1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31,JUNE 30, 1998
/ / 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 / /
2
FIRST INDUSTRIAL, L.P.
FORM 10-Q
FOR THE PERIODSIX MONTHS AND THREE MONTHS ENDED MARCH 31,JUNE 30, 1998
INDEX
PAGE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
PAGE
Consolidated Balance Sheets as of March 31,June 30, 1998 and December 31, 1997................1997.................................. 2
Consolidated Statements of Operations for the Six Months Ended June 30, 1998 and
June 30, 1997........................................................................................ 3
Consolidated Statements of Operations for the Three Months Ended March 31June 30, 1998 and
March 31, 1997...........................................................3June 30, 1997........................................................................................ 4
Consolidated Statements of Cash Flows for the ThreeSix Months Ended March 31,June 30, 1998 and
March 31, 1997...........................................................4June 30, 1997........................................................................................ 5
Notes to Consolidated Financial Statements...............................................5-14Statements............................................................. 6-16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................15-19Operations........................................................................... 17-23
PART II: OTHER INFORMATION
Item 1. Legal Proceedings...............................................................20Proceedings............................................................................... 24
Item 2. Changes in Securities........................................................20Securities........................................................................... 24
Item 3. Defaults Upon Senior Securities..............................................20Securities................................................................. 24
Item 4. Submission of Matters to a Vote of Security Holders..........................20Holders............................................. 24
Item 5. Other Information............................................................20Information............................................................................... 24
Item 6. Exhibits and Reports on Form 8-K and Form 8-K/A..............................20-21
SIGNATURE................................................................................22A................................................. 24-25
SIGNATURE................................................................................................ 26
EXHIBIT INDEX............................................................................23INDEX............................................................................................ 27
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST INDUSTRIAL, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
March 31,June 30, December 31,
1998 1997
---------------- ------------------------------- --------------
ASSETS
ASSETS
Assets:
Investment in Real Estate:
Land.................................................Land........................................................ $ 272,479312,911 $ 184,704
Buildings and Improvements........................... 1,499,254Improvements.................................. 1,735,942 1,012,145
Furniture, Fixtures and Equipment.................... 1,328Equipment........................... 1,358 ---
Construction in Progress............................. 33,282Progress.................................... 19,403 4,211
Less: Accumulated Depreciation....................... (108,214)Depreciation.............................. (120,564) (22,319)
---------------- ------------------------------- --------------
Net Investment in Real Estate.................... 1,698,129Estate............................. 1,949,050 1,178,741
Investment in Other Real Estate Partnerships......... 302,162Partnerships................ 318,170 643,621
Cash and Cash Equivalents............................ 3,029Equivalents................................... 713 4,995
Tenant Accounts Receivable, Net...................... 8,339Net............................. 8,427 2,944
Deferred Rent Receivable............................. 8,220Receivable.................................... 9,127 2,584
Deferred Financing Costs, Net........................ 7,845Net............................... 7,894 6,808
Prepaid Expenses and Other Assets, Net............... 42,327Net...................... 45,105 30,490
---------------- ------------------------------- --------------
Total Assets.........................................Assets............................................. $ 2,070,051 $1,870,183
================ ==================2,338,486 $ 1,870,183
============= ==============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage Loans Payable.............................. $ 60,835 $ 61,198Payable...................................... $63,001 $61,198
Senior Unsecured Debt............................... 748,763Debt....................................... 748,785 648,994
Acquisition Facility Payable........................ 17,800Payable................................ 230,100 129,400
Accounts Payable and Accrued Expenses............... 46,759Expenses....................... 40,096 32,629
Rents Received in Advance and Security Deposits..... 14,898Deposits............. 14,673 9,775
Distributions Payable............................... 22,709Payable....................................... 23,553 22,010
------------- --------------
Total Liabilities................................ 911,764Liabilities........................................ 1,120,208 904,006
---------------- ------------------------------- --------------
Commitments and Contingencies........................Contingencies............................... --- ---
Partners' Capital:
General Partner Preferred Units.....................Units........................... 336,990 144,290
General Partner Units............................... 674,639Units..................................... 705,459 674,191
Limited Partners Units.............................. 146,658Units.................................... 175,829 147,696
------------- --------------
Total Partners' Capital........................ 1,158,287Capital................................. 1,218,278 966,177
---------------- ------------------------------- --------------
Total Liabilities and Partners' Capital........Capital................. $ 2,070,051 $1,870,183
================ ==================2,338,486 $ 1,870,183
============= ==============
The accompanying notes are an integral part of the financial statements.
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FIRST INDUSTRIAL, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
(UNAUDITED)
Three
Six Months ThreeSix Months
Ended Ended
March 31,June 30, 1998 March 31,June 30, 1997
---------------------- -------------------------------- -----------
Revenues:
Rental Income................................................Income.............................................................. $ 51,334110,730 $ 14,69032,447
Tenant Recoveries and Other Income........................... 11,744 4,209
---------------------- --------------------Income......................................... 25,608 7,831
------------ -----------
Total Revenues............................................. 63,078 18,899
---------------------- --------------------Revenues........................................................... 136,338 40,278
------------ -----------
Expenses:
Real Estate Taxes............................................ 10,808 3,188Taxes.......................................................... 22,668 6,933
Repairs and Maintenance...................................... 2,979 1,084Maintenance.................................................... 6,514 1,715
Property Management.......................................... 2,485 841
Utilities.................................................... 1,944 637
Insurance.................................................... 179 48
Other........................................................ 852 288Management........................................................ 5,436 1,766
Utilities.................................................................. 3,639 1,160
Insurance.................................................................. 381 95
Other...................................................................... 1,922 514
General and Administrative................................... 2,619 1,257
Interest..................................................... 14,069 2,349Administrative................................................. 5,982 2,642
Interest................................................................... 30,594 9,107
Amortization of Interest Rate Protection Agreements
and Deferred Financing Costs.................................... 161 (179)Costs.............................................. 369 8
Depreciation and Other Amortization.......................... 11,617 3,000
---------------------- --------------------Amortization........................................ 25,525 6,243
------------ -----------
Total Expenses............................................. 47,713 12,513
---------------------- --------------------Expenses........................................................... 103,030 30,183
------------ -----------
Income Before Gain on Sales of Real Estate and Equity in Income
of Other Real Estate Partnerships........................... 15,365 6,386
Gain on Sales of Real Estate.................................. 43 ---
---------------------- --------------------
Incomefrom Operations Before Equity in Income of Other Real Estate
Partnerships................................................ 15,408 6,386Partnerships and Disposition of Interest Rate Protection Agreements........ 33,308 10,095
Equity in Income of Other Real Estate Partnerships............ 8,757 5,834
---------------------- --------------------Partnerships.......................... 14,046 8,030
Disposition of Interest Rate Protection Agreements.......................... --- 4,038
------------ -----------
Income from Operations...................................................... 47,354 22,163
Gain on Sales of Real Estate, Net........................................... 93 460
------------ -----------
Income Before Extraordinary Loss and Cumulative Effect of Change in
Accounting Principle....................................................... 47,447 22,623
Extraordinary Loss.......................................................... --- (3,428)
Cumulative Effect of Change in Accounting Principle......................... (719) ---
------------ -----------
Net Income.................................................... 24,165 12,220Income.................................................................. 46,728 19,195
Less: Preferred Unit Distributions............................ (4,998) ---
---------------------- --------------------Distributions.......................................... (12,228) (1,405)
------------ -----------
Net incomeIncome Available to Unitholders...........................Unitholders......................................... $ 19,167 $12,220
---------------------- --------------------34,500 $ 17,790
============ ===========
Net Income Available to Unitholders Before Extraordinary Loss and
Cumulative Effect of Change in Accounting Principle per
Weighted Average Unit Outstanding:
Basic.................................................................... $ .81 $ .63
============ ===========
Diluted.................................................................. $ .81 $ .62
============ ===========
Net Income Available to Unitholders per Weighted Average Unit Outstanding
Basic......................................................Outstanding:
Basic..................................................................... $ .45.80 $ .37
---------------------- --------------------
Diluted.....................................................53
============ ===========
Diluted................................................................... $ .45.79 $ .36
---------------------- --------------------.52
============ ===========
The accompanying notes are an integral part of the financial statements.
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FIRST INDUSTRIAL, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
(UNAUDITED)
Three Months Three Months
Ended Ended
June 30, 1998 June 30, 1997
------------- --------------
Revenues:
Rental Income.............................................................. $ 59,396 $17,757
Tenant Recoveries and Other Income......................................... 13,864 3,622
------------- --------------
Total Revenues........................................................... 73,260 21,379
------------- --------------
Expenses:
Real Estate Taxes.......................................................... 11,860 3,745
Repairs and Maintenance.................................................... 3,535 631
Property Management........................................................ 2,951 925
Utilities.................................................................. 1,695 523
Insurance.................................................................. 202 47
Other...................................................................... 1,070 226
General and Administrative................................................. 3,363 1,385
Interest................................................................... 16,525 6,758
Amortization of Interest Rate Protection Agreements and
Deferred Financing Costs................................................. 208 187
Depreciation and Other Amortization........................................ 13,908 3,243
------------- --------------
Total Expenses........................................................... 55,317 17,670
------------- --------------
Income from Operations Before Equity in Income of Other Real Estate
Partnerships and Disposition of Interest Rate Protection
Agreements................................................................. 17,943 3,709
Equity in Income of Other Real Estate Partnerships.......................... 5,289 2,196
Disposition of Interest Rate Protection Agreements.......................... --- 4,038
------------- --------------
Income from Operations...................................................... 23,232 9,943
Gain on Sales of Real Estate, Net........................................... 50 460
------------- --------------
Income Before Extraordinary Loss and Cumulative Effect of Change in
Accounting Principle....................................................... 23,282 10,403
Extraordinary Loss.......................................................... --- (3,428)
Cumulative Effect of Change in Accounting Principle......................... (719) ---
------------- --------------
Net Income.................................................................. 22,563 6,975
Less: Preferred Unit Distributions.......................................... (7,230) (1,405)
------------- --------------
Net Income Available to Unitholders......................................... $ 15,333 $ 5,570
============= ==============
Net Income Available to Unitholders Before Extraordinary Loss and
Cumulative Effect of Change in Accounting Principle per
Weighted Average Unit Outstanding:
Basic.................................................................... $ .36 $ .26
============= ==============
Diluted.................................................................. $ .36 $ .26
============= ==============
Net Income Available to Unitholders per Weighted Average Unit Outstanding:
Basic.................................................................... $ .35 $ .16
============= ==============
Diluted.................................................................. $ .35 $ .16
============= ==============
The accompanying notes are an integral part of the financial statements.
