UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Form 10-Q

 

 

 

 

 

 

Commission file number 333-21873

 

 

 

 

First Industrial, L.P.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

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 þ     No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

 

 

FIRST INDUSTRIAL, L.P.

 

Form 10-Q

 

For the Period Ended September 30, 2009

 

INDEX

 

 

 

FIRST INDUSTRIAL, L.P.

 

CONSOLIDATED BALANCE SHEETS

 

 

The accompanying notes are an integral part of the consolidated financial statements.

FIRST INDUSTRIAL, L.P.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

The accompanying notes are an integral part of the consolidated financial statements.

FIRST INDUSTRIAL, L.P.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

The accompanying notes are an integral part of the consolidated financial statements.

FIRST INDUSTRIAL, L.P.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

FIRST INDUSTRIAL, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except Unit and per Unit data)

 

 

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”), a real estate investment trust (“REIT”) as defined in the Internal Revenue Code of 1986 (the “Code”). The Company owns common units in the Operating Partnership (“Units”) representing an approximate 89.7% and 87.6% common ownership interest at September 30, 2009 and September 30, 2008, respectively. The Company also owns a preferred general partnership interest in the Operating Partnership represented by preferred Units (“Preferred Units”) with an aggregate liquidation priority of $275,000 at September 30, 2009. Effective September 1, 2009, our taxable REIT subsidiary, First Industrial Investment, Inc. (the “old TRS”) merged into First Industrial Investment II, LLC (“FI LLC”), which is wholly owned by the Operating Partnership. Immediately thereafter, certain assets and liabilities of FI LLC were contributed to a new subsidiary, FR Investment Properties, LLC (“FRIP”). FRIP is 1% owned by FI LLC and 99% owned by a new taxable REIT subsidiary, First Industrial Investment Properties, Inc. (the “new TRS,” which, collectively with the old TRS, will be referred to as the “TRSs”), which is wholly owned by FI LLC (see Note 12). The limited partners of the Operating Partnership owned, in the aggregate, approximately a 10.3% and 12.4% interest in the Operating Partnership at September 30, 2009 and September 30, 2008, respectively. The Company’s operations are conducted primarily through the Operating Partnership and the old TRS prior to September 1, 2009 and the Operating Partnership, FI LLC, the new TRS and FRIP subsequent to September 1, 2009. Unless the context otherwise requires, the term the “Operating Partnership,” refers to First Industrial, L.P. and the terms “we,” “us,” and “our” refer to First Industrial, L.P. and its controlled subsidiaries.

 

We are the sole member of several limited liability companies, including FI LLC (the “L.L.C.s”). The Operating Partnership, the L.L.C.s, FRIP and the new TRS are referred to as the “Consolidated Operating Partnership.” The operating data of the L.L.C.s, FRIP and the new TRS are consolidated with that of the Operating Partnership as presented herein. The Operating Partnership also holds at least a 99% limited partnership interest in each of eight limited partnerships (together, the “Other Real Estate Partnerships”).

 

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 partner. Each general partner of the Other Real Estate Partnerships is a wholly-owned subsidiary of the Company.

 

As of September 30, 2009, we owned 715 industrial properties (inclusive of developments in process) containing an aggregate of approximately 61.9 million square feet of gross leasable area (“GLA”). On a combined basis, as of September 30, 2009, the Other Real Estate Partnerships owned 72 industrial properties containing an aggregate of approximately 7.8 million square feet of GLA.

 

We also own noncontrolling equity interests in, and provide various services to, seven joint ventures whose purpose is to invest in industrial properties (the “2003 Net Lease Joint Venture,” the “2005 Development/Repositioning Joint Venture,” the “2005 Core Joint Venture,” the “2006 Net Lease Co-Investment Program,” the “2006 Land/Development Joint Venture,” the “2007 Canada Joint Venture” and the “2007 Europe Joint Venture;” together the “Joint Ventures”). The 2007 Europe Joint Venture does not own any properties.

 

The Other Real Estate Partnerships and the Joint Ventures are accounted for under the equity method of accounting. The operating data of the Other Real Estate Partnerships and the Joint Ventures are not consolidated with that of the Consolidated Operating Partnership as presented herein.

 

 

The real estate markets have been significantly impacted by recent events in the global capital markets. The current recession has resulted in downward pressure on our net operating income and has impaired our ability to sell properties.

