<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997 OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
------------ -----------
Commission File Number 33-97014-01
FIRST INDUSTRIAL SECURITIES, L.P.
(Exact name of Registrant as specified in its Charter)
DELAWARE 36-4036965
(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) (Zip Code)
(312) 344-4300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
GUARANTEE OF THE 9 1/2% SERIES A CUMULATIVE PREFERRED STOCK
OF FIRST INDUSTRIAL REALTY TRUST, INC.
(Title of class)
NEW YORK STOCK EXCHANGE
(Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
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FIRST INDUSTRIAL SECURITIES, L.P.
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C> <C>
PART I.
Item 1. Business............................................................................... 3
Item 2. The Properties......................................................................... 4
Item 3. Legal Proceedings...................................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders.................................... 8
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 9
Item 6. Selected Financial Data................................................................ 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 10
Item 8. Financial Statements and Supplementary Data............................................ 13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 13
PART III.
Item 10. Directors and Executive Officers of the Registrant.................................... 13
Item 11. Executive Compensation................................................................ 13
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 14
Item 13. Certain Relationships and Related Transactions........................................ 14
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 14
SIGNATURES....................................................................................... 15
</TABLE>
2
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This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. First Industrial
Securities, L.P. (the "Company") intends such forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained
in the Private Securities Reform Act of 1995, and is including this statement
for purposes of complying with these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe future plans,
strategies and expectations of the 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 include, but are not limited to, changes in: economic conditions
generally and the real estate market specifically, legislative/regulatory
changes, availability of capital, interest rates, competition, supply and demand
for industrial properties in the Company's current market areas and general
accounting principles, policies and guidelines. 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.
PART I
ITEM 1. BUSINESS
THE COMPANY
GENERAL
First Industrial Securities, L.P. (the "Company") is a Delaware limited
partnership which owns 19 bulk warehouses and light industrial properties (the
"Properties"). The markets in which the Properties are located include:
Chicago, Minneapolis/St. Paul, Grand Rapids, Detroit, and Central Pennsylvania.
The Properties contain an aggregate of approximately 2.2 million square feet of
gross leasable area ("GLA") which, as of December 31, 1997, was 98.6% leased to
33 tenants. At December 31, 1997, the Company had no employees. The Company's
executive offices are located at 311 South Wacker Drive, Suite 4000, Chicago,
Illinois 60606, and its telephone number is (312) 344-4300.
The Company was formed in 1995 in connection with the issuance of a
class of preferred stock (the "Series A Preferred Shares") of First Industrial
Realty Trust, Inc. ("FR"). The 1% general partner of the Company is First
Industrial Securities Corporation ("Securities Corporation"), which is a wholly
owned subsidiary of FR. The 99% limited partner of the Company is First
Industrial, L.P. (the "Operating Partnership"), of which FR is the sole general
partner.
In connection with the issuance of the $.01 par value Series A Preferred
Stock (the "Series A Preferred Stock"), FR contributed to Securities Corporation
the gross proceeds from the issuance of the Series A Preferred Stock in exchange
for preferred stock of Securities Corporation, and Securities Corporation
contributed such proceeds to the Company in exchange for a preferred limited
partnership interest in the Company. The Operating Partnership and First
Industrial Pennsylvania, L.P. contributed the Properties to the Company in
exchange for limited partnership interests in the Company (the "Contribution").
The Pennsylvania Partnership subsequently distributed its limited partnership
interest to the Operating Partnership, which is its sole limited partner.
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THE GUARANTEE AND LIMITED PARTNERSHIP AGREEMENT
The Company has guaranteed the payment of dividends on, and payments on
liquidation or redemption of, the Series A Preferred Stock under a guarantee
(the "Guarantee") contained in a Guarantee and Payment Agreement (the "Guarantee
Agreement"). The Guarantee Agreement is administered by American National Bank
and Trust Company, as guarantee agent (together with any subagents which it may
appoint, the "Guarantee Agent"). The Guarantee Agent may enforce the Guarantee
directly against the Company only at the direction of the holders of at least
25% of the outstanding Series A Preferred Stock. No holder of Series A
Preferred Stock may seek directly to enforce the Guarantee. The Guarantee and
the Guarantee Agreement will terminate upon confirmation to the Company from
Fitch Investors Service, L.P. and Standard & Poor's Ratings Group that,
immediately following such a termination, the Series A Preferred Stock would be
rated at least BBB, whether or not the Series A Preferred Stock are so rated
prior to such termination.
The limited partnership agreement of the Company (the "Limited
Partnership Agreement") and the Guarantee Agreement contain covenants generally
restricting the Company's activities to the ownership and operation of the
Properties and, under certain circumstances, other industrial properties. These
covenants shall cease to have any effect upon the termination of the Guarantee.
Under its Articles of Incorporation, Securities Corporation's sole purpose will
be to act as general partner of the Company and to pay dividends on its common
and preferred stock. These and other restrictions are intended to assure that
even in the event of FR, the Operating Partnership or other affiliates of FR
becoming subject to federal bankruptcy proceedings, neither Securities
Corporation nor the Company nor their assets will be treated as subject to such
bankruptcy proceedings under the doctrine of substantive consolidation or other
doctrines (except to the extent liabilities are imposed by non-insolvency
regulatory statutes on affiliates) and that activities of FR, the Operating
Partnership and other affiliates will not cause Securities Corporation or the
Company to become insolvent or unable to pay their debts as they mature
(including the Guarantee).
ITEM 2. THE PROPERTIES
GENERAL
At December 31, 1997 the Company owned 19 in-service properties
containing approximately 2.2 million square feet of GLA in four states. The
Properties are generally located in business parks which have convenient access
to interstate highways and air transportation. The median age of the Properties
as of December 31, 1997 was approximately ten years.
The Company classifies its Properties into two industrial categories:
bulk warehouse and light industrial. The Company's bulk warehouse properties
are generally used for bulk storage of materials and manufactured goods, and its
light industrial properties are generally used for the design, assembly,
packaging and distribution of goods, and, in some cases, the provision of
services. Each of the Properties is wholly owned by the Company. The following
table summarizes certain information as of December 31, 1997 with respect to the
Properties.
PROPERTY SUMMARY
<TABLE>
<CAPTION>
BULK WAREHOUSE LIGHT INDUSTRIAL TOTAL
--------------------- ------------------- -----------------------------------
AVERAGE GLA AS A%
NUMBER OF NUMBER OF NUMBER OF OCCUPANCY OF TOTAL
METROPOLITAN AREA GLA PROPERTIES GLA PROPERTIES GLA PROPERTIES AT 12/31/97 PORTFOLIO
- ----------------- --------- ---------- ------- ---------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chicago 548,425 2 91,550 2 639,975 4 100% 30%
Minneapolis/St. Paul 409,905 2 207,227 2 617,132 4 100% 29%
Grand Rapids 464,500 4 - - 464,500 4 94% 21%
Detroit - - 287,142 5 287,142 5 100% 13%
Central Pennsylvania 100,000 1 49,350 1 149,350 2 100% 7%
--------- ---------- ------- ---------- --------- ---------- ---- ----
Total or Average 1,522,830 9 635,269 10 2,158,099 19 99% 100%
========= ========== ======= ========== ========= ========== ==== ====
</TABLE>
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DETAIL PROPERTY LISTING
The following table lists all of the Properties as of December 31, 1997,
none of which were subject to mortgage liens as of such date.
