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Global Credit Research - 02 Mar 2011
Approximately $1.2 billion of securities affected.
New York, March 02, 2011 -- Moody's Investors Service affirmed the ratings of First Industrial
L.P. (senior unsecured at Ba3) and First Industrial Realty
Trust, Inc. (preferred stock at B2) and revised the rating
outlook to stable from negative.
This rating action reflects the stabilization of First Industrial's
debt protection measures, as well as the removal of the liquidity
overhang associated with its credit facility. Since Moody's
placed First Industrial's ratings on negative outlook in June 2009,
the REIT has maintained its book leverage under 65% of undepreciated
assets and reduced its net debt/EBITDA from 9.5x for Q2'09
to 7.6x for YE'10. This deleveraging was accomplished
primarily through asset sales and secured borrowings. Over the
same period, First Industrial maintained its fixed charge close
to 1.8x, and although its secured debt more than doubled,
it still remains at a moderate 14.9% at YE'10.
Positively, First Industrial successfully addressed its liquidity
issues by amending and restating its revolving credit facility in the
fall of 2010, concurrently with a $100 million paydown.
The amended revolver matures in September 2012 and importantly allows
the REIT to sell some of its non-strategic assets by temporarily
relaxing certain covenants and changing some of the covenant calculation
formulas. Most significantly, the amendment mitigates the
risks of default and acceleration as a result of covenant breach.
Offsetting these positives, First Industrial's portfolio occupancy
remains low at 85% at YE'10, and the REIT anticipates
further rent roll-downs of 10%-12% in 2011.
Demand for industrial space is highly correlated with trade and the broader
economy, thus, the recovery is likely to be gradual.
In addition, going forward First Industrial will no longer be enjoying
the contribution of its profitable joint ventures with CalSTERs following
their dissolution in 2010.
The stable rating outlook reflects First Industrial's nationally
diversified and still largely unencumbered portfolio, manageable
debt maturities and experienced executive team.
Upward rating momentum would be predicated on portfolio lease-up
and achievement of economically profitable rental rates as indicated by
improvements in fixed charge coverage closer to 2.0x, reduction
in net debt/EBITDA to below 7.0x and maintenance of secured leverage
at below 20%. Ample liquidity would also be required for
Negative rating pressure would result from challenges in leasing up the
portfolio at adequate rental rates as evidenced by weakness in fixed charge
coverage sustained at 1.5x or below. Net debt/EBITDA over
8.5x or secured debt in excess of 25% of undepreciated assets
would also be viewed negatively, as would any liquidity concerns.
The following ratings were affirmed with a stable outlook:
First Industrial Realty Trust, Inc. -- Preferred
stock at B2; preferred stock shelf at (P)B2
First Industrial L.P. -- Senior unsecured
at Ba3; senior unsecured shelf at (P)Ba3
Moody's last rating action with respect to First Industrial was on June
16, 2009, when Moody's downgraded the ratings of First Industrial
Realty Trust and First Industrial L.P. (senior unsecured
debt to Ba3, from Ba1) and revised the rating outlook to negative.
First Industrial Realty Trust, Inc. (NYSE: FR) is a
leading owner and operator of industrial real estate which owns,
manages and has under development 74 million square feet of industrial
space including bulk and regional distribution centers, light industrial,
and other industrial facility types. At December 31, 2010,
the REIT had $2.8 billion in assets and $0.9
billion in equity.
The principal methodology used in this rating was the Global Rating Methodology
for REITs and Other Commercial Property Firms published in July 2010.
Asst Vice President - Analyst
Commercial Real Estate Finance
Moody's Investors Service
Commercial Real Estate Finance
Moody's Investors Service
Moody's Investors Service
Moody's revises First Industrial's rating outlook to stable from negative
250 Greenwich Street
New York, NY 10007
No Related Data.
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