 

FIRST INDUSTRIAL, L.P.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Our $500,000 unsecured credit facility (the “Unsecured Line of Credit”) and the indentures under which our senior unsecured indebtedness is, or may be, issued, contain certain financial covenants, including, among other things, coverage ratios and limitations on our ability to incur total indebtedness and secured and unsecured indebtedness. Consistent with our prior practice, we will, in the future, continue to interpret and certify our performance under these covenants in a good faith manner that we deem reasonable and appropriate. However, these financial covenants are complex and there can be no assurance that these provisions would not be interpreted by our lenders in a manner that could impose and cause us to incur material costs. Any violation of these covenants would subject us to higher finance costs and fees, or accelerated maturities. In addition, our credit facilities and senior debt securities contain certain cross-default provisions, which are triggered in the event that our other material indebtedness is in default. Under the Unsecured Line of Credit, an event of default can also occur if the lenders, in their good faith judgment, determine that a material adverse change has occurred which could prevent timely repayment or materially impair our ability to perform our obligations under the loan agreement.

 

We believe that we were in compliance with our financial covenants as of September 30, 2009, and we anticipate that we will be able to operate in compliance with our financial covenants for the remainder of 2009. However, our ability to meet our financial covenants may be reduced if economic and capital market conditions limit our property sales and reduce our net operating income below our projections. We plan to enhance our liquidity, and reduce our indebtedness, through a combination of capital retention, mortgage and equity financing, asset sales and the repayment of outstanding debt.

 

 

FIRST INDUSTRIAL, L.P.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

 

Although we believe we will be successful in meeting our liquidity needs through a combination of capital retention, mortgage and equity financing and asset sales, if we were to be unsuccessful in executing one or more of the strategies outlined above, we could be materially adversely affected.

 

 

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 our Annual Report on Form 10-K for the year ended December 31, 2008 (“2008 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, 2008 audited financial statements included in our 2008 Form 10-K and present interim disclosures as required by the Securities and Exchange Commission.

 

The 2008 year end consolidated balance sheet data included in this Form 10-Q filing was derived from the audited financial statements in our 2008 Form 10-K, and has been revised as the result of the adoption of new accounting principles (mentioned hereafter), but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

 

In order to conform with GAAP, we, in preparation of our financial statements, are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of September 30, 2009 and December 31, 2008, and the reported amounts of revenues and expenses for the three and nine months ended September 30, 2009 and September 30, 2008. Actual results could differ from those estimates.

 

In our opinion, the accompanying unaudited interim financial statements reflect all adjustments necessary for a fair statement of our financial position as of September 30, 2009 and December 31, 2008 and the results of our operations and comprehensive income for each of the three and nine months ended September 30, 2009 and September 30, 2008, and our cash flows for each of the nine months ended September 30, 2009 and September 30, 2008, and all adjustments are of a normal recurring nature.

 

FIRST INDUSTRIAL, L.P.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Deferred Leasing Intangibles

 

Deferred Leasing Intangibles, exclusive of Deferred Leasing Intangibles held for sale, included in our total assets consist of the following:

 

 

Deferred Leasing Intangibles, exclusive of Deferred Leasing Intangibles held for sale, included in our total liabilities consist of the following:

 

 

Amortization expense related to in-place leases and tenant relationships of deferred leasing intangibles was $3,701 and $6,269 for the three months ended September 30, 2009 and September 30, 2008, respectively, and $12,649 and $21,702 for the nine months ended September 30, 2009 and September 30, 2008, respectively. Rental revenues increased by $955 and $1,005 related to amortization of above/(below) market leases for the three months ended September 30, 2009 and September 30, 2008, respectively, and $2,159 and $5,569 for the nine months ended September 30, 2009 and September 30, 2008, respectively.

 

Recent Accounting Pronouncements

 

In June 2009, the Financial Accounting Standards Board (the “FASB”) issued new guidance which revises and updates previously issued guidance related to variable interest entities. This new guidance revises the previous guidance by eliminating the exemption for qualifying special purpose entities, by establishing a new approach for determining who should consolidate a variable-interest entity and by changing when it is necessary to reassess who should consolidate a variable-interest entity. We will adopt this new guidance January 1, 2010. We are currently reviewing the impact of the guidance on our financial statements and expect to complete this evaluation in 2009.

