The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q. Unless stated otherwise or the context otherwise requires, the terms "we," "our" and "us" refer toFirst Industrial Realty Trust, Inc. (the "Company") and its subsidiaries, includingFirst Industrial, L.P. (the "Operating Partnership") and its consolidated subsidiaries.
Forward-Looking Information
The following discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). We intend for such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on certain assumptions and describe our future plans, strategies and expectations, and are generally identifiable by use of the words "believe," "expect," "plan," "intend," "anticipate," "estimate," "project," "seek," "target," "potential," "focus," "may," "will," "should" or similar words. Although we believe the expectations reflected in forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that results will not materially differ.
Factors that could have a materially adverse effect on our operations and future prospects include, but are not limited to:
•changes in national, international, regional and local economic conditions generally and real estate markets specifically; •changes in legislation/regulation (including changes to laws governing the taxation of real estate investment trusts) and actions of regulatory authorities; •our ability to qualify and maintain our status as a real estate investment trust; •the availability and attractiveness of financing (including both public and private capital) and changes in interest rates; •the availability and attractiveness of terms of additional debt repurchases; •our ability to retain our credit agency ratings; •our ability to comply with applicable financial covenants; •our competitive environment; •changes in supply, demand and valuation of industrial properties and land in our current and potential market areas; •our ability to identify, acquire, develop and/or manage properties on favorable terms; •our ability to dispose of properties on favorable terms; •our ability to manage the integration of properties we acquire; •potential liability relating to environmental matters; •defaults on or non-renewal of leases by our tenants; •decreased rental rates or increased vacancy rates; •higher-than-expected real estate construction costs and delays in development or lease-up schedules; •the uncertainty and economic impact of pandemics, epidemics or other public health emergencies or fear of such events, such as the outbreak of COVID-19; •potential natural disasters and other potentially catastrophic events such as acts of war and/or terrorism; •litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; •risks associated with our investments in joint ventures, including our lack of sole decision-making authority; and •other risks and uncertainties described in this report, in Item 1A, "Risk Factors" and elsewhere in our annual report on Form 10-K for the year endedDecember 31, 2021 as well as those risks and uncertainties discussed from time to time in our other Exchange Act reports and in our other public filings with theSecurities and Exchange Commission (the "SEC"). We caution you not to place undue reliance on forward-looking statements, which reflect our outlook only and speak only as of the date of this report. We assume no obligation to update or supplement forward-looking statements. 30 --------------------------------------------------------------------------------
General
The Company is a self-administered and fully integrated real estate company which owns, manages, acquires, sells, develops and redevelops industrial real estate. The Company is aMaryland corporation organized onAugust 10, 1993 and a real estate investment trust ("REIT") as defined in the Internal Revenue Code of 1986 (the "Code"). As ofSeptember 30, 2022 , we owned 421 industrial properties located in 18 states, containing an aggregate of approximately 64.8 million square feet of gross leasable area ("GLA"). Of the 421 properties owned on a consolidated basis, none of them are directly owned by the Company. We began operations onJuly 1, 1994 . The Company's operations are conducted primarily through theOperating Partnership , of which the Company is the sole general partner (the "General Partner"), with an approximate 97.7% ownership interest ("General Partner Units") atSeptember 30, 2022 .The Operating Partnership also conducts operations through several other limited partnerships (the "Other Real Estate Partnerships"), numerous limited liability companies ("LLCs") and certain taxable REIT subsidiaries ("TRSs"), the operating data of which, together with that of theOperating Partnership , is consolidated with that of the Company as presented herein.The Operating Partnership holds at least a 99% limited partnership interest in each of theOther Real Estate Partnerships. The general partners of the Other Real Estate Partnerships are separate corporations, wholly-owned by the Company, each with at least a .01% general partnership interest in the Other Real Estate Partnerships. The Company does not have any significant assets or liabilities other than its investment in theOperating Partnership and its 100% ownership interest in the general partners of the Other Real Estate Partnerships. The noncontrolling interest in theOperating Partnership of approximately 2.3% atSeptember 30, 2022 represents the aggregate partnership interest held by the limited partners thereof ("Limited Partner Units" and together with the General Partner Units, the "Units").
