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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
--------------------------
Commission File Number 333-21873
--------------------------
FIRST INDUSTRIAL, L.P.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3924586
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
311 S. WACKER DRIVE, SUITE 4000, CHICAGO, ILLINOIS 60606
(Address of Principal Executive Offices)
(312) 344-4300
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes /X/ No / /
FIRST INDUSTRIAL, L.P.
FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2002
INDEX
PAGE
----
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001.......... 2
Consolidated Statements of Operations for the Six Months Ended June 30, 2002
and June 30, 2001.............................................................. 3
Consolidated Statements of Operations for the Three Months Ended June 30, 2002
and June 30, 2001.............................................................. 4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002
and June 30, 2001.............................................................. 5
Notes to Consolidated Financial Statements .................................... 6-16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................... 17-27
Item 3. Quantitative and Qualitative Disclosures About Market Risk .............. 27
PART II: OTHER INFORMATION
Item 1. Legal Proceedings ...................................................... 28
Item 2. Changes in Securities .................................................. 28
Item 3. Defaults Upon Senior Securities......................................... 28
Item 4. Submission of Matters to a Vote of Security Holders .................... 28
Item 5. Other Information ...................................................... 28
Item 6. Exhibits and Report on Form 8-K......................................... 28
SIGNATURE .......................................................................... 29
EXHIBIT INDEX....................................................................... 30
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST INDUSTRIAL, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
June 30, December 31,
2002 2001
-------------- -------------
ASSETS
Assets:
Investment in Real Estate:
Land ....................................................... $ 375,333 $ 368,725
Buildings and Improvements ................................. 1,798,816 1,801,097
Furniture, Fixtures and Equipment .......................... 1,174 1,174
Construction in Progress ................................... 152,617 140,887
Less: Accumulated Depreciation ............................. (249,038) (229,293)
----------- -----------
Net Investment in Real Estate ...................... 2,078,902 2,082,590
Real Estate Held for Sale, Net of Accumulated Depreciation and
Amortization of $5,027 at June 30, 2002 and $3,917 at
December 31, 2001 ........................................... 33,877 28,702
Investments in and Advances to Other Real Estate Partnerships . 412,724 378,350
Cash and Cash Equivalents ..................................... 1,387 --
Restricted Cash ............................................... 18,561 6,394
Tenant Accounts Receivable, Net ............................... 9,563 10,145
Investments in Joint Ventures ................................. 10,918 9,010
Deferred Rent Receivable ...................................... 12,520 12,140
Deferred Financing Costs, Net ................................. 10,875 10,173
Prepaid Expenses and Other Assets, Net ........................ 44,153 43,148
----------- -----------
Total Assets ....................................... $ 2,633,480 $ 2,580,652
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage Loans Payable, Net ................................... $ 57,068 $ 46,731
Senior Unsecured Debt, Net .................................... 1,211,715 1,048,491
Acquisition Facility Payable .................................. 156,100 182,500
Accounts Payable and Accrued Expenses ......................... 59,808 68,919
Rents Received in Advance and Security Deposits ............... 19,502 22,890
Distributions Payable ......................................... 36,651 31,196
----------- -----------
Total Liabilities .................................. 1,540,844 1,400,727
----------- -----------
Commitments and Contingencies .................................... -- --
Partners' Capital:
General Partner Preferred Units (140,000 units issued and
outstanding at June 30, 2002 and December 31, 2001) ........ 240,697 336,990
General Partner Units (39,572,897 and 38,904,687 units issued
and outstanding at June 30, 2002 and December 31, 2001,
respectively) .............................................. 696,976 686,544
Unamortized Value of General Partnership Restricted Units .... (6,891) (6,247)
Limited Partners' Units (6,928,003 and 6,972,649 units issued
and outstanding at June 30, 2002 and December 31, 2001,
respectively) .............................................. 172,517 175,019
Accumulated Other Comprehensive Loss ......................... (10,663) (12,381)
----------- -----------
Total Partners' Capital .......................... 1,092,636 1,179,925
----------- -----------
Total Liabilities and Partners' Capital .......... $ 2,633,480 $ 2,580,652
=========== ===========
The accompanying notes are an integral part of the financial statements.
2
FIRST INDUSTRIAL, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, 2002 June 30, 2001
------------- -------------
Revenues:
Rental Income ...................................................... $ 113,646 $ 119,693
Tenant Recoveries and Other Income ................................. 35,489 38,843
--------- ---------
Total Revenues ........................................... 149,135 158,536
--------- ---------
Expenses:
Real Estate Taxes .................................................. 24,154 24,634
Repairs and Maintenance ............................................ 9,538 8,921
Property Management ................................................ 5,786 5,634
Utilities .......................................................... 3,650 4,467
Insurance .......................................................... 1,065 996
Other .............................................................. 3,708 4,084
General and Administrative ......................................... 9,967 9,182
Interest Expense ................................................... 41,235 40,396
Amortization of Deferred Financing Costs ........................... 925 865
Depreciation and Other Amortization ................................ 31,343 27,699
--------- ---------
Total Expenses .......................................... 131,371 126,878
--------- ---------
Income from Continuing Operations Before Equity in Income of Other Real
Estate Partnerships, Equity in Income of Joint Ventures and Gain
on Sale of Real Estate ............................................ 17,764 31,658
Equity in Income of Other Real Estate Partnerships .................... 33,063 23,988
Equity in Income of Joint Ventures .................................... 576 436
Gain on Sale of Real Estate ........................................... 3,256 21,612
--------- ---------
Income From Continuing Operations ..................................... 54,659 77,694
Income from Discontinued Operations (Including Gain on Sale of Real
Estate of $13,231 for the Six Months Ended June 30, 2002) ......... 15,824 4,042
--------- ---------
Net Income Before Extraordinary Loss .................................. 70,483 81,736
Extraordinary Loss .................................................... (888) (10,309)
--------- ---------
Net Income ............................................................ 69,595 71,427
Less: Preferred Unit Distributions ................................... (13,344) (14,462)
--------- ---------
Net Income Available to Unitholders ................................... $ 56,251 $ 56,965
========= =========
Income from Continuing Operations Available to Unitholders
Per Weighted Average Unit Outstanding:
Basic ...................................................... $ .90 $ 1.36
========= =========
Diluted .................................................... $ .89 $ 1.35
========= =========
Net Income Available to Unitholders Before Extraordinary Loss
Per Weighted Average Unit Outstanding:
Basic ...................................................... $ 1.24 $ 1.45
========= =========
Diluted .................................................... $ 1.23 $ 1.44
========= =========
Net Income Available to Unitholders Per Weighted Average Unit
Outstanding:
Basic ...................................................... $ 1.22 $ 1.23
========= =========
Diluted .................................................... $ 1.21 $ 1.22
========= =========
Net Income ............................................................ $ 69,595 $ 71,427
Other Comprehensive Income:
Cumulative Transition Adjustment ........................... -- (14,920)
Settlement of Interest Rate Protection Agreement ........... 1,772 (191)
Mark-to-Market of Interest Rate Protection Agreements ...... (179) --
Write-off of Unamortized Interest Rate Protection Agreement
Due to the Early Retirement of Debt ...................... -- 2,156
Amortization of Interest Rate Protection Agreements ........ 125 702
--------- ---------
Comprehensive Income .................................................. $ 71,313 $ 59,174
========= =========
The accompanying notes are an integral part of the financial statements
3
FIRST INDUSTRIAL, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
(UNAUDITED)
Three Months Three Months
Ended Ended
June 30, 2002 June 30, 2001
------------- -------------
Revenues:
Rental Income ............................................................ $ 57,793 $ 59,650
Tenant Recoveries and Other Income ....................................... 18,169 18,109
-------- --------
Total Revenues ................................................. 75,962 77,759
-------- --------
Expenses:
Real Estate Taxes ........................................................ 12,391 12,063
Repairs and Maintenance .................................................. 5,299 4,001
Property Management ...................................................... 2,914 2,792
Utilities ................................................................ 1,831 1,817
Insurance ................................................................ 578 505
Other .................................................................... 1,994 1,874
General and Administrative ............................................... 4,828 4,864
Interest Expense ......................................................... 22,183 19,936
Amortization of Deferred Financing Costs ................................. 480 440
Depreciation and Other Amortization ...................................... 15,991 13,747
-------- --------
Total Expenses ................................................ 68,489 62,039
-------- --------
Income from Continuing Operations Before Equity in Income of Other Real
Estate Partnerships, Equity in Income of Joint Ventures and Gain
on Sale of Real Estate .................................................. 7,473 15,720
Equity in Income of Other Real Estate Partnerships .......................... 17,668 14,693
Equity in Income of Joint Ventures .......................................... 354 250
Gain (Loss) on Sale of Real Estate .......................................... 2,616 9,693
-------- --------
Income From Continuing Operations ........................................... 28,111 40,356
Income from Discontinued Operations (Including Gain on Sale of Real
Estate of $6,809 for the Three Months Ended June 30, 2002) .............. 7,626 2,003
-------- --------
Net Income Before Extraordinary Loss ........................................ 35,737 42,359
Extraordinary Loss .......................................................... (888) (10,309)
-------- --------
Net Income .................................................................. 34,849 32,050
Less: Preferred Unit Distributions ......................................... (6,113) (7,231)
-------- --------
Net Income Available to Unitholders ......................................... $ 28,736 $ 24,819
======== ========
Income from Continuing Operations Available to Unitholders
Per Weighted Average Unit Outstanding:
Basic ............................................................ $ .47 $ .71
======== ========
Diluted .......................................................... $ .47 $ .71
======== ========
Net Income Available to Unitholders Before Extraordinary Loss
Per Weighted Average Unit Outstanding:
Basic ............................................................ $ .64 $ .75
======== ========
Diluted .......................................................... $ .63 $ .75
======== ========
Net Income Available to Unitholders Per Weighted Average Unit
Outstanding:
Basic ............................................................ $ .62 $ .53
======== ========
Diluted .......................................................... $ .61 $ .53
======== ========
Net Income .................................................................. $ 34,849 $ 32,050
Other Comprehensive Income:
Settlement of Interest Rate Protection Agreement ................. 1,772 (425)
Mark-to-Market of Interest Rate Protection Agreements ............ (3,751) --
Write-off of Unamortized Interest Rate Protection Agreement
Due to the Early Retirement of Debt ........................... -- 2,156
Amortization of Interest Rate Protection Agreements .............. 71 612
-------- --------
Comprehensive Income ........................................................ $ 32,941 $ 34,393
======== ========
The accompanying notes are an integral part of the financial statements.
