10-Q 1 frlp-20130630xq2x10q.htm 10-Q FR LP - 2013.06.30 -Q2 - 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                    
Commission file number 333-21873
First Industrial, L.P.
(Exact Name of Registrant as Specified in its Charter)
 
Delaware
 
36-3924586
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
311 S. Wacker Drive, Suite 3900, 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  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
¨
  
Accelerated filer
 
ý
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý



FIRST INDUSTRIAL, L.P.
Form 10-Q
For the Period Ended June 30, 2013
INDEX
 
 
Page
 
 


2

PART I: FINANCIAL INFORMATION 
Item 1.
Financial Statements
FIRST INDUSTRIAL, L.P.
CONSOLIDATED BALANCE SHEETS
 
June 30, 2013
 
December 31, 2012
 
(Unaudited)
(In thousands except unit and
per unit data)
ASSETS
 
 
 
Assets:
 
 
 
Investment in Real Estate:
 
 
 
Land
$
618,830

 
$
598,404

Buildings and Improvements
2,143,136

 
2,146,375

Construction in Progress
25,025

 
19,228

Less: Accumulated Depreciation
(652,845
)
 
(639,481
)
Net Investment in Real Estate
2,134,146

 
2,124,526

Real Estate and Other Assets Held for Sale, Net of Accumulated Depreciation and Amortization of $1,435 and $3,050
2,085

 
6,765

Investments in and Advances to Other Real Estate Partnerships
189,886

 
178,104

Cash and Cash Equivalents
4,077

 
4,357

Tenant Accounts Receivable, Net
3,736

 
3,867

Investments in Joint Ventures
1,079

 
1,012

Deferred Rent Receivable, Net
48,948

 
47,930

Deferred Financing Costs, Net
9,058

 
10,948

Deferred Leasing Intangibles, Net
24,945

 
29,374

Prepaid Expenses and Other Assets, Net
97,255

 
96,999

Total Assets
$
2,515,215

 
$
2,503,882

LIABILITIES AND PARTNERS’ CAPITAL
 
 
 
Liabilities:
 
 
 
Indebtedness:
 
 
 
Mortgage Loans Payable, Net
$
631,880

 
$
656,329

Senior Unsecured Notes, Net
445,925

 
474,150

Unsecured Credit Facility
108,000

 
98,000

Accounts Payable, Accrued Expenses and Other Liabilities
63,303

 
78,876

Deferred Leasing Intangibles, Net
12,337

 
13,597

Rents Received in Advance and Security Deposits
24,698

 
27,327

Distributions Payable
11,801

 
452

Total Liabilities
1,297,944

 
1,348,731

Commitments and Contingencies
—

 
—

Partners’ Capital:
 
 
 
General Partner Preferred Units
121,492

 
217,971

General Partner Units (109,922,433 and 98,767,913 units outstanding)
1,017,659

 
859,727

Limited Partners Units (4,617,313 and 4,702,341 units outstanding)
82,711

 
84,282

Accumulated Other Comprehensive Loss
(4,591
)
 
(6,829
)
Total Partners’ Capital
1,217,271

 
1,155,151

Total Liabilities and Partners’ Capital
$
2,515,215

 
$
2,503,882

The accompanying notes are an integral part of the consolidated financial statements.

3

FIRST INDUSTRIAL, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
Three Months Ended June 30, 2013
 
Three Months Ended June 30, 2012
 
Six Months Ended June 30, 2013
 
Six Months Ended June 30, 2012
 
(Unaudited)
(In thousands except per unit data)
Revenues:
 
 
 
 
 
 
 
Rental Income
$
57,092

 
$
55,276

 
$
113,320

 
$
109,260

Tenant Recoveries and Other Income
17,654

 
16,025

 
34,861

 
32,149

Total Revenues
74,746

 
71,301

 
148,181

 
141,409

Expenses:
 
 
 
 
 
 
 
Property Expenses
24,700

 
22,662

 
49,277

 
45,722

General and Administrative
5,388

 
5,916

 
11,844

 
11,475

Impairment of Real Estate
1,429

 
—

 
1,429

 
19

Depreciation and Other Amortization
26,179

 
26,133

 
50,307

 
53,539

Total Expenses
57,696

 
54,711

 
112,857

 
110,755

Other Income (Expense):
 
 
 
 
 
 
 
Interest Income
621

 
697

 
1,207

 
1,643

Interest Expense
(17,284
)
 
(19,695
)
 
(34,932
)
 
(40,904
)
Amortization of Deferred Financing Costs
(788
)
 
(799
)
 
(1,590
)
 
(1,622
)
Mark-to-Market Gain (Loss) on Interest Rate Protection Agreements
56

 
(429
)
 
52

 
(305
)
Loss from Retirement of Debt
(4,222
)
 
(6,223
)
 
(5,372
)
 
(6,222
)
Total Other Income (Expense)
(21,617
)
 
(26,449
)
 
(40,635
)
 
(47,410
)
Loss from Continuing Operations Before Equity in Income of Other Real Estate Partnerships, Equity in Income of Joint Ventures, Gain on Change in Control of Interests and Income Tax (Provision) Benefit
(4,567
)
 
(9,859
)
 
(5,311
)
 
(16,756
)
Equity in Income of Other Real Estate Partnerships
2,399

 
2,468

 
4,571

 
3,566

Equity in Income of Joint Ventures
27

 
37

 
47

 
128

Gain on Change in Control of Interests
—

 
—

 
—

 
776

Income Tax (Provision) Benefit
(3
)
 
(5,354
)
 
59

 
(5,263
)
Loss from Continuing Operations
(2,144
)
 
(12,708
)
 
(634
)
 
(17,549
)
Discontinued Operations:
 
 
 
 
 
 
 
Income Attributable to Discontinued Operations
56

 
949

 
230

 
695

Gain on Sale of Real Estate
13,481

 
1,415

 
10,407

 
7,614

Income from Discontinued Operations
13,537

 
2,364

 
10,637

 
8,309

Income (Loss) Before Gain on Sale of Real Estate
11,393

 
(10,344
)
 
10,003

 
(9,240
)
Gain on Sale of Real Estate
—

 
—

 
262

 
—

Net Income (Loss)
11,393

 
(10,344
)
 
10,265

 
(9,240
)
Less: Preferred Unit Distributions
(2,277
)
 
(4,798
)
 
(6,114
)
 
(9,560
)
Less: Redemption of Preferred Units
(3,546
)
 
—

 
(3,546
)
 
—

Net Income (Loss) Available to Unitholders and Participating Securities
$
5,570

 
$
(15,142
)
 
$
605

 
$
(18,800
)
Basic and Diluted Earnings Per Unit:
 
 
 
 
 
 
 
Loss from Continuing Operations Available to Unitholders
$
(0.07
)
 
$
(0.19
)
 
$
(0.09
)
 
$
(0.29
)
Income from Discontinued Operations Attributable to Unitholders
$
0.12

 
$
0.03

 
$
0.10

 
$
0.09

Net Income (Loss) Available to Unitholders
$
0.05

 
$
(0.16
)
 
$
0.01

 
$
(0.20
)
Distributions Per Unit
$
0.085

 
$
0.00

 
$
0.17

 
$
0.00

Weighted Average Units Outstanding
112,808

 
93,106

 
109,163

 
92,458

Net Income (Loss) Available to Unitholders Attributable to:
 
 
 
 
 
 
 
General Partner
$
5,325

 
$
(14,304
)
 
$
580

 
$
(17,755
)
Limited Partners
245

 
(838
)
 
25

 
(1,045
)
Net Income (Loss) Available to Unitholders and Participating Securities
$
5,570

 
$
(15,142
)
 
$
605

 
$
(18,800
)
The accompanying notes are an integral part of the consolidated financial statements.

4

FIRST INDUSTRIAL, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Three Months Ended June 30, 2013
 
Three Months Ended June 30, 2012
 
Six Months Ended June 30, 2013
 
Six Months Ended June 30, 2012
 
(Unaudited)
(In thousands)
Net Income (Loss)
$
11,393

 
$
(10,344
)
 
$
10,265

 
$
(9,240
)
Amortization of Interest Rate Protection Agreements
598

 
571

 
1,183

 
1,111

Write-off of Unamortized Settlement Amounts of Interest Rate Protection Agreements
916

 
2,599

 
1,099

 
2,619

Foreign Currency Translation Adjustment
(46
)
 
(31
)
 
(44
)
 
(3
)
Comprehensive Income (Loss)
$
12,861

 
$
(7,205
)
 
$
12,503

 
$
(5,513
)
The accompanying notes are an integral part of the consolidated financial statements.

5

FIRST INDUSTRIAL, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL
 
 
General
Partner
Preferred
Units
 
General
Partner
Units
 
Limited
Partner
Units
 
Accumulated
Other
Comprehensive
Loss
 
Total
 
(Unaudited)
(In thousands)
Balance as of December 31, 2012
$
217,971

 
$
859,727

 
$
84,282

 
$
(6,829
)
 
$
1,155,151

Issuance of General Partner Units, Net of Issuance Costs
—

 
173,820

 
—

 
—

 
173,820

Redemption of Preferred Units
(96,479
)
 
—

 
—

 
—

 
(96,479
)
Stock Based Compensation Activity
—

 
1,222

 
—

 
—

 
1,222

Conversion of Limited Partner Units to General Partner Units
—

 
804

 
(804
)
 
—

 
—

Common Unit Distributions
—

 
(18,494
)
 
(792
)
 
—

 
(19,286
)
Preferred Unit Distributions
(9,660
)
 
—

 
—

 
—

 
(9,660
)
Net Income
9,660

 
580

 
25

 
—

 
10,265

Other Comprehensive Income
—

 
—

 
—

 
2,238

 
2,238

Balance as of June 30, 2013
$
121,492

 
$
1,017,659

 
$
82,711

 
$
(4,591
)
 
$
1,217,271

The accompanying notes are an integral part of the consolidated financial statements.

6

FIRST INDUSTRIAL, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Six Months Ended June 30, 2013
 
Six Months Ended June 30, 2012
 
(Unaudited)
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net Income (Loss)
$
10,265

 
$
(9,240
)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:
 
 
 
Depreciation
41,334

 
45,445

Amortization of Deferred Financing Costs
1,590

 
1,622

Other Amortization
14,155

 
14,704

Impairment of Real Estate
1,605

 
1,101

Provision for Bad Debt
484

 
550

Equity in Income of Joint Ventures
(47
)
 
(128
)
Distributions from Joint Ventures
—

 
27

Gain on Sale of Real Estate
(10,669
)
 
(7,614
)
Gain on Change in Control of Interests
—

 
(776
)
Loss from Retirement of Debt
5,372

 
6,222

Mark-to-Market (Gain) Loss on Interest Rate Protection Agreements
(52
)
 
305

Equity in Income of Other Real Estate Partnerships
(4,571
)
 
(3,566
)
Distributions from Investment in Other Real Estate Partnerships
4,571

 
3,566

(Increase) Decrease in Tenant Accounts Receivable, Prepaid Expenses and Other Assets, Net
(249
)
 
3,223

Increase in Deferred Rent Receivable
(2,283
)
 
(1,704
)
(Decrease) Increase in Accounts Payable, Accrued Expenses, Other Liabilities, Rents Received in Advance and Security Deposits
(16,545
)
 
1,571

Payments of Premiums, Discounts and Prepayment Penalties Associated with Retirement of Debt
(3,990
)
 
(3,287
)
Net Cash Provided by Operating Activities
40,970

 
52,021

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Acquisitions of Real Estate
(47,293
)
 
(48,519
)
Additions to Investment in Real Estate and Non-Acquisition Tenant Improvements and Lease Costs
(43,767
)
 
(35,107
)
Net Proceeds from Sales of Investments in Real Estate
50,375

 
22,002

Investments in and Advances to Other Real Estate Partnerships
(24,646
)
 
(7,970
)
Distributions from Other Real Estate Partnerships in Excess of Equity in Income
12,864

 
8,047

Contributions to and Investments in Joint Ventures
(18
)
 
(184
)
Repayments of Notes Receivable
295

 
8,306

Increase in Escrows
(409
)
 
—

Net Cash Used in Investing Activities
(52,599
)
 
(53,425
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Debt and Equity Issuance Costs
(311
)
 
(287
)
Unit Contributions
174,081

 
18,063

Repurchase and Retirement of Restricted Units
(2,732
)
 
(855
)
Common Unit Distributions
(9,540
)
 
—

Preferred Unit Distributions Paid / Advanced
(6,114
)
 
(9,525
)
Redemption of Preferred Units
(100,000
)
 
—

Payments on Interest Rate Swap Agreement
(598
)
 
(572
)
Repayments on Mortgage and Other Loans Payable
(24,429
)
 
(17,432
)
Repayments of Senior Unsecured Notes
(28,965
)
 
(148,310
)
Proceeds from Unsecured Credit Facility
194,000

 
241,000

Repayments on Unsecured Credit Facility
(184,000
)
 
(84,000
)
Net Cash Provided by (Used in) Financing Activities
11,392

 
(1,918
)
Net Effect of Exchange Rate Changes on Cash and Cash Equivalents
(43
)
 
(1
)
Net Decrease in Cash and Cash Equivalents
(237
)
 
(3,322
)
Cash and Cash Equivalents, Beginning of Year
4,357

 
7,624

Cash and Cash Equivalents, End of Year
$
4,077

 
$
4,301

The accompanying notes are an integral part of the consolidated financial statements.

