First Industrial Realty Trust - 10-K annual report

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. First Industrial Realty Trust, Inc. (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 financing, interest rate levels, competition, supply and demand for industrial properties in the Company’s current and proposed market areas, potential environmental liabilities, slippage in development orlease-upschedules, tenant credit risks,higher-than-expectedcosts and changes in general accounting principles and 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 in Item 1A, “Risk Factors” and in the Company’s other filings with the Securities and Exchange Commission.

First Industrial Realty Trust, Inc. is a Maryland corporation organized on August 10, 1993, and is a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). First Industrial Realty Trust, Inc., (together with its consolidated subsidiaries, the “Company”) is a self-administered and fully integrated real estate company which owns, manages, acquires, sells, redevelops and develops industrial real estate. The Company completed its initial public offering in June 1994 (the “Initial Offering”). Upon consummation of the Initial Offering, the Company owned 226 industrial properties which contained an aggregate of 17.4 million square feet of gross leasable area (“GLA”). As of December 31, 2005, the Company’s in-service portfolio consisted of 420 light industrial properties, 153 R&D/flex properties, 177 bulk warehouse properties, 102 regional warehouse properties and 32 manufacturing properties containing approximately 70.2 million square feet of GLA located in 29 states and one province in Canada. The Company’s in-service portfolio includes all properties other than developed, redeveloped, and acquired properties that have not yet reached stabilized occupancy (generally defined as properties that are 90% leased).

The Company’s interests in its properties and land parcels are held through (i) partnerships controlled by the Company, including First Industrial, L.P. (the “Operating Partnership”), of which the Company is the sole general partner, as well as, among others, First Industrial Financing Partnership, L.P., First Industrial Securities, L.P., First Industrial Mortgage Partnership, L.P., First Industrial Pennsylvania, L.P., First Industrial Harrisburg, L.P., First Industrial Indianapolis, L.P., FI Development Services, L.P. and TK-SV, LTD., each of which the sole general partner is a wholly-owned subsidiary of the Company and the sole limited partner is the Operating Partnership; (ii) limited liability companies, of which the Operating Partnership is the sole member; and (iii) First Industrial Development Services, Inc. and wholly owned LLC’s, of which the Operating Partnership is the sole stockholder, all of whose operating data is consolidated with that of the Company as presented herein. The Company, through separate wholly-owned limited liability companies of which the Operating Partnership or First Industrial Development Services, Inc. is the sole member, also owns minority equity interests in, and provides various services to, four joint ventures which invest in industrial properties (the “September 1998 Joint Venture”, the “May 2003 Joint Venture”, the “March 2005 Joint Venture” and the “September 2005 Joint Venture”). The Company, through a separate, wholly-owned limited liability company of which the Operating Partnership is also the sole member, also owned a minority interest in and provided property management services to a fifth joint venture which invested in industrial properties (the “December 2001 Joint Venture”; together with the September 1998 Joint Venture, the May 2003 Joint Venture, the March 2005 Joint Venture and the September 2005 Joint Venture, the “Joint Ventures”). During the year ended December 31, 2004, the December 2001 Joint Venture sold all of its industrial properties. The operating data of the Joint Ventures is not consolidated with that of the Company as presented herein.

The Company utilizes an operating approach which combines the effectiveness of decentralized, locally-based property management, acquisition, sales and development functions with the cost efficiencies of centralized acquisition, sales and development support, capital markets expertise, asset management and fiscal control systems. At March 6, 2006, the Company had 441 employees.

The Company has grown and will seek to continue to grow through the development and acquisition of additional industrial properties, through additional joint venture investments, and through its corporate services program.

The Company maintains a website at www.firstindustrial.com. Copies of the Company’s annual report onForm 10-K,quarterly reports onForm 10-Q,current reports onForm 8-Kand amendments to such reports are available without charge on the Company’s website as soon as reasonably practicable after such reports are filed with or furnished to the SEC. In addition, the Company’s Corporate Governance Guidelines, Code of

The Company’s fundamental business objective is to maximize the total return to its stockholders through increases in per share distributions and increases in the value of the Company’s properties and operations. The Company’s growth plans include the following elements:

The Company utilizes the following six strategies in connection with the operation of its business:

In 2005, the Company acquired or placed in-service developments totaling 173 industrial properties and acquired several parcels of land for a total investment of approximately $894.6 million. The Company also sold 96 industrial properties and several parcels of land for a gross sales price of approximately $656.1 million. At December 31, 2005, the Company owned 884 in-service industrial properties containing approximately 70.2 million square feet of GLA.

