<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 SEPTEMBER 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 November 1,
1999: 38,095,388
<PAGE> 2
FIRST INDUSTRIAL REALTY TRUST, INC.
FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
INDEX
-----
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998.............. 2
Consolidated Statements of Operations for the Nine Months Ended September 30,
1999 and September 30, 1998............................................................. 3
Consolidated Statements of Operations for the Three Months Ended September
30, 1999 and September 30, 1998......................................................... 4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
1999 and September 30, 1998............................................................. 5
Notes to Consolidated Financial Statements.............................................. 6-13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................................. 14-24
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................... 24
PART II: OTHER INFORMATION
Item 1. Legal Proceedings ................................................................ 25
Item 2. Changes in Securities ............................................................ 25
Item 3. Defaults Upon Senior Securities................................................... 25
Item 4. Submission of Matters to a Vote of Security Holders .............................. 25
Item 5. Other Information ................................................................ 25
Item 6. Exhibits and Report on Form 8-K................................................... 25
SIGNATURE ..................................................................................... 27
EXHIBIT INDEX ................................................................................. 28
</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>
September 30, December 31,
1999 1998
---------------- -----------------
<S> <C> <C>
ASSETS
Assets:
Investment in Real Estate:
Land.............................................................. $ 398,946 $ 406,465
Buildings and Improvements........................................ 2,058,704 2,137,499
Furniture, Fixtures and Equipment................................. 1,437 1,437
Construction in Progress.......................................... 94,973 37,632
Less: Accumulated Depreciation.................................... (197,734) (175,886)
-------------- --------------
Net Investment in Real Estate............................. 2,356,326 2,407,147
Cash and Cash Equivalents............................................ 10,350 21,823
Restricted Cash...................................................... 42,174 10,965
Tenant Accounts Receivable, Net...................................... 12,170 9,982
Investment in Joint Ventures......................................... 6,740 4,458
Deferred Rent Receivable............................................. 16,705 14,519
Deferred Financing Costs, Net........................................ 11,814 12,206
Prepaid Expenses and Other Assets, Net............................... 69,405 73,362
============== ==============
Total Assets.............................................. $ 2,525,684 $ 2,554,462
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage Loans Payable, Net.......................................... $ 105,468 $ 108,487
Senior Unsecured Debt, Net........................................... 948,666 948,595
Acquisition Facility Payable......................................... 95,600 134,800
Accounts Payable and Accrued Expenses................................ 78,137 72,963
Rents Received in Advance and Security Deposits...................... 21,161 18,592
Dividends/Distributions Payable...................................... 27,157 27,081
-------------- --------------
Total Liabilities......................................... 1,276,189 1,310,518
-------------- --------------
Minority Interest....................................................... 188,038 189,168
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 September 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; 38,094,344 and 37,932,015 shares issued and
outstanding at September 30, 1999 and December 31, 1998,
respectively) ...................................................... 381 379
Additional Paid-in-Capital........................................... 1,176,148 1,171,896
Distributions in Excess of Accumulated Earnings...................... (110,769) (114,205)
Unamortized Value of Restricted Stock Grants......................... (4,321) (3,312)
-------------- --------------
Total Stockholders' Equity................................ 1,061,457 1,054,776
-------------- ==============
Total Liabilities and Stockholders' Equity................ $ 2,525,684 $ 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>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Revenues:
Rental Income....................................................... $ 222,815 $ 206,583
Tenant Recoveries and Other Income.................................. 60,737 49,275
----------- -----------
Total Revenues................................................. 283,552 255,858
----------- -----------
Expenses:
Real Estate Taxes................................................... 43,103 40,528
Repairs and Maintenance............................................. 13,259 11,115
Property Management................................................. 8,270 10,006
Utilities........................................................... 7,616 7,084
Insurance........................................................... 631 693
Other............................................................... 3,070 4,280
General and Administrative.......................................... 10,009 9,824
Interest............................................................ 60,566 51,593
Amortization of Deferred Financing Costs............................ 969 659
Depreciation and Other Amortization................................. 51,406 46,969
----------- ------------
Total Expenses................................................. 198,899 182,751
----------- ------------
Income from Operations Before Equity in Income of Joint Ventures and
Income Allocated to Minority Interest............................... 84,653 73,107
Equity in Income of Joint Ventures..................................... 372 ---
Income Allocated to Minority Interest.................................. (13,801) (7,656)
----------- ------------
Income from Operations................................................. 71,224 65,451
Gain on Sales of Real Estate........................................... 25,341 3,069
----------- ------------
Income Before Cumulative Effect of Change in Accounting Principle...... 96,565 68,520
Cumulative Effect of Charge in Accounting Principle.................... --- (1,976)
----------- ------------
Net Income............................................................. 96,565 66,544
Less: Preferred Stock Dividends....................................... (24,633) (22,399)
----------- ------------
Net Income Available to Common Stockholders............................ $ 71,932 $ 44,145
=========== ============
Net Income Available to Common Stockholders Before Cumulative Effect
of Change in Accounting Principle Per Weighted Average Common
Share Outstanding:
Basic.......................................................... $ 1.89 $ 1.24
=========== ============
Diluted........................................................ $ 1.89 $ 1.23
=========== ============
Net Income Available to Common Stockholders Per Weighted Average
Common Share Outstanding:
Basic.......................................................... $ 1.89 $ 1.18
=========== ============
Diluted........................................................ $ 1.89 $ 1.18
=========== ============
</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
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Revenues:
