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, 2008
Business Overview: First Industrial is a real estate investment trust (REIT) focused on industrial properties. As of June 30, 2008, the company owned 813 industrial properties (including developments) across 28 U.S. states and one Canadian province, totaling approximately 71.4 million square feet of gross leaseable area (GLA). The company also holds minority interests in seven joint ventures investing in industrial properties.
Key Financial Metrics
All figures in thousands, except per share data.
| Metric | Six Months Ended June 30, 2008 | Six Months Ended June 30, 2007 |
|---|---|---|
| Total Revenues | $246,578 | $192,079 |
| Net Income | $99,801 | $72,600 |
| Net Income Available to Common Stockholders | $90,087 | $58,977 |
| Diluted EPS (Common) | $2.09 | $1.33 |
| Net Cash Provided by Operating Activities | $33,687 | $61,725 |
| Net Cash Provided by Investing Activities | $46,281 | ($35,744) |
| Net Cash Used in Financing Activities | ($71,296) | ($37,967) |
| Total Debt (Mortgage + Senior Unsecured + Line of Credit) | $1,962,172 | $1,946,670 |
| Cash and Cash Equivalents | $14,413 | $5,757 |
| Restricted Cash | $103,028 | $24,903 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 28.4% to $246.6 million, driven primarily by a 255.9% increase in construction revenues ($56.4 million vs. $15.8 million) due to two new development projects. Rental income from same-store properties increased 3.3% due to higher tenant recoveries, partially offset by a slight decrease in occupancy (90.7% vs. 91.4%).
- Discontinued Operations: Net income was significantly impacted by gains from discontinued operations. The company sold 90 industrial properties (approx. 7.6 million sq. ft.) during the six months, generating a gain on sale of real estate of approximately $155.9 million. Income from discontinued operations totaled $130.2 million for the six months ended June 30, 2008, compared to $97.3 million in the prior year.
- Joint Venture Income: Equity in income of joint ventures decreased 61.9% to $6.6 million, primarily due to a reduction in the company's pro-rata share of gains on property sales and earn-outs from the 2005 Core and Development/Repositioning Joint Ventures.
- Interest Expense: Interest expense decreased 5.2% to $56.5 million, attributed to a lower weighted average interest rate (5.97% vs. 6.55%) and increased capitalized interest, despite a higher average debt balance.
- Debt Repurchases: The company recognized a $1.5 million gain from the early retirement of debt following the partial repurchase of 2016 and 2017 II Notes.
Guidance, Outlook, Risks, and Unusual Items
- Liquidity and Capital Resources: The company expects to meet short-term liquidity needs through operating cash flows, asset dispositions, and its unsecured line of credit. As of July 25, 2008, approximately $113.8 million remained available on the line of credit. The company anticipates refinancing its $125 million 2009 Notes via additional debt issuance.
- Market Risk: Approximately 84.4% of total debt is fixed-rate, while 15.6% is variable-rate. A 10% change in interest rates on variable debt would impact net income by approximately $1.0 million annually. The company utilizes interest rate protection agreements to hedge forecasted debt offerings and line of credit borrowings.
- Unusual Items:
- Deferred Gain: A $2.5 million gain on the sale of one property was deferred due to a leaseback arrangement and seller financing; this gain was recognized upon payoff of the note in July 2008.
- Construction Activity: Significant volatility in revenues and expenses is driven by the company's role as a general contractor/development manager for third-party projects.
- Risks: Key risks include economic conditions affecting industrial real estate demand, tenant credit risk, competition for acquisitions, and the ability to access external capital on favorable terms. The company also faces risks related to joint venture performance and foreign currency fluctuations (limited exposure to Canadian operations).
Investor Verification Checklist
- Discontinued Operations Impact: Verify the sustainability of earnings by analyzing Net Income excluding the $130.2 million gain from discontinued operations, which heavily influenced the reported profitability.
- Construction Revenue Volatility: Assess the duration and pipeline of the two major development projects driving the 255% increase in construction revenues to determine if this growth is recurring.
- Debt Maturity Wall: Confirm the refinancing strategy for the $125 million 2009 Notes due in June 2009, given the tight credit markets of 2008.
- Joint Venture Performance: Review the specific performance of the 2005 Core and Development/Repositioning Joint Ventures, as their reduced gains significantly lowered equity income.
- Restricted Cash Utilization: Monitor the deployment of the $103 million in restricted cash, which is held for Section 1031 exchanges, to ensure timely reinvestment into new properties.