First Industrial Realty Trust, Inc. — Q2 2012 Form 10-Q
Business context and period. The REIT owned 734 industrial properties totaling approximately 65.9 million square feet across 26 U.S. states and one Canadian province at June 30, 2012. It reported the quarter and six months ended June 30, 2012; financial statement amounts below are in millions unless stated otherwise.
Financial performance and position
- Revenue: Q2 revenue was $83.8 million, up 4.2% from $80.4 million a year earlier. First-half revenue was $166.3 million, up 2.9% from $161.7 million.
- Profit and EPS: Q2 net loss available to common stockholders and participating securities was $14.3 million, or $0.16 per share, versus a $4.8 million loss, or $0.06 per share, in Q2 2011. First-half loss was $17.8 million, or $0.20 per share, versus $13.4 million, or $0.18 per share. Q2 loss from continuing operations was $12.8 million.
- Funds from operations: FFO, a non-GAAP measure, was $12.9 million in Q2 versus $19.2 million in Q2 2011; first-half FFO was $35.0 million versus $33.7 million.
- Margins: A calculated property-spread proxy—revenue less property expenses, divided by revenue—was approximately 67.7% in Q2 versus 66.6% a year earlier. This is not a company-reported margin and excludes other operating costs, depreciation, and financing items.
- Cash flow: First-half operating cash flow was $60.3 million, compared with $37.8 million in 2011. Investing activities used $62.6 million versus providing $0.7 million; financing activities used $2.8 million versus $30.0 million. Cash was $5.1 million at June 30, down from $10.2 million at year-end 2011.
- Debt and liquidity: Debt carrying value totaled $1.482 billion at June 30, compared with $1.479 billion at year-end; estimated fair value was $1.563 billion. Cash plus reported availability under the unsecured credit facility was $148.5 million at June 30, subject to restrictions. The facility balance was $306 million, with a 2.191% rate. About 79.4% of debt was fixed-rate and 20.6% variable-rate. Management reported covenant compliance.
- Property operations: Same-store occupancy averaged 86.8% in Q2 versus 86.2% in Q2 2011, and 86.4% in the first half versus 85.6%. First-half same-store revenue rose 1.1%; property expenses fell 3.6%.
Material changes versus prior periods
- Q2 loss attributable to common stockholders widened, mainly amid higher depreciation and amortization, higher general and administrative costs, and a $5.3 million IRS-related tax charge. A $6.2 million debt-retirement loss also weighed on Q2 results.
- Interest expense declined year over year: first-half expense fell 16.5% to $43.9 million, which management attributed primarily to lower average debt balances and interest rates, plus increased capitalized interest.
- First-half property sales generated $7.6 million in gains. The company sold seven properties during the half and had 16 properties, totaling approximately 3.2 million square feet, and one land parcel classified as held for sale.
- Debt transactions included repayment at maturity of $61.8 million of 2012 notes and repurchase of $87.4 million principal of other notes for $89.3 million. The balance on senior unsecured notes fell while credit-facility borrowings increased.
Outlook, risks, and unusual items
- Outlook: No quantified earnings or operating guidance is provided in the supplied filing text. Management expected short-term needs to be funded through operating cash flow and asset dispositions, and anticipated using asset sales, debt, and equity markets for longer-term needs. It planned to continue selectively marketing properties.
- Refinancing and liquidity: Scheduled debt maturities include $453.1 million in 2014. Access to borrowing depends on covenants and market conditions. Management stated it expected covenant compliance for the remainder of 2012.
- IRS matter: The company recorded a $5.3 million charge for a preliminary IRS settlement relating to a 2009 tax refund. The proposed settlement remained subject to Joint Committee on Taxation review; final approval and timing were uncertain.
- Subsequent financing: A July 3 commitment for $100.6 million of 10-year mortgage loans at 4.03%, secured by 31 properties, was conditional on lender due diligence and documentation; closing was not assured.
- Tenant/loan exposure: After quarter-end, the company learned that the sole tenant at a property securing a $7.7 million mortgage receivable had filed for Chapter 7 bankruptcy. The borrower was current on payments as of the filing date.
- Other risks: Management cited economic and industrial-property market conditions, tenant creditworthiness, financing availability and cost, interest rates, covenant compliance, property valuations and impairments, development and leasing execution, and disposition risks. It reported no material legal proceedings and said disclosure controls were effective.
Investor facts to verify
- Final IRS settlement terms, approval status, payment timing, and any effects on partners or stockholders.
- Whether the $100.6 million mortgage financing closed on expected terms and how proceeds were used.
- Progress and realized proceeds from the 16 held-for-sale properties and land parcel, and any further impairment charges.
- Plans to refinance or repay the substantial 2014 maturities, available credit-facility capacity, and continued covenant compliance.
- Developments affecting the tenant-bankruptcy-related mortgage receivable and the borrower’s ability to remain current.
- Whether improving occupancy and same-store performance can offset elevated depreciation, administrative costs, and preferred dividends.