Rental Income.......................................................... $ 73,741 $ 74,456
Tenant Recoveries and Other Income..................................... 20,390 17,883
------------- -------------
Total Revenues................................................... 94,131 92,339
------------- -------------
Expenses:
Real Estate Taxes...................................................... 13,569 14,607
Repairs and Maintenance................................................ 3,410 3,894
Property Management.................................................... 2,670 3,582
Utilities.............................................................. 2,412 2,601
Insurance.............................................................. 196 241
Other.................................................................. 1,055 1,582
General and Administrative............................................. 3,513 3,525
Interest............................................................... 20,264 19,580
Amortization of Deferred Financing Costs............................... 365 258
Depreciation and Other Amortization.................................... 17,033 16,641
------------- -------------
Total Expenses................................................... 64,487 66,511
------------- -------------
Income from Operations Before Equity in Income of Joint Ventures and
Income Allocated to Minority Interest.................................. 29,644 25,828
Equity in Income of Joint Ventures........................................ 126 ---
Income Allocated to Minority Interest..................................... (6,106) (2,813)
------------- -------------
Income from Operations.................................................... 23,664 23,015
Gain on Sales of Real Estate.............................................. 16,999 693
------------- -------------
Net Income................................................................ 40,663 23,708
Less: Preferred Stock Dividends.......................................... (8,211) (8,211)
------------- -------------
Net Income Available to Common Stockholders.............................. $ 32,452 $ 15,497
============= =============
Net Income Available to Common Stockholders Per Weighted Average
Common Share Outstanding:
Basic............................................................ $ .85 $ .41
============= =============
Diluted.......................................................... $ .85 $ .41
============= =============
</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>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30,1998
--------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................. $ 96,565 $ 66,544
Income Allocated to Minority Interest ..................... 13,801 7,656
----------------- -----------------
Income Before Minority Interest............................ 110,366 74,200
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation........................................... 46,970 42,238
Amortization of Deferred Financing Costs............... 969 659
Other Amortization .................................... 4,620 5,194
Equity in Income of Joint Ventures..................... (372) ---
Distributions from Joint Ventures...................... 372 ---
Gain on Sales of Real Estate........................... (25,341) (3,069)
Cumulative Effect of Change in Accounting Principle.... --- 1,976
Provision for Bad Debt................................. --- 550
Increase in Tenant Accounts Receivable and Prepaid
Expenses and Other Assets......................... (4,440) (36,903)
Increase in Deferred Rent Receivable................... (3,477) (3,033)
Increase in Accounts Payable and Accrued Expenses and
Rents Received in Advance and Security Deposits... 7,851 23,800
Increase in Organization Costs ........................ --- (396)
Decrease in Restricted Cash............................ 1,080 3,677
----------------- -----------------
Net Cash Provided by Operating Activities............. 138,598 108,893
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and Additions to Investment in Real Estate ...... (150,229) (572,592)
Net Proceeds from Sales of Investment in Real Estate....... 182,954 34,675
Contributions to and Investments in Joint Ventures......... (2,528) ---
Distributions from Joint Ventures.......................... 246 ---
Funding of Mortgage Loan Receivable........................ (332) ---
Repayment of Mortgage Loans Receivable..................... 1,014 1,075
Decrease in Restricted Cash................................ 344 ---
Increase in Restricted Cash ............................... (32,633) (1,871)
----------------- -----------------
Net Cash Used in Investing Activities................. (1,164) (538,713)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Sale of Common Stock......................... --- 36,300
Common Stock Underwriting Discounts/Offering Costs......... --- (3,159)
Proceeds from Exercise of Employee Stock Options........... 59 2,430
Proceeds from Sale of Preferred Stock...................... --- 200,000
Preferred Stock Offering Costs ............................ --- (7,300)
Repayments on Mortgage Loans Payable....................... (2,941) (301,437)
Proceeds from Acquisition Facility Payable................. 82,100 505,000
Repayments on Acquisition Facility Payable................. (121,300) (505,600)
Proceeds from Senior Unsecured Debt........................ --- 299,517
Other Proceeds from Senior Unsecured Debt.................. --- 2,760
Other Costs of Senior Unsecured Debt....................... --- (11,890)
Decrease in Restricted Cash................................ --- 306,000
Dividends/Distributions.................................... (81,380) (68,057)
Preferred Stock Dividends.................................. (24,633) (22,399)
Debt Issuance Costs and Prepayment Fees.................... (812) (9,955)
----------------- -----------------
Net Cash (Used in) Provided by Financing Activities... (148,907) 422,210
----------------- -----------------
Net Decrease in Cash and Cash Equivalents..................... (11,473) (7,610)
Cash and Cash Equivalents, Beginning of Period................ 21,823 13,222
----------------- -----------------
Cash and Cash Equivalents, End of Period ..................... $ 10,350 $ 5,612
================= =================
</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 84.2% ownership interest at September 30, 1999. As of September 30,
1999, the Company owned 950 in-service properties located in 25 states,
containing an aggregate of approximately 65.2 million square feet of gross
leasable area ("GLA") and two properties held for redevelopment. Of the 950
in-service properties owned by the Company, 807 are held by the Operating
Partnership, 97 are held by limited partnerships in which the Operating
Partnership is at least the 99% limited partner and wholly owned subsidiaries of
the REIT are the 1% general partners and 46 are held by limited liability
companies of which the Operating Partnership is the sole member. The Company,
through separate wholly-owned limited liability companies of which the Operating
Partnership is the sole member, also owns 10% equity interests in, and provides
asset and property management services to, two joint ventures which invest in
industrial properties (the "September 1998 Joint Venture" and the "September
1999 Joint Venture"). Minority interest in the Company at September 30, 1999
represents the approximate 15.8% 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 September
30, 1999 and December 31, 1998, and the reported amounts of revenues and
expenses for each of the nine months and three months ended September 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 September 30, 1999, the results of its operations and its cash flows for each
of the nine months and three months ended September 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 September 30, 1999
and December 31, 1998.
