August
3,
2007
(312)
344-4380
Ms.
Jennifer Monick
Staff
Accountant
Division
of Corporate Finance
Unites
States Securities and Exchange Commission
450
Fifth
Avenue, N. W.
Washington,
D.C. 20549-0405
|
Re:
|
First
Industrial Realty Trust, Inc.
|
|
|
Form
10-K for the year ended December 31, 2006
|
||
|
Form
8-K Filed April 30, 2007
|
||
|
File
No. 1-13102
|
||
Dear
Ms.
Monick:
First
Industrial Realty Trust, Inc.
(“First Industrial”) has carefully considered each of the comments in your
letter dated July 3, 2007, and at the request and on behalf of First Industrial,
I respectfully provide First Industrial’s responses below. For your
convenience, I have reproduced each comment from your letter immediately before
the response to that comment.
Form
10-K for the year ended December 31, 2006
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity
and Capital Resources, page 37
|
1.
|
We
note that you did not discuss liquidity and capital resources for
the year
ended December 31, 2005, specifically for operating, investing and
financing activities. Please explain how you have complied with
Item 303 of Regulation S-K in determining that it was not necessary
to
provide a discussion of liquidity and capital resources for all periods
presented in your financial
statements.
|
Response:
First Industrial understands Item 303(a)(1) and (2) of Regulation S-K to require
a discussion of liquidity and capital resources at the end of the most recent
period presented in relation to future liquidity
and
capital requirements. First Industrial notes that Item 303(a)(1) asks
registrants to: “Identify any known trends or any known demands,
commitments, events or uncertainties that will result in or that
are reasonably likely to result in...[changes in liquidity].”
Similarly, Item 303(a)(2) refers to: “commitments for capital
expenditures as of the end of the latest fiscal period...” and calls
for discussion of “the anticipated source of funds needed to fulfill such
commitments...”. First Industrial also notes the
language of SEC Release No. 34-26831, which states: “Registrants are expected to use the
statement of cash flows,
and other appropriate indicators, in analyzing their liquidity, and to present
a
balanced discussion dealing with cash flows from investing and financing
activities as well as from operations. This discussion should address those
matters that have materially affected the most recent period presented
but are not expected to have short or long-term implications, and those matters
that have not materially affected the most recent period presented but
are expected materially to affect future periods.” (all emphasis above
added).
Financial
Statements
Report
of Independent Registered Public Accounting Firm, page
56
|
2.
|
We
note you include opinions and consents from PricewaterhouseCoopers
LLP
here and in your Form 8-K filed April 30, 2007, which do not appear
to be
signed by PricewaterhouseCoopers LLP. In future
filings, please request that your auditors include evidence that
their
opinions and consents are
signed.
|
Response:
In future filings, First Industrial will ensure our auditors name includes
the
“/s/” reference to evidence their signature.
Consolidated
Statements of Operations, page 59
|
3.
|
Please
tell us how your current presentation complies with Rule 5-03 of
Regulation S-X. Specifically address classifying the gain on sale
of real
estate below income from discontinued
operations.
|
Response:
First Industrial understands Rule 3-15, a special provision for real estate
investment trusts, to require the following additional captions between those
required by Rules 5-03.15 and 16: (i) income or loss before gain or loss on
sale
of properties, extraordinary items and cumulative effects of accounting changes,
and (ii) gain or loss on sale of properties, less applicable income
tax. The gain on sale of real estate shown below income from
discontinued operations on First Industrial’s statements of operations are gains
related to sales of land parcels and properties that do not meet the
requirements of discontinued operations in accordance with
FASB
No.
144 “Accounting for the Impairment or Disposal of Long-Lived
Assets.”
Consolidated
Statement of Cash Flows, page 62
|
4.
|
We
note that you made distributions on common stock well in excess of
cash
flow from operating activities during the year ended December 31,
2006.
