1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNESEPTEMBER 30, 1999
[ ] 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 PERIOD ENDED JUNESEPTEMBER 30, 1999
INDEX
PAGE
----
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of JuneSeptember 30, 1999 and December 31, 1998..........................1998 ............. 2
Consolidated Statements of Operations for the SixNine Months Ended JuneSeptember 30, 1999
and JuneSeptember 30, 1998..............................................................................1998 ................................................................. 3
Consolidated Statements of Operations for the Three Months Ended JuneSeptember 30, 1999
and JuneSeptember 30, 1998..............................................................................1998 ................................................................. 4
Consolidated Statements of Cash Flows for the SixNine Months Ended JuneSeptember 30, 1999
and JuneSeptember 30, 1998..............................................................................1998 ................................................................. 5
Notes to Consolidated Financial Statements .................................................... 6-14............................................. 6-15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................... 15-23Operations ........................................................... 16-25
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................. 23Risk ...................... 25
PART II: OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 24Proceedings .............................................................. 26
Item 2. Changes in Securities................................................................... 24Securities .......................................................... 26
Item 3. Defaults Upon Senior Securities......................................................... 24Securities ................................................ 26
Item 4. Submission of Matters to a Vote of Security Holders..................................... 24Holders ............................ 26
Item 5. Other Information....................................................................... 24Information .............................................................. 26
Item 6. Exhibits and Report on Form 8-K......................................................... 24
SIGNATURE........................................................................................... 258-K ................................................ 26
SIGNATURE ................................................................................... 27
EXHIBIT INDEX....................................................................................... 26INDEX ............................................................................... 28
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST INDUSTRIAL, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
JuneSeptember 30, December 31,
1999 1998
------------ ------------------------- -----------
ASSETS
Assets:
Investment in Real Estate:
Land ..................................................................................................... $ 318,819315,065 $ 323,363
Buildings and Improvements .................... 1,779,826..................................... 1,741,675 1,794,611
Furniture, Fixtures and Equipment ........................................... 1,353 1,353
Construction in Progress ...................... 28,777....................................... 50,409 14,138
Less: Accumulated Depreciation ................ (165,703)................................. (167,511) (145,435)
------------ ----------------------- -----------
Net Investment in Real Estate ............... 1,963,072....................... 1,940,991 1,988,030
Investment in and Advances to Other Real Estate Partnerships ..... 385,138... 395,198 368,364
Cash and Cash Equivalents ........................ 715...................................... -- 13,946
Restricted Cash .................................. 35,597................................................ 12,430 7,680
Tenant Accounts Receivable, Net .................. 12,094................................ 11,305 9,755
Investment in Joint Venture ...................... 5,117Ventures ................................... 6,740 4,458
Deferred Rent Receivable ......................... 12,842....................................... 13,511 11,150
Deferred Financing Costs, Net .................... 10,303.................................. 10,121 10,458
Prepaid Expenses and Other Assets, Net ........... 56,017......................... 56,654 56,820
------------ ------------=========== ===========
Total Assets ........................................................................ $ 2,480,8952,446,950 $ 2,470,661
============ ======================= ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage Loans Payable, Net .......................................................... $ 65,19963,439 $ 66,065
Senior Unsecured Debt, Net ....................... 948,641..................................... 948,666 948,595
Acquisition Facility Payable ..................... 158,100................................... 95,600 134,800
Accounts Payable and Accrued Expenses ............ 60,472.......................... 78,668 68,198
Rents Received in Advance and Security Deposits... 18,148Deposits ................ 18,718 16,363
Distributions Payable ...................................................................... 27,157 27,081
------------ ----------------------- -----------
Total Liabilities ........................... 1,277,717................................... 1,232,248 1,261,102
------------ ----------------------- -----------
Commitments and Contingencies ............................................................ -- --
Partners' Capital:
General Partner Preferred Units ................................................. 336,990 336,990
General Partner Units ........................... 686,666.......................................... 697,414 689,923
Unamortized Value of General Partnership Restricted Units .............................. (4,627)...... (4,321) (3,312)
Limited Partners' Units .......................... 184,149........................................ 184,619 185,958
------------ ----------------------- -----------
Total Partners' Capital ................... 1,203,178............................. 1,214,702 1,209,559
------------ ----------------------- -----------
Total Liabilities and Partners' Capital....Capital ............. $ 2,480,8952,446,950 $ 2,470,661
============ ======================= ===========
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 FOR PER UNIT DATA)
(UNAUDITED)
SixNine Months SixNine Months
Ended Ended
JuneSeptember 30, 1999 JuneSeptember 30, 1998
------------- ------------------------------- ------------------
Revenues:
Rental Income ................................................................................................ $ 126,806188,641 $ 110,730173,540
Tenant Recoveries and Other Income ....................... 33,241 25,608
------------ ------------............................... 50,269 39,956
--------- ---------
Total Revenues ................................. 160,047 136,338
------------ ------------......................................... 238,910 213,496
--------- ---------
Expenses:
Real Estate Taxes ........................................ 25,621 22,668................................................ 37,534 35,320
Repairs and Maintenance .................................. 8,789 6,514.......................................... 11,828 9,991
Property Management ...................................... 4,706 5,436.............................................. 6,882 8,543
Utilities ................................................ 3,945 3,639........................................................ 5,842 5,758
Insurance ................................................ 360 381........................................................ 525 596
Other .................................................... 1,793 1,922............................................................ 2,713 2,965
General and Administrative ............................... 6,456 5,982....................................... 9,838 9,830
Interest ................................................. 38,775 30,594......................................................... 58,266 49,401
Amortization of Deferred Financing Costs ................. 570 369......................... 919 610
Depreciation and Other Amortization ...................... 29,163 25,525
------------ ------------.............................. 43,495 39,804
--------- ---------
Total Expenses ................................ 120,178 103,030
------------ ------------........................................ 177,842 162,818
--------- ---------
Income from Operations Before Equity in Income of Other Real
Estate Partnerships and Equity in Income of Joint Venture ................................................. 39,869 33,308Ventures ...... 61,068 50,678
Equity in Income of Other Real Estate Partnerships .......... 12,929 14,046.................. 35,677 21,489
Equity in Income of Joint Venture ........................... 246Ventures .................................. 372 --
------------ --------------------- ---------
Income from Operations ...................................... 53,044 47,354.............................................. 97,117 72,167
Gain on Sales of Real Estate ................................ 8,395 93
------------ ------------........................................ 9,904 692
--------- ---------
Income Before Cumulative Effect of Change in Accounting
Principle ............................................... 61,439 47,447....................................................... 107,021 72,859
Cumulative Effect of Change in Accounting Principle .......................... -- (719)
------------ --------------------- ---------
Net Income .................................................. 61,439 46,728.......................................................... 107,021 72,140
Less: Preferred Unit Distributions ......................... (14,462) (12,228)
------------ ------------................................. (21,693) (19,458)
========= =========
Net Income Available to Unitholders .......................................................... $ 46,97785,328 $ 34,500
============ ============52,682
========= =========
Net Income Available to Unitholders Before Cumulative Effect of
Change in Accounting Principle per Weighted Average Unit
Outstanding:
Basic ................................................................................................ $ 1.041.89 $ .81
============ ============1.22
========= =========
Diluted ............................................................................................ $ 1.041.88 $ .81
============ ============1.21
========= =========
Net Income Available to Unitholders per Weighted Average Unit
Outstanding:
Basic ................................................................................................ $ 1.041.89 $ .80
============ ============1.20
========= =========
Diluted ............................................................................................ $ 1.041.88 $ .79
============ ============1.20
========= =========
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
JuneSeptember 30, September 30,
1999 June 30, 1998
------------- -------------
Revenues:
Rental Income .................................................................................................................... $ 62,55561,835 $ 59,39662,810
Tenant Recoveries and Other Income .................................... 16,534 13,864
---------- ----------...................................... 17,028 14,348
-------- --------
Total Revenues .............................................. 79,089 73,260
---------- ----------................................................ 78,863 77,158
-------- --------
Expenses:
Real Estate Taxes ..................................................... 12,573 11,860....................................................... 11,913 12,652
Repairs and Maintenance ............................................... 3,720 3,535................................................. 3,039 3,477
Property Management ................................................... 2,326 2,951..................................................... 2,176 3,107
Utilities ............................................................. 1,749 1,695............................................................... 1,897 2,119
Insurance ............................................................. 167 202............................................................... 165 215
Other ................................................................. 898 1,070................................................................... 920 1,043
General and Administrative ............................................ 3,361 3,363.............................................. 3,382 3,848
Interest .............................................................. 19,457 16,525................................................................ 19,491 18,807
Amortization of Deferred Financing Costs .............................. 322 208................................ 349 241
Depreciation and Other Amortization ................................... 14,571 13,908
---------- ----------..................................... 14,332 14,279
-------- --------
Total Expenses ............................................. 59,144 55,317
---------- ----------............................................... 57,664 59,788
-------- --------
Income from Operations Before Equity in Income of Other Real Estate
Partnerships and Equity in Income of Joint Venture ..................... 19,945 17,943Ventures ...................... 21,199 17,370
Equity in Income of Other Real Estate Partnerships ....................... 6,521 5,289......................... 22,748 7,443
Equity in Income of Joint Venture ....................................... 120Ventures ......................................... 126 --
---------- ------------------ --------
Income from Operations ................................................... 26,586 23,232..................................................... 44,073 24,813
Gain on Sales of Real Estate ............................................. 6,850 50
---------- ----------
Income Before Cumulative Effect of Change in Accounting Principle ........ 33,436 23,282
Cumulative Effect of Change in Accounting Principle ...................... -- (719)
---------- ----------............................................... 1,509 599
-------- --------