 

In May 2009, the FASB issued guidance relating to events that occur subsequent to the reporting date. The guidance is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date — that is, whether that date represents the date the financial statements were issued or were available to be issued. The guidance is effective for interim and annual periods ending after June 15, 2009. We adopted this guidance in the Quarterly

 

FIRST INDUSTRIAL, L.P.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Report on Form 10-Q for the quarter ended June 30, 2009. This guidance does not impact the consolidated financial results as it is disclosure-only in nature.

 

In April 2009, the FASB issued guidance which requires an entity to provide disclosures about fair value of financial instruments in interim financial information. The disclosures are required prospectively and are effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. We first included the required disclosures in the Quarterly Report on Form 10-Q for the quarter ended June 30, 2009. This guidance does not impact the consolidated financial results as it is disclosure-only in nature.

 

Effective January 1, 2009 we adopted newly issued guidance from the FASB relating to noncontrolling interests within consolidated financial statements. This guidance establishes requirements for ownership interests in subsidiaries held by parties other than the Company (formerly called “minority interests”) to be clearly identified, presented, and disclosed in the consolidated statement of financial position within equity, but separate from the parent’s equity. Changes in a parent’s ownership interest (and transactions with noncontrolling interest holders) while the parent retains its controlling financial interest in its subsidiary should be accounted for as equity transactions. The carrying amount of the noncontrolling interest shall be adjusted to reflect the change in its ownership interest in the subsidiary, with the offset to equity attributable to the parent. This guidance was effective, on a prospective basis, for fiscal years beginning after December 15, 2008, however, presentation and disclosure requirements need to be retrospectively applied to comparative financial statements. The implementation of this guidance regarding noncontrolling interests did not have an impact on our consolidated financial position and results of operations.

 

Effective January 1, 2009 we adopted newly issued guidance from the FASB relating to disclosures about derivatives and hedging activities. This guidance expands the current disclosure requirements and entities must now provide enhanced disclosures on an interim basis and annual basis regarding how and why the entity uses derivatives, how derivatives and related hedged items are accounted for and how derivatives and related hedged items affect the entity’s financial position, financial results and cash flow. See Note 16 for the required disclosures. This guidance does not impact the consolidated financial results as it is disclosure-only in nature.

 

Effective January 1, 2009 we adopted newly issued guidance from the FASB which delayed the effective date relating to fair value measurements for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). See Note 13 for the required disclosures. This guidance does not impact the consolidated financial results as it is disclosure-only in nature.

 

Effective January 1, 2009 we adopted newly issued guidance from the Emerging Issues Task Force (“EITF”) regarding the determination of whether instruments granted in share-based payment transactions are participating securities. The guidance required retrospective application. Under this guidance, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in the computation of earnings per unit (“EPU”) pursuant to the two-class method. The two-class method determines EPU for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. Certain restricted stock awards granted to employees and directors are considered participating securities as they receive non-forfeitable dividend or dividend equivalents at the same rate as common stock. The impact of adopting this guidance decreased previously filed basic and diluted EPU by $0.05 for the nine months ended September 30, 2008.

 

Effective January 1, 2009 we adopted newly issued guidance from the FASB regarding business combinations. This guidance states that direct costs of a business combination, such as transaction fees, due diligence and consulting fees no longer qualify to be capitalized as part of the business combination. Instead, these direct costs need to be recognized as expense in the period in which they are incurred. Accordingly, we retroactively expensed these types of costs in 2008 related to future operating property acquisitions.

 

FIRST INDUSTRIAL, L.P.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Effective January 1, 2009 we adopted newly issued guidance from the Accounting Principles Board (“APB”) regarding accounting for convertible debt instruments that may be settled for cash upon conversion. This guidance requires the liability and equity components of convertible debt instruments to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The guidance requires that the value assigned to the debt component be the estimated fair value of a similar bond without the conversion feature, which would result in the debt being recorded at a discount. The resulting debt discount is then amortized over the period during which the debt is expected to be outstanding (i.e., through the first optional redemption date) as additional non-cash interest expense. Retrospective application to all periods presented is required.

