<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
/ / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
--------------------------
Commission File Number 1-13102
--------------------------
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 July 29,
1999: 38,044,313
<PAGE> 2
FIRST INDUSTRIAL REALTY TRUST, INC.
FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998...................... 2
Consolidated Statements of Operations for the Six Months Ended June 30, 1999 and June 30,
1998....................................................................................... 3
Consolidated Statements of Operations for the Three Months Ended June 30,1999 and June
30,1998.................................................................................... 4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and June 30,
1998....................................................................................... 5
Notes to Consolidated Financial Statements................................................. 6-12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................................ 13-21
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................... 21
PART II: OTHER INFORMATION
Item 1. Legal Proceedings .................................................................. 22
Item 2. Changes in Securities .............................................................. 22
Item 3. Defaults Upon Senior Securities..................................................... 22
Item 4. Submission of Matters to a Vote of Security Holders ................................ 22
Item 5. Other Information .................................................................. 22
Item 6. Exhibits and Report on Form 8-K..................................................... 22
SIGNATURE .................................................................................... 24
EXHIBIT INDEX ................................................................................ 25
</TABLE>
1
<PAGE> 3
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>
June 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Assets:
Investment in Real Estate:
Land ...................................................... $ 402,919 $ 406,465
Buildings and Improvements ................................ 2,132,884 2,137,499
Furniture, Fixtures and Equipment ......................... 1,437 1,437
Construction in Progress .................................. 62,321 37,632
Less: Accumulated Depreciation ............................ (200,975) (175,886)
----------- -----------
Net Investment in Real Estate ..................... 2,398,586 2,407,147
Cash and Cash Equivalents .................................... 6,538 21,823
Restricted Cash .............................................. 39,507 10,965
Tenant Accounts Receivable, Net .............................. 14,389 9,982
Investment in Joint Venture .................................. 5,117 4,458
Deferred Rent Receivable ..................................... 16,438 14,519
Deferred Financing Costs, Net ................................ 12,012 12,206
Prepaid Expenses and Other Assets, Net ....................... 72,407 73,362
----------- -----------
Total Assets ...................................... $ 2,564,994 $ 2,554,462
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage Loans Payable, Net .................................. $ 107,355 $ 108,487
Senior Unsecured Debt, Net ................................... 948,641 948,595
Acquisition Facility Payable ................................. 158,100 134,800
Accounts Payable and Accrued Expenses ........................ 65,084 72,963
Rents Received in Advance and Security Deposits .............. 20,894 18,592
Dividends/Distributions Payable .............................. 27,157 27,081
----------- -----------
Total Liabilities ................................. 1,327,231 1,310,518
----------- -----------
Minority Interest ............................................... 187,563 189,168
Commitments and Contingencies ................................... -- --
Stockholders' Equity:
Preferred Stock ($.01 par value, 10,000,000 shares authorized,
1,650,000, 40,000, 20,000, 50,000 and 30,000 shares of
Series A, B, C, D and E Cumulative Preferred Stock,
respectively, issued and outstanding at June 30, 1999 and
December 31, 1998, having a liquidation preference of $25
per share ($41,250), $2,500 per share ($100,000), $2,500
per share ($50,000), $2,500 per share ($125,000) and
$2,500 per share ($75,000), respectively .................... 18 18
Common Stock ($.01 par value, 100,000,000 shares authorized;
38,043,494 and 37,932,015 shares issued and outstanding at
June 30, 1999 and December 31, 1998, respectively) .......... 380 379
Additional Paid-in-Capital ................................... 1,174,792 1,171,896
Distributions in Excess of Accumulated Earnings .............. (120,363) (114,205)
Unamortized Value of Restricted Stock Grants ................. (4,627) (3,312)
----------- -----------
Total Stockholders' Equity ...................... 1,050,200 1,054,776
----------- -----------
Total Liabilities and Stockholders' Equity ...... $ 2,564,994 $ 2,554,462
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 4
FIRST INDUSTRIAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Revenues:
Rental Income ................................................... $ 149,074 $ 132,127
Tenant Recoveries and Other Income .............................. 40,347 31,392
--------- ---------
Total Revenues ........................................ 189,421 163,519
--------- ---------
Expenses:
Real Estate Taxes ............................................... 29,534 25,921
Repairs and Maintenance ......................................... 9,849 7,221
Property Management ............................................. 5,600 6,424
Utilities ....................................................... 5,204 4,483
Insurance ....................................................... 435 452
Other ........................................................... 2,015 2,698
General and Administrative ...................................... 6,496 6,299
Interest ........................................................ 40,302 32,013
Amortization of Deferred Financing Costs ........................ 604 401
Depreciation and Other Amortization ............................. 34,373 30,328
--------- ---------
Total Expenses ........................................ 134,412 116,240
--------- ---------
Income from Operations Before Equity in Income of Joint Venture and
Income Allocated to Minority Interest ........................... 55,009 47,279
Equity in Income of Joint Venture .................................. 246 --
Income Allocated to Minority Interest .............................. (7,695) (4,843)
--------- ---------
Income from Operations ............................................. 47,560 42,436
Gain on Sales of Real Estate ....................................... 8,342 2,376
--------- ---------
Income Before Cumulative Effect of Change in Accounting Principle .. 55,902 44,812
Cumulative Effect of Charge in Accounting Principle ................ -- (1,976)
--------- ---------
Net Income ......................................................... 55,902 42,836
Less: Preferred Stock Dividends ................................... (16,422) (14,188)
--------- ---------
Net Income Available to Common Stockholders ........................ $ 39,480 $ 28,648
========= =========
Net Income Available to Common Stockholders Before Cumulative Effect
of Change in Accounting Principle per Weighted Average Common
Share Outstanding:
Basic ................................................. $ 1.04 $ .83
========= =========
Diluted ............................................... $ 1.04 $ .82
========= =========
Net Income Available to Common Stockholders Per Weighted Average
Common Share Outstanding:
Basic ................................................. $ 1.04 $ .77
========= =========
Diluted ............................................... $ 1.04 $ .77
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 5
FIRST INDUSTRIAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Revenues:
Rental Income ................................................... $ 73,787 $ 70,246
Tenant Recoveries and Other Income .............................. 20,206 17,059
-------- --------
Total Revenues ........................................ 93,993 87,305
-------- --------
Expenses:
Real Estate Taxes ............................................... 14,706 13,532
Repairs and Maintenance ......................................... 4,136 3,829
Property Management ............................................. 2,794 3,515
Utilities ....................................................... 2,284 2,220
Insurance ....................................................... 203 240
Other ........................................................... 1,000 1,768
General and Administrative ...................................... 3,402 3,665
Interest ........................................................ 20,223 17,252
Amortization of Deferred Financing Costs ........................ 339 224
Depreciation and Other Amortization ............................. 17,304 16,609
