# FIRST INDUSTRIAL REALTY TRUST INC (FR) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from FIRST INDUSTRIAL REALTY TRUST INC's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/921825/000092182523000011/fr-20221231.htm
Accession: 0000921825-23-000011
Filing date: 2023-02-16
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/FR/
All MD&A years: /company/FR/mda/
Previous year: /company/FR/mda/fy2021/ (FY 2021)
Next year: /company/FR/mda/fy2023/ (FY 2023)

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 the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-K.

Summary of 2022

Our operating results remained strong in 2022. Our year end in-service occupancy was 98.8%, which is a 70 basis point increase compared to our in-service occupancy at December 31, 2021. Also, during the year ended December 31, 2022, we grew cash rental rates by 26.7% on new and renewal leases. At December 31, 2022, we had 14 projects comprising 3.6 million square feet of GLA under development with an estimated investment of approximately $556 million. Additionally, we continue to position ourselves for future development activity by acquiring land located in our target markets.

In 2022, we completed the following significant real estate activities:

•We acquired 11 industrial properties comprised of approximately 0.5 million square feet of GLA located in our Northern California, Seattle, South Florida and Southern California markets for an aggregate purchase price of $137.1 million, excluding transaction costs. These properties were 100% leased at December 31, 2022. We additionally acquired three income-producing land parcels in our Northern California, Seattle and Southern California markets for an aggregate purchase price of $56.5 million, excluding transaction costs.

•We added to our development pipeline 116 acres of land located in our Central/Eastern Pennsylvania, Houston, Northern California, South Florida and Southern California markets for an aggregate purchase price of $105.5 million, excluding transaction costs.

•We placed in-service ten industrial properties comprising approximately 4.1 million square feet of GLA located in our Central/Eastern Pennsylvania, Dallas/Ft.Worth, Nashville, New Jersey, Phoenix, South Florida, and Southern California markets at an estimated total cost of $447.8 million. These properties were 100% leased at December 31, 2022.

•We commenced speculative development of 11 industrial buildings totaling 3.3 million square feet of GLA in our Central/Eastern Pennsylvania, Chicago, Denver, Lehigh Valley, Northern California, South Florida and Southern California markets.

•We sold nine industrial properties comprising approximately 2.2 million square feet of GLA and one land parcel for gross sales proceeds of $178.3 million.

•Our Joint Venture sold 391 acres of land located in Phoenix for gross proceeds of $255.3 million. Our pro-rata share of gain was $74.0 million and we earned an incentive fee of $27.6 million. These amounts exclude our minority partner's share that we consolidate and report in our financial statements as Noncontrolling Interest.

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We completed the following financing activities during the year ended December 31, 2022:

•We paid off $68.0 million in mortgage loans payable, increasing the percentage of our real estate that was unencumbered to 99.3% at December 31, 2022.

•We replaced our $260.0 million term loan that was scheduled to mature in September 2022 with a $425.0 million term loan that matures on October 18, 2027. Based on our current credit ratings and leverage and the related interest rate hedges with a notional value of $425.0 million that we entered into and commenced in October 2022, our all-in interest rate on this term loan is 3.64% at December 31, 2022.

•In November, we drew down the entire principal on a new $300.0 million term loan that matures in August, 2025 unless we extend the term, at our election, pursuant to two, one-year extension options at our election ("2022 Unsecured Term Loan II"). Based on our current credit ratings and leverage and the related interest rate hedges with a notional value of $300.0 million that we entered into and commenced in December 2022, our all-in interest rate on this term loan is 4.88% at December 31, 2022.

•We issued 218,230 shares of our common stock, through "at-the-market" ("ATM") offerings, resulting in net proceeds of $12.8 million.

•We declared an annual cash dividend of $1.18 per common share or Unit, an increase of 9.3% from 2021.

•At December 31, 2022, we had $604.1 million available for additional borrowings under our Unsecured Credit Facility and cash and cash equivalents and restricted cash was $132.2 million, after excluding our Joint Venture minority partner's share of cash and cash equivalents that we consolidate and report in our financial statements.

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Results of Operations

Comparison of Year Ended December 31, 2022 to Year Ended December 31, 2021

Our net income was $381.6 million and $277.2 million for the years ended December 31, 2022 and 2021, respectively.

The tables below summarize our revenues, property expenses and depreciation and other amortization by various categories for the years ended December 31, 2022 and 2021. Same store properties are properties owned prior to January 1, 2021 and held as an in-service property through December 31, 2022 and developments and redevelopments that were placed in service prior to January 1, 2021. 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, 2020 and held as an operating property through December 31, 2022. Sold properties are properties that were sold subsequent to December 31, 2020. (Re)Developments include developments and redevelopments that were not: a) substantially complete 12 months prior to January 1, 2021; or b) stabilized prior to January 1, 2021. 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.

