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, 2002
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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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 8,
2002: 38,603,463
FIRST INDUSTRIAL REALTY TRUST, INC.
FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2002
INDEX
<Table>
<Caption>
PAGE
----
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 ................... 2
Consolidated Statements of Operations for the Nine Months Ended September 30, 2002 and
September 30, 2001 ........................................................................... 3
Consolidated Statements of Operations for the Three Months Ended September 30, 2002 and
September 30, 2001 ........................................................................... 4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and
September 30, 2001 ........................................................................... 5
Notes to Consolidated Financial Statements ................................................... 6-15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................................. 16-26
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............................ 27
Item 4. Controls and Procedures ............................................................... 27
PART II: OTHER INFORMATION
Item 1. Legal Proceedings ..................................................................... 28
Item 2. Changes in Securities ................................................................. 28
Item 3. Defaults Upon Senior Securities ....................................................... 28
Item 4. Submission of Matters to a Vote of Security Holders ................................... 28
Item 5. Other Information ..................................................................... 28
Item 6. Exhibits and Report on Form 8-K ....................................................... 28
SIGNATURE ......................................................................................... 29
CERTIFICATIONS .................................................................................... 30-31
EXHIBIT INDEX ..................................................................................... 32
</Table>
1
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)
<Table>
<Caption>
September 30, December 31,
2002 2001
------------- ------------
ASSETS
Assets:
Investment in Real Estate:
Land .................................................................. $ 421,804 $ 421,828
Buildings and Improvements ............................................ 2,158,959 2,137,666
Furniture, Fixtures and Equipment ..................................... 1,258 1,258
Construction in Progress .............................................. 128,925 154,175
Less: Accumulated Depreciation ........................................ (307,929) (276,820)
------------ ------------
Net Investment in Real Estate ................................. 2,403,017 2,438,107
Real Estate Held for Sale, Net of Accumulated Depreciation and
Amortization of $5,016 at September 30, 2002 and $4,033 at
December 31, 2001 ..................................................... 21,365 30,750
Cash and Cash Equivalents ................................................ 1,419 --
Restricted Cash .......................................................... 26,609 22,764
Tenant Accounts Receivable, Net .......................................... 11,993 11,956
Investments in Joint Ventures ............................................ 12,932 9,010
Deferred Rent Receivable ................................................. 15,187 15,442
Deferred Financing Costs, Net ............................................ 13,345 11,717
Prepaid Expenses and Other Assets, Net ................................... 127,423 81,654
------------ ------------
Total Assets .................................................. $ 2,633,290 $ 2,621,400
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage Loans Payable, Net .............................................. $ 95,956 $ 87,459
Senior Unsecured Debt, Net ............................................... 1,211,788 1,048,491
Acquisition Facility Payable ............................................. 110,400 182,500
Accounts Payable and Accrued Expenses .................................... 72,778 71,031
Rents Received in Advance and Security Deposits .......................... 26,637 26,684
Dividends/Distributions Payable .......................................... 31,620 31,196
------------ ------------
Total Liabilities ............................................. 1,549,179 1,447,361
------------ ------------
Minority Interest ........................................................... 173,597 178,442
Commitments and Contingencies ............................................... -- --
Stockholders' Equity:
Preferred Stock ($.01 par value, 10,000,000 shares authorized,
20,000, 50,000 and 30,000 shares of Series C, D and E
Cumulative Preferred Stock, respectively, issued and
outstanding at September 30, 2002 and December 31, 2001,
having a liquidation preference of, $2,500 per share
($50,000), $2,500 per share ($125,000) and $2,500 per share
($75,000), respectively, as well as 40,000 shares of Series B
Cumulative Preferred Stock issued and outstanding
at December 31, 2001, having a liquidation preference of
$2,500 per share ($100,000)) ............................................ 1 1
Common Stock ($.01 par value, 100,000,000 shares authorized,
41,039,196 and 40,302,287 shares issued and 39,641,596 and
38,904,687 shares outstanding at September 30, 2002 and
December 31, 2001, respectively) ........................................ 410 403
Additional Paid-in-Capital .................................................. 1,123,212 1,197,877
Distributions in Excess of Accumulated Earnings ............................. (156,701) (143,958)
Unearned Value of Restricted Stock Grants ................................... (5,572) (6,247)
Accumulated Other Comprehensive Loss ........................................ (10,738) (12,381)
Treasury Shares at Cost (1,397,600 shares at September 30, 2002 and
December 31, 2001) ...................................................... (40,098) (40,098)
------------ ------------
Total Stockholders' Equity .................................. 910,514 995,597
------------ ------------
Total Liabilities and Stockholders' Equity .................. $ 2,633,290 $ 2,621,400
============ ============
</Table>
The accompanying notes are an integral part of the financial statements.
2
FIRST INDUSTRIAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<Table>
<Caption>
Nine Months Ended Nine Months Ended
September 30, 2002 September 30, 2001
------------------ ------------------
Revenues:
Rental Income ............................................................... $ 200,297 $ 208,196
Tenant Recoveries and Other Income .......................................... 64,450 66,370
-------------- --------------
Total Revenues .................................................... 264,747 274,566
-------------- --------------
Expenses:
Real Estate Taxes ........................................................... 41,178 41,497
Repairs and Maintenance ..................................................... 16,225 14,039
Property Management ......................................................... 9,584 9,191
Utilities ................................................................... 6,811 7,003
Insurance ................................................................... 1,963 1,511
Other ....................................................................... 6,873 7,526
General and Administrative .................................................. 13,782 13,695
Interest Expense ............................................................ 66,514 62,722
Amortization of Deferred Financing Costs .................................... 1,464 1,357
Depreciation and Other Amortization ......................................... 55,594 49,319
-------------- --------------
Total Expenses ................................................... 219,988 207,860
-------------- --------------
Income from Continuing Operations Before Equity in Income of Joint
Ventures, Income Allocated to Minority Interest and
Gain on Sale of Real Estate ................................................ 44,759 66,706
Equity in Income of Joint Ventures ............................................. 1,135 751
Gain on Sale of Real Estate .................................................... 5,538 48,506
Minority Interest Allocable to Continuing Operations ........................... (4,895) (14,364)
-------------- --------------
Income from Continuing Operations .............................................. 46,537 101,599
Income from Discontinued Operations (Including Gain on Sale of Real
Estate of $45,028 for the Nine Months Ended September 30, 2002) ............. 51,649 11,940
Minority Interest Allocable to Discontinued Operations ......................... (7,742) (1,835)
-------------- --------------
Net Income Before Extraordinary Loss ........................................... 90,444 111,704
Extraordinary Loss ............................................................. (888) (10,309)
Minority Interest Allocable to Extraordinary Loss .............................. 134 1,597
-------------- --------------
Net Income ..................................................................... 89,690 102,992
Less: Preferred Stock Dividends ................................................ (18,388) (22,770)
-------------- --------------
Net Income Available to Common Stockholders .................................... $ 71,302 $ 80,222
============== ==============
Income from Continuing Operations Available to Common Stockholders Per
Weighted Average Common Share Outstanding:
Basic .............................................................. $ .72 $ 2.00
============== ==============
Diluted ............................................................ $ .71 $ 1.99
============== ==============
Net Income Available to Common Stockholders Before Extraordinary Loss Per
Weighted Average Common Share Outstanding:
Basic .............................................................. $ 1.83 $ 2.26
============== ==============
Diluted ............................................................ $ 1.82 $ 2.25
============== ==============
Net Income Available to Common Stockholders Per Weighted Average
Common Share Outstanding:
Basic .............................................................. $ 1.81 $ 2.04
============== ==============
Diluted ............................................................ $ 1.80 $ 2.03
============== ==============
Net Income ..................................................................... $ 89,690 $ 102,992
Other Comprehensive Income:
Cumulative Transition Adjustment ................................... -- (14,920)
Settlement of Interest Rate Protection Agreement ................... 1,772 (191)
Mark-to-Market of Interest Rate Swap Agreements .................... (259) --
Write-off of Unamortized Interest Rate Protection Agreement
Due to the Early Retirement of Debt .............................. -- 2,156
Amortization of Interest Rate Protection Agreements ................ 130 753
-------------- --------------
Comprehensive Income ........................................................... $ 91,333 $ 90,790
============== ==============
</Table>
The accompanying notes are an integral part of the financial statements.