On August 23, 2005, the Company, through the Operating Partnership, amended and restated its $300,000 unsecured line of credit, which was due September 28, 2007, and bore interest at a floating rate of LIBOR plus .7%, or the Prime Rate, at the Company’s election. The amended and restated unsecured line of credit (the “2005 Unsecured Line of Credit I”) will mature on September 28, 2008, has a borrowing capacity of $500,000, with the right, subject to certain conditions, to increase the borrowing capacity up to $600,000 and bears interest at a floating rate of LIBOR plus .625%, or the Prime Rate, at the Company’s election. In December 2005, the Company, through the Operating Partnership, entered into a non-revolving unsecured line of credit (the “2005 Unsecured Line of Credit II”). The 2005 Unsecured Line of Credit II has a borrowing capacity of $125.0 million and matures on March 15, 2006. The 2005 Unsecured Line of Credit II provides for interest only payments at LIBOR plus .625% or at Prime, at the Company’s election. In January 2006, the Company, through the Operating Partnership, paid off and retired the 2005 Unsecured Line of Credit II. Together, the 2005 Unsecured Line of Credit I and the 2005 Unsecured Line of Credit II, the “Unsecured Lines of Credit.”

On January 12, 2005, in conjunction with the acquisition of a parcel of land, the seller provided the Company a mortgage loan in the amount of $1.2 million (the “Acquisition Mortgage Loan XV”). The Acquisition Mortgage Loan XV is collateralized by a land parcel in Lebanon, TN, does not require principal payments prior to maturity on January 12, 2006 (which the Company paid off and retired at maturity) and has a 0% interest rate.

On March 31, 2005, the Company assumed a mortgage loan in the amount of $2.0 million (the “Acquisition Mortgage Loan XVI”). The Acquisition Mortgage Loan XVI is collateralized by one property in New Hope, MN, bears interest at a fixed rate of 5.50% and provides for monthly principal and interest payments based on a20-yearamortization schedule. The Acquisition Mortgage Loan XVI matures on September 30, 2024. In conjunction with the assumption of the Acquisition Mortgage Loan XVI, the Company recorded a premium in the amount of $.03 million which will be amortized as an adjustment to interest expense through March 31, 2009. Including the impact of the premium recorded, the Company’s effective interest rate on the Acquisition Mortgage Loan XVI is 5.30%. The Acquisition Mortgage Loan XVI may be prepaid on April 1, 2009 without incurring a prepayment fee.

On June 27, 2005, the Company assumed a mortgage loan in the amount of $3.1 million (the “Acquisition Mortgage Loan XVII”). The Acquisition Mortgage Loan XVII is collateralized by one property in Villa Rica, GA, bears interest at a fixed rate of 7.38% and provides for monthly principal and interest payments based on a15-yearamortization schedule. The Acquisition Mortgage Loan XVII matures on May 1, 2016. In conjunction with the assumption of the Acquisition Mortgage Loan XVII, the Company recorded a premium in the amount of $.3 million which will be amortized as an adjustment to interest expense through May 1, 2016. Including the impact of the premium recorded, the Company’s effective interest rate on the Acquisition Mortgage Loan XVII is 5.70%. The Acquisition Mortgage Loan XVII may not be prepaid until maturity without incurring a prepayment fee.

On June 30, 2005, the Company assumed a mortgage loan in the amount of $6.5 million (the “Acquisition Mortgage Loan XVIII”). The Acquisition Mortgage Loan XVIII is collateralized by one property in Hammonton, NJ, bears interest at a fixed rate of 7.58% and provides for monthly principal and interest payments based on a20-yearamortization schedule. The Acquisition Mortgage Loan XVIII matures on March 1, 2011. In conjunction with the assumption of the Acquisition Mortgage Loan XVIII, the Company recorded a premium in the amount of $.7 million which will be amortized as an adjustment to interest expense through November 30, 2010. Including the impact of the premium recorded, the Company’s effective interest rate on the Acquisition Mortgage Loan XVIII is 4.93%. The Acquisition Mortgage Loan XVIII may be prepaid on December 1, 2010 without incurring a prepayment fee.

On September 30, 2004, the Company assumed a mortgage loan in the amount of $12.1 million and borrowed an additional $1.4 million (collectively referred to as the “Acquisition Mortgage Loan XIII”). The Acquisition Mortgage Loan XIII was collateralized by three properties in Phoenix, Arizona, bore interest at a fixed rate of 5.60% and provided for monthly principal and interest payments based on a30-yearamortization schedule. The Acquisition Mortgage Loan XIII matures on November 10, 2012. In conjunction with the assumption of the Acquisition Mortgage Loan XIII, the Company recorded a premium in the amount of $.5 million which was being amortized over the remaining life of the Acquisition Mortgage Loan XIII as an adjustment to interest expense. On July 13, 2005, the Company sold the properties that collateralized the Acquisition Mortgage Loan XIII. In conjunction with the sale, the buyer assumed the Acquisition Mortgage Loan XIII and the Company paid $.3 million in fees related to the assignment of the Acquisition Mortgage Loan XIII. Consequently, the Company wrote-off the remaining premium on the note of $.4 million. Both the $.3 million of fees and $.4 million premium write-off are included in the Gain on Early Retirement of Debt on the Company’s Statement of Operations.

