FIRST INDUSTRIAL REALTY TRUST INC (FR) FY 2021 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management'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 sections of this Form 10-K titled "Forward-Looking Statements" and "Selected Financial Data" and the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-K.
Summary of 2021
Despite the COVID-19 pandemic, our operating results remained strong in 2021. Our year end in-service occupancy was 98.1%, which is a 240 basis point increase compared to our in-service occupancy at December 31, 2020. Also, during the year ended December 31, 2021, we grew cash rental rates by 16.2% on new and renewal leases. After resuming speculative development in the fourth quarter of 2020, we started 16 additional speculative buildings and one build-to-suit building comprising, in the aggregate, 5.8 million square feet of GLA during the year ended December 31, 2021. We continued to position ourselves for future development activity by acquiring land located in our target markets. Although the impact of COVID-19 pandemic has had an overall minimal impact on us in 2021, we cannot predict the future impact it may have on our business, future financial condition and operating results.
In 2021, we completed the following significant real estate activities:
•We added to our development pipeline 750 acres of land located in our Central Florida, Central New Jersey, Central Pennsylvania, Denver, Inland Empire, Northern California, Philadelphia, Phoenix and Seattle markets for an aggregate purchase price of $300.0 million, excluding transaction costs.
•We placed in-service seven industrial properties comprising approximately 0.9 million square feet of GLA located in our Inland Empire, Philadelphia and South Florida markets at an estimated total cost of $98.2 million. These properties were 100% leased at December 31, 2021.
•We commenced speculative development of 16 industrial buildings and one build-to-suit facility totaling 5.8 million square feet of GLA in our Central Florida, Central New Jersey, Central Pennsylvania, Dallas/Fort Worth, Denver, Inland Empire, Nashville, Phoenix, Seattle and South Florida markets.
•We acquired four industrial properties comprised of approximately 0.2 million square feet of GLA located in the Central Florida, Denver and Northern California markets for an aggregate purchase price of $38.7 million, excluding transactions costs. These properties were 56% leased at December 31, 2021.
•We sold 29 industrial properties comprising approximately 2.9 million square feet of GLA and one land parcel for gross sales proceeds of $243.4 million.
•One of the Joint Ventures sold its remaining 138 acres (for which the Company was the purchaser and such land purchase is included above) for a sale price of $31.8 million. We netted our share of gain on sale and incentive fees of $10.2 million against the basis of the land.
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We completed the following financing activities during the year ended December 31, 2021:
•We amended and restated our Unsecured Credit Facility, extending the maturity date to July 7, 2025 and increasing our borrowing capacity thereunder to $750.0 million. The current credit spread under this facility is 32.5 basis points lower than the spread on the prior facility.
•We amended and restated our $200.0 million 2020 Unsecured Term Loan, extending the maturity date to July 7, 2026. The current credit spread under this loan is 65 basis points lower than the spread on the 2020 Unsecured Term Loan.
•We paid off $60.5 million in mortgage loans payable, increasing the percentage of our real estate that was unencumbered to 95.9% at December 31, 2021.
•We issued 2,513,758 shares of our common stock, through "at-the-market" ("ATM") offerings, resulting in net proceeds of $145.8 million.
•We declared an annual cash dividend of $1.08 per common share or Unit, an increase of 8.0% from 2020.
•At December 31, 2021, we had $666.3 million available for additional borrowings under our Unsecured Credit Facility and cash and cash equivalents was $58.6 million.
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Results of Operations
Comparison of Year Ended December 31, 2021 to Year Ended December 31, 2020
Our net income was $277.2 million and $200.2 million for the years ended December 31, 2021 and 2020, respectively.
