1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
--------------------------
Commission File Number 1-13102
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FIRST INDUSTRIAL REALTY TRUST, INC.
(Exact Name of Registrant as Specified in its Charter)
MARYLAND 36-3935116
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
311 S. WACKER DRIVE, SUITE 4000, CHICAGO, ILLINOIS 60606
(Address of Principal Executive Offices)
(312) 344-4300
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock, $.01 par value, outstanding as of November 6,
1998: 37,928,836
2
FIRST INDUSTRIAL REALTY TRUST, INC.
FORM 10-Q
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998
INDEX
PAGE
----
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997.................. 2
Consolidated Statements of Operations for the Nine Months Ended September 30,
1998 and September 30, 1997 ................................................................ 3
Consolidated Statements of Operations for the Three Months Ended September 30,
1998 and September 30, 1997 ................................................................ 4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
1998 and September 30, 1997 ................................................................ 5
Notes to Consolidated Financial Statements.................................................. 6-16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 17-28
PART II: OTHER INFORMATION
Item 1. Legal Proceedings........................................................................ 29
Item 2. Changes in Securities.................................................................... 29
Item 3. Defaults Upon Senior Securities.......................................................... 29
Item 4. Submission of Matters to a Vote of Security Holders...................................... 29
Item 5. Other Information........................................................................ 29
Item 6. Exhibits and Reports on Form 8-K and 8-K/A............................................... 29
SIGNATURE............................................................................................. 31
EXHIBIT INDEX......................................................................................... 32
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST INDUSTRIAL REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
September 30, December 31,
1998 1997
------------- ------------
ASSETS
Assets:
Investment in Real Estate:
Land ........................................................................ $ 408,951 $ 299,020
Buildings and Improvements .................................................. 2,159,667 1,663,731
Furniture, Fixtures and Equipment ........................................... 1,437 1,437
Construction in Progress .................................................... 22,777 30,158
Less: Accumulated Depreciation .............................................. (161,423) (121,030)
----------- -----------
Net Investment in Real Estate .......................................... 2,431,409 1,873,316
Cash and Cash Equivalents ..................................................... 5,612 13,222
Restricted Cash ............................................................... 5,254 313,060
Tenant Accounts Receivable, Net ............................................... 10,480 6,280
Deferred Rent Receivable ...................................................... 13,005 10,144
Deferred Financing Costs, Net ................................................. 12,279 8,594
Prepaid Expenses and Other Assets, Net ........................................ 85,217 47,547
----------- -----------
Total Assets ........................................................... $ 2,563,256 $ 2,272,163
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage Loans Payable, Net ................................................... $ 107,676 $ 101,198
Defeased Mortgage Loan Payable ................................................ -- 300,000
Senior Unsecured Debt, Net .................................................... 948,572 648,994
Acquisition Facility Payable .................................................. 128,800 129,400
Accounts Payable and Accrued Expenses ......................................... 68,390 50,373
Rents Received in Advance and Security Deposits ............................... 19,820 14,104
Dividends/Distributions Payable ............................................... 23,735 22,010
----------- -----------
Total Liabilities ................................................ 1,296,993 1,266,079
----------- -----------
Minority Interest ............................................................. 191,682 151,494
Commitments and Contingencies ................................................. -- --
Stockholders' Equity:
Preferred Stock ($01 par value, 10,000,000 shares authorized,
1,650,000, 40,000, 20,000, 50,000 and 30,000 shares of Series A, B,
C, D and E Cumulative Preferred Stock, respectively, issued and
outstanding at September 30, 1998 having a liquidating preference of
$25 per share ($41,250), $2,500 per share ($100,000), $2,500 per
share ($50,000), $2,500 per share ($125,000) and $2,500 per share
($75,000), respectively; and 1,650,000, 40,000 and 20,000 shares of
Series A, B and C Cumulative Preferred Stock, respectively, issued
and outstanding at December 31, 1997 having a liquidation preference
of $25 per share ($41,250), $2,500 per share ($100,000) and $2,500 per
share ($50,000), respectively) ............................................. 18 17
Common Stock ($01 par value, 100,000,000 shares authorized; 37,922,954 and
36,433,859 shares issued and outstanding at September 30, 1998 and
December 31, 1997, respectively) ........................................... 379 364
Additional Paid-in-Capital .................................................... 1,171,675 934,622
Distributions in Excess of Accumulated Earnings ............................... (92,726) (76,996)
Unamortized Value of Restricted Stock Grants .................................. (4,765) (3,417)
----------- -----------
Total Stockholders' Equity ..................................... 1,074,581 854,590
----------- -----------
Total Liabilities and Stockholders' Equity ..................... $ 2,563,256 $ 2,272,163
=========== ===========
The accompanying notes are an integral part of the financial statements.
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FIRST INDUSTRIAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Nine Months Nine Months
Ended Ended
September 30, September 30,
1998 1977
------------- ---------------
Revenues:
Rental Income ................................................................. $ 206,583 $ 115,530
Tenant Recoveries and Other Income ............................................ 49,275 31,117
Interest Income on US Government Securities ................................... -- 8,521
--------- ---------
Total Revenues ................................................... 255,858 155,168
--------- ---------
Expenses:
Real Estate Taxes ............................................................. 40,528 24,192
Repairs and Maintenance ....................................................... 11,115 6,134
Property Management ........................................................... 10,006 5,075
Utilities ..................................................................... 7,084 4,095
Insurance ..................................................................... 693 389
Other ......................................................................... 4,280 1,209
General and Administrative .................................................... 9,824 4,264
Interest ...................................................................... 51,593 34,788
Amortization of Interest Rate Protection Agreements and Deferred
Financing Costs ............................................................ 659 2,093
Depreciation and Other Amortization ........................................... 46,969 27,468
--------- ---------
Total Expenses .................................................. 182,751 109,707
--------- ---------
Income from Operations Before Income Allocated to Minority
Interest and Disposition of Interest Rate Protection
Agreements ................................................................. 73,107 45,461
Income Allocated to Minority Interest ......................................... (7,656) (3,502)
Disposition of Interest Rate Protection Agreements ............................ -- 1,430
--------- ---------
Income from Operations ........................................................ 65,451 43,389
Gain on Sales of Real Estate, Net ............................................. 3,069 4,186
--------- ---------
Income Before Extraordinary Loss and Cumulative Effect of Change in
Accounting Principle ....................................................... 68,520 47,575
Extraordinary Loss ............................................................ -- (12,563)
Cumulative Effect of Change in Accounting Principle ........................... (1,976) --
--------- ---------
Net Income .................................................................... 66,544 35,012
Less: Preferred Stock Dividends .............................................. (22,399) (7,610)
--------- ---------
Net Income Available to Common Stockholders ................................... $ 44,145 $ 27,402
========= =========
Net Income Available to Common Stockholders Before Extraordinary Loss and
Cumulative Effect of Change in Accounting Principle per Weighted Average
Common Share Outstanding:
Basic ................................................................... $ 1.24 $ 1.33
========= =========
Diluted ................................................................. $ 1.23 $ 1.31
========= =========
Net Income Available to Common Stockholders Per Weighted Average Common
Share Outstanding:
Basic ................................................................... $ 1.18 $ .91
========= =========
Diluted ................................................................. $ 1.18 $ .90
========= =========
The accompanying notes are an integral part of the financial statements.
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FIRST INDUSTRIAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Three Months
Ended Ended
September 30, 1998 September 30, 1997
------------------ ------------------
Revenues:
Rental Income.................................................................... $ 74,456 $ 40,821
Tenant Recoveries and Other Income............................................... 17,883 11,192
Interest Income on U.S. Government Securities.................................... --- 4,364
------------------ ------------------
Total Revenues............................................................. 92,339 56,377
------------------ ------------------
Expenses:
Real Estate Taxes................................................................ 14,607 8,545
Repairs and Maintenance.......................................................... 3,894 1,848
Property Management.............................................................. 3,582 1,556
Utilities........................................................................ 2,601 1,270
Insurance........................................................................ 241 113
Other............................................................................ 1,582 355
General and Administrative....................................................... 3,525 1,574
Interest......................................................................... 19,580 13,467
Amortization of Interest Rate Protection Agreements and Deferred
Financing Costs................................................................. 258 713
Depreciation and Other Amortization.............................................. 16,641 9,756
------------------ ------------------
Total Expenses............................................................. 66,511 39,197
------------------ ------------------
Income from Operations Before Income Allocated to Minority Interest ............... 25,828 17,180
Income Allocated to Minority Interest.............................................. (2,813) (1,552)
------------------ ------------------
Income from Operations............................................................. 23,015 15,628
Gain on Sales of Real Estate, Net.................................................. 693 187
------------------ ------------------
Net Income......................................................................... 23,708 15,815
Less: Preferred Stock Dividends.................................................... (8,211) (4,245)
------------------ ------------------
Net Income Available to Common Stockholders........................................ $ 15,497 $ 11,570
================== ==================
Net Income Available to Common Stockholders Per Weighted Average Common
Share Outstanding:
Basic........................................................................ $ .41 $ .38
================== ==================
Diluted...................................................................... $ .41 $ .38
================== ==================
The accompanying notes are an integral part of the financial statements.