On November 8, 2005 and November 18, 2005, the Company issued 600 and 150 Shares, respectively, each representing $.01 par value, Series I Flexible Cumulative Redeemable Preferred Stock, (the “Series I Preferred Stock”), in a private placement at an initial offering price of $250,000 per share for an aggregate initial offering price of $187.5 million. Dividends on the Series I Depositary Shares are payable monthly in arrears commencing December 31, 2005 at an initial dividend rate of One-Month LIBOR plus 1.25%, subject to reset on the four-month, six-month and one year anniversary of the date of issuance. The Company redeemed the Series I Preferred Stock on January 13, 2006 for $242,875.00 per share, and paid a prorated first quarter dividend of $470.667 per share, totaling approximately $.4 million. In accordance with EITF D-42, due to the redemption of the Series I Preferred Stock, the initial offering costs associated with the issuance of the Series I Preferred Stock of approximately $.7 million is reflected as a deduction from net income to arrive at net income available to common stockholders in determining earnings per share for the three months ended March 31, 2006.

On November 20, 1997, the Company, through the Operating Partnership, issued $50 million of senior unsecured debt which matured on November 21, 2005 and bore a coupon interest rate of 6.90%, which was the effective interest rate (the “2005 Notes”). On November 21, 2005 the Company, through the Operating Partnership, paid off and retired the 2005 Notes for $50 million plus accrued interest.

On December 9, 2005, the Company issued 1,250,000 shares of $.01 par value common stock (the “December 2005 Equity Offering”). The price per share was $39.45 resulting in gross offering proceeds of

On March 18, 2005, the Company, through a wholly-owned limited liability company in which First Industrial Development Services, Inc. is the sole member, entered into a joint venture arrangement (the “March 2005 Joint Venture”) with an institutional investor to invest in, own, develop, redevelop and operate certain industrial properties. The Company, through wholly-owned limited liability companies of the Operating Partnership or First Industrial Development Services, Inc. owns a 10% equity interest in the March 2005 Joint Venture and provides property management, asset management, development management and leasing management services to the March 2005 Joint Venture. As of December 31, 2005, the March 2005 Joint Venture owned 47 industrial properties comprising approximately 4.2 million square feet (unaudited) of GLA and several land parcels.

On September 7, 2005, the Company, through a wholly-owned limited liability company in which First Industrial Development Services, Inc. is the sole member, entered into a joint venture arrangement (the “September 2005 Joint Venture”) with an institutional investor to invest in, own and operate certain industrial properties. The Company, through wholly-owned limited liability companies of the Operating Partnership or First Industrial Development Services, Inc. owns a 10% equity interest in the September 2005 Joint Venture and provides property management, asset management, development management and leasing management services to the September 2005 Joint Venture. As of December 31, 2005, the September 2005 Joint Venture owned 217 industrial properties comprising approximately 14.0 million square feet (unaudited) of GLA and several land parcels.

From January 1, 2006 to March 6, 2006, the Company acquired 23 industrial properties and several land parcels for a total estimated investment of approximately $149.7 million (approximately $.9 million of which was made through the issuance of limited partnership interests in the Operating Partnership (“Units”)). The Company also sold 16 industrial properties including the industrial property that is accounted for as a build to suit development for sale, for approximately $240.1 million of gross proceeds during this period.

On March 8, 2006, the Company declared a first quarter 2006 distribution of $.7000 per common share/unit on its common stock/units which is payable on April 17, 2006. The Company also declared a first quarter 2006 dividend of $53.906 per share ($.53906 per Depositary Share), on its Series C Preferred Stock, totaling, in the aggregate, approximately $1.1 million, which is payable on March 31, 2006; a semi-annual dividend of $3,118 per share ($31.18 per Depositary Share) on its Series F Preferred Stock, totaling, in the aggregate, approximately $1.6 million, which is payable on March 31, 2006; a semi-annual dividend of $3,618 per share ($36.18 per Depositary Share) on its Series G Preferred Stock, totaling, in the aggregate, approximately $.9 million, which is payable on March 31, 2006; and a quarterly dividend of $3,927 per share ($.3927 per Depositary Share) on its Series J Preferred Stock, totaling, in the aggregate, approximately $2.4 million, which is payable on March 31, 2006.

