First Industrial Realty Trust, Inc. — FY 2023 Form 10-K
Reporting period: Year ended December 31, 2023. The filing combines the Company and First Industrial, L.P. (the Operating Partnership), which are managed as one enterprise. The Company owned approximately 97.5% of the Operating Partnership at year-end.
Business context
The Company is an industrial real estate REIT that owns, leases, acquires, develops and sells logistics and warehouse properties. At year-end, it owned 428 properties across 19 states; 422 were classified as in-service, totaling approximately 64.9 million square feet. In-service occupancy was 95.5%, and average annual base rent was $7.21 per square foot.
Financial and operating performance
| Metric | FY 2023 | FY 2022 | Change |
|---|---|---|---|
| Total revenue | $614.0 million | $539.9 million | +13.7% |
| Net income | $285.8 million | $381.6 million | -25.1% |
| Net income attributable to common stockholders | $274.8 million | $359.1 million | -23.5% |
| Diluted EPS | $2.07 | $2.72 | Down $0.65 |
| FFO available to common stockholders and participating securities | $322.7 million | $301.2 million | +7.1% |
| Same-store NOI | $378.5 million | $350.6 million | +7.9% |
| Cash from operating activities | $304.8 million | $410.9 million | Down $106.1 million |
Revenue growth reflected higher same-store rents and tenant recoveries, contributions from developments and acquisitions, and increased joint venture fees. Same-store average occupancy was 97.4%, down from 98.0%. Same-store revenue rose 7.3%; property expenses rose 6.7%.
Net income fell largely as equity income from joint ventures decreased by $82.7 million and real estate sale gains declined by $32.6 million. Interest expense increased $25.3 million to $74.3 million, reflecting higher average debt balances and rates. The weighted-average interest rate on debt was 4.05%, versus 3.41% in 2022. The reported net income margin was approximately 46.5%, compared with 70.7% in 2022; the decline also reflects lower joint venture gains and property sale gains.
Cash used in investing was $378.3 million, compared with $629.1 million in 2022, mainly due to lower acquisition and development spending. Cash used in financing was $27.8 million, versus $304.5 million provided in 2022. The Company declared annual dividends of $1.28 per share or unit, up 8.5%; the 2023 distribution total was $173.3 million.
Debt, liquidity and investment activity
- Total debt at December 31, 2023 was $2.23 billion, up from $2.08 billion. Debt-to-assets was approximately 43% based on reported balance-sheet totals.
- About 86.6% of debt was fixed-rate, including $925 million of variable-rate term loans effectively fixed through swaps. The remaining $299 million of revolving credit facility borrowings was variable-rate.
- Cash and cash equivalents were $43.8 million on the balance sheet; management reported $42.9 million after excluding the joint venture partner’s share. Available borrowing capacity under the $750 million revolving facility was $449.8 million at year-end and approximately $409.9 million on February 14, 2024.
- Debt maturities include $599.3 million in 2025 and $556.4 million in 2027. The revolving facility matures in July 2025, subject to extension options. Management stated the Company was in covenant compliance and expected to remain compliant in 2024.
- During 2023, the Company acquired four properties and approximately 239 acres of land for a total purchase price of $124.5 million, placed 13 developments totaling 2.8 million square feet into service at estimated cost of $354.9 million, and sold 11 properties and two land parcels for gross proceeds of $125.3 million.
Outlook, commentary, risks and unusual items
Management described 2023 industrial market conditions as favorable, but noted that new supply exceeded incremental demand and rent growth moderated from 2022. It expects average cash rental rates on renewal and new leases in 2024 to exceed comparable expiring or prior lease rates; the filing provides no quantified earnings or FFO guidance. Cash rental rates grew 58.3% on new and renewal leasing in 2023, a company record.
Six projects totaling approximately 1.9 million square feet were under construction at year-end, estimated at $284.8 million, with $113.8 million remaining to fund. These projects were 6% pre-leased. Management cautioned that final completion costs could exceed estimates. The Company also has completion and other guarantees related to a joint venture development; it does not expect significant guarantee payments, but the amount of any potential costs is not estimable.
Key risks include industrial demand and supply shifts, tenant defaults or non-renewals, leasing costs and vacancies, construction cost and schedule overruns, refinancing and interest-rate exposure, covenant compliance, joint venture decisions and obligations, environmental liabilities, and severe weather or other uninsured losses. California contributed 24.8% and Pennsylvania 11.2% of consolidated NOI, creating geographic concentration. Environmental expenditures of approximately $5.5 million for identified issues in 2024 and beyond had been accrued at year-end. Legal proceedings were not expected to materially affect results, financial position or liquidity.
A material comparison item is the joint venture’s land-sale activity: its 2023 sale generated a $40.6 million gain at the venture level, versus a $171.7 million gain in 2022. The Company recognized $9.4 million of joint venture incentive fees in 2023, compared with $31.3 million in 2022. From January 1 through February 14, 2024, the Company sold five buildings and one land parcel for approximately $33.0 million.
Important facts for investors to verify
- Whether 2024 lease-up of recently completed developments offsets lower portfolio occupancy and moderating market rent growth.
- Progress on leasing the 1.9 million square feet under construction and delivery against the stated budget and schedule.
- Refinancing plans and borrowing costs for the substantial 2025 and 2027 maturities, and the revolving facility’s 2025 maturity.
- Whether operating cash flow and recurring property-level performance support dividends and planned development spending, given lower joint venture distributions in 2023.
- Joint venture development exposure, including the completion guarantee, remaining funding needs and potential costs of infrastructure commitments.
- Geographic concentration, especially California and Pennsylvania, and the adequacy and cost of insurance for climate-related and other casualty risks.