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 MARCH 31, 2002
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
--------------------------
Commission File Number 333-21873
--------------------------
FIRST INDUSTRIAL, L.P.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3924586
(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 / /
FIRST INDUSTRIAL, L.P.
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2002
INDEX
PAGE
----
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001.................. 2
Consolidated Statements of Operations for the Three Months Ended March 31, 2002
and March 31, 2001...................................................................... 3
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002
and March 31, 2001...................................................................... 4
Notes to Consolidated Financial Statements ............................................. 5-14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations ..................................................................... 15-22
Item 3. Quantitative and Qualitative Disclosures About Market Risk ........................ 22
Part II: OTHER INFORMATION
Item 1. Legal Proceedings ................................................................ 23
Item 2. Changes in Securities ............................................................ 23
Item 3. Defaults Upon Senior Securities................................................... 23
Item 4. Submission of Matters to a Vote of Security Holders .............................. 23
Item 5. Other Information ................................................................ 23
Item 6. Exhibits and Report on Form 8-K................................................... 23
SIGNATURE ................................................................................... 24
EXHIBIT INDEX................................................................................ 25
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST INDUSTRIAL, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
March 31, December 31,
2002 2001
----------- ------------
ASSETS
Assets:
Investment in Real Estate:
Land ............................................................ $ 364,996 $ 368,725
Buildings and Improvements ...................................... 1,782,893 1,801,097
Furniture, Fixtures and Equipment ............................... 1,174 1,174
Construction in Progress ........................................ 134,878 140,887
Less: Accumulated Depreciation .................................. (240,652) (229,293)
----------- -----------
Net Investment in Real Estate ........................... 2,043,289 2,082,590
Real Estate Held for Sale, Net of Accumulated Depreciation and
Amortization of $3,645 at March 31, 2002 and $3,917 at
December 31, 2001 ................................................ 26,484 28,702
Investments in and Advances to Other Real Estate Partnerships ...... 422,404 378,350
Cash and Cash Equivalents .......................................... 376 --
Restricted Cash .................................................... 32,408 6,394
Tenant Accounts Receivable, Net .................................... 10,337 10,145
Investments in Joint Ventures ...................................... 10,494 9,010
Deferred Rent Receivable ........................................... 12,355 12,140
Deferred Financing Costs, Net ...................................... 9,727 10,173
Prepaid Expenses and Other Assets, Net ............................. 52,437 43,148
----------- -----------
Total Assets ............................................ $ 2,620,311 $ 2,580,652
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage Loans Payable, Net ........................................ $ 46,364 46,731
Senior Unsecured Debt, Net ......................................... 1,048,525 1,048,491
Acquisition Facility Payable ....................................... 219,500 182,500
Accounts Payable and Accrued Expenses .............................. 57,660 68,919
Rents Received in Advance and Security Deposits .................... 19,903 22,890
Distributions Payable .............................................. 38,684 31,196
----------- -----------
Total Liabilities ....................................... 1,430,636 1,400,727
----------- -----------
Commitments and Contingencies ........................................ -- --
Partners' Capital:
General Partner Preferred Units (140,000 units issued and
outstanding at March 31, 2002 and December 31, 2001) ........... 336,990 336,990
General Partner Units (39,296,738 and 38,904,687 units issued
and outstanding at March 31, 2002 and December 31, 2001,
respectively) .................................................. 695,519 686,544
Unamortized Value of General Partnership Restricted Units ........ (8,228) (6,247)
Limited Partners' Units (6,960,315 and 6,972,649 units issued
and outstanding at March 31, 2002 and December 31, 2001,
respectively) .................................................. 174,148 175,019
Accumulated Other Comprehensive Loss ............................. (8,754) (12,381)
----------- -----------
Total Partners' Capital .............................. 1,189,675 1,179,925
----------- -----------
Total Liabilities and Partners' Capital .............. $ 2,620,311 $ 2,580,652
=========== ===========
The accompanying notes are an integral part of the financial statements.
2
FIRST INDUSTRIAL, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2001
------------------- ------------------
Revenues:
Rental Income .......................................................... $ 57,578 $ 62,090
Tenant Recoveries and Other Income ..................................... 17,866 21,048
-------- ---------
Total Revenues ............................................... 75,444 83,138
-------- ---------
Expenses:
Real Estate Taxes ...................................................... 12,101 12,814
Repairs and Maintenance ................................................ 4,325 5,031
Property Management .................................................... 2,955 2,937
Utilities .............................................................. 1,866 2,798
Insurance .............................................................. 501 501
Other .................................................................. 1,744 2,232
General and Administrative ............................................. 5,139 4,318
Interest Expense ....................................................... 19,052 20,460
Amortization of Deferred Financing Costs ............................... 445 425
Depreciation and Other Amortization .................................... 15,804 14,216
-------- ---------
Total Expenses .............................................. 63,932 65,732
-------- ---------
Income from Continuing Operations Before Equity in Income of Other
Real Estate Partnerships, Equity in Income of Joint Ventures and Gain
on Sale of Real Estate..................................................... 11,512 17,406
Equity in Income of Other Real Estate Partnerships ........................ 15,395 9,295
Equity in Income of Joint Ventures ........................................ 222 186
Gain on Sale of Real Estate ............................................... 640 11,919
-------- ---------
Income From Continuing Operations ......................................... 27,769 38,806
Income from Discontinued Operations (Including Gain on Sale of Real
Estate of $6,422 for the Three Months Ended March 31, 2002) ........... 6,977 571
-------- ---------
Net Income ................................................................ 34,746 39,377
Less: Preferred Unit Distributions ....................................... (7,231) (7,231)
-------- ---------
Net Income Available to Unitholders ....................................... $ 27,515 $ 32,146
======== =========
Income from Continuing Operations Available to Unitholders
Per Weighted Average Unit Outstanding:
Basic .......................................................... $ .45 $ .68
======== =========
Diluted ........................................................ $ .44 $ .68
======== =========
Net Income Available to Unitholders Per Weighted Average Unit
Outstanding:
Basic .......................................................... $ .60 $ .70
======== =========
Diluted ........................................................ $ .60 $ .69
======== =========
Net Income ................................................................ $ 34,746 $ 39,377
Other Comprehensive Income:
Cumulative Transition Adjustment ............................... -- (14,920)
Settlement of Interest Rate Protection Agreement ............... -- 371
Mark-to-Market of Interest Rate Protection Agreements........... 3,573 (137)
Amortization of Interest Rate Protection Agreements ............ 54 90
-------- ---------
Comprehensive Income ...................................................... $ 38,373 $ 24,781
======== =========
The accompanying notes are an integral part of the financial statements.