-------- --------
Total Expenses ........................................ 66,391 62,854
-------- --------
Income from Operations Before Equity in Income of Joint Venture
and Income Allocated to Minority Interest ....................... 27,602 24,451
Equity in Income of Joint Venture .................................. 120 --
Income Allocated to Minority Interest .............................. (4,252) (2,186)
-------- --------
Income from Operations ............................................. 23,470 22,265
Gain on Sales of Real Estate ....................................... 6,797 16
-------- --------
Income Before Cumulative Effect of Change in Accounting Principle .. 30,267 22,281
Cumulative Effect of Change in Accounting Principle ................ -- (1,976)
-------- --------
Net Income ......................................................... 30,267 20,305
Less: Preferred Stock Dividends ................................... (8,211) (8,210)
-------- --------
Net Income Available to Common Stockholders ....................... $ 22,056 $ 12,095
======== ========
Net Income Available to Common Stockholders Before Cumulative Effect
of Change in Accounting Principle per Weighted Average Common
Share Outstanding:
Basic ................................................. $ .58 $ .38
======== ========
Diluted ............................................... $ .58 $ .37
======== ========
Net Income Available to Common Stockholders Per Weighted Average
Common Share Outstanding:
Basic ................................................. $ .58 $ .32
======== ========
Diluted ............................................... $ .58 $ .32
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 6
FIRST INDUSTRIAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .................................................. $ 55,902 $ 42,836
Income Allocated to Minority Interest ....................... 7,695 4,843
--------- ---------
Income Before Minority Interest ............................. 63,597 47,679
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation ............................................ 31,412 27,134
Amortization of Deferred Financing Costs ................ 604 401
Other Amortization ...................................... 3,094 3,568
Equity in Income of Joint Venture ....................... (246) --
Gain on Sales of Real Estate ............................ (8,342) (2,376)
Cumulative Effect of Change in Accounting Principle ..... -- 1,976
Provision for Bad Debt .................................. -- 300
Increase in Tenant Accounts Receivable and Prepaid
Expenses and Other Assets .......................... (7,178) (16,728)
Increase in Deferred Rent Receivable .................... (2,515) (1,956)
Decrease in Accounts Payable and Accrued Expenses and
Rents Received in Advance and Security Deposits .... (5,967) (855)
Increase in Organization Costs .......................... -- (396)
(Increase) Decrease in Restricted Cash .................. (625) 3,898
--------- ---------
Net Cash Provided by Operating Activities ......... 73,834 62,645
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and Additions to Investment in Real Estate and
Closing Costs of Sales of Investment in Real Estate .... (95,245) (460,575)
Proceeds from Sales of Investment in Real Estate ............ 83,267 29,256
Contributions to and Investments in Joint Venture ........... (778) --
Distributions from Joint Venture ............................ 365 --
Repayment of Mortgage Loans Receivable ...................... 199 1,017
(Increase) Decrease in Restricted Cash ...................... (27,917) 267
--------- ---------
Net Cash Used in Investing Activities ............. (40,109) (430,035)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Sale of Common Stock .......................... -- 36,300
Common Stock Underwriting Discounts/Offering Costs .......... -- (2,934)
Proceeds from Exercise of Employee Stock Options ............ 59 1,968
Proceeds from Sale of Preferred Stock ....................... -- 200,000
Preferred Stock Offering Costs .............................. -- (7,300)
Repayments on Mortgage Loans Payable ........................ (1,074) (300,939)
Proceeds from Acquisition Facility Payable .................. 56,600 411,200
Repayments on Acquisition Facility Payable .................. (33,300) (310,500)
Proceeds from Senior Unsecured Debt ......................... -- 99,753
Other Proceeds from Senior Unsecured Debt ................... -- 2,760
Other Costs of Senior Unsecured Debt ........................ -- (2,565)
Decrease in Restricted Cash ................................. -- 306,000
Dividends/Distributions ..................................... (54,227) (44,502)
Preferred Stock Dividends ................................... (16,422) (14,188)
Debt Issuance Costs and Prepayment Fees ..................... (646) (7,746)
--------- ---------
Net Cash (Used in) Provided by Financing Activities (49,010) 367,307
--------- ---------
Net Decrease in Cash and Cash Equivalents ...................... (15,285) (83)
Cash and Cash Equivalents, Beginning of Period ................. 21,823 13,222
--------- ---------
Cash and Cash Equivalents, End of Period ....................... $ 6,538 $ 13,139
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 7
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
1. ORGANIZATION AND FORMATION OF COMPANY
First Industrial Realty Trust, Inc. (the "Company") was organized in the
state of Maryland on August 10, 1993. The Company is a real estate investment
trust ("REIT") as defined in the Internal Revenue Code. The Company's operations
are conducted primarily through First Industrial, L.P. (the "Operating
Partnership") of which the Company is the sole general partner with an
approximate 84.1% ownership interest at June 30, 1999. As of June 30, 1999, the
Company owned 968 in-service properties located in 25 states, containing an
aggregate of approximately 67.5 million square feet of gross leasable area
("GLA") and two properties held for redevelopment. Of the 968 in-service
properties owned by the Company, 820 are held by the Operating Partnership, 103
are held by limited partnerships in which the Operating Partnership is the 99%
limited partner and wholly owned subsidiaries of the REIT are the 1% general
partners and 45 are held by limited liability companies of which the Operating
Partnership is the sole member. The Company, through wholly-owned limited
liability companies of which the Operating Partnership is the sole member, also
owns a 10% equity interest in, and provides asset and property management
services to, a joint venture which invests in industrial properties (the
"September 1998 Joint Venture"). Minority interest in the Company at June 30,
1999 represents the approximate 15.9% aggregate partnership interest in the
Operating Partnership held by the limited partners thereof.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim financial statements have been prepared in
accordance with the accounting policies described in the financial statements
and related notes included in the Company's 1998 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, 1998 audited financial statements included in
the Company's 1998 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 June 30,
1999 and December 31, 1998, and the reported amounts of revenues and expenses
for the six months and three months ended June 30, 1999 and 1998. Actual results
could differ from those estimates.
In the opinion of management, all adjustments consist of normal recurring
adjustments necessary to present fairly the financial position of the Company as
of June 30, 1999, the results of its operations and its cash flows for each of
the six months and three months ended June 30, 1999 and 1998.
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 $2,000 as of June 30, 1999 and
December 31, 1998.
3. INVESTMENT IN JOINT VENTURE
During the six months ended June 30, 1999, the Company received
approximately $1,237 (net of the intercompany elimination) in acquisition, asset
management and property management fees from the September 1998 Joint Venture.
The Company, through a wholly owned limited liability company in which the
Operating Partnership is the sole member, also invested approximately $778 and
received distributions of approximately $365 from the September 1998 Joint
Venture. As of June 30, 1999, the September 1998 Joint Venture owned 146
industrial properties comprising approximately 7.5 million square feet of GLA.
6
<PAGE> 8
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
4. REAL ESTATE HELD FOR SALE
The Company has an active sales program through which it is continually
engaged in identifying and evaluating its current portfolio for potential sales
candidates in order to redeploy capital. At June 30, 1999, the Company had five
industrial properties comprising approximately 1.5 million square feet of GLA
held for sale. Three of five of these industrial properties were identified as
held for sale during the three months ended June 30, 1999. There can be no
assurance that such properties held for sale will be sold.
The following table discloses certain information regarding the five
industrial properties held for sale by the Company.