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FIRST INDUSTRIAL, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ThreeSix Months Ended ThreeSix Months Ended
March 31,June 30, 1998 March 31,June 30, 1997
-------------------- ------------------------------------ ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income........................................................Income................................................. $ 24,16546,728 $ 12,22019,195
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation..................................................... 10,642 2,734Depreciation.............................................. 23,140 5,682
Amortization of Interest Rate Protection Agreements and
Deferred Financing Costs........................................ 161 (179)Costs................................. 369 8
Other Amortization............................................... 1,228 266Amortization........................................ 2,759 599
Disposition of Interest Rate Protection Agreements........ --- (4,038)
Gain on Sales of Real Estate..................................... (43) ---Properties, Net.......................... (93) (460)
Equity in Income of Other Real Estate Partnerships............... (8,757) (5,834)Partnerships........ (14,046) (8,030)
Cumulative Effect of Change in Accounting Principle....... 719 ---
Extraordinary Loss........................................ --- 3,428
Provision for Bad Debts.......................................... ---Debts................................... 297 79
Increase in Tenant Accounts Receivable and Prepaid
Expenses and Other Assets...................................... (6,412) (7,869)Assets................................ (11,760) (11,814)
Increase in Deferred Rent Receivable............................. (956) (175)Receivable...................... (1,862) (629)
(Decrease) Increase in Accounts Payable and Accrued
Expenses and Rents Received in Advance and Security
Deposits................. 8,366 530Deposits................................................. (155) 3,769
Increase in Organization Costs...................................Costs............................ --- (4)
-------------------- --------------------(20)
------------ ----------------
Net Cash Provided by Operating Activities....................... 28,394 1,768
-------------------- --------------------Activities............... 46,096 7,769
------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and Additions to Investment in Real Estate............. (147,445) (114,964)Estate...... (379,849) (184,096)
Contributions to Investment in Other Real Estate
Partnerships.................................................... (43,175) (13,727)Partnerships............................................. (58,858) (349,455)
Distributions from Investment in Other Real Estate
Partnerships.................................................... 5,744 4,654Partnerships............................................. 10,707 29,424
Proceeds from Sales of Investment in Real Estate................. 1,798 ---Estate.......... 7,117 12,182
Repayment of Mortgage Loans Receivable........................... 16Receivable.................... 1,007 (3,708)
Increase in Restricted Cash............................... --- -------------------- --------------------(11,858)
------------ ----------------
Net Cash Used in Investing Activities........................... (183,062) (124,037)
-------------------- --------------------Activities.................... (419,876) (507,511)
------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Unit Contributions............................................... --- 137Contributions........................................ 35,334 1,214
Unit Distributions............................................... (22,004) (16,281)Distributions........................................ (44,502) (33,185)
Preferred Unit Contributions.....................................Contributions.............................. 192,700 ---144,290
Preferred Unit Distributions..................................... (4,784) ---Distributions.............................. (12,229) (1,117)
Repayments on Mortgage Loans Payable............................. (363) (198)Payable...................... (723) (399)
Repayment of Promissory Notes Payable............................Payable..................... --- (9,919)
Proceeds from Senior Unsecured Debt..............................Debt....................... 99,753 ---349,150
Other Proceeds from Senior Unsecured Debt........................Debt................. 2,760 ---2,246
Other Costs of Senior Unsecured Debt.............................Debt...................... (2,565) ---
Proceeds from Sale of Interest Rate Protection Agreement.. --- 6,440
Proceeds from Acquisition Facilities Payable..................... 164,900 143,700Payable.............. 411,200 220,200
Repayments on Acquisition Facilities Payable..................... (276,500) ---
Book Overdraft .................................................. --- 733Payable.............. (310,500) (169,600)
Debt Issuance Costs.............................................. (1,195) (198)
-------------------- --------------------Costs....................................... (1,730) (6,445)
------------ ----------------
Net Cash Provided by Financing Activities....................... 152,702 117,974
-------------------- --------------------Activities................. 369,498 502,875
------------ ----------------
Net Decrease(Decrease) Increase in Cash and Cash Equivalents........................ (1,966) (4,295)Equivalents...... (4,282) 3,133
Cash and Cash Equivalents, Beginning of Period...................Period............ 4,995 4,295
-------------------- -------------------------------- ----------------
Cash and Cash Equivalents, End of Period.........................Period.................. $ 3,029713 $ ---
==================== ====================7,428
============ ================
The accompanying notes are an integral part of the financial statements.
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FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
1. ORGANIZATION AND FORMATION OF COMPANY
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 of the Operating Partnership is First Industrial Realty Trust,
Inc. (the "Company") with an approximate 86%84.9% ownership interest at March 31,June 30,
1998. The Company also owns preferred units with an aggregate liquidation
priority of $350 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 limited partners of
the Operating Partnership own approximately a 14%15.1% aggregate ownership
interest at March 31,June 30, 1998.
The Operating Partnership owns 100%is the sole member of FR Development Services, L.L.C,21 limited liability
corporations (the "L.L.C.'s"), owns a 95% economic interest in FR Development
Services, Inc. as well as a 99% limited partnership interest (subject in one
case as described below to a preferred limited partnership interest) in each of
First Industrial Financing Partnership, L.P. (the "Financing Partnership"),
First Industrial Securities, L.P. (the "Securities Partnership"), First
Industrial Mortgage Partnership, L.P. (the "Mortgage Partnership"), First
Industrial Pennsylvania Partnership, L.P. (the "Pennsylvania Partnership"),
First Industrial Harrisburg, L.P. (the "Harrisburg Partnership"), First
Industrial Indianapolis, L.P. (the "Indianapolis Partnership") and First
Industrial Development Services Group, L.P. ("FIDS, L.P.") (together, the "Other
Real Estate Partnerships"). The financial statements of the Operating
Partnership report the L.L.C.'s and FR Development Services, Inc. on a
consolidated basis (hereinafter defined as the "Consolidated Operating
Partnership")and the Other Real Estate Partnerships are accounted for under the
equity method of accounting. The minority ownership interest in FR Development
Services, Inc. is not reflected in the consolidated financial statements due to
its immateriality. As of March 31,June 30, 1998, the Consolidated Operating Partnership
directly owned 746857 in-service properties containing an aggregate of approximately 50.856.2
million square feet of gross leasable area ("GLA"). On a combined basis, as of
March 31,June 30, 1998, the Other Real Estate Partnerships owned 8896 in-service properties
containing an aggregate of approximately 10.211.5 million square feet of GLA. Of
the 8896 properties owned by the Other Real Estate Partnerships at March 31,June 30, 1998,
1623 are owned by the Financing Partnership, 19 are owned by the Securities
Partnership, 23 are owned by the Mortgage Partnership, 21 are owned by the
Pennsylvania Partnership, five are owned by the Harrisburg Partnership, threefour are
owned by the Indianapolis Partnership and one is ownedheld by FIDS, L.P.
The general partners of the Other Real Estate Partnerships are separate
corporations, each with a one percent general partnership interest in the Other
Real Estate Partnerships.Partnership for which it acts as a general partner. Each general
partner of the Other Real Estate Partnerships is a wholly owned subsidiary of
the Company. The general partner of the Securities Partnership, First
Industrial Securities Corporation, also owns a preferred limited partnership
interest in the Securities Partnership which entitles it to receive a fixed
quarterly distribution, and results in it being allocated income in the same
amount, equal to the fixed quarterly dividend the Company pays on its 9.5%
Series A Cumulative Preferred Stock.
Profits, losses and distributions of the Operating Partnership are
allocated to the general partner and the limited partners in accordance with
the provisions contained within its restated and amended partnership agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim financial statements have been prepared in
accordance with the accounting policies described in the financial statements
and related notes included in the Operating Partnership's 1997 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, 1997 audited
financial statements included in the Operating Partnership's 1997 Form 10-K and
present interim disclosures as required by the Securities and Exchange
Commission.
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FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
In order to conform with generally accepted accounting principles,
management, in preparation of the 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
and the reported amounts of revenues and expenses. Actual results could differ
from those estimates.
In the opinion of management, all adjustments consist of normal recurring
adjustments necessary to present fairly the financial position of the Operating
Partnership as of March 31,June 30, 1998 and the results of its operations and its cash
flows for each of the six months and three months ended March 31,June 30, 1998 and 1997.
Tenant Accounts Receivable, net:
The 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 $1,297 and $1,000 as of
March 31,June 30, 1998 and December 31, 1997.1997, respectfully.
Recent Accounting Pronouncements:
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income". This statement, effective for fiscal years beginning after December
15, 1997, requires the Operating Partnership to report components of
comprehensive income in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income is defined by
Concepts Statement No. 6, "Elements of Financial Statements" as the change in
the equity of a business enterprise during a period from transactions and other
events and circumstances from nonownernon-owner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. The Operating Partnership's net income available to
its unitholders approximates its comprehensive income as defined in Concepts
Statement No. 6, "Elements of Financial Statements".
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information".
This statement, effective for financial statements for fiscal years beginning
after December 15, 1997, requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Generally, financial information is required to be reported on the basis that
it is used internally for evaluating segment performance and deciding how to
allocate resources to segments. The Operating Partnership has not yet
determined the impact of this statement on its financial statements.
In March 1998, the FASB's Emerging Issues Task Force (the "Task Force")
issued Emerging Issues Task Force Issue No. 97-11, "Accounting for Internal
Costs Relating to Real Estate Property Acquisitions" ("EITF 97-11"). EITF
97-11, effective March 19, 1998, requires that internal costs of preacquisition
activities incurred in connection with the acquisition of an operating property
should be expensed as incurred. The Task Force concluded that a property is
considered operating if, at the date of acquisition, major construction
activity is substantially completed on the property and (a) it is held
available for occupancy upon completion of tenant improvements by the acquirer
or (b) it is already income producing. The Operating Partnership adopted EITF
97-11 as of March 19, 1998. Prior to March 19, 1998, the Operating
Partnership capitalized internal costs of preacquisition activities
incurred connection with the acquisition of operating properties. The
Operating Partnership estimates that the adoption of
7
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FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
EITF 97-11 will result in a cumulative increase of approximately $2,500 to
$3,000 in the amount of general and administrative expense reflected in the
Operating Partnership's consolidated statement of operations in 1998.
In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5
requires that the net unamortized balance of all start-up costs and
organizational costs be written off as a cumulative effect of a change in
accounting principle and all future start-up costs and organizational costs be
expensed. In the second quarter of 1998, the Operating Partnership reported a
cumulative effect of a change in accounting principle in the amount of
approximately $719 to reflect the write-off of the unamortized balance of
organizational costs on the Operating Partnership's balance sheet.
During the second quarter of 1998, the FASB issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities". This statement, effective for fiscal years beginning
after June 15, 1999, establishes accounting and reporting standards requiring
that every derivative instrument, including certain derivative instruments
imbedded in other contracts, be recorded in the balance sheet as either an
asset or liability measured at its fair value. The statement also requires
that the changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. The Operating Partnership
is currently assessing the impact of this new statement on its consolidated
financial position, liquidity, and results of operations.
3. INVESTMENT IN OTHER REAL ESTATE PARTNERSHIPS
The Investment in Other Real Estate Partnerships reflects the Operating
Partnership's 99% limited partnership equity interest in the entities
described 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, 1998 December 31, 1997
ASSETS ------------------- ------------------
Assets:
Investment in Real Estate, Net................................. $ 369,452 $ 694,926
Other Assets................................................... 38,441 355,726
------------------- ------------------
Total Assets................................................ $ 407,893 $ 1,050,652
=================== ==================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage Loans Payable........................................ $ 39,784 $ 40,000
Defeased Mortgage Loan Payable................................. --- 300,000
Other Liabilities.............................................. 6,177 23,317
------------------- ------------------
Total Liabilities........................................... 45,961 363,317
------------------- ------------------
Partners' Capital.............................................. 361,932 687,335
------------------- ------------------
Total Liabilities and Partners' Capital..................... $ 407,893 $ 1,050,652
=================== ==================
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FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
3. INVESTMENT IN OTHER REAL ESTATE PARTNERSHIPS, CONTINUED
Condensed Combined Statements of Operations
Six Months Ended
--------------------------------------
June 30, June 30,
1998 1997
------------- -------------
Total Revenues................................................. $ 27,137 $ 58,502
Property Expenses.............................................. (6,162) (15,172)
Interest Expense............................................... (1,419) (12,214)
Amortization of Interest Rate Protection Agreements and
Deferred Financing Costs...................................... (32) (1,371)
Depreciation and Other Amortization............................ (4,800) (11,468)
Loss on Disposition of Interest Rate Protection Agreements..... --- (2,608)
Gain on Sales of Real Estate................................... 2,282 3,538
Extraordinary Loss............................................. --- (9,135)
Cumulative Effect of Change in Accounting Principle............ (858) ---
------------- -------------
Net Income..................................................... $ 16,148 $ 10,072
============= =============
On January 2, 1998, the Financing Partnership distributed 173 properties
with a net book value of $387,647 to the Operating Partnership.
4. MORTGAGE LOANS, SENIOR UNSECURED DEBT AND ACQUISITION FACILITY PAYABLE
On March 31, 1998, the Operating Partnership issued $100 million of Dealer
remarketable securities which mature on April 5, 2011 and bear a coupon
interest rate of 6.50% (the "2011 Drs."). The issue price of the 2011 Drs. was
99.753%. Interest is paid semi-annually in arrears on April 5 and October 5.
The 2011 Drs. are callable (the "Call Option"), at the option of J.P. Morgan
Securities, Inc., as Remarketing Dealer (the "Remarketing Dealer"), on April 5,
2001 (the "Remarketing Date"). The Operating Partnership received
approximately $2,760 of proceeds from the Remarketing Dealer as consideration
for the Call Option. The Operating Partnership will amortize the proceeds over
the life of the Call Option as an adjustment to interest expense. 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 upon a predetermined formula
as disclosed in the related Prospectus Supplement. If the Remarketing Dealer
elects not to remarket the 2011 Drs., then the Operating Partnership will be
required to repurchase, on the Remarketing Date, any 2011 Drs. that have not
been purchased by the Remarketing Dealer at 100% of the principal amount
thereof, plus accrued and unpaid interest, if any. The Operating Partnership
also settled an interest rate protection agreement which was used to fix the
interest rate on the 2011 Drs. prior to issuance. The debt issue discount and
the settlement amount of the interest rate protection agreement are being
amortized over the life of the 2011 Drs. as an adjustment to interest expense.
The 2011 Drs. contain certain covenants including limitations on incurrence of
debt and debt service coverage.
