Business context and reporting period
First Industrial Realty Trust, Inc. filed this Form 10-K for the fiscal year ended December 31, 2012. The REIT owns, manages, acquires, sells and develops industrial real estate. Its year-end in-service portfolio comprised 714 properties and approximately 63.4 million square feet across 26 U.S. states and one Canadian province; portfolio occupancy was 90%.
Financial and operating performance
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Total revenue | $327.3 million | $315.9 million |
| Net loss available to common stockholders | $22.1 million; $(0.24) per share | $27.0 million; $(0.34) per share |
| Funds from operations (FFO), available to common stockholders | $80.6 million | $72.2 million |
| Cash from operating activities | $136.4 million | $87.5 million |
| Cash from investing activities | $(42.2) million | $(3.8) million |
| Cash from financing activities | $(99.4) million | $(99.5) million |
| Cash and cash equivalents at year-end | $4.9 million | $10.2 million |
| Total debt at year-end | $1,335.8 million | $1,479.5 million |
Revenue increased 3.6%. Same-store revenue rose 2.1%, supported primarily by higher average occupancy and lease cancellation fees; same-store occupancy averaged 87.5%, versus 86.3%. Property expenses were $105.1 million, down 1.4%; general and administrative expense rose 21.6% to $25.1 million, mainly due to accelerated CEO restricted-stock expense and higher incentive compensation. Interest expense declined 16.7% to $83.5 million as average debt balances and borrowing rates fell. FFO is a non-GAAP measure and is not a substitute for GAAP earnings or operating cash flow.
At December 31, 2012, the company had $98.0 million outstanding on its $450 million unsecured credit facility and $352 million of additional borrowing capacity, subject to restrictions. Debt represented 44.3% of total market capitalization. Approximately 92.7% of debt was fixed-rate. The company had $4.9 million cash on hand and reported $763.6 million of mortgage and other loans payable and $474.2 million of senior unsecured notes.
Material changes and notable items
- The company issued common stock in public and at-the-market offerings, raising approximately $134.9 million net, and redeemed $50.0 million of Series J preferred stock.
- It repurchased and retired $106.3 million principal amount of senior unsecured notes for $110.6 million and paid off $61.8 million of notes at maturity. Debt-retirement losses totaled $9.7 million.
- It originated $100.6 million of fixed-rate mortgage loans at 4.03%, maturing in September 2022.
- It acquired one industrial property and land parcels for approximately $46.7 million, placed two developments totaling 0.8 million square feet into service, and sold 28 properties and one land parcel for gross proceeds of approximately $85.6 million.
- GAAP common distributions were zero in 2012. The board subsequently approved a first-quarter 2013 common dividend of $0.085 per share/unit.
- Reported net loss included income from discontinued operations and property-sale gains; the common-stockholder loss from continuing operations was $36.0 million, or $(0.39) per share.
Outlook, risks and contingencies
Management expected short-term liquidity needs to be funded primarily from operating cash flow and selected asset sales. Longer-term needs, including acquisitions, development, capital improvements and debt maturities, were expected to be met through asset sales, secured or unsecured borrowing and potential equity issuance, depending on market conditions. Management anticipated covenant compliance in 2013; no earnings or revenue guidance was provided in the supplied filing text.
The company was committed to three development projects totaling approximately 1.5 million square feet, with estimated total completion costs of $107.7 million and $45.8 million remaining to fund. It cautioned that actual costs could exceed estimates. Scheduled debt maturities included $234.1 million in 2014, including the unsecured credit facility maturity; the facility had a one-year extension option. The filing stated there were no commitments to refinance listed debt maturities.
Key risks include refinancing and capital-market access, covenant compliance, interest-rate exposure, tenant defaults and lease renewals, industrial-market conditions, property valuation and impairment, development cost or schedule overruns, REIT qualification, environmental liabilities, and joint-venture risks. Leases covering 15% of portfolio GLA expire in 2013 and 18% in 2014. Mortgage loans totaling $483.5 million were cross-collateralized. The company reported BB/Ba3/BB ratings from S&P, Moody’s and Fitch, respectively.
A proposed IRS settlement concerning a prior tax refund resulted in a $5.3 million 2012 tax charge; final Joint Committee on Taxation review and approval remained pending, with no timing assurance. The filing estimated environmental spending of approximately $1.1 million in 2013 and up to $2.8 million for currently identified issues in 2013 and beyond. Ordinary-course legal proceedings were not expected to have a material effect. Management and the auditor reported effective internal control over financial reporting at year-end.
Most important facts for investors to verify
- Debt maturities and refinancing plans, especially the 2014 obligations and credit-facility extension status.
- Whether the company sustains occupancy, renews leases expiring in 2013–2014, and achieves rent growth after turnover costs.
- Development spending, leasing progress and final costs for the three committed projects.
- Cash available for operations and distributions, given low year-end cash and reliance on asset sales and external capital.
- Final outcome and distribution tax consequences of the pending IRS settlement.
- Reconciliation of GAAP losses to FFO and the contribution of property sales and discontinued operations to reported results.