On January 10, 2006, the Company, through the Operating Partnership, issued $200 million of senior unsecured debt which matures on January 15, 2016 and bears a coupon interest rate of 5.75% (the “2016 Notes”). The issue price of the 2016 Notes was 99.653%. Interest is paid semi-annually in arrears on January 15 and July 15. The Company also entered into interest rate protection agreements which were used to fix the interest rate on the 2016 Notes prior to issuance. The Company settled the interest rate protection agreements for a payment of approximately $1.7 million, which is included in other comprehensive income. The debt issue discount and the settlement amount of the interest rate protection agreements are being amortized over the life of the 2016 Notes as an adjustment to interest expense. Including the impact of the offering discount and the settlement amount of the interest rate protection agreements, the Company’s effective interest rate on the 2016 Notes is 5.91%. The 2016 Notes contain certain covenants, including limitations on incurrence of debt and debt service coverage.

On January 13, 2006, the Company issued 6,000,000 Depositary Shares, each representing 1/10,000^thof a share of the Company’s 7.25%, $.01 par value, Series J Cumulative Redeemable Preferred Stock (the “Series J Preferred Stock”), at an initial offering price of $25.00 per Depositary Share. Dividends on the Series J Preferred Stock, represented by the Depositary Shares, are cumulative from the date of initial issuance and are

The Company has an active acquisition and development program through which it is continually engaged in identifying, negotiating and consummating portfolio and individual industrial property acquisitions and developments. As a result, the Company is currently engaged in negotiations relating to the possible acquisition and development of industrial properties.

The Company also sells properties based on market conditions and property related factors. As a result, the Company is currently engaged in negotiations relating to the possible sale of certain industrial properties in the Company’s current portfolio.

When evaluating potential industrial property acquisitions and developments, as well as potential industrial property sales, the Company will consider such factors as: (i) the geographic area and type of property; (ii) the location, construction quality, condition and design of the property; (iii) the potential for capital appreciation of the property; (iv) the ability of the Company to improve the property’s performance through renovation; (v) the terms of tenant leases, including the potential for rent increases; (vi) the potential for economic growth and the tax and regulatory environment of the area in which the property is located; (vii) the potential for expansion of the physical layout of the propertyand/or the number of sites; (viii) the occupancy and demand by tenants for properties of a similar type in the vicinity; and (ix) competition from existing properties and the potential for the construction of new properties in the area.

Industrial properties are typically used for the design, assembly, packaging, storage and distribution of goodsand/or the provision of services. As a result, the demand for industrial space in the United States is related to the level of economic output. Historically, occupancy rates for industrial property in the United States have been higher than those for other types of commercial property. The Company believes that the higher occupancy rate in the industrial property sector is a result of theconstruction-on-demandnature of, and the comparatively short development time required for, industrial property. For the five years ended December 31, 2005, the occupancy rates for industrial properties in the United States have ranged from 88.5%* to 92.9%*, with an occupancy rate of 90.4%* at December 31, 2005.

* Source: Torto Wheaton Research

The Company’s operations involve various risks that could adversely affect its financial condition, results of operations, cash flow, ability to pay distributions on its common stock and the market price of its common stock. These risks, among others contained in the Company’s other filings with the SEC, include:

The factors that affect the value of the Company’s real estate and the revenues the Company derives from its properties include, among other things:

The Company’s financial results depend on leasing space in the Company’s real estate to tenants on terms favorable to the Company. The Company’s income and funds available for distribution to its stockholders will decrease if a significant number of the Company’s tenants cannot pay their rent or the Company is unable to lease properties on favorable terms. In addition, if a tenant does not pay its rent, the Company may not be able to enforce its rights as landlord without delays and the Company may incur substantial legal costs. Costs associated with real estate investment, such as real estate taxes and maintenance costs, generally are not reduced when circumstances cause a reduction in income from the investment. For the year ended December 31, 2005, approximately 70.3% of the Company’s gross revenues from continuing operations came from rentals of real property.

Real estate investments generally cannot be sold quickly and, therefore, will tend to limit the Company’s ability to adjust its property portfolio promptly in response to changes in economic or other conditions. The inability to respond promptly to changes in the performance of the Company’s property portfolio could adversely affect the Company’s financial condition and ability to service debt and make distributions to its stockholders. In addition, like other companies qualifying as REITs under the Internal Revenue Code, the Company must comply with the safe harbor rules relating to the number of properties disposed of in a year, their tax basis and the cost of improvements made to the properties, or meet other tests which enable a REIT to avoid punitive taxation on the sale of assets. Thus, the Company’s ability at any time to sell assets may be restricted.

