FIRST INDUSTRIAL REALTY TRUST, INC.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
FIRST INDUSTRIAL REALTY TRUST, INC. AND FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; dollars in thousands, except per share and Unit data)
1. Organization
First Industrial Realty Trust, Inc. (the "Company") is a self-administered and fully integrated real estate company which owns, manages, acquires, sells, develops and redevelops industrial real estate. The Company is a Maryland corporation organized on August 10, 1993 and a real estate investment trust ("REIT") as defined in the Internal Revenue Code of 1986.1986 (the "Code"). Unless stated otherwise or the context otherwise requires, the terms "we," "our" and "us" refer to the Company and its subsidiaries, including its operating partnership, First Industrial, L.P. (the "Operating Partnership"), and its consolidated subsidiaries.
We began operations on July 1, 1994. The Company's operations are conducted primarily through the Operating Partnership, of which the Company is the sole general partner (the "General Partner"), with an approximate 96.7%97.8% ownership interest ("General Partner Units") at SeptemberJune 30, 2017.2019. The Operating Partnership also conducts operations through eight other limited partnerships (the "Other Real Estate Partnerships"), numerous limited liability companies ("LLCs") and certain taxable REIT subsidiaries ("TRSs"), the operating data of which, together with that of the Operating Partnership, is consolidated with that of the Company as presented herein. The Operating Partnership holds at least a 99% limited partnership interest in each of the Other Real Estate Partnerships. The general partners of the Other Real Estate Partnerships are separate corporations, wholly-owned by the Company, each with at least a .01% general partnership interest in the Other Real Estate Partnerships. The Company does not have any significant assets or liabilities other than its investment in the Operating Partnership and its 100% ownership interest in the general partners of the Other Real Estate Partnerships. NoncontrollingThe Company's noncontrolling interest in the Operating Partnership of approximately 3.3%2.2% at SeptemberJune 30, 20172019 represents the aggregate partnership interest held by the limited partners thereof ("Limited Partner Units" and together with the General Partner Units, the "Units"). The limited partners of the Operating Partnership are persons or entities who contributed their direct or indirect interests in properties to the Operating Partnership in exchange for common Limited Partner Units of the Operating Partnership and/or recipients of LTIP Units of the Operating Partnership pursuant to the Company's stock incentive plan. See Note 9 for more information.
We also own a 49% equity interest in, and provide various services to, a joint venture (the "Joint Venture") through a wholly- owned TRS of the Operating Partnership. The Joint Venture is accounted for under the equity method of accounting. The operating data of the Joint Venture is not consolidated with that of the Company or the Operating Partnership as presented herein. See Note 5 for more information related to the Joint Venture.
Profits, losses and distributions of the Operating Partnership, the LLCs, the Other Real Estate Partnerships, the TRSs and the TRSsJoint Venture are allocated to the general partner and the limited partners, the members or the shareholders, as applicable, of such entities in accordance with the provisions contained within their respective organizational documents.
As of SeptemberJune 30, 2017,2019, we owned 516462 industrial properties located in 2221 states, containing an aggregate of approximately 62.863.4 million square feet of gross leasable area ("GLA").Of the 516462 properties owned on a consolidated basis, none of them are directly owned by the Company.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the accounting policies described in the consolidated financial statements and related notes included in our annual report on Form 10-K for the year ended December 31, 20162018 ("20162018 Form 10-K") and should be read in conjunction with such consolidated financial statements and related notes. The 20162018 year end consolidated balance sheet data included in this Form 10-Q filing was derived from the audited consolidated financial statements in our 20162018 Form 10-K, but does not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). The following notes to these interim consolidated financial statements highlight significant changes to the notes included in the December 31, 20162018 audited consolidated financial statements included in our 20162018 Form 10-K and present interim disclosures as required by the Securities and Exchange Commission.
Use of Estimates
In order to conform with GAAP, in preparation of our consolidated financial statements we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of SeptemberJune 30, 20172019 and December 31, 2016,2018, and the reported amounts of revenues and expenses for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016.2018. Actual results could differ from those estimates. In our opinion, the accompanying unaudited interim consolidated financial statements reflect all adjustments necessary for a fair statement of our financial position as of SeptemberJune 30, 20172019 and December 31, 2016,2018, the results of our operations and comprehensive income for each of the three and ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, and our cash flows for each of the ninesix months ended SeptemberJune 30, 20172019 and 2016.2018. All adjustments are of a normal recurring nature.
Reclassifications
Investment in Real Estate and Depreciation
EffectiveWe adopted Financial Accounting Standards Board ("FASB") Accounting Standards Codification 842 Leases effective January 1, 2017, we adopted2019. Upon adoption of the new standard, tenant recovery revenue and fee revenue collected for delinquent lease payments for 2018 has been reclassified to the Lease Revenue line item in the Consolidated Statements of Operations to conform to the 2019 financial statement presentation. This reclassification had no impact to the 2018 results of operations.
Recent Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update ("ASU") No. 2017-01, "Business Combinations2016-02, Leases (Topic 805): Clarifying the Definition of a Business" ("ASU 2017-01"). ASU 2017-01 clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. We applied ASU 2017-01 prospectively. We anticipate that our acquisitions of real estate in the future will generally not meet the definition of a business combination and, accordingly; transaction costs which have historically been expensed will be capitalized as part of the basis of the real estate assets acquired.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 requires entities to recognize revenue when they transfer promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual periods beginning after December 15, 2017. We will adopt the new standard effective January 1, 2018 and expect to utilize the modified retrospective approach upon adoption. While lease contracts with customers, which constitute a vast majority of our revenues, are a specific scope exception, certain of our revenue streams may be impacted by the new guidance, however we do not believe there will be a material financial statement impact or that our pattern of revenue recognition will be materially impacted by the adoption of ASU 2014-09.
In February 2016, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2016-02, "Leases"842) ("ASU 2016-02"), which amendsamended the existing accounting standards for lease accounting to increase transparency and sets out the principles forcomparability among organizations by requiring the recognition measurement, presentationof right-of-use assets and disclosure of leases for both parties to a contract. Under ASU 2016-02, lessees will be required to record a right-of-use asset, which is an asset that representslease liabilities on the lessee’s rightbalance sheet.
We adopted the standard effective January 1, 2019 and have elected to use or control the useJanuary 1, 2019 as our date of a specified asset for the lease term and a lease liability, which is a lessee’s right to use, or control the use of, a specified asset for the lease term. We are a lessee on certain ground and operating leases as disclosed in Note 14 to the consolidatedinitial application. Consequently, financial statements in our 2016 Form 10-K. While we expect to record a right-of-use asset and lease liability upon adoption of this standard, we anticipate the impactinformation will not be materialupdated and disclosures required under the new standard will not be provided for periods presented before January 1, 2019 as these prior periods conform to our overall financial condition and resultsthe Accounting Standards Codification 840. We elected the package of operations. We are the lessor on a significant number of leases, however, we believe that ASU 2016-02 will have minimal impact to our financial condition or results of operations as leases where we are the lessor will continue to be accounted for as operating leases. The most significant changes ASU 2016-02 will have to lessor accounting will be the requirement that lessors expense certain initial direct costs that are not incremental in negotiating a lease as incurred as well bifurcating lease generated revenue into lease and non-lease components. ASU 2016-02 requires the use of a modified retrospective approach for all leases existing at, or entered into after, the beginning of the earliest period presented in the consolidated financial statements, with certain practical expedients available. Ifpermitted under the transition guidance within the new standard. By adopting these practical expedients, are elected, we wouldwere not be required to reassess (1) whether an expired or existing contract meets the definition of a lease; (2) the lease classification for expired or existing leases; andor (3) whether costs previously capitalized as initial direct costs.
As a lessor, our rental revenue remained mainly consistent with previous guidance, apart from the narrower definition of initial direct costs would continuethat can be capitalized. The new standard defines initial direct costs as only the incremental costs of signing a lease. As such, certain compensation and certain external legal fees related to the execution of successful lease agreements no longer meet the definition of initial direct costs under the new standard and will be amortized. We are continuingaccounted for in the processline item General and Administrative Expense. However, the adoption of evaluating and quantifying the effect thatstandard, along with the adoption of ASU 2016-02 will have on our consolidated financial statements and related disclosures. We will adopt ASU 2016-02 on January 1, 2019 and anticipate electing the practical expedients.
In August 2016,No. 2018-11, Leases - Targeted Improvements which the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” ("ASU 2016-15"). ASU 2016-15 addresses eight specific cash flow issues and intends to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 with retrospective application required. We expect ASU 2016-15 to impact theJuly 2018, did change our presentation of our consolidated statement of cash flows and we will adopt ASU 2016-15 on January 1, 2018.
In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash" ("ASU 2016-18"). ASU 2016-18 requires that the statement of cash flows explain the change during the periodresults from operations in the totalConsolidated Statements of cash, cash equivalentsOperations. The main changes caused by the adoption of the standards are:
The new standard provided a practical expedient, which allows lessors to combine non-lease components with the related lease components if both the timing and amountspattern of transfer are the same for the non-lease components(s) and the related lease component, and the lease component would be classified as an operating lease. Lessors are permitted to apply the practical expedient to all existing leases on a retrospective or prospective basis. We elected the practical expedient to combine our lease and non-lease components that meet the defined criteria. The non-lease components of our leases primarily consist of common area maintenance reimbursements from our tenants.
| |
| • | The new standard also requires lessors to exclude from variable payments certain lessor costs, such as real estate taxes, that the lessor contractually requires the lessee to pay directly to a third party on its behalf. Several of our leases require tenants to pay real estate taxes directly to taxing authorities. For periods prior to January 1, 2019, we recorded these payments in the line item Property Expenses with an offset in the line item Lease Revenue. For the three and six months ended June 30, 2018, $1,862 and $3,748 of these payments are included in the aforementioned line items. |
| |
| • | The new standard requires our expected credit loss related to the collectability of lease receivables to be reflected as an adjustment to the line item Lease Revenue. For the three and six months ended June 30, 2018, the credit loss related to the collectibility of lease receivables was recognized in the line item Property Expenses and was not significant. |
We are a lessee on a limited number of ground and office leases. Under the new standard, the expense pattern for these leases is generally described as restricted cashconsistent with that of our historical recognition; however, we are required to record right-of-use assets and restricted cash equivalents when reconcilinglease liabilities on our Consolidated Balance Sheets. Operating lease right-of-use assets and liabilities are recognized at commencement of the beginning- of-period and end-of-period total amounts shownlease based on the statementpresent value of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017. We expect ASU 2016-18 to impact the presentationlease payments over the lease term. As most of our consolidated statementleases do not provide an implicit rate, we use our incremental borrowing rate based on information available at lease commencement to determine the present value of cash flowslease payments. For leases that commenced prior to the effective date of the standard, we recognized right-of-use assets and we will adopt ASU 2016-18lease liabilities based on January 1, 2018.
the present value of remaining lease payments and the incremental borrowing rate on the date of adoption. We have elected the short term lease exemption for certain qualifying leases with lease terms of twelve months or less and, accordingly, did not record right-of-use assets and lease liabilities. We have also elected the practical expedient to not separate lease and non-lease components. For additional disclosures related to leases, refer to Note 13.
In August 2017, the FASB issued ASU 2017-12, “Derivatives"Derivatives and Hedging (Topic 815): Targeting Improvements to Accounting for Hedging Activities” (“Activities" ("ASU 2017-12”2017-12"). ASU 2017-12 is intended to better align financial reporting for hedging activities with the economic objectives of those activities. As a result of the transition guidance, cumulative ineffectiveness that has been previously recognized on cash flowWe adopted ASU 2017-02 effective January 1, 2019, and net investment hedges that are still outstanding and designated as of the date of adoption will be adjusted and removed from beginning retained earnings and placed in accumulated other comprehensive income. ASU 2017-12 is effective for annual periods beginning after December 15, 2018. We continue to assess all the potential impacts of ASU 2017-12, however, we do not expect the adoption to have a materialdid not impact on our financial condition or results of operations.
3. Investment in Real Estate
REIT AcquisitionAcquisitions
On August 15, 2017, via a stock purchase agreement,During the six months ended June 30, 2019, we acquired a private real estate investment trust that owns onefour industrial property consistingproperties comprised of 0.2approximately 0.3 million square feet of GLA and four land parcels, one of which was acquired from a third party seller in exchangeour Joint Venture (see Note 5). We accounted for $20,962, exclusive of closingthe properties and land parcels as asset acquisitions and therefore capitalized transaction costs and credits (“REIT Acquisition”). As partto the basis of the REIT Acquisition, we acquired 100% of the private REIT’s common stock.
Acquisitions
During the nine months ended September 30, 2017, we acquired six industrial properties comprised of approximately 0.9 million square feet of GLA (inclusive of the REIT Acquisition) and several land parcels.assets. The following table summarizes the amounts recognized for each major class of asset and liabilityclass for the industrial properties and land parcels acquired during the ninesix months ended SeptemberJune 30, 2017:2019:
|
| | | |
| | Purchase Price |
| Land | $ | 26,305 |
|
| Building and Improvements | 20,092 |
|
| In-Place Leases | 2,585 |
|
| Below Market Leases | (656 | ) |
| Other Assets (leasing commissions) | 256 |
|
| Total Purchase Price | $ | 48,582 |
|
|
| | | | | |
| | Purchase Price | | Weighted Average Life (in Months) |
| Land | $ | 90,429 |
| | N/A |
| Building and Improvements | 61,973 |
| | (A) |
| Other Assets | 1,195 |
| | (B) |
| In-Place Leases | 6,670 |
| | 70 |
| Above Market Leases | 127 |
| | 34 |
| Below Market Leases | (1,420 | ) | | 85 |
| Total Purchase Price (C) | $ | 158,974 |
| | |
(A) See Note 2 to the consolidated financial statements in our 2016 Form 10-K for the disclosure of useful lives of our Investment in Real Estate and our Depreciation policy.
(B) Represents leasing commissions, which are included in prepaid expenses and other assets, net on the consolidated balance sheets and amortized over the remaining term of each lease.
(C) Excludes costs incurred in conjunction with the acquisition of the industrial properties and land parcels.
The revenue and net income associated with the acquisition of the industrial properties and land parcels, since their respective acquisition dates, are not significant for the ninesix months ended SeptemberJune 30, 2017.2019.
Real Estate Held for SaleSales
As of SeptemberDuring the six months ended June 30, 2017,2019, we had eightsold two industrial properties comprised of approximately 1.1 million square feet of GLA and one land parcel held for sale.
Sales
During the nine months ended September 30, 2017, we sold 30 industrial properties comprised of approximately 1.90.1 million square feet of GLA. Gross proceeds from the sales of these industrial properties were $99,279.$12,091. The gain on sale of real estate attributable to these sales was $52,140.$889.