Reclassification:
Certain 1998 items have been reclassified to conform to the 1999 presentation.
6
<PAGE> 8
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
3. INVESTMENT IN JOINT VENTURES
During the nine months ended September 30, 1999, the Company received
approximately $1,768 (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 $618 from the September 1998 Joint
Venture. As of September 30, 1999, the September 1998 Joint Venture owned 146
industrial properties comprising approximately 7.5 million square feet of GLA.
On September 2, 1999, the Company, through a wholly-owned limited liability
company in which the Operating Partnership is the sole member, entered into
another joint venture arrangement (the "September 1999 Joint Venture") with an
institutional investor to invest in industrial properties. The Company, through
wholly-owned limited liability companies of the Operating Partnership, owns a
10% equity interest in the September 1999 Joint Venture and provides property
and asset management services to the September 1999 Joint Venture. On or after
August 2001, under certain circumstances, the Company has the option of
purchasing all of the properties owned by the September 1999 Joint Venture at a
price to be determined in the future. The Company received approximately $907
(net of the intercompany elimination) in acquisition, asset management and
property management fees in 1999 from the September 1999 Joint Venture. The
Company, through a wholly owned limited liability company in which the Operating
Partnership is the sole member, also invested approximately $1,750 in the
September 1999 Joint Venture. The Company accounts for the September 1999 Joint
Venture under the equity method of accounting. As of September 30, 1999 the
September 1999 Joint Venture owned 39 industrial properties compromising
approximately 1.2 million square feet of GLA.
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 September 30, 1999, the Company had
five industrial properties comprising approximately 1.0 million square feet of
GLA and two land parcels held for sale. Three of five of these industrial
properties and both land parcels were identified as held for sale during the
three months ended September 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 and two land parcels held for sale by the Company.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Total Revenues $ 3,549 $ 2,844
Operating Expenses (1,166) (1,137)
Depreciation and Amortization (308) (305)
============ ============
Net Income $ 2,075 $ 1,402
============ ============
Net Carrying Value at September 30, 1999 $ 39,495
============
</TABLE>
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
On November 5, 1998, the Company, through the Operating Partnership,
assumed a mortgage loan in the principal amount of $1,348 (the "Acquisition
Mortgage Loan VIII"). The Acquisition Mortgage Loan VIII was collateralized by
three properties in Richland Hills, Texas, bore interest at a fixed rate of
8.45% and provided for monthly principal and interest payments based on a
143-month amortization schedule. On August 2, 1999, the Company paid off and
retired the Acquisition Mortgage Loan VIII.
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
------------------------------- ---------------------------- ----------------
September 30, December 31, September 30, December 31, September 30, MATURITY
1999 1998 1999 1998 1999 DATE
------------- ------------ ------------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE LOANS PAYABLE, NET
1995 Mortgage Loan............ $ 39,221 $ 39,567 $ 157 $ 167 7.220% 1/11/26
CIGNA Loan. .................. 34,745 35,220 --- --- 7.500% 4/01/03
Assumed Loans................. 8,426 8,661 --- --- 9.250% 1/01/13
LB Mortgage Loan II........... 705 705 --- --- 8.000% (1)
Acquisition Mortgage Loan I... 3,662 3,864 --- --- 8.500% 8/01/08
Acquisition Mortgage Loan II.. 7,677 7,828 --- 51 7.750% 4/01/06
Acquisition Mortgage Loan III 3,382 3,485 --- 26 8.875% 6/01/03
Acquisition Mortgage Loan IV.. 2,439 2,488 --- 19 8.950% 10/01/06
Acquisition Mortgage Loan V... 2,808 (2) 2,855 (2) --- 19 9.010% 9/01/06
Acquisition Mortgage Loan VI.. 998 (2) 1,024 (2) --- 7 8.875% 11/01/06
Acquisition Mortgage Loan VII. 1,405 (2) 1,450 (2) --- 11 9.750% 3/15/02
Acquisition Mortgage Loan VIII --- 1,340 --- 9 8.450% (3)
--------- --------- ---------- ----------
Total ........................ $ 105,468 $ 108,487 $ 157 $ 309
========= ========= ========== ==========
SENIOR UNSECURED DEBT, NET
2005 Notes ................... $ 50,000 $ 50,000 $ 1,246 $ 383 6.900% 11/21/05
2006 Notes ................... 150,000 150,000 3,500 875 7.000% 12/01/06
2007 Notes ................... 149,960 (4) 149,956 (4) 4,307 1,457 7.600% 5/15/07
2011 Notes ................... 99,459 (4) 99,424 (4) 2,786 942 7.375% 5/15/11 (5)
2017 Notes ................... 99,826 (4) 99,818 (4) 2,500 625 7.500% 12/01/17
2027 Notes ................... 99,866 (4) 99,862 (4) 2,701 914 7.150% 5/15/27 (6)
2028 Notes ................... 199,774 (4) 199,768 (4) 3,209 7,051 7.600% 7/15/28
2011 Drs ..................... 99,781 (4) 99,767 (4) 3,178 1,553 6.500% (8) 4/05/11 (7)
--------- --------- ---------- ----------
Total ....................... $ 948,666 $ 948,595 $ 23,427 $ 13,800
========= ========= ========== ==========
ACQUISITION FACILITY PAYABLE
1997 Unsecured Acquisition
Facility...................... $ 95,600 $ 134,800 $ 793 $ 690 6.26% 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 September 30, 1999, the Acquisition Mortgage Loan V, the Acquisition
Mortgage Loan VI and the Acquisition Mortgage Loan VII are net of
unamortized premiums of $268, $59 and $71, 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) The Acquisition Mortgage Loan VIII was paid off and retired on August 2,
1999.