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- --------
Total Revenues $ 3,101 $ 2,121
Operating Expenses (914) (898)
Depreciation and Amortization (123) (246)
-------- --------
Net Income $ 2,064 $ 977
======== ========
Net Carrying Value at June 30, 1999 $ 23,885
========
7
<PAGE> 9
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
5. MORTGAGE LOANS, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION FACILITY
PAYABLE
The following table discloses certain information regarding the Company's
mortgage loans, senior unsecured debt and acquisition facility payable:
<TABLE>
<CAPTION>
OUTSTANDING BALANCE AT ACCRUED INTEREST PAYABLE AT INTEREST RATE AT
----------------------------- ----------------------------- ----------------
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, MATURITY
1999 1998 1999 1998 1999 DATE
------------ ------------- ------------ ------------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE LOANS PAYABLE, NET
- ---------------------------
1995 Mortgage Loan............ $ 39,333 $ 39,567 $ 158 $ 167 7.220% 1/11/26
CIGNA Loan. .................. 34,960 35,220 218 --- 7.500% 4/01/03
Assumed Loans................. 8,506 8,661 --- --- 9.250% 1/01/13
LB Mortgage Loan II........... 705 705 --- --- 8.000% (1)
Acquisition Mortgage Loan I... 3,731 3,864 --- --- 8.500% 8/01/08
Acquisition Mortgage Loan II.. 7,723 7,828 --- 51 7.750% 4/01/06
Acquisition Mortgage Loan III. 3,414 3,485 --- 26 8.875% 6/01/03
Acquisition Mortgage Loan IV.. 2,454 2,488 --- 19 8.950% 10/01/06
Acquisition Mortgage Loan V... 2,823 (2) 2,855 (2) --- 19 9.010% 9/01/06
Acquisition Mortgage Loan VI.. 1,006 (2) 1,024 (2) --- 7 8.875% 11/01/06
Acquisition Mortgage Loan VII. 1,419 (2) 1,450 (2) --- 11 9.750% 3/15/02
Acquisition Mortgage Loan VIII 1,281 1,340 --- 9 8.450% 7/01/09
--------- ----------- ---------- ---------
Total ........................ $ 107,355 $ 108,487 $ 376 $ 309
========= =========== ========== =========
SENIOR UNSECURED DEBT, NET
- --------------------------
2005 Notes ................... $ 50,000 $ 50,000 $ 383 $ 383 6.900% 11/21/05
2006 Notes ................... 150,000 150,000 875 875 7.000% 12/01/06
2007 Notes ................... 149,959 (3) 149,956 (3) 1,457 1,457 7.600% 5/15/07
2011 Notes ................... 99,447 (3) 99,424 (3) 942 942 7.375% 5/15/11 (4)
2017 Notes ................... 99,823 (3) 99,818 (3) 625 625 7.500% 12/01/17
2027 Notes ................... 99,864 (3) 99,862 (3) 914 914 7.150% 5/15/27 (5)
2028 Notes ................... 199,771 (3) 199,768 (3) 7,009 7,051 7.600% 7/15/28
2011 Drs ..................... 99,777 (3) 99,767 (3) 1,553 1,553 6.500% (7) 4/05/11 (6)
--------- ----------- ---------- ---------
Total ....................... $ 948,641 $ 948,595 $ 13,758 $ 13,800
========= =========== ========== =========
ACQUISITION FACILITY PAYABLE
- ----------------------------
1997 Unsecured Acquisition
Facility.................... $ 158,100 $ 134,800 $ 802 $ 690 5.860% 4/30/01
========= =========== ========== =========
</TABLE>
(1) The maturity date of the LB Mortgage Loan II is based on a contingent event
relating to the environmental status of the property collateralizing the
loan.
(2) At June 30, 1999, the Acquisition Mortgage Loan V, the Acquisition Mortgage
Loan VI and the Acquisition Mortgage Loan VII are net of unamortized
premiums of $278, $62 and $78, respectively. At December 31, 1998, the
Acquisition Mortgage Loan V, the Acquisition Mortgage Loan VI and the
Acquisition Mortgage Loan VII are net of unamoritized premiums of $308, $68
and $100, respectively.
(3) At June 30, 1999, the 2007 Notes, 2011 Notes, 2017 Notes, 2027 Notes, 2028
Notes and the 2011 Drs. are net of unamortized discounts of $41, $553,
$177, $136, $229 and $223, respectively. At December 31, 1998, the 2007
Notes, 2011 Notes, 2017 Notes, 2027 Notes, 2028 Notes and the 2011Drs. are
net of unamoritized discounts of $44, $576, $182, $138, $232 and $233,
respectively.
(4) The 2011 Notes are redeemable at the option of the holder thereof, on May
15, 2004.
(5) The 2027 Notes are redeemable at the option of the holders thereof, on May
15, 2002.
(6) The 2011 Drs. are required to be redeemed by the Operating Partnership on
April 5, 2001 if the Remarketing Dealer elects not to remarket the 2011
Drs.
(7) The 2011 Drs. bear interest at an annual rate of 6.50% to the Remarketing
Date. If the holder of the Call Option calls the 2011 Drs. and elects to
remarket the 2011 Drs., then after the Remarketing Date, the interest rate
on the 2011 Drs. will be reset at a fixed rate until April 5, 2011 based on
a predetermined formula as disclosed in the related Prospectus Supplement.
The following is a schedule of the stated maturities and scheduled
principle payments of the mortgage loans, senior unsecured debt and acquisition
facility payable for the next five years ending December 31, and thereafter:
Amount
--------------
Remainder of 1999 $ 1,171
2000 2,455
2001 160,760
2002 4,104
2003 37,309
Thereafter 1,008,533
--------------
Total $ 1,214,332
==============
The maturity date of the LB Mortgage Loan II is based on a contingent
event. As a result, this loan is not included in the preceding table.
8
<PAGE> 10
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
6. STOCKHOLDERS' EQUITY
Restricted Stock:
During the six months ended June 30, 1999, the Company awarded 72,100
shares of restricted common stock to certain employees and 1,776 shares of
restricted common stock to certain Directors. Other employees of the Company
converted certain in-the-money employee stock options to 2,641 shares of
restricted common stock. These shares of restricted common stock had a fair
value of approximately $2,001 on the date of grant. The restricted common stock
vests over periods from five to ten years. Compensation expense will be charged
to earnings over the respective vesting period.
Non-Qualified Employee Stock Options:
During the six months ended June 30, 1999, the Company issued 1,034,067
non-qualified employee stock options to certain officers, Directors and
employees of the Company. These non-qualified employee stock options vest over
one year and have a strike price of $25.13 - $27.69 per share and expire ten
years from the date of grant.