The Company has sold to third parties a significant number of properties in recent years and, as part of its business, the Company intends to continue to sell properties to third parties. The Company’s ability to sell properties on advantageous terms depends on factors beyond the Company’s control, including competition

The Company has also sold to its joint ventures a significant number of properties in recent years and, as part of its business, the Company intends to continue to sell properties to its joint ventures as opportunities arise. If the Company does not have sufficient properties available that meet the investment criteria of current or future joint ventures, or if the joint ventures have reduced or no access to capital on favorable terms, then such sales could be delayed or prevented, adversely affecting the Company’s financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, the Company’s common stock.

The Company acquires and intends to continue to acquire primarily industrial properties. The acquisition of properties entails various risks, including the risks that the Company’s investments may not perform as expected and that the Company’s cost estimates for bringing an acquired property up to market standards may prove inaccurate. Further, the Company faces significant competition for attractive investment opportunities from other well-capitalized real estate investors, including both publicly-traded real estate investment trusts and private investors. This competition increases as investments in real estate become attractive relative to other forms of investment. As a result of competition, the Company may be unable to acquire additional properties as it desires or the purchase price may be elevated. In addition, the Company expects to finance future acquisitions through a combination of borrowings under the 2005 Unsecured Line of Credit I, proceeds from equity or debt offerings by the Company and proceeds from property sales, which may not be available and which could adversely affect the Company’s cash flow. Any of the above risks could adversely affect the Company’s financial condition, results of operations, cash flow and ability to pay dividends on, and the market value of, the Company’s common stock.

As part of its business, the Company develops new and re-develops existing properties. In addition, the Company has sold to third parties or sold to the Company’s joint ventures a significant number of development and re-development properties in recent years and the Company intends to continue to sell such properties to third parties or to sell such properties to the Company’s joint ventures as opportunities arise. The real estate development and re-development business involves significant risks that could adversely affect the Company’s financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of the Company’s common stock, which include:

The Company is subject to the risks that, upon expiration, leases may not be renewed, the space subject to such leases may not be relet or the terms of renewal or reletting, including the cost of required renovations,

First Industrial Realty Trust, Inc. intends to operate so as to qualify as a REIT under the Internal Revenue Code of 1986 (the “Code”). Although First Industrial Realty Trust, Inc. believes that it is organized and will operate in a manner so as to qualify as a REIT, qualification as a REIT involves the satisfaction of numerous requirements, some of which must be met on a recurring basis. These requirements are established under highly technical and complex Code provisions of which there are only limited judicial or administrative interpretations and involve the determination of various factual matters and circumstances not entirely within First Industrial Realty Trust, Inc.’s control.

First Industrial Realty Trust, Inc. (through one of its subsidiary partnerships) entered into certain development agreements in 2000 through 2003, the performance of which has been completed. Under these agreements, First Industrial Realty Trust, Inc. provided services to unrelated third parties and certain payments were made by the unrelated third parties for services provided by certain contractors hired by First Industrial Realty Trust, Inc. First Industrial Realty Trust, Inc. believes that these payments were properly characterized by it as reimbursements for costs incurred by it on behalf of the third parties and do not constitute gross income and did not prevent First Industrial Realty Trust, Inc. from satisfying the gross income requirements of the REIT provisions (the “gross income tests”). First Industrial Realty Trust, Inc. has brought this matter to the attention of the Internal Revenue Service, or the IRS. The IRS has not challenged or expressed any interest in challenging First Industrial Realty Trust Inc.’s view on this matter. If the IRS were to challenge such position and were successful, First Industrial Realty Trust, Inc. might be found not to have satisfied the gross income tests in one or more of its taxable years. If First Industrial Realty Trust, Inc. were found not to have satisfied the gross income tests, it could be subject to a penalty tax. However, such noncompliance should not adversely affect First Industrial Realty Trust, Inc.’s status as a REIT as long as such noncompliance was due to reasonable cause and not to willful neglect, and certain other requirements are met. Although this cannot be assured, First Industrial Realty Trust, Inc. believes that the risk of losing its REIT status as a result of these development agreements is remote.

If First Industrial Realty Trust, Inc. were to fail to qualify as a REIT in any taxable year, it would be subject to federal income tax, including any applicable alternative minimum tax, on its taxable income at corporate rates. This could result in a discontinuation or substantial reduction in dividends to stockholders and in cash to pay interest and principal on debt securities that First Industrial Realty Trust, Inc. issues. Unless entitled to relief under certain statutory provisions, First Industrial Realty Trust, Inc. also would be disqualified from electing treatment as a REIT for the four taxable years following the year during which it failed to qualify as a REIT.