(4) At September 30, 1999, the 2007 Notes, 2011 Notes, 2017 Notes, 2027 Notes,
2028 Notes and the 2011 Drs. are net of unamortized discounts of $40,
$541, $174, $134, $226 and $219, respectively. At December 31, 1998, the
2007 Notes, 2011 Notes, 2017 Notes, 2027 Notes, 2028 Notes and the 2011
Drs. are net of unamoritized discounts of $44, $576, $182, $138, $232 and
$233, respectively.
(5) The 2011 Notes are redeemable at the option of the holder thereof, on
May 15, 2004.
(6) The 2027 Notes are redeemable at the option of the holders thereof, on
May 15, 2002.
(7) The 2011 Drs. are required to be redeemed by the Operating Partnership on
April 5, 2001 if the Remarketing Dealer elects not to remarket the
2011 Drs.
(8) The 2011 Drs. bear interest at an annual rate of 6.50% to the Remarketing
Date. If the holder of the Call Option calls the 2011 Drs. and elects to
remarket the 2011 Drs., then after the Remarketing Date, the interest rate
on the 2011 Drs. will be reset at a fixed rate until April 5, 2011 based
on a predetermined formula as disclosed in the related Prospectus
Supplement.
8
<PAGE> 10
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, CONTINUED
The following is a schedule of the stated maturities and scheduled
principal payments of the mortgage loans, senior unsecured debt and acquisition
facility payable for the next five years ending December 31, and thereafter:
<TABLE>
<CAPTION>
Amount
-------------
<S> <C>
Remainder of 1999 $ 539
2000 2,342
2001 98,137
2002 3,970
2003 37,163
Thereafter 1,007,814
=============
Total $ 1,149,965
=============
</TABLE>
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.
9
<PAGE> 11
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 nine months ended September 30, 1999, the Company awarded 72,100
shares of restricted common stock to certain employees and 2,595 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 $2,024 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 nine months ended September 30, 1999, the Company issued
1,041,567 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 nine months
ended September 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
Third Quarter 1999 September 30, 1999 October 18, 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
Third Quarter: Dividend Total
Record Date Payable Date per Share Dividend
------------------- ------------------ ----------------------- ---------------------
Series A Preferred Stock September 15, 1999 September 30, 1999 $ .59375 $ 980
Series B Preferred Stock September 15, 1999 September 30, 1999 $ 54.68750 $ 2,188
Series C Preferred Stock September 15, 1999 September 30, 1999 $ 53.90600 $ 1,078
Series D Preferred Stock September 15, 1999 September 30, 1999 $ 49.68700 $ 2,484
Series E Preferred Stock September 15, 1999 September 30, 1999 $ 49.37500 $ 1,481
</TABLE>
10
<PAGE> 12
FIRST INDUSTRIAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
7. ACQUISITION OF REAL ESTATE
During the nine months ended September 30, 1999, the Company acquired seven
existing industrial properties and several land parcels. The aggregate purchase
price for these acquisitions totaled approximately $45,482, excluding costs
incurred in conjunction with the acquisition of the properties and land parcels.
8. SALES OF REAL ESTATE
During the nine months ended September 30, 1999, the Company sold 49
industrial properties, one property under development and two land parcels.
Gross proceeds from these sales were approximately $192,301. Eight of the 49
existing industrial properties sold during the nine months ended September 30,
1999, were sold to an entity whose Chairman of the Board of Directors is also
Chairman of the Board of Directors of the Company. The gross proceeds from the
sales of these eight industrial properties approximated $39,475 and the gain on
sales approximated $14,552. 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
$25,341.
9. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Interest paid, net of capitalized interest .................. $ 50,988 $ 34,441
============ ============
Interest capitalized......................................... $ 3,893 $ 2,628
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Dividend/Distribution payable................................ $ 27,157 $ 23,735
============ ============
EXCHANGE OF UNITS FOR COMMON SHARES:
Minority Interest............................................ $ (1,972) $ (5,065)
Common Stock................................................. 1 2
Additional Paid-In Capital................................... 1,971 5,063
============ ============
$ --- $ ---
============ ============
IN CONJUNCTION WITH THE PROPERTY ACQUISITIONS, THE FOLLOWING
ASSETS AND LIABILITIES WERE ASSUMED AND OPERATING PARTNERSHIP
UNITS WERE EXCHANGED:
Purchase of real estate ..................................... $ 45,482 $ 519,479
Accrued real estate taxes and security deposits ............. (119) (4,803)
Mortgage Loans............................................... --- (7,926)
Operating Partnership Units.................................. --- (47,507)
============ ============
$ 45,363 $ 459,243
============ ============
IN CONJUNCTION WITH ONE PROPERTY SALE, THE COMPANY ORIGINATED A
MORTGAGE NOTE RECEIVABLE ON BEHALF OF THE BUYER:
Note receivable.............................................. $ 700
============
</TABLE>
11
<PAGE> 13
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>
Nine Months Ended Three Months Ended
------------------------------ -------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator:
- ----------
Income Before Cumulative Effect of Change in
Accounting Principle...................................... $ 96,565 $ 68,520 $ 40,663 $ 23,708
Less: Preferred Dividends................................... (24,633) (22,399) (8,211) (8,211)
---------- ---------- ---------- ----------
Net Income Available to Common Stockholders
Before Cumulative Effect of Change in Accounting
Principle - For Basic and Diluted EPS..................... 71,932 46,121 32,452 15,497
Cumulative Effect of Change in Accounting Principle ........ --- (1,976) --- ---
---------- ---------- ---------- ----------
Net Income Available to Common Stockholders - For
Basic and Diluted EPS..................................... $ 71,932 $ 44,145 $ 32,452 $ 15,497
========== ========== ========== ==========
Denominator:
- ------------
Weighted Average Shares - Basic............................. 38,019 37,282 38,055 37,872