Dividends/Distributions:
The following table summarizes dividends/distributions for the six months
ended June 30, 1999:
COMMON STOCK/OPERATING PARTNERSHIP UNITS
- ----------------------------------------
<TABLE>
<CAPTION>
Dividend/Distribution Total
Record Date Payable Date per Share/Unit Dividend/Distribution
----------------- ------------------ ----------------------- ---------------------
<S> <C> <C> <C> <C>
Fourth Quarter 1998 December 31, 1998 January 18, 1999 $ .6000 $ 27,081
First Quarter 1999 March 31, 1999 April 19, 1999 $ .6000 $ 27,157
Second Quarter 1999 June 30, 1999 July 19, 1999 $ .6000 $ 27,157
PREFERRED STOCK
- ---------------
First Quarter: Dividend Total
Record Date Payable Date per Share Dividend
----------------- ------------------ ----------------------- ---------------------
Series A Preferred Stock March 15, 1999 March 31, 1999 $ .59375 $ 980
Series B Preferred Stock March 15, 1999 March 31, 1999 $ 54.68750 $ 2,188
Series C Preferred Stock March 15, 1999 March 31, 1999 $ 53.90600 $ 1,078
Series D Preferred Stock March 15, 1999 March 31, 1999 $ 49.68700 $ 2,484
Series E Preferred Stock March 15, 1999 March 31, 1999 $ 49.37500 $ 1,481
Second Quarter: Dividend Total
Record Date Payable Date per Share Dividend
----------------- ------------------ ----------------------- ---------------------
Series A Preferred Stock June 15, 1999 June 30, 1999 $ .59375 $ 980
Series B Preferred Stock June 15, 1999 June 30, 1999 $ 54.68750 $ 2,188
Series C Preferred Stock June 15, 1999 June 30, 1999 $ 53.90600 $ 1,078
Series D Preferred Stock June 15, 1999 June 30, 1999 $ 49.68700 $ 2,484
Series E Preferred Stock June 15, 1999 June 30, 1999 $ 49.37500 $ 1,481
</TABLE>
7. ACQUISITION OF REAL ESTATE
During the six months ended June 30, 1999, the Company acquired four
existing industrial properties and several land parcels. The aggregate purchase
price for these acquisitions totaled approximately $30,638, excluding costs
incurred in conjunction with the acquisition of the properties.
8. SALES OF REAL ESTATE
During the six months ended June 30, 1999, the Company sold 24 existing
industrial properties, one property under development and one land parcel. Gross
proceeds from these sales were approximately $83,967. Approximately $4,759 of
the gross proceeds from the sales of these properties was received from the
September 1998 Joint Venture (the Company sold two properties to the September
1998 Joint Venture at the Company's net book value). The gain on sales of real
estate was approximately $8,342.
9
<PAGE> 11
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
9. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Six Months Ended
----------------------
June 30, June 30,
1999 1998
--------- ---------
<S> <C> <C>
Interest paid, net of capitalized interest ..................... $ 40,165 $ 31,501
========= =========
Interest capitalized ........................................... $ 2,464 $ 1,907
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Dividend/Distribution payable .................................. $ 27,157 $ 23,553
========= =========
EXCHANGE OF UNITS FOR COMMON SHARES:
Minority Interest .............................................. $ (638) $ (3,929)
Common Stock ................................................... -- 2
Additional Paid-In Capital ..................................... 638 3,927
--------- ---------
$ -- $ --
========= =========
IN CONJUNCTION WITH THE PROPERTY ACQUISITIONS, THE FOLLOWING ASSETS
AND LIABILITIES WERE ASSUMED AND OPERATING PARTNERSHIP UNITS WERE
EXCHANGED:
Purchase of real estate ........................................ $ 30,638 $ 418,399
Accrued real estate taxes and security deposits ................ (44) (4,137)
Mortgage Loans ................................................. -- (2,525)
Operating Partnership Units .................................... -- (33,802)
--------- ---------
$ 30,594 $ 377,935
========= =========
IN CONJUNCTION WITH ONE PROPERTY SALE, THE COMPANY ORIGINATED A
MORTGAGE NOTE RECEIVABLE ON BEHALF OF THE BUYER:
Mortgage note receivable ....................................... $ 700
---------
</TABLE>
10
<PAGE> 12
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
10. EARNINGS PER SHARE
Earnings per share amounts are based on the weighted average amount of
common stock and common stock equivalents (employee stock options) outstanding.
The outstanding units in the Operating Partnership (the "Units") have been
excluded from the diluted earnings per share calculation as there would be no
effect on the earnings per share amounts since the minority interests' share of
income would also be added back to net income. The computation of basic and
diluted EPS is presented below:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
--------------------------------- ---------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Numerator:
----------
Income Before Cumulative Effect of Change in
Accounting Principle ...................... $ 55,902 $ 44,812 $ 30,267 $ 22,281
Less: Preferred Dividends ................... (16,422) (14,188) (8,211) (8,210)
---------- ---------- ---------- ----------
Net Income Available to Common Stockholders
Before Cumulative Effect of Change in
Accounting Principle - For Basic and
Diluted EPS ............................... 39,480 30,624 22,056 14,071
Cumulative Effect of Change in Accounting
Principle ................................. -- (1,976) -- (1,976)
---------- ---------- ---------- ----------
Net Income Available to Common Stockholders -
For Basic and Diluted EPS ................. $ 39,480 $ 28,648 $ 22,056 $ 12,095
========== ========== ========== ==========
Denominator:
------------
Weighted Average Shares - Basic ............. 38,000 36,982 38,037 37,433
Effect of Dilutive Securities:
Employee and Director Common Stock Options 118 338 151 264
---------- ---------- ---------- ----------
Weighted Average Shares- Diluted ............ 38,118 37,320 38,188 37,697
========== ========== ========== ==========
Basic EPS:
----------
Net Income Available to Common Stockholders
Before Cumulative Effect of Change in
Accounting Principle ...................... $ 1.04 $ .83 $ .58 $ .38
========== ========== ========== ==========
Cumulative Effect of Change in Accounting
Principle ................................. $ -- $ (.05) $ -- $ (.05)
========== ========== ========== ==========
Net Income Available to Common Stockholders . $ 1.04 $ .77 $ .58 $ .32
========== ========== ========== ==========
Diluted EPS:
------------
Net Income Available to Common Stockholders
Before Cumulative Effect of Change in
Accounting Principle ...................... $ 1.04 $ .82 $ .58 $ .37
========== ========== ========== ==========
Cumulative Effect of Change in Accounting
Principle ................................. $ -- $ (.05) $ -- $ (.05)
========== ========== ========== ==========
Net Income Available to Common Stockholders . $ 1.04 $ .77 $ .58 $ .32
========== ========== ========== ==========
</TABLE>
11
<PAGE> 13
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
11. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is involved in legal actions
arising from the operation of its business. In management's opinion, the
liabilities, if any, that may ultimately result from such legal actions are not
expected to have a materially adverse effect on the consolidated financial
position, operations or liquidity of the Company.
The Company has committed to the construction of 28 development projects
totaling approximately 4.6 million square feet of GLA for an estimated
investment of approximately $168.0 million. Of this amount, approximately $93.3
million remains to be funded. These developments are expected to be funded with
cash flow from operations, borrowings under the Company's $300,000 unsecured
revolving credit facility and proceeds from the sale of select properties of the
Company.
12. SUBSEQUENT EVENTS
From July 1, 1999 to July 29, 1999, the Company acquired three land parcels
for an aggregate purchase price of approximately $3,397, excluding costs
incurred in conjunction with the acquisition of these land parcels.
On July 19, 1999, the Company and the Operating Partnership paid a second
quarter 1999 dividend/distribution of $.60 per common share/Unit, totaling
approximately $27,157.