Net Income ............................................................... 33,436 22,563................................................................. 45,582 25,412
Less: Preferred Unit Distributions ................................................................................ (7,231) (7,230)
---------- ------------------ --------
Net Income Available to Unitholders .............................................................................. $ 26,20538,351 $ 15,333
========== ==========
Net Income Available to Unitholders Before Cumulative Effect of Change in
Accounting Principle per Weighted Average Unit Outstanding:
Basic ...................................................... $ .58 $ .36
========== ==========
Diluted .................................................... $ .58 $ .36
========== ==========18,182
======== ========
Net Income Available to Unitholders per Weighted Average Unit Outstanding:
Basic ........................................................ $ .85 $ .41
======== ========
Diluted ...................................................... $ .58.85 $ .35
========== ==========
Diluted .................................................... $ .58 $ .35
========== ==========.41
======== ========
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)
SixNine Months Ended SixNine Months Ended
JuneSeptember 30, 1999 JuneSeptember 30, 1998
---------------- ---------------------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ............................................................................................................. $ 61,439107,021 $ 46,72872,140
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation .............................................. 26,574 23,140....................................................... 39,559 35,889
Amortization of Deferred Financing Costs .................. 570 369........................... 919 610
Other Amortization ........................................ 2,744 2,759
Equity in Income of Joint Venture ......................... (246) --................................................. 4,071 4,437
Equity in Income of Other Real Estate Partnerships ........ (12,929) (14,046)................. (35,677) (21,489)
Distributions from Other Real Estate Partnerships .................. 35,677 16,250
Equity in Income of Joint Ventures ................................. (372) --
Distributions from Joint Ventures .................................. 372 --
Gain on Sales of Real Estate .............................. (8,395) (93)....................................... (9,904) (692)
Cumulative Effect of Change in Accounting Principle ....................... -- 719
Provision for Bad Debts ............................................................................... -- 297649
Increase in Tenant Accounts Receivable and Prepaid
Expenses and Other Assets ...................... (5,592) (11,760)........................................ (7,451) (22,804)
Increase in Deferred Rent Receivable ...................... (2,288) (1,862)
Decrease............................... (3,137) (2,417)
Increase in Accounts Payable and Accrued Expenses and
Rents Received in Advance and Security Deposits ....... (5,188) (155)
------------ ------------.................. 9,764 25,389
--------- ---------
Net Cash Provided by Operating Activities .............. 56,689 46,096
------------ ------------........................ 140,842 108,681
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and Additions to Investment in Real Estate and Closing Costs of............... (122,568) (466,945)
Net Proceeds from Sales of Investment in Real Estate ............................................ (67,701) (379,849)............... 133,913 12,986
Contributions to Investmentand Investments in Other Real Estate
Partnerships ........................................... (39,507) (58,858)..................................................... (104,863) (81,576)
Distributions from Investment in Other Real Estate
Partnerships ........................................... 35,662 10,707..................................................... 87,152 --
Contributions to and Investments in Joint Venture ....... (778)Ventures ................. (2,528) --
Distributions from Joint Venture ........................ 365Ventures .................................. 246 --
Proceeds from Sales of Investment in Real Estate ........ 76,567 7,117
Repayment of Mortgage Loans Receivable .................. 199 1,007............................. 314 1,063
Increase in Restricted Cash ............................. (27,917) --
------------ ------------........................................ (4,750) (2,138)
--------- ---------
Net Cash Used in Investing Activities ................. (23,110) (419,876)
------------ ------------............................ (13,084) (536,610)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Unit Contributions ....................................... 59 35,334................................................. -- 35,571
Unit Distributions ....................................... (54,227) (44,502)................................................. (81,380) (68,057)
Preferred Unit Contributions ............................. --....................................... 59 192,700
Preferred Unit Distributions ............................. (14,462) (12,229)....................................... (21,693) (19,458)
Repayments on Mortgage Loans Payable ..................... (829) (723)............................... (2,588) (1,095)
Proceeds from Acquisition Facilities Payable ............. 56,600 411,200....................... 82,100 505,000
Repayments on Acquisition Facilities Payable ............. (33,300) (310,500)....................... (121,300) (505,600)
Proceeds from Senior Unsecured Debt ...................................................... -- 99,753299,517
Other Proceeds from Senior Unsecured Debt .......................................... -- 2,760
Other Costs of Senior Unsecured Debt .................................................. -- (2,565)(11,890)
Book Overdraft ..................................................... 3,910 --
Debt Issuance Costs and Prepayment Fees .................. (651) (1,730)
------------ ------------............................ (812) (3,912)
--------- ---------
Net Cash(UsedCash (Used in) Provided by Financing Activities .... (46,810) 369,498
------------ ------------......... (141,704) 425,536
--------- ---------
Net Decrease in Cash and Cash Equivalents................. (13,231) (4,282)Equivalents .......................... (13,946) (2,393)
Cash and Cash Equivalents, Beginning of Period ................................ 13,946 4,995
------------ ------------========= =========
Cash and Cash Equivalents, End of Period ............................................ $ 715-- $ 713
============ ============2,602
========= =========
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 UNIT AND PER UNIT DATA)
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 84.1%84.2% ownership interest at JuneSeptember
30, 1999. The Company also owns preferred units with an aggregate liquidation
priority of $350,000. The Company is a real estate investment trust (REIT) as
defined in the Internal Revenue Code. The Company's operations are conducted
primarily through the Operating Partnership. The limited partners of the
Operating Partnership own approximately a 15.9%15.8% aggregate ownership interest at
JuneSeptember 30, 1999.
The Operating Partnership is the sole member of limited liability
companies (the "L.L.C.s"), owns a 95% economic interest in FR Development
Services, Inc. as well as at least a 99% limited partnership interest (subject
in one case, as described below, to a preferred limited partnership interest) in
each of eight limited partnerships (together, the "Other Real Estate
Partnerships"). The Operating Partnership, through separate wholly owned limited
liability companies in which it is the sole member, also owns a 10% equity
interestinterests in and provides asset and property management services to, atwo joint
ventureventures which investsinvest in industrial properties (the "September 1998 Joint
Venture" and the "September 1999 Joint Venture").
The general partners of the Other Real Estate Partnerships are separate
corporations, each with at least a one percent.01% general partnership interest in the
Other Real Estate Partnership for which it acts as a general partner. Each
general partner of the Other Real Estate Partnerships is a wholly owned
subsidiary of the Company. First Industrial Securities Corporation, the general
partner of one of the Other Real Estate Partnerships (First Industrial
Securities, L.P.), also owns a preferred limited partnership interest in the First
Industrial Securities L.P. 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%, $.01 par value,
Series A Cumulative Preferred Stock.
The consolidated 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, and the September 1998 Joint Venture and the September
1999 Joint Venture (hereinafter defined) 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 JuneSeptember 30, 1999, the Consolidated Operating
Partnership owned 865855 in-service properties containing an aggregate of
approximately 55.654.0 million square feet of gross leasable area ("GLA"). On a
combined basis, as of JuneSeptember 30, 1999, the Other Real Estate Partnerships
owned 10395 in-service properties containing an aggregate of approximately 11.911.2
million square feet of GLA.
Profits, losses and distributions of the Operating Partnership, the
L.L.C.s and the Other Real Estate Partnerships are allocated to the general
partner and the limited partners, or the members, as applicable, in accordance
with the provisions contained within the partnership agreements or ownership
agreements, as applicable, of the Operating Partnership, the L.L.C.s and the
Other Real Estate Partnerships.
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FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR UNIT AND PER UNIT DATA)
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 1998 Form 10-K and
should be read in conjunction with such financial statements and related notes.
The following notes to these interim financial statements highlight significant
changes to the notes included in the December 31, 1998 audited financial
statements included in the Operating Partnership's 1998 Form 10-K and present
interim disclosures as required by the Securities and Exchange Commission.
In order to conform with generally accepted accounting principles,
management, in preparation of the Consolidated Operating Partnership's financial
statements, is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of JuneSeptember 30, 1999 and December 31, 1998, and the reported
amounts of revenues and expenses for each of the sixnine months and the three
months ended JuneSeptember 30, 1999 and 1998. Actual results could differ from those
estimates.
In the opinion of management, all adjustments consist of normal
recurring adjustments necessary to present fairly the financial position of the
Consolidated Operating Partnership as of JuneSeptember 30, 1999, the results of its
operations and its cash flows for each of the sixnine months and three months ended
JuneSeptember 30, 1999 and 1998.
Tenant Accounts Receivable, Net:
The Consolidated Operating Partnership provides an allowance for
doubtful accounts against the portion of tenant accounts receivable which is
estimated to be uncollectible. Tenant accounts receivable in the consolidated
balance sheets are shown net of an allowance for doubtful accounts of $1,649 as
of JuneSeptember 30, 1999 and December 31, 1998.1998, respectively.
Reclassification:
Certain 1998 items have been reclassified to conform to the 1999 presentation.
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FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR UNIT AND PER UNIT DATA)
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:
JuneSeptember 30, December 31,
1999 1998
------------ -----------------------
ASSETS
ASSETS
Assets:
Investment in Real Estate, Net ......................................... $ 435,497 $ 419,117................... $415,360 $419,117
Other Assets ........................................................... 43,083..................................... 71,801 41,198
------------ ------------======== ========
Total Assets ................................................... $ 478,580 $ 460,315
============ ============............................. $487,161 $460,315
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage Loans Payable .......................................................................... $ 42,15742,029 $ 42,422
Other Liabilities ...................................................... 7,246................................ 35,595 5,901
------------ -------------------- --------
Total Liabilities .............................................. 49,403....................... 77,624 48,323
------------ -------------------- --------
Partners' Capital ...................................................... 429,177................................ 409,537 411,992
------------ ------------======== ========
Total Liabilities and Partners' Capital ........................ $ 478,580 $ 460,315
============ ============. $487,161 $460,315
======== ========
Condensed Combined Statements of Operations:
Six
Nine Months Ended
------------------------------
June---------------------------
September 30, June 30,December 31,
1999 1998
------------ -----------------------
Total Revenues .......................................................................................................... $ 29,32544,578 $ 27,13742,292
Property Expenses .............................................................. (7,481) (6,162)...................................... (10,641) (9,755)
General and Administrative ............................. (136)
Interest Expense ............................................................... (1,527) (1,419)....................................... (2,300) (2,192)
Amortization of Deferred Financing Costs ....................................... (34) (32)............... (50) (50)
Depreciation and Other Amortization ............................................ (5,210) (4,800)
(Loss).................... (7,911) (7,167)
Gain on Sales of Real Estate ............................................ (53) 2,282........................... 15,437 2,376
Cumulative Effect of Change In Accounting Principle ................................ -- (858)
------------ ------------======== ========
Net Income .................................................................................................................. $ 15,02038,977 $ 16,148
============ ============24,646
======== ========
On August 19, 1999, the Operating Partnership contributed three
industrial properties with a net book value of $9,123 to First Industrial
Securities, L.P.