7

FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands except per unit data)
1. Organization and Formation of Partnership
First Industrial, L.P. (the “Operating Partnership”) was organized as a limited partnership in the state of Delaware on November 23, 1993. The sole general partner is First Industrial Realty Trust, Inc. (the “Company”) which owns common units in the Operating Partnership (“Units”) representing an approximate 96.0% common ownership interest at June 30, 2013. The Company also owns a preferred general partnership interest in the Operating Partnership represented by preferred Units (“Preferred Units”) with an aggregate liquidation priority of $125,000 at June 30, 2013. The Company is a real estate investment trust (“REIT”) as defined in the Internal Revenue Code of 1986 (the “Code”). The Company’s operations are conducted primarily through the Operating Partnership. The limited partners of the Operating Partnership owned, in the aggregate, approximately a 4.0% interest in the Operating Partnership at June 30, 2013. Operations are also conducted through other partnerships and limited liability companies (“LLCs”) of which the Operating Partnership is the sole member, and taxable REIT subsidiaries (together with the Operating Partnership, other partnerships and the L.L.C.s, the “Consolidated Operating Partnership”), the operating data of which is consolidated with that of the Operating Partnership as presented herein. Unless the context otherwise requires, the terms “we,” “us,” and “our” refer to First Industrial, L.P. and its controlled subsidiaries.
We also hold at least a 99% limited partnership interest in each of eight limited partnerships (together, the “Other Real Estate Partnerships”).
We also own noncontrolling equity interests in, and provide various services to, two joint ventures (the “2003 Net Lease Joint Venture” and the “2007 Europe Joint Venture” collectively, the “Joint Ventures”). See Note 5 for more information on the Joint Ventures.
The general partners of the Other Real Estate Partnerships are separate corporations, each with at least a .01% general partnership interest in the Other Real Estate Partnership for which it acts as a general partner. Each general partner of the Other Real Estate Partnerships is a wholly-owned subsidiary of the Company.
As of June 30, 2013, we owned 638 industrial properties located in 24 states, containing an aggregate of approximately 55.3 million square feet of gross leasable area (“GLA”). On a combined basis, as of June 30, 2013, the Other Real Estate Partnerships owned 66 industrial properties containing an aggregate of approximately 7.6 million square feet of GLA.
Profits, losses and distributions of us, the LLCs and Other Real Estate Partnerships are allocated to the general partner and the limited partners or the members, as applicable, in accordance with the provisions contained within the partnership agreements, operating agreements or other ownership agreements, as applicable.
The Other Real Estate Partnerships and the Joint Ventures are accounted for under the equity method of accounting. Accordingly, the operating data of the Other Real Estate Partnerships and the Joint Ventures are not consolidated with that of the Consolidated Operating Partnership as presented herein.
2. Summary of Significant Accounting Policies
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the accounting policies described in the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012 (“2012 Form 10-K”) and should be read in conjunction with such consolidated financial statements and related notes. The 2012 year end consolidated balance sheet data included in this Form 10-Q filing was derived from the audited consolidated financial statements in our 2012 Form 10-K, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The following notes to these interim consolidated financial statements highlight significant changes to the notes included in the December 31, 2012 audited consolidated financial statements included in our 2012 Form 10-K and present interim disclosures as required by the Securities and Exchange Commission. In order to conform with GAAP, in preparation of our consolidated financial statements we are 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, 2013 and December 31, 2012, and the reported amounts of revenues and expenses for the three and six months ended June 30, 2013 and 2012. Actual results could differ from those estimates. In our opinion, the accompanying unaudited interim consolidated financial statements reflect all adjustments necessary for a fair statement of our financial position as of June 30, 2013 and December 31, 2012, and the results of our operations and comprehensive income for each of the three and six months ended June 30, 2013 and 2012, and our cash flows for each of the six months ended June 30, 2013 and 2012, and all adjustments are of a normal recurring nature.

8


Reclassifications
Certain reclassifications have been made to the 2012 financial statements to conform to the 2013 presentation. Additionally, the results of operations for the six months ended June 30, 2013 include an adjustment of $1,561 to decrease depreciation and amortization expense which should have been recorded during previous periods. Management evaluated the impact of the adjustment and does not believe it is material to the results of the anticipated full year, current period or any previous period.
IRS Tax Refund
On August 24, 2009, we received a private letter ruling from the IRS granting favorable loss treatment under Sections 331 and 336 of the Code on the tax liquidation of one of our former taxable REIT subsidiaries. On November 6, 2009, legislation was signed that allowed businesses with net operating losses for 2008 or 2009 to carry back those losses for up to five years. As a result, we received a refund from the IRS of $40,418 in the fourth quarter of 2009 (the “Refund”) in connection with this tax liquidation. The IRS examination team, which is required by statute to review all refund claims in excess of $2,000 on behalf of the Joint Committee on Taxation, indicated to us that it disagreed with certain of the property valuations we obtained from an independent valuation expert in support of our fair value of the liquidated taxable REIT subsidiary and our claim for the Refund. During the year ended December 31, 2012, we reached an agreement with the regional office of the IRS on a proposed adjustment to the Refund. The total agreed-upon adjustment to taxable income was $13,700, which equates to $4,806 of taxes owed. We were also required to pay accrued interest of $490. During the year ended December 31, 2012, the Operating Partnership recorded the charge for the agreed-upon adjustment and the related estimated accrued interest which was reflected as a component of income tax expense. During 2013, the settlement amount was approved by the Joint Committee on Taxation.
As a result of the Joint Committee on Taxation's approval, during 2013, we entered into closing agreements with the IRS that determined the timing of the settlement on the tax characterization of the limited partners of the Operating Partnership and the stockholders of the Company. Pursuant to these closing agreements, $8,238 of the preferred stock distributions for the year ended December 31, 2012 are taxable as capital gain. During the three months ended June 30, 2013, we paid the agreed upon taxes and related accrued interest.
Recent Accounting Pronouncements
In February 2013, the FASB issued Accounting Standards Update No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). ASU 2013-02 requires that public companies present, either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. ASU 2013-02 is effective for annual periods beginning after December 15, 2012, and is to be applied prospectively. The adoption of this guidance did not have a material impact on our consolidated financial statements.
3. Investment in Real Estate
Acquisitions
During the six months ended June 30, 2013, we acquired one industrial property comprising approximately 0.5 million square feet of GLA and several land parcels. The purchase price of these acquisitions totaled approximately $46,463, excluding costs incurred in conjunction with the acquisition of the industrial property and land parcels.
Sales and Discontinued Operations
During the six months ended June 30, 2013, we sold 12 industrial properties comprising approximately 1.3 million square feet of GLA and two land parcels. Gross proceeds from the sales of the industrial properties and land parcels were approximately $52,598. The net gain on the sale of the industrial properties and land parcels was approximately $10,669. The 12 sold industrial properties meet the criteria to be included in discontinued operations. Therefore the results of operations and net gain on sale of real estate for the 12 industrial properties sold are included in discontinued operations. The results of operations and gain on sale of real estate for the two land parcels that do not meet the criteria to be included in discontinued operations are included in continuing operations.
At June 30, 2013, we had two industrial properties comprising approximately 0.1 million square feet of GLA held for sale. The results of operations of these industrial properties held for sale at June 30, 2013 are included in discontinued operations. There can be no assurance that such industrial properties held for sale will be sold.

9

Income from discontinued operations for the six months ended June 30, 2012 reflects the results of operations of the 12 industrial properties that were sold during the six months ended June 30, 2013, the results of operations of 26 industrial properties that were sold during the year ended December 31, 2012, the results of operations of the two industrial properties identified as held for sale at June 30, 2013 and the gain on sale of real estate relating to six industrial properties that were sold during the six months ended June 30, 2012.

The following table discloses certain information regarding the industrial properties included in discontinued operations for the three and six months ended June 30, 2013 and 2012:
 
Three Months
Ended
June 30,
2013
 
Three Months
Ended
June 30,
2012
 
Six Months
Ended
June 30,
2013
 
Six Months
Ended
June 30,
2012
Total Revenues
$
595

 
$
3,395

 
$
1,637

 
$
7,345

Property Expenses
(282
)
 
(1,509
)
 
(703
)
 
(3,287
)
Impairment of Real Estate
(176
)
 
—

 
(176
)
 
(1,082
)
Depreciation and Amortization
(81
)
 
(937
)
 
(528
)
 
(2,281
)
Gain on Sale of Real Estate
13,481

 
1,415

 
10,407

 
7,614

Income from Discontinued Operations
$
13,537

 
$
2,364

 
$
10,637

 
$
8,309

At June 30, 2013 and December 31, 2012, we had notes receivable outstanding of approximately $40,938 and $41,201, net of a discount of $223 and $255, respectively, which are included as a component of Prepaid Expenses and Other Assets, Net. At June 30, 2013 and December 31, 2012, the fair value of the notes receivable was $42,144 and $44,783, respectively. The fair value of our notes receivable was determined by discounting the future cash flows using current rates at which similar notes with similar remaining maturities would be made to other borrowers. The current market rates we utilized were internally estimated; therefore, we have concluded that our determination of fair value of our notes receivable was primarily based upon Level 3 inputs, as discussed below.
Impairment Charges
During the three and six months ended June 30, 2013 and 2012, we recorded the following net non-cash impairment charges:
 
Three Months
Ended
June 30,
2013
 
Three Months
Ended
June 30,
2012
 
Six Months
Ended
June 30,
2013
 
Six Months
Ended
June 30,
2012
Held for Sale and Sold Operating Properties — Discontinued Operations
$
176

 
$
—

 
$
176

 
$
1,082

Held for Use Operating Properties — Continuing Operations
1,429

 
—

 
1,429

 
19

Total Net Impairment
$
1,605

 
$
—

 
$
1,605

 
$
1,101


The impairment charges for assets that qualify to be classified as held for sale are calculated as the difference between the carrying value of the properties and the estimated fair value, less costs to sell. The impairment charges for assets held for use are calculated as the difference between the carrying value of the properties and the estimated fair value. The impairment charges recorded during the three and six months ended June 30, 2013 and 2012 were triggered primarily due to marketing certain properties for sale and our assessment of the likelihood and timing of a potential sale transaction.

The accounting guidance for the fair value measurement provisions for the impairment of long lived assets establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The fair market values were primarily determined using third party purchase contracts and offers.



10

The following table presents information about our real estate assets that were measured at fair value on a non-recurring basis during the six months ended June 30, 2013 and 2012. The table indicates the fair value hierarchy of the valuation techniques we utilized to determine fair value.
 
Fair Value Measurements on a Non-Recurring Basis Using:
 
 
Description
At June 30,
 
Quoted Prices in
Active Markets for
Identical Assets
(Level  1)
 
Significant Other
Observable Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Total
Impairment for the Six Months Ended
Long-lived Assets Held and Used or Held for Sale - June 30, 2013
$
6,993

 
—

 
—

 
$
6,993

 
$
(1,605
)
Long-lived Assets Held for Sale - June 30, 2012*
$
24,069

 
—

 
—

 
$
24,069

 
$
(1,194
)
_____________________
 
 
 
 
 
 
 
 
 
 

* Excludes industrial properties for which an impairment reversal of $93 was recorded during the six months ended June 30, 2012 since the related assets are recorded at carrying value, which is lower than estimated fair value at June 30, 2012.
The following table presents quantitative information about the Level 3 fair value measurements at June 30, 2013 and 2012.
Quantitative Information about Level 3 Fair Value Measurements:
Description
 
Fair Value
 
Valuation Technique
 
Unobservable Inputs
 
Range
Four industrial properties comprising approximately 0.3 million square feet of GLA at June 30, 2013
 
$
6,993

 
3rd Party Pricing
 
(A)
 
N/A
Five industrial properties comprising approximately 1.8 million square feet of GLA at June 30, 2012
 
$
24,069

 
3rd Party Pricing
 
(A)
 
N/A
(A)
The fair value for the properties is based upon the value of a third party purchase contract or letter of intent, which is subject to our corroboration for reasonableness.

