Business Context and Reporting Period
Company: First Industrial Realty Trust, Inc. (First Industrial)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: First Industrial is a real estate investment trust (REIT) owning and operating industrial properties. As of June 30, 2009, the portfolio consisted of 792 industrial properties (including developments) across 28 U.S. states and one Canadian province, totaling approximately 70.0 million square feet of gross leaseable area (GLA). The company also holds noncontrolling interests in seven joint ventures focused on industrial real estate.
Key Financial Metrics
| Metric (in thousands, except per share) | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenues | $220,578 | $240,348 |
| Net (Loss) Income Attributable to Common Stockholders | $(23,111) | $89,302 |
| Basic/Diluted EPS (Common Stockholders) | $(0.52) | $2.02 |
| Net Cash Provided by Operating Activities | $51,757 | $34,853 |
| Cash and Cash Equivalents (End of Period) | $54,962 | $14,413 |
| Total Debt (Mortgage + Senior Unsecured + Line of Credit) | $2,087,877 | $2,032,635 |
| Same Store Occupancy Rate | 85.7% | 88.9% |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 8.2% to $220.6 million. Rental income from same-store properties dropped 7.3% due to lower occupancy and tenant recoveries. Construction revenues fell 34.8% as several development projects reached substantial completion.
- Net Loss: The company reported a net loss of $23.1 million for the six months ended June 30, 2009, compared to net income of $89.3 million in the prior year. This shift was driven by a significant decrease in gains from discontinued operations (property sales) and restructuring costs.
- Discontinued Operations: Income from discontinued operations plummeted from $154.7 million in 2008 to $9.2 million in 2009. The 2008 figure included a $143.8 million gain on the sale of 89 industrial properties, whereas 2009 included only an $8.3 million gain on six properties.
- Expense Reduction: General and administrative expenses decreased 53.0% to $21.8 million, primarily due to reduced employee headcount and incentive compensation. However, the company incurred $4.8 million in restructuring charges related to severance and lease terminations.
- Liquidity Improvement: Cash and cash equivalents increased significantly from $3.2 million at year-end 2008 to $55.0 million at June 30, 2009, bolstered by operating cash flows and new mortgage financings.
Guidance, Outlook, and Risks
- Liquidity Strategy: Management plans to enhance liquidity through capital retention (suspending common dividends in April and July 2009), mortgage financing, and asset sales. The company did not pay a common dividend in Q2 2009 and may not pay in future quarters depending on taxable income.
- Debt Management: The company successfully refinanced $125 million in 2009 Notes and $5 million in secured mortgage debt using three new mortgage financings totaling approximately $154 million. Additionally, the company repurchased $15.7 million of 2012 Notes at a discount during the period and $56.5 million of senior unsecured debt subsequent to the period end.
- Dividend Policy: To maintain REIT status, the company intends to distribute the minimum required dividends. If cash is insufficient, it may distribute a combination of cash and common shares.
- Risks:
- Market Conditions: The global recession has pressured net operating income and impaired the ability to sell properties at advantageous prices.
- Covenant Compliance: The company is subject to complex financial covenants regarding debt service coverage and indebtedness limits. While compliant as of June 30, 2009, future economic conditions could impact this status.
- Interest Rate Risk: Approximately 21.1% of total debt is variable rate. A 10% increase in rates would impact future net income by approximately $0.6 million annually.
Investor Verification Checklist
- Dividend Status: Verify the company's ability to maintain REIT status without paying cash common dividends and the potential impact of stock distributions on share count.
- Asset Sales Pipeline: Assess the progress of discussions to sell additional properties, as liquidity is heavily dependent on successful dispositions in a challenging market.
- Debt Covenants: Monitor compliance with debt service coverage ratios and total indebtedness limitations, particularly given the cross-default provisions in credit facilities.
- Occupancy Trends: Track same-store occupancy rates (currently 85.7%) and rental rate stability, as these are primary drivers of recurring revenue.
- Restructuring Completion: Confirm the realization of anticipated savings from the restructuring plan and the timing of remaining charges.