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FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR UNIT AND PER UNIT DATA)
4. INVESTMENT IN JOINT VENTUREVENTURES
During the sixnine months ended JuneSeptember 30, 1999, the Consolidated Operating
Partnership received approximately $1,237$1,768 (net of the intercompany elimination)
in acquisition, asset management and property management fees from the September
1998 Joint Venture. The Operating Partnership, through a wholly owned limited
liability company in which it is the sole member, also invested approximately
$778 and received distributions of approximately $365$618 from the September 1998
Joint Venture. As of JuneSeptember 30, 1999, the September 1998 Joint Venture owned
146 industrial properties comprising approximately 7.5 million square feet of
GLA.
On September 2, 1999, the Consolidated Operating Partnership, through a
wholly-owned limited liability company in which the Operating Partnership is its
sole member, entered into another joint venture arrangement (the "September 1999
Joint Venture") with an institutional investor to invest in industrial
properties. The Consolidated Operating Partnership, through wholly-owned limited
liability companies in which the Operating Partnership is the sole member, owns
a 10% equity interest in the September 1999 Joint Venture and provides property
and asset management services to the September 1999 Joint Venture. On or after
October 2001, under certain circumstances, the Consolidated Operating
Partnership has the option of purchasing all the properties owned by the
September 1999 Joint Venture at a price to be determined in the future. The
Consolidated Operating Partnership received approximately $907, (net of the
intercompany elimination) in acquisition, asset management and property
management fees in 1999 from the September 1999 Joint Venture. The Operating
Partnership, through a wholly owned limited liability company in which it is the
sole member, also invested approximately $1,750 in the September 1999 Joint
Venture. The Consolidated Operating Partnership accounts for the September 1999
Joint Venture under the equity method of accounting. As of September 30, 1999,
the September 1999 Joint Venture owned 39 industrial properties compromising
approximately 1.2 million square feet of GLA.
5. REAL ESTATE HELD FOR SALE
The Consolidated Operating Partnership has an active sales program through
which it is continually engaged in identifying and evaluating its current
portfolio for potential sales candidates in order to redeploy capital. At
JuneSeptember 30, 1999, the Consolidated Operating Partnership had four industrial
properties comprising approximately 1.2.9 million square feet of GLA held for sale.
ThreeTwo of four of these industrial properties were identified as held for sale
during the three months ended JuneSeptember 30, 1999. There can be no assurance that
such properties held for sale will be sold.
The following table discloses certain information regarding the four
industrial properties held for sale by the Consolidated Operating Partnership.
SIX MONTHS ENDED
JUNE 30,
------------------------------
1999 1998
------------- -------------
Total Revenues $ 2,317 $ 1,366
Operating Expenses (703) (658)
Depreciation and Amortization (77) (154)
------------- -------------
Net Income $ 1,537 $ 554
============= =============
Net Carrying Value at June 30, 1999 $ 15,982
=============
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
-------- --------
Total Revenues $ 3,204 $ 2,479
Operating Expenses (1,018) (998)
Depreciation and Amortization (234) (232)
======== ========
Net Income $ 1,952 $ 1,249
======== ========
Net Carrying Value at September 30, 1999 $ 20,805
========
9
11
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR UNIT AND PER UNIT DATA)
6. MORTGAGE LOANS, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION FACILITY
PAYABLE
On November 5, 1998, the Consolidated Operating Partnership, through the
Operating Partnership, assumed a mortgage loan in the principal amount of $1,348
(the "Acquisition Mortgage Loan VIII"). The Acquisition Mortgage Loan VIII was
collateralized by three properties in Richland Hills, Texas, bore interest at a
fixed rate of 8.45% and provided for monthly principal and interest payments
based on a 143-month amortization schedule. On August 2, 1999, the Consolidated
Operating Partnership paid off and retired the Acquisition Mortgage Loan VIII.
The following table discloses certain information regarding the
Consolidated Operating Partnership's mortgage loans, senior unsecured debt and
acquisition facility payable:
ACCRUED INTEREST INTEREST
OUTSTANDING BALANCE AT ACCRUED INTEREST PAYABLE AT INTEREST RATE AT
--------------------------- ----------------------- --------
JUNE------------------------------ ---------------------------- ----------------
SEPTEMBER 30, DECEMBER 31, JUNESEPTEMBER 30, DECEMBER 31, JUNESEPTEMBER 30, MATURITY
1999 1998 1999 1998 1999 DATE
---------- ------------ -------- ------------ -------- -------------------- ------------ ------------ ----------
MORTGAGE LOANS PAYABLE, NET
CIGNA Loan.......................Loan. .................. $ 34,96034,745 $ 35,220 $ 218--- $ ----- 7.500% 4/01/03
Assumed Loans.................... 8,506Loans................. 8,426 8,661 -- ----- --- 9.250% 1/01/13
LB Mortgage Loan II..............II........... 705 705 -- ----- --- 8.000% (1)
Acquisition Mortgage Loan I...... 3,731I... 3,662 3,864 -- ----- --- 8.500% 8/01/08
Acquisition Mortgage Loan II..... 7,723II.. 7,677 7,828 ----- 51 7.750% 4/01/06
Acquisition Mortgage Loan III.... 3,414III. 3,382 3,485 ----- 26 8.875% 6/01/03
Acquisition Mortgage Loan IV..... 2,454IV.. 2,439 2,488 ----- 19 8.950% 10/01/06
Acquisition Mortgage Loan VI..... 1,006VI.. 998 (2) 1,024 (2) ----- 7 8.875% 11/01/06
Acquisition Mortgage Loan VII.... 1,419VII. 1,405 (2) 1,450 (2) ----- 11 9.750% 3/15/02
Acquisition Mortgage Loan VIII... 1,281VIII --- 1,340 -- $--- 9 8.450% 7/01/09(3)
---------- ---------- -------- ---------------------- ------------ ------------
Total ................................................... $ 65,19963,439 $ 66,065 $ 218--- $ 123
========== ========== ======== ====================== ============ ============
SENIOR UNSECURED DEBT, NET
2005 Notes ......................................... $ 50,000 $ 50,000 $ 3831,246 $ 383 6.900% 11/21/05
2006 Notes ......................................... 150,000 150,000 8753,500 875 7.000% 12/01/06
2007 Notes ...................... 149,959 (3)................... 149,960 (4) 149,956 (3) 1,457(4) 4,307 1,457 7.600% 5/15/07
2011 Notes ...................... 99,447 (3)................... 99,459 (4) 99,424 (3) 942(4) 2,786 942 7.375% 5/15/11 (4)(5)
2017 Notes ...................... 99,823 (3)................... 99,826 (4) 99,818 (3) 625(4) 2,500 625 7.500% 12/01/17
2027 Notes ...................... 99,864 (3)................... 99,866 (4) 99,862 (3) 914(4) 2,701 914 7.150% 5/15/27 (5)(6)
2028 Notes ...................... 199,771 (3)................... 199,774 (4) 199,768 (3) 7,009(4) 3,209 7,051 7.600% 7/15/28
2011 Drs ........................ 99,777 (3)..................... 99,781 (4) 99,767 (3) 1,553(4) 3,178 1,553 6.500% (7)(8) 4/05/11 (6)(7)
---------- ---------- -------- ---------------------- ------------ ------------
Total ................................................. $ 948,641948,666 $ 948,595 $ 13,75823,427 $ 13,800
========== ========== ======== ====================== ============ ============
ACQUISITION FACILITY PAYABLE
1997 Unsecured Acquisition
Facility.........................Facility.................... $ 158,10095,600 $ 134,800 $ 802793 $ 690 5.860%6.26% 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) At JuneSeptember 30, 1999, the Acquisition Mortgage Loan VI and the Acquisition
Mortgage Loan VII are net of unamortized premiums of $62$59 and $78,$71,
respectively. At December 31, 1998, the Acquisition Mortgage loan VI and
the Acquisition Mortgage loan VII are net of amoritized premiums of $68 and
$100, respectively.
(3) The Acquisition Mortgage Loan VIII was paid off and retired on August 2,
1999.
(4) At JuneSeptember 30, 1999, the 2007 Notes, 2011 Notes, 2017 Notes, 2027 Notes,
2028 Notes and the 2011 Drs. are net of unamortized discounts of $41, $553,
$177, $136, $229$40, $541,
$174, $134, $226 and $223,$219, respectively. At December 31, 1998, the 2007
Notes, 2011 Notes, 2017 Notes, 2027 Notes, 2028 Notes and the 2011 Drs. are
net of unamortizedunamoritized discounts of $44, $576, $182, $138, $232 and $233,
respectively.
(4)(5) The 2011 Notes are redeemable at the option of the holder thereof, on May
15, 2004.
(5)(6) The 2027 Notes are redeemable at the option of the holders thereof, on May
15, 2002.
(6)(7) The 2011 Drs. are required to be redeemed by the Operating Partnership on
April 5, 2001 if the Remarketing Dealer elects not to remarket the 2011
Drs.
(7)(8) The 2011 Drs. bear interest at an annual rate of 6.50% to the Remarketing
Date. If the holder of the Call Option calls the 2011 Drs. and elects to
remarket the 2011 Drs., then after the Remarketing Date, the interest rate
on the 2011 Drs. will be reset at a fixed rate until April 5, 2011 based on
a predetermined formula as disclosed in the related Prospectus Supplement.
