First Industrial Realty Trust(FR) - 2022 Q4 - Annual Report

PART I Business First Industrial Realty Trust, Inc. is a REIT managing 416 industrial properties (62.9 million sq. ft.) as of 2022, focused on growth and portfolio enhancement - The company is a fully integrated real estate company specializing in industrial properties, operating as a REIT[30] Portfolio Overview as of December 31, 2022 | Metric | Value | | :--- | :--- | | In-Service Properties | 416 | | Gross Leasable Area (GLA) | 62.9 million sq. ft. | | States of Operation | 18 | | Ownership in Operating Partnership | ~97.7% | - The company's growth strategy is multifaceted, focusing on internal growth, external growth in 15 target markets, and portfolio enhancement[33] - Financing relies on property sales, unsecured debt, term loans, a $750.0 million unsecured credit facility, and potential equity issuances[34] - As of December 31, 2022, the company had 157 full-time employees with an average tenure of approximately 12 years, and its Board of Directors is 43% diverse[41][42] Risk Factors The company faces diverse business, financing, organizational, tax, and general risks, including economic downturns, geographic concentration, and cybersecurity threats - Business risks include real estate value fluctuations and significant geographic concentration, with California (23.6%) and Pennsylvania (10.7%) of consolidated net operating income as of December 31, 2022[47][49] - Development projects pose risks such as financing issues, cost overruns, construction delays, and failure to achieve budgeted leasing levels[57] - Financing and capital risks include financial market disruptions, rising interest rates impacting cash flow, and the necessity to comply with debt financial covenants[72][74][76] - The company is transitioning its LIBOR-indexed debt (Unsecured Credit Facility, $200.0 million term loan) to SOFR, with modifications planned before June 2023[75] - Tax risks include potential failure to qualify as a REIT, leading to corporate income tax and a 100% penalty tax on prohibited property sales gains[97][99] - General risks encompass cybersecurity attacks that could compromise information and disrupt operations, and potential adverse impacts from future pandemics[102][104] Unresolved SEC Comments The company has no unresolved comments from the Securities and Exchange Commission - None Properties As of December 31, 2022, the company owned 416 industrial properties (62.9 million sq. ft.) with 98.8% occupancy, actively managing its portfolio and achieving strong leasing growth In-Service Property Summary by Type (as of Dec 31, 2022) | Property Type | GLA (in thousands sq. ft.) | Number of Properties | Occupancy | | :--- | :--- | :--- | :--- | | Bulk Warehouse | 50,350 | 186 | 98.7% | | Regional Warehouse | 7,923 | 125 | 99.2% | | Light Industrial | 4,626 | 105 | 99.2% | | Total | 62,899 | 416 | 98.8% | - In 2022, 10 development properties (4.1 million sq. ft.) were placed into service at a cost of $447.8 million, achieving a 6.6% capitalization rate[121] - As of year-end 2022, 14 development projects (3.6 million sq. ft.) were under construction with an estimated total investment of $556.2 million[121] - In 2022, 11 industrial properties and 134 acres of land were acquired for approximately $299.1 million[122] - In 2022, nine industrial properties (2.2 million sq. ft.) and one land parcel were sold for gross proceeds of approximately $178.3 million[123] Leasing Activity Summary (Year Ended Dec 31, 2022) | Lease Type | Leases Commenced | Square Feet (in thousands) | Straight Line Rent Growth | Weighted Avg. Term (Years) | | :--- | :--- | :--- | :--- | :--- | | New Leases | 97 | 2,921 | 48.9% | 6.1 | | Renewal Leases | 120 | 5,914 | 40.3% | 5.0 | | Total / Weighted Avg. | 241 | 13,286 | 43.3% | 6.8 | Legal Proceedings Ordinary course legal proceedings are not expected to materially impact the company's financial results, position, or liquidity - Legal proceedings in the ordinary course of business are not expected to have a material impact[131] Mine Safety Disclosures This item is not applicable to the company - None PART II Market for Registrant's Common Equity and Related Matters The company's common stock trades as "FR" on the NYSE, paid a $0.295 quarterly dividend in 2022, and outperformed key indices over five years 2022 Quarterly Stock Price and Dividends | Quarter Ended | Closing High | Closing Low | Dividend Declared | | :--- | :--- | :--- | :--- | | Dec 31, 2022 | $50.68 | $43.82 | $0.295 | | Sep 30, 2022 | $55.62 | $44.14 | $0.295 | | Jun 30, 2022 | $65.32 | $46.13 | $0.295 | | Mar 31, 2022 | $65.01 | $56.31 | $0.295 | - The company must distribute at least 90% of its REIT taxable income to comply with IRS requirements, influencing its dividend policy[138] 5-Year Performance Graph Comparison | Index ($100 Invested on 12/31/17) | Value at 12/31/22 | | :--- | :--- | | First Industrial Realty Trust, Inc. | $173.34 | | S&P 500 | $156.89 | | FTSE NAREIT Equity REITs | $119.78 | Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) In 2022, the company achieved strong operating performance with 98.8% occupancy, 26.7% cash rental rate growth, $381.6 million net income, and $410.9 million operating cash flow - Key operational achievements in 2022 include 98.8% year-end in-service occupancy (a 70 basis point increase) and a 26.7% increase in cash rental rates on new and renewal leases[148] - A joint venture land sale in Phoenix generated $255.3 million gross proceeds, with the company's pro-rata gain share of $74.0 million and an incentive fee of $27.6 million[149] - Significant financing activities included paying off $68.0 million in mortgages, increasing unencumbered real estate to 99.3%, and refinancing a $260.0 million term loan with a new $425.0 million term