9
11
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
4. MORTGAGE LOANS, SENIOR UNSECURED DEBT AND ACQUISITION FACILITY PAYABLE,
CONTINUED
On April 16, 1998, the Operating Partnership assumed a mortgage loan in
the amount of $2,525 (the "Acquisition Mortgage Loan IV"). The Acquisition
Mortgage Loan IV is collateralized by one property in Baltimore, Maryland,
bears interest at a fixed rate of 8.95% and provides for monthly principal and
interest payments based on a 20-year amortization schedule. The Acquisition
Mortgage Loan IV matures on October 1, 2006. The Acquisition Mortgage Loan IV
may be prepaid only after October 1, 2001 in exchange for the greater of a 1%
prepayment fee or a yield maintenance premium.
The following table discloses certain information regarding the Operating
Partnership's mortgage loans, 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
1998 1997 1998 1997 1998 DATE
------------- ------------- ----------- ------------ ------------- -----------
MORTGAGE LOANS PAYABLE
CIGNA Loan......................... $ 35,522 $ 35,813 $ --- $ --- 7.500% 4/01/03
Assumed Loans...................... 8,809 8,950 --- --- 9.250% 1/01/13
LB Mortgage Loan II............... 705 705 --- --- 8.000% (1)
Acquisition Mortgage Loan I...... 3,993 4,135 --- 29 8.500% 8/01/08
Acquisition Mortgage Loan II..... 7,913 7,997 51 52 7.750% 4/01/06
Acquisition Mortgage Loan III... 3,543 3,598 26 27 8.875% 6/01/03
Acquisition Mortgage Loan IV..... 2,516 --- 19 --- 8.950% 10/01/06
----------- ---------- --------- ----------
Total.............................. $ 63,001 $ 61,198 $ 96 $ 108
=========== ========== ========= ==========
SENIOR UNSECURED DEBT
- ---------------------
2005 Notes......................... $ 50,000 $ 50,000 $ 383 $ 393 6.900% 11/21/05
2006 Notes......................... 150,000 150,000 875 671 7.000% 12/01/06
2007 Notes......................... 149,953(2) 149,951 1,457 1,457 7.600% 5/15/07
2011 Notes......................... 99,400(2) 99,377 942 942 7.375% 5/15/11(3)
2017 Notes......................... 99,814(2) 99,809 625 479 7.500% 12/01/17(4)
2027 Notes ........................ 99,859(2) 99,857 914 914 7.150% 5/15/27(5)
2011 Drs........................... 99,759(2) --- 1,625 --- 6.500%(7) 4/05/11(6)
----------- ---------- --------- ----------
Total.............................. $ 748,785 $ 648,994 $ 6,821 $ 4,856
=========== ========== ========= ==========
ACQUISITION FACILITY PAYABLE
- ----------------------------
1997 Unsecured Acquisition
Facility........................... $ 230,100 $ 129,400 $ 695 $ 297 6.510% 4/30/01
=========== ========== ========= ==========
(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) The 2007 Notes, 2011 Notes, 2017 Notes, 2027 Notes and the 2011 Drs. are
net of unamortized discounts of $47, $600, $186, $141 and $241,
respectively.
(3) The 2011 Notes are redeemable at the option of the holder thereof, on May
15, 2004.
(4) The 2017 Notes are redeemable at the option of the Company at any time
based upon a predetermined formula.
(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.
10
12
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
4. MORTGAGE LOANS, SENIOR UNSECURED DEBT AND ACQUISITION FACILITY PAYABLE,
CONTINUED
The following is a schedule of the stated maturities of the mortgage
loans, senior unsecured debt and acquisition facility payable for the next five
years ending December 31, and thereafter:
Amount
----------------
1998 $ 672
1999 1,586
2000 1,722
2001 231,969
2002 2,028
Thereafter 804,419
----------------
Total $ 1,042,396
================
The maturity date of the Lazarus Burman Mortgage Loan II is based on a
contingent event, as a result, this loan is not included in the above table.
The Operating Partnership, from time to time, enters into interest rate
protection agreements which are used to lock into a fixed interest rate on
anticipated offerings of senior unsecured debt. At June 30, 1998, the
following interest rate protection agreements were outstanding:
Notional Origination Settlement
Amount Date Interest Rate Valuation Basis Date
---------- ----------------- ------------- ---------------- --------------
$ 50,000 January 2, 1998 5.937% 30-Year Treasury October 1, 1998
$ 100,000 October 28, 1997 6.317% 30-Year Treasury July 1, 1998
$ 100,000 December 19, 1997 5.994% 30-Year Treasury January 4, 1999
5. 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 (see discussion below). 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.
Unit Contributions:
During the six months ended June 30, 1998, the Operating Partnership
issued 983,956 Units valued, in the aggregate, at $33,802 in exchange for
interests in certain properties. These contributions are reflected in the
Operating Partnership's financial statements as limited partners contributions.
11
13
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
5. PARTNERS' CAPITAL, CONTINUED
On April 23, 1998, the Company issued, in a private placement, 1,112,644
shares of $.01 par value Common Stock (the "April 1998 Equity Offering"). The
net proceeds of approximately $34,100 received from the April 1998 Equity
Offering were contributed to the Operating Partnership in exchange for 1,112,644
Units in the Operating Partnership and are reflected in the Operating
Partnership's financial statements as a general partner contribution.
During the six months ended June 30, 1998, certain employees of the Company
exercised 81,000 employee stock options. Gross proceeds to the Company were
approximately $1,968. The gross proceeds from the option exercises were
contributed to the Operating Partnership in exchange for Units and are reflected
in the Operating Partnership's financial statements as a general partner
contribution.
During the six months ended June 30, 1998, the Company awarded 51,850
shares of restricted Common Stock to certain employees and 1,179 shares of
restricted Common Stock to certain Directors. Another employee of the Company
converted certain employee stock options to 6,123 shares of restricted Common
Stock. The Operating Partnership issued Units to the Company in the same
amount. These shares of restricted Common Stock had a fair value of $2,095 on
the date of grant. The restricted Common Stock vests over a period from five to
ten years. Compensation expense will be charged to earnings over the vesting
period.
Preferred Unit Contributions:
On February 4, 1998, the Company issued 5,000,000 Depositary Shares, each
representing 1/100th of a share of the Company's 7.95%, $.01 par value, Series
D Cumulative Preferred Stock (the "Series D Preferred Stock"), at an initial
offering price of $25 per Depositary Share. The net proceeds of $120,562
received from the Series D Preferred Stock were contributed to the Operating
Partnership in exchange for 7.95% Series D Cumulative Preferred Units (the
"Series D Preferred Units") and are reflected in the Operating Partnership's
financial statements as a general partner preferred unit contribution.
On March 18 1998, the Company issued 3,000,000 Depositary Shares, each
representing 1/100th of a share of the Company's 7.90%, $.01 par value, Series
E Cumulative Preferred Stock (the "Series E Preferred Stock"), at an initial
offering price of $25 per Depositary Share. The net proceeds of $72,138
received from the Series E Preferred Stock were contributed to the Operating
Partnership in exchange for 7.90% Series E Cumulative Preferred Units (the
"Series E Preferred Units") and are reflected in the Operating Partnership's
financial statements as a general partner preferred unit contribution.
Non-Qualified Employee Stock Options:
On January 2, 1998, the Company granted 4,370,000 non-qualified employee
stock options. These stock options vest over three years based upon certain
performance measures. The stock options have a strike price of $35.8125 per
share and expire ten years from the date of grant. The exercise of these stock
options will result in the issuance of Units to the Company in the same amount.
On May 14, 1998, the Company granted 899,000 non-qualified employee stock
options. These stock options vest over one year and have a strike price of
$31.13 per share. The stock options expire between seven and ten years from
the date of grant. The exercise of these stock options will result in the
issuance of Units to the Company in the same amount.
12
14
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
6. ACQUISITION OF REAL ESTATE
During the six months ended June 30, 1998, the Consolidated Operating
Partnership acquired 162 existing industrial properties and several land
parcels. The aggregate purchase price for these acquisitions totaled
approximately $373,500, excluding costs incurred in conjunction with the
acquisition of the properties.
Of the 162 existing industrial properties purchased by the Operating
Partnership during the six months ended June 30, 1998, four existing industrial
properties were purchased from Western Suburban Industrial Investments Limited
Partnership ("Western") in which the sole general partner, having a 5%
interest, was Tomasz/Shidler Investment Corporation, of which the sole
shareholders were a Director and Director/Officer of the general partner of the
Operating Partnership who also had a 53% and 32% limited partnership interest
in Western, respectively. Further, an additional Director/Officer and an
Officer of the general partner of the Operating Partnership were limited
partners in Western having interests of 2% and .5%, respectively. The
aggregate purchase price for this acquisition totaled approximately $7,900,
excluding costs incurred in conjunction with the acquisition of the properties.
During the second quarter of 1998, the Operating Partnership completed an
acquisition of a real estate firm for which an officer and an employee of the
Operating Partnership owned a 77.5% interest. Gross proceeds to the real estate
firm totaled approximately $2,349.
7. SALES OF REAL ESTATE
During the six months ended June 30, 1998, the Operating Partnership sold
two existing industrial properties and one land parcel. Gross proceeds from
these sales were approximately $7,117. The gain on sales of real estate was
approximately $93, net of federal income taxes.
13
15
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
8. SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Six Months Ended
-----------------------------------------------
June 30, 1998 June 30, 1997
----------------------- ----------------------
Interest paid, net of capitalized interest................................ $ 28,243 $ 5,856
======================= ======================
Interest capitalized...................................................... $ 1,907 $ 157
======================= ======================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Distributions payable on Units............................................ $23,553 $ 17,510
======================= ======================
IN CONJUNCTION WITH THE PROPERTY ACQUISITIONS, THE FOLLOWING ASSETS AND
LIABILITIES WERE ASSUMED AND OPERATING PARTNERSHIP UNITS EXCHANGED:
Purchase of real estate.................................................. $ 373,500 $ 230,625
Accrued real estate taxes and security deposits.......................... (3,520) (2,460)
Mortgage loans........................................................... (2,525) (4,505)
Operating Partnership Units.............................................. (33,802) (53,471)
----------------------- ----------------------
$ 333,653 $ 170,189
======================= ======================
IN CONJUNCTION WITH THE DISTRIBUTION OF 173 PROPERTIES FROM THE FINANCING
PARTNERSHIP TO THE OPERATING PARTNERSHIP ON JANUARY 2, 1998, THE FOLLOWING
ASSETS AND LIABILITIES WERE ASSUMED:
Investment in real estate, net.......................................... $ 382,190
Tenant accounts receivable.............................................. 3,017
Deferred rent receivable................................................ 4,689
Other assets............................................................ 6,209
Accounts payable and accrued expenses................................... (5,920)
Rents received in advance and security deposits......................... (2,538)
-----------------------
Investment in other real estate partnerships............................ $ 387,647
=======================
14
16
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
9. EARNINGS PER UNIT
Net income per weighted average Units - Basic, is based on the weighted
average Units outstanding. Net Income per weighted average Unit - Diluted, is
based on the weighted average Units outstanding plus the effect of in-the-money
employee stock options that result in the issuance of general partnership
units. The computation of basic and diluted EPU is presented below:
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
-------------- ------------- -------------- --------------
Numerator:
- ----------
Income Before Extraordinary Loss and Cumulative Effect of
Change in Accounting Principle................................... $ 47,447 $ 22,623 23,282 10,403
Less: Preferred Distributions..................................... (12,228) (1,405) (7,230) (1,405)
------------- ------------ ------------- -------------
Net Income Available to Unitholders Before Extraordinary
Loss and Cumulative Effect of Change in Accounting Principle -
For Basic and Diluted EPU........................................ 35,219 21,218 16,052 8,998
Extraordinary Loss................................................ --- (3,428) --- (3,428)
Cumulative Effect of Change in Accounting Principle............... (719) --- (719) ---
------------- ------------ ------------- -------------
Net Income Available to Unitholders - For Basic and
Diluted EPU..................................................... $ 34,500 $ 17,790 15,333 5,570
============= ============ ============= =============
Denominator:
- ------------
Weighted Average Units - Basic.................................... 43,233 33,783 44,069 34,096
Effect of Dilutive Securities:
Employee Common Stock Options of the Company
that result in the issuance of general partnership
units............................................................ 338 283 264 271
------------- ------------ ------------- -------------
Weighted Average Units - Diluted.................................. 43,571 34,066 44,333 34,367
============= ============ ============= =============
Basic EPU:
- ----------
Net Income Available to Unitholders Before
Extraordinary Loss and Cumulative Effect of Change
in Accounting Principle ......................................... $ .81 $ .63 $ .36 $ .26
============= ============ ============= =============
Extraordinary Loss................................................ $ --- $ (.10) $ --- $ (.10)
============= ============ ============= =============
Cumulative Effect of Change in Accounting Principle............... $ (.02) $ --- $ (.02) $ ---
============= ============ ============= =============
Net Income Available to Unitholders............................... $ .80 $ .53 $ .35 $ .16
============= ============ ============= =============
Diluted EPU:
- ------------
Net Income Available to Unitholders Before
Extraordinary Loss and Cumulative Effect of Change
in Accounting Principle.......................................... $ .81 $ .62 $ .36 $ .26
============= ============ ============= =============
Extraordinary Loss................................................ $ --- $ (.10) $ --- $ (.10)
============= ============ ============= =============
Cumulative Effect of Change in Accounting Principle............... $ (.02) $ --- $ (.02) $ ---
============= ============ ============= =============
Net Income Available to Unitholders............................... $ .79 $ .52 $ .35 $ .16
============= ============ ============= =============
15
17
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the 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 Operating
Partnership.