PROPERTY LISTING
<TABLE>
<CAPTION>
LAND
LOCATION YEAR BUILT BUILDING AREA OCCUPANCY
BUILDING ADDRESS (CITY/STATE) RENOVATED TYPE (ACRES) GLA AT 12/31/97
- ----------------------------- ------------------- ---------- ---------------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
2101-2125 Gardner Road Broadview, IL 1950/69 Bulk Warehouse 9.98 323,425 100%
365 North Avenue Carol Stream, IL 1969 Bulk Warehouse 28.65 225,000 100%
2942 MacArthur Boulevard Northbrook, IL 1979 Light Industrial 3.12 49,730 100%
3150-3160 MacArthur Boulevard Northbrook, IL 1978 Light Industrial 2.14 41,820 100%
900 Apollo Road Eagan, MN 1970 Bulk Warehouse 39.00 312,265 100%
7316 Aspen Lane North Brooklyn Park, MN 1978 Bulk Warehouse 6.63 97,640 100%
6707 Shingle Creek Parkway Brooklyn Center, MN 1986 Light Industrial 4.22 75,939 100%
6655 Wedgwood Road Maple Grove, MN 1989 Light Industrial 17.88 131,288 100%
425 Gordon Industrial Court Grand Rapids, MI 1990 Bulk Warehouse 8.77 173,875 (a) 100%
2851 Prairie Street Grandville, MI 1989 Bulk Warehouse 5.45 117,251 75%
2945 Walkent Court Grand Rapids, MI 1993 Bulk Warehouse 4.45 93,374 100%
537 76th Street Grand Rapids, MI 1987 Bulk Warehouse 5.26 80,000 100%
2965 Technology Drive Rochester Hills, MI 1995 Light Industrial 4.92 66,395 100%
4177A Varsity Drive Ann Arbor, MI 1993 Light Industrial 2.48 11,050 100%
6515 Cobb Drive Sterling Heights, MI 1984 Light Industrial 2.91 47,597 100%
1451 Lincoln Avenue Madison Heights, MI 1967 Light Industrial 3.92 75,000 100%
4400 Purks Drive Auburn Hills, MI 1987 Light Industrial 13.04 87,100 100%
7195 Grayson Road Harrisburg, PA 1994 Bulk Warehouse 6.02 100,000 100%
5020 Louise Drive Mechanicsburg, PA 1995 Light Industrial 5.06 49,350 100%
--------- -----------
TOTAL 2,158,099 99%
========= ===========
</TABLE>
(a) On April 1, 1997, the company completed a 17,000 square foot expansion of
this property.
TENANT AND LEASE INFORMATION
Many of the Company's leases have an initial term of between three and
five years and provide for periodic rental increases that are either fixed or
based on changes in the Consumer Price Index. Industrial tenants typically have
net or semi-net leases and pay as additional rent their percentage of the
property's operating costs, including the costs of common area maintenance,
property taxes and insurance. As of December 31, 1997, 98.6% of the GLA of the
Properties was leased.
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The following table sets forth, as of December 31, 1997, the annualized
December 1997 base rent, and the total GLA leased, by tenants responsible for
more than one percent of the aggregate annualized December 1997 base rent.
<TABLE>
<CAPTION>
ANNUALIZED BASE RENT GLA
------------------------ -----------------------
TENANT AMOUNT % OF TOTAL OCCUPIED % OF TOTAL
- ------------------------------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Sci-Med Life Systems, Inc. $1,129,272 13.3% 131,288 6.1%
Meyercord Company 804,996 9.5% 225,000 10.4%
Anchor Hocking Plastics 765,048 9.0% 312,265 14.5%
Yaskawa Electric America, Inc. 748,944 8.8% 91,550 4.2%
B.L. Downey Company, Inc. 505,740 6.0% 162,306 7.5%
MSX International Engineering 400,632 4.7% 87,100 4.0%
American Axle & Manufacturing 383,172 4.5% 66,395 3.1%
Universal Trim, Inc. 315,000 3.7% 75,000 3.5%
Alabama Metals Industries Corp. 286,680 3.4% 100,000 4.6%
Nelson Metal Products Corp. 281,268 3.3% 87,938 4.1%
International Paper Company 271,236 3.2% 93,374 4.3%
NWS Michigan 242,196 2.9% 113,875 5.3%
Transpak, Inc. 223,200 2.6% 47,597 2.2%
Auer Steel & Heating Supply Co. 208,200 2.5% 47,861 2.2%
ITT Educational Services, Inc. 194,460 2.3% 21,000 1.0%
Espec Corp 193,596 2.3% 60,000 2.8%
Independent Metals Corp. 192,528 2.3% 61,119 2.8%
Crest Engineering Company 184,860 2.2% 40,040 1.9%
St. Thomas Creations 149,976 1.8% 28,350 1.3%
Blevins, Inc. 140,004 1.6% 40,000 1.9%
Spartan Stores, Inc. 120,000 1.4% 40,000 1.9%
J.C. Penny Co., Inc. 106,740 1.3% 28,078 1.3%
Mallinckrodt Veterinary, Inc. 89,004 1.0% 20,000 0.9%
The Rugby Group, Inc. 85,560 1.0% 24,800 1.1%
---------- ---------- --------- ----------
TOTAL $8,022,312 94.6% 2,004,936 92.9%
========== ========== ========= ==========
</TABLE>
The following table shows scheduled lease expirations for all leases for
the Company's Properties as of December 31, 1997.
<TABLE>
<CAPTION>
PERCENTAGE OF
GLA PERCENTAGE OF TOTAL
NUMBER GLA SUBJECT REPRESENTED ANNUALIZED ANNUALIZED BASE
YEAR OF OF LEASES TO EXPIRING BY EXPIRING BASE RENT UNDER RENT REPRESENTED BY
EXPIRATION (1) EXPIRING LEASES (2) LEASES EXPIRING LEASES EXPIRING LEASES
- -------------- --------- ----------- ------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
1998 7 318,119 15% $1,622,496 19%
1999 9 537,881 25% 1,512,108 18%
2000 7 395,360 18% 2,167,788 25%
2001 1 28,350 1% 149,976 2%
2002 3 250,500 12% 907,668 11%
2003 1 100,000 5% 286,680 3%
2004 2 115,000 5% 455,004 5%
2005 2 66,395 3% 383,172 5%
2006 1 21,000 1% 194,460 2%
Thereafter 4 296,181 14% 816,036 10%
--------- ------------ ------------- --------------- -------------------
Total 37 2,128,786 99% $8,495,388 100%
========= ============ ============= =============== ===================
</TABLE>
- --------------
(1) Lease expirations as of December 31, assuming tenants do not exercise
existing renewal, termination, or purchase options.
(2) Does not include existing vacancies of 29,313 aggregate square feet.
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MATERIAL PROPERTIES
At December 31, 1997, three of the Company's Properties (the "Material
Properties") represent ten percent or more of the aggregate book value of the
Properties as of December 31, 1997, or ten percent or more of the aggregate
annualized rental revenues as of December 31, 1997.
The following table shows the occupancy rate and average annual base
rent per square foot for each of the Material Properties for the periods
indicated:
<TABLE>
<CAPTION>
6655 WEDGEWOOD ROAD 365 NORTH AVENUE 2101-2125 GARDNER ROAD
MAPLE GROVE, MN CAROL STREAM, IL BROADVIEW, IL
-------------------------- ----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE
ANNUAL ANNUAL ANNUAL
OCCUPANCY BASE RENT OCCUPANCY BASE RENT OCCUPANCY BASE RENT
YEAR RATE (1) PER SQ. FT. RATE (1) PER SQ. FT. RATE (1) PER SQ. FT.