3
FIRST INDUSTRIAL, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2001
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ............................................................. $ 34,746 $ 39,377
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation .......................................................... 13,573 12,346
Amortization of Deferred Financing Costs .............................. 445 425
Other Amortization .................................................... 3,246 3,508
Equity in Income of Joint Ventures .................................... (222) (186)
Distributions from Joint Ventures ..................................... 181 186
Gain on Sale of Real Estate ........................................... (7,062) (11,919)
Equity in Income of Other Real Estate Partnerships .................... (15,395) (9,295)
Distributions from Investment in Other Real Estate Partnerships........ 15,395 9,295
Increase in Tenant Accounts Receivable and
Prepaid Expenses and Other Assets, Net ........................... (4,579) (4,257)
Increase in Deferred Rent Receivable .................................. (473) (404)
Decrease in Accounts Payable and Accrued Expenses and
Rents Received in Advance and Security Deposits .................. (12,203) (23,016)
--------- ---------
Net Cash Provided by Operating Activities ....................... 27,652 16,060
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of and Additions to Investment in Real Estate ............... (25,661) (83,805)
Net Proceeds from Sales of Investment in Real Estate .................. 56,788 50,112
Investments in and Advances to Other Real Estate Partnerships.......... (55,428) (7,933)
Distributions from Other Real Estate Partnerships ..................... 11,374 6,908
Contributions to Joint Ventures ....................................... (2,176) --
Distributions from Joint Ventures ..................................... -- 251
Repayment of Mortgage Loans Receivable ................................ 18 2,885
(Increase) Decrease in Restricted Cash ................................. (26,014) 20,002
--------- ---------
Net Cash Used in Investing Activities ............................ (41,099) (11,580)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Unit Contributions ..................................................... 10,062 5,060
Unit Distributions ..................................................... (31,196) (30,275)
Repurchase of Restricted Units ......................................... (1,679) (1,588)
Preferred Unit Distributions ........................................... -- (7,231)
Repayments on Mortgage Loans Payable ................................... (364) (1,478)
Proceeds from Senior Unsecured Debt .................................... -- 199,390
Proceeds from Acquisition Facilities Payable ........................... 83,500 99,300
Repayments on Acquisition Facilities Payable ........................... (46,500) (260,000)
Cost of Debt Issuance and Prepayment Fees .............................. -- (1,896)
--------- ---------
Net Cash Provided by Financing Activities ....................... 13,823 1,282
--------- ---------
Net Increase in Cash and Cash Equivalents .............................. 376 5,762
Cash and Cash Equivalents, Beginning of Period ......................... -- 3,644
--------- ---------
Cash and Cash Equivalents, End of Period ............................... $ 376 $ 9,406
========= =========
The accompanying notes are an integral part of the financial statements.
4
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND FORMATION OF PARTNERSHIP
First Industrial, L.P. (the "Operating Partnership") was organized as a
limited partnership in the state of Delaware on November 23, 1993. The sole
general partner is First Industrial Realty Trust, Inc. (the "Company") with an
approximate 85.0% ownership interest at March 31, 2002. The limited partners of
the Operating Partnership own approximately a 15.0% interest in the Operating
Partnership at March 31, 2002. The Company also owns a preferred general
partnership interest in the Operating Partnership with an aggregate liquidation
priority of $350,000. The Company is a real estate investment trust ("REIT") as
defined in the Internal Revenue Code. The Company's operations are conducted
primarily through the Operating Partnership.
The Operating Partnership is the sole member of several limited liability
companies (the "L.L.C.s") and the sole stockholder of First Industrial
Development Services, Inc., and holds at least a 99% limited partnership
interest in each of eight limited partnerships (together, the "Other Real Estate
Partnerships"). The Operating Partnership, through separate wholly-owned limited
liability companies in which it is the sole member, also owns minority equity
interests in and provides asset and property management services to, three joint
ventures which invest in industrial properties (the "September 1998 Joint
Venture", the "September 1999 Joint Venture" and the "December 2001 Joint
Venture").
The general partners of the Other Real Estate Partnerships are separate
corporations, each with at least a .01% general partnership interest in the
Other Real Estate Partnerships for which it acts as a general partner. Each
general partner of the Other Real Estate Partnerships is a wholly-owned
subsidiary of the Company.
The consolidated financial statements of the Operating Partnership report
the L.L.C.s and First Industrial Development Services, Inc. (hereinafter defined
as the "Consolidated Operating Partnership") on a consolidated basis. The Other
Real Estate Partnerships, the September 1998 Joint Venture, the September 1999
Joint Venture and the December 2001 Joint Venture are accounted for under the
equity method of accounting. As of March 31, 2002, the Consolidated Operating
Partnership owned 799 in-service properties containing an aggregate of
approximately 51.6 million square feet of gross leasable area ("GLA"). On a
combined basis, as of March 31, 2002, the Other Real Estate Partnerships owned
115 in-service properties containing an aggregate of approximately 11.5 million
square feet of GLA.
Profits, losses and distributions of the Operating Partnership, the
L.L.C.s and the Other Real Estate Partnerships are allocated to the general
partner and the limited partners, or the members, as applicable, in accordance
with the provisions contained within the partnership agreements or ownership
agreements, as applicable, of the Operating Partnership, the L.L.C.s and the
Other Real Estate Partnerships.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim financial statements have been prepared
in accordance with the accounting policies described in the financial statements
and related notes included in the Operating Partnership's 2001 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, 2001 audited financial
statements included in the Operating Partnership's 2001 Form 10-K and present
interim disclosures as required by the Securities and Exchange Commission.
5
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
In order to conform with generally accepted accounting principles,
management, in preparation of the Consolidated Operating Partnership'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 as of March 31, 2002 and December 31, 2001, and the reported
amounts of revenues and expenses for each of the three months ended March 31,
2002 and 2001. Actual results could differ from those estimates.
In the opinion of management, all adjustments consist of normal recurring
adjustments necessary for a fair statement of the financial position of the
Consolidated Operating Partnership as of March 31, 2002 and the results of its
operations and its cash flows for each of the three months ended March 31, 2002
and 2001.
Tenant Accounts Receivable, Net:
The Consolidated Operating Partnership provides an allowance for doubtful
accounts against the portion of tenant 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 $1,707 as of March 31,
2002 and December 31, 2001.
Discontinued Operations:
On January 1, 2002, the Consolidated Operating Partnership adopted the
Financial Accounting Standards Board's ("FASB") Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long
Lived Assets" ("FAS 144"). FAS 144 addresses final accounting and reporting for
the disposal of long lived assets. FAS 144 requires that the results of
operations and gains or losses on the sale of properties sold subsequent to
December 31, 2001 that were not classified as held for sale at December 31, 2001
and the results of operations from properties that were classified as held for
sale subsequent to December 31, 2001 be presented in discontinued operations.
FAS 144 also requires prior period results of operations for these properties to
be restated and presented in discontinued operations in prior consolidated
statements of operations.
Recent Accounting Pronouncements:
On April 30, 2002, the FASB issued Financial Accounting Standards No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections" ("FAS 145"). FAS 145 rescinds both Statement
of Financial Accounting Standards No. 4, "Reporting Gains and Losses from
Extinguishment of Debt" ("FAS 4"), and the amendment to FAS 4, Statement of
Financial Accounting Standards No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements". FAS 145 eliminates the requirement that gains and
losses from the extinguishment of debt be aggregated and, if material,
classified as an extraordinary item, net of the related income tax effect,
unless the criteria in Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" are met. FAS 145 is effective for transactions occurring
subsequent to May 15, 2002. The Consolidated Operating Partnership is currently
assessing the impact of FAS 145 on its consolidated financial position,
liquidity, and results of operations.
Reclassification:
Certain 2001 items have been reclassified to conform to the 2002
presentation.
6
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
3. INVESTMENTS IN AND ADVANCES TO OTHER REAL ESTATE PARTNERSHIPS
The investments in and advances to Other Real Estate Partnerships reflects
the Operating Partnership's limited partnership equity interests in the entities
referred to in Note 1 to these financial statements.