4
FIRST INDUSTRIAL, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Six Months Ended Six Months Ended
June 30, 2002 June 30, 2001
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .......................................... $ 69,595 $ 71,427
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation ....................................... 27,322 24,523
Amortization of Deferred Financing Costs ........... 925 865
Other Amortization ................................. 7,262 6,783
Equity in Income of Joint Ventures ................. (576) (436)
Distributions from Joint Ventures .................. 576 436
Gain on Sale of Real Estate ........................ (16,487) (21,612)
Extraordinary Loss ................................. 888 10,309
Equity in Income of Other Real Estate Partnerships . (33,063) (23,988)
Distributions from Investment in Other Real Estate
Partnerships .................................. 33,063 23,988
Increase in Tenant Accounts Receivable and Prepaid
Expenses and Other Assets, Net ................ (6,738) (6,658)
Increase in Deferred Rent Receivable ............... (1,095) (1,103)
Decrease in Accounts Payable and Accrued Expenses
and Rents Received in Advance and Security
Deposits ...................................... (12,614) (10,697)
--------- ---------
Net Cash Provided by Operating Activities .... 69,058 73,837
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of and Additions to Investment in Real
Estate ........................................ (124,880) (175,433)
Net Proceeds from Sales of Investment in Real Estate 128,683 161,575
Investments in and Advances to Other Real Estate
Partnerships .................................. (77,034) (75,066)
Distributions from Other Real Estate Partnerships in
Excess of Equity in Income .................... 42,660 62,719
Contributions to and Investments In Joint Ventures . (3,104) --
Distributions from Joint Ventures in Excess of
Equity in Income .............................. 179 166
Funding of Mortgage Loans Receivable ............... -- (27,588)
Repayment of Mortgage Loans Receivable ............. 500 23,071
Increase in Restricted Cash ........................ (12,167) (27,883)
--------- ---------
Net Cash Used in Investing Activities ......... (45,163) (58,439)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Unit Contributions .................................. 15,749 13,936
Unit Distributions .................................. (62,648) (60,812)
Repurchase of Restricted Units ...................... (1,787) (1,638)
Preferred Unit Distributions ........................ (8,300) (14,462)
Repayments on Mortgage Loans Payable ................ (1,502) (12,449)
Proceeds from Senior Unsecured Debt ................. 247,950 199,390
Other Proceeds from Senior Unsecured Debt ........... 1,772 --
Repayment of Senior Unsecured Debt .................. (84,930) (100,000)
Redemption of Preferred Units ....................... (100,000) --
Proceeds from Acquisition Facilities Payable ........ 320,300 297,300
Repayments on Acquisition Facilities Payable ........ (346,700) (326,300)
Cost of Debt Issuance and Prepayment Fees ........... (2,412) (8,888)
--------- ---------
Net Cash Used in Financing Activities ........ (22,508) (13,923)
--------- ---------
Net Increase in Cash and Cash Equivalents ........... 1,387 1,475
Cash and Cash Equivalents, Beginning of Period ...... -- 3,644
--------- ---------
Cash and Cash Equivalents, End of Period ............ $ 1,387 $ 5,119
========= =========
The accompanying notes are an integral part of the financial statements.
5
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND FORMATION OF PARTNERSHIP
First Industrial, L.P. (the "Operating Partnership") was organized as a
limited partnership in the state of Delaware on November 23, 1993. The sole
general partner is First Industrial Realty Trust, Inc. (the "Company") with an
approximate 85.1% ownership interest at June 30, 2002. The limited partners of
the Operating Partnership own approximately a 14.9% interest in the Operating
Partnership at June 30, 2002. The Company also owns a preferred general
partnership interest in the Operating Partnership with an aggregate liquidation
priority of $250,000. The Company is a real estate investment trust ("REIT") as
defined in the Internal Revenue Code. The Company's operations are conducted
primarily through the Operating Partnership.
The Operating Partnership is the sole member of several limited
liability companies (the "L.L.C.s") and the sole stockholder of First Industrial
Development Services, Inc., and holds at least a 99% limited partnership
interest in each of eight limited partnerships (together, the "Other Real Estate
Partnerships"). The Operating Partnership, through separate wholly-owned limited
liability companies in which it is the sole member, also owns minority equity
interests in and provides asset and property management services to, three joint
ventures which invest in industrial properties (the "September 1998 Joint
Venture", the "September 1999 Joint Venture" and the "December 2001 Joint
Venture").
The general partners of the Other Real Estate Partnerships are separate
corporations, each with at least a .01% general partnership interest in the
Other Real Estate Partnerships for which it acts as a general partner. Each
general partner of the Other Real Estate Partnerships is a wholly-owned
subsidiary of the Company.
The consolidated financial statements of the Operating Partnership
report the L.L.C.s and First Industrial Development Services, Inc. (the
"Consolidated Operating Partnership") on a consolidated basis. The Other Real
Estate Partnerships, the September 1998 Joint Venture, the September 1999 Joint
Venture and the December 2001 Joint Venture are accounted for under the equity
method of accounting. As of June 30, 2002, the Consolidated Operating
Partnership owned 788 in-service properties containing an aggregate of
approximately 52.0 million square feet of gross leasable area ("GLA"). On a
combined basis, as of June 30, 2002, the Other Real Estate Partnerships owned
118 in-service properties containing an aggregate of approximately 11.3 million
square feet of GLA.
Profits, losses and distributions of the Operating Partnership, the
L.L.C.s and the Other Real Estate Partnerships are allocated to the general
partner and the limited partners, or the members, as applicable, in accordance
with the provisions contained within the partnership agreements or ownership
agreements, as applicable, of the Operating Partnership, the L.L.C.s and the
Other Real Estate Partnerships.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim financial statements have been
prepared in accordance with the accounting policies described in the financial
statements and related notes included in the Operating Partnership's 2001 Form
10-K and should be read in conjunction with such financial statements and
related notes. The following notes to these interim financial statements
highlight significant changes to the notes included in the December 31, 2001
audited financial statements included in the Operating Partnership's 2001 Form
10-K and present interim disclosures as required by the Securities and Exchange
Commission.
6
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
In order to conform with generally accepted accounting principles,
management, in preparation of the Consolidated Operating Partnership's financial
statements, is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of June 30, 2002 and December 31, 2001, and the reported
amounts of revenues and expenses for each of the six and three months ended June
30, 2002 and 2001. Actual results could differ from those estimates.
In the opinion of management, all adjustments consist of normal
recurring adjustments necessary for a fair statement of the financial position
of the Consolidated Operating Partnership as of June 30, 2002 and the results of
its operations for each of the six and three months ended June 30, 2002 and 2001
and its cash flows for the six months ended June 30, 2002 and 2001.
Tenant Accounts Receivable, Net:
The Consolidated Operating Partnership provides an allowance for
doubtful accounts against the portion of tenant accounts receivable which is
estimated to be uncollectible. Tenant accounts receivable in the consolidated
balance sheets are shown net of an allowance for doubtful accounts of $1,707 as
of June 30, 2002 and December 31, 2001.
Discontinued Operations:
On January 1, 2002, the Consolidated Operating Partnership adopted the
Financial Accounting Standards Board's ("FASB") Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long
Lived Assets" ("FAS 144"). FAS 144 addresses final accounting and reporting for
the disposal of long lived assets. FAS 144 requires that the results of
operations and gains or losses on the sale of properties sold subsequent to
December 31, 2001 that were not classified as held for sale at December 31, 2001
and the results of operations from properties that were classified as held for
sale subsequent to December 31, 2001 be presented in discontinued operations.
FAS 144 also requires prior period results of operations for these properties to
be restated and presented in discontinued operations in prior consolidated
statements of operations.
Recent Accounting Pronouncements:
On April 30, 2002, the FASB issued Financial Accounting Standards No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("FAS 145"). FAS 145 rescinds both
Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses
from Extinguishment of Debt" ("FAS 4"), and the amendment to FAS 4, Statement of
Financial Accounting Standards No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements". FAS 145 eliminates the requirement that gains and
losses from the extinguishment of debt be aggregated and, if material,
classified as an extraordinary item, net of the related income tax effect,
unless the criteria in Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" are met. FAS 145 is effective for fiscal years beginning after May
15, 2002. The Consolidated Operating Partnership believes that FAS 145 will not
have an impact on its consolidated financial position, liquidity and results of
operations.
Reclassification:
Certain 2001 items have been reclassified to conform to the 2002
presentation.
7
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
3. INVESTMENTS IN AND ADVANCES TO OTHER REAL ESTATE PARTNERSHIPS
The investments in and advances to Other Real Estate Partnerships
reflects the Operating Partnership's limited partnership equity interests in the
entities referred to in Note 1 to these financial statements.
Summarized condensed financial information as derived from the
financial statements of the Other Real Estate Partnerships is presented below:
Condensed Combined Balance Sheets:
June 30, December 31,
2002 2001
----------- -------------
ASSETS
Assets:
Investment in Real Estate, Net ......... $356,450 $355,504
Real Estate Held for Sale, Net ......... 2,798 2,048
Other Assets, Net ...................... 104,444 72,643
-------- --------
Total Assets ................... $463,692 $430,195
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage Loans Payable ................ $ 40,405 $ 40,728
Other Liabilities ...................... 6,874 7,811
-------- --------
Total Liabilities ............. 47,279 48,539
-------- --------
Partners' Capital ...................... 416,413 381,656
-------- --------
Total Liabilities and Partners'
Capital ................... $463,692 $430,195
======== ========
Condensed Combined Statements of Operations:
Six Months Ended Three Months Ended
---------------------------- -----------------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Total Revenues ............................... $ 27,226 $ 30,656 $ 14,188 $ 15,916
Property Expenses ............................ (7,504) (8,245) (3,883) (4,181)
Interest Expense ............................. (1,469) (2,237) (737) (1,495)
Amortization of Deferred Financing Costs ..... (34) (33) (17) (16)
Depreciation and Other Amortization .......... (5,581) (5,425) (2,815) (2,674)
Gain on Sale of Real Estate .................. -- 8,086 -- 6,129
Income from Discontinued Operations
(Including Gain on Sale of Real Estate of
$19,008 for the Six Months Ended June
30, 2002 and $10,402 for the Three months
ended June 30, 2002) .................... 20,733 2,483 11,098 1,252
-------- -------- -------- --------
Net Income ................................... $ 33,371 $ 25,285 $ 17,834 $ 14,931
======== ======== ======== ========
8
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
4. INVESTMENTS IN JOINT VENTURES
During the six months ended June 30, 2002, the Consolidated Operating
Partnership, through wholly-owned limited liability companies in which the
Operating Partnership is the sole member, recognized approximately $454 in asset
management fees from the September 1998 Joint Venture and the September 1999
Joint Venture, and approximately $556 in property management fees from the
September 1998 Joint Venture, the September 1999 Joint Venture and the December
2001 Joint Venture. The Operating Partnership, through a wholly-owned limited
liability company in which it is the sole member, invested approximately $3,104
in the December 2001 Joint Venture. The Consolidated Operating Partnership,
through wholly-owned limited liability companies in which the Operating
Partnership is the sole member, received distributions of approximately $755
from the September 1998 Joint Venture, the September 1999 Joint Venture and the
December 2001 Joint Venture. As of June 30, 2002, the September 1998 Joint
Venture owned 90 industrial properties comprising approximately 4.3 million
square feet of GLA, the September 1999 Joint Venture owned 31 industrial
properties comprising approximately .8 million square feet of GLA and the
December 2001 Joint Venture had economic interests in 14 industrial properties
comprising approximately 2.5 million square feet of GLA. The properties
purchased by the December 2001 Joint Venture were purchased from the
Consolidated Operating Partnership. The Consolidated Operating Partnership
deferred 15% of the gain resulting from these sales, which is equal to the
Consolidated Operating Partnership's economic interest in the December 2001
Joint Venture.
5. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION
FACILITY PAYABLE
Mortgage Loans Payable, Net:
On April 1, 2002, the Consolidated Operating Partnership, through the
Operating Partnership, assumed a mortgage loan in the principal amount of $5,814
(the "Acquisition Mortgage Loan VIII"). The Acquisition Mortgage Loan VIII is
collateralized by one property in Rancho Dominguez, California, bears interest
at a fixed rate of 8.26% and provides for monthly principal and interest
payments based on a 22-year amortization schedule. The Acquisition Mortgage Loan
VIII matures on December 1, 2019. The Acquisition Mortgage Loan VIII may be
prepaid only after November 2004 in exchange for the greater of a 1% prepayment
fee or yield maintenance premium.
On April 1, 2002, the Consolidated Operating Partnership, through the
Operating Partnership, assumed a mortgage loan in the principal amount of $6,030
(the "Acquisition Mortgage Loan IX"). The Acquisition Mortgage Loan IX is
collateralized by one property in Rancho Dominguez, California, bears interest
at a fixed rate of 8.26% and provides for monthly principal and interest
payments based on a 22-year amortization schedule. The Acquisition Mortgage Loan
IX matures on December 1, 2019. The Acquisition Mortgage Loan IX may be prepaid
only after November 2004 in exchange for the greater of a 1% prepayment fee or
yield maintenance premium.
On January 31, 1997, the Consolidated Operating Partnership, through
the Operating Partnership, assumed a loan in the amount of $705 (the "LB Loan
II"). The LB Loan II was interest free until February 1998, after which time the
LB Loan II bore interest at 8.00%, and provided for interest only payments prior
to maturity. On June 14, 2002, the Consolidated Operating Partnership, through
the Operating Partnership, paid off and retired the LB Loan II.
9
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION
FACILITY PAYABLE, CONTINUED
Senior Unsecured Debt:
On April 15, 2002, the Consolidated Operating Partnership, through the
Operating Partnership, issued $200,000 of senior unsecured debt which matures on
April 15, 2012 and bears a coupon interest rate of 6.875% (the "2012 Notes").
The issue price of the 2012 Notes was 99.310%. Interest is paid semi-annually in
arrears on April 15 and October 15. The Operating Partnership also entered into
interest rate protection agreements which were used to fix the interest rate on
the 2012 Notes prior to issuance. The Operating Partnership settled the interest
rate protection agreements for approximately $1,772 of proceeds, which is
included in other comprehensive income. The debt issue discount and the
settlement amount of the interest rate protection agreements are being amortized
over the life of the 2012 Notes as an adjustment to interest expense. The 2012
Notes contain certain covenants, including limitations on incurrence of debt and
debt service coverage.
On April 15, 2002, the Consolidated Operating Partnership, through the
Operating Partnership, issued $50,000 of senior unsecured debt which matures on
April 15, 2032 and bears a coupon interest rate of 7.75% (the "2032 Notes"). The
issue price of the 2032 Notes was 98.660%. Interest is paid semi-annually in
arrears on April 15 and October 15. The debt issue discount is being amortized
over the life of the 2032 Notes as an adjustment to interest expense. The 2032
Notes contain certain covenants, including limitations on incurrence of debt and
debt service coverage.
On May 13, 1997, the Consolidated Operating Partnership, through the
Operating Partnership, issued $100,000 of senior unsecured debt which matures on
May 15, 2027 and bears a coupon interest rate of 7.15% (the" 2027 Notes"). The
issue price of the 2027 Notes was 99.854%. The 2027 Notes were redeemable, at
the option of the holders thereof, on May 15, 2002. The Operating Partnership
received redemption notices from holders representing $84,930 of the 2027 Notes
outstanding. On May 15, 2002, the Consolidated Operating Partnership, through
the Operating Partnership, paid off and retired $84,930 of the 2027 Notes. Due
to the partial pay off of the 2027 Notes, the Consolidated Operating Partnership
has recorded an extraordinary loss of approximately $888 comprised of the amount
paid above the carrying amount of the 2027 Notes, the write-off of unamortized
deferred financing fees and legal costs.
Acquisition Facility Payable:
In January 2002, the Consolidated Operating Partnership, through the
Operating Partnership, entered into an interest rate swap agreement (the
"Interest Rate Swap Agreement") which fixed the interest rate on a portion of
the Consolidated Operating Partnership's outstanding borrowings on its $300,000
unsecured revolving credit facility (the "2000 Unsecured Acquisition Facility").
The Operating Partnership designated this transaction as a cash flow hedge. The
Interest Rate Swap Agreement has a notional value of $25,000, is effective from
February 4, 2002 through February 4, 2003 and fixed the LIBOR rate at 2.4975%.
Any payments or receipts from the Interest Rate Swap Agreement will be treated
as a component of interest expense. The Operating Partnership anticipates that
the Interest Rate Swap Agreement will be highly effective and, as a result, the
change in value will be shown in other comprehensive income.
10
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION
FACILITY PAYABLE, CONTINUED
The following table discloses certain information regarding the
Consolidated Operating Partnership's mortgage loans payable, senior unsecured
debt and acquisition facility payable:
OUTSTANDING BALANCE AT ACCRUED INTEREST PAYABLE AT INTEREST RATE AT
---------------------------- --------------------------- ----------------
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, MATURITY
2002 2001 2002 2001 2002 DATE
---------- ------------ ----------- ------------ ----------- ----------
MORTGAGE LOANS PAYABLE, NET
CIGNA Loan...................... $ 32,824 $ 33,214 $ 205 $ 207 7.500% 4/01/03 (6)
Assumed Loans................... 6,282 6,538 --- --- 9.250% 1/01/13
LB Loan II..................... --- 705 --- 24 8.000% (1)
Acquisition Mortgage Loan III... 2,999 3,065 22 --- 8.875% 6/01/03
Acquisition Mortgage Loan IV.... 2,255 2,286 17 --- 8.950% 10/01/06
Acquisition Mortgage Loan VI.... 905 (2) 923 (2) 6 7 8.875% 11/01/06 (7)
Acquisition Mortgage Loan VIII.. 5,794 --- 40 --- 8.260% 12/01/19
Acquisition Mortgage Loan IX.... 6,009 --- 41 --- 8.260% 12/01/19
---------- ----------- ----------- ----------
Total........................... $ 57,068 $ 46,731 $ 331 $ 238
========== =========== =========== ==========
SENIOR UNSECURED DEBT, NET
2005 Notes...................... $ 50,000 $ 50,000 $ 383 $ 383 6.900% 11/21/05
2006 Notes...................... 150,000 150,000 875 875 7.000% 12/01/06
2007 Notes...................... 149,974 (3) 149,972 (3) 1,457 1,457 7.600% 5/15/07
2011 PATS....................... 99,587 (3) 99,563 (3) 942 942 7.375% 5/15/11 (4)
2017 Notes...................... 99,852 (3) 99,847 (3) 625 625 7.500% 12/01/17
2027 Notes...................... 15,052 (3) 99,877 (3) 138 914 7.150% 5/15/27 (5)
2028 Notes...................... 199,795 (3) 199,791 (3) 7,009 7,009 7.600% 7/15/28
2011 Notes...................... 199,471 (3) 199,441 (3) 4,343 4,343 7.375% 3/15/11
2012 Notes...................... 198,649 (3) --- 2,903 --- 6.875% 4/15/12
2032 Notes...................... 49,335 (3) --- 818 --- 7.750% 4/15/32
---------- ----------- ----------- ----------
Total........................... $1,211,715 $ 1,048,491 $ 19,493 $ 16,548
========== =========== =========== ==========
ACQUISITION FACILITY
PAYABLE
2000 Unsecured Acquisition
Facility..................... $ 156,100 $ 182,500 $ 399 $ 571 3.17% 6/30/03
========== =========== =========== ==========
(1) On June 14, 2002, the Consolidated Operating Partnership, through the
Operating Partnership, paid off and retired the LB Loan II.
(2) At June 30, 2002, the Acquisition Mortgage Loan VI is net of an unamortized
premium of $36. At December 31, 2001, the Acquisition Mortgage Loan VI is
net of an unamortized premium of $41.
(3) At June 30, 2002, the 2007 Notes, 2011 PATS, 2017 Notes, 2027 Notes, 2028
Notes, 2011 Notes, 2012 Notes and the 2032 Notes are net of unamortized
discounts of $26, $413, $148, $18, $205, $529, $1,351 and $665,
respectively. At December 31, 2001, the 2007 Notes, 2011 PATS, 2017 Notes,
2027 Notes, 2028 Notes and the 2011 Notes are net of unamortized discounts
of $28, $437 $153, $123, $209 and $559, respectively.
(4) The 2011 PATS are redeemable at the option of the holder thereof, on May
15, 2004.
(5) The 2027 Notes were redeemable at the option of the holders thereof, on May
15, 2002. The Consolidated Operating Partnership, through the Operating
Partnership, redeemed $84,930 of the 2027 Notes outstanding on May 15,
2002.
(6) The Consolidated Operating Partnership has given notice to the lender of
the CIGNA Loan that it intends to pay off and retire this loan in October
2002.
(7) On July 2, 2002 the Consolidated Operating Partnership paid off and retired
the Acquisition Mortgage Loan VI.