10
12
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR UNIT AND PER UNIT DATA)
6. MORTGAGE LOANS, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION FACILITY
PAYABLE, CONTINUED
The following is a schedule of the stated maturities and scheduled
principleprincipal payments of the mortgage loans, senior unsecured debt and acquisition
facility payable for the next five years ending December 31, and thereafter:
Amount
--------------
Remainder of 1999 $ 903
2000 1,901
2001 160,164
2002 3,463
2003 36,620
Thereafter 969,403
--------------
Total $ 1,172,454Amount
--------------
Remainder of 1999 $ 389
2000 1,788
2001 97,541
2002 3,329
2003 36,474
Thereafter 968,683
==============
Total $ 1,108,204
==============
The maturity date of the LB Mortgage Loan II is based on a contingent
event. As a result, this loan is not included in the preceding table.
10
12
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR UNIT AND PER UNIT DATA)
7. 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. 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 sixnine months ended JuneSeptember 30, 1999, the Company awarded 72,100
shares of restricted common stock to certain employees and 1,7762,595 shares of
restricted common stock to certain Directors. Other employees of the Company
converted certain in-the-money employee stock options to 2,641 shares of
restricted common stock. The Operating Partnership issued Units to the Company
in the same amount. These shares of restricted common stock had a fair value of
approximately $2,001$2,024 on the date of grant. The restricted common stock vests
over periods from five to ten years. Compensation expense will be charged to
earnings over the respective vesting period.
During the sixnine months ended JuneSeptember 30, 1999, the Operating Partnership
issued 1,034,0671,041,567 non-qualified employee stock options to certain officers,
Directors and employees of the Operating Partnership. These non-qualified
employee stock options vest over one year and have a strike price of $25.13 -
$27.69 per share and expire ten years from the date of grant.
Distributions:
On January 18, 1999, the Operating Partnership paid a fourth quarter 1998
distribution of $.60 per Unit, totaling approximately $27,081. On April 19,
1999, the Operating Partnership paid a first quarter 1999 distribution of $.60
per unit,Unit, totaling approximately $27,157. On July 19, 1999, the Operating
Partnership paid a second quarter 1999 distribution of $.60 per Unit, totaling
approximately $27,157. On October 18, 1999, the Operating Partnership paid a
third quarter distribution of $.60 per Unit, totaling approximately $27,157.
11
13
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR UNIT AND PER UNIT DATA)
7. PARTNERS' CAPITAL, CONTINUED
On March 31, 1999, the Operating Partnership paid a first quarter 1999
distribution of $54.688 per unit on its Series B Cumulative Preferred Units,
$53.906 per unit on its Series C Cumulative Preferred Units, $49.687 per unit on
its Series D Cumulative Preferred Units and $49.375 per unit on its Series E
Cumulative Preferred Units. The preferred unit distributions paid on March 31,
1999 totaled, in the aggregate, approximately $7,231.
On June 30, 1999, the Operating Partnership paid a second quarter 1999
distribution of $54.688 per unit on its Series B Cumulative Preferred Units,
$53.906 per unit on its Series C Cumulative Preferred Units, $49.687 per unit on
its Series D Cumulative Preferred Units and $49.375 per unit on its Series E
Cumulative Preferred Units. The preferred unit distributions paid on June 30,
1999 totaled, in the aggregate, approximately $7,231.
On September 30, 1999, the Operating Partnership paid a third quarter 1999
distribution of $54.688 per unit on its Series B Cumulative Preferred Units,
$53.906 per unit on its Series C Cumulative Preferred Units, $49.687 per unit on
its Series D Cumulative Preferred Units and $49.375 per unit on its Series E
Cumulative Preferred Units. The preferred unit distributions paid on September
30, 1999 totaled, in the aggregate, approximately $7,231.
8. ACQUISITION OF REAL ESTATE
During the sixnine months ended JuneSeptember 30, 1999, the Consolidated Operating
Partnership acquired three15 existing industrial properties and several land parcels.
The aggregate purchase price for these acquisitions totaled approximately
$16,484,$56,840, excluding costs incurred in conjunction with the acquisition of the
properties.
11properties and land parcels. Approximately $32,411 of the aggregate purchase
price of these acquisitions was paid to First Industrial Development Services,
L.P. (the Consolidated Operating Partnership acquired 10 industrial properties
from First Industrial Development Services, L.P. at its approximate net book
value).
9. SALES OF REAL ESTATE
During the nine months ended September 30, 1999, the Consolidated Operating
Partnership sold 40 industrial properties and two land parcels. Gross proceeds
from these sales were approximately $140,400. Approximately $4,759 and $3,774 of
the gross proceeds from the sales of these properties was received from the
September 1998 Joint Venture and the Financing Partnership, respectively (the
Consolidated Operating Partnership sold two properties to the September 1998
Joint Venture and one property to the Financing Partnership, in each case, at
the Consolidated Operating Partnership's approximate net book value). The gain
on sales of real estate was approximately $9,904.
12
1314
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR UNIT AND PER UNIT DATA)
9. SALES OF REAL ESTATE
During the six months ended June 30, 1999, the Consolidated Operating
Partnership sold 24 existing industrial properties and one land parcel. Gross
proceeds from these sales were approximately $76,567. Approximately $4,759 of
the gross proceeds from the sales of these properties was received from the
September 1998 Joint Venture (the Consolidated Operating Partnership sold two
properties to the September 1998 Joint Venture at Consolidated Operating
Partnership's net book value). The gain on sales of real estate was
approximately $8,395.
10. SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
SixNine Months Ended
-------------------------------------
June--------------------------------
September 30, JuneSeptember 30,
1999 1998
---------------- ---------------------------- ------------
Interest paid, net of capitalized interest ............................................. $ 38,61048,659 $ 28,243
================ ================30,428
=========== ============
Interest capitalized.........................................capitalized.................................................. $ 2,4643,893 $ 1,907
================ ================2,628
=========== ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Distribution payable on Units................................Units......................................... $ 27,157 $ 23,553
================ ================23,735
=========== ============
EXCHANGE OF LIMITED PARTNERSHIP UNITS FOR GENERAL PARTNERSHIP UNITS:
Limited Partnership Units...................................Units............................................ $ (638) (3,929)(1,972) $ (5,065)
General Partnership Units................................... 638 3,929
---------------- ----------------Units............................................ 1,972 5,065
----------- ------------
$ ----- $ --
================ ================---
=========== ============
IN CONJUNCTION WITH THE PROPERTY ACQUISITIONS, THE FOLLOWING ASSETS
AND LIABILITIES WERE ASSUMED AND OPERATING PARTNERSHIP UNITS WERE
EXCHANGED:
Purchase of real estate ................................................................................... $ 16,48456,840 $ 373,500
Prepaid(Accrued)471,434
Accrued real estate taxes and security deposits .... (42) (3,520)...................... (101) (4,210)
Mortgage Loans............................................... -- (2,525)Loans........................................................ --- (5,029)
Operating Partnership Units.................................. -- (33,802)
---------------- ----------------Units........................................... --- (47,507)
----------- ------------
$ 16,44256,739 $ 333,653
================ ================414,688
=========== ============
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....................................estate............................................. $ 382,190
Tenant accounts receivable...................................receivable............................................ 3,017
Deferred rent receivable.....................................receivable.............................................. 4,689
Other assets.................................................assets.......................................................... 6,209
Accounts payable and accrued expenses........................expenses................................. (5,920)
Rents received in advance and security deposits..............deposits....................... (2,538)
----------------------------
Investments in other real estate partnerships......................... $ 387,647
------------
IN CONJUNCTION WITH THE CONTRIBUTION OF THREE PROPERTIES FROM THE OPERATING
PARTNERSHIP TO FIRST INDUSTRIAL SECURITIES, L.P. ON AUGUST 19, 1999, THE
FOLLOWING ASSETS AND LIABILITIES WERE CONTRIBUTED:
Investment in real estate, net........................................ $ 9,176
Tenant accounts receivable............................................ 2
Deferred rent receivable.............................................. 18
Accounts payable and accrued expenses................................. (73)
-----------
Investment in other real estate partnerships.................partnerships.......................... $ 387,647
================9,123
===========
1213
1415
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR UNIT AND PER UNIT DATA)
11. EARNINGS PER UNIT ("EPU")
Net income per weighted average UnitsUnit - Basic, is based on the weighted
average Units outstanding. Net Incomeincome 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:
SixNine Months Ended Three Months Ended
--------------------- -----------------------
June----------------------------- --------------------------------
September 30, JuneSeptember 30, JuneSeptember 30, JuneSeptember 30,
1999 1998 1999 1998
-------- -------- -------- ---------------------- ----------- ------------- ------------
Numerator:
Income Before Cumulative Effect of Change in
Accounting Principle ..............................Principle..................................... $ 61,439107,021 $ 47,44772,859 $ 33,43645,582 $ 23,28225,412
Less: Preferred Distributions ....................... (14,462) (12,228)Distributions.............................. (21,693) (19,458) (7,231) (7,230)
-------- -------- ------------------- ---------- ------------ -----------
Net Income Available to Unitholders Before Cumulative
Effect of Change in Accounting Principle - For Basic
and Diluted EPU ............. 46,977 35,219 26,205 16,052EPU.......................................... 85,328 53,401 38,351 18,182
Cumulative Effect of Change in Accounting Principle ......................................... --Principle........ --- (719) -- (719)
-------- -------- ----------- ---
----------- ---------- ------------ -----------
Net Income Available to Unitholders - For Basic and
Diluted EPU ...................................EPU.............................................. $ 46,97785,328 $ 34,50052,682 $ 26,20538,351 $ 15,333
======== ======== ========18,182
=========== ========== ============ ===========
Denominator:
Weighted Average Units - Basic ...................... 45,222 43,233 45,251 44,069Basic............................. 45,233 43,750 45,255 44,765
Effect of Dilutive Securities:
Employee Common Stock Options of the Company
that result in the issuance of general partnership units ................................. 118 338 151 264
-------- -------- --------units. 114 235 100 116
----------- ---------- ------------ -----------
Weighted Average Units - Diluted .................... 45,340 43,571 45,402 44,333
======== ======== ========Diluted........................... 45,347 43,985 45,355 44,881
=========== ========== ============ ===========
Basic EPU:EPS:
Net Income Available to Unitholders Before Cumulative
Effect of Change in Accounting Principle .........................................Principle................. $ 1.041.89 $ .811.22 $ .58.85 $ .36
======== ======== ========.41
=========== ========== ============ ===========
Cumulative Effect of Change in Accounting Principle .........................................Principle........ $ ----- $ (.02) $ ----- $ (.02)
======== ======== ========---
=========== ========== ============ ===========
Net Income Available to Unitholders .................Common Unitholders................. $ 1.041.89 $ .801.20 $ .58.85 $ .35
======== ======== ========.41
=========== ========== ============ ===========
Diluted EPU:EPS:
Net Income Available to Unitholders Before Cumulative
Effect of Change in Accounting Principle .........................................Principle................. $ 1.041.88 $ .811.21 $ .58.85 $ .36
======== ======== ========.41
=========== ========== ============ ===========
Cumulative Effect of Change in Accounting Principle ........................................Principle........ $ ----- $ (.02) $ ----- $ (.02)
======== ======== ========---
=========== ========== ============ ===========
Net Income Available to Unitholders .................Common Unitholders................. $ 1.041.88 $ .791.20 $ .58.85 $ .35
======== ======== ========.41
=========== ========== ============ ===========
1314
1516
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR UNIT AND PER UNIT DATA)
12. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Consolidated Operating Partnership is
involved in legal actions arising from the ownership of its properties. In
management's opinion, the liabilities, if any, that may ultimately result from
such legal actions are not expected to have a materially adverse effect on the
consolidated financial position, operations or liquidity of the Consolidated
Operating Partnership.