4. Investments in and Advances to Other Real Estate Partnerships
The investments in and advances to Other Real Estate Partnerships reflects the Operating Partnership’s limited partnership equity interests in the entities referred to in Note 1 to these consolidated financial statements.
Summarized condensed financial information as derived from the financial statements of the Other Real Estate Partnerships is presented below:

11

Condensed Combined Balance Sheets
 
June 30,
2013
 
December 31,
2012
ASSETS
 
 
 
Assets:
 
 
 
Net Investment in Real Estate
$
269,077

 
$
264,284

Note Receivable
128,444

 
142,982

Other Assets, Net
33,047

 
34,476

Total Assets
$
430,568

 
$
441,742

LIABILITIES AND PARTNERS’ CAPITAL
 
 
 
Liabilities:
 
 
 
Mortgage Loans Payable
$
98,541

 
$
107,287

Other Liabilities, Net
12,577

 
11,570

Partners’ Capital
319,450

 
322,885

Total Liabilities and Partners’ Capital
$
430,568

 
$
441,742

Operating Partnership's Share of Equity
$
318,202

 
$
321,663

Basis Differentials (1)
(128,316
)
 
(143,559
)
Carrying Value of the Operating Partnership's Investments in Other Real Estate Partnerships
$
189,886

 
$
178,104

_________________
(1)    This amount represents the aggregate difference between the Operating Partnership's historical cost basis and the basis reflected at the Other Real Estate Partnerships' level. Basis differentials relate to the elimination of a note receivable and related accrued interest between a Other Real Estate Partnership and wholly owned subsidiaries of the Operating Partnership.
Condensed Combined Statements of Operations
 
Three Months
Ended
June 30,
2013
 
Three Months
Ended
June 30,
2012
 
Six Months
Ended
June 30,
2013
 
Six Months
Ended
June 30,
2012
Total Revenues
$
9,941

 
$
10,258

 
$
19,741

 
$
20,294

Property Expenses
(3,074
)
 
(2,911
)
 
(6,250
)
 
(5,911
)
Impairment of Real Estate
—

 
—

 
—

 
172

Depreciation and Other Amortization
(3,059
)
 
(3,351
)
 
(6,109
)
 
(7,636
)
Interest Income
1,253

 
2,243

 
2,572

 
4,386

Interest Expense
(1,147
)
 
(1,477
)
 
(2,462
)
 
(2,961
)
Amortization of Deferred Financing Costs
(45
)
 
(51
)
 
(97
)
 
(103
)
Loss from Retirement of Debt
(214
)
 
—

 
(214
)
 
—

Income from Continuing Operations
3,655

 
4,711

 
7,181

 
8,241

Discontinued Operations:
 
 
 
 
 
 
 
Income (Loss) Attributable to Discontinued Operations
—

 
64

 
—

 
(197
)
Loss on Sale of Real Estate
—

 
(29
)
 
—

 
(29
)
Income (Loss) from Discontinued Operations
—

 
35

 
—

 
(226
)
Net Income
$
3,655

 
$
4,746

 
$
7,181

 
$
8,015

5. Investments in Joint Ventures

At June 30, 2013, the 2003 Net Lease Joint Venture owned five industrial properties comprising approximately 2.7 million square feet of GLA. The 2003 Net Lease Joint Venture is considered a variable interest entity in accordance with the FASB guidance on the consolidation of variable interest entities. We continue to conclude that we are not the primary beneficiary of this venture. As of June 30, 2013, our investment in the 2003 Net Lease Joint Venture is $1,079. Our maximum

12

exposure to loss is equal to our investment. We continue to hold our 10% equity interest in the 2007 Europe Joint Venture. As of June 30, 2013, the 2007 Europe Joint Venture did not own any properties.
At June 30, 2013 and December 31, 2012, we have receivables from the Joint Ventures in the aggregate amount of $20 and $19, respectively. These receivable amounts are included in Prepaid Expenses and Other Assets, Net. During the three and six months ended June 30, 2013, we recognized fees from our Joint Ventures of $63 and $121, respectively, and $68 and $144 during the three and six months ended June 30, 2012, respectively.
6. Indebtedness
The following table discloses certain information regarding our indebtedness:
 
Outstanding Balance at
 
Interest
Rate at
June 30, 2013
 
Effective
Interest
Rate at Issuance
 
Maturity Date
 
June 30,
2013
 
December 31,
2012
Mortgage Loans Payable, Net
$
631,880

 
$
656,329

 
4.03% – 8.26%

 
4.03% – 8.26%

 
January 2014- September 2022
Unamortized Premiums
(141
)
 
(161
)
 
 
 
 
 
 
Mortgage Loans Payable, Gross
$
631,739

 
$
656,168

 
 
 
 
 
 
Senior Unsecured Notes, Net
 
 
 
 
 
 
 
 
 
2016 Notes
$
159,538

 
$
159,510

 
5.750
%
 
5.91
%
 
1/15/2016
2017 Notes
55,388

 
55,385

 
7.500
%
 
7.52
%
 
12/1/2017
2027 Notes
6,066

 
6,066

 
7.150
%
 
7.11
%
 
5/15/2027
2028 Notes
32,257

 
55,261

 
7.600
%
 
8.13
%
 
7/15/2028
2032 Notes
10,511

 
11,500

 
7.750
%
 
7.87
%
 
4/15/2032
2014 Notes
80,401

 
79,683

 
6.420
%
 
6.54
%
 
6/1/2014
2017 II Notes
101,764

 
106,745

 
5.950
%
 
6.37
%
 
5/15/2017
Subtotal
$
445,925

 
$
474,150

 
 
 
 
 
 
Unamortized Discounts
1,776

 
2,570

 
 
 
 
 
 
Senior Unsecured Notes, Gross
$
447,701

 
$
476,720

 
 
 
 
 
 
Unsecured Credit Facility
$
108,000

 
$
98,000

 
1.893
%
 
1.893
%
 
12/12/2014
Mortgage Loans Payable, Net
During the three and six months ended June 30, 2013, we paid off and retired prior to maturity mortgage loans payable in the amount of $4,100 and $18,383, respectively. In connection with these prepayments, we recognized $118 and $489 as loss from retirement of debt for the three and six months ended June 30, 2013, respectively.

As of June 30, 2013, mortgage loans payable are collateralized, and in some instances cross-collateralized, by industrial properties with a net carrying value of $803,327. We believe the Operating Partnership and the Company were in compliance with all covenants relating to mortgage loans payable as of June 30, 2013.

13

Senior Unsecured Notes, Net
During the six months ended June 30, 2013, we repurchased and retired the following senior unsecured notes prior to maturity:
 
Principal
Amount
Repurchased
 
Purchase
Price
2017 II Notes
$
5,000

 
$
5,300

2028 Notes
23,019

 
26,125

2032 Notes
1,000

 
1,163

 
$
29,019

 
$
32,588

In connection with these repurchases prior to maturity, we recognized $4,883 as loss from retirement of debt for the six months ended June 30, 2013, which is the difference between the repurchase price of $32,588 and the principal amount retired of $29,019, net of the pro rata write off of the unamortized debt issue discount, the unamortized deferred financing costs and the unamortized settlement amount of the interest rate protection agreements related to the repurchase of $27, $188 and $1,099, respectively.
Indebtedness
The following is a schedule of the stated maturities and scheduled principal payments as of June 30, 2013 of our indebtedness, exclusive of premiums and discounts, for the next five years ending December 31, and thereafter:
 
Amount
Remainder of 2013
$
6,157

2014
241,771

2015
35,264

2016
288,953

2017
167,213

Thereafter
448,082

Total
$
1,187,440

Our unsecured credit facility (the “Unsecured Credit Facility”) and the indentures governing our senior unsecured notes contain certain financial covenants, including limitations on incurrence of debt and debt service coverage. Under the Unsecured Credit Facility, an event of default can occur if the lenders, in their good faith judgment, determine that a material adverse change has occurred which could prevent timely repayment or materially impair our ability to perform our obligations under the loan agreement. We believe that we were in compliance with all covenants as of June 30, 2013. However, these financial covenants are complex and there can be no assurance that these provisions would not be interpreted by our noteholders or lenders in a manner that could impose and cause us to incur material costs.
Fair Value
At June 30, 2013 and December 31, 2012, the fair values of our indebtedness were as follows:
 
June 30, 2013
 
December 31, 2012
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Mortgage Loans Payable, Net
$
631,880

 
$
648,411

 
$
656,329

 
$
699,903

Senior Unsecured Notes, Net
445,925

 
481,764

 
474,150

 
516,943

Unsecured Credit Facility
108,000

 
108,400

 
98,000

 
98,192

Total
$
1,185,805

 
$
1,238,575

 
$
1,228,479

 
$
1,315,038

The fair values of our mortgage loans payable were determined by discounting the future cash flows using the current rates at which similar loans would be made based upon similar leverage levels and similar remaining maturities. The current market rates we utilized were internally estimated. The fair value of the senior unsecured notes was determined by using rates, as advised by our bankers in certain cases, that are based upon recent trades within the same series of the senior unsecured notes, recent trades for senior unsecured notes with comparable maturities, recent trades for fixed rate unsecured debt from

14

companies with profiles similar to ours, as well as overall economic conditions. The fair value of the Unsecured Credit Facility was determined by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term, assuming no repayment until maturity. We have concluded that our determination of fair value for our mortgage loans payable, senior unsecured notes and Unsecured Credit Facility was primarily based upon Level 3 inputs.
7. Partners’ Capital
Preferred Contributions
On April 11, 2013, the Company redeemed the remaining 4,000,000 Depositary Shares, each representing 1/10,000th of a share, of the Company's 7.25% Series J Cumulative Redeemable Preferred Stock, $0.01 par value (the "Series J Preferred Stock"), at a redemption price of $25.00 per Depositary Share, and paid a pro-rated second quarter dividend of $0.055382 per Depositary Share, totaling $221. An equivalent number of Series J Cumulative Redeemable Preferred Units (the "Series J Preferred Units") were redeemed on April 11, 2013 as well. Due to the redemption of the Series J Preferred Units, the remaining initial offering costs associated with the issuance of the Series J Preferred Units, as well as costs associated with the redemption, totaling $3,546 are reflected as a deduction from net income to arrive at net income available to Unitholders and participating securities in determining earnings per unit for the three and six months ended June 30, 2013.
Unit Contributions
During the six months ended June 30, 2013, the Company issued 8,400,000 shares of the Company’s common stock in an underwritten public offering. Net proceeds were approximately $132,050. The proceeds were contributed to us in exchange for Units and are reflected in our financial statements as a general partner contribution.
On March 1, 2012, the Company and the Operating Partnership entered into distribution agreements with sales agents to sell up to 12,500,000 shares of the Company's common stock, for up to $125,000 aggregate gross sale proceeds, from time to time in "at-the-market" offerings (the "ATM"). During the six months ended June 30, 2013, the Company issued 2,315,704 shares of the Company's common stock under the ATM resulting in net proceeds to the Company of approximately $41,770. These proceeds were contributed to us in exchange for an equivalent number of Units and are reflected in our financial statements as a general partner contribution. Under the terms of the ATM, sales are to be made primarily in transactions that are deemed to be "at the market" offerings, including sales made directly on the New York Stock Exchange or sales made through a market maker other than on an exchange or by privately negotiated transactions.
During the six months ended June 30, 2013, 85,028 limited partnership units were converted into an equivalent number of general partnership units, resulting in a reclassification of $804 between Limited Partners Units and General Partner Units.
During the six months ended June 30, 2013, the Company awarded 284,461 shares of restricted stock awards to certain employees, which had a fair value of approximately $4,719 on the date of approval by the Compensation Committee of the Board of Directors. We issued Units to the Company in the same amounts. These restricted stock awards vest over a period of three years. Compensation expense will be charged to earnings over the vesting period for the shares expected to vest except if the recipient is not required to provide future service in exchange for vesting of the shares. If vesting of a recipient's restricted stock is not contingent upon future service, the expense is recognized immediately at the date of grant. During the six months ended June 30, 2013, we recognized $1,008 of compensation expense related to restricted shares granted during the first quarter to our Chief Executive Officer for which future service was not required.
We recognized $841 and $2,667 for the three and six months ended June 30, 2013, respectively, and $1,299 and $2,398 for the three and six months ended June 30, 2012, respectively, in restricted stock amortization related to restricted stock and unit awards, of which $4 and $13, respectively, was capitalized in connection with development activities for the three and six months ended June 30, 2013. There was no restricted stock amortization related to restricted stock and unit awards capitalized in connection with development activities for the three and six months ended June 30, 2012. At June 30, 2013, we had $5,452 in unrecognized compensation related to unvested restricted stock and unit awards. The weighted average period that the unrecognized compensation is expected to be recognized is 1.05 years.