The Operating Partnership has committed to the construction of five
development projects totaling approximately .6 million square feet of GLA. The
estimated total construction costs are approximately $22,817. These
developments are expected to be funded with cash flow from operations as well as
borrowings under the Operating Partnership's $300,000 unsecured revolving credit
facility (the "1997 Unsecured Acquisition Facility").
In the second quarter of 1998, the Operating Partnership entered into a
non-binding letter of intent with an institutional investor to create a joint
venture that would invest in industrial properties. The venture is subject,
among other contingencies, to due diligence and the negotiation of definitive
documentation. There can be no assurance that such venture will be created, or
if created, will be successful.
11. SUBSEQUENT EVENTS
From July 1, 1998 to August 5, 1998, the Company acquired five industrial
properties. The aggregate purchase price for these acquisitions totaled
approximately $22,362, excluding costs incurred in conjunction with the
acquisition of the properties.
On July 20, 1998, the Operating Partnership paid a second quarter 1998
distribution of $.53 per Unit, totaling approximately $23,553.
On July 14, 1998, the Operating Partnership issued $200,000 of senior
unsecured debt which matures on July 15, 2028 and bears a coupon interest rate
of 7.60% (the "2028 Notes"). The issue price of the 2028 Notes was 99.882%.
Interest is paid semi-annually in arrears on January 15 and July 15. The
Operating Partnership also settled interest rate protection agreements, in the
notional amount of $150,000, which were used to fix the interest rate on the
2028 Notes prior to issuance. The debt issue discount and the settlement
amount of the interest rate protection agreements are being amortized over the
life of the 2028 Notes as an adjustment to the interest expense. The 2028
Notes contain certain covenants including limitation on incurrence of debt and
debt service coverage.
16
18
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.
RESULTS OF OPERATIONS
At June 30, 1998, the Operating Partnership and its consolidated
partnerships and limited liability corporations owned 857 in-service properties
with approximately 56.2 million square feet of gross leasable area ("GLA"),
compared to 208 in-service properties with approximately 18.1 million square
feet of GLA at June 30, 1997. The addition of 479 properties between July 1,
1997 and June 30, 1998 included the acquisitions of 472 properties totaling
approximately 23.7 million square feet of GLA, the completed development of
seven properties totaling approximately 1.2 million square feet of GLA and the
distribution of 173 properties from First Industrial Financing Partnership,
L.P. (the "Financing Partnership") totaling approximately 13.4 million square
feet of GLA. The Operating Partnership also sold three in-service properties
totaling approximately .2 million square feet of GLA, one property held for
redevelopment and several land parcels.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 TO SIX MONTHS ENDED JUNE 30,
1997
Rental income and tenant recoveries and other income increased by $96.1
million or 238.5% due primarily to the properties acquired or developed after
June 30, 1997 and the distribution of 173 properties from the Financing
Partnership to the Operating Partnership on January 2, 1998. Revenues from
properties owned prior to January 1, 1997, decreased by approximately $.3
million or .5% due primarily to a decrease in tenant recovery income charges
related to the decrease in operating expenses as discussed below.
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses,
increased by $28.4 million or 232.9% due primarily to the properties acquired
or developed after June 30, 1997 and the distribution of 173 properties from
the Financing Partnership to the Operating Partnership on January 2, 1998.
Expenses from properties owned prior to January 1, 1997, decreased by
approximately $.8 million or 4.5% due primarily to a decrease in snow removal
and related expenses incurred for properties located in certain of the
Operating Partnership's metropolitan areas during the six months ended June 30,
1998 as compared to the six months ended June 30, 1997.
General and administrative expense increased by approximately $3.3
million, of which, approximately $2.2 million is due primarily to the
additional expenses associated with managing the Operating Partnership's
growing operations including additional professional fees relating to
additional properties owned and additional personnel to manage and expand the
Operating Partnership's business. Approximately $1.1 million of the increase
is the result of the adoption of Emerging Issues Task Force Issue No. 97-11,
"Accounting for Internal Costs Relating to Real Estate Property Acquisitions"
("EITF 97-11"), which requires that internal costs of preacquisition activities
incurred in connection with the acquisition of an operating property should be
expensed as incurred. The Operating Partnership adopted EITF 97-11 on March
19, 1998.
Interest expense increased by approximately $21.5 million for the six
months ended June 30, 1998 compared to the six months ended June 30, 1997 due
primarily to a higher average debt balance outstanding resulting from the
issuance of unsecured debt to fund the acquisition and development of
additional properties.
17
19
Depreciation and other amortization increased by $19.3 million due
primarily to the additional depreciation and amortization related to the
properties acquired after June 30, 1997 and the distribution of 173 properties
from the Financing Partnership to the Operating Partnership on January 2, 1998.
The $.7 million cumulative effect of change in accounting principle is the
result of the write-off of the unamortized balance of organizational costs on
the Operating Partnership's balance sheet due to the early adoption of
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities",
("SOP 98-5"), as further discussed later in this Management's Discussion and
Analysis.
Equity in Income of Other Real Estate Partnerships increased by $6.0
million or 74.9% due primarily to four of the Other Real Estate Partnerships
having a greater amount of in-service properties for the six months ended
June 30, 1998 compared to the six months ended June 30, 1997.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 TO THREE MONTHS ENDED JUNE 30,
1997
Revenues increased by $51.9 million or 242.7% due primarily to the
properties acquired or developed after June 30, 1997 and the distribution of
173 properties from the Financing Partnership to the Operating Partnership on
January 2, 1998. Revenues from properties owned prior to April 1, 1997,
increased by approximately $1.8 million or 5.1% due to general rent increases
and an increase in tenant recovery income charges due to an increase in
property operating expenses as discussed below.
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses,
increased by $15.2 million or 249.6% due primarily to the properties acquired
or developed after June 30, 1997 and the distribution of 173 properties from
the Financing Partnership to the Operating Partnership on January 2, 1998.
Expenses from properties owned prior to April 1, 1997, increased by
approximately $ .6 million or 5.7% due to an increase in real estate tax
expense, utilities and other expense in the majority of the Operating
Partnership's metropolitan areas during the three months ended June 30, 1998 as
compared to the three months ended June 30, 1997.
General and administrative expense increased by approximately $2.0
million, of which approximately $1.2 million is due primarily to the additional
expenses associated with managing the Operating Partnership's growing
operations, including additional professional fees relating to additional
properties owned and additional personnel to manage and expand the Operating
Partnership's business. Approximately $.8 million of the increase is the
result of the adoption of EITF 97-11.
Interest expense increased by approximately $9.8 million for the three
months ended June 30, 1998 compared to the three months ended June 30, 1997 due
primarily to a higher average debt balance outstanding resulting from the
issuance of unsecured debt to fund the acquisition and development of
additional properties.
Depreciation and other amortization increased by $10.7 million due
primarily to the additional depreciation and amortization related to the
properties acquired after June 30, 1997 and the distribution of 173 properties
from the Financing Partnership to the Operating Partnership on January 2, 1998.
The $.7 million cumulative effect of change in accounting principle is the
result of the write-off of the unamortized balance of organizational costs on
the Operating Partnership's balance sheet due to the early adoption of SOP
98-5, as further discussed later in this Management's Discussion and Analysis.
Equity in Income of Other Real Estate Partnerships increased by $3.1
million or 140.9% due primarily to four of the Other Real Estate Partnerships
having a greater amount of in-service properties for the three months ended
June 30, 1998 compared to the three months ended June 30, 1997.
18
20
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 1998, the Operating Partnership's unrestricted cash and cash
equivalents totaled approximately $.7 million.
Net cash provided by operating activities was $46.1 million for the six
months ended June 30, 1998 compared to $7.8 million for the six months ended
June 30, 1997. This increase is due primarily to an increase in net operating
income (which is defined as total revenues less property related expenses)
due to the operations of properties acquired or developed between July 1,
1997 and June 30, 1998 and the distribution of 173 properties from the
Financing Partnership to the Operating Partnership on January 2, 1998 partially
offset by an increase in interest expense and general and administrative
expense as discussed in "Results of Operations" above.
Net cash used in investing activities decreased from $507.5 million for the
six months ended June 30, 1997 to $419.9 million for the six months ended June
30, 1998. This decrease is due to an increase in the acquisition of properties
offset by a decrease in the amount of contributions made to the Other Real
Estate Partnerships to fund acquisitions and developments.
Net cash provided by financing activities decreased from $502.9 million for
the six months ended June 30, 1997 to $369.5 million for the six months ended
June 30, 1998 due primarily to a decrease in the amount of senior unsecured debt
issued partially offset by an increase in preferred and general contributions
from the general partner.
The ratio of earnings to fixed charges and preferred stock dividends was
1.74 for the six months ended June 30, 1998 compared to 2.55 for the six months
ended June 30, 1997. The decrease is primarily due to additional interest
expense and preferred general partner unit distributions incurred during the six
months ended June 30, 1998 from additional debt issued and preferred general
partner contributions to fund property acquisitions and developments, which is
partially offset by higher net operating income from property acquisitions and
the distribution of 173 properties from the Financing Partnership to the
Operating Partnership on January 2, 1998 as discussed in "Results of Operations"
above.
Between January 1, 1998 and June 30, 1998, the Operating Partnership
purchased 162 industrial properties and several land parcels, for an aggregate
purchase price of approximately $373.5 million, excluding costs incurred in
conjunction with the acquisition price.
Of the 162 existing industrial properties and several land parcels
purchased by the Operating Partnership during the six months ended June 30,
1998, four existing industrial properties were purchased from Western Suburban
Industrial Investments Limited Partnership ("Western") in which the sole general
partner, having a 5% interest, was Tomasz/Shidler Investment Corporation, of
which the sole shareholders were a Director and Director/Officer of the general
partner of the Operating Partnership who also had a 53% and 32% limited
partnership interest in Western, respectively. Further, an additional
Director/Officer of the general partner of the Operating Partnership was a
limited partner in Western having an interest of 2%. The aggregate purchase
price for this acquisition totaled approximately $7.9 million, excluding costs
incurred in conjunction with the acquisition of the properties.
During the second quarter of 1998, the Operating Partnership completed an
acquisition of a real estate firm for which an officer and an employee of the
Operating Partnership owned a 77.5% interest. Gross proceeds to the real estate
firm totaled approximately $2.3 million.
During the six months ended June 30, 1998, the Operating Partnership sold
two existing industrial properties and one land parcel. Gross proceeds from
these sales were approximately $7.1 million. The gain on sales of real estate
was approximately $.09 million, net of federal income taxes.
The Operating Partnership has committed to the construction of five
developments totaling approximately .6 million square feet of GLA. The
estimated total construction costs are approximately $22.8 million. These
developments are expected to be funded with cash flow from operations as well as
19
21
borrowings under the Operating Partnership's $300 million unsecured revolving
credit facility (the "1997 Unsecured Acquisition Facility").
During the six months ended June 30, 1998, the Operating Partnership issued
983,956 units valued, in the aggregate, at $33.8 million in exchange for
interests in certain properties. These contributions are reflected in the
Operating Partnership's financial statements as limited partners contributions.
From July 1, 1998 to August 5, 1998, the Operating Partnership acquired
five industrial properties. The aggregate purchase price for these acquisitions
totaled approximately $22.4 million, excluding costs incurred in conjunction
with the acquisition of the properties.
On March 31, 1998, the Operating Partnership issued $100 million of Dealer
remarketable securities which mature on April 5, 2011 and bear a coupon interest
rate of 6.50% (the "2011 Drs."). The issue price of the 2011 Drs. was 99.753%.
