ITEM 1. BUSINESS THE COMPANY 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") with an approximate 86% ownership interest at December 31, 1997. The Company also owns a preferred general partnership interest in the Operating Partnership ("Preferred Units") with an aggregate liquidation priority of $150.0 million. The Company is a real estate investment trust ("REIT") as defined in the Internal Revenue Code. The Company's operations are conducted primarily through the Operating Partnership. The limited partners of the Operating Partnership own, in the aggregate, approximately a 14% interest in the Operating Partnership at December 31, 1997.
The Operating Partnership owns 100% of FR Development Services, LLC, a 95% economic interest in FR Development Services, Inc. as well as a 99% limited partnership interest (subject in one case as described below to a preferred limited partnership interest) in First Industrial Financing Partnership, L.P. (the "Financing Partnership"), First Industrial Securities, L.P. (the "Securities Partnership"), First Industrial Mortgage Partnership, L.P (the "Mortgage Partnership"), First Industrial Pennsylvania Partnership, L.P. (the "Pennsylvania Partnership"), First Industrial Harrisburg Partnership, L.P. (the "Harrisburg Partnership"), First Industrial Indianapolis, L.P. (the "Indianapolis Partnership") and First Industrial Development Services Group, L.P. (together, the "Other Real Estate Partnerships"). As of December 31, 1997, the Operating Partnership directly owned 522 in-service properties, containing an aggregate of approximately 34.5 square feet of gross leasable area ("GLA"). On a combined basis, as of December 31, 1997, the Other Real Estate Partnerships owned 247 in-service properties containing an aggregate of approximately 22.1 million square feet of GLA. Of the 247 properties owned by the Other Real Estate Partnerships at December 31, 1997, 193 are owned by the Financing Partnership, 19 are owned by the Securities Partnership, 23 are owned by the Mortgage Partnership, six are owned by the Pennsylvania Partnership, five are owned by the Harrisburg Partnership and one is owned by the Indianapolis Partnership.
The general partners of the Other Real Estate Partnerships are separate corporations, each with a one percent general partnership interest in the Other Real Estate Partnerships. Each general partner of the Other Real Estate Partnerships is a wholly owned subsidiary of the Company. The general partner of the Securities Partnership, First Industrial Securities Corporation, also owns a preferred limited partnership interest in the Securities Partnership which entitles it to receive a fixed quarterly distribution, and results in it being allocated income in the same amount, equal to the fixed quarterly dividend the Company pays on its 9.5% Series A Cumulative Preferred Stock.
The Operating Partnership is continuing and expanding the midwestern industrial property business of The Shidler Group, a national organization with over 20 years experience in the industrial real estate business. The Operating Partnership utilizes an operating approach which combines the effectiveness of locally based, or decentralized, property management, acquisition and development functions with the cost efficiencies of centralized acquisition and development support, capital markets expertise, asset management and fiscal control systems. At March 26, 1998, the Operating Partnership had 315 employees.
The Operating Partnership has grown and will seek to continue to grow through the acquisition of additional industrial properties and businesses, and through the development, primarily on a pre-leased basis, of build-to-suit properties.
BUSINESS OBJECTIVES AND GROWTH PLANS
The Operating Partnership's fundamental business objective is to maximize the total return to its partners through increases in per unit distributions and increases in the value of the Operating Partnership's properties and operations. The Operating Partnership's growth plan includes the following elements:
- - - Internal Growth. The Operating Partnership seeks to grow internally by (i) increasing revenues by renewing or re-leasing spaces subject to expiring leases at higher rental levels; (ii) increasing occupancy levels at properties where vacancies exist and maintaining occupancy elsewhere; (iii) controlling and minimizing operating expenses; and (iv) renovating existing properties.
- - - External Growth. The Operating Partnership seeks to grow externally through (i) the acquisition of portfolios of industrial properties, industrial property businesses or individual properties which meet the Operating Partnership's investment parameters; (ii) the development of primarily build-to-suit properties; and (iii) the expansion of its properties.
BUSINESS STRATEGIES
The Operating Partnership utilizes the following seven strategies in connection with the operation of its business:
- - - Organization Strategy. The Operating Partnership implements its decentralized property operations strategy through the use of experienced regional management teams and local property managers. Each operating region is headed by a senior regional director, who is a senior executive officer of, and has an equity interest in, the Company. The Operating Partnership provides acquisition, development and financing assistance, asset management oversight and financial reporting functions from its headquarters in Chicago to support its regional operations. The Operating Partnership believes the size of its portfolio enables it to realize operating efficiencies by spreading overhead over many properties and by negotiating quantity purchasing discounts.
- - - Market Strategy. The Operating Partnership invests in markets where it can achieve size and economies of scale. By focusing on specific markets, properties can be added without incurring appreciable increases in overhead. Based on the size of the Operating Partnership's and the Other Real Estate Partnerships' portfolios in their current markets, which as of December 31, 1997 averaged approximately 2.4 million square feet per market, and the experience of its senior regional directors, the Operating Partnership believes that it has sufficient market presence and resources to compete effectively. As of December 31, 1997, the Operating Partnership and the Other Real Estate Partnerships owned portfolios in the metropolitan areas of Atlanta, Georgia; Chicago, Illinois; Cincinnati, Ohio; Cleveland, Ohio; Columbus, Ohio; Dallas, Texas; Dayton, Ohio; Denver, Colorado; Des Moines, Iowa; Detroit, Michigan; Grand Rapids, Michigan; Houston, Texas; Indianapolis, Indiana; Milwaukee, Wisconsin; Minneapolis/St. Paul, Minnesota; Nashville, Tennessee; New Orleans, Louisiana; Phoenix, Arizona; Salt Lake City, Utah; St. Louis, Missouri and Tampa, Florida, as well as the regional areas of Central Pennsylvania, Long Island, New York and New Jersey.
- - - Leasing and Marketing Strategy. The Operating Partnership has an operational management strategy designed to enhance tenant satisfaction and portfolio performance. The Operating Partnership pursues an active leasing strategy, which includes aggressively marketing available space, renewing existing leases at higher rents per square foot and seeking leases which provide for the pass-through of property-related expenses to the tenant. The Operating Partnership also has local and national marketing programs which focus on the business and brokerage communities and national tenants.
- - - Acquisition Strategy. The Operating Partnership's acquisition strategy is to acquire properties in its current markets to capitalize on local market expertise and maximize operating effectiveness and efficiencies and, as appropriate opportunities arise, acquire additional properties in other markets where it can achieve sufficient size and scale as well as hire top-quality management.
- - - Development Strategy. Of the 769 properties in the Operating Partnership's and the Other Real Estate Partnership's portfolio at December 31, 1997, 197 have been developed by its current or former management. The Operating Partnership will continue to leverage the development capabilities of its management, many of
whom are leading developers in their respective markets. In 1996, the Operating Partnership formed a new subsidiary partnership, First Industrial Development Services Group, L.P., of which, the Operating Partnership has a 99% limited partnership interest, to focus on development activities.
- - - Disposition Strategy. The Operating Partnership continually evaluates local market conditions and property-related factors and will sell a property when it believes it is to the Operating Partnership's advantage to do so.
- - - Financing Strategy. The Operating Partnership believes that the size of its portfolio, the diversity of its buildings and tenants and the financial strength of the Operating Partnership allow its general partner, the Company, access to the public capital markets which are not generally available to smaller, less diversified property owners because of the portfolio size and diversity requirements.
RECENT DEVELOPMENTS
In 1997, the Operating Partnership acquired or completed development of 388 properties for a total estimated investment of approximately $855.1 million ($115.2 million of which was issued as limited partnership interests in the Operating Partnership together with general partnership Units) ("the Units") to expand the in-service portfolio 96 percent. The Operating Partnership also sold three in-service properties and one property held for redevelopment for approximately $16.1 million of gross proceeds. At December 31, 1997, the Operating Partnership owned 522 in-service properties containing approximately 34.5 million square feet.
The Operating Partnership improved its capital structure through the following activities:
- - - The Operating Partnership continued to pay down and retire secured debt and replace it with senior unsecured debt at lower interest rates.
- - - The Operating Partnership issued senior unsecured debt with staggered maturity dates. During 1997, the Operating Partnership, issued $650.0 million of senior unsecured debt with maturity dates ranging from 2005 to 2027.
- - - The Operating Partnership terminated its $200.0 million unsecured revolving credit facility (the "1996 Unsecured Acquisition Facility") and entered into a $300.0 million unsecured revolving credit facility (the "1997 Unsecured Acquisition Facility"). The 1997 Unsecured Acquisition Facility initially bears interest at the London Interbank Offered Rate ("LIBOR") plus .80% which is .20% less than the 1996 Unsecured Acquisition Facility for LIBOR borrowings.
- - - The Operating Partnership issued Preferred Units. On May 14, 1997, the Company issued 4,000,000 depositary shares, representing 1/100th of a share of the Company's 8 3/4%, $.01 par value, Series B Cumulative Preferred Stock ("Series B Preferred Stock"), at an initial offering price of $25 per depositary share. The net proceeds of $96.3 million received from the Series B Preferred Stock were contributed to the Operating Partnership in exchange for 8 3/4% Series B Cumulative Preferred Units (the "Series B Preferred Units") and are reflected in the Operating Partnership's financial statements as a preferred contribution. On June 6, 1997, the Company issued 2,000,000 depositary shares, representing 1/100th of a share of the Company's 8 5/8%, $.01 par value, Series C Cumulative Preferred Stock ("Series C Preferred Stock"), at an initial offering price of $25 per depositary share. The net proceeds of $48.0 million received from the Series C Preferred Stock were contributed to the Operating Partnership in exchange for 8 5/8% Series C Cumulative Preferred Units (the "Series C Preferred Units") and are reflected in the Operating Partnership's financial statements as a preferred contribution.
- - - The Operating Partnership issued Units. On September 16, 1997, the Company issued 637,440 shares of $.01 par value common stock (the "September 1997 Equity Offering"). The net proceeds of $18.9 million received from the September 1997 Equity Offering were contributed to the Operating Partnership in exchange for 637,440 Units and are reflected in the Operating Partnership's financial statements as a general partner contribution. On October 15, 1997, the Company issued 5,400,000 shares of $.01 par value common stock ("October 1997 Equity Offering"). The net proceeds of $176.6 million received from the October 1997 Equity Offering were contributed to the Operating Partnership in exchange for 5,400,000 Units and are reflected in the Operating Partnership's financial statements as a general partner contribution. During 1997, the Operating Partnership issued 3,634,148 Units valued, in the aggregate, at $115.2 million in exchange for interests in certain properties. These contributions are reflected in the Operating Partnership's financial statements as a limited partners contribution.
During the period January 1, 1998 though March 26, 1998, the Operating Partnership purchased 51 properties containing an aggregate of 3.1 million square feet of GLA for approximately $111.7 million, or $36.44 per square foot. The purchase price consisted of approximately $109.8 million cash and Units valued at approximately $1.9 million.
On January 27, 1998, the Operating Partnership registered $400.0 million of debt securities.
On February 4, 1998, the Company issued 5,000,000 Depositary shares, each representing 1/100th of a share of the Company's 7.95%, $.01 par value, Series D Cumulative Preferred Stock ("Series D Preferred Stock") at an initial offering price of $25 per depositary share. The net proceeds of $120.6 million received from the Series D Preferred Stock were contributed to the Operating Partnership in exchange for 7.95% Series D Cumulative Preferred Units ("the "Series D Preferred Units") and are reflected in the Operating Partnership's financial statements as a preferred contribution.
On March 18, 1998, the Company issued 3,000,000 Depositary shares, each representing 1/100th of a share of the Company's 7.90%, $.01 par value, Series E Cumulative Preferred Stock ("Series E Preferred Stock") at an initial offering price of $25 per depositary share. The net proceeds of $72.1 million received from the Series E Preferred Stock were contributed to the Operating Partnership in exchange for 7.90% Series E Cumulative Preferred Units (the "Series E Preferred Units") and are reflected in the Operating Partnership's financial statements as a preferred contribution.
On March 26, 1998, the Operating Partnership entered into an underwriting agreement with J.P. Morgan Securities Inc. ("J.P. Morgan") and certain other underwriters named therein (the "Underwriters"), pursuant to which the Operating Partnership agreed to issue and sell $100.0 million of its 6 1/2% Dealer remarketable securities due April 5, 2011 (the "Drs."). The Drs. will bear interest at 6 1/2% from the date of issuance through April 5, 2001. On April 5, 2001, the Drs. will be subject to mandatory tender to J.P. Morgan, as the remarketing dealer, if they elect to remarket the Drs. If J.P. Morgan elects not to remarket the Drs., the Operating Partnership will be required to repurchase the Drs. on April 5, 2001 at 100% of the principal amount thereof plus accrued and unpaid interest.
FUTURE ACQUISITIONS AND DEVELOPMENT
The Operating Partnership has an active acquisition and development program through which it is continually engaged in identifying, negotiating and consummating portfolio and individual industrial property acquisitions and developments. As a result, the Operating Partnership is currently engaged in negotiations relating to the possible acquisitions and developments of a number of properties located in the Operating Partnership's current markets and other markets into which the Operating Partnership may expand.
When evaluating potential acquisitions, the Operating Partnership will consider such factors as: (i) the geographic area and type of property; (ii) the location, construction quality, condition and design of the property; (iii) the potential for capital appreciation of the property; (iv) the ability of the Operating Partnership to improve the property's performance through renovation; (v) the terms of tenant leases, including the potential for rent increases; (vi) the potential for economic growth and the tax and regulatory environment of the area in which the property is located; (vii) the potential for expansion of the physical layout of the property and/or the number of sites; (viii) the occupancy and demand by tenants for properties of a similar type in the vicinity; and (ix) competition from existing properties and the potential for the construction of new properties in the area.
INDUSTRY
Industrial properties are typically used for the design, assembly, packaging, storage and distribution of goods and/or the provision of services. As a result, the demand for industrial space in the United States is related to the level of economic output. Historically, occupancy rates for industrial property in the United States have been higher than those for other types of commercial property. The Operating Partnership believes that the higher occupancy rate in the industrial property sector is a result of the construction-on-demand nature of, and the comparatively short development time required for, industrial property. The following table summarizes the occupancy rates by region for industrial properties for the past five years:
INDUSTRIAL SPACE OCCUPANCY RATES BY REGION
- - ----------- Source: CB Commercial Real Estate Group, Inc.
Item 2.
Item 2. THE PROPERTIES
GENERAL
At December 31, 1997, the Operating Partnership and the Other Real Estate Partnerships owned 769 in-service properties (522 of which were owned by the Operating Partnership and 247 of which were owned by the Other Real Estate Partnerships) containing an aggregate of approximately 56.6 million square feet of GLA in 22 states (34.5 million square feet of which comprised the properties owned by the Operating Partnership and 22.1 million square feet of which comprised the properties owned by the Other Real Estate Partnerships), with a diverse base of more than 2,500 tenants engaged in a wide variety of businesses, including manufacturing, retail, wholesale trade, distribution and professional services. The properties are generally located in business parks which have convenient access to interstate highways and rail and air transportation. The median age of the Operating Partnership's and the Other Real Estate Partnership's on a combined basis as of December 31, 1997 was approximately 13 years.