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, 2022 and 2021, the average occupancy rates of our same store properties were 98.0% and 96.0%, respectively.

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[[GREPCENT_TABLE]]
[["","2022","","2021","","$ Change","","% Change"],["","(In thousands)"],["REVENUES"],["Same Store Properties","$","474,602","","","$","437,117","","","$","37,485","","","8.6","%"],["Acquired Properties","8,034","","","1,126","","","6,908","","","613.5","%"],["Sold Properties","10,899","","","24,505","","","(13,606)","","","(55.5)","%"],["(Re) Developments","31,232","","","7,338","","","23,894","","","325.6","%"],["Other","15,162","","","6,204","","","8,958","","","144.4","%"],["Total Revenues","$","539,929","","","$","476,290","","","$","63,639","","","13.4","%"]]
[[/GREPCENT_TABLE]]

Revenues from same store properties increased $37.5 million primarily due to an increase in rental rates and recoverable income from property expenses, an increase in occupancy and an insurance settlement gain of $1.4 million. Revenues from acquired properties increased $6.9 million due to the 15 industrial properties acquired subsequent to December 31, 2020 totaling approximately 0.7 million square feet of GLA. Revenues from sold properties decreased $13.6 million due to the 38 industrial properties sold subsequent to December 31, 2020 totaling approximately 5.1 million square feet of GLA. Revenues from (re)developments increased $23.9 million due to an increase in occupancy and tenant recoveries. Revenues from other increased $9.0 million due to revenues related to acquisitions that were not yet stabilized at December 31, 2020 and therefore are not yet included in the same store pool, revenues from income-producing land parcels for which our ultimate intent is to redevelop or develop in the future, joint venture development fees and interest income earned on our cash and cash equivalent balances.

[[GREPCENT_TABLE]]
[["","2022","","2021","","$ Change","","% Change"],["","(In thousands)"],["PROPERTY EXPENSES"],["Same Store Properties","$","117,394","","","$","112,431","","","$","4,963","","","4.4","%"],["Acquired Properties","1,817","","","419","","","1,398","","","333.7","%"],["Sold Properties","2,405","","","5,180","","","(2,775)","","","(53.6)","%"],["(Re) Developments","6,659","","","2,078","","","4,581","","","220.5","%"],["Other","15,388","","","11,192","","","4,196","","","37.5","%"],["Total Property Expenses","$","143,663","","","$","131,300","","","$","12,363","","","9.4","%"]]
[[/GREPCENT_TABLE]]

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 $5.0 million primarily due to increases in real estate tax expense, repairs and maintenance, insurance and property management expense. Property expenses from acquired properties increased $1.4 million due to properties acquired subsequent to December 31, 2020. Property expenses from sold properties decreased $2.8 million due to properties sold subsequent to December 31, 2020. Property expenses from (re)developments increased $4.6 million primarily due to the substantial completion of developments. Property expenses from other increased $4.2 million primarily due to an increase in real estate tax expense related to land parcels purchased in 2021 and 2022 and an increase in certain miscellaneous expenses.

General and administrative expense remained relatively unchanged.

Joint Venture development services expense of $0.9 million for the year ended December 31, 2022, are expenses paid to a third party to assist with the development of properties in the Joint Venture for which we earn Joint Venture Fees.

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[[GREPCENT_TABLE]]
[["","2022","","2021","","$ Change","","% Change"],["","(In thousands)"],["DEPRECIATION AND OTHER AMORTIZATION"],["Same Store Properties","$","123,688","","","$","120,262","","","$","3,426","","","2.8","%"],["Acquired Properties","3,962","","","720","","","3,242","","","450.3","%"],["Sold Properties","2,808","","","5,182","","","(2,374)","","","(45.8)","%"],["(Re) Developments","12,427","","","2,139","","","10,288","","","481.0","%"],["Corporate Furniture, Fixtures and Equipment and Other","4,535","","","2,650","","","1,885","","","71.1","%"],["Total Depreciation and Other Amortization","$","147,420","","","$","130,953","","","$","16,467","","","12.6","%"]]
[[/GREPCENT_TABLE]]

Depreciation and other amortization from same store properties increased $3.4 million primarily due to improvements completed at our properties subsequent to December 31, 2021. Depreciation and other amortization from acquired properties increased $3.2 million due to properties acquired subsequent to December 31, 2020. Depreciation and other amortization from sold properties decreased $2.4 million due to properties sold subsequent to December 31, 2020. Depreciation and other amortization from (re)developments increased $10.3 million primarily due to an increase in depreciation and amortization related to completed developments. Depreciation from corporate furniture, fixtures and equipment and other increased $1.9 million due to depreciation and amortization related to properties acquired that were not yet stabilized at December 31, 2020 and therefore are not yet included in the same store pool.

