UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 --------------------- Commission File Number 1-13102 --------------------- FIRST INDUSTRIAL REALTY TRUST, INC. (Exact Name of Registrant as Specified in its Charter) MARYLAND 36-3935116 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 311 S. WACKER DRIVE, SUITE 4000, CHICAGO, ILLINOIS 60606 (Address of Principal Executive Offices) (312) 344-4300 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Number of shares of Common Stock, $.01 par value, outstanding as of October 23, 2001: 39,196,104
FIRST INDUSTRIAL REALTY TRUST, INC. FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2001 INDEX PAGE ---- PART I: FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000................. 2 Consolidated Statements of Operations for the Nine Months Ended September 30, 2001 and September 30, 2000......................................................................... 3 Consolidated Statements of Operations for the Three Months Ended September 30, 2001 and September 30, 2000......................................................................... 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and September 30, 2000......................................................................... 5 Notes to Consolidated Financial Statements ................................................ 6-16 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................................................ 17-26 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................ 26 PART II: OTHER INFORMATION Item 1. Legal Proceedings ................................................................... 27 Item 2. Changes in Securities ............................................................... 27 Item 3. Defaults Upon Senior Securities...................................................... 27 Item 4. Submission of Matters to a Vote of Security Holders ................................. 27 Item 5. Other Information ................................................................... 27 Item 6. Exhibits and Report on Form 8-K...................................................... 27 SIGNATURE ...................................................................................... 29 EXHIBIT INDEX .................................................................................. 30 1
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FIRST INDUSTRIAL REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) September 30, December 31, 2001 2000 ------------- ------------ ASSETS Assets: Investment in Real Estate: Land ......................................................... $ 406,485 $ 397,624 Buildings and Improvements ................................... 1,991,623 1,989,034 Furniture, Fixtures and Equipment ............................ 1,333 1,437 Construction in Progress ..................................... 127,776 52,715 Less: Accumulated Depreciation ............................... (242,792) (219,701) ----------- ----------- Net Investment in Real Estate ........................ 2,284,425 2,221,109 Real Estate Held for Sale, Net of Accumulated Depreciation and Amortization of $24,745 at September 30, 2001 and $26,318 at December 31, 2000 ............................................ 169,494 236,422 Cash and Cash Equivalents ....................................... 13,244 7,731 Restricted Cash ................................................. 47,397 24,215 Tenant Accounts Receivable, Net ................................. 10,632 9,793 Investments in Joint Ventures ................................... 5,818 6,158 Deferred Rent Receivable ........................................ 15,469 14,790 Deferred Financing Costs, Net ................................... 12,145 12,154 Prepaid Expenses and Other Assets, Net .......................... 76,763 86,121 ----------- ----------- Total Assets ......................................... $ 2,635,387 $ 2,618,493 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Mortgage Loans Payable, Net ..................................... $ 89,273 $ 102,575 Senior Unsecured Debt, Net ...................................... 1,048,457 948,781 Acquisition Facility Payable .................................... 152,000 170,000 Accounts Payable and Accrued Expenses ........................... 74,809 93,336 Rents Received in Advance and Security Deposits ................. 21,700 20,104 Dividends/Distributions Payable ................................. 37,891 38,492 ----------- ----------- Total Liabilities .................................... 1,424,130 1,373,288 ----------- ----------- Minority Interest .................................................. 181,609 186,833 Commitments and Contingencies ...................................... --- --- Stockholders' Equity: Preferred Stock ($.01 par value, 10,000,000 shares authorized, 40,000, 20,000, 50,000 and 30,000 shares of Series B, C, D and E Cumulative Preferred Stock, respectively, issued and outstanding at September 30, 2001 and December 31, 2000, having a liquidation preference of $2,500 per share ($100,000), $2,500 per share ($50,000), $2,500 per share ($125,000) and $2,500 per share ($75,000), respectively, and 1,650,000 shares of Series A Cumulative Preferred Stock issued and outstanding at December 31, 2000, having a liquidation preference of $25 per share ($41,250))............ 1 18 Common Stock ($.01 par value, 100,000,000 shares authorized, 40,210,729 and 39,238,386 shares issued and 39,638,829 and 38,844,086 shares outstanding at September 30, 2001 and December 31, 2000, respectively) ............................... 402 392 Additional Paid-in-Capital ......................................... 1,194,226 1,205,052 Distributions in Excess of Accumulated Earnings .................... (129,631) (126,962) Unearned Value of Restricted Stock Grants .......................... (7,429) (8,812) Amortization of Stock Based Compensation ........................... 1,121 383 Accumulated Other Comprehensive Loss ............................... (12,202) --- Treasury Shares at Cost (571,900 shares at September 30, 2001 and 394,300 shares at December 31, 2000) ........................... (16,840) (11,699) ----------- ----------- Total Stockholders' Equity ........................... 1,029,648 1,058,372 ----------- ----------- Total Liabilities and Stockholders' Equity ........... $ 2,635,387 $ 2,618,493 =========== =========== The accompanying notes are an integral part of the financial statements. 2
FIRST INDUSTRIAL REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Nine Months Nine Months Ended Ended September 30, 2001 September 30, 2000 ------------------- ------------------- Revenues: Rental Income ........................................................ $ 221,268 $ 224,499 Tenant Recoveries and Other Income ................................... 69,261 61,466 --------- --------- Total Revenues ............................................. 290,529 285,965 --------- --------- Expenses: Real Estate Taxes .................................................... 44,224 44,512 Repairs and Maintenance .............................................. 14,906 12,942 Property Management .................................................. 9,870 10,462 Utilities ............................................................ 7,715 7,409 Insurance ............................................................ 1,611 1,113 Other ................................................................ 3,685 4,542 General and Administrative ........................................... 13,695 12,586 Interest Expense ..................................................... 62,722 61,425 Amortization of Deferred Financing Costs ............................. 1,357 1,323 Depreciation and Other Amortization .................................. 52,098 50,035 --------- --------- Total Expenses ............................................ 211,883 206,349 --------- --------- Income from Operations Before Equity in Income of Joint Ventures and Income Allocated to Minority Interest ................................ 78,646 79,616 Equity in Income of Joint Ventures ...................................... 751 189 Income Allocated to Minority Interest ................................... (14,602) (12,150) --------- --------- Income from Operations .................................................. 64,795 67,655 Gain on Sale of Real Estate ............................................. 48,506 22,211 --------- --------- Income Before Extraordinary Loss ........................................ 113,301 89,866 Extraordinary Loss ...................................................... (10,309) --- --------- --------- Net Income .............................................................. 102,992 89,866 Less: Preferred Stock Dividends ......................................... (22,770) (24,633) --------- --------- Net Income Available to Common Stockholders ............................. $ 80,222 $ 65,233 ========= ========= Net Income Available to Common Stockholders Before Extraordinary Loss Per Weighted Average Common Share Outstanding: Basic ............................................................ $ 2.26 $ 1.69 ========= ========= Diluted .......................................................... $ 2.25 $ 1.68 ========= ========= Net Income Available to Common Stockholders Per Weighted Average Common Share Outstanding: Basic ............................................................ $ 2.04 $ 1.69 ========= ========= Diluted .......................................................... $ 2.03 $ 1.68 ========= ========= Net Income .............................................................. $ 102,992 $ 89,866 Other Comprehensive Income (Loss): Cumulative Transition Adjustment ..................................... (14,920) --- Settlement of Interest Rate Protection Agreements .................... (191) --- Write-off of Unamortized Interest Rate Protection Agreement Due to the Early Retirement of Debt ......................................... 2,156 --- Amortization of Interest Rate Protection Agreements .................. 753 --- --------- --------- Comprehensive Income .................................................... $ 90,790 $ 89,866 ========= ========= The accompanying notes are an integral part of the financial statements. 3