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FIRST INDUSTRIAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .................................................... $ 66,544 $ 35,012
Income Allocated to Minority Interest ......................... 7,656 3,502
--------- ---------
Income Before Minority Interest ............................... 74,200 38,514
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation ................................................ 42,238 24,461
Amortization of Interest Rate Protection Agreements and
Deferred Financing Costs .................................. 659 2,093
Other Amortization .......................................... 5,194 2,893
Disposition of Interest Rate Protection Agreements .......... -- (1,430)
Gain on Sales of Real Estate, Net ........................... (3,069) (4,186)
Cumulative Effect of Change in Accounting Principle ......... 1,976 --
Extraordinary Loss .......................................... -- 12,563
Provision for Bad Debts ..................................... 550 150
Increase in Tenant Accounts Receivable and Prepaid
Expenses and Other Assets ................................. (36,903) (20,495)
Increase in Deferred Rent Receivable ........................ (3,033) (1,582)
Increase in Accounts Payable and Accrued Expenses and
Rents Received in Advance and Security Deposits ........... 23,800 11,716
Increase in Organization Costs .............................. (396) (62)
Decrease in Restricted Cash ................................. 3,677 3,243
--------- ---------
Net Cash Provided by Operating Activities ........... 108,893 67,878
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and Additions to Investment in Real Estate and
Closing Costs of Sales of Real Estate ..................... (573,697) (313,540)
Proceeds from Sales of Investment in Real Estate ............ 35,780 23,411
Repayment of Mortgage Loans Receivable ...................... 1,075 3,865
Funding of Mortgage Loans Receivable ........................ -- (18,552)
(Increase) Decrease in Restricted Cash ...................... (1,871) 1,831
--------- ---------
Net Cash Used in Investing Activities ............... (538,713) (302,985)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Sale of Common Stock ............................... 36,300 20,000
Common Stock Underwriting Discounts/Offering Costs ............... (3,159) (1,688)
Proceeds from Exercise of Employee Stock Options ................. 2,430 1,711
Proceeds from Sale of Preferred Stock ............................ 200,000 150,000
Preferred Stock Offering Costs ................................... (7,300) (5,263)
Repayments on Mortgage Loans Payable ............................. (301,437) (793)
Repayment of Promissory Notes Payable ............................ -- (9,919)
Proceeds from Acquisition Facilities Payable ..................... 505,000 280,400
Repayments on Acquisition Facilities Payable ..................... (505,600) (192,200)
Proceeds from Senior Unsecured Debt .............................. 299,517 349,150
Proceeds from Defeasance Loan .................................... -- 309,800
Repayment of Defeasance Loan ..................................... -- (309,800)
Other Proceeds from Senior Unsecured Debt ........................ 2,760 2,246
Other Costs of Senior Unsecured Debt ............................. (11,890) --
Purchase of Interest Rate Protection Agreements .................. -- (150)
Proceeds from Sale of Interest Rate Protection Agreements ........ -- 9,950
Purchase of US Government Securities ............................. -- (300,000)
Decrease (Increase) in Restricted Cash ........................... 306,000 (6,000)
Dividends/Distributions .......................................... (68,057) (50,404)
Preferred Stock Dividends ........................................ (22,399) (7,610)
Debt Issuance Costs and Prepayment Fees .......................... (9,955) (8,098)
--------- ---------
Net Cash Provided by Financing Activities ............. 422,210 231,332
--------- ---------
Net Decrease in Cash and Cash Equivalents ........................... (7,610) (3,775)
Cash and Cash Equivalents, Beginning of Period ...................... 13,222 7,646
--------- ---------
Cash and Cash Equivalents, End of Period ............................ $ 5,612 $ 3,871
========= =========
The accompanying notes are an integral part of the financial statements.
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FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
1. ORGANIZATION AND FORMATION OF COMPANY
First Industrial Realty Trust, Inc. (the "Company") was organized in the
state of Maryland on August 10, 1993. The Company is a real estate investment
trust ("REIT") as defined in the Internal Revenue Code. The Company's operations
are conducted primarily through First Industrial, L.P. (the "Operating
Partnership") of which the Company is the sole general partner with an
approximate 84.1% ownership interest at September 30, 1998. As of September 30,
1998, the Company owned 1,000 in-service properties located in 25 states,
containing an aggregate of approximately 69.9 million square feet of gross
leasable area ("GLA"). Of the 1,000 properties owned by the Company, 854 are
held by the Operating Partnership, 101 are held by limited partnerships in which
the Operating Partnership is the 99% limited partner and wholly owned
subsidiaries of the REIT are the 1% general partners and 45 are held by limited
liability companies of which the Operating Partnership is the sole member.
Minority interest in the Company at September 30, 1998 represents the
approximate 15.9% aggregate partnership interest in the Operating Partnership
held by the limited partners thereof.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim financial statements have been prepared in
accordance with the accounting policies described in the financial statements
and related notes included in the Company's 1997 Form 10-K and should be read in
conjunction with such financial statements and related notes. The following
notes to these interim financial statements highlight significant changes to the
notes included in the December 31, 1997 audited financial statements included in
the Company's 1997 Form 10-K and present interim disclosures as required by the
Securities and Exchange Commission.
In order to conform with generally accepted accounting principles,
management, in preparation of the Company's financial statements, is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses. Actual results could differ from those
estimates.
In the opinion of management, all adjustments consist of normal recurring
adjustments necessary to present fairly the financial position of the Company as
of September 30, 1998, the results of its operations for each of the nine months
and three months ended September 30, 1998 and 1997 and its cash flows for the
nine months ended September 30, 1998 and 1997.
Tenant Accounts Receivable, Net:
The Company provides an allowance for doubtful accounts against the
portion of tenants accounts receivable which is estimated to be uncollectible.
Tenant accounts receivable in the consolidated balance sheets are shown net of
an allowance for doubtful accounts of $2,000 and $1,450 as of September 30, 1998
and December 31, 1997, respectively.
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FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Recent Accounting Pronouncements:
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income". This statement, effective for fiscal years beginning
after December 15, 1997, requires the Company to report components of
comprehensive income in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income is defined by
Concepts Statement No. 6, "Elements of Financial Statements" as the change in
the equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. The Company's net income available to common
stockholders approximates its comprehensive income as defined in Concepts
Statement No. 6, "Elements of Financial Statements".
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information".
This statement, effective for financial statements for fiscal years beginning
after December 15, 1997, requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Generally, financial information is required to be reported on the basis that it
is used internally for evaluating segment performance and deciding how to
allocate resources to segments. The Company will disclose this information in
its 1998 Form 10-K.
In March 1998, the FASB's Emerging Issues Task Force (the "Task Force")
issued Emerging Issues Task Force Issue No. 97-11, "Accounting for Internal
Costs Relating to Real Estate Property Acquisitions" ("EITF 97-11"). EITF 97-11,
effective March 19, 1998, requires that internal costs of preacquisition
activities incurred in connection with the acquisition of an operating property
should be expensed as incurred. The Task Force concluded that a property is
considered operating if, at the date of acquisition, major construction activity
is substantially completed on the property and (a) it is held available for
occupancy upon completion of tenant improvements by the acquirer or (b) it is
already income producing. The Company adopted EITF 97-11 as of March 19, 1998.
Prior to March 19, 1998, the Company capitalized internal costs of
preacquisition activities incurred in connection with the acquisition of
operating properties. The Company estimates that the adoption of EITF 97-11 will
result in a cumulative increase of approximately $2,500 to $3,000 in the amount
of general and administrative expense reflected in the Company's consolidated
statement of operations in 1998.
In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5
requires that the net unamortized balance of all start-up costs and
organizational costs be written off as a cumulative effect of a change in
accounting principle and all future start-up costs and organizational costs be
expensed. In the second quarter of 1998, the Company reported a cumulative
effect of a change in accounting principle of approximately $1,976 to reflect
the write-off of the unamortized balance of organizational costs on the
Company's balance sheet.
During the second quarter of 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement, effective for fiscal years beginning after June 15,
1999, establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments imbedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that the
changes in the derivative's fair value be recognized in earnings unless specific
hedge accounting
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FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
criteria are met. The Company is currently assessing the impact of this new
statement on its consolidated financial position, liquidity, and results of
operations.
3. MORTGAGE LOANS, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION FACILITY
PAYABLE
Mortgage Loans, Net:
On April 16, 1998, the Company, through the Operating Partnership,
assumed a mortgage loan in the principal amount of $2,525 (the "Acquisition
Mortgage Loan IV"). The Acquisition Mortgage Loan IV is collateralized by one
property in Baltimore, Maryland, bears interest at a fixed rate of 8.95% and
provides for monthly principal and interest payments based on a 20-year
amortization schedule. The Acquisition Mortgage Loan IV matures on October 1,
2006. The Acquisition Mortgage Loan IV may be prepaid only after October 2001 in
exchange for the greater of a 1% prepayment fee or a yield maintenance premium.
On July 16, 1998, the Company, through the Operating Partnership, assumed
a mortgage loan in the principal amount of $2,566 (the "Acquisition Mortgage
Loan V"). The Acquisition Mortgage Loan V is collateralized by one property in
Tampa, Florida, bears interest at a fixed rate of 9.01% and provides for monthly
principal and interest payments based on a 30-year amortization schedule. The
Acquisition Mortgage Loan V matures on September 1, 2006. The Acquisition
Mortgage Loan V may be prepaid only after August 2002 in exchange for the
greater of a 1% prepayment fee or a yield maintenance premium.
On August 31, 1998, the Company, through the Operating Partnership,
assumed a mortgage loan in the principal amount of $965 (the "Acquisition
Mortgage Loan VI"). The Acquisition Mortgage Loan VI is collateralized by one
property in Portland, Oregon, bears interest at a fixed rate of 8.875% and
provides for monthly principal and interest payments based on a 20-year
amortization schedule. The Acquisition Mortgage Loan VI matures on November 1,
2006. The Acquisition Mortgage Loan VI may be prepaid only after September 2001
in exchange for a 3% prepayment fee.
On August 31,1998, the Company, through the Operating Partnership,
assumed a mortgage loan in the principal amount of $1,367 (the "Acquisition
Mortgage Loan VII"). The Acquisition Mortgage Loan VII is collateralized by one
property in Milwaukie, Oregon, bears interest at a fixed rate of 9.75% and
provides for monthly principal and interest payments based on a 25-year
amortization schedule. The Acquisition Mortgage Loan VII matures on March 15,
2002. The Acquisition Mortgage Loan VII may be prepaid only after December 2001.
Senior Unsecured Debt, Net:
On March 31, 1998, the Company, through the Operating Partnership, issued
$100,000 of Dealer remarketable securities which mature on April 5, 2011 and
bear a coupon interest rate of 6.50% (the "2011 Drs."). The issue price of the
2011 Drs. was 99.753%. Interest is paid semi-annually in arrears on April 5 and
October 5. The 2011 Drs. are callable (the "Call Option"), at the option of J.P.
Morgan Securities, Inc., as Remarketing Dealer (the "Remarketing Dealer"), on
April 5, 2001 (the "Remarketing Date"). The Company received approximately
$2,760 of proceeds from the Remarketing Dealer as consideration for the Call
Option. The Company will amortize these proceeds over the life of the Call
Option as an adjustment to interest expense. If the holder of the Call Option
calls the 2011 Drs. and elects to remarket the 2011 Drs., then after the
Remarketing Date, the interest rate on the 2011 Drs. will be reset at a fixed
rate until April 5, 2011 based upon a predetermined formula as disclosed in the
related Prospectus
8
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FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
3. MORTGAGE LOANS, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION FACILITY
PAYABLE, CONTINUED
Supplement. If the Remarketing Dealer elects not to remarket the 2011 Drs., then
the Operating Partnership will be required to repurchase, on the Remarketing
Date, any 2011 Drs. that have not been purchased by the Remarketing Dealer at
100% of the principal amount thereof, plus accrued and unpaid interest, if any.