Please discuss the source(s) of these distributions, within the
Liquidity and Capital Resources section of your Management’s
Discussion and Analysis of Financial Condition and Results of
Operations, as this disparity raises concerns about the
sustainability of distributions into the
future.
|
Response:
Included in First Industrial’s Form 10-Q filings for June 30, 2006, September
30, 2006 and March 31, 2007, First Industrial noted that it anticipated meeting
it’s short term liquidity needs (funding normal recurring expenses, debt service
requirements and the minimum distribution required to maintain the Company’s
REIT qualification under the Internal Revenue Code) by cash flows from both
operating and investment activities. Investment activities include
gains from the sale of industrial properties, which is an active part of First
Industrial’s business strategy. The investment activities wording was
erroneously not carried forward in First Industrial’s Form 10-K filing for the
year ended December 31, 2006. First Industrial will ensure that it
includes this wording in future Form 10-K filings.
Notes
to Consolidated Financial Statements
Note
5, Mortgage Loan Payable, Net, Senior Unsecured Debt, Net and Unsecured Lines
of
Credit
Senior
Unsecured Debt, Net, page 75
|
5.
|
We
note you entered into capped call transactions, and recorded your
payment
of $6.8 million as a reduction in equity. Please tell us your basis
for
your current accounting treatment of the capped call transaction
and how
you considered the guidance in EITF 00-19. Within your
response, specifically tell us how you will settle these
transactions.
|
Response:
First Industrial will account for the capped call as a reduction to equity,
and
subsequent changes in fair value will not be recognized as long as the contracts
continue to be classified as equity. The capped call will be net
share settled. First Industrial’s assessment under EITF 00-19 “Accounting
for Derivative
3
Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock”
is as follows:
|
EITF
00-19 Provisions
|
Contract
Terms
|
Conclusion
|
||
|
1.
The contracts cannot include ANY provisions that could require net-cash
settlement, other than if the cash payment is only required upon
the final
liquidation of the Company. [EITF 00-19.8 and 27-28]
|
The
Capped Call agreement requires net share settlement. Cash
settlement is not an option, except for in lieu of fractional shares
as JP
Morgan and Wachovia would be unable to deliver fractional
shares.
|
The
Capped Call is settled in shares; no provisions exist that could
require
net-cash settlement.
EITF
00-19.8 and EITF 00-19.27-28 is satisfied.
|
||
|
2.
The contract must permit the Company to settle in unregistered shares.
[EITF 00-19.14-18]
|
The
Capped Call agreement permits settlement in shares with no specification
for registered shares.
|
EITF
00-19.14-.18 is satisfied.
|
||
|
3.
The Company must have sufficient authorized and unissued shares available
to settle the contract after considering all other commitments that
may
require the issuance of stock during the maximum period the derivative
contract could remain outstanding. [EITF 00-19.19]
|
Not
applicable as First Industrial is not required to deliver shares
under the
Capped Call agreement. Only the counterparty is required to deliver
shares
under the Capped Call agreement.
|
EITF
00-19.19 is not applicable to the Capped Call.
|
||
|
4.
The contract contains an explicit limit on the number of shares to
be
delivered in a share settlement. [EITF 00-19.20-24]
|
Not
applicable as First Industrial is not required to deliver shares
under the
Capped Call agreement. Only the counterparty is required to deliver
shares
under the Capped Call agreement.
|
EITF
00-19.20-24 is not applicable to the Capped
Call.
|
4
|
5.
There are no required cash payments to the counterparty in the event
the
Company fails to make timely filings with the SEC. [EITF
00-19.25]
|
There
is no required cash payment in the event the Company fails to make
timely
filings with the SEC.
|
EITF
00-19.25 is satisfied.
|
||
|
6. There
are no required cash payments to the counterparty if the shares initially
delivered upon settlement are subsequently sold by the counterparty
and
the sales proceeds are insufficient to provide the counterparty with
full
return of the amount due (that is, there are no cash settled “top-off” or
“make-whole” provisions). [EITF 00-19.26]
|
The
Capped Call agreement does not contain this or similar
terms.
|
EITF
00-19.26 is satisfied.
|
||
|
7.
