10-Q 1 c58229e10-q.txt QUARTERLY REPORT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 -------------------------- Commission File Number 1-13102 -------------------------- FIRST INDUSTRIAL REALTY TRUST, INC. (Exact Name of Registrant as Specified in its Charter) MARYLAND 36-3935116 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 311 S. WACKER DRIVE, SUITE 4000, CHICAGO, ILLINOIS 60606 (Address of Principal Executive Offices) (312) 344-4300 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Number of shares of Common Stock, $.01 par value, outstanding as of November 10, 2000: 38,637,705 2 FIRST INDUSTRIAL REALTY TRUST, INC. FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2000 INDEX PAGE ---- PART I: FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999............................................... 2 Consolidated Statements of Operations for the Nine Months Ended September 30, 2000 and September 30, 1999....................... 3 Consolidated Statements of Operations for the Three Months Ended September 30, 2000 and September 30,1999........................ 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and September 30, 1999....................... 5 Notes to Consolidated Financial Statements...................... 6-14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................... 15-23 Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................................. 23 PART II: OTHER INFORMATION Item 1. Legal Proceedings....................................... 24 Item 2. Changes in Securities .................................. 24 Item 3. Defaults Upon Senior Securities......................... 24 Item 4. Submission of Matters to a Vote of Security Holders .... 24 Item 5. Other Information ...................................... 24 Item 6. Exhibits and Report on Form 8-K......................... 24 SIGNATURE ........................................................... 26 EXHIBIT INDEX ....................................................... 27 1 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FIRST INDUSTRIAL REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) September 30, December 31, 2000 1999 ----------- ----------- ASSETS Assets: Investment in Real Estate: Land.......................................... $ 378,398 $ 383,938 Buildings and Improvements.................... 1,911,342 2,131,807 Furniture, Fixtures and Equipment............. 1,437 1,437 Construction in Progress...................... 65,771 80,410 Less: Accumulated Depreciation................ (214,052) (211,456) ----------- ----------- Net Investment in Real Estate.......... 2,142,896 2,386,136 Real Estate Held For Sale, Net of Accumulated Depreciation and Amortization of $35,623...... 373,474 --- Cash and Cash Equivalents........................ 2,034 2,609 Restricted Cash.................................. 22,614 2,352 Tenant Accounts Receivable, Net.................. 10,912 9,924 Investments in Joint Ventures.................... 5,964 6,408 Deferred Rent Receivable......................... 16,887 17,137 Deferred Financing Costs, Net.................... 12,580 11,581 Prepaid Expenses and Other Assets, Net........... 89,994 90,816 ----------- ----------- Total Assets.......................... $ 2,677,355 $ 2,526,963 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Mortgage Loans Payable, Net...................... $ 103,186 $ 104,951 Senior Unsecured Debt, Net....................... 948,758 948,688 Acquisition Facility Payable..................... 222,200 94,000 Accounts Payable and Accrued Expenses............ 100,425 78,946 Rents Received in Advance and Security Deposits.. 23,606 22,014 Dividends/Distributions Payable.................. 36,620 28,164 ----------- ----------- Total Liabilities..................... 1,434,795 1,276,763 ----------- ----------- Minority Interest................................... 186,725 190,974 Commitments and Contingencies....................... --- --- Stockholders' Equity: Preferred Stock ($.01 par value, 10,000,000 shares authorized, 1,650,000, 40,000, 20,000, 50,000 and 30,000 shares of Series A, B, C, D and E Cumulative Preferred Stock, respectively, issued and outstanding at September 30, 2000 and December 31, 1999, having a liquidation preference of $25 per share ($41,250), $2,500 per share ($100,000), $2,500 per share ($50,000), $2,500 per share ($125,000) and $2,500 per share ($75,000), respectively......... 18 18 Common Stock ($.01 par value, 100,000,000 shares authorized, 38,625,317 and 38,152,811 shares issued and outstanding at September 30, 2000 and December 31, 1999, respectively)............. 390 382 Additional Paid-in-Capital.......................... 1,199,034 1,177,364 Distributions in Excess of Accumulated Earnings..... (121,216) (114,451) Unearned Value of Restricted Stock Grants........... (10,692) (4,087) Treasury Shares, at cost (394,300 shares at September 30, 2000) (11,699) --- ----------- ----------- Total Stockholders' Equity.......... 1,055,835 1,059,226 ----------- ----------- Total Liabilities and Stockholders' Equity............. $ 2,677,355 $ 2,526,963 =========== =========== The accompanying notes are an integral part of the financial statements. 2 4 FIRST INDUSTRIAL REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Nine Months Nine Months Ended Ended September 30, September 30, 2000 1999 ------------- ------------- Revenues: Rental Income................................... $ 224,499 $ 222,815 Tenant Recoveries and Other Income.............. 61,466 60,737 ----------- ----------- Total Revenues........................ 285,965 283,552 ----------- ----------- Expenses: Real Estate Taxes................................ 44,512 43,103 Repairs and Maintenance.......................... 12,942 13,259 Property Management.............................. 10,462 8,270 Utilities........................................ 7,409 7,616 Insurance........................................ 1,113 631 Other............................................ 4,542 3,070 General and Administrative....................... 12,586 10,009 Interest Expense................................. 61,425 60,566 Amortization of Deferred Financing Costs......... 1,323 969 Depreciation and Other Amortization.............. 50,035 51,406 ----------- ----------- Total Expenses........................ 206,349 198,899 ----------- ----------- Income from Operations Before Equity in Income of Joint Ventures and Income Allocated to Minority Interest................................ 79,616 84,653 Equity in Income of Joint Ventures.................. 189 372 Income Allocated to Minority Interest............... (12,150) (13,801) ----------- ----------- Income from Operations.............................. 67,655 71,224 Gain on Sales of Real Estate........................ 22,211 25,341 ----------- ----------- Net Income.......................................... 89,866 96,565 Less: Preferred Stock Dividends.................... (24,633) (24,633) ----------- ----------- Net Income Available to Common Stockholders......... $ 65,233 $ 71,932 =========== =========== Net Income Available to Common Stockholders Per Weighted Average Common Share Outstanding: Basic................................. $ 1.69 $ 1.89 =========== =========== Diluted............................... $ 1.68 $ 1.89 =========== =========== The accompanying notes are an integral part of the financial statements. 3 5 FIRST INDUSTRIAL REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Three Months Three Months Ended Ended September 30, September 30, 2000 1999 ------------- ------------- Revenues: Rental Income.................................... $ 75,863 $ 73,741 Tenant Recoveries and Other Income............... 20,688 20,390 ----------- ----------- Total Revenues......................... 96,551 94,131 ----------- ----------- Expenses: Real Estate Taxes................................ 15,076 13,569 Repairs and Maintenance.......................... 4,113 3,410 Property Management.............................. 3,329 2,670 Utilities........................................ 2,480 2,412 Insurance........................................ 492 196 Other............................................ 1,464 1,055 General and Administrative....................... 4,357 3,513 Interest Expense................................. 21,349 20,264 Amortization of Deferred Financing Costs......... 424 365 Depreciation and Other Amortization.............. 14,873 17,033 ----------- ----------- Total Expenses........................ 67,957 64,487 ----------- ----------- Income from Operations Before Equity in Income of Joint Ventures and Income Allocated to Minority Interest................................ 28,594 29,644 Equity in Income of Joint Ventures.................. 70 126 Income Allocated to Minority Interest............... (4,041) (6,106) ----------- ----------- Income from Operations.............................. 24,623 23,664 Gain on Sales of Real Estate........................ 6,280 16,999 ----------- ----------- Net Income.......................................... 30,903 40,663 Less: Preferred Stock Dividends.................... (8,211) (8,211) ----------- ----------- Net Income Available to Common Stockholders........ $ 22,692 $ 32,452 =========== =========== Net Income Available to Common Stockholders Per Weighted Average Common Share Outstanding: Basic................................... $ .58 $ .85 =========== =========== Diluted................................. $ .58 $ .85 =========== =========== The accompanying notes are an integral part of the financial statements. 4 6 FIRST INDUSTRIAL REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED) Nine Months Ended Nine Months Ended September 30, 2000 September 30,1999 ------------------ ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income.......................... $ 89,866 $ 96,565 Income Allocated to Minority Interest ............... 12,150 13,801 ------------------ ----------------- Income Before Minority Interest..... 102,016 110,366 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation.................... 45,104 46,970 Amortization of Deferred Financing Costs............... 1,323 969 Other Amortization ............. 6,468 4,620 Provision for Bad Debt.......... 50 --- Equity in Income of Joint Ventures...................... (189) (372) Distributions from Joint Ventures...................... 189 372 Gain on Sales of Properties..... (22,211) (25,341) Increase in Tenant Accounts Receivable and Prepaid Expenses and Other Assets, Net................... (21,197) (4,440) Increase in Deferred Rent Receivable.................... (882) (3,477) Increase in Accounts Payable and Accrued Expenses and Rents Received in Advance and Security Deposits............. 25,628 7,851 Decrease in Restricted Cash..... 170 1,080 ------------------ ----------------- Net Cash Provided by Operating Activities... 136,469 138,598 ------------------ ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases and Additions to Investment in Real Estate........ (330,050) (150,229) Net Proceeds from Sales of Investment in Real Estate........ 180,526 182,954 Contributions to and Investments in Joint Venture................. (37) (2,528) Distributions from Joint Venture.... 481 246 Funding of Mortgage Loans Receivable....................... --- (332) Repayment of Mortgage Loans Receivable....................... 14,887 1,014 Decrease in Restricted Cash ........ --- 344 Increase in Restricted Cash ........ (20,432) (32,633) ------------------ ----------------- Net Cash Used in Investing Activities... (154,625) (1,164) ------------------ ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Proceeds from Exercise of Employee Stock Options........... 8,007 59 Repayments on Mortgage Loans Payable.......................... (1,710) (2,941) Purchase of Treasury Shares......... (11,699) --- Purchase of U.S. Government Securities....................... (1,244) --- Proceeds from Acquisition Facility Payable................. 195,500 82,100 Repayments on Acquisition Facility Payable.......................... (67,300) (121,300) Dividends/Distributions............. (85,229) (81,380) Preferred Stock Dividends........... (16,422) (24,633) Cost of Debt Issuance............... (2,322) (812) ------------------ ----------------- Net Cash Provided by (Used in) Financing Activities ............ 17,581 (148,907) ------------------ ----------------- Net Decrease in Cash and Cash Equivalents......................... (575) (11,473) Cash and Cash Equivalents, Beginning of Period........................... 2,609 21,823 ------------------ ----------------- Cash and Cash Equivalents, End of Period ............................. $ 2,034 $ 10,350 ================== ================= The accompanying notes are an integral part of the financial statements. 5 7 FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA) 1. ORGANIZATION AND FORMATION OF COMPANY First Industrial Realty Trust, Inc. (the "Company") was organized in the state of Maryland on August 10, 1993. The Company is a real estate investment trust ("REIT") as defined in the Internal Revenue Code. The Company's operations are conducted primarily through First Industrial, L.P. (the "Operating Partnership") of which the Company is the sole general partner with an approximate 84.3% ownership interest at September 30, 2000. As of September 30, 2000, the Company owned 976 in-service properties located in 25 states, containing an aggregate of approximately 69.6 million square feet of gross leasable area ("GLA"). Of the 976 in-service properties owned by the Company, 814 are held by the Operating Partnership, 105 are held by limited partnerships in which the Operating Partnership is the limited partner and wholly-owned subsidiaries of the Company are the general partners, 52 are held by limited liability companies of which the Operating Partnership is the sole member and five are held by an entity in which the Operating Partnership owns a 95% economic interest. The Company, through wholly-owned limited liability companies of which the Operating Partnership is the sole member, also owns 10% equity interests in, and provides asset and property management services to, two joint ventures which invest in industrial properties (the "September 1998 Joint Venture" and the "September 1999 Joint Venture"). Minority interest in the Company at September 30, 2000 represents the approximate 15.7% aggregate partnership interest in the Operating Partnership held by the limited partners thereof. 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 Company's 1999 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, 1999 audited financial statements included in the Company's 1999 Form 10-K and present interim disclosures as required by the Securities and Exchange Commission. In order to conform with generally accepted accounting principles, management, in preparation of the Company's financial statements, is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of September 30, 2000 and December 31, 1999, and the reported amounts of revenues and expenses for each of the nine months and three months ended September 30, 2000 and 1999. 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 Company as of September 30, 2000 and the results of its operations and its cash flows for each of the nine months and three months ended September 30, 2000 and 1999. Tenant Accounts Receivable, Net: The Company 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 approximately $2,050 and $2,000 as of September 30, 2000 and December 31, 1999, respectively. 6 8 FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Recent Accounting Pronouncements: The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("FASB 133") on June 1, 1998. Statement of Financial Accounting Standards No.138 "Accounting for Derivative Instruments and Hedging Activities - An Amendment of FASB Statement 133" was issued in June 2000. FASB 133, as amended, is effective for fiscal years beginning after June 15, 2000 as provided by Statement of Financial Accounting Standards No. 137 issued in July 1999. FASB 133, as amended, requires fair value accounting for all derivatives including recognizing all such instruments on the balance sheet with an offsetting amount recorded in the income statement or as part of comprehensive income. FASB 133, as amended, becomes effective for the Company for the year ending December 31, 2001. The Company does not expect this pronouncement to have a material impact on the Company's consolidated financial position, consolidated results of operations or consolidated cash flows. In March 2000, the FASB issued Statement of Accounting Standards Interpretation 44, Accounting for Certain Transactions Involving Stock Compensation ("Interpretation 44"). Interpretation 44 is generally effective for new stock option grants beginning July 1, 2000. However, the interpretive definition of an employee and certain effective repricing provisions apply to new awards granted after December 15, 1998. Further, the FASB determined that any modifications to current accounting as a result of this guidance are to be recorded prospectively, effective as of July 1, 2000. The Company has applied the accounting mandated by Interpretation 44 as of July 1, 2000 and there has not been a material impact on the Company's consolidated financial position, consolidated results of operations or consolidated cash flows. The REIT Modernization Act, which was passed in 1999 and will take effect on January 1, 2001, modifies certain provisions of the Internal Revenue Code of 1986, as amended, with respect to the taxation of REITs. Two key provisions of this tax law change will impact future Company operations: the availability of a taxable REIT subsidiary which may be wholly-owned directly by a REIT and a reduction in the required level of distributions by a REIT to 90% of ordinary taxable income. The Company may convert its preferred stock subsidiary to a wholly-owned taxable REIT subsidiary on or after January 1, 2001. 3. INVESTMENTS IN JOINT VENTURES During the nine months ended September 30, 2000, the Company, through wholly-owned limited liability companies in which the Operating Partnership is the sole member, received, in the aggregate, approximately $2,114 in asset management and property management fees from the September 1998 Joint Venture and the September 1999 Joint Venture, collectively. The Company, through wholly-owned limited liability companies in which the Operating Partnership is the sole member, received distributions of approximately $627 and $43 from the September 1998 Joint Venture and the September 1999 Joint Venture, respectively. As of September 30, 2000, the September 1998 Joint Venture owned 143 industrial properties comprising approximately 7.3 million square feet of GLA and the September 1999 Joint Venture owned 39 industrial properties comprising approximately 1.2 million square feet of GLA. 7 9 FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA) 4. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION FACILITY PAYABLE Mortgage Loans Payable, Net: On December 29, 1995, the Company, through an entity in which the Operating Partnership is the sole limited partner and a wholly-owned subsidiary of the Company is the general partner, entered into a $40,200 mortgage loan (the "1995 Mortgage Loan"). In June 2000, the Company purchased approximately $1.2 million of U.S. Government securities as substitute collateral to execute a legal defeasance of approximately $1.2 million of the 1995 Mortgage Loan (the "1995 Defeased Mortgage Loan"). The 1995 Defeased Mortgage Loan requires monthly principal and interest payments based upon a 28-year amortization schedule. The interest rate under the 1995 Defeased Mortgage Loan is fixed at 7.22% per annum. The terms of the legal defeasance require the Company to use the gross proceeds from the maturities of the U.S. Government securities to paydown and subsequently retire the 1995 Defeased Mortgage Loan in January 2003. Upon the execution of the legal defeasance, one of the 23 properties collateralizing the 1995 Mortgage Loan was released and subsequently sold. Acquisition Facility: In June 2000, the Company amended and restated the 1997 Unsecured Acquisition Facility and entered into a $300,000 unsecured revolving credit facility (the "2000 Unsecured Acquisition Facility") which initially bears interest at LIBOR plus .80% or the Prime Rate at the Company's election and provides for interest only payments until maturity. Under the 2000 Unsecured Acquisition Facility, the Company has the right, subject to certain conditions, to increase the aggregate commitment under the 2000 Unsecured Acquisition Facility up to $400,000. The Company may borrow under the 2000 Unsecured Acquisition Facility to finance the acquisition and development of additional properties and for other corporate purposes, including to obtain additional working capital. The 2000 Unsecured Acquisition Facility contains certain financial covenants relating to debt service coverage, market value net worth, dividend payout ratio and total funded indebtedness. The 2000 Unsecured Acquisition Facility matures on June 30, 2003. 8 10 FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA) 4. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION FACILITY PAYABLE, CONTINUED The following table discloses certain information regarding the Company's mortgage loans, senior unsecured debt and acquisition facility payable:
OUTSTANDING BALANCE AT ACCRUED INTEREST PAYABLE AT INTEREST RATE AT ---------------------------- ---------------------------- --------------- SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, MATURITY 2000 1999 2000 1999 2000 DATE ------------ ------------ ------------- ------------ ------------- --------- MORTGAGE LOANS PAYABLE, NET 1995 Mortgage Loan......... $ 37,532 $ 39,099 $ 151 $ 165 7.220% 1/11/26 1995 Defeased Mortgage Loans................... 1,204 --- 5 --- 7.220% 1/11/03 CIGNA Loan. ............... 34,127 34,636 213 216 7.500% 4/01/03 Assumed Loans.............. 8,085 8,343 --- --- 9.250% 1/01/13 LB Mortgage Loan II........ 705 705 --- --- 8.000% (1) Acquisition Mortgage Loan I................... 3,371 3,591 --- --- 8.500% 8/01/08 Acquisition Mortgage Loan II................. 7,483 7,630 --- --- 7.750% 4/01/06 Acquisition Mortgage Loan III................ 3,249 3,350 --- --- 8.875% 6/01/03 Acquisition Mortgage Loan IV................. 2,375 2,423 --- --- 8.950% 10/01/06 Acquisition Mortgage Loan V.................. 2,746 (2) 2,793 (2) --- --- 9.010% 9/01/06 Acquisition Mortgage Loan VI................. 965 (2) 991 (2) --- --- 8.875% 11/01/06 Acquisition Mortgage Loan VII................ 1,344 (2) 1,390 (2) --- --- 9.750% 3/15/02 ------------ ------------ ------------- ------------ Total ..................... $ 103,186 $ 104,951 $ 369 $ 381 ============ ============ ============= ============ SENIOR UNSECURED DEBT, NET 2005 Notes ................ $ 50,000 $ 50,000 $ 1,246 $ 383 6.900% 11/21/05 2006 Notes ................ 150,000 150,000 3,500 875 7.000% 12/01/06 2007 Notes ................ 149,965 (3) 149,961 (3) 4,307 1,457 7.600% 5/15/07 2011 Notes ................ 99,505 (3) 99,470 (3) 2,786 942 7.375% 5/15/11 (4) 2017 Notes ................ 99,835 (3) 99,828 (3) 2,500 625 7.500% 12/01/17 2027 Notes ................ 99,871 (3) 99,867 (3) 2,701 914 7.150% 5/15/27 (5) 2028 Notes ................ 199,782 (3) 199,776 (3) 3,209 7,009 7.600% 7/15/28 2011 Drs .................. 99,800 (3) 99,786 (3) 3,177 1,553 6.500% (7) 4/05/11 (6) ------------ ------------ ------------- ------------ Total .................... $ 948,758 $ 948,688 $ 23,426 $ 13,758 ============ ============ ============= ============ ACQUISITION FACILITY PAYABLE 1997 Unsecured Acquisition Facility................ $ --- $ 94,000 $ --- $ 663 (8) (8) ============ ============ ============= ============ 2000 Unsecured Acquisition Facility................ $ 222,200 $ --- $ 1,219 $ --- 7.430% 6/30/03 ============ ============ ============= ============
(1) The maturity date of the LB Mortgage Loan II is based on a contingent event relating to the environmental status of the property collateralizing the loan. (2) At September 30, 2000, the Acquisition Mortgage Loan V, the Acquisition Mortgage Loan VI and the Acquisition Mortgage Loan VII are net of unamortized premiums of $230, $51 and $43, respectively. At December 31, 1999, the Acquisition Mortgage Loan V, the Acquisition Mortgage Loan VI and the Acquisition Mortgage Loan VII are net of unamoritized premiums of $258, $57 and $64, respectively. (3) At September 30, 2000, the 2007 Notes, 2011 Notes, 2017 Notes, 2027 Notes, 2028 Notes and the 2011 Drs. are net of unamortized discounts of $35, $495, $165, $129, $218 and $200, respectively. At December 31, 1999, the 2007 Notes, 2011 Notes, 2017 Notes, 2027 Notes, 2028 Notes and the 2011 Drs. are net of unamoritized discounts of $39, $530, $172, $133, $224 and $214, respectively. (4) The 2011 Notes are redeemable at the option of the holder thereof, on May 15, 2004. (5) The 2027 Notes are redeemable at the option of the holders thereof, on May 15, 2002. (6) The 2011 Drs. are required to be redeemed by the Operating Partnership on April 5, 2001 if the Remarketing Dealer elects not to remarket the 2011 Drs. (7) The 2011 Drs. bear interest at an annual rate of 6.50% to the Remarketing Date. If the holder of the Call Option calls the 2011 Drs. and elects to remarket the 2011 Drs., then after the Remarketing Date, the interest rate on the 2011 Drs. will be reset at a fixed rate until April 5, 2011 based on a predetermined formula as disclosed in the related Prospectus Supplement. (8) The 1997 Unsecured Acquisition Facility was amended and restated in June 2000. 9 11 FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA) 4. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION FACILITY PAYABLE, CONTINUED The following is a schedule of the stated maturities and scheduled principal payments of the mortgage loans, senior unsecured debt and acquisition facility payable for each of the next five years ending December 31, and thereafter: Amount ---------------- Remainder of 2000 $ 597 2001 2,507 2002 3,935 2003 260,534 2004 1,998 Thereafter 1,004,786 ---------------- Total $ 1,274,357 ================ The maturity date of the LB Mortgage Loan II is based on a contingent event. As a result, this loan is not included in the preceding table. 5. STOCKHOLDERS' EQUITY Restricted Stock: During the nine months ended September 30, 2000, the Company awarded 355,139 shares of restricted common stock to certain employees and 2,768 shares of restricted common stock to certain Directors. Other employees of the Company converted certain in-the-money employee stock options to 14,903 shares of restricted common stock. These shares of restricted common stock had a fair value of approximately $9,662 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. Non-Qualified Employee Stock Options: During the nine months ended September 30, 2000, certain employees of the Company exercised 340,600 non-qualified employee stock options. Gross proceeds to the Company were approximately $8,349. On May 17, 2000, the Company granted 70,000 non-qualified employee stock options. These stock options vest over one year and have a strike price of $30.00 per share. These stock options expire ten years from the date of grant. On August 28, 2000, the Company granted 863,950 non-qualified employee stock options. These stock options vest over three years and have a strike price of $27.25 per share. The market price of the stock on the date of grant was $28.75. The Company will amortize the in-the-money intrinsic value of the stock options over the vesting period. These stock options expire ten years from the date of grant. Treasury Stock: In March 2000, the Company's Board of Directors approved the repurchase of up to $100,000 of the Company's common stock. The Company may make purchases from time to time, if price levels warrant, in the open market or in privately negotiated transactions. During the nine months ended September 30, 2000, the Company repurchased 394,300 shares of its common stock at a weighted average price per share of approximately $29.67. 10 12 FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA) 5. STOCKHOLDERS' EQUITY, CONTINUED Dividends/Distributions: The following table summarizes dividends/distributions for the nine months ended September 30, 2000: COMMON STOCK/OPERATING PARTNERSHIP UNITS
