First Industrial Realty Trust, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2022. First Industrial owns, manages, acquires, sells, develops and redevelops industrial real estate. At quarter-end it owned 421 properties across 18 states, totaling approximately 64.8 million square feet. The Company conducts substantially all operations through First Industrial, L.P.; results are presented on a consolidated basis.
Financial and operating performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $139.8 million | $121.1 million | $395.3 million | $354.7 million |
| Net income | $126.9 million | $43.4 million | $297.7 million | $160.2 million |
| Company diluted EPS | $0.94 | $0.33 | $2.10 | $1.21 |
| FFO available to common stockholders and participating securities | $79.2 million | $66.3 million | $222.5 million | $188.3 million |
| Same-store NOI | $87.8 million | $80.9 million | $257.4 million | $232.2 million |
Nine-month operating cash flow was $346.0 million, compared with $196.4 million a year earlier. Investing used $511.5 million, primarily for acquisitions, development and property improvements; financing provided $258.5 million. Cash, cash equivalents and restricted cash totaled $151.8 million at September 30.
At quarter-end, reported indebtedness was approximately $1.991 billion, up from $1.617 billion at December 31, 2021. Debt fair value was $1.868 billion. The company reported 60.7% of debt as fixed-rate and 39.3% as variable-rate at September 30. Approximately 99.3% of real estate was unencumbered. Management reported $687.6 million available under its unsecured credit facility and unused term-loan capacity, and $138.6 million in cash and restricted cash after excluding the joint-venture partner’s share.
Operating indicators were strong: quarter-end in-service occupancy was 98.3%; average same-store occupancy was 98.1% in Q3 versus 96.7% a year earlier. Cash rental rates on leases commenced during the first nine months increased 22.8% on new and renewal leasing, and 30.9% in Q3, as reported by management.
Material changes versus the prior comparable period
- Revenue rose 15.4% in Q3 and 11.4% for the first nine months. Same-store revenue growth, higher occupancy and rental rates, acquired properties, and lease-up of developments contributed.
- GAAP net income rose sharply, but results include significant property-sale gains and, year to date, substantial joint-venture income. Q3 included an $83.9 million gain on real estate sales; nine-month results included $84.2 million of consolidated property-sale gains and $118.2 million of equity income from joint ventures.
- Nine-month joint-venture income included the company’s share of an $86.4 million gain from a Phoenix land sale and $32.3 million of incentive fees. The joint venture sold 391 acres for gross proceeds of $255 million.
- Q3 interest expense increased 32.9% year over year, reflecting higher average debt and a slightly higher average interest rate. Nine-month interest expense decreased 3.7%, aided by capitalized interest and a lower average rate.
- Debt increased with investment activity and refinancing. The company replaced a $260 million term loan with a $425 million loan maturing in October 2027 and entered a separate $300 million term-loan facility, undrawn at quarter-end.
Outlook, risks and unusual items
- The filing provides no numerical full-year earnings or operating guidance. Management said it expects short-term liquidity needs to be met through operating cash flow, asset dispositions and, as appropriate, debt or equity financing.
- There were 18 development projects totaling approximately 3.7 million square feet under construction, with estimated total investment of $571.1 million and approximately $259.4 million remaining to fund. Actual completion costs could exceed estimates.
- The company provided completion, non-recourse-exception and environmental guarantees related to a joint-venture development project. The filing says significant guarantee payments are not expected, but potential additional costs cannot be estimated clearly. The project’s construction loan capacity was $149.5 million and had no borrowings at quarter-end.
- Interest-rate exposure increased: variable-rate debt represented 39.3% of debt at September 30. Swaps covering $425 million of the 2022 term loan became effective October 3, 2022. The company also planned to modify LIBOR-indexed debt and swaps before June 2023 as LIBOR is phased out.
- Other identified risks include economic and industrial-property market conditions, financing availability and interest rates, tenant defaults or non-renewals, rent and occupancy changes, development costs and delays, covenant compliance, environmental matters, and joint-venture risks. Management reported covenant compliance at quarter-end and no material change to previously disclosed risk factors.
- Subsequent to quarter-end, the company acquired one industrial property and one land parcel for $26.5 million, excluding transaction costs. The filing reported no legal proceedings expected to materially affect the company.
Important facts for investors to verify
- How much reported earnings and operating cash flow depend on non-recurring asset-sale gains, joint-venture land-sale income and incentive fees; compare these with recurring FFO and same-store NOI.
- Development funding needs, leasing progress and completion costs, including the $259.4 million remaining estimate for projects under construction.
- Debt maturity, interest-rate and refinancing exposure, including the variable-rate share, swap effectiveness and LIBOR-to-SOFR transition.
- Liquidity availability and covenant headroom as acquisitions, development spending and distributions continue.
- Whether strong occupancy and rental-rate growth persist, and how future leasing costs, tenant concessions and property expenses affect cash returns.