Summarized condensed financial information as derived from the financial
statements of the Other Real Estate Partnerships is presented below:
Condensed Combined Balance Sheets:
March 31, December 31,
2002 2001
-------- -----------
ASSETS
Assets:
Investment in Real Estate, Net ..................... $376,259 $355,504
Real Estate Held for Sale, Net ..................... 2,051 2,048
Other Assets, Net .................................. 97,633 72,643
-------- --------
Total Assets ............................... $473,994 $430,195
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage Loans Payable ............................ $ 40,560 $ 40,728
Other Liabilities .................................. 7,354 7,811
-------- --------
Total Liabilities ......................... 47,914 48,539
-------- --------
Partners' Capital .................................. 426,080 381,656
-------- --------
Total Liabilities and Partners' Capital.... $473,994 $430,195
======== ========
Condensed Combined Statements of Operations:
Three Months Ended
-----------------------------------
March 31, 2002 March 31, 2001
---------------- ---------------
Total Revenues ................................... $ 13,797 $ 15,673
Property Expenses ................................ (3,891) (4,339)
Interest Expense ................................. (732) (742)
Amortization of Deferred Financing Costs ......... (17) (17)
Depreciation and Other Amortization .............. (2,917) (2,865)
Gain on Sale of Real Estate ...................... -- 1,957
Income from Discontinued Operations (Including
Gain on Sale of Real Estate of $8,606 for the
Three Months Ended March 31, 2002) ............... 9,297 687
-------- --------
Net Income ....................................... $ 15,537 $ 10,354
======== ========
7
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
4. INVESTMENTS IN JOINT VENTURES
During the three months ended March 31, 2002, the Consolidated Operating
Partnership, through wholly-owned limited liability companies in which the
Operating Partnership is the sole member, recognized, in the aggregate,
approximately $224 in asset management fees from the September 1998 Joint
Venture and the September 1999 Joint Venture, collectively and approximately
$243 in property management fees from the September 1998 Joint Venture, the
September 1999 Joint Venture and the December 2001 Joint Venture, collectively.
The Operating Partnership, through a wholly-owned limited liability company in
which it is the sole member, invested approximately $2,176 in the December 2001
Joint Venture. The Consolidated Operating Partnership, through wholly-owned
limited liability companies in which the Operating Partnership is the sole
member, received distributions of approximately $181 from the September 1998
Joint Venture and the September 1999 Joint Venture, collectively. As of March
31, 2002, the September 1998 Joint Venture owned 90 industrial properties
comprising approximately 4.3 million square feet of GLA, the September 1999
Joint Venture owned 36 industrial properties comprising approximately 1.0
million square feet of GLA and the December 2001 Joint Venture had economic
interests in 11 industrial properties comprising approximately 2.2 million
square feet of GLA. The properties purchased by the December 2001 Joint Venture
were purchased from the Consolidated Operating Partnership. The Consolidated
Operating Partnership deferred 15% of the gain resulting from these sales which
is equal to the Consolidated Operating Partnerships economic interest in the
December 2001 Joint Venture.
5. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION
FACILITY PAYABLE
Acquisition Facility Payable:
In January 2002, the Consolidated Operating Partnership entered into an
interest rate swap agreement (the "Interest Rate Swap Agreement") which fixed
the interest rate on a portion of the Consolidated Operating Partnership's
outstanding borrowings on its 2000 Unsecured Acquisition Facility. The
Consolidated Operating Partnership designated this transaction as a cash flow
hedge. The Interest Rate Swap Agreement has a notional value of $25,000, is
effective from February 4, 2002 through February 4, 2003 and fixed the LIBOR
rate at 2.4975%. Any payments or receipts from the Interest Rate Swap Agreement
will be treated as a component of interest expense. The Consolidated Operating
Partnership anticipates that the Interest Rate Swap Agreement will be 100%
effective and, as a result, the change in value will be shown in other
comprehensive income.
8
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION
FACILITY PAYABLE, CONTINUED
The following table discloses certain information regarding the
Consolidated Operating Partnership's mortgage loans payable, senior unsecured
debt and acquisition facility payable:
OUTSTANDING BALANCE AT ACCRUED INTEREST PAYABLE AT INTEREST RATE AT
----------------------------- --------------------------- ----------------
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31, MATURITY
2002 2001 2002 2001 2002 DATE
------------ ------------- ------------ ------------- ---------------- ---------
MORTGAGE LOANS PAYABLE, NET
- ---------------------------
CIGNA Loan ...................... $ 33,021 $ 33,214 $ 206 $ 207 7.500% 4/01/03
Assumed Loans ................... 6,411 6,538 -- -- 9.250% 1/01/13
LB Loan II ..................... 705 705 38 24 8.000% (1)
Acquisition Mortgage Loan III ... 3,039 3,065 22 -- 8.875% 6/01/03
Acquisition Mortgage Loan IV .... 2,274 2,286 17 -- 8.950% 10/01/06
Acquisition Mortgage Loan VI .... 914(2) 923(2) 7 7 8.875% 11/01/06
---------- ---------- -------- -------
Total ........................... $ 46,364 $ 46,731 $ 290 $ 238
========== ========== ======== =======
SENIOR UNSECURED DEBT, NET
- --------------------------
2005 Notes ...................... $ 50,000 $ 50,000 $ 1,246 $ 383 6.900% 11/21/05
2006 Notes ...................... 150,000 150,000 3,500 875 7.000% 12/01/06
2007 Notes ...................... 149,973(3) 149,972(3) 4,307 1,457 7.600% 5/15/07
2011 PATS ....................... 99,575(3) 99,563(3) 2,786 942 7.375% 5/15/11(4)
2017 Notes ...................... 99,850(3) 99,847(3) 2,500 625 7.500% 12/01/17
2027 Notes ...................... 99,878(3) 99,877(3) 2,701 914 7.150% 5/15/27(5)
2028 Notes ...................... 199,793(3) 199,791(3) 3,209 7,009 7.600% 7/15/28
2011 Notes ...................... 199,456(3) 199,441(3) 655 4,343 7.375% 3/15/11
---------- ---------- -------- -------
Total ........................... $1,048,525 $1,048,491 $ 20,904 $16,548
========== ========== ======== =======
ACQUISITION FACILITY PAYABLE
- ----------------------------
2000 Unsecured Acquisition
Facility ..................... $ 219,500 $ 182,500 $ 559 $ 571 3.31% 6/30/03
========== ========== ======== =======
(1) The maturity date of the LB Loan II is based on a contingent event
relating to the environmental status of the property collateralizing the
loan.
(2) At March 31, 2002, the Acquisition Mortgage Loan VI is net of an
unamortized premium of $38. At December 31, 2001, the Acquisition Mortgage
Loan VI is net of an unamortized premium of $41.
(3) At March 31, 2002, the 2007 Notes, 2011 PATS, 2017 Notes, 2027 Notes, 2028
Notes and the 2011 Notes are net of unamortized discounts of $27, $425,
$150, $122, $207 and $544, respectively. At December 31, 2001, the 2007
Notes, 2011 PATS, 2017 Notes, 2027 Notes, 2028 Notes and the 2011 Notes
are net of unamortized discounts of $28, $437 $153, $123, $209 and $559,
respectively.
(4) The 2011 PATS are redeemable at the option of the holder thereof, on May
15, 2004.
(5) The 2027 Notes are redeemable at the option of the holders thereof, on May
15, 2002. The Consolidated Operating Partnership has received redemption
notices from holders representing $84,930 of the 2027 Notes outstanding.
