First Industrial Realty Trust (FR) Delivers Impressive Q2 2024 Results, Raises Full-Year Guidance

Published on September 24, 2024 | Ticker: FR

First Industrial Realty Trust, Inc. (NYSE: FR), a leading owner, operator, and developer of industrial real estate, has reported strong financial results for the second quarter of 2024, surpassing analyst expectations and raising its full-year guidance.

The company's net income for the second quarter of 2024 was $52.9 million, compared to $56.2 million in the same period last year. For the first six months of 2024, the company's net income was $123.4 million, up from $117.0 million in the first half of 2023. The company's annual net income for 2023 was $274.8 million.

Revenues for the second quarter of 2024 were $164.1 million, up from $152.2 million in the same period last year. For the first six months of 2024, the company's revenues were $326.4 million, compared to $301.6 million in the first half of 2023. The company's annual revenues for 2023 were $614.0 million.

Operating cash flow for the second quarter of 2024 was $85.1 million, compared to $78.0 million in the same period last year. For the first six months of 2024, the company's operating cash flow was $170.2 million, up from $156.1 million in the first half of 2023. The company's annual operating cash flow for 2023 was $304.8 million.

Free cash flow for the second quarter of 2024 was -$13.4 million, compared to -$46.8 million in the same period last year. For the first six months of 2024, the company's free cash flow was -$71.9 million, compared to -$251.1 million in the first half of 2023. The company's annual free cash flow for 2023 was -$175.8 million.

Peter Baccile, President and Chief Executive Officer of First Industrial Realty Trust, stated, "The company is pleased to report another strong quarter, with significant leasing progress across the portfolio, including several key development projects. The team's focus on delivering high-quality industrial space in strategic markets continues to drive success, and the company is excited to allocate additional capital to further expand its presence in key logistics hubs like South Florida and Houston."

Business Overview

First Industrial Realty Trust is a self-administered and fully integrated real estate company that owns, manages, acquires, sells, develops, and redevelops industrial real estate. The company operates primarily through its operating partnership, First Industrial, L.P., and owns 424 industrial properties located in 19 states, containing an aggregate of approximately 67.9 million square feet of gross leasable area (GLA) as of June 30, 2024.

The company's portfolio is concentrated in 15 key logistics markets in the United States, with a primary emphasis on coastal markets. These markets have favorable industrial real estate fundamentals, including improving industrial demand and constrained future supply, as well as favorable economic and business environments that benefit from increases in distribution activity driven by growth in global trade and local consumption.

The company's investment strategy is primarily focused on developing and acquiring industrial properties in these 15 key logistics markets through the deployment of experienced regional management teams. The company also continuously evaluates local market conditions and property-related factors to identify assets suitable for disposition, with the goal of redeploying capital into higher rent growth assets in key logistics markets.

Financial Highlights

For the second quarter of 2024, the company reported the following key financial metrics:

Net Income: $52.9 million

Revenues: $164.1 million
Operating Cash Flow: $85.1 million
Free Cash Flow: -$13.4 million

The company's net income for the second quarter of 2024 decreased by 5.9% compared to the same period in 2023, primarily due to a decrease in gain on sale of real estate. Revenues for the second quarter of 2024 increased by 7.8% compared to the same period in 2023, driven by increases in rental rates and tenant recoveries, as well as contributions from acquired properties and recently completed developments.

Operating cash flow for the second quarter of 2024 increased by 9.1% compared to the same period in 2023, primarily due to the increase in net operating income from same-store properties, acquired properties, and recently developed properties, partially offset by a decrease in distributions from the company's joint venture. Free cash flow for the second quarter of 2024 improved compared to the same period in 2023, primarily due to a decrease in capital expenditures related to development projects.

For the first six months of 2024, the company reported the following key financial metrics:

Net Income: $123.4 million

Revenues: $326.4 million
Operating Cash Flow: $170.2 million
Free Cash Flow: -$71.9 million

The company's net income for the first six months of 2024 increased by 5.4% compared to the same period in 2023, primarily due to an increase in gain on sale of real estate. Revenues for the first six months of 2024 increased by 8.2% compared to the same period in 2023, driven by increases in rental rates and tenant recoveries, as well as contributions from acquired properties and recently completed developments.

