance, competition, environmental liabilities, and the ability to maintain REIT status. Legal matters arising in the normal course were not expected to materially affect financial position, operations, or liquidity. The filing reported no legal proceedings, defaults, or new risk-factor changes. Subsequent to quarter-end through August 3, the company sold one property and one land parcel for approximately $1.3 million.
Important facts for investors to verify
- How the 2016 notes and near-term mortgage maturities will be refinanced or repaid, and the cost and availability of replacement financing.
- Leasing, occupancy, same-store NOI, renewal retention, and the effect of free-rent concessions and tenant turnover costs on future cash rents.
- Development completion costs and leasing progress for the seven buildings under construction, including the remaining $53.9 million funding requirement.
- The earnings and cash-flow effects of property dispositions and the settled interest-rate agreements; distinguish recurring property performance from gains and hedge-related items.
- Liquidity after dividends and development spending, and ongoing compliance with debt covenants and REIT distribution requirements.