Effect of Dilutive Securities:
Employee and Director Common Stock Options............... 114 235 100 116
---------- ---------- ---------- ----------
Weighted Average Shares - Diluted........................... 38,133 37,517 38,155 37,988
========== ========== ========== ==========
Basic EPS:
- ----------
Net Income Available to Common Stockholders Before
Cumulative Effect of Change in Accounting Principle ..... $ 1.89 $ 1.24 $ .85 $ .41
========== ========== ========== ==========
Cumulative Effect of Change in Accounting Principle......... $ --- $ .05 $ --- $ ---
========== ========== ========== ==========
Net Income Available to Common Stockholders................. $ 1.89 $ 1.18 $ .85 $ .41
========== ========== ========== ==========
Diluted EPS:
- ------------
Net Income Available to Common Stockholders Before
Cumulative Effect of Change in Accounting Principle....... $ 1.89 $ 1.23 $ .85 $ .41
========== ========== ========== ==========
Cumulative Effect of Change in Accounting Principle ........ $ --- $ .05 $ --- $ ---
========== ========== ========== ==========
Net Income Available to Common Stockholders................. $ 1.89 $ 1.18 $ .85 $ .41
========== ========== ========== ==========
</TABLE>
12
<PAGE> 14
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 29 development projects
totaling approximately 4.5 million square feet of GLA for an estimated
investment of approximately $161.2 million. Of this amount, approximately $65.7
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 October 1, 1999 to November 1, 1999, the Company acquired two
industrial properties for an aggregate purchase price of approximately $10,831,
excluding costs incurred in conjunction with the acquisition of these industrial
properties and sold one industrial property for approximately $1,425 of gross
proceeds.
On October 18, 1999, the Company and the Operating Partnership paid a third
quarter 1999 dividend/distribution of $.60 per common share/Unit, totaling
approximately $27,157.
13
<PAGE> 15
FIRST INDUSTRIAL REALTY TRUST, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of First Industrial Realty Trust,
Inc.'s (the "Company") financial condition and results of operations should be
read in conjunction with the financial statements and notes thereto appearing
elsewhere in this Form 10-Q.
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The 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 84.2% ownership interest at September 30,
1999. As of September 30, 1999, the Company owned 950 in-service properties
located in 25 states, containing an aggregate of approximately 65.2 million
square feet of gross leasable area ("GLA") and two properties held for
redevelopment. Of the 950 in-service properties owned by the Company, 807 are
held by the Operating Partnership, 97 are held by limited partnerships in which
the Operating Partnership is at least the 99% limited partner and wholly owned
subsidiaries of the REIT are the 1% general partners and 46 are held by limited
liability companies of which the Operating Partnership is the sole member. The
Company, through separate wholly-owned limited liability companies of which the
Operating Partnership is the sole member, also owns 10% equity interests in, and
provides asset and property management services to, two joint ventures which
invest in industrial properties (the "September 1998 Joint Venture" and the
"September 1999 Joint Venture"). Minority interest in the Company at September
30, 1999 represents the approximate 15.8% aggregate partnership interest in the
Operating Partnership held by the limited partners thereof.
14
<PAGE> 16
RESULTS OF OPERATIONS
At September 30, 1999, the Company owned 950 in-service properties with
approximately 65.2 million square feet of GLA, compared to 1,001 in-service
properties with approximately 69.9 million square feet of GLA at September 30,
1998. The addition of 30 properties acquired or developed between October 1,
1998 and September 30, 1999 included the acquisitions of 19 properties totaling
approximately .7 million square feet of GLA and the completed development of 11
properties totaling approximately 1.3 million square feet of GLA. The Company
also completed the expansion of one property totaling approximately .1 million
square feet of GLA and sold 78 in-service properties totaling approximately 6.1
million square feet of GLA and several land parcels. The Company also took three
properties out of service that are under redevelopment, comprising approximately
.7 million square feet of GLA.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Rental income and tenant recoveries and other income increased by
approximately $27.7 million or 10.8% due primarily to the properties acquired or
developed after December 31, 1997, offset by a decrease in rental income and
tenant recoveries and other income due to properties sold subsequent to
December 31, 1997. Approximately $1.8 million of this increase is also due to
acquisition, asset management and property management fees received from the
September 1998 Joint Venture and the September 1999 Joint Venture (hereinafter
defined). Rental income and tenant recoveries and other income from properties
owned prior to January 1, 1998, increased by approximately $6.3 million or 3.3%
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 $2.2 million or 3.0% 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, a decrease in other expenses and a
decrease in property expenses due to properties sold subsequent to December 31,
1997. The majority of the variance in other expense is due to an increase in the
allowance for doubtful accounts between January 1, 1998 and September 30, 1998.
Expenses from properties owned prior to January 1, 1998, increased by
approximately $1.4 million or 2.6% due primarily to an increase in snow removal
and related expenses incurred during the nine months ended September 30, 1999 as
compared to the nine months ended September 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 $9.0 million for the nine
months ended September 30, 1999 compared to the nine months ended September 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
for the nine months ended September 30, 1999 due to an increase in development
activities. The average debt balances outstanding for the nine months ended
September 30, 1999 and 1998 was approximately $1.2 billion and $1.0 billion,
respectively.