The following is a schedule of the stated maturities and scheduled
principal payments of the mortgage loans payable, senior unsecured debt and
acquisition facility payable for the next five years ending December 31, and
thereafter:
Amount
-----------------
Remainder of 2002 $ 34,225
2003 159,927
2004 1,010
2005 51,104
2006 153,022
Thereafter 1,028,914
-----------------
Total $ 1,428,202
=================
11
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION
FACILITY PAYABLE, CONTINUED
The Consolidated Operating Partnership has given notice to the lender
of the CIGNA Loan (defined in Note 12) that it intends to pay off and retire
this loan in October 2002. As a result, the CIGNA Loan (defined in Note 12) is
shown as coming due in 2002. Also, on July 2, 2002 the Company paid off and
retired the Acquisition Mortgage Loan VI. As a result, the Acquisition Mortgage
Loan VI is shown as coming due in 2002 as well.
Other Comprehensive Income:
In conjunction with the prior issuances of senior unsecured debt, the
Consolidated Operating Partnership, through the Operating Partnership, entered
into interest rate protection agreements to fix the interest rate on anticipated
offerings of senior unsecured debt (the "Interest Rate Protection Agreements").
In the next 12 months, the Consolidated Operating Partnership will amortize
approximately $190 into net income as an increase to interest expense.
The following is a roll forward of the accumulated other comprehensive
loss balance relating to the Consolidated Operating Partnership's derivative
transactions:
Balance at December 31, 2001................................... $ (12,381)
Settlement of Interest Rate Protection Agreements......... 1,772
Change in Market Value of Interest Rate Swap Agreements... (179)
Amortization of Interest Rate Protection Agreements ...... 125
------------
Balance at June 30, 2002....................................... $ (10,663)
============
6. PARTNERS' CAPITAL
The Operating Partnership has issued general partnership units, limited
partnership units (together, the "Units") and preferred general partnership
units. The general partnership units resulted from capital contributions from
the Company. The limited partnership units are issued in conjunction with the
acquisition of certain properties. Subject to lock-up periods and certain
adjustments, limited partnership units are convertible into common stock, par
value $.01, of the Company on a one - for - one basis or cash at the option of
the Company. The preferred general partnership units resulted from preferred
capital contributions from the Company. The Operating Partnership will be
required to make all required distributions on the preferred general partnership
units prior to any distribution of cash or assets to the holders of the general
and limited partnership units except for distributions required to enable the
Company to maintain its qualification as a REIT.
GENERAL PARTNER PREFERRED UNITS:
On May 14, 1997 the Company issued 4,000,000 Depositary Shares, each
representing 1/100th of a share of the Company's 8 3/4%, $.01 par value, Series
B Cumulative Preferred Stock (the "Series B Preferred Stock"), at an initial
offering price of $25.00 per Depositary Share. The net proceeds of $96,292
received from the Series B Preferred Stock were contributed to the Operating
Partnership in exchange for 8 3/4% Series B Cumulative Preferred Units (the
"Series B Preferred Units"). On or after May 14, 2002, the Series B Preferred
Stock became redeemable for cash at the option of the Company, in whole or in
part, at a redemption price equivalent to $25.00 per Depositary Share, or
$100,000 in the aggregate, plus dividends accrued and unpaid to the redemption
date. On April 12, 2002, the Company called for the redemption of all of its
outstanding Series B preferred Stock at the price of $25.00 per share, plus
accrued and unpaid dividends. The Company redeemed the Series B Preferred Stock
on May 14, 2002 and paid a prorated second quarter dividend of $.26736 per
Depositary Share, totaling approximately $1,069. The Series B Cumulative
Preferred Units were redeemed on May 14, 2002 as well.
Unit Contributions:
During the six months ended June 30, 2002, the Company awarded 90,260
shares of restricted common stock to certain employees and 1,841 shares of
restricted common stock to certain Directors. The
12
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
6. PARTNERS' CAPITAL, CONTINUED
Operating Partnership issued Units to the Company in the same amount. These
shares of restricted common stock had a fair value of approximately $3,174 on
the date of grant. The restricted common stock vests over periods from one to
ten years. Compensation expense will be charged to earnings over the respective
vesting period.
During the six months ended June 30, 2002, the Company issued 940,600
non-qualified employee stock options to certain officers, Directors and
employees. These non-qualified employee stock options vest over periods from one
to three years, have a strike price of $30.53-$33.15 per share and expire ten
years from the date of grant.
During the six months ended June 30, 2002, certain employees exercised
555,068 non-qualified employee stock options. Net proceeds to the Company were
approximately $15,749. The Consolidated Operating Partnership, through the
Operating Partnership, issued Units to the Company in the same amount.
During the six months ended June 30, 2002, the Operating Partnership
issued 18,203 Units having an aggregate market value of approximately $633 in
exchange for property.
Distributions:
On January 22, 2002, the Operating Partnership paid a fourth quarter
2001 distribution of $.6800 per Unit, totaling approximately $31,196. On April
22, 2002, the Operating Partnership paid a first quarter 2002 distribution of
$.6800 per Unit, totaling approximately $31,453.
On April 1, 2002, the Operating Partnership paid first quarter
distributions of $54.688 per unit on its Series B Preferred Units, $53.906 per
Unit on its Series C Preferred Units, $49.688 per unit on its Series D Preferred
Units and $49.375 per unit on its Series E Preferred Units. The preferred unit
distributions paid on April 1, 2002, totaled approximately $7,231. On May 14,
2002, the Operating Partnership paid a prorated second quarter distribution of
$26.736 per unit, totaling approximately $1,069 on its Series B Preferred Units.
7. ACQUISITION AND DEVELOPMENT OF REAL ESTATE
During the six months ended June 30, 2002, the Consolidated Operating
Partnership acquired 13 industrial properties comprising approximately 2.0
million square feet of GLA and one land parcel. The aggregate purchase price for
these acquisitions totaled approximately $75,404 excluding costs incurred in
conjunction with the acquisition of the properties. The Consolidated Operating
Partnership also completed the development of five industrial properties
comprising approximately .9 million square feet of GLA at a cost of
approximately $35.7 million.
8. SALES OF REAL ESTATE, REAL ESTATE HELD FOR SALE AND DISCONTINUED OPERATIONS
During the six months ended June 30, 2002, the Consolidated Operating
Partnership sold 31 industrial properties comprising approximately 2.6 million
square feet of GLA that were not classified as held for sale at December 31,
2001, nine properties comprising approximately .4 million square feet of GLA
that were classified as held for sale at December 31, 2001 and several land
parcels. Gross proceeds from these sales were approximately $140,201. The gain
on sale of real estate was approximately $16,487, of which $13,231 is shown in
discontinued operations. In accordance with FAS 144, the results of operations
and gain on sale of real estate for the 31 sold properties that were not
identified as held for sale at December 31, 2001 are included in discontinued
operations.
At June 30, 2002, the Consolidated Operating Partnership had ten
industrial properties comprising approximately 1.2 million square feet of GLA
held for sale. Four of the ten properties comprising approximately .7 million
square feet of GLA held for sale at June 30, 2002 were identified as held for
sale as of December 31, 2001. In accordance with FAS 144, the results of
operations of the properties identified
13
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
8. SALES OF REAL ESTATE, REAL ESTATE HELD FOR SALE AND DISCONTINUED
OPERATIONS, CONTINUED
as held for sale during the six months ended June 30, 2002 are included in
discontinued operations. There can be no assurance that such properties held for
sale will be sold.
The following table discloses certain information regarding the four
industrial properties identified as held for sale by the Consolidated Operating
Partnership, prior to January 1, 2002.
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ---------------------------
2002 2001 2002 2001
------------- ------------ ------------ -----------
Total Revenues $ 1,531 $ 1,242 $ 712 $ 571
Operating Expenses (511) (538) (259) (255)
------------- ------------ ------------ -----------
Net Income $ 1,020 $ 704 $ 453 $ 316
============= ============ ============ ===========
9. SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS
Supplemental disclosure of cash flow information:
Six Months Ended
-------------------------------
June 30, June 30,
2002 2001
----------- ------------
Interest paid, net of capitalized interest ....................... $ 38,369 $ 38,351
======== ========
Interest capitalized ............................................. $ 5,204 $ 4,297
======== ========
Supplemental schedule of non-cash investing and financing activities:
Distribution payable on units .................................... $ 31,607 $ 30,688
======== ========
Distribution payable on preferred units .......................... $ 5,044 $ 7,231
======== ========
Issuance of Units in exchange for property .......................... $ 633 $ 1,491
======== ========
Exchange of limited partnership units for general partnership units:
Limited partnership units ....................................... $ (1,628) $ (4,213)
General partnership units ....................................... 1,628 4,213
-------- --------
$ -- $ --
======== ========
In conjunction with the property and land acquisitions, the
following liabilities were assumed:
Purchase of real estate ...................................... $ 75,404 $ 87,076
Accrued real estate taxes and security deposits ............... (348) (866)
Mortgage Debt ................................................. (11,844) --
-------- --------
$ 63,212 $ 86,210
======== ========
In conjunction with a property sale, the Consolidated Operating
Partnership provided seller financing on behalf of a certain
buyer:
Notes Receivable ............................................. $ 5,280 $ --
======== ========
14
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
10. EARNINGS PER UNIT ("EPU")
The computation of basic and diluted EPU is presented below:
Six Months Ended Three Months Ended
--------------------------- ----------------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
------------ ------------ ----------- --------------
Numerator:
Income from Continuing Operations ...................... $ 54,659 $ 77,694 $ 28,111 $ 40,356
Less: Preferred Distributions .......................... (13,344) (14,462) (6,113) (7,231)
----------- ----------- ----------- --------------
Income from Continuing Operations Available to
Unitholders For Basic and Diluted EPU ............. 41,315 63,232 21,998 33,125
Discontinued Operations ................................ 15,824 4,042 7,626 2,003
----------- ----------- ----------- --------------
Net Income Available to Unitholders before Extraordinary
Loss For Basic and Diluted EPU ..................... 57,139 67,274 29,624 35,128
Extraordinary Loss ..................................... (888) (10,309) (888) (10,309)
----------- ----------- ----------- --------------
Net Income Available to Unitholders .................... $ 56,251 $ 56,965 $ 28,736 $ 24,819
=========== =========== =========== ==============
Denominator:
Weighted Average Units - Basic ......................... 46,148,266 46,383,713 46,346,174 46,580,767
Effect of Dilutive Securities:
Employee and Director Common Stock Options of
the Company that Result in the Issuance of General
Partnership Units ................................... 346,382 373,698 422,871 289,465
----------- ----------- ----------- --------------
Weighted Average Units Outstanding- Diluted ............ 46,494,648 46,757,411 46,769,045 46,870,232
=========== =========== =========== ==============
Basic EPU:
Income from Continuing Operations Available to
Unitholders ......................................... $ .90 $ 1.36 $ .47 $ .71
=========== =========== =========== ==============
Discontinued Operations ................................ $ .34 $ .09 $ .16 $ .04
=========== =========== =========== ==============
Net Income Available to Unitholders Before Extraordinary
Loss ................................................ $ 1.24 $ 1.45 $ .64 $ .75
=========== =========== =========== ==============
Extraordinary Loss ..................................... $ (.02) $ (.22) $ (.02) $ (.22)
=========== =========== =========== ==============
Net Income Available to Unitholders .................... $ 1.22 $ 1.23 $ .62 $ .53
=========== =========== =========== ==============
Diluted EPU:
Income from Continuing Operations Available to
Unitholders ......................................... $ .89 $ 1.35 $ .47 $ .71
=========== =========== =========== ==============
Discontinued Operations ................................ $ .34 $ .09 $ .16 $ .04
=========== =========== =========== ==============
Net Income Available to Unitholders Before Extraordinary
Loss ................................................ $ 1.23 $ 1.44 $ .63 $ .75
=========== =========== =========== ==============
Extraordinary Loss ..................................... $ (.02) $ (.22) $ (.02) $ (.22)
=========== =========== =========== ==============
Net Income Available to Unitholders .................... $ 1.21 $ 1.22 $ .61 $ .53
=========== =========== =========== ==============
11. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Consolidated Operating
Partnership is involved in legal actions arising from the ownership of its
properties. In management's opinion, the liabilities, if any, that may
ultimately result from such legal actions are not expected to have a materially
adverse effect on the consolidated financial position, operations or liquidity
of the Consolidated Operating Partnership.