 

The equity component of our convertible unsecured notes (the “2011 Exchangeable Notes”) was $7,898 and therefore we retroactively adjusted our Senior Unsecured Debt by this amount as of September 2006. This debt discount has been subsequently amortized and as of September 30, 2009 the principal amount of the 2011 Exchangeable Notes, its unamortized discount and the net carrying amount is $199,000, $3,143 and $195,857, respectively. In addition, we reclassified $194 of the original finance fees incurred in relation to the 2011 Exchangeable Notes to equity as of September 2006. For the three and nine months ended September 30, 2009, we recognized $2,705 and $8,120, respectively, of interest expense related to the 2011 Exchangeable Notes of which $2,311 and $6,936, respectively, relates to the coupon rate and $394 and $1,184, respectively, relates to the debt discount amortization. We anticipate amortizing the remaining debt discount into interest expense through maturity in September 2011. We recognized $3,555 and $(88) as an adjustment to total equity as of December 31, 2008 that represents amortization expense of the discount and the loan fees, respectively, which would have been recognized had the new guidance been effective since the issuance date of our 2011 Exchangeable Notes.

 

The impact to net income and the loss from continuing operations related to the adoption of the guidance regarding business combinations and convertible debt instruments for the three and nine months ended September 30, 2008 was an increase to general and administrative expense of $22 and $151, respectively, an increase to interest expense of $395 and $1,185, respectively, and a decrease to amortization of deferred financing fees of $10 and $30, respectively.

 

The impact to the balance sheet as of December 31, 2008 related to the adoption of the guidance regarding business combinations and convertible debt instruments is as follows:

 

 

 

The investments in and advances to Other Real Estate Partnerships reflects our limited partnership equity interests in the entities referred to in Note 1 to these consolidated financial statements.

 

During 2009, one of the limited partnerships of the Other Real Estate Partnerships distributed an industrial property to the Operating Partnership with a carrying value of $1,811.

 

FIRST INDUSTRIAL, L.P.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Summarized condensed financial information as derived from the financial statements of the Other Real Estate Partnerships is presented below:

 

Condensed Combined Balance Sheets:

 

 

Condensed Combined Statements of Operations:

 

 

 

At September 30, 2009, the 2003 Net Lease Joint Venture owned 10 industrial properties comprising approximately 5.1 million square feet of GLA, the 2005 Development/Repositioning Joint Venture owned 46 industrial properties comprising approximately 8.2 million square feet of GLA and several land parcels, the 2005 Core Joint Venture owned 48 industrial properties comprising approximately 3.9 million square feet of GLA and several land parcels, the 2006 Net Lease Co-Investment Program owned 11 industrial properties comprising

 

FIRST INDUSTRIAL, L.P.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

approximately 4.4 million square feet of GLA, the 2006 Land/Development Joint Venture owned one industrial property comprising approximately 0.8 million square feet and several land parcels and the 2007 Canada Joint Venture owned two industrial properties comprising approximately 0.2 million square feet of GLA and several land parcels. As of September 30, 2009, the 2007 Europe Joint Venture does not own any properties.

 

On September 18, 2009, the Company received a notice from the counterparty in the 2006 Net Lease Co-Investment Program that such counterparty is exercising the buy/sell provision in the program’s governing agreement to either purchase the Company’s 15% interests in the real property assets currently owned by the program or sell to the Company its interests in some or all of such assets, along with an additional real property asset in another program which the Company manages but in which the Company has no ownership interest. The purchasing party for each asset in the program will be required to deposit 10% of the applicable purchase price, as an earnest money deposit, and the remaining 90% will be required to be paid within six months, or other mutually agreed upon time. Under the buy/sell provision, the Company has a 60 day period during which to respond. The Company is still evaluating its alternatives, but anticipates that it will accept the counterparty’s offered price to purchase the Company’s interests in all of the 2006 Net Lease Co-Investment Program’s real property assets. As a result, during the three months ended September 30, 2009, we recognized a $3,879 impairment loss in Equity in Loss of Joint Ventures as a result of the difference between our basis in our 2006 Net Lease Co-Investment Program interest and the offered price, which approximates fair value. Additionally, we recorded an impairment loss of $1,748 in Equity in Loss of Joint Ventures which represents our proportionate share of the impairment loss recorded by the 2006 Net Lease Co-Investment Program related to one industrial property.