The Company also settled an interest rate protection agreement, in the notional
amount of $100,000, which was used to fix the interest rate on the 2011 Drs.
prior to issuance. The debt issue discount and the settlement amount of the
interest rate protection agreement are being amortized over the life of the 2011
Drs. as an adjustment to interest expense. The 2011 Drs. contain certain
covenants including limitations on incurrence of debt and debt service coverage.
On July 14, 1998, the Company, through the Operating Partnership, issued
$200,000 of senior unsecured debt which matures on July 15, 2028 and bears a
coupon interest rate of 7.60% (the "2028 Notes"). The issue price of the 2028
Notes was 99.882%. Interest is paid semi-annually in arrears on January 15 and
July 15. The Company also settled interest rate protection agreements, in the
notional amount of $150,000, which were used to fix the interest rate on the
2028 Notes prior to issuance. The debt issue discount and the settlement amount
of the interest rate protection agreements are being amortized over the life of
the 2028 Notes as an adjustment to the interest expense. The 2028 Notes contain
certain covenants including limitation on incurrence of debt and debt service
coverage. Approximately $50,000 of the 2028 Notes was purchased, through a
broker/dealer, by an entity in which a Director of the Company owns greater
than a ten percent interest.
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FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
3. MORTGAGE LOANS, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION FACILITY
PAYABLE, CONTINUED
The following table discloses certain information regarding the Company's
mortgage loans, senior unsecured debt and acquisition facility payable:
INTEREST
OUTSTANDING BALANCE AT ACCRUED INTEREST PAYABLE AT RATE AT
--------------------------- ---------------------------- ------------
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, MATURITY
1998 1997 1998 1997 1998 DATE
------------ ------------- ------------- ------------ ------------ ---------
MORTGAGE LOANS PAYABLE, NET
1995 Mortgage Loan ..................... $ 39,681 $ 40,000 $ 159 $ 168 7.220% 1/11/26
CIGNA Loan ............................. 35,372 35,813 -- -- 7.500% 4/01/03
Assumed Loans .......................... 8,736 8,950 -- -- 9.250% 1/01/13
LB Mortgage Loan II .................... 705 705 -- -- 8.000% (1)
Acquisition Mortgage Loan I ............ 3,929 4,135 -- 29 8.500% 8/01/08
Acquisition Mortgage Loan II ........... 7,871 7,997 51 52 7.750% 4/01/06
Acquisition Mortgage Loan III .......... 3,514 3,598 26 27 8.875% 6/01/03
Acquisition Mortgage Loan IV ........... 2,502 -- 19 -- 8.950% 10/01/06
Acquisition Mortgage Loan V ............ 2,870(2) -- 19 -- 9.010% 9/01/06
Acquisition Mortgage Loan VI ........... 1,031(2) -- 7 -- 8.875% 11/01/06
Acquisition Mortgage Loan VII .......... 1,465(2) -- 11 -- 9.750% 3/15/02
-------- -------- -------- --------
Total .................................. $107,676 $101,198 $ 292 $ 276
======== ======== ======== ========
DEFEASED MORTGAGE LOAN
1994 Mortgage Loan ..................... $ -- $300,000 $ -- $ 1,831 (3) (3)
======== ======== ======== ========
SENIOR UNSECURED DEBT, NET
2005 Notes ............................. $ 50,000 $ 50,000 $ 1,246 $ 393 6.900% 11/21/05
2006 Notes ............................. 150,000 150,000 3,500 671 7.000% 12/01/06
2007 Notes ............................. 149,954(4) 149,951 4,307 1,457 7.600% 5/15/07
2011 Notes ............................. 99,412(4) 99,377 2,786 942 7.375% 5/15/11(5)
2017 Notes ............................. 99,816(4) 99,809 2,500 479 7.500% 12/01/17
2027 Notes ............................. 99,861(4) 99,857 2,701 914 7.150% 5/15/27(6)
2028 Notes ............................. 199,766(4) -- 3,251 -- 7.600% 7/15/28
2011 Drs ............................... 99,763(4) -- 3,250 -- 6.500%(8) 4/05/11(7)
-------- -------- -------- --------
Total .................................. $948,572 $648,994 $ 23,541 $ 4,856
======== ======== ======== ========
ACQUISITION FACILITY PAYABLE
1997 Unsecured Acquisition Facility .... $128,800 $129,400 $ 579 $ 297 6.493% 4/30/01
======== ======== ======== ========
(1) The maturity date of the LB Mortgage Loan II is based on a contingent event
relating to the environmental status of the property collateralizing the
loan.
(2) The Acquisition Mortgage Loan V, the Acquisition Mortgage Loan VI and the
Acquisition Mortgage Loan VII are net of unamortized premiums of $307, $68
and $100, respectively.
(3) The 1994 Defeased Mortgage Loan was paid off and retired on January 2,
1998.
(4) The 2007 Notes, 2011 Notes, 2017 Notes, 2027 Notes, 2028 Notes and the 2011
Drs. are net of unamortized discounts of $46, $588, $184, $139, $234 and
$237, respectively.
(5) The 2011 Notes are redeemable at the option of the holder thereof, on
May 15, 2004.
(6) The 2027 Notes are redeemable at the option of the holders thereof, on
May 15, 2002.
(7) The 2011 Drs. are required to be redeemed by the Operating Partnership on
April 5, 2001 if the Remarketing Dealer elects not to remarket the 2011
Drs.
(8) The 2011 Drs. bear interest at an annual rate of 6.50% to the Remarketing
Date. If the holder of the Call Option calls the 2011 Drs. and elects to
remarket the 2011 Drs., then after the Remarketing Date, the interest rate
on the 2011 Drs. will be reset at a fixed rate until April 5, 2011 based on
a predetermined formula as disclosed in the related Prospectus Supplement.
The following is a schedule of the stated maturities of the mortgage loans,
senior unsecured debt and acquisition facility payable for the next five years
ending December 31, and thereafter:
Amount
----------
1998 $ 538
1999 2,162
2000 2,342
2001 131,336
2002 3,970
Thereafter 1,044,948
==========
Total $1,185,296
==========
10
12
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
3. MORTGAGE LOANS, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION
FACILITY PAYABLE, CONTINUED
The maturity date of the LB Mortgage Loan II is based on a contingent
event. As a result, this loan is not included in the preceding table.
The Company, through the Operating Partnership, from time to time, enters
into interest rate protection agreements which are used to lock into a fixed
interest rate on anticipated offerings of senior unsecured debt. At September
30, 1998, the following interest rate protection agreement was outstanding:
Notional Origination Settlement
Amount Date Interest Rate Valuation Basis Date
----------------- ------------------- --------------- ----------------- ----------------------
$ 100,000 December 19, 1997 5.994% 30-Year Treasury January 4, 1999
4. STOCKHOLDERS' EQUITY
Preferred Stock:
On February 4, 1998, the Company issued 5,000,000 Depositary Shares, each
representing 1/100th of a share of the Company's 7.95%, $.01 par value, Series D
Cumulative Preferred Stock (the "Series D Preferred Stock"), at an initial
offering price of $25 per Depositary Share. Dividends on the Series D Preferred
Stock represented by the Depositary Shares are cumulative from the date of
initial issuance and are payable quarterly in arrears. With respect to the
dividends and amounts upon liquidation, dissolution or winding up, the Series D
Preferred Stock ranks senior to payments on the Company's $.01 par value common
stock ("Common Stock") and pari passu with the Company's 91/2%, $.01 par value,
Series A Cumulative Preferred Stock (the "Series A Preferred Stock"), 83/4%,
$.01 par value, Series B Cumulative Preferred Stock (the "Series B Preferred
Stock"), 85/8%, $.01 par value, Series C Cumulative Preferred Stock (the "Series
C Preferred Stock") and Series E Preferred Stock (defined below); however, the
Series A Preferred Stock has the benefit of a guarantee by First Industrial
Securities, L.P. The Series D Preferred Stock is not redeemable prior to
February 4, 2003. On and after February 4, 2003, the Series D Preferred Stock is
redeemable for cash at the option of the Company, in whole or part, at a
redemption price equivalent to $25 per Depositary Share, or $125,000 in the
aggregate, plus dividends accrued and unpaid to the redemption date. The Series
D Preferred Stock has no stated maturity and is not convertible into any other
securities of the Company.
On March 18, 1998, the Company issued 3,000,000 Depositary Shares, each
representing 1/100th of a share of the Company's 7.90%, $.01 par value, Series E
Cumulative Preferred Stock (the "Series E Preferred Stock"), at an initial
offering price of $25 per Depositary Share. Dividends on the Series E Preferred
Stock represented by the Depositary Shares are cumulative from the date of
initial issuance and are payable quarterly in arrears. With respect to the
payment of dividends and amounts upon liquidation, dissolution or winding up,
the Series E Preferred Stock ranks senior to payments on the Company's Common
Stock and pari passu with the Company's Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock; however,
the Series A Preferred Stock has the benefit of a guarantee by First Industrial
Securities, L.P. The Series E Preferred Stock is not redeemable prior to March
18, 2003. On and after March 18, 2003, the Series E Preferred Stock is
redeemable for cash at the option of the Company, in whole or in part, at a
redemption price equivalent to $25 per Depositary Share, or $75,000 in the
aggregate, plus dividends accrued and unpaid to the redemption date. The Series
E Preferred Stock has no stated maturity and is not convertible into any other
securities of the Company.
11
13
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
4. STOCKHOLDERS' EQUITY, CONTINUED
Common Stock:
On April 23, 1998, the Company issued, in a private placement, 1,112,644
shares of $.01 par value Common Stock (the "April 1998 Equity Offering"). The
price per share in the April 1998 Equity Offering was $32.625, resulting in
gross offering proceeds of $36,300. Proceeds to the Company, net of purchaser's
discount and total offering expenses, were approximately $34,100.
Restricted Stock:
During the nine months ended September 30, 1998, the Company awarded
51,850 shares of restricted Common Stock to certain employees and 1,887 shares
of restricted Common Stock to certain Directors. Other employees of the Company
converted certain employee stock options to 13,602 shares of restricted Common
Stock. These shares of restricted Common Stock had a fair value of $2,324 on the
date of grant. The restricted Common Stock vests over a period from five to ten
years. Compensation expense will be charged to earnings over the respective
vesting period.