Distributions
The coupon rate of our Series F Preferred Units resets every quarter at 2.375% plus the greater of (i) the 30 year Treasury constant maturity treasury (“CMT”) Rate, (ii) the 10 year Treasury CMT Rate or (iii) 3 month LIBOR. For the second quarter of 2013, the new coupon rate was 5.515%. See Note 11 for additional derivative information related to the Series F Preferred Units coupon rate reset.

15

The following table summarizes distributions accrued during the six months ended June 30, 2013:
 
Six Months Ended June 30, 2013
 
Distribution
per Unit
 
Total
Distribution
General Partner/Limited Partner Units
$
0.17

 
$
19,286

Series F Preferred Units
$
2,725.32

 
$
1,363

Series G Preferred Units
$
3,618.00

 
$
905

Series J Preferred Units *
$
5,085.12

 
$
2,034

Series K Preferred Units
$
9,062.60

 
$
1,812


* The second quarter 2013 distribution per unit was pro-rated as discussed in the "Preferred Contributions" section.
8. Accumulated Other Comprehensive Loss
The following tables summarize the changes in Accumulated Other Comprehensive Loss by component for the six months ended June 30, 2013 and the reclassifications out of Accumulated Other Comprehensive Loss for the three and six months ended June 30, 2013:
 
Interest Rate Protection Agreements
 
Foreign Currency Translation Adjustment
 
Total
Balance as of December 31, 2012
$
(7,008
)
 
$
179

 
$
(6,829
)
Other Comprehensive Loss Before Reclassifications
—

 
(44
)
 
(44
)
Amounts Reclassified from Accumulated Other Comprehensive Loss
2,282

 
—

 
2,282

Net Current Period Other Comprehensive Income (Loss)
2,282

 
(44
)
 
2,238

Balance as of June 30, 2013
$
(4,726
)
 
$
135

 
$
(4,591
)
 
 
Amount Reclassified from Accumulated Other Comprehensive Loss
 
 
Details about Accumulated Other Comprehensive Loss Components
 
Three Months Ended June 30, 2013
 
Six Months Ended June 30, 2013
 
Affected Line Item in the Consolidated Statements of Operations
Interest Rate Protection Agreements
 
 
 
 
 
 
Amortization of Interest Rate Protection Agreements
 
$
598

 
$
1,183

 
Interest Expense
Write-off of Unamortized Settlement Amounts of Interest Rate Protection Agreements
 
916

 
1,099

 
Loss from Retirement of Debt
 
 
$
1,514

 
2,282

 
Total


16

9. Supplemental Information to Statements of Cash Flows
 
Six Months
Ended
June 30, 2013
 
Six Months
Ended
June 30, 2012
Interest Expense Capitalized in Connection with Development Activity
$
1,623

 
$
473

Supplemental Schedule of Non-Cash Investing and Financing Activities:
 
 
 
Distribution Payable on General and Limited Partner Units
$
9,745

 
$
—

Distribution Payable on Preferred Units
$
2,056

 
$
4,798

Exchange of Limited Partnership Units for General Partnership Units:
 
 
 
Limited Partnership Units
$
(804
)
 
$
(2,469
)
General Partnership Units
804

 
2,469

Total
$
—

 
$
—

Mortgage Loan Payable Assumed in Conjunction with a Property Acquisition
$
—

 
$
12,026

Write-off of Fully Depreciated Assets
$
(29,561
)
 
$
(23,135
)

10. Earnings Per Unit (“EPU”)
The computation of basic and diluted EPU is presented below:
 
Three Months
Ended
June 30, 2013
 
Three Months
Ended
June 30, 2012
 
Six Months
Ended
June 30, 2013
 
Six Months
Ended
June 30, 2012
Numerator:
 
 
 
 
 
 
 
Loss from Continuing Operations
$
(2,144
)
 
$
(12,708
)
 
$
(634
)
 
$
(17,549
)
Gain on Sale of Real Estate
—

 
—

 
262

 
—

Preferred Unit Distributions
(2,277
)
 
(4,798
)
 
(6,114
)
 
(9,560
)
Redemption of Preferred Units
(3,546
)
 
—

 
(3,546
)
 
—

Loss from Continuing Operations Available to Unitholders
$
(7,967
)
 
$
(17,506
)
 
$
(10,032
)
 
$
(27,109
)
Income from Discontinued Operations
$
13,537

 
$
2,364

 
$
10,637

 
$
8,309

Income from Discontinued Operations Allocable to Participating Securities
(42
)
 
—

 
(78
)
 
—

Income from Discontinued Operations Attributable to Unitholders
$
13,495

 
$
2,364

 
$
10,559

 
$
8,309

Net Income (Loss) Available
$
5,570

 
$
(15,142
)
 
$
605

 
$
(18,800
)
Net Income Allocable to Participating Securities
(42
)
 
—

 
(78
)
 
—

Net Income (Loss) Available to Unitholders
$
5,528

 
$
(15,142
)
 
$
527

 
$
(18,800
)
Denominator:
 
 
 
 
 
 
 
Weighted Average Units — Basic and Diluted
112,808

 
93,106

 
109,163

 
92,458

Basic and Diluted EPU:
 
 
 
 
 
 
 
Loss from Continuing Operations Available to Unitholders
$
(0.07
)
 
$
(0.19
)
 
$
(0.09
)
 
$
(0.29
)
Income from Discontinued Operations Attributable to Unitholders
$
0.12

 
$
0.03

 
$
0.10

 
$
0.09

Net Income (Loss) Available to Unitholders
$
0.05

 
$
(0.16
)
 
$
0.01

 
$
(0.20
)
Participating securities include Units that correspond to the Company's 489,381 and 750,051 unvested restricted stock awards outstanding at June 30, 2013 and 2012, respectively, which participate in non-forfeitable distributions of the Operating Partnership. For the three and six months ended June 30, 2013, participating security holders were allocated income in proportion to the distributions declared during the year. Since participating security holders are not obligated to share in losses and no common distributions were declared during the six months ended June 30, 2012, there was no allocation of income to participating security holders for the three and six months ended June 30, 2012.

17

The number of weighted average units—diluted is the same as the number of weighted average units — basic for the three and six months ended June 30, 2013 and 2012, as the effect of Units corresponding to the Company's restricted stock unit awards (that do not participate in non-forfeitable distributions of the Operating Partnership) was excluded as its inclusion would have been antidilutive to the loss from continuing operations available to Unitholders. Units corresponding to the following awards of the Company were anti-dilutive and could be dilutive in future periods:
 
Number of
Awards
Outstanding At
June 30, 2013
 
Number of
Awards
Outstanding At
June 30, 2012
Non-Participating Securities:
 
 
 
Restricted Stock Unit Awards
328,450

 
713,550

11. Derivatives
Our objectives in using interest rate derivatives are to add stability to interest expense or preferred stock dividends and to manage our cash flow volatility and exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

Our Series F Preferred Units are subject to a coupon rate reset. The coupon rate resets every quarter at 2.375% plus the greater of i) the 30 year Treasury CMT Rate, ii) the 10 year Treasury CMT Rate or iii) 3 month LIBOR. For the second quarter of 2013, the new coupon rate was 5.515%. In October 2008, we entered into an interest rate swap agreement with a notional value of $50,000 to mitigate our exposure to floating interest rates related to the forecasted reset rate of the coupon rate of our Series F Preferred Units (the “Series F Agreement”). This Series F Agreement fixes the 30 year Treasury CMT rate at 5.2175%. Accounting guidance for derivatives does not permit hedge accounting treatment related to equity instruments and therefore the mark-to-market gains or losses related to this agreement are recorded in the statement of operations. For the three and six months ended June 30, 2013, gains of $56 and $52, respectively, are recognized as Mark-to-Market Gain (Loss) on Interest Rate Protection Agreements. For the three and six months ended June 30, 2012, losses of $429 and $305, respectively, are recognized as Mark-to-Market Gain (Loss) on Interest Rate Protection Agreements. Quarterly payments are treated as a component of the mark-to-market gains or losses and totaled $267 and $560, for the three and six months ended June 30, 2013, respectively, and $247 and $539 for the three and six months ended June 30, 2012, respectively.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Other Comprehensive Income (“OCI”) and is subsequently reclassified to earnings through interest expense over the life of the derivative or over the life of the debt. In the next 12 months, we expect to amortize approximately $2,326 into net income by increasing interest expense for interest rate protection agreements we settled in previous periods.
The following is a summary of the terms of our derivative and its fair value, which is included in Accounts Payable, Accrued Expenses and Other Liabilities on the accompanying consolidated balance sheets:
Hedge Product
Notional
Amount
 
Strike
 
Trade
Date
 
Maturity
Date
 
Fair Value As  of
June 30,
2013
 
Fair Value As  of
December 31,
2012
Derivatives Not Designated as Hedging Instruments:
 
 
 
 
 
 
 
 
 
 
 
Series F Agreement*
$
50,000

 
5.2175
%
 
October 1, 2008
 
October 1, 2013
 
$
(214
)
 
$
(826
)
_____________________
 
 
 
 
 
 
 
 
 
 
 
*
Fair value excludes quarterly settlement payment due on Series F Agreement. As of June 30, 2013 and December 31, 2012, the outstanding payable was $267 and $305, respectively.

18

The following is a summary of the impact of the derivatives in cash flow hedging relationships on the statements of operations and the statements of OCI for the three and six months ended June 30, 2013 and 2012:
 
 
Three Months Ended
 
Six Months Ended
Interest Rate Products
Location on Statement
June 30,
2013
 
June 30,
2012
 
June 30,
2013
 
June 30,
2012
Amortization Reclassified from OCI into Income (Loss)
Interest Expense
$
(598
)
 
$
(571
)
 
$
(1,183
)
 
$
(1,111
)
Our agreement with our derivative counterparty contains provisions where if we default on any of our indebtedness, then we could also be declared in default on our derivative obligations subject to certain thresholds.
The guidance for fair value measurement of financial instruments includes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The following table sets forth our financial liability that is accounted for at fair value on a recurring basis as of June 30, 2013 and December 31, 2012:
 
Fair Value
 
Fair Value Measurements at
Reporting Date Using:
Description
Quoted Prices in
Active  Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
Liabilities:
 
 
 
 
 
 
 
Series F Agreement at June 30, 2013
$
(214
)
 
—

 
—

 
$
(214
)
Series F Agreement at December 31, 2012
$
(826
)
 
—

 
—

 
$
(826
)
The following table presents the quantitative information about the Level 3 fair value measurements at June 30, 2013 and December 31, 2012:
 
Quantitative Information about Level 3 Fair Value Measurements:
Description
Fair Value
 
Valuation Technique
 
Unobservable Inputs
 
Range
Series F Agreement at June 30, 2013
$
(214
)
 
Discounted Cash Flow
 
Long Dated Treasuries (A)
 
3.54%
Series F Agreement at December 31, 2012
$
(826
)
 
Discounted Cash Flow
 
Long Dated Treasuries (A)
 
2.82% - 2.91%
 
 
 
 
 
Own Credit Risk (B)
 
0.98% - 1.59%
 
(A)
Represents the forward 30 year Treasury CMT Rate.
(B)
Represents credit default swap spread curve used in the valuation analysis at December 31, 2012.
The valuation of the Series F Agreement is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the instrument. This analysis reflects the contractual terms of the agreement including the period to maturity. In adjusting the fair value of the Series F Agreement for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancement. To comply with the provisions of fair value measurement, we calculate a credit valuation adjustment ("CVA") to appropriately reflect both our own nonperformance risk and our counterparty's nonperformance risk in the fair value measurements. The CVA at June 30, 2013 is insignificant. We consider the Series F Agreement to be classified as Level 3 in the fair value hierarchy due to a significant number of unobservable inputs. The Series F Agreement swaps a fixed rate of 5.2175% for floating rate payments based on 30 year Treasury CMT Rate. No market observable prices exist for long dated Treasuries. Therefore, we have classified the Series F Agreement in its entirety as Level 3.

