First Industrial Realty Trust, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing combines the Company and First Industrial, L.P. financial reports; the Company is a REIT and owns approximately 96.3% of the Operating Partnership.
Business context
First Industrial owns, manages, acquires, develops, redevelops and sells U.S. industrial real estate. At year-end, its in-service portfolio comprised 580 properties and 61.6 million square feet across 25 states, with 1,650 tenants. Portfolio occupancy was 96.1%; average base rent was $4.77 per square foot.
Key financial and operating metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Total revenue | $365.8 million | $344.6 million |
| Income from continuing operations | $76.7 million | $23.2 million |
| Net income available to common stockholders and participating securities | $73.8 million | $46.6 million |
| Diluted earnings per share | $0.66 | $0.42 |
| Funds from operations (FFO), a non-GAAP measure | $140.8 million | $127.9 million |
| Cash provided by operating activities | $162.1 million | $137.2 million |
| Cash used in investing activities | $197.1 million | $69.1 million |
| Indebtedness at year-end | $1,442.4 million | $1,349.8 million |
| Total assets / total equity at year-end | $2,718.1 million / $1,115.1 million | $2,582.0 million / $1,090.8 million |
| Same-store net operating income (NOI), non-GAAP | $231.7 million | $220.3 million |
Same-store NOI increased 5.2%; same-store average occupancy rose to 94.2% from 93.2%. Same-store NOI as a percentage of same-store revenue was approximately 71.5%, versus 69.2% in 2014. This is a derived operating measure, not a GAAP margin. Interest expense fell to $67.4 million from $72.2 million, while the weighted average debt balance increased to $1,399.9 million from $1,380.6 million; the average interest rate declined to 4.99% from 5.33%.
At December 31, cash and cash equivalents were $4.0 million and restricted cash was $23.0 million. The company reported $571.6 million available under its $625 million unsecured revolving facility at year-end; availability was approximately $356.6 million as of February 24, 2016. About 96.4% of debt was fixed-rate, including debt fixed through swaps. Senior unsecured notes were rated BBB-/Baa3/BBB- by S&P, Moody’s and Fitch, respectively.
Material changes versus 2014
- Revenue grew 6.1%, reflecting higher same-store occupancy and rents, contributions from acquired properties and developments, partly offset by lower revenue from sold properties.
- Continuing-operations income increased substantially. 2015 included a $48.9 million real estate sale gain and an $11.5 million loss on settlement and mark-to-market of interest-rate protection agreements. In 2014, $27.8 million of income was reported from discontinued operations, including property-sale gains; comparisons are affected by the adoption of a revised discontinued-operations standard.
- FFO increased 10.1%. Operating cash flow rose by $25.0 million, while investing cash outflow increased as acquisitions and property investment expanded.
- Debt increased $92.6 million. The company entered a seven-year, $260 million unsecured term loan and amended its $625 million revolving facility, extending maturity to March 2019 with a one-year extension option.
- Common dividends and Operating Partnership distributions rose to $0.51 per share or unit from $0.41, a 24% increase. The company reported meeting its 2015 minimum REIT distribution requirements.
Outlook, risks and unusual items
- Management expected 2016 cash rental rates on renewals to be slightly above expiring rates and new-lease rates to be comparable to or slightly higher than prior leases. It cited positive industrial-market absorption and improving rental conditions; this is management’s expectation, not formal earnings guidance.
- Lease expirations in 2016 cover 11% of in-service GLA and 12% of annualized base rent, or approximately $33.9 million. Reletting, renewal pricing and tenant retention are key execution factors.
- Four developments totaling approximately 1.4 million square feet were under construction at year-end, with estimated investment of $78.7 million and $59.7 million remaining to fund. Costs or completion timing could exceed estimates.
- 2016 debt maturities were reported at $229.0 million, including $159.7 million of 5.75% notes paid at maturity on January 15, 2016, and $58.1 million of mortgage loans maturing before year-end. The company expected to use its revolving facility for these obligations.
- Principal risks include economic and industrial-property market changes, tenant defaults or nonrenewals, vacancy and rent pressure, access to capital, refinancing and interest-rate exposure, debt covenant compliance, development costs, property valuation and impairment, environmental liabilities, REIT qualification and regulatory changes.
- The PATH Act lowered the permitted taxable REIT subsidiary asset limit to 20% for tax years beginning after 2017; the filing states current holdings do not exceed 20%. Ordinary-course legal proceedings were not expected to materially affect results, financial position or liquidity. Management and the auditor reported effective internal controls.
Important facts for investors to verify
- How much of 2015 earnings growth reflects recurring leasing and property operations versus the $48.9 million property-sale gain, and how the $11.5 million swap settlement loss affects comparisons.
- Whether occupancy, renewal spreads and same-store NOI continue improving, particularly as 2016 expirations represent 12% of annualized base rent.
- Current liquidity and debt capacity after the 2016 notes repayment, and the funding plan for remaining maturities, development commitments and capital needs.
- Development leasing, delivery schedules and final costs, including the four projects under construction at year-end.
- The sustainability of distributions relative to recurring cash flow and capital spending; FFO and NOI are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.