Fitch Downgrades First Industrial's IDR to 'BBB-'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded the credit ratings of First Industrial Realty Trust, Inc. (NYSE: FR) as follows:

First Industrial Realty Trust, Inc.

--Issuer Default Rating (IDR) to 'BBB-' from 'BBB';

--$275 million preferred stock to 'BB+' from 'BBB-'.

First Industrial, L.P.

--IDR to 'BBB-' from 'BBB';

--$500 million revolving credit facility to 'BBB-' from 'BBB';

--$1.3 billion senior unsecured notes to 'BBB-' from 'BBB';

--$200 million senior unsecured exchangeable notes to 'BBB-' from 'BBB'.

The Rating Outlook is Stable.

The downgrades reflect Fitch's view that First Industrial's overall earnings power has weakened and will continue to remain at weaker levels as challenging market conditions make it more difficult for FR to engage in capital recycling activities.

In an Oct. 6, 2008 press release, Fitch noted several conditions that would place pressure on FR's ratings, one of which was if First Industrial-defined fixed charge coverage were to fall to 2.5 times (x) or lower. First Industrial-defined fixed charge coverage was 1.9x for the quarter ended Sept. 30, 2008, and Fitch believes that this ratio will remain below 2.5x in the coming quarters, therefore commensurate with a 'BBB-' IDR. In addition, Fitch noted that pressure would be placed on the ratings if First Industrial defined debt-to-GREA (gross real estate assets excluding FAS141 adjustments and assets held for sale) were 55% or higher for several quarters, and debt-to-GREA was 61.4% as of March 31, 2008, 61.3% as of June 30, 2008 and 60.2% of Sept. 30, 2008.

The downgrades are further reflective of the fact that before gains on sale, other debt service coverage ratios are commensurate with a 'BBB-' IDR. Fitch-defined recurring EBITDA fixed charge coverage (recurring EBITDA before gains on sale, less non-incremental capital expenditures less straight-line rent adjustments, divided by interest expense, non-incremental capitalized interest and preferred dividends) was 1.0x and 1.1x, respectively, for the trailing 12 months and quarter ended Sept 30, 2008.

Also reflected in the rating downgrade, FR's sources of liquidity before capital recycling activities (cash, availability from the company's revolving line of credit, retained cash flows from operating activities) less uses of liquidity (debt maturities, non-incremental capital expenditures) result in a liquidity shortfall from Sept. 30, 2008 to Dec. 31, 2010. That being said, the company has taken steps to improve liquidity by reducing its dividend and has also adjusted for an environment of lower capital recycling volume by reducing general and administrative expenses.

Finally, the downgrade reflects that the company is in a transitional period given the recent resignation of the Chief Executive Officer (CEO) and thus any changes in strategy at the executive level may not be effectively executed until a new CEO is found. However, the remainder of FR's management team remains intact and Fitch believes FR has a strong group of senior professionals.

The Stable Outlook centers on the company's flexible funding profile, staggered debt maturity schedule, solid occupancy of 93.7% as of Sept. 30, 2008, geographically diverse industrial property portfolio, and large pool of unencumbered assets representing 95.5% of total real estate as of Sept. 30, 2008. The company's unencumbered asset pool gives the company financial flexibility in the current environment in which conditions remain challenging across the commercial real estate debt markets and throughout the greater economy.

The Stable Outlook also reflects FR's appropriate risk-adjusted capitalization for the 'BBB-' rating level, even though the company's risk-adjusted capital ratio has decreased from 1.4x as of Dec. 31, 2006 to 1.3x as of Dec. 31, 2007 to 1.2x as of Sept. 30, 2008, as the company has increasingly utilized debt for development activities in recent periods.

Additional credit strengths incorporated into the Stable Outlook include the company's manageable lease expiration schedule, granular tenant roster of 1,956 in-service tenants as of Sept. 30, 2008, and growing joint venture platform, which includes a joint venture in Europe with the California State Teachers' Retirement System (CalSTRS) known as the FirstCal Industrial Europe JV. Fitch views favorably the recent extension of First Industrial's joint ventures with CalSTRS as well as the fact that much of FR's more speculative development risk exposure remains off balance sheet.

Going forward, positive rating momentum may occur if Fitch-defined recurring EBITDA fixed charge coverage were to increase to 1.5x or higher for several quarters; or if First Industrial-defined recurring EBITDA fixed charge coverage were to return to 2.5x or higher for several quarters. Fitch would also view positively a reduction in leverage on a debt-to-undepreciated book capital basis.

Negative pressure may be placed on the ratings if the size of the unencumbered pool were to decrease materially or if Fitch-defined recurring EBITDA fixed charge coverage were to weaken in 2009.

Organized in 1993, FR is an umbrella partnership real estate investment trust (REIT) that owns, manages, acquires, sells, develops and redevelops industrial real estate, predominantly bulk warehouses and light industrial facilities. As of Sept. 30, 2008, First Industrial had $3.8 billion in undepreciated book assets, $1.5 billion in undepreciated book equity and a total market capitalization of $3.7 billion. Also as of Sept. 30, 2008, FR owned 800 properties (including developments in process) containing an aggregate of 71.5 million square feet of gross leaseable area.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.