The tables below summarize our revenues, property expenses and depreciation and other amortization by various categories for the years ended December 31, 2021 and 2020. Same store properties are properties owned prior to January 1, 2020 and held as an in-service property through December 31, 2021 and developments and redevelopments that were placed in service prior to January 1, 2020. Properties which are at least 75% occupied at acquisition are placed in service, unless we anticipate the tenants to move out within the first two years of ownership. Acquisitions that are less than 75% occupied at the date of acquisition, developments and redevelopments are placed in service as they reach the earlier of a) stabilized occupancy (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 within 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, 2019 and held as an operating property through December 31, 2021. Sold properties are properties that were sold subsequent to December 31, 2019. (Re)Developments include developments and redevelopments that were not: a) substantially complete 12 months prior to January 1, 2020; or b) stabilized prior to January 1, 2020. 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 year ended December 31, 2016, one industrial property, comprising approximately 28 thousand square feet of GLA, was taken out of service due to a fire which caused complete destruction of the building. The results of this property are included in the (re)development classification. During the year ended December 31, 2019, we completed the rebuild of this property and as of December 31, 2019, the property was 100% leased. This property returned to the same store classification in the first quarter 2021.
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.
For the years ended December 31, 2021 and 2020, the average occupancy rates of our same store properties were 96.8% and 96.6%, respectively.
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| 2021 | 2020 | $ Change | % Change | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | ||||||||||||||
| REVENUES | ||||||||||||||
| Same Store Properties | $ | 419,779 | $ | 395,224 | $ | 24,555 | 6.2 | % | ||||||
| Acquired Properties | 13,629 | 4,224 | 9,405 | 222.7 | % | |||||||||
| Sold Properties | 11,617 | 30,020 | (18,403) | (61.3) | % | |||||||||
| (Re) Developments | 25,112 | 7,680 | 17,432 | 227.0 | % | |||||||||
| Other | 6,153 | 10,880 | (4,727) | (43.4) | % | |||||||||
| Total Revenues | $ | 476,290 | $ | 448,028 | $ | 28,262 | 6.3 | % |
Revenues from same store properties increased $24.6 million primarily due to an increase in rental rates and recoverable income from property expenses and a decrease in bad debt reserves taken on tenant accounts receivable, offset by final insurance settlement proceeds of $1.1 million received and recorded in 2020 as revenue related to a property that was destroyed by fire in 2016. Revenues from acquired properties increased $9.4 million due to the 12 industrial properties acquired subsequent to December 31, 2019 totaling approximately 1.7 million square feet of GLA. Revenues from sold properties decreased $18.4 million due to the 58 industrial properties sold subsequent to December 31, 2019 totaling approximately 4.8 million square feet of GLA. Revenues from (re)developments increased $17.4 million due to an increase in occupancy and tenant recoveries. Revenues from other decreased $4.7 million primarily due to final insurance settlement proceeds of $5.4 million received and recorded in 2020 related to a property that was destroyed by fire in 2017, offset by revenues related to acquisitions of partially occupied properties during 2019 that were not yet stabilized at December 31, 2019 and therefore are not yet included in the same store pool.
| 2021 | 2020 | $ Change | % Change | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | ||||||||||||||
| PROPERTY EXPENSES | ||||||||||||||
| Same Store Properties | $ | 108,074 | $ | 99,434 | $ | 8,640 | 8.7 | % | ||||||
| Acquired Properties | 2,219 | 932 | 1,287 | 138.1 | % | |||||||||
| Sold Properties | 2,554 | 6,161 | (3,607) | (58.5) | % | |||||||||
| (Re) Developments | 7,086 | 3,590 | 3,496 | 97.4 | % | |||||||||
| Other | 11,367 | 9,078 | 2,289 | 25.2 | % | |||||||||
| Total Property Expenses | $ | 131,300 | $ | 119,195 | $ | 12,105 | 10.2 | % |
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 $8.6 million primarily due to an increase in real estate tax expense, insurance and snow removal costs. Property expenses from acquired properties increased $1.3 million due to properties acquired subsequent to December 31, 2019. Property expenses from sold properties decreased $3.6 million due to properties sold subsequent to December 31, 2019. Property expenses from (re)developments increased $3.5 million primarily due to the substantial completion of developments. Property expenses from other increased $2.3 million primarily due to an increase in certain miscellaneous expenses.