Non-Qualified Employee Stock Options:
On January 2, 1998, the Company granted 4,370,000 non-qualified employee
stock options. These stock options vest over three years based upon certain
performance measures. The stock options have a strike price of $35.8125 per
share and expire ten years from the date of grant.
On May 14, 1998, the Company granted 899,000 non-qualified employee stock
options. These stock-options vest over one year and have a strike price of
$31.13 per share. These stock options expire between seven and ten years from
the date of grant.
Dividends/Distributions:
The following table summarizes dividends/distributions for the nine months
ended September 30, 1998:
COMMON STOCK/OPERATING PARTNERSHIP UNITS
Dividend/Distribution Total
Record Date Payable Date per Share/Unit Dividend/Distribution
------------------ ---------------- --------------------- ---------------------
Fourth Quarter 1997 December 31, 1997 January 20, 1998 $ .53000 $ 22,010
First Quarter 1998 March 31, 1998 April 20, 1998 $ .53000 $ 22,492
Second Quarter 1998 June 30, 1998 July 20, 1998 $ .53000 $ 23,553
Third Quarter 1998 September 30, 1998 October 19, 1998 $ .53000 $ 23,735
SERIES A PREFERRED STOCK
Dividend Total
Record Date Payable Date per Share Dividend
------------------ ------------------ ----------------------- ---------------------
First Quarter 1998 March 13, 1998 March 31, 1998 $ .59375 $ 980
Second Quarter 1998 June 15, 1998 June 30, 1998 $ .59375 $ 980
Third Quarter 1998 September 15, 1998 September 30, 1998 $ .59375 $ 980
SERIES B PREFERRED STOCK
Dividend Total
Record Date Payable Date per Share Dividend
------------------ ------------------ ----------------------- ---------------------
First Quarter 1998 March 13, 1998 March 31, 1998 $ 54.68750 $ 2,188
Second Quarter 1998 June 15, 1998 June 30, 1998 $ 54.68750 $ 2,188
Third Quarter 1998 September 15,1998 September 30, 1998 $ 54.68750 $ 2,188
12
14
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
4. STOCKHOLDERS' EQUITY, CONTINUED
SERIES C PREFERRED STOCK
Dividend Total
Record Date Payable Date per Share Dividend
----------------- ------------------ ----------------------- ---------------------
First Quarter 1998 March 13, 1998 March 31, 1998 $ 53.90600 $ 1,078
Second Quarter 1998 June 15, 1998 June 30, 1998 $ 53.90600 $ 1,078
Third Quarter 1998 September 15, 1998 September 30, 1998 $ 53.90600 $ 1,078
SERIES D PREFERRED STOCK
Dividend Total
Record Date Payable Date per Share Dividend
----------------- ------------------ ----------------------- ---------------------
First Quarter 1998 March 13, 1998 March 31, 1998 $ 30.36500 $ 1,518
Second Quarter 1998 June 15, 1998 June 30, 1998 $ 49.68700 $ 2,484
Third Quarter 1998 September 15, 1998 September 30, 1998 $ 49.68700 $ 2,484
SERIES E PREFERRED STOCK
Dividend Total
Record Date Payable Date per Share Dividend
----------------- ------------------ ----------------------- ---------------------
First Quarter 1998 June 15, 1998 June 30, 1998 $ 7.13194 $ 214
Second Quarter 1998 June 15, 1998 June 30, 1998 $ 49.37500 $ 1,480
Third Quarter 1998 September 15, 1998 September 30, 1998 $ 49.37500 $ 1,480
5. ACQUISITION OF REAL ESTATE
During the nine months ended September 30, 1998, the Company acquired 234
existing industrial properties and several land parcels. The aggregate purchase
price for these acquisitions totaled approximately $519,479, excluding costs
incurred in conjunction with the acquisition of the properties.
Of the 234 existing industrial properties and several land parcels
purchased by the Company during the nine months ended September 30, 1998, four
existing industrial properties were purchased from Western Suburban Industrial
Investments Limited Partnership ("Western") in which the sole general partner,
having a 5% interest, was Tomasz/Shidler Investment Corporation, of which the
sole shareholders were a Director and Director/Officer of the Company who also
had a 53% and 32% limited partnership interest in Western, respectively.
Further, an additional Director/Officer of the Company was a limited partner in
Western having an interest of 2%. The aggregate purchase price for this
acquisition totaled approximately $7,900, excluding costs incurred in
conjunction with the acquisition of the properties.
During the second quarter of 1998, the Company, through the Operating
Partnership, completed an acquisition of a real estate firm for which an officer
and an employee of the Company owned a 77.5% interest. Gross proceeds to the
real estate firm totaled approximately $2,349.
6. SALES OF REAL ESTATE
During the nine months ended September 30, 1998, the Company sold twelve
existing industrial properties and five land parcels. Gross proceeds from these
sales were approximately $35,780. The gain on sales of real estate was
approximately $3,069, net of federal income taxes.
13
15
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
7. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Nine Months Ended
-----------------------------------
September 30, September 30,
1998 1997
---------------- --------------
Interest paid, net of capitalized interest ............................. $ 34,441 $ 24,638
========= =========
Interest capitalized ................................................... $ 2,628 $ 595
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Dividend/Distribution payable on Common Stock/Units .................... $ 23,735 $ 17,706
IN CONJUNCTION WITH THE PROPERTY ACQUISITIONS, THE FOLLOWING ASSETS
AND LIABILITIES WERE ASSUMED AND OPERATING PARTNERSHIP UNITS WERE
EXCHANGED:
Purchase of real estate ................................................ $ 519,479 $ 336,180
Accrued real estate taxes and security deposits ........................ (4,803) (3,585)
Mortgage loans, Net .................................................... (7,926) (4,505)
Operating Partnership
Units .................................................................. (47,507) (58,518)
--------- ---------
$ 459,243 $ 269,572
========= =========
14
16
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
8. EARNINGS PER SHARE
Earnings per share amounts are based on the weighted average amount of
Common Stock and Common Stock equivalents (employee stock options) outstanding.
The outstanding units in the Operating Partnership (the "Units") have been
excluded from the diluted earnings per share calculation as there would be no
effect on the earnings per share amounts since the minority interests' share of
income would also be added back to net income. The computation of basic and
diluted EPS is presented below:
Nine Months Nine Months Three Months Three Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30
1998 1997 1998 1997
------------- ------------- ------------- -------------
Numerator:
Income Before Extraordinary Loss and Cumulative
Effect of Change in Accounting Principle ............... $ 68,520 $ 47,575 $ 23,708 $ 15,815
Less: Preferred Dividends ................................ (22,399) (7,610) (8,211) (4,245)
-------- -------- -------- --------
Net Income Available to Common Stockholders Before
Extraordinary Loss and Cumulative Effect of
Change in Accounting Principle - For Basic and
Diluted EPS ............................................ 46,121 39,965 15,497 11,570
Extraordinary Loss ....................................... -- (12,563) -- --
Cumulative Effect of Change in Accounting Principle ...... (1,976) -- -- --
-------- -------- -------- --------
Net Income Available to Common Stockholders - For
Basic and Diluted EPS ................................ $ 44,145 $ 27,402 $ 15,497 $ 11,570
======== ======== ======== ========
Denominator:
Weighted Average Shares - Basic .......................... 37,282 30,140 37,872 30,257
Effect of Dilutive Securities:
Employee and Director Common Stock Options ............ 235 286 116 298
-------- -------- -------- --------
Weighted Average Shares - Diluted ........................ 37,517 30,426 37,988 30,555
======== ======== ======== ========
Basic EPS:
Net Income Available to Common Stockholders Before
Extraordinary Loss and Cumulative Effect of Change
in Accounting Principle ................................ $ 1.24 $ 1.33 $ .41 $ .38
======== ======== ======== ========
Extraordinary Loss ....................................... $ -- $ (.42) $ -- $ --
======== ======== ======== ========
Cumulative Effect of Change in Accounting Principle ...... $ .05 $ -- $ -- $ --
======== ======== ======== ========
Net Income Available to Common Stockholders .............. $ 1.18 $ .91 $ .41 $ .38
======== ======== ======== ========
Diluted EPS:
Net Income Available to Common Stockholders Before
Extraordinary Loss and Cumulative Effect of Change
in Accounting Principle ................................ $ 1.23 $ 1.31 $ .41 $ .38
======== ======== ======== ========
Extraordinary Loss ....................................... $ -- $ (.41) $ -- $ --
======== ======== ======== ========
Cumulative Effect of Change in Accounting Principle ...... $ .05 $ -- $ -- $ --
======== ======== ======== ========
Net Income Available to Common Stockholders .............. $ 1.18 $ .90 $ .41 $ .38
======== ======== ======== ========
15
17
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
9. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is involved in legal
actions arising from the operation of its business. In management's opinion, the
liabilities, if any, that may ultimately result from such legal actions are not
expected to have a materially adverse effect on the consolidated financial
position, operations or liquidity of the Company.
The Company has committed to the construction of 15 development projects
totaling approximately 1.7 million square feet of GLA. The estimated total
construction costs are approximately $63,894. These developments are expected to
be funded with cash flow from operations as well as borrowings under the
Company's $300,000 unsecured revolving credit facility.
10. SUBSEQUENT EVENTS
From October 1, 1998 to November 6, 1998, the Company acquired 15
industrial properties. The aggregate purchase price for these acquisitions
totaled approximately $14,847, excluding costs incurred in conjunction with the
acquisition of the properties.
On September 28, 1998, the Company, through the Operating Partnership
entered into a joint venture arrangement (the "September 1998 Joint Venture")
with an institutional investor to invest in industrial properties. The Company,
through wholly owned subsidiaries of the Operating Partnership, will own a 10%
equity interest in the September 1998 Joint Venture and will provide property
and asset management services to the September 1998 Joint Venture. On October 9,
1998, October 23, 1998 and November 6, 1998, the September 1998 Joint Venture
acquired approximately $100,000, $37,000 and $62,000, respectively, of
industrial properties and expects to acquire approximately an additional
$101,000 of industrial properties. The acquisition of additional industrial
properties is subject to, among other contingencies, due diligence and the
negotiation of definitive documentation. There can be no assurance that such
acquisitions will be completed. The Company will account for the September 1998
Joint Venture under the equity method of accounting. The Company's investment in
the September 1998 Joint Venture relating to these transactions approximates
$4,000.