Interest is paid semi-annually in arrears on April 5 and October 5. The 2011
Drs. are callable (the "Call Option"), at the option of J.P. Morgan Securities,
Inc., as Remarketing Dealer (the "Remarketing Dealer"), on April 5, 2001 (the
"Remarketing Date"). The Operating Partnership received approximately $2,760 of
proceeds from the Remarketing Dealer as consideration for the Call Option. The
Operating Partnership will amortize the proceeds over the life of the Call
Option as an adjustment to interest expense. 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 upon a predetermined formula as disclosed in the
related Prospectus Supplement. If the Remarketing Dealer elects not to remarket
the 2011 Drs., then the Operating Partnership will be required to repurchase, on
the Remarketing Date, any 2011 Drs. that have not been purchased by the
Remarketing Dealer at 100% of the principal amount thereof, plus accrued and
unpaid interest, if any. The Operating Partnership also settled an interest
rate protection agreement which was used to fix the interest rate on the 2011
Drs. prior to issuance. The debt issue discount and the settlement amount of
the interest rate protection agreement are being amortized over the life of the
2011 Drs. as an adjustment to interest expense. The 2011 Drs. contain certain
covenants including limitations on incurrence of debt and debt service coverage.
On April 16, 1998, the Operating Partnership assumed a mortgage loan in
the amount of $2.5 million (the "Acquisition Mortgage Loan IV"). The
Acquisition Mortgage Loan IV is collateralized by one property in Baltimore,
Maryland, bears interest at a fixed rate of 8.95% and provides for monthly
principle and interest payments based on a 20-year amortization schedule. The
Acquisition Mortgage Loan IV matures October 1, 2006. The Acquisition Mortgage
Loan IV may be prepaid only after October 1, 2001 in exchange for the greater of
a 1% prepayment fee or a yield maintenance premium.
On July 14, 1998, the Operating Partnership issued $200 million of senior
unsecured debt which matures on July 15, 2028 and bears a coupon interest rate
of 7.60% (the "2028 Notes"). The issue price of the 2028 Notes was 99.882%.
Interest is paid semi-annually in arrears on January 15 and July 15. The
Operating Partnership also settled interest rate protection agreements in the
notional amount of $150 million which were used to fix the interest rate on the
2028 Notes prior to issuance. The debt issue discount and the settlement
amount of the interest rate protection agreements are being amortized over the
life of the 2028 Notes as an adjustment to the interest expense. The 2028
Notes contain certain covenants including limitation on incurrence of debt and
debt service coverage.
On February 4, 1998, the Company issued 5,000,000 Depository Shares, each
representing 1/100th of a share of the Company's 7.95%, $.01 par value, Series
D Cumulative Preferred Stock (the "Series D Preferred Stock"), at an initial
offering price of $25 per Depository Share. The net proceeds of $120.6
million received from the Series D Preferred Stock were contributed to the
Operating Partnership in exchange for 7.95% Series D Cumulative Preferred Units
(the "Series D Preferred Units") and are reflected in the Operating
Partnership's financial statements as a general partner preferred unit
contribution.
20
22
On March 18 1998, the Company issued 3,000,000 Depository Shares, each
representing 1/100th of a share of the Company's 7.90%, $.01 par value, Series
E Cumulative Preferred Stock (the "Series E Preferred Stock"), at an initial
offering price of $25 per Depository Share. The net proceeds of $72.1 million
received from the Series E Preferred Stock were contributed to the Operating
Partnership in exchange for 7.90% Series E Cumulative Preferred Units (the
"Series E Preferred Units") and are reflected in the Operating Partnership's
financial statements as a general partner preferred unit contribution.
On April 23, 1998, the Company issued, in a private placement, 1,112,644
shares of $.01 par value Common Stock (the "April 1998 Equity Offering"). The
net proceeds of approximately $34.1 million received from the April 1998 Equity
Offering were contributed to the Operating Partnership in exchange for
1,112,644 Units in the Operating Partnership and are reflected in the Operating
Partnership's financial statements as a general partner contribution.
During the six months ended June 30, 1998, certain employees of the Company
exercised 81,000 employee stock options. Gross proceeds to the Company were
approximately $2.0 million. The gross proceeds from the option exercises were
contributed to the Operating Partnership in exchange for Units and are reflected
in the Operating Partnership's financial statements as a general partner
contribution.
During the six months ended June 30, 1998, the Company awarded 51,850
shares of restricted Common Stock to certain employees and 1,179 shares of
restricted Common Stock to certain Directors. Another employee of the Company
converted certain employee stock options to 6,123 shares of restricted Common
Stock. These shares of restricted Common Stock had a fair value of
approximately $2.1 million on the date of grant. The restricted Common Stock
vests over a period from five to ten years. Compensation expense will be
charged to earnings over the vesting period.
On January 2, 1998, the Company granted 4,370,000 non-qualified employee
stock options. These stock options vest over three years based upon certain
performance measures. The stock options have a strike price of $35.8125 per
share and expire ten years from the date of grant. The exercise of these stock
options will result in the issuance of Units to the Company in the same amount.
On May 14, 1998, the Company granted 899,000 non-qualified employee stock
options. These stock options vest over one year and have a strike price of
$31.13 per share. The stock options expire between seven and ten years from the
date of grant. The exercise of these stock options will result in the issuance
of Units to the Company in the same amount.
On January 20, 1998, the Operating Partnership paid a fourth quarter 1997
distribution of $.53 per unit, totaling approximately $22.0 million. On April
20, 1998, the Operating Partnership paid a first quarter 1998 distribution of
$.53 per unit, totaling approximately $22.5 million. On July 20, 1998, the
Operating Partnership paid a second quarter 1998 distribution of $.53 per unit,
totaling approximately $23.6 million.
On March 31, 1998, the Operating Partnership paid a first quarter
distribution of $54.688 per unit on its Series B Cumulative Preferred units. On
March 31, 1998, the Operating Partnership paid a first quarter distribution of
$53.906 per unit on its Series C Cumulative Preferred units. On March 31,
1998, the Operating Partnership paid a second quarter distribution of $30.365
per unit on its Series D Preferred units. The preferred unit distributions
paid on March 31, 1998 totaled, in the aggregate, approximately $4.8 million.
On March 31, 1998, the Operating Partnership accrued $7.13194 per Series E
Preferred unit, totaling $.2 million for the three months ended March 31, 1998.
On June 30, 1998, the Operating Partnership paid a second quarter
distribution of $54.688 per unit on its Series B Cumulative Preferred units. On
June 30, 1998, the Operating Partnership paid a second quarter distribution of
$53.906 per unit on its Series C Cumulative Preferred units. On June 30, 1998,
the Operating Partnership paid a second quarter distribution of $49.687 per
unit on its Series D Preferred units. On June 30, 1998, the Operating
Partnership paid a period prorated first quarter distribution and a second
quarter distribution totaling $56.5069 per unit on its Series E Preferred
units. The preferred unit distributions paid on June 30, 1998 totaled, in the
aggregate, approximately $7.4 million.
In the second quarter of 1998, the Operating Partnership entered into a
non-binding letter of intent with an institutional investor to create a joint
venture that would invest in industrial properties. The venture is subject,
among other contingencies, to due diligence and the negotiation of definitive
documentation. There can be no assurance that such venture will be created, or
if created, will be successful.
The 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 Operating
Partnership believes that its principal 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 Operating Partnership
anticipates that these needs will be met with cash flows provided by operating
activities.
21
23
The Operating Partnership expects to meet long-term (greater than one
year) liquidity requirements such as property acquisitions, scheduled debt
maturities, major renovations, expansions and other non-recurring capital
improvements through long-term unsecured indebtedness and the issuance of
additional units in the Operating Partnership (the "Units") and preferred
units. On June 30, 1998, the Operating Partnership had registered under the
Securities Act of 1933, as amended (the "Securities Act"), approximately $300.0
million of debt securities. As of August 5, 1998, $100.0 million of debt
securities remained registered under the Securities Act and were unissued. The
Operating Partnership may finance the development or acquisition of additional
properties through borrowings under the 1997 Unsecured Acquisition Facility. At
June 30, 1998, borrowings under the 1997 Unsecured Acquisition Facility bore
interest at a weighted average interest rate of 6.51%. As of August 5, 1998,
the Operating Partnership had approximately $231.9 million available in
additional borrowings under the 1997 Unsecured Acquisition Facility. Along
with the Operating Partnership's current strategy of meeting long-term
liquidity requirements through the issuance, from time to time, of long-term
secured and unsecured indebtedness and additional equity securities, the
Operating Partnership is actively considering joint ventures with various
institutional partners and the disposition of select assets as additional
financing strategies.
OTHER
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income". This statement, effective for fiscal years beginning after December
15, 1997, requires the Operating Partnership to report components of
comprehensive income in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income is defined by
Concepts Statement No. 6, "Elements of Financial Statements" as the change in
the equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. The Operating Partnership's net income available to
its unitholders approximates its comprehensive income as defined in Concepts
Statement No. 6, "Elements of Financial Statements".
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information".
This statement, effective for financial statements for fiscal years beginning
after December 15, 1997, requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Generally, financial information is required to be reported on the basis that
it is used internally for evaluating segment performance and deciding how to
allocate resources to segments. The Operating Partnership has not yet
determined the impact of this statement on its financial statements.
In March 1998, the FASB's Emerging Issues Task Force (the "Task Force")
issued Emerging Issues Task Force Issue No. 97-11, "Accounting for Internal
Costs Relating to Real Estate Property Acquisitions" ("EITF 97-11"). EITF
97-11, effective March 19, 1998, requires that internal costs of preacquisition
activities incurred in connection with the acquisition of an operating property
should be expensed as incurred. The Task Force concluded that a property is
considered operating if, at the date of acquisition, major construction
activity is substantially completed on the property and (a) it is held
available for occupancy upon completion of tenant improvements by the acquirer
or (b) it is already income producing. The Operating Partnership adopted EITF
97-11 as of March 19, 1998. Prior to March 19, 1998, the Operating Partnership
capitalized internal costs of preacquisition activities incurred in 6
8
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
connection
with the acquisition of operating properties. The Operating Partnership
estimates that the adoption of EITF 97-11 will result in ana cumulative increase
of approximately $2,500$2.5 million to $3,000$3.0 million in the amount of general and
administrative expense reflected in the Operating Partnership's consolidated
statement of operations in 1998, assuming an increase in the amount of acquisition support
activity the Operating Partnership outsources relative to such activity the
Operating Partnership continues to perform internally.1998.
In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5
requires that the net unamortized balance of all start-up costs and
organizational
22
24
costs be written off as a cumulative effect of a change in accounting principle
and all future start-up costs and organizational costs be expensed. In the
second quarter of 1998, the Operating Partnership expects to
reporthas reported a cumulative
effect of a change in accounting principle in the amount of approximately $885$.7 million to
reflect the write-off of the unamortized balance of organizational costs on the
Operating Partnership's balance sheet.
Reclassification:
Certain 1997 items have been reclassified to conform toDuring the 1998
presentation.
3. INVESTMENT IN OTHER REAL ESTATE PARTNERSHIPS
The Investment in Other Real Estate Partnerships reflects the Operating
Partnership's 99% limited partnership equity interest in the entities
described in Note 1 to these financial statements.
Summarized condensed financial information as derived from the financial
statementssecond quarter of the Other Real Estate Partnerships is presented below:
Condensed Combined Balance Sheets:
March 31, 1998 December 31, 1997
------------------------ --------------------
ASSETS
Assets:
Investment in Real Estate, Net.................... $ 343,157 $ 694,926
Other ............................................ 47,126 355,726
------------------------ --------------------
Total ........................................... $ 390,283 $ 1,050,652
========================= ====================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage Loans .................................. $ 39,886 $ 40,000
Defeased Mortgage Loan Payable.................... --- 300,000
Other Liabilities................................. 4,480 23,317
------------------------ --------------------
Total Liabilities................................ 44,366 363,317
------------------------ --------------------
Partners' Capital................................. 345,917 687,335
------------------------ --------------------
Total Liabilities and Partners' Capital.......... $ 390,283 $ 1,050,652
======================== ====================
7
9
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
3. INVESTMENT IN OTHER REAL ESTATE PARTNERSHIPS, CONTINUED
Condensed Combined Statements of Operations
Three Months Ended
---------------------------------------------
March 31, 1998 March 31, 1997
---------------------- ---------------------
Total Revenues............................................. $ 13,123 $ 27,240
Property Expenses.......................................... (2,805) (7,994)
Interest Expense........................................... (692) (5,981)
Amortization of Interest Rate Protection Agreements and
Deferred Financing Costs.................................. (17) (776)
Depreciation and Other Amortization........................ (2,100) (5,617)
Gain on Sales of Properties................................ 2,317 ---
---------------------- ---------------------
Net Income................................................. $ 9,826 $ 6,872
====================== =====================
On January 2, 1998, the Financing Partnership distributed 173 properties
with a net book value of $387,647 to the Operating Partnership.