3
FIRST INDUSTRIAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<Table>
<Caption>
Three Months Ended Three Months Ended
September 30, 2002 September 30, 2001
------------------ ------------------
Revenues:
Rental Income ............................................................ $ 67,802 $ 66,608
Tenant Recoveries and Other Income ....................................... 22,902 20,890
-------------- --------------
Total Revenues ................................................. 90,704 87,498
-------------- --------------
Expenses:
Real Estate Taxes ........................................................ 13,665 13,277
Repairs and Maintenance .................................................. 5,803 4,174
Property Management ...................................................... 2,959 2,656
Utilities ................................................................ 2,425 1,826
Insurance ................................................................ 699 366
Other .................................................................... 2,430 2,091
General and Administrative ............................................... 3,759 4,042
Interest Expense ......................................................... 23,810 20,089
Amortization of Deferred Financing Costs ................................. 505 459
Depreciation and Other Amortization ...................................... 19,169 16,593
-------------- --------------
Total Expenses ................................................ 75,224 65,573
-------------- --------------
Income from Continuing Operations Before Equity in Income of Joint
Ventures, Income Allocated to Minority Interest and
Gain on Sale of Real Estate ............................................. 15,480 21,925
Equity in Income of Joint Ventures .......................................... 559 315
Gain on Sale of Real Estate ................................................. 1,327 18,808
Minority Interest Allocable to Continuing Operations ........................ (1,823) (5,140)
-------------- --------------
Income from Continuing Operations ........................................... 15,543 35,908
Income from Discontinued Operations (Including Gain on Sale of Real
Estate of $13,744 for the Three Months Ended September 30, 2002) ......... 14,890 4,214
Minority Interest Allocable to Discontinued Operations ...................... (2,203) (638)
-------------- --------------
Net Income .................................................................. 28,230 39,484
Less: Preferred Stock Dividends ............................................. (5,044) (7,231)
-------------- --------------
Net Income Available to Common Stockholders ................................. $ 23,186 $ 32,253
============== ==============
Income from Continuing Operations Available to Common Stockholders Per
Weighted Average Common Share Outstanding:
Basic ........................................................... $ .27 $ .72
============== ==============
Diluted ......................................................... $ .26 $ .72
============== ==============
Net Income Available to Common Stockholders Per Weighted Average
Common Share Outstanding:
Basic ........................................................... $ .59 $ .81
============== ==============
Diluted ......................................................... $ .58 $ .81
============== ==============
Net Income .................................................................. $ 28,230 $ 39,484
Other Comprehensive Income:
Mark-to-Market of Interest Rate Swap Agreements ................. (80) --
Amortization of Interest Rate Protection Agreements ............. 5 51
-------------- --------------
Comprehensive Income ........................................................ $ 28,155 $ 39,535
============== ==============
</Table>
The accompanying notes are an integral part of the financial statements.
4
FIRST INDUSTRIAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
Nine Months Ended Nine Months Ended
September 30, 2002 September 30, 2001
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ............................................................... $ 89,690 $ 102,992
Income Allocated to Minority Interest .................................... 12,503 14,602
-------------- --------------
Income Before Minority Interest .......................................... 102,193 117,594
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation ......................................................... 49,217 45,048
Amortization of Deferred Financing Costs ............................. 1,464 1,357
Other Amortization ................................................... 11,794 11,098
Equity in Income of Joint Ventures ................................... (1,135) (751)
Distributions from Joint Ventures .................................... 1,135 751
Gain on Sale of Real Estate .......................................... (50,566) (48,506)
Extraordinary Loss ................................................... 888 10,309
Increase in Tenant Accounts Receivable and Prepaid
Expenses and Other Assets, Net ..................................... (16,114) (11,998)
Increase in Deferred Rent Receivable ................................. (1,406) (2,696)
Increase (Decrease) in Accounts Payable and Accrued Expenses
and Rents Received in Advance and Security Deposits ................ 1,746 (5,145)
(Increase) Decrease in Restricted Cash ............................... (39) 91
-------------- --------------
Net Cash Provided by Operating Activities ....................... 99,177 117,152
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of and Additions to Investment in Real Estate .................. (240,318) (298,218)
Net Proceeds from Sales of Investment in Real Estate ..................... 248,923 288,562
Contributions to and Investments in Joint Ventures ....................... (6,654) --
Distributions from Joint Ventures in Excess of Equity in Income .......... 744 340
Repayment of Mortgage Loans Receivable ................................... 18,993 9,819
Increase in Restricted Cash .............................................. (3,806) (23,273)
-------------- --------------
Net Cash Provided by (Used in) Investing Activities ............ 17,882 (22,770)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from Exercise of Employee Stock Options ..................... 15,895 16,646
Repurchase of Restricted Stock ........................................... (1,796) (1,866)
Purchase of Treasury Shares .............................................. -- (5,141)
Purchase of U.S. Government Securities ................................... (2,634) (1,123)
Proceeds from Senior Unsecured Debt ...................................... 247,950 199,390
Other Proceeds from Senior Unsecured Debt ................................ 1,772 --
Repayments of Senior Unsecured Debt ...................................... (84,930) (100,000)
Redemption of Preferred Stock ............................................ (100,000) (41,295)
Dividends/Distributions .................................................. (94,256) (91,543)
Preferred Stock Dividends ................................................ (18,388) (23,750)
Repayments on Mortgage Loans Payable ..................................... (3,277) (13,245)
Proceeds from Acquisition Facility Payable ............................... 359,900 322,300
Repayments on Acquisition Facility Payable ............................... (432,000) (340,300)
Cost of Debt Issuance and Prepayment Fees ................................ (3,876) (8,942)
-------------- --------------
Net Cash Used in Financing Activities ......................... (115,640) (88,869)
-------------- --------------
Net Increase in Cash and Cash Equivalents ................................... 1,419 5,513
Cash and Cash Equivalents, Beginning of Period .............................. -- 7,731
-------------- --------------
Cash and Cash Equivalents, End of Period .................................... $ 1,419 $ 13,244
============== ==============
</Table>
The accompanying notes are an integral part of the financial statements.
5
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
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 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 85.2%
ownership interest at September 30, 2002. Minority interest in the Company at
September 30, 2002 represents the approximate 14.8% aggregate partnership
interest in the Operating Partnership held by the limited partners thereof.
As of September 30, 2002, the Company owned 909 in-service properties
located in 24 states, containing an aggregate of approximately 61.6 million
square feet of gross leasable area ("GLA"). Of the 909 in-service properties
owned by the Company, 764 are held by the Operating Partnership, 118 are held by
limited partnerships in which the Operating Partnership is the limited partner
and wholly-owned subsidiaries of the Company are the general partners, 11 are
held by limited liability companies of which the Operating Partnership is the
sole member and 16 are held by an entity wholly-owned by the Operating
Partnership. The Company, through wholly-owned limited liability companies of
which the Operating Partnership 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").
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 Company'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 Company's 2001 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 as of September
30, 2002 and December 31, 2001, and the reported amounts of revenues and
expenses for each of the nine and three months ended September 30, 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
Company as of September 30, 2002, the results of its operations for each of the
nine and three months ended September 30, 2002 and 2001 and its cash flows for
the nine months ended September 30, 2002 and 2001.
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 approximately $2,050 as of September 30, 2002
and December 31, 2001.
6
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Discontinued Operations:
On January 1, 2002, the Company 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 financial 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 as well as 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 fiscal years beginning after May
15, 2002. The Company believes that FAS 145 will not have an impact on its
consolidated financial position, liquidity and results of operations.
Reclassification:
Certain 2001 items have been reclassified to conform to the 2002
presentation.
3. INVESTMENTS IN JOINT VENTURES
During the nine months ended September 30, 2002, the Company, through
wholly-owned limited liability companies in which the Operating Partnership is
the sole member, recognized approximately $674 in asset management fees from the
September 1998 Joint Venture and the September 1999 Joint Venture, and
approximately $817 in property management fees from the September 1998 Joint
Venture, the September 1999 Joint Venture and the December 2001 Joint Venture.
The Company, through a wholly-owned limited liability company in which the
Operating Partnership is the sole member, invested approximately $6,334 in the
December 2001 Joint Venture. The Company, through wholly-owned limited liability
companies in which the Operating Partnership is the sole member, received
distributions of approximately $1,879 from the September 1998 Joint Venture, the
September 1999 Joint Venture and the December 2001 Joint Venture. As of
September 30, 2002, the September 1998 Joint Venture owned 88 industrial
properties comprising approximately 4.1 million square feet of GLA, the
September 1999 Joint Venture owned two industrial properties comprising
approximately .3 million square feet of GLA and the December 2001 Joint Venture
had economic interests in 21 industrial properties comprising approximately 3.6
million square feet of GLA. For the properties purchased by the December 2001
Joint Venture from the Company, the Company deferred 15% of the gain resulting
from these sales, which is equal to the Company's economic interest in the
December 2001 Joint Venture.
7
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
4. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION
FACILITY PAYABLE
Mortgage Loans Payable, Net:
On December 29, 1995, the Company, through an entity in which the Operating
Partnership is the sole limited partner and a wholly-owned subsidiary of the
Company is the general partner (the "Mortgage Partnership"), entered into a
$40,200 mortgage loan (the "1995 Mortgage Loan"). In January 2002, the Company
purchased approximately $.8 million of U.S. Government securities as substitute
collateral to execute a legal defeasance of approximately $.8 million of the
1995 Mortgage Loan. In June 2002, the Company purchased approximately $1.9
million of U.S. Government securities as substitute collateral to execute a
legal defeasance of approximately $1.9 million of the 1995 Mortgage Loan. The
terms of the legal defeasance require the Mortgage Partnership to use the gross
proceeds from the maturities of the U.S. Government securities to pay down and
subsequently retire the defeased portion of the 1995 Mortgage Loan in January
2003. The Company is carrying the defeased portion of the 1995 Mortgage Loan on
its balance sheet until it pays down and retires the defeased portion of the
1995 Mortgage Loan in January 2003. Upon the executions of the legal
defeasances, two of the 21 properties collateralizing the 1995 Mortgage Loan
were released and subsequently sold.