The Consolidated Operating Partnership has committed to the construction of
thirteen15 development projects totaling approximately 2.5 million square feet of GLA
for an estimated investment of approximately $83.4$116.5 million. Of this amount,
approximately $45.0$24.9 million remains to be funded. These developments are
expected to be funded with cash flow from operations, borrowings under the
Operating Partnership's $300,000 unsecured revolving credit facility and
proceeds from the sale of select properties.
13. SUBSEQUENT EVENTS
From JulyOctober 1, 1999, to August 4,November 6, 1999, the Consolidated Operating
Partnership acquired one land parcelthree industrial properties for an aggregate purchase price
of approximately $795,$9,835, excluding costs incurred in conjunction with the
acquisition of this land parcel.these industrial properties and sold one industrial property for
approximately $1,425 of gross proceeds.
On July 19,October 18, 1999, the Operating Partnership paid a secondthird quarter 1999
distribution of $.60 per Unit, totaling approximately $27,157.
1415
1617
FIRST INDUSTRIAL, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of First Industrial, L.P.'s (the
"Operating Partnership") financial condition and results of operations should be
read in conjunction with the financial statements and notes thereto appearing
elsewhere in this Form 10-Q.
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Operating Partnership intends
such forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and is including this statement for purposes of complying with
those safe harbor provisions. Forward-looking statements, which are based on
certain assumptions and describe future plans, strategies and expectations of
the Operating Partnership, are generally identifiable by use of the words
"believe," "expect," "intend," "anticipate," "estimate," "project," or similar
expressions. The Operating Partnership's ability to predict results or the
actual effect of future plans or strategies is inherently uncertain. Factors
which could have a material adverse affect on the operations and future
prospects of the Operating Partnership on a consolidated basis include, but are
not limited to, changes in: economic conditions generally and the real estate
market specifically, legislative/regulatory changes (including changes to laws
governing the taxation of REITs), availability of capital, interest rates,
competition, supply and demand for industrial properties in the Operating
Partnership's current and proposed market areas, general accounting principles,
policies and guidelines applicable to REITs and status of Year 2000 compliance.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further
information concerning the Operating Partnership and its business, including
additional factors that could materially affect the Operating Partnership's
financial results, is included herein and in the Operating Partnership's other
filings with the Securities and Exchange Commission.
The Operating Partnership was organized as a limited partnership in the
state of Delaware on November 23, 1993. The sole general partner of the
Operating Partnership is First Industrial Realty Trust, Inc. (the "Company")
with an approximate 84.1%84.2% ownership interest at JuneSeptember 30, 1999. 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 15.9%15.8% aggregate ownership interest at JuneSeptember 30, 1999.
The Operating Partnership is the sole member of 2324 limited liability
companies (the "L.L.C.s"), owns a 95% economic interest in FR Development
Services, Inc. as well as at least a 99% limited partnership interest (subject
in one case, as described below, to a preferred limited partnership interest) in
each of eight limited partnerships (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, and
the September 1998 Joint Venture and the September 1999 Joint
Venture (hereinafter defined) 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.
The general partners of the Other Real Estate Partnerships are separate
corporations, each with at least a one percent.01% general partnership interest in the
Other Real Estate Partnership for which it acts as a general partner. Each
general partner of the Other Real Estate Partnerships is a wholly owned
subsidiary of the Company. First Industrial Securities Corporation, the general
partner of one of the Other Real Estate Partnerships (First Industrial
Securities, L.P.), also owns a preferred limited partnership interest in the First
Industrial Securities L.P. 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%, $.01 par value,
Series A Cumulative Preferred Stock (the "Series A Preferred Stock").
16
18
Profits, losses and distributions of the Operating Partnership, the
L.L.C.s and the Other Real Estate Partnerships are allocated to the general
partner and the limited partners, or members, as applicable, in 15
17
accordance with
the provisions contained within the partnership agreements or operating
agreements, as applicable, of the Operating Partnership, the L.L.C.s and the
Other Real Estate Partnerships.
RESULTS OF OPERATIONS
At JuneSeptember 30, 1999, the Consolidated Operating Partnership owned 865855
in-service properties with approximately 55.654.0 million square feet of gross
leasable area ("GLA"), compared to 857900 in-service properties with approximately
56.258.0 million square feet of GLA at JuneSeptember 30, 1998. The addition of 6728
properties acquired or developed between JulyOctober 1, 1998 and JuneSeptember 30, 1999
included the acquisitions of 5818 properties totaling approximately 2.0.7 million
square feet of GLA and the completed development of nine10 properties totaling
approximately 1.2 million square feet of GLA. The Consolidated Operating
Partnership also sold 5868 in-service properties totaling approximately 3.75.3
million square feet of GLA and several land parcels. The Consolidated Operating
Partnership also took one
propertytwo properties out of service that waswere under
redevelopment comprising approximately .5 million square feet of GLA. In
addition, on August 19, 1999, the Operating Partnership distributed three
industrial properties compromising .1 million square feet of GLA.GLA to First
Industrial Securities, L.P.
COMPARISON OF SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 1999 TO SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, 1998
Rental income and tenant recoveries and other income increased by
approximately $23.7$25.4 million or 17.4%11.9% due primarily to the properties acquired or
developed after December 31, 1997 and general rent increases, offset by a
decrease in rental income and tenant recoveries and other income due to
properties sold subsequent to December 31, 1997. Approximately $1.2$1.8 million of
this increase is also due to acquisition, asset management and property
management fees received from the September 1998 Joint Venture.Venture and the September
1999 Joint Venture (hereinafter defined). Revenues from properties owned prior
to January 1, 1998, increased by approximately $5.3$5.8 million or 4.7%3.6% due
primarily to rental rate increases and an increase in recoverable income related
to an increase in recoverable property expenses as discussed below.
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses,
increased by approximately $4.7$2.2 million or 11.5%3.4% due primarily to an increase in
real estate taxes, repairs and maintenance and utilities expense due to the
properties acquired or developed after December 31, 1997, offset by a decrease
in property management fees due to a decrease in the operational costs of the
regional offices that manage the properties, as well as a decrease in insurance and other
expenses.expenses and a decrease in property expenses due to properties sold subsequent
to December 31, 1997. The majority of the variance in other expense is due to an
increase in the allowance for doubtful accounts between January 1, 1998 and
September 30, 1998. Expenses from properties owned prior to January 1, 1998,
increased by approximately $1.8.8 million or 5.5%1.7% due primarily to an increase in
snow removal and related expenses incurred during the sixnine months ended
JuneSeptember 30, 1999 as compared to the sixnine months ended JuneSeptember 30, 1998 for
properties located in certain of the Consolidated Operating Partnership's
metropolitan areas as well as an increase in real estate tax expense in the
majority of the Consolidated Operating Partnership's geographical markets.
General and administrative expense increased by approximately $.5 million
due primarily to the adoption of Emerging Issues Task Force Issue No. 97-11,
"Accounting for Internal Costs Relating to Real Estate Acquisitions" ("EITF
97-11"). EITF 97-11, effective March 19, 1998, requires that internal costs of
preacquisition activities incurred in connection with the acquisition of an
operating property be expensed as incurred. Prior to March 19, 1998, the
Consolidated Operating Partnership capitalized internal costs of preacquisition
activities incurred in connection with the acquisition of operating properties.remained relatively unchanged.
Interest expense increased by approximately $8.2$8.9 million for the sixnine
months ended JuneSeptember 30, 1999 compared to the sixnine months ended JuneSeptember 30,
1998 due primarily to a higher average debt balance outstanding resulting from
the issuance of senior unsecured debt to fund the acquisition and development of
additional properties, slightly offset by an increase in capitalized interest
due to an increase in development activities. The average debt balances
outstanding for the sixnine months ended JuneSeptember 30, 1999 and 1998 were
approximately $1.2$1.15 billion and $.9$.96 billion, respectively.
Amortization of deferred financing costs increased by approximately $.2$.3
million due primarily to additional amortization of deferred financing costs related to the
issuance of additional senior unsecured debt to fund the acquisition and
development of additional properties.