4. Indebtedness
The following table discloses certain information regarding our indebtedness:
|
| | | | | | | | | | | | | |
| | Outstanding Balance at | | Interest
Rate at
June 30, 2019 | | Effective Interest Rate at Issuance | | Maturity Date |
| | June 30, 2019 | | December 31, 2018 | |
| Mortgage Loans Payable, Gross | $ | 222,274 |
| | $ | 297,610 |
| | 4.03% – 8.26% | | 4.03% – 8.26% | | December 2019 – August 2028 |
| Unamortized Debt Issuance Costs | (917 | ) | | (1,246 | ) | | | | | | |
| Unamortized Premiums | — |
| | 106 |
| | | | | | |
| Mortgage Loans Payable, Net | $ | 221,357 |
| | $ | 296,470 |
| | | | | | |
| Senior Unsecured Notes, Gross | | | | | | | | | |
| 2027 Notes | 6,070 |
| | 6,070 |
| | 7.15% | | 7.11% | | 5/15/2027 |
| 2028 Notes | 31,901 |
| | 31,901 |
| | 7.60% | | 8.13% | | 7/15/2028 |
| 2032 Notes | 10,600 |
| | 10,600 |
| | 7.75% | | 7.87% | | 4/15/2032 |
| 2027 Private Placement Notes | 125,000 |
| | 125,000 |
| | 4.30% | | 4.30% | | 4/20/2027 |
| 2028 Private Placement Notes | 150,000 |
| | 150,000 |
| | 3.86% | | 3.86% | | 2/15/2028 |
| 2029 Private Placement Notes | 75,000 |
| | 75,000 |
| | 4.40% | | 4.40% | | 4/20/2029 |
| 2030 Private Placement Notes | 150,000 |
| | 150,000 |
| | 3.96% | | 3.96% | | 2/15/2030 |
| Subtotal | $ | 548,571 |
| | $ | 548,571 |
| | | | | | |
| Unamortized Debt Issuance Costs | (3,782 | ) | | (3,990 | ) | | | | | | |
| Unamortized Discounts | (74 | ) | | (77 | ) | | | | | | |
| Senior Unsecured Notes, Net | $ | 544,715 |
| | $ | 544,504 |
| | | | | | |
| Unsecured Term Loans, Gross | | |
|
| | | | | | |
2014 Unsecured Term Loan (A) | $ | 200,000 |
| | $ | 200,000 |
| | 3.39% | | N/A | | 1/29/2021 |
2015 Unsecured Term Loan (A) | 260,000 |
| | 260,000 |
| | 2.89% | | N/A | | 9/12/2022 |
| Subtotal | $ | 460,000 |
| | $ | 460,000 |
| |
| |
| |
|
| Unamortized Debt Issuance Costs | (2,663 | ) | | (3,191 | ) | | | | | | |
| Unsecured Term Loans, Net | $ | 457,337 |
| | $ | 456,809 |
| | | | | | |
Unsecured Credit Facility (B) | $ | 158,000 |
| | $ | — |
| | 3.51% | | N/A | | 10/29/2021 |
|
| | | | | | | | | | | | | |
| | Outstanding Balance at | | Interest Rate at September 30, 2017 | | Effective Interest Rate at Issuance | | Maturity Date |
| | September 30, 2017 | | December 31, 2016 | |
| Mortgage Loans Payable, Gross | $ | 454,283 |
| | $ | 498,435 |
| | 4.03% – 8.26% | | 3.82% – 8.26% | | June 2018 – September 2022 |
| Unamortized Deferred Financing Costs | (2,033 | ) | | (2,905 | ) | | | | | | |
| Unamortized Premiums | 301 |
| | 426 |
| | | | | | |
| Mortgage Loans Payable, Net | $ | 452,551 |
| | $ | 495,956 |
| | | | | | |
| Senior Unsecured Notes, Gross | | | | | | | | | |
| 2017 Notes | 54,981 |
| | 54,981 |
| | 7.50% | | 7.52% | | 12/1/2017 |
| 2027 Notes | 6,070 |
| | 6,070 |
| | 7.15% | | 7.11% | | 5/15/2027 |
| 2028 Notes | 31,901 |
| | 31,901 |
| | 7.60% | | 8.13% | | 7/15/2028 |
| 2032 Notes | 10,600 |
| | 10,600 |
| | 7.75% | | 7.87% | | 4/15/2032 |
| 2017 II Notes | — |
| | 101,871 |
| | N/A | | N/A | | 5/15/2017 |
| 2027 Private Placement Notes | 125,000 |
| | — |
| | 4.30% | | 4.30% | | 4/20/2027 |
| 2029 Private Placement Notes | 75,000 |
| | — |
| | 4.40% | | 4.40% | | 4/20/2029 |
| Subtotal | $ | 303,552 |
| | $ | 205,423 |
| | | | | | |
| Unamortized Deferred Financing Costs | (1,864 | ) | | (320 | ) | | | | | | |
| Unamortized Discounts | (86 | ) | | (105 | ) | | | | | | |
| Senior Unsecured Notes, Net | $ | 301,602 |
| | $ | 204,998 |
| | | | | | |
| Unsecured Term Loans, Gross | | |
|
| | | | | | |
2014 Unsecured Term Loan (A) | $ | 200,000 |
| | $ | 200,000 |
| | 3.99% | | N/A | | 1/29/2021 |
2015 Unsecured Term Loan (A) | 260,000 |
| | 260,000 |
| | 3.39% | | N/A | | 9/12/2022 |
| Subtotal | $ | 460,000 |
| | $ | 460,000 |
| |
| |
| |
|
| Unamortized Deferred Financing Costs | (2,862 | ) | | (3,362 | ) | | | | | | |
| Unsecured Term Loans, Net | $ | 457,138 |
| | $ | 456,638 |
| | | | | | |
| Unsecured Credit Facility (B) | $ | 157,000 |
| | $ | 189,500 |
| | 2.39% | | N/A | | 3/11/2019 |
(A) The interest rate at SeptemberJune 30, 20172019 also reflects the interest rate protection agreementsderivative instruments we entered into to effectively convert the variable rate to a fixed rate. See Note 10.
(B) The maturity date may be extended an additional year at our election, subject to certain restrictions. Amounts exclude unamortized deferred financingdebt issuance costs of $1,881$2,927 and $2,876$3,554 as of SeptemberJune 30, 20172019 and December 31, 2016,2018, respectively, which are included in prepaid expensesthe line item Prepaid Expenses and other assets on the consolidated balance sheets.Other Assets, Net.
Mortgage Loans Payable, Net
During the ninesix months ended SeptemberJune 30, 2017,2019, we paid off mortgage loans in the amount of $36,108. In connection with the mortgage loans paid off during the nine months ended September 30, 2017, we recognized $1,653 as loss from retirement of debt representing prepayment penalties and the write-off of unamortized deferred financing costs.$72,073.
As of SeptemberJune 30, 2017,2019, mortgage loans payable are collateralized, and in some instances cross-collateralized, by industrial properties with a net carrying value of $580,202.$336,242. We believe the Operating Partnership and the Company were in compliance with all covenants relating to mortgage loans as of SeptemberJune 30, 2017.
2019.
Senior Unsecured Notes, Net
During the nine months ended September 30, 2017,On July 23, 2019, the Operating Partnership issued $125,000$150,000 of 4.30% Series A Guaranteed Senior Notes due April 20, 2027 (the “2027 Private Placement Notes”) and $75,000 of 4.40% Series B Guaranteed Senior Notes due April 20, 2029 (the “2029 Private Placement Notes”) (collectively, the "Private Placement Notes")senior unsecured notes in a private placement pursuant to a Note and Guaranty Agreement dated February 21, 2017. The 2027 Private Placement Notes and the 2029 Private Placement Notes are unsecured obligations of the Operating Partnership that are fully and unconditionally guaranteed by the Company and require semi-annual interest payments.placement. See Subsequent Events (Note 14).
Additionally, during the nine months ended September 30, 2017, we paid off and retired our 2017 II Notes (as described in the table above), at maturity in the amount of $101,871.
Indebtedness
The following is a schedule of the stated maturities and scheduled principal payments of our indebtedness, exclusive of premiums, discounts and deferred financingdebt issuance costs, for the next five years as of SeptemberJune 30, and thereafter:
|
| | | |
| | Amount |
| Remainder of 2019 | $ | 4,264 |
|
| 2020 | 59,046 |
|
| 2021 | 425,113 |
|
| 2022 | 341,552 |
|
| 2023 | 321 |
|
| Thereafter | 558,549 |
|
| Total | $ | 1,388,845 |
|
|
| | | |
| | Amount |
| Remainder of 2017 | $ | 57,662 |
|
| 2018 | 165,449 |
|
| 2019 | 236,329 |
|
| 2020 | 58,762 |
|
| 2021 | 266,818 |
|
| Thereafter | 589,815 |
|
| Total | $ | 1,374,835 |
|
Our unsecured credit facility (the "Unsecured Credit Facility"), the Unsecuredour unsecured term loans (the "Unsecured Term Loans (as defined in Note 10)Loans"), the Privateour private placement notes (the "Private Placement NotesNotes") and the indentures governing our senior unsecured notes contain certain financial covenants, including limitations on incurrence of debt and debt service coverage. Under the Unsecured Credit Facility and the Unsecured Term Loans an event of default can occur if the lenders, in their good faith judgment, determine that a material adverse change has occurred which could prevent timely repayment or materially impair our ability to perform our obligations under the loan agreements. We believe that the Operating Partnership and the Company were in compliance with all covenants relating to the Unsecured Credit Facility, the Unsecured Term Loans, the Private Placement Notes and the indentures governing our senior unsecured notes as of SeptemberJune 30, 2017.2019. However, these financial covenants are complex and there can be no assurance that these provisions would not be interpreted by our lenders and noteholders in a manner that could impose and cause us to incur material costs.
Fair Value
At SeptemberJune 30, 20172019 and December 31, 2016,2018, the fair value of our indebtedness was as follows:
|
| | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| | Carrying Amount (A) | | Fair Value | | Carrying Amount (A) | | Fair Value |
| Mortgage Loans Payable, Net | $ | 222,274 |
| | $ | 227,413 |
| | $ | 297,716 |
| | $ | 304,508 |
|
| Senior Unsecured Notes, Net | 548,497 |
| | 585,968 |
| | 548,494 |
| | 546,607 |
|
| Unsecured Term Loans | 460,000 |
| | 461,106 |
| | 460,000 |
| | 461,317 |
|
| Unsecured Credit Facility | 158,000 |
| | 158,177 |
| | — |
| | — |
|
| Total | $ | 1,388,771 |
| | $ | 1,432,664 |
| | $ | 1,306,210 |
| | $ | 1,312,432 |
|
|
| | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Carrying Amount (A) | | Fair Value | | Carrying Amount (A) | | Fair Value |
| Mortgage Loans Payable, Net | $ | 454,584 |
| | $ | 466,999 |
| | $ | 498,861 |
| | $ | 513,540 |
|
| Senior Unsecured Notes, Net | 303,466 |
| | 325,580 |
| | 205,318 |
| | 222,469 |
|
| Unsecured Term Loans | 460,000 |
| | 468,089 |
| | 460,000 |
| | 458,602 |
|
| Unsecured Credit Facility | 157,000 |
| | 157,116 |
| | 189,500 |
| | 189,500 |
|
| Total | $ | 1,375,050 |
| | $ | 1,417,784 |
| | $ | 1,353,679 |
| | $ | 1,384,111 |
|
(A) The carrying amounts include unamortized premiums and discounts and exclude unamortized deferred financingdebt issuance costs.
The fair values of our mortgage loans payable were determined by discounting the future cash flows using the current rates at which similar loans would be made based upon similar remaining maturities. The current market rates we utilized were internally estimated. The fair value of the senior unsecured notes were determined by using rates, as advised by our bankers, that are based upon recent trades within the same series of the senior unsecured notes, recent trades for senior unsecured notes with comparable maturities, recent trades for fixed rate unsecured notes from companies with profiles similar to ours, as well as overall economic conditions. The fair value of the Unsecured Credit Facility and the Unsecured Term Loans was determined by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term, assuming no repayment until maturity. We have concluded that our determination of fair value for each of our mortgage loans payable, senior unsecured notes, the Unsecured Term Loans and the Unsecured Credit Facility was primarily based upon Level 3 inputs.
5. Variable Interest Entities
Other Real Estate Partnerships
The Other Real Estate Partnerships are variable interest entities ("VIEs") of the Operating Partnership and the Operating Partnership is the primary beneficiary, thus causing the Other Real Estate Partnerships to be consolidated by the Operating Partnership. In addition, the Operating Partnership is a VIE of the Company and the Company is the primary beneficiary.
The following table summarizes the assets and liabilities of the Other Real Estate Partnerships included in our consolidated balance sheets, net of intercompany amounts:
|
| | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| ASSETS | | | |
| Assets: | | | |
| Net Investment in Real Estate | $ | 255,559 |
| | $ | 260,528 |
|
| Other Assets, Net | 23,742 |
| | 25,059 |
|
| Total Assets | $ | 279,301 |
| | $ | 285,587 |
|
| LIABILITIES AND PARTNERS' CAPITAL | | | |
| Liabilities: | | | |
| Mortgage Loans Payable, Net | $ | 13,164 |
| | $ | 20,497 |
|
| Other Liabilities, Net | 7,520 |
| | 9,045 |
|
| Partners' Capital | 258,617 |
| | 256,045 |
|
| Total Liabilities and Partners' Capital | $ | 279,301 |
| | $ | 285,587 |
|
|
| | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| ASSETS | | | |
| Assets: | | | |
| Net Investment in Real Estate | $ | 279,626 |
| | $ | 278,398 |
|
| Other Assets, Net | 23,976 |
| | 24,401 |
|
| Total Assets | $ | 303,602 |
| | $ | 302,799 |
|
| LIABILITIES AND PARTNERS’ CAPITAL | | | |
| Liabilities: | | | |
| Mortgage Loans Payable, Net | $ | 61,586 |
| | $ | 70,366 |
|
| Other Liabilities, Net | 9,602 |
| | 9,138 |
|
| Partners’ Capital | 232,414 |
| | 223,295 |
|
| Total Liabilities and Partners’ Capital | $ | 303,602 |
| | $ | 302,799 |
|
During the second quarter 2018, we entered into the Joint Venture with a third party partner for the purpose of developing, leasing, operating and potentially selling approximately 532 net developable acres of land located in the Phoenix, Arizona metropolitan area. The purchase price of the land was $49,000 and was acquired by the Joint Venture via cash equity contributions from us and our joint venture partner. Through a wholly-owned TRS of the Operating Partnership, we own a 49% interest in the Joint Venture.
During the six months ended June 30, 2019, the Joint Venture sold three land parcels, totaling 236 net developable acres, for gross proceeds of $57,178 and a total gain on sale of real estate of $30,236. Our economic share of the gain on sale is $14,816. However, we were the purchaser of one of the land parcels, acquiring 39 net developable acres from the Joint Venture. Accordingly, we netted our gain on sale pertaining to that sale in the amount of $3,121 against the basis of the land acquired. During the six months ended June 30, 2018, the Joint Venture sold one land parcel, totaling 21 net developable acres, for gross proceeds of $3,973 and total gain on sale of real estate of $181. Net income of the Joint Venture for the six months ended June 30, 2019 and 2018 was $30,148 and $154, respectively.
