Business Context and Reporting Period
Company: First Industrial Realty Trust, Inc. (First Industrial)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 1998
Business Overview: First Industrial is a self-administered, fully integrated Real Estate Investment Trust (REIT) organized in Maryland. The Company owns, manages, acquires, sells, and develops industrial real estate, including light industrial, R&D/flex, bulk warehouse, regional warehouse, and manufacturing properties. As of December 31, 1998, the portfolio consisted of 987 in-service properties totaling approximately 69.3 million square feet of Gross Leasable Area (GLA) across 25 states.
Key Financial Metrics
| Metric | 1998 | 1997 |
|---|---|---|
| Total Revenues | $349.7 million | $223.2 million |
| Net Income | $75.7 million | $51.9 million |
| Net Income Available to Common Stockholders | $45.1 million | $40.1 million |
| Funds From Operations (FFO) | $133.1 million | $92.4 million |
| Cash Flow from Operating Activities | $149.1 million | $102.6 million |
| Total Assets | $2,554.5 million | $2,272.2 million |
| Total Liabilities | $1,310.5 million | $1,266.1 million |
| Stockholders' Equity | $1,054.8 million | $854.6 million |
| Occupancy Rate | 95% | 96% |
Material Changes vs. Prior Period
- Portfolio Expansion: The Company expanded its in-service portfolio by 22.4% from 1997 to 1998. It acquired 247 properties (12.3 million sq. ft.) and completed 12 developments (2.6 million sq. ft.), while selling 41 properties (2.0 million sq. ft.).
- Revenue Growth: Total revenues increased by 56.7% ($126.5 million) primarily due to the acquisition and development of approximately $1.4 billion of industrial properties between 1997 and 1998.
- Expense Increases: Property expenses rose 66.5% and interest expense increased 44.1% ($22.0 million) due to higher debt balances supporting acquisitions. General and administrative expenses increased by $6.7 million, partly due to the adoption of EITF 97-11 requiring expensing of internal acquisition costs.
- One-Time Charges: The 1998 results included a $11.9 million restructuring and abandoned pursuit costs charge and an $8.5 million loss on the disposition of interest rate protection agreements. Conversely, 1997 included a $14.1 million extraordinary loss related to debt terminations.
- Debt Refinancing: The Company paid off and retired its $300.0 million defeased mortgage loan in January 1998 and issued $300.0 million of new senior unsecured debt with maturities ranging from 2011 to 2028.
Guidance, Outlook, and Risks
Management Commentary: Management focuses on maximizing total return through distribution increases and property value appreciation. The Company continues an active acquisition and development program, targeting markets where it has established scale. In 1998, the Company entered a joint venture (September 1998 Joint Venture) with an institutional investor, owning a 10% equity interest in 130 properties (6.3 million sq. ft.).
Liquidity: As of December 31, 1998, the Company held $21.8 million in cash and cash equivalents and $11.0 million in restricted cash. The Company maintains a $300.0 million unsecured revolving credit facility, with approximately $156.7 million available as of March 12, 1999.
Risks and Contingencies:
- Market Risk: Approximately 11% of total debt was variable rate. A 10% increase in interest rates on variable debt would decrease future net income by approximately $0.9 million annually.
- Year 2000 Compliance: The Company believes the risk of material adverse effects from Year 2000 issues is minimal, though it cannot guarantee success in identifying all issues.
- Environmental: Estimated aggregate costs for identified environmental issues in 1999 and beyond are not expected to exceed $2.3 million.
- Accounting Changes: The Company adopted SOP 98-5, resulting in a $2.0 million cumulative effect of a change in accounting principle (write-off of organizational costs).
Investor Verification Checklist
- Debt Structure: Verify the terms and covenants of the new $300 million senior unsecured debt issued in 1998 and the remaining balance on the $300 million revolving credit facility.
- One-Time Charges: Assess the impact of the $11.9 million restructuring charge and $8.5 million interest rate protection loss on core operating performance.
- Occupancy Trends: Monitor the slight decline in occupancy from 96% in 1997 to 95% in 1998 and the impact of lease expirations (22% of GLA expiring in 1999).
- Joint Venture: Review the performance and terms of the September 1998 Joint Venture, including the Company's 10% equity interest and management fee arrangements.
- Dividend Sustainability: Confirm that cash flows from operations continue to support the $2.19 per share distribution paid in 1998, noting that 34.6% was classified as a return of capital.