The Consolidated Operating Partnership has committed to the
construction of 34 development projects totaling approximately 4.4 million
square feet of GLA for an estimated investment of approximately $214.9 million.
Of this amount, approximately $48.4 million remains to be funded. These
developments are expected to be funded with proceeds from the sale of select
properties, cash flows from operations and borrowings under the Operating
Partnership's 2000 Unsecured Acquisition Facility. The
15
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
11. COMMITMENTS AND CONTINGENCIES, CONTINUED
Consolidated Operating Partnership expects to place in service all of these
development projects during the next twelve months. There can be no assurance
that the Consolidated Operating Partnership will place these projects in service
during the next twelve months or that the actual completion cost will not exceed
the estimated completion cost stated above.
12. SUBSEQUENT EVENTS
From July 1, 2002 to August 9, 2002, the Consolidated Operating
Partnership acquired three industrial properties for an aggregate purchase price
of approximately $4,550, excluding costs incurred in conjunction with the
acquisition of these industrial properties. The Consolidated Operating
Partnership also sold for industrial properties and several land parcels for
approximately $21,060 of gross proceeds.
On July 1, 2002, the Operating Partnership paid second quarter
distributions of $53.906 per unit on its Series C Preferred Units, $49.687 per
unit on its Series D Preferred Units and $49.375 per unit on its Series E
Preferred Units. The preferred unit distributions paid on July 1, 2002 totaled
approximately $5,044.
On August 31, 1998, the Consolidated Operating Partnership, through the
Operating Partnership, assumed a mortgage loan in the principal amount of $965
(the "Acquisition Mortgage Loan VI"). The Acquisition Mortgage Loan VI was
collateralized by one property in Portland, Oregon, bore interest at a fixed
rate of 8.875% and provided for monthly principal and interest payments based on
a 20-year amortization schedule. On July 2, 2002, the Consolidated Operating
Partnership, through the Operating Partnership paid off and retired the
Acquisition Mortgage Loan VI.
On March 20, 1996 the Consolidated Operating Partnership, through the
Operating Partnership, entered into a $36,750 mortgage loan (the "CIGNA Loan")
that is collateralized by seven properties in Indianapolis, Indiana and three
properties in Cincinnati, Ohio. The CIGNA Loan bears interest at a fixed
interest rate of 7.50% and provides for monthly principal and interest payments
based on a 25 - year amortization schedule. The CIGNA Loan matures on April 1,
2003. The Consolidated Operating Partnership has given notice to the lender of
the CIGNA Loan that it intends to pay off and retire this loan in October 2002.
On July 22, 2002, the Operating Partnership paid a second quarter 2002
distribution of $.6800 per Unit, totaling approximately $31,607.
16
FIRST INDUSTRIAL, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of First Industrial, L.P.'s (the
"Operating Partnership") financial condition and results of operations should be
read in conjunction with the financial statements and notes thereto appearing
elsewhere in this Form 10-Q.
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. The Operating
Partnership intends such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and is including this statement for
purposes of complying with these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe future plans,
strategies and expectations of the Operating Partnership, are generally
identifiable by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project" or similar expressions. The Operating Partnership's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Operating Partnership on a consolidated
basis include, but are not limited to, changes in: economic conditions generally
and the real estate market specifically, legislative/regulatory changes
(including changes to laws governing the taxation of real estate investment
trusts), availability of financing, interest rate levels, competition, supply
and demand for industrial properties in the Operating Partnership's current and
proposed market areas, potential environmental liabilities, slippage in
development or lease-up schedules, tenant credit risks, higher-than-expected
costs and changes in general accounting principles, policies and guidelines
applicable to real estate investment trusts. These risks and uncertainties
should be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements. Further information concerning the
Operating Partnership and its business, including additional factors that could
materially affect the Operating Partnership's financial results, is included
herein and in the Operating Partnership's other filings with the Securities and
Exchange Commission.
The Operating Partnership was organized as a limited partnership in the
state of Delaware on November 23, 1993. The sole general partner of the
Operating Partnership is First Industrial Realty Trust, Inc. (the "Company")
with an approximate 85.1% ownership interest at June 30, 2002. The limited
partners of the Operating Partnership own, in the aggregate, approximately a
14.9% interest in the Operating Partnership at June 30, 2002. The Company also
owns a preferred general partnership interest in the Operating Partnership with
an aggregate liquidation priority of $250.0 million. The Company is a real
estate investment trust ("REIT") as defined in the Internal Revenue Code. The
Company's operations are conducted primarily through the Operating Partnership.
The Operating Partnership is the sole member of several limited
liability companies (the "L.L.C.s") and the sole shareholder of First Industrial
Development Services, Inc. and holds at least a 99% limited partnership interest
in each of eight limited partnerships (together, the "Other Real Estate
Partnerships"). The Operating Partnership, through separate wholly-owned limited
liability companies in which it is the sole member, also owns minority equity
interests in and provides asset and property management services to three joint
ventures which invest in industrial properties (the "September 1998 Joint
Venture", the "September 1999 Joint Venture" and the "December 2001 Joint
Venture"). The financial statements of the Operating Partnership report the
L.L.C.s and First Industrial Development Services, Inc. (the "Consolidated
Operating Partnership") on a consolidated basis. The Other Real Estate
Partnerships, the September 1998 Joint Venture, the September 1999 Joint Venture
and the December 2001 Joint Venture are accounted for under the equity method of
accounting.
The general partners of the Other Real Estate Partnerships are separate
corporations, each with at least a .01% general partnership interest in the
Other Real Estate Partnership for which it acts as a general
17
partner. Each general partner of the Other Real Estate Partnerships is a
wholly-owned subsidiary of the Company.
Profits, losses and distributions of the Operating Partnership, the
L.L.C.s and the Other Real Estate Partnerships are allocated to the general
partner and the limited partners, or members, as applicable, in accordance with
the provisions contained within the partnership agreements or operating
agreements, as applicable, of the Operating Partnership, the L.L.C.s and the
Other Real Estate Partnerships.
RESULTS OF OPERATIONS
At June 30, 2002, the Consolidated Operating Partnership owned 788
in-service properties with approximately 52.0 million square feet of gross
leasable area ("GLA"), compared to 838 in-service properties with approximately
53.5 million square feet of GLA at June 30, 2001. During the period between July
1, 2001 and June 30, 2002, the Consolidated Operating Partnership acquired 40
properties containing approximately 3.9 million square feet of GLA, and one out
of service property with approximately .1 million square feet of GLA, completed
development of seven properties totaling approximately 1.1 million square feet
of GLA and sold 98 in-service properties totaling approximately 6.2 million
square feet of GLA, four out of service properties and several land parcels. The
Consolidated Operating Partnership also took four properties out of service that
are under redevelopment comprising approximately .6 million square feet of GLA,
and placed in-service three properties comprising approximately .2 million
square feet of GLA. In addition, the Other Real Estate Partnerships distributed
two industrial properties comprising approximately .1 million square feet of GLA
to the Consolidated Operating Partnership.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2002 TO SIX MONTHS ENDED JUNE 30, 2001
Rental income and tenant recoveries and other income decreased by
approximately $9.4 million or 5.9% due primarily to a decrease in average
occupied GLA for the six months ended June 30, 2002 as compared to the six
months ended June 30, 2001. Rental income and tenant recoveries and other income
from properties owned prior to January 1, 2001 decreased by approximately $1.5
million or 1.1% due primarily to a decrease in occupancy for the six months
ended June 30, 2002 as compared to the six months ended June 30, 2001.
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses,
decreased by approximately $.8 million or 1.7%. This decrease is due primarily
to decreases in real estate taxes, utilities and other expenses, slightly offset
by an increase in repairs and maintenance. The decrease in real estate taxes and
utilities is primarily due to a decrease in average GLA owned for the six months
ended June 30, 2002 as compared to the six months ended June 30, 2001. The
decrease in other expenses is primarily due to a decrease in bad debt expense
and a decrease in master lease payments. The increase in repairs and maintenance
is primarily due to an increase in maintenance expenses as well as snow removal
and related expenses. Property expenses from properties owned prior to January
1, 2001 increased by approximately $1.5 million or 4.0% due primarily to an
increase in real estate taxes and repairs and maintenance. The increase in real
estate taxes is primarily due to an increase in real estate taxes in many of the
Company's markets. The increase in repairs and maintenance is due primarily to
the explanation above.
General and administrative expense increased by approximately $.8
million due primarily to increases in employee compensation and additional
employees for the six months ended June 30, 2002 as compared to the six months
ended June 30, 2001, offset by the write-off of the Consolidated Operating
Partnership's technology investment in the second quarter of 2001.
18
Interest expense increased by approximately $.8 million for the six
months ended June 30, 2002 compared to the six months ended June 30, 2001 due
primarily to a higher average debt balance outstanding for the six months ended
June 30, 2002 compared to the six months ended June 30, 2001. The average debt
balance outstanding for the six months ended June 30, 2002 and 2001 was
approximately $1,352.3 million and $1,269.4 million, respectively. This was
slightly offset by a decrease in the weighted average interest rate on the
Consolidated Operating Partnership's outstanding debt for the six months ended
June 30, 2002 (6.83%) as compared to the six months ended June 30, 2001 (7.18%),
as well as an increase in capitalized interest due to an increase in development
activities.
