FIRST INDUSTRIAL REALTY TRUST INC quarterly report, Q2 FY2011

First Industrial Realty Trust, Inc. — Q2 2011 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2011. Financial amounts below are in millions of dollars unless stated otherwise. The company is an industrial-property REIT; at quarter-end it owned 759 properties totaling approximately 68.2 million square feet across 27 U.S. states and one Canadian province.

Financial performance and position

Metric	Q2 2011	Q2 2010	Six months 2011	Six months 2010
Total revenue	$73.3	$74.4	$147.6	$151.0
Continuing-operations loss	$(6.5)	$(20.1)	$(18.0)	$(44.6)
Net loss available to common stockholders and participating securities	$(4.8), or $(0.06) per share	$(18.5), or $(0.29) per share	$(13.4), or $(0.18) per share	$(40.4), or $(0.65) per share

Q2 property expenses were $23.9 million, or approximately 32.5% of revenue; the comparable 2010 ratio was approximately 31.9%. Six-month property expenses were $49.9 million, or approximately 33.8% of revenue.
Same-store occupancy improved to 85.4% in Q2 from 81.8% a year earlier, and to 85.0% for the six-month period from 81.5%. Same-store revenue nevertheless declined 1.0% in Q2 and 1.2% for the first half, primarily due to lower rental rates; Q2 also reflected fewer bankrupt-tenant settlements.
Six-month operating cash flow was $37.8 million, compared with $31.4 million. Investing activities provided $0.7 million and financing activities used $30.0 million. Cash and cash equivalents ended the period at $34.5 million, up from $26.0 million at year-end.
Quarter-end debt carrying value was $1.549 billion, down from $1.743 billion at December 31, 2010. About 93.5% was fixed-rate and 6.5% variable-rate debt. The filing reports $1.555 billion of stated principal maturities and scheduled payments; $139.4 million was due during the remainder of 2011 and $175.4 million in 2012.
Liquidity included $198.7 million available under the unsecured credit facility at June 30, subject to restrictions. Total assets were $2.736 billion and total equity was $1.084 billion. Real estate and other assets held for sale were $312.2 million.

Changes versus comparable periods

Revenue decreased 1.4% in Q2 and 2.2% for the first half. Same-store occupancy gains were offset by lower rental rates, dispositions, and lower fees following the sale of interests in five joint ventures.
Common-stockholder loss narrowed materially year over year. Lower general and administrative expense—down 35.3% in Q2 and 38.4% for the first half—contributed, alongside lower depreciation and amortization and impairment reversals. Results also included gains and discontinued operations, so the improvement does not represent revenue growth.
General and administrative expense benefited from lower compensation, reduced lawsuit-settlement expense, and reversal of a $0.745 million franchise-tax reserve. Six-month interest expense declined 1.5% as average debt fell, partly offset by a higher average interest rate (6.34% versus 5.64%).
The company raised approximately $201.5 million net from two public common-stock offerings and approximately $1.4 million net through its at-the-market program. Common shares outstanding increased from 68.8 million at year-end to 86.6 million at June 30.

Transactions, outlook, and risks

During the first half, the company sold 17 industrial properties totaling about 1.1 million square feet for gross proceeds of approximately $31.0 million and recorded $7.3 million of sale gains in discontinued operations. At June 30, 158 properties totaling about 12.3 million square feet and land parcels were held for sale; management cautioned that their sale is not assured.
The company acquired one 0.7-million-square-foot property through a joint-venture interest purchase, assuming a $24.4 million mortgage and paying $5.3 million in cash. It also obtained $178.3 million in fixed-rate mortgage financing at 4.45%, maturing in June 2018, and repurchased $57.1 million principal amount of unsecured notes.
Management expected to meet near-term needs from operating and investing cash flows, asset dispositions, facility borrowings, and equity issuance as market conditions permit. The $128.9 million 4.625% exchangeable notes mature September 15, 2011, and $61.8 million of notes mature April 15, 2012; management expected to address these obligations using facility borrowings, property-sale proceeds, and common equity, subject to market conditions.
The company planned to retain capital and distribute only the minimum amount needed to maintain REIT qualification. It had paid no common dividend in 2011 and said future common dividends would depend on taxable income; any required 2011 common dividend could be paid partly in shares.
Management believed it was in compliance with debt covenants at June 30 and expected to remain compliant through 2011. A $5.0 million non-recourse mortgage had matured in March; the company was working with the lender to transfer the collateral property in satisfaction of the loan, with no assurance of success. Credit ratings were BB-/Ba3/BB; a downgrade could increase borrowing costs or constrain market access.
Other risks identified include economic and industrial-property market conditions, tenant creditworthiness, interest rates and access to capital, refinancing and covenant compliance, asset valuations and impairments, dispositions, environmental matters, and REIT qualification. The filing reported no material legal proceedings; routine property-related legal actions were not expected to materially affect the company.
Subsequent events: one property was sold for approximately $3.1 million between July 1 and August 3. On July 6, the company repurchased $9.4 million of 2028 notes at par and expected to record an approximately $0.5 million early-retirement loss.

Important facts for investors to verify

Whether the company refinanced or otherwise repaid the September 2011 and April 2012 note maturities, and the resulting borrowing cost and covenant headroom.
Actual proceeds and timing from held-for-sale properties, including whether planned dispositions occurred at values consistent with recorded estimates.
Whether occupancy and same-store rental rates improved, and how property sales and lower joint-venture fees affect recurring revenue and cash generation.
The sustainability of liquidity and capital structure after the substantial common-stock issuance, including its dilution impact and the company’s dividend policy.
The effect of impairment estimates and reversals, debt-retirement charges, discontinued operations, and other nonrecurring items on reported earnings and cash flows.