The Operating Partnership and the Other Real Estate Partnerships classify their properties into two industrial categories: bulk warehouse and light industrial. The bulk warehouse properties are generally used for bulk storage of materials and manufactured goods and the light industrial properties are generally used for the design, assembly, packaging and distribution of goods and, in some cases, the provision of services.
The following table summarizes certain information as of December 31, 1997 with respect to the properties owned by the Operating Partnership, each of which is wholly owned by the Operating Partnership. Information in the table excludes properties under development at December 31, 1997.
(a) Properties are located in Green Bay, Wisconsin; Shreveport and Baton Rouge, Louisiana and Clarion, Iowa.
The following table summarizes certain information as of December 31, 1997 with respect to the properties owned by the Other Real Estate Partnerships, each of which is wholly owned by the Other Real Estate Partnerships. Information in the table excludes properties under development at December 31, 1997.
Other Real Estate Partnerships Property Summary
(a) Properties are located in Denton and Abilene, Texas; Wichita, Kansas and West Lebanon, New Hampshire.
PROPERTY ACQUISITION ACTIVITY
During 1997, the Operating Partnership completed 49 separate property acquisition transactions totaling approximately 21.0 million square feet of GLA at a total purchase price of approximately $817.1 million, or $38.91 per square foot. The 380 properties acquired in the 49 separate property acquisition transactions have the following characteristics:
(a) Markets include Atlanta, Georgia; Dallas, Texas; Houston, Texas; New Orleans, Louisiana and Tampa, Florida.
During 1997, the Other Real Estate Partnerships completed seven separate property acquisition transactions totaling approximately 1.8 million square feet of GLA at a total purchase price of approximately $45.3 million, or $24.54 per square foot. The nine properties acquired in the seven separate property acquistion transactions have the following characteristics:
Property Development Activity
During 1997, the Operating Partnership completed eight developments totaling approximately 1.2 million square feet of GLA at a total cost of approximately $38.0 million, or $32.75 per square foot. The developed properties have the following characteristics:
(a) Property was sold on June 30, 1997.
During 1997, the Other Real Estate Partnerships completed two developments and two expansions totaling approximately .6 million square feet of GLA at a total cost of approximately $12.2 million, or $21.06 per square foot. The developed properties have the following characteristics:
(a) Expansion.
At December 31, 1997, the Operating Partnership had four projects under development with an estimated completion GLA of .5 million square feet and an estimated completion cost of approximately $17.7 million.
At December 31, 1997, the Other Real Estate Partnerships had eight projects under development, with an estimated completion GLA of 2.0 million square feet and an estimated completion cost of approximately $72.7 million.
PROPERTY SALES
During 1997, the Operating Partnership sold three in-service properties totaling approximately .4 million square feet of GLA, one property held for redevelopment and parcels of land. Total gross sales proceeds approximated $16.1 million. The sold in-service properties have the following characteristics:
During 1997, the Other Real Estate Partnerships sold seven in-service properties totaling approximately .4 million square feet of GLA and several land parcels. Total gross sales proceeds approximated $17.6 million. The sold in-service properties have the following characteristics:
(a) Comprised of three properties.
Property Acquisitions Subsequent to Year End
During the period January 1, 1998 through March 26, 1998, the Operating Partnership completed 16 separate property transactions totaling approximately 3.1 million square feet of GLA for approximately $111.7 million, or $36.44 per square foot, with the following characteristics:
During the period January 1, 1998 through March 26, 1998, the Other Real Estate Partnerships completed two separate property transactions totaling approximately .7 million square feet of GLA for approximately $24.1 million, or $33.63 per square foot, with the following characteristics:
Detail Property Listing
The following table lists all of the Operating Partnership's properties as of December 31, 1997, by geographic market area.
PROPERTY LISTING
(a) These properties collateralize the CIGNA Loan (hereinafter defined). (b) These properties collateralize the Assumed Loans (hereinafter defined). (c) This property collateralizes the LB Mortgage Loan II (hereinafter defined). (d) This property collateralizes the Acquisition Mortgage Loan I (hereinafter defined). (e) These properties collateralize the Acquisition Mortgage Loan II (hereinafter defined). (f) These properties collateralize the Acquisition Mortgage Loan III (hereinafter defined). (g) Comprised of two properties. (h) Comprised of three properties. (i) Comprised of seven properties. (j) Comprised of 29 properties.
TENANT AND LEASE INFORMATION
The Operating Partnership has a diverse base of approximately 2,000 tenants engaged in a wide variety of businesses including manufacturing, retail, wholesale trade, distribution and professional services. Most leases have an initial term of between three and five years and provide for periodic rental increases that are either fixed or based on changes in the Consumer Price Index. Industrial tenants typically have net or semi-net leases and pay as additional rent their percentage of the property's operating costs, including the costs of common area maintenance, property taxes and insurance. As of December 31, 1997, approximately 94% of the GLA of the Operating Partnership's properties was leased, and no single tenant or group of related tenants accounted for more than 2.4% of the Operating Partnership's rent revenues, nor did any single tenant or group of related tenants occupy more than 2.0%, of the Operating Partnership's total GLA as of December 31, 1997.
The following table shows scheduled lease expirations for all leases for the Operating Partnership's properties as of December 31, 1997.
- - -------------- (1) Lease expirations as of December 31, 1997 assuming tenants do not exercise existing renewal, termination, or purchase options.
(2) Does not include existing vacancies of 1,975,826 aggregate square feet.
The Other Real Estate Partnerships have a diverse base of more than 500 tenants engaged in a wide variety of businesses including manufacturing, retail, wholesale trade, distribution and professional services. Most leases have an initial term of between three and five years and provide for periodic rental increases that are either fixed or based on changes in the Consumer Price Index. Industrial tenants typically have net or semi-net leases and pay as additional rent their percentage of the property's operating costs, including the costs of common area maintenance, property taxes and insurance. As of December 31, 1997, approximately 98% of the GLA of the Other Real Estate Partnerships' properties was leased, and no single tenant or group of related tenants accounted for more than 2.8% of the Other Real Estate Partnerships' rent revenues, nor did any single tenant or group of related tenants occupy more than 3.5%, of the Other Real Estate Partnerships' total GLA as of December 31, 1997.
The following table shows scheduled lease expirations for all leases for the Other Real Estate Partnerships' properties as of December 31, 1997.
- - -------------- (1) Lease expirations as of December 31, 1997 assuming tenants do not exercise existing renewal, termination, or purchase options.
(2) Does not include existing vacancies of 505,647 aggregate square feet.
MORTGAGE LOANS
On March 20, 1996, the Operating Partnership and the Indianapolis Partnership entered into a $36.8 million mortgage loan (the "CIGNA Loan") that is collateralized by first mortgage liens on seven properties in Indianapolis, Indiana and three properties in Cincinnati, Ohio. The CIGNA Loan matures on April 1, 2003. The CIGNA Loan may be prepaid only after April 30, 1999 in exchange for the greater of a 1% prepayment fee or a yield maintenance premium.
On March 20, 1996, the Operating Partnership assumed a $6.4 million mortgage loan and a $3.0 million mortgage loan (together, the "Assumed Loans") that are collateralized by 13 properties in Indianapolis, Indiana and one property in Indianapolis, Indiana, respectively. The Assumed Loans mature on January 1, 2013. The Assumed Loans may be prepaid only after December 22, 1999 in exchange for the greater of a 1% prepayment fee or a yield maintenance premium.
On January 31, 1997, the Operating Partnership assumed a mortgage loan in the amount of $.7 million (the "LB Mortgage Loan II"), which is collateralized by a property located in Long Island, New York. The LB Mortgage Loan II matures 180 days after the completion of a contingent event relating to the environmental status of the property collaterizing the loan.
On October 23, 1997, the Operating Partnership assumed a $4.2 million mortgage loan (the "Acquisition Mortgage Loan I") which is collateralized by a property in Bensenville, Illinois. The Acquisition Mortgage Loan I matures on August 1, 2008. The Acquisition Mortgage Loan I may be prepaid after July 15, 1998 in exchange for a prepayment fee.
On December 9, 1997, the Operating Partnership assumed an $8.0 million mortgage loan (the "Acquisition Mortgage Loan II") that is collateralized by ten properties in St. Charles, Louisiana. The Acquisition Mortgage Loan II matures on April 1, 2006. The Acquisition Mortgage Loan II may be prepaid only after April 9, 1999 in exchange for the greater of a 1% prepayment fee or a yield maintenance premium.
On December 23, 1997, the Operating Partnership assumed a $3.6 million mortgage loan (the "Acquisition Mortgage Loan III") that is collateralized by two properties in Houston, Texas. The Acquisition Mortgage Loan III matures on June 1, 2003. The Acquisition Mortgage Loan III may be prepaid only after June 30, 1998 in exchange for the greater of a 2% prepayment fee or a yield maintenance premium.
PROPERTY MANAGEMENT
At December 31, 1997, the Operating Partnership employees managed 514 of the Operating Partnership's 522 properties and eight properties were managed at the local level by parties other than the Operating Partnership, with oversight by the Operating Partnership's Senior Regional Directors. In each of these cases, the Operating Partnership retains control over all leasing, capital investment decisions, rent collection, accounting and most operational decisions, allowing its local third-party managers limited operational authority.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Operating Partnership is involved in legal proceedings arising in the ordinary course of business. All such proceedings, taken together, are not expected to have a material impact on the Operating Partnership.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Units and the Preferred Units. As of March 26, 1998, there were 231 holders of record of Units and one holder of record (the Company) of Preferred Units.
Beginning with the third quarter of 1994, the Operating Partnership has made consecutive quarterly distributions to its partners with respect to Units since the initial public offering of the Company in June 1994. The Operating Partnership has made consecutive quarterly distributions to the Company with respect to Preferred Units since the issuance of each such Preferred Units. The current indicated annual distribution rate with respect to Units is $2.12 per Unit ($.53 per Unit per quarter). The annual distribution rate with respect to Preferred Units is $218.75000 per Series B Unit ($54.68750 per Series B Unit per quarter), $215.62400 per Series C Unit ($53.90600 per Series C Unit per quarter), $198.75000 per Series D Unit ($49.68750 per Series D Unit per quarter) and $197.50000 per Series E Unit ($49.37500 per Series E Unit per quarter). The Operating Partnership's ability to make distributions depends on a number of factors, including its net cash provided by operating activities, capital commitments and debt repayment schedules. Holders of Units are entitled to receive distributions when, as and if declared by the Board of Directors of the Company, its general partner, after the priority distributions required under the Operating Partnership's partnership agreement have been made with respect to Preferred Units, out of any funds legally available for that purpose.
The following table sets forth the distributions per Unit paid by the OP during the periods noted:
Calendar Period Distribution
1998: First Quarter...................... $.5300 1997: First Quarter...................... $.5300 Second Quarter..................... $.5050 Third Quarter...................... $.5050 Fourth Quarter..................... $.5050 1996: First Quarter...................... $.5050 Second Quarter..................... $.4875 Third Quarter...................... $.4875 Fourth Quarter..................... $.4875
In 1995, the Operating Partnership issued no Units. In 1996, the Operating Partnership issued an aggregate of 1,038,712 Units having an aggregate value of $23.9 million in exchange for property. In 1997, the Operating Partnership issued an aggregate of 3,634,148 Units having a aggregate value of $115.2 million in exchange for property. As of March 26, 1998, the Operating Partnership has issued in 1998 an aggregate of 54,347 Units having an aggregate value of $1.9 million in exchange for property.
All of the above Units were issued in private placements in reliance on Section 4(2) of the Securities Act of 1933, as amended, including Regulation D Promulgated thereunder, to individuals or entities holding real property or interests therein. No underwriters were used in connection with such issuances.
Subject to lock-up periods and certain adjustments, Units are generally convertible into common stock, par value $.01, of the Company on a one-for-one basis.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth selected financial and operating data for the Operating Partnership on a historical basis and the Contributing Businesses on a historical combined basis. The following data should be read in conjunction with the financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K. The historical statements of operations for the years ended December 31, 1997, 1996 and 1995 and the six months ended December 31, 1994 include the results of operations of the Operating Partnership as derived from the Operating Partnership's audited financial statements. The historical balance sheet data and other data as of December 31, 1997, 1996, 1995 and 1994 include the balances of the Operating Partnership as derived from the Operating Partnership's audited financial Statements. The historical balance sheet data as of June 30, 1994 and December 31, 1993 and the combined statements of operations for the six months ended June 30, 1994 and the year ended December 31, 1993 have been derived from the historical financial statements of the Contributing Businesses. In the opinion of management, financial data as of and for the periods ended June 30, 1994 and December 31, 1993 include all adjustments necessary to present fairly the information set forth therein.
(a) Upon consummation of the Initial Offering in June 1994, certain Contributing Businesses' loans were repaid and the related unamortized deferred financing fees totaling $1.5 million were written off. In 1996, the Operating Partnership terminated certain revolving credit facilities. The Operating Partnership recorded an extraordinary loss of $2.3 million which is comprised of the write-off of unamortized deferred financing fees, legal costs and other expenses. In 1997, the Operating Partnership terminated an unsecured loan and a revolving credit facility. The Operating Partnership recorded an extraordinary loss of $4.7 million which is comprised of the write-off of unamortized deferred financing fees, legal costs and other expenses.
(b) For purposes of computing the ratios of earnings to fixed charges and preferred unit distributions earnings have been calculated by adding fixed charges (excluding capitalized interest) to income (loss) before disposition of interest rate protection agreement, gain on sales of properties and extraordinary items. Fixed charges consist of interest costs, whether expensed or capitalized, and amortization of interest rate protection agreement(s) and deferred financing costs.
(c) Earnings were inadequate to cover fixed charges by approximately $1.4 million and $3.4 million for the six months ended June 30, 1994 and the year ended December 31, 1993 respectively.
(d) As of end of period.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected Financial and Operating Data" and the historical Consolidated and Combined Financial Statements and Notes thereto appearing elsewhere in this Form 10-K.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
At December 31, 1997, the Operating Partnership owned 522 in-service properties containing approximately 34.5 million square feet of GLA, compared to 137 in-service properties with approximately 12.7 million square feet of GLA at December 31, 1996. During 1997, the Operating Partnership acquired 380 properties containing approximately 21.0 million square feet of GLA, completed development of eight properties totaling 1.2 million square feet of GLA and sold three in-service properties totaling .4 million square feet of GLA and one property held for redevelopment.
Rental income and tenant recoveries and other income increased in 1997 over 1996 by $61.0 million or 162% due primarily to the properties acquired after December 31, 1995. Revenues from properties owned prior to January 1, 1996 remained relatively unchanged.
Property expenses, which include real estate taxes, repairs and maintenance, property management, utilities, insurance and other expenses, increased in 1997 over 1996 by $19.2 million or 193.7% due primarily to properties acquired after December 31, 1995. For properties owned prior to January 1, 1996, property expenses remained relatively unchanged.
General and administrative expense increased in 1997 over 1996 by $1.8 million due primarily to the additional expenses associated with managing the Operating Partnership's growing operations including additional professional fees relating to additional properties owned and personnel to manage and expand the Operating Partnership's business.
Interest expense increased by $20.4 million for the year ended December 31, 1997 compared to the year ended December 31, 1996 due primarily to a higher average debt balance to fund a capital contribution to the Financing Partnership for the purchase of U.S. Government securities to legally defease a $300.0 million mortgage loan and to fund the acquisition and development of additional properties.