Amortization of deferred financing costs remained relatively unchanged.
Depreciation and other amortization increased by approximately $3.6
million due primarily to a decrease in the number of properties the Consolidated
Operating Partnership considered held for sale at June 30, 2002 as compared to
June 30, 2001.
Equity in income of Other Real Estate Partnerships increased by
approximately $9.1 million due primarily to an increase in gain on sale of real
estate.
Equity in income of joint ventures increased by approximately $.1
million or 32.1% due primarily to an increase in gain on sale of real estate and
the start up of one of the Consolidated Operating Partnership's joint ventures
in December 2001.
The approximate $3.3 million gain on sale of real estate for the six
months ended June 30, 2002 resulted from the sale of nine industrial properties
that were identified as held for sale at December 31, 2001. Gross proceeds from
these sales were approximately $16.1 million.
The approximate $21.6 million gain on sale of real estate for the six
months ended June 30, 2001 resulted from the sale of 62 industrial properties
and several land parcels. Gross proceeds from these sales were approximately
$171.3 million.
Income from discontinued operations of approximately $15.8 million for
the six months ended June 30, 2002 reflects the results of operations and gain
on sale of 31 industrial properties and several land parcels that were not held
for sale at December 31, 2001 and were sold during the six months ended June 30,
2002 as well as the results of operations of six industrial properties
identified as held for sale during the six months ended June 30, 2002. Gross
proceeds from the sales of the 31 industrial properties and several land parcels
were approximately $124.1 million, resulting in a gain on sale of real estate of
approximately $13.2 million.
Income from discontinued operations of approximately $4.0 million for
the six months ended June 30, 2001 reflects the results of operations of the 31
industrial properties that were not held for sale at December 31, 2001 and were
sold during the six months ended June 30, 2002 as well as the results of
operations of six industrial properties identified as held for sale during the
six months ended June 30, 2002.
The approximate $.9 million extraordinary loss for the six months ended
June 30, 2002 is due to the early retirement of senior unsecured debt and
various mortgage loans. The extraordinary loss is comprised of the amount paid
above the carrying amount of the senior unsecured debt, the write-off of
unamortized deferred financing fees and legal costs.
The approximate $10.3 million extraordinary loss for the six months
ended June 30, 2001 is due to the early retirement of senior unsecured debt and
various mortgage loans. The extraordinary loss is comprised of the amount paid
above the carrying amount of the senior unsecured debt, the write-off of
unamortized deferred financing fees, the write-off of the unamortized portion of
an interest rate protection agreement which was used to fix the interest rate on
the senior unsecured debt prior to issuance, the settlement of an interest rate
protection agreement used to fix the retirement price of the senior unsecured
debt, prepayment fees, legal costs and other expenses.
19
COMPARISON OF THREE MONTHS ENDED JUNE 30, 2002 TO THREE MONTHS ENDED JUNE 30,
2001
Rental income and tenant recoveries and other income decreased by
approximately $1.8 million or 2.3% due primarily to a decrease in average
occupied GLA for the three months ended June 30, 2002 as compared to the three
months ended June 30, 2001. Rental income and tenant recoveries and other income
from properties owned prior to April 1, 2001, increased by approximately $.7
million or 1.1% due primarily to an increase in tenant recoveries due to an
increase in property expenses (as discussed below) for the three months ended
June 30, 2002 as compared to the three months ended June 30, 2001.
Property expenses, which include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other expenses,
increased by approximately $2.0 million or 8.5%. This increase is due primarily
to increases in real estate taxes and repairs and maintenance expense. The
increase in real estate taxes is primarily due to an increase in real estate
taxes in many of the Consolidated Operating Partnership's markets. The increase
in repairs and maintenance is primarily due to an increase in maintenance
company expenses. Property expenses from properties owned prior to April 1, 2001
increased by approximately $2.4 million or 13.2% due primarily to the
explanations above.
General and administrative expense remained relatively unchanged. An
increase in employee compensation and additional employees for the three months
ended June 30, 2002 as compared to the three months ended June 30, 2001 was
offset by the write off of the Consolidated Operating Partnership's technology
investment in the second quarter of 2001.
Interest expense increased by approximately $2.2 million for the three
months ended June 30, 2002 compared to the three months ended June 30, 2001 due
primarily to a higher average debt balance outstanding for the three months
ended June 30, 2002 compared to the three months ended June 30, 2001. The
average debt balance outstanding for the three months ended June 30, 2002 and
2001 was approximately $1,396.7 million and $1,291.0 million, respectively. This
was slightly offset by a decrease in the weighted average interest rate on the
Consolidated Operating Partnership's outstanding debt for the three months ended
June 30, 2002 (6.96%) as compared to the three months ended June 30, 2001
(7.11%), as well as an increase in capitalized interest due to an increase in
development activities.
Amortization of deferred financing costs remained relatively unchanged.
Depreciation and other amortization increased by approximately $2.2
million due primarily to a decrease in the number of properties the Consolidated
Operating Partnership considered held for sale at June 30, 2002 as compared to
June 30, 2001.
Equity in income of Other Real Estate Partnerships increased by
approximately $3.0 million due primarily to an increase in gain on sale of real
estate.
Equity in income of joint ventures increased by approximately $.1
million or 41.6% due primarily to the start up of one of the Consolidated
Operating Partnership's joint ventures in December 2001.
The approximate $2.6 million gain on sale of real estate for the three
months ended June 30, 2002 resulted from the sale of seven industrial properties
that were identified as held for sale at December 31, 2001. Gross proceeds from
these sales were approximately $11.3 million.
The approximate $9.7 million gain on sale of real estate for the three
months ended June 30, 2001 resulted from the sale of 40 industrial properties
and several land parcels. Gross proceeds from these sales were approximately
$116.6 million.
Income from discontinued operations of approximately $7.6 million for
the three months ended June 30, 2002 reflects the results of operations and gain
on sale of 16 industrial properties and several land parcels that were not held
for sale at December 31, 2001 and were sold during the three months ended June
30, 2002 as well as the results of operations of six industrial properties
identified as held for sale during the three months ended June 30, 2002.
20
Gross proceeds from the sales of the 16 industrial properties and several land
parcels were approximately $61.1 million, resulting in a gain on sale of real
estate of approximately $6.8 million.
Income from discontinued operations of approximately $2.0 million for
the three months ended June 30, 2001 reflects the results of operations of the
16 industrial properties that were not held for sale at December 31, 2001 and
were sold during the three months ended June 30, 2002 as well as the results of
operations of six industrial properties identified as held for sale during the
three months ended June 30, 2002.
The approximate $.9 million extraordinary loss for the three months
ended June 30, 2002 is due to the early retirement of senior unsecured debt and
various mortgage loans. The extraordinary loss is comprised of the amount paid
above the carrying amount of the senior unsecured debt, the write-off of
unamortized deferred financing fees and legal costs.
The approximate $10.3 million extraordinary loss for the three months
ended June 30, 2001 is due to the early retirement of senior unsecured debt and
various mortgage loans. The extraordinary loss is comprised of the amount paid
above the carrying amount of the senior unsecured debt, the write-off of
unamortized deferred financing fees, the write-off of the unamortized portion of
an interest rate protection agreement which was used to fix the interest rate on
the senior unsecured debt prior to issuance, the settlement of an interest rate
protection agreement used to fix the retirement price of the senior unsecured
debt, prepayment fees, legal costs and other expenses.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 2002, the Consolidated Operating Partnership's cash and
cash equivalents was approximately $1.4 million and restricted cash totaled
approximately $18.6 million. Restricted cash was comprised of gross proceeds
from the sales of certain properties. These sales proceeds will be disbursed as
the Consolidated Operating Partnership exchanges properties under Section 1031
of the Internal Revenue Code.
SIX MONTHS ENDED JUNE 30, 2002
Net cash provided by operating activities of approximately $69.1
million for the six months ended June 30, 2002 was comprised primarily of net
income of approximately $69.6 million and adjustments for non-cash items of
approximately $18.8 million, offset by the net change in operating assets and
liabilities of approximately $19.3 million. The adjustments for the non-cash
items of approximately $18.8 million are primarily comprised of depreciation and
amortization of approximately $35.5 million and an extraordinary loss of
approximately $.9 million from the early retirement of debt, offset by the gain
on sale of real estate of approximately $16.5 million and the effect of the
straight-lining of rental income of approximately $1.1 million.
Net cash used in investing activities of approximately $45.2 million
for the six months ended June 30, 2002 was comprised primarily of the
acquisition of real estate, development of real estate, capital expenditures
related to the expansion and improvement of existing real estate, an increase in
restricted cash from sales proceeds deposited with an intermediary for Section
1031 exchange purposes, investments in and advances to the Other Real Estate
Partnerships and contributions to and investments in the December 2001 Joint
Venture, offset by the net proceeds from the sale of real estate, distributions
from the Other Real Estate Partnerships, distributions from the Consolidated
Operating Partnership's industrial real estate joint ventures and the repayment
of mortgage loans receivable.
Net cash used in financing activities of approximately $22.5 million
for the six months ended June 30, 2002 was comprised primarily of the redemption
of its Series B Preferred Units (defined below), the partial pay off of the 2027
Notes (defined below), general partnership and limited partnership units
("Unit") distributions and preferred general partnership unit distributions,
repayments on mortgage loans payable, repurchase of restricted units due to the
repurchase of restricted stock from employees of the Company to pay for
withholding taxes on the vesting of restricted stock and net borrowings under
the Operating Partnership's $300 million unsecured line of credit (the "2000
21
Unsecured Acquisition Facility"), offset by the net proceeds from the issuance
of senior unsecured debt and Unit contributions.
SIX MONTHS ENDED JUNE 30, 2001
Net cash provided by operating activities of approximately $73.8
million for the six months ended June 30, 2001 was comprised primarily of net
income of approximately $71.4 million and adjustments for non-cash items of
approximately $19.8 million, offset by the net change in operating assets and
liabilities of approximately $17.4 million. The adjustments for the non-cash
items of approximately $19.8 million are primarily comprised of depreciation and
amortization of approximately $32.2 million and an extraordinary loss of
approximately $10.3 million from the early retirement of debt, offset by the
gain on sale of real estate of approximately $21.6 million and the effect of the
straight-lining of rental income of approximately $1.1 million.
Net cash used in investing activities of approximately $58.4 million
for the six months ended June 30, 2001 was comprised primarily of the
acquisition of real estate, development of real estate, capital expenditures
related to the expansion and improvement of existing real estate, funding of a
mortgage loan receivable, an increase in restricted cash from sales proceeds
deposited with an intermediary for Section 1031 exchange purposes and
investments in and advances to the Other Real Estate Partnerships, offset by the
net proceeds from the sale of real estate, distributions from investment in
Other Real Estate Partnerships, distributions from the Operating Partnership's
industrial real estate joint ventures and the repayment of mortgage loans
receivable.
