Attached files
file | filename |
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EX-31.1 - EX-31.1 - FIRST INDUSTRIAL LP | c59554exv31w1.htm |
EX-32.1 - EX-32.1 - FIRST INDUSTRIAL LP | c59554exv32w1.htm |
EX-31.2 - EX-31.2 - FIRST INDUSTRIAL LP | c59554exv31w2.htm |
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-Q
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended June 30, 2010 | ||
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
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 Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
311 S. Wacker Drive, Suite 3900, Chicago,
Illinois 60606
(Address of Principal Executive
Offices)
(312) 344-4300
(Registrants 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):
Large accelerated filer o Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
(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 June 30, 2010
INDEX
Table of Contents
PART I:
FINANCIAL INFORMATION
Item 1. | Financial Statements |
FIRST
INDUSTRIAL, L.P.
June 30, |
December 31, |
|||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
(In thousands except unit and per unit data) | ||||||||
ASSETS
|
||||||||
Assets:
|
||||||||
Investment in Real Estate:
|
||||||||
Land
|
$ | 652,667 | $ | 661,945 | ||||
Buildings and Improvements
|
2,292,732 | 2,279,814 | ||||||
Construction in Progress
|
11,212 | 23,332 | ||||||
Less: Accumulated Depreciation
|
(553,344 | ) | (521,021 | ) | ||||
Net Investment in Real Estate
|
2,403,267 | 2,444,070 | ||||||
Real Estate Held for Sale, Net of Accumulated Depreciation and
Amortization of $980 and $1,752 at June 30, 2010 and
December 31, 2009, respectively
|
3,962 | 29,154 | ||||||
Investments in and Advances to Other Real Estate Partnerships
|
275,411 | 307,806 | ||||||
Cash and Cash Equivalents
|
84,367 | 181,147 | ||||||
Restricted Cash
|
169 | 90 | ||||||
Tenant Accounts Receivable, Net
|
2,517 | 1,818 | ||||||
Investments in Joint Ventures
|
4,866 | 8,788 | ||||||
Deferred Rent Receivable, Net
|
37,364 | 33,561 | ||||||
Deferred Financing Costs, Net
|
13,332 | 14,659 | ||||||
Deferred Leasing Intangibles, Net of Accumulated Amortization of
$39,845 and $37,738 at June 30, 2010 and December 31,
2009, respectively
|
47,591 | 51,796 | ||||||
Prepaid Expenses and Other Assets, Net
|
127,175 | 127,521 | ||||||
Total Assets
|
$ | 3,000,021 | $ | 3,200,410 | ||||
LIABILITIES AND PARTNERS CAPITAL | ||||||||
Liabilities:
|
||||||||
Indebtedness:
|
||||||||
Mortgage and Other Loans Payable, Net
|
$ | 406,807 | $ | 370,809 | ||||
Senior Unsecured Debt, Net
|
912,147 | 1,140,114 | ||||||
Unsecured Line of Credit
|
496,472 | 455,244 | ||||||
Accounts Payable, Accrued Expenses and Other Liabilities, Net
|
87,534 | 106,128 | ||||||
Deferred Leasing Intangibles, Net of Accumulated Amortization of
$13,117 and $12,219 at June 30, 2010 and December 31,
2009, respectively
|
19,792 | 21,871 | ||||||
Rents Received in Advance and Security Deposits
|
23,723 | 22,953 | ||||||
Total Liabilities
|
1,946,475 | 2,117,119 | ||||||
Commitments and Contingencies
|
| | ||||||
Partners Capital:
|
||||||||
General Partner Preferred Units (1,550 units issued and
outstanding at June 30, 2010 and December 31, 2009,
respectively) with a liquidation preference of $275,000,
respectively
|
266,211 | 266,211 | ||||||
General Partner Units (63,807,044 and 61,845,214 units
issued and outstanding at June 30, 2010 and
December 31, 2009, respectively)
|
697,867 | 724,852 | ||||||
Limited Partners Units (5,366,113 and 5,390,737 units
issued and outstanding at June 30, 2010 and
December 31, 2009, respectively)
|
108,468 | 112,214 | ||||||
Accumulated Other Comprehensive Loss
|
(19,000 | ) | (19,986 | ) | ||||
Total Partners Capital
|
1,053,546 | 1,083,291 | ||||||
Total Liabilities and Partners Capital
|
$ | 3,000,021 | $ | 3,200,410 | ||||
The accompanying notes are an integral part of the consolidated
financial statements.
2
Table of Contents
FIRST
INDUSTRIAL, L.P.
Three Months |
Three Months |
Six Months |
Six Months |
|||||||||||||
Ended |
Ended |
Ended |
Ended |
|||||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands except per unit data) | ||||||||||||||||
Revenues:
|
||||||||||||||||
Rental Income
|
$ | 56,994 | $ | 57,932 | $ | 114,381 | $ | 116,833 | ||||||||
Tenant Recoveries and Other Income
|
19,426 | 19,978 | 40,307 | 42,132 | ||||||||||||
Construction Revenues
|
| 18,318 | 270 | 36,749 | ||||||||||||
Total Revenues
|
76,420 | 96,228 | 154,958 | 195,714 | ||||||||||||
Expenses:
|
||||||||||||||||
Property Expenses
|
25,969 | 27,939 | 55,047 | 57,109 | ||||||||||||
General and Administrative
|
7,362 | 11,575 | 16,256 | 21,564 | ||||||||||||
Restructuring Costs
|
947 | 72 | 1,211 | 4,816 | ||||||||||||
Impairment of Real Estate
|
| | 9,155 | | ||||||||||||
Depreciation and Other Amortization
|
31,400 | 31,935 | 61,640 | 66,025 | ||||||||||||
Construction Expenses
|
| 17,789 | 209 | 35,672 | ||||||||||||
Total Expenses
|
65,678 | 89,310 | 143,518 | 185,186 | ||||||||||||
Other Income/(Expense):
|
||||||||||||||||
Interest Income
|
1,023 | 723 | 2,109 | 1,284 | ||||||||||||
Interest Expense
|
(24,879 | ) | (29,352 | ) | (51,922 | ) | (57,450 | ) | ||||||||
Amortization of Deferred Financing Costs
|
(760 | ) | (753 | ) | (1,552 | ) | (1,461 | ) | ||||||||
Mark-to-Market
(Loss) Gain on Interest Rate Protection Agreements
|
(1,324 | ) | 2,301 | (1,458 | ) | 3,416 | ||||||||||
(Loss) Gain from Early Retirement of Debt
|
(4,320 | ) | 3,986 | (3,965 | ) | 3,986 | ||||||||||
Foreign Currency Exchange Loss, Net
|
(190 | ) | | (190 | ) | | ||||||||||
Total Other Income/(Expense)
|
(30,450 | ) | (23,095 | ) | (56,978 | ) | (50,225 | ) | ||||||||
Loss from Continuing Operations Before Equity in Income of Other
Real Estate Partnerships, Equity in Income of Joint Ventures and
Income Tax (Provision) Benefit
|
(19,708 | ) | (16,177 | ) | (45,538 | ) | (39,697 | ) | ||||||||
Equity in Income of Other Real Estate Partnerships
|
3,049 | 3,718 | 5,882 | 8,246 | ||||||||||||
Equity in Income of Joint Ventures
|
582 | 1,551 | 123 | 1,580 | ||||||||||||
Income Tax (Provision) Benefit
|
(2,511 | ) | 2,635 | (2,636 | ) | 4,471 | ||||||||||
Loss from Continuing Operations
|
(18,588 | ) | (8,273 | ) | (42,169 | ) | (25,400 | ) | ||||||||
Income from Discontinued Operations (Including Gain on Sale of
Real Estate of $3,610 and $3,907 for the Three Months Ended
June 30, 2010 and June 30, 2009, respectively, and
$7,619 and $7,509 for the Six Months Ended June 30, 2010
and June 30, 2009, respectively)
|
3,488 | 4,564 | 7,574 | 8,732 | ||||||||||||
(Provision) Benefit for Income Taxes Allocable to Discontinued
Operations (Including $0 and $34 allocable to Gain on Sale of
Real Estate for the Three Months Ended June 30, 2010 and
June 30, 2009, respectively, and $0 and $128 for the Six
Months Ended June 30, 2010 and June 30, 2009,
respectively)
|
| (72 | ) | | 14 | |||||||||||
Loss Before Gain on Sale of Real Estate
|
(15,100 | ) | (3,781 | ) | (34,595 | ) | (16,654 | ) | ||||||||
Gain on Sale of Real Estate
|
| | 1,072 | 460 | ||||||||||||
Provision for Income Taxes Allocable to Gain on Sale of Real
Estate
|
| | (380 | ) | (29 | ) | ||||||||||
Net Loss
|
(15,100 | ) | (3,781 | ) | (33,903 | ) | (16,223 | ) | ||||||||
Less: Preferred Unit Distributions
|
(4,979 | ) | (4,824 | ) | (9,939 | ) | (9,681 | ) | ||||||||
Net Loss Available to Unitholders and Participating Securities
|
$ | (20,079 | ) | $ | (8,605 | ) | $ | (43,842 | ) | $ | (25,904 | ) | ||||
Basic and Diluted Earnings Per Unit:
|
||||||||||||||||
Loss from Continuing Operations Available to Unitholders
|
$ | (0.35 | ) | $ | (0.26 | ) | $ | (0.76 | ) | $ | (0.69 | ) | ||||
Income From Discontinued Operations Available to Unitholders
|
$ | 0.05 | $ | 0.09 | $ | 0.11 | $ | 0.18 | ||||||||
Net Loss Available to Unitholders
|
$ | (0.29 | ) | $ | (0.17 | ) | $ | (0.65 | ) | $ | (0.52 | ) | ||||
Weighted Average Units Outstanding
|
68,214 | 49,975 | 67,704 | 49,947 | ||||||||||||
Net Loss Available to Unitholders Attributable to:
|
||||||||||||||||
General Partners
|
$ | (18,518 | ) | $ | (7,680 | ) | $ | (40,385 | ) | $ | (22,997 | ) | ||||
Limited Partners
|
(1,561 | ) | (925 | ) | (3,457 | ) | (2,907 | ) | ||||||||
Net Loss Available to Unitholders
|
$ | (20,079 | ) | $ | (8,605 | ) | $ | (43,842 | ) | $ | (25,904 | ) | ||||
The accompanying notes are an integral part of the consolidated
financial statements.
3
Table of Contents
FIRST
INDUSTRIAL, L.P.
Three Months |
Three Months |
Six Months |
Six Months |
|||||||||||||
Ended |
Ended |
Ended |
Ended |
|||||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands) | ||||||||||||||||
Net Loss
|
$ | (15,100 | ) | $ | (3,781 | ) | $ | (33,903 | ) | $ | (16,223 | ) | ||||
Mark-to-Market
on Interest Rate Protection Agreements, Net of Income Tax
Provision of $0 and $216 for the Three Months Ended
June 30, 2010 and June 30, 2009, respectively, and
$414 and $241 for the Six Months Ended June 30, 2010 and
June 30, 2009, respectively
|
(20 | ) | 1,179 | (587 | ) | (1,036 | ) | |||||||||
Amortization of Interest Rate Protection Agreements
|
523 | 38 | 1,028 | (168 | ) | |||||||||||
Write-off of Unamortized Settlement of Interest Rate Protection
Agreements
|
(13 | ) | (63 | ) | (158 | ) | (63 | ) | ||||||||
Foreign Currency Translation Adjustment, Net of Income Tax
Benefit (Provision) of $166 and $(1,429) for the Three Months
Ended June 30, 2010 and June 30, 2009, respectively,
and $634 and $(926) for the Six Months Ended June 30, 2010
and June 30, 2009, respectively
|
21 | 892 | 703 | 449 | ||||||||||||
Other Comprehensive Loss
|
$ | (14,589 | ) | $ | (1,735 | ) | $ | (32,917 | ) | $ | (17,041 | ) | ||||
The accompanying notes are an integral part of the consolidated
financial statements.
4
Table of Contents
FIRST
INDUSTRIAL, L.P.
General |
Accumulated |
|||||||||||||||||||
Partner |
General |
Limited |
Other |
|||||||||||||||||
Preferred |
Partner |
Partner |
Comprehensive |
|||||||||||||||||
Units | Units | Units | Loss | Total | ||||||||||||||||
Balance as of December 31, 2009
|
$ | 266,211 | $ | 724,852 | $ | 112,214 | $ | (19,986 | ) | $ | 1,083,291 | |||||||||
Issuance of Common Stock, Net of Issuance Costs
|
| 10,291 | | | 10,291 | |||||||||||||||
Stock Based Compensation Activity
|
| 2,820 | | | 2,820 | |||||||||||||||
Conversion of Units to Common Stock
|
| 289 | (289 | ) | | | ||||||||||||||
Dividends
|
(9,939 | ) | | | | (9,939 | ) | |||||||||||||
Comprehensive Loss:
|
||||||||||||||||||||
Net Loss
|
9,939 | (40,385 | ) | (3,457 | ) | | (33,903 | ) | ||||||||||||
Other Comprehensive Loss
|
| | | 986 | 986 | |||||||||||||||
Total Comprehensive Loss
|
(32,917 | ) | ||||||||||||||||||
Balance as of June 30, 2010
|
$ | 266,211 | $ | 697,867 | $ | 108,468 | $ | (19,000 | ) | $ | 1,053,546 | |||||||||
The accompanying notes are an integral part of the consolidated
financial statements.
5
Table of Contents
FIRST
INDUSTRIAL, L.P.
Six Months |
Six Months |
|||||||
Ended |
Ended |
|||||||
June 30, |
June 30, |
|||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net Loss
|
$ | (33,903 | ) | $ | (16,223 | ) | ||
Adjustments to Reconcile Net Loss to Net Cash Provided by
Operating Activities:
|
||||||||
Depreciation
|
47,724 | 50,315 | ||||||
Amortization of Deferred Financing Costs
|
1,552 | 1,461 | ||||||
Other Amortization
|
18,736 | 26,533 | ||||||
Impairment of Real Estate
|
9,155 | | ||||||
Provision for Bad Debt
|
622 | 1,825 | ||||||
Mark-to-Market
Loss (Gain) on Interest Rate Protection Agreements
|
1,458 | (3,416 | ) | |||||
Loss (Gain) from Early Retirement of Debt
|
3,965 | (3,986 | ) | |||||
Payments of Premiums and Discounts Associated with Senior
Unsecured Debt
|
(6,192 | ) | | |||||
Operating Distributions Received in Excess of (Less Than) Equity
in Income of Joint Ventures
|
1,660 | (460 | ) | |||||
Gain on Sale of Real Estate
|
(8,691 | ) | (7,969 | ) | ||||
Equity in Income of Other Real Estate Partnerships
|
(5,822 | ) | (8,246 | ) | ||||
Distributions from Investment in Other Real Estate Partnerships
|
5,822 | 8,246 | ||||||
Increase in Developments for Sale Costs
|
| (14 | ) | |||||
(Increase) Decrease in Tenant Accounts Receivable, Prepaid
Expenses and Other Assets, Net
|
(896 | ) | 17,708 | |||||
Increase in Deferred Rent Receivable
|
(3,853 | ) | (3,003 | ) | ||||
Decrease in Accounts Payable, Accrued Expenses, Other
Liabilities, Rents Received in Advance and Security Deposits
|
(19,336 | ) | (16,906 | ) | ||||
(Increase) Decrease in Restricted Cash
|
(79 | ) | 96 | |||||
Net Cash Provided by Operating Activities
|
11,922 | 45,961 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases of and Additions to Investment in Real Estate
|
(47,290 | ) | (43,810 | ) | ||||
Net Proceeds from Sales of Investments in Real Estate
|
52,270 | 16,711 | ||||||
Investments in and Advances to Other Real Estate Partnerships
|
(114,301 | ) | (7,074 | ) | ||||
Distributions from Other Real Estate Partnerships in Excess of
Equity in Income
|
146,696 | 22,740 | ||||||
Contributions to and Investments in Joint Ventures
|
(414 | ) | (2,721 | ) | ||||
Distributions from Joint Ventures
|
4,484 | 5,823 | ||||||
Repayment of Notes Receivable
|
976 | 2,821 | ||||||
Increase in Lender Escrows
|
(1,077 | ) | | |||||
Net Cash Provided by (Used In) Investing Activities
|
41,344 | (5,510 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Debt and Equity Issuance Costs
|
(721 | ) | (3,855 | ) | ||||
Unit Contributions
|
10,341 | | ||||||
Unit Distributions
|
| (12,614 | ) | |||||
Preferred Unit Distributions
|
(9,939 | ) | (10,461 | ) | ||||
Payments on Interest Rate Swap Agreement
|
(228 | ) | | |||||
Costs Associated with Early Retirement of Debt
|
(1,008 | ) | | |||||
Repurchase and Retirement of Restricted Units
|
(268 | ) | (722 | ) | ||||
Proceeds from Origination of Mortgage Loans Payable
|
40,580 | 143,755 | ||||||
Repayments on Mortgage Loans Payable
|
(4,272 | ) | (6,843 | ) | ||||
Settlement of Interest Rate Protection Agreements
|
| (7,491 | ) | |||||
Repayment of Senior Unsecured Debt
|
(225,729 | ) | (136,699 | ) | ||||
Proceeds from Unsecured Line of Credit
|
51,500 | 46,000 | ||||||
Repayments on Unsecured Line of Credit
|
(10,341 | ) | | |||||
Net Cash (Used in) Provided by Financing Activities
|
(150,085 | ) | 11,070 | |||||
Net Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
39 | 26 | ||||||
Net (Decrease) Increase in Cash and Cash Equivalents
|
(96,819 | ) | 51,521 | |||||
Cash and Cash Equivalents, Beginning of Period
|
181,147 | 2,644 | ||||||
Cash and Cash Equivalents, End of Period
|
$ | 84,367 | $ | 54,191 | ||||
The accompanying notes are an integral part of the consolidated
financial statements.
