10-Q 1 c71116e10vq.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 -------------------------- 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 (I.R.S. Employer Incorporation or Organization) Identification No.) 311 S. WACKER DRIVE, SUITE 4000, CHICAGO, ILLINOIS 60606 (Address of Principal Executive Offices) (312) 344-4300 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / FIRST INDUSTRIAL, L.P. FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2002 INDEX
PAGE ---- PART I: FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001.......... 2 Consolidated Statements of Operations for the Six Months Ended June 30, 2002 and June 30, 2001.............................................................. 3 Consolidated Statements of Operations for the Three Months Ended June 30, 2002 and June 30, 2001.............................................................. 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and June 30, 2001.............................................................. 5 Notes to Consolidated Financial Statements .................................... 6-16 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................... 17-27 Item 3. Quantitative and Qualitative Disclosures About Market Risk .............. 27 PART II: OTHER INFORMATION Item 1. Legal Proceedings ...................................................... 28 Item 2. Changes in Securities .................................................. 28 Item 3. Defaults Upon Senior Securities......................................... 28 Item 4. Submission of Matters to a Vote of Security Holders .................... 28 Item 5. Other Information ...................................................... 28 Item 6. Exhibits and Report on Form 8-K......................................... 28 SIGNATURE .......................................................................... 29 EXHIBIT INDEX....................................................................... 30
1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FIRST INDUSTRIAL, L.P. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) (UNAUDITED)
June 30, December 31, 2002 2001 -------------- ------------- ASSETS Assets: Investment in Real Estate: Land ....................................................... $ 375,333 $ 368,725 Buildings and Improvements ................................. 1,798,816 1,801,097 Furniture, Fixtures and Equipment .......................... 1,174 1,174 Construction in Progress ................................... 152,617 140,887 Less: Accumulated Depreciation ............................. (249,038) (229,293) ----------- ----------- Net Investment in Real Estate ...................... 2,078,902 2,082,590 Real Estate Held for Sale, Net of Accumulated Depreciation and Amortization of $5,027 at June 30, 2002 and $3,917 at December 31, 2001 ........................................... 33,877 28,702 Investments in and Advances to Other Real Estate Partnerships . 412,724 378,350 Cash and Cash Equivalents ..................................... 1,387 -- Restricted Cash ............................................... 18,561 6,394 Tenant Accounts Receivable, Net ............................... 9,563 10,145 Investments in Joint Ventures ................................. 10,918 9,010 Deferred Rent Receivable ...................................... 12,520 12,140 Deferred Financing Costs, Net ................................. 10,875 10,173 Prepaid Expenses and Other Assets, Net ........................ 44,153 43,148 ----------- ----------- Total Assets ....................................... $ 2,633,480 $ 2,580,652 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Mortgage Loans Payable, Net ................................... $ 57,068 $ 46,731 Senior Unsecured Debt, Net .................................... 1,211,715 1,048,491 Acquisition Facility Payable .................................. 156,100 182,500 Accounts Payable and Accrued Expenses ......................... 59,808 68,919 Rents Received in Advance and Security Deposits ............... 19,502 22,890 Distributions Payable ......................................... 36,651 31,196 ----------- ----------- Total Liabilities .................................. 1,540,844 1,400,727 ----------- ----------- Commitments and Contingencies .................................... -- -- Partners' Capital: General Partner Preferred Units (140,000 units issued and outstanding at June 30, 2002 and December 31, 2001) ........ 240,697 336,990 General Partner Units (39,572,897 and 38,904,687 units issued and outstanding at June 30, 2002 and December 31, 2001, respectively) .............................................. 696,976 686,544 Unamortized Value of General Partnership Restricted Units .... (6,891) (6,247) Limited Partners' Units (6,928,003 and 6,972,649 units issued and outstanding at June 30, 2002 and December 31, 2001, respectively) .............................................. 172,517 175,019 Accumulated Other Comprehensive Loss ......................... (10,663) (12,381) ----------- ----------- Total Partners' Capital .......................... 1,092,636 1,179,925 ----------- ----------- Total Liabilities and Partners' Capital .......... $ 2,633,480 $ 2,580,652 =========== ===========
The accompanying notes are an integral part of the financial statements. 2 FIRST INDUSTRIAL, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA) (UNAUDITED)
Six Months Six Months Ended Ended June 30, 2002 June 30, 2001 ------------- ------------- Revenues: Rental Income ...................................................... $ 113,646 $ 119,693 Tenant Recoveries and Other Income ................................. 35,489 38,843 --------- --------- Total Revenues ........................................... 149,135 158,536 --------- --------- Expenses: Real Estate Taxes .................................................. 24,154 24,634 Repairs and Maintenance ............................................ 9,538 8,921 Property Management ................................................ 5,786 5,634 Utilities .......................................................... 3,650 4,467 Insurance .......................................................... 1,065 996 Other .............................................................. 3,708 4,084 General and Administrative ......................................... 9,967 9,182 Interest Expense ................................................... 41,235 40,396 Amortization of Deferred Financing Costs ........................... 925 865 Depreciation and Other Amortization ................................ 31,343 27,699 --------- --------- Total Expenses .......................................... 131,371 126,878 --------- --------- Income from Continuing Operations Before Equity in Income of Other Real Estate Partnerships, Equity in Income of Joint Ventures and Gain on Sale of Real Estate ............................................ 17,764 31,658 Equity in Income of Other Real Estate Partnerships .................... 33,063 23,988 Equity in Income of Joint Ventures .................................... 576 436 Gain on Sale of Real Estate ........................................... 3,256 21,612 --------- --------- Income From Continuing Operations ..................................... 54,659 77,694 Income from Discontinued Operations (Including Gain on Sale of Real Estate of $13,231 for the Six Months Ended June 30, 2002) ......... 15,824 4,042 --------- --------- Net Income Before Extraordinary Loss .................................. 70,483 81,736 Extraordinary Loss .................................................... (888) (10,309) --------- --------- Net Income ............................................................ 69,595 71,427 Less: Preferred Unit Distributions ................................... (13,344) (14,462) --------- --------- Net Income Available to Unitholders ................................... $ 56,251 $ 56,965 ========= ========= Income from Continuing Operations Available to Unitholders Per Weighted Average Unit Outstanding: Basic ...................................................... $ .90 $ 1.36 ========= ========= Diluted .................................................... $ .89 $ 1.35 ========= ========= Net Income Available to Unitholders Before Extraordinary Loss Per Weighted Average Unit Outstanding: Basic ...................................................... $ 1.24 $ 1.45 ========= ========= Diluted .................................................... $ 1.23 $ 1.44 ========= ========= Net Income Available to Unitholders Per Weighted Average Unit Outstanding: Basic ...................................................... $ 1.22 $ 1.23 ========= ========= Diluted .................................................... $ 1.21 $ 1.22 ========= ========= Net Income ............................................................ $ 69,595 $ 71,427 Other Comprehensive Income: Cumulative Transition Adjustment ........................... -- (14,920) Settlement of Interest Rate Protection Agreement ........... 1,772 (191) Mark-to-Market of Interest Rate Protection Agreements ...... (179) -- Write-off of Unamortized Interest Rate Protection Agreement Due to the Early Retirement of Debt ...................... -- 2,156 Amortization of Interest Rate Protection Agreements ........ 125 702 --------- --------- Comprehensive Income .................................................. $ 71,313 $ 59,174 ========= =========
The accompanying notes are an integral part of the financial statements 3 FIRST INDUSTRIAL, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA) (UNAUDITED)
Three Months Three Months Ended Ended June 30, 2002 June 30, 2001 ------------- ------------- Revenues: Rental Income ............................................................ $ 57,793 $ 59,650 Tenant Recoveries and Other Income ....................................... 18,169 18,109 -------- -------- Total Revenues ................................................. 75,962 77,759 -------- -------- Expenses: Real Estate Taxes ........................................................ 12,391 12,063 Repairs and Maintenance .................................................. 5,299 4,001 Property Management ...................................................... 2,914 2,792 Utilities ................................................................ 1,831 1,817 Insurance ................................................................ 578 505 Other .................................................................... 1,994 1,874 General and Administrative ............................................... 4,828 4,864 Interest Expense ......................................................... 22,183 19,936 Amortization of Deferred Financing Costs ................................. 480 440 Depreciation and Other Amortization ...................................... 15,991 13,747 -------- -------- Total Expenses ................................................ 68,489 62,039 -------- -------- Income from Continuing Operations Before Equity in Income of Other Real Estate Partnerships, Equity in Income of Joint Ventures and Gain on Sale of Real Estate .................................................. 7,473 15,720 Equity in Income of Other Real Estate Partnerships .......................... 17,668 14,693 Equity in Income of Joint Ventures .......................................... 354 250 Gain (Loss) on Sale of Real Estate .......................................... 2,616 9,693 -------- -------- Income From Continuing Operations ........................................... 28,111 40,356 Income from Discontinued Operations (Including Gain on Sale of Real Estate of $6,809 for the Three Months Ended June 30, 2002) .............. 7,626 2,003 -------- -------- Net Income Before Extraordinary Loss ........................................ 35,737 42,359 Extraordinary Loss .......................................................... (888) (10,309) -------- -------- Net Income .................................................................. 34,849 32,050 Less: Preferred Unit Distributions ......................................... (6,113) (7,231) -------- -------- Net Income Available to Unitholders ......................................... $ 28,736 $ 24,819 ======== ======== Income from Continuing Operations Available to Unitholders Per Weighted Average Unit Outstanding: Basic ............................................................ $ .47 $ .71 ======== ======== Diluted .......................................................... $ .47 $ .71 ======== ======== Net Income Available to Unitholders Before Extraordinary Loss Per Weighted Average Unit Outstanding: Basic ............................................................ $ .64 $ .75 ======== ======== Diluted .......................................................... $ .63 $ .75 ======== ======== Net Income Available to Unitholders Per Weighted Average Unit Outstanding: Basic ............................................................ $ .62 $ .53 ======== ======== Diluted .......................................................... $ .61 $ .53 ======== ======== Net Income .................................................................. $ 34,849 $ 32,050 Other Comprehensive Income: Settlement of Interest Rate Protection Agreement ................. 1,772 (425) Mark-to-Market of Interest Rate Protection Agreements ............ (3,751) -- Write-off of Unamortized Interest Rate Protection Agreement Due to the Early Retirement of Debt ........................... -- 2,156 Amortization of Interest Rate Protection Agreements .............. 71 612 -------- -------- Comprehensive Income ........................................................ $ 32,941 $ 34,393 ======== ========