General and administrative expense increased by $1.8 million, or 5.4%, primarily due to an increase in compensation, offset by severance and regional wind-down expenses associated with the closing of our Indianapolis office during the year ended December 31, 2020.
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| 2021 | 2020 | $ Change | % Change | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | ||||||||||||||
| DEPRECIATION AND OTHER AMORTIZATION | ||||||||||||||
| Same Store Properties | $ | 109,700 | $ | 113,833 | $ | (4,133) | (3.6) | % | ||||||
| Acquired Properties | 7,362 | 2,272 | 5,090 | 224.0 | % | |||||||||
| Sold Properties | 2,672 | 6,930 | (4,258) | (61.4) | % | |||||||||
| (Re) Developments | 8,849 | 4,085 | 4,764 | 116.6 | % | |||||||||
| Corporate Furniture, Fixtures and Equipment and Other | 2,370 | 2,518 | (148) | (5.9) | % | |||||||||
| Total Depreciation and Other Amortization | $ | 130,953 | $ | 129,638 | $ | 1,315 | 1.0 | % |
Depreciation and other amortization from same store properties decreased $4.1 million primarily due to accelerated depreciation and amortization recognized during the year ended December 31, 2020 attributable to the early termination of certain tenants' leases. Depreciation and other amortization from acquired properties increased $5.1 million due to properties acquired subsequent to December 31, 2019. Depreciation and other amortization from sold properties decreased $4.3 million due to properties sold subsequent to December 31, 2019. Depreciation and other amortization from (re)developments increased $4.8 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.
For the year ended December 31, 2021, we recognized $150.3 million of gain on sale of real estate related to the sale of 29 industrial properties comprising approximately 2.9 million square feet of GLA and one land parcel. For the year ended December 31, 2020, we recognized $86.8 million of gain on sale of real estate related to the sale of 29 industrial properties comprising approximately 1.9 million square feet of GLA.
Interest expense decreased $7.2 million, or 14.0%, primarily due to an increase in capitalized interest of $5.3 million caused by an increase in development projects eligible for capitalization during the year ended December 31, 2021 as compared to the year ended December 31, 2020, and a decrease in the weighted average interest rate for the year ended December 31, 2021 (3.45%) as compared to the year ended December 31, 2020 (3.65%), partially offset by an increase in the weighted average debt balance outstanding for the year ended December 31, 2021 ($1,631.9 million) as compared to the year ended December 31, 2020 ($1,593.5 million).
Amortization of debt issuance costs remained relatively unchanged.
Equity in loss of Joint Ventures for the year ended December 31, 2021 was $0.2 million. However, during the year ended December 31, 2021, we deferred $10.2 million of equity in income and incentive fees earned from the sale of the remaining 138 acres of developable land from one of the Joint Ventures since the Company was the purchaser of the land. This deferral was netted against the basis of the land acquired. Equity in income of Joint Ventures for the year ended December 31, 2020 was $4.2 million which primarily consists of our pro-rata share of gain related to the sale of real estate and accrued incentive fees.
Income tax expense increased $2.5 million, or 102.6%, primarily due to taxable gains from the sales of real estate from one of our TRSs in 2021.
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Comparison of Year Ended December 31, 2020 to Year Ended December 31, 2019
A discussion of changes in our results of operations between 2020 and 2019 can be found in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Year Ended December 31, 2020 to Year Ended December 31, 2019" of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Critical Accounting Policies
A critical accounting policy is one that involves an estimate or assumption that is subjective and requires management judgment about the effect of a matter that is inherently uncertain and material to an entity's financial condition and results of operations. Of the significant accounting policies discussed in Note 2 to the Consolidated Financial Statements, we believe the following policies relate to the more significant judgments and estimates used in the preparation of our consolidated financial statements:
•Acquisitions of Real Estate Assets: We allocate the purchase price of acquired real estate, including real estate acquired as a portfolio, based upon the fair value of the assets acquired and liabilities assumed, which generally consists of land, buildings, tenant improvements, construction in progress, leasing commissions and lease intangibles including in-place leases and above market and below market lease assets and liabilities. The purchase price is allocated to the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant. The determination of fair value includes the use of significant assumptions such as land comparables, discount rates, terminal capitalization rates and market rent assumptions. Acquired above and below market lease intangibles are valued based on the present value of the difference between prevailing market rental rates and the in-place rental rates measured over a period equal to the remaining term of the lease for above market leases or the remaining term of the lease plus the term of any below market fixed rate renewal options for below market leases. The purchase price is further allocated to in-place lease values based on an estimate of the lease revenue received during a reasonable lease-up period as if the property was vacant on the date of acquisition.