6
Table of Contents
FIRST
INDUSTRIAL, L.P.
(Unaudited)
(In thousands except Unit and per Unit data)
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) which
owns common units in the Operating Partnership
(Units) representing an approximate 92.2% and 89.0%
common ownership interest at June 30, 2010 and
June 30, 2009, 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 June 30, 2010. The Company is a real estate investment
trust (REIT) as defined in the Internal Revenue Code
of 1986 (the Code). The Companys operations
are conducted primarily through the Operating Partnership. The
limited partners of the Operating Partnership owned, in the
aggregate, approximately a 7.8% and 11.0% interest in the
Operating Partnership at June 30, 2010 and June 30,
2009, respectively. Unless the context otherwise requires, the
term 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. 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 and certain wholly owned
taxable real estate investment trust subsidiaries of FI LLC,
will be referred to as the TRSs), which is wholly
owned by FI LLC.
The Operating Partnership is 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 Operating Partnership or the new TRS, through separate
wholly-owned limited liability companies of which it is the sole
member, also owns or owned 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. Following the end of the quarter ended June 30,
2010, we agreed with our joint venture partner for four of the
seven Joint Ventures, the 2005 Development/Repositioning Joint
Venture, the 2005 Core Joint Venture, 2006 Land/Development
Joint Venture and the 2007 Canada Joint Venture to conclude each
of these Joint Ventures. See Notes 6 and 15 for more
information on the Joint Ventures.
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 June 30, 2010, we owned 710 industrial properties
located in 28 states in the United States and one province
in Canada, containing an aggregate of approximately
61.3 million square feet of gross leasable area
(GLA). On a combined basis, as of June 30,
2010, the Other Real Estate Partnerships owned 72 industrial
properties containing an aggregate of approximately
7.9 million square feet of GLA.
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.
7
Table of Contents
FIRST
INDUSTRIAL, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2. | Current Business Risks and Uncertainties |
The real estate markets have been significantly impacted by
disruption in the global capital markets. The current state of
the economy has resulted in downward pressure on our net
operating income and has impaired our ability to sell properties.
Our unsecured revolving credit facility that has a borrowing
capacity of $500,000 (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 noteholders or 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 June 30, 2010, and we anticipate that we
will be able to operate in compliance with our financial
covenants throughout 2010 based upon our earnings projections.
Our belief that we will continue to meet our financial covenants
through 2010 is based on internal projections of EBITDA, as
defined in our Unsecured Line of Credit and our unsecured notes,
which include a number of assumptions, including, among others,
assumptions regarding occupancy rates, tenant retention, rental
rates and property sales as well as internal projections of
interest expense and preferred dividends. However, we expect to
exceed the minimum amounts permitted under the unsecured
leverage and fixed charge coverage covenants set forth in our
Unsecured Line of Credit by only a thin margin. Moreover, our
ability to meet our financial covenants may be reduced if
economic and credit market conditions limit our property sales
and reduce our net operating income below our projections. We
expect to retire indebtedness maturing in 2010 and to comply
with our financial covenants in 2010. We plan to enhance our
liquidity, and reduce our indebtedness, through a combination of
capital retention, mortgage and equity financings, asset sales
and debt reduction.
| Capital Retention We plan to retain capital by maintaining a distribution policy that makes per unit distributions equivalent to the per share distributions the Company is required to make to meet its minimum distribution requirements as a REIT. The Operating Partnership has not made distributions to date in 2010 and may not make distributions in future quarters in 2010 depending on the Companys taxable income. If, to maintain its REIT status, the Company is required to pay common stock dividends with respect to 2010, the Company may elect to do so by distributing a combination of cash and common shares and the Operating Partnership would make corresponding distributions in cash and common units. Also, if the Company is not required to pay preferred stock dividends to maintain its REIT status, it may elect to suspend some or all preferred stock dividends for one or more fiscal quarters, which would aid compliance with the fixed charge coverage covenant under our Unsecured Line of Credit. If the Company did elect to suspend some or all preferred stock dividends for one or more fiscal quarters, the Operating Partnership would elect to suspend corresponding preferred stock unit distributions. | |
| Mortgage Financing During the six months ended June 30, 2010, we originated $40,580 in mortgage financings with maturities ranging from February 2015 to July 2020 and interest rates ranging from 6.50% to 7.40% (see Note 7). We believe these mortgage financings comply with all covenants contained in our Unsecured Line of Credit and our senior debt securities, including coverage ratios and total indebtedness, total unsecured indebtedness and total secured indebtedness limitations. We continue to engage various |
8
Table of Contents
FIRST
INDUSTRIAL, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
lenders regarding the origination of additional mortgage
financings and the terms and conditions thereof. To the extent
additional mortgage financing is originated, we expect to use
proceeds received to pay down other debt. No assurances can be
made that additional mortgage financing will be obtained.
| Equity Financing During the six months ended June 30, 2010, the Company issued 875,402 shares of its common stock, generating $5,970 in net proceeds, under the direct stock purchase component of the Companys Dividend Reinvestment and Direct Stock Purchase Plan (DRIP). During the three months ended June 30, 2010, the Company issued 548,704 shares of its common stock, generating approximately $4,371 in net proceeds, under the Companys at-the-market equity offering program (ATM) (see Note 8). These proceeds were contributed to us in exchange for an equivalent number of Units. We may opportunistically access the equity markets again, subject to contractual restrictions, and may continue to issue shares under the ATM or the direct stock purchase component of the DRIP. To the extent additional equity offerings occur, we expect to use the proceeds received to reduce our indebtedness. | |
| Asset Sales During the six months ended June 30, 2010, we sold five industrial properties and several land parcels for gross proceeds of $53,675 (see Note 4). We are in various stages of discussions with third parties for the sale of additional properties in 2010 and plan to continue to selectively market other properties for sale throughout 2010. We expect to use sales proceeds to pay down additional debt. If we are unable to sell properties on an advantageous basis, this may impair our liquidity and our ability to meet our financial covenants. | |
| Debt Reduction During the six months ended June 30, 2010, we closed on a tender offer in which we purchased $72,702 of our senior unsecured debt maturing in 2011 (the 2011 Notes), $66,236 of our senior unsecured debt maturing in 2012 and $21,062 of our senior unsecured debt maturing in 2014. In addition, subsequent to the tender offer, we redeemed and retired the remaining outstanding balance of our 2011 Notes in the amount of $70,796. We may from time to time repay additional amounts of our outstanding debt. Any repayments would depend upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors we consider important. Future repayments may materially impact our liquidity, taxable income and results of operations. |
Although we believe we will be successful in meeting our
liquidity needs and maintaining compliance with our debt
covenants through a combination of capital retention, mortgage
and equity financings, asset sales and debt repurchases, if we
were to be unsuccessful in executing one or more of the
strategies outlined above, our financial condition and operating
results could be materially adversely affected.
3. | 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 our Annual Report on
Form 10-K
for the year ended December 31, 2009 (2009
Form 10-K)
and should be read in conjunction with such financial statements
and related notes. The 2009 year end consolidated balance
sheet data included in this
Form 10-Q
filing was derived from the audited financial statements in our
2009
Form 10-K,
but does not include all disclosures required by accounting
principles generally accepted in the United States of America
(GAAP). The following notes to these interim
financial statements highlight significant changes to the notes
included in the December 31, 2009, audited financial
statements included in our 2009
Form 10-K
and present interim disclosures as required by the Securities
and Exchange Commission. 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 June 30, 2010 and December 31, 2009,
and the reported amounts of revenues and expenses for the three
and six months ended June 30, 2010 and June 30, 2009.
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 June 30, 2010 and
December 31, 2009, and the results of our operations and
comprehensive income for each of the three and six
9
Table of Contents
FIRST
INDUSTRIAL, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
months ended June 30, 2010 and June 30, 2009, and our
cash flows for each of the six months ended June 30, 2010
and June 30, 2009, and all adjustments are of a normal
recurring nature.
Income
Taxes
As of December 31, 2008, we had paid approximately $1,400
(representing tax and interest for the years
1997-2000)
to the State of Michigan regarding business loss carryforwards,
the appropriateness of which was the subject of current
litigation initiated by us. On December 11, 2007, the
Michigan Court of Claims rendered a decision against us
regarding the business loss carryforwards. Also, the court ruled
against us on an alternative position involving Michigans
Capital Acquisition Deduction. We filed an appeal to the
Michigan Appeals Court in January 2008; however, as a result of
the lower courts decision, an additional approximately
$800 (representing tax and interest for the year 2001) had
been accrued through June 30, 2009 for both tax and
financial statement purposes. On August 18, 2009, the
Michigan Appeals Court issued a decision in our favor on the
business loss carryforward issue. The Michigan Department of
Treasury appealed the decision to the Michigan Supreme Court on
September 29, 2009; however, we believed there was a very
low probability that the Michigan Supreme Court would accept the
case. Therefore, in September 2009 we reversed our accrual of
$800 (related to the 2001 tax year) and set up a receivable of
$1,400 for the amount paid in 2006 (related to the
1997-2000
tax years), resulting in an aggregate reversal of prior tax
expense of approximately $2,200. On April 23, 2010, the
Michigan Supreme Court reversed the decision of the Michigan
Appeals Court and reinstated the decision of the Michigan Court
of Claims. Based on the most recent ruling of the Michigan
Supreme Court, we reversed the receivable of $1,400 and
reestablished the accrual of $800, for a total of approximately
$2,200 of tax expense for the three months ended June 30,
2010. We do not plan on appealing the decision of the Michigan
Supreme Court.
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, which became effective
January 1, 2010, 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 adopted this new guidance on
January 1, 2010. However, the adoption of this guidance did
not impact our financial position or results of operations.
4. | Investment in Real Estate |
Acquisitions
During the six months ended June 30, 2010, we acquired
three industrial properties comprising approximately
0.5 million square feet of GLA, including one industrial
property purchased from the 2005 Development/Repositioning Joint
Venture (see Note 6). The purchase price of these
acquisitions totaled approximately $22,408, excluding costs
incurred in conjunction with the acquisition of the industrial
properties.
10
Table of Contents
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 and
tenant relationships recorded due to real estate properties
acquired for the six months ended June 30, 2010 and
included in deferred leasing intangibles is as follows:
Six Months |
||||
Ended |
||||
June 30, |
||||
2010 | ||||
In-Place Leases
|
$ | 1,782 | ||
Above Market Leases
|
$ | 239 | ||
Tenant Relationships
|
$ | 1,881 |
The weighted average life in months of in-place leases, above
market leases and tenant relationships recorded as a result of
the real estate properties acquired for the six months ended
June 30, 2010 is as follows:
Six Months |
||||
Ended |
||||
June 30, |
||||
2010 | ||||
In-Place Leases
|
100 | |||
Above Market Leases
|
88 | |||
Tenant Relationships
|
165 |
Sales
and Discontinued Operations
During the six months ended June 30, 2010, we sold five
industrial properties comprising approximately 0.5 million
square feet of GLA and several land parcels. Gross proceeds from
the sales of the five industrial properties and several land
parcels were approximately $53,675. The gain on sale of real
estate was approximately $8,691, of which $7,619 is shown in
discontinued operations. The five 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 five sold industrial properties are included in
discontinued operations. The results of operations and gain on
sale of real estate for the land parcel that does not meet the
criteria to be included in discontinued operations is included
in continuing operations.
At June 30, 2010, we had two industrial properties
comprising approximately 0.2 million square feet of GLA
held for sale. The results of operations of the two industrial
properties held for sale at June 30, 2010 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 six months ended June 30, 2009 reflects the results of
operations of the five industrial properties and one land parcel
that received ground rental revenues that were sold during the
six months ended June 30, 2010, the results of operations
of 12 industrial properties that were sold during the year ended
December 31, 2009, the results of operations of the two
industrial properties identified as held for sale at
June 30, 2010 and the gain on sale of real estate relating
to five industrial properties that were sold during the six
months ended June 30, 2009.
11
Table of Contents
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 six months ended June 30, 2010 and
June 30, 2009:
Three Months |
Three Months |
Six Months |
Six Months |
|||||||||||||
Ended |
Ended |
Ended |
Ended |
|||||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Total Revenues
|
$ | 120 | $ | 2,123 | $ | 649 | $ | 5,069 | ||||||||
Property Expenses
|
(129 | ) | (661 | ) | (383 | ) | (1,785 | ) | ||||||||
Depreciation and Amortization
|
(113 | ) | (805 | ) | (311 | ) | (2,061 | ) | ||||||||
Gain on Sale of Real Estate
|
3,610 | 3,907 | 7,619 | 7,509 | ||||||||||||
(Provision) Benefit for Income Taxes
|
| (72 | ) | | 14 | |||||||||||
Income from Discontinued Operations
|
$ | 3,488 | $ | 4,492 | $ | 7,574 | $ | 8,746 | ||||||||
At June 30, 2010 and December 31, 2009, we had
mortgage notes receivables outstanding of approximately $59,087
and $60,029, net of a discount of $415 and $449, respectively,
issued primarily in conjunction with certain property sales for
which we provided seller financing, which is included as a
component of Prepaid Expenses and Other Assets, Net. At
June 30, 2010 and December 31, 2009, the fair values
of the mortgage notes receivables were $58,986 and $56,812,
respectively. The fair values of our mortgage notes receivables
were determined by discounting the future cash flows using the
current rates at which similar loans would be made to other
borrowers with similar credit ratings and for the same remaining
maturities.