17
19
Depreciation and other amortization increased by approximately $3.6$3.7
million due primarily to the additional depreciation and amortization related to
the properties acquired or developed after December 31, 1997.
Equity in income of Other Real Estate Partnerships decreasedincreased by
approximately $1.1$14.2 million or 66.0% due primarily to a decreasean increase in gain on
sales of real estate offset by additional income from properties purchased subsequentfor the nine months ended September 30, 1999 as compared to
December 31, 1997, the nine months ended September 30, 1998. Also, during the nine months ended
September 30, 1998, the Other Real Estate Partnerships recognized an expense of
approximately $1.3 million to write off in the second quarter of 1998 of the
unamoritized
16
18unamortized balance of
organizational costs on the Other Real Estate Partnerships' balance
sheet due to the adoption of Statement of Position 98-5
"Reporting on the Costs of Start-Up Activities" (discussed below) and general rent increases.. During the
sixnine months ended JuneSeptember 30, 1999, the Other Real Estate Partnerships sold one10
industrial property.properties for a gain of approximately $15.4 million. During the sixnine
months ended JuneSeptember 30, 1998, the Other Real Estate Partnerships sold five
industrial properties and one land parcel for a gain of approximately $2.3$2.4 million.
Equity in income of joint ventureventures of approximately $.2$.4 million for the
sixnine months ended JuneSeptember 30, 1999 represents the Consolidated Operating
Partnership's 10% incomeequity interest in the September 1998 Joint Venture.Venture and the
September 1999 Joint Venture (hereinafter defined).
The $8.4$9.9 million gain on sales of properties for the sixnine months ended
JuneSeptember 30, 1999 resulted from the sale of 2440 industrial properties and two
land parcels. Gross proceeds from these sales were approximately $140.4 million.
Approximately $4.8 million and $3.8 million of the gross proceeds from the sales
of these properties was received from the September 1998 Joint Venture and the
Financing Partnership, respectively (the Consolidated Operating Partnership sold
two properties to the September 1998 Joint Venture and one property to the
Financing Partnership, in each case, at the Consolidated Operating Partnership's
approximate net book value).
The $.7 million gain on sales of properties for the nine months ended
September 30, 1998 resulted from the sale of seven existing industrial
properties and one land parcel. Gross proceeds from these sales were
approximately $76.6 million.
The $.1 million gain on sales of properties for the six months ended June
30, 1998 resulted from the sale of two existing industrial properties and one
land parcel. Gross proceeds from these sales were approximately $7.1$13.5 million.
The $.7 million cumulative effect of change in accounting principle for
the sixnine months ended JuneSeptember 30, 1998 is the result of the write off of the
unamoritizedunamortized 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"). SOP 98-5 requires that the
net unamoritizedunamortized balance of all start-up costs and organizational costs be
written off as a cumulative effect of a change in accounting principle and all
future start-up costs and organizational costs be expensed.
COMPARISON OF THREE MONTHS ENDED JUNESEPTEMBER 30, 1999 TO THREE MONTHS ENDED
JUNESEPTEMBER 30, 1998
Rental income and tenant recoveries and other income increased by
approximately $5.8$1.7 million or 8.0%2.2% due primarily to thegeneral rent increases,
offset by a decrease in rental income and tenant recoveries and other income due
to properties acquired or
developed after March 31,sold subsequent to June 30, 1998. Approximately $.5 million of
this increase is due to acquisition, asset management and property management
fees received from the September 1998 Joint Venture.Venture and the September 1999 Joint
Venture (hereinafter defined). Revenues from properties owned prior to AprilJuly 1,
1998, increased by approximately $2.2$1.6 million or 3.5%2.6% due primarily to rental
rate increases and an increase in recoverable income related to an increase in
recoverable property expenses as discussed below.other income.
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses
remained relatively unchanged (real estate taxes and repairs and maintenance
expense increaseddecreased by approximately $2.5 million or 11.1% due primarily to the properties acquired or developed after
March 31, 1998, offset almost in its entirety by a decrease in
property management fees due to a decrease in the operational costs of the
regional offices that manage the properties as well asand a decrease in other expenses).property expenses
due to properties sold subsequent to June 30, 1998. Expenses from properties
owned prior to AprilJuly 1, 1998, increaseddecreased by approximately $.2$.7 million or 1.4%3.7% due
primarily to an increasea decrease in real estate tax expense, repairs and maintenance and
utilities expense in the majority of the Consolidated Operating Partnership's
geographical markets.
General and administrative expense remained relatively unchanged.
18
20
Interest expense increased by approximately $2.9$.7 million for the three
months ended JuneSeptember 30, 1999 compared to the three months ended JuneSeptember 30,
1998 due primarily to a higher average debt balance outstanding resulting from
the issuance of senior unsecured debt to fund the acquisition and development of
additional properties, slightly offset by an increase in capitalized interest
due to an increase in development activities. The average debt balances
outstanding for the three months ended JuneSeptember 30, 1999 and 1998 were
approximately $1.2$1.14 billion and $1.0$1.09 billion, respectively.
Amortization of deferred financing costs increased by approximately $.1
million due primarily to additional amortization of deferred financing costs
related to the issuance of additional senior unsecured debt to fund the
acquisition and development of additional properties.remained relatively unchanged.
Depreciation and other amortization increased by approximately $.7 million
due primarily to the additional depreciation and amortization related to the
properties acquired after March 31, 1998.
17
19remained relatively unchanged.
Equity in income of Other Real Estate Partnerships increased by
approximately $1.2$15.3 million or 205.6% due primarily to additional income from properties
acquired subsequentan increase in gain on
sales of real estate for the three months ended September 30, 1999 as compared
to March 31, 1998, the write off inthree months ended September 30, 1998. During the second quarter of
1998 of the unamoritized balance of organizational costs onthree months ended
September 30, 1999, the Other Real Estate Partnerships' balance sheet due toPartnerships sold 10 industrial
properties for a gain of approximately $15.4 million. During the adoptionthree months
ended September 30, 1998, the Other Real Estate Partnerships sold two land
parcels for a gain of Statement of Position
98-5 "Reporting on the Costs of Start-Up Activities" (discussed below) and
general rent increases.approximately $.1 million.
Equity in income of joint ventureventures of approximately $.1 million for the
three months ended JuneSeptember 30, 1999 represents the Consolidated Operating
Partnership's 10% incomeequity interest in the September 1998 Joint Venture and the
September 1999 Joint Venture.
The $6.9$1.5 million gain on sales of properties for the three months ended
JuneSeptember 30, 1999 resulted from the sale of 14 existing16 industrial properties.properties and one
land parcel. Gross proceeds from these sales were approximately $52.7$63.8 million.
Approximately $3.8 million of the gross proceeds from the sales of these
properties was received from the Financing Partnership (the Consolidated
Operating Partnership sold one property to the Financing Partnership at the
Consolidated Operating Partnership's approximate net book value).
The $.1$.6 million gain on sales of properties for the three months ended
JuneSeptember 30, 1998 resulted from the sale of onefive existing industrial
property.properties. Gross proceeds from this sale was approximately $5.3$6.4 million.
The $.7 million cumulative effect of change in accounting principle for
the three months ended June 30, 1998 is the result of the write off the
unamoritized balance of organizational costs on the Operating Partnership's
balance sheet due to the early adoption of SOP 98-5, as discussed earlier in
this Management's Discussion and Analysis of Financial Condition and Results of
Operations.
LIQUIDITY AND CAPITAL RESOURCES
On JuneSeptember 30, 1999, the Consolidated Operating Partnership's cash and cash
equivalents was approximately $.7 million and restricted
cash totaled approximately $35.6$12.4 million. Restricted cash was comprised of gross
proceeds from the sales of certain properties. These sales proceeds will be
disbursed as the Operating Partnership exchanges into properties under Section
1031 of the Internal Revenue Code.
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 1999
Net cash provided by operating activities of approximately $56.7$140.8 million
for the sixnine months ended JuneSeptember 30, 1999 was comprised primarily of net
income of approximately $61.4$107.0 million, and adjustments for non-cash items of approximately
$6.0 million, offset by the net change in operating assets and
liabilities of approximately $10.7$2.3 million and adjustments for non-cash items of
approximately $31.5 million. The adjustments for the non-cash items of
approximately $31.5 million are primarily comprised of depreciation and
amortization of $44.5 million, distributions from the September 1998 Joint
Venture of $.4 million and distributions from Other Real Estate Partnerships of
$35.7 million, offset by equity in income of Other Real Estate Partnerships of
$35.7 million, equity in income of the September 1998 Joint Venture and the
September 1999 Joint Venture (hereinafter defined) of $.4 million, the gain on
sales of real estate of $9.9 million and the effect of the straight-lining of
rental income.income of $3.1 million.
Net cash used in investing activities of approximately $23.1$13.1 million for
the sixnine months ended JuneSeptember 30, 1999 was comprised primarily of the
acquisition of real estate, development of real estate, capital expenditures
related to the expansion and improvement of existing real estate, closing costs from the sales
of real estate, contributions
to
investment19
21
and investments in Other Real Estate Partnerships, contributions to and
investments in the September 1998 Joint Venture and the September 1999 Joint
Venture and an increase in restricted cash from sales proceeds deposited with an
intermediary for Section 1031 exchange purposes, offset by distributions from
investment in Other Real Estate Partnerships, distributions from investment in
the September 1998 Joint Venture, net proceeds from the sales of real estate and
the repayment of mortgage loans receivable.
Net cash used in financing activities of approximately $46.8$141.7 million for
the sixnine months ended JuneSeptember 30, 1999 was comprised primarily of Unit
(defined below) and preferred general partnership unit distributions, repayments
on mortgage loans payable, and debt issuance costs offset by Unit contributions and net borrowingsrepayments under the
Operating Partnership's $300.0 million unsecured revolving credit facility (the
"1997 Unsecured Acquisition Facility").
SIX, offset by Unit contributions and a book
overdraft.
