Business context and reporting period
First Industrial Realty Trust, Inc. is a REIT that owns, leases, acquires, develops and sells industrial properties, primarily through First Industrial, L.P. This combined Form 10-Q covers the quarter and nine months ended September 30, 2017; the Company owned 516 properties totaling approximately 62.8 million square feet across 22 states. Unless noted, dollar amounts below are in millions.
Financial and operating results
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $99.3 | $93.6 | $294.3 | $280.0 |
| Net income | $44.7 | $32.7 | $107.0 | $101.1 |
| Net income attributable to common stockholders | $43.2 | $31.5 | $103.5 | $97.4 |
| Diluted EPS | $0.36 | $0.27 | $0.87 | $0.85 |
| FFO attributable to common stockholders and participating securities | $49.3 | $42.9 | $136.9 | $123.7 |
| Same-store NOI | $64.5 | $62.2 | $193.6 | $185.0 |
Q3 revenue rose 6.1% year over year and nine-month revenue rose 5.1%. Same-store revenue increased 2.9% over the nine-month period; average same-store occupancy was 96.1%, versus 96.4% in 2016. Nine-month same-store NOI increased about 4.6%. The quarterly dividend/distribution was $0.21 per share or unit, up 10.5% from the 2016 quarterly rate.
For the nine months, operating cash flow was $146.7; investing cash flow was negative $164.6; financing cash flow was positive $17.5. Cash and cash equivalents were $9.5 at September 30, with restricted cash of $5.1. Total debt carrying amount was approximately $1,375.1, excluding unamortized financing costs; fair value was $1,417.8. Fixed-rate debt represented 88.6% of total debt, including $460.0 of variable-rate term loans effectively swapped to fixed rates. The unsecured credit facility had $463.2 available at quarter-end.
Material changes versus the prior comparable period
- Net income increased 36.7% in Q3 and 5.9% for the first nine months. Earnings included real estate sale gains of $23.3 in Q3 and $52.1 year to date; the prior-year nine-month sale gain was $60.8.
- Q3 included a $1.8 mark-to-market gain on Treasury Locks related to an anticipated debt offering; this was not recurring rental income. Nine-month results also included a $1.7 loss from retiring mortgage debt.
- During the first nine months, the company acquired six industrial properties and land parcels for approximately $159.0, and sold 30 properties for gross proceeds of approximately $99.3. It issued $200.0 of private-placement notes and raised approximately $74.9 net from a common-stock offering.
- Interest expense declined 3.5% year over year for the nine-month period, reflecting lower average debt and interest rates and higher capitalized interest. Same-store occupancy edged down year over year.
Outlook, risks and contingencies
No quantified earnings or operating guidance was provided. Management expected short-term liquidity needs to be met through operating cash flow, selected asset dispositions and, as needed, credit-facility borrowings or capital-market financing. It expected to use dispositions and debt or equity issuance to address longer-term needs. Management stated it was in compliance with debt covenants and expected to remain compliant through the rest of 2017.
Debt due before September 30, 2018 included $55.0 of notes due December 1, 2017 and $159.5 of mortgage loans. Management expected to meet these obligations with credit-facility borrowings. Nine properties totaling approximately 2.7 million square feet were under construction, with estimated total investment of $192.6 and approximately $120.9 remaining to fund; actual completion costs could exceed estimates.
The company reported an $8.8 insurance receivable related to two fire-damaged properties, but collection and recovery of repair costs were not assured. It described ordinary-course property-related legal matters as not expected to have a material adverse effect. Principal risks include economic and industrial-property market conditions, tenant defaults or nonrenewals, occupancy and rental rates, financing availability and rates, covenant compliance, acquisition and development execution, construction costs, REIT qualification and environmental matters. Management reported no material change to the risk factors in the 2016 Form 10-K. Subsequent to quarter-end through October 26, the company sold nine properties for approximately $54.1 and acquired one for approximately $8.2.
Important facts for investors to verify
- Whether the expected refinancing of near-term maturities, particularly the $55.0 note and $159.5 of mortgage loans, proceeds on acceptable terms.
- Whether development projects remain within budget and schedule, including funding of the approximately $120.9 remaining commitment.
- Whether asset-sale gains and dispositions are sustainable and how sales affect recurring rental income, occupancy and portfolio quality.
- Collection of the $8.8 fire-related insurance receivable and the cost and timing of repairs.
- Future leasing performance, same-store occupancy and rental growth, and the effects of interest rates and debt covenants on liquidity.
- FFO and NOI are supplemental non-GAAP measures, not substitutes for GAAP earnings or operating cash flow; compare definitions when assessing performance.