We also own an equity interest in and provide various services to a joint
venture (the "Joint Venture") through a wholly-owned TRS of the
Available Information
We maintain a website at www.firstindustrial.com. Information on this website shall not constitute part of this Form 10-Q. Copies of our respective annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports are available without charge on our website as soon as reasonably practicable after such reports are filed with or furnished to theSEC . These documents also may be accessed through theSEC's Interactive Data Electronic Application via theSEC's home page on the Internet (www.sec.gov). In addition, the Company's Corporate Governance Guidelines, Code of Business Conduct and Ethics, Audit Committee Charter, Compensation Committee Charter and Nominating/Corporate Governance Committee Charter, along with supplemental financial and operating information prepared by us, are all available without charge on the Company's website or upon request to the Company. Amendments to, or waivers from, our Code of Business Conduct and Ethics that apply to our executive officers or directors will also be posted to our website. We also post or otherwise make available on our website from time to time other information that may be of interest to our investors. 31 --------------------------------------------------------------------------------
Management's Overview
Business Objectives and Growth Plans
Our fundamental business objective is to maximize the total return to the Company's stockholders and theOperating Partnership's partners by increasing our cash flow and property values. Our long-term business growth plans include the following elements: •Internal Growth. We seek to grow internally by (i) increasing revenues by renewing or re-leasing spaces subject to expiring leases at higher rental levels; (ii) contractual rent escalations on our long-term leases; (iii) increasing occupancy levels at properties where vacancies exist and maintaining occupancy elsewhere; (iv) controlling and minimizing property operating expenses, general and administrative expenses and releasing costs; and (v) renovating existing properties. •External Growth. We seek to grow externally through (i) the development of best-in-class industrial properties within our 15 target markets; (ii) the acquisition of portfolios of industrial properties or individual properties that meet our investment parameters within our 15 target markets; (iii) the expansion of our properties; and (iv) possible additional joint venture investments. •Portfolio Enhancement. We continually seek to upgrade our overall portfolio via new investments as well as through the sale of select assets that we believe do not exhibit favorable characteristics for long-term cash flow growth. We seek and pursue new investments in 15 target markets where land is more scarce and which exhibit desirable long-term growth characteristics. We seek to refine our portfolio over the coming years by focusing on bulk and regional warehouses properties and downsizing our percentage of light industrial buildings.
Our ability to pursue our long-term growth plans is affected by market conditions and our financial condition and operating capabilities.
Business Strategies
We utilize the following strategies in connection with the operation of our business:
•Organizational Strategy. We implement a decentralized property operations strategy through the deployment of experienced regional management teams and local property managers. We provide acquisition, development and financing assistance, asset management oversight and financial reporting functions from our headquarters inChicago, Illinois to support our regional operations. We believe the size of our portfolio enables us to realize operating efficiencies by spreading overhead among many properties and by negotiating purchasing discounts. •Market Strategy. Our market strategy is to concentrate on 15 industrial real estate markets inthe United States . These markets have one or more of the following characteristics: (i) favorable industrial real estate fundamentals, including improving industrial demand and constrained supply that can lead to long-term rent growth; (ii) favorable economic and business environments that should benefit from increases in distribution activity driven by growth in global trade and local consumption; (iii) population growth as it generally drives industrial demand; (iv) natural barriers to entry and scarcity of land, which are key elements in delivering future rent growth; and (v) sufficient size to provide ample opportunity for growth through incremental investments as well as offer asset liquidity. •Leasing and Marketing Strategy. We have an operational management strategy designed to enhance tenant satisfaction and portfolio performance. We pursue an active leasing strategy, which includes broadly marketing available space, seeking to renew existing leases at higher rents per square foot while minimizing re-leasing costs and seeking leases, which provide for the pass-through of property-related expenses to the tenant. We also have local and national marketing programs, which focus on the business and real estate brokerage communities and multi-national tenants. •Acquisition/Development Strategy. Our investment strategy is primarily focused on developing and acquiring industrial properties in 15 target markets with a coastal orientation inthe United States through the deployment of experienced regional management teams. When evaluating potential industrial property acquisitions and developments, we consider such factors as: (i) the geographic area and type of property; (ii) the location, construction quality, functionality, condition and design of the property; (iii) the terms of tenant leases, including the potential for rent increases; (iv) the potential for economic growth and the general business, tax and regulatory environment of the area in which the property is located; (v) the occupancy and demand by tenants for properties of a similar type in the vicinity; (vi) competition from existing properties and the potential for the construction of 32 -------------------------------------------------------------------------------- new properties in the area; (vii) the potential for capital appreciation of the property; (viii) the ability to improve the property's performance through renovation; and (ix) the potential for expansion of the physical layout of the property and/or the number of sites. •Disposition Strategy. We continually evaluate local market conditions and property-related factors in all of our markets for purposes of identifying assets suitable for disposition. We look to sell lower rent growth assets and redeploy the capital into higher rent growth assets in key logistics markets. •Financing Strategy. To finance acquisitions, developments and debt maturities, as market conditions permit, we may utilize a portion of proceeds from property sales, unsecured debt offerings, term loans, mortgage financings and line of credit borrowings under our$750 million unsecured revolving credit agreement (the "Unsecured Credit Facility"), and proceeds from the issuance, when and as warranted, of additional equity securities. We also continually evaluate joint venture arrangements as another source of capital to finance acquisitions and developments. 33 --------------------------------------------------------------------------------
Summary of the Nine Months Ended
Our operating results remained strong during the nine months endedSeptember 30, 2022 . Our quarter end in-service occupancy was 98.3% and for leases that commenced during the nine months endedSeptember 30, 2022 , we increased cash rental rates by 22.8% on new and renewal leasing (30.9% during the third quarter). AtSeptember 30, 2022 , we had 18 projects comprising 3.7 million square feet of GLA under development with an estimated investment in excess of$570 million . Additionally, we continue to position ourselves for future development activity by acquiring land located in our target markets.
During the nine months ended
•We acquired ten industrial properties comprised of approximately 0.4 million square feet of GLA located in ourNorthern California ,Seattle ,South Florida andSouthern California markets for an aggregate purchase price of$122.0 million , excluding transaction costs. We additionally acquired three income-producing land parcels in ourNorthern California ,Seattle andSouthern California markets for an aggregate purchase price of$56.5 million , excluding transaction costs.