For the year ended December 31, 2022, we recognized $128.3 million of gain on sale of real estate related to the sale of nine industrial properties comprising approximately 2.2 million square feet of GLA and one land parcel. 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.

Interest expense increased $4.9 million, or 11.1%, primarily due to an increase in the weighted average debt balance outstanding for the year ended December 31, 2022 ($1,917.4 million) as compared to the year ended December 31, 2021 ($1,631.9 million), offset by an increase in capitalized interest of $4.2 million caused by an increase in development projects eligible for capitalization during the year ended December 31, 2022 as compared to the year ended December 31, 2021, and a decrease in the weighted average interest rate for the year ended December 31, 2022 (3.41%) as compared to the year ended December 31, 2021 (3.45%).

Amortization of debt issuance costs decreased $0.2 million, or 6.9%, primarily due to mortgages paid off in 2021 and 2022.

Equity in income of Joint Ventures of $114.9 million for the year ended December 31, 2022 includes our pro-rata share of gain on sale of real estate by the Joint Venture of $84.1 million as well as incentive fees of $31.3 million we earned from the Joint Venture. These amounts include our partner's 6% interest in the Joint Venture that we consolidate and report within our financial statements. 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.

Income tax expense increased $18.5 million, or 378.8%, primarily due to an increase in taxable gains and incentive fees one of our TRSs recognized from its share of equity in income from the Joint Ventures in the year ended December 31, 2022 compared to the year ended December 31, 2021.

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Comparison of Year Ended December 31, 2021 to Year Ended December 31, 2020

A discussion of changes in our results of operations between 2021 and 2020 can be found in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Year Ended December 31, 2021 to Year Ended December 31, 2020" of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

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 deferred lease intangible 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 the carrying value of our long-lived real estate assets 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

Cash Flow Activity

The following table summarizes our cash flow activity for the Company for the years ended December 31, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","2021"],["","","(In thousands)"],["Net cash provided by operating activities","","$","410,943","","","$","266,895"],["Net cash used in investing activities","","(629,108)","","","(416,823)"],["Net cash provided by financing activities","","304,503","","","9,050"]]
[[/GREPCENT_TABLE]]

The following table summarizes our cash flow activity for the Operating Partnership for the years ended December 31, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2022","","2021"],["","","(In thousands)"],["Net cash provided by operating activities","","$","410,897","","","$","267,030"],["Net cash used in investing activities","","(629,108)","","","(416,823)"],["Net cash provided by financing activities","","304,549","","","8,915"]]
[[/GREPCENT_TABLE]]

Changes in cash flow for the year ended December 31, 2022, compared to the prior year are described as follows:

Operating Activities: Cash provided by operating activities increased $144.0 million for the Company (increased $143.9 million for the Operating Partnership), primarily due to the following:

•increase in distributions from our Joint Ventures of $118.0 million in 2022 as compared to 2021 due to funds received from a sale of real estate from our Joint Venture;

•increase in net operating income from same store properties, acquired properties and recently developed properties of $57.3 million, offset by a decrease in net operating income due to the disposition of real estate of $10.8 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 $212.3 million, primarily due to the following:

•increase of $160.7 million related to the acquisition and development of real estate as well as payments for improvements and leasing commissions in 2022 as compared to 2021; and

•decrease of $59.3 million in net proceeds received from the disposition of real estate in 2022 as compared to 2021; offset by:

◦increase in net proceeds of $3.9 million resulting from distributions from and contributions to our Joint Ventures in 2022 as compared to 2021;

◦increase of $1.5 million related to the collection of insurance settlement proceeds; and

◦decrease of $4.0 million in escrow deposits.

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Financing Activities: Cash provided by financing activities increased $295.5 million for the Company (increased $295.6 million for the Operating Partnership), primarily due to the following:

•increase of $465.0 million in proceeds from refinancing the $260.0 million unsecured term loan with a $425.0 million unsecured term loan in 2022 and $300.0 million related to the new unsecured term loan we entered into in 2022; offset by:

◦decrease of $132.9 million related to net proceeds from the issuance of 218,230 shares of the Company's common stock under our ATM in 2022 as compared to the net proceeds from the issuance of 2,513,758 shares of the Company's common stock under our ATM in 2021;

◦increase in dividend and unit distributions of $15.6 million due to the Company increasing the dividend rate in 2022 as well as an increase in common shares and units outstanding;

◦decrease in net borrowings under our Unsecured Credit Facility of $15.0 million in 2022 as compared to 2021;

◦increase in repayments of mortgage loans payable of $5.0 million in 2022 compared to 2021; and

◦increase in net distributions to noncontrolling interests of $4.4 million in 2022 as compared to 2021.

