Business Context and Reporting Period
Company: First Industrial Realty Trust, Inc. (First Industrial)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and nine months ended September 30, 2004
Business Overview: First Industrial is a Maryland-domiciled Real Estate Investment Trust (REIT) owning and operating industrial properties. As of September 30, 2004, the portfolio consisted of 824 in-service properties totaling approximately 60.9 million square feet of gross leasable area (GLA) across 22 states. The company operates primarily through First Industrial, L.P., in which it holds an approximate 86.4% interest.
Key Financial Metrics
| Metric (Nine Months Ended Sep 30, 2004) | Value (in thousands) |
|---|---|
| Total Revenues | $242,035 |
| Net Income | $90,763 |
| Net Income Available to Stockholders | $70,626 |
| Diluted EPS (Available to Stockholders) | $1.75 |
| Net Cash Provided by Operating Activities | $77,683 |
| Total Debt (Mortgage, Senior Unsecured, Line of Credit) | $1,584,588 |
| Cash and Cash Equivalents | $7,356 |
| Restricted Cash | $24,256 |
Note: Total Debt calculated as sum of Mortgage Loans Payable ($58,379), Senior Unsecured Debt ($1,347,209), and Unsecured Line of Credit ($179,000).
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 2.2% to $242.0 million for the nine months ended September 30, 2004, compared to $236.8 million in the prior year period. This growth was driven by a 447.2% increase in revenue from acquired properties ($29.8 million vs. $5.4 million), partially offset by a 72.9% decrease in revenue from sold properties.
- Net Income: Net income available to common stockholders increased slightly to $70.6 million from $69.6 million year-over-year. Basic EPS decreased to $1.76 from $1.81 due to preferred stock redemption costs and increased share counts.
- Discontinued Operations: Income from discontinued operations was $65.6 million for the nine months ended September 30, 2004, compared to $73.4 million in 2003. This includes a $60.6 million gain on the sale of 66 industrial properties.
- Joint Venture Impact: Equity in income of joint ventures surged to $36.5 million (from $0.7 million in 2003) primarily due to the sale of all properties in the December 2001 Joint Venture and the recognition of previously deferred gains.
- Expense Increases: General and administrative expenses rose 36.9% to $28.1 million, driven by higher employee compensation and professional fees. Depreciation and amortization increased 32.8% to $70.6 million due to new acquisitions and completed developments.
Guidance, Outlook, and Risks
- Capital Deployment: The company continues to redeploy capital from lower-yield assets to higher-yield opportunities. During the nine months ended September 30, 2004, the company acquired 50 properties (6.3 million sq. ft.) for approximately $247 million and completed the development of 11 properties (1.7 million sq. ft.).
- Liquidity and Financing: The company maintains a $300 million unsecured line of credit, with $179 million outstanding as of September 30, 2004. Approximately $123.3 million remained available for borrowing as of November 5, 2004. The company issued $125 million of 5.25% Senior Notes due 2009 and exchanged $100 million of 2011 notes for $125 million of 2014 notes.
- Dividends: The company paid a quarterly distribution of $0.6850 per common share/unit. Preferred stock dividends totaled $12.2 million for the nine-month period.
- Risks and Contingencies:
- Market Risk: Approximately 88.7% of debt is fixed-rate; 11.3% is variable-rate. A 10% change in interest rates on variable debt would impact net income by approximately $0.5 million annually.
- Development Risk: The company has committed to 21 development projects totaling $121.2 million, with $30.3 million remaining to be funded. Completion costs and lease-up schedules are subject to uncertainty.
- Accounting Correction: In Q3 2004, the company identified an internal control issue resulting in an additional $1.1 million depreciation expense recognized in Q2 2004.
Investor Verification Checklist
- Verify the sustainability of the $36.5 million joint venture income, which was largely a one-time gain from the liquidation of the December 2001 Joint Venture.
- Review the occupancy rates of "same store" properties (87.4% for the nine months ended Sep 30, 2004) to assess core operational performance excluding acquisitions and dispositions.
- Confirm the status of the $30.3 million remaining funding requirement for the 21 committed development projects.
- Monitor the impact of the $1.1 million accounting correction on future depreciation schedules and internal controls.
- Assess the refinancing risk associated with the $155.9 million in debt maturing in 2006 and $330.8 million maturing in 2007.