4. MORTGAGE LOANS, SENIOR UNSECURED DEBT AND ACQUISITION FACILITY PAYABLE
On March 31, 1998, the Operating Partnership issued $100 million of Dealer
remarketable securities which mature on April 5, 2011 and bear a coupon
interest rate of 6.50% (the "2011 Drs."). The issue price of the 2011 Drs. was
99.753%. Interest is paid semi-annually in arrears on April 5 and October 5.
The 2011 Drs. are callable (the "Call Option"), at the option of J.P. Morgan
Securities, Inc., as Remarketing Dealer (the "Remarketing Dealer"), on April 5,
2001 (the "Remarketing Date"). The Operating Partnership received
approximately $2,760 of proceeds from the Remarketing Dealer as consideration
for the Call Option. The Operating Partnership will amortize the proceeds over
the life of the Call Option as an adjustment to interest expense. 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 upon a predetermined formula
as disclosed in the related Prospectus Supplement. If the Remarketing Dealer
elects not to remarket the 2011 Drs., then the Operating Partnership will be
required to repurchase, on the Remarketing Date, any 2011 Drs. that have not
been purchased by the Remarketing Dealer at 100% of the principal amount
thereof, plus accrued and unpaid interest. The Operating Partnership also
entered into an interest rate protection agreement which was used to fix the
interest rate on the 2011 Drs. prior to issuance. The debt issue discount and
the settlement amount of the interest rate protection agreement are being
amortized over the life of the 2011 Drs. as an adjustment to interest expense.
The 2011 Drs. contain certain covenants including limitations on incurrence of
debt and debt service coverage.
8
10
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
4. MORTGAGE LOANS, SENIOR UNSECURED DEBT AND ACQUISITION FACILITY PAYABLE,
CONTINUED
The following table discloses certain information regarding the Operating
Partnership's mortgage loans, senior unsecured debt and acquisition facility
payable:
OUTSTANDING BALANCE AT ACCRUED INTEREST PAYABLE AT INTEREST RATE AT
--------------------------------- ---------------------------- ---------------------
March 31, December 31, March 31, December 31, March 31, Maturity
1998 1998 1998 1998 1998 Date
---------------- ------------- ------------ -------------- ---------- ---------
MORTGAGE LOANS PAYABLE
CIGNA Loan........................... $ 35,669 $ 35,813 $ --- $ --- 7.500% 4/01/03
Assumed Loans........................ 8,880 8,950 --- --- 9.250% 1/01/13
LB Mortgage Loan II................. 705 705 4 --- 8.000% (1)
Acquisition Mortgage Loan I.......... 4,054 4,135 --- 29 8.500% 8/01/08
Acquisition Mortgage Loan II......... 7,956 7,997 52 52 7.750% 4/01/06
Acquisition Mortgage Loan III........ 3,571 3,598 27 27 8.875% 6/01/03
---------------- ------------- ------------ --------------
Total................................ $ 60,835 $ 61,198 $ 83 $ 108
================ ============= ============ ==============
SENIOR UNSECURED DEBT
- ---------------------
2005 Notes........................... $ 50,000 $ 50,000 $ 1,255 $ 393 6.900% 11/21/05
2006 Notes........................... 150,000 150,000 3,296 671 7.000% 12/01/06
2007 Notes........................... 149,952 (2) 149,951 4,307 1,457 7.600% 5/15/07
2011 Notes........................... 99,389 (2) 99,377 2,786 942 7.375% 5/15/11 (3)
2017 Notes........................... 99,811 (2) 99,809 2,354 479 7.500% 12/01/17 (4)
2027 Notes .......................... 99,858 (2) 99,857 2,701 914 7.150% 5/15/27 (5)
2011 Drs............................. 99,753 (2) --- 18 --- 6.500% (7) 4/05/11 (6)
---------------- ------------- ------------ --------------
Total................................ $748,763 $648,994 $16,717 4,856
================ ============= ============ ==============
ACQUISITION FACILITY PAYABLE
- ----------------------------
1997 Unsecured Acquisition
Facility............................. $ 17,800 $129,400 $ 539 $ 297 6.488% 4/30/01
================ ============= ============ ==============
(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) The 2007 Notes, 2011 Notes, 2017 Notes, 2027 Notes and the 2011 Drs. are
net of unamortized discounts of $48, $611, $189, $142 and $247,
respectively.
(3) The 2011 Notes are redeemable at the option of the holder thereof, on May
15, 2004.
(4) The 2017 Notes are redeemable at the option of the Company at any time
based upon a predetermined formula.
(5) The 2027 Notes are redeemable at the option of the holders thereof, on
May 15, 2002.
(6) The 2011 Drs. are required to be redeemed by the Operating Partnership on
April 5, 2001 if the Remarketing Dealer elects not to remarket the 2011
Drs.
(7) The 2011 Drs. bear interest at an annual rate of 6.50% to the Remarketing
Date. If the holder of the Call Option calls the 2011 Drs. and elects to
remarket the 2011 Drs., then after the Remarketing Date, the interest rate
on the 2011 Drs. will be reset at a fixed rate until April 5, 2011 based
on a predetermined formula as disclosed in the related Prospectus
Supplement.
The following is a schedule of the stated maturities of the mortgage
loans, senior unsecured debt and acquisition facility payable for the next five
years ending December 31, and thereafter:
Amount
------------------
1998 $ 994
1999 1,527
2000 1,657
2001 19,598
2002 1,950
Thereafter 802,204
------------------
Total $827,930
==================
The maturity date of the Lazarus Burman Mortgage Loan II is based on a
contingent event, as a result, this loan is not included in the above table.
9
11
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
4. MORTGAGE LOANS, SENIOR UNSECURED DEBT AND ACQUISITION FACILITY PAYABLE,
CONTINUED
The Operating Partnership, from time to time, enters into interest rate
protection agreements which are used to lock into a fixed interest rate on
anticipated offerings of senior unsecured debt. At March 31, 1998, the
following interest rate protection agreements were outstanding:
Notional Origination Settlement
Amount Date Interest Rate Valuation Basis Date
- -------------------- ----------------- ------------------ ---------------- ----------------
$ 50,000 January 2, 1998 5.937% 30-Year Treasury October 1, 1998
$ 100,000 October 28, 1997 6.317% 30-Year Treasury July 1, 1998
$ 100,000 December 19, 1997 5.994% 30-Year Treasury January 4, 1999
5. 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 (see discussion below). 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.
Unit Contributions:
During the three months ended March 31, 1998, the Operating Partnership
issued 54,407 Units valued, in the aggregate, at $1,971 in exchange for
interests in certain properties. These contributions are reflected in the
Operating Partnership's financial statements as limited partners contributions.
During the three months ended March 31, 1998, the Company awarded 51,850
shares of restricted Common Stock to certain employees and 552 shares of
restricted Common Stock to certain Directors. Another employee of the Company
converted certain employee stock options to 3,765 shares of restricted Common
Stock. The Operating Partnership issued Units to the Company in the same
amount. These shares of restricted Common Stock had a fair value of $1,999 on
the date of grant. The restricted Common Stock vests over a period from five
to ten years. Compensation expense will be charged to earnings over the
vesting period.
Preferred Unit Contributions:
On February 4, 1998, the Company issued 5,000,000 Depositary Shares, each
representing 1/100th of a share of the Company's 7.95%, $.01 par value, Series
D Cumulative Preferred Stock (the "Series D Preferred Stock"), at an initial
offering price of $25 per Depositary Share. The net proceeds of $120,562
received from the Series D Preferred Stock were contributed to the Operating
Partnership in exchange for 7.95% Series D Cumulative Preferred Units (the
"Series D Preferred Units") and are reflected in the Operating Partnership's
financial statements as a general partner preferred unit contribution.
10
12
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
5. PARTNERS' CAPITAL, CONTINUED
On March 18 1998, the Company issued 3,000,000 Depositary Shares, each
representing 1/100th of a share of the Company's 7.90%, $.01 par value, Series
E Cumulative Preferred Stock (the "Series E Preferred Stock"), at an initial
offering price of $25 per Depositary Share. The net proceeds of $72,138
received from the Series E Preferred Stock were contributed to the Operating
Partnership in exchange for 7.90% Series E Cumulative Preferred Units (the
"Series E Preferred Units") and are reflected in the Operating Partnership's
financial statements as a general partner preferred unit contribution.
Non-Qualified Employee Stock Options:
On January 2, 1998, the Company granted 4,370,000 non-qualified employee
stock options. These stock options vest over three years based upon certain
performance measures. The stock options have a strike price of $35.8125 per
share and expire ten years from the date of grant. The exercise of these stock
options will result in the issuance of Units to the Company in the same amount.
6. ACQUISITION OF REAL ESTATE
During the three months ended March 31, 1998, the Operating Partnership
acquired 53 existing industrial properties and one land parcel. The aggregate
purchase price for these acquisitions totaled approximately $127,689,
excluding costs incurred in conjunction with the acquisition of the properties.
Of the 53 existing industrial properties and land parcel purchased by the
Operating Partnership during the three months ended March 31, 1998, four
existing industrial properties were purchased from Western Suburban Industrial
Investments Limited Partnership ("Western") in which the sole general partner,
having a 5% interest, was Tomasz/Shidler Investment Corporation, of which the
sole shareholders were a Director and Director/Officer of the general partner
of the Operating Partnership who also had a 53% and 32% limited partnership
interest in Western, respectively. Further, an additional Director/Officer of
the general partner of the Operating Partnership was a limited partner in
Western having an interest of 2%. The aggregate purchase price for this
acquisition totaled approximately $7,900, excluding costs incurred in
conjunction with the acquisition of the properties.
7. SALES OF REAL ESTATE
During the three months ended March 31, 1998, the Operating Partnership
sold one existing industrial property and one land parcel. Gross proceeds from
these sales were approximately $1,798. The gain on sales of real estate was
approximately $43.
11
13
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
8. SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Three Months Ended
--------------------------------------------------------------------
March 31, 1998 March 31,1997
--------------------------- -----------------------------
Interest paid, net of capitalized interest............. $ 1,991 $ 1,679
========================== ========================
Interest capitalized................................... $ 935 $ 193
========================== ========================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Distributions payable on Units (March 31, 1998 and 1997)
and Series E Preferred Units (March 31, 1998 only)... $ 22,709 $ 16,904
========================== ========================
IN CONJUNCTION WITH THE PROPERTY ACQUISITIONS, THE FOLLOWING
ASSETS AND LIABILITIES WERE ASSUMED AND OPERATING PARTNERSHIP
UNITS EXCHANGED:
Purchase of real estate............................... $127,689 $164,195
Accrued real estate taxes and security deposits....... (1,782) (1,658)
Mortgage loans........................................ --- (4,505)
Operating Partnerships Units.......................... (1,971) (49,483)
-------------------------- ------------------------
$123,936 $108,549
========================== ========================
IN CONJUNCTION WITH THE DISTRIBUTION OF 173 PROPERTIES
FROM THE FINANCING PARTNERSHIP TO THE OPERATING
PARTNERSHIP ON JANUARY 2, 1998, THE FOLLOWING ASSETS AND
LIABILITIES WERE ASSUMED:
Investment in real estate, net........................ $382,190
Tenant accounts receivable............................ 3,017
Deferred rent receivable.............................. 4,689
Other assets.......................................... 6,209
Accounts payable and accrued expenses................. (5,920)
Rents received in advance and security deposits....... (2,538)
--------------------------
Investment in other real estate partnerships.......... $387,647
==========================
12
14
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
9. EARNINGS PER UNIT
Net income per weighted average general partnership and limited
partnership unit (the "Units") - Basic, is based on the weighted average Units
outstanding. Net Income per weighted average Unit- Diluted is based on the
weighted average Units outstanding plus the effect of in-the-money employee
stock options that result in the issuance of general partnership units. The
computation of basic and diluted EPU is presented below:
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
----------------------- ------------------
Numerator:
- ----------
Net Income............................................. $ 24,165 $ 12,220
Less: Preferred Distributions.......................... (4,998) ---
----------------------- ------------------
Net Income Available to Unitholders- For Basic and
Diluted EPU........................................... $ 19,167 $ 12,220
======================= ==================
Denominator:
- ------------
Weighted Average Units - Basic......................... 42,388,857 33,467,320
Effect of Dilutive Securities:
Employee Common Stock Options of the Company that
result in the issuance of general partnership units... 374,177 72,838
----------------------- ------------------
Weighted Average Units- Diluted........................ 42,763,034 33,540,158
======================= ==================
Basic EPU:
- ----------
Net Income Available to Unitholders.................... $ .45 $ .37
======================= ==================
Diluted EPU:
- ------------
Net Income Available to Unitholders..................... $ .45 $ .36
======================= ==================
10. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the 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 Operating
Partnership.