On April 1, 2002, the Company, through the Operating Partnership, assumed a
mortgage loan in the principal amount of $5,814 (the "Acquisition Mortgage Loan
VIII"). The Acquisition Mortgage Loan VIII is collateralized by one property in
Rancho Dominguez, California, bears interest at a fixed rate of 8.26% and
provides for monthly principal and interest payments based on a 22-year
amortization schedule. The Acquisition Mortgage Loan VIII matures on December 1,
2019. The Acquisition Mortgage Loan VIII may be prepaid only after November 2004
in exchange for the greater of a 1% prepayment fee or yield maintenance premium.
On April 1, 2002, the Company, through the Operating Partnership, assumed a
mortgage loan in the principal amount of $6,030 (the "Acquisition Mortgage Loan
IX"). The Acquisition Mortgage Loan IX is collateralized by one property in
Rancho Dominguez, California, bears interest at a fixed rate of 8.26% and
provides for monthly principal and interest payments based on a 22-year
amortization schedule. The Acquisition Mortgage Loan IX matures on December 1,
2019. The Acquisition Mortgage Loan IX may be prepaid only after November 2004
in exchange for the greater of a 1% prepayment fee or yield maintenance premium.
On January 31, 1997, the Company, through the Operating Partnership,
assumed a loan in the amount of $705 (the "LB Loan II"). On June 14, 2002, the
Company, through the Operating Partnership, paid off and retired the LB Loan II.
On August 31, 1998, the Company, through the Operating Partnership, assumed
a mortgage loan in the amount of approximately $965 (the "Acquisition Mortgage
Loan VI"). On July 2, 2002, the Company paid off and retired the Acquisition
Mortgage Loan VI.
Senior Unsecured Debt:
On April 15, 2002, the Company, through 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 April 15 and
October 15. The Company also entered into interest rate protection agreements
which were used to fix the interest rate on the 2012 Notes prior to issuance.
The Company settled the interest rate protection agreements for approximately
$1,772 of proceeds, which is 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.
8
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
4. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION
FACILITY PAYABLE, CONTINUED
On April 15, 2002, the Company, through 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 April 15 and
October 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 May 13, 1997, the Company, through the Operating Partnership, issued
$100,000 of senior unsecured debt which matures on May 15, 2027 and bears a
coupon interest rate of 7.15% (the "2027 Notes"). The issue price of the 2027
Notes was 99.854%. The 2027 Notes were redeemable, at the option of the holders
thereof, on May 15, 2002. The Company received redemption notices from holders
representing $84,930 of the 2027 Notes outstanding. On May 15, 2002, the Company
paid off and retired $84,930 of the 2027 Notes. Due to the partial payoff of the
2027 Notes, the Company has recorded an extraordinary loss of approximately $888
comprised of the amount paid above the carrying amount of the 2027 Notes, the
write-off of the pro rata unamortized deferred financing fees and legal costs.
Acquisition Facility Payable:
On September 27, 2002, the Company, through the Operating Partnership,
amended and restated its $300,000 unsecured line of credit (the "2002 Unsecured
Acquisition Facility", formerly, the "2000 Unsecured Acquisition Facility"). The
2002 Unsecured Acquisition Facility matures on September 30, 2005 and bears
interest at a floating rate of LIBOR plus .70%, or the Prime Rate, at the
Company's election. The net unamortized deferred financing fees related to the
2000 Unsecured Acquisition Facility and any additional deferred financing fees
incurred with the 2002 Unsecured Acquisition Facility are being amortized over
the life of the 2002 Unsecured Acquisition Facility in accordance with Emerging
Issues Task Force Issue 98-14, "Debtor's Accounting for Changes in
Line-of-Credit or Revolving-Debt Arrangement".
Interest Rate Swap Agreements:
In January 2002 and August 2002, the Company, through the Operating
Partnership, entered into two interest rate swap agreements (the "Interest Rate
Swap Agreements") which fixed the interest rate on a portion of the Company's
2002 Unsecured Acquisition Facility. The Company designated the Interest Rate
Swap Agreements as cash flow hedges. The January 2002 interest 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%. The August 2002 interest
rate swap agreement has a notional value of $25,000, is effective from September
5, 2002 through September 5, 2003 and fixed the LIBOR rate at 1.884%. Any
payments or receipts from the Interest Rate Swap Agreements will be treated as a
component of interest expense. The Company anticipates that the Interest Rate
Swap Agreements will be highly effective, and, as a result, the change in value
will be shown in other comprehensive income. The following table discloses
information about all of the Company's outstanding interest rate swap agreements
at September 30, 2002 which fix the interest rate on a portion of the Company's
2002 Unsecured Acquisition Facility.
<Table>
<Caption>
Notional Amount Effective Date Maturity Date LIBOR Rate
--------------- -------------- ------------- ----------
$25,000 October 5, 2001 October 5, 2002 2.5775%
$25,000 October 5, 2001 July 5, 2003 3.0775%
$25,000 February 4, 2002 February 4, 2003 2.4975%
$25,000 September 5, 2002 September 5, 2003 1.884%
</Table>
9
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
4. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION
FACILITY PAYABLE, CONTINUED
The following table discloses certain information regarding the Company's
mortgage loans payable, senior unsecured debt and acquisition facility payable:
<Table>
<Caption>
OUTSTANDING BALANCE AT ACCRUED INTEREST PAYABLE AT
--------------------------------- ------------------------------
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
2002 2001 2002 2001
------------- ------------ ------------- ------------
MORTGAGE LOANS PAYABLE, NET
1995 Mortgage Loan ................ $ 37,633(1) $ 38,063 $ 151 $ 160
CIGNA Loan ........................ 32,623 33,214 204 207
Assumed Loans ..................... 6,150 6,538 -- --
LB Loan II ....................... -- 705 -- 24
Acquisition Mortgage Loan III ..... 2,959 3,065 22 --
Acquisition Mortgage Loan IV ...... 2,235 2,286 16 --
Acquisition Mortgage Loan V ....... 2,614(3) 2,665(3) -- --
Acquisition Mortgage Loan VI ...... -- 923(3) -- 7
Acquisition Mortgage Loan VIII .... 5,764 -- 40 --
Acquisition Mortgage Loan IX ...... 5,978 -- 41 --
------------ ------------ ------------ ------------
Total ............................. $ 95,956 $ 87,459 $ 474 $ 398
============ ============ ============ ============
SENIOR UNSECURED DEBT, NET
2005 Notes ........................ $ 50,000 $ 50,000 $ 1,246 $ 383
2006 Notes ........................ 150,000 150,000 3,500 875
2007 Notes ........................ 149,976(4) 149,972(4) 4,307 1,457
2011 PATS ......................... 99,598(4) 99,563(4) 2,786 942
2017 Notes ........................ 99,855(4) 99,847(4) 2,500 625
2027 Notes ........................ 15,052(4) 99,877(4) 407 914
2028 Notes ........................ 199,797(4) 199,791(4) 3,209 7,009
2011 Notes ........................ 199,487(4) 199,441(4) 655 4,343
2012 Notes ........................ 198,683(4) -- 6,340 --
2032 Notes ........................ 49,340(4) -- 1,787 --
------------ ------------ ------------ ------------
Total ............................. $ 1,211,788 $ 1,048,491 $ 26,737 $ 16,548
============ ============ ============ ============
ACQUISITION FACILITY PAYABLE
2000 Unsecured Acquisition
Facility ....................... $ -- $ 182,500 $ -- $ 571
============ ============ ============ ============
ACQUISITION FACILITY PAYABLE
2002 Unsecured Acquisition
Facility ....................... $ 110,400 $ -- $ 68 $ --
============ ============ ============ ============
<Caption>
INTEREST RATE AT
----------------
SEPTEMBER 30, MATURITY
2002 DATE
------------- ------------
MORTGAGE LOANS PAYABLE, NET
1995 Mortgage Loan ................ 7.220% 1/11/26(1)
CIGNA Loan ........................ 7.500% 4/01/03(7)
Assumed Loans ..................... 9.250% 1/01/13
LB Loan II ....................... 8.000% (2)
Acquisition Mortgage Loan III ..... 8.875% 6/01/03
Acquisition Mortgage Loan IV ...... 8.950% 10/01/06
Acquisition Mortgage Loan V ....... 9.010% 9/01/06
Acquisition Mortgage Loan VI ...... 8.875% 11/01/06(8)
Acquisition Mortgage Loan VIII .... 8.260% 12/01/19
Acquisition Mortgage Loan IX ...... 8.260% 12/01/19
Total .............................
SENIOR UNSECURED DEBT, NET
2005 Notes ........................ 6.900% 11/21/05
2006 Notes ........................ 7.000% 12/01/06
2007 Notes ........................ 7.600% 5/15/07
2011 PATS ......................... 7.375% 5/15/11(5)
2017 Notes ........................ 7.500% 12/01/17
2027 Notes ........................ 7.150% 5/15/27(6)
2028 Notes ........................ 7.600% 7/15/28
2011 Notes ........................ 7.375% 3/15/11
2012 Notes ........................ 6.875% 4/15/12
2032 Notes ........................ 7.750% 4/15/32
Total .............................
ACQUISITION FACILITY PAYABLE
2000 Unsecured Acquisition
Facility ....................... (9) (9)
ACQUISITION FACILITY PAYABLE
2002 Unsecured Acquisition
Facility ....................... 4.75% 9/30/05
</Table>
(1) Approximately $4.9 million of this loan has been defeased and will be paid
in full in January 2003.
(2) On June 14, 2002, the Company paid off and retired the LB Loan II.
