First Industrial Realty Trust, Inc. — Q3 2019 Form 10-Q
Business context and reporting period
Quarter ended September 30, 2019; comparisons are with the three and nine months ended September 30, 2018. First Industrial owns, manages, acquires, sells, and develops industrial real estate. At quarter-end it owned 459 properties totaling approximately 62.7 million square feet across 21 states. Results are reported for the Company and its operating partnership, which are managed as one enterprise.
Financial and operating highlights
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $106.6 million | $100.3 million | $315.2 million | $298.9 million |
| Net income | $80.0 million | $31.5 million | $145.1 million | $115.4 million |
| Net income available to common stockholders | $78.3 million | $30.9 million | $141.9 million | $112.4 million |
| Diluted earnings per share | $0.62 | $0.24 | $1.12 | $0.91 |
| Operating cash flow | Not separately presented for quarter | Not separately presented for quarter | $190.2 million | $151.0 million |
| Funds from operations (FFO) | $56.4 million | $51.3 million | $163.9 million | $146.2 million |
Q3 revenue rose 6.3%; nine-month revenue rose 5.5%. Same-store net operating income increased 2.9% in Q3 and 3.3% year to date. Same-store average daily occupancy was 97.3% in Q3 versus 97.7% a year earlier, and 97.2% year to date versus 97.3%. The quarterly dividend was $0.23 per share/unit, a 5.7% increase from the 2018 quarterly rate.
For the first nine months, investing activities used $214.9 million, mainly for acquisitions, property additions, improvements, and leasing costs; financing activities provided $18.7 million. Cash, cash equivalents, and restricted cash totaled $44.3 million at September 30, 2019. The Company reported $645.4 million of available credit-facility capacity at quarter-end.
Debt was approximately $1.418 billion excluding unamortized issuance costs; 94.5% was fixed-rate and 5.5% variable-rate. This fixed-rate proportion includes $460 million of variable-rate term loans hedged to fixed rates. Net balance-sheet debt included $180.3 million of mortgage loans, $693.9 million of senior unsecured notes, $457.6 million of term loans, and $78.0 million drawn on the credit facility. The Company reported compliance with debt covenants. Scheduled principal payments include $345.1 million in 2021 and $341.6 million in 2022. Management identified $16.7 million of mortgage loans expected to be paid before September 30, 2020.
Material changes and unusual items
- Q3 net income included a $52.5 million real-estate sale gain, compared with $8.1 million in Q3 2018. The 2019 amount included gains on property sales and an $8.6 million gain from reclassifying a tenant lease as a sales-type lease. Thus, reported earnings growth materially reflects gains rather than rental operations alone.
- Year-to-date net income included $16.3 million of equity income from the joint venture, including the Company’s share of property-sale gains and approximately $4.9 million in accrued incentive fees. Final incentive fees depend on the joint venture’s ultimate performance.
- During the first nine months, the Company acquired eight industrial properties totaling approximately 0.5 million square feet, acquired land, and sold ten industrial properties totaling approximately 1.7 million square feet. It issued $150 million of 3.97% private-placement notes due in 2029 and repaid $111.8 million of mortgage loans.
- Thirteen properties totaling approximately 3.3 million square feet were under construction. Estimated total investment was approximately $270.1 million, with $110.1 million remaining to fund; actual completion costs may exceed estimates.
- Effective January 1, 2019, the Company adopted the new lease accounting standard, recording operating lease right-of-use assets and liabilities. The filing says the adoption changed presentation but did not materially alter lessor rental revenue; prior-period reclassifications had no effect on 2018 operating results.
Outlook, risks, and contingencies
No numerical earnings or FFO guidance is provided in this filing. Management expects short-term needs to be funded primarily from operating cash flow and asset dispositions, with credit-facility borrowings or securities issuance as additional possible sources. Longer-term needs, including acquisitions, development, and debt maturities, may be funded through dispositions and debt or equity issuance, subject to market conditions. Management stated it expected to remain in compliance with financial covenants for the remainder of 2019.
Risks discussed include economic and industrial-property market changes, interest rates and access to capital, tenant defaults or non-renewals, vacancy and rental-rate pressures, acquisition and disposition execution, development delays or cost overruns, REIT qualification, and covenant compliance. The Company reported no material changes to the risk factors in its 2018 Form 10-K, no pending legal proceedings expected to materially affect its financial position, operations, or liquidity, and no defaults on senior securities.
After quarter-end through October 25, 2019, the Company acquired a land parcel for approximately $19.8 million and sold one property for approximately $4.0 million. A tenant exercised an option to purchase a 0.6-million-square-foot Phoenix property, with expected closing in August 2020; the recorded lease receivable and gain rely on the expectation that the transaction will close.
Important facts for investors to verify
- Separate recurring rental and same-store performance from the substantial property-sale gain and joint-venture income when assessing earnings growth.
- Track construction funding, completion costs, occupancy, and leasing progress for the 13 properties under construction.
- Review the 2021–2022 debt maturities, refinancing plans, credit-facility availability, and covenant headroom.
- Monitor the joint venture’s final performance and the eventual amount and timing of accrued incentive fees.
- Confirm completion of the Phoenix tenant purchase option expected to close in August 2020.