Dividend/Distribution Total Record Date Payable Date per Share/Unit Dividend/Distribution ----------------- ------------------ ----------------------- --------------------- Fourth Quarter 1999 December 31, 1999 January 24, 2000 $ .6200 $ 28,164 First Quarter 2000 March 31, 2000 April 17, 2000 $ .6200 $ 28,462 Second Quarter 2000 June 30, 2000 July 17, 2000 $ .6200 $ 28,601 Third Quarter 2000 September 29, 2000 October 23, 2000 $ .6200 $ 28,409
PREFERRED STOCK
First Quarter: Dividend Total Record Date Payable Date per Share Dividend ----------------- ------------------ ----------------------- --------------------- Series A Preferred Stock March 15, 2000 March 31, 2000 $ .59375 $ 980 Series B Preferred Stock March 15, 2000 March 31, 2000 $ 54.68750 $ 2,188 Series C Preferred Stock March 15, 2000 March 31, 2000 $ 53.90600 $ 1,078 Series D Preferred Stock March 15, 2000 March 31, 2000 $ 49.68700 $ 2,485 Series E Preferred Stock March 15, 2000 March 31, 2000 $ 49.37500 $ 1,480 Second Quarter: Dividend Total Record Date Payable Date per Share Dividend ----------------- ------------------ ----------------------- --------------------- Series A Preferred Stock June 15, 2000 June 30, 2000 $ .59375 $ 980 Series B Preferred Stock June 15, 2000 June 30, 2000 $ 54.68750 $ 2,188 Series C Preferred Stock June 15, 2000 June 30, 2000 $ 53.90600 $ 1,078 Series D Preferred Stock June 15, 2000 June 30, 2000 $ 49.68700 $ 2,485 Series E Preferred Stock June 15, 2000 June 30, 2000 $ 49.37500 $ 1,480 Third Quarter: Dividend Total Record Date Payable Date per Share Dividend ----------------- ------------------ ----------------------- --------------------- Series A Preferred Stock September 15, 2000 October 2, 2000 $ .59375 $ 980 Series B Preferred Stock September 15, 2000 October 2, 2000 $ 54.68750 $ 2,188 Series C Preferred Stock September 15, 2000 October 2, 2000 $ 53.90600 $ 1,078 Series D Preferred Stock September 15, 2000 October 2, 2000 $ 49.68700 $ 2,485 Series E Preferred Stock September 15, 2000 October 2, 2000 $ 49.37500 $ 1,480
6. ACQUISITION AND DEVELOPMENT OF REAL ESTATE During the nine months ended September 30, 2000, the Company acquired 47 industrial properties comprising approximately 3.9 million square feet of GLA, and several land parcels. The aggregate purchase price for these acquisitions totaled approximately $207,514, excluding costs incurred in conjunction with the acquisition of the properties. The Company also completed the development of 16 industrial properties comprising approximately 2.7 million square feet of GLA at a cost of approximately $101,350. 7. SALES OF REAL ESTATE During the nine months ended September 30, 2000, the Company sold 53 industrial properties and several land parcels. Gross proceeds from these sales were approximately $193,079. The gain on sales of real estate was approximately $22,211. 11 13 FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA) 8. REAL ESTATE HELD FOR SALE The Company has an active sales program through which it is continually engaged in identifying and evaluating its current portfolio for potential sales candidates. At September 30, 2000, the Company had 118 properties comprising approximately 10.8 million square feet of GLA held for sale. There can be no assurance that such properties held for sale will be sold. The following table discloses certain information regarding the 118 properties held for sale by the Company.
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- ------------------------- 2000 1999 2000 1999 ----------- ---------- --------- --------- Total Revenues $ 44,877 $ 42,058 $ 15,216 $ 13,843 Operating Expenses (14,115) (13,404) (4,802) (4,113) Depreciation and Amortization (5,445) (7,242) (77) (2,414) ----------- ---------- --------- --------- Income from Operations $ 25,317 $ 21,412 $ 10,337 $ 7,316 =========== ========== ========= =========
9. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Nine Months Ended ------------------------------ September 30, September 30, 2000 1999 ------------ ------------- Interest paid, net of capitalized interest ........................... $ 51,213 $ 50,988 =========== ============= Interest capitalized.................................................. $ 4,075 $ 3,893 =========== ============= Supplemental schedule of noncash investing and financing activities: Distribution payable on common stock/units............................ $ 28,409 $ 27,157 =========== ============= Distribution payable on preferred stock............................... $ 8,211 $ --- =========== ============= Issuance of units in exchange for property............................... $ 869 $ --- =========== ============= Exchange of units for common shares: Minority interest..................................................... $ (3,793) $ (1,972) Common stock.......................................................... 1 1 Additional paid-in capital............................................ 3,792 1,971 ----------- ------------- $ --- $ --- =========== ============= In conjunction with the property and land acquisitions, the following assets and liabilities were assumed: Purchase of real estate .............................................. $ 207,514 $ 45,482 Accrued real estate taxes and security deposits ...................... (2,317) (119) ----------- ------------- $ 205,197 $ 45,363 =========== ============= In conjunction with certain property sales, the Company provided seller financing on behalf of certain buyers: Notes receivable...................................................... $ 5,149 $ 700 =========== =============
12 14 FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA) 10. EARNINGS PER SHARE Earnings per share ("EPS") amounts are based on the weighted average amount of common stock and common stock equivalents (employee stock options) outstanding. The outstanding units in the Operating Partnership (the "Units") have been excluded from the diluted earnings per share calculation as there would be no effect on the earnings per share amounts since the minority interests' share of income would also be added back to net income. The computation of basic and diluted EPS is presented below:
Nine Months Ended Three Months Ended --------------------------------- --------------------------------- September 30, September 30, September 30, September 30, 2000 1999 2000 1999 --------------- -------------- -------------- -------------- Numerator: Net Income....................................... $ 89,866 $ 96,565 $ 30,903 $ 40,663 Less: Preferred Stock Dividends................ (24,633) (24,633) (8,211) (8,211) --------------- -------------- -------------- -------------- Net Income Available to Common Stockholders -For Basic and Diluted EPS................. $ 65,233 $ 71,932 $ 22,692 $ 32,452 =============== ============== ============== ============== Denominator: Weighted Average Shares - Basic................ 38,645 38,019 38,817 38,055 Effect of Dilutive Securities: Employee and Director Common Stock Options.. 225 114 291 100 --------------- -------------- -------------- -------------- Weighted Average Shares- Diluted............... 38,870 38,133 39,108 38,155 =============== ============== ============== ============== Basic EPS: Net Income Available to Common Stockholders.... $ 1.69 $ 1.89 $ .58 $ .85 =============== ============== ============== ============== Diluted EPS: Net Income Available to Common Stockholders.... $ 1.68 $ 1.89 $ .58 $ .85 =============== ============== ============== ==============