(3) At September 30, 2002, the Acquisition Mortgage Loan V is net of an
unamortized premium of $151. At December 31, 2001 the Acquisition Mortgage
Loan V and the Acquisition Mortgage Loan VI are net of unamortized premium
of $180 and $41, respectively.
(4) At September 30, 2002, the 2007 Notes, 2011 PATS, 2017 Notes, 2027 Notes,
2028 Notes, 2011 Notes, 2012 Notes and the 2032 Notes are net of
unamortized discounts of $24, $402, $145, $18, $203, $513, $1,317 and $660,
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.
(5) The 2011 PATS are redeemable at the option of the holder thereof, on May
15, 2004.
(6) The 2027 Notes were redeemable at the option of the holders thereof, on May
15, 2002. The Company redeemed $84,930 of the 2027 Notes outstanding on May
15, 2002.
(7) The Company paid off and retired the CIGNA Loan on October 1, 2002.
(8) On July 2, 2002, the Company paid off and retired the Acquisition Mortgage
Loan VI.
(9) The 2000 Unsecured Acquisition Facility was amended and restated in
September 2002.
10
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
4. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION
FACILITY PAYABLE, CONTINUED
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:
<Table>
<Caption>
Amount
-----------
Remainder of 2002 $ 33,061
2003 9,164
2004 1,628
2005 162,177
2006 156,058
Thereafter 1,059,187
-----------
Total $ 1,421,275
===========
</Table>
The Company paid off and retired the CIGNA Loan (as defined in Note 11) on
October 1, 2002. As a result, the CIGNA Loan is shown as maturing in 2002.
Other Comprehensive Income:
In conjunction with the prior issuances of senior unsecured debt, the
Company 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 Company will amortize
approximately $197 into net income as an increase to interest expense.
The following is a rollforward of the accumulated other comprehensive loss
balance relating to derivative transactions:
<Table>
Balance at December 31, 2001 ..................................... $ (12,381)
Settlement of Interest Rate Protection Agreements ........... 1,772
Change in Market Value of Interest Rate Swap Agreements ..... (259)
Amortization of Interest Rate Protection Agreements ......... 130
----------
Balance at September 30, 2002 .................................... $ (10,738)
==========
</Table>
5. STOCKHOLDERS' EQUITY
Preferred Stock:
On May 14, 1997, the Company issued 4,000,000 Depositary Shares, each
representing 1/100th of a share of the Company's 8 3/4%, $.01 par value, Series
B Cumulative Preferred Stock (the "Series B Preferred Stock"), at an initial
offering price of $25.00 per Depositary Share. On or after May 14, 2002, the
Series B Preferred Stock became redeemable for cash at the option of the
Company, in whole or in part, at a redemption price equivalent to $25.00 per
Depositary Share, or $100,000 in the aggregate, plus dividends accrued and
unpaid to the redemption date. 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 Depositary Share, plus accrued and unpaid dividends. The Company
redeemed the Series B Preferred Stock on May 14, 2002 and paid a prorated second
quarter dividend of $.26736 per Depositary Share, totaling approximately $1,069.
11
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. STOCKHOLDERS' EQUITY, CONTINUED
Restricted Stock:
During the nine months ended September 30, 2002, the Company awarded 90,260
shares of restricted common stock to certain employees and 2,753 shares of
restricted common stock to certain Directors. These shares of restricted common
stock had a fair value of approximately $3,203 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.
Non-Qualified Employee Stock Options:
During the nine months ended September 30, 2002, the Company issued 940,600
non-qualified employee stock options to certain officers, Directors and
employees of the Company. These non-qualified employee stock options vest over
periods from one to three years, have a strike price of $30.53 - $33.15 per
share and expire ten years from the date of grant.
During the nine months ended September 30, 2002, certain employees of the
Company exercised 561,418 non-qualified employee stock options. Net proceeds to
the Company were approximately $15,895.
Dividends/Distributions:
The following table summarizes dividends/distributions declared for the
nine months ended September 30, 2002.
<Table>
<Caption>
Nine Months Ended September 30, 2002
-----------------------------------------
Dividend/Distribution Total Dividend/
per Share/Unit Distribution
--------------------- ---------------
Common Stock/Operating Partnership Units $ 2.040 $ 94,680
Series B Preferred Stock $ 81.424 $ 3,260
Series C Preferred Stock $ 161.718 $ 3,234
Series D Preferred Stock $ 149.064 $ 7,452
Series E Preferred Stock $ 148.125 $ 4,442
</Table>
6. ACQUISITION AND DEVELOPMENT OF REAL ESTATE
During the nine months ended September 30, 2002, the Company acquired 53
industrial properties, comprising approximately 4.2 million square feet of GLA
and one land parcel. The aggregate purchase price for these acquisitions totaled
approximately $171,559 excluding costs incurred in conjunction with the
acquisition of the properties. Eight of the 53 industrial properties acquired,
comprising approximately .2 million square feet of GLA, were acquired from the
September 1999 Joint Venture for an aggregate purchase price of approximately
$13,000. The Company also completed the development of 13 industrial properties
comprising approximately 2.5 million square feet of GLA at a cost of
approximately $92.1 million.
7. SALES OF REAL ESTATE, REAL ESTATE HELD FOR SALE AND DISCONTINUED OPERATIONS
During the nine months ended September 30, 2002, the Company sold 61
industrial properties comprising approximately 7.1 million square feet of GLA
that were not classified as held for sale at December 31, 2001, 12 properties
comprising approximately 1.0 million square feet of GLA that were classified as
held for sale at December 31, 2001, several land parcels and assigned to third
parties the right to purchase certain properties. Gross proceeds from these
sales were approximately $324,771. The gain on sale of real estate was
approximately $50,566, of which $45,028 is shown in discontinued operations. In
accordance with FAS 144, the results of operations and gain on sale of real
estate for the 61 sold properties that were not identified as held for sale at
December 31, 2001 and the gain associated
12
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
7. SALES OF REAL ESTATE, REAL ESTATE HELD FOR SALE AND DISCONTINUED
OPERATIONS, CONTINUED
with the assignment to third parties of the right to purchase certain properties
are included in discontinued operations.
At September 30, 2002, the Company had seven industrial properties
comprising approximately .7 million square feet of GLA held for sale. Two of the
seven properties comprising approximately .2 million square feet of GLA that
were held for sale as of September 30, 2002 were identified as held for sale as
of December 31, 2001. In accordance with FAS 144, the results of operations of
the five properties identified as held for sale during the nine months ended
September 30, 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 two
industrial properties identified as held for sale by the Company prior to
January 1, 2002.
<Table>
<Caption>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Total Revenues $ 868 $ 390 $ 338 $ 100
Operating Expenses (243) (240) (85) (76)
------------ ------------ ------------ ------------
Income from Operations $ 625 $ 150 $ 253 $ 24
============ ============ ============ ============
</Table>
8. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information:
<Table>
<Caption>
Nine Months Ended
-------------------------------
September 30, September 30,
2002 2001
------------- -------------
Interest paid, net of capitalized interest ............................... $ 56,752 $ 56,434
============ ============
Interest capitalized ..................................................... $ 6,814 $ 6,978
============ ============
Supplemental schedule of non-cash investing and financing activities:
Distribution payable on common stock/units ............................... $ 31,620 $ 30,660
============ ============
Distribution payable on preferred stock .................................. $ -- $ 7,231
============ ============
Issuance of units in exchange for property .................................. $ 633 $ 1,491
============ ============
Exchange of units for common shares:
Minority interest ....................................................... $ (3,323) $ (7,258)
Common stock ............................................................ 1 3
Additional paid-in capital .............................................. 3,322 7,255
------------ ------------
$ -- $ --
============ ============
In conjunction with the property and land acquisitions, the following
liabilities were assumed:
Purchase of real estate .................................................. $ 171,559 $ 175,484
Accrued real estate taxes and security deposits .......................... (1,366) (1,597)
Mortgage Debt ............................................................ (11,844) --
------------ ------------
$ 158,349 $ 173,887
============ ============
In conjunction with certain property sales, the Company provided seller
financing:
Notes Receivable ......................................................... $ 57,227 $ 12,460
============ ============
</Table>
13
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
9. EARNINGS PER SHARE
The computation of basic and diluted EPS is presented below:
<Table>
<Caption>
Nine Months Ended Three Months Ended
------------------------------ ------------------------------
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Numerator:
Income from Continuing Operations ......................... $ 46,537 $ 101,599 $ 15,543 $ 35,908
Less: Preferred Stock Dividends ........................... (18,388) (22,770) (5,044) (7,231)
------------ ------------ ------------ ------------
Income from Continuing Operations Available to
Common Stockholders, Net of Minority Interest
-For Basic and Diluted EPS .............................. 28,149 78,829 10,499 28,677
Discontinued Operations, Net of Minority Interest ......... 43,907 10,105 12,687 3,576
------------ ------------ ------------ ------------
Net Income Available to Common Stockholders Before
Extraordinary Loss-For Basic and Diluted EPS ............. 72,056 88,934 23,186 32,253
Extraordinary Loss, Net of Minority Interest .............. (754) (8,712) -- --
------------ ------------ ------------ ------------
Net Income Available to Common Stockholders
-For Basic and Diluted EPS ................................ $ 71,302 $ 80,222 $ 23,186 $ 32,253
============ ============ ============ ============
Denominator:
Weighted Average Shares - Basic .......................... 39,333,471 39,353,513 39,608,709 39,661,725
Effect of Dilutive Securities:
Employee and Director Common Stock Options ............... 296,928 251,838 205,318 232,427
------------ ------------ ------------ ------------
Weighted Average Shares-Diluted .......................... 39,630,399 39,605,351 39,814,027 39,894,152
============ ============ ============ ============
Basic EPS:
Income from Continuing Operations Available to
Common Stockholders, Net of Minority Interest .......... $ .72 $ 2.00 $ .27 $ .72
============ ============ ============ ============
Discontinued Operations, Net of Minority Interest ........ $ 1.12 $ .26 $ .32 $ .09
============ ============ ============ ============
Net Income Available to Common Stockholders Before
Extraordinary Loss .................................... $ 1.83 $ 2.26 $ .59 $ .81
============ ============ ============ ============
Extraordinary Loss, Net of Minority Interest ............. $ (.02) $ (.22) $ -- $ --
============ ============ ============ ============
Net Income Available to Common Stockholders .............. $ 1.81 $ 2.04 $ .59 $ .81
============ ============ ============ ============
Diluted EPS:
Income from Continuing Operations Available to
Common Stockholders, Net of Minority Interest .......... $ .71 $ 1.99 $ .26 $ .72
============ ============ ============ ============
Discontinued Operations, Net of Minority Interest ........ $ 1.11 $ .26 $ .32 $ .09
============ ============ ============ ============
Net Income Available to Common Stockholders Before
Extraordinary Loss .................................... $ 1.82 $ 2.25 $ .58 $ .81
============ ============ ============ ============
Extraordinary Loss, Net of Minority Interest ............. $ (.02) $ (.22) $ -- $ --
============ ============ ============ ============
Net Income Available to Common Stockholders .............. $ 1.80 $ 2.03 $ .58 $ .81
============ ============ ============ ============
</Table>
14
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
10. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company 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 Company.
