First Industrial Realty Trust ( FR)

Q2 2011 Earnings Call

July 28, 2011 12:00 pm ET


Art Harmon – Head of Investor Relations

Bruce W. Duncan – President and Chief Executive Officer

Scott Musil – Chief Financial Officer

Johannson Yap – Chief Investment Officer

Christopher Schneider – Senior Vice President, Operations and Chief Information Officer

Robert Walter – Senior Vice President, Capital Markets


Ki Bin Kim – Macquarie

Suzanne Kim – Credit Suisse

Steve Frankel – Green Street Advisors

Michael Mueller – JPMorgan

Ki Bin Kim – Macquarie

Daniel Donlan – Janney Montgomery Scott LLC



Ladies and gentlemen, thank you for standing, and welcome to the First Industrial Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I’ll now turn the floor to Mr. Art Harmon, Head of Investor Relations of First Industrial.

Art Harmon

Thank you Beverly, and hello everyone and welcome to our call. Before we discuss our second quarter 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, our planned dispositions, our development and joint venture activities, continued compliance with our financial covenants, 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 reports on 10-Q.

Reconciliation from GAAP financial measures to non-GAAP financial measures are provided in our supplemental report available at under the Investor Relations tab. Since this call may be accessed via replay for a period of time, it is important to know that today’s call includes time-sensitive information that may be accurate only as of today’s date, July 28, 2011.

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 results, capital position, and guidance, after which we will open it up for your questions.

Also on the call today are Jojo Yap, our Chief Investment Officer; Chris Schneider, Senior Vice President of Operations; and, Bob Walter, Senior Vice President of Capital Markets.

With that, let me turn the call over to Bruce.

Bruce W. Duncan

Thanks, Art and thank you to everyone for joining us today. The industrial real estate market continued its recovery with positive net absorption for the fourth consecutive quarter. Demand for industrial facilities continues to improve as the overall economy recovers even if at a slower rate than many economists originally projected.

The second quarter was another milestone for our company. As shown by our leasing results, our progress on our balance sheet, as well as our return to investing. I thank our team across the platform for their hard work and contributions. And I know, our entire organization is exited about the opportunities that lie ahead.

Given our strong performance in the quarter, we are maintaining our FFO guidance range before one-time items for 2011, as our projected performance for the year is offsetting the impact of our June equity rates. First and foremost, our focus in on leasing. This improving NOI is the key to driving the value of our company. Improving cash flow from our portfolio will also further strengthen our capital position and financial ratios. And also that will position us to be at dividend paying REITs in the future.

We achieved quarter end occupancy of 86.1% up 140 basis points, from 84.7% last quarter, and up 400 basis points from a year ago. Occupancy was driven by customer demand and activity across our markets, including the expansion in Central Pennsylvania, which contributed approximately 70 basis points. Our acquisition in Houston, which I will talk more about in a minute, also provided a 13 basis point pick up.

Sales accounted for just 2% of the increase, two basis points.

In the leasing market, demand continues to be broad-based across regions and customers types. We are seeing good activity on our vacancies, including in some more challenged markets like Atlanta and Dallas. But our job remains to convert this activity in the designed places.

Market rents and concessions have stabilized, but remains competitive. However as we have noted in prior calls, since the leasing cycle in our business is typically five years, we continue to roll off leases signed in better years. Reflective of that our rental rate change came in at negative 15.1% for the quarter. Our rates for the quarter were impacted by a due transactions, where we needed to meet the market.

Year-to-date rental rate changes were negative 12.4%. Until rates recover further we expect new supply to remain constrained in the vast majority of markets. This should help the market observe the existing vacancy over time.

Regarding our balance sheet, through our $101 million common equity offering in June, we achieved the higher end of our targeted debt-to-EBITDA range of 6.5 to 7.5 times. At the end of the second quarter, we were at a debt-to-EBITDA of 7.4 times when applying a normalized G&A expense run rate of about $6 million per quarter.

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