---- --------- ----------- --------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1997............. 100% $8.60 100% $3.58 100% $3.05
1996............. 100% 8.60 100% 3.79 93% 3.09
1995............. 100% 8.60 100% 4.00 100% 2.81
1994............. 100% 7.63 100% 4.00 100% 2.67
1993............. (2) (2) (3) (3) 100% 2.59
1992............. (2) (2) (3) (3) 100% 2.42
</TABLE>
- ---------------
(1) As of December 31 of the year indicated.
(2) The Company acquired this property on September 30, 1994. Information
for periods prior to January 1, 1994, is not available.
(3) The Company acquired this property on November 14, 1994. Information
for periods prior to January 1, 1994, is not available.
The following table sets forth certain information concerning the
tenants and leases in the Material Properties as of December 31, 1997.
<TABLE>
<CAPTION>
ANNUALIZED PRIMARY MAXIMUM
GLA BASE RENT AT LEASE LEASE
NATURE OF OCCUPIED DECEMBER TERM TERM
TENANT BUSINESS (SQ. FT.) 31, 1997 EXPIRATION EXPIRATION
- ------ -------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
6655 WEDGEWOOD ROAD
SciMed Life Systems, Inc. (1).... Medical devices 131,288 $1,129,272 2000 2005
365 NORTH AVENUE
Meyercord Company.............. Printed transfers 225,000 (2) 804,996 2002 2012
and decals
2101-2125 GARDNER ROAD
B.L. Downey.................... Plastics 162,306 505,740 2007 2012
Alabama Metals Industries Corp... Rolled steel 100,000 286,680 2003 2003
processor
Independent Metals Corporation... Rolled steel 61,119 192,528 1998 2003
processor
</TABLE>
- ----------------------
(1) The tenant currently has the right to terminate the lease on 9 months
prior notice beginning December 31, 1998, without an early termination
fee.
(2) The tenant has subleased 87,571 sq. ft. of this property to CP&P,
Incorporated, which is a fast food paper and plastic supplier.
PROPERTY MANAGEMENT
The Company's properties are managed by the Operating Partnership, of
which FR is the sole general partner.
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings arising in the ordinary
course of business. All such proceedings, taken together, are not expected to
have a material impact on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
None.
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth selected financial and operating data for the
Company and its Predecessor Businesses (herein after defined). The following
data should be read in conjunction with the financial statements and notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Form 10-K. "Predecessor
Businesses" include the historical statements of operations of the Properties
from the date of acquisition (or, if the Property was developed, the date placed
in service) by the Operating Partnership or the Pennsylvania Partnership for the
period January 1, 1995 to December 15, 1995 (or the earlier date of contribution
to the Company) and the year ended December 31, 1994.
<TABLE>
<CAPTION>
FIRST INDUSTRIAL SECURITIES, L.P. PREDECESSOR BUSINESSES
------------------------------------------- ---------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE FOR THE AUGUST 14, JANUARY 1, FOR THE
YEAR ENDED YEAR ENDED 1995 TO 1995 TO YEAR ENDED
DECEMBER DECEMBER DECEMBER 31, DECEMBER 15, DECEMBER
31, 1997 31, 1996 1995 1995 31, 1994
----------- ---------- --------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PROPERTY DATA)
STATEMENTS OF OPERATIONS DATA:
Total Revenues............................. $11,355 $11,516 $1,223 $8,048 $2,940
Property Expenses....................... 3,311 3,394 269 2,291 771
Interest Expense........................... --- --- --- 2,376 846
Depreciation and Amortization. 1,820 1,766 271 1,261 491
--------- --------- --------- ------- -------
Net Income.................................... $6,224 $6,356 $683 $2,120 $832
========= ========= ========= ======= =======
BALANCE SHEET DATA (END OF PERIOD):
Real Estate, Before Accumulated
Depreciation................................. $79,491 $76,255 $75,319 $52,638
Real Estate, After Accumulated
Depreciation................................. 74,106 72,582 73,338 52,149
Total Assets................................... 76,822 76,337 75,878 52,404
Acquisition Facility...................... --- --- --- 25,175
Total Liabilities............................. 1,521 1,440 1,110 26,200
Partners' Capital........................... $75,301 $74,897 $74,768 $26,204
OTHER DATA (END OF PERIOD):
Total Properties............................. 19 19 19 12
Total GLA in sq. ft........................ 2,158,099 2,141,099 2,139,459 1,489,094
Occupancy %................................. 99% 97% 100% 99%
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with "Selected
Financial Data" and the historical Financial Statements and Combined Financial
Statements and Notes thereto appearing elsewhere in this Form 10-K.
RESULTS OF OPERATIONS
The results of operations for the years ended December 31, 1997 and 1996
include the operations of the Company. The results of operations for the year
ended December 31, 1995 include the operations of the Predecessor Businesses
from January 1, 1995, to December 15, 1995 and the operations of the Company
from August 14, 1995 to December 31, 1995.
At December 31, 1997, the Company owned 19 in-service Properties
containing approximately 2.2 million square feet. At December 31, 1996 and
1995, the Company owned 19 in-service Properties containing approximately 2.1
million square feet.
During 1997, the Company completed a 17,000 square foot expansion of an
existing industrial property located in Grand Rapids, Michigan. The cost of the
expansion was approximately $.3 million and was funded with cash flows from
operations.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
Revenues decreased by $.2 million or 1.4%, due primarily to a decrease
in occupancy. Average occupancy for the years ended December 31, 1997 and 1996
was 94% and 97%, respectively. The lower average occupancy for the year ended
1997 is due to vacancies in the first and second quarters of 1997. As of
December 31, 1997, 99% of the GLA of the Properties was leased.
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses
remained relatively unchanged.
Depreciation and amortization remained relatively unchanged.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
Revenues increased by $2.2 million or 24.2%, due primarily to the
Properties acquired or developed after December 31, 1994.
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses,
increased by $.8 million or 32.6% due primarily to Properties acquired or
developed after December 31, 1994.
Interest expense decreased from $2.4 million to $0 million due to the
repayment of indebtedness collateralized by the Properties at the time of the
Contribution.
Depreciation and amortization increased by $.2 million due primarily to
the additional depreciation and amortization related to the Properties acquired
and developed after December 31, 1994.
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LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997 and 1996, the Company had no outstanding
indebtedness.
Net cash provided by operating activities was $7.6 million for the year
ended December 31, 1997 compared to $7.5 million for the year ended December 31,
1996. This increase is primarily due to a decrease in the amount of outstanding
tenant accounts receivable partially offset by a decrease in accounts payable
and accrued expenses and rents received in advance and security deposits. Net
cash provided by operating activities was $7.5 million for the year ended
December 31, 1996 compared to $3.6 million for the year ended December 31, 1995.
This increase is primarily related to increased net operating income due to the
Properties acquired or developed after December 31, 1994 and reduced interest
expense due to the repayment of indebtedness collateralized by the Properties at
the time of the Contribution.
Net cash used in investing activities was $2.8 million for the year
ended December 31, 1997 compared to $.9 million for the year ended December
31, 1996. The majority of the increase in cash used in investing activities for
the year ended December 31, 1997 relates to the completed expansion of an
existing industrial property located in Grand Rapids, Michigan and the current
expansion of an existing industrial property located in Auburn Hills, Michigan.
Net cash used in investing activities was $22.7 million for the year ended
December 31, 1995. The significantly higher net cash used in investing
activities for the year ended December 31, 1995 reflects the acquisition and
development of additional Properties.