19

The following table presents a reconciliation of our liability classified as Level 3 at June 30, 2013:
 
Fair Value Measurements
Using Significant
Unobservable Inputs
(Level 3)
Derivatives
Ending Liability Balance at December 31, 2012
$
(826
)
Mark-to-Market of the Series F Agreement
612

Ending Liability Balance at June 30, 2013
$
(214
)
12. Commitments and Contingencies
In the normal course of business, we are involved in legal actions arising from the ownership of our industrial properties. In our opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a materially adverse effect on our consolidated financial position, operations or liquidity.
In conjunction with the development of industrial properties, we have entered into agreements with general contractors for the construction of industrial buildings. At June 30, 2013, we have committed to the development of one industrial building totaling approximately 0.5 million square feet of GLA. The estimated total construction costs as of June 30, 2013, are approximately $54,000. Of this amount, approximately $5,200 remains to be funded. There can be no assurance that the actual completion cost will not exceed the estimated completion cost stated above.
13. Subsequent Events
On July 1, 2013 and July 5, 2013, we paid off prior to maturity mortgage loans payable in the aggregate amount of $14,046.
Effective July 1, 2013, certain officers and employees were granted performance units under the 2013 Long-Term Incentive Program, newly adopted by the Board of Directors of the Company. The performance units vest based upon the relative total shareholder return (“TSR”) of the Company's stock compared to the weighted average TSR of the MSCI US REIT Index and the NAREIT Industrial Index. The TSR for half of the granted units is calculated based upon the performance from July 1, 2013 through June 30, 2014 and the other half is calculated based upon the performance from July 1, 2013 through December 31, 2015. At the end of the performance periods, each participant will be issued shares of the Company's common stock equal to the participant's share of the aggregate unit value. The participants will also be entitled to dividend equivalents representing any common dividends that have accrued with respect to such shares after the issuance of the performance units and prior to the date of vesting.
On July 18, 2013, the Company redeemed the 2,000,000 Depositary Shares, each representing 1/10,000th of a share of our 7.25% Series K Cumulative Redeemable Preferred Stock, $0.01 par value, at a redemption price of $25.00 per Depositary Share, totaling $50,000 plus pro-rated accrued dividends. An equivalent number of Series K Cumulative Redeemable Preferred Units were redeemed on July 18, 2013 as well.
On July 19, 2013, we entered into an amendment and restatement of our Unsecured Credit Facility (as amended and restated, the "New Credit Facility") which increased the borrowing capacity thereunder to $625,000. We may request that the borrowing capacity under the New Credit Facility be increased to $825,000, subject to certain restrictions. The New Credit Facility provides for interest only payments initially at LIBOR plus 145 basis points, that varies based on our leverage ratio. In the event the Company achieves an investment grade rating from one of certain rating agencies, the rate may be decreased at our election, based on the investment grade rating. The New Credit Facility matures on September 29, 2017, unless extended an additional one year at our election, subject to certain restrictions.
From July 1, 2013 to August 2, 2013, we sold three industrial properties for approximately $5,982. There were no industrial properties acquired during the period.



20

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated 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, and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). We intend 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 are 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, are generally identifiable by use of the words “believe,” “expect,” “intend,” "plan," “anticipate,” “estimate,” “project,” “seek,” “target,” “potential,” “focus,” “may,” “should,” or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a materially adverse effect on our operations and future prospects include, but are not limited to: changes in national, international, regional and local economic conditions generally and real estate markets specifically; changes in legislation/regulation (including changes to laws governing the taxation of real estate investment trusts) and actions of regulatory authorities (including the Internal Revenue Service); the Company's ability to qualify and maintain our status as a real estate investment trust; the availability and attractiveness of financing (including both public and private capital) to us and to our potential counterparties; the availability and attractiveness of terms of additional debt repurchases; interest rates; our credit agency ratings; our ability to comply with applicable financial covenants; competition; changes in supply and demand for industrial properties (including land, the supply and demand for which is inherently more volatile than other types of industrial property) in the Operating Partnership's current and proposed market areas; difficulties in consummating acquisitions and dispositions; risks related to our investments in properties through joint ventures; environmental liabilities; slippages in development or lease-up schedules; tenant creditworthiness; higher-than-expected costs; changes in asset valuations and related impairment charges; changes in general accounting principles, policies and guidelines applicable to real estate investment trusts; international business risks and those additional factors described under the heading “Risk Factors” and elsewhere in the Operating Partnership’s annual report on Form 10-K for the year ended December 31, 2012, and in this quarterly report. We caution you not to place undue reliance on forward looking statements, which reflect our analysis only and speak only as of the date of this report or the dates indicated in the statements. We assume no obligation to update or supplement forward-looking statements. Unless the context otherwise requires, the terms “we,” “us,” and “our” refer to First Industrial, L.P. and respective controlled subsidiaries.
GENERAL
First Industrial, L.P. (the “Operating Partnership”) was organized as a limited partnership in the state of Delaware on November 23, 1993. The sole general partner is First Industrial Realty Trust, Inc. (the “Company”) which owns common units in the Operating Partnership (“Units”) representing an approximate 96.0% ownership interest at June 30, 2013. The Company also owns a preferred general partnership interest in the Operating Partnership represented by preferred units (“Preferred Units”) with an aggregate liquidation priority of $125.0 million at June 30, 2013. The Company is a real estate investment trust (“REIT”) as defined in the Internal Revenue Code of 1986 (the “Code”). The Company’s operations are conducted primarily through the Operating Partnership. The limited partners of the Operating Partnership owned, in the aggregate, an approximate 4.0% interest in the Operating Partnership at June 30, 2013. Operations are also conducted through other partnerships and limited liability companies (“LLCs”) of which the Operating Partnership is the sole member, and taxable REIT subsidiaries (together with the Operating Partnership, other partnerships and the LLCs, the “Consolidated Operating Partnership”), the operating data of which is consolidated with that of the Operating Partnership as presented herein.
We also hold at least a 99% limited partnership interest in each of eight limited partnerships (together, the “Other Real Estate Partnerships”).
We also own noncontrolling equity interests in, and provide various services to, two joint ventures (the “2003 Net Lease Joint Venture” and the “2007 Europe Joint Venture” and, collectively, the “Joint Ventures”). See Note 5 to the Consolidated Financial Statements for more information on the Joint Ventures.
The general partners of the Other Real Estate Partnerships are separate corporations, each with at least a .01% general partnership interest in the Other Real Estate Partnership for which it acts as a general partner. Each general partner of the Other Real Estate Partnerships is a wholly-owned subsidiary of the Company.
As of June 30, 2013, we owned 638 industrial properties located in 24 states, containing an aggregate of approximately 55.3 million square feet of gross leasable area (“GLA”). On a combined basis, as of June 30, 2013, the Other Real Estate Partnerships owned 66 industrial properties containing an aggregate of approximately 7.6 million square feet of GLA.

21

Profits, losses and distributions of us, the LLCs and Other Real Estate Partnerships are allocated to the general partner and the limited partners, or the members, as applicable, in accordance with the provisions contained within the partnership agreements or ownership agreements, as applicable.

The Other Real Estate Partnerships and the Joint Ventures are accounted for under the equity method of accounting. Accordingly, the operating data of the Other Real Estate Partnerships and the Joint Ventures are not consolidated with that of the Consolidated Operating Partnership as presented herein.
We maintain a website at www.firstindustrial.com. Information on this website shall not constitute part of this Form 10-Q. Copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports are available without charge on our website as soon as reasonably practicable after such reports are filed with or furnished to the Securities and Exchange Commission ("SEC"). You may also read and copy any document filed at the public reference facilities of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 for further information about the public reference facilities. These documents also may be accessed through the SEC's Interactive Data Electronic Application via the SEC's home page on the Internet (http://www.sec.gov). In addition, our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Audit Committee Charter, Compensation Committee Charter and Nominating/Corporate Governance Committee Charter, along with supplemental financial and operating information prepared by us, are all available without charge on our website or upon request to us. Amendments to, or waivers from, our Code of Business Conduct and Ethics that apply to our executive officers or directors will also be posted to our website. We also post or otherwise make available on our website from time to time other information that may be of interest to our investors. Please direct requests as follows:
First Industrial Realty Trust, Inc.
311 S. Wacker Drive, Suite 3900
Chicago, IL 60606
Attn: Investor Relations
MANAGEMENT’S OVERVIEW
We believe our financial condition and results of operations are, primarily, a function of our performance in four key areas: leasing of industrial properties, acquisition and development of additional industrial properties, disposition of industrial properties and access to external capital.
We generate revenue primarily from rental income and tenant recoveries from long-term (generally three to six years) operating leases of our industrial properties. Such revenue is offset by certain property specific operating expenses, such as real estate taxes, repairs and maintenance, property management, utilities and insurance expenses, along with certain other costs and expenses, such as depreciation and amortization costs and general and administrative and interest expenses. Our revenue growth is dependent, in part, on our ability to (i) increase rental income, through increasing either or both occupancy rates and rental rates at our properties, (ii) maximize tenant recoveries and (iii) minimize operating and certain other expenses. Revenues generated from rental income and tenant recoveries are a significant source of funds, in addition to income generated from gains/losses on the sale of our properties (as discussed below), for our liquidity. The leasing of property, in general, and occupancy rates, rental rates, operating expenses and certain non-operating expenses, in particular, are impacted, variously, by property specific, market specific, general economic and other conditions, many of which are beyond our control. The leasing of property also entails various risks, including the risk of tenant default. If we were unable to maintain or increase occupancy rates and rental rates at our properties or to maintain tenant recoveries and operating and certain other expenses consistent with historical levels and proportions, our revenue would decline. Further, if a significant number of our tenants were unable to pay rent (including tenant recoveries) or if we were unable to rent our properties on favorable terms, our financial condition, results of operations, cash flow and the Company’s ability to pay dividends on, and the market price of, the Company’s common stock would be adversely affected.
Our revenue growth is also dependent, in part, on our ability to acquire existing, and acquire and develop new, additional industrial properties on favorable terms. The Operating Partnership seeks to identify opportunities to acquire existing industrial properties on favorable terms, and, when conditions permit, also seeks to identify opportunities to acquire and develop new industrial properties on favorable terms. Existing properties, as they are acquired, and acquired and developed properties, as they are leased, generate revenue from rental income, tenant recoveries and fees, income from which, as discussed above, is a source of funds for our distributions. The acquisition and development of properties is impacted, variously, by property specific, market specific, general economic and other conditions, many of which are beyond our control. The acquisition and development of properties also entails various risks, including the risk that our investments may not perform as expected. For example, acquired existing and acquired and developed new properties may not sustain and/or achieve anticipated occupancy

22

and rental rate levels. With respect to acquired and developed new properties, we may not be able to complete construction on schedule or within budget, resulting in increased debt service expense and construction costs and delays in leasing the properties. Also, we face significant competition for attractive acquisition and development opportunities from other well-capitalized real estate investors, including publicly-traded REITs and private investors. Further, as discussed below, we may not be able to finance the acquisition and development opportunities we identify. If we were unable to acquire and develop sufficient additional properties on favorable terms, or if such investments did not perform as expected, our revenue growth would be limited and our financial condition, results of operations, cash flow and the Company’s ability to pay dividends on, and the market price of, the Company’s common stock would be adversely affected.
We also generate income from the sale of our properties (including existing buildings, buildings which we have developed or re-developed on a merchant basis and land). The gain/loss on, and fees from, the sale of such properties are included in our income and can be a significant source of funds, in addition to revenues generated from rental income and tenant recoveries. Proceeds from sales are being used to repay outstanding debt, and market conditions permitting, are being used to fund the acquisition of existing, and the acquisition and development of new, industrial properties. The sale of properties is impacted, variously, by property specific, market specific, general economic and other conditions, many of which are beyond our control. The sale of properties also entails various risks, including competition from other sellers and the availability of attractive financing for potential buyers of our properties. Further, our ability to sell properties is limited by safe harbor rules applying to REITs under the Code which relate to the number of properties that may be disposed of in a year, their tax bases and the cost of improvements made to the properties, along with other tests which enable a REIT to avoid punitive taxation on the sale of assets. If we are unable to sell properties on favorable terms, our income growth would be limited and our financial condition, results of operations, cash flow and the Company’s ability to pay dividends on, and the market price of, the Company’s common stock could be adversely affected.
We utilize a portion of the net sales proceeds from property sales, borrowings under our unsecured credit facility (the “Unsecured Credit Facility”) and proceeds from the issuance, when and as warranted, of additional debt and equity securities to refinance debt and finance future acquisitions and developments. Access to external capital on favorable terms plays a key role in our financial condition and results of operations, as it impacts our cost of capital and our ability and cost to refinance existing indebtedness as it matures and to fund acquisitions and developments or through the issuance, when and as warranted, of additional equity securities. Our ability to access external capital on favorable terms is dependent on various factors, including general market conditions, interest rates, credit ratings on our capital stock and debt, the market’s perception of our growth potential, our current and potential future earnings and cash distributions and the market price of the Company’s capital stock. If we were unable to access external capital on favorable terms, our financial condition, results of operations, cash flow and the Company’s ability to pay dividends on, and the market price of, the Company’s common stock could be adversely affected.
RESULTS OF OPERATIONS
The tables below summarize our operating results for the three and six months ended June 30, 2013 and 2012. The operating results include a break out of our revenues, property expenses and depreciation and other amortization by various categories for the three and six months ended June 30, 2013 and 2012. Same store properties are properties owned prior to January 1, 2012 and held as an operating property through June 30, 2013 and developments and redevelopments that were placed in service prior to January 1, 2012 or were substantially completed for the 12 months prior to January 1, 2012. Properties which are at least 75% occupied at acquisition are placed in service. Acquisitions that are less than 75% occupied at the date of acquisition, developments and redevelopments are placed in service as they reach the earlier of a) stabilized occupancy (generally defined as 90% occupied), or b) one year subsequent to acquisition or development/redevelopment construction completion. Properties are moved from the same store classification to the redevelopment classification when capital expenditures for a project are estimated to exceed 25% of the undepreciated gross book value of the property. Acquired properties are properties that were acquired subsequent to December 31, 2011 and held as an operating property through June 30, 2013. Sold properties are properties that were sold subsequent to December 31, 2011. (Re)Developments and land are land parcels and developments and redevelopments that were not: a) substantially complete 12 months prior to January 1, 2012 or b) stabilized prior to January 1, 2012. Other revenues are derived from the operations of our maintenance company, fees earned from our Joint Ventures and other miscellaneous revenues. Other expenses are derived from the operations of our maintenance company and other miscellaneous regional expenses.

