First Industrial Realty Trust, Inc. — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. First Industrial is an industrial-property REIT. At quarter-end it owned 653 properties across 25 states, totaling approximately 64.3 million square feet.
Financial and operating performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Total revenue | $86.3 million | $81.8 million | $172.3 million | $162.3 million |
| Net income | $4.2 million | $11.4 million | $9.3 million | $10.2 million |
| Net income available to common stockholders and participating securities | $4.0 million | $5.3 million | $6.5 million | $0.6 million |
| Basic and diluted EPS | $0.04 | $0.05 | $0.06 | $0.01 |
| Funds from operations (FFO; non-GAAP) | $30.7 million | $21.9 million | $57.2 million | $46.4 million |
| Same-store NOI (non-GAAP) | $57.7 million | $56.3 million | $113.3 million | $110.6 million |
- Revenue rose 5.4% in Q2 and 6.2% year to date. Same-store revenue growth reflected higher occupancy and tenant recoveries, among other factors; average same-store occupancy was 91.5% in Q2 and 91.7% for the first half, versus 90.3% and 90.0%, respectively, in 2013.
- Same-store NOI increased approximately 2.4% in both comparison periods. Six-month property expenses rose 11.2%, faster than total revenue, with management citing unusually high snow-removal costs from the harsh winter.
- GAAP net income declined year over year, especially in Q2, largely because 2013 included substantially larger real-estate sale gains. Continuing-operations income improved to $3.6 million in Q2 from a $1.4 million loss, and to $7.9 million for six months from a $0.5 million loss.
- Six-month operating cash flow was $51.6 million, compared with $45.7 million in 2013. Investing cash use was $47.9 million; financing cash use was $6.5 million. Capital spending and leasing costs are included among investing outflows.
- Distributions per share were $0.1025 for Q2 and $0.2050 for six months, up from $0.0850 and $0.1700, respectively.
Balance sheet, debt and liquidity
- At June 30, total assets were $2.591 billion and total liabilities were $1.513 billion. Cash and cash equivalents were $4.8 million.
- Debt carrying value totaled approximately $1.383 billion: $631.1 million mortgage loans, $364.8 million senior unsecured notes, a $200 million unsecured term loan, and $187 million drawn on the unsecured credit facility. Debt was approximately $1.297 billion at year-end 2013.
- The company reported $438 million of additional credit-facility capacity at June 30 ($400.9 million as of July 29). It expected to fund $25.3 million of mortgage obligations maturing or expected to be prepaid by June 30, 2015 through facility borrowings.
- A new seven-year, $200 million term loan bears variable LIBOR-based interest; swaps fix its LIBOR component at a weighted-average 2.29%. Overall, 86.5% of debt was fixed-rate or effectively fixed at quarter-end. Management estimated that a 10% rise in LIBOR would have increased first-half interest expense by about $0.01 million, based on average floating-rate debt.
- Scheduled debt principal payments total $251.9 million in 2016 and $355.7 million in 2017. Management reported covenant compliance and anticipated compliance through the rest of 2014; access to borrowings could be constrained by covenant failures.
Material changes, outlook and risks
- During the first half, the company acquired three industrial properties totaling approximately 0.5 million square feet, plus land, for about $31.1 million. It sold five properties totaling approximately 0.1 million square feet for gross proceeds of about $4.8 million and recorded $1.1 million in gains.
- The company redeemed all Series F and Series G preferred shares for $75 million in total; no preferred shares remained outstanding at June 30. It also repaid $81.8 million of 2014 notes at maturity and prepaid $40.3 million of mortgage loans, recognizing a $0.6 million debt-retirement loss.
- Leasing activity included 3.3 million square feet signed in Q2. Weighted-average GAAP rent growth was 8.1% across Q2 leasing and 8.2% year to date; renewal retention was 69.5% and 67.3%, respectively.
- Management said it expected operating cash flows and selected asset dispositions to help fund operating needs, capital projects, debt service and distributions. It planned to continue selectively marketing properties for sale. No numerical earnings or FFO guidance was provided.
- Five buildings totaling approximately 1.2 million square feet were under construction; estimated total costs were $64.7 million, with $44.2 million remaining to fund. Actual completion costs could exceed estimates.
- From July 1 through July 29, the company sold seven properties and a land parcel for approximately $33.2 million. No acquisitions occurred during that interval.
- Key disclosed risks include leasing and tenant credit, economic and industrial-property market conditions, interest rates and refinancing, access to capital, covenant compliance, development delays or cost overruns, environmental liabilities, and REIT qualification. Management said ordinary-course legal matters were not expected to materially affect the company. Disclosure controls were deemed effective.
Important facts for investors to verify
- Whether improved occupancy and same-store NOI persist, and how expense growth compares with rent and recovery growth.
- Whether planned property sales, construction spending and leasing-up of developments deliver the expected cash flow and returns.
- Debt maturities, available credit capacity, covenant headroom, borrowing costs and the company’s refinancing needs.
- The sustainability of distributions relative to operating cash flow and capital requirements; FFO and NOI are non-GAAP measures, not substitutes for cash flow.
- The effects of property dispositions and gains on comparisons with prior periods, and the costs and timing of remaining construction commitments.