12
<PAGE> 14
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 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 REITs), availability of
capital, interest rates, competition, supply and demand for industrial
properties in the Company's current and proposed market areas, general
accounting principles, policies and guidelines applicable to REITs and status of
Year 2000 compliance. 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 84.1% ownership interest at June 30, 1999.
As of June 30, 1999, the Company owned 968 in-service properties located in 25
states, containing an aggregate of approximately 67.5 million square feet of
gross leasable area ("GLA") and two properties held for redevelopment. Of the
968 in-service properties owned by the Company, 820 are held by the Operating
Partnership, 103 are held by limited partnerships in which the Operating
Partnership is the 99% limited partner and wholly owned subsidiaries of the REIT
are the 1% general partners and 45 are held by limited liability companies of
which the Operating Partnership is the sole member. The Company, through
wholly-owned limited liability companies of which the Operating Partnership is
the sole member, also owns a 10% equity interest in, and provides asset and
property management services to, a joint venture which invests in industrial
properties (the "September 1998 Joint Venture"). Minority interest in the
Company at June 30, 1999 represents the approximate 15.9% aggregate partnership
interest in the Operating Partnership held by the limited partners thereof.
RESULTS OF OPERATIONS
At June 30, 1999, the Company owned 968 in-service properties with
approximately 67.5 million square feet of GLA, compared to 954 in-service
properties with approximately 67.7 million square feet of GLA at June 30, 1998.
The addition of 74 properties acquired or developed between July 1, 1998 and
June 30, 1999 included the acquisitions of 62 properties totaling approximately
2.1 million square feet of GLA and the completed development of 12 properties
totaling approximately 1.5 million square feet of GLA. The Company also
completed the expansion of one property totaling approximately .1 million square
feet of GLA and the sales of 58 in-service properties totaling approximately 3.6
million square feet of GLA and
13
<PAGE> 15
several land parcels. The Company also took two properties out of service that
are under redevelopment comprising approximately .3 million square feet of GLA.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 TO SIX MONTHS ENDED JUNE 30, 1998
Rental income and tenant recoveries and other income increased by
approximately $25.9 million or 15.8% due primarily to the properties acquired or
developed after December 31, 1997. Approximately $1.2 million of this increase
is due to acquisition, asset management and property management fees received
from the September 1998 Joint Venture. Rental income and tenant recoveries and
other income from properties owned prior to January 1, 1998, increased by
approximately $5.4 million or 4.1% due primarily to rental rate increases and an
increase in tenant recovery income charges related to the increase in operating
expenses as discussed below.
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses,
increased by approximately $5.4 million or 11.5% due primarily to an increase in
real estate taxes, repairs and maintenance and utilities expense due to the
properties acquired or developed after December 31, 1997, offset by a decrease
in property management fees due to a decrease in the operational costs of the
regional offices that manage the properties, as well as a decrease in other
expenses. Expenses from properties owned prior to January 1, 1998, increased by
approximately $2.2 million or 5.7% due primarily to an increase in snow removal
and related expenses incurred during the six months ended June 30, 1999 as
compared to the six months ended June 30, 1998 for properties located in certain
of the Company's metropolitan areas.
General and administrative expense increased by approximately $.2 million
due primarily to the adoption of Emerging Issues Task Force Issue No. 97-11,
"Accounting for Internal Costs Relating to Real Estate Acquisitions" ("EITF
97-11"). EITF 97-11, effective March 19, 1998, requires that internal costs of
preacquisition activities incurred in connection with the acquisition of an
operating property be expensed as incurred. Prior to March 19, 1998, the Company
capitalized internal costs of preacquisition activities incurred in connection
with the acquisition of operating properties.
Interest expense increased by approximately $8.3 million for the six months
ended June 30, 1999 compared to the six months ended June 30, 1998 due primarily
to a higher average debt balance outstanding resulting from the issuance of
unsecured debt to fund the acquisition and development of additional properties,
slightly offset by an increase in capitalized interest due to an increase in
development activities. The average debt balances outstanding for the six months
ended June 30, 1999 and 1998 was approximately $1.2 billion and $1.0 billion,
respectively.
Amortization of deferred financing costs increased by approximately $.2
million due primarily to amortization of deferred financing costs relating to
the issuance of additional senior unsecured debt to fund the acquisition and
development of additional properties.
Depreciation and other amortization increased by approximately $4.0 million
due primarily to the additional depreciation and amortization related to the
properties acquired or developed after December 31, 1997.
Equity in income of joint venture of approximately $.2 million for the six
months ended June 30, 1999 represents the Company's 10% income interest in the
September 1998 Joint Venture.
The $8.3 million gain on sales of properties for the six months ended June
30, 1999 resulted from the sale of 24 existing industrial properties, one
property under development and one land parcel. Gross proceeds from these sales
were approximately $84.0 million.
The $2.4 million gain on sales of properties for the six months ended June
30, 1998 resulted from the sale of seven existing industrial properties and
three land parcels. Gross proceeds from these sales were approximately $29.3
million.
14
<PAGE> 16
The $2.0 million cumulative effect of change in accounting principle for
the six months ended June 30, 1998 is the result of the write-off of the
unamortized balance of organizational costs on the Company's balance sheet due
to the early adoption of Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires that the net unamoritized
balance of all start-up costs and organizational costs be written off as a
cumulative effect of a change in accounting principle and all future start-up
costs and organizational costs be expensed.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1999 TO THREE MONTHS ENDED JUNE 30,
1998
Rental income and tenant recoveries and other income increased by
approximately $6.7 million or 7.7%, due primarily to the properties acquired or
developed after March 31, 1998. Approximately $.5 million of this increase is
due to acquisition, asset management and property management fees received from
the September 1998 Joint Venture. Rental income and tenant recoveries and other
income from properties owned prior to April 1, 1998, increased by approximately
$2.5 million or 3.4% due primarily to rental rate increases and an increase in
tenant recovery income charges due to the increase in operating expenses as
discussed below.
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses
remained relatively unchanged (real estate taxes and repairs and maintenance
expense increased due primarily to the properties acquired or developed after
March 31, 1998, offset almost in its entirety by a decrease in property
management fees due to a decrease in operational costs of the regional offices
that manage the properties, as well as a decrease in other expenses). Expenses
from properties owned prior to April 1, 1998, increased by approximately $.6
million or 2.9% due primarily to an increase in real estate tax expense,
utilities and other expense in the majority of the Company's geographical
markets.
General and administrative expense remained relatively unchanged.
Interest expense increased by approximately $3.0 million for the three
months ended June 30, 1999 compared to the three months ended June 30, 1998 due
primarily to a higher average debt balance outstanding resulting from the
issuance of unsecured debt to fund the acquisition and development of additional
properties, slightly offset by an increase in capitalized interest due to an
increase in development activities. The average debt balances outstanding for
the three months ended June 30, 1999 and 1998 was approximately $1.2 billion and
$1.0 billion, respectively.
Amortization of deferred financing costs increased by approximately $.1
million due primarily to amortization of deferred financing costs relating to
the issuance of additional senior unsecured debt to fund the acquisition and
development of additional properties.