On October 19, 1998, the Company and the Operating Partnership paid a
third quarter 1998 dividend/distribution of $.53 per common share/Unit, totaling
approximately $23,735.
On November 5, 1998 the Company, through the Operating Partnership,
settled its remaining interest rate protection agreement which was scheduled to
expire on January 4, 1999. This agreement was entered into in December 1997 in
anticipation of 1998 senior unsecured debt offerings. Due to the changing market
conditions and the Company's expectation that it will not issue debt securities
associated with the interest rate protection agreement, it is the Company's
belief that the interest rate protection agreement no longer qualifies for hedge
accounting treatment under generally accepted accounting principles. As a
result, the Company will recognize an expense of approximately $8,500 associated
with the termination of this interest rate protection agreement in the fourth
quarter of 1998.
11. RELATED PARTY TRANSACTIONS
From time to time, the Company utilizes leasing services from an entity
for which one of the Company's Officers owns a 62.5% ownership interest. From
January 1, 1998 through September 30, 1998, the Company has paid approximately
$200 of leasing commissions to this entity.
12. PRO FORMA FINANCIAL INFORMATION
The pro forma financial information will be filed in an amendment to the
Company's Form 8-K dated November 6, 1998 as filed on November 12, 1998.
16
18
FIRST INDUSTRIAL REALTY TRUST, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of First Industrial Realty Trust,
Inc.'s (the "Company") financial condition and results of operations should be
read in conjunction with the financial statements and notes thereto appearing
elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
At September 30, 1998, the Company owned 1,000 in-service properties with
approximately 69.9 million square feet of gross leasable area ("GLA"), compared
to 494 in-service properties with approximately 41.6 million square feet of GLA
at September 30, 1997. The addition of 522 properties acquired or developed
between October 1, 1997 and September 30, 1998 included the acquisitions of 507
properties totaling approximately 26.1 million square feet of GLA and the
completed development of 15 properties totaling approximately 3.0 million square
feet of GLA. The Company also completed the expansion of two properties totaling
approximately .1 million square feet of GLA and the sales of 16 in-service
properties totaling approximately .9 million square feet of GLA, one property
held for redevelopment and several land parcels.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Rental income and tenant recoveries and other income increased by
approximately $109.2 million or 74.5% due primarily to the properties acquired
or developed after December 31, 1996 (between January 1, 1997 and September 30,
1998, the Company acquired approximately $1.4 billion of industrial properties,
of which, approximately $1.0 billion was acquired subsequent to September 30,
1997). Rental income and tenant recoveries and other income from properties
owned prior to January 1, 1997, increased by approximately $1.0 million or .9%
due primarily to general rent increases offset by a decrease in tenant recovery
income charges related to the decrease in operating expenses as discussed below.
Interest income on U.S. Government securities for the nine months ended
September 30, 1997 represents interest income earned on U.S. Government
securities that were pledged as collateral to legally defease the Company's
$300.0 million mortgage loan (the "1994 Defeased Mortgage Loan").
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses,
increased by approximately $32.6 million or 79.4% due primarily to the
properties acquired or developed after December 31, 1996 (between January 1,
1997 and September 30, 1998, the Company acquired approximately $1.4 billion of
industrial properties, of which, approximately $1.0 billion was acquired
subsequent to September 30, 1997). Expenses from properties owned prior to
January 1, 1997, decreased by approximately $.1 million or .2% due primarily to
a decrease in snow removal and related expenses incurred for properties located
in certain of the Company's metropolitan areas during the nine months ended
September 30, 1998 as compared to the nine months ended September 30, 1997.
General and administrative expense increased by approximately $5.6
million, of which, approximately $3.7 million is due primarily to the additional
expenses associated with managing the Company's growing operations including
additional professional fees relating to additional properties owned and
additional personnel to manage and expand the Company's business. Approximately
$1.9 million of the increase is the result of the adoption of Emerging Issues
Task Force Issue No. 97-11, "Accounting for Internal Costs Relating to Real
Estate Property Acquisitions" ("EITF 97-11"), which requires that internal costs
of preacquisition activities incurred in connection with the acquisition of an
operating property should be expensed as incurred. The Company adopted EITF
97-11 on March 19, 1998.
Interest expense increased by approximately $16.8 million for the nine
months ended September 30, 1998 compared to the nine months ended September 30,
1997 due primarily to a higher average debt
17
19
balance outstanding resulting from the issuance of unsecured debt to fund the
acquisition and development of additional properties (between January 1, 1997
and September 30, 1998, the Company acquired approximately $1.4 billion of
industrial properties, of which, approximately $1.0 billion was acquired
subsequent to September 30, 1997).
Amortization of interest rate protection agreements and deferred
financing costs decreased by approximately $1.4 million due primarily to the
full amortization of the deferred financing costs relating to the Company's 1994
Defeased Mortgage Loan which was paid off and retired on January 2, 1998, offset
by amortization of deferred financing costs relating to the issuance of
additional senior unsecured debt.
Depreciation and other amortization increased by approximately $19.5
million due primarily to the additional depreciation and amortization related to
the properties acquired or developed after December 31, 1996 (between January 1,
1997 and September 30, 1998, the Company acquired approximately $1.4 billion of
industrial properties, of which, approximately $1.0 billion was acquired
subsequent to September 30, 1997).
The $1.4 million gain on disposition of interest rate protection
agreements for the nine months ended September 30, 1997 represents the sale of
the Company's interest rate protection agreements.
The $3.1 million gain on sales of properties, net of federal income tax,
for the nine months ended September 30, 1998 resulted from the sale of twelve
existing industrial properties and five land parcels. Gross proceeds from these
sales were approximately $35.8 million.
The $4.2 million gain on sales of properties for the nine months ended
September 30, 1997 resulted from the sale of six existing industrial properties
and one land parcel. Gross proceeds from these sales were approximately $23.4
million.
The $12.6 million extraordinary loss for the nine months ended September
30, 1997 consists of a prepayment fee on the 1994 Defeased Mortgage Loan and the
write-off of unamortized deferred financing fees, legal costs and other expenses
incurred in committing to retire the 1994 Defeased Mortgage Loan and in retiring
the Company's $309.8 million unsecured loan from an institutional investor (the
"Defeasance Loan").
The $2.0 million cumulative effect of change in accounting principle for
the nine months ended September 30, 1998 is the result of the write-off of the
unamortized balance of organizational costs on the Company's balance sheet due
to the early adoption of Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5"), as further discussed later in this
Management's Discussion and Analysis.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Rental income and tenant recoveries and other income increased by
approximately $40.3 million or 77.5%, due primarily to the properties acquired
or developed after June 30, 1997 (between July 1, 1997 and September 30, 1998,
the Company acquired approximately $1.1 billion of industrial properties, of
which, approximately $1.0 billion was acquired subsequent to September 30,
1997). Rental income and tenant recoveries and other income from properties
owned prior to April 1, 1997, increased by approximately $1.6 million or 3.2%
due to general rent increases and an increase in tenant recovery income charges
due to an increase in property operating expenses as discussed below.
Interest income on U.S. government securities for the three months ended
September 30, 1997 represents interest income earned on U.S. Government
securities that were pledged as collateral to legally defease the 1994 Defeased
Mortgage Loan.
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses,
increased by approximately $12.8 million or 93.7% due primarily
18
20
to the properties acquired or developed after June 30, 1997 (between July 1,
1997 and September 30, 1998, the Company acquired approximately $1.1 billion of
industrial properties, of which, approximately $1.0 billion was acquired
subsequent to September 30, 1997). Expenses from properties owned prior to April
1, 1997, increased by approximately $.7 million or 5.2% due to an increase in
real estate tax expense and utilities expense in the majority of the Company's
geographical markets.
General and administrative expense increased by approximately $2.0
million, of which, approximately $1.2 million is due primarily to the additional
expenses associated with managing the Company's growing operations including
additional professional fees relating to additional properties owned and
additional personnel to manage and expand the Company's business. Approximately
$.8 million of the increase is the result of the adoption of EITF 97-11 which
requires that internal costs of preacquisition activities incurred in connection
with the acquisition of an operating property should be expensed as incurred.
The Company adopted EITF 97-11 on March 19, 1998.
Interest expense increased by approximately $6.1 million for the three
months ended September 30, 1998 compared to the three months ended September 30,
1997 due primarily to a higher average debt balance outstanding resulting from
the issuance of unsecured debt to fund the acquisition and development of
additional properties (between July 1, 1997 and September 30, 1998, the Company
acquired approximately $1.1 billion of industrial properties, of which,
approximately $1.0 billion was acquired subsequent to September 30, 1997).
Amortization of interest rate protection agreements and deferred
financing costs decreased by approximately $.5 million due primarily to the full
amortization of the deferred financing costs relating to the Company's 1994
Defeased Mortgage Loan which was paid off and retired on January 2, 1998, offset
by amortization of deferred financing costs relating to the issuance of
additional senior unsecured debt.
Depreciation and other amortization increased by approximately $6.9
million due primarily to the additional depreciation and amortization related to
the properties acquired or developed after June 30, 1997 (between July 1, 1997
and September 30, 1998, the Company acquired approximately $1.1 billion of
industrial properties, of which, approximately $1.0 billion was acquired
subsequent to September 30, 1997).
The $.7 million gain on sales of properties, net of federal income tax,
for the three months ended September 30, 1998 resulted from the sale of five
existing industrial properties and two land parcels. Gross proceeds from these
sales were approximately $6.5 million.
The $.2 million gain on sales of properties for the three months ended
September 30, 1997 resulted from the sale of one existing industrial property
and one land parcel. Gross proceeds from these sales were approximately $1.5
million.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company's cash and cash equivalents was
approximately $5.6 million and restricted cash was approximately $5.3 million.
Included in restricted cash are approximately $3.2 million of cash reserves
required to be set aside under the Company's $40.0 million mortgage loan (the
"1995 Mortgage Loan") for payments of security deposit refunds, tenant
improvements, capital expenditures, interest, real estate taxes, and insurance.
The portion of the cash reserve relating to payments for capital expenditures,
interest, real estate taxes, and insurance for properties collateralizing the
1995 Mortgage Loan is established monthly, distributed to the Company as such
expenditures are made and is replenished to a level adequate to make the next
periodic payment of such expenditures. The portion of the cash reserve relating
to security deposit refunds for the tenants occupying the properties
collateralizing the 1995 Mortgage Loan is adjusted as tenants turn over. Also
included in restricted cash is approximately $2.1 million of net proceeds from
the sale of a property. These sales proceeds will be disbursed as the Company
exchanges into properties under Section 1031 of the Internal Revenue Code.