loan[150] Comparison of Operating Results (in thousands) | Item | 2022 (in thousands) | 2021 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $539,929 | $476,290 | 13.4% | | Total Property Expenses | $143,663 | $131,300 | 9.4% | | Gain on Sale of Real Estate | $128,268 | $150,310 | (14.7)% | | Equity in Income of Joint Ventures | $114,942 | $(161) | N/A | | Net Income | $381,612 | $277,171 | 37.7% | Cash Flow Summary (in thousands) | Cash Flow Activity | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $410,943 | $266,895 | | Net cash used in investing activities | $(629,108) | $(416,823) | | Net cash provided by financing activities | $304,503 | $9,050 | - As of December 31, 2022, 93.1% of total debt was fixed rate, with the remaining 6.9% being variable rate[185] Quantitative and Qualitative Disclosures About Market Risk This section refers to the market risk discussion in Item 7, detailing interest rate exposure and risk management strategies - The response to this item is included in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations"[200] Financial Statements and Supplementary Data This section directs the reader to Item 15 for the company's complete financial statements and supplementary data - The full financial statements and schedules are located in Item 15 of the report[201] Changes in and Disagreements with Accountants The company reports no changes in or disagreements with its accountants on accounting principles or financial disclosure - None Controls and Procedures Management and auditors concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material Q4 changes - The principal executive and financial officers concluded that disclosure controls and procedures for both the Company and Operating Partnership were effective as of period-end[205][212] - Management concluded that internal control over financial reporting for both entities was effective as of December 31, 2022, based on the COSO framework[207][214] - No material changes in internal control over financial reporting occurred during the fourth quarter of 2022[209][216] Other Information The company reports no other information for this item - None Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable PART III Directors, Executive Officers, Compensation, Security Ownership, and Accountant Fees Information for Items 10-14, covering directors, executive compensation, security ownership, and accountant fees, is incorporated by reference from the definitive proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Company's definitive proxy statement[220] PART IV Exhibits and Financial Statement Schedule This section provides an index to the financial statements, schedules, and exhibits filed as part of the Form 10-K report - This section contains the index to the financial statements, schedules, and exhibits included in the report[222] Form 10-K Summary This item is not applicable to the company - Not applicable Financial Statements and Notes Reports of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP issued an unqualified opinion on financial statements and internal controls, identifying Purchase Price Allocation as a Critical Audit Matter - PricewaterhouseCoopers LLP provided an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting for both entities[234][252] - "Purchase Price Allocation" was identified as a Critical Audit Matter, emphasizing significant management judgment in determining fair value of acquired real estate assets, involving assumptions on land comparables, discount rates, and market rent[243][244] Consolidated Financial Statements Consolidated financial statements show total assets grew to $4.95 billion in 2022, with net income available to common stockholders at $359.1 million or $2.72 per diluted share Consolidated Balance Sheet Highlights (Company) | (In thousands) | Dec 31, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :--- | :--- | :--- | | Net Investment in Real Estate | $4,421,559 | $3,778,148 | | Total Assets | $4,954,322 | $4,179,098 | | Total Liabilities | $2,424,023 | $1,930,726 | | Total Equity | $2,530,299 | $2,248,372 | Consolidated Statement of Operations Highlights (Company) | (In thousands, except per share) | Year Ended Dec 31, 2022 (in thousands) | Year Ended Dec 31, 2021 (in thousands) | | :--- | :--- | :--- | | Total Revenues | $539,929 | $476,290 | | Net Income | $381,612 | $277,171 | | Net Income Available to Common Stockholders | $359,134 | $270,997 | | Diluted Earnings Per Share | $2.72 | $2.09 | Notes to Consolidated Financial Statements The notes detail accounting policies, $2.08 billion indebtedness, interest rate swaps, a 43% joint venture interest with a significant land sale, and equity compensation - Real estate acquisitions are typically accounted for as asset acquisitions, capitalizing transaction costs when fair value is concentrated in a single asset[315] Indebtedness Summary (as of Dec 31, 2022) | Debt Type | Gross Balance (in thousands) | Weighted Avg. Interest Rate | | :--- | :--- | :--- | | Mortgage Loans Payable | $10,299 | 4.17% | | Senior Unsecured Notes | $998,571 | 4.38% (calculated) | | Unsecured Term Loans | $925,000 | 3.59% (calculated) | | Unsecured Credit Facility | $143,000 | 5.16% | | Total | $2,076,870 | | - The company holds a 43% interest in a joint venture, accounted for by the equity method, which sold 391 acres of land in 2022, resulting in a $171.7 million gain for the JV and an $84.1 million economic share for the company[361][364] - The company utilized an "at-the-market" (ATM) offering program in 2022, issuing 218,230 shares and raising $12.8 million in net proceeds[373] - The company uses interest rate swaps to manage variable-rate term loan exposure, with $925 million notional value designated as cash flow hedges at year-end 2022[398][399][400]