The Company has committed to the construction of 30 development projects
totaling approximately 3.5 million square feet of GLA for an estimated
investment of approximately $176.8 million. Of this amount, approximately $37.5
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 Company's 2002 Unsecured Acquisition Facility. The Company
expects to place in service 27 of the 30 development projects during the next
twelve months. There can be no assurance that the Company 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.
11. SUBSEQUENT EVENTS
From October 1, 2002 to November 8, 2002, the Company acquired 28
industrial properties for an aggregate purchase price of approximately $47,744
excluding costs incurred in conjunction with the acquisition of these industrial
properties. Nineteen of the 28 industrial properties acquired, were acquired
from the September 1998 Joint Venture for an aggregate purchase price of
approximately $16,520. The Company also sold three industrial properties and one
land parcel for approximately $10,778 of gross proceeds.
From October 1, 2002 to November 8, 2002, the Company repurchased 1,039,100
shares of its common stock at a weighted average price of approximately $27.03
per share.
On March 20, 1996, the Company, through the Operating Partnership and the
Indianapolis Partnership, entered into a $36,750 mortgage loan (the "CIGNA
Loan"). The Company paid off and retired the CIGNA Loan on October 1, 2002.
On October 21, 2002, the Company and the Operating Partnership paid a third
quarter 2002 dividend/distribution of $.6800 per common share/Unit, totaling
approximately $31,620.
15
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.
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 "Exchange Act"). The Company
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 those safe harbor provisions. Forward-looking statements, which
are based on certain assumptions and describe future plans, strategies and
expectations of the Company, are generally identifiable by use of the words
"believe," "expect," "intend," "anticipate," "estimate," "project" or similar
expressions. The Company'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 Company 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
Company's current and proposed market areas, potential environmental
liabilities, slippage in development or lease-up schedules, tenant credit risks,
higher-than-expected costs and changes in 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 Company and its business, including additional factors that could
materially affect the Company's financial results, is included herein and in the
Company's other filings with the Securities and Exchange Commission.
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 85.2% ownership interest at September 30,
2002. Minority interest in the Company at September 30, 2002 represents the
approximate 14.8% aggregate partnership interest in the Operating Partnership
held by the limited partners thereof.
As of September 30, 2002, the Company owned 909 in-service properties
located in 24 states, containing an aggregate of approximately 61.6 million
square feet of gross leasable area ("GLA"). Of the 909 in-service properties
owned by the Company, 764 are held by the Operating Partnership, 118 are held by
limited partnerships in which the Operating Partnership is the limited partner
and wholly-owned subsidiaries of the Company are the general partners, 11 are
held by limited liability companies of which the Operating Partnership is the
sole member and 16 are held by an entity wholly-owned by the Operating
Partnership. The Company, through wholly-owned limited liability companies of
which the Operating Partnership 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").
RESULTS OF OPERATIONS
At September 30, 2002, the Company owned 909 in-service properties with
approximately 61.6 million square feet of GLA, compared to 930 in-service
properties with approximately 64.3 million square feet of GLA at September 30,
2001. During the period between October 1, 2001 and September 30, 2002, the
Company acquired 63 in-service properties containing approximately 5.3 million
square feet of GLA, completed development of 14 properties totaling
approximately 2.5 million square feet of GLA and sold
16
92 in-service properties totaling approximately 8.9 million square feet of GLA,
six out of service properties and several land parcels. The Company also took
seven properties out of service that are under redevelopment, comprising
approximately 1.7 million square feet of GLA, and placed in service one property
comprising approximately .1 million square feet of GLA.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2002 TO NINE MONTHS ENDED
SEPTEMBER 30, 2001
Rental income and tenant recoveries and other income decreased by
approximately $9.8 million or 3.6% due primarily to a decrease in same store
rental income and tenant recoveries and other income as discussed below, as well
as a decrease in rental income and tenant recoveries and other income for the
nine months ended September 30, 2002 as compared to the nine months ended
September 30, 2001 due to properties sold during the year ended December 31,
2001. This decrease is offset by an increase in rental income and tenant
recoveries and other income for the nine months ended September 30, 2002 as
compared to the nine months ended September 30, 2001 due to properties acquired
subsequent to December 31, 2000. Rental income and tenant recoveries and other
income from properties owned prior to January 1, 2001 decreased by approximately
$3.7 million or 1.7% due primarily to a decrease in average occupied GLA for the
nine months ended September 30, 2002 as compared to the nine months ended
September 30, 2001.
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses
increased by approximately $1.9 million or 2.3%. This increase is due primarily
to an increase in same store property expenses as discussed below, as well as an
increase in property expenses for the nine months ended September 30, 2002 as
compared to the nine months ended September 30, 2001 due to properties acquired
subsequent to December 31, 2000. This increase is offset by a decrease in
property expenses for the nine months ended September 30, 2002 as compared to
the nine months ended September 30, 2001 due to properties sold during the year
ended December 31, 2001. Property expenses from properties owned prior to
January 1, 2001 increased by approximately $1.4 million or 2.2% due primarily to
an increase in real estate taxes, repairs and maintenance and insurance expense.
The increase in real estate taxes is primarily due to an increase in real estate
taxes in many of the Company's markets. The increase in repairs and maintenance
is due primarily to an increase in maintenance company expenses and related
costs. The increase in insurance is due primarily to an increase in insurance
premiums.
General and administrative expense increased by approximately $.1 million
due primarily to increases in employee compensation and additional employees for
the nine months ended September 30, 2002 as compared to the nine months ended
September 30, 2001, offset by the write-off of the Company's technology
investment of approximately $.7 million in the second quarter of 2001.
Interest expense increased by approximately $3.8 million for the nine
months ended September 30, 2002 compared to the nine months ended September 30,
2001 due primarily to a higher average debt balance outstanding for the nine
months ended September 30, 2002 as compared to the nine months ended September
30, 2001 as well as a slight decrease in capitalized interest due to a decrease
in development activities. The average debt balance outstanding for the nine
months ended September 30, 2002 and 2001 was approximately $1,420.4 million and
$1,301.3 million, respectively. This was offset by a decrease in the weighted
average interest rate on the Company's outstanding debt for the nine months
ended September 30, 2002 (6.9%) as compared to the nine months ended September
30, 2001 (7.2%).
Amortization of deferred financing costs increased by approximately $.1
million due primarily to amortization of additional deferred financing costs
incurred in conjunction with the issuance of the 2012 Notes (defined below) and
the 2032 Notes (defined below).
Depreciation and other amortization increased by approximately $6.3 million
due primarily to the average book value of assets held for sale for the nine
months ended September 30, 2001 exceeding the average book value of assets held
for sale for the nine months ended September 30, 2002. Once a property is
classified as held for sale, the Company ceases depreciating and amortizing the
property. The increase in depreciation and amortization is also due to
additional depreciation and amortization recognized for properties acquired
subsequent to December 31, 2000.
17
Equity in income of joint ventures increased by approximately $.4 million
or 51.1% due primarily to an increase in gain on sale of real estate and the
start up of one of the Company's joint ventures in December 2001.
The approximate $5.5 million gain on sale of real estate for the nine
months ended September 30, 2002 resulted from the sale of 12 industrial
properties that were identified as held for sale at December 31, 2001 and
several land parcels. Gross proceeds from these sales were approximately $39.8
million.