Under the Joint Venture's operating agreement, we act as the managing member of the Joint Venture and are entitled to receive fees for providing management, leasing, development, construction supervision, disposition and asset management services to the Joint Venture. In addition, the Joint Venture's operating agreement provides us the ability to earn an incentive fee based on the ultimate financial performance of the Joint Venture. In accordance with GAAP, for the three months ended June 30, 2019, we calculated the incentive fee using a hypothetical liquidation basis assuming the remaining net assets of the Joint Venture were distributed at book value. Under this hypothetical liquidation methodology, we recognized an incentive fee of approximately $4,900, which is recorded in the Equity In Income of Joint Venture line item in the statement of operations and as an increase to the Investment in Joint Venture line item on the balance sheet. Any incentive fee earned will be calculated based on the final economic performance of the Joint Venture and will be paid towards the end of the Joint Venture's life.
As part of our assessment of the appropriate accounting treatment for the Joint Venture, we reviewed the operating agreement of the Joint Venture in order to determine our rights and the rights of our joint venture partner, including whether those rights are protective or participating. We found that the operating agreement contains certain protective rights, such as the requirement of both member's approval to sell, finance or refinance the property and to pay capital expenditures and operating expenditures outside of the approved budget. However, we also found that we and our Joint Venture partner jointly (i) approve the annual budget, (ii) approve certain expenditures, (iii) review and approve the Joint Venture's tax return before filing and (iv) approve each lease at a developed property. We consider the latter rights substantive participation rights that result in shared, joint power over the activities that most significantly impact the performance of the Joint Venture. As such, we concluded to account for our investment in the Joint Venture under the equity method of accounting.
6. Stockholders’Stockholders' Equity of the Company and Partners' Capital of the Operating Partnership
Issuance of Shares of Common Stock
During the nine months ended September 30, 2017, the Company issued 2,560,000 sharesNoncontrolling Interest of the Company's common stock in an underwritten public offering. Proceeds to the Company net
The equity positions of the underwriter's discount, were $74,880. The proceeds werevarious individuals and entities that contributed their properties to the Operating Partnership in exchange for GeneralLimited Partner Units, as well as the equity positions of the holders of LTIP Units, are collectively referred to as the “Noncontrolling Interests.” Subject to vesting and are reflected inother certain exceptions (including the financial statements as a general partner contribution.
Increased Authorized Shares“book-up” requirements of Common Stock
On May 11, 2017, we filedLTIP Units - See Note 9 for additional detail), the holders of Noncontrolling Interests may convert their Units into an amendment to the Company’s articles of incorporation, increasing theequal number of shares of Common Stock, or a cash equivalent, at the Company’s common stock authorized for issuance from 150 millionCompany's election. Net income is allocated to 225 million shares.
the Noncontrolling Interest ofInterests based on the Companyweighted average ownership percentage during the period.
The following table summarizes the changes in noncontrolling interest for the Company for the ninesix months ended SeptemberJune 30, 20172019 and 2016:2018:
|
| | | | | | | |
| | 2019 | | 2018 |
| Balance as of December 31 | $ | 34,397 |
| | $ | 48,077 |
|
| Net Income | 1,450 |
| | 2,367 |
|
Amortization of Unearned Compensation related to the Issuance of LTIP Units (A) | 781 |
| | — |
|
| Other Comprehensive (Loss) Income | (241 | ) | | 200 |
|
| Unit Distributions | (1,316 | ) | | (1,418 | ) |
Conversion of Limited Partner Units to Common Stock (B) | — |
| | (12,327 | ) |
Retirement of Limited Partner Units (C) | — |
| | (934 | ) |
| Reallocation - Additional Paid-in-Capital | 2,780 |
| | 2,218 |
|
| Reallocation - Other Comprehensive Income | 8 |
| | — |
|
| Balance as of June 30 | $ | 37,859 |
| | $ | 38,183 |
|
|
| | | | | | | |
| | 2017 | | 2016 |
| Balance as of December 31 | $ | 43,184 |
| | $ | 42,035 |
|
| Net Income | 3,531 |
| | 3,635 |
|
| Unit Distributions | (2,544 | ) | | (2,436 | ) |
| Other Comprehensive Income | 51 |
| | (449 | ) |
| Conversion of Limited Partner Units to Common Stock (A) | (39 | ) | | (819 | ) |
| Reallocation - Additional Paid-in-Capital | 1,569 |
| | 2,489 |
|
| Reallocation - Other Comprehensive Income | 3 |
| | — |
|
| Balance as of September 30 | $ | 45,755 |
| | $ | 44,455 |
|
(A) ForDuring the ninesix months ended SeptemberJune 30, 20172019, 297,216 LTIP Units were issued to certain employees and 2016, 3,437 and 76,674directors.
(B) During the six months ended June 30, 2018, 1,019,677 Limited Partner Units respectively, were converted into an equivalent number of shares of common stock of the Company, resulting in a reclassification of $39 and $819, respectively,$12,327 of noncontrolling interest to the Company’s stockholders’Company's stockholders' equity.
(C) During the six months ended June 30, 2018, 33,333 Limited Partner Units were forfeited by a unitholder and were retired by the Operating Partnership.
Noncontrolling Interest of the Operating Partnership
The following table summarizes the changes in noncontrolling interest for the Operating Partnership for the ninesix months ended SeptemberJune 30, 20172019 and 2016:2018:
|
| | | | | | | |
| | 2019 | | 2018 |
| Balance as of December 31 | $ | 857 |
| | $ | 779 |
|
| Net Income | 50 |
| | 43 |
|
| Contributions | 5 |
| | 121 |
|
| Distributions | (64 | ) | | (64 | ) |
| Balance as of June 30 | $ | 848 |
| | $ | 879 |
|
|
| | | | | | | |
| | 2017 | | 2016 |
| Balance as of December 31 | $ | 956 |
| | $ | 1,096 |
|
| Net Income | 96 |
| | 112 |
|
| Contributions | 29 |
| | 114 |
|
| Distributions | (284 | ) | | (264 | ) |
| Balance as of September 30 | $ | 797 |
| | $ | 1,058 |
|
Dividends/Distributions
During the ninesix months ended SeptemberJune 30, 2017,2019, we declared $77,923$59,786 common stock dividends and Unit distributions.
7. Accumulated Other Comprehensive LossIncome
The following table summarizes the changes in accumulated other comprehensive lossincome by component for the Company and the Operating Partnership for the ninesix months ended SeptemberJune 30, 2017:2019:
|
| | | | | | | | | | | | | | | |
| | Derivative Instruments | | Accumulated Other Comprehensive Income (Loss) of the Operating Partnership | | Comprehensive (Income) Loss Attributable to Noncontrolling Interest of the Company | | Accumulated Other Comprehensive Income (Loss) of the Company |
| Balance as of December 31, 2018 | $ | 3,574 |
| | $ | 3,574 |
| | $ | (72 | ) | | $ | 3,502 |
|
| Other Comprehensive Loss Before Reclassifications | (9,715 | ) | | (9,715 | ) | | 233 |
| | (9,482 | ) |
| Amounts Reclassified from Accumulated Other Comprehensive (Loss) Income | (1,078 | ) | | (1,078 | ) | | — |
| | (1,078 | ) |
| Net Current Period Other Comprehensive Loss | (10,793 | ) | | (10,793 | ) | | 233 |
| | (10,560 | ) |
| Balance as of June 30, 2019 | $ | (7,219 | ) | | $ | (7,219 | ) | | $ | 161 |
| | $ | (7,058 | ) |
|
| | | | | | | | | | | | | | | |
| | Interest Rate Protection Agreements | | Accumulated Other Comprehensive Loss of the Operating Partnership | | Comprehensive Loss Attributable to Noncontrolling Interest of the Company | | Accumulated Other Comprehensive Loss of the Company |
| Balance as of December 31, 2016 | $ | (4,804 | ) | | $ | (4,804 | ) | | $ | 161 |
| | (4,643 | ) |
| Other Comprehensive Income Before Reclassifications | (2,122 | ) | | (2,122 | ) | | (54 | ) | | (2,176 | ) |
| Amounts Reclassified from Accumulated Other Comprehensive Loss | 3,666 |
| | 3,666 |
| | — |
| | 3,666 |
|
| Net Current Period Other Comprehensive Income | 1,544 |
| | 1,544 |
| | (54 | ) | | 1,490 |
|
| Balance as of September 30, 2017 | $ | (3,260 | ) | | $ | (3,260 | ) | | $ | 107 |
| | $ | (3,153 | ) |
The following table summarizes the reclassifications out of accumulated other comprehensive lossincome for both the Company and the Operating Partnership for the ninethree and six months ended SeptemberJune 30, 20172019 and 2016:2018:
|
| | | | | | | | | | | | | | | | | | |
| | | Amounts Reclassified from Accumulated Other Comprehensive (Loss) Income | | |
Details about Accumulated Other Comprehensive Income Components | | Three Months Ended June 30, 2019 | | Three Months Ended June 30, 2018 | | Six Months Ended June 30, 2019 | | Six Months Ended June 30, 2018 | | Affected Line Items in the Consolidated Statements of Operations |
| Derivative Instruments: | | | | | | | | | | |
| Amortization of Previously Settled Derivative Instruments | | $ | 24 |
| | $ | 23 |
| | $ | 48 |
| | $ | 47 |
| | Interest Expense |
| Net Settlement (Receipts) Payments to our Counterparties | | (550 | ) | | 97 |
| | (1,126 | ) | | 560 |
| | Interest Expense |
| Total | | $ | (526 | ) | | $ | 120 |
| | $ | (1,078 | ) | | $ | 607 |
| | |
|
| | | | | | | | | | | | | | | | | | |
| | | Amounts Reclassified from Accumulated Other Comprehensive Loss | | |
Details about Accumulated Other Comprehensive Loss Components | | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 | | Affected Line Items in the Consolidated Statements of Operations |
| Interest Rate Protection Agreements: | | | | | | | | | | |
| Amortization of Interest Rate Protection Agreements (Previously Settled) | | $ | 24 |
| | $ | 96 |
| | $ | 180 |
| | $ | 294 |
| | Interest Expense |
| Settlement Payments to our Counterparties | | 912 |
| | 1,774 |
| | 3,486 |
| | 5,425 |
| | Interest Expense |
| Total | | $ | 936 |
| | $ | 1,870 |
| | $ | 3,666 |
| | $ | 5,719 |
| | |
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in other comprehensive income (loss) and is subsequently reclassified to earnings through interest expense over the life of the derivative or over the life of the debt. In the next 12 months, we expect to amortize approximately $95$391 into net income by increasing interest expense for interest rate protection agreementsderivative instruments we settled in previous periods. Additionally, recurring settlement amounts on the 2014 Swaps and 2015 Swaps (as defined in Note 10) will also be reclassified to net income. See Note 10 for more information about our derivatives.
8. Earnings Per Share and Earnings Per Unit ("EPS"/"EPU")
The computation of basic and diluted EPS of the Company is presented below:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2019 | | Three Months Ended June 30, 2018 | | Six Months Ended June 30, 2019 | | Six Months Ended June 30, 2018 |
| Numerator: | | | | | | | |
| Net Income Available to First Industrial Realty Trust, Inc.'s Common Stockholders and Participating Securities | $ | 39,800 |
| | $ | 45,209 |
| | $ | 63,603 |
| | $ | 81,501 |
|
| Net Income Allocable to Participating Securities | (89 | ) | | (151 | ) | | (149 | ) | | (248 | ) |
| Net Income Available to First Industrial Realty Trust, Inc.'s Common Stockholders | $ | 39,711 |
| | $ | 45,058 |
| | $ | 63,454 |
| | $ | 81,253 |
|
| Denominator (In Thousands): | | | | | | | |
| Weighted Average Shares - Basic | 126,206 |
| | 123,616 |
| | 126,200 |
| | 121,741 |
|
| Effect of Dilutive Securities: | | | | | | | |
| Performance units (See Note 9) | 283 |
| | 469 |
| | 272 |
| | 417 |
|
| Weighted Average Shares - Diluted | 126,489 |
| | 124,085 |
| | 126,472 |
| | 122,158 |
|
| Basic and Diluted EPS: | | | | | | | |
| Net Income Available to First Industrial Realty Trust, Inc.'s Common Stockholders | $ | 0.31 |
| | $ | 0.36 |
| | $ | 0.50 |
| | $ | 0.67 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| Numerator: | | | | | | | |
| Net Income Available to First Industrial Realty Trust, Inc.’s Common Stockholders and Participating Securities | $ | 43,198 |
| | $ | 31,519 |
| | $ | 103,469 |
| | $ | 97,436 |
|
| Net Income Allocable to Participating Securities | (145 | ) | | (110 | ) | | (327 | ) | | (329 | ) |
| Net Income Available to First Industrial Realty Trust, Inc.’s Common Stockholders | $ | 43,053 |
| | $ | 31,409 |
| | $ | 103,142 |
| | $ | 97,107 |
|
| Denominator (In Thousands): | | | | | | | |
| Weighted Average Shares - Basic | 119,446 |
| | 116,467 |
| | 117,870 |
| | 114,491 |
|
| Effect of Dilutive Securities: | | | | | | | |
| LTIP Unit Awards (As Defined in Note 9) | 544 |
| | 397 |
| | 482 |
| | 318 |
|
| Weighted Average Shares - Diluted | 119,990 |
| | 116,864 |
| | 118,352 |
| | 114,809 |
|
| Basic EPS: | | | | | | | |
| Net Income Available to First Industrial Realty Trust, Inc.’s Common Stockholders | $ | 0.36 |
| | $ | 0.27 |
| | $ | 0.88 |
| | $ | 0.85 |
|
| Diluted EPS: | | | | |
| |
|
| Net Income Available to First Industrial Realty Trust, Inc.’s Common Stockholders | $ | 0.36 |
| | $ | 0.27 |
| | $ | 0.87 |
| | $ | 0.85 |
|
The computation of basic and diluted EPU of the Operating Partnership is presented below:
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2019 | | Three Months Ended June 30, 2018 | | Six Months Ended June 30, 2019 | | Six Months Ended June 30, 2018 |
| Numerator: | | | | | | | |
| Net Income Available to Unitholders and Participating Securities | $ | 40,689 |
| | $ | 46,382 |
| | $ | 65,003 |
| | $ | 83,825 |
|
| Net Income Allocable to Participating Securities | (128 | ) | | (151 | ) | | (204 | ) | | (248 | ) |
| Net Income Available to Unitholders | $ | 40,561 |
| | $ | 46,231 |
| | $ | 64,799 |
| | $ | 83,577 |
|
| Denominator (In Thousands): | | | | | | | |
| Weighted Average Units - Basic | 128,831 |
| | 126,832 |
| | 128,824 |
| | 125,289 |
|
| Effect of Dilutive Securities: | | | | | | | |
| Performance units and certain Performance LTIP Units (See Note 9) | 390 |
| | 469 |
| | 375 |
| | 417 |
|
| Weighted Average Units - Diluted | 129,221 |
| | 127,301 |
| | 129,199 |
| | 125,706 |
|
| Basic and Diluted EPU: | | | | | | | |
| Net Income Available to Unitholders | $ | 0.31 |
| | $ | 0.36 |
| | $ | 0.50 |
| | $ | 0.67 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| Numerator: | | | | | | | |
| Net Income Available to Unitholders and Participating Securities | $ | 44,613 |
| | $ | 32,630 |
| | $ | 106,904 |
| | $ | 100,959 |
|
| Net Income Allocable to Participating Securities | (145 | ) | | (110 | ) | | (327 | ) | | (328 | ) |
| Net Income Available to Unitholders | $ | 44,468 |
| | $ | 32,520 |
| | $ | 106,577 |
| | $ | 100,631 |
|
| Denominator (In Thousands): | | | | | | | |
| Weighted Average Units - Basic | 123,483 |
| | 120,740 |
| | 121,909 |
| | 118,781 |
|
| Effect of Dilutive Securities that Result in the Issuance of General Partner Units: | | | | | | | |
| LTIP Unit Awards (As Defined in Note 9) | 544 |
| | 397 |
| | 482 |
| | 318 |
|
| Weighted Average Units - Diluted | 124,027 |
| | 121,137 |
| | 122,391 |
| | 119,099 |
|
| Basic EPU: | | | | | | | |
| Net Income Available to Unitholders | $ | 0.36 |
| | $ | 0.27 |
| | $ | 0.87 |
| | $ | 0.85 |
|
| Diluted EPU: | | | | | | | |
| Net Income Available to Unitholders | $ | 0.36 |
| | $ | 0.27 |
| | $ | 0.87 |
| | $ | 0.84 |
|
ParticipatingAt June 30, 2019 and 2018, participating securities for the Company include 401,217274,624 and 406,855413,193, respectively, of unvested restricted stock, orwhich participate in non-forfeitable distributions. At June 30, 2019 and 2018, participating securities for the Operating Partnership include 400,181 and 413,193, respectively, of restricted Unit awards outstanding at September 30, 2017 and 2016, respectively,certain LTIP Units, which participate in non-forfeitable distributions. Under the two class method, participating security holders are allocated income, in proportion to total weighted average shares or Units outstanding, based upon the greater of net income or common stock dividends or Unit distributions declared.