Depreciation and amortization increased in 1997 over 1996 by $9.6 million due primarily to the additional depreciation and amortization related to the properties acquired and placed in service after December 31, 1995.
The $4.0 million gain on the disposition of interest rate protection agreements represents the sale of the Operating Partnership's interest rate protection agreements in April 1997. These interest rate protection agreements, together with the interest rate protection agreements of the Financing Partnership, effectively fixed the annual interest rate on the Financing Partnership's $300 million mortgage loan.
The $.7 million gain on sales of properties resulted from the sale of three in-service properties. Gross proceeds for these property sales totaled approximately $16.1 million.
Equity in income of Other Real Estate Partnerships increased in 1997 over 1996 by $11.2 million due primarily to interest income earned on U.S. Government securities and the reinvestment cash proceeds from such securities upon maturity that were pledged as collateral by the Financing Partnership to legally defease the $300 million mortgage loan (the "1994 Defeased Mortgage Loan"), additional net operating income (defined as revenues less property related expenses) from properties acquired after December 31, 1995 and a gain from the sales of real estate offset by an extraordinary loss and a loss from the disposition of interest rate protection agreements.
The $4.7 million extraordinary loss in 1997 represents the write-off of unamortized deferred financing costs, legal fees and other costs incurred to terminate an unsecured loan and a revolving line of credit.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
At December 31, 1996, the Operating Partnership owned 137 in-service properties containing approximately 12.7 million square feet of GLA, compared to 30 in-service properties with approximately 3.5 million square feet of GLA at December 31, 1995. During 1996, the Operating Partnership acquired 111 properties containing approximately 9.4 million square feet of GLA, completed development of two properties totaling .2 million square feet of GLA and sold six properties totaling .4 million square feet of GLA.
Rental income and tenant recoveries and other income increased in 1996 over 1995 by 10.1 million or 37.0% due primarily to the properties acquired after December 31, 1994. Revenues from properties owned prior to January
1, 1995 increased in 1996 over 1995 by $.5 million or 7.4% due primarily to a lease termination fee, an increase in rental rates and an increase in tenant recovery income.
Property expenses, which include real estate taxes, repairs and maintenance, property management, utilities, insurance and other expenses, increased in 1996 over 1995 by $2.5 million or 32.9% due primarily to properties acquired after December 31, 1994. For properties owned prior to January 1, 1995, property expenses remained unchanged.
General and administrative expense increased in 1996 over 1995 by $.2 million due primarily to the additional expenses associated with managing the Operating Partnership's growing operations including additional professional fees relating to additional properties owned and personnel to manage and expand the operating Partnership's business.
Interest expense decreased by $1.9 million for the year ended December 31, 1996 compared to the year ended December 31, 1995 due primarily to a lower average debt balance due to capital contributions from the general partner of the Operating Partnership that were used to pay down debt.
Depreciation and amortization increased in 1996 over 1995 by $1.2 million due primarily to the additional depreciation and amortization related to the properties acquired after December 31, 1994.
The $4.3 million gain on sales of properties in 1996 resulted from the sale of six properties. Gross proceeds for these property sales totaled approximately $15.0 million.
Equity in income of Other Real Estate Partnerships increased in 1996 over 1995 by $12.3 million or 156.7% due primarily to four of the Other Real Estate Partnerships having a full year of operations in 1996 compared to a partial year of operations in 1995 as well as on of the Other Real Estate Partnerships incurring a loss from the disposition of an interest rate protection agreement in 1995.
The $2.3 million extraordinary loss in 1996 represents the write-off of unamortized deferred financing costs and a prepayment fee incurred to terminate certain revolving credit facilities.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997 the Operating Partnership's unrestricted cash and cash equivalents totaled $5.0 million.
Net cash provided by operating activities was $30.8 million for the year ended December 31, 1997 compared to $18.9 million for the year ended December 31, 1996 and $4.2 million for the year ended December 31, 1995. The increases are primarily due to increased net operating income as discussed in the "Results of Operations" above.
Net cash used in investing activities was $1,052.7 million for the year ended December 31, 1997 compared to $202.7 million for the year ended December 31, 1996 and $40.9 million for the year ended December 31, 1995. The majority of the cash used in investing activities was for the acquisition of new properties and contributions to the Other Real Estate Partnerships netted against distributions received from Other Real Estate Partnerships and proceeds from the sales of real estate.
Net cash provided by financing activities for the year ended December 31, 1997 increased to $1,022.6 million from $181.6 million for the year ended December 31, 1996, reflecting the issuance of Units and Preferred Units and an increase in net borrowings of senior unsecured debt partially offset by increased Unit distributions and Preferred Unit Distributions. Net cash provided by financing activities for the year ended December 31, 1996 was$181.6 million, compared to $43.2 million for the year ended December 31, 1995, reflecting capital contributions from the general partner and proceeds from the CIGNA Loan, offset in part by increased distributions, repayment of certain construction loans and a net pay down on the Operating Partnership's acquisition facilities.
The ratio of earnings to fixed charges and preferred stock dividends was 2.29 for the year ended December 31, 1997 compared to 6.96 for the year ended December 31, 1996 and 2.56 for the year ended December 31, 1995. The decrease in earnings to fixed charges and preferred Unit distributions is primarily due to additional interest expense and Preferred Unit distributions incurred in fiscal year 1997 from additional debt and Preferred Units issued in fiscal year 1997 to fund property acquisitions and a capital contribution to the Financing Partnership to fund the legal defeasance of its $300 million mortgage loan. The increase in the earnings to fixed charges and preferred Unit distributions between fiscal year 1996 and 1995 is primarily due to increased net operating income as discussed in "Results of Operations" above.
In 1997, the Operating Partnership acquired 380 industrial properties comprising approximately 21.0 million square feet of GLA for a total purchase price of approximately $817.1 million, completed the development of eight properties comprising approximately 1.2 million square feet of GLA at a cost of approximately $38.0 million and sold three in-service properties comprising approximately .4 million square feet of GLA and one property held for redevelopment for gross proceeds of $16.1 million.
The Operating Partnership has committed to the construction of four development projects with an estimated completion GLA of approximately .5 million square feet. The estimated total construction costs are approximately $17.7 million. These developments are expected to be funded with cash flow from operations as well as borrowings under the 1997 Unsecured Acquisition Facility.
In 1997, the Operating Partnership paid a quarterly distribution of $.505 per Unit related to each of the first, second and third quarters. In addition, the Operating Partnership paid a fourth quarter 1997 distribution of $.53 per Unit on January 20, 1998. The total distributions paid to the Operating Partnership's limited partners related to 1997 totaled $73.8 million.
In 1997, the Operating Partnership paid a period prorated Preferred Unit distribution of $27.95 per preferred unit on its Series B Preferred Units related to the second quarter and a $54.688 per Preferred Unit for each of the third and fourth quarters. The total Preferred Unit distributions paid to the Operating Partnership's Series B Preferred Unit unitholders related to 1997 totaled $5.5 million.
In 1997, the Operating Partnership paid a period prorated Preferred Unit distribution of $68.123 per preferred unit on its Series C Preferred Units related to each of the second and third quarters and $53.906 per Preferred Unit for the fourth quarter. The total Preferred Unit distributions paid to the Operating Partnership's Series C Preferred Unit unitholders related to 1997 totaled $2.4 million.
In conjunction with an acquisition of a portfolio of properties on January 31, 1997, the Operating Partnership assumed two mortgage loans in the amount of $3.8 million (the "LB Mortgage Loan I") and $.7 million (the "LB Mortgage Loan II"). The LB Mortgage Loan I, which was collateralized by a property located in Long Island, New York and provided for interest only payments prior to its maturity date of July 11, 1998, was paid off and retired by the Operating Partnership on December 19, 1997. The LB Mortgage Loan II, which is collateralized by a property located in Long Island, New York, is interest free until February, 1998, at which time the LB Mortgage Loan II bears interest at 8.00% and provides for interest only payments prior to maturity. The LB Mortgage Loan II matures 180 days after the completion of a contingent event relating to the environmental status of the property collateralizing the loan.
In conjunction with the acquisition of a portfolio of properties on October 23, 1997, the Operating Partnership assumed a mortgage loan in the amount of $4.2 million (the "Acquisition Mortgage Loan I"). The Acquisition Mortgage Loan I is collateralized by a property in Bensenville, Illinois, bears interest at a fixed rate of 8.50% and provides for monthly principal and interest payments based on a 15-year amortization schedule. The Acquisition Mortgage Loan I matures on August 1, 2008. The Acquisition Mortgage Loan I may be prepaid after July 15, 1998 in exchange for a prepayment fee.
In conjunction with the acquisition of a portfolio of properties on December 9, 1997, the Operating Partnership assumed a mortgage loan in the amount of $8.0 million (the "Acquisition Mortgage Loan II"). The Acquisition Mortgage Loan II is collateralized by ten properties in St. Charles, Louisiana, bears interest at a fixed rate of 7.75% and provides for monthly principal and interest payments based on a 22-year amortization schedule. The Acquisition Mortgage Loan II matures April 1, 2006. The Acquisition Mortgage Loan II may be prepaid only after April 9, 1999 in exchange for the greater of a 1% prepayment fee or a yield maintenance premium.
In conjunction with the acquisition of a portfolio of properties on December 23, 1997, the Operating Partnership assumed a Mortgage Loan in the amount of $3.6 million (the "Acquisition Mortgage Loan III"). The Acquisition Mortgage Loan III is collateralized by two properties in Houston, Texas, bears interest at a fixed interest rate of 8.875% and provides for monthly principal and interest payments based on a 20-year amortization schedule. The Acquisition Mortgage Loan III matures on June 1, 2003. The Acquisition Mortgage Loan III may be prepaid only after June 30, 1998 in exchange for the greater of a 2% prepayment fee or a yield maintenance premium.
On April 4, 1997, the Operating Partnership entered into a $309.8 million unsecured loan (the "Defeasance Loan"). The Defeasance Loan bore interest at LIBOR plus 1% and had a scheduled maturity of July 1, 1999. The gross proceeds from the Defeasance Loan were contributed to the Financing Partnership who used the contribution to purchase U.S. Government Securities as substitute collateral to execute a legal defeasance of its $300.0 million mortgage loan. The Defeasance Loan was paid off and retired in May, 1997.
On May 13, 1997, the Operating Partnership issued $150.0 million of senior unsecured debt which matures on May 15, 2007 and bears a coupon interest rate of 7.60% (the "2007 Notes"). The issue price of the 2007 Notes was 99.965%. Interest is paid semi-annually in arrears on May 15 and November 15. The Operating Partnership also entered into an interest rate protection agreement which was used to fix the interest rate on the 2007 Notes prior to issuance. The debt issue discount and the settlement amount of the interest rate protection agreement are being amortized over the life of the 2007 Notes as an adjustment to interest expense. The 2007 Notes contain certain covenants including limitation on incurrence of debt and debt service coverage.
On May 13, 1997, the Operating Partnership issued $100.0 million of senior unsecured debt which matures on May 15, 2027, and bears a coupon interest rate of 7.15% (the "2027 Notes"). The issue price of the 2027 Notes was 99.854%. The 2027 Notes are redeemable, at the option of the holders thereof, on May 15, 2002. Interest is paid semi-annually in arrears on May 15 and November 15. The Operating Partnership also entered into an interest rate protection agreement which was used to fix the interest rate on the 2027 Notes prior to issuance. The debt issue discount and the settlement amount of the interest rate protection agreement are being amortized over the life of the 2027 Notes as an adjustment to interest expense. The 2027 Notes contain certain covenants including limitation on incurrence of debt and debt service coverage.
On May 22, 1997, the Operating Partnership issued $100.0 million of senior unsecured debt which matures on May 15, 2011 and bears a coupon interest rate of 7.375% (the "2011 Notes"). The issue price of the 2011 Notes was 99.348%. Interest is paid semi-annually in arrears on May 15 and November 15. The 2011 Notes are redeemable, at the option of the holder thereof, on May 15, 2004 (the "Put Option"). The Operating Partnership received approximately $1.8 million of proceeds from the holder of the 2011 Notes as consideration for the Put Option. The Operating Partnership amortizes the Put Option amount over the life of the Put Option as an adjustment to interest expense. The Operating Partnership also entered into an interest rate protection agreement which was used to fix the interest rate on the 2011 Notes prior to issuance. The debt issue discount and the settlement amount of the interest rate protection agreement are being amortized over the life of the 2011 Notes as an adjustment to interest expense. The 2011 Notes contain certain covenants including limitation on incurrence of debt and debt service coverage.
On November 20, 1997, the Operating Partnership issued $50.0 million of senior unsecured debt which matures on November 21, 2005 and bears a coupon interest rate of 6.90% (the "2005 Notes"). The issue price of the 2005 Notes was 100%. Interest is paid semi-annually in arrears on May 21 and November 21. The 2005 Notes contain certain covenants including limitation on incurrence of debt and debt service coverage.
On November 24, 1997, the Operating Partnership entered into a $25.0 million unsecured loan (the "November 1997 Unsecured Loan"). The November 1997 Unsecured Loan bore interest at LIBOR plus .80% and had a scheduled maturity date of December 31, 1997. The November 1997 Unsecured Loan was paid off and retired on December 5, 1997.
On December 8, 1997, the Operating Partnership issued $150.0 million of senior unsecured debt which matures on December 1, 2006 and bears a coupon interest rate of 7.0% (the "2006 Notes"). The issue price of the 2006 Notes was 100%. Interest is paid semi-annually in arrears on June 1 and December 1. The Operating Partnership also entered into an interest rate protection agreement which was used to fix the interest rate on the 2006 Notes prior to issuance. The settlement amount of the interest rate protection agreement is being amortized over the life of the 2006
Notes as an adjustment to interest expense. The 2006 Notes contain certain covenants including limitation on incurrence of debt and debt service coverage.
On December 8, 1997, the Operating Partnership, issued $100.0 million of senior unsecured debt which matures on December 1, 2017 and bears a coupon interest rate of 7.5% (the "2017 Notes"). The issue price of the 2017 Notes was 99.808%. Interest is paid semi-annually in arrears on June 1 and December 1. The Operating Partnership will amortize the debt issue discount over the life of the 2017 Notes as an adjustment to interest expense. The 2017 Notes may be redeemed at any time at the option of the Operating Partnership, in whole or in part, at a redemption price equal to the sum of the principal amount of the 2017 Notes being redeemed plus accrued interest thereon to the redemption date and any make-whole amount, as defined in the Prospectus Supplement relating to the 2017 Notes.
In December 1997, the Operating Partnership terminated the 1996 Unsecured Acquisition Facility and entered into a $300.0 million unsecured revolving credit facility (the "1997 Unsecured Acquisition Facility") which initially bears interest at LIBOR plus .80% or a "Corporate Base Rate" and provides for interest only payments until maturity. The Operating Partnership may borrow under the facility to finance the acquisition of additional properties and for other corporate purposes, including to obtain additional working capital. The 1997 Unsecured Acquisition Facility contains certain financial covenants relating to debt service coverage, market value net worth, dividend payout ratio and total funded indebtedness.
On September 16, 1997, the Company issued 637,440 shares of $.01 par value common stock (the "September 1997 Equity Offering"). The net proceeds of $18.9 million received from the September 1997 Equity Offering were contributed to the Operating Partnership in exchange for 637,440 Units and are reflected in the Operating Partnership's financial statements as a general partner contribution.