Depreciation and other amortization increased by approximately $.7 million
due primarily to the additional depreciation and amortization related to the
properties acquired or developed after March 31, 1998.
Equity in income of joint venture of approximately $.1 million for the
three months ended June 30, 1999 represents the Company's 10% income interest in
the September 1998 Joint Venture.
The $6.8 million gain on sales of properties for the three months ended
June 30, 1999 resulted from the sale of 14 existing industrial properties and
one property under development. Gross proceeds from these sales were
approximately $60.1 million.
The $.02 million gain on sales of properties for the three months ended
June 30, 1998 resulted from the sale of one existing industrial property and one
land parcel. Gross proceeds from these sales were approximately $23.2 million.
15
<PAGE> 17
The $2.0 million cumulative effect of change in accounting principle for
the three months ended June 30, 1998 is the result of the write-off of the
unamortized balance of organizational costs on the Company's balance sheet due
to the early adoption of SOP 98-5, as discussed earlier in this Management's
Discussion and Analysis of Financial Condition and Result of Operations.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company's cash and cash equivalents was approximately
$6.5 million and restricted cash was approximately $39.5 million. Included in
restricted cash are approximately $3.9 million of cash reserves required to be
set aside under the Company's $40.0 million mortgage loan (the "1995 Mortgage
Loan") for payments of security deposit refunds, tenant improvements, capital
expenditures, interest, real estate taxes, and insurance. The portion of the
cash reserve relating to payments for capital expenditures, interest, real
estate taxes, and insurance for properties collateralizing the 1995 Mortgage
Loan is established monthly, distributed to the Company as such expenditures are
made and is replenished to a level adequate to make the next periodic payment of
such expenditures. The portion of the cash reserve relating to security deposit
refunds for the tenants occupying the properties collateralizing the 1995
Mortgage Loan is adjusted as tenants turn over. Also included in restricted cash
is approximately $35.6 million of gross proceeds from the sales of certain
properties. These sales proceeds will be disbursed as the Company exchanges into
properties under Section 1031 of the Internal Revenue Code.
SIX MONTHS ENDED JUNE 30, 1999
Net cash provided by operating activities of approximately $73.8 million
for the six months ended June 30, 1999 was comprised primarily of net income
before minority interest of approximately $63.6 million and adjustments for
non-cash items of approximately $24.0 million, offset by the net change in
operating assets and liabilities of approximately $13.8 million. The adjustments
for the non-cash items are primarily comprised of depreciation and amortization,
offset by the Company's 10% equity interest in the income of the September 1998
Joint Venture, gain on sales of real estate and the effect of the
straight-lining of rental income.
Net cash used in investing activities of approximately $40.1 million for
the six months ended June 30, 1999 was comprised primarily of the acquisition of
real estate, development of real estate, capital expenditures related to the
expansion and improvement of existing real estate, closing costs from the sales
of real estate, investment in the September 1998 Joint Venture and an increase
in restricted cash from sales proceeds deposited with an intermediary for
Section 1031 exchange purposes, offset by the proceeds from the sales of real
estate, distributions from the September 1998 Joint Venture and the repayment of
mortgage loans receivable.
Net cash used in financing activities of approximately $49.0 million for
the six months ended June 30, 1999 was comprised primarily of repayments on
mortgage loans payable and common and preferred stock dividends and
distributions, offset by the net borrowings under the Company's $300 million
unsecured revolving credit facility (the "1997 Unsecured Acquisition Facility").
SIX MONTHS ENDED JUNE 30, 1998
Net cash provided by operating activities of approximately $62.6 million
for the six months ended June 30, 1998 was comprised primarily of net income
before minority interest of approximately $47.7 million and adjustments for
non-cash items of approximately $29.1 million, offset by the net change in
operating assets and liabilities of approximately $14.2 million. The adjustments
for the non-cash items are primarily comprised of depreciation and amortization,
cumulative effect of change in accounting principle and a provision for bad
debt, offset by the gain on sales of real estate and the effect of the
straight-lining of rental income.
16
<PAGE> 18
Net cash used in investing activities of approximately $430.0 million for
the six months ended June 30, 1998 was comprised primarily of the acquisition of
real estate, development of real estate, capital expenditures related to the
expansion and improvement of existing real estate, closing costs from the sales
of real estate, offset by the proceeds from the sales of real estate and the
repayment of mortgage loans receivable.
Net cash provided by financing activities of approximately $367.3 million
for the six months ended June 30, 1998 was comprised primarily of the net
proceeds from the issuance of common stock, preferred stock and senior unsecured
debt, net borrowings under the 1997 Unsecured Acquisition Facility, proceeds
from the exercise of employee stock options and a decrease in restricted cash
which was used to pay down and retire the Company's $300.0 million defeased
mortgage loan, offset by repayments on mortgage loans payable and common and
preferred stock dividends and distributions.
FUNDS FROM OPERATIONS AND RATIO OF EARNINGS TO FIXED CHARGES
Funds from operations for the six months ended June 30, 1999 were $73.0
million, as compared to $63.0 million for the six months ended June 30, 1998, as
a result of the factors discussed in the analysis of operating results above.
Management considers funds from operations to be one measure of the financial
performance of an equity REIT that provides a relevant basis for comparison
among REITs, and it is presented to assist investors in analyzing the
performance of the Company. The Company calculates funds from operations to be
equal to net income, excluding gains (or losses) from sales of property, plus
depreciation and amortization, excluding amortization of deferred financing
costs, before significant non-recurring items that materially distort the
comparative measurement of Company performance over time and after adjustments
for unconsolidated partnerships and joint ventures. Funds from operations do not
represent cash generated from operating activities in accordance with generally
accepted accounting principles and is not necessarily indicative of cash
available to fund cash needs, including the payment of dividends and
distributions. Funds from operations should not be considered as a substitute
for net income as a measure of results of operations or for cash flow from
operating activities calculated in accordance with generally accepted accounting
principles as a measure of liquidity. Funds from operations as calculated by the
Company may not be comparable to similarly titled, but differently calculated,
measures of other REITs.
The following is a reconciliation of net income to funds from operations:
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
---------------- ----------------
Net Income Available to
Common Stockholders ....... $ 39,480 $ 28,648
Adjustments:
Depreciation and Other
Amortization .............. 33,867 29,958
Equity in Depreciation and
Other Amortization of Joint
Venture ................... 279 --
Cumulative Effect of Change in
Accounting Principle ...... -- 1,976
Minority Interest ............. 7,695 4,843
Gain on Sales of Properties ... (8,342) (2,376)
-------- --------
Funds From Operations ..... $ 72,979 $ 63,049
======== ========
The ratio of earnings to fixed charges and preferred stock dividends was
1.61 for the six months ended June 30, 1999 compared to 1.64 for the six months
ended June 30, 1998. The decrease is primarily due to additional interest
expense and preferred stock dividends incurred during the six months ended June
30, 1999 from additional debt and preferred stock, respectively, issued after
December 31, 1997 to fund property acquisitions and developments, which is
partially offset by higher net operating income (defined as total revenues, less
property expenses, which include real estate taxes, repairs and
17
<PAGE> 19
maintenance, property management, utilities, insurance and other expenses) from
property acquisitions as discussed in the "Results of Operations" above.