The Operating Partnership has committed to the construction of four
developments totaling approximately .5 million square feet of GLA. The
estimated total construction costs are approximately $17,689. These
developments are expected to be funded with cash flow from operations as well
as borrowings under the 1997 Unsecured Acquisition Facility.
13
15
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
11. SUBSEQUENT EVENTS
From April 1, 1998 to May 11, 1998, the Company acquired 93 industrial
properties. The aggregate purchase price for these acquisitions totaled
approximately $199,152 million, excluding costs incurred in conjunction with
the acquisition of the properties.
On April 20, 1998 the Operating Partnership paid a first quarter 1998
distribution of $.53 per Unit, totaling approximately $22,492.
On April 23, 1998, the Company issued, in a private placement, 1,112,644
shares of $.01 par value Common Stock (the "April 1998 Equity Offering"). The
estimated net proceeds of $33,900 received from the April 1998 Equity Offering
were contributed to the Operating Partnership in exchange for 1,112,644 Units
in the Operating Partnership and will be reflected in the Operating
Partnership's financial statements as a general partner contribution.
12. PRO FORMA FINANCIAL INFORMATION
The pro forma financial information will be filed in an amendment to the
Operating Partnership's Form 8-K dated April 6, 1998 as filed on April 20,
1998.
14
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.
RESULTS OF OPERATIONS
At March 31, 1998, the Operating Partnership owned 746 in-service
properties with approximately 50.8 million square feet of Gross Leasable Area
("GLA"), compared to 183 in-service properties with approximately 16.2 million
square feet of GLA at March 31, 1997. The addition of 567 properties between
April 1, 1997 and March 31, 1998 included the acquisitions of 388 properties
totaling approximately 20.9 million square feet of GLA, the completed
development of six properties totaling approximately .8 million square feet of
GLA and the distribution of 173 properties from First Industrial Financing
Partnership, L.P. (the "Financing Partnership") totaling approximately 13.4
million square feet of GLA. The Operating Partnership also sold four
in-service properties totaling approximately .5 million square feet of GLA, one
property held for redevelopment and several land parcels.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 TO THREE MONTHS ENDED
MARCH 31, 1997
Rental income and tenant recoveries and other income increased by $44.2
million or 233.8% due primarily to the properties acquired or developed after
March 31, 1997 and the distribution of 173 properties from the Financing
Partnership to the Operating Partnership on January 2, 1998. Revenues from
properties owned prior to January 1, 1997, decreased by approximately $.5
million or 1.7% due to a decrease in tenant recoveries related to the decrease
in operating expenses as discussed below.
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses,
increased by $13.2 million or 216.3% due primarily to the properties acquired
or developed after March 31, 1997 and the distribution of 173 properties from
the Financing Partnership to the Operating Partnership on January 2, 1998.
Expenses from properties owned prior to January 1, 1997, decreased by
approximately $.7 million or 7.2% due primarily to a decrease in snow removal
and related expenses for properties located in certain of the Operating
Partnership's metropolitan areas during the three months ended March 31, 1998.
General and administrative expense increased by $1.4 million due primarily
to the additional expenses associated with managing the Operating Partnership's
growing operations including additional professional fees relating to
additional properties owned and additional personnel to manage and expand the
Operating Partnership's business.
Interest expense increased by $11.7 million for the three months ended
March 31, 1998 compared to the three months ended March 31, 1997 due primarily
to an increase in borrowings to fund the acquisition of additional properties.
Depreciation and other amortization increased by $8.6 million due
primarily to the additional depreciation and amortization related to the
properties acquired after March 31, 1997 and the distribution of 173 properties
from the Financing Partnership to the Operating Partnership on January 2, 1998.
The $.04 million gain on sales of real estate resulted from the sale of
one property and a land parcel. Gross proceeds from this sale were
approximately $1.8 million.
15
17
Equity in Income of Other Real Estate Partnerships increased by $2.9
million or 50.1% due primarily to one of the Other Real Estate Partnerships
recognizing an increase in same store net operating income and four of the
Other Real Estate Partnerships having a greater amount of in-service properties
for the three months ended March 31, 1998 compared to the three months ended
March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $28.4 million for the three
months ended March 31, 1998 compared to $1.8 million for the three months ended
March 31, 1997. This increase is due primarily to an increase in net operating
income due to the operations of properties acquired or developed between April
1, 1997 and March 31, 1998 and the distribution of 173 properties from the
Financing Partnership to the Operating Partnership on January 2, 1998 as well
as an increase in the amount of accrued interest on the Operating Partnership's
senior unsecured debt.
Net cash used in investing activities increased to $183.1 million from
$124.0 million due primarily to an increase in the acquisition of properties as
well as an increase in the amount of contributions made to the Other Real
Estate Partnerships to fund acquisitions and developments.
Net cash provided by financing activities increased to $152.7 million for
the three months ended March 31, 1998 from $118.0 million for the three months
ended March 31, 1997 due primarily to preferred contributions from the general
partner and the issuance of senior unsecured debt partially offset by a net
decrease in acquisition facility borrowings and an increase in distributions
due to the general and limited partners.
The ratio of earnings to fixed charges and preferred stock dividends was
1.90 for the three months ended March 31, 1998 compared to 6.09 for the three
months ended March 31, 1997. The decrease is primarily due to additional
interest expense and preferred general partner unit distributions incurred
during the three months ended March 31, 1998 from additional debt issued and
preferred general partner contributions to fund property acquisitions, which is
partially offset by higher net operating income from property acquisitions and
the distribution of 177 properties from the Financing Partnership to the
Operating Partnership on January 2, 1998 as discussed in the "Results of
Operations" above.
Between January 1, 1998 and March 31, 1998, the Operating Partnership
purchased 53 industrial properties and one land parcel, for an aggregate
purchase price of approximately $127.7 million excluding costs incurred in
conjunction with the acquisition price. Of the 53 existing industrial
properties and land parcel purchased by the Operating Partnership during the
three months ended March 31, 1998, four existing industrial properties were
purchased from Western Suburban Industrial Investments Limited Partnership
("Western") in which the sole general partner, having a 5% interest, was
Tomasz/Shidler Investment Corporation, of which the sole shareholders were a
Director and Director/Officer of the general Partner of the Operating
Partnership who also had a 53% and 32% limited partnership interest in Western,
respectively. Further, an additional Director/Officer of the general Partner of
the Operating Partnership was a limited partner in Western having an interest of
2%. The aggregate purchase price for this acquisition totaled approximately
$7.9 million, excluding costs incurred in conjunction with the acquisition of
the properties.
During the three months ended March 31, 1998, the Operating Partnership
sold one existing industrial property and one land parcel. Gross proceeds from
these sales were approximately $1.8 million. The gain on sales of real estate
was approximately $.04 million.
16
18
The Operating Partnership has committed to the construction of four
developments totaling approximately .5 million square feet of GLA. The
estimated total construction costs are approximately $17.7 million. These
developments are expected to be funded with cash flow from operations as well
as borrowings under the 1997 Unsecured Acquisition Facility.
During the three months ended March 31, 1998, the Operating Partnership
issued 54,407 units valued, in the aggregate, at $2.0 million in exchange for
interests in certain properties. These contributions are reflected in the
Operating Partnership's financial statements as limited partners contributions.
On March 31, 1998, the Operating Partnership issued $100 million of Dealer
remarketable securities which mature on April 5, 2011 and bear a coupon
interest rate of 6.50% (the "2011 Drs."). The issue price of the 2011 Drs. was
99.753%. Interest is paid semi-annually in arrears on April 5 and October 5.
The 2011 Drs. are callable (the "Call Option"), at the option of J.P. Morgan
Securities, Inc., as Remarketing Dealer (the "Remarketing Dealer"), on April
5, 2001 (the "Remarketing Date"). The Operating Partnership received
approximately $2,760 of proceeds from the Remarketing Dealer as consideration
for the Call Option. The Operating Partnership will amortize the proceeds over
the life of the Call Option as an adjustment to interest expense. 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 upon a predetermined formula
as disclosed in the related Prospectus Supplement. If the Remarketing Dealer
elects not to remarket the 2011 Drs., then the Operating Partnership will be
required to repurchase, on the Remarketing Date, any 2011 Drs. that have not
been purchased by the Remarketing Dealer at 100% of the principal amount
thereof, plus accrued and unpaid interest. The Operating Partnership also
entered into an interest rate protection agreement which was used to fix the
interest rate on the 2011 Drs. prior to issuance. The debt issue discount and
the settlement amount of the interest rate protection agreement are being
amortized over the life of the 2011 Drs. as an adjustment to interest expense.
The 2011 Drs. contain certain covenants including limitations on incurrence of
debt and debt service coverage.
On February 4, 1998, the Company issued 5,000,000 Depository Shares, each
representing 1/100th of a share of the Company's 7.95%, $.01 par value, Series
D Cumulative Preferred Stock (the "Series D Preferred Stock"), at an initial
offering price of $25 per Depository Share. The net proceeds of $120.6
million received from the Series D Preferred Stock were contributed to the
Operating Partnership in exchange for 7.95% Series D Cumulative Preferred Units
(the "Series D Preferred Units") and are reflected in the Operating
Partnership's financial statements as a general partner preferred unit
contribution.
On March 18 1998, the Company issued 3,000,000 Depository Shares, each
representing 1/100th of a share of the Company's 7.90%, $.01 par value, Series
E Cumulative Preferred Stock (the "Series E Preferred Stock"), at an initial
offering price of $25 per Depository Share. The net proceeds of $72.1 million
received from the Series E Preferred Stock were contributed to the Operating
Partnership in exchange for 7.90% Series E Cumulative Preferred Units (the
"Series E Preferred Units") and are reflected in the Operating Partnership's
financial statements as a general partner preferred unit contribution.
During the three months ended March 31, 1998, the Company awarded 51,850
shares of restricted Common Stock to certain employees and 552 shares of
restricted Common Stock to certain Directors. Another employee of the Company
converted certain employee stock options to 3,765 shares of restricted Common
Stock. These shares of restricted Common Stock had a fair value of $2.0 million
on the date of grant. The restricted Common Stock vests over a period from five
to ten years. Compensation expense will be charged to earnings over the vesting
period.
17
19
On January 20, 1998, the Operating Partnership paid a fourth quarter 1997
distribution of $.53 per Unit, totaling approximately $22.0 million. On April
20, 1998, the Operating Partnership paid a first quarter 1998 distribution of
$.53 per Unit, totaling approximately $22.5 million.
On March 31, 1998, the Operating Partnership paid a first quarter
distribution of $54.688 per Unit on its Series B Cumulative Preferred Units,
totaling $2.2 million.
On March 31, 1998, the Operating Partnership paid a first quarter
distribution of $53.906 per Unit on its Series C Cumulative Preferred Units,
totaling $1.1 million.
On March 31, 1998, the Operating Partnership paid a period prorated first
quarter distribution of $30.365 per Unit on its Series D Preferred Units,
totaling $1.5 million.
The Operating Partnership has accrued $7.13194 per Series E Preferred
Unit, totaling $.2 million, for the three months ended March 31, 1998. This
distribution will be paid on June 30, 1998.
On April 23, 1998, the Company issued, in a private placement, 1,112,644
shares of $.01 par value Common Stock (the "April 1998 Equity Offering"). The
net proceeds of $33.9 million received from the April 1998 Equity Offering were
contributed to the Operating Partnership in exchange for 1,112,644 Units and
will be reflected in the Operating Partnership's financial statements as a
general partner contribution.
The 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 Operating
Partnership believes that its principal 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 Operating Partnership
anticipates that these needs will be met with cash flows provided by operating
activities.
The Operating Partnership expects to meet long-term (greater than one
year) liquidity requirements such as property acquisitions, scheduled debt
maturities, major renovations, expansions and other non-recurring capital
improvements through long-term unsecured indebtedness and the issuance of
additional units in the Operating Partnership (the "Units") and preferred
units. On March 31, 1998, the Operating Partnership had registered under the
Securities Act of 1933, as amended (the "Securities Act"), approximately $300.0
million of debt securities. As of May 11, 1998, $300.0 million of debt
securities remained registered under the Securities Act and were unissued. The
Operating Partnership may finance the development or acquisition of additional
properties through borrowings under the 1997 Unsecured Acquisition Facility. At
March 31, 1998, borrowings under the 1997 Unsecured Acquisition Facility bore
interest at a weighted average interest rate of 6.488%. As of May 11, 1998,
the Operating Partnership had approximately $141.6 million available in
additional borrowings under the 1997 Unsecured Acquisition Facility. While the
Operating Partnership may sell properties if property or market conditions make
it desirable, the Operating Partnership does not expect to sell assets in the
foreseeable future to satisfy its liquidity requirements.