FIRST INDUSTRIAL REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Three Months Three Months Ended Ended September 30, 2001 September 30, 2000 ------------------ ------------------- Revenues: Rental Income ................................................... $ 71,429 $ 75,863 Tenant Recoveries and Other Income .............................. 22,222 20,688 -------- -------- Total Revenues ............................................ 93,651 96,551 -------- -------- Expenses: Real Estate Taxes ............................................... 14,250 15,076 Repairs and Maintenance ......................................... 4,454 4,113 Property Management ............................................. 2,899 3,329 Utilities ....................................................... 1,964 2,480 Insurance ....................................................... 402 492 Other ........................................................... 1,329 1,464 General and Administrative ...................................... 4,042 4,357 Interest Expense ................................................ 20,089 21,349 Amortization of Deferred Financing Costs ........................ 459 424 Depreciation and Other Amortization ............................. 17,624 14,873 -------- -------- Total Expenses ............................................ 67,512 67,957 -------- -------- Income from Operations Before Equity in Income of Joint Ventures and Income Allocated to Minority Interest ........................... 26,139 28,594 Equity in Income of Joint Ventures ................................. 315 70 Income Allocated to Minority Interest .............................. (5,778) (4,041) -------- -------- Income from Operations ............................................. 20,676 24,623 Gain on Sale of Real Estate ........................................ 18,808 6,280 -------- -------- Net Income ......................................................... 39,484 30,903 Less: Preferred Stock Dividends .................................... (7,231) (8,211) -------- -------- Net Income Available to Common Stockholders ........................ $ 32,253 $ 22,692 ======== ======== Net Income Available to Common Stockholders Per Weighted Average Common Share Outstanding: Basic ..................................................... $ .81 $ .58 ======== ======== Diluted ................................................... $ .81 $ .58 ======== ======== Net Income ......................................................... $ 39,484 $ 30,903 Other Comprehensive Income: Amortization of Interest Rate Protection Agreements ....... 51 --- -------- -------- Comprehensive Income ............................................... $ 39,535 $ 30,903 ======== ======== The accompanying notes are an integral part of the financial statements. 4
FIRST INDUSTRIAL REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED) Nine Months Ended Nine Months Ended September 30, 2001 September 30, 2000 ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ......................................................... $ 102,992 $ 89,866 Income Allocated to Minority Interest .............................. 14,602 12,150 --------- --------- Income Before Minority Interest .................................... 117,594 102,016 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation ................................................... 45,048 45,104 Amortization of Deferred Financing Costs ....................... 1,357 1,323 Other Amortization ............................................. 11,098 6,468 Equity in Income of Joint Ventures ............................. (751) (189) Distributions from Joint Ventures .............................. 751 189 Gain on Sale of Real Estate .................................... (48,506) (22,211) Extraordinary Loss ............................................. 10,309 --- Increase in Tenant Accounts Receivable and Prepaid Expenses and Other Assets, Net ............................... (11,998) (21,147) Increase in Deferred Rent Receivable ........................... (2,696) (882) (Decrease) Increase in Accounts Payable and Accrued Expenses and Rents Received in Advance and Security Deposits .............. (5,145) 25,628 Decrease in Restricted Cash .................................... 91 170 --------- --------- Net Cash Provided by Operating Activities ................. 117,152 136,469 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of and Additions to Investment in Real Estate ............ (298,218) (330,050) Net Proceeds from Sales of Investment in Real Estate ............... 288,562 180,526 Contributions to and Investments in Joint Ventures ................. --- (37) Distributions from Joint Ventures .................................. 340 481 Repayment of Mortgage Loans Receivable ............................. 9,819 14,887 Increase in Restricted Cash ........................................ (23,273) (20,432) --------- --------- Net Cash Used in Investing Activities ..................... (22,770) (154,625) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Proceeds from Exercise of Employee Stock Options ............... 16,646 8,007 Repurchase of Restricted Stock ..................................... (1,866) --- Purchase of Treasury Shares ........................................ (5,141) (11,699) Purchase of U.S. Government Securities ............................. (1,123) (1,244) Proceeds from Senior Unsecured Debt ................................ 199,390 --- Repayments of Senior Unsecured Debt ................................ (100,000) --- Redemption of Preferred Stock ...................................... (41,295) --- Dividends/Distributions ............................................ (91,543) (85,229) Preferred Stock Dividends .......................................... (23,750) (16,422) Repayments on Mortgage Loans Payable ............................... (13,245) (1,710) Proceeds from Acquisition Facility Payable ......................... 322,300 195,500 Repayments on Acquisition Facility Payable ......................... (340,300) (67,300) Cost of Debt Issuance and Prepayment Fees .......................... (8,942) (2,322) --------- --------- Net Cash (Used in) Provided by Financing Activities ....... (88,869) 17,581 --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents .................. 5,513 (575) Cash and Cash Equivalents, Beginning of Period ........................ 7,731 2,609 --------- --------- Cash and Cash Equivalents, End of Period .............................. $ 13,244 $ 2,034 ========= ========= The accompanying notes are an integral part of the financial statements. 5
FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 1. ORGANIZATION AND FORMATION OF COMPANY First Industrial Realty Trust, Inc. (the "Company") was organized in the state of Maryland on August 10, 1993. The Company is a real estate investment trust as defined in the Internal Revenue Code. The Company's operations are conducted primarily through First Industrial, L.P. (the "Operating Partnership") of which the Company is the sole general partner with an approximate 85% ownership interest at September 30, 2001. As of September 30, 2001, the Company owned 930 in-service properties located in 24 states, containing an aggregate of approximately 64.3 million square feet of gross leasable area ("GLA"). Of the 930 in-service properties owned by the Company, 765 are held by the Operating Partnership, 106 are held by limited partnerships in which the Operating Partnership is the limited partner and wholly-owned subsidiaries of the Company are the general partners, 45 are held by limited liability companies of which the Operating Partnership is the sole member and 14 are held by an entity wholly-owned by the Operating Partnership. The Company, through wholly-owned limited liability companies of which the Operating Partnership is the sole member, also owns 10% equity interests in, and provides asset and property management services to, two joint ventures which invest in industrial properties (the "September 1998 Joint Venture" and the "September 1999 Joint Venture"). Minority interest in the Company at September 30, 2001 represents the approximate 15% aggregate partnership interest in the Operating Partnership held by the limited partners thereof. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited interim financial statements have been prepared in accordance with the accounting policies described in the financial statements and related notes included in the Company's 2000 Form 10-K/A No. 1 and should be read in conjunction with such financial statements and related notes. The following notes to these interim financial statements highlight significant changes to the notes included in the December 31, 2000 audited financial statements included in the Company's 2000 Form 10-K/A No.1 and present interim disclosures as required by the Securities and Exchange Commission. In order to conform with generally accepted accounting principles, management, in preparation of the Company's financial statements, is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of September 30, 2001 and December 31, 2000, and the reported amounts of revenues and expenses for each of the nine and three months ended September 30, 2001 and 2000. Actual results could differ from those estimates. In the opinion of management, all adjustments consist of normal recurring adjustments necessary for a fair statement of the financial position of the Company as of September 30, 2001 and the results of its operations for each of the nine months and three months ended September 30, 2001 and 2000 and its cash flows for the nine months ended September 30, 2001 and 2000. Tenant Accounts Receivable, Net: The Company provides an allowance for doubtful accounts against the portion of tenants accounts receivable which is estimated to be uncollectible. Tenant accounts receivable in the consolidated balance sheets are shown net of an allowance for doubtful accounts of approximately $2,050 as of September 30, 2001 and December 31, 2000. 6
FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Recent Accounting Pronouncements: On January 1, 2001, the Company adopted the Financial Accounting Standards Board's ("FASB") Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), as amended by Statement of Financial Accounting Standards No. 138, "Accounting for Derivative Instruments and Hedging Activities- An Amendment of FAS Statement 133". FAS 133, as amended, establishes accounting and reporting standards for derivative instruments. Specifically, FAS 133, as amended, requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustment will affect either other comprehensive income (shareholders' equity) or net income, depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. FAS 133, as amended, also requires that any gains or losses on derivative instruments that are reported independently as deferred gains or losses (assets or liabilities) in the statement of financial position at the date of initial application shall be derecognized and reported as a cumulative transition adjustment in other comprehensive income. In conjunction with prior issuances of senior unsecured debt, the Company entered into interest rate protection agreements to fix the interest rate on anticipated offerings of unsecured debt. On January 1, 2001, the Company derecognized the deferred settlement amounts relating to these settled interest rate protection agreements and recorded in other comprehensive income a cumulative transition adjustment expense of approximately $14,920. The Company will amortize approximately $257 into net income as an adjustment to interest expense in the next twelve months relating to these interest rate protection agreements. In March 2001, the Company entered into an interest rate protection agreement which fixed the interest rate on a forecasted offering of unsecured debt which it designated as a cash flow hedge. In conjunction with the offering of the 2011 Notes (as defined in footnote 4), the Company settled this interest rate protection agreement and received approximately $371, which is shown in other comprehensive income. The Company is amortizing this settlement amount into net income as an adjustment to interest expense over the life of the 2011 Notes (as defined in footnote 4). The Company will amortize approximately $37 into net income as an adjustment to interest expense in the next twelve months relating to this interest rate protection agreement. In March 2001, the Company entered into an interest rate protection agreement which fixed the retirement price on a forecasted retirement of unsecured debt which it designated as a cash flow hedge. In conjunction with the retirement of the 2011 Drs. (as defined in footnote 4) in April 2001, the Company settled this interest rate protection agreement for a payment of approximately $562 which is a component of the extraordinary loss the Company has recognized relating to the retirement of the 2011 Drs. (as defined in footnote 4). In September 2001, the Company entered into two interest rate protection agreements which fixed the interest rate on a portion of the Company's outstanding borrowings on its $300,000 unsecured line of credit. The Company designated both of these transactions as cash flow hedges. The first interest rate protection agreement has a notional value of $25,000, is effective from October 5, 2001 through October 5, 2002 and fixed the LIBOR rate at 2.5775%. The second interest rate protection agreement has a notional value of $25,000, is effective from October 5, 2001 through July 5, 2003 and fixed the LIBOR rate at 3.0775%. Any payments or receipts from these interest rate protection agreements will be treated as a component of interest expense. The Company anticipates that both interest rate protection agreements will be 100% effective and, as a result, the change in value of both interest rate protection agreements will be shown in other comprehensive income. 7
FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED The following is a roll-forward of the accumulated other comprehensive loss balance relating to these derivative transactions: Balance at December 31, 2000 .......................................... $ --- Cumulative Transition Adjustment ................................. (14,920) Settlement of Interest Rate Protection Agreements ................ (191) Write-off of Unamortized Interest Rate Protection Agreement Due to The Early Retirement of Debt ............................... 2,156 Amortization of Interest Rate Protection Agreements .............. 753 -------- Balance at September 30, 2001 ......................................... $(12,202) ======== On October 3, 2001, the FASB issued the Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 addresses financial accounting and reporting for the disposal of long-lived assets. FAS 144 becomes effective for financial statements issued for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The Company does not expect the pronouncement to have a material impact on its consolidated financial position, consolidated results of operations or consolidated cash flows. Reclassification: Certain 2000 items have been reclassified to conform to the 2001 presentation. 3. INVESTMENTS IN JOINT VENTURES During the nine months ended September 30, 2001, the Company, through wholly-owned limited liability companies in which the Operating Partnership is the sole member, received, in the aggregate, approximately $1,771 in asset management and property management fees from the September 1998 Joint Venture and the September 1999 Joint Venture, collectively. The Company, through wholly-owned limited liability companies in which the Operating Partnership is the sole member, received distributions of approximately $985 and $106 from the September 1998 Joint Venture and the September 1999 Joint Venture, respectively. As of September 30, 2001, the September 1998 Joint Venture owned 119 industrial properties comprising approximately 6.0 million square feet of GLA and the September 1999 Joint Venture owned 39 industrial properties comprising approximately 1.2 million square feet of GLA. 4. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION FACILITY PAYABLE Mortgage Loans Payable, Net: On December 29, 1995, the Company, through an entity in which the Operating Partnership is the sole limited partner and a wholly-owned subsidiary of the Company is the general partner (the "Mortgage Partnership"), entered into a $40,200 mortgage loan (the "1995 Mortgage Loan"). In March 2001, the Company purchased approximately $1.1 million of U.S. Government securities as substitute collateral to execute a legal defeasance of approximately $1.1 million of the 1995 Mortgage Loan. The terms of the legal defeasance require the Mortgage Partnership to use the gross proceeds from the maturities of the U.S. Government securities to paydown and subsequently retire the defeased portion of the 1995 Mortgage Loan in January 2003. The Company is carrying the defeased portion of the 1995 Mortgage Loan on its balance sheet until it pays down and retires the defeased portion of the 1995 Mortgage Loan in January 2003. Upon the execution of the legal defeasance, one of the 22 properties collateralizing the 1995 Mortgage Loan was released and subsequently sold. 8
FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 4. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION FACILITY PAYABLE, CONTINUED On October 23, 1997, the Company, through the Operating Partnership, assumed a mortgage loan in the amount of $4,153 (the "Acquisition Mortgage Loan I") in conjunction with the acquisition of a portfolio of properties. The Acquisition Mortgage Loan I was collateralized by a property in Bensenville, Illinois, bore interest at a fixed rate of 8.5% and provided for monthly principal and interest payments based upon a 15-year amortization schedule. On May 31, 2001, the Company, through the Operating Partnership, paid off and retired the Acquisition Mortgage Loan I. Due to the retirement of the Acquisition Mortgage Loan I, the Company has recorded an extraordinary loss of approximately $128 due to a prepayment fee. On December 9, 1997, the Company, through the Operating Partnership, assumed a mortgage loan in the amount of $7,997 (the "Acquisition Mortgage Loan II") in conjunction with the acquisition of a portfolio of properties. The Acquisition Mortgage Loan II was collateralized by ten properties in St. Charles, Louisiana, bore interest at a fixed rate of 7.75% and provided for monthly principal and interest payments based upon a 22-year amortization schedule. On June 27, 2001, the Company, through the Operating Partnership, paid off and retired the Acquisition Mortgage Loan II. Due to the retirement of the Acquisition Mortgage Loan II, the Company has recorded an extraordinary loss of approximately $936 due to a prepayment fee. Senior Unsecured Debt, Net: On March 19, 2001, the Company, through the Operating Partnership, issued $200,000 of senior unsecured debt which matures on March 15, 2011 and bears a coupon interest rate of 7.375% (the "2011 Notes"). The issue price of the 2011 Notes was 99.695%. Interest is paid semi-annually in arrears on September 15 and March 15. The Company also entered into an interest rate protection agreement which was used to fix the interest rate on the 2011 Notes prior to issuance. The Company settled the interest rate protection agreement for approximately $371 of proceeds which is included in other comprehensive income. 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 limitations on incurrence of debt and debt service coverage. On March 31, 1998, the Company, through the Operating Partnership, issued $100,000 of Dealer remarketable securities which were to mature on April 5, 2011 and bore a coupon interest rate of 6.50% (the "2011 Drs."). The issue price of the 2011 Drs. was 99.753%. On April 5, 2001 the Company paid off and retired the 2011 Drs. for a payment of approximately $105,569. In conjunction with the forecasted retirement of the 2011 Drs., the Company entered into an interest rate protection agreement which fixed the retirement price of the 2011 Drs. On April 2, 2001, this interest rate protection agreement was settled for a payment of approximately $562. Due to the retirement of the 2011 Drs., the Company has recorded an extraordinary loss of approximately $9,245 comprised of the amount paid above the 2011 Drs. carrying value, the write-off of unamortized deferred financing fees, the write-off of the unamortized portion of an interest rate protection agreement which was used to fix the interest rate on the 2011 Drs. prior to issuance, the settlement of the interest rate protection agreement as discussed above, legal costs and other expenses. 9
FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 4. MORTGAGE LOANS PAYABLE, NET, SENIOR UNSECURED DEBT, NET AND ACQUISITION FACILITY PAYABLE, CONTINUED The following table discloses certain information regarding the Company's mortgage loans payable, senior unsecured debt and acquisition facility payable: INTEREST OUTSTANDING BALANCE AT ACCRUED INTEREST PAYABLE AT RATE AT ------------------------------ --------------------------- ------------- SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, MATURITY 2001 2000 2001 2000 2001 DATE ------------- ------------ ------------- ------------ ------------- -------- MORTGAGE LOANS PAYABLE, NET 1995 Mortgage Loan ................ $ 38,204 (1) $ 38,604 $ 153 $ 163 7.220% 1/11/26 (1) CIGNA Loan ........................ 33,403 33,952 209 212 7.500% 4/01/03 Assumed Loans ..................... 6,661 7,995 --- --- 9.250% 1/01/13 LB Mortgage Loan II .............. 705 705 5 5 8.000% (2) Acquisition Mortgage Loan I ....... --- 3,294 --- --- 8.500% 8/01/08 (7) Acquisition Mortgage Loan II ...... --- 7,432 --- --- 7.750% 4/01/06 (7) Acquisition Mortgage Loan III ..... 3,104 3,214 --- --- 8.875% 6/01/03 Acquisition Mortgage Loan IV ...... 2,305 2,364 --- 17 8.950% 10/01/06 Acquisition Mortgage Loan V ....... 2,681 (3) 2,729 (3) --- --- 9.010% 9/01/06 Acquisition Mortgage Loan VI ...... 930 (3) 957 (3) --- --- 8.875% 11/01/06 Acquisition Mortgage Loan VII ..... 1,280 (3) 1,329 (3) --- --- 9.750% 3/15/02 ---------- ---------- -------- ---------- Total ............................. $ 89,273 $ 102,575 $ 367 $ 397 ========== ========== ======== ========== SENIOR UNSECURED DEBT, NET 2005 Notes ........................ $ 50,000 $ 50,000 $ 1,246 $ 383 6.900% 11/21/05 2006 Notes ........................ 150,000 150,000 3,500 875 7.000% 12/01/06 2007 Notes ........................ 149,970 (4) 149,966 (4) 4,307 1,457 7.600% 5/15/07 2011 PATS ......................... 99,552 (4) 99,517 (4) 2,786 942 7.375% 5/15/11 (5) 2017 Notes ........................ 99,845 (4) 99,838 (4) 2,500 625 7.500% 12/01/17 2027 Notes ........................ 99,875 (4) 99,872 (4) 2,701 914 7.150% 5/15/27 (6) 2028 Notes ........................ 199,789 (4) 199,783 (4) 3,209 7,009 7.600% 7/15/28 2011 Drs .......................... --- 99,805 (4) --- 1,553 6.500% 4/05/11 (7) 2011 Notes ........................ 199,426 (4) --- 656 --- 7.375% 3/15/11 ---------- ---------- -------- ---------- Total ............................. $1,048,457 $ 948,781 $ 20,905 $ 13,758 ========== ========== ======== ========== ACQUISITION FACILITY PAYABLE 2000 Unsecured Acquisition Facility ....................... $ 152,000 $ 170,000 $ 530 $ 1,359 4.538% 6/30/03 ========== ========== ======== ========== (1) Approximately $2.4 million of this loan has been defeased and will be paid in full in January 2003. (2) The maturity date of the LB Mortgage Loan II is based on a contingent event relating to the environmental status of the property collateralizing the loan. (3) At September 30, 2001, the Acquisition Mortgage Loan V, the Acquisition Mortgage Loan VI and the Acquisition Mortgage Loan VII are net of unamortized premiums of $190, $43 and $13, respectively. At December 31, 2000, the Acquisition Mortgage Loan V, the Acquisition Mortgage Loan VI and the Acquisition Mortgage Loan VII are net of unamortized premiums of $219, $49 and $35, respectively. (4) At September 30, 2001, the 2007 Notes, 2011 PATS, 2017 Notes, 2027 Notes, 2028 Notes and the 2011 Notes are net of unamortized discounts of $30, $448, $155, $125, $211 and $574, respectively. At December 31, 2000, the 2007 Notes, 2011 PATS, 2017 Notes, 2027 Notes, 2028 Notes and the 2011 Drs. are net of unamortized discounts of $34, $483, $162, $128, $217 and $195, respectively. (5) The 2011 PATS are redeemable at the option of the holder thereof, on May 15, 2004. (6) The 2027 Notes are redeemable at the option of the holders thereof, on May 15, 2002. (7) The Company paid off and retired the 2011 Drs. on April 5, 2001, the Acquisition Mortgage Loan I on May 31, 2001, and the Acquisition Mortgage Loan II on June 27, 2001. The following is a schedule of the stated maturities and scheduled principal payments of the mortgage loans payable, senior unsecured debt and acquisition facility payable for the next five years ending December 31, and thereafter: Amount ---------- Remainder of 2001 $ 535 2002 3,456 2003 190,848 2004 1,418 2005 51,548 Thereafter 1,042,517 ---------- Total $1,290,322 ========== The maturity date of the LB Mortgage Loan II is based on a contingent event. As a result, this loan is not included in the preceding table. 10
FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 5. STOCKHOLDERS' EQUITY Preferred Stock: In 1995, the Company issued 1,650,000 shares of 9.5%, $ .01 par value, Series A Cumulative Preferred Stock (the "Series A Preferred Stock") at an initial offering price of $25 per share. On or after November 17, 2000, the Series A Preferred Stock became redeemable for cash at the option of the Company, in whole or in part, at $25 per share, or $41,250 in the aggregate, plus dividends accrued and unpaid to the redemption date. On March 9, 2001, the Company called for the redemption of all of the outstanding Series A Preferred Stock at the price of $25 per share, plus accrued and unpaid dividends. The Company redeemed the Series A Preferred Stock on April 9, 2001 and paid a prorated second quarter dividend of $.05872 per share, totaling approximately $97. Restricted Stock: During the nine months ended September 30, 2001, the Company awarded 94,450 shares of restricted common stock to certain employees and 2,698 shares of restricted common stock to certain Directors. These shares of restricted common stock had a fair value of approximately $3,104 on the date of grant. The restricted common stock vests over periods from one to ten years. Compensation expense will be charged to earnings over the respective vesting period. Non-Qualified Employee Stock Options: During the nine months ended September 30, 2001, the Company issued 1,030,900 non-qualified employee stock options to certain officers, Directors and employees of the Company. These non-qualified employee stock options vest over periods from one to three years, have a strike price of $31.05 - $33.125 per share and expire ten years from the date of grant. During the nine months ended September 30, 2001, certain employees of the Company exercised 635,030 non-qualified employee stock options. Gross proceeds to the Company were approximately $16,646. Treasury Stock: During the nine months ended September 30, 2001, the Company repurchased 177,600 shares of its common stock at a weighted average price per share of approximately $28.94. 11
FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 5. STOCKHOLDERS' EQUITY, CONTINUED Dividends/Distributions: The following table summarizes dividends/distributions for the nine months ended September 30, 2001. COMMON STOCK/OPERATING PARTNERSHIP UNITS Dividend/Distribution Total Record Date Payable Date Per Share/Unit Dividend/Distribution ------------------ ------------------ --------------------- --------------------- Fourth Quarter 2000 December 31, 2000 January 22, 2001 $ .6575 $ 30,275 First Quarter 2001 March 31, 2001 April 23, 2001 $ .6575 $ 30,537 Second Quarter 2001 June 29, 2001 July 23, 2001 $ .6575 $ 30,731 Third Quarter 2001 September 28, 2001 October 22, 2001 $ .6575 $ 30,660 PREFERRED STOCK First Quarter: Dividend Total Quarterly Record Date Payable Date per Share Dividend ------------------ ------------------ --------------------- --------------------- Series A Preferred Stock March 15, 2001 March 31, 2001 $ .59375 $ 980 Series B Preferred Stock March 15, 2001 March 31, 2001 $ 54.68750 $ 2,188 Series C Preferred Stock March 15, 2001 March 31, 2001 $ 53.90600 $ 1,078 Series D Preferred Stock March 15, 2001 March 31, 2001 $ 49.68700 $ 2,485 Series E Preferred Stock March 15, 2001 March 31, 2001 $ 49.37500 $ 1,480 Second Quarter: Redemption/ Dividend Total Quarterly Record Date Payable Date per Share Dividend ------------------ ------------------ --------------------- --------------------- Series A Preferred Stock April 9, 2001 April 9, 2001 $ .05872 $ 97 Series B Preferred Stock June 15, 2001 June 30, 2001 $ 54.68750 $ 2,188 Series C Preferred Stock June 15, 2001 June 30, 2001 $ 53.90600 $ 1,078 Series D Preferred Stock June 15, 2001 June 30, 2001 $ 49.68700 $ 2,485 Series E Preferred Stock June 15, 2001 June 30, 2001 $ 49.37500 $ 1,480 Third Quarter: Dividend Total Quarterly Record Date Payable Date per Share Dividend ------------------ ------------------ --------------------- --------------------- Series B Preferred Stock September 14, 2001 September 30, 2001 $ 54.68750 $ 2,188 Series C Preferred Stock September 14, 2001 September 30, 2001 $ 53.90600 $ 1,078 Series D Preferred Stock September 14, 2001 September 30, 2001 $ 49.68700 $ 2,485 Series E Preferred Stock September 14, 2001 September 30, 2001 $ 49.37500 $ 1,480 12
FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 6. ACQUISITION AND DEVELOPMENT OF REAL ESTATE During the nine months ended September 30, 2001, the Company acquired 69 industrial properties comprising, in the aggregate, approximately 3.2 million square feet of GLA and several land parcels. The aggregate purchase price for these acquisitions totaled approximately $175,484, excluding costs incurred in conjunction with the acquisition of the properties. Two of the 69 industrial properties acquired, comprising approximately .1 million square feet of GLA, were acquired from the 1998 Joint Venture for an aggregate purchase price of approximately $5,845, excluding costs incurred in conjunction with the acquisition of the properties. The Company also completed the development of six industrial properties comprising approximately 1.0 million square feet of GLA at a cost of approximately $40.5 million. 7. SALES OF REAL ESTATE AND REAL ESTATE HELD FOR SALE During the nine months ended September 30, 2001, the Company sold 107 industrial properties comprising approximately 7.7 million square feet of GLA and several land parcels. Gross proceeds from these sales were approximately $318,759. The Company also recognized gains on sales that were deferred. The gain on sale of real estate was approximately $48,506. The Company has an active sales program through which it is continually engaged in evaluating its current portfolio for potential sales candidates in order to redeploy capital. At September 30, 2001, the Company had 61 industrial properties comprising approximately 6.6 million square feet of GLA held for sale. There can be no assurance that such properties held for sale will be sold. The following table discloses certain information regarding the 61 industrial properties held for sale by the Company. NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Total Revenues $ 19,399 $ 20,589 $ 5,877 $ 6,744 Operating Expenses (5,415) (5,479) (1,745) (1,754) Depreciation and Amortization (365) (2,938) (127) (335) -------- -------- -------- -------- Income from Operations $ 13,619 $ 12,172 $ 4,005 $ 4,655 ======== ======== ======== ======== 13
FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 8. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS Supplemental disclosure of cash flow information: Nine Months Ended ----------------------------- September 30, September 30, 2001 2000 ------------- -------------- Interest paid, net of capitalized interest .............................. $ 56,434 $ 51,213 ========= ========= Interest capitalized .................................................... $ 6,978 $ 4,075 ========= ========= Supplemental schedule of noncash investing and financing activities: Distribution payable on common stock/units .............................. $ 30,660 $ 28,409 ========= ========= Distribution payable on preferred stock ................................. $ 7,231 $ 8,211 ========= ========= Issuance of units in exchange for property ................................. $ 1,491 $ 869 ========= ========= Exchange of units for common shares: Minority interest ...................................................... $ (7,258) $ (3,793) Common stock ........................................................... 3 1 Additional paid-in capital ............................................. 7,255 3,792 --------- --------- $ -- $ -- ========= ========= In conjunction with the property and land acquisitions, the following liabilities were assumed: Purchase of real estate ................................................. $ 175,484 $ 207,514 Accrued real estate taxes and security deposits ......................... (1,597) (2,317) --------- --------- $ 173,887 $ 205,197 ========= ========= In conjunction with certain property sales, the Company provided seller financing: Notes receivable ........................................................ $ 12,460 $ 5,149 ========= ========= 14
FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 9. Earnings Per Share The computation of basic and diluted EPS is presented below:
FIRST INDUSTRIAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 11. SUBSEQUENT EVENTS From October 1, 2001 to October 23, 2001, the Company acquired seven industrial properties for an aggregate purchase price of approximately $33,150, excluding costs incurred in conjunction with the acquisition of these industrial properties. The Company also sold two industrial properties and a land parcel for approximately $4,878 of gross proceeds. On October 1, 2001, the Company paid third quarter preferred stock dividends of $54.688 per share (equivalent to $.54688 per Depositary Share) on its Series B Preferred Stock, $53.906 per share (equivalent to $.53906 per Depositary Share) on its Series C Preferred Stock, $49.687 per share (equivalent to $.49687 per Depositary Share) on its Series D Preferred Stock and $49.375 per share (equivalent to $.49375 per Depositary Share) on its Series E Preferred Stock. The preferred stock dividends paid on October 1, 2001 totaled, in the aggregate, approximately $7,231. On October 22, 2001, the Company and the Operating Partnership paid a third quarter 2001 dividend/distribution of $.6575 per common share/Unit, totaling approximately $30,660. From October 1, 2001 through October 23, 2001, the Company repurchased 461,900 shares of its common stock at a weighted average price per share of approximately $28.52. 16
FIRST INDUSTRIAL REALTY TRUST, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of First Industrial Realty Trust, Inc.'s (the "Company") financial condition and results of operations should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Form 10-Q. This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of complying with those safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words "believe", "expect", "intend", "anticipate", "estimate", "project" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company on a consolidated basis include, but are not limited to, changes in: economic conditions generally and the real estate market specifically, legislative/regulatory changes (including changes to laws governing the taxation of real estate investment trusts), availability of capital, interest rates, competition, supply and demand for industrial properties in the Company's current and proposed market areas and general accounting principles, policies and guidelines applicable to real estate investment trusts. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included herein and in the Company's other filings with the Securities and Exchange Commission. The Company was organized in the state of Maryland on August 10, 1993. The Company is a real estate investment trust ("REIT") as defined in the Internal Revenue Code. The Company's operations are conducted primarily through First Industrial, L.P. (the "Operating Partnership") of which the Company is the sole general partner with an approximate 85% ownership interest at September 30, 2001. As of September 30, 2001, the Company owned 930 in-service properties located in 24 states, containing an aggregate of approximately 64.3 million square feet of gross leasable area ("GLA") and eight properties held for redevelopment. Of the in-service properties owned by the Company, 765 are held by the Operating Partnership, 106 are held by limited partnerships in which the Operating Partnership is the limited partner and wholly-owned subsidiaries of the Company are the general partners, 45 are held by limited liability companies of which the Operating Partnership is the sole member and 14 are held by an entity wholly-owned by the Operating Partnership. The Company, through wholly-owned limited liability companies of which the Operating Partnership is the sole member, also owns 10% equity interests in, and provides asset and property management services to, two joint ventures which invest in industrial properties (the "September 1998 Joint Venture" and the "September 1999 Joint Venture"). Minority interest in the Company at September 30, 2001 represents the approximate 15% aggregate partnership interest in the Operating Partnership held by the limited partners thereof. RESULTS OF OPERATIONS At September 30, 2001, the Company owned 930 in-service properties with approximately 64.3 million square feet of GLA, compared to 976 in-service properties with approximately 69.6 million square feet of GLA at September 30, 2000. During the period between October 1, 2000 and September 30, 2001, the Company acquired 105 in-service properties containing approximately 5.1 million square feet of GLA, completed development of 16 properties and redevelopment of two properties totaling approximately 2.3 million square feet of GLA and sold 162 in-service properties totaling approximately 12.4 million square feet of GLA, one out of service property and several land parcels. The Company also took 11 properties out of service that are under redevelopment, comprising approximately .7 million square feet of GLA and placed in service four properties comprising approximately .4 million square feet of GLA. 17
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2001 TO NINE MONTHS ENDED SEPTEMBER 30, 2000 Rental income and tenant recoveries and other income increased by approximately $4.6 million or 1.6% due primarily to an increase in tenant recoveries related to an increase in property expenses (as discussed below), offset by a decrease in rental income due to a decrease in average GLA and a decrease in average occupancy for the nine months ended September 30, 2001 as compared to the nine months ended September 30, 2000. Rental income and tenant recoveries and other income from properties owned prior to January 1, 2000 increased by approximately $3.7 million or 1.8% due primarily to general rent increases and an increase in tenant recoveries due to an increase in property expenses (as discussed below) for the nine months ended September 30, 2001 as compared to the nine months ended September 30, 2000. Property expenses, which include real estate taxes, repairs and maintenance, property management, utilities, insurance and other expenses increased by approximately $1.0 million or 1.3%. This increase is due primarily to increases in repairs and maintenance, utilities and insurance. The increase in repairs and maintenance is due to an increase in snow removal and related expenses as well as an increase in maintenance fees. The increase in utilities is due to increases in gas and electricity expenses. The increase in insurance is due to an increase in insurance premiums. These increases were slightly offset by decreases in property management and other expense. The decrease in property management is due primarily to the closing of the Long Island, New York and the New Orleans, Louisiana regional offices. The decrease in other expense is due primarily to a decrease in master lease payments associated with certain properties during the nine months ended September 30, 2001 as compared to the nine months ended September 30, 2000. Property expenses from properties owned prior to January 1, 2000 increased by approximately $2.2 million or 4.0% due primarily to the explanations discussed above. General and administrative expense increased by approximately $1.1 million due primarily to the write-off of the Company's technology initiative investment. Interest expense increased by approximately $1.3 million for the nine months ended September 30, 2001 compared to the nine months ended September 30, 2000 due primarily to a higher average debt balance outstanding. This was slightly offset by a decrease in the weighted average interest rate for the nine months ended September 30, 2001 (7.15%) as compared to the nine months ended September 30, 2000 (7.31%) and an increase in capitalized interest for the nine months ended September 30, 2001 due to an increase in development activities. The average debt balance outstanding for the nine months ended September 30, 2001 and 2000 was approximately $1,301.3 million and $1,201.2 million, respectively. Amortization of deferred financing costs remained relatively unchanged. Depreciation and other amortization increased by approximately $2.1 million due primarily to a decrease in the number of properties the Company considered held for sale during the nine months ended September 30, 2001 as compared to the nine months ended September 30, 2000. Equity in income of joint ventures increased by approximately $.6 million due primarily to an increase in gain on sale of real estate in the September 1998 Joint Venture. The $48.5 million gain on sale of real estate for the nine months ended September 30, 2001 resulted from the sale of 107 industrial properties and several land parcels. Gross proceeds from these sales were approximately $318.8 million. The $22.2 million gain on sale of real estate for the nine months ended September 30, 2000 resulted from the sale of 53 industrial properties and several land parcels. Gross proceeds from these sales were approximately $193.1 million. The $10.3 million extraordinary loss for the nine months ended September 30, 2001 is due to the early retirement of senior unsecured debt and various mortgage loans. The extraordinary loss is comprised of the amount paid above the carrying amount of the senior unsecured debt, the write-off of unamortized 18