On October 15, 1997, the Company issued 5,400,000 shares of $.01 par value common stock (the "October 1997 Equity Offering"). The net proceeds of $176.6 million received from the October 1997 Equity Offering were contributed to the Operating Partnership in exchange for 5,400,000 Units and are reflected in the Operating Partnership's financial statements as a general partner contribution.
During 1997, the Operating Partnership issued 3,634,148 Units valued, in the aggregate, at $115,231 in exchange for interests in certain properties. These contributions are reflected in the Operating Partnership's financial statements as limited partner contribution.
On May 14, 1997, the Company issued 4,000,000 Depositary Shares, each representing 1/100th of a share of the Company's 8 3/4%, $.01 par value, Series B Cumulative Preferred Stock (the "Series B Preferred Stock"), at an initial offering price of $25 per Depositary Share. The net proceeds of $96.3 million received from the Series B Preferred Stock were contributed to the Operating Partnership in exchange for 8 3/4% Series B Cumulative Preferred Units and are reflected in the Operating Partnership's financial statements as a general partner preferred unit contribution.
On June 6, 1997, the Company issued 2,000,000 Depositary Shares, each representing 1/100th of a share of the Company's 8 5/8%, $.01 par value, Series C Cumulative Preferred Stock (the "Series C Preferred Stock"), at an initial offering price of $25 per Depositary Share. The net proceeds of $48.0 million received from the Series C Preferred Stock were contributed to the Operating Partnership in exchange for 8 5/8% Series C Cumulative Preferred Units and are reflected in the Operating Partnership's financial statements as a general partner preferred unit contribution.
On February 4, 1998, the Company issued 5,000,000 Depositary Shares, each representing 1/100th of a share of the Company's 7.95%, $.01 par value, Series D Cumulative Preferred Stock (the "Series D Preferred Stock"), at an initial offering price of $25 per Depositary Share. The net proceeds of $120.6 million received from the Series D Preferred Stock were contributed to the Operating Partnership in exchange for 7.95% Series D Cumulative Preferred Units in the Operating Partnership.
On March 18, 1998, the Company issued 3,000,000 Depositary Shares, each representing 1/100th of a share of the Company's 7.90%, $.01 par value, Series E Cumulative Preferred Stock (the "Series E Preferred Stock"), at an initial offering price of $25 per Depositary Share. The net proceeds of $72.1 million received from the Series E Preferred Stock were contributed to the Operating Partnership in exchange for 7.90% Series E Cumulative Preferred Units in the Operating Partnership.
In March, 1998, the Operating Partnership declared a first quarter distribution of $.53 per Unit which is payable on April 20, 1998. The Operating Partnership also declared a first quarter distribution of $54.688 per Series B Preferred Unit, $53.906 per Series C Preferred Unit and a period prorated Preferred Unit distribution of $30.365 per Series D Preferred Unit which is payable on March 31, 1998.
On March 26, 1998, the Operating Partnership entered into an underwriting agreement with J.P. Morgan Securities Inc. ("J.P. Morgan") and certain other underwriters named therein (the "Underwriters"), pursuant to which the Operating Partnership agreed to issue and sell $100.0 million of its 6 1/2% Dealer remarketable securities due April 5, 2011 (the "Drs."). The Drs. will bear interest at 6 1/2% from the date of issuance through April 5, 2001. On April 5, 2001, the Drs. will be subject to mandatory tender to J.P. Morgan, as the remarketing dealer, if they elect to remarket the Drs. If J.P. Morgan elects not to remarket the Drs., the Operating Partnership will be required to repurchase the Drs. on April 5, 2001 at 100% of the principal amount thereof plus accrued and unpaid interest.
The Operating Partnership has considered its short-term (one year or less) liquidity needs and the adequacy of its estimated cash flow from operations and other expected liquidity sources to meet these needs. The Operating Partnership believes that its principal short-term liquidity needs are to fund normal recurring expenses, debt service requirements and the minimum distribution required by the Company to maintain the Company's REIT qualification under the Internal Revenue Code. The Operating Partnership anticipates that these needs will be met with cash flows provided by operating activities.
The Operating Partnership expects to meet long-term (greater than one year) liquidity requirements such as property acquisitions, scheduled debt maturities, major renovations, expansions and other non-recurring capital improvements through long-term unsecured indebtedness and the issuance of additional Units and preferred units. On January 27, 1998, the Operating Partnership registered under the Securities Act of 1933, as amended (the "Securities Act"), $400.0 million of debt securities. As of March 26, 1998, $400.0 million of debt securities remained registered under the Securities Act and were unissued (exclusive of the issuents of the Drs.). The Operating Partnership may also finance the acquisition or development of additional properties through borrowings under the 1997 Unsecured Acquisition Facility. At December 31, 1997, borrowings under the 1997 Unsecured Acquisition Facility bore interest at a weighted average interest rate of 6.77%. As of March 26, 1998, the Operating Partnership had $202.6 million available in additional borrowings under the 1997 Unsecured Acquisition Facility. While the Operating Partnership may sell properties if property or market conditions make it desirable, the Operating Partnership does not expect to sell assets in the foreseeable future to satisfy its liquidity requirements.
ENVIRONMENTAL
The Operating Partnership incurred environmental costs of $.15 million and $ .1 million in 1997 and 1996, respectively. The Operating Partnership estimates 1998 costs of approximately $.12 million. The Operating Partnership estimates that the aggregate cost which needs to be expended in 1998 and beyond with regard to currently identified environmental issues will not exceed approximately $.15 million, a substantial amount of which will be the primary responsibility of the tenant, the seller to the Operating Partnership or another responsible party. This estimate was determined by a third party evaluation.
YEAR 2000 CONCERNS
The Operating Partnership believes, based on discussions with its current systems' vendor, that its software applications and operational programs will properly recognize calendar dates beginning in the Year 2000. In addition, the Operating Partnership is discussing with its major vendors and customers the possibility of any interface difficulties relating to the Year 2000 which may affect the Operating Partnership. To date, no significant concerns have been identified, however, there can be no assurance that there will not be any Year 2000-related operating problems or expenses that will arise with the Operating Partnership's computer systems and software or in connection with the Operating Partnership's interface with the computer systems and software of its vendors and customers.
OTHER
In June 1997, the Financial Accounting Standards Board (the "FASB") FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This statement, effective for fiscal years beginning after December 15, 1997, requires the Operating Partnership to report components of comprehensive income in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income is defined by Concepts Statement No. 6, " Elements of Financial Statements" as the change in the equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Operating Partnership has not yet determined its comprehensive income.
In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement, effective for financial statements for periods beginning after December 15, 1997, requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Operating Partnership has not yet determined the impact of this statement on its financial statements.
INFLATION
For the last several years, inflation has not had a significant impact on the Operating Partnership because of the relatively low inflation rates in the Operating Partnership's markets of operation. Most of the Operating Partnership's leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing the Operating Partnership's exposure to increases in costs and operating expenses resulting from inflation. In addition, many of the outstanding leases expire within five years which may enable the Operating Partnership to replace existing leases with new leases at higher base rentals if rents of existing leases are below the then-existing market rate.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedule on page of this Form 10-K.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 10, 11, 12, 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Operating Partnership has no directors or executive officers; instead it is managed by its sole general partner, the Company. The information with respect to the sole general partner of the Operating Partnership required by Item 10, Item 11, Item 12
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND EXHIBITS (1 & 2) See Index to Financial Statements and Financial Statement Schedule on page of this Form 10-K
(3) Exhibits:
Exhibit No. Description 4.1 Indenture, dated as of May 13, 1997, between First Industrial, L.P. and First Trust National Association, as Trustee (incorporated by reference to Exhibit 4.2 of the Form 10-Q of the Operating Partnership for the fiscal quarter ended March 31, 1997, as amended by Form 10-Q/A No. 1 of the Operating Partnership filed May 30, 1997, File No. 333-21873) 4.2 Supplemental Indenture No. 1, dated as of May 13, 1997, between First Industrial, L.P. and First Trust National Association as Trustee relating to $150 million of 7.60% Notes due 2007 and $100 million of 7.15% Notes due 2027 (incorporated by reference to Exhibit 4.3 of the Form 10-Q of the Operating Partnership for the fiscal quarter ended March 31, 1997, as amended by Form 10-Q/A No. 1 of the Operating Partnership filed May 30, 1997, File No. 333-21873) 4.3 Supplemental Indenture No. 2, dated as of May 22, 1997, between First Industrial, L.P. and First Trust National Association as Trustee relating to $100 million of 7 3/8% Notes due 2011 (incorporated by reference to Exhibit 4.4 of the Form 10-Q of the Operating Partnership for the fiscal quarter ended March 31, 1997, File No. 333-21873) 4.4 Supplemental Indenture No. 3 dated October 28, 1997 between First Industrial, L.P. and First Trust National Association providing for the issuance of Medium-term Notes due Nine Months or more from Date of Issue (incorporated by reference to Exhibit 4 of Form 8-K of the Operating Partnership dated November 3, 1997, as filed November 3, 1997, File No. 333-21873) 4.5 6.90% Medium-Term Note due 2005 in principal amount of $50 million issued by First Industrial, L.P. (incorporated by reference to Exhibit 4.17 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-13102) 4.6 7.00% Medium-Term Note due 2006 in principal amount of $150 million issued by First Industrial, L.P. (incorporated by reference to Exhibit 4.18 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-13102) 4.7 7.50% Medium-Term Note due 2017 in principal amount of $100 million issued by First Industrial, L.P. (incorporated by reference to Exhibit 4.19 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-13102)
Exhibit No. Description
4.8 Trust Agreement, dated as of May 16, 1997, between First Industrial, L.P. and First Bank National Association, as Trustee (incorporated by reference to Exhibit 4.5 of the Form 10-Q of the Operating Partnership for the fiscal quarter ended March 31, 1997, File No. 333-21873) 4.9 Unsecured Revolving Credit Agreement (the "Unsecured Revolving Credit Agreement"), dated as of December 15, 1997, by and among the Operating Partnership, First Industrial Realty Trust, Inc. and The First National Bank of Chicago, Union Bank of Switzerland, New York Branch and certain other banks (incorporated by reference to Exhibit 4.22 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-13102) 4.11 Sixth Amended and Restated Limited Partnership Agreement of First Industrial, L.P., dated March 18, 1998 (incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-13102) 4.12* Form of Supplemental Indenture No. 4 between First Industrial, L.P. and First Trust National Association as Trustee 4.13* Form of Note with respect to Dealer remarketable securities 4.14* Form of Remarketing Agreement between First Industrial, L.P. and J.P. Morgan Securities Inc. 12.1* Computation of Earnings to Fixed Charges and Preferred Unit Distributions of First Industrial, L.P. 21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-13102) 23 * Consent of Coopers & Lybrand L.L.P. 27.1* Financial Data Schedule of First Industrial, L.P. 27.2* Financial Data Schedule of the Other Real Estate Partnerships 99 * Definitive Proxy Statement of First Industrial Realty Trust, Inc. with respect to its 1998 Annual Meeting of Stockholders
* Filed herewith.
(b) REPORTS ON FORM 8-K AND FORM 8-K/A
Report on Form 8-K/A No. 2 filed October 16, 1997, dated June 30, 1997, relating to the acquisition of 64 properties, one parking lot and land parcels for future development. The reports include Combined Historical Statements of Revenues and Certain Expenses for the acquired properties and Pro Forma Statements of Operations for First Industrial, L.P.
Report on Form 8-K filed November 3, 1997, dated October 28, 1997, relating to the Operating Partnership's Medium-Term Note Program. The report includes as exhibits the Distribution Agreement dated October 28, 1997 between the Company and J.P. Morgan Securities, Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, First Chicago Capital Markets, Inc. and UBS Securities, LLC, the Supplemental Indenture No. 3 dated October 28, 1997 between the Company and First Trust National Association providing for the issuance of Medium-Term Notes due Nine Months or More from Date of Issue, the Form of Fixed Rate Medium-Term Note and the Form of Floating Rate Medium-Term Note.
Report on Form 8-K filed November 14, 1997, dated October 30, 1997, relating to the acquisition of 123 properties, the negotiations to acquire an additional 79 properties and the acquisition of land parcels for future development. The reports include Combined Historical Statements of Revenues and Certain Expenses for the acquired and to be acquired properties and Pro Forma Statements of Operations for First Industrial, L.P.
Report on Form 8-K filed December 23, 1997, dated December 11, 1997, as amended by the report on Form 8-K/A No.1 filed January 22, 1998, as further amended by the report on Form 8-K/A No. 2 filed February 26, 1998, relating to the acquisition of 84 properties, the negotiations to acquire an additional property and the acquisition of land parcels for future development. The reports include Combined Historical Statements of Revenues and Certain Expenses for the acquired and to be acquired properties and Pro Forma Balance Sheet and Pro Forma Statements of Operations for First Industrial, L.P.
- - -------------------------------------------------------------------------------
The Company has prepared supplemental financial and operating information which is available without charge upon request to the Company. Please direct requests as follows:
First Industrial Realty Trust, Inc. 311 S. Wacker, Suite 4000 Chicago, IL 60606 Attention: Investor Relations
SIGNATURES
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., as general partner
Date: March 31, 1998 By: /s/ Michael T. Tomasz ---------------------------- Michael T. Tomasz President, Chief Executive Officer and Director (Principal Executive Officer)
Date: March 31, 1998 By: /s/ Michael J. Havala ---------------------------- Michael J. Havala Chief Financial Officer (Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
FIRST INDUSTRIAL, L.P.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE FINANCIAL STATEMENTS
Report of Independent Accountants.............................F-2
Consolidated Balance Sheets of First Industrial, L.P. (the "Operating Partnership") as of December 31, 1997 and 1996..........................................................F-3
Consolidated Statements of Operations of the Operating Partnership for the Years Ended December 31, 1997, 1996 and 1995..........................................................F-4
Consolidated Statements of Changes in Partners' Capital of the Operating Partnership for the Years Ended December 31, 1997, 1996 and 1995..............................F-5
Consolidated Statements of Cash Flows of the Operating Partnership for the Years Ended December 31, 1997, 1996 and 1995..........................................................F-6
Notes to Consolidated Financial Statements....................F-7
FINANCIAL STATEMENT SCHEDULE
Schedule III: Real Estate and Accumulated Depreciation.......S-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of First Industrial, L.P.
We have audited the consolidated financial statements and the financial statement schedule of First Industrial, L.P. (the "Operating Partnership") as listed on page of this Form 10-K. These financial statements and the financial statement schedule are the responsibility of the Operating Partnership's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of First Industrial, L.P. as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois February 17, 1998
FIRST INDUSTRIAL, L.P. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of the financial statements.
FIRST INDUSTRIAL, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
See accompanying notes are an integral part of the financial statements.
FIRST INDUSTRIAL, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of the financial statements.
FIRST INDUSTRIAL, L.P. CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of the financial statements.
FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR 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") with an approximate 86% ownership interest at December 31, 1997. The Company also owns preferred units with an aggregate liquidation priority of $150,000. The Company is a real estate investment trust ("REIT") as defined in the Internal Revenue Code. The Company's operations are conducted primarily through the Operating Partnership. The limited partners of the Operating Partnership own approximately a 14% aggregate ownership interest at December 31, 1997.