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NINE MONTHS ENDED SEPTEMBER 30, 1998
Net cash provided by operating activities of approximately $108.9 million
for the nine months ended September 30, 1998 was comprised primarily of net
income before minority interest of approximately $74.2 million and adjustments
for non-cash items of approximately $44.5 million, offset by the net change in
operating assets and liabilities of approximately $9.8 million. The adjustments
for the non-cash items are primarily comprised of depreciation and amortization,
a provision for bad debts and the cumulative effect of a change in accounting
principle due to the adoption of SOP 98-5 (as further discussed later in this
Management's Discussion and Analysis), offset by the gain on sales of real
estate and the effect of the straight-lining of rental income.
Net cash used in investing activities of approximately $538.7 million for
the nine months ended September 30, 1998 was comprised primarily of the
acquisition of real estate, development of real estate, capital expenditures
related to the expansion and improvement of existing real estate, closing costs
from the sales of real estate and an increase in restricted cash due to a
Section 1031 exchange, offset by the proceeds from the sales of real estate and
the repayment of mortgage loans receivable.
Net cash provided by financing activities of approximately $422.2 million
for the nine months ended September 30, 1998 was comprised primarily of the net
proceeds from the issuance of common stock, preferred stock and senior unsecured
debt and a decrease in restricted cash, offset by repayments of mortgage loans
and net repayments under the Company's $300 million unsecured revolving credit
facility (the "1997 Unsecured Acquisition Facility") and common and preferred
stock dividends and distributions.
NINE MONTHS ENDED SEPTEMBER 30, 1997
Net cash provided by operating activities of approximately $67.9 million
for the nine months ended September 30, 1997 was comprised primarily of net
income before minority interest of approximately $38.5 million and adjustments
for non-cash items of approximately $35.0 million, offset by the net change in
operating assets and liabilities of approximately $5.6 million. The adjustments
for the non-cash items are primarily comprised of depreciation and amortization,
extraordinary loss and a provision for bad debts, offset by the gain on
disposition of interest rate protection agreements, the gain on sales of real
estate and the effect of the straight-lining of rental income.
Net cash used in investing activities of approximately $303.0 million for
the nine months ended September 30, 1997 was comprised primarily of the
acquisition of real estate, development of real estate, capital expenditures
related to the expansion and improvement of existing real estate, closing costs
from the sales of real estate and the funding of mortgage loans receivable,
offset by the proceeds from the sales of real estate and the repayment of
mortgage loans receivable.
Net cash provided by financing activities of approximately $231.3 million
for the nine months ended September 30, 1997 was comprised primarily of the net
proceeds from the issuance of common stock, preferred stock and senior unsecured
debt, net borrowings under the Company's $200.0 million unsecured revolving
credit facility and proceeds from the Defeasance Loan, offset by repayments of
the Defeasance loan, the purchase of U.S. Government securities to defease the
1994 Defeased Mortgage Loan and common and preferred stock dividends and
distributions.
FUNDS FROM OPERATIONS AND RATIO OF EARNINGS TO FIXED CHARGES
Funds from operations for the nine months ended September 30, 1998 were
$97.1 million, as compared to $65.1 million for the nine months ended September
30, 1997, as a result of the factors discussed in the analysis of operating
results above. Management considers funds from operations to be one measure of
the financial performance of an equity REIT that provides a relevant basis for
comparison among REITs, and it is presented to assist investors in analyzing the
performance of the Company. In accordance with the National Association of Real
Estate Investment Trusts' definition of funds from operations, the Company
calculates funds from operations to be equal to net income, excluding gains (or
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losses) from debt restructuring and sales of property, plus depreciation and
amortization, excluding amortization of deferred financing costs and interest
rate protection agreements, and after adjustments for unconsolidated
partnerships and joint ventures. Funds from operations do not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available to
fund cash needs, including the payment of dividends and distributions. Funds
from operations should not be considered as a substitute for net income as a
measure of results of operations or for cash flow from operating activities
calculated in accordance with generally accepted accounting principles as a
measure of liquidity. Funds from operations as calculated by the Company may not
be comparable to similarly titled, but differently calculated, measures of other
REITs.
The following is a reconciliation of net income to funds from operations:
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
Net Income Available to
Common Stockholders ................. $ 44,145 $ 27,402
Adjustments:
Depreciation and Other Amortization ..... 46,367 27,274
Extraordinary Items ...................... -- 12,563
Cumulative Effect of Change in
Accounting Principle ............... 1,976 --
Minority Interest ........................ 7,656 3,502
Gain on Sales of Properties .............. (3,069) (4,186)
Gain on disposition of IRPA .............. -- (1,430)
-------- --------
Funds From Operations .............. $ 97,075 $ 65,125
======== ========
The ratio of earnings to fixed charges and preferred stock dividends was
1.62 for the nine months ended September 30, 1998 compared to 1.83 for the nine
months ended September 30, 1997. The decrease is primarily due to additional
interest expense and preferred stock dividends incurred during the nine months
ended September 30, 1998 from additional debt and preferred stock, respectively,
issued to fund property acquisitions and developments, which is partially offset
by higher net operating income from property acquisitions as discussed in the
"Results of Operations" above.
INVESTMENT IN REAL ESTATE, DEVELOPMENT OF REAL ESTATE AND SALES OF REAL ESTATE
During the nine months ended September 30, 1998, the Company purchased
234 industrial properties and several land parcels, for an aggregate purchase
price of approximately $519.5 million, excluding costs incurred in conjunction
with the acquisition of the properties.
Of the 234 existing industrial properties and several land parcels
purchased by the Company during the nine months ended September 30, 1998, four
existing industrial properties were purchased from Western Suburban Industrial
Investments Limited Partnership ("Western") in which the sole general partner,
having a 5% interest, was Tomasz/Shidler Investment Corporation, the sole
shareholders of which were a Director of the Company and a Director/Officer of
the Company who also had a 53% and 32% limited partnership interest in Western,
respectively. Further, an additional Director/Officer of the Company was a
limited partner in Western having an interest of 2%. The aggregate purchase
price for this acquisition totaled approximately $7.9 million, excluding costs
incurred in conjunction with the acquisition of the properties.
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During the second quarter of 1998, the Company, through the Operating
Partnership, completed an acquisition of a real estate firm for which an officer
and an employee of the Company owned a 77.5% interest. Gross proceeds to the
real estate firm totaled approximately $2.3 million.
During the nine months ended September 30, 1998, the Company sold twelve
existing industrial properties and five land parcels. Gross proceeds from these
sales were approximately $35.8 million. The gain on sales of real estate was
approximately $3.1 million, net of federal income taxes.
The Company has committed to the construction of 15 development projects
totaling approximately 1.7 million square feet of GLA. The estimated total
construction costs are approximately $63.9 million. These developments are
expected to be funded with cash flow from operations as well as borrowings under
the Company's 1997 Unsecured Acquisition Facility.
From October 1, 1998 to November 6, 1998, the Company acquired 15
industrial properties. The aggregate purchase price for these acquisitions
totaled approximately $14.8 million, excluding costs incurred in conjunction
with the acquisition of the properties.
INVESTMENT IN JOINT VENTURES
On September 28, 1998, the Company, through the Operating Partnership
entered into a joint venture arrangement (the "September 1998 Joint Venture")
with an institutional investor to invest in industrial properties. The Company,
through wholly owned subsidiaries of the Operating Partnership, will own a 10%
equity interest in the September 1998 Joint Venture and will provide property
and asset management services to the September 1998 Joint Venture. On October 9,
1998, October 23, 1998 and November 6, 1998, the September 1998 Joint Venture
acquired approximately $100 million, $37 million and $62 million, respectively,
of industrial properties and expects to acquire approximately an additional $101
million of industrial properties. The acquisition of additional industrial
properties is subject to, among other contingencies, due diligence and the
negotiation of definitive documentation. There can be no assurance that such
acquisitions will be completed. The Company will account for the September 1998
Joint Venture under the equity method of accounting. The Company's investment in
the September 1998 Joint Venture relating to these transactions approximates $4
million.
MORTGAGE LOANS AND SENIOR UNSECURED DEBT
On April 16, 1998, the Company, through the Operating Partnership,
assumed a mortgage loan in the principal amount of $2.5 million (the
"Acquisition Mortgage Loan IV"). The Acquisition Mortgage Loan IV is
collateralized by one property in Baltimore, Maryland, bears interest at a fixed
rate of 8.95% and provides for monthly principal and interest payments based on
a 20-year amortization schedule. The Acquisition Mortgage Loan IV matures on
October 1, 2006. The Acquisition Mortgage Loan IV may be prepaid only after
October 2001 in exchange for the greater of a 1% prepayment fee or a yield
maintenance premium.
On July 16, 1998, the Company, through the Operating Partnership, assumed
a mortgage loan in the principal amount of $2.6 million (the "Acquisition
Mortgage Loan V"). The Acquisition Mortgage Loan V is collateralized by one
property in Tampa, Florida, bears interest at a fixed rate of 9.01% and provides
for monthly principal and interest payments based on a 30-year amortization
schedule. The Acquisition Mortgage Loan V matures on September 1, 2006. The
Acquisition Mortgage Loan V may be prepaid only after August 2002 in exchange
for the greater of a 1% prepayment fee or a yield maintenance premium.
On August 31, 1998, the Company, through the Operating Partnership,
assumed a mortgage loan in the principal amount of $1.0 million (the
"Acquisition Mortgage Loan VI"). The Acquisition Mortgage Loan VI is
collateralized by one property in Portland, Oregon, bears interest at a fixed
rate of 8.875% and provides for monthly principal and interest payments based on
a 20-year amortization schedule. The
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Acquisition Mortgage Loan VI matures on November 1, 2006. The Acquisition
Mortgage Loan VI may be prepaid only after September 2001 in exchange for a 3%
prepayment fee.
On August 31, 1998, the Company, through the Operating Partnership,
assumed a mortgage loan in the principal amount of $1.4 million (the
"Acquisition Mortgage Loan VII"). The Acquisition Mortgage Loan VII is
collateralized by one property in Milwaukie, Oregon, bears interest at a fixed
rate of 9.75% and provides for monthly principal and interest payments based on
a 25-year amortization schedule. The Acquisition Mortgage Loan VII matures on
March 15, 2002. The Acquisition Mortgage Loan VII may be prepaid only after
December 2001.
