Fitch Removes First Industrial from Rating Watch Negative; Affirms 'BBB' IDR.
NEW YORK New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Fitch Ratings Fitch Ratings
An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has affirmed the following ratings of First Industrial Realty Trust, Inc. (NYSE NYSE
See: New York Stock Exchange :FR)('the company') and its operating partnership, First Industrial, L.P.:
First Industrial Realty Trust, Inc.
--Issuer Default Rating (IDR IDR
In currencies, this is the abbreviation for the Indonesian Rupiah.
The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. ) at 'BBB';
--$325 million of preferred securities at 'BBB-';
First Industrial, L.P.
--Issuer Default Rating (IDR) at 'BBB';
--Approximately $1.4 billion of senior unsecured notes at 'BBB';
--$200 million of senior unsecured exchangeable notes at 'BBB';
--$500 million unsecured bank credit facility at 'BBB'.
In addition, Fitch has removed the company from Rating Watch Negative, where it was originally placed on May 10, 2006. The Rating Outlook is Stable.
The ratings affirmation centers on FR's geographically diverse portfolio, which includes a large pool of unencumbered industrial properties. Moreover, as of March 31, 2007, FR's stabilized unencumbered property assets coverage of unsecured debt Unsecured debt
Debt that does not identify specific assets that the debtholder is entitled to in case of default. was 1.8x (times), an appropriate level for the rating category. The affirmed ratings are also supported by the company's flexible funding profile, as most of FR's debt is fixed rate and unsecured debt that matures evenly over the next several years. In addition, Fitch's rating action reflects FR's risk-adjusted capitalization, which is steady and adequate for the current rating level. From a macroeconomic mac·ro·ec·o·nom·ics
n. (used with a sing. verb)
The study of the overall aspects and workings of a national economy, such as income, output, and the interrelationship among diverse economic sectors. standpoint, demand for industrial real estate is expected to be favorable in 2007, providing further foundation for the ratings. Finally, the ratings affirmation recognizes the local market expertise of FR's property managers.
While affirming the ratings, Fitch remains concerned about the company's debt service coverage ratios. During FR's Rating Watch Negative period during the past year, Fitch has monitored company reported earnings (including and excluding the effects of gains on sale) relative to fixed charges, comprised of interest expense, capitalized interest Capitalized interest
Interest that is not immediately expensed, but rather is considered as an asset and is then amortized through the income statement over time. In the context of project financing, interest that is paid by additional borrowing. , and preferred dividends. Fitch has analyzed FR's earnings relative to fixed charges on a risk-adjusted basis, as well.
Based on Fitch's review of company reported earnings, Fitch calculates FR's recurring EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become fixed-charge coverage ratio Fixed-Charge Coverage Ratio
A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated as the following: , a measure in which Fitch excludes the effects of earnings from asset sales and also adjusts earnings to account for recurring capital expenditures and noncash rents, to be 1.2x for the 12 months ending March 31, 2007. Taking into account the effects of gains, FR's earnings covered fixed charges by higher levels. However, FR's fixed-charge coverage ratios, especially before the effects of gains, were lower than those of similarly rated real estate investment trusts (REITs) during that period.
On a risk-adjusted basis, Fitch believes FR's fixed charge coverage ratios during the 12 months ending March 31, 2007, are low for the rating category. This risk-adjusted earnings analysis incorporates Fitch's view that gains on sale of industrial product are somewhat contingent upon favorable market conditions.
Going forward, Fitch will analyze FR's earnings (including and excluding the effects of gains on sale) relative to fixed charges, as well as the company's risk-adjusted earnings in relation to fixed charges.
Fitch will also continue to monitor FR's dividend payout ratios, as in recent periods the company's net proceeds from asset sales have materially contributed to the company's ability to pay its common stock dividends.
The Stable Outlook reflects First Industrial's improved portfolio fundamentals. Since Fitch's previous review of FR in May 2006, FR's occupancies have risen and rental rates have improved, contributing to positive same property net operating income (NOI NOI Net Operating Income
NOI Notice of Intent
NOI Nation of Islam
NOI Notice of Inquiry
NOI Neuro Orthopaedic Institute
NOI New Organizing Institute
NOI Notice of Interest
NOI No Offense Intended
NOI National Olympiad in Informatics ) results. While Fitch acknowledges that FR has redefined its same store property pool to now consist of all 'operating' properties (as opposed to properties that were considered in-service), Fitch believes nevertheless that during the past year same property NOI performance has benefited the company's recurring EBITDA fixed-charge coverage ratios.
Fitch's Stable Outlook and/or existing ratings for First Industrial could come under pressure if earnings from operating properties relative to fixed charges decline materially. During the next 12 to 24 months, Fitch will also closely monitor the company's portfolio occupancy, financial flexibility, unencumbered asset coverage, and operating cash flow Operating cash flow
Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. performance.
Headquartered in Chicago, First Industrial is a REIT REIT
See: Real Estate Investment Trust
See real estate investment trust (REIT). that owns, manages, acquires, sells, develops, and redevelops industrial real estate. As of March 31, 2007, the company owned 891 properties (including 17 under development), totaling 70.6 million square feet. As of March 31, 2007, the company owned $3.2 billion in total book assets and had $1 billion in outstanding shareholders' equity.
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