The Operating Partnership owns 100% of FR Development Services, LLC, a 95% economic interest in FR Development Services, Inc. as well as a 99% limited partnership interest (subject in one case as described below to a preferred limited partnership interest) in First Industrial Financing Partnership, L.P. (the "Financing Partnership"), First Industrial Securities, L.P. (the "Securities Partnership"), First Industrial Mortgage Partnership, L.P (the "Mortgage Partnership"), First Industrial Pennsylvania Partnership, L.P. (the "Pennsylvania Partnership"), First Industrial Harrisburg Partnership, L.P. (the "Harrisburg Partnership"), First Industrial Indianapolis, L.P. (the "Indianapolis Partnership") and First Industrial Development Services Group, L.P. (together, the "Other Real Estate Partnerships"). The minority ownership interest in FR Development Services, Inc. is not reflected in the consolidated financial statements due to its immateriality. As of December 31, 1997, the Operating Partnership directly owned 522 in-service properties, containing an aggregate of approximately 34.5 million square feet (unaudited) of gross leasable area ("GLA"). On a combined basis, as of December 31, 1997, the Other Real Estate Partnerships owned 247 in-service properties containing an aggregate of approximately 22.1 million square feet (unaudited) of GLA. Of the 247 properties owned by the Other Real Estate Partnerships at December 31, 1997, 193 are owned by the Financing Partnership, 19 are owned by the Securities Partnership, 23 are owned by the Mortgage Partnership, six are owned by the Pennsylvania Partnership, five are owned by the Harrisburg Partnership and one is owned by the Indianapolis Partnership.
The general partners of the Other Real Estate Partnerships are separate corporations, each with a one percent general partnership interest in the Other Real Estate Partnerships. Each general partner of the Other Real Estate Partnerships is a wholly owned subsidiary of the Company. The general partner of the Securities Partnership, First Industrial Securities Corporation, also owns a preferred limited partnership interest in the Securities Partnership which entitles it to receive a fixed quarterly distribution, and results in it being allocated income in the same amount, equal to the fixed quarterly dividend the Company pays on its 9.5% Series A Cumulative Preferred Stock.
Profits, losses and distributions of the Operating Partnership are allocated to the general partner and the limited partners in accordance with the provisions contained within its restated and amended partnership agreement.
2. BASIS OF PRESENTATION
The accompanying financial statements as of December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and 1995 present the consolidated ownership and operating results of the Operating Partnership, FR Development Services, LLC and FR Development Services, Inc. Such financial statements present the Operating Partnership's limited partnership interests in each of the Other Real Estate Partnerships under the equity method of accounting.
FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In order to conform with generally accepted accounting principles, management, in preparation of the Operating Partnership's financial statements, is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Cash and cash equivalents include all cash and liquid investments with an initial maturity of three months or less. The carrying amount approximates fair value due to the short maturity of these investments.
Investment in Real Estate and Depreciation:
Purchase accounting has been applied when ownership interests in properties were acquired for cash. The historical cost basis of properties has been carried over when the The Shidler Group and the properties and businesses contributed by three other contributing businesses ownership interests' were exchanged for limited partnership units in the Operating Partnership on July 1, 1994 and purchase accounting has been used for all other properties that were subsequently acquired for Units.
The Operating Partnership reviews its properties on a quarterly basis for impairment and provides a provision if impairments are determined. First, to determine if impairment may exist, the Operating Partnership reviews its properties and identifies those which have had either an event of change or event of circumstances warranting further assessment of recoverability. Then, the Operating Partnership estimates the fair value of those properties on an individual basis by capitalizing the expected net operating income. Such amounts are then compared to the property's depreciated cost to determine whether an impairment exists.
Interest expense, real estate taxes and other directly related expenses incurred during construction periods are capitalized and depreciated commencing with the date placed in service, on the same basis as the related assets. Depreciation expense is computed using the straight-line method based on the following useful lives:
Construction expenditures for tenant improvements and leasing commissions are capitalized and amortized over the terms of each specific lease. Repairs and maintenance are charged to expense when incurred. Expenditures for improvements are capitalized.
When assets are sold or retired, their costs and related accumulated depreciation are removed from the accounts with the resulting gains or losses reflected in net income or loss.
Investment in Other Real Estate Partnership:
Investment in Other Real Estate Partnerships represents the Operating Partnership's limited partnership interests in the Other Real Estate Partnerships. The Operating Partnership accounts for its Investment in Other Real Estate Partnerships under the equity method of accounting. Under the equity method of accounting, the Operating Partnership's share of earnings or losses of the Other Real Estate Partnerships is reflected in income as earned and contributions or distributions increase or decrease, respectively, the Operating Partnership's Investment in Other Real Estate Partnerships as paid or received, respectively.
FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Deferred Financing Costs:
Deferred financing costs include fees and costs incurred to obtain long-term financing. These fees and costs are being amortized over the terms of the respective loans. Accumulated amortization of deferred financing costs was $212 and $32 at December 31, 1997 and 1996, respectively. Unamortized deferred financing costs are written-off when debt is retired before the maturity date (see Note 10).
Revenue Recognition:
Rental income is recognized on a straight-line method under which contractual rent increases are recognized evenly over the lease term. Tenant recovery income includes payments from tenants for taxes, insurance and other property operating expenses and is recognized as revenue in the same period the related expenses are incurred by the Operating Partnership.
The Operating Partnership provides an allowance for doubtful accounts against the portion of tenant accounts receivable which is estimated to be uncollectible. Accounts receivable in the consolidated balance sheets are shown net of an allowance for doubtful accounts of $1,000 and $221 as of December 31, 1997 and December 31, 1996, respectively.
Income Taxes:
In accordance with partnership taxation, each of the partners are responsible for reporting their shares of taxable income or loss.
The Operating Partnership is subject to certain state and local income, excise and franchise taxes. The provision for such state and local taxes has been reflected in general and administrative expense in the statement of operations and has not been separately stated due to its insignificance.
Earnings Per Unit:
As of December 31, 1997 & 1996, there were 42,348,467 and 32,392,543 general partnership and limited partnership units outstanding, respectively. As of December 31, 1997 & 1996, there were 60,000 and 0 general partner preferred units outstanding.
The Operating Partnership has adopted the Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). Net income per weighted average general partnership and limited partnership unit (the "Units") - basic is based on the weighted average Units outstanding. Net income per weighted average Unit - diluted is based on the weighted average Units outstanding plus the effect of in-the-money employee stock options that result in the issuance of general partnership units. See Note 11 for the disclosure required under FAS 128.
Fair Value of Financial Instruments:
The Operating Partnership's financial instruments include short-term investments, tenant accounts receivable, accounts payable, other accrued expenses, mortgage loans payable, acquisition facility payable, senior unsecured debt and interest rate protection agreements. The fair value of the short-term investments, tenant accounts receivable, accounts payable and other accrued expenses were not materially different from their carrying or contract values. See Note 5 for the fair values of the mortgage loans payable, acquisition facility payable, senior unsecured debt and interest rate protection agreements.
FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Derivative Financial Instruments:
The Operating Partnership's interest rate protection agreements (the "Agreements") are used to limit the interest rate on the Financing Partnership's $300,000 mortgage loan and fix the interest rate on anticipated offerings of senior unsecured debt. Receipts or payments resulting from the Agreements used to limit the interest rate on the Financing Partnership's $300,000 mortgage loan are recognized as adjustments to equity in income of Other Real Estate Partnerships (specifically, the Financing Partnership).
In the event that the Operating Partnership terminates these Agreements, the Operating Partnership would recognize a gain (loss) from the disposition of the Agreements equal to the amount of cash received or paid at termination less the carrying value of the Agreements on the Operating Partnership's balance sheet. Receipts or payments resulting from the settlement of Agreements used to fix the interest rate on anticipated offerings of senior unsecured debt are amortized over the life of the senior unsecured debt that the Agreements were used to hedge as an adjustment to interest expense using the effective interest method (or the straight line method if this method is not materially different from the effective interest method). The credit risks associated with the Agreements are controlled through the evaluation and monitoring of the creditworthiness of the counterparty. In the event that the counterparty fails to meet the terms of the Agreements, the Operating Partnership's exposure is limited to the current value of the interest rate differential, not the notional amount, and the Operating Partnership's carrying value of the Agreements on the balance sheet. The Agreements have been executed with creditworthy financial institutions. As such, the Operating Partnership considers the risk of nonperformance to be remote.
Recent Accounting Pronouncements:
In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". This statement, effective for fiscal years beginning after December 15, 1997, requires the Operating Partnership to report components of comprehensive income in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income is defined by Concepts Statement No. 6, "Elements of Financial Statements" as the change in the equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Operating Partnership has not yet determined its comprehensive income.
In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". This statement, effective for financial statements for periods beginning after December 15, 1997, requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Operating Partnership has not yet determined the impact of this statement on its financial statements.
Reclassification:
Certain 1996 items have been reclassified to conform to the 1997 presentation.
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
4. INVESTMENT IN OTHER REAL ESTATE PARTNERSHIPS
The Investment in Other Real Estate Partnerships reflects the Operating Partnership's 99% limited partnership equity interest in the entities described in Note 1 to these financial statements.
Summarized condensed financial information as derived from the financial statements of the Other Real Estate Partnerships is presented below:
Condensed Combined Balance Sheets:
Condensed Combined Statements of Operations:
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
5. MORTGAGE LOANS, SENIOR UNSECURED DEBT, ACQUISITION FACILITIES , PROMISSORY NOTES PAYABLE AND INTEREST RATE PROTECTION AGREEMENTS
Mortgage Loans:
On March 20, 1996, the Operating Partnership and the Indianapolis Partnership entered into a $36,750 mortgage loan (the "CIGNA Loan") that is collateralized by seven properties in Indianapolis, Indiana and three properties in Cincinnati, Ohio. The CIGNA Loan bears interest at a fixed interest rate of 7.50% and provides for monthly principal and interest payments based on a 25-year amortization schedule. The CIGNA Loan matures on April 1, 2003. The CIGNA Loan may be prepaid only after April 30, 1999 in exchange for the greater of a 1% prepayment fee or a yield maintenance premium.
On March 20, 1996, the Operating Partnership assumed a $6,424 mortgage loan and a $2,993 mortgage loan (together, the "Assumed Loans") that are collateralized by 13 properties in Indianapolis, Indiana and one property in Indianapolis, Indiana, respectively. The Assumed Loans bear interest at a fixed rate of 9.25% and provide for monthly principal and interest payments based on a 16.75-year amortization schedule. The Assumed Loans mature on January 1, 2013. The Assumed Loans may be prepaid only after December 22, 1999 in exchange for the greater of a 1% prepayment fee or a yield maintenance premium.
In conjunction with an acquisition of a portfolio of properties on January 31, 1997, the Operating Partnership assumed two mortgage loans in the amount of $3,800 (the "LB Mortgage Loan I") and $705 (the "LB Mortgage Loan II"). The LB Mortgage Loan I, which was collateralized by a property located in Long Island, New York and provided for interest only payments prior to its maturity date of July 11, 1998, was paid off and retired by the Operating Partnership on December 19, 1997. The LB Mortgage Loan II, which is collateralized by a property located in Long Island, New York, is interest free until February, 1998, at which time the LB Mortgage Loan II bears interest at 8.00% and provides for interest only payments prior to maturity. The LB Mortgage Loan II matures 180 days after the completion of a contingent event relating to the environmental status of the property collateralizing the loan.
In conjunction with the acquisition of a portfolio of properties on October 23, 1997, the Operating Partnership assumed a mortgage loan in the amount of $4,153 (the "Acquisition Mortgage Loan I"). The Acquisition Mortgage Loan I is collateralized by a property in Bensenville, Illinois, bears interest at a fixed rate of 8.50% and provides for monthly principal and interest payments based on a 15-year amortization schedule. The Acquisition Mortgage Loan I matures on August 1, 2008. The Acquisition Mortgage Loan I may be prepaid after July 15, 1998 in exchange for a prepayment fee.
In conjunction with the acquisition of a portfolio of properties on December 9, 1997, the Operating Partnership assumed a mortgage loan in the amount of $7,997 (the "Acquisition Mortgage Loan II"). The Acquisition Mortgage Loan II is collateralized by ten properties in St. Charles, Louisiana, bears interest at a fixed rate of 7.75% and provides for monthly principal and interest payments based on a 22-year amortization schedule. The Acquisition Mortgage Loan II matures on April 1, 2006. The Acquisition Mortgage Loan II may be prepaid only after April 9, 1999 in exchange for the greater of a 1% prepayment fee or a yield maintenance premium.
In conjunction with the acquisition of a portfolio of properties on December 23, 1997, the Operating Partnership assumed a mortgage loan in the amount of $3,598 (the "Acquisition Mortgage Loan III"). The Acquisition Mortgage Loan III is collateralized by two properties in Houston, Texas, bears interest at a fixed interest rate of 8.875% and provides for monthly principal and interest payments based on a 20-year amortization schedule. The Acquisition Mortgage Loan III matures on June 1, 2003. The Acquisition Mortgage Loan III may be prepaid only after June 30, 1998 in exchange for the greater of a 2% prepayment fee or a yield maintenance premium.
FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
5. MORTGAGE LOANS, SENIOR UNSECURED DEBT, ACQUISITION FACILITIES, PROMISSORY NOTES PAYABLE AND INTEREST RATE PROTECTION AGREEMENTS, CONTINUED
Senior Unsecured Debt:
On April 4, 1997, the Operating Partnership entered into a $309,800 unsecured loan (the "Defeasance Loan"). The Defeasance Loan bore interest at LIBOR plus 1% and had a scheduled maturity of July 1, 1999. The gross proceeds from the Defeasance Loan were contributed to the Financing Partnership which used the contribution to purchase U.S. Government Securities as substitute collateral to execute a legal defeasance of its $300,000 mortgage loan. The Defeasance Loan was paid off and retired in May, 1997 (See Note 10).
On May 13, 1997, the Operating Partnership issued $150,000 of senior unsecured debt which matures on May 15, 2007 and bears a coupon interest rate of 7.60% (the "2007 Notes"). The issue price of the 2007 Notes was 99.965%. Interest is paid semi-annually in arrears on May 15 and November 15. The Operating Partnership also entered into an interest rate protection agreement which was used to fix the interest rate on the 2007 Notes prior to issuance. The debt issue discount and the settlement amount of the interest rate protection agreement are being amortized over the life of the 2007 Notes as an adjustment to the interest expense. The 2007 Notes contain certain covenants including limitation on incurrence of debt and debt service coverage.
On May 13, 1997, the Operating Partnership issued $100,000 of senior unsecured debt which matures on May 15, 2027, and bears a coupon interest rate of 7.15% (the "2027 Notes"). The issue price of the 2027 Notes was 99.854%. The 2027 Notes are redeemable, at the option of the holders thereof, on May 15, 2002. Interest is paid semi-annually in arrears on May 15 and November 15. The Operating Partnership also entered into an interest rate protection agreement which was used to fix the interest rate on the 2027 Notes prior to issuance. The debt issue discount and the settlement amount of the interest rate protection agreement are being amortized over the life of the 2027 Notes as an adjustment to interest expense. The 2027 Notes contain certain covenants including limitation on incurrence of debt and debt service coverage.
On May 22, 1997, the Operating Partnership issued $100,000 of senior unsecured debt which matures on May 15, 2011 and bears a coupon interest rate of 7.375% (the "2011 Notes"). The issue price of the 2011 Notes was 99.348%. Interest is paid semi-annually in arrears on May 15 and November 15. The 2011 Notes are redeemable, at the option of the holder thereof, on May 15, 2004 (the "Put Option"). The Operating Partnership received approximately $1,781 of proceeds from the holder of the 2011 Notes as consideration for the Put Option. The Operating Partnership amortizes the Put Option amount over the life of the Put Option as an adjustment to interest expense. The Operating Partnership also entered into an interest rate protection agreement which was used to fix the interest rate on the 2011 Notes prior to issuance. The debt issue discount and the settlement amount of the interest rate protection agreement are being amortized over the life of the 2011 Notes as an adjustment to interest expense. The 2011 Notes contain certain covenants including limitation on incurrence of debt and debt service coverage.
On November 20, 1997, the Operating Partnership issued $50,000 of senior unsecured debt which matures on November 21, 2005 and bears a coupon interest rate of 6.90% (the "2005 Notes"). The issue price of the 2005 Notes was 100%. Interest is paid semi-annually in arrears on May 21 and November 21. The 2005 Notes contain certain covenants including limitation on incurrence of debt and debt service coverage.
On November 24, 1997, the Operating Partnership entered into a $25,000 unsecured loan (the "November 1997 Unsecured Loan"). The November 1997 Unsecured Loan bore interest at LIBOR plus .80% and had a scheduled maturity date of December 31, 1997. The November 1997 Unsecured Loan was paid off and retired on December 5, 1997.
FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
5. MORTGAGE LOANS, SENIOR UNSECURED DEBT, ACQUISITION FACILITIES, PROMISSORY NOTES PAYABLE AND INTEREST RATE PROTECTION AGREEMENTS, CONTINUED
On December 8, 1997, the Operating Partnership issued $150,000 of senior unsecured debt which matures on December 1, 2006 and bears a coupon interest rate of 7.00% (the "2006 Notes"). The issue price of the 2006 Notes was 100%. Interest is paid semi-annually in arrears on June 1 and December 1. The Operating Partnership also entered into an interest rate protection agreement which was used to fix the interest rate on the 2006 Notes prior to issuance. The settlement amount of the interest rate protection agreement is being amortized over the life of the 2006 Notes as an adjustment to interest expense. The 2006 Notes contain certain covenants including limitation on incurrence of debt and debt service coverage.
On December 8, 1997, the Operating Partnership issued $100,000 of senior unsecured debt which matures on December 1, 2017 and bears a coupon interest rate of 7.50% (the "2017 Notes"). The issue price of the 2017 Notes was 99.808%. Interest is paid semi-annually in arrears on June 1 and December 1. The Operating Partnership will amortize the debt issue discount over the life of the 2017 Notes as an adjustment to interest expense. The 2017 Notes may be redeemed at any time at the option of the Operating Partnership, in whole or in part, at a redemption price equal to the sum of the principal amount of the 2017 Notes being redeemed plus accrued interest thereon to the redemption date and any make-whole amount, as defined in the Prospectus Supplement Relating to the 2017 Notes.
Acquisition Facilities:
In connection with the Initial Offering, the Operating Partnership, entered into a $100,000 collateralized revolving credit facility (the "1994 Acquisition Facility"). During the quarter ended June 30, 1995, the capacity of the 1994 Acquisition Facility was increased to $150,000. Borrowings under the 1994 Acquisition Facility bore interest at a floating rate equal to LIBOR plus 2.00% or a "Corporate Base Rate" plus .50%, at the Operating Partnership's election. Effective July 12, 1996, the lenders reduced the interest rate to LIBOR plus 1.75%. In December 1996, the Operating Partnership terminated the 1994 Acquisition Facility (see Note 10) and entered into a $200,000 unsecured revolving credit facility (the "1996 Unsecured Acquisition Facility") which initially bore interest at LIBOR plus 1.10% or a "Corporate Base Rate" plus .25% and provided for interest only payments until the maturity date. In December 1997, the Operating Partnership terminated the 1996 Unsecured Acquisition Facility (see Note 10) and entered into a $300,000 unsecured revolving credit facility (the "1997 Unsecured Acquisition Facility") which initially bears interest at LIBOR plus .80% or a "Corporate Base Rate", at the Operating Partnership's election, and provides for interest only payments until maturity. The Operating Partnership may borrow under the facility to finance the acquisition of additional properties and for other corporate purposes, including to obtain additional working capital. The 1997 Unsecured Acquisition Facility contains certain financial covenants relating to debt service coverage, market value net worth, dividend payout ratio and total funded indebtedness.
In December 1995, the Operating Partnership entered into a $24,219 collateralized revolving credit facility (the "1995 Credit Line"). The 1995 Credit Line bore interest at a floating rate of LIBOR plus 2.45%. The Operating Partnership terminated the 1995 Credit Line in February 1996 (see Note 10).
In May 1996, the Operating Partnership entered into a $10,000 collateralized revolving credit facility (the "1996 Credit Line"). The 1996 Credit Line bore interest at a floating rate from LIBOR plus 2.45% to LIBOR plus
FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
5. MORTGAGE LOANS, SENIOR UNSECURED DEBT, ACQUISITION FACILITIES, PROMISSORY NOTES PAYABLE AND INTEREST RATE PROTECTION AGREEMENTS, CONTINUED
2.75%, depending on the term of the interest rate option. The Operating Partnership terminated the 1995 Credit Line in November 1996 (see Note 10).
In September 1996, the Operating Partnership entered into a $40,000 revolving credit facility (the "1996 Acquisition Facility"). Borrowings under the 1996 Acquisition Facility bore interest at a floating rate equal to LIBOR plus 2.00% or a "Corporate Base Rate" plus .50%, at the Operating Partnership's election. The Operating Partnership terminated the 1996 Acquisition Facility in November 1996 (see Note 10).
Promissory Notes Payable:
On September 30, 1996, the Operating Partnership entered into a $6,489 promissory note and a $3,430 promissory note (collectively referred to as "Promissory Notes") as partial consideration for the purchase of two properties in Columbus, Ohio. Both Promissory Notes bore interest at 8.00%. The Promissory Notes were paid off and retired on January 6, 1997.
The following table discloses certain information regarding the Operating Partnership's mortgage loans, senior unsecured debt, acquisition facility and promissory notes payable:
(1) The LB Mortgage Loan II is interest free until February 1998 at which time the mortgage loan bears interest at 8%. The loan matures as described above. (2) The 2007 Notes, 2011 Notes, 2017 Notes and 2027 Notes are net of unamortized discounts of $49, $623, $191 and $143, respectively. (3) The 2011 Notes are redeemable at the option of the holder thereof, on May 15, 2004. (4) The 2017 notes are redeemable at the option of the Operating Partnership at any time based upon a predetermined formula. (5) The 2027 Notes are redeemable at the option of the holders thereof, on May 15, 2002.
FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
5. MORTGAGE LOANS, SENIOR UNSECURED DEBT, ACQUISITION FACILITIES, PROMISSORY NOTES PAYABLE AND INTEREST RATE PROTECTION AGREEMENTS, CONTINUED
Fair Value:
At December 31, 1996 the fair value of the Operating Partnership's mortgage loans payable, acquisition facility payable and promissory notes payable were not materially different from their carrying values. The value of the interest rate protection agreements was approximately $4,101. At December 31, 1997, the fair value of the Operating Partnership's mortgage loans payable , senior unsecured debt, acquisition facility payable and interest rate protection agreements were as follows:
The following is a schedule of maturities of the mortgage loans, senior unsecured debt and acquisition facility payable for the next five years ending December 31, and thereafter:
Interest Rate Protection Agreements:
On July 1, 1995, the Operating Partnership entered into interest rate swap agreements (the "1995 Interest Rate Protection Agreements") with a notional value of $300,000, which, together with the interest rate protection agreements the Financing Partnership owned, effectively fixed the annual interest rate on the Financing Partnership's $300,000 mortgage loan at 6.97% for six years through June 30, 2001. The costs of the 1995 Interest Rate Protection Agreements had been capitalized and were being amortized over the respective terms of the 1995 Interest Rate Protection Agreements. On May 16, 1997, the Operating Partnership sold the 1995 Interest Rate Protection Agreements (see Note 9).
FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
5. MORTGAGE LOANS, SENIOR UNSECURED DEBT, ACQUISITION FACILITIES, PROMISSORY NOTES PAYABLE AND INTEREST RATE PROTECTION AGREEMENTS, CONTINUED
The Operating Partnership, from time to time, enters into interest rate protection agreements which are used to lock into a fixed interest rate on an anticipated offering of senior unsecured debt. At December 31, 1997, the following interest rate protection agreements were outstanding:
Notional Value Interest Rate Valuation Basis Settlement Date --------------- --------------- ---------------- --------------- $100,000 6.037% 10-Year Treasury July 1, 1998 $100,000 6.317% 30-Year Treasury July 1, 1998 $100,000 5.999% 30-Year Treasury January 4, 1999
6. PARTNERS' CAPITAL
The Operating Partnership has 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 (See discussion below). The preferred general partnership units result from preferred capital contributions from the Company. The Operating Partnership will be required to make all required distributions on the preferred general partnership units prior to any distribution of cash or assets to the holders of the general and limited partnership units except for distributions required to enable the Company to maintain its qualification as a Real Estate Investment Trust.
Contributions:
On February 2, 1996, the Company issued 5,175,000 shares of $.01 par value Common Stock (the "February 1996 Equity Offering") inclusive of the underwriters' over-allotment option. The net proceeds of $106,343 received from the February 1996 Equity Offering were contributed to the Operating Partnership in exchange for 5,175,000 Operating Partnership units (the "Units") and are reflected in the Operating Partnership's financial statements as a general partner contribution.
On October 25, 1996, the Company issued 5,750,000 shares of $.01 par value Common Stock (the "October 1996 Equity Offering") inclusive of the underwriters' over-allotment option. The net proceeds of $137,697 received from the October 1996 Equity Offering were contributed to the Operating Partnership in exchange for 5,750,000 Units and are reflected in the Operating Partnership's financial statements as a general partner contribution.
During 1996, the Operating Partnership issued 1,038,712 Units valued, in the aggregate, at $23,863 in exchange for interests in certain properties. These contributions are reflected in the Operating Partnership's financial statements as limited partners contributions.
On September 16, 1997, the Company issued 637,440 shares of $.01 par value common stock (the "September 1997 Equity Offering"). The net proceeds of $18,900 received from the September 1997 Equity Offering were contributed to the Operating Partnership in exchange for 637,440 Units in the Operating Partnership and are reflected in the Operating Partnership's financial statements as a general partner contribution.
On October 15, 1997, the Company issued 5,400,000 shares of $.01 par value common stock (the "October 1997 Equity Offering"). The net proceeds of $176,556 received from the October 1997 Equity Offering were contributed to the Operating Partnership in exchange for 5,400,000 Units and are reflected in the Operating Partnership's financial statements as a general partner contribution.
During 1997, the Operating Partnership issued 3,634,148 Units valued, in the aggregate, at $115,231 in exchange for interests in certain properties. These contributions are reflected in the Operating Partnership's financial statements as limited partners contributions.
Preferred Contributions:
On May 14, 1997, the Company issued 4,000,000 Depositary Shares, each representing 1/100th of a share of the Company's 8 3/4%, $.01 par value, Series B Cumulative Preferred Stock (the "Series B Preferred Stock"), at an initial offering price of $25 per Depositary Share. The net proceeds of $96,292 million received from the Series B Preferred Stock were contributed to the Operating Partnership in exchange for 8 3/4% Series B Cumulative Preferred Units (the "Series B Preferred Units") and are reflected in the Operating Partnership's financial statements as a general partner preferred unit contribution.
On June 6, 1997, the Company issued 2,000,000 Depositary Shares, each representing 1/100th of a share of the Company's 8 5/8%, $.01 par value, Series C Cumulative Preferred Stock (the "Series C Preferred Stock"), at an
FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
6. PARTNERS' CAPITAL, CONTINUED
initial offering price of $25 per Depositary Share. The net proceeds of $47,997 million received from the Series C Preferred Stock were contributed to the Operating Partnership in exchange for 8 5/8% Series C Cumulative Preferred Units (the "Series C Preferred Units") and are reflected in the Operating Partnership's financial statements as a general partner preferred unit contribution.
7. ACQUISITION AND DEVELOPMENT OF REAL ESTATE
In 1997, the Operating Partnership acquired 380 industrial properties comprising approximately 21.0 million square feet (unaudited) of GLA for a total purchase price of approximately $817,058 and completed the development of eight properties comprising approximately 1.2 million square feet (unaudited) of GLA at a cost of approximately $38,008.
8. SALES OF REAL ESTATE
In 1996, the Operating Partnership sold six in-service properties. Gross proceeds from these sales totaled approximately $14,972. The gain on sales totaled approximately $4,344.
In 1997, the Operating Partnership sold three in-service properties, one property held for redevelopment and land parcels. Gross proceeds from these sales totaled approximately $16,083. The gain on sales totaled approximately $728.
9. DISPOSITION OF INTEREST RATE PROTECTION AGREEMENTS
In May 1997, the Operating Partnership sold the 1995 Interest Rate Protection Agreements. The gross proceeds from the sale of the Interest Rate Protection Agreements were approximately $6,440. The gain on disposition of the interest rate protection agreements totaled approximately $4,038.
10. EXTRAORDINARY ITEMS
In 1996, the Operating Partnership terminated the 1994 Acquisition Facility, the 1995 Credit Line, the 1996 Credit Line and the 1996 Acquisition Facility before their contractual maturity date. As a result of these early retirements, the Operating Partnership recorded an extraordinary loss of $2,273 comprised of a prepayment fee, the write-off of unamortized deferred financing fees, legal costs and other expenses.
In 1997, the Operating Partnership terminated the Defeasance Loan and the 1996 Unsecured Acquisition Facility before their contractual maturity date. As a result of these early retirements, the Operating Partnership recorded an extraordinary loss of $4,666 comprised of the write off of unamortized deferred financing fees, legal costs and other expenses.
FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
11. EARNINGS PER UNIT
In February 1997, the FASB issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128"), effective for financial statements ending after December 15, 1997. As required by this statement, the Operating Partnership adopted the new standard for computing and presenting earnings per Unit (EPU) for the year ended December 31, 1997, and for all prior-periods' EPU data is presented herein. The computation of basic and diluted EPU, as prescribed by FAS 128, is presented below:
FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
12. FUTURE RENTAL REVENUES
The Operating Partnership's properties are leased to tenants under net and semi-net operating leases. Minimum lease payments receivable, excluding tenant reimbursements of expenses, under noncancelable operating leases in effect as of December 31, 1997 are approximately as follows:
13. EMPLOYEE BENEFIT PLANS
The Company maintains two stock incentive plans (the "Stock Incentive Plans") which are administered by the Compensation Committee of the Board of Directors of the Company. The exercise of employee stock options results in a contribution from the general partner to the Operating Partnership. Only officers and other employees of the Company and its affiliates generally are eligible to participate in the Stock Incentive Plans. However, independent Directors of the Company receive automatic annual grants of options to purchase 10,000 shares at a per share exercise price equal to the fair market value of a share on the date of grant.
The Stock Incentive Plans authorize (i) the grant of stock options that qualify as incentive stock options under Section 422 of the Code, (ii) the grant of stock options that do not so qualify, (iii) restricted stock awards, (iv) performance share awards and (v) dividend equivalent rights. The exercise price of stock options will be determined by the Compensation Committee, but may not be less than 100% of the fair market value of the shares on the date of grant. Special provisions apply to awards granted under the Stock Incentive Plans in the event of a change in control in the Company. As of January 30, 1998, the Company has authorized 7.7 million shares for issuance under the Stock Incentive Plans, of which 1.7 million shares are available for future grants. The outstanding stock options generally vest over one to two year periods and have lives of ten years. Stock option transactions are summarized as follows:
FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
13. EMPLOYEE BENEFIT PLANS, CONTINUED
The following table summarizes currently outstanding and exercisable options as of December 31, 1997:
The Operating Partnership applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for the Company's Stock Incentive Plans. Accordingly, no compensation expense has been recognized in the consolidated statements of operations. Had compensation cost for the Company's Stock Incentive Plans been determined based upon the fair value at the grant date for awards under the Stock Incentive Plans consistent with the methodology prescribed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", net income and earnings per Unit would have been the pro forma amounts indicated in the table below:
The weighted average fair value of options granted during 1997, 1996 and 1995 is $2.72, $2.43 and $1.84 per option, respectively.
In September 1994, the Board of Directors of the Company approved and the Company adopted a 401(k)/Profit Sharing Plan. Under the Company's 401(k)/Profit Sharing Plan, all eligible employees may participate by making voluntary contributions. The Company may make, but is not required to make, matching contributions. For the years ended December 31, 1996 and 1995, the Company did not make any matching contributions. For the year ended December 31, 1997, the Company made a matching contribution of approximately $108. In March 1996, the Board of Directors approved and the Company adopted a Deferred Income Plan (the "Plan"). Under the Plan, 194,164 unit awards and 138,500 unit awards were granted for the years ended December 31, 1997 and 1996, respectively, providing the recipients with deferred income benefits which vest in three equal annual installments. The expense related to these deferred income benefits is included in general and administrative expenses in the consolidated statements of operations of the Operating Partnership.
During 1997, the Company awarded 59,946 shares of restricted Common Stock to certain employees, 1,274 of restricted common stock to certain Directors and certain other employees of the Company converted
FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
13. EMPLOYEE BENEFIT PLANS, CONTINUED
certain employee stock options to 54,936 shares of restricted common stock. The Operating Partnership issued Units to the Company in the same amount. These restricted shares of common stock had a fair value of $3,655 on the date of grant. The restricted common stock vests over a period from two to ten years. Compensation expense will be charged to earnings in the Operating Partnership's consolidated statemetns of operations over the vesting period.
14. RELATED PARTY TRANSACTIONS
The Operating Partnership often obtains title insurance coverage for its properties from an entity for which an independent Director of the Company became the President, Chief Executive Officer and a Director in 1996.
On November 19, 1997, the Operating Partnership exercised an option that was granted on March 19, 1996 to purchase a 100,000 square foot (unaudited) bulk warehouse property located in Indianapolis, Indiana for approximately $3,338. The property was purchased from a partnership in which one of the Operating Partnership's Senior Regional Directors was a limited partner.
From time to time, the Operating Partnership utilizes real estate brokerage services from CB Commercial for which a relative of one of the Company's senior executive officers is an employee.
15. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information:
FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA)
16. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Operating Partnership is involved in legal actions arising from the ownership of its properties. In management's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a materially adverse effect on the consolidated financial position, operations or liquidity of the Operating Partnership.
Sixteen properties have leases granting the tenants options to purchase the property. Such options are exercisable at various times and at appraised fair market value or at a fixed purchase price generally in excess of the Operating Partnership's net book value of the asset. The Operating Partnership has no notice of any exercise of any tenant purchase option.
The Operating Partnership has committed to the construction of four development projects totaling approximately .5 million square feet (unaudited) of GLA. The estimated total construction costs are approximately $17,689 (unaudited). These developments are expected to be funded with cash flow from operations as well as borrowings under the 1997 Unsecured Acquisition Facility.
At December 31, 1997, the Operating Partnership had two letters of credit outstanding in the amounts of $980 and $329. The $980 letter of credit was required under the Company's original issuance of the Series A Preferred Stock to guarantee the payment of one quarter's dividend on the Series A Preferred Stock. The Guarantee Agent of the Series A Preferred Stock is the beneficiary of this letter of credit which expires on June 29, 1998. The $329 letter of credit is pledged to a municipality to guarantee the completion of certain site improvements at one of the Other Real Estate Partnerships property developments. It expires on August 31, 1998.
17. SUBSEQUENT EVENTS (UNAUDITED)
During the period January 1, 1998 thorugh March 26, 1998, the Operating Partnership purchased 49 industrial properties containing an aggregate of 3.1 million square feet of GLA for approximately $111,744, or $36.44 per square foot. The aggregate purchase price consisted of approximately $109,773 million in cash and Units valued at approximately $1,971.
On January 2, 1998, the Operating Partnership entered into an interest rate protection agreement to lock into a fixed interest rate on an anticipated offering of senior unsecured debt. The interest rate protection agreement had a notional value of $50,000, an interest rate of 5.937% and a settlement date of October 2, 1998. This interest rate protection agreement's value is based on the 30-year treasury.
On January 27, 1998, the Operating Partnership filed Amendment No. 1 to Form S-3 which registered approximately $400,000 of debt securities.
On February 4, 1998, the Company issued 5,000,000 Depositary Shares, each representing 1/100th of a share of the Company's 7.95%, $.01 par value, Series D Cumulative Preferred Stock (the "Series D Preferred Stock"), at an initial offering price of $25 per Depositary Share. The net proceeds of approximately $120,563 were contributed to the Operating Partnership in exchange for 7.95% Series D Cumulative Preferred Units.
On March 18, 1998, the Company issued 3,000,000 Depositary Shares, each representing 1/100th of a share of the Company's 7.90%, $.01 par value, Series E Cumulative Preferred Stock ("Series E Preferred Stock") at an initial offering price of $25 per depositary share. The net proceeds of $72,138 were contributed to the Operating Partnership in exchange for 7.90% Series E Cumulative Preferred Units.
In March, 1998, the Operating Partnership declared a first quarter distribution of $.53 per Unit which is payable on April 20, 1998. The Operating Partnership also declared a first quarter distribution of $54.688 per
FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
17. SUBSEQUENT EVENTS (UNAUDITED), CONTINUED
Series B Preferred Unit, $53.906 Series C Preferred Unit and a period prorated preferred unit distribution of $30.365 per Series D Preferred Unit which is payable on March 31, 1998.
On March 26, 1998, the Operating Partnership entered into an underwriting agreement with J.P. Morgan Securities Inc. ("J.P. Morgan") and certain other underwriters named therein (the "Underwriters"), pursuant to which the Operating Partnership agreed to issue and sell $100.0 million of its 6 1/2% Dealer remarketable securities due April 5, 2011 (the "Drs."). The Drs. will bear interest at 6 1/2% from the date of issuance through April 5, 2001. On April 5, 2001, the Drs. will be subject to mandatory tender to J.P. Morgan, as the remarketing dealer, if they elect to remarket the Drs. If J.P. Morgan elects not to remarket the Drs., the Operating Partnership will be required to repurchase the Drs. on April 5, 2001 at 100% of the principal amount thereof plus accrued and unpaid interest.
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST INDUSTRIAL, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
19. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following Pro Forma Condensed Statements of Operations for the years ended December 31, 1997 and 1996 are presented as if the acquisition of 491 properties between January 1, 1996 and December 31, 1997 had been acquired on either January 1, 1996 or the lease commencement date if the property was developed and as if the February 1996 Equity Offering, the October 1996 Equity Offering, the Series B Preferred Units, the Series C Preferred Units, the September 1997 Equity Offering, the October 1997 Equity Offering, the assumption of $66.5 million of secured debt, the issuance of the 2005 Notes, the issuance of the 2006 Notes and the issuance of the 2017 Notes had been completed on January 1, 1996.
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
OTHER REAL ESTATE PARTNERSHIPS INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of the Other Real Estate Partnerships
We have audited the combined financial statements of the Other Real Estate Partnerships as listed on page of this Form 10-K. These financial statements are the responsibility of the Other Real Estate Partnerships' management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of the Other Real Estate Partnerships as of December 31, 1997 and 1996, and the combined results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois February 17, 1998
OTHER REAL ESTATE PARTNERSHIPS COMBINED BALANCE SHEETS (DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of the financial statements.
OTHER REAL ESTATE PARTNERSHIPS COMBINED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of the financial statements.
OTHER REAL ESTATE PARTNERSHIPS COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of the financial statements.
OTHER REAL ESTATE PARTNERSHIPS COMBINED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
The accompanying notes are an integral part of the financial statements.
OTHER REAL ESTATE PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
1. ORGANIZATION AND FORMATION OF PARTNERSHIPS
First Industrial, L.P. (the "Operating Partnership") was organized as a limited partnership in the state of Delaware on November 23, 1993. The sole general partner is First Industrial Realty Trust, Inc. (the "Company") with an approximate 86% ownership interest at December 31, 1997. The Company is a real estate investment trust ("REIT") as defined in the Internal Revenue Code. The Company's operations are conducted primarily through the Operating Partnership. The limited partners own approximately a 14% aggregate ownership interest in the Operating Partnership at December 31, 1997.
The Operating Partnership, among other things, owns a 99% limited partnership interest (subject in one case as described below to a preferred limited partnership interest) in First Industrial Financing Partnership, L.P. (the "Financing Partnership"), First Industrial Securities, L.P. (the "Securities Partnership"), First Industrial Mortgage Partnership, L.P (the "Mortgage Partnership"), First Industrial Pennsylvania Partnership, L.P. (the "Pennsylvania Partnership"), First Industrial Harrisburg Partnership, L.P. (the "Harrisburg Partnership"), First Industrial Indianapolis, L.P. (the "Indianapolis Partnership") and First Industrial Development Services Group, L.P. (together, the "Other Real Estate Partnerships"). On a combined basis, as of December 31, 1997, the Other Real Estate Partnerships owned 247 in-service properties containing an aggregate of approximately 22.1 million square (unaudited) feet of gross leasable area. Of the 247 properties owned by the Other Real Estate Partnerships at December 31, 1997, 193 are owned by the Financing Partnership, 19 are owned by the Securities Partnership, 23 are owned by the Mortgage Partnership, six are owned by the Pennsylvania Partnership, five are owned by the Harrisburg Partnership and one is owned by the Indianapolis Partnership.
The general partners of the Other Real Estate Partnerships are separate corporations, each with a one percent general partnership interest in the Other Real Estate Partnerships. Each general partner of the Other Real Estate Partnerships is a wholly owned subsidiary of the Company. The general partner of the Securities Partnership, First Industrial Securities Corporation, also owns a preferred limited partnership interest in the Securities Partnership which entitles it to receive a fixed quarterly distribution, and results in it being allocated income in the same amount, equal to the fixed quarterly dividend the Company pays on its 9.5% Series A Cumulative Preferred Stock.
Profits, losses and distributions of the Other Real Estate Partnerships are allocated to the general partner and the limited partner in accordance with the provisions contained within the partnership agreements of the Other Real Estate Partnerships.
2. BASIS OF PRESENTATION
The Combined Balance Sheets as of December 31, 1997 and 1996 and the Combined Statements of Operations, Changes in Partners' Capital and Cash Flows for the years ended December 31, 1997, 1996 and 1995 reflect the operations, capital and cash flows of the Other Real Estate Partnerships on a combined basis.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In order to conform with generally accepted accounting principles, management, in preparation of the Other Real Estate Partnerships' financial statements, is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates.
Cash and Cash Equivalents: Cash and cash equivalents include all cash and liquid investments with an initial maturity of three months or less. The carrying amount approximates fair value due to the short maturity of these investments.
OTHER REAL ESTATE PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Investment in Real Estate and Depreciation:
Purchase accounting has been applied when ownership interests in properties were acquired for cash. The historical cost basis of properties has been carried over when the properties and businesses contributed by The Shidler Group and the properties and businesses contributed by three other contributing businesses' ownership interests were exchanged for units in the Operating Partnership (the "Units") on July 1, 1994 and purchase accounting has been used for all other properties that were acquired for Units.
The Other Real Estate Partnerships review their properties on a quarterly basis for impairment and provide a provision if impairments are determined. First, to determine if impairment may exist, the Other Real Estate Partnerships review their properties and identify those which have had either an event of change or event of circumstances warranting further assessment of recoverability. Then, the Other Real Estate Partnerships estimate the fair value of those properties on an individual basis by capitalizing the expected net operating income. Such amounts are then compared to the property's depreciated cost to determine whether an impairment exists.
Interest expense, real estate taxes and other directly related expenses incurred during construction periods are capitalized and depreciated commencing with the date placed in service, on the same basis as the related assets. Depreciation expense is computed using the straight-line method based on the following useful lives:
Years -----
Buildings and Improvements.............. 31.5 to 40 Land Improvements....................... 15 Furniture, Fixtures and Equipment....... 5 to 10
Construction expenditures for tenant improvements and leasing commissions are capitalized and amortized over the terms of each specific lease. Maintenance and repairs are charged to expense when incurred. Expenditures for improvements are capitalized.
When assets are sold or retired, their costs and related accumulated depreciation are removed from the accounts with the resulting gains or losses reflected in net income or loss.
Deferred Financing Costs:
Deferred financing costs include fees and costs incurred to obtain long-term financing. These fees and costs are being amortized over the terms of the respective loans. Accumulated amortization of deferred financing costs was $1,460 and $4,517 at December 31, 1997 and 1996, respectively. Unamortized deferred financing fees are written-off when debit is retired before the maturity date (see Note 8).
Revenue Recognition:
Rental Income is recognized on a straight-line method under which contractual rent increases are recognized evenly over the lease term. Tenant recovery income includes payments from tenants for taxes, insurance and other property operating expenses and is recognized as revenues in the same period the related expenses are incurred by the Other Real Estate Partnerships.
The Other Real Estate Partnerships provide an allowance for doubtful accounts against the portion of tenant accounts receivable which is estimated to be uncollectible. Accounts receivable in the combined balance sheets
OTHER REAL ESTATE PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
3. SUMMARY OF SIGNIFICANT ACCOUNT POLICIES, CONTINUED
are shown net of an allowance for doubtful accounts of $450 and $379 as of December 31, 1997 and December 31, 1996, respectively.
Income Taxes:
In accordance with partnership taxation, each of the partners are responsible for reporting their share of taxable income or loss.
The Other Real Estate Partnerships are subject to certain state and local income, excise and franchise taxes. The provision for such state and local taxes has been reflected in general and administrative expense in the statement of operations and has not been separately stated due to its insignificance.
Fair Value of Financial Instruments:
The Other Real Estate Partnerships' financial instruments include short-term investments, tenant accounts receivable, accounts payable, other accrued expenses, mortgage loans payable and interest rate protection agreements. The fair value of the short-term investments, tenant accounts receivable, accounts payable and other accrued expenses were not materially different from their carrying or contract values. See Note 4 for the fair values of the mortgage loans payable and interest rate protection agreements.
Derivative Financial Instruments:
The Other Real Estate Partnerships' interest rate protection agreements (the "Agreements") are used to limit the interest rate on the Financing Partnership's $300,000 mortgage loan. Receipts or payments resulting from the Agreements are recognized as adjustments to interest expense. In the event that the Other Real Estate Partnerships terminate these Agreements, the Other Real Estate Partnerships would recognize a gain (loss) from the disposition of the Agreements equal to the amount of cash received or paid at termination less the carrying value of the Agreements on the Other Real Estate Partnerships' balance sheet. The credit risks associated with the Agreements are controlled through the evaluation and monitoring of the creditworthiness of the counterparty. In the event that the counterparty fails to meet the terms of the Agreements, the Other Real Estate Partnerships' exposure is limited to the current value of the interest rate differential, not the notional amount, and the Other Real Estate Partnerships' carrying value of the Agreements on the balance sheet. The Agreements have been executed with creditworthy financial institutions. As such, the Other Real Estate Partnerships consider the risk of nonperformance to be remote.
Recent Accounting Pronouncements:
In June 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". This statement, effective for fiscal years beginning after December 15, 1997, requires the Other Real Estate Partnerships' to report components of comprehensive income in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income is defined by Concepts Statement No. 6, "Elements of Financial Statements" as the change in the equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Other Real Estate Partnerships have not yet determined its comprehensive income.
In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". This statement, effective for financial statements for periods beginning after December 15, 1997, requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Generally, financial information is required to be reported on
OTHER REAL ESTATE PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
3. SUMMARY OF SIGNIFICANT ACCOUNT POLICIES, CONTINUED
the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Other Real Estate Partnerships have not yet determined the impact of this statement on its financial statements.
4. MORTGAGE LOANS
On June 30, 1994, the Other Real Estate Partnerships, through the Financing Partnership, entered into a $300,000 mortgage loan (the "1994 Mortgage Loan"). On April 4, 1997, the Other Real Estate Partnerships purchased U.S. Government securities as substitute collateral to execute a legal defeasance of a $300,000 mortgage loan (the "1994 Defeased Mortgage Loan") (See Note 8). Upon the execution of the legal defeasance, 180 of the 195 properties collateralizing the 1994 Defeased Mortgage Loan were released leaving 15 properties and the U.S. Government securities as collateral. On January 2, 1998, the Other Real Estate Partnerships used the gross proceeds from the maturity of the U.S. Government securities to pay off and retire the 1994 Defeased Mortgage Loan. Due to the retirement of the 1994 Defeased Mortgage Loan, the remaining 15 properties were released on January 2, 1998. The 1994 Defeased Mortgage Loan provided for interest only payments at a floating interest rate of LIBOR plus 1.40% which such interest rate had been limited to 7.2% through the use of an interest rate protection agreement from June 30, 1994 through June 30, 1995. From July 1, 1995 through May 15, 1997, the 1994 Defeased Mortgage Loan's interest rate had been effectively fixed at the rate of 6.97% through the use of interest rate protection agreements. From May 16, 1997 through December 31, 1997, the 1994 Defeased Mortgage Loan's interest rate had been limited to 7.2% through the use of interest rate protection agreements.
Under the terms of the 1994 Defeased Mortgage Loan, certain cash reserves were required to be and had been set aside for payment of tenant improvements, capital expenditures, interest, real estate taxes, insurance and potential environmental costs as well as certain other cash reserves to pay off and retire the 1994 Defeased Mortgage Loan. The amount of cash reserves for payment of potential environmental costs was determined by the lender and was established at the closing of the 1994 Defeased Mortgage Loan. The amounts included in the cash reserves relating to payments of tenant improvements, capital expenditures, interest, real estate taxes and insurance were determined by the lender and approximated the next periodic payment of such items. At December 31, 1997 and 1996, these reserves totaled $310,943 and $10,223, respectively, and are included in Restricted Cash. Such cash reserves were invested in a money market fund at December 31, 1997. The maturity of these investments is one day, accordingly, cost approximates fair market value. On January 2, 1998, $300,000 of these cash reserves were used to pay down and retire the 1994 Defeased Mortgage Loan, $6,000 of these cash reserves were used to pay a prepayment fee on the 1994 Defeased Mortgage Loan and the remaining cash reserves were returned to the Financing Partnership.
On December 29, 1995, the Other Real Estate Partnerships, through the Mortgage Partnership, entered into a $40,200 mortgage loan (the "1995 Mortgage Loan"). In the first quarter of 1996, the Other Real Estate Partnerships made a paydown of $200 on the 1995 Mortgage Loan which decreased the outstanding balance to $40,000. The 1995 Mortgage Loan matures on January 11, 2026 and provides for interest only payments through January 11, 1998, after which monthly principal and interest payments are required based on a 28-year amortization schedule. The interest rate under the 1995 Mortgage Loan is fixed at 7.22% per annum through January 11, 2003. After January 11, 2003, the interest rate adjusts through a predetermined formula based on the applicable Treasury rate. The 1995 Mortgage Loan is collateralized by 23 properties held by the Other Real Estate Partnerships. The 1995 Mortgage Loan may be prepaid after January 11, 2003.
Under the terms of the 1995 Mortgage Loan, certain cash reserves are required to be and have been set aside for refunds of security deposits and payment of capital expenditures, interest, real estate taxes and insurance. The amount of cash reserves segregated for security deposits is adjusted as tenants turn over. The amounts included in the cash reserves relating to payments of capital expenditures, interest, real estate taxes and insurance were determined by the lender and approximate the next periodic payment of such items. At December 31, 1997 and 1996, these reserves totaled $2,117 and $1,614, respectively, and are included in Restricted Cash. Such cash reserves were
OTHER REAL ESTATE PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
4. MORTGAGE LOANS, CONTINUED
invested in a money market fund at December 31, 1997. The maturity of these investments is one day, accordingly, cost approximates fair market value.
On December 14, 1995, the Other Real Estate Partnerships, through the Harrisburg Partnership, entered into a $6,650 mortgage loan (the "Harrisburg Mortgage Loan") that was collateralized by first mortgage liens on three properties in Harrisburg, Pennsylvania. The Harrisburg Mortgage Loan bore interest at a rate based on LIBOR plus 1.5% or prime plus 2.25%, at the Other Real Estate Partnership's option, and provided for interest only payments through May 31, 1996, with monthly principal and interest payments required subsequently based on a 26.5-year amortization schedule. On December 15, 1997, the Other Real Estate Partnerships paid off and retired the Harrisburg Mortgage Loan (see Note 8).
The following table discloses certain information regarding the Other Real Estate Partnerships' mortgage loans:
Fair Value:
At December 31, 1996 the fair value of the Other Real Estate Partnerships' mortgage loans payable was not materially different from their carrying values and the fair value of the interest rate protection agreements was $4,536. At December 31, 1997, the fair value of the Other Real Estate Partnerships' mortgage loan payable and defeased mortgage loan payable was $340,807. The interest rate protection agreements expired on December 31, 1997, as a result, their fair value was $0.
The following is a schedule of maturities of the mortgage loans for the next five years ending December 31, and thereafter:
The above table presents the 1994 Defeased Mortgage Loan maturing in 1998 due to its prepayment on January 2, 1998.
OTHER REAL ESTATE PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
5. ACQUISITION AND DEVELOPMENT OF REAL ESTATE
In 1997, the Other Real Estate Partnerships acquired nine properties comprising approximately 1.8 million square feet (unaudited) of GLA for a total purchase price of approximately $45,292 and completed the development of ten properties and two expansions comprising approximately .6 million square feet (unaudited) of GLA at a cost of approximately $12,238.
6. SALES OF REAL ESTATE
In 1997, the Other Real Estate Partnerships sold seven in-service properties and several parcels of land. Gross proceeds from these sales totaled approximately $17,574. The gain on sales totaled approximately $4,275.
7. DISPOSITION OF INTEREST RATE PROTECTION AGREEMENTS
In July 1995, the Financing Partnership sold an interest rate protection agreement for approximately $12,852. The loss on disposition of the interest rate protection agreement totaled approximately $6,410.
In May 1997, the Financing Partnership sold interest rate protection agreements for approximately $3,510. The loss on disposition of the interest rate protection agreements totaled approximately $2,608.
8. EXTRAORDINARY ITEMS
In 1997, the Other Real Estate Partnerships terminated the Harrisburg Mortgage Loan before its contractual maturity date. Also, the Other Real Estate Partnerships entered into a commitment to pay down and retire the 1994 Defeased Mortgage Loan on January 2, 1998. As a result of the early retirement of the Harrisburg Mortgage Loan and the commitment for early retirement of the 1994 Defeased Mortgage Loan, the Other Real Estate Partnerships recorded an extraordinary loss of $9,458 comprised of prepayment fees, the write off of unamortized deferred financing fees, legal costs and other expenses.
9. FUTURE RENTAL REVENUES
The Other Real Estate Partnerships' properties are leased to tenants under net and semi-net operating leases. Minimum lease payments receivable, excluding tenant reimbursements of expenses, under noncancelable operating leases in effect as of December 31, 1997 are approximately as follows:
OTHER REAL ESTATE PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
10. RELATED PARTY TRANSACTIONS
The Other Real Estate Partnerships often obtain title insurance coverage for its properties from an entity for which an independent Director of the Company became the President, Chief Executive Officer and a Director in 1996.
11. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information:
In conjunction with the property acquisitions, the following assets and liabilities were assumed:
12. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Other Real Estate Partnerships are involved in legal actions arising from the ownership of its properties. In management's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a materially adverse effect on the combined financial position, operations or liquidity of the Other Real Estate Partnerships.
Eighteen properties have leases granting the tenants options to purchase the property. Such options are exercisable at various times and at appraised fair market value or at a fixed purchase price generally in excess of the Other Real Estate Partnerships' purchase price. The Other Real Estate Partnerships have no notice of any exercise of any tenant purchase option.
OTHER REAL ESTATE PARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
12. COMMITMENTS AND CONTINGENCIES, CONTINUED
The Other Real Estate Partnerships have committed to the construction of eight development projects totaling approximately 2.0 million square feet (unaudited) of GLA. The estimated total construction costs are approximately $72,699 (unaudited). These developments are expected to be funded with capital contributions from the Operating Partnership.
13. SUBSEQUENT EVENTS (UNAUDITED)
During the period January 1, 1998 through March 26, 1998,the Other Real Estate Partnerships purchased 17 industrial properties containing an aggregate of .7 million square feet (unaudited) of GLA for approximately $24,087, or $33.63 per square foot.
FIRST INDUSTRIAL, L.P. SCHEDULE III: REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
S-1
S-2
S-3
S-4
S-5
S-6
S-7
NOTES:
(a) See description of encumbrances in Note 4 to Notes to Consolidated Financial statements.
(b) Initial cost for each respective property is total acquisition costs associated with its purchase.
(c) These properties collateralize the CIGNA Loan.
(d) These properties collateralize the Assumed Loans.
(e) This property collateralizes the LB Mortgage Loan II.
(f) This property collateralizes the Acquisition Mortgage Loan I.
(g) These properties collateralize the Acquisition Mortgage Loan II.
(h) These properties collateralize the Acquisition Mortgage Loan III.
(i) Comprised of two properties.
(j) Comprised of three properties.
(k) Comprised of seven properties.
(l) Comprised of 29 properties.
(m) Depreciation is computed based upon the following estimated lives:
Buildings, Improvements 31.5 to 40 years Tenant Improvements, Leasehold Improvements Life of lease Furniture, Fixtures and equipment 5 to 10 years
(n) These properties represent vacant land, developments and redevelopments that haven't been placed in service.
(o) Parking Lot
(p) Excludes $4,211 of Construction in Progress
At December 31, 1997, the aggregate cost of land and buildings and equipment for federal income tax purpose was approximately $985.2 million.
S-8
FIRST INDUSTRIAL, L.P. SCHEDULE III: REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED) AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
The changes in total real estate assets for the three years ended December 31, 1997 are as follows:
The changes in accumulated depreciation for the three years ended December 31, 1997 are as follows:
S-9
EXHIBIT INDEX
Exhibit No. Description 4.1 Indenture, dated as of May 13, 1997, between First Industrial, L.P. and First Trust National Association, as Trustee (incorporated by reference to Exhibit 4.2 of the Form 10-Q of the Operating Partnership for the fiscal quarter ended March 31, 1997, as amended by Form 10-Q/A No. 1 of the Operating Partnership filed May 30, 1997, File No. 333-21873) 4.2 Supplemental Indenture No. 1, dated as of May 13, 1997, between First Industrial, L.P. and First Trust National Association as Trustee relating to $150 million of 7.60% Notes due 2007 and $100 million of 7.15% Notes due 2027 (incorporated by reference to Exhibit 4.3 of the Form 10-Q of the Operating Partnership for the fiscal quarter ended March 31, 1997, as amended by Form 10-Q/A No. 1 of the Operating Partnership filed May 30, 1997, File No. 333-21873) 4.3 Supplemental Indenture No. 2, dated as of May 22, 1997, between First Industrial, L.P. and First Trust National Association as Trustee relating to $100 million of 7 3/8% Notes due 2011 (incorporated by reference to Exhibit 4.4 of the Form 10-Q of the Operating Partnership for the fiscal quarter ended March 31, 1997, File No. 333-21873) 4.4 Supplemental Indenture No. 3 dated October 28, 1997 between First Industrial, L.P. and First Trust National Association providing for the issuance of Medium-term Notes due Nine Months or more from Date of Issue (incorporated by reference to Exhibit 4 of Form 8-K of the Operating Partnership dated November 3, 1997, as filed November 3, 1997, File No. 333-21873) 4.5 6.90% Medium-Term Note due 2005 in principal amount of $50 million issued by First Industrial, L.P. (incorporated by reference to Exhibit 4.17 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-13102) 4.6 7.00% Medium-Term Note due 2006 in principal amount of $150 million issued by First Industrial, L.P. (incorporated by reference to Exhibit 4.18 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-13102) 4.7 7.50% Medium-Term Note due 2017 in principal amount of $100 million issued by First Industrial, L.P. (incorporated by reference to Exhibit 4.19 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-13102) 4.8 Trust Agreement, dated as of May 16, 1997, between First Industrial, L.P. and First Bank National Association, as Trustee (incorporated by reference to Exhibit 4.5 of the Form 10-Q of the Operating Partnership for the fiscal quarter ended March 31, 1997, File No. 333-21873) 4.9 Unsecured Revolving Credit Agreement (the "Unsecured Revolving Credit Agreement"), dated as of December 15, 1997, by and among the Operating Partnership, First Industrial Realty Trust, Inc. and The First National Bank of Chicago, Union Bank of Switzerland, New York Branch and certain other banks (incorporated by reference to Exhibit 4.22 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-13102) 4.11 Sixth Amended and Restated Limited Partnership Agreement of First Industrial, L.P., dated March 18, 1998 (incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, File No. 1-13102) 4.12* Form of Supplemental Indenture No. 4 between First Industrial, L.P. and First Trust National Association as Trustee 4.13* Form of Note with respect to Dealer remarketable securities 4.14* Form of Remarketing Agreement between First Industrial, L.P. and J.P. Morgan Securities Inc. 12.1* First Industrial, L.P. and Contributing Businesses Computation of Ratios of Earnings to fixed charges and preferred unit distributions (a) 21.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-13102) 23 * Consent of Coopers & Lybrand L.L.P. 27.1* Financial Data Schedule of First Industrial, L.P. 27.2* Financial Data Schedule of the Other Real Estate Partnership 99 * Definitive Proxy Statement of First Industrial Realty Trust, Inc. with respect to its 1998 Annual Meeting of Stockholders
* Filed herewith.