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 June 30, 1999 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 June 30, 1999, $158.1 million (approximately 13% of total debt at June
30, 1999) of the Company's debt was variable rate debt (all of the variable rate
debt relates to the Company's 1997 Unsecured Acquisition Facility) and $1,056.0
million (approximately 87% of total debt at June 30, 1999) was fixed rate debt.
The Company also had outstanding a written put and a written call option
(collectively, the "Written Options") which were issued in conjunction with the
initial offering of two tranches of unsecured debt. The Company's past practice
has been to lock into fixed interest rates at issuance or fix the rate of
variable rate debt through the use of interest rate protection agreements when
interest rate market conditions dictate it is advantageous to do so. 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 5 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 June 30, 1999, 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 $.9 million per year. A 10% increase in interest rates would
decrease the fair value of the fixed rate debt at June 30, 1999 by approximately
$51.7 million to $978.3 million. A 10% decrease in interest rates would increase
the fair value of the fixed rate debt at June 30, 1999 by approximately $57.4
million to $1,087.4 million. A 10% increase in interest rates would decrease the
fair value of the Written Options at June 30, 1999 by approximately $2.5 million
to $3.2 million. A 10% decrease in interest rates would increase the fair value
of the Written Options at June 30, 1999 by approximately $3.4 million to $9.1
million.
INVESTMENT IN REAL ESTATE, DEVELOPMENT OF REAL ESTATE AND SALES OF REAL ESTATE
During the six months ended June 30, 1999, the Company purchased four
industrial properties and several land parcels, for an aggregate purchase price
of approximately $30.6 million, excluding costs incurred in conjunction with the
acquisition of the properties.
During the six months ended June 30, 1999, the Company sold 24 existing
industrial properties, one property under development and one land parcel. Gross
proceeds from these sales were approximately $84.0 million. Approximately $4.8
million of the gross proceeds from the sales of these properties was
18
<PAGE> 20
received from the September 1998 Joint Venture (the Company sold two properties
to the September 1998 Joint Venture at the Company's net book value).
The Company has committed to the construction of 28 development projects
totaling approximately 4.6 million square feet of GLA for an estimated
investment of approximately $168.0 million. Of this amount, approximately $93.3
million remains to be funded. These developments are expected to be funded with
cash flow from operations, borrowings under the Company's 1997 Unsecured
Acquisition Facility and proceeds from the sale of select properties of the
Company.
From July 1, 1999 to July 29, 1999, the Company acquired three land parcels
for an aggregate purchase price of approximately $3.4 million, excluding costs
incurred in conjunction with the acquisition of these land parcels.
REAL ESTATE HELD FOR SALE
The Company has an active sales program through which it is continually
engaged in identifying and evaluating its current portfolio for potential sales
candidates in order to redeploy capital. At June 30, 1999, the Company had five
industrial properties comprising approximately 1.5 million square feet of GLA
held for sale. Net income (defined as total property revenues, less property
expenses, which include real estate taxes, repairs and maintenance, property
management, utilities, insurance and other expenses, and depreciation and
amortization) of the five industrial properties held for sale for the six months
ended June 30, 1999 and 1998 is approximately $2.1 million and $1.0 million,
respectively. Net carrying value of the five industrial properties held for sale
at June 30, 1999 is approximately $23.9 million. Three of five of these
industrial properties were identified as held for sale during the three months
ended June 30, 1999. There can be no assurance that such properties held for
sale will be sold.
INVESTMENT IN JOINT VENTURE
During the six months ended June 30, 1999, the Company, through a wholly
owned limited liability company in which the Operating Partnership is the sole
member, contributed approximately $.7 million to and received distributions of
approximately $.4 million from the September 1998 Joint Venture. As of June 30,
1999, the September 1998 Joint Venture owned 146 industrial properties
comprising approximately 7.5 million square feet of GLA.
ISSUANCE OF RESTRICTED STOCK
During the six months ended June 30, 1999, the Company awarded 72,100
shares of restricted common stock to certain employees and 1,776 shares of
restricted common stock to certain Directors. Other employees of the Company
converted certain in-the-money employee stock options to 2,641 shares of
restricted common stock. These shares of restricted common stock had a fair
value of approximately $2.0 million on the date of grant. The restricted common
stock vests over periods from five to ten years.
NON-QUALIFIED EMPLOYEE STOCK OPTIONS
During the six months ended June 30, 1999, the Company issued 1,034,067
non-qualified employee stock options to certain officers, Directors and
employees of the Company. These non-qualified employee stock options vest over
one year and have a strike price of $25.13 - $27.69 per share and expire ten
years from the date of grant.
DIVIDENDS/DISTRIBUTIONS
On January 18, 1999, the Company and the Operating Partnership paid a
fourth quarter 1998 distribution of $.60 per common share/Unit, totaling
approximately $27.1 million. On April 19, 1999, the Company and the Operating
Partnership paid a first quarter 1999 distribution of $.60 per common
19
<PAGE> 21
share/Unit, totaling approximately $27.2 million. On July 19, 1999, the Company
and the Operating Partnership paid a second quarter 1999 distribution of $.60
per common share/Unit totaling approximately $27.2 million.
On March 31, 1999, the Company paid second quarter preferred stock
dividends of $.59375 per share on its 9 1/2%, $.01 par value, Series A
Cumulative Preferred Stock (the "Series A Preferred Stock"), $54.688 per share
(equivalent to $.54688 per Depository Share) on its 8 3/4%, $.01 par value,
Series B Cumulative Preferred Stock (the "Series B Preferred Stock"), $53.906
per share (equivalent to $.53906 per Depository Share) on its 8 5/8%, $.01 par
value, Series C Cumulative Preferred Stock (the "Series C Preferred Stock"),
$49.687 per share (equivalent to $.49687 per Depository Share) on its 7.95%,
$.01 par value, Series D Cumulative Preferred Stock (the "Series D Preferred
Stock") and $49.375 per share (equivalent to $.49375 per Depository Share) on
its 7.90%, $.01 par value, Series E Cumulative Preferred Stock (the "Series E
Preferred Stock"). The preferred stock dividends paid on March 31, 1999 totaled,
in aggregate, approximately $8.2 million. On June 30, 1999, the Company paid
first quarter preferred stock dividends of $.59375 per share on its Series A
Preferred Stock, $54.688 per share (equivalent to $.54688 per Depositary Share)
on its Series B Preferred Stock, $53.906 per share (equivalent to $.53906 per
Depositary Share) on its Series C Preferred Stock, $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 June 30, 1999 totaled, in the
aggregate, approximately $8.2 million.
SHORT-TERM AND LONG-TERM LIQUIDITY NEEDS
The Company has considered its short-term (one year or less) liquidity
needs and the adequacy of its estimated cash flow from operations and other
expected liquidity sources to meet these needs. The Company believes that its
principal short-term liquidity needs are to fund normal recurring expenses, debt
service requirements and the minimum distribution required to maintain the
Company's REIT qualification under the Internal Revenue Code. The Company
anticipates that these needs will be met with cash flows provided by operating
activities.