13 15 FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA) 11. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company is involved in legal actions arising from the operation of its business. In management's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a materially adverse effect on the consolidated financial position, operations or liquidity of the Company. The Company has committed to the construction of 26 development projects totaling approximately 6.0 million square feet of GLA for an estimated investment of approximately $232.3 million. Of this amount, approximately $151.2 million remains to be funded. These developments are expected to be funded with cash flow from operations, proceeds from the sales of select properties of the Company and borrowings under the 2000 Unsecured Acquisition Facility. 12. SUBSEQUENT EVENTS From October 1, 2000 to November 10, 2000, the Company acquired several land parcels for an aggregate purchase price of approximately $11,724, excluding costs incurred in conjunction with the acquisition of these land parcels. The Company also sold eight industrial properties and several land parcels for approximately $11,397 of gross proceeds. On October 2, 2000, the Company paid second quarter preferred stock dividends of $.59375 per share on its Series A Preferred Stock, $54.688 per share (equivalent to $.54688 per Depositary Share) on its Series B Preferred Stock, $53.906 per share (equivalent to $.53906 per Depositary Share) on its Series C Preferred Stock, $49.687 per share (equivalent to $.49687 per Depositary Share) on its Series D Preferred Stock and $49.375 per share (equivalent to $.49375 per Depositary Share) on its Series E Preferred Stock. The preferred stock dividends paid on October 2, 2000 totaled, in the aggregate, approximately $8,211. On October 23, 2000, the Company and the Operating Partnership paid a second quarter 2000 dividend/distribution of $.62 per common share/Unit, totaling approximately $28,409. 14 16 FIRST INDUSTRIAL REALTY TRUST, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of First Industrial Realty Trust, Inc.'s (the "Company") financial condition and results of operations should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Form 10-Q. This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of complying with those safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words "believe", "expect", "intend", "anticipate", "estimate", "project" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company on a consolidated basis include, but are not limited to, changes in: economic conditions generally and the real estate market specifically, legislative/regulatory changes (including changes to laws governing the taxation of real estate investment trusts), availability of capital, interest rates, competition, supply and demand for industrial properties in the Company's current and proposed market areas and 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 Company and its business, including additional factors that could materially affect the Company's financial results, is included herein and in the Company's other filings with the Securities and Exchange Commission. The Company was organized in the state of Maryland on August 10, 1993. The Company is a real estate investment trust ("REIT") as defined in the Internal Revenue Code. The Company's operations are conducted primarily through First Industrial, L.P. (the "Operating Partnership") of which the Company is the sole general partner with an approximate 84.3% ownership interest at September 30, 2000. As of September 30, 2000, the Company owned 976 in-service properties located in 25 states, containing an aggregate of approximately 69.6 million square feet of gross leasable area ("GLA"). Of the 976 in-service properties owned by the Company, 814 are held by the Operating Partnership, 105 are held by limited partnerships in which the Operating Partnership is the limited partner and wholly-owned subsidiaries of the REIT are the general partners, 52 are held by limited liability companies of which the Operating Partnership is the sole member and five are held by an entity in which the Operating Partnership owns a 95% economic interest. The Company, through wholly-owned limited liability companies of which the Operating Partnership is the sole member, also owns 10% equity interests in, and provides asset and property management services to, two joint ventures which invest in industrial properties (the "September 1998 Joint Venture" and the "September 1999 Joint Venture"). Minority interest in the Company at September 30, 2000 represents the approximate 15.7% aggregate partnership interest in the Operating Partnership held by the limited partners thereof. 15 17 RESULTS OF OPERATIONS At September 30, 2000, the Company owned 976 in-service properties with approximately 69.6 million square feet of GLA, compared to 950 in-service properties with approximately 65.2 million square feet of GLA at September 30, 1999. During the period between October 1, 1999 and September 30, 2000, the Company acquired 60 properties comprising approximately 5.0 million square feet of GLA, completed the development of 25 properties totaling approximately 4.7 million square feet of GLA and sold 57 properties totaling approximately 5.6 million square feet of GLA. The Company also took three properties comprising approximately .1 million square feet of GLA out of service and placed one property in service comprising approximately .4 million square feet of GLA. The comparison of the nine months ended September 30, 2000 to the nine months ended September 30, 1999 and the comparison of the three months ended September 30, 2000 to the three months ended September 30, 1999 is shown net of property acquisitions, developments placed in service and property dispositions. COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO NINE MONTHS ENDED SEPTEMBER 30, 1999 Rental income and tenant recoveries and other income remained relatively unchanged. Rental income and tenant recoveries and other income from properties owned prior to January 1, 1999 increased by approximately $9.5 million or 4.1% due primarily to general rent increases and an increase in recoverable income due to an increase in property expenses as discussed below. Property expenses, which include real estate taxes, repairs and maintenance, property management, utilities, insurance and other expenses increased by approximately $5.0 million or 6.6% due primarily to increases in real estate tax expense, property management expense and other expense, offset by a decrease in repairs and maintenance expense. The increase in real estate tax expense is due to an increase in average GLA for the nine months ended September 30, 2000 compared to the nine months ended September 30, 1999, as well as general increases in real estate taxes in many of the Company's markets. The increase in property management expense is primarily due to costs associated with the opening of a regional office in California during the third quarter of 1999 as well as general pay increases. Other expense increased due primarily to an increase in master lease payments associated with certain properties during the nine months ended September 30, 2000 as compared to the nine months ended September 30, 1999. The decrease in repairs and maintenance expense is due to a decrease in snow removal and related expenses incurred during the nine months ended September 30, 2000 as compared to the nine months ended September 30, 1999. Property expenses from properties owned prior to January 1, 1999 increased $3.7 million or 5.7% due primarily to an increase in real estate tax expense. The increase in real estate tax expense is due to general increases in real estate taxes in many of the Company's markets. General and administrative expense increased by approximately $2.6 million due primarily to general pay increases and additional employees. Interest expense increased by approximately $.9 million for the nine months ended September 30, 2000 compared to the nine months ended September 30, 1999. The increase is primarily due to an increase in the weighted average interest rate for the nine months ended September 30, 2000 (7.31%) compared to the nine months ended September 30, 1999 (7.14%), offset by a decrease in the average debt balance outstanding and an increase in capitalized interest for the nine months ended September 30, 2000 as compared to the nine months ended September 30, 1999. The average debt balance outstanding for the nine months ended September 30, 2000 and 1999 was approximately $1,201.2 million and $1,212.6 million, respectively. The increase in capitalized interest is due to an increase in development activities. Amortization of deferred financing costs increased by approximately $.4 million due primarily to amortization of additional deferred financing costs relating to the Company's $300.0 million unsecured line of credit (the "1997 Unsecured Acquisition Facility") and the Company's 2000 Unsecured Acquisition Facility (defined below), which amended and restated the 1997 Unsecured Acquisition Facility. 16 18 Depreciation and other amortization decreased by approximately $1.4 million due primarily to the Company ceasing depreciation and amortization on properties it considers held for sale as well as due to properties sold subsequent to December 31, 1998. This decrease is offset by depreciation and amortization related to properties acquired or developed subsequent to December 31, 1998. The $22.2 million gain on sales of properties for the nine months ended September 30, 2000 resulted from the sale of 53 industrial properties and several land parcels. Gross proceeds from these sales were approximately $193.1 million. The $25.3 million gain on sales of properties for the nine months ended September 30, 1999 resulted from the sale of 49 existing industrial properties, one property under development and two land parcels. Gross proceeds from these sales were approximately $192.3 million. COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THREE MONTHS ENDED SEPTEMBER 30, 1999 Rental income and tenant recoveries and other income increased by approximately $2.4 million or 2.6% due to an increase in average occupied GLA for the three months ended September 30, 2000 compared to the three months ended September 30, 1999. Rental income and tenant recoveries and other income from properties owned prior to July 1, 1999 increased by approximately $4.9 million or 6.4% due primarily to general rent increases and an increase in recoverable income due to an increase in property expenses as discussed below. Property