9. Benefit PlansLong-Term Compensation
Restricted Stock or Restricted Unit Awards of LTIP Units
For the nine months ended September 30, 2017,During 2018, the Company awarded 252,213 sharesmodified its stock incentive program to allow for the granting of restricted stock awards to certain officers, certain employees which hadand directors in the form of LTIP units ("LTIP Units"). An LTIP Unit is a class of limited partnership interest of the Operating Partnership that is structured as a “profits interest” for U.S. federal income tax purposes. Generally, LTIP Units entitle the holder to receive distributions from the Operating Partnership that are equivalent to the dividends and distributions that would be made with respect to the number of shares of Common Stock underlying such LTIP Units, though receipt of such distributions may be delayed or made contingent on vesting. Once an aggregate fair valueLTIP Unit has vested and received allocations of $6,631book income sufficient to increase the book capital account balance associated with such LTIP Unit (which will initially be zero) to equal, on a per-unit basis, the date such awards were approvedbook capital account balance associated with a “common” Limited Partner Unit of the Operating Partnership, it automatically becomes a common Limited Partner Unit that is convertible by the Compensation Committeeholder into one share of Common Stock or a cash equivalent, at the Board of Directors. These restricted stock awards were granted based uponCompany’s option.
Awards with Performance Measures
During the achievement of certain corporate performance goals and generally vest over a period of three years. Additionally, during the ninesix months ended SeptemberJune 30, 2017, the Company awarded 15,108 shares of restricted stock to non-employee members of the Board of Directors, which had an aggregate fair value of $420 on the date of approval. These restricted stock awards vest over a one-year period. The Operating Partnership issued restricted Unit awards to the Company in the same amount for both restricted stock awards.
Compensation expense is charged to earnings over the vesting periods for the restricted stock or restricted Unit awards expected to vest except if the recipient is not required to provide future service in exchange for vesting of such restricted stock or restricted Unit awards. If vesting of a recipient's restricted stock or restricted Unit awards is not contingent upon future service, the expense is recognized immediately at the date of grant. During both the nine months ended September 30, 2017 and 2016, we recognized $1,590 of compensation expense related to restricted stock or restricted Unit awards granted to our former Chief Executive Officer for which future service was not required.
LTIP Unit Awards
For the nine months ended September 30, 2017,2019, the Company granted 36,064 performance units ("Performance units") and 166,942 LTIP Units, based on performance-based criteria ("Performance LTIP Units" and, together with the Performance units, collectively the "Performance Awards") to certain employees, 195,951 Long-Term Incentive Program ("LTIP") performance units ("LTIP Unit Awards"), which had a fair value of $2,473$2,527 on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation. The LTIP UnitPerformance Awards vest based upon the relative total shareholder return ("TSR") of the Company's common stock compared to the TSRsa weighted average TSR of the MSCI US REIT Index and the NAREIT Industrial Index over a performance period of three years. Compensation expense is charged to earnings on a straight-line basis over the performance period.vesting periods for Performance Awards. At the end of the performancemeasuring period, each participant will be issuedvested Performance units convert into shares of common stock.
Service Based Awards
For the Company's commonsix months ended June 30, 2019, the Company awarded 87,606 shares of restricted stock equal to the maximum shares issuable to the participant for the performance period multiplied by a percentage, ranging from 0% to 100%,awards and 112,428 of LTIP Units based on service-based criteria ("Service LTIP Units") to certain employees and outside directors, which had an aggregate fair value of $6,727 on the Company's TSR as compared todate such awards were approved by the TSRsCompensation Committee of the MSCI US REIT IndexBoard of Directors. Both the restricted stock awards and Service LTIP Units granted to employees were based upon the NAREIT Industrial Index.prior achievement of certain corporate performance goals and will vest ratably over a period of three years based on continued employment. Restricted Stock awards and Service LTIP Units granted to outside directors vest after a one year period. The Operating Partnership issues General Partner Unitsissued restricted Unit awards to the Company in the same amountsamount for vestedthe restricted stock awards. Compensation expense is charged to earnings over the vesting periods for both the restricted stock/restricted Unit awards and the Service LTIP Unit Awards.Units.
Outstanding Restricted Stock or Stock/Restricted Unit Awards, Performance Units and LTIP Unit AwardsUnits
We recognized $1,844$2,053 and $1,428$1,997 for the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively and $6,767$3,815 and $5,898$3,686 for the ninesix months ended SeptemberJune 30, 20172019 and 20162018, respectively, in amortizationcompensation expense related to the amortization of restricted stock or restricted Unit awards, Performance units, and LTIP Unit Awards.Units. Restricted stock or restricted Unit award, Performance unit and LTIP Unit Award amortization capitalized in connection with development activities was $238 and $442 for the three and six months ended June 30, 2019 and was not significant.significant for the comparable 2018 periods. At SeptemberJune 30, 2017,2019, we had $9,629$13,093 in unrecognized compensation related to unvested restricted stock or restricted Unit awards, Performance units and LTIP Unit Awards.Units. The weighted average period that the unrecognized compensation is expected to be recognized is 0.941.02 years.
10. Derivatives
Our objectives in using derivatives are to add stability to interest expense and to manage our cash flow volatility and exposure to interest rate movements. To accomplish this objective,these objectives, we primarily use interest rate protection agreementsderivative instruments as part of our interest rate risk management strategy. Interest rate protection agreementsDerivative instruments designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
Our agreementsFair Value Hedges
During December 2018, in anticipation of issuing long-term debt in the future, we entered into two treasury locks with an aggregate notional value of $100,000 to manage our exposure to changes in the ten-year U.S. Treasury rate (the "2018 Treasury Locks"). During April 2019, we paid $3,149 to settle the 2018 Treasury Locks with our derivativecounterparties. The 2018 Treasury Locks fixed the ten-year U.S. Treasury rate at a weighted average of 2.93%. We had designated the 2018 Treasury Locks as cash flow hedges and will amortize the payment made to our counterparties contain provisions whereby a default on anyinto interest expense over the 10-year period which corresponds to the term of our indebtedness, could cause us to be declared in default on our derivative obligations subject to certain thresholds. As of September 30, 2017, we had not posted any collateral related to these agreements and were not in breach of any of the provisions of these agreements. If we had breached these agreements, we could have been required to settle our obligations under the agreements at their termination value.
Fair Value Hedgesnewly issued private placement debt (see Note 14).
In connection with the originations of the seven-year, $200,000 unsecured loan (the "2014 Unsecured Term Loan") and the seven-year, $260,000 unsecured loan (the "2015 Unsecured Term Loan" and together with the 2014 Unsecured Term Loan, the "Unsecured Term Loans") (SeeLoans (see Note 4), we entered into interest rate protection agreementsswaps to manage our exposure to changes in the one month LIBOR rate. The four interest rate protection agreements,swaps, which fix the variable rate of the 2014 Unsecured Term Loan, have an aggregate notional value of $200,000, mature on January 29, 2021 and fix the LIBOR rate at a weighted average rate of 2.29% (the "2014 Swaps"). The six interest rate protection agreements,swaps, which fix the variable rate of the 2015 Unsecured Term Loan, have an aggregate notional value of $260,000, mature on September 12, 2022 and fix the LIBOR rate at a weighted average rate of 1.79% (the "2015 Swaps"). We designated the 2014 Swaps and 2015 Swaps as cash flow hedges.
Derivative Instruments Not Designated for Hedge Accounting Treatment
In September 2017,Our agreements with our derivative counterparties contain provisions where if we entered into two interest rate protectiondefault on any of our indebtedness, then we could also be declared in default on our derivative obligations subject to certain thresholds. As of June 30, 2019, we had not posted any collateral related to these agreements (the "Treasury Locks"), with an aggregate notional valueand were not in breach of $100,000, in order to fixany of the interest rate on an anticipated unsecured debt offering. The Treasury Locks fix the ten year U.S. Treasury rate at a weighted average rateprovisions of approximately 2.18% and arethese agreements. If we had breached these agreements, we could have been required to be cash settled by March 2, 2018. Due tosettle our obligations under the strict requirements surrounding the application of hedge accounting, we elected not to designate the Treasury Locks as hedges. As such, the full change in the fair value of the Treasury Locks during the third quarter is recorded as a mark-to-market gain on interest rate protection agreements within the income statement as opposed to being recorded in other comprehensive income. For the three months ended September 30, 2017, we recognized $1,848 in mark-to-market gain on interest rate protection agreements related to the Treasury Locks.at their termination value.
The following table sets forth our financial assets and liabilities related to the 2015 Swaps and the Treasury Locks, which are included in prepaid expenses and other assets on the consolidated balance sheets, and the 2014 Swaps, which are included in accounts payable, accrued expensesthe line item Accounts Payable, Accrued Expenses and other liabilities on the consolidated balance sheets,Other Liabilities and all of which are accounted for at fair value on a recurring basis as of SeptemberJune 30, 2017:2019:
|
| | | | | | | | | | | | | | |
| | | | | Fair Value Measurements: |
| Description | | Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Unobservable Inputs (Level 3) |
| Derivatives designated as a hedging instrument: | | | | | | | | |
| Liabilities: | | | | | | | | |
| 2014 Swaps | | $ | (1,789 | ) | | — |
| | $ | (1,789 | ) | | — |
|
| 2015 Swaps | | $ | (1,421 | ) | | — |
| | $ | (1,421 | ) | | — |
|
|
| | | | | | | | | | | | | | |
| | | | | Fair Value Measurements at Reporting Date Using: |
| Description | | Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Unobservable Inputs (Level 3) |
| Derivatives designated as a hedging instrument: | | | | | | | | |
| Assets: | | | | | | | | |
| 2015 Swaps | | $ | 1,174 |
| | — |
| | $ | 1,174 |
| | — |
|
| Liabilities: | | | | | | | | |
| 2014 Swaps | | $ | (3,405 | ) | | — |
| | $ | (3,405 | ) | | — |
|
| | | | | | | | | |
| Derivatives not designated as a hedging instrument: | | | | | | | | |
| Assets: | | | | | | | | |
| Treasury Locks | | $ | 1,848 |
| | — |
| | $ | 1,848 |
| | — |
|
There was no ineffectiveness recorded on the 2014 Swaps and the 2015 Swaps during the ninesix months ended SeptemberJune 30, 2016.2019. See Note 7 for more information regarding our derivatives.
The estimated fair value of the 2014 Swaps 2015 Swaps and the Treasury Locks2015 Swaps was determined using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments are incorporated in the fair value to account for potential non-performance risk, including our own non-performance risk and the respective counterparty’scounterparty's non-performance risk. We determined that the significant inputs used to value the 2014 Swaps and the 2015 Swaps and the Treasury Locks fell within Level 2 of the fair value hierarchy.
11. Related Party Transactions
During the six months ended June 30, 2019, we recognized fees of $69 from the Joint Venture related to asset management and development services provided to the Joint Venture. At SeptemberJune 30, 20172019, we had a receivable from the Joint Venture of $46 related to the asset management and development fees. See Note 5 for more information on the Joint Venture.
At June 30, 2019 and December 31, 2016,2018, the Operating Partnership had receivable balances of $10,194$10,059 and $10,448,$10,118, respectively, from a direct wholly-owned subsidiary of the Company.
12. Commitments and Contingencies
In the normal course of business, we are involved in legal actions arising from the ownership of our industrial properties. In our opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a materially adverse effect on our consolidated financial position, operations or liquidity.
In conjunction with the development of industrial properties,properties, we have entered into agreements with general contractors for the construction of industrial properties. At SeptemberJune 30, 2017,2019, we had ninehad 14 industrial properties totaling approximately 2.74.5 million square feet of GLA under construction. The estimated total investment as of SeptemberJune 30, 20172019 is approximately $192,600.$336,500. Of this amount, approximately $120,900$188,400 remains to be funded. There can be no assurance that the actual completion cost will not exceed the estimated total investment.
13. Leases
Lessee Disclosures
We are a lessee on a limited number of ground and office leases (the "Operating Leases"). Our office leases have remaining lease terms of less than one year to seven years and our ground leases have remaining terms of 35 years to 52 years. For the yearsix months ended June 30, 2019, we recognized $927 of operating lease expense, inclusive of short-term and variable lease costs which are not significant.
The following is a schedule of the maturities of operating lease liabilities for the next five years as of June 30, 2019, and thereafter:
|
| | | |
| Remainder of 2019 | $ | 792 |
|
| 2020 | 1,536 |
|
| 2021 | 1,503 |
|
| 2022 | 1,465 |
|
| 2023 | 1,329 |
|
| Thereafter | 29,025 |
|
| Total Lease Payments | 35,650 |
|
Less Imputed Interest (A) | 23,365 |
|
| Total | $ | 12,285 |
|
(A) Calculated using the discount rate for each lease.