The accompanying notes are an integral part of the financial statements. 4 FIRST INDUSTRIAL, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
Six Months Ended Six Months Ended June 30, 2002 June 30, 2001 ------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income .......................................... $ 69,595 $ 71,427 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation ....................................... 27,322 24,523 Amortization of Deferred Financing Costs ........... 925 865 Other Amortization ................................. 7,262 6,783 Equity in Income of Joint Ventures ................. (576) (436) Distributions from Joint Ventures .................. 576 436 Gain on Sale of Real Estate ........................ (16,487) (21,612) Extraordinary Loss ................................. 888 10,309 Equity in Income of Other Real Estate Partnerships . (33,063) (23,988) Distributions from Investment in Other Real Estate Partnerships .................................. 33,063 23,988 Increase in Tenant Accounts Receivable and Prepaid Expenses and Other Assets, Net ................ (6,738) (6,658) Increase in Deferred Rent Receivable ............... (1,095) (1,103) Decrease in Accounts Payable and Accrued Expenses and Rents Received in Advance and Security Deposits ...................................... (12,614) (10,697) --------- --------- Net Cash Provided by Operating Activities .... 69,058 73,837 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of and Additions to Investment in Real Estate ........................................ (124,880) (175,433) Net Proceeds from Sales of Investment in Real Estate 128,683 161,575 Investments in and Advances to Other Real Estate Partnerships .................................. (77,034) (75,066) Distributions from Other Real Estate Partnerships in Excess of Equity in Income .................... 42,660 62,719 Contributions to and Investments In Joint Ventures . (3,104) -- Distributions from Joint Ventures in Excess of Equity in Income .............................. 179 166 Funding of Mortgage Loans Receivable ............... -- (27,588) Repayment of Mortgage Loans Receivable ............. 500 23,071 Increase in Restricted Cash ........................ (12,167) (27,883) --------- --------- Net Cash Used in Investing Activities ......... (45,163) (58,439) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Unit Contributions .................................. 15,749 13,936 Unit Distributions .................................. (62,648) (60,812) Repurchase of Restricted Units ...................... (1,787) (1,638) Preferred Unit Distributions ........................ (8,300) (14,462) Repayments on Mortgage Loans Payable ................ (1,502) (12,449) Proceeds from Senior Unsecured Debt ................. 247,950 199,390 Other Proceeds from Senior Unsecured Debt ........... 1,772 -- Repayment of Senior Unsecured Debt .................. (84,930) (100,000) Redemption of Preferred Units ....................... (100,000) -- Proceeds from Acquisition Facilities Payable ........ 320,300 297,300 Repayments on Acquisition Facilities Payable ........ (346,700) (326,300) Cost of Debt Issuance and Prepayment Fees ........... (2,412) (8,888) --------- --------- Net Cash Used in Financing Activities ........ (22,508) (13,923) --------- --------- Net Increase in Cash and Cash Equivalents ........... 1,387 1,475 Cash and Cash Equivalents, Beginning of Period ...... -- 3,644 --------- --------- Cash and Cash Equivalents, End of Period ............ $ 1,387 $ 5,119 ========= =========
The accompanying notes are an integral part of the financial statements. 5 FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 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") with an approximate 85.1% ownership interest at June 30, 2002. The limited partners of the Operating Partnership own approximately a 14.9% interest in the Operating Partnership at June 30, 2002. The Company also owns a preferred general partnership interest in the Operating Partnership with an aggregate liquidation priority of $250,000. The Company is a real estate investment trust ("REIT") as defined in the Internal Revenue Code. The Company's operations are conducted primarily through the Operating Partnership. The Operating Partnership is the sole member of several limited liability companies (the "L.L.C.s") and the sole stockholder of First Industrial Development Services, Inc., and holds at least a 99% limited partnership interest in each of eight limited partnerships (together, the "Other Real Estate Partnerships"). The Operating Partnership, through separate wholly-owned limited liability companies in which it is the sole member, also owns minority equity interests in and provides asset and property management services to, three joint ventures which invest in industrial properties (the "September 1998 Joint Venture", the "September 1999 Joint Venture" and the "December 2001 Joint Venture"). 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 Partnerships 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. The consolidated financial statements of the Operating Partnership report the L.L.C.s and First Industrial Development Services, Inc. (the "Consolidated Operating Partnership") on a consolidated basis. The Other Real Estate Partnerships, the September 1998 Joint Venture, the September 1999 Joint Venture and the December 2001 Joint Venture are accounted for under the equity method of accounting. As of June 30, 2002, the Consolidated Operating Partnership owned 788 in-service properties containing an aggregate of approximately 52.0 million square feet of gross leasable area ("GLA"). On a combined basis, as of June 30, 2002, the Other Real Estate Partnerships owned 118 in-service properties containing an aggregate of approximately 11.3 million square feet of GLA. Profits, losses and distributions of the Operating Partnership, the L.L.C.s and the 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, of the Operating Partnership, the L.L.C.s and the Other Real Estate Partnerships. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited interim financial statements have been prepared in accordance with the accounting policies described in the financial statements and related notes included in the Operating Partnership's 2001 Form 10-K and should be read in conjunction with such financial statements and related notes. The following notes to these interim financial statements highlight significant changes to the notes included in the December 31, 2001 audited financial statements included in the Operating Partnership's 2001 Form 10-K and present interim disclosures as required by the Securities and Exchange Commission. 6 FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED In order to conform with generally accepted accounting principles, management, in preparation of the Consolidated Operating Partnership's financial statements, is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of June 30, 2002 and December 31, 2001, and the reported amounts of revenues and expenses for each of the six and three months ended June 30, 2002 and 2001. Actual results could differ from those estimates. In the opinion of management, all adjustments consist of normal recurring adjustments necessary for a fair statement of the financial position of the Consolidated Operating Partnership as of June 30, 2002 and the results of its operations for each of the six and three months ended June 30, 2002 and 2001 and its cash flows for the six months ended June 30, 2002 and 2001. Tenant Accounts Receivable, Net: The Consolidated Operating Partnership provides an allowance for doubtful accounts against the portion of tenant accounts receivable which is estimated to be uncollectible. Tenant accounts receivable in the consolidated balance sheets are shown net of an allowance for doubtful accounts of $1,707 as of June 30, 2002 and December 31, 2001. Discontinued Operations: On January 1, 2002, the Consolidated Operating Partnership adopted the Financial Accounting Standards Board's ("FASB") Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets" ("FAS 144"). FAS 144 addresses final accounting and reporting for the disposal of long lived assets. FAS 144 requires that the results of operations and gains or losses on the sale of properties sold subsequent to December 31, 2001 that were not classified as held for sale at December 31, 2001 and the results of operations from properties that were classified as held for sale subsequent to December 31, 2001 be presented in discontinued operations. FAS 144 also requires prior period results of operations for these properties to be restated and presented in discontinued operations in prior consolidated statements of operations. Recent Accounting Pronouncements: On April 30, 2002, the FASB issued Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("FAS 145"). FAS 145 rescinds both Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses from Extinguishment of Debt" ("FAS 4"), and the amendment to FAS 4, Statement of Financial Accounting Standards No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". FAS 145 eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect, unless the criteria in Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" are met. FAS 145 is effective for fiscal years beginning after May 15, 2002. The Consolidated Operating Partnership believes that FAS 145 will not have an impact on its consolidated financial position, liquidity and results of operations. Reclassification: Certain 2001 items have been reclassified to conform to the 2002 presentation. 7 FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 3. 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 financial statements. Summarized condensed financial information as derived from the financial statements of the Other Real Estate Partnerships is presented below: Condensed Combined Balance Sheets:
June 30, December 31, 2002 2001 ----------- ------------- ASSETS Assets: Investment in Real Estate, Net ......... $356,450 $355,504 Real Estate Held for Sale, Net ......... 2,798 2,048 Other Assets, Net ...................... 104,444 72,643 -------- -------- Total Assets ................... $463,692 $430,195 ======== ======== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Mortgage Loans Payable ................ $ 40,405 $ 40,728 Other Liabilities ...................... 6,874 7,811 -------- -------- Total Liabilities ............. 47,279 48,539 -------- -------- Partners' Capital ...................... 416,413 381,656 -------- -------- Total Liabilities and Partners' Capital ................... $463,692 $430,195 ======== ========
Condensed Combined Statements of Operations:
Six Months Ended Three Months Ended ---------------------------- ----------------------------- June 30, June 30, June 30, June 30, 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Total Revenues ............................... $ 27,226 $ 30,656 $ 14,188 $ 15,916 Property Expenses ............................ (7,504) (8,245) (3,883) (4,181) Interest Expense ............................. (1,469) (2,237) (737) (1,495) Amortization of Deferred Financing Costs ..... (34) (33) (17) (16) Depreciation and Other Amortization .......... (5,581) (5,425) (2,815) (2,674) Gain on Sale of Real Estate .................. -- 8,086 -- 6,129 Income from Discontinued Operations (Including Gain on Sale of Real Estate of $19,008 for the Six Months Ended June 30, 2002 and $10,402 for the Three months ended June 30, 2002) .................... 20,733 2,483 11,098 1,252 -------- -------- -------- -------- Net Income ................................... $ 33,371 $ 25,285 $ 17,834 $ 14,931 ======== ======== ======== ========
8 FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 4. INVESTMENTS IN JOINT VENTURES During the six months ended June 30, 2002, the Consolidated Operating Partnership, through wholly-owned limited liability companies in which the Operating Partnership is the sole member, recognized approximately $454 in asset management fees from the September 1998 Joint Venture and the September 1999 Joint Venture, and approximately $556 in property management fees from the September 1998 Joint Venture, the September 1999 Joint Venture and the December 2001 Joint Venture. The Operating Partnership, through a wholly-owned limited liability company in which it is the sole member, invested approximately $3,104 in the December 2001 Joint Venture. The Consolidated Operating Partnership, through wholly-owned limited liability companies in which the Operating Partnership is the sole member, received distributions of approximately $755 from the September 1998 Joint Venture, the September 1999 Joint Venture and the December 2001 Joint Venture. As of June 30, 2002, the September 1998 Joint Venture owned 90 industrial properties comprising approximately 4.3 million square feet of GLA, the September 1999 Joint Venture owned 31 industrial properties comprising approximately .8 million square feet of GLA and the December 2001 Joint Venture had economic interests in 14 industrial properties comprising approximately 2.5 million square feet of GLA. The properties purchased by the December 2001 Joint Venture were purchased from the Consolidated Operating Partnership. The Consolidated Operating Partnership deferred 15% of the gain resulting from these sales, which is equal to the Consolidated Operating Partnership's economic interest in the December 2001 Joint Venture. 5. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION FACILITY PAYABLE Mortgage Loans Payable, Net: On April 1, 2002, the Consolidated Operating Partnership, through the Operating Partnership, assumed a mortgage loan in the principal amount of $5,814 (the "Acquisition Mortgage Loan VIII"). The Acquisition Mortgage Loan VIII is collateralized by one property in Rancho Dominguez, California, bears interest at a fixed rate of 8.26% and provides for monthly principal and interest payments based on a 22-year amortization schedule. The Acquisition Mortgage Loan VIII matures on December 1, 2019. The Acquisition Mortgage Loan VIII may be prepaid only after November 2004 in exchange for the greater of a 1% prepayment fee or yield maintenance premium. On April 1, 2002, the Consolidated Operating Partnership, through the Operating Partnership, assumed a mortgage loan in the principal amount of $6,030 (the "Acquisition Mortgage Loan IX"). The Acquisition Mortgage Loan IX is collateralized by one property in Rancho Dominguez, California, bears interest at a fixed rate of 8.26% and provides for monthly principal and interest payments based on a 22-year amortization schedule. The Acquisition Mortgage Loan IX matures on December 1, 2019. The Acquisition Mortgage Loan IX may be prepaid only after November 2004 in exchange for the greater of a 1% prepayment fee or yield maintenance premium. On January 31, 1997, the Consolidated Operating Partnership, through the Operating Partnership, assumed a loan in the amount of $705 (the "LB Loan II"). The LB Loan II was interest free until February 1998, after which time the LB Loan II bore interest at 8.00%, and provided for interest only payments prior to maturity. On June 14, 2002, the Consolidated Operating Partnership, through the Operating Partnership, paid off and retired the LB Loan II. 9 FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 5. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION FACILITY PAYABLE, CONTINUED Senior Unsecured Debt: On April 15, 2002, the Consolidated Operating Partnership, through the Operating Partnership, issued $200,000 of senior unsecured debt which matures on April 15, 2012 and bears a coupon interest rate of 6.875% (the "2012 Notes"). The issue price of the 2012 Notes was 99.310%. Interest is paid semi-annually in arrears on April 15 and October 15. The Operating Partnership also entered into interest rate protection agreements which were used to fix the interest rate on the 2012 Notes prior to issuance. The Operating Partnership settled the interest rate protection agreements for approximately $1,772 of proceeds, which is included in other comprehensive income. The debt issue discount and the settlement amount of the interest rate protection agreements are being amortized over the life of the 2012 Notes as an adjustment to interest expense. The 2012 Notes contain certain covenants, including limitations on incurrence of debt and debt service coverage. On April 15, 2002, the Consolidated Operating Partnership, through the Operating Partnership, issued $50,000 of senior unsecured debt which matures on April 15, 2032 and bears a coupon interest rate of 7.75% (the "2032 Notes"). The issue price of the 2032 Notes was 98.660%. Interest is paid semi-annually in arrears on April 15 and October 15. The debt issue discount is being amortized over the life of the 2032 Notes as an adjustment to interest expense. The 2032 Notes contain certain covenants, including limitations on incurrence of debt and debt service coverage. On May 13, 1997, the Consolidated Operating Partnership, through the Operating Partnership, issued $100,000 of senior unsecured debt which matures on May 15, 2027 and bears a coupon interest rate of 7.15% (the" 2027 Notes"). The issue price of the 2027 Notes was 99.854%. The 2027 Notes were redeemable, at the option of the holders thereof, on May 15, 2002. The Operating Partnership received redemption notices from holders representing $84,930 of the 2027 Notes outstanding. On May 15, 2002, the Consolidated Operating Partnership, through the Operating Partnership, paid off and retired $84,930 of the 2027 Notes. Due to the partial pay off of the 2027 Notes, the Consolidated Operating Partnership has recorded an extraordinary loss of approximately $888 comprised of the amount paid above the carrying amount of the 2027 Notes, the write-off of unamortized deferred financing fees and legal costs. Acquisition Facility Payable: In January 2002, the Consolidated Operating Partnership, through the Operating Partnership, entered into an interest rate swap agreement (the "Interest Rate Swap Agreement") which fixed the interest rate on a portion of the Consolidated Operating Partnership's outstanding borrowings on its $300,000 unsecured revolving credit facility (the "2000 Unsecured Acquisition Facility"). The Operating Partnership designated this transaction as a cash flow hedge. The Interest Rate Swap Agreement has a notional value of $25,000, is effective from February 4, 2002 through February 4, 2003 and fixed the LIBOR rate at 2.4975%. Any payments or receipts from the Interest Rate Swap Agreement will be treated as a component of interest expense. The Operating Partnership anticipates that the Interest Rate Swap Agreement will be highly effective and, as a result, the change in value will be shown in other comprehensive income. 10 FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 5. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION FACILITY PAYABLE, CONTINUED The following table discloses certain information regarding the Consolidated Operating Partnership's mortgage loans payable, senior unsecured debt and acquisition facility payable:
OUTSTANDING BALANCE AT ACCRUED INTEREST PAYABLE AT INTEREST RATE AT ---------------------------- --------------------------- ---------------- JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, MATURITY 2002 2001 2002 2001 2002 DATE ---------- ------------ ----------- ------------ ----------- ---------- MORTGAGE LOANS PAYABLE, NET CIGNA Loan...................... $ 32,824 $ 33,214 $ 205 $ 207 7.500% 4/01/03 (6) Assumed Loans................... 6,282 6,538 --- --- 9.250% 1/01/13 LB Loan II..................... --- 705 --- 24 8.000% (1) Acquisition Mortgage Loan III... 2,999 3,065 22 --- 8.875% 6/01/03 Acquisition Mortgage Loan IV.... 2,255 2,286 17 --- 8.950% 10/01/06 Acquisition Mortgage Loan VI.... 905 (2) 923 (2) 6 7 8.875% 11/01/06 (7) Acquisition Mortgage Loan VIII.. 5,794 --- 40 --- 8.260% 12/01/19 Acquisition Mortgage Loan IX.... 6,009 --- 41 --- 8.260% 12/01/19 ---------- ----------- ----------- ---------- Total........................... $ 57,068 $ 46,731 $ 331 $ 238 ========== =========== =========== ========== SENIOR UNSECURED DEBT, NET 2005 Notes...................... $ 50,000 $ 50,000 $ 383 $ 383 6.900% 11/21/05 2006 Notes...................... 150,000 150,000 875 875 7.000% 12/01/06 2007 Notes...................... 149,974 (3) 149,972 (3) 1,457 1,457 7.600% 5/15/07 2011 PATS....................... 99,587 (3) 99,563 (3) 942 942 7.375% 5/15/11 (4) 2017 Notes...................... 99,852 (3) 99,847 (3) 625 625 7.500% 12/01/17 2027 Notes...................... 15,052 (3) 99,877 (3) 138 914 7.150% 5/15/27 (5) 2028 Notes...................... 199,795 (3) 199,791 (3) 7,009 7,009 7.600% 7/15/28 2011 Notes...................... 199,471 (3) 199,441 (3) 4,343 4,343 7.375% 3/15/11 2012 Notes...................... 198,649 (3) --- 2,903 --- 6.875% 4/15/12 2032 Notes...................... 49,335 (3) --- 818 --- 7.750% 4/15/32 ---------- ----------- ----------- ---------- Total........................... $1,211,715 $ 1,048,491 $ 19,493 $ 16,548 ========== =========== =========== ========== ACQUISITION FACILITY PAYABLE 2000 Unsecured Acquisition Facility..................... $ 156,100 $ 182,500 $ 399 $ 571 3.17% 6/30/03 ========== =========== =========== ==========
(1) On June 14, 2002, the Consolidated Operating Partnership, through the Operating Partnership, paid off and retired the LB Loan II. (2) At June 30, 2002, the Acquisition Mortgage Loan VI is net of an unamortized premium of $36. At December 31, 2001, the Acquisition Mortgage Loan VI is net of an unamortized premium of $41. (3) At June 30, 2002, the 2007 Notes, 2011 PATS, 2017 Notes, 2027 Notes, 2028 Notes, 2011 Notes, 2012 Notes and the 2032 Notes are net of unamortized discounts of $26, $413, $148, $18, $205, $529, $1,351 and $665, respectively. At December 31, 2001, the 2007 Notes, 2011 PATS, 2017 Notes, 2027 Notes, 2028 Notes and the 2011 Notes are net of unamortized discounts of $28, $437 $153, $123, $209 and $559, respectively. (4) The 2011 PATS are redeemable at the option of the holder thereof, on May 15, 2004. (5) The 2027 Notes were redeemable at the option of the holders thereof, on May 15, 2002. The Consolidated Operating Partnership, through the Operating Partnership, redeemed $84,930 of the 2027 Notes outstanding on May 15, 2002. (6) The Consolidated Operating Partnership has given notice to the lender of the CIGNA Loan that it intends to pay off and retire this loan in October 2002. (7) On July 2, 2002 the Consolidated Operating Partnership paid off and retired the Acquisition Mortgage Loan VI. The following is a schedule of the stated maturities and scheduled principal payments of the mortgage loans payable, senior unsecured debt and acquisition facility payable for the next five years ending December 31, and thereafter:
Amount ----------------- Remainder of 2002 $ 34,225 2003 159,927 2004 1,010 2005 51,104 2006 153,022 Thereafter 1,028,914 ----------------- Total $ 1,428,202 =================