Impairment
Charges
In connection with our periodic review of the carrying values of
our properties and the negotiation of a new lease, we determined
in the first quarter of 2010 that an impairment loss in the
amount of $9,155 should be recorded to a certain property
comprised of 0.3 million square feet of GLA located in
Grand Rapids, Michigan (Grand Rapids Property). The
non-cash impairment charge related to the Grand Rapids Property
is based upon the difference between the fair value of the
property and its carrying value. The valuation of the Grand
Rapids Property was determined using widely accepted valuation
techniques including discounted cash flow analysis on expected
cash flows and the income capitalization approach considering
prevailing market capitalization rates.
5. | Investments in and Advances to Other Real Estate Partnerships |
The investments in and advances to Other Real Estate
Partnerships reflect our limited partnership equity interests in
the entities referred to in Note 1 to these consolidated
financial statements.
12
Table of Contents
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:
June 30, |
December 31, |
|||||||
2010 | 2009 | |||||||
ASSETS
|
||||||||
Assets:
|
||||||||
Investment in Real Estate, Net
|
$ | 281,587 | $ | 280,796 | ||||
Note Receivable
|
254,062 | 264,740 | ||||||
Other Assets, Net
|
54,447 | 78,100 | ||||||
Total Assets
|
$ | 590,096 | $ | 623,636 | ||||
LIABILITIES AND PARTNERS CAPITAL
|
||||||||
Liabilities:
|
||||||||
Mortgage Loans Payable
|
$ | 45,983 | $ | 32,165 | ||||
Other Liabilities
|
8,937 | 9,515 | ||||||
Partners Capital
|
535,176 | 581,956 | ||||||
Total Liabilities and Partners Capital
|
$ | 590,096 | $ | 623,636 | ||||
Condensed Combined Statements of Operations:
Three Months |
Three Months |
Six Months |
Six Months |
|||||||||||||
Ended |
Ended |
Ended |
Ended |
|||||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Total Revenues, Including Interest Income
|
$ | 14,881 | $ | 10,318 | $ | 29,762 | $ | 21,749 | ||||||||
Property Expenses
|
(3,005 | ) | (2,423 | ) | (6,470 | ) | (6,165 | ) | ||||||||
Interest Expense
|
(758 | ) | (39 | ) | (1,410 | ) | (39 | ) | ||||||||
Amortization of Deferred Financing Costs
|
(33 | ) | (1 | ) | (62 | ) | (1 | ) | ||||||||
Depreciation and Other Amortization
|
(4,237 | ) | (4,273 | ) | (8,295 | ) | (8,337 | ) | ||||||||
Income from Continuing Operations
|
6,848 | 3,582 | 13,525 | 7,207 | ||||||||||||
Income from Discontinued Operations (Including Gain on Sale of
Real Estate of $0 and $0 for the Three Months Ended
June 30, 2010 and June 30, 2009, respectively, and $0
and $811 for the Six Months Ended June 30, 2010 and
June 30, 2009, respectively)
|
| 172 | | 1,111 | ||||||||||||
Net Income
|
$ | 6,848 | $ | 3,754 | $ | 13,525 | $ | 8,318 | ||||||||
6. | Investments in Joint Ventures and Property Management Services |
At June 30, 2010, 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 44 industrial properties comprising approximately
7.9 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 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
13
Table of Contents
FIRST
INDUSTRIAL, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
approximately 0.2 million square feet of GLA and several
land parcels. As of June 30, 2010, the 2007 Europe Joint
Venture does not own any properties.
On June 11, 2010, we purchased an industrial property from
the 2005 Development/Repositioning Joint Venture for a purchase
price of $14,627.
Pursuant to the buy/sell provision in the 2006 Net Lease
Co-Investment Programs governing agreement that our
counterparty exercised on May 25, 2010, we sold our 15%
interest in the real estate property assets in the 2006 Net
Lease Co-Investment Program to our counterparty and received
$4,541 in net proceeds. In connection with the sale, we wrote
off our carrying value for the 2006 Net Lease Co-Investment
Program and recorded a $852 gain, which is included in Equity in
Income of Joint Ventures.
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 three industrial properties (the July 2007
Fund). We do not own an equity interest in the July 2007
Fund. Effective September 2, 2009, we ceased to provide any
services for two of the industrial properties in the July 2007
Fund and, effective May 24, 2010, we ceased to provide any
services to the remaining industrial property in the July 2007
Fund.
The 2003 Net Lease Joint Venture, 2005 Development/Repositioning
Joint Venture, 2006 Land/Development Joint Venture, July 2007
Fund and the 2007 Canada Joint Venture are considered variable
interest entities in accordance with the FASBs guidance on
the consolidation of variable interest entities. However, we
continue to not be the primary beneficiary in any of our Joint
Ventures. As of June 30, 2010, our investments in the 2003
Net Lease Joint Venture, 2005 Development/Repositioning Joint
Venture, 2006 Land/Development Joint Venture and the 2007 Canada
Joint Venture are $3,243, ($4,450), $(892) and $1,623,
respectively. Our maximum exposure to loss is equal to our
investment in each venture plus any future contributions we make
to the ventures.
At June 30, 2010 and December 31, 2009, we have
receivables from the Joint Ventures and the July 2007 Fund of
$831 and $1,218, respectively, which primarily relate to
development, leasing, property management and asset management
fees due to us from the Joint Ventures and the July 2007 Fund.
These receivable amounts are included in Prepaid Expenses and
Other Assets, Net.
During the three and six months ended June 30, 2010 and
June 30, 2009, we invested the following amounts in, as
well as received distributions from, our Joint Ventures and
recognized fees from disposition, leasing, development, property
management and asset management services from our Joint Ventures
and the July 2007 Fund in the following amounts:
For the Three |
For the Six |
|||||||||||||||
Months Ended | Months Ended | |||||||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Contributions
|
$ | 189 | $ | 987 | $ | 414 | $ | 2,721 | ||||||||
Distributions
|
$ | 5,042 | $ | 3,905 | $ | 6,267 | $ | 6,943 | ||||||||
Fees
|
$ | 1,974 | $ | 2,840 | $ | 4,041 | $ | 5,558 |
14
Table of Contents
FIRST
INDUSTRIAL, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
7. | Indebtedness |
The following table discloses certain information regarding our
indebtedness:
Effective |
||||||||||||||
Outstanding |
Interest |
Interest |
||||||||||||
Balance at |
Rate at |
Rate at |
||||||||||||
June 30, |
December 31, |
June 30, |
June 30, |
|||||||||||
2010 | 2009 | 2010 | 2010 | Maturity Date | ||||||||||
Mortgage and Other Loans Payable, Net
|
$ | 406,807 | $ | 370,809 | 5.92%-9.25% | 4.93%-9.25% |
December 2010- July 2020 |
|||||||
Unamortized Premiums
|
(716 | ) | (1,025 | ) | ||||||||||
Mortgage and Other Loans Payable, Gross
|
$ | 406,091 | $ | 369,784 | ||||||||||
Senior Unsecured Debt, Net
|
||||||||||||||
2016 Notes
|
$ | 159,871 | $ | 159,843 | 5.750% | 5.91% | 01/15/16 | |||||||
2017 Notes
|
87,191 | 87,187 | 7.500% | 7.52% | 12/01/17 | |||||||||
2027 Notes
|
13,559 | 13,559 | 7.150% | 7.11% | 05/15/27 | |||||||||
2028 Notes
|
189,865 | 189,862 | 7.600% | 8.13% | 07/15/28 | |||||||||
2011 Notes
|
| 143,447 | 7.375% | 7.39% | 03/15/11 | |||||||||
2012 Notes
|
77,733 | 143,837 | 6.875% | 6.85% | 04/15/12 | |||||||||
2032 Notes
|
34,659 | 34,651 | 7.750% | 7.87% | 04/15/32 | |||||||||
2014 Notes
|
86,198 | 105,253 | 6.420% | 6.54% | 06/01/14 | |||||||||
2011 Exchangeable Notes
|
145,450 | 144,870 | 4.625% | 5.53% | 09/15/11 | |||||||||
2017 II Notes
|
117,621 | 117,605 | 5.950% | 6.37% | 05/15/17 | |||||||||
Subtotal
|
$ | 912,147 | $ | 1,140,114 | ||||||||||
Unamortized Discounts
|
8,362 | 11,191 | ||||||||||||
Senior Unsecured Debt, Gross
|
$ | 920,509 | $ | 1,151,305 | ||||||||||
Unsecured Line of Credit
|
$ | 496,472 | $ | 455,244 | 1.378% | 1.378% | 09/28/12 | |||||||
During the six months ended June 30, 2010, we obtained the
following mortgage loans:
Number of |
Property |
|||||||||||||||||||||||
Industrial |
Carrying |
|||||||||||||||||||||||
Properties |
Value at |
|||||||||||||||||||||||
Mortgage |
Loan |
Interest |
Origination |
Maturity |
Amortization |
Collateralizing |
GLA |
June 30, |
||||||||||||||||
Financing | Principal | Rate | Date | Date | Period | Mortgage | (In millions) | 2010 | ||||||||||||||||
I | $ | 7,780 | 7.40 | % | January 28, 2010 | February 5, 2015 | 25-year | 1 | 0.1 | $ | 9,342 | |||||||||||||
II | 7,200 | 7.40 | % | January 28, 2010 | February 5, 2015 | 25-year | 1 | 0.2 | 7,601 | |||||||||||||||
III | 4,300 | 7.40 | % | February 17, 2010 | March 5, 2015 | 25-year | 1 | 0.2 | 7,017 | |||||||||||||||
IV.1 | 8,000 | 6.50 | % | June 22, 2010 | July 10, 2020 | 25-year | 2 | 0.2 | 8,922 | |||||||||||||||
IV.2 | 7,800 | 6.50 | % | June 22, 2010 | July 10, 2020 | 25-year | 2 | 0.2 | 6,732 | |||||||||||||||
IV.3 | 5,500 | 6.50 | % | June 22, 2010 | July 10, 2020 | 25-year | 6 | 0.1 | 10,032 | |||||||||||||||
$ | 40,580 | $ | 49,646 | |||||||||||||||||||||
For Mortgage Financings I, II and III, principal
prepayments are prohibited for 36 months after loan
origination. For Mortgage Financing IV, principal prepayments
are allowed at any payment due date. Prepayment premiums
typically decrease as the loan matures and range from 1% to 2%
of the loan balance (or yield maintenance amount).
As of June 30, 2010, mortgage and other loans payable are
collateralized by, and in some instances cross-collateralized
by, industrial properties with a net carrying value of $586,118
and one letter of credit.
15
Table of Contents
FIRST
INDUSTRIAL, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On February 8, 2010, we closed on a tender offer in which
we repurchased and retired certain of our senior unsecured debt
prior to its maturity as described in the table below. In
connection with these repurchases prior to maturity, we
recognized $355 as gain on early retirement of debt for the six
months ended June 30, 2010, which is the difference between
the repurchase amount and the principal amount retired, net of
the pro rata write off of the unamortized debt issue discount,
the unamortized loan fees, the unamortized settlement amount of
the interest rate protection agreements and the professional
services fees related to the repurchases of $1,547, $354, $(145)
and $990, respectively.
On April 26, 2010, we redeemed and retired the remaining
outstanding balance of our 2011 Notes at a redemption price of
105.97% of the principal amount, plus accrued and unpaid
interest for the period March 15, 2010 to April 25,
2010. In connection with this redemption prior to maturity, we
recognized $4,304 as loss on early retirement of debt in the
second quarter of 2010, which is the difference between the
purchase price and the principal amount redeemed, net of the pro
rata write off of the unamortized debt issue discount, the
unamortized loan fees, the unamortized settlement amount of the
interest rate protection agreements and the professional
services fees related to the redemption of $20, $70, $(13) and
$1, respectively.
Principal |
||||||||
Amount |
Purchase |
|||||||
Repurchased | Price | |||||||
Senior Unsecured Debt Repurchases
|
||||||||
2011 Notes
|
$ | 72,702 | $ | 72,701 | ||||
2012 Notes
|
66,236 | 66,234 | ||||||
2014 Notes
|
21,062 | 17,964 | ||||||
$ | 160,000 | $ | 156,899 | |||||
Senior Unsecured Debt Redemption
|
||||||||
2011 Notes
|
$ | 70,796 | $ | 75,022 | ||||
The following is a schedule of the stated maturities and
scheduled principal payments as of June 30, 2010, of our
indebtedness, exclusive of premiums and discounts, for the next
five years ending December 31, and thereafter:
Amount | ||||
Remainder of 2010
|
$ | 15,982 | ||
2011
|
158,410 | |||
2012
|
597,686 | |||
2013
|
7,190 | |||
2014
|
199,420 | |||
Thereafter
|
844,384 | |||
Total
|
$ | 1,823,072 | ||
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 noteholders or 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
16
Table of Contents
FIRST
INDUSTRIAL, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 June 30, 2010, and we anticipate that we
will be able to operate in compliance with our financial
covenants throughout 2010 based upon our earnings projections.
Our belief that we will continue to meet our financial covenants
through 2010 is based on internal projections of EBITDA, as
defined in our Unsecured Line of Credit and our unsecured notes,
which include a number of assumptions, including, among others,
assumptions regarding occupancy rates, tenant retention, rental
rates and property sales as well as internal projections of
interest expense and preferred dividends. However, we expect to
exceed the minimum amounts permitted under the unsecured
leverage and fixed charge coverage covenants set forth in our
Unsecured Line of Credit by only a thin margin. Moreover, our
ability to meet our financial covenants may be reduced if
economic and credit market conditions limit our property sales
and reduce our net operating income below our projections. We
expect to retire indebtedness maturing in 2010 and to comply
with our financial covenants in 2010 and beyond. We plan to
enhance our liquidity, and reduce our indebtedness, through a
combination of capital retention, mortgage and equity
financings, asset sales and debt reduction.
Fair
Value
At June 30, 2010 and December 31, 2009, the fair value
of our indebtedness was as follows:
June 30, 2010 | December 31, 2009 | |||||||||||||||
Carrying |
Fair |
Carrying |
Fair |
|||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Mortgage and Other Loans Payable
|
$ | 406,807 | $ | 451,593 | $ | 370,809 | $ | 375,284 | ||||||||
Senior Unsecured Debt
|
912,147 | 857,908 | 1,140,114 | 960,452 | ||||||||||||
Unsecured Line of Credit
|
496,472 | 474,983 | 455,244 | 422,561 | ||||||||||||
Total
|
$ | 1,815,426 | $ | 1,784,484 | $ | 1,966,167 | $ | 1,758,297 | ||||||||
The fair values of our mortgage and other 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 senior unsecured debt was
estimated based upon quoted market prices for the same or
similar issues. 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.
8. | Partners Capital |
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 six months ended June 30, 2010, the Company
issued 875,402 shares under the direct stock purchase
component of the DRIP for approximately $5,970. These proceeds
were contributed to us in exchange for an equivalent number of
Units. Under the terms of the DRIP, stockholders and
non-stockholders may purchase shares at a discounted price, at
the Companys discretion, when the shares are issued and
sold directly by us from
17
Table of Contents
FIRST
INDUSTRIAL, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
authorized but unissued shares of the Companys common
stock, by making optional cash payments, subject to certain
dollar thresholds.
On May 4, 2010, we entered into an agreement in which we
may sell up to 10,000,000 shares of the Companys
common stock from time to time in
at-the-market
offerings. During the three months ended June 30, 2010, the
Company issued 548,704 shares of the Companys common
stock under the ATM for approximately $4,371, net of $89 paid to
the sales agent. These proceeds were contributed to us in
exchange for an equivalent number of Units. Under the terms of
the ATM, sales are made primarily in transactions that are
deemed to be
at-the-market
offerings, including sales made directly on the New York Stock
Exchange or sales made through a market maker other than on an
exchange or by privately negotiated transactions.
During the six months ended June 30, 2010,
23,567 shares of common stock were awarded to certain
directors. The common stock shares had a fair value of
approximately $128 upon issuance. We issued Units to the Company
in the same amount.
Restricted
Units:
During the six months ended June 30, 2010, the Company
awarded 573,198 shares of restricted common stock to
certain employees. We issued Units to the Company in the same
amount. The restricted common stock had a fair value of
approximately $3,336 on the date of approval by the Compensation
Committee of the Board of Directors. The restricted common stock
vests over a three year period. Compensation expense will be
charged to earnings over the respective vesting period for the
shares expected to vest.
We recognized $1,778 and $2,625 for the three months ended
June 30, 2010 and June 30, 2009, respectively, and
$3,277 and $8,047 for the six months ended June 30, 2010
and June 30, 2009, respectively, in compensation expense
related to restricted stock/unit awards, of which $0 was
capitalized for each of the three months ended June 30,
2010 and June 30, 2009, and $0 and $45, respectively, was
capitalized for the six months ended June 30, 2010 and
June 30, 2009, in connection with development activities.
At June 30, 2010, we have $9,458 in unrecognized
compensation related to unvested restricted stock/unit awards.
The weighted average period that the unrecognized compensation
is expected to be recognized is 1.15 years.
Distributions:
The coupon rate of our Series F Preferred Stock resets
every quarter 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. For the second quarter of 2010, the new coupon rate was
7.135%. See Note 12 for additional derivative information
related to the Series F Preferred Stock coupon rate reset.
The following table summarizes distributions accrued during the
six months ended June 30, 2010:
Six Months Ended |
||||||||
June 30, 2010 | ||||||||
Distribution |
Total |
|||||||
per Unit | Distribution | |||||||
Series F Preferred Units
|
$ | 3,569.82 | $ | 1,784 | ||||
Series G Preferred Units
|
$ | 3,618.00 | $ | 905 | ||||
Series J Preferred Units
|
$ | 9,062.60 | $ | 5,438 | ||||
Series K Preferred Units
|
$ | 9,062.60 | $ | 1,812 |
18
Table of Contents
FIRST
INDUSTRIAL, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
9. | Supplemental Information to Statements of Cash Flows |
Supplemental disclosure of cash flow information:
Six Months |
Six Months |
|||||||
Ended |
Ended |
|||||||
June 30, |
June 30, |
|||||||
2010 | 2009 | |||||||
Interest paid, net of capitalized interest
|
$ | 53,460 | $ | 56,594 | ||||
Capitalized interest
|
$ | | $ | 281 | ||||
Supplemental schedule of non-cash investing and financing
activities:
|
||||||||
Distribution payable on preferred units
|
$ | 452 | $ | 452 | ||||
Industrial property distribution from Other Real Estate
Partnerships:
|
||||||||
Investment in real estate and deferred leasing intangibles, net
|
$ | | $ | 1,811 | ||||
Prepaid expenses and other assets, net
|
| 289 | ||||||
Accounts payable, accrued expenses and other liabilities, net
|
| (56 | ) | |||||
Total distribution
|
$ | | $ | (2,044 | ) | |||
Exchange of limited partnership units for general partnership
units:
|
||||||||
Limited partnership units
|
$ | (289 | ) | $ | (5,796 | ) | ||
General partnership units
|
289 | 5,796 | ||||||
$ | | $ | | |||||
Write-off of fully depreciated assets
|
$ | (22,602 | ) | $ | (24,730 | ) | ||
In conjunction with certain property sales, we provided seller
financing:
|
||||||||
Mortgage notes receivable
|
$ | | $ | 11,620 | ||||
19
Table of Contents
FIRST
INDUSTRIAL, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
10. | Earnings Per Unit (EPU) |
The computation of basic and diluted EPU is presented below:
Three Months |
Three Months |
Six Months |
Six Months |
|||||||||||||
Ended |
Ended |
Ended |
Ended |
|||||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Numerator:
|
||||||||||||||||
Loss from Continuing Operations, Net of Income Tax
|
$ | (18,588 | ) | $ | (8,273 | ) | $ | (42,169 | ) | $ | (25,400 | ) | ||||
Gain on Sale of Real Estate, Net of Income Tax
|
| | 692 | 431 | ||||||||||||
Preferred Distributions
|
(4,979 | ) | (4,824 | ) | (9,939 | ) | (9,681 | ) | ||||||||
Loss from Continuing Operations Available to Unitholders
|
$ | (23,567 | ) | $ | (13,097 | ) | $ | (51,416 | ) | $ | (34,650 | ) | ||||
Income from Discontinued Operations Available to Unitholders
|
$ | 3,488 | $ | 4,492 | $ | 7,574 | $ | 8,746 | ||||||||
Net Loss Available to Unitholders
|
$ | (20,079 | ) | $ | (8,605 | ) | $ | (43,842 | ) | $ | (25,904 | ) | ||||
Denominator:
|
||||||||||||||||
Weighted Average Units Basic and Diluted
|
68,214,433 | 49,974,901 | 67,703,522 | 49,946,971 | ||||||||||||
Basic and Diluted EPU:
|
||||||||||||||||
Loss from Continuing Operations Available to Unitholders
|
$ | (0.35 | ) | $ | (0.26 | ) | $ | (0.76 | ) | $ | (0.69 | ) | ||||
Income from Discontinued Operations Available to Unitholders
|
$ | 0.05 | $ | 0.09 | $ | 0.11 | $ | 0.18 | ||||||||
Net Loss Available to Unitholders
|
$ | (0.29 | ) | $ | (0.17 | ) | $ | (0.65 | ) | $ | (0.52 | ) | ||||
Participating securities include unvested restricted stock
awards and restricted unit awards outstanding that participate
in non-forfeitable distributions of the Operating Partnership.
Allocation |
Allocation |
|||||||||||||||
of Net |
of Net |
|||||||||||||||
Income |
Income |
|||||||||||||||
Available to |
Available to |
|||||||||||||||
Participating |
Participating |
|||||||||||||||
Unvested |
Securities for the |
Unvested |
Securities for the |
|||||||||||||
Awards |
Three and Six |
Awards |
Three and Six |
|||||||||||||
Outstanding |
Months Ended |
Outstanding |
Months Ended |
|||||||||||||
at June 30, |
June 30, |
at June 30, |
June 30, |
|||||||||||||
2010 | 2010 | 2009 | 2009 | |||||||||||||
Participating Securities:
|
||||||||||||||||
Restricted Stock Awards
|
723,295 | | 395,686 | | ||||||||||||
Restricted Unit Awards
|
| | 1,053 | | ||||||||||||
723,295 | $ | | 396,739 | $ | | |||||||||||
20
Table of Contents
FIRST
INDUSTRIAL, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Participating security holders are not obligated to share in
losses, therefore, none of the loss was allocated to
participating securities for the three and six months ended
June 30, 2010 and June 30, 2009.
The number of weighted average units diluted is the
same as the number of weighted average units basic
for the three and six months ended June 30, 2010 and
June 30, 2009, as the dilutive effect of stock options and
restricted stock/unit awards (that do not participate in
non-forfeitable dividends of the Company) was excluded as its
inclusion would have been antidilutive to the loss from
continuing operations available to Unitholders. The following
awards were anti-dilutive and could be dilutive in future
periods:
Number of |
Number of |
|||||||
Awards |
Awards |
|||||||
Outstanding |
Outstanding |
|||||||
At June 30, |
At June 30, |
|||||||
2010 | 2009 | |||||||
Non-Participating Securities:
|
||||||||
Restricted Unit Awards
|
1,190,800 | 1,000,000 | ||||||
Options
|
119,700 | 141,034 |
The 2011 Exchangeable Notes are convertible into common shares
of the Company at a price of $50.93 and were not included in the
computation of diluted EPU as our average stock price did not
exceed the strike price of the conversion feature.
11. | Restructuring Costs |
In October 2008, the Compensation Committee of the Board of
Directors committed the Company to a plan to reduce
organizational and overhead costs. Subsequently, in December
2008 and in 2009, the Board of Directors
and/or the
Compensation Committee made modifications for the restructuring
plan. As previously disclosed, on June 21, 2010, the
Compensation Committee of the Board of Directors committed us to
certain additional modifications to the plan consisting of
further organizational and overhead cost reductions that are
necessary to offset the loss of income expected to result from
the transfer of our interests in certain of our joint ventures
(see Note 13). Employee severance and benefits related to
these reductions were recorded during the three months ended
June 30, 2010. For the three and six months ended
June 30, 2010, we recorded as restructuring costs a pre-tax
charge of $947 and $1,211, respectively, to provide for employee
severance and benefits ($808 and $808, respectively), costs
associated with the termination of certain office leases ($8 and
$83, respectively) and other costs ($131 and $320, respectively)
associated with implementing the restructuring plan. For the
three and six months ended June 30, 2009, we recorded as
restructuring costs a pre-tax charge of $72 and $4,816,
respectively, to provide for employee severance and benefits
($49 and $4,081, respectively), costs associated with the
termination of certain office leases ($91 and $419,
respectively) and other costs ($(68) and $316, respectively)
associated with implementing the restructuring plan. Included in
employee severance costs is $189 for the three and six months
ended June 30, 2010, and $0 and $2,759, respectively, for
the three and six months ended June 30, 2009, of non-cash
costs which represents the accelerated recognition of restricted
stock expense for certain employees.
At June 30, 2010 and December 31, 2009, we have $2,877
and $2,884, respectively, included in Accounts Payable, Accrued
Expenses and Other Liabilities, Net related to severance
obligations, remaining lease payments and other costs incurred
but not yet paid.
12. | Derivatives |
Our objectives in using interest rate derivatives are to add
stability to interest expense and to manage our cash flow
volatility and exposure to interest rate movements. To
accomplish this objective, we primarily use interest rate swaps
as part of our interest rate risk management strategy. Interest
rate swaps designated as cash flow hedges involve the receipt of
variable-rate amounts from a counterparty in exchange for
fixed-rate payments over the life of the agreements without
exchange of the underlying notional amount.
21
Table of Contents
FIRST
INDUSTRIAL, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During 2009, we had two forward starting swaps each with a
notional value of $59,750, which fixed the interest rate on
forecasted debt offerings. We designated both swaps as cash flow
hedges. The rates on the forecasted debt issuances underlying
the swaps locked on March 20, 2009 and on April 6,
2009, and as such, the swaps ceased to qualify for hedge
accounting. The change in value of the swaps from the respective
day the interest rate on the underlying debt was locked until
settlement is $1,358 and $974 for the three and six months ended
June 30, 2009, respectively, and is included in
Mark-to-Market
(Loss) Gain on Interest Rate Protection Agreements in the
statement of operations.
As of December 31, 2009, we also had an interest rate swap
agreement with a notional value of $50,000 which fixed the LIBOR
rate on a portion of our outstanding borrowings on our Unsecured
Line of Credit at 2.4150% (the Interest Rate Swap
Agreement). Monthly payments or receipts are treated as a
component of interest expense. We designated the Interest Rate
Swap Agreement as a cash flow hedge. The Interest Rate Swap
Agreement was highly effective through its maturity on
April 1, 2010, and, as a result, the change in the fair
value was shown in Other Comprehensive Income (OCI).
The effective portion of the settlement amounts of derivatives
designated and that qualify as cash flow hedges is recorded in
OCI and is subsequently reclassified to earnings through
interest expense over the life of the derivative or over the
life of the debt. In the next 12 months, we will amortize
approximately $2,187 into net income by increasing interest
expense for interest rate protection agreements we settled in
previous periods.
Our Series F Preferred Stock is subject to a coupon rate
reset. The coupon rate resets every quarter 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. For the second quarter of 2010 the new coupon rate was
7.135%. In October 2008, we entered into an interest rate swap
agreement with a notional value of $50,000 to mitigate our
exposure to floating interest rates related to the forecasted
reset rate of the coupon rate of our Series F Preferred
Stock (the Series F Agreement). The
Series F Agreement fixes the
30-year
U.S. Treasury rate at 5.2175%. Accounting guidance for
derivatives does not permit hedge accounting treatment related
to equity instruments and therefore the mark to market gains or
losses related to this agreement are recorded in the statement
of operations. For the three and six months ended June 30,
2010, we recorded $1,324 and $1,458, respectively, in unrealized
loss which is shown in
Mark-to-Market
(Loss) Gain on Interest Rate Protection Agreements. For the
three and six months ended June 30, 2009, we recorded $943
and $2,442, respectively, in unrealized gain which is shown in
Mark-to-Market
(Loss) Gain on Interest Rate Protection Agreements. Quarterly
payments or receipts are treated as a component of the mark to
market gains or losses and, for the three and six months ended
June 30, 2010, totaled $59 and $135, respectively, and, for
each of the three and six months ended June 30, 2009,
totaled $204.
The following is a summary of the terms of our derivatives and
their fair values, which are included in either Prepaid Expenses
and Other Assets, Net or Accounts Payable, Accrued Expenses and
Other Liabilities, Net on the accompanying consolidated balance
sheets:
Fair Value As of |
Fair Value As of |
|||||||||||||||||||||||
Hedge Product | Notional Amount | Strike | Trade Date | Maturity Date | June 30, 2010 | December 31, 2009 | ||||||||||||||||||
Derivatives designated as hedging instruments:
|
||||||||||||||||||||||||
Interest Rate Swap Agreement
|
$ | 50,000 | 2.4150 | % | March 2008 | April 1, 2010 | N/A | (267 | ) | |||||||||||||||
Derivatives not designated as hedging instruments:
|
||||||||||||||||||||||||
Series F Agreement*
|
50,000 | 5.2175 | % | October 2008 | October 1, 2013 | S (1,231 | ) | 93 | ||||||||||||||||
Total Derivatives
|
$ | 100,000 | Total | $ | (1,231 | ) | $ | (174 | ) | |||||||||||||||
* | Fair value excludes quarterly settlement payment due on Series F Agreement. As of June 30, 2010 and December 31, 2009, the outstanding payable was $59 and $152, respectively. |
22
Table of Contents
FIRST
INDUSTRIAL, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of the impact of the derivatives in
cash flow hedging relationships on the statement of operations
and the statement of OCI for the three and six months ended
June 30, 2010 and June 30, 2009:
Three Months Ended | Six Months Ended | |||||||||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||||
Interest Rate Products* | Location on Statement | 2010 | 2009 | 2010 | 2009 | |||||||||||||
(Loss) Income Recognized in OCI (Effective Portion)
|
Mark-to-Market on Interest Rate Protection Agreements, Net of Income Tax (OCI) |
$ | (20 | ) | $ | 1,179 | $ | (587 | ) | $ | (1,036 | ) | ||||||
Amortization Reclassified from OCI into Income
|
Interest Expense | $ | (523 | ) | $ | (38 | ) | $ | (1,028 | ) | $ | 168 | ||||||
Gain Recognized in Income (Unhedged Position)
|
Mark-to-Market Loss (Gain) on Interest Rate Protection Agreements |
N/A | $ | 1,358 | N/A | $ | 974 |
Additionally, as of June 30, 2010, one of the Joint
Ventures has interest rate protection agreements outstanding
which effectively convert floating rate debt to fixed rate debt
on a portion of its total variable debt. The hedge relationships
are considered highly effective and as such, for the three and
six months ended June 30, 2010, we recorded $20 and $440,
respectively, in unrealized loss, representing our 10% share,
offset by $0 and $414, respectively, of income tax provision,
which is shown in
Mark-to-Market
on Interest Rate Protection Agreements, Net of Income Tax, in
OCI. As of June 30, 2009, two of the Joint Ventures had
interest rate protection agreements outstanding and for the
three and six months ended June 30, 2009, we recorded $550
and $613 in unrealized gain, respectively, representing our 10%
share, offset by $216 and $241 of income tax provision,
respectively, which is shown in
Mark-to-Market
on Interest Rate Protection Agreements, Net of Income Tax, in
OCI.
Our agreement with our derivative counterparty contains
provisions where if we default on any of our indebtedness, then
we could also be declared in default on our derivative
obligation subject to certain thresholds.
The guidance for fair value measurement of financial instruments
includes a three-tier fair value hierarchy, which prioritizes
the inputs used in measuring fair value. These tiers include:
Level 1, defined as observable inputs such as quoted prices
in active markets; Level 2, defined as inputs other than
quoted prices in active markets that are either directly or
indirectly observable; and Level 3, defined as unobservable
inputs in which little or no market data exists, therefore
requiring an entity to develop its own assumptions.
The following tables set forth our financial liabilities and
assets that are accounted for at fair value on a recurring basis
as of June 30, 2010 and December 31, 2009:
Fair Value Measurements at June 30, 2010 Using: | ||||||||||||||||
Quoted Prices in |
||||||||||||||||
Active Markets for |
Significant Other |
Unobservable |
||||||||||||||
June 30, |
Identical Assets |
Observable Inputs |
Inputs |
|||||||||||||
Description | 2010 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Liabilities:
|
||||||||||||||||
Series F Agreement
|
$ | 1,231 | | | $ | 1,231 |
Fair Value Measurements at December 31, 2009 Using: | ||||||||||||||||
Quoted Prices in |
||||||||||||||||
Active Markets for |
Significant Other |
Unobservable |
||||||||||||||
December 31, |
Identical Assets |
Observable Inputs |
Inputs |
|||||||||||||
Description | 2009 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Assets:
|
||||||||||||||||
Series F Agreement
|
$ | 93 | | | $ | 93 | ||||||||||
Liabilities:
|
||||||||||||||||
Interest Rate Swap Agreement
|
$ | (267 | ) | | $ | (267 | ) | |
23
Table of Contents
FIRST
INDUSTRIAL, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The valuation of the Interest Rate Swap Agreement is determined
using widely accepted valuation techniques including discounted
cash flow analysis on the expected cash flows of the instrument.
This analysis reflects the contractual terms of the agreements
including the period to maturity, and uses observable
market-based inputs, including interest rate curves and implied
volatilities. In adjusting the fair value of the interest rate
protection agreements for the effect of nonperformance risk, we
have considered the impact of netting and any applicable credit
enhancements. To comply with the provisions of fair value
measurement, we incorporated a credit valuation adjustment
(CVA) to appropriately reflect both our own
nonperformance risk and the respective counterpartys
nonperformance risk in the fair value measurements. However,
assessing significance of inputs is a matter of judgment that
should consider a variety of factors. One factor we consider is
the CVA and its materiality to the overall valuation of the
derivatives on the balance sheet and to their related changes in
fair value. We believe the inputs obtained related to our CVAs
are observable and therefore fall under Level 2 of the fair
value hierarchy. Accordingly, the liabilities related to the
Interest Rate Swap Agreement are classified as Level 2
amounts.
The valuation of the Series F Agreement utilizes the same
valuation technique as the Interest Rate Swap Agreement.
However, we consider the Series F Agreement to be
classified as Level 3 in the fair value hierarchy due to a
significant number of unobservable inputs. The Series F
Agreement swaps a fixed rate 5.2175% for floating rate payments
based on
30-year
Treasury. No market observable prices exist for long-dated
Treasuries past 30 years. Therefore, we have classified the
Series F Agreement in its entirety as a Level 3.
The following table presents a reconciliation of our liabilities
classified as Level 3 at June 30, 2010:
Fair Value Measurements |
||||
Using Significant |
||||
Unobservable Inputs |
||||
(Level 3) |
||||
Derivatives | ||||
Beginning asset balance at December 31, 2009
|
$ | 93 | ||
Mark-to-Market
of the Series F Agreement
|
(1,324 | ) | ||
Ending liability balance at June 30, 2010
|
$ | (1,231 | ) | |
13. | Commitments and Contingencies |
Currently, we are the defendant in a suit brought in February
2009 by the trustee of a liquidating trust which was created
pursuant to the confirmed bankruptcy liquidation plan of a
former tenant. In the suit the trustee has sought the return of
$5,000, related to letters of credit that we drew down after the
tenant defaulted on its leases. In June 2010, the parties
reached a settlement, subject to approval by the bankruptcy
court, that would require us to return to the bankruptcy estate
$1,800 of the $5,000 originally sought. At June 30, 2010,
we have reserved $1,800 for this settlement which is included in
Accounts Payable, Accrued Expenses and Other Liabilities, Net.
At June 30, 2010, the bankruptcy court had not yet approved
the settlement and there can be no assurance that such approval
will be obtained. In addition, in the normal course of business,
we are involved in other legal actions arising from the
ownership of our industrial properties. Except as disclosed
herein, in our opinion, the liabilities, if any, that may
ultimately result from such legal actions are not expected to
have a materially adverse effect on our consolidated financial
position, operations or liquidity.
At June 30, 2010, our investment in the 2005
Development/Repositioning Joint Venture and the 2006
Land/Development Joint Venture is $(4,450) and $(892),
respectively, and is included within Accounts Payable, Accrued
Expenses and Other Liabilities, Net due to our current
commitment to fund operations at both ventures. At
December 31, 2009, our investment in the 2005
Development/Repositioning Joint Venture is $(2,785) and is
24
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FIRST
INDUSTRIAL, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
included within Accounts Payable, Accrued Expenses and Other
Liabilities, Net due to our current commitment to fund
operations to this venture.
14. | Related Party Transactions |
At June 30, 2010, we have a payable balance of $15,158 to
wholly-owned entities of the Company. At December 31, 2009,
we had a payable balance of $27,884 to wholly-owned entities of
the Company.
15. | Subsequent Events |
On August 5, 2010, we transferred our interests in the 2005
Development/Repositioning Joint Venture, the 2005 Core Joint
Venture, the 2006 Land/Development Joint Venture and the 2007
Canada Joint Venture to our partner. In connection with this
transfer, we received approximately $5.0 million. As a
result of this transfer, we will no longer serve as asset
manager for these ventures.
25
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our 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
and Section 21E of the Securities Exchange Act of 1934 (the
Exchange Act). We intend 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 are including this statement
for purposes of complying with those safe harbor provisions.
Forward-looking statements, which are based on certain
assumptions and describe our future plans, strategies and
expectations, are generally identifiable by use of the words
believe, expect, intend,
anticipate, estimate,
project, seek, target,
potential, focus, may,
should, or similar expressions. Our ability to
predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a
materially adverse effect on our operations and future prospects
include, but are not limited to: changes in national,
international, regional and local economic conditions generally
and real estate markets specifically; changes in
legislation/regulation (including changes to laws governing the
taxation of real estate investment trusts) and actions of
regulatory authorities (including the Internal Revenue Service);
our ability to qualify and maintain our status as a real estate
investment trust; the availability and attractiveness of
financing (including both public and private capital) to us and
to our potential counterparties; the availability and
attractiveness of terms of additional debt repurchases; interest
rates; our credit agency ratings; our ability to comply with
applicable financial covenants; competition; changes in supply
and demand for industrial properties (including land, the supply
and demand for which is inherently more volatile than other
types of industrial property) in the Companys current and
proposed market areas; difficulties in consummating acquisitions
and dispositions; risks related to our investments in properties
through joint ventures; environmental liabilities; slippages in
development or
lease-up
schedules; tenant creditworthiness;
higher-than-expected
costs; changes in asset valuations and related impairment
charges; changes in general accounting principles, policies and
guidelines applicable to real estate investment trusts;
international business risks and those additional factors
described under the heading Risk Factors and
elsewhere in the Operating Partnerships annual report on
Form 10-K
for the year ended December 31, 2009 (2009
Form 10-K)
and in Item 1A, Risk Factors, in this quarterly
report. We caution you not to place undue reliance on forward
looking statements, which reflect our analysis only and speak
only as of the date of this report or the dates indicated in the
statements. We assume no obligation to update or supplement
forward-looking statements. Unless the context otherwise
requires, the term 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. Effective
September 1, 2009, our taxable real estate investment trust
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 real estate investment
trust subsidiary, First Industrial Investment Properties, Inc.
(the new TRS, which, collectively with the old TRS
and certain wholly owned taxable real estate investment trust
subsidiaries of FI LLC, will be referred to as the
TRSs), which is wholly owned by FI LLC.
GENERAL
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) which
owns common units in the Operating Partnership
(Units) representing an approximate 92.2% ownership
interest at June 30, 2010. 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
$275.0 million. The Company is a real estate investment
trust (REIT) as defined in the Internal Revenue Code
of 1986 (the Code). The Companys operations
are conducted primarily through the Operating Partnership. The
limited partners of the Operating Partnership own, in the
aggregate, an approximate 7.8% interest in the Operating
Partnership at June 30, 2010.
26
Table of Contents
The Operating Partnership is the sole member of several limited
liability companies (the L.L.C.s) and the sole
shareholder of the new TRS, (together with the Operating
Partnership and the L.L.C.s, the Consolidated Operating
Partnership), the operating data of which is consolidated
with that of the Operating Partnership as presented herein. We
also hold 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 June 30, 2010, we owned 710 industrial properties
located in 28 states in the United States and one province
in Canada, containing an aggregate of approximately
61.3 million square feet of gross leasable area
(GLA). On a combined basis, as of June 30,
2010, the Other Real Estate Partnerships owned 72 industrial
properties containing an aggregate of approximately
7.9 million square feet of GLA.
The Operating Partnership or the new TRS, through separate
wholly-owned limited liability companies of which it is the sole
member, also owns or owned noncontrolling equity interests in,
and provides 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. On
May 25, 2010, we sold our interest in the 2006 Net Lease
Co-Investment Program to our joint venture counterparty.
Following the end of the quarter ended June 30, 2010, we
agreed with our joint venture partner for four of the seven
Joint Ventures, the 2005 Development/Repositioning Joint
Venture, the 2005 Core Joint Venture, the 2006 Land/Development
Joint Venture and the 2007 Canada Joint Venture to conclude each
of these Joint Ventures (see Subsequent Events).
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.
We maintain a website at www.firstindustrial.com. Information on
this website shall not constitute part of this
Form 10-Q.
Copies of our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to such reports are available without charge on
our website as soon as reasonably practicable after such reports
are filed with or furnished to the Securities and Exchange
Commission. In addition, our Corporate Governance Guidelines,
Code of Business Conduct and Ethics, Audit Committee Charter,
Compensation Committee Charter, Nominating/Corporate Governance
Committee Charter, along with supplemental financial and
operating information prepared by us, are all available without
charge on our website or upon request to us. Amendments to, or
waivers from, our Code of Business Conduct and Ethics that apply
to our executive officers or directors will also be posted to
our website. We also post or otherwise make available on our
website from time to time other information that may be of
interest to our investors. Please direct requests as follows:
First Industrial Realty Trust, Inc.
311 S. Wacker, Suite 3900
Chicago, IL 60606
Attn: Investor Relations
MANAGEMENTS
OVERVIEW
We believe our financial condition and results of operations
are, primarily, a function of our performance and our Joint
Ventures performance in four key areas: leasing of
industrial properties, acquisition and development of additional
industrial properties, disposition of properties, debt reduction
and access to external capital.
We generate revenue primarily from rental income and tenant
recoveries from long-term (generally three to six years)
operating leases of our industrial properties and our Joint
Ventures industrial properties. Such revenue is
27
Table of Contents
offset by certain property specific operating expenses, such as
real estate taxes, repairs and maintenance, property management,
utilities and insurance expenses, along with certain other costs
and expenses, such as depreciation and amortization costs and
general and administrative and interest expenses. Our revenue
growth is dependent, in part, on our ability to
(i) increase rental income, through increasing either or
both occupancy rates and rental rates at our and our Joint
Ventures properties, (ii) maximize tenant recoveries
and (iii) minimize operating and certain other expenses.
Revenues generated from rental income and tenant recoveries are
a significant source of funds, in addition to income generated
from gains/losses on the sale of our properties and our Joint
Ventures properties (as discussed below), for our
liquidity. The leasing of property, in general, and occupancy
rates, rental rates, operating expenses and certain
non-operating expenses, in particular, are impacted, variously,
by property specific, market specific, general economic and
other conditions, many of which are beyond our control. The
leasing of property also entails various risks, including the
risk of tenant default. If we were unable to maintain or
increase occupancy rates and rental rates at our properties and
our Joint Ventures properties or to maintain tenant
recoveries and operating and certain other expenses consistent
with historical levels and proportions, our revenue would
decline. Further, if a significant number of our or our Joint
Ventures tenants were unable to pay rent (including tenant
recoveries) or if our or our Joint Ventures were unable to rent
their properties on favorable terms, our financial condition,
results of operations, cash flow and the Companys ability
to pay dividends on, and the market price of, the Companys
common stock would be adversely affected.
Our revenue growth is also dependent, in part, on our ability
and our Joint Ventures ability to acquire existing, and
acquire and develop new, additional industrial properties on
favorable terms. The Consolidated Operating Partnership itself,
and through our various Joint Ventures, seeks to identify
opportunities to acquire existing industrial properties on
favorable terms, and, when conditions permit, also seeks to
identify opportunities to acquire and develop new industrial
properties on favorable terms. Existing properties, as they are
acquired, and acquired and developed properties, as they are
leased, generate revenue from rental income, tenant recoveries
and fees, income from which, as discussed above, is a source of
funds for our distributions. The acquisition and development of
properties is impacted, variously, by property specific, market
specific, general economic and other conditions, many of which
are beyond our control. The acquisition and development of
properties also entails various risks, including the risk that
our investments and our Joint Ventures investments may not
perform as expected. For example, acquired existing and acquired
and developed new properties may not sustain
and/or
achieve anticipated occupancy and rental rate levels. With
respect to acquired and developed new properties, we may not be
able to complete construction on schedule or within budget,
resulting in increased debt service expense and construction
costs and delays in leasing the properties. Also, we, as well as
our Joint Ventures, face significant competition for attractive
acquisition and development opportunities from other
well-capitalized real estate investors, including both
publicly-traded REITs and private investors. Further, as
discussed below, we and our Joint Ventures may not be able to
finance the acquisition and development opportunities we
identify. If we and our Joint Ventures were unable to acquire
and develop sufficient additional properties on favorable terms
or if such investments did not perform as expected, our revenue
growth would be limited and our financial condition, results of
operations, cash flow and the Companys ability to pay
dividends on, and the market price of, the Companys common
stock would be adversely affected.
We also generate income from the sale of our properties and our
Joint Ventures properties (including existing buildings,
buildings which we or our Joint Ventures have developed or
re-developed on a merchant basis and land). The gain/loss on,
and fees from, the sale of such properties are included in our
income and can be a significant source of funds, in addition to
revenues generated from rental income and tenant recoveries, for
our operations. Currently, a significant portion of our proceeds
from sales are being used to repay outstanding debt. Market
conditions permitting, however, a significant portion of our
proceeds from such sales may also be used to fund the
acquisition of existing, and the acquisition and development of
new, industrial properties. The sale of properties is impacted,
variously, by property specific, market specific, general
economic and other conditions, many of which are beyond our
control. The sale of properties also entails various risks,
including competition from other sellers and the availability of
attractive financing for potential buyers of our and our Joint
Ventures properties. Further, our ability to sell
properties is limited by safe harbor rules applying to REITs
under the Code which relate to the number of properties that may
be disposed of in a year, their tax bases and the cost of
improvements made to the properties, along with other tests
which enable a REIT to avoid punitive taxation on the sale of
assets. If we and our Joint Ventures were unable to sell
properties on favorable terms, our income growth would be
limited and our financial
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Table of Contents
condition, results of operations, cash flow and the
Companys ability to pay dividends on, and the market price
of, the Companys common stock would be adversely affected.
We utilize a portion of the net sales proceeds from property
sales, borrowings under our unsecured line of credit (the
Unsecured Line of Credit) and proceeds from the
issuance, when and as warranted, of additional debt and equity
securities to refinance debt, finance future acquisitions and
developments and to fund our equity commitments to our Joint
Ventures. Access to external capital on favorable terms plays a
key role in our financial condition and results of operations,
as it impacts our cost of capital and our ability and cost to
refinance existing indebtedness as it matures and to fund
acquisitions, developments and contributions to our Joint
Ventures or through the issuance, when and as warranted, of
additional equity securities. Our ability to access external
capital on favorable terms is dependent on various factors,
including general market conditions, interest rates, credit
ratings on our capital stock and debt, the markets
perception of our growth potential, our current and potential
future earnings and cash distributions and the market price of
the Companys capital stock. If we were unable to access
external capital on favorable terms, our financial condition,
results of operations, cash flow and the Companys ability
to pay dividends on, and the market price of, the Companys
common stock would be adversely affected.
Current
Business Risks and Uncertainties
The real estate markets have been significantly impacted by the
disruption of the global credit markets. The current state of
the economy has resulted in downward pressure on our net
operating income and has impaired our ability to sell properties.
Our 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 noteholders or 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 June 30, 2010, and we anticipate that we
will be able to operate in compliance with our financial
covenants throughout 2010 based upon our earnings projections.
Our belief that we will continue to meet our financial covenants
through 2010 is based on internal projections of EBITDA, as
defined in our Unsecured Line of Credit and our unsecured notes,
which include a number of assumptions, including, among others,
assumptions regarding occupancy rates, tenant retention, rental
rates and property sales as well as internal projections of
interest expense and preferred dividends. However, we expect to
exceed the minimum amounts permitted under the unsecured
leverage and fixed charge coverage covenants set forth in our
Unsecured Line of Credit by only a thin margin. Moreover, our
ability to meet our financial covenants may be reduced if
economic and credit market conditions limit our property sales
and reduce our net operating income below our projections. We
expect to retire indebtedness maturing in 2010 and to comply
with our financial covenants in 2010 and beyond. We plan to
enhance our liquidity, and reduce our indebtedness, through a
combination of capital retention, mortgage and equity
financings, asset sales and debt reduction.
| Capital Retention We plan to retain capital by maintaining a distribution policy that makes per unit distributions equivalent to the per share distributions the Company is required to make to meet its minimum distribution requirements as a REIT. The Operating Partnership has not made distributions to date in 2010 and may not make distributions in future quarters in 2010 depending on the Companys taxable income. If, to maintain its REIT status, the Company is required to pay common stock dividends with respect to 2010, the Company may elect to do so by distributing a combination of cash and common shares and the Operating Partnership would make corresponding distributions in cash and common units. Also, if the Company is not |
29
Table of Contents
required to pay preferred stock dividends to maintain its REIT status, it may elect to suspend some or all preferred stock dividends for one or more fiscal quarters, which would aid compliance with the fixed charge coverage covenant under our Unsecured Line of Credit. If the Company did elect to suspend some or all preferred stock dividends for one or more fiscal quarters, the Operating Partnership would elect to suspend corresponding preferred stock unit distributions. |
| Mortgage Financing During the six months ended June 30, 2010, we originated $40.6 million in mortgage financings with maturities ranging from February 2015 to July 2020 and interest rates ranging from 6.50% to 7.40% (see Note 7 to the Consolidated Financial Statements). We believe these mortgage financings comply with all covenants contained in our Unsecured Line of Credit and our senior debt securities, including coverage ratios and total indebtedness, total unsecured indebtedness and total secured indebtedness limitations. We continue to engage various lenders regarding the origination of additional mortgage financings and the terms and conditions thereof. To the extent additional mortgage financing is originated, we expect to use proceeds received to pay down other debt. No assurances can be made that additional mortgage financing will be obtained. | |
| Equity Financing During the six months ended June 30, 2010, the Company issued 875,402 shares of its common stock, generating $6.0 million in net proceeds, under the direct stock purchase component of the Companys Dividend Reinvestment and Direct Stock Purchase Plan (DRIP). During the three months ended June 30, 2010, the Company issued 548,704 shares of its common stock, generating approximately $4.4 million in net proceeds, under the Companys at-the-market equity offering program (ATM) (see Note 8 to the Consolidated Financial Statements). These proceeds were contributed to us in exchange for an equivalent number of Units. We may opportunistically access the equity markets again, subject to contractual restrictions, and may continue to issue shares under the ATM or the direct stock purchase component of the DRIP. To the extent additional equity offerings occur, we expect to use the proceeds received to reduce our indebtedness. | |
| Asset Sales During the six months ended June 30, 2010, we sold five industrial properties and several land parcels for gross proceeds of $53.7 million (see Note 4 to the Consolidated Financial Statements). We are in various stages of discussions with third parties for the sale of additional properties in 2010 and plan to continue to selectively market other properties for sale throughout 2010. We expect to use sales proceeds to pay down additional debt. If we are unable to sell properties on an advantageous basis, this may impair our liquidity and our ability to meet our financial covenants. | |
| Debt Reduction During the six months ended June 30, 2010, we closed on a tender offer in which we purchased $72.7 million of our senior unsecured debt maturing in 2011 (the 2011 Notes), $66.2 million of our senior unsecured debt maturing in 2012 and $21.1 million of our senior unsecured debt maturing in 2014. In addition, subsequent to the tender offer, we redeemed and retired the remaining outstanding balance of our 2011 Notes in the amount of $70.8 million. We may from time to time repay additional amounts of our outstanding debt. Any repayments would depend upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors we consider important. Future repayments may materially impact our liquidity, taxable income and results of operations. |
Although we believe we will be successful in meeting our
liquidity needs and maintaining compliance with our debt
covenants through a combination of capital retention, mortgage
and equity financings, asset sales and debt repurchases, if we
were to be unsuccessful in executing one or more of the
strategies outlined above, our financial condition and operating
results could be materially adversely affected.
30
Table of Contents
RESULTS
OF OPERATIONS
Comparison
of Six Months Ended June 30, 2010 to Six Months Ended
June 30, 2009
Our net loss available to unitholders and participating
securities was $(43.8) million and $(25.9) million for
the six months ended June 30, 2010, and June 30, 2009,
respectively. Basic and diluted net loss available to
unitholders were $(0.65) per unit and $(0.52) per unit for the
six months ended June 30, 2010, and June 30, 2009,
respectively.
The tables below summarize our revenues, property expenses and
depreciation and other amortization by various categories for
the six months ended June 30, 2010 and June 30, 2009.
Same store properties are properties owned prior to
January 1, 2009 and held as an operating property through
June 30, 2010, and developments and redevelopments that
were placed in service prior to January 1, 2009 or were
substantially completed for 12 months prior to
January 1, 2009. Properties which are at least 75% occupied
at acquisition are placed in service. All other properties are
placed in service as they reach the earlier of
a) stabilized occupancy (generally defined as 90%
occupied), or b) one year subsequent to acquisition or
development completion. Acquired properties are properties that
were acquired subsequent to December 31, 2008 and held as
an operating property through June 30, 2010. Sold
properties are properties that were sold subsequent to
December 31, 2008. (Re)Developments and land are land
parcels and developments and redevelopments that were not
a) substantially complete 12 months prior to
January 1, 2009 or b) placed in service prior to
January 1, 2009. Other revenues are derived from the
operations of our maintenance company, fees earned from our
Joint Ventures and other miscellaneous revenues. Construction
revenues and expenses represent revenues earned and expenses
incurred in connection with the TRSs acting as development
manager to construct industrial properties. Other expenses are
derived from the operations of our maintenance company and other
miscellaneous regional expenses.
Our future financial condition and results of operations,
including rental revenues, may be impacted by the future
acquisition and sale of properties. Our future revenues and
expenses may vary materially from historical rates.
For the six months ended June 30, 2010 and June 30,
2009, the occupancy rates of our same store properties were
81.1% and 83.5%, respectively.
Six Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, 2010 | June 30, 2009 | $ Change | % Change | |||||||||||||
($ in 000s) | ||||||||||||||||
REVENUES
|
||||||||||||||||
Same Store Properties
|
$ | 143,513 | $ | 148,035 | $ | (4,522 | ) | (3.1 | )% | |||||||
Acquired Properties
|
127 | | 127 | | ||||||||||||
Sold Properties
|
630 | 4,921 | (4,291 | ) | (87.2 | )% | ||||||||||
(Re)Developments and Land, Not Included Above
|
4,441 | 2,273 | 2,168 | 95.4 | % | |||||||||||
Other
|
6,626 | 8,805 | (2,179 | ) | (24.7 | )% | ||||||||||
$ | 155,337 | $ | 164,034 | $ | (8,697 | ) | (5.3 | )% | ||||||||
Discontinued Operations
|
(649 | ) | (5,069 | ) | 4,420 | (87.2 | )% | |||||||||
Subtotal Revenues
|
$ | 154,688 | $ | 158,965 | $ | (4,277 | ) | (2.7 | )% | |||||||
Construction Revenues
|
270 | 36,749 | (36,479 | ) | (99.3 | )% | ||||||||||
Total Revenues
|
$ | 154,958 | $ | 195,714 | $ | (40,756 | ) | (20.8 | )% | |||||||
Revenues from same store properties decreased $4.5 million
due primarily to a decrease in occupancy. Revenues from acquired
properties increased $0.1 million due to the three
industrial properties acquired subsequent to December 31,
2008 totaling approximately 0.5 million square feet of GLA.
Revenues from sold properties decreased $4.3 million due to
the 17 industrial properties sold subsequent to
December 31, 2008 totaling approximately 2.3 million
square feet of GLA. Revenues from (re)developments and land
increased $2.2 million primarily due to an increase in
occupancy. Other revenues decreased $2.2 million due
primarily to a decrease in fees earned from our Joint Ventures.
Construction revenues decreased $36.5 million primarily due
to the substantial
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completion prior to December 31, 2009 of certain
development projects for which we were acting in the capacity of
development manager.
Six Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, 2010 | June 30, 2009 | $ Change | % Change | |||||||||||||
($ in 000s) | ||||||||||||||||
PROPERTY AND CONSTRUCTION EXPENSES
|
||||||||||||||||
Same Store Properties
|
$ | 46,553 | $ | 48,321 | $ | (1,768 | ) | (3.7 | )% | |||||||
Acquired Properties
|
21 | | 21 | | ||||||||||||
Sold Properties
|
185 | 1,534 | (1,349 | ) | (87.9 | )% | ||||||||||
(Re)Developments and Land, Not Included Above
|
1,655 | 1,954 | (299 | ) | (15.3 | )% | ||||||||||
Other
|
7,016 | 7,085 | (69 | ) | (1.0 | )% | ||||||||||
$ | 55,430 | $ | 58,894 | $ | (3,464 | ) | (5.9 | )% | ||||||||
Discontinued Operations
|
(383 | ) | (1,785 | ) | 1,402 | (78.5 | )% | |||||||||
Total Property Expenses
|
$ | 55,047 | $ | 57,109 | $ | (2,062 | ) | (3.6 | )% | |||||||
Construction Expenses
|
209 | 35,672 | (35,463 | ) | (99.4 | )% | ||||||||||
Total Property and Construction Expenses
|
$ | 55,256 | $ | 92,781 | $ | (37,525 | ) | (40.4 | )% | |||||||
Property expenses include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other
property related expenses. Property expenses from same store
properties decreased $1.8 million due primarily to a
decrease in bad debt expense. Property expenses from sold
properties decreased $1.3 million due to properties sold
subsequent to December 31, 2008. Property expenses from
(re)developments and land decreased $0.3 million due
primarily to the collection of a tenant receivable which had a
bad debt allowance, resulting in a reversal of bad debt expense
in 2010. Other expense remained relatively unchanged.
Construction expenses decreased $35.5 million primarily due
to the substantial completion prior to December 31, 2009 of
certain development projects for which we were acting in the
capacity of development manager.
General and administrative expense decreased $5.3 million,
or 24.6%, due primarily to a decrease in compensation resulting
from the reduction in employee headcount occurring during 2009,
a decrease in rent expense resulting from office closings in
2009 related to restructuring activities and a decrease in legal
and professional services incurred during 2009, partially offset
by an increase in lawsuit settlement reserves.
For the six months ended June 30, 2010, we incurred
$1.2 million in restructuring charges to provide for
employee severance and benefits ($0.8 million), costs
associated with the termination of certain office leases
($0.1 million) and other costs ($0.3 million)
associated with implementing our restructuring plan. Due to the
timing of certain related expenses, we expect to record a total
of approximately $0.5 million of additional restructuring
charges in subsequent quarters. For the six months ended
June 30, 2009, we incurred $4.8 million in
restructuring charges related to employee severance and benefits
($4.1 million), costs associated with the termination of
certain office leases ($0.4 million) and other costs
($0.3 million) associated with implementing the
restructuring plan.
In connection with our periodic review of the carrying values of
our properties and the negotiation of a new lease, we determined
in the first quarter of 2010 that an impairment loss in the
amount of $9.2 million should be recorded on one property
in Grand Rapids, Michigan. The non-cash impairment charge was
based upon the difference between the fair value of the property
and its carrying value. Additional impairments may be necessary
in the future in the event that market conditions continue to
deteriorate and impact the factors used to estimate fair value.
32
Table of Contents
Six Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, 2010 | June 30, 2009 | $ Change | % Change | |||||||||||||
($ in 000s) | ||||||||||||||||
DEPRECIATION and OTHER AMORTIZATION
|
||||||||||||||||
Same Store Properties
|
$ | 58,395 | $ | 63,297 | $ | (4,902 | ) | (7.7 | )% | |||||||
Acquired Properties
|
105 | | 105 | | ||||||||||||
Sold Properties
|
213 | 1,917 | (1,704 | ) | (88.9 | )% | ||||||||||
(Re)Developments and Land, Not Included Above and Other
|
2,211 | 1,729 | 482 | 27.9 | % | |||||||||||
Corporate Furniture, Fixtures and Equipment
|
1,027 | 1,143 | (116 | ) | (10.1 | )% | ||||||||||
$ | 61,951 | $ | 68,086 | $ | (6,135 | ) | (9.0 | )% | ||||||||
Discontinued Operations
|
(311 | ) | (2,061 | ) | 1,750 | (84.9 | )% | |||||||||
Total Depreciation and Other Amortization
|
$ | 61,640 | $ | 66,025 | $ | (4,385 | ) | (6.6 | )% | |||||||
Depreciation and other amortization for same store properties
decreased $4.9 million primarily due to accelerated
depreciation and amortization taken during the six months ended
June 30, 2009, attributable to certain tenants who
terminated their lease early. Depreciation and other
amortization from acquired properties increased
$0.1 million due to properties acquired subsequent to
December 31, 2008. Depreciation and other amortization from
sold properties decreased $1.7 million due to properties
sold subsequent to December 31, 2008. Depreciation and
other amortization for (re)developments and land and other
increased $0.5 million due primarily to an increase in the
substantial completion of developments. Corporate furniture,
fixtures and equipment decreased $0.1 million primarily due
to accelerated depreciation on furniture, fixtures and equipment
taken in 2009 related to the termination of certain office
leases.
Interest income increased $0.8 million, or 64.3%, primarily
due to an increase in the weighted average mortgage loans
receivable balance for the six months ended June 30, 2010
as compared to the six months ended June 30, 2009.
Interest expense decreased $5.5 million, or 9.6%, primarily
due to a decrease in the weighted average debt balance
outstanding for the six months ended June 30, 2010
($1,867.4 million), as compared to the six months ended
June 30, 2009 ($2,090.3 million), partially offset by
an increase in the weighted average interest rate for the six
months ended June 30, 2010 (5.61%), as compared to the six
months ended June 30, 2009 (5.57%) and a decrease in
capitalized interest for the six months ended June 30, 2010
due to a decrease in development activities.
Amortization of deferred financing costs increased
$0.1 million or 6.2%, primarily due to an increase in
financing costs related to the origination of mortgage
financings during 2010 and 2009, partially offset by the
write-off of loan fees related to the repurchase and retirement
of certain of our senior unsecured debt.
In October 2008, we entered into an interest rate swap agreement
(the Series F Agreement) to mitigate our
exposure to floating interest rates related to the coupon reset
of the Companys Series F Preferred Stock. The
Series F Agreement has a notional value of
$50.0 million and is effective from April 1, 2009
through October 1, 2013. The Series F Agreement fixes
the 30-year
U.S. Treasury rate at 5.2175%. We recorded
$1.5 million in mark to market loss, inclusive of reset
payments, which is included in
Mark-to-Market
(Loss) Gain on Interest Rate Protection Agreements for the six
months ended June 30, 2010, as compared to
$2.4 million in mark to market gain, inclusive of reset
payments, for the six months ended June 30, 2009.
Additionally, the rates on the forecasted debt issuances
underlying two of our forward starting swaps locked on
March 20, 2009 and on April 6, 2009, and as such, the
swaps ceased to qualify for hedge accounting. The change in
value of the swaps from the respective day the interest rate on
the underlying debt locked until settlement is $1.0 million
and is included in
Mark-to-Market
(Loss) Gain on Interest Rate Protection Agreements for the six
months ended June 30, 2009.
For the six months ended June 30, 2010, we recognized a net
loss from early retirement of debt of $4.0 million
primarily due to the redemption of our 2011 Notes. For the six
months ended June 30, 2009, we recognized a
33
Table of Contents
$4.0 million gain from early retirement of debt due to the
partial repurchase of two series of our senior unsecured debt.
Foreign currency exchange loss of $0.2 million for the six
months ended June 30, 2010 relates to the Companys
wind-down of its operations in Europe.
Equity in income of Other Real Estate Partnerships decreased
$2.4 million, or 28.7%, primarily due to an increase in
interest expense and a decrease in gain on sale of real estate
for the Other Real Estate Partnerships for the six months ended
June 30, 2010.
Equity in income of Joint Ventures decreased approximately
$1.5 million, or 92.2%, due primarily to a decrease in our
pro rata share of gain on sale of real estate and earn outs on
property sales from the 2005 Development/Repositioning Joint
Venture and a decrease in our pro rata share of income from the
2005 Core Joint Venture during the six months ended
June 30, 2010, as compared to the six months ended
June 30, 2009, partially offset by the gain on sale of our
15% interest in the 2006 Net Lease Co-Investment Program.
The income tax provision (included in continuing operations,
discontinued operations and gain on sale) increased
$7.5 million, or 167.7%, due primarily to a decrease in
general and administrative, interest and depreciation and
amortization expense incurred in the new TRS for the six months
ended June 30, 2010 as compared to the old TRS for the six
months ended June 30, 2009, as well as an increase in state
taxes related to an unfavorable court decision on business loss
carryforwards in the State of Michigan.
The following table summarizes certain information regarding the
industrial properties included in our discontinued operations
for the six months ended June 30, 2010 and June 30,
2009:
Six Months |
Six Months |
|||||||
Ended |
Ended |
|||||||
June 30, 2010 | June 30, 2009 | |||||||
($ in 000s) | ||||||||
Total Revenues
|
$ | 649 | $ | 5,069 | ||||
Property Expenses
|
(383 | ) | (1,785 | ) | ||||
Depreciation and Amortization
|
(311 | ) | (2,061 | ) | ||||
Gain on Sale of Real Estate
|
7,619 | 7,509 | ||||||
Benefit for Income Taxes
|
| 14 | ||||||
Income from Discontinued Operations
|
$ | 7,574 | $ | 8,746 | ||||
Income from discontinued operations for the six months ended
June 30, 2010 reflects the results of operations and gain
on sale of real estate relating to five industrial properties
that were sold during the six months ended June 30, 2010
and the results of operations of two industrial properties that
were identified as held for sale at June 30, 2010.
Income from discontinued operations for the six months ended
June 30, 2009 reflects the gain on sale of real estate
relating to five industrial properties that were sold during the
six months ended June 30, 2009 and reflects the results of
operations of 12 industrial properties that were sold during the
year ended December 31, 2009, five industrial properties
that were sold during the six months ended June 30, 2010
and two industrial properties identified as held for sale at
June 30, 2010.
The $1.1 million gain on sale of real estate for the six
months ended June 30, 2010 resulted from the sale of one
land parcel that does not meet the criteria for inclusion in
discontinued operations. The $0.5 million gain on sale of
real estate for the six months ended June 30, 2009 resulted
from the sale of one land parcel that does not meet the criteria
established for inclusion in discontinued operations.
Comparison
of Three Months Ended June 30, 2010 to Three Months Ended
June 30, 2009
Our net loss available to unitholders and participating
securities was $(20.1) million and $(8.6) million for
the three months ended June 30, 2010 and June 30,
2009, respectively. Basic and diluted net loss available to
34
Table of Contents
unitholders were $(0.29) per unit and $(0.17) per unit for the
three months ended June 30, 2010 and June 30, 2009,
respectively.
The tables below summarize our revenues, property expenses and
depreciation and other amortization by various categories for
the three months ended June 30, 2010 and June 30,
2009. Same store properties are properties owned prior to
January 1, 2009 and held as an operating property through
June 30, 2010, and developments and redevelopments that
were placed in service prior to January 1, 2009 or were
substantially completed for 12 months prior to
January 1, 2009. Properties which are at least 75% occupied
at acquisition are placed in service. All other properties are
placed in service as they reach the earlier of
a) stabilized occupancy (generally defined as 90%
occupied), or b) one year subsequent to acquisition or
development completion. Acquired properties are properties that
were acquired subsequent to December 31, 2008 and held as
an operating property through June 30, 2010. Sold
properties are properties that were sold subsequent to
December 31, 2008. (Re)Developments and land are land
parcels and developments and redevelopments that were not
a) substantially complete 12 months prior to
January 1, 2009 or b) placed in service prior to
January 1, 2009. Other revenues are derived from the
operations of our maintenance company, fees earned from our
Joint Ventures and other miscellaneous revenues. Construction
revenues and expenses represent revenues earned and expenses
incurred in connection with the TRSs acting as development
manager to construct industrial properties. Other expenses are
derived from the operations of our maintenance company and other
miscellaneous regional expenses.
Our future financial condition and results of operations,
including rental revenues, may be impacted by the future
acquisition and sale of properties. Our future revenues and
expenses may vary materially from historical rates.
For the three months ended June 30, 2010 and June 30,
2009, the occupancy rates of our same store properties were
81.6% and 81.9%, respectively.
Three Months |
Three Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, 2010 | June 30, 2009 | $ Change | % Change | |||||||||||||
($ in 000s) | ||||||||||||||||
REVENUES
|
||||||||||||||||
Same Store Properties
|
$ | 70,785 | $ | 72,548 | $ | (1,763 | ) | (2.4 | )% | |||||||
Acquired Properties
|
127 | | 127 | | ||||||||||||
Sold Properties
|
115 | 2,011 | (1,896 | ) | (94.3 | )% | ||||||||||
(Re)Developments and Land, Not Included Above
|
2,313 | 1,179 | 1,134 | 96.2 | % | |||||||||||
Other
|
3,200 | 4,295 | (1,095 | ) | (25.5 | )% | ||||||||||
$ | 76,540 | $ | 80,033 | $ | (3,493 | ) | (4.4 | )% | ||||||||
Discontinued Operations
|
(120 | ) | (2,123 | ) | 2,003 | (94.3 | )% | |||||||||
Subtotal Revenues
|
$ | 76,420 | $ | 77,910 | $ | (1,490 | ) | (1.9 | )% | |||||||
Construction Revenues
|
| 18,318 | (18,318 | ) | (100.0 | )% | ||||||||||
Total Revenues
|
$ | 76,420 | $ | 96,228 | $ | (19,808 | ) | (20.6 | )% | |||||||
Revenues from same store properties decreased $1.8 million
due primarily to a decrease in occupancy. Revenues from acquired
properties increased $0.1 million due to the three
industrial properties acquired subsequent to December 31,
2008 totaling approximately 0.5 million square feet of GLA.
Revenues from sold properties decreased $1.9 million due to
the 17 industrial properties and one leased land parcel sold
subsequent to December 31, 2008, totaling approximately
2.3 million square feet of GLA. Revenues from
(re)developments and land increased $1.1 million primarily
due to an increase in occupancy. Other revenues decreased
$1.1 million due primarily to a decrease in fees earned
from our Joint Ventures. Construction revenues decreased
$18.3 million primarily due to the substantial completion
prior to December 31, 2010 of certain development projects
for which we were acting in the capacity of development manager.
35
Table of Contents
Three Months |
Three Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, 2010 | June 30, 2009 | $ Change | % Change | |||||||||||||
($ in 000s) | ||||||||||||||||
PROPERTY AND CONSTRUCTION EXPENSES
|
||||||||||||||||
Same Store Properties
|
$ | 21,622 | $ | 22,543 | $ | (921 | ) | (4.1 | )% | |||||||
Acquired Properties
|
21 | | 21 | | ||||||||||||
Sold Properties
|
65 | 620 | (555 | ) | (89.5 | )% | ||||||||||
(Re)Developments and Land, Not Included Above
|
686 | 975 | (289 | ) | (29.6 | )% | ||||||||||
Other
|
3,704 | 4,462 | (758 | ) | (17.0 | )% | ||||||||||
$ | 26,098 | $ | 28,600 | $ | (2,502 | ) | (8.7 | )% | ||||||||
Discontinued Operations
|
(129 | ) | (661 | ) | 532 | (80.5 | )% | |||||||||
Total Property Expenses
|
$ | 25,969 | $ | 27,939 | $ | (1,970 | ) | (7.1 | )% | |||||||
Construction Expenses
|
| 17,789 | (17,789 | ) | (100.0 | )% | ||||||||||
Total Property and Construction Expenses
|
$ | 25,969 | $ | 45,728 | $ | (19,759 | ) | (43.2 | )% | |||||||
Property expenses include real estate taxes, repairs and
maintenance, property management, utilities, insurance and other
property related expenses. Property expenses from same store
properties decreased $0.9 million due primarily to a
decrease in bad debt expense. Property expenses from sold
properties decreased $0.6 million due to properties sold
subsequent to December 31, 2008. Property expenses from
(re)developments and land decreased $0.3 million due
primarily to the collection of a tenant receivable which had a
bad debt allowance, resulting in a reversal of bad debt expense
in 2010. The $0.8 million decrease in other expense is
primarily attributable to a decrease in compensation related to
the reduction in employee headcount in 2009. Construction
expenses decreased $17.8 million primarily due to the
substantial completion prior to December 31, 2010 of
certain development projects for which we were acting in the
capacity of development manager.
General and administrative expense decreased $4.2 million,
or 36.4%, due primarily to a decrease in compensation resulting
from the reduction in employee headcount and a decrease in
professional services.
For the three months ended June 30, 2010, we incurred
$0.9 million in restructuring charges to provide for
employee severance and benefits ($0.8 million) and other
costs ($0.1 million) associated with implementing our
restructuring plan. For the three months ended June 30,
2009, we incurred $0.1 million in restructuring charges
primarily related to costs associated with the termination of
certain office leases.
Three Months |
Three Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, 2010 | June 30, 2009 | $ Change | % Change | |||||||||||||
($ in 000s) | ||||||||||||||||
DEPRECIATION and OTHER AMORTIZATION
|
||||||||||||||||
Same Store Properties
|
$ | 29,696 | $ | 30,547 | $ | (851 | ) | (2.8 | )% | |||||||
Acquired Properties
|
105 | | 105 | | ||||||||||||
Sold Properties
|
75 | 730 | (655 | ) | (89.7 | )% | ||||||||||
(Re)Developments and Land, Not Included Above and Other
|
1,116 | 917 | 199 | 21.7 | % | |||||||||||
Corporate Furniture, Fixtures and Equipment
|
521 | 546 | (25 | ) | (4.6 | )% | ||||||||||
$ | 31,513 | $ | 32,740 | $ | (1,227 | ) | (3.7 | )% | ||||||||
Discontinued Operations
|
(113 | ) | (805 | ) | 692 | (86.0 | )% | |||||||||
Total Depreciation and Other Amortization
|
$ | 31,400 | $ | 31,935 | $ | (535 | ) | (1.7 | )% | |||||||
Depreciation and other amortization for same store properties
decreased $0.9 million primarily due to accelerated
depreciation and amortization taken during the three months
ended June 30, 2009, attributable to certain tenants who
terminated their lease early. Depreciation and other
amortization from acquired properties increased
36
Table of Contents
$0.1 million due to properties acquired subsequent to
December 31, 2008. Depreciation and other amortization from
sold properties decreased $0.7 million due to properties
sold subsequent to December 31, 2008. Depreciation and
other amortization for (re)developments and land and other
increased $0.2 million due primarily to an increase in the
substantial completion of developments.
Interest income increased $0.3 million, or 41.5%, primarily
due to an increase in the weighted average mortgage loans
receivable balance for the three months ended June 30, 2010
as compared to the three months ended June 30, 2009.
Interest expense decreased $4.5 million, or 15.2%,
primarily due to a decrease in the weighted average debt balance
outstanding for the three months ended June 30, 2010
($1,817.0 million), as compared to the three months ended
June 30, 2009 ($2,111.2 million) and a decrease in the
weighted average interest rate for the three months ended
June 30, 2010 (5.49%), as compared to the three months
ended June 30, 2009 (5.57%).
Amortization of deferred financing costs remained relatively
unchanged.
We recorded $1.3 million in mark to market loss, inclusive
of the reset payment, on the Series F Agreement which is
included in
Mark-to-Market
(Loss) Gain on Interest Rate Protection Agreements for the three
months ended June 30, 2010. We recorded $0.9 million
in mark to market gain, inclusive of the reset payment, on the
Series F Agreement for the three months ended June 30,
2009. Additionally,
Mark-to-Market
(Loss) Gain on Interest Rate Protection Agreements for the three
months ended June 30, 2009 includes $1.4 million of
gain related to the change in value from the dates the rates
locked to the settlement dates of two of our forward starting
swaps associated with a forecasted debt offering.
For the three months ended June 30, 2010, we recognized a
$4.3 million loss from early retirement of debt due to the
redemption of our 2011 Notes. For the three months ended
June 30, 2009, we recognized a $4.0 million gain from
early retirement of debt due to the partial repurchase of two
series of our senior unsecured debt.
Foreign currency exchange loss of $0.2 million for the
three months ended June 30, 2010 relates to the
Companys wind-down of its operations in Europe.
Equity in income of Other Real Estate Partnerships decreased
$0.7 million, or 18.0%, primarily due to an increase in
interest expense for the Other Real Estate Partnerships for the
three months ended June 30, 2010.
Equity in income of Joint Ventures decreased approximately
$1.0 million, or 62.5%, due primarily to a decrease in our
pro rata share of gain on sale of real estate and earn outs on
property sales from the 2005 Development/Repositioning Joint
Venture during the three months ended June 30, 2010, as
compared to the three months ended June 30, 2009, partially
offset by the gain on sale of our 15% interest in the 2006 Net
Lease Co-Investment Program.
The income tax provision (included in continuing operations,
discontinued operations and gain on sale) increased
$5.1 million, or 198.0%, due primarily to an increase in
state taxes related to an unfavorable court decision on business
loss carryforwards in the State of Michigan, as well as a
decrease in general and administrative, interest and
depreciation and amortization expense incurred in the new TRS
for the three months ended June 30, 2010, as compared to
the old TRS for the three months ended June 30, 2009.