 

During July 2007, we entered into a management arrangement with an institutional investor to provide property management, leasing, acquisition, disposition and portfolio management services for industrial properties (the “July 2007 Fund”). We do not own an equity interest in the July 2007 Fund, however, we are entitled to incentive payments if certain economic thresholds related to the industrial properties are achieved. During the three months ended September 30, 2009, our management arrangement for certain industrial properties within the July 2007 Fund was terminated. We received and recorded $866 as a termination fee which is included in Tenant Recoveries and Other Income on the statement of operations for the three and nine months ended September 30, 2009.

 

At September 30, 2009 and December 31, 2008, we have receivables from the Joint Ventures and the July 2007 Fund of $1,729 and $3,939, respectively, which mainly relates to development, leasing, property management and asset management fees due to us from the Joint Ventures and the July 2007 Fund, reimbursement for other expenditures paid on behalf of the Joint Ventures and the July 2007 Fund and reimbursement for development expenditures made by the TRSs in their capacity as the general contractor for development projects for the 2005 Development/Repositioning Joint Venture. These receivable amounts are included in Prepaid Expenses and Other Assets, Net.

 

During the three and nine months ended September 30, 2009 and September 30, 2008, we invested the following amounts in, as well as received distributions from, our Joint Ventures and recognized fees from acquisition, disposition, leasing, development, incentive, property management and asset management services from our Joint Ventures and the July 2007 Fund in the following amounts:

 

 

FIRST INDUSTRIAL, L.P.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

 

The following table discloses certain information regarding our mortgage loans payable, senior unsecured debt, and Unsecured Line of Credit:

 

 

 

 

FIRST INDUSTRIAL, L.P.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

During the nine months ended September 30, 2009, we obtained the following mortgage loans:

 

 

For Mortgage Financings I, II, III and IV, prepayment is prohibited anywhere between 36 and 60 months from loan origination. Thereafter, a prepayment premium is required. Mortgage Financing I requires the payment of a premium equal to 3% of the loan balance if paid during the fifth loan year, 2% during the sixth loan year, 1% during the seventh loan year. No premium shall be due on prepayments made within 45 days of maturity. Mortgage Financings II and III require the payment of a premium equal to the greater of 1% of the loan balance or a yield maintenance amount. No premium shall be due on prepayments made within 90 days of maturity for Mortgage Financing II and 120 days for Mortgage Financing III. Mortgage Financing IV requires the payment of a premium equal to 2% of the loan balance if paid during the fourth loan year, 1% during the fifth loan year for the $2,000 loan, and the payment of a premium equal to 3% of the loan balance if paid during the fifth loan year, 2% during the sixth loan year, 1% during the seventh loan year for the $5,850 and $5,000 loans. No premium shall be due on prepayments made within 45 days of maturity.

 

Prepayment is not prohibited at any time for Mortgage Financings V and VI, but a prepayment penalty is required. Mortgage Financing V requires the payment of a premium equal to the greater of 1% of the loan balance or a yield maintenance amount. No premium shall be due on prepayments made within 120 days of maturity. Mortgage Financing VI requires the payment of a premium equal to 5% of the outstanding loan balance if paid during the first loan year, 4% during the second loan year, 3% during the third loan year, 2% during the fourth loan year and 1% during the fifth loan year. No premium shall be due on prepayments made within 60 days of maturity.

 

On June 1, 2009, we paid off and retired our secured mortgage debt maturing in July 2009 in the amount of $5,025.

 

On June 15, 2009, we paid off and retired our 2009 Notes in the amount of $105,721.

 

FIRST INDUSTRIAL, L.P.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

During the three and nine months ended September 30, 2009, we repurchased and retired the following senior unsecured debt prior to its maturity:

 

 

In connection with these repurchases prior to maturity, we recognized $18,179 and $22,165 as gain on early retirement of debt for the three and nine months ended September 30, 2009, respectively, which is the difference between the repurchase amount of $104,227 and $135,204, respectively, and the principal amount retired of $123,712 and $158,691, respectively, net of the pro rata write off of the unamortized debt issue discount, the unamortized loan fees and the unamortized settlement amount of the interest rate protection agreements related to the repurchases of $909, $416 and $3, respectively, and $941, $463 and $(60), respectively. In addition, we allocated $22 of the purchase price for our 2011 Exchangeable Notes to the reacquisition of the 2011 Exchangeable Notes equity component.