15
<PAGE> 17
Amortization of deferred financing costs increased by approximately $.3
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 $4.4 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 ventures of approximately $.4 million for the
nine months ended September 30, 1999 represents the Company's 10% equity
interest in the September 1998 Joint Venture and the September 1999 Joint
Venture (hereinafter defined).
The $25.3 million gain on sales of properties for the nine months ended
September 30, 1999 resulted from the sale of 49 existing industrial properties,
one property under development and two land parcels. Gross proceeds from these
sales were approximately $192.3 million.
The $3.1 million gain on sales of properties for the nine months ended
September 30, 1998 resulted from the sale of 12 existing industrial properties
and five land parcels. Gross proceeds from these sales were approximately $35.8
million.
The $2.0 million cumulative effect of change in accounting principle for
the nine months ended September 30, 1998 is the result of the write-off of the
unamortized balance of organizational costs on the Company's balance sheet due
to the early adoption of Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires that the net unamortized
balance of all start-up costs and organizational costs be written off as a
cumulative effect of a change in accounting principle and all future start-up
costs and organizational costs be expensed.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Rental income and tenant recoveries and other income increased by
approximately $1.8 million or 1.9%, due primarily to rental rate increases,
offset by a decrease in rental income and tenant recoveries and other income due
to properties sold subsequent to June 30, 1998. Approximately $.5 million of
this increase is due to acquisition, asset management and property management
fees received from the September 1998 Joint Venture and the September 1999 Joint
Venture (hereinafter defined). Rental income and tenant recoveries and other
income from properties owned prior to July 1, 1998, increased by approximately
$1.3 million or 1.7% due primarily to rental rate increases and an increase in
other income.
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses
decreased by approximately $3.2 million or 12.1% due primarily to a decrease in
property management fees due to a decrease in operational costs of the regional
offices that manage the properties, a decrease in other expenses and a decrease
in property expenses due to properties sold subsequent to June 30, 1998. The
majority of the variance in other expense is due to an increase in the allowance
for doubtful accounts between July 1, 1998 and September 30, 1998. Expenses from
properties owned prior to July 1, 1998, decreased by approximately $1.1 million
or 5.0% due primarily to a decrease in real estate tax expense, repairs and
maintenance, and utilities expenses in the majority of the Company's
geographical markets.
General and administrative expense remained relatively unchanged.
Interest expense increased by approximately $.7 million for the three
months ended September 30, 1999 compared to the three months ended September 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
16
<PAGE> 18
increase in development activities. The average debt balances outstanding for
the three months ended September 30, 1999 and 1998 was approximately $1.2
billion and $1.1 billion, respectively.
Amortization of deferred financing costs remained relatively unchanged.
Depreciation and other amortization increased by approximately $.4 million
due primarily to an increase in the weighted average depreciated cost of real
estate assets for the three months ended September 30, 1999, as compared to the
three months ended September 30, 1998.
Equity in income of joint ventures of approximately $.1 million for the
three months ended September 30, 1999 represents the Company's 10% equity
interest in the September 1998 Joint Venture and the September 1999 Joint
Venture (hereinafter defined).
The $17.0 million gain on sales of properties for the three months ended
September 30, 1999 resulted from the sale of 25 existing industrial properties
and one land parcel. Gross proceeds from these sales were approximately $108.3
million.
The $.7 million gain on sales of properties for the three months ended
September 30, 1998 resulted from the sale of five existing industrial properties
and two land parcels. Gross proceeds from these sales were approximately $6.5
million.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company's cash and cash equivalents was
approximately $10.4 million and restricted cash was approximately $42.2 million.
Included in restricted cash are approximately $1.9 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 $40.3 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.
NINE MONTHS ENDED SEPTEMBER 30, 1999
Net cash provided by operating activities of approximately $138.6 million
for the nine months ended September 30, 1999 was comprised primarily of net
income before minority interest of approximately $110.4 million and adjustments
for non-cash items of approximately $23.7 million and the net change in
operating assets and liabilities of approximately $4.5 million. The adjustments
for the non-cash items of approximately $23.7 million are primarily comprised of
depreciation and amortization of $52.5 million and distributions from the
September 1998 Joint Venture of $.4 million, offset by the Company's 10% equity
interests in the income of the September 1998 Joint Venture and the September
1999 Joint Venture of $.4 million, gain on sales of real estate of $25.3 million
and the effect of the straight-lining of rental income of $3.5 million.
Net cash used in investing activities of approximately $1.2 million for the
nine months ended September 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, investment in the September
1998 Joint Venture and the September 1999 Joint Venture, the funding of a
mortgage loan receivable and an increase in restricted cash from sales proceeds
deposited with an intermediary for Section 1031 exchange purposes, offset by the
net proceeds from the sales of real estate, distributions from
17
<PAGE> 19
the September 1998 Joint Venture, a decrease in restricted cash due to a
reimbursement from one of the Company's escrows with a lender established for
deferred maintenance and the repayment of mortgage loans receivable.
Net cash used in financing activities of approximately $148.9 million for
the nine months ended September 30, 1999 was comprised primarily of repayments
on mortgage loans payable, common and preferred stock dividends and
distributions and the net borrowings under the Company's $300 million unsecured
revolving credit facility (the "1997 Unsecured Acquisition Facility"), offset by
proceeds from the exercise of employee stock options.