On March 31, 1998, the Company, through the Operating Partnership, issued
$100.0 million of Dealer remarketable securities which mature on April 5, 2011
and bear a coupon interest rate of 6.50% (the "2011 Drs."). The issue price of
the 2011 Drs. was 99.753%. Interest is paid semi-annually in arrears on April 5
and October 5. The 2011 Drs. are callable (the "Call Option"), at the option of
J.P. Morgan Securities, Inc., as Remarketing Dealer (the "Remarketing Dealer"),
on April 5, 2001 (the "Remarketing Date"). The Company received approximately
$2.8 million of proceeds from the Remarketing Dealer as consideration for the
Call Option. The Company will amortize these proceeds over the life of the Call
Option as an adjustment to interest expense. If the holder of the Call Option
calls the 2011 Drs. and elects to remarket the 2011 Drs., then after the
Remarketing Date, the interest rate on the 2011 Drs. will be reset at a fixed
rate until April 5, 2011 based upon a predetermined formula as disclosed in the
related Prospectus Supplement. If the Remarketing Dealer elects not to remarket
the 2011 Drs., then the Operating Partnership will be required to repurchase, on
the Remarketing Date, any 2011 Drs. that have not been purchased by the
Remarketing Dealer at 100% of the principal amount thereof, plus accrued and
unpaid interest, if any. The Company also settled an interest rate protection
agreement, in the notional amount of $100.0 million, which was used to fix the
interest rate on the 2011 Drs. prior to issuance. The debt issue discount and
the settlement amount of the interest rate protection agreement are being
amortized over the life of the 2011 Drs. as an adjustment to interest expense.
The 2011 Drs. contain certain covenants including limitations on incurrence of
debt and debt service coverage.
On July 14, 1998, the Company, through the Operating Partnership, issued
$200.0 million of senior unsecured debt which matures on July 15, 2028 and bears
a coupon interest rate of 7.60% (the "2028 Notes"). The issue price of the 2028
Notes was 99.882%. Interest is paid semi-annually in arrears on January 15 and
July 15. The Company also settled interest rate protection agreements, in the
notional amount of $150.0 million, which were used to fix the interest rate on
the 2028 Notes prior to issuance. The debt issue discount and the settlement
amount of the interest rate protection agreements are being amortized over the
life of the 2028 Notes as an adjustment to the interest expense. The 2028 Notes
contain certain covenants including limitation on incurrence of debt and debt
service coverage. Approximately $50.0 million of the 2028 Notes was purchased,
through a broker/dealer, by an entity in which a Director of the Company owns
greater than a ten percent interest.
On November 5, 1998 the Company, through the Operating Partnership,
settled its remaining interest rate protection agreement which was scheduled to
expire on January 4, 1999. This agreement was entered into in December 1997 in
anticipation of 1998 senior unsecured debt offerings. Due to the changing market
conditions and the Company's expectation that it will not issue debt securities
associated with the interest rate protection agreement, it is the Company's
belief that the interest rate protection agreement no longer qualifies for hedge
accounting treatment under generally accepted accounting principles. As a
result, the Company will recognize an expense of approximately $8.5 million
associated with the termination of this interest rate protection agreement in
the fourth quarter of 1998.
ISSUANCE OF PREFERRED AND COMMON STOCK
On February 4, 1998, the Company issued 5,000,000 Depositary Shares, each
representing 1/100th of a share of the Company's 7.95%, $.01 par value, Series D
Cumulative Preferred Stock (the "Series D
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Preferred Stock"), at an initial offering price of $25 per Depositary Share.
Dividends on the Series D Preferred Stock represented by the Depositary Shares
are cumulative from the date of initial issuance and are payable quarterly in
arrears. With respect to the dividends and amounts upon liquidation, dissolution
or winding up, the Series D Preferred Stock ranks senior to payments on the
Company's $.01 par value common stock ("Common Stock") and pari passu with the
Company's 91/2%, $.01 par value, Series A Cumulative Preferred Stock (the
"Series A Preferred Stock"), 83/4%, $.01 par value, Series B Cumulative
Preferred Stock (the "Series B Preferred Stock"), 85/8%, $.01 par value, Series
C Cumulative Preferred Stock (the "Series C Preferred Stock") and Series E
Preferred Stock (defined below); however, the Series A Preferred Stock has the
benefit of a guarantee by First Industrial Securities, L.P. The Series D
Preferred Stock is not redeemable prior to February 4, 2003. On and after
February 4, 2003, the Series D Preferred Stock is redeemable for cash at the
option of the Company, in whole or part, at a redemption price equivalent to $25
per Depositary Share, or $125.0 million in the aggregate, plus dividends accrued
and unpaid to the redemption date. The Series D Preferred Stock has no stated
maturity and is not convertible into any other securities of the Company.
On March 18, 1998, the Company issued 3,000,000 Depositary Shares, each
representing 1/100th of a share of the Company's 7.90%, $.01 par value, Series E
Cumulative Preferred Stock (the "Series E Preferred Stock"), at an initial
offering price of $25 per Depositary Share. Dividends on the Series E Preferred
Stock represented by the Depositary Shares are cumulative from the date of
initial issuance and are payable quarterly in arrears. With respect to the
payment of dividends and amounts upon liquidation, dissolution or winding up,
the Series E Preferred Stock ranks senior to payments on the Company's Common
Stock and pari passu with the Company's Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock; however,
the Series A Preferred Stock has the benefit of a guarantee by First Industrial
Securities, L.P. The Series E Preferred Stock is not redeemable prior to March
18, 2003. On and after March 18, 2003, the Series E Preferred Stock is
redeemable for cash at the option of the Company, in whole or in part, at a
redemption price equivalent to $25 per Depositary Share, or $75.0 million in the
aggregate, plus dividends accrued and unpaid to the redemption date. The Series
E Preferred Stock has no stated maturity and is not convertible into any other
securities of the Company.
On April 23, 1998, the Company issued, in a private placement, 1,112,644
shares of $.01 par value Common Stock (the "April 1998 Equity Offering"). The
price per share in the April 1998 Equity Offering was $32.625, resulting in
gross offering proceeds of $36.3 million. Proceeds to the Company, net of
purchaser's discount and total offering expenses, were approximately $34.1
million.
During the nine months ended September 30, 1998, the Company awarded
51,850 shares of restricted Common Stock to certain employees and 1,887 shares
of restricted Common Stock to certain Directors. Other employees of the Company
converted certain employee stock options to 13,602 shares of restricted Common
Stock. These shares of restricted Common Stock had a fair value of $2.3 million
on the date of grant. The restricted Common Stock vests over a period from five
to ten years. Compensation expense will be charged to earnings over the
respective vesting period.
On January 2, 1998, the Company granted 4,370,000 non-qualified employee
stock options. These stock options vest over three years based upon certain
performance measures. The stock options have a strike price of $35.8125 per
share and expire ten years from the date of grant.
On May 14, 1998, the Company granted 899,000 non-qualified employee stock
options. These stock-options vest over one year and have a strike price of
$31.13 per share. These stock options expire between seven and ten years from
the date of grant.
DIVIDENDS/DISTRIBUTIONS
On January 20, 1998, the Company and the Operating Partnership paid a
fourth quarter 1997 distribution of $.53 per common share/Unit, totaling
approximately $22.0 million. On April 20, 1998, the
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Company and Operating Partnership paid a first quarter 1998 distribution of $.53
per common share/Unit, totaling approximately $22.5 million. On July 20, 1998,
the Company and the Operating Partnership paid a second quarter 1998
distribution of $.53 per common share/Unit, totaling approximately $23.6
million. On October 19, 1998, the Company and the Operating Partnership paid a
third quarter 1998 distribution of $.53 per common share/Unit, totaling
approximately $23.7 million.
On March 31, 1998, the Company paid first quarter preferred stock
dividends of $.59375 per share on its Series A Preferred Stock, $54.688 per
share (equivalent to $.54688 per Depositary Share) on its Series B Preferred
Stock, $53.906 per share (equivalent to $.53906 per Depositary Share) on its
Series C Preferred Stock and a period prorated first quarter preferred stock
dividend of $30.365 per share (equivalent to $.30365 per Depositary Share) on
its Series D Preferred Stock. The preferred stock dividends paid on March 31,
1998 totaled, in the aggregate, approximately $5.8 million. On March 31, 1998,
the Company accrued a first quarter period prorated preferred stock dividend of
$7.13194 per share (equivalent to $.0713194 per Depositary Share), totaling $.2
million, on its Series E Preferred Stock.
On June 30, 1998, the Company paid second quarter preferred stock
dividends of $.59375 per share on its Series A Preferred Stock, $54.688 per
share (equivalent to $.54688 per Depositary Share) on its Series B Preferred
Stock, $53.906 per share (equivalent to $.53906 per Depositary Share) on its
Series C Preferred Stock and $49.687 per share (equivalent to $.49687 per
Depositary Share) on its Series D Preferred Stock and a period prorated first
quarter dividend and a second quarter dividend totaling $56.5069 per share
(equivalent to $.565069 per Depositary Share) on its Series E Preferred Stock.
The preferred stock dividends paid on June 30, 1998 totaled, in the aggregate,
approximately $8.4 million.
On September 30, 1998, the Company paid third quarter preferred stock
dividends of $.59375 per share on its Series A Preferred Stock, $54.688 per
share (equivalent to $.54688 per Depositary Share) on its Series B Preferred
Stock, $53.906 per share (equivalent to $.53906 per Depositary Share) on its
Series C Preferred Stock and $49.687 per share (equivalent to $.49687 per
Depositary Share) on its Series D Preferred Stock and $49.375 per share
(equivalent to $.49375 per Depositary Share) on its Series E Preferred Stock.
The preferred stock dividends paid on September 30, 1998 totaled, in the
aggregate, approximately $8.2 million.
SHORT-TERM AND LONG-TERM LIQUIDITY NEEDS
The Company has considered its short-term (one year or less) liquidity
needs and the adequacy of its estimated cash flow from operations and other
expected liquidity sources to meet these needs. The Company believes that its
principal short-term liquidity needs are to fund normal recurring expenses, debt
service requirements and the minimum distribution required to maintain the
Company's REIT qualification under the Internal Revenue Code. The Company
anticipates that these needs will be met with cash flows provided by operating
activities.