Net cash used in financing activities for the year ended December 31,
1997 was $5.8 million, comprised of preferred limited partnership distributions
to Securities Corporation and pro rata general and limited partnership
distributions to Securities Corporation and the Operating Partnership,
respectively, which were partially offset by a pro rata general and limited
partnership capital contribution from the Securities Corporation and the
Operating Partnership. Net cash used in financing activities for the year ended
December 31, 1996 was $6.2 million, comprised of preferred limit partnership
distributions to Securities Corporation and pro rata general and limited
partnership distributions to Securities Corporation and the Operating
Partnership, respectively. Net cash provided by financing activities for the
year ended December 31, 1995 was $20.2 million, comprised primarily of
increased borrowings related to the purchase and development of Properties and
Security Corporation's capital contributions, which were partially offset by the
repayment of indebtedness collateralized by the Properties at the time of
Contribution.
The Company completed a 17,000 square foot expansion of an existing
industrial property located in Grand Rapids, Michigan. The cost of the
expansion was approximately $.3 million and was funded with cash flows from
operations.
The Company has committed to the expansion of one industrial property
located in Auburn Hills, Michigan. The estimated total cost of the expansion is
approximately $2.6 million, and is expected to be funded with cash flows from
operations and capital contributions, if necessary.
In 1997, the Company paid preferred limited partnership distributions of
$3.9 million to Securities Corporation. In 1997, the Company paid pro rata
general and limited partnership distributions to Securities Corporation and the
Operating Partnership, respectively, in the aggregate amount of $2.3 million
that were partially off-set by a pro rata general and limited partnership
capital contribution from the Securities Corporation and the Operating
Partnership, respectively, in the amount of $.4 million.
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The Company has considered its short-term (less than one year) liquidity
needs and the adequacy of its estimated cash flow from operations and other
expected liquidity sources to meet these needs. The Company believes that its
principal short-term liquidity needs are to fund normal recurring expenses and
to pay the preferred limited partnership distribution. The Company anticipates
that these needs will be met with cash flows provided by operating activities.
The Company expects to fund its long-term (greater than one year)
liquidity requirements for non-recurring capital improvements and property
expansions with its cash flow from operations, capital contributions and in part
with a deferred maintenance escrow established in connection with the issuance
of the Series A Preferred Stock.
INFLATION
Inflation has not had a significant impact on the Company because of the
relatively low inflation rates in the Company's markets of operation. Most of
the Company's leases require the tenants to pay their share of operating
expenses, including common area maintenance, real estate taxes and insurance,
thereby reducing the Company's exposure to increases in costs and operating
expenses resulting from inflation. In addition, many of the leases are for
terms less than five years which may enable the Company to replace existing
leases with new leases at higher base rentals if rents of existing leases are
below the then-existing market rate.
YEAR 2000 CONCERNS
The Company believes, based on discussions with its current systems'
vendor, that its software applications and operational programs will properly
recognize calendar dates beginning in the Year 2000. In addition, the Company
is discussing with its major vendors and customers the possibility of any
interface difficulties relating to the Year 2000 which may effect the Company.
To date, no significant concerns have been identified, however, there can be no
assurance that there will not be any Year 2000 related operating problems or
expenses that will arise with the Company's computer systems and software or in
connection with the Company's interface with the computer systems and software
of its vendors and customers.
OTHER
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". This statement, effective
for fiscal years beginning after December 15, 1997, requires the Company to
report components of comprehensive income in a financial statement that is
displayed with the same prominence as other financial statements. Comprehensive
income is defined by Concepts Statement No. 6, "Elements of Financial
Statements" as the change in the equity of a business enterprise during a period
from transactions and other events and circumstances from non-owner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The Company has not yet
determined its comprehensive income.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information". This statement, effective for financial statements for periods
beginning after December 15, 1997, requires that a public business enterprise
report financial and descriptive information about its reportable operating
segments. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments. The Company has not yet determined the
impact of this statement on its financial statements.
12
<PAGE> 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedule on
page F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10 AND 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND
EXECUTIVE COMPENSATION
The directors and executive officers of Securities Corporation, the
general partner of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
Michael T. Tomasz 55 President, Chief Executive Officer and Director
Michael W. Brennan 41 Chief Operating Officer
Michael J. Havala 38 Chief Financial Officer and Director
Patrick J. Galvin 58 Independent Director
</TABLE>
The independent director receives an annual director's fee of $10,000.
No other director or executive officer of Securities Corporation receives any
separate compensation as such.
The following biographical descriptions set forth certain information
with respect to the directors and executive officers of Securities Corporation:
Michael T. Tomasz. Mr. Tomasz has been President, Chief Executive
Officer and Director of Securities Corporation since its inception and has been
President, Chief Executive Officer and Director of FR since April 1994. Between
1986 and 1994, he was managing partner of the Chicago office of The Shidler
Group and was involved in the acquisition, financing, leasing, managing and
disposition of over $270 million of commercial property.
Michael W. Brennan. Mr. Brennan has been Chief Operating Officer of
Securities Corporation since its inception and has been Chief Operating Officer
of FR since December 1995 and a Director of FR since March, 1996, prior to which
time he was Senior Vice President, Asset Management of FR since April 1994. He
was a partner of The Shidler Group between 1988 and 1994 and the President of
the Brennan/Tomasz/Shidler Investment Corporation and was in charge of asset
management, leasing, project finance, accounting and treasury functions for The
Shidler Group's Chicago operations.
Michael J. Havala. Mr. Havala has been Chief Financial Officer and
Director of Securities Corporation since its inception and has been the Chief
Financial Officer of FR since April 1994. Between 1989 and 1994 he was Chief
Financial Officer for The Shidler Group's Midwest region with responsibility for
accounting, finance and treasury functions.
Patrick J. Galvin. Mr. Galvin has been Director of Securities
Corporation since 1995. He has been a senior partner in the law firm of Galvin,
Galvin & Leeney in Hammond, Indiana since 1986. He is admitted to the practice
of law in the States of Indiana and Illinois and the District of Columbia and is
a member of the American Bar Association. Mr. Galvin holds a Bachelor of Arts
degree from the University of Notre Dame and received J.D. and L.L.M. in
taxation degrees from the Georgetown University Law Center. He serves on the
Board of Directors of Mercantile National Bank of Indiana.
13
<PAGE> 14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Securities Corporation owns a 1% general partner interest and the
preferred limited partner interest in the Company. The Operating Partnership
owns a 99% limited partner interest in the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Properties are managed by the Operating Partnership
pursuant to a property management agreement. Management fees incurred are based
on 3.25% of gross receipts. These fees totaled $380,173 for the period January
1, 1997 to December 31, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND
REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND EXHIBITS
(1 & 2) See Index to Financial Statements and Financial Statement
Schedule on page F-1 of this Form 10-K
(3) Exhibits:
Exhibit No. Description
----------- -----------
27 *Financial Data Schedule
(B) REPORTS ON FORM 8-K None.
* Filed herewith.
14
<PAGE> 15
SIGNATURES
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 SECURITIES, L.P.