•We acquired approximately 60.7 acres of land for development located in our
•We commenced speculative development of ten industrial buildings totaling 2.3 million square feet of GLA in ourCentral Pennsylvania ,Chicago ,Denver ,Lehigh Valley ,Northern California ,South Florida andSouthern California markets.
•We sold eight industrial properties comprising approximately 1.6 million square
feet of GLA and one land parcel for gross proceeds of
•Our Joint Venture sold 391 acres of land located inPhoenix for gross proceeds of$255 million . Our pro-rata share of gain was$76.0 million and we earned an incentive fee of$28.4 million . These amounts exclude our partner's 6% share that we consolidate and report in our financial statements as Noncontrolling Interest.
Our significant financing activities during the nine months ended
•We paid off
•We replaced our$260.0 million term loan that was scheduled to mature inSeptember 2022 with a$425.0 million term loan that matures onOctober 18, 2027 . Based on our current credit ratings and leverage and the related interest rate hedges with a notional value of$425.0 million that we entered into and commence inOctober 2022 , our all-in interest rate on this term loan is 3.64% commencing inOctober 2022 . •In August, we entered into a new three-year term loan that provides us with a borrowing capacity up to$300.0 million ("2022 Unsecured Term Loan II"), none of which has been borrowed as ofSeptember 30, 2022 . Borrowings under the 2022 Unsecured Term Loan II requires interest-only payments and bears interest at a variable rate based on daily, one-month or three-month secured overnight financing rate ("SOFR"), plus a 0.10% SOFR adjustment for daily and one-month SOFR or plus a 0.15% SOFR adjustment for three-month SOFR, plus 85 basis points based on our current credit ratings and consolidated leverage ratio. The 2022 Unsecured Term Loan II matures inAugust 2025 , unless extended pursuant to two one-year extension options at our election, subject to certain conditions.
•We issued 218,230 shares of our common stock, through "at-the-market" ("ATM")
offerings, resulting in net proceeds of
•We declared first, second and third quarter cash dividends of
•AtSeptember 30, 2022 , we had$387.6 million available for additional borrowings under our Unsecured Credit Facility,$300.0 million available under the 2022 Unsecured Term Loan II and cash and cash equivalents of$134.1 million , after excluding our Joint Venture partner's 6% share of cash and cash equivalents that we consolidate and report in our financial statements. 34 --------------------------------------------------------------------------------
Results of Operations
The tables below summarize our revenues, property expenses and depreciation and other amortization by various categories for the three and nine months endedSeptember 30, 2022 and 2021. Same store properties are properties owned prior toJanuary 1, 2021 and held as an in-service property throughSeptember 30, 2022 and developments and redevelopments that were placed in service prior toJanuary 1, 2021 . Properties that are at least 75% occupied at acquisition are placed in service, unless we anticipate tenant move-outs within two years of ownership would drop occupancy below 75%. Properties that are less than 75% occupied at the date of acquisition are placed in service as they reach the earlier of 90% occupancy or one year subsequent to acquisition. Developments, redevelopments and acquired income-producing land parcels for which our ultimate intent is to redevelop or develop on the land parcel are placed in service as they reach the earlier of 90% occupancy or one year subsequent to development/redevelopment construction completion. Acquired properties with occupancy greater than 75% at acquisition, but with tenants that we anticipate will move out within two years of ownership, will be placed in service upon the earlier of reaching 90% occupancy or twelve months after move out. Properties are moved from the same store classification to the redevelopment classification when capital expenditures for a project are estimated to exceed 25% of the undepreciated gross book value of the property. Acquired properties are properties that were acquired subsequent toDecember 31, 2020 and held as an operating property throughSeptember 30, 2022 . Sold properties are properties that were sold subsequent toDecember 31, 2020 . Developments and redevelopments (collectively referred to as "(Re)Developments") include (re)developments that were not: a) substantially complete 12 months prior toJanuary 1, 2021 ; or b) stabilized prior toJanuary 1, 2021 . Other revenues are derived from the operations of properties not placed in service under one of the categories discussed above, the operations of our maintenance company and other miscellaneous revenues. Other property expenses are derived from the operations of properties not placed in service under one of the categories discussed above, the operations of our maintenance company, vacant land expenses and other miscellaneous regional expenses. Our future financial condition and results of operations, including rental revenues, may be impacted by the future acquisition, (re)development and sale of properties. Our future revenues and expenses may vary materially from historical rates. 35 --------------------------------------------------------------------------------
Comparison of Nine Months Ended
Our net income was