The following is a schedule of the stated maturities and scheduled
principal payments of the mortgage loans payable, senior unsecured debt and
acquisition facility payable for the next five years ending December 31, and
thereafter:
Amount
-----------
Remainder of 2002 $ 86,153
2003 255,513
2004 758
2005 50,830
2006 153,425
Thereafter 768,442
-----------
Total $ 1,315,121
===========
The maturity date of the LB Loan II is based on a contingent event. As a
result, this loan is not included in the preceding table. The table presents
$84,930 of the 2027 Notes as being due in 2002 due to redemption notices the
Consolidated Operating Partnership has received from certain holders. The table
presents the remaining $15,070 as coming due in 2027.
9
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION
FACILITY PAYABLE, CONTINUED
Other Comprehensive Income
In conjunction with the prior issuances of senior unsecured debt, the
Consolidated Operating Partnership, through the Operating Partnership, entered
into interest rate protection agreements to fix the interest rate on anticipated
offerings of senior unsecured debt (the "Interest Rate Protection Agreements").
In the next 12 months, the Consolidated Operating Partnership will amortize
approximately $234 of the Interest Rate Protection Agreements into net income as
an increase to interest expense.
The following is a roll forward of the accumulated other comprehensive
loss balance relating to the Consolidated Operating Partnership's derivative
transactions:
Balance at December 31, 2001.................................. $ (12,381)
Mark-to-Market of Interest Rate Protection Agreements and
Interest Rate Swap Agreements...................... 3,573
Amortization of Interest Rate Protection Agreements ...... 54
---------
Balance at March 31, 2002..................................... $ (8,754)
=========
6. PARTNERS' CAPITAL
The Operating Partnership has issued general partnership units, limited
partnership units (together, the "Units") and preferred general partnership
units. The general partnership units resulted from capital contributions from
the Company. The limited partnership units are issued in conjunction with the
acquisition of certain properties. Subject to lock-up periods and certain
adjustments, limited partnership units are convertible into common stock, par
value $.01, of the Company on a one - for - one basis or cash at the option of
the Company. The preferred general partnership units resulted from preferred
capital contributions from the Company. The Operating Partnership will be
required to make all required distributions on the preferred general partnership
units prior to any distribution of cash or assets to the holders of the general
and limited partnership units except for distributions required to enable the
Company to maintain its qualification as a REIT.
Unit Contributions:
During the three months ended March 31, 2002, the Company awarded 90,260
shares of restricted common stock to certain employees and 965 shares of
restricted common stock to certain Directors. The Operating Partnership issued
Units to the Company in the same amount. These shares of restricted common stock
had a fair value of approximately $3,144 on the date of grant. The restricted
common stock vests over periods from one to ten years. Compensation expense will
be charged to earnings over the respective vesting period.
During the three months ended March 31, 2002, the Company issued 870,600
non-qualified employee stock options to certain officers, Directors and
employees. These non-qualified employee stock options vest over periods from one
to three years, have a strike price of $30.53 per share and expire ten years
from the date of grant.
10
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
6. PARTNERS' CAPITAL, CONTINUED
During the three months ended March 31, 2002, certain employees exercised
354,953 non-qualified employee stock options. Net proceeds to the Company were
approximately $10,062. The Consolidated Operating Partnership, through the
Operating Partnership, issued Units to the Company in the same amount.
Distributions:
On January 22, 2002, the Operating Partnership paid a fourth quarter 2001
distribution of $.6800 per Unit, totaling approximately $31,196.
7. ACQUISITION AND DEVELOPMENT OF REAL ESTATE
During the three months ended March 31, 2002, the Consolidated Operating
Partnership acquired one industrial property comprising approximately .01
million square feet of GLA. The aggregate purchase price for this acquisition
totaled approximately $2,789 excluding costs incurred in conjunction with the
acquisition of the property. The Consolidated Operating Partnership also
completed the development of three industrial properties comprising
approximately .8 million square feet of GLA at a cost of approximately $24.2
million.
8. SALES OF REAL ESTATE, REAL ESTATE HELD FOR SALE AND DISCONTINUED
OPERATIONS
During the three months ended March 31, 2002, the Consolidated Operating
Partnership sold 15 industrial properties comprising approximately 1.3 million
square feet of GLA that were not classified as held for sale at December 31,
2001, two properties comprising approximately .1 million square feet of GLA that
were classified as held for sale at December 31, 2001 and several land parcels.
Gross proceeds from these sales were approximately $67,804. The gain on sale of
real estate was approximately $7,062. In accordance with FAS 144, the results of
operations and gain on sale of real estate for the 15 sold properties that were
not identified as held for sale at December 31, 2001 are included in
discontinued operations.
At March 31, 2002, the Consolidated Operating Partnership had 11
industrial properties comprising approximately 1.1 million square feet of GLA
held for sale. Ten of the 11 properties comprising approximately 1.0 million
square feet of GLA held for sale at March 31, 2002 were identified as held for
sale as of December 31, 2001. In accordance with FAS 144, the results of
operations of the property identified as held for sale during the three months
ended March 31, 2002 are included in discontinued operations. There can be no
assurance that such properties held for sale will be sold.
The following table discloses certain information regarding the 10
industrial properties identified as held for sale by the Consolidated Operating
Partnership, prior to January 1, 2002.
Three Months Ended
March 31,
---------------------
2002 2001
-------- --------
Total Revenues $ 1,324 $ 1,144
Operating Expenses
(503) (537)
Depreciation and Amortization
-- (7)
-------- -------
Net Income $ 821 $ 600
======== =======
11
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
9. SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS
Supplemental disclosure of cash flow information:
Three Months Ended
--------------------
March 31, March 31,
2002 2001
-------- --------
Interest paid, net of capitalized interest ...................................... $ 14,656 $ 10,686
======== ========
Interest capitalized ............................................................ $ 2,855 $ 1,973
======== ========
Supplemental schedule of noncash investing and financing activities:
Distribution payable on units ................................................... $ 31,453 $ 30,537
======== ========
Distribution payable on preferred units ......................................... $ 7,231 $ 7,231
======== ========
Issuance of Units in exchange for property ......................................... $ -- $ 1,491
======== ========
Exchange of limited partnership units for general partnership units:
Limited partnership units ...................................................... $ (322) $ (2,512)
General partnership units ...................................................... 322 2,512
-------- --------
$ -- $ --
======== ========
In conjunction with the property and land acquisitions, the
following liabilities were assumed:
Purchase of real estate ...................................................... $ 2,789 $ 43,596
Accrued real estate taxes and security deposits .............................. (38) (579)
-------- --------
$ 2,751 $ 43,017
======== ========
In conjunction with a property sale, the Consolidated
Operating Partnership provided seller financing on behalf of certain buyer:
Notes Receivable ............................................................ $ 4,500 $ --
======== ========
12
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
10. EARNINGS PER UNIT ("EPU")
The computation of basic and diluted EPU is presented below:
Three Months Ended
-----------------------------
March 31, March 31,
2002 2001
------------ -------------
Numerator:
Income from Continuing Operations ............................. $ 27,769 $ 38,806
Less: Preferred Distributions ................................. (7,231) (7,231)
------------ ------------
Income from Continuing Operations Available to Unitholders
for Basic and Diluted EPU ................................... 20,538 31,575
Discontinued Operations ....................................... 6,977 571
------------ ------------
Net Income Available to Unitholders
For Basic and Diluted EPU ................................ $ 27,515 $ 32,146
============ ============
Denominator:
Weighted Average Units - Basic ................................ 45,948,158 46,184,471
Effect of Dilutive Securities:
Employee and Director Common Stock Options of
the Company that result in the issuance of general
partnership units .......................................... 279,647 416,657
------------ ------------
Weighted Average Units Outstanding- Diluted ................... 46,227,805 46,601,128
============ ============
Basic EPU:
Income from Continuing Operations Available to Unitholders..... $ .45 $ .68
============ ============
Discontinued Operations ....................................... $ .15 $ .01
============ ============
Net Income Available to Unitholders ........................... $ .60 $ .70
============ ============
Diluted EPU:
Income from Continuing Operations Available to Unitholders..... $ .44 $ .68
============ ============
Discontinued Operations ....................................... $ .15 $ .01
============ ============
Net Income Available to Unitholders ........................... $ .60 $ .69
============ ============
11. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Consolidated Operating Partnership
is involved in legal actions arising from the ownership of its properties. 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 Consolidated
Operating Partnership.