•Impairment of Real Estate Assets: We review our tangible and intangible real estate assets held for use for possible impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. The judgments regarding the existence of indicators of impairment are based on the operating performance, market conditions, as well as our ability to hold and our intent with regard to each property. The judgments regarding whether the carrying amounts of these assets may not be recoverable are based on estimates of future undiscounted cash flows from properties which include estimates of future operating performance and market conditions. If any real estate investment is considered permanently impaired, a loss is recorded to reduce the carrying value of the property to its estimated fair value. The impairment assessment and fair value measurement requires the use of estimates and assumptions related to the timing and amounts of cash flow projections, discount rates and terminal capitalization rates.
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Liquidity and Capital Resources
At December 31, 2021, our cash and cash equivalents were approximately $58.6 million. We also had $666.3 million available for additional borrowings under our Unsecured Credit Facility as of December 31, 2021.
We have considered our short-term (through December 31, 2022) liquidity needs and the adequacy of our estimated cash flow from operations and other expected liquidity sources to meet these needs. We have a $260.0 million term loan maturing in September 2022 and we have $69.2 million in mortgage loans payable outstanding at December 31, 2021 maturing in September 2022. We expect to satisfy these payment obligations on or prior to the maturity dates through the issuance of other debt or equity securities. With the exception of the $260.0 million term loan and the mortgage maturities, 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 other debt or equity securities, subject to market conditions or borrowings under our Unsecured Credit Facility.
We expect to meet long-term (after December 31, 2022) liquidity requirements such as property acquisitions, developments, scheduled debt maturities, major renovations, expansions and other nonrecurring capital improvements through long-term unsecured and secured indebtedness, the disposition of select assets and the issuance of additional equity or debt securities, subject to market conditions.
As of February 17, 2022, we had approximately $570.3 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 December 31, 2021, and we anticipate that we will be able to operate in compliance with our financial covenants in 2022. 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.
As of December 31, 2021, our senior unsecured notes have been assigned credit ratings from Standard & Poor's, Moody's and Fitch Ratings of BBB/Stable, Baa2/Stable and BBB/Stable, respectively. A securities rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal at any time by the rating organization. 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.
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Cash Flow Activity
The following table summarizes our cash flow activity for the Company for the years ended December 31, 2021 and 2020:
| Year Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2021 | 2020 | ||||||
| (In thousands) | |||||||
| Net cash provided by operating activities | $ | 266,895 | $ | 240,430 | |||
| Net cash used in investing activities | (416,823) | (251,738) | |||||
| Net cash provided by financing activities | 9,050 | 58,248 |
The following table summarizes our cash flow activity for the Operating Partnership for the years ended December 31, 2021 and 2020:
| Year Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2021 | 2020 | ||||||
| (In thousands) | |||||||
| Net cash provided by operating activities | $ | 267,030 | $ | 241,081 | |||
| Net cash used in investing activities | (416,823) | (251,738) | |||||
| Net cash provided by financing activities | 8,915 | 57,597 |
Changes in cash flow for the year ended December 31, 2021, compared to the prior year are described as follows:
Operating Activities: Cash provided by operating activities increased $26.5 million for the Company (increased $25.9 million for the Operating Partnership), primarily due to the following:
•increase in net operating income from same store properties, acquired properties and recently developed properties of $38.0 million, offset by a decrease in net operating income due to the disposition of real estate of $14.8 million; and
•increase in accounts payable, accrued expenses, other liabilities, rents received in advance and security deposits due to timing of cash payments; offset by:
◦increase in tenant accounts receivable, prepaid expenses and other assets due to timing of cash receipts.
Investing Activities: Cash used in investing activities increased $165.1 million, primarily due to the following:
•increase of $248.3 million related to the acquisition and development of real estate as well as payments for improvements and leasing commissions in 2021 as compared to 2020; and
•decrease of $6.5 million related to the collection of insurance settlement proceeds in 2020; offset by:
◦increase in distributions from and a decrease in contributions to our Joint Ventures resulting in a net reduction of $42.7 million in 2021 as compared to 2020;
◦increase of $30.9 million in net proceeds received from the disposition of real estate in 2021 as compared to 2020; and
◦decrease of $16.2 million in escrow and other balances.
Financing Activities: Cash provided by financing activities decreased $49.2 million for the Company (decreased $48.7 million for the Operating Partnership), primarily due to the following:
•decrease of $300.0 million related to the issuance of unsecured notes in a private placement in 2020;
•increase in repayments of mortgage loans payable of $34.3 million in 2021 compared to 2020;
•increase in dividend and unit distributions of $12.4 million due to the Company raising the dividend rate in 2021; and
•increase in debt and equity issuance costs of $3.1 million in 2021 compared to 2020; offset by:
◦increase in net borrowings from our Unsecured Credit Facility of $237.0 million in 2021 compared to 2020; and
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◦increase of $67.0 million related to net proceeds from the issuance of 2,513,758 shares of the Company's common stock under our ATM in 2021 as compared to the net proceeds from the issuance of 1,842,281 shares of the Company's common stock under our ATM in 2020.
Contractual Obligations and Commitments
The following table lists our contractual obligations and commitments as of December 31, 2021:
| Payments Due by Period (In thousands) | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total | Less Than 1 Year | 1-3 Years | 3-5 Years | Over 5 Years | ||||||||||||||
| Rent Payments Due on Operating and Ground Leases | $ | 71,069 | $ | 2,843 | $ | 5,142 | $ | 3,988 | $ | 59,096 | ||||||||
| Real Estate Development Costs(A)(B) | 349,400 | 349,400 | — | — | — | |||||||||||||
| Long Term Debt | 1,617,335 | 329,464 | 656 | 279,713 | 1,007,502 | |||||||||||||
| Interest Expense on Long Term Debt(A)(C) | 318,467 | 49,733 | 85,227 | 82,572 | 100,935 | |||||||||||||
| Unsecured Credit Facility(D) | 4,009 | 1,141 | 2,284 | 584 | — | |||||||||||||
| Total | $ | 2,360,280 | $ | 732,581 | $ | 93,309 | $ | 366,857 | $ | 1,167,533 |
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(A)Not on balance sheet.
(B)Represents estimated remaining payments on the completion of development projects under construction. Estimated remaining costs include all costs necessary to place the properties into service and could extend beyond one year.
(C)Excludes interest expense on our Unsecured Credit Facility. Includes interest expense on our unsecured term loans, inclusive of the impact of interest rate swaps which effectively swap the variable interest rate to a fixed interest rate. Due to the maturity of three interest rate swaps in February 2026, the remaining interest expense payments on our outstanding $200 million unsecured term loan is an estimate based on LIBOR and our current spread as of December 31, 2021, which is an interest rate of 0.94925%.
(D)Represents fees on our Unsecured Credit Facility which has a contractual maturity in July 2025.
Off-Balance Sheet Arrangements
At December 31, 2021, we had letters of credit and performance bonds outstanding amounting to $24.9 million in the aggregate. The letters of credit and performance bonds are not reflected as liabilities on our balance sheet. We have no other off-balance sheet arrangements, as defined in Item 303 of Regulation S-K, other than those disclosed on the Contractual Obligations and Commitments table above that have or are reasonably likely to have a current or future effect on our financial condition, results of operation or liquidity and capital resources.