As of June 30, 2019, our weighted average remaining lease term for the Operating Leases is 34.3 years and the weighted average discount rate is 7.4%.
Future minimum rental payments for the Operating Leases as of December 31, 2016, a fire significantly destroyed one industrial property totaling approximately 0.03 million square feet of GLA located in San Diego, California (the “2016 Fire”). In a separate event, on April 3, 2017, a fire caused significant damage to one industrial property totaling approximately 0.08 million square feet of GLA located in Los Angeles, California (the “2017 Fire”). During the respective periods in which the fires occurred, we wrote off the unamortized net book value2018 are as follows:
|
| | | |
| 2019 | $ | 1,464 |
|
| 2020 | 1,536 |
|
| 2021 | 1,503 |
|
| 2022 | 1,465 |
|
| 2023 | 1,329 |
|
| Thereafter | 29,025 |
|
| Total | $ | 36,322 |
|
A number of the building improvements forOperating Leases include options to extend the damaged portionslease term. For purposes of determining our lease term, we excluded periods covered by an option since it was not reasonably certain at lease commencement that we would exercise.
Lessor Disclosures
Our properties and certain land parcels are leased to tenants and classified as operating leases. Future minimum rental receipts, excluding variable payments and tenant reimbursements of expenses, under non-cancelable operating leases executed as of June 30, 2019 are approximately as follows:
|
| | | |
| Remainder of 2019 | $ | 161,684 |
|
| 2020 | 322,411 |
|
| 2021 | 282,344 |
|
| 2022 | 240,517 |
|
| 2023 | 201,543 |
|
| Thereafter | 573,652 |
|
| Total | $ | 1,782,151 |
|
Future minimum rental receipts, excluding tenant reimbursements of expenses, under non-cancelable operating leases executed as of December 31, 2018 were approximately as follows:
|
| | | |
| 2019 | $ | 305,689 |
|
| 2020 | 288,817 |
|
| 2021 | 244,743 |
|
| 2022 | 205,097 |
|
| 2023 | 169,243 |
|
| Thereafter | 451,151 |
|
| Total | $ | 1,664,740 |
|
Several of our operating leases include options to extend the lease term. For purposes of determining the lease term, we exclude these option periods unless it is reasonably certain at lease commencement that the option will be exercised. Also, four leases include options that grant the lessee a right to purchase the property at various times at appraised fair market value or at a fixed price. For purposes of determining lease term, we exclude the impact of a purchase option unless it is reasonably certain at lease commencement that the lessee will exercise the option.
14. Subsequent Events
From July 1, 2019 to July 26, 2019, we acquired three industrial properties and recorded a receivable from our insurance companytwo land parcels for the amount of the write off, less our $25 deductible per occurrence. As of September 30, 2017, we have an aggregate receivable outstanding from the insurance company for both the 2016 Fire and the 2017 Fire of $8,830. While we believe the damages incurred due to the 2016 Fire and 2017 Fire are fully insured and reimbursable in accordance with our insurance policies, subject to the deductibles, there can be no assurance that the cost to repair the damages will be collected.
13. Subsequent Events
From October 1, 2017 to October 26, 2017, we sold nine industrial properties for approximately $54,075.
From October 1, 2017 to October 26, 2017, we acquired one industrial property for a purchase price of approximately $8,235,$31,676, excluding coststransaction costs. In addition, we sold one industrial property and credits incurredone land parcel for approximately $6,244, excluding transaction costs.
On July 23, 2019, the Operating Partnership issued $150,000 of 3.97% Series E Guaranteed Senior Notes due July 23, 2029 (the "2029 II Private Placement Notes") in conjunction with the acquisitiona private placement pursuant to a Note and Guaranty Agreement dated May 16, 2019. The 2029 II Private Placement Notes are unsecured obligations of the property.Operating Partnership that are fully and unconditionally guaranteed by the Company and require semi-annual interest payments.
|
| |
| Item 2. | Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q. Unless stated otherwise or the context otherwise requires, the terms "we," "our" and "us" refer to First Industrial Realty Trust, Inc. (the "Company") and its subsidiaries, including First Industrial, L.P. (the "Operating Partnership") and its consolidated subsidiaries.
Forward-Looking Statements
The following discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). We intend for such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on certain assumptions and describe our future plans, strategies and expectations, and are generally identifiable by use of the words "believe," "expect," "plan," "intend," "anticipate," "estimate," "project," "seek," "target," "potential," "focus," "may," "will," "should" or similar words. Although we believe the expectations reflected in forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that results will not materially differ. Factors which could have a materially adverse effect on our operations and future prospects include, but are not limited to:
changes in national, international, regional and local economic conditions generally and real estate markets specifically;
changes in legislation/regulation (including changes to laws governing the taxation of real estate investment trusts) and actions of regulatory authorities;
our ability to qualify and maintain our status as a real estate investment trust;
the availability and attractiveness of financing (including both public and private capital) and changes in interest rates;
the availability and attractiveness of terms of additional debt repurchases;
changes in our credit agency ratings;
our ability to comply with applicable financial covenants;
our competitive environment;
changes in supply, demand and valuation of industrial properties and land in our current and potential market areas;
difficulties in identifying and consummating acquisitions and dispositions;
our ability to manage the integration of properties we acquire;
potential liability relating to environmental matters;
defaults on or non-renewal of leases by our tenants;
decreased rental rates or increased vacancy rates;
higher-than-expected real estate construction costs and delays in development or lease-up schedules;
changes in general accounting principles, policies and guidelines applicable to real estate investment trusts; and
other risks and uncertainties described in this report, in Item 1A, "Risk Factors" and elsewhere in our annual report on Form 10-K for the year ended December 31, 20162018 as well as those risks and uncertainties discussed from time to time in our other Exchange Act reports and in our other public filings with the Securities and Exchange Commission (the “SEC”"SEC").
We caution you not to place undue reliance on forward-looking statements, which reflect our outlook only and speak only as of the date of this report. We assume no obligation to update or supplement forward-looking statements.
General
The Company is a self-administered and fully integrated real estate company which owns, manages, acquires, sells, develops and redevelops industrial real estate. The Company is a Maryland corporation organized on August 10, 1993 and a real estate investment trust ("REIT") as defined in the Internal Revenue Code of 1986 (the "Code").
We began operations on July 1, 1994. The Company's operations are conducted primarily through the Operating Partnership, of which the Company is the sole general partner (the "General Partner"), with an approximate 96.7%97.8% ownership interest ("General Partner Units") at SeptemberJune 30, 2017.2019. The Operating Partnership also conducts operations through eight other limited partnerships (the "Other Real Estate Partnerships"), numerous limited liability companies ("LLCs") and certain taxable REIT subsidiaries ("TRSs"), the operating data of which, together with that of the Operating Partnership, is consolidated with that of the Company as presented herein. The Operating Partnership holds at least a 99% limited partnership interest in each of Other Real Estate Partnerships. The general partners of the Other Real Estate Partnerships are separate corporations, wholly-owned by the Company, each with at least a .01% general partnership interest in the Other Real Estate Partnerships. The Company does not have any significant assets or liabilities other than its investment in the Operating Partnership and its 100% ownership interest in the general partners of the Other Real Estate Partnerships. NoncontrollingThe Company's noncontrolling interest in the Operating Partnership of approximately 3.3%2.2% at SeptemberJune 30, 20172019 represents the aggregate partnership interest held by the limited partners thereof ("Limited Partner Units" and together with the General Partner Units, the "Units"). The limited partners of the Operating Partnership are persons or entities who contributed their direct or indirect interests in properties to the Operating Partnership in exchange for common units of the Operating Partnership and/or recipients of LTIP Units of the Operating Partnership pursuant to the Company's stock incentive plan.
We also own a 49% equity interest in, and provide various services to, a joint venture (the "Joint Venture") through a wholly-owned TRS of the Operating Partnership. The Joint Venture is accounted for under the equity method of accounting. The operating data of the Joint Venture is not consolidated with that of the Operating Partnership or the Company as presented herein. See Note 5 to the Consolidated Financial Statements for more information related to the Joint Venture.
Profits, losses and distributions of the Operating Partnership, the LLCs, the Other Real Estate Partnerships, the TRSs and the TRSsJoint Venture are allocated to the general partner and the limited partners, the members or the shareholders, as applicable, of such entities in accordance with the provisions contained within their respective organizational documents.
As of SeptemberJune 30, 2017,2019, we owned 516462 industrial properties located in 2221 states, containing an aggregate of approximately 62.863.4 million square feet of gross leasable area ("GLA").Of the 516462 properties owned on a consolidated basis, none of them are directly owned by the Company.
Available Information
We maintain a website at www.firstindustrial.com. Information on this website shall not constitute part of this Form 10-Q. Copies of our respective annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports are available without charge on our website as soon as reasonably practicable after such reports are filed with or furnished to the SEC. You may also read and copy any document filed at the public reference facilities of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 for further information about the public reference facilities. These documents also may be accessed through the SEC’sSEC's Interactive Data Electronic Application via the SEC's home page on the Internet (www.sec.gov). In addition, the Company's Corporate Governance Guidelines, Code of Business Conduct and Ethics, Audit Committee Charter, Compensation Committee Charter and Nominating/Corporate Governance Committee Charter, along with supplemental financial and operating information prepared by us, are all available without charge on the Company's website or upon request to the Company. Amendments to, or waivers from, our Code of Business Conduct and Ethics that apply to our executive officers or directors will also be posted to our website. We also post or otherwise make available on our website from time to time other information that may be of interest to our investors. Please direct requests as follows:
First Industrial Realty Trust, Inc.
311 S.1 N. Wacker Drive, Suite 39004200
Chicago, IL 60606
Attention: Investor Relations
Management's Overview
We believe our financial condition and results of operations are, primarily, a function of our performance in four key areas: leasing of industrial properties, acquisition and development of additional industrial properties, disposition of industrial properties and access to external capital.
We generate revenue primarily from rental income and tenant recoveries from operating leases of our industrial properties. Such revenue is offset by certain property specific operating expenses, such as real estate taxes, repairs and maintenance, property management, utilities and insurance expenses, along with certain other costs and expenses, such as depreciation and amortization costs and general and administrative and interest expenses. Our revenue growth is dependent, in part, on our ability to: (i) increase rental income, through increasing either or both occupancy rates and rental rates at our properties; (ii) maximize tenant recoveries; and (iii) minimize operating and certain other expenses. Revenues generated from rental income and tenant recoveriesour leases are a significant source of funds, in addition to income generated from gains on the sale of our properties (as discussed below), for our liquidity. The leasing of property, in general, and occupancy rates, rental rates, operating expenses and certain non-operating expenses, in particular, are impacted, variously, by property specific, market specific, general economic and other conditions, many of which are beyond our control. The leasing of property also entails various risks, including the risk of tenant default. If we were unable to maintain or increase occupancy rates and rental rates at our properties or to maintain tenant recoveries and operating and certain other expenses consistent with historical levels and proportions, our revenue would decline. Further, if a significant number of our tenants were unable to pay rent (including tenant recoveries) or if we were unable to rent our properties on favorable terms, our financial condition, results of operations, cash flow and ability to make distributions to our stockholders and Unitholders, the market price of the Company's common stock and the market value of the Units would be adversely affected.
Our revenue growth is also dependent, in part, on our ability to acquire existing, and develop new industrial properties on favorable terms. We seek to identify opportunities to acquire existing industrial properties on favorable terms, and, when conditions permit, also seek to acquire and develop new industrial properties on favorable terms. Existing properties, as they are acquired, and acquired and developed properties, as they are leased, generate revenue from rental income, tenant recoveries and fees, which, as discussed above, are sources of funds for our distributions to our stockholders and Unitholders. The acquisition and development of properties is impacted, variously, by property specific, market specific, general economic and other conditions, many of which are beyond our control. The acquisition and development of properties also entails various risks, including the risk that our investments may not perform as expected. For example, acquired existing and acquired and developed new properties may not sustain and/or achieve anticipated occupancy and rental rate levels. With respect to acquired and developed new properties, we may not be able to complete construction on schedule or within budget, resulting in increased debt service expense and construction costs and delays in leasing the properties. Also, we face significant competition for attractive acquisition and development opportunities from other well-capitalized real estate investors, including publicly-traded REITs and private investors. Further, as discussed below, we may not be able to finance the acquisition and development opportunities we identify. If we were unable to acquire and develop sufficient additional properties on favorable terms, or if such investments did not perform as expected, our revenue growth would be limited and our financial condition, results of operations, cash flow and ability to make distributions to our stockholders and Unitholders, the market price of the Company's common stock and the market value of the Units would be adversely affected.
We also generate income from the sale of our properties (including existing buildings, buildings which we have developed or re-developed on a merchant basis and land). The gain or loss on, and fees from, the sale of such properties are included in our income and can be a significant source of funds, in addition to revenues generated from rental income and tenant recoveries. Proceeds from sales are used to repay outstanding debt and, market conditions permitting, may be used to fund the acquisition of existing industrial properties, and the acquisition and development of new industrial properties. The sale of properties is impacted, variously, by property specific, market specific, general economic and other conditions, many of which are beyond our control. The sale of properties also entails various risks, including competition from other sellers and the availability of attractive financing for potential buyers of our properties. Further, our ability to sell properties is limited by safe harbor rules applying to REITs under the Code which relate to the number of properties that may be disposed of in a year, their tax bases and the cost of improvements made to the properties, along with other tests which enable a REIT to avoid punitive taxation on the sale of assets. If we are unable to sell properties on favorable terms, our income growth would be limited and our financial condition, results of operations, cash flow and ability to make distributions to our stockholders and Unitholders, the market price of the Company's common stock and the market value of the Units could be adversely affected.
We utilize a portion of the net sales proceeds from property sales, borrowings under our unsecured credit facility (the "Unsecured Credit Facility") and proceeds from the issuance, when and as warranted, of additional debt and equity securities to refinance debt and finance future acquisitions and developments. Access to external capital on favorable terms plays a key role in our financial condition and results of operations, as it impacts our cost of capital and our ability and cost to refinance existing indebtedness as it matures and our ability to fund acquisitions and developments. Our ability to access external capital on favorable terms is dependent on various factors, including general market conditions, interest rates, credit ratings on our debt, the market’smarket's perception of our growth potential, our current and potential future earnings and cash distributions and the market price of the Company's common stock. If we were unable to access external capital on favorable terms, our financial condition, results of operations, cash flow and ability to make distributions to our stockholders and Unitholders, the market price of the Company's common stock and the market value of the Units could be adversely affected.
Summary of Significant Transactions During the NineSix Months Ended SeptemberJune 30, 20172019
During the ninesix months ended SeptemberJune 30, 2017,2019, we completed the following significant real estate transactions and financing activities:
We acquired sixfour industrial properties comprised of approximately 0.90.3 million square feet of GLA located in our Chicago, Denver, and severalSouthern California markets for a purchase price of $28.4 million, excluding transactions costs.