Material Cash Requirements

At December 31, 2022, our combined restricted cash and cash and cash equivalents were $132.2 million, after excluding our Joint Venture partner's share of cash and cash equivalents that we consolidate and report in our financial statements. We also had $604.1 million available for additional borrowings under our Unsecured Credit Facility as of December 31, 2022.

We have considered our short-term (through December 31, 2023) liquidity needs and the adequacy of our estimated cash flow from operations and other expected liquidity sources to meet these needs. 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, 2023) 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.

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We believe that we were in compliance with our financial covenants as of December 31, 2022, and we anticipate that we will be able to operate in compliance with our financial covenants in 2023. 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 and our access to borrowings on our Unsecured Credit Facility may be limited if we fail to meet any of these covenants. Total debt, exclusive of unamortized debt issuance costs and unamortized discounts, at December 31, 2022 and 2021 is detailed below.

[[GREPCENT_TABLE]]
[["","","Weighted Average Interest Rate at December 31, 2022","","Outstanding Balance at","","Weighted Average Maturity in Years at December 31, 2022"],["","","","December 31, 2022","","December 31, 2021"],["","","","","(In thousands)"],["Mortgage Loans Payable, Gross (A)","","4.17%","","$","10,299","","","$","79,764","","","5.7"],["Senior Unsecured Notes, Gross"],["Senior Unsecured Bonds (A)","","7.58%","","48,571","","","48,571","","","6.3"],["Private Placement Notes (A)","","3.66%","","950,000","","","950,000","","","7.0"],["Subtotal","","","","998,571","","","998,571"],["Unsecured Term Loans, Gross"],["2015 Unsecured Term Loan","","N/A","","\u2014","","","260,000","","","N/A"],["2021 Unsecured Term Loan (B)","","1.84%","","200,000","","","200,000","","","3.5"],["2022 Unsecured Term Loan (C)","","3.64%","","425,000","","","\u2014","","","4.8"],["2022 Unsecured Term Loan II (D)","","4.88%","","300,000","","","\u2014","","","4.6"],["Subtotal","","","","925,000","","","460,000"],["Unsecured Credit Facility (E)","","5.16%","","143,000","","","79,000","","","3.5"],["Total Debt","","","","$","2,076,870","","","$","1,617,335"]]
[[/GREPCENT_TABLE]]

(A) These loans have a fixed interest rate.

(B) The interest rate is based on one-month LIBOR plus a spread of 0.85%. We have interest rate swaps, with an aggregate notional value of $200.0 million, that effectively fix the LIBOR rate that results in an all-in interest rate of 1.84% at December 31, 2022. These interest rate swaps mature in February 2026.

(C) The interest rate is based on one-month SOFR plus a spread of 0.85% plus a SOFR adjustment of 0.10%. We have interest rate swaps, with an aggregate notional value of $425.0 million, that effectively fix the SOFR rate that results in an all-in interest rate of 3.64% at December 31, 2022. These interest rate swaps mature in September 2027.

(D) The interest rate is based on daily SOFR plus a spread of 0.85% plus a SOFR adjustment of 0.10%.We have interest rate swaps, with an aggregate notional value of $300.0 million, that effectively fix the SOFR rate that results in an all-in interest rate of 4.88% at December 31, 2022. These interest rate swaps mature in December 2025 ($150.0 million notional) and August 2027 ($150.0 million notional). Weighted average maturity reflected in the table above assumes we extended the maturity pursuant to two, one-year extension options, subject to certain conditions.

(E) The interest rate is a variable rate based on one-month LIBOR plus 77.5 basis points and a facility fee of 15 basis points. Our balance under our Unsecured Credit Facility changes depending on our cash needs and the interest rate and facility fee are each subject to adjustment based on our leverage and investment grade rating. Weighted average maturity reflected in the table above assumes we extended the maturity pursuant to two, six-month extension options, subject to certain conditions. As of February 15, 2023, we had approximately $610.1 million available for additional borrowings under our Unsecured Credit Facility.

As of December 31, 2022, 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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Our other material cash requirements from known contractual and other obligations as of December 31, 2022 include an estimate of remaining payments on the completion of development projects under construction for the Company and our proportionate share of the Joint Venture of $263.1 million and $25.0 million, respectively, which includes all costs necessary to place the properties into service. The majority of these construction costs will need to be funded in one year or less.