For the nine months endedSeptember 30, 2022 and 2021, the average daily occupancy rate of our same store properties was 97.9% and 95.9%, respectively. Nine Months Ended September 30, 2022 2021 $ Change % Change ($ in 000's) REVENUES Same Store Properties$ 353,625 $ 327,583 $ 26,042 7.9 % Acquired Properties 4,930 716 4,214 588.5 % Sold Properties 8,047 17,586 (9,539) (54.2) % (Re)Developments 18,876 4,548 14,328 315.0 % Other 9,837 4,306 5,531 128.4 % Total Revenues$ 395,315 $ 354,739 $ 40,576 11.4 % Revenues from same store properties increased$26.0 million primarily due to increases in rental rates and occupancy as well as an increase in tenant recoveries. Revenues from acquired properties increased$4.2 million due to the 14 industrial properties acquired subsequent toDecember 31, 2020 totaling approximately 0.7 million square feet of GLA. Revenues from sold properties decreased$9.5 million due to the 37 industrial properties sold subsequent toDecember 31, 2020 totaling approximately 4.5 million square feet of GLA. Revenues from (re)developments increased$14.3 million due to an increase in occupancy and tenant recoveries. Revenues from other increased$5.5 million primarily due to revenues related to acquisitions that were not yet stabilized atDecember 31, 2020 and therefore are not yet included in the same store pool, as well as revenues from income-producing land parcels for which our ultimate intent is to redevelop or develop in the future and interest income earned on our cash and cash equivalent balances. Nine Months Ended September 30, 2022 2021
$ Change % Change
($ in 000's) PROPERTY EXPENSES Same Store Properties $ 87,439$ 84,714 $ 2,725 3.2 % Acquired Properties 1,170 219 951 434.2 % Sold Properties 2,321 3,920 (1,599) (40.8) % (Re)Developments 3,961 1,456 2,505 172.0 % Other 11,159 8,077
3,082 38.2 %
Total Property Expenses $ 106,050$ 98,386
Property expenses include real estate taxes, repairs and maintenance, property management, utilities, insurance and other property related expenses. Property expenses from same store properties remained relatively unchanged. Property expenses from acquired properties increased$1.0 million due to properties acquired subsequent toDecember 31, 2020 . Property expenses from sold properties decreased$1.6 million due to properties sold subsequent toDecember 31, 2020 . Property expenses from (re)developments increased$2.5 million primarily due to the substantial completion of developments. Property expenses from other increased$3.1 million due to an increase in real estate tax expense related to land parcels purchased in 2021 and 2022 and an increase in certain miscellaneous expenses.
General and administrative expense remained relatively unchanged.
Joint Venture development services expense of$0.3 million for the nine months endedSeptember 30, 2022 , relates to expenses paid to a third party to assist with the development of properties in the Joint Venture. 36 --------------------------------------------------------------------------------
Nine Months Ended September 30, 2022 2021 $ Change % Change ($ in 000's) DEPRECIATION AND OTHER AMORTIZATION Same Store Properties$ 92,764 $ 89,956 $ 2,808 3.1 % Acquired Properties 2,491 417 2,074 497.4 % Sold Properties 2,490 3,884 (1,394) (35.9) % (Re)Developments 7,526 1,365 6,161 451.4 %
1,942 1,499 77.2 % Total Depreciation and Other Amortization$ 108,712 $ 97,564 $ 11,148 11.4 % Depreciation and other amortization from same store properties increased$2.8 million primarily due to improvements completed at our properties subsequent toSeptember 30, 2021 . Depreciation and other amortization from acquired properties increased$2.1 million due to properties acquired subsequent toDecember 31, 2020 . Depreciation and other amortization from sold properties decreased$1.4 million due to properties sold subsequent toDecember 31, 2020 . Depreciation and other amortization from (re)developments increased$6.2 million primarily due to an increase in depreciation and amortization related to completed developments. Depreciation from corporate furniture, fixtures and equipment and other increased$1.5 million due to depreciation and amortization related to properties acquired that were not yet stabilized atDecember 31, 2020 and therefore are not yet included in the same store pool. For the nine months endedSeptember 30, 2022 , we recognized$84.2 million of gain on sale of real estate related to the sale of eight industrial properties comprised of approximately 1.6 million square feet of GLA and one land parcel. For the nine months endedSeptember 30, 2021 , we recognized$66.4 million of gain on sale of real estate related to the sale of 12 industrial properties and seven industrial condominium units comprised of approximately 1.7 million square feet of GLA and one land parcel. Interest expense decreased by$1.3 million , or 3.7%, due to an increase in capitalized interest of$4.4 million caused by an increase in development projects eligible for capitalization and capitalization of interest related to our joint venture investment during the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 and a decrease in the weighted average interest rate for the nine months endedSeptember 30, 2022 (3.26%) as compared to the nine months endedSeptember 30, 2021 (3.52%), offset by an increase in the weighted average debt balance outstanding for the nine months endedSeptember 30, 2022 ($1,871.7 million ) as compared to the nine months endedSeptember 30, 2021 ($1,615.5 million ). Amortization of debt issuance costs decreased$0.4 million , or 14.2%, primarily due to amortization of debt issuance costs incurred in 2020 related to the one-year refinancing of the$200.0 million unsecured term loan during the nine months endedSeptember 30, 2021 as compared toSeptember 30, 2022 . Equity in income of joint ventures of$118.2 million for the nine months endedSeptember 30, 2022 includes our pro-rata share of gain from the sale of real estate by the Joint Venture of$86.4 million as well as an incentive fee of$32.3 million we earned from the Joint Venture. These amounts include our partner's 6% interest in the Joint Venture that we consolidate and report within our financial statements. Equity in loss of joint ventures for the nine months endedSeptember 30, 2021 was not significant. Income tax expense increased$22.2 million due to an increase in our pro-rata share of gain from the sale of land and an incentive fee earned from the Joint Venture. Our equity ownership in the Joint Venture is owned through a wholly-owned TRS. 37 --------------------------------------------------------------------------------