 

The following is a schedule of the stated maturities and scheduled principal payments of the mortgage loans payable, senior unsecured debt and Unsecured Line of Credit, exclusive of premiums and discounts, for the next five years ending December 31, and thereafter:

 

 

All of our senior unsecured debt (except for the 2011 Exchangeable Notes) contain certain covenants, including limitations on incurrence of debt and debt service coverage. The Unsecured Line of Credit contains certain covenants, including limitations on incurrence of debt and debt service coverage. Under the Unsecured Line of Credit, an event of default can also occur if the lenders, in their good faith judgment, determine that a material adverse change has occurred which could prevent timely repayment or materially impair our ability to perform our obligations under the loan agreement. We believe that the Operating Partnership and the Company were in compliance with all covenants relating to senior unsecured debt and the Unsecured Line of Credit as of September 30, 2009. However, these financial covenants are complex and there can be no assurance that these provisions would not be interpreted by our noteholders or lenders in a manner that could impose and cause us to incur material costs.

 

FIRST INDUSTRIAL, L.P.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Fair Value

 

At September 30, 2009 and December 31, 2008, the fair value of our mortgage loans payable, senior unsecured debt and Unsecured Line of Credit were as follows:

 

 

The fair value of the senior unsecured debt was determined by quoted market prices, if available. The fair values of our mortgage loans payable were determined by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of the Unsecured Line of Credit was determined by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term, assuming no repayment until maturity.

 

 

We have issued general partnership units, limited partnership 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, $0.01 par value, 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. We are required to make all required distributions on the preferred general partnership units prior to any distribution of cash or assets to the holders of the general and limited partnership units, except for distributions required to enable the Company to maintain its qualification as a REIT.

 

Unit Contributions:

 

During the nine months ended September 30, 2009, the Company awarded 35,145 shares of restricted common stock to certain directors of the Company. We issued the same amount of Units to the Company. The restricted common stock had a fair value of approximately $149 on the date of issuance. The restricted common stock awarded to directors vests over a five year period. Compensation expense will be charged to earnings over the respective vesting period for the shares expected to vest.

 

During the three months ended September 30, 2009, we awarded 27,588 shares of common stock to certain directors. The common stock shares had a fair value of approximately $120 on the date of issuance.

 

On August 8, 2008, the Company’s DRIP became effective. Under the terms of the DRIP, stockholders who participate may reinvest all or part of their dividends in additional shares of the Company at a discount from the market price, at our discretion, when the shares are issued and sold directly by us from authorized but unissued shares of the Company’s common stock. Stockholders and non-stockholders may also purchase additional shares at a discounted price, at our discretion, when the shares are issued and sold directly by us from authorized but unissued shares of the Company’s common stock, by making optional cash payments, subject to certain dollar thresholds. During the three months ended September 30, 2009, we issued 3,034,120 shares under the direct stock purchase component of the DRIP for approximately $15,920.

 

On September 29, 2009, we agreed to sell in an underwritten public offering of 12,500,000 shares the Company’s common stock at a price of $5.25 per share that settled on October 5, 2009. In addition, we granted the underwriters a 30-day option to purchase up to an additional 1,875,000 shares to cover over-allotments, if any. The underwriters’ option was partially exercised and 1,135,700 additional shares settled on October 5, 2009. The price

 

FIRST INDUSTRIAL, L.P.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

per share to the public was $5.25 resulting in gross offering proceeds from the issuance, including from the over-allotment option, and the underwriter’s option of $71,587 in the aggregate. Proceeds to us, net of underwriters’ discount and total expenses, were approximately $67,803.

 

During the nine months ended September 30, 2009, we made a grant of 1,000,000 restricted stock units to our Chief Executive Officer. These restricted stock units had a fair value of approximately $6,014 on the date of issuance. Of these restricted stock units, a total of 600,000 (the “Service Awards”) vest in four equal installments on the first, second, third and fourth anniversary of December 31, 2008, and a total of 400,000 (the “Performance Awards”) vest in four installments of up to 100,000 on the first, up to 200,000 on the second, up to 300,000 on the third and up to 400,000 on the fourth year anniversary of December 31, 2008, to the extent certain market conditions are met. The market conditions are met when certain stock price levels are achieved and maintained for certain time periods between the award issuance date and December 31, 2013. Both the Service Awards and Performance Awards require the Chief Executive Officer to be employed by the Company at the applicable vesting dates, subject to certain clauses in the award agreement. The Service Awards are amortized over the four year service period. The Performance Awards are amortized over the service period of each installment.

