Business context and reporting period
First Industrial Realty Trust, Inc. and its operating partnership own, lease, acquire, develop and manage industrial real estate. This Form 10-Q covers the quarter and six months ended June 30, 2020. At quarter-end, the company owned 438 industrial properties across 20 states, totaling approximately 63.0 million square feet.
Unless otherwise noted, financial amounts below are in millions. The company and operating partnership are managed as one enterprise; figures focus on the company.
Key financial metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $109.2 | $104.1 | $219.5 | $208.6 |
| Net income | $36.4 | $40.7 | $78.0 | $65.1 |
| Net income attributable to common stockholders | $35.7 | $39.8 | $76.3 | $63.6 |
| EPS, diluted | $0.28 | $0.31 | $0.60 | $0.50 |
| FFO attributable to common stockholders and participating securities | $58.1 | $55.1 | $115.2 | $107.6 |
For the first half, operating cash flow was $117.5 million, investing cash outflow was $245.8 million and financing cash inflow was $76.4 million. Cash, cash equivalents and restricted cash totaled $100.8 million at June 30, including $95.0 million of unrestricted cash.
Debt principal was approximately $1.635 billion. The company reported $404.1 million available under its unsecured credit facility, and 89.6% of debt was fixed-rate or effectively fixed through swaps. Total assets were $3.652 billion and total equity was $1.797 billion.
Same-store average daily occupancy was 97.2% in Q2 and 97.3% for the first half, compared with 97.5% in both prior-year periods. Same-store NOI grew 6.3% in Q2 and 7.3% in the first half. The quarterly dividend was $0.25 per share/unit.
Material changes versus prior comparable periods
- Q2 revenue rose 4.9%, but net income attributable to common stockholders fell to $35.7 million from $39.8 million; diluted EPS declined to $0.28 from $0.31. First-half revenue increased 5.2%, while attributable net income rose to $76.3 million from $63.6 million.
- Q2 FFO increased 5.5%; first-half FFO increased 7.1%. First-half same-store revenue increased 2.1%, while occupancy edged lower.
- Reported earnings comparisons were affected by joint-venture income: Q2 2019 included $15.5 million of equity income, including a share of a property-sale gain and accrued incentive fees. First-half 2019 joint-venture income was $16.4 million; 2020 joint-venture results were a small loss.
- First-half real estate sale gains rose to $23.1 million from $0.9 million. The company acquired six properties and three land parcels and sold 12 properties during the period.
- General and administrative expense increased 28.7% for the first half, primarily due to incentive compensation, severance related to closing the Indianapolis regional office and accelerated stock compensation expense.
- Operating cash flow decreased modestly, while investing outflow increased, principally reflecting higher real estate acquisitions and development spending. Unsecured credit facility borrowings at June 30 were $320 million, up from $158 million at year-end 2019.
Outlook, commentary, risks and unusual items
- Management said first-half results were in line with expectations, but cautioned that COVID-19 could adversely affect results for the remainder of 2020 and future periods. As of July 22, monthly rental billing collection rates were 98% for Q2 and 97% for July; management cautioned these rates may not predict future collections.
- The company granted $0.7 million of rent deferrals to 14 tenants, repayable in full by December 31, 2020. It recorded $0.8 million of bad debt expense on cash rents and $1.4 million on deferred rent receivables.
- New speculative vertical development was suspended, except for projects already underway and certain permitting and horizontal work. A tenant-committed 0.2-million-square-foot build-to-suit project was added in July. Projected remaining costs for developments, redevelopments and related work were approximately $73 million for the rest of 2020 and $44 million for 2021 and beyond.
- At June 30, six properties totaling approximately 1.0 million square feet were under construction, with estimated total investment of $94.7 million and approximately $53.6 million remaining to fund. Completion costs could exceed estimates.
- In July, the company replaced a $200 million term loan scheduled to mature in January 2021 with a new $200 million loan, initially due July 2021 and subject to two one-year extension options. The company also agreed to issue up to $300 million of private placement notes, expected to fund around September 17, 2020; the notes were not yet issued at the filing date.
- Management reported compliance with debt covenants at June 30 and expected to remain compliant over the next 12 months. Risks include COVID-19 effects on tenants, occupancy and rent collections; access to capital and refinancing; covenant compliance; construction costs and delays; and joint-venture and property-market risks. No material adverse outcome from ordinary-course legal proceedings was expected.
- The filing provides no formal earnings or FFO guidance. The board chairman retired effective July 15, 2020, and another director became chairman.
Important facts for investors to verify
- Whether rent collection performance holds up and whether tenant delinquencies, concessions or bad debt provisions increase.
- Completion and funding of the planned $300 million private placement notes, and the terms, extensions and refinancing plan for debt maturing in 2021.
- Development spending, project completion costs and leasing progress, including the new build-to-suit project.
- Whether same-store occupancy and NOI growth remain resilient as pandemic-related economic conditions evolve.
- The recurring operating performance underlying earnings, separately from property-sale gains and prior-year joint-venture gains; FFO is a non-GAAP measure and is not a substitute for operating cash flow.