Comparison of Three Months Ended
Our net income was
For the three months endedSeptember 30, 2022 and 2021, the average daily occupancy rate of our same store properties was 98.1% and 96.7%, respectively. Three Months Ended September 30, 2022 2021 $ Change % Change ($ in 000's) REVENUES Same Store Properties $ 120,926$ 111,305 $ 9,621 8.6 % Acquired Properties 2,558 441 2,117 480.0 % Sold Properties 2,323 5,181 (2,858) (55.2) % (Re)Developments 9,463 2,131 7,332 344.1 % Other 4,483 2,024 2,459 121.5 % Total Revenues $ 139,753$ 121,082 $ 18,671 15.4 % Revenues from same store properties increased$9.6 million primarily due to increases in rental rates and occupancy as well as an increase in tenant recoveries. Revenues from acquired properties increased$2.1 million due to the 14 industrial properties acquired subsequent toDecember 31, 2020 totaling approximately 0.7 million square feet of GLA. Revenues from sold properties decreased$2.9 million due to the 37 industrial properties sold subsequent toDecember 31, 2020 totaling approximately 4.5 million square feet of GLA. Revenues from (re)developments increased$7.3 million due to an increase in occupancy and tenant recoveries. Revenues from other increased$2.5 million primarily due to revenues from income-producing land parcels for which our ultimate intent is to redevelop or develop in the future and interest income earned on our cash and cash equivalent balances. Three Months Ended September 30, 2022 2021 $ Change % Change ($ in 000's) PROPERTY EXPENSES Same Store Properties $ 29,773$ 28,190 $ 1,583 5.6 % Acquired Properties 550 161 389 241.6 % Sold Properties 757 1,381 (624) (45.2) % (Re)Developments 1,561 537 1,024 190.7 % Other 3,134 3,127 7 0.2 % Total Property Expenses $ 35,775$ 33,396 $ 2,379 7.1 % Property expenses include real estate taxes, repairs and maintenance, property management, utilities, insurance and other property related expenses. Property expenses from same store properties increased$1.6 million primarily due to an increase in repairs and maintenance expense. Property expenses from acquired properties increased$0.4 million due to properties acquired subsequent toDecember 31, 2020 . Property expenses from sold properties decreased$0.6 million due to properties sold subsequent toDecember 31, 2020 . Property expenses from (re)developments increased$1.0 million primarily due to the substantial completion of developments. Property expenses from other remained relatively unchanged; however, an increase in real estate tax expense related to land parcels purchased in 2021 and 2022 was substantially offset by a decrease in certain miscellaneous expenses.
General and administrative expense remained relatively unchanged.
Joint Venture development services expense of$0.3 million for the three months endedSeptember 30, 2022 relates to expenses paid to a third party to assist with the development of properties in the Joint Venture. 38 --------------------------------------------------------------------------------
Three Months Ended September 30, 2022 2021 $ Change % Change ($ in 000's) DEPRECIATION AND OTHER AMORTIZATION Same Store Properties$ 31,140 $ 30,270 $ 870 2.9 % Acquired Properties 1,381 342 1,039 303.8 % Sold Properties 522 1,202 (680) (56.6) % (Re)Developments 3,759 640 3,119 487.3 % Corporate Furniture, Fixtures and Equipment and Other 1,530 689 841 122.1 % Total Depreciation and Other Amortization$ 38,332 $ 33,143 $ 5,189 15.7 % Depreciation and other amortization from same store properties remained relatively unchanged. Depreciation and other amortization from acquired properties increased$1.0 million due to properties acquired subsequent toDecember 31, 2020 . Depreciation and other amortization from sold properties decreased$0.7 million due to properties sold subsequent toDecember 31, 2020 . Depreciation and other amortization from (re)developments increased$3.1 million primarily due to an increase in depreciation and amortization related to completed developments. Depreciation from corporate furniture, fixtures and equipment and other increased$0.8 million due to depreciation and amortization related to properties acquired that were not yet stabilized atDecember 31, 2020 and therefore are not yet included in the same store pool. For the three months endedSeptember 30, 2022 , we recognized$83.9 million of gain on sale of real estate related to the sale of eight industrial properties comprised of approximately 1.6 million square feet of GLA. For the three months endedSeptember 30, 2021 , we recognized$8.9 million of gain on sale of real estate related to the sale of six industrial properties and four industrial condominium units comprised of approximately 0.2 million square feet of GLA. Interest expense increased by$3.2 million , or 32.9%, due to an increase in the weighted average debt balance outstanding for the three months endedSeptember 30, 2022 ($2,030.1 million ) as compared to the three months endedSeptember 30, 2021 ($1,640.0 million ), as well as an increase in the weighted average interest rate for the three months endedSeptember 30, 2022 (3.36%) as compared to the three months endedSeptember 30, 2021 (3.31%), offset by an increase in capitalized interest of$0.3 million during the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 .
Amortization of debt issuance costs remained relatively unchanged.