The approximate $48.5 million gain on sale of real estate for the nine
months ended September 30, 2001 resulted from the sale of 107 industrial
properties and several land parcels. Gross proceeds from these sales were
approximately $318.8 million.
Income from discontinued operations of approximately $51.6 million for the
nine months ended September 30, 2002 reflects the results of operations and gain
on sale of 61 industrial properties that were not held for sale at December 31,
2001 and were sold during the nine months ended September 30, 2002, the gain
associated with the assignment of the right to third parties to purchase certain
properties, as well as the results of operations of five industrial properties
identified as held for sale during the nine months ended September 30, 2002.
Gross proceeds from the sales of the 61 industrial properties were approximately
$285.0 million, resulting in a gain on sale of real estate of approximately
$45.0 million.
Income from discontinued operations of approximately $11.9 million for the
nine months ended September 30, 2001 reflects the results of operations of the
61 industrial properties that were not held for sale at December 31, 2001 and
were sold during the nine months ended September 30, 2002 as well as the results
of operations of five industrial properties identified as held for sale during
the nine months ended September 30, 2002.
The approximate $.9 million extraordinary loss for the nine months ended
September 30, 2002 is due to the early retirement of senior unsecured debt. The
extraordinary loss is comprised of the amount paid above the carrying amount of
the senior unsecured debt, the write-off of pro rata unamortized deferred
financing fees and legal costs.
The approximate $10.3 million extraordinary loss for the nine months ended
September 30, 2001 is due to the early retirement of senior unsecured debt and
various mortgage loans. The extraordinary loss is comprised of the amount paid
above the carrying amount of the senior unsecured debt, the write-off of
unamortized deferred financing fees, the write-off of the unamortized portion of
an interest rate protection agreement which was used to fix the interest rate on
the senior unsecured debt prior to issuance, the settlement of an interest rate
protection agreement used to fix the retirement price of the senior unsecured
debt, prepayment fees, legal costs and other expenses.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2002 TO THREE MONTHS ENDED
SEPTEMBER 30, 2001
Rental income and tenant recoveries and other income increased by
approximately $3.2 million or 3.7% due primarily to an increase in same store
rental income and tenant recoveries and other income as discussed below, as well
as an increase in rental income and tenant recoveries and other income for the
three months ended September 30, 2002 as compared to the three months ended
September 30, 2001 due to properties acquired subsequent to June 30, 2001.
This increase is offset by a decrease in rental income and tenant recoveries and
other income for the three months ended September 30, 2002 as compared to the
three months ended September 30, 2001 due to properties sold during the six
months ended December 31, 2001. Rental income and tenant recoveries and other
income from properties owned prior to July 1, 2001 increased by approximately
$1.0 million or 1.3% due primarily to an increase in tenant recoveries due to an
increase in property expenses (as discussed below) for the three months ended
September 30, 2002 as compared to the three months ended September 30, 2001,
offset by a decrease in average occupied GLA for the three months ended
September 30, 2002 as compared to the three months ended September 30, 2001.
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses
increased by approximately $3.6 million or 14.7%. This increase is due primarily
to an increase in same store property expenses as discussed below, as well as an
increase in property expenses for the three months ended September 30, 2002 as
compared to the three months ended September 30, 2001 due to properties acquired
subsequent to June 30, 2001. This increase is offset by a decrease in property
expenses for the three months ended September 30, 2002 as compared to the three
months ended September 30, 2001 due to properties sold during the six months
ended December 31, 2001.
18
Property expenses from properties owned prior to July 1, 2001 increased by
approximately $2.4 million or 11.7% due primarily to an increase in real estate
taxes, repairs and maintenance and insurance expense. The increase in real
estate taxes is primarily due to an increase in real estate taxes in many of the
Company's markets. The increase in repairs and maintenance is due primarily to
an increase in maintenance company expenses and related costs. The increase in
insurance is due primarily to an increase in insurance premiums.
General and administrative expense remained relatively unchanged.
Interest expense increased by approximately $3.7 million for the three
months ended September 30, 2002 compared to the three months ended September 30,
2001 due primarily to a higher average debt balance outstanding for the three
months ended September 30, 2002 as compared to the three months ended September
30, 2001, as well as a decrease in capitalized interest due to a decrease in
development activities. The average debt balance outstanding for the three
months ended September 30, 2002 and 2001 was approximately $1,474.6 million and
$1,283.0 million, respectively. This was slightly offset by a decrease in the
weighted average interest rate on the Company's outstanding debt for the three
months ended September 30, 2002 (6.9%) as compared to the three months ended
September 30, 2001 (7.1%).
Amortization of deferred financing costs remained relatively unchanged.
Depreciation and other amortization increased by approximately $2.6 million
due primarily to the average book value of assets held for sale for the three
months ended September 30, 2001 exceeding the average book value of assets held
for sale for the three months ended September 30, 2002. Once a property is
classified as held for sale, the Company ceases depreciating and amortizing the
property. The increase in depreciation and amortization is also due to
additional depreciation and amortization recognized for properties acquired
subsequent to June 30, 2001.
Equity in income of joint ventures increased by approximately $.2 million
or 77.5% due primarily to the start up of one of the Company's joint ventures in
December 2001.
The approximate $1.3 million gain on sale of real estate for the three
months ended September 30, 2002 resulted from the sale of three industrial
properties that were identified as held for sale at December 31, 2001 and
several land parcels. Gross proceeds from these sales were approximately $20.3
million.
The approximate $18.8 million gain on sale of real estate for the three
months ended September 30, 2001 resulted from the sale of 38 industrial
properties and several land parcels. Gross proceeds from these sales were
approximately $92.4 million.
Income from discontinued operations of approximately $14.9 million for the
three months ended September 30, 2002 reflects the results of operations and
gain on sale of 20 industrial properties that were not held for sale at December
31, 2001 and were sold during the three months ended September 30, 2002, the
gain associated with the assignment of the right to a third party to purchase
certain properties, as well as the results of operations of five industrial
properties identified as held for sale during the three months ended September
30, 2002. Gross proceeds from the sales of the 20 industrial properties were
approximately $108.0 million, resulting in a gain on sale of real estate of
approximately $13.7 million.
Income from discontinued operations of approximately $4.2 million for the
three months ended September 30, 2001 reflects the results of operations of the
20 industrial properties that were not held for sale at December 31, 2001 and
were sold during the three months ended September 30, 2002 as well as the
results of operations of five industrial properties identified as held for sale
during the three months ended September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002, the Company's cash and cash equivalents was
approximately $1.4 million and restricted cash was approximately $26.6 million.
Included in restricted cash are approximately $2.7 million of cash reserves
required to be set aside under the Company's $40.0 million mortgage loan (the
19
"1995 Mortgage Loan") for payments of security deposit refunds, capital
expenditures, interest, real estate taxes, insurance and releasing costs. 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 is adjusted as tenants turn over. The portion of
cash reserves relating to releasing costs resulted from a deposit of a lease
termination fee that will be used to cover the costs of releasing that space.
Also included in restricted cash is approximately $23.9 million of gross
proceeds from the sales of certain properties. These sale proceeds will be
disbursed as the Company exchanges properties under Section 1031 of the Internal
Revenue Code.
NINE MONTHS ENDED SEPTEMBER 30, 2002
Net cash provided by operating activities of approximately $99.2 million
for the nine months ended September 30, 2002 was comprised primarily of net
income before minority interest of approximately $102.2 million and adjustments
for non-cash items of approximately $11.4 million, offset by the net change in
operating assets and liabilities of approximately $14.4 million. The adjustments
for the non-cash items of approximately $11.4 million are primarily comprised of
depreciation and amortization of approximately $62.5 million and an
extraordinary loss of approximately $.9 million from the early retirement of
debt, offset by the gain on sale of real estate of approximately $50.6 million
and the effect of the straight-lining of rental income of approximately $1.4
million.
Net cash provided by investing activities of approximately $17.9 million
for the nine months ended September 30, 2002 was comprised primarily of the net
proceeds from the sale of real estate, distributions from the Company's
industrial real estate joint ventures and the repayment of mortgage loans
receivable, offset by 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 and
contributions to and investments in the December 2001 Joint Venture.
Net cash used in financing activities of approximately $115.6 million for
the nine months ended September 30, 2002 was comprised primarily of the
redemption of the Company's Series B Preferred Stock (defined below), the
partial pay off of the 2027 Notes (defined below), repayments on mortgage loans
payable, the repurchase of restricted stock from employees of the Company to pay
for withholding taxes on the vesting of restricted stock, the purchase of U.S.
Government securities used as substitute collateral to execute a legal
defeasance of a portion of the 1995 Mortgage Loan, common and preferred stock
dividends and unit distributions and net repayments under the Company's
unsecured line of credit, offset by the net proceeds from the issuance of senior
unsecured debt and the net proceeds from the exercise of employee stock options.
NINE MONTHS ENDED SEPTEMBER 30, 2001
Net cash provided by operating activities of approximately $117.2 million
for the nine months ended September 30, 2001 was comprised primarily of net
income before minority interest of approximately $117.6 million and adjustments
for non-cash items of approximately $16.6 million, offset by the net change in
operating assets and liabilities of approximately $17.0 million. The adjustments
for the non-cash items of approximately $16.6 million are primarily comprised of
depreciation and amortization of approximately $57.5 million and an
extraordinary loss of approximately $10.3 million from the early retirement of
debt, offset by the gain on sale of real estate of approximately $48.5 million
and the effect of the straight-lining of rental income of approximately $2.7
million.