NINE MONTHS ENDED JUNESEPTEMBER 30, 1998
Net cash provided by operating activities of approximately $46.1$108.7 million
for the sixnine months ended JuneSeptember 30, 1998 was comprised primarily of net
income of approximately $46.7$72.1 million, adjustments for non-cash items of
approximately $11.3$34.0 million offset byand the net change in operating assets and
liabilities of 18
20
approximately $11.9$2.6 million. The adjustmentsadjustment for the non-cash items
of approximately $34.0 million are primarily comprised of depreciation and
amortization of $40.9 million, provision for bad debts of $.6 million,
distributions from Other Real Estate Partnerships of $16.3 million and
cumulative effect of change in accounting principle of $.7 million, offset by
equity in income of Other Real Estate Partnerships of $21.4 million, the gain on
sales of real estate of $.7 million and the effect of the straight-lining of
rental income.income of $2.4 million.
Net cash used in investing activities of approximately $419.9$536.6 million for
the sixnine months ended JuneSeptember 30, 1998 was comprised primarily of the
acquisition of real estate, development of real estate, capital expenditures
related to the expansion and improvement of existing real estate, closing costs from the sales
of real estate and contributions
to investmentand investments in Other Real Estate Partnerships and an increase in
restricted cash due to a Section 1031 exchange, offset by the net proceeds from
sales of real estate distributions
from investment in Other Real Estate Partnerships and the repayment of mortgage loans receivable.
Net cash provided by financing activities of approximately $369.5$425.5 million
for the sixnine months ended JuneSeptember 30, 1998 was comprised primarily of
preferred general partnership unit contributions and the net borrowings from the
issuance of senior unsecured debt, offset by net repayments under the Operating
Partnership's 1997 Unsecured Acquisition Facility, Unit (defined below) and
preferred general partnership unit distributions and repayments on mortgage
loans payable.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges and preferred unit distributions
was 1.641.84 for the sixnine months ended JuneSeptember 30, 1999 compared to 1.741.69 for the
sixnine months ended JuneSeptember 30, 1998. The decreaseincrease is primarily due to an
increase in net operating income and equity in income of Other Real Estate
Partnerships as discussed in "Results of Operations" above, which is partially
offset by additional interest expense and preferred general partnership unit
distributions incurred during the sixnine months ended JuneSeptember 30, 1999 from
additional debt issued and preferred general partner contributions,
respectively, issued after December 31, 1997 to fund property acquisitions and
developments, which is partially offset by higher net
operating income from property acquisitions as discussedwell as an increase in "Results of
Operations" above.capitalized interest due to an increase
in development activity.
MARKET RISK
The following discussion about the Consolidated Operating Partnership's
risk-management activities includes "forward-looking statements" that involve
risk and uncertainties. Actual results could differ materially from those
projected in the forward-looking statements.
This analysis presents the hypothetical gain or loss in earnings, cash
flows or fair value of the financial instruments and derivative instruments
which are held by the Consolidated Operating
20
22
Partnership at JuneSeptember 30, 1999 that are sensitive to changes in the interest
rates. While this analysis may have some use as a benchmark, it should not be
viewed as a forecast.
In the normal course of business, the Consolidated Operating Partnership
also faces risks that are either non-financial or non-quantifiable. Such risks
principally include credit risk and legal risk and are not represented in the
following analysis.
At JuneSeptember 30, 1999, $158.1$95.6 million (approximately 13%8.6% of total debt at
JuneSeptember 30, 1999) of the Consolidated Operating Partnership's debt was
variable rate debt (all of the variable rate debt relates to the Operating
Partnership's 1997 Unsecured Acquisition Facility) and $1,013.8$1,012.0 million
(approximately 87%91.4% of total debt at JuneSeptember 30, 1999) was fixed rate debt.
The Consolidated Operating Partnership also had outstanding a written put and a
written call option (collectively, the "Written Options") which were issued in
conjunction with the initial offering of two tranches of senior unsecured debt.
The Consolidated Operating Partnership's past practice has been to lock into
fixed interest rates at issuance or fix the rate of variable rate debt through
the use of interest rate protection agreements when interest rate market
conditions dictate it is advantageous to do so. Currently, the Consolidated
Operating Partnership does not enter into financial instruments for trading or
other speculative purposes.
For fixed rate debt, changes in interest rates generally affect the fair
value of the debt, but not earnings or cash flows of the Consolidated Operating
Partnership. Conversely, for variable rate debt, changes in the interest rate
generally do not impact the fair value of the debt, but would affect the
Consolidated Operating Partnership's future earnings and cash flows. The
interest rate risk and changes in fair market value of fixed rate debt generally
do not have a significant impact on the Consolidated 19
21
Operating Partnership until
the Consolidated Operating Partnership is required to refinance such debt. See
Note 6 to the consolidated financial statements for a discussion of the maturity
dates of the Consolidated Operating Partnership's various fixed rate debt.
Based upon the amount of variable rate debt outstanding at JuneSeptember 30,
1999, a 10% increase or decrease in the interest rate on the Consolidated
Operating Partnership's variable rate debt would decrease or increase,
respectively, future net income and cash flows by approximately $.9$.6 million per
year. A 10% increase in interest rates would decrease the fair value of the
fixed rate debt at JuneSeptember 30, 1999 by approximately $50.8$47.8 million to $936.7$907.7
million. A 10% decrease in interest rates would increase the fair value of the
fixed rate debt at JuneSeptember 30, 1999 by approximately $56.4$56.2 million to $1,043.9$1,011.7
million. A 10% increase in interest rates would decrease the fair value of the
Written Options at JuneSeptember 30, 1999 by approximately $2.5$1.4 million to $3.2$2.5
million. A 10% decrease in interest rates would increase the fair value of the
Written Options at JuneSeptember 30, 1999 by approximately $3.4$2.2 million to $9.1$6.1
million.
INVESTMENT IN REAL ESTATE, DEVELOPMENT OF REAL ESTATE AND SALES OF REAL ESTATE
During the sixnine months ended JuneSeptember 30, 1999, the Consolidated
Operating Partnership acquired three15 existing industrial properties and several
land parcels. The aggregate purchase price for these acquisitions totaled
approximately $16.5$56.8 million, excluding costs incurred in conjunction with the
acquisition of the properties.properties and land parcels. Approximately $32.4 million of
the aggregate purchase price of these acquisitions was paid to First Industrial
Development Services, L.P. (the Consolidated Operating Partnership acquired 10
industrial properties from First Industrial Development Services, L.P. at its
approximate net book value).
The Consolidated Operating Partnership has committed to the construction
of thirteen15 development projects totaling approximately 2.5 million square feet of GLA
for an estimated investment of approximately $83.4$116.5 million. Of this amount,
approximately $45.0$24.9 million remains to be funded. These developments are
expected to be funded with cash flow from operations, borrowings under the
Operating Partnership's 1997 Unsecured Acquisition Facility and proceeds from
the sale of select properties.
During the sixnine months ended JuneSeptember 30, 1999, the Consolidated
Operating Partnership sold 24 existing40 industrial properties and onetwo land parcel.parcels. Gross
proceeds from these sales were approximately $76.6$140.4 million. Approximately $4.8
and $3.8 million of the gross proceeds from the sales of these properties was
received from the September 1998 Joint Venture and the Financing Partnership,
respectively
21
23
(the Consolidated Operating Partnership sold two properties to the September
1998 Joint Venture and one property to the Financing Partnership, in each case,
at the Consolidated Operating Partnership's approximate net book value).
From JulyOctober 1, 1999 to August 4,November 6, 1999, the Consolidated Operating
Partnership acquired one land parcelthree industrial properties for an aggregate purchase price
of approximately $.8$9.8 million, excluding costs incurred in conjunction with the
acquisition of this land parcel.these industrial properties and sold one industrial property for
approximately $1.4 million of gross proceeds.
REAL ESTATE HELD FOR SALE
The Consolidated Operating Partnership has an active sales program through
which it is continually engaged in identifying and evaluating its current
portfolio for potential sales candidates in order to redeploy capital. At
JuneSeptember 30, 1999, the Consolidated Operating Partnership had four industrial
properties comprising approximately 1.2.9 million square feet of GLA held for sale.
Net income (defined as total property revenues, less property expenses, which
include real estate taxes, repairs and maintenance, property management,
utilities, insurance and other expenses, and depreciation and amortization) of
the industrial properties held for sale for the sixnine months ended JuneSeptember 30,
1999 and 1998 is approximately $1.5$1.9 million and $.6$1.2 million, respectively. Net
carrying value of the four industrial properties held for sale at JuneSeptember 30,
1999 is approximately $16.0$20.8 million. ThreeTwo of four of these industrial properties
were identified as held for sale during the three months ended JuneSeptember 30,
1999. There can be no assurance that such properties held for sale will be sold.
INVESTMENT IN JOINT VENTURE
During the sixnine months ended JuneSeptember 30, 1999, the Operating
Partnership, through a wholly owned limited liability company in which it is the
sole member, contributed approximately $.7$.8 million to and received distributions
of approximately $.4$.6 million from the September 1998 Joint Venture. As of
JuneSeptember 30, 1999, the September 1998 Joint Venture owned 146 industrial
properties comprising approximately 7.5 million square feet of GLA.
20On September 2, 1999, the Consolidated Operating Partnership, through a
wholly-owned limited liability company in which the Operating Partnership is its
sole member, entered into another joint venture arrangement (the "September 1999
Joint Venture") with an institutional investor to invest in industrial
properties. The Consolidated Operating Partnership, through wholly-owned limited
liability companies in which the Operating Partnership is the sole member, owns
a 10% equity interest in the September 1999 Joint Venture and provides property
and asset management services to the September 1999 Joint Venture. On or after
October 2001, under certain circumstances, the Consolidated Operating
Partnership has the option of purchasing all the properties owned by the
September 1999 Joint Venture at a price to be determined in the future. The
Consolidated Operating Partnership received approximately $.9 million, (net of
the intercompany elimination) in acquisition, asset management and property
management fees in 1999 from the September 1999 Joint Venture. The Operating
Partnership, through a wholly owned limited liability company in which it is the
sole member, also invested approximately $1.8 million in the September 1999
Joint Venture. The Consolidated Operating Partnership accounts for the September
1999 Joint Venture under the equity method of accounting. As of September 30,
1999, the September 1999 Joint Venture owned 39 industrial properties
compromising approximately 1.2 million square feet of GLA.