11 FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 5. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION FACILITY PAYABLE, CONTINUED The Consolidated Operating Partnership has given notice to the lender of the CIGNA Loan (defined in Note 12) that it intends to pay off and retire this loan in October 2002. As a result, the CIGNA Loan (defined in Note 12) is shown as coming due in 2002. Also, on July 2, 2002 the Company paid off and retired the Acquisition Mortgage Loan VI. As a result, the Acquisition Mortgage Loan VI is shown as coming due in 2002 as well. Other Comprehensive Income: In conjunction with the prior issuances of senior unsecured debt, the Consolidated Operating Partnership, through the Operating Partnership, entered into interest rate protection agreements to fix the interest rate on anticipated offerings of senior unsecured debt (the "Interest Rate Protection Agreements"). In the next 12 months, the Consolidated Operating Partnership will amortize approximately $190 into net income as an increase to interest expense. The following is a roll forward of the accumulated other comprehensive loss balance relating to the Consolidated Operating Partnership's derivative transactions: Balance at December 31, 2001................................... $ (12,381) Settlement of Interest Rate Protection Agreements......... 1,772 Change in Market Value of Interest Rate Swap Agreements... (179) Amortization of Interest Rate Protection Agreements ...... 125 ------------ Balance at June 30, 2002....................................... $ (10,663) ============
6. PARTNERS' CAPITAL The Operating Partnership has issued general partnership units, limited partnership units (together, the "Units") and preferred general partnership units. The general partnership units resulted from capital contributions from the Company. The limited partnership units are issued in conjunction with the acquisition of certain properties. Subject to lock-up periods and certain adjustments, limited partnership units are convertible into common stock, par value $.01, of the Company on a one - for - one basis or cash at the option of the Company. The preferred general partnership units resulted from preferred capital contributions from the Company. The Operating Partnership will be required to make all required distributions on the preferred general partnership units prior to any distribution of cash or assets to the holders of the general and limited partnership units except for distributions required to enable the Company to maintain its qualification as a REIT. GENERAL PARTNER PREFERRED UNITS: On May 14, 1997 the Company issued 4,000,000 Depositary Shares, each representing 1/100th of a share of the Company's 8 3/4%, $.01 par value, Series B Cumulative Preferred Stock (the "Series B Preferred Stock"), at an initial offering price of $25.00 per Depositary Share. The net proceeds of $96,292 received from the Series B Preferred Stock were contributed to the Operating Partnership in exchange for 8 3/4% Series B Cumulative Preferred Units (the "Series B Preferred Units"). On or after May 14, 2002, the Series B Preferred Stock became redeemable for cash at the option of the Company, in whole or in part, at a redemption price equivalent to $25.00 per Depositary Share, or $100,000 in the aggregate, plus dividends accrued and unpaid to the redemption date. On April 12, 2002, the Company called for the redemption of all of its outstanding Series B preferred Stock at the price of $25.00 per share, plus accrued and unpaid dividends. The Company redeemed the Series B Preferred Stock on May 14, 2002 and paid a prorated second quarter dividend of $.26736 per Depositary Share, totaling approximately $1,069. The Series B Cumulative Preferred Units were redeemed on May 14, 2002 as well. Unit Contributions: During the six months ended June 30, 2002, the Company awarded 90,260 shares of restricted common stock to certain employees and 1,841 shares of restricted common stock to certain Directors. The 12 FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 6. PARTNERS' CAPITAL, CONTINUED Operating Partnership issued Units to the Company in the same amount. These shares of restricted common stock had a fair value of approximately $3,174 on the date of grant. The restricted common stock vests over periods from one to ten years. Compensation expense will be charged to earnings over the respective vesting period. During the six months ended June 30, 2002, the Company issued 940,600 non-qualified employee stock options to certain officers, Directors and employees. These non-qualified employee stock options vest over periods from one to three years, have a strike price of $30.53-$33.15 per share and expire ten years from the date of grant. During the six months ended June 30, 2002, certain employees exercised 555,068 non-qualified employee stock options. Net proceeds to the Company were approximately $15,749. The Consolidated Operating Partnership, through the Operating Partnership, issued Units to the Company in the same amount. During the six months ended June 30, 2002, the Operating Partnership issued 18,203 Units having an aggregate market value of approximately $633 in exchange for property. Distributions: On January 22, 2002, the Operating Partnership paid a fourth quarter 2001 distribution of $.6800 per Unit, totaling approximately $31,196. On April 22, 2002, the Operating Partnership paid a first quarter 2002 distribution of $.6800 per Unit, totaling approximately $31,453. On April 1, 2002, the Operating Partnership paid first quarter distributions of $54.688 per unit on its Series B Preferred Units, $53.906 per Unit on its Series C Preferred Units, $49.688 per unit on its Series D Preferred Units and $49.375 per unit on its Series E Preferred Units. The preferred unit distributions paid on April 1, 2002, totaled approximately $7,231. On May 14, 2002, the Operating Partnership paid a prorated second quarter distribution of $26.736 per unit, totaling approximately $1,069 on its Series B Preferred Units. 7. ACQUISITION AND DEVELOPMENT OF REAL ESTATE During the six months ended June 30, 2002, the Consolidated Operating Partnership acquired 13 industrial properties comprising approximately 2.0 million square feet of GLA and one land parcel. The aggregate purchase price for these acquisitions totaled approximately $75,404 excluding costs incurred in conjunction with the acquisition of the properties. The Consolidated Operating Partnership also completed the development of five industrial properties comprising approximately .9 million square feet of GLA at a cost of approximately $35.7 million. 8. SALES OF REAL ESTATE, REAL ESTATE HELD FOR SALE AND DISCONTINUED OPERATIONS During the six months ended June 30, 2002, the Consolidated Operating Partnership sold 31 industrial properties comprising approximately 2.6 million square feet of GLA that were not classified as held for sale at December 31, 2001, nine properties comprising approximately .4 million square feet of GLA that were classified as held for sale at December 31, 2001 and several land parcels. Gross proceeds from these sales were approximately $140,201. The gain on sale of real estate was approximately $16,487, of which $13,231 is shown in discontinued operations. In accordance with FAS 144, the results of operations and gain on sale of real estate for the 31 sold properties that were not identified as held for sale at December 31, 2001 are included in discontinued operations. At June 30, 2002, the Consolidated Operating Partnership had ten industrial properties comprising approximately 1.2 million square feet of GLA held for sale. Four of the ten properties comprising approximately .7 million square feet of GLA held for sale at June 30, 2002 were identified as held for sale as of December 31, 2001. In accordance with FAS 144, the results of operations of the properties identified 13 FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 8. SALES OF REAL ESTATE, REAL ESTATE HELD FOR SALE AND DISCONTINUED OPERATIONS, CONTINUED as held for sale during the six months ended June 30, 2002 are included in discontinued operations. There can be no assurance that such properties held for sale will be sold. The following table discloses certain information regarding the four industrial properties identified as held for sale by the Consolidated Operating Partnership, prior to January 1, 2002.
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, ----------------------------- --------------------------- 2002 2001 2002 2001 ------------- ------------ ------------ ----------- Total Revenues $ 1,531 $ 1,242 $ 712 $ 571 Operating Expenses (511) (538) (259) (255) ------------- ------------ ------------ ----------- Net Income $ 1,020 $ 704 $ 453 $ 316 ============= ============ ============ ===========
9. SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS Supplemental disclosure of cash flow information:
Six Months Ended ------------------------------- June 30, June 30, 2002 2001 ----------- ------------ Interest paid, net of capitalized interest ....................... $ 38,369 $ 38,351 ======== ======== Interest capitalized ............................................. $ 5,204 $ 4,297 ======== ======== Supplemental schedule of non-cash investing and financing activities: Distribution payable on units .................................... $ 31,607 $ 30,688 ======== ======== Distribution payable on preferred units .......................... $ 5,044 $ 7,231 ======== ======== Issuance of Units in exchange for property .......................... $ 633 $ 1,491 ======== ======== Exchange of limited partnership units for general partnership units: Limited partnership units ....................................... $ (1,628) $ (4,213) General partnership units ....................................... 1,628 4,213 -------- -------- $ -- $ -- ======== ======== In conjunction with the property and land acquisitions, the following liabilities were assumed: Purchase of real estate ...................................... $ 75,404 $ 87,076 Accrued real estate taxes and security deposits ............... (348) (866) Mortgage Debt ................................................. (11,844) -- -------- -------- $ 63,212 $ 86,210 ======== ======== In conjunction with a property sale, the Consolidated Operating Partnership provided seller financing on behalf of a certain buyer: Notes Receivable ............................................. $ 5,280 $ -- ======== ========
14 FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 10. EARNINGS PER UNIT ("EPU") The computation of basic and diluted EPU is presented below:
Six Months Ended Three Months Ended --------------------------- ---------------------------- June 30, June 30, June 30, June 30, 2002 2001 2002 2001 ------------ ------------ ----------- -------------- Numerator: Income from Continuing Operations ...................... $ 54,659 $ 77,694 $ 28,111 $ 40,356 Less: Preferred Distributions .......................... (13,344) (14,462) (6,113) (7,231) ----------- ----------- ----------- -------------- Income from Continuing Operations Available to Unitholders For Basic and Diluted EPU ............. 41,315 63,232 21,998 33,125 Discontinued Operations ................................ 15,824 4,042 7,626 2,003 ----------- ----------- ----------- -------------- Net Income Available to Unitholders before Extraordinary Loss For Basic and Diluted EPU ..................... 57,139 67,274 29,624 35,128 Extraordinary Loss ..................................... (888) (10,309) (888) (10,309) ----------- ----------- ----------- -------------- Net Income Available to Unitholders .................... $ 56,251 $ 56,965 $ 28,736 $ 24,819 =========== =========== =========== ============== Denominator: Weighted Average Units - Basic ......................... 46,148,266 46,383,713 46,346,174 46,580,767 Effect of Dilutive Securities: Employee and Director Common Stock Options of the Company that Result in the Issuance of General Partnership Units ................................... 346,382 373,698 422,871 289,465 ----------- ----------- ----------- -------------- Weighted Average Units Outstanding- Diluted ............ 46,494,648 46,757,411 46,769,045 46,870,232 =========== =========== =========== ============== Basic EPU: Income from Continuing Operations Available to Unitholders ......................................... $ .90 $ 1.36 $ .47 $ .71 =========== =========== =========== ============== Discontinued Operations ................................ $ .34 $ .09 $ .16 $ .04 =========== =========== =========== ============== Net Income Available to Unitholders Before Extraordinary Loss ................................................ $ 1.24 $ 1.45 $ .64 $ .75 =========== =========== =========== ============== Extraordinary Loss ..................................... $ (.02) $ (.22) $ (.02) $ (.22) =========== =========== =========== ============== Net Income Available to Unitholders .................... $ 1.22 $ 1.23 $ .62 $ .53 =========== =========== =========== ============== Diluted EPU: Income from Continuing Operations Available to Unitholders ......................................... $ .89 $ 1.35 $ .47 $ .71 =========== =========== =========== ============== Discontinued Operations ................................ $ .34 $ .09 $ .16 $ .04 =========== =========== =========== ============== Net Income Available to Unitholders Before Extraordinary Loss ................................................ $ 1.23 $ 1.44 $ .63 $ .75 =========== =========== =========== ============== Extraordinary Loss ..................................... $ (.02) $ (.22) $ (.02) $ (.22) =========== =========== =========== ============== Net Income Available to Unitholders .................... $ 1.21 $ 1.22 $ .61 $ .53 =========== =========== =========== ==============
11. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Consolidated Operating Partnership is involved in legal actions arising from the ownership of its properties. In management's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a materially adverse effect on the consolidated financial position, operations or liquidity of the Consolidated Operating Partnership. The Consolidated Operating Partnership has committed to the construction of 34 development projects totaling approximately 4.4 million square feet of GLA for an estimated investment of approximately $214.9 million. Of this amount, approximately $48.4 million remains to be funded. These developments are expected to be funded with proceeds from the sale of select properties, cash flows from operations and borrowings under the Operating Partnership's 2000 Unsecured Acquisition Facility. The 15 FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 11. COMMITMENTS AND CONTINGENCIES, CONTINUED Consolidated Operating Partnership expects to place in service all of these development projects during the next twelve months. There can be no assurance that the Consolidated Operating Partnership will place these projects in service during the next twelve months or that the actual completion cost will not exceed the estimated completion cost stated above. 12. SUBSEQUENT EVENTS From July 1, 2002 to August 9, 2002, the Consolidated Operating Partnership acquired three industrial properties for an aggregate purchase price of approximately $4,550, excluding costs incurred in conjunction with the acquisition of these industrial properties. The Consolidated Operating Partnership also sold for industrial properties and several land parcels for approximately $21,060 of gross proceeds. On July 1, 2002, the Operating Partnership paid second quarter distributions of $53.906 per unit on its Series C Preferred Units, $49.687 per unit on its Series D Preferred Units and $49.375 per unit on its Series E Preferred Units. The preferred unit distributions paid on July 1, 2002 totaled approximately $5,044. On August 31, 1998, the Consolidated Operating Partnership, through the Operating Partnership, assumed a mortgage loan in the principal amount of $965 (the "Acquisition Mortgage Loan VI"). The Acquisition Mortgage Loan VI was collateralized by one property in Portland, Oregon, bore interest at a fixed rate of 8.875% and provided for monthly principal and interest payments based on a 20-year amortization schedule. On July 2, 2002, the Consolidated Operating Partnership, through the Operating Partnership paid off and retired the Acquisition Mortgage Loan VI. On March 20, 1996 the Consolidated Operating Partnership, through the Operating Partnership, entered into a $36,750 mortgage loan (the "CIGNA Loan") that is collateralized by seven properties in Indianapolis, Indiana and three properties in Cincinnati, Ohio. The CIGNA Loan bears interest at a fixed interest rate of 7.50% and provides for monthly principal and interest payments based on a 25 - year amortization schedule. The CIGNA Loan matures on April 1, 2003. The Consolidated Operating Partnership has given notice to the lender of the CIGNA Loan that it intends to pay off and retire this loan in October 2002. On July 22, 2002, the Operating Partnership paid a second quarter 2002 distribution of $.6800 per Unit, totaling approximately $31,607. 16 FIRST INDUSTRIAL, L.P. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of First Industrial, L.P.'s (the "Operating Partnership") financial condition and results of operations should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Form 10-Q. This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Operating Partnership intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Operating Partnership, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions. The Operating Partnership's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Operating Partnership on a consolidated basis include, but are not limited to, changes in: economic conditions generally and the real estate market specifically, legislative/regulatory changes (including changes to laws governing the taxation of real estate investment trusts), availability of financing, interest rate levels, competition, supply and demand for industrial properties in the Operating Partnership's current and proposed market areas, potential environmental liabilities, slippage in development or lease-up schedules, tenant credit risks, higher-than-expected costs and changes in general accounting principles, policies and guidelines applicable to real estate investment trusts. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Operating Partnership and its business, including additional factors that could materially affect the Operating Partnership's financial results, is included herein and in the Operating Partnership's other filings with the Securities and Exchange Commission. The Operating Partnership was organized as a limited partnership in the state of Delaware on November 23, 1993. The sole general partner of the Operating Partnership is First Industrial Realty Trust, Inc. (the "Company") with an approximate 85.1% ownership interest at June 30, 2002. The limited partners of the Operating Partnership own, in the aggregate, approximately a 14.9% interest in the Operating Partnership at June 30, 2002. The Company also owns a preferred general partnership interest in the Operating Partnership with an aggregate liquidation priority of $250.0 million. The Company is a real estate investment trust ("REIT") as defined in the Internal Revenue Code. The Company's operations are conducted primarily through the Operating Partnership. The Operating Partnership is the sole member of several limited liability companies (the "L.L.C.s") and the sole shareholder of First Industrial Development Services, Inc. and holds at least a 99% limited partnership interest in each of eight limited partnerships (together, the "Other Real Estate Partnerships"). The Operating Partnership, through separate wholly-owned limited liability companies in which it is the sole member, also owns minority equity interests in and provides asset and property management services to three joint ventures which invest in industrial properties (the "September 1998 Joint Venture", the "September 1999 Joint Venture" and the "December 2001 Joint Venture"). The financial statements of the Operating Partnership report the L.L.C.s and First Industrial Development Services, Inc. (the "Consolidated Operating Partnership") on a consolidated basis. The Other Real Estate Partnerships, the September 1998 Joint Venture, the September 1999 Joint Venture and the December 2001 Joint Venture are accounted for under the equity method of accounting. 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 17 partner. Each general partner of the Other Real Estate Partnerships is a wholly-owned subsidiary of the Company. Profits, losses and distributions of the Operating Partnership, the L.L.C.s and the Other Real Estate Partnerships are allocated to the general partner and the limited partners, or members, as applicable, in accordance with the provisions contained within the partnership agreements or operating agreements, as applicable, of the Operating Partnership, the L.L.C.s and the Other Real Estate Partnerships. RESULTS OF OPERATIONS At June 30, 2002, the Consolidated Operating Partnership owned 788 in-service properties with approximately 52.0 million square feet of gross leasable area ("GLA"), compared to 838 in-service properties with approximately 53.5 million square feet of GLA at June 30, 2001. During the period between July 1, 2001 and June 30, 2002, the Consolidated Operating Partnership acquired 40 properties containing approximately 3.9 million square feet of GLA, and one out of service property with approximately .1 million square feet of GLA, completed development of seven properties totaling approximately 1.1 million square feet of GLA and sold 98 in-service properties totaling approximately 6.2 million square feet of GLA, four out of service properties and several land parcels. The Consolidated Operating Partnership also took four properties out of service that are under redevelopment comprising approximately .6 million square feet of GLA, and placed in-service three properties comprising approximately .2 million square feet of GLA. In addition, the Other Real Estate Partnerships distributed two industrial properties comprising approximately .1 million square feet of GLA to the Consolidated Operating Partnership. COMPARISON OF SIX MONTHS ENDED JUNE 30, 2002 TO SIX MONTHS ENDED JUNE 30, 2001 Rental income and tenant recoveries and other income decreased by approximately $9.4 million or 5.9% due primarily to a decrease in average occupied GLA for the six months ended June 30, 2002 as compared to the six months ended June 30, 2001. Rental income and tenant recoveries and other income from properties owned prior to January 1, 2001 decreased by approximately $1.5 million or 1.1% due primarily to a decrease in occupancy for the six months ended June 30, 2002 as compared to the six months ended June 30, 2001. Property expenses, which include real estate taxes, repairs and maintenance, property management, utilities, insurance and other expenses, decreased by approximately $.8 million or 1.7%. This decrease is due primarily to decreases in real estate taxes, utilities and other expenses, slightly offset by an increase in repairs and maintenance. The decrease in real estate taxes and utilities is primarily due to a decrease in average GLA owned for the six months ended June 30, 2002 as compared to the six months ended June 30, 2001. The decrease in other expenses is primarily due to a decrease in bad debt expense and a decrease in master lease payments. The increase in repairs and maintenance is primarily due to an increase in maintenance expenses as well as snow removal and related expenses. Property expenses from properties owned prior to January 1, 2001 increased by approximately $1.5 million or 4.0% due primarily to an increase in real estate taxes and repairs and maintenance. The increase in real estate taxes is primarily due to an increase in real estate taxes in many of the Company's markets. The increase in repairs and maintenance is due primarily to the explanation above. General and administrative expense increased by approximately $.8 million due primarily to increases in employee compensation and additional employees for the six months ended June 30, 2002 as compared to the six months ended June 30, 2001, offset by the write-off of the Consolidated Operating Partnership's technology investment in the second quarter of 2001. 