Operating cash flow for the first six months of 2024 increased by 9.0% compared to the same period in 2023, primarily due to the increase in net operating income from same-store properties, acquired properties, and recently developed properties, partially offset by a decrease in distributions from the company's joint venture. Free cash flow for the first six months of 2024 improved compared to the same period in 2023, primarily due to a decrease in capital expenditures related to development projects.

Leasing Activity and Occupancy

During the second quarter of 2024, the company executed 48 leases totaling 2.9 million square feet, including 16 new leases, 29 renewal leases, and 3 development/acquisition leases. The new and renewal leases had a weighted average lease term of 6.4 years and a weighted average cash rental rate increase of 59.4%.

The company's in-service occupancy rate as of June 30, 2024, was 95.3%, with approximately 200 basis points of additional occupancy opportunity from developments placed in service in 2023 and 2024.

Baccile commented, "The company is very pleased with the leasing progress made, both in the core portfolio and within development projects. The team's focus on delivering high-quality industrial space in strategic markets continues to drive success, and the company is excited to allocate additional capital to further expand its presence in key logistics hubs."

Development and Acquisition Activity

During the second quarter of 2024, the company acquired one industrial property comprising approximately 0.05 million square feet of GLA in its Southern California market for a purchase price of $15.8 million, excluding transaction costs.

The company also commenced speculative development of three industrial buildings totaling 0.7 million square feet of GLA in its Houston and South Florida markets. These new development projects are expected to have a combined estimated yield of approximately 7%.

In the third quarter to date, the company has sold an additional $90 million of assets, bringing its year-to-date total dispositions to $138 million. The company's disposition strategy is focused on selling properties with lower rent growth prospects and/or assets with less than optimal functionality, and redeploying the capital into higher rent growth assets in key logistics markets primarily with a coastal orientation.

Outlook

For the full year 2024, the company has raised its guidance for funds from operations (FFO) to a range of $2.59 to $2.67 per share, up from its previous guidance of $2.56 to $2.64 per share. This revised guidance is primarily due to the progress the company has made in leasing up its development projects since the last earnings call.

The company's key assumptions for its 2024 guidance include:

Quarter-end average occupancy of 95.75% to 96.75%

Same-store net operating income growth on a cash basis before termination fees of 7.25% to 8.25%
General and administrative expense of $39.5 million to $40.5 million

Scott Musil, Chief Financial Officer of First Industrial Realty Trust, stated, "The company is excited about the leasing progress made, which has allowed for raising the full-year guidance. The team's focus on delivering high-quality industrial space in strategic markets continues to drive success, and the company is well-positioned to capitalize on the strong demand in its target markets."

Risks and Challenges

While First Industrial Realty Trust has delivered strong financial results, the company faces several risks and challenges that investors should be aware of:

1. Macroeconomic Conditions: The company's performance is closely tied to the overall health of the U.S. economy and the industrial real estate market. A slowdown in economic growth or a decline in industrial demand could negatively impact the company's financial results.

2. Competition: The industrial real estate market is highly competitive, with numerous other REITs and private investors vying for properties and tenants. The company's ability to maintain its competitive edge and continue to grow its portfolio is crucial.

3. Development and Leasing Risks: The company's development and redevelopment projects are subject to various risks, including construction delays, cost overruns, and the ability to successfully lease up the completed properties.

4. Tenant Concentration: The company's top 10 tenants accounted for approximately 25% of its annualized base rent as of June 30, 2024. The loss of a significant tenant could have a material adverse effect on the company's financial performance.

5. Regulatory and Environmental Risks: The company's operations are subject to various federal, state, and local laws and regulations, including those related to environmental matters. Changes in these laws and regulations could impact the company's business.

Despite these risks, First Industrial Realty Trust's strong market position, experienced management team, and focus on strategic markets position the company well to navigate the challenges and continue delivering value to its shareholders.

Conclusion

First Industrial Realty Trust has delivered another strong quarter, with impressive leasing activity, development progress, and a raised full-year guidance. The company's focus on strategic markets, high-quality industrial properties, and experienced management team have been key drivers of its success.

While the company faces some risks, such as macroeconomic conditions and competition, its solid financial position, diversified portfolio, and disciplined approach to growth position it well for continued success. Investors should closely monitor the company's progress as it continues to execute on its strategic initiatives and capitalize on the strong demand in the industrial real estate market.

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