Our future financial condition and results of operations, including rental revenues, may be impacted by the future acquisition and sale of properties. Our future revenues and expenses may vary materially from historical rates.


23

Comparison of Six Months Ended June 30, 2013 to Six Months Ended June 30, 2012
Our net income (loss) available to unitholders and participating securities was $0.6 million and $(18.8) million for the six months ended June 30, 2013 and 2012, respectively. Basic and diluted net income (loss) available to unitholders was $0.01 per Unit and $(0.20) per Unit for the six months ended June 30, 2013 and 2012, respectively.
For the six months ended June 30, 2013 and 2012, the average occupancy rates of our same store properties were 89.5% and 87.9%, respectively.
 
 
Six Months Ended
June 30,
 
 
 
 
 
2013
 
2012
 
$ Change
 
% Change
 
($ in 000’s)
REVENUES
 
 
 
 
 
 
 
Same Store Properties
$
143,451

 
$
139,189

 
$
4,262

 
3.1
 %
Acquired Properties
1,126

 
832

 
294

 
35.3
 %
Sold Properties
1,560

 
7,244

 
(5,684
)
 
(78.5
)%
(Re) Developments and Land, Not Included Above
2,986

 
112

 
2,874

 
2,566.1
 %
Other
695

 
1,377

 
(682
)
 
(49.5
)%
 
$
149,818

 
$
148,754

 
$
1,064

 
0.7
 %
Discontinued Operations
(1,637
)
 
(7,345
)
 
5,708

 
(77.7
)%
Total Revenues
$
148,181

 
$
141,409

 
$
6,772

 
4.8
 %
Revenues from same store properties increased $4.3 million primarily due to increases in occupancy and tenant recoveries. Revenues from acquired properties increased $0.3 million due to one, 0.4 million square foot property acquired in February 2012 in our Central Pennsylvania market. Revenues from sold properties decreased $5.7 million due to the 38 industrial properties sold subsequent to December 31, 2011 totaling approximately 5.3 million square feet of GLA. Revenues from (re)developments and land increased $2.9 million due to an increase in occupancy. Other revenues decreased $0.7 million primarily due to certain one-time revenue transactions during the six months ended June 30, 2012.
 
 
Six Months Ended
June 30,
 
 
 
 
 
2013
 
2012
 
$ Change
 
% Change
 
($ in 000’s)
PROPERTY EXPENSES
 
 
 
 
 
 
 
Same Store Properties
$
44,130

 
$
41,546

 
$
2,584

 
6.2
 %
Acquired Properties
298

 
176

 
122

 
69.3
 %
Sold Properties
654

 
3,216

 
(2,562
)
 
(79.7
)%
(Re) Developments and Land, Not Included Above
810

 
291

 
519

 
178.4
 %
Other
4,088

 
3,780

 
308

 
8.1
 %
 
$
49,980

 
$
49,009

 
$
971

 
2.0
 %
Discontinued Operations
(703
)
 
(3,287
)
 
2,584

 
(78.6
)%
Total Property Expenses
$
49,277

 
$
45,722

 
$
3,555

 
7.8
 %
Property expenses include real estate taxes, repairs and maintenance, property management, utilities, insurance and other property related expenses. Property expenses from same store properties increased $2.6 million primarily due to an increase in repairs and maintenance expense due to the higher snow removal costs incurred during the six months ended June 30, 2013 as compared to the six months ended June 30, 2012 due to the mild 2012 winter. Property expenses from acquired properties increased $0.1 million due to properties acquired subsequent to December 31, 2011. Property expenses from sold properties decreased $2.6 million due to properties sold subsequent to December 31, 2011. Property expenses from (re)developments and land increased $0.5 million due to an increase in real estate tax expense. Other expenses remained relatively unchanged.
General and administrative expense remained relatively unchanged.


24

The impairment charges included in continuing operations for the six months ended June 30, 2013 of $1.4 million is primarily due to marketing certain properties for sale and our assessment of the likelihood of a potential sale transaction. The impairment included in continuing operations for the six months ended June 30, 2012 of $0.02 million is primarily comprised of impairment relating to certain industrial properties that no longer qualified for held for sale classification.
 
 
Six Months Ended
June 30,
 
 
 
 
 
2013
 
2012
 
$ Change
 
% Change
 
($ in 000’s)
DEPRECIATION AND OTHER AMORTIZATION
 
 
 
 
 
 
 
Same Store Properties
$
48,840

 
$
52,711

 
$
(3,871
)
 
(7.3
)%
Acquired Properties
485

 
367

 
118

 
32.2
 %
Sold Properties
465

 
2,053

 
(1,588
)
 
(77.4
)%
(Re) Developments and Land, Not Included Above
673

 
111

 
562

 
506.3
 %
Corporate Furniture, Fixtures and Equipment
372

 
578

 
(206
)
 
(35.6
)%
 
$
50,835

 
$
55,820

 
$
(4,985
)
 
(8.9
)%
Discontinued Operations
(528
)
 
(2,281
)
 
1,753

 
(76.9
)%
Total Depreciation and Other Amortization
$
50,307

 
$
53,539

 
$
(3,232
)
 
(6.0
)%
Depreciation and other amortization for same store properties decreased $3.9 million due to a decrease in catch-up depreciation taken for properties that were classified as held for sale in 2011 but no longer classified as held for sale during the six months ended June 30, 2012 as well as an adjustment recorded during the six months ended June 30, 2013 to decrease depreciation and amortization expense which should have been recorded in previous periods. Depreciation and other amortization from acquired properties increased $0.1 million due to properties acquired subsequent to December 31, 2011. Depreciation and other amortization from sold properties decreased $1.6 million due to properties sold subsequent to December 31, 2011. Depreciation and other amortization for (re)developments and land increased $0.6 million primarily due to an increase in substantial completion of developments. Corporate furniture, fixtures and equipment depreciation expense decreased $0.2 million due to assets becoming fully depreciated.
Interest income decreased $0.4 million, or 26.5%, primarily due to a decrease in the weighted average note receivable balance outstanding for the six months ended June 30, 2013 as compared to the six months ended June 30, 2012.
Interest expense for the six months ended June 30, 2013 and 2012, respectively, decreased $6.0 million, or 14.6%, primarily due to a decrease in the weighted average debt balance outstanding for the six months ended June 30, 2013 ($1,215.7 million) as compared to the six months ended June 30, 2012 ($1,379.8 million), and an increase in capitalized interest of $1.1 million for the six months ended June 30, 2013 as compared to the six months ended June 30, 2012 due to an increase in development activities, partially offset by an increase in the weighted average interest rate for the six months ended June 30, 2013 (6.06%), as compared to the six months ended June 30, 2012 (6.03%).
Amortization of deferred financing costs remained relatively unchanged.
In October 2008, we entered into an interest rate swap agreement (the "Series F Agreement") to mitigate our exposure to floating interest rates related to the coupon reset of our Series F Preferred Units. The Series F Agreement has a notional value of $50.0 million and is effective from April 1, 2009 through October 1, 2013. The Series F Agreement fixes the 30 year Treasury constant maturity treasury rate at 5.2175%. We recorded $0.05 million in mark-to-market gain, inclusive of $0.6 million in swap payments, for the six months ended June 30, 2013, as compared to $0.3 million in mark-to-market loss, inclusive of $0.5 million in swap payments, for the six months ended June 30, 2012.
For the six months ended June 30, 2013, we recognized a net loss from retirement of debt of $5.4 million due to the partial repurchase of certain series of our senior unsecured notes and the early payoff of certain mortgage loans. For the six months ended June 30, 2012, we recognized a net loss from retirement of debt of $6.2 million due to the partial repurchase of certain series of our senior unsecured notes.
Equity in income of other real estate partnerships increased $1.0 million, or 28.2%, during the six months ended June 30, 2013 as compared to the six months ended June 30, 2012 primarily due to a decrease in depreciation and amortization related to catch-up depreciation taken for properties that were classified as held for sale in 2011 but no longer classified as held for sale during the six months ended June 30, 2012.

25

Equity in income of joint ventures remained relatively unchanged.

For the six months ended June 30, 2012, we recognized $0.8 million of gain on change in control of interests related to the acquisition of the 85% equity interest in one property from the institutional investor in the 2003 Net Lease Joint Venture. The $0.8 million of gain represents the difference between our carrying value and fair value of our equity interest on the acquisition date.

The income tax provision decreased $5.3 million or 101.1% during the six months ended June 30, 2013 compared to the six months ended June 30, 2012 primarily due to a one-time IRS audit adjustment related to the 2009 liquidation of a former taxable REIT subsidiary that was recorded during the six months ended June 30, 2012.
The following table summarizes certain information regarding the industrial properties included in discontinued operations for the six months ended June 30, 2013 and 2012.
 
 
Six Months Ended
June 30,
 
2013
 
2012
 
($ in 000’s)
Total Revenues
$
1,637

 
$
7,345

Property Expenses
(703
)
 
(3,287
)
Impairment of Real Estate
(176
)
 
(1,082
)
Depreciation and Amortization
(528
)
 
(2,281
)
Gain on Sale of Real Estate
10,407

 
7,614

Income from Discontinued Operations
$
10,637

 
$
8,309

Income from discontinued operations for the six months ended June 30, 2013 reflects the results of operations and gain on sale of real estate relating to 12 industrial properties that were sold during the six months ended June 30, 2013 and the results of operations of two industrial properties that were identified as held for sale at June 30, 2013. The impairment loss for the six months ended June 30, 2013 of $0.2 million primarily relates to an impairment charge recorded due to carrying values of certain properties exceeding the estimated fair value based upon a third party purchase contract for properties held for sale during 2013.
Income from discontinued operations for the six months ended June 30, 2012 reflects the gain on sale of real estate relating to six industrial properties that were sold during the six months ended June 30, 2012, the results of operations of 26 industrial properties that were sold during the year ended December 31, 2012, the results of operations of 12 industrial properties that were sold during the six months ended June 30, 2013 and the results of operations of the two industrial properties identified as held for sale at June 30, 2013. The impairment loss for the six months ended June 30, 2012 of $1.1 million primarily relates to an impairment charge recorded due to carrying values of certain properties exceeding the estimated fair values based upon third party purchase contracts for properties held for sale during 2012.
The $0.3 million of gain on sale of real estate for the six months ended June 30, 2013, resulted from the sale of two land parcels that did not meet the criteria for inclusion in discontinued operations.
Comparison of Three Months Ended June 30, 2013 to Three Months Ended June 30, 2012
Our net income (loss) available to unitholders and participating securities was $5.6 million and $(15.1) million for the three months ended June 30, 2013 and 2012, respectively. Basic and diluted net income (loss) available to unitholders was $0.05 per Unit and $(0.16) per Unit for the three months ended June 30, 2013 and 2012, respectively.
For the three months ended June 30, 2013 and 2012, the average occupancy rates of our same store properties were 89.7% and 88.2%, respectively.
 

26

 
Three Months Ended
June 30,
 
 
 
 
 
2013
 
2012
 
$ Change
 
% Change
 
($ in 000’s)
REVENUES
 
 
 
 
 
 
 
Same Store Properties
$
72,206

 
$
69,923

 
$
2,283

 
3.3
 %
Acquired Properties
565

 
565

 
—

 
—
 %
Sold Properties
567

 
3,411

 
(2,844
)
 
(83.4
)%
(Re) Developments and Land, Not Included Above
1,641

 
(32
)
 
1,673

 
(5,228.1
)%
Other
362

 
829

 
(467
)
 
(56.3
)%
 
$
75,341

 
$
74,696

 
$
645

 
0.9
 %
Discontinued Operations
(595
)
 
(3,395
)
 
2,800

 
(82.5
)%
Total Revenues
$
74,746

 
$
71,301

 
$
3,445

 
4.8
 %
Revenues from same store properties increased $2.3 million primarily due to increases in occupancy and tenant recoveries. Revenues from acquired properties remained unchanged. Revenues from sold properties decreased $2.8 million due to the 38 industrial properties sold subsequent to December 31, 2011 totaling approximately 5.3 million square feet of GLA. Revenues from (re)developments and land increased $1.7 million due to an increase in occupancy. Other revenues decreased $0.5 million primarily related to certain one-time revenue transactions during the three months ended June 30, 2012, as well as a decrease in revenues from the operations of our maintenance company.
 
