Business context and reporting period
First Industrial Realty Trust, Inc. is a REIT focused on industrial properties. This unaudited Form 10-Q covers the three months ended March 31, 2015, compared with the three months ended March 31, 2014. At quarter-end, the company owned 629 properties in 25 states, totaling approximately 63.0 million square feet. Same-store occupancy averaged 92.6%, unchanged year over year. Unless noted otherwise, financial amounts below are in millions.
Financial and operating results
| Metric | Q1 2015 | Q1 2014 | Change or context |
|---|---|---|---|
| Total revenue | $89.9 | $83.9 | Up 7.3%; rental income was $68.2 versus $62.0 |
| Property expenses | $29.8 | $30.3 | Down 1.7% |
| Net income | $2.5 | $5.1 | Lower largely in the context of a $13.0 mark-to-market swap loss |
| Net income attributable to the company | $2.4 | $5.0 | Common-stockholder EPS was $0.02 in both periods |
| Funds from operations (FFO), available to common stockholders and participating securities | $21.8 | $26.5 | Down about 17.8%; non-GAAP measure |
| Same-store NOI | $58.0 | $54.6 | Up about 6.2%; non-GAAP measure |
| Cash from operating activities | $28.0 | $24.1 | Up $3.8 |
| Cash from investing activities | $2.1 | $(13.9) | 2015 included property-sale proceeds |
| Cash used in financing activities | $(36.0) | $(13.9) | Included distributions and net credit-facility repayments |
Quarter-end cash and cash equivalents were $3.6; restricted cash was $1.8. Total debt carrying value was approximately $1.330 billion, compared with $1.350 billion at December 31, 2014. Total assets were $2.554 billion. The company declared distributions of $0.1275 per share, versus $0.1025 a year earlier.
Material changes versus the prior comparable period
- Revenue growth reflected same-store revenue gains, contributions from acquired properties and increased occupancy in developments, partly offset by revenue declines from properties sold.
- Same-store property expenses fell $1.6 million, primarily because snow-removal costs were lower than during the severe winter of 2014. General and administrative expense rose 26.2%, mainly due to immediate recognition of CEO restricted-stock compensation.
- Interest expense declined 12.6% to $16.6 million, primarily reflecting a lower average interest rate; the reported average rate was 5.07%, versus 5.83% in Q1 2014.
- The company sold nine properties totaling approximately 0.5 million square feet, generating $25.6 million of net proceeds and a $7.9 million gain. Under newly adopted discontinued-operations guidance, these sales were reported in continuing operations.
- FFO decreased despite revenue and same-store NOI growth. Equity income from joint ventures fell by approximately $2.9 million, primarily because of lower gains and earn-outs from property sales by the 2003 Net Lease Joint Venture.
Outlook, risks, contingencies and unusual items
- No specific earnings or operating guidance was provided. Management expected operating cash flow and selected asset dispositions to support recurring needs, with debt, equity and credit-facility borrowings also available subject to market conditions and restrictions.
- The $625 million revolving credit facility was amended and extended to March 11, 2019, with an option for a further one-year extension subject to restrictions. At March 31, $450 million was available; the filing reported approximately $420 million available as of April 29. The facility may be increased to $900 million subject to restrictions.
- Management expected to refinance or repay $159.7 million of 5.75% notes due January 2016 and $82.1 million of mortgage debt maturing or expected to be prepaid before March 31, 2016, primarily using the credit facility. It believed the company was covenant-compliant and expected to remain compliant through 2015.
- The company reclassified a $13.0 million loss on Group II interest-rate swaps to earnings after determining the planned unsecured-debt offering was no longer probable within the designated period. On April 29, 2015, it settled those swaps for a payment of $11.5 million. This was a significant unusual item affecting reported earnings.
- Eight industrial buildings totaling approximately 1.6 million square feet were under construction. Estimated total investment was $106.5 million, of which $59.7 million remained to be funded; actual completion costs could exceed estimates.
- Key risks cited include economic and industrial-property market conditions, tenant creditworthiness and lease-up, development delays or cost overruns, access to financing, interest rates, refinancing and covenant compliance, competition, asset valuations, environmental liabilities and REIT qualification. The filing reported no material change to the risk factors from the prior Form 10-K. Routine legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Reconcile the $13.0 million swap loss recognized in Q1 earnings with the $11.5 million settlement paid after quarter-end, and assess the resulting future interest-rate exposure.
- Review the company’s ability to refinance the 2016 notes and near-term mortgage maturities, and confirm credit-facility availability and covenant headroom.
- Track whether same-store NOI growth and leasing gains persist, including the reported 9.3% GAAP rent growth on leases signed and 60.5% weighted-average renewal retention.
- Monitor completion costs, funding needs and lease-up for the construction pipeline, as well as planned dispositions and their effects on revenue and liquidity.
- Consider FFO and same-store NOI as supplemental, non-GAAP measures; neither is a substitute for GAAP earnings or operating cash flow.