As part of its business, the Company sells properties to third parties or sells properties to the Company’s joint ventures as opportunities arise. Under the Code, a 100% penalty tax could be assessed on the gain resulting from sales of properties that are deemed to be prohibited transactions. The question of what constitutes a prohibited transaction is based on the facts and circumstances surrounding each transaction. The Internal Revenue Service could contend that certain sales of properties by the Company are prohibited transactions. While the Company’s management does not believe that the Internal Revenue Service would prevail in such a dispute, if the matter was successfully argued by the Internal Revenue Service, the 100% penalty tax could be assessed against the profits from these transactions. In addition, any income from a

First Industrial Realty Trust, Inc. could, in certain instances, have taxable income without sufficient cash to enable First Industrial Realty Trust, Inc. to meet the distribution requirements of the REIT provisions of the Code. In that situation, the Company could be required to borrow funds or sell properties on adverse terms in order to meet those distribution requirements. In addition, because First Industrial Realty Trust, Inc. must distribute to its stockholders at least 90% of the Company’s REIT taxable income each year, the Company’s ability to accumulate capital may be limited. Thus, in connection with future acquisitions, First Industrial Realty Trust, Inc. may be more dependent on outside sources of financing, such as debt financing or issuances of additional capital stock, which may or may not be available on favorable terms. Additional debt financings may substantially increase the Company’s leverage and additional equity offerings may result in substantial dilution of stockholders’ interests.

Where possible, the Company intends to continue to use leverage to increase the rate of return on the Company’s investments and to allow the Company to make more investments than it otherwise could. The Company’s use of leverage presents an additional element of risk in the event that the cash flow from the Company’s properties is insufficient to meet both debt payment obligations and the distribution requirements of the REIT provisions of the Code. In addition, rising interest rates would reduce the Company’s cash flow by increasing the amount of interest due on its floating rate debt and on its fixed rate debt as it matures and is refinanced.

If the Operating Partnership decides to obtain additional debt financing in the future, it may do so through mortgages on some or all of its properties. These mortgages may be issued on a recourse, non-recourse or cross-collateralized basis. Cross-collateralization makes all of the subject properties available to the lender in order to satisfy the Company’s debt. Holders of indebtedness that is so secured will have a claim against these properties. To the extent indebtedness is cross-collateralized, lenders may seek to foreclose upon properties that are not the primary collateral for their loan, which may, in turn, result in acceleration of other indebtedness secured by properties. Foreclosure of properties would result in a loss of income and asset value to the Company, making it difficult for it to meet both debt payment obligations and the distribution requirements of the REIT provisions of the Code. As of December 31, 2005, none of the Company’s current indebtedness was cross-collateralized.

The Company is required to make the following lump-sum or “balloon” payments under the terms of some of its indebtedness, including the Operating Partnership’s:

The Unsecured Lines of Credit provide for the repayment of principal in a lump-sum or “balloon” payment at maturity. The 2005 Unsecured Line of Credit I matures in 2008 and the 2005 Unsecured Line of Credit II matures in 2006. Under the Unsecured Line of Credit I, the Operating Partnership has the right, subject to certain conditions, to increase the aggregate commitment by up to $100 million. As of December 31, 2005, $457.5 million was outstanding under the Unsecured Lines of Credit at a weighted average interest rate of 4.886%.

The Company’s ability to make required payments of principal on outstanding indebtedness, whether at maturity or otherwise, may depend on its ability either to refinance the applicable indebtedness or to sell properties. The Company has no commitments to refinance the 2006 Notes, the 2007 Notes, the 2009 Notes, the 2011 Notes, the 2012 Notes, the 2014 Notes, the 2016 Notes, the 2017 Notes, the 2027 Notes, the 2028 Notes, the 2032 Notes or the Unsecured Lines of Credit. Some of the existing debt obligations, other than those discussed above, of the Company, through the Operating Partnership, are secured by the Company’s properties, and therefore such obligations will permit the lender to foreclose on those properties in the event of a default.

The organizational documents of First Industrial Realty Trust, Inc. do not contain any limitation on the amount or percentage of indebtedness the Company may incur. Accordingly, the Company could become more highly leveraged, resulting in an increase in debt service that could adversely affect the Company’s ability to make expected distributions to stockholders and in an increased risk of default on the Company’s obligations. As of December 31, 2005, the Company’s ratio of debt to its total market capitalization was 44.3%. The Company computes that percentage by calculating its total consolidated debt as a percentage of the aggregate market value of all outstanding shares of the Company’s common stock, assuming the exchange of all limited partnership units of the Operating Partnership for common stock, plus the aggregate stated value of all outstanding shares of preferred stock and total consolidated debt.