 
Three Months Ended
June 30,
 
 
 
 
 
2013
 
2012
 
$ Change
 
% Change
 
($ in 000’s)
PROPERTY EXPENSES
 
 
 
 
 
 
 
Same Store Properties
$
21,881

 
$
20,455

 
$
1,426

 
7.0
 %
Acquired Properties
159

 
132

 
27

 
20.5
 %
Sold Properties
247

 
1,525

 
(1,278
)
 
(83.8
)%
(Re) Developments and Land, Not Included Above
499

 
114

 
385

 
337.7
 %
Other
2,196

 
1,945

 
251

 
12.9
 %
 
$
24,982

 
$
24,171

 
$
811

 
3.4
 %
Discontinued Operations
(282
)
 
(1,509
)
 
1,227

 
(81.3
)%
Total Property Expenses
$
24,700

 
$
22,662

 
$
2,038

 
9.0
 %
Property expenses include real estate taxes, repairs and maintenance, property management, utilities, insurance and other property related expenses. Property expenses from same store properties increased $1.4 million primarily due to an increase in real estate expense and repair maintenance expense. Property expenses from acquired properties remained relatively unchanged. Property expenses from sold properties decreased $1.3 million due to properties sold subsequent to December 31, 2011. Property expenses from (re)developments and land increased $0.4 million due to an increase in real estate tax expense. Other expenses remained relatively unchanged.
General and administrative expense decreased by $0.5 million, or 8.9%, primarily due to the acceleration of restricted stock expense associated with restricted shares held by our Chief Executive Officer during the three months ended December 31, 2012 and the three months ended March 31, 2013. Based on the terms of our Chief Executive Officer's employment agreement entered into in December 2012, the accounting treatment for any grants of stock based compensation are to be immediately expensed since vesting of the stock based compensation is not contingent upon future service.
The impairment charges included in continuing operations for the three months ended June 30, 2013 of $1.4 million is primarily due to marketing certain properties for sale and our assessment of the likelihood of a potential sale transaction.



27

 
Three Months Ended
June 30,
 
 
 
 
 
2013
 
2012
 
$ Change
 
% Change
 
($ in 000’s)
DEPRECIATION AND OTHER AMORTIZATION
 
 
 
 
 
 
 
Same Store Properties
$
25,411

 
$
25,629

 
$
(218
)
 
(0.9
)%
Acquired Properties
264

 
210

 
54

 
25.7
 %
Sold Properties
48

 
897

 
(849
)
 
(94.6
)%
(Re) Developments and Land, Not Included Above
373

 
56

 
317

 
566.1
 %
Corporate Furniture, Fixtures and Equipment
164

 
278

 
(114
)
 
(41.0
)%
 
$
26,260

 
$
27,070

 
$
(810
)
 
(3.0
)%
Discontinued Operations
(81
)
 
(937
)
 
856

 
(91.4
)%
Total Depreciation and Other Amortization
$
26,179

 
$
26,133

 
$
46

 
0.2
 %
Depreciation and other amortization for same store properties remained relatively unchanged. Depreciation and other amortization from acquired properties increased $0.1 million due to properties acquired subsequent to December 31, 2011. Depreciation and other amortization from sold properties decreased $0.8 million due to properties sold subsequent to December 31, 2011. Depreciation and other amortization for (re)developments and land increased $0.3 million primarily due to an increase in substantial completion of developments. Corporate furniture, fixtures and equipment depreciation expense decreased $0.1 million due to assets becoming fully depreciated.
Interest income decreased $0.1 million, or 10.9%, primarily due to a decrease in the weighted average note receivable balance outstanding for the three months ended June 30, 2013 as compared to the three months ended June 30, 2012.
Interest expense for the three months ended June 30, 2013 and 2012, respectively, decreased $2.4 million, or 12.2%, primarily due to a decrease in the weighted average debt balance outstanding for the three months ended June 30, 2013 ($1,214.4 million) as compared to the three months ended June 30, 2012 ($1,362.8 million), and an increase in capitalized interest of $0.8 million for the three months ended June 30, 2013 as compared to the three months ended June 30, 2012 due to an increase in development activities, partially offset by an increase in the weighted average interest rate for the three months ended June 30, 2013 (6.00%), as compared to the three months ended June 30, 2012 (5.84%).
Amortization of deferred financing costs remained relatively unchanged.
We recorded $0.06 million in mark-to-market gain, inclusive of $0.3 million in swap payments, for the three months ended June 30, 2013, as compared to $0.4 million in mark-to-market loss, inclusive of $0.2 million in swap payments, for the three months ended June 30, 2012.
For the three months ended June 30, 2013, we recognized a net loss from retirement of debt of $4.2 million due to the partial repurchase of certain series of our senior unsecured notes and the early payoff of certain mortgage loans. For the three months ended June 30, 2012, we recognized a net loss from retirement of debt of $6.2 million due to the partial repurchase of certain series of our senior unsecured notes.
Equity in income of other real estate partnerships remained relatively unchanged.
Equity in income of joint ventures remained relatively unchanged.

The income tax provision decreased $5.4 million or 99.9% during the three months ended June 30, 2013 compared to the three months ended June 30, 2012 primarily due to a one-time IRS audit adjustment related to the 2009 liquidation of a former taxable REIT subsidiary that was recorded during the three months ended June 30, 2012.


28

The following table summarizes certain information regarding the industrial properties included in discontinued operations for the three months ended June 30, 2013 and 2012.
 
 
Three Months Ended
June 30,
 
2013
 
2012
 
($ in 000’s)
Total Revenues
$
595

 
$
3,395

Property Expenses
(282
)
 
(1,509
)
Impairment of Real Estate
(176
)
 
—

Depreciation and Amortization
(81
)
 
(937
)
Gain on Sale of Real Estate
13,481

 
1,415

Income from Discontinued Operations
$
13,537

 
$
2,364

Income from discontinued operations for the three months ended June 30, 2013 reflects the results of operations and gain on sale of real estate relating to eight industrial properties that were sold during the three months ended June 30, 2013 and the results of operations of two industrial properties that were identified as held for sale at June 30, 2013. The impairment loss for the three months ended June 30, 2013 of $0.2 million primarily relates to an impairment charge recorded due to the carrying values of certain properties exceeding the estimated fair value, less costs to sell, based upon a third party purchase contract for properties held for sale during 2013.
Income from discontinued operations for the three months ended June 30, 2012 reflects the gain on sale of real estate relating to three industrial properties that were sold during the three months ended June 30, 2012, the results of operations of 26 industrial properties that were sold during the year ended December 31, 2012, the results of operations of 12 industrial properties that were sold during the six months ended June 30, 2013 and the results of operations of the two industrial properties identified as held for sale at June 30, 2013.
LEASING ACTIVITY
The following table provides a summary of our leasing activity for the three and six months ended June 30, 2013. The table does not include month to month leases or leases with terms less than twelve months. New leases where there were no prior comparable leases, due to extended downtime or materially different lease structures, are also excluded.
 
Number of
Leases
Signed
 
Square Feet
Signed
(in 000’s)
 
Net Effective
Rent Per
Square Foot (1)
 
GAAP Basis
Rent Growth (2)
 
Weighted
Average Lease
Term (3)
 
Turnover Costs
Per Square
Foot (4)
 
Weighted
Average
Retention (5)
New Leases - Second Quarter 2013
54

 
895

 
$
4.56

 
(5.3
)%
 
5.6

 
$
6.62

 
N/A

Renewal Leases - Second Quarter 2013
106

 
1,549

 
$
4.81

 
5.3
 %
 
3.5

 
$
1.59

 
67.8
%
Second Quarter 2013
160

 
2,444

 
$
4.72

 
1.3
 %
 
4.3

 
$
3.43

 
67.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New Leases - Year to Date 2013
102

 
1,375

 
$
4.43

 
(5.3
)%
 
5.8

 
$
6.82

 
N/A

Renewal Leases - Year to Date 2013
209

 
4,096

 
$
4.36

 
8.0
 %
 
3.5

 
$
1.22

 
76.0
%
Year to Date 2013
311

 
5,471

 
$
4.37

 
4.3
 %
 
4.1

 
$
2.63

 
76.0
%
 
(1)
Net effective rent is the average net rent calculated in accordance with GAAP, over the term of the lease.
(2)
GAAP basis rent growth is a ratio of the change in net effective rent (on a GAAP basis, including straight-line rent adjustments as required by GAAP) compared to the net effective rent (on a GAAP basis) of the comparable lease.
(3)
The lease term is expressed in years. Assumes no exercise of lease renewal option, if any.
(4)
Turnover costs are comprised of the costs incurred or capitalized for improvements of vacant and renewal spaces, as well as the commissions paid and costs capitalized for leasing transactions. Turnover costs per square foot represent the total turnover costs expected to be incurred on the leases signed during the period and do not reflect actual expenditures for the period.
(5)
Represents the weighted average square feet of tenants renewing their respective leases.

29

During the three and six months ended June 30, 2013, we signed 40 and 67 new leases, respectively, with free rent periods during the lease term on 0.8 million and 1.0 million square feet of GLA, respectively. Total concessions are $1.2 million and $1.4 million, respectively, associated with these new leases. Additionally, during the three and six months ended June 30, 2013, we signed 23 and 41 renewal leases, respectively, with free rent periods during the lease term on 0.5 million and 0.9 million square feet of GLA, respectively. Total concessions are $0.4 million and $0.7 million, respectively, associated with these renewal leases.

LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2013, our cash and cash equivalents were approximately $4.1 million. We also had $342.0 million available for additional borrowings under our Unsecured Credit Facility, subject to certain restrictions.
We considered our short-term (through June 30, 2014) liquidity needs and the adequacy of our estimated cash flow from operations and other expected liquidity sources to meet these needs. Our 2014 Notes, in the aggregate principal amount of $81.8 million, are due June 1, 2014. Additionally, we have $22.3 million in mortgage loans payable outstanding at June 30, 2013 that have maturities prior to June 30, 2014. We expect to satisfy the payment obligations on the 2014 Notes and the mortgage loans payable due prior to June 30, 2014 with borrowings on our Unsecured Credit Facility. With the exception of the 2014 Notes and the $22.3 million of mortgage loans payable, we believe that our principal short-term liquidity needs are to fund normal recurring expenses, property acquisitions, developments, renovations, expansions and other nonrecurring capital improvements, debt service requirements, preferred distributions, the minimum distributions required to maintain the Company’s REIT qualification under the Code and distributions approved by the Company's Board of Directors. We anticipate that these needs will be met with cash flows provided by operating activities as well as the disposition of select assets. These needs may also be met by the issuance of additional Units, subject to market conditions.
We expect to meet long-term (after June 30, 2014) liquidity requirements such as property acquisitions, developments, scheduled debt maturities, major renovations, expansions and other nonrecurring capital improvements through the disposition of select assets, long-term unsecured and secured indebtedness and the issuance of additional Units and preferred Units, subject to market conditions.
We also financed the development or acquisition of additional properties through borrowings under our Unsecured Credit Facility and may finance the development or acquisition of additional properties through such borrowings, to the extent capacity is available, in the future. At June 30, 2013, borrowings under our Unsecured Credit Facility bore interest at a weighted average interest rate of 1.893%. As of August 2, 2013, we had approximately $422.0 million available for additional borrowings under our New Credit Facility, subject to certain restrictions. Our New Credit Facility contains certain financial covenants including limitations on incurrence of debt and debt service coverage. Our access to borrowings may be limited if we fail to meet any of these covenants. We believe that we were in compliance with our financial covenants as of June 30, 2013, and we anticipate that we will be able to operate in compliance with our financial covenants for the remainder of 2013.
Our senior unsecured notes have been assigned credit ratings from Standard & Poor’s, Moody’s and Fitch Ratings of BB+/Ba2/BB, respectively. In the event of a downgrade, we believe we would continue to have access to sufficient capital; however, our cost of borrowing would increase and our ability to access certain financial markets may be limited.
Six Months Ended June 30, 2013
Net cash provided by operating activities of approximately $41.0 million for the six months ended June 30, 2013, was comprised primarily of the non-cash adjustments of approximately $51.5 million and net income of approximately $10.3 million, offset by the net change in operating assets and liabilities of approximately $16.8 million and payments of premiums, discounts and prepayment penalties associated with retirement of debt of approximately $4.0 million. The adjustments for the non-cash items of approximately $51.5 million are primarily comprised of depreciation and amortization of approximately $57.0 million, the loss from retirement of debt of approximately $5.4 million, the impairment of real estate of approximately $1.6 million and the provision for bad debt of approximately $0.5 million, offset by the gain on sale of real estate of approximately $10.7 million and the effect of the straight-lining of rental income of approximately $2.3 million.
Net cash used in investing activities of approximately $52.6 million for the six months ended June 30, 2013, was comprised primarily of investments in and advances to the Other Real Estate Partnerships, the acquisition of one industrial property and several land parcels, the development of real estate, capital expenditures related to the improvement of existing real estate, payments related to leasing activities and an increase in escrows, offset by the net proceeds from the sale of real estate, distributions from the Other Real Estate Partnerships in excess of equity in income and the repayments on our notes receivable.