Net cash used in investing activities of approximately $22.8 million for
the nine months ended September 30, 2001 was comprised primarily of the
acquisition of real estate, development of real estate,
20
capital expenditures related to the expansion and improvement of existing real
estate and an increase in restricted cash from sales proceeds deposited with an
intermediary for Section 1031 exchange purposes, offset by the net proceeds from
the sale of real estate, distributions from the Company's industrial real estate
joint ventures and the repayment of mortgage loans receivable.
Net cash used in financing activities of approximately $88.9 million for
the nine months ended September 30, 2001 was comprised primarily of repayment of
senior unsecured debt, repayments on mortgage loans payable, the repurchase of
restricted stock from employees of the Company to pay for withholding taxes on
the vesting of restricted stock, the purchase of treasury shares, the purchase
of U.S. Government securities used as substitute collateral to execute a legal
defeasance of a portion of the 1995 Mortgage Loan, common and preferred stock
dividends and unit distributions, prepayment fees incurred in the repayment of
senior unsecured debt and prepayment fees incurred in the early retirement of
two mortgage loans, redemption of the Company's Series A Preferred Stock and the
net repayments under the Company's unsecured line of credit, offset by the net
proceeds from the issuance of senior unsecured debt and net proceeds from the
exercise of employee stock options.
INVESTMENT IN REAL ESTATE AND DEVELOPMENT OF REAL ESTATE
During the nine months ended September 30, 2002, the Company acquired 53
industrial properties comprising, in the aggregate, approximately 4.2 million
square feet of GLA and one land parcel for an aggregate purchase price of
approximately $171.6 million, excluding costs incurred in conjunction with the
acquisition of the properties. Eight of the 53 industrial properties acquired,
comprising approximately .2 million square feet of GLA, were acquired from the
September 1999 Joint Venture for an aggregate purchase price of approximately
$13.0 million. The Company also completed the development of 13 industrial
properties comprising approximately 2.5 million square feet of GLA at a cost of
approximately $92.1 million.
The Company has committed to the construction of 30 development projects
totaling approximately 3.5 million square feet of GLA for an estimated
investment of approximately $176.8 million. Of this amount, approximately $37.5
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 Company's 2002 Unsecured Acquisition Facility (defined
below). The Company expects to place in service 27 of the 30 development
projects during the next twelve months. There can be no assurance that the
Company 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 nine months ended September 30, 2002, the Company sold 61
industrial properties comprising approximately 7.1 million square feet of GLA
that were not classified as held for sale at December 31, 2001, 12 properties
comprising approximately 1.0 million square feet of GLA that were classified as
held for sale at December 31, 2001, several land parcels and assigned the right
to a third party to purchase a certain property. Gross proceeds from these sales
were approximately $324.8 million. In accordance with FAS 144, the results of
operations and gain on sale of real estate for the 61 sold properties that were
not identified as held for sale at December 31, 2001 and the gain associated
with the assignment of the right to third parties to purchase certain properties
are included in discontinued operations.
At September 30, 2002, the Company had seven industrial properties
comprising approximately .7 million square feet of GLA held for sale. Two of the
seven properties comprising approximately .2 million square feet of GLA that
were held for sale as of September 30, 2002 were identified as held for sale as
of December 31, 2001. Income from operations for these two industrial properties
held for sale for the nine months ended September 30, 2002 and 2001 is
approximately $.6 million and $.2 million, respectively. Income from operations
for these two industrial properties held for sale for the three months ended
September 30, 2002 and 2001 is approximately $.3 million and $.02 million,
respectively. Net carrying value of the seven industrial properties held for
sale at September 30, 2002 is approximately
21
$21.4 million. In accordance with FAS 144, the results of operations of the five
industrial properties identified as held for sale during the nine months ended
September 30, 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 nine months ended September 30, 2002, the Company, through
wholly-owned limited liability companies in which the Operating Partnership is
the sole member, recognized approximately $1.5 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. The Company, through a
wholly-owned limited liability company in which the Operating Partnership is the
sole member, invested approximately $6.3 million in the December 2001 Joint
Venture. The Company, through wholly-owned limited liability companies in which
the Operating Partnership is the sole member, received distributions of
approximately $1.9 million from the September 1998 Joint Venture, the September
1999 Joint Venture, and the December 2001 Joint Venture. As of September 30,
2002, the September 1998 Joint Venture owned 88 industrial properties comprising
approximately 4.1 million square feet of GLA, the September 1999 Joint Venture
owned two industrial properties comprising approximately .3 million square feet
of GLA and the December 2001 Joint Venture had economic interests in 21
industrial properties comprising approximately 3.6 million square feet of GLA.
For the properties purchased by the December 2001 Joint Venture from the
Company, the Company deferred 15% of the gain resulting from these sales, which
is equal to the Company's economic interest in the December 2001 Joint Venture.
MORTGAGE LOANS PAYABLE
In January 2002, the Company purchased approximately $.8 million of U.S.
Government securities as substitute collateral to execute a legal defeasance of
approximately $.8 million of the 1995 Mortgage Loan. In June 2002, the Company
purchased approximately $1.9 million of U.S. Government securities as substitute
collateral to execute a legal defeasance of approximately $1.9 million of the
1995 Mortgage Loan. The terms of the legal defeasance require the Mortgage
Partnership to use the gross proceeds from the maturities of the U.S. Government
securities to pay down and subsequently retire the defeased portion of the 1995
Mortgage Loan in January 2003. The Company is carrying the defeased portion of
the 1995 Mortgage Loan on its balance sheet until it pays down and retires the
defeased portion of the 1995 Mortgage Loan in January 2003. Upon the executions
of the legal defeasances, two of the 21 properties collateralizing the 1995
Mortgage Loan were released and subsequently sold.
On April 1, 2002, the Company, through the Operating Partnership, assumed a
mortgage loan in the principal amount of approximately $5.8 million (the
"Acquisition Mortgage Loan VIII"). The Acquisition Mortgage Loan VIII is
collateralized by one property in Rancho Dominguez, California, bears interest
at a fixed rate of 8.26% and provides for monthly principal and interest
payments based on a 22-year amortization schedule. The Acquisition Mortgage Loan
VIII matures on December 1, 2019. The Acquisition Mortgage Loan VIII may be
prepaid only after November 2004 in exchange for the greater of a 1% prepayment
fee or yield maintenance premium.
On April 1, 2002, the Company, through the Operating Partnership, assumed a
mortgage loan in the principal amount of approximately $6.0 million (the
"Acquisition Mortgage Loan IX"). The Acquisition Mortgage Loan IX is
collateralized by one property in Rancho Dominguez, California, bears interest
at a fixed rate of 8.26% and provides for monthly principal and interest
payments based on a 22-year amortization schedule. The Acquisition Mortgage Loan
IX matures on December 1, 2019. The Acquisition Mortgage Loan IX may be prepaid
only after November 2004 in exchange for the greater of a 1% prepayment fee or
yield maintenance premium.
On January 31, 1997, the Company, through the Operating Partnership,
assumed a loan in the amount of approximately $.7 million (the "LB Loan II"). On
June 14, 2002, the Company, through the Operating Partnership, paid off and
retired the LB Loan II.
22
On August 31, 1998, the Company, through the Operating Partnership, assumed
a mortgage loan in the amount of approximately $1.0 million (the "Acquisition
Mortgage Loan VI"). On July 2, 2002, the Company paid off and retired the
Acquisition Mortgage Loan VI.
SENIOR UNSECURED DEBT
On April 15, 2002, the Company, through the Operating Partnership, issued
$200 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 April 15 and
October 15. The Company also entered into interest rate protection agreements
which were used to fix the interest rate on the 2012 Notes prior to issuance.
The Company settled the interest rate protection agreements for approximately
$1.8 million of proceeds, which is 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 Company, through the Operating Partnership, issued
$50 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 April 15 and
October 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 May 13, 1997, the Company, through the Operating Partnership, issued
$100 million of senior unsecured debt which matures on May 15, 2027 and bears a
coupon interest rate of 7.15% (the "2027 Notes"). The issue price of the 2027
Notes was 99.854%. The 2027 Notes were redeemable, at the option of the holders
thereof, on May 15, 2002. The Company received redemption notices from holders
representing approximately $84.9 million of the 2027 Notes outstanding. On May
15, 2002, the Company paid off and retired approximately $84.9 million of the
2027 Notes. Due to the partial payoff of the 2027 Notes, the Company has
recorded an extraordinary loss of approximately $.9 million comprised of the
amount paid above the carrying amount of the 2027 Notes, the write-off of the
pro rata unamortized deferred financing fees and legal costs.
ACQUISITION FACILITY PAYABLE
On September 27, 2002, the Company, through the Operating Partnership,
amended and restated its $300 million unsecured line of credit (the "2002
Unsecured Acquisition Facility", formerly, the "2000 Unsecured Acquisition
Facility"). The 2002 Unsecured Acquisition Facility matures on September 30,
2005 and bears interest at a floating rate of LIBOR plus .70%, or the Prime
Rate, at the Company's election. The net unamortized deferred financing fees
related to the 2000 Unsecured Acquisition Facility and any additional deferred
financing fees incurred with the 2002 Unsecured Acquisition Facility are being
amortized over the life of the 2002 Unsecured Acquisition Facility in
accordance with Emerging Issues Task Force Issue 98-14, "Debtor's Accounting
for Changes in Line-of-Credit or Revolving-Debt Arrangements".