The Consolidated Operating Partnership has committed to the
construction of 40 development projects totaling approximately 3.6 million
square feet of GLA for an estimated investment of approximately $192.3 million.
Of this amount, approximately $43.0 million remains to be funded. These
developments are expected to be funded with proceeds from the sale of select
properties, cash flows from operations and borrowings under the Operating
Partnership's 2000 Unsecured Acquisition Facility. The Consolidated Operating
Partnership expects to place in service all of these development projects during
the next twelve months. There can be no assurance that the Consolidated
Operating Partnership will place these projects in service during the next
twelve months or that the actual completion cost will not exceed the estimated
completion cost stated above.
13
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
12. SUBSEQUENT EVENTS
From April 1, 2002 to May 3, 2002, the Consolidated Operating Partnership
acquired 11 industrial properties for an aggregate purchase price of
approximately $45,190, excluding costs incurred in conjunction with the
acquisition of these industrial properties. The Consolidated Operating
Partnership also sold one industrial property for approximately $20,863 of gross
proceeds.
On April 1, 2002, the Operating Partnership paid a first quarter 2002
distribution of $54.688 per unit on its Series B Cumulative Preferred Units,
$53.906 per unit on its Series C Cumulative Preferred Units, $49.687 per unit on
its Series D Cumulative Preferred Units and $49.375 per unit on its Series E
Cumulative Preferred Units. The preferred unit distributions paid on April 1,
2002 totaled, in the aggregate, approximately $7,231.
On April 12, 2002, the Company called for the redemption of all of its
outstanding Series B Preferred Stock at the price of $25.00 per share, plus
accrued and unpaid dividends. The redemption date will be May 14, 2002. The
Series B Preferred Units associated with the Series B Preferred Stock will be
redeemed on May 14, 2002 as well.
On April 15, 2002, the Operating Partnership issued $200,000 of senior
unsecured debt which matures on April 15, 2012 and bears a coupon interest rate
of 6.875% (the "2012 Notes"). The issue price of the 2012 Notes was 99.310%.
Interest is paid semi-annually in arrears on October 15 and April 15. The
Operating Partnership also entered into interest rate protection agreements
which were used to fix the interest rate on the 2012 Notes prior to issuance.
The Operating Partnership settled the interest rate protection agreements for
approximately $1,772 of proceeds which will be included in other comprehensive
income. The debt issue discount and the settlement amount of the interest rate
protection agreements are being amortized over the life of the 2012 Notes as an
adjustment to interest expense. The 2012 Notes contain certain covenants
including limitations on incurrence of debt and debt service coverage.
On April 15, 2002, the Operating Partnership issued $50,000 of senior
unsecured debt which matures on April 15, 2032 and bears a coupon interest rate
of 7.75% (the "2032 Notes"). The issue price of the 2032 Notes was 98.660%.
Interest is paid semi-annually in arrears on October 15 and April 15. The debt
issue discount is being amortized over the life of the 2032 Notes as an
adjustment to interest expense. The 2032 Notes contain certain covenants
including limitations on incurrence of debt and debt service coverage.
On April 15, 2002, the Operating Partnership received redemption notices
from holders representing $84,930 of the 2027 Notes outstanding. The redemption
notices require the Operating Partnership to payoff and retire $84,930 of the
2027 Notes on May 15, 2002.
On April 22, 2002, the Operating Partnership paid a first quarter 2002
distribution of $.6800 per Unit, totaling approximately $31,453.
14
FIRST INDUSTRIAL, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of First Industrial, L.P.'s (the
"Operating Partnership") 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.
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Operating Partnership intends
such forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and is including this statement for purposes of complying with
these safe harbor provisions. Forward-looking statements, which are based on
certain assumptions and describe future plans, strategies and expectations of
the Operating Partnership, are generally identifiable by use of the words
"believe", "expect", "intend", "anticipate", "estimate", "project" or similar
expressions. The Operating Partnership's ability to predict results or the
actual effect of future plans or strategies is inherently uncertain. Factors
which could have a material adverse affect on the operations and future
prospects of the Operating Partnership on a consolidated basis include, but are
not limited to, changes in: economic conditions generally and the real estate
market specifically, legislative/regulatory changes (including changes to laws
governing the taxation of real estate investment trusts), availability of
financing, interest rate levels, competition, supply and demand for industrial
properties in the Operating Partnership's current and proposed market areas,
potential environmental liabilities, slippage in development or lease-up
schedules, tenant credit risks, higher-than-expected costs, and general
accounting principles, policies and guidelines applicable to real estate
investment trusts. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements. Further information concerning the Operating Partnership and
its business, including additional factors that could materially affect the
Operating Partnership's financial results, is included herein and in the
Operating Partnership's other filings with the Securities and Exchange
Commission.
The Operating Partnership was organized as a limited partnership in the
state of Delaware on November 23, 1993. The sole general partner of the
Operating Partnership is First Industrial Realty Trust, Inc. (the "Company")
with an approximate 85.0% ownership interest at March 31, 2002. The Company also
owns a preferred general partnership interest in the Operating Partnership with
an aggregate liquidation priority of $350 million. The Company is a real estate
investment trust ("REIT") as defined in the Internal Revenue Code. The Company's
operations are conducted primarily through the Operating Partnership. The
limited partners of the Operating Partnership own, in the aggregate,
approximately a 15.0% interest in the Operating Partnership at March 31, 2002.
The Operating Partnership is the sole member of several limited liability
companies (the "L.L.C.s") and the sole shareholder of First Industrial
Development Services, Inc. and holds at least a 99% limited partnership interest
in each of eight limited partnerships (together, the "Other Real Estate
Partnerships"). The Operating Partnership, through separate wholly-owned limited
liability companies in which it is the sole member, also owns minority equity
interests in and provides asset and property management services to, three joint
ventures which invest in industrial properties (the "September 1998 Joint
Venture", the "September 1999 Joint Venture" and the "December 2001 Joint
Venture"). The financial statements of the Operating Partnership report the
L.L.C.s and First Industrial Development Services, Inc. (hereinafter defined as
the "Consolidated Operating Partnership") on a consolidated basis. The Other
Real Estate Partnerships, the September 1998 Joint Venture, the September 1999
Joint Venture and the December 2001 Joint Venture are accounted for under the
equity method of accounting.
The general partners of the Other Real Estate Partnerships are separate
corporations, each with at least a .01% general partnership interest in the
Other Real Estate Partnership for which it acts as a general
15
partner. Each general partner of the Other Real Estate Partnerships is a
wholly-owned subsidiary of the Company.
