First Industrial Realty Trust, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. The company is an industrial-property REIT. At quarter-end it owned 738 properties across 26 U.S. states and one Canadian province, totaling approximately 66.1 million square feet. Unless otherwise noted, financial amounts below are in USD millions.
Financial performance and position
- Revenue: $83.1, up 1.6% from $81.8 in Q1 2011. Same-store revenue was essentially flat at $82.1; average same-store occupancy increased to 86.0% from 85.1%.
- Profit and earnings: Net income was $1.1 versus a net loss of $4.4. After preferred dividends, the common-stockholder loss was $3.5, or $0.04 per share, compared with a loss of $8.7, or $0.12 per share. Continuing-operations loss attributable to common stockholders improved to $9.1 from $10.7.
- Key operating costs: Property expenses declined 5.5% to $27.8, primarily due to lower snow-removal costs. Depreciation and other amortization increased 19.5% to $32.9, including catch-up depreciation on certain properties no longer classified as held for sale. Interest expense fell 15.3% to $22.7.
- Cash flow: Operating cash flow was $30.2, compared with $6.5 in Q1 2011. Investing activities used $1.4 and financing activities used $36.9. Cash and cash equivalents declined to $2.1 from $10.2 at year-end.
- FFO: Funds from operations available to common stockholders and participating securities, a non-GAAP measure, rose to $22.0 from $14.5.
- Debt and liquidity: Debt carrying value was $1,442.3 at March 31, down from $1,479.5 at December 31, 2011. The company reported $334.4 of unused credit-facility capacity at quarter-end, subject to restrictions; by May 7, it reported $168.4 available. It stated it was in covenant compliance.
Material changes and notable transactions
- Q1 included $6.2 of gains on real-estate sales in discontinued operations and a $0.8 gain from acquiring control of a property previously held through a joint venture. These gains helped offset continuing-operations losses.
- The company sold three properties totaling approximately 0.7 million square feet for gross proceeds of about $20.1 and acquired one 0.4-million-square-foot property and one land parcel. Fifteen properties totaling approximately 2.7 million square feet and one land parcel were held for sale at quarter-end.
- On March 1, the company established an at-the-market common-stock offering program of up to 12.5 million shares or $125 million in gross proceeds. It issued approximately 1.53 million shares in Q1 at a weighted-average price of $12.03, receiving net proceeds of $18.1.
- After quarter-end, the company repaid $61.8 of 2012 Notes at maturity, funded with credit-facility borrowings. It also tendered for $86.9 principal amount of other notes for total consideration of $88.9; related premiums, costs and write-offs were expected to be recorded as a Q2 debt-retirement loss.
Outlook, risks and unusual items
- No specific earnings or operating guidance is provided. Management expected to meet short-term liquidity needs through operating and investing cash flows, including selective asset sales, and described dispositions, debt and equity issuance as potential sources for longer-term needs.
- Management cited exposure to economic and industrial-property market conditions, tenant creditworthiness, occupancy and rental rates, development and leasing execution, property valuations, access to capital, interest rates, covenant compliance, and the ability to complete acquisitions or dispositions on favorable terms.
- The IRS was reviewing the company’s $40.4 tax refund received in 2009 and had preliminarily disagreed with certain property valuations. The company intended to contest any adjustment; the potential loss was not estimable, though management expected any taxes, interest and penalties not to exceed the refund.
- Q1 included a $1.2 net non-cash impairment charge, primarily on properties held for sale, and a $1.3 depreciation and amortization adjustment attributable to prior periods. Management said the latter was not material to the current or prior periods.
- Management said it was in compliance with debt covenants and anticipated remaining compliant for the rest of 2012. A downgrade or tighter capital markets could increase borrowing costs or constrain access to financing.
Most important facts for investors to verify
- Whether held-for-sale properties are sold as planned and at values consistent with recorded estimates; sale proceeds and related impairment assumptions are material.
- How the Q2 note repayment and tender transactions affect debt, credit-facility availability, interest expense and the recorded debt-retirement loss.
- Whether occupancy and same-store rental performance improve, and whether lower property expenses persist beyond the mild-winter benefit.
- The outcome and potential financial impact of the IRS review of the $40.4 refund.
- Compliance with financing covenants and the company’s ability to maintain liquidity while meeting debt maturities and capital needs.