OTHER
In June 1997, the Financial Accounting Standards Board (the "FASB")FASB issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive
Income"133, "Accounting for Derivative Instruments and
Hedging Activities". This statement, effective for fiscal years beginning
after DecemberJune 15, 1997, requires the Operating Partnership to report components of
comprehensive income1999, establishes accounting and reporting standards requiring
that every derivative instrument, including certain derivative instruments
imbedded in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income is defined by
Concepts Statement No. 6, "Elements of Financial Statements" as the changecontracts, be recorded in the equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. It includes allbalance sheet as either an
asset or liability measured at its fair value. The statement also requires
that the changes in equity during a period except those resulting from investments by owners and
distributions to owners. The
18
20
Operating Partnership's net income available to its unitholders approximates its
comprehensive income as definedthe derivative's fair value be recognized in Concepts Statement No. 6, "Elements of
Financial Statements".
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information".
This statement, effective for financial statements for fiscal years beginning
after December 15, 1997, requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Generally, financial information is required to be reported on the basis that
it is used internally for evaluating segment performance and deciding how to
allocate resources to segments.earnings
unless specific hedge accounting criteria are met. The Operating Partnership
has not yet
determinedis currently assessing the impact of this new statement on its consolidated
financial statements.
In March 1998, the FASB's Emerging Issues Task Force (the "Task Force")
issued Emerging Issues Task Force Issue No. 97-11, "Accounting for Internal
Costs Relating to Real Estate Property Acquisitions" ("EITF 97-11"). EITF
97-11, effective March 19, 1998, requires that internal costsposition, liquidity, and results of preacquisition
activities incurred in connection with the acquisition of an operating property
should be expensed as incurred. The Task Force concluded that a property is
considered operating if, at the date of acquisition, major construction
activity is substantially completed on the property and (a) it is held
available for occupancy upon completion of tenant improvements by the acquirer
or (b) it is already income producing. The Operating Partnership adopted EITF
97-11 as of March 19, 1998. Prior to March 19, 1998, the Operating Partnership
capitalized internal costs of preacquisition activities incurred in connection
with the acquisition of operating properties. The Operating Partnership
estimates that the adoption of EITF 97-11 will result in an increase of
approximately $2.5 million to $3.0 million in the amount of general and
administrative expense reflected in the Operating Partnership's consolidated
statement of operations in 1998, assuming an increase in the amount of
acquisition support activity the Operating Partnership outsources relative to
such activity the Operating Partnership continues to perform internally.
In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5
requires that the net unamortized balance of all start-up costs and
organizational costs be written off as a cumulative effect of a change in
accounting principle and all future start-up costs and organizational costs be
expensed. In the second quarter of 1998, the Operating Partnership expects to
report a cumulative effect of a change in accounting principle in the amount of
approximately $885 to reflect the write-off of the unamortized balance of
organizational costs on the Operating Partnership's balance sheet.
19operations.
23
2125
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
During the threesix months ended March 31,June 30, 1998, the Operating Partnership issued an
aggregate of 54,407 Units983,956 limited partnership units having an aggregate value of
$2.0$33.8 million in exchange for property or interests in entities owning property.
As of May 11,August 5, 1998, the Operating Partnership has issued in 1998 an aggregate
of 851,847 Units985,146 limited partnership units having an aggregate value of $29.7$33.8 million
in exchange for property or interests in entities owning property.
All of the above Unitslimited partnership units were issued in private placements 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, Unitslimited partnership 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 REPORTS ON FORM 8-K AND 8-K/A
Exhibit No. Description
4.1 Sixth Amended and Restated Limited Partnership Agreement of First
Industrial, L.P. (the "L.P. Agreement"), dated March 18, 1998 (incorporated
by reference to Exhibit 10.1 of First Industrial Realty Trust, Inc.'s (the
"Company") Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-13102)
4.2 Supplemental Indenture No. 4, dated as of March 26, 1998, between First
Industrial, L.P. and First Trust National Trust Association, as Trustee,
relating to 6.50% Dealer remarketable securities due April 5, 2011
(incorporated by reference to Exhibit 4.1 of Form 8-K of First Industrial,
L.P. dated April 7, 1998, File No. 333-21873)
4.3 6.50% Dealer remarketable security due April 5, 2011 in principal amount
of $100 million issued by First Industrial, L.P. (incorporated by
reference to Exhibit 4.2 of the Form 8-K of First Industrial, L.P. dated
April 7, 1998, File No. 333-21873)
4.4 Remarketing Agreement, dated March 31, 1998, between First Industrial,
L.P. and J.P. Morgan Securities Inc. (incorporated by reference to Exhibit
1.2 of Form 8-K of First Industrial, L.P. dated April 7, 1998, File No.
333-21873)
4.5 First Amendment to the L.P. Agreement, dated April 1, 1998 (incorporated
by reference to Exhibit 10.2 of the Form 10-Q of the Company for the
fiscal quarter ended March 31, 1998, File No. 1-13102)
4.6 Second Amendment to the L.P. Agreement, dated April 3, 1998 (incorporated
by reference to Exhibit 10.3 of the Form 10-Q of the Company for the
fiscal quarter ended March
31, 1997, File No. 1-13102)
4.2 Supplemental Indenture No. 5, dated as of July 14, 1998, between First
Industrial, L.P. and First Trust National Trust Association, as Trustee,
relating to 7.60% Notes due July 15, 2028 (incorporated by reference to
Exhibit 4.1 of Form 8-K of First Industrial, L.P. dated July 15, 1998, File
No. 333-21873)
4.3 7.60% Notes due July 15, 2028 in principal amount of $200 million issued by
First Industrial, L.P. (incorporated by reference to Exhibit 4.2 of the
Form 8-K of First Industrial, L.P. dated July 15, 1998, File No. 333-21873)
4.4 Fourth Amendment to the L.P. Agreement, dated June 24, 1998 (incorporated
by reference to Exhibit 10.2 of the Form 10-Q of the Company for the fiscal
quarter ended June 30, 1998, File No. 1-13102)
204.5 Fifth Amendment to the L.P. Agreement, dated July 16, 1998 (incorporated by
reference to Exhibit 10.3 of the Form 10-Q of the Company for the fiscal
quarter ended June 30, 1998, File No. 1-13102)
24
22
Exhibit Description
No.
4.7 Third Amendment to the L.P. Agreement, dated April 16, 1998
(incorporated by reference to Exhibit 10.4 of the Form 10-Q of the
Company for the fiscal quarter ended March 31, 1998, File No. 1-13102)
10.1 Registration Rights Agreement, dated April 29, 1998, relating to the
Company's Common Stock, par value $.01 per share, between the Company,
First Industrial, L.P. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (incorporated by reference to Exhibit 4.1 of the Form 8-K
of the Company dated May 1, 1998, File No. 1-13102)
27.1* Financial Data Schedule for the Three Months Ended March 31, 1998
27.2* Financial Data Schedule for the Three Months Ended March 31,26
Exhibit No. Description
27.1 * Financial Data Schedule for the Six Months Ended June 30, 1998
27.2 * Financial Data Schedule for the Six Months Ended June 30, 1997
(Restated)
* Filed herewith.
Reports on Form 8-K and Form 8-K/A
Report on Form 8-K dated February 4, 1998, filed February 19, 1998,
relating to the Fifth Amended and Restated Limited Partnership Agreement
of First Industrial, L.P.
Report on Form 8-K dated March 26, 1998, filed April 7, 1998, relating to
First Industrial, L.P.'s offering of 6.50% Dealer remarketable securities
due April 5, 2011
Report on Form 8-K dated April 6, 1998, filed as of April 20, 1998,
relating to the acquisition of 146 properties and seven land parcels for
future development by First Industrial, L.P. and the acquisition of 21
properties and six land parcels for future development by the
partnerships in which First Industrial, L.P. owns a 99% limited
partnership interest
Report on Form 8-K/A No. 1 dated December 11, 1997, filed January 22, 1998, as amended
by the report on Form 8-K/A No. 21 filed February 26,June 16, 1998, relating to the
acquisition of 84167 properties the negotiations to
acquire an additional property and the acquisition ofseven land parcels for future
development. The reports include Combined Historical Statements of
Revenues and Certain Expenses for the acquired and to be acquired
properties and Pro Forma Balance Sheet and Pro Forma Statements of
Operations for First Industrial, L.P.
21the Operating Partnership.
Report on Form 8-K dated March 26, 1998, filed April 7, 1998, relating to
the Operating Partnership's offering of 6.50% Dealer remarketable
securities due April 5, 2011.
Report on Form 8-K dated July 9, 1998, filed July 15, 1998, relating to
the Operating Partnership's offering of 7.60% Notes due July 15, 2028.
25
2327
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: May 14, 1998 By: /s/ Michael J. Havala
-----------------------------------------------Date: August 13, 1998 By: /s/ Michael J. Havala
--------------------------------------------
Michael J. Havala
Chief Financial Officer
(Principal Financial and Accounting Officer)
2226
2428
EXHIBIT INDEX
Exhibit No. Description
4.1 Sixth Amended and Restated Limited Partnership Agreement of First
Industrial, L.P. (the "L.P. Agreement"), dated March 18, 1998
(incorporated by reference to Exhibit 10.1 of First Industrial Realty
Trust, Inc.'s (the "Company") Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, File No. 1-13102)
4.2 Supplemental Indenture No. 4, dated as of March 26, 1998, between First
Industrial, L.P. and First Trust National Trust Association, as
Trustee, relating to 6.50% Dealer remarketable securities due April 5,
2011 (incorporated by reference to Exhibit 4.1 of Form 8-K of First
Industrial, L.P. dated April 7, 1998, File No. 333-21873)
4.3 6.50% Dealer remarketable security due April 5, 2011 in principal
amount of $100 million issued by First Industrial, L.P. (incorporated
by reference to Exhibit 4.2 of the Form 8-K of First Industrial, L.P.
dated April 7, 1998, File No. 333-21873)
4.4 Remarketing Agreement, dated March 31, 1998, between First Industrial,
L.P. and J.P. Morgan Securities Inc. (incorporated by reference to
Exhibit 1.2 of Form 8-K of First Industrial, L.P. dated April 7, 1998,
File No. 333-21873)
4.5 First Amendment to the L.P. Agreement, dated April 1, 1998
(incorporated by reference to Exhibit 10.2 of the Form 10-Q of the
Company for the fiscal quarter ended March 31, 1998, File No. 1-13102)
4.6 Second Amendment to the L.P. Agreement, dated April 3, 1998
(incorporated by reference to Exhibit 10.3 of the Form 10-Q of the
Company for the fiscal quarter ended March 31, 1998, File No. 1-13102)
4.7 Third Amendment to the L.P. Agreement, dated April 16, 1998
(incorporated by reference to Exhibit 10.4 of the Form 10-Q of the
Company for the fiscal quarter ended March 31, 1998, File No. 1-13102)
10.1 Registration Rights Agreement, dated April 29, 1998, relating to the
Company's Common Stock, par value $.01 per share, between the Company,
First Industrial, L.P. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (incorporated by reference to Exhibit 4.1 of the Form 8-K
of the Company dated May 1, 1998, File No. 1-13102)
27.1* Financial Data Schedule for the Three Months Ended March 31, 1998
27.2* Financial Data Schedule for the Three Months Ended March 31, 1997, File No. 1-13102)
4.2 Supplemental Indenture No. 5, dated as of July 14, 1998, between First
Industrial, L.P. and First Trust National Trust Association, as Trustee,
relating to 7.60% Notes due July 15, 2028 (incorporated by reference to
Exhibit 4.1 of Form 8-K of First Industrial, L.P. dated July 15, 1998,
File No. 333-21873)
4.3 7.60% Notes due July 15, 2028 in principal amount of $200 million issued
by First Industrial, L.P. (incorporated by reference to Exhibit 4.2 of
the Form 8-K of First Industrial, L.P. dated July 15, 1998, File No.
333-21873)
4.4 Fourth Amendment to the L.P. Agreement, dated June 24, 1998
(incorporated by reference to Exhibit 10.2 of the Form 10-Q of the
Company for the fiscal quarter ended June 30, 1998, File No. 1-13102)
4.5 Fifth Amendment to the L.P. Agreement, dated July 16, 1998 (incorporated
by reference to Exhibit 10.3 of the Form 10-Q of the Company for the
fiscal quarter ended June 30, 1998, File No. 1-13102)
27.1 * Financial Data Schedule for the Six Months Ended June 30, 1998
27.2 * Financial Data Schedule for the Six Months Ended June 30, 1997
(Restated)
* Filed herewith.
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