We acquired 100 acres of land parcelsfor development located in our Phoenix, Southern California and Dallas markets for an aggregate purchase price of approximately $159.0$20.2 million, excluding costs incurredtransaction costs. Included in conjunction with the acquisition.100 acres is 39 acres we purchased from our Joint Venture.
We sold 30two industrial properties comprised of approximately 1.90.1 million square feet of GLA for total gross sales proceeds of approximately $99.3$12.1 million.
We issued ten-year, $125.0 million private placement notes at a rateThe Joint Venture sold 236 acres of 4.30% and twelve-year, $75.0 million private placement notes at a rateland (including the 39 acres we purchased from the Joint Venture) for an aggregate purchase price of 4.40%.$57.2 million.
We paid off and retired our 2017 II Notes, at maturity, in the amount of $101.9 million as well as $36.1$72.1 million in mortgage loans payable.
We declared a first second and thirdsecond quarter cash dividenddividends of $0.21$0.23 per common share or Unit per quarter, an increase of 10.5%5.7% from the 20162018 quarterly rate.
We issued 2,560,000 shares of the Company's common stock in an underwritten public offering. Proceeds to the Company, net of the underwriter's discount, were $74.9 million.
Results of Operations
The tables below summarize our revenues, property expenses and depreciation and other amortization by various categories for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016.2018. Same store properties are properties owned prior to January 1, 20162018 and held as an in-service property through SeptemberJune 30, 20172019 and developments and redevelopments that were placed in service prior to January 1, 2016 or were substantially completed for the 12 months prior to January 1, 2016.2018. Properties which are at least 75% occupied at acquisition are placed in service.service, unless we anticipate tenant move-outs within two years of ownership would drop occupancy below 75%. Acquisitions that are less than 75% occupied at the date of acquisition and developments and redevelopments are placed in service as they reach the earlier of a) stabilized occupancy (generally defined as 90% occupied), or b) one year subsequent to acquisition or development/redevelopment construction completion. Acquired properties with occupancy greater than 75% at acquisition, but with tenants that we anticipate will move out in the first yearwithin two years of ownership, will be placed in service upon the earlier of reaching 90% occupancy or twelve months after move out. Properties are moved from the same store classification to the redevelopment classification when capital expenditures for a project are estimated to exceed 25% of the undepreciated gross book value of the property. Acquired properties are properties that were acquired subsequent to December 31, 20152017 and held as an operating property through SeptemberJune 30, 2017.2019. Sold properties are properties that were sold subsequent to December 31, 2015.2017. (Re)Developments include developments and redevelopments that were not: a) substantially complete 12 months prior to January 1, 2016;2018; or b) stabilized prior to January 1, 2016.2018. Other revenues are derived from the operations of properties not placed in service under one of the categories discussed above, the operations of our maintenance company and other miscellaneous revenues. Other property expenses are derived from the operations of properties not placed in service under one of the categories discussed above, the operations of our maintenance company, vacant land expenses and other miscellaneous regional expenses.
During the six months ended June 30, 2018, one industrial property, comprising approximately 0.1 million square feet of GLA, was taken out of service for redevelopment. As a result of taking this industrial property out of service, the results of operations attributable to such property were reclassified from the same store property classification to the re(development) classification. During the year ended December 31, 2018, we completed the redevelopment of this property and the property is 100% occupied. This property will return to the same store classification in the first quarter of 2020.
Our future financial condition and results of operations, including rental revenues, may be impacted by the future acquisition, (re)development and sale of properties. Our future revenues and expenses may vary materially from historical rates.
Comparison of NineSix Months Ended SeptemberJune 30, 20172019 to NineSix Months Ended SeptemberJune 30, 20162018
Our net income was $107.0$65.1 million and $101.1$83.9 million for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
For the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, the average daily occupancy ratesrate of our same store properties were 96.1%was 96.9% and 96.4%97.1%, respectively.
| | | | Nine Months Ended September 30, | | | | | Six Months Ended June 30, | | | | |
| | 2017 | | 2016 | | $ Change | | % Change | 2019 | | 2018 | | $ Change | | % Change |
| | ($ in 000’s) | ($ in 000's) |
| REVENUES | | | | | | | | | | | | | | |
| Same Store Properties | $ | 263,974 |
| | $ | 256,431 |
| | $ | 7,543 |
| | 2.9 | % | $ | 189,753 |
| | $ | 183,252 |
| | $ | 6,501 |
| | 3.5 | % |
| Acquired Properties | 5,460 |
| | 1,423 |
| | 4,037 |
| | 283.7 | % | 3,572 |
| | 911 |
| | 2,661 |
| | 292.1 | % |
| Sold Properties | 3,605 |
| | 15,143 |
| | (11,538 | ) | | (76.2 | )% | 535 |
| | 7,765 |
| | (7,230 | ) | | (93.1 | )% |
| (Re) Developments | 18,684 |
| | 5,309 |
| | 13,375 |
| | 251.9 | % | |
| (Re)Developments | | 13,408 |
| | 1,740 |
| | 11,668 |
| | 670.6 | % |
| Other | 2,549 |
| | 1,738 |
| | 811 |
| | 46.7 | % | 1,368 |
| | 1,035 |
| | 333 |
| | 32.2 | % |
Real Estate Tax Reimbursement (A) | | — |
| | 3,748 |
| | (3,748 | ) | | (100.0 | )% |
Provision for Bad Debt (B) | | — |
| | 165 |
| | (165 | ) | | (100.0 | )% |
| Total Revenues | $ | 294,272 |
| | $ | 280,044 |
| | $ | 14,228 |
| | 5.1 | % | $ | 208,636 |
| | $ | 198,616 |
| | $ | 10,020 |
| | 5.0 | % |
(A) Prior to the adoption of ASU 2016-02 on January 1, 2019, we included reimbursement revenue related to real estate taxes that were paid directly by certain tenants to the taxing authorities in revenues. There was a corresponding expense amount included in property expenses related to this reimbursement income. To facilitate the comparison in the above table, the reimbursement of these amounts, as well as the corresponding expense in the Property Expense table below, for the six months ended June 30, 2018 has been removed from the affected categories and shown separately.
(B) Prior to the adoption of ASU 2016-02, credit losses on lease receivables were included in property expenses. ASU 2016-02 requires credit losses on lease receivables to be netted with lease revenue. To facilitate the comparison in the above table, the provision for bad debt for the six months ended June 30, 2018 has been removed from the affected categories and shown separately.
Revenues from same store properties increased $7.5$6.5 million primarily due to an increase in rental rates andas well as tenant recoveries, slightly offset by a decrease in occupancy. Revenues from acquired propertiesproperties increased $4.0 million$2.7 million due to the 1214 industrial properties acquired subsequent to December 31, 20152017 totaling approximately 1.61.3 million square feet of GLA. Revenues from sold properties decreased $11.5$7.2 million due to the 9355 industrial properties sold subsequent to December 31, 20152017 totaling approximately 5.82.7 million square feet of GLA. Revenues from (re)developments increased $13.4$11.7 million due to an increase in occupancy. Other revenuesRevenues from other increased $0.8$0.3 million primarily due to an increase in occupancy related to two properties acquired in 2015 and placed inmaintenance service during 2016.revenue.
| | | | Nine Months Ended September 30, | | | | | Six Months Ended June 30, | | | | |
| | 2017 | | 2016 | | $ Change | | % Change | 2019 | | 2018 | | $ Change | | % Change |
| | ($ in 000’s) | ($ in 000's) |
| PROPERTY EXPENSES | | | | | | | | | | | | | | |
| Same Store Properties | $ | 70,269 |
| | $ | 68,145 |
| | $ | 2,124 |
| | 3.1 | % | $ | 48,822 |
| | $ | 46,638 |
| | $ | 2,184 |
| | 4.7 | % |
| Acquired Properties | 1,442 |
| | 283 |
| | 1,159 |
| | 409.5 | % | 1,616 |
| | 360 |
| | 1,256 |
| | 348.9 | % |
| Sold Properties | 1,578 |
| | 5,937 |
| | (4,359 | ) | | (73.4 | )% | 74 |
| | 2,555 |
| | (2,481 | ) | | (97.1 | )% |
| (Re) Developments | 4,003 |
| | 1,515 |
| | 2,488 |
| | 164.2 | % | |
| (Re)Developments | | 3,243 |
| | 1,462 |
| | 1,781 |
| | 121.8 | % |
| Other | 6,543 |
| | 6,901 |
| | (358 | ) | | (5.2 | )% | 3,792 |
| | 3,036 |
| | 756 |
| | 24.9 | % |
Real Estate Tax Expense (A) | | — |
| | 3,748 |
| | (3,748 | ) | | (100.0 | )% |
Provision for Bad Debt (B) | | — |
| | 165 |
| | (165 | ) | | (100.0 | )% |
| Total Property Expenses | $ | 83,835 |
| | $ | 82,781 |
| | $ | 1,054 |
| | 1.3 | % | $ | 57,547 |
| | $ | 57,964 |
| | $ | (417 | ) | | (0.7 | )% |
(A) Prior to the adoption ASU 2016-02 on January 1, 2019, we included real estate expenses that were paid directly by certain tenants to the taxing authorities within property expenses. There was a corresponding reimbursement amount included in revenues related to this reimbursement income. To facilitate the comparison in the above table, real estate taxes, as well as the corresponding reimbursement income in the preceding table, for the six months ended June 30, 2018 have been removed from the affected categories and shown separately.
(B) Prior to the adoption of ASU 2016-02, credit losses on lease receivables were included in property expenses. ASU 2016-02 requires credit losses on lease receivables to be netted with lease revenue. To facilitate the comparison in the above table, the provision for bad debt for the six months ended June 30, 2018 has been removed from the affected categories and shown separately.
Property expenses include real estate taxes, repairs and maintenance, property management, utilities, insurance and other property related expenses. Property expenses from same store properties increased $2.1$2.2 million primarily due to an increase in real estate tax expense.taxes. Property expenses from acquired propertiesproperties increased $1.2$1.3 million due to properties acquired subsequent to December 31, 2015.2017. Property expenses from sold propertiesproperties decreased $4.4$2.5 million due to properties sold subsequent to December 31, 2015.2017. Property expenses from (re)developments increased $2.5$1.8 million primarily due to the substantial completion of developments. Other propertyProperty expenses decreased $0.4from other increased $0.8 million due to a decreasean increase in certain maintenance service expenses as well as certain miscellaneous expenses.
General and administrative expense increased $1.2decreased by $1.3 million, or 6.1%,8.8% primarily due to an increase in incentive compensation$1.3 million of severance expense slightly offset bythat was incurred during the six months ended June 30, 2018.
The impairment charge for the six months ended June 30, 2018 of $2.8 million is due to marketing a decrease in professional services expense.
As discussed in Note 2 to the Consolidated Financial Statements, we adoptedproperty and a new accounting standard relating to the definition of a business on January 1, 2017. We anticipate thatland parcel for sale and our acquisitions of real estate in the future generally will not meet the definition of a business combination. Accordingly, acquisition costs, which historically have been expensed, will be capitalized as partassessment of the basislikelihood of the real estate assets acquired. We applied this new accounting standard prospectively. For the nine months ended September 30, 2016, we recognized $0.3 million of expenses related to costs associated with acquiring industrial properties from third parties.
potential sales transaction.
| | | | Nine Months Ended September 30, | | | | | Six Months Ended June 30, | | | | |
| | 2017 | | 2016 | | $ Change | | % Change | 2019 | | 2018 | | $ Change | | % Change |
| | ($ in 000’s) | ($ in 000's) |
| DEPRECIATION AND OTHER AMORTIZATION | | | | | | | | | | | | | | |
| Same Store Properties | $ | 76,246 |
| | $ | 77,229 |
| | $ | (983 | ) | | (1.3 | )% | $ | 51,839 |
| | $ | 52,440 |
| | $ | (601 | ) | | (1.1 | )% |
| Acquired Properties | 2,876 |
| | 773 |
| | 2,103 |
| | 272.1 | % | 2,276 |
| | 826 |
| | 1,450 |
| | 175.5 | % |
| Sold Properties | 1,135 |
| | 4,766 |
| | (3,631 | ) | | (76.2 | )% | 127 |
| | 2,127 |
| | (2,000 | ) | | (94.0 | )% |
| (Re) Developments | 5,254 |
| | 4,199 |
| | 1,055 |
| | 25.1 | % | 5,136 |
| | 1,106 |
| | 4,030 |
| | 364.4 | % |
| Corporate Furniture, Fixtures and Equipment and Other | 1,719 |
| | 1,701 |
| | 18 |
| | 1.1 | % | 451 |
| | 452 |
| | (1 | ) | | (0.2 | )% |
| Total Depreciation and Other Amortization | $ | 87,230 |
| | $ | 88,668 |
| | $ | (1,438 | ) | | (1.6 | )% | $ | 59,829 |
| | $ | 56,951 |
| | $ | 2,878 |
| | 5.1 | % |
Depreciation and other amortization from same store properties decreased $1.0 million due to accelerated depreciation and amortization taken during the nine months ended September 30, 2016 attributable to certain tenants who terminated their lease early.remained relatively unchanged. Depreciation and other amortization from acquired properties increased $2.1$1.5 million due to properties acquired subsequent to December 31, 2015.2017. Depreciation and other amortization from sold properties decreased $3.6$2.0 million due to properties sold subsequent to December 31, 2015.2017. Depreciation and other amortization from (re)developments increased $1.1$4.0 million primarily due to an increase in depreciation and amortization related to completed developments offset by accelerated depreciation on one property in Rancho Dominguez, CA which was razed during the first quarter of 2016.developments. Depreciation from corporate furniture, fixtures and equipment and otherother remained relatively unchanged.
For the ninesix months ended SeptemberJune 30, 2017,2019, we recognized $52.1$0.9 million of gain on sale of real estate related to the sale of two industrial properties comprised of approximately 0.1 million square feet of GLA. For the six months ended June 30, 2018, we recognized $45.2 million of gain on sale of real estate related to the sale of 30 industrial properties comprised ofcomprising approximately 1.9 million square feet of GLA. For the nine months ended September 30, 2016, we recognized $60.8 million of gain on sale of real estate related to the sale of 50 industrial properties comprised of approximately 2.61.3 million square feet of GLA.
Interest expense decreased $1.6 million, or 3.5%remained relatively unchanged. However, the small decrease was caused by a decrease in the weighted average interest rate for the six months ended June 30, 2019 (4.12%) as compared to the six months ended June 30, 2018 (4.25%), primarily due toand a decrease in the weighted average debt balance outstanding for the ninesix months ended SeptemberJune 30, 20172019 ($1,396.21,342.5 million) as compared to the ninesix months ended SeptemberJune 30, 20162018 ($1,411.41,361.5 million), an increase substantially offset by a decrease in capitalized interest of $0.7$1.0 million caused by a decrease in development costs eligible for capitalization during the ninesix months ended SeptemberJune 30, 20172019 as compared to the ninesix months ended SeptemberJune 30, 2016 due to an increase in development activities and a slight decrease in the weighted average interest rate for the nine months ended September 30, 2017 (4.47%) as compared to the nine months ended September 30, 2016 (4.50%).2018.
