First Industrial Realty Trust, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing combines the Company and First Industrial, L.P. (the Operating Partnership), which are managed as one enterprise; the Company held approximately 98.1% of the Operating Partnership at year-end.
Business context and portfolio
The Company is a REIT focused on owning, leasing, acquiring, developing and selling U.S. industrial real estate. At year-end, its in-service portfolio comprised 433 properties and approximately 60.2 million square feet across 21 states, with 97.6% occupancy, more than 1,050 tenants, average annual base rent of $5.43 per square foot and a 7.1-year weighted-average lease term. No tenant or related group represented more than 2.5% of rent revenue.
Financial and operating highlights
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $426.0 million | $404.0 million |
| Net income | $243.9 million | $167.3 million |
| Net income available to common stockholders and participating securities | $238.8 million; diluted EPS $1.88 | $163.2 million; diluted EPS $1.31 |
| Funds from operations (FFO), a non-GAAP measure | $221.1 million | $199.4 million |
| Same-store NOI, a non-GAAP measure | $262.5 million | $254.7 million |
| Net cash from operating activities | $245.5 million | $210.5 million |
| Net cash used in investing activities | $205.4 million | $223.4 million |
| Net cash from financing activities | $62.2 million | $16.8 million |
| Year-end indebtedness | $1.484 billion | $1.298 billion |
| Year-end total assets / equity | $3.519 billion / $1.798 billion | $3.143 billion / $1.680 billion |
Same-store average occupancy was 97.4%, compared with 97.7% in 2018. Same-store revenue rose 3.8%, primarily from higher rents and tenant recoveries; same-store property expenses increased 5.1%, mainly due to real estate taxes and repairs and maintenance. The filing does not provide a single comparable operating-margin figure.
At December 31, cash and cash equivalents were $21.1 million and restricted cash was $131.6 million, the latter primarily representing property-sale proceeds held for tax-deferred exchanges. The $725 million revolving credit facility had $565.4 million available at year-end and approximately $596.4 million available on February 12, 2020. About 89.4% of debt was fixed-rate or effectively fixed through swaps. Debt maturities include approximately $425.3 million in 2021 and $337.0 million in 2022.
Material changes and significant transactions
- Revenue increased 5.5%; FFO increased approximately 10.9%, and same-store NOI increased approximately 3.1% year over year.
- Net income increased substantially, in part because gains on real estate sales rose to $124.9 million from $81.6 million. The 2019 results also included $16.2 million of equity income from the joint venture, reflecting property-sale gains and a $4.9 million accrued incentive fee.
- The Company acquired nine industrial properties and land parcels for approximately $147.9 million in total, completed 13 developments totaling 4.4 million square feet at a cost of approximately $324.7 million, and sold 40 properties and land parcels for gross proceeds of approximately $315.8 million.
- It issued $150 million of 3.97% senior notes due 2029 and paid off $117.2 million of mortgage loans. Year-end debt increased, including $158 million outstanding under the revolving facility.
- The annual dividend/distribution increased 5.7% to $0.92 per share or unit. The Company reported meeting its minimum REIT distribution requirements.
Outlook, risks and unusual items
Management expected 2020 cash rental rates on average to exceed expiring rates for both renewal and new leases, citing low vacancy and favorable market conditions. The filing gives no quantified earnings or FFO guidance. Management also noted that in 2019 new industrial supply exceeded incremental demand for the first time since 2009, while national vacancy remained low. Five substantially completed developments and ten projects under construction involved estimated remaining development costs of approximately $118 million; actual completion costs could be higher.
- Key risks include economic or industrial-market weakness, tenant defaults or lease nonrenewals, vacancies and rent pressure, development cost overruns or delays, and the ability to acquire or sell properties on favorable terms.
- Debt-related risks include refinancing and maturity concentration, interest-rate changes, covenant compliance, credit-rating changes and the transition away from LIBOR. The Company said it was covenant-compliant at year-end and expected to remain so in 2020.
- Other disclosed risks include REIT qualification and tax rules, environmental liabilities, natural disasters and insurance limitations, cybersecurity, joint-venture decision rights and impairment estimates. Legal proceedings in the ordinary course were not expected to materially affect results, financial position or liquidity.
- The Company adopted lease-accounting standard ASC 842 on January 1, 2019, recording operating lease right-of-use assets of $24.9 million and lease liabilities of $22.4 million at year-end. The filing states that the adoption changed presentation but did not materially change rental revenue recognition.
- A tenant’s purchase option for a Phoenix property was deemed reasonably certain to close in August 2020. The lease was reclassified as a sales-type lease, producing an $8.6 million gain in 2019; the filing recorded a $54.5 million lease receivable. The actual property transfer was expected in 2020.
Management and the independent auditor reported effective internal control over financial reporting. The auditor identified purchase-price allocation for property acquisitions as a critical audit matter because fair-value estimates rely on significant assumptions.
Important facts for investors to verify
- How much of 2019 earnings growth was recurring property performance versus property-sale gains, joint-venture income and incentive fees; compare FFO and same-store NOI with GAAP net income.
- Leasing and occupancy progress, especially the 2020 lease expirations and the lease-up of new developments; 6.3% of in-service GLA was scheduled to expire in 2020.
- Funding and refinancing plans for the 2021–2022 debt maturities, revolver borrowings and ongoing development commitments.
- Whether the Phoenix sales-type lease closes as expected and whether remaining development projects finish within budget and achieve planned occupancy.
- Future dividend coverage and liquidity, including the distinction between unrestricted cash and restricted exchange proceeds.