18 Interest expense increased by approximately $.8 million for the six months ended June 30, 2002 compared to the six months ended June 30, 2001 due primarily to a higher average debt balance outstanding for the six months ended June 30, 2002 compared to the six months ended June 30, 2001. The average debt balance outstanding for the six months ended June 30, 2002 and 2001 was approximately $1,352.3 million and $1,269.4 million, respectively. This was slightly offset by a decrease in the weighted average interest rate on the Consolidated Operating Partnership's outstanding debt for the six months ended June 30, 2002 (6.83%) as compared to the six months ended June 30, 2001 (7.18%), as well as an increase in capitalized interest due to an increase in development activities. Amortization of deferred financing costs remained relatively unchanged. Depreciation and other amortization increased by approximately $3.6 million due primarily to a decrease in the number of properties the Consolidated Operating Partnership considered held for sale at June 30, 2002 as compared to June 30, 2001. Equity in income of Other Real Estate Partnerships increased by approximately $9.1 million due primarily to an increase in gain on sale of real estate. Equity in income of joint ventures increased by approximately $.1 million or 32.1% due primarily to an increase in gain on sale of real estate and the start up of one of the Consolidated Operating Partnership's joint ventures in December 2001. The approximate $3.3 million gain on sale of real estate for the six months ended June 30, 2002 resulted from the sale of nine industrial properties that were identified as held for sale at December 31, 2001. Gross proceeds from these sales were approximately $16.1 million. The approximate $21.6 million gain on sale of real estate for the six months ended June 30, 2001 resulted from the sale of 62 industrial properties and several land parcels. Gross proceeds from these sales were approximately $171.3 million. Income from discontinued operations of approximately $15.8 million for the six months ended June 30, 2002 reflects the results of operations and gain on sale of 31 industrial properties and several land parcels that were not held for sale at December 31, 2001 and were sold during the six months ended June 30, 2002 as well as the results of operations of six industrial properties identified as held for sale during the six months ended June 30, 2002. Gross proceeds from the sales of the 31 industrial properties and several land parcels were approximately $124.1 million, resulting in a gain on sale of real estate of approximately $13.2 million. Income from discontinued operations of approximately $4.0 million for the six months ended June 30, 2001 reflects the results of operations of the 31 industrial properties that were not held for sale at December 31, 2001 and were sold during the six months ended June 30, 2002 as well as the results of operations of six industrial properties identified as held for sale during the six months ended June 30, 2002. The approximate $.9 million extraordinary loss for the six months ended June 30, 2002 is due to the early retirement of senior unsecured debt and various mortgage loans. The extraordinary loss is comprised of the amount paid above the carrying amount of the senior unsecured debt, the write-off of unamortized deferred financing fees and legal costs. The approximate $10.3 million extraordinary loss for the six months ended June 30, 2001 is due to the early retirement of senior unsecured debt and various mortgage loans. The extraordinary loss is comprised of the amount paid above the carrying amount of the senior unsecured debt, the write-off of unamortized deferred financing fees, the write-off of the unamortized portion of an interest rate protection agreement which was used to fix the interest rate on the senior unsecured debt prior to issuance, the settlement of an interest rate protection agreement used to fix the retirement price of the senior unsecured debt, prepayment fees, legal costs and other expenses. 19 COMPARISON OF THREE MONTHS ENDED JUNE 30, 2002 TO THREE MONTHS ENDED JUNE 30, 2001 Rental income and tenant recoveries and other income decreased by approximately $1.8 million or 2.3% due primarily to a decrease in average occupied GLA for the three months ended June 30, 2002 as compared to the three months ended June 30, 2001. Rental income and tenant recoveries and other income from properties owned prior to April 1, 2001, increased by approximately $.7 million or 1.1% due primarily to an increase in tenant recoveries due to an increase in property expenses (as discussed below) for the three months ended June 30, 2002 as compared to the three months ended June 30, 2001. Property expenses, which include real estate taxes, repairs and maintenance, property management, utilities, insurance and other expenses, increased by approximately $2.0 million or 8.5%. This increase is due primarily to increases in real estate taxes and repairs and maintenance expense. The increase in real estate taxes is primarily due to an increase in real estate taxes in many of the Consolidated Operating Partnership's markets. The increase in repairs and maintenance is primarily due to an increase in maintenance company expenses. Property expenses from properties owned prior to April 1, 2001 increased by approximately $2.4 million or 13.2% due primarily to the explanations above. General and administrative expense remained relatively unchanged. An increase in employee compensation and additional employees for the three months ended June 30, 2002 as compared to the three months ended June 30, 2001 was offset by the write off of the Consolidated Operating Partnership's technology investment in the second quarter of 2001. Interest expense increased by approximately $2.2 million for the three months ended June 30, 2002 compared to the three months ended June 30, 2001 due primarily to a higher average debt balance outstanding for the three months ended June 30, 2002 compared to the three months ended June 30, 2001. The average debt balance outstanding for the three months ended June 30, 2002 and 2001 was approximately $1,396.7 million and $1,291.0 million, respectively. This was slightly offset by a decrease in the weighted average interest rate on the Consolidated Operating Partnership's outstanding debt for the three months ended June 30, 2002 (6.96%) as compared to the three months ended June 30, 2001 (7.11%), as well as an increase in capitalized interest due to an increase in development activities. Amortization of deferred financing costs remained relatively unchanged. Depreciation and other amortization increased by approximately $2.2 million due primarily to a decrease in the number of properties the Consolidated Operating Partnership considered held for sale at June 30, 2002 as compared to June 30, 2001. Equity in income of Other Real Estate Partnerships increased by approximately $3.0 million due primarily to an increase in gain on sale of real estate. Equity in income of joint ventures increased by approximately $.1 million or 41.6% due primarily to the start up of one of the Consolidated Operating Partnership's joint ventures in December 2001. The approximate $2.6 million gain on sale of real estate for the three months ended June 30, 2002 resulted from the sale of seven industrial properties that were identified as held for sale at December 31, 2001. Gross proceeds from these sales were approximately $11.3 million. The approximate $9.7 million gain on sale of real estate for the three months ended June 30, 2001 resulted from the sale of 40 industrial properties and several land parcels. Gross proceeds from these sales were approximately $116.6 million. Income from discontinued operations of approximately $7.6 million for the three months ended June 30, 2002 reflects the results of operations and gain on sale of 16 industrial properties and several land parcels that were not held for sale at December 31, 2001 and were sold during the three months ended June 30, 2002 as well as the results of operations of six industrial properties identified as held for sale during the three months ended June 30, 2002. 20 Gross proceeds from the sales of the 16 industrial properties and several land parcels were approximately $61.1 million, resulting in a gain on sale of real estate of approximately $6.8 million. Income from discontinued operations of approximately $2.0 million for the three months ended June 30, 2001 reflects the results of operations of the 16 industrial properties that were not held for sale at December 31, 2001 and were sold during the three months ended June 30, 2002 as well as the results of operations of six industrial properties identified as held for sale during the three months ended June 30, 2002. The approximate $.9 million extraordinary loss for the three months ended June 30, 2002 is due to the early retirement of senior unsecured debt and various mortgage loans. The extraordinary loss is comprised of the amount paid above the carrying amount of the senior unsecured debt, the write-off of unamortized deferred financing fees and legal costs. The approximate $10.3 million extraordinary loss for the three months ended June 30, 2001 is due to the early retirement of senior unsecured debt and various mortgage loans. The extraordinary loss is comprised of the amount paid above the carrying amount of the senior unsecured debt, the write-off of unamortized deferred financing fees, the write-off of the unamortized portion of an interest rate protection agreement which was used to fix the interest rate on the senior unsecured debt prior to issuance, the settlement of an interest rate protection agreement used to fix the retirement price of the senior unsecured debt, prepayment fees, legal costs and other expenses. LIQUIDITY AND CAPITAL RESOURCES On June 30, 2002, the Consolidated Operating Partnership's cash and cash equivalents was approximately $1.4 million and restricted cash totaled approximately $18.6 million. Restricted cash was comprised of gross proceeds from the sales of certain properties. These sales proceeds will be disbursed as the Consolidated Operating Partnership exchanges properties under Section 1031 of the Internal Revenue Code. SIX MONTHS ENDED JUNE 30, 2002 Net cash provided by operating activities of approximately $69.1 million for the six months ended June 30, 2002 was comprised primarily of net income of approximately $69.6 million and adjustments for non-cash items of approximately $18.8 million, offset by the net change in operating assets and liabilities of approximately $19.3 million. The adjustments for the non-cash items of approximately $18.8 million are primarily comprised of depreciation and amortization of approximately $35.5 million and an extraordinary loss of approximately $.9 million from the early retirement of debt, offset by the gain on sale of real estate of approximately $16.5 million and the effect of the straight-lining of rental income of approximately $1.1 million. Net cash used in investing activities of approximately $45.2 million for the six months ended June 30, 2002 was comprised primarily of the acquisition of real estate, development of real estate, capital expenditures related to the expansion and improvement of existing real estate, an increase in restricted cash from sales proceeds deposited with an intermediary for Section 1031 exchange purposes, investments in and advances to the Other Real Estate Partnerships and contributions to and investments in the December 2001 Joint Venture, offset by the net proceeds from the sale of real estate, distributions from the Other Real Estate Partnerships, distributions from the Consolidated Operating Partnership's industrial real estate joint ventures and the repayment of mortgage loans receivable. Net cash used in financing activities of approximately $22.5 million for the six months ended June 30, 2002 was comprised primarily of the redemption of its Series B Preferred Units (defined below), the partial pay off of the 2027 Notes (defined below), general partnership and limited partnership units ("Unit") distributions and preferred general partnership unit distributions, repayments on mortgage loans payable, repurchase of restricted units due to the repurchase of restricted stock from employees of the Company to pay for withholding taxes on the vesting of restricted stock and net borrowings under the Operating Partnership's $300 million unsecured line of credit (the "2000 21 Unsecured Acquisition Facility"), offset by the net proceeds from the issuance of senior unsecured debt and Unit contributions. SIX MONTHS ENDED JUNE 30, 2001 Net cash provided by operating activities of approximately $73.8 million for the six months ended June 30, 2001 was comprised primarily of net income of approximately $71.4 million and adjustments for non-cash items of approximately $19.8 million, offset by the net change in operating assets and liabilities of approximately $17.4 million. The adjustments for the non-cash items of approximately $19.8 million are primarily comprised of depreciation and amortization of approximately $32.2 million