Net cash used in financing activities of approximately $13.9 million
for the six months ended June 30, 2001 was comprised primarily of Unit and
preferred general partnership unit distributions, the repurchase of restricted
units due to the repurchase of restricted stock from employees of the Company to
pay for withholding taxes on the vesting of restricted stock, repayment of
senior unsecured debt, repayments on mortgage loans payable, prepayment fees
incurred in repayment of senior unsecured debt, prepayment fees incurred in the
early retirement of two mortgage loans and the net repayments under the
Operating Partnership's 2000 Unsecured Acquisition Facility, offset by Unit
contributions and the net proceeds from the issuance of senior unsecured debt.
INVESTMENT IN REAL ESTATE AND DEVELOPMENT OF REAL ESTATE
During the six months ended June 30, 2002, the Consolidated Operating
Partnership acquired 13 industrial properties comprising approximately 2.0
million square feet of GLA, and one land parcel. The aggregate purchase price
for these acquisitions totaled approximately $75.4 million, excluding costs
incurred in conjunction with the acquisition of the property. The Consolidated
Operating Partnership also completed the development of five industrial
properties comprising approximately .9 million square feet of GLA at a cost of
approximately $35.7 million.
The Consolidated Operating Partnership has committed to the
construction of 34 development projects totaling approximately 4.4 million
square feet of GLA for an estimated investment of approximately $214.9 million.
Of this amount, approximately $48.4 million remains to be funded. These
developments are expected to be funded with proceeds from the sale of select
properties, cash flows from operations and borrowings under the Operating
Partnership's 2000 Unsecured Acquisition Facility. The Consolidated Operating
Partnership expects to place in service all of these developments during the
next twelve months. There can be no assurance that the Consolidated Operating
Partnership will place these projects in service during the next twelve months
or that the actual completion cost will not exceed the estimated completion cost
stated above.
SALE OF REAL ESTATE, REAL ESTATE HELD FOR SALE AND DISCONTINUED OPERATIONS
During the six months ended June 30, 2002, the Consolidated Operating
Partnership sold 31 industrial properties comprising approximately 2.6 million
square feet of GLA that were not classified as held for sale at December 31,
2001, nine properties comprising .4 million square feet of GLA that were
22
classified as held for sale at December 31, 2001 and several land parcels. Gross
proceeds from these sales were approximately $140.2 million. In accordance with
FAS 144, the results of operations and gain on sale of real estate for the 31
sold properties that were not identified as held for sale at December 31, 2001
are included in discontinued operations.
At June 30, 2002, the Consolidated Operating Partnership had ten
industrial properties comprising approximately 1.2 million square feet of GLA
held for sale. Four of the ten properties comprising approximately .7 million
square feet of GLA that were held for sale as of June 30, 2002 were identified
as held for sale at December 31, 2001. Income from operations for the four
industrial properties held for sale for the six months ended June 30, 2002 and
2001 is approximately $1.0 million and $.7 million, respectively. Income from
operations for these four industrial properties held for sale for the three
months ended June 30, 2002 and 2001 is approximately $.5 million and $.3
million, respectively. Net carrying value of the ten industrial properties held
for sale at June 30, 2002 is approximately $33.8 million. In accordance with FAS
144, the results of operations of the properties identified as held for sale
during the six months ended June 30, 2002 are included in discontinued
operations. There can be no assurance that such properties held for sale will be
sold.
INVESTMENTS IN JOINT VENTURES
During the six months ended June 30, 2002, the Consolidated Operating
Partnership, through wholly-owned limited liability companies in which the
Operating Partnership is the sole member, recognized, in the aggregate,
approximately $1.0 million in asset management and property management fees from
the September 1998 Joint Venture, the September 1999 Joint Venture and the
December 2001 Joint Venture. The Operating Partnership, through a wholly-owned
limited liability company in which it is the sole member, invested approximately
$3.1 million in the December 2001 Joint Venture. The Consolidated Operating
Partnership, through wholly-owned limited liability companies in which the
Operating Partnership is the sole member, received distributions of
approximately $.8 million from the September 1998 Joint Venture and the
September 1999 Joint Venture. As of June 30, 2002, the September 1998 Joint
Venture owned 90 industrial properties comprising approximately 4.3 million
square feet of GLA, the September 1999 Joint Venture owned 31 industrial
properties comprising approximately .8 million square feet of GLA and the
December 2001 Joint Venture had economic interests in 14 industrial properties
comprising approximately 2.5 million square feet of GLA. The properties
purchased by the December 2001 Joint Venture were purchased from the
Consolidated Operating Partnership. The Consolidated Operating Partnership
deferred 15% of the gain resulting from these sales, which is equal to the
Consolidated Operating Partnership's economic interest in the December 2001
Joint Venture.
MORTGAGE LOANS PAYABLE
On April 1, 2002, the Consolidated Operating Partnership, through the
Operating Partnership, assumed a mortgage loan in the principal amount of
approximately $5.8 million (the "Acquisition Mortgage Loan VIII"). The
Acquisition Mortgage Loan VIII is collateralized by one property in Rancho
Dominguez, California, bears interest at a fixed rate of 8.26% and provides for
monthly principal and interest payments based on a 22-year amortization
schedule. The Acquisition Mortgage Loan VIII matures on December 1, 2019. The
Acquisition Mortgage Loan VIII may be prepaid only after November 2004 in
exchange for the greater of a 1% prepayment fee or yield maintenance premium.
On April 1, 2002, the Consolidated Operating Partnership, through the
Operating Partnership, assumed a mortgage loan in the principal amount of
approximately $6.0 million (the "Acquisition Mortgage Loan IX"). The Acquisition
Mortgage Loan IX is collateralized by one property in Rancho Dominguez,
California, bears interest at a fixed rate of 8.26% and provides for monthly
principal and interest payments based on a 22-year amortization schedule. The
Acquisition Mortgage Loan IX matures on December 1, 2019. The Acquisition
Mortgage Loan IX may be prepaid only after November 2004 in exchange for the
greater of a 1% prepayment fee or yield maintenance premium.
23
On January 31, 1997, the Consolidated Operating Partnership, through
the Operating Partnership, assumed a loan in the amount of approximately $.7
million (the "LB Loan II"). The LB Loan II was interest free until February
1998, after which time the LB Loan II bore interest at 8.00%, and provided for
interest only payments prior to maturity. On June 14, 2002, the Consolidated
Operating Partnership, through the Operating Partnership, paid off and retired
the LB Loan II.
SENIOR UNSECURED DEBT
On April 15, 2002, the Operating Partnership issued $200 million of
senior unsecured debt which matures on April 15, 2012 and bears a coupon
interest rate of 6.875% (the "2012 Notes"). The issue price of the 2012 Notes
was 99.310%. Interest is paid semi-annually in arrears on April 15 and October
15. The Operating Partnership also entered into interest rate protection
agreements which were used to fix the interest rate on the 2012 Notes prior to
issuance. The Operating Partnership settled the interest rate protection
agreements for approximately $1.8 million of proceeds, which is included in
other comprehensive income. The debt issue discount and the settlement amount of
the interest rate protection agreements are being amortized over the life of the
2012 Notes as an adjustment to interest expense. The 2012 Notes contain certain
covenants, including limitations on incurrence of debt and debt service
coverage.
On April 15, 2002, the Operating Partnership issued $50 million of
senior unsecured debt which matures on April 15, 2032 and bears a coupon
interest rate of 7.75% (the "2032 Notes"). The issue price of the 2032 Notes was
98.660%. Interest is paid semi-annually in arrears on April 15 and October 15.
The debt issue discount is being amortized over the life of the 2032 Notes as an
adjustment to interest expense. The 2032 Notes contain certain covenants,
including limitations on incurrence of debt and debt service coverage.
On May 13, 1997, the Consolidated Operating Partnership, through the
Operating Partnership, issued $100 million of senior unsecured debt which
matures on May 15, 2027 and bears a coupon interest rate of 7.15% (the "2027
Notes"). The issue price of the 2027 Notes was 99.854%. The 2027 Notes were
redeemable, at the option of the holders thereof, on May 15, 2002. The Operating
Partnership received redemption notices from holders representing approximately
$84.9 million of the 2027 Notes outstanding. On May 15, 2002, the Consolidated
Operating Partnership, through the Operating Partnership, paid off and retired
approximately $84.9 million of the 2027 Notes. Due to the partial pay off of the
2027 Notes, the Consolidated Operating Partnership has recorded an extraordinary
loss of approximately $.9 million comprised of the amount paid above the
carrying amount of the 2027 Notes, the write-off of unamortized deferred
financing fees and legal costs.
GENERAL PARTNER PREFERRED UNITS
On May 14, 1997 the Company issued 4,000,000 Depositary Shares, each
representing 1/100th of a share of the Company's 8 3/4%, $.01 par value, Series
B Cumulative Preferred Stock (the "Series B Preferred Stock"), at an initial
offering price of $25.00 per Depositary Share. The net proceeds of approximately
$96.3 million received from the Series B Preferred Stock were contributed to the
Operating Partnership in exchange for 8 3/4% Series B Cumulative Preferred Units
(the "Series B Preferred Units"). On or after May 14, 2002, the Series B
Preferred Stock became redeemable for cash at the option of the Company, in
whole or in part, at a redemption price equivalent to $25.00 per Depositary
Share, or $100 million in the aggregate, plus dividends accrued and unpaid to
the redemption date. On April 12, 2002, the Company called for the redemption of
all of its outstanding Series B Preferred Stock at the price of $25.00 per
share, plus accrued and unpaid dividends. The Company redeemed the Series B
Preferred Stock on May 14, 2002 and paid a prorated second quarter dividend of
$.26736 per Depositary Share, totaling approximately $1.1 million. The Series B
Cumulative Preferred Units were redeemed on May 14, 2002 as well.
MARKET RISK
24
The following discussion about the Consolidated Operating Partnership's
risk-management activities includes "forward-looking statements" that involve
risk and uncertainties. Actual results could differ materially from those
projected in the forward-looking statements.
This analysis presents the hypothetical gain or loss in earnings, cash
flows or fair value of the financial instruments and derivative instruments
which are held by the Consolidated Operating Partnership at June 30, 2002 that
are sensitive to changes in the interest rates. While this analysis may have
some use as a benchmark, it should not be viewed as a forecast.
In the normal course of business, the Consolidated Operating
Partnership also faces risks that are either non-financial or non-quantifiable.
Such risks principally include credit risk and legal risk and are not
represented in the following analysis.