Profits, losses and distributions of the Operating Partnership, the
L.L.C.s and the Other Real Estate Partnerships are allocated to the general
partner and the limited partners, or members, as applicable, in accordance with
the provisions contained within the partnership agreements or operating
agreements, as applicable, of the Operating Partnership, the L.L.C.s and the
Other Real Estate Partnerships.
RESULTS OF OPERATIONS
At March 31, 2002, the Consolidated Operating Partnership owned 799
in-service properties with approximately 51.6 million square feet of gross
leasable area ("GLA"), compared to 856 in-service properties with approximately
54.9 million square feet of GLA at March 31, 2001. During the period between
April 1, 2001 and March 31, 2002, the Consolidated Operating Partnership
acquired 44 properties containing approximately 2.4 million square feet of GLA,
completed development of eight properties totaling approximately 1.7 million
square feet of GLA and sold 116 in-service properties totaling approximately 7.6
million square feet of GLA, three out of service properties and several land
parcels. The Consolidated Operating Partnership also took six properties out of
service that are under redevelopment comprising approximately .7 million square
feet of GLA and placed in-service four properties comprising approximately .3
million square feet of GLA. In addition, the Other Real Estate Partnerships
contributed nine industrial properties comprising approximately .6 million
square feet of GLA to the Consolidated Operating Partnership.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2002 TO THREE MONTHS ENDED MARCH 31,
2001
Rental income and tenant recoveries and other income decreased by
approximately $7.7 million or 9.3% due primarily to a decrease in average GLA
and a decrease in average occupancy for the three months ended March 31, 2002 as
compared to the three months ended March 31, 2001. Rental income and tenant
recoveries and other income from properties owned prior to January 1, 2001,
decreased by approximately $1.4 million or 2.0% due primarily to a decrease in
tenant recoveries due to a decrease in property expenses (as discussed below)
for the three months ended March 31, 2002 as compared to the three months ended
March 31, 2001.
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses,
decreased by approximately $2.8 million or 10.7%. This decrease is due primarily
to decreases in real estate taxes, repairs and maintenance and utilities. The
decrease in real estate taxes and utilities is due to a decrease in average GLA
for the three months ended March 31, 2002 as compared to the three months ended
March 31, 2001. The decrease in repairs and maintenance is due to a decrease in
maintenance expenses. Property expenses from properties owned prior to January
1, 2001 decreased by approximately $.6 million or 3.0% due primarily to the
explanations above.
General and administrative expense increased by approximately $.8 million
due primarily to an increase in employee compensation and additional employees.
Interest expense decreased by approximately $1.4 million for the three
months ended March 31, 2002 compared to the three months ended March 31, 2001
due primarily to a decrease in the weighted average interest rate on the
Consolidated Operating Partnership's outstanding debt for the three months ended
March 31, 2002 (6.67%) as compared to the three months ended March 31, 2001
(7.26%), as well as an increase in capitalized interest due to an increase in
development activities. This was slightly offset by a higher average debt
balance outstanding for the three months ended March 31, 2002 compared to the
three months ended March 31, 2001. The average debt balance outstanding for the
three months ended March 31, 2002 and 2001 was approximately $1,307.5 million
and $1,233.8 million, respectively.
Amortization of deferred financing costs remained relatively unchanged.
16
Depreciation and other amortization increased by approximately $1.6
million due primarily to a decrease in the number of properties the Consolidated
Operating Partnership considered held for sale at March 31, 2002 as compared to
March 31, 2001.
Equity in income of Other Real Estate Partnerships increased by
approximately $6.1 million due primarily to an increase in gain on sale of real
estate.
Equity in income of joint ventures remained relatively unchanged.
The $.6 million gain on sale of real estate for the three months ended
March 31, 2002 resulted from the sale of two industrial properties that were
identified as held for sale at December 31, 2001. Gross proceeds from these
sales were approximately $4.8 million.
The $11.9 million gain on sale of real estate for the three months ended
March 31, 2001 resulted from the sale of 22 industrial properties and several
land parcels. Gross proceeds from these sales were approximately $54.6 million.
Income from discontinued operations of approximately $7.0 million for the
three months ended March 31, 2002 reflects the results of operations and gain
on sale of 15 industrial properties and several land parcels that were sold
during the three months ended March 31, 2002 as well as the results of
operations of one industrial property identified as held for sale during the
three months ended March 31, 2002. Gross proceeds from the sales of the 15
industrial properties and several land parcels were approximately $63.0 million,
resulting in a gain on sale of real estate of approximately $6.4 million.
Income from discontinued operations of approximately $.6 million for the
three months ended March 31, 2001 reflects the results of operations of the 15
industrial properties that were sold during the three months ended March 31,
2002 as well as the results of operations of one industrial property identified
as held for sale during the three months ended March 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 2002, the Consolidated Operating Partnership's cash and cash
equivalents was approximately $.4 million and restricted cash totaled
approximately $32.4 million. Restricted cash was comprised of gross proceeds
from the sales of certain properties. These sales proceeds will be disbursed as
the Consolidated Operating Partnership exchanges properties under Section 1031
of the Internal Revenue Code.
THREE MONTHS ENDED MARCH 31, 2002
Net cash provided by operating activities of approximately $27.7 million
for the three months ended March 31, 2002 was comprised primarily of net income
of approximately $34.8 million and adjustments for non-cash items of
approximately $9.7 million, offset by the net change in operating assets and
liabilities of approximately $16.8 million. The adjustments for the non-cash
items of approximately $9.7 million are primarily comprised of depreciation and
amortization of approximately $17.2 million, offset by the gain on sale of real
estate of approximately $7.0 million and the effect of the straight-lining of
rental income of approximately $.5 million.
Net cash used in investing activities of approximately $41.1 million for
the three months ended March 31, 2002 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, an increase in restricted
cash from sales proceeds deposited with an intermediary for Section 1031
exchange purposes, investments in and advances to the Other Real Estate
Partnerships and contributions to the December 2001 Joint Venture, offset by the
net proceeds from the sale of real estate, distributions from the Other Real
Estate Partnerships and the repayment of mortgage loans receivable.
17
Net cash provided by financing activities of approximately $13.8 million
for the three months ended March 31, 2002 was comprised primarily of general
partnership and limited partnership units ("Unit") contributions and net
borrowings under the Operating Partnership's $300 million unsecured line of
credit (the "2000 Unsecured Acquisition Facility"), offset by Unit and preferred
general partnership unit distributions, the repurchase of restricted units and
repayments on mortgage loans payable.
THREE MONTHS ENDED MARCH 31, 2001
Net cash provided by operating activities of approximately $16.1 million
for the three months ended March 31, 2001 was comprised primarily of net income
of approximately $39.4 million and adjustments for non-cash items of
approximately $3.9 million, offset by the net change in operating assets and
liabilities of approximately $27.2 million. The adjustments for the non-cash
items of approximately $3.9 million are primarily comprised of depreciation and
amortization of approximately $16.2 million, offset by the gain on sale of real
estate of approximately $11.9 million and the effect of the straight-lining of
rental income of approximately $.4 million.
Net cash used in investing activities of approximately $11.6 million for
the three months ended March 31, 2001 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 and investments in and
advances to the Other Real Estate Partnerships, offset by the net proceeds from
the sale of real estate, distributions from investment in Other Real Estate
Partnerships, distributions from two of the Operating Partnership's industrial
real estate joint ventures, the repayment of mortgage loans receivable and a
decrease in restricted cash to purchase properties to affect Section 1031
exchanges.
