First Industrial Realty Trust, Inc. and its subsidiary, First Industrial, L.P., reported financial results for the quarter ended September 30, 2024. The company’s net income was $23.1 million, or $0.23 per diluted share, compared to $20.5 million, or $0.20 per diluted share, in the same period last year. Total revenue increased 4.5% to $74.1 million, driven by a 3.1% increase in same-store net operating income and a 1.4% increase in rental rates. The company’s same-store portfolio occupancy rate remained strong at 95.4%, and its debt-to-equity ratio was 0.53 at quarter-end. The company also announced that it had acquired 12 industrial properties totaling 1.4 million square feet for $143.5 million, and had sold 10 properties totaling 1.1 million square feet for $93.5 million.
Financial Performance Overview
First Industrial Realty Trust, Inc. (the “Company”) reported strong operating results for the nine months ended September 30, 2024. The Company’s in-service occupancy rate at the end of the quarter was 95.0%, and it achieved a 52.9% increase in cash rental rates on new and renewal leases that commenced during the period.
The Company’s net income was $225.5 million for the nine months ended September 30, 2024, up from $194.1 million in the same period of 2023. This increase was driven by higher revenues from the Company’s same store properties, acquired properties, and recently developed properties, as well as a significant gain on the sale of 17 industrial properties.
Revenue and Profit Trends
Revenues from the Company’s same store properties, which are properties owned prior to January 1, 2023, increased by $18.7 million or 4.4% compared to the prior year period. This was primarily due to increases in rental rates and tenant recoveries, partially offset by a slight decrease in occupancy.
Revenues from acquired properties, which are properties purchased after December 31, 2022, increased by $2.7 million or 347.6% due to the addition of nine industrial properties totaling 0.4 million square feet of gross leasable area (GLA). Revenues from sold properties, which are properties sold after December 31, 2022, decreased by $7.9 million or 55.9% due to the disposition of 28 industrial properties totaling 2.0 million square feet of GLA.
Revenues from the Company’s development and redevelopment properties increased by $22.3 million or 361.1% due to an increase in occupancy and tenant recoveries as these properties were placed into service. The Company had five development projects totaling 1.3 million square feet of GLA under construction as of September 30, 2024.
The Company’s property expenses, which include real estate taxes, repairs and maintenance, utilities, and other operating costs, increased by $10.5 million or 8.4% compared to the prior year period. This was primarily driven by higher expenses from the Company’s same store properties, acquired properties, and recently completed development projects.
General and administrative expenses increased by $3.3 million or 12.1%, mainly due to higher equity compensation expense and a slight decrease in the amount of compensation capitalized to development activities.
The Company recognized a $93.8 million gain on the sale of 17 industrial properties during the nine months ended September 30, 2024, compared to a $47.4 million gain on the sale of four industrial properties and two land parcels in the prior year period.
Strengths and Weaknesses
A key strength of the Company is its focus on industrial real estate, which has experienced strong demand and rent growth in recent years due to the growth of e-commerce and supply chain modernization. The Company’s strategy of concentrating on 15 key logistics markets, with an emphasis on coastal markets, has positioned it to benefit from these favorable industry trends.
The Company’s high in-service occupancy rate of 95.0% and ability to achieve significant rent increases on new and renewal leases demonstrate the strength of its portfolio and operating platform. Its development pipeline of 1.3 million square feet of GLA also provides opportunities for future growth.
A potential weakness is the Company’s exposure to rising interest rates, as 11.4% of its total debt was variable-rate as of September 30, 2024. While the Company has mitigated some of this risk through the use of interest rate swaps, a significant increase in interest rates could still impact its financing costs and profitability.
Additionally, the Company’s reliance on property sales as a source of capital and to upgrade its portfolio exposes it to market conditions for industrial real estate transactions. A slowdown in investment sales activity could limit the Company’s ability to execute its portfolio enhancement strategy.
Outlook and Future Prospects
The Company’s management is optimistic about the company’s future prospects, citing favorable industrial real estate fundamentals in its target markets and a robust development pipeline. However, they also acknowledge several potential risks and challenges, including changes in national and regional economic conditions, legislation and regulation, the availability and cost of financing, and competition from other industrial property owners and developers.
To address these risks, the Company plans to continue pursuing its strategies of internal growth, external growth through acquisitions and developments, and portfolio enhancement through selective dispositions. The Company believes its strong balance sheet, with $501.5 million of available borrowing capacity under its revolving credit facility and a well-laddered debt maturity schedule, will provide the financial flexibility to execute on these plans.
Overall, the Company’s recent financial performance and strategic positioning suggest it is well-positioned to capitalize on the favorable trends in the industrial real estate sector. However, investors should closely monitor the Company’s ability to navigate the potential headwinds of rising interest rates, competition, and market conditions for industrial property transactions.