INTEREST RATE SWAP AGREEMENTS
In January 2002 and August 2002, the Company, through the Operating
Partnership, entered into two interest rate swap agreements (the "Interest Rate
Swap Agreements") which fixed the interest rate on a portion of the Company's
2002 Unsecured Acquisition Facility. The Company designated the Interest Rate
Swap Agreements as cash flow hedges. The January 2002 interest swap agreement
has a notional value of $25 million, is effective from February 4, 2002 through
February 4, 2003 and fixed the LIBOR rate at 2.4975%. The August 2002 interest
rate swap agreement has a notional value of $25 million, is effective from
September 5, 2002 through September 5, 2003 and fixed the LIBOR rate at 1.884%.
Any payments or receipts from the Interest Rate Swap Agreements will be treated
as a component of interest expense. The
23
Company anticipates that the Interest Rate Swap Agreements will be highly
effective, and, as a result, the change in value will be shown in other
comprehensive income.
PREFERRED STOCK
On May 14, 1997, the Company issued 4,000,000 Depositary Shares, each
representing 1/100th of a share of the Company's 8 3/4%, $.01 par value, Series
B Cumulative Preferred Stock (the "Series B Preferred Stock"), at an initial
offering price of $25.00 per Depositary Share. On or after May 14, 2002, the
Series B Preferred Stock became redeemable for cash at the option of the
Company, in whole or in part, at a redemption price equivalent to $25.00 per
Depositary Share, or $100 million in the aggregate, plus dividends accrued and
unpaid to the redemption date. 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 Depositary Share, plus accrued and unpaid dividends. The Company
redeemed the Series B Preferred Stock on May 14, 2002 and paid a prorated second
quarter dividend of $.26736 per Depositary Share, totaling approximately $1.1
million.
MARKET RISK
The following discussion about the Company'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 Company at September 30, 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 Company 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 September 30, 2002, $1,407.7 million (approximately 99.3% of total debt
at September 30, 2002) of the Company's debt was fixed rate debt (included in
the fixed rate debt is $100 million of borrowings under the Company's 2002
Unsecured Acquisition Facility which the Company fixed the interest rate via the
interest rate swap agreements) and $10.4 million (approximately .7% of total
debt at September 30, 2002) was variable rate debt. The Company also has
outstanding a written put option (the "Written Option"), which was issued in
conjunction with the initial offering of one tranche of senior unsecured debt.
Currently, the Company 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 Company. Conversely,
for variable rate debt, changes in the interest rate generally do not impact the
fair value of the debt, but would affect the Company'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 Company until the Company
is required to refinance such debt. See Note 4 to the consolidated financial
statements for a discussion of the maturity dates of the Company's various fixed
rate debt.
Based upon the amount of variable rate debt outstanding at September 30,
2002, a 10% increase or decrease in the interest rate on the Company's variable
rate debt would decrease or increase, respectively, future net income and cash
flows by approximately $.1 million per year. A 10% increase in interest rates
would decrease the fair value of the fixed rate debt at September 30, 2002 by
approximately $52.4 million to $1,495.2 million. A 10% decrease in interest
rates would increase the fair value of the fixed rate debt at September 30, 2002
by approximately $56.8 million to $1,604.4 million. A 10% increase in interest
rates would decrease the fair value of the Written Option at September 30, 2002
by approximately $2.4 million
24
to $13.8 million. A 10% decrease in interest rates would increase the fair value
of the Written Option at September 30, 2002 by approximately $2.7 million to
$18.9 million.
ISSUANCE OF RESTRICTED STOCK AND EMPLOYEE STOCK OPTIONS
During the nine months ended September 30, 2002, the Company awarded 90,260
shares of restricted common stock to certain employees and 2,753 shares of
restricted common stock to certain Directors. These shares of restricted common
stock had a fair value of approximately $3.2 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 nine months ended September 30, 2002, the Company issued 940,600
non-qualified employee stock options to certain officers, Directors and
employees of the Company. These non-qualified employee stock options vest over
periods from one to three years, have a strike price of $30.53 - $33.15 per
share and expire ten years from the date of grant.
COMMON STOCK
During the nine months ended September 30, 2002, certain employees of the
Company exercised 561,418 non-qualified employee stock options. Net proceeds to
the Company were approximately $15.9 million.
DIVIDENDS/DISTRIBUTIONS
On January 22, 2002, the Company and the Operating Partnership paid a
fourth quarter 2001 distribution of $.6800 per common share/Unit, totaling
approximately $31.2 million. On April 22, 2002, the Company and the Operating
Partnership paid a first quarter 2002 dividend/distribution of $.6800 per common
share/Unit, totaling approximately $31.5 million. On July 22, 2002, the Company
and the Operating Partnership paid a second quarter 2002 dividend/distribution
of $.6800 per common share/Unit, totaling approximately $31.6 million.
On April 1, 2002, the Company paid first quarter preferred stock dividends
of $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, $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 April 1, 2002 totaled approximately $7.2
million. On May 14, 2002, the Company paid a prorated second quarter dividend of
$26.736 per share, totaling approximately $1.1 million on its Series B Preferred
Stock.
On July 1, 2002 and September 30, 2002, the Company paid second and third
quarter preferred stock dividends of $53.906 per share (equivalent to $.53906
per Depositary Share) on its Series C Preferred Stock, $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 July 1, 2002 and
September 30, 2002 totaled approximately $5.0 million, respectively.
SUBSEQUENT EVENTS
From October 1, 2002 to November 8, 2002, the Company acquired 28
industrial properties for an aggregate purchase price of approximately $47.7
million, excluding costs incurred in conjunction with the acquisition of these
industrial properties. Nineteen of the 28 industrial properties acquired, were
acquired from the September 1998 Joint Venture for an aggregate purchase price
of approximately $16.5 million. The Company also sold three industrial
properties and one land parcel for approximately $10.8 million of gross
proceeds.
25
From October 1, 2002 to November 8, 2002, the Company repurchased 1,039,100
shares of its common stock at a weighted average price of approximately $27.03
per share.
On March 20, 1996, the Company, through the Operating Partnership and the
Indianapolis Partnership, entered into a $36.8 million mortgage loan (the "CIGNA
Loan"). The Company paid off and retired the CIGNA Loan on October 1, 2002.
On October 22, 2002, the Company and the Operating Partnership paid a third
quarter 2002 dividend/distribution of $.6800 per common share/Unit, totaling
approximately $31.6 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
principle 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, developments, scheduled debt
maturities, major renovations, expansions and other nonrecurring capital
improvements through the disposition of select assets, the issuance of long-term
unsecured indebtedness and the issuance of additional equity securities. As of
September 30, 2002 and November 8, 2002, approximately $589.2 million of common
stock, preferred stock and depositary shares and approximately $250.0 million of
debt securities were registered and unissued under the Securities Act of 1933,
as amended. The Company also may finance the development or acquisition of
additional properties through borrowings under the 2002 Unsecured Acquisition
Facility. At September 30, 2002, borrowings under the 2002 Unsecured Acquisition
Facility bore interest at a weighted average interest rate of 4.75%. The 2002
Unsecured Acquisition Facility bears interest at a floating rate of LIBOR plus
..70%, or the Prime Rate, at the Company's election. As of November 8, 2002, the
Company had approximately $98.3 million available for additional borrowings
under the 2002 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 Company believes that FAS 145 will not have an
impact on its consolidated financial position, liquidity and results of
operations.
26
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.
ITEM 4. CONTROLS AND PROCEDURES
The Company's principal executive officer and principal financial officer,
after evaluating the effectiveness of the Company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) as of a
date within 90 days before the filing date of this report, have concluded that
as of such date the Company's disclosure controls and procedures were effective.
There have been no significant changes (including corrective actions with
regard to significant deficiencies or material weaknesses) in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of the evaluation referenced in the paragraph
above.
27
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:
<Table>
<Caption>
Exhibit
Number Description
------- -----------
10.1* Second Amended and Restated Unsecured Revolving Credit
Agreement, dated as of September 27, 2002, among the
Operating Partnership, the Company, Bank One, NA, and
certain other banks.
99.1* Certification Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
</Table>
b) Report on Form 8-K:
Report on Form 8-K filed and dated August 14, 2002,
providing the certification for the quarterly period ended
June 30, 2002 of the Company's chief executive officer and
chief financial officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* Filed herewith
28
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 13, 2002 By: /s/ Scott A. Musil
---------------------------------------
Scott A. Musil
Senior Vice President-Controller
(Chief Accounting Officer)
29
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Michael W. Brennan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Industrial
Realty Trust, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
/s/ Michael W. Brennan
-------------------------------------
Michael W. Brennan
President and Chief Executive Officer
30
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Michael J. Havala, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Industrial
Realty Trust, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
/s/ Michael J. Havala
-----------------------------------
Michael J. Havala
Chief Financial Officer
31
EXHIBIT INDEX
<Table>
<Caption>
Exhibit
Number Description
------- -----------
10.1 * Second Amended and Restated Unsecured Revolving Credit
Agreement, dated as of September 27, 2002, among the
Operating Partnership, the Company, Bank One, NA, and
certain other banks.
99.1* Certification Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
</Table>
* Filed herewith
32