deferred financing fees, the write-off of the unamortized portion of an interest rate protection agreement which was used to fix the interest rate on the senior unsecured debt, the settlement of an interest rate protection agreement used to fix the retirement price of the senior unsecured debt, prepayment fees, legal costs and other expenses. COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2001 TO THREE MONTHS ENDED SEPTEMBER 30, 2000 Rental income and tenant recoveries and other income decreased by approximately $2.9 million or 3.0% due primarily to a decrease in average GLA and a decrease in average occupancy for the three months ended September 30, 2001 as compared to the three months ended September 30, 2000, slightly offset by an increase in tenant recoveries for the three months ended September 30, 2001 as compared to the three months ended September 30, 2000. Rental income and tenant recoveries and other income from properties owned prior to January 1, 2000 increased by approximately $.6 million or .9% due primarily to an increase in tenant recoveries due to an increase in property expenses (as discussed below) for the three months ended September 30, 2001 as compared to the three months ended September 30, 2000. Property expenses, which include real estate taxes, repairs and maintenance, property management, utilities, insurance and other expenses decreased by approximately $1.7 million or 6.1%. This decrease is due primarily to decreases in real estate taxes, property management and utilities. The decrease in real estate taxes and utilities is due to a decrease in average GLA for the three months ended September 30, 2001 as compared to the three months ended September 30, 2000. The decrease in property management expense is due to the closing of the Long Island, New York and the New Orleans, Louisiana regional offices. Property expenses from properties owned prior to January 1, 2000 remained relatively unchanged. General and administrative expense remained relatively unchanged. Interest expense decreased by approximately $1.3 million for the three months ended September 30, 2001 compared to the three months ended September 30, 2000 due primarily to a decrease in the weighted average interest rate on the Company's outstanding debt for the three months ended September 30, 2001 (7.08%) as compared to the three months ended September 30, 2000 (7.35%), as well as an increase in capitalized interest due to an increase in development activities. This was slightly offset by a higher average debt balance outstanding for the three months ended September 30, 2001 as compared to the three months ended September 30, 2000. The average debt balance outstanding for the three months ended September 30, 2001 and 2000 was approximately $1,283.0 million and $1,237.1 million, respectively. Amortization of deferred financing costs remained relatively unchanged. Depreciation and other amortization increased by approximately $2.8 million due primarily to a decrease in the number of properties the Company considered held for sale during the three months ended September 30, 2001 as compared to the three months ended September 30, 2000. Equity in income of joint ventures increased by approximately $.2 million due primarily to an increase in gain on sale of real estate in the September 1998 Joint Venture. The $18.8 million gain on sale of real estate for the three months ended September 30, 2001 resulted from the sale of 38 industrial properties and several land parcels. Gross proceeds from these sales were approximately $92.4 million. The $6.3 million gain on sale of real estate for the three months ended September 30, 2000 resulted from the sale of 18 industrial properties and several land parcels. Gross proceeds from these sales were approximately $56.9 million. 19
LIQUIDITY AND CAPITAL RESOURCES At September 30, 2001, the Company's cash and cash equivalents was approximately $13.2 million and restricted cash was approximately $47.4 million. Included in restricted cash are approximately $1.1 million of cash reserves required to be set aside under the Company's $40.0 million mortgage loan (the "1995 Mortgage Loan") for payments of security deposit refunds, tenant improvements, capital expenditures, interest, real estate taxes and insurance. The portion of the cash reserve relating to payments for capital expenditures, interest, real estate taxes and insurance for properties collateralizing the 1995 Mortgage Loan is established monthly, distributed to the Company as such expenditures are made and is replenished to a level adequate to make the next periodic payment of such expenditures. The portion of the cash reserve relating to security deposit refunds for the tenants occupying the properties collateralizing the 1995 Mortgage Loan is adjusted as tenants turn over. Also included in restricted cash is approximately $46.3 million of gross proceeds from the sales of certain properties. These sales proceeds will be disbursed as the Company exchanges properties under Section 1031 of the Internal Revenue Code. NINE MONTHS ENDED SEPTEMBER 30, 2001 Net cash provided by operating activities of approximately $117.2 million for the nine months ended September 30, 2001 was comprised primarily of net income before minority interest of approximately $117.6 million and adjustments for non-cash items of approximately $16.6 million, offset by the net change in operating assets and liabilities of approximately $17.0 million. The adjustments for the non-cash items of approximately $16.6 million are primarily comprised of depreciation and amortization of approximately $57.5 million and an extraordinary loss of approximately $10.3 million from the early retirement of debt, offset by the gain on sale of real estate of approximately $48.5 million and the effect of the straight-lining of rental income of approximately $2.7 million. Net cash used in investing activities of approximately $22.8 million for the nine months ended September 30, 2001 was comprised primarily of the acquisition of real estate, development of real estate, capital expenditures related to the expansion and improvement of existing real estate and an increase in restricted cash from sales proceeds deposited with an intermediary for Section 1031 exchange purposes, offset by the net proceeds from the sale of real estate, distributions from the September 1998 Joint Venture and the September 1999 Joint Venture and the repayment of mortgage loans receivable. Net cash used in financing activities of approximately $88.9 million for the nine months ended September 30, 2001 was comprised primarily of repayments on mortgage loans payable, the repurchase of restricted stock, the purchase of treasury shares, the purchase of U.S. Government securities used as substitute collateral to execute a legal defeasance of a portion of the 1995 Mortgage Loan, common and preferred stock dividends and unit distributions, debt issuance costs incurred in conjunction with the 2011 Notes (defined below), repayment of the 2011 Drs. (defined below), prepayment fees incurred in the early retirement of the Acquisition Mortgage Loan I (defined below) and the Acquisition Mortgage Loan II (defined below), redemption of the Company's Series A Preferred Stock (defined below) and the net repayments under the Company's $300 million unsecured line of credit (the "2000 Unsecured Acquisition Facility"), offset by the proceeds from the issuance of 2011 Notes (defined below) and net proceeds from the exercise of employee stock options. NINE MONTHS ENDED SEPTEMBER 30, 2000 Net cash provided by operating activities of approximately $136.5 million for the nine months ended September 30, 2000 was comprised primarily of net income before minority interest of approximately $102.0 million, adjustments for non-cash items of approximately $29.8 million and the net change in operating assets and liabilities of approximately $4.7 million. The adjustments for the non-cash items of approximately $29.8 million are primarily comprised of depreciation and amortization of approximately $52.9 million, offset by the gain on sale of real estate of approximately $22.2 million and the effect of the straight-lining of rental income of approximately $.9 million. 20
Net cash used in investing activities of approximately $154.6 million for the nine months ended September 30, 2000 was comprised primarily of the acquisition of real estate, development of real estate, capital expenditures related to the expansion and improvement of existing real estate and an increase in restricted cash from sales proceeds deposited with an intermediary for Section 1031 exchange purposes, offset by the net proceeds from the sale of real estate, distributions from the September 1998 Joint Venture and the September 1999 Joint Venture and the repayment of mortgage loans receivable. Net cash provided by financing activities of approximately $17.6 million for the nine months ended September 30, 2000 was comprised primarily of net borrowings under the Company's lines of credit and net proceeds from the exercise of employee stock options, offset by repayments on mortgage loans payable, the purchase of treasury shares, the purchase of U.S. Government securities used as substitute collateral to execute a legal defeasance of a portion of the 1995 Mortgage Loan, common and preferred stock dividends and unit distributions and debt issuance costs incurred in conjunction with the 2000 Unsecured Acquisition Facility. INVESTMENT IN REAL ESTATE, DEVELOPMENT OF REAL ESTATE AND SALES OF REAL ESTATE During the nine months ended September 30, 2001, the Company purchased 69 industrial properties comprising, in the aggregate, approximately 3.2 million square feet of GLA and several land parcels, for an aggregate purchase price of approximately $175.5 million, excluding costs incurred in conjunction with the acquisition of the properties. Two of the 69 industrial properties acquired, comprising approximately .1 million square feet of GLA, were acquired from the September 1998 Joint Venture for an aggregate purchase price of approximately $5.8 million, excluding costs incurred in conjunction with the acquisition of the properties. The Company also completed the development of six industrial properties comprising approximately 1.0 million square feet of GLA at a cost of approximately $40.5 million. During the nine months ended September 30, 2001, the Company sold 107 industrial properties comprising approximately 7.7 million square feet of GLA and several land parcels. Gross proceeds from these sales were approximately $318.8 million. The Company has committed to the construction of 31 development