There are no provisions that indicate that the counterparty has rights
that rank higher than those of a shareholder of the stock underlying
the
contract. [EITF 00-19.29-31]
|
There
are no such provisions.
|
EITF
00-19.29-31 is satisfied.
|
||
|
8.
There is no requirement in the contract to post collateral at any
point or
for any reason. [EITF 00-19.32]
|
The
Capped Call agreement does not contain this or similar
terms.
|
EITF
00-19.32 is satisfied.
|
Note
18, Pro Forma Financial Information (unaudited), page
97
|
6.
|
Please
tell us management’s basis for excluding acquisitions from your pro forma
results which were leased back to the seller. Additionally,
please address the same exclusion from your pro forma financial statements
provided in your April 30, 2007 Form
8-K.
|
Response:
To prepare the pro forma financial information for the Form 8-K, management
reviewed Rule 3-05 and Rule 3-14 of Regulation S-X. To determine what
acquisitions should be included in the pro forma financial information,
management looked to Rule 11-01(d) of Regulation S-X (referenced within Rule
5
3-05
as
the guidance in determining whether a “business” has been
acquired). Management made the decision to exclude acquisitions
which were leased back to the seller from our pro forma results as Rule 11-01(d)
references the term business as “revenue producing activities.” Management
analogized the term, “revenue producing activity”, to an “operating property” in
terms of real estate.
To
prepare the pro forma financial information for the Form 10-K, management
reviewed FASB No. 141. To determine what acquisitions should be included in
the
pro forma financial information, management looked to EITF 98-3 (referenced
in
footnote four in FASB no. 141) for the definition of a “business”. EITF 98-3
states, “A business is a self-sustaining integrated set of activities and assets
conducted and managed for the purpose of providing a return to investors.”
Management made the same conclusion as above, and analogized the definition
“…for the purpose of providing a return to investors”, to an “operating
property” in terms of real estate.
As
these
properties that are leased back to the seller were not revenue producing while
owned by the seller (there was no lease in place as the seller occupied the
building), management deemed the properties not to be operating
properties. The pro forma financial information presented within the
Form 8-K filed April 30, 2007 and the pro forma footnote within the footnotes
to
the financial statements of the Registrant’s Form 10-K included only those
properties that management considered to be “operating”.
Schedule
III, page S-1
|
7.
|
We
note you have provided schedule III for your real estate
assets. It does not appear you have all the required items in
your schedule, specifically the date acquired column and depreciable
lives
information. We also note you have not segregated your acquisitions,
construction costs and improvements on page S-33. Refer to Rule
5-04 of Regulation S-X.
|
Response: Management
has reviewed Rule 5-04 and Rule 12-28 of Regulation S-X and agrees with your
comment that our current presentation excludes the required column which shows
the date acquired column for each building. First Industrial will
include the date acquired column or date constructed column in future Form
10-K
filings. Management also agrees with your comment that a column
including information about depreciable lives is required. It was management’s
intent to include such information, as it has been included in all of the past
Form 10-K filings of First
6
Industrial,
but a typographical error occurred and the footnote “o” which is referenced was
erroneously replaced with another footnote. Footnote “o” should have
been presented as follows:
|
(o)
|
Depreciation
is computed based upon the following estimated
lives:
|
|
Buildings,
Improvements
|
20
to 50 years
|
|
Tenant
Improvements, Leasehold Improvements
|
Life
of lease
|
|
Furniture,
Fixtures and Equipment
|
5
to 10 years
|
The
above
information about depreciable lives was properly included in footnote
2 to the financial statements of the Form 10-K. First Industrial will
ensure future Form 10-K filings include the information above within Schedule
III. Management agrees that our filing consolidates its acquisitions,
construction costs and improvements into one line item on page
S-33. In future Form 10-K filings, First Industrial will break out
information pertaining to acquisitions into a line item separate from
construction costs and improvements.