The Company’s Unsecured Lines of Credit bear interest at a floating rate. As of December 31, 2005, the Company’s Unsecured Lines of Credit had an outstanding balance of $457.5 million at a weighted average interest rate of 4.886%. The Company’s Unsecured Lines of Credit bear interest at the Prime Rate or at the London Interbank Offered Rate plus .625%. Based on an outstanding balance on the Company’s Unsecured Lines of Credit as of December 31, 2005, a 10% increase in interest rates would increase interest expense by $2.3 million on an annual basis. Increases in the interest rate payable on balances outstanding under the Unsecured Lines of Credit would decrease the Company’s cash available for distribution to stockholders.

As a real estate investment trust, the market value of the Company’s common stock, in general, is based primarily upon the market’s perception of the Company’s growth potential and its current and potential future earnings and cash dividends. The market value of the Company’s common stock is based secondarily upon the market value of the Company’s underlying real estate assets. For this reason, shares of the Company’s common stock may trade at prices that are higher or lower than the Company’s net asset value per share. To the extent that the Company retains operating cash flow for investment purposes, working capital reserves, or other purposes, these retained funds, while increasing the value of the Company’s underlying assets, may not correspondingly increase the market price of the Company’s common stock. The Company’s failure to meet the market’s expectations with regard to future earnings and cash dividends likely would adversely affect the market price of the Company’s common stock. Further, the distribution yield on the common stock (as a percentage of the price of the common stock) relative to market interest rates may also influence the price of the Company’s common stock. An increase in market interest rates might lead prospective purchasers of the Company’s common stock to expect a higher distribution yield, which would adversely affect the market price of the Company’s common stock. Additionally, if the market price of the Company’s common stock declines significantly, then the Company might breach certain covenants with respect to its debt obligations, which could adversely affect the Company’s liquidity and ability to make future acquisitions and the Company’s ability to pay dividends to its stockholders.

Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate may be liable for the costs ofclean-up of certain conditions relating to the presence of hazardous or toxic materials on, in or emanating from a property, and any related damages to natural resources. Environmental laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous or toxic materials. The presence of such materials, or the failure to address those conditions properly, may adversely affect the ability to rent or sell the property or to borrow using a property as collateral. Persons who dispose of or arrange for the disposal or treatment of hazardous or toxic materials may also be liable for the costs ofclean-up of such materials, or for related natural resource damages, at or from an off-site disposal or treatment facility, whether or not the facility is owned or operated by those persons. No assurance can be given that existing environmental assessments with respect to any of the Company’s properties reveal all environmental liabilities, that any prior owner or operator of a property did not create any material environmental condition not known to the Company or that a material environmental condition does not otherwise exist as to any of the Company’s properties.

The Company currently carries comprehensive insurance coverage including property, boiler & machinery, liability, fire, flood, terrorism, earthquake, extended coverage and rental loss as appropriate for the markets where each of the Company’s properties and their business operations are located. The insurance coverage contains policy specifications and insured limits customarily carried for similar properties and business activities. The Company believes its properties are adequately insured. However, there are certain losses, including losses from earthquakes, hurricanes, floods, pollution, acts of war, acts of terrorism or riots, that are not generally insured against or that are not generally fully insured against because it is not deemed to be economically feasible or prudent to do so. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of the Company’s properties, the Company could experience a significant loss of capital invested and potential revenues in these properties, and could potentially remain obligated under any recourse debt associated with the property.

As of December 31, 2005, the Company’s four joint ventures owned approximately 24.3 million square feet of properties. As of December 31, 2005, the Company’s investment in joint ventures exceeded $44 million in the aggregate and for the year ended December 31, 2005 the Company’s equity in income of joint ventures exceeded $3.6 million. The Company’s organizational documents do not limit the amount of available funds that the Company may invest in joint ventures and the Company intends to continue to develop and acquire properties through joint ventures with other persons or entities when warranted by the circumstances. Joint venture investments, in general, involve certain risks, including:

The occurrence of one or more of the events described above could adversely affect the Company’s financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, its common stock.

In addition, joint venture investments in real estate involve all of the risks related to the ownership, acquisition, development, sale and financing of real estate discussed in the risk factors above. To the extent the Company’s investments in joint ventures are adversely affected by such risks, the Company’s financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, its common stock could be adversely affected.

None

At December 31, 2005, the Company owned 884 in-service industrial properties containing an aggregate of approximately 70.2 million square feet of GLA in 29 states and one province in Canada, with a diverse base of more than 2,600 tenants engaged in a wide variety of businesses, including manufacturing, retail, wholesale trade, distribution and professional services. The properties are generally located in business parks that have convenient access to interstate highwaysand/or rail and air transportation. The weighted average age

The Company classifies its properties into five industrial categories: light industrial, R&D/flex, bulk warehouse, regional warehouse and manufacturing. While some properties may have characteristics which fall under more than one property type, the Company uses what it believes is the most dominant characteristic to categorize the property. The following describes, generally, the different industrial categories:

Each of the properties is wholly owned by the Company. The following tables summarize certain information as of December 31, 2005 with respect to the Company’s in-service properties.