and an extraordinary loss of approximately $10.3 million from the early retirement of debt, offset by the gain on sale of real estate of approximately $21.6 million and the effect of the straight-lining of rental income of approximately $1.1 million. Net cash used in investing activities of approximately $58.4 million for the six months ended June 30, 2001 was comprised primarily of the acquisition of real estate, development of real estate, capital expenditures related to the expansion and improvement of existing real estate, funding of a mortgage loan receivable, an increase in restricted cash from sales proceeds deposited with an intermediary for Section 1031 exchange purposes and investments in and advances to the Other Real Estate Partnerships, offset by the net proceeds from the sale of real estate, distributions from investment in Other Real Estate Partnerships, distributions from the Operating Partnership's industrial real estate joint ventures and the repayment of mortgage loans receivable. Net cash used in financing activities of approximately $13.9 million for the six months ended June 30, 2001 was comprised primarily of Unit and preferred general partnership unit distributions, the repurchase of restricted units due to the repurchase of restricted stock from employees of the Company to pay for withholding taxes on the vesting of restricted stock, repayment of senior unsecured debt, repayments on mortgage loans payable, prepayment fees incurred in repayment of senior unsecured debt, prepayment fees incurred in the early retirement of two mortgage loans and the net repayments under the Operating Partnership's 2000 Unsecured Acquisition Facility, offset by Unit contributions and the net proceeds from the issuance of senior unsecured debt. INVESTMENT IN REAL ESTATE AND DEVELOPMENT OF REAL ESTATE During the six months ended June 30, 2002, the Consolidated Operating Partnership acquired 13 industrial properties comprising approximately 2.0 million square feet of GLA, and one land parcel. The aggregate purchase price for these acquisitions totaled approximately $75.4 million, excluding costs incurred in conjunction with the acquisition of the property. The Consolidated Operating Partnership also completed the development of five industrial properties comprising approximately .9 million square feet of GLA at a cost of approximately $35.7 million. The Consolidated Operating Partnership has committed to the construction of 34 development projects totaling approximately 4.4 million square feet of GLA for an estimated investment of approximately $214.9 million. Of this amount, approximately $48.4 million remains to be funded. These developments are expected to be funded with proceeds from the sale of select properties, cash flows from operations and borrowings under the Operating Partnership's 2000 Unsecured Acquisition Facility. The Consolidated Operating Partnership expects to place in service all of these developments during the next twelve months. There can be no assurance that the Consolidated Operating Partnership will place these projects in service during the next twelve months or that the actual completion cost will not exceed the estimated completion cost stated above. SALE OF REAL ESTATE, REAL ESTATE HELD FOR SALE AND DISCONTINUED OPERATIONS During the six months ended June 30, 2002, the Consolidated Operating Partnership sold 31 industrial properties comprising approximately 2.6 million square feet of GLA that were not classified as held for sale at December 31, 2001, nine properties comprising .4 million square feet of GLA that were 22 classified as held for sale at December 31, 2001 and several land parcels. Gross proceeds from these sales were approximately $140.2 million. In accordance with FAS 144, the results of operations and gain on sale of real estate for the 31 sold properties that were not identified as held for sale at December 31, 2001 are included in discontinued operations. At June 30, 2002, the Consolidated Operating Partnership had ten industrial properties comprising approximately 1.2 million square feet of GLA held for sale. Four of the ten properties comprising approximately .7 million square feet of GLA that were held for sale as of June 30, 2002 were identified as held for sale at December 31, 2001. Income from operations for the four industrial properties held for sale for the six months ended June 30, 2002 and 2001 is approximately $1.0 million and $.7 million, respectively. Income from operations for these four industrial properties held for sale for the three months ended June 30, 2002 and 2001 is approximately $.5 million and $.3 million, respectively. Net carrying value of the ten industrial properties held for sale at June 30, 2002 is approximately $33.8 million. In accordance with FAS 144, the results of operations of the properties identified as held for sale during the six months ended June 30, 2002 are included in discontinued operations. There can be no assurance that such properties held for sale will be sold. INVESTMENTS IN JOINT VENTURES During the six months ended June 30, 2002, the Consolidated Operating Partnership, through wholly-owned limited liability companies in which the Operating Partnership is the sole member, recognized, in the aggregate, approximately $1.0 million in asset management and property management fees from the September 1998 Joint Venture, the September 1999 Joint Venture and the December 2001 Joint Venture. The Operating Partnership, through a wholly-owned limited liability company in which it is the sole member, invested approximately $3.1 million in the December 2001 Joint Venture. The Consolidated Operating Partnership, through wholly-owned limited liability companies in which the Operating Partnership is the sole member, received distributions of approximately $.8 million from the September 1998 Joint Venture and the September 1999 Joint Venture. As of June 30, 2002, the September 1998 Joint Venture owned 90 industrial properties comprising approximately 4.3 million square feet of GLA, the September 1999 Joint Venture owned 31 industrial properties comprising approximately .8 million square feet of GLA and the December 2001 Joint Venture had economic interests in 14 industrial properties comprising approximately 2.5 million square feet of GLA. The properties purchased by the December 2001 Joint Venture were purchased from the Consolidated Operating Partnership. The Consolidated Operating Partnership deferred 15% of the gain resulting from these sales, which is equal to the Consolidated Operating Partnership's economic interest in the December 2001 Joint Venture. MORTGAGE LOANS PAYABLE On April 1, 2002, the Consolidated Operating Partnership, through the Operating Partnership, assumed a mortgage loan in the principal amount of approximately $5.8 million (the "Acquisition Mortgage Loan VIII"). The Acquisition Mortgage Loan VIII is collateralized by one property in Rancho Dominguez, California, bears interest at a fixed rate of 8.26% and provides for monthly principal and interest payments based on a 22-year amortization schedule. The Acquisition Mortgage Loan VIII matures on December 1, 2019. The Acquisition Mortgage Loan VIII may be prepaid only after November 2004 in exchange for the greater of a 1% prepayment fee or yield maintenance premium. On April 1, 2002, the Consolidated Operating Partnership, through the Operating Partnership, assumed a mortgage loan in the principal amount of approximately $6.0 million (the "Acquisition Mortgage Loan IX"). The Acquisition Mortgage Loan IX is collateralized by one property in Rancho Dominguez, California, bears interest at a fixed rate of 8.26% and provides for monthly principal and interest payments based on a 22-year amortization schedule. The Acquisition Mortgage Loan IX matures on December 1, 2019. The Acquisition Mortgage Loan IX may be prepaid only after November 2004 in exchange for the greater of a 1% prepayment fee or yield maintenance premium. 23 On January 31, 1997, the Consolidated Operating Partnership, through the Operating Partnership, assumed a loan in the amount of approximately $.7 million (the "LB Loan II"). The LB Loan II was interest free until February 1998, after which time the LB Loan II bore interest at 8.00%, and provided for interest only payments prior to maturity. On June 14, 2002, the Consolidated Operating Partnership, through the Operating Partnership, paid off and retired the LB Loan II. SENIOR UNSECURED DEBT On April 15, 2002, the Operating Partnership issued $200 million of senior unsecured debt which matures on April 15, 2012 and bears a coupon interest rate of 6.875% (the "2012 Notes"). The issue price of the 2012 Notes was 99.310%. Interest is paid semi-annually in arrears on April 15 and October 15. The Operating Partnership also entered into interest rate protection agreements which were used to fix the interest rate on the 2012 Notes prior to issuance. The Operating Partnership settled the interest rate protection agreements for approximately $1.8 million of proceeds, which is included in other comprehensive income. The debt issue discount and the settlement amount of the interest rate protection agreements are being amortized over the life of the 2012 Notes as an adjustment to interest expense. The 2012 Notes contain certain covenants, including limitations on incurrence of debt and debt service coverage. On April 15, 2002, the Operating Partnership issued $50 million of senior unsecured debt which matures on April 15, 2032 and bears a coupon interest rate of 7.75% (the "2032 Notes"). The issue price of the 2032 Notes was 98.660%. Interest is paid semi-annually in arrears on April 15 and October 15. The debt issue discount is being amortized over the life of the 2032 Notes as an adjustment to interest expense. The 2032 Notes contain certain covenants, including limitations on incurrence of debt and debt service coverage. On May 13, 1997, the Consolidated Operating Partnership, through the Operating Partnership, issued $100 million of senior unsecured debt which matures on May 15, 2027 and bears a coupon interest rate of 7.15% (the "2027 Notes"). The issue price of the 2027 Notes was 99.854%. The 2027 Notes were redeemable, at the option of the holders thereof, on May 15, 2002. The Operating Partnership received redemption notices from holders representing approximately $84.9 million of the 2027 Notes outstanding. On May 15, 2002, the Consolidated Operating Partnership, through the Operating Partnership, paid off and retired approximately $84.9 million of the 2027 Notes. Due to the partial pay off of the 2027 Notes, the Consolidated Operating Partnership has recorded an extraordinary loss of approximately $.9 million comprised of the amount paid above the carrying amount of the 2027 Notes, the write-off of unamortized deferred financing fees and legal costs. GENERAL PARTNER PREFERRED UNITS On May 14, 1997 the Company issued 4,000,000 Depositary Shares, each representing 1/100th of a share of the Company's 8 3/4%, $.01 par value, Series B Cumulative Preferred Stock (the "Series B Preferred Stock"), at an initial offering price of $25.00 per Depositary Share. The net proceeds of approximately $96.3 million received from the Series B Preferred Stock were contributed to the Operating Partnership in exchange for 8 3/4% Series B Cumulative Preferred Units (the "Series B Preferred Units"). On or after May 14, 2002, the Series B Preferred Stock became redeemable for cash at the option of the Company, in whole or in part, at a redemption price equivalent to $25.00 per Depositary Share, or $100 million in the aggregate, plus dividends accrued and unpaid to the redemption date. On April 12, 2002, the Company called for the redemption of all of its outstanding Series B Preferred Stock at the price of $25.00 per share, plus accrued and unpaid dividends. The Company redeemed the Series B Preferred Stock on May 14, 2002 and paid a prorated second quarter dividend of $.26736 per Depositary Share, totaling approximately $1.1 million. The Series B Cumulative Preferred Units were redeemed on May 14, 2002 as well. MARKET RISK 24 The following discussion about the Consolidated Operating Partnership's risk-management activities includes "forward-looking statements" that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. This analysis presents the hypothetical gain or loss in earnings, cash flows or fair value of the financial