FR

Business Context and Reporting Period

Company: First Industrial Realty Trust, Inc. (First Industrial)

Filing Type: Form 10-Q (Quarterly Report)

Reporting Period: Three months ended March 31, 2009

Business Overview: First Industrial is a real estate investment trust (REIT) owning and operating industrial properties. As of March 31, 2009, the company owned 796 industrial properties (including developments) across 28 U.S. states and one Canadian province, totaling approximately 70.8 million square feet of gross leaseable area. The company also holds noncontrolling interests in seven joint ventures focused on industrial real estate.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability: The company reported a net loss of $15.4 million for common stockholders in Q1 2009, a significant decline from a net income of $48.4 million in Q1 2008. This shift was driven by a loss from continuing operations of $15.2 million (compared to a loss of $20.9 million in 2008) and a drastic reduction in income from discontinued operations.
• Discontinued Operations: Income from discontinued operations dropped to $4.3 million in Q1 2009 from $68.9 million in Q1 2008. The prior year included a $73.4 million gain on the sale of 38 industrial properties, whereas the current quarter included only a $4.4 million gain on the sale of three properties.
• Restructuring Costs: The company incurred $4.7 million in restructuring costs in Q1 2009 (none in Q1 2008), primarily for employee severance and benefits ($4.0 million) and office lease terminations.
• General and Administrative Expenses: G&A expenses decreased by $13.3 million (56.7%) to $10.1 million, attributed to reduced employee headcount and lower incentive compensation.
• Dividends: No common dividends were declared in Q1 2009, compared to $0.72 per share in Q1 2008, as the company plans to retain capital to maintain REIT status and manage liquidity.

Guidance, Outlook, Risks, and Unusual Items

• Liquidity Strategy: Management plans to enhance liquidity through capital retention (minimizing dividends), mortgage financing, and asset sales. The company did not pay a common dividend in April 2009 and may not pay dividends in future 2009 quarters depending on taxable income.
• Debt Maturities: Significant debt maturities are scheduled for 2009, including $125.0 million of unsecured debt in June 2009 (reduced to $119.0 million as of April 24, 2009, due to repurchases) and $5.0 million of secured mortgage debt in July 2009. The company is in active discussions with lenders for refinancing.
• Financial Covenants: The company believes it was in compliance with financial covenants as of March 31, 2009. However, it warns that complex covenants regarding coverage ratios and indebtedness limitations could be interpreted by lenders in a manner causing material costs or accelerated maturities if economic conditions worsen.
• Market Risks: The global credit market recession has impaired the ability to sell properties and put downward pressure on net operating income. The company faces risks related to tenant defaults and the inability to refinance maturing debt on favorable terms.
• Unusual Items: A $1.1 million mark-to-market gain on interest rate protection agreements was recorded in Q1 2009. Additionally, the company adopted new accounting standards (SFAS 160, SFAS 161, FSP APB 14-1) effective January 1, 2009, resulting in retrospective adjustments to prior period financial statements.

Investor Verification Checklist

• Refinancing Progress: Verify the status of discussions with lenders regarding the $119 million unsecured debt maturing in June 2009 and the $5 million secured debt maturing in July 2009.
• Covenant Compliance: Monitor future filings for any potential breaches of financial covenants related to debt service coverage and leverage ratios, which could trigger defaults.
• Asset Sales Pipeline: Assess the progress of marketing additional properties for sale, as liquidity depends heavily on successful dispositions in a challenging market.
• Dividend Policy: Confirm whether the company will continue to suspend common dividends or utilize stock distributions to satisfy REIT requirements in subsequent quarters.
• Restructuring Execution: Track the realization of cost savings from the restructuring plan, specifically the reduction in G&A expenses and the impact on future operating margins.