BY: FIRST INDUSTRIAL SECURITIES CORPORATION,
ITS SOLE GENERAL PARTNER
Date: March 20, 1998 By: /s/ Michael T. Tomasz
--------------------------------------------
Michael T. Tomasz
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 20, 1998 By: /s/ Michael J. Havala
--------------------------------------------
Michael J. Havala
Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Michael T. Tomasz President, Chief Executive Officer March 20, 1998
- --------------------- and Director
Michael T. Tomasz
/s/ Michael J. Havala Chief Financial Officer and Director March 20, 1998
- ---------------------
Michael J. Havala
/s/ Patrick J. Galvin Director March 20, 1998
- ---------------------
Patrick J. Galvin
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ------------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
16
<PAGE> 17
FIRST INDUSTRIAL SECURITIES, L.P.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE
FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-2
Balance Sheets of First Industrial Securities, L.P. (the "Company")
as of December 31, 1997 and 1996......................................... F-3
Statements of Operations of the Company for the Years Ended December
31, 1997 and 1996 and for the Period August 14, 1995 through December
31, 1995 and the Combined Statement of Operations for the Predecessor
Businesses for the Period January 1, 1995 through December 15, 1995...... F-4
Statements of Changes in Partners' Capital of the Company for the
Years Ended December 31, 1997 and 1996 and for the Period August 14,
1995 through December 31, 1995 and the Combined Statement of Changes
in Partners' Capital of the Predecessor Businesses for the Period
January 1, 1995 through December 15, 1995................................ F-5
Statements of Cash Flows of the Company for the Years Ended December
31, 1997 and 1996 and for the Period August 14, 1995 through December
31, 1995 and the Combined Statement of Cash Flows of the Predecessor
Businesses for the Period January 1, 1995 through December 15, 1995...... F-6
Notes to Financial Statements and Combined Financial Statements.......... F-7
FINANCIAL STATEMENT SCHEDULE
Schedule III: Real Estate and Accumulated Depreciation.................. S-1
F-1
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
First Industrial Securities, L.P.
We have audited the financial statements and the financial statement
schedule of First Industrial Securities, L.P. (the "Company") and the combined
financial statements of the Predecessor Businesses as listed on page F-1 of this
Form 10-K. These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of First Industrial
Securities, L.P. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years ended December 31, 1997 and 1996 and
for the period August 14, 1995 through December 31, 1995 and the combined
results of operations and cash flows of the Predecessor Businesses for the
period January 1, 1995 through December 15, 1995, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
February 17, 1998
F-2
<PAGE> 19
FIRST INDUSTRIAL SECURITIES, L.P.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
----------- ---------
ASSETS
<S> <C> <C>
Assets:
Investment in Real Estate:
Land .......................................................... $ 11,626 $ 11,626
Buildings and Improvements .................................... 65,767 64,629
Construction in Progress ...................................... 2,098 --
Less: Accumulated Depreciation ................................ (5,385) (3,673)
-------- --------
Net Investment in Real Estate ................................. 74,106 72,582
Cash and Cash Equivalents ........................................ 458 1,428
Restricted Cash .................................................. 411 411
Tenant Accounts Receivable, Net .................................. 99 568
Deferred Rent Receivable ......................................... 1,102 717
Prepaid Expenses and Other Assets, Net ........................... 646 631
-------- --------
Total Assets .......................................... $ 76,822 76,337
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts Payable and Accrued Expenses ............................ $ 1,053 $ 858
Rents Received in Advance and Security Deposits .................. 468 582
-------- --------
Total Liabilities ..................................... 1,521 1,440
-------- --------
Commitments and Contingencies ....................................... -- --
Partners' Capital:
General Partner and Preferred Limited Partner ....................... 41,258 41,254
Limited Partner ..................................................... 34,043 33,643
-------- --------
Total Partners' Capital ............................. 75,301 74,897
-------- --------
Total Liabilities and Partners' Capital ............. $ 76,822 $ 76,337
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 20
FIRST INDUSTRIAL SECURITIES, L.P.
STATEMENTS OF OPERATIONS AND
PREDECESSOR BUSINESSES
COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
First Industrial Securities, L.P. Businesses
---------------------------------------------------------- ---------------------
For the Period For the Period
Year Ended Year Ended August 14, 1995 January 1, 1995
December 31, December 31, to December 31, to December 15,
1997 1996 1995 1995
------------ ------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Rental Income .......................... $ 8,544 $ 8,644 $ 974 $ 6,261
Tenant Recoveries and Other Income
2,811 2,872 249 1,787
------- ------- ------- -------
Total Revenues ................... 11,355 11,516 1,223 8,048
------- ------- ------- -------
Expenses:
Real Estate Taxes ...................... 2,213 2,328 219 1,597
Repairs and Maintenance ................ 444 390 6 217
Property Management .................... 380 386 36 271
Utilities............................... 158 106 2 72
Insurance .............................. 32 70 6 81
Other .................................. 84 114 -- 53
Interest Expense ....................... -- -- -- 2,376
Depreciation and Other Amortization 1,820 1,766 271 1,261
------- ------- ------- -------
Total Expenses .................. 5,131 5,160 540 5,928
------- ------- ------- -------
Net Income ............................... $ 6,224 $ 6,356 $ 683 $ 2,120
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 21
FIRST INDUSTRIAL SECURITIES, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND
PREDECESSOR BUSINESSES
COMBINED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
Businesses
--------------------
Partners' Capital Total
-------------------- -----------------
<S> <C> <C>
Balance at December 31, 1994 $ 26,204 $ 26,204
Contributions ............... 4,567 4,567
Distributions (Note 2) ...... (32,891) (32,891)
Net Income .................. 2,120 2,120
-------------- ------------
Balance at December 15, 1995 ... $ -- $ --
============== ============
</TABLE>
<TABLE>
<CAPTION>
First Industrial Securities, L.P.
-----------------------------------------------------------------
General
Partner and
Limited Preferred Limited
Partner Partner Total
------------------- ------------------- -------------------
<S> <C> <C> <C>
Balance at August 14, 1995............ $ -- $ -- $ --
Contributions: Cash................ -- 41,251 41,251
Contributions: Other .............. 33,302 -- 33,302
Distributions...................... -- (468) (468)
Net Income ........................ 213 470 683
---------- --------- ---------
Balance at December 31, 1995 ......... $ 33,515 $ 41,253 $ 74,768
Distributions ..................... (2,284) (3,943) (6,227)
Net Income ........................ 2,412 3,944 6,356
---------- --------- ---------
Balance at December 31, 1996 ......... $ 33,643 $ 41,254 $ 74,897
Contributions......................... 396 4 400
Distributions......................... (2,277) (3,943) (6,220)
Net Income ........................ 2,281 3,943 6,224
---------- --------- ---------
Balance at December 31, 1997.......... $ 34,043 $ 41,258 $ 75,301
========== ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 22
FIRST INDUSTRIAL SECURITIES, L.P.