NINE MONTHS ENDED SEPTEMBER 30, 1998
Net cash provided by operating activities of approximately $108.9 million
for the nine months ended September 30, 1998 was comprised primarily of net
income before minority interest of approximately $74.2 million and adjustments
for non-cash items of approximately $44.5 million, offset by the net change in
operating assets and liabilities of approximately $9.8 million. The adjustments
for the non-cash items of approximately $44.5 million are primarily comprised of
depreciation and amortization of $48.1 million, cumulative effect of change in
accounting principle due to the adoption of SOP 98-5 (as discussed earlier in
the Management's Discussion and Analysis of Financial Condition and Results of
Operations) of $2.0 million and a provision for bad debts of $.6 million,
offset by the gain on sales of real estate of $3.1 million and the effect of the
straight-lining of rental income of $3.1 million.
Net cash used in investing activities of approximately $538.7 million for
the nine months ended September 30, 1998 was comprised primarily of the
acquisition of real estate, development of real estate, capital expenditures
related to the expansion and improvement of existing real estate and an increase
in restricted cash due to a Section 1031 exchange, offset by the net proceeds
from the sales of real estate and the repayment of mortgage loans receivable.
Net cash provided by financing activities of approximately $422.2 million
for the nine months ended September 30, 1998 was comprised primarily of the net
proceeds from the issuance of common stock, preferred stock and senior unsecured
debt, 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,
net repayments under the Company's 1997 Unsecured Acquisition Facility and
common and preferred stock dividends and distributions.
FUNDS FROM OPERATIONS AND RATIO OF EARNINGS TO FIXED CHARGES
Funds from operations for the nine months ended September 30, 1999 were
$111.5 million, as compared to $97.1 million for the nine months ended September
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.
18
<PAGE> 20
The following is a reconciliation of net income to funds from operations:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Net Income Available to
Common Stockholders ............ $ 71,932 $ 44,145
Adjustments:
Depreciation and Other
Amortization ................... 50,639 46,367
Equity in Depreciation and
Other Amortization of Joint
Venture ........................ 441 --
Cumulative Effect of Change in
Accounting Principle ........... -- 1,976
Minority Interest .................... 13,801 7,656
Gain on Sales of Properties .......... (25,341) (3,069)
--------- ---------
Funds From Operations .......... $ 111,472 $ 97,075
========= =========
</TABLE>
The ratio of earnings to fixed charges and preferred stock dividends was
1.63 for the nine months ended September 30, 1999 and 1.62 for the nine months
ended September 30, 1998.
MARKET RISK
The following discussion about the Company's risk-management activities
includes "forward-looking statements" that involve risk and uncertainties.
Actual results could differ materially from those projected in the
forward-looking statements.
This analysis presents the hypothetical gain or loss in earnings, cash
flows or fair value of the financial instruments and derivative instruments
which are held by the Company at September 30, 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 September 30, 1999, $95.6 million (approximately 8.3% of total debt at
September 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 $1,054 million (approximately 91.7% of total debt at September 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
19
<PAGE> 21
consolidated financial statements for a discussion of the maturity dates of the
Company's various fixed rate debt.
Based upon the amount of variable rate debt outstanding at September 30,
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 $.6 million per year. A 10% increase in interest rates
would decrease the fair value of the fixed rate debt at September 30, 1999 by
approximately $48.7 million to $948.3 million. A 10% decrease in interest rates
would increase the fair value of the fixed rate debt at September 30, 1999 by
approximately $57.1 million to $1,054.1 million. A 10% increase in interest
rates would decrease the fair value of the Written Options at September 30, 1999
by approximately $1.4 million to $2.5 million. A 10% decrease in interest rates
would increase the fair value of the Written Options at September 30, 1999 by
approximately $2.2 million to $6.1 million.
INVESTMENT IN REAL ESTATE, DEVELOPMENT OF REAL ESTATE AND SALES OF REAL ESTATE
During the nine months ended September 30, 1999, the Company purchased
seven industrial properties and several land parcels, for an aggregate purchase
price of approximately $45.5 million, excluding costs incurred in conjunction
with the acquisition of the properties and land parcels.
During the nine months ended September 30, 1999, the Company sold 49
industrial properties, one property under development and two land parcels.
Gross proceeds from these sales were approximately $192.3 million. Eight of the
49 existing industrial properties sold during the nine months ended September
30, 1999, were sold to an entity whose Chairman of the Board of Directors is
also Chairman of the Board of Directors of the Company. The gross proceeds from
the sales of these eight properties approximated $39.5 million and the gain on
sales approximated $14.6 million. Approximately $4.8 million 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 Company has committed to the construction of 29 development projects
totaling approximately 4.5 million square feet of GLA for an estimated
investment of approximately $161.2 million. Of this amount, approximately $65.7
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 October 1, 1999 to November 1, 1999, the Company acquired two
industrial properties for an aggregate purchase price of approximately $10.8
million, excluding costs incurred in conjunction with the acquisition of these
industrial properties and sold one industrial property for approximately $1.4
million of gross proceeds.
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 September 30, 1999, the Company had
five industrial properties comprising approximately 1.0 million square feet of
GLA and two land parcels 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 and two land
parcels held for sale for the nine months ended September 30, 1999 and 1998 is
approximately $2.1 million and $1.4 million, respectively. Net carrying value of
the five industrial properties and two land parcels held for sale at September
30, 1999 is approximately $39.5 million. Three of five of these industrial
properties and both land parcels were identified as held for sale during the
three months ended September 30, 1999. There can be no assurance that such
properties held for sale will be sold.
20
<PAGE> 22
INVESTMENT IN JOINT VENTURE
During the nine months ended September 30, 1999, the Company, through a
wholly owned limited liability company in which the Operating Partnership is the
sole member, contributed approximately $.8 million to and received distributions
of approximately $.6 million from the September 1998 Joint Venture. As of
September 30, 1999, the September 1998 Joint Venture owned 146 industrial
properties comprising approximately 7.5 million square feet of GLA.