projects totaling approximately 5.2 million square feet of GLA for an estimated investment of approximately $236.5 million. Of this amount, approximately $79.5 million remains to be funded. These developments are expected to be funded with cash flows from operations, borrowings under the Company's 2000 Unsecured Acquisition Facility and proceeds from the sale of select properties of the Company. The Company expects to place in service approximately 24 of the 31 development projects, comprising approximately 3.8 million square feet of GLA at an estimated investment of approximately $179.5 million, during the next twelve months. There can be no assurance that the Company will place these projects in service during the next twelve months or that the actual completion cost will not exceed the amount stated above. REAL ESTATE HELD FOR SALE The Company plans on exiting the markets of Cleveland, Columbus, Dayton, Des Moines, Grand Rapids and Long Island and continually engages in evaluating its other real estate markets for potential sales candidates. At September 30, 2001, the Company had 61 industrial properties comprising approximately 6.6 million square feet of GLA held for sale. Income from operations of the 61 industrial properties held for sale for the nine months ended September 30, 2001 and 2000 is approximately $13.6 million and $12.2 million, respectively. Income from operations of the 61 industrial properties held for sale for the three months ended September 30, 2001 and 2000 is approximately $4.0 million and $4.7 million, respectively. Net carrying value of the 61 industrial properties held for sale at September 30, 2001 is approximately $169.5 million. There can be no assurance that such properties held for sale will be sold. INVESTMENTS IN JOINT VENTURES During the nine months ended September 30, 2001, the Company, through wholly-owned limited liability companies in which the Operating Partnership is the sole member, received, in the aggregate, approximately $1.8 million in asset management and property management fees from the September 1998 21
Joint Venture and the September 1999 Joint Venture, collectively. The Company, through wholly-owned limited liability companies in which the Operating Partnership is the sole member, received, in the aggregate, distributions of approximately $1.1 million from the September 1998 Joint Venture and the September 1999 Joint Venture. As of September 30, 2001, the September 1998 Joint Venture owned 119 industrial properties comprising approximately 6.0 million square feet of GLA and the September 1999 Joint Venture owned 39 industrial properties comprising approximately 1.2 million square feet of GLA. MORTGAGE LOANS PAYABLE In March 2001, the Company purchased approximately $1.1 million of U.S. Government securities as substitute collateral to execute a legal defeasance of approximately $1.1 million of the 1995 Mortgage Loan. The terms of the legal defeasance require the Mortgage Partnership to use the gross proceeds from the maturities of the U.S. Government securities to paydown and subsequently retire the defeased portion of the 1995 Mortgage Loan in January 2003. The Company is carrying the defeased portion of the 1995 Mortgage Loan on its balance sheet until it pays down and retires the defeased portion of the 1995 Mortgage Loan in January 2003. Upon the execution of the legal defeasance, one of the 22 properties collateralizing the 1995 Mortgage Loan was released and subsequently sold. On October 23, 1997, the Company, through the Operating Partnership, assumed a mortgage loan in the amount of $4.2 million (the "Acquisition Mortgage Loan I") in conjunction with the acquisition of a portfolio of properties. The Acquisition Mortgage Loan I was collateralized by a property in Bensenville, Illinois, bore interest at a fixed rate of 8.5% and provided for monthly principal and interest payments based upon a 15-year amortization schedule. On May 31, 2001, the Company, through the Operating Partnership, paid off and retired the Acquisition Mortgage Loan I. Due to the retirement of the Acquisition Mortgage Loan I, the Company has recorded an extraordinary loss of approximately $.1 million due to a prepayment fee. On December 9, 1997, the Company, through the Operating Partnership, assumed a mortgage loan in the amount of $8.0 million (the "Acquisition Mortgage Loan II") in conjunction with the acquisition of a portfolio of properties. The Acquisition Mortgage Loan II was collateralized by ten properties in St. Charles, Louisiana, bore interest at a fixed rate of 7.75% and provided for monthly principal and interest payments based upon a 22-year amortization schedule. On June 27, 2001, the Company, through the Operating Partnership, paid off and retired the Acquisition Mortgage Loan II. Due to the retirement of the Acquisition Mortgage Loan II, the Company has recorded an extraordinary loss of approximately $.9 million due to a prepayment fee. SENIOR UNSECURED DEBT On March 19, 2001, the Company, through the Operating Partnership, issued $200 million of senior unsecured debt which matures on March 15, 2011 and bears a coupon interest rate of 7.375% (the "2011 Notes"). The issue price of the 2011 Notes was 99.695%. Interest is paid semi-annually in arrears on September 15 and March 15. The Company also entered into an interest rate protection agreement which was used to fix the interest rate on the 2011 Notes prior to issuance. The Company settled the interest rate protection agreement for approximately $.4 million of proceeds which is included in other comprehensive income. 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 limitations on incurrence of debt and debt service coverage. On March 31, 1998, the Company, through the Operating Partnership, issued $100 million of Dealer remarketable securities which were to mature on April 5, 2011 and bore a coupon interest rate of 6.50% (the "2011 Drs."). The issue price of the 2011 Drs. was 99.753%. On April 5, 2001 the Company paid off and retired the 2011 Drs. for a payment of approximately $105.6 million. In conjunction with the forecasted retirement of the 2011 Drs., the Company entered into an interest rate protection agreement which fixed the retirement price of the 2011 Drs. On April 2, 2001, this interest rate protection agreement was settled for a payment of approximately $.6 million. Due to the retirement of the 2011 Drs., the Company has 22
recorded an extraordinary loss of approximately $9.2 million comprised of the amount paid above the 2011 Drs. carrying value, the write-off of unamortized deferred financing fees, the write-off of the unamortized portion of an interest rate protection agreement which was used to fix the interest rate on the 2011 Drs. prior to issuance, the settlement of the interest rate protection agreement as discussed above, legal costs and other expenses. PREFERRED STOCK In 1995, the Company issued 1,650,000 shares of 9.5%, $ .01 par value, Series A Cumulative Preferred Stock (the "Series A Preferred Stock") at an initial offering price of $25 per share. On or after November 17, 2000, the Series A Preferred Stock became redeemable for cash at the option of the Company, in whole or in part, at $25 per share, or $41.3 million in the aggregate, plus dividends accrued and unpaid to the redemption date. On March 9, 2001, the Company called for the redemption of all of the outstanding Series A Preferred Stock at the price of $25 per share, plus accrued and unpaid dividends. The Company redeemed the Series A Preferred Stock on April 9, 2001 and paid a prorated second quarter dividend of $.05872 per share, totaling approximately $.1 million. MARKET RISK The following discussion about the Company's risk-management activities includes "forward-looking statements" that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. This analysis presents the hypothetical gain or loss in earnings, cash flows or fair value of the financial instruments and derivative instruments which are held by the Company at September 30, 2001 that are sensitive to changes in the interest rates. While this analysis may have some use as a benchmark, it should not be viewed as a forecast. In the normal course of business, the Company also faces risks that are either non-financial or non-quantifiable. Such risks principally include credit risk and legal risk and are not represented in the following analysis. At September 30, 2001, $152.0 million (approximately 11.8% of total debt at September 30, 2001) of the Company's debt was variable rate debt (all of the variable rate debt relates to the Company's 2000 Unsecured Acquisition Facility) and $1,137.7 million (approximately 82.2% of total debt at September 30, 2001) was fixed rate debt. The Company also has outstanding a written put option (the "Written Option") which was issued in conjunction with the initial offering of one tranche of senior unsecured debt. Currently, the Company does not enter into financial instruments for trading or other speculative purposes. For fixed rate debt, changes in interest rates generally affect the fair value of the debt, but not earnings or cash flows of the Company. Conversely, for variable rate debt, changes in the interest rate generally do not impact the fair value of the debt, but would affect the Company's future earnings and cash flows. The interest rate risk and changes in fair market value of fixed rate debt generally do not have a significant impact on the Company until the Company is required to refinance such debt. See Note 4 to the consolidated financial statements for a discussion of the maturity dates of the Company's various fixed rate debt. Based upon the amount of variable rate debt outstanding at September 30, 2001, a 10% increase or decrease in the interest rate on the Company's variable rate debt would decrease or increase, respectively, future net income and cash flows by approximately $.7 million per year. A 10% increase in interest rates would decrease the fair value of the fixed rate debt at September 30, 2001 by approximately $51.6 million to $1,096.9 million. A 10% decrease in interest rates would increase the fair value of the fixed rate debt at September 30, 2001 by approximately $56.8 million to $1,205.3 million. A 10% increase in interest rates would decrease the fair value of the Written Option at September 30, 2001 by approximately $2.3 million 23