expenses, which include real estate taxes, repairs and maintenance, property management, utilities, insurance and other expenses increased by approximately $3.6 million or 15.6% due primarily to increases in real estate tax expense, property management expense and other expense. The increase in real estate tax expense is due to an increase in average GLA for the three months ended September 30, 2000 compared to the three months ended September 30, 1999, as well as general increases in real estate taxes in many of the Company's markets. The increase in property management expense is primarily due to costs associated with the opening of a regional office in California during the third quarter of 1999 as well as general pay increases. Other expenses increased due primarily to an increase in master lease payments associated with certain properties during the three months ended September 30, 2000 as compared to the three months ended September 30, 1999. Property expenses from properties owned prior to July 1, 1999 increased approximately $2.6 million or 12.5% due primarily to an increase in real estate tax expense. The increase in real estate tax expense is due to general increases in real estate taxes in many of the Company's markets. General and administrative expense increased by approximately $.8 million due primarily to general pay increases and additional employees. Interest expense increased by approximately $1.1 million for the three months ended September 30, 2000 compared to the three months ended September 30, 1999. The increase is primarily due to an increase in the weighted average interest rate for the three months ended September 30, 2000 (7.35%) compared to the three months ended September 30, 1999 (7.14%) and an increase in the average debt balance outstanding for the three months ended September 30, 2000 as compared to the three months ended September 30, 1999. The average debt balance outstanding for the three months ended September 30, 2000 and 1999 was approximately $1,237.1 million and $1,222.3 million, respectively. Amortization of deferred financing costs increased by approximately $.1 million due primarily to amortization of additional deferred financing costs relating to the Company's 2000 Unsecured Acquisition Facility (defined below). Depreciation and other amortization decreased by approximately $2.2 million due primarily to the Company ceasing depreciation and amortization on properties it considers held for sale as well as due to properties sold subsequent to June 30, 1999. This decrease is offset by depreciation and amortization related to properties acquired or developed subsequent to June 30, 1999. 17 19 The $6.3 million gain on sales of properties for the three months ended September 30, 2000 resulted from the sale of 18 industrial properties and several land parcels. Gross proceeds from these sales were approximately $56.9 million. The $17.0 million gain on sales of properties for the three months ended September 30, 1999 resulted from the sale of 25 existing industrial properties and one land parcel. Gross proceeds from these sales were approximately $108.3 million. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2000, the Company's cash and cash equivalents was approximately $2.0 million and restricted cash was approximately $22.6 million. Included in restricted cash are approximately $1.2 million of cash reserves required to be set aside under the Company's $40.0 million mortgage loan (the "1995 Mortgage Loan") for payments of security deposit refunds, tenant improvements, capital expenditures, interest, real estate taxes, and insurance. The portion of the cash reserve relating to payments for capital expenditures, interest, real estate taxes, and insurance for properties collateralizing the 1995 Mortgage Loan is established monthly, distributed to the Company as such expenditures are made and is replenished to a level adequate to make the next periodic payment of such expenditures. The portion of the cash reserve relating to security deposit refunds for the tenants occupying the properties collateralizing the 1995 Mortgage Loan is adjusted as tenants turn over. Also included in restricted cash is approximately $21.4 million of gross proceeds from the sales of certain properties. These sales proceeds will be disbursed as the Company exchanges into properties under Section 1031 of the Internal Revenue Code. NINE MONTHS ENDED SEPTEMBER 30, 2000 Net cash provided by operating activities of approximately $136.5 million for the nine months ended September 30, 2000 was comprised primarily of net income before minority interest of approximately $102.0 million, adjustments for non-cash items of approximately $29.9 million and the net change in operating assets and liabilities of approximately $4.6 million. The adjustments for the non-cash items of approximately $29.9 million are primarily comprised of depreciation and amortization of approximately $52.9 million and a provision for bad debts of approximately $.1 million, offset by the gain on sales of properties of approximately $22.2 million and the effect of the straight-lining of rental income of approximately $.9 million. Net cash used in investing activities of approximately $154.6 million for the nine months ended September 30, 2000 was comprised primarily of the acquisition of real estate, development of real estate, capital expenditures related to the expansion and improvement of existing real estate and an increase in restricted cash from sales proceeds deposited with an intermediary for Section 1031 exchange purposes, offset by the net proceeds from the sales of real estate, distributions from the September 1998 Joint Venture and the September 1999 Joint Venture and the repayment of mortgage loans receivable. Net cash provided by financing activities of approximately $17.6 million for the nine months ended September 30, 2000 was comprised primarily of repayments on mortgage loans payable, the purchase of treasury shares, the purchase of U.S. Government securities used as substitute collateral to execute a legal defeasance of a portion of the 1995 Mortgage Loan (the "1995 Defeased Mortgage Loan"), common and preferred stock dividends and unit distributions and debt issuance costs incurred in conjunction with the 2000 Unsecured Acquisition Facility (defined below), offset by the net borrowings under the Company's 1997 Unsecured Acquisition Facility and 2000 Unsecured Acquisition Facility (defined below) and net proceeds from the exercise of employee stock options. 18 20 NINE MONTHS ENDED SEPTEMBER 30, 1999 Net cash provided by operating activities of approximately $138.6 million for the nine months ended September 30, 1999 was comprised primarily of net income before minority interest of approximately $110.4 million, adjustments for non-cash items of approximately $23.7 million and the net change in operating assets and liabilities of approximately $4.5 million. The adjustments for the non-cash items of approximately $23.7 million are primarily comprised of depreciation and amortization of approximately $52.5 million, offset by the gain on sales of real estate of approximately $25.3 million and the effect of the straight-lining of rental income of approximately $3.5 million. Net cash used in investing activities of approximately $1.2 million for the nine months ended September 30, 1999 was comprised primarily of the acquisition of real estate, development of real estate, capital expenditures related to the expansion and improvement of existing real estate, investment in the September 1998 Joint Venture and the September 1999 Joint Venture, the funding of a mortgage loan receivable and an increase in restricted cash from sales proceeds deposited with an intermediary for Section 1031 exchange purposes, offset by the net proceeds from the sales of real estate, distributions from the September 1998 Joint Venture, a decrease in restricted cash due to a reimbursement of a deferred maintenance escrow established in connection with the issuance of the Company's Series A Preferred Stock and the repayment of mortgage loans receivable. Net cash used in financing activities of approximately $148.9 million for the nine months ended September 30, 1999 was comprised primarily of repayments on mortgage loans payable, common and preferred stock dividends and unit distributions and the net proceeds under the Company's 1997 Unsecured Acquisition Facility, offset by the net proceeds from the exercise of employee stock options. MARKET RISK The following discussion about the Company's risk-management activities includes "forward-looking statements" that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. This analysis presents the hypothetical gain or loss in earnings, cash flows or fair value of the financial instruments and derivative instruments which are held by the Company at September 30, 2000 that are sensitive to changes in the interest rates. While this analysis may have some use as a benchmark, it should not be viewed as a forecast. In the normal course of business, the Company also faces risks that are either non-financial or non-quantifiable. Such risks principally include credit risk and legal risk and are not represented in the following analysis. At September 30, 2000, $222.2 million (approximately 17.4% of total debt