Form
8-K filed April 30, 2007
Pro
Forma Financial Information, page 50
|
8.
|
We
note you have an adjustment for income tax expense allocable to continuing
operations. Please tell us and disclose the nature of this adjustment
and
how you complied with Article 11 of Regulation S-X for determining
the
amount of this adjustment.
|
Response:
First
Industrial included an adjustment for income tax expense based on its
interpretation of Rule 11-02(a), which provides that “Pro forma
financial information should provide investors with information about the
continuing impact of a particular transaction by showing how it might have
affected historical financial statements if the transaction had been consummated
at an earlier time. Such statements should assist investors in analyzing the
future prospects of the registrant because they illustrate the possible scope
of
the change in the registrant's historical financial position and results of
operations caused by the transaction.” As the impact of the pro forma
adjustments associated with the properties owned by First Industrial’s taxable
REIT subsidiary (the “TRS”) had a material impact on income tax expense,
management determined that including such adjustment in the pro forma financial
statements would be beneficial to investors. First
7
Industrial
calculated the income tax adjustment by multiplying the TRS’s effective tax rate
(which approximated the statutory rate) for the applicable year by the sum
of
the pro forma adjustments for the TRS.
|
9.
|
Please
tell us why it is appropriate to adjust the historical statements
of
operations for interest expense and preferred dividends related to
your
2016 notes, 2011 exchangeable notes, series j preferred stock, and
series
k preferred stock, as they do not appear to be directly attributable
to
the acquisition of these
properties.
|
Response:
Similar
to our response for comment 8, First Industrial included an interest expense
adjustment and preferred dividend adjustment based on its interpretation of
Rule
11-02(a), “Pro forma financial information should provide investors
with information about the continuing impact of a particular transaction by
showing how it might have affected historical financial statements if the
transaction had been consummated at an earlier time. Such statements should
assist investors in analyzing the future prospects of the registrant because
they illustrate the possible scope of the change in the registrant's historical
financial position and results of operations caused by the transaction.” While
the financing transactions you cited in your comment were not directly related
to a specific property acquisition, First Industrial determined that these
financing transactions would also have had to occur as of the beginning of
the
year in order to finance the acquisition of the properties in the
aggregate. Accordingly, management made a pro forma adjustment based
on its actual financing activities, including the applicable interest expense
and preferred dividend adjustments to the pro forma financial
information.
|
10.
|
We
note you did not include a pro forma adjustment for straight-line rental
revenue to re-set each tenant lease term to January 1,
2006. Please tell us how you complied with Article 11 of
Regulation S-X or tell us why you believe it was not necessary to
include
such an adjustment.
|
Response:
Within the rental income line item of the pro forma financial information,
straight-line rental revenue was included, consistent with straight-line rent
the seller would have recorded. Management did assess the materiality of
re-setting the tenant leases as of January 1, 2006 for purposes of calculating
straight-line rent and concluded the adjustment to be less than
$50,000. Due to this immateriality, First Industrial elected
not to include the pro forma adjustment.
8
In
connection with responding to the
above comments, First Industrial hereby acknowledges that it is responsible
for
the adequacy and accuracy of the disclosures in the filings; staff comments
or
changes to disclosure in response to staff comments do not foreclose the
Commission from taking any action with respect to the filings; and First
Industrial may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws
of
the United States. If you have any questions about any of First Industrial’s
responses to your comments or require further explanation, please do not
hesitate to telephone me at (312) 344-4380.
|
Sincerely,
|
|
/s/
Scott A. Musil
|
|
Scott
A. Musil
|
|
Chief
Accounting Officer
|
cc: Michael
J. Havala (First Industrial)
John
Clayton, Esq. (First
Industrial)
Ian
Nelson (PwC)
9