In addition to the above mortgage loans, the Company has a $1.2 million mortgage loan collateralized by one land parcel (not shown above) in Nashville, TN which matured on January 12, 2006 which the Company paid off and retired on the maturity date.

During 2005, the Company acquired 161 industrial properties totaling approximately 20.1 million square feet of GLA at a total purchase price of approximately $723.4 million, or approximately $35.99 per square

During 2005, the Company placed in-service 12 developments totaling approximately 2.6 million square feet of GLA at a total cost of approximately $141.9 million, or approximately $55.65 per square foot. The placed in-service developments have the following characteristics:

At December 31, 2005, the Company had 20 development projects not placed in service, totaling an estimated 4.8 million square feet and with an estimated completion cost of approximately $210.6 million. The Company estimates it will place in service 19 of the 20 projects in fiscal year 2006. There can be no assurance that the Company will place these projects in service in 2006 or that the actual completion cost will not exceed the estimated completion cost stated above.

During 2005, the Company sold 96 industrial properties totaling approximately 12.8 million square feet of GLA and several land parcels. Total gross sales proceeds approximated $656.1 million. The 96 industrial properties sold have the following characteristics:

From January 1, 2006 to March 6, 2006, the Company acquired 23 industrial properties and several land parcels for a total estimated investment of approximately $149.7 million (approximately $.9 million of which was made through the issuance of limited partnership interests in the Operating Partnership (“Units”). The Company also sold 16 industrial properties including the industrial property that is accounted for as a build to suit development for sale, for approximately $240.1 million of gross proceeds during this period.

The Company has a diverse base of more than 2,600 tenants engaged in a wide variety of businesses including manufacturing, retail, wholesale trade, distribution and professional services. Most leases have an initial term of between three and six years and provide for periodic rent increases that are either fixed or based on changes in the Consumer Price Index. Industrial tenants typically have net or semi-net leases and pay as additional rent their percentage of the property’s operating costs, including the costs of common area maintenance, property taxes and insurance. As of December 31, 2005, approximately 92% of the GLA of the in-service industrial properties was leased, and no single tenant or group of related tenants accounted for more than 4.5% of the Company’s rent revenues, nor did any single tenant or group of related tenants occupy more than 5.8% of the Company’s total GLA as of December 31, 2005.

The following table shows scheduled lease expirations for all leases for the Company’s in-service properties as of December 31, 2005.

The Company is involved in legal proceedings arising in the ordinary course of business. All such proceedings, taken together, are not expected to have a material impact on the results of operations, financial position or liquidity of the Company.

None.

The following table sets forth for the periods indicated the high and low closing prices per share and distributions declared per share for the Company’s common stock, which trades on the New York Stock Exchange under the trading symbol “FR”.

The Company had 612 common stockholders of record registered with its transfer agent as of March 6, 2006.

The Company has determined that, for federal income tax purposes, approximately 11.77% of the total $121.0 million in distributions declared in 2005 represents ordinary dividend income to its stockholders, 7.75% qualify as 25 percent rate capital gain, 6.64% qualify as 15 percent rate qualified dividend income, 15.4% qualify as a 15 percent rate capital gain and the remaining 58.44% represents a return of capital.

Additionally, for tax purposes, 27.79% of the Company’s 2005 preferred stock dividends qualify as ordinary income, 18.74% qualify as 25 percent rate capital gain, 16.26% qualify as 15 percent rate qualified dividend income and 37.21% qualify as 15 percent rate capital gain.

In order to maintain its status as a REIT, the Company is required to meet certain tests, including distributing at least 90% of its REIT taxable income, or approximately $1.08 per common share for 2005. The Company’s dividend policy is to meet the minimum distribution required to maintain the Company’s REIT qualification under the Internal Revenue Code.

On March 4, July 22, October 31, and December 20, 2005, the Operating Partnership issued 37,587, 183,158, 29,688 and 116,039 Units, respectively, having an aggregate market value of approximately $14.7 million in exchange for property.

All of the above Units were issued in private placements in reliance on Section 4(2) of the Securities Act of 1933, as amended, including Regulation D promulgated thereunder, to individuals or entities holding real property or interests therein. No underwriters were used in connection with such issuances.

Subject tolock-upperiods and certain adjustments, Units are convertible into common stock, par value $.01 per share, of the Company on aone-for-onebasis or cash at the option of the Company.