30

During the six months ended June 30, 2013, we acquired one industrial property comprising approximately 0.5 million square feet of GLA and several land parcels. The purchase price of these acquisitions totaled approximately $46.5 million, excluding costs incurred in conjunction with the acquisition of the industrial property and land parcels.
During the six months ended June 30, 2013, we sold 12 industrial properties comprising approximately 1.3 million square feet of GLA and two land parcels. Proceeds from the sales of the 12 industrial properties and two land parcels, net of closing costs, were approximately $50.4 million. We are in various stages of discussions with third parties for the sale of additional properties and plan to continue to selectively market other properties for sale for the remainder of 2013.

Net cash provided by financing activities of approximately $11.4 million for the six months ended June 30, 2013, was comprised primarily of net proceeds from the issuance of Units and net proceeds from our Unsecured Credit Facility, offset by the redemption of our Series J Cumulative Redeemable Preferred Units (the "Series J Preferred Units"), repayments on our senior unsecured notes and mortgage loans payable, general and limited partnership Unit and preferred general partnership Unit distributions and advanced preferred general partnership Unit distributions, the repurchase and retirement of restricted Units, payments on the interest rate swap agreement and payments of equity issuance costs.

During the six months ended June 30, 2013, we paid off and retired prior to maturity mortgage loans in the amount of $18.4 million and we repurchased $29.0 million of our unsecured notes at an aggregate purchase price of $32.6 million. We may from time to time repay additional amounts of our outstanding debt. Any repayments would depend upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors we consider important. Future repayments may materially impact our liquidity, taxable income and results of operations.
During the six months ended June 30, 2013, the Company redeemed the remaining 4,000,000 Depositary Shares of the Company's 7.25% Series J Cumulative Redeemable Preferred Stock for $25.00 per Depositary Share, or $100.0 million in the aggregate, and paid a prorated second quarter dividend of $0.055382 per Depositary Share, totaling approximately $0.2 million. An equivalent number of Series J Preferred Units were redeemed during the six months ended June 30, 2013 as well.
During the six months ended June 30, 2013, the Company issued 8,400,000 shares of the Company's common stock through a public offering, resulting in proceeds, net of the underwriter's discount, of approximately $132.3 million. Additionally, during the six months ended June 30, 2013, the Company issued 2,315,704 shares of the Company's common stock through the Company's "at-the-market" equity offering program, resulting in net proceeds of approximately $41.8 million. These proceeds were contributed to us in exchange for an equivalent number of Units. We may access the equity markets again, subject to contractual restrictions and market conditions. To the extent additional equity offerings occur, we expect to use at least a portion of the proceeds received to reduce our indebtedness or fund property acquisitions and developments.
Market Risk
The following discussion about our 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. Our business subjects us to market risk from interest rates, and to a much lesser extent, foreign currency fluctuations.
Interest Rate Risk
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 us at June 30, 2013 that are sensitive to changes in 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, we also face 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, 2013, $1,077.8 million (90.9% of total debt at June 30, 2013) of our debt was fixed rate debt and $108.0 million (9.1% of total debt at June 30, 2013) of our debt was variable rate debt. Currently, we do 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 our earnings or cash flows. Conversely, for variable rate debt, changes in the base interest rate used to calculate the all-in interest rate generally do not impact the fair value of the debt, but would affect our 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 us until we are required to refinance such debt. See Note 6 to the Consolidated Financial Statements for a discussion of the maturity dates of our various fixed rate debt.

31

Based upon the amount of variable rate debt outstanding at June 30, 2013, a 10% increase or decrease in the interest rate on our variable rate debt would decrease or increase, respectively, future net income and cash flows by approximately $0.2 million per year. The foregoing calculation assumes an instantaneous increase or decrease in the rates applicable to the amount of borrowings outstanding under our Unsecured Credit Facility at June 30, 2013. Changes in LIBOR could result in a greater than 10% increase to such rates. In addition, the calculation does not account for other possible actions, such as prepayment, that we might take in response to any rate increase. A 10% increase in interest rates would decrease the fair value of the fixed rate debt at June 30, 2013 by approximately $20.4 million to $1,109.7 million. A 10% decrease in interest rates would increase the fair value of the fixed rate debt at June 30, 2013 by approximately $21.2 million to $1,151.4 million.
The use of derivative financial instruments allows us to manage risks of increases in interest rates with respect to the effect these fluctuations would have on our earnings and cash flows. As of June 30, 2013, we had one outstanding derivative with a notional amount of $50.0 million which mitigates our exposure to floating interest rates related to the coupon rate reset of our Series F Preferred Units.

Foreign Currency Exchange Rate Risk
Owning industrial property outside of the United States exposes the Operating Partnership to the possibility of volatile movements in foreign exchange rates. Changes in foreign currencies can affect the operating results of international operations reported in U.S. dollars and the value of the foreign assets reported in U.S. dollars. The economic impact of foreign exchange rate movements is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. At June 30, 2013, we owned one land parcel for which the U.S. dollar was not the functional currency. The land parcel is located in Ontario, Canada and uses the Canadian dollar as its functional currency.
IRS Tax Refund
On August 24, 2009, we received a private letter ruling from the IRS granting favorable loss treatment under Sections 331 and 336 of the Code on the tax liquidation of one of our former taxable REIT subsidiaries. On November 6, 2009, legislation was signed that allowed businesses with net operating losses for 2008 or 2009 to carry back those losses for up to five years. As a result, we received a refund from the IRS of $40.4 million in the fourth quarter of 2009 (the “Refund”) in connection with this tax liquidation. The IRS examination team, which is required by statute to review all refund claims in excess of $2.0 million on behalf of the Joint Committee on Taxation, indicated to us that it disagreed with certain of the property valuations we obtained from an independent valuation expert in support of our fair value of the liquidated taxable REIT subsidiary and our claim for the Refund. During the year ended December 31, 2012, we reached an agreement with the regional office of the IRS on a proposed adjustment to the Refund. The total agreed-upon adjustment to taxable income was $13.7 million, which equates to $4.8 million of taxes owed. We were also required to pay accrued interest of $0.5 million. During the year ended December 31, 2012, the Operating Partnership recorded the charge for the agreed-upon adjustment and the related estimated accrued interest which was reflected as a component of income tax expense. During 2013, the settlement amount was approved by the Joint Committee on Taxation.
As a result of the Joint Committee on Taxation's approval, during 2013 we entered into closing agreements with the IRS that determined the timing of the settlement on the tax characterization of the limited partners of the Operating Partnership and the stockholders of the Company. Pursuant to these closing agreements, $8.2 million of the preferred stock distributions for the year ended December 31, 2012 are taxable as capital gain. During the three months ended June 30, 2013, we paid the agreed upon taxes and related accrued interest.
Recent Accounting Pronouncements
Refer to Note 2 to the Consolidated Financial Statements.
Subsequent Events
On July 1, 2013 and July 5, 2013, we paid off prior to maturity mortgage loans payable in the aggregate amount of $14.0 million.
Effective July 1, 2013, certain officers and employees were granted performance units under the 2013 Long-Term Incentive Program, newly adopted by the Board of Directors of the Company. The performance units vest based upon the relative total shareholder return (“TSR”) of the Company's stock compared to the weighted average TSR of the MSCI US REIT Index and the NAREIT Industrial Index. The TSR for half of the granted units is calculated based upon the performance from July 1, 2013 through June 30, 2014 and the other half is calculated based upon the performance from July 1, 2013 through December 31, 2015. At the end of the performance periods, each participant will be issued shares of the Company's common stock equal to the participant's share of the aggregate unit value. The participants will also be entitled to dividend equivalents

32

representing any common dividends that have accrued with respect to such shares after the issuance of the performance units and prior to the date of vesting.
On July 18, 2013, the Company redeemed the 2,000,000 Depositary Shares, each representing 1/10,000th of a share, of our 7.25% Series K Cumulative Redeemable Preferred Stock, $0.01 par value, at a redemption price of $25.00 per Depositary Share, totaling $50.0 million plus pro-rated accrued dividends. An equivalent number of Series K Cumulative Redeemable Preferred Units were redeemed on July 18, 2013 as well.
On July 19, 2013, we entered into an amendment and restatement of our Unsecured Credit Agreement (as amended and restated, the "New Credit Facility") which increased the borrowing capacity thereunder to $625.0 million. We may request that the borrowing capacity under the New Credit Facility be increased to $825.0 million, subject to certain restrictions. The New Credit Facility provides for interest only payments initially at LIBOR plus 145 basis points, that varies based on our leverage ratio. In the event the Company achieves an investment grade rating from one of certain rating agencies, the rate may be decreased at our election, based on the investment grade rating.The New Credit Facility matures on September 29, 2017, unless extended an additional one year at our election, subject to certain restrictions.
From July 1, 2013 to August 2, 2013, we sold three industrial properties for approximately $6.0 million. There were no industrial properties acquired during the period.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Response to this item is included in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above.

Item 4.
Controls and Procedures
Our principal executive officer and principal financial officer, in evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report, based on the evaluation of these controls and procedures required by Exchange Act Rules 13a-15(b) or 15d-15(b), have concluded that as of the end of such period our disclosure controls and procedures were effective.
There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


33

PART II: OTHER INFORMATION
 
Item 1.
Legal Proceedings
None. 
Item 1A.
Risk Factors
None. 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None. 
Item 3.
Defaults Upon Senior Securities
None. 
Item 4.
Mine Safety Disclosures
None. 
Item 5.
Other Information
None. 
Item 6.
Exhibits
 
Exhibit
Number
 
Description
 
 
 
10.3
 
Amended and Restated Unsecured Revolving Credit Agreement dated as of July 19, 2013 among First Industrial, L.P., First Industrial Realty Trust, Inc., Wells Fargo Bank, N.A and the other lenders thereunder (incorporated by reference to Exhibit 10.1 of the Form 8-K of the Company filed July 22, 2013).
 
 
 
31.1*
 
Certification of the Principal Executive Officer of First Industrial Realty Trust, Inc., registrant’s sole general partner, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
 
 
 
31.2*
 
Certification of the Principal Financial Officer of First Industrial Realty Trust, Inc., registrant’s sole general partner, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
 
 
 
32.1**
 
Certification of the Principal Executive Officer and the Principal Financial Officer of First Industrial Realty Trust, Inc., registrant’s sole general partner, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101.1*
 
The following financial statements from First Industrial, L.P.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, formatted in XBRL: (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statement of Changes in Partbers’ Capital (unaudited), (v) Consolidated Statements of Cash Flows (unaudited) and (vi) Notes to Consolidated Financial Statements (unaudited).
*
Filed herewith.
**
Furnished herewith.


34

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
FIRST INDUSTRIAL, L.P.
 
 
 
By: FIRST INDUSTRIAL REALTY TRUST, INC.
Its Sole General Partner
 
 
 
 
By:
 
/s/ SCOTT A. MUSIL
 
 
 
Scott A. Musil
Chief Financial Officer
(Principal Financial Officer)
Date: August 2, 2013


35

EXHIBIT INDEX
 
Exhibit
Number
 
Description
 
 
10.3
 
Amended and Restated Unsecured Revolving Credit Agreement dated as of July 19, 2013 among First Industrial, L.P., First Industrial Realty Trust, Inc., Wells Fargo Bank, N.A and the other lenders thereunder (incorporated by reference to Exhibit 10.1 of the Form 8-K of the Company filed July 22, 2013).
 
 
 
31.1*
 
Certification of the Principal Executive Officer of First Industrial Realty Trust, Inc., registrant’s sole general partner, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
 
 
31.2*
 
Certification of the Principal Financial Officer of First Industrial Realty Trust, Inc., registrant’s sole general partner, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
 
 
32.1**
 
Certification of the Principal Executive Officer and the Principal Financial Officer of First Industrial Realty Trust, Inc., registrant’s sole general partner, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101.1*
 
The following financial statements from First Industrial, L.P.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, formatted in XBRL: (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Comprehensive Income (unaudited), (iv) Consolidated Statement of Changes in Partners’ Capital (unaudited), (v) Consolidated Statements of Cash Flows (unaudited) and (vi) Notes to Consolidated Financial Statements (unaudited).
 
*
Filed herewith.
**
Furnished herewith.


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