Business Context and Reporting Period
Company: First Industrial Realty Trust, Inc. (First Industrial)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2010
Business Overview: First Industrial is a real estate investment trust (REIT) owning and operating industrial properties. As of September 30, 2010, the portfolio consisted of 778 industrial properties in 28 U.S. states and one Canadian province, totaling approximately 68.9 million square feet of gross leasable area (GLA). The company conducts operations primarily through its Operating Partnership and taxable REIT subsidiaries.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2010 |
|---|---|---|
| Total Revenues | $84.8 million | $261.9 million |
| Net Loss (Attributable to Common Stockholders) | $(154.3) million | $(194.7) million |
| Net Loss Per Share (Basic & Diluted) | $(2.44) | $(3.11) |
| Net Cash Provided by Operating Activities | N/A | $57.1 million |
| Cash and Cash Equivalents | $124.1 million | $124.1 million |
| Total Debt (Carrying Value) | $1.886 billion | $1.886 billion |
| Total Assets | $2.883 billion | $2.883 billion |
Note: The significant net loss is primarily driven by non-cash impairment charges.
Material Changes vs. Prior Period
- Impairment Charges: The most significant change was a non-cash impairment charge of $163.9 million recorded in the third quarter of 2010. This affected 129 industrial properties (approx. 10.6 million sq. ft.) and land parcels due to a reassessment of holding periods following an anticipated amendment to the Unsecured Line of Credit. An additional $9.2 million impairment was recorded in Q1 2010.
- Revenues: Total revenues decreased 18.8% for the three months and 18.6% for the nine months compared to the prior year. This decline was largely due to a 99% drop in construction revenues (as development projects completed) and reduced fees from joint ventures.
- Debt Reduction: The company actively reduced its debt load, repurchasing and redeeming approximately $246.8 million of senior unsecured notes during the nine-month period. Total indebtedness decreased from $1.998 billion at year-end 2009 to $1.886 billion at September 30, 2010.
- Joint Venture Exits: The company sold its interests in four joint ventures (2005 Development/Repositioning, 2005 Core, 2006 Land/Development, and 2007 Canada) in August 2010, recognizing a gain of $9.9 million.
Guidance, Outlook, and Risks
- Future Impairments: Management expects to record an additional non-cash impairment charge of approximately $14 million in the fourth quarter of 2010. This relates to a pool of 195 industrial properties and land parcels that will qualify as "held for sale" in the Q4 financial statements.
- Liquidity and Debt: The company amended its Unsecured Line of Credit in October 2010, reducing capacity from $500 million to $400 million. The facility now includes a $200 million term loan and a $200 million revolving component. Management anticipates meeting liquidity needs through property dispositions, debt refinancing, and equity issuances.
- Dividends: The company has not paid a common stock dividend in 2010 and may not pay one depending on taxable income. Preferred stock dividends continue to be paid.
- Risks: Key risks include the ability to comply with complex financial covenants (specifically fixed charge coverage ratios), potential acceleration of debt upon default, and the impact of deteriorating market conditions on asset valuations and future impairment charges.
Investor Verification Checklist
- Impairment Scope: Verify the specific properties included in the $163.9 million Q3 impairment and the projected $14 million Q4 impairment to assess the impact on future earnings and asset base.
- Debt Covenants: Review the amended Unsecured Line of Credit terms (fixed charge coverage ratio relaxed to 1.2x) and confirm ongoing compliance to avoid default risks.
- Asset Dispositions: Monitor the progress of selling the "held for sale" pool of 195 properties to generate cash for debt reduction.
- Dividend Policy: Confirm the company's taxable income status and future dividend payout strategy for common and preferred shareholders.
- Joint Venture Receivables: Verify the collection of receivables from joint ventures and the finalization of proceeds from the August 2010 JV sales.