to $6.4 million. A 10% decrease in interest rates would increase the fair value of the Written Option at September 30, 2001 by approximately $2.8 million to $11.5 million. ISSUANCE OF RESTRICTED STOCK AND EMPLOYEE STOCK OPTIONS During the nine months ended September 30, 2001, the Company awarded 94,450 shares of restricted common stock to certain employees and 2,698 shares of restricted common stock to certain Directors. These shares of restricted common stock had a fair value of approximately $3.1 million on the date of grant. The restricted common stock vests over periods from one to ten years. Compensation expense will be charged to earnings over the respective vesting period. During the nine months ended September 30, 2001, the Company issued 1,030,900 non-qualified employee stock options to certain officers, Directors and employees of the Company. These non-qualified employee stock options vest over periods from one to three years, have a strike price of $31.05 - $33.125 per share and expire ten years from the date of grant. COMMON STOCK During the nine months ended September 30, 2001, certain employees of the Company exercised 635,030 non-qualified employee stock options. Gross proceeds to the Company were approximately $16.6 million. TREASURY STOCK During the nine months ended September 30, 2001, the Company repurchased 177,600 shares of its common stock at a weighted average price per share of approximately $28.94. DIVIDENDS/DISTRIBUTIONS On January 2, 2001 and April 2, 2001, the Company paid quarterly preferred stock dividends of $.59375 per share on its Series A Preferred Stock, $54.688 per share (equivalent to $.54688 per Depositary Share) on its Series B Preferred Stock, $53.906 per share (equivalent to $.53906 per Depositary Share) on its Series C Preferred Stock, $49.687 per share (equivalent to $.49687 per Depositary Share) on its Series D Preferred Stock and $49.375 per share (equivalent to $.49375 per Depositary Share) on its Series E Preferred Stock. The preferred stock dividends paid on January 2, 2001 and April 2, 2001 totaled, in the aggregate, approximately $8.2 million per quarter. On April 9, 2001, the Company paid a prorated second quarter dividend of $.05872 per share, totaling approximately $.1 million, on its Series A Preferred Stock. On July 2, 2001, the Company paid quarterly preferred stock dividends of $54.688 per share (equivalent to $.54688 per Depositary Share) on its Series B Preferred Stock, $53.906 per share (equivalent to $.53906 per Depositary Share) on its Series C Preferred Stock, $49.687 per share (equivalent to $.49687 per Depositary Share) on its Series D Preferred Stock and $49.375 per share (equivalent to $.49375 per Depositary Share) on its Series E Preferred Stock. The preferred stock dividends paid on July 2, 2001 totaled, in the aggregate, approximately $7.2 million per quarter. On January 22, 2001, the Company and the Operating Partnership paid a fourth quarter 2000 distribution of $.6575 per common share/Unit, totaling approximately $30.3 million. On April 23, 2001, the Company and the Operating Partnership paid a first quarter 2001 dividend/distribution of $.6575 per common share/Unit, totaling approximately $30.5 million. On July 23, 2001, the Company and the Operating Partnership paid a second quarter 2001 dividend/distribution of $.6575 per common share/Unit, totaling approximately $30.7 million. 24
SUBSEQUENT EVENTS From October 1, 2001 to October 23, 2001, the Company acquired seven industrial properties for an aggregate purchase price of approximately $33.2 million, excluding costs incurred in conjunction with the acquisition of these industrial properties. The Company also sold two industrial properties and a land parcel for approximately $4.9 million of gross proceeds. On October 1, 2001, the Company paid third quarter preferred stock dividends of $54.688 per share (equivalent to $.54688 per Depositary Share) on its Series B Preferred Stock, $53.906 per share (equivalent to $.53906 per Depositary Share) on its Series C Preferred Stock, $49.687 per share (equivalent to $.49687 per Depositary Share) on its Series D Preferred Stock and $49.375 per share (equivalent to $.49375 per Depositary Share) on its Series E Preferred Stock. The preferred stock dividends paid on October 1, 2001 totaled, in the aggregate, approximately $7.2 million. On October 22, 2001, the Company and the Operating Partnership paid a third quarter 2001 dividend/distribution of $.6575 per common share/Unit, totaling approximately $30.7 million. From October 1, 2001 through October 23, 2001, the Company repurchased 461,900 shares of its common stock at a weighted average price per share of approximately $28.52. SHORT-TERM AND LONG-TERM LIQUIDITY NEEDS The Company 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 Company believes that its principle short-term liquidity needs are to fund normal recurring expenses, debt service requirements and the minimum distribution required to maintain the Company's REIT qualification under the Internal Revenue Code. The Company anticipates that these needs will be met with cash flows provided by operating activities. The Company expects to meet long-term (greater than one year) liquidity requirements such as property acquisitions, developments, scheduled debt maturities, major renovations, expansions and other nonrecurring capital improvements through the disposition of select assets, long-term secured and unsecured indebtedness and the issuance of additional equity securities. As of September 30, 2001 and October 23, 2001, $589.2 million of common stock, preferred stock and depositary shares and $500.0 million of debt securities were registered and unissued under the Securities Act of 1933, as amended. The Company also may finance the development or acquisition of additional properties through borrowings under the 2000 Unsecured Acquisition Facility. At September 30, 2001, borrowings under the 2000 Unsecured Acquisition Facility bore interest at a weighted average interest rate of 4.5%. The 2000 Unsecured Acquisition Facility bears interest at a floating rate of LIBOR plus .80%, or the Prime Rate, at the Company's election. As of October 23, 2001, the Company had approximately $101.9 million available for additional borrowings under the 2000 Unsecured Acquisition Facility. OTHER On January 1, 2001, the Company adopted the Financial Accounting Standards Board's ("FASB") Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), as amended by Statement of Financial Accounting Standards No. 138, "Accounting for Derivative Instruments and Hedging Activities- An Amendment of FAS Statement 133". FAS 133, as amended, establishes accounting and reporting standards for derivative instruments. Specifically, FAS 133, as amended, requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustment will affect either other comprehensive income (shareholders' equity) or net income, depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. FAS 133, as amended, also requires that any gains or losses on derivative instruments that are reported independently as deferred gains or 25
losses (assets or liabilities) in the statement of financial position at the date of initial application shall be derecognized and reported as a cumulative transition adjustment in other comprehensive income. In conjunction with prior issuances of senior unsecured debt, the Company entered into interest rate protection agreements to fix the interest rate on anticipated offerings of unsecured debt. On January 1, 2001, the Company derecognized the deferred settlement amounts relating to these settled interest rate protection agreements and recorded in other comprehensive income a cumulative transition adjustment expense of approximately $14.9 million. In March 2001, the Company entered into an interest rate protection agreement which fixed the interest rate on a forecasted offering of unsecured debt which it designated as a cash flow hedge. In conjunction with the offering of the 2011 Notes, the Company settled this interest rate protection agreement and received approximately $.4 million, which is shown in other comprehensive income. The Company is amortizing this settlement amount into net income as an adjustment to interest expense over the life of the 2011 Notes. In March 2001, the Company entered into an interest rate protection agreement which fixed the retirement price on a forecasted retirement of unsecured debt which it designated as a cash flow hedge. In conjunction with the retirement of the 2011 Drs. in April 2001, the Company settled this interest rate protection agreement for a payment of approximately $.6 million which is a component of the extraordinary loss the Company has recognized relating to the retirement of the 2011 Drs. In September 2001, the Company entered into two interest rate protection agreements which fixed the interest rate on a portion of the Company's outstanding borrowings on the 2000 Unsecured Acquisition Facility. The Company designated both of these transactions as cash flow hedges. The first interest rate protection agreement has a notional value of $25.0 million, is effective from October 5, 2001 through October 5, 2002 and fixed the LIBOR rate at 2.5775%. The second interest rate protection agreement has a notional value of $25.0 million, is effective from October 5, 2001 through July 5, 2003 and fixed the LIBOR rate at 3.0775%. Any payments or receipts from these interest rate protection agreements will be treated as a component of interest expense. The Company anticipates that both interest rate protection agreements will be 100% effective and, as a result, the change in value of both interest rate protection agreements will be shown in other comprehensive income. On October 3, 2001, the FASB issued the Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 addresses financial accounting and reporting for the disposal of long-lived assets. FAS 144 becomes effective for financial statements issued for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The Company does not expect the pronouncement to have a material impact on its consolidated financial position, consolidated results of operations or consolidated cash flows. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Response to this item is included in Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" above. 26
PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION Not Applicable. ITEM 6. EXHIBITS AND REPORT ON FORM 8-K a) Exhibits: None. b) Report on Form 8-K: None. 27
-------------------------------------------------------------------------------- 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 28
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST INDUSTRIAL REALTY TRUST, INC. Date: October 30, 2001 By: /s/ Michael J. Havala --------------------- Michael J. Havala Chief Financial Officer (Principal Financial and Accounting Officer) 29
EXHIBIT INDEX Exhibit No. Description ---------- ----------- None. 30