STATEMENTS OF CASH FLOWS AND
PREDECESSOR BUSINESSES
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Predecessor
First Industrial Securities, L.P. Businesses
------------------------------------------------- ---------------------
For the Year For the Year
Ended Ended For the Period For the Period
December 31, December 31, August 14, 1995 to January 1, 1995 to
1997 1996 December 31, 1995 December 15, 1995
------------- -------------- -------------------- --------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 6,224 $ 6,356 $ 683 $ 2,120
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization........................ 1,820 1,766 271 1,261
Provision for Bad Debts.............................. --- 50 --- ---
Increase in Deferred Rent Receivable................. (385) (291) (39) (311)
Decrease (Increase) in Tenant Accounts Receivable.... 469 (455) (163) ---
Increase in Prepaid Expenses and Other Assets........ (123) (277) (66) (223)
(Decrease) Increase in Accounts Payable and Accrued
Expenses and Rents Received in Advance and
Security Deposits.................................. (368) 330 893 (808)
-------- --------- -------------- --------------
Net Cash Provided by Operating Activities........ 7,637 7,479 1,579 2,039
-------- --------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of and Additions to Investment in Real
Estate and Construction in Progress........... (2,787) (936) --- (22,681)
-------- --------- -------------- --------------
Net Cash Used In Investing Activities................ (2,787) (936) --- (22,681)
-------- --------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions........................................ (6,220) (6,227) (468) ---
Proceeds from Acquisition Facilities Payable......... --- --- --- 16,075
Repayments on Acquisition Facilities Payable......... --- --- (41,250) ---
Capital Contributions................................ 400 --- 41,251 4,567
-------- --------- -------------- --------------
Net Cash (Used In) Provided by Financing
Activities..................................... (5,820) (6,227) (467) 20,642
-------- --------- -------------- --------------
Net (Decrease) Increase in Cash and Cash Equivalents..... (970) 316 1,112 ---
Cash and Cash Equivalents, Beginning of Period............ 1,428 1,112 --- ---
-------- --------- -------------- --------------
Cash and Cash Equivalents, End of Period.................. $ 458 $ 1,428 $ 1,112 $ ---
======== ========== ============= ==============
Supplemental Cash Flow Information
Cash Paid for Interest........................... $ --- $ --- $ --- $ 1,957
======== ========== ============= ==============
Interest Capitalized............................. $ --- $ --- $ --- $ 114
======== ========== ============= ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 23
FIRST INDUSTRIAL SECURITIES, L.P. AND PREDECESSOR BUSINESS
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA )
1. ORGANIZATION
First Industrial Securities, L.P. ("the Company") is a Delaware limited
partnership formed on August 14, 1995, the 1% general partner of which is First
Industrial Securities Corporation ("Securities Corporation"), a wholly owned
subsidiary of First Industrial Realty Trust, Inc. ("FR"), and the 99% limited
partner of which is First Industrial, L.P. (the "Operating Partnership"), of
which FR is the sole general partner. Securities Corporation also owns a
preferred limited partnership interest in the Company.
The limited partnership agreement of the Company (the "Limited
Partnership Agreement") and the Guarantee Agreement (herein after defined)
contain covenants generally restricting the Company's activities to the
ownership and operation of the properties and, under certain circumstances,
other industrial properties. These covenants shall cease to have any effect upon
the termination of the Guarantee. Under its Articles of Incorporation,
Securities Corporation's sole purpose will be to act as general partner of the
Company and to pay dividends on its common and preferred stock. These and other
restrictions are intended to assure that even in the event of FR, the Operating
Partnership or other affiliates of FR becoming subject to federal bankruptcy
proceedings, neither Securities Corporation nor the Company nor their assets
will be treated as subject to such bankruptcy proceedings under the doctrine of
substantive consolidation or other doctrines (except to the extent liabilities
are imposed by non-insolvency regulatory statutes on affiliates) and that
activities of FR, the Operating Partnership and other affiliates will not cause
Securities Corporation or the Company to become insolvent or unable to pay their
debts as they mature (including the Guarantee).
2. FORMATION TRANSACTIONS
The Initial Capitalization
The Company was capitalized with a capital contribution of $1 on
August 28, 1995 by Securities Corporation.
The Contribution Transactions
On November 17, 1995, FR completed a public offering of 1,500,000
shares of $.01 par value 9 1/2% Series A Cumulative Preferred Stock at $25.00
per share, and on December 14, 1995, FR issued 150,000 shares of $.01 par value
9 1/2% Series A Cumulative Preferred Stock for $25.00 per share pursuant to the
underwriters' exercise of their over-allotment option (together the "Series A
Preferred Shares"). The issuance of 1,650,000 Series A Preferred Shares is thus
referred to as the "Offering". Gross proceeds to FR from the Offering were
$41,250. FR contributed to Securities Corporation the gross proceeds from the
Offering in exchange for preferred stock of Securities Corporation, and
Securities Corporation contributed such proceeds to the Company in exchange for
a preferred limited partnership interest in the Company. The Operating
Partnership and First Industrial Pennsylvania, L.P. (the "Pennsylvania
Partnership"), a Delaware limited partnership and a subsidiary of the Operating
Partnership, contributed to the Company, in return for limited partnership
interests, 14 properties and 5 properties (described below) on November 17, 1995
and December 14, 1995, respectively, encumbered by liens collateralizing debt
under the 1994 Acquisition Facility (herein after defined). An amount of such
debt equal to the gross proceeds of the Offering was repaid by the Company and
such liens on the properties described
F-7
<PAGE> 24
FIRST INDUSTRIAL SECURITIES, L.P. AND PREDECESSOR BUSINESS
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA )
2. FORMATION TRANSACTIONS, CONTINUED
below have been released. The Pennsylvania Partnership contributed its limited
partnership interest in the Company to the Operating Partnership. The foregoing
is herein collectively referred to as the "Contribution Transactions". The
Company commenced operations on November 17, 1995.
The Properties
Upon consummation of the Offering and the Contribution Transactions
(collectively, the "Formation Transactions"), the Company owned 19 properties
located in four states containing an aggregate of approximately 2.1 million
square feet (unaudited) of gross leasable area ("GLA"). Of the properties:
(a) Four were acquired by the Operating Partnership prior to FR's
initial public offering (the "Initial Offering") in June, 1994;
(b) Two were acquired concurrently with the consummation of the
Initial Offering; and
(c) Thirteen were acquired or developed by either the Operating
Partnership or the Pennsylvania Partnership subsequent to the
Initial Offering.
During 1997, the Company completed a 17,000 (unaudited) square foot
expansion of an existing industrial property located in Grand Rapids, Michigan.
The Guarantee
In connection with the Offering, the Company entered into a Guarantee
and Payment Agreement (the "Guarantee Agreement") pursuant to which the Company
guaranteed the payment of dividends on, and payments on liquidation or
redemption of, the Series A Preferred Shares.
The guarantee was created through the execution of the Guarantee
Agreement between the Company and Securities Corporation, for the benefit of a
guarantee agent. The Guarantee Agreement is administered and enforced for the
benefit for the holders of the Series A Preferred Shares by the guarantee agent.
The guarantee agent may enforce the guarantee directly against the Company only
with the approval of the holders of at least 25% of the outstanding Series A
Preferred Shares. No holder may seek directly to enforce the guarantee.
Under the terms of the Guarantee Agreement, the Company was required to
deposit approximately $414 into a restricted cash escrow account with the
guarantee agent (the "Restricted Escrow"). These funds were set aside to pay for
certain repair and maintenance items of the contributed properties. The balance
of the Restricted Escrow at December 31, 1997 and 1996 is $411 and is included
in restricted cash.
F-8
<PAGE> 25
FIRST INDUSTRIAL SECURITIES, L.P. AND PREDECESSOR BUSINESS
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA )
3. BASIS OF PRESENTATION
The Statements of Operations for the Company present the operations of
the Company for the years ended December 31, 1997 and 1996 and for the period
August 14, 1995 to December 31, 1995. The Combined Statements of Operations for
the Predecessor Business present the historical operations of the properties
from the date of acquisition (or, if the property was developed, the date placed
in service) by the Predecessor Businesses through the dates of the Contribution
Transactions.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In order to conform with the generally accepted accounting principles,
management, in preparation of the 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 December
31, 1997 and 1996, and the reported amounts of revenues and expenses for the
years ended December 31, 1997 and 1996, the period August 14, 1995 to December
31, 1995 and the period January 1, 1995 to December 15, 1995. Actual results
could differ from those estimates.
Revenue Recognition:
Rental income is recognized on a straight-line method under which
contractual rent increases are recognized evenly over the lease term. Tenant
recovery income includes payments from tenants for taxes, insurance and other
property operating expenses and are recognized as revenues in the period the
related expenses are incurred by the Company.