 

During the three months ended September 30, 2009, we made a grant of 473,600 restricted stock units to certain members of management. These restricted stock units had a fair value of approximately $1,392 on the date of issuance. The restricted stock units will vest in four installments on the first, second, third and fourth year anniversary of June 30, 2009, to the extent certain service periods and market conditions are both met. The market conditions are met when certain stock price levels are achieved and maintained for certain time periods between the award issuance date and June 30, 2014. The restricted stock units are amortized over the service period of each installment. In conjunction with the issuance of the restricted stock units, the members of management were also granted cash awards with a fair value of $792. The cash awards vest on June 30, 2010 and compensation expense is recognized on a straight-line basis over the service period. In order to receive the restricted stock units and the cash awards, the members of management are required to be employed by the Company at the applicable vesting dates, subject to certain clauses in the award agreements.

 

Distributions:

 

The coupon rate of our Series F Preferred Stock resets every quarter beginning March 31, 2009 at 2.375% plus the greater of (i) the 30 year U.S. Treasury rate, (ii) the 10 year U.S. Treasury rate or (iii) 3-month LIBOR. On July 1, 2009, the new coupon rate was 6.685%. See Note 16 for additional derivative information related to the Series F Preferred Stock coupon rate reset.

 

The following table summarizes distributions accrued during the nine months ended September 30, 2009:

 

 

 

During the nine months ended September 30, 2008, we acquired 23 industrial properties comprising approximately 3.0 million square feet of GLA and several land parcels. The purchase price of these acquisitions totaled approximately $277,065, excluding costs incurred in conjunction with the acquisition of the industrial properties and land parcels.

 

During the nine months ended September 30, 2009, we acquired one land parcel. The purchase price of the land parcel was approximately $208, excluding costs incurred in conjunction with the acquisition of the land parcel.

 

FIRST INDUSTRIAL, L.P.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Intangible Assets Subject to Amortization in the Period of Acquisition

 

The fair value of in-place leases, above market leases, tenant relationships and below market leases recorded due to real estate properties acquired for the nine months ended September 30, 2009 and September 30, 2008 is as follows:

 

 

The weighted average life in months of in-place leases, above market leases, tenant relationships and below market leases recorded as a result of the real estate properties acquired for the nine months ended September 30, 2009 and September 30, 2008 is as follows:

 

 

 

During the nine months ended September 30, 2009, we sold eight industrial properties comprising approximately 1.2 million square feet of GLA and several land parcels. Gross proceeds from the sales of the eight industrial properties and several land parcels were approximately $47,471. The gain on sale of real estate was approximately $12,583, of which $11,862 is shown in discontinued operations. The eight sold industrial properties meet the criteria to be included in discontinued operations. Therefore the results of operations and gain on sale of real estate for the eight sold industrial properties are included in discontinued operations. The results of operations and gain on sale of real estate for the several land parcels that does not meet the criteria to be included in discontinued operations is included in continuing operations.

 

At September 30, 2009, we had six industrial properties comprising approximately 0.6 million square feet of GLA held for sale. The results of operations of the six industrial properties held for sale at September 30, 2009 are included in discontinued operations. There can be no assurance that such industrial properties held for sale will be sold.

 

Income from discontinued operations, net of income taxes, for the nine months ended September 30, 2008 reflects the results of operations of the eight industrial properties that were sold during the nine months ended September 30, 2009, the results of operations of 88 industrial properties that were sold during the year ended December 31, 2008, the results of operations of the six industrial properties identified as held for sale at September 30, 2009 and the gain on sale of real estate relating to 83 industrial properties that were sold during the nine months ended September 30, 2008.

 

FIRST INDUSTRIAL, L.P.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table discloses certain information regarding the industrial properties included in our discontinued operations for the three and nine months ended September 30, 2009 and September 30, 2008:

 

 

At September 30, 2009 and December 31, 2008, we had notes receivables outstanding of approximately $47,912 and $37,512, respectively, which is included as a component of Prepaid Expenses and Other Assets, Net. At September 30, 2009 and December 31, 2008, the fair value of the notes receivables were $43,681 and $31,061, respectively. The fair values of our notes receivables were determined by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

 

 

Supplemental disclosure of cash flow information: