First Industrial Realty Trust, Inc. ( FR)

Q3 2011 Earnings Conference Call

October 27, 2011 12:00 PM ET

Executives

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

Analysts

Craig Mail – Keybanc Capital Markets

Ki Bin Kim – Macquarie Research Equities

Paul Adornato – BMO Capital Markets

Dan Donlan – Janney Capital Market

John Stewart – Green Street Advisors

Michael Muller – JP Morgan

Dan Donlan – Janney Capital Market

Chris Caton – Morgan Stanley

Dave Rodgers – RBC Capital Markets

Presentation

Operator

Good afternoon. My name is Sarah, and I will be your conference operator today.

At this time, I would like to welcome everyone to the First Industrial Third Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remark, there will be a question-and-answer session.

(Operator Instructions) I would now like to turn the call over to Mr. Art Harmon, Senior Director of Investor Relations. Mr. Harmon, you may begin.

Art Harmon

Thank you, Sarah. Hello everyone and welcome to our call. Before we discuss our third 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 plan 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 provision 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 risk discussed in First Industrial 10-K for the year ending December 31st, 2010, filed with the SEC and subsequent report on 10-Q.

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 know that today’s call includes time sensitive information that may be accurate only as of today’s date, October 27, 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 and Asset Management. Now, let me turn the call over to Bruce.

Bruce Duncan

Thanks, Art, and thank you to everyone for joining us today. We continue to make progress in our business during the quarter. The First Industrial team is doing an excellent job of executing our strategy and I thank all of my colleagues for their efforts and contributions.

In our portfolio, occupancy improved again in the third quarter to 86.6%, up 50 basis points from last quarter and 300 basis points from a year ago. The third quarter gain was attributable to our dispositions which included several vacant properties, largely as a result of our occupancy gains throughout the year.

Our same store NOI on a cash basis turned positive this quarter, the first time since the fourth quarter of 2008. Excluding termination fees, same store NOI was positive 2.7%. Looking at the overall state of demand, the US industrial market delivered its fifth consecutive quarter of positive net absorption and we continue to see leasing activity across nearly all of our markets.

But we have seen some prospects be more deliberate in committing the space as they accept all the headline news such as Europe, US budget debates, the volatility of the stock market and the related impact on consumer confidence as seen in Tuesday’s report. Hopefully, today’s news of the European accord, as well as the GDP number, will give this business community some renewed conviction.

Our rental rates changed during the quarter with minus 10.8%, in line with our forecast reflecting the impact of the turnover of lease to sign in years where market rates were higher. As we have in the past, we continue to be focused on achieving higher rental rate bumps. Escalations on long-term leases commencing in the quarter averaged 4.2% annually. We also continued to keep lease term shorter as the average term with 3.9 years for lease is greater than 12 months compared to our portfolio average of 5.9 years.

Regarding dispositions of non-strategic assets, we are on target toward our $100 million goal for 2011, with $74.2 million of total sales completed through September 30th. Third quarter sales totaled $43.2 million, comprised of 12 buildings for $23.7 million or $24 per square foot, and one land parcel for $19.5 million.

During the quarter, we also disposed of a property with a book value of $3.2 million through a deed in lieu transaction. In total, third quarter dispositions exceeded their written down book value by approximately 20%. More importantly, the in-place yield on this $43.2 million of sales was less than 2%. Importantly, our sales are having an impact on improving the overall quality of our portfolio.

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