The Company expects to meet long-term (greater than one year) liquidity
requirements such as property acquisitions, developments, scheduled debt
maturities, major renovations, expansions and other nonrecurring capital
improvements through long-term secured and unsecured indebtedness and the
issuance of additional equity securities. The Company is also actively
considering joint ventures with institutional partners and the disposition of
select assets as additional financing strategies. As of June 30, 1999 and July
29, 1999, $589.2 million of common stock, preferred stock and depositary shares
and $100.0 million of debt securities were registered and unissued under the
Securities Act of 1933, as amended. The Company may finance the development or
acquisition of additional properties through borrowings under the 1997 Unsecured
Acquisition Facility. At June 30, 1999, borrowings under the 1997 Unsecured
Acquisition Facility bore interest at a weighted average interest rate of 5.8%.
As of July 29, 1999, the Company had approximately $115.2 million available for
additional borrowings under the 1997 Unsecured Acquisition Facility.
YEAR 2000 COMPLIANCE
The Year 2000 compliance issue concerns the inability of computerized
information systems and non-information systems to accurately calculate, store
or use a date after 1999. This could result in computer systems failures or
miscalculations causing disruptions of operations. The Year 2000 issue affects
almost all companies and organizations.
The Company has discussed its software applications and internal
operational programs with its current information systems' vendor and, based on
such discussions, believes that such applications and programs will properly
recognize calendar dates beginning in the year 2000. The Company is discussing
with its material third-party service providers, such as its banks, payroll
processor and telecommunications provider, their Year 2000 compliance and is
assessing what effect their possible non-
20
<PAGE> 22
compliance might have on the Company. In addition, the Company is discussing
with its material vendors the possibility of any interface difficulties and/or
electrical or mechanical problems relating to the year 2000 which may affect
properties owned by the Company. The Company has also surveyed substantially all
of its tenants to determine the status of their Year 2000 compliance and what
effect their possible non-compliance might have on the Company. The Company is
currently processing the information obtained from such tenant surveys and
remains in discussions with its material vendors and third-party service
providers. As of June 30, 1999 tenants representing 38% of annual base rents of
the Company have replied. Of the tenant surveys received as of June 30, 1999,
all have stated that they are Year 2000 compliant or will be Year 2000 compliant
by the end of 1999. The Company is still seeking confirmation of Year 2000
compliance from the tenants who have not responded to the tenant survey. Until
such time the Company cannot estimate any potential adverse impact resulting
from the failure of tenants, vendors or third-party service providers to address
their Year 2000 issues; however, to date, no significant Year 2000-related
conditions have been identified.
Because the Company's evaluation of its Year 2000 issues has been conducted
by its own personnel or by its vendors in connection with their servicing
operations, the Company believes that its expenditures for assessing its Year
2000 issues, though difficult to quantify, to date have not been material. In
addition, the Company is not aware of any Year 2000-related conditions that it
believes would likely require any material expenditures by the Company in the
future.
Based on its current information, the Company believes that the risk posed
by any foreseeable Year 2000-related problem with its internal systems and the
systems at its properties (including both information and non-information
systems) or with its vendors or tenants is minimal. Year 2000-related problems
with the Company's software applications and internal operational programs or
with the electrical or mechanical systems at its properties are unlikely to
cause more than minor disruptions in the Company's operations. The Company
believes that the risk posed by Year 2000-related problems at certain of its
third-party service providers, such as its banks, payroll processor and
telecommunications provider is marginally greater, though, based on its current
information, the Company does not believe any such problems would have a
material effect on its operations. Any Year 2000 related problems at such
third-party service providers could delay the processing of financial
transactions and the Company's payroll and could disrupt the Company's internal
and external communications. At this time, the Company has not developed and
does not anticipate developing any contingency plans with respect to Year 2000
issues. In addition, the Company has no plans to seek independent verification
or review of its assessment of its Year 2000 issues. The Company does intend to
complete its assessment of, and to continue to monitor, its Year 2000 issues and
will develop contingency plans if, and to the extent, deemed necessary.
While the Company believes that it will be Year 2000 compliant by December
31, 1999, there can be no assurance that the Company has been or will be
successful in identifying and assessing Year 2000 issues, or that, to the extent
identified, the Company's efforts to remediate such issues will be effective
such that Year 2000 issues will not have a material adverse effect on the
Company's business, financial condition or results of operation.
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.
21
<PAGE> 23
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
On May 12, 1999, First Industrial Realty Trust, Inc. ("the Company") held its
Annual Meeting of Stockholders. At the meeting, three Class II directors of
the Company were elected to serve until the 2002 Annual Meeting of
Stockholders and until their respective successors are duly elected and
qualified. The votes cast for each director were as follows:
For election of Michael W. Brennan
Votes for: 33,054,729
Votes withheld: 88,120
For election of Michael G. Damone
Votes for: 33,054,744
Votes withheld: 88,105
For election of Kevin W. Lynch
Votes for: 26,424,965
Votes withheld: 6,717,884
In addition, the appointment of PricewaterhouseCoopers LLP, as independent
auditors of the Company for the fiscal year ending December 31, 1999 was
ratified at the meeting with 33,090,866 shares voting in favor, 21,356 shares
voting against and 30,627 shares abstaining.
Jay H. Shidler, John L. Lesher and J. Steven Wilson continue to serve as
Class I directors until their present terms expire in 2001 and their
successors are duly elected. John Rau and Robert J. Slater continue to serve
as Class III directors until their present terms expire in 2000 and their
successors are duly elected.
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
Exhibit No. Description
- ----------- -----------
27* Financial Data Schedule
* Filed herewith.
Report on Form 8-K
- ------------------
None
22
<PAGE> 24
================================================================================
The Company has prepared supplemental financial and operating
information which is available without charge upon request to the Company.
Please direct requests as follows:
First Industrial Realty Trust, Inc.
311 S. Wacker, Suite 4000
Chicago, IL 60606
Attention: Investor Relations
23
<PAGE> 25
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: July 30, 1999 By: /s/ Michael J. Havala
----------------------------------------------
Michael J. Havala
Chief Financial Officer
(Principal Financial and Accounting Officer)
24
<PAGE> 26
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27* Financial Data Schedule
* Filed herewith.
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST INDUSTRIAL REALTY TRUST, INC. FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 6,538
<SECURITIES> 0
<RECEIVABLES> 16,389
<ALLOWANCES> (2,000)
<INVENTORY> 0
<CURRENT-ASSETS> 20,927
<PP&E> 2,599,561
<DEPRECIATION> (200,975)
<TOTAL-ASSETS> 2,564,994
<CURRENT-LIABILITIES> 92,241
<BONDS> 1,214,096
0
18
<COMMON> 380
<OTHER-SE> 1,049,802
<TOTAL-LIABILITY-AND-EQUITY> 2,564,200
<SALES> 0
<TOTAL-REVENUES> 189,421
<CGS> 0
<TOTAL-COSTS> (52,637)
<OTHER-EXPENSES> (41,473)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (40,302)
<INCOME-PRETAX> 55,902
<INCOME-TAX> 0
<INCOME-CONTINUING> 55,902
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,902
<EPS-BASIC> 1.04
<EPS-DILUTED> 1.04
</TABLE>