at September 30, 2000) of the Company's debt was variable rate debt (all of the variable rate debt relates to the Company's 2000 Unsecured Acquisition Facility (defined below)) and $1,051.9 million (approximately 82.6% of total debt at September 30, 2000) was fixed rate debt. The Company also had outstanding a written put and a written call option (collectively, the "Written Options") which were issued in conjunction with the initial offering of two tranches of unsecured debt. The Company's past practice has been to lock into fixed interest rates at issuance or fix the rate of variable rate debt through the use of interest rate protection agreements when interest rate market conditions dictate it is advantageous to do so. Currently, the Company does not enter into financial instruments for trading or other speculative purposes. For fixed rate debt, changes in interest rates generally affect the fair value of the debt, but not earnings or cash flows of the Company. Conversely, for variable rate debt, changes in the interest rate generally do not impact the fair value of the debt, but would affect the Company's future earnings and cash flows. The interest rate risk and changes in fair market value of fixed rate debt generally do not have a significant impact on the Company until the Company is required to refinance such debt. See Note 4 to the 19 21 consolidated financial statements for a discussion of the maturity dates of the Company's various fixed rate debt. Based upon the amount of variable rate debt outstanding at September 30, 2000, a 10% increase or decrease in the interest rate on the Company's variable rate debt would decrease or increase, respectively, future net income and cash flows by approximately $1.7 million per year. A 10% increase in interest rates would decrease the fair value of the fixed rate debt at September 30, 2000 by approximately $47.2 million to $937.1 million. A 10% decrease in interest rates would increase the fair value of the fixed rate debt at September 30, 2000 by approximately $52.8 million to $1,037.1 million. A 10% increase in interest rates would decrease the fair value of the Written Options at September 30, 2000 by approximately $2.4 million to $3.7 million. A 10% decrease in interest rates would increase the fair value of the Written Options at September 30, 2000 by approximately $4.1 million to $10.2 million. INVESTMENT IN REAL ESTATE, DEVELOPMENT OF REAL ESTATE AND SALES OF REAL ESTATE During the nine months ended September 30, 2000, the Company purchased 47 industrial properties comprising approximately 3.9 million square feet of GLA, and several land parcels, for an aggregate purchase price of approximately $207.5 million, excluding costs incurred in conjunction with the acquisition of the properties. The Company also completed the development of 16 industrial properties comprising approximately 2.7 million square feet of GLA at a cost of approximately $101.4 million. During the nine months ended September 30, 2000, the Company sold 53 industrial properties and several land parcels. Gross proceeds from these sales were approximately $193.1 million. The Company has committed to the construction of 26 development projects totaling approximately 6.0 million square feet of GLA for an estimated investment of approximately $232.3 million. Of this amount, approximately $151.2 million remains to be funded. These developments are expected to be funded with cash flows from operations, proceeds from the sales of select properties of the Company and borrowings under the Company's 2000 Unsecured Acquisition Facility (defined below). REAL ESTATE HELD FOR SALE The Company has an active sales program through which it is continually engaged in identifying and evaluating its current portfolio for potential sales candidates. At September 30, 2000, the Company had 118 properties comprising approximately 10.8 million square feet of GLA held for sale. Income from operations of the 118 properties held for sale for the nine months ended September 30, 2000 and 1999 is approximately $25.3 million and $21.4 million, respectively. Income from operations of the 118 properties held for sale for the three months ended September 30, 2000 and 1999 is approximately $10.3 million and $7.3 million, respectively. Net carrying value of the 118 properties held for sale at September 30, 2000 is approximately $373.5 million. There can be no assurance that such properties held for sale will be sold. INVESTMENTS IN JOINT VENTURES During the nine months ended September 30, 2000, the Company, through wholly-owned limited liability companies in which the Operating Partnership is the sole member, received, in the aggregate, approximately $2.1 million in asset management and property management fees from the September 1998 Joint Venture and the September 1999 Joint Venture, collectively. The Company, through wholly-owned limited liability companies in which the Operating Partnership is the sole member, received distributions of approximately $.6 million and .1 million from the September 1998 Joint Venture and the September 1999 Joint Venture, respectively. As of September 30, 2000, the September 1998 Joint Venture owned 143 industrial properties comprising approximately 7.3 million square feet of GLA and the September 1999 Joint Venture owned 39 industrial properties comprising approximately 1.2 million square feet of GLA. 20 22 MORTGAGE LOANS PAYABLE On December 29, 1995, the Company, through an entity in which the Operating Partnership is the sole limited partner and a wholly-owned subsidiary of the Company is the general partner, entered into a $40.2 million mortgage loan (the "1995 Mortgage Loan"). In June 2000, the Company purchased approximately $1.2 million of U.S. Government securities as substitute collateral to execute a legal defeasance of approximately $1.2 million of the 1995 Mortgage Loan (the "1995 Defeased Mortgage Loan"). The 1995 Defeased Mortgage Loan requires monthly principal and interest payments based upon a 28-year amortization schedule. The interest rate under the 1995 Defeased Mortgage Loan is fixed at 7.22% per annum. The terms of the legal defeasance require the Company to use the gross proceeds from the maturities of the U.S. Government securities to paydown and subsequently retire the 1995 Defeased Mortgage Loan in January 2003. Upon the execution of the legal defeasance, one of the 23 properties collateralizing the 1995 Mortgage Loan was released and subsequently sold. ACQUISITION FACILITY PAYABLE In June 2000, the Company amended and restated the 1997 Unsecured Acquisition Facility and entered into a $300.0 million unsecured revolving credit facility (the "2000 Unsecured Acquisition Facility") which initially bears interest at LIBOR plus .80% or the Prime Rate at the Company's election, and provides for interest only payments until maturity. Under the 2000 Unsecured Acquisition Facility, the Company has the right, subject to certain conditions, to increase the aggregate commitment under the 2000 Unsecured Acquisition Facility up to $400.0 million. The Company may borrow under the 2000 Unsecured Acquisition Facility to finance the acquisition and development of additional properties and for other corporate purposes, including to obtain additional working capital. The 2000 Unsecured Acquisition Facility contains certain financial covenants relating to debt service coverage, market value net worth, dividend payout ratio and total funded indebtedness. The 2000 Unsecured Acquisition Facility matures on June 30, 2003. ISSUANCE OF RESTRICTED STOCK During the nine months ended September 30, 2000, the Company awarded 355,139 shares of restricted common stock to certain employees and 2,768 shares of restricted common stock to certain Directors. Other employees of the Company converted certain in-the-money employee stock options to 14,903 shares of restricted common stock. These shares of restricted common stock had a fair value of approximately $9.7 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. NON-QUALIFIED EMPLOYEE STOCK OPTIONS During the nine months ended September 30, 2000, certain employees of the Company exercised 340,600 non-qualified employee stock options. Gross proceeds to the Company were approximately $8.3 million. On May 17, 2000, the Company granted 70,000 non-qualified employee stock options. These stock options vest over one year and have a strike price of $30.00 per share. These stock options expire ten years from the date of grant. On August 28, 2000, the Company granted 863,950 non-qualified employee stock options. These stock options vest over three years and have a strike price of $27.25 per share. The market price of the stock on the date of grant was $28.75. The Company will amortize the in-the-money intrinsic value of the stock options over the vesting period. These stock options expire ten years from the date of grant. TREASURY STOCK In March 2000, the Company's Board of Directors approved the repurchase of up to $100.0 million of the Company's common stock. The Company may make purchases from time to time, if price levels 21 23 warrant, in the open market or in privately negotiated transactions. During the nine months ended September 30, 2000, the Company repurchased 394,300 shares of its common stock at a weighted average price per share of approximately $29.67. DIVIDENDS/DISTRIBUTIONS On January 24, 2000, the Company and the Operating Partnership paid a fourth quarter 1999 distribution of $.62 per common share/Unit, totaling approximately $28.2 million. On April 17, 2000, the Company and the Operating Partnership paid a first quarter 2000 distribution of $.62 per common share/Unit, totaling approximately $28.5 million. On July 17, 2000, the Company and the Operating Partnership paid a first quarter 2000 distribution of $.62 per common share/Unit, totaling approximately $28.6 million. On March 31, 2000, the Company paid first quarter preferred stock dividends of $.59375 per share on its Series A Preferred Stock, $54.688 per share (equivalent to $.54688 per Depositary Share) on its Series B Preferred Stock, $53.906 per share (equivalent to $.53906 per Depositary Share) on its Series C Preferred Stock, $49.687 per share (equivalent to $.49687 per Depositary Share) on its Series D Preferred Stock and $49.375 per share (equivalent to $.49375 per Depositary Share) on its Series E Preferred Stock. The preferred stock dividends paid on March 31, 2000 totaled, in the aggregate, approximately $8.2 million. On June 30, 2000, the Company paid second quarter preferred stock dividends of $.59375 per share on its Series A Preferred Stock, $54.688 per share (equivalent to $.54688 per Depositary Share) on its Series B Preferred Stock, $53.906 per share (equivalent to $.53906 per Depositary Share) on its Series C Preferred Stock, $49.687 per share (equivalent to $.49687 per Depositary Share) on its Series D Preferred Stock and $49.375 per share (equivalent to $.49375 per Depositary Share) on its Series E Preferred Stock. The preferred stock dividends paid on June 30, 2000 totaled, in the aggregate, approximately $8.2 million. SUBSEQUENT EVENTS From October 1, 2000 to November 10, 2000, the Company acquired several land parcels for an aggregate purchase price of approximately $11.7 million, excluding costs incurred in conjunction with the acquisition of these land parcels. The Company also sold eight industrial properties and several land parcels for approximately $11.4 million of gross proceeds. On October 2, 2000, the Company paid second quarter preferred stock dividends of $.59375 per share on its Series A Preferred Stock, $54.688 per share (equivalent to $.54688 per Depositary Share) on its Series B Preferred Stock, $53.906 per share (equivalent to $.53906 per Depositary Share) on its Series C Preferred Stock, $49.687 per share (equivalent to $.49687 per Depositary Share) on its Series D Preferred Stock and $49.375 per share (equivalent to $.49375 per Depositary Share) on its Series E Preferred Stock. The preferred stock dividends paid on October 2, 2000 totaled, in the aggregate, approximately $8.2 million. On October 23, 2000, the Company and the Operating Partnership paid a second quarter 2000 dividend/distribution of $.62 per common share/Unit, totaling approximately $28.4 million. SHORT-TERM AND LONG-TERM LIQUIDITY NEEDS The Company has considered its short-term (one year or less) liquidity needs and the adequacy of its estimated cash flow from operations and other expected liquidity sources to meet these needs. The Company believes that its principal short-term liquidity needs are to fund normal recurring expenses, debt service requirements and the minimum distribution required to maintain the Company's REIT qualification under the Internal Revenue Code. The Company anticipates that these needs will be met with cash flows provided by operating activities. The Company expects to meet long-term (greater than one year) liquidity requirements such as property acquisitions, developments, scheduled debt maturities, major renovations, expansions and other nonrecurring capital improvements through the disposition of select assets, long-term secured and 22 24 unsecured indebtedness and the issuance of additional equity securities if advantageous market conditions exist. As of September 30, 2000 and November 10, 2000, $589.2 million of common stock, preferred stock and depositary shares and $100.0 million of debt securities were registered and unissued under the Securities Act of 1933, as amended. The Company also may finance the development or acquisition of additional properties through borrowings under the 2000 Unsecured Acquisition Facility. At September 30, 2000, borrowings under the 2000 Unsecured Acquisition Facility bore interest at a weighted average interest rate of 7.43%. As of November 10, 2000, the Company had approximately $33.9 million available for additional borrowings under the 2000 Unsecured Acquisition Facility. OTHER The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("FASB 133") on June 1, 1998. Statement of Financial Accounting Standards No. 138 "Accounting for Derivative Instruments and Hedging Activities - An Amendment of FASB Statement 133" was issued in June 2000. FASB 133, as amended, is effective for fiscal years beginning after June 15, 2000 as provided by Statement of Financial Accounting Standards No. 137 issued in July 1999. FASB 133, as amended, requires fair value accounting for all derivatives including recognizing all such instruments on the balance sheet with an offsetting amount recorded in the income statement or as part of comprehensive income. FASB 133, as amended, becomes effective for the Company for the year ending December 31, 2001. The Company does not expect this pronouncement to have a material impact on the Company's consolidated financial position, consolidated results of operations or consolidated cash flows. In March 2000, the FASB issued Statement of Accounting Standards Interpretation 44, Accounting for Certain Transactions Involving Stock Compensation ("Interpretation 44"). Interpretation 44 is generally effective for new stock option grants beginning July 1, 2000. However, the interpretive definition of an employee and certain effective repricing provisions apply to new awards granted after December 15, 1998. Further, the FASB determined that any modifications to current accounting as a result of this guidance are to be recorded prospectively, effective as of July 1, 2000. The Company has applied the accounting mandated by Interpretation 44 as of July 1, 2000 and there has not been a material impact on the Company's consolidated financial position, consolidated results of operations or consolidated cash flows. The REIT Modernization Act, which was passed in 1999 and will take effect on January 1, 2001, modifies certain provisions of the Internal Revenue Code of 1986, as amended, with respect to the taxation of REITs. Two key provisions of this tax law change will impact future Company operations: the availability of a taxable REIT subsidiary which may be wholly-owned directly by a REIT and a reduction in the required level of distributions by a REIT to 90% of ordinary taxable income. The Company may convert its preferred stock subsidiary to a wholly-owned taxable REIT subsidiary on or after January 1, 2001. 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. 23 25 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORT ON FORM 8-K Exhibit No. Description ----------- ----------- 10.1* Thirteenth Amendment, dated as of September 1, 2000, to Sixth Amended and Restated Limited Partnership Agreement of First Industrial, L.P., dated March 18, 1998 10.2* Fourteenth Amendment, dated as of October 13, 2000, to Sixth Amended and Restated Limited Partnership Agreement of First Industrial, L.P., dated March 18, 1998 10.3* Fifteenth Amendment, dated as of October 13, 2000, to Sixth Amended and Restated Limited Partnership Agreement of First Industrial, L.P., dated March 18, 1998 10.4* Sixteenth Amendment, dated as of October 27, 2000, to Sixth Amended and Restated Limited Partnership Agreement of First Industrial, L.P., dated March 18, 1998 27 * Financial Data Schedule * Filed herewith. Report on Form 8-K ------------------ None 24 26 ------------------------------------------------------------------------------- The Company has prepared supplemental financial and operating information which is available without charge upon request to the Company. Please direct requests as follows: First Industrial Realty Trust, Inc. 311 S. Wacker, Suite 4000 Chicago, IL 60606 Attention: Investor Relations 25 27 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST INDUSTRIAL REALTY TRUST, INC. Date: November 13, 2000 By: /s/ Michael J. Havala ---------------------------------- Michael J. Havala Chief Financial Officer (Principal Financial and Accounting Officer) 26 28 EXHIBIT INDEX Exhibit No. Description ----------- ----------- 10.1* Thirteenth Amendment, dated as of September 1, 2000, to Sixth Amended and Restated Limited Partnership Agreement of First Industrial, L.P., dated March 18, 1998 10.2* Fourteenth Amendment, dated as of October 13, 2000, to Sixth Amended and Restated Limited Partnership Agreement of First Industrial, L.P., dated March 18, 1998 10.3* Fifteenth Amendment, dated as of October 13, 2000, to Sixth Amended and Restated Limited Partnership Agreement of First Industrial, L.P., dated March 18, 1998 10.4* Sixteenth Amendment, dated as of October 27, 2000, to Sixth Amended and Restated Limited Partnership Agreement of First Industrial, L.P., dated March 18, 1998 27 * Financial Data Schedule * Filed herewith. 27