At June 30, 2002, $1,343.8 million (approximately 94.3% of total debt
at June 30, 2002) of the Consolidated Operating Partnership's debt was fixed
rate debt (included in the fixed rate debt is $75.0 million of borrowings under
the Consolidated Operating Partnership's 2000 Unsecured Acquisition Facility
which the Consolidated Operating Partnership fixed the interest rate via
interest rate swap agreements) and $81.1 million (approximately 5.7% of total
debt at June 30, 2002) was variable rate debt. The Consolidated Operating
Partnership also had outstanding a written put option (the "Written Option"),
which was issued in conjunction with the initial offering of one tranche of
senior unsecured debt. Currently, the Consolidated Operating Partnership does
not enter into financial instruments for trading or other speculative purposes.
For fixed rate debt, changes in interest rates generally affect the
fair value of the debt, but not earnings or cash flows of the Consolidated
Operating Partnership. Conversely, for variable rate debt, changes in the
interest rate generally do not impact the fair value of the debt, but would
affect the Consolidated Operating Partnership's future earnings and cash flows.
The interest rate risk and changes in fair market value of fixed rate debt
generally do not have a significant impact on the Consolidated Operating
Partnership until the Consolidated Operating Partnership is required to
refinance such debt. See Note 5 to the consolidated financial statements for a
discussion of the maturity dates of the Consolidated Operating Partnership's
various fixed rate debt.
Based upon the amount of variable rate debt outstanding at June 30,
2002, a 10% increase or decrease in the interest rate on the Consolidated
Operating Partnership's variable rate debt would decrease or increase,
respectively, future net income and cash flows by approximately $.2 million per
year. A 10% increase in interest rates would decrease the fair value of the
fixed rate debt at June 30, 2002 by approximately $62.1 million to $1,401.4
million. A 10% decrease in interest rates would increase the fair value of the
fixed rate debt at June 30, 2002 by approximately $68.1 million to $1,531.6
million. A 10% increase in interest rates would decrease the fair value of the
Written Option at June 30, 2002 by approximately $2.3 million to $6.5 million. A
10% decrease in interest rates would increase the fair value of the Written
Option at June 30, 2002 by approximately $2.8 million to $11.6 million.
GENERAL PARTNERSHIP AND LIMITED PARTNERSHIP UNIT CONTRIBUTIONS, EMPLOYEE
STOCK OPTIONS AND RESTRICTED STOCK
The Operating Partnership has issued Units. The general partnership
units resulted from capital contributions from the Company. The limited
partnership units are issued in conjunction with the acquisition of certain
properties.
25
Unit Contributions:
During the six months ended June 30, 2002, the Company awarded 90,260
shares of restricted common stock to certain employees and 1,841 shares of
restricted common stock to certain Directors. The Operating Partnership issued
Units to the Company in the same amount. These shares of restricted common stock
had a fair value of approximately $3.2 million on the date of grant. The
restricted common stock vests over periods from one to ten years. Compensation
expense will be charged to earnings over the respective vesting periods.
During the six months ended June 30, 2002, the Company issued 940,600
non-qualified employee stock options to certain officers, Directors and
employees. These non-qualified employee stock options vest over periods from one
to three years, have a strike price of $30.53-$33.15 per share and expire ten
years from the date of grant.
During the six months ended June 30, 2002, certain employees exercised
555,068 non-qualified employee stock options. Net proceeds to the Company were
approximately $15.7 million. The Consolidated Operating Partnership, through the
Operating Partnership, issued Units to the Company in the same amount.
During the six months ended June 30, 2002, the Operating Partnership
issued 18,203 Units having an aggregate market value of approximately $.6
million in exchange for property.
Distributions:
On January 22, 2002, the Operating Partnership paid a fourth quarter
2001 distribution of $.6800 per Unit, totaling approximately $31.2 million. On
April 22, 2002, the Operating Partnership paid a first quarter 2002 distribution
of $.6800 per Unit, totaling approximately $31.5 million.
On April 1, 2002, the Operating Partnership paid first quarter
distributions of $54.688 per unit on its Series B Preferred Units, $53.906 per
Unit on its Series C Preferred Units, $49.688 per unit on its Series D Preferred
Units and $49.375 per unit on its Series E Preferred Units. The preferred unit
distributions paid on April 1, 2002, totaled approximately $7.2 million. On May
14, 2002, the Operating Partnership paid a prorated second quarter distribution
of $26.736 per unit, totaling approximately $1.1 million on its Series B
Preferred Units.
SUBSEQUENT EVENTS
From July 1, 2002 to August 9, 2002, the Consolidated Operating
Partnership acquired three industrial properties for an aggregate purchase price
of approximately $4.6 million, excluding costs incurred in conjunction with the
acquisition of these industrial properties. The Consolidated Operating
Partnership also sold four industrial properties and several land parcels for
approximately $21.1 million of gross proceeds.
On July 1, 2002, the Operating Partnership paid second quarter
preferred unit distributions of $53.906 per unit on its Series C Preferred
Units, $49.687 per unit on its Series D Preferred Units and $49.375 per unit on
its Series E Preferred Units. The preferred unit distributions paid on July 1,
2002 totaled approximately $5.0 million.
On August 31, 1998, the Consolidated Operating Partnership, through the
Operating Partnership, assumed a mortgage loan in the principal amount of $1.0
million (the "Acquisition Mortgage Loan VI"). The Acquisition Mortgage Loan VI
was collateralized by one property in Portland, Oregon, bore interest at a fixed
rate of 8.875% and provided for monthly principal and interest payments based on
a 20-year amortization schedule. On July 2, 2002, the Consolidated Operating
Partnership, through the Operating Partnership paid off and retired the
Acquisition Mortgage Loan VI.
On March 20, 1996 the Consolidated Operating Partnership, through the
Operating Partnership, entered into a $36.8 million mortgage loan (the "CIGNA
Loan") that is collateralized by seven properties in Indianapolis, Indiana and
three properties in Cincinnati, Ohio. The CIGNA Loan bears interest at a
26
fixed interest rate of 7.50% and provides for monthly principal and interest
payments based on a 25 - year amortization schedule. The CIGNA Loan matures on
April 1, 2003. The Consolidated Operating Partnership has given notice to the
lender of the CIGNA Loan that it intends to pay off and retire this loan in
October 2002.
On July 22, 2002, the Operating Partnership paid a second quarter 2002
distribution of $.6800 per Unit, totaling approximately $31.6 million.
SHORT-TERM AND LONG-TERM LIQUIDITY NEEDS
The Consolidated Operating Partnership has considered its short-term
(one year or less) liquidity needs and the adequacy of its estimated cash flow
from operations and other expected liquidity sources to meet these needs. The
Consolidated Operating Partnership believes that its principle short-term
liquidity needs are to fund normal recurring expenses, debt service requirements
and the minimum distribution required by the Company to maintain the Company's
REIT qualification under the Internal Revenue Code. The Consolidated Operating
Partnership anticipates that these needs will be met with cash flows provided by
operating activities.
The Consolidated Operating Partnership expects to meet long-term
(greater than one year) liquidity requirements such as property acquisitions,
developments, scheduled debt maturities, major renovations, expansions and other
nonrecurring capital improvements through the disposition of select assets, the
issuance of long-term unsecured indebtedness and the issuance of additional
Units and preferred units. As of June 30, 2002 and August 9, 2002, approximately
$250.0 million of debt securities was registered and unissued under the
Securities Act of 1933, as amended. The Consolidated Operating Partnership may
also finance the development or acquisition of additional properties through
borrowings under the 2000 Unsecured Acquisition Facility. At June 30, 2002,
borrowings under the 2000 Unsecured Acquisition Facility bore interest at a
weighted average interest rate of 3.17%. The 2000 Unsecured Acquisition Facility
bears interest at a floating rate of LIBOR plus .80%, or the Prime Rate, at the
Operating Partnership's election. As of August 9, 2002, the Consolidated
Operating Partnership, through the Operating Partnership, had approximately
$112.2 million available in additional borrowings under the 2000 Unsecured
Acquisition Facility.
OTHER
On April 30, 2002, the FASB issued Financial Accounting Standards No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("FAS 145"). FAS 145 rescinds both
Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses
from Extinguishment of Debt" ("FAS 4"), and the amendment to FAS 4, Statement of
Financial Accounting Standards No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements". FAS 145 eliminates the requirement that gains and
losses from the extinguishment of debt be aggregated and, if material,
classified as an extraordinary item, net of the related income tax effect,
unless the criteria in Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" are met. FAS 145 is effective for transactions occurring
subsequent to May 15, 2002. The Consolidated Operating Partnership believes that
FAS 145 will not have an impact on its consolidated financial position,
liquidity and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Response to this item is included in Item 2. "Management's Discussion
and Analysis of Financial Condition and Results of Operations" above.
27
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
During the six months ended June 30, 2002, the Operating Partnership issued
an aggregate of 18,203 Units having an aggregate market value of
approximately $.6 million in exchange for property.
The above Units were issued in a private placement in reliance on Section 4
(2) of the Securities Act of 1933, as amended, including Regulation D
promulgated thereunder, to individuals or entities holding real property or
interests therein. No underwriters were used in connection with such
issuances.
Subject to lock-up periods and certain adjustments, Units are generally
convertible into common stock, par value $.01, of the Company on a
one-for-one basis.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
- ----------- -----------
3.1 Nineteenth Amendment, dated as of June 26, 2002, to the Sixth
Amended and Restated Limited Partnership Agreement of First
Industrial, L.P., dated March 18, 1998 (incorporated by
reference to Exhibit 10.1 of First Industrial Realty Trust,
Inc.'s Form 10-Q for the quarter ended June 30, 2002, File No.
1-13102)
(b) Reports on Form 8-K:
Report on Form 8-K filed April 17, 2002, dated April 4, 2002,
reporting the pricing of offerings by First Industrial, L.P. of $200
million of 6.875% Notes due 2012 and $50 million of 7.75% Notes due
2032.
28
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST INDUSTRIAL, L.P.
BY: FIRST INDUSTRIAL REALTY TRUST, INC.
ITS SOLE GENERAL PARTNER
Date: August 9, 2002 By: /s/ Scott A. Musil .
------------------------------------
Scott A. Musil
Senior Vice President- Controller
(Chief Accounting Officer)
29
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Nineteenth Amendment, dated as of June 26, 2002, to the Sixth
Amended and Restated Limited Partnership Agreement of First
Industrial, L.P., dated March 18, 1998 (incorporated by
reference to Exhibit 10.1 of First Industrial Realty Trust,
Inc.'s Form 10-Q for the quarter ended June 30, 2002, File No.
1-13102)
30