On September 2, 1999, the Company, through a wholly-owned limited liability
company in which the Operating Partnership is the sole member, entered into
another joint venture arrangement (the "September 1999 Joint Venture") with an
institutional investor to invest in industrial properties. The Company, through
wholly-owned limited liability companies of the Operating Partnership, owns a
10% equity interest in the September 1999 Joint Venture and provides property
and asset management services to the September 1999 Joint Venture. On or after
August 2001, under certain circumstances, the Company has the option of
purchasing all of the properties owned by the September 1999 Joint Venture at a
price to be determined in the future. The Company received approximately $.9
million (net of the intercompany elimination) in acquisition, asset management
and property management fees in 1999 from the September 1999 Joint Venture. The
Company, through a wholly owned limited liability company in which the Operating
Partnership is the sole member, also invested approximately $1.8 million in the
September 1999 Joint Venture. The Company accounts for the September 1999 Joint
Venture under the equity method of accounting. As of September 30, 1999, the
September 1999 Joint Venture owned 39 industrial properties, compromising
approximately 1.2 million square of GLA.
MORTGAGE LOANS
On November 5, 1998, the Company, through the Operating Partnership,
assumed a mortgage loan in the principal amount of $1.3 million (the
"Acquisition Mortgage Loan VIII"). The Acquisition Mortgage Loan VIII was
collateralized by three properties in Richland Hills, Texas, bore interest at a
fixed rate of 8.45% and provided for monthly principal and interest payments
based on a 143-month amortization schedule. On August 2, 1999, the Company paid
off and retired the Acquisition Mortgage Loan VIII.
ISSUANCE OF RESTRICTED STOCK
During the nine months ended September 30, 1999, the Company awarded 72,100
shares of restricted common stock to certain employees and 2,595 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 nine months ended September 30, 1999, the Company issued
1,041,567 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.
21
<PAGE> 23
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
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 October 18,
1999, the Company and the Operating Partnership paid a third quarter 1999
distribution of $.60 per common share/Unit, totaling approximately $27.2
million.
On March 31, 1999, the Company paid first 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 the
aggregate, approximately $8.2 million.
On June 30, 1999, the Company paid second quarter preferred stock dividends
of $.59375 per share on its Series A Preferred Stock, $54.688 per share
(equivalent to $.54688 per Depository Share) on its Series B Preferred Stock,
$53.906 per share (equivalent to $.53906 per Depository Share) on its Series C
Preferred Stock, $49.687 per share (equivalent to $.49687 per Depository Share)
on its Series D Preferred Stock and $49.375 per share (equivalent to $.49375 per
Depository Share) on its Series E Preferred Stock. The preferred stock dividends
paid on June 30, 1999 totaled, in the aggregate, approximately $8.2 million.
On September 30, 1999, the Company paid third quarter preferred stock
dividends of $.59375 per share on its Series A Preferred Stock, $54.688 per
share (equivalent to $.54688 per Depository Share) on its Series B Preferred
Stock, $53.906 per share (equivalent to $.53906 per Depository Share) on its
Series C Preferred Stock, $49.687 per share (equivalent to $.49687 per
Depository Share) on its Series D Preferred Stock and $49.375 per share
(equivalent to $.49375 per Depository Share) on its Series E Preferred Stock.
The preferred stock dividends paid on September 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 disposition of select assets, long-term secured and
unsecured indebtedness and the issuance of additional equity securities. The
Company is also actively considering joint ventures with institutional partners
as an additional financing strategy. As of September 30, 1999 and November 1,
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 September 30, 1999, borrowings under the 1997 Unsecured
Acquisition Facility bore interest at a weighted average interest rate of 6.26%.
As of November 1, 1999,
22
<PAGE> 24
the Company had approximately $184.2 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-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 September 30, 1999 tenants
representing 55% of annual base rents of the Company have replied. Of the tenant
surveys received as of September 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. The Company believes that
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 is not aware that 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,
23
<PAGE> 25
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.
24
<PAGE> 26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
Exhibit No. Description
- ----------- -----------
27* Financial Data Schedule
* Filed herewith.
Report on Form 8-K
- ------------------
None
25
<PAGE> 27
================================================================================
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
26
<PAGE> 28
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST INDUSTRIAL REALTY TRUST, INC.
Date: November 1, 1999 By: /s/ Michael J. Havala
-----------------------------------
Michael J. Havala
Chief Financial Officer
(Principal Financial and
Accounting Officer)
27
<PAGE> 29
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
27* Financial Data Schedule
* Filed herewith.
28
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (a) the
financial statements of First Industrial Realty Trust, Inc. for the nine months
ended September 30, 1999 and is qualified in its entirety by reference to such
(b) financial statments.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 10,350
<SECURITIES> 0
<RECEIVABLES> 14,170
<ALLOWANCES> (2,000)
<INVENTORY> 0
<CURRENT-ASSETS> 22,520
<PP&E> 2,554,060
<DEPRECIATION> (197,734)
<TOTAL-ASSETS> 2,525,684
<CURRENT-LIABILITIES> 105,294
<BONDS> 1,149,734
0
18
<COMMON> 381
<OTHER-SE> 1,061,058
<TOTAL-LIABILITY-AND-EQUITY> 2,525,684
<SALES> 0
<TOTAL-REVENUES> 283,552
<CGS> 0
<TOTAL-COSTS> (75,949)
<OTHER-EXPENSES> (62,384)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (60,566)
<INCOME-PRETAX> 84,653
<INCOME-TAX> 0
<INCOME-CONTINUING> 84,653
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,653
<EPS-BASIC> 1.89
<EPS-DILUTED> 1.89
</TABLE>