Net cash provided by financing activities of approximately $1.3 million
for the three months ended March 31, 2001 was comprised primarily of Unit
contributions and proceeds from the issuance of senior unsecured debt, offset by
Unit and preferred general partnership unit distributions, the repurchase of
restricted units, repayments on mortgage loans payable, debt issuance costs
incurred in conjunction with the issuance of senior unsecured debt and net
repayments under the 2000 Unsecured Acquisition Facility.
INVESTMENT IN REAL ESTATE AND DEVELOPMENT OF REAL ESTATE
During the three months ended March 31, 2002, the Consolidated Operating
Partnership acquired one industrial property comprising approximately .01
million square feet of GLA. The aggregate purchase price for this acquisition
totaled approximately $2.8 million, excluding costs incurred in conjunction with
the acquisition of the property. The Consolidated Operating Partnership also
completed the development of three industrial properties comprising
approximately .8 million square feet of GLA at a cost of approximately $24.2
million.
The Consolidated Operating Partnership has committed to the construction
of 40 development projects totaling approximately 3.6 million square feet of GLA
for an estimated investment of approximately $192.3 million. Of this amount,
approximately $43.0 million remains to be funded. These developments are
expected to be funded with proceeds from the sale of select properties, cash
flows from operations and borrowings under the Operating Partnership's 2000
Unsecured Acquisition Facility. The Consolidated Operating Partnership expects
to place in service all of these developments during the next twelve months.
There can be no assurance that the Consolidated Operating Partnership will place
these projects in service during the next twelve months or that the actual
completion cost will not exceed the estimated completion cost stated above.
SALE OF REAL ESTATE, REAL ESTATE HELD FOR SALE AND DISCONTINUED OPERATIONS
During the three months ended March 31, 2002, the Consolidated Operating
Partnership sold 15 industrial properties comprising approximately 1.3 million
square feet of GLA that were not classified as
18
held for sale at December 31, 2001, two properties comprising .1 million square
feet of GLA that were classified as held for sale at December 31, 2001 and
several land parcels. Gross proceeds from these sales were approximately $67.8
million. In accordance with FAS 144, the results of operations and gain on sale
of real estate for the 15 sold properties that were not identified as held for
sale at December 31, 2001 are included in discontinued operations.
At March 31, 2002, the Consolidated Operating Partnership had 11
industrial properties comprising approximately 1.1 million square feet of GLA
held for sale. Ten of the 11 properties comprising approximately 1.0 million
square feet of GLA that were held for sale as of March 31, 2002 were identified
as held for sale at December 31, 2001. Income from operations for these ten
industrial properties held for sale for the three months ended March 31, 2002
and 2001 is approximately $.8 million and $.6 million, respectively. Net
carrying value of the 11 industrial properties held for sale at March 31, 2002
is approximately $26.5 million. In accordance with FAS 144, the results of
operations of the property identified as held for sale during the three months
ended March 31, 2002 are included in discontinued operations. There can be no
assurance that such properties held for sale will be sold.
INVESTMENTS IN JOINT VENTURES
During the three months ended March 31, 2002, the Consolidated Operating
Partnership, through wholly-owned limited liability companies in which the
Operating Partnership is the sole member, recognized, in the aggregate,
approximately $.5 million in asset management and property management fees from
the September 1998 Joint Venture, the September 1999 Joint Venture and the
December 2001 Joint Venture, collectively. The Operating Partnership, through a
wholly-owned limited liability company in which it is the sole member, invested
approximately $2.2 million in the December 2001 Joint Venture. The Consolidated
Operating Partnership, through wholly-owned limited liability companies in which
the Operating Partnership is the sole member, received distributions of
approximately $.2 million from the September 1998 Joint Venture and the
September 1999 Joint Venture, collectively. As of March 31, 2002, the September
1998 Joint Venture owned 90 industrial properties comprising approximately 4.3
million square feet of GLA, the September 1999 Joint Venture owned 36 industrial
properties comprising approximately 1.0 million square feet of GLA and the
December 2001 Joint Venture had economic interests in 11 industrial properties
comprising approximately 2.2 million square feet of GLA. The properties
purchased by the December 2001 Joint Venture were purchased from the
Consolidated Operating Partnership. The Consolidated Operating Partnership
deferred 15% of the gain resulting from these sales which is equal to the
Consolidated Operating Partnerships economic interest in the December 2001 Joint
Venture.
MARKET RISK
The following discussion about the Consolidated Operating Partnership's
risk-management activities includes "forward-looking statements" that involve
risk and uncertainties. Actual results could differ materially from those
projected in the forward-looking statements.
This analysis presents the hypothetical gain or loss in earnings, cash
flows or fair value of the financial instruments and derivative instruments
which are held by the Consolidated Operating Partnership at March 31, 2002 that
are sensitive to changes in the interest rates. While this analysis may have
some use as a benchmark, it should not be viewed as a forecast.
In the normal course of business, the Consolidated Operating Partnership
also faces risks that are either non-financial or non-quantifiable. Such risks
principally include credit risk and legal risk and are not represented in the
following analysis.
At March 31, 2002, $1,169.9 million (approximately 89.0% of total debt at
March 31, 2002) of the Consolidated Operating Partnership's debt was fixed rate
debt (included in the fixed rate debt is $75.0 million of borrowings under the
Consolidated Operating Partnership's 2000 Unsecured Acquisition Facility which
the Consolidated Operating Partnership fixed the interest rate via interest rate
swap
19
agreements) and $144.5 million (approximately 11.0% of total debt at March 31,
2002) was variable rate debt. The Consolidated Operating Partnership also had
outstanding a written put option (the "Written Option") which was issued in
conjunction with the initial offering of one tranche of senior unsecured debt as
well as interest rate protection agreements with a notional value of $100
million which fixed the interest rate on a forecasted offering of unsecured debt
(the "Treasury Locks"). Currently, the Consolidated Operating Partnership does
not enter into financial instruments for trading or other speculative purposes.
For fixed rate debt, changes in interest rates generally affect the fair
value of the debt, but not earnings or cash flows of the Consolidated Operating
Partnership. Conversely, for variable rate debt, changes in the interest rate
generally do not impact the fair value of the debt, but would affect the
Consolidated Operating Partnership's future earnings and cash flows. The
interest rate risk and changes in fair market value of fixed rate debt generally
do not have a significant impact on the Consolidated Operating Partnership until
the Consolidated Operating Partnership is required to refinance such debt. See
Note 5 to the consolidated financial statements for a discussion of the maturity
dates of the Consolidated Operating Partnership's various fixed rate debt.
Based upon the amount of variable rate debt outstanding at March 31, 2002,
a 10% increase or decrease in the interest rate on the Consolidated Operating
Partnership's variable rate debt would decrease or increase, respectively,
future net income and cash flows by approximately $.5 million per year. A 10%
increase in interest rates would decrease the fair value of the fixed rate debt
at March 31, 2002 by approximately $50.2 million to $1,103.3 million. A 10%
decrease in interest rates would increase the fair value of the fixed rate debt
at March 31, 2002 by approximately $55.4 million to $1,208.9 million. A 10%
increase in interest rates would decrease the fair value of the Written Option
at March 31, 2002 by approximately $1.8 million to $3.4 million. A 10% decrease
in interest rates would increase the fair value of the Written Option at March
31, 2002 by approximately $2.5 million to $7.7 million. The Consolidated
Operating Partnership settled the Treasury Locks on April 5, 2002 for proceeds
of approximately $2.3 million.
