Business Context and Reporting Period
Company: First Industrial Realty Trust, Inc. (First Industrial)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and six months ended June 30, 2005
Business Overview: First Industrial is a Maryland-domiciled Real Estate Investment Trust (REIT) focused on industrial properties. As of June 30, 2005, the Company owned 896 industrial properties (including developments) across 24 states, comprising approximately 72.5 million square feet of gross leasable area (GLA). Operations are conducted primarily through First Industrial, L.P., in which the Company holds an approximate 87.0% interest.
Key Financial Metrics
All figures in thousands, except per share data.
| Metric | Six Months Ended June 30, 2005 | Six Months Ended June 30, 2004 (Restated) |
|---|---|---|
| Total Revenues | $172,263 | $150,702 |
| Net Income | $38,143 | $54,279 |
| Net Income Available to Common Stockholders | $33,523 | $37,086 |
| Diluted EPS (Common) | $0.79 | $0.93 |
| Net Cash Provided by Operating Activities | $21,329 | $20,663 |
| Total Debt (Mortgage + Senior Unsecured + Line of Credit) | $1,636,422 | $1,574,929 |
| Cash and Cash Equivalents | $872 | $4,924 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 14.3% to $172.3 million, driven primarily by a $19.4 million increase in revenue from acquired properties (129 properties acquired since Dec 31, 2003). This was partially offset by a $13.9 million decrease in revenue from sold properties.
- Net Income Decline: Net income available to common stockholders decreased 9.6% to $33.5 million. This decline is largely attributable to a reduction in gains from discontinued operations and higher interest expenses.
- Discontinued Operations: Income from discontinued operations decreased significantly to $43.6 million (from $59.1 million in 2004) due to fewer property sales meeting FAS 144 criteria in the current period compared to the prior year.
- Expense Increases:
- Interest expense rose 8.7% to $51.7 million due to a higher weighted average debt balance ($1.61 billion vs. $1.45 billion) and a slight increase in the weighted average interest rate.
- General and administrative expenses increased 39.1% to $23.5 million, primarily due to higher employee compensation and professional service fees.
- Portfolio Activity: The Company acquired 50 industrial properties (7.1 million sq. ft.) for approximately $237 million and sold 40 industrial properties (5.4 million sq. ft.) for gross proceeds of approximately $294 million.
Guidance, Outlook, Risks, and Unusual Items
- Restatement: The Company restated its 2004 financial results to reallocate income tax benefits/expense between continuing operations, discontinued operations, and gains on sale of real estate, rather than allocating the entire amount to discontinued operations as previously reported.
- Market Risk: Approximately 86.1% of total debt is fixed-rate, while 13.9% is variable-rate. A 10% increase in interest rates on variable debt would decrease future net income by approximately $0.9 million annually.
- Liquidity: The Company maintains a $300 million unsecured line of credit (Line I) with approximately $39.4 million available as of August 1, 2005. On August 1, 2005, the Company entered into a new $150 million unsecured line of credit (Line II) to replace Line I upon its maturity or amendment.
- Construction Commitments: The Company has committed to constructing approximately 2.1 million square feet of industrial properties with estimated total costs of $143.3 million; approximately $68.4 million remains to be funded.
- Dividends: The Company declared a quarterly dividend of $0.6950 per common share for the second quarter of 2005.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the sustainability of earnings by analyzing "Net Income Available to Common Stockholders" excluding the volatile gains from discontinued operations, which dropped significantly year-over-year.
- Debt Maturity Profile: Review the schedule of debt maturities, noting that $51.2 million is due in the remainder of 2005 and $157.8 million in 2006, to assess refinancing risks.
- Occupancy Rates: Confirm the reported 90.0% occupancy rate for same-store properties and monitor trends in rental rates and lease expirations.
- Construction Costs: Monitor the $68.4 million remaining construction commitment to ensure costs do not exceed estimates, which could impact cash flow.
- Joint Venture Accounting: Review the impact of the new EITF 04-05 standard (effective Dec 31, 2005) on the consolidation of the Company's joint ventures.