Amortization of deferred financingdebt issuance costs remained relatively unchanged.
In September 2017, we entered into two interest rate protection agreements (the “Treasury Locks”) in order to fixFor the interest rate on an anticipated unsecured debt offering. Due to the strict requirements surrounding the application of hedge accounting, we elected not to designate the Treasury Locks as hedges. As such, the full change in the fair value of the Treasury Locks during the third quarter is recorded as a mark-to-market gain on interest rate protection agreements within the income statement as opposed to being recorded in other comprehensive income. Mark-to-market gain was $1.8 million for the ninesix months ended SeptemberJune 30, 2017.
For the nine months ended September 30, 2017,2018, we recognized a loss from retirement of debt of $1.7$0.04 million due to the early payoff of certain mortgage loans related to prepayment penalties andwhich resulted in the write-off of unamortized deferred financing costs.debt issuance costs partially offset by the write off of an unamortized premium.
Equity in income of Joint Venture of $16.4 million includes our pro-rata share of gain related to the sale of real estate from the Joint Venture and $4.9 million of accrued incentive fees.
Income tax provisionexpense increased $1.0by $2.9 million, or 432.8%,1,406.2% during the ninesix months ended SeptemberJune 30, 20172019 as compared to the ninesix months ended SeptemberJune 30, 20162018 primarily due to an increase in taxableour pro-rata share of gain from the sale of real estate from one of our TRSs.the Joint Venture as well as accrued incentive fees we earned from the Joint Venture.
Comparison of Three Months Ended SeptemberJune 30, 20172019 to Three Months Ended SeptemberJune 30, 20162018
Our net income was $44.7$40.7 million and $32.7$46.4 million for the three months ended SeptemberJune 30, 20172019 and 2016,2018, respectively.
For the three months ended SeptemberJune 30, 20172019 and 2016,2018, the average daily occupancy ratesrate of our same store properties were 96.0%was 96.7% and 96.1%97.0%, respectively.
| | | | Three Months Ended September 30, | | | | | Three Months Ended June 30, | | | | |
| | 2017 | | 2016 | | $ Change | | % Change | 2019 | | 2018 | | $ Change | | % Change |
| | ($ in 000’s) | ($ in 000's) |
| REVENUES | | | | | | | | | | | | | | |
| Same Store Properties | $ | 88,524 |
| | $ | 86,064 |
| | $ | 2,460 |
| | 2.9 | % | $ | 94,286 |
| | $ | 91,401 |
| | $ | 2,885 |
| | 3.2 | % |
| Acquired Properties | 2,746 |
| | 731 |
| | 2,015 |
| | 275.6 | % | 2,062 |
| | 772 |
| | 1,290 |
| | 167.1 | % |
| Sold Properties | 316 |
| | 3,598 |
| | (3,282 | ) | | (91.2 | )% | 33 |
| | 3,163 |
| | (3,130 | ) | | (99.0 | )% |
| (Re) Developments | 6,770 |
| | 2,498 |
| | 4,272 |
| | 171.0 | % | |
| (Re)Developments | | 7,169 |
| | 998 |
| | 6,171 |
| | 618.3 | % |
| Other | 954 |
| | 671 |
| | 283 |
| | 42.2 | % | 545 |
| | 572 |
| | (27 | ) | | (4.7 | )% |
Real Estate Tax Reimbursement (A) | | — |
| | 1,862 |
| | (1,862 | ) | | (100.0 | )% |
Provision for Bad Debt (B) | | — |
| | 77 |
| | (77 | ) | | (100.0 | )% |
| Total Revenues | $ | 99,310 |
| | $ | 93,562 |
| | $ | 5,748 |
| | 6.1 | % | $ | 104,095 |
| | $ | 98,845 |
| | $ | 5,250 |
| | 5.3 | % |
(A) Prior to the adoption of ASU 2016-02 on January 1, 2019, we included reimbursement revenue related to real estate taxes that were paid directly by certain tenants to the taxing authorities in revenues. There was a corresponding expense amount included in property expenses related to this reimbursement income. To facilitate the comparison in the above table, the reimbursement of these amounts, as well as the corresponding expense in the Property Expense table below, for the three months ended June 30, 2018 has been removed from the affected categories and shown separately.
(B) Prior to the adoption of ASU 2016-02, credit losses on lease receivables were included in property expenses. ASU 2016-02 requires credit losses on lease receivables to be netted with lease revenue. To facilitate the comparison in the above table, the provision for bad debt for the three months ended June 30, 2018 has been removed from the affected categories and shown separately.
Revenues from same store properties increased $2.5$2.9 million primarily due to an increase in rental rates. rates as well as tenant recoveries, slightly offset by a decrease in occupancy. Revenues from acquired properties increased $2.0 million$1.3 million due to the 1214 industrial properties acquired subsequent to December 31, 20152017 totaling approximately 1.61.3 million square feet of GLA. Revenues from sold properties decreased $3.3$3.1 million due to the 9355 industrial properties sold subsequent to December 31, 20152017 totaling approximately 5.82.7 million square feet of GLA. Revenues from (re)developments increased $4.3$6.2 million due to an increase in occupancy. Other revenues increased $0.3 million primarily due to an increase in occupancy related to two properties acquired in 2015 and placed in service during 2016.Revenues from other remained relatively unchanged.
| | | | Three Months Ended September 30, | | | | | Three Months Ended June 30, | | | | |
| | 2017 | | 2016 | | $ Change | | % Change | 2019 | | 2018 | | $ Change | | % Change |
| | ($ in 000’s) | ($ in 000's) |
| PROPERTY EXPENSES | | | | | | | | | | | | | | |
| Same Store Properties | $ | 24,062 |
| | $ | 23,057 |
| | $ | 1,005 |
| | 4.4 | % | $ | 23,450 |
| | $ | 22,871 |
| | $ | 579 |
| | 2.5 | % |
| Acquired Properties | 751 |
| | 132 |
| | 619 |
| | 468.9 | % | 874 |
| | 313 |
| | 561 |
| | 179.2 | % |
| Sold Properties | 157 |
| | 1,489 |
| | (1,332 | ) | | (89.5 | )% | 11 |
| | 1,060 |
| | (1,049 | ) | | (99.0 | )% |
| (Re) Developments | 1,450 |
| | 427 |
| | 1,023 |
| | 239.6 | % | |
| (Re)Developments | | 1,514 |
| | 911 |
| | 603 |
| | 66.2 | % |
| Other | 2,032 |
| | 2,434 |
| | (402 | ) | | (16.5 | )% | 1,530 |
| | 1,459 |
| | 71 |
| | 4.9 | % |
Real Estate Tax Expense (A) | | — |
| | 1,862 |
| | (1,862 | ) | | (100.0 | )% |
Provision for Bad Debt (B) | | — |
| | 77 |
| | (77 | ) | | (100.0 | )% |
| Total Property Expenses | $ | 28,452 |
| | $ | 27,539 |
| | $ | 913 |
| | 3.3 | % | $ | 27,379 |
| | $ | 28,553 |
| | $ | (1,174 | ) | | (4.1 | )% |
(A) Prior to the adoption ASU 2016-02 on January 1, 2019, we included real estate expenses that were paid directly by certain tenants to the taxing authorities within property expenses. There was a corresponding reimbursement amount included in revenues related to this reimbursement income. To facilitate the comparison in the above table, real estate taxes, as well as the corresponding reimbursement income in the preceding table, for the three months ended June 30, 2018 have been removed from the affected categories and shown separately.
(B) Prior to the adoption of ASU 2016-02, credit losses on lease receivables were included in property expenses. ASU 2016-02 requires credit losses on lease receivables to be netted with lease revenue. To facilitate the comparison in the above table, the provision for bad debt for the three months ended June 30, 2018 has been removed from the affected categories and shown separately.
Property expenses include real estate taxes, repairs and maintenance, property management, utilities, insurance and other property related expenses. Property expenses from same store properties increased $1.0 millionincreased $0.6 million primarily due to an increase in real estate tax expense.taxes. Property expenses from acquired propertiesproperties increased $0.6 million due to properties acquired subsequent to December 31, 2015.2017. Property expenses from sold propertiesproperties decreased $1.3 million$1.0 million due to properties sold subsequent to December 31, 2015.2017. Property expenses from (re)developments increased $1.0 millionincreased $0.6 million primarily due to the substantial completion of developments. Other propertyProperty expenses decreased $0.4 million due to a decrease in certain miscellaneous expenses.from other remained relatively unchanged.
General and administrative expense increased $0.5 million, or 8.5%, primarily due to an increase in incentive compensation expense.
For the three months ended September 30, 2016, we recognized $0.1 million of expenses related to costs associated with acquiring industrial properties from third parties.
remained relatively unchanged.
| | | | Three Months Ended September 30, | | | | | Three Months Ended June 30, | | | | |
| | 2017 | | 2016 | | $ Change | | % Change | 2019 | | 2018 | | $ Change | | % Change |
| | ($ in 000’s) | ($ in 000's) |
| DEPRECIATION AND OTHER AMORTIZATION | | | | | | | | | | | | | | |
| Same Store Properties | $ | 25,562 |
| | $ | 25,647 |
| | $ | (85 | ) | | (0.3 | )% | $ | 25,791 |
| | $ | 26,151 |
| | $ | (360 | ) | | (1.4 | )% |
| Acquired Properties | 1,524 |
| | 400 |
| | 1,124 |
| | 281.0 | % | 1,114 |
| | 763 |
| | 351 |
| | 46.0 | % |
| Sold Properties | 48 |
| | 1,184 |
| | (1,136 | ) | | (95.9 | )% | — |
| | 777 |
| | (777 | ) | | (100.0 | )% |
| (Re) Developments | 1,974 |
| | 1,015 |
| | 959 |
| | 94.5 | % | 2,658 |
| | 718 |
| | 1,940 |
| | 270.2 | % |
| Corporate Furniture, Fixtures and Equipment and Other | 588 |
| | 569 |
| | 19 |
| | 3.3 | % | 211 |
| | 227 |
| | (16 | ) | | (7.0 | )% |
| Total Depreciation and Other Amortization | $ | 29,696 |
| | $ | 28,815 |
| | $ | 881 |
| | 3.1 | % | $ | 29,774 |
| | $ | 28,636 |
| | $ | 1,138 |
| | 4.0 | % |
Depreciation and other amortization from same store properties remained relatively unchanged. Depreciation and other amortization from acquired properties increased $1.1$0.4 million due to properties acquired subsequent to December 31, 2015.2017. Depreciation and other amortization from sold properties decreased $1.1$0.8 million due to properties sold subsequent to December 31, 2015.2017. Depreciation and other amortization from (re)developments increased $1.0$1.9 million primarily due to an increase in depreciation and amortization related to completed developments. Depreciation from corporate furniture, fixtures and equipment and other remained relatively unchanged.
Liquidity and Capital Resources
At SeptemberJune 30, 2017,2019, our cash and cash equivalents and restricted cash were approximately $9.5 million and $5.1 million, respectively. Restricted cash is comprised of gross proceeds from the sales of certain industrial properties. These sale proceeds will be disbursed as we exchange industrial properties under Section 1031 of the Code.$33.4 million. We also had $463.2$565.4 million available for additional borrowings under our Unsecured Credit Facility as of SeptemberJune 30, 2017.2019.
We have considered our short-term (through SeptemberJune 30, 2018)2020) liquidity needs and the adequacy of our estimated cash flow from operations and other expected liquidity sources to meet these needs. Our 7.50%, 2017 Notes (described in Note 4 to the Consolidated Financial Statements), in the aggregate principal amount of $55.0 million are due December 1, 2017. Also, weWe have $159.5$56.8 million in mortgage loans payable outstanding at SeptemberJune 30, 20172019 that maturewe anticipate (pre)paying without penalty prior to SeptemberJune 30, 2018.2020. We expect to satisfy these payment obligations with borrowings under our Unsecured Credit Facility.Facility, excess cash flow and/or the disposition of select assets. With the exception of these payment obligations, we believe that our principal short-term liquidity needs are to fund normal recurring expenses, property acquisitions, developments, renovations, expansions and other nonrecurring capital improvements, debt service requirements, the minimum distributions required to maintain the Company's REIT qualification under the Code and distributions approved by the Company's Board of Directors. We anticipate that these needs will be met with cash flows provided by operating activities as well as the disposition of select assets. These needs may also be met by the issuance of additional equity or debt securities, or long-term unsecured indebtedness, subject to market conditions and contractual restrictions or borrowings under our Unsecured Credit Facility.
We expect to meet long-term (after SeptemberJune 30, 2018)2020) liquidity requirements such as property acquisitions, developments, scheduled debt maturities, major renovations, expansions and other nonrecurring capital improvements through the disposition of select assets, long-term unsecured and secured indebtedness and the issuance of additional equity or debt securities, subject to market conditions.
At SeptemberJune 30, 2017,2019, borrowings under our Unsecured Credit Facility bore interest at a weighted average interest rate of 2.39%3.51%. As of OctoberJuly 26, 2017,2019, we had approximately $415.2$667.4 million available for additional borrowings under our Unsecured Credit Facility. Our Unsecured Credit Facility contains certain financial covenants including limitations on incurrence of debt and debt service coverage. Our access to borrowings may be limited if we fail to meet any of these covenants. We believe that we were in compliance with our financial covenants as of SeptemberJune 30, 2017,2019, and we anticipate that we will be able to operate in compliance with our financial covenants for the remainder of 2017.2019.
Our senior unsecured notes have been assigned credit ratings from Standard & Poor’s, Moody’sPoor's, Moody's and Fitch Ratings of BBB-/Baa3/BBB,BBB/Stable, Baa2/Stable and BBB/Stable, respectively. In the event of a downgrade, we believe we would continue to have access to sufficient capital; however, our cost of borrowing would increase and our ability to access certain financial markets may be limited.
Nine Months Ended September
Cash Flow Activity
The following table summarizes our cash flow activity for the Company for the six months ended June 30, 20172019 and 2018:
|
| | | | | | | | |
| | | 2019 | | 2018 |
| | | (In thousands) |
| Net cash provided by operating activities | | $ | 120,118 |
| | $ | 93,817 |
|
| Net cash used in investing activities | | (157,562 | ) | | (139,483 | ) |
| Net cash provided by financing activities | | 20,516 |
| | 76,697 |
|
The following table summarizes our cash flow activity for the Operating Partnership for the six months ended June 30, 2019 and 2018:
|
| | | | | | | | |
| | | 2019 | | 2018 |
| | | (In thousands) |
| Net cash provided by operating activities | | $ | 120,177 |
| | $ | 93,760 |
|
| Net cash used in investing activities | | (157,562 | ) | | (139,483 | ) |
| Net cash provided by financing activities | | 20,457 |
| | 76,754 |
|
Changes in cash flow for the six months ended June 30, 2019, compared to the prior year comparable period are described as follows:
Operating Activities: Cash provided by operating activities increased $26.3 million for the Company of approximately $146.7 million (net cash provided by operating activities for the Operating Partnership of approximately $147.0 million) for the nine months ended September 30, 2017 was comprised primarily of the non-cash adjustments of approximately $38.9 million, net income of approximately $107.0 million and the net change in the Company's operating assets and liabilities of approximately $2.3 million ($2.6(increased $26.4 million for the Operating Partnership) offset by the payments, primarily due to an:
increase in NOI from same store properties, acquired properties and recently developed properties of prepayment penalties associated with the retirement of debt of approximately $1.5 million. The adjustments for the non-cash items of approximately $38.9 million are primarily comprised of depreciation and amortization of approximately $95.0 million, the loss from retirement of debt of approximately $1.7 million and the provision for bad debt of approximately $0.2$15.6 million offset by the gain on saledecreases in NOI due to building disposals of real estate$4.7 million; and
an increase in distributions from our Joint Venture of approximately $52.1$16.1 million mark-to-market gain on interest rate protection agreements of approximately $1.8 million and the effect of the straight-lining of rental income of approximately $4.1 million.in 2019.
