Business Context and Reporting Period
Company: First Industrial Realty Trust, Inc. (First Industrial)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and six months ended June 30, 2010
Business Overview: First Industrial is a real estate investment trust (REIT) owning and operating industrial properties. As of June 30, 2010, the company owned 782 industrial properties in 28 U.S. states and one Canadian province, comprising approximately 69.2 million square feet of gross leasable area (GLA). The company also holds noncontrolling interests in several joint ventures focused on industrial real estate.
Key Financial Metrics
All figures in thousands, except per share data.
| Metric | Six Months Ended June 30, 2010 | Six Months Ended June 30, 2009 |
|---|---|---|
| Total Revenues | $177,123 | $217,465 |
| Net Loss | $(33,919) | $(16,337) |
| Net Loss Attributable to Common Stockholders | $(40,401) | $(23,111) |
| Diluted EPS (Common Stockholders) | $(0.65) | $(0.52) |
| Net Cash Provided by Operating Activities | $31,442 | $51,757 |
| Cash and Cash Equivalents (End of Period) | $86,199 | $54,962 |
| Total Debt (Carrying Value) | $1,861,409 | $1,998,332 |
| Total Assets | $3,029,501 | $3,204,586 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 18.6% to $177.1 million, primarily driven by a 99.3% drop in construction revenues ($270k vs. $36.7M) due to the completion of development projects in 2009. Rental income from same-store properties decreased 2.6% due to lower occupancy rates (81.9% in 2010 vs. 84.7% in 2009).
- Increased Net Loss: Net loss attributable to common stockholders widened to $40.4 million from $23.1 million. This was driven by a $9.2 million non-cash impairment charge on a property in Grand Rapids, Michigan, and a $4.0 million loss on the early retirement of debt.
- Debt Reduction: Total debt decreased by approximately $137 million. The company repurchased and retired approximately $231 million of senior unsecured debt during the period, including the full redemption of the 2011 Notes.
- Asset Sales: The company sold five industrial properties and several land parcels for gross proceeds of $53.7 million, resulting in a gain on sale of real estate of $8.7 million (mostly classified as discontinued operations).
- Restructuring: Restructuring costs were $1.2 million for the six months ended June 30, 2010, compared to $4.8 million in the prior year period, reflecting ongoing cost reduction initiatives.
Guidance, Outlook, and Risks
- Liquidity Strategy: Management plans to enhance liquidity and reduce indebtedness through capital retention (minimizing dividends), mortgage financing, equity issuances (ATM and DRIP programs), asset sales, and debt repurchases.
- Dividend Policy: The company has not paid a common stock dividend in 2010 to date and may not pay dividends in future quarters depending on taxable income. Preferred stock dividends may also be suspended if not required for REIT status.
- Covenant Compliance: The company believes it is in compliance with financial covenants under its Unsecured Line of Credit and senior debt indentures but expects to exceed minimum requirements by only a "thin margin." Compliance depends on occupancy rates, rental rates, and property sales.
- Joint Venture Wind-down: Subsequent to the reporting period (August 5, 2010), the company transferred its interests in four joint ventures to its partner for approximately $5.0 million, ceasing asset management services for these entities.
- Risks: Key risks include the inability to sell properties on advantageous terms, failure to meet debt covenants, potential credit rating downgrades, and continued downward pressure on net operating income due to global economic conditions.
Investor Verification Checklist
- Covenant Margins: Verify the specific leverage and fixed charge coverage ratios to confirm the "thin margin" of compliance mentioned by management.
- Impairment Details: Review the specific valuation assumptions used for the $9.2 million impairment charge on the Grand Rapids property to assess potential for future impairments.
- Debt Maturity Wall: Analyze the schedule of debt maturities, particularly the $159 million due in 2011 and $598 million due in 2012, against current liquidity and refinancing plans.
- Dividend Sustainability: Monitor taxable income projections to determine if common dividends will be reinstated or if preferred dividends will be suspended.
- Joint Venture Exit: Confirm the final closing and cash proceeds from the transfer of the four joint ventures announced in August 2010.