Off-Balance Sheet Arrangements

At December 31, 2022, we had letters of credit and performance bonds outstanding amounting to $22.6 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 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 $0.6 million and $1.0 million during the years ended December 31, 2022 and 2021, respectively, related to environmental expenditures. We estimate 2023 expenditures of approximately $2.0 million which has been accrued at December 31, 2022. We estimate that the aggregate expenditures which need to be expended in 2023 and beyond with regard to currently identified environmental issues will not exceed approximately $5.9 million which has been accrued at December 31, 2022.

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 2022 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 Unsecured Credit Facility.

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, 2022 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.

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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 SOFR as its preferred alternative rate for USD LIBOR in debt and derivative financial instruments. As of December 31, 2022, our Unsecured Credit Facility, our 2021 Unsecured Term Loan 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. We plan to modify the affected debt agreements and the related interest rate swaps prior to June 2023 and do not anticipate the modifications will have a material impact on our Consolidated Financial Statements.

At December 31, 2022, $1,933.8 million or 93.1% of our total debt, excluding unamortized debt issuance costs, was fixed rate debt. As of the same date, $143.0 million or 6.9% of our total debt, excluding unamortized debt issuance costs, was variable rate debt. 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, 2022 and 2021, the fixed rate debt amounts include variable rate debt that has been effectively swapped to a fixed rate through the use of derivative instruments with an aggregate notional amount outstanding of $925.0 million and $460.0 million, respectively, that mitigate our exposure to our Unsecured Term Loans' variable interest rates, which are based on LIBOR and SOFR. 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. We designated all of the swaps related to our Unsecured Term Loans as cash flow hedges. Currently, we do not enter into financial instruments for trading or other speculative purposes. See Material Cash Requirements for further details on the derivative instruments. As of December 31, 2022 and 2021, the estimated fair value of our debt was approximately $1,945.4 million and $1,691.3 million, respectively, based on our estimate of the then-current market interest rates.

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 and SOFR rates relevant to our variable rate debt were to have increased 10%, we estimate that our interest expense during the years ended December 31, 2022 and 2021 would have increased by approximately $0.8 million and $0.01 million, respectively, based on our average outstanding floating-rate debt during the years ended December 31, 2022 and 2021. 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 $5.5 million and $5.6 million during the years ended December 31, 2022 and 2021.

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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 2022 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:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","2020","","2019","","2018"],["","(In thousands)"],["Net Income Available to First Industrial Realty Trust, Inc.'s Common Stockholders and Participating Securities","$","359,134","","","$","270,997","","","$","195,989","","","$","238,775","","","$","163,239"],["Adjustments:"],["Depreciation and Other Amortization of Real Estate","146,448","","","130,062","","","128,814","","","120,516","","","115,659"],["Impairment of Real Estate (A)","\u2014","","","\u2014","","","\u2014","","","\u2014","","","2,285"],["Gain on Sale of Real Estate (A)","(128,268)","","","(150,310)","","","(86,751)","","","(124,942)","","","(80,909)"],["Gain on Sale of Real Estate from Joint Ventures (A)","(115,024)","","","\u2014","","","(4,443)","","","(16,714)","","","\u2014"],["Income Tax Provision - Allocable to Gain on Sale of Real Estate, Including Joint Ventures (A)","23,658","","","4,853","","","2,198","","","3,095","","","\u2014"],["Noncontrolling Interest Share of Adjustments","15,222","","","357","","","(843)","","","406","","","(883)"],["Funds from Operations Available to First Industrial Realty Trust, Inc.'s Common Stockholders and Participating Securities","$","301,170","","","$","255,959","","","$","234,964","","","$","221,136","","","$","199,391"]]
[[/GREPCENT_TABLE]]

    (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 began excluding 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, 2022 and 2021.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021"],["","(In thousands)"],["Same Store Revenues","$","474,602","","","$","437,117"],["Same Store Property Expenses","(117,394)","","","(112,431)"],["Same Store Net Operating Income Before Same Store Adjustments","$","357,208","","","$","324,686"],["Same Store Adjustments:"],["Straight-line Rent","(11,468)","","","(11,330)"],["Above (Below) Market Lease Amortization","(927)","","","(1,016)"],["Lease Termination Fees","(119)","","","(560)"],["Same Store Net Operating Income","$","344,694","","","$","311,780"]]
[[/GREPCENT_TABLE]]

Subsequent Events

From January 1, 2023 to February 15, 2023, we acquired one industrial building for a purchase price of approximately $6.0 million, excluding transaction costs.