Net cashInvesting Activities: Cash used in investing activities for bothincreased $18.1 million, primarily due to the Company andfollowing:
decrease of $84.4 million in net proceeds received from the Operating Partnershipdisposition of approximately $164.6real estate in 2019
offset by:
decrease of $35.3 million for the nine months ended September 30, 2017 was comprised primarily ofrelated to the acquisition of several land parcels and six industrial properties comprised of approximately 0.9 million square feet of GLA, the development of real estate capital expendituresin 2019; and
decrease of $31.9 million related to the improvement of existing real estate and payments relatednet contributions made to leasing activities, offset by net proceeds from the sale of real estate and a decreaseour Joint Venture in escrows (primarily related to sales proceeds held by third party intermediaries to be disbursed as we exchange into properties under Section 1031 of the Code).2019.
During the nine months ended September 30, 2017, we sold 30 industrial properties comprised of approximately 1.9 million square feet of GLA. Proceeds from the sales of these 30 industrial properties, net of closing costs, were approximately $95.2 million. We are in various stages of discussions with third parties for the sale of additional properties and plan to continue to selectively market other properties for sale for the remainder of 2017.
Net cashFinancing Activities: Cash provided by financing activities decreased $56.2 million for the Company of approximately $17.5(decreased $56.3 million (net cash provided by financing activities for the Operating PartnershipPartnership), primarily due to the following:
decrease of approximately $17.3 million) for$300.0 million related to the nine months ended September 30, 2017 was comprised primarilyissuance of Private Placement Notes in 2018; and
decrease of $145.6 million related to the net proceeds from the origination of $200.0 million of private placement notes as well as the net proceedsreceived from the issuance of common stock or General Partner Units in an underwritten public offering during 2018
offset byby:
increase in net proceeds from the repayments on our senior unsecured notes and mortgage loans payable, net repayment on our Unsecured Credit Facility common stockof $302.5 million; and Unit distributions, payments
decrease in repayments of financing and equity issuance costs, the repurchase and retirementMortgage Loans Payable of restricted stock and restricted Units and solely with respect to the Operating Partnership, the Operating Partnership's net distributions to noncontrolling interests.$86.6 million.
During the nine months ended September 30, 2017, the Operating Partnership issued $125 million of 4.30% Series A Guaranteed Senior Notes due April 20, 2027 (the “2027 Private Placement Notes”) and $75 million of 4.40% Series B Guaranteed Senior Notes due April 20, 2029 (the “2029 Private Placement Notes”) in a private placement pursuant to a Note and Guaranty Agreement dated February 21, 2017. The 2027 Private Placement Notes and the 2029 Private Placement Notes are unsecured obligations of the Operating Partnership that are fully and unconditionally guaranteed by the Company and require semi-annual interest payments.
During the nine months ended September 30, 2017, the Company issued 2,560,000 shares of the Company's common stock through a public offering, resulting in proceeds, net of the underwriter's discount, of approximately $74.9 million. The proceeds were contributed to the Operating Partnership in exchange for General Partner Units.
During the nine months ended September 30, 2017, we paid off and retired our 2017 II Notes, at maturity, in the amount of $101.9 million. Additionally, we paid off $36.1 million in mortgage loans payable. We may from time to time repay additional amounts of our outstanding debt. Any repayments would depend upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors we consider important. Future repayments may materially impact our liquidity, taxable income and results of operations.
Market Risk
The following discussion about our risk-management activities includes "forward-looking statements" that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. Our business subjects us to market risk from interest rates, as described below.
Interest Rate Risk
The following analysis presents the hypothetical gain or loss in earnings, cash flows or fair value of the financial instruments and derivative instruments which are held by us at SeptemberJune 30, 20172019 that are sensitive to changes in interest rates. While this analysis may have some use as a benchmark, it should not be viewed as a forecast.
In the normal course of business, we also face risks that are either non-financial or non-quantifiable. Such risks principally include credit risk and legal risk and are not represented in the following analysis.
At SeptemberJune 30, 2017, $1,218.1 million2019, $1,230.8 or 88.6% of our total debt, excluding unamortized deferred financingdebt issuance costs, was fixed rate debt. As of the same date, $157.0 million$158.0 or 11.4% of our total debt, excluding unamortized deferred financingdebt issuance costs, was variable rate debt. At December 31, 2016, $1,164.2 million or 86.0%2018, 100.0% of our total debt excluding unamortized deferred financing costs, was fixed rate debt. As of the same date, $189.5 million or 14.0% of our total debt, excluding unamortized deferred financing costs, was variable rate debt.
At SeptemberJune 30, 20172019 and December 31, 2016,2018, the fixed rate debt amounts include $460.0 million of variable-rate debt that has been effectively swapped to a fixed rate through the use of interest rate protection agreementsderivative instruments with a notional aggregate amount outstanding of $460.0 million, whichthat mitigate our exposure to our unsecured term loans'Unsecured Term Loans' variable interest rates, which are based upon LIBOR, as defined in the loan agreements. Additionally as of September 30, 2017, we have interest rate protection agreements outstanding in an aggregate notional amount of $100.0 million in order to lock the U.S Treasury rate related to an anticipated unsecured debt offering. See Note 10 to the Consolidated Financial Statements for a more detailed discussion of these interest rate protection agreements. The use of derivative financial instruments allows us to manage risks of increases in interest rates with respect to the effect these fluctuations would have on our earnings and cash flows. Currently, we do not enter into financial instruments for trading or other speculative purposes.
For fixed rate debt, changes in interest rates generally affect the fair value of the debt, but not our earnings or cash flows. Conversely, for variable rate debt, changes in the base interest rate used to calculate the all-in interest rate generally do not impact the fair value of the debt, but would affect our future earnings and cash flows. The interest rate risk and changes in fair market value of fixed rate debt generally do not have a significant impact on us until we are required to refinance such debt. See Note 4 to the Consolidated Financial Statements for a discussion of the maturity dates of our various fixed rate debt.
Our variable rate debt is subject to risk based upon prevailing market interest rates. At September 30, 2017, we had approximately $157.0 million of variable rate debt outstanding indexed to LIBOR rates excluding the $460.0 million of variable-rate debt that has been effectively swapped to a fixed rate through the use of interest rate protection agreements. If the LIBOR rates relevant to our variable rate debt were to have increased 10%, we estimate that our interest expense during the ninesix months ended SeptemberJune 30, 20172019 would have increased by approximately $0.2$0.11 million based on our average outstanding floating-rate debt during the ninesix months ended SeptemberJune 30, 2017.2019. Additionally, if weighted average interest rates on our weighted average fixed rate debt during the six months ended June 30, 2019 were to have increased by 10% due to refinancing, interest expense would have increased by approximately $4.4$2.6 million during the ninesix months ended SeptemberJune 30, 2017.2019.
As of SeptemberJune 30, 2017,2019, the estimated fair value of our debt was approximately $1,417.8$1,432.7 million based on our estimate of the then-current market interest rates.
The use of derivative financial instruments allows us to manage risks of increases in interest rates with respect to the effect these fluctuations would have on our earnings and cash flows. As of June 30, 2019 and December 31, 2018, we had derivative instruments ("Term Loan Swaps") with a notional aggregate amount outstanding of $460.0 million that mitigate our exposure to our Unsecured Term Loans' variable interest rates, which are based upon LIBOR. Additionally, during December 2018 in anticipation of issuing long term debt in the future, we entered into two treasury locks (the "2018 Treasury Locks") with an aggregate notional value of $100.0 million to manage our exposure to changes in the ten-year U.S. Treasury rate. During April 2019, we paid $3.1 million to settle the 2018 Treasury Locks with our counterparties. The 2018 Treasury Locks fixed the ten-year U.S. Treasury rate at a weighted average of 2.93%. We designated the 2018 Treasury Locks as cash flow hedges and will amortize the payment made to our counterparties into interest expense over the 10-year period, which corresponds to the term of our newly issued private placement debt (see Subsequent Events).
Supplemental Earnings Measure
Investors in and industry analysts following the real estate industry utilize funds from operations ("FFO") and net operating income ("NOI") as supplemental operating performance measures of an equity REIT. Historical cost accounting for real estate assets in accordance with accounting principles generally accepted in the United States of America ("GAAP") implicitly assumes that the value of real estate assets diminishes predictably over time through depreciation. Since real estate values instead have historically risen or fallen with market conditions, many industry analysts and investors prefer to supplement operating results that use historical cost accounting with measures such as FFO and NOI, among others. We provide information related to FFO and same store NOI ("SS NOI") both because such industry analysts are interested in such information, and because our management believes FFO and SS NOI are important performance measures. FFO and SS NOI are factors used by management in measuring our performance, including for purposes of determining the compensation of our executive officers under our 20172019 incentive compensation plan.
Neither FFO nor SS NOI should be considered as a substitute for net income, or any other measures derived in accordance with GAAP. Neither FFO nor SS NOI represents cash generated from operating activities in accordance with GAAP and neither should be considered as an alternative to cash flow from operating activities as a measure of our liquidity, nor is either indicative of funds available for our cash needs, including our ability to make cash distributions.
Funds From Operations
The National Association of Real Estate Investment Trusts ("NAREIT") has recognized and defined for the real estate industry a supplemental measure of REIT operating performance, FFO, that excludes historical cost depreciation, among other items, from net income determined in accordance with GAAP. FFO is a non-GAAP financial measure. FFO is calculated by us in accordance with the definition adopted by the Board of Governors of NAREIT and therefore may not be comparable to other similarly titled measures of other companies.
In accordance with the restated NAREIT definition of FFO which we adopted effective January 1, 2019, we calculate FFO to be equal to net income available to First Industrial Realty Trust, Inc.'s common stockholders and participating securities, plus depreciation and other amortization of real estate, plus impairment of real estate, minus gain or plus loss on sale of real estate, net of any income tax provision or benefit associated with the sale of real estate. We also exclude the same adjustments from our share of net income from an unconsolidated joint venture. For the comparative 2018 period, if applicable, gain and losses from the sale of non-depreciable real estate as well as impairment of non-depreciable real estate were not excluded from FFO.
Management believes that the use of FFO available to common stockholders and participating securities, combined with net income (which remains the primary measure of performance), improves the understanding of operating results of REITs among the investing public and makes comparisons of REIT operating results more meaningful. Management believes that, by excluding gains or losses related to sales of previously depreciatedreal estate assets, impairment of real estate assets and real estate asset depreciation and amortization, investors and analysts are able to identify the operating results of the long-term assets that form the core of a REIT’sREIT's activity and use these operating results for assistance in comparing these operating results between periods or to those of different companies.
The following table shows a reconciliation of net income available to common stockholders and participating securities to the calculation of FFO available to common stockholders and participating securities for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016.2018.
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| | (In thousands) | | (In thousands) | (In thousands) | | (In thousands) |
| Net Income Available to First Industrial Realty Trust, Inc.’s Common Stockholders and Participating Securities | $ | 43,198 |
| | $ | 31,519 |
| | $ | 103,469 |
| | $ | 97,436 |
| |
| Net Income Available to First Industrial Realty Trust, Inc.'s Common Stockholders and Participating Securities | | $ | 39,800 |
| | $ | 45,209 |
| | $ | 63,603 |
| | $ | 81,501 |
|
| Adjustments: | | | | | | | | | | | | | | |
| Depreciation and Other Amortization of Real Estate | 29,530 |
| | 28,602 |
| | 86,729 |
| | 88,088 |
| 29,603 |
| | 28,448 |
| | 59,458 |
| | 56,580 |
|
| Impairment of Depreciable Real Estate | | — |
| | — |
| | — |
| | 2,285 |
|
| Gain on Sale of Depreciable Real Estate | (23,271 | ) | | (16,802 | ) | | (52,140 | ) | | (60,828 | ) | (1,097 | ) | | (25,067 | ) | | (889 | ) | | (45,140 | ) |
| Gain on Sale of Real Estate from Joint Venture | | (15,747 | ) | | — |
| | (16,714 | ) | | — |
|
| Income Tax Provision - Gain on Sale of Real Estate from Joint Venture | | 2,877 |
| | — |
| | 3,095 |
| | — |
|
| Noncontrolling Interest Share of Adjustments | (202 | ) | | (421 | ) | | (1,141 | ) | | (985 | ) | (344 | ) | | (65 | ) | | (992 | ) | | (375 | ) |
| Funds from Operations Available to First Industrial Realty Trust, Inc.’s Common Stockholders and Participating Securities | $ | 49,255 |
| | $ | 42,898 |
| | $ | 136,917 |
| | $ | 123,711 |
| |
| Funds from Operations Available to First Industrial Realty Trust, Inc.'s Common Stockholders and Participating Securities | | $ | 55,092 |
| | $ | 48,525 |
| | $ | 107,561 |
| | $ | 94,851 |
|
SS NOI is a non-GAAP financial measure that provides a measure of rental operations and, as calculated by us, that does not factor in depreciation and amortization, general and administrative expense, acquisition costs, interest expense, impairment charges, income tax benefit and expense, equity in income or loss from our joint venture, gains and losses on retirement of debt and sale of real estate. We define SS NOI as revenues minus property expenses such as real estate taxes, repairs and maintenance, property management, utilities, insurance and other expenses, minus the NOI of properties that are not same store properties and minus the impact of straight-line rent, the amortization of lease inducements, the amortization of above/above and below market rent amortization and lease termination fees. We exclude straight-line rent and above (below) market rent in calculating SS NOI because we believe it provides a better measure of actual cash basis rental growth for a year-over-year comparison. As so defined, SS NOI may not be comparable to same store net operating income or similar measures reported by other REITs that define same store properties or NOI differently. The major factors influencing SS NOI are occupancy levels, rental rate increases or decreases and tenant recoveries increases or decreases. Our success depends largely upon our ability to lease space and to recover the operating costs associated with those leases from our tenants.
The following table shows a reconciliation of the same store revenues and property expenses disclosed in the results of operations (and reconciled to revenues and expenses reflected on the statements of operations) to SS NOI for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016.2018.