The Company evaluates and, if applicable, provides for an allowance for
doubtful accounts against the portion of accounts receivable which is estimated
to be uncollectible. Accounts receivable in the balance sheets are shown net of
an allowance for doubtful accounts of $50 as of December 31, 1997 and 1996.
General and Administrative
Expenses incurred related to the operations of the properties are
reflected in property management expense, therefore, there is no allocation of
FR's general and administrative expense.
Investment in Real Estate and Depreciation:
Real estate assets are carried at the lower depreciated cost or fair
value as determined by the Company. The Company reviews its properties on a
quarterly basis for impairment and provides an allowance if impairments are
determined. First, to determine if impairment may exist, the Company reviews its
properties and identifies those which have had either an event of change or
event of circumstance warranting further assessment of recoverability. Then, the
Company estimates the fair value of those properties on an individual basis by
capitalizing the expected net operating income. Such amounts are then compared
to the property's depreciated cost to determine whether an impairment exists.
F-9
<PAGE> 26
FIRST INDUSTRIAL SECURITIES, L.P. AND PREDECESSOR BUSINESS
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA )
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Interest expense, real estate taxes and other directly related expenses
incurred during construction periods are capitalized and depreciated commencing
with the date placed in service, on the same basis as the related assets.
Depreciation expense is computed using the straight-line method based on the
following useful lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings and Improvements................ 38 to 40
Land Improvements......................... 15
</TABLE>
Construction expenditures for tenant improvements and leasing
commissions are capitalized and amortized over the terms of each specific lease,
and repairs and maintenance are charged to expense when incurred. Expenditures
for improvements are capitalized.
Cash and Cash Equivalents:
Cash and cash equivalents include all cash and liquid investments with
an initial maturity of three months or less. The carrying amount approximates
fair value due to the short maturity of these investments.
Income Taxes:
No federal income taxes are payable by the Company or the Predecessor
Businesses, and none have been provided for in the accompanying financial
statements and combined financial statements. Prior to the Offering, the
Predecessor Businesses were owned by the Operating Partnership and the
Pennsylvania Partnership. In accordance with partnership taxation, each of the
partners are responsible for reporting their share of taxable income or loss.
Fair Value of Financial Investments:
The Company's financial instruments include short-term investments,
tenant accounts receivable, accounts payable and other accrued expenses. The
fair value of these financial instruments was not materially different from
their carrying amount or contract values.
Reclassifications:
Certain amounts in the 1996 and 1995 financial statements were
reclassified to conform with the current year presentation.
5. RELATED PARTY TRANSACTIONS
The 19 properties owned by the Company are managed by the Operating
Partnership, of which FR is the sole general partner. Management fees incurred
are based on 3.25% of gross receipts. Such fees totaled $380, $386 and $36 for
the years ended December 31, 1997, 1996 and the period August 14, 1995 to
December 31, 1995, respectively. At December 31, 1997 and 1996, $0 and $42 of
accrued management fees were due to the Operating Partnership, respectively.
F-10
<PAGE> 27
FIRST INDUSTRIAL SECURITIES, L.P. AND PREDECESSOR BUSINESS
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA )
6. THE ACQUISITION FACILITY PAYABLE
On June 30, 1994, the Operating Partnership entered into a revolving
credit facility (the "1994 Acquisition Facility") under which the Operating
Partnership may borrow to finance the acquisition of additional properties and
for other corporate purposes, including working capital. The combined financial
statements of the Predecessor Business assume a loan balance proportional to the
total lender's estimated value of the properties compared to the total lender's
estimated value of all properties collateralizing the 1994 Acquisition Facility.
Borrowings under the 1994 Acquisition Facility bear interest at a floating rate
based on a "Corporate Base Rate" plus .5% or LIBOR plus 2.0%. Under the 1994
Acquisition Facility, interest only payments are due monthly. The borrowings
under the 1994 Acquisition Facility are cross-collateralized by certain other
properties acquired and held by the Operating Partnership and the Pennsylvania
Partnership. In connection with the Contribution Transactions, the outstanding
balance under the 1994 Acquisition Facility allocable to the Predecessor
Businesses was repaid and the liens on the properties collateralizing such
facility were released.
7. PARTNERS' CAPITAL
During 1996, the Company distributed $4,388 ($468 of which was accrued
in 1995) to Securities Corporation in respect of its preferred limited
partnership interest in the Company, and Securities Corporation paid a preferred
stock dividend of $4,388 to FR, in each case, the amount equal to the aggregate
dividend payable on FR's Series A Preferred Stock.
During 1996, the Company paid a pro rata general and limited
partnership distribution to Securities Corporation and the Operating
Partnership, respectively, in the aggregate amount of $2,307.
During 1997, the Company distributed $3,920 to Securities Corporation
in respect of its preferred limited partnership interest in the Company, and
Securities Corporation paid a preferred stock dividend of $3,920 to FR, in each
case, the amount equal to the aggregate dividend payable on FR's Series A
Preferred Stock.
During 1997, the Company paid a pro rata general and limited
partnership distribution to Securities Corporation and the Operating
Partnership, respectively, in the aggregate amount of $2,300.
During 1997, the Company received a pro rata general and limited
partnership distribution from Securities Corporation and the Operating
Partnership, respectively, in the aggregate amount of $400.
F-11
<PAGE> 28
FIRST INDUSTRIAL SECURITIES, L.P. AND PREDECESSOR BUSINESS
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA )
8. FUTURE RENTAL REVENUES
The Company's properties are leased to tenants under net and semi-net
operating leases. Minimum lease payments receivable, excluding tenant
reimbursements of expenses, under noncancelable operating leases in effect as of
December 31, 1997 are approximately as follows:
<TABLE>
<S> <C>
1998 $ 8,003
1999 7,086
2000 5,679
2001 3,771
2002 3,302
Thereafter 7,077
--------------
Total $ 34,918
==============
</TABLE>
Three of the Company's properties represent ten percent or more of the
aggregate book value of the assets as of December 31, 1997, or ten percent or
more of the Company's aggregate rental revenues as of December 31, 1997.
9. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Supplemental disclosure of noncash investing and financing activities:
Exchange of Limited Partnership Interest for Assets and Liabilities
<TABLE>
<CAPTION>
FIRST INDUSTRIAL
SECURITIES, L.P.
FOR THE PERIOD AUGUST 14,
TO DECEMBER 31, 1995
------------------------------
<S> <C>
Land ....................................... $ 11,626
Buildings and Improvements ................. 63,693
Accumulated Depreciation ................... (1,718)
Restricted Cash ............................ 414
Deferred Rent Receivable ................... 387
Other Assets ............................... 367
Acquisition Facility Payable ............... (41,250)
Accrued Expenses ........................... (217)
Limited Partnership Interest ............... (33,302)
----------------
$ ---
================
</TABLE>
F-12
<PAGE> 29
FIRST INDUSTRIAL SECURITIES, L.P. AND PREDECESSOR BUSINESS
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is involved in legal
actions arising from the ownership of their properties. In management's opinion,
the liabilities, if any, that may ultimately result from such legal actions are
not expected to have a material adverse effect on the financial position,
results of operations or liquidity of the Company or the Predecessor Businesses.
Two properties have leases granting the tenants options to purchase the
property. Such options are exercisable at various times and at an appraised fair
market value or at a fixed purchased price generally in excess of the Company's
purchase price. The Company has no notice of any exercise of any tenant purchase
option.