37
Table of Contents
The following table summarizes certain information regarding the
industrial properties included in our discontinued operations
for the three months ended June 30, 2010 and June 30,
2009:
Three Months |
Three Months |
|||||||
Ended |
Ended |
|||||||
June 30, 2010 | June 30, 2009 | |||||||
($ in 000s) | ||||||||
Total Revenues
|
$ | 120 | $ | 2,123 | ||||
Property Expenses
|
(129 | ) | (661 | ) | ||||
Depreciation and Amortization
|
(113 | ) | (805 | ) | ||||
Gain on Sale of Real Estate
|
3,610 | 3,907 | ||||||
Provision for Income Taxes
|
| (72 | ) | |||||
Income from Discontinued Operations
|
$ | 3,488 | $ | 4,492 | ||||
Income from discontinued operations for the three months ended
June 30, 2010 reflects the results of operations and gain
on sale of real estate relating to two industrial properties
that were sold during the three months ended June 30, 2010
and the results of operations of two industrial properties that
were identified as held for sale at June 30, 2010.
Income from discontinued operations for the three months ended
June 30, 2009 reflects the gain on sale of real estate
relating to three industrial properties that were sold during
the three months ended June 30, 2009 and reflects the
results of operations of 12 industrial properties that were sold
during the year ended December 31, 2009, five industrial
properties and one land parcel that received ground rental
revenues that were sold during the six months ended
June 30, 2010 and two industrial properties identified as
held for sale at June 30, 2010.
LIQUIDITY
AND CAPITAL RESOURCES
At June 30, 2010 our cash and cash equivalents was
approximately $84.4 million.
We have considered our short-term (one year or less) liquidity
needs and the adequacy of our estimated cash flow from
operations and other expected liquidity sources to meet these
needs. We believe that our principal short-term liquidity needs
are to fund normal recurring expenses, property acquisitions,
developments, renovations, expansions and other nonrecurring
capital improvements, debt service requirements, mortgage
financing maturities and the minimum distributions required to
maintain the Companys REIT qualification under the Code.
We anticipate that these needs will be met with cash flows
provided by operating and investing activities, including the
disposition of select assets. In addition, we plan to retain
capital by making per Unit distributions equivalent to the per
share distributions the Company is required to make to meet its
minimum distribution requirements as a REIT. We have not paid
distributions to date in 2010 and may not pay distributions in
future quarters in 2010 depending on the Companys taxable
income. If the Company is required to pay common stock dividends
in 2010, we may elect to make distributions through some
combination of cash, common Units,
and/or the
Companys common shares. Also, if the Company is not
required to pay preferred share dividends to maintain its REIT
qualification under the Code, it may elect to suspend some or
all preferred stock dividends for one or more fiscal quarters.
We expect to meet long-term (greater than one year) liquidity
requirements such as property acquisitions, developments,
scheduled debt maturities, major renovations, expansions and
other nonrecurring capital improvements through the disposition
of select assets, long-term unsecured and secured indebtedness
and the issuance of additional Units and preferred Units.
We also have financed the development or acquisition of
additional properties through borrowings under our Unsecured
Line of Credit and may finance the development or acquisition of
additional properties through such borrowings, to the extent
capacity is available, in the future. At June 30, 2010,
borrowings under our Unsecured Line of Credit bore interest at a
weighted average interest rate of 1.378%. Our Unsecured Line of
Credit currently bears interest at a floating rate of LIBOR plus
1.0% or the prime rate plus 0.15%, at our election. As of
August 5, 2010, we had approximately $1.1 million
available for additional borrowings under our Unsecured Line of
Credit. Our Unsecured Line of Credit contains certain financial
covenants including limitations on incurrence of debt and
38
Table of Contents
debt service coverage. Our access to borrowings may be limited
if we fail to meet any of these covenants. We believe that we
were in compliance with our financial covenants as of
June 30, 2010, and we anticipate that we will be able to
operate in compliance with our financial covenants for the
remainder of 2010 based upon our earnings projections. Our
belief that we will continue to meet our financial covenants
through 2010 is based on internal projections of EBITDA, as
defined in our Unsecured Line of Credit and our unsecured notes,
which include a number of assumptions, including, among others,
assumptions regarding occupancy rates, tenant retention, rental
rates and property sales as well as internal projections of
interest expense and preferred dividends. 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. In addition, our ability to meet our
financial covenants may be reduced if economic and credit market
conditions limit our property sales and reduce our net operating
income below our plan. 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.
Our senior unsecured notes have been assigned credit ratings
from Standard & Poors, Moodys and Fitch
Ratings of BB-/Ba3/BB-, respectively. In the event of a
downgrade, we believe we would continue to have access to
sufficient capital; however, our cost of unsecured borrowing
would increase and our ability to access certain financial
markets may be limited.
Six
Months Ended June 30, 2010
Net cash provided by operating activities of approximately
$11.9 million for the six months ended June 30, 2010
was comprised primarily of the non-cash adjustments of
approximately $70.6 million and operating distributions
received in excess of equity in income of Joint Ventures of
$1.7 million, offset by a net loss of approximately
$33.9 million, net change in operating assets and
liabilities of approximately $20.3 million and repayments
of discount on senior unsecured debt of approximately
$6.2 million. The adjustments for the non-cash items of
approximately $70.6 million are primarily comprised of
depreciation and amortization of approximately
$68.0 million, the impairment of real estate of
$9.1 million, the loss on the early retirement of debt of
approximately $4.0 million, the mark to market loss related
to the Series F Agreement of approximately
$1.5 million and the provision for bad debt of
approximately $0.6 million, offset by the gain on sale of
real estate of approximately $8.7 million and the effect of
the straight-lining of rental income of approximately
$3.9 million.
Net cash provided by investing activities of approximately
$41.3 million for the six months ended June 30, 2010
was comprised primarily of distributions from the Other Real
Estate Partnerships, net proceeds from the sale of real estate,
distributions from our Joint Ventures and the repayments on our
mortgage note receivables, offset by investments in and advances
to the Other Real Estate Partnerships, the acquisition of real
estate, capital expenditures related to the improvement of
existing real estate, payments related to leasing activities,
contributions to, and investments in, our Joint Ventures and an
increase in mortgage payable escrows.
We invested approximately $0.4 million in, and received
total distributions of approximately $6.3 million from, our
Joint Ventures. As of June 30, 2010, our industrial real
estate Joint Ventures owned 105 industrial properties comprising
approximately 17.9 million square feet of GLA and several
land parcels.
During the six months ended June 30, 2010, we sold five
industrial properties comprising approximately 0.5 million
square feet of GLA and several land parcels. Net proceeds from
the sales of the five industrial properties and several land
parcels was approximately $52.3 million.
During the six months ended June 30, 2010, we acquired
three industrial properties comprising approximately
0.5 million square feet of GLA, including one industrial
property purchased from the 2005 Development/Repositioning Joint
Venture. The purchase price of these acquisitions totaled
approximately $22.4 million, excluding costs incurred in
conjunction with the acquisition of the industrial properties.
Net cash used in financing activities of approximately
$150.1 million for the six months ended June 30, 2010
was comprised primarily of repurchases of and repayments on our
unsecured notes and mortgage loans payable, preferred general
partnership unit distributions, other costs associated with the
early retirement of debt, payments of debt issuance costs, the
repurchase and retirement of restricted units, payments on the
interest rate swap agreement
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and costs associated with the DRIP and ATM offerings, offset by
net borrowings on our Unsecured Line of Credit, proceeds from
the new mortgage financings and proceeds from the issuance of
common stock.
During the six months ended June 30, 2010, we received
proceeds from the origination of $40.6 million in mortgage
financings. During the six months ended June 30, 2010, we
redeemed $230.8 million of our Unsecured Notes at an
aggregate purchase price of $231.9 million.
During the six months ended June 30, 2010, the Company
issued 1,424,106 shares of its common stock under the
direct stock purchase component of the DRIP and the ATM,
resulting in net proceeds of approximately $10.3 million.
These proceeds were contributed to us in exchange for an
equivalent number of Units.
Market
Risk
The following discussion about our 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. Our
business subjects us to market risk from interest rates, and to
a much lesser extent, foreign currency fluctuations.
Interest
Rate Risk
In the normal course of business, we also face 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, 2010, approximately $1,318.9 million
(approximately 72.7% of total debt at June 30,
2010) of our debt was fixed rate debt and approximately
$496.5 million (approximately 27.3% of total debt at
June 30, 2010) was variable rate debt.
For fixed rate debt, changes in interest rates generally affect
the fair value of the debt, but not our earnings or cash flows.
Conversely, for variable rate debt, changes in the base interest
rate used to calculate the all-in interest rate generally do not
impact the fair value of the debt, but would affect our 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 us until we are required to refinance such
debt. See Note 7 to the Consolidated Financial Statements
for a discussion of the maturity dates of our various fixed rate
debt.
Based upon the amount of variable rate debt outstanding at
June 30, 2010, a 10% increase or decrease in the interest
rate on our variable rate debt would decrease or increase,
respectively, future net income and cash flows by approximately
$0.7 million per year. The foregoing calculation assumes an
instantaneous increase or decrease in the rates applicable to
the amount of borrowings outstanding under our Unsecured Line of
Credit at June 30, 2010. Changes in LIBOR could result in a
greater than 10% increase to such rates. In addition, the
calculation does not account for our option to elect the lower
of two different interest rates under our borrowings or other
possible actions, such as prepayment, that we might take in
response to any rate increase.
The use of derivative financial instruments allows us to manage
risks of increases in interest rates with respect to the effect
these fluctuations would have on our earnings and cash flows. As
of June 30, 2010, we had one outstanding derivative with a
notional amount of $50.0 million which mitigates our
exposure to floating interest rates related to the reset rate of
the Companys Series F Preferred Stock (see
Note 12 to the Consolidated Financial Statements).
Foreign
Currency Exchange Rate Risk
Owning, operating and developing industrial property outside of
the United States exposes the Company to the possibility of
volatile movements in foreign exchange rates. Changes in foreign
currencies can affect the operating results of international
operations reported in U.S. dollars and the value of the
foreign assets reported in U.S. dollars. The economic
impact of foreign exchange rate movements is complex because
such changes are often linked to variability in real growth,
inflation, interest rates, governmental actions and other
factors. At June 30, 2010, we owned several land parcels
for which the U.S. dollar was not the functional currency.
These land parcels are located in Ontario, Canada and use the
Canadian dollar as their functional currency. Additionally, the
2007 Canada Joint
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Venture owned two industrial properties and several land parcels
for which the functional currency is the Canadian dollar.
Recent
Accounting Pronouncements
Refer to Note 3 to the Consolidated Financial Statements.
Subsequent
Events
On August 5, 2010, we transferred our interests in the 2005
Development/Repositioning Joint Venture, the 2005 Core Joint
Venture, the 2006 Land/Development Joint Venture and the 2007
Canada Joint Venture to our partner. In connection with this
transfer, we received approximately $5.0 million. As a
result of this transfer, we will no longer serve as asset
manager for these ventures.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Response to this item is included in Item 2,
Managements Discussion and Analysis of Financial
Condition and Results of Operations above.
Item 4. | Controls and Procedures |
Our principal executive officer and principal financial officer,
in evaluating the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
as of the end of the period covered by this report, based on the
evaluation of these controls and procedures required by Exchange
Act
Rules 13a-15(b)
or
15d-15(b),
have concluded that as of the end of such period our disclosure
controls and procedures were effective.
There has been no change in our internal control over financial
reporting that occurred during the fiscal quarter covered by
this report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
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PART II:
OTHER INFORMATION
Item 1. | Legal Proceedings |
None.
Item 1A. | Risk Factors |
Adverse
changes in our credit ratings could negatively affect our
liquidity and business operations.
The credit ratings of the Operating Partnerships senior
unsecured debt and the Companys preferred stock are based
on the Companys operating performance, liquidity and
leverage ratios, overall financial position and other factors
employed by the credit rating agencies in their rating analyses.
Our credit ratings can affect the availability, terms and
pricing of any indebtedness that we may incur going forward.
There can be no assurance that we will be able to maintain any
credit rating, and in the event any credit rating is downgraded,
we could incur higher borrowing costs or be unable to access
certain financial markets at all.
Failure
to comply with covenants in our debt agreements could adversely
affect our financial condition
The terms of our agreements governing our Unsecured Line of
Credit and other indebtedness require that we comply with a
number of financial and other covenants, such as maintaining
debt service coverage and leverage ratios and maintaining
insurance coverage. Complying with such covenants may limit our
operational flexibility. Moreover, our failure to comply with
these covenants could cause a default under the applicable debt
agreement even if we have satisfied our payment obligations.
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 the noteholders or lenders in a manner that could
impose and cause us to incur material costs. We anticipate that
we will be able to operate in compliance with our financial
covenants, including our unsecured leverage and fixed charge
covenants, for the remainder of 2010. However, we expect to
exceed the minimum amounts permitted under the unsecured
leverage and fixed charge coverage covenants set forth in our
Unsecured Line of Credit by only a thin margin. Our ability to
meet our financial covenants may be adversely affected if
economic and credit market conditions limit our ability to
reduce our debt levels consistent with, or result in net
operating income below, our current expectations. Under our
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.
Upon the occurrence of an event of default, we would be subject
to higher finance costs and fees, and the lenders under our
Unsecured Line of Credit will not be required to lend any
additional amounts to us. In addition, our outstanding senior
debt securities as well as all outstanding borrowings under the
Unsecured Line of Credit, together with accrued and unpaid
interest and fees, could be accelerated and declared to be
immediately due and payable. Furthermore, our Unsecured Line of
Credit and senior debt securities contain certain cross-default
provisions, which are triggered in the event that our other
material indebtedness is in default. These cross-default
provisions may require us to repay or restructure the Unsecured
Line of Credit and the senior debt securities or other debt that
is in default, which could adversely affect our financial
condition, results of operations, cash flow and ability to pay
dividends on, and the market price of, our stock. If repayment
of any of our borrowings is accelerated, we cannot provide
assurance that we will have sufficient assets to repay such
indebtedness or that we would be able to borrow sufficient funds
to refinance such indebtedness. Even if we are able to obtain
new financing, it may not be on commercially reasonable terms,
or terms that are acceptable to us.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | (Removed and Reserved) |
Not applicable.
Item 5. | Other Information |
Not applicable.
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Item 6. | Exhibits |
Exhibit |
||||
Number | Description | |||
31 | .1* | Certification of the Principal Executive Officer of First Industrial Realty Trust, Inc., registrants sole general partner, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. | ||
31 | .2* | Certification of the Principal Financial Officer of First Industrial Realty Trust, Inc., registrants sole general partner, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. | ||
32 | .1** | Certification of the Principal Executive Officer and the Principal Financial Officer of First Industrial Realty Trust, Inc., registrants sole general partner, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
* | Filed herewith | |
** | Furnished herewith |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST INDUSTRIAL, L.P.
By: FIRST INDUSTRIAL REALTY TRUST, INC.
Its Sole General Partner
By: |
/s/ Scott
A. Musil
|
Scott A. Musil
Chief Financial Officer
(Principal Financial Officer)
Date: August 5, 2010
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EXHIBIT INDEX
Exhibit |
||||
Number | Description | |||
31 | .1* | Certification of the Principal Executive Officer of First Industrial Realty Trust, Inc., registrants sole general partner, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. | ||
31 | .2* | Certification of the Principal Financial Officer of First Industrial Realty Trust, Inc., registrants sole general partner, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. | ||
32 | .1** | Certification of the Principal Executive Officer and the Principal Financial Officer of First Industrial Realty Trust, Inc., registrants sole general partner, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
* | Filed herewith | |
** | Furnished herewith |
46