Equity in loss of joint ventures for both the three months ended
Income tax expense decreased$0.5 million due to a decrease in sales of real estate from one of our TRSs during the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . 39 --------------------------------------------------------------------------------
Leasing Activity
The following table provides a summary of our commenced leases for the three and nine months endedSeptember 30, 2022 . The table does not include month-to-month leases or leases with terms less than twelve months. Number of Square Feet Weighted Lease Costs Weighted Leases CommencedNet Rent Per Straight Line Basis Average LeasePer Square Average Tenant Three Months Ended Commenced (in 000's) Square Foot (A) Rent Growth (B) Term (C) Foot (D) Retention (E) New Leases 18 663 $ 8.73 39.3 % 6.5$ 7.32 N/A Renewal Leases 26 1,180 $ 8.65 49.7 % 4.7$ 1.90 64.5 % Development / Acquisition Leases 4 1,464 $ 7.51 N/A 10.5 N/A N/A Total / Weighted Average 48 3,307 $ 8.16 45.8 % 7.7$ 3.85 64.5 % Nine Months Ended New Leases 73 2,253 $ 7.66 39.1 % 6.1$ 5.37 N/A Renewal Leases 91 4,742 $ 7.42 38.1 % 5.0$ 1.75 69.2 % Development / Acquisition Leases 21 4,144 $ 7.99 N/A 10.0 N/A N/A Total / Weighted Average 185 11,139 $ 7.68 38.4 % 7.1$ 2.92 69.2 % _______________ (A) Net rent is the average base rent calculated in accordance with GAAP, over the term of the lease. (B) Straight line basis rent growth is a ratio of the change in net rent (including straight line rent adjustments) on a new or renewal lease compared to the net rent (including straight line rent adjustments) of the comparable lease. New leases where there were no prior comparable leases are excluded. (C) The lease term is expressed in years. Assumes no exercise of lease renewal options, if any. (D) Lease costs are comprised of the costs incurred or capitalized for improvements of vacant and renewal spaces, as well as the commissions paid and costs capitalized for leasing transactions. Lease costs per square foot represent the total turnover costs expected to be incurred on the leases that commenced during the period and do not reflect actual expenditures for the period. (E) Represents the weighted average square feet of tenants renewing their respective leases. The following table provides a summary of our leases that commenced during the three and nine months endedSeptember 30, 2022 , which included rent concessions during the lease term. Number of Leases Square Feet Rent Concessions Three Months Ended With Rent Concessions (in 000's) ($) New Leases 13 596$ 1,734 Renewal Leases 1 17 17 Development / Acquisition Leases 2 1,334 2,930 Total 16 1,947$ 4,681 Nine Months Ended New Leases 49 1,837$ 3,422 Renewal Leases 4 185 89 Development / Acquisition Leases 16 3,872 11,729 Total 69 5,894$ 15,240 40
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Liquidity and Capital Resources
AtSeptember 30, 2022 , our cash and cash equivalents and restricted cash was approximately$138.6 million , after excluding our Joint Venture partner's 6% share of cash and cash equivalents that we consolidate and report in our financial statements, and we also had$687.6 million available for additional borrowings under our Unsecured Credit Facility and our 2022 Unsecured Term Loan II as ofSeptember 30, 2022 . We have considered our short-term (throughSeptember 30, 2023 ) liquidity needs and the adequacy of our estimated cash flow from operations and other expected liquidity sources to meet these needs. We believe that our principal short-term liquidity needs are to fund normal recurring expenses, property acquisitions, developments, renovations, expansions and other nonrecurring capital improvements, debt service requirements, the minimum distributions required to maintain the Company's REIT qualification under the Code and distributions approved by the Company's Board of Directors. We anticipate that these needs will be met with cash flows provided by operating activities as well as the disposition of select assets. These needs may also be met by the issuance of other debt or equity securities, subject to market conditions, or borrowings under our Unsecured Credit Facility and 2022 Unsecured Term Loan II. We expect to meet long-term (afterSeptember 30, 2023 ) liquidity requirements such as property acquisitions, developments, scheduled debt maturities, major renovations, expansions and other nonrecurring capital improvements through the disposition of select assets, long-term unsecured and secured indebtedness and the issuance of additional equity securities, subject to market conditions. Our Unsecured Credit Facility and 2022 Unsecured Term Loan II contain certain financial covenants including limitations on incurrence of debt and debt service coverage. Our access to borrowings may be limited if we fail to meet any of these covenants. We believe that we were in compliance with our financial covenants as ofSeptember 30, 2022 , and we anticipate that we will be able to operate in compliance with our financial covenants for the next twelve months.
As of
Our senior unsecured notes have been assigned credit ratings fromStandard & Poor's , Moody's and Fitch Ratings of BBB/Stable, Baa2/Stable and BBB/Stable, respectively. In the event of a downgrade, we believe we would continue to have access to sufficient capital. However, our cost of borrowing would increase and our ability to access certain financial markets may be limited. 41 --------------------------------------------------------------------------------
Cash Flow Activity
The following table summarizes our cash flow activity for the Company for the
nine months ended
2022
2021
(In
thousands)
Net cash provided by operating activities$ 346,022
Net cash used in investing activities (511,467)
(291,602)
Net cash provided by (used in) financing activities 258,500
(43,473)
The following table summarizes our cash flow activity for the
2022
2021
(In
thousands)
Net cash provided by operating activities$ 345,965 $
196,478
Net cash used in investing activities (511,467)
(291,602)
Net cash provided by (used in) financing activities 258,557 (43,514)
Changes in cash flow for the nine months ended
Operating Activities: Cash provided by operating activities increased$149.6 million (increased$149.5 million for theOperating Partnership ), primarily due to the following: •increase in distributions from our Joint Ventures of$118.0 million in 2022 as compared to 2021 due to a Joint Ventures sale of 391 acres of land for gross proceeds of$255 million , of which our pro-rata share of gain and incentive fee, excluding our Joint Venture partner's 6% share, was$104.4 million ; •increase in NOI from same store properties, acquired properties and recently developed properties of$38.4 million offset by a decrease in NOI due to the disposition of real estate of$7.9 million ;
•increase in accounts payable, accrued expenses, other liabilities, rents received in advance and security deposits due to timing of cash payments; and
•decrease of
Investing Activities: Cash used in investing activities increased
•increase of$233.6 million related to the acquisition and development of real estate as well as payments for improvements and leasing commissions in 2022 as compared to 2021; offset by:
•increase of
•increase in net proceeds of
Financing Activities: Cash provided by financing activities increased$302.0 million (increased$302.1 million for theOperating Partnership ), primarily due to the following:
•increase in net borrowings under our Unsecured Credit Facility of
•increase of$165.0 million in proceeds from refinancing the$260.0 million unsecured term loan with a$425.0 million unsecured term loan in 2022; offset by: •decrease of$46.2 million related to net proceeds from the issuance of 218,230 shares of the Company's common stock under our ATM in 2022 as compared to the issuance of 1,076,955 shares of the Company's common stock under our ATM in 2021; •increase in dividend and unit distributions of$11.7 million due to the Company increasing the dividend rate in 2022 as well as an increase in common shares and units outstanding;
•increase in repayments of mortgage loans payable of
•increase in distributions to noncontrolling interests of
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Market Risk
The following discussion about our risk-management activities includes "forward-looking statements" that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. Our business subjects us to market risk from interest rates, as described below.
Interest Rate Risk
The following analysis presents the hypothetical gain or loss in earnings, cash flows or fair value of the financial instruments and derivative instruments that are held by us atSeptember 30, 2022 that are sensitive to changes in interest rates. While this analysis may have some use as a benchmark, it should not be viewed as a forecast.
In the normal course of business, we also face risks that are either non-financial or non-quantifiable. Such risks principally include credit risk and legal risk and are not represented in the following analysis.
The Financial Conduct Authority announced it intended to stop compelling banks to submit rates for the calculation of LIBOR afterJune 30, 2023 . As a result, in theU.S. , theFederal Reserve Board and theFederal Reserve Bank of New York identified the SOFR as its preferred alternative rate for USD LIBOR in debt and derivative financial instruments. As ofSeptember 30, 2022 , our Unsecured Credit Facility, our 2021 Unsecured Term Loan and related interest rate swaps (the "2021 Swaps") are indexed to LIBOR. Our loan documents contain provisions that contemplate alternative methods to determine the base rate applicable to our LIBOR-indexed debt to the extent LIBOR-indexed rates are not available. We plan to modify the debt agreements and the 2021 Swaps prior toJune 2023 and do not anticipate the modifications will have a material impact on our Consolidated Financial Statements. AtSeptember 30, 2022 ,$1,208.9 million or 60.7% of our total debt, excluding unamortized debt issuance costs, was fixed rate debt. As of the same date,$782.0 million or 39.3% of our total debt, excluding unamortized debt issuance costs, was variable rate debt. AtDecember 31, 2021 ,$1,538.3 million or 95.1% of our total debt, excluding unamortized debt issuance costs, was fixed rate debt. As of the same date,$79.0 million or 4.9% of our total debt, excluding unamortized debt issuance costs, was variable rate debt. AtSeptember 30, 2022 andDecember 31, 2021 , the fixed rate debt amounts include variable rate debt that has been effectively swapped to a fixed rate through the use of derivative instruments with an aggregate notional amount outstanding of$200.0 million and$460.0 million , respectively, that mitigate our exposure to our Unsecured Term Loans' variable interest rates, which are based on LIBOR and SOFR. CommencingOctober 3, 2022 , interest rate swaps with a notional value of$425.0 million fix the one-month SOFR rate at 2.69% and mature onSeptember 30, 2027 .
The use of derivative financial instruments allows us to manage the risks increases in interest rates would have on our earnings and cash flows. Currently, we do not enter into financial instruments for trading or other speculative purposes.
For fixed rate debt, changes in interest rates generally affect the fair value of the debt, but not our earnings or cash flows. Conversely, for variable rate debt, changes in the base interest rate used to calculate the all-in interest rate generally do not impact the fair value of the debt, but would affect our future earnings and cash flows. The interest rate risk and changes in fair market value of fixed rate debt generally do not have a significant impact on us until we are required to refinance such debt. See Note 4 to the Consolidated Financial Statements for a discussion of the maturity dates of our various fixed rate debt. Our variable rate debt is subject to risk based upon prevailing market interest rates. If the LIBOR and SOFR rates relevant to our variable rate debt were to have increased 10%, we estimate that our interest expense during the nine months endedSeptember 30, 2022 would have increased by approximately$0.5 million based on our average outstanding floating-rate debt during the nine months endedSeptember 30, 2022 . Additionally, if weighted average interest rates on our weighted average fixed rate debt during the nine months endedSeptember 30, 2022 were to have increased by 10% due to refinancing, interest expense would have increased by approximately$3.9 million during the nine months endedSeptember 30, 2022 .