The Company has committed to the expansion of one industrial property
located in Auburn Hills, Michigan. The estimated total cost of the expansion is
approximately $2.6 million, and is expected to be funded with cash flows from
operations and capital contributions, if necessary.
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST INDUSTRIAL SECURITIES, L.P.
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH-QUARTER
---------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Revenues .................... $ 2,879 $ 2,677 $ 2,894 $ 2,905
Property Expenses ........... (904) (829) (784) (794)
Depreciation and Amortization (447) (443) (462) (468)
------- ------- ------- -------
Net Income .................. $ 1,528 $ 1,405 $ 1,648 $ 1,643
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FIRST INDUSTRIAL SECURITIES, L.P.
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
---------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Revenues .................... $ 2,742 $ 3,005 $ 2,876 $ 2,893
Property Expenses ........... (680) (775) (1,059) (880)
Depreciation and Amortization (439) (439) (442) (446)
------- ------- ------- -------
Net Income .................. $ 1,623 $ 1,791 $ 1,375 $ 1,567
======= ======= ======= =======
</TABLE>
F-13
<PAGE> 30
FIRST INDUSTRIAL SECURITIES, L.P.
SCHEDULE III:
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
SUBSEQUENT TO
INITIAL COST (A) ACQUISITION
LOCATION ------------------------ OR
BUILDING ADDRESS (CITY/STATE) LAND BUILDINGS COMPLETION
- ---------------- ------------ --------- ------------- --------------
<S> <C> <C> <C> <C>
5020 Louise Drive ........... Mechanisburg, PA $ 707 $ -- $ 2,773
7195 Grayson ................ Harrisburg, IL 478 2,771 77
3150-3160 MacArthur Boulevard Northbrook, IL 439 2,518 30
2101-2125 Gardner Road ...... Broadview, IL 1,177 6,818 110
365 North Avenue ............ Carol Stream, IL 1,208 6,961 81
2942 MacArthur Boulevard .... Northbrook, IL 315 1,803 15
2965 Technology Drive ....... Rochester Hills, MI 953 -- 2,403
1451 Lincoln Avenue ......... Madison Heights, MI 299 1,703 452
4400 Purks Drive ............ Auburn Hills, MI 602 3,410 114
4177A Varsity Drive ......... Ann Arbor, MI 90 536 78
6515 Cobb Drive ............. Sterling Heights, MI 305 1,753 30
425 Gordon Industrial Court . Grand Rapids, MI 611 3,747 1,331
2851 Prairie Street ......... Grandville, MI 337 2,778 281
2945 Walkent Court .......... Grand Rapids, MI 310 2,074 297
537 76th Street ............. Grand Rapids, MI 255 1,456 331
6655 Wedgewood Road ......... Maple Grove, MN 1,465 8,410 76
900 Apollo Road ............. Eagan, MN 1,029 5,855 195
7316 Aspen Lane North ....... Brooklyn Park, MN 368 2,156 181
6707 Shingle Creek Parkway .. Brooklyn Center, MN 376 2,101 364
------- ------- -------
$11,324 $56,850 $ 9,219
======= ======= =======
<CAPTION>
GROSS AMOUNT CARRIED
AT CLOSE OF PERIOD (12/31/97)(C)
--------------------------------------- ACCUMULATED
BUILDING AND DEPRECIATION YEAR BUILT/ DEPRECIABLE
BUILDING ADDRESS LAND IMPROVEMENTS TOTAL 12/31/97 RENOVATED LIVES(YEARS)
- ---------------- ---------- --------------- --------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
5020 Louise Drive ........... $ 716 $ 2,764 $ 3,480 $ 257 1995 (b)
7195 Grayson ................ 479 2,847 3,326 219 1994 (b)
3150-3160 MacArthur Boulevard 439 2,548 2,987 224 1978 (b)
2101-2125 Gardner Road ...... 1,228 6,877 8,105 571 1950/69 (b)
365 North Avenue ............ 1,208 7,042 8,250 571 1969 (b)
2942 MacArthur Boulevard .... 315 1,818 2,133 159 1979 (b)
2965 Technology Drive ....... 964 2,392 3,356 172 1995 (b)
1451 Lincoln Avenue ......... 305 2,149 2,454 142 1967 (b)
4400 Purks Drive ............ 610 3,516 4,126 (d) 226 1987 (b)
4177A Varsity Drive ......... 90 614 704 92 1993 (b)
6515 Cobb Drive ............. 305 1,783 2,088 147 1984 (b)
425 Gordon Industrial Court . 644 5,045 5,689 411 1990 (b)
2851 Prairie Street ......... 445 2,951 3,396 277 1989 (b)
2945 Walkent Court .......... 352 2,329 2,681 219 1993 (b)
537 76th Street ............. 258 1,784 2,042 117 1987 (b)
6655 Wedgewood Road ......... 1,466 8,485 9,951 713 1989 (b)
900 Apollo Road ............. 1,029 6,050 7,079 427 1970 (b)
7316 Aspen Lane North ....... 394 2,311 2,705 166 1978 (b)
6707 Shingle Creek Parkway .. 379 2,462 2,841 275 1986 (b)
------- ------- ------- -------
$11,626 $65,767 $77,393 $ 5,385
======= ======= ======= =======
</TABLE>
NOTES:
(a) Initial cost for each respective property is total
acquisition costs associated with its purchase.
(b) Depreciation is computed based upon the following
estimated lives:
Buildings, Improvements 38 to 40 years
Tenant Improvements,
Leasehold Improvements Life of lease
(c) At December 31, 1997, aggregate cost of land, buildings
and improvements for federal income tax purposes was
approximately $77.0 million.
(d) Excludes $2,098 of construction in progress related to the
expansion of this property. Estimated total cost of the
expansion is approximately $2,630.
There were no encumbrances on the properties at December 31,
1997
S-1
<PAGE> 31
FIRST INDUSTRIAL SECURITIES, L.P.
SCHEDULE III:
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
The changes in total real estate assets for the years ended December
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
FIRST INDUSTRIAL SECURITIES, L.P.
----------------------------------------------
1997 1996
--------------------- ---------------------
<S> <C> <C>
Balance, Beginning of Year .................................................. $ 76,255 $ 75,319
Capital Contribution from Operating Partnership and Pennsylvania Partnership,
Acquisitions, Construction Costs and Improvements ....................... 3,236 936
--------------------- ---------------------
Balance, End of Year ........................................................ $ 79,491 $ 76,255
===================== =====================
</TABLE>
The changes in depreciation for the years ended December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
FIRST INDUSTRIAL SECURITIES, L.P.
----------------------------------------------
1997 1996
--------------------- ---------------------
<S> <C> <C>
Balance, Beginning of Year .................................................. $ 3,673 $ 1,981
Depreciation ................................................................ 1,712 1,692
--------------------- ---------------------
Balance, End of Year ........................................................ $ 5,385 $ 3,673
===================== =====================
</TABLE>
S-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
FINANCIAL STATEMENTS OF FIRST INDUSTRIAL SECURITIES, L.P. FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 458
<SECURITIES> 0
<RECEIVABLES> 149
<ALLOWANCES> (50)
<INVENTORY> 0
<CURRENT-ASSETS> 557
<PP&E> 79,491
<DEPRECIATION> (5,385)
<TOTAL-ASSETS> 76,822
<CURRENT-LIABILITIES> 1,053
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 75,301
<TOTAL-LIABILITY-AND-EQUITY> 76,822
<SALES> 0
<TOTAL-REVENUES> 11,355
<CGS> 0
<TOTAL-COSTS> (3,311)
<OTHER-EXPENSES> (1,820)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,224
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,224
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