MORTGAGE LOANS
On November 5, 1998, the Consolidated Operating Partnership, through the
Operating Partnership, assumed a mortgage loan in the principal amount of $1.3
million (the "Acquisition Mortgage Loan VIII"). The Acquisition Mortgage Loan
VIII was collateralized by three properties in Richland Hills, Texas, bore
interest at a fixed rate of 8.45% and provided for monthly principal and
interest payments based on a 143-month amortization schedule. On August 2, 1999,
the Consolidated Operating Partnership paid off and retired the Acquisition
Mortgage Loan VIII.
22
2224
GENERAL PARTNERSHIP, LIMITED PARTNERSHIP AND PREFERRED GENERAL PARTNERSHIP UNIT
CONTRIBUTIONS
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. 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 sixnine months ended JuneSeptember 30, 1999, the Company awarded
72,100 shares of restricted common stock to certain employees and 1,7762,595 shares
of restricted common stock to certain Directors. Other employees of the Company
converted certain in-the-money employee stock options to 2,641 shares of
restricted common stock. The Operating Partnership issued Units to the Company
in the same amount. These shares of restricted common stock had a fair value of
approximately $2.0 million on the date of grant. The restricted common stock
vests over periods from five to ten years. Compensation expense will be charged
to earnings over the respective vesting period.
During the sixnine months ended June 30,1999,September 30, 1999, the Company issued
1,034,0671,041,567 non-qualified employee stock options to certain officers, Directors
and employees of the Operating Partnership. These non-qualified employee stock
options vest over one year and have a strike price of $25.13 - $27.69 per share
and expire ten years from the date of grant.
DISTRIBUTIONS
On January 18, 1999, the Operating Partnership paid a fourth quarter 1998
distribution of $.60 per Unit, totaling approximately $27.1 million. On April
19, 1999, the Operating Partnership paid a first quarter 1999 distribution of
$.60 per Unit, totaling approximately $27.2 million. On July 19, 1999, the
Operating Partnership paid a second quarter 1999 distribution of $.60 per Unit,
totaling approximately $27.2 million. On October 18, 1999, the Operating
Partnership paid a third quarter 1999 distribution of $.60 per Unit, totaling
approximately $27.2 million.
On March 31, 1999, the Operating Partnership paid a first quarter 1999
distribution of $54.688 per unit on its Series B Cumulative Preferred Units,
$53.906 per unit on its Series C Cumulative Preferred Units, $49.687 per unit on
its Series D Cumulative Preferred Units and $49.375 per unit on its Series E
Cumulative Preferred Units. The preferred unit distributions paid on March 31,
1999 totaled, in the aggregate, approximately $7.2 million.
On June 30, 1999, the Operating Partnership paid a second quarter 1999
distribution of $54.688 per unit on its Series B Cumulative Preferred Units,
$53.906 per unit on its Series C Cumulative Preferred Units, $49.687 per unit on
its Series D Cumulative Preferred Units and $49.375 per unit on its Series E
Cumulative Preferred Units. The preferred unit distributions paid on June 30,
1999 totaled, in the aggregate, approximately $7.2 million.
On September 30, 1999, the Operating Partnership paid a third quarter 1999
distribution of $54.688 per unit on its Series B Cumulative Preferred Units,
$53.906 per unit on its Series C Cumulative Preferred Units, $49.687 per unit on
its Series D Cumulative Preferred Units and $49.375 per unit on its Series E
Cumulative Preferred Units. The preferred unit distributions paid on September
30,1999 totaled, in the aggregate, approximately $7.2 million.
SHORT-TERM AND LONG-TERM LIQUIDITY NEEDS
The Consolidated Operating Partnership has considered its short-term (one
year or less) liquidity needs and the adequacy of its estimated cash flow from
operations and other expected liquidity sources to
23
25
meet these needs. The Consolidated 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
Consolidated Operating Partnership anticipates that these needs will be met with
cash flows provided by operating activities.
21
23
The Consolidated 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 nonrecurring capital
improvements through disposition of select assets, long-term secured and
unsecured indebtedness and the issuance of additional Units and preferred units.
The Consolidated Operating Partnership is also actively considering joint
ventures with institutional partners and the disposition of select assets as an additional financing strategies.strategy. As of
JuneSeptember 30, 1999 and August 4,November 6, 1999, $100.0 million of debt securities was
registered and unissued under the Securities Act of 1933, as amended. The
Consolidated Operating Partnership may finance the development or acquisition of
additional properties through borrowings under the Operating Partnership's 1997
Unsecured Acquisition Facility. At JuneSeptember 30, 1999, borrowings under the
Operating Partnership's 1997 Unsecured Acquisition Facility bore interest at a
weighted average interest rate of 5.8%6.26%. As of August 4,November 6, 1999, the Operating
Partnership had approximately $115.2$180.2 million available for additional borrowings
under the 1997 Unsecured Acquisition Facility.
YEAR 2000 COMPLIANCE
The Year 2000 compliance issue concerns the inability of computerized
information systems and non-information systems to accurately calculate, store
or use a date after 1999. This could result in computer systems failures or
miscalculations causing disruptions of operations. The Year 2000 issue affects
almost all companies and organizations.
The Consolidated Operating Partnership has discussed its software
applications and internal operational programs with its current information
systems' vendor and, based on such discussions, believes that such applications
and programs will properly recognize calendar dates beginning in the year 2000.
The Consolidated Operating Partnership is discussing with its material
third-party service providers, such as its banks, payroll processor and
telecommunications provider, their Year 2000 compliance and is assessing what
effect their possible non-compliance might have on the Consolidated Operating
Partnership. In addition, the Consolidated Operating Partnership is discussing
with its material vendors the possibility of any interface difficulties and/or
electrical or mechanical problems relating to the year 2000 which may affect
properties owned by the Consolidated Operating Partnership. The Consolidated
Operating Partnership has also surveyed substantially all of its tenants to
determine the status of their Year 2000 compliance and what effect their
possible non-compliance might have on the Consolidated Operating Partnership.
The Consolidated Operating Partnership is currently processing the information
obtained from such tenant surveys and remains in discussions with its material
vendors and third-party service providers. As of JuneSeptember 30, 1999, tenants
representing 36%53.7% of annual base rent of the Consolidated Operating Partnership
have replied. Of the tenant surveys received as of JuneSeptember 30, 1999, all have
stated that they are Year 2000 compliant or will be Year 2000 compliant by the
end of 1999. The Consolidated Operating Partnership is still seeking
confirmation of Year 2000 compliance from the tenants who have not yet responded
to the tenant survey. Until such time the Consolidated Operating Partnership
cannot estimate any potential adverse impact resulting from the failure of
tenants, vendors or third-party service providers to address their Year 2000
issues; however, to date, no significant Year 2000-related conditions have been
identified.
Because the Consolidated Operating Partnership's evaluation of its Year
2000 issues has been conducted by its own personnel or by its vendors in
connection with their servicing operations, the Consolidated Operating
Partnership believes that its expenditures for assessing its Year 2000 issues,
though difficult to quantify, to date have not been material. In addition, the
Consolidated Operating Partnership is not aware of any Year 2000-related
conditions that it believes would likely require any material expenditures by
the Consolidated Operating Partnership in the future.
24
26
Based on its current information, the Consolidated Operating Partnership
believes that the risk posed by any foreseeable Year 2000-related problem with
its internal systems and the systems at its properties (including both
information and non-information systems) or with its vendors or tenants is
minimal. The Consolidated Operating Partnership believes that Year 2000-related
problems with the Consolidated Operating Partnership's software applications and
internal operational programs or with the electrical or mechanical systems at
its properties are unlikely to cause more than minor disruptions in the
Consolidated Operating Partnership's operations. The Consolidated Operating
Partnership believes that the risk posed by Year 2000-related problems at
certain of its third-party service providers, such as its banks, payroll
processor and telecommunications provider is marginally greater, though, based
on its current information, the Consolidated Operating Partnership doesis not believeaware
that any such problems would have a material effect on
22
24 its operations. Any Year
2000 related problems at such third-party service providers could delay the
processing of financial transactions and the Consolidated Operating
Partnership's payroll and could disrupt the Consolidated Operating Partnership's
internal and external communications. At this time, the Consolidated Operating
Partnership has not developed and does not anticipate developing any contingency
plans with respect to Year 2000 issues. In addition, the Consolidated Operating
Partnership has no plans to seek independent verification or review of its
assessment of its Year 2000 issues. The Consolidated Operating Partnership does
intend to complete its assessment of, and to continue to monitor, its Year 2000
issues and will develop contingency plans if, and to the extent, deemed
necessary.
While the Consolidated Operating Partnership believes that it will be Year
2000 compliant by December 31, 1999, there can be no assurance that the
Consolidated Operating Partnership has been or will be successful in identifying
and assessing Year 2000 issues, or that, to the extent identified, the
Consolidated Operating Partnership's efforts to remediate such issues will be
effective such that Year 2000 issues will not have a material adverse effect on
the Consolidated Operating Partnership's business, financial condition, results
of operation or liquidity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Response to this item is included in Item 2. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" above.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
Exhibit No. Description
---------- -----------
27 * Financial Data Schedule
* Filed herewith.
Report on Form 8-K:
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST INDUSTRIAL, L.P.
BY: FIRST INDUSTRIAL REALTY TRUST, INC.
ITS SOLE GENERAL PARTNER
Date: August 4,November 11, 1999 By: /s/ Michael J. Havala
---------------------------------------------------------------------------
Michael J. Havala
Chief Financial Officer
(Principal Financial and Accounting Officer)
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2729
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTIONExhibit No. Description
- ---------- ----------- -----------
27 * Financial Data Schedule
* Filed herewith.
2628