GENERAL PARTNERSHIP, LIMITED PARTNERSHIP, PREFERRED GENERAL PARTNERSHIP UNIT
CONTRIBUTIONS AND EMPLOYEE STOCK OPTIONS
The Operating Partnership has issued Units and preferred general
partnership units. The general partnership units resulted from capital
contributions from the Company. The limited partnership units are issued in
conjunction with the acquisition of certain properties. The preferred general
partnership units resulted from preferred capital contributions from the
Company. The Operating Partnership will be required to make all required
distributions on the preferred general partnership units prior to any
distribution of cash or assets to the holders of the general and limited
partnership units except for distributions required to enable the Company to
maintain its qualification as a REIT.
Unit Contributions:
During the three months ended March 31, 2002, the Company awarded 90,260
shares of restricted common stock to certain employees and 965 shares of
restricted common stock to certain Directors. The Operating Partnership issued
Units to the Company in the same amount. These shares of restricted common stock
had a fair value of approximately $3.1 million on the date of grant. The
restricted common stock vests over periods from one to ten years. Compensation
expense will be charged to earnings over the respective vesting periods.
During the three months ended March 31, 2002, the Company issued 870,600
non-qualified employee stock options to certain officers, Directors and
employees. These non-qualified employee stock options vest over periods from one
to three years, have a strike price of $30.53 per share and expire ten years
from the date of grant.
20
During the three months ended March 31, 2002, certain employees exercised
354,953 non-qualified employee stock options. Net proceeds to the Company were
approximately $10.1 million. The Consolidated Operating Partnership, through the
Operating Partnership, issued Units to the Company in the same amount.
Distributions:
On January 22, 2002, the Operating Partnership paid a fourth quarter 2001
distribution of $.6800 per Unit, totaling approximately $31.2 million.
SUBSEQUENT EVENTS
From April 1, 2002 to May 3, 2002, the Consolidated Operating Partnership
acquired 11 industrial properties for an aggregate purchase price of
approximately $45.2 million, excluding costs incurred in conjunction with the
acquisition of these industrial properties. The Consolidated Operating
Partnership also sold one industrial property for approximately $20.9 million of
gross proceeds.
On April 1, 2002, the Operating Partnership paid a first quarter 2002
distribution of $54.688 per unit on its Series B Cumulative Preferred Units,
$53.906 per unit on its Series C Cumulative Preferred Units, $49.687 per unit on
its Series D Cumulative Preferred Units and $49.375 per unit on its Series E
Cumulative Preferred Units. The preferred unit distributions paid on April 1,
2002 totaled, in the aggregate, approximately $7.2 million.
On April 12, 2002, the Company called for the redemption of all of its
outstanding Series B Preferred Stock at the price of $25.00 per share, plus
accrued and unpaid dividends. The redemption date will be May 14, 2002. The
Series B Preferred Units associated with the Series B Preferred Stock will be
redeemed on May 14, 2002 as well.
On April 15, 2002, the Operating Partnership issued $200.0 million of
senior unsecured debt which matures on April 15, 2012 and bears a coupon
interest rate of 6.875% (the "2012 Notes"). The issue price of the 2012 Notes
was 99.310%. Interest is paid semi-annually in arrears on October 15 and April
15. The Operating Partnership also entered into interest rate protection
agreements which were used to fix the interest rate on the 2012 Notes prior to
issuance. The Operating Partnership settled the interest rate protection
agreements for approximately $1.8 million of proceeds which will be included in
other comprehensive income. The debt issue discount and the settlement amount of
the interest rate protection agreements are being amortized over the life of the
2012 Notes as an adjustment to interest expense. The 2012 Notes contain certain
covenants including limitations on incurrence of debt and debt service coverage.
On April 15, 2002, the Operating Partnership issued $50.0 million of
senior unsecured debt which matures on April 15, 2032 and bears a coupon
interest rate of 7.75% (the "2032 Notes"). The issue price of the 2032 Notes was
98.660%. Interest is paid semi-annually in arrears on October 15 and April 15.
The debt issue discount is being amortized over the life of the 2032 Notes as an
adjustment to interest expense. The 2032 Notes contain certain covenants
including limitations on incurrence of debt and debt service coverage.
On April 15, 2002, the Operating Partnership received redemption notices
from holders representing $84.9 million of the 2027 Notes outstanding. The
redemption notices require the Operating Partnership to payoff and retire $84.9
million of the 2027 Notes on May 15, 2002.
On April 22, 2002, the Operating Partnership paid a first quarter 2002
distribution of $.6800 per Unit, totaling approximately $31.5 million.
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SHORT-TERM AND LONG-TERM LIQUIDITY NEEDS
The Consolidated Operating Partnership 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
Consolidated Operating Partnership believes that its principle short-term
liquidity needs are to fund normal recurring expenses, debt service requirements
and the minimum distribution required by the Company to maintain the Company's
REIT qualification under the Internal Revenue Code. The Consolidated Operating
Partnership anticipates that these needs will be met with cash flows provided by
operating activities.
The Consolidated Operating Partnership expects to meet long-term (greater
than one year) liquidity requirements such as property acquisitions,
developments, scheduled debt maturities, major renovations, expansions and other
nonrecurring capital improvements through the disposition of select assets,
long-term unsecured indebtedness and the issuance of additional Units and
preferred units. As of March 31, 2002, $500.0 million of debt securities was
registered and unissued under the Securities Act of 1933, as amended. As of May
3, 2002, $250.0 million of debt securities were registered and unissued under
the Securities Act of 1933, as amended. The Consolidated Operating Partnership
may also finance the development or acquisition of additional properties through
borrowings under the 2000 Unsecured Acquisition Facility. At March 31, 2002,
borrowings under the 2000 Unsecured Acquisition Facility bore interest at a
weighted average interest rate of 3.31%. The 2000 Unsecured Acquisition Facility
bears interest at a floating rate of LIBOR plus .80%, or the Prime Rate, at the
Operating Partnership's election. As of May 3, 2002, the Consolidated Operating
Partnership, through the Operating Partnership, had approximately $297.8 million
available in additional borrowings under the 2000 Unsecured Acquisition
Facility.
OTHER
On April 30, 2002, the FASB issued Financial Accounting Standards No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections" ("FAS 145"). FAS 145 rescinds both Statement
of Financial Accounting Standards No. 4, "Reporting Gains and Losses from
Extinguishment of Debt" ("FAS 4"), and the amendment to FAS 4, Statement of
Financial Accounting Standards No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements". FAS 145 eliminates the requirement that gains and
losses from the extinguishment of debt be aggregated and, if material,
classified as an extraordinary item, net of the related income tax effect,
unless the criteria in Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" are met. FAS 145 is effective for transactions occurring
subsequent to May 15, 2002. The Consolidated Operating Partnership is currently
assessing the impact of FAS 145 on its consolidated financial position,
liquidity, and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Response to this item is included in Item 2. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" above.
22
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
Not applicable.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
Report on Form 8-K filed April 17, 2002, dated April 4, 2002, reporting
the pricing of offerings by First Industrial, L.P. of $200 million of
6.875% Notes due 2012 and $50 million of 7.75% Notes due 2032.
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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, L.P.
By: FIRST INDUSTRIAL REALTY TRUST, INC.
ITS SOLE GENERAL PARTNER
Date: May 9, 2002 By: /s/ Scott A. Musil
------------------------------------
Scott A. Musil
Senior Vice President- Controller
(Chief Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
None.
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