First Industrial Realty Trust, Inc. (
Q4 2011 Earnings Call
February 23, 2012 11:00 a.m. ET
Art Harmon – Senior Director, IR
Bruce Duncan – President and CEO
Scott Musil – CFO
Jojo Yap – Chief Investment Officer
Chris Schneider – SVP, Operations
Bob Walter – SVP, Capital Markets
Craig Mailman – Keybanc Capital Markets
Ki Bin Kim – Macquarie Capital Markets
Dave Rogers – RBC Capital Markets
Daniel Donlan – Janney Capital Markets
John Stewart – Green Street Advisors
Joe Dazier– JP Morgan
Good morning. My name is Brooke, and I will be your conference operator today.
Previous Statements by FR
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At this time, I would like to welcome everyone to the First Industrial Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Art Harmon, Senior Director of Investor Relations. Thank you. Mr. Harmon, you may begin your conference.
Thanks, Brooke. Hello everyone and welcome to our call. Before we discuss our fourth quarter and full year 2011 results, let me remind everyone that the speakers on today’s call will make various remarks regarding future expectations, plans and prospects for First Industrial such as those related to our liquidity, management of our debt maturities, portfolio performance, our overall capital deployment including investments, our plan dispositions, our development and joint venture activities, and expected earnings.
These remarks constitute forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. First Industrial assumes no obligation to update or supplement these forward-looking statements. Such forward-looking statements involve important factors that could cause actual results to differ materially from those in forward-looking statements, including those risks discussed in First Industrial’s 10-K for the year ending December 31st, 2010 filed with the SEC and subsequent ’34 Act reports.
Reconciliations from GAAP financial measures to non-GAAP financial measures are provided in our supplemental report, which is available at firstindustrial.com, under the investor relations tab. Since this call may be accessed via replay for a period of time, it is important to note that today’s call includes time sensitive information that may be accurate only as of today’s date, February 23, 2012.
Our call will begin with remarks by Bruce Duncan, our President and CEO, to be followed by Scott Musil, our Chief Financial Officer who will discuss our financial results in detail, our capital position, and 2012 guidance after which we will open it up for your questions.
Also here today are Jojo Yap, our Chief Investment Officer; Chris Schneider, Senior Vice President of Operations; and Bob Walter, Senior Vice President of Capital Markets and Asset Management. Now, let me turn the call over to Bruce.
Thanks, Art, and thank you to everyone for joining us today. I would like to take a few moments to reflect on what the First Industrial team achieved in the fourth quarter and throughout 2011. Because of these accomplishments we’re now positioned for growth both within our existing portfolio and through new investments.
First and foremost, let me talk about the portfolio where our focus has been on driving occupancy and cash flow. In the fourth quarter occupancy improved to 87.9% up a 130 basis points for the quarter and 290 basis points for the full year. Occupancy gains were broad based consistent with what has been seen in the national industrial market which enjoyed its sixth consecutive quarter of positive absorption.
Given the cloud of economic uncertainty that hung over a great deal of the quarter we are pleased that key tenants made decisions and move ahead with plans for the future. The recent economic news, including the latest jobs report, reflect and support those decisions. As we stand today we’re seeing significant tenant activity across our markets. Though we will feel better when more of the activity translates into signed leases.
As part of our leasing in the quarter, we made some headway on the top 10 largest strategic vacancies we outlined at Investor Day. Within this group, we completed leases for a 150,000 square feet in Chicago, a 166,000 square feet in Philadelphia, and an opportunistic sale totaling 384,000 square feet in the Inland Empire.
We still have work to do with this group but we view these prosperities as a major part of our internal growth opportunity as they are well located functional distribution buildings that can meet the needs of a wide range of tenants.
As of yearend, this roster represents approximately 275 basis points of potential occupancy growth compared to 320 basis points stated on Investor Day.
Same-store NOI on a cash basis excluding termination fees was in positive territory for the second quarter in a row at 0.5%. Our rental rate change was negative 11.3% in the quarter and negative 11.8% for the year in line with our forecast. We still face headway in redoing leases signed near market peaks of 2007 and 2008. As the leasing market continues to recover we are focused on structuring leases with above average escalations to help mitigate the impact of rent roll downs.
For 2012, we expect steady absorption to continue for the industrial real estate market supported by the backdrop of moderate growth in the economy and new supply being limited to a handful of markets, and almost exclusively to larger warehouse distribution product.
In our portfolio we will see a dip in occupancy in the first quarter due to typical seasonality plus the impact of a 700,000 square foot lease term expiration in Columbus that we talked about at Investor Day.