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Investing.com -- On Tuesday, Fitch Ratings upgraded the Long-Term Issuer Default Ratings (IDRs) of First Industrial Realty Trust, Inc. (NYSE:FR) and its operating subsidiary, First Industrial, L.P., from ’BBB’ to ’BBB+’. The upgrade also applies to the underlying unsecured instruments. Fitch has set the Rating Outlook as Stable.
The upgrade reflects FR’s solid portfolio, which is geographically diverse, as well as its sound financial metrics and access to unsecured debt capital. Additionally, FR’s healthy liquidity position, supported by a measured approach to development risk and adequate unencumbered asset coverage of unsecured debt, contributed to the upgrade.
FR’s performance has seen improvement as it refined its portfolio while maintaining diversification. Its organic growth remained solid due to ongoing customer demand, resulting in strong rent growth. This is also attributed to the company’s high occupancy rate and long-term leases with creditworthy tenants.
Fitch’s Stable Outlook is based on the expectation that FR will maintain credit metrics within the rating sensitivities over the Outlook horizon. This is due to the anticipation of ongoing sound property fundamentals into the medium term.
FR has continued to exit non-core properties and invest the proceeds in bulk distribution facilities in key U.S. logistics markets primarily through development. Since 2010, it has recycled over $7.2 billion of capital. Rent per square foot in the same-store portfolio rose approximately 75% over 2014-2024.
FR’s debt is almost entirely unsecured. The company most recently closed a $850 million unsecured revolving credit facility and refinanced a $200 million term loan in 1Q25. Prior to this, FR completed seven unsecured debt issuances totaling $950 million in 2017-2020. Fitch expects the company to pursue unsecured note financing in 2025.
Fitch expects FR’s leverage to sustain around 5x through the forecast period. FR’s leverage was 4.6x in 2024, which is strong for the ’BBB’ category and below the company’s public target of under 6.0x. Fitch believes FR is committed to remaining within its stated policy and would look to reduce external growth, if necessary, to achieve this goal.
FR’s portfolio is diversified by geography, assets and tenants. The portfolio contains 416 properties with eight assets under construction. FR’s top 10 and top 20 tenants constituted 17.7% and 26.0% of annualized net rent, respectively, as of 1Q25.
FR’s unencumbered assets covered net unsecured debt by 2.5x as of 1Q25, which is solid for a ’BBB’ category REIT. FR has minimal secured debt and will likely only take on incremental mortgages as part of an acquisition.
FR maintains a reasonable approach to managing development risk that is consistent with similarly rated peers. FR’s unfunded development under construction totaled about $146 million, or 2.2% of gross assets based on its reported pipeline at 1Q25, up modestly from 1.6% at 1Q24.
Fitch has outlined several factors that could lead to a negative rating action or downgrade, including REIT leverage sustaining above 5.5x, below-peer portfolio operating performance or capital access through the cycle, and REIT fixed-charge coverage ( FCC (BME:FCC)) sustaining below 3.5x. On the other hand, factors that could lead to a positive rating action or upgrade include superior capital access in line with the ’A’ category, REIT leverage sustaining below 4.0x, and REIT FCC sustaining above 5.0x.
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