The Company expects to meet long-term (greater than one year) liquidity
requirements such as property acquisitions, scheduled debt maturities, major
renovations, expansions and other nonrecurring capital improvements through
long-term secured and unsecured indebtedness and the issuance of additional
equity securities. As of September 30, 1998 and November 6, 1998, $589.2 million
of common stock, preferred stock and depositary shares and $100.0 million of
debt securities were registered and unissued under the Securities Act of 1933,
as amended. The Company may finance the development or acquisition of additional
properties through borrowings under the 1997 Unsecured Acquisition Facility. At
September 30, 1998, borrowings under the 1997 Unsecured Acquisition Facility
bore interest at a weighted average interest rate of 6.49%. As of November 6,
1998, the Company had approximately $153.2 million available in additional
borrowings under the 1997 Unsecured Acquisition Facility. Along with the
Company's current strategy of meeting long-term liquidity requirements through
the issuance, from time to time, of long-term secured and unsecured indebtedness
and additional equity securities, the
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Company is actively considering joint ventures with various institutional
partners and the disposition of select assets as additional financing
strategies. On September 28, 1998, the Company, through the Operating
Partnership, entered into the September 1998 Joint Venture. On October 9, 1998,
October 23, 1998 and November 6, 1998, the September 1998 Joint Venture obtained
financing for the acquisition of approximately $100 million, $37 million and $62
million of industrial properties, respectively. The Company expects the
September 1998 Joint Venture to obtain financing for the acquisition of an
additional approximately $101 million of industrial properties. Such additional
financing of acquisitions by the September 1998 Joint Venture is subject to,
among other contingencies, due diligence and the negotiation of definitive
documentation. There can be no assurance that the September 1998 Joint Venture
will be successful in obtaining such additional financing.
RELATED PARTY TRANSACTIONS
From time to time, the Company utilizes leasing services from an entity
for which one of the Company's Officers owns a 62.5% ownership interest. From
January 1, 1998 through September 30, 1998, the Company has paid approximately
$.2 million of leasing commissions to this entity.
YEAR 2000 COMPLIANCE
The Year 2000 compliance issue concerns the inability of computerized
information systems and non-information systems to accurately calculate, store
or use a date after 1999. This could result in computer systems failures or
miscalculations causing disruptions of operations. The Year 2000 issue affects
almost all companies and organizations.
The Company has discussed its software applications and internal
operational programs with its current information systems' vendor and, based on
such discussions, believes that such applications and programs will properly
recognize calendar dates beginning in the year 2000. The Company is discussing
with its material third-party service providers, such as its banks, payroll
processor and telecommunications provider, their Year 2000 compliance and is
assessing what effect their possible non-compliance might have on the Company.
In addition, the Company is discussing with its material vendors the possibility
of any interface difficulties and/or electrical or mechanical problems relating
to the year 2000 which may affect properties owned by the Company. The Company
has also surveyed substantially all of its tenants to determine the status of
their Year 2000 compliance and what effect their possible non-compliance might
have on the Company. The Company is currently processing the information
obtained from such tenant surveys and remains in discussions with its material
vendors and third-party service providers. Of the tenant surveys processed to
date, all have stated that they are Year 2000 compliant or will be Year 2000
compliant by the end of 1999. The Company plans to complete its assessment of
Year 2000 compliance by such parties by March 31, 1999. Until such time the
Company cannot estimate any potential adverse impact resulting from the failure
of tenants, vendors or third-party service providers to address their Year 2000
issues; however, to date, no significant Year 2000-related conditions have been
identified.
Because the Company's evaluation of its Year 2000 issues has been
conducted by its own personnel or by its vendors in connection with their
servicing operations, the Company believes that its expenditures for assessing
its Year 2000 issues, though difficult to quantify, to date have not been
material. In addition, the Company is not aware of any Year 2000-related
conditions that it believes would likely require any material expenditures by
the Company in the future.
Based on its current information, the Company believes that the risk
posed by any foreseeable Year 2000-related problem with its internal systems and
the systems at its properties (including both information and non-information
systems) or with its vendors or tenants is minimal. Year 2000-related problems
with the Company's software applications and internal operational programs or
with the
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electrical or mechanical systems at its properties are unlikely to cause more
than minor disruptions in the Company's operations. The Company believes that
the risk posed by Year 2000-related problems at certain of its third-party
service providers, such as its banks, payroll processor and telecommunications
provider is marginally greater, though, based on its current information, the
Company does not believe any such problems would have a material effect on its
operations. Any Year 2000 related problems at such third-party service providers
could delay the processing of financial transactions and the Company's payroll
and could disrupt the Company's internal and external communications. At this
time, the Company has not developed and does not anticipate developing any
contingency plans with respect to Year 2000 issues. In addition, the Company has
no plans to seek independent verification or review of its assessment of its
Year 2000 issues. The Company does intend to complete its assessment of, and to
continue to monitor, its Year 2000 issues and will develop contingency plans if,
and to the extent, deemed necessary.
While the Company believes that it will be Year 2000 compliant by
December 31, 1999, there can be no assurance that the Company has been or will
be successful in identifying and assessing Year 2000 issues, or that, to the
extent identified, the Company's efforts to remediate such issues will be
effective such that Year 2000 issues will not have a material adverse effect on
the Company's business, financial condition or results of operation.
OTHER
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income". This statement, effective for fiscal years beginning
after December 15, 1997, requires the Company to report components of
comprehensive income in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income is defined by
Concepts Statement No. 6, "Elements of Financial Statements" as the change in
the equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. The Company's net income available to common
stockholders approximates its comprehensive income as defined in Concepts
Statement No. 6, "Elements of Financial Statements".
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information".
This statement, effective for financial statements for fiscal years beginning
after December 15, 1997, requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Generally, financial information is required to be reported on the basis that it
is used internally for evaluating segment performance and deciding how to
allocate resources to segments. The Company will disclose this information in
its 1998 Form 10-K.
In March 1998, the FASB's Emerging Issues Task Force (the "Task Force")
issued Emerging Issues Task Force Issue No. 97-11, "Accounting for Internal
Costs Relating to Real Estate Property Acquisitions" ("EITF 97-11"). EITF 97-11,
effective March 19, 1998, requires that internal costs of preacquisition
activities incurred in connection with the acquisition of an operating property
should be expensed as incurred. The Task Force concluded that a property is
considered operating if, at the date of acquisition, major construction activity
is substantially completed on the property and (a) it is held available for
occupancy upon completion of tenant improvements by the acquirer or (b) it is
already income producing. The Company adopted EITF 97-11 as of March 19, 1998.
Prior to March 19, 1998, the Company capitalized internal costs of
preacquisition activities incurred in connection with the acquisition of
operating properties. The Company estimates that the adoption of EITF 97-11 will
result in a
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cumulative increase of approximately $2.5 million to $3.0 million in the amount
of general and administrative expense reflected in the Company's consolidated
statement of operations in 1998.
In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5
requires that the net unamortized balance of all start up costs and
organizational costs be written off as a cumulative effect of a change in
accounting principle and all future start-up costs and organizational costs be
expensed. In the second quarter of 1998, the Company reported a cumulative
effect of a change in accounting principle in the amount of approximately $2.0
million to reflect the write-off of the unamortized balance of organizational
costs on the Company's balance sheet.
During the second quarter of 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement, effective for fiscal years beginning after June 15,
1999, establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments imbedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that the
changes in the derivative's fair value be recognized in earnings unless specific
hedge accounting criteria are met. The Company is currently assessing the impact
of this new statement on its consolidated financial position, liquidity, and
results of operations.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On November 11, 1998, First Industrial Realty Trust, Inc. announced that
Michael T. Tomasz resigned as the Company's President and Chief Executive
Officer and as a Director to pursue other personal and business interests. On
November 11, 1998, the Board of Directors appointed Michael W. Brennan as
President and Chief Executive Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Description
- ----------- -----------
4.1 Supplemental Indenture No. 5, dated as of July 14, 1998, between
First Industrial, L.P. and U.S. Bank Trust National Association
relating to First Industrial, L.P.'s 7.60% Notes due July 15,
2008 (incorporated by reference to Exhibit 4.1 of the Form 8-K of
First Industrial, L.P. dated July 15, 1998, File No. 333-21873)
10.1 Sixth Amended and Restated Limited Partnership Agreement of First
Industrial, L.P. (the "L.P. Agreement"), dated March 18, 1998
(incorporated by reference to Exhibit 10.1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1997,
File No. 1- 13102)
10.2* Sixth Amendment to the L.P. Agreement dated August 31, 1998
10.3* Seventh Amendment to the L.P. Agreement dated October 21, 1998
10.4* Eighth Amendment to the L.P. Agreement dated October 30, 1998
10.5* Ninth Amendment to the L.P. Agreement dated November 5, 1998
27.1* Financial Data Schedule for the Nine Months Ended September 30,
1998
27.2* Financial Data Schedule for the Nine Months Ended September 30,
1997 (Restated)
99 * Press Release dated November 11, 1998
* Filed herewith.
Reports on Form 8-K:
Report on Form 8-K dated November 6, 1998, filed November 12, 1998, relating
to the acquisition of 74 industrial properties.
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================================================================================
The Company has prepared supplemental financial and operating
information which is available without charge upon request to the Company.
Please direct requests as follows:
First Industrial Realty Trust, Inc.
311 S. Wacker, Suite 4000
Chicago, IL 60606
Attention: Investor Relations
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FIRST INDUSTRIAL REALTY TRUST, INC.
Date: November 12, 1998 By: /s/ Michael J. Havala
---------------------------------------
Michael J. Havala
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
4.1 Supplemental Indenture No. 5, dated as of July 14, 1998, between
First Industrial, L.P. and U.S. Bank Trust National Association
relating to First Industrial, L.P.'s 7.60% Notes due July 15,
2008 (incorporated by reference to Exhibit 4.1 of the Form 8-K of
First Industrial, L.P. dated July 15, 1998, File No. 333-21873)
10.1 Sixth Amended and Restated Limited Partnership Agreement of First
Industrial, L.P. (the "L.P. Agreement"), dated March 18, 1998
(incorporated by reference to Exhibit 10.1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1997,
File No. 1- 13102)
10.2* Sixth Amendment to the L.P. Agreement dated August 31, 1998
10.3* Seventh Amendment to the L.P. Agreement dated October 21, 1998
10.4* Eighth Amendment to the L.P. Agreement dated October 30, 1998
10.5* Ninth Amendment to the L.P. Agreement dated November 5, 1998
27.1* Financial Data Schedule for the Nine Months Ended September 30,
1998
27.2* Financial Data Schedule for the Nine Months Ended September 30,
1997 (Restated)
99 * Press Release dated November 11, 1998
* Filed herewith.
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