First Industrial Realty Trust, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. The filing presents the company and its operating partnership as one enterprise. At quarter-end, the REIT owned 485 industrial properties across 21 states, totaling approximately 60.1 million square feet.
Financial results and position
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Total revenue | $99.8 million | $97.4 million |
| Net income | $37.5 million | $23.5 million |
| Net income attributable to common stockholders | $36.3 million; $0.30 per share | $22.7 million; $0.19 per share |
| Operating cash flow | $37.0 million | $40.1 million |
| Cash used in investing | $75.2 million | $31.8 million |
| Cash from (used in) financing | $60.1 million | $(3.3) million |
- Same-store occupancy averaged 96.9%, versus 95.6%. Same-store NOI was $67.4 million, up from $63.5 million; same-store revenue increased 4.9% to $93.9 million.
- Net income included a $20.1 million gain on property sales and a $2.8 million real estate impairment. FFO available to common stockholders and participating securities, a non-GAAP measure, was $46.3 million versus $42.3 million.
- Quarter-end total assets were $3.04 billion and total liabilities $1.56 billion. Debt, net of issuance costs, totaled approximately $1.40 billion, compared with $1.30 billion at year-end 2017.
- Cash and cash equivalents were $19.8 million; restricted cash was $48.6 million, largely property-sale proceeds designated for 1031 exchanges. The company reported $620.8 million available on its unsecured credit facility at quarter-end.
- Quarterly dividend/distribution was $0.2175 per share or unit, 3.6% above the prior-year rate. The filing reports $27.1 million declared for the quarter.
Material changes and transactions
- Revenue increased 2.5%. Same-store growth and acquired and redeveloped properties partly offset lower revenue from properties sold.
- Net income increased substantially, partly reflecting property-sale gains of $20.1 million, compared with $8.0 million a year earlier. Interest expense fell 11%, to $12.8 million, with a lower weighted-average interest rate and debt balance and higher capitalized interest.
- Acquired five industrial properties and one land parcel for an aggregate purchase price of approximately $61.0 million; sold eight properties and one land parcel for gross proceeds of approximately $42.4 million. The company paid off $157.8 million of mortgage loans.
- Issued $300 million of private placement notes: $150 million at 3.86% due 2028 and $150 million at 3.96% due 2030. At quarter-end, 92.9% of debt was fixed-rate, including term debt effectively fixed through swaps.
- Cash from operations declined about $3.1 million year over year, primarily due to working-capital timing, partly offset by higher same-store, acquired-property and development NOI. Investing outflows rose with acquisitions and development spending.
Outlook, risks and unusual items
- No specific earnings or operating guidance is provided. Management expected to remain within financial covenants for the rest of 2018 and anticipated using operating cash flow, selected asset sales and available financing for liquidity needs. It expected to refinance $73.6 million of mortgage loans due within the next 12 months using the credit facility.
- Eleven industrial properties totaling approximately 4.2 million square feet were under construction. Estimated total investment was $291 million, with approximately $128.5 million remaining to fund; actual costs could exceed estimates.
- Management reported compliance with debt covenants at March 31, 2018. Risks include leasing and tenant default, property-market and financing conditions, interest rates, construction costs and delays, REIT qualification, and access to capital. The filing added cybersecurity and joint-venture risks.
- The company recorded $1.3 million of severance expense following a personnel reduction and $2.8 million of impairment related to a property and land parcel being marketed for sale. No material adverse effect was expected from pending legal matters.
- After quarter-end, the company acquired a land parcel for approximately $3.3 million and entered a 49%-owned joint venture that acquired approximately 532 developable acres in the Phoenix area for $49 million.
Investor verification priorities
- Assess how much of the net-income and FFO increase reflects recurring leasing performance versus property-sale gains and impairment adjustments.
- Verify the cost, remaining funding needs, construction progress and leasing prospects for the $291 million development program.
- Review debt maturities, the planned repayment of $73.6 million of mortgages, credit-facility availability, and covenant headroom.
- Evaluate the use and timing of $48.6 million in restricted 1031 proceeds, and the economics and governance terms of the Phoenix joint venture.
- Monitor same-store expense growth, including property expenses that rose 9.0%, as well as leasing spreads, occupancy and tenant retention.