instruments and derivative instruments which are held by the Consolidated Operating Partnership at June 30, 2002 that are sensitive to changes in the interest rates. While this analysis may have some use as a benchmark, it should not be viewed as a forecast. In the normal course of business, the Consolidated Operating Partnership also faces risks that are either non-financial or non-quantifiable. Such risks principally include credit risk and legal risk and are not represented in the following analysis. At June 30, 2002, $1,343.8 million (approximately 94.3% of total debt at June 30, 2002) of the Consolidated Operating Partnership's debt was fixed rate debt (included in the fixed rate debt is $75.0 million of borrowings under the Consolidated Operating Partnership's 2000 Unsecured Acquisition Facility which the Consolidated Operating Partnership fixed the interest rate via interest rate swap agreements) and $81.1 million (approximately 5.7% of total debt at June 30, 2002) was variable rate debt. The Consolidated Operating Partnership also had outstanding a written put option (the "Written Option"), which was issued in conjunction with the initial offering of one tranche of senior unsecured debt. Currently, the Consolidated Operating Partnership does not enter into financial instruments for trading or other speculative purposes. For fixed rate debt, changes in interest rates generally affect the fair value of the debt, but not earnings or cash flows of the Consolidated Operating Partnership. Conversely, for variable rate debt, changes in the interest rate generally do not impact the fair value of the debt, but would affect the Consolidated Operating Partnership's future earnings and cash flows. The interest rate risk and changes in fair market value of fixed rate debt generally do not have a significant impact on the Consolidated Operating Partnership until the Consolidated Operating Partnership is required to refinance such debt. See Note 5 to the consolidated financial statements for a discussion of the maturity dates of the Consolidated Operating Partnership's various fixed rate debt. Based upon the amount of variable rate debt outstanding at June 30, 2002, a 10% increase or decrease in the interest rate on the Consolidated Operating Partnership's variable rate debt would decrease or increase, respectively, future net income and cash flows by approximately $.2 million per year. A 10% increase in interest rates would decrease the fair value of the fixed rate debt at June 30, 2002 by approximately $62.1 million to $1,401.4 million. A 10% decrease in interest rates would increase the fair value of the fixed rate debt at June 30, 2002 by approximately $68.1 million to $1,531.6 million. A 10% increase in interest rates would decrease the fair value of the Written Option at June 30, 2002 by approximately $2.3 million to $6.5 million. A 10% decrease in interest rates would increase the fair value of the Written Option at June 30, 2002 by approximately $2.8 million to $11.6 million. GENERAL PARTNERSHIP AND LIMITED PARTNERSHIP UNIT CONTRIBUTIONS, EMPLOYEE STOCK OPTIONS AND RESTRICTED STOCK The Operating Partnership has issued Units. The general partnership units resulted from capital contributions from the Company. The limited partnership units are issued in conjunction with the acquisition of certain properties. 25 Unit Contributions: During the six months ended June 30, 2002, the Company awarded 90,260 shares of restricted common stock to certain employees and 1,841 shares of restricted common stock to certain Directors. The Operating Partnership issued Units to the Company in the same amount. These shares of restricted common stock had a fair value of approximately $3.2 million on the date of grant. The restricted common stock vests over periods from one to ten years. Compensation expense will be charged to earnings over the respective vesting periods. During the six months ended June 30, 2002, the Company issued 940,600 non-qualified employee stock options to certain officers, Directors and employees. These non-qualified employee stock options vest over periods from one to three years, have a strike price of $30.53-$33.15 per share and expire ten years from the date of grant. During the six months ended June 30, 2002, certain employees exercised 555,068 non-qualified employee stock options. Net proceeds to the Company were approximately $15.7 million. The Consolidated Operating Partnership, through the Operating Partnership, issued Units to the Company in the same amount. During the six months ended June 30, 2002, the Operating Partnership issued 18,203 Units having an aggregate market value of approximately $.6 million in exchange for property. Distributions: On January 22, 2002, the Operating Partnership paid a fourth quarter 2001 distribution of $.6800 per Unit, totaling approximately $31.2 million. On April 22, 2002, the Operating Partnership paid a first quarter 2002 distribution of $.6800 per Unit, totaling approximately $31.5 million. On April 1, 2002, the Operating Partnership paid first quarter distributions of $54.688 per unit on its Series B Preferred Units, $53.906 per Unit on its Series C Preferred Units, $49.688 per unit on its Series D Preferred Units and $49.375 per unit on its Series E Preferred Units. The preferred unit distributions paid on April 1, 2002, totaled approximately $7.2 million. On May 14, 2002, the Operating Partnership paid a prorated second quarter distribution of $26.736 per unit, totaling approximately $1.1 million on its Series B Preferred Units. SUBSEQUENT EVENTS From July 1, 2002 to August 9, 2002, the Consolidated Operating Partnership acquired three industrial properties for an aggregate purchase price of approximately $4.6 million, excluding costs incurred in conjunction with the acquisition of these industrial properties. The Consolidated Operating Partnership also sold four industrial properties and several land parcels for approximately $21.1 million of gross proceeds. On July 1, 2002, the Operating Partnership paid second quarter preferred unit distributions of $53.906 per unit on its Series C Preferred Units, $49.687 per unit on its Series D Preferred Units and $49.375 per unit on its Series E Preferred Units. The preferred unit distributions paid on July 1, 2002 totaled approximately $5.0 million. On August 31, 1998, the Consolidated Operating Partnership, through the Operating Partnership, assumed a mortgage loan in the principal amount of $1.0 million (the "Acquisition Mortgage Loan VI"). The Acquisition Mortgage Loan VI was collateralized by one property in Portland, Oregon, bore interest at a fixed rate of 8.875% and provided for monthly principal and interest payments based on a 20-year amortization schedule. On July 2, 2002, the Consolidated Operating Partnership, through the Operating Partnership paid off and retired the Acquisition Mortgage Loan VI. On March 20, 1996 the Consolidated Operating Partnership, through the Operating Partnership, entered into a $36.8 million mortgage loan (the "CIGNA Loan") that is collateralized by seven properties in Indianapolis, Indiana and three properties in Cincinnati, Ohio. The CIGNA Loan bears interest at a 26 fixed interest rate of 7.50% and provides for monthly principal and interest payments based on a 25 - year amortization schedule. The CIGNA Loan matures on April 1, 2003. The Consolidated Operating Partnership has given notice to the lender of the CIGNA Loan that it intends to pay off and retire this loan in October 2002. On July 22, 2002, the Operating Partnership paid a second quarter 2002 distribution of $.6800 per Unit, totaling approximately $31.6 million. SHORT-TERM AND LONG-TERM LIQUIDITY NEEDS The Consolidated Operating Partnership has considered its short-term (one year or less) liquidity needs and the adequacy of its estimated cash flow from operations and other expected liquidity sources to meet these needs. The Consolidated Operating Partnership believes that its principle short-term liquidity needs are to fund normal recurring expenses, debt service requirements and the minimum distribution required by the Company to maintain the Company's REIT qualification under the Internal Revenue Code. The Consolidated Operating Partnership anticipates that these needs will be met with cash flows provided by operating activities. The Consolidated Operating Partnership expects to meet long-term (greater than one year) liquidity requirements such as property acquisitions, developments, scheduled debt maturities, major renovations, expansions and other nonrecurring capital improvements through the disposition of select assets, the issuance of long-term unsecured indebtedness and the issuance of additional Units and preferred units. As of June 30, 2002 and August 9, 2002, approximately $250.0 million of debt securities was registered and unissued under the Securities Act of 1933, as amended. The Consolidated Operating Partnership may also finance the development or acquisition of additional properties through borrowings under the 2000 Unsecured Acquisition Facility. At June 30, 2002, borrowings under the 2000 Unsecured Acquisition Facility bore interest at a weighted average interest rate of 3.17%. The 2000 Unsecured Acquisition Facility bears interest at a floating rate of LIBOR plus .80%, or the Prime Rate, at the Operating Partnership's election. As of August 9, 2002, the Consolidated Operating Partnership, through the Operating Partnership, had approximately $112.2 million available in additional borrowings under the 2000 Unsecured Acquisition Facility. OTHER On April 30, 2002, the FASB issued Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("FAS 145"). FAS 145 rescinds both Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses from Extinguishment of Debt" ("FAS 4"), and the amendment to FAS 4, Statement of Financial Accounting Standards No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". FAS 145 eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect, unless the criteria in Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" are met. FAS 145 is effective for transactions occurring subsequent to May 15, 2002. The Consolidated Operating Partnership believes that FAS 145 will not have an impact on its consolidated financial position, liquidity and results of operations. 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. 27 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES During the six months ended June 30, 2002, the Operating Partnership issued an aggregate of 18,203 Units having an aggregate market value of approximately $.6 million in exchange for property. The above Units were issued in a private placement in reliance on Section 4 (2) of the Securities Act of 1933, as amended, including Regulation D promulgated thereunder, to individuals or entities holding real property or interests therein. No underwriters were used in connection with such issuances. Subject to lock-up periods and certain adjustments, Units are generally convertible into common stock, par value $.01, of the Company on a one-for-one basis. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORT ON FORM 8-K (a) Exhibits: Exhibit No. Description ----------- ----------- 3.1 Nineteenth Amendment, dated as of June 26, 2002, to the Sixth Amended and Restated Limited Partnership Agreement of First Industrial, L.P., dated March 18, 1998 (incorporated by reference to Exhibit 10.1 of First Industrial Realty Trust, Inc.'s Form 10-Q for the quarter ended June 30, 2002, File No. 1-13102) (b) Reports on Form 8-K: Report on Form 8-K filed April 17, 2002, dated April 4, 2002, reporting the pricing of offerings by First Industrial, L.P. of $200 million of 6.875% Notes due 2012 and $50 million of 7.75% Notes due 2032. 28 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST INDUSTRIAL, L.P. BY: FIRST INDUSTRIAL REALTY TRUST, INC. ITS SOLE GENERAL PARTNER Date: August 9, 2002 By: /s/ Scott A. Musil . ------------------------------------ Scott A. Musil Senior Vice President- Controller (Chief Accounting Officer) 29 EXHIBIT INDEX Exhibit No. Description ----------- ----------- 3.1 Nineteenth Amendment, dated as of June 26, 2002, to the Sixth Amended and Restated Limited Partnership Agreement of First Industrial, L.P., dated March 18, 1998 (incorporated by reference to Exhibit 10.1 of First Industrial Realty Trust, Inc.'s Form 10-Q for the quarter ended June 30, 2002, File No. 1-13102) 30