As of
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Supplemental Earnings Measure
Investors in and industry analysts following the real estate industry utilize funds from operations ("FFO") and net operating income ("NOI") as supplemental operating performance measures of an equity REIT. Historical cost accounting for real estate assets in accordance with accounting principles generally accepted inthe United States of America ("GAAP") implicitly assumes that the value of real estate assets diminishes predictably over time through depreciation. Since real estate values instead have historically risen or fallen with market conditions, many industry analysts and investors prefer to supplement operating results that use historical cost accounting with measures such as FFO and NOI, among others. We provide information related to FFO and same store NOI ("SS NOI") both because such industry analysts are interested in such information, and because our management believes FFO and SS NOI are important performance measures. FFO and SS NOI are factors used by management in measuring our performance, including for purposes of determining the compensation of our executive officers under our 2022 incentive compensation plan. Neither FFO nor SS NOI should be considered as a substitute for net income, or any other measures derived in accordance with GAAP. Neither FFO nor SS NOI represents cash generated from operating activities in accordance with GAAP and neither should be considered as an alternative to cash flow from operating activities as a measure of our liquidity, nor is either indicative of funds available for our cash needs, including our ability to make cash distributions.
Funds From Operations
The National Association of Real Estate Investment Trusts ("NAREIT") has recognized and defined for the real estate industry a supplemental measure of REIT operating performance, FFO, that excludes historical cost depreciation, among other items, from net income determined in accordance with GAAP. FFO is a non-GAAP financial measure. FFO is calculated by us in accordance with the definition adopted by theBoard of Governors of NAREIT and may not be comparable to other similarly titled measures of other companies. In accordance with the restated NAREIT definition of FFO, we calculate FFO to be equal to net income available toFirst Industrial Realty Trust, Inc.'s common stockholders and participating securities, plus depreciation and other amortization of real estate, plus impairment of real estate, minus gain or plus loss on sale of real estate, net of any income tax provision or benefit associated with the sale of real estate. We also exclude the same adjustments from our share of net income from unconsolidated joint ventures. Management believes that the use of FFO available to common stockholders and participating securities, combined with net income (which remains the primary measure of performance), improves the understanding of operating results of REITs among the investing public and makes comparisons of REIT operating results more meaningful. Management believes that, by excluding gains or losses related to sales of real estate assets, impairment of real estate assets and real estate asset depreciation and amortization, investors and analysts are able to identify the operating results of the long-term assets that form the core of a REIT's activity and use these operating results for assistance in comparing these operating results between periods or to those of different companies. The following table shows a reconciliation of net income available to common stockholders and participating securities to the calculation of FFO available to common stockholders and participating securities for the three and nine months endedSeptember 30, 2022 and 2021. Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (In thousands) (In thousands) Net Income Available toFirst Industrial Realty Trust, Inc.'s Common Stockholders and Participating Securities$ 123,888 $ 42,446 $ 277,137 $ 156,580 Adjustments: Depreciation and Other Amortization of Real Estate 38,077 32,886 108,001 96,907 Gain on Sale of Real Estate (83,907) (8,879) (84,204) (66,378) Gain on Sale of Real Estate (including Incentive Fees) from Joint Ventures - - (118,244) - Income Tax Provision - Allocable to Gain on Sale of Real Estate, Including Joint Ventures 105 337 24,348 1,888 Noncontrolling Interest Share of Adjustments 1,062 (518) 15,510 (712) Funds from Operations Available toFirst Industrial Realty Trust, Inc.'s Common Stockholders and Participating Securities$ 79,225 $ 66,272 $ 222,548 $ 188,285 44 --------------------------------------------------------------------------------
Same Store Net Operating Income
SS NOI is a non-GAAP financial measure that provides a measure of rental operations and, as calculated by us, that does not factor in depreciation and amortization, general and administrative expense, interest expense, income tax benefit and expense, and equity in income or loss from our joint ventures. We define SS NOI as revenues minus property expenses such as real estate taxes, repairs and maintenance, property management, utilities, insurance and other expenses, minus the NOI of properties that are not same store properties and minus the impact of straight-line rent, above and below market rent amortization and lease termination fees. We exclude straight-line rent and above (below) market rent in calculating SS NOI because we believe it provides a better measure of actual cash basis rental growth for a year-over-year comparison. As so defined, SS NOI may not be comparable to same store net operating income or similar measures reported by other REITs that define same store properties or NOI differently. The major factors influencing SS NOI are occupancy levels, rental rate increases or decreases and tenant recoveries increases or decreases. Our success depends largely upon our ability to lease space and to recover the operating costs associated with those leases from our tenants.
The following table shows a reconciliation of the same store revenues and
property expenses disclosed in the results of operations (and reconciled to
revenues and expenses reflected on the statements of operations) to SS NOI for
the three and nine months ended
Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 % Change 2022 2021 % Change (In thousands) (In thousands) Same Store Revenues$ 120,926 $ 111,305 $ 353,625 $ 327,583 Same Store Property Expenses (29,773) (28,190) (87,439) (84,714) Same Store Net Operating Income Before Same Store Adjustments$ 91,153 $ 83,115 9.7%$ 266,186 $ 242,869 9.6%
Same Store Adjustments:
Straight-line Rent (3,091) (1,809) (7,979) (9,515) Above / Below Market Rent Amortization (232) (241) (694) (783) Lease Termination Fees (51) (159) (76) (408)
Same Store Net Operating Income
8.5%$ 257,437 $ 232,163 10.9% Subsequent Events
Subsequent to
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