Environmental
We paid approximately $1.0 million and $1.1 million during the years ended December 31, 2021 and 2020, respectively, related to environmental expenditures. We estimate 2022 expenditures of approximately $2.2 million which has been accrued at December 31, 2021. We estimate that the aggregate expenditures which need to be expended in 2022 and beyond with regard to currently identified environmental issues will not exceed approximately $5.4 million which has been accrued at December 31, 2021.
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Inflation
Prior to 2021, inflation had been low and had a minimal impact on the operating performance of our industrial properties in our markets of operation; however, inflation has significantly increased in 2021 and may continue to be elevated or increase further. Many of our leases contain provisions designed to mitigate the adverse impact of inflation, including contractual rent escalations and requirements for tenants to pay their proportionate share of property operating expenses, including common area expenses, utilities, insurance, and real estate taxes, and certain capital expenditures related to the maintenance of our properties, thereby reducing our exposure to increases in property operating expenses resulting from inflation. However, under our leases we typically have exposure to increases in non-reimbursable property operating expenses, including expenses incurred related to vacant premises. In addition, we believe that some of the existing rental rates under our leases subject to renewal are below current market rates for comparable space and that upon renewal or re-leasing, such rates may be increased to be consistent with, or closer to, current market rates, which may also offset our exposure to inflationary expense pressures related to our leased properties. We also have exposure to inflation with respect to our development portfolio, as increases in materials and other costs related to our development activities make it more expensive to develop properties. With respect to our outstanding indebtedness, we periodically evaluate our exposure to interest rate fluctuations, and may continue to enter into derivatives that mitigate, but do not eliminate, the impact of changes in interest rates on our variable rate loans.
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 December 31, 2021 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 December 31, 2021, $1,538.3 million or 95.1% of our total debt, excluding unamortized debt issuance costs, was fixed rate debt. As of the same date, $79.0 million or 4.9% of our total debt, excluding unamortized debt issuance costs, was variable rate debt. At December 31, 2020, $1,602.7 million or 100% of our total debt, excluding unamortized debt issuance costs, was fixed rate debt. Fixed rate debt for both years includes $460.0 million of variable-rate debt that has been effectively swapped to a fixed rate through the use of derivative instruments.
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. If the LIBOR rates relevant to our variable rate debt were to have increased 10%, we estimate that our interest expense during the years ended December 31, 2021 and 2020 would have increased by approximately $0.01 million and $0.09 million, respectively, based on our average outstanding floating-rate debt during the years ended December 31, 2021 and 2020. Additionally, if weighted average interest rates on our fixed rate debt were to have increased by 10% due to refinancing, interest expense would have increased by approximately $5.6 million and $5.7 million during the years ended December 31, 2021 and 2020.
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The Financial Conduct Authority announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after June 30, 2023. As a result, in the U.S., the Federal Reserve Board and the Federal Reserve Bank of New York identified the Secured Overnight Financing Rate as its preferred alternative rate for USD LIBOR in debt and derivative financial instruments. Our Unsecured Credit Facility, our unsecured term loans and related interest rate swaps are indexed to LIBOR. Our loan documents contain provisions that contemplate alternative methods to determine the base rate applicable to our LIBOR-indexed debt to the extent LIBOR-indexed rates are not available. Additionally, no mandatory prepayment or redemption provisions would be triggered under our loan documents in the event that the LIBOR-indexed rates are not available. If our debt agreements and derivative contracts are not transitioned to a preferred alternative rate and LIBOR-indexed rates are discontinued or if the methods of calculating the rates change, interest rates on our current or future indebtedness may be adversely affected. While we currently expect LIBOR-indexed rates to be available until June 30, 2023, it is possible that they will become unavailable prior to that time. We anticipate managing the transition to a preferred alternative rate using the language set out in our agreements, however, future market conditions may not allow immediate implementation of desired modifications and we may incur significant associated costs in doing so. We will continue to monitor and evaluate the potential impact on our debt payments and value of our related debt, however, we are not able to predict when LIBOR-indexed rates will cease to be available.
As of December 31, 2021 and 2020, the estimated fair value of our debt was approximately $1,691.3 million and $1,703.2 million, respectively, 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 December 31, 2021 and 2020, we had derivative instruments with a notional aggregate amount outstanding of $460.0 million which mitigate our exposure to our unsecured term loans' variable interest rates, which are based upon LIBOR (the "Term Loan Swaps"). We designated the Term Loan Swaps as cash flow hedges. See Note 12 to the Consolidated Financial Statements for a more detailed discussion of these derivative instruments. Currently, we do not enter into financial instruments for trading or other speculative purposes.
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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 2021 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.
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 real estate assets, real estate asset depreciation and amortization and impairment of real estate, investors and analysts are able to identify the operating results of the long-term assets that form the core of a REIT's activity and use these operating results for assistance in comparing these operating results between periods or to those of different companies.
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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 as follows:
| Year Ended December 31, | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | 2018 | 2017 | ||||||||||||||
| (In thousands) | ||||||||||||||||||
| Net Income Available to First Industrial Realty Trust, Inc.'s Common Stockholders and Participating Securities | $ | 270,997 | $ | 195,989 | $ | 238,775 | $ | 163,239 | $ | 201,456 | ||||||||
| Adjustments: | ||||||||||||||||||
| Depreciation and Other Amortization of Real Estate | 130,062 | 128,814 | 120,516 | 115,659 | 115,617 | |||||||||||||
| Impairment of Real Estate (A) | — | — | — | 2,285 | — | |||||||||||||
| Gain on Sale of Real Estate (A) | (150,310) | (86,751) | (124,942) | (80,909) | (131,058) | |||||||||||||
| Gain on Sale of Real Estate from Joint Ventures (A) | — | (4,443) | (16,714) | — | — | |||||||||||||
| Income Tax Provision - Allocable to Gain on Sale of Real Estate, Including Joint Ventures (A) | 4,853 | 2,198 | 3,095 | — | — | |||||||||||||
| Noncontrolling Interest Share of Adjustments | 357 | (843) | 406 | (883) | 481 | |||||||||||||
| Funds from Operations Available to First Industrial Realty Trust, Inc.'s Common Stockholders and Participating Securities | $ | 255,959 | $ | 234,964 | $ | 221,136 | $ | 199,391 | $ | 186,496 |
(A) In December 2018, NAREIT issued a white paper restating the definition of FFO. The restated definition provides an option to include or exclude gains and losses as well as impairment of non-depreciable real estate if the sales are deemed incidental. Prior to January 1, 2019, we included gains and losses on sales and impairment of our non-depreciable real estate in our calculation of NAREIT FFO. On January 1, 2019, we adopted the restated definition of NAREIT FFO on a prospective basis and now exclude gains and losses on sales and impairment of our non-depreciable real estate that we deem incidental. We also exclude the same adjustments from our share of net income from unconsolidated joint ventures.
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Same Store Net Operating Income
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, interest expense, equity in income and loss from joint ventures, income tax benefit and provision and gains and losses on the 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 above/below market leases and lease termination fees. 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 years ended December 31, 2021 and 2020.
| Year Ended December 31, | ||||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| (In thousands) | ||||||
| Same Store Revenues | $ | 419,779 | $ | 395,224 | ||
| Same Store Property Expenses | (108,074) | (99,434) | ||||
| Same Store Net Operating Income Before Same Store Adjustments | $ | 311,705 | $ | 295,790 | ||
| Same Store Adjustments: | ||||||
| Straight-line Rent | (6,731) | (4,799) | ||||
| Above (Below) Market Lease Amortization | (875) | (1,039) | ||||
| Lease Termination Fees | (560) | (753) | ||||
| Same Store Net Operating Income (A) | $ | 303,539 | $ | 289,199 |
(A) The year ended December 31, 2020 includes $1.1 million of insurance settlement gain related to a building destroyed by fire in 2016. Excluding this gain, the percent increase to Same Store Net Operating Income would be 5.3% for the year ended December 31, 2021.
Subsequent Events
From January 1, 2022 to February 17, 2